was received notice was sent by the Manila office of Herrer that the
G.R. No. L-15895 November 29, 1920
RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin
Ma. Herrer, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-
appellee.
Jose A. Espiritu for appellant.
Cohn, Fisher and DeWitt for appellee.
MALCOLM, J.:
This is an action brought by the plaintiff ad administrator of the estate of the
late Joaquin Ma. Herrer to recover from the defendant life insurance
company the sum of pesos 6,000 paid by the deceased for a life annuity. The
trial court gave judgment for the defendant. Plaintiff appeals.
The undisputed facts are these: On September 24, 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
reading as follows:
MANILA, I. F., 26 de septiembre, 1917.
PROVISIONAL RECEIPT Pesos 6,000
Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como
prima dela Renta Vitalicia solicitada por dicho Don Joaquin Herrer hoy,
sujeta al examen medico y aprobacion de la Oficina Central de la Compaia.
The application was immediately forwarded to the head office of the
company at Montreal, Canada. On November 26, 1917, the head office gave
notice of acceptance by cable to Manila. (Whether on the same day the cable
INSURANCE
application had been accepted, is a disputed point, which will be discussed
later.) On December 4, 1917, the policy was issued at Montreal. On
December 18, 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 November 26,
1917. This letter was received by Mr. Torres on the morning of December
21, 1917. Mr. Herrer died on December 20, 1917.
As above suggested, the issue of fact raised by the evidence is whether
Herrer received notice of acceptance of his application. To resolve this
question, we propose to go directly to the evidence of record.
The chief clerk of the Manila office of the Sun Life Assurance Company of
Canada at the time of the trial testified that he prepared the letter introduced
in evidence as Exhibit 3, of date November 26, 1917, and handed it to the
local manager, Mr. E. E. White, for signature. The witness admitted on
cross-examination that after preparing the letter and giving it to he manager,
he new nothing of what became of it. The local manager, Mr. White,
testified to having received the cablegram accepting the application of Mr.
Herrer from the home office on November 26, 1917. He said that on the
same day he signed a letter notifying Mr. Herrer of this acceptance. The
witness further said that letters, after being signed, were sent to the chief
clerk and placed on the mailing desk for transmission. The witness could not
tell if the letter had every actually been placed in the mails. Mr. Tuason, who
was the chief clerk, on November 26, 1917, was not called as a witness. For
the defense, attorney Manuel Torres testified to having prepared the will of
Joaquin Ma. Herrer, that on this occasion, Mr. Herrer mentioned his
application for a life annuity, and that he said that the only document
relating to the transaction in his possession was the provisional receipt.
Rafael Enriquez, the administrator of the estate, testified that he had gone
through the effects of the deceased and had found no letter of notification
from the insurance company to Mr. Herrer.
Our deduction from the evidence on this issue must be that the letter of
November 26, 1917, notifying Mr. Herrer that his application had been
1
accepted, was prepared and signed in the local office of the insurance
company, was placed in the ordinary channels for transmission, but as far as
we know, was never actually mailed and thus was never received by the
applicant.
Not forgetting our conclusion of fact, it next becomes necessary to
determine the law which should be applied to the facts. In order to reach our
legal goal, the obvious signposts along the way must be noticed.
Until quite recently, all of the provisions concerning life insurance in the
Philippines were found in the Code of Commerce and the Civil Code. In the
Code of the Commerce, there formerly existed Title VIII of Book III and
Section III of Title III of Book III, which dealt with insurance contracts. In
the Civil Code there formerly existed and presumably still exist, Chapters II
and IV, entitled insurance contracts and life annuities, respectively, of Title
XII of Book IV. On the after July 1, 1915, there was, however, in force the
Insurance Act. No. 2427. Chapter IV of this Act concerns life and health
insurance. The Act expressly repealed Title VIII of Book II and Section III
of Title III of Book III of the code of Commerce. The law of insurance is
consequently now found in the Insurance Act and the Civil Code.
While, as just noticed, the Insurance Act deals with life insurance, it is silent
as to the methods to be followed in order that there may be a contract of
insurance. On the other hand, the Civil Code, in article 1802, not only
describes a contact of life annuity markedly similar to the one we are
considering, but in two other articles, gives strong clues as to the proper
disposition of the case. For instance, article 16 of the Civil Code provides
that "In matters which are governed by special laws, any deficiency of the
latter shall be supplied by the provisions of this Code." On the supposition,
therefore, which is incontestable, that the special law on the subject of
insurance is deficient in enunciating the principles governing acceptance, the
subject-matter of the Civil code, if there be any, would be controlling. In the
Civil Code is found article 1262 providing that "Consent is shown by the
concurrence of offer and acceptance with respect to the thing and the
consideration which are to constitute the contract. An acceptance made by
letter shall not bind the person making the offer except from the time it came
to his knowledge. The contract, in such case, is presumed to have been
INSURANCE
entered into at the place where the offer was made." This latter article is in
opposition to the provisions of article 54 of the Code of Commerce.
If no mistake has been made in announcing the successive steps by which
we reach a conclusion, then the only duty remaining is for the court to apply
the law as it is found. The legislature in its wisdom having enacted a new
law on insurance, and expressly repealed the provisions in the Code of
Commerce on the same subject, and having thus left a void in the
commercial law, it would seem logical to make use of the only pertinent
provision of law found in the Civil code, closely related to the chapter
concerning life annuities.
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, let it be noticed
that 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 poenitentiae is ended when the acceptance has passed
beyond the control of the party. (I Joyce, The Law of Insurance, pp. 235,
244.)
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,
2
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. (See 22 C.J., 96, and 49 L. R. A. [N. S.], pp. 458, et
seq., notes.)

We hold that 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.lawph!l.net

Judgment is reversed, and the plaintiff shall have and recover from the
defendant the sum of P6,000 with legal interest from November 20, 1918,
until paid, without special finding as to costs in either instance. So ordered.

Mapa, C.J., Araullo, Avancea and Villamor, JJ., concur.

Johnson, J., dissents.

INSURANCE 3

Enriquez v. SunLife- Insurance Policy
41 PHIL 269
Facts:
> On Sept. 24 1917, Herrer made an application to SunLife through its
office in Manila for life annuity.
> 2 days later, he paid the sum of 6T to the companys anager in its Manila
office and was given a receipt.
> On Nov. 26, 1917, the head office gave notice of acceptance by cable to
Manila. On the same date, the Manila office prepared a letter notifying
Herrer that his application has been accepted and this was placed in the
ordinary channels of transmission, but as far as known was never actually
mailed and never received by Herrer.
> Herrer died on Dec. 20, 1917. The plaintiff as administrator of Herrers
estate brought this action to recover the 6T paid by the deceased.
Issue:
Whether or not the insurance contract was perfected.
Held:
NO.
The contract for life annuity was NOT perfected because it had NOT been
proved satisfactorily that the acceptance of the application ever came to the
knowledge of the applicant. An acceptance of an offer of insurance NOT
actually or constructively communicated to the proposer does NOT make a
contract of insurane, as the locus poenitentiae is ended when an acceptance
INSURANCE
has passed beyond the control of the party.
NOTE: Life annuity is the opposite of a life insurance. In life annuity, a big
amount is given to the insurance company, and if after a certain period of
time the insured is stil living, he is entitled to regular smaller amounts for
the rest of his life. Examples of Life annuity are pensions. Life Insurance on
the other hand, the insured during the period of the coverage makes small
regular payments and upon his death, the insurer pays a big amount to his
beneficiaries.
Enriquez V. Sun Life Assurance Co. Of Canada
G.R. No. L-15895 November 29, 1920
Lessons Applicable: Perfection (Insurance)
FACTS:
1 September 24, 1917: Joaquin Herrer made application to the Sun
Life Assurance Company of Canada through its office in Manila for a
life annuity
2 2 days later: he paid P6,000 to the manager of the company's
Manila office and was given a receipt
3 according to the provisional receipt, 3 things had to be
accomplished by the insurance company before there was a contract:
1 (1) There had to be a medical examination of the applicant; -check
2 (2) there had to be approval of the application by the head office of
the company; and - check
3 (3) this approval had in some way to be communicated by the
company to the applicant - ?
4 November 26, 1917: The head office at Montreal, Canada gave
notice of acceptance by cable to Manila but this was not mailed
5 December 4, 1917: policy was issued at Montreal
6 December 18, 1917: attorney Aurelio A. Torres wrote to the Manila
4
 office of the company stating that Herrer desired to withdraw his
application
7 December 19, 1917: local office replied to Mr. Torres, stating that
the policy had been issued, and called attention to the notification of
November 26, 1917
8 December 21, 1917 morning: received by Mr. Torres
9 December 20, 1917: Mr. Herrer died
10 Rafael Enriquez, as administrator of the estate of the late Joaquin
Ma. Herrer filed to recover from Sun Life Assurance Company of G.R. No. L-44059 October 28, 1977
Canada through its office in Manila for a life annuity
11 RTC: favored Sun Life Insurance THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-
appellee,
ISSUE: W/N Mr. Herrera received notice of acceptance of his application vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO,
thereby perfecting his life annuity defendants-appellants.
HELD: NO. Judgment is reversed, and the Enriquez shall have and recover MARTIN, J.:
from the Sun Life the sum of P6,000 with legal interest from November 20,
1918, until paid, without special finding as to costs in either instance. So
This is a novel question in insurance law: Can a common-law wife named as
ordered.
beneficiary in the life insurance policy of a legally married man claim the
proceeds thereof in case of death of the latter?
Civil Code
Art. 1319 (formerly Art.1262) On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life
Art. 1319. Consent is manifested by the meeting of the offer and the Assurance Co., Ltd., Policy No. 009929 on a whole-life for P5,882.00 with
acceptance upon the thing and the cause which are to constitute the a, rider for Accidental Death for the same amount Buenaventura C. Ebrado
contract. The offer must be certain and the acceptance absolute. A designated T. Ebrado as the revocable beneficiary in his policy. He to her as
qualified acceptance constitutes a counter-offer. his wife.
Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract, in
On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when
such a case, is presumed to have been entered into in the place
he was hit by a failing branch of a tree. As the policy was in force, The
where the offer was made.
Insular Life Assurance Co., Ltd. liable to pay the coverage in the total
1 not perfected because it has not been proved satisfactorily that the amount of P11,745.73, representing the face value of the policy in the
acceptance of the application ever came to the knowledge of the amount of P5,882.00 plus the additional benefits for accidental death also in
applicant the amount of P5,882.00 and the refund of P18.00 paid for the premium due
INSURANCE 5
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, The
Insular Life Assurance Co., Ltd. commenced an action for Interpleader
before the Court of First Instance of Rizal on April 29, 1970.
After the issues have been joined, a pre-trial conference was held on July 8,
1972, after which, a pre-trial order was entered reading as follows:
During the pre-trial conference, the parties manifested to the court. that there
is no possibility of amicable settlement. Hence, the Court proceeded to have
the parties submit their evidence for the purpose of the pre-trial and make
admissions for the purpose of pretrial. During this conference, parties
Carponia T. Ebrado and Pascuala Ebrado agreed and stipulated: 1) that the
deceased Buenaventura Ebrado was married to Pascuala Ebrado with
whom she has six (legitimate) namely; Hernando, Cresencio, Elsa,
Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the
lifetime of the deceased, he was insured with Insular Life Assurance Co.
Under Policy No. 009929 whole life plan, dated September 1, 1968 for the
sum of P5,882.00 with the rider for accidental death benefit as evidenced by
Exhibits A for plaintiffs and Exhibit 1 for the defendant Pascuala and
Exhibit 7 for Carponia Ebrado; 3) that during the lifetime of Buenaventura
Ebrado, he was living with his common-wife, Carponia Ebrado, with whom
she had 2 children although he was not legally separated from his legal
wife; 4) that Buenaventura in accident on October 21, 1969 as evidenced by
the death Exhibit 3 and affidavit of the police report of his death Exhibit 5;
5) that complainant Carponia Ebrado filed claim with the Insular Life
INSURANCE
Assurance Co. which was contested by Pascuala Ebrado who also filed
claim for the proceeds of said policy 6) that in view ofthe adverse claims the
insurance company filed this action against the two herein claimants
Carponia and Pascuala Ebrado; 7) that there is now due from the Insular
Life Assurance Co. as proceeds of the policy P11,745.73; 8) that the
beneficiary designated by the insured in the policy is Carponia Ebrado and
the insured made reservation to change the beneficiary but although the
insured made the option to change the beneficiary, same was never changed
up to the time of his death and the wife did not have any opportunity to write
the company that there was reservation to change the designation of the
parties agreed that a decision be rendered based on and stipulation of facts
as to who among the two claimants is entitled to the policy.
Upon motion of the parties, they are given ten (10) days to file their
simultaneous memoranda from the receipt of this order.
SO ORDERED.
On September 25, 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. The trial court held:
It is patent from the last paragraph of Art. 739 of the Civil Code that a
criminal conviction for adultery or concubinage is not essential in order to
establish the disqualification mentioned therein. Neither is it also necessary
that a finding of such guilt or commission of those acts be made in a
separate independent action brought for the purpose. The guilt of the donee
(beneficiary) may be proved by preponderance of evidence in the same
proceeding (the action brought to declare the nullity of the donation).
It is, however, essential that such adultery or concubinage exists at the time
defendant Carponia T. Ebrado was made beneficiary in the policy in
question for the disqualification and incapacity to exist and that it is only
necessary that such fact be established by preponderance of evidence in the
trial. Since it is agreed in their stipulation above-quoted that the deceased
insured and defendant Carponia T. Ebrado were living together as husband
6
and wife without being legally married and that the marriage of the insured
with the other defendant Pascuala Vda. de Ebrado was valid and still
existing at the time the insurance in question was purchased there is no
question that defendant Carponia T. Ebrado is disqualified from becoming
the beneficiary of the policy in question and as such she is not entitled to the
proceeds of the insurance upon the death of the insured.
From this judgment, Carponia T. Ebrado appealed to the Court of Appeals,
but on July 11, 1976, the Appellate Court certified the case to Us as
involving only questions of law.
We affirm the judgment of the lower court.
1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or
even the new Insurance Code (PD No. 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 shag be
applied exclusively to the proper interest of the person in whose name it is
made" 1 cannot be validly seized upon to hold that the mm 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. 2 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. 3 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
fife insurance policy by the person who cannot make a donation to him. 4
Common-law spouses are, definitely, barred from receiving donations from
each other. Article 739 of the new Civil Code provides:
The following donations shall be void:
INSURANCE
1. Those made between persons who were guilty of adultery or concubinage
at the time of donation;
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 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.
2. 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.5 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 wins are interpreted. 6
3. Policy considerations and dictates of morality rightly justify the
institution of a barrier between common law spouses in record to Property
relations since such hip 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 above pointed out, a beneficiary in a fife insurance
policy is no different from a donee. Both are recipients of pure beneficence.
So long as manage remains the threshold of family laws, reason and
morality dictate that the impediments imposed upon married couple should
7
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. Thus, in
Matabuena v. Cervantes, 7 this Court, through Justice Fernando, said:
If the policy of the law is, in the language of the opinion of the then Justice
J.B.L. Reyes of that court (Court of Appeals), 'to prohibit donations in favor
of the other consort and his descendants because of and undue and improper
pressure and influence upon the donor, a prejudice deeply rooted in our
ancient law;" por-que no se enganen desponjandose el uno al otro por amor
que han de consuno' (According to) the Partidas (Part IV, Tit. XI, LAW IV),
reiterating the rationale 'No Mutuato amore invicem spoliarentur' the
Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem); then there is
very reason to apply the same prohibitive policy to persons living together
as husband and wife without the benefit of nuptials. For it is not to be
doubted that assent to such irregular connection for thirty years bespeaks
greater influence of one party over the other, so that the danger that the law
seeks to avoid is correspondingly increased. Moreover, as already pointed
out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not be just that such
donations should subsist, lest the condition 6f those who incurred guilt
should turn out to be better.' So long as marriage remains the cornerstone of
our family law, reason and morality alike demand that the disabilities
attached to marriage should likewise attach to concubinage.
It is hardly necessary to add that even in the absence of the above
pronouncement, any other conclusion cannot stand the test of scrutiny. It
would be to indict the frame of the Civil Code for a failure to apply a
laudable rule to a situation which in its essentials cannot be distinguished.
Moreover, if it is at all to be differentiated the policy of the law which
embodies a deeply rooted notion of what is just and what is right would be
nullified if such irregular relationship instead of being visited with
disabilities would be attended with benefits. Certainly a legal norm should
not be susceptible to such a reproach. If there is every any occasion where
the principle of statutory construction that what is within the spirit of the law
is as much a part of it as what is written, this is it. Otherwise the basic
purpose discernible in such codal provision would not be attained. Whatever
omission may be apparent in an interpretation purely literal of the language
INSURANCE
used must be remedied by an adherence to its avowed objective.
4. We do not think that a conviction for adultery or concubinage is exacted
before the disabilities mentioned in Article 739 may effectuate. More
specifically, with record to the disability on "persons who were guilty of
adultery or concubinage at the time of the donation," Article 739 itself
provides:
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 guilty 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
offense is a condition precedent. In fact, it cannot even be from the
aforequoted provision that a prosecution is needed. On the contrary, the law
plainly states that the guilt of the party may be proved "in the same acting
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.
In the caw before Us, the requisite proof of common-law 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
case 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 thanjudicial admissions which,
as a consequence, no longer require proof and cannot be contradicted. 8 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. In fact, in
that pretrial, the parties even agreed "that a decision be rendered based on
this agreement and stipulation of facts as to who among the two claimants is
entitled to the policy."
ACCORDINGLY, the appealed judgment of the lower court is hereby
8
affirmed. Carponia T. Ebrado is hereby declared disqualified to be the
beneficiary of the late Buenaventura C. Ebrado in his life insurance policy.
As a consequence, the proceeds of the policy are hereby held payable to the
estate of the deceased insured. Costs against Carponia T. Ebrado.
SO ORDERED.
Teehankee (Chairman), Makasiar, Mu;oz Palma, Fernandez and Guerrero,
JJ., concur.1
Insular Life vs. Ebrado 80 SCRA 181
Facts:
> Buenaventura Ebrado was issued al life plan by Insular Company. He
designated Capriona as his beneficiary, referring to her as his wife.
> The insured then died and Carponia tried to claim the proceeds of the said
plan.
> She admitted to being only the common law wife of the insured.
> Pascuala, the legal wife, also filed a claim asserting her right as the legal
wife. The company then filed an action for interpleader.
Issue:
Whether or not the common law wife named as beneficiary can collect the
proceeds.
Held:
NO.
INSURANCE
The civil code prohibitions on donations made between persons guilty of
adulterous concubinage applies to insurance contracts. On matters not
specifically provided for by the Insurance Law, the general rules on Civil
law shall apply. A life insurance policy is no different from a civil donation
as far as the beneficiary is concerned, since both are founded on liberality.
Why was the common law wife not ed to collect the proceeds despite the
fact that she was the beneficiary? Isnt this against Sec. 53?
It is true that SC went against Sec. 53. However, Sec. 53 is NOT the only
provision that the SC had to consider. Art. 739 and 2012 of CC prohibit
persons who are guilty of adultery or concubinage from being beneficiaries
of the life insurance policies of the persons with whom they committed
adultery or concubinage. If the SC used only Sec. 53, it would have gone
against Art. 739 and 2012.
Insular v Ebrado G.R. No. L-44059 October 28, 1977
Facts:
J. Martin:
Cristor Ebrado was issued by The Life Assurance Co., Ltd., a policy for
P5,882.00 with a rider for Accidental Death. He designated Carponia T.
Ebrado as the revocable beneficiary in his policy. He referred to her as his
wife.
Cristor was killed when he was hit by a failing branch of a tree. Insular Life
was made liable to pay the coverage in the total amount of P11,745.73,
representing the face value of the policy in the amount of P5,882.00 plus the
additional benefits foraccidental death.
Carponia T. Ebrado filed with the insurer a claim for the proceeds as the
designated beneficiary therein, although she admited that she and the
insured were merely living as husband and wife without the benefit of
marriage.
9
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.
Insular commenced an action for Interpleader before the trial court as to who
should be given the proceeds. The courtdeclared Carponia as disqualified.
Issue:
WON a common-law wife named as beneficiary in the life insurance policy
of a legally married man can claim the proceeds in case of death of the
latter?
donations from each other.
Article 739 provides that void donations are those made between persons
who were guilty of adultery or concubinage at the time of donation.
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. 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.

