Real and Hypothecary Nature of Maritime Law

The Philippine Shipping Company et. al. v. Vergara

G.R. No. L-1600, June 1, 1906

FACTS:
The Philippine Shipping Company, the owner of the steamship Nuestra Sra. de
Lourdes, claims an indemnification of 44,000 pesos for the loss of the said ship as a result
of a collision. The defendant, Francisco Garcia Vergara, was the owner of the steamship
Navarra, which collided with the Lourdes.

The court found as a matter of fact that the steamship Lourdes was sailing in
accordance with law, but that the Navarra was not, and was therefore responsible for the
collision. The court also found as a fact that "both ships with their respective cargoes were
entirely lost." Construing article 837 of the Code Commerce, the court held "that the
defendant was not responsible to the plaintiff for the value of the steamship Lourdes, with
the costs against the latter.

But Philippine Shipping Company, contends that the defendant should pay to
18,000 pesos, the value of the Navarra at the time of its loss; that this is the sense in
which the provisions of article 837 of the Code of Commerce should be understood; that
said code has followed the principles of the English law and not those of the American
law, and that it was immaterial whether the Navarra had been entirely lost, provided her
value at the time she was lost could be ascertained, since the extent of the liability of the
owner of the colliding vessel for the damages resulting from the collision is to be
determined in accordance with such value.

ISSUE:
Is Francisco Vergara, liable to Philippine Shipping Co. of 18,000 pesos, the value
of the Navarra?

RULING:
No.

The defendant is liable for the indemnification to which the plaintiff is entitled by
reason of the collision, but he is not required to pay such indemnification of the reason
that the obligation thus incurred has been extinguished on account of the loss of the thing
bound for the payment thereof, and in this respect the judgment of the court below is
affirmed except in so far as it requires the plaintiff to pay the costs of this action, which is
not exactly proper.
 There is no doubt that if the Navarra had not been entirely lost, the agent, having
held liable for the negligence of the captain of the vessel, could have abandoned her with
all her equipment and the freight money earned during the voyage, thus bringing himself
within the provisions of the article 837 in so far as the subsidiary civil liability is concerned.
This abandonment which would have amounted to an offer of the value of the vessel, of
her equipment, and freight money earned could not have been refused, and the agent
could not have been personally compelled, under such circumstances, to pay the 18,000
pesos, the estimated value of the vessel at the time of the collision.

The spirit of our code is accurately set forth in a treatise on maritime law, from
which we deem proper to quote the following as the basis of this decision:

That which distinguishes the maritime from the civil law and even from the
mercantile law in general is the real and hypothecary nature of the former, and the many
securities of a real nature that maritime customs from time immemorial, the laws, the
codes, and the later jurisprudence, have provided for the protection of the various and
conflicting interest which are ventured and risked in maritime expeditions, such as the
interests of the vessel and of the agent, those of the owners of the cargo and consignees,
those who salvage the ship, those who make loans upon the cargo, those of the sailors
and members of the crew as to their wages, and those of a constructor as to repairs made
to the vessel.

As evidence of this "real" nature of the maritime law we have (1) the limitation of
the liability of the agents to the actual value of the vessel and the freight money, and (2)
the right to retain the cargo and the embargo and detention of the vessel even cases
where the ordinary civil law would not allow more than a personal action against the
debtor or person liable. It will be observed that these rights are correlative, and naturally
so, because if the agent can exempt himself from liability by abandoning the vessel and
freight money, thus avoiding the possibility of risking his whole fortune in the business, it
is also just that his maritime creditor may for any reason attach the vessel itself to secure
his claim without waiting for a settlement of his rights by a final judgment, even to the
prejudice of a third person.

Hence, the Court accordingly hold that the defendant is liable for the
indemnification to which the plaintiff is entitled by reason of the collision, but he is not
required to pay such indemnification of the reason that the obligation thus incurred has
been extinguished on account of the loss of the thing bound for the payment thereof.
Doctrine of Limited Liability

Abueg et, al. v. Bartolome San Diego

G.R. No. L-773, December 17, 1946

FACTS:
Appellant Bartolome San Diego was owner of the motor ships San Diego
II and Bartolome S. The M/S San Diego II and the M/S Bartolome, while engaged in
fishing operations around Mindoro Island on Oct. 1, 1941 were caught by a typhoon as a
consequence of which they were sunk and totally lost. Amado Nuñez, Victoriano
Salvacion and Francisco Oching while acting in their capacities perished in the shipwreck.
When heirs of the deceased sought for compensation, Bartolome San Diego contended
that pursuant to article 587 of the Code of Commerce which provides that if the vessel
together with all her tackle and freight money earned during the voyage are abandoned,
the agent's liability to third persons for tortious acts of the captain in the care of the goods
which the ship carried is extinguished; article 837 of the same code which provides that
in cases of collision, the ship owners' liability is limited to the value of the vessel with all
her equipment and freight earned during the voyage; and article 643 of the same Code
which provides that if the vessel and freight are totally lost, the agent's liability for wages
of the crew is extinguished.

From these premises counsel draw the conclusion that appellant's liability, as
owner of the two motor ships lost or sunk as a result of the typhoon that lashed the island
of Mindoro on October 1, 1941, was extinguished.

Moreover, San Diego further contended that the motorboats engaged in fishing
could not be deemed to be in the coastwise and interisland trade, as contemplated in
section 38 of the Workmen's Compensation Act (No. 3428),

ISSUE:
Is Bartolome San Diego liable for the compensation for the death of the crew?

RULING:
Yes. It is true that the real and hypothecary nature of the liability of the shipowner
or agent embodied in the provisions of the Maritime Law, Book III, Code of Commerce,
had its origin in the prevailing continues of the maritime trade and sea voyages during the
medieval ages, attended by innumerable hazards and perils. But the provisions of the
Code of Commerce invoked by appellant have no room in the application of the
Workmen's Compensation Act which seeks to improve, and aims at the amelioration of,
the condition of laborers and employees. It is not the liability for the damage or loss of the
cargo or injury to, or death of, a passenger by or through the misconduct of the captain
or master of the ship; nor the liability for the loss of the ship as result of collision; nor the
responsibility for wages of the crew, but a liability created by a statute to compensate
employees and laborers in cases of injury received by or inflicted upon them, while
engaged in the performance of their work or employment, or the heirs and dependents
and laborers and employees in the event of death caused by their employment. Such
compensation has nothing to do with the provisions of the Code of Commerce regarding
maritime commerce. It has been repeatedly stated that the Workmen's Compensation Act
was enacted to abrogate the common law and our Civil Code upon culpable acts and
omissions, and that the employer need not be guilty of neglect or fault, in order that
responsibility may attach to him.

If an accident is compensable under the Workmen's Compensation Act, it must be

compensated even when the workman's right is not recognized by or is in conflict with
other provisions of the Civil Code or the Code of Commerce.

As to the point raised by appellant that the motorboats engaged in fishing could
not be deemed to be in the coastwise and interisland trade, as contemplated in section
38 of the Workmen's Compensation Act, if the motor ships in question, while engaged in
fishing, were to be considered as not engaged in interisland and coastwise trade, the
provisions of the Code of Commerce invoked by them regarding limitation of the
shipowner's liability or extinction thereof when the shipowner abandons the ship, cannot
be applied.

Granting however, that the motor ships run and operated by the appellant were not
engaged in the coastwise and interisland trade, as contemplated in section 38 of the
Workmen's Compensation Act, as amended, still the deceased officers of the motor ships
in question were industrial employees within the purview of section 39, paragraph (d), as
amended, for industrial employment "includes all employment or work at a trade,
occupation or profession exercised by an employer for the purpose of gain."

The court does not believe that the term “coast wise and interisland trade” has
such narrow meaning as to confine it to the carriage for hire of passengers and/or
merchandise on vessels between ports and places in the Philippines, because while
fishing is an industry, if the catch is brought to a port for sale, it is at the same time a
trade.
Origin and Growth of Insurance

Teodoro R. Yangco, et al. vs. Manuel Laserna, et al.

