ABOITIZ'SHIPPING'CORPORATION'V'NEW'INDIA'ASSURANCE'COMPANY,'LTD.'

[CITATION]'

QUISUMBING;'May'2,'2006'

NATURE'

Petition'for'review'on'certiorari'

FACTS'

M'Societe'Francaise'Des'Colloides'loaded'a'cargo'of'textiles'and'auxiliary'chemicals'from'France'on'board'a'vessel'owned'by'Franco;Belgian'Services,' Inc.'The'cargo'was'consigned'to'General'Textile,'Inc.,'in'Manila'and'insured'by'respondent'New'India'Assurance'Company,'Ltd.';'While'in'Hongkong,'the'cargo'was'transferred'to'M/V'P.'Aboitiz'for'transshipment'to'Manila.';'Before'departing,'the'vessel'was'advised'that'it'was'safe'to'travel'to'its'destination,'but'while'at'sea,'the'vessel'received'a'report'of'a'typhoon'moving'within'its'path.''To'avoid'the'typhoon,'the'vessel' changed' its' course.'However,' it'was' still' at' the' fringe'of' the' typhoon'when' its'hull'leaked.On'October'31,'1980,'the'vessel'sank,'but'the'captain'and'his'crew'were'saved.';'On'November'3,'1980,'the'captain'of'M/V'P.'Aboitiz'filed'his'“Marine'Protest”,'stating'that'the'wind'force'was'at'10'to'15'knots'at'the'time'the'ship'foundered'and'described'the'weather'as'“moderate' breeze,' small' waves,' becoming' longer,' fairly' frequent' white' horse.' Petitioner'notified' the' consignee' of' the' total' loss' of' the' vessel' and' all' of' its' cargoes.' General' Textile,'lodged'a'claim'with'respondent'for'the'amount'of'its'loss.'Respondent'paid'General'Textile'and'was'subrogated'to'the'rights'of'the'latter.'Respondent'hired'a'surveyor'to'investigate,'and'the'same' concluded' that' the' cause' was' the' flooding' of' the' holds' brought' about' by' the' vessel’s'questionable' seaworthiness.' Respondent' filed' a' complaint' for' damages' against' petitioner'Aboitiz,'Franco;Belgian'Services'and'the'latter’s'local'agent,'F.E.'Zuellig,'Inc.'(Zuellig)';'On'November'20,'1989,'the'trial'court'ruled'in'favor'of'respondent'and'held'petitioner'Aboitiz'liable' for' the' total' value' of' the' lost' cargo' plus' legal' interest' ;' The' complaint'with' respect' to'Franco'and'Zuellig'was'dismissed.'Petitioner'elevated'the'case'to'the'Court'of'Appeals,'which'in'turn,' affirmed' in' toto' the' trial' court’s' decision.' Petitioner'moved' for' reconsideration' but' the'same'was'denied.'Hence,'this'petition'for'review'Petitioner’s'Claim'

>'Petitioner'contends'that'respondent’s'claim'for'damages'should'only'be'against'the'insurance'proceeds'and'limited'to'its'pro;rata'share'in'view'of'the'doctrine'of'limited'liability'Respondent’s'Comments'>'Respondent'counters'that'the'doctrine'of'real'and'hypothecary'nature'of'maritime'law'is'not'applicable' in' the' present' case' because' petitioner' was' found' to' have' been' negligent.' Hence,'according'to'respondent,'petitioner'should'be'held'liable'for'the'total'value'of'the'lost'cargo'ISSUE'WON'the'limited'liability'doctrine'applies'in'this'case?'HELD' NO' Ratio'Where' the' shipowner' fails' to' overcome' the' presumption' of' negligence,' the'doctrine'of'limited'liability'cannot'be'applied.'Reasoning'

;'From'the'nature'of'their'business'and'for'reasons'of'public'policy,'common'carriers'are'bound'to' observe' extraordinary' diligence' over' the' goods' they' transport' according' to' all' the'circumstances' of' each' case.' In' the' event' of' loss,' destruction' or' deterioration' of' the' insured'goods,' common' carriers' are' responsible,' unless' they' can' prove' that' the' loss,' destruction' or'deterioration'was'brought'about'by'the'causes'specified'in'Article'17341'of'the'Civil'Code.'In'all'other'cases,'common'carriers'are'presumed'to'have'been'at'fault'or'to'have'acted'negligently,'unless' they' prove' that' they' observed' extraordinary' diligence.'Moreover,' where' the' vessel' is'found'unseaworthy,'the'shipowner'is'also'presumed'to'be'negligent'since'it' is'tasked'with'the'

