61. Ng Gan Zee v.

Asian Crusader Life - Imperfection in the Application

Form
122 SCRA 61
Facts:
> In 1962, Kwon Nam applied for a 20yr endowment insurance on his life with his
wife, Ng Gan Zee as the beneficiary.
> He stated in his application that he was operated on for tumor of the stomach
associated with ulcer.
> In 1963, Kwong died of cancer of the liver with metastasis. Asian refused to pay
on the ground of alse information.
> It was found that prior to his application, Kwong was diagnosed to have peptic
ulcers, and that during the operation what was removed from Kwongs body was
actually a portion of the stomach and not tumor.

Issue:
Whether or not the contract may be rescinded on the ground of the imperfection in
the application form.

Held:
NO.
Kwong did not have sufficient knowledge as to distinguish between a tumor and a
peptic ulcer. His statement therefore was made in good faith. Asian should have
made an inquiry as to the illness and operation of Kwong when it appeared on the
face of the application that a question appeared to be imperfectly answered.
Asians failure to inquire constituted a waiver of the imperfection in the answer.

62. Harding v. Commercial Union Assurance Company- Willful Misstatement

38 PHIL 464
Facts:
> Henry Harding bought a car for 2T in 1915. He then gave the car to his wife Mrs.
Harding.

> While Mrs. Harding was having the car repaired at the Luneta Garage (Luneta
was an agent of Smith Bell and Co., which in turn is Commercial Unions agent), the
latter induced Mrs. Harding to insure the care with Commercial.
> Mrs. Harding agreed, and Smith Bell sent an agent to Luneta Garage, who
together with the manager of LUneta, appraised the car and declared that its
present value was P3T. This amt was written in the proposal form which Mrs.
Harding signed.
> Subsequently, the car was damaged by fire. Commercial refused to pay because
the cars present value was only 2.8T and not 3T.

Issue:
Whether or not Commercial is liable.

Held:
Commercial is liable.
Where it appears that the proposal form, while signed by the insured was made out
by the person authorized to solicit the insurance (Luneta and Smith Bell) the facts
stated in the proposal, even if incorrect, will not be regarded as warranted by the
insured, in the absence of willful misstatement. Under such circumstances, the
proposal is to be regarded as the act of the insurer.

63. Saturnino v. Philamlife - False Representation

7 SCRA 316
Facts:
> 2 months prior to the insurance of the policy, Saturnino was operated on for
cancer, involving complete removal of the right breast, including the pectoral
muscles and the glands, found in the right armpit.
> Notwithstanding the fact of her operation, Saturnino did not make a disclosure
thereof in her application for insurance.

> She stated therein that she did not have, nor had she ever had, among others
listed in the application, cancer or other tumors; that she had not consulted any
physician, undergone any operation or suffered any injury within the preceding 5
years.
> She also stated that she had never been treated for, nor did she ever have any
illness or disease peculiar to her sex, particularly of the breast, ovaries, uterus and
menstrual disorders.
> The application also recited that the declarations of Saturnino constituted a
further basis for the issuance of the policy.

Issue:

Whether or not the insured made such false representation of material facts as to
avoid the policy.

Held:
YES.
There can be no dispute that the information given by her in the application for
insurance was false, namely, that she never had cancer or tumors or consulted any
physician or undergone any operation within the preceding period of 5 years.

The question to determine is: Are the facts then falsely represented material? The
Insurance Law provides that materiality is to be determined not by the event, but
solely by the probable and reasonable influence of the facts upon the party to whom
the communication is due, in forming his estimate of the proposed contract, or
making his inquiries.

The contention of appellants is that the facts subject of the representation were not
material in view of the non-medical nature of the insurance applied for, which does
away with the usual requirement of medical examination before the policy is

issued. The contention is without merit. If anything, the waiver of medical

examination renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such information
necessarily constitutes an important factor which the insurer takes into
consideration in deciding whether to issue the policy or not.

Appellants also contend that there was no fraudulent concealment of the truth
inasmuch as the insured herself did not know, since her doctor never told her, that
the disease for which she had been operated on was cancer. In the first place,
concealment of the fact of the operation itself was fraudulent, as there could not
have been any mistake about it, no matter what the ailment.

Secondly, in order to avoid a policy, it is not necessary to show actual fraud on the
part of the insured. In this jurisdiction, concealment, whether intentional or
unintentional entitled the insurer to rescind the contract of insurance, concealment
being defined as negligence to communicate that which a party knows and ought
to communicate. The basis of the rule vitiating the contract in cases of
concealment is that it misleads or deceives the insurer into accepting the risk, or
accepting it at a rate of premium agreed upon. The insurer, relying upon the belief
that the insured will disclose every material fact within his actual or presumed
knowledge, is misled into a belief that the circumstances withheld does not exist,
and he is thereby induced to estimate the risk upon a false basis that it does not
exist.
64. Musngi v. West Coast Life Assurance Co.- False Representation
61 PHIL 864
Facts:
> Arsenio Garcia was insured by West Coast twice in 1931. In both policies, he was
asked to answer the question: what physician or practitioners have you consulted
or been treated by, and for what illness or ailment?
> In both policies, he answered in the negative. It turned out that from 1929 to
1939, he went to see several physicians for a number of ailments. So when he died
in 1942, the company refused to pay the proceeds of the insurance.

Issue:
Whether or not the answer given by Arsenio in the policies justifies the companys
refusal to pay?

Held:
YES.
Aresenio knew that he was suffering from a number of ailments, yet, he concealed
this. Such concealment and his false statements constituted fraud, because the
insurance company by reasons of such statement accepted the risk which it would
otherwise have rejected.

65. Insular Life v. Feliciano - Concealment

73 PHIL 201
Facts:
> Evaristo Feliciano filed an application with Insular Life upon the solicitation of one
of its agents.
> It appears that during that time, Evaristo was already suffering from
tuberculosis. Such fact appeared during the medical exam, but the examiner and
the companys agent ignored it.
> After that, Evaristo was made to sign an application form and thereafter the
blank spaces were filled by the medical examiner and the agent making it appear
that Evaristo was a fit subject of insurance. (Evaristo could not read and understand
English)
> When Evaristo died, Insular life refused to pay the proceeds because of
concealment.

Issue:
Whether or not Insular Life was bound by their agents acts.

Held:
Yes.
The insurance business has grown so vast and lucrative within the past century.
Nowadays, even people of modest means enter into insurance contracts. Agents
who solicit contracts are paid large commissions on the policies secured by them.
They act as general representatives of insurance companies.

IN the case at bar, the true state of health of the insured was concealed by the
agents of the insurer. The insurers medical examiner approved the application
knowing fully well that the applicant was sick. The situation is one in which of two
innocent parties must bear a loss for his reliance upon a third person. In this case,
it is the one who drafted and accepted the policy and consummated the contract. It
seems reasonable that as between the two of them, the one who employed and
gave character to the third person as its agent should be the one to bear the loss.
Hence, Insular is liable to the beneficiaries.

65. Insular Life Assurance Co., Ltd. vs Serafin Feliciano (1943)

74 Phil. 468 Mercantile Law Insurance Law Representation Insurance Agents
Fraud
From the courts decision rendered in the case of Insular Life Assurance vs
Feliciano (1941), Insular Life filed a motion for reconsideration. Insular avers that
Feliciano is not entitled to the claim because the insurance policy is void ab initio;
that he connived with the insurance agent and the medical examiner; and that at
best, Feliciano is only entitled to refund or the reimbursement of what he has paid in
premium.
ISSUE: Whether or not Insular Life is correct.
HELD: Yes. This time, the Supreme Court held that Insular Lifes contention is
correct. When Evaristo Feliciano, the applicant for insurance, signed the application
in blank and authorized the soliciting agent and/or medical examiner of Insular to
write the answers for him, he made them his own agents for that purpose, and he
was responsible for their acts in that connection. If they falsified the answers for
him, he could not evade the responsibility for the falsification. He was not supposed

to sign the application in blank. He knew that the answers to the questions therein
contained would be the basis of the policy, and for that very reason he was
required with his signature to vouch for truth thereof.

66. Edillon v. Manila Bankers Life Insurance Corp. - Concealment

117 SCRA 187

Facts:
> In Apr. 1969, Carmen Lapuz applied for insurance with Manila Bankers. In the
application she stated the date of her birth as July 11, 1904 (around 64 yrs old). The
policy was thereafter issued.
> Subsequently, in May 1969, Carmen died of a car accident. Her sister, as
beneficiary claimed the proceeds of the insurance.
> Manila Bankers refused to pay because the certificate of insurance contained a
provision excluding its liability to pay claims to persons under 16 or over 60.

Issue:
Whether or not the policy is void considering that the insured was over 60 when she
applied.

Held:
NO.
The age of Carmen was not concealed to the insurance company. Her application
form indicated her true age. Despite such information, Manila Bankers accepted the
premium and issued the policy. It had all the time to process the application and
notice the applicants age. If it failed to act, it was because Manila Bankers was
willing to waive such disqualifications or it simply overlooked such fact. It is
therefore estopped from disclaiming any liability.

67. Gonzalez Lao v. Yek Tong Lin Fire & Marine Insurance - Insurance Premiums
55 PHIL 386
Facts:
> Gonzales was issued 2 fire insurance policies by Yek for 100T covering his leaf
tobacco prducts.
> They were stored in Gonzales building on Soler St., which on Jan. 11, 1928,
burned down.
> Art. 3 of the Insurance policies provided that: Any insurance in force upon all or
part of the things unsured must be declared in writing by the insured and he
(insured) should cause the company to insert or mention it in the policy. Without
such requisite, such policy will be regarded as null and void and the insured will be
deprived of all rights of indemnity in case of loss.
> Notwithstanding said provision, Gonzales entered into other insurance contracts.
When he sought to claim from Yek after the fire, the latter denied any liability on the
ground of violation of Art. 3 of the said policies.
> Gonzales however proved that the insurer knew of the other insurance policies
obtained by him long efore the fire, and the insurer did NOT rescind the insurance
polices in question but demanded and collected from the insured the premiums.

