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SECOND DIVISION [G.R. No. 113899. October 13, 1999] GREAT PACIFIC LIFE ASSURANCE CORP., petitioner vs.

COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents. DECISION

QUISUMBING, J.: This petition for review, under Rule 45 of the Rules of Court, assails the Decision[1] dated May 17, 1993, of the Court of Appeals and its Resolution[2] dated January 4, 1994 in CA-G.R. CV No. 18341. The appellate court affirmed in toto the judgment of the Misamis Oriental Regional Trial Court, Branch 18, in an insurance claim filed by private respondent against Great Pacific Life Assurance Co. The dispositive portion of the trial court‟s decision reads: “WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC LIFE ASSURANCE CORPORATION as insurer under its Group policy No. G-1907, in relation to Certification B18558 liable and ordered to pay to the DEVELOPMENT BANK OF THE PHILIPPINES as creditor of the insured Dr. Wilfredo Leuterio, the amount of EIGHTY SIX THOUSAND TWO HUNDRED PESOS (P86,200.00); dismissing the claims for damages, attorney‟s fees and litigation expenses in the complaint and counterclaim, with costs against the defendant and dismissing the complaint in respect to the plaintiffs, other than the widow-beneficiary, for lack of cause of action.”[3] The facts, as found by the Court of Appeals, are as follows: A contract of group life insurance was executed between petitioner Great Pacific Life Assurance Corporation (hereinafter Grepalife) and Development Bank of the Philippines (hereinafter DBP). Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP. On November 11, 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.”[4] On November 15, 1983, Grepalife issued Certificate No. B18558, as insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two hundred (P86,200.00) pesos. On August 6, 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 November 15, 1983. Grepalife insisted that Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the claim. On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a complaint with the Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for “Specific Performance with Damages.”[5] During the trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejia‟s findings, based partly from the information given by the respondent 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 February 22, 1988, the trial court rendered a decision in favor of respondent widow and against Grepalife. On May 17, 1993, the Court of Appeals sustained the trial court‟s decision. Hence, the present petition. Petitioners interposed the following assigned errors: "1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE TO THE

DEVELOPMENT BANK OF THE PHILIPPINES (DBP) WHICH IS NOT A PARTY TO THE CASE FOR PAYMENT OF THE PROCEEDS OF A MORTGAGE REDEMPTION INSURANCE ON THE LIFE OF PLAINTIFF‟S HUSBAND WILFREDO LEUTERIO ONE OF ITS LOAN BORROWERS, INSTEAD OF DISMISSING THE CASE AGAINST DEFENDANT-APPELLANT [Petitioner Grepalife] FOR LACK OF CAUSE OF ACTION. 2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR WANT OF JURISDICTION OVER THE SUBJECT OR NATURE OF THE ACTION AND OVER THE PERSON OF THE DEFENDANT. 3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-APPELLANT TO PAY TO DBP THE AMOUNT OF P86,200.00 IN THE ABSENCE OF ANY EVIDENCE TO SHOW HOW MUCH WAS THE ACTUAL AMOUNT PAYABLE TO DBP IN ACCORDANCE WITH ITS GROUP INSURANCE CONTRACT WITH DEFENDANTAPPELLANT. 4. THE LOWER COURT ERRED IN - HOLDING THAT THERE WAS NO CONCEALMENT OF MATERIAL INFORMATION ON THE PART OF WILFREDO LEUTERIO IN HIS APPLICATION FOR MEMBERSHIP IN THE GROUP LIFE INSURANCE PLAN BETWEEN DEFENDANTAPPELLANT OF THE INSURANCE CLAIM ARISING FROM THE DEATH OF WILFREDO LEUTERIO.”[6] Synthesized below are the assigned errors for our resolution: 1. Whether the Court of Appeals erred in holding petitioner liable to DBP as beneficiary in a group life insurance contract from a complaint filed by the widow of the decedent/mortgagor? 2. Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he had hypertension, which would vitiate the insurance contract? 3. Whether the Court of Appeals erred in holding Grepalife liable in the amount of eighty six thousand, two hundred (P86,200.00) pesos without proof of the actual outstanding mortgage payable by the mortgagor to DBP. Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in interest, hence the trial court acquired no jurisdiction over the case. It argues that when the Court of Appeals affirmed the trial court‟s judgment, Grepalife was held liable to pay the proceeds of insurance contract in favor of DBP, the indispensable party who was not joined in the suit. To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of contract. The rationale of a group insurance policy of mortgagors, otherwise known as the “mortgage redemption insurance,” is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation.[7] In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness.[8] Consequently, where the mortgagor pays the insurance premium under the group insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagor‟s interest, and the mortgagor continues to be a party to the contract. In this type of policy insurance, the

for private respondent‟s failure to establish the same. but any act which. on official leave. the latter denied payment thereof. probably secondary to hypertension. prior to the loss. the insurance proceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries. which would otherwise avoid the insurance. an amount to pay the outstanding indebtedness shall first be paid to the Creditor and the balance of the Sum Assured. The second assigned error refers to an alleged concealment that the petitioner interposed as its defense to annul the insurance contract.. xxx Appellant insurance company had failed to establish that there was concealment made by the insured. after it already foreclosed on the mortgage. was due to her unreliable recollection of events. the insurance is deemed to be upon the interest of the mortgagor. * * *. as to the medical history of her husband. and any act of his.