maintenance'of'its'vessel.'Though'this'duty'can'be'delegated,'still,'the'shipowner'must'exercise'close'supervision'over'its'men.';' In' the' present' case,' petitioner' has' the' burden' of' showing' that' it' exercised' extraordinary'diligence' in' the' transport'of' the' goods' it' had'on'board' in'order' to' invoke' the' limited' liability'doctrine.'Differently'put,'to'limit'its'liability'to'the'amount'of'the'insurance'proceeds,'petitioner'has' the' burden' of' proving' that' the' unseaworthiness' of' its' vessel' was' not' due' to' its' fault' or'negligence.';'Considering'the'evidence'presented'and'the'circumstances'obtaining'in'this'case,'we'find'that'petitioner' failed' to'discharge' this'burden.'Both' the' trial'and'the'appellate'courts,' in' this'case,'found' that' the' sinking' was' not' due' to' the' typhoon' but' to' its' unseaworthiness.' Evidence' on'record'showed'that'the'weather'was'moderate'when'the'vessel'sank.'These'factual'findings'of'the'Court'of'Appeals,'affirming' those'of' the' trial'court'are'not' to'be'disturbed'on'appeal,'but'must'be'accorded'great'weight.'These'findings'are'conclusive'not'only'on'the'parties'but'on'this'Court'as'well.'Disposition'Petition'is'denied'for'lack'of'merit.''

MANILA'STEAMSHIP'Co.'v.'INSA'Abdulhaman'

FACTS:'

Respondent' Abdulhaman' filed' a' case' against'Manila' Steamship' Co' Inc,' owner' of'MS' Bowline'Knot,' and' Lim' Hong' To,' owner' of'M/LConsuelo' V' to' recover' damages' for' the' death' of' his' 5'children' and' loss' of' personal' properties' on' board' the' M/L' ―Consuelo' V‖' as' a' result' of' ' a'maritime' collision' between' the' 2' vessels.In' 1948,' the' M/L' Consuelo' V' left' the' port' of'Zamboanga' City' for' Siokon.' On' the' same' night,' The' M/S' Bowline' Knot' was' heading' to'Zamboanga'City.'The'weather'was'good'and'fair.'Abdulhaman,'his'wife'and'5'children'had'paid'their'fare'beforehand.' It'began'raining'and'there'were'strong'winds'for'an'hour.'This'weather'lasted' for' an' hour' then' it' became' fair' although' it'was' showering' and' the' visibility'was' good'enough.''''''The'two'vessels'collided'while'the'passengers'were'sleeping.'M/L'Consuelo'V'capsized'quickly'(before' the' passengers' realized' it,' they'were' already' floating' and' swimming)' 9' died' and' the'cargo'was' lost.' Before' the' collision,' none' of' the' passengers'were'warned' or' informed'of' the'impending'danger'as'the'collision'was'so'sudden'and'unexpected.'All'those'rescued'at'sea'were'brought' by' the'M/V'―Bowline' Knot‖' to' Zamboanga' City.' The' Board' of'Marine' Inquiry' found'that'the'commanding'officer'of'the'colliding'vessels'had'both'been'negligent'in'operating'their'respective' vessels.' It' held' the' owners' of' both' vessels' solidarily' liable' to' Abdulhaman' for' the'damages' caused' to' him' by' the' collision,' under' Article' 827of' the' Code' of' Commerce;' but'exempted'Defendant' Lim'Hong' To' from' liability' by' reason'of' the' sinking' and' total' loss' of' his'vessel,'the'M/L―Consuelo'V'CA'affirmed.'Manila'Steamship'appealed'because'it'was'the'one'who'was'ordered'to'pay'damages.'O'it'is'exempt'from'any'liability'under'Article'1903'of'the'Civil'Code'because'it'had'exercised'the'diligence'of'a'good'father'of'a'family' in'the'selection'of' its'employees,'particularly'Third'Mate'Simplicio'Ilagan,'the'officer'in'command'of'its'vessels,'the'M/S'―Bowline'Knot‖,'at'the'time'of'the'collision'oIt'shouldn’t'be'liable'for'the'actions'of'its'agent'(captain)'and'employees''Issue:'WON'Manila'Steamship'is'liable?'YES'HELD:'DUE'DILIGENCE.'The'defense'of'due'diligence'is'untenable.'While'it'is'true'that'Plaintiff’s'action'is'based'on'a'tort'or'quasi';delict,'the'tort'in'question'is'