Issue:
Whether or not Yek is still entitled to annul the contract.

Held:
NO.
The action by the insurance company of taking the premiums of the insured
notwithstanding knowledge of violations of the provisions of the policies amounted
to waiver of the right to annul the contract of insurance.

68. Tan Chay Heng v. West Coast Life - Fraud

51 Phil 80
Facts:
> In 1926, Tan Chay Heng sued West Coast on the policy allegedly issued to his
uncle, Tan Caeng who died in 1925. He was the sole beneficiary thereof.
> West Coast refused on the ground that the policy was obtained by Tan Caeng
with the help of agents Go Chuilian, Francisco Sanchez and Dr. Locsin of West Coast.
> West Coast said that it was made to appear that Tan Caeng was single, a
merchant, health and not a drug user, when in fact he was married, a laborer,
suffering form tuberculosis and addicted to drugs.
> West Coast now denies liability based on these misrepresentations.
> Tan Chay contends that West Coast may not rescind the contract because an
action for performance has already been filed.
> Trial court found for Tan Chay holding that an insurer cannot avoid a policy which
has been procured by fraud unless he brings an action to rescind it before he is
sued thereon.

Issue:
Whether or not West Coasts action for rescission is therefore barred by the
collection suit filed by Tan Chay.

Held:
NO.
Precisely, the defense of West Cast was that through fraud in its execution, the
policy is void ab initio, and therefore, no valid contract was ever made. Its action
then cannot be fore rescission because an action to rescind is founded upon and

presupposes the existence of the contract. Hence, West Coasts defense is not
barred by Sec. 47.

In the instant case, it will be noted that even in its prayer, the defendant does not
seek to have the alleged insurance contract rescinded. It denies that it ever made
any contract of insurance on the life of Tan Caeng, or that any such a contract ever
existed, and that is the question which it seeks to have litigated by its special
defense. In the very nature of things, if the defendant never made or entered into
the contract in question, there is no contract to rescind, and, hence, section 47
upon which the lower court based its decision in sustaining the demurrer does not
apply.

As stated, an action to rescind a contract is founded upon and presupposes the

existence of the contract which is sought to be rescinded. If all of the material
matters set forth and alleged in the defendant's special plea are true, there was no
valid contract of insurance, for the simple reason that the minds of the parties never
met and never agreed upon the terms and conditions of the contract. We are clearly
of the opinion that, if such matters are known to exist by a preponderance of the
evidence, they would constitute a valid defense to plaintiff's cause of action. Upon
the question as to whether or not they are or are not true, we do not at this time
have or express any opinion, but we are clear that section 47 does not apply to the
allegations made in the answer, and that the trial court erred in sustaining the
demurrer.

69. Qua Chee Gan v. Law Union Rock - Breach of Warranty

98 PHIL 85

Facts:
> Qua Chee Gan, a merchant, owned 4 warehouses in Albay which were used for
the storage or copra and hemp in which the appelle deals with exclusively.
> The warehouses together with the contents were insured with Law Union since
1937 and the loss made payable to PNB as mortgagee of the hemp and copra.

> A fire of undetermined cause broke out in July 21, 1940 and lasted for almost 1
whole week.
> Bodegas 1, 3, and 4 including the merchandise stored were destroyed
completely.
> Insured then informed insurer of the unfortunate event and submitted the
corresponding fire claims, which were later reduced to P370T.
> Insurer refused to pay claiming violations of the warranties and conditions, filing
of fraudulent claims and that the fire had been deliberately caused by the insured.
> Insured filed an action before CFI which rendered a decision in favor of the
insured.

Issues and Resolutions:

(1) Whether or not the policies should be avoided for the reason that there was a
breach of warranty.

Under the Memorandum of Warranty, there should be no less than 1 hydrant for
each 150 feet of external wall measurements of the compound, and since bodegas
insured had an external wall per meter of 1640 feet, the insured should have 11
hydrants in the compound. But he only had 2.

Even so, the insurer is barred by estoppel to claim violation of the fire hydrants
warranty, because knowing that the number of hydrants it demanded never existed
from the very beginning, appellant nevertheless issued the policies subject to such
warranty and received the corresponding premiums. The insurance company was
aware, even before the policies were issued, that in the premises there were only 2
hydrants and 2 others were owned by the Municipality, contrary to the requirements
of the warranties in question.

It should be close to conniving at fraud upon the insured to allow the insurer to
claim now as void the policies it issued to the insured, without warning him of the

fatal defect, of which the insurer was informed, and after it had misled the insured
into believing that the policies were effective.

Accdg to American Jurisprudence: It is a well-settled rule that the insurer at the

time of the issuance of a policy has the knowledge of existing facts, which if
insisted on, would invalidate the contract from its very inception, such knowledge
constitutes a waiver of conditions in the contract inconsistent with known facts, and
the insurer is stopped thereafter from asserting the breach of such conditions. The
reason for the rule is: To allow a company to accept ones money for a policy of
insurance which it knows to be void and of no effect, though it knows as it must that
the insured believes it to be valid and binding is so contrary to the dictates of
honesty and fair dealing, as so closely related to positive fraud, as to be abhorrent
to fair-minded men. It would be to allow the company to treat the policy as valid
long enough to get the premium on it, and leave it at liberty to repudiate it the next
moment.

Moreover, taking into account the well-known rule that ambiguities or obscurities
must strictly be interpreted against the party that cause them, the memorandum of
warranty invoked by the insurer bars the latter from questioning the existence of
the appliances called for, since its initial expression the undernoted appliances for
the extinction of fire being kept on the premises insured hereby.. admits of the
interpretation as an admission of the existence of such appliances which insurer
cannot now contradict, should the parole evidence apply.

(2) Whether or not the insured violated the hemp warranty provision against the
storage of gasoline since insured admitted there were 36 cans of gasoline in
Bodega 2 which was a separate structure and not affected by the fire.

It is well to note that gasoline is not specifically mentioned among the prohibited
articles listed in the so-called hemp warranty. The clause relied upon by the insurer
speaks of oils. Ordinarily, oils mean lubricants and not gasoline or kerosene. Here
again, by reason of the exclusive control of the insurance company over the terms
of the contract, the ambiguity must be held strictly against the insurer and liberally
in favor of the insured, specially to avoid a forfeiture.

Furthermore, the gasoline kept was only incidental to the insureds business. It is a
well settled rule that keeping of inflammable oils in the premises though prohibited
by the policy does NOT void it if such keeping is incidental to the business. Also,
the hemp warranty forbade the storage only in the building to which the insurance
applies, and/or in any building communicating therewith; and it is undisputed that
no gasoline was stored in the burnt bodegas and that Bodega No. 2 which was
where the gasoline was found stood isolated from the other bodegas.

70. Colado v. Insular Life - Tender of Overdue Payments

51 OG (No 12) 6269
Facts:
> Vivencio Collado applied for an insurance contract with Insular life in 1948. His
application was approved and he began started making premium payments.
However, he defaulted and the insurance was cancelled.
> He then applied for the reinstatement of his insurance policy in Nov. of 1951 and
tendered the amount of premium for the years 1950-1951.
> He stated that he was as of Nov. 1951 of good health, and that he had no
injuries, ailments or illnesses and had not been sick for any case since 1948 (his
medical check up when he applied for insurance) and that he had not consulted any
physician or practitioner for any case since the date of such latest medical exam.
> However, when Vivencio applied for the reinstatement, he was already sick of a
fatal disease known as carcinoma of the liver and that 4 days prior to his application
for insurance, he consulted a doctor regarding his condition.
> The reinstatement was approved. Vivencio again failed to pay the premiums for
the last quarter of Nov. 1951 and as such, Insular life sent him a notice canceling
the policy.
> Vivencio then died. The beneificiaries instituted the present action to recover
from Insular life the death benefits of a life insurance policy valued at 2T. Insular
refused to pay claiming concealment on the part of Vivencio.
> Collado contends that Insular life had waived the right to rescine the policy in
view of its repeated acceptance of the overdue premiums for the second and third
years.

> Municipal court of Manila found for Collado and Insular filed an appeal with CFI of
Manila. CFI rendered judgment in favor of Insular and dismissed Collados complaint.

Issue:

Whether or nor Insular life was estopped and could no longer cancel the contract
due to the fact that it accepted the tender of overdue payments from Vivencio.

Held:
NO.
It is enormously clear that when the deceased applied for a reinstatement of his
policy in Nov. 1951, he had already been afflicted with the fatal ailment for a period
of about four months. Furthermore, in submitting together with his application for
reinstatement, a health statement to the effect that he was in good health, Vivencio
concealed the material fact that he had consulted a doctor and was then found to
be afflicted with the malady.

The acceptance of Insular life of the overdue premiums did not necessarily deprive
it of the right to cancel the policy in case of default incurred by the Insured in the
payment of future premiums. The case would be different had the insured died at
any time after the payment of overdue premiums but previous to the reinstatement
of the policy, for the, Insular, by its acceptance of its overdue premiums is deemed
to have waived its right to rescind the policy.

