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Insurance Case Digest: Philippine Health Care Providers, Inc. V.

CIR (2009)

G.R. No. 167330 September 18, 2009


Lessons Applicable: Elements (Insurance)

FACTS:
Philippine Health Care Providers, Inc. is a domestic corporation whose primary purpose
is "[t]o establish, maintain, conduct and operate a prepaid group practice health care
delivery system or a health maintenance organization to take care of the sick and
disabled persons enrolled in the health care plan and to provide for the administrative,
legal, and financial responsibilities of the organization." Individuals enrolled in its health
care programs pay an annual membership fee and are entitled to various preventive,
diagnostic and curative medical services provided by its duly licensed physicians,
specialists and other professional technical staff participating in the group practice
health delivery system at a hospital or clinic owned, operated or accredited by it.
January 27, 2000: Commissioner of Internal Revenue (CIR) sent petitioner a formal
demand letter and the corresponding assessment notices demanding the payment of
deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997
in the total amount of P224,702,641.18
Petitioner protested the assessment in a letter dated February 23, 2000.
CIR did not act on the protest, petitioner filed a petition for review in the Court of Tax
Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments.
CTA: PARTIALLY GRANTED
to pay VAT
DST assessment CANCELLED AND SET ASIDE
CIR: health care agreement was a contract of insurance subject to DST under Section
185 of the 1997 Tax Code
CA: health care agreement was in the nature of a non-life insurance contract subject to
DST
Court Affirmed CA
ISSUE:
W/N the Philippine Health Care Providers, Inc (HMO) was engaged in the business of
insurance during the pertinent taxable years - NO
W/N the Philippine Health Care Providers, Inc enters into an insurance contract - NO

HELD: motion for reconsideration is GRANTED

1. NO

P.D. 612 Insurance Code


Sec. 2 (2)
(2) The term "doing an insurance business" or "transacting an insurance business",
within the meaning of this Code, shall include:

(a) making or proposing to make, as insurer, any insurance contract;


(b) making or proposing to make, as surety, any contract of suretyship as a vocation
and not as merely incidental to any other legitimate business or activity of the surety;

(c) doing any kind of business, including a reinsurance business, specifically recognized
as constituting the doing of an insurance business within the meaning of this Code;

(d) doing or proposing to do any business in substance equivalent to any of the


foregoing in a manner designed to evade the provisions of this Code.

In the application of the provisions of this Code the fact that no profit is derived from the
making of insurance contracts, agreements or transactions or that no separate or direct
consideration is received therefor, shall not be deemed conclusive to show that the
making thereof does not constitute the doing or transacting of an insurance business.
no profit is derived from the making of insurance contracts, agreements or transactions
or that no separate or direct consideration is received therefore, shall not be deemed
conclusive to show that the making thereof does not constitute the doing or transacting
of an insurance business

2. NO
basic distinction between medical service corporations and ordinary health and accident
insurers is that the former undertake to provide prepaid medical services through
participating physicians, thus relieving subscribers of any further financial burden, while
the latter only undertake to indemnify an insured for medical expenses up to, but not
beyond, the schedule of rates contained in the policy
A participating provider of health care services is one who agrees in writing to render
health care services to or for persons covered by a contract issued by health service
corporation in return for which the health service corporation agrees to make payment
directly to the participating provider
any indemnification resulting from the payment for services rendered in case of
emergency by non-participating health providers would still be incidental to petitioner’s
purpose of providing and arranging for health care services and does not transform it
into an insurer.
As an HMO, it is its obligation to maintain the good health of its members
its undertaking under its agreements is not to indemnify its members against any loss or
damage arising from a medical condition but, on the contrary, to provide the health and
medical services needed to prevent such loss or damage
Overall, petitioner appears to provide insurance-type benefits to its members (with
respect to its curative medical services), but these are incidental to the principal activity
of providing them medical care. The "insurance-like" aspect of petitioner’s business is
miniscule compared to its noninsurance activities. Therefore, since it substantially
provides health care services rather than insurance services, it cannot be considered as
being in the insurance business.
principal purpose test
purpose of determining what "doing an insurance business" means, we have to
scrutinize the operations of the business as a whole and not its mere components
letter dated September 3, 2000, the Insurance Commissioner confirmed that petitioner
is not engaged in the insurance business. This determination of the commissioner must
be accorded great weight
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event. An insurance contract exists
where the following elements concur: - NOT present
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among
a large group of persons bearing a similar risk and
5. In consideration of the insurer’s promise, the insured pays a premium.
no indemnity
member can take advantage of the bulk of the benefits anytime even in the absence of
any peril, loss or damage on his or her part.
assumption of the expense by petitioner is not confined to the happening of a
contingency but includes incidents even in the absence of illness or injury
Since indemnity of the insured was not the focal point of the agreement but the
extension of medical services to the member at an affordable cost, it did not partake of
the nature of a contract of insurance
HMO, undertakes a business risk when it offers to provide health services. But it is not
the risk of the type peculiar only to insurance companies. Insurance risk, also known as
actuarial risk, is the risk that the cost of insurance claims might be higher than the
premiums paid. The amount of premium is calculated on the basis of assumptions made
relative to the insured.
In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a
contract contains all the elements of an insurance contract, if its primary purpose is the
rendering of service, it is not a contract of insurance. The primary purpose of the
parties in making the contract may negate the existence of an insurance contract.
health care agreements are clearly not within the ambit of Section 185 of the NIRC and
there was never any legislative intent to impose the same on HMOs.
Insurance Case Digest: Aboitiz Shipping Corp. V. Insurance Co. Of North America
(2008)

G.R. No. 168402 August 6, 2008


Lessons Applicable: Insurer's right of subrogration (Insurance)