G.R. No. L-47447-47449, October 29, 1941

FACTS:
In the afternoon of May 26, 1927, the steamer S.S. Negros, belonging to petitioner
here, Teodoro R. Yangco, left the port of Romblon on its return trip to Manila. Typhoon
signal No. 2 was then up, of which fact the captain was duly advised and his attention
thereto called by the passengers themselves before the vessel set sail.

The boat was overloaded as indicated by the load line which was 6 to 7 inches
below the surface of the water. The passengers, numbering about 180, were
overcrowded, the vessel's capacity being limited to only 123 passengers.

As the sea became increasingly violent, the vessel was caught sidewise by a big
wave which caused it to capsize and sink. Many of the passengers died in the mishap.

ISSUE:
Does the real and hypothecary nature of maritime law extinguish petitioner’s
liability?

RULING:
Yes. If the shipowner or agent may in any way be held civilly liable at all for injury
to or death of passengers arising from the negligence of the captain in cases of collisions
or shipwrecks, his liability is merely co-extensive with his interest in the vessel such that
a total loss thereof results in its extinction. But assuming that petitioner is liable for a
breach of contract of carriage, the exclusively "real and hypothecary nature" of maritime
law operates to limit such liability to the value of the vessel, or to the insurance thereon,
if any. In the instant case it does not appear that the vessel was insured.

Article 587 of the Code of Commerce accords a shipowner or agent the right of
abandonment; and by necessary implication, his liability is confined to that which he is
entitled as of right to abandon — "the vessel with all her equipment and the freight it may
have earned during the voyage."

While previously under the civil or common law, the owner of a vessel was liable
to the full amount for damages caused by the misconduct of the master, by the general
maritime law of modern Europe, the liability of the shipowner was subsequently limited to
his interest in the vessel. A similar limitation was placed by the British Parliament upon
the liability of English shipowners. The legislatures of Massachusetts and Maine followed
suit in 1818 and 1821, and finally, Congress enacted the Limited Liability Act of March 3,
1851, embodying most of the provisions contained in the British Statutes.

The policy which the rule is designed to promote is the encouragement of

shipbuilding and investment in maritime commerce.
Doctrine of Limited Liability
Manila Steamship Co. Inc. v. Insa Abdulhaman
G.R. No. L-9534, September 29, 1956

FACTS:
This case was instituted by Insa Abdulhaman against the Manila Steamship Co. to
recover damages for the death of his five children and loss of personal properties on
board the M/L “Consuelo V” as a result of a maritime collision between said vessel and
the M/S “Bowline Knot” on May 4, 1948.

Plaintiff Insa Abdulhaman, his wife Carimla Mora and their five children were on
board the the M/L “Consuelo V” from Zamboanga City bound for Siokon. The Ship was
was then towing a kumpit, named “Sta. Maria Bay”.The evening of the travel was met with
dark clouds with rain but visibility was still good enough.
When some of the passengers of the M/L “Consuelo V” were then sleeping and
some were lying down awake, all of a sudden they felt the shocking collision of the M/L
“Consuelo V” and a big motorship, which later on was identified as the M/V “Bowline
Knot”.
Before realizing what had happened, crew and passengers found themselves
swimming and floating on the crest of the waves and as a result of which nine (9)
passengers were dead and missing and all the cargoes carried on said boat, including
those of the Plaintiff.

As the cause of the collision, findings were confirmed that the commanding officer
of the colliding vessels had both been negligent in operating their respective vessels. The
Court held the owners of both vessels solidarily liable to Plaintiff for the damages caused
to him by the collision.

Manila Steamship Co. contends that it should be exempt from liability for it
exercised the diligence of a good father of a family in the selection of its employees.

ISSUE:
Whether or not Manila Steamship (including owner Lim Hong To) is liable to
Plaintiff.

RULING:
Yes. It is a general principle, well established maritime law and custom, that ship-
owners and ship agents are civilly liable for the acts of the captain (Code of Commerce,
Article 586) and for the indemnities due the third persons (Article 587). The reason so
that injured parties may immediately look for reimbursement to the owner of the ship, it
being universally recognized that the ship master or captain is primarily the representative
of the owner. This direct liability, moderated and limited by the owner’s right of
abandonment of the vessel and earned freight (Article 587), has been declared to exist,
not only in case of breached contracts, but also in cases of tortious negligence.
Where the vessel is one of freight, a public concern or public utility, its owner or
agents is liable for the tortious acts of his agents (Articles 587, 613, and 618 Code of
Commerce; Article 1902, 1903, 1908, Civil Code). This principle has been repeatedly
upheld in various decisions of this court.
The contention of manila steamship of pater familias is untenable for such defense
would negate the provisions of the Code of Commerce. If allowed, such defense would
make ship-owners escape liability in every case. Thus the protection of the injured parties
afforded by the Code of Commerce will be prejudiced.
Take also into consideration that the defense of abandonment to limit the owners liability
would not apply in the case at hand. The matter was caused by negligence on the part of
the officers of the two colliding officers.
Thus the court holds Manila steamship Co. directly and primarily liable in tort for
injuries caused to Plaintiff by the collision of the said vehicles, through the negligence of
the crews of both vessels, and it may not escape liability on the ground that it exercised
due diligence in the selection and supervision of the officers and crew of the “Bowline
Knot”. Lim Hong To, as owner of the motor launch “Consuelo V”, having caused the same
to sail without licensed officers, is liable for the injuries caused by the collision over and
beyond the value of said launch. And that the liability of Lim Hong To and Manila
Steamship Co. to plaintiff is prescribed under Article 827 of the Code of Commerce.
Doctrine of Limited Liability

Chua Yeng Hong v. IAC

G.R. No. 74811, September 30, 1988

FACTS:
Petitioner loaded 1,000 sacks of copra, valued at P101,227.40, on board the
vessel "M/V Luzviminda I", owned by private respondents, for shipment from Puerta
Galera, Oriental Mindoro, to Manila. Somewhere between Cape Santiago and Calatagan,
Batangas, the vessel capsized and sank with all its cargo.

Petitioner filed a complaint for damages based on breach of contract of carriage

against private respondents. Private respondents, however, averred that even assuming
that the alleged cargo was truly loaded aboard their vessel, their liability had been
extinguished by reason of the total loss of said vessel.

The trial court ruled in favor of the petitioner. On appeal, respondent Appellate
Court ruled to the contrary when it applied Article 587 of the Code of Commerce and the
doctrine in Yangco vs. Lasema.

ISSUE:
Whether the doctrine of limited liability under Article 587 of the Code of Commerce
as expounded in Yangco vs. Laserna is applicable in this case.

RULING:
The appellate court did not err. The doctrine of limited liability is applicable in this
case, therefore the liability of private respondents for the loss of the cargo of copra must
be deemed to have been extinguished.

Article 587 of the Code of Commerce provides, “The ship agent shall also be civilly
liable for the indemnities in favor of third persons which may arise from the conduct of the
captain in the care of the goods which he loaded on the vessel; but he may exempt himself
therefrom by abandoning the vessel with all the equipments and the freight it may have
earned during the voyage.”

Pursuant to said provision, both the ship owner and ship agent are civilly and
directly liable for the indemnities in favor of third persons, which may arise from the
conduct of the captain in the care of goods transported, as well as for the safety of
passengers transported. However, under the same Article, this direct liability is moderated
and limited by the ship agent's or ship owner's right of abandonment of the vessel and
earned freight. This expresses the universal principle of limited liability under maritime
law. The most fundamental effect of abandonment is the cessation of the responsibility of
the ship agent/owner.

In other words, the ship owner's or agent's liability is merely co-extensive with his
interest in the vessel such that a total loss thereof results in its extinction. "No vessel, no
liability" expresses in a nutshell the limited liability rule. The total destruction of the vessel
extinguishes maritime liens as there is no longer any res to which it can attach.