The evidence at hand shows that insofar as the payment of the last quarterly
premium for 1951 was concerned, Insular had availed of the right to rescind the
policy by notifying the Insured that the policy had lapsed.
71. Philamcare v. CA- Health Care Agreement

379 SCRA 356 (2002)

Facts:
> Ernani Trinos, applied for a health care coverage with Philamcare. In the standard
application form, he answered NO to the following question: Have you or any of
your family members ever consulted or been treated for high blood pressure, heart
trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give
details)
> The application was approved for a period of one year from March 1, 1988 to
March 1, 1989. He was a issued Health Care Agreement, and under such, he was
entitled to avail of hospitalization benefits, whether ordinary or emergency, listed
therein. He was also entitled to avail of "out-patient benefits" such as annual
physical examinations, preventive health care and other out-patient services.
> Upon the termination of the agreement, the same was extended for another year
from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The
amount of coverage was increased to a maximum sum of P75,000.00 per disability.
> During the period of his coverage, Ernani suffered a heart attack and was
confined at the Manila Medical Center (MMC) for one month beginning March 9,
1990.
> While her husband was in the hospital, Julita tried to claim the benefits under the
health care agreement. However, Philamcare denied her claim saying that the
Health Care Agreement was void.
> According to Philamcare, there was concealment regarding Ernani's medical
history.

Doctors at the MMC allegedly discovered at the time of Ernani's confinement

that he was hypertensive, diabetic and asthmatic, contrary to his answer in
the application form.

> Julita had no choice but to pay the hospitalization expenses herself, amounting to
about P76,000.00
> After her husband was discharged from the MMC, he was attended by a physical
therapist at home. Later, he was admitted at the Chinese General Hospital (CGH).
Due to financial difficulties, Julita brought her husband home again. In the morning
of April 13, 1990, Ernani had fever and was feeling very weak. Julita was constrained
to bring him back to the CGH where he died on the same day.

> Julita instituted, an action for damages against Philamcare. She asked for
reimbursement of her expenses plus moral damages and attorney's fees. RTC
decided in favor of Julita. CA affirmed.

Issues and Resolutions:

Philamcare brought the instant petition for review, raising the primary argument
that a health care agreement is not an insurance contract; hence the
"incontestability clause" under the Insurance Code Title 6, Sec. 48 does not apply.

SC held that in the case at bar, the insurable interest of respondent's husband in
obtaining the health care agreement was his own health. The health care
agreement was in the nature of non-life insurance, which is primarily a contract of
indemnity. Once the member incurs hospital, medical or any other expense arising
from sickness, injury or other stipulated contingent, the health care provider must
pay for the same to the extent agreed upon under the contract.

Under the title Claim procedures of expenses, Philamcare. had 12 mos from the
date of issuance of the Agreement within which to contest the membership of the
patient if he had previous ailment of asthma, and six months from the issuance of
the agreement if the patient was sick of diabetes or hypertension. The periods
having expired, the defense of concealment or misrepresentation no longer lie.
Petitioner argues that respondent's husband concealed a material fact in his
application. It appears that in the application for health coverage, petitioners
required respondent's husband to sign an express authorization for any person,
organization or entity that has any record or knowledge of his health to furnish any
and all information relative to any hospitalization, consultation, treatment or any
other medical advice or examination.

Philamcare cannot rely on the stipulation regarding "Invalidation of agreement"

which reads:
Failure to disclose or misrepresentation of any material information by the member
in the application or medical examination, whether intentional or unintentional,
shall automatically invalidate the Agreement from the very beginning and liability of

Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or

misrepresented information is deemed material if its revelation would have resulted
in the declination of the applicant by Philamcare or the assessment of a higher
Membership Fee for the benefit or benefits applied for.

The answer assailed by petitioner was in response to the question relating to the
medical history of the applicant. This largely depends on opinion rather than fact,
especially coming from respondent's husband who was not a medical doctor. Where
matters of opinion or judgment are called for, answers made in good faith and
without intent to deceive will not avoid a policy even though they are untrue. Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or
judgment of the insured will not avoid the policy if there is no actual fraud in
inducing the acceptance of the risk, or its acceptance at a lower rate of premium,
and this is likewise the rule although the statement is material to the risk, if the
statement is obviously of the foregoing character, since in such case the insurer is
not justified in relying upon such statement, but is obligated to make further
inquiry. There is a clear distinction between such a case and one in which the
insured is fraudulently and intentionally states to be true, as a matter of
expectation or belief, that which he then knows, to be actually untrue, or the
impossibility of which is shown by the facts within his knowledge, since in such case
the intent to deceive the insurer is obvious and amounts to actual fraud.
The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract. Concealment as a defense for the health care
provider or insurer to avoid liability is an affirmative defense and the duty to
establish such defense by satisfactory and convincing evidence rests upon the
provider or insurer. In any case, with or without the authority to investigate,
petitioner is liable for claims made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound to answer the same to the
extent agreed upon. In the end, the liability of the health care provider attaches
once the member is hospitalized for the disease or injury covered by the agreement
or whenever he avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party
to rescind a contract of insurance." The right to rescind should be exercised
previous to the commencement of an action on the contract. In this case, no
rescission was made. Besides, the cancellation of health care agreements as in
insurance policies require the concurrence of the following conditions:
1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of
one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in
the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance
Code and upon request of insured, to furnish facts on which cancellation is
based.

None of the above pre-conditions was fulfilled in this case. When the terms of
insurance contract contain limitations on liability, courts should construe them in
such a way as to preclude the insurer from non-compliance with his obligation.
Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract the insurer. By
reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted
against the insurer and liberally in favor of the insured, especially to avoid
forfeiture. This is equally applicable to Health Care Agreements. The phraseology
used in medical or hospital service contracts, such as the one at bar, must be
liberally construed in favor of the subscriber, and if doubtful or reasonably
susceptible of two interpretations the construction conferring coverage is to be
adopted, and exclusionary clauses of doubtful import should be strictly construed
against the provider.

72. Soliman v. US Life- Rescind Contract of Insurance

104 PHIL 1046
Facts:
> US Life issued a 20 yr endowment life policy on the joint lives of Patricio Soliman
and his wife Rosario, each of them being the beneficiary of the other.
> In Mar. 1949, the spouses were informed that the premium for Jan 1949 was still
unpaid notwithstanding that the 31-day grace period has already expired, and they
were furnished at the same time long-form health certificates for the reinstatement
of the policies.
> In Apr 1949, they submitted the certificates and paid the premiums.

> In Jan. 1950, Rosario died of acute dilation of the heart, and thereafter, Patricio
filed a claim for the proceeds of the insurance.
> US life denied the claim and filed for the rescission of the contract on the ground
that the certificates failed to disclose that Rosario had been suffering from bronchial
asthma for 3 years prior to their submission.

Issue:
Whether or not the contract can still be rescinded.

Held:

Yes.
The insurer is once again given two years from the date of reinstatement to
investigate into the veracity of the facts represented by the insured in the
application for reinstatement. When US life sought to rescind the contract on the
ground of concealment/misrepresentation, two years had not yet elapsed. Hence,
the contract can still be rescinded.

73. Tan v. CA - Rescission of the contract of insurance

174 SCRA 403
Facts:
> Tan Lee Siong was issued a policy by Philamlife on Nov. 6, 1973.
> On Aprl 26, 1975, Tan died of hepatoma. His beneficiaries then filed a claim with
Philamlife for the proceeds of the insurance.
> Philamlife wrote the beneficiaries in Sep. 1975 denying their claim and rescinding
the contract on the ground of misrepresentation. The beneficiaries contend that
Philamlife can no longer rescind the contract on the ground of misrepresentation as
rescission must allegedly be done during the lifetime of the insured within two

years and prior to the commencement of the action following the wording of Sec.
48, par. 2.

Issue:
Whether or not Philamlife can rescind the contract.

Held:
YES.
The phrase during the lifetime found in Sec. 48 simply means that the policy is no
longer in force after the insured has died. The key phrase in the second paragraph
is for a period of two years.

What is a simpler illustration of the ruling in Tan v. CA?

The period to consider in a life insurance poiicy is two years from the date of issue
or of the last reinstatement. So if for example the policy was issued/reinstated on
Jan 1, 2000, the insurer can still exercise his right to rescind up to Jan. 1, 2003 or
two years from the date of issue/reinstatement, REGARDLESS of whether the
insured died before or after Jan. 1, 2003.

74. Tan Chay Heng v. West Coast Life - Fraud

51 Phil 80
Facts:
> In 1926, Tan Chay Heng sued West Coast on the policy allegedly issued to his
uncle, Tan Caeng who died in 1925. He was the sole beneficiary thereof.
> West Coast refused on the ground that the policy was obtained by Tan Caeng
with the help of agents Go Chuilian, Francisco Sanchez and Dr. Locsin of West Coast.

> West Coast said that it was made to appear that Tan Caeng was single, a
merchant, health and not a drug user, when in fact he was married, a laborer,
suffering form tuberculosis and addicted to drugs.
> West Coast now denies liability based on these misrepresentations.
> Tan Chay contends that West Coast may not rescind the contract because an
action for performance has already been filed.
> Trial court found for Tan Chay holding that an insurer cannot avoid a policy which
has been procured by fraud unless he brings an action to rescind it before he is
sued thereon.

Issue:
Whether or not West Coasts action for rescission is therefore barred by the
collection suit filed by Tan Chay.

Held:
NO.
Precisely, the defense of West Cast was that through fraud in its execution, the
policy is void ab initio, and therefore, no valid contract was ever made. Its action
then cannot be fore rescission because an action to rescind is founded upon and
presupposes the existence of the contract. Hence, West Coasts defense is not
barred by Sec. 47.