Held: A conviction for adultery or concubinage isnt required exacted before the
disabilities mentioned in Article 739 may effectuate. The article says that in
No. Petition 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 guilty of the donee
may be proved by preponderance of evidence in the same action.

Ratio: The underscored clause neatly conveys that no criminal conviction for the
offense is a condition precedent. The law plainly states that the guilt of the
party may be proved in the same acting for declaration of nullity of
Section 50 of the Insurance Act which provides that "the insurance shall be
donation. And, it would be sufficient if evidence preponderates.
applied exclusively to the proper interest of the person in whose name it is
made"
The insured was married to Pascuala Ebrado with whom she has six
legitimate children. He was also living in with his common-law wife with
The word "interest" highly suggests that the provision refers only to the
whom he has two children.
"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.

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 fife insurance policy by the person who cannot make
a donation to him. Common-law spouses are barred from receiving
INSURANCE 10
 Mariano Lozada for appellant Constantino.
Cachero and Madarang for appellant Peralta.
Dewitt, Perkins and Ponce Enrile for appellee.
Ramirez and Ortigas and Padilla, Carlos and Fernando as amici curiae.

BENGZON, J.:

These two cases, appealed from the Court of First Instance of Manila, call
for decision of the question whether the beneficiary in a life insurance policy
may recover the amount thereof although the insured died after repeatedly
failing to pay the stipulated premiums, such failure having been caused by
the last war in the Pacific.

The facts are these:

First case. In consideration of the sum of P176.04 as annual premium duly

paid to it, the Asia Life Insurance Company (a foreign corporation
incorporated under the laws of Delaware, U.S.A.), issued on September 27,
1941, its Policy No. 93912 for P3,000, whereby it insured the life of Arcadio
Constantino for a term of twenty years. The first premium covered the
period up to September 26, 1942. The plaintiff Paz Lopez de Constantino
was regularly appointed beneficiary. The policy contained these stipulations,
among others:
G.R. No. L-1669 August 31, 1950
This POLICY OF INSURANCE is issued in consideration of the written and
printed application here for a copy of which is attached hereto and is hereby
PAZ LOPEZ DE CONSTANTINO, plaintiff-appellant, made a part hereof made a part hereof, and of the payment in advance
vs. during the lifetime and good health of the Insured of the annual premium of
ASIA LIFE INSURANCE COMPANY, defendant-appellee. One Hundred fifty-eight and 4/100 pesos Philippine currency 1 and of the
payment of a like amount upon each twenty-seventh day of September
x---------------------------------------------------------x hereafter during the term of Twenty years or until the prior death of the
Insured. (Emphasis supplied.)
G.R. No. L-1670 August 31, 1950
xxx xxx xxx
AGUSTINA PERALTA, plaintiff-appellant,
vs. All premium payments are due in advance and any unpunctuality in making
ASIA LIFE INSURANCE COMPANY, defendant-appellee.
INSURANCE 11
any such payment shall cause this policy to lapse unless and except as kept
in force by the Grace Period condition or under Option 4 below. (Grace of
31 days.)
After that first payment, no further premiums were paid. The insured died on
September 22, 1944.
It is admitted that the defendant, being an American corporation , had to
close its branch office in Manila by reason of the Japanese occupation, i.e.
from January 2, 1942, until the year 1945.
Second case. On August 1, 1938, the defendant Asia Life Insurance
Company issued its Policy No. 78145 (Joint Life 20-Year Endowment
Participating with Accident Indemnity), covering the lives of the spouses
Tomas Ruiz and Agustina Peralta, for the sum of P3,000. The annual
premium stipulated in the policy was regularly paid from August 1, 1938, up
to and including September 30, 1941. Effective August 1, 1941, the mode of
payment of premiums was changed from annual to quarterly, so that
quarterly premiums were paid, the last having been delivered on November
18, 1941, said payment covering the period up to January 31, 1942. No
further payments were handed to the insurer. Upon the Japanese occupation,
the insured and the insurer became separated by the lines of war, and it was
impossible and illegal for them to deal with each other. Because the insured
had borrowed on the policy an mount of P234.00 in January, 1941, the cash
surrender value of the policy was sufficient to maintain the policy in force
only up to September 7, 1942. Tomas Ruiz died on February 16, 1945. The
plaintiff Agustina Peralta is his beneficiary. Her demand for payment met
with defendant's refusal, grounded on non-payment of the premiums.
The policy provides in part:
This POLICY OF INSURANCE is issued in consideration of the written and
printed application herefor, a copy of which is attached hereto and is hereby
made apart hereof, and of the payment in advance during the life time and
good health of the Insured of the annual premium of Two hundred and
43/100 pesos Philippine currency and of the payment of a like amount upon
each first day of August hereafter during the term of Twenty years or until
INSURANCE
the prior death of either of the Insured. (Emphasis supplied.)
xxx xxx xxx
All premium payments are due in advance and any unpunctuality in making
any such payment shall cause this policy to lapse unless and except as kept
in force by the Grace Period condition or under Option 4 below. (Grace of
days.) . . .
Plaintiffs maintain that, as beneficiaries, they are entitled to receive the
proceeds of the policies minus all sums due for premiums in arrears. They
allege that non-payment of the premiums was caused by the closing of
defendant's offices in Manila during the Japanese occupation and the
impossible circumstances created by war.
Defendant on the other hand asserts that the policies had lapsed for non-
payment of premiums, in accordance with the contract of the parties and the
law applicable to the situation.
The lower court absolved the defendant. Hence this appeal.
The controversial point has never been decided in this jurisdiction.
Fortunately, this court has had the benefit of extensive and exhaustive
memoranda including those of amici curiae. The matter has received careful
consideration, inasmuch as it affects the interest of thousands of policy-
holders and the obligations of many insurance companies operating in this
country.
Since the year 1917, the Philippine law on Insurance was found in Act No.
2427, as amended, and the Civil Code.2 Act No. 2427 was largely copied
from the Civil Code of California.3 And this court has heretofore announced
its intention to supplement the statutory laws with general principles
prevailing on the subject in the United State.4
In Young vs. Midland Textile Insurance Co. (30 Phil., 617), we said that
"contracts of insurance are contracts of indemnity upon the terms and
12
conditions specified in the policy. The parties have a right to impose such
reasonable conditions at the time of the making of the contract as they may
deem wise and necessary. The rate of premium is measured by the character
of the risk assumed. The insurance company, for a comparatively small
consideration, undertakes to guarantee the insured against loss or damage,
upon the terms and conditions agreed upon, and upon no other, and when
called upon to pay, in case of loss, the insurer, therefore, may justly insists
upon a fulfillment of these terms. If the insured cannot bring himself within
the conditions of the policy, he is not entitled for the loss. The terms of the
policy constitute the measure of the insurer's liability, and in order to recover
the insured must show himself within those terms; and if it appears that the
contract has been terminated by a violation, on the part of the insured, of its
conditions, then there can be no right of recovery. The compliance of the
insured with the terms of the contract is a condition precedent to the right of
recovery."
Recall of the above pronouncements is appropriate because the policies in
question stipulate that "all premium payments are due in advance and any
unpunctuality in making any such payment shall cause this policy to lapse."
Wherefore, it would seem that pursuant to the express terms of the policy,
non-payment of premium produces its avoidance.
The conditions of contracts of Insurance, when plainly expressed in a policy,
are binding upon the parties and should be enforced by the courts, if the
evidence brings the case clearly within their meaning and intent. It tends to
bring the law itself into disrepute when, by astute and subtle distinctions, a
plain case is attempted to be taken without the operation of a clear,
reasonable and material obligation of the contract. Mack vs. Rochester
German Ins. Co., 106 N.Y., 560, 564. (Young vs. Midland Textile Ins. Co.,
30 Phil., 617, 622.)
In Glaraga vs. Sun Life Ass. Co. (49 Phil., 737), this court held that a life
policy was avoided because the premium had not been paid within the time
fixed, since by its express terms, non-payment of any premium when due or
within the thirty-day period of grace, ipso facto caused the policy to lapse.
This goes to show that although we take the view that insurance policies
should be conserved5 and should not lightly be thrown out, still we do not
INSURANCE
hesitate to enforce the agreement of the parties.
Forfeitures of insurance policies are not favored, but courts cannot for that
reason alone refuse to enforce an insurance contract according to its
meaning. (45 C.J.S., p. 150.)
Nevertheless, it is contended for plaintiff that inasmuch as the non-payment
of premium was the consequence of war, it should be excused and should
not cause the forfeiture of the policy.
Professor Vance of Yale, in his standard treatise on Insurance, says that in
determining the effect of non-payment of premiums occasioned by war, the
American cases may be divided into three groups, according as they support
the so-called Connecticut Rule, the New York Rule, or the United States
Rule.
The first holds the view that "there are two elements in the consideration for
which the annual premium is paid First, the mere protection for the year,
and second, the privilege of renewing the contract for each succeeding year
by paying the premium for that year at the time agreed upon. According to
this view of the contract, the payment of premiums is a condition precedent,
the non-performance would be illegal necessarily defeats the right to renew
the contract."
The second rule, apparently followed by the greater number of decisions,
hold that "war between states in which the parties reside merely suspends
the contracts of the life insurance, and that, upon tender of all premiums due
by the insured or his representatives after the war has terminated, the
contract revives and becomes fully operative."
The United States rule declares that the contract is not merely suspended,
but is abrogated by reason of non-payments is peculiarly of the essence of
the contract. It additionally holds that it would be unjust to allow the insurer
to retain the reserve value of the policy, which is the excess of the premiums
paid over the actual risk carried during the years when the policy had been
in force. This rule was announced in the well-known Statham 6case which, in
13
the opinion of Professor Vance, is the correct rule.7
The appellants and some amici curiae contend that the New York rule
should be applied here. The appellee and other amici curiae contend that the
United States doctrine is the orthodox view.
We have read and re-read the principal cases upholding the different
theories. Besides the respect and high regard we have always entertained for
decisions of the Supreme Court of the United States, we cannot resist the
conviction that the reasons expounded in its decision of the Statham case are
logically and judicially sound. Like the instant case, the policy involved in
the Statham decision specifies that non-payment on time shall cause the
policy to cease and determine. Reasoning out that punctual payments were
essential, the court said:
. . . it must be conceded that promptness of payment is essential in the
business of life insurance. All the calculations of the insurance company are
based on the hypothesis of prompt payments. They not only calculate on the
receipt of the premiums when due, but on compounding interest upon them.
It is on this basis that they are enabled to offer assurance at the favorable
rates they do. Forfeiture for non-payment is an necessary means of
protecting themselves from embarrassment. Unless it were enforceable, the
business would be thrown into confusion. It is like the forfeiture of shares in
mining enterprises, and all other hazardous undertakings. There must be
power to cut-off unprofitable members, or the success of the whole scheme
is endangered. The insured parties are associates in a great scheme. This
associated relation exists whether the company be a mutual one or not. Each
is interested in the engagements of all; for out of the co-existence of many
risks arises the law of average, which underlies the whole business. An
essential feature of this scheme is the mathematical calculations referred to,
on which the premiums and amounts assured are based. And these
calculations, again, are based on the assumption of average mortality, and of
prompt payments and compound interest thereon. Delinquency cannot be
tolerated nor redeemed, except at the option of the company. This has
always been the understanding and the practice in this department of
business. Some companies, it is true, accord a grace of thirty days, or other
fixed period, within which the premium in arrear may be paid, on certain
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conditions of continued good health, etc. But this is a matter of stipulation,
or of discretion, on the part of the particular company. When no stipulation
exists, it is the general understanding that time is material, and that the
forfeiture is absolute if the premium be not paid. The extraordinary and even
desperate efforts sometimes made, when an insured person is in extremes to
meet a premium coming due, demonstrates the common view of this matter.
The case, therefore, is one in which time is material and of the essence and
of the essence of the contract. Non-payment at the day involves absolute
forfeiture if such be the terms of the contract, as is the case here. Courts
cannot with safety vary the stipulation of the parties by introducing equities
for the relief of the insured against their own negligence.
In another part of the decision, the United States Supreme Court considers
and rejects what is, in effect, the New York theory in the following words
and phrases:
The truth is, that the doctrine of the revival of contracts suspended during
the war is one based on considerations of equity and justice, and cannot be
invoked to revive a contract which it would be unjust or inequitable to
revive.
In the case of Life insurance, besides the materiality of time in the
performance of the contract, another strong reason exists why the policy
should not be revived. The parties do not stand on equal ground in reference
to such a revival. It would operate most unjustly against the company. The
business of insurance is founded on the law of average; that of life insurance
eminently so. The average rate of mortality is the basis on which it rests. By
spreading their risks over a large number of cases, the companies calculate
on this average with reasonable certainty and safety. Anything that interferes
with it deranges the security of the business. If every policy lapsed by reason
of the war should be revived, and all the back premiums should be paid, the
companies would have the benefit of this average amount of risk. But the
good risks are never heard from; only the bar are sought to be revived,
where the person insured is either dead or dying. Those in health can get the
new policies cheaper than to pay arrearages on the old. To enforce a revival
of the bad cases, whilst the company necessarily lose the cases which are
14
desirable, would be manifestly unjust. An insured person, as before stated,
does not stand isolated and alone. His case is connected with and co-related
to the cases of all others insured by the same company. The nature of the
business, as a whole, must be looked at to understand the general equities of
the parties.
The above consideration certainly lend themselves to the approval of fair-
minded men. Moreover, if, as alleged, the consequences of war should not
prejudice the insured, neither should they bear down on the insurer.
Urging adoption of the New York theory, counsel for plaintiff point out that
the obligation of the insured to pay premiums was excused during the war
owing to impossibility of performance, and that consequently no
unfavorable consequences should follow from such failure.
The appellee answers, quite plausibly, that the periodic payment of
premiums, at least those after the first, is not an obligation of the insured, so
much so that it is not a debt enforceable by action of the insurer.
Under an Oklahoma decision, the annual premium due is not a debt. It is not
an obligation upon which the insurer can maintain an action against insured;
nor is its settlement governed by the strict rule controlling payments of
debts. So, the court in a Kentucky case declares, in the opinion, that it is not
a debt. . . . The fact that it is payable annually or semi-annually, or at any
other stipulated time, does not of itself constitute a promise to pay, either
express or implied. In case of non-payment the policy is forfeited, except so
far as the forfeiture may be saved by agreement, by waiver, estoppel, or by
statute. The payment of the premium is entirely optional, while a debt may
be enforced at law, and the fact that the premium is agreed to be paid is
without force, in the absence of an unqualified and absolute agreement to
pay a specified sum at some certain time. In the ordinary policy there is no
promise to pay, but it is optional with the insured whether he will continue
the policy or forfeit it. (3 Couch, Cyc. on Insurance, Sec. 623, p. 1996.)
It is well settled that a contract of insurance is sui generis. While the insured
by an observance of the conditions may hold the insurer to his contract, the
latter has not the power or right to compel the insured to maintain the
INSURANCE
contract relation with it longer than he chooses. Whether the insured will
continue it or not is optional with him. There being no obligation to pay for
the premium, they did not constitute a debt. (Noblevs. Southern States M.D.
Ins. Co., 157 Ky., 46; 162 S.W., 528.) (Emphasis ours.)
It should be noted that the parties contracted not only for peacetime
conditions but also for times of war, because the policies contained
provisions applicable expressly to wartime days. The logical inference,
therefore, is that the parties contemplated uninterrupted operation of the
contract even if armed conflict should ensue.
For the plaintiffs, it is again argued that in view of the enormous growth of
insurance business since the Statham decision, it could now be relaxed and
even disregarded. It is stated "that the relaxation of rules relating to
insurance is in direct proportion to the growth of the business. If there were
only 100 men, for example, insured by a Company or a mutual Association,
the death of one will distribute the insurance proceeds among the remaining
99 policy-holders. Because the loss which each survivor will bear will be
relatively great, death from certain agreed or specified causes may be
deemed not a compensable loss. But if the policy-holders of the Company or
Association should be 1,000,000 individuals, it is clear that the death of one
of them will not seriously prejudice each one of the 999,999 surviving
insured. The loss to be borne by each individual will be relatively small."
The answer to this is that as there are (in the example) one million policy-
holders, the "losses" to be considered will not be the death of one but the
death of ten thousand, since the proportion of 1 to 100 should be maintained.
And certainly such losses for 10,000 deaths will not be "relatively small."
After perusing the Insurance Act, we are firmly persuaded that the non-
payment of premiums is such a vital defense of insurance companies that
since the very beginning, said Act no. 2427 expressly preserved it, by
providing that after the policy shall have been in force for two years, it shall
become incontestable (i.e. the insurer shall have no defense) except for
fraud, non-payment of premiums, and military or naval service in time of
war (sec. 184 [b], Insurance Act). And when Congress recently amended this
section (Rep. Act No. 171), the defense of fraud was eliminated, while the
15
defense of nonpayment of premiums was preserved. Thus the fundamental
character of the undertaking to pay premiums and the high importance of the
defense of non-payment thereof, was specifically recognized.
In keeping with such legislative policy, we feel no hesitation to adopt the
United States Rule, which is in effect a variation of the Connecticut rule for
the sake of equity. In this connection, it appears that the first policy had no
reserve value, and that the equitable values of the second had been
practically returned to the insured in the form of loan and advance for
premium.
For all the foregoing, the lower court's decision absolving the defendant
from all liability on the policies in question, is hereby affirmed, without
costs.
Moran, C.J., Ozaeta, Paras, Pablo, Montemayor, Tuason, and Reyes, JJ.,
concur.
INSURANCE
Constantino V. Asia Life Insurance Co. (1950)
Lessons Applicable: General Principles on Insurance (Insurance)
FACTS:
1 Case 1:
1 The life of Arcadio Constantino was insured with Asia Life
Insurance Company (Asia) for a term of 20 years with Paz Lopez de
Constantino as beneficiary. The first premium covered the period up to
September 26, 1942.
2 After the first premium, no further premiums were paid. The
insured died on September 22, 1944.
3 Asia Life Insurance Company, being an American Corp., had to
close its branch office in Manila by reason of the Japanese occupation,
i.e. from January 2, 1942, until the year 1945.
2 Case 2:
1 Spouses Tomas Ruiz and Agustina Peralta. Their premium were
initially annually but subsequently changed to quarterly. The last
quarterly premium was delivered on on November 18, 1941 and it
covered the period until January 31, 1942.
2 Upon the Japanese occupation, the insurer and insured were not
able to deal with each other.
3 Because the insured had borrowed on the policy P234.00 in
January, 1941, the cash surrender value of the policy was sufficient to
maintain the policy in force only up to September 7, 1942.
4 Tomas Ruiz died on February 16, 1945 with Agustina Peralta as
beneficiary. Her demand for payment was refused on the ground of non-
16
 payment of the premiums.
3 Plaintiffs: As beneficiaries, they are entitled to receive the proceeds
of the policies minus all sums due for premiums in arrears. The non-
payment of the premiums was caused by the closing of Asia's offices in
Manila during the Japanese occupation and the impossible
circumstances created by war.
4 lower court: absolved Asia
ISSUE: W/N the insurers still have a right to claim.
HELD: YES. lower court affirmed.
5 it would seem that pursuant to the express terms of the policy, non-
payment of premium produces its avoidance
6 Forfeitures of insurance policies are not favored, but courts cannot
for that reason alone refuse to enforce an insurance contract according to
its meaning.
7 Nevertheless, inasmuch as the non-payment of premium was the
consequence of war, it should be excused and should not cause the
forfeiture of the policy
8 3 Rules in case of war:
1 Connecticut Rule
1 2 elements in the consideration for which the annual premium is
paid:
1 mere protection for the year privilege of renewing the contract for
each succeeding year by paying the premium for that year at the time
agreed upon payment of premiums is a condition precedent, the non-
There are two cases consolidated here. First is that of Arcadio Constantino
performance would be illegal necessarily defeats the right to renew the
INSURANCE
contract New York Rule - greatly followed by a number of cases war
between states in which the parties reside merely suspends the contracts
of the life insurance, and that, upon tender of all premiums due by the
insured or his representatives after the war has terminated, the contract
revives and becomes fully operative United States Rule contract is not
merely suspended, but is abrogated by reason of non-payments is
peculiarly of the essence of the contract
2 it would be unjust to allow the insurer to retain the reserve value of
the policy, which is the excess of the premiums paid over the actual risk
carried during the years when the policy had been in force.
9 The business of insurance is founded on the law of average; that of
life insurance eminently so contract of insurance is sui generis
1 Whether the insured will continue it or not is optional with him.
There being no obligation to pay for the premium, they did not
constitute a debt.
10 It should be noted that the parties contracted not only for peacetime
conditions but also for times of war, because the policies contained
provisions applicable expressly to wartime days. The logical inference,
therefore, is that the parties contemplated uninterrupted operation of the
contract even if armed conflict should ensue.
11 the fundamental character of the undertaking to pay premiums and
the high importance of the defense of non-payment thereof, was
specifically recognized adopt the United States Rule: first policy had no
reserve value, and that the equitable values of the second had been
practically returned to the insured in the form of loan and advance for
premium.
87 Phil. 248 Commercial Law Insurance Code Parties to an
Insurance Contract Insurance Contract in Times of War
17
who acquired a life insurance from Asia Life Insurance Company in
September 1941. He paid the first premium which was good until September
1942. War broke out and he was not able to pay the second and subsequent
premiums. He died in 1944. His beneficiary was Paz Lopez De Constantino.

