PHILIPPINE HEALTH CARE G.R. No.

167330
PROVIDERS, INC.,
Petitioner, vs.
COMMISSIONER OF
INTERNAL REVENUE,
Respondent.
September 18, 2009

ARTICLE II
Declaration of Principles and State Policies

Section 15. The State shall protect and promote the right to health of the people
and instill health consciousness among them.

ARTICLE XIII
Social Justice and Human Rights

Section 11. The State shall adopt an integrated and comprehensive approach to
health development which shall endeavor to make essential goods, health and other
social services available to all the people at affordable cost. There shall be priority for
the needs of the underprivileged sick, elderly, disabled, women, and children. The State
shall endeavor to provide free medical care to paupers.[1]

For resolution are a motion for reconsideration and supplemental motion for reconsideration

dated July 10, 2008 and July 14, 2008, respectively, filed by petitioner Philippine Health Care

Providers, Inc.[2]

We recall the facts of this case, as follows:

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.

xxx xxx xxx

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. xxxx

The deficiency [documentary stamp tax (DST)] assessment was imposed on

petitioners health care agreement with the members of its health care program
pursuant to Section 185 of the 1997 Tax Code xxxx
 xxx xxx xxx

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.

On April 5, 2002, the CTA rendered a decision, the dispositive portion of which
read:

WHEREFORE, in view of the foregoing, the instant Petition for Review

is PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY the deficiency
VAT amounting to P22,054,831.75 inclusive of 25% surcharge plus 20%
interest from January 20, 1997 until fully paid for the 1996 VAT deficiency
and P31,094,163.87 inclusive of 25% surcharge plus 20% interest from
January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly,
VAT Ruling No. [231]-88 is declared void and without force and effect. The
1996 and 1997 deficiency DST assessment against petitioner is hereby
CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from
collecting the said DST deficiency tax.

SO ORDERED.

Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar
as it cancelled the DST assessment. He claimed that petitioners health care agreement
was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code.

On August 16, 2004, the CA rendered its decision. It held that petitioners health
care agreement was in the nature of a non-life insurance contract subject to DST.

WHEREFORE, the petition for review is GRANTED. The Decision of the

Court of Tax Appeals, insofar as it cancelled and set aside the 1996 and
1997 deficiency documentary stamp tax assessment and ordered
petitioner to desist from collecting the same is REVERSED and SET ASIDE.

Respondent is ordered to pay the amounts of P55,746,352.19

and P68,450,258.73 as deficiency Documentary Stamp Tax for 1996 and
1997, respectively, plus 25% surcharge for late payment and 20% interest
per annum from January 27, 2000, pursuant to Sections 248 and 249 of the
Tax Code, until the same shall have been fully paid.

SO ORDERED.

Petitioner moved for reconsideration but the CA denied it. Hence, petitioner
filed this case.

xxx xxx xxx

 In a decision dated June 12, 2008, the Court denied the petition and affirmed the CAs

decision. We held that petitioners health care agreement during the pertinent period was in the

nature of non-life insurance which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v.

Olivares[3] and Philamcare Health Systems, Inc. v. CA.[4] We also ruled that petitioners contention that

it is a health maintenance organization (HMO) and not an insurance company is irrelevant because

contracts between companies like petitioner and the beneficiaries under their plans are treated

as insurance contracts. Moreover, DST is not a tax on the business transacted but an excise on the

privilege, opportunity or facility offered at exchanges for the transaction of the business.

Unable to accept our verdict, petitioner filed the present motion for reconsideration and

supplemental motion for reconsideration, asserting the following arguments:

(a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only
on a company engaged in the business of fidelity bonds and other insurance
policies. Petitioner, as an HMO, is a service provider, not an insurance company.

(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in
effect the CAs disposition that health care services are not in the nature of an
insurance business.

(c) Section 185 should be strictly construed.

(d) Legislative intent to exclude health care agreements from items subject to DST is
clear, especially in the light of the amendments made in the DST law in 2002.

(e) Assuming arguendo that petitioners agreements are contracts of indemnity, they
are not those contemplated under Section 185.

(f) Assuming arguendo that petitioners agreements are akin to health insurance, health
insurance is not covered by Section 185.

(g) The agreements do not fall under the phrase other branch of insurance mentioned
in Section 185.

(h) The June 12, 2008 decision should only apply prospectively.

(i) Petitioner availed of the tax amnesty benefits under RA[5] 9480 for the taxable year
2005 and all prior years. Therefore, the questioned assessments on the DST are
now rendered moot and academic.[6]

Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their

memoranda on June 8, 2009.

 In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax

amnesty under RA 9480[7] (also known as the Tax Amnesty Act of 2007) by fully paying the amount

of P5,127,149.08 representing 5% of its net worth as of the year ending December 31, 2005.[8]

We find merit in petitioners motion for reconsideration.

Petitioner was formally registered and incorporated with the Securities and Exchange

Commission on June 30, 1987.[9] It is engaged in the dispensation of the following medical services to

individuals who enter into health care agreements with it:

Preventive medical services such as periodic monitoring of health problems,

family planning counseling, consultation and advices on diet, exercise and other
healthy habits, and immunization;

Diagnostic medical services such as routine physical examinations, x-rays,

urinalysis, fecalysis, complete blood count, and the like and

Curative medical services which pertain to the performing of other remedial and
therapeutic processes in the event of an injury or sickness on the part of the enrolled
member.[10]

Individuals enrolled in its health care program pay an annual membership fee. Membership is

on a year-to-year basis. The medical services are dispensed to enrolled members in a hospital or

clinic owned, operated or accredited by petitioner, through physicians, medical and dental

practitioners under contract with it. It negotiates with such health care practitioners regarding

payment schemes, financing and other procedures for the delivery of health services. Except in

cases of emergency, the professional services are to be provided only by petitioner's physicians, i.e.

those directly employed by it[11] or whose services are contracted by it.[12] Petitioner also provides

hospital services such as room and board accommodation, laboratory services, operating rooms, x-

ray facilities and general nursing care.[13] If and when a member avails of the benefits under the

agreement, petitioner pays the participating physicians and other health care providers for the

services rendered, at pre-agreed rates.[14]

To avail of petitioners health care programs, the individual members are required to sign and

execute a standard health care agreement embodying the terms and conditions for the provision of

the health care services. The same agreement contains the various health care services that can be

engaged by the enrolled member, i.e., preventive, diagnostic and curative medical services. Except
for the curative aspect of the medical service offered, the enrolled member may actually make use

of the health care services being offered by petitioner at any time.

HEALTH MAINTENANCE ORGANIZATIONS ARE NOT ENGAGED

IN THE INSURANCE BUSINESS

We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an

insurer because its agreements are treated as insurance contracts and the DST is not a tax on the

business but an excise on the privilege, opportunity or facility used in the transaction of the

business.[15]

Petitioner, however, submits that it is of critical importance to characterize the business it is

engaged in, that is, to determine whether it is an HMO or an insurance company, as this distinction is

indispensable in turn to the issue of whether or not it is liable for DST on its health care agreements.[16]

A second hard look at the relevant law and jurisprudence convinces the Court that the

arguments of petitioner are meritorious.

Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:

Section 185. Stamp tax on fidelity bonds and other insurance policies. On all
policies of insurance or bonds or obligations of the nature of indemnity for loss,
damage, or liability made or renewed by any person, association or company or
corporation transacting the business of accident, fidelity, employers liability, plate, glass,
steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance
(except life, marine, inland, and fire insurance), and all bonds, undertakings, or
recognizances, conditioned for the performance of the duties of any office or position,
for the doing or not doing of anything therein specified, and on all obligations
guaranteeing the validity or legality of any bond or other obligations issued by any
province, city, municipality, or other public body or organization, and on all obligations
guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which
may be made or renewed by any such person, company or corporation, there shall be
collected a documentary stamp tax of fifty centavos (P0.50) on each four
pesos (P4.00), or fractional part thereof, of the premium charged. (Emphasis supplied)

It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of

a statute shall be considered surplusage or superfluous, meaningless, void and insignificant. To this

end, a construction which renders every word operative is preferred over that which makes some
words idle and nugatory.[17] This principle is expressed in the maxim Ut magis valeat quam

pereat, that is, we choose the interpretation which gives effect to the whole of the statute its every

word.[18]

From the language of Section 185, it is evident that two requisites must concur before the DST

can apply, namely: (1) the document must be a policy of insurance or an obligation in the nature of

indemnity and (2) the maker should be transacting the business of accident, fidelity, employers

liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch

of insurance (except life, marine, inland, and fire insurance).

Petitioner is admittedly an HMO. Under RA 7875 (or The National Health Insurance Act of 1995),

an HMO is an entity that provides, offers or arranges for coverage of designated health services

needed by plan members for a fixed prepaid premium.[19] The payments do not vary with the extent,

frequency or type of services provided.

The question is: was petitioner, as an HMO, engaged in the business of insurance during the

pertinent taxable years? We rule that it was not.

Section 2 (2) of PD[20] 1460 (otherwise known as the Insurance Code) enumerates what

constitutes doing an insurance business or transacting an insurance business:

a) making or proposing to make, as insurer, any insurance contract;

b) making or proposing to make, as surety, any contract of suretyship as a

vocation and not as merely incidental to any other legitimate business or activity
of the surety;

c) doing any kind of business, including a reinsurance business, specifically

recognized as constituting the doing of an insurance business within the meaning
of this Code;

d) doing or proposing to do any business in substance equivalent to any of the

foregoing in a manner designed to evade the provisions of this Code.

In the application of the provisions of this Code, the fact that no profit is derived
from the making of insurance contracts, agreements or transactions or that no separate
or direct consideration is received therefore, shall not be deemed conclusive to show
that the making thereof does not constitute the doing or transacting of an insurance
business.
 Various courts in the United States, whose jurisprudence has a persuasive effect on our

decisions,[21] have determined that HMOs are not in the insurance business. One test that they have

applied is whether the assumption of risk and indemnification of loss (which are elements of an

insurance business) are the principal object and purpose of the organization or whether they are

merely incidental to its business. If these are the principal objectives, the business is that of

insurance. But if they are merely incidental and service is the principal purpose, then the business is

not insurance.

Applying the principal object and purpose test,[22] there is significant American case law

supporting the argument that a corporation (such as an HMO, whether or not organized for profit),

whose main object is to provide the members of a group with health services, is not engaged in the

insurance business.

The rule was enunciated in Jordan v. Group Health Association[23] wherein the Court of

Appeals of the District of Columbia Circuit held that Group Health Association should not be

considered as engaged in insurance activities since it was created primarily for the distribution of

health care services rather than the assumption of insurance risk.

xxx Although Group Healths activities may be considered in one aspect as creating
security against loss from illness or accident more truly they constitute the quantity
purchase of well-rounded, continuous medical service by its members. xxx The functions
of such an organization are not identical with those of insurance or indemnity
companies. The latter are concerned primarily, if not exclusively, with risk and the
consequences of its descent, not with service, or its extension in kind, quantity or
distribution; with the unusual occurrence, not the daily routine of living. Hazard is
predominant. On the other hand, the cooperative is concerned principally with getting
service rendered to its members and doing so at lower prices made possible by
quantity purchasing and economies in operation. Its primary purpose is to reduce the
cost rather than the risk of medical care; to broaden the service to the individual in kind
and quantity; to enlarge the number receiving it; to regularize it as an everyday
incident of living, like purchasing food and clothing or oil and gas, rather than merely
protecting against the financial loss caused by extraordinary and unusual occurrences,
such as death, disaster at sea, fire and tornado. It is, in this instance, to take care of
colds, ordinary aches and pains, minor ills and all the temporary bodily discomforts as
well as the more serious and unusual illness. To summarize, the distinctive features of the
cooperative are the rendering of service, its extension, the bringing of physician and
patient together, the preventive features, the regularization of service as well as
payment, the substantial reduction in cost by quantity purchasing in short, getting the
medical job done and paid for; not, except incidentally to these features, the
indemnification for cost after the services is rendered. Except the last, these are not
distinctive or generally characteristic of the insurance arrangement. There is, therefore,
a substantial difference between contracting in this way for the rendering of service,
 even on the contingency that it be needed, and contracting merely to stand its cost
when or after it is rendered.

That an incidental element of risk distribution or assumption may be present

should not outweigh all other factors. If attention is focused only on that feature, the line
between insurance or indemnity and other types of legal arrangement and economic
function becomes faint, if not extinct. This is especially true when the contract is for the
sale of goods or services on contingency. But obviously it was not the purpose of the
insurance statutes to regulate all arrangements for assumption or distribution of risk. That
view would cause them to engulf practically all contracts, particularly conditional sales
and contingent service agreements. The fallacy is in looking only at the risk element, to
the exclusion of all others present or their subordination to it. The question turns, not on
whether risk is involved or assumed, but on whether that or something else to which it is
related in the particular plan is its principal object purpose.[24] (Emphasis supplied)

In California Physicians Service v. Garrison,[25] the California court felt that, after scrutinizing the

plan of operation as a whole of the corporation, it was service rather than indemnity which stood as

its principal purpose.

There is another and more compelling reason for holding that the service is not
engaged in the insurance business. Absence or presence of assumption of risk or peril is
not the sole test to be applied in determining its status. The question, more broadly, is
whether, looking at the plan of operation as a whole, service rather than indemnity is its
principal object and purpose. Certainly the objects and purposes of the corporation
organized and maintained by the California physicians have a wide scope in the field
of social service. Probably there is no more impelling need than that of adequate
medical care on a voluntary, low-cost basis for persons of small income. The medical
profession unitedly is endeavoring to meet that need. Unquestionably this is service of a
high order and not indemnity.[26] (Emphasis supplied)

American courts have pointed out that the main difference between an HMO and an

insurance company is that HMOs undertake to provide or arrange for the provision of medical

services through participating physicians while insurance companies simply undertake to indemnify

the insured for medical expenses incurred up to a pre-agreed limit. Somerset Orthopedic Associates,

P.A. v. Horizon Blue Cross and Blue Shield of New Jersey[27] is clear on this point:

The basic distinction between medical service corporations and ordinary health
and accident insurers is that the former undertake to provide prepaid medical
services through participating physicians, thus relieving subscribers of any further
financial burden, while the latter only undertake to indemnify an insured for medical
expenses up to, but not beyond, the schedule of rates contained in the policy.

xxx xxx xxx

The primary purpose of a medical service corporation, however, is an
undertaking to provide physicians who will render services to subscribers on a prepaid
 basis. Hence, if there are no physicians participating in the medical service
corporations plan, not only will the subscribers be deprived of the protection which they
might reasonably have expected would be provided, but the corporation will, in effect,
be doing business solely as a health and accident indemnity insurer without having
qualified as such and rendering itself subject to the more stringent financial
requirements of the General Insurance Laws.

A participating provider of health care services is one who agrees in writing to

render health care services to or for persons covered by a contract issued by health
service corporation in return for which the health service corporation agrees to make
payment directly to the participating provider.[28] (Emphasis supplied)

Consequently, 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.[29] 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.

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 petitioners

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 petitioners services covers preventive and diagnostic medical

services intended to keep members from developing medical conditions or diseases. [30] 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 thepossibility 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.[31]

Overall, petitioner appears to provide insurance-type benefits to its members (with respect to

its curative medical services), but these are incidental to the principal activity of providing them

medical care. The insurance-like aspect of petitioners business is miniscule compared to its
noninsurance activities. Therefore, since it substantially provides health care services rather than

insurance services, it cannot be considered as being in the insurance business.

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 petitioners 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.[32]

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.[33] 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. The reason behind this rule was explained in Nestle Philippines, Inc. v. Court of

Appeals:[34]

The rationale for this rule relates not only to the emergence of the multifarious
needs of a modern or modernizing society and the establishment of diverse
administrative agencies for addressing and satisfying those needs; it also relates to the
accumulation of experience and growth of specialized capabilities by the
administrative agency charged with implementing a particular statute. In Asturias Sugar
Central, Inc. vs. Commissioner of Customs,[35] the Court stressed that executive officials
are presumed to have familiarized themselves with all the considerations pertinent to
the meaning and purpose of the law, and to have formed an independent,
conscientious and competent expert opinion thereon. The courts give much weight to
the government agency officials charged with the implementation of the law, their
competence, expertness, experience and informed judgment, and the fact that they
frequently are the drafters of the law they interpret.[36]
A HEALTH CARE AGREEMENT IS NOT AN INSURANCE
CONTRACT CONTEMPLATED UNDER SECTION 185 OF THE NIRC
OF 1997

Section 185 states that DST is imposed on all policies of insurance or obligations of the nature of

indemnity for loss, damage, or liability. In our decision dated June 12, 2008, we ruled that petitioners

health care agreements are contracts of indemnity and are therefore insurance contracts:

It is incorrect to say that the health care agreement is not based on loss or
damage because, under the said agreement, petitioner assumes the liability and
indemnifies its member for hospital, medical and related expenses (such as professional
fees of physicians). The term "loss or damage" is broad enough to cover the monetary
expense or liability a member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and
professional services to the member in case of sickness, injury or emergency or his
availment of so-called "out-patient services" (including physical examination, x-ray and
laboratory tests, medical consultations, vaccine administration and family planning
counseling) is the contingent event which gives rise to liability on the part of the
member. In case of exposure of the member to liability, he would be entitled to
indemnification by petitioner.