The limited liability rule, however, is not without exceptions, namely: (1) where the
injury or death to a passenger is due either to the fault of the ship owner, or to the
concurring negligence of the ship owner and the captain; (2) where the vessel is insured;
and (3) in workmen's compensation claims. In this case, there is nothing in the records to
show that the loss of the cargo was due to the fault of the private respondent as
shipowners, or to their concurrent negligence with the captain of the vessel.
Origin and Growth of Insurance; Doctrine of Limited liability

Heirs of Amparo de los Santos vs. Court of Appeals

G.R. No. L-51165 June 21, 1990

FACTS:

M/V Mindoro sailed from Manila to New Washington, Aklan with many passengers
aboard. The vessel met typhoon Welming and it sank. Many of its passengers died. One
of them was Amparo delos Santos. In a decision by the Board of Marine Inquiry, it was
found that the captain and some officers of the crew were negligent in operating the
vessel. The Heirs of Amparo contends that there was negligence on the part of the vessel.
On the other hand, Compania Maritima contends that no negligence was ever established
and that the drowning of the passengers was due to force majeure.

ISSUES:
Whether or not Compania Maritima was negligent – YES
Whether or not Art. 587 is applicable in this case – NO

RULING:
Compania Maritima was negligent.
Modern technology belies the claim of Compania Maritima that it did not have any
information about typhoon Welming until after the boat was already at sea. The Weather
Bureau is equipped with modern apparatus which enables it to detect any incoming
atmospheric disturbances. It is highly improbable due to the late departure of the ship that
the Weather Bureau had not yet issued any typhoon bulletin at any time during the day
to the shipping companies. Maritima displayed lack of foresight and minimum concern for
the safety of its passengers. The ship was delayed for 4 hours and it did not check from
the captain the reasons behind the delay nor send its representative to inquire into the
cause of the delay. A closer supervision could have prevented the overloading of the
vessel. Maritima also did not install a radar which could have allowed the ship to navigate
safely for shelter during the storm. The vessel was left at the mercy of Welming.

Art. 587 is inapplicable because the shipowner was also negligent.

Under Art. 587 of the Code of Commerce, a shipowner or agent has the right of
abandonment; and by necessary implication, his liability is confined to that which he is
entitled of right to abandon the vessel with all her equipments and the freight it may have
earned during the voyage. This rule is necessary to offset against the innumerable
hazards and perils of sea voyage and to encourage shipbuilding and maritime commerce.
The limited liability doctrine applies not only to goods but also in all cases like death
or injury to passengers wherein the shipowner or agent may properly be held liable for
the negligent or illicit acts of the captain. Art. 587 speaks only of situations where the fault
or negligence is committed solely by the captain. In cases where the shipowner is
likewise to be blamed, Art. 587 does not apply. Such a situation will be covered by the
New Civil Code provisions on common carriers.
Doctrine of Limited Liability

Aboitiz Shipping Corporation v. New India Assurance Company, Ltd

GR. No. 156978 May 2, 2006

Facts:
1. Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals
from France on board a vessel owned by Franco-Belgian Services, Inc. The cargo
was consigned to General Textile, Inc., in Manila and insured by respondent New
India Assurance Company, Ltd. While in Hongkong, the cargo was transferred
to M/V P. Aboitiz for transshipment to Manila.

2. Before departing, the vessel was advised by the Japanese Meteorological Center
that it was safe to travel to its destination. But while at sea, the vessel received a
report of a typhoon moving within its general path. To avoid the typhoon, the vessel
changed its course. However, it was still at the fringe of the typhoon when its hull
leaked. On October 31, 1980, the vessel sank, but the captain and his crew were
saved.
3. On November 3, 1980, the captain of M/V P. Aboitiz filed his "Marine Protest",
stating that the wind force was at 10 to 15 knots at the time the ship foundered and
described the weather as "moderate breeze, small waves, becoming longer, fairly
frequent white horses."
4. petitioner notified the consignee, General Textile, of the total loss of the vessel and
all of its cargoes. General Textile, lodged a claim with respondent for the amount
of its loss. Respondent paid General Textile and was subrogated to the rights of
the latter.
5. Respondent hired a surveyor, Perfect, Lambert and Company, to investigate the
cause of the sinking. In its report, the surveyor concluded that the cause was the
flooding of the holds brought about by the vessel’s questionable seaworthiness.
Consequently, respondent filed a complaint for damages against petitioner Aboitiz
and Franco-Belgian Services (latter’s local agent, Zuellig). Respondent alleged
that the proximate cause of the loss of the shipment was the fault or negligence of
the master and crew of the vessel, its unseaworthiness, and the failure of
defendants therein to exercise extraordinary diligence in the transport of the goods.
Hence, respondent added, defendants therein breached their contract of carriage.
6. Franco-Belgian Services and Zuellig responded, claiming that they exercised
extraordinary diligence in handling the shipment while it was in their possession;
its vessel was seaworthy; and the proximate cause of the loss of cargo was a
fortuitous event.
7. petitioner also raised the same defense that the ship was seaworthy. It alleged that
the sinking of M/V P. Aboitiz was due to an unforeseen event and without fault or
 negligence on its part. It also alleged that in accordance with the real and
hypothecary nature of maritime law, the sinking of M/V P.
Aboitiz extinguished its liability on the loss of the cargoes.

8. The Board of Marine Inquiry (BMI) conducted its own investigation to determine
whether the captain and crew were administratively liable. However, petitioner
neither informed respondent nor the trial court of the investigation. The BMI
exonerated the captain and crew of any administrative liability; and declared the
vessel seaworthy and concluded that the sinking was due to the vessel’s exposure
to the approaching typhoon.
9. RTC: ruled in favor of respondent. It held petitioner liable for the total value of the
lost cargo plus legal interest.
10. CA: affirmed in toto the trial court’s decision.
 Petitioner’s contention:

Petitioner, citing Monarch Insurance Co. Inc. v. Court of Appeals, 15 contends that
respondent’s claim for damages should only be against the insurance proceeds and
limited to its pro-rata share in view of the doctrine of limited liability.

 Respondent’s contention:

Respondent counters that the doctrine of real and hypothecary nature of maritime law
is not applicable in the present case because petitioner was found to have been negligent.
Hence, according to respondent, petitioner should be held liable for the total value of the
lost cargo.

ISSUE:

Is the doctrine of limited liability doctrine, which limits respondent’s award of damages to
its pro-rata share in the insurance proceeds, applies in this case?

RULING:
No. Petitioner is liable for the total value of the lost cargo.
1. The Courts ruling in Monarch may appear inconsistent with the exception of the
limited liability doctrine, as explicitly stated in the earlier part of
the Monarch decision. An exception to the limited liability doctrine is when the
damage is due to the fault of the shipowner or to the concurrent negligence
of the shipowner and the captain. In which case, the shipowner shall be liable
to the full-extent of the damage.
2. From the nature of their business and for reasons of public policy, common carriers
are bound to observe extraordinary diligence over the goods they transport
according to all the circumstances of each case.20 In the event of loss, destruction
 or deterioration of the insured goods, common carriers are responsible, unless
they can prove that the loss, destruction or deterioration was brought about by the
causes specified in Article 1734 of the Civil Code. In all other cases, common
carriers are presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence. Moreover, where the vessel
is found unseaworthy, the shipowner is also presumed to be negligent since it is
tasked with the maintenance of its vessel. Though this duty can be delegated, still,
the shipowner must exercise close supervision over its men.
3. In the present case, petitioner has the burden of showing that it exercised
extraordinary diligence in the transport of the goods it had on board in order to
invoke the limited liability doctrine. Differently put, to limit its liability to the
amount of the insurance proceeds, petitioner has the burden of proving that
the unseaworthiness of its vessel was not due to its fault or negligence.
Petitioner failed to discharge this burden. It initially attributed the sinking to the
typhoon and relied on the BMI findings that it was not at fault. However, both the
trial and the appellate courts, in this case, found that the sinking was not due to
the typhoon but to its unseaworthiness. Evidence on record showed that the
weather was moderate when the vessel sank.
4. In contrast, the findings of the BMI are not deemed always binding on the courts.
Besides, exoneration of the vessel’s officers and crew by the BMI merely concerns
their respective administrative liabilities. It does not in any way operate to absolve
the common carrier from its civil liabilities arising from its failure to exercise
extraordinary diligence, the determination of which properly belongs to the courts.

