Rizal Surety and Insurance Co. vs CA. 336 SCRA 12

RIZAL SURETY & INSURANCE COMPANY V CA

(TRANSWORLD KNITTING MILLS, INC.)

336 SCRA 12; PURISIMA; July 18, 2000

NATURE

Petition for Review on Certiorari under Rule 45 of the Rules of Court

FACTS

- Rizal Surety & Insurance Company (Rizal Insurance) issued Fire Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc. (Transworld).

- Pertinent portions of subject policy on the buildings insured, and location thereof, read: "‘On stocks of finished and/or unfinished products, raw materials and supplies of every kind and description, the properties of the Insureds and/or held by them in trust, on commission or on joint account with others and/or for which they (sic) responsible in case of loss whilst 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 at MAGDALO STREET, BARRIO UGONG, PASIG, METRO MANILA, PHILIPPINES, BLOCK NO.601.’

x xx............ ...xxx....... ........xxx

‘Said building of four-span lofty one storey in height with mezzanine portions is constructed of reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and occupied as hosiery mills, garment and

lingerie factory, transistor-stereo assembly plant, offices, warehouse and caretaker's quarters.

'Bounds in front partly by one-storey concrete building under galvanized iron roof occupied as canteen and guardhouse, partly by building of two and partly one storey constructed of concrete below, timber above undergalvanized iron roof occupied as garage and quarters and partly by open space and/or tracking/ packing, beyond which is the aforementioned Magdalo Street; on its right and left by driveway, thence open spaces, and at the rear by open spaces.'"

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

- 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 fourspan 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.

- Private respondent brought against the said insurance companies an action for collection of sum of money and damages.

- 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.

- The trial court dismissed the case as against The New India Assurance Co., Ltd. but ordered defendant Rizal Surety And Insurance Company to pay Transwrold (sic) Knitting Mills, Inc.

- Both the petitioner, Rizal Insurance Company, and private respondent, Transworld Knitting Mills, Inc., went to the Court of Appeals, which required New India Assurance Company to pay plaintiff appellant the amount of P1,818,604.19 while the Rizal Surety has to pay the plaintiff-appellant P470,328.67.

- New India appealed to the 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.

- The Court denied the appeal with finality.

- Petitioner Rizal Insurance and private respondent Transworld, interposed a Motion for Reconsideration before the Court of Appeals, which reconsidered its decision of July 15, 1993, as regards the imposition of interest.

- Undaunted, petitioner Rizal Surety & Insurance Company found its way to the Court.

ISSUE

WON the fire insurance policy litigated upon protected only the contents of the main building (four-span), and did not include those stored in the two-storey annex building

HELD NO

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

"xxx 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 xxx"

- 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. As opined by the trial court of origin, two requirements must

concur in order that the said fun and amusement machines and spare parts would be deemed

protected by the fire insurance policy under scrutiny, to wit:

"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"

- Said building of four-span lofty one storey in height with mezzanine portions is constructed of reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and occupied as hosiery mills, garment and lingerie factory, transistor-stereo assembly plant, offices, ware house and caretaker's quarter.

- The Court is mindful of the well-entrenched doctrine that factual findings by the Court of Appeals are conclusive on the parties and not reviewable by this Court, and the same carry even more weight when the Court of Appeals has affirmed the findings of fact arrived at by the lower court.

- In the case under consideration, both the trial court and the Court of Appeals found that the so called "annex " was not an annex building but an integral and inseparable part of the four-span building described in the policy and consequently, the machines and spare parts stored therein were covered by the fire insurance in dispute.

- Verily, the two-storey building involved, a permanent structure which adjoins and intercommunicates with the "first right span of the lofty storey building", formed part thereof, and meets the requisites for compensability under the fire insurance policy sued upon.