Furthermore, the fact that petitioner must relieve its member from liability by
paying for expenses arising from the stipulated contingencies belies its claim that its
services are prepaid. The expenses to be incurred by each member cannot be
predicted beforehand, if they can be predicted at all. Petitioner assumes the risk of
paying for the costs of the services even if they are significantly and substantially more
than what the member has "prepaid." Petitioner does not bear the costs alone but
distributes or spreads them out among a large group of persons bearing a similar risk,
that is, among all the other members of the health care program. This is insurance.[37]

We reconsider. We shall quote once again the pertinent portion of Section 185:

Section 185. Stamp tax on fidelity bonds and other insurance policies. On all
policies of insurance or bonds or obligations of the nature of indemnity for loss,
damage, or liability made or renewed by any person, association or company or
corporation transacting the business of accident, fidelity, employers liability, plate,
glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance
(except life, marine, inland, and fire insurance), xxxx (Emphasis supplied)

In construing this provision, we should be guided by the principle that tax statutes are strictly

construed against the taxing authority.[38] This is because taxation is a destructive power which

interferes with the personal and property rights of the people and takes from them a portion of their

property for the support of the government.[39]Hence, tax laws may not be extended by implication
beyond the clear import of their language, nor their operation enlarged so as to embrace matters

not specifically provided.[40]

We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care

agreement is in the nature of non-life insurance, which is primarily a contract of indemnity. However,

those cases did not involve the interpretation of a tax provision. Instead, they dealt with the liability of

a health service provider to a member under the terms of their health care agreement. Such

contracts, as contracts of adhesion, are liberally interpreted in favor of the member and strictly

against the HMO. For this reason, we reconsider our ruling that Blue Cross and Philamcare are

applicable here.

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement

whereby one undertakes for a consideration to indemnify another against loss, damage or liability

arising from an unknown or contingent event. An insurance contract exists where the following

elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designed peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses

among a large group of persons bearing a similar risk and

5. In consideration of the insurers promise, the insured pays a premium.[41]

Do the agreements between petitioner and its members possess all these elements? They do

not.

First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a

contract contains all the elements of an insurance contract, if its primary purpose is the rendering of

service, it is not a contract of insurance:

It does not necessarily follow however, that a contract containing all the four
elements mentioned above would be an insurance contract. The primary purpose of
the parties in making the contract may negate the existence of an insurance contract.
For example, a law firm which enters into contracts with clients whereby in
 consideration of periodical payments, it promises to represent such clients in all suits for
or against them, is not engaged in the insurance business. Its contracts are simply for
the purpose of rendering personal services. On the other hand, a contract by which a
corporation, in consideration of a stipulated amount, agrees at its own expense to
defend a physician against all suits for damages for malpractice is one of insurance,
and the corporation will be deemed as engaged in the business of insurance. Unlike
the lawyers retainer contract, the essential purpose of such a contract is not to render
personal services, but to indemnify against loss and damage resulting from the defense
of actions for malpractice.[42] (Emphasis supplied)

Second. Not all the necessary elements of a contract of insurance are present in petitioners

agreements. To begin with, there is no loss, damage or liability on the part of the member that should

be indemnified by petitioner as an HMO. Under the agreement, the member pays petitioner a

predetermined consideration in exchange for the hospital, medical and professional services

rendered by the petitioners physician or affiliated physician to him. In case of availment by a

member of the benefits under the agreement, petitioner does not reimburse or indemnify the

member as the latter does not pay any third party. Instead, it is the petitioner who pays the

participating physicians and other health care providers for the services rendered at pre-agreed

rates. The member does not make any such payment.

In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability

on the part of the member to any third party-provider of medical services which might in turn

necessitate indemnification from petitioner. The terms indemnify or indemnity presuppose that a

liability or claim has already been incurred. There is no indemnity precisely because the member

merely avails of medical services to be paid or already paid in advance at a pre-agreed price under

the agreements.

Third. According to the agreement, a member can take advantage of the bulk of the benefits

anytime, e.g. laboratory services, x-ray, routine annual physical examination and consultations,

vaccine administration as well as family planning counseling, even in the absence of any peril, loss or

damage on his or her part.

Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives

care from a non-participating physician or hospital. However, this is only a very minor part of the list of
services available. The assumption of the expense by petitioner is not confined to the happening of a

contingency but includes incidents even in the absence of illness or injury.

In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,[43] although the

health care contracts called for the defendant to partially reimburse a subscriber for treatment

received from a non-designated doctor, this did not make defendant an insurer. Citing Jordan, the

Court determined that the primary activity of the defendant (was) the provision of podiatric services

to subscribers in consideration of prepayment for such services.[44] Since indemnity of the insured was

not the focal point of the agreement but the extension of medical services to the member at an

affordable cost, it did not partake of the nature of a contract of insurance.

Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that

risk alone is sufficient to establish it. Almost anyone who undertakes a contractual obligation always

bears a certain degree of financial risk. Consequently, there is a need to distinguish prepaid service

contracts (like those of petitioner) from the usual insurance contracts.

Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health

services: the risk that it might fail to earn a reasonable return on its investment.But it is not the risk of

the type peculiar only to insurance companies. Insurance risk, also known as actuarial risk, is the risk

that the cost of insurance claims might be higher than the premiums paid. The amount of premium is

calculated on the basis of assumptions made relative to the insured.[45]

However, assuming that petitioners commitment to provide medical services to its members

can be construed as an acceptance of the risk that it will shell out more than the prepaid fees, it still

will not qualify as an insurance contract because petitioners objective is to provide medical services

at reduced cost, not to distribute risk like an insurer.

In sum, an examination of petitioners agreements with its members leads us to conclude that it

is not an insurance contract within the context of our Insurance Code.

THERE WAS NO LEGISLATIVE INTENT TO IMPOSE DST ON HEALTH

CARE AGREEMENTS OF HMOS
Furthermore, militating in convincing fashion against the imposition of DST on petitioners health care

agreements under Section 185 of the NIRC of 1997 is the provisions legislative history. The text of

Section 185 came into U.S. law as early as 1904 when HMOs and health care agreements were not

even in existence in this jurisdiction. It was imposed under Section 116, Article XI of Act No. 1189

(otherwise known as the Internal Revenue Law of 1904)[46] enacted on July 2, 1904 and became

effective on August 1, 1904. Except for the rate of tax, Section 185 of the NIRC of 1997 is a verbatim

reproduction of the pertinent portion of Section 116, to wit:

ARTICLE XI
Stamp Taxes on Specified Objects

Section 116. There shall be levied, collected, and paid for and in respect to the
several bonds, debentures, or certificates of stock and indebtedness, and other
documents, instruments, matters, and things mentioned and described in this section, or
for or in respect to the vellum, parchment, or paper upon which such instrument,
matters, or things or any of them shall be written or printed by any person or persons
who shall make, sign, or issue the same, on and after January first, nineteen hundred
and five, the several taxes following:

xxx xxx xxx

Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity
for loss, damage, or liability made or renewed by any person, association, company, or
corporation transacting the business of accident, fidelity, employers liability, plate glass,
steam boiler, burglar, elevator, automatic sprinkle, or other branch of insurance (except
life, marine, inland, and fire insurance) xxxx (Emphasis supplied)

On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising

and consolidating the laws relating to internal revenue. The aforecited pertinent portion of Section

116, Article XI of Act No. 1189 was completely reproduced as Section 30 (l), Article III of Act No.

2339. The very detailed and exclusive enumeration of items subject to DST was thus retained.

On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as Section

1604 (l), Article IV of Act No. 2657 (Administrative Code). Upon its amendment on March 10, 1917, the

pertinent DST provision became Section 1449 (l) of Act No. 2711, otherwise known as the

Administrative Code of 1917.

 Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of

1939), which codified all the internal revenue laws of the Philippines. In an amendment introduced by

RA 40 on October 1, 1946, the DST rate was increased but the provision remained substantially the

same.

Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD 1158

(NIRC of 1977) as Section 234. Under PDs 1457 and 1959, enacted on June 11, 1978 and October 10,

1984 respectively, the DST rate was again increased.

Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977 was

renumbered as Section 198. And under Section 23 of EO[47] 273 dated July 25, 1987, it was again

renumbered and became Section 185.

On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect to

the rate of tax.

Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC of

1997), the subject legal provision was retained as the present Section 185. In 2004, amendments to

the DST provisions were introduced by RA 9243[48] but Section 185 was untouched.
On the other hand, the concept of an HMO was introduced in the Philippines with the
formation of Bancom Health Care Corporation in 1974. The same pioneer HMO was later reorganized
and renamed Integrated Health Care Services, Inc. (or Intercare). However, there are those who
claim that Health Maintenance, Inc. is the HMO industry pioneer, having set foot in the Philippines as
early as 1965 and having been formally incorporated in 1991. Afterwards, HMOs proliferated quickly
and currently, there are 36 registered HMOs with a total enrollment of more than 2 million.[49]

We can clearly see from these two histories (of the DST on the one hand and HMOs on the

other) that when the law imposing the DST was first passed, HMOs were yet unknown in the

Philippines. However, when the various amendments to the DST law were enacted, they were

already in existence in the Philippines and the term had in fact already been defined by RA 7875. If it

had been the intent of the legislature to impose DST on health care agreements, it could have done

so in clear and categorical terms. It had many opportunities to do so. But it did not. The fact that the

NIRC contained no specific provision on the DST liability of health care agreements of HMOs at a time
they were already known as such, belies any legislative intent to impose it on them. As a matter of

fact, petitioner was assessed its DST liability only on January 27, 2000, after more than a decade in the

business as an HMO.[50]

Considering that Section 185 did not change since 1904 (except for the rate of tax), it would

be safe to say that health care agreements were never, at any time, recognized as insurance

contracts or deemed engaged in the business of insurance within the context of the provision.

THE POWER TO TAX IS NOT

THE POWER TO DESTROY

As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,

acknowledging in its very nature no limits, so that security against its abuse is to be found only in the

responsibility of the legislature which imposes the tax on the constituency who is to pay it.[51] So

potent indeed is the power that it was once opined that the power to tax involves the power to

destroy.[52]

Petitioner claims that the assessed DST to date which amounts to P376 million[53] is way beyond its net

worth of P259 million.[54] Respondent never disputed these assertions.Given the realities on the

ground, imposing the DST on petitioner would be highly oppressive. It is not the purpose of the

government to throttle private business. On the contrary, the government ought to encourage

private enterprise.[55] Petitioner, just like any concern organized for a lawful economic activity, has a

right to maintain a legitimate business.[56] As aptly held in Roxas, et al. v. CTA, et al.:[57]

The power of taxation is sometimes called also the power to destroy. Therefore it
should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the
hen that lays the golden egg.[58]

Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring

losses because of a tax imposition may be an acceptable consequence but killing the business of an

entity is another matter and should not be allowed. It is counter-productive and ultimately subversive

of the nations thrust towards a better economy which will ultimately benefit the majority of our

people.[59]
PETITIONERS TAX LIABILITY
WAS EXTINGUISHED UNDER
THE PROVISIONS OF RA 9840

Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years 1996

and 1997 became moot and academic[60] when it availed of the tax amnesty under RA 9480 on

December 10, 2007. It paid P5,127,149.08 representing 5% of its net worth as of the year ended

December 31, 2005 and complied with all requirements of the tax amnesty. Under Section 6(a) of RA

9480, it is entitled to immunity from payment of taxes as well as additions thereto, and the

appurtenant civil, criminal or administrative penalties under the 1997 NIRC, as amended, arising from

the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years.[61]

Far from disagreeing with petitioner, respondent manifested in its memorandum:

Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer
to immunity from payment of the tax involved, including the civil, criminal, or
administrative penalties provided under the 1997 [NIRC], for tax liabilities arising in 2005
and the preceding years.

In view of petitioners availment of the benefits of [RA 9840], and without

conceding the merits of this case as discussed above, respondent concedes that such
tax amnesty extinguishes the tax liabilities of petitioner. This admission, however, is not
meant to preclude a revocation of the amnesty granted in case it is found to have
been granted under circumstances amounting to tax fraud under Section 10 of said
amnesty law.[62] (Emphasis supplied)

Furthermore, we held in a recent case that DST is one of the taxes covered by the tax amnesty

program under RA 9480.[63] There is no other conclusion to draw than that petitioners liability for DST

for the taxable years 1996 and 1997 was totally extinguished by its availment of the tax amnesty

under RA 9480.

IS THE COURT BOUND BY A MINUTE RESOLUTION IN ANOTHER

CASE?
Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is bound

by the ruling of the CA[64] in CIR v. Philippine National Bank[65] that a health care agreement of

Philamcare Health Systems is not an insurance contract for purposes of the DST.

In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court

dismissing the appeal in Philippine National Bank (G.R. No. 148680).[66]Petitioner argues that the

dismissal of G.R. No. 148680 by minute resolution was a judgment on the merits; hence, the Court

should apply the CA ruling there that a health care agreement is not an insurance contract.

It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition

of the merits of the case. When we dismissed the petition, we effectively affirmed the CA ruling being

questioned. As a result, our ruling in that case has already become final. [67] When a minute resolution

denies or dismisses a petition for failure to comply with formal and substantive requirements, the

challenged decision, together with its findings of fact and legal conclusions, are deemed

sustained.[68] But what is its effect on other cases?

With respect to the same subject matter and the same issues concerning the same parties, it

constitutes res judicata.[69] However, if other parties or another subject matter (even with the same

parties and issues) is involved, the minute resolution is not binding precedent. Thus, in CIR v. Baier-

Nickel,[70] the Court noted that a previous case, CIR v. Baier-Nickel[71] involving the same parties and

the same issues, was previously disposed of by the Court thru a minute resolution dated February 17,

2003 sustaining the ruling of the CA. Nonetheless, the Court ruled that the previous case ha(d) no

bearing on the latter case because the two cases involved different subject matters as they were

concerned with the taxable income of different taxable years.[72]

Besides, there are substantial, not simply formal, distinctions between a minute resolution and a

decision. The constitutional requirement under the first paragraph of Section 14, Article VIII of the

Constitution that the facts and the law on which the judgment is based must be expressed clearly

and distinctly applies only to decisions, not to minute resolutions. A minute resolution is signed only by

the clerk of court by authority of the justices, unlike a decision. It does not require the certification of

the Chief Justice. Moreover, unlike decisions, minute resolutions are not published in the Philippine
Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a decision.[73] Indeed, as a rule, this

Court lays down doctrines or principles of law which constitute binding precedent in a decision duly

signed by the members of the Court and certified by the Chief Justice.

Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioners liability

for DST on its health care agreement was not the subject matter of G.R. No. 148680, petitioner cannot

successfully invoke the minute resolution in that case (which is not even binding precedent) in its

favor. Nonetheless, in view of the reasons already discussed, this does not detract in any way from

the fact that petitioners health care agreements are not subject to DST.
A FINAL NOTE

Taking into account that health care agreements are clearly not within the ambit of Section

185 of the NIRC and there was never any legislative intent to impose the same on HMOs like

petitioner, the same should not be arbitrarily and unjustly included in its coverage.

It is a matter of common knowledge that there is a great social need for adequate medical

services at a cost which the average wage earner can afford. HMOs arrange, organize and manage

health care treatment in the furtherance of the goal of providing a more efficient and inexpensive

health care system made possible by quantity purchasing of services and economies of scale. They

offer advantages over the pay-for-service system (wherein individuals are charged a fee each time

they receive medical services), including the ability to control costs. They protect their members from

exposure to the high cost of hospitalization and other medical expenses brought about by a

fluctuating economy. Accordingly, they play an important role in society as partners of the State in

achieving its constitutional mandate of providing its citizens with affordable health services.

The rate of DST under Section 185 is equivalent to 12.5% of the premium charged.[74] Its

imposition will elevate the cost of health care services. This will in turn necessitate an increase in the

membership fees, resulting in either placing health services beyond the reach of the ordinary wage

earner or driving the industry to the ground. At the end of the day, neither side wins, considering the

indispensability of the services offered by HMOs.

 WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision of the

Court of Appeals in CA-G.R. SP No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency

DST assessment against petitioner is hereby CANCELLED and SET ASIDE. Respondent is ordered to

desist from collecting the said tax.

No costs.

SO ORDERED.

RENATO C. CORONA
Associate Justice

G.R. No. L-15895 November 29, 1920

RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin Ma. Herrer, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.

Jose A. Espiritu for appellant.

Cohn, Fisher and DeWitt for appellee.

MALCOLM, J.:

This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin Ma. Herrer
to recover from the defendant life insurance company the sum of pesos 6,000 paid by the deceased
for a life annuity. The trial court gave judgment for the defendant. Plaintiff appeals.