not'a'civil'tort'under'the'Civil'Code'but'a'maritime'tort'resulting'in'a'collision'at'sea,'governed'by'Articles'826;939'of'the'Code'of'Commerce.'''''''Under' Article' 827' of' the' Code' of' Commerce,' in' case' of' collision' between' two' vessels'imputable'to'both'of'them,'each'vessel'shall'suffer'her'own'damage'and'both'shall'be'solidarily'liable' for' the' damages' occasioned' to' their' cargoes.' The' characteristic' language' ofthe' law' in'making'the'―vessels‖'solidarily'liable'for'the'damages'due'to'the'maritime'collision'emphasizes'the'direct'nature'of'the'responsibilities'on'account'of'the'collision' incurred'by'the'ship'owner'under'maritime'law,'as'distinguished'from'the'civil'law'and'mercantile'law'in'general.'This'direct'responsibility' is' recognized' in' Article' 618' of' the' Code' of' Commerce' under'which' the' captain'shall'be'civilly'liable'to'the'ship'agent,'and'the'latter'is'the'one'liable'to'third'persons'''''It'is'a'general'principle,'well'established'maritime'law'and'custom,'that'shipowners'and'ship'agents'are'civilly'liable'for'the'acts'of'the'captain'(Code'of'Commerce,'Article'586)'and'for'the'indemnities'due'the'third'persons'(Article'587);'so'that'injured'parties'may'immediately'look'for'reimbursement'to'the'owner'of'the'ship,'it'being'universally'recognized'that'the'ship'master'or'captain'is'primarily'the'representative'of'the'owner.'This'direct'liability,'moderated'and'limited'by' the' owner’s' right' of' abandonment' of' the' vessel' and' earned' freight' (Article' 587),has' been'declared'to'exist,'not'only'in'case'of'breached'contracts,'but'also'in'cases'of'tortious'negligence'ACT'OF'AGENT'''''It'is'proven'that'the'agents'and'employees,'through'whose'negligence'the'explosion'and'fire'in'question'occurred,'were'agents,'employees'and'mandatories'of'Manila'Steamship.'Where'the'vessel' is'one'of' freight,'a'public'concern'or'public'utility,' its' owner'or' agents' is' liable' for' the'tortious'acts'of'his'agents' (Articles'587,'613,'&'618'Code'of'Commerce;'&'Article'1902,'1903,'1908,'Civil'Code).'Manila'Steamship'cites'cases'which'are'about'principals'and'agents'in'general'BUT'this'case'is'about'the'relations'between'ship'agent'and'his'agents'and'employees.'''It' is' easy' to' see' that' to' admit' the' defense' of' due' diligence' of' a' bonus' paterfamilias' (in' the'selection'and'vigilance'of'the'officers'and'crew)'as'exempting'the'shipowner'from'any' liability'for' their' faults,' would' render' nugatory' the' solidary' liability' established' by' Article' 827' of' the'Code'of'Commerce'for'the'greater'protection'of'injured'parties.'Ship' owners' would' be' able' to' escape' liability' in' practically' every' case,' considering' that' the'qualifications'and' licensing'of'ship'masters'and'officers'are'determined'by'the'State,'and'that'vigilance'is'practically'impossible'to'exercise'over'officers'and'crew'of'vessels'at'sea.'To'compel'the' parties' prejudiced' to' look' to' the' crew' for' indemnity' and' redress' would' be' an' illusory'remedy'for'almost'always'its'members'are,'from'captains'down,'mere'wage'earners.''

Liability'of' Lim'Hong'To–HE' IS' LIABLE.'Both'the'master'and'the'engineer'of'the'motor' launch'―Consuelo'V‖'were'not'duly'licensed'as'such.'In'applying'for'permission'to'operate,'despite'the'lack'of'properly'trained'and'experienced,'crew,'Lim'Hong'To'gave'as'a'reason'that'the'income'derived' from' the' vessel' is' insufficient' to'pay' licensed'officers'who'demand'high' salaries‖,and'expressly' declared―That' in' case' of' any' accident,' damage' or' loss,' I' shall' assume' full' risk' and'responsibility'for'all'the'consequences'thereof.‖''His' permit' to' operate,' in' fact,' stipulate' that' in' case' of' any' accident,' damage' or' loss,' the'registered' owner' thereof' shall' assume' full' risk' and' responsibility' for' all' the' consequences'thereof,'and'that'said'vessel'shall'be'held'answerable'for'any'negligence,'disregard'or'violation'of'any'of'the'conditions'herein'imposed'and'for'any'consequence'arising'from'such'negligence,'disregard'or'violations.‖'''