The second case was that of Tomas Ruiz who acquired his life insurance
from Asia Life in August 1938. He has been paying his premium religiously
but due to the war, he was not able to pay his subsequent premiums in 1942.
He died in 1945. His beneficiary was Agustina Peralta.

The beneficiaries from both insurance policies filed their claims when the
war is over. They point out that the obligation of the insured to pay
premiums was excused (suspended) during the war owing to impossibility
of performance, and that consequently no unfavorable consequences should
follow from such failure (New York Rule).

Asia Life argued that the nonpayment of premiums cancelled the insurance
policy. An insurance contract is one in which time is material and of the
essence. Non-payment at the day involves absolute forfeiture if such be the
terms of the contract (United States Rule).

ISSUE: Whether or not the beneficiaries are entitled to the claims.

HELD: No. The Supreme Court adopts the United States Rule. It should be
noted that the parties contracted not only for peacetime conditions but also
for times of war, because the policies contained provisions applicable
expressly to wartime days. The logical inference, therefore, is that the
parties contemplated uninterrupted operation of the contract even if armed
conflict should ensue.

INSURANCE 18

Constantino v. Asia Life- Non-payment of Insurance Premiums
Facts:
> Appeal consolidates two cases.
> Asia life insurance Company (ALIC) was incorporated in Delaware.
> For the sum of 175.04 as annual premium duly paid to ALIC, it issued
Policy No. 93912 whereby it insured the life of Arcadio Constantino for 20
years for P3T with Paz Constantino as beneficiary.
First premium covered the period up to Sept. 26, 1942. No further
premiums were paid after the first premium and Arcadio died on Sept.
22, 1944.
> Due to Jap occupation, ALIC closed its branch office in Manila from Jan.
2 1942-1945.
> On Aug. 1, 1938, ALIC issued Policy no. 78145 covering the lives of
Spouses Tomas Ruiz and Agustina Peralta for the sum of P3T for 20 years.
The annual premium stipulated was regularly paid from Aug. 1, 1938 up to
and including Sept. 30, 1940.
Effective Aug. 1, 1941, the mode of payment was changed from
annually to quarterly and such quarterly premiums were paid until Nov.
18, 1941.
Last payment covered the period until Jan. 31, 1942.
Tomas Ruiz died on Feb. 16, 1945 with Agustina Peralta as his
beneficiary.
> Due to Jap occupation, it became impossible and illegal for the insured to
deal with ALIC. Aside from this the insured borrowed from the policy
P234.00 such that the cash surrender value of the policy was sufficient to
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maintain the policy in force only up to Sept. 7, 1942.
> Both policies contained this provision: All premiums are due in advance
and any unpunctuality in making such payment shall cause this policy to
lapse unless and except as kept in force by the grace period condition.
> Paz Constantino and Agustina Peralta claim as beneficiaries, that they are
entitled to receive the proceeds of the policies less all sums due for
premiums in arrears. They also allege that non-payment of the premiums
were caused by the closing of ALICs offices during the war and the
impossible circumstances by the war, therefore, they should be excused and
the policies should not be forfeited.
> Lower court ruled in favor of ALIC.
Issue:
May a beneficiary in a life insurance policy recover the amount thereof
although the insured died after repeatedly failing to pay the stipulated
premiums, such failure being caused by war?
Held:
NO.
Due to the express terms of the policy, non-payment of the premium
produces its avoidance. In Glaraga v. Sun Life, it was held that a life policy
was avoided because the premium had not been paid within the time fixed;
since by its express terms, non-payment of any premium when due or within
the 31 day grace period ipso fact caused the policy to lapse.
When the life insurance policy provides that non-payment of premiums will
cause its forfeiture, war does NOT excuse non-payment and does not avoid
forfeiture. Essentially, the reason why punctual payments are important is
that the insurer calculates on the basis of the prompt payments. Otherwise,
malulugi sila.
19
It should be noted that the parties contracted not only as to peace time
conditions but also as to war-time conditions since the policies contained
provisions applicable expressly to wartime days. The logical inference
therefore is that the parties contemplated the uninterrupted operation of the
contract even if armed conflict should ensue.
G.R. No. 198174 September 2, 2013
ALPHA INSURANCE AND SURETY CO., PETITIONER,
vs.
ARSENIA SONIA CASTOR, RESPONDENT.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules
of Court assailing the Decision1 dated May 31, 2011 and Resolution2 dated
August 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93027.
The facts follow.
On February 21, 2007, respondent entered into a contract of insurance,
Motor Car Policy No. MAND/CV-00186, with petitioner, involving her
motor vehicle, a Toyota Revo DLX DSL. The contract of insurance
obligates the petitioner to pay the respondent the amount of Six Hundred
Thirty Thousand Pesos (P630,000.00) in case of loss or damage to said
vehicle during the period covered, which is from February 26, 2007 to
February 26, 2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose
Joel Salazar Lanuza (Lanuza), to bring the above-described vehicle to a
nearby auto-shop for a tune-up. However, Lanuza no longer returned the
motor vehicle to respondent and despite diligent efforts to locate the same,
said efforts proved futile. Resultantly, respondent promptly reported the
incident to the police and concomitantly notified petitioner of the said loss
INSURANCE
and demanded payment of the insurance proceeds in the total sum of
P630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of
respondent, stating among others, thus:
Upon verification of the documents submitted, particularly the Police Report
and your Affidavit, which states that the culprit, who stole the Insure[d] unit,
is employed with you. We would like to invite you on the provision of the
Policy under Exceptions to Section-III, which we quote:
1.) The Company shall not be liable for:
xxxx
(4) Any malicious damage caused by the Insured, any member of his family
or by "A PERSON IN THE INSUREDS SERVICE."
In view [of] the foregoing, we regret that we cannot act favorably on your
claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her
claim and argued that the exception refers to damage of the motor vehicle
and not to its loss. However, petitioners denial of respondents insured
claim remains firm.
Accordingly, respondent filed a Complaint for Sum of Money with Damages
against petitioner before the Regional Trial Court (RTC) of Quezon City on
September 10, 2007.
In a Decision dated December 19, 2008, the RTC of Quezon City ruled in
favor of respondent in this wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiff and against the defendant ordering the latter as follows:
20
To pay plaintiff the amount of P466,000.00 plus legal interest of 6% per
annum from the time of demand up to the time the amount is fully settled;
To pay attorneys fees in the sum of P65,000.00; and
To pay the costs of suit.
All other claims not granted are hereby denied for lack of legal and factual
basis.3
Aggrieved, petitioner filed an appeal with the CA.
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of
Quezon Citys decision. The fallo reads:
WHEREFORE, in view of all the foregoing, the appeal is DENIED.
Accordingly, the Decision, dated December 19, 2008, of Branch 215 of the
Regional Trial Court of Quezon City, in Civil Case No. Q-07-61099, is
hereby AFFIRMED in toto.
SO ORDERED.4
Petitioner filed a Motion for Reconsideration against said decision, but the
same was denied in a Resolution dated August 10, 2011.
Hence, the present petition wherein petitioner raises the following grounds
for the allowance of its petition:
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT
ERRED AND GROSSLY OR GRAVELY ABUSED ITS DISCRETION
WHEN IT ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT
AND AGAINST THE PETITIONER AND RULED THAT EXCEPTION
DOES NOT COVER LOSS BUT ONLY DAMAGE BECAUSE THE
TERMS OF THE INSURANCE POLICY ARE [AMBIGUOUS]
EQUIVOCAL OR UNCERTAIN, SUCH THAT THE PARTIES
THEMSELVES DISAGREE ABOUT THE MEANING OF PARTICULAR
INSURANCE
PROVISIONS, THE POLICY WILL BE CONSTRUED BY THE COURTS
LIBERALLY IN FAVOR OF THE ASSURED AND STRICTLY AGAINST
THE INSURER.
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT
ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION WHEN
IT [AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT.5
Simply, the core issue boils down to whether or not the loss of respondents
vehicle is excluded under the insurance policy.
We rule in the negative.
Significant portions of Section III of the Insurance Policy states:
SECTION III LOSS OR DAMAGE
The Company will, subject to the Limits of Liability, indemnify the Insured
against loss of or damage to the Schedule Vehicle and its accessories and
spare parts whilst thereon:
(a)
by accidental collision or overturning, or collision or overturning consequent
upon mechanical breakdown or consequent upon wear and tear;
(b)
by fire, external explosion, self-ignition or lightning or burglary,
housebreaking or theft;
(c)
by malicious act;
(d)
21
whilst in transit (including the processes of loading and unloading)
incidental to such transit by road, rail, inland waterway, lift or elevator.
xxxx
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for:
Loss or Damage in respect of any claim or series of claims arising out of one
event, the first amount of each and every loss for each and every vehicle
insured by this Policy, such amount being equal to one percent (1.00%) of
the Insureds estimate of Fair Market Value as shown in the Policy Schedule
with a minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical
breakdowns, failures or breakages;
Damage to tires, unless the Schedule Vehicle is damaged at the same time;
Any malicious damage caused by the Insured, any member of his family or
by a person in the Insureds service.6
In denying respondents claim, petitioner takes exception by arguing that the
word "damage," under paragraph 4 of "Exceptions to Section III," means
loss due to injury or harm to person, property or reputation, and should be
construed to cover malicious "loss" as in "theft." Thus, it asserts that the loss
of respondents vehicle as a result of it being stolen by the latters driver is
excluded from the policy.
We do not agree.
Ruling in favor of respondent, the RTC of Quezon City scrupulously
elaborated that theft perpetrated by the driver of the insured is not an
exception to the coverage from the insurance policy, since Section III
thereof did not qualify as to who would commit the theft. Thus:
INSURANCE
Theft perpetrated by a driver of the insured is not an exception to the
coverage from the insurance policy subject of this case. This is evident from
the very provision of Section III "Loss or Damage." The insurance
company, subject to the limits of liability, is obligated to indemnify the
insured against theft. Said provision does not qualify as to who would
commit the theft. Thus, even if the same is committed by the driver of the
insured, there being no categorical declaration of exception, the same must
be covered. As correctly pointed out by the plaintiff, "(A)n insurance
contract should be interpreted as to carry out the purpose for which the
parties entered into the contract which is to insure against risks of loss or
damage to the goods. Such interpretation should result from the natural and
reasonable meaning of language in the policy. Where restrictive provisions
are open to two interpretations, that which is most favorable to the insured is
adopted." The defendant would argue that if the person employed by the
insured would commit the theft and the insurer would be held liable, then
this would result to an absurd situation where the insurer would also be held
liable if the insured would commit the theft. This argument is certainly
flawed. Of course, if the theft would be committed by the insured himself,
the same would be an exception to the coverage since in that case there
would be fraud on the part of the insured or breach of material warranty
under Section 69 of the Insurance Code.7
Moreover, contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the parties
themselves have used. If such terms are clear and unambiguous, they must
be taken and understood in their plain, ordinary and popular sense. 8
Accordingly, in interpreting the exclusions in an insurance contract, the
terms used specifying the excluded classes therein are to be given their
meaning as understood in common speech.9
Adverse to petitioners claim, the words "loss" and "damage" mean different
things in common ordinary usage. The word "loss" refers to the act or fact of
losing, or failure to keep possession, while the word "damage" means
deterioration or injury to property.
Therefore, petitioner cannot exclude the loss of respondents vehicle under
the insurance policy under paragraph 4 of "Exceptions to Section III," since
22
the same refers only to "malicious damage," or more specifically, "injury" to
the motor vehicle caused by a person under the insureds service. Paragraph
4 clearly does not contemplate "loss of property," as what happened in the
instant case.
Further, the CA aptly ruled that "malicious damage," as provided for in the
subject policy as one of the exceptions from coverage, is the damage that is
the direct result from the deliberate or willful act of the insured, members of
his family, and any person in the insureds service, whose clear plan or
purpose was to cause damage to the insured vehicle for purposes of
defrauding the insurer, viz.:
This interpretation by the Court is bolstered by the observation that the
subject policy appears to clearly delineate between the terms "loss" and
"damage" by using both terms throughout the said policy. x x x
xxxx
If the intention of the defendant-appellant was to include the term "loss"
within the term "damage" then logic dictates that it should have used the
term "damage" alone in the entire policy or otherwise included a clear
definition of the said term as part of the provisions of the said insurance
contract. Which is why the Court finds it puzzling that in the said policys
provision detailing the exceptions to the policys coverage in Section III
thereof, which is one of the crucial parts in the insurance contract, the
insurer, after liberally using the words "loss" and "damage" in the entire
policy, suddenly went specific by using the word "damage" only in the
policys exception regarding "malicious damage." Now, the defendant-
appellant would like this Court to believe that it really intended the word
"damage" in the term "malicious damage" to include the theft of the insured
vehicle.
The Court does not find the particular contention to be well taken.
True, it is a basic rule in the interpretation of contracts that the terms of a
contract are to be construed according to the sense and meaning of the terms
INSURANCE
which the parties thereto have used. In the case of property insurance
policies, the evident intention of the contracting parties, i.e., the insurer and
the assured, determine the import of the various terms and provisions
embodied in the policy. However, when the terms of the insurance policy are
ambiguous, equivocal or uncertain, such that the parties themselves disagree
about the meaning of particular provisions, the policy will be construed by
the courts liberally in favor of the assured and strictly against the insurer.10
Lastly, a contract of insurance is a contract of adhesion. So, when the terms
of the 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. Thus, in Eternal Gardens Memorial Park Corporation v.
Philippine American Life Insurance Company,11 this Court ruled
It must be remembered that an insurance contract is a contract of adhesion
which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the latters interest. Thus, in Malayan
Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with
the general rule of resolving any ambiguity therein in favor of the insured,
where the contract or policy is prepared by the insurer. A contract of
insurance, being a contract of adhesion, par excellence, any ambiguity
therein should be resolved against the insurer; in other words, 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 obligations.
In the more recent case of Philamcare Health Systems, Inc. v. Court of
Appeals, we reiterated the above ruling, stating that:
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, 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
23
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.12

WHEREFORE, premises considered, the instant Petition for Review on

Certiorari is DENIED. Accordingly, the Decision dated May 31, 2011 and
Resolution dated August 10, 2011 of the Court of Appeals are hereby
AFFIRMED.