The undisputed facts are these: On September 24, 1917, Joaquin Herrer made application to the Sun
Life Assurance Company of Canada through its office in Manila for a life annuity. Two days later he
paid the sum of P6,000 to the manager of the company's Manila office and was given a receipt
reading as follows:

MANILA, I. F., 26 de septiembre, 1917.

PROVISIONAL RECEIPT Pesos 6,000

Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como prima dela Renta Vitalicia
solicitada por dicho Don Joaquin Herrer hoy, sujeta al examen medico y aprobacion de la Oficina
Central de la Compañia.
The application was immediately forwarded to the head office of the company at Montreal,
Canada. On November 26, 1917, the head office gave notice of acceptance by cable to Manila.
(Whether on the same day the cable was received notice was sent by the Manila office of Herrer
that the application had been accepted, is a disputed point, which will be discussed later.) On
December 4, 1917, the policy was issued at Montreal. On December 18, 1917, attorney Aurelio A.
Torres wrote to the Manila office of the company stating that Herrer desired to withdraw his
application. The following day the local office replied to Mr. Torres, stating that the policy had been
issued, and called attention to the notification of November 26, 1917. This letter was received by Mr.
Torres on the morning of December 21, 1917. Mr. Herrer died on December 20, 1917.

As above suggested, the issue of fact raised by the evidence is whether Herrer received notice of
acceptance of his application. To resolve this question, we propose to go directly to the evidence of
record.

The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time of the
trial testified that he prepared the letter introduced in evidence as Exhibit 3, of date November 26,
1917, and handed it to the local manager, Mr. E. E. White, for signature. The witness admitted on
cross-examination that after preparing the letter and giving it to he manager, he new nothing of
what became of it. The local manager, Mr. White, testified to having received the cablegram
accepting the application of Mr. Herrer from the home office on November 26, 1917. He said that on
the same day he signed a letter notifying Mr. Herrer of this acceptance. The witness further said that
letters, after being signed, were sent to the chief clerk and placed on the mailing desk for
transmission. The witness could not tell if the letter had every actually been placed in the mails. Mr.
Tuason, who was the chief clerk, on November 26, 1917, was not called as a witness. For the defense,
attorney Manuel Torres testified to having prepared the will of Joaquin Ma. Herrer, that on this
occasion, Mr. Herrer mentioned his application for a life annuity, and that he said that the only
document relating to the transaction in his possession was the provisional receipt. Rafael Enriquez,
the administrator of the estate, testified that he had gone through the effects of the deceased and
had found no letter of notification from the insurance company to Mr. Herrer.

Our deduction from the evidence on this issue must be that the letter of November 26, 1917, notifying
Mr. Herrer that his application had been accepted, was prepared and signed in the local office of
the insurance company, was placed in the ordinary channels for transmission, but as far as we know,
was never actually mailed and thus was never received by the applicant.

Not forgetting our conclusion of fact, it next becomes necessary to determine the law which should
be applied to the facts. In order to reach our legal goal, the obvious signposts along the way must
be noticed.

Until quite recently, all of the provisions concerning life insurance in the Philippines were found in the
Code of Commerce and the Civil Code. In the Code of the Commerce, there formerly existed Title
VIII of Book III and Section III of Title III of Book III, which dealt with insurance contracts. In the Civil
Code there formerly existed and presumably still exist, Chapters II and IV, entitled insurance contracts
and life annuities, respectively, of Title XII of Book IV. On the after July 1, 1915, there was, however, in
force the Insurance Act. No. 2427. Chapter IV of this Act concerns life and health insurance. The Act
expressly repealed Title VIII of Book II and Section III of Title III of Book III of the code of Commerce. The
law of insurance is consequently now found in the Insurance Act and the Civil Code.

While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the methods to be
followed in order that there may be a contract of insurance. On the other hand, the Civil Code, in
article 1802, not only describes a contact of life annuity markedly similar to the one we are
considering, but in two other articles, gives strong clues as to the proper disposition of the case. For
instance, article 16 of the Civil Code provides that "In matters which are governed by special laws,
any deficiency of the latter shall be supplied by the provisions of this Code." On the supposition,
therefore, which is incontestable, that the special law on the subject of insurance is deficient in
enunciating the principles governing acceptance, the subject-matter of the Civil code, if there be
any, would be controlling. In the Civil Code is found article 1262 providing that "Consent is shown by
the concurrence of offer and acceptance with respect to the thing and the consideration which are
to constitute the contract. An acceptance made by letter shall not bind the person making the offer
except from the time it came to his knowledge. The contract, in such case, is presumed to have
been entered into at the place where the offer was made." This latter article is in opposition to the
provisions of article 54 of the Code of Commerce.

If no mistake has been made in announcing the successive steps by which we reach a conclusion,
then the only duty remaining is for the court to apply the law as it is found. The legislature in its
wisdom having enacted a new law on insurance, and expressly repealed the provisions in the Code
of Commerce on the same subject, and having thus left a void in the commercial law, it would seem
logical to make use of the only pertinent provision of law found in the Civil code, closely related to
the chapter concerning life annuities.

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

In resume, therefore, the law applicable to the case is found to be the second paragraph of article
1262 of the Civil Code providing that an acceptance made by letter shall not bind the person
making the offer except from the time it came to his knowledge. The pertinent fact is, that according
to the provisional receipt, three things had to be accomplished by the insurance company before
there was a contract: (1) There had to be a medical examination of the applicant; (2) there had to
be approval of the application by the head office of the company; and (3) this approval had in
some way to be communicated by the company to the applicant. The further admitted facts are
that the head office in Montreal did accept the application, did cable the Manila office to that
effect, did actually issue the policy and did, through its agent in Manila, actually write the letter of
notification and place it in the usual channels for transmission to the addressee. The fact as to the
letter of notification thus fails to concur with the essential elements of the general rule pertaining to
the mailing and delivery of mail matter as announced by the American courts, namely, when a letter
or other mail matter is addressed and mailed with postage prepaid there is a rebuttable presumption
of fact that it was received by the addressee as soon as it could have been transmitted to him in the
ordinary course of the mails. But if any one of these elemental facts fails to appear, it is fatal to the
presumption. For instance, a letter will not be presumed to have been received by the addressee
unless it is shown that it was deposited in the post-office, properly addressed and stamped. (See 22
C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)

We hold that the contract for a life annuity in the case at bar was not perfected because it has not
been proved satisfactorily that the acceptance of the application ever came to the knowledge of
the applicant.lawph!l.net
Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum of P6,000
with legal interest from November 20, 1918, until paid, without special finding as to costs in either
instance. So ordered.

Mapa, C.J., Araullo, Avanceña and Villamor, JJ., concur.

Johnson, J., dissents.

G.R. No. L-24833 September 23, 1968

FIELDMEN'S INSURANCE CO., INC., petitioner,

vs.
MERCEDES VARGAS VDA. DE SONGCO, ET AL. and COURT OF APPEALS, respondents.

Jose S. Suarez for petitioner.

Eligio G. Lagman for respondents.

FERNANDO, J.:

An insurance firm, petitioner Fieldmen's Insurance Co., Inc., was not allowed to escape liability under
a common carrier insurance policy on the pretext that what was insured, not once but twice, was a
private vehicle and not a common carrier, the policy being issued upon the insistence of its agent
who discounted fears of the insured that his privately owned vehicle might not fall within its terms, the
insured moreover being "a man of scant education," finishing only the first grade. So it was held in a
decision of the lower court thereafter affirmed by respondent Court of Appeals. Petitioner in seeking
the review of the above decision of respondent Court of Appeals cannot be so sanguine as to
entertain the belief that a different outcome could be expected. To be more explicit, we sustain the
Court of Appeals.

The facts as found by respondent Court of Appeals, binding upon us, follow: "This is a peculiar case.
Federico Songco of Floridablanca, Pampanga, a man of scant education being only a first grader ...,
owned a private jeepney with Plate No. 41-289 for the year 1960. On September 15, 1960, as such
private vehicle owner, he was induced by Fieldmen's Insurance Company Pampanga agent
Benjamin Sambat to apply for a Common Carrier's Liability Insurance Policy covering his motor
vehicle ... Upon paying an annual premium of P16.50, defendant Fieldmen's Insurance Company,
Inc. issued on September 19, 1960, Common Carriers Accident Insurance Policy No. 45-HO- 4254 ...
the duration of which will be for one (1) year, effective September 15, 1960 to September 15, 1961.
On September 22, 1961, the defendant company, upon payment of the corresponding premium,
renewed the policy by extending the coverage from October 15, 1961 to October 15, 1962. This time
Federico Songco's private jeepney carried Plate No. J-68136-Pampanga-1961. ... On October 29,
1961, during the effectivity of the renewed policy, the insured vehicle while being driven by Rodolfo
Songco, a duly licensed driver and son of Federico (the vehicle owner) collided with a car in the
municipality of Calumpit, province of Bulacan, as a result of which mishap Federico Songco (father)
and Rodolfo Songco (son) died, Carlos Songco (another son), the latter's wife, Angelita Songco, and
a family friend by the name of Jose Manuel sustained physical injuries of varying degree." 1

It was further shown according to the decision of respondent Court of Appeals: "Amor Songco, 42-
year-old son of deceased Federico Songco, testifying as witness, declared that when insurance
agent Benjamin Sambat was inducing his father to insure his vehicle, he butted in saying: 'That
cannot be, Mr. Sambat, because our vehicle is an "owner" private vehicle and not for passengers,' to
which agent Sambat replied: 'whether our vehicle was an "owner" type or for passengers it could be
insured because their company is not owned by the Government and the Government has nothing
to do with their company. So they could do what they please whenever they believe a vehicle is
insurable' ... In spite of the fact that the present case was filed and tried in the CFI of Pampanga, the
defendant company did not even care to rebut Amor Songco's testimony by calling on the witness-
stand agent Benjamin Sambat, its Pampanga Field Representative." 2

The plaintiffs in the lower court, likewise respondents here, were the surviving widow and children of
the deceased Federico Songco as well as the injured passenger Jose Manuel. On the above facts
they prevailed, as had been mentioned, in the lower court and in the respondent Court of
Appeals.1awphîl.nèt

The basis for the favorable judgment is the doctrine announced in Qua Chee Gan v. Law Union and
Rock Insurance Co., Ltd., 3 with Justice J. B. L. Reyes speaking for the Court. It is now beyond question
that where inequitable conduct is shown by an insurance firm, it is "estopped from enforcing
forfeitures in its favor, in order to forestall fraud or imposition on the insured." 4

As much, if not much more so than the Qua Chee Gan decision, this is a case where the doctrine of
estoppel undeniably calls for application. After petitioner Fieldmen's Insurance Co., Inc. had led the
insured Federico Songco to believe that he could qualify under the common carrier liability insurance
policy, and to enter into contract of insurance paying the premiums due, it could not, thereafter, in
any litigation arising out of such representation, be permitted to change its stand to the detriment of
the heirs of the insured. As estoppel is primarily based on the doctrine of good faith and the
avoidance of harm that will befall the innocent party due to its injurious reliance, the failure to apply
it in this case would result in a gross travesty of justice.

That is all that needs be said insofar as the first alleged error of respondent Court of Appeals is
concerned, petitioner being adamant in its far-from-reasonable plea that estoppel could not be
invoked by the heirs of the insured as a bar to the alleged breach of warranty and condition in the
policy. lt would now rely on the fact that the insured owned a private vehicle, not a common carrier,
something which it knew all along when not once but twice its agent, no doubt without any
objection in its part, exerted the utmost pressure on the insured, a man of scant education, to enter
into such a contract.

Nor is there any merit to the second alleged error of respondent Court that no legal liability was
incurred under the policy by petitioner. Why liability under the terms of the policy 5 was inescapable
was set forth in the decision of respondent Court of Appeals. Thus: "Since some of the conditions
contained in the policy issued by the defendant-appellant were impossible to comply with under the
existing conditions at the time and 'inconsistent with the known facts,' the insurer 'is estopped from
asserting breach of such conditions.' From this jurisprudence, we find no valid reason to deviate and
consequently hold that the decision appealed from should be affirmed. The injured parties, to wit,
Carlos Songco, Angelito Songco and Jose Manuel, for whose hospital and medical expenses the
defendant company was being made liable, were passengers of the jeepney at the time of the
occurrence, and Rodolfo Songco, for whose burial expenses the defendant company was also
being made liable was the driver of the vehicle in question. Except for the fact, that they were not
fare paying passengers, their status as beneficiaries under the policy is recognized therein." 6

Even if it be assumed that there was an ambiguity, an excerpt from the Qua Chee Gan decision
would reveal anew the weakness of petitioner's contention. Thus: "Moreover, taking into account the
well known rule that ambiguities or obscurities must be strictly interpreted against the party that
caused them, the 'memo of warranty' invoked by appellant bars the latter from questioning the
existence of the appliances called for in the insured premises, since its initial expression, 'the
undernoted appliances for the extinction of fire being kept on the premises insured hereby, ... it is
hereby warranted ...,' admits of interpretation as an admission of the existence of such appliances
which appellant cannot now contradict, should the parol evidence rule apply." 7

To the same effect is the following citation from the same leading case: "This rigid application of the
rule on ambiguities has become necessary in view of current business practices. The courts cannot
ignore that nowadays monopolies, cartels and concentration of capital, endowed with
overwhelming economic power, manage to impose upon parties dealing with them cunningly
prepared 'agreements' that the weaker party may not change one whit, his participation in the
'agreement' being reduced to the alternative to 'take it or leave it' labelled since Raymond Saleilles
'contracts by adherence' (contrats d'adhesion), in contrast to those entered into by parties
bargaining on an equal footing, such contracts (of which policies of insurance and international bills
of lading are prime examples) obviously call for greater strictness and vigilance on the part of courts
of justice with a view to protecting the weaker party from abuses and imposition, and prevent their
becoming traps for the unwary (New Civil Code. Article 24; Sent. of Supreme Court of Spain, 13 Dec.
1934, 27 February 1942)." 8

The last error assigned which would find fault with the decision of respondent Court of Appeals insofar
as it affirmed the lower court award for exemplary damages as well as attorney's fees is, on its face,
of no persuasive force at all.

The conclusion that inescapably emerges from the above is the correctness of the decision of
respondent Court of Appeals sought to be reviewed. For, to borrow once again from the language
of the Qua Chee Gan opinion: "The contract of insurance is one of perfect good faith (uberima fides)
not for the insured alone,but equally so for the insurer; in fact, it is more so for the latter, since its
dominant bargaining position carries with it stricter responsibility."9

This is merely to stress that while the morality of the business world is not the morality of institutions of
rectitude like the pulpit and the academe, it cannot descend so low as to be another name for guile
or deception. Moreover, should it happen thus, no court of justice should allow itself to lend its
approval and support.1awphîl.nèt

We have no choice but to recognize the monetary responsibility of petitioner Fieldmen's Insurance
Co., Inc. It did not succeed in its persistent effort to avoid complying with its obligation in the lower
court and the Court of Appeals. Much less should it find any receptivity from us for its unwarranted
and unjustified plea to escape from its liability.

WHEREFORE, the decision of respondent Court of Appeals of July 20, 1965, is affirmed in its entirety.
Costs against petitioner Fieldmen's Insurance Co., Inc.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Angeles, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 76452 July 26, 1994

PHILIPPINE AMERICAN LIFE INSURANCE COMPANY and RODRIGO DE LOS REYES, petitioners,
vs.
HON. ARMANDO ANSALDO, in his capacity as Insurance Commissioner, and RAMON MONTILLA
PATERNO, JR., respondents.

Ponce Enrile, Cayetano, Reyes and Manalastas for petitioners.

Oscar Z. Benares for private respondent.

QUIASON, J.:

This is a petition for certiorari and prohibition under Rule 65 of the Revised Rules of Court, with
preliminary injunction or temporary restraining order, to annul and set aside the Order dated
November 6, 1986 of the Insurance Commissioner and the entire proceedings taken in I.C. Special
Case No. 1-86.

We grant the petition.

The instant case arose from a letter-complaint of private respondent Ramon M. Paterno, Jr. dated
April 17, 1986, to respondent Commissioner, alleging certain problems encountered by agents,
supervisors, managers and public consumers of the Philippine American Life Insurance Company
(Philamlife) as a result of certain practices by said company.

In a letter dated April 23, 1986, respondent Commissioner requested petitioner Rodrigo de los Reyes,
in his capacity as Philamlife's president, to comment on respondent Paterno's letter.

In a letter dated April 29, 1986 to respondent Commissioner, petitioner De los Reyes suggested that
private respondent "submit some sort of a 'bill of particulars' listing and citing actual cases, facts,
dates, figures, provisions of law, rules and regulations, and all other pertinent data which are
necessary to enable him to prepare an intelligent reply" (Rollo, p. 37). A copy of this letter was sent by
the Insurance Commissioner to private respondent for his comments thereon.

On May 16, 1986, respondent Commissioner received a letter from private respondent maintaining
that his letter-complaint of April 17, 1986 was sufficient in form and substance, and requested that a
hearing thereon be conducted.