[21] The mortgagor paid the premium according to the coverage of his insurance. of the same work. there was no sufficient proof that the insured had suffered from hypertension. DBP collected the debt from the mortgagor and took the necessary action of foreclosure on the residential lot of private respondent. page 82. Leuterio‟s outstanding indebtedness to DBP at the time of the mortgagor‟s death. From this report. The Decision and Resolution of the Court of Appeals in CA-G. Petitioner claims that there was no evidence as to the amount of Dr. although the property is in the hands of the mortgagee. hence. CV 18341 is AFFIRMED with MODIFICATION that the petitioner is ORDERED to pay the insurance proceeds amounting to Eighty-six thousand. it cannot collect the insurance proceeds. a death benefit in the amount of P86. especially where the mortgagee‟s interest is less than the full amount recoverable under the policy.mortgagee is simply an appointee of the insurance fund.00 shall be paid. she states that DBP foreclosed in 1995 their residential lot. although the policy is taken wholly or in part for the benefit of another person named or unnamed. Buena. Mendoza. Leuterio failed to disclose that he had hypertension.[14]the widow of the decedent Dr. which states that: “The policy states that upon receipt of due proof of the Debtor‟s death during the terms of this insurance. the petitioner failed to clearly and satisfactorily establish its defense. Aside from the statement of the insured‟s widow who was not even sure if the medicines taken by Dr.. it cannot refuse payment of the claim. when he died the attending physician had certified in the death certificate that the former died of cerebral hemorrhage. and is therefore liable to pay the proceeds of the insurance. which might have caused his death.”[17] The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract.” The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance. In the event of the debtor‟s death before his indebtedness with the creditor shall have been fully paid. (Chairman). we noted that the Court of Appeals‟ decision was promulgated on May 17. Mejia‟s technical diagnosis of the cause of death of Dr. Costs against petitioner. Mejia did not conduct an autopsy on the body of the decedent.Leuterio‟s any previous hospital confinement. we read the following: „Insured may be regarded as the real party in interest.200. may be performed by the mortgagee therein named. The question of whether there was concealment was aptly answered by the appellate court. 1993. yet the mortgagor may sue thereon in his own name. And that brings us to the last point in the review of the case at bar. Hernando Mejia. is to be performed by the mortgagor. Leuterio‟s medical history. Leuterio was a duly documented hospital record. JJ. will or succession to any person. Contrary to appellant‟s allegations. two hundred (P86. but he designedly and intentionally withholds the same. WHEREFORE. Dr. in satisfaction of mortgagor‟s outstanding loan.‟ And in volume 33. * * * Subject to some exceptions. being the person with whom the contract was made.[18] 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.”[22] (Emphasis omitted) However. the appellant insurance company refused to pay the insurance claim. insured may thus sue. Leuterio‟s heirs represented by his widow. Leuterio. thus: “The insured. as supported by the information given by the widow of the decedent.[12] we held: “Insured. Grepalife. Appellant alleged that the insured had concealed the fact that he had hypertension. Hence. and honesty. the statement of the physician was properly considered by the trial court as hearsay. will have the same effect. the petition is hereby DENIED. As the attending physician. who does not cease to be a party to the original contract. 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.Leuterio‟s death certificate stated that hypertension was only “the possible cause of death. if there is any shall then be paid to the beneficiary/ies designated by the debtor.[20] Unless the interest of a person insured is susceptible of exact pecuniary measurement. the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. Equity dictates that DBP should not unjustly enrich itself at the expense of another (Nemo cum alterius detrimenio protest). Yek Tong Lin Fire & Marine Ins. or assigns a policy of insurance to a mortgagee. where a mortgagor of property effects insurance in his own name providing that the loss shall be payable to the mortgagee. whether he has an insurable interest or not.”[10] When DBP submitted the insurance claim against petitioner. under the contract of insurance.[15] Petitioner merely relied on the testimony of the attending physician.” The private respondent‟s statement. Petitioner contends that Dr. although he has assigned the policy for the purpose of collection. and De Leon Jr.[16] Dr. the policy stating that: “In the event of the debtor‟s death before his indebtedness with the Creditor [DBP] shall have been fully paid. and although it is expressly made payable to another as his interest may appear or otherwise. including hypertension. Dr. Grepalife asserts that Dr. Dr.[11] In Gonzales La O vs.. .R. Dr. Leuterio may file the suit against the insurer. Petitioner‟s claim is without merit.00) pesos to the heirs of the insured.[19] In the case at bar.”[13] And since a policy of insurance upon life or health may pass by transfer. * * * Although a policy issued to a mortgagor is taken out for the benefit of the mortgagee and is made payable to him. Bellosillo. Thereafter. J. and such person may recover it whatever the insured might have recovered. upon presentation of proof of prior settlement of mortgagor‟s indebtedness to Development Bank of the Philippines. and fair dealing requires that he should communicate it to the assured. good faith. interposing the defense of concealment committed by the insured.200. with the same effect as if it had been performed by the mortgagor. Considering this supervening event.[9] Section 8 of the Insurance Code provides: “Unless the policy provides. or has assigned as collateral security any judgment he may obtain. Hence. The proceeds now rightly belong to Dr. Hence. and that the widow‟s declaration that her husband had “possible hypertension several years ago” should not be considered as hearsay. Mejia stated that he had no knowledge of Dr.. Co. shall then be paid to the beneficiary/ies designated by the debtor. is primarily the proper person to bring suit thereon. if there is any. but as part of res gestae. Leuterio were for hypertension. the action for specific performance should be dismissed. A life insurance policy is a valued policy. such losspayable clause does not make the mortgagee a party to the contract. the appellant had not proven nor produced any witness who could attest to Dr. Wilfredo Leuterio (deceased). In private respondent‟s memorandum. concur. SO ORDERED.. herein private respondent Medarda Leuterio. Concealment exists where the assured had knowledge of a fact material to the risk. an amount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured. On the contrary the medical findings were not conclusive because Dr.

