History of Insurance Law in the Philippines

 Insurance is based upon the principle of aiding another from a loss cause by an unfortunate
event.
 Origin of present-day insurance is attributed to merchants of Italian cities in the early middle
ages.
 The law of insurance was derived from the maritime law and, as such, was part of the general
law merchant, and international in its character.
 It spread throughout England and then the United States.
1829 - Insurance was first introduced in the Philippines.

1898- Life insurance was introduced – Sun Life Assurance of Canada

1906 – First domestic non-life insurance company – Yek Tong Lin Fire and Marine Insurance Co.

1910 – First domestic life insurance company – Insular Life Assurance Co. Ltd.

1936 – First Social Insurance – GSIS – C.A. No. 186

1950 – Reinsurance – Reinsurance Company of the Orient

1951 – First Workmen’s Compensation Pool – Royal Group Incorporated

1954 – Social Insurance for employees of the private sector – SSS – R.A. No. 1161

Laws governing Insurance

 P.D. No. 1460 – Insurance Code of 1978

 Special laws
 Pertinent provisions of the Civil Code on contracts
 In the absence of applicable provisions in both laws, the general principles prevailing on the
subjects in the United States, particularly in California where our insurance laws were based will
be applied.

Prudential Guarantee vs. Trans-Asia

- The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insurance Law
Act No. 2427 of the Philippine Legislature during the American Regime. The Insurance Act was
lifted verbatim from the law of California, except Chapter V thereof, which was taken largely
from the insurance law of New York. Therefore, ruling case law in that jurisdiction is to Us
persuasive in interpreting provisions of our own Insurance Code. In addition, the application of
the adopted statute should correspond in fundamental points with the application in its country
of origin.

FACTS:

 Trans-Asia is the owner of the vessel MV Asia-Korea which was insured by Prudential Life for
loss/damage of the hull and machinery arising from fire and explosion for the sum of 40 million
beginning from July 1 1993 to July 1 1994.
 In October 1993, a fire broke out while the vessel was undergoing repairs in the port of Cebu.
  Trans-Asia filed a notice of claim for damages sustained by the vessel but it reserved its right to
specify the full amount until the survey & determination of the adjuster, Richard Hoggs
International.
 In 1995, Trans-Asia executed a Loan and Trust Receipt evidencing that it received an amount of 3
million payable upon the recovery of the amount of damages from Prudential.
 In 1997, Prudential denied Trans-Asia’s claim for breach of policy conditions among them
"WARRANTED VESSEL CLASSED AND CLASS MAINTAINED" – pre-requisite that Trans-Asia must
maintain the vessel under a specific class. It also sought for the return of the 3M.
 Trans-Asia filed a complaint for sum of money with the RTC of Cebu for the amount of more than
8M which represents the balance of the indemnity due upon the insurance policy in the total
amount of P11,395,072.26.

RTC Ruling:

 In favor of Prudential - TRANS-ASIA failed to prove compliance of the terms of the warranty, the
violation thereof entitled PRUDENTIAL, the insured party, to rescind the contract.
 Ruling on the denominated loan and trust receipt, the court a quo said that in substance and in
form, the same is a receipt for a loan. It held that if TRANS-ASIA intended to receive the amount
of P3,000,000.00 as advance payment, it should have so clearly stated as such.
 Trans-Asia was directed to return the 3M.

CA Ruling:

 Reversed. Ruled in favor of Trans-Asia.

 PRUDENTIAL, as the party asserting the non-compensability of the loss had the burden of proof
to show that TRANS-ASIA breached the warranty, which burden it failed to discharge.
PRUDENTIAL cannot rely on the lack of certification to the effect that TRANS-ASIA was CLASSED
AND CLASS MAINTAINED as its sole basis for reaching the conclusion that the warranty was
breached.
 The lack of a certification does not necessarily mean that the warranty was breached by TRANS-
ASIA.
 It was the responsibility of Richards Hogg International (Phils.) Inc., the average adjuster hired by
PRUDENTIAL, to secure a copy of such certification to support its conclusion that mere absence
of a certification does not warrant denial of TRANS-ASIA’s claim under the insurance policy.
 The subsequent transaction was NOT A LOAN but a subrogation.