Petitioner De los Reyes, in his letter to respondent Commissioner dated June 6, 1986, reiterated his
claim that private respondent's letter of May 16, 1986 did not supply the information he needed to
enable him to answer the letter-complaint.

On July 14, a hearing on the letter-complaint was held by respondent Commissioner on the validity of
the Contract of Agency complained of by private respondent.

In said hearing, private respondent was required by respondent Commissioner to specify the
provisions of the agency contract which he claimed to be illegal.

On August 4, private respondent submitted a letter of specification to respondent Commissioner

dated July 31, 1986, reiterating his letter of April 17, 1986 and praying that the provisions on charges
and fees stated in the Contract of Agency executed between Philamlife and its agents, as well as
the implementing provisions as published in the agents' handbook, agency bulletins and circulars, be
declared as null and void. He also asked that the amounts of such charges and fees already
deducted and collected by Philamlife in connection therewith be reimbursed to the agents, with
interest at the prevailing rate reckoned from the date when they were deducted.

Respondent Commissioner furnished petitioner De los Reyes with a copy of private respondent's letter
of July 31, 1986, and requested his answer thereto.

Petitioner De los Reyes submitted an Answer dated September 8, 1986, stating inter alia that:

(1) Private respondent's letter of August 11, 1986 does not contain any of the particular
information which Philamlife was seeking from him and which he promised to submit.

(2) That since the Commission's quasi-judicial power was being invoked with regard to
the complaint, private respondent must file a verified formal complaint before any
further proceedings.

In his letter dated September 9, 1986, private respondent asked for the resumption of the hearings on
his complaint.

On October 1, private respondent executed an affidavit, verifying his letters of April 17, 1986, and July
31, 1986.

In a letter dated October 14, 1986, Manuel Ortega, Philamlife's Senior Assistant Vice-President and
Executive Assistant to the President, asked that respondent Commission first rule on the questions of
the jurisdiction of the Insurance Commissioner over the subject matter of the letters-complaint and
the legal standing of private respondent.

On October 27, respondent Commissioner notified both parties of the hearing of the case on
November 5, 1986.

On November 3, Manuel Ortega filed a Motion to Quash Subpoena/Notice on the following grounds;

1. The Subpoena/Notice has no legal basis and is premature because:

(1) No complaint sufficient in form and contents has been filed;

(2) No summons has been issued nor received

by the respondent De los Reyes, and hence,
no jurisdiction has been acquired over his
person;

(3) No answer has been filed, and hence, the

hearing scheduled on November 5, 1986 in the
Subpoena/Notice, and wherein the
respondent is required to appear, is premature
and lacks legal basis.

II. The Insurance Commission has no jurisdiction over;

(1) the subject matter or nature of the action; and

(2) over the parties involved (Rollo, p. 102).

In the Order dated November 6, 1986, respondent Commissioner denied the Motion to Quash. The
dispositive portion of said Order reads:

NOW, THEREFORE, finding the position of complainant thru counsel tenable and
considering the fact that the instant case is an informal administrative litigation falling
outside the operation of the aforecited memorandum circular but cognizable by this
Commission, the hearing officer, in open session ruled as it is hereby ruled to deny the
Motion to Quash Subpoena/Notice for lack of merit (Rollo, p. 109).

Hence, this petition.

II

The main issue to be resolved is whether or not the resolution of the legality of the Contract of
Agency falls within the jurisdiction of the Insurance Commissioner.

Private respondent contends that the Insurance Commissioner has jurisdiction to take cognizance of
the complaint in the exercise of its quasi-judicial powers. The Solicitor General, upholding the
jurisdiction of the Insurance Commissioner, claims that under Sections 414 and 415 of the Insurance
Code, the Commissioner has authority to nullify the alleged illegal provisions of the Contract of
Agency.

III

The general regulatory authority of the Insurance Commissioner is described in Section 414 of the
Insurance Code, to wit:

The Insurance Commissioner shall have the duty to see that all laws relating to
insurance, insurance companies and other insurance matters, mutual benefit
associations and trusts for charitable uses are faithfully executed and to perform the
duties imposed upon him by this Code, . . .

On the other hand, Section 415 provides:

In addition to the administrative sanctions provided elsewhere in this Code, the

Insurance Commissioner is hereby authorized, at his discretion, to impose upon
insurance companies, their directors and/or officers and/or agents, for any willful failure
or refusal to comply with, or violation of any provision of this Code, or any order,
instruction, regulation or ruling of the Insurance Commissioner, or any commission of
irregularities, and/or conducting business in an unsafe and unsound manner as may be
determined by the the Insurance Commissioner, the following:

(a) fines not in excess of five hundred pesos a day; and

(b) suspension, or after due hearing, removal

of directors and/or officers and/or agents.

A plain reading of the above-quoted provisions show that the Insurance Commissioner has the
authority to regulate the business of insurance, which is defined as follows:

(2) The term "doing an insurance business" or "transacting an insurance business," within
the meaning of this Code, shall include
 (a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation
and not as merely incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized
as constituting the doing of an insurance business within the meaning of this Code; (d)
doing or proposing to do any business in substance equivalent to any of the foregoing
in a manner designed to evade the provisions of this Code. (Insurance Code, Sec. 2[2];
Emphasis supplied).

Since the contract of agency entered into between Philamlife and its agents is not included within
the meaning of an insurance business, Section 2 of the Insurance Code cannot be invoked to give
jurisdiction over the same to the Insurance Commissioner. Expressio unius est exclusio alterius.

With regard to private respondent's contention that the quasi-judicial power of the Insurance
Commissioner under Section 416 of the Insurance Code applies in his case, we likewise rule in the
negative. Section 416 of the Code in pertinent part, provides:

The Commissioner shall have the power to adjudicate claims and complaints involving
any loss, damage or liability for which an insurer may be answerable under any kind of
policy or contract of insurance, or for which such insurer may be liable under a contract
of suretyship, or for which a reinsurer may be used under any contract or reinsurance it
may have entered into, or for which a mutual benefit association may be held liable
under the membership certificates it has issued to its members, where the amount of
any such loss, damage or liability, excluding interest, costs and attorney's fees, being
claimed or sued upon any kind of insurance, bond, reinsurance contract, or
membership certificate does not exceed in any single claim one hundred thousand
pesos.

A reading of the said section shows that the quasi-judicial power of the Insurance Commissioner is
limited by law "to claims and complaints involving any loss, damage or liability for which an insurer
may be answerable under any kind of policy or contract of insurance, . . ." Hence, this power does
not cover the relationship affecting the insurance company and its agents but is limited to
adjudicating claims and complaints filed by the insured against the insurance company.

While the subject of Insurance Agents and Brokers is discussed under Chapter IV, Title I of the
Insurance Code, the provisions of said Chapter speak only of the licensing requirements and
limitations imposed on insurance agents and brokers.

The Insurance Code does not have provisions governing the relations between insurance companies
and their agents. It follows that the Insurance Commissioner cannot, in the exercise of its quasi-
judicial powers, assume jurisdiction over controversies between the insurance companies and their
agents.

We have held in the cases of Great Pacific Life Assurance Corporation v. Judico, 180 SCRA 445
(1989), and Investment Planning Corporation of the Philippines v. Social Security Commission, 21 SCRA
904 (1962), that an insurance company may have two classes of agents who sell its insurance
policies: (1) salaried employees who keep definite hours and work under the control and supervision
of the company; and (2) registered representatives, who work on commission basis.

Under the first category, the relationship between the insurance company and its agents is governed
by the Contract of Employment and the provisions of the Labor Code, while under the second
category, the same is governed by the Contract of Agency and the provisions of the Civil Code on
the Agency. Disputes involving the latter are cognizable by the regular courts.
WHEREFORE, the petition is GRANTED. The Order dated November 6, 1986 of the Insurance
Commission is SET ASIDE.

SO ORDERED.

Cruz, Davide, Jr. and Kapunan, JJ., concur.

Bellosillo, J,. is on leave.

FIRST DIVISION

[G.R. No. 138941. October 8, 2001]

AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. TANTUCO ENTERPRISES, INC., respondent.

DECISION
PUNO, J.:

Before us is a Petition for Review on Certiorari assailing the Decision of the Court of Appeals in
CA-G.R. CV No. 52221 promulgated on January 14, 1999, which affirmed in toto the Decision of the
Regional Trial Court, Branch 53, Lucena City in Civil Case No. 92-51 dated October 16, 1995.
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining industry. It
owns two oil mills. Both are located at its factory compound at Iyam, Lucena City. It appears that
respondent commenced its business operations with only one oil mill. In 1988, it started operating its
second oil mill. The latter came to be commonly referred to as the new oil mill.
The two oil mills were separately covered by fire insurance policies issued by petitioner American
Home Assurance Co., Philippine Branch.[1] The first oil mill was insured for three million pesos
(P3,000,000.00) under Policy No. 306-7432324-3 for the period March 1, 1991 to 1992.[2] The new oil mill
was insured for six million pesos (P6,000,000.00) under Policy No. 306-7432321-9 for the same
term.[3] Official receipts indicating payment for the full amount of the premium were issued by the
petitioner's agent.[4]
A fire that broke out in the early morning of September 30,1991 gutted and consumed the new
oil mill. Respondent immediately notified the petitioner of the incident. The latter then sent its
appraisers who inspected the burned premises and the properties destroyed. Thereafter, in a letter
dated October 15, 1991, petitioner rejected respondents claim for the insurance proceeds on the
ground that no policy was issued by it covering the burned oil mill. It stated that the description of the
insured establishment referred to another building thus: Our policy nos. 306-7432321-9 (Ps 6M) and
306-7432324-4 (Ps 3M) extend insurance coverage to your oil mill under Building No. 5, whilst the
affected oil mill was under Building No. 14.[5]
A complaint for specific performance and damages was consequently instituted by the
respondent with the RTC, Branch 53 of Lucena City. On October 16, 1995, after trial, the lower court
rendered a Decision finding the petitioner liable on the insurance policy thus:

WHEREFORE, judgment is rendered in favor of the plaintiff ordering defendant to pay plaintiff:
(a) P4,406,536.40 representing damages for loss by fire of its insured property with interest at the legal
rate;

(b) P80,000.00 for litigation expenses;

(c) P300,000.00 for and as attorneys fees; and

(d) Pay the costs.

SO ORDERED.[6]

Petitioner assailed this judgment before the Court of Appeals. The appellate court upheld the
same in a Decision promulgated on January 14, 1999, the pertinent portion of which states:

WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit and the trial courts Decision
dated October 16, 1995 is hereby AFFIRMED in toto.

SO ORDERED.[7]

Petitioner moved for reconsideration. The motion, however, was denied for lack of merit in a
Resolution promulgated on June 10, 1999.
Hence, the present course of action, where petitioner ascribes to the appellate court the
following errors:

(1) The Court of Appeals erred in its conclusion that the issue of non-payment of the premium
was beyond its jurisdiction because it was raised for the first time on appeal.[8]

(2) The Court of Appeals erred in its legal interpretation of 'Fire Extinguishing Appliances Warranty'
of the policy.[9]

(3) With due respect, the conclusion of the Court of Appeals giving no regard to the parole
evidence rule and the principle of estoppel is erroneous.[10]

The petition is devoid of merit.

The primary reason advanced by the petitioner in resisting the claim of the respondent is that the
burned oil mill is not covered by any insurance policy. According to it, the oil mill insured is specifically
described in the policy by its boundaries in the following manner:

Front: by a driveway thence at 18 meters distance by Bldg. No. 2.

Right: by an open space thence by Bldg. No. 4.

Left: Adjoining thence an imperfect wall by Bldg. No. 4.

Rear: by an open space thence at 8 meters distance.

However, it argues that this specific boundary description clearly pertains, not to the burned oil mill,
but to the other mill. In other words, the oil mill gutted by fire was not the one described by the
specific boundaries in the contested policy.
What exacerbates respondents predicament, petitioner posits, is that it did not have the
supposed wrong description or mistake corrected. Despite the fact that the policy in question was
issued way back in 1988, or about three years before the fire, and despite the Important Notice in the
policy that Please read and examine the policy and if incorrect, return it immediately for alteration,
respondent apparently did not call petitioners attention with respect to the misdescription.
By way of conclusion, petitioner argues that respondent is barred by the parole evidence rule
from presenting evidence (other than the policy in question) of its self-serving intention (sic) that it
intended really to insure the burned oil mill, just as it is barred by estoppel from claiming that the
description of the insured oil mill in the policy was wrong, because it retained the policy without
having the same corrected before the fire by an endorsement in accordance with its Condition No.
28.
These contentions can not pass judicial muster.
In construing the words used descriptive of a building insured, the greatest liberality is shown by
the courts in giving effect to the insurance.[11] 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 that the policy of insurance
covers any building which the parties manifestly intended to insure, however inaccurate the
description may be.[12]
Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that
what the parties manifestly intended to insure was the new oil mill. This is obvious from the categorical
statement embodied in the policy, extending its protection:

On machineries and equipment with complete accessories usual to a coconut oil mill including
stocks of copra, copra cake and copra mills whilst contained in the new oil mill building, situate (sic)
at UNNO. ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY UNBLOCKED.[13] (emphasis supplied.)

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 respondent would protect its first oil mill for different
amounts and leave uncovered its second one. As mentioned earlier, the first oil mill is already
covered under Policy No. 306-7432324-4 issued by the petitioner. It is unthinkable for respondent to
obtain the other policy from the very same company. The latter ought to know that a second
agreement over that same realty results in its overinsurance.
The imperfection in the description of the insured oil mills boundaries can be attributed to a
misunderstanding between the petitioners general agent, Mr. Alfredo Borja, and its policy issuing
clerk, who made the error of copying the boundaries of the first oil mill when typing the policy to be
issued for the new one. As testified to by Mr.Borja:
Atty. G. Camaligan:
Q: What did you do when you received the report?
A: I told them as will be shown by the map the intention really of Mr. Edison Tantuco is to cover the
new oil mill that is why when I presented the existing policy of the old policy, the policy issuing
clerk just merely (sic) copied the wording from the old policy and what she typed is that the
description of the boundaries from the old policy was copied but she inserted covering the
new oil mill and to me at that time the important thing is that it covered the new oil
mill because it is just within one compound and there are only two oil mill[s] and so just
enough, I had the policy prepared. In fact, two policies were prepared having the same date
one for the old one and the other for the new oil mill and exactly the same policy period,
sir.[14] (emphasis supplied)
It is thus clear that the source of the discrepancy happened during the preparation of the written
contract.
 These facts lead us to hold that the present case falls within one of the recognized exceptions to
the parole evidence rule. Under the Rules of Court, a party may present evidence to modify, explain
or add to the terms of the written agreement if he puts in issue in his pleading, among others, its
failure to express the true intent and agreement of the parties thereto.[15] Here, the contractual
intention of the parties cannot be understood from a mere reading of the instrument. Thus, while the
contract explicitly stipulated that it was for the insurance of the new oil mill, the boundary description
written on the policy concededly pertains to the first oil mill. This irreconcilable difference can only be
clarified by admitting evidence aliunde, which will explain the imperfection and clarify the intent of
the parties.
Anent petitioners argument that the respondent is barred by estoppel from claiming that the
description of the insured oil mill in the policy was wrong, we find that the same proceeds from a
wrong assumption. Evidence on record reveals that respondents operating manager, Mr. Edison
Tantuco, notified Mr. Borja (the petitioners agent with whom respondent negotiated for the contract)
about the inaccurate description in the policy. However, Mr. Borja assured Mr. Tantuco that the use
of the adjective new will distinguish the insured property. The assurance convinced respondent that,
despite the impreciseness in the specification of the boundaries, the insurance will cover the new oil
mill. This can be seen from the testimony on cross of Mr. Tantuco:
"ATTY. SALONGA:
Q: You mentioned, sir, that at least in so far as Exhibit A is concern you have read what the policy
contents.(sic)
Kindly take a look in the page of Exhibit A which was marked as Exhibit A-2 particularly the
boundaries of the property insured by the insurance policy Exhibit A, will you tell us as the
manager of the company whether the boundaries stated in Exhibit A-2 are the boundaries of
the old (sic) mill that was burned or not.
A: It was not, I called up Mr. Borja regarding this matter and he told me that what is important is the
word new oil mill. Mr. Borja said, as a matter of fact, you can never insured (sic) one property
with two (2) policies, you will only do that if you will make to increase the amount and it is by
indorsement not by another policy, sir."[16]
We again stress that the object of the court in construing a contract is to ascertain the intent of
the parties to the contract and to enforce the agreement which the parties have entered into. In
determining what the parties intended, the courts will read and construe the policy as a whole and if
possible, give effect to all the parts of the contract, keeping in mind always, however, the prime rule
that in the event of doubt, this doubt is to be resolved against the insurer. In determining the intent of
the parties to the contract, the courts will consider the purpose and object of the contract.[17]
In a further attempt to avoid liability, petitioner claims that respondent forfeited the renewal
policy for its failure to pay the full amount of the premium and breach of the Fire Extinguishing
Appliances Warranty.
The amount of the premium stated on the face of the policy was P89,770.20. From the admission
of respondents own witness, Mr. Borja, which the petitioner cited, the former only paid it P75,147.00,
leaving a difference of P14,623.20. The deficiency, petitioner argues, suffices to invalidate the policy,
in accordance with Section 77 of the Insurance Code.[18]
The Court of Appeals refused to consider this contention of the petitioner. It held that this issue
was raised for the first time on appeal, hence, beyond its jurisdiction to resolve, pursuant to Rule 46,
Section 18 of the Rules of Court.[19]
Petitioner, however, contests this finding of the appellate court. It insists that the issue was raised
in paragraph 24 of its Answer, viz.:
 24. Plaintiff has not complied with the condition of the policy and renewal certificate that the
renewal premium should be paid on or before renewal date.