: This is a petition for review on certiorari of the Court of Appeals' decision affirming the decision of the Insurance Commissioner which dismissed the petitioners' complaint against respondent Philippine American Life Insurance Company for the recovery of the proceeds from their late father's policy. This court took judicial cognizance of the whirlwind pressure of insurance selling-especially of the agent's practice of 'supplying the information. (Rollo. If his purpose were to misrepresent and to conceal his ailments in anticipation of death during the two-year period.1973. father of herein petitioners. Insurer Philamlife could have presented as witness its Medical Examiner Dr. petitioners filed on November 27. the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent. Case No. such right must be exercised previous to the commencement of an action on the contract. not just P 80. JUANITO TAN. GUTIERREZ. According to the petitioners. 99-100) xxx xxx xxx The petitioners contend that there could have been no concealment or misrepresentation by their late father because Tan Lee Siong did not have to buy insurance. Nolasco for petitioners. to wit: A. Tan Lee Siong died of hepatoma (Exhibit B). Philamlife could have put to the witness stand its Agent Bienvenido S. in a letter dated September 11. 1989 EMILIO TAN. respondent company rescinded the contract of insurance and refunded the premiums paid on September 11. he certainly could have gotten a bigger insurance. 1082467 was issued effective November 6. 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. 1977. 218.00. (pp. However.R. Guinto. ALBERTO TAN and ARTURO TAN.F. (Rollo. 1975. Assured did not knock at the door of the insurer to buy insurance. THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY.1973.1973 and the insured died on April 26. petitioners. He did not. 1975. with petitioners the beneficiaries thereof (Exhibit A). After hearing the evidence of both parties. Assured was a man of means. respondent company is not. 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 in force for at least two years during the insured's lifetime. of applicable legal provisions and established jurisprudence. dismissing petitioners' complaint. On April 26. is contrary to the provisions of the policy contract itself. The contention is without merit.00. Part II. On September 23. No. The pertinent section in the Insurance Code provides: Section 48.1975.000. Urbano Guinto. The conclusion in law of respondent Court that respondent insurer may be allowed to avoid the policy on grounds of concealment by the deceased assured. (Rollo.000. At one time or another most of us have been subjected to that pressure. The policy was thus in force for a period of only one year and five months. this petition. barred from proving that the policy is void ab initio by reason of the insured's fraudulent concealment or misrepresentation. He was the object of solicitations and visits.00 with respondent company. 1975. Tan Lee Siong. C. docketed as I. O.000. Guinto. 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. therefore." As noted by the Court of Appeals. The petitioners state: Here then is a case of an assured whose application was submitted because of repeated visits and solicitations by the insurer's agent. Rollo) xxx xxx xxx This Honorable Supreme Court has had occasion to denounce the pressure and practice indulged in by agents in selling insurance. preparing and answering the . Petitioners then filed with respondent company their claim for the proceeds of the life insurance policy. B. He was only pressured by insistent salesmen to do so. It was he who accomplished the application. as well as. He could have obtained a bigger insurance. vs. Moreover. 138139. medical. The key phrase in the second paragraph of Section 48 is "for a period of two years. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter. pp. previous to the commencement of this action on November 27. that practice. Philamlife did not. 7) The petitioners contend that the respondent company 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. 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. Santos & P. The premiums paid on the policy were thereupon refunded .C. 1082467 in the amount of P 80. a complaint against the former with the Office of the Insurance Commissioner. applied for life insurance in the amount of P 80. respondent company denied petitioners' 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 (Exhibit 3). a relative to Dr. 91-92) The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's decision for lack of merit Hence. Considering that the insured died before the two-year period had lapsed. The conclusion in law of respondent Court that respondent insurer has the right to rescind the policy contract when insured is already dead is not in accordance with existing law and applicable jurisprudence.C. Ferry. The facts of the case as found by the Court of Appeals are: Petitioners appeal from the Decision of the Insurance Commissioner dismissing herein petitioners' complaint against respondent Philippine American Life Insurance Company for the recovery of the proceeds of Policy No.. J. Said application was approved and Policy No. De la Rosa and Associates for private respondent. Again Philamlife did not. respondents. JR. p.1975.Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G. the Insurance Commissioner rendered judgment on August 9. 48049 June 29. The inference of respondent Court that respondent insurer was misled in issuing the policy are manifestly mistaken and contrary to admitted evidence. to wit: The policy was issued on November 6.1975. Alleging that respondent company's refusal to pay them the proceeds of the policy was unjustified and unreasonable. pp. The petitioners raise the following issues in their assignment of errors.