ISSUES:

 W/N Trans-Asia is entitled for its claim under the insurance policy
 W/N the subsequent transaction was a loan

HELD:

 Yes. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy condition
on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, as contained in the subject
insurance contract.
  Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same when it
renewed the insurance policy of Trans-Asia for two (2) consecutive years (1995-96)
 No. The amount of 3M constitutes partial payment on the policy.
 For all intents and purposes therefore, the money receipted is payment under the policy, with
Prudential having the right of subrogation to whatever net recovery Trans-Asia may obtain from
third parties resulting from the fire. In the law on insurance, subrogation is an equitable
assignment to the insurer of all remedies which the insured may have against third person
whose negligence or wrongful act caused the loss covered by the insurance policy, which is
created as the legal effect of payment by the insurer as an assignee in equity. The loss in the first
instance is that of the insured but after reimbursement or compensation, it becomes the loss of
the insurer. It has been referred to as the doctrine of substitution and rests on the principle that
substantial justice should be attained regardless of form, that is, its basis is the doing of
complete, essential, and perfect justice between all the parties without regard to form.

Constantino vs. Asia Life Inc.

- Since the year 1917, the Philippine law on Insurance was found in Act No. 2427, as amended,
and the Civil Code.2  Act No. 2427 was largely copied from the Civil Code of California. 3  And this
court has heretofore announced its intention to supplement the statutory laws with general
principles prevailing on the subject in the United State. 4

FACTS:

 Two cases:
1. Asia Life Insurance Co. insured the life of Arcadio Constantino for a term of twenty years in
consideration of P176.04 as annual premium. Plaintiff Paz Lopez de Constantino was
regularly appointed beneficiary. No further premiums were paid after the payment of the
first. Insured died in 1944. In 1942, Asia Life had to close its branches in Manila due to
Japanese occupation– until 1945.
2. Joint Life 20-Year Endowment Participating with Accident Indemnity – insuring the lives of
the spouses Tomas Ruiz and Agustina Peralta, for the sum of P3,000. Beneficiary – wife.
 Both policies involve a stipulation which states that “All premium payments are due in advance
and any unpunctuality in making any such payment shall cause this policy to lapse…”
 Plaintiffs maintain that they are entitled to receive the proceeds of the policies minus all sums
due for premiums in arrears. Non-payment of premium was the consequence of war, it should be
excused and should not cause the forfeiture of the policy.
 Defendant on the other hand asserts that the policies had lapsed for non-payment of premiums,
in accordance with the contract of the parties and the law applicable to the situation.

Lower court:

 In favor of Asia Life. Hence, this appeal.

ISSUE:

 Whether or not non-payment of premiums occasioned by war warrants its forfeiture of the
policy
SC:

 Yes.
 Such cases have never been decided in our jurisdiction; hence, the necessity to supplement the
statutory laws with general principles prevailing on the subject in the United States.
 Decisions in American cases – divided into 3 groups:
1. Connecticut rule – Two elements for the payment of annual premium. First, the protection
for the year and second, the privilege of renewing the contract for the succeeding years.
Under this rule, non-payment of premiums would prevent the renewal of the policy.
2. New York rule – war between countries in which the parties reside merely suspends the
contract of insurance. Upon termination of the war, the contract revives and becomes fully
operative.
3. United States rule – war does not merely suspend the policy but abrogates it completely
because non-payments is peculiarly the essence of the contract.
 United States rule was upheld since it would be unjust to allow the insurer to retain the reserve
value of the policy, which is the excess of the premiums paid over the actual risk carried during
the years when the policy had been in force. (Statham case)
 Promptness of payment is essential in the business of life insurance. All the calculations of the
insurance company are based on the hypothesis of prompt payments. They not only calculate on
the receipt of the premiums when due, but on compounding interest upon them. It is on this
basis that they are enabled to offer assurance at the favorable rates they do. Forfeiture for non-
payment is an necessary means of protecting themselves from embarrassment.
 The consequences of war should not prejudice the insured, neither should they bear down on the
insurer.

Administrative and Adjudicatory Powers

“SEC. 437. The Insurance Commissioner shall be appointed by the President of the Republic of the
Philippines for a term of six (6) years without reappointment and who shall serve as such until the
successor shall have been appointed and qualified. If the Insurance Commissioner is removed before the
expiration of his term of office, the reason for the removal must be published.