CA'held'that'his'permit'and' letter'didn’t'contain'waivers'of'his'right'to' limit'his' liability'to'the'value' of' his'motor' launch' and' that' he' did' not' lose' the' statutory' right' to' limit' his' liability' by'abandonment'of'the'vessel.'!WRONG'By'operating'with'an'unlicensed'master,'Lim'Hong'To'deliberately'increased'the'risk'to'which'

the' passengers' and' shippers' of' cargo' aboard' the'―Consuelo' V‖'would' be' subjected.' In'his'desire' to' reap' greater' benefits' in' the' maritime' trade,' Lim' Hong' To' willfully' augmented' the'dangers'and'hazards'to'his'vessel’s'unwarry'passengers,'who'would'normally'assume'that'the'launch' officers' possessed' the' necessary' skill' and' experience' to' evade' the' perils' of' the' sea.'Hence,' the' his' liability' cannot' be' the' identical' to' that' of' a' shipowner'who'bears' in'mind' the'safety'of'the'passengers'and'cargo'by'employing'duly'licensed'officers.''The' international' rule' is' to' the' effect' that' the' right' of' abandonment' of' vessels,' as' a' legal'limitation'of'a' shipowner’s' liablity,'does'not'apply' to'cases'where' the' injury'or' the'average' is'due'to'shipowner’s'own'fault.'Lim'Hong'To'expressly'assumed'the'full'risk'and'responsibility'of'

such'a'collision.'

'GERCIO v. SUN LIFE ASSURANCE OF CANADA

48 PHIL 53 MALCOLM; September 28, 1925

NATURE Mandamus to compel Sun Life Assurance Co. of Canada to change the beneficiary in the policy issued by the defendant company on the life of the plaintiff Hilario Gercio

FACTS

- On January 29, 1910, the Sun Life Assurance Co. of Canada issued an insurance policy on the life of Hilario Gercio. The policy was what is known as a 20- year endowment policy. By its terms, the insurance company agreed to insure the life of Hilario Gercio for the sum of P2,000, to be paid him on February 1, 1930, or if the insured should die before said date, then to his wife, Mrs. Andrea Zialcita, should she survive him; otherwise to the executors, administrators, or assigns of the insured. The policy did not include any provision reserving to the insured the right to change the beneficiary.

- On the date the policy was issued, Andrea Zialcita was the lawful wife of Hilario Gercio. Towards the end of the year 1919, she was convicted of the crime of adultery. On September 4, 1920, a decree of divorce was issued in civil case no. 17955, which had the effect of completely dissolving their bonds of matrimony. On March 4, 1922, Hilario Gercio formally notified the Sun Life that he had revoked his donation in favor of Andrea Zialcita, and that he had designated in her stead his present wife, Adela Garcia de Gercio, as the beneficiary of the policy. Gercio requested the insurance company to eliminate Andrea Zialcita as beneficiary. This, the insurance company has refused and still refuses to do.

ISSUES

1. (Preliminary) WON the provisions of the Code of Commerce and the Civil Code shall be in force in 1910, or the provisions of the Insurance Act now in force, or the general principles of law, guide the court in its decision

2. WON the insured, the husband, has the power to change the beneficiary, the former wife, and to name instead his actual wife, where the insured and the beneficiary have been divorced and where the policy of insurance does not expressly reserve to the insured the right to change the beneficiary

HELD 1. Whether the case be considered in the light of the Code of Commerce, the Civil Code, or the Insurance Act, the deficiencies in the law will have to be supplemented by the general principles prevailing on the subject. To that end, we have gathered the rules which follow from the best considered American authorities. In adopting these rules, we do so with the purpose of having the Philippine Law of Insurance conform as nearly as possible to the modern Law of Insurance as found in the United States proper .- Court’s first duty is to determine what law should be applied to the facts. The insurance policy was taken out in 1910, that the Insurance Act. No. 2427, became effective in 1914, and that the effort to change the beneficiary was made in 1922.

- Code of Commerce- there can be found in it no provision either permitting or prohibiting the insured to change the beneficiary. - Civil Code- it would be most difficult, if indeed it is practicable, to test a life insurance policy by its provisions. In the case of Del Val vs. Del Val, it declined to consider the proceeds of the insurance policy as a donation or gift, saying "the contract of life insurance is a special contract and the destination of the proceeds thereof is determined by special laws which deal exclusively with that subject. The Civil Code has no provisions which relate directly and specifically to life-insurance contracts or to the destination of life-insurance proceeds. . . ." - Insurance Act- there is likewise no provision either permitting or prohibiting the insured to change the beneficiary.