These agents are to be found all over the length and breadth of the land. 67 Phil. whether or not. (Trinidad v. Rules of Court].n. would not have affixed his signature on the application form unless he clearly understood its significance. Rollo) The legislative answer to the arguments posed by the petitioners is the "incontestability clause" added by the second paragraph of Section 48. 23. They state that the insurer should have presented its two medical field examiners as witnesses. All provisions. the assured who dies within the two-year period. For. Orient Protective Assurance Assn. diabetes and liver disorders. It is but to be expected that he. The evidence for respondent company shows that on September 19. WHEREFORE. Rollo) xxx xxx xxx In the face of all the above. a businessman. that is for Congress or the Insurance Commission to provide as protection against high pressure insurance salesmanship. 140-142. 8-10.. 201. April 8. 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. 83 SCRA 361 [1978]). explained to and understood by the deceased so as to prove concealment on his part. 1973 for consolation and claimed to have been diabetic for five years. Exhibit 2). conclude the transactions. The agents in short do what the company set them out to do. by affixing his signature on the application form. The same is not well taken.C) and dispensing with further medical investigation and examination (Exhibit 5-A). the presumption is that a person intends the ordinary consequence of his voluntary act and takes ordinary care of his concerns.s. it would be unjust if. 142. Congress felt this was a sufficient answer to the various tactics employed by insurance companies to avoid liability. SO ORDERED." (p. Feliciano." We agree with the Court of Appeals which ruled: On the other hand. concur. pp. and most favorably toward those against whom they are meant to operate. Feliciano. submitting the application to their companies. Aug. They are stimulated to more active efforts by contests and by the keen competition offered by the other rival insurance companies. Teves. the petition is hereby DENIED for lack of merit. We call attention to what this Honorable Court said in Insular Life v. 96-98) There is no strong showing that we should apply the "fine print" or "contract of adhesion" rule in this case. [Sec. pp. conditions. would be allowed to collect on the policy even if the insured fraudulently concealed material facts. The petitioners argue that no evidence was presented to show that the medical terms were explained in a layman's language to the insured.. 5(c) and (d). concluding the transactions and otherwisesmoothing out all difficulties. It is the petitioners' burden to show that the factual findings of the respondent court are not based on substantial evidence or that its conclusions are contrary to applicable law and jurisprudence. took no part. (Sweet Lines. Chairman). The deceased. (Rollo. the insured still lives within such period. Moreover. 1976. The Insular Life case was decided some forty years ago when the pressure of insurance salesmanship was not overwhelming as it is now.n.J. The petitioners' interpretation 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. Bidin and Cortes.application. For as long as no adverse medical history is revealed in the application form. an applicant for insurance is presumed to be healthy and physically fit and no further medical investigation or examination is conducted by respondent company. After two years. at page 205: It is of common knowledge that the selling of insurance today is subjected to the whirlwind pressure of modern salesmanship. The petitioners cite: It is a matter of common knowledge that large amounts of money are collected from ignorant persons by companies and associations which adopt high sounding titles and print the amount of benefits they agree to pay in large black-faced type. prepare and answer the applications.. They supply all the information.. If a warning in bold red letters or a boxed warning similar to that required for cigarette advertisements by the Surgeon General of the United States is necessary. testified that the deceased came to see him on December 14. respondent company was thus misled into accepting the risk and approving his application as medically standard (Exhibit 5. Dr. no matter how patent or well founded.1976. JJ. Fernan. Wenceslao Vitug... affirmed the correctness of all the entries and answers appearing therein. (pp. August 23. the deceased was examined by Dr. and otherwise smooth out all difficulties. Insurance companies send detailed instructions to their agents to solicit and procure applications. et al. having been subjected to the whirlwind pressure of insurance salesmanship this Court itself has long denounced. 