“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, and shall,
notwithstanding any existing laws to the contrary, have sole and exclusive authority to regulate the
issuance and sale of variable contracts as defined in Section 238 hereof and to provide for the licensing
of persons selling such contracts, and to issue such reasonable rules and regulations governing the
same.

“The Commissioner may issue such rulings, instructions, circulars, orders and decisions as may be
deemed necessary to secure the enforcement of the provisions of this Code, to ensure the efficient
regulation of the insurance industry in accordance with global best practices and to protect the insuring
public. Except as otherwise specified, decisions made by the Commissioner shall be appealable to the
Secretary of Finance.
“In addition to the foregoing, the Commissioner shall have the following powers and functions:

“(a) Formulate policies and recommendations on issues concerning the insurance industry, advise
Congress and other government agencies on all aspects of the insurance industry and propose
legislation and amendments thereto;

“(b) Approve, reject, suspend or revoke licenses or certificates of registration provided for by this Code;

“(c) Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant
thereto;

“(d) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide
guidance on and supervise compliance with such rules, regulations and orders;

“(e) Enlist the aid and support of, and/or deputize any and all enforcement agencies of the government
in the implementation of its powers and functions under this Code;

“(f) Issue cease and desist orders to prevent fraud or injury to the insuring public;

“(g) Punish for contempt of the Commissioner, both direct and indirect, in accordance with the pertinent
provisions of and penalties prescribed by the Rules of Court;

“(h) Compel the officers of any registered insurance corporation or association to call meetings of
stockholders or members thereof under its supervision;

“(i) Issue subpoena duces tecum and summon witnesses to appear in any proceeding of the Commission
and, in appropriate cases, order the examination, search and seizure of all documents, papers, files and
records, tax returns, and books of accounts of any entity or person under investigation as may be
necessary for the proper disposition of the cases before it, subject to the provisions of existing laws;

“(j) Suspend or revoke, after proper notice and hearing, the license or certificate of authority of any
entity or person under its regulation, upon any of the grounds provided by law;

“(k) Conduct an examination to determine compliance with laws and regulations if the circumstances so
warrant as determined by appropriate rules and regulations;

“(l) Investigate not oftener than once a year from the last date of examination to determine whether an
institution is conducting its business on a safe and sound basis: Provided, That, the
deficiencies/irregularities found by or discovered by an audit shall be immediately addressed;

“(m) Inquire into the solvency and liquidity of the institutions under its supervision and enforce prompt
corrective action;

“(n) To retain and utilize, in addition to its annual budget, all fees, charges and other income derived
from the regulation of insurance companies and other supervised persons or entities;
“(o) To fix and assess fees, charges and penalties as the Commissioner may find reasonable in the
exercise of regulation; and

“(p) Exercise such other powers as may be provided by law as well as those which may be implied from,
or which are necessary or incidental to the express powers granted the Commission to achieve the
objectives and purposes of this Code.

“The Commission shall indemnify the Commissioner, Deputy Commissioner, and other officials of the
Commission, including personnel performing supervision and examination functions, for all costs and
expenses reasonably incurred by such persons in connection with any civil or criminal actions, suits or
proceedings to which they may be made a party to by the reason of the performance of their duties and
functions, unless they are finally adjudged in such actions, suits or proceedings to be liable for
negligence or misconduct.

“In the event of settlement or compromise, indemnification shall be provided only in connection with
such matters covered by the settlement as to which the Commission is advised by external counsel that
the persons to be indemnified did not commit any negligence or misconduct:

“The costs and expenses incurred in defending the aforementioned action, suit or proceeding may be
paid by the Commission in advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the Commissioner, Deputy Commissioner, officer or
employee to repay the amount advanced should it ultimately be determined by the Commission that
the person is not entitled to be indemnified.

“SEC. 438. 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 or irregularities, and/or conducting business in an unsafe or unsound manner as may
be determined by the Insurance Commissioner, the following:

“(a) Fines not less than Five thousand pesos (P5,000.00) and not more than Two hundred thousand
pesos (P200,000.00); and

“(b) Suspension, or after due hearing, removal of directors and/or officers and/or agents.

“SEC. 439. 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 sued under any contract of 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, cost 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 Five million pesos (P5,000,000.00).
“The power of the Commissioner does not cover the relationship between the insurance company and
its agents/brokers but is limited to adjudicating claims and complaints filed by the insured against the
insurance company.