5. Where the shipowner fails to overcome the presumption of negligence, the

doctrine of limited liability cannot be applied. Therefore, the Court agrees with
the appellate court in sustaining the trial court’s ruling that petitioner is liable for
the total value of the lost cargo.
Growth of Insurance in the Philippines

Insular Life Assurance v. Feliciano

G.R. No. L-47593, September 13, 1941

FACTS:
Feliciano filed an application for insurance with petitioner Insular Life upon the
solicitation of one of its agents. Two insurance policies were issued to him, then Feliciano
died on September 29, 1935. Insular Life refused to pay on the ground that the policies
were fraudulently obtained, Feliciano having given false answers and statements in the
application as well as in the medical report. Thus Feliciano instituting an action to recover
on said policies

The lower court ruled in favor of Feliciano and found that at the time Feliciano filed
his application and at the time he was subjected to physical examination by the medical
examiner of Insular Life, he was already suffering from tuberculosis. This fact appears in
the negative both in the application and in the medical report. The lower court also found
that Feliciano was made to sign the application and the examiner's report in blank, and
that afterwards the blank spaces therein were filled in by the agent and the medical
examiner, who made it appear that Feliciano was a fit subject for insurance. On appeal,
this finding of facts of the lower court was sustained by the CA.

ISSUE:
Can Feliciano recover on the insurance policies?

RULING:
Yes.
The phenomenal growth of insurance from almost nothing a hundred years ago to
its present gigantic proportion is not of the outstanding marvels of present-day business
life. The demand for economic security, the growing need for social stability, and the
clamor for protection against the hazards of cruel-crippling calamities and sudden
economic shocks, have made insurance one of the felt necessities of modern life.
Insurance is no longer a rich man's monopoly. Upon it are heaped the assured hopes of
many families of modest means. It is woven, as it were, into the very warp and woof of
national economy. It touches the holiest and most sacred ties in the life of man—love of
parents, love of wives and love of children. It is of common knowledge that the selling of
insurance today is subjected to the whirlwind pressure of modern salesmanship.
Insurance companies send detailed instructions to their agents to solicit and procure
applications. These agents are to be found all over the length and breadth of the land.
They are stimulated to more active efforts by contests and by the keen competition offered
by other rival insurance companies. They are supplied with blank applications and paid
large commissions on the policies secured by them. All transactions are generally done
through these agents. They act, in fact and in theory, as the general representatives of
the insurance companies. They supply all the information, prepare and answer the
applications, submit the applications to their companies, conclude the transactions, and
otherwise smooth out all difficulties. The agents, in short, do what the company set them
to do.

In the present case, the agent knew all the time the true state of health of the
insured. The insurer's medical examiner approve the application knowing full well that the
applicant was sick. The situation is one in which one of two innocent parties must bear a
loss for his reliance upon a third person. In this case, it was the insurer who gave the
agent authority to deal with the applicant. It was the one who selected the agent, thus
implying that the insured could put his trust on him. It was the one who drafted and
accepted the policy and consummated the contract. It seems reasonable that as between
the two of them, the one who employed and gave character to the third person as its
agent should be the one to bear the loss. The company received the money of the
applicant as the price of the risk to be taken by it.

It is not insensible that the course we have followed may lead to fraud and work
hardship on insurance companies, for it would be easy for insurance agents and
applicants to insert false answers in their applicants to insert false answers in their
applications for insurance. This means that it is to the particular interest of these
companies to exercise greater care in the selection of their agents and examiners. Their
protection is still in their own hands and which may be achieved by other means. Withal,
the attainment of a common good may involve impairment and even sacrifice of beneficial
interests of a particular group, but in life, compromise is inevitable until the hour of doom
strikes.
Applicability of the Civil Code

HILARIO GERCIO, v. SUN LIFE ASSURANCE OF CANADA, ET AL.

G.R. No. 23703, September 28, 1925

FACTS:
Sunlife issued an insurance policy on the life of Hilario. The policy is a 20-year
endowment policy with his wife, Andrea, as the beneficiary. The policy did not include any
provision reserving to the insured the right to change the beneficiary. Andrea was
convicted of the crime of adultery and a decree of divorce was issued, which had the
effect of completely dissolving the bonds of matrimony contracted by Hilario and Andrea.
Hilario formally notified the Sunlife that he had revoked his donation in favor of Andrea
and had designated his present wife, Adela, as beneficiary. However, Sunlife refused
prompting Hilario to file a petition for mandamus in the Regional Trial Court to compel the
Sunlife to change the beneficiary in the policy. A default judgment was taken against
Andrea. The trial court ruled in favor of Hilario. Sunlife appealed.

The insurance policy was taken out in 1910, the Insurance Act became effective
in 1914, and the effort to change the beneficiary was made in 1922.

ISSUE:
Should the provisions of the Code of Commerce and the Civil Code in force in
1910, or the provisions of the Insurance Act now in force, or the general principles of law
guide the court in its decision?

RULING:
Whether the case be considered as of 1910, or 1914, or 1922, and whether the
case be considered in the light of the Code of Commerce, the Civil Code, or the Insurance
Act, the deficiencies in the law will have to be supplemented by the general principles
prevailing on the subject.
The wife has an insurable interest in the life of her husband. The beneficiary has
an absolute vested interest in the policy from the date of its issuance and delivery. So
when a policy of life insurance is taken out by the husband in which the wife is named as
beneficiary, she has a subsisting interest in the policy. If the husband wishes to retain to
himself the control and ownership of the policy he may so provide in the policy. But if the
policy contains no provision authorizing a change of beneficiary without the beneficiary’s
consent, the insured cannot make such change.

The Philppine Divorce Law merely provides that the decree of divorce shalle
dissolve the community property as soon as such decree becomes final. There is no
provision in the Philippine Law permitting the beneficiary in a policy for the benefir of the
wife of the husband to be changed after a divorce. It must follow, in the absence of a
statute to the contrary, that is a policy is taken out upon a husband’s life and the wife is
named as beneficiary therein, a subsequent divorce does not destroy her rights under the
policy.
Laws Governing Insurance

Ang Giok Chip v. Springfield Fire and Marine Insurance Company

GR No. L-33637, December 31, 1931

FACTS:
Ang insured his warehouse for the total value of Php 60,000. One of these,
amounting to 10,000, was with Springfield Insurance Company. His warehouse burned
down, then he attempted to recover 8,000 from Springfield for the indemnity. The
insurance company interposed its defense on a rider in the policy in the form of Warranty
F, fixing the amount of hazardous good that can be stored in a building to be covered by
the insurance. They claimed that Ang violated the 3 percent limit by placing hazardous
goods to as high as 39 percent of all the goods stored in the building. His suit to recover
was granted by the trial court. Hence, this appeal.

ISSUE:
Is the warranty referred to in the policy as forming part of the contract of insurance
and in the form of a rider to the insurance policy, null and void because of not complying
with the Philippine Insurance Act?

HELD:
No. The warranty is valid.
The Insurance Act, Section 65, taken from California law, states:
"Every express warranty, made at or before the execution of a policy, must be
contained in the policy itself, or in another instrument signed by the insured and
referred to in the policy, as making a part of it.”