184) There is no showing that the questions in the application form for insurance regarding the insured's medical history are in smaller print than the rest of the printed form or that they are designed in such a way as to conceal from the applicant their importance. (t. 73 Phil. 6-8).n. 1973. should stand charged of fraudulent concealment and misrepresentation. Exhibit 6) Because of the concealment made by the deceased of his consultations and treatments for hypertension. . when the insurance companies competing with one another could be counted by the fingers. (t. p. that by January.1972. pp. 5. Victoriano Lim and was found to be diabetic and hypertensive. v. The questioned decision of the Court of Appeals is AFFIRMED. We are limited in this petition to ascertaining whether or not the respondent Court of Appeals committed reversible error.1976. petitioners argue that no evidence was presented by respondent company to show that the questions appearing in Part II of the application for insurance were asked. no longer lie. Inc.s. the deceased was complaining of progressive weight loss and abdominal pain and was diagnosed to be suffering from hepatoma. when the population of this country was less than one-fourth of what it is now. submit the applications to their companies. Rule 131. (t. following such undertakings by fine print conditions which destroy the substance of the promise. They have failed to discharge that burden.s. the defenses of concealment or misrepresentation. the petitioners allege that the policy intends that the medical examination must be conducted before its issuance otherwise the insurer "waives whatever imperfection by ratification. or exceptions which in any way tend to work a forfeiture of the policy should be construed most strongly against those for whose benefit they are inserted. (C. Another physician.

B.3 However. there was none. respondent.”2 To avoid the dissastrous effect of the misrepresentation or concealment of the other insurance policy. Ltd.1 And considering the terms of the policy which required the insured to declare other insurances. 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. Other insurers of the same property against the same hazard are sometimes referred as co-insurers and the ensuing combination as co-insurance. that there were no other insurance on the property. Montemayor. Nevertheless. The principal of facts on which adjudication may rest are these: On April 15. Labrador. or which may subsequently be effected. the annotation served no purpose.000. We have read the pages of the stenographic notes cited by Ng Hua and we all gather is evidence of the existence of the Insurance General Indemnity Company. insuring against fire. On appeal to the Courts of Appeal. Baizas for respondent. Crispin D. this concealment and violation was expressly set up as a special defense in the answer. It is not the only situation where co-insurance exists. 1952. sec. It would even be contrary to the policy itself. Guido Advincula and Potenciano Villegas. co-insurance exists under the condition described by the appellate court. the judgment was affirmed. which in its clause No.. 55 Phil. emphasis on the last word. resulting in destruction by fire of the insured properties. petitioner.. As to knowledge of General Insurance before issuance of its policy or the fire. upon the insurer‟s insistence on two of its main defenses: prescription and breach of warranty. he reduced the claim of P5. So ordered.. reply nor assert such knowledge. Indeed. If General Insurance know before issuing its policy or before the fire. The insured shall give notice to the company of any insurance or insurances already affected. (b) violation of warranty. L-14373 GENERAL INSURANCE AND SURETY CORPORATION. However. concur. even if the annotations were overlooked. Furthermore. such knowledge might overcome the insurer‟s defense. and the defendant insurer (herein petitioner) acquitted from all the liability under the policy. Ng Hua claimed indemnity from the insurer. the Court of Appeals referring to the annotation and overruling the defense. (c) submission of fraudulent claim. it was required to pay. covering any of the property hereby insured. Paras. Violation thereof entitles the insurer to rescind. Commercial Union Assurance Company. Jose P. in avoidance. Endencia. If “Co-Insurance” means that the Court of Appeals says. The insurer presented several defenses in the Manila court of first instance. Ng Hua alleges “actual knowledge” on the part of General insurance of the fact that he had taken out additional insurance with General Indemnity. Bengzon (Jose). the court insured. but after some negotiations and upon suggestion of the Manila Adjustment Company.00. the Court of Appeals found no evidence of such knowledge. for the same period of time. 329.J.00. Insurance Act) Such misrepresentation is fatal in the light of our views in Santa Ana vs.000.Republic of the Philippines SUPREME COURT Manila EN BANC DECISION January 30.) All the above considerations lead to the conclusion that the defendant insurer successfully established its defense of warranty breach or concealment of the other insurance and/or violation of the provision of the policy above-mentioned. And as stipulated in the above-quoted provisions of such policy “all benefit under this policy shall be forfeited. the judgment under review will be revoked. 