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Narratives

Insurance Law (Commercial)


Michael Vernon Guerrero Mendiola 2006 Shared under Creative Commons AttributionNonCommercial-ShareAlike 3.0 Philippines license.

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Table of Contents
Verendia vs. Court of Appeals [GR 76399, 22 January 1993] ......... 1 Rizal Surety & Insurance Company vs. Court of Appeals [GR 112360, 18 June 2000] ......... 2 Philamcare Health Systems Inc. vs. Court of Appeals [GR 125678, 18 March 2002] ......... 4 Fortune Insurance and Surety Co. Inc. vs. Court of Appeals [GR 115278, 23 May 1995] ......... 6 Enriquez vs. Sun Life Assurance Company of Canada [GR 15895, 29 November 1920] ......... 7 Development Bank of the Philippines vs. Court of Appeals [GR 109937, 21 March 1994] ......... 8 Great Pacific Life Assurance Company vs. Court of Appeals [GR L-31845, 30 April 1979] ......... 10 Spouses Cha vs. Court of Appeals [GR 124520, 18 August 1997] ......... 11 Geagonia vs. Court of Appeals [GR 114427, 6 February 1995] ......... 12 Rizal Commercial Banking Corporation (RCBC) vs. Court of Appeals [GR 128833, 20 April 1998] ......... 14 Great Pacific Life Assurance Corp. vs. Court of Appeals [GR 113899, 13 October 1999] ......... 17 Sunlife Assurance Company of Canada vs. Court of Appeals [GR 105135, 22 June 1995] ......... 18 Vda. de Canilang vs. Court of Appeals [GR 92492, 17 June 1993] ......... 19 Tan vs. Court of Appeals [GR 48049, 29 June 1989] ......... 21 Pacific Timber Export Corporation vs. Court of Appeals [GR L-38613, 25 February 1982] ......... 22 Philippine American Life and General Insurance Company vs. Valencia-Bagalacsa [GR 139776, 1 August 2002] ......... 23 Makati Tuscany Condominium Corporation vs. Court of Appeals [GR 95546, 6 November 1992] ......... 24 UCPB General Insurance vs. Masagana Telamart Inc. [GR 137172, 15 June 1999] ......... 26 UCPB General Insurance vs. Masagana Telamart Inc. [GR 137172, 14 April 2001] ......... 27 American Home Assurance Company vs. Chua [GR 130421, 28 June 1999] ......... 28 Tibay vs. Court of Appeals [GR 119655, 24 May 1996] ......... 29 Philippine Phoenix Surety & Insurance Company vs. Woodworks Inc. [GR L-25317, 6 August 1979] ......... 30 Bonifacio Brothers Inc. vs. Mora [GR L-20853, 29 May 1967] ......... 31 The Insular Life Assurance Company Ltd. vs. Ebrado [GR L-44059, 28 October 1977] ......... 33 Vda de Consuegra vs. Government Service Insurance System [GR L-28093, 30 January 1971] ......... 34 Go vs. Redfern [GR 47705, 25 April 1941] ......... 36 Country Bankers Insurance Corporation vs. Lianga Bay and Community Multi-Purpose Cooperative Inc. [GR 136914, 25 January 2002] ......... 37 Roque vs. Intermediate Appellate Court [GR L-66935, 11 November 1985] ......... 38 La Razon Social "Go Tiaoco y Hermanos" vs. Union Insurance Society of Canton Ltd. [GR 13983, 1 September 1919] ......... 40 Cathay Insurance Co. vs. Court of Appeals [GR 76145, 30 June 1987] ......... 41 Filipino Merchants Insurance Co. Inc. vs. Court of Appeals [GR 85141, 28 November 1989] ......... 43 Oriental Assurance Corporation vs. Court of Appeals [GR 94052, 9 August 1991] ......... 45 Finman General Assurance Corporation vs. Court of Appeals [GR 100970, 2 September 1992] ......... 46 Sun Insurance Office Ltd. vs. Court of Appeals [GR 92383, 17 July 1992] ......... 47 Vda. de Gabriel vs. Court of Appeals [GR 103883, 14 November 1996] ......... 48 Vda. de Maglana vs. Consolacion [GR 60506, 6 August 1992] ......... 50 Tio Khe Chio vs. Court of Appeals [GR 76101-02, 30 September 1991] ......... 52 Finman General Assurance Corporation vs. Court of Appeals [GR 138737, 12 July 2001] ......... 53

This collection contains thirty eight (38) cases summarized in this format by Michael Vernon M. Guerrero (as a senior law student) during the Second Semester, school year 2005-2006 in the Commercial Law Review class under Atty. Zarah Villanueva-Castro at the Arellano University School of Law (AUSL). Compiled as PDF, July 2011. Berne Guerrero entered AUSL in June 2002 and eventually graduated from AUSL in 2006. He passed the Philippine bar examinations immediately after (April 2007).

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1 Verendia vs. Court of Appeals [GR 76399, 22 January 1993]; also Fidelity & Surety Co. of the Philippines Inc. vs. Verendia [GR 75605] Third Division, Melo (J): 4 concur Facts: Fidelity and Surety Insurance Company of the Philippines issued its Fire Insurance Policy F-18876 effective between 23 June 1980 and 23 June 1981 covering Rafael (Rex) Verendia's residential building located at Tulip Drive, Beverly Hills, Antipolo, Rizal in the amount of P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings Bank. Verendia also insured the same building with two other companies, namely, The Country Bankers Insurance for P56,000.00 under Policy No. PDB-80-1913 expiring on 12 May 1981, and The Development Insurance for P400,000.00 under Policy F-48867 expiring on 30 June 1981. While the three fire insurance policies were in force, the insured property was completely destroyed by fire on the early morning of 28 December 1980. Fidelity was accordingly informed of the loss and despite demands, refused payment under its policy, thus prompting Verendia to file a complaint with the then Court of First Instance of Quezon City, praying for payment of P385,000.00, legal interest thereon, plus attorney's fees and litigation expenses. The complaint was later amended to include Monte de Piedad as an "unwilling defendant." Answering the complaint, Fidelity, among other things, averred that the policy was avoided by reason of over-insurance, that Verendia maliciously represented that the building at the time of the fire was leased under a contract executed on 25 June 1980 to a certain Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee. On 24 May 1983, the trial court rendered a decision, per Judge Rodolfo A. Ortiz, ruling in favor of Fidelity. In sustaining the defenses set up by Fidelity, the trial court ruled that Paragraph 3 of the policy was also violated by Verendia in that the insured failed to inform Fidelity of his other insurance coverages with Country Bankers Insurance and Development Insurance. Verendia appealed to the then Intermediate Appellate Court and in a decision promulgated on 31 March 1986, (CA-GR CV 02895, Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate court reversed for the following reasons: (a) there was no misrepresentation concerning the lease for the contract was signed by Marcelo Garcia in the name of Roberto Garcia; and (b) Paragraph 3 of the policy contract requiring Verendia to give notice to Fidelity of other contracts of insurance was waived by Fidelity as shown by its conduct in attempting to settle the claim of Verendia. Fidelity received a copy of the appellate court's decision on 4 April 1986, but instead of directly filing a motion for reconsideration within 15 days therefrom, Fidelity filed on 21 April 1986, a motion for extension of 3 days within which to file a motion for reconsideration. The motion for extension was not filed on 19 April 1986 which was the 15th day after receipt of the decision because said 15th day was a Saturday and of course, the following day was a Sunday. The motion for extension was granted by the appellate court on 30 April 1986, but Fidelity had in the meantime filed its motion for reconsideration on 24 April 1986. Verendia filed a motion to expunge from the record Fidelity's motion for reconsideration on the ground that the motion for extension was filed out of time because the 15th day from receipt of the decision which fell on a Saturday was ignored by Fidelity, for indeed, so Verendia contended, the Intermediate Appellate Court has personnel receiving pleadings even on Saturdays. The motion to expunge was denied on 17 June 1986 and after a motion for reconsideration was similarly brushed aside on 22 July 1986, a petition (GR 75605) was initiated. Subsequently, or more specifically on 21 October 1986, the appellate court denied Fidelity's motion for reconsideration and account thereof. Fidelity filed on 31 March 1986, the petition for review on certiorari (GR 76399). The two petitions, inter-related as they are, were consolidated and thereafter given due course. Issue: Whether Verandia forfeited all benefits due to his presentation of a false declaration to support his claim. Held: The contract of lease upon which Verendia relies to support his claim for insurance benefits, was entered into between him and one Robert Garcia, married to Helen Cawinian, on 25 June 1980, a couple of days after the effectivity of the insurance policy. When the rented residential building was razed to the ground on 28 December 1980, it appears that Robert Garcia (or Roberto Garcia) was still within the premises. However, according to the investigation report prepared by Pat. Eleuterio M. Buenviaje of the Antipolo police, the building appeared to have "no occupant" and that Mr. Roberto Garcia was "renting on the otherside
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(sic) portion of said compound.". These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo Garcia whom he considered as the real lessee, was occupying the building when it was burned. Robert Garcia disappeared after the fire. It was only on 9 October 1981 that an adjuster was able to locate him. Robert Garcia then executed an affidavit before the National Intelligence and Security Authority (NISA) to the effect that he was not the lessee of Verendia's house and that his signature on the contract of lease was a complete forgery. Thus, on the strength of these facts, the adjuster submitted a report dated 4 December 1981 recommending the denial of Verendia's claim. Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease contract. According to Verendia, it was signed by Marcelo Garcia cousin of Robert, who had been paying the rentals all the while. Verendia, however, failed to explain why Marcelo had to sign his cousin's name when he in fact was paying for the rent and why Verendia himself, the lessor, allowed such a ruse. Fidelity's conclusions on these proven facts appear, therefore, to have sufficient bases: Verendia concocted the lease contract to deflect responsibility for the fire towards an alleged "lessee", inflated the value of the property by the alleged monthly rental of P6,500 when in fact, the Provincial Assessor of Rizal had assessed the property's fair market value to be only P40,300.00, insured the same property with two other insurance companies for a total coverage of around P900,000, and created a dead-end for the adjuster by the disappearance of Robert Garcia. Basically a contract of indemnity, an insurance contract is the law between the parties. Its terms and conditions constitute the measure of the insurer's liability and compliance therewith is a condition precedent to the insured's right to recovery from the insurer. As it is also a contract of adhesion, an insurance contract should be liberally construed in favor of the insured and strictly against the insurer company which usually prepares it. Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease contract to support his claim under Fire Insurance Policy F-18876, the terms of the policy should be strictly construed against the insured. Verendia failed to live by the terms of the policy, specifically Section 13 thereof which is expressed in terms that are clear and unambiguous, that all benefits under the policy shall be forfeited "if the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devises are used by the Insured or anyone acting in his behalf to obtain any benefit under the policy". Verendia, having presented a false declaration to support his claim for benefits in the form of a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13 of the policy in the absence of proof that Fidelity waived such provision. Worse yet, by presenting a false lease contract, Verendia reprehensibly disregarded the principle that insurance contracts are uberrimae fidae and demand the most abundant good faith. 2 Rizal Surety & Insurance Company vs. Court of Appeals [GR 112360, 18 June 2000] Third Division, Purisima (J): 4 concur Facts: On 13 March 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued Fire Insurance Policy 45727 in favor of Transworld Knitting Mills, Inc. (Transworld), initially for P1,000,000.00 and eventually increased to P1,500,000.00, covering the period from 14 August 1980 to 13 March 1981. The same pieces of property insured with Rizal Insurance were also insured with New India Assurance Company, Ltd., (New India). On 12 January 1981, fire broke out in the compound of Transworld, razing the middle portion of its four-span building and partly gutting the left and right sections thereof. A two-storey building (behind said four-span building) where fun and amusement machines and spare parts were stored, was also destroyed by the fire. Transworld filed its insurance claims with Rizal Insurance and New India but to no avail. On 26 May 1982, TransWorld brought against the said insurance companies an action for collection of sum of money and damages (Civil Case 46106) before Branch 161 of the then Court of First Instance of Rizal; praying for judgment ordering Rizal Insurance and New India to pay the amount of P2,747,867.00 plus legal interest, P400,000.00 as attorney's fees, exemplary damages, expenses of litigation of P50,000.00 and costs of suit. 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. On 4 January 1990, the trial court rendered its decision; dismissing the case as against New India; ordering Rizal Insurance to pay Transworld the amount of P826,500.00 representing the actual value of the losses suffered by it; and with cost against Rizal Insurance. Both Rizal Insurance and TransWorld went to the Court
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of Appeals, which came out with its decision of 15 July 1993, modifying the lower court's decision by requiring New India to pay Transworld the amount of P1,818,604.19; and Rizal Surety to pay Transworld P470,328.67, based on the actual losses sustained by Transworld in the fire, totalling P2,790,376.00 as against the amounts of fire insurance coverages respectively extended by New India in the amount of P5,800,000.00 and Rizal Surety and Insurance Company in the amount of P1,500,000.00. On 20 August 1993, from the aforesaid judgment of the Court of Appeals, New India appealed to the Supreme Court theorizing inter alia that the TransWorld 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. On 2 February 1994, the Court denied the appeal with finality in GR L-111118 (New India Assurance Company Ltd. vs. Court of Appeals). Rizal Insurance and TransWorld, on the other hand, interposed a Motion for Reconsideration before the Court of Appeals, and on 22 October 1993, the Court of Appeals reconsidered its decision of 15 July 1993, as regards the imposition of interest on the assessment against New India on the amount of P1,818,604.19 and that against Rizal Insurance on the amount of P470,328.67, commences from 26 May 1982 when the complaint was filed until payment is made. The rest of the said decision was retained in all other respects. Rizal Insurance filed the petition for review on certiorari. Issue [1]: Whether 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; or whether the so called "annex" was not an annex but was actually an integral part of the four-span building and therefore, the goods and items stored therein were covered by the same fire insurance policy. Held [1]: INCLUDES 2-STORY ANNEX BUILDING. The stipulation in subject fire insurance policy regarding its coverage, reads "contained and/or stored during the currency of this Policy in the premises occupied by them forming part of the buildings situated within own Compound." Therefrom, it can be gleaned unerringly that the fire insurance policy in question did not limit its coverage to what were stored in the fourspan building. 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 on 12 January 1981, having been constructed sometime in 1978, Rizal Insurance should have specifically excluded the said two-storey building from the coverage of the fire insurance if minded to exclude the same but it 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 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. Issue [2]: Whether the ambiguity in fire insurance policy should be resolved against Rizal Surety. Held [2]: YES. 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 that "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 Rizal Insurance, 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 that "as regards insurance policies, in respect of which it is settled that the 'terms in an insurance policy, which are ambiguous, equivocal, or uncertain are to be construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where forfeiture is involved' (29 Am. Jur., 181), 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.' (44 C.J.S., p. 1174)." Equally relevant is the following disquisition of the Court in
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Fieldmen's Insurance Company, Inc. vs. Vda. De Songco, where it was held that the "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' labelled 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." 3 Philamcare Health Systems Inc. vs. Court of Appeals [GR 125678, 18 March 2002] First Division, Ynares-Santiago (J): 3 concur See also case entry 13 Facts: Ernani Trinos, deceased husband of Julita Trinos, applied for a health care coverage with Philamcare Health Systems, Inc. In the standard application form, he answered no to the following 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 a period of one year from 1 March 1988 to 1 March 1989. Accordingly, he was issued Health Care Agreement P010194. Under the agreement, Trinos' husband was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services. Upon the termination of the agreement, the same was extended for another year from 1 March 1989 to 1 March 1990, then from 1 March 1990 to 1 June 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning 9 March 1990. While her husband was in the hospital, Trinos tried to claim the benefits under the health care agreement. However, Philamcare denied her claim saying that the Health Care Agreement was void. According to Philamcare, there was a concealment regarding Ernani's medical history. Doctors at the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, Trinos paid the hospitalization expenses herself, amounting to about P76,000.00. After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however, Trinos brought her husband home again. In the morning of 13 April 1990, Ernani had fever and was feeling very weak. Trinos was constrained to bring him back to the Chinese General Hospital where he died on the same day. On 24 July 1990, Trinos instituted with the Regional Trial Court of Manila, Branch 44, an action for damages against Philamcare and its president, Dr. Benito Reverente (Civil Case 90 53795). She asked for reimbursement of her expenses plus moral damages and attorney's fees. After trial, the lower court ruled against Philamcare and Reverente, ordering them to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same; the reduced amount of moral damages of P10,000.00 to Trinos; the reduced amount of P10,000.00 as exemplary damages to Trinos; and the attorney's fees of P20,000.00, plus costs of suit. On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved Reverente. Philamcare's motion for reconsideration was denied. Hence, Philamcare brought the petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code does not apply. Issue [1]: Whether a health care agreement between Philamcare and Ernani Trinos is an insurance contract. Held [1]: YES. Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby
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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 designated 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. Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of himself. Section 10 provides that "Every person has an insurable interest in the life and health: (1) of himself, of his spouse and of his children; (2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; (3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and (4) of any person upon whose life any estate or interest vested in him depends." Herein, the insurable interest of Trinos' husband in obtaining the health care agreement was his own health. 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. Issue [2]: Whether answers made in good faith, where matters of opinion or judgment are called for, without intent to deceive will avoid a policy when they were untrue. Held [2]: NO. 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. Thus, although false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, Philamcare is liable for claims made under the contract. Having assumed a responsibility under the agreement, Philamcare is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid. Issue [3]: Whether rescission must be exercised before commencement of an action on the contract. Held [3]: YES. Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract. Herein, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: (1) Prior notice of cancellation to insured; (2) Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned; (3) Must be in writing, mailed or delivered to the insured at the address shown in the policy; (4) Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion,
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the terms of an insurance contract are to be construed strictly against the party which prepared the contract the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. Issue [4]: Whether the membership of the late Trinos is now incontestable. Held [4]: YES. Under the title Claim procedures of expenses, Philamcare had twelve months from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie. 4 Fortune Insurance and Surety Co. Inc. vs. Court of Appeals [GR 115278, 23 May 1995] First Division, Davide Jr (J): 2 concur, 1 took no part, 1 on leave

Facts: Producers Bank of the Philippines was insured by the Fortune Insurance and Surety Co. Inc. and an insurance policy was issued. An armored car of Producers, while in the process of transferring cash in the sum of P725,000.00 under the custody of its teller, Maribeth Alampay, from its Pasay Branch to its Head Office at 8737 Paseo de Roxas, Makati, Metro Manila on 29 June 1987, was robbed of the said cash. The robbery took place while the armored car was traveling along Taft Avenue in Pasay City. The said armored car was driven by Benjamin Magalong y de Vera, escorted by Security Guard Saturnino Atiga y Rosete. Driver Magalong was assigned by PRC Management Systems with Producers by virtue of an Agreement executed on 7 August 1983. The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with Producers by virtue of a contract of Security Service executed on 25 October 1982. After an investigation conducted by the Pasay police authorities, the driver Magalong and guard Atiga were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of PD 532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City. The Fiscal of Pasay City then filed an information charging the aforesaid persons with the said crime before Branch 112 of the Regional Trial Court of Pasay City. The case is still being tried as of the date of filing of the present case. Demands were made by Producers upon Fortune to pay the amount of the loss of P725,000.00, but the latter refused to pay as the loss is excluded from the coverage of the insurance policy, specifically under page 1 thereof, "General Exceptions" Section (b), and which reads as follows: "GENERAL EXCEPTIONS The company shall not be liable under this policy in respect of xxx (b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner, director, trustee or authorized representative of the Insured whether acting alone or in conjunction with others..." Producers opposed the contention of Fortune and contended that Atiga and Magalong are not its "officer, employee, trustee or authorized representative at the time of the robbery. On 26 April 1990, the trial court rendered its decision in favor of Producers. It ordered Fortune to pay Producers the net amount of P540,000.00 as liability under Policy 0207 (as mitigated by the P40,000.00 special clause deduction and by the recovered sum of P145,000.00), with interest thereon at the legal rate, until fully paid; the sum of P30,000.00 as and for attorney's fees; and to pay the costs of suit. Fortune appealed this decision to the Court of Appeals (CA-GR CV 32946). In its decision promulgated on 3 May 1994, it affirmed in toto the appealed decision. On 20 June 1994, Fortune filed the petition for review on certiorari. Issue: Whether Fortune is liable under the Money, Security, and Payroll Robbery policy it issued to the issued to Producers or whether recovery thereunder is precluded under the general exceptions clause thereof. Held: It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance policy which is a form of casualty insurance. Section 174 of the Insurance Code provides that "Casualty insurance is insurance covering loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of insurance such as fire or marine. It includes, but is not limited to, employer's liability insurance, public liability insurance, motor
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vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance." Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions applicable to casualty insurance or to robbery insurance in particular. These contracts are, therefore, governed by the general provisions applicable to all types of insurance. Outside of these, the rights and obligations of the parties must be determined by the terms of their contract, taking into consideration its purpose and always in accordance with the general principles of insurance law. It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud the insurer the moral hazard is so great that insurers have found it necessary to fill up their policies with countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume the risk of all losses due to the hazards insured against." Persons frequently excluded under such provisions are those in the insured's service and employment. The purpose of the exception is to guard against liability should the theft be committed by one having unrestricted access to the property." In such cases, the terms specifying the excluded classes are to be given their meaning as understood in common speech. The terms "service" and "employment" are generally associated with the idea of selection, control, and compensation. A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the insurer, or it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from non-compliance with its obligation. It goes without saying then that if the terms of the contract are clear and unambiguous, there is no room construction and such terms cannot be enlarged or diminished by judicial construction. An insurance contract is a contract of indemnity upon the terms and conditions specified therein. It is settled that the terms of the policy constitute the measure of the insurer's liability. In the absence of statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever conditions they deem best upon their obligations not inconsistent with public policy. Insofar as Fortune is concerned, it was its intention to exclude and exempt from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or having unrestricted access to Producers' money or payroll. When it used then the term "employee," it must have had in mind any person who qualifies as such as generally and universally understood, or jurisprudentially established in the light of the four standards in the determination of the employer-employee relationship, or as statutorily declared even in a limited sense as in the case of Article 106 of the Labor Code which considers the employees under a "laboronly" contract as employees of the party employing them and not of the party who supplied them to the employer. Still, howsoever viewed, Producers entrusted the three with the specific duty to safely transfer the money to its head office, with Alampay to be responsible for its custody in transit; Magalong to drive the armored vehicle which would carry the money; and Atiga to provide the needed security for the money, the vehicle, and his two other companions. In short, for these particular tasks, the three acted as agents of Producers. A "representative" is defined as one who represents or stands in the place of another; one who represents others or another in a special capacity, as an agent, and is interchangeable with "agent." In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the insurance policy. 5 Enriquez vs. Sun Life Assurance Company of Canada [GR 15895, 29 November 1920] En Banc, Malcolm (J): 4 concur, 1 dissents