FACTS:
June 20, 1993: MSAS Cargo International Limited and/or Associated and/or Subsidiary
Companies (MSAS) procured an "all-risk" marine insurance policy from ICNA UK
Limited of London for wooden work tools and workbenches purchased by consignee
Science Teaching Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu
City.
July 26, 1993: the cargo was received by Aboitiz Shipping Corporation (Aboitiz) through
its duly authorized booking representative, Aboitiz Transport System
August 1, 1993: container van was loaded on board MV Super Concarrier I
The vessel left Manila en route to Cebu City
August 3, 1993: shipment arrived in Cebu City
August 5, 1993: Stripping Report, checker noted that the crates were slightly broken or
cracked at the bottom
August 11, 1993: cargo was withdrawn by the representative of the consignee, Science
Teaching Improvement Project (STIP) and delivered to Don Bosco Technical High
School, Punta Princesa, Cebu City
August 13, 1993: Mayo B. Perez, Head of Aboiti received a call from the receiver Mr.
Bernhard Willig that the cargo sustained water damage so he checked the other cargo
but they were dry
In a letter dated August 15, 1993, Willig informed Aboitiz that the damage was caused
by water entering through the broken bottom parts of the crate
Consignee filed a claim against ICNA
CAC reported to ICNA that the shipment was placed outside the warehouse when it was
delivered on July 26, 1993 and it was only on July 31, 1993 when the shipment was
stuffed inside another container van for shipment to Cebu. Weather report shows that
the heavy rains on July 28 and 29, 1993 caused the damages.
Aboitiz refused to settle the claim
ICNA paid the amount of P280,176.92 to consignee and a subrogation receipt was duly
signed by Willig.
ICNA then advised Aboitiz of the receipt signed in its favor but received no reply so it
filed for collection at the RTC.
RTC: against ICNA - subrogation Form is self-serving and has no probative value since
Wellig was not presented to the witness stand
CA: reversed RTC ruling - right of subrogation accrues simply upon payment by the
insurance company of the insurance claim even assuming that it is an unlicensed
foreign corporation
ISSUE: W/N ICNA can claim under the right of subrogation
HELD: YES. CA affirmed.
Only when that foreign corporation is "transacting" or "doing business" in the country will
a license be necessary before it can institute suits. It may, however, bring suits on
isolated business transactions, which is not prohibited under Philippine law

The policy benefits any subsequent assignee, or holder, including the consignee, who
may file claims on behalf of the assured.
Insurance Code
Sec. 57
Sec. 57. A policy may be so framed that it will inure to the benefit of whomsoever,
during the continuance of the risk, may become the owner of the interest insured.

Civil Code
Art. 2207
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing the
loss or injury.

This right of subrogation, however, has its limitations.


First, both the insurer and the consignee are bound by the contractual stipulations under
the bill of lading
Second, the insurer can be subrogated only to the rights as the insured may have
against the wrongdoer. If by its own acts after receiving payment from the insurer, the
insured releases the wrongdoer who caused the loss from liability, the insurer loses its
claim against the latter.
Civil Code
Art. 366
Article 366. Within twenty four hours following the receipt of the merchandise, the claim
against the carrier for damages or average which may be found therein upon opening
the packages, may be made, provided that the indications of the damage or average
which give rise to the claim cannot be ascertained from the outside part of such
packages, in which case the claim shall be admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been
paid, no claim shall be admitted against the carrier with regard to the condition in which
the goods transported were delivered.
The call was made 2 from delivery, a reasonable period considering that the goods
could not have corroded instantly overnight such that it could only have sustained the
damage during transit.
Civil Code
Art. 1735
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence as required in Article 1733.
the shipment delivered to the consignee sustained water damage. We agree with the
findings of the CA that petitioner failed to overturn this presumption.
White Gold v Pioneer G.R. No. 154514. July 28, 2005
J. Quisimbing

Facts:
White Gold procured a protection and indemnity coverage for its vessels from The
Steamship Mutual through Pioneer Insurance and Surety Corporation. White Gold was
issued a Certificate of Entry and Acceptance. Pioneer also issued receipts. When
White Gold failed to fully pay its accounts, Steamship Mutual refused to renew the
coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of
money to recover the unpaid balance. White Gold on the other hand, filed a complaint
before the Insurance Commission claiming that Steamship Mutual and Pioneer violated
provisions of the Insurance Code.
The Insurance Commission dismissed the complaint. It said that there was no need for
Steamship Mutual to secure a license because it was not engaged in the insurance
business and that it was a P & I club. Pioneer was not required to obtain another license
as insurance agent because Steamship Mutual was not engaged in the insurance
business.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its
decision, the appellate court distinguished between P & I Clubs vis-à-vis conventional
insurance. The appellate court also held that Pioneer merely acted as a collection
agent of Steamship Mutual.
Hence this petition by White Gold.

Issues:
1. Is Steamship Mutual, a P & I Club, engaged in the insurance business in the
Philippines?
2. Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?

Held: Yes. Petition granted.

Ratio:
White Gold insists that Steamship Mutual as a P & I Club is engaged in the insurance
business. To buttress its assertion, it cites the definition as “an association composed
of shipowners in general who band together for the specific purpose of providing
insurance cover on a mutual basis against liabilities incidental to shipowning that the
members incur in favor of third parties.”
They argued that Steamship Mutual’s primary purpose is to solicit and provide
protection and indemnity coverage and for this purpose, it has engaged the services of
Pioneer to act as its agent.
Respondents contended that although Steamship Mutual is a P & I Club, it is not
engaged in the insurance business in the Philippines. It is merely an association of
vessel owners who have come together to provide mutual protection against liabilities
incidental to shipowning.
Is Steamship Mutual engaged in the insurance business?
A P & I Club is “a form of insurance against third party liability, where the third party is
anyone other than the P & I Club and the members.” By definition then, Steamship
Mutual as a P & I Club is a mutual insurance association engaged in the marine
insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without the
requisite certificate of authority mandated by Section 187 of the Insurance Code. It
maintains a resident agent in the Philippines to solicit insurance and to collect payments
in its behalf. Steamship Mutual even renewed its P & I Club cover until it was cancelled
due to non-payment of the calls. Thus, to continue doing business here, Steamship
Mutual or through its agent Pioneer, must secure a license from the Insurance
Commission.
Since a contract of insurance involves public interest, regulation by the State is
necessary. Thus, no insurer or insurance company is allowed to engage in the
insurance business without a license or a certificate of authority from the Insurance
Commission.

2. Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of


registration issued by the Insurance Commission. It has been licensed to do or transact
insurance business by virtue of the certificate of authority issued by the same
agency. However, a Certification from the Commission states that Pioneer does not
have a separate license to be an agent/broker of Steamship Mutual.
Although Pioneer is already licensed as an insurance company, it needs a separate
license to act as insurance agent for Steamship Mutual. Section 299 of the Insurance
Code clearly states:
SEC. 299 No person shall act as an insurance agent or as an insurance broker in the
solicitation or procurement of applications for insurance, or receive for services in
obtaining insurance, any commission or other compensation from any insurance
company doing business in the Philippines or any agent thereof, without first procuring a
license so to act from the Commissioner…

G.R. No. 195728

PARAMOUNT LIFE & GENERAL INSURANCE CORPORATION, Petitioner,


vs.
CHERRY T. CASTRO and GLENN ANTHONY T. CASTRO, Respondents.
x-----------------------x

G.R. No. 211329

CHERRY T. CASTRO and GLENN ANTHONY T. CASTRO, Petitioners,


vs.
PARAMOUNT LIFE & GENERAL INSURANCE CORPORATION, Respondent

DECISION

SERENO, CJ:

These Petitions for Review on Certiorari under Rule 45 of the Rules of Court originate
from a Complaint1 for Declaration of Nullity of Individual Insurance Contract (Civil Case
No. 09-5992). The Complaint was instituted by Paramount Life and General Insurance
Corporation (Paramount) against Cherry T. Castro and Glenn Anthony T. Castro
(Castro’s) and filed before the Regional Trial Court, Makati City, Branch 61 (RTC), on 2
July 2009.

The Petition3 docketed as G.R. No. 195728 assails the Court of Appeals (CA)
Decision4 dated 4 October 2010 and Resolution5 dated 21 February 2011 in CA-G.R.
SP No. 113972. The CA remanded the case to the RTC for the admission of the
Castro's Third-Party Complaint against the Philippine Postal Savings Bank,
Incorporated (PPS BI). 6

On the other hand, the Petition 7 docketed as G.R. No. 211329 assails the Resolution8
of the RTC in Civil Case No. 09-599 dated 11 February 2014. The trial court ordered
that the Motion to Dismiss filed by the defendants (the Castro’s) be deemed expunged
from the records, as they had previously been declared to be in default. Nonetheless,
due to the protracted nature of the proceedings, the RTC allowed the plaintiff no more
than two settings for the presentation of evidence.9

These Petitions have been consolidated as they involve the same parties, arise from an
identical set of facts, and raise interrelated issues. 10 The Court resolves to dispose of
these cases jointly.

FACTS OF THE CASE

In 2004, the PPSBI applied for and obtained insurance from Paramount, 11 which
accordingly issued Group Master Policy No. G-08612 effective 1 September 2004.
Under Section 20, Article IV of the said policy, "all death benefits shall be payable to the
creditor, PPSBI, as its interest may appeal." 13

Meanwhile, Virgilio J. Castro (Virgilio) - Cherry's husband and Glenn's father - obtained
a housing loan from the PPSBI in the amount of Pl .5 million. 14 PPSBI required Virgilio
to apply for a mortgage redemption insurance (MRI) from Paramount to cover the loan.
15 In his application for the said insurance policy, Virgilio named Cherry and Glenn as
beneficiaries. 16 Paramount issued Certificate No. 041913 effective 12 March 2008 in
his favor, subject to the terms and conditions of Group Master Policy No. G-086. 17

On 26 February 2009, Virgilio died of septic shock. 18 Consequently, a claim was filed
for death benefits under the individual insurance coverage issued under the group
policy. 19 Paramount however denied the claim, on the

ground of the failure of Virgilio to disclose material information, or material concealment


or misrepresentation.20 It said that when Virgilio submitted his insurance application on
12 March 2008, he made some material misrepresentations by answering "no" to
questions on whether he had any adverse health history and whether he had sought
medical advice or consultation concerning it. Paramount learned that in 2005, Virgilio
had sought consultation in a private hospital after complaining of a dull pain in his
lumbosacral area. 21 Because of the alleged material concealment or
misrepresentation, it declared Virgilio's individual insurance certificate (No. 041913)
rescinded, null, and absolutely void from the very beginning.22

On 2 July 2009, Paramount filed a Complaint23 with the RTC docketed as Civil Case
No. 09-599. It prayed that Application and Insurance Certificate No. 041913 covering
the individual insurance of Virgilio be declared null and void by reason of material
concealment and misrepresentation. It also prayed for attorney's fees and exemplary
damages.24

In their Answer with Counterclaim, 25 the Castro’s argued that Virgilio had not made
any material misrepresentation. They contended that he had submitted the necessary
evidence of insurability to the satisfaction of

Paramount. They further argued that by approving Virgilio's application, Paramount was
estopped from raising the supposed misrepresentations. 26 The Castro’s made a
counterclaim for actual and exemplary damages, as well

as attorney's fees, for the alleged breach of contract by Paramount arising from its
refusal to honor its obligation as insurer of the Pl.5 million loan.27

STATEMENT OF THE CASES

G.R. No. 195728

On 29 October 2009, the Castros filed a motion28 to include the PPSBI as an


indispensible party-defendant. The RTC thereafter denied the motion, reasoning that
Paramount's Complaint could be fully resolved without the PPSBI's participation. 29