“The Commissioner may authorize any officer or group of officers under him to conduct investigation,
inquiry and/or hearing and decide claims and he may issue rules governing the conduct of adjudication
and resolution of cases. The Rules of Court shall have suppletory application.

“The party filing an action pursuant to the provisions of this section thereby submits his person to the
jurisdiction of the Commissioner. The Commissioner shall acquire jurisdiction over the person of the
impleaded party or parties in accordance with and pursuant to the provisions of the Rules of Court.

“The authority to adjudicate granted to the Commissioner under this section shall be concurrent with
that of the civil courts, but the filing of a complaint with the Commissioner shall preclude the civil courts
from taking cognizance of a suit involving the same subject matter.

“Any decision, order or ruling rendered by the Commissioner after a hearing shall have the force and
effect of a judgment. Any party may appeal from a final order, ruling or decision of the Commissioner by
filing with the Commissioner within thirty (30) days from receipt of copy of such order, ruling or decision
a notice of appeal to the Court of Appeals in the manner provided for in the Rules of Court for appeals
from the Regional Trial Court to the Court of Appeals.

“For the purpose of any proceeding under this section, the Commissioner, or any officer thereof
designated by him is empowered to administer oaths and affirmation, subpoena witnesses, compel their
attendance, take evidence, and require the production of any books, papers, documents, or contracts or
other records which are relevant or material to the inquiry.

“A full and complete record shall be kept of all proceedings had before the Commissioner, or the officers
thereof designated by him, and all testimony shall be taken down and transcribed by a stenographer
appointed by the Commissioner.

“In order to promote party autonomy in the resolution of cases, the Commissioner shall establish a
system for resolving cases through the use of alternative dispute resolution.

Contract of Insurance

Section 2. Wherever used in this Code, the following terms shall have the respective meanings
hereinafter set forth or indicated, unless the context otherwise requires:

(1) A “contract of insurance” is an agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event. A contract of
suretyship shall be deemed to be an insurance contract, within the meaning of this Code, only if made by
a surety who or which, as such, is doing an insurance business as hereinafter provided.

(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.

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
therefor, shall not be deemed conclusive to show that the making thereof does not constitute the doing
or transacting of an insurance business.

(3) As used in this Code, the term “Commissioner” means the “Insurance Commissioner.”(a)*

Traveller’s Insurance vs. CA

- insurance is defined as 'a contract whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event.'

FACTS:

 Petitioner is the insurer of Lady Love Taxi. One of its taxi units driven by Rodrigo Dumlao,
bumped into Feliza Vineza de Mendoza which cause her death.
 Private respondent, the heirs, filed a complaint for damages against the owner and driver of the
taxi. Later, the complaint was amended to include Traveller’s Insurance as compulsory insurer.

Trial court:

 In favor of private respondents. Ordered the owner, driver and insurer to pay, jointly and
severally the heirs.

CA

 Affirmed. Hence, this petition.

Petitioner’s contention:

 It did not issue an insurance policy as compulsory insurer of the Lady Love Taxi
 Assuming arguendo that it had indeed covered said taxicab for third-party liability insurance,
private respondent failed to file a written notice of claim with petitioner as required by Section
384 of P.D. No. 612, otherwise known as the Insurance Code.

ISSUE: W/N Traveller’s Insurance may be held liable to the heirs

HELD:
  No. The private respondents failed to attach a copy of the insurance contract in the amended
complaint. The trial court could not have been able to apprise itself of the real nature and
pecuniary limits of petitioner's liability.
 Even if there were such a contract, private respondent's cause of action can not prevail because
he failed to file the written claim mandated by Section 384 of the Insurance Code. He is deemed,
under this legal provision, to have waived his rights as against petitioner-insurer.
 Absent such written claim filed by the person suing under an insurance contract, no cause of
action accrues under such insurance contract, considering that it is the rejection of that claim
that triggers the running of the one-year prescriptive period to bring suit in court, and there can
be no opportunity for the insurer to even reject a claim if none has been filed in the first place, as
in the instant case.

Rules on construing Insurance Code

 Ambiguities or obscurities must be strictly interpreted against the party that caused them. As
the insurance policy is prepared solely by the insurer, the ambiguities shall be construed against
it and in favor of the insured.