Facts: On 24 September 1917, Joaquin Herrer made application to the Sun Life Assurance Company of Canada through its office in Manila for a life annuity. Two days later he paid the sum of P6,000 to the manager of the company's Manila office and was given a receipt. The application was immediately forwarded to the head office of the company at Montreal, Canada. On 26 November 1917, the head office gave notice of acceptance by cable to Manila. (Whether on the same day the cable was received notice was sent by the Manila office to Herrer that the application had been accepted, is a disputed point.) On 4 December 1917, the policy was issued at Montreal. On 18 December 1917, attorney Aurelio A. Torres wrote to the Manila office of the company stating that Herrer desired to withdraw his application. The following day the local office replied to Mr. Torres, stating that the policy had been issued, and called attention to the notification of 26
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November 1917. This letter was received by Mr. Torres on the morning of 21 December 1917. Mr. Herrer died on 20 December 1917. An action was brought by Rafaek Enriquez as administrator of the estate of the late Joaquin Ma. Herrer to recover from Sun Life Assurance Company of Canada the sum of P6,000 paid by the deceased for a life annuity. The trial court gave judgment for Sun Life. Enriquez appealed. Issue: Whether Herrer received notice of acceptance of his application, to hold that the contract for a life annuity was perfected. Held: NO. The letter of 26 November 1917, notifying Mr. Ferrer that his application had been accepted, was prepared and signed in the local office of the insurance company, was placed in the ordinary channels for transmission, but was never actually mailed and thus was never received by the applicant. The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only from the date it came to his knowledge, may not be the best expression of modern commercial usage. Still it must be admitted that its enforcement avoids uncertainty and tends to security. Not only this, but in order that the principle may not be taken too lightly, it is identical with the principles announced by a considerable number of respectable, courts in the United States. The courts who take this view have expressly held that an acceptance of an offer of insurance not actually or constructively communicated to the proposer does not make a contract. Only the mailing of acceptance, it has been said, completes the contract of insurance, as the locus poienitentise is ended when the acceptance has passed beyond the control of the party. In resume, therefore, the law applicable to the case is found to be the second paragraph of article 1262 of the Civil Code providing that an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. The pertinent fact is, that according to the provisional receipt, three things had to be accomplished by the insurance company before there was a contract: (1) There had to be a medical examination of the applicant; (2) there had to be approval of the application by the head office of the company; and (3) this approval had in some way to be communicated by the company to the applicant. The further admitted facts are that the head office in Montreal did accept the application, did cable the Manila office to that effect, did actually issue the policy and did, through its agent in Manila, actually write the letter of notification and place it in the usual channels for transmission to the addressee. The fact as to the letter of notification thus fails to concur with the essential elements of the general rule pertaining to the mailing and delivery of mail matter as announced by the American courts, namely, when a letter or other mail matter is addressed and mailed with postage prepaid there is a rebuttable presumption of fact that it was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mails. But if any one of these elemental facts fails to appear, it is fatal to the presumption. For instance, a letter will not be presumed to have been received by the addressee unless it is shown that it was deposited in the post-office, properly addressed and stamped. The contract for a life annuity in the case at bar was not perfected because it has not been proved satisfactorily that the acceptance of the application ever came to the knowledge of the applicant. 6 Development Bank of the Philippines vs. Court of Appeals [GR 109937, 21 March 1994] First Division, Quiason (J): 4 concur

Facts: In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a loan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a mortgage redemption insurance (MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool). A loan, in the reduced amount of P300,000.00, was approved by DBP on 4 August 1987 and released on 11 August 1987. From the proceeds of the loan, DBP deducted the amount of P1,476.00 as payment for the MRI premium. On 15 August 1987, Dans accomplished and submitted the "MRI Application for Insurance" and the "Health Statement for DBP MRI Pool." On 20 August 1987, the MRI premium of Dans, less the DBP service fee of 10%, was credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit. On 3 September 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to the DBP MRI Pool. On 23 September 1987, the DBP MRI Pool notified DBP that Dans was not eligible for MRI
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coverage, being over the acceptance age limit of 60 years at the time of application. On 21 October 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI application. The DBP offered to refund the premium of P1,476.00 which the deceased had paid, but Candida Dans refused to accept the same, demanding payment of the face value of the MRI or an amount equivalent to the loan. She, likewise, refused to accept an ex gratia settlement of P30,000.00, which the DBP later offered. On 10 February 1989, the Estate of the Late Juan B. Dans, through Candida Dans as administratrix, filed a complaint with the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for collection of Sum of Money with Damages. On 10 March 1990, the trial court rendered a decision in favor of the Estate and against DBP. The DBP MRI Pool, however, was absolved from liability, after the trial court found no privity of contract between it and the deceased. The trial court declared DBP in estoppel for having led Dans into applying for MRI and actually collecting the premium and the service fee, despite knowledge of his age ineligibility. The court ordered DBP to return and reimburse the Estate the amount of P139,500.00 plus legal rate of interest as amortization payment paid under protest; to consider the mortgage loan of P300,000.00 including all interest accumulated or otherwise to have been settled, satisfied or set-off by virtue of the insurance coverage of the late Juan B. Dans; to pay the Estate the amount of P10,000.00 as attorney's fees; to pay the Estate the amount of P10,000.00 as costs of litigation and other expenses, and other relief just and equitable. The DBP appealed to the Court of Appeals. In a decision dated 7 September 1992, the appellate court affirmed in toto the decision of the trial court. The DBP's motion for reconsideration was denied in a resolution dated 20 April 1993. DBP filed the petition for review on certiorari. Issue [1]: Whether there was a perfected contract of insurance for DBP MRI Pool to be held liable. Held [1]: NO. When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP Pool" with the following declaration: "I hereby declare and agree that all the statements and answers contained herein are true, complete and correct to the best of my knowledge and belief and form part of my application for insurance. It is understood and agreed that no insurance coverage shall be effected unless and until this application is approved and the full premium is paid during my continued good health." Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shall be approved by the insurance pool; and (2) when the full premium is paid during the continued good health of the applicant. These two conditions, being joined conjunctively, must concur. Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool, however, did not approve the application of Dans. There is also no showing that it accepted the sum of P1,476.00, which DBP credited to its account with full knowledge that it was payment for Dan's premium. There was, as a result, no perfected contract of insurance; hence, the DBP MRI Pool cannot be held liable on a contract that does not exist. Issue [2]: Whether DBP is liable for the entire value of the insurance policy, as it led Dans to believe that he has fulfilled all the requirements for the MRI and that the issuance of his policy was forthcoming. Held [2]: It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI coverage. Instead of allowing Dans to look for his own insurance carrier or some other form of insurance policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When Dan's loan was released on 11 August 1987, DBP already deducted from the proceeds thereof the MRI premium. Four days latter, DBP made Dans fill up and sign his application for MRI, as well as his health statement. The DBP later submitted both the application form and health statement to the DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As service fee, DBP deducted 10% of the premium collected by it from Dans. In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an insurance agent. As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby leading him and his family to believe that they had already fulfilled all the requirements for the MRI and that the issuance of their policy was forthcoming. Apparently, DBP had full knowledge that Dan's application was never going to be approved. The maximum age for MRI acceptance is 60 years as clearly and specifically provided in Article 1 of the Group Mortgage Redemption Insurance Policy signed in 1984 by all the insurance
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companies concerned. The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age. Knowing all the while that Dans was ineligible for MRI coverage because of his advanced age, DBP exceeded the scope of its authority when it accepted Dan's application for MRI by collecting the insurance premium, and deducting its agent's commission and service fee. The liability of an agent who exceeds the scope of his authority depends upon whether the third person is aware of the limits of the agent's powers. There is no showing that Dans knew of the limitation on DBP's authority to solicit applications for MRI. If the third person dealing with an agent is unaware of the limits of the authority conferred by the principal on the agent and he (third person) has been deceived by the non-disclosure thereof by the agent, then the latter is liable for damages to him. The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that were it not for DBP's concealment of the limits of its authority, Dans would have secured an MRI from another insurance company, and therefore would have been fully insured by the time he died, is highly speculative. Considering his advanced age, there is no absolute certainty that Dans could obtain an insurance coverage from another company. It must also be noted that Dans died almost immediately, i.e., on the nineteenth day after applying for the MRI, and on the twenty-third day from the date of release of his loan. 7 Great Pacific Life Assurance Company vs. Court of Appeals [GR L-31845, 30 April 1979]; also Mondragon vs. Court of Appeals [GR L-31878] First Division, De Castro (J): 4 concur, 1 took no part See case entry 17 Facts: On 14 March 1957, Ngo Hing filed an application with the Great Pacific Life Assurance Company for a 20-year endowment policy in the amount of P50,000.00 on the life of his one-year old daughter Helen Go. Ngo Hing supplied the essential data which Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corresponding form in his own handwriting . Mondragon finally type-wrote the data on the application form which was signed by Ngo Hing. The latter paid the annual premium, the sum of P1,077.75 going over to the Company, but he retained the amount of P1,317.00 as his commission for being a duly authorized agent of Pacific Life. Upon the payment of the insurance premium, the binding deposit receipt was issued to Ngo Hing. Likewise, Mondragon handwrote at the bottom of the back page of the application form his strong recommendation for the approval of the insurance application. Then on 30 April 1957, Mondragon received a letter from Pacific Life disapproving the insurance application. The letter stated that the said life insurance application for 20-year endowment plan is not available for minors below 7 years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the Company. The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by Mondragon to Ngo Hing. Instead, on 6 May 1957, Mondragon wrote back Pacific Life again strongly recommending the approval of the 20-year endowment life insurance on the ground that Pacific Life is the only insurance company not selling the 20year endowment insurance plan to children, pointing out that since 1954 the customers, especially the Chinese, were asking for such coverage. It was when things were in such state that on 28 May 1957 Helen Go died of influenza with complication of broncho-pneumonia. Thereupon, Ngo Hing sought the payment of the proceeds of the insurance, but having failed in his effort, he filed the action for the recovery of the same before the Court of First Instance of Cebu, which rendered a decision against Pacific Life and Mondragon, orderig them to solidarily pay Ngo Hing the amount of P50,000.00 with interest at 6% from the date of the filing of the complaint, and the sum of P10,000.00 as attorney's fees plus costs of suits. On appeal, the Court of Appeals set aside the appealed decision of the Court of First Instance of Cebu, and absolved Pacific Life and Mondragon from liability on the insurance policy, but ordered the reimbursement to Ngo Hing the amount of P1,077.75, without interest. On reconsideration, however, the appellate court affirmed in toto the decision of the Court of First Instance of Cebu, ordering Pacific Life and Mondragon jointly and severally to pay Ngo Hing. Two petitions for certiorari by way of appeal were filed by Pacific Life and Mondragon. The petitons were consolidated by the Supreme Court in a resolution dated 29 April 1970.

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Issue: Whether the binding deposit receipt constituted a temporary contract of the life insurance in question, and thus negate the claim that the insurance contract was perfected. Held: YES. The provisions printed on the binding deposit receipt show that the binding deposit receipt is intended to be merely a provisional or temporary insurance contract and only upon compliance of the following conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates; (2) that if the company does not accept the application and offers to issue a policy for a different plan, the insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that if the applicant is not insurable according to the standard rates, and the company disapproves the application, the insurance applied for shall not be in force at any time, and the premium paid shall be returned to the applicant. Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant the insurance premium and had accepted the application subject for processing by the insurance company; and that the latter will either approve or reject the same on the basis of whether or not the applicant is "insurable on standard rates." Since Pacific Life disapproved the insurance application of Ngo Hing, the binding deposit receipt in question had never become in force at any time. Upon this premise, the binding deposit receipt is, manifestly, merely conditional and does not insure outright. Where an agreement is made between the applicant and the agent, no liability shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional, and is subordinated to the act of the company in approving or rejecting the application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself. It bears repeating that through the intra-company communication of 30 April 1957, Pacific Life disapproved the insurance application in question on the ground that it is not offering the 20-year endowment insurance policy to children less than 7 years of age. What it offered instead is another plan known as the Juvenile Triple Action, which Ngo Hing failed to accept. In the absence of a meeting of the minds between Pacific Life and Ngo Hing over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and with the non-compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there could have been no insurance contract duly perfected between them. Accordingly, the deposit paid by Ngo Hing shall have to be refunded by Pacific Life. 8 Spouses Cha vs. Court of Appeals [GR 124520, 18 August 1997] First Division, Padilla (J): 4 concur

Facts: Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with CKS Development Corporation, as lessor, on 5 October 1988. One of the stipulations of the 1 year lease contract states that "The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own benefit" Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire their merchandise inside the leased premises for P500,000.00 with the United Insurance Co., Inc. without the written consent of CKS. On the day that the lease contract was to expire, fire broke out inside the leased premises. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer (United) a demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision ordering United to pay CKS the amount of P335,063.11 and the Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 as attorney's fees and costs of suit. On appeal, the Court of Appeals in CA GR CV 39328 rendered a decision dated 11 January 1996, affirming the trial court decision, deleting however the awards for exemplary damages and attorney's fees. A motion for reconsideration by United was denied on 29 March 1996. The spouses Cha and United filed the petition for review on certiorari.
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Issue: Whether paragraph 18 of the lease contract entered into between CKS and the Cha spouses is valid insofar as it provides that any fire insurance policy obtained by the lessee (Cha spouses) over their merchandise inside the leased premises is deemed assigned or transferred to the lessor (CKS) if said policy is obtained without the prior written consent of the latter. Held: NO. It is basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law, morals, good customs, public order or public policy. Section 18 of the Insurance Code provides that "No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured." A non-life insurance policy such as the fire insurance policy taken by the spouses over their merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager which is void under Section 25 of the Insurance Code, which provides that "Every stipulation in a policy of Insurance for the payment of loss whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is void." Herein, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code which provides that "The measure of an insurable interest in property is the extent to which the insured might be damnified by loss of injury thereof." Therefore, CKS cannot, under the Insurance Code a special law be validly a beneficiary of the fire insurance policy taken by the spouses over their merchandise. This insurable interest over said merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha. The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property insured. 9 Geagonia vs. Court of Appeals [GR 114427, 6 February 1995] First Division, Davide Jr. (J): 4 concur