Consequently, the Castro’s filed a Motion for Leave to File a Third Party-Complaint and
to Admit Attached Third-Party Complaint.30 They argued that due to the death of
Virgilio, and by virtue of Group Policy No. G-086 in· relation to Certificate No. 041913,
PPSBI stepped into the shoes of Cherry and Glen under the principle of "indemnity,
subrogation, or any other reliefs" found in Section 22, Rule 6 of the Rules of Court.31
This motion was likewise denied, on the ground that "what the defendants herein want
is the introduction of a controversy that is entirely foreign and distinct from the main
cause."32 The Castro’s Motion for Reconsideration was again denied in a Resolution33
dated 19 April 2010

On 13 May 2010, the Castro’s assailed the RTC Resolutions through a Petition for
Certiorari filed with the CA.34 They likewise subsequently filed a Motion for Leave of
Court to File and to Admit Attached Supplemental Petition for Review.35

In its Decision36 dated 4 October 2010, the CA partially granted the Petition by allowing
a third-party complaint to be filed against the PPSBI. It ruled that the Castro’s were
freed from the obligation to pay the bank by virtue of subrogation, as the latter would
collect the loan amount pursuant to the MRI issued by Paramount in Virgilio's favor. 37
Paramount moved for reconsideration, but the CA denied the motion through a
Resolution38 dated 21 February 2011.

On 11 April 2011, Paramount filed a Petition for Review under Rule 45, arguing that the
case could be fully appreciated and resolved without involving the PPSBI as a third-
party defendant in Civil Case No. 09-599.39

G.R. No. 211329

Meanwhile, on 7 January 2014, the Castro’s filed a Motion to Dismiss40 the Complaint
on the ground of failure to prosecute for an unreasonable length of time without
justifiable cause and to present evidence ex parte pursuant to a court order. In a
Resolution41 dated 11 February 2014, the RTC denied the motion. Owing to its
previous Order dated 26 May 2010, which declared the Castro’s as in default for failure
to attend the pretrial, the RTC treated the Motion to Dismiss as a mere scrap of paper
and expunged it from the records.
The Castro’s come straight to this Court via a Petition for Review42 under Rule 45,
assailing the RTC Resolution dated 11 February 2014.

THE ISSUES

1. Whether the CA erred in remanding the case to the R TC for the admission of the
Third-Party Complaint against PPSBI

2. Whether the RTC erred in denying the Motion to Dismiss filed by the Castro’s

THE COURT'S RULING

G.R. No. 195728

The Castro’s sought to implead the PPSBI as a third-party defendant in the nullification
case instituted by Paramount. They theorized that by virtue of the death of Virgilio and
the mandate of the group insurance policy in relation to his individual insurance policy,
the PPSBI stepped into the shoes of Cherry and Glenn. According to the Castro’s, upon
Virgilio's death, the obligation to pay the third-party defendant (PPSBI) passed on to
Paramount by virtue of the Mortgage Redemption Insurance,43 and not to them as
Virgilio's heirs.

In Great Pacific Life Assurance Corp. v. Court of Appeals, 44 we defined mortgage


redemption insurance as a device for the protection of both the mortgagee and the
mortgagor:

On the part of the mortgagee, it has to enter into such form of contract so that in the
event of the unexpected demise of the mortgagor during the subsistence of the
mortgage contract, the proceeds from such insurance will

be applied to the payment of the mortgage debt, thereby relieving the heirs of the
mortgagor from paying the obligation. In a similar vein, ample protection is given to the
mortgagor under such a concept so that in the event of death, the mortgage obligation
will be extinguished by the application of the insurance proceeds to the mortgage
indebtedness.45

In this case, the PPSBI, as the mortgagee-bank, required Virgilio to obtain an MRI from
Paramount to cover his housing loan. The issuance of the MRI, as evidenced by the
Individual Insurance Certificate in Virgilio's favor, was derived from the group insurance
policy issued by Paramount in favor of the PPSBI. Paramount undertook to pay the
PPSBI "the benefits in accordance with the Insurance Schedule, upon receipt and
approval of due proof that the member has incurred a loss for which benefits are
payable."46

Paramount, in opposing the PPSBI's inclusion as a third-party defendant, reasons that it


is only seeking the nullification of Virgilio's individual insurance certificate, and not the
group insurance policy forged between it and the PPSBI. It concludes that the
nullification action it filed has nothing to do with the PPSBI.

We disagree.

Should Paramount succeed in having the individual insurance certificate nullified, the
PPSBI shall then proceed against the Castro’s. This would contradict the provisions of
the group insurance policy that ensure the direct payment by the insurer to the bank:

Notwithstanding the provision on Section 22 "No Assignment" of Article IV Benefit


Provisions, and in accordance with provisions of Section 6 "Amendment of this Policy"
under Article II General Provisions of the Group Policy, it is hereby agreed that all death
benefits shall be payable to the Creditor, Philippine Postal Savings Bank as its interest
may appeal.47 (Emphasis supplied.)
In allowing the inclusion of the PPSBI as a third-party defendant, the Court recognizes
the inseparable interest of the bank (as policyholder of the group policy) in the validity of
the individual insurance certificates issued by Paramount. The PPSBI need not institute
a separate case, considering that its cause of action is intimately related to that of
Paramount as against the Castro’s. The soundness of admitting a third-party complaint
hinges on causal connection between the claim of the plaintiff in his complaint and a
claim for contribution, indemnity or other relief of the defendant against the third-party
defendant. 48 In this case, the Castro’s stand to incur a bad debt to the PPSBI - the
exact event that is insured against by Group Master Policy No. G-086 - in the event that
Paramount succeeds in nullifying Virgilio's Individual Insurance Certificate.

