CONTRACT OF INSURANCE
regulations to drive the Motor Vehicle and is not
ANDREW PALERMO vs. PYRAMID INSURANCE CO., INC.
[G.R. No. L-36480 May 31, 1988]
Facts:
Petitioner, having purchased a brand new Nissan
Cedric de Luxe Sedan, insured the same with the
defendant insurance company against any loss or
damage for P 20,000.00 and against third party
liability for P 10,000.00. Plaintiff paid the defendant P
361.34 premium for one year The automobile was,
however, mortgaged by the plaintiff with the vendor,
Ng Sam Bok Motors Co., to secure the payment of the
balance of the purchase price, which explains why the
registration certificate in the name of the plaintiff
remains in the hands of the mortgagee, Ng Sam Bok
Motors Co. while driving the automobile in question,
the plaintiff met a violent accident. The insured,
Andrew Palermo, filed a complaint in the Court of First
Instance against Pyramid Insurance Co., Inc., for
payment of his claim under a Private Car
Comprehensive Policy issued by the defendant. In its
answer, Pyramid Insurance Co., Inc., alleged that it
disallowed the claim because at the time of the
accident, the insured was driving his car with an
expired driver's license. the court a quo rendered
judgment ordering the defendant to pay the plaintiff
value of the insurance of the motor vehicle in question
and to pay the costs."
Issue:
Whether the insured is considered an unauthorized
driver if he has an expired driver’s license, thus the
insurer is not liable under the policy.
Ruling:
There is no merit in the appellant's allegation that
the plaintiff was not authorized to drive the insured
motor vehicle because his driver's license had
expired. The driver of the insured motor vehicle at the
time of the accident was, the insured himself, hence
an "authorized driver" under the policy. While the
Motor Vehicle Law prohibits a person from operating a
motor vehicle on the highway without a license or with
an expired license, an infraction of the Motor Vehicle
Law on the part of the insured, is not a bar to recovery
under the insurance contract. It however renders him
subject to the penal sanctions of the Motor Vehicle
Law. The requirement that the driver be "permitted in
accordance with the licensing or other laws or
[231]-88 is declared void and without force and effect.
disqualified from driving such motor vehicle by order
of a Court of Law or by reason of any enactment or
regulation in that behalf," applies only when the driver
"is driving on the insured's order or with his
permission." It does not apply when the person driving
is the insured himself. The main purpose of the
"authorized driver" clause, as may be seen from its
text, is that a person other than the insured owner,
who drives the car on the insured's order, such as his
regular driver, or with his permission, such as a friend
or member of the family or the employees of a car
service or repair shop, must be duly licensed drivers
and have no disqualification to drive a motor vehicle.
PHILHEALTH CARE PROVIDERS INC. V CIR
FACTS:Petitioner is a domestic corporation whose
primary purpose is to establish, maintain, conduct and
operate a prepaid group practice health care delivery
system or a health maintenance organization to take
care of the sick and disabled persons enrolled in the
health care plan and to provide for the administrative,
legal, and financial responsibilities of the organization.
On January 27, 2000, respondent CIR sent petitioner
a formal demand letter and the corresponding
assessment notices demanding the payment of
deficiency taxes, including surcharges and interest,
for the taxable years 1996 and 1997 in the total
amount of P224,702,641.18. The deficiency
assessment was imposed on petitioner’s health care
agreement with the members of its health care
program pursuant to Section 185 of the 1997 Tax
Code. Petitioner protested the assessment in a letter
dated February 23, 2000. As respondent did not act
on the protest, petitioner filed a petition for review in
the Court of Tax Appeals (CTA) seeking the
cancellation of the deficiency VAT and DST
assessments. On April 5, 2002, the CTA rendered a
decision, ordering the petitioner 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.
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. Respondent
appealed the CTA decision to the (CA) insofar as it
cancelled the DST assessment. He claimed that
petitioner’s 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
which held that petitioner’s health care agreement
was in the nature of a non-life insurance contract
subject to DST. Respondent is ordered to pay the
deficiency Documentary Stamp Tax. Petitioner moved
for reconsideration but the CA denied it.
ISSUES:
(1) Whether or not Philippine Health Care Providers,
Inc. engaged in insurance business.
(2) Whether or not the agreements between petitioner
and its members possess all elements necessary in
the insurance contract.