SO ORDERED.

INSURANCE 24
ALPHA INSURANCE AND SURETY CO. vs. ARSENIA SONIA
CASTOR
G.R. No. 198174, September 2, 2013 (PERALTA, J.)
FACTS:
Arsenia Sonia Castor (Castor) obtained a Motor Car Policy for her Toyota
Revo DLX DSL with Alpha Insurance and Surety Co (Alpha). The contract
of insurance obligates the petitioner to pay the respondent the amount of
P630,000 in case of loss or damage to said vehicle during the period
covered.
On April 16, 2007, respondent instructed her driver, Jose Joel Salazar
Lanuza to bring the vehicle to nearby auto-shop for a tune up. However,
Lanuza no longer returned the motor vehicle and despite diligent efforts to
locate the same, said efforts proved futile. Resultantly, respondent promptly
reported the incident to the police and concomitantly notified petitioner of
the said loss and demanded payment of the insurance proceeds.
Alpha, however, denied the demand of Castor claiming that they are not
liable since the culprit who stole the vehicle is employed with Castor. Under
the Exceptions to Section III of the Policy, the Company shall not be liable
for (4) any malicious damage caused by the insured, any member of his
family or by A PERSON IN THE INSUREDS SERVICE.
Castor filed a Complaint for Sum of Money with Damages against Alpha
before the Regional Trial Court of Quezon City. The trial court rendered its
decision in favor of Castor which decision is affirmed in toto by the Court of
Appeals. Hence, this Petition for Review on Certiorari.
ISSUE:
Whether or not the loss of respondents vehicle is excluded under the
insurance policy
INSURANCE
HELD:
NO. The words loss and damage mean different things in common
ordinary usage. The word loss refers to the act or fact of losing, or failure
to keep possession, while the word damage means deterioration or injury
to property. Therefore, petitioner cannot exclude the loss of Castors vehicle
under the insurance policy under paragraph 4 of Exceptions to Section III,
since the same refers only to malicious damage, or more specifically,
injury to the motor vehicle caused by a person under the insureds service.
Paragraph 4 clearly does not contemplate loss of property.
A contract of insurance is a contract of adhesion. So, when the terms of the
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. Thus, in Eternal Gardens Memorial Park Corporation vs.
Philippine American Life Insurance Company, this Court ruled that it must
be remembered that an insurance contract is a contract of adhesion which
must be construed liberally in favor of the insured and strictly against the
insurer in order to safeguard the latters interest.
G.R. No. L-16138 April 29, 1961
DIOSDADO C. TY, plaintiff-appellant,
vs.
FIRST NATIONAL SURETY & ASSURANCE CO., INC., defendant-
appellee.
x---------------------------------------------------------x
G.R. No. L-16139 April 29, 1961.
DIOSDADO C. TY, plaintiff-appellant,
vs.
ASSOCIATED INSURANCE & SURETY CO., INC., defendant-
25
appellee. G.R. No. L-16144 April 29, 1961

x---------------------------------------------------------x DIOSDADO C. TY, plaintiff-appellant,

vs.
G.R. No. L-16140 April 29, 1961 CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.

DIOSDADO C. TY, plaintiff-appellant, x---------------------------------------------------------x

vs.
UNITED INSURANCE CO., INC., defendant-appellee. G.R. No. L-16145 April 29, 1961

x---------------------------------------------------------x DIOSDADO C. TY, plaintiff-appellant,

vs.
G.R. No. L-16141 April 29, 1961. CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.

DIOSDADO C. TY. plaintiff-appellant, V. B. Gesunundo for plaintiff-appellant.

vs. M. Perez Cardenas for defendant-appellee.
PHILIPPINE SURETY & INSURANCE CO., INC., defendant-appellee.
LABRADOR, J.:
x---------------------------------------------------------x
Appeal from a judgment of the Court of First Instance of Manila, Hon.
G.R. No. L-16142 April 29, 1961. Gregorio S. Narvasa, presiding, dismissing the actions filed in the above-
entitled cases.
DIOSDADO C. TY, plaintiff-appellant,
vs. The facts found by the trial court, which are not disputed in this appeal, are
RELIANCE SURETY & INSURANCE CO., INC., defendant-appellee. as follows:

x---------------------------------------------------------x At different times within a period of two months prior to December 24,
1953, the plaintiff herein Diosdado C. Ty, employed as operator mechanic
G.R. No. L-16143 April 29, 1961 foreman in the Broadway Cotton Factory, in Grace Park, Caloocan, Rizal, at
a monthly salary of P185.00, insured himself in 18 local insurance
DIOSDADO C. TY, plaintiff-appellant, companies, among which being the eight above named defendants, which
vs. issued to him personal accident policies, upon payment of the premium of
FAR EASTERN SURETY & INSURANCE CO., INC., defendant- P8.12 for each policy. Plaintiff's beneficiary was his employer, Broadway
appellee. Cotton Factory, which paid the insurance premiums.

x---------------------------------------------------------x On December 24, 1953, a fire broke out which totally destroyed the
INSURANCE 26
Broadway Cotton Factory. Fighting his way out of the factory, plaintiff was
injured on the left hand by a heavy object. He was brought to the Manila
Central University hospital, and after receiving first aid there, he went to the
National Orthopedic Hospital for treatment of his injuries which were as
follows:
1. Fracture, simple, proximal phalanx index finger, left;
2. Fracture, compound, comminuted, proximal phalanx, middle finger, left
and 2nd phalanx, simple;
3. Fracture, compound, comminute phalanx, 4th finger, left;
4. Fracture, simple, middle phalanx, middle finger, left;
5. Lacerated wound, sutured, volar aspect, small finger, left;
6. Fracture, simple, chip, head, 1st phalanx, 5th digit, left. He underwent
medical treatment in the Orthopedic Hospital from December 26, 1953 to
February 8, 1954. The above-described physical injuries have caused
temporary total disability of plaintiff's left hand. Plaintiff filed the
corresponding notice of accident and notice of claim with all of the
abovenamed defendants to recover indemnity under Part II of the policy,
which is similarly worded in all of the policies, and which reads pertinently
as follows:
INDEMNITY FOR TOTAL OR PARTIAL DISABILITY
If the Insured sustains any Bodily Injury which is effected solely through
violent, external, visible and accidental means, and which shall not prove
fatal but shall result, independently of all other causes and within sixty (60)
days from the occurrence thereof, in Total or Partial Disability of the
Insured, the Company shall pay, subject to the exceptions as provided for
hereinafter, the amount set opposite such injury:
PARTIAL DISABILITY
INSURANCE
LOSS OF:
xxx xxx xxx
Either hand ............................................................................ P650.00
xxx xxx xxx
... The loss of a hand shall mean the loss by amputation through the bones of
the wrist....
Defendants rejected plaintiff's claim for indemnity for the reason that there
being no severance of amputation of the left hand, the disability suffered by
him was not covered by his policy. Hence, plaintiff sued the defendants in
the Municipal Court of this City, and from the decision of said Court
dismissing his complaints, plaintiff appealed to this Court. (Decision of the
Court of First Instance of Manila, pp. 223-226, Records).
In view of its finding, the court absolved the defendants from the
complaints. Hence this appeal.
The main contention of appellant in these cases is that in order that he may
recover on the insurance policies issued him for the loss of his left hand, it is
not necessary that there should be an amputation thereof, but that it is
sufficient if the injuries prevent him from performing his work or labor
necessary in the pursuance of his occupation or business. Authorities are
cited to the effect that "total disability" in relation to one's occupation means
that the condition of the insurance is such that common prudence requires
him to desist from transacting his business or renders him incapable of
working. (46 C.J.S., 970). It is also argued that obscure words or stipulations
should be interpreted against the person who caused the obscurity, and the
ones which caused the obscurity in the cases at bar are the defendant
insurance companies.
While we sympathize with the plaintiff or his employer, for whose benefit
the policies were issued, we can not go beyond the clear and express
27
conditions of the insurance policies, all of which define partial disability as
loss of either hand by amputation through the bones of the wrist." There was
no such amputation in the case at bar. All that was found by the trial court,
which is not disputed on appeal, was that the physical injuries "caused
temporary total disability of plaintiff's left hand." Note that the disability of
plaintiff's hand was merely temporary, having been caused by fracture of the
index, the middle and the fourth fingers of the left hand.
We might add that the agreement contained in the insurance policies is the
law between the parties. As the terms of the policies are clear, express and
specific that only amputation of the left hand should be considered as a loss
thereof, an interpretation that would include the mere fracture or other
temporary disability not covered by the policies would certainly be
unwarranted.
where Ty, fighting his way out, injured his left hand by a heavy object.
3 He was brought to the Manila Central University hospital, and after
receiving first aid there, he went to the National Orthopedic Hospital for
treatment of his injuries.
4 His injuries caused temporary total disability on his left hand so he
filed a claim against all defendants who rejected the claim reasoning that
there it was not covered in his policy because there was no severance of
amputation of the left hand
5 Trial Court: absolved the defendants
ISSUE: W/N Ty can claim

WHEREFORE, the decision appealed from is hereby affirmed, with costs
against the plaintiff-appellant.
Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L.,
Barrera, Paredes and Dizon, JJ., concur.
HELD: NO. Affirmed.
6 Can not go beyond the clear and express conditions of the insurance
policies, all of which define partial disability as loss of either hand by
amputation through the bones of the wrist.

7 Note that the disability of plaintiff's hand was merely temporary,

Ty V. First National Surety And Assurance Co., Inc. (1961)
having been caused by fracture of the index, the middle and the fourth
fingers of the left hand agreement contained in the insurance policies is
G.R. No. L-16138 April 29, 1961 the law between the parties

Lessons Applicable: Clear Provision Given Ordinary Meaning (Insurance)

FACTS:

1 2 months prior to December 24, 1953: Diosdado C. Ty, employed

as operator mechanic foreman in the Broadway Cotton Factory insured
himself in 18 local insurance companies with Broadway Cotton Factory
as his beneficiary

2 December 24, 1953: fire broke out at the Broadway Cotton Factory
INSURANCE 28
Ty v First National G.R. No. L-16138 April 29, 1961

J. Labrador

Facts:

Ty, a mechanic foreman in Caloocan, bought 18 insurance policies at 8

pesos each. A fire broke out, and Ty fought his way out of the factory. His
hand was broken by a heavy object in the process. He wanted to collect an
indemnity valuing 650 pesos for the loss of hand by means of amputation
even if he only suffered from broken fingers. The insurance companies sued
him in court and they won. Ty then appealed to the Supreme Court.
G.R. No. L-21574 June 30, 1966
Issue: Can he collect the sums even if there was no amputation?
SIMON DE LA CRUZ, plaintiff and appellee,
Held: No vs.
THE CAPITAL INSURANCE and SURETY CO., INC., defendant and
Ratio: appellant.

The insurance policies clearly define loss of hand as amputation of the bones Achacoso, Nera and Ocampo for defendant and appellant.
on the wrist. The injury was only a temporary total disability of plaintiff's Agustin M. Gramata for plaintiff and appellee.
left hand." This wasnt covered by the policies.
BARRERA, J.:

This is an appeal by the Capital Insurance & Surety Company, Inc., from the
decision of the Court of First Instance of Pangasinan (in Civ Case No. U-
265), ordering it to indemnify therein plaintiff Simon de la Cruz for the
death of the latter's son, to pay the burial expenses, and attorney's fees.

Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc.

in Baguio, was the holder of an accident insurance policy (No. ITO-BFE-
170) underwritten by the Capital Insurance & Surety Co., Inc., for the period
beginning November 13, 1956 to November 12, 1957. On January 1, 1957,
in connection with the celebration of the New Year, the Itogon-Suyoc Mines,
Inc. sponsored a boxing contest for general entertainment wherein the
insured Eduardo de la Cruz, a non-professional boxer participated. In the
INSURANCE 29
course of his bout with another person, likewise a non-professional, of the
same height, weight, and size, Eduardo slipped and was hit by his opponent
on the left part of the back of the head, causing Eduardo to fall, with his
head hitting the rope of the ring. He was brought to the Baguio General
Hospital the following day. The cause of death was reported as hemorrhage,
intracranial, left.
Simon de la Cruz, the father of the insured and who was named beneficiary
under the policy, thereupon filed a claim with the insurance company for
payment of the indemnity under the insurance policy. As the claim was
denied, De la Cruz instituted the action in the Court of First Instance of
Pangasinan for specific performance. Defendant insurer set up the defense
that the death of the insured, caused by his participation in a boxing contest,
was not accidental and, therefore, not covered by insurance. After due
hearing the court rendered the decision in favor of the plaintiff which is the
subject of the present appeal.
It is not disputed that during the ring fight with another non-professional
boxer, Eduardo slipped, which was unintentional. At this opportunity, his
opponent landed on Eduardo's head a blow, which sent the latter to the
ropes. That must have caused the cranial injury that led to his death.
Eduardo was insured "against death or disability caused by accidental
means". Appellant insurer now contends that while the death of the insured
was due to head injury, said injury was sustained because of his voluntary
participation in the contest. It is claimed that the participation in the boxing
contest was the "means" that produced the injury which, in turn, caused the
death of the insured. And, since his inclusion in the boxing card was
voluntary on the part of the insured, he cannot be considered to have met his
death by "accidental means".
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
INSURANCE
and, therefore, not expected.1
Appellant however, would like to make a distinction between "accident or
accidental" and "accidental means", which is the term used in the insurance
policy involved here. It is argued that to be considered within the protection
of the policy, what is required to be accidental is the means that caused or
brought the death and not the death itself. It may be mentioned in this
connection, that the tendency of court decisions in the United States in
recent years is to eliminate the fine distinction between the terms
"accidental" and "accidental means" and to consider them as legally
synonymous.2 But, even if we take appellant's theory, the death of the
insured in the case at bar would still be entitled to indemnification under the
policy. 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.3 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.4 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 policies insuring against death or
injury from accident.
In the present case, while the participation of the insured in the boxing
contest is voluntary, the injury was sustained when he slid, giving occasion
to the infliction by his opponent of the blow that threw him to the ropes of
the ring. Without this unfortunate incident, that is, the unintentional slipping
of the deceased, perhaps he could not have received that blow in the head
and would not have died. The fact that boxing is attended with some risks of
external injuries does not make any injuries received in the course of the
game not accidental. In boxing as in other equally physically rigorous
sports, such as basketball or baseball, death is not ordinarily anticipated to
result. If, therefore, it ever does, the injury or death can only be accidental or
produced by some unforeseen happening or event as what occurred in this
case.
30
Furthermore, the policy involved herein specifically excluded from its
coverage

(e) Death or disablement consequent upon the Insured engaging in football,

hunting, pigsticking, steeplechasing, polo-playing, racing of any kind,
mountaineering, or motorcycling.

Death or disablement resulting from engagement in boxing contests was not

declared outside of the protection of the insurance contract. Failure of the De La Cruz V. Capital Ins. & Surety Co, Inc. (1966)
defendant insurance company to include death resulting from a boxing
match or other sports among the prohibitive risks leads inevitably to the G.R. No. L-21574 June 30, 1966
conclusion that it did not intend to limit or exempt itself from liability for
such death.5
Lessons Applicable: Liability of Insurer for Suicide and Accidental Death
Wherefore, in view of the foregoing considerations, the decision appealed (Insurance)
from is hereby affirmed, with costs against appellant. so ordered.
FACTS:
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P.,
Zaldivar and Sanchez, JJ., concur.
1 Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc
Mines, Inc. in Baguio, was the holder of an accident insurance policy
"against death or disability caused by accidental means"

2 January 1, 1957: For the celebration of the New Year, the Itogon-
Suyoc Mines, Inc. sponsored a boxing contest for general entertainment
wherein Eduardo, a non-professional boxer participated

3 In the course of his bout with another non-professional boxer of the

same height, weight, and size, Eduardo slipped and was hit by his
opponent on the left part of the back of the head, causing Eduardo to
fall, with his head hitting the rope of the ring

4 He was brought to the Baguio General Hospital the following day.

He died due to hemorrhage, intracranial.

5 Simon de la Cruz, the father of the insured and who was named
INSURANCE 31
 beneficiary under the policy, thereupon filed a claim with the insurance
company
6 The Capital Insurance and Surety co., inc denied stating that the
death caused by his participation in a boxing contest was not accidental
7 RTC: favored Simon
ISSUE: W/N the cause of death was accident
12 The fact that boxing is attended with some risks of external injuries
does not make any injuries received in the course of the game not
accidental
13 In boxing as in other equally physically rigorous sports, such as
basketball or baseball, death is not ordinarily anticipated to result. If,
therefore, it ever does, the injury or death can only be accidental or
produced by some unforeseen happening or event as what occurred in
this case

Furthermore, the policy involved herein specifically excluded from its

HELD:YES. coverage

14 (e) Death or disablement consequent upon the Insured engaging in

8 Eduardo slipped, which was unintentional football, hunting, pigsticking, steeplechasing, polo-playing, racing of
any kind, mountaineering, or motorcycling.
9 The terms "accident" and "accidental" as used in insurance
contracts, have not acquired any technical meaning and are construed by 1 Death or disablement resulting from engagement in boxing contests
the courts in their ordinary and common acceptation happen by chance was not declared outside of the protection of the insurance contract
or fortuitously, without intention and design, and which is unexpected,
unusual, and unforeseen

1 event that takes place without one's foresight or expectation

2 event that proceeds from an unknown cause, or is an unusual effect

of a known cause and, therefore, not expected

10 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 policies insuring against death or injury from accident

11 while the participation of the insured in the boxing contest is

voluntary, the injury was sustained when he slid, giving occasion to the
infliction by his opponent of the blow that threw him to the ropes of the
ring is not
INSURANCE 32
 LAW UNION AND ROCK INSURANCE CO., LTD., represented by its
agent, WARNER, BARNES AND CO., LTD., defendant-appellant.

Delgado, Flores & Macapagal for appellant.

Andres Aguilar, Zacarias Gutierrez Lora, Gregorio Sabater and Perkins,
Ponce Enrile & Contreras for appellee.