471. C. J. J. 3. namely (a) action was not filed in time. all benefits under the policy shall be forfeited. Bengzon.. and (f) failure to pay the premium. 471 of defendant. NG HUA. The aforesaid Policy No. (See Rule 11. 17 made the insured a coinsurer for the excess of the value of the property over the amount of the policy. Discussion – Undoubtedly. must be deemed to be a warranty that the property was not insured by any other policy. 1.00 from General Indemnity Co. 1960 G. Padilla. Having reached the conclusion. Concepcion Reyes. Jr. for one year. the statement in question must be deemed to be a statement (warranty) binding on both insurer and insured. vs. But that is one kind of co-insurance. And it is doubtful whether the evidence on the point would be admissible under the pleadings. The materiality of non-disclosure of other insurance policies is not open to doubt. the defendant General Insurance and Surety Corporation issued its insurance Policy No. inasmuch as “co-insurance exists when a condition of the policy requires the insured to bear ratable proportion of the loss when the value of the insured property exceeds the face value of the policy. After trial. He does not say when such knowledge was acquired or imparted.. Remember it runs “Co-Insurance declared”.000. in the amount of P20.. we deem it unnecessary to discuss the other defenses. . petitioner.: Suit to recover on a fire insurance policy. held that there was no violation of the above clause.L. This is now a revision on certiorari. the Pomade factory building burned. (Emphasis ours. 69. The policy covered damages up to P10. the defendant insurer refused to pay for various reasons. Yet plaintiff did not. 471 contains this stipulation on the back thereof.” hence there is no co-insurance here. the stock in trade of the Central Pomade Factory owned by Ng Hua. the defendant insurer would still be free from liability because there is no question that the policy issued by General Indemnity had not been stated in nor endorsed on Policy No.) The face of the policy bore the annotation: “Co -Insurance Declared – NIL” It is undenied that Ng Hua had obtained fire insurance on the same goods. Costs against respondent. Wherefore. and Barrera. The next day. Bautista Angelo. (Sec. The annotation then. JJ. No.R.

or freightage.. 1986.[3] The decision of the trial court. however. JR. Branch 137. the . On August 14. for a period of one year whereby the said common carrier agreed to transport Caltex‟s industrial fuel oil from the BatangasBataan Refinery to different parts of the country. which the private respondent admitted as having been fulfilled by its payment of the insurance proceeds to Caltex of its lost cargo. The petitioner also alleges that the Court of Appeals erred in ruling that MT Maysun was not seaworthy on the ground that the marine officer who served as the chief mate of the vessel. The fact of payment grants the private respondent subrogatory right which enables it to exercise legal remedies that would otherwise be available to Caltex as owner of the lost cargo against the petitioner common carrier. which states that in every marine insurance upon a ship or freight. Inc. MT Maysun set sail from Batangas for Zamboanga City. Category III(a)(3)(ii)(aa) of the Philippine Merchant Marine Rules and Regulations. The payment made by the private respondent for the insured value of the lost cargo operates as waiver of its (private respondent) right to enforce the term of the implied warranty against Caltex under the marine insurance policy.[7] the failure of the private respondent to present the insurance policy in evidence is allegedly fatal to its claim inasmuch as there is no way to determine the rights of the parties thereto.[6] In any event. invokes the provision of Section 113 of the Insurance Code of the Philippines. We rule in the negative on both issues. No. Subsequently. II Whether or not the non-presentation of the marine insurance policy bars the complaint for recovery of sum of money for lack of cause of action. or upon any thing which is the subject of marine insurance there is an implied warranty by the shipper that the ship is seaworthy.[8] Article 2207 of the New Civil Code provides that: Art.314 kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex Oil Terminal in Zamboanga City. 127897. 