Facts: Armando Geagonia is the owner of Norman's Mart located in the public market of San Francisco, Agusan del Sur. On 22 December 1989, he obtained from Country Bankers Insurance Corporation fire insurance policy No. F-14622 2 for P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990 and covered the following: "Stock-in-trade consisting principally of dry goods such as RTW's for men and women wear and other usual to assured's business." Geagonia declared in the policy under the subheading entitled CO-INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, Geagonia had in his inventory stocks amounting to P392,130.50, itemized as follows: Zenco Sales, Inc., P55,698.00; F. Legaspi Gen. Merchandise, 86,432.50; and Cebu Tesing Textiles, 250,000.00 (on credit); totalling P392,130.50. The policy contained the following condition, that "the insured shall give notice to the Company of any insurance or insurances already effected, or which may subsequently be effected, covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless notice be given and the particulars of such insurance or insurances be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00." On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San Francisco, Agusan del Sur. Geagonia's insured stocks-in-trade were completely destroyed prompting him to file with Country Bankers a claim under the policy. On 28 December 1990, Country Bankers denied the claim because it found that at the time of the loss
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Geagonia's stocks-in-trade were likewise covered by fire insurance policies GA-28146 and GA-28144, for P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (PFIC). These policies indicate that the insured was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause reading ""MORTGAGEE: Loss, if any, shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their interest may appear subject to the terms of this policy. CO-INSURANCE DECLARED: P100,000. Phils. First CEB/F-24758" The basis of Country Bankers' denial was Geagonia's alleged violation of Condition 3 of the policy. Geagonia then filed a complaint against Country Bankers with the Insurance Commission (Case 3340) for the recovery of P100,000.00 under fire insurance policy F-14622 and for attorney's fees and costs of litigation. He attached his letter of 18 January 1991 which asked for the reconsideration of the denial. He admitted in the said letter that at the time he obtained Country Bankers's fire insurance policy he knew that the two policies issued by the PFIC were already in existence; however, he had no knowledge of the provision in Country Bankers' policy requiring him to inform it of the prior policies; this requirement was not mentioned to him by Country Bankers' agent; and had it been so mentioned, he would not have withheld such information. He further asserted that the total of the amounts claimed under the three policies was below the actual value of his stocks at the time of loss, which was P1,000,000.00. In its decision of 21 June 1993, the Insurance Commission found that Geagonia did not violate Condition 3 as he had no knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies without informing him or securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. These findings were based on Geagonia's testimony that he came to know of the PFIC policies only when he filed his claim with Country Bankers and that Cebu Tesing Textile obtained them and paid for their premiums without informing him thereof. The Insurance Commission ordered Country Bankers to pay Geagibua the sum of P100,000.00 with legal interest from the time the complaint was filed until fully satisfied plus the amount of P10,000.00 as attorney's fees. With costs. Its motion for the reconsideration of the decision having been denied by the Insurance Commission in its resolution of 20 August 1993, Country Bankers appealed to the Court of Appeals by way of a petition for review (CA-GR SP 31916). In its decision of 29 December 1993, the Court of Appeals reversed the decision of the Insurance Commission because it found that Geagonia knew of the existence of the two other policies issued by the PFIC. His motion to reconsider the adverse decision having been denied, Geagonia filed the petition for review on certiorari. Issue [1]: Whether the non-disclosure of other insurance policies violate condition 3 of the policy, so as to deny Geagonia from recovering on the policy. Held [1]: Condition 3 of Country Bankers's Policy F-14622 is a condition which is not proscribed by law. Its incorporation in the policy is allowed by Section 75 of the Insurance Code, Such a condition is a provision which invariably appears in fire insurance policies and is intended to prevent an increase in the moral hazard. It is commonly known as the additional or "other insurance" clause and has been upheld as valid and as a warranty that no other insurance exists. Its violation would thus avoid the policy. However, in order to constitute a violation, the other insurance must be upon the same subject matter, the same interest therein, and the same risk. The fire insurance policies issued by the PFIC name Geagonia as the assured and contain a mortgage clause which reads: "Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear subject to the terms of the policy." This is clearly a simple loss payable clause, not a standard mortgage clause. The Court concludes that (a) the prohibition in Condition 3 of the subject policy applies only to double insurance, and (b) the nullity of the policy shall only be to the extent exceeding P200,000.00 of the total policies obtained. The first conclusion is supported by the portion of the condition referring to other insurance "covering any of the property or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured," and the portion regarding the insured's declaration on the subheading CO-INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance exists where the same person is insured by several insurers separately in respect of the same subject and interest. Since the insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct and separate; the two policies of the PFIC do not cover the same interest as that covered
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by the policy of Country Bankers, no double insurance exists. The non-disclosure then of the former policies was not fatal to Geagonia's right to recover on Country Bankers' policy. Issue [2]: Whether the violation of Condition 3 of the policy renders the policy void. Held [2]: Unlike the "other insurance" clauses involved in General Insurance and Surety Corp. vs. Ng Hua, 106 Phil. 1117 [1960], or in Pioneer Insurance & Surety Corp. vs. Yap, 61 SCRA 426 [1974] which reads "The insured shall give notice to the company of any insurance or insurances already effected, or which may subsequently be effected covering any of the property hereby insured, and unless such notice be given and the particulars of such insurance or insurances be stated in or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefits under this Policy shall be forfeited"; or in the 1930 case of Santa Ana vs. Commercial Union Assurance Co., 55 Phil. 329, 334 [1930], which provided "that any outstanding insurance upon the whole or a portion of the objects thereby assured must be declared by the insured in writing and he must cause the company to add or insert it in the policy, without which such policy shall be null and void, and the insured will not be entitled to indemnity in case of loss," Condition 3 in Country Bankers' policy F-14622 does not absolutely declare void any violation thereof. It expressly provides that the condition "shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00." By stating within Condition 3 itself that such condition shall not apply if the total insurance in force at the time of loss does not exceed P200,000.00, Country Bankers was amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains insurance policies from two or more insurers in a total amount that exceeds the property's value, the insured may have an inducement to destroy the property for the purpose of collecting the insurance. The public as well as the insurer is interested in preventing a situation in which a fire would be profitable to the insured. 10 Rizal Commercial Banking Corporation (RCBC) vs. Court of Appeals [GR 128833, 20 April 1998]; also RCBC vs. Court of Appeals [GR 128834] Second Division, Melo (J): 4 concur Facts: Goyu & Sons, Inc. (Goyu) applied for credit facilities and accommodations with Rizal Commercial Banking Corporation (RCBC) at its Binondo Branch. After due evaluation, RCBC Binondo Branch, through its key officers, petitioners Uy Chun Bing and Eli D. Lao, recommended Goyu's application for approval by RCBC's executive committee. A credit facility in the amount of P30 million was initially granted. Upon Goyu's application and Uy's and Lao's recommendation, RCBC's executive committee increased Goyu's credit facility to P50 million, then to P90 million, and finally to P117 million. As security for its credit facilities with RCBC, Goyu executed two real estate mortgages and two chattel mortgages in favor of RCBC, which were registered with the Registry of Deeds at Valenzuela, Metro Manila. Under each of these four mortgage contracts, Goyu committed itself to insure the mortgaged property with an insurance company approved by RCBC, and subsequently, to endorse and deliver the insurance policies to RCBC. Goyu obtained in its name a total of 10 insurance policies from MICO. In February 1992, Alchester Insurance Agency, Inc., the insurance agent where Goyu obtained the Malayan insurance policies, issued 9 endorsements in favor of RCBC seemingly upon instructions of Goyu. On 27 April 1992, one of Goyu's factory buildings in Valenzuela was gutted by fire. Consequently, Goyu submitted its claim for indemnity on account of the loss insured against. MICO denied the claim on the ground that the insurance policies were either attached pursuant to writs of attachments/garnishments issued by various courts or that the insurance proceeds were also claimed by other creditors of Goyu alleging better rights to the proceeds than the insured. Goyu filed a complaint for specific performance and damages which was docketed at the Regional Trial Court of the National Capital Judicial Region (Manila, Branch 3) as Civil Case 93-65442. RCBC, one of Goyu's creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but said claims were also denied for the same reasons that AGCO denied Goyu's claims. In an interlocutory order dated 12 October 1993, the Regional Trial
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Court of Manila (Branch 3), confirmed that Goyu's other creditors, namely, Urban Bank, Alfredo Sebastian, and Philippine Trust Company obtained their respective writs of attachments from various courts, covering an aggregate amount of P14,938,080.23, and ordered that the proceeds of the 10 insurance policies be deposited with the said court minus the aforementioned P14,938,080.23. Accordingly, on 7 January 1994, MICO deposited the amount of P50,505,594.60 with Branch 3 of the Manila RTC. In the meantime, another notice of garnishment was handed down by another Manila RTC sala (Branch 28) for the amount of P8,696,838.75. After trial, Branch 3 of the Manila RTC rendered judgment in a favor of Goyu, ordering Malayan to pay Goyu its fire loss claims in the total amount of P74,040,518.58 less the amount of P50,000,000.00 which is deposited with the Court; damages by way of interest for the duration of the delay since 27 July 1992 (90 days after Malayan's receipt of the required proof of loss and notice of loss) at the rate of twice the ceiling prescribed by the Monetary Board, on the amounts of (1) P50,000,000.00 from 27 July 1992 up to the time said amount was deposited with the Court on 7 January 1994; and (2) P24,040,518.58 from 17 July 1992 up to the time when the writs of attachments were received by Malayan. The court also ordered RCBC to pay Goyu actual and compensatory damages in the amount of P2,000,000.00, and both Malayan and RCBC to solidarily pay Goyu (1) P1,000,000.00 as exemplary damages; (2) P1,000,000.00 as, and for, attorneys fees; and (3) Costs of suit. The Court, on the Counterclaim of RCBC, ordered Goyu to pay its loan obligations with RCBC in the amount of P68,785,069.04, as of 27 April 1992, with interest thereon at the rate stipulated in the respective promissory notes (without surcharges and penalties). From this judgment, all parties interposed their respective appeals. Goyu was unsatisfied with the amounts awarded in its favor. MICO and RCBC disputed the trial court's findings of liability on their part. The Court of Appeals partly granted Goyu's appeal, but sustained the findings of the trial court with respect to MICO and RCBC's liabilities. The appellate court modified the decision by ordering Malayan to pay Goyu its fire loss claim in the total amount of P74,040,518.58 less than the amount of P50,505,549.60 (per O.R. No. 3649285) plus deposited in court and damages by way of interest commencing 27 July 1992 until the time Goyu receives the said amount at the rate of 37% per annum which is twice the ceiling prescribed by the Monetary Board; ordering RCBC to pay Goyu actual and compensatory damages in the amount of P5,000,000.00; and Malayan and RCBC, Uy Chun Bing and Eli Lao to pay Goyu solidarily in the amounts of (1) P1,500,000.00 as exemplary damages; and (2) P1,500,000.00 as and for attorney's fees. The Court, on RCBC's Counterclaim, ordered Goyuto pay its loan obligation with RCBC in the amount of P68,785.069.04 as of 27 April 1992 without any interest, surcharges and penalties. RCBC and Malayan appealed separately but, in view of the common facts and issues involved, their individual petitions were consolidated. Issue [1]: Whether RCBC, as mortgagee, has any right over the insurance policies taken by Goyu, the mortgagor, in case of the occurrence of loss. Held [1]: YES. It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the same mortgaged property, such that each one of them may insure the same property for his own sole benefit. There is no question that Goyu could insure the mortgaged property for its own exclusive benefit. Herein, although it appears that Goyu obtained the subject insurance policies naming itself as the sole payee, the intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order to better serve the interest of justice and equity. It is to be noted that nine endorsement documents were prepared by Alchester in favor of RCBC. The Court is in a quandary how Alchester could arrive at the idea of endorsing any specific insurance policy in favor of any particular beneficiary or payee other than the insured had not such named payee or beneficiary been specifically disclosed by the insured itself. It is also significant that Goyu voluntarily and purposely took the insurance policies from MICO, a sister company of RCBC, and not just from any other insurance company. Alchester would not have found out that the subject pieces of property were mortgaged to RCBC had not such information been voluntarily disclosed by Goyu itself. Had it not been for Goyu, Alchester would not have known of Goyu's intention of obtaining insurance coverage in compliance with its undertaking in the mortgage contracts with RCBC, and verify, Alchester would not have endorsed the policies to RCBC had it not been so directed by Goyu. On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in favor of mortgagor RCBC. RCBC, in good faith,
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relied upon the endorsement documents sent to it as this was only pursuant to the stipulation in the mortgage contracts. Such reliance is justified under the circumstances of the case. Goyu failed to seasonably repudiate the authority of the person or persons who prepared such endorsements. Over and above this, Goyu continued, in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC. After the occurrence of the loss insured against, it was too late for Goyu to disown the endorsements for any imagined or contrived lack of authority of Alchester to prepare and issue said endorsements. If there had not been actually an implied ratification of said endorsements by virtue of Goyu's inaction in this case, Goyu is at the very least estopped from assailing their operative effects. To permit Goyu to capitalize on its nonconfirmation of these endorsements while it continued to enjoy the benefits of the credit facilities of RCBC which believed in good faith that there was due endorsement pursuant to their mortgage contracts, is to countenance grave contravention of public policy, fair dealing, good faith, and justice. Such an unjust situation, the Court cannot sanction. Under the peculiar circumstances, the Court is bound to recognize RCBC's right to the proceeds of the insurance policies if not for the actual endorsement of the policies, at least on the basis of the equitable principle of estoppel. Issue [2]: Whether Goyu can insist that the proceeds of insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is made. Held [2]: NO. Goyu cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of insurance shall exclusively apply to the interest of the person in whose name or for whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case presents a justification to take exception to the strict application of said provision, it having been sufficiently established that it was the intention of the parties to designate RCBC as the party for whose benefit the insurance policies were taken out. Consider thus the following: (1) It is undisputed that the insured pieces of property were the subject of mortgage contracts entered into between RCBC and Goyu in consideration of and for securing Goyu's credit facilities from RCBC. The mortgage contracts contained common provisions whereby Goyu, as mortgagor, undertook to have the mortgaged property properly covered against any loss by an insurance company acceptable to RCBC. (2) Goyu voluntarily procured insurance policies to cover the mortgaged property from MICO, no less than a sister company of RCBC and definitely an acceptable insurance company to RCBC. (3) Endorsement documents were prepared by MICO's underwriter, Alchester Insurance Agency, Inc., and copies thereof were sent to Goyu, MICO and RCBC. Goyu did not assail, until of late, the validity of said endorsements. (4) Goyu continued until the occurrence of the fire, to enjoy the benefits of the credit facilities extended by RCBC which was conditioned upon the endorsement of the insurance policies to be taken by Goyu to cover the mortgaged properties. The fact that upon receiving its copies of the endorsement documents prepared by Alchester, Goyu, despite the absence written conformity thereto, obviously considered said endorsement to be sufficient compliance with its obligation under the mortgage contracts since RCBC accordingly continued to extend the benefits of its credit facilities and Goyu continued to benefit therefrom. Just as plain too is the intention of the parties to constitute RCBC as the beneficiary of the various insurance policies obtained by Goyu. The intention of the parties will have to be given full force and effect in this particular case. The insurance proceeds may, therefore, be exclusively applied to RCBC, which under the factual circumstances of the case, is truly the person or entity for whose benefit the policies were clearly intended. Moreover, the law's evident intention to protect the interests of the mortgagee upon the mortgaged property is expressed in Article 2127 of the Civil Code. The proceeds of the 8 insurance policies endorsed to RCBC aggregate to P89,974,488.36. Being exclusively payable to RCBC by reason of the endorsement by Alchester to RCBC, which we already ruled to have the force and effect of an endorsement by Goyu itself, these 8 policies can not be attached by Goyu's other creditors up to the extent of the Goyu's outstanding obligation in RCBC's favor. Section 53 of the Insurance Code ordains that the insurance proceeds of the endorsed policies shall be applied exclusively to the proper interest of the person for whose benefit it was made. In this case, to the extent of Goyu's obligation with RCBC, the interest of Goyu in the subject policies had been transferred to RCBC effective as of the time of the endorsement. These policies may no longer be attached by the other creditors of Goyu, like Alfredo Sebastian in GR 128834, which may nonetheless
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forthwith be dismissed for being moot and academic in view of the results reached herein. Only the two other policies amounting to P19,646,224.92 may be validly attached, garnished, and levied upon by Goyu's other creditors. To the extent of Goyu's outstanding obligation with RCBC, all the rest of the other insurance policies which were endorsed to RCBC, are, therefore, to be released from attachment, garnishment, and levy by the other creditors of Goyu. 11 Great Pacific Life Assurance Corp. vs. Court of Appeals [GR 113899, 13 October 1999] Second Division, Quisumbing (J): 3 concur, 1 on official leave Facts: A contract of group life insurance was executed between Great Pacific Life Assurance Corporation (Grepalife) and Development Bank of the Philippines (DBP). Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP. On 11 November 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life insurance plan. In an application form, Dr. Leuterio answered questions concerning his health condition as follows: "7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment? Answer: No. If so give details ___________. 8. Are you now, to the best of your knowledge, in good health? Answer: [ x ] Yes [ ] No." On 15 November 1983, Grepalife issued Certificate B-18558, as insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting to P86,200.00. On 6 August 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance coverage on 15 November 1983. Grepalife insisted that Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his death. Allegedly, such nondisclosure constituted concealment that justified the denial of the claim. On 20 October 1986, the widow of the late Dr. Leuterio, Medarda V. Leuterio, filed a complaint with the Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for "Specific Performance with Damages." During the trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejias findings, based partly from the information given by the widow, stated that Dr. Leuterio complained of headaches presumably due to high blood pressure. The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out. On 22 February 1988, the trial court rendered a decision in favor of the widow and against Grepalife. On 17 May 1993, the Court of Appeals sustained the trial courts decision. Grepalife filed the petition for review. Issue: Whether Dr. Leuterio failed to disclose that he had hypertension, which might have caused his death, and thus concealment can be interposed by Grepalife as a defense to annul the insurance contract. Held: Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he should communicate it to the assured, but he designedly and intentionally withholds the same. Grepalife merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as supported by the information given by the widow of the decedent. Grepalife asserts that Dr. Mejias technical diagnosis of the cause of death of Dr. Leuterio was a duly documented hospital record, and that the widows declaration that her husband had "possible hypertension several years ago" should not be considered as hearsay, but as part of res gestae. On the contrary, the medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body of the decedent. As the attending physician, Dr. Mejia stated that he had no knowledge of Dr. Leuterios any previous hospital confinement. Dr. Leuterios death certificate stated that hypertension was only "the possible cause of death." The widows statement, as to the medical history of her husband, was due to her unreliable recollection of events. Hence, the statement of the physician was properly considered by the trial court as hearsay. The insured, Dr. Leuterio, had answered in his insurance application that he was in good health and that he had not consulted a doctor or any of the enumerated ailments, including hypertension; when he died the attending physician had certified in the death certificate that the former died of cerebral hemorrhage, probably secondary to hypertension. Contrary to Grepalifes allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside
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from the statement of the insureds widow who was not even sure if the medicines taken by Dr. Leuterio were for hypertension, Grepalife had not proven nor produced any witness who could attest to Dr. Leuterios medical history. Grepalife had failed to establish that there was concealment made by the insured, hence, it cannot refuse payment of the claim. The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. Herein, Grepalife failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance. 12 Sunlife Assurance Company of Canada vs. Court of Appeals [GR 105135, 22 June 1995] First Division, Quiason (J): 4 concur Facts: On 15 April 1986, Robert John B. Bacani procured a life insurance contract for himself from Sunlife Assurance Company of Canada. He was issued Policy 3-903-766-X valued P100,000.00, with double indemnity in case of accidental death. The designated beneficiary was his mother, Bernarda Bacani. On 26 June 1987, the insured died in a plane crash. Bernarda Bacani filed a claim with Sunlife, seeking the benefits of the insurance policy taken by her son. Sunlife conducted an investigation and its findings prompted it to reject the claim. In its letter, Sunlife informed Bacani, that the insured did not disclosed material facts relevant to the issuance of the policy, thus rendering the contract of insurance voidable. A check representing the total premiums paid in the amount of P10,172.00 was attached to said letter. Sunlife claimed that the insured gave false statements in his application when he answered the following questions: "5. Within the past 5 years have you: a) consulted any doctor or other health practitioner? b) submitted to: ECG? X-rays? blood tests? other tests? c) attended or been admitted to any hospital or other medical facility? 6. Have you ever had or sought advice for: xxx b) urine, kidney or bladder disorder?" The deceased answered questions No. 5(a) in the affirmative but limited his answer to a consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on February 1986, for cough and flu complications. The other questions were answered in the negative. Sunlife discovered that two weeks prior to his application for insurance, the insured was examined and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure. During his confinement, the deceased was subjected to urinalysis, ultra-sonography and hematology tests. On 17 November 1988, Bernarda Bacani and her husband, respondent Rolando Bacani, filed an action for specific performance against Sunlife with the Regional Trial Court, Branch 191, Valenzuela, Metro Manila. Sunlife filed its answer with counterclaim and a list off exhibits consisting of medical records furnished by the Lung Center of the Philippines. On 14 January 1990, Bacani filed a "Proposed Stipulation with Prayer for Summary Judgment" where they manifested that they "have no evidence to refute the documentary evidence of concealment/misrepresentation by the decedent of his health condition." Sunlife filed its Request for Admissions relative to the authenticity and due execution of several documents as well as allegations regarding the health of the insured. The Bacanis failed to oppose said request or reply thereto, thereby rendering an admission of the matters alleged. Sunlife then moved for a summary judgment and the trial court decided in favor of the Bacanis, ordering Sunlife to pay the former the amount of P100,000.00 the face value of insured's Insurance Policy 3903766, and the Accidental Death Benefit in the amount of P100,000.00 and further sum of P5,000.00 in the concept of reasonable attorney's fees and the costs of the suit. Sunlife's counterclaim was dismissed. Sunlife appealed to the Court of Appeals, which affirmed the decision of the trial court. Sunlife's motion for reconsideration was denied, hence, Sunlife filed the petition for review on certiorari. Issue [1]: Whether good faith is a defense in concealment. Held [1]: NO. Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to communicate to the other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the other has no means of ascertaining. Said Section provides that "a neglect to communicate that which a party knows and ought to communicate, is called concealment."
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Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries. The terms of the contract are clear. The insured is specifically required to disclose to the insurer matters relating to his health. The information which the insured failed to disclose were material and relevant to the approval and the issuance of the insurance policy. The matters concealed would have definitely affected Bacani's action on his application, either by approving it with the corresponding adjustment for a higher premium or rejecting the same. Moreover, a disclosure may have warranted a medical examination of the insured by Sunlife in order for it to reasonably assess the risk involved in accepting the application. In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), the Court held that materiality of the information withheld does not depend on the state of mind of the insured. Neither does it depend on the actual or physical events which ensue. Thus, "good faith" is no defense in concealment. The insured's failure to disclose the fact that he was hospitalized for two weeks prior to filing his application for insurance, raises grave doubts about his bonafides. It appears that such concealment was deliberate on his part. Issue [2]: Whether Sunlife's waiver of the medical examination of the insured debunks the materiality of the facts concealed. Held [2]: NO. The argument, that Sunlife's waiver of the medical examination of the insured debunks the materiality of the facts concealed, is untenable. In Saturnino v. Philippine American Life Insurance Company, 7 SCRA 316 (1963), the Court held that "the waiver of a medical examination [in a non-medical insurance contract] renders even more material the information required of the applicant concerning previous condition of health and diseases suffered, for such information necessarily constitutes an important factor which the insurer takes into consideration in deciding whether to issue the policy or not." Moreover, such argument would make Section 27 of the Insurance Code, which allows the injured party to rescind a contract of insurance where there is concealment, ineffective. Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries. 13 Philamcare Health Systems Ioc..vs. CA (379 SCRA 356) see case entry 3 14 Vda. de Canilang vs. Court of Appeals [GR 92492, 17 June 1993] Third Division, Feliciano (J): 4 concur Facts: On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering from "sinus tachycardia." The doctor prescribed the following for him: Trazepam, a tranquilizer; and Aptin, a beta-blocker drug. Mr. Canilang consulted the same doctor again on 3 August 1982 and this time was found to have "acute bronchitis." On the next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy with Great Pacific Life Assurance Company (Grepalife) naming his wife, Thelma Canilang, as his beneficiary. Jaime Canilang was issued ordinary life insurance Policy 345163, with the face value of P19,700, effective as of 9 August 1982. On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic anemia." Vda. de Canilang, widow and beneficiary of the insured, filed a claim with Grepalife which the insurer denied on 5 December 1983 upon the ground that the insured had concealed material information from it. Vda. de Canilang then filed a complaint against Grepalife with the Insurance Commission for recovery of the insurance proceeds. During the hearing called by the Insurance Commissioner, Vda. de Canilang testified that she was not aware of any serious illness suffered by her late husband and that, as far as she knew, her husband had died because of a kidney disorder. A deposition given by Dr. Wilfredo Claudio was presented by Vda. de
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Canilang. There Dr. Claudio stated that he was the family physician of the deceased Jaime Canilang and that he had previously treated him for "sinus tachycardia" and "acute bronchitis." Grepalife for its part presented Dr. Esperanza Quismorio, a physician and a medical underwriter working for Grepalife. She testified that the deceased's insurance application had been approved on the basis of his medical declaration. She explained that as a rule, medical examinations are required only in cases where the applicant has indicated in his application for insurance coverage that he has previously undergone medical consultation and hospitalization. In a decision dated 5 November 1985, Insurance Commissioner Armando Ansaldo ordered Grepalife to pay P19,700.00 plus legal interest and P2,000.00 as attorney's fees. On appeal by Grepalife, the Court of Appeals reversed and set aside the decision of the Insurance Commissioner and dismissed Thelma Canilang's complaint and Grepalife's counterclaim. The Court of Appeals found that the use of the word "intentionally" by the Insurance Commissioner in defining and resolving the issue agreed upon by the parties at pre-trial before the Insurance Commissioner was not supported by the evidence; that the issue agreed upon by the parties had been whether the deceased insured, Jaime Canilang, made a material concealment as to the state of his health at the time of the filing of insurance application, justifying Grepalife's denial of the claim. Vda. de Canilang Thelma Canilang filed the petition for review on certiorari. Issue [1]: Whether the information Canilang failed to disclose was material to the ability of Grepalife to estimate the probable risk he presented as a subject of life insurance. Held [1]: YES. The information which Jaime Canilang failed to disclose was material to the ability of Grepalife to estimate the probable risk he presented as a subject of life insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made and the medicines prescribed by such doctor, in the insurance application, it may be reasonably assumed that Grepalife would have made further inquiries and would have probably refused to issue a non-medical insurance policy or, at the very least, required a higher premium for the same coverage. The materiality of the information withheld by Grepalife did not depend upon the state of mind of Jaime Canilang. A man's state of mind or subjective belief is not capable of proof in our judicial process, except through proof of external acts or failure to act from which inferences as to his subjective belief may be reasonably drawn. Neither does materiality depend upon the actual or physical events which ensue. Materiality relates rather to the "probable and reasonable influence of the facts" upon the party to whom the communication should have been made, in assessing the risk involved in making or omitting to make further inquiries and in accepting the application for insurance; that "probable and reasonable influence of the facts" concealed must, of course, be determined objectively, by the judge ultimately. Issue [2]: Whether Grepalife had waived inquiry into the concealment by issuing the insurance policy notwithstanding Canilang's failure to set out answers to some of the questions in the insurance application. Held [2]: NO. The insurance applied for was a "non-medical" insurance policy. In Saturnino v. PhilippineAmerican Life Insurance Company, the Court held that "if anything, the waiver of medical examination [in a non-medical insurance contract] renders even more material the information required of the applicant concerning previous condition of health and diseases suffered, for such information necessarily constitutes an important factor which the insurer takes into consideration in deciding whether to issue the policy or not." It cannot be excused that that the failure of Canilang to convey certain information to the insurer was not intentional in nature. Section 27 of the Insurance Code of 1978 is properly read as referring to "any concealment" without regard to whether such concealment is intentional or unintentional. The phrase "whether intentional or unintentional" was in fact superfluous. The deletion of the phrase "whether intentional or unintentional" could not have had the effect of imposing an affirmative requirement that a concealment must be intentional if it is to entitle the injured party to rescind a contract of insurance. The restoration in 1985 by BP 874 of the phrase "whether intentional or unintentional" merely underscored the fact that all throughout (from 1914 to 1985), the statute did not require proof that concealment must be "intentional" in order to authorize rescission by the injured party. In any case, herein, the nature of the facts not conveyed to the insurer was such that the failure to communicate must have been intentional rather than merely
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inadvertent. For Jaime Canilang could not have been unaware that this heart beat would at times rise to high and alarming levels and that he had consulted a doctor twice in the 2 months before applying for non-medical insurance. Indeed, the last medical consultation took place just the day before the insurance application was filed. In all probability, Jaime Canilang went to visit his doctor precisely because of the discomfort and concern brought about by his experiencing "sinus tachycardia." Grepalife had not waived inquiry into the concealment by issuing the insurance policy notwithstanding Canilang's failure to set out answers to some of the questions in the insurance application. Such failure precisely constituted concealment on the part of Canilang. Vda. de Canilang's argument, if accepted, would obviously erase Section 27 from the Insurance Code of 1978. 15 Tan vs. Court of Appeals [GR 48049, 29 June 1989] Third Division, Gutierrez Jr. (J): 3 concur, 1 took no part Facts: On 23 September 1973, Tan Lee Siong, father of Emilio, Juanito, Alberto, and Arturo Tan, applied for life insurance in the amount of P80,000.00 with the Philippine American Life Insurance Company (Philamlife). Said application was approved and Policy 1082467 was issued effective 6 November 1973, with Emilio Tan, et al. as beneficiaries. On 26 April 1975, Tan Lee Siong died of hepatoma. Emilio Tan, et al. then filed with Philamlife their claim for the proceeds of the life insurance policy. However, in a letter dated 11 September 1975, Philamlife denied Emilio Tan et al.'s claim and rescinded the policy by reason of the alleged misrepresentation and concealment of material facts made by the deceased Tan Lee Siong in his application for insurance. The premiums paid on the policy were thereupon refunded. Alleging that Philamlife's refusal to pay them the proceeds of the policy was unjustified and unreasonable, Emilio Tan et al. filed on 27 November 1975, a complaint against the former with the Office of the Insurance Commissioner (I.C. Case 218). After hearing the evidence of both parties, the Insurance Commissioner rendered judgment on 3 August 3, 1977, dismissing the complaint. The Court of Appeals dismissed their appeal from the Insurance Commissioner's decision for lack of merit. Emilio Tan et al. filed the petition for review on certiorari. Issue: Whether Philamlife no longer had the right to rescind the contract of insurance as rescission must allegedly be done during the lifetime of the insured within two years and prior to the commencement of action. Held: NO. Section 48 of the Insurance Code provides that "Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract. "After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent." Herein, the policy was issued on 6 November 1973 and the insured died on 26 April 1975. The policy was thus in force for a period of only one year and five months. Considering that the insured died before the two-year period had lapsed, Philamlife is not, therefore, barred from proving that the policy is void ab initio by reason of the insured's fraudulent concealment or misrepresentation. Moreover, Philamlife rescinded the contract of insurance and refunded the premiums paid on 11 September 1975, previous to the commencement of this action on 27 November 1975. Under the "incontestability clause," the insurer has two years from the date of issuance of the insurance contract or of its last reinstatement within which to contest the policy, whether or not, the insured still lives within such period. After two years, the defenses of concealment or misrepresentation, no matter how patent or well founded, no longer lie. Congress felt this was a sufficient answer to the various tactics employed by insurance companies to avoid liability. The interpretation of Emilio Tan et al. to said provision -- that the Insurance Law was amended and the second paragraph of Section 48 added to prevent the insurance company from exercising a right to rescind after the death of the insured; that the so-called "incontestability clause" precludes the insurer from raising the defenses of false representations or concealment of material facts insofar as health and previous diseases are concerned if the insurance has been
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in force for at least two years during the insured's lifetime; and that the phrase "during the lifetime" found in Section 48 simply means that the policy is no longer considered in force after the insured has died. The key phrase in the second paragraph of Section 48 is "for a period of two years" -- would give rise to the incongruous situation where the beneficiaries of an insured who dies right after taking out and paying for a life insurance policy, would be allowed to collect on the policy even if the insured fraudulently concealed material facts. 16 Pacific Timber Export Corporation vs. Court of Appeals [GR L-38613, 25 February 1982] First Division, De Castro (J): 6 concur Facts: On 19 March 1963, the Pacific Timber Export Corporation (PTEC) secured temporary insurance from the Workmen's Insurance Company Inc. (WICI) for its exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped from the Diapitan Bay, Quezon Province to Okinawa and Tokyo, Japan. WICI issued on said date Cover Note 1010, insuring the said cargo of PTEC "Subject to the Terms and Conditions of the WORKMEN'S INSURANCE COMPANY, INC. printed Marine Policy form as filed with and approved by the Office of the Insurance Commissioner." The regular marine cargo policies were issued by WICI in favor of PTEC on 2 April 1963. The two marine policies bore the numbers of 53 HO 1032 and 53 HO 1033. Policy 53 HO 1032 was for 542 pieces of logs equivalent to 499,950 board feet. Policy 53 HO 1033 was for 853 pieces of logs equivalent to 695, 548 board feet. The total cargo insured under the two marine policies accordingly consisted of 1,395 logs, or the equivalent of 1,195,498 bd. ft. After the issuance of Cover Note 1010, but before the issuance of the two marine policies 53 HO 1032 and 53 HO 1033, some of the logs intended to be exported were lost during loading operations in the Diapitan Bay. The logs were to be loaded on the 'SS Woodlock' which docked about 500 meters from the shortline of the Diapitan Bay. The logs were taken from the log pond of PTEC and from which they were towed in rafts to the vessel. At about 10:00 a.m. on 29 March 1963, while the logs were alongside the vessel, bad weather developed resulting in 75 pieces of logs which were rafted together to break loose from each other 45 pieces of logs were salvaged, but 30 pieces were verified to have been lost or washed away as a result of the accident. In a letter dated 4 April 1963, PTEC informed WICI about the loss of approximately 32 pieces of logs during loading of the SS Woodlock. Although dated 4 April 1963, the letter was received in the office of WICI only on 15 April 1963. PTEC subsequently submitted a Claim Statement demanding payment of the loss under Policies 53 HO 1033, and 53 HO 1033, in the total amount of P19,286.79. On 17 July 1963, WICI requested the First Philippine Adjustment Corporation to inspect the loss and assess the damage. The adjustment company submitted its Report on 23 August 1963. In said report, the adjuster found that 'the loss of 30 pieces of logs is not covered by Policies 53 HO 1032 and 1033 inasmuch as said policies covered the actual number of logs loaded on board the SS Woodlock. However, the loss of 30 pieces of logs is within the 1,250,000 bd. ft. covered by Cover Note 1010 insured for $70,000.00. On 14 September 1963, the adjustment company submitted a computation of WICI's probable liability on the loss sustained by the shipment, in the total amount of P11,042.04. On 13 January 1964, WICI wrote PTEC denying the latter's claim, on the ground that its investigation revealed that the entire shipment of logs covered by the two marine policies 53 HO 1032 and 53 HO 1033 were received in good order at their point of destination. It was further stated that the said loss may not be considered as covered under Cover Note 1010 because the said Note had become null and void by virtue of the issuance of Marine Policies 53 HO 1032 and 1033. The denial of the claim by WICI was brought by PTEC to the attention of the Insurance Commissioner by means of a letter dated 21 March 1964. In a reply letter dated 30 March 1964, Insurance Commissioner Francisco Y. Mandanas observed that it is only fair and equitable to indemnify the insured under Cover Note 1010, and advised early settlement of the said marine loss and salvage claim. On 26 June 1964, WICI informed the Insurance Commissioner that, on advice of their attorneys, the claim of PTEC is being denied on the ground that the cover note is null and void for lack of valuable consideration. The Court of First Instance of Manila ruled in favor of PTEC and against WICI which ordered the latter to pay the sum of P11,042.04 with interest at the rate of 12% interest from receipt of notice of loss on 15 April 1963 up to the complete payment, the sum of P3,000.00 as attorney's fees and the costs. The Court of Appeals, however, reversed the decision of the trial court and thus dismissed PTEC's complaint
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with costs. PTEC filed the petition for review. Issue: Whether the Cover Note is without consideration, is null and void, and thus recovery cannot be made thereon. Held: NO. The Cover Note was not without consideration. The fact that no separate premium was paid on the Cover Note before the loss insured against occurred, does not militate against the validity of PTEC's contention, for no such premium could have been paid, since by the nature of the Cover Note, it did not contain, as all Cover Notes do not contain particulars of the shipment that would serve as basis for the computation of the premiums. As a logical consequence, no separate premiums are intended or required to be paid on a Cover Note. This is a fact admitted by an official of WICI, Juan Jose Camacho, in charge of issuing cover notes of WICI. At any rate, it is not disputed that PTEC paid in full all the premiums as called for by the statement issued by WICI after the issuance of the two regular marine insurance policies, thereby leaving no account unpaid by PTEC due on the insurance coverage, which must be deemed to include the Cover Note. If the Note is to be treated as a separate policy instead of integrating it to the regular policies subsequently issued, the purpose and function of the Cover Note would be set at naught or rendered meaningless, for it is in a real sense a contract, not a mere application for insurance which is a mere offer. It may be true that the marine insurance policies issued were for logs no longer including those which had been lost during loading operations. This had to be so because the risk insured against is not for loss during loading operations anymore, but for loss during transit, the logs having already been safely placed aboard. This would make no difference, however, insofar as the liability on the cover note is concerned, for the number or volume of logs lost can be determined independently, as in fact it had been so ascertained at the instance of WICI itself when it sent its own adjuster to investigate and assess the loss, after the issuance of the marine insurance policies. The adjuster went as far as submitting his report to WICI, as well as its computation of WICI's liability on the insurance coverage. This coverage could not have been no other than what was stipulated in the Cover Note, for no loss or damage had to be assessed on the coverage arising from the marine insurance policies. For obvious reasons, it was not necessary to ask PTEC to pay premium on the Cover Note, for the loss insured against having already occurred, the more practical procedure is simply to deduct the premium from the amount due PTEC on the Cover Note. The non-payment of premium on the Cover Note is, therefore, no cause for PTEC to lose what is due it as if there had been payment of premium, for non-payment by it was not chargeable against its fault. Had all the logs been lost during the loading operations, but after the issuance of the Cover Note, liability on the note would have already arisen even before payment of premium. This is how the cover note as a "binder" should legally operate; otherwise, it would serve no practical purpose in the realm of commerce, and is supported by the doctrine that where a policy is delivered without requiring payment of the premium, the presumption is that a credit was intended and policy is valid. 17 Great Pacific Life Assurance Corporation vs. CA, 89 SCRA 543 see case entry 7 18 Philippine American Life and General Insurance Company vs. Valencia-Bagalacsa [GR 139776, 1 August 2002] First Division, Austria-Martinez (J): 4 concur Facts: On 20 June 1995, Eduardo, Celso and Ruben Z. Lumaniog, as legitimate children and forced heirs of their late father, Faustino Lumaniog, filed with the Regional Trial Court of Libmanan, Camarines Sur, a complaint for recovery of sum of money against the Philippine American Life and General Insurance Company (Philamlife) alleging that: their father was insured by Philamlife under Life Insurance Policy 1305486 with a face value of P50,000.00; their father died of "coronary thrombosis" on 25 November 1980; on 22 June 1981, they claimed and continuously claimed for all the proceeds and interests under the life insurance policy in the amount of P641,000.00, despite repeated demands for payment and/or settlement of the claim due from Philamlife, the last of which is on 1 December 1994, Philamlife finally refused or
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disallowed said claim on 14 February 1995; and so, they filed their complaint. Philamlife filed an Answer with Counterclaim and Motion to Dismiss, contending that the cause of action had prescribed and that the Lumaniogs are guilty of laches; that it had denied the latter's claim in a letter dated 12 March 1982, signed by its then Assistant Vice President, Amado Dimalanta, on ground of concealment on the part of the deceased insured Faustino when he asserted in his application for insurance coverage that he had not been treated for indication of "chest pain, palpitation, high blood pressure, rheumatic fever, heart murmur, heart attack or other disorder of the heart or blood vessel" when in fact he was a known hypertensive since 1974; that the Lumaniogs sent a letter dated 25 May 1983 requesting for reconsideration of the denial; in a letter dated 11 July 1983, it reiterated its decision to deny the claim for payment of the proceeds; more than 10 years later, or on 1 December 1994, it received a letter from Jose C. Claro, a provincial board member of the province of Camarines Sur, reiterating the early request for reconsideration which it denied in a letter dated 14 February 1995. The Lumaniogs opposed the motion to dismiss. On 7 June 1996, the RTC issued an Order as to the necessity of trial on merits. Philamlife's motion for reconsideration was denied by the RTC in its Order dated 22 December 1997 upholding however in the same Order the claim of the Lumaniogs' counsel that the running of the 10-year period was "stopped" on 25 May 1983 when they requested for a reconsideration of the denial and it was only on 14 February 1995 when Philamlife finally decided to deny their claim that the 10year period began to run. Philamlife filed a petition for certiorari (CA-GR 47885) in the Court of Appeals and after the comment of the Lumaniogs and reply of Philamlife, the appellate court rendered its Decision, dated 30 April 1999, dismissed the petition for lack of merit. Philamlife filed the petition for review on certiorari. Issue: Whether the complaint filed by the Lumaniogs for payment of life insurance proceeds is already barred by prescription of action, or whether an extrajudicial demand made after an action has prescribed shall cause the revival of the action. Held: NO DETERMINATION. Philamlife had specifically alleged in the Answer that it had denied the Lumaniogs' claim per its letter dated 11 July 1983. Hence, due process demands that it be given the opportunity to prove that the Lumaniogs had received said letter. Said letter is crucial to Philamlife's defense that the filing of the complaint for recovery of sum of money in June 1995 is beyond the 10-year prescriptive period. The RTC committed a grave abuse of discretion when, in resolving the motion for reconsideration of Philamlife, it arbitrarily ruled in its Order dated 12 December 1997, that the period of 10 years had not yet lapsed. It based its finding on a mere explanation of the Lumaniogs' counsel and not on evidence presented by the parties as to the date when to reckon the prescriptive period. The ruling of the RTC that the cause of action of the Lumaniogs had not prescribed, is arbitrary and patently erroneous for not being founded on evidence on record, and therefore, the same is void. Consequently, while the Court of Appeals did not err in upholding the 7 June 1986 Order of the RTC, it committed a reversible error when it declared that the RTC did not commit any grave abuse of discretion in issuing the Order dated 12 December 1997. The Supreme Court thus partially granted the petition, setting aside the decision of the Court of Appeals dated 30 April 1999 insofar only as it upheld the RTC Order dated 12 December 1997. A new judgment was entered reversing and setting aside the Order dated 12 December 1997 of the Regional Trial Court of Libmanan, Camarines Sur (Branch 56) and affirming its Order dated 20 June 1995. Said RTC was directed to proceed with dispatch with Civil Case L787. 19 Makati Tuscany Condominium Corporation vs. Court of Appeals [GR 95546, 6 November 1992] First Division, Bellosillo (J): 3 concur, 1 on leave Facts: Sometime in early 1982, American Home Assurance Co. (AHAC), represented by American International Underwriters (Phils.), Inc., (AIUI) issued in favor of Makati Tuscany Condominium Corporation (Tuscany) Insurance Policy AH-CPP-9210452 on the latter's building and premises, for a period beginning 1 March 1982 and ending 1 March 1983, with a total premium of P466,103.05. The premium was paid on installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of which were accepted by AHAC. On 10 February 1983, AHAC issued to Tuscany Insurance Policy No. AH-CPP-9210596,
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which replaced and renewed the previous policy, for a term covering 1 March 1903 to 1 March 1984. The premium in the amount of P466,103.05 was again paid on installments on 13 April 1983, 13 July 1983, 3 August 1983, 9 September 1983, and 21 November 1983. All payments were likewise accepted by AHAC. On 20 January 1984, the policy was again renewed and AHAC issued to Tuscany Insurance Policy AH-CPP9210651 for the period 1 March 1984 to 1 March 1985. On this renewed policy, Tuscany made two installment payments, both accepted by AHAC, the first on 6 February 1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00. Thereafter, Tuscany refused to pay the balance of the premium. Consequently, AHAC filed an action to recover the unpaid balance of P314,103.05 for Insurance Policy AHCPP-9210651. In its answer with counterclaim, Tuscany admitted the issuance of Insurance Policy AH-CPP9210651. It explained that it discontinued the payment of premiums because the policy did not contain a credit clause in its favor and the receipts for the installment payments covering the policy for 1984-85, as well as the two (2) previous policies, stated the following reservations: (2) Acceptance of this payment shall not waive any of the company rights to deny liability on any claim under the policy arising before such payments or after the expiration of the credit clause of the policy; and (3) Subject to no loss prior to premium payment. If there be any loss such is not covered. Tuscany further claimed that the policy was never binding and valid, and no risk attached to the policy. It then pleaded a counterclaim for P152,000.00 for the premiums already paid for 1984-85, and in its answer with amended counterclaim, sought the refund of P924,206.10 representing the premium payments for 1982-85. After some incidents, Tuscany and AHAC moved for summary judgment. On 8 October 1987, the trial court dismissed the complaint and the counterclaim. Both parties appealed from the judgment of the trial court. Thereafter, the Court of Appeals rendered a decision modifying that of the trial court by ordering Tuscany to pay the balance of the premiums due on Policy AHCPP-921-651, or P314,103.05 plus legal interest until fully paid, and affirming the denial of the counterclaim. Tuscany filed the petition. Issue: Whether payment by installment of the premiums due on an insurance policy invalidates the contract of insurance. Held: NO. The subject policies are valid even if the premiums were paid on installments. The records clearly show that Tuscany and AHAC intended subject insurance policies to be binding and effective notwithstanding the staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those 3 years, the insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the insurer's intention to honor the policies it issued to Tuscany. Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting and accepting the premiums, although paid on installments, and later deny liability on the lame excuse that the premiums were not prepaid in full. Thus, while the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, the Court was not prepared to rule that the request to make installment payments duly approved by the insurer, would prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy. So is an understanding to allow insured to pay premiums in installments not so proscribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted. It appearing from the peculiar circumstances that the parties actually intended to make the three (3) insurance contracts valid, effective and binding, Tuscany may not be allowed to renege on its obligation to pay the balance of the premium after the expiration of the whole term of the third policy (AHCPP-9210651) in March 1985. Moreover, where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums paid if the insurer was exposed to the risk insured for any period, however brief or momentary.
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20 UCPB General Insurance vs. Masagana Telamart Inc. [GR 137172, 15 June 1999] First Division, Pardo (J): 4 concur Facts: On 15 April 1991, UCPB General Insurance Co. Inc. (UCPBGen) issued 5 insurance policies covering Masagana Telamart, Inc.'s various property described therein against fire, for the period from 22 May 1991 to 22 May 1992. In March 1992, UCPBGen evaluated the policies and decided not to renew them upon expiration of their terms on 22 May 1992. UCPBGen advised Masagana's broker, Zuellig Insurance Brokers, Inc. of its intention not to renew the policies. On 6 April 1992, UCPBGen gave written notice to Masagana of the non-renewal of the policies at the address stated in the policies. On 13 June 1992, fire razed Masagana's property covered by three of the insurance policies UCPBGen issued. On 13 July 1992, Masagana presented to UCPBGen's cashier at its head office 5 manager's checks in the total amount of P225,753.95, representing premium for the renewal of the policies from 22 May 1992 to 22 May 1993. No notice of loss was filed by Masagana under the policies prior to 14 July 1992. On 14 July 1992, Masagana filed with UCPBGen its formal claim for indemnification of the insured property razed by fire. On the same day, 14 July 1992, UCPBGen returned to Masagana the 5 manager's checks that it tendered, and at the same time rejected Masagana's claim for the reasons (a) that the policies had expired and were not renewed, and (b) that the fire occurred on 13 June 1992, before Masagana's tender of premium payment. On 21 July 1992, Masagana filed with the Regional Trial Court, Branch 58, Makati City, a civil complaint against UCPBGen for recovery of P18,645,000.00, representing the face value of the policies covering Masagana's insured property razed by fire, and for attorney's fees. On 23 October 1992, after its motion to dismiss had been denied, UCPBGen filed an answer to the complaint. It alleged that the complaint "fails to state a cause of action"; that UCPBGen was not liable to Masagana for insurance proceeds under the policies because at the time of the loss of Masagana's property due to fire, the policies had long expired and were not renewed. After due trial, on 10 March 1993, the Regional Trial Court, Branch 58, Makati, rendered decision, (1) authorizing and allowing Masagana to consign/deposit with this Court the sum of P225,753.95 (refused by UCPBGen) as full payment of the corresponding premiums for the replacement-renewal policies; (2) declaring Masagana to have fully complied with its obligation to pay the premium thereby rendering the replacement-renewal policy effective and binding for the duration 22 May 1992 until 22 May 1993; and, ordering UCPBGen to deliver forthwith to Masagana the said replacement-renewal policies; (3) declaring two of the policies in force from 22 August 1991 up to 23 August 1992 and 9 August 1991 to 9 August 1992, respectively; and (4) ordering UCPBGen to pay Masagana the sums of: (a) P18,645,000.00 representing the latter's claim for indemnity under three policies and/or its replacement-renewal policies; (b) 25% of the total amount due as and for attorney's fees; (c) P25,000.00 as necessary litigation expenses; and, (d) the costs of suit. In due time, UCPBGen appealed to the Court of Appeals. On 7 September 1998, the Court of Appeals promulgated its decision affirming that of the Regional Trial Court with the modification that item 3 of the dispositive portion was deleted, and the award of attorney's fees was reduced to 10% of the total amount due. The Court of Appeals held that following previous practise, Masagana was allowed a 60 to 90 day credit term for the renewal of its policies, and that the acceptance of the late premium payment suggested an understanding that payment could be made later. UCPBGen appealed. Issue: Whether the fire insurance policies issued by UCPBGen to the Masagana covering the period 22 May 1991 to 22 May 1992, had expired on the latter date or had been extended or renewed by an implied credit arrangement though actual payment of premium was tendered on a latter date after the occurrence of the risk (fire) insured against. Held: The answer is easily found in the Insurance Code. No, an insurance policy, other than life, issued originally or on renewal, is not valid and binding until actual payment of the premium. Any agreement to the contrary is void. The parties may not agree expressly or impliedly on the extension of credit or time to pay the premium and consider the policy binding before actual payment. The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo is not applicable. In that case, payment of the premium was in fact actually made on 24
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December 1981, and the fire occurred on 18 January 1982. Here, the payment of the premium for renewal of the policies was tendered on 13 July 1992, a month after the fire occurred on 13 June 1992. The assured did not even give the insurer a notice of loss within a reasonable time after occurrence of the fire. Hence, the Supreme Court reversed and set aside the decision of the Court of Appeals in CA-GR CV 42321. In lieu thereof, the Court rendered judgment dismissing Masagana's complaint and UCPBGen's counterclaims thereto filed with the Regional Trial Court, Branch 58, Makati City, in Civil Case 92-2023, without costs. 21 UCPB General Insurance vs. Masagana Telamart Inc. [GR 137172, 14 April 2001] Resolution En Banc, Davide Jr (CJ): 9 concur, 2 file separate dissenting opinions to which 3 joined Facts: In the Supreme Court's decision of 15 June 1999, it reversed and set aside the decision of the Court of Appeals, which affirmed with modification the judgment of the trial court (a) allowing Masagana to consign the sum of P225,753.95 as full payment of the premiums for the renewal of the five insurance policies on Masagana's properties; (b) declaring the replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering UCPBGen to pay Masagana P18,645,000.00 as indemnity for the burned properties covered by the renewal-replacement policies. The modification consisted in the (1) deletion of the trial court's declaration that three of the policies were in force from August 1991 to August 1992; and (2) reduction of the award of the attorney's fees from 25% to 10% of the total amount due the Masagana. Masagana seasonably filed a motion for the reconsideration of the adverse verdict. Issue [1]: Whether there are exceptions to Section 77, to allow Masagana to recover from UCPBGen. Held [1]: YES. The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the grace period provision applies. The second is that covered by Section 78 of the Insurance Code, which provides that "Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until premium is actually paid." A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals, 5 wherein the Court ruled that Section 77 may not apply if the parties have agreed to the payment in installments of the premium and partial payment has been made at the time of loss. Further, in Tuscany, the Court also quoted with approval the following pronouncement of the Court of Appeals in its Resolution denying the motion for reconsideration of its decision that "While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, We are not prepared to rule that the request to make installment payments duly approved by the insurer would prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy (De Leon, The Insurance Code, p. 175). So is an understanding to allow insured to pay premiums in installments not so prescribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted." By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has also provided a fourth exception to Section 77, namely, that the insurer may grant credit extension for the payment of the premium. This simply means that if the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the expiration of the term, recovery on the policy should be allowed even though the premium is paid after the loss but within the credit term. Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term within which to pay the premiums. That agreement is not against the law, morals, good customs, public order or public policy. The agreement binds the parties. Herein, it would be unjust and inequitable if recovery on the policy would not be permitted against UCPBGen, which had consistently
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granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge under said Section, since Masagana relied in good faith on such practice. Estoppel then is the fifth exception to Section 77. 22 American Home Assurance Company vs. Chua [GR 130421, 28 June 1999] First Division, Davide Jr. (CJ): 4 concur Facts: American Home Assurance Company (AHAC) is a domestic corporation engaged in the insurance business. Sometime in 1990, Antonio Chua obtained from AHAC a fire insurance covering the stock-in-trade of his business, Moonlight Enterprises, located at Valencia, Bukidnon. The insurance was due to expire on 25 March 1990. On 5 April 1990 Chua issued PCIBank Check 352123 in the amount of P2,983.50 to AHACs agent, James Uy, as payment for the renewal of the policy. In turn, the latter delivered Renewal Certificate 00099047 to Chua. The check was drawn against a Manila bank and deposited in AHACs bank account in Cagayan de Oro City. The corresponding official receipt was issued on 10 April. Subsequently, a new insurance policy, Policy 206-4234498-7, was issued, whereby AHAC undertook to indemnify Chua for any damage or loss arising from fire up to P200,000 for the period 25 March 1990 to 25 March 1991. On 6 April 1990 Moonlight Enterprises was completely razed by fire. Total loss was estimated between P4,000,000 and P5,000,000. Chua filed an insurance claim with AHAC and four other co-insurers, namely, Pioneer Insurance and Surety Corporation, Prudential Guarantee and Assurance, Inc., Filipino Merchants Insurance Co. and Domestic Insurance Company of the Philippines. AHAC refused to honor the claim notwithstanding several demands by Chua, thus, the latter filed an action against AHAC before the trial court. In its defense, AHAC claimed there was no existing insurance contract when the fire occurred since Chua did not pay the premium. It also alleged that even assuming there was a contract, Chua violated several conditions of the policy, particularly: (1) his submission of fraudulent income tax return and financial statements; (2) his failure to establish the actual loss, which AHAC assessed at P70,000; and (3) his failure to notify to AHAC of any insurance already effected to cover the insured goods. These violations, AHAC insisted, justified the denial of the claim. The trial court ruled in favor of Chua. It found that Chua paid by way of check a day before the fire occurred. The check, which was deposited in AHACs bank account, was even acknowledged in the renewal certificate issued by AHACs agent. It declared that the alleged fraudulent documents were limited to the disparity between the official receipts issued by the Bureau of Internal Revenue (BIR) and the income tax returns for the years 1987 to 1989. All the other documents were found to be genuine. Nonetheless, it gave credence to the BIR certification that Chua paid the corresponding taxes due for the questioned years. As to Chuas failure to notify AHAC of the other insurance contracts covering the same goods, the trial court held that AHAC failed to show that such omission was intentional and fraudulent. Finally, it noted that AHACs investigation of Chua's claim was done in collaboration with the representatives of other insurance companies who found no irregularity therein. In fact, Pioneer Insurance and Surety Corporation and Prudential Guarantee and Assurance, Inc. promptly paid the claims filed by Chua. The trial court ordered AHAC to pay Chua P200,000.00, representing the amount of the insurance, plus legal interest from the date of filing of the case; P200,000.00 as moral damages; P200,000.00 as loss of profit; P100,000.00 as exemplary damages; P50,000.00 as attorneys fees; and Cost of suit. On appeal, the assailed decision was affirmed in toto by the Court of Appeals. The Court of Appeals found that Chuas claim was substantially proved and AHACs unjustified refusal to pay the claim entitled Chua to the award of damages. Its motion for reconsideration of the judgment having been denied, AHAC filed the petition for review on certiorari. Issue: Whether there was a valid payment of premium, considering that Chuas check was cashed after the occurrence of the fire. Held: YES. The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and binding. The only exceptions are life and industrial life insurance. Whether payment was indeed made is a question of fact which is best determined by the trial court. The trial court found, as affirmed by the Court of Appeals, that there was a valid check payment by Chua to AHAC. Well-settled is the rule that the
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factual findings and conclusions of the trial court and the Court of Appeals are entitled to great weight and respect, and will not be disturbed on appeal in the absence of any clear showing that the trial court overlooked certain facts or circumstances which would substantially affect the disposition of the case. The Supreme Cpurt sees no reason to depart from this ruling. According to the trial court the renewal certificate issued to Chua contained the acknowledgment that premium had been paid. It is not disputed that the check drawn by Chua in favor of AHAC and delivered to its agent was honored when presented and AHAC forthwith issued its official receipt to Chua on 10 April 1990. Section 306 of the Insurance Code provides that any insurance company which delivers a policy or contract of insurance to an insurance agent or insurance broker shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon. Herein, the best evidence of such authority is the fact that AHAC accepted the check and issued the official receipt for the payment. It is, as well, bound by its agents acknowledgment of receipt of payment. Section 78 of the Insurance Code explicitly provides that "An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid." This Section establishes a legal fiction of payment and should be interpreted as an exception to Section 77. 23 Tibay vs. Court of Appeals [GR 119655, 24 May 1996] First Division, Bellosillo (J): 2 concur, 1 filed a separate opinion to which 1 joined Facts: On 22 January 1987, Fortune Life and General Insurance Co., Inc. (Fortune) issued Fire Insurance Policy 136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-storey residential building located at 5855 Zobel Street, Makati City, together with all their personal effects therein. The insurance was for P600,000.00 covering the period from 23 January 1987 to 23 January 1988. On 23 January 1987, of the total premium of P2,983.50, petitioner Violeta Tibay only paid P600.00 thus leaving a considerable balance unpaid. On 8 March 1987 the insured building was completely destroyed by fire. Two days later or on 10 March 1987 Violeta Tibay paid the balance of the premium. On the same day, she filed with Fortune a claim on the fire insurance policy. Her claim was accordingly referred to its adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately wrote Violeta requesting her to furnish it with the necessary documents for the investigation and processing of her claim. Petitioner forthwith complied. On 28 March 1987 she signed a non-waiver agreement with GASI to the effect that any action taken by the companies or their representatives in investigating the claim made by the claimant for his loss which occurred at 5855 Zobel Roxas, Makati on 8 March 1987, or in the investigating or ascertainment of the amount of actual cash value and loss, shall not waive or invalidate any condition of the policies of such companies held by said claimant, nor the rights of either or any of the parties to this agreement, and such action shall not be, or be claimed to be, an admission of liability on the part of said companies or any of them. In a letter dated 11 June 1987 Fortune denied the claim of Violeta for violation of Policy Condition 2 and of Section 77 of the Insurance Code. Efforts to settle the case before the Insurance Commission proved futile. On 3 March 1988 Violeta and the other petitioners (Antonio Tibay, Ofelia M. Roraldo, Victorina M. Roraldo, Virgilio M. Roraldo, Myrna M. Roraldo, and Rosabella M. Roraldo) sued Fortune for damages in the amount of P600,000.00 representing the total coverage of the fire insurance policy plus 12% interest per annum, P100,000.00 moral damages, and attorney's fees equivalent to 20% of the total claim. On 19 July 1990 the trial court ruled for Tibay, et al. and adjudged Fortune liable for the total value of the insured building and personal properties in the amount of P600,000.00 plus interest at the legal rate of 6% per annum from the filing of the complaint until full payment, and attorney's fees equivalent to 20% of the total amount claimed plus costs of suit. On 24 March 1995 the Court of Appeals reversed the court a quo by declaring Fortune not to be liable to Tibay et al. but ordering Fortune to return to the former the premium of P2,983.50 plus 12% interest from 10 March 1987 until full payment. Tibay, et al. filed the petition for review. Issue: Whether a fire insurance policy be valid, binding and enforceable upon mere partial payment of
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premium. Held: NO. Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. The consideration is the premium, which must be paid at the time and in the way and manner specified in the policy, and if not so paid, the policy will lapse and be forfeited by its own terms. The Policy provides for payment of premium in full. Accordingly, where the premium has only been partially paid and the balance paid only after the peril insured against has occurred, the insurance contract did not take effect and the insured cannot collect at all on the policy. This is fully supported by Section 77 of the Insurance Code which provides that "An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies." Apparently the crux of the controversy lies in the phrase "unless and until the premium thereof has been paid." This leads us to the manner of payment envisioned by the law to make the insurance policy operative and binding. For whatever judicial construction may be accorded the disputed phrase must ultimately yield to the clear mandate of the law. The principle that where the law does not distinguish the court should neither distinguish assumes that the legislature made no qualification on the use of a general word or expression. It cannot be disputed that premium is the elixir vitae of the insurance business because by law the insurer must maintain a legal reserve fund to meet its contingent obligations to the public, hence, the imperative need for its prompt payment and full satisfaction. It must be emphasized here that all actuarial calculations and various tabulations of probabilities of losses under the risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon this bedrock insurance firms are enabled to offer the assurance of security to the public at favorable rates. But once payment of premium is left to the whim and caprice of the insured, as when the courts tolerate the payment of a mere P600.00 as partial undertaking out of the stipulated total premium of P2,983.50 and the balance to be paid even after the risk insured against has occurred, as Tibay et al. have done in this case, on the principle that the strength of the vinculum juris is not measured by any specific amount of premium payment, we will surely wreak havoc on the business and set to naught what has taken actuarians centuries to devise to arrive at a fair and equitable distribution of risks and benefits between the insurer and the insured. 24 Philippine Phoenix Surety & Insurance Company vs. Woodworks Inc. [GR L-25317, 6 August 1979] First Division, Melencio-Herrera (J): 4 concur, 1 abroad. Facts: On 21 July 1960, upon Woodworks Inc.'s application, Philippine Phoenix Surety & Insurance Company (Phoenix) issued in its favor Fire Insurance Policy 9749 for P500,000.00 whereby Phoenix insured Woodworks Inc.'s building, machinery and equipment for a term of one year from 21 July 1960 to 21 July 1961 against loss by fire. The premium and other charges including the margin fee surcharge of P590.76 and the documentary stamps in the amount of P156.60 affixed on the Policy, amounted to P10,593.36. Woodworks Inc. did not pay the premium stipulated in the Policy when it was issued nor at any time thereafter. On 19 April 1961, or before the expiration of the one-year term, Phoenix notified Woodworks Inc., through its Indorsement F-6963/61, of the cancellation of the Policy allegedly upon request of Woodworks Inc. The latter has denied having made such a request. In said Indorsement, Phoenix credited Woodworks Inc. with the amount of P3,110.25 for the unexpired period of 94 days, and claimed the balance of P7,483.11 representing "earned premium from 21 July 1960 to 18 April 1961 or, say 271 days. On 6 July 1961, Phoenix demanded in writing for the payment of said amount. Woodworks Inc., through counsel, disclaimed any liability in its reply-letter of 15 August 1961, contending, in essence, that it need not pay premium "because the Insurer did not stand liable for any indemnity during the period the premiums were not paid." On 30 January 1962, Phoenix commenced action in the Court of First Instance of Manila, Branch IV (Civil Case 49468), to recover the amount of P7,483.11 as "earned premium." Woodworks Inc. controverted basically on the theory that its failure "to pay the premium after the issuance of the policy put an end to the insurance
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contract and rendered the policy unenforceable." On 13 September 1962, judgment was rendered in Phoenix's favor "ordering Woodworks Inc. to pay Phoenix the sum of P7,483.11, with interest thereon at the rate of 6% per annum from 30 January 1962, until the principal shall have been fully paid, plus the sum of P700.00 as attorney's fees of the Phoenix, and the costs of the suit." From this adverse Decision, Woodworks Inc. appealed to the Court of Appeals which certified the case to the Supreme Court on a question of law. Issue: Whether the Fire Insurance Policy was a binding contract even if the premium stated in the policy has not been paid. Held: Insurance is "a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event." The consideration is the "premium". "The premium must be paid at the time and in the way and manner specified in the policy and, if not so paid, the policy will lapse and be forfeited by its own terms." The Policy provides for pre-payment of premium. Accordingly, "when the policy is tendered the insured must pay the premium unless credit is given or there is a waiver, or some agreement obviating the necessity for prepayment." To constitute an extension of credit there must be a clear and express agreement therefor. From the Policy provisions, there was no clear agreement that a credit extension was accorded Woodworks Inc. And even if it were to be presumed that Phoenix had extended credit from the circumstances of the unconditional delivery of the Policy without prepayment of the premium, yet it is obvious that Woodworks Inc. had not accepted the insurer's offer to extend credit, which is essential for the validity of such agreement. An acceptance of an offer to allow credit, if one was made, is as essential to make a valid agreement for credit, to change a conditional delivery of an insurance policy to an unconditional delivery, as it is to make any other contract. Such an acceptance could not be merely a mental act or state of mind, but would require a promise to pay made known in some manner to Woodworks Inc. In this respect, the present case differs from that involving the same parties where recovery of the balance of the unpaid premium was allowed inasmuch as in that case "there was not only a perfected contract of insurance but a partially performed one as far as the payment of the agreed premium was concerned." This is not the situation obtaining here where no partial payment of premiums has been made whatsoever. Since the premium had not been paid, the policy must be deemed to have lapsed. The nonpayment of premiums does not merely suspend but puts an end to an insurance contract, since the time of the payment is peculiarly of the essence of the contract. The rule is that under policy provisions that upon the failure to make a payment of a premium or assessment at the time provided for, the policy shall become void or forfeited, or the obligation of the insurer shall cease, or words to like effect, because the contract so prescribes and because such a stipulation is a material and essential part of the contract. This is true, for instance, in the case of life, health and accident, fire and hail insurance policies. In fact, if the peril insured against had occurred, Phoenix, as insurer, would have had a valid defense against recovery under the Policy it had issued. Explicit in the Policy itself is Phoenix's agreement to indemnify Woodworks Inc. for loss by fire only "after payment of premium. Compliance by the insured with the terms of the contract is a condition precedent to the right of recovery. The burden is on an insured to keep a policy in force by the payment of premiums, rather than on the insurer to exert every effort to prevent the insured from allowing a policy to elapse through a failure to make premium payments. The continuance of the insurer's obligation is conditional upon the payment of premiums, so that no recovery can be had upon a lapsed policy, the contractual relation between the parties having ceased. Moreover, an insurer cannot treat a contract as valid for the purpose of collecting premiums and invalid for the purpose of indemnity. The foregoing findings are buttressed by section 77 of the Insurance Code (Presidential Decree No. 612, promulgated on December 18, 1974), which now provides that no contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, notwithstanding any agreement to the contrary. 25 Bonifacio Brothers Inc. vs. Mora [GR L-20853, 29 May 1967] En Banc, Castro (J): 9 concur