REYES, J. B. L., J.:

Qua Chee Gan, a merchant of Albay, instituted this action in 1940, in the
Court of First Instance of said province, seeking to recover the proceeds of
certain fire insurance policies totalling P370,000, issued by the Law Union
& Rock Insurance Co., Ltd., upon certain bodegas and merchandise of the
insured that were burned on June 21, 1940. The records of the original case
were destroyed during the liberation of the region, and were reconstituted in
1946. After a trial that lasted several years, the Court of First Instance
rendered a decision in favor of the plaintiff, the dispositive part whereof
reads as follows:

Wherefore, judgment is rendered for the plaintiff and against the defendant
condemning the latter to pay the former

(a) Under the first cause of action, the sum of P146,394.48;

(b) Under the second cause of action, the sum of P150,000;

(c) Under the third cause of action, the sum of P5,000;

(d) Under the fourth cause of action, the sum of P15,000; and

(e) Under the fifth cause of action, the sum of P40,000;

G.R. No. L-4611 December 17, 1955 all of which shall bear interest at the rate of 8% per annum in accordance
with Section 91 (b) of the Insurance Act from September 26, 1940, until
QUA CHEE GAN, plaintiff-appellee, each is paid, with costs against the defendant.
vs.
INSURANCE 33
The complaint in intervention of the Philippine National Bank is dismissed
without costs. (Record on Appeal, 166-167.)

From the decision, the defendant Insurance Company appealed directly to
this Court.
The record shows that before the last war, plaintiff-appellee owned four
warehouses or bodegas (designated as Bodegas Nos. 1 to 4) in the
municipality of Tabaco, Albay, used for the storage of stocks of copra and of
hemp, baled and loose, in which the appellee dealth extensively. They had
been, with their contents, insured with the defendant Company since 1937,
and the lose made payable to the Philippine National Bank as mortgage of
the hemp and crops, to the extent of its interest. On June, 1940, the
insurance stood as follows:
Fire of undetermined origin that broke out in the early morning of July 21,
1940, and lasted almost one week, gutted and completely destroyed Bodegas
Nos. 1, 2 and 4, with the merchandise stored theren. Plaintiff-appellee
informed the insurer by telegram on the same date; and on the next day, the
fire adjusters engaged by appellant insurance company arrived and
proceeded to examine and photograph the premises, pored over the books of
the insured and conducted an extensive investigation. The plaintiff having
submitted the corresponding fire claims, totalling P398,562.81 (but reduced
to the full amount of the insurance, P370,000), the Insurance Company
resisted payment, claiming violation of warranties and conditions, filing of
fraudulent claims, and that the fire had been deliberately caused by the
insured or by other persons in connivance with him.

Policy No. Property Insured Amount With counsel for the insurance company acting as private prosecutor, Que
2637164 Chee Gan, with his brother, Qua Chee Pao, and some employees of his, were
Bodega No. 1 (Building) indicted and tried in 1940 for the crime of arson, it being claimed that they
(Exhibit "LL")
had set fire to the destroyed warehouses to collect the insurance. They were,
Bodega No. 2 (Building) however, acquitted by the trial court in a final decision dated July 9, 1941
(Exhibit WW). Thereafter, the civil suit to collect the insurance money
2637165 Bodega No. 3 (Building) proceeded to its trial and termination in the Court below, with the result
(Exhibit "JJ") Bodega No. 4 (Building) noted at the start of this opinion. The Philippine National Bank's complaint
in intervention was dismissed because the appellee had managed to pay his
Hemp Press moved by steam engine indebtedness to the Bank during the pendecy of the suit, and despite the fire
2637345 Merchandise contents (copra and empty losses.
(Exhibit "X") sacks of Bodega No. 1)
In its first assignment of error, the insurance company alleges that the trial
2637346 Merchandise contents (hemp) of Bodega Court should have held that the policies were avoided for breach of
(Exhibit "Y") No. 3 warranty, specifically the one appearing on a rider pasted (with other similar
2637067 Merchandise contents (loose hemp) of riders) on the face of the policies (Exhibits X, Y, JJ and LL). These riders
(Exhibit "GG") Bodega No. 4 were attached for the first time in 1939, and the pertinent portions read as
follows:
Total
P370,000.00 Memo. of Warranty. The undernoted Appliances for the extinction of fire
being kept on the premises insured hereby, and it being declared and
INSURANCE 34
understood that there is an ample and constant water supply with sufficient
pressure available at all seasons for the same, it is hereby warranted that the
said appliances shall be maintained in efficient working order during the
currency of this policy, by reason whereof a discount of 2 1/2 per cent is
allowed on the premium chargeable under this policy.
Hydrants in the compound, not less in number than one for each 150 feet of
external wall measurement of building, protected, with not less than 100 feet
of hose piping and nozzles for every two hydrants kept under cover in
convenient places, the hydrants being supplied with water pressure by a
pumping engine, or from some other source, capable of discharging at the
rate of not less than 200 gallons of water per minute into the upper story of
the highest building protected, and a trained brigade of not less than 20 men
to work the same.'
It is argued that since the bodegas insured had an external wall perimeter of
500 meters or 1,640 feet, the appellee should have eleven (11) fire hydrants
in the compound, and that he actually had only two (2), with a further pair
nearby, belonging to the municipality of Tabaco.
We are in agreement with the trial Court that the appellant is barred by
waiver (or rather estoppel) to claim violation of the so-called fire hydrants
warranty, for the reason that knowing fully all that the number of hydrants
demanded therein never existed from the very beginning, the appellant
neverthless issued the policies in question subject to such warranty, and
received the corresponding premiums. It would be perilously close to
conniving at fraud upon the insured to allow appellant to claims now as void
ab initio the policies that it had issued to the plaintiff without warning of
their fatal defect, of which it was informed, and after it had misled the
defendant into believing that the policies were effective.
The insurance company was aware, even before the policies were issued,
that in the premises insured there were only two fire hydrants installed by
Qua Chee Gan and two others nearby, owned by the municipality of
TAbaco, contrary to the requirements of the warranty in question. Such fact
appears from positive testimony for the insured that appellant's agents
inspected the premises; and the simple denials of appellant's representative
INSURANCE
(Jamiczon) can not overcome that proof. That such inspection was made is
moreover rendered probable by its being a prerequisite for the fixing of the
discount on the premium to which the insured was entitled, since the
discount depended on the number of hydrants, and the fire fighting
equipment available (See "Scale of Allowances" to which the policies were
expressly made subject). The law, supported by a long line of cases, is
expressed by American Jurisprudence (Vol. 29, pp. 611-612) to be as
follows:
It is usually held that where the insurer, at the time of the issuance of a
policy of insurance, has knowledge of existing facts which, if insisted on,
would invalidate the contract from its very inception, such knowledge
constitutes a waiver of conditions in the contract inconsistent with the facts,
and the insurer is stopped thereafter from asserting the breach of such
conditions. The law is charitable enough to assume, in the absence of any
showing to the contrary, that an insurance company intends to executed a
valid contract in return for the premium received; and when the policy
contains a condition which renders it voidable at its inception, and this result
is known to the insurer, it will be presumed to have intended to waive the
conditions and to execute a binding contract, rather than to have deceived
the insured into thinking he is insured when in fact he is not, and to have
taken his money without consideration. (29 Am. Jur., Insurance, section 807,
at pp. 611-612.)
The reason for the rule is not difficult to find.
The plain, human justice of this doctrine is perfectly apparent. To allow a
company to accept one's money for a policy of insurance which it then
knows to be void and of no effect, though it knows as it must, that the
assured believes it to be valid and binding, is so contrary to the dictates of
honesty and fair dealing, and so closely related to positive fraud, as to the
abhorent to fairminded men. It would be to allow the company to treat the
policy as valid long enough to get the preium on it, and leave it at liberty to
repudiate it the next moment. This cannot be deemed to be the real intention
of the parties. To hold that a literal construction of the policy expressed the
true intention of the company would be to indict it, for fraudulent purposes
and designs which we cannot believe it to be guilty of (Wilson vs.
35
Commercial Union Assurance Co., 96 Atl. 540, 543-544).
The inequitableness of the conduct observed by the insurance company in
this case is heightened by the fact that after the insured had incurred the
expense of installing the two hydrants, the company collected the premiums
and issued him a policy so worded that it gave the insured a discount much
smaller than that he was normaly entitledto. According to the "Scale of
Allowances," a policy subject to a warranty of the existence of one fire
hydrant for every 150 feet of external wall entitled the insured to a discount
of 7 1/2 per cent of the premium; while the existence of "hydrants, in
compund" (regardless of number) reduced the allowance on the premium to
a mere 2 1/2 per cent. This schedule was logical, since a greater number of
hydrants and fire fighting appliances reduced the risk of loss. But the
appellant company, in the particular case now before us, so worded the
policies that while exacting the greater number of fire hydrants and
appliances, it kept the premium discount at the minimum of 2 1/2 per cent,
thereby giving the insurance company a double benefit. No reason is shown
why appellant's premises, that had been insured with appellant for several
years past, suddenly should be regarded in 1939 as so hazardous as to be
accorded a treatment beyond the limits of appellant's own scale of
allowances. Such abnormal treatment of the insured strongly points at an
abuse of the insurance company's selection of the words and terms of the
contract, over which it had absolute control.
These considerations lead us to regard the parol evidence rule, invoked by
the appellant as not applicable to the present case. It is not a question here
whether or not the parties may vary a written contract by oral evidence; but
whether testimony is receivable so that a party may be, by reason of
inequitable conduct shown, estopped from enforcing forfeitures in its favor,
in order to forestall fraud or imposition on the insured.
Receipt of Premiums or Assessments afte Cause for Forfeiture Other than
Nonpayment. It is a well settled rule of law that an insurer which with
knowledge of facts entitling it to treat a policy as no longer in force, receives
and accepts a preium on the policy, estopped to take advantage of the
forfeiture. It cannot treat the policy as void for the purpose of defense to an
action to recover for a loss thereafter occurring and at the same time treat it
INSURANCE
as valid for the purpose of earning and collecting further premiums." (29
Am. Jur., 653, p. 657.)
It would be unconscionable to permit a company to issue a policy under
circumstances which it knew rendered the policy void and then to accept and
retain premiums under such a void policy. Neither law nor good morals
would justify such conduct and the doctrine of equitable estoppel is
peculiarly applicable to the situation. (McGuire vs. Home Life Ins. Co. 94
Pa. Super Ct. 457.)
Moreover, taking into account the well known rule that ambiguities or
obscurities must be strictly interpreted aganst the prty that caused them, 1the
"memo of warranty" invoked by appellant bars the latter from questioning
the existence of the appliances called for in the insured premises, since its
initial expression, "the undernoted appliances for the extinction of fire being
kept on the premises insured hereby, . . . it is hereby warranted . . .", admists
of interpretation as an admission of the existence of such appliances which
appellant cannot now contradict, should the parol evidence rule apply.
The alleged violation of the warranty of 100 feet of fire hose for every two
hydrants, must be equally rejected, since the appellant's argument thereon is
based on the assumption that the insured was bound to maintain no less than
eleven hydrants (one per 150 feet of wall), which requirement appellant is
estopped from enforcing. The supposed breach of the wter pressure
condition is made to rest on the testimony of witness Serra, that the water
supply could fill a 5-gallon can in 3 seconds; appellant thereupon inferring
that the maximum quantity obtainable from the hydrants was 100 gallons a
minute, when the warranty called for 200 gallons a minute. The transcript
shows, however, that Serra repeatedly refused and professed inability to
estimate the rate of discharge of the water, and only gave the "5-gallon per
3-second" rate because the insistence of appellant's counsel forced the
witness to hazard a guess. Obviously, the testimony is worthless and
insufficient to establish the violation claimed, specially since the burden of
its proof lay on appellant.
As to maintenance of a trained fire brigade of 20 men, the record is
preponderant that the same was organized, and drilled, from time to give,
36
altho not maintained as a permanently separate unit, which the warranty did
not require. Anyway, it would be unreasonable to expect the insured to
maintain for his compound alone a fire fighting force that many
municipalities in the Islands do not even possess. There is no merit in
appellant's claim that subordinate membership of the business manager (Co
Cuan) in the fire brigade, while its direction was entrusted to a minor
employee unders the testimony improbable. A business manager is not
necessarily adept at fire fighting, the qualities required being different for
both activities.
Under the second assignment of error, appellant insurance company avers,
that the insured violated the "Hemp Warranty" provisions of Policy No.
2637165 (Exhibit JJ), against the storage of gasoline, since appellee
admitted that there were 36 cans (latas) of gasoline in the building designed
as "Bodega No. 2" that was a separate structure not affected by the fire. It is
well to note that gasoline is not specifically mentioned among the prohibited
articles listed in the so-called "hemp warranty." The cause relied upon by the
insurer speaks of "oils (animal and/or vegetable and/or mineral and/or their
liquid products having a flash point below 300o Fahrenheit", and is
decidedly ambiguous and uncertain; for in ordinary parlance, "Oils" mean
"lubricants" and not gasoline or kerosene. And how many insured, it may
well be wondered, are in a position to understand or determine "flash point
below 003o Fahrenheit. Here, again, by reason of the exclusive control of
the insurance company over the terms and phraseology of the contract, the
ambiguity must be held strictly against the insurer and liberraly in favor of
the insured, specially to avoid a forfeiture (44 C. J. S., pp. 1166-1175; 29
Am. Jur. 180).
Insurance is, in its nature, complex and difficult for the layman to
understand. Policies are prepared by experts who know and can anticipate
the hearing and possible complications of every contingency. So long as
insurance companies insist upon the use of ambiguous, intricate and
technical provisions, which conceal rather than frankly disclose, their own
intentions, the courts must, in fairness to those who purchase insurance,
construe every ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L.
Ins. Co., 91 Wash. 324, LRA 1917A, 1237.)
INSURANCE
An insurer should not be allowed, by the use of obscure phrases and
exceptions, to defeat the very purpose for which the policy was procured
(Moore vs. Aetna Life Insurance Co., LRA 1915D, 264).
We see no reason why the prohibition of keeping gasoline in the premises
could not be expressed clearly and unmistakably, in the language and terms
that the general public can readily understand, without resort to obscure
esoteric expression (now derisively termed "gobbledygook"). We reiterate
the rule stated in Bachrach vs. British American Assurance Co. (17 Phil.
555, 561):
If the company intended to rely upon a condition of that character, it ought
to have been plainly expressed in the policy.
This rigid application of the rule on ambiguities has become necessary in
view of current business practices. The courts cannot ignore that nowadays
monopolies, cartels and concentrations 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 Baloilles" contracts
by adherence" (con tracts 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 examples) 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 unwarry (New Civil Coee, Article 24; Sent. of
Supreme Court of Spain, 13 Dec. 1934, 27 February 1942).
Si pudiera estimarse que la condicion 18 de la poliza de seguro envolvia
alguna oscuridad, habra de ser tenido en cuenta que al seguro es,
practicamente un contrato de los llamados de adhesion y por consiguiente en
caso de duda sobre la significacion de las clausulas generales de una poliza
redactada por las compafijas sin la intervencion alguna de sus clientes
se ha de adoptar de acuerdo con el articulo 1268 del Codigo Civil, la
interpretacion mas favorable al asegurado, ya que la obscuridad es
imputable a la empresa aseguradora, que debia haberse explicado mas
37
claramante. (Dec. Trib. Sup. of Spain 13 Dec. 1934)
The contract of insurance is one of perfect good faith (uferrimal fidei) not
for the insured alone, but equally so for the insurer; in fact, it is mere so for
the latter, since its dominant bargaining position carries with it stricter
responsibility.
Another point that is in favor of the insured is that the gasoline kept in
Bodega No. 2 was only incidental to his business, being no more than a
customary 2 day's supply for the five or six motor vehicles used for
transporting of the stored merchandise (t. s. n., pp. 1447-1448). "It is well
settled that the keeping of inflammable oils on the premises though
prohibited by the policy does not void it if such keeping is incidental to the
business." Bachrach vs. British American Ass. Co., 17 Phil. 555, 560); and
"according to the weight of authority, even though there are printed
prohibitions against keeping certain articles on the insured premises the
policy will not be avoided by a violation of these prohibitions, if the
prohibited articles are necessary or in customary use in carrying on the trade
or business conducted on the premises." (45 C. J. S., p. 311; also 4 Couch on
Insurance, section 966b). It should also be noted that the "Hemp Warranty"
forbade storage only "in the building to which this insurance applies and/or
in any building communicating therewith", and it is undisputed that no
gasoline was stored in the burned bodegas, and that "Bodega No. 2" which
was not burned and where the gasoline was found, stood isolated from the
other insured bodegas.
The charge that the insured failed or refused to submit to the examiners of
the insurer the books, vouchers, etc. demanded by them was found
unsubstantiated by the trial Court, and no reason has been shown to alter this
finding. The insured gave the insurance examiner all the date he asked for
(Exhibits AA, BB, CCC and Z), and the examiner even kept and
photographed some of the examined books in his possession. What does
appear to have been rejected by the insured was the demand that he should
submit "a list of all books, vouchers, receiptsand other records" (Age 4,
Exhibit 9-c); but the refusal of the insured in this instance was well justified,
since the demand for a list of all the vouchers (which were not in use by the
insured) and receipts was positively unreasonable, considering that such
INSURANCE
listing was superfluous because the insurer was not denied access to the
records, that the volume of Qua Chee Gan's business ran into millions, and
that the demand was made just after the fire when everything was in turmoil.
That the representatives of the insurance company were able to secure all the
date they needed is proved by the fact that the adjuster Alexander Stewart
was able to prepare his own balance sheet (Exhibit L of the criminal case)
that did not differ from that submitted by the insured (Exhibit J) except for
the valuation of the merchandise, as expressly found by the Court in the
criminal case for arson. (Decision, Exhibit WW).
How valuations may differ honestly, without fraud being involved, was
strikingly illustrated in the decision of the arson case (Exhibit WW)
acquiting Qua Choc Gan, appellee in the present proceedings. The decision
states (Exhibit WW, p. 11):
Alexander D. Stewart declaro que ha examinado los libros de Qua Choc Gan
en Tabaco asi como su existencia de copra y abaca en las bodega al tiempo
del incendio durante el periodo comprendido desde el 1.o de enero al 21 de
junio de 1940 y ha encontrado que Qua Choc Gan ha sufrico una perdida de
P1,750.76 en su negocio en Tabaco. Segun Steward al llegar a este
conclusion el ha tenidoen cuenta el balance de comprobacion Exhibit 'J' que
le ha entregado el mismo acusado Que Choc Gan en relacion con sus libros
y lo ha encontrado correcto a excepcion de los precios de abaca y copra que
alli aparecen que no estan de acuerdo con los precios en el mercado. Esta
comprobacion aparece en el balance mercado exhibit J que fue preparado
por el mismo testigo.
In view of the discrepancy in the valuations between the insured and the
adjuster Stewart for the insurer, the Court referred the controversy to a
government auditor, Apolonio Ramos; but the latter reached a different
result from the other two. Not only that, but Ramos reported two different
valuations that could be reached according to the methods employed
(Exhibit WW, p. 35):
La ciencia de la contabilidad es buena, pues ha tenido sus muchos usos
buenos para promovar el comercio y la finanza, pero en el caso presente ha
resultado un tanto cumplicada y acomodaticia, como lo prueba el resultado
38
del examen hecho por los contadores Stewart y Ramos, pues el juzgado no
alcanza a ver como habiendo examinado las mismas partidas y los mismos
libros dichos contadores hayan de llegara dos conclusiones que difieron
sustancialmente entre si. En otras palabras, no solamente la comprobacion
hecha por Stewart difiere de la comprobacion hecha por Ramos sino que,
segun este ultimo, su comprobacion ha dado lugar a dos resultados
diferentes dependiendo del metodo que se emplea.
Clearly then, the charge of fraudulent overvaluation cannot be seriously
entertained. The insurer attempted to bolster its case with alleged
photographs of certain pages of the insurance book (destroyed by the war) of
insured Qua Chee Gan (Exhibits 26-A and 26-B) and allegedly showing
abnormal purchases of hemp and copra from June 11 to June 20, 1940. The
Court below remained unconvinced of the authenticity of those photographs,
and rejected them, because they were not mentioned not introduced in the
criminal case; and considering the evident importance of said exhibits in
establishing the motive of the insured in committing the arson charged, and
the absence of adequate explanation for their omission in the criminal case,
we cannot say that their rejection in the civil case constituted reversible
error.
The next two defenses pleaded by the insurer, that the insured connived
at the loss and that the fraudulently inflated the quantity of the insured stock
in the burnt bodegas, are closely related to each other. Both defenses are
predicted on the assumption that the insured was in financial difficulties and
set the fire to defraud the insurance company, presumably in order to pay off
the Philippine National Bank, to which most of the insured hemp and copra
was pledged. Both defenses are fatally undermined by the established fact
that, notwithstanding the insurer's refusal to pay the value of the policies the
extensive resources of the insured (Exhibit WW) enabled him to pay off the
National Bank in a short time; and if he was able to do so, no motive
appears for attempt to defraud the insurer. While the acquittal of the insured
in the arson case is not res judicata on the present civil action, the insurer's
evidence, to judge from the decision in the criminal case, is practically
identical in both cases and must lead to the same result, since the proof to
establish the defense of connivance at the fire in order to defraud the insurer
"cannot be materially less convincing than that required in order to convict
INSURANCE
the insured of the crime of arson"(Bachrach vs. British American Assurance
Co., 17 Phil. 536).
As to the defense that the burned bodegas could not possibly have contained
the quantities of copra and hemp stated in the fire claims, the insurer's case
rests almost exclusively on the estimates, inferences and conclusionsAs to
the defense that the burned bodegas could not possibly have contained the
quantities of copra and hemp stated in the fire claims, the insurer's case rests
almost exclusively on the estimates, inferences and conclusions of its
adjuster investigator, Alexander D. Stewart, who examined the premises
during and after the fire. His testimony, however, was based on inferences
from the photographs and traces found after the fire, and must yield to the
contradictory testimony of engineer Andres Bolinas, and specially of the
then Chief of the Loan Department of the National Bank's Legaspi branch,
Porfirio Barrios, and of Bank Appraiser Loreto Samson, who actually saw
the contents of the bodegas shortly before the fire, while inspecting them for
the mortgagee Bank. The lower Court was satisfied of the veracity and
accuracy of these witnesses, and the appellant insurer has failed to
substantiate its charges aganst their character. In fact, the insurer's repeated
accusations that these witnesses were later "suspended for fraudulent
transactions" without giving any details, is a plain attempt to create
prejudice against them, without the least support in fact.
Stewart himself, in testifying that it is impossible to determine from the
remains the quantity of hemp burned (t. s. n., pp. 1468, 1470), rebutted
appellant's attacks on the refusal of the Court below to accept its inferences
from the remains shown in the photographs of the burned premises. It
appears, likewise, that the adjuster's calculations of the maximum contents
of the destroyed warehouses rested on the assumption that all the copra and
hemp were in sacks, and on the result of his experiments to determine the
space occupied by definite amounts of sacked copra. The error in the
estimates thus arrived at proceeds from the fact that a large amount of the
insured's stock were in loose form, occupying less space than when kept in
sacks; and from Stewart's obvious failure to give due allowance for the
compression of the material at the bottom of the piles (t. s. n., pp. 1964,
1967) due to the weight of the overlying stock, as shown by engineer
Bolinas. It is probable that the errors were due to inexperience (Stewart
39
himself admitted that this was the first copra fire he had investigated); but it
is clear that such errors render valueles Stewart's computations. These were
in fact twice passed upon and twice rejected by different judges (in the
criminal and civil cases) and their concordant opinion is practically
conclusive.
The adjusters' reports, Exhibits 9-A and 9-B, were correctly disregarded by
the Court below, since the opinions stated therein were based on ex parte
investigations made at the back of the insured; and the appellant did not
present at the trial the original testimony and documents from which the
conclusions in the report were drawn.lawphi1.net
Appellant insurance company also contends that the claims filed by the
insured contained false and fraudulent statements that avoided the insurance
policy. But the trial Court found that the discrepancies were a result of the
insured's erroneous interpretation of the provisions of the insurance policies
and claim forms, caused by his imperfect knowledge of English, and that the
misstatements were innocently made and without intent to defraud. Our
review of the lengthy record fails to disclose reasons for rejecting these
conclusions of the Court below. For example, the occurrence of previous
fires in the premises insured in 1939, altho omitted in the claims, Exhibits
EE and FF, were nevertheless revealed by the insured in his claims Exhibits
Q (filed simultaneously with them), KK and WW. Considering that all these
claims were submitted to the smae agent, and that this same agent had paid
the loss caused by the 1939 fire, we find no error in the trial Court's
acceptance of the insured's explanation that the omission in Exhibits EE and
FF was due to inadvertance, for the insured could hardly expect under such
circumstances, that the 1939 would pass unnoticed by the insurance agents.
Similarly, the 20 per cent overclaim on 70 per cent of the hemo stock, was
explained by the insured as caused by his belief that he was entitled to
include in the claim his expected profit on the 70 per cent of the hemp,
because the same was already contracted for and sold to other parties before
the fire occurred. Compared with other cases of over-valuation recorded in
our judicial annals, the 20 per cent excess in the case of the insured is not by
itself sufficient to establish fraudulent intent. Thus, in Yu Cua vs. South
British Ins. Co., 41 Phil. 134, the claim was fourteen (14) times (1,400 per
cent) bigger than the actual loss; in Go Lu vs. Yorkshire Insurance Co., 43
INSURANCE
Phil., 633, eight (8) times (800 per cent); in Tuason vs. North China Ins. Co.,
47 Phil. 14, six (6) times (600 per cent); in Tan It vs. Sun Insurance, 51 Phil.
212, the claim totalled P31,860.85 while the goods insured were inventoried
at O13,113. Certainly, the insured's overclaim of 20 per cent in the case at
bar, duly explained by him to the Court a quo, appears puny by comparison,
and can not be regarded as "more than misstatement, more than inadvertence
of mistake, more than a mere error in opinion, more than a slight
exaggeration" (Tan It vs. Sun Insurance Office, ante) that would entitle the
insurer to avoid the policy. It is well to note that the overchange of 20 per
cent was claimed only on apart (70 per cent) of the hemp stock; had the
insured acted with fraudulent intent, nothing prevented him from increasing
the value of all of his copra, hemp and buildings in the same proportion.
This also applies to the alleged fraudulent claim for burned empty sacks,
that was likewise explained to our satisfaction and that of the trial Court.
The rule is that to avoid a policy, the false swearing must be wilful and with
intent to defraud (29 Am. Jur., pp. 849-851) which was not the cause. Of
course, the lack of fraudulent intent would not authorize the collection of the
expected profit under the terms of the polices, and the trial Court correctly
deducte the same from its award.
We find no reversible error in the judgment appealed from, wherefore the
smae is hereby affirmed. Costs against the appellant. So ordered.
Paras, C. J., Padilla, Montemayor, Reyes, A., Jugo, Labrador, and
Concepcion, JJ., concur.
40