2. on appeal. The appellate court gave credence to the weather report issued by the Philippine Atmospheric. THE HON. Branch 137. By virtue of the doctrine laid down in the case of Home Insurance Corporation vs. Delsan Transport Lines. In the absence of any explanation as to what may have caused the sinking of the vessel coupled with the finding that the same was improperly manned. private respondent filed a complaint with the Regional Trial Court of Makati City. was seaworthy to undertake the voyage as determined by the Philippine Coast Guard per Survey Certificate Report No.096. was reversed. all the crew and officers of MT Maysun were exonerated in the administrative investigation conducted by the Board of Marine Inquiry after the subject accident. the insurer will not be liable to the assured for any loss under the policy in case the vessel would later on be found as not seaworthy at the inception of the insurance. In fact.57) representing the insured value of the lost cargo. Petitioner Delsan Transport Lines. Under Section 116 of the Insurance Code of the Philippines. Unfortunately. for collection of a sum of money. the private respondent demanded of the petitioner the same amount it paid to Caltex. petitioner. Petitioner raised the following assignments of error in support of the instant petition. It theorized that when private respondent paid Caltex the value of its lost cargo. 1996. MT Maysun. he was qualified to act as the vessel‟s chief officer under Chapter IV(403). the legal issues posed before the Court are: I Whether or not the payment made by the private respondent to Caltex for the insured value of the lost cargo amounted to an admission that the vessel was seaworthy. and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of. DECISION DE LEON. 2001] DELSAN TRANSPORT LINES. II THE COURT OF APPEALS ERRED AND WAS NOT JUSTIFIED IN REBUTTING THE LEGAL PRESUMPTION THAT THE VESSEL MT “MAYSUN” WAS SEAWORTHY. November 15. III THE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF THE SUPREME COURT IN THE CASE OF HOME INSURANCE CORPORATION V.: Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.635. the act of the private respondent is equivalent to a tacit recognition that the ill-fated vessel was seaworthy. Inc.R.7 to two (2) meters in height only in the vicinity of the Panay Gulf where the subject vessel sank. for unknown reason. 39836 promulgated on June 17. J. The subsequent motion for reconsideration of herein petitioner was denied by the appellate court. petitioner took on board its vessel. extends to the vessel‟s complement. 1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil. CV No. The facts show that Caltex Philippines (Caltex for brevity) entered into a contract of affreightment with the petitioner. private respondent paid Caltex the sum of Five Million Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5. American Home Assurance Corporation. 2207. COURT OF APPEALS.SECOND DIVISION [G. However.096. petitioner further avers that private respondent failed. the wind speed remained at 10 to 20 knots per hour while the waves measured from .635.. Under the contract.277. ordering petitioner to pay private respondent the sum of Five Million Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5. was allegedly not qualified. 1997 which denied the subsequent motion for reconsideration. thus exempting the common carrier (herein petitioner) from liability for the loss of its cargo. COURT OF APPEALS and AMERICAN HOME ASSURANCE CORPORATION. Hence. in contrast to herein petitioner‟s allegation that the waves were twenty (20) feet high. the same cannot be validly interpreted as an automatic admission of the vessel‟s seaworthiness by the private respondent as to foreclose recourse against the petitioner for any liability under its contractual obligation as a common carrier.[5] to wit: I THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL TRIAL COURT. Exercising its right of subrogation under Article 2207 of the New Civil Code. If the plaintiff‟s property has been insured. 1990 dismissing the complaint against herein petitioner without pronouncement as to cost. the implied warranty of seaworthiness of the vessel. Due to its failure to collect from the petitioner despite prior demand. petitioner avers that although Berina had merely a 2 nd officer‟s license. respondents. The trial court found that the vessel. Francisco Berina. to present in evidence during the trial of the instant case the subject marine cargo insurance policy it entered into with Caltex. the appellate court ruled that the petitioner is liable on its obligation as common carrier[4] to herein private respondent insurance company as subrogee of Caltex.57) and costs and the Resolution[2] dated January 21. After the trial and upon analyzing the evidence adduced. Consequently. private respondent was not legally liable to Caltex due to the latter‟s breach of implied warranty under the marine insurance policy that the vessel was seaworthy. MT Maysun. Besides. the trial court rendered a decision on November 29.. vs. Geophysical and Astronomical Services Administration (PAGASA for brevity) which showed that from 2:00 o‟clock to 8:00 o‟clock in the morning on August 16. INC. M5-016-MH upon inspection during its annual dry-docking and that the incident was caused by unexpected inclement weather condition or force majeure. reversing the decision of the Regional Trial Court of Makati City. The shipment was insured with the private respondent.R. CA. by the Court of Appeals. the vessel sank in the early morning of August 16. otherwise. 1986. thus precluding any action for recovery against the petitioner.