HELD:
NO. Health Maintenance Organizations are not
engaged 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.
Petitioner is admittedly an HMO. Under RA 7878 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. The
payments do not vary with the extent, frequency or
type of services provided. Section 2 (2) of PD 1460
enumerates what constitutes “doing an insurance
business” or “transacting an insurance
business”which are making or proposing to make, as
insurer, any insurance contract; 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; 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;
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.
Overall, petitioner appears to provide insurance-type
benefits to its members (with respect to its curative
medical services), but these are incidental to the
principal activity of providing them medical care. The
“insurance-like” aspect of petitioner’s business is
miniscule compared to its noninsurance activities.
Therefore, since it substantially provides health care
services rather than insurance services, it cannot be
considered as being in the insurance business.
ETERNAL GARDENS MEMORIAL VS PHILAM LIFE
FACTS:
Philamlife entered into an agreement denominated as
Creditor Group Life Policy No. P-19202 with petitioner
Eternal Gardens Memorial Park Corporation (Eternal).
Under the policy, the clients of Eternal who purchased
burial lots from it on installment basis would be
insured by Philamlife. The amount of insurance
coverage depended upon the existing balance of the
purchased burial lots.
Eternal was required under the policy to submit to
Philamlife a list of all new lot purchasers, together with
a copy of the application of each purchaser, and the
amounts of the respective unpaid balances of all
insured lot purchasers. In relation to the instant
petition, Eternal complied by submitting a letter dated
December 29, 1982,4 containing a list of insurable
balances of its lot buyers for October 1982. One of
those included in the list as "new business" was a
certain John Chuang. His balance of payments was
PhP 100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 19845 to
Philamlife, which served as an insurance claim for
Chuang's death.
After more than a year, Philamlife had not furnished
Eternal with any reply to the latter's insurance claim.
This prompted Eternal to demand from Philamlife the
payment of the claim for PhP 100,000 on April 25,
1986.8
In response to Eternal's demand, Philamlife denied
Eternal's insurance claim in a letter dated May 20,
1986. Consequently, Eternal filed a case before the
Makati City Regional Trial Court (RTC).
DECISION OF LOWER COURTS:
(1) RTC : in favor of Eternal. due to Philamlife's
inaction from the submission of the requirements of
the group insurance on December 29, 1982 to
Chuang's death on August 2, 1984, as well as
Philamlife's acceptance of the premiums during the
same period, Philamlife was deemed to have
approved Chuang's application. The RTC said that
since the contract is a group life insurance, once proof
of death is submitted, payment must follow.
(2) CA : in favor of Philamlife. there being no
application form, Chuang was not covered by
Philamlife's insurance.
ISSUE:
May the inaction of the insurer on the insurance
application be considered as approval of the
application?
RULING:
YES
As earlier stated, Philamlife and Eternal entered into
an agreement denominated as Creditor Group Life
Policy No. P-1920 dated December 10, 1980. In the
policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be
effective on the date he contracts a loan with the
Assured. However, there shall be no insurance if the
application of the Lot Purchaser is not approved by
the Company.
An examination of the above provision would show
ambiguity between its two sentences. The first
sentence appears to state that the insurance
coverage of the clients of Eternal already became
effective upon contracting a loan with Eternal while
the second sentence appears to require Philamlife to
approve the insurance contract before the same can
become effective.
It must be remembered that an insurance contract is a
contract of adhesion which must be construed liberally
in favor of the insured and strictly against the insurer
in order to safeguard the latter's interest.
The fact of the matter is, the letter dated December
29, 1982, which Philamlife stamped as received,
states that the insurance forms for the attached list of
burial lot buyers were attached to the letter. Such
stamp of receipt has the effect of acknowledging
receipt of the letter together with the attachments.
Such receipt is an admission by Philamlife against its
own interest.13 The burden of evidence has shifted to
Philamlife, which must prove that the letter did not
contain Chuang's insurance application. However,
Philamlife failed to do so; thus, Philamlife is deemed
to have received Chuang's insurance application.
The seemingly conflicting provisions must be
harmonized to mean that upon a party's purchase of a
memorial lot on installment from Eternal, an insurance
contract covering the lot purchaser is created and the
same is effective, valid, and binding until terminated
by Philamlife by disapproving the insurance
application. The second sentence of Creditor Group
Life Policy No. P-1920 on the Effective Date of Benefit
is in the nature of a resolutory condition which would
lead to the cessation of the insurance contract.