Warranty F, indemnifying for a value of Php 20,000 and pasted on the left margin
of the policy stated:
It is hereby declared and agreed that during the currency of this policy no
hazardous goods be stored in the Building to which this insurance applies or in
any building communicating therewith, provided, always, however, that the
insured be permitted to store a small quantity of the hazardous goods specified
below, but not exceeding in all 3 per cent of the total value of the whole of the
goods or merchandise contained in said warehouse, viz; . .

Also, the court stated a book that said, "any express warranty or condition is
always a part of the policy, but, like any other part of an express contract, may be written
in the margin, or contained in proposals or documents expressly referred to in the policy,
and so made a part of it."
 “It is well settled that a rider attached to a policy is a part of the contract, to the
same extent and with like effect as it actually embodied therein. In the second place, it is
equally well settled that an express warranty must appear upon the face of the policy, or
be clearly incorporated therein and made a part thereof by explicit reference, or by words
clearly evidencing such intention.”

The court concluded that Warranty F is contained in the policy itself, because by
the contract of insurance agreed to by the parties it was made to be a part. It wasn’t a
separate instrument agreed to by the parties.

The receipt of the policy by the insured without objection binds him. It was his duty
to read the policy and know its terms. He also never chose to accept a different policy by
considering the earlier one as a mistake. Hence, the rider is valid.
Laws Governing Insurance

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

G.R. No. 167330, September 18, 2009

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 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.

On January 27, 2000, respondent 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 ₱224,702,641.18. xxxx

The deficiency [documentary stamp tax (DST)] assessment was imposed on

petitioner’s health care agreement with the members of its health care program pursuant
to Section 185 of the 1997 Tax Code

Petitioner protested the assessment in a letter. As respondent 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 the Petition for Review and ordered petitioner to pay the
deficiency VAT amounting to ₱22,054,831.75 for the 1996 VAT deficiency and
₱31,094,163.87 for the 1997 VAT deficiency. However, the 1996 and 1997 deficiency
DST assessment against petitioner is hereby set aside. Respondent is ordered to desist
from collecting the said DST deficiency tax.

ISSUE:
Are the agreements between petitioner and its members possess all elements
necessary in the insurance contract?
RULING:
No. A Health Care Agreement is not an Insurance Contract contemplated Under
Section 185 Of The NIRC of 1997.

The agreements between petitioner and its members do not possess all the
elements of insurance contract.
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:
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.

Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide

health services: the risk that it might fail to earn a reasonable return on its investment.
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.

Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health

Insurance Act of 1995"), an HMO is "an entity that provides, offers or arranges for
coverage of designated health services needed by plan members for a fixed prepaid
premium."

Assuming that petitioner’s commitment to provide medical services to its members

can be construed as an acceptance of the risk that it will shell out more than the prepaid
fees, it still will not qualify as an insurance contract because petitioner’s objective is to
provide medical services at reduced cost, not to distribute risk like an insurer.

Applying the "principal object and purpose test,” there is significant American
case law supporting the argument that a corporation (such as an HMO, whether or not
organized for profit), whose main object is to provide the members of a group with health
services, is not engaged in the insurance business. In Jordan v. Group Health
Association, Although Group Health’s activities may be considered in one aspect as
creating security against loss from illness or accident more truly they constitute the
quantity purchase of well-rounded, continuous medical service by its members. xxx The
functions of such an organization are not identical with those of insurance or
indemnity companies. The latter are concerned primarily, if not exclusively, with risk and
the consequences of its descent, not with service, or its extension in kind, quantity or
distribution; with the unusual occurrence, not the daily routine of living. Hazard is
predominant.

In sum, an examination of petitioner’s agreements with its members leads us to

conclude that it is not an insurance contract within the context of our Insurance Code.
Laws Governing Insurance

Fortune Medicare, Inc. vs. David Robert U. Amorin

G.R. No. 195872, March 12, 2014

FACTS:
David Robert U. Amorin was a cardholder/member of Fortune Medicare, Inc., a
corporation engaged in providing health maintenance services to its members.

While on vacation in Honolulu, Hawaii, in May 1999, Amorin underwent an

emergency surgery, specifically appendectomy, at the St. Francis Medical Center,
causing him to incur professional and hospitalization expenses of US$7,242.35 and
US$1,777.79, respectively.

He attempted to recover from Fortune Care the full amount thereof upon his return
to Manila, but the company merely approved a reimbursement of ₱12,151.36, an amount
that was based on the average cost of appendectomy, net of medicare deduction, if the
procedure were performed in an accredited hospital in Metro Manila.

Amorin received under protest the approved amount, but asked for its adjustment
to cover the total amount of professional fees which he had paid, and eighty percent (80%)
of the approved standard charges based on "American standard", considering that the
emergency procedure occurred in the U.S.A. To support his claim, Amorin cited Section
3, Article V on Benefits and Coverages of the Health Care Contract, to wit: If the
emergency confinement occurs in a foreign territory, Fortune Care will be obligated to
reimburse or pay eighty (80%) percent of the approved standard charges which shall
cover the hospitalization costs and professional fees.

Fortune Care argued that the Health Care Contract did not cover hospitalization
costs and professional fees incurred in foreign countries, as the contract’s operation was
confined to Philippine territory. Further, it argued that its liability to Amorin was
extinguished upon the latter’s acceptance of the amount of ₱12,151.36.

ISSUE:
Is respondent entitled to 80% of the approved standard charges which shall cover
the hospitalization costs and professional fees he incurred outside the Philippine territory?

RULING:
Yes. Fortune Care’s liability to Amorin under the subject Health Care Contract
should be based on the expenses for hospital and professional fees which he actually
incurred, and should not be limited by the amount that he would have incurred had his
emergency treatment been performed in an accredited hospital in the Philippines.

Jurisprudence holds that a health care agreement is 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.

As may be gleaned from the Health Care Contract, the parties thereto
contemplated the possibility of emergency care in a foreign country. As the contract
recognized Fortune Care’s liability for emergency treatments even in foreign territories, it
expressly limited its liability only insofar as the percentage of hospitalization and
professional fees that must be paid or reimbursed was concerned, pegged at a mere 80%
of the approved standard charges.

All told, in the absence of any qualifying word that clearly limited Fortune Care's
liability to costs that are applicable in the Philippines, the amount payable by Fortune
Care should not be limited to the cost of treatment in the Philippines, as to do so would
result in the clear disadvantage of its member. If, as Fortune Care argued, the premium
and other charges in the Health Care Contract were merely computed on assumption and
risk under Philippine cost and, that the American cost standard or any foreign country's
cost was never considered, such limitations should have been distinctly specified and
clearly reflected in the extent of coverage which the company voluntarily assumed.
Jurisdiction of the Insurance Commission

Almendras Mining Corp v. Office of the Insurance Commissioner

G.R. No.72878, April 15, 1988

FACTS:
At about two-thirty in the morning of 3 September 1984, the marine cargo vessel
LCT "Don Paulo," while on a voyage from Davao to Mariveles, Bataan, was forced ground
somewhere in the vicinity of Sogod, Tablas Island, Romblon after having been hit by
strong winds and tidal waves brought about by tropical typhoon "Nitang." Later that same
day, petitioner Almendras Mining Corporation ("Almendras"), owner of the vessel,
executed and filed the corresponding Marine Protest. Subsequently, in a letter dated 6
September 1984, petitioner Almendras formally notified the vessel's insurer, private
respondent Country Bankers Insurance Corporation ("Bankers"), of its intention to file a
provisional claim for indemnity for damages sustained by the vessel.

Immediately following the marine casualty, private respondent Bankers

commissioned the services of Audemus Adjustment Corporation, which estimated the
insurer's liability at P2,187,983.00, or the equivalent of seventy percent (70%) of all
expenses necessary for the repair of the vessel. Private respondent accepted and
approved this estimate.

Salvage operations on the LCT "Don Paulo" were commenced; the vessel had
been towed to and docked where repair work on the same was subsequently performed
by the PNOC Marine Corporation.