Paramount further argues that the propriety of a third-party complaint rests on whether
the possible third-party defendant (in this case PPSBI) can raise the same defenses
that the third-party plaintiffs (the Castro’s) have against the plaintiff. However, the Rules
do not limit the third-party defendant's options to such a condition. Thus:

Section 13. Answer to third (fourth, etc.)-party complaint. – A third (fourth, etc.)-party
defendant may allege in his answer his defenses, counterclaims or cross-claims,
including such defenses that the third (fourth, etc.)-party plaintiff may have against the
original plaintiffs claim. In proper cases, he may also assert a counterclaim against the
original plaintiff in respect of the latter's claim against the third-party plaintiff. 49

As seen above, the same defenses the third-party plaintiff has against the original
plaintiff are just some of the allegations a third-party defendant may raise in its answer.
Section 13 even gives the third-party defendant the prerogative to raise a counterclaim
against the original plaintiff in respect of the latter's original claim against the
defendant/third-party plaintiff.

In Firestone Tire & Rubber Co. of the Phil. v. Tempongko, 50 We ruled that a defendant
is permitted to bring in a third-party defendant to litigate a separate cause of action in
respect of the plaintiffs claim against a third party in the original and principal case. The
objective is to avoid circuitry of action and unnecessary proliferation of lawsuits, as well
as to expeditiously dispose of the entire subject matter arising from one particular set of
facts, in one litigation.

The CA correctly ruled that to admit the Castro’s Third-Party Complaint, in which they
can assert against the PPSBI an independent claim they would otherwise assert in
another action, would prevent multiplicity of suits.51 Considering also that the original
case from which these. Present Petitions arose has not yet been resolved, the Court
deems it proper to have all the parties air all their possible grievances in the original
case still pending with the RTC.

Finally, the Court resolves the legal issues allegedly ignored by the CA, to wit: 1)
whether legal grounds exist for the inhibition of Judge Ruiz (the presiding judge); and 2)
whether the defendants were properly declared

as in default for failure to appear at pretrial.

The first issue is unmeritorious. Counsel for the Castro’s postulates that since six rulings
of the judge are being assailed for grave abuse of discretion, the judge should inhibit
himself.52 According to counsel, no judge shall sit in any case if the latter's ruling is
subject to review. The Court reminds counsel that the rule contemplates a scenario in
which judges are tasked to review their own decisions on appeal, not when their
decisions are being appealed to another tribunal.

With regard to the second issue, counsel apparently confuses a declaration of default
under Section 353 of Rule 9 with the effect of failure to appear under Section 554 of
Rule 18. Failure to file a responsive pleading within the reglementary period is the sole
ground for an order of default under Rule 9.55 On the other hand, under Rule 18, failure
of the defendant to appear at the pre-trial conference results in the plaintiff being
allowed to present evidence ex parte. The difference is that a declaration of default
under Rule 9 allows the Court to proceed to render judgment granting the claimant such
relief as his pleading may warrant; while the effect of default under Rule 18 allows the
plaintiff to present evidence ex parte and for the Court to render judgment on the basis
thereof. The lower com1 may have declared defendants therein as in default; however,
it did not issue an order of default, rather, it ordered the plaintiff to present evidence ex
parte in accordance with the Rules. In any case, the Castro’s could have availed
themselves of appropriate legal remedies when the CA failed to resolve the issue, but
they did not. They cannot now resurrect the issue through a Comment before this Court.

G.R. No. 211329

As regards G.R. No. 211329, this Court finds that outright denial of the Petition is
warranted, pursuant to our ruling in Rayos v. City of Manila.56 In that case, We ruled
that an order denying a motion to dismiss is interlocutory and, hence, not appealable.
57 That ruling was based on Section 1 (b), Rule 41 of the Rules of Court, as amended,
which provides:

SECTION 1. Subject of appeal. - An appeal may be taken from a judgment or final order
that completely disposes of the case, or of a particular matter therein when declared by
these Rules to be appealable.

No appeal may be taken from:

xxxx

(b) An interlocutory order;

xxxx

In all the above instances where the judgment or final order is not appealable, the
aggrieved party may file an appropriate special civil action under Rule 65.

In the present case, the RTC's denial of the Motion to Dismiss was an interlocutory
order, as it did not finally dispose of the case. On the contrary; the denial paved way for
the case to proceed until final adjudication by the trial court.

Upon denial of their Motion to Dismiss, the Castro’s were not left without any recourse.
In such a situation, the aggrieved party's remedy is to file a special civil action for
certiorari under Rule 65 of the Rules of Court. However, the aggrieved parties herein
resorted to filing a Petition for Review under Rule 45 before this Court. Even if the
present Petition is treated as one for certiorari under Rule 65, it must still be dismissed
for violation of the principle of hierarchy of courts. This well-settled principle dictates that
petitioners should have filed the Petition for Certiorari with the CA, and not directly with
this Court.

WHEREFORE, premises considered, the Petitions in G.R. Nos. 195728 and 211329 are
DENIED.

SO ORDERED.
Insurance Case Digest: Cha V. CA (1997)

G.R. No. 124520 August 18, 1997

Lessons Applicable: Effect of Lack of Insurable Interest (Insurance)


Laws Applicable: Sec. 17, Sec. 18, Sec. 25 of the Insurance Code

FACTS:

Spouses Nilo Cha and Stella Uy-Cha and CKS Development Corporation entered a 1
year lease contract with a stipulation not to insure against fire the chattels,
merchandise, textiles, goods and effects placed at any stall or store or space in the
leased premises without first obtaining the written consent and approval of the lessor.
But it insured against loss by fire their merchandise inside the leased premises for
P500,000 with the United Insurance Co., Inc. without the written consent of CKS
On the day the lease contract was to expire, fire broke out inside the leased premises
and CKS learning that the spouses procured an insurance wrote to United to have the
proceeds be paid directly to them. But United refused so CKS filed against Spouses
Cha and United.
RTC: United to pay CKS the amount of P335,063.11 and Spouses Cha to pay P50,000
as exemplary damages, P20,000 as attorney’s fees and costs of suit
CA: deleted exemplary damages and attorney’s fees
ISSUE: W/N the CKS has insurable interest because the spouses Cha violated the
stipulation

HELD: NO. CA set aside. Awarding the proceeds to spouses Cha.