2. NO Ratio The wife has an insurable interest in the life of her husband. The beneficiary has an absolute vested interest in the policy from the date of its issuance and delivery. So when a policy of life insurance is taken out by the husband in which the wife is named as beneficiary, she has a subsisting interest in the policy. And this applies to a policy to which there are attached the incidents of a loan value, cash surrender value, an automatic extension by premiums paid, and to an endowment policy, as well as to an ordinary life insurance policy. If the husband wishes to retain to himself the control and ownership of the policy he may so provide in the policy. But if the policy contains no provision authorizing a change of beneficiary without the beneficiary's consent, the insured cannot make such change. Accordingly, it is held that a life insurance policy of a husband made payable to the wife as beneficiary, is the separate property of the beneficiary and beyond the control of the husband. - Unlike the statutes of a few jurisdictions, there is no provision in the Philippine Law permitting the beneficiary in a policy for the

benefit of the wife of the husband to be changed after a divorce. It must follow, therefore, in the absence of a statute to the contrary, that if a policy is taken out upon a husband's life the wife is named as beneficiary therein, a subsequent divorce does not destroy her rights under the policy. Reasoning !- Yore vs. Booth

“. . . It seems to be the settled doctrine, with but slight dissent in the courts of this country, that a person who procures a policy upon his own life, payable to a designated beneficiary, although he pays the premiums himself, and keeps the policy in his exclusive possession, has no power to change the beneficiary, unless the policy itself, or the charter of the insurance company, so provides. In policy, although he has parted with nothing, and is simply the object of another's bounty, has acquired a vested and irrevocable interest in the policy, which he may keep alive for his own benefit by paying the premiums or assessments if the person who effected the insurance fails or refuses to do so.”

- Connecticut Mutual Life Insurance Company vs Schaefer

“We do not hesitate to say, however, that a policy taken out in good faith and valid at its inception, is not avoided by the cessation of the insurable interest, unless such be the necessary effect of the provisions of the policy itself.. . . .In our judgment of life policy, originally valid, does not cease to be so by the cessation of the assured party's interest in the life insured.”

- Central National Bank of Washington City vs. Hume

“It is indeed the general rule that a policy, and the money to become due under it, belong, the moment it is issued, to the person or persons named in it as the beneficiary or beneficiaries, and that there is no power in the person procuring the insurance, by any act of his, by deed or by will, to transfer to any other person the interest of the person named.”

- In re Dreuil & Co. !“In so far as the law of Louisiana is concerned, it may also be considered settled that where a policy is of the semitontine variety, as in this case, the beneficiary has a vested right in the policy, of which she cannot be deprived without her consent”

- Wallace vs Mutual Benefit Life Insurance Co. “As soon as the policy was issued Mrs. Wallace acquired a vested interest therein, of which she could not be deprived without her consent, except under the terms of the contract with the insurance company. No right to change the beneficiary was reserved. Her interest in the policy was her individual property, subject to be divested only by her death, the lapse of time, or by the failure of the insured to pay the premiums. She could keep the policy alive by paying the premiums, if the insured did not do so. It was contingent upon these events, but it was free from the control of her husband. He had no interest in her property in this policy, contingent or otherwise. Her interest was free from any claim on the part of the insured or his creditors. He could deprive her of her interest absolutely in but one way, by living more than twenty years.”

- Filley vs. Illinois Life Insurance Company !“The benefit accruing from a policy of life insurance upon the life of a married man, payable upon his death to his wife, naming her, is payable to the surviving beneficiary named, although she may have years thereafter secured a divorce from her husband, and he was thereafter again married

to one who sustained the relation of wife to him at the time of his death. !The rights of a

beneficiary in an ordinary life insurance policy become vested upon the issuance of the policy, and can thereafter, during the life of the beneficiary, be defeated only as provided by the terms of the policy.”

- On the admitted facts and the authorities supporting the nearly universally accepted principles of insurance, we are irresistibly led to the conclusion that the question at issue must be answered in the negative

Disposition The judgment appealed from will be reversed and the complaint ordered dismissed as to the appellant.

SEPARATE OPINION

JOHNSON [concur]

- I agree with the majority of the court, that the judgment of the lower court should be revoked, but for a different reason. The purpose of the petition is to have declared the rights of certain persons in an insurance policy which is not yet due and payable. It may never become due and payable. The premiums may not be paid, thereby rendering the contract of insurance of non effect, and many other things may occur, before the policy becomes due, which would render it non effective. The plaintiff and the other parties who are claiming an interest in said policy should wait until there is something due them under the same. For the courts to declare now who are the persons entitled to receive the amounts due, if they ever become due and payable, is impossible, for the reason that nothing may ever become payable under the contract of insurance, and for many reasons such persons may never have a right to receive anything when the policy does become due and payable. In my judgment, the action is premature and should have been dismissed.