- So also, considering that the two-storey building aforementioned was already existing when subject fire insurance policy contract was entered into, petitioner should have specifically excluded the said two-storey building from the coverage of the fire insurance if minded to exclude the same but if did not, and instead, went on to provide that such fire insurance policy covers the products, raw materials and supplies stored within the premises of respondent Transworld which was an integral part of the four-span building occupied by Transworld, knowing fully well the existence of such building adjoining and intercommunicating with the right section of the four-span building.

- 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. Citing the aforecited provision of law in point, the Court in Landicho vs. Government Service Insurance System, ruled:

"This is particularly true as regards insurance policies, in respect of which it is settled that the 'terms in an insurance policy, which are ambiguous, equivocal, or uncertain x x x 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, especially where forfeiture is involved' and the reason for this is that the 'insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance company.' "

- Equally relevant is the following disquisition of the Court in Fieldmen's Insurance Company, Inc. vs. Vda. De Songco, to wit:

"'This rigid application of the rule on ambiguities has become necessary in view of current business practices. The courts cannot ignore that nowadays monopolies, cartels and concentration of capital, endowed with overwhelming economic power, manage to impose upon parties dealing with them cunningly prepared 'agreements' that the weaker party may not change one whit, his participation in the 'agreement' being reduced to the alternative to 'take it or leave it' labeled since Raymond Saleilles 'contracts by adherence' (contrats [sic] d'adhesion), in contrast to these entered into by parties bargaining on an equal footing, such contracts (of which policies of insurance and international bills of lading are prime example) obviously call for greater strictness and vigilance on the part of courts of justice with a view to protecting the weaker party from abuses and imposition, and prevent their becoming traps for the unwary.'"

- 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 G.R. No. L-111118, entitled New India Assurance Company, Ltd., vs. Court of Appeals, where the appeal of New India from the decision of the Court of Appeals under review, was denied with finality by this Court on February 2, 1994.

- The rule on conclusiveness of judgment, which obtains under the premises, precludes the relitigation of a particular fact or issue in another action between the same parties based on a different claim or cause of action. "xxx the judgment in the prior action operates as estoppel only as to those matters in issue or points controverted, upon the determination of which the finding or judgment was rendered. In fine, the previous judgment is conclusive in the second case, only as those matters actually and directly controverted and determined and not as to matters merely involved therein."

Disposition Decision, and the Resolution of the CA WERE AFFIRMED in toto. No pronouncement as to costs.

Pandiman Philippines vs. Marine Mining, GR. 143313, June 21, 2005

PANDIMAN v. MARINE MANNING MNGT CORP.

460 SCRA 418; GARCIA; June 21, 2005

NATURE

Petition for certiorari to review CA decision

FACTS

- Benito Singhid was hired as chief cook on board the vessel MV Sun Richie Five for a term of one year by Fullwin Maritime Limited through its Philippine agent, Marine Manning and Management Corporation. While the said vessel was on its way to Shanghai from Ho Chih Minh City, Benito suffered a heart attack and subsequently died on June 24, 1997.

- Apparently, the vessel and the crew were insured with Ocean Marine Mutual Insurance Association

Limited (OMMIAL), a Protective and Indemnity Club of which Sun Richie Five Bulkers S.A. is a member. Pandiman Philippines, the petitioner, is the local correspondent of OMMIAL.

- Benito’s widow, Rosita, filed a claim for death benefits with Marine which referred her to Pandiman.

After her submission of the required documentation, Pandiman recommended payment of the death benefits amounting to $79,000. However, payment has not been made.

- Rosita filed a complaint with the Labor Arbiter naming Marine, Pandiman, OMMIAL, and Fullwin as respondents. The Arbiter ordered all the respondents, except Pandiman, to jointly and severally pay the widow the death benefits plus legal fees. The NLRC, on appeal by Marine, limited the liable parties to Pandiman and OMMIAL but maintained the money award. The CA sustained the decision of the NLRC. Hence, this appeal.