Petitioner adds that the issue was the subject of the cross-examination of Mr. Borja, who
acknowledged that the paid amount was lacking by P14,623.20 by reason of a discount or rebate,
which rebate under Sec. 361 of the Insurance Code is illegal.
The argument fails to impress. It is true that the asseverations petitioner made in paragraph 24 of
its Answer ostensibly spoke of the policys condition for payment of the renewal premium on time and
respondents non-compliance with it. Yet, it did not contain any specific and definite allegation that
respondent did not pay the premium, or that it did not pay the full amount, or that it did not pay the
amount on time.
Likewise, when the issues to be resolved in the trial court were formulated at the pre-trial
proceedings, the question of the supposed inadequate payment was never raised. Most significant
to point, petitioner fatally neglected to present, during the whole course of the trial, any witness to
testify that respondent indeed failed to pay the full amount of the premium. The thrust of the cross-
examination of Mr. Borja, on the other hand, was not for the purpose of proving this fact. Though it
briefly touched on the alleged deficiency, such was made in the course of discussing a discount or
rebate, which the agent apparently gave the respondent. Certainly, the whole tenor of Mr. Borjas
testimony, both during direct and cross examinations, implicitly assumed a valid and subsisting
insurance policy. It must be remembered that he was called to the stand basically to demonstrate
that an existing policy issued by the petitioner covers the burned building.
Finally, petitioner contends that respondent violated the express terms of the Fire Extinguishing
Appliances Warranty. The said warranty provides:

WARRANTED that during the currency of this Policy, Fire Extinguishing Appliances as mentioned
below shall be maintained in efficient working order on the premises to which insurance applies:

- PORTABLE EXTINGUISHERS

- INTERNAL HYDRANTS

- EXTERNAL HYDRANTS

- FIRE PUMP

- 24-HOUR SECURITY SERVICES

BREACH of this warranty shall render this policy null and void and the Company shall no longer
be liable for any loss which may occur.[20]

Petitioner argues that the warranty clearly obligates the insured to maintain all the appliances
specified therein. The breach occurred when the respondent failed to install internal fire hydrants
inside the burned building as warranted. This fact was admitted by the oil mills expeller operator,
Gerardo Zarsuela.
Again, the argument lacks merit. We agree with the appellate courts conclusion that the
aforementioned warranty did not require respondent to provide for all the fire extinguishing
appliances enumerated therein. Additionally, we find that neither did it require that the appliances
are restricted to those mentioned in the warranty. In other words, what the warranty mandates is that
respondent should maintain in efficient working condition within the premises of the insured property,
fire fighting equipments such as, but not limited to, those identified in the list, which will serve as the oil
mills first line of defense in case any part of it bursts into flame.
To be sure, respondent was able to comply with the warranty. Within the vicinity of the new oil
mill can be found the following devices: numerous portable fire extinguishers, two fire hoses, [21] fire
hydrant,[22] and an emergency fire engine.[23] All of these equipments were in efficient working order
when the fire occurred.
It ought to be remembered that not only are warranties strictly construed against the insurer, but
they should, likewise, by themselves be reasonably interpreted.[24] That reasonableness is to be
ascertained in light of the factual conditions prevailing in each case. Here, we find that there is no
more need for an internal hydrant considering that inside the burned building were: (1) numerous
portable fire extinguishers, (2) an emergency fire engine, and (3) a fire hose which has a connection
to one of the external hydrants.
IN VIEW WHEREOF, finding no reversible error in the impugned Decision, the instant petition is
hereby DISMISSED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Pardo, and Ynares-Santiago, JJ., concur.
Kapunan, J., on official leave.

FIRST DIVISION

[G.R. No. 112329. January 28, 2000]

VIRGINIA A. PEREZ, petitioner, vs. COURT OF APPEALS and BF LIFEMAN INSURANCE

CORPORATION, respondents.

DECISION

YNARES-SANTIAGO, J.:

A contract of insurance, like all other contracts, must be assented to by both parties, either in person
or through their agents and so long as an application for insurance has not been either accepted or
rejected, it is merely a proposal or an offer to make a contract.

Petitioner Virginia A. Perez assails the decision of respondent Court of Appeals dated July 9, 1993 in
CA-G.R. CV 35529 entitled, "BF Lifeman Insurance Corporations, Plaintiff-Appellant versus Virginia A.
Perez, Defendant-Appellee," which declared Insurance Policy 056300 for P50,000.00 issued by private
respondent corporation in favor of the deceased Primitivo B. Perez, null and void and rescinded,
thereby reversing the decision rendered by the Regional Trial Court of Manila, Branch XVI.

The facts of the case as summarized by respondent Court of Appeals are not in dispute.

Primitivo B. Perez had been insured with the BF Lifeman Insurance Corporation since 1980
for P20,000.00. Sometime in October 1987, an agent of the insurance corporation, Rodolfo Lalog,
visited Perez in Guinayangan, Quezon and convinced him to apply for additional insurance
coverage of P50,000.00, to avail of the ongoing promotional discount of P400.00 if the premium were
paid annually.

On October 20, 1987, Primitivo B. Perez accomplished an application form for the additional
insurance coverage of P50,000.00. On the same day, petitioner Virginia A. Perez, Primitivos wife,
paid P2,075.00 to Lalog. The receipt issued by Lalog indicated the amount received was a
"deposit."[1] Unfortunately, Lalog lost the application form accomplished by Perez and so on October
28, 1987, he asked the latter to fill up another application form.[2] On November 1, 1987, Perez was
made to undergo the required medical examination, which he passed.[3]

Pursuant to the established procedure of the company, Lalog forwarded the application for
additional insurance of Perez, together with all its supporting papers, to the office of BF Lifeman
Insurance Corporation at Gumaca, Quezon which office was supposed to forward the papers to the
Manila office.

On November 25, 1987, Perez died in an accident. He was riding in a banca which capsized during a
storm. At the time of his death, his application papers for the additional insurance of P50,000.00 were
still with the Gumaca office. Lalog testified that when he went to follow up the papers, he found
them still in the Gumaca office and so he personally brought the papers to the Manila office of BF
Lifeman Insurance Corporation. It was only on November 27, 1987 that said papers were received in
Manila.

Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation approved
the application and issued the corresponding policy for the P50,000.00 on December 2, 1987.[4]

Petitioner Virginia Perez went to Manila to claim the benefits under the insurance policies of the
deceased. She was paid P40,000.00 under the first insurance policy for P20,000.00 (double indemnity
in case of accident) but the insurance company refused to pay the claim under the additional
policy coverage of P50,000.00, the proceeds of which amount to P150,000.00 in view of a triple
indemnity rider on the insurance policy. In its letter of January 29, 1988 to Virginia A. Perez, the
insurance company maintained that the insurance for P50,000.00 had not been perfected at the
time of the death of Primitivo Perez. Consequently, the insurance company refunded the amount
of P2,075.00 which Virginia Perez had paid.

On September 21, 1990, private respondent BF Lifeman Insurance Corporation filed a complaint
against Virginia A. Perez seeking the rescission and declaration of nullity of the insurance contract in
question.

Petitioner Virginia A. Perez, on the other hand, averred that the deceased had fulfilled all his
prestations under the contract and all the elements of a valid contract are present. She then filed a
counterclaim against private respondent for the collection of P150,000.00 as actual
damages, P100,000.00 as exemplary damages, P30,000.00 as attorneys fees and P10,000.00 as
expenses for litigation.

On October 25, 1991, the trial court rendered a decision in favor of petitioner, the dispositive portion
of which reads as follows:

WHEREFORE PREMISES CONSIDERED, judgment is hereby rendered in favor of defendant

Virginia A. Perez, ordering the plaintiff BF Lifeman Insurance Corporation to pay to her
the face value of BF Lifeman Insurance Policy No. 056300, plus double indemnity under
the SARDI or in the total amount of P150,000.00 (any refund made and/or premium
deficiency to be deducted therefrom).

SO ORDERED.[5]

The trial court, in ruling for petitioner, held that the premium for the additional insurance of P50,000.00
had been fully paid and even if the sum of P2,075.00 were to be considered merely as partial
payment, the same does not affect the validity of the policy. The trial court further stated that the
deceased had fully complied with the requirements of the insurance company. He paid, signed the
application form and passed the medical examination. He should not be made to suffer the
subsequent delay in the transmittal of his application form to private respondents head office since
these were no longer within his control.

The Court of Appeals, however, reversed the decision of the trial court saying that the insurance
contract for P50,000.00 could not have been perfected since at the time that the policy was issued,
Primitivo was already dead.[6] Citing the provision in the application form signed by Primitivo which
states that:

"x x x there shall be no contract of insurance unless and until a policy is issued on this
application and that the policy shall not take effect until the first premium has been
paid and the policy has been delivered to and accepted by me/us in person while
I/we, am/are in good health"

the Court of Appeals held that the contract of insurance had to be assented to by both parties and
so long as the application for insurance has not been either accepted or rejected, it is merely an
offer or proposal to make a contract.

Petitioners motion for reconsideration having been denied by respondent court, the instant petition
for certiorari was filed on the ground that there was a consummated contract of insurance between
the deceased and BF Lifeman Insurance Corporation and that the condition that the policy issued by
the corporation be delivered and received by the applicant in good health, is potestative, being
dependent upon the will of the insurance company, and is therefore null and void.

The petition is bereft of merit.

Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate
the other for loss on a specified subject by specified perils.[7] A contract, on the other hand, is a
meeting of the minds between two persons whereby one binds himself, with respect to the other to
give something or to render some service.[8] Under Article 1318 of the Civil Code, there is no contract
unless the following requisites concur:

(1).......Consent of the contracting parties;

(2).......Object certain which is the subject matter of the contract;

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

Consent must be manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance
absolute.

When Primitivo filed an application for insurance, paid P2,075.00 and submitted the results of his
medical examination, his application was subject to the acceptance of private respondent BF
Lifeman Insurance Corporation. The perfection of the contract of insurance between the deceased
and respondent corporation was further conditioned upon compliance with the following requisites
stated in the application form:

"there shall be no contract of insurance unless and until a policy is issued on this
application and that the said policy shall not take effect until the premium has been
 paid and the policy delivered to and accepted by me/us in person while I/We, am/are
in good health."[9]

The assent of private respondent BF Lifeman Insurance Corporation therefore was not given when it
merely received the application form and all the requisite supporting papers of the applicant. Its
assent was given when it issues a corresponding policy to the applicant. Under the abovementioned
provision, it is only when the applicant pays the premium and receives and accepts the policy while
he is in good health that the contract of insurance is deemed to have been perfected.

It is not disputed, however, that when Primitivo died on November 25, 1987, his application papers for
additional insurance coverage were still with the branch office of respondent corporation in
Gumaca and it was only two days later, or on November 27, 1987, when Lalog personally delivered
the application papers to the head office in Manila. Consequently, there was absolutely no way the
acceptance of the application could have been communicated to the applicant for the latter to
accept inasmuch as the applicant at the time was already dead. In the case of Enriquez vs. Sun Life
Assurance Co. of Canada,[10]recovery on the life insurance of the deceased was disallowed on the
ground that the contract for annuity was not perfected since it had not been proved satisfactorily
that the acceptance of the application ever reached the knowledge of the applicant.

Petitioner insists that the condition imposed by respondent corporation that a policy must have been
delivered to and accepted by the proposed insured in good health is potestative being dependent
upon the will of the corporation and is therefore null and void.

We do not agree.

A potestative condition depends upon the exclusive will of one of the parties. For this reason, it is
considered void. Article 1182 of the New Civil Code states: When the fulfillment of the condition
depends upon the sole will of the debtor, the conditional obligation shall be void.

In the case at bar, the following conditions were imposed by the respondent company for the
perfection of the contract of insurance:

(a).......a policy must have been issued;

(b).......the premiums paid; and

(c).......the policy must have been delivered to and accepted by the applicant while
he is in good health.

The condition imposed by the corporation that the policy must have been delivered to and
accepted by the applicant while he is in good health can hardly be considered as a potestative or
facultative condition. On the contrary, the health of the applicant at the time of the delivery of the
policy is beyond the control or will of the insurance company. Rather, the condition is a suspensive
one whereby the acquisition of rights depends upon the happening of an event which constitutes
the condition. In this case, the suspensive condition was the policy must have been delivered and
accepted by the applicant while he is in good health. There was non-fulfillment of the condition,
however, inasmuch as the applicant was already dead at the time the policy was issued. Hence, the
non-fulfillment of the condition resulted in the non-perfection of the contract.

As stated above, a contract of insurance, like other contracts, must be assented to by both parties
either in person or by their agents. So long as an application for insurance has not been either
accepted or rejected, it is merely an offer or proposal to make a contract. The contract, to be
binding from the date of application, must have been a completed contract, one that leaves
nothing to be done, nothing to be completed, nothing to be passed upon, or determined, before it
shall take effect. There can be no contract of insurance unless the minds of the parties have met in
agreement.[11]

Prescinding from the foregoing, respondent corporation cannot be held liable for gross negligence. It
should be noted that an application is a mere offer which requires the overt act of the insurer for it to
ripen into a contract. Delay in acting on the application does not constitute acceptance even
though the insured has forwarded his first premium with his application. The corporation may not be
penalized for the delay in the processing of the application papers. Moreover, while it may have
taken some time for the application papers to reach the main office, in the case at bar, the same
was acted upon less than a week after it was received. The processing of applications by respondent
corporation normally takes two to three weeks, the longest being a month.[12] In this case, however,
the requisite medical examination was undergone by the deceased on November 1, 1987; the
application papers were forwarded to the head office on November 27, 1987; and the policy was
issued on December 2, 1987. Under these circumstances, we hold that the delay could not be
deemed unreasonable so as to constitute gross negligence.

A final note. It has not escaped our notice that the Court of Appeals declared Insurance Policy
056300 for P50,000.00 null and void and rescinded. The Court of Appeals corrected this in its
Resolution of the motion for reconsideration filed by petitioner, thus:

"Anent the appearance of the word rescinded in the dispositive portion of the decision,
to which defendant-appellee attaches undue significance and makes capital of, it is
clear that the use of the words and rescinded is, as it is hereby declared, a superfluity. It
is apparent from the context of the decision that the insurance policy in question was
found null and void, and did not have to be rescinded."[13]

True, rescission presupposes the existence of a valid contract. A contract which is null and void is no
contract at all and hence could not be the subject of rescission.

WHEREFORE, the decision rendered by the Court of Appeals in CA-G.R. CV No. 35529 is AFFIRMED
insofar as it declared Insurance Policy No. 056300 for P50,000.00 issued by BF Lifeman Insurance
Corporation of no force and effect and hence null and void. No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.2/18/00 11:28 AM

G.R. No. 175773

SECOND DIVISION

[ G.R. No. 175773, June 17, 2013 ]

MITSUBISHI MOTORS PHILIPPINES SALARIED EMPLOYEES UNION (MMPSEU), PETITIONER, VS. MITSUBISHI
MOTORS PHILIPPINES CORPORATION, RESPONDENT.

DECISION
DEL CASTILLO, J.:
The Collective Bargaining Agreement (CBA) of the parties in this case provides that the company
shoulder the hospitalization expenses of the dependents of covered employees subject to certain
limitations and restrictions. Accordingly, covered employees pay part of the hospitalization insurance
premium through monthly salary deduction while the company, upon hospitalization of the covered
employees' dependents, shall pay the hospitalization expenses incurred for the same. The conflict
arose when a portion of the hospitalization expenses of the covered employees' dependents were
paid/shouldered by the dependent's own health insurance. While the company refused to pay the
portion of the hospital expenses already shouldered by the dependents' own health insurance, the
union insists that the covered employees are entitled to the whole and undiminished amount of said
hospital expenses.

By this Petition for Review on Certiorari,[1] petitioner Mitsubishi Motors Philippines Salaried Employees
Union (MMPSEU) assails the March 31, 2006 Decision[2] and December 5, 2006 Resolution[3] of the
Court of Appeals (CA) in CA-G.R. SP No. 75630, which reversed and set aside the Voluntary
Arbitrator's December 3, 2002 Decision[4] and declared respondent Mitsubishi Motors Philippines
Corporation (MMPC) to be under no legal obligation to pay its covered employees' dependents'
hospitalization expenses which were already shouldered by other health insurance companies.