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Facts: Enrique Mora is the owner of an Oldsmobile sedan model 1956, bearing plate QC - 8088. He mortgaged the same to the H.S. Reyes, Inc., with the condition that the former would insure the automobile, with the latter as beneficiary. The automobile was thereafter insured on 23 June 1959 with the State Bonding & Insurance Co. Inc., and motor car insurance policy A-0615 was issued to Mora. During the effectivity of an insurance contract, the car met with an accident. The insurance company then assigned the accident to the H.H. Bayne Adjustment Co. for investigation and appraisal of the damage. Mora, without the knowledge and consent of the H.S. Reyes, Inc., authorized the Bonifacio Bros. Inc. to furnish the labor and materials, some of which were supplied by the Ayala Auto Parts Co. For the cost of labor and materials, Mora was billed at P2,102.73 through the H. H. Bayne Adjustment Co. The insurance company, after claiming a franchise in the amount of P100, drew a check in the amount of P2,002.73, as proceeds of the insurance policy, payable to the order of Mora or H.S. Reyes, Inc., and entrusted the check to the H.H. Bayne Adjustment Co. for disposition and delivery to the proper party. In the meantime, the car was delivered to Mora without the consent of the H.S. Reyes, Inc., and without payment to the Bonifacio Bros. Inc. and Ayala Auto Parts Co. of the cost of repairs and materials. Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed on 8 May 1961 a complaint with the Municipal Court of Manila against Mora and the State Bonding & Insurance Co. Inc. for the collection of the sum of P2,002.73. The insurance company filed its answer with a counterclaim for interpleader, requiring the Bonifacio Bros. Inc. and the H.S. Reyes, Inc. to interplead in order to determine who has a better right to the insurance proceeds in question. Mora was declared in default for failure to appear at the hearing, and evidence against him was received ex parte. However, the counsel for the Bonifacio Bros. Inc., Ayala Auto Parts Co. and State Bonding & Insurance Co. Inc. submitted a stipulation of facts, on the basis of which the Municipal Court rendered a decision declaring the H.S. Reyes, Inc. as having a better right to the disputed amount, and ordering the State Bonding & Insurance Co. Inc. to pay to the H.S Reyes, Inc. the said sum of P2,002.73. From this decision, Bonifacio Bros. Inc. et al. elevated the case to the Court of First Instance of Manila before which the stipulation of facts was reproduced. On 19 October 1962 the latter court rendered a decision, affirming the decision of the Municipal Court. The Bonifacio Bros. Inc. and the Ayala Auto Parts Co. moved for reconsideration of the decision, but the trial court denied the motion. Bonifacio Bros. Inc. et al. appealed. Issue: Whether Bonifacio Bros. has any cause of action to claim indemnity from the insurance contract entered by State Bonding & Insurance Co. and Mora. Held: The insurance contract does not contain any words or clauses to disclose an intent to give any benefit to any repairmen or material men in case of repair of the car in question. The parties to the insurance contract omitted such stipulation, which is a circumstance that supports the said conclusion. On the other hand, the "loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they intended to benefit. It is likewise observed from the brief of the State Bonding & Insurance Company that it has vehemently opposed the assertion or pretension of Bonifacio Bros. that they are privy to the contract. If it were the intention of the Insurance Company to make itself liable to the repair shop or material men, it could have easily inserted in the contract a stipulation to that effect. To hold now that the original parties to the insurance contract intended to confer upon Bonifacio Bros. the benefit claimed by them would require as to ignore the indispensable requisite that a stipulation pour autrui must be clearly expressed by the parties, which the Court cannot do. As regards paragraph 4 of the insurance contract, a perusal thereof would show that instead of establishing privity between Bonifacio Bros. and the insurance company, such stipulation merely establishes the procedure that the insured has to follow in order to be entitled to indemnity for repair. This paragraph therefore should not be construed as bringing into existence in favor of Bonifacio Bros. a right of action against the insurance company as such intention can never be inferred therefrom. Another cogent reason for not recognizing a right of action by Bonifacio Bros. against the insurance company is that "a policy of insurance is a distinct and independent contract between the insured and insurer, and third persons have no right either in a court of equity, or in a court of law, to the proceeds of it, unless there be some contract of trust, expressed or implied, by the insured and third person." Herein, no contract of trust, expressed or implied exists. Thus, no cause of action exists in favor of Bonifacio
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Bros. in so far as the proceeds of insurance are concerned. Bonifacio Bros.' claim, if at all, is merely equitable in nature and must be made effective through Enrique Mora who entered into a contract with the Bonifacio Bros Inc. This conclusion is deducible not only from the principle governing the operation and effect of insurance contracts in general, but is clearly covered by the express provisions of section 50 of the Insurance Act which read that "the insurance shall be applied exclusively to the proper interest of the person in whose name it is made unless otherwise specified in the policy." 26 The Insular Life Assurance Company Ltd. vs. Ebrado [GR L-44059, 28 October 1977] First Division, Martin (J): 5 concur Facts: On 1 September 1968, Buenaventura Cristor Ebrado was issued by the Insular Life Assurance Co., Ltd., Policy 009929 on a whole-life plan for P5,882.00 with a rider for Accidental Death Benefits for the same amount. Buenaventura C. Ebrado designated Carponia T. Ebrado as the revocable beneficiary in his policy. He referred to her as his wife. On 21 October 1969, Buenventura C. Ebrado died as a result of an accident when he was hit by a falling branch of a tree. As the insurance policy was in force, Insular Life stands liable to pay the coverage of the policy in an amount of P11,745.73, representing the face value of the policy in the amount of P5,882.00 plus the additional benefits for accidental death also in the amount of P5,882.00 and the refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums and interest thereon due for January and February, 1969, in the sum of P36.27. Carponia T. Ebrado filed with the insurer a claim for the proceeds of the policy as the designated beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were merely living as husband and wife without the benefit of marriage. Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is the one entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado. In doubt as to whom the insurance proceeds shall be paid, the insurer commenced an action for Interpleader before the Court of First Instance of Rizal on 29 April 1970. On 25 September 1972, the trial court rendered judgment declaring, among others, Carponia T. Ebrado disqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and directing the payment of the insurance proceeds to the estate of the deceased insured. From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on 11 July 1976, the Appellate Court certified the case to the Supreme Court as involving only questions of law. Issue [1]: Whether a common-law wife named as beneficiary in the life insurance policy of a legally married man can claim the proceeds thereof in case of death of the latter. Held[1]: NO. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code (PD 612, as amended) does not contain any specific provision grossly resolutory of the prime question at hand. Section 50 of the Insurance Act which provides that "(t)he insurance shall be applied exclusively to the proper interest of the person in whose name it is made" cannot be validly seized upon to hold that the same includes the beneficiary. The word "interest" highly suggests that the provision refers only to the insured and not to the beneficiary, since a contract of insurance is personal in character. Otherwise, the prohibitory laws against illicit relationships especially on property and descent will be rendered nugatory, as the same could easily be circumvented by modes of insurance. Rather, the general rules of civil law should be applied to resolve this void in the Insurance Law. Article 2011 of the New Civil Code states: "The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this Code." When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by the general rules of the civil law regulating contracts. And under Article 2012 of the same Code, "any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy by the person who cannot make a donation to him." Common-law spouses are, definitely, barred from receiving donations from each other. Article 739 of the new Civil Code provides that "the following donations shall be void: (1) Those made between persons who were guilty of adultery or concubinage at the time of donation; (2) Those made between persons found guilty of the same criminal offense, in consideration thereof; (3) Those made to a public officer or his wife, descendants or
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ascendants by reason of his office. In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the donee may be proved by preponderance of evidence in the same action." In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy which the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012 cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary in the life insurance policy of the person who cannot make the donation. Under American law, a policy of life insurance is considered as a testament and in construing it, the courts will, so far as possible treat it as a will and determine the effect of a clause designating the beneficiary by rules under which wills are interpreted. Policy considerations and dictates of morality rightly justify the institution of a barrier between common-law spouses in regard to property relations since such relationship ultimately encroaches upon the nuptial and filial rights of the legitimate family. There is every reason to hold that the bar in donations between legitimate spouses and those between illegitimate ones should be enforced in life insurance policies since the same are based on similar consideration. As pointed out, a beneficiary in a life insurance policy is no different from a donee. Both the recipients of pure beneficence. So long as marriage remains the threshold of family laws, reason and morality dictate that the impediments imposed upon married couple should likewise be imposed upon extra-marital relationship. If legitimate relationship is circumscribed by these legal disabilities, with more reason should an illicit relationship be restricted by these disabilities. Issue [2]: Whether a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739 may effectuate. Held [2]: NO. A conviction for adultery or concubinage is not exacted before the disabilities mentioned in Article 739 may effectuate. More specifically, with regard to the disability on "persons who were guilty of adultery or concubinage at the time of the donation," Article 739 itself provides that "In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the donee may be proved by preponderance of evidence in the same action." The underscored clause neatly conveys that no criminal conviction for the disqualifying offense is a condition precedent. In fact, it cannot even be gleaned from the aforequoted provision that a criminal prosecution is needed. On the contrary, the law plainly states that the guilt of the party may be proved "in the same action" for declaration of nullity of donation. And, it would be sufficient if evidence preponderates upon the guilt of the consort for the offense indicated. The quantum of proof in criminal cases is not demanded. Herein, the requisite proof of commonlaw relationship between the insured and the beneficiary has been conveniently supplied by the stipulations between the parties in the pre-trial conference of the case. It was agreed upon and stipulated therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six legitimate children; that during his lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado, with whom he has two children. These stipulations are nothing less than judicial admissions which, as a consequence, no longer require proof and cannot be contradicted. A fortiori, on the basis of these admissions, a judgment may be validly rendered without going through the rigors of a trial for the sole purpose of proving the illicit liaison between the insured and the beneficiary. 27 Vda de Consuegra vs. Government Service Insurance System [GR L-28093, 30 January 1971] En Banc, Zaldivar (J): 10 concur Facts: The late Jose Consuegra, at the time of his death, was employed as a shop foreman of the office of the District Engineer in the province of Surigao-del Norte. In his lifetime, Consuegra contracted two marriages, the first with Rosario Diaz, solemnized in the parish church of San Nicolas de Tolentino, Surigao, Surigao, on 15 July 1937, out of which marriage were born two children, namely, Jose Consuegra, Jr. and Pedro Consuegra, but both predeceased their father; and the second, which was contracted in good faith while the
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first marriage was subsisting, with Basilia Berdin, on 1 May 1957 in the same parish and municipality, out of which marriage were born seven children, namely, Juliana, Pacita, Maria Lourdes, Jose, Rodrigo, Lenida and Luz, * all surnamed Consuegra. Being a member of the Government Service Insurance System (GSIS) when Consuegra died on 26 September 1965, the proceeds of his life insurance under policy 601801 were paid by the GSIS to Basilia Berdin and her children who were the beneficiaries named in the policy. Having been in the service of the government for 22.5028 years, Consuegra was entitled to retirement insurance benefits in the sum of P6,304.47 pursuant to Section 12(c) of Commonwealth Act 186 as amended by Republic Acts 1616 and 3836. Consuegra did not designate any beneficiary who would receive the retirement insurance benefits due to him. Rosario Diaz, the widow by the first marriage, filed a claim with the GSIS asking that the retirement insurance benefits be paid to her as the only legal heir of Consuegra, considering that the deceased did not designate any beneficiary with respect to his retirement insurance benefits. Basilia Berdin and her children, likewise, filed a similar claim with the GSIS, asserting that being the beneficiaries named in the life insurance policy of Consuegra, they are the only ones entitled to receive the retirement insurance benefits due the deceased Consuegra. Resolving the conflicting claims, the GSIS ruled that the legal heirs of the late Jose Consuegra were Rosario Diaz, his widow by his first marriage who is entitled to one-half, or 8/16, of the retirement insurance benefits, on the one hand; and Basilia Berdin, his widow by the second marriage and their seven children, on the other hand, who are entitled to the remaining one-half, or 8/16, each of them to receive an equal share of 1/16. Dissatisfied with the foregoing ruling and apportionment made by the GSIS, Basilia Berdin and her children filed on 10 October 1966 a petition for mandamus with preliminary injunction in the Court of First Instance of Surigao del Norte (Special Proceeding 1720) naming as respondents the GSIS, the Commissioner of Public Highways, the Highway District Engineer of Surigao del Norte, the Commissioner of Civil Service, and Rosario Diaz, praying that they (Basilia Berdin, et al.) be declared the legal heirs and exclusive beneficiaries of the retirement insurance of the late Jose Consuegra, and that writ of preliminary injunction be issued restraining implementation of the adjudication made by the GSIS. On 7 March 1967, the court of First Instance of Surigao rendered judgment, holding that when two women innocently and in good faith are legally united in holy matrimony to the same man, they and their children, born of said wedlock, will be regarded as legitimate children and each family be entitled to one half of the estate. The court thus declared that Basilia Berdin Vda. de Consuegra and Juliana, Pacita, Maria Lourdes, Jose Jr., Rodrigo, Lenida and Luis, all surnamed Consuegra, beneficiary and entitled to 1/2 of the retirement benefit in the amount of P6,304.47) due to the deceased Jose Consuegra from the GSIS or the amount of P3,152.235 to be divided equally among them in the proportional amount of 1/16 each. Likewise, Rosario Diaz Vda. de Consuegra is hereby declared beneficiary and entitled to the other half of the retirement benefit of the late Jose Consuegra or the amount of P3,152.235. Basilia Berdin and her children appealed (on purely questions of law). Issue [1]: Whether Basilia Berdin Vda. de Consuegra. who were the beneficiaries named in the life insurance should automatically be considered the beneficiaries to receive the retirement insurance benefits, to the exclusion of Rosario Diaz, when the deceased Jose Consuegra failed to designate the beneficiaries in his retirement insurance. Held [1]: NO. If Consuegra had 22.5028 years of service in the government when he died on 26 September 1965, it follows that he started in the government service sometime during the early part of 1943, or before 1943. In 1943, Commonwealth Act 186 was not yet amended, and the only benefits then provided for in said Act were those that proceed from a life insurance. Upon entering the government service Consuegra became a compulsory member of the GSIS, being automatically insured on his life, pursuant to the provisions of CA 186 which was in force at the time. During 1943 the operation of the GSIS was suspended because of the war, and the operation was resumed sometime in 1946. When Consuegra designated his beneficiaries in his life insurance he could not have intended those beneficiaries of his life insurance s also the beneficiaries of his retirement insurance because the provisions on retirement insurance under the GSIS came about only when CA 186 was amended by RA 660 on 16 June 1951. Hence, it cannot be said that cause Basilia Berdin et al. were designated beneficiaries Consuegra's life insurance they automatically became beneficiaries also of his
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retirement insurance. Issue [2]: Whether the GSIS and the trial court are correct in ruling that each of the wives who contracted marriage to the same man in good faith are each entitled to half of the retirement insurance benefits. Held [2]: YES. In the case of the proceeds of a life insurance, the same are paid to whoever is named the beneficiary in the life insurance policy. As in the case of a life insurance provided for in the Insurance Act (Act 2427, as amended), the beneficiary in a life insurance under the GSIS may not necessarily be an heir of the insured. The insured in a life insurance may designate any person as beneficiary unless disqualified to be so under the provisions of the Civil Code. And in the absence of any beneficiary named in the life insurance policy, the proceeds of the insurance will go to the estate of the insured. Retirement insurance is primarily intended for the benefit of the employee to provide for his old age, or incapacity, after rendering service in the government for a required number of years. If the employee reaches the age of retirement, he gets the retirement benefits even to the exclusion of the beneficiary or beneficiaries named in his application for retirement insurance. The beneficiary of the retirement insurance can only claim the proceeds of the retirement insurance if the employee dies before retirement. If the employee failed or overlooked to state the beneficiary of his retirement insurance, the retirement benefits will accrue his estate and will be given to his legal heirs in accordance with law, as in the case of a life insurance if no beneficiary is named in the insurance policy. The GSIS, therefore, had correctly acted when it ruled that the proceeds of the retirement insurance of the late Jose Consuegra should divided equally between his first living wife Rosario on the one hand, and his second wife Basilia Berdin his children by her, on the other; and the lower court did not commit error when it confirmed the action of the GSIS, it being accepted as a fact that the second marriage of Jose Consuegra to Basilia Berdin was contracted in good faith. The lower court has correctly applied the ruling of this Court in the case of Lao, et al. vs. Dee Tim, et al., 45 Phil. 739. In the recent case of Gomez vs. Lipana, L-23214, June 30, 1970, the Court, in construing the rights of two women who were married to the same man a situation more or less similar to the case of Basilia Berdin and Rosario Diaz held "that since the defendant's first marriage has not been dissolved or declared void the conjugal partnership established by that marriage has not ceased. Nor has the first wife lost or relinquished her status as putative heir of her husband under the new Civil Code, entitled to share in his estate upon his death should she survive him. Consequently, whether as conjugal partner in a still subsisting marriage or as such putative heir she has an interest in the husband's share in the property here in dispute. " And with respect to the right of the second wife, this Court observed that although the second marriage can be presumed to be void ab initio as it was celebrated while the first marriage was still subsisting, still there is need for judicial declaration of such nullity. And inasmuch as the conjugal partnership formed by the second marriage was dissolved before judicial declaration of its nullity, "[t]he only just and equitable solution in this case would be to recognize the right of the second wife to her share of one-half in the property acquired by her and her husband, and consider the other half as pertaining to the conjugal partnership of the first marriage." 28 Go vs. Redfern [GR 47705, 25 April 1941] Second Division, Horrilleno (J): 4 concur Decision in Spanish [Rough translation, accuracy unverified] Facts: In October 1937, Edward K. Redfern obtained an insurance policy against accidents from the International Assurance Co, Ltd. On 31 August 1938, Redfern died from an accident. The mother of the deceased, presenting the necessary evidence of the death of Redfern, sought to claim the proceeds of the insurance policy from the assurance company. The company, however, denied such claim, on the ground that the insurance policy was amended on 22 November 1937 to include another beneficiary, Concordia Go. Hence, an action was filed to determine who has the right to collect the insurance proceeds of the deceased Redfern. The mother claimed that the addition of the co-beneficiary is illegal. Go, on her part, alleged the contrary. The trial court ruled in favor of Angela Redfern, the mother. Go appealed.