Qua Chee Gan v. Law Union Rock - Breach of Warranty
98 PHIL 85
Facts:
> Qua Chee Gan, a merchant, owned 4 warehouses in Albay which were
used for the storage or copra and hemp in which the appelle deals with
exclusively.
> The warehouses together with the contents were insured with Law Union
since 1937 and the loss made payable to PNB as mortgagee of the hemp and
copra.
> A fire of undetermined cause broke out in July 21, 1940 and lasted for
almost 1 whole week.
> Bodegas 1, 3, and 4 including the merchandise stored were destroyed
completely.
> Insured then informed insurer of the unfortunate event and submitted the
corresponding fire claims, which were later reduced to P370T.
> Insurer refused to pay claiming violations of the warranties and
conditions, filing of fraudulent claims and that the fire had been deliberately
caused by the insured.
> Insured filed an action before CFI which rendered a decision in favor of
the insured.
Issues and Resolutions:
(1) Whether or not the policies should be avoided for the reason that there
was a breach of warranty.
INSURANCE
Under the Memorandum of Warranty, there should be no less than 1 hydrant
for each 150 feet of external wall measurements of the compound, and since
bodegas insured had an external wall per meter of 1640 feet, the insured
should have 11 hydrants in the compound. But he only had 2.
Even so, the insurer is barred by estoppel to claim violation of the fire
hydrants warranty, because knowing that the number of hydrants it
demanded never existed from the very beginning, appellant nevertheless
issued the policies subject to such warranty and received the corresponding
premiums. The insurance company was aware, even before the policies
were issued, that in the premises there were only 2 hydrants and 2 others
were owned by the Municipality, contrary to the requirements of the
warranties in question.
It should be close to conniving at fraud upon the insured to allow the insurer
to claim now as void the policies it issued to the insured, without warning
him of the fatal defect, of which the insurer was informed, and after it had
misled the insured into believing that the policies were effective.
Accdg to American Jurisprudence: It is a well-settled rule that the insurer at
the time of the issuance of a policy has the knowledge of existing facts,
which if insisted on, would invalidate the contract from its very inception,
such knowledge constitutes a waiver of conditions in the contract
inconsistent with known facts, and the insurer is stopped thereafter from
asserting the breach of such conditions. The reason for the rule is: To allow
a company to accept ones money for a policy of insurance which it knows
to be void and of no effect, though it knows as it must that the insured
believes it to be valid and binding is so contrary to the dictates of honesty
and fair dealing, as so closely related to positive fraud, as to be abhorrent to
fair-minded men. It would be to allow the company to treat the policy as
valid long enough to get the premium on it, and leave it at liberty to
repudiate it the next moment.
Moreover, taking into account the well-known rule that ambiguities or
obscurities must strictly be interpreted against the party that cause them, the
memorandum of warranty invoked by the insurer bars the latter from
questioning the existence of the appliances called for, since its initial
41
expression the undernoted appliances for the extinction of fire being kept
on the premises insured hereby.. admits of the interpretation as an
admission of the existence of such appliances which insurer cannot now
contradict, should the parole evidence apply.

(2) Whether or not the insured violated the hemp warranty provision against
the storage of gasoline since insured admitted there were 36 cans of
gasoline in Bodega 2 which was a separate structure and not affected by the
fire.

It is well to note that gasoline is not specifically mentioned among the

prohibited articles listed in the so-called hemp warranty. The clause relied
upon by the insurer speaks of oils. Ordinarily, oils mean lubricants and
not gasoline or kerosene. Here again, by reason of the exclusive control of
the insurance company over the terms of the contract, the ambiguity must be
held strictly against the insurer and liberally in favor of the insured,
specially to avoid a forfeiture.

Furthermore, the gasoline kept was only incidental to the insureds business.
It is a well settled rule that keeping of inflammable oils in the premises
though prohibited by the policy does NOT void it if such keeping is
incidental to the business. Also, the hemp warranty forbade the storage only
in the building to which the insurance applies, and/or in any building
communicating therewith; and it is undisputed that no gasoline was stored in
the burnt bodegas and that Bodega No. 2 which was where the gasoline was
found stood isolated from the other bodegas.

G.R. No. 166245 April 9, 2008

INSURANCE 42
ETERNAL GARDENS MEMORIAL PARK CORPORATION,
petitioner,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY,
respondent.
DECISION
VELASCO, JR., J.:
The Case
Central to this Petition for Review on Certiorari under Rule 45 which seeks
to reverse and set aside the November 26, 2004 Decision 1 of the Court of
Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of
the insurer on the insurance application be considered as approval of the
application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance
Company (Philamlife) entered into an agreement denominated as Creditor
Group Life Policy No. P-19202 with petitioner Eternal Gardens Memorial
Park Corporation (Eternal). Under the policy, the clients of Eternal who
purchased burial lots from it on installment basis would be insured by
Philamlife. The amount of insurance coverage depended upon the existing
balance of the purchased burial lots. The policy was to be effective for a
period of one year, renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than 65
years of age, is indebted to the Assured for the unpaid balance of his loan
with the Assured, and is accepted for Life Insurance coverage by the
INSURANCE
Company on its effective date is eligible for insurance under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance up to
P50,000.00. However, a declaration of good health shall be required for all
Lot Purchasers as part of the application. The Company reserves the right to
require further evidence of insurability satisfactory to the Company in
respect of the following:
1. Any amount of insurance in excess of P50,000.00.
2. Any lot purchaser who is more than 55 years of age.
LIFE INSURANCE BENEFIT.
The Life Insurance coverage of any Lot Purchaser at any time shall be the
amount of the unpaid balance of his loan (including arrears up to but not
exceeding 2 months) as reported by the Assured to the Company or the sum
of P100,000.00, whichever is smaller. Such benefit shall be paid to the
Assured if the Lot Purchaser dies while insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he
contracts a loan with the Assured. However, there shall be no insurance if
the application of the Lot Purchaser is not approved by the Company.3
Eternal was required under the policy to submit to Philamlife a list of all
new lot purchasers, together with a copy of the application of each
purchaser, and the amounts of the respective unpaid balances of all insured
lot purchasers. In relation to the instant petition, Eternal complied by
submitting a letter dated December 29, 1982,4containing a list of insurable
balances of its lot buyers for October 1982. One of those included in the list
as "new business" was a certain John Chuang. His balance of payments was
PhP 100,000. On August 2, 1984, Chuang died.
43
Eternal sent a letter dated August 20, 19845 to Philamlife, which served as
an insurance claim for Chuangs death. Attached to the claim were the
following documents: (1) Chuangs Certificate of Death; (2) Identification
Certificate stating that Chuang is a naturalized Filipino Citizen; (3)
Certificate of Claimant; (4) Certificate of Attending Physician; and (5)
Assureds Certificate.
In reply, Philamlife wrote Eternal a letter on November 12, 1984, 6 requiring
Eternal to submit the following documents relative to its insurance claim for
Chuangs death: (1) Certificate of Claimant (with form attached); (2)
Assureds Certificate (with form attached); (3) Application for Insurance
accomplished and signed by the insured, Chuang, while still living; and (4)
Statement of Account showing the unpaid balance of Chuang before his
death.
Eternal transmitted the required documents through a letter dated November
14, 1984,7 which was received by Philamlife on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply
to the latters insurance claim. This prompted Eternal to demand from
Philamlife the payment of the claim for PhP 100,000 on April 25, 1986.8
In response to Eternals demand, Philamlife denied Eternals insurance claim
in a letter dated May 20, 1986,9 a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and
9529 with Eternal Gardens Memorial Park in October 1982 for the total
maximum insurable amount of P100,000.00 each. No application for Group
Insurance was submitted in our office prior to his death on August 2, 1984.
In accordance with our Creditors Group Life Policy No. P-1920, under
Evidence of Insurability provision, "a declaration of good health shall be
required for all Lot Purchasers as party of the application." We cite further
the provision on Effective Date of Coverage under the policy which states
that "there shall be no insurance if the application is not approved by the
Company." Since no application had been submitted by the Insured/Assured,
INSURANCE
prior to his death, for our approval but was submitted instead on November
15, 1984, after his death, Mr. John Uy Chuang was not covered under the
Policy. We wish to point out that Eternal Gardens being the Assured was a
party to the Contract and was therefore aware of these pertinent provisions.
With regard to our acceptance of premiums, these do not connote our
approval per se of the insurance coverage but are held by us in trust for the
payor until the prerequisites for insurance coverage shall have been met. We
will however, return all the premiums which have been paid in behalf of
John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial
Court (RTC) for a sum of money against Philamlife, docketed as Civil Case
No. 14736. The trial court decided in favor of Eternal, the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of Plaintiff ETERNAL, against Defendant PHILAMLIFE, ordering the
Defendant PHILAMLIFE, to pay the sum of P100,000.00, representing the
proceeds of the Policy of John Uy Chuang, plus legal rate of interest, until
fully paid; and, to pay the sum of P10,000.00 as attorneys fees.
SO ORDERED.
The RTC found that Eternal submitted Chuangs application for insurance
which he accomplished before his death, as testified to by Eternals witness
and evidenced by the letter dated December 29, 1982, stating, among others:
"Encl: Phil-Am Life Insurance Application Forms & Cert."10 It further ruled
that due to Philamlifes inaction from the submission of the requirements of
the group insurance on December 29, 1982 to Chuangs death on August 2,
1984, as well as Philamlifes acceptance of the premiums during the same
period, Philamlife was deemed to have approved Chuangs application. The
RTC said that since the contract is a group life insurance, once proof of
death is submitted, payment must follow.
Philamlife appealed to the CA, which ruled, thus:
44
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil
Case No. 57810 is REVERSED and SET ASIDE, and the complaint is
DISMISSED. No costs.
SO ORDERED.11
The CA based its Decision on the factual finding that Chuangs application
was not enclosed in Eternals letter dated December 29, 1982. It further
ruled that the non-accomplishment of the submitted application form
violated Section 26 of the Insurance Code. Thus, the CA concluded, there
being no application form, Chuang was not covered by Philamlifes
insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of substance, not
therefore determined by this Honorable Court, or has decided it in a way not
in accord with law or with the applicable jurisprudence, in holding that:
I. The application for insurance was not duly submitted to respondent
PhilamLife before the death of John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the Regional Trial Court
dated May 29, 1996.
The Courts Ruling
As a general rule, this Court is not a trier of facts and will not re-examine
factual issues raised before the CA and first level courts, considering their
findings of facts are conclusive and binding on this Court. However, such
rule is subject to exceptions, as enunciated in Sampayan v. Court of Appeals:
(1) when the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd or
INSURANCE
impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of
facts are conflicting; (6) when in making its findings the [CA] went beyond
the issues of the case, or its findings are contrary to the admissions of both
the appellant and the appellee; (7) when the findings [of the CA] are
contrary to the trial court; (8) when the findings are conclusions without
citation of specific evidence on which they are based; (9) when the facts set
forth in the petition as well as in the petitioners main and reply briefs are
not disputed by the respondent; (10) when the findings of fact are premised
on the supposed absence of evidence and contradicted by the evidence on
record; and (11) when the Court of Appeals manifestly overlooked certain
relevant facts not disputed by the parties, which, if properly considered,
would justify a different conclusion.12 (Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the CA;
thus, this Court may review them.
Eternal claims that the evidence that it presented before the trial court
supports its contention that it submitted a copy of the insurance application
of Chuang before his death. In Eternals letter dated December 29, 1982, a
list of insurable interests of buyers for October 1982 was attached, including
Chuang in the list of new businesses. Eternal added it was noted at the
bottom of said letter that the corresponding "Phil-Am Life Insurance
Application Forms & Cert." were enclosed in the letter that was apparently
received by Philamlife on January 15, 1983. Finally, Eternal alleged that it
provided a copy of the insurance application which was signed by Chuang
himself and executed before his death.
On the other hand, Philamlife claims that the evidence presented by Eternal
is insufficient, arguing that Eternal must present evidence showing that
Philamlife received a copy of Chuangs insurance application.
The evidence on record supports Eternals position.
The fact of the matter is, the letter dated December 29, 1982, which
Philamlife stamped as received, states that the insurance forms for the
attached list of burial lot buyers were attached to the letter. Such stamp of
45
receipt has the effect of acknowledging receipt of the letter together with the together with the monthly remittances and the second copy is remained or
attachments. Such receipt is an admission by Philamlife against its own retained with the marketing department of Eternal Gardens.
interest.13 The burden of evidence has shifted to Philamlife, which must
prove that the letter did not contain Chuangs insurance application. Atty. Miranda:
However, Philamlife failed to do so; thus, Philamlife is deemed to have
received Chuangs insurance application. We move to strike out the answer as it is not responsive as counsel is merely
asking for the location and does not [ask] for the number of copy.
To reiterate, it was Philamlifes bounden duty to make sure that before a
transmittal letter is stamped as received, the contents of the letter are correct Atty. Arevalo:
and accounted for.
Q Where is the original?
Philamlifes allegation that Eternals witnesses ran out of credibility and
reliability due to inconsistencies is groundless. The trial court is in the best [Mendoza:]
position to determine the reliability and credibility of the witnesses, because
it has the opportunity to observe firsthand the witnesses demeanor, conduct,
A As far as I remember I do not know where the original but when I
and attitude. Findings of the trial court on such matters are binding and
submitted with that payment together with the new clients all the originals I
conclusive on the appellate court, unless some facts or circumstances of
see to it before I sign the transmittal letter the originals are attached
weight and substance have been overlooked, misapprehended, or
therein.16
misinterpreted,14 that, if considered, might affect the result of the case.15
In other words, the witness admitted not knowing where the original
An examination of the testimonies of the witnesses mentioned by
insurance application was, but believed that the application was transmitted
Philamlife, however, reveals no overlooked facts of substance and value.
to Philamlife as an attachment to a transmittal letter.
Philamlife primarily claims that Eternal did not even know where the
As to the seeming inconsistencies between the testimony of Manuel Cortez
original insurance application of Chuang was, as shown by the testimony of
on whether one or two insurance application forms were accomplished and
Edilberto Mendoza:
the testimony of Mendoza on who actually filled out the application form,
these are minor inconsistencies that do not affect the credibility of the
Atty. Arevalo: witnesses. Thus, we ruled in People v. Paredes that minor inconsistencies are
too trivial to affect the credibility of witnesses, and these may even serve to
Q Where is the original of the application form which is required in case of strengthen their credibility as these negate any suspicion that the testimonies
new coverage? have been rehearsed.17