Factual Antecedents

The parties' CBA[5] covering the period August 1, 1996 to July 31, 1999 provides for the hospitalization
insurance benefits for the covered dependents, thus:

SECTION 4. DEPENDENTS' GROUP HOSPITALIZATION INSURANCE The COMPANY shall obtain group
hospitalization insurance coverage or assume under a self-insurance basis hospitalization for the
dependents of regular employees up to a maximum amount of forty thousand pesos (P40,000.00) per
confinement subject to the following:

a. The room and board must not exceed three hundred pesos (P300.00) per day up to a
maximum of thirty-one (31) days. Similarly, Doctor's Call fees must not exceed three hundred
pesos (P300.00) per day for a maximum of thirty-one (31) days. Any excess of this amount shall
be borne by the employee.
 b. Confinement must be in a hospital designated by the COMPANY. For this purpose, the
COMPANY shall designate hospitals in different convenient places to be availed of by the
dependents of employees. In cases of emergency where the dependent is confined without
the recommendation of the company doctor or in a hospital not designated by the
COMPANY, the COMPANY shall look into the circumstances of such confinement and arrange
for the payment of the amount to the extent of the hospitalization benefit.

c. The limitations and restrictions listed in Annex "B" must be observed.

d. Payment shall be direct to the hospital and doctor and must be covered by actual billings.

Each employee shall pay one hundred pesos (P100.00) per month through salary deduction as his
share in the payment of the insurance premium for the above coverage with the balance of the
premium to be paid by the COMPANY. If the COMPANY is self-insured the one hundred pesos
(P100.00) per employee monthly contribution shall be given to the COMPANY which shall shoulder
the expenses subject to the above level of benefits and subject to the same limitations and
restrictions provided for in Annex "B" hereof.

The hospitalization expenses must be covered by actual hospital and doctor's bills and any amount in
excess of the above mentioned level of benefits will be for the account of the employee.

For purposes of this provision, eligible dependents are the covered employees' natural parents, legal
spouse and legitimate or legally adopted or step children who are unmarried, unemployed who
have not attained twenty-one (21) years of age and wholly dependent upon the employee for
support.

This provision applies only in cases of actual confinement in the hospital for at least six (6) hours.

Maternity cases are not covered by this section but will be under the next succeeding section on
maternity benefits.[6]

When the CBA expired on July 31, 1999, the parties executed another CBA[7] effective August 1, 1999
to July 31, 2002 incorporating the same provisions on dependents' hospitalization insurance benefits
but in the increased amount of P50,000.00. The room and board expenses, as well as the doctor's
call fees, were also increased to P375.00.

On separate occasions, three members of MMPSEU, namely, Ernesto Calida (Calida), Hermie Juan
Oabel (Oabel) and Jocelyn Martin (Martin), filed claims for reimbursement of hospitalization expenses
of their dependents.

MMPC paid only a portion of their hospitalization insurance claims, not the full amount. In the case of
Calida, his wife, Lanie, was confined at Sto. Tomas University Hospital from September 4 to 9, 1998
due to Thyroidectomy. The medical expenses incurred totalled P29,967.10. Of this amount, P9,000.00
representing professional fees was paid by MEDICard Philippines, Inc. (MEDICard) which provides
health maintenance to Lanie.[8] MMPC only paid P12,148.63.[9] It did not pay the P9,000.00 already
paid by MEDICard and the P6,278.47 not covered by official receipts. It refused to give to Calida the
difference between the amount of medical expenses of P27,427.10[10] which he claimed to be
entitled to under the CBA and the P12,148.63 which MMPC directly paid to the hospital.

As regards Oabel's claim, his wife Jovita Nemia (Jovita) was confined at The Medical City from March
8 to 11, 1999 due to Tonsillopharyngitis, incurring medical expenses totalling P8,489.35.[11] Of this
amount, P7,811.00 was paid by Jovita's personal health insurance, Prosper Insurance Company
(Prosper).[12] MMPC paid the hospital the amount of P630.87,[13] after deducting from the total
medical expenses the amount paid by Prosper and the P47.48 discount given by the hospital.

In the case of Martin, his father, Jose, was admitted at The Medical City from March 26 to 27, 2000
due to Acid Peptic Disease and incurred medical expenses amounting to P9,101.30.[14] MEDICard
paid P8,496.00.[15] Consequently, MMPC only paid P288.40,[16]after deducting from the total medical
expenses the amount paid by MEDICard and the P316.90 discount given by the hospital.

Claiming that under the CBA, they are entitled to hospital benefits amounting to P27,427.10,
P6,769.35 and P8,123.80, respectively, which should not be reduced by the amounts paid by
MEDICard and by Prosper, Calida, Oabel and Martin asked for reimbursement from MMPC.
However, MMPC denied the claims contending that double insurance would result if the said
employees would receive from the company the full amount of hospitalization expenses despite
having already received payment of portions thereof from other health insurance providers.

This prompted the MMPSEU President to write the MMPC President[17] demanding full payment of the
hospitalization benefits. Alleging discrimination against MMPSEU union members, she pointed out
that full reimbursement was given in a similar claim filed by Luisito Cruz (Cruz), a member of the Hourly
Union. In a letter-reply,[18] MMPC, through its Vice-President for Industrial Relations Division, clarified
that the claims of the said MMPSEU members have already been paid on the basis of official receipts
submitted. It also denied the charge of discrimination and explained that the case of Cruz involved
an entirely different matter since it concerned the admissibility of certified true copies of documents
for reimbursement purposes, which case had been settled through voluntary arbitration.

On August 28, 2000, MMPSEU referred the dispute to the National Conciliation and Mediation Board
and requested for preventive mediation.[19]

Proceedings before the Voluntary Arbitrator

On October 3, 2000, the case was referred to Voluntary Arbitrator Rolando Capocyan for resolution
of the issue involving the interpretation of the subject CBA provision.[20]

MMPSEU alleged that there is nothing in the CBA which prohibits an employee from obtaining other
insurance or declares that medical expenses can be reimbursed only upon presentation of original
official receipts. It stressed that the hospitalization benefits should be computed based on the
formula indicated in the CBA without deducting the benefits derived from other insurance providers.
Besides, if reduction is permitted, MMPC would be unjustly benefitted from the monthly premium
contributed by the employees through salary deduction. MMPSEU added that its members had
legitimate claims under the CBA and that any doubt as to any of its provisions should be resolved in
favor of its members. Moreover, any ambiguity should be resolved in favor of labor.[21]
On the other hand, MMPC argued that the reimbursement of the entire amounts being claimed by
the covered employees, including those already paid by other insurance companies, would
constitute double indemnity or double insurance, which is circumscribed under the Insurance Code.
Moreover, a contract of insurance is a contract of indemnity and the employees cannot be allowed
to profit from their dependents' loss.[22]

Meanwhile, the parties separately sought for a legal opinion from the Insurance Commission relative
to the issue at hand. In its letter[23]to the Insurance Commission, MMPC requested for confirmation of
its position that the covered employees cannot claim insurance benefits for a loss that had already
been covered or paid by another insurance company. However, the Office of the Insurance
Commission opted not to render an opinion on the matter as the same may become the subject of a
formal complaint before it.[24] On the other hand, when queried by MMPSEU,[25] the Insurance
Commission, through Atty. Richard David C. Funk II (Atty. Funk) of the Claims Adjudication Division,
rendered an opinion contained in a letter,[26] viz:

January 8, 2002

Ms. Cecilia L. Paras

President Mitsubishi Motors Phils.
[Salaried] Employees Union
Ortigas Avenue Extension,
Cainta, Rizal

Madam:

We acknowledge receipt of your letter which, to our impression, basically poses the question of
whether or not recovery of medical expenses from a Health Maintenance Organization bars
recovery of the same reimbursable amount of medical expenses under a contract of health or
medical insurance.

We wish to opine that in cases of claims for reimbursement of medical expenses where there are two
contracts providing benefits to that effect, recovery may be had on both simultaneously. In the
absence of an Other Insurance provision in these coverages, the courts have uniformly held that an
insured is entitled to receive the insurance benefits without regard to the amount of total benefits
provided by other insurance. (INSURANCE LAW, A Guide to Fundamental Principles, Legal Doctrines,
and Commercial Practices; Robert E. Keeton, Alau I. Widiss, p. 261). The result is consistent with the
public policy underlying the collateral source rule that is, x x x the courts have usually concluded that
the liability of a health or accident insurer is not reduced by other possible sources of indemnification
or compensation. (ibid).

Very truly yours,

(SGD.)
RICHARD DAVID C. FUNK II
Attorney IV
Officer-in-Charge
Claims Adjudication Division

On December 3, 2002, the Voluntary Arbitrator rendered a Decision [27] finding MMPC liable to pay or
reimburse the amount of hospitalization expenses already paid by other health insurance
companies. The Voluntary Arbitrator held that the employees may demand simultaneous payment
from both the CBA and their dependents' separate health insurance without resulting to double
insurance, since separate premiums were paid for each contract. He also noted that the CBA does
not prohibit reimbursement in case there are other health insurers.

Proceedings before the Court of Appeals

MMPC filed a Petition for Review with Prayer for the Issuance of a Temporary Restraining Order
and/or Writ of Preliminary Injunction[28] before the CA. It claimed that the Voluntary Arbitrator
committed grave abuse of discretion in not finding that recovery under both insurance policies
constitutes double insurance as both had the same subject matter, interest insured and risk or peril
insured against; in relying solely on the unauthorized legal opinion of Atty. Funk; and in not finding
that the employees will be benefitted twice for the same loss. In its Comment,[29] MMPSEU countered
that MMPC will unjustly enrich itself and profit from the monthly premiums paid if full reimbursement is
not made.

On March 31, 2006, the CA found merit in MMPC's Petition. It ruled that despite the lack of a
provision which bars recovery in case of payment by other insurers, the wordings of the subject
provision of the CBA showed that the parties intended to make MMPC liable only for expenses
actually incurred by an employee's qualified dependent. In particular, the provision stipulates that
payment should be made directly to the hospital and that the claim should be supported by actual
hospital and doctor's bills. These mean that the employees shall only be paid amounts not covered
by other health insurance and is more in keeping with the principle of indemnity in insurance
contracts. Besides, a contrary interpretation would "allow unscrupulous employees to unduly profit
from the x x x benefits" and shall "open the floodgates to questionable claims x x x." [30]

The dispositive portion of the CA Decision[31] reads:

WHEREFORE, the instant petition is GRANTED. The decision of the voluntary arbitrator dated
December 3, 2002 is REVERSED and SET ASIDE and judgment is rendered declaring that under Art. XI,
Sec. 4 of the Collective Bargaining Agreement between petitioner and respondent effective August
1, 1999 to July 31, 2002, the former's obligation to reimburse the Union members for the hospitalization
expenses incurred by their dependents is exclusive of those paid by the Union members to the
hospital.
SO ORDERED.[32]

In its Motion for Reconsideration,[33] MMPSEU pointed out that the alleged oppression that may be
committed by abusive employees is a mere possibility whereas the resulting losses to the employees
are real. MMPSEU cited Samsel v. Allstate Insurance Co.,[34] wherein the Arizona Supreme Court
explicitly ruled that an insured may recover from separate health insurance providers, regardless of
whether one of them has already paid the medical expenses incurred. On the other hand, MMPC
argued in its Comment[35] that the cited foreign case involves a different set of facts. The CA, in its
Resolution[36] dated December 5, 2006, denied MMPSEU's motion.

Hence, this Petition.

Issues

MMPSEU presented the following grounds in support of its Petition:

A.

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT REVERSED THE DECISION DATED 03 [DECEMBER]
2002 OF THE VOLUNTARY ARBITRATOR BELOW WHEN THE SAME WAS SUPPORTED BY SUBSTANTIAL
EVIDENCE, INCLUDING THE OPINION OF THE INSURANCE COMMISSION THAT RECOVERY FROM BOTH
THE CBA AND SEPARATE HEALTH CARDS IS NOT PROHIBITED IN THE ABSENCE OF ANY SPECIFIC
PROVISION IN THE CBA.

B.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN OVERTURNING THE DECISION OF THE
VOLUNTARY ARBITRATOR WITHOUT EVEN GIVING ANY LEGAL OR JUSTIFIABLE BASIS FOR SUCH
REVERSAL.

C.

THE COURT OF APPEALS COMMITTED GRAVE ERROR IN REFUSING TO CONSIDER OR EVEN MENTION
ANYTHING ABOUT THE AMERICAN AUTHORITIES CITED IN THE RECORDS THAT DO NOT PROHIBIT, BUT IN
FACT ALLOW, RECOVERY FROM TWO SEPARATE HEALTH PLANS.
D.

THE COURT OF APPEALS GRAVELY ERRED IN GIVING MORE IMPORTANCE TO A POSSIBLE, HENCE
MERELY SPECULATIVE, ABUSE BY EMPLOYEES OF THE BENEFITS IF DOUBLE RECOVERY WERE ALLOWED
INSTEAD OF THE REAL INJURY TO THE EMPLOYEES WHO ARE PAYING FOR THE CBA HOSPITALIZATION
BENEFITS THROUGH MONTHLY SALARY DEDUCTIONS BUT WHO MAY NOT BE ABLE TO AVAIL OF THE
SAME IF THEY OR THEIR DEPENDENTS HAVE OTHER HEALTH INSURANCE.[37]

MMPSEU avers that the Decision of the Voluntary Arbitrator deserves utmost respect and finality
because it is supported by substantial evidence and is in accordance with the opinion rendered by
the Insurance Commission, an agency equipped with vast knowledge concerning insurance
contracts. It maintains that under the CBA, member-employees are entitled to full reimbursement of
medical expenses incurred by their dependents regardless of any amounts paid by the latter's health
insurance provider. Otherwise, non-recovery will constitute unjust enrichment on the part of MMPC.
It avers that recovery from both the CBA and other insurance companies is allowed under their CBA
and not prohibited by law nor by jurisprudence.

Our Ruling

The Petition has no merit.

Atty. Funk erred in applying the

collateral source rule.

The Voluntary Arbitrator based his ruling on the opinion of Atty. Funk that the employees may recover
benefits from different insurance providers without regard to the amount of benefits paid by each.
According to him, this view is consistent with the theory of the collateral source rule.

As part of American personal injury law, the collateral source rule was originally applied to tort cases
wherein the defendant is prevented from benefitting from the plaintiff's receipt of money from other
sources.[38] Under this rule, if an injured person receives compensation for his injuries from a source
wholly independent of the tortfeasor, the payment should not be deducted from the damages
which he would otherwise collect from the tortfeasor.[39] In a recent Decision[40] by the Illinois
Supreme Court, the rule has been described as "an established exception to the general rule that
damages in negligence actions must be compensatory." The Court went on to explain that although
the rule appears to allow a double recovery, the collateral source will have a lien or subrogation right
to prevent such a double recovery.[41] In Mitchell v. Haldar,[42] the collateral source rule was
rationalized by the Supreme Court of Delaware:
The collateral source rule is 'predicated on the theory that a tortfeasor has no interest in, and
therefore no right to benefit from monies received by the injured person from sources unconnected
with the defendant'. According to the collateral source rule, 'a tortfeasor has no right to any
mitigation of damages because of payments or compensation received by the injured person from
an independent source.' The rationale for the collateral source rule is based upon the quasi-punitive
nature of tort law liability. It has been explained as follows:

The collateral source rule is designed to strike a balance between two competing principles of tort
law: (1) a plaintiff is entitled to compensation sufficient to make him whole, but no more; and (2) a
defendant is liable for all damages that proximately result from his wrong. A plaintiff who receives a
double recovery for a single tort enjoys a windfall; a defendant who escapes, in whole or in part,
liability for his wrong enjoys a windfall. Because the law must sanction one windfall and deny the
other, it favors the victim of the wrong rather than the wrongdoer.

Thus, the tortfeasor is required to bear the cost for the full value of his or her negligent conduct even if
it results in a windfall for the innocent plaintiff. (Citations omitted)

As seen, the collateral source rule applies in order to place the responsibility for losses on the party
causing them.[43] Its application is justified so that "'the wrongdoer should not benefit from the
expenditures made by the injured party or take advantage of contracts or other relations that may
exist between the injured party and third persons."[44] Thus, it finds no application to cases involving
no-fault insurances under which the insured is indemnified for losses by insurance companies,
regardless of who was at fault in the incident generating the losses.[45] Here, it is clear that MMPC is a
no-fault insurer. Hence, it cannot be obliged to pay the hospitalization expenses of the dependents
of its employees which had already been paid by separate health insurance providers of said
dependents.

The Voluntary Arbitrator therefore erred in adopting Atty. Funk's view that the covered employees are
entitled to full payment of the hospital expenses incurred by their dependents, including the amounts
already paid by other health insurance companies based on the theory of collateral source rule.

The conditions set forth in the CBA provision

indicate an intention to limit MMPC's liability
only to actual expenses incurred by the employees'
dependents, that is, excluding the amounts paid
by dependents' other health insurance providers.