ISSUE

1. WON Pandiman may be held liable for the death benefits

2. WON Marine and its foreign principal, Fullwin, should be absolved from the death claim liabilities

HELD

1. NO

- Pandiman is not an insurance agent as defined by Section 3007 of the Insurance Code. In this case, there was no showing that Pndiman in fact negotiated the insurance contract between Sun Richie Five and the insurer OMMIAL. Even, if Pandiman were an agent, payment for claims arising from peril insured against, to which the insurer is liable, is definitely not one of the liabilities of an insurance agent. Thus, there is no legal basis whatsoever for holding petitioner solidarily liable with insurer OMMIAL for the widow’s claim for death benefits. Also, Pandiman is not a party to the insurance contract and hence under Article 1311 of the Civil Code, it is not liable for the obligation arising out of the insurance contract.

2. NO

- Fullwin, as Benito’s principal employer is liable under the employment contract. Marine is also bound by its undertaking pursuant to the Rules and Regulations Governing Overseas Employment that “it shall assume joint and solidary liability with the employer for all the claims and liabilities which may arise in connection with the implementation of the contract, including but not limited to the payment of wages, heath and disability compensation and repatriation”. In other words, both Fullwin and Marine should be held liable for whatever death benefits the widow of Benito may be entitled to.

Disposition The petition is granted and the CA decision is reversed and set aside.

Philippine Health Care Providers vs. Commissioner of Internal Revenue, 600 SCRA 413

Philippine Health Care Providers vs. Commissioner of Internal Revenue, 600 SCRA 413

Contracts; Petitioner’s health care agreement is primarily a contract of indemnity; A health care agreement is in the nature of a non-life insurance policy.—Under the law, a contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. The event insured against must be designated in the contract and must either be unknown or contingent. Petitioner’s health care agreement is primarily a contract of indemnity. And in the recent case of Blue Cross Healthcare, Inc. v. Olivares, 544 SCRA 580 (2008), this Court ruled that a health care agreement is in the nature of a non-life insurance policy.

Its Health Care Agreement is not a contract for the provision of medical services.—Contrary to petitioner’s claim, its health care agreement is not a contract for the provision of medical services. Petitioner does not actually provide medical or hospital services but merely arranges for the same and pays for them up to the stipulated maximum amount of coverage. It is also incorrect to say that the health care agreement is not based on loss or damage because, under the said agreement, petitioner assumes the liability and indemnifies its member for hospital, medical and related expenses (such as professional fees of physicians). 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.

Contracts between companies like petitioner and the beneficiaries under their plans are treated as insurance contracts.—Petitioner’s contention that it is a health maintenance organization and not an insurance company is irrelevant. Contracts between companies like petitioner and the beneficiaries under their plans are treated as insurance contracts.

Philamcare Health Services Inc. vs CA, 379 SCRA 356

PHILAMCARE HEALTH SYSTEMS, INC. V CA (TRINOS)

379 SCRA 357; YNARES-SANTIAGO; March 18, 2002

NATURE

Petition for review of CA decision

FACTS

- Ernani TRINOS, deceased husband of respondent Julita, applied for a health care coverage with Philamcare Health Systems, Inc. In the standard application form, he answered no to the question:

“Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).”

- The application was approved for period of one year; upon termination, it was extended for another

2 years. Amount of coverage was increased to a maximum sum of P75T per disability.

- During this period, Ernani suffered a HEART ATTACK and was confined at the Manila Medical Center (MMC) for one month. While her husband was in the hospital, Julita tried to claim the hospitalization benefits.    

- Petitioner treated the Health Care Agreement (HCA) as void since there was a concealment regarding Ernani’s medical history. Doctors at the MMC allegedly discovered at the time of his confinement, he was hypertensive, diabetic and asthmatic. Julita then paid the hospitalization expenses herself, amounting to about P76T.