Moreover, the mere inaction of the insurer on the
insurance application must not work to prejudice the
insured; it cannot be interpreted as a termination of
the insurance contract. The termination of the
insurance contract by the insurer must be explicit and
unambiguous.
PARTIES TO A CONTRACT OF INSURANCE
GULF RESORTS INC vs PHILIPPINE CHARTER
INSURANCE CORPORATION (2005)
FACTS:
Gulf Resorts, Inc at Agoo, La Union was insured with
American Home Assurance Company which includes
loss or damage to shock to any of the property
insured by this policy occasioned by or through or in
consequence of earthquake. In July 1990 an
earthquake struck Central Luzon and Northern Luzon
so the properties and 2 swimming pools in its Agoo
Playa Resort were damaged August 1990 Gulf’ss
claim was denied on the ground that its insurance
policy only afforded earthquake shock coverage to the
two swimming pools of the resort.
Petitioner insists that the parties have intended to
extend the coverage through the attachment of the
phrase “ Subject to: Other Insurance Clause, Typhoon
Endorsment, Earthquake Shock Endorsement,
Extended Coverage Endorsement, FEA Warranty and
Annual Payment Agreement on Long Term Policies”
to the insurance policy.
ISSUE:
WON the insurance policy earthquake shock
coverage extends to other property aside from the two
swimming pools.
HELD:
NO.
Petitioner cannot focus on the earthquake shock
endorsement to the exclusion of the other provisions.
All the provisions and riders, taken and interpreted
together, indubitably show the intention of the parties
to extend earthquake shock coverage to the two
swimming pools only.
A careful examination of the premium recapitulation
will show that it is the clear intent of the parties to
extend earthquake shock coverage only to the two
swimming pools. In the subject policy,
no premium payments were made with regard to
earthquake shock coverage, except on the 2
swimming pools. There is no mention of any premium
payable for the other resort properties with regard to
earthquake shock. This is consistent with the history
of petitioners previous insurance policies from AHAC-
AIU.
In sum, there is no ambiguity. Petitioner cannot rely
on the general rule that insurance contracts are
contracts of adhesion which should be liberally
construed in favor of the insured and strictly against
the insurer company which usually prepares it.
We cannot apply the general rule on contracts of
adhesion to the case at bar. Petitioner cannot claim it
did not know the provisions of the policy from the
inception of the policy, petitioner had required the
respondent to copy verbatim the provisions and terms
of its latest insurance policy from AHAC-AIU.
DOCTRINE:
It is basic that all the provisions of the insurance
policy should be examined and interpreted in
consonance with each other. All its parts are reflective
of the true intent of the parties. The policy cannot be
construed piecemeal. Certain stipulations cannot be
segregated and then made to control; neither do
particular words nor phrases necessarily determine its
character.
Section 2(6) of the Insurance Code defInes a contract
of insurance as an agreement whereby one
undertakes for a consideration to indemnify another
against loss, damage or liability arising from an
unknown or contingent event. Thus, an insurance
contract exists where the following elements concur:
 The insured has an insurable interest
 The insured is subject to a risk of loss by
the happening of the designated peril
 The insurer assumes the risk
 Such assumption of risk is part of a general
scheme to distribute actual losses among a
large group of persons bearing a similar risk
 In consideration of the promise, the insured
pays premium
An insurance premium is the consideration paid an
insurer for undertaking to indemnify the insured
against a specified peril. In fire, casualty, and marine
insurance, the premium payable becomes a debt as
soon as the risk attaches. A contract of adhesion is
one wherein a party, usually a corporation, prepares
the stipulations in the contract, while the other party
merely attaches his signature or his /adhesion/
thereto. Consequently, any ambiguity therein is
resolved against the insurer, or construed liberally in
favor of the insured.