The Voluntary Arbitrator ruled that the CBA has no express provision barring claims for hospitalization
expenses already paid by other insurers. Hence, the covered employees can recover from both.
The CA did not agree, saying that the conditions set forth in the CBA implied an intention of the
parties to limit MMPC's liability only to the extent of the expenses actually incurred by their
dependents which excludes the amounts shouldered by other health insurance companies.

We agree with the CA. The condition that payment should be direct to the hospital and
doctor implies that MMPC is only liable to pay medical expenses actually shouldered by the
employees' dependents. It follows that MMPC's liability is limited, that is, it does not include the
amounts paid by other health insurance providers. This condition is obviously intended to thwart not
only fraudulent claims but also double claims for the same loss of the dependents of covered
employees.

It is well to note at this point that the CBA constitutes a contract between the parties and as such, it
should be strictly construed for the purpose of limiting the amount of the employer's liability. [46] The
terms of the subject provision are clear and provide no room for any other interpretation. As there is
no ambiguity, the terms must be taken in their plain, ordinary and popular sense.[47] Consequently,
MMPSEU cannot rely on the rule that a contract of insurance is to be liberally construed in favor of
the insured. Neither can it rely on the theory that any doubt must be resolved in favor of labor.

Samsel v. Allstate Insurance Co. is not

on all fours with the case at bar.

MMPSEU cannot rely on Samsel v. Allstate Insurance Co. where the Supreme Court of Arizona
allowed the insured to enjoy medical benefits under an automobile policy insurance despite being
able to also recover from a separate health insurer. In that case, the Allstate automobile policy does
not contain any clause restricting medical payment coverage to expenses actually paid by the
insured nor does it specifically provide for reduction of medical payments benefits by a coordination
of benefits.[48] However, in the case before us, the dependents' group hospitalization insurance
provision in the CBA specifically contains a condition which limits MMPC's liability only up to the
extent of the expenses that should be paid by the covered employee's dependent to the hospital
and doctor. This is evident from the portion which states that "payment [by MMPC] shall be direct to
the hospital and doctor."[49] In contrast, the Allstate automobile policy expressly gives Allstate the
authority to pay directly to the insured person or on the latter's behalf all reasonable expenses
actually incurred. Therefore, reliance on [Samsel] is unavailing because the facts therein are
different and not decisive of the issues in the present case.

To allow reimbursement of amounts paid

under other insurance policies shall constitute
double recovery which is not sanctioned by law.

MMPSEU insists that MMPC is also liable for the amounts covered under other insurance policies;
otherwise, MMPC will unjustly profit from the premiums the employees contribute through monthly
salary deductions.

This contention is unmeritorious.

To constitute unjust enrichment, it must be shown that a party was unjustly enriched in the sense that
the term unjustly could mean illegally or unlawfully.[50] A claim for unjust enrichment fails when the
person who will benefit has a valid claim to such benefit.[51]
The CBA has provided for MMPC's limited liability which extends only up to the amount to be paid to
the hospital and doctor by the employees' dependents, excluding those paid by other insurers.
Consequently, the covered employees will not receive more than what is due them; neither is MMPC
under any obligation to give more than what is due under the CBA.

Moreover, since the subject CBA provision is an insurance contract, the rights and obligations of the
parties must be determined in accordance with the general principles of insurance law. [52] Being in
the nature of a non-life insurance contract and essentially a contract of indemnity, the CBA provision
obligates MMPC to indemnify the covered employees' medical expenses incurred by their
dependents but only up to the extent of the expenses actually incurred.[53] This is consistent with the
principle of indemnity which proscribes the insured from recovering greater than the loss. [54] Indeed,
to profit from a loss will lead to unjust enrichment and therefore should not be countenanced. As
aptly ruled by the CA, to grant the claims of MMPSEU will permit possible abuse by employees.

WHEREFORE, the Petition is DENIED. The Decision dated March 31, 2006 and Resolution dated
December 5, 2006 of the Court of Appeals in CA-G.R. SP No. 75630, are AFFIRMED.

SO ORDERED.

Carpio, (Chairperson), Brion, Del Castillo, Perez, and Perlas-Bernabe, JJ., concur.

G.R. No. L-37750 May 19, 1978

SWEET LINES, INC., petitioner,

vs.
HON. BERNARDO TEVES, Presiding Judge, CFI of Misamis Oriental Branch VII, LEOVIGILDO TANDOG,
JR., and ROGELIO TIRO, respondents.

Filiberto Leonardo, Abelardo C. Almario & Samuel B. Abadiano for petitioner.

Leovigildo Vallar for private respondents.

SANTOS, J.:

This is an original action for Prohibition with Pre Injunction filed October 3, 1973 to restrain respondent
Judge from proceeding further with Civil Case No. 4091, entitled Leovigildo D. Tandog, Jr. and
Rogelio Tiro v. Sweet Lines, Inc." after he denied petitioner's Motion to Dismiss the complaint, and the
Motion for Reconsideration of said order. 1

Briefly, the facts of record follow. Private respondents Atty. Leovigildo Tandog and Rogelio Tiro, a
contractor by professions, bought tickets Nos. 0011736 and 011737 for Voyage 90 on December 31,
1971 at the branch office of petitioner, a shipping company transporting inter-island passengers and
cargoes, at Cagayan de Oro City. Respondents were to board petitioner's vessel, M/S "Sweet Hope"
bound for Tagbilaran City via the port of Cebu. Upon learning that the vessel was not proceeding to
Bohol, since many passengers were bound for Surigao, private respondents per advice, went to the
branch office for proper relocation to M/S "Sweet Town". Because the said vessel was already filled to
capacity, they were forced to agree "to hide at the cargo section to avoid inspection of the officers
of the Philippine Coastguard." Private respondents alleged that they were, during the trip," "exposed
to the scorching heat of the sun and the dust coming from the ship's cargo of corn grits," and that the
tickets they bought at Cagayan de Oro City for Tagbilaran were not honored and they were
constrained to pay for other tickets. In view thereof, private respondents sued petitioner for damages
and for breach of contract of carriage in the alleged sum of P10,000.00 before respondents Court of
First Instance of Misamis Oriental. 2

Petitioner moved to dismiss the complaint on the ground of improper venue. This motion was
premised on the condition printed at the back of the tickets, i.e., Condition No. 14, which reads:

14. It is hereby agreed and understood that any and all actions arising out of the
conditions and provisions of this ticket, irrespective of where it is issued, shall be filed in
the competent courts in the City of Cebu. 3

The motion was denied by the trial court. 4 Petitioner moved to reconnsider the order of denial, but
no avail. 5 Hence, this instant petition for prohibition for preliminary injunction, 'alleging that the
respondent judge has departed from the accepted and usual course of judicial preoceeding" and
"had acted without or in excess or in error of his jurisdicton or in gross abuse of discretion. 6

In Our resolution of November 20, 1973, We restrained respondent Judge from proceeding further
with the case and required respondent to comment. 7 On January 18, 1974, We gave due course to
the petition and required respondent to answer. 8 Thereafter, the parties submitted their respesctive
memoranda in support of their respective contentions. 9

Presented thus for Our resolution is a question is aquestion which, to all appearances, is one of first
impression, to wit — Is Condition No. 14 printed at the back of the petitioner's passage tickets
purchased by private respondents, which limits the venue of actions arising from the contract of
carriage to theCourt of First Instance of Cebu, valid and enforceable? Otherwise stated, may a
common carrier engaged in inter-island shipping stipulate thru condition printed at the back of
passage tickets to its vessels that any and all actions arising out of the ocntract of carriage should be
filed only in a particular province or city, in this case the City of Cebu, to the exclusion of all others?

Petitioner contends thaty Condition No. 14 is valid and enforceable, since private respndents
acceded to tit when they purchased passage tickets at its Cagayan de Oro branch office and took
its vessel M/S "Sweet Town" for passage to Tagbilaran, Bohol — that the condition of the venue of
actions in the City of Cebu is proper since venue may be validly waived, citing cases; 10 that is an
effective waiver of venue, valid and binding as such, since it is printed in bold and capital letters and
not in fine print and merely assigns the place where the action sing from the contract is institution
likewise citing cases; 11 and that condition No. 14 is unequivocal and mandatory, the words and
phrases "any and all", "irrespective of where it is issued," and "shag" leave no doubt that the intention
of Condition No. 14 is to fix the venue in the City of Cebu, to the exclusion of other places; that the
orders of the respondent Judge are an unwarranted departure from established jurisprudence
governing the case; and that he acted without or in excess of his jurisdiction in is the orders
complained of. 12

On the other hand, private respondents claim that Condition No. 14 is not valid, that the same is not
an essential element of the contract of carriage, being in itself a different agreement which requires
the mutual consent of the parties to it; that they had no say in its preparation, the existence of which
they could not refuse, hence, they had no choice but to pay for the tickets and to avail of
petitioner's shipping facilities out of necessity; that the carrier "has been exacting too much from the
public by inserting impositions in the passage tickets too burdensome to bear," that the condition
which was printed in fine letters is an imposition on the riding public and does not bind respondents,
citing cases; 13 that while venue 6f actions may be transferred from one province to another, such
arrangement requires the "written agreement of the parties", not to be imposed unilaterally; and that
assuming that the condition is valid, it is not exclusive and does not, therefore, exclude the filing of
the action in Misamis Oriental, 14

There is no question that there was a valid contract of carriage entered into by petitioner and private
respondents and that the passage tickets, upon which the latter based their complaint, are the best
evidence thereof. All the essential elements of a valid contract, i.e., consent, cause or consideration
and object, are present. As held in Peralta de Guerrero, et al. v. Madrigal Shipping Co., Inc., 15

It is a matter of common knowledge that whenever a passenger boards a ship for

transportation from one place to another he is issued a ticket by the shipper which has
all the elements of a written contract, Namely: (1) the consent of the contracting
parties manifested by the fact that the passenger boards the ship and the shipper
consents or accepts him in the ship for transportation; (2) cause or consideration which
is the fare paid by the passenger as stated in the ticket; (3) object, which is the
transportation of the passenger from the place of departure to the place of destination
which are stated in the ticket.

It should be borne in mind, however, that with respect to the fourteen (14) conditions — one of which
is "Condition No. 14" which is in issue in this case — printed at the back of the passage tickets, these
are commonly known as "contracts of adhesion," the validity and/or enforceability of which will have
to be determined by the peculiar circumstances obtaining in each case and the nature of the
conditions or terms sought to be enforced. For, "(W)hile generally, stipulations in a contract come
about after deliberate drafting by the parties thereto, ... there are certain contracts almost all the
provisions of which have been drafted only by one party, usually a corporation. Such contracts are
called contracts of adhesion, because the only participation of the party is the signing of his
signature or his 'adhesion' thereto. Insurance contracts, bills of lading, contracts of make of lots on the
installment plan fall into this category" 16

By the peculiar circumstances under which contracts of adhesion are entered into — namely, that it
is drafted only by one party, usually the corporation, and is sought to be accepted or adhered to by
the other party, in this instance the passengers, private respondents, who cannot change the same
and who are thus made to adhere thereto on the "take it or leave it" basis — certain guidelines in the
determination of their validity and/or enforceability have been formulated in order to that justice and
fan play characterize the relationship of the contracting parties. Thus, this Court speaking through
Justice J.B.L. Reyes in Qua Chee Gan v. Law Union and Rock Insurance Co., 17 and later through
Justice Fernando in Fieldman Insurance v. Vargas, 18 held —

The courts cannot ignore that nowadays, monopolies, cartels and concentration of
capital endowed with overwhelm economic power, manage to impose upon parties d
with them y prepared 'agreements' that the weaker party may not change one whit his
participation in the 'agreement' being reduced to the alternative 'to take it or leave it,'
labelled since Raymond Saleilles 'contracts by adherence' (contracts d' adhesion) in
contrast to those entered into by parties bargaining on an equal footing. Such
contracts (of which policies of insurance and international bill of lading are prime
examples) obviously cap for greater strictness and vigilance on the part of the courts of
justice with a view to protecting the weaker party from abuses and imposition, and
prevent their becoming traps for the unwary.

To the same effect and import, and, in recognition of the character of contracts of this kind, the
protection of the disadvantaged is expressly enjoined by the New Civil Code —
 In all contractual property or other relations, when one of the parties is at a
disadvantage on account of his moral dependence, ignorance indigence, mental
weakness, tender age and other handicap, the courts must be vigilant for his
protection. 19

Considered in the light Of the foregoing norms and in the context Of circumstances Prevailing in the
inter-island ship. ping industry in the country today, We find and hold that Condition No. 14 printed at
the back of the passage tickets should be held as void and unenforceable for the following reasons
first, under circumstances obligation in the inter-island ship. ping industry, it is not just and fair to bind
passengers to the terms of the conditions printed at the back of the passage tickets, on which
Condition No. 14 is Printed in fine letters, and second, Condition No. 14 subverts the public policy on
transfer of venue of proceedings of this nature, since the same will prejudice rights and interests of
innumerable passengers in different s of the country who, under Condition No. 14, will have to file suits
against petitioner only in the City of Cebu.

1. It is a matter of public knowledge, of which We can take judicial notice, that there is a dearth of
and acute shortage in inter- island vessels plying between the country's several islands, and the
facilities they offer leave much to be desired. Thus, even under ordinary circumstances, the piers are
congested with passengers and their cargo waiting to be transported. The conditions are even worse
at peak and/or the rainy seasons, when Passengers literally scramble to whatever accommodations
may be availed of, even through circuitous routes, and/or at the risk of their safety — their immediate
concern, for the moment, being to be able to board vessels with the hope of reaching their
destinations. The schedules are — as often as not if not more so — delayed or altered. This was
precisely the experience of private respondents when they were relocated to M/S "Sweet Town" from
M/S "Sweet Hope" and then any to the scorching heat of the sun and the dust coming from the ship's
cargo of corn grits, " because even the latter was filed to capacity.

Under these circumstances, it is hardly just and proper to expect the passengers to examine their
tickets received from crowded/congested counters, more often than not during rush hours, for
conditions that may be printed much charge them with having consented to the conditions, so
printed, especially if there are a number of such conditions m fine print, as in this case. 20

Again, it should be noted that Condition No. 14 was prepared solely at the ms of the petitioner,
respondents had no say in its preparation. Neither did the latter have the opportunity to take the into
account prior to the purpose chase of their tickets. For, unlike the small print provisions of contracts —
the common example of contracts of adherence — which are entered into by the insured in his
awareness of said conditions, since the insured is afforded the op to and co the same, passengers of
inter-island v do not have the same chance, since their alleged adhesion is presumed only from the
fact that they purpose chased the tickets.

It should also be stressed that slapping companies are franchise holders of certificates of public
convenience and therefore, posses a virtual monopoly over the business of transporting passengers
between the ports covered by their franchise. This being so, shipping companies, like petitioner,
engaged in inter-island shipping, have a virtual monopoly of the business of transporting passengers
and may thus dictate their terms of passage, leaving passengers with no choice but to buy their
tickets and avail of their vessels and facilities. Finally, judicial notice may be taken of the fact that the
bulk of those who board these inter-island vested come from the low-income groups and are less
literate, and who have little or no choice but to avail of petitioner's vessels.

2. Condition No. 14 is subversive of public policy on transfers of venue of actions. For, although venue
may be changed or transferred from one province to another by agreement of the parties in writing t
to Rule 4, Section 3, of the Rules of Court, such an agreement will not be held valid where it
practically negates the action of the claimants, such as the private respondents herein. The
philosophy underlying the provisions on transfer of venue of actions is the convenience of the
plaintiffs as well as his witnesses and to promote 21 the ends of justice. Considering the expense and
trouble a passenger residing outside of Cebu City would incur to prosecute a claim in the City of
Cebu, he would most probably decide not to file the action at all. The condition will thus defeat,
instead of enhance, the ends of justice. Upon the other hand, petitioner has branches or offices in
the respective ports of call of its vessels and can afford to litigate in any of these places. Hence, the
filing of the suit in the CFI of Misamis Oriental, as was done in the instant case, will not cause
inconvenience to, much less prejudice, petitioner.

Public policy is ". . . that principle of the law which holds that no subject or citizen can lawfully do that
which has a tendency to be injurious to the public or against the public good ... 22 Under this
principle" ... freedom of contract or private dealing is restricted by law for the good of the
public. 23 Clearly, Condition No. 14, if enforced, will be subversive of the public good or interest, since
it will frustrate in meritorious cases, actions of passenger cants outside of Cebu City, thus placing
petitioner company at a decided advantage over said persons, who may have perfectly legitimate
claims against it. The said condition should, therefore, be declared void and unenforceable, as
contrary to public policy — to make the courts accessible to all who may have need of their services.

WHEREFORE, the petition for prohibition is DISMISS. ED. The restraining order issued on November 20,
1973, is hereby LIFTED and SET ASIDE. Costs against petitioner.

Fernando (Chairman), Aquino, Concepcion, Jr., JJ., concur.

Antonio, J., reserves his vote.

Separate Opinions

BARREDO, J., concurring:

I concur in the dismissal of the instant petition.