Delay, however, overtook the repair work due to the unavailability of spare parts
needed in the repair of the vessel's four (4) damaged engines. Notwithstanding this
explanation, petitioner Almendras, filed with the public respondent office of the Insurance
Commission an administrative complaint against private respondent Bankers. The
commission thus revoked or suspended Banker’s Certificate of Authority to engage in the
insurance business.

Public respondent Commission, through the Insurance Commissioner, issued a

Resolution ordering the dismissal of petitioner Almendras' complaint. It was found by the
Insurance Commissioner that failure by private respondent Bankers to settle promptly and
expeditiously the insurance claim of petitioner Almendras was attributable to the latter's
own act of insisting on cash settlement thereof, even after the parties had already agreed
upon outright replacement of the vessel's damaged engines. The Insurance
Commissioner also stated in his resolution that, assuming that private respondent
Bankers had incurred in delay in the repair of the LCT "Don Paulo," nevertheless, there
was nothing in the record of the case to show that such delay was unreasonable or was
the result of any unfair claim settlement practice
With all other remedies denied, Almendras thus filed the case before the SC under
certiorari.

ISSUE:
Whether or not there was valid and substantial grounds to revoke or suspend
private respondent Bankers' Certificate of Authority to engage in the insurance business.

RULING:
Yes. The Court has no jurisdiction to try and decide the instant Petition.

The provisions of the Insurance Code (Presidential Decree No. 1460), as

amended, clearly indicate that the Office of the Insurance Commission is an
administrative agency vested with regulatory power as well as with adjudicatory authority.
Among the several regulatory or non-quasi-judicial duties of the Insurance Commissioner
under the Insurance Code is the authority to issue, or refuse issuance of, a Certificate of
Authority to a person or entity desirous of engaging in insurance business in the
Philippines, and to revoke or suspend such Certificate of Authority upon a finding of the
existence of statutory grounds for such revocation or suspension. The grounds for
revocation or suspension of an insurer's Certificate of Authority are set out in Section
241 and in Section 247 of the Insurance Code as amended.

The first case was issued on the remedies of Almendras to seek remedies
pertaining to performance and satisfaction by respondent Bankers of its obligation.
However the sole issue raised, as agreed by the parties, was on the whether or not
revocation or suspension of private respondent Bankers' Certificate of Authority to
engage in insurance business was justified.

The scope of the issues involved having been so limited the Insurance
Commissioner was left with the task of determining whether or not private respondent
Bankers was guilty of an act or acts constituting a statutory ground for revocation or
suspension of its Certificate of Authority. Clearly, therefore, the Insurance
Commissioner's disputed Resolution and Order was issued in the performance of
administrative and regulatory duties and function and should have been appealed by
petitioner to the Office of the Secretary of Finance.

With such, the higher courts cannot rule on the issues on the case at hand.
Almendras should have appealed the case first to the Sec. of finance before the judicial
courts. The present Petition for certiorari is neither proper nor an appropriate substitute
for such an appeal.
Jurisdiction of the Insurance Commission: Administrative and Adjudicatory Powers

Philam Life v. Ansaldo

G.R. No. 76452, July 26, 1994

FACTS:

Paterno wrote a letter-complaint to Insurance Commissioner Ansaldo alleging

certain problems encountered by agents, supervisors, managers and public consumers
of the Philamlife as a result of certain practices by said company. The complaint prays
that provisions on charges and fees stated in the Contract of Agency executed between
Philamlife and its agents, as well as the implementing provisions as published in the
agents' handbook, agency bulletins and circulars, be declared as null and void. Paterno
also asked that the amounts of such charges and fees already deducted and collected by
Philamlife in connection therewith be reimbursed to the agents, with interest at the
prevailing rate reckoned from the date when they were deducted.

Philam asked that the Commissioner first rule on the questions of the jurisdiction
of the Insurance Commissioner over the subject matter of the letters-complaint and the
legal standing of Paterno. Paterno contends that the Insurance Commissioner has
jurisdiction to take cognizance of the complaint in the exercise of its quasi-judicial powers.

ISSUE:
Whether the insurance commissioner had jurisdiction over the legality of the
Contract of Agency between Philamlife and its agents

RULING:
The insurance commissioner does not have jurisdiction over the case.

The general regulatory authority of the Insurance Commissioner is described in

Section 414 of the Insurance Code, to wit: "The Insurance Commissioner shall have the
duty to see that all laws relating to insurance, insurance companies and other insurance
matters, mutual benefit associations and trusts for charitable uses are faithfully executed
and to perform the duties imposed upon him by this Code, . . . ."

A plain reading of the above-quoted provisions show that the Insurance

Commissioner has the authority to regulate the business of insurance, which is defined
as follows:
(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.

Since the contract of agency entered into between Philamlife and its agents is not
included within the meaning of an insurance business, Section 2 of the Insurance Code
cannot be invoked to give jurisdiction over the same to the Insurance Commissioner.

With regard to private respondent's contention that the quasi-judicial power of the
Insurance Commissioner under Section 416 of the Insurance Code applies in his case,
the supreme court ruled in the negative.

The quasi-judicial power of the Insurance Commissioner is limited by law "to claims
and complaints involving any loss, damage or liability for which an insurer may be
answerable under any kind of policy or contract of insurance, . . ." Hence, this power does
not cover the relationship affecting the insurance company and its agents but is limited to
adjudicating claims and complaints filed by the insured against the insurance company.
The Insurance Commission; Jurisdiction; Administrative and Adjudicatory Powers

Republic v Del Monte Motors

G.R. No. 156956, October 9, 2006

FACTS:
Vilfran Liner lost in a case against Del Monte Motors. They were made to pay 11
million pesos for service contracts with Del Monte, and such was sourced from the counter
bond posted by Vilfran. CISCO issued the counter bond. CISCO opposed but was
rebuffed. The RTC released a motion for execution commanding the sheriff to levy the
amount on the property of CISCO. To completely satisfy the amount, the Insurance
Commissioner was also commanded to withdraw the security deposit filed by CISCO with
the Commission according to Sec 203 of the Insurance Code. Insurance Commissioner
Malinis was ordered by the RTC to withdraw the security bond of CISCO for the payment
of the insurance indemnity won by Del Monte Motor against Vilfran Liner, the insured.
Malinis didn’t obey the order, so the respondent moved to cite him in contempt of Court.
The RTC ruled against Malinis because he didn’t have legal basis.

ISSUE:

1. Whether or not the security deposit held by the Insurance Commissioner

pursuant to Section 203 of the Insurance Code may be levied or garnished in favor of
only one insured.

2. Whether or not the Insurance Commissioner has power to withhold the release
of the security deposit

RULING:

1. No.
Sec 203- No judgment creditor or other claimant shall have the right to levy upon
any of the securities of the insurer held on deposit pursuant to the requirement of the
Commissioner.
The court also claimed that the security deposit shall be (1) answerable for all the
obligations of the depositing insurer under its insurance contracts; (2) at all times free
from any liens or encumbrance; and (3) exempt from levy by any claimant.

To allow the garnishment of that deposit would impair the fund by decreasing it to
less than the percentage of paid-up capital that the law requires to be maintained. Further,
this move would create, in favor of respondent, a preference of credit over the other policy
holders and beneficiaries.
 Also, the securities are held as a contingency fund to answer for the claims against
the insurance company by all its policy holders and their beneficiaries. This step is taken
in the event that the company becomes insolvent or otherwise unable to satisfy the claims
against it. Thus, a single claimant may not lay stake on the securities to the exclusion of
all others. The other parties may have their own claims against the insurance company
under other insurance contracts it has
entered into.

2. YES
The Insurance Code has vested the Office of the Insurance Commission with both
regulatory and adjudicatory authority over insurance matters. Under Sec 414 of the
Insurance Code, "The Commissioner may issue such rulings, instructions, circulars,
orders and decisions as he may deem necessary to secure the enforcement of the
provisions of this Code.