Ang'Giok'Chip'v'Springfield'G.R.'No.'LM33637'December'31,'1931'

J.'Malcolm'

'

Facts:'

Ang' insured' his' warehouse' for' the' total' value' of' Php' 60,000.' One' of' these,' amounting' to'10,000,' was' with' Springfield' Insurance' Company.' ' His' warehouse' burned' down,' then' he'attempted' to' recover' 8,000' from' Springfield' for' the' indemnity.' The' insurance' company'interposed'its'defense'on'a'rider'in'the'policy'in'the'form'of'Warranty'F,' 'fixing'the'amount'of'hazardous'good'that'can'be'stored' in'a'building'to'be'covered'by'the' insurance.'They'claimed'that'Ang'violated'the'3'percent'limit'by'placing'hazardous'goods'to'as'high'as'39'percent'of'all'the'goods'stored'in'the'building.'His'suit'to'recover'was'granted'by'the'trial'court.''Hence,'this'appeal.''

Issue:'Whether'a'warranty'referred'to'in'the'policy'as'forming'part'of'the'contract'of'insurance'and'in'the'form'of'a'rider'to'the'insurance'policy,' is'null'and'void'because'not'complying'with'the'Philippine'Insurance'Act.''

Held:'No.'The'warranty'is'valid.'Petition'dismissed.''

Ratio:'

The'Insurance'Act,'Section'65,'taken'from'California'law,'states:'"Every'express'warranty,'made'at'or'before'the'execution'of'a'policy,'must'be'contained'in'the'policy' itself,' or' in' another' instrument' signed' by' the' insured' and' referred' to' in' the' policy,' as'making'a'part'of'it."'Warranty'F,'indemnifying'for'a'value'of'Php'20,000'and'pasted'on'the'left'margin'of'the'policy'stated:'It' is'hereby'declared'and'agreed'that'during'the'currency'of'this'policy'no'hazardous'goods'be'stored' in' the' Building' to' which' this' insurance' applies' or' in' any' building' communicating'therewith,'provided,'always,'however,'that'the'Insured'be'permitted'to'stored'a'small'quantity'of'the'hazardous'goods'specified'below,'but'not'exceeding'in'all'3'per'cent'of'the'total'value'of'the'whole'of'the'goods'or'merchandise'contained'in'said'warehouse,'viz;'.'.'.'.'Also,'the'court'stated'a'book'that'said,' '"any'express'warranty'or'condition'is'always'a'part'of'the' policy,' but,' like' any' other' part' of' an' express' contract,' may' be' written' in' the'margin,' or'contained'in'proposals'or'documents'expressly'referred'to'in'the'policy,'and'so'made'a'part'of'it."'“It' is'well'settled'that'a'rider'attached'to'a'policy' is'a'part'of'the'contract,'to'the'same'extent'and'with'like'effect'as'it'actually'embodied'therein.'In'the'second'place,'it'is'equally'well'settled'that' an'express'warranty'must' appear'upon' the' face'of' the'policy,'or'be' clearly' incorporated'therein' and' made' a' part' thereof' by' explicit' reference,' or' by' words' clearly' evidencing' such'intention.”'The'court'concluded'that'Warranty'F'is'contained'in'the'policy'itself,'because'by'the'contract'of'insurance' agreed' to' by' the' parties' it' was'made' to' be' a' part.' It' wasn’t' aseparate' instrument'agreed'to'by'the'parties.'The'receipt'of'the'policy'by'the'insured'without'objection'binds'him.'It'was'his'duty'to'read'the'policy'and'know' its' terms.'He'also'never'chose'to'accept'a'different'policy'by'considering'the'earlier'one'as'a'mistake.'Hence,'the'rider'is'valid.''Phil'Health'Care'Products'v.'CIR'

FACTS:'

Philippine'Health'Care'Providers,'Inc.' 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.'January' 27,' 2000:' 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'Petitioner'protested'the'assessment'in'a'letter'dated'February'23,'2000.'CIR'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.'CTA:'PARTIALLY'GRANTED'to'pay'VAT''DST'assessment'CANCELLED'AND'SET'ASIDE''

CIR:'health'care'agreement'was'a'contract'of'insurance'subject'to'DST'under'Section'185'of'the'1997'Tax'Code'CA:'health'care'agreement'was'in'the'nature'of'a'non;life'insurance'contract'subject'to'DST'Court'Affirmed'CA'ISSUE:' 'W/N' the'Philippine'Health'Care' Providers,' Inc' (HMO)'was' engaged' in' the'business' of'insurance'during'the'pertinent'taxable'years';'NO'W/N'the'Philippine'Health'Care'Providers,'Inc''enters'into'an'insurance'contract';'NO''HELD:'motion'for'reconsideration'is'GRANTED'