- After her husband died, Julita instituted action for damages against Philamcare and its Pres. After trial, the lower court ruled in her favor and ordered Philamcare to reimburse medical and hospital coverage amounting to P76T plus interest, until fully paid; pay moral damages of P10T; pay exemplary damages of P10T; atty’s fees of P20T.

- CA affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner Reverente.

Petitioner’s Claims

(1) Agreement grants “living benefits” such as medical check-ups and hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration.

(2) Only medical and hospitalization benefits are given under the agreement without any indemnification, unlike in an insurance contract where the insured is indemnified for his loss.

(3) HCAs are only for a period of one year; therefore, incontestability clause does not apply, as it

requires effectivity period of at least 2 yrs.

(4) It is not an insurance company, governed by Insurance Commission, but a Health Maintenance Organization under the authority of DOH.

(5) Trinos concealed a material fact in his application.

(6) Julita was not the legal wife since at the time of their marriage, the deceased was previously married to another woman who was still alive.*

ISSUES

1. WON a health care agreement is an insurance contract (If so, “incontestability clause” under the Insurance Code is applicable)

2. WON the HCA can be invalidated on the basis of alleged concealment

HELD YES

Ratio Every person has an insurable interest in the life and health of himself2. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract.

Reasoning

- A contract of insurance3 is 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:

(a) The insured has an insurable interest;

(b) The insured is subject to a risk of loss by the happening of the peril;

(c) The insurer assumes the risk;

(d) 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

(e) In consideration of the insurer’s promise, the insured pays a premium.

2. NO

Ratio Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue; since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry.

Reasoning

- The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. The right to rescind should be exercised previous to the commencement of an action on the contract. No rescission was made. Besides, the cancellation of health care agreements as in insurance policies requires:

(a) Prior notice of cancellation to insured;

(b) Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned;

(c) Must be in writing, mailed or delivered to the insured at the address shown in the policy;

(d) 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.

- These conditions have not been met. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude insurer from non-compliance of obligation. Being a contract of adhesion, terms of an insurance contract are to be construed strictly against the party which prepared it – the insurer.

- Also, Philamcare had 12 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 health care agreement is in the nature of a contract of indemnity. Hence, payment should be

made to the party who incurred the expenses. It is clear that respondent paid all the hospital and medical bills; thus, she is entitled to reimbursement.

Disposition Petition DENIED.

White Gold Marine Services vs. Pioneer Insurance, GR No. 154514, 28 July 2005

WHITE GOLD MARINE SERVICES v. PIONEER INSURANCE

464 SCRA 448; QUISUMBING; July 28, 2005

NATURE

This petition for review assails the Decision of the Court of Appeals, affirming the Decision of the Insurance Commission. Both decisions held that there was no violation of the Insurance Code and the respondents do not need license as insurer and insurance agent/broker.

FACTS

- White Gold procured a protection and indemnity coverage for its vessels from Steamship Mutual through Pioneer Insurance. 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 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. It explained that Steamship Mutual was a Protection and Indemnity Club (P & I Club). Likewise, Pioneer need not obtain 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.

- 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.

ISSUES

1. WON Steamship Mutual, a P & I Club, is engaged in the insurance business in the Philippines

2. WON Pioneer needs a license as an insurance agent/broker for Steamship Mutual

HELD

1.        YES

- 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 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. 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

- 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 months thereafter.

Disposition The petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the Court of Appeals affirming the Decision dated May 3, 2000 of the Insurance Commission is hereby REVERSED AND

SET ASIDE. The Steamship Mutual Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to obtain licenses and to secure proper authorizations to do business as insurer and insurance agent, respectively. The petitioner’s prayer for the revocation of Pioneer’s Certificate of Authority and removal of its directors and officers, is DENIED.