[Mendoza:] We reiterated the above ruling in Merencillo v. People:

A It is [a] standard operating procedure for the new client to fill up two Minor discrepancies or inconsistencies do not impair the essential integrity
copies of this form and the original of this is submitted to Philamlife of the prosecutions evidence as a whole or reflect on the witnesses honesty.
INSURANCE 46
The test is whether the testimonies agree on essential facts and whether the
respective versions corroborate and substantially coincide with each other so
as to make a consistent and coherent whole.18
In the present case, the number of copies of the insurance application that
Chuang executed is not at issue, neither is whether the insurance application
presented by Eternal has been falsified. Thus, the inconsistencies pointed out
by Philamlife are minor and do not affect the credibility of Eternals
witnesses.
However, the question arises as to whether Philamlife assumed the risk of
loss without approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement
denominated as Creditor Group Life Policy No. P-1920 dated December 10,
1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he
contracts a loan with the Assured. However, there shall be no insurance if
the application of the Lot Purchaser is not approved by the Company.
An examination of the above provision would show ambiguity between its
two sentences. The first sentence appears to state that the insurance coverage
of the clients of Eternal already became effective upon contracting a loan
with Eternal while the second sentence appears to require Philamlife to
approve the insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion
which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the latters interest. Thus, in Malayan
Insurance Corporation v. Court of Appeals, this Court held that:
INSURANCE
Indemnity and liability insurance policies are construed in accordance with
the general rule of resolving any ambiguity therein in favor of the insured,
where the contract or policy is prepared by the insurer. A contract of
insurance, being a contract of adhesion, par excellence, any ambiguity
therein should be resolved against the insurer; in other words, 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 noncompliance
with its obligations.19 (Emphasis supplied.)
In the more recent case of Philamcare Health Systems, Inc. v. Court of
Appeals, we reiterated the above ruling, stating that:
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, 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.20
Clearly, the vague contractual provision, in Creditor Group Life Policy No.
P-1920 dated December 10, 1980, must be construed in favor of the insured
and in favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be harmonized
to mean that upon a partys purchase of a memorial lot on installment from
Eternal, an insurance contract covering the lot purchaser is created and the
same is effective, valid, and binding until terminated by Philamlife by
disapproving the insurance application. The second sentence of Creditor
Group Life Policy No. P-1920 on the Effective Date of Benefit is in the
nature of a resolutory condition which would lead to the cessation of the
insurance contract. Moreover, the mere inaction of the insurer on the
insurance application must not work to prejudice the insured; it cannot be
interpreted as a termination of the insurance contract. The termination of the
insurance contract by the insurer must be explicit and unambiguous.
47
As a final note, to characterize the insurer and the insured as contracting
parties on equal footing is inaccurate at best. Insurance contracts are wholly
prepared by the insurer with vast amounts of experience in the industry
purposefully used to its advantage. More often than not, insurance contracts
are contracts of adhesion containing technical terms and conditions of the
industry, confusing if at all understandable to laypersons, that are imposed
on those who wish to avail of insurance. As such, insurance contracts are
imbued with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in
order to protect the interest of insurance applicants, insurance companies
must be obligated to act with haste upon insurance applications, to either
deny or approve the same, or otherwise be bound to honor the application as
a valid, binding, and effective insurance contract.21

WHEREFORE, we GRANT the petition. The November 26, 2004 CA

Decision in CA-G.R. CV No. 57810 isREVERSED and SET ASIDE. The
May 29, 1996 Decision of the Makati City RTC, Branch 138 is
MODIFIED. Philamlife is hereby ORDERED:

(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of
the Life Insurance Policy of Chuang;

(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of
PhP 100,000 from the time of extra-judicial demand by Eternal until
Philamlifes receipt of the May 29, 1996 RTC Decision on June 17, 1996;

(3) To pay Eternal legal interest at the rate of twelve percent (12%) per
annum of PhP 100,000 from June 17, 1996 until full payment of this award;
and

(4) To pay Eternal attorneys fees in the amount of PhP 10,000.

No costs. ETERNAL VS. PHILAMLIFE

SO ORDERED. G.R. No. 166245 April 09, 2008

INSURANCE 48

FACTS: Respondent Philamlife entered into an agreement denominated as
Creditor Group Life Policy with petitioner Eternal Gardens Memorial Park
Corporation (Eternal). Under the policy, the clients of Eternal who
purchased burial lots from it on installment basis would be insured by
Philamlife. The amount of insurance coverage depended upon the existing
balance of the purchased burial lots.
The relevant provisions of the policy are:
ELIGIBILITY.
xx
EVIDENCE OF INSURABILITY.
xx
LIFE INSURANCE BENEFIT.
xx
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the
date he contracts a loan with the Assured. However, there shall be no
insurance if the application of the Lot Purchaser is not approved by the
Company.
xx
Eternal was required under the policy to submit to Philamlife a list of all
new lot purchasers, together with a copy of the application of each
purchaser, and the amounts of the respective unpaid balances of all insured
lot purchasers. Eternal complied by submitting a letter dated December 29,
1982, containing a list of insurable balances of its lot buyers for October
1982. One of those included in the list as new business was a certain John
Chuang. His balance of payments was 100K. on August 2, 1984, Chuang
died.
INSURANCE
Eternal sent a letter dated to Philamlife, which served as an insurance claim
for Chuangs death. Attached to the claim were certain documents. In reply,
Philamlife wrote Eternal a letter requiring Eternal to submit the additional
documents relative to its insurance claim for Chuangs death. Eternal
transmitted the required documents through a letter which was received by
Philamlife.
After more than a year, Philamlife had not furnished Eternal with any reply
to the latters insurance claim. This prompted Eternal to demand from
Philamlife the payment of the claim for PhP 100,000.
In response to Eternals demand, Philamlife denied Eternals insurance claim
in a letter a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and
9529 with Eternal Gardens Memorial Park in October 1982 for the total
maximum insurable amount of P100,000.00 each. No application for
Group Insurance was submitted in our office prior to his death on August
2, 1984
Eternal filed a case with the RTC for a sum of money against Philamlife,
which decided in favor of Eternal, ordering Philamlife to pay the former
100K representing the proceeds of the policy.
CA reversed. Hence this petition.
ISSUE: WON Philamlife should pay the 100K insurance proceeds
HELD: petition granted.
YES
An examination of the provision of the POLICY under effective date of
benefit, would show ambiguity between its two sentences. The first
sentence appears to state that the insurance coverage of the clients of Eternal
49
already became effective upon contracting a loan with Eternal while the
second sentence appears to require Philamlife to approve the insurance
contract before the same can become effective.

It must be remembered that an insurance contract is a contract of adhesion

which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the latters interest

On the other hand, the seemingly conflicting provisions must be harmonized

to mean that upon a partys purchase of a memorial lot on installment from
Eternal, an insurance contract covering the lot purchaser is created and the
same is effective, valid, and binding until terminated by Philamlife by
disapproving the insurance application. The second sentence of the Creditor
Group Life Policy on the Effective Date of Benefit is in the nature of a
resolutory condition which would lead to the cessation of the insurance
contract. Moreover, the mere inaction of the insurer on the insurance
application must not work to prejudice the insured; it cannot be interpreted
as a termination of the insurance contract. The termination of the insurance
contract by the insurer must be explicit and unambiguous.

INSURANCE 50
 (1) RTC : in favor of Eternal. due to Philamlife's inaction from the
Eternal Gardens Memorial Park Corporation v Philamlife (Insurance) submission of the requirements of the group insurance on December 29,
1982 to Chuang's death on August 2, 1984, as well as Philamlife's
G.R. No. 166245 April 9, 2008 acceptance of the premiums during the same period, Philamlife was deemed
to have approved Chuang's application. The RTC said that since the contract
is a group life insurance, once proof of death is submitted, payment must
FACTS: follow.

Philamlife) entered into an agreement denominated as Creditor Group Life (2) CA : in favor of Philamlife. there being no application form, Chuang was
Policy No. P-19202 with petitioner Eternal Gardens Memorial Park not covered by Philamlife's insurance.
Corporation (Eternal). Under the policy, the clients of Eternal who
purchased burial lots from it on installment basis would be insured by ISSUE:
Philamlife. The amount of insurance coverage depended upon the existing
balance of the purchased burial lots. May the inaction of the insurer on the insurance application be considered as
approval of the application?
Eternal was required under the policy to submit to Philamlife a list of all
new lot purchasers, together with a copy of the application of each RULING:
purchaser, and the amounts of the respective unpaid balances of all insured
lot purchasers. In relation to the instant petition, Eternal complied by YES
submitting a letter dated December 29, 1982,4 containing a list of insurable
balances of its lot buyers for October 1982. One of those included in the list
As earlier stated, Philamlife and Eternal entered into an agreement
as "new business" was a certain John Chuang. His balance of payments was
denominated as Creditor Group Life Policy No. P-1920 dated December 10,
PhP 100,000. On August 2, 1984, Chuang died.
1980. In the policy, it is provided that:
Eternal sent a letter dated August 20, 19845 to Philamlife, which served as
EFFECTIVE DATE OF BENEFIT.
an insurance claim for Chuang's death.
The insurance of any eligible Lot Purchaser shall be effective on the date he
After more than a year, Philamlife had not furnished Eternal with any reply
contracts a loan with the Assured. However, there shall be no insurance if
to the latter's insurance claim. This prompted Eternal to demand from
the application of the Lot Purchaser is not approved by the Company.
Philamlife the payment of the claim for PhP 100,000 on April 25, 1986.8
An examination of the above provision would show ambiguity between its
In response to Eternal's demand, Philamlife denied Eternal's insurance claim
two sentences. The first sentence appears to state that the insurance coverage
in a letter dated May 20, 1986. Consequently, Eternal filed a case before the
of the clients of Eternal already became effective upon contracting a loan
Makati City Regional Trial Court (RTC).
with Eternal while the second sentence appears to require Philamlife to
approve the insurance contract before the same can become effective.
DECISION OF LOWER COURTS:
INSURANCE 51
It must be remembered that an insurance contract is a contract of adhesion
which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the latter's interest.

The fact of the matter is, the letter dated December 29, 1982, which
Philamlife stamped as received, states that the insurance forms for the
attached list of burial lot buyers were attached to the letter. Such stamp of
receipt has the effect of acknowledging receipt of the letter together with the
attachments. Such receipt is an admission by Philamlife against its own
interest.13 The burden of evidence has shifted to Philamlife, which must
prove that the letter did not contain Chuang's insurance application.
However, Philamlife failed to do so; thus, Philamlife is deemed to have
received Chuang's insurance application.

The seemingly conflicting provisions must be harmonized to mean that upon

a party's purchase of a memorial lot on installment from Eternal, an
insurance contract covering the lot purchaser is created and the same is
effective, valid, and binding until terminated by Philamlife by disapproving
the insurance application. The second sentence of Creditor Group Life
Policy No. P-1920 on the Effective Date of Benefit is in the nature of a
resolutory condition which would lead to the cessation of the insurance
contract. Moreover, the mere inaction of the insurer on the insurance
application must not work to prejudice the insured; it cannot be interpreted
as a termination of the insurance contract. The termination of the insurance
contract by the insurer must be explicit and unambiguous.