The commissioner is authorized to (1) issue (or to refuse to issue) certificates of authority
to persons or entities desiring to engage in insurance business in the Philippines; (2)
revoke or suspend these certificates of authority upon finding grounds for the revocation
or suspension; (3) impose upon insurance companies, their directors and/or officers
and/or agents appropriate penalties/fines, suspension or removal from office for failing to
comply with the Code or with any of the commissioner's orders, instructions, regulations
or rulings, or for otherwise conducting business in an unsafe or unsound manner.

Included here is the duty to hold security deposits under Secs 191 and 202 of the Code
for the benefit of policy holders. Sec 192, on the other hand, states:

“the securities deposited as aforesaid shall be returned upon the company's making
application therefor and proving to the satisfaction of the Commissioner that it has no
further liability under any of its policies in the Philippines.”

He has been given great discretion to regulate the business to protect the public. Also,
an implied trust is created by the law for the benefit of all claimants under subsisting
insurance contracts issued by the insurance company. He believed that the security
deposit was exempt from execution to protect the policy holders.
Jurisdiction of the Insurance Commission; Administrative and Adjudicatory Powers

Malayan Insurance Co., Inc. v. Emma Concepcion L. Lin

G.R. No. 207277 January 16, 2017

FACTS:

Lin filed a Complaint for Collection of Sum of Money with Damages against
Malayan with other petitioners, and the Rizal Commercial and Banking Corporation
(RCBC). Lin alleged that she obtained loans from RCBC secured by 6 warehouses; 5 of
those were insured with Malayan against fire for ₱56 million while the remaining
warehouse was insured for ₱2 million. The 5 warehouses were gutted by fire. The Bureau
of Fire Protection (BFP) issued a Fire Clearance Certification (FCC) that the fire was
accidental. However, her demand for payment of her insurance claim was denied since
the forensic investigators hired by Malayan claimed that the cause of the fire was arson
and not accidental. Lin then sought assistance from the Insurance Commission (IC). After
reinvestigation, IC recommended that Malayan pay Lin's insurance claim and/or accord
great weight to the BFP's findings. However, Malayan still denied. Thus, she also claimed
that the Malayan's corporate officers should also be held liable for acquiescing to
Malayan's unjustified refusal to pay her insurance claim. Lin also averred that RCBC
refused to go after Malayan and instead insisted that she herself must pay the loans to
RCBC, otherwise, foreclosure proceedings would ensue. Moreover, the interest on the
loan was piling up. Thus, she filed for the abovementioned case with the prayer that the
she should be paid and her loan be extinguished.

Lin then filed before the IC an administrative case against Malayan. Lin claimed
that since it had been conclusively found that the cause of the fire was "accidental," the
only issue left to be resolved is whether Malayan should be held liable for unfair claim
settlement practice under Section 241 in relation to Section 247 of the Insurance Code
due to its unjustified refusal to settle her claim; and that Malayan's license to operate as
a non-life insurance company should be revoked or suspended, until such time that it fully
complies with the IC Resolution ordering it to accord more weight to the BFP's findings.

Malayan filed a motion to dismiss based on forum shopping. It argued that the
administrative case was instituted to prompt or incite IC into ordering Malayan to pay her
insurance claim; that the elements of forum shopping are present in these two cases
because there exists identity of parties; that the same interests are shared and
represented; that there is identity of causes of action and reliefs sought; that Lin sought
to obtain the same reliefs; that Lin did not comply with her sworn undertaking in the
Certification on Non-Forum Shopping.
Ruling of the Regional Trial Court

RTC denied the Motion to Dismiss for lack of merit. The RTC held that in the
administrative case, Lin was seeking a relief clearly distinct from that sought in the civil
case; that while in the administrative case Lin prayed for the suspension or revocation of
Malayan's license to operate as a non-life insurance company, in the civil case Lin prayed
for the collection of a sum of money with damages.

Ruling of the Court of Appeals

The CA upheld the RTC. Lin did not commit forum shopping chiefly for the reason
that the issues raised and the reliefs prayed for in the civil case were essentially different
from those in the administrative case, hence Lin had no duty at all to inform the RTC
about the institution or pendency of the administrative case.

Hence, this petition.

Petitioners' Arguments

Petitioners argue that the subject of both cases involved the same fire insurance
claim; that there is the same of causes of action, because the ultimate objective of both
cases is to compel Malayan to pay Lin's fire insurance claim; that although the reliefs
sought in both cases are worded differently, it is still the same

Petitioners also argued that Go v. Office of the Ombudsman is inapplicable

because the issue in that case was whether there was unreasonable delay in withholding
the insured's claims, which would warrant the revocation or suspension of the insurers'
licenses, and not whether the insurers should pay the insured's insurance claim

Also, that Almendras Mining Corporation v. Office of the Insurance Commission

does not apply to this case either, because the parties in said case agreed to submit the
case for resolution on the sole issue of whether the revocation or suspension of the
insurer's license was justified.

Respondents Arguments

Lin counters that as stressed in Go v. Office of the Ombudsman, an administrative

case for unfair claim settlement practice may proceed simultaneously with, or
independently of, the civil case for collection of the insurance proceeds filed by the same
claimant since a judgment in one will not amount to res judicata to the other, and vice
versa, due to the variance or differences in the issues, in the quantum of evidence, and
in the procedure to be followed in prosecuting the cases.

Lin also argued that the CA correctly held that the RTC did not commit grave abuse
of discretion in denying petitioners' motion to dismiss because the elements of forum
shopping were absent.

Lastly, that the judgment in the civil case will not amount to res judicata in the
administrative case, and vice versa, pursuant to the case law ruling in Go v. Office of the
Ombudsman and in Almendras v. Office of the Insurance Commission, both of which
categorically allowed the insurance claimants therein to file both a civil and an
administrative case against insurers; that the rule against forum shopping was designed
to serve a noble purpose, viz., to be an instrument of justice, hence, it can in no way be
interpreted to subvert such a noble purpose.

ISSUE:

Is forum shopping committed by respondent Lin despite the fact that the civil case and
the administrative case both seek the payment of the same fire insurance claim?

RULING:

The Court denies the Petition. It holds that the case law rulings in
the Go and Almendras cases control and govern the case at bench. Petitioners herein
failed to prove that the RTC acted with grave abuse of discretion amounting to lack or
excess of jurisdiction. “For grave abuse of discretion to exist, the abuse of discretion must
be patent and gross so as to amount to an evasion of a positive duty or a virtual refusal
to perform a duty enjoined by law, or to act at all in contemplation of law."

In the present case, petitioners insist that Lin committed willful and deliberate forum
shopping which warrants the dismissal of her civil case because it is not much different
from the administrative case in terms of the parties involved, the causes of action pleaded,
and the reliefs prayed for.

These arguments will not avail. The proscription against forum shopping is found in
Section 5, Rule 7 of the Rules of Court, which provides, SEC. 5. Certification against
forum shopping. --The plaintiff or principal party shall certify under oath in the complaint
or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed
thereto and simultaneously filed therewith; (a) that he has not theretofore commenced
any action or filed any claim involving the same issues in any court, tribunal or quasi-
judicial agency and, to the best of his knowledge, no such other action or claim is pending
therein; (b) if there is such other pending action or claim, a complete statement of the
present status thereof; and (c) if he should thereafter learn that the same or similar action
or claim has been filed or is pending, he shall report that fact within five (5) days therefrom
to the court wherein his aforesaid complaint or initiatory pleading has been filed. Failure
to comply with the foregoing requirements shall not be curable by mere amendment of
the complaint or other initiatory pleading but shall be cause for the dismissal of the case
without prejudice, unless otherwise provided, upon motion and after hearing. The
submission of a false certification or non-compliance with any of the undertakings therein
shall constitute indirect contempt of court, without prejudice to the corresponding
administrative and criminal actions. If the acts of the party or his counsel clearly constitute
willful and deliberate forum shopping, the same shall be ground for summary dismissal
with prejudice and shall constitute direct contempt, as well as a cause for administrative
sanctions. (n)

Res judicata, in turn, has the following requisites: "(1) the former judgment must be
final; (2) it must have been rendered by a court having jurisdiction over the subject matter
and over the parties; (3) it must be a judgment on the merits; and (4) there must be,
between the first and second actions, (a) identity of parties, (b) identity of subject matter,
and (c) identity of cause of action. "The settled rule is that criminal and civil cases are
altogether different from administrative matters, such that the disposition in the
first two will not inevitably govern the third and vice versa."