Filipinas-Compania de Seguros de Nava vs Mandanas, 17 SCRA 210 (1966)

FILIPINAS LIFE ASSURANCE v. NAVA

17 SCRA 210; BAUTISTA ANGELO; May 20, 1966

NATURE

Petition for review of a decision of the Court of Appeals

FACTS

- Before the war, Nava entered into a contract of insurance with Insular Life Assurance Co., Ltd. (face value of P5k), and 17 separate contracts of life insurance with Filipinas Life Assurance Co. (total face value of P90k). Each and everyone of the 18 policies issued by defendants to plaintiff contains a loan clause of the following tenor:

Policy loans. After three full years' premiums have been paid upon this Policy, if no premium payment is in default, the Company, subject to its then existing rules, will advance on proper assignment and delivery of this Policy and on the sole security thereof a sum equal to, or at the option of the owner less than, the cash value specified in the Schedule of Policy Values, less any existing indebtedness on or secured by this Policy and any unpaid balance of the premium for the current policy-year; provided interest at six per centum per annum on the whole amount of the loan is paid in advance to the end of the current policy-year. At the end of the current policy-year interest at the same rate for one year in advance will be due and payable, and annually thereafter, and if not so paid will be added to the principal and bear the same rate of interest. Failure to repay any such loan or interest shall not avoid this

Policy unless the total indebtedness shall equal or exceed the full amount of the loan value available hereunder. Any indebtedness on this Policy shall first be deducted from any money payable or in anysettlement under this Policy.

- Nava had so far paid to Insular a total of P2,574; and to Filipinas Life, a total of P32,072.60.

- April 28, 1948: Nava applied to the companies for a P5k loan in line with the loan clause, but they refused to grant it because certain regulations issued by the Insurance Commissioner required the insurance companies to withhold the payments on premiums made during the Japanese occupation because the same shall be subject to future adjustments " as soon as debtor-creditor relationship is established" and because of such process of "withholding" plaintiff was not entitled to borrow any amount until such adjustment has been made.

- Sept 30, 1948: Nava called the attention of the insurance companies to the SC decision (Haw Pia v. China Banking Corporation) establishing and recognizing the relationship of debtor and creditor with respect to payments in fiat currency made during the Japanese occupation on pre-war obligations.

- Companies still refused saying that the SC decision was not applicable to transactions undertaken during

Japanese occupation when they relate to life insurance policies.

- Feb 4, 1949: Nava was again refused even if the total amount of the cash surrender values of the 18 policies reached the sum of P9,468.29.

- Feb 10, 1949: Nava brought case to the CFI Manila praying for the rescission of the abovementioned 18 policies and for the refund to him of all the premiums so far paid by him to defendants in the amount of P31,633.80, plus 6% interest thereon as damages

- Nov 28, 1951: companies passed a resolution which was approved by the Insurance Commissioner, giving full credit to all premium payments made by their policyholders in fiat currency during the Japanese occupation on account of pre-war policies for which reason they filed an amended answer offering to pay plaintiff the amount of P9,468.29 which represents the aggregate cash surrender values of all the policies in question as of February 10, 1949, but apparently this offer was refused.

- CFI: (1) rescinded the insurance contracts; (2) ordered defendant Filipinas Life Assurance Co. to pay plaintiff the amount of P32,072.60; and (3) ordered defendant Insular Life Assurance Co., Ltd. to pay plaintiff the amount of P2,574.00

- CA affirmed.

ISSUES

1. WON CA erred in ruling that as a consequence of the decision in the Haw Pia case petitioners violated the loan clause contained in the insurance policies thereby entitling respondent to their rescission

2. WON CA erred in ruling that by virtue of Article 1295 of the old Civil Code petitioners should refund to defendant all the premiums paid on his insurance policies as a consequence of their rescission

3. WON CA erred in not ruling that, even if respondent is entitled to the rescission of said insurance policies, he can only recover their cash surrender value at the time the complaint was filed

HELD

1.       NO.

- Even assuming the validity of the Insurance Commissioner’s regulations, the fact however is that such requirement has already lost its legal effect and value when our Supreme Court rendered its decision in the Haw Pia case wherein it was declared, among others, that all payments made in fiat currency during the Japanese occupation in relation with any contractual obligation executed before the war were valid to all intents and purposes, and yet petitioners apparently did not give any importance to such decision for in their opinion it does not have any application to transactions which have any relation to payment of premiums on life insurance policies.