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Issue: Whether the addition of Gos name as co-beneficiary can be allowed for her share in the insurance proceeds. Held: When designated in a policy, the beneficiary acquires a right of which he cannot be deprived of without his consent, unless the right has been reserved specifically to the insured to modify the policy. The same doctrine was enunciated by the Court in the cases of Gercio vs. Sun Life Assurance Co. of Canada (48 Phil. 55) and Insular Life vs. Suva (34 Off. Gaz. 861). Thus, unless the insured has reserved specifically the right to change or to modify the policy, with respect to the beneficiary, said policy constitutes an acquired right of the beneficiary, which cannot be modified except with the consent of the latter. Herein, it is admitted that Redfern did not reserve expressly his right to change or modify the policy. Change implies the idea of an alteration. The addition of Go's name as one of the beneficiaries of the policy constitutes change as all addition is an alteration. The addition of Go's name changed the policy inasmuch as there are two beneficiaries instead of one, and thus in effect the original beneficiary cannot recieve the full amount of the policy. The Supreme Court affirmed the appealed judgment in all of its parts, with costs against Go. 29 Country Bankers Insurance Corporation vs. Lianga Bay and Community Multi-Purpose Cooperative Inc. [GR 136914, 25 January 2002] Second Division, De Leon Jr. (J): 4 concur Facts: Country Bankers Insurance Corporation (CBIC) is a domestic corporation principally engaged in the insurance business wherein it undertakes, for a consideration, to indemnify another against loss, damage or liability from an unknown or contingent event including fire while Lianga Baya and Community Multipurpose Cooperative Inc. (LBCMCI) is a duly registered cooperative judicially declared insolvent and represented by the elected assignee, Cornelio Jamero. It appears that sometime in 1989, the CBIC and LBCMCI entered into a contract of fire insurance. Under Fire Insurance Policy F-1397, CBIC insured LBCMCI's stocks-in-trade against fire loss, damage or liability during the period starting from 20 June 1989 at 4:00 p.m. to 20 June 1990 at 4:00 p.m., for the sum of P200,000.00. On 1 July 1989, at or about 12:40 a.m., LBCMCI's building located at Barangay Diatagon, Lianga, Surigao del Sur was gutted by fire and reduced to ashes, resulting in the total loss of LBCMCI's stocks-in-trade, pieces of furniture and fixtures, equipments and records. Due to the loss, LBCMCI filed an insurance claim with CBIC under its Fire Insurance Policy F-1397, submitting: (a) the Spot Report of Pfc. Arturo V. Juarbal, INP Investigator, dated 1 July 1989; (b) the Sworn Statement of Jose Lomocso; and (c) the Sworn Statement of Ernesto Urbiztondo. CBIC, however, denied the insurance claim on the ground that, based on the submitted documents, the building was set on fire by 2 NPA rebels who wanted to obtain canned goods, rice and medicines as provisions for their comrades in the forest, and that such loss was an excepted risk under paragraph 6 of the policy conditions of Fire Insurance Policy F1397, which provides that "This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly, of any of the following occurrences, namely: xxx (d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped power. Any loss or damage happening during the existence of abnormal conditions (whether physical or otherwise) which are occasioned by or through or in consequence, directly or indirectly, of any of said occurrences shall be deemed to be loss or damage which is not covered by this insurance, except to the extent that the Insured shall prove that such loss or damage happened independently of the existence of such abnormal conditions." Finding the denial of its claim unacceptable, LBCMCI then instituted in the trial court the complaint for recovery of "loss, damage or liability" against CBIC. In due time, the trial court rendered its Decision dated 26 December 1991 in favor of LBCMCI, ordering CBIC to pay LBCMCI to fully pay the insurance claim for the loss LBCMCI sustained as a result of the fire under its Fire Insurance Policy F-1397 in its full face value of P200,000.00 with interest of 12% per annum from date of filing of the complaint until the same is fully paid; to pay as and in the concept of actual or compensatory damages in the total sum of P50,000.00; to pay as and in the concept of exemplary damages in the total sum of P50,000.00; to pay in the concept of litigation expenses the sum of P5,000.00; to pay by way of reimbursement the attorney's fees in the sum of P10,000.00; and to pay the costs of the suit. CBIC interposed an appeal to the Court of Appeals. On 29 December 1998, the appellate court
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affirmed the challenged decision of the trial court in its entirety. CBIC filed the petition for review on certiorari. Issue: Whether the burden of proof of loss in this case is upon the insurer, and not the insured. Held: YES. CBIC does not dispute that LBCMCI's stocks-in-trade were insured against fire loss, damage or liability under Fire Insurance Policy F-1397 and that LBCMCI lost its stocks-in-trade in a fire that occurred on 1 July 1989, within the duration of said fire insurance. CBIC, however, posits the view that the cause of the loss was an excepted risk under the terms of the fire insurance policy. Where a risk is excepted by the terms of a policy which insures against other perils or hazards, loss from such a risk constitutes a defense which the insurer may urge, since it has not assumed that risk, and from this it follows that an insurer seeking to defeat a claim because of an exception or limitation in the policy has the burden of proving that the loss comes within the purview of the exception or limitation set up. If a proof is made of a loss apparently within a contract of insurance, the burden is upon the insurer to prove that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability. Stated elsewise, since CBIC in this case is defending on the ground of non-coverage and relying upon an exemption or exception clause in the fire insurance policy, it has the burden of proving the facts upon which such excepted risk is based, by a preponderance of evidence. But CBIC failed to do so. CBIC relies on the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo as well as on the Spot Report of Pfc. Arturo V. Juarbal dated 1 July 1989. The Sworn Statements of Jose Lomocso and Ernesto Urbiztondo are inadmissible in evidence, for being hearsay, inasmuch as they did not take the witness stand and could not therefore be cross-examined. CBIC's evidence to prove its defense is sadly wanting and thus, gives rise to its liability to LBCMCI under Fire Insurance Policy F-1397. 30 Roque vs. Intermediate Appellate Court [GR L-66935, 11 November 1985] First Division, Gutierrez (J): 5 concur, 1 on leave Facts: On 19 February 1972, the Manila Bay Lighterage Corporation (MBLC) a common carrier, entered into a contract with Isabela Roque (doing business under the name and style of Isabela Roque Timber Enterprises) and Ong Chiong whereby the former would load and carry on board its barge Mable 10 about 422.18 cubic meters of logs from Malampaya Sound, Palawan to North Harbor, Manila. Roque and Ong insured the logs against loss for P100,000.00 with the Pioneer Insurance and Surety Corporation (Pioneer). On 29 February 1972, Roque and Ong loaded on the barge, 811 pieces of logs at Malampaya Sound, Palawan for carriage and delivery to North Harbor, Port of Manila, but the shipment never reached its destination because Mable 10 sank with the 811 pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila. The barge where the logs were loaded was apparently not seaworthy such that it developed a leak. One of the hatches was left open causing water to enter the barge and because the barge was not provided with the necessary cover or tarpaulin, the ordinary splash of sea waves brought more water inside the barge. On 8 March 1972, Roque and Ong wrote a letter to MBLC demanding payment of P150,000.00 for the loss of the shipment plus P100,000.00 as unrealized profits but the latter ignored the demand. Another letter was sent to Pioneer claiming the full amount of P100,000.00 under the insurance policy but Pioneer refused to pay on the ground that its liability depended upon the "Total loss by Total Loss of Vessel only". Hence, Roque and Ong commenced Civil Case 86599 against MBLC and Pioneer Pioneer. During the initial stages of the hearing, MBLC informed the trial court that it had salvaged part of the logs. The court ordered them to be sold to the highest bidder with the funds to be deposited in a bank in the name of Civil Case 86599. After hearing, the trial court found in favor of Roque and Ong, condemning MBLC and Pioneer to pay Roque and Ong, jointly and severally, the sum of P100,000.00; sentencing MBLC to pay Roque and Ong, in addition, the sum of P50,000.00, plus P12,500.00, that the latter advanced to the former as down payment for transporting the logs in question; ordering the counterclaim of Pioneer against Roque and Ong, dismissed, for lack of merit, but as to its cross-claim against its MBLC, the latter is ordered to reimburse the former for whatever amount it may pay Roque and Ong as such surety; ordering the counterclaim of MBLC against Roque and Ong, dismissed
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for lack of merit; dismissing Roque's and Ong's claim of not less than P100,000.00 and P75,000.00 as exemplary damages, for lack of merit; granting Roque's and Ong's claim for attorney's fees in the sum of P10,000.00; ordering MBLC and Pioneer to pay the costs; and holding that the sum of P150,000.00 award to Roque and Ong, shall bear interest of 6% from 25 March 1975, until amount is fully paid. Pioneer appealed to the Intermediate Appellate Court. MBLC did not appeal, as allegedly, the transportation company is no longer doing business and is without funds. On 30 January 1984, the appellate court modified the trial court's decision and absolved Pioneer from liability after finding that there was a breach of implied warranty of seaworthiness on the part of Roque and Ong and that the loss of the insured cargo was caused by the "perils of the ship" and not by the "perils of the sea". It ruled that the loss is not covered by the marine insurance policy. After the appellate court denied their motion for reconsideration, Roque and Ong filed the petition for certiorari. Issue [1]: Whether there is a warranty of seaworthiness by the cargo owner in cases of marine cargo insurance. Held [1]: YES. There is no dispute over the liability of the common carrier MBLC. In fact, it did not bother to appeal the questioned decision. However, Roque and Ong state that MBLC has ceased operating as a firm and nothing may be recovered from it. They are, therefore, trying to recover their losses from the insurer. The liability of the insurance company is governed by law. Section 113 of the Insurance Code provides that "In every marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject of marine insurance, a warranty is implied that the ship is seaworthy." Section 99 of the same Code also provides in part that "Marine insurance includes: (1) Insurance against loss of or damage to: (a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise..." From the above-quoted provisions, there can be no mistaking the fact that the term "cargo" can be the subject of marine insurance and that once it is so made, the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo whether he be the shipowner or not. As ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40 Phil. 40), "it is universally accepted that in every contract of insurance upon anything which is the subject of marine insurance, a warranty is implied that the ship shall be seaworthy at the time of the inception of the voyage. This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106)." Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is immaterial in ordinary marine insurance and may not be used by him as a defense in order to recover on the marine insurance policy. As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406), "the exception of losses occasioned by unseaworthiness was in effect a warranty that a loss should not be so occasioned, and whether the fact of unseaworthiness were known or unknown would be immaterial." Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine insurance, it becomes the obligation of a cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. The shipper of cargo may have no control over the vessel but he has full control in the choice of the common carrier that will transport his goods. Or the cargo owner may enter into a contract of insurance which specifically provides that the insurer answers not only for the perils of the sea but also provides for coverage of perils of the ship. The Court was constrained to apply Section 113 of the Insurance Code to the facts of this case. "In marine cases, the risks insured against are 'perils of the sea' (Chute v. North River Ins. Co., Minn. 214 NW 472, 55 ALR 933). The purpose of such insurance is protection against contingencies and against possible damages and such a policy does not cover a loss or injury which must inevitably take place in the ordinary course of things. There is no doubt that the term 'perils of the sea' extends only to losses caused by sea damage, or by the violence of the elements, and does not embrace all losses happening at sea. They insure against losses from extraordinary occurrences only, such as stress of weather, winds and waves, lightning, tempests, rocks and the like. These are understood to be the 'perils of the sea' referred in the policy, and not those ordinary perils which every vessel must encounter. 'Perils of the sea' has been said to include only such losses as are of extraordinary nature, or arise from some overwhelming power, which cannot be guarded against by the ordinary exertion of human skill and prudence. Damage done to a vessel by perils of the sea includes every species of damages done to a vessel at sea, as distinguished from the ordinary wear and tear of the voyage,
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and distinct from injuries suffered by the vessel in consequence of her not being seaworthy at the outset of her voyage (as in this case). It is also the general rule that everything which happens thru the inherent vice of the thing, or by the act of the owners, master or shipper, shall not be reputed a peril, if not otherwise borne in the policy. (14 RCL on 'Insurance', Sec. 384, pp. 1203-1204; Cia. de Navegacion v. Firemen's Fund Ins. Co., 277 US 66, 72 L. ed. 787, 48 S. Ct. 459)." Issue [2]: Whether the loss of the cargo was due to the perils of the ship rather than the perils of the sea. Held [2]: PERILS OF THE SHIP. At the time Mable 10 sank, there was no typhoon but ordinary strong wind and waves, a condition which is natural and normal in the open sea. The evidence shows that the sinking of Mable 10 was due to improper loading of the logs on one side so that the barge was tilting on one side and for that it did not navigate on even keel; that it was no longer seaworthy that was why it developed leak; that the personnel of the tugboat and the barge committed a mistake when it turned loose the barge from the tugboat east of Cabuli point where it was buffeted by storm and waves, while the tugboat proceeded to west of Cabuli point where it was protected by the mountain side from the storm and waves coming from the east direction. In fact, in Roque's and Ong's complaint, it is alleged that the barge Mable 10 of MBLC developed a leak which allowed water to come in and that one of the hatches of said barge was negligently left open by the person in charge thereof causing more water to come in", and that "he loss of their cargo was due to the fault, negligence, and/or lack of skill of MBLC and/or MBLC's representatives on barge Mable 10. It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the perils of the sea. The facts clearly negate Roque's and Ong's claim under the insurance policy. In the case of Go Tiaoco y Hermanos v. Union Ins. Society of Canton, the Court had occasion to elaborate on the term "perils of the ship" when it ruled that "It must be considered to be settled, furthermore, that a loss which, in the ordinary course of events, results from the natural and inevitable action of the sea, from the ordinary wear and tear of the ship, or from the negligent failure of the ship's owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly called the 'peril of the ship.' The insurer undertakes to insure against perils of the sea and similar perils, not against perils of the ship. As was well said by Lord Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887], 12 A. C., 503, 509), there must, in order to make the insurer liable, be 'some casualty, something which could not be foreseen as one of the necessary incidents of the adventure. The purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen. 31 La Razon Social "Go Tiaoco y Hermanos" vs. Union Insurance Society of Canton Ltd. [GR 13983, 1 September 1919] First Division, Street (J): 6 concur, 1 dissents Facts: A cargo of rice belonging to the Go Tiaoco Brothers, was transported in the early days of May, 1915, on the steamship Hondagua from the port of Saigon to Cebu. On discharging the rice from one of the compartments in the after hold, upon arrival at Cebu, it was discovered that 1,473 sacks had been damaged by sea water. The loss so resulting to the owners of rice, after proper deduction had been made for the portion saved, was P3,875. The policy of insurance, covering the shipment, was signed upon a form long in use among companies engaged in maritime insurance. It purports to insure the cargo from the following among other risks: "Perils . . . of the seas, men, of war, fire, enemies, pirates, rovers, thieves, .jettisons, . . . barratry of the master and mariners, and of all other perils, losses, and misfortunes that have or shall come to the hurt, detriment, or damage of the said goods and merchandise or any part thereof." It was found out that the drain pipe which served as a discharge from the water closet passed down through the compartment where the rice in question was stowed and thence out to sea through the wall of the compartment, which was a part of the wall of the ship. The joint or elbow where the pipe changed its direction was of cast iron; and in course of time it had become corroded and abraded until a longitudinal opening had appeared in the pipe about one inch in length. This hole had been in existence before the voyage was begun, and an attempt had been made to repair it by filling with cement and bolting over it a strip of iron. The effect of loading the boat was to
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submerge the vent, or orifice, of the pipe until it was about 18 inches or 2 feet below the level of the sea. As a consequence the sea water rose in the pipe. Navigation under these conditions resulted in the washing out of the cement-filling from the action of the sea water, thus permitting the continued flow of the salt water into the compartment of rice. An action on a policy of marine insurance issued by the Union Insurance Society of Canton, Ltd., upon the cargo of rice belonging to the Go Tiaoco Brothers was filed. The trial court found that the inflow of the sea water during the voyage was due to a defect in one of the drain pipes of the ship and concluded that the loss was not covered by the policy of insurance. Judgment was accordingly entered in favor of Union Insurance and Go Tiaoco Brothers appealed. Issue [1]: Whether perils of the sea includes entrance of water into the ships hold through a defective pipe. Held [1]: NO. It is determined that the words "all other perils, losses, and misfortunes" are to be interpreted as covering risks which are of like kind (ejusdem generis) with the particular risks which are enumerated in the preceding part of the same clause of the contract. According to the ordinary rules of construction these words must be interpreted with reference to the words which immediately precede them. They were no doubt inserted in order to prevent disputes founded on nice distinctions. Their office is to cover in terms whatever may be within the spirit of the cases previously enumerated, and so they have a greater or less effect as a narrower or broader view is taken of those cases. For example, if the expression "perils of the seas" is given its widest sense the general words have little or no effect as applied to that case. If on the other hand that expression is to receive a limited construction and loss by perils of the seas is to be confined to loss ex marine tempestatis discrimine, the general words become most important. But still, when they first became the subject of judicial construction, they have always been held or assumed to be restricted to cases "akin to" or "resembling" or "of the same kind as" those specially mentioned. I see no reason for departing from this settled rule. In marine insurance it is above all things necessary to abide by settled rules and to avoid anything like novel refinements or a new departure. It must be considered to be settled, furthermore, that a loss which, in the ordinary course of events, results from the natural and inevitable action of the sea, from the ordinary wear and tear of the ship, or from the negligent failure of the ship's owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly called the "peril of the ship." The insurer undertakes to insure against perils of the sea and similar perils, not against perils of the ship. There must, in order to make the insurer liable, be "some casualty, something which could not be foreseen as one of the necessary incidents of the adventure. The purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen." Herein, the entrance of the sea water into the ship's hold through the defective pipe already described was not due to any accident which happened during the voyage, but to the failure of the ship's owner properly to repair a defect of the existence of which he was apprised. The loss was therefore more analogous to that which directly results from simple unseaworthiness than to that which results from perils of the sea. Issue [2]: Whether there is an implied warranty on the seaworthy of the vessel in every marine insurance contract. Held [2]: YES. It is universally accepted that in every contract of insurance upon anything which is the subject of marine insurance, a warranty is implied that the ship shall be seaworthy at the time of the inception of the voyage. This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). It is also well settled that a ship which is seaworthy for the purpose of insurance upon the ship may yet be unseaworthy for the purpose of insurance upon the cargo (Act No. 2427, sec. 106). 32 Cathay Insurance Co. vs. Court of Appeals [GR 76145, 30 June 1987] Second Division, Paras (J): 3 concur, 2 took no part Facts: A complaint was filed by Remington Industrial Sales Corporation against Cathay Insurance Co. seeking collection of the sum of P868,339.15 representing Remington's losses and damages incurred in a
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shipment of seamless steel pipes under an insurance contract in favor of Remington as the insured, consignee or importer of aforesaid merchandise while in transit from Japan to the Philippines on board vessel SS "Eastern Mariner." The total value of the shipment was P2,894,463.83 at the prevailing rate of P7.95 to a dollar in June and July 1984, when the shipment was made. The trial court decided in favor of Remington by ordering Cathay Insurance to pay it the sum of P866,339.15 as its recoverable insured loss equivalent to 30% of the value of the seamless steel pipes; ordering Cathay Insurance to pay Remington interest on the aforecited amount at the rate of 34% or double the ceiling prescribed by the Monetary Board per annum from 3 February 1982 or 90 days from Remington's submission of proof of loss to Cathay Insurance until paid as provided in the settlement of claim provision of the policy; and ordering Cathay Insurance to pay Remington certain amounts for marine surveyor's fee, attorney's fees and costs of the suit. On appeal, the Court of Appeals affirmed the decision of the Regional Trial Court National Capital Region (NCR) Manila, Branch 38. Cathay Insurance moved for reconsideration, but was denied. It thus filed the petition for review. Remington, in its comment on the petition, contends that (1) Coverage of Remington's loss under the insurance policy issued by Cathay Insurance is unmistakable; (2) Alleged contractual limitations contained in insurance policies are regarded with extreme caution by courts and are to be strictly construed against the insurer; obscure phrases and exceptions should not be allowed to defeat the very purpose for which the policy was procured; (3) Rust is not an inherent vice of the seamless steel pipes without interference of external factors; (4) No matter how Cathay Insurance might want it otherwise, the 15-day clause of the policy had been foreclosed in the pre-trial order and it was not even raised in Cathay Insurance's answer to Remington's complaint; (5) The decision was correct in not holding that the heavy rusting of the seamless steel pipes did not occur during the voyage of 7 days from July 1 to July 7, 1981; (6) The alleged lack of supposed bad order survey from the arrastre capitalized on by Cathay Insurance was more than clarified by no less than 2 witnesses; (7) The placing of notation "rusty" in the way bills is not only Remington's right but a natural and spontaneous reaction of whoever received the seamless steel pipes in a rusty condition at Remington's bodega; (8) The Court of Appeals did not engage in any guesswork or speculation in concluding a loss allowance of 30% in the amount of P868,339.15; and (9) The rate of 34% per annum double the ceiling prescribed by the Monetary Board is the rate of interest fixed by the Insurance Policy itself and the Insurance Code. Cathay Insurance however maintains that (1) Remington does not dispute the fact that, contrary to the finding of the respondent Court (that Cathay Insurance has failed "to present any evidence of any viable exception to the application of the policy") there is in fact an express exception to the application of the policy; (2) As adverted to in the Petition for Review, Remington has admitted that the questioned shipment is not covered by a "square provision of the contract," but Remington claims implied coverage from the phrase "perils of the sea" mentioned in the opening sentence of the policy; (3) The insistence of Remington that rusting is a peril of the sea is erroneous; (4) Remington inaccurately invokes the rule of strict construction against insurer under the guise of construction in order to impart a non-existing ambiguity or doubt into the policy so as to resolve it against the insurer; (5) Remington while impliedly admitting that a loss occasioned by an inherent defect or vice in the insured article is not within the terms of the policy, erroneously insists that rusting is not an inherent vice or in the nature of steel pipes; (6) Rusting is not a risk insured against, since a risk to be insured against should be a casualty or some casualty, something which could not be foreseen as one of the necessary incidents of adventure; (7) A fact capable of unquestionable demonstration or of public knowledge needs no evidence. This fact of unquestionable demonstration or of public knowledge is that heavy rusting of steel or iron pipes cannot occur within a period of a 7 day voyage. Besides, Cathay Insurance had introduced the clear cargo receipts or tally sheets indicating that there was no damage on the steel pipes during the voyage; and (8) The evidence of Remington betrays the fact that the account of P868,339.15 awarded by the respondent Court is founded on speculation, surmises or conjectures and the amount of less has not been proven by competent, satisfactory and clear evidence. Issue: Whether the rusting of steel pipes in the course of a voyage is a "peril of the sea," and whether rusting is a risk insured against.

