Insurance Case Digests

Anastasia Beaverhausen

Lucero vda. De Sindayen vs. Insular Life Assurance Co., Feb 4 1933 – Company obtained from the beneficiary [Sindayen’s
62 Phil. 9 (1935) widow] her signature to a legal document entitled "ACCORD,
SATISFACTION AND RELEASE" where in consideration of P40.06 paid to
CODE: PRECONDITION OF GOOD HEALTH
her by a check of the company, she "assigns, releases and forever
discharges said Isular Life Assurance Co., Ltd., its successors and
Excerpts from De Leon:
assigns, of all claims, obligation in or indebtedness which she, as
Where the insurance company's consent to the policy was vitiated
such beneficiary ever had or now has, hereafter ca, shall, or may have,
by error (see Arts. 1330,1331, Civil Code.), such fact may give rise to
the nullity of the contract (Lucero Vda. de Sindayen vs. Insular Life for, upon, or by reason of said policy of life insurance numbered
Assurance Co., 62 Phil. 9 [1935].); - NOTE THAT THIS IS FOUND IN 47710 upon the life of Arturo Sindayen.
THE CONCURRING
The said check for P40.06 was never cashed but returned to the
Delivery may be made company
1. to the insured in person or
2. to his duly constituted agent (Lucero Vda. de Sindayen vs. Then an action was brought to enforce payment of the policy.
Insular Life Assur. Co. Ltd., 62 Phil. 9 [1935].) or
3. some person for the benefit of the insured. NOTE: the policy was not issued and the company assumed no
actual risk prior to January 11, 1933. [GO DIRECTLY TO THE
FACTS: APPLICATION]
Arturo Sindayen was an employee of the Brueau of Printing in Manila.
The policy contains the following paragraph:
While he was in Tarlac, he made a written application to Insular THE CONTRACT. This Policy and the application herefor constitute the
Life Assurance, through Cristobal Mendoza (Agent) for a policy of entire contract between the parties hereto. All statements made by the
life insurance on his life for P1,000. Insured shall, in the absence of fraud, be deemed representations and
not warranties, and no such statement shall void the Policy unless it is
Payment – P15 to agent as first premium contained in the written application, a copy of which is attached to this
Policy. Only the President, or the Manager, acting jointly with the
Agreement: Secretary or Assistant Secretary (and then only in writing signed by
That the policy, when and if issued, should be delivered to his aunt them) have power in behalf of the Company to issue permits, or to
Felicidad Estrada, with whom Sindayen left the sum of P26.06 to modify this or any contract, or to extend the time for making any
complete the payment of the first annual premium of P40.06. premium payment, and the Company shall t bound by any promise or
Dates material to the insured Dates material to the representation heretofore hereafter given by any person other than the
insurance policy
above-named officials, and by them only in writing and signed
January 1, 1933 - Sindayen (then 29
conjointly as stated.".
y/o)- examined by the doctor who
made a favorable report to the
THE APPLICATION which the insured signed in Camiling, Tarlac, on
company
December 26, 1932, contained among others the following provisions:
Jan 2 1933 – Sndayen returned to 2. That if this application is accepted and a policy issued in my favor, I
Manila and resumed work bind myself to accept the same and to pay at least the first year's
premium thereon in the City of Manila.
January 11, 1933 - The company Jan 11, 1933 – issued and 3. That the said policy shall not take effect until the first premium
accepted the risk and issued policy mailed in Manila has been paid and the policy has been delivered to and accepted
No. 47710 dated back to December by me, while I am in good health.
1, 1932, and mailed the same to its 4. That the agent taking this application has no authority to make,
agent, Cristobal Mendoza, in modify or discharge contracts, or to waive any of the Company's right
Camiling, Tarlac, for delivery to the
or requirements."
insured.

ISSUE: Did the policy take effect? YES

January 12, 1933 - Sindayen Jan 16,1933 – received by
complained of a severe headache agent in Tarlac
and remained at home. INSURANCE COMPANY’S DEFENSE and SC’S RULING:
Jan 18, 1933 – delivered A. The "ACCORD, SATISFACTION AND RELEASE" (Exhibit A)
January 15, 1933 – it was found that to Felicidad Estrada upon signed by the widow of Arturo Sindayen.
he was suffering from acute nephritis her payment of the balance
and uremia. His illness did not yield of the first year's annual SC’s RULING: With respect to Exhibit A, - this release is so
to treatment. premium (in accordance inequitable, not to say fraudulent, The court even noted that
with the agreement with the counsel for the defendant company, on page 51 of their brief,
Jan 19, 1933 – Sindayen died. Sindayen) stated:
"If it turns out that the policy here in question is valid, the
The agent asked Felicidad Estrada if her nephew was in good
appellee [company] would be the first to not give any validity to
health and she replied that she believed so because she had no
the Exhibit A document, even though the appellant [widow] had
information that he was sick and he thereupon delivered to her the
affirmed that it was granted knowingly."
policy.

B. Delivery – No delivery because the policy was not delivered

Jan 20, 1933 –agent learned of Sindayen’s death and called on
to and accepted by the insured person
Felicidad Estrada and asked her to return the policy.

SC’s RULING: Delivery to the insured in person is not necessary.

He testified: "pedia a ella que me devolviera a poliza para traerla a
Delivery may be made by mail or to a duly constituted agent.
Manila para esperar la de decision de la compañia" [I asked her to
return me to the policy to bring her to Manila to await the decision of
C. The Policy never took effect because par 3 of the application
the company "]
required that the insured be in good health when the policy
was delivered by the agent
But he did not return or offer to return the premium paid. Felicidad
Estrada on his aforesaid statement gave him the policy.

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SC’s RULING: identical or substantially identical clauses have been 1. then the consummation of the contract occurred when the
construed and applied in a number of cases in the United States company expressed its will to release the policy by mailing it
and the decisions thereon are far from uniform or harmonious. to its agent on January 11, 1933.

2 lines of cases with different interpretations: 2. In such a case the agent would perform a purely
I. GOOD HEALTH AS THE CONDITION PRECEDENT TO ministerial act and have no discretion. He could do
VALID DELIVERY nothing but make unconditional delivery. The legal result
There is one line of cases which holds that the would be the same as if the company had mailed the policy
stipulation contained in paragraph 3 is in the nature of on January 11, 1933, to the insured directly using the post-
a condition precedent - that there can be no valid office as its conduit for delivery. On January 11, 1933, the
delivery to the insured unless he is in good health at the insured was in good health performing his regular duties in
time; that this condition precedent goes to the very the Bureau of Printing.
essence of the contract and cannot be waived by the
agent making delivery of the policy BUT SC did not treat Mendoza as a mere conduit
Evidence in the record shows that Mendoza had the authority, given
II. DELIVERY OF THE POLICY IS THE FINAL ACT OF him by the company, to withhold the delivery of the policy to the
CONSUMMATION OF THE CONTRACT AND THE insured "until the first premium has been paid and the policy has been
CONDITION AS TO THE INSURER’S GOOD HEALTH delivered to and accepted by me (the insured) while I am in good
WAIVED BY COMPANY health". Whether that condition had been met or not plainly calls for
On the other hand, a number of American decisions the exercise of discretion.
hold that an agent to whom a life insurance policy
similar to the one here involved was sent with Granted that Mendoza's decision that the condition had been met by
instructions to deliver it to the insured has authority to the insured and that it was proper to make a delivery of the policy to
bind the company by making such delivery, although him is just as binding on the company as if the decision had been
the insured was not in good health at the time of made by its board of directors.
delivery, on the theory that the delivery of the policy
being the final act to the consummation of the Granted that Mendoza made a mistake of judgement because he acted
contract, the condition as to the insurer's good on insufficient evidence as to the state of health of the insured.
health was waived by the company. (Kansas City Life But it is not charged that the mistake was induced by any misconduct
Insurance Co. vs. Ridout, 147 Ark., 563; 228 S.W., 55; or omission of duty of the insured.
Metropolitan Life Insurance Co. vs. Willis etc
It is the interest not only the applicant but of all insurance companies
GIST OF CASES - the delivery of the policy by the agent to the insured as well that there should be some act which gives the applicant the
consummates the contract even though the agent knew that the definite assurance that the contract has been consummated.
insured was not in good health at the time, the theory being that his A cloud will be thrown over the entire insurance business if the
knowledge is the company's knowledge and his delivery of the condition of health of the the insured at the time of delivery of the
policy is the company's delivery; that when the delivery is made policy may be required into years afterwards with the view to avoiding
notwithstanding this knowledge of the defect, the company is deemed the policy on the ground that it never took effect because of an alleged
to have waived the defect. lack of good health, at the time of delivery.

BUT IN THIS CASE, the SC was inclined to rest its decision on the SITUATION
proposition that Mendoza was authorized by the company to make the Suppose in the present instance that Sindayen had recovered his
delivery of the policy when he received the payment of the first health, but was killed in an automobile accident six months after the
premium and he was satisfied that the insured was in good health. delivery of the policy; and
In the case of MeLaurin vs. Mutual Life Insurance Co., the SC said:
when called on to pay the loss, the company learns of Sindayen's grave
The power in the local agent to withhold the policy involves the power illness on January 18, 1933, and alleges that the policy had never taken
to deliver it; there is no escape from that conclusion. effect.

INSURANCE COMPANY’S ADDT’L DEFENSE: It is difficult to imagine that the insurance company would take such a
Even though the local agent should have concluded that the applicant position in the face of the common belief of the insuring public that
was in good health, but the fact is he was actually in poor health, then when the policy is delivered, in the absence of fraud or other
the policy never took effect grounds for rescission, the contract of insurance is consummated.

SC’S RULING: NOTE:

The parties intended to make a contract, and that involved the doing of When the policy is issued and delivered, in the absence of fraud or
everything necessary to carry it into operation, to wit, the acceptance of other grounds for rescission, it is plainly not within the intention
the applicant as a person in good health. They never intended to leave of the parties that there should be any questions held in abeyance
open that one essential element of the contract, when the parties or reserved for future determination that leave the very existence
dealth fairly one with the other. of the contract in suspense and doubt.