Sec. 18. No contract or policy of insurance on property shall be enforceable except for
the benefit of some person having an insurable interest in the property insured
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses
over their merchandise is primarily a contract of indemnity. Insurable interest in the
property insured must exist a t the time the insurance takes effect and at the time the
loss occurs. The basis of such requirement of insurable interest in property insured is
based on sound public policy: to prevent a person from taking out an insurance policy
on property upon which he has no insurable interest and collecting the proceeds of said
policy in case of loss of the property. In such a case, the contract of insurance is a
mere wager which is void under Section 25 of the Insurance Code.
SECTION 25. Every stipulation in a policy of Insurance for the payment of loss,
whether the person insured has or has not any interest in the property insured, or that
the policy shall be received as proof of such interest, and every policy executed by way
of gaming or wagering, is void
Section 17. The measure of an insurable interest in property is the extent to which the
insured might be damnified by loss of injury thereof
The automatic assignment of the policy to CKS under the provision of the lease contract
previously quoted is void for being contrary to law and/or public policy. The proceeds of
the fire insurance policy thus rightfully belong to the spouses. The liability of the Cha
spouses to CKS for violating their lease contract in that Cha spouses obtained a fire
insurance policy over their own merchandise, without the consent of CKS, is a separate
and distinct issue which we do not resolve in this case.

Rizal Surety v CA G.R. No. 112360. July 18, 2000


J. Purisima

Facts:
Rizal Surety issued a 1 million peso fire insurance policy with Transworld. This was
increased to 1.5 million. A four span building was part of the policy. A fire broke out and
gutted the building, together with a two storey building behind it were gaming machines
were stored. The company filed its claims but to no avail. Hence, it brought a suit in
court. It aimed to make Rizal pay for almost 3 million including legal interest and
damages. Rizal claimed that the policy only covered damage on the four span building
and not the two storey building. The trial court ruled in Transworld’s favor and ordered
Rizal to pay actual damages only. The court of appeals increased the damages. The
insurance company filed a MFR. The CA answered by modifying the imposition of
interest. Not satisfied, the insurance company petitioned to the Supreme Court.
Issue:
WON Rizal Surety is liable for loss of the two-storey building considering that the fire
insurance policy sued upon covered only the contents of the four-span building.

Held: Yes. Petition dismissed.

Ratio:
The policy had clauses on the building coverage that read:
"contained and/or stored during the currency of this Policy in the premises occupied by
them forming part of the buildings situated within own Compound"
"First, said properties must be contained and/or stored in the areas occupied by
Transworld and second, said areas must form part of the building described in the policy
xxx"
This generally means that the policy didn’t limit its coverage to what was stored in the
four-span building.
As to questions of fact, both the trial court and the Court of Appeals found that the so
called "annex " was not an annex building but an integral part of the four-span building
described in the policy and consequently, the machines and spare parts stored were
covered by the fire insurance.
A report said: "Two-storey building constructed of partly timber and partly concrete
hollow blocks under g.i. roof which is adjoining and intercommunicating with the repair
of the first right span of the lofty storey building and thence by property fence wall."
"Art.1377. The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity"
Landicho v GSIS- the 'terms in an insurance policy, which are ambiguous, equivocal, or
uncertain are to be construed strictly and most strongly against the insurer, and liberally
in favor of the insured so as to effect the dominant purpose of indemnity or payment to
the insured’
The issue of whether or not Transworld has an insurable interest in the fun and
amusement machines and spare parts, which entitles it to be indemnified for the loss
thereof, had been settled in another SC case.
G.R. NO. 171379, 10 JANUARY 2011,

FACTS:
Maxilite Technologies, Inc. (Maxilite) is a domestic corporation engaged in the
importation and trading of equipment for energy-efficiency systems. Jose N. Marques
(Marques) is the President and controlling stockholder of Maxilite.
Far East Bank and Trust Co. (FEBTC) is a local bank which handled the
financing and related requirements of Marques and Maxilite. Marques and Maxilite
maintained accounts with FEBTC. Accordingly, FEBTC financed Maxilite’s capital and
operational requirements through loans secured with properties of Marques under the
latter’s name.
Far East Bank Insurance Brokers, Inc. (FEBIBI) is a local insurance brokerage
corporation while Makati Insurance Company is a local insurance company. Both
companies are subsidiaries of FEBTC.
On 17 June 1993, Maxilite and Marques entered into a trust receipt transaction
with FEBTC, in the sum of US$80,765.00, for the shipment of various high-technology
equipment from the United States, with the merchandise serving as collateral. The
foregoing importation was covered by a trust receipt document signed by Marques on
behalf of Maxilite.
Sometime in August 1993, FEBIBI, upon the advice of FEBTC, facilitated the
procurement and processing from Makati Insurance Company of four separate and
independent fire insurance policies over the trust receipted merchandise. Maxilite paid
the premiums for these policies through debit arrangement. FEBTC would debit
Maxilite’s account for the premium payments, as reflected in statements of accounts
sent by FEBTC to Maxilite.
On 19 August 1994, Insurance Policy No. 1024439, covering the period 24 June
1994 to 24 June 1995, was released to cover the trust receipted merchandise. The
policy relevantly provides that the policy including any renewal thereof and/or any
endorsement thereon is not in force until the premium has been fully paid to and duly
receipted by the Company in the manner provided herein. Any supplementary
agreement seeking to amend this condition prepared by agent, broker or Company
official, shall be deemed invalid and of no effect.
Finding that Maxilite failed to pay the insurance premium in the sum of P8,265.60
for Insurance Policy No. 1024439 covering the period 24 June 1994 to 24 June 1995,
FEBIBI sent written reminders to FEBTC, dated 19 October 1994, 24 January 1995, and
6 March 1995, to debit Maxilite’s account.
On 24 and 26 October 1994, Maxilite fully settled its trust receipt account.
On 9 March 1995, a fire gutted the Aboitiz Sea Transport Building along M.J.
Cuenco Avenue, Cebu City, where Maxilite’s office and warehouse were located. As a
result, Maxilite suffered losses amounting to at least P2.1 million, which Maxilite claimed
against the fire insurance policy with Makati Insurance Company. Makati Insurance
Company denied the fire loss claim on the ground of non-payment of premium. FEBTC
and FEBIBI disclaimed any responsibility for the denial of the claim.
Maxilite and Marques sued FEBTC, FEBIBI, and Makati Insurance Company.
Maxilite prayed for (1) actual damages totaling P2.3 million representing full insurance
coverage and “business opportunity losses,” (2) moral damages, and (3) exemplary
damages. On the other hand, Marques sought payment of actual, moral and exemplary
damages, attorney’s fees, and litigation expenses. Maxilite and Marques also sought
the issuance of a preliminary injunction or a temporary restraining to enjoin FEBTC from
(1) imposing penalties on their obligations; (2) foreclosing the real estate mortage
securing their straight loan accounts; and (3) initiating actions to collect their obligations.
ISSUES:
1. Applicability of the Doctrine of Estoppel
2. Whether or not FEBTC, FEBIBI and Makati Insurance Company are jointly and
severally liable to pay respondents the full coverage of the subject insurance
policy.