WHITE GOLD INSURANCE V PIONEER
Facts:
White Gold procured a protection and
indemnity coverage for its vessels from The
Steamship Mutual through Pioneer Insurance and
Surety Corporation. White Gold was issued a
Certificate of Entry and Acceptance. Pioneer also
issued receipts. When White Gold failed to fully pay
its accounts, Steamship Mutual refused to renew
the coverage. Steamship Mutual thereafter filed a
case against White Gold for collection of sum of
money to recover the unpaid balance. White Gold on
the other hand, filed a complaint before the Insurance
Commission claiming that Steamship Mutual and
Pioneer violated provisions of the Insurance Code.
The Insurance Commission dismissed the complaint.
It said that there was no need for Steamship Mutual to
secure a license because it was not engaged in the
insurance business and that it was a P & I club.
Pioneer was not required to obtain another license as
insurance agent because Steamship Mutual was not
engaged in the insurance business. The Court
of Appeals affirmed the decision of the Insurance
Commissioner. In its decision, the appellate
court distinguished between P & I Clubs vis-à-vis
conventional insurance. The appellate court also held
that Pioneer merely acted as a collection agent of
Steamship Mutual.
Hence this petition by White Gold.
Issues:
1. Is Steamship Mutual, a P & I Club, engaged in the
insurance business in the Philippines?
2. Does Pioneer need a license as an insurance
agent/broker for Steamship Mutual?
Held: Yes. Petition granted.
Ratio:
Yes.
Section 2(2) of the Insurance Code enumerates what
constitutes "doing an insurance business" or
"transacting an insurance business". These are:
(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.
The test to determine if a contract is an insurance
contract or not, depends on the nature of the promise,
the act required to be performed, and the exact nature
of the agreement in the light of the occurrence,
contingency, or circumstances under which the
performance becomes requisite. It is not by what it is
called.
Basically, an insurance contract is a contract of
indemnity. In it, one undertakes for a consideration to
indemnify another against loss, damage or liability
arising from an unknown or contingent event.
In particular, a marine insurance undertakes to
indemnify the assured against marine losses, such as
the losses incident to a marine adventure. Section 99
of the Insurance Code enumerates the coverage of
marine insurance.
Relatedly, a mutual insurance company is a
cooperative enterprise where the members are both
the insurer and insured. In it, the members all
contribute, by a system of premiums or assessments,
to the creation of a fund from which all losses and
liabilities are paid, and where the profits are divided
among themselves, in proportion to their interest.
Additionally, mutual insurance associations, or clubs,
provide three types of coverage, namely, protection
and indemnity, war risks, and defense costs.
A P & I Club is a form of insurance against third party
liability, where the third party is anyone other than the
P & I Club and the members. By definition then,
Steamship Mutual as a P & I Club is a mutual
insurance association engaged in the marine
insurance business.
Since a contract of insurance involves public interest,
regulation by the State is necessary. Thus, no insurer
or insurance company is allowed to engage in the
insurance business without a license or a certificate of
authority from the Insurance Commission.
Is Steamship Mutual engaged in the insurance
business?
A P & I Club is “a form of insurance against third party
liability, where the third party is anyone other than the
P & I Club and the members.” By definition then,
Steamship Mutual as a P & I Club is a mutual
insurance association engaged in the marine
insurance business.
The records reveal Steamship Mutual is doing
business in the country albeit without the requisite
certificate of authority mandated by Section 187 of the
Insurance Code. It maintains a resident agent in the
Philippines to solicit insurance and to collect
payments in its behalf. Steamship Mutual even
renewed its P & I Club cover until it was cancelled due
to non-payment of the calls. Thus, to continue doing
business here, Steamship Mutual or through its agent
Pioneer, must secure a license from the Insurance
Commission.
Since a contract of insurance involves public interest,
regulation by the State is necessary. Thus, no insurer
or insurance company is allowed to engage in the
insurance business without a license or a certificate of
authority from the Insurance Commission.
2. Pioneer is the resident agent of Steamship Mutual
as evidenced by the certificate of registration issued
by the Insurance Commission. It has been licensed to
do or transact insurance business by virtue of the
certificate of authority issued by the same agency.
However, a Certification from the Commission states
that Pioneer does not have a separate license to be
an agent/broker of Steamship Mutual.