In the instant case, it will be noted that even in its prayer, the defendant does not
seek to have the alleged insurance contract rescinded. It denies that it ever made
any contract of insurance on the life of Tan Caeng, or that any such a contract ever
existed, and that is the question which it seeks to have litigated by its special
defense. In the very nature of things, if the defendant never made or entered into
the contract in question, there is no contract to rescind, and, hence, section 47
upon which the lower court based its decision in sustaining the demurrer does not
apply.

As stated, an action to rescind a contract is founded upon and presupposes the

existence of the contract which is sought to be rescinded. If all of the material
matters set forth and alleged in the defendant's special plea are true, there was no
valid contract of insurance, for the simple reason that the minds of the parties never
met and never agreed upon the terms and conditions of the contract. We are clearly
of the opinion that, if such matters are known to exist by a preponderance of the
evidence, they would constitute a valid defense to plaintiff's cause of action. Upon
the question as to whether or not they are or are not true, we do not at this time
have or express any opinion, but we are clear that section 47 does not apply to the
allegations made in the answer, and that the trial court erred in sustaining the
demurrer.

75. Sindayen v. Insular Life- Policy of Insurance

62 PHIL 9
Facts:
> Arturo Sindayen was a linotype operator in the Bureau of Printing. He and his
wife Fortunat went to Camiling to spend Christmas with his aunt Felicidad Estrada.
> On Dec. 26, 1932, while still in Camiling, he made a written application to Insular
Life, through its agent, Cristobal Hendoza, for a policy of insurance on his life in the
sum of 1,000.
> He paid the agent P15 as part of the first premium. It was agreed that the policy,
when and if issued, should be delivered to Felicidad with whom Sindayen left the
sum P25.06 to complete the payment of the first annual premium of P40.06.
> On Jan 1, 1933, Sindayen was examined by Insulars doctor who made a
favorable report to Insular.
> The next day, Sindayen returned to Manila and resumed his work. On Jan. 11,
1933, Insular accepted the risk and issued a policy, and mailed the same to its
agent for delivery to the insured.
> On Jan. 12, 1933, Sindayen complained of a severe headache. ON Jan. 15, 1933,
he called a physician who found that Sindayen was suffering from acute nephritis
and uremia. His illness did not yield to treatment and on Jan. 19, 1933, he died.
> The policy which the company issued and mailed in manila on Jan. 11 1933 was
received by its agent in Camilin on Jan. 16, 1933. On Jan 18, 1933, the agent, in

accordance with his agreement with the insured delivered the policy to Felicided
upon her payment of the balance of the 1st years premium.
> The agent asked Felicidad if her nephew was in good health and she replied that
she believed so because she had no information that he was sick, and thereupon ,
the policy was handed to her by the agent.
> On Jan. 20, 1933, the agent learned of the death of Sindayen, afterwhich he
called upon Felicidad and asked her to return the policy. Felicidad did so.
> On Feb. 4, 1933, the company obtained from Sindayens widow Fortunata (also
the beneficiary), her signature on a legal document whereby in consideration of the
sum 40.06 representing the amount of premium paid, Fortunata thereby releases
forever and discharges Insular from any and all claims and obligations she may
have against the latter.
> A check for the above-mentioned amount was drawn in the name of Fortunata,
but the same was never encashed.
> Instead, it was returned to Insular and this complaint to enforce payment under
the policy was instituted.
> The application which Sindayen signed in Camiling contained the following
provisions:
xxx
(3) That the said policy shall not take effect until the first premium has been paid
and the policy has been delivered to and accepted by me, while I am in good
health.

> The main defense of the company is the policy never took effect because of par.
3 of the application, since at the time of the delivery of the agent, the insured was
not in good health.

Issue:
Whether or not the policy took effect.

Held:
YES.
There is one line of American cases which holds that the stipulation contained par. 3
is in the nature of a condition precedent, that is to say, that there can be no valid
delivery to the insured unless he is in good health at that time; that this condition
precedent goes to the very essence of the contract and cannot be waived by the
agent making delivery of the policy; HOWEVER, there is also a number of American
decision which state the contrary.

These decisions say that an agent to whom a life insurance policy (similar to the
one at bar) was sent with instruction to deliver it to the insured, has authority to
bind the company by making such delivery, ALTHOUGH the insured was NOT in
good health at the time of delivery, on the theory that the delivery of the policy
being the final act to the consummation of the contract, the condition as to the
insureds good health was WAIVED by the company.

These same cases further hold that the delivery of the policy by the agent to the
insured consummates the contract even though the agent knew that the insured
was NOT in good health at the time, the theory being, that his knowledge is the
companys knowledge; and his delivery is the companys delivery; that when the
delivery is made notwithstanding this knowledge of the defect, the company is
deemed to have WAIVED such defect.

The agent, Mendoza was duly licensed by the Insurance Commission to act for
Insular Life. He had the authority given by him by the company to withhold the
delivery of the policy to the insured until the first premium has been paid and the
policy has been delivered to and accepted by the insured while he is in good
health. Whether that condition had been met or not plainly calls for the exercise of
discretion. Mendozas decision that the condition had been met by the insured and
that it was proper to make delivery of the policy to him is just as binding on the
company as if the decision had been made by its Board of Directors. Admittedly,
Mendoza made a mistake of judgment because he acted on insufficient evidence as
to the state of health of the insured, and this mistake cannot be said to be induced
by any misconduct on the part of the insured.

It is in the interest of not only of the applicant but of all insurance companies as well
that there should be some act which gives the applicant the definite assurance that
the contract has been consummated. This sense of security and of piece of mind
that ones dependents are provided for without risk of either loss or of litigation is
the bedrock of life insurance.

A cloud will be thrown over the entire insurance business if the condition of health
of the insured at the time of the delivery of the policy may be inquired into years
afterwards with the view of avoiding the policy on the ground that it never took
effect because of an alleged lack of good health at the time of delivery.

It is therefore in the public interest that we are constrained to hold, as we do, that
the delivery of the policy to the insured by an agent of the company who is
authorized to make delivery or withhold delivery is the final act which binds the
company and the insured, in the absence of fraud or other legal grounds for
rescission. The fact that the agent to whom it has entrusted this duty is derelict or
negligent or even dishonest in the performance of the duty which has been
entrusted to him would create an obligation based upon the authorized acts of the
agent toward a third party who was not in collusion with the agent.

76. Enriquez v. SunLife- Insurance Policy

41 PHIL 269
Facts:
> On Sept. 24 1917, Herrer made an application to SunLife through its office in
Manila for life annuity.
> 2 days later, he paid the sum of 6T to the companys anager in its Manila office
and was given a receipt.
> On Nov. 26, 1917, the head office gave notice of acceptance by cable to Manila.
On the same date, the Manila office prepared a letter notifying Herrer that his
application has been accepted and this was placed in the ordinary channels of
transmission, but as far as known was never actually mailed and never
received by Herrer.

> Herrer died on Dec. 20, 1917. The plaintiff as administrator of Herrers estate
brought this action to recover the 6T paid by the deceased.

Issue:

Whether or not the insurance contract was perfected.

Held:
NO.
The contract for life annuity was NOT perfected because it had NOT been proved
satisfactorily that the acceptance of the application ever came to the knowledge of
the applicant. An acceptance of an offer of insurance NOT actually or constructively
communicated to the proposer does NOT make a contract of insurane, as the locus
poenitentiae is ended when an acceptance has passed beyond the control of the
party.

NOTE: Life annuity is the opposite of a life insurance. In life annuity, a big amount is
given to the insurance company, and if after a certain period of time the insured is
stil living, he is entitled to regular smaller amounts for the rest of his life. Examples
of Life annuity are pensions. Life Insurance on the other hand, the insured during
the period of the coverage makes small regular payments and upon his death, the
insurer pays a big amount to his beneficiaries.

77. Tang v. CA- Insurance Fraud or Mistake

90 SCRA 236
Facts:
> On Sept. 25, 2965, Lee Su Guat, widow, 61 years old and illiterate who spoke
only Chinese, applied for life insurance for 60T with Philamlife. The application was
in two parts, both in English.

> The second part dealt with her state of health. Her answers having shown that
she was health, Philamlife issued her a policy effective Oct. 23, 1965 with her
nephew Vicente Tang as beneficiary.
> On Nov. 15, 1965, Lee again applied for additional insurance of her life for 40T.
Since it was only recent from the time she first applied, no further medical exam
was made but she accomplished Part 1 (which certified the truthfulness of
statements made in Part. 2)
> The policy was again approved. On Apri 20 1966, Lee Su Guat died of Lung
cancer.
> Tang claimed the amount o 100T but Philamlife refused to pay on the ground that
the insured was guilty of concealment and misrepresentation.
> Both trial court and CA ruled that Lee was guilty of concealment.
> Tangs position, however, is that because Lee was illiterate and spoke only
Chinese, she could not be held guilty of concealment of her health history because
the application for insurance was English, and the insurer has not proven that the
terms thereof had been fully explained to her as provided by Art. 1332 of CC.

Issue:

Whether or not Art. 1332 applies.

Held:
NO.
Art. 1332 is NOT applicable. Under said article, the obligation to show that the
terms of the contract had been fully explained to the party who is unable to read or
understand the language of the contract, when fraud or mistake is alleged, devolves
on the party seeking to enforce it. Here, the insurance company is NOT seeking to
enforce the contract; on the contrary, it is seeking to avoid its performance.

It is petitioner who is seeking to enforce it, even as fraud or mistake is NOT alleged.
Accordingly, Philamlife was under no obligation to prove that the terms of the
insurance contract were fully explained to the other party. Even if we were to say
that the insurer is the one seeking the performance of the cont contracts by
avoiding paying the claim, it has to be noted as above stated that there has been
NO imputation of mistake of fraud by the illiterate insured whose personality is
represented by her beneficiary. In sum, Art. 1332 is inapplicable, and considering
the findings of both the trial court and the CA as to the Concealment of Lee, the SC
affirms their decisions.