- It cannot be denied that a life insurance policy involves a contractual obligation wherein the insured becomes duty bound to pay the premiums agreed upon, lest he runs the risk of having his insurance policy lapse if he fails to pay such premiums.

- The fact that if the insured had paid in full the premiums corresponding to the first 3 years of the life of his policy he cannot be considered delinquent that would cause the lapse of his policy if the same contains an automatic premium payment clause cannot divest such policy of its contractual nature, for the result of such failure would only be for him to pay later the premium plus the corresponding interest depending upon the condition of the policy. But certainly it does not cease to be a contractual liability insofar as the payment of that premium is concerned for whether he likes it or not that premium has to be paid lest he allows the lapse of his policy. Consequently, the payment of premiums on the life insurance policies made by Nava before and during the war up to the time he applied for the loan in question with petitioners should be considered likewise as valid payments upon the theory that such insurance policies are in the nature of a contractual obligation within the meaning of the civil law. In effect, therefore, those payments were made by a debtor to a creditor within the meaning of the requirement of the regulations of the Insurance Commissioner and as such they can offer no excuse to petitioners for refusing to grant the loan as contemplated in the loan clause embodied in the policies in question.

- It is clear from the foregoing that the petitioners violated the loan clause embodied in each of the 18 life insurance policies issued to respondent to rescind all said policies under Section 69 of the Insurance Act, which provides: "The violation of a material warranty, or other material provision of a policy, on the part of either party thereto, entitles the other to rescind."

- "The general rule is that a breach of the agreement to make the loan does not entitle the insured to rescind the contract," is not controlling in this jurisdiction. Firstly, it was not shown that the insurance laws in the states where said ruling prevails contain a provision identical to Section 69 of our Insurance Law we quoted above, and secondly, the rule cited by Vance is not a rule uniformly followed by all states in the US, for on this matter there is a marked divergence of opinion.

2. NO

- Considering that our Insurance Law does not contain an express provision as to what the court should do in cases of rescission of an insurance policy under Section 69, the provision that should apply is that embodied in Article 1225 of the old Civil Code, as postulated in Article 16 of the same Code, which provides that on matters which are not governed by special laws the provisions of said Code shall supplement its deficiency. And said Article 1295 provides:

ART. 1295. Rescission makes necessary the return of the things which were the subject-matter of the contract, with their fruits, and of the price paid, with interest thereon. ...xxx

- Said the petitioners: "Recovery of the full amount of the premium after the insurer has sustained for sometime the risk of the insurance and the insured has enjoyed the benefit of protection is obviously unjust and is so recognized by the better authorities." The ruling above quoted merely represents the minority rule in the US, the majority rule being that the insured can recover all premiums paid, in some cases with interest in case of wrongful cancellation, repudiation, termination or rescission of the contract of life insurance.

- Contention that because respondent cannot restore to petitioners the "value of the benefit of protection"

which he might have received under the 18 life insurance policies in question he is not entitled to rescind them under the provision of Article 1295 of the old Civil Code, is untenable because said article only contemplates a transaction whether material things are involved, and do not refer to intangible ones which cannot be the subject of restoration, for to interpret it otherwise would be to defeat the law itself with the result that rescission can never be had under Section 69 of our Insurance Law.

- It cannot be denied that petitioners had in turn already derived material benefits from the use of premiums paid to them by respondent before, during and after the last war from which they must have realized huge profits, and in this light alone petitioners cannot claim prejudice or unfairness if they are ordered to refund the premiums paid by respondents.

3. NO.

- Issue is corollary to preceding issue. No need to refute.

Disposition Decision appealed from is AFFIRMED. Costs against petitioners