Here, it is not necessarily a case of waiver or of estoppel, but a Policies that have been delivered to the insured are constantly being
case where the local agents, in the exercise of the powers lodged assigned for credit and other purposes.
in them, accepted the premium and delivered the policy.
That act binds their principal, [insurance company] Although such policies are not negotiable instruments and are subject
to defenses for fraud, it would be a most serious handicap to business
Mendoza was duly licensed by the Insurance Commissioner to act as if the very existence of the contract remains in doubt even though the
the agent of the defendant insurance company. policy has been issued and delivered with all the formalities required by
Mendoza was not regarded by the company as a mere conduit for the law.
the performance of the physical act of placing the policy in the
hands of the insured. For public interest, as well as in the interest of the insurance
companies themselves - the delivery of the policy to the insured by
If Mendoza was merely a conduit, an agent of the company who is authorized to make delivery or

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Anastasia Beaverhausen

without delivery is the final act which binds the company (and the In fact, his inquiry as to the state of health of the insured discloses that
insured as well) in the absence of fraud or other legal ground for he was endeavoring to assure himself that this requirement of the
rescission. company had been satisfied.

The fact that the agent to whom it has entrusted this duty (and In doing so, he acted within the authority conferred on him by his
corporation can only act through agents) is derelict or negligent or agency and his acts within that authority bind the company.
even dishonest in the performance of the duty which has been
entrusted to him would create a liability of the agent to the company The company therefore having decided that all the conditions
but does not resolve the company's obligation based upon the precedent to the taking effect of the policy had been complied
authorized acts of the agent toward a third party who was not in with and having accepted the premium and delivered the policy
collusion with the agent. thereafter to the insured, the company is now estopped to assert
that it never intended that the policy should take effect. (Cf.
PARAGRAPH 4 Northwestern Life Association vs. Findley, 29 Tex. Civ. App., 494; 68 S.W,
Paragraph 4 of the application to the effect "that the agent taking this 695; McLaurin vs. Mutual Life Insurance Co., 115 S.C., 59; 104 S.E., 327;
application has no authority to make, modify or discharge contracts or 14 Aal. Jur., par. 12, pages 425-427.)
to waive any of the company's rights or requirements" is not in point.
Dispositive – the company assumed the risk covered by policy No.
Mendoza neither waived nor pretended to waive any right or 47710 on the life of Arturo Sindayen on January 18, 1933, the date
requirement of the company. when the policy was delivered to the insured.

Separate opinions: [just in case and for your peace of mind] Sindayen)
AVANCEÑA, C.J., concurring:
Felicidad told agent that
This contract was consummated by the defendant due to an error
Sindayen was in good
regarding an essential condition, to wit: the the good health of the
health as she received no
insured.
information that he was
sick
The defendant would not have consummated the contract had it
known that the insured was hopelessly ill, inasmuch as this His continuation
consideration is essential in this kind of contracts. Jan 19, 1933 – Estrada came to Manila to deliver the policy and learned
that Sindayen died, Felicidad delivered the policy to the beneficiary
There was no waiver of this condition inasmuch as it consummated the
contract in the belief that this condition had been compiled with, in Jan 20, 1933- the agent had knowledge of the death of the insured and
view of the information given to it in good faith by the agent of the went to see Felicidad Estrada whom be requested to return the policy
insured to the effect that the latter might continue to be in good health so that the defendant would decide what was to be done.
for the reason that she had not received any information from him to
the contrary. On that occasion the agent conveyed to Felicidad Estrada his belief
that the insured was not in good health when he delivered the
This being so, the defendant's consent is vitiated by error, and, policy to her. Felicidad Estrada returned the policy to the agent on the
inasmuch as it affects an essential condition of the contract, it may afternoon of said date.
give rise to the nullity thereof.
The agent gave notice to the defendant of the death of the insured and
But nullity of the contract was not set up as a a defense in this case, so of the circumstances under which, he had delivered the policy, and the
I concur with the majority in the result. insurance ompany on February 4th of the same year returned to
the plaintiff by check all the premium theretofore received, and
IMPERIAL, J., dissenting: furthermore secured from her Exhibit A (Accord, Satisfaction and
Dates material to the insured Dates material to the Release)
insurance policy
January 1, 1933 - Sindayen (then 29 In its answer the defendant set up two special defenses:
y/o)- examined by the doctor who (1) That the plaintiff lost any and an right to collect the value of
made a favorable report to the the policy because at the time the first premium was paid
company and the policy was delivered to the insured, the latter
was not in good health, thus violating clause 3 of the
Jan 2 1933 – Sndayen returned to application which he signed and was made an integral part
Manila and resumed work of the policy as one of the conditions thereof; and

January 11, 1933 - The company Jan 11, 1933 – issued and
(2) that the plaintiff by means of the document known as
accepted the risk and issued policy mailed in Manila
"Accord, Satisfaction and Release" has waived whatever right
No. 47710 dated back to December
she might derive from the insurance policy.
1, 1932, and mailed the same to its
agent, Cristobal Mendoza, in
Camiling, Tarlac, for delivery to the A stipulation or contract between the company and the applicant in the
insured. sense that the insurance policy will produce no effect or will not be
binding on the company unless the first premium shall have been paid
January 12, 1933 - Sindayen while the applicant is alive and in good health, is valid and will will be
complained of a severe headache enforced in accordance with the terms thereof;
and remained at home. Jan 16,1933 – received by
agent in Tarlac it is a condition precedent to the liability of the company, and
January 15, 1933 – it was found that compliance therewith or its waiver are necessary for the
he was suffering from acute nephritis Jan 18, 1933 – delivered
enforcement and fulfillment of the insurance contract, unless the
and uremia. His illness did not yield to Felicidad Estrada upon
case should come under the provisions of an uncontestable clause
to treatment. her payment of the balance
of the first year's annual
Jan 19, 1933 – Sindayen died. premium (in accordance Based on the previous cases cited,
with the agreement with it must be ruled:

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Anastasia Beaverhausen

(1) It was within the power of the insurance company, as between itself condition is performed and it becomes the duty of the agent to
and its agent, to define and limit the powers of the latter. Limitations deliver the policy to the insured, the contract is not complete. . . . It
upon the power of the agent affect all third persons dealing with him, is usual condition of a life insurance policy that the delivery shall
who have knowledge or notice thereof; and any notice of limitations not be effectual to create a binding contract unless the insured is
upon the agent's power which a prudent man is bound to regard, is the alive in good health when the policy is delivered and the first
equivalent of knowledge to the insured; premium paid, and under such conditions the death of the insured
before the delivery of the policy will prevent its becoming effectual.
(2) the stipulation in the signed application, that the insurance "shall
not take effect until the first premium shall have been actually paid Applications for policies of life insurance frequently provide, as in the
while I am in good health," coupled with the words in the policy, present instance, that the policy shall not take effect unless it is
"Agents are not authorized to modify this policy or to extend the delivered to the insured and the premium paid while he is in good
time for paying a premium," were sufficient to charge the health, and the great weight of authority is to the effect that such
applicant with notice that he was dealing with a special agent with provision is valid, and that if the insured was not in fact in good health
limited powers; on the date the policy was delivered the company is not liable. (Gallant
vs. Metropolitan L. Ins. Co., 167 Mass., 79; 44 N.E. 1073; Murphy vs.
(3) the actual payment of the first premium during the good Metropolitan Life Ins. Co., 106 Minn.)
health of the applicant was a condition precedent to liability under
the policy, and the agent of the company could not waive such EXISTENCE OF FRAUD
condition. There is no doubt, as to the existence of the fraud. A restatement of the
facts will show such existence. It will be remembered that before the
Cited a US case where the court ruled that a reason why the contract of delivery of the policy Mendoza asked Estrada whether the insured
insurance was not consummated was because the first premium was continued enjoying good health, to which she answered that she
not paid nor tendered during the good health of the insured, as thought he was in good health because she had had no information
required by the stipulation in the application quoted above. that he was sick. It will likewise be noted that the information, far
from being correct or truthful, was incorrect and misleading
A stipulation of that character, requiring the payment of a first because, it reality, on that occasion the insured was seriously ill
premium in advance as a condition upon which the policy was to from nephritis and uremia, almost in a moribund state.
take effect, is is always recognized and enforced by the courts. The
policy, in such case, is not effective until that condition is complied with. Estrada, as a representative of the insured was not only bound to give a
(Kilcullen vs. Life Ins. Co., 108 Mo. App., 61; 82 S.W., 966; Wallingford vs. truthful information on the state of health of the insured, but it was her
Home Mut. Fire & Marine Ins. Co., 30 Mo., 46; Ormond vs. Insurance duty to find out it his true state of health in order to give true and
Co., 96 N.C., 158; 1 S.E., 796; Bowen vs. Mutual Life Ins. Co., 20 S.D., 103; correct information.
104 N.W., 1040.)
When she gave Mendoza as incorrect information tending to
If the parties understood and agreed that the policy should not create the impression that the insured was well when in fact he
become effective unless the first premium was paid and the policy was was seriously ill, there is no doubt that she committed fraud and
delivered to and received by the applicant during his lifetime and while imparted a deceitful information to the defendant agent. It matters
he was in good health, and both of those conditions failed, not that the fraud was involuntary and not chargeable to Estrada ;
the contract of insurance was never completed, and the policy was the truth is that it existed and that by reason of such fraud the policy
of no force and effect. was delivered, and both the agent and the defendant were misled into
believing that the insured was enjoying good health.
Quoting 25 Cyc 718, 719, it is stated with reference to the delivery of
insurance policies that: "The placing of the completed policy on In conclusion it is my opinion:
hands of the agent for the delivery, without condition, to the (1) That the policy has not produced any effect from which the plaintiff
insured completes the contract, though the actual delivery by the may derive any right, and
agent to the insured is not made before the death of the insured.
(2) that she has expressly waived any all rights accurring from the
BUT if the delivery to the agent of the company is with the policy; and
understanding that it is to be delivered by the agent to the insured for these reasons I dissent from the majority opinion.
only after the performance of some condition, then until the
Enriquez vs. Sun Life Assur. Co. of Canada, 41 Phil. 209 (1920) September 24, 1917 - Joaquin Herrer made application to the Sun Life
Ponente: MALCOLM, J.: Assurance Company of Canada through its office in Manila for a life
annuity.
Excerpt from De Leon
The contract for a life annuity was not perfected where the September 26, 1917 - he paid the sum of P6,000 to the manager of
acceptance of the application by the home office of the insurer (see the company's Manila office and was given a receipt reading as follows:
Art. 1319, par. 2, Civil Code.) never came to the knowledge of the
applicant who died (Enriquez vs. Sun Life Assur. Co. of Canada, MANILA, I. F., 26 de septiembre, 1917.
41 Phil. 209 [1920].);
PROVISIONAL RECEIPT Pesos 6,000
The contract is not perfected where the applicant for life
insurance dies before its approval or it does not appear that the [translated to English]
acceptance-of the application ever came to the knowledge of I received the sum of six thousand pesos from Don Joaquin Herrer de
the applicant. (Enriquez vs. Sun Life Assurance Co., 41 Phil. 269
Manila as a Lifetime Income bonus requested by said Don Joaquin
[1920].)
Herrer today, subject to the medical examination and approval of
the Central Office of the Company.
RULING SHORTCUT:
contract for a life annuity in the case at bar was not perfected because The application was immediately forwarded to the head office of the
it has not been proved satisfactorily that the acceptance of the company at Montreal, Canada.
application ever came to the knowledge of the applicant.
November 26, 1917 - the head office gave notice of acceptance by
FACTS: cable to Manila. (Whether on the same day the cable was received