Concurring: J., Antonio

In a contract of insurance, each party must communicate to the other, in good faith,
all facts within his knowledge which are material to the contract, and which the
other has no means of ascertaining. As a general rule, the failure by the insured to
disclose conditions affecting the risk of which he is aware makes the contract
voidable at the option of the insurer.

The reason for this rule is that insurance policies are traditionally contracts
uberrimae fidei, which means most abundant good faith, absolute and perfect
candor or openness and honesty, absence of any concealment or deception
however slight. Here the CA found that the insured deliberately concealed
material facts about her physical condition and history and/or concealed with
whoever assisted her in relaying false information to the medical examiner.
Certainly, the petitioner cannot assume inconsistent positions by attempting to
enforce the contract of insurance for the purpose of collecting the proceeds of the
policy and at the same time nullify the contract by claiming that it was executed
through fraud or mistake.

NOTE: Art. 1332: When one of the parties is unable to read or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained
to him.

78. Perez v. CA- Perfection of the Contract of Insurance

323 SCRA 613 (2000)

Facts:
> Primitivo Perez had been insured with the BF Lifeman Insurance Corporation
since 1980 for P20,000.00.
> In October 1987, an agent of Lifeman, Rodolfo Lalog, visited Perez in Quezon and
convinced him to apply for additional insurance coverage of P50,000.00, to avail of
the ongoing promotional discount of P400.00 if the premium were paid annually.
> Primitivo B. Perez accomplished an application form for the additional insurance
coverage. Virginia A. Perez, his wife, paid P2,075.00 to Lalog. The receipt issued by
Lalog indicated the amount received was a "deposit."
> Unfortunately, Lalog lost the application form accomplished by Perez and so on
October 28, 1987, he asked the latter to fill up another application form. On
November 1, 1987, Perez was made to undergo the required medical examination,
which he passed.
> Lalog forwarded the application for additional insurance of Perez, together with
all its supporting papers, to the office of BF Lifeman Insurance Corporationn in
Quezon which office was supposed to forward the papers to the Manila office.
> On November 25, 1987, Perez died while he was riding a banca which capsized
during a storm.
> At the time of his death, his application papers for the additional insurance were
still with the Quezon office. Lalog testified that when he went to follow up the
papers, he found them still in the Quezon office and so he personally brought the
papers to the Manila office of BF Lifeman Insurance Corporation. It was only on
November 27, 1987 that said papers were received in Manila.
> Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance
Corporation approved the application and issued the corresponding policy for the
P50,000.00 on December 2, 1987
> Virginia went to Manila to claim the benefits under the insurance policies of the
deceased. She was paid P40,000.00 under the first insurance policy for P20,000.00
(double indemnity in case of accident) but the insurance company refused to pay
the claim under the additional policy coverage of P50,000.00, the proceeds of which
amount to P150,000.00 in view of a triple indemnity rider on the insurance policy.

> In its letter of January 29, 1988 to Virginia A. Perez, the insurance company
maintained that the insurance for P50,000.00 had not been perfected at the time of
the death of Primitivo Perez. Consequently, the insurance company refunded the
amount of P2,075.00 which Virginia Perez had paid
> Lifeman filed for the rescission and the declaration of nullity. Perez, on the other
hand, averred that the deceased had fulfilled all his prestations under the contract
and all the elements of a valid contract are present.
> RTC ruled in favor of Perez. CA reversed.

Issue:
Whether or not there was a perfected additional insurance contract.

Held:
The contract was not perfected.
Insurance is a contract whereby, for a stipulated consideration, one party
undertakes to compensate the other for loss on a specified subject by specified
perils. A contract, on the other hand, is a meeting of the minds between two
persons whereby one binds himself, with respect to the other to give something or
to render some service.

Consent must be manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute. When Primitivo filed an application for
insurance, paid P2,075.00 and submitted the results of his medical examination, his
application was subject to the acceptance of private respondent BF Lifeman
Insurance Corporation. The perfection of the contract of insurance between the
deceased and respondent corporation was further conditioned upon compliance
with the following requisites stated in the application form:
"there shall be no contract of insurance unless and until a policy is issued on this
application and that the said policy shall not take effect until the premium has been
paid and the policy delivered to and accepted by me/us in person while I/We,
am/are in good health."

The assent of private respondent BF Lifeman Insurance Corporation therefore was

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

It is not disputed, however, that when Primitivo died on November 25, 1987, his
application papers for additional insurance coverage were still with the branch office
of respondent corporation in Gumaca and it was only two days later, or on
November 27, 1987, when Lalog personally delivered the application papers to the
head office in Manila. Consequently, there was absolutely no way the acceptance of
the application could have been communicated to the applicant for the latter to
accept inasmuch as the applicant at the time was already dead.

79. CIR v. Lincoln Phil Life - Automatic Increase Clause

379 SCRA 423 (2002)
Facts:
> In the years prior to 1984, Lincoln issued a special kind of life insurance policy
known as the "Junior Estate Builder Policy," the distinguishing feature of which is a
clause providing for an automatic increase in the amount of life insurance coverage
upon attainment of a certain age by the insured without the need of issuing a new
policy. The clause was to take effect in the year 1984.
> Documentary stamp taxes due on the policy were paid to the petitioner only on
the initial sum assured.
> Subsequently, petitioner issued deficiency documentary stamps tax assessment
for the year 1984, corresponding to the amount of automatic increase of the sum
assured on the policy issued by respondent.
> Lincoln questioned the deficiency assessments and sought their cancellation in a
petition filed in the Court of Tax Appeals. CTA found no basis for the assessment.
CA affirmed.

Issue:
Whether or not the automatic increase of the sum assured on the policy is taxable.

Held:
YES.
CIR claims that the "automatic increase clause" in the subject insurance policy is
separate and distinct from the main agreement and involves another transaction;
and that, while no new policy was issued, the original policy was essentially reissued when the additional obligation was assumed upon the effectivity of this
"automatic increase clause" in 1984; hence, a deficiency assessment based on the
additional insurance not covered in the main policy is in order. The SC agreed with
this contention.

The subject insurance policy at the time it was issued contained an "automatic
increase clause." Although the clause was to take effect only in 1984, it was written
into the policy at the time of its issuance. The distinctive feature of the "junior
estate builder policy" called the "automatic increase clause" already formed part
and parcel of the insurance contract, hence, there was no need for an execution of a
separate agreement for the increase in the coverage that took effect in 1984 when
the assured reached a certain age.

It is clear from Section 173 of the NIRC that the payment of documentary stamp
taxes is done at the time the act is done or transaction had and the tax base for the
computation of documentary stamp taxes on life insurance policies under Section
183 of NIRC is the amount fixed in policy, unless the interest of a person insured is
susceptible of exact pecuniary measurement.

Logically, we believe that the amount fixed in the policy is the figure written on its
face and whatever increases will take effect in the future by reason of the
"automatic increase clause" embodied in the policy without the need of another
contract.

Here, although the automatic increase in the amount of life insurance coverage was
to take effect later on, the date of its effectivity, as well as the amount of the
increase, was already definite at the time of the issuance of the policy. Thus, the
amount insured by the policy at the time of its issuance necessarily included the
additional sum covered by the automatic increase clause because it was already
determinable at the time the transaction was entered into and formed part of the
policy.

The "automatic increase clause" in the policy is in the nature of a conditional

obligation under Article 1181, 8 by which the increase of the insurance coverage
shall depend upon the happening of the event which constitutes the obligation. In
the instant case, the additional insurance that took effect in 1984 was an obligation
subject to a suspensive obligation, 9 but still a part of the insurance sold to which
private respondent was liable for the payment of the documentary stamp tax.

80. Lim v. Sun Life

41 PHIL 263
Facts:
> On July 6, 1917, Luis Lim Y Garcia of Zamboanga applied for a policy of life
insurance with Sunlife in the amount of 5T.
> He designated his wife Pilar Lim as the beneficiary. The first premium of P433
was paid by Lim and company issued a provisional policy
> Such policy contained the following provisions xx the abovementioned life is to
be assured in accordance with the terms and conditions contained or inserted by
the Company in the policy which may be granted by it in this particular case for 4
months only from the date of the application, PROVIDED that the company shall
confirm this agreement by issuing a policy on said application xxx. Should the
company NOT issue such a policy, then this agreement shall be null and void ab
initio and the Company shall be held not to have been on the risk at all, but in such
case, the amount herein shall be returned.
> Lim died on Aug. 23, 1917 after the issuance of the provisional policy but before
the approval of the application by the home office of the insurance company.

> The instant action is brought by the beneficiary to recover from Sun Life the sum
of 5T.

Issue:
Whether or not the beneficiary can collect the 5T.

Held:
NO.
The contract of insurance was not consummated by the parties. The above quoted
agreement clearly stated that the agreement should NOT go into effect until the
home office of the Company shall confirm it by issuing a policy. It was nothing but
an acknowledgment by the Company that it has received a sum of money agreed
upon as the first years premium upon a policy to be issued upon the application if it
is accepted by the Company.

When an agreement is made between the applicant and the agent whether by
signing an application containing such condition or otherwise, that no liability shall
attach until the principal approves the risk and a receipt is given by the agent, such
acceptance is merely conditional and is subordinated to the companys act in
approving or rejecting; so in life insurance a binding slip or receipt does not insure
itself.

81. Grepalife v. CA
89 SCRA 543
Facts:
> On March 14, 1957, respondent Ngo Hing filed an application with Grepalife for a
20-yr endowment policy for 50T on the life of his one year old daughter Helen Go.