Manila Bankers vs. Aban

- "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 former’s interest."

FACTS:

 Delia Sotero took out a life insurance policy from Manila Bankers, designating her niece,
Cresencia Aban, as her beneficiary.
 While the insurance policy is in force, Sotero died so Aban filed a notice of claim for the
proceeds.
 After investigation, Manila Bankers discovered that Sotero did not personally applied for the
insurance coverage as she was illiterate and that it was Aban who filed the same. As such, it
denied the claim and refunded the premiums paid.
 Manila Bankers filed a case for rescission/annulment of the policy which was obtained by fraud,
concealment and/or misrepresentation under the Insurance Code, which thus renders it voidable
under Article 1390 of the Civil Code.
 Aban filed a Motion to Dismiss, alleging that the action is already barred by prescription,
pursuant to Art. 48 of the Insurance Code which provides for a two-year period within which the
insurer should investigate fraud, concealment or misrepresentation on the policy.

RTC:

 Granted the Motion to Dismiss.

 Under Section 48, petitioner had only two years from the effectivity of the policy to question the
same; since the policy had been in force for more than two years, petitioner is now barred from
contesting the same or seeking a rescission or annulment thereof.

CA:
  Affirmed.

ISSUE:

 W/N the action by Manila Bankers is already barred by prescription by virtue of Section 48

HELD:

 Yes.
 The Court will not depart from the trial and appellate courts’ finding that it was Sotero who
obtained the insurance for herself, designating respondent as her beneficiary.
 Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It
gives insurers enough time to inquire whether the policy was obtained by fraud, concealment, or
misrepresentation; on the other hand, it forewarns scheming individuals that their attempts at
insurance fraud would be timely uncovered – thus deterring them from venturing into such
nefarious enterprise. At the same time, legitimate policy holders are absolutely protected from
unwarranted denial of their claims or delay in the collection of insurance proceeds occasioned by
allegations of fraud, concealment, or misrepresentation by insurers, claims which may no longer
be set up after the two-year period expires as ordained under the law.

Sun Life of Canada vs. Sibya

- Well-settled is the rule that this Court is not a trier of facts. Factual findings of the lower courts
are entitled to great weight and respect on appeal, and in fact accorded finality when supported
by substantial evidence on the record.

FACTS:

 In January 2001, Atty. Jesus Sibya Jr. applied for life insurance with Sun Life. In his application, he
indicated that the had sought advice for kidney problems.
 Sun Life approved the application and issued an insurance policy which would grant beneficiaries
and entitles them to a death benefit of P1,000,000.00 should Atty. Jesus Jr. dies on or before
February 5, 2021.
 In May 2001, Atty. Sibya died due to gunshot wounds. His beneficiaries filed a notice of claim for
the insurance proceeds.
 Sun Life denied the claim on the ground that Atty. Sibya failed to disclose his medical history. It
then filed for a complaint for rescission of the insurance policy on the ground of concealment.

RTC:

 Dismissed Sun Life’s complaint.

 Atty. Jesus Jr. did not commit material concealment and misrepresentation when he applied for
life insurance with Sun Life. It observed that given the disclosures and the waiver and
authorization to investigate executed by Atty. Jesus Jr. to Sun Life, the latter had all the means of
ascertaining the facts allegedly concealed by the applicant.

CA:

 Affirmed.
ISSUE:

 W/N Sun Life may rescind the insurance policy

SC:

 No. Manila Bankers vs Aban: If the insured dies within the two-year contestability period, the
insurer is bound to make good its obligation under the policy, regardless of the presence or lack
of concealment or misrepresentation.
 Assuming arguendo, that the incontestability period has not yet set in, Sun Life still failed to
prove that Atty. Jesus committed concealment and misrepresentation.
 Records show that Atty. Jesus disclosed that he had asked for advice from the National Kidney
Institute and even executed an authorization for Sun Life to obtain information as to the facts
disclosed in the application.

Rules on construing Insurance Policy

- 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.

Alpha Insurance vs. Castor

- 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.