'1.'NO'P.D.'612'Insurance'Code'Sec.'2'(2)'(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.'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'2.'NO.'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'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'any'indemnification'resulting'from'the'payment'for'services'rendered'in'case'of'emergency'by'non;participating'health'providers'would'still'be'incidental'to'petitioner’s'purpose'of'providing'and'arranging'for'health'care'services'and'does'not'transform'it'into'an'insurer.'As'an'HMO,'it'is'its'obligation'to'maintain'the'good'health'of'its'members''

its' undertaking' under' its' agreements' is' not' to' indemnify' its' members' against' any' loss' or'damage'arising'from'a'medical'condition'but,'on'the'contrary,'to'provide'the'health'and'medical'services'needed'to'prevent'such'loss'or'damage'Overall,'petitioner'appears' to'provide' insurance;type'benefits' to' its'members' (with'respect' to'its'curative'medical'services),'but'these'are'incidental'to'the'principal'activity'of'providing'them'medical' care.' The' "insurance;like"'aspect'of'petitioner’s'business' is'miniscule' compared' to' its'noninsurance' activities.' Therefore,' since' it' substantially' provides' health' care' services' rather'than'insurance'services,'it'cannot'be'considered'as'being'in'the'insurance'business.'principal'purpose'test'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'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'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:';'NOT'present'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'insurer’s'promise,'the'insured'pays'a'premium.'no'indemnity'member' can' take' advantage' of' the' bulk' of' the' benefits' anytime' even' in' the' absence' of' any'peril,'loss'or'damage'on'his'or'her'part.'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'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'HMO,'undertakes'a'business'risk'when'it'offers'to'provide'health'services.'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.'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.' ' The' primary' purpose' of' the' parties' in' making' the'contract'may'negate'the'existence'of'an'insurance'contract.'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.'''''''

SEGUNDINA MUSÑGI, ET AL., vs. WEST COAST LIFE INSURANCE CO. [G.R. No. L-41794 August 30, 1935]

Facts:

The plaintiffs, as beneficiaries, brought suit against the defendant to recover the value of two life insurance policies. Arsenio T. Garcia was insured by the defendant company in the sum of P5, 000. Arsenio T. Garcia was again insured by the defendant company in the sum of P10,000. Subsequently, Arsenio died. Even with the demand made by the plaintiffs to the defendant company to pay the two policies, defendant refused to pay

It is to be noted that in both applications, the insured had to answer inquiries as to his state of health and that of his family, which he did voluntarily. In each of the said applications the following question was asked: "1. What physician or practitioner or any other person not named above have you consulted or been treated by, and for what illness, or ailment? (If none, so state.)" In the first application, the insured answered "None", and in the second, "No". These answers of the insured as well as his other statements contained in his applications were one of the causes or considerations for the issuance of the policies, and they so positively appear therein. After the death of the insured and as a result of the demand made by the beneficiaries upon the defendant to pay the value of the policies, the latter discovered that the aforementioned answers were false and fraudulent, because the truth was that the insured, before answering and signing the applications and before the issuance of the policies, had been treated in the General Hospital by a lady physician for different ailments.

The defendant contends that the two policies did not create any valid obligation because they were fraudulently obtained by the insured.

Issue:

Whether the two answers given by the insured in his applications are false, and if they were the cause, or one of the causes, which induced the defendant to issue the policies?

Ruling:

The concealment and the false statements constituted fraud because the defendant by reason thereof accepted the risk which it would otherwise have flatly refused. When not otherwise specially provided

for by the Insurance Law, the contract of life insurance is governed by the general rules of the civil law regarding contracts. Article 1261 of the Civil Code provides that there is no contract unless there should be, in addition to consent and a definite object, a consideration for the obligation established. And article 1276 provides that the statement of a false consideration shall render the contract void. The two answers being one of the considerations of the policies, and it appearing that they are false and fraudulent, it is evident that the insurance contracts were null and void and did not give rise to any right to recover their value or amount. A similar case was already decided by this court in Argente vs. West Coast Life Insurance Co. (51 Phil., 725).

In discussing the legal phase of the case, this court said:

One ground for the rescission of a contract of insurance under the Insurance Act is a "concealment", which in section 25 is defined as "A neglect to communicate that which a party knows and ought to communicate".

In view of the foregoing, appellant's first two assignments of error are well founded, wherefore, the appealed judgment is reversed and the defendant absolved from the complaint.

'

Sun'Insurance'Office,'Ltd.'v.'CA'and'Emilio'Tan'

G.R.'No.'89741'March'13,'1991'

Paras,'J.'