> All the essential data regarding Helen was supplied by Ngo to Lapu-Lapu
Mondragon, the branch manager of Grepalife-Cebu. Mondragon then typed the
data on the application form which was later signed by Ngo.
> Ngo then paid the insurance premium and a binding deposit receipt was issued
to him. The binding receipt contained the following provision: If the applicant shall
not have been insurable xxx and the Company declines to approve the application,
the insurance applied for shall not have been in force at any time and the sum paid
shall be returned to the applicant upon the surrender of this receipt.
> Mondragon wrote on the bottom of the application form his strong
recommendation for the approval of the insurance application.
> On Apr 30, 1957, Mondragon received a letter from Grepalife Main office
disapproving the insurance application of Ngo for the simple reason that the 20yr
endowment plan is not available for minors below 7 yrs old.
> Mondragon wrote back the main office again strongly recommending the
approval of the endowment plan on the life of Helen, adding that Grepalife was the
only insurance company NOT selling endowment plans to children.
> On may 1957, Helen died of influenza with complication of broncho pneumonia.
Ngo filed a claim with Gepalife, but the latter denied liability on the ground that
there was no contract between the insurer and the insured and a binding receipt is
NOT evidence of such contract.

Issue:
Whether or not the binding deposit receipt, constituted a temporary contract of life
insurance.

Held:
NO.
The binding receipt in question was merely an acknowledgement on behalf of the
company, that the latters branch office had received from the applicant, the
insurance premium and had accepted the application subject for processing by the
insurance company, and that the latter will either approve or reject the same on the
basis of whether or not the applicant is insurable on standard rates.

Since Grepalife disapproved the insurance application of Ngo, the binding deposit
receipt had never became on force at any time, pursuant to par. E of the said
receipt. A binding receipt is manifestly merely conditional and does NOT insure
outright. Where an agreement is made between the applicant and the agent, NO
liability shall attach until the principal approves the risk and a receipt is given by the
agent.

The acceptance is merely conditional, and is subordinated to the act of the

company in approving or rejecting the application. Thus in life insurance, a binding
slip or binding receipt does NOT insure by itself.

82. Pacific Timber v. CA

112 SCRA 199
Facts:
> On March 13, 1963, Pacific secured temporary insurance from the Workemens
Insurance Co. for its exportation of logs to Japan. Workmen issued on said date
Cover Note 1010 insuring said cargo.
> The regular marine policies were issued by the company in favor of Pacific on Apr
2, 1963. The 2 marine policies bore the number 53H01032 and 53H01033.
> After the issuance of the cover note but BEFORE the issuance of the 2 policies,
some of the logs intended to be exported were lost due to a typhoon.
> Pacific filed its claim with the company, but the latter refused, contending that
said loss may not be considered as covered under the cover note because such
became null and void by virtue of the issuance of the marine policies.

Issue:

Whether or not the cover not was without consideration, thus null and void.

Held:
It was with consideration.
SC upheld Pacifics contention that said cover not was with consideration. The fact
that no separate premium was paid on the cover note before the loss was insured
against occurred does not militate against the validity of Pacifics contention, for no
such premium could have been paid, since by the nature of the cover note, it did
not contain, as all cover notes do not contain, particulars of the shipment that would
serve as basis for the computation of the premiums. As a logical consequence, no
separate premiums are required to be paid on a cover note.

If the note is to be treated as a separate policy instead of integrating it to the

regular policies subsequently issued, its purpose would be meaningless for it is in a
real sense a contract, not a mere application.

83. Gloria v. Philamlife Insurance Co.

73 OG 8660
Facts:
> In 1966, Roberto Narito applied for a 100T life insurance policy with Philamlife
Insurance Company. Narito was examined by Dra. Vergel de dios, the insurers
medical examiner.
> She opined that Narito was insurable. Her opinion was confirmed by Dr. Orobia,
the Associate Medical Director of the insurer.
> On Oc. 31, 1966, an agent of the insured prepared an application for the life
insurance whose annual premium was P1,178. On the same date, the application
was signed by Narito.
> Narito paid the first annual premium on the policy applied for. The insurers
application form contained a so-called Binding Receipt which was detachable.

> It is not sure whether or not Narito was given the Binding Receipt upon his
payment of the first premium, but what is certain that he was handed a Cashiers
Receipt.
> From the time the insured received the application form its agent on Nov. 5,
1966, up to Dec. 6, 1966, it did not take any action with regard to the controverted
insurance coverage.
> On Dec. 6, 1966, Narito was shot and killed. The beneficiaries submitted a claim
to the insurer. After an underwriting analysis conducted by the insurer, it found out
that Narito was unacceptable as an insurance risk. The claim was denied.

Issue:
Whether or not the beneficiaries can claim.

Held:
YES.
The application for insurance signed by the deceased contained the following
stipulation: The binding receipt must NOT be issued unless a binding deposit is
paid which must be at least equal to the first full premium. The preponderance of
evidence is to the effect that the binding receipt was not issued to the deceased
when he paid the companys agent, the first annual premium of P1,178. Hence the
rights of the beneficiaries and the obligation of the company have to be determined
solely in the application for insurance an in the Cashiers receipt.

The application for insurance contained the following clause: There shall be no
contract of insurance unless a policy is issued on this application and the full first
premium thereon actually paid. It should be conceded that there shall be a
contract of insurance once the first premium is paid and a policy is issued. There is
no question that the first premium was paid.

The problem is to resolve whether or not it can be said that the policy has been
issued. IN this connection, what may be noted is that, in contrast to the

requirement of actual payment of the premium, it was NOT required that the policy
be actually issued. An assuming that no policy had indeed been issued, it should
still be held that the application for insurance was approved by the company, with
the actual issuance of the policy being a mere technicality. When an insurer
accepts and retains the first premium for an unreasonable length of time, it should
be presumed that the insurer had assumed the risk. It should therefore be liable for
loss before the application is subsequently rejected. In the case at bar, the
company did NOT act on the application for insurance, one way or the other, from
Nov. 2 to Dec. 5, 1966, and no justification for the delay had been proven.

Hence, it should be held that the application for insurance of the deceased had
been approved prior to his death, although the policy had not actually been issued,
for which reason, the company should be liable to the beneficiaries.

84. San Miguel Brewery v. Law Union Rock Insurance Company - Insurance Proceeds

40 PHIL 674
Facts:
> On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of
10T.
> Mortgage contract stated that Dunn was to have the property insured at his own
expense, authorizing SMB to choose the insurers and to receive the proceeds
thereof and retain so much of the proceeds as would cover the mortgage debt.
> Dunn likewise authorized SMB to take out the insurance policy for him.
> Brias, SMBs general manager, approached Law Union for insurance to the extent
of 15T upon the property. In the application, Brias stated that SMBs interest in the
property was merely that of a mortgagee.
> Law Union, not wanting to issue a policy for the entire amount, issued one for
P7,500 and procured another policy of equal amount from Filipinas Cia de Seguros.
Both policies were issued in the name of SMB only and contained no reference to
any other interests in the propty. Both policies required assignments to be approved
and noted on the policy.

> Premiums were paid by SMB and charged to Dunn. A year later, the policies were
renewed.
> In 1917, Dunn sold the property to Harding, but no assignment of the policies
was made to the latter.
> Property was destroyed by fire. SMB filed an action in court to recover on the
policies. Harding was made a defendant because by virtue of the sale, he became
the owner of the property, although the policies were issued in SMBs name.
> SMB sought to recover the proceeds to the extent of its mortgage credit with the
balance to go to Harding.
> Insurance Companies contended that they were not liable to Harding because
their liability under the policies was limited to the insurable interests of SMB only.
> SMB eventually reached a settlement with the insurance companies and was
paid the balance of its mortgage credit. Harding was left to fend for himself. Trial
court ruled against Harding. Hence the appeal.

Issue:

Whether or not the insurance companies are liable to Harding for the balance of the
proceeds of the 2 policies.

Held:
NOPE.
Under the Insurance Act, the measure of insurable interest in the property is the
extent to which the insured might be daminified by the loss or injury thereof. Also it
is provided in the IA that the insurance shall be applied exclusively to the proper
interest of the person in whose name it is made. Undoubtedly, SMB as the
mortgagee of the property, had an insurable interest therein; but it could NOT, an
any event, recover upon the two policies an amount in excess of its mortgage
credit.

By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from
the two policies. With respect to Harding, when he acquired the property, no
change or assignment of the policies had been undertaken. The policies might have
been worded differently so as to protect the owner, but this was not done.

If the wording had been: Payable to SMB, mortgagee, as its interests may appear,
remainder to whomsoever, during the continuance of the risk, may become owner
of the interest insured, it would have proved an intention to insure the entire
interest in the property, NOT merely SMBs and would have shown to whom the
money, in case of loss, should be paid. Unfortunately, this was not what was stated
in the policies.

If during the negotiation for the policies, the parties had agreed that even the
owners interest would be covered by the policies, and the policies had
inadvertently been written in the form in which they were eventually issued, the
lower court would have been able to order that the contract be reformed to give
effect to them in the sense that the parties intended to be bound. However, there is
no clear and satisfactory proof that the policies failed to reflect the real agreement
between the parties that would justify the reformation of these two contracts.

85. Bonifacio Bros. v. Mora

20 SCRA 262
Facts:
> Enrique Mora mortgaged his Odlsmobile sedan car to HS Reyes Inc. with the
condition that Mora would insure the car with HS Reyes as beneficiary.
> The car was then insured with State Insurance Company and the policy delivered
to Mora.
> During the effectivity of the insurance contract, the car figured in an accident.
The company then assigned the accident to an insurance appraiser for investigation
and appraisal of the damage.
> Mora without the knowledge and consent of HS Reyes, authorized Bonifacio Bros
to fix the car, using materials supplied by the Ayala Auto Parts Company.