FACTS:

 Castor entered into a contract of insurance with Alpha Insurance involving her motor vehicle –
Toyota Revo. It insures Castor the amount of ₱630,000.00 in case of loss or damage to said
vehicle during the period covered (Feb.2007-2008)
 In April 2007, Castor instructed her driver to bring the vehicle to an auto-shop for tune-up.
However, her driver never returned the vehicle despite diligent efforts to locate the same.
 Castor then filed a Notice of Claim of the proceeds of the insurance policy; however, Alpha
Insurance denied on the ground that the person who stole the unit is employed with Castor.
 “The company shall not be liable for:
(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON IN
THE INSURED’S SERVICE."
 Castor filed a complaint for sum of money with damages.

Ruling of the trial court:

 Ruled in favor of Castor.

CA:

 Affirmed. Hence, this petition.

Petitioner’s contentions:

 The word “damage” means loss due to injury or harm to person, property or reputation, and
should be construed to cover malicious "loss" as in "theft.

ISSUE:

 W/N the loss of respondent’s vehicle is excluded under the insurance policy

HELD:

 No. 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.
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.
 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.
 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.

Taurus Taxi Co. vs. The Capital Insurance Co.

- "a contract of insurance couched in language chosen by the insurer is, if open to the construction
contended for by the insured, to be construed most strongly, or strictly, against the insurer and
liberally in favor of the contention of the insured, which means in accordance with the rule
contra proferentem."

FACTS:

 Alfredo Monje is a taxi driver employed with Taurus Taxi Co. In 1962, the taxi he was driving
collided with another taxi resulting in his death.
 At the time of the accident, there was an existing insurance policy between Taurus Taxi and The
Capital Insurance.
 Capital Insurance denied the claim "in view of the fact that the deceased Alfredo Monje was
entitled to indemnity under another insurance policy issued by Ed. A. Keller Co., Ltd., the heirs of
the said deceased are not entitled to indemnity under the insurance policy issued by appellant
for the reason that the latter policy contains a stipulation that "the company will indemnify any
authorized driver provided that such authorized driver is not entitled to indemnity under any
other policy."
Ruling of the trial court:

 Ordered Capital Insurance to pay Taurus Taxi Co. as well as the heirs of Monje. Hence, this direct
appeal.

ISSUE:

 W/N Capital Insurance is liable to pay the claim despite receipt of money the heirs from the
Workmen’s Compensation

HELD:

 Yes. Since what is prohibited by the insurance policy in question is that any "authorized driver of
plaintiff Taurus Taxi Co., Inc." should not be "entitled to any indemnity under any policy", it
would appear indisputable that the obligation of defendant-appellant under the policy had not
in any wise been extinguished.
 What was paid therefore was not indemnity but compensation.
 The Workmen's Compensation Act, explicitly requires that an employee suffering any injury or
death arising out of or in the course of employment be compensated. The fulfillment of such
statutory obligation cannot be the basis for evading the clear, explicit and mandatory terms of a
policy.

Elements of an Insurance Contract

a. Insured possesses an interest of some kind susceptible of pecuniary estimation, known as insurable
interest

b. Insured is subjected to risk of loss through the destruction or impairment of that interest by the
happening of designated perils

c. Insurer assumes that risk of loss

d. Such assumption is part of the general scheme to distribute actual losses among large group of
persons bearing somewhat similar risks and

e. As consideration/s for the insurer’s promise, the insured makes a ratable contribution called a
premium, to a general insurance fund.

Gulf Resorts Inc. vs. Philippine Charter Insurance Corporation

- 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. Thus, an insurance contract exists where the following
elements concur:

1. The insured has an insurable interest;

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

3. The insurer assumes the risk;

 4. Such assumption of risk is part of a general scheme to distribute actual losses among a large
group of persons bearing a similar risk; and

5. In consideration of the insurer's promise, the insured pays a premium.

FACTS:

 Gulf Resorts is the owner of Plaza Resort in Agoo, La Union. It had its properties insured with
American Home Assurance Company.
 First four policies – cover risk of loss from an earthquake shock extended only to its two
swimming pools.
 Subsequent policies – earthquake endorsement clauses were deleted
 In 1990, an earthquake struck and plaintiff’s properties, including the two swimming pools, were
damaged
 Gulf Resorts made a claim for the settlement of damages to all its properties. Respondent
denied, stating that only its insurance policy only afforded earthquake shock coverage to the two
swimming pools of the resort.
 Gulf Resorts filed a complaint for a sum of money.