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Held: YES. There is no question that the rusting of steel pipes in the course of a voyage is a "peril of the sea" in view of the toll on the cargo of wind, water, and salt conditions. At any rate if the insurer cannot be held accountable therefor, the Court would fail to observe a cardinal rule in the interpretation of contracts, namely, that any ambiguity therein should be construed against the maker/issuer/drafter thereof, namely, the insurer. Besides the precise purpose of insuring cargo during a voyage would be rendered fruitless. 33 Filipino Merchants Insurance Co. Inc. vs. Court of Appeals [GR 85141, 28 November 1989] Second Division, Regalado (J): 3 concur, 1 on leave Facts: In December 1976, Choa Tiek Seng insured said shipment with Filipino Merchants Insurance Company (FMICI) under cargo Policy M-2678 for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in new gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse terms. Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton CNF Manila. The fishmeal in 666 new gunny bags were unloaded from the ship on 11 December 1976 at Manila unto the arrastre contractor E. Razon, Inc. and FMICI's surveyor ascertained and certified that in such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and the arrastre contractor. The condition of the bad order was reflected in the turn over survey report of Bad Order cargoes 120320 to 120322, consisting of 3 pages. The cargo was also surveyed by the arrastre contractor before delivery of the cargo to the consignee and the condition of the cargo on such delivery was reflected in E. Razon's Bad Order Certificates 14859, 14863 and 14869 covering a total of 227 bags in bad order condition. FMICI's surveyor has conducted a final and detailed survey of the cargo in the warehouse for which he prepared a survey report with the findings on the extent of shortage or loss on the bad order bags totalling 227 bags amounting to 12,148 kilos. Based on said computation, Choa made a formal claim against FMICI for P51,568.62 the computation of which claim is contained therein. A formal claim statement was also presented by the Choa against the vessel dated 21 December 1976, but FMICI refused to pay the claim. Consequently, an action was brought by the consignee (Choa Tiek Seng) of the shipment of fishmeal loaded on board the vessel SS Bougainville and unloaded at the Port of Manila on or about 11 December 1976 and seeks to recover from FMICI the amount of P51,568.62 representing damages to said shipment which has been insured by FMICI under Policy M-2678. FMICI brought a third party complaint against third party defendants Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third party defendants in case judgment is rendered against FMICI. The court below, after trial on the merits, rendered judgment in favor of Choa, ordering FMICI to pay Choa the sum of P51,568.62 with interest at legal rate from the date of the filing of the complaint; and, on the third party complaint, the third party defendant Compagnie Maritime Des Chargeurs Reunis and third party defendant E. Razon, Inc. are ordered to pay FMICI jointly and severally reimbursement of the amounts paid by FMICI with legal interest from the date of such payment until the date of such reimbursement; without pronouncement as to costs. On appeal, and on 18 July 1988, the Court of Appeals affirmed the decision of the lower court insofar as the award on the complaint is concerned and modified the same with regard to the adjudication of the third-party complaint. A motion for reconsideration of the aforesaid decision was denied, hence FMICI filed the petition for review. Issue [1]: Whether an "all risks" marine policy has a technical meaning in insurance in that before a claim can be compensable it is essential that there must be "some fortuity," "casualty" or "accidental cause" to which the alleged loss is attributable. Held [1]: NO. The "all risks clause" of the Institute Cargo Clauses read as follows "5. This insurance is against all risks of logs or damage to the subject-matter insured but shall in no case be deemed to extend to cover loss, damage, or expense proximately caused by delay or inherent vice or nature of the subject-matter insured. Claims recoverable hereunder shall be payable irrespective of percentage." An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning. They are construed by the courts in their ordinary and common acceptance. Thus, the terms have
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been taken to mean that which happens by chance or fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. An accident is an event that takes place without one's foresight or expectation; an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected. The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any loss other than a wilful and fraudulent act of the insured. This is pursuant to the very purpose of an "all risks" insurance to give protection to the insured in those cases where difficulties of logical explanation or some mystery surround the loss or damage to property. An "all risks" policy has been evolved to grant greater protection than that afforded by the "perils clause," in order to assure that no loss can happen through the incidence of a cause neither insured against nor creating liability in the ship; it is written against all losses, that is, attributable to external causes. The term "all risks" cannot be given a strained technical meaning, the language of the clause under the Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to all damages/losses suffered by the insured cargo except (a) loss or damage or expense proximately caused by delay, and (b) loss or damage or expense proximately caused by the inherent vice or nature of the subject matter insured. Issue [2]: Whether the failure of Choa to adduce evidence, showing that the alleged loss to the cargo in question was due to a fortuitous event, precludes his right to recover from the insurance policy. Held [2]: NO. Although generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, under an "all risks" policy the burden is not on the insured to prove the precise cause of loss or damage for which it seeks compensation. The insured under an "all risks insurance policy" has the initial burden of proving that the cargo was in good condition when the policy attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the coverage. As held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd. the basic rule is that the insurance company has the burden of proving that the loss is caused by the risks excepted and for want of such proof, the company is liable. Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance which extends coverage to risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss was due to the peril falling within the policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly excludes the loss from coverage. A marine insurance policy providing that the insurance was to be "against all risks" must be construed as creating a special insurance and extending to other risks than are usually contemplated, and covers all losses except such as arise from the fraud of the insured. The burden of the insured, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted perils. To impose on the insured the burden of proving the precise cause of the loss or damage would be inconsistent with the broad protective purpose of "all risks" insurance. Issue [3]: Whether the insurer is liable Issue [4]: There being no showing that the loss was caused by any of the excepted perils, the insurer is liable under the policy. It is believed that in the absence of any showing that the losses/damages were caused by an excepted peril, i.e. delay or the inherent vice or nature of the subject matter insured, and there is no such showing, the loss was covered by the policy. Herein, there is no evidence presented to show that the condition of the gunny bags in which the fishmeal was packed was such that they could not hold their contents in the course of the necessary transit, much less any evidence that the bags of cargo had burst as the result of the weakness of the bags themselves. Had there been such a showing that spillage would have been a certainty, there may have been good reason to plead that there was no risk covered by the policy (See Berk vs. Style [1956] cited in Marine Insurance Claims, p. 125). Under an all risks policy, it was sufficient to show that there was damage occasioned by some accidental cause of any kind, and there is no necessity to point to any particular cause. Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The agreement has the force of law between the parties. The terms of the policy constitute the
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measure of the insurer's liability. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Issue [4]: Whether the consignee (Choa) has an insurable interest in said goods. Held [4]: Choa, as consignee of the goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in said goods. Section 13 of the Insurance Code defines insurable interest in property as every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured. In principle, anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction whether he has or has not any title in, or lien upon or possession of the property. Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. As vendee/consignee of the goods in transit has such existing interest therein as may be the subject of a valid contract of insurance. His interest over the goods is based on the perfected contract of sale. The perfected contract of sale between him and the shipper of the goods operates to vest in him an equitable title even before delivery or before he performed the conditions of the sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in the present case, is immaterial in the determination of whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to be the subject of insurance. Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for, the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, the exceptions to said rule not obtaining in the present case. The Court has heretofore ruled that the delivery of the goods on board the carrying vessels partake of the nature of actual delivery since, from that time, the foreign buyers assumed the risks of loss of the goods and paid the insurance premium covering them. C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the cost of the goods and freight to the named destination. It simply means that the seller must pay the costs and freight necessary to bring the goods to the named destination but the risk of loss or damage to the goods is transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment. 34 Oriental Assurance Corporation vs. Court of Appeals [GR 94052, 9 August 1991] Second Division, Melencio-Herrera (J): 4 concur Facts: Sometime in January 1986, Panama Sawmill Co., Inc. (Panama) bought, in Palawan, 1,208 pieces of apitong logs, with a total volume of 2,000 cubic meters. It hired Transpacific Towage, Inc., to transport the logs by sea to Manila and insured it against loss for PIM with Oriental Assurance Corporation (Oriental Assurance). There is a claim by Panama, however, that the insurance coverage should have been for P3M were it not for the fraudulent act of one Benito Sy Yee Long to whom it had entrusted the amount of P6,000.00 for the payment of the premium for a P3M policy. Oriental Assurance issued Marine Insurance Policy OACM-86/002. The logs were loaded on 2 barges: (1) on barge PCT7000,610 pieces of logs with a volume f 1,000 cubic meters; and (2) on Barge TPAC-1000, 598 pieces of logs, also with a volume of 1,000 cubic meters. On 28 January 1986, the two barges were towed by one tugboat, the MT "Seminole." But, as fate would have it, during the voyage, rough seas and strong winds caused damage to Barge TPAC-1000 resulting in the loss of 497 pieces of logs out of the 598 pieces loaded thereon. Panama demanded payment for the loss but Oriental Assurance refuse on the ground that its contracted liability was for "TOTAL LOSS ONLY." The rejection was upon the recommendation of the Tan Gatue Adjustment Company. Unable to convince Oriental Assurance to pay its claim, Panama filed a Complaint for Damages against Ever Insurance Agency (allegedly, also liable), Benito Sy Lee Yong and Oriental Assurance, before the Regional Trial Court, Kalookan, Branch 123 (Civil Case C-12601). After trial on the merit, the RTC rendered its Decision, ordering Oriental Assurance to pay Panama the amount of P415,000.00 as insurance indemnity with interest at the rate
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of 12% per annum computed from the date of the filing of the complaint; ordering Panama to pay Ever Insurance Agency or Antonio Sy Lee Yong, owner thereof (Ever being a single proprietorship) for the amount of P20,000.00 as attorney's fee and another amount of P20,000.00 as moral damages; and dismissing the complaint against Benito Sy Lee Yong. On appeal by both parties, the Appellate Court affirmed the lower Court judgment in all respects except for the rate of interest, which was reduced from 12% to 6% per annum. Oriental Assurance filed the petition for review on certiorari. Issue: Whether Oriental Assurance can be held liable under its marine insurance policy based on the theory of a divisible contract of insurance and, consequently, a constructive total loss. Held: NO. No liability attaches. The terms of the contract constitute the measure of the insurer's liability and compliance therewith is a condition precedent to the insured's right to recovery from the insurer (Perla Compania de Seguros, Inc. v. Court of Appeals, G.R. No. 78860, May 28, 1990, 185 SCRA 741). Whether a contract is entire or severable is a question of intention to be determined by the language employed by the parties. The policy in question shows that the subject matter insured was the entire shipment of 2,000 cubic meters of apitong logs. The fact that the logs were loaded on two different barges did not make the contract several and divisible as to the items insured. The logs on the two barges were not separately valued or separately insured. Only one premium was paid for the entire shipment, making for only one cause or consideration. The insurance contract must, therefore, be considered indivisible. More importantly, the insurer's liability was for "total loss only." A total loss may be either actual or constructive (Sec. 129, Insurance Code). An actual total loss is caused by: (a) A total destruction of the thing insured; (b) The irretrievable loss of the thing by sinking, or by being broken up; (c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or (d) Any other event which effectively deprives the owner of the possession, at the port of destination, of the thing insured." (Section 130, Insurance Code). A constructive total loss is one which gives to a person insured a right to abandon, under Section 139 of the Insurance Code, which reads "A person insured by a contract of marine insurance may abandon the thing insured, or any particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause of the loss is a peril insured against. (a) If more than threefourths thereof in value is actually lost, or would have to be expended to recover it from the peril; (b) If it is injured to such an extent as to reduce its value more than three-fourths; xxx" The requirements for the application of Section 139 of the Insurance Code, have not been met. The logs involved, although placed in two barges, were not separately valued by the policy, nor separately insured. Resultantly, the logs lost in barge TPAC-1000 in relation to the total number of logs loaded on the same barge can not be made the basis for determining constructive total loss. The logs having been insured as one inseparable unit, the correct basis for determining the existence of constructive total loss is the totality of the shipment of logs. Of the entirety of 1,208, pieces of logs, only 497 pieces thereof were lost or 41.45% of the entire shipment. Since the cost of those 497 pieces does not exceed 75% of the value of all 1,208 pieces of logs, the shipment can not be said to have sustained a constructive total loss under Section 139(a) of the Insurance Code. In the absence of either actual or constructive total loss, there can be no recovery by the insured Panama against the insurer, Oriental Assurance. 35 Finman General Assurance Corporation vs. Court of Appeals [GR 100970, 2 September 1992] Second Division, Nocon (J): 4 concur Facts: On 22 October 1986, deceased Carlie Surposa was insured with Finman General Assurance Corporation under Finman General Teachers Protection Plan Master Policy 2005 and Individual Policy 08924 with his parents, spouses Julia and Carlos Surposa, and brothers Christopher, Charles, Chester and Clifton, all surnamed Surposa, as beneficiaries. While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on 18 October 1988 as a result of a stab wound inflicted by one of 3 unidentified men without provocation and warning on the part of the former as he and his cousin, Winston Surposa, were waiting for a ride on their way home along Rizal-Locsin Streets, Bacolod City after attending the celebration
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of the "Maskarra Annual Festival." Thereafter, Julia Surposa and the other beneficiaries of said insurance policy filed a written notice of claim with Finman which denied said claim contending that murder and assault are not within the scope of the coverage of the insurance policy. On 24 February 1989, Surposa filed a complaint with the Insurance Commission which subsequently rendered a decision, ordering Finman liable to pay Surposa the sum of P15,000.00 representing the proceeds of the policy with interest from the date of the filing of the complaint until fully satisfied. As no evidence was submitted to prove the claim for mortuary aid in the sum of P1,000.00, the same was not entertained. On 11 July 1991, the appellate court affirmed said decision. Finman filed the petition for certiorari. Issue: Whether the death was committed with deliberate intent which, by the very nature of a personal accident insurance policy, cannot be indemnified. Held: NO. The terms "accident" and "accidental," as used in insurance contracts have not acquired any technical meaning, and are construed by the courts in their ordinary and common acceptation. Thus, the terms have been taken to mean that which happen by chance or fortuitously, without intention and design, and which is unexpected, unusual, and unforeseen. An accident is an event that takes place without one's foresight or expectation an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected. The generally accepted rule is that, death or injury does not result from accident or accidental means within the terms of an accident-policy if it is, the natural result of the insured's voluntary act, unaccompanied by anything unforeseen except the death or injury. There is no accident when a deliberate act is performed unless some additional, unexpected, independent, and unforeseen happening occurs which produces or brings about the result of injury or death. In other words, where the death or injury is not the natural or probable result of the insured's voluntary act, or if something unforeseen occurs in the doing of the act which produces the injury, the resulting death is within the protection of the policies insuring against death or injury from accident. Herein, it cannot be pretended that Carlie Surposa died in the course of an assault or murder as a result of his voluntary act considering the very nature of these crimes. In the first place, the insured and his companion were on their way home from attending a festival. They were confronted by unidentified persons. The record is barren of any circumstance showing how the stab wound was inflicted. Nor can it be pretended that the malefactor aimed at the insured precisely because the killer wanted to take his life. In any event, while the act may not exempt the unknown perpetrator from criminal liability, the fact remains that the happening was a pure accident on the part of the victim. The insured died from an event that took place without his foresight or expectation, an event that proceeded from an unusual effect of a known cause and, therefore, not expected. Neither can it be said that there was a capricious desire on the part of the accused to expose his life to danger considering that he was just going home after attending a festival. Furthermore, the personal accident insurance policy involved specifically enumerated only 10 circumstances wherein no liability attaches to Finamn for any injury, disability or loss suffered by the insured as a result of any of the stipulated causes. The principle of "expresso unius exclusio alterius" the mention of one thing implies the exclusion of another thing is therefore applicable in the present case since murder and assault, not having been expressly included in the enumeration of the circumstances that would negate liability in said insurance policy cannot be considered by implication to discharge Finman from liability for any injury, disability or loss suffered by the insured. Thus, the failure of Finman to include death resulting from murder or assault among the prohibited risks leads inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such death. 36 Sun Insurance Office Ltd. vs. Court of Appeals [GR 92383, 17 July 1992] First Division, Cruz (J): 3 concur Facts: Sun Insurance Office Ltd. issued Personal Accident Policy 05687 to Felix Lim, Jr. with a face value of P200,000.00. Two months later, he was dead with a bullet wound in his head. As beneficiary, his wife Nerissa Lim sought payment on the policy but her claim was rejected. Sun Insurance agreed that there was no suicide. It argued, however, that there was no accident either. Pilar Nalagon, Lim's secretary, was the only eyewitness
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to his death. It happened on 6 October 1982, at about 10 p.m., after his mother's birthday party. According to Nalagon, Lim was in a happy mood (but not drunk) and was playing with his handgun, from which he had previously removed the magazine. As she watched the television, he stood in front of her and pointed the gun at her. She pushed it aside and said it might be loaded. He assured her it was not and then pointed it to his temple. The next moment there was an explosion and Lim slumped to the floor. He was dead before he fell. The widow sued Sun Insurance in the Regional Trial Court of Zamboanga City and was sustained. Sun Insurance was sentenced to pay her P200,000.00, representing the face value of the policy, with interest at the legal rate; P10,000.00 as moral damages; P5,000.00 as exemplary damages; P50,000.00 as actual and compensatory damages; and P5,000.00 as attorney's fees, plus the cost of the suit. This decision was affirmed on appeal, and the motion for reconsideration was denied. Sun Insurance then came to the Supreme Court. Issue: Whether the insured willfully exposed himself to needless peril and thus removed himself from the coverage of the insurance policy. Held: NO. An accident is an event which happens without any human agency or, if happening through human agency, an event which, under the circumstances, is unusual to and not expected by the person to whom it happens. It has also been defined as an injury which happens by reason of some violence or casualty to the insured without his design, consent, or voluntary co-operation. Herein, the incident that resulted in Lim's death was indeed an accident. On the other hand, the parties agree that Lim did not commit suicide. Nevertheless, Sun Insurance contends that the insured willfully exposed himself to needless peril and thus removed himself from the coverage of the insurance policy. It should be noted at the outset that suicide and willful exposure to needless peril are in pari materia because they both signify a disregard for one's life. The only difference is in degree, as suicide imports a positive act of ending such life whereas the second act indicates a reckless risking of it that is almost suicidal in intent. The posture -- that by the mere act of pointing the gun to his temple, Lim had willfully exposed himself to needless peril and so came under the exception -- is arguable. But what is not is that Lim had removed the magazine from the gun and believed it was no longer dangerous. He expressed assured her that the gun was not loaded. It is submitted that Lim did not willfully expose himself to needless peril when he pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. The act was precisely intended to assure Nalagon that the gun was indeed harmless. Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent his widow from recovering from the insurance policy he obtained precisely against accident. There is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his own accident. Indeed, most accidents are caused by negligence. There are only four exceptions expressly made in the contract to relieve the insurer from liability, and none of these exceptions is applicable in the present case. It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of the assured. There is no reason to deviate from this rule, especially in view of the circumstances of the case. 37 Vda. de Gabriel vs. Court of Appeals [GR 103883, 14 November 1996] First Division, Vitug (J): 4 concur Facts: Marcelino Gabriel, the insured, was employed by Emerald Construction & Development Corporation (ECDC) at its construction project in Iraq. He was covered by a personal accident insurance in the amount of P100,000.00 under a group policy procured from Fortune Insurance & Surety Company Inc. by ECDC for its overseas workers. The insured risk was for "bodily injury caused by violent accidental external and visible means which injury would solely and independently of any other cause" result in death or disability. On 22 May 1982, within the life of the policy, Gabriel died in Iraq. A year later, or on 12 July 1983, ECDC reported Gabriel's death to Fortune by telephone. Among the documents thereafter submitted to Fortune were a copy of the death certificate 5 issued by the Ministry of Health of the Republic of Iraq which stated "REASON OF DEATH: UNDER EXAMINATION NOW NOT YET KNOWN " and an autopsy report of the National Bureau of Investigation (NBI) to the effect that "due to advanced state of postmortem decomposition, cause of
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death could not be determined." Fortune referred the insurance claim to Mission Adjustment Service, Inc. Following a series of communications between Jacqueline Jimenez vda. de Gabriel and Fortune, the latter, on 22 September 1983, ultimately denied the claim of ECDC on the ground of prescription. Vda. De Gabriel went to the Regional Trial Court of Manila. In her complaint against ECDC and Fortune, she averred that her husband died of electrocution while in the performance of his work and prayed for the recovery of P100,000.00 for insurance indemnification and of various other sums by way of actual, moral, and exemplary damages, plus attorney's fees and costs of suit. Fortune filed its answer, which was not verified, admitting the genuineness and due execution of the insurance policy; it alleged, however, that since both the death certificate issued by the Iraqi Ministry of Health and the autopsy report of the NBI failed to disclose the cause of Gabriel's death, it denied liability under the policy. In addition, Fortune raised the defense of "prescription," invoking Section 384 10 of the Insurance Code. Later, Fortune filed an amended answer, still unverified, reiterating its original defenses but, this time, additionally putting up a counterclaim and a crossclaim. The trial court dismissed the case against ECDC for the failure of Vda. de Gabriel to take steps to cause the service of the fourth alias summons on ECDC. The dismissal was without prejudice. The case proceeded against Fortune alone. On 28 May 1987, the trial court rendered its decision in favor (partly) of Vda. de Gabriel's claim. In arriving at its conclusion, the trial court held that Fortune was deemed to have waived the defense, i.e., that the cause of Gabriel's death was not covered by the policy, when the latter failed to impugn by evidence Vda. de Gabriel's averment on the matter. With regard to the defense of prescription, the court considered the complaint to have been timely filed or within 1 year from Fortune's denial of the claim. Vda. de Gabriel and Fortune both appealed to the Court of Appeals. The Court of Appeals, on 18 September 1991, reversed the decision of the lower court. The appellate court held that Vda. de Gabriel had failed to substantiate her allegation that her husband's death was caused by a risk insured against. The motion for reconsideration was denied. Vda. de Gabriel filed the petition for review on certiorari. Issue [1]: Whether prescription was properly invoked by Fortune in this case. Held [1]: YES. On the issue of "prescription," Fortune correctly invoked Section 384 of the Insurance Code which provides that "Any person having any claim upon the policy issued pursuant to this chapter shall, without any unnecessary delay, present to the insurance company concerned a written notice of claim setting forth the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed within six months from date of the accident, otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be brought, in proper cases, with the Commissioner or the Courts within one year from denial of the claim, otherwise, the claimant's right of action shall prescribe." The notice of death was given to Fortune, concededly, more than a year after the death of Vda. de Gabriel's husband. Fortune, in invoking prescription, was not referring to the one-year period from the denial of the claim within which to file an action against an insurer but obviously to the written notice of claim that had to be submitted within six months from the time of the accident. On the other hand, there is absolutely no basis in fact and in law to hold that the insurance company was deemed to have waived -- by failing to have its answers (to the Request for Admission) duly verified -- the defense, that the death of Vda. de Gabriel's husband was not caused by violent accidental external and visible means' as contemplated in the insurance policy. The Death Certificate and the Autopsy Report, more than controverted the allegation of Vda. de Gabriel as to the cause of death of her husband. Issue [2]: Whether Vda. De Gabriel is required to present proof that the insureds demise was from an accidental death, unlike in ordinary life insurance where the insured's death, regardless of the cause thereof, would normally be compensable. Held [2]: YES. The insurance policy expressly provided that to be compensable, the injury or death should be caused by "violent accidental external and visible means." In attempting to prove the cause of her husband's death, all that Vda. de Gabriel could submit were a letter sent to her by her husband's co-worker, stating that Gabriel died when he tried to haul water out of a tank while its submerged motor was still functioning, and
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Vda. de Gabriel's sinumpaang salaysay which merely confirmed the receipt and stated contents of the letter. Said the appellate court in this regard: "It must be noted that the only evidence presented by her to prove the circumstances surrounding her husband's death were her purported affidavit and the letter allegedly written by the deceased co-worker in Iraq. The said affidavit however suffers from procedural infirmity as it was not even testified to or identified by the affiant (Vda. De Gabriel) herself. This self-serving affidavit therefore is a mere hearsay under the rules. In like manner, the letter allegedly written by the deceased's co-worker which was never identified to in court by the supposed author, suffers from the same defect as the affidavit of the plaintiff-appellant." Not one of the other documents submitted, to wit, the POEA decision, dated 06 June 1984, the death certificate issued by the Ministry of Health of Iraq and the NBI autopsy report, could give any probative value to Vda. de Gabriel's claim. The POEA decision did not make any categorical holding on the specific cause of Gabriel's death. Neither did the death certificate issued by the health authorities in Iraq nor the NBI autopsy report provide any clue on the cause of death. All that appeared to be clear was the fact of Gabriel's demise on 22 May 1982 in Iraq. Evidence, in fine, is utterly wanting to establish that the insured suffered from an accidental death, the risk covered by the policy. In an accident insurance, the insured "s beneficiary has the burden of proof in demonstrating that the cause of death is due to the covered peril. Once the fact is established, the burden then shifts to the insurer to show any excepted peril that may have been stipulated by the parties. An "accident insurance" is not thus to be likened to an ordinary life insurance where the insured's death, regardless of the cause thereof, would normally be compensable. The latter is akin in property insurance to an "all risk" coverage where the insured, on the aspect of burden of proof, has merely to show the condition of the property insured when the policy attaches and the fact of loss or damage during the period of the policy and where, thereafter, the burden would be on the insurer to show any "excluded peril." When, however, the insured risk is specified, it lies with the claimant of the insurance proceeds to initially prove that the loss is caused by the covered peril. 38 Vda. de Maglana vs. Consolacion [GR 60506, 6 August 1992] Third Division, Romero (J): 3 concur Facts: Lope Maglana was an employee of the Bureau of Customs whose work station was at Lasa, in Davao City. On 20 December 1978, early morning, Lope Maglana was on his way to his work station, driving a motorcycle owned by the Bureau of Customs. At Km. 7, Lanang, he met an accident that resulted in his death. He died on the spot. The PUJ jeep that bumped the deceased was driven by Pepito Into, operated and owned by Destrajo. From the investigation conducted by the traffic investigator, the PUJ jeep was overtaking another passenger jeep that was going towards the city poblacion. While overtaking, the PUJ jeep of Destrajo running abreast with the overtaken jeep, bumped the motorcycle driven by the deceased who was going towards the direction of Lasa, Davao City. The point of impact was on the lane of the motorcycle and the deceased was thrown from the road and met his untimely death. Consequently, the heirs of Lope Maglana, Sr., filed an action for damages and attorney's fees against operator Patricio Destrajo and the Afisco Insurance Corporation (AFISCO) before the then Court of First Instance of Davao, Branch II. An information for homicide thru reckless imprudence was also filed against Pepito Into. During the pendency of the civil case, Into was sentenced to suffer an indeterminate penalty of 1 year, 8 months and 1 day of prision correccional, as minimum, to 4 years, 9 months and 11 days of prision correcional, as maximum, with all the accessory penalties provided by law, and to indemnify the heirs of Lope Maglana, Sr. in the amount of P12,000.00 with subsidiary imprisonment in case of insolvency, plus P5,000.00 in the concept of moral and exemplary damages with costs. No appeal was interposed by the accused who later applied for probation. On 14 December 1981, the lower court rendered a decision finding that Destrajo had not exercised sufficient diligence as the operator of the jeepney. The court ordered Destrajo to pay the heirs of Maglana the sum of P28,000.00 for loss of income; the sum of P12,000.00 which amount shall be deducted in the event judgment in Criminal Case 3527-D against the driver, accused Into, shall have been enforced; the sum of P5,901.70 representing funeral and burial expenses of the deceased; the sum of P5,000.00 as moral damages which shall be deducted in the event judgment (sic) in Criminal Case 3527-D against the driver, accused Into; the sum of P3,000.00 as attorney's fees and to pay the costs of suit. The court ordered the insurance company is ordered
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to reimburse Destrajo whatever amounts the latter shall have paid only up to the extent of its insurance coverage. The heirs of Maglana filed a motion for the reconsideration of the second paragraph of the dispositive portion of the decision contending that AFISCO should not merely be held secondarily liable because the Insurance Code provides that the insurer's liability is "direct and primary and/or jointly and severally with the operator of the vehicle, although only up to the extent of the insurance coverage." In its Order of February 9, 1982, the lower court denied the motion for reconsideration ruling that since the insurance contract "is in the nature of suretyship, then the liability of the insurer is secondary only up to the extent of the insurance coverage." The heirs filed a second motion for reconsideration reiterating that the liability of the insurer is direct, primary and solidary with the jeepney operator because the petitioners became direct beneficiaries under the provision of the policy which, in effect, is a stipulation pour autrui. This motion was likewise denied for lack of merit. The heirs filed the petition for certiorari. Issue [1]: Whether AFISCO is primarily liable, not secondarily liable, on the insurance policy. Held [1]: The particular provision of the insurance policy on which the heirs base their claim provides "SECTION 1 LIABILITY TO THE PUBLIC 1. The Company will, subject to the Limits of Liability, pay all sums necessary to discharge liability of the insured in respect of. (a) death of or bodily injury to any THIRD PARTY; xxx 3. In the event of the death of any person entitled to indemnity under this Policy, the Company will, in respect of the liability incurred to such person indemnify his personal representatives in terms of, and subject to the terms and conditions hereof." The above-quoted provision leads to no other conclusion but that AFISCO can be held directly liable by the heirs. As the Court ruled in Shafer vs. Judge, RTC of Olongapo City, Br. 75, "[w]here an insurance policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of the injury or event upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured." The underlying reason behind the third party liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is "to protect injured persons against the insolvency of the insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy." Since the heirs had received from AFISCO the sum of P5,000.00 under the no-fault clause, AFISCO's liability is now limited to P15,000.00. Issue [2]: Whether AFISCO is solidarily liable with Destrajo. Held [2]: NO. In Malayan Insurance Co., Inc. v. Court of Appeals, the Court had the opportunity to resolve the issue as to the nature of the liability of the insurer and the insured vis-a-vis the third party injured in an accident, where it ruled that "While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort." The Court then proceeded to distinguish the extent of the liability and manner of enforcing the same in ordinary contracts from that of insurance contracts. While in solidary obligations, the creditor may enforce the entire obligation against one of the solidary debtors, in an insurance contract, the insurer undertakes for a consideration to indemnify the insured against loss, damage or liability arising from an unknown or contingent event." Herein, the heirs cannot validly claim that AFISCO, whose liability under the insurance policy is also P20,000.00, can be held solidarily liable with Destrajo for the total amount of P53,901.70 in accordance with the decision of the lower court. Since under both the law and the insurance policy, AFISCO's liability is only up to P20,000.00, the second paragraph of the dispositive portion of the decision in question may have unwittingly sown confusion among the heirs and their counsel. What should have been clearly stressed as to leave no room for doubt was the liability of AFISCO under the explicit terms of the insurance contract. The liability of AFISCO based on the insurance contract is direct, but not solidary with that of Destrajo which is based on Article 2180 of the Civil Code. As such, the heirs have the option either to claim the P15,000 from AFISCO and the balance from Destrajo or enforce the entire judgment from Destrajo subject to reimbursement from AFISCO to the extent of the insurance coverage.
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39 Tio Khe Chio vs. Court of Appeals [GR 76101-02, 30 September 1991] Third Division, Fernan (J): 4 concur Facts: On 18 December 1978, Tio Khe Chio imported 1,000 bags of fishmeal valued at $36,000.30 from Agro Impex, S.A. Dallas, Texas, U.S.A. The goods were insured with Eastern Assurance and Surety Corporation (EASCO) and shipped on board the M/V Peskov, a vessel owned by Far Eastern Shipping Company. When the goods reached Manila on 28 January 1979, they were found to have been damaged by sea water which rendered the fishmeal useless. Tio filed a claim with EASCO and Far Eastern Shipping. Both refused to pay. Whereupon, Tio sued them before the then Court of First Instance of Cebu, Branch II for damages. EASCO, as the insurer, filed a counterclaim against the Tio for the recovery of P18,387.86 representing the unpaid insurance premiums. On 30 June 1982, the trial court rendered judgment ordering EASCO and Far Eastern Shipping to pay Tio solidarily the sum of P105,986.68 less the amount of P18,387.86 for unpaid premiums with interest at the legal rate from the filing of the complaint, the sum of P15,000.00 as attorney's fees and the costs. The judgment became final as to EASCO but the shipping company appealed to the Court of Appeals and was absolved from liability by the said court in AC-GR 00161, entitled "Tio Khe Chio vs. Eastern Assurance and Surety Corporation." The trial court, upon motion by Tio, issued a writ of execution against EASCO. The sheriff enforcing the writ reportedly fixed the legal rate of interest at 12%. EASCO moved to quash the writ alleging that the legal interest to be computed should be 6% per annum in accordance with Article 2209 of the Civil Code and not 12% as insisted upon by Tio's counsel. In its order of 30 July 1986, the trial court denied EASCO's motion. EASCO then filed a petition for certiorari and prohibition before the Court of Appeals. On 30 July 1986, the Appellate Court rendered judgment, setting aside the order dated 30 July 1986 in so far as it fixes the interest at 12% on the principal amount of P87,598.82 from the date of filing of the complaint until the full payment of the amount, and the interest that Tio was entitled to collect from EASCO was reduced to 6% per annum; without pronouncement as to costs. Tio filed the petition for certiorari and prohibition. Issue [1]: Whether Sections 243 and 244, as to interest, apply in the present case. Held [1]: NO. Section 243 of the Insurance Code provides that "the amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shell be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent." Section 244 of the aforementioned Code also provides that "In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of attorney's fees and other expenses incurred by the insured person by reason of such undeniable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in payment." Herein, there was no unjustified refusal or withholding of payment on Tio's claim. The aforecited sections of the Insurance Code are not pertinent to the case, as they apply only when the court finds an unreasonable delay or refusal in the payment of the claims.