Although Pioneer is already licensed as an insurance
company, it needs a separate license to act as
insurance agent for Steamship Mutual. Section 299
of the Insurance Code clearly states:
SEC. 299 No person shall act as an insurance agent
or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive
for services in obtaining insurance, any commission or
other compensation from any insurance
company doing business in the Philippines or any
agent thereof, without first procuring a license so to
act from the Commissioner…
FILIPINAS COMPANIA V CHRISTERN
FACTS:
Christern Huenefeld Corporation bought a fire
insurance policy from Filipinas Compania de Seguros
to cover merchandise contained in a building. During
the Japanese military occupation, this same
merchandise and the building were burned, so
Huenefeld filed a claim under the policy.
Filipinas Compania refused to pay, alleging that the
policy had ceased to be in force when the US
declared war against Germany. Filipinas Compania
contended that Huenefeld, although organized and
created under Philippine laws, is a German subject,
and hence, a public enemy, since majority of its
stockholders are Germans. On the other hand,
Filipinas Compania is under American jurisdiction.
However, the Director of Bureau of Financing,
Philippine Executive Commission ordered Filipinas
Compania to pay, so Filipinas Compania did pay. The
case at bar is about the recovery of that sum paid.
ISSUES:
W/N Christern Huenefeld is a German subject
because majority of its stockholders are under
German jurisdiction, despite the fact that it was
organized and created under Philippine laws
If so, W/N the fire insurance policy is enforceable
against an enemy state
HELD:
The Court of Appeals ruled that a private corporation
is a citizen of the country or state by and under the
laws of which it was created or organized. It rejected
the theory that nationality of a private corporation is
determined by the character or citizenship of its
controlling stockholders.
o Whether or not Rizal Surety is liable for loss of the
But the Supreme Court held that Christern Huenefeld
is an enemy corporation since majority of its
stockholders are German subjects. The two American
cases relied up by the Court of Appeals have lost their
force in view of a newer case where the control test
was adopted.
The Philippine Insurance Law provides that anyone,
except a public enemy, may be insured. It stands to
reason that an insurance policy ceases to be
allowable as soon as the insured becomes a public
enemy.
Since Christern Huenefeld became a public enemy on
Dec. 10, 1941, then the policy has ceased to be
enforcible and therefore Huenefeld is not entitled to
indemnity. However, elementary rules of justice
require that the premium paid from Dec. 11, 1941
should be returned.
Thus, Filipinas Compania is allowed to recover the
sum paid but only its equivalent in actual Philippine
currency, minus the premium that Huenefeld paid
after Dec. 11.
CONTRACT OF ADHESION
RIZAL SURETY V CA
FACTS:
Rizal Surety & Insurance Company issued a fire
insurance policy in favor of Transworld Knitting Mills,
Inc. The subject policy stated that Rizal Surety is
“responsible in case of loss whilst contained and/or
stored during the currency of this Policy in the
premises occupied by them forming part of the
buildings situated within own Compound xxx.” The
policy also described therein the four-span building
covered by the same.
On Jan. 12, 1981, fire broke out in the compound,
razing the middle portion of its four-span building and
partly gutting the left and right sections thereof. A two-
storey building (behind said four-span building) was
also destroyed by the fire.
ISSUE:
two-storey building considering that the fire insurance
policy sued upon covered only the contents of the
four-span building
HELD:
Both the trial court and the CA found that the so-
called “annex” as not an annex building but an integral
and inseparable part of the four-span building
described in the policy and consequently, the
machines and spare parts stored therein were
covered by the fire insurance in dispute.
So also, considering that the two-storey building
aforementioned was already existing when subject fire
insurance policy contract was entered into on Jan. 12,
1981, having been constructed some time in 1978,
petitioner should have specifically excluded the said
two-storey building from the coverage of the fire
insurance if minded to exclude the same but if did not,
and instead, went on to provide that such fire
insurance policy covers the products, raw materials
and supplies stored within the premises of Transworld
which was an integral part of the four-span building
occupied by Transworld, knowing fully well the
existence of such building adjoining and
intercommunicating with the right section of the four-
span building.
Also, in case of doubt in the stipulation as to the
coverage of the fire insurance policy, under Art. 1377
of the New Civil Code, the doubt should be resolved
against the Rizal Surety, whose layer or managers
drafted the fire insurance policy contract under
scrutiny.