Ruling of the trial court:

 In favor of respondent. Plaintiff paid only a premium of P393.00 against the peril of earthquake
shock, the same premium it paid against earthquake shock only on the two swimming pools in
all the policies issued by AHAC.

CA:

 Affirmed.

Petitioner’s contention:

 The policy’s earthquake shock endorsement clearly covers all of the properties insured and not
only the swimming pools.
 The qualification referring to the two swimming pools had already been deleted in the
earthquake shock endorsement.

ISSUE:

 W/N the policy covers only the two swimming pools rather than all the properties

HELD:

 Yes.
 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 or phrases necessarily determine its character.
 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.
  An element of an insurance contract is that it must be:
1. In consideration of the insurer’s promise, the insured pays a 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.
 In the subject policy, no premium payments were made with regard to earthquake shock
coverage, except on the two swimming pools. There is no mention of any premium payable for
the other resort properties with regard to earthquake shock.

Characteristics of an Insurance Contract

1. Aleatory – liability of the insurer depends on some contingent event. It is not a gambling
contract or contract of chance.
2. Contract of indemnity: for non-life insurance
Investment: in life insurance.

Nonlife insurance- insured cannot make a profit by securing more than his actual loss
Life insurance- the contract is more of an investment of the insured, as a measure of the
economic security for him during his lifetime and for his beneficiary after his death.
3. Personal - Each party contract is having in view the character, credit and conduct of the other.
4. It is executory and conditional on the part of the insurer. It is executed as to the insured after his
payment of the premium. It is executory and conditional on the part of the insurer because
upon the happening of the peril insured against and the conditions having been met, he has the
obligation to execute the contract by paying the insured.
5. It is one of perfect good faith. This requirement is not for the insured alone but even more so for
the insurer, since it its dominant bargaining position carries with it a stricter responsibility.
6. It is a contract of adhesion. Insurance companies manage to impose upon the insured prepared
agreements in printed form which the insured may not change.

New World Int’l vs. NYK-Fil Japan Shipping

- Being a contract of adhesion, an insurance policy is construed strongly against the insurer who
prepared it.

FACTS:

 New World bought 3 emergency generators from DMT Corporation through its agent, Avatech.
DMT shipped the same by truck to LEP Profit. It was loaded in a vessel owned by NYK for delivery
to petitioner in Manila.
 On its journey, the vessel encountered a typhoon causing extensive damage to the 3 generator
sets. Marina received the shipment and eventually, the shipment was withdrawn through the
customs broker, Serbros.
 New World demanded recompense from NYK, DMT, Advatech, LEP, Marina and Serbros.
 New World also sent a formal claim to Seaboard for the marine insurance policy covering the
goods. Seaboard required it to submit an itemized list of damaged units, partis and accessories
with their corresponding values. However, New World did not submit, insisting that the
 insurance policy did not include submission of such list. With this, Seaboard refused to process
the claim.
 New World filed an action for specific performance and damages against all respondents.

RTC ruling:

 Absolved the various respondents from liability except NYK. However, the deadline for filing the
action had already lapsed.
 New World cannot fault Seaboard for denying its claim since it refused to submit the itemized
list that Seaboard needed for the release.

CA ruling:

 Affirmed, except with respect to Seaboard’s liability.

 New World can still recoup its loss from Seaboard. Upon MR, it reserved its decision, held that
the submission of the itemized listing was a reasonable requirement.

ISSUES:

1. W/N the other respondents were rightfully absolved from liability

2. W/N the denial of Seaboard is proper

HELD:

1. Yes. The Court will not disturb the finding of the RTC, affirmed by the CA, that the generator sets
were totally damaged during the typhoon which beset the vessel’s voyage from Hong Kong to
Manila and that it was her negligence in continuing with that journey despite the adverse
condition which caused petitioner New World’s loss.
2. No. The record shows that petitioner New World complied with the documentary requirements
evidencing damage to its generator sets.

Seaboard cannot pretend that the above documents are inadequate since they were precisely
the documents listed in its insurance policy. Being a contract of adhesion, an insurance policy is
construed strongly against the insurer who prepared it. The Court cannot read a requirement in
the policy that was not there.

Further, it appears from the exchanges of communications between Seaboard and Advatech
that submission of the requested itemized listing was incumbent on the latter as the seller DMT’s
local agent. Petitioner New World should not be made to suffer for Advatech’s shortcomings.