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Anastasia Beaverhausen

notice was sent by the Manila office of Herrer that the application had
been accepted, is a disputed point, which will be discussed later.) Article 1262 of the Civil Code
"Consent is shown by the concurrence of offer and acceptance with
December 4, 1917 - the policy was issued at Montreal. respect to the thing and the consideration which are to constitute the
contract. An acceptance made by letter shall not bind the person
December 18, 1917 - attorney Aurelio A. Torres wrote to the Manila making the offer except from the time it came to his knowledge.
office of the company stating that Herrer desired to withdraw his The contract, in such case, is presumed to have been entered into at
application. the place where the offer was made."

Dac 19, 1917 - local office replied to Mr. Torres, stating that the This latter article is in opposition to the provisions of article 54 of the
policy had been issued, and called attention to the notification of Code of Commerce.
November 26, 1917. Since a new law on insurance was enacted which expressly repealed the
provisions in the code of commerce and the law on sinruance does not
Dec 20, 1917 – Mr. Herrer died provide the methods to be followed in order that there may be a
contract of insurance - it would seem logical to make use of the only
Dec 21, 1917 – letter of local office received by Mr. Torres pertinent provision of law found in the Civil code, closely related to the
chapter concerning life annuities.
ISSUE
Did the policy take effect? NO [not delivered] Thus - an acceptance made by letter shall bind the person making
Did Herrer receive notice of acceptance of his application? NO the offer only from the date it came to his knowledge [although it
RULING may not be the best expression of modern commercial usage]
Chief clerk of the Manila office of the Sun Life Canada
1. testified that he prepared the letter dated November 26, This is identical with the principles announced by a considerable
1917, and handed it to the local manager, Mr. E. E. White, for number of respectable courts in the United States.
signature.
2. After preparing the letter and giving it to he manager, he The courts who take this view have expressly held that an
knew nothing of what became of it. acceptance of an offer of insurance not actually or constructively
Local Manager, Mr White communicated to the proposer does not make a contract.
1. testified to having received the cablegram accepting the
application of Mr. Herrer from the home office on LAW APPLICABLE IS ART 1262
November 26, 1917. That an acceptance made by letter shall not bind the person making
2. On the same day he signed a letter notifying Mr. Herrer of the offer except from the time it came to his knowledge.
this acceptance.
3. Letters, after being signed, were sent to the chief clerk IN THIS CASE
and placed on the mailing desk for transmission. The pertinent fact is, that according to the provisional receipt, three
4. Witness could not tell if the letter had every actually been things had to be accomplished by the insurance company before
placed in the mails. there was a contract:

Attorney Manuel Torres [Herrer’s Atty] (1) There had to be a medical examination of the applicant; [idk]
That when the will of Herrer was being prepared, Herrer mentioned (2) there had to be approval of the application by the head office of
his application for a life annuity, and that he said that the only the company; and [met]
document relating to the transaction in his possession was the (3) this approval had in some way to be communicated by the
provisional receipt. company to the applicant. [not met]

Rafael Enriquez, the administrator of the estate, HERE:

Testified that he had gone through the effects of the deceased and 1. the head office in Montreal did accept the application,
found no letter of notification from the insurance company to Mr. 2. did cable the Manila office to that effect,
Herrer. 3. did actually issue the policy and
4. did, through its agent in Manila, actually write the letter of
SC’S CONCLUSION notification and place it in the usual channels for
The letter of November 26, 1917, notifying Mr. Herrer that his transmission to the addressee.
application had been accepted, was prepared and signed in the local a. The fact as to the letter of notification thus fails to
office of the insurance company, was placed in the ordinary channels concur with the essential elements of the general
for transmission, but as far as we know, was never actually mailed and rule pertaining to the mailing and delivery of mail
thus was never received by the applicant. matter as announced by the American courts,
namely, when a letter or other mail matter is
What law should be applied? addressed and mailed with postage prepaid there
While the Insurance Act deals with life insurance, it is silent as to the is a rebuttable presumption of fact that it was
methods to be followed in order that there may be a contract of received by the addressee as soon as it could have
insurance. been transmitted to him in the ordinary course of
the mails.
The Civil Code, in article 1802, not only describes a contact of life b. But if any one of these elemental facts fails to
annuity markedly similar to the one we are considering, but in two appear, it is fatal to the presumption. For instance,
other articles, gives strong clues as to the proper disposition of the a letter will not be presumed to have been
case. received by the addressee unless it is shown that it
was deposited in the post-office, properly
Article 16 of the Civil Code addressed and stamped. (See 22 C.J., 96, and 49 L.
"In matters which are governed by special laws, any deficiency of the R. A. [N. S.], pp. 458, et seq., notes.)
latter shall be supplied by the provisions of this Code." On the
supposition, therefore, which is incontestable, that the special law on THUS, the contract for a life annuity in the case at bar was not
the subject of insurance is deficient in enunciating the principles perfected because it has not been proved satisfactorily that the
governing acceptance, the subject-matter of the Civil code, if there be acceptance of the application ever came to the knowledge of the
any, would be controlling. applicant.

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1918, until paid, without special finding as to costs in either instance.

Judgment is reversed, and the plaintiff shall have and recover from the So ordered.
defendant the sum of P6,000 with legal interest from November 20,
The Insular Life Assur. Co. vs. Ebrado, 80 SCRA 18 1) that the deceased Buenaventura Ebrado was married to Pascuala
G.R. No. L-44059 (1977) Ebrado with whom she has six — (legitimate) namely; Hernando,
Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed Ebrado;
Ponente: MARTIN, J.:

2) that during the lifetime of the deceased, he was insured with Insular
CODE: COMMON LAW WIFE
Life Assurance Co. Under Policy No. 009929 whole life plan,

Q: Can a common-law wife named as beneficiary in the life insurance

3) that during the lifetime of Buenaventura Ebrado, he was living with
policy of a legally married man claim the proceeds thereof in case of
his common-wife, Carponia Ebrado, with whom she had 2 children
death of the latter? NO
although he was not legally separated from his legal wife;

Excerpt from De Leon

4) that the beneficiary designated by the insured in the policy is
A common-law wife is disqualified from becoming the beneficiary of
Carponia Ebrado and the insured made reservation to change the
the insured in view of the prohibition in Article 2012 in relation to
Article 739 of the Civil Code and the absence of any specific beneficiary but although the insured made the option to change
provision in the Insurance Code on the matter (The Insular Life the beneficiary, same was never changed up to the time of his
Assur. Co. vs. Ebrado, 80 SCRA 181 [1977]; death

Similarity between life insurance and donation RTC:

In essence, a life insurance policy is no different from a civil disqualified Carponia T. Ebrado from becoming beneficiary of the
donation insofar as the beneficiary is concerned. insured Buenaventura Cristor Ebrado and directing the payment of the
insurance proceeds to the estate of the deceased insured.
Both are founded upon the same consideration: liberality.
Art. 739 of the Civil Code provides that a criminal conviction for
A beneficiary is like a donee, because from the premiums of the
adultery or concubinage is not essential in order to establish the
policy which the insured pays out of liberality, the beneficiary will
disqualification mentioned therein. Neither is it also necessary that a
receive the proceeds or profits of said insurance.
finding of such guilt or commission of those acts be made in a separate
As a consequence, the proscription in Article 739 (infra.) of the Civil independent action brought for the purpose. The guilt of the donee
Code should equally operate in life insurance contracts. (The Insular (beneficiary) may be proved by preponderance of evidence in the
Life Assur. Co. vs. Ebrado, 80 SCRA 181 [1977].) same proceeding (the action brought to declare the nullity of the
donation).
Prohibitions on donation
In order that Article 739 m$y apply, it is not required that there be a It is, however, essential that such adultery or concubinage exists at the
previous conviction for adultery or concubinage. time defendant Carponia T. Ebrado was made beneficiary in the policy
in question for the disqualification and incapacity to exist and that it is
This can be inferred from the clause that "the guilt of the donor and only necessary that such fact be established by preponderance of
donee may be proved by preponderance of evidence." (The
evidence in the trial.
Insular Life Assur. Co., Ltd. vs. Ebrado, 80 SCRA 181 [1977].)