HELD
Essentially, Maxilite and Marques invoke estoppel in claiming against FEBTC,
FEBIBI, and Makati Insurance Company the face value of the insurance policy. In their
complaint, Maxilite and Marques alleged they were led to believe and they in fact
believed that the settlement of Maxilite’s trust receipt account included the payment of
the insurance premium.Maxilite and Marques faulted FEBTC “if it failed to transmit the
premium payments on subject insurance coverage contrary to its represented standard
operating procedure of solely handling the insurance coverage and past practice of
debiting [Maxilite’s] account.”
In estoppel, a party creating an appearance of fact, which is false, is bound by
that appearance as against another person who acted in good faith on it. Estoppel is
based on public policy, fair dealing, good faith and justice. Its purpose is to forbid one to
speak against his own act, representations, or commitments to the injury of one who
reasonably relied thereon. It springs from equity, and is designed to aid the law in the
administration of justice where without its aid injustice might result.
Both trial and appellate courts basically agree that FEBTC is estopped from
claiming that the insurance premium has been unpaid. That FEBTC induced Maxilite
and Marques to believe that the insurance premium has in fact been debited from
Maxilite’s account is grounded on the the following facts: (1) FEBTC represented and
committed to handle Maxilite’s financing and capital requirements, including the related
transactions such as the insurance of the trust receipted merchandise; (2) prior to the
subject Insurance Policy No. 1024439, the premiums for the three separate fire
insurance policies had been paid through automatic debit arrangement; (3) FEBIBI sent
FEBTC, not Maxilite nor Marques, written reminders to debit Maxilite’s account,
establishing FEBTC’s obligation to automatically debit Maxilite’s account for the
premium amount; (4) there was no written demand from FEBTC or Makati Insurance
Company for Maxilite or Marques to pay the insurance premium; (5) the subject
insurance policy was released to Maxilite on 19 August 1994; and (6) the subject
insurance policy remained uncancelled despite the alleged non-payment of the
premium, making it appear that the insurance policy remained in force and binding.
Moreover, prior to the full settlement of the trust receipt account on 24 and 26
October 1994, FEBTC had insurable interest over the merchandise, and thus had
greater reason to debit Maxilite’s account. Further, as found by the trial court, and
apparently undisputed by FEBTC, FEBIBI and Makati Insurance Company, Maxilite had
sufficient funds at the time the first reminder, dated 19 October 1994, was sent by
FEBIBI to FEBTC to debit Maxilite’s account for the payment of the insurance premium.
Since (1) FEBTC committed to debit Maxilite’s account corresponding to the insurance
premium; (2) FEBTC had insurable interest over the property prior to the settlement of
the trust receipt account; and (3) Maxilite’s bank account had sufficient funds to pay the
insurance premium prior to the settlement of the trust receipt account, FEBTC should
have debited Maxilite’s account as what it had repeatedly done, as an established
practice, with respect to the previous insurance policies. However, FEBTC failed to
debit and instead disregarded the written reminder from FEBIBI to debit Maxilite’s
account. FEBTC’s conduct clearly constitutes negligence in handling Maxilite’s and
Marques’ accounts. Negligence is defined as “the omission to do something which a
reasonable man, guided upon those considerations which ordinarily regulate the
conduct of human affairs, would do, or the doing of something which a prudent man and
reasonable man could not do.”
As a consequence of its negligence, FEBTC must be held liable for damages
pursuant to Article 2176 of the Civil Code which states “whoever by act or omission
causes damage to another, there being fault or negligence, is obliged to pay for the
damage done.” Indisputably, had the insurance premium been paid, through the
automatic debit arrangement with FEBTC, Maxilite’s fire loss claim would have been
approved. Hence, Maxilite suffered damage to the extent of the face value of the
insurance policy or the sum of P2.1 million.
Contrary to Maxilite’s and Marques’ view, FEBTC is solely liable for the payment
of the face value of the insurance policy and the monetary awards stated in the Court of
Appeals’ decision. Suffice it to state that FEBTC, FEBIBI, and Makati Insurance
Company are independent and separate juridical entities, even if FEBIBI and Makati
Insurance Company are subsidiaries of FEBTC. Absent any showing of its illegitimate or
illegal functions, a subsidiary’s separate existence shall be respected, and the liability of
the parent corporation as well as the subsidiary shall be confined to those arising in
their respective business. Besides, the records are bereft of any evidence warranting
the piercing of corporate veil in order to treat FEBTC, FEBIBI, and Makati Insurance
Company as a single entity. Likewise, there is no evidence showing FEBIBI’s and
Makati Insurance Company’s negligence as regards the non-payment of the insurance
premium.
ONG LIM SING VS FEB LEASING (G.R. NO. 168115 JUNE 8, 2007)
Ong Lim Sing Jr. FEB Leasing & Finance Corporation
G.R. No. 168115 June 8, 2007

Facts: On March 9, 1995, FEB Leasing and Finance Corporation (FEB) entered into a
lease of equipment and motor vehicles with JVL Food Products (JVL). On the same
date, Vicente Ong Lim Sing, Jr. (Lim) executed an Individual Guaranty Agreement with
FEB to guarantee the prompt and faithful performance of the terms and conditions of
the aforesaid lease agreement. Corresponding Lease Schedules with Delivery and
Acceptance Certificates over the equipment and motor vehicles formed part of the
agreement. Under the contract, JVL was obliged to pay FEB an aggregate gross
monthly rental of One Hundred Seventy Thousand Four Hundred Ninety-Four Pesos (P
170,494.00). JVL defaulted in the payment of the monthly rentals. As of July 31, 2000,
the amount in arrears, including penalty charges and insurance premiums, amounted to
Three Million Four Hundred Fourteen Thousand Four Hundred Sixty Eight and 75/100
Pesos (P3,414,468.75). On August 23, 2000, FEB sent a letter to JVL demanding
payment of the said amount. However, JVL failed to pay.

Issue: Whether or not JVL as the lessee have an insurable interest over the leased
items.

Held: Yes. The stipulation in Section 14 of the lease contract, that the equipment shall
be insured at the cost and expense of the lessee against loss, damage, or destruction
from fire, theft, accident, or other insurable risk for the full term of the lease, is a binding
and valid stipulation. Petitioner, as a lessee, has an insurable interest in the equipment
and motor vehicles leased. Section 17 of the Insurance Code provides that the measure
of an insurable interest in property is the extent to which the insured might be damnified
by loss or injury thereof. It cannot be denied that JVL will be directly damnified in case
of loss, damage, or destruction of any of the properties leased.

It has also been held that the test of insurable interest in property is whether the
assured has a right, title or interest therein that he will be benefited by its preservation
and continued existence or suffer a direct pecuniary loss from its destruction or injury by
the peril insured against.
Philamcare v CA G.R. No. 125678. March 18, 2002
J. Ynares-Santiago

Facts:
Ernani Trinos applied for a health care coverage with Philam. He answered no to a
question asking if he or his family members were treated to heart trouble, asthma,
diabetes, etc.
The application was approved for 1 year. He was also given hospitalization benefits and
out-patient benefits. After the period expired, he was given an expanded coverage for
Php 75,000. During the period, he suffered from heart attack and was confined at MMC.
The wife tried to claim the benefits but the petitioner denied it saying that he concealed
his medical history by answering no to the aforementioned question. She had to pay for
the hospital bills amounting to 76,000. Her husband subsequently passed away. She
filed a case in the trial court for the collection of the amount plus damages. She was
awarded 76,000 for the bills and 40,000 for damages. The CA affirmed but deleted
awards for damages. Hence, this appeal.

Issue: WON a health care agreement is not an insurance contract; hence the
“incontestability clause” under the Insurance Code does not apply.

Held: No. Petition dismissed.

Ratio:
Petitioner claimed that it granted benefits only when the insured is alive during the one-
year duration. It contended that there was no indemnification unlike in insurance
contracts. It supported this claim by saying that it is a health maintenance organization
covered by the DOH and not the Insurance Commission. Lastly, it claimed that the
Incontestability clause didn’t apply because two-year and not one-year effectivity
periods were required.
Section 2 (1) of the Insurance Code defines a contract of insurance as “an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event.”
Section 3 states: every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children.
In this case, the husband’s health was the insurable interest. The health care
agreement was in the nature of non-life insurance, which is primarily a contract of
indemnity. The provider must pay for the medical expenses resulting from sickness or
injury.

While petitioner contended that the husband concealed materialfact of his sickness, the
contract stated that:
“that any physician is, by these presents, expressly authorized to disclose or give
testimony at anytime relative to any information acquired by him in his professional
capacity upon any question affecting the eligibility for health care coverage of the
Proposed Members.”
This meant that the petitioners required him to sign authorization to furnish reports
about his medical condition. The contract also authorized Philam to inquire directly to
his medical history.
Hence, the contention of concealment isn’t valid.
They can’t also invoke the “Invalidation of agreement” clause where failure of the
insured to disclose information was a grounds for revocation simply because the answer
assailed by the company was the heart condition question based on the insured’s
opinion. He wasn’t a medical doctor, so he can’t accurately gauge his condition.
Henrick v Fire- “in such case the insurer is not justified in relying upon such statement,
but is obligated to make further inquiry.”
Fraudulent intent must be proven to rescind the contract. This was incumbent upon the
provider.
“Having assumed a responsibility under the agreement, petitioner is bound to answer
the same to the extent agreed upon. In the end, the liability of the health care provider
attaches once the member is hospitalized for the disease or injury covered by the
agreement or whenever he avails of the covered benefits which he has prepaid.”
Section 27 of the Insurance Code- “a concealment entitles the injured party to rescind a
contract of insurance.”
As to cancellation procedure- Cancellation requires certain conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one
or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the
policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code
and upon request of insured, to furnish facts on which cancellation is based
None were fulfilled by the provider.
As to incontestability- The trial court said that “under the title Claim procedures of
expenses, the defendant Philamcare Health Systems Inc. had twelve months from the
date of issuance of the Agreement within which to contest the membership of the
patient if he had previous ailment of asthma, and six months from the issuance of the
agreement if the patient was sick of diabetes or hypertension. The periods having
expired, the defense of concealment or misrepresentation no longer lie.”

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