however.[14] This tale of strong winds and big waves by the said officers of the petitioner however. (thus): Seaworthiness relates to a vessel‟s actual condition. sixth. Hence. The insurance contract. repeatedly buffeted MT Maysun causing it to tilt. by itself. and Buena. earthquake. was lost while on board petitioner‟s vessel. 62) And also: Authorities are clear that diligence in securing certificates of seaworthiness does not satisfy the vessel owner‟s obligation. (private respondent therein). MT Maysun. WHEREFORE. of the said vessel. among others. from the M/S Oriental Statesman to the M/S Pacific Conveyor. according to all the circumstances of each case. The Decision dated June 17. The right of subrogation has its roots in equity. Mabuhay Brokerage Co.[12] In all other cases. unless they prove that they observed extraordinary diligence. SO ORDERED. is sufficient to establish not only the relationship of herein private respondent as insurer and Caltex.insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. from the arrastre operator to the hauler. if the goods are lost. it appears that a sudden and unexpected change of weather condition occurred in the early morning of August 16. If the amount paid by the insurance company does not fully cover the injury or loss. petitioner‟s vessel. from the shipper to the port of departure. destruction or deterioration of the insured goods. MT Maysun. it cannot be held responsible for the handling of the cargo before it actually received it.)[17] Additionally. of the condition of the vessel or her stowage does not establish due diligence if the vessel was in fact unseaworthy. These pieces of evidence do not necessarily take into account the actual condition of the vessel at the time of the commencement of the voyage. It is designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice and good conscience ought to pay. common carriers are presumed to have been at fault or to have acted negligently. the hauler can be liable only for any damage that occurred from the time it received the cargo until it finally delivered it to the consignee. any privity of contract or upon written assignment of claim. From the nature of their business and for reasons of public policy. The certificates issued. for the cargo owner has no obligation in relation to seaworthiness. was fit for voyage. the herein petitioner common carrier. common carriers shall be responsible unless the same is brought about. It accrues simply upon payment by the insurance company of the insurance claim. the instant petition is DENIED. There was no squall or bad weather or extremely poor sea condition in the vicinity when the said vessel sank. the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. could not be expected to testify against the interest of their employer. showing that from 2:00 o‟clock to 8:00 o‟clock in the morning on August 16.R. 7-3. Of certificates issued in this regard. Anent the second issue. Neither the granting of classification or the issuance of certificates establishes seaworthiness. from the hauler to the consignee. our ruling on the presentation of the insurance policy in the said case of Home Insurance Corporation is not applicable to the case at bar. but also the amount paid to settle the insurance claim. the independent government agency charged with monitoring weather and sea conditions. petitioner attributes the sinking of MT Maysun to fortuitous event or force majeure. ship captain and chief mate. lightning or other natural disaster or calamity. fifth. destroyed or deteriorated. the payment made by the private respondent (insurer) to Caltex (assured) operates as an equitable assignment to the former of all the remedies which the latter may have against the petitioner. It does not in any way operate to absolve the petitioner common carrier from its civil liability arising from its failure to observe extraordinary diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions of its employees. From the testimonies of Jaime Jarabe and Francisco Berina.7 to two (2) meters in the vicinity of Cuyo East Pass and Panay Gulf where the subject vessel sank.[9] It is not dependent upon. Quisumbing.. Costs against the petitioner. (Ibid. respectively of the ill-fated vessel. concur. the ship may have appeared fit. First. fourth. common carriers are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of passengers transported by them. by flood. (Chairman).[20] The presentation of the insurance policy was necessary in the case of Home Insurance Corporation v. [11] In the event of loss. Sec. second. since no evidence was adduced indicating at what stage in the handling process the damage to the cargo was sustained.[10] Consequently. from the port of arrival to the arrastre operator. 1986. in the case at bar. 39836 is AFFIRMED. Bellosillo. 1996 of the Court of Appeals in CA-G. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim. Ordinarily. Inc. Thus. Jaime Jarabe and Francisco Berina. which was not presented in evidence in that case would have indicated the scope of the insurer‟s liability.[18] In the case at bar. sank with its entire cargo for the reason that it was not seaworthy. or his surveyor. CV No.[13] In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex. 1986. the wind speed remained at ten (10) to twenty (20) knots per hour while the height of the waves ranged from . (2-A Benedict on Admiralty. storm. it is our view and so hold that the presentation in evidence of the marine insurance policy is not indispensable in this case before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt. do not negate the presumption of unseaworthiness triggered by an unexplained sinking. Also securing the approval of the shipper of the cargo. We emphasized in that case that in the absence of proof of stipulations to the contrary. captain and chief mate. MT Maysun. from the port of departure to the M/S Oriental Statesman. . authorities are likewise clear as to their probative value. take in water and eventually sink with its cargo. if any. 1986. the vessel MT Maysun.. As correctly observed by the Court of appeals: At the time of dry-docking and inspection. and lastly. as the assured shipper of the lost cargo of industrial fuel oil. which sank while in transit in the vicinity of Panay Gulf and Cuyo East Pass in the early morning of August 16. respectively. petitioner is liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for its failure to rebut the presumption of fault or negligence as common carrier[19] occasioned by the unexplained sinking of its vessel. there is no doubt that the cargo of industrial fuel oil belonging to Caltex. the exoneration of MT Maysun‟s officers and crew by the Board of Marine Inquiry merely concerns their respective administrative liabilities. Mendoza. The appellate court also correctly opined that the petitioner‟s witnesses. from the M/S Pacific Conveyor to the port of arrival. the determination of which properly belongs to the courts. In contrast. CA[21] (a case cited by petitioner) because the shipment therein (hydraulic engines) passed through several stages with different parties involved in each stage. as the appellate court correctly ruled. nor does it grow out of. third. JJ. Neither may petitioner escape liability by presenting in evidence certificates[16] that tend to show that at the time of dry-docking and inspection by the Philippine Coast Guard. while in transit. that at around 3:15 o‟clock in the morning a squall (“unos”) carrying strong winds with an approximate velocity of 30 knots per hour and big waves averaging eighteen (18) to twenty (20) feet high. Geophysical and Astronomical Services Administration (PAGASA). was effectively rebutted and belied by the weather report[15] from the Philippine Atmospheric.