Since the insured was living with the beneficiary as husband and wife
FACTS
without marriage and the marriage with the other defendant Pascuala
September 1, 1968 - Buenaventura Cristor Ebrado was issued by The
valid and still existing at the time the insurance was purchased -
Life Assurance Co., Ltd., Policy No. 009929 on a whole-life for P5,882.00
Carponia T. Ebrado is disqualified from becoming the beneficiary of
with a, rider for Accidental Death for the same amount Buenaventura C.
the policy in question
Ebrado designated Carponia T. Ebrado [common law wife] as the
revocable beneficiary in his policy.
APPEAL TO CA - denied

October 21, 1969 - Buenaventura C. Ebrado died [after he was hit by a

ISSUE: Who is entitled to the proceeds of the insurance policy?
failing branch of a tree]

RULING: Pascuala (legal wife)

As the policy was in force, The Insular Life Assurance Co., Ltd. liable
to pay the coverage in the total amount of P11,745.73, representing
SC affirmed the RTC
the face value of the policy in the amount of P5,882.00 plus the
additional benefits for accidental death also in the amount of
P5,882.00 and the refund of P18.00 paid for the premium due 1. The Insurance Act (RA 2327, as amended) or even the new
November, 1969, minus the unpaid premiums and interest thereon Insurance Code (PD No. 612, as amended) does not contain
due for January and February, 1969, in the sum of P36.27 any provision to resolve the issue.
2. Rather, the general rules of civil law should be applied to
Carponia T. Ebrado [common law wife] filed with the insurer a claim resolve this void in the Insurance Law.
for the proceeds of the Policy as the designated beneficiary
Article 2011 of the New Civil Code states:
Pascuala Vda. de Ebrado [legal wife] - also filed her claim as the "The contract of insurance is governed by special laws. Matters not
widow of the deceased insured. She asserts that she is the one entitled expressly provided for in such special laws shall be regulated by
to the insurance proceeds, not the common-law wife, Carponia T. this Code."
Ebrado.
Article 2012 of the same Code,
Case for interpleader filed "any person who is forbidden from receiving any donation under
The Insular Life Assurance Co., Ltd. commenced an action for Article 739 cannot be named beneficiary of a life insurance policy
Interpleader before the CFI. by the person who cannot make a donation to him.

During the pre-trial conference, parties Carponia T. Ebrado and Common-law spouses are, definitely, barred from receiving
Pascuala Ebrado agreed and stipulated: donations from each other.
Article 739 of the new Civil Code provides:

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Anastasia Beaverhausen

The following donations shall be void: Is conviction necessary for the disqualification? NO
SC:
1. Those made between persons who were guilty of adultery or Article 739 itself provides:
concubinage at the time of donation;
In the case referred to in No. 1, the action for declaration of nullity may
In essence, a life insurance policy is no different from a civil be brought by the spouse of the donor or donee; and the guilty of the
donation insofar as the beneficiary is concerned. donee may be proved by preponderance of evidence in the same
action.
Both are founded upon the same consideration: liberality.
The underscored clause neatly conveys that no criminal conviction for
A beneficiary is like a donee, because from the premiums of the policy the offense is a condition precedent. In fact, it cannot even be from the
which the insured pays out of liberality, the beneficiary will receive the aforequoted provision that a prosecution is needed.
proceeds or profits of said insurance.
On the contrary, the law plainly states that the guilt of the party may be
As a consequence, the proscription in Article 739 of the new Civil proved "in the same acting for declaration of nullity of donation.
Code should equally operate in life insurance contracts.
And, it would be sufficient if evidence preponderates upon the guilt of
The mandate of Article 2012 cannot be laid aside: any person who the consort for the offense indicated. The quantum of proof in criminal
cannot receive a donation cannot be named as beneficiary in the life cases is not demanded.
insurance policy of the person who cannot make the donation.
Here, the fact of common law relationship was already admitted
Policy considerations and dictates of morality rightly justify the and agreed upon in the pre-trial conference. According to the SC,
institution of a barrier between common law spouses in record to these stipulations are nothing less than judicial admissions which, as a
Property relations since such hip ultimately encroaches upon the consequence, no longer require proof and cannot be contradicted.
nuptial and filial rights of the legitimate family
Thus, Carponia T. Ebrado was disqualified to be the beneficiary of
As above pointed out, a beneficiary in a fife insurance policy is no the late Buenaventura C. Ebrado in his life insurance policy.
different from a donee. Both are recipients of pure beneficence. So
long as marriage remains the threshold of family laws, reason and As a consequence, the proceeds of the policy are hereby held payable
morality dictate that the impediments imposed upon married couple to the estate of the deceased insured. Costs against Carponia T.
should likewise be imposed upon extra-marital relationship. If Ebrado.
legitimate relationship is circumscribed by these legal disabilities, with
more reason should an illicit relationship be restricted by these
disabilities.
Heirs of Maramag vs. Maramag (2009) Insular
G.R. No. 181132 | June 5, 2009 1. admitted that Loreto misrepresented Eva as his legitimate
wife and Odessa, Karl Brian, and Trisha Angelie as his
Ponente: NACHURA, J.:
legitimate children,

CODE: CONCUBINE AND ILLEGITIMATE CHILDREN AS

2. The illegitimate family filed their claims for the insurance
BENEFICIARIES
proceeds of the insurance policies;
Excerpt from De Leon:
a third person has no right in law or equity to the proceeds of an
3. when it ascertained that Eva was not the legal wife of
insurance unless there is a contract or trust, expressed or implied,
between the insured and the third person (Bonifacio Bros., Inc. vs. Loreto, it disqualified her as a beneficiary and divided
Mora, 20 SCRA 261 [1967].), or the proceeds among Odessa, Karl Brian, and Trisha
Angelie, as the remaining designated beneficiaries; and
If the insurance contract was intended to benefit third persons who
are not parties to the contract in the form of reasonable 4. it released Odessa’s share as she was of age, but withheld
stipulations, the third party may directly sue and claim from the the release of the shares of minors Karl Brian and Trisha
insurer. (Heirs of L.G. Maramag vs. Maramag, 588 SCRA 774 [2009].) Angelie pending submission of letters of guardianship.
Insular’s allegation
Here, there was a case field against the respondents for revocation and 1. that the complaint or petition failed to state a cause of
reduction of insurance proceeds for being void and/or inofficious. action insofar as it sought to declare as void the
designation of Eva as beneficiary, because Loreto revoked
The petition alleged that: her designation as such in Policy No. A001544070 and it
Petitioners – legitimate wife and Children of Loreto Maramag disqualified her in Policy No. A001693029; and
Respondents – Illegitimate family of Loreto
Eva De Guzman – A concubine of Loreto (and also a suspect in his 2. insofar as it sought to declare as inofficious the shares of
killing) Odessa, Karl Brian, and Trisha Angelie, considering that no
settlement of Loreto’s estate had been filed nor had the
Loreto had insurance policies with Insualr Life and Grepa Life respective shares of the heirs been determined.

Petitioner’s contention: 3. Insular further claimed that it was bound to honor the
1. That Since eva was a suspect in Loreto’s klling, she is insurance policies designating the children of Loreto with Eva
disqualified from receiving the proceeds of his insurance as beneficiaries pursuant to Section 53 of the Insurance
policy Code.
2. Odessa, Karl Brian, and Trisha Angelie—were entitled only to
one-half of the legitime of the legitimate children, thus, the Grepalife’s allegations
proceeds released to Odessa and those to be released to Karl 1. that Eva was not designated as an insurance policy
Brian and Trisha Angelie were inofficious and should be beneficiary;
reduced 2. that the claims filed by Odessa, Karl Brian, and Trisha Angelie
were denied because Loreto was ineligible for insurance due

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Anastasia Beaverhausen

to a misrepresentation in his application form that he was children with Loreto, being illegitimate children, are entitled to a
born on December 10, 1936 and, thus, not more than 65 lesser share of the proceeds of the policies.
years old when he signed it in September 2001;
3. that the case was premature, there being no claim filed by They also argued that pursuant to Section 12 of the Insurance Code,
the legitimate family of Loreto; and that the law on Eva’s share in the proceeds should be forfeited in their favor, the
succession does not apply where the designation of former having brought about the death of Loreto.
insurance beneficiaries is clear.
Thus, they prayed that the share of Eva and portions of the shares of
Petitioners alleged that Loreto’s illegitimate children should be awarded to them, being the
the designation of a beneficiary is an act of liberality or a donation and, legitimate heirs of Loreto entitled to their respective legitimes.
therefore, subject to the provisions of Articles 7528 and 7729 of the
Civil Code. SC: petitioners are not entitled to a favorable judgment in light of
Article 2011 of the Civil Code which expressly provides that insurance
Insular and Grepalife’s reply contracts shall be governed by special laws, i.e., the Insurance Code.
that the insurance proceeds belong exclusively to the designated Section 53 of the Insurance Code states—
beneficiaries in the policies, not to the estate or to the heirs of the
insured. SECTION 53. The insurance proceeds shall be applied exclusively to the
proper interest of the person in whose name or for whose benefit it is
RTC made unless otherwise specified in the policy.
Dismissed the action with respect to Odessa, Karl Brian and Trisha
Maramag but action directed to proceed with respect to Eva, Insular The only persons entitled to claim the insurance proceeds are
and Grepa. either
1. the insured, if still alive; or
The Insurance Code, as amended, contains a provision regarding to 2. the beneficiary, if the insured is already deceased, upon the
whom the insurance proceeds shall be paid. It is very clear under Sec. maturation of the policy.
53 thereof that the insurance proceeds shall be applied exclusively
to the proper interest of the person in whose name or for whose THE EXCEPTION - a situation where the insurance contract was
benefit it is made, unless otherwise specified in the policy. intended to benefit third persons who are not parties to the same in
the form of favorable stipulations or indemnity. In such a case, third
Since the defendants [illegitimate family] are the ones named as the parties may directly sue and claim from the insurer
primary beneficiary , the insurance proceeds shall exclusively be paid
to them. This is because the beneficiary has a vested right to the Petitioners are third parties to the insurance contracts with Insular
indemnity, unless the insured reserves the right to change the and Grepalife and, thus, are not entitled to the proceeds thereof.
beneficiary.
Accordingly, respondents Insular and Grepalife have no legal
Neither could the plaintiffs invoked (sic) the law on donations or the obligation to turn over the insurance proceeds to petitioners.
rules on testamentary succession in order to defeat the right of herein
defendants to collect the insurance indemnity. The beneficiary in a The revocation of Eva as a beneficiary in one policy and her
contract of insurance is not the donee spoken in the law of donation. disqualification as such in another are of no moment considering
The rules on testamentary succession cannot apply here, for the that the designation of the illegitimate children as beneficiaries in
insurance indemnity does not partake of a donation. As such, the Loreto’s insurance policies remains valid.
insurance indemnity cannot be considered as an advance of the
inheritance which can be subject to collation (Del Val v. Del Val, 29 Phil. Because no legal proscription exists in naming as beneficiaries the
534). children of illicit relationships by the insured, the shares of Eva in
the insurance proceeds,
MR – granted and remaining case dismissed 1. whether forfeited by the court in view of the prohibition on
CA – dismissed appeal for lack of jurisdiction donations under Article 739 of the Civil Code or
2. by the insurers themselves for reasons based on the
ISSUE: insurance contracts,
must be awarded to the said illegitimate children, the
(A)re the members of the legitimate family entitled to the proceeds of designated beneficiaries, to the exclusion of petitioners.
the insurance for the concubine?
WHEN WILL INSURANCE PROCEEDS REDOUND TO BENEFIT OF
In this case, although petitioners are the legitimate heirs of Loreto, THE ESTATE OF THE INSURED
they were not named as beneficiaries in the insurance policies issued 1. It is only in cases where the insured has not designated any
by Insular and Grepalife. beneficiary, or
2. when the designated beneficiary is disqualified by law to
The basis of petitioners’ claim is that Eva, being a concubine of receive the proceeds.
Loreto and a suspect in his murder, is disqualified from being
designated as beneficiary of the insurance policies, and that Eva’s .
Sun Insurance Office, Ltd. Vs. Court of Appeals, 195 SCRA 193 and ordinary sense.
(1991)
FACTS:
CODE: PROPERTY INSURANCE
Excerpt from De Leon August 15, 1983 - Emilio Tan took from Sun Insurance a P300,000.00
As a general rule, contracts of insurance are to be construed or property insurance policy to cover his interest in the electrical supply
interpreted liberally in favor of the insured and strictly against the store of his brother housed in a building in Iloilo City.
insurer resolving all ambiguities against the latter (Young
vs.Midland Textile Insurance Co., 30 Phil. 617 [1915]; Sun Insurance Four (4) days after the issuance of the policy, the building was
Office, Ltd. vs. Court of Appeals, 195 SCRA 193 [1991].), so as to burned including the insured store.
effect its dominant purpose of indemnity or payment to the insured.
August 20, 1983 - Tan filed his claim for fire loss, but
If such terms are clear and certain, they must be taken in their plain

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Anastasia Beaverhausen

February 29, 1984 – Sun Life wrote Tan denying the latter's claim.
2. xxx xxx xxx
April 3, 1984 - Tan wrote Sun Life seeking reconsideration of the
denial of his claim. It is also important to note the principle laid down by this Court in the
case of Ang v. Fulton Fire Insurance Co., (2 SCRA 945 [1961]), to wit:
October 11, 1985 - Sun Life advised Tan's counsel that the Insurer's
denial of Tan's claim remained unchanged, enclosing copies of HERE
petitioners' letters of February 29, 1984 and May 17, 1985 (response to The condition contained in an insurance policy that claims must be
petition for reconsideration). presented within one year after rejection is not merely a
procedural requirement but an important matter essential to a
Thus, Tan filed Civil Case No. 16817 with the Regional Trial Court of prompt settlement of claims against insurance companies as it
Iloilo. demands that insurance suits be brought by the insured while the
evidence as to the origin and cause of destruction have not yet
There is a disputed clause in the contract which reads as follows: disappeared.
27. Action or suit clause — If a claim be made and rejected and an
action or suit be not commenced either in the Insurance The contention of the respondents that the one-year prescriptive
Commission or in any court of competent jurisdiction within period does not start to run until the petition for reconsideration
twelve (12) months from receipt of notice of such rejection, or in had been resolved by the insurer,
case of arbitration taking place as provided herein, within twelve (12) runs counter to the declared purpose for requiting that an action or
months after due notice of the award made by the arbitrator or suit be filed in the Insurance Commission or in a court of competent
arbitrators or umpire, then the claim shall for all purposes be jurisdiction from the denial of the claim. To uphold respondents'
deemed to have been abandoned and shall not thereafter be contention would contradict and defeat the very principle which this
recoverable hereunder. Court had laid down. Moreover, it can easily be used by insured
persons as a scheme or device to waste time until any evidence which
Sun life filed an MTD on the ground of prescription – since from the may be considered against them is destroyed.
time of the 1st rejection, more than 1 year has lapsed. – denied
Section 27 of the insurance policy was stipulated pursuant to Section
Tan 63 of the Insurance Code, which states that:
Alleged that the 1 year prescriptive period should commence from the
2nd rejection – when the petition for reconsideration was rejected. Sec. 63. A condition, stipulation or agreement in any policy of
insurance, limiting the time for commencing an action thereunder to a
MR – denied period of less than one year from the time when the cause of action
accrues, is void.
CA - denied petition
When does the cause of action accrue?
ISSUE 1. Right of insured to payment – accrues from the happening
When did the 1-year prescriptive period start to run? The 1st of the loss
rejection. 2. Cause of action in an insurance contract – when the claim
of the insured is finally rejected. This is because before such
[NOTE discuss on construction of insurance contract. So maybe final rejection there is no real necessity for bringing suit.
another issue is: Is there a need to construe the insurance contract? a. the cause of action does not accrue until the
Answer is NO – terms are very clear] party obligated (surety) refuses, expressly or
impliedly, to comply with its duty (in this case
RULING: to pay the amount of the bond).
While it is a cardinal principle of insurance law that a policy or contract
of insurance is to be construed liberally in favor of the insured and Also in case it is asked:
strictly against the insurer company, yet, contracts of insurance, like Elements of a cause of action
other contracts, are to be construed according to the sense and (1) a right in favor of the plaintiff by whatever means and under
meaning of the terms which the parties themselves have used. If whatever law it arises or is created;
such terms are clear and unambiguous, they must be taken and (2) an obligation on the part of the named defendant to respect or
understood in their plain, ordinary and popular sense. not to violate such right; and
(3) an act or omission on the part of such defendant

The terms of Condition 27 of the Insurance Policy, which is the

The rejection referred to should be construed as the rejection, in
subject of the conflicting contentions of the parties are very clear
the first instance.
and free from any doubt or ambiguity whatsoever , it must be taken
and understood in its plain, ordinary and popular sense
If what is being referred to is a reiterated rejection conveyed in a
resolution of a petition for reconsideration, such should have been
In Tan’s letter to the Insurance company, he admitted that he received
expressly stipulated.
the rejection letter on April 2, 1984. Thus, the prescriptive period
started to run from that date.
To allow the filing of a motion for reconsideration to suspend the
running of the prescriptive period of twelve months, a whole new
The certainty of the denial of Tan's claim was clearly manifested in
body of rules on the matter should be promulgated so as to avoid
said letter, the pertinent portion of which reads:
any conflict that may be brought by it, such as:

We refer to your claim for fire loss of 20th August, 1983 at Huervana
a) whether the mere filing of a plea for reconsideration of a denial is
St., La Paz, Iloilo City.
sufficient or must it be supported by arguments/affidavits/material
evidence;
We now have the report of our adjusters and after a thorough and
careful review of the same and the accompanying documents at hand,
b) how many petitions for reconsideration should be permitted?
we are rejecting, much to our regrets, liability for the claim under
our policies for one or more of the following reasons:

1. xxx xxx xxx

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Anastasia Beaverhausen

While in the Eagle Star case (96 Phil. 701), this Court uses the phrase claim, first, with the carrier and then with the insurer. The "final
"final rejection", the same cannot be taken to mean the rejection of a rejection" being referred to in said case is the rejection by the
petition for reconsideration as insisted by respondents. insurance company.

Such was clearly not the meaning contemplated by this Court. The Dispositive – case was dismissed.
Insurance policy in said case provides that the insured should file his
Fortune Medicare Inc. vs. David Robert U. Amorin,
G.R. No. 195872, March 12, 2014 RTC – Dismissed Amorin’s complaint – convinced that the parties
intended to use the Philippine standard as basis based on Sec 3 of the
Ponente: REYES, J.:
contract; so basis of the reimbursement deemed Philippine rates.

FACTS:
considered the amount of ₱12,151.36 already paid by Fortune Care to
David Robert U. Amorin (Amorin) was a cardholder/member of
Amorin as equivalent to 80% of the hospitalization and professional
Fortune Medicare, Inc. (Fortune Care) [which provides health
fees payable to the latter had he been treated in an affiliated
maintenance services to its members]
hospital.11

The terms of Amorin's medical coverage were provided in a Corporate

CA – granted appeal
Health Program Contract (Health Care Contract) which was executed
on January 6, 2000 by Fortune Care and the House of Representatives,
1. Health care agreements must be liberally construed in favor
where Amorin was a permanent employee.
of the subscriber. In case its provisions are doubtful or
reasonably susceptible of two interpretations, the
May 1999 – while in the US, Amorin underwent an appendectomy at
construction conferring coverage is to be adopted and
the St. Francis Medical Center, causing him to incur professional and
exclusionary clauses of doubtful import should be strictly
hospitalization expenses of US$7,242.35 and US$1,777.79, respectively.
construed against the provider.
2. there was nothing under Article V of the Health Care
He attempted to recover from Fortune Care the full amount, but the
Contract which provided that the Philippine standard should
company merely approved a reimbursement of ₱12,151.36 – based
be used even in the event of an emergency confinement in a
on the average cost of appendectomy, net of medicare deduction, if
foreign territory.
the procedure were performed in an accredited hospital in Metro
Manila.
ISSUE:
What should be the basis of the reimbursement to Amorin? ACTUAL
Amorin received under protest the approved amount, but asked for its
EXPENSES INCURRED not merely Philippine Basis.
adjustment to cover the total amount of professional fees which he had
paid, and eighty percent (80%) of the approved standard charges
RULING:
based on "American standard", considering that the emergency
procedure occurred in the U.S.A.
Fortune Care’s liability to Amorin under the subject Health Care
Contract should be based on the expenses for hospital and
To support his claim, Amorin cited Section 3, Article V on Benefits
professional fees which he actually incurred, and should not be
and Coverages of the Health Care Contract, to wit:
limited by the amount that he would have incurred had his
emergency treatment been performed in an accredited hospital in
A. EMERGENCY CARE IN ACCREDITED HOSPITAL. Whether as an in-
the Philippines.
patient or out-patient, the member shall be entitled to full coverage
under the benefits provisions of the Contract at any FortuneCare
For purposes of determining the liability of a health care provider to its
accredited hospitals subject only to the pertinent provision of
members, jurisprudence holds that a health care agreement is in
Article VII (Exclusions/Limitations) hereof. For emergency care
the nature of non-life insurance, which is primarily a contract of
attended by non affiliated physician (MSU), the member shall be
indemnity.
reimbursed 80% of the professional fee which should have been
paid, had the member been treated by an affiliated physician. The
Once the member incurs hospital, medical or any other expense arising
availment of emergency care from an unaffiliated physician shall not
from sickness, injury or other stipulated contingent, the health care
invalidate or diminish any claim if it shall be shown to have been
provider must pay for the same to the extent agreed upon under
reasonably impossible to obtain such emergency care from an affiliated
the contract.
physician.

Guidelines to interpret Healthcare Agreements from the case of

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL
Philamcare Health Systems v. CA:

1. Whether as an in-patient or out-patient, FortuneCare shall

reimburse the total hospitalization cost including the professional When the terms of insurance contract contain limitations on
fee (based on the total approved charges) to a member who liability, courts should construe them in such a way as to preclude
receives emergency care in a non-accredited hospital. The above the insurer from non-compliance with his obligation.
coverage applies only to Emergency confinement within Philippine
Territory. However, if the emergency confinement occurs in a Being a contract of adhesion, the terms of an insurance contract are
foreign territory, Fortune Care will be obligated to reimburse or to be construed strictly against the party which prepared the
pay eighty (80%) percent of the approved standard charges which contract – the insurer.
shall cover the hospitalization costs and professional fees. x x x
By reason of the exclusive control of the insurance company over the
Due to fortune care’s denial of Amorin’s request, Amorin filed a terms and phraseology of the insurance contract, ambiguity must be
complaint for Breach of Contract with damages with the RTC. strictly interpreted against the insurer and liberally in favor of the
insured, especially to avoid forfeiture.
Fortune Care’s arguments
1. That the Health Care Contract did not cover hospitalization This is equally applicable to Health Care Agreements.
costs and professional fees incurred in foreign countries, as
the contract’s operation was confined to Philippine territory. The phraseology used in medical or hospital service contracts must
2. that its liability to Amorin was extinguished upon the latter’s be liberally construed in favor of the subscriber, and if doubtful or
acceptance from the company of the amount of ₱12,151.36.
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Anastasia Beaverhausen

reasonably susceptible of two interpretations the construction The parties to the Health Care Contract made a clear distinction
conferring coverage is to be adopted, and exclusionary clauses of between emergency care in an accredited hospital, and that obtained
doubtful import should be strictly construed against the provider. from a non-accredited hospital.

IN THIS CASE The limitation on payment based on "Philippine standard" for

the extent of Fortune Care’s liability to Amorin under the services of accredited physicians was expressly made applicable
attendant circumstances was governed by Section 3(B), Article V of only in the case of an emergency care in an accredited hospital.
the Health Care Contract, considering that the appendectomy which
the member had to undergo qualified as an emergency care, but the Proper interpretation of the phrase "standard charges"
treatment was performed at St. Francis Medical Center in Honolulu, Could be correlated with and reasonably inferred from the other
Hawaii, U.S.A., a non-accredited hospital. We restate the pertinent provisions of Section 3(B), considering that Amorin’s case fell under
portions of Section 3(B): the second case, i.e., emergency care in a non-accredited hospital.

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL Instead of a determination of what standard to use, the first part speaks
1. Whether as an in-patient or out-patient, FortuneCare shall reimburse of FULL REIMBURSEMENT of "the total hospitalization cost including
the total hospitalization cost including the professional fee (based on the professional fee (based on the total approved charges) to a
the total approved charges) to a member who receives emergency member who receives emergency care in a non-accredited hospital"
care in a non-accredited hospital. The above coverage applies only to within the Philippines. [without any reference to and regardless of
Emergency confinement within Philippine Territory. However, if the the amounts that would have been payable if the treatment was done
emergency confinement occurs in foreign territory, Fortune Care will be by an affiliated physician or in an affiliated hospital.]
obligated to reimburse or pay eighty (80%) percent of the approved
standard charges which shall cover the hospitalization costs and For treatments in foreign territories, the only qualification was
professional fees. only as to the percentage, or 80% of that payable for treatments
performed in non-accredited hospital.
How to construe “APPROVED STANDARD CHARGES”
SC: As may be gleaned from the Health Care Contract, the parties
contemplated the possibility of emergency care in a foreign country. Thus, in the absence of any qualifying word that clearly limited
Fortune Care's liability to costs that are applicable in the
As the contract recognized Fortune Care’s liability for emergency Philippines, the amount payable by Fortune Care should not be
treatments even in foreign territories, it expressly limited its liability limited to the cost of treatment in the Philippines, as to do so
only insofar as the percentage of hospitalization and professional would result in the clear disadvantage of its member.
fees that must be paid or reimbursed was concerned, pegged at a
mere 80% of the approved standard charges. If the American cost standard or any foreign country's cost was never
considered, such limitations should have been distinctly specified
The word "standard" as used in the cited stipulation was vague and and clearly reflected in the extent of coverage which the company
ambiguous, as it could be susceptible of different meanings. voluntarily assumed.
Plainly, the term "standard charges" could be read as referring to the
"hospitalization costs and professional fees" which were specifically This was what Fortune Care found appropriate when in its new health
cited as compensable even when incurred in a foreign country. care agreement with the House of Representatives, particularly in their
2006 agreement, the provision on emergency care in non-accredited
From nowhere in the Health Care Contract could it be reasonably hospitals was modified to read as follows:
deduced that these "standard charges" referred to the "Philippine
standard", or that cost which would have been incurred if the medical However, if the emergency confinement occurs in a foreign territory,
services were performed in an accredited hospital situated in the Fortunecare will be obligated to reimburse or pay one hundred (100%)
Philippines. percent under approved Philippine Standard covered charges for
hospitalization costs and professional fees but not to exceed maximum
RTC ruling that the use of the "Philippine standard" could be allowable coverage, payable in pesos at prevailing currency exchange
inferred from the provisions of Section 3(A), which covered rate at the time of availment in said territory where he/she is confined.
emergency care in an accredited hospital, was misplaced.
DBP Pool Accredited Insurance Companies vs. Radio Mindanao while petitioner covered Radio’s transmitter, furniture, fixture and
Network, Inc. 480 SCRA 314 (2006) other transmitter facilities for the amount of P5,883,650.00 under
Ponente: AUSTRIA-MARTINEZ, J.: Fire Insurance Policy No. F-66860.

CODE: FIRE INSURANCE POLICY In evening of July 1988 – Radio’s radio station was razed by fire causing
damage in the amount of P1,044,040.00.
Excerpt from De Leon
Radio sought recovery under the two insurance policies but the
An insurance contract should be so interpreted as to carry out the
claims were denied on the ground that the cause of loss was an
purpose for which the parties entered into the contract which is to
excepted risk excluded under condition no. 6 (c) and (d), to wit:
insure against risks of loss, damage or liability on the part of the
insured. Limitations of liability must be construed in such a way as to
6. This insurance does not cover any loss or damage occasioned by
preclude the Insurer from non-compliance with its obligations. (DBP
or through or in consequence, directly or indirectly, of any of the
Pool Accredited Insurance Companies vs. Radio Mindanao Network,
following consequences, namely:
Inc., 480 SCRA 314 [2006].)

(c) War, invasion, act of foreign enemy, hostilities, or warlike operations

FACTS:
(whether war be declared or not), civil war.
Radio Mindanao filed a civil case against DBP pool of accredited
insurance companies for recovery of insurance benefits.
(d) Mutiny, riot, military or popular rising, insurrection, rebellion,
revolution, military or usurped power.
Radio owns several broadcasting stations all over the country.
Provident covered Radio’s transmitter equipment and generating
The insurance companies
set for the amount of P13,550,000.00 under Fire Insurance Policy
maintained that the evidence showed that the fire was caused by
No. 30354,
members of the Communist Party of the Philippines/New People’s
Army (CPP/NPA); and consequently, denied the claims.
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Thus a civil case was filed by Radio against these companies. HOW TO INTERPRET AN INSURANCE CONTRACT
An insurance contract, being a contract of adhesion, should be so
RTC - favored Radio interpreted as to carry out the purpose for which the parties
CA – affirmed entered into the contract which is to insure against risks of loss or
damage to the goods.
ISSUE: Can Radio recover from the insurance policies?
Limitations of liability should be regarded with extreme jealousy
RULING: YES [DBP Pool failed to prove that the loss was caused by an and must be construed in such a way as to preclude the insurer
excepted risk.] from noncompliance with its obligations.

Evidence: THE DISCUSSION BELOW IS EVID RELATED

1. Testimonies of witnesses –
a. Lt. Col. Nicolas Torres and SPO3 Leonardo WHAT BURDEN OF PROOF MEANS IN THE PROVISION
Rochar - admittedly not present when the fire The "burden of proof" contemplated by the aforesaid provision actually
occurred. refers to the "burden of evidence" (burden of going forward).
b. Limited to the fact that an investigation was
conducted and in the course of the Additional note, in case asked (as defined by Dean Inigo)
investigation they were informed by bystanders Burden of proof Burden of evidence
that "heavily armed men entered the Burden of proof does not shift burden of evidence shifts or
transmitter house, poured gasoline in it and during the course of trial. It passes from side to side as the
then lighted it. [so this is hearsay]. After that, they remains with the party upon trial progresses and evidence is
went out shouting "Mabuhay ang NPA" whom the law cast it at the produced.
c. The persons whom they investigated and actually beginning of the trial.
saw the burning of the station were not presented
as witnesses. As applied in this case, it refers to the duty of the insured to show
that the loss or damage is covered by the policy.
2. The documentary evidence do not satisfactorily prove
that the author of the burning were members of the BUT DESPITE THE PRESENCE OF THAT CLAUSE
NPA. The foregoing clause notwithstanding, the burden of proof still rests
a. Report on the police blotter and fire upon DBP to prove that the damage or loss was caused by an
investigation report – do not categorically state excepted risk in order to escape any liability under the contract.
that the armed men who burned the building were
members of the CPP/NPA – simply stated that In insurance cases, where a risk is excepted by the terms of a policy
armed men were believed to be or suspected of which insures against other perils or hazards, loss from such a risk
being members of the said group. constitutes a defense which the insurer may urge, since it has not
assumed that risk, and from this it follows that
3. Letter of a certain Celso Magsilang, who claims to be a
member of NPA-NIROC, being an admission of person an insurer seeking to defeat a claim because of an exception or
which is not a party to the present action – inadmissible in limitation in the policy has the burden of proving that the loss
evidence. comes within the purview of the exception or limitation set up.

SC: Agreed and did not disturb the factual findings If a proof is made of a loss apparently within a contract of
insurance, the burden is upon the insurer to prove that the loss arose
Both the trial court and the CA were correct in ruling that petitioner from a cause of loss which is excepted or for which it is not liable, or
failed to prove that the loss was caused by an excepted risk. from a cause which limits its liability.

DBP Pool’s Argument Consequently, it is sufficient for Radio to prove the fact of damage
That Radio is responsible for proving that the cause of the damage/loss or loss. Once it makes out a prima facie case in its favor, the duty or
is covered by the insurance policy [since this is what is stipulated in the burden of evidence shifts to DBP to controvert respondent’s prima
their policy] facie case.

Any loss or damage happening during the existence of abnormal In this case, since DBP alleged an excepted risk, then the burden of
conditions (whether physical or otherwise) which are occasioned by or evidence shifted to it to prove such exception.
through in consequence directly or indirectly, of any of the said
occurrences shall be deemed to be loss or damage which is not It is only when petitioner has sufficiently proven that the damage or
covered by the insurance, except to the extent that the Insured shall loss was caused by an excepted risk does the burden of evidence shift
prove that such loss or damage happened independently of the back to respondent who is then under a duty of producing evidence to
existence of such abnormal conditions. show why such excepted risk does not release petitioner from any
liability.
In any action, suit or other proceeding where the Companies allege
that by reason of the provisions of this condition any loss or Unfortunately DBP failed to discharge its burden of proving that the
damage is not covered by this insurance, the burden of proving damage or loss was caused by an excepted risk.
that such loss or damage is covered shall be upon the Insured.

Philippine Health Care Provider Inc. vs. Comm of Internal Revenue, (HMO), whether or not organized for profit, whose main object is to
600 SCRA 413 (2009) provide the members of a group with health care services should
not be considered as engaged in insurance activities.
Excerpt from De Leon
B
Under the so-called "principal object and purpose test,"
A.
In the case of Philippine Health Care Providers, Inc. vs. Comm, of
if the principal object and purpose is "indemnity," the contract
Internal Revenue (600 SCRA 413 [2009].), the Supreme Court held
constitutes insurance,
that a corporation, such as a Health Maintainance Organization
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Anastasia Beaverhausen

PHCP claims that it is an HMO, which is a service provider,

but if it is "service," risk transfer and distribution being merely not an insurance company.
incidental, then the arrangement is not insurance and, therefore,
not subject to laws regulating insurance, 2. Health care services are not in the nature of an insurance
business.
Applying this test, a corporation such as a health maintenance
organization (HMO), whether or not organized for profit, whose
ISSUE: Is PHCP engaged in the insurance business?
main object is to provide the members of a group with health care
services, rather than the assumption of insurance risk is not
RULING: NO
engaged in insurance business.

Medical service corporations Ordinary Health and You don’t need to say this but in case it is asked
accident insurers PHCP is engaged in the dispensation of the following medical
undertake to provide prepaid medical undertake to indemnify services to individuals who enter into health care agreements with
services (at reduced cost, not to an insured for medical it:
distribute risk like an insurer) through expenses up to, but
participating physicians, thus relieving not beyond, the 1. Preventive medical services such as periodic monitoring
subscribers of any further financial schedule of rates of health problems, family planning counseling, consultation and
burden constrained in the advices on diet, exercise and other healthy habits, and
policy immunization;
Even if they assume risk of paying the
cost of these services that may be 2. Diagnostic medical services such as routine physical
more than a member has prepaid, it examinations, x-rays, urinalysis, fecalysis, complete blood count, and
cannot be considered as being the like and
engaged in the insurance business
because any indemnification resulting 3. Curative medical services which pertain to the performing
from the payment of services, even if of other remedial and therapeutic processes in the event of an
rendered in case of emergency would injury or sickness on the part of the enrolled member.
still be incidental to the main purpose
of providing and arranging for health Individuals enrolled in its health care program pay an annual
care services. membership fee. Membership is on a year-to-year basis. The
medical services are dispensed to enrolled members in a hospital or
clinic owned, operated or accredited by petitioner, through
FACTS:
physicians, medical and dental practitioners under contract with it.
Philippine Health Care Provider (PHCP) is a domestic corporation
It negotiates with such health care practitioners regarding payment
Primary purpose: "[t]o establish, maintain, conduct and operate a schemes, financing and other procedures for the delivery of health
prepaid group practice health care delivery system or a health services.
maintenance organization to take care of the sick and disabled persons
enrolled in the health care plan and to provide for the administrative, Except in cases of emergency, the professional services are to be
legal, and financial responsibilities of the organization." provided only by petitioner's physicians, i.e. those directly employed
by it or whose services are contracted by it.
Individuals enrolled in its health care programs pay an annual
membership fee and are entitled to various preventive, diagnostic PHCP also provides hospital services such as room and board
and curative medical services provided by its duly licensed accommodation, laboratory services, operating rooms, x-ray
facilities and general nursing care.
physicians, specialists and other professional technical staff
participating in the group practice health delivery system at a
If and when a member avails of the benefits under the agreement,
hospital or clinic owned, operated or accredited by it.
PHCP pays the participating physicians and other health care
providers for the services rendered, at pre-agreed rates.
Jan 27, 200 – CIR sent PHCP a demand letter and assessment notices
demanding payment of deficiency taxes for 1996 and 1997 - P224 M. To avail of petitioner’s health care programs, the individual
members are required to sign and execute a standard health care
The DST assessment was imposed on its health acre agreement with agreement embodying the terms and conditions for the provision of
members of its healthcare program. the health care services. The same agreement contains the various
health care services that can be engaged by the enrolled member,
It protested the assessment and eventually filed a petition for review in i.e., preventive, diagnostic and curative medical services. Except for
the CTA seeking cancellation of the VAT and DST assessments. the curative aspect of the medical service offered, the enrolled
member may actually make use of the health care services being
offered by petitioner at any time.
CTA – partially granted

START HERE
Appeal was made by the CIR.
Health Maintenance Organizations Are Not Engaged In The
Insurance Business
CIR’s contention
That the health care agreement was a contract of insurance subject to
From the language of Section 185 of the tax code, it is evident that two
DST under the tax code.
requisites must concur before the DST can apply, namely:
(1) the document must be a policy of insurance or an obligation in the
CA
nature of indemnity and
Held that the health care agreement was in the nature of a non-life
(2) the maker should be transacting the business of accident, fidelity,
insurance contract subject to DST.
employer’s liability, plate, glass, steam boiler, burglar, elevator,
automatic sprinkler, or other branch of insurance (except life, marine,
MR - denied
inland, and fire insurance).

PHCP’s contention:
PHCP is an HMO. Under RA 7875 (or "The National Health Insurance
1. The DST under Section 185 of the National Internal Revenue
Act of 1995").
of 1997 is imposed only on a company engaged in the
business of fidelity bonds and other insurance policies.
HMO, defined
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Anastasia Beaverhausen

HMO is "an entity that provides, offers or arranges for coverage of

designated health services needed by plan members for a fixed prepaid The primary purpose of a medical service corporation, however, is an
premium." undertaking to provide physicians who will render services to
subscribers on a prepaid basis. Hence, if there are no physicians
The payments do not vary with the extent, frequency or type of services participating in the medical service corporation’s plan, not only will the
provided. subscribers be deprived of the protection which they might reasonably
have expected would be provided, but the corporation will, in effect, be
PHCP, AS AN HMO WAS NOT ENGAGED IN THE INSURANCE doing business solely as a health and accident indemnity insurer
BUSINESS without having qualified as such and rendering itself subject to the
Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) more stringent financial requirements of the General Insurance Laws….
enumerates what constitutes "doing an insurance business" or
"transacting an insurance business:" Consequently, the mere presence of risk would be insufficient to
override the primary purpose of the business to provide medical
a) making or proposing to make, as insurer, any insurance contract; services as needed, with payment made directly to the provider of
these services.
b) making or proposing to make, as surety, any contract of suretyship
as a vocation and not as merely incidental to any other legitimate In short, even if petitioner assumes the risk of paying the cost of these
business or activity of the surety; services even if significantly more than what the member has
prepaid, it nevertheless cannot be considered as being engaged in
c) doing any kind of business, including a reinsurance business, the insurance business.
specifically recognized as constituting the doing of an insurance
business within the meaning of this Code; Any indemnification resulting from the payment for services rendered
in case of emergency by non-participating health providers would still
d) doing or proposing to do any business in substance equivalent to be incidental to petitioner’s purpose of providing and arranging for
any of the foregoing in a manner designed to evade the provisions of health care services and does not transform it into an insurer. To fulfill
this Code. its obligations to its members under the agreements, petitioner is
required to set up a system and the facilities for the delivery of such
In the application of the provisions of this Code, the fact that no medical services. This indubitably shows that indemnification is not its
profit is derived from the making of insurance contracts, sole object.
agreements or transactions or that no separate or direct
consideration is received therefore, shall not be deemed conclusive FACTORS THAT MAKE IT NON-INSURANCE
to show that the making thereof does not constitute the doing or 1. A substantial portion of PHCP’s services covers preventive
transacting of an insurance business. and diagnostic medical services intended to keep members
from developing medical conditions or diseases. As an HMO,
Various courts in the United States, have determined that HMOs are it is its obligation to maintain the good health of its
not in the insurance business. members.
a. Thus, its undertaking under its agreements is not
PRINCIPAL OBJECT AND PURPOSE TEST to indemnify its members against any loss or
One test that they have applied is whether the assumption of risk damage arising from a medical condition but, on
and indemnification of loss (which are elements of an insurance the contrary, to provide the health and medical
business) are the principal object and purpose of the organization services needed to prevent such loss
or whether they are merely incidental to its business. If these are
the principal objectives, the business is that of insurance. But if they are 2. While it appears to provide insurance-type benefits to its
merely incidental and service is the principal purpose, then the members (with respect to its curative medical services), but
business is not insurance. these are incidental to the principal activity of providing
them medical care. The "insurance-like" aspect of
Applying the "principal object and purpose test," there is significant petitioner’s business is miniscule compared to its
American case law supporting the argument that a corporation (such noninsurance activities. Therefore, since it substantially
as an HMO, whether or not organized for profit), whose main provides health care services rather than insurance
object is to provide the members of a group with health services, services, it cannot be considered as being in the
is not engaged in the insurance business. insurance business.

That an incidental element of risk distribution or assumption may be 3. PHCP as an HMO, is not part of the insurance industry
present should not outweigh all other factors. If attention is focused considering that it is not supervised by the Insurance
only on that feature, the line between insurance or indemnity and other Commission but by the DOG.
types of legal arrangement and economic function becomes faint, if a. In a letter the Insurance Commissioner confirmed
not extinct. that petitioner is not engaged in the insurance
business.
Absence or presence of assumption of risk or peril is not the sole test
to be applied in determining its status. The question, more broadly, is A Health Care Agreement Is Not An Insurance Contract
whether, looking at the plan of operation as a whole, ‘service’ rather Contemplated Under Section 185 Of The NIRC of 1997
than ‘indemnity’ is its principal object and purpose.
Section 2 (1) of the Insurance Code defines a contract of insurance
HMO VS INSURANCE COMPANY as an agreement whereby one undertakes for a consideration to
HMO Insurance company indemnify another against loss, damage or liability arising from an
Undertake to provide or arrange Simply undertake to indemnify unknown or contingent event.
for the provision of medical the insured for medical
services through participating expenses incurred up to a pre- ELEMENTS OF INSURANCE CONTRACT:
physicians agreed limit. 1. The insured has an insurable interest;
undertake to provide prepaid only undertake to indemnify an 2. The insured is subject to a risk of loss by the happening of the
medical services through insured for medical expenses up designed peril;
participating physicians, thus to, but not beyond, the schedule
3. The insurer assumes the risk;
relieving subscribers of any of rates contained in the policy
further financial burden
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Anastasia Beaverhausen

4. Such assumption of risk is part of a general scheme to distribute physical examination and consultations, vaccine
actual losses among a large group of persons bearing a similar risk and administration as well as family planning counseling, even in
5. In consideration of the insurer’s promise, the insured pays a the absence of any peril, loss or damage on his or her part.
premium.
3. In case of emergency, petitioner is obliged to reimburse the
In this case – the agreements between PHCP and its members do not member who receives care from a non-participating
possess all the elements. physician or hospital. However, this is only a very minor part
of the list of services available. The assumption of the
BUT NOTE THAT even if a contract contains all the elements of an expense by petitioner is not confined to the happening
insurance contract, if its primary purpose is the rendering of service, of a contingency but includes incidents even in the
it is not a contract of insurance. – it’s for the purpose of rendering absence of illness or injury.
services.
AMJUR on reimbursement
On the other hand, a contract by which a corporation, in Although the health care contracts called for the defendant to partially
consideration of a stipulated amount, agrees at its own expense to reimburse a subscriber for treatment received from a non-designated
defend a physician against all suits for damages for malpractice is doctor, this did not make defendant an insurer – if indemnity is not its
one of insurance, and the corporation will be deemed as engaged focal point.
in the business of insurance.
4. Although risk is a primary element of an insurance contract,
AS TO WHAT ELEMENTS ARE LACKING: it is not necessarily true that risk alone is sufficient to
1. There is no loss, damage or liability on the part of the establish it. Almost anyone who undertakes a contractual
member that should be indemnified by petitioner as an obligation always bears a certain degree of financial risk.
HMO. Consequently, there is a need to distinguish prepaid service
a. Under the agreement, the member pays petitioner contracts (like those of petitioner) from the usual insurance
a predetermined consideration in exchange for the contracts.
hospital, medical and professional services
rendered by the petitioner’s physician or affiliated Indeed, petitioner, as an HMO, undertakes a business risk when it offers
physician to him. In case of availment by a to provide health services: the risk that it might fail to earn a
member of the benefits under the agreement, reasonable return on its investment. But it is not the risk of the type
petitioner does not reimburse or indemnify the peculiar only to insurance companies.
member as the latter does not pay any third party.
b. Instead, it is the petitioner who pays the Insurance risk, also known as actuarial risk, is the risk that the cost of
participating physicians and other health care insurance claims might be higher than the premiums paid.
providers for the services rendered at pre-agreed The amount of premium is calculated on the basis of assumptions
rates. The member does not make any such made relative to the insured.
payment.
However, assuming that petitioner’s commitment to provide medical
Thus, there is nothing in petitioner's agreements that gives rise to services to its members can be construed as an acceptance of the risk
a monetary liability on the part of the member to any third party- that it will shell out more than the prepaid fees, it still will not qualify as
provider of medical services which might in turn necessitate an insurance contract because petitioner’s objective is to provide
indemnification from petitioner. medical services at reduced cost, not to distribute risk like an insurer.

There is no indemnity precisely because the member merely avails of In sum, an examination of petitioner’s agreements with its
medical services to be paid or already paid in advance at a pre-agreed members leads us to conclude that it is not an insurance contract
price under the agreements. within the context of our Insurance Code.

2. a member can take advantage of the bulk of the benefits

anytime, e.g. laboratory services, x-ray, routine annual
Phil. Refining Co. vs. Palomar, 148 SCRA 313 Hunt, both of which envisioned the giving away for free of certain
G.R No. L-29062. March 9,1987 prizes (without additional consideration) for the purchase of Breeze
soap and CAMIA cooking oil.
Same;same
Civil Law; Sales; Lottery, not a case of; This is the mechanics:
A plan whereby prizes can be obtained without any additional any person who submits to it matching left and right halves of pictures
consideration when a product is purchased, is not a lottery.—This Court of any article wins that article as his prize. Half-pictures were found in
has consistently ruled that a plan whereby prizes can be obtained the labels of the products promoted.
without any additional consideration (when a product is purchased) is
not a lottery (Uy v. Palomar, L-23248, February 28, 1969; U.S. v. Baguio, The participants would get the exact value of the price for the
39 Phil. 862; Caltex (Phil.) Inc. v. Postmaster-General, 18 SCRA 247). It is goods plus the chance of winning in the scheme. No one would be
thus clear that the schemes in the case at bar are not lotteries. required to pay more than the usual price of the products.

Administrative Law; Constitutional Law; Doctrine of exhaustion of ISSUE:

administrative remedies; Doctrine does not apply when the issue
raised is purely a legal one.—The allegation that the prohibition by the RULING:
Postmaster General should have first been appealed to the Department A plan whereby prizes can be obtained without any additional
Secretary concerned in view of the doctrine denominated as "the consideration (when a product is purchased) is not a lottery
exhaustion of administrative remedies" has no application here
because one recognized exception to the doctrine is when the issue It is thus clear that the schemes in the case at bar are not lotteries.
raised is purely a legal one.
The allegation that the prohibition by the Postmaster General should
FACTS: have first been appealed to the Department Secretary concerned in
Philippine Refining Company resorted .to two schemes to promote view of the doctrine denominated as "the exhaustion of administrative
the sale of its products: Breeze Easy Money and CAMIA Lucky-Key
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Anastasia Beaverhausen

remedies" has no application here because one recognized exception

to the doctrine is when the issue raised is purely a legal one.

Dispositive – dismissed the appeal.

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