FACTS:'

Emilio'Tan'took'from'Sun'Insurance'Office'a'P300,000.00'property'insurance'policy'to'cover'his'interest' in'the'electrical'supply'store'of'his'brother.'Four'days'after'the' issuance'of'the'policy,'the'building'was'burned'including'the'insured'store.'On'August'20,'1983,'Tan'filed'his'claim'for'fire' loss'with'Sun' Insurance'Office,'but'on'February'29,'1984,'Sun' Insurance'Office'wrote'Tan'denying' the' latter’s' claim.' On' April' 3,' 1984,' Tan' wrote' Sun' Insurance' Office,' seeking'reconsideration' of' the' denial' of' his' claim.' Sun' Insurance'Office' answered' the' letter,' advising'Tan’s'counsel'that'the'Insurer’s'denial'of'Tan’s'claim'remained'unchanged.'ISSUES:'

(1)WON'the'filing'of'a'motion'for'reconsideration'interrupts'the'12'months'prescriptive'period'to' contest' the' denial' of' the' insurance' claim;' and(2)WON' the' rejection' of' the' claim' shall' be'deemed'final'only'of'it'contains'words'to'the'effect'that'the'denial'is'final;'HELD:'

(1)'No.'In'this'case,'Condition'27'of'the'Insurance'Policy'of'the'parties'reads:27.''Action'or'suit'clause'

; If'a'claim'be'made'and'rejected'and'an'action'or'suit'be'not'commenced'either' in'the'Insurance' Commission' or' in' any' court' of' competent' jurisdiction' within' twelve' (12)'months'from'receipt'of'notice'of'such'rejection,'or'in'case'of'arbitration'taking'place'as'provided'herein,'within'twelve'(12)'months'after'due'notice'of'the'award'made'by'the'arbitrator'or'arbitrators'or'umpire,' then'the'claim'shall' for'all'purposes'be'deemed'to'

have'been'abandoned'and'shall'not'thereafter'be'recoverable'hereunder.'As'the'terms'are'very'clear'and'free'from'any'doubt'or'ambiguity'whatsoever,' it'must'be'taken'and'understood'in'its'plain,'ordinary'and'popular'sense.'Tan,' in'his' letter'addressed'to'Sun'Insurance'Office'dated'April'3,'1984,'admitted'that'he'received'a'copy'of' the' letter'of'rejection'on'April'2,'1984.''

; Thus,'the'12;monthprescriptive'period'started'to'run'from'the'said'date'of'April'2,'1984,'for' such' is' the'plain'meaning'and' intention'of' Section'27'of' the' insurance'policy.' The'condition' contained' in' an' insurance' policy' that' claims'must' be' presented'within' one'year' after' rejection' is' not'merely' a' procedural' requirement' but' an' important'matter'essential' to'a'prompt'settlement'of'claims'against' insurance'companies'as' it'demands'that' insurance'suits'be'brought'by'the' insured'while'the'evidence'as'to'the'origin'and'cause' of' destruction' have' not' yet' disappeared.' It' is' apparent' that' Section' 27' of' the'insurance' policy' was' stipulated' pursuant' to' Section' 63' of' the' Insurance' Code,' which'states' that:' Sec.' 63.' A' condition,' stipulation' or' agreement' in' any' policy' of' insurance,'limiting'the'time'for'commencing'an'action'thereunder'to'a'period'of'less'than'one'year'from'the'time'when'the'cause'of'action'accrues,'is'void.'It'also'begs'to'ask,'when'does'the' cause' of' action' accrue?' The' insured’s' cause' of' action' or' his' right' to' file' a' claim'either'in'the'Insurance'Commission'or'in'a'court'of'competent'jurisdiction'commences'from'the'time'of'the'denial'of'his'claim'by'the'Insurer,'either'expressly'or'impliedly.'But'the'rejection'referred'to'should'be'construed'as'the'rejection'in'the'first'instance'(i.e.'at'the' first' occasion' or' for' the' first' time),' not' rejection' conveyed' in' a' resolution' of' a'petition'for'reconsideration.'Thus,'to'allow'the'filing'of'a'motion'for'reconsideration'to'suspend'the'running'of'the'prescriptive'period'of'twelvemonths,'a'whole'new'body'of'rules' on' the' matter' should' be' promulgated' so' as' to' avoid' any' conflict' that' may' be'brought'by'it,'such'as:'a.whether'the'mere'filing'of'a'plea'for'reconsideration'of'a'denial'is'sufficient'or'must' it'be'supported'by'arguments/affidavits/material'evidence;'b.how'many'petitions'for'reconsideration'should'be'permitted?(2)'No.'The'

Eagle'Star''case'cited'by'Tan'to'defend'his'theory'that'the'rejection'of'the'claim'shall'be'deemed'final'only'of'it'contains'words'to'the'effect'that'the'denial'is'final'is'inapplicable'in'the'instant'case.'Final'rejection'or'denial'cannot'be'taken'to'mean'the'rejection'of'a'petition'for'reconsideration.'The'Insurance'policy'in'the'Eagle'Star' 'case'provides' that' the' insured'should' file'his'claim,' first,'with' the'carrier'and'then'with' the' insurer.' The' final' rejection' being' referred' to' in' said' case' is' the' rejection' by' the'insurance'company'