In Landicho vs. Government Service Insurance
System, the Court ruled that “the terms in an
insurance policy, which are ambiguous, equivocal or
uncertain x x x are to be construed strictly and most
strongly against the insurer, and liberally in favor of
the insured so as to effect the dominant purpose of
indemnity or payment to the insured, especially where
forfeiture is involved, and the reason for this is that the
insured usually has no voice in the selection or
arrangement of the words employed and that the
language of the contract is selected with great care
and deliberation by experts and legal advisers
employed by, and acting exclusively in the interest of,
the insurance company.”
PRINCIPLE OF SUBROGATION
MALAYAN INSURANCE CO., INC. VS. COURT OF
APPEALS
(165 SCRA 536)
FACTS:
Malayan Insurance Co. Inc. (MALAYAN) issued a
Private Car Comprehensive Policy to SIO CHOY
covering a Willys jeep. The insurance coverage was
for "own damage" not to exceed P600.00 and "third
party liability" in the amount of P20,000.00.
During the effectivity of the insurance policy, , the
insured jeep, while being driven by one Juan P.
Campollo an employee of the respondent San Leon
Rice Mill, Inc., (SAN LEON) collided
with a passenger bus belonging to the respondent
Pangasinan Transportation Co., Inc. (PANTRANCO)
at the national highway in Barrio San Pedro, Rosales,
Pangasinan, causing damage to the insured vehicle
and injuries to the driver, Juan P. Campollo, and the
respondent Martin C. Vallejos, who was riding in the
ill-fated jeep. Martin C. Vallejos filed an action for
damages against Sio Choy, Malayan Insurance Co.,
Inc. and the PANTRANCO before the Court of First
Instance of Pangasinan. The trial court rendered
judgment holding Sio Choy, SAN LEON, and
MALAYAN jointly and severally liable. However,
MALAYAN’s liability will only be up to P20,000. On
appeal, CA affirmed the decision of the trial court.
However, it ruled that SAN LEON has no
obligation to indemnify or reimburse the petitioner
insurance company for whatever amount it has been
ordered to pay on its policy, since the San Leon Rice
Mill, Inc. is not a privy to the
contract of insurance between Sio Choy and the
insurance company. MALAYAN appealed to the SC
by way of review on certiorari.
ISSUE[1]:
Whether or not MALAYAN is solidarily liable to
Vallejos, along with Sio Choy and SAN LEON
ISSUE[2]:
Whether or not MALAYAN is entitled to be reimbursed
by SAN LEON for whatever amount petitioner has
been adjudged to pay respondent Vallejos on its
insurance policy.
RULING[1]:
Only Sio Choy and SAN LEON are solidarily liable to
Vallejos for the award of damages. Sio Choy is liable
as owner of the jeep pursuant to Article 2184, while
SAN LEON is liable as the employer of the driver of
the jeep at the time of the accident pursuant to Art
2180. MALAYAN’s liability, however, arose only out of
the insurance policywith Sio Choy. Petitioner as
insurer of Sio Choy, is liable to respondent Vallejos,
but it cannot, as incorrectly held by the trial court, be
made "solidarily" liable with the two principal
tortfeasors namely respondents Sio Choy and SAN
LEON.]
RULING[2]:
MALAYAN is entitled to be reimbursed. Upon
payment of the loss, the insurer is entitled to be
subrogated pro tanto to any right of action which the
insured may have against the third person whose
negligence or wrongful act caused the loss. When the
insurance company pays for the loss, such payment
operates as an equitable assignment to the insurer of
the property and all remedies which the insured may
have for the recovery thereof. That right is not
dependent upon, nor does it grow out of any privity of
contract or upon written assignment of claim, and
payment to the insured makes the insurer assignee in
equity.