Only a few days ago, in Hoechst Philippines, Inc. vs. Francisco Torres, et al., G. R. No. L-44351,
promulgated May 18, 1978, We made it clear that although generally, agreements regarding
change of venue are enforceable, there may be instances where for equitable considerations and
in the better interest of justice, a court may justify the laying of, the venue in the place fixed by the
rules instead of following written stipulation of the parties.

In the particular case at bar, there is actually no written agreement as to venue between the parties
in the sense contemplated in Section 3 of Rule 4, which governs the matter. I take it that the
importance that a stipulation regarding change of the venue fixed by law entails is such that nothing
less than mutually conscious agreement as to it must be what the rule means. In the instant case, as
well pointed out in the main opinion, the ticket issued to private respondents by petitioner constitutes
at best a "contract of adhesion". In other words, it is not that kind of a contract where the parties sit
down to deliberate, discuss and agree specifically on all its terms, but rather, one which respondents
took no part at all in preparing, since it was just imposed upon them when they paid for the fare for
the freight they wanted to ship. It is common knowledge that individuals who avail of common
carriers hardly read the fine prints on such tickets to note anything more than the price thereof and
the destination designated therein.

Under these circumstances, it would seem that, since this case is already in respondent court and
there is no showing that, with its more or less known resources as owner of several inter-island vessels
plying between the different ports of the Philippines for sometime already, petitioner would be
greatly inconvenienced by submitting to the jurisdiction of said respondent court, it is best to allow
the proceedings therein to continue. I cannot conceive of any juridical injury such a step can cause
to anyone concerned. I vote to dismiss the petition.

G.R. No. 92383 July 17, 1992

SUN INSURANCE OFFICE, LTD., petitioner,

vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.

CRUZ, J.:

The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of
P200,000.00. Two months later, he was dead with a bullet wound in his head. As beneficiary, his wife
Nerissa Lim sought payment on the policy but her claim was rejected. The petitioner agreed that
there was no suicide. It argued, however that there was no accident either.

Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6, 1982,
at about 10 o'clock in the evening, after his mother's birthday party. According to Nalagon, Lim was
in a happy mood (but not drunk) and was playing with his handgun, from which he had previously
removed the magazine. As she watched television, he stood in front of her and pointed the gun at
her. She pushed it aside and said it might he loaded. He assured her it was not and then pointed it to
his temple. The next moment there was an explosion and Lim slumped to the floor. He was dead
before he fell. 1

The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was sustained. 2 The
petitioner was sentenced to pay her P200,000.00, representing the face value of the policy, with
interest at the legal rate; P10,000.00 as moral damages; P5,000.00 as exemplary damages; P5,000.00
as actual and compensatory damages; and P5,000.00 as attorney's fees, plus the costs of the suit.
This decision was affirmed on appeal, and the motion for reconsideration was denied. 3 The petitioner
then came to this Court to fault the Court of Appeals for approving the payment of the claim and
the award of damages.

The term "accident" has been defined as follows:

The words "accident" and "accidental" have never acquired any technical signification in law, and
when used in an insurance contract are to be construed and considered according to the ordinary
understanding and common usage and speech of people generally. In-substance, the courts are
practically agreed that the words "accident" and "accidental" mean that which happens by chance
or fortuitously, without intention or design, and which is unexpected, unusual, and unforeseen. The
definition that has usually been adopted by the courts is that an accident is an event that takes
place without one's foresight or expectation — an event that proceeds from an unknown cause, or is
an unusual effect of a known case, and therefore not expected. 4

An accident is an event which happens without any human agency or, if happening through human
agency, an event which, under the circumstances, is unusual to and not expected by the person to
whom it happens. It has also been defined as an injury which happens by reason of some violence or
casualty to the injured without his design, consent, or voluntary co-operation. 5

In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was
indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, 6 says that
"there is no accident when a deliberate act is performed unless some additional, unexpected,
independent and unforeseen happening occurs which produces or brings about their injury or
death." There was such a happening. This was the firing of the gun, which was the additional
unexpected and independent and unforeseen occurrence that led to the insured person's death.

The petitioner also cites one of the four exceptions provided for in the insurance contract and
contends that the private petitioner's claim is barred by such provision. It is there stated:

Exceptions —

The company shall not be liable in respect of

1. Bodily injury

xxx xxx xxx

b. consequent upon

i) The insured person attempting to commit suicide or willfully exposing himself to

needless peril except in an attempt to save human life.

To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends
that the insured willfully exposed himself to needless peril and thus removed himself from the
coverage of the insurance policy.

It should be noted at the outset that suicide and willful exposure to needless peril are in pari
materia because they both signify a disregard for one's life. The only difference is in degree, as
suicide imports a positive act of ending such life whereas the second act indicates a reckless risking
of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one thousand meters
above the ground and without any safety device may not actually be intending to commit suicide,
but his act is nonetheless suicidal. He would thus be considered as "willfully exposing himself to
needless peril" within the meaning of the exception in question.

The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim had willfully
exposed himself to needless peril and so came under the exception. The theory is that a gun is per
se dangerous and should therefore be handled cautiously in every case.

That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the
magazine from the gun and believed it was no longer dangerous. He expressly assured her that the
gun was not loaded. It is submitted that Lim did not willfully expose himself to needless peril when he
pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. The act
was precisely intended to assure Nalagon that the gun was indeed harmless.
The contrary view is expressed by the petitioner thus:

Accident insurance policies were never intended to reward the insured for his tendency
to show off or for his miscalculations. They were intended to provide for contingencies.
Hence, when I miscalculate and jump from the Quezon Bridge into the Pasig River in
the belief that I can overcome the current, I have wilfully exposed myself to peril and
must accept the consequences of my act. If I drown I cannot go to the insurance
company to ask them to compensate me for my failure to swim as well as I thought I
could. The insured in the case at bar deliberately put the gun to his head and pulled
the trigger. He wilfully exposed himself to peril.

The Court certainly agrees that a drowned man cannot go to the insurance company to ask for
compensation. That might frighten the insurance people to death. We also agree that under the
circumstances narrated, his beneficiary would not be able to collect on the insurance policy for it is
clear that when he braved the currents below, he deliberately exposed himself to a known peril.

The private respondent maintains that Lim did not. That is where she says the analogy fails. The
petitioner's hypothetical swimmer knew when he dived off the Quezon Bridge that the currents below
were dangerous. By contrast, Lim did not know that the gun he put to his head was loaded.

Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent
his widow from recovering from the insurance policy he obtained precisely against accident. There is
nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if
the insured is shown to have contributed to his own accident. Indeed, most accidents are caused by
negligence. There are only four exceptions expressly made in the contract to relieve the insurer from
liability, and none of these exceptions is applicable in the case at bar. **

It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of
the assured. There is no reason to deviate from this rule, especially in view of the circumstances of this
case as above analyzed.

On the second assigned error, however, the Court must rule in favor of the petitioner. The basic issue
raised in this case is, as the petitioner correctly observed, one of first impression. It is evident that the
petitioner was acting in good faith then it resisted the private respondent's claim on the ground that
the death of the insured was covered by the exception. The issue was indeed debatable and was
clearly not raised only for the purpose of evading a legitimate obligation. We hold therefore that the
award of moral and exemplary damages and of attorney's fees is unjust and so must be
disapproved.

In order that a person may be made liable to the payment of moral damages, the law
requires that his act be wrongful. The adverse result of an action does not per se make
the act wrongful and subject the act or to the payment of moral damages. The law
could not have meant to impose a penalty on the right to litigate; such right is so
precious that moral damages may not be charged on those who may exercise it
erroneously. For these the law taxes costs. 7

The fact that the results of the trial were adverse to Barreto did not alone make his act
in bringing the action wrongful because in most cases one party will lose; we would be
imposing an unjust condition or limitation on the right to litigate. We hold that the award
of moral damages in the case at bar is not justified by the facts had circumstances as
well as the law.
 If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses,
since it is not the fact of winning alone that entitles him to recover such damages of the
exceptional circumstances enumerated in Art. 2208. Otherwise, every time a defendant
wins, automatically the plaintiff must pay attorney's fees thereby putting a premium on
the right to litigate which should not be so. For those expenses, the law deems the
award of costs as sufficient. 8

WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED in so far as it holds the
petitioner liable to the private respondent in the sum of P200,000.00 representing the face value of
the insurance contract, with interest at the legal rate from the date of the filing of the complaint until
the full amount is paid, but MODIFIED with the deletion of all awards for damages, including
attorney's fees, except the costs of the suit.

SO ORDERED.

Griño-Aquino, Medialdea and Bellosillo, JJ., concur.

G.R. No. 198174 September 2, 2013

ALPHA INSURANCE AND SURETY CO., PETITIONER,

vs.
ARSENIA SONIA CASTOR, RESPONDENT.

DECISION

PERALTA, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the
Decision1 dated May 31, 2011 and Resolution2 dated August 10, 2011 of the Court of Appeals (CA) in
CA-G.R. CV No. 93027.

The facts follow.

On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No.
MAND/CV-00186, with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The contract of
insurance obligates the petitioner to pay the respondent the amount of Six Hundred Thirty Thousand
Pesos (₱630,000.00) in case of loss or damage to said vehicle during the period covered, which is
from February 26, 2007 to February 26, 2008.

On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza
(Lanuza), to bring the above-described vehicle to a nearby auto-shop for a tune-up. However,
Lanuza no longer returned the motor vehicle to respondent and despite diligent efforts to locate the
same, said efforts proved futile. Resultantly, respondent promptly reported the incident to the police
and concomitantly notified petitioner of the said loss and demanded payment of the insurance
proceeds in the total sum of ₱630,000.00.

In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating among
others, thus:
Upon verification of the documents submitted, particularly the Police Report and your Affidavit,
which states that the culprit, who stole the Insure[d] unit, is employed with you. We would like to invite
you on the provision of the Policy under Exceptions to Section-III, which we quote:

1.) The Company shall not be liable for:

xxxx

(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON IN THE
INSURED’S SERVICE."

In view [of] the foregoing, we regret that we cannot act favorably on your claim.

In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued that
the exception refers to damage of the motor vehicle and not to its loss. However, petitioner’s denial
of respondent’s insured claim remains firm.

Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before
the Regional Trial Court (RTC) of Quezon City on September 10, 2007.

In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent in this
wise:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against
the defendant ordering the latter as follows:

To pay plaintiff the amount of ₱466,000.00 plus legal interest of 6% per annum from the time of
demand up to the time the amount is fully settled;

To pay attorney’s fees in the sum of ₱65,000.00; and

To pay the costs of suit.

All other claims not granted are hereby denied for lack of legal and factual basis.3

Aggrieved, petitioner filed an appeal with the CA.

On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon City’s decision. The
fallo reads:

WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision, dated
December 19, 2008, of Branch 215 of the Regional Trial Court of Quezon City, in Civil Case No. Q-07-
61099, is hereby AFFIRMED in toto.

SO ORDERED.4

Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in a
Resolution dated August 10, 2011.

Hence, the present petition wherein petitioner raises the following grounds for the allowance of its
petition:
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND GROSSLY OR GRAVELY
ABUSED ITS DISCRETION WHEN IT ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT AND AGAINST
THE PETITIONER AND RULED THAT EXCEPTION DOES NOT COVER LOSS BUT ONLY DAMAGE BECAUSE THE
TERMS OF THE INSURANCE POLICY ARE [AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH THAT THE
PARTIES THEMSELVES DISAGREE ABOUT THE MEANING OF PARTICULAR PROVISIONS, THE POLICY WILL BE
CONSTRUED BY THE COURTS LIBERALLY IN FAVOR OF THE ASSURED AND STRICTLY AGAINST THE INSURER.

WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND COMMITTED GRAVE ABUSE
OF DISCRETION WHEN IT [AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT.5

Simply, the core issue boils down to whether or not the loss of respondent’s vehicle is excluded under
the insurance policy.

We rule in the negative.

Significant portions of Section III of the Insurance Policy states:

SECTION III – LOSS OR DAMAGE

The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to
the Schedule Vehicle and its accessories and spare parts whilst thereon:

(a)

by accidental collision or overturning, or collision or overturning consequent upon mechanical

breakdown or consequent upon wear and tear;

(b)

by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;

(c)

by malicious act;

(d)

whilst in transit (including the processes of loading and unloading) incidental to such transit by road,
rail, inland waterway, lift or elevator.

xxxx

EXCEPTIONS TO SECTION III

The Company shall not be liable to pay for:

Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of
each and every loss for each and every vehicle insured by this Policy, such amount being equal to
one percent (1.00%) of the Insured’s estimate of Fair Market Value as shown in the Policy Schedule
with a minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or
breakages;

Damage to tires, unless the Schedule Vehicle is damaged at the same time;

Any malicious damage caused by the Insured, any member of his family or by a person in the
Insured’s service.6

In denying respondent’s claim, petitioner takes exception by arguing that the word "damage," under
paragraph 4 of "Exceptions to Section III," means loss due to injury or harm to person, property or
reputation, and should be construed to cover malicious "loss" as in "theft." Thus, it asserts that the loss
of respondent’s vehicle as a result of it being stolen by the latter’s driver is excluded from the policy.

We do not agree.

Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft perpetrated
by the driver of the insured is not an exception to the coverage from the insurance policy, since
Section III thereof did not qualify as to who would commit the theft. Thus:

Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance
policy subject of this case. This is evident from the very provision of Section III – "Loss or Damage." The
insurance company, subject to the limits of liability, is obligated to indemnify the insured against theft.
Said provision does not qualify as to who would commit the theft. Thus, even if the same is committed
by the driver of the insured, there being no categorical declaration of exception, the same must be
covered. As correctly pointed out by the plaintiff, "(A)n insurance contract should be interpreted as
to carry out the purpose for which the parties entered into the contract which is to insure against risks
of loss or damage to the goods. Such interpretation should result from the natural and reasonable
meaning of language in the policy. Where restrictive provisions are open to two interpretations, that
which is most favorable to the insured is adopted." The defendant would argue that if the person
employed by the insured would commit the theft and the insurer would be held liable, then this
would result to an absurd situation where the insurer would also be held liable if the insured would
commit the theft. This argument is certainly flawed. Of course, if the theft would be committed by the
insured himself, the same would be an exception to the coverage since in that case there would be
fraud on the part of the insured or breach of material warranty under Section 69 of the Insurance
Code.7

Moreover, contracts of insurance, like other contracts, are to be construed according to the sense
and meaning of the terms which the parties themselves have used. If such terms are clear and
unambiguous, they must be taken and understood in their plain, ordinary and popular
sense.8 Accordingly, in interpreting the exclusions in an insurance contract, the terms used specifying
the excluded classes therein are to be given their meaning as understood in common speech.9

Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in common
ordinary usage. The word "loss" refers to the act or fact of losing, or failure to keep possession, while
the word "damage" means deterioration or injury to property.1âwphi1

Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy
under paragraph 4 of "Exceptions to Section III," since the same refers only to "malicious damage," or
more specifically, "injury" to the motor vehicle caused by a person under the insured’s service.
Paragraph 4 clearly does not contemplate "loss of property," as what happened in the instant case.

Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one of
the exceptions from coverage, is the damage that is the direct result from the deliberate or willful act
of the insured, members of his family, and any person in the insured’s service, whose clear plan or
purpose was to cause damage to the insured vehicle for purposes of defrauding the insurer, viz.:

This interpretation by the Court is bolstered by the observation that the subject policy appears to
clearly delineate between the terms "loss" and "damage" by using both terms throughout the said
policy. x x x

xxxx

If the intention of the defendant-appellant was to include the term "loss" within the term "damage"
then logic dictates that it should have used the term "damage" alone in the entire policy or otherwise
included a clear definition of the said term as part of the provisions of the said insurance contract.
Which is why the Court finds it puzzling that in the said policy’s provision detailing the exceptions to
the policy’s coverage in Section III thereof, which is one of the crucial parts in the insurance contract,
the insurer, after liberally using the words "loss" and "damage" in the entire policy, suddenly went
specific by using the word "damage" only in the policy’s exception regarding "malicious damage."
Now, the defendant-appellant would like this Court to believe that it really intended the word
"damage" in the term "malicious damage" to include the theft of the insured vehicle.

The Court does not find the particular contention to be well taken.

True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be
construed according to the sense and meaning of the terms which the parties thereto have used. In
the case of property insurance policies, the evident intention of the contracting parties, i.e., the
insurer and the assured, determine the import of the various terms and provisions embodied in the
policy. However, when the terms of the insurance policy are ambiguous, equivocal or uncertain,
such that the parties themselves disagree about the meaning of particular provisions, the policy will
be construed by the courts liberally in favor of the assured and strictly against the insurer.10

Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the 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. Thus, in Eternal Gardens Memorial Park Corporation
v. Philippine American Life Insurance Company,11 this Court ruled –

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 non-compliance with
its obligations.

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.12

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. Accordingly,
the Decision dated May 31, 2011 and Resolution dated August 10, 2011 of the Court of Appeals are
hereby AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice