INSURANCE LAW CASE DIGESTS

I. Contract of Insurance

1) PHILIPPINE HEALTH CARE PROVIDERS, INC. VS. COMMISSIONER OF INTERNAL REVENUE

Philippine Health Care Providers, Inc., petitioner, vs. Commissioner of Internal Revenue, respondent

G.R.No. 167330. June 2008

FACTS:

Petitioner is a domestic corporation whose primary purpose is to establish, maintain, conduct and operate a prepaid group practice health care delivery system or a health care 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 license 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, as provided in its membership or health care agreement and which provides for the in patient, out patient, and emergency care. 

Respondent Commissioner 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 P 224,641.18. The deficiency DST assessment was imposed on petitioner's health care agreement with the members of its health care program. Petitioner protested the assessment in a letter, as the respondent did not act on the letter, petitioner filed a petition for review in the Court of Tax Appeal for the cancellation of the deficiency VAT and DST assessments. 

CTA partially granted the petition, ordering the payment of VAT but cancelling and set aside the DST assessment. Hence respondent appealed to CA  as CTA cancelled the DST. It claimed that petitioner's health care agreement was a contract of insurance subject to DST under section 185 of the 1997 Tax Code. CA ruled in favor of the Commissioner. 

Petitioner argued that health care agreement is not  a contract of insurance and  but it is a contract for the provision on a prepaid basis of medical services, including medical check up that are nit based on loss or damage. It also insists that it is a health maintenance organization regulated by the DOH, and not under the jurisdiction of the Insurance Commission therefore not subject to the documentary stamp tax.

Issue: 

Whether a health care agreement NOT in the nature of an insurance contract and therefore not subject to the documentary stamp tax (DST).

HELD:

NO. The DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments. It is an excise upon privilege, opportunity or facility offered at exchanges for the transaction of the business. In particular, the DST under Section 185 of the 1997 Tax code is imposed on the privilege of making or renewing any policy of insurance (except life, marine, inland and fire insurance), bond or obligation in the nature of indemnity for loss, damage, or liability. 

A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or a consideration or liability arising from an unknown or contingent event. The event insured against must be designated in the contract and must either be known or contingent. Petitioner's health care agreement is primarily a c contract of indemnity and in the case of Blue Cross Healthcare, Inc. vs. Olivares, Court ruled that a health care agreement is in the nature of a non life insurance policy. 

Contrary to petitioner's claim, Health Care agreement is not a contract for the provision of medical services as it does not actually provide medical or hospital services but merely arranges for the same and pays for them up to the stipulated maximum amount coverage. It is also incorrect to say that the Health Care agreement, petitioner assumes the liability and indemnifies its member for the hospital, medical and related expenses. The term " loss or damage" is broad enough to cover the monetary expense or liability a member will incur in case of illness or injury. 

Contract between petitioner and the beneficiaries under their plans are treated as insurance contracts.

Petition is hereby denied.

2) ABOITIZ SHIPPING CORPORATION VS. INSURANCE COMPANY OF NORTH AMERICA

Aboitiz Shipping Corporation, petitioner, vs. Insurance Company of North America, respondent.
G.R. No. 168402. August 6, 2008

FACTS: 

MSAS Cargo Intl. Ltd. and / or Associated and / or Subsidiary Companies (MSAS) procured a marine insurance policy from respondent ICNA UK ltd. of London. The insurance was for a transshipment of certain wooden work tools and workbenches purchased for the consignee Science Teaching Improvement Project (STIP), Cebu City. ICNA issued an " all risk" open marine policy. 

The ccargo, packed inside the container van was then off loaded at Singapore and transshipped on board M/S Singapore. The ship arrived and docked at the Manila Intl. Container Port where the container van was again off loaded.  The cargo was received by petitioner Aboitiz through its booking authorized representative. The bill of lading issued by Aboitiz contained the notation " grounded outside warehouse."

The container van was stripped and transferred to another container van without any notation on the condition of the cargo on the Stripping report. The container was then loaded on board petitioner's vessel. The vessel left Manila en route to Cebu City. 

The shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu Intl. Port. It was then brought to the Cebu Bonded Warehousing Corporation pending clearance from the Customs authorities. In the Stripping report, petitioner noted that the crates were slightly broken or cracked at the bottom. 

The cargo was withdrawn by the STIP and delivered to Don Basco Technical High School, Cebu City. It was receive by Willig. Petitioner through its head Perez received a tel. call from Willig informing him that the cargo sustained water damage. 

Perez after receiving the call went to to the bonded warehouse and checked the condition of the container and other cargoes stuffed in the same container. He found that the container van and other cargoes stuffed there were completely dry and showed no sign of wetness. Perez found that except the bottom of the crate which was slightly broken, the crate itself appeared to be completely dry and had no water marks but he confirmed that the tools which were stored inside the crate were already corroded. He further explained that the " grounded outside warehouse" notation in the bill of lading referred only to the container van bearing the cargo. 

Willig informed Aboitiz through a letter about the damage noticed upon opening of thhe cargo. 

The consignee contacted the Philippine Office fo ICNA for insurance claims. Claimsmen Adjustment Corporation (CAC) conducted a ocular inspection and survey of the damage. CAC reported to ICNA that the goods sustained water damage, molds and corrosion which were discovered upon delivery t consignee. 

Consignee filed a formal claim with Aboitiz in the amount of P276540 for the damage condition of the goods. 

CAC also reported that it was the heavy rains that caused water damage to the shipment and it noted that the shipment was placed outside the warehouse of Pier in Manila, when it was delivered. The shipment was placed outside the warehouse as can be gleaned from the bill of lading issued by Aboitiz which contained the notaion "grounded outside warehouse" It was only when the shipment was stuffed inside another container van for shipment to Cebu.

Aboitiz refused to settle the claim. ICNA paid the amount of P 280,176 to consignee. A subrogation receipt executed in its favor. Despite followups however, no reply was received from Aboitiz. 

ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum of P280,176 plus interest and atty's fee. 

ICNA alleged that the damage sustained by the shipment was exclusively and solely brought about the fault and negligence of Aboitiz when shipment was left grounded outside its warehouse prior delivery.  Aboitiz contends tha ICNA had no personality to institute the suit.

RTC ruled against ICNA with reasons that the Marine Policy was issued by ICNA UK and ICNA Phils. failed to show that ICNA UK is its predecessor in interest or assigned to it the insurance policy, and ICNA Phils. claims that it abrogated to the rights of the consignee must fail because the subrogation receipt had no probative value for being hearsay evidence. CA reversed and set aside the ruling of the RTC.

ISSUE:

1) Is respondent ICNA the real party in interest that possess the right of subrogation to claim reimbursement from petitioner Aboitiz.

2) Was there a timely filing of the notice of claim as required under Art, 366 of the Code of Commerce.

C) if so, can petitioner be held liable on the claim.

HELD:

We answer the triple questions int he affirmative. 

Only when that foreign corporation is "transacting or doing business" in the country will a license be necessary before it can institute suits.However, bring suits on isolated business transactions, which is not prohibited under the Phil. law. So a foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filling a suit in local courts. Thus Court has held that a foreign insurance company may sue in Philippine courts upon the marine insurance policies issued by it abroad to cover international-bound cargoes shipped by a Philippine carrier, even if it has no license to do business in this country. It is the act of engaging in business without the prescribed license, and not the lack of license per se, which bars a foreign corporation from access to our courts.

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 abrogated 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.

Payment by the insurer to the assured operates as an equitable assignment of all remedies the assured may have against the third party who caused the damage. Subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer.

The giving of notice of loss or injury is a condition precedent to the action for loss or injury or the right to enforce the carrier’s liability. Circumstances peculiar to this case lead Us to conclude that the notice requirement was complied with. this notice requirement protects the carrier by affording it an opportunity to make an investigation of the claim while the matter is still fresh and easily

investigated. It is meant to safeguard the carrier from false and fraudulent claims.

The notice of claim must be made within 24 hours from receipt of the cargo if the damage is not apparent from the outside of the package. For damages that are visible from the outside of the package, the claim must be made immediately. 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.

Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given a reasonable and practical, rather than a strict construction.

We have found that respondent, as subrogee of the consignee, is the real party in interest to institute

the claim for damages against petitioner.

Article 1735 of the Civil Code is that in cases where 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 required by law.

Petition Denied. CA affirmed. 

3) WHITE GOLD MARINE SERVICES, INC. VS. PIIONEER INSURANCE AND SURETY CORPORATION

White Gold Marine Services, Inc., petitioner, vs. Pioeneer Insurance and Surety Corporation and the Steamship Mutual Underwriting Association (Bermuda) Lt.., respondents.
G.R. No. 154514. July 28, 2005

FACTS: 

While White Gold procured a protection and indemnity coverage for its vessels from BERMUDA Ltd. (Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer). Subsequently, White Gold was issued a Certificate of Entry and Acceptance. Pioneer also issued receipts evidencing payments for the coverage. 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 latter's unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission claiming that Steamship Mutual violated Sections 186 and 187 of the Insurance Code while Pioneer violated Sections 299, 300 and 301 in relation to Sections 302 and 303, thereof. 

the IC dismissed the complaint saying that Steamship Mutual was no need to secure a license because it was not engaged in the insurance business. It explained that Steamship Mutual was a protection and Indemnity Club (P and I club). Likewise, Pioneer need not obtained another license as insurance agent and/or a broker for Steamship Mutual because Steamship Mutual was not engaged in the insurance business. Moreover, Pioneer was already licensed, hence a separate license solely as agent /broker of Steamship Mutual was already superfluous.

Both Insurance Commission and CA held that there was no violation of the Insurance Code and the respondents do not need license as insurer and insurance agent/broker.

Respondents contend 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 ship owning. 

ISSUE:

Whether the Steamship Mutual, engaged in the insurance business in the Philippines.

Whether Pioneer need a license as an insurance broker/agent.

HELD:

1) Yes, though it is a member of a mutual insurance association engaged in the marine insurance business together with the P & I club.

Section 2(2) of the Insurance Code enumerates what constitutes “doing an insurance business” or “transacting an insurance business”. These are:

(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.

The same provision also provides, 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 preclude the existence of an insurance business.

The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the act required to be performed, and the exact nature of the agreement in the light of the occurrence, contingency, or circumstances under which the performance becomes requisite. It is not by what it is called. Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.

In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the losses incident to a marine adventure. Section 99 of the Insurance Code enumerates the coverage of marine insurance.

Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer and insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a fund from which all losses and liabilities are paid, and where the profits are divided among themselves, in proportion to their interest. Additionally, mutual insurance associations, or clubs, provide three types of coverage, namely, protection and indemnity, war risks, and defense costs. A P & I Club is “a form of insurance against third part 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 18720 of the Insurance Code. It maintains a resident agent in the Philippines to solicit insurance and to collect payments in its behalf. We note that 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) Yes, as provided in Section 299 of the Insurance Code.

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, which must be renewed annually on the first day of January, or within six (6) months thereafter . . .

I. (A & B) What may be Insured (Sec. 3-5); Parties to the Contract (Sec. 6-9)

4) PARAMOUNT LIFE & GENERAL INSURANCE CORPORATION VS. CASTRO

Paramount Life & General Insurance Corporation, petitioner, vs. Cherry T. Castro and Glenn Anthony T. Castro, respondents. G..R. No. 195728. April 19, 2016

FACTS: 

PPSBI applied for and obtained insurance from Paramount, which accordingly issued Group Master Policy No G-086 effective September 1, 2004. Under Section 20, Art. IV of said policy, "all death benefits shall be payable to the creditor, PPSBI, as its interest may appeal.

Meanwhile, Virgilio Castro, Cherry Castro's husband and Glenn's father - obtained a housing loan from the PPSBI in the amount of P 1.5 Million. PPSBI required Veirgilio to apply for a mortgage redemption insurance for the said insurance policy, Virgilio named Cherry and Glenn as beneficiaries. 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.

In Febraury 2009, Virgilio died of septic shop. Consequently, a claim was filed for death benefits under the individual insurance coverage issued under the group policy. Paramount however denied the claim, on the ground of the failure of Virgilio to disclose material information, or material concealment or misrepresentation. It said that when Virgilio submitted his insurance application in March 2008, he made some material representations 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 after complaining of a dull pain in his lumbosacral area. 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 and refused to honor its obligation as insurer of the P1.5 million loan. 

Paramount filed a complaint with RTC. It prayed that Application and Insurance Certificate covering the individual insurance of Virgiliio be declared null and void by reason of material concealment and misrepresentation. 

Castros 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. Castro filed a motion to include PPSBI as a third party defendant in the nullification case instituted by Paramount arguing that PPSBi stepped into the shoes of Cherry and Glenn after the death of Virgilio by virtue of Mortgage Redemption Insurance and that the obligation to pay the third party defendant (PPSBI) passed on the Paramount, not to them as Virgilio's hiers; Court denied the motion arguing that the case would be fully appreciated and resolved without involving PPSBI as a third party defendant. 

CA reversed and granted the petition by allowing third party complaint to be filed against the PPSBI and ruled that Castros 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 Virgilios favor. 

PPSBI opposed with 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. That the nullification action filed has nothing to do with the PPSBI.

ISSUE:

Whether CA erred in remanding the case to the RTC for the admission of the Third Party Complaint against PPSBI.

HELD:

No.

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

Mortgage Redemption Insurance is as device for the protection of both the mortgage 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. 

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.

I. C. Insurable Interest Sections 10-25

5) CHA VS. COURT OF APPEALS

Spouses Nilo Cha and Stella Uy Cha, and United Insurance Co.,Inc., petitioner, va. COurt of Appeals and CKS Development Corporation., respondents.

FACTS:

Petitioner-spouses Cha, as lessees, entered into a lease contract with the private respondent CKS Dev.Corp., as a lessor, on 5 October 1988.

One of the stipulations of the 1 year lease contract states that the Lessee shall not insure against fire the chattels, merchants, textiles, goods and effect placed at any stall  or store or space in the leased premises without first obtaining the written consent and approval of the lessor. If the Lessee obtain the insurance thereof without the consent of the Lessor, then the policy s deemed assigned and transferred to the Lessor for its own benefits. 

Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire the merhandise inside the leased premises for PhP 500,000.00 with the United Insurance Co., without the written consent of private respondent CKS. 

On the day the lease contract was to expire, fire broke out inside the leased premises. 

When CKS learned of the insurance earlier procured by the Cha spouses, it wrote the insurer (United) a demand letter asking that the proceeds of the insurance contract between Cha and United be paid directly to CKS, based on its leased contract with the Cha spouses.

United refused to pay CKS,. Hence the latter filed a complaint against the Cha Spouses and United.

RTC ordered defendant United to pay CKS the amount of 335,063 and defendant Cha spouses to pay P 50000 as exemplary damages and 20k for attorney's fees and cost of the suit. 

CA affirmed deleting however the Attorney's fees and damages. 

ISSUE:

Whether or not the Lease contract entered into between CKS and the Cha spouses is valid insofar as it provides that any fire insurance policy obtained by the lessee (Cha spouses) over their merchandise inside the leased premises is deemed assigned or transferred to the lessor (CKS) if said policy is obtained without the prior written consent of the latter. 

HELD:

No. Section 18 provides that "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 the petitioner spouses over their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at 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 the 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 which provides that 

             "Every stipulation in a policy 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."

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provision of Section 17 of the Insurance Code which provide:

           "The measure of an insurable interest in property is the extent to which the insured might be damnified by loss or injury thereof."

Therefore CKS, under the Insurance Code, be validly a beneficiary of the fire insurance policy taken by the petitioner spouses over their merchandise. This insurable interest over said merchandise remains with the insured, Cha spouses. 

The automatic assignment of the policy to CKS under the provision of the lease contract is void being contrary to law, and or public policy. The proceeds of the fire insurance thus rightfully belong to the spouses Cha, and the United cannot be compelled to pay the proceeds of the fire insurance to a person (CKS) who has n insurable interest in the property insured. 

Decision of CA is set aside.

6) RIZAL SURETY & INSURANCE COMPANY VS. COURT OF APPEALS

Rizal Surety & Insurance Company, petitioner, vs. Court of Appeals and Trans-world Knitting Mills, Inc., respondents.

FACTS:  

Rizal Insurance issued Fire Insurance Policy in favor of Transworld, initially for (P1,000,000.00) Pesos and eventually increased to One Million Five Hundred Thousand (P1,500,000.00) Pesos, covering the period from August 14, 1980 to March 13, 1981.

The same pieces of property insured with the petitioner were also insured with New India Assurance Company, Ltd.,

On January 12, 1981, fire broke out in the compound of Transworld, razing the middle portion of its four-span building and partly gutting the left and right sections thereof. A two-storey building (behind said four-span building) where fun and amusement machines and spare parts were stored, was also destroyed by the fire. Transworld filed its insurance claims with Rizal Surety & Insurance Company and New India Assurance Company but to no avail.

On May 26, 1982, private respondent brought against the said insurance companies an action for collection of sum of money and damages, praying for judgment ordering Rizal Insurance and New India to pay the amount of P2,747,867.00 plus legal interest, P400,000.00 as attorney’s fees, exemplary damages, expenses of litigation of P50,000.00 and costs of suit.

Petitioner Rizal Insurance countered that its fire insurance policy sued upon covered only the contents of the four-span building, which was partly burned, and not the damage caused by the fire on the two-storey annex building.7

“ACCORDINGLY, judgment is hereby rendered by the Trial Court in 1990 as follows: Dismissing the case as against The New India Assurance Co., Ltd.; Ordering defendant Rizal Surety And Insurance Company to pay Transworld (sic) Knitting Mills, Inc. the amount of P826,500.00 representing the actual value of the losses suffered by it; and Cost against defendant Rizal Surety and Insurance Company.

Both Rizal Insurance and Transworld Knitting Milss went to the Court of Appeals after its decision came out on July 15, 1993  the case of New India Assurance vs. Court of Appeals requiring Rizal Insurance and New India Assurance to pay Transworld P 470,328.67 and 1818,604.19 respectively totaling P2,790,376.00 based on the actual losses sustained by plaintiff Transworld in the fire.

New India appealed to this Court theorizing inter alia that the private respondent could not be compensated for the loss of the fun and amusement machines and spare parts stored at the two-storey building because it (Transworld) had no insurable interest in said goods or items. Court denied the appeal with finality on its decision on July 15, 1993 in New India Assurance vs. Court of Appeals.

Rizal Insurance appealed contending that the annex building where the bulk of the burned properties were stored was not included in the coverage of the insurance policy issued by it to Transworld.

ISSUE:

1) Whether Rizal Insurance is correct in its contention.
2) Whether New India Assurance may still question the settled and sustained controversy by the Supreme Court, re-litigated and passed again upon another case.

HELD:

1) No. 

Resolution of the issues posited here hinges on the proper interpretation of the stipulation in subject fire insurance policy regarding its coverage, which reads:

“x x x contained and/or stored during the currency of this Policy in the premises occupied by them forming part of the buildings situate (sic) within own Compound x x x” Therefrom, it can be gleaned unerringly that the fire insurance policy in question did not limit its coverage to what were stored in the four-span building.

Interpretation of Contracts; Terms in an insurance policy, which are ambiguous, equivocal or
uncertain are to be construed strictly and most strongly against the insurer.—Indeed, the stipulation as to the coverage of the fire insurance policy under controversy has created a doubt regarding the portions of the building insured thereby. Article 1377 of the New Civil Code provides: “Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.” Conformably, it stands to reason that the doubt should be resolved against the petitioner, Rizal Surety Insurance Company, whose lawyer or managers drafted the fire insurance policy contract under scrutiny.

2) No. 

Where a party’s insurable interest in, and compensability for the loss of certain articles had been adjudicated, settled and sustained by the Court of Appeals and by the Supreme Court, the same can no longer be relitigated and passed upon in another case.—The controversy at bar is on all fours with the aforecited case. Considering that private respondent’s insurable interest in, and compensability for the loss of subject fun and amusement machines and spare parts, had been adjudicated, settled and sustained by the Court of Appeals in CA-G.R CV NO 28779, and by this Court in G.R. No. L-111118, in a Resolution, dated February 2, 1994, the same can no longer be relitigated and passed upon in the present case. Ineluctably, the petitioner, Rizal Surety Insurance Company is bound by the
ruling of the Court of Appeals and of this Court that the private respondent has an insurable interest in the aforesaid fun and amusement machines and spare parts; and should be indemnified for the loss of the same.

7) MARQUEZ VS. FAR EASTERN BANK AND TRUST COMPANY

Jose Marquez and Maxilite Technologies, Inc., petitioners, vs. Far East Bank and Trust Company, Far East Bank Insurance Brokers, Inc., and Makati Insurance Company, respondents. 

G.R. No. 171379. January 10, 2011

FACTS:

Maxilite is a domestic corporation engaged in the importation and trading of equipment for energy-efficiency systems. 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, which pertinently reads:

“The undersigned (Marques) further agree(s) to keep said merchandise insured against fire to its full value, payable to the said bank, at the cost and expense of the undersigned, who hereby further agree(s) to pay all charges for storage on said merchandise or any or other expenses incurred thereon. x x x x”

Sometime in August 1993, FEBIBI, upon the advice of FEBTC, facilitated the procurement and processing from Makati Insurance Company of four (4) separate and independent fire insurance policies over the trust receipted merchandise. Another Insurance Policy, covering the period 24 June 1994 to 24 June 1995, was released to cover the trust receipted merchandise. Finding that Maxilite failed to pay the insurance premium in the sum of P8,265.60 for the last Insurance Policy, FEBIBI sent written reminders to FEBTC, dated 19 October 1994,16 24 January 1995,17 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 nonpayment 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 actual damages totaling P2.3 million representing full insurance coverage and “business opportunity losses,” and for other damages. 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 mortgage securing their straight loan accounts; and (3) initiating actions to collect them

obligations. FEBTC, FEBIBI, and Makati Insurance Company countered that Maxilite and Marques have no cause of action against them.

ISSUE:

Whether FEBTC had insurable interest over the merchandise

Whether FEBIBI, FEBTC and Makati Insurance Company are jointly and severally liable to indemnify petitioners

HELD:

1) Yes. 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.

(3) FEBTC is solely liable for the payment of the face value of the insurance policy and the monetary awards in the CA’s decision. FEBTC, FEBIBI and Makati insurance company are independent and separate juridical entities even if 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. There is no evidence showing FEBIBI's and Makati Insurance Company's negligence as regards the non-payment of the insurance premium.