G.R. No. 154514. July 28, 2005

INSURANCE 52
WHITE GOLD MARINE SERVICES, INC., Petitioners,
vs.
PIONEER INSURANCE AND SURETY CORPORATION AND THE
STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION
(BERMUDA) LTD., Respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision1 dated July 30, 2002 of the
Court of Appeals in CA-G.R. SP No. 60144, affirming the Decision2 dated
May 3, 2000 of the Insurance Commission in I.C. Adm. Case No. RD-277.
Both decisions held that there was no violation of the Insurance Code and
the respondents do not need license as insurer and insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and
indemnity coverage for its vessels from The Steamship Mutual
Underwriting Association (Bermuda) Limited (Steamship Mutual) through
Pioneer Insurance and Surety Corporation (Pioneer). Subsequently, White
Gold was issued a Certificate of Entry and Acceptance. 3 Pioneer also issued
receipts evidencing payments for the coverage. When White Gold failed to
fully pay its accounts, Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection
of sum of money to recover the latters unpaid balance. White Gold on the
other hand, filed a complaint before the Insurance Commission claiming that
Steamship Mutual violated Sections 1864 and 1875 of the Insurance Code,
while Pioneer violated Sections 299,63007 and 3018 in relation to Sections
302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was
no need for Steamship Mutual to secure a license because it was not
engaged in the insurance business. It explained that Steamship Mutual was a
INSURANCE
Protection and Indemnity Club (P & I Club). Likewise, Pioneer need not
obtain another license as insurance agent and/or a broker for Steamship
Mutual because Steamship Mutual was not engaged in the insurance
business. Moreover, Pioneer was already licensed, hence, a separate license
solely as agent/broker of Steamship Mutual was already superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner.
In its decision, the appellate court distinguished between P & I Clubs vis--
vis conventional insurance. The appellate court also held that Pioneer merely
acted as a collection agent of Steamship Mutual.
In this petition, petitioner assigns the following errors allegedly committed
by the appellate court,
FIRST ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT
STEAMSHIP IS NOT DOING BUSINESS IN THE PHILIPPINES ON
THE GROUND THAT IT COURSED . . . ITS TRANSACTIONS
THROUGH ITS AGENT AND/OR BROKER HENCE AS AN INSURER
IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE
BUSINESS IN THE PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS
BEREFT OF ANY EVIDENCE THAT RESPONDENT STEAMSHIP IS
ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT
PIONEER NEED NOT SECURE A LICENSE WHEN CONDUCTING ITS
AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
53
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF
RESPONDENT PIONEER AND [IN NOT REMOVING] THE OFFICERS
AND DIRECTORS OF RESPONDENT PIONEER.9
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club,
engaged in the insurance business in the Philippines? (2) Does Pioneer need
a license as an insurance agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual
admits it does not have a license to do business in the Philippines although
Pioneer is its resident agent. This relationship is reflected in the
certifications issued by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the
insurance business. To buttress its assertion, it cites the definition of a P & I
Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals 10 as "an
association composed of shipowners in general who band together for the
specific purpose of providing insurance cover on a mutual basis against
liabilities incidental to shipowning that the members incur in favor of third
parties." It stresses that as a P & I Club, Steamship Mutuals primary
purpose is to solicit and provide protection and indemnity coverage and for
this purpose, it has engaged the services of Pioneer to act as its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is
not engaged in the insurance business in the Philippines. It is merely an
association of vessel owners who have come together to provide mutual
protection against liabilities incidental to shipowning. 11 Respondents aver
Hyopsung is inapplicable in this case because the issue in Hyopsung was the
jurisdiction of the court over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes "doing an
insurance business" or "transacting an insurance business". These are:
(a) making or proposing to make, as insurer, any insurance contract;
INSURANCE
(b) making, or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the
meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of
the foregoing in a manner designed to evade the provisions of this Code.
...
The same provision also provides, the fact that no profit is derived from the
making of insurance contracts, agreements or transactions, or that no
separate or direct consideration is received therefor, shall not preclude the
existence of an insurance business.12
The test to determine if a contract is an insurance contract or not, depends
on the nature of the promise, the act required to be performed, and the exact
nature of the agreement in the light of the occurrence, contingency, or
circumstances under which the performance becomes requisite. It is not by
what it is called.13
Basically, an insurance contract is a contract of indemnity. In it, one
undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event.14
In particular, a marine insurance undertakes to indemnify the assured against
marine losses, such as the losses incident to a marine adventure. 15 Section
9916 of the Insurance Code enumerates the coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the
members are both the insurer and insured. In it, the members all contribute,
by a system of premiums or assessments, to the creation of a fund from
which all losses and liabilities are paid, and where the profits are divided
54
among themselves, in proportion to their interest. 17 Additionally, mutual
insurance associations, or clubs, provide three types of coverage, namely,
protection and indemnity, war risks, and defense costs.18
A P & I Club is "a form of insurance against third party liability, where the
third party is anyone other than the P & I Club and the members." 19 By
definition then, Steamship Mutual as a P & I Club is a mutual insurance
association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit
without the requisite certificate of authority mandated by Section 187 20 of
the Insurance Code. It maintains a resident agent in the Philippines to solicit
insurance and to collect payments in its behalf. We note that Steamship
Mutual even renewed its P & I Club cover until it was cancelled due to non-
payment of the calls. Thus, to continue doing business here, Steamship
Mutual or through its agent Pioneer, must secure a license from the
Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State
is necessary. Thus, no insurer or insurance company is allowed to engage in
the insurance business without a license or a certificate of authority from the
Insurance Commission.21
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the
certificate of registration22 issued by the Insurance Commission. It has been
licensed to do or transact insurance business by virtue of the certificate of
authority23 issued by the same agency. However, a Certification from the
Commission states that Pioneer does not have a separate license to be an
agent/broker of Steamship Mutual.24
Although Pioneer is already licensed as an insurance company, it needs a
separate license to act as insurance agent for Steamship Mutual. Section 299
of the Insurance Code clearly states:
INSURANCE
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the
solicitation or procurement of applications for insurance, or receive for
services in obtaining insurance, any commission or other compensation from
any insurance company doing business in the Philippines or any agent
thereof, without first procuring a license so to act from the Commissioner,
which must be renewed annually on the first day of January, or within six
months thereafter. . .
Finally, White Gold seeks revocation of Pioneers certificate of authority
and removal of its directors and officers. Regrettably, we are not the forum
for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision
dated July 30, 2002 of the Court of Appeals affirming the Decision dated
May 3, 2000 of the Insurance Commission is hereby REVERSED AND SET
ASIDE. The Steamship Mutual Underwriting Association (Bermuda) Ltd.,
and Pioneer Insurance and Surety Corporation are ORDERED to obtain
licenses and to secure proper authorizations to do business as insurer and
insurance agent, respectively. The petitioners prayer for the revocation of
Pioneers Certificate of Authority and removal of its directors and officers,
is DENIED. Costs against respondents.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ.,
concur.
55
White Gold v Pioneer G.R. No. 154514. July 28, 2005
J. Quisimbing
Facts:
White Gold procured a protection and indemnity coverage for its vessels
from The Steamship Mutual through Pioneer Insurance and Surety
Corporation. White Gold was issued a Certificate of Entry and Acceptance.
Pioneer also issued receipts. When White Gold failed to fully pay its
accounts, Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection
of sum of money to recover the unpaid balance. White Gold on the other
hand, filed a complaint before the Insurance Commission claiming that
Steamship Mutual and Pioneer violated provisions of the Insurance Code.
The Insurance Commission dismissed the complaint. It said that there was
no need for Steamship Mutual to secure a license because it was not
engaged in the insurance business and that it was a P & I club. Pioneer was
not required to obtain another license as insurance agent because Steamship
Mutual was not engaged in the insurance business.
The Court of Appeals affirmed the decision of the Insurance Commissioner.
In its decision, the appellate court distinguished between P & I Clubs vis--
vis conventional insurance. The appellate court also held that Pioneer
merely acted as a collection agent of Steamship Mutual.
Hence this petition by White Gold.
Issues:
1. Is Steamship Mutual, a P & I Club, engaged in the insurance business in
the Philippines?
2. Does Pioneer need a license as an insurance agent/broker for Steamship
INSURANCE
Mutual?
Held: Yes. Petition granted.
Ratio:
White Gold insists that Steamship Mutual as a P & I Club is engaged in the
insurance business. To buttress its assertion, itcites the definition as an
association composed of shipowners in general who band together for the
specific purpose of providing insurance cover on a mutual basis against
liabilities incidental to shipowning that the members incur in favor of third
parties.
They argued that Steamship Mutuals primary purpose is to solicit and
provide protection and indemnity coverage and for this purpose, it has
engaged the services of Pioneer to act as its agent.
Respondents contended that although Steamship Mutual is a P & I Club, it is
not engaged in the insurance business in the Philippines. It is merely an
association of vessel owners who have come together to provide mutual
protection against liabilities incidental to shipowning.
Is Steamship Mutual engaged in the insurance business?
A P & I Club is a form of insurance against third party liability, where the
third party is anyone other than the P & I Club and the members. By
definition then, Steamship Mutual as a P & I Club is a mutual insurance
association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit
without the requisite certificate of authority mandated by Section 187 of the
Insurance Code. It maintains a resident agent in the Philippines to solicit
insurance and to collect payments in its behalf. Steamship Mutual even
renewed its P & I Club cover until it was cancelled due to non-payment of
the calls. Thus, to continue doing business here, Steamship Mutual or
through its agent Pioneer, must secure a license from the Insurance
56
Commission.

Since a contract of insurance involves public interest, regulation by the State

is necessary. Thus, no insurer or insurance company is allowed to engage in
the insurance business without a license or a certificate of authority from the
Insurance Commission.

2. Pioneer is the resident agent of Steamship Mutual as evidenced by the

certificate of registration issued by the Insurance Commission. It has been
licensed to do or transact insurance business by virtue of the certificate of
authority issued by the same agency. However, a Certification from the
Commission states that Pioneer does not have a separate license to be an
agent/broker of Steamship Mutual.

Although Pioneer is already licensed as an insurance company, it needs a

separate license to act as insurance agent for Steamship Mutual. Section
299 of the Insurance Code clearly states:

SEC. 299 No person shall act as an insurance agent or as an insurance

broker in the solicitation or procurement ofapplications for insurance, or
receive for services in obtaining insurance, any commission or other
compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so to act
from the Commissioner

G.R. No. L-2294 May 25, 1951

FILIPINAS COMPAIA DE SEGUROS, petitioner,

vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.

Ramirez and Ortigas for petitioner.

Ewald Huenefeld for respondent.

INSURANCE 57
PARAS, C.J.:
On October 1, 1941, the respondent corporation, Christern Huenefeld, &
Co., Inc., after payment of corresponding premium, obtained from the
petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of
P1000,000, covering merchandise contained in a building located at No. 711
Roman Street, Binondo Manila. On February 27, 1942, or during the
Japanese military occupation, the building and insured merchandise were
burned. In due time the respondent submitted to the petitioner its claim
under the policy. The salvage goods were sold at public auction and, after
deducting their value, the total loss suffered by the respondent was fixed at
P92,650. The petitioner refused to pay the claim on the ground that the
policy in favor of the respondent had ceased to be in force on the date the
United States declared war against Germany, the respondent Corporation
(though organized under and by virtue of the laws of the Philippines) being
controlled by the German subjects and the petitioner being a company under
American jurisdiction when said policy was issued on October 1, 1941. The
petitioner, however, in pursuance of the order of the Director of Bureau of
Financing, Philippine Executive Commission, dated April 9, 1943, paid to
the respondent the sum of P92,650 on April 19, 1943.
The present action was filed on August 6, 1946, in the Court of First
Instance of Manila for the purpose of recovering from the respondent the
sum of P92,650 above mentioned. The theory of the petitioner is that the
insured merchandise were burned up after the policy issued in 1941 in favor
of the respondent corporation has ceased to be effective because of the
outbreak of the war between the United States and Germany on December
10, 1941, and that the payment made by the petitioner to the respondent
corporation during the Japanese military occupation was under pressure.
After trial, the Court of First Instance of Manila dismissed the action
without pronouncement as to costs. Upon appeal to the Court of Appeals, the
judgment of the Court of First Instance of Manila was affirmed, with costs.
The case is now before us on appeal by certiorari from the decision of the
Court of Appeals.
The Court of Appeals overruled the contention of the petitioner that the
respondent corporation became an enemy when the United States declared
INSURANCE
war against Germany, relying on English and American cases which held
that a corporation is a citizen of the country or state by and under the laws of
which it was created or organized. It rejected the theory that nationality of
private corporation is determine by the character or citizenship of its
controlling stockholders.
There is no question that majority of the stockholders of the respondent
corporation were German subjects. This being so, we have to rule that said
respondent became an enemy corporation upon the outbreak of the war
between the United States and Germany. The English and American cases
relied upon by the Court of Appeals have lost their force in view of the latest
decision of the Supreme Court of the United States in Clark vs. Uebersee
Finanz Korporation, decided on December 8, 1947, 92 Law. Ed. Advance
Opinions, No. 4, pp. 148-153, in which the controls test has been adopted. In
"Enemy Corporation" by Martin Domke, a paper presented to the Second
International Conference of the Legal Profession held at the Hague
(Netherlands) in August. 1948 the following enlightening passages appear:
Since World War I, the determination of enemy nationality of corporations
has been discussion in many countries, belligerent and neutral. A corporation
was subject to enemy legislation when it was controlled by enemies, namely
managed under the influence of individuals or corporations, themselves
considered as enemies. It was the English courts which first the Daimler
case applied this new concept of "piercing the corporate veil," which was
adopted by the peace of Treaties of 1919 and the Mixed Arbitral established
after the First World War.
The United States of America did not adopt the control test during the First
World War. Courts refused to recognized the concept whereby American-
registered corporations could be considered as enemies and thus subject to
domestic legislation and administrative measures regarding enemy property.
World War II revived the problem again. It was known that German and
other enemy interests were cloaked by domestic corporation structure. It was
not only by legal ownership of shares that a material influence could be
exercised on the management of the corporation but also by long term loans
and other factual situations. For that reason, legislation on enemy property
58
enacted in various countries during World War II adopted by statutory
provisions to the control test and determined, to various degrees, the
incidents of control. Court decisions were rendered on the basis of such
newly enacted statutory provisions in determining enemy character of
domestic corporation.
The United States did not, in the amendments of the Trading with the Enemy
Act during the last war, include as did other legislations the applications of
the control test and again, as in World War I, courts refused to apply this
concept whereby the enemy character of an American or neutral-registered
corporation is determined by the enemy nationality of the controlling
stockholders.
Measures of blocking foreign funds, the so called freezing regulations, and
other administrative practice in the treatment of foreign-owned property in
the United States allowed to large degree the determination of enemy
interest in domestic corporations and thus the application of the control test.
Court decisions sanctioned such administrative practice enacted under the
First War Powers Act of 1941, and more recently, on December 8, 1947, the
Supreme Court of the United States definitely approved of the control
theory. In Clark vs. Uebersee Finanz Korporation, A. G., dealing with a
Swiss corporation allegedly controlled by German interest, the Court: "The
property of all foreign interest was placed within the reach of the vesting
power (of the Alien Property Custodian) not to appropriate friendly or
neutral assets but to reach enemy interest which masqueraded under those
innocent fronts. . . . The power of seizure and vesting was extended to all
property of any foreign country or national so that no innocent appearing
device could become a Trojan horse."
It becomes unnecessary, therefore, to dwell at length on the authorities cited
in support of the appealed decision. However, we may add that, in Haw Pia
vs. China Banking Corporation,* 45 Off Gaz., (Supp. 9) 299, we already
held that China Banking Corporation came within the meaning of the word
"enemy" as used in the Trading with the Enemy Acts of civilized countries
not only because it was incorporated under the laws of an enemy country but
because it was controlled by enemies.
INSURANCE
The Philippine Insurance Law (Act No. 2427, as amended,) in section 8,
provides that "anyone except a public enemy may be insured." It stands to
reason that an insurance policy ceases to be allowable as soon as an insured
becomes a public enemy.
Effect of war, generally. All intercourse between citizens of belligerent
powers which is inconsistent with a state of war is prohibited by the law of
nations. Such prohibition includes all negotiations, commerce, or trading
with the enemy; all acts which will increase, or tend to increase, its income
or resources; all acts of voluntary submission to it; or receiving its
protection; also all acts concerning the transmission of money or goods; and
all contracts relating thereto are thereby nullified. It further prohibits
insurance upon trade with or by the enemy, upon the life or lives of aliens
engaged in service with the enemy; this for the reason that the subjects of
one country cannot be permitted to lend their assistance to protect by
insurance the commerce or property of belligerent, alien subjects, or to do
anything detrimental too their country's interest. The purpose of war is to
cripple the power and exhaust the resources of the enemy, and it is
inconsistent that one country should destroy its enemy's property and repay
in insurance the value of what has been so destroyed, or that it should in
such manner increase the resources of the enemy, or render it aid, and the
commencement of war determines, for like reasons, all trading intercourse
with the enemy, which prior thereto may have been lawful. All individuals
therefore, who compose the belligerent powers, exist, as to each other, in a
state of utter exclusion, and are public enemies. (6 Couch, Cyc. of Ins. Law,
pp. 5352-5353.)
In the case of an ordinary fire policy, which grants insurance only from year,
or for some other specified term it is plain that when the parties become
alien enemies, the contractual tie is broken and the contractual rights of the
parties, so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p.
112.)
The respondent having become an enemy corporation on December 10,
1941, the insurance policy issued in its favor on October 1, 1941, by the
petitioner (a Philippine corporation) had ceased to be valid and enforcible,
and since the insured goods were burned after December 10, 1941, and
59
during the war, the respondent was not entitled to any indemnity under said corporation is ordered to pay to the petitioner the sum of P77,208.33,
policy from the petitioner. However, elementary rules of justice (in the Philippine currency, less the amount of the premium, in Philippine currency,
absence of specific provision in the Insurance Law) require that the that should be returned by the petitioner for the unexpired term of the policy
premium paid by the respondent for the period covered by its policy from in question, beginning December 11, 1941. Without costs. So ordered.
December 11, 1941, should be returned by the petitioner.
Feria, Pablo, Bengzon, Tuason, Montemayor, Jugo and Bautista Angelo, JJ.,
The Court of Appeals, in deciding the case, stated that the main issue hinges concur.
on the question of whether the policy in question became null and void upon
the declaration of war between the United States and Germany on December
10, 1941, and its judgment in favor of the respondent corporation was
predicated on its conclusion that the policy did not cease to be in force. The
Court of Appeals necessarily assumed that, even if the payment by the
petitioner to the respondent was involuntary, its action is not tenable in view
of the ruling on the validity of the policy. As a matter of fact, the Court of
Appeals held that "any intimidation resorted to by the appellee was not
unjust but the exercise of its lawful right to claim for and received the
payment of the insurance policy," and that the ruling of the Bureau of
Financing to the effect that "the appellee was entitled to payment from the
appellant was, well founded." Factually, there can be no doubt that the
Director of the Bureau of Financing, in ordering the petitioner to pay the
claim of the respondent, merely obeyed the instruction of the Japanese
Military Administration, as may be seen from the following: "In view of the
findings and conclusion of this office contained in its decision on
Administrative Case dated February 9, 1943 copy of which was sent to your
office and the concurrence therein of the Financial Department of the
Japanese Military Administration, and following the instruction of said
authority, you are hereby ordered to pay the claim of Messrs. Christern,
Huenefeld & Co., Inc. The payment of said claim, however, should be made
by means of crossed check." (Emphasis supplied.)

It results that the petitioner is entitled to recover what paid to the respondent
under the circumstances on this case. However, the petitioner will be entitled
to recover only the equivalent, in actual Philippines currency of P92,650
paid on April 19, 1943, in accordance with the rate fixed in the Ballantyne
scale.

Wherefore, the appealed decision is hereby reversed and the respondent

INSURANCE 60
FILIPINAS DE COMPANIA DE SEGUROS vs. CHRISTERN, 1941, the insurance policy issued in its favor on October 1, 1941, by the
HUENFELD & CO petitioner had ceased to be valid and enforceable, and since the insured
goods were burned after December 10, 1941, and during the war, the
respondent was not entitled to any indemnity under said policy from the
G.R. No. L-2294 May 25, 1951, EN BANC (PARAS, C.J.)
petitioner. However, elementary rules of justice (in the absence of specific
provision in the Insurance Law) require that the premium paid by the
FACTS: respondent for the period covered by its policy from December 11, 1941,
should be returned by the petitioner
Christern, Huenefeld and Company, a German company, obtained a fire
insurance policy from Filipinas Compaia for the merchandise contained in
a building located in Binondo, Manila in the sum of P100,000. Filipinas
Compaia is an American controlled company. The building and the insured
merchandise were burned during the Japanese occupation. Christern filed its
claim amounting to P92,650.00 but Filipinas Compaia refused to pay
alleging that Christern is a corporation whose majority stockholders are
Germans and that during the Japanese occupation, America declared war
against Germany hence the insurance policy ceased to be effective because
the insured has become an enemy. Filipinas Compaia was eventually
ordered to pay Christern as ordered by the Japanese government.

ISSUE:

Whether or not Christern, Huenefeld and Co is entitled to receive the

proceeds from the insurance claim.

HELD:

NO. There is no question that majority of the stockholders of Christern were

German subjects. This being so, Christern became an enemy corporation
upon the outbreak of the war between the United States and Germany. The
Philippine Insurance Law (Act No. 2427, as amended,) in Section 8,
provides that anyone except a public enemy may be insured. It stands to
reason that an insurance policy ceases to be allowable as soon as an insured
becomes a public enemy.

The respondent having become an enemy corporation on December 10,

INSURANCE 61