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Issue [2]: Whether the interest to be imposed on claims based on an insurance contract is 6% or 12%. Held [2]: 6%. The legal rate of interest is 6% per annum. Circular 416 of the Central Bank which took effect on 29 July 1974 pursuant to Presidential Decree 116 (Usury Law) which raised the legal rate of interest from 6% to 12% cannot apply as the adjusted rate mentioned in the circular refers only to loans or forbearances of money, goods or credits and court judgments thereon but not to court judgments for damages arising from injury to persons and loss of property which does not involve a loan. On the other hand, in the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28, 1986, 143 SCRA 158, the Court declared that the legal rate of interest is 6% per annum, and not 12%, where a judgment award is based on an action for damages for personal injury, not use or forbearance of money, goods or credit. In the same vein, the Court held in GSIS vs. Court of Appeals, GR 52478, 30 October 1986, 145 SCRA 311, that the rates under the Usury Law (amended by PD 116) are applicable only to interest by way of compensation for the use or forbearance of money, interest by way of damages is governed by Article 2209 of the Civil Code. Clearly, the applicable law is Article 2209 of the Civil Code which reads "If the obligation consists in the payment of a sum of money and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six per cent per annum." And in the light of the fact that the contending parties did not allege the rate of interest stipulated in the insurance contract, the legal interest was properly pegged at 6%. 40 Finman General Assurance Corporation vs. Court of Appeals [GR 138737, 12 July 2001] First Division, Kapunan (J): 4 concur Facts: On 15 September 1981, Usiphil Incorporated obtained a fire insurance policy from Finman General Assurance Corporation (then doing business under the name Summa Insurance Corporation) covering certain properties, e.g., office, furniture, fixtures, shop machinery and other trade equipment. Under Policy F3100 issued to Usiphil, Finman undertook to indemnify Usiphil for any damage to or loss of said properties arising from fire. Sometime in 1982, Usiphil filed with Finman an insurance claim amounting to P987,126.11 for the loss of the insured properties due to fire. Acting thereon, Finman appointed Adjuster H.H. Bayne to undertake the valuation and adjustment of the loss. H.H. Bayne then required Usiphil to file a formal claim and submit proof of loss. In compliance therewith, Usiphil submitted its Sworn Statement of Loss and Formal Claim, dated 22 July 1982, signed by Reynaldo Cayetano, Usiphil's Manager. Usiphil likewise submitted Proof of Loss signed by its Accounting Manager Pedro Palallos and countersigned by H.H. Bayne's Adjuster F.C. Medina. Palallos personally followed-up Usiphil's claim with Finman's President Joaquin Ortega. During their meeting, Ortega instructed their Finance Manager, Rosauro Maghirang, to reconcile the records. Thereafter, Maghirang and Palallos signed a Statement/Agreement, dated 28 February 1985, which indicated that the amount due Usiphil was P842,683.40. Despite repeated demands by Usiphil, Finman refused to pay the insurance claim. Thus, Usiphil was constrained to file a complaint against Finman for the unpaid insurance claim. In its Answer, Finman maintained that the claim of Usiphil could not be allowed because it failed to comply with Policy Condition 13 regarding the submission of certain documents to prove the loss. Trial ensued. On 6 July 1994, the trial court rendered judgment in favor of Usiphil. It ordered Finman to pay Usiphil the sum of P842,683.40 and to pay 24% interest per annum from 28 February 1985 until fully paid; the sum equivalent to 10% of the principal obligation as and for attorney's fees, plus P1,500.00 per court appearance of counsel; the amount of P30,000.00 as exemplary damages in addition to the actual and compensatory damages awarded. The court also dismissed the claim of P30,000.00 for actual damages under par. 4 of the prayer, since the actual damages. has been awarded under par. 1 of the decision's dispositive portion; dismissed the claim of interest under par. 2 of the prayer, there being no agreement to such effect; dismissed the counter-claim for lack of merit; and ordered Finman to pay the cost of suit. On appeal, the CA substantially affirmed the decision of the trial court. The appellate court modified the decision by ordering Finman to pay Usiphil the sum of P842,683.40 and to pay 24% interest per annum from 3 May 1985 until fully paid. Finman filed the petition for review on certiorari.