> For the cost of Labor and materials, Mora was billed P2,102.73. The bill was sent
to the insurers appraiser. The insurance company drew a check in the amount of
the insurance proceeds and entrusted the check to its appraiser for delivery to the
proper party.
> The car was delivered to Mora without the consent of HS Reyes, and without
payment to Bonifacio Bros and Ayala.
> Upon the theory that the insurance proceeds should be directly paid to them,
Bonifacio and Ayala filed a complaint against Mora and the insurer with the
municipal court for the collection of P2,102.73.
> The insurance company filed its answer with a counterclaim for interpleader,
requiring Bonifacio and HS Reyes to interplead in order to determine who has a
better right to the proceeds.

Issue:
Whether or not there is privity of contract between Bonficacio and Ayala on one
hand and State Insurance on the other.

Held:
NONE.
It is fundamental that contracts take effect only between the parties thereto, except
in some specific instance provided by law where the contract contains some
stipulation in favor of a third person. Such stipulation is known as a stipulation pour
autrui; or a provision in favor of a third person not a party to the contract.

Under this doctrine, a third person is ed to avail himself of a benefit granted to him
by the terms of the contract, provided that the contracting parties have clearly and
deliberately conferred a favor upon such person. Consequently, a third person NOT
a party to the contract has NO action against the aprties thereto, and cannot
generally demand the enforcement of the same.

The question of whether a third person has an enforceable interest in a contract

must be settled by determining whether the contracting parties intended to tender
him such an interest by deliberately inserting terms in their agreement with the
avowed purpose of conferring favor upon such third person. IN this connection, this
court has laid down the rule that the fairest test to determine whether the interest
of a 3rd person in a contract is a stipulation pour autrui or merely an incidental
interest, is to rely upon the intention of the parties as disclosed by their contract.

In the instant case the insurance contract does not contain any words or clauses to
disclose an intent to give any benefit to any repairmen or material men in case of
repair of the car in question. The parties to the insurance contract omitted such
stipulation, which is a circumstance that supports the said conclusion. On the other
hand, the "loss payable" clause of the insurance policy stipulates that "Loss, if any,
is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which
they intended to benefit.

A policy of insurance is a distinct and independent contract between the insured

and insurer, and third persons have no right either in a court of equity, or in a court
of law, to the proceeds of it, unless there be some contract of trust, expressed or
implied, by the insured and third person. In this case, no contract of trust, express
or implied. In this case, no contract of trust, expressed or implied exists. We,
therefore, agree with the trial court that no cause of action exists in favor of the
appellants in so far as the proceeds of insurance are concerned. The appellant's
claim, if at all, is merely equitable in nature and must be made effective through
Enrique Mora who entered into a contract with the Bonifacio Bros Inc. This
conclusion is deducible not only from the principle governing the operation and
effect of insurance contracts in general, but is clearly covered by the express
provisions of section 50 of the Insurance Act (now Sec. 53).

The policy in question has been so framed that "Loss, if any, is payable to H. S.
Reyes, Inc." which unmistakably shows the intention of the parties.

86. Coquia v. Fieldmens Insurance

26 SCRA 172

Facts:
> On Dec. 1, 1961, Fieldmens Insurance co. Issued in favor of the Manila Yellow
Taxicab a common carrier insurance policy with a stipulation that the company shall
indemnify the insured of the sums which the latter wmy be held liable for with
respect to death or bodily injury to any faire-paying passenger including the driver
and conductor.
> The policy also stated that in the event of the death of the driver, the Company
shall indemnify his personal representatives and at the Companys option may
make indemnity payable directly to the claimants or heirs of the claimants.
> During the policys lifetime, a taxicab of the insured driven by Coquia met an
accident and Coquia died.
> When the company refused to pay the only heirs of Coquia, his parents, they
institued this complaint. The company contends that plaintiffs have no cause of
action since the Coquias have no contractual relationship with the company.

Issue:

Whether or not plaintiffs have the right to collect on the policy.

Held:
YES.
Athough, in general, only parties to a contract may bring an action based thereon,
this rule is subject to exceptions, one of which is found in the second paragraph of
Article 1311 of the Civil Code of the Philippines, reading: "If a contract should
contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person is not sufficient. The contracting
parties must have clearly and deliberately conferred a favor upon a third person."
This is but the restatement of a well-known principle concerning contracts pour
autrui, the enforcement of which may be demanded by a third party for whose
benefit it was made, although not a party to the contract, before the stipulation in
his favor has been revoked by the contracting parties

In the case at bar, the policy under consideration is typical of contracts pour autrui
this character being made more manifest by the fact that the deceased driver paid
fifty percent (50%) of the corresponding premiums, which were deducted from his
weekly commissions. Under these conditions, it is clear that the Coquias who,
admittedly, are the sole heirs of the deceased have a direct cause of action
against the Company, and, since they could have maintained this action by
themselves, without the assistance of the insured it goes without saying that they
could and did properly join the latter in filing the complaint herein.

87. Guingon v. Del Monte

80 SCRA 181
Facts:
> The insured owned a fleet of jeepneys. He insured the operation of his jeepneys
againstaccidents with third part liability with Capital Insurance and Surety Co.
> One day, one of his jeepney dirivers, bumped and killed Guingon.
> An action for damages was then filed against the owner-insured, the driver and
the company.
> The company sough to dismiss the charges against it on the ground of lack of
cause of action against it.

Issue:

Whether or not there is a cause of action against the company.

Held:
YES.

The right of a person injured to sue the insurer of the party at fault depends on
whether the contract of insurance was intended to benefit third persons. The test
applied here is: Where the contract provides for indemnity against liability to third
persons, then third persons to whom the insured is liable, can sue the insurer. On
the other hand, where the contract is for indemnity against actual loss or payment,
then third persons cannot proceed against the insurer, the contract being solely to
reimburse the insured for liability actually discharged by him through payment to
third persons, said third persons' recourse being thus limited to the insured alone

The policy in the present case, is one whereby the insurer agreed to indemnify the
insured "against all sums . which the Insured shall become legally liable to pay in
respect of: a. death of or bodily injury to any person . . ." Clearly, therefore, it is one
for indemnity against liability from the fact then that the insured is liable to the third
person, such third person is entitled to sue the insurer.

Since the policy in questioned contained a stipulation pour autrui, then the
insurance company must deliver the proceeds to the claimants.

88. Del Val v. Del Val

29 Phil 535
Facts:
> Petitioners and private respondents are brothers and Sisters and are the only
heirs and next of kin of Gregorio del Val who died intestate.
> It was found out that the deceased took out insurance on his life for the sum of
40T and made it payable to private respondents as sole beneficiary.
> After Gregorios death, Andres collected the proceeds of the policy.
> Of the said policy, Andres paid 18T to redeem some real property which Gregorio
had sold to third persons during his lifetime.
> Said redemption of the property was made by Andres laywer in the name of
Andres and the petitioners. (Accdg to Andres, said redemption in the name of

Petitioners and himself was without his knowledge and that since the redemption,
petitioners have been in possession of the property)
> Petitioners now contend that the amount of the insurance policy belonged to the
estate of the deceased and not to Andres personally.
> Pet filed a complaint for partition of property including the insurance proceeds
> Andress claims that he is the sole owner of the proceeds and prayed that he be
declared:
> Sole owner of the real property, redeemed with the use of the insurance
proceeds and its remainder;
> Petitioners to account for the use and occupation of the premises.

Issue:
Whether or not the petitioners have a right to the insurance proceeds?
Held:
NOPE.
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 the
subject. Our civil code has no provisions which relate directly and specifically to
life-insurance contracts of to the destination of life-insurance proceeds that subject
is regulated exclusively by the Code of Commerce. Thus, contention of petitioners
that proceeds should be considered as a dontation or gift and should be included in
the estate of the deceased is UNTENABLE.

Since the repurchase has been made n the names of all the heirs instead of the
defendant alone, petitioners claim that the property belongs to the heirs in common
and not to the defendant alone. The SC held that if it is established by evidence
that that was his intention and that the real estate was delivered to the plaintiffs
with that understanding, then it is probable that their contention is correct and that
they are entitled to share equally with the defendant. HOWEVER, it appears from
the evidence that the conveyances were taken in the name of the plaintiffs without

the knowledge and consent of Andres, or that it was not his intention to make a gift
to them of real estate, when it belongs to him.

89. Insular Life vs. Ebrado

80 SCRA 181
Facts:
> Buenaventura Ebrado was issued al life plan by Insular Company. He designated
Capriona as his beneficiary, referring to her as his wife.
> The insured then died and Carponia tried to claim the proceeds of the said plan.
> She admitted to being only the common law wife of the insured.
> Pascuala, the legal wife, also filed a claim asserting her right as the legal wife.
The company then filed an action for interpleader.

Issue:

Whether or not the common law wife named as beneficiary can collect the
proceeds.

Held:
NO.
The civil code prohibitions on donations made between persons guilty of adulterous
concubinage applies to insurance contracts. On matters not specifically provided
for by the Insurance Law, the general rules on Civil law shall apply. A life insurance
policy is no different from a civil donation as far as the beneficiary is concerned,
since both are founded on liberality.
Why was the common law wife not ed to collect the proceeds despite the fact that
she was the beneficiary? Isnt this against Sec. 53?

It is true that SC went against Sec. 53. However, Sec. 53 is NOT the only provision
that the SC had to consider. Art. 739 and 2012 of CC prohibit persons who are
guilty of adultery or concubinage from being beneficiaries of the life insurance
policies of the persons with whom they committed adultery or concubinage. If the
SC used only Sec. 53, it would have gone against Art. 739 and 2012.