PAN MALAYAN INSURANCE CORP. VS. COURT
OF APPEALS
(184 SCRA 54)
FACTS:
Canlubang Automotive Resources Corp. obtained
from PanMalay an insurance for its Mitsubishi Colt
Lancer. While the policy was still in effect, the insured
car was hit by a pick-up owned by Erlinda Fabie but
driven by another person. The car suffered damages
in the amount of P42K. Panmalay defrayed the cost of
repair of the insured car. It then demanded
reimbursement from Fabie and her driver of said
amount, but to no avail. Panmalay filed a complaint
for damages with the RTC of Makati against Fabie
and the driver. Panmalay averred that the damages
caused to the insured car was settled under the “own
damage” coverage of the insurance policy. Private
respondents filed a motion to dismiss alleging that
Panmalay had no cause of action since the “own
damage” clause of the policy precluded subrogation
under Art. 2207 of the CC. Indemnification under said
article is on the assumption that there was no
wrongdoer or no 3rd party at fault. RTC dismissed
Panmalay’s complaint. RTC held that payment by
Panmalay under the “own damage” clause was an
admission by the insurer that the damage was caused
by the assured and/or its representatives CA affirmed,
albeit on a somewhat different ground. Applying the
ejusdem generis rule, CA held that Section III-I of the
policy, which was the basis for the settlement of the
claim against insurance, did not cover damage arising
from collision or overturning due to the negligence of
3rd parties as one of the insurable risks. Both
tribunals concluded that Panmalay could not now
invoke Art 2207 and claim reimbursement
ISSUE:
Whether or not Panmalay was subrogated to the
rights of Canlubang against the driver and his
employer
RULING:
Yes. Article 2207 of the CC is founded on the well-
settled principle of subrogation. If the insured property
is destroyed or damages through the fault or
negligence of a party other than the assured,
then the insurer, upon payment to the assured, will be
subrogated to the right of the assured to recover from
the wrongdoer to the extent that the insurer has been
obligated to pay. Payment by the insurer to the
assured operates as an equitable assignment to the
former of all the remedies which the latter may have
against the 3rd party whose negligence or wrongful
act caused the loss. The right of subrogation is not
dependent upon any privity of contract or upon written
assignment of claim. It accrues simply upon payment
of the insurance claim by the insurer.
There are exceptions to this rule:
1. if the assured by his own act releases the
wrongdoer or 3rd party liable for the loss or damage,
from liability;
2. where the insurer pays the assured the value of the
lost goods without notifying the carrier who has in
good faith settled the assured’s claim for loss;
3. where the insurer pays the assured for a loss which
is not a risk covered by the policy (voluntary
payment). None of the exceptions are availing in the
present case.
None of the exceptions are availing in the present
case.
CALANOC V CA
Doctrine: In case of ambiguity in an insurance
contract covering accidental death, the Supreme
Courtheld that such terms shall be construed strictly
against the insurer and liberally in favor of the insured
inorder to effect the purpose of indemnity.
Facts:Melencio Basilio, a watchman of the Manila
Auto Supply, secured a life insurance policy fromthe
Philippine American Insurance Company in the
amount of P2,000 to which was attached
asupplemental contract covering death by accident.
He later died from a gunshot wound on the occasionof
a robbery committed; subsequently, his widow was
paid P2,000 representing the face value of thepolicy.
The widow demanded the payment of the additional
sum of P2,000 representing the value of
thesupplemental policy which the company refused
because the deceased died by murder during
therobbery and while making an arrest as an officer of
the law which were expressly excluded in the
contract. The company’s contention which was upheld
by the Court of Appeals provides that
the
circumstances surrounding Basilio’s death was
caused by one of the risks excluded by the
supplementary contract which exempts the company
from liability.
Issue:Is the Philippine American Life Insurance Co.
liable to the petitioner for the amount covered by
thesupplemental contract?
Held:Yes.
The circumstances of Basilio’s death cannot be taken
as purely intentional on the part of
Basilio to expose himself to the danger. There is no
proof that his death was the result of intentionalkilling
because there is the possibility that the malefactor
had fired the shot merely to scare away the
people around. In this case, the company’s defense
points out that Basilio’s
is included among the risksexcluded in the
supplementary contract; however, the terms and
phraseology of the exception clauseshould be clearly
expressed within the understanding of the insured.
Art. 1377 of the New Civil Codeprovides that in case
ambiguity, uncertainty or obscurity in the interpretation
of the terms of thecontract, it shall be construed
against the party who caused such obscurity.
Applying this to thesituation, the ambiguous or
obscure terms in the insurance policy are to
be construed strictly against theinsurer and liberally in
favor of the insured party. The reason is to ensure the
protection of the insuredsince these insurance
contracts are usually arranged and employed by
experts and legal advisers actingexclusively in the
interest of the insurance company. As long as
insurance companies insist upon the useof
ambiguous, intricate and technical provisions, which
conceal their own intentions, the courts must,
infairness to those who purchase insurance, construe
every ambiguity in favor of the insured.