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Issue [1]: Whether Usiphil has complied with Policy Condition 13 in notifying Finman of the loss. Held [1]: YES. Usiphil had substantially complied with Policy Condition 13 which reads "The insured shall give immediate written notice to the Company of any loss, protect the property from further damage, forthwith separate the damaged and undamaged personal property, put it in the best possible order, furnish a complete inventory of the destroyed, damaged, and undamaged property, showing in detail quantities, costs, actual cash value and the amount of loss claimed; AND WITHIN SIXTY DAYS AFTER THE LOSS, UNLESS SUCH TIME IS EXTENDED IN WRITING BY THE COMPANY, THE INSURED SHALL RENDER TO THE COMPANY A PROOF OF LOSS, signed and sworn to by the insured, stating the knowledge and belief of the insured as to the following: the time and origin of the loss, the interest of the insured and of all others in the property, the actual cash value of each item thereof and the amount of loss thereto, all encumbrances thereon, all other contracts of insurance, whether valid or not, covering any of said property, any changes in the title, use, occupation, location, possession or exposures of said property since the issuing of this policy by whom and for what purpose any buildings herein described and the several parts thereof were occupied at the time of loss and whether or not it then stood on leased ground, and shall furnish a copy of all the descriptions and schedules in all policies, and if required verified plans and specifications of any building, fixtures, or machinery destroyed or damaged. The insured, as often as may be reasonably required, shall exhibit to any person designated by the company all that remains of any property herein described, and submit to examination under oath by any person named by the Company, and subscribe the same; and, as often as may be reasonably required, shall produce for examination all books of account, bills, invoices, and other vouchers or certified copies thereof if originals be lost, at such reasonable time and place as may be designated by the Company or its representative and shall permit extracts and copies thereof to be made. No claim under this policy shall be payable unless the terms of this condition have been complied with." A perusal of the records shows that Usiphil, after the occurrence of the fire, immediately notified Finman thereof. Thereafter, Usiphil submitted the following documents: (1) Sworn Statement of Loss and Formal Claim and; (2) Proof of Loss. The submission of these documents constitutes substantial compliance with the above provision. Indeed, as regards the submission of documents to prove loss, substantial, not strict as urged by Finman, compliance with the requirements will always be deemed sufficient. In any case, Finman itself acknowledged its liability when through its Finance Manager, Rosauro Maghirang, it signed the document indicating that the amount due Usiphil is P842,683.40. Issue [2]: Whether the payment of 24% interest per annum is authorized by Sections 243 and 244 of the Insurance Code. Held [2]: YES. Anent the payment of 24% interest per annum computed from 3 May 1985 until fully paid, the same is authorized by Sections 243 and 244 of the Insurance Code. Notably, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by the failure of the insurer to pay the claim within the time fixed in both Sections 243 and 244. Further, Section 29 of the policy itself provides for the payment of such interest: "Settlement of claim clause. The amount of any .loss or damage for which the company may be liable, under this policy shall be paid within thirty days after proof of loss is received by the company and ascertainment of the loss or damage is made either in an agreement between the insured and the company or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the company of the proof of loss, then the loss or damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board. unless such failure or refusal to pay is based on the grounds (sic) that the claim is fraudulent." The policy itself obliges Finman to pay the insurance claim within 30 days after proof of loss and ascertainment of the loss made in an agreement between Usiphil and Finman. Finman and Usiphil signed the agreement indicating that the amount due Usiphil was P842,683.40 on 2 April 1985. Finman thus had until 2 May 1985 to pay Usiphil's insurance. For its failure to do so, the Court of Appeals and the trial court rightfully directed Finman to pay, inter alia, 24% interest per annum in accordance with the above quoted
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provisions.

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