In the context of the case at bar, matters handled by the IC are delineated as
either regulatory or adjudicatory, both of which have distinct characteristics, as
postulated in Almendras Mining Corporation v. Office of the Insurance
Commission, which Section also specifies the authority to which a decision of the
Insurance Commissioner rendered in the exercise of its regulatory function may be
appealed states, Section 414. The Insurance Commissioner shall have the duty to see
that all laws relating to insurance, insurance companies and other insurance matters,
mutual benefit associations, and trusts for charitable uses are faithfully executed and to
perform the duties imposed upon him by this Code, and shall, notwithstanding any
existing laws to the contrary, have sole and exclusive authority to regulate the issuance
and sale of variable contracts as defined in section two hundred thirty-two and to provide
for the licensing of persons selling such contracts, and to issue such reasonable rules
and regulations governing the same. The Commissioner may issue such rulings,
instructions, circulars, orders[,] and decisions as he may deem necessary to secure the
enforcement of the provisions of this Code, subject to the approval of the Secretary of
Finance [DOF Secretary]. Except as otherwise specified, decisions made by the
Commissioner shall be appealable to the [DOF Secretary].'

The ADJUDICATORY AUTHORITY of the Insurance Commissioner is generally

described in Section 416 of the Insurance Code, as amended, Sec. 416. The
Commissioner shall have the power to adjudicate claims and complaints involving any
loss, damage or liability for which an insurer may be answerable under any kind of policy
or contract of insurance, or for which such insurer may be liable under a contract of
suretyship, or for which a reinsurer may be sued under any contract or reinsurance it may
have entered into, or for which a mutual benefit association may be held liable under the
membership certificates it has issued to its members, where the amount of any such loss,
damage or liability, excluding interests, cost and attorney’s fees, being claimed or sued
upon any kind of insurance, bond, reinsurance contract, or membership certificate does
not exceed in any single claim one hundred thousand pesos. The authority to adjudicate
granted to the Commissioner under this section shall be concurrent with that of the civil
courts, but the filing of a complaint with the Commissioner shall preclude the civil courts
from taking cognizance of a suit involving the same subject matter.'

Section 416 also specifies the authority to which appeal may be taken from a
final order or decision of the Commissioner given in the exercise of his
adjudicatory or quasi-judicial power that any decision, order or ruling rendered by the
Commissioner after a hearing shall have the force and effect of a judgment. Any party
may appeal from a final order, ruling or decision of the Commissioner by filing with the
Commissioner within thirty days from receipt of copy of such order, ruling or decision a
notice of appeal to the Intermediate Appellate Court (now the Court of Appeals) in the
manner provided for in the Rules of Court for appeals from the Regional Trial Court to the
Intermediate Appellate Court (now the Court of Appeals). It may be noted that under
Section 9 (3) of B.P. Big. 129, appeals from a final decision of the Insurance
Commissioner rendered in the exercise of his adjudicatory authority now fall within
the exclusive appellate jurisdiction of the Court of Appeals.

Go v. Office of the Ombudsman reiterated the distinctions vis-a-vis the

principles enunciating that a civil case before the trial court involving recovery of
payment of the insured's insurance claim plus damages, can proceed
simultaneously with an administrative case before the IC. The findings of the trial
court will not necessarily foreclose the administrative case before the IC, or [vice versa]
because the issues to be resolved, the quantum of evidence, the procedure to be followed
and the reliefs to be adjudged by these two bodies are different. In addition, the procedure
to be followed by the trial court is governed by the Rules of Court, while the IC has its
own set of rules and it is not bound by the rigidities of technical rules of procedure.
These two bodies conduct independent means of ascertaining the ultimate facts of their
respective cases that will serve as basis for their respective decisions. While the
possibility that these two bodies will come up with conflicting resolutions on the same
issue is not far-fetched, the finding or conclusion of one would not necessarily be binding
on the other given the difference in the issues involved, the quantum of evidence required
and the procedure to be followed. Moreover, public interest and public policy demand the
speedy and inexpensive disposition of administrative cases. Hence, the Admin Case may
proceed simultaneously with the Civil Case.

As the aforecited cases are analogous in many aspects to the present case,
both in respect to their factual backdrop and in their jurisprudential teachings, the
case law ruling in the Almendras and in the Go cases must apply with implacable
force to the present case. Consistency alone demands - because justice cannot be
inconsistent - that the final authoritative mandate in the cited cases must produce an end
result not much different from the present case.
The Insurance Commission – Powers

Finman General Assurance Corp. v. Inocencio, et al.

G.R. No. 90273-75, November 15, 1989

FACTS:
Pan Pacific posted a surety bond issued by petitioner Finman in accordance with
the requirements and rules of the POEA and was granted a license to operate. Private
respondents Inocencio, et al. filed with the POEA separate complaints against Pan Pacific
and for refund of placement fees paid because Pan Pacific did not secure employment
for them.

Acting on the complaints, the POEA motu proprio impleaded petitioner Finman as
party respondent in its capacity as surety for Pan Pacific. Finman filed an answer denying
liability and pleaded that the POEA had no "jurisdiction over surety bonds," that
jurisdiction being vested in the Insurance Commission or the regular courts.

The POEA ruled in favor of the complainants, and then Finman went on appeal to
the Secretary of Labor insisting that the POEA had no authority to implead petitioner as
party respondent in the proceedings before the POEA and that the POEA had no authority
to enforce directly the surety bond against petitioner. The Secretary of Labor upheld the
POEA Order appealed from and denied the appeal for lack of merit.

The fundamental argument of Finman is that its liability under its own bond must
be determined and enforced, not by the POEA or the Secretary of Labor, but rather by
the Insurance Commission or by the regular courts.

ISSUE:
Should Finman’s liability under the bond be only enforced by the Insurance
Commission or by the regular courts?

RULING: No.
There appears nothing so special or unique about the determination of a surety's
liability under its bond as to restrict that determination to the Office of the Insurance
Commissioner and to the regular courts of justice exclusively. The exact opposite is
strongly stressed by the second paragraph of Article 31 of the Labor Code: “The secretary
of Labor shall have the exclusive power to determine, decide, order or direct payment
from, or application of, the cash or surety bond for any claim or injury covered and
guaranteed by the bonds.”
 We believe and so hold that to compel the POEA and private respondents the
beneficiaries of Finman's bond to go to the Insurance Commissioner or to a regular court
of law to enforce that bond, would be to collide with the public policy which requires
prompt resolution of claims against private recruitment and placement agencies. The
Court will take judicial notice of the appealing frequency with which some, perhaps many,
of such agencies have cheated workers avid for overseas employment by collecting
placement fees without securing employment for them at all, extracting exorbitant fees or
"kickbacks" from those for whom employment is actually obtained, abandoning hapless
and unlettered workers to exploitative foreign principals, and so on. Cash and surety
bonds are required by the POEA and its predecessor agencies from recruitment and
employment companies precisely as a means of ensuring prompt and effective recourse
against such companies when held liable for applicants or workers' claims. Clearly that
public policy will be effectively negated if POEA and the Department of Labor and
Employment were held powerless to compel a surety company to make good on its
solidary undertaking in the same quasi-judicial proceeding where the liability of the
principal obligor, the recruitment or employment agency, is determined and fixed and
where the surety is given reasonable opportunity to present any defenses it or the
principal obligor may be entitled to set up.