90. RCBC v. CA - Insurance Proceeds

289 SCRA 292 (1998)
Facts:
> GOYU applied for credit facilities and accommodations with RCBC. After due
evaluation, a credit facility in the amount of P30 million was initially granted. Upon
GOYU's application increased GOYU's credit facility to P50 million, then to P90
million, and finally to P117 million
> As security for its credit facilities with RCBC, GOYU executed two REM and two
CM in favor of RCBC, which were registered with the Registry of Deeds at. Under
each of these four mortgage contracts, GOYU committed itself to insure the
mortgaged property with an insurance company approved by RCBC, and
subsequently, to endorse and deliver the insurance policies to RCBC.
> GOYU obtained in its name a total of 10 insurance policies from MICO. In February
1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained
the Malayan insurance policies, issued nine endorsements in favor of RCBC
seemingly upon instructions of GOYU
> On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by
fire. Consequently, GOYU submitted its claim for indemnity.
> MICO denied the claim on the ground that the insurance policies were either
attached pursuant to writs of attachments/garnishments issued by various courts or
that the insurance proceeds were also claimed by other creditors of GOYU alleging
better rights to the proceeds than the insured.
> GOYU filed a complaint for specific performance and damages. RCBC, one of
GOYU's creditors, also filed with MICO its formal claim over the proceeds of the
insurance policies, but said claims were also denied for the same reasons that AGCO
denied GOYU's claims.

> However, because the endorsements do not bear the signature of any officer of
GOYU, the trial court, as well as the Court of Appeals, concluded that the
endorsements are defective and held that RCBC has no right over the insurance
proceeds.

Issue:
Whether or not RCBC has a right over the insurance proceeds.
Held:
RCBC has a right over the insurance proceeds.
It is settled that a mortgagor and a mortgagee have separate and distinct insurable
interests in the same mortgaged property, such that each one of them may insure
the same property for his own sole benefit. There is no question that GOYU could
insure the mortgaged property for its own exclusive benefit. In the present case,
although it appears that GOYU obtained the subject insurance policies naming itself
as the sole payee, the intentions of the parties as shown by their contemporaneous
acts, must be given due consideration in order to better serve the interest of justice
and equity.

It is to be noted that 9 endorsement documents were prepared by Alchester in favor

of RCBC. The Court is in a quandary how Alchester could arrive at the idea of
endorsing any specific insurance policy in favor of any particular beneficiary or
payee other than the insured had not such named payee or beneficiary been
specifically disclosed by the insured itself. It is also significant that GOYU voluntarily
and purposely took the insurance policies from MICO, a sister company of RCBC,
and not just from any other insurance company. Alchester would not have found out
that the subject pieces of property were mortgaged to RCBC had not such
information been voluntarily disclosed by GOYU itself. Had it not been for GOYU,
Alchester would not have known of GOYU's intention of obtaining insurance
coverage in compliance with its undertaking in the mortgage contracts with RCBC,
and verify, Alchester would not have endorsed the policies to RCBC had it not been
so directed by GOYU.

On equitable principles, particularly on the ground of estoppel, the Court is

constrained to rule in favor of mortgagor RCBC. RCBC, in good faith, relied upon the

endorsement documents sent to it as this was only pursuant to the stipulation in the
mortgage contracts. We find such reliance to be justified under the circumstances of
the case. GOYU failed to seasonably repudiate the authority of the person or
persons who prepared such endorsements. Over and above this, GOYU continued, in
the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC.
After the occurrence of the loss insured against, it was too late for GOYU to disown
the endorsements for any imagined or contrived lack of authority of Alchester to
prepare and issue said endorsements. If there had not been actually an implied
ratification of said endorsements by virtue of GOYU's inaction in this case, GOYU is
at the very least estopped from assailing their operative effects.

To permit GOYU to capitalize on its non-confirmation of these endorsements while it

continued to enjoy the benefits of the credit facilities of RCBC which believed in
good faith that there was due endorsement pursuant to their mortgage contracts, is
to countenance grave contravention of public policy, fair dealing, good faith, and
justice. Such an unjust situation, the Court cannot sanction. Under the peculiar
circumstances obtaining in this case, the Court is bound to recognize RCBC's right to
the proceeds of the insurance policies if not for the actual endorsement of the
policies, at least on the basis of the equitable principle of estoppel.

GOYU cannot seek relief under Section 53 of the Insurance Code which provides that
the proceeds of insurance shall exclusively apply to the interest of the person in
whose name or for whose benefit it is made. The peculiarity of the circumstances
obtaining in the instant case presents a justification to take exception to the strict
application of said provision, it having been sufficiently established that it was the
intention of the parties to designate RCBC as the party for whose benefit the
insurance policies were taken out. Consider thus the following:
1.
It is undisputed that the insured pieces of property were the subject of
mortgage contracts entered into between RCBC and GOYU in consideration of and
for securing GOYU's credit facilities from RCBC. The mortgage contracts contained
common provisions whereby GOYU, as mortgagor, undertook to have the
mortgaged property properly covered against any loss by an insurance company
acceptable to RCBC.
2.
GOYU voluntarily procured insurance policies to cover the mortgaged
property from MICO, no less than a sister company of RCBC and definitely an
acceptable insurance company to RCBC.

3.
Endorsement documents were prepared by MICO's underwriter, Alchester
Insurance Agency, Inc., and copies thereof were sent to GOYU, MICO and RCBC.
GOYU did not assail, until of late, the validity of said endorsements.
4.
GOYU continued until the occurrence of the fire, to enjoy the benefits of the
credit facilities extended by RCBC which was conditioned upon the endorsement of
the insurance policies to be taken by GOYU to cover the mortgaged properties.

This Court can not over stress the fact that upon receiving its copies of the
endorsement documents prepared by Alchester, GOYU, despite the absence written
conformity thereto, obviously considered said endorsement to be sufficient
compliance with its obligation under the mortgage contracts since RCBC accordingly
continued to extend the benefits of its credit facilities and GOYU continued to
benefit therefrom. Just as plain too is the intention of the parties to constitute RCBC
as the beneficiary of the various insurance policies obtained by GOYU. The intention
of the parties will have to be given full force and effect in this particular case. The
insurance proceeds may, therefore, be exclusively applied to RCBC, which under the
factual circumstances of the case, is truly the person or entity for whose benefit the
policies were clearly intended.

91. San Miguel Brewery v. Law Union Rock Insurance Company - Insurance Proceeds

40 PHIL 674
Facts:
> On Jan. 12, 1918, Dunn mortgaged a parcel of land to SMB to secure a debt of
10T.
> Mortgage contract stated that Dunn was to have the property insured at his own
expense, authorizing SMB to choose the insurers and to receive the proceeds
thereof and retain so much of the proceeds as would cover the mortgage debt.
> Dunn likewise authorized SMB to take out the insurance policy for him.
> Brias, SMBs general manager, approached Law Union for insurance to the extent
of 15T upon the property. In the application, Brias stated that SMBs interest in the
property was merely that of a mortgagee.

> Law Union, not wanting to issue a policy for the entire amount, issued one for
P7,500 and procured another policy of equal amount from Filipinas Cia de Seguros.
Both policies were issued in the name of SMB only and contained no reference to
any other interests in the propty. Both policies required assignments to be approved
and noted on the policy.
> Premiums were paid by SMB and charged to Dunn. A year later, the policies were
renewed.
> In 1917, Dunn sold the property to Harding, but no assignment of the policies
was made to the latter.
> Property was destroyed by fire. SMB filed an action in court to recover on the
policies. Harding was made a defendant because by virtue of the sale, he became
the owner of the property, although the policies were issued in SMBs name.
> SMB sought to recover the proceeds to the extent of its mortgage credit with the
balance to go to Harding.
> Insurance Companies contended that they were not liable to Harding because
their liability under the policies was limited to the insurable interests of SMB only.
> SMB eventually reached a settlement with the insurance companies and was
paid the balance of its mortgage credit. Harding was left to fend for himself. Trial
court ruled against Harding. Hence the appeal.

Issue:

Whether or not the insurance companies are liable to Harding for the balance of the
proceeds of the 2 policies.

Held:
NOPE.
Under the Insurance Act, the measure of insurable interest in the property is the
extent to which the insured might be daminified by the loss or injury thereof. Also it
is provided in the IA that the insurance shall be applied exclusively to the proper

interest of the person in whose name it is made. Undoubtedly, SMB as the

mortgagee of the property, had an insurable interest therein; but it could NOT, an
any event, recover upon the two policies an amount in excess of its mortgage
credit.

By virtue of the Insurance Act, neither Dunn nor Harding could have recovered from
the two policies. With respect to Harding, when he acquired the property, no
change or assignment of the policies had been undertaken. The policies might have
been worded differently so as to protect the owner, but this was not done.

If the wording had been: Payable to SMB, mortgagee, as its interests may appear,
remainder to whomsoever, during the continuance of the risk, may become owner
of the interest insured, it would have proved an intention to insure the entire
interest in the property, NOT merely SMBs and would have shown to whom the
money, in case of loss, should be paid. Unfortunately, this was not what was stated
in the policies.

If during the negotiation for the policies, the parties had agreed that even the
owners interest would be covered by the policies, and the policies had
inadvertently been written in the form in which they were eventually issued, the
lower court would have been able to order that the contract be reformed to give
effect to them in the sense that the parties intended to be bound. However, there is
no clear and satisfactory proof that the policies failed to reflect the real agreement
between the parties that would justify the reformation of these two contracts.