[G.R. No. 137172.

April 4, 2001]

UCPB GENERAL INSURANCE CO. INC., petitioner, vs. MASAGANA TELAMART, INC., respondent.

In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision[1] of the Court of
Appeals, which affirmed with modification the judgment of the trial court (a) allowing Respondent to consign the
sum of P225,753.95 as full payment of the premiums for the renewal of the five insurance policies on
Respondents properties; (b) declaring the replacement-renewal policies effective and binding from 22 May 1992
until 22 May 1993; and (c) ordering Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned
properties covered by the renewal-replacement policies. The modification consisted in the (1) deletion of the trial
courts declaration that three of the policies were in force from August 1991 to August 1992; and (2) reduction of
the award of the attorneys fees from 25% to 10% of the total amount due the Respondent.

The material operative facts upon which the appealed judgment was based are summarized by the Court of
Appeals in its assailed decision as follows:

Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5) insurance policies (Exhibits "A"
to "E", Record, pp. 158-175) on its properties [in Pasay City and Manila].

All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to 4:00 P.M. of 22
May 1992." On June 13, 1992, plaintiff's properties located at 2410-2432 and 2442-2450 Taft Avenue, Pasay
City were razed by fire. On July 13, 1992, plaintiff tendered, and defendant accepted, five (5) Equitable Bank
Manager's Checks in the total amount of P225,753.45 as renewal premium payments for which Official Receipt
Direct Premium No. 62926 (Exhibit "Q", Record, p. 191) was issued by defendant. On July 14, 1992, Masagana
made its formal demand for indemnification for the burned insured properties. On the same day, defendant
returned the five (5) manager's checks stating in its letter (Exhibit "R"/"8", Record, p. 192) that it was rejecting
Masagana's claim on the following grounds:

"a) Said policies expired last May 22, 1992 and were not renewed for another term;

b) Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier; and

c) The properties covered by the said policies were burned in a fire that took place last June 13, 1992, or before
tender of premium payment."

(Record, p. 5)

Hence Masagana filed this case.

The Court of Appeals disagreed with Petitioners stand that Respondents tender of payment of the premiums on
13 July 1992 did not result in the renewal of the policies, having been made beyond the effective date of renewal
as provided under Policy Condition No. 26, which states:

26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the policy period
mails or delivers to the assured at the address shown in the policy notice of its intention not to renew the policy
or to condition its renewal upon reduction of limits or elimination of coverages, the assured shall be entitled to
renew the policy upon payment of the premium due on the effective date of renewal.

Both the Court of Appeals and the trial court found that sufficient proof exists that Respondent, which had
procured insurance coverage from Petitioner for a number of years, had been granted a 60 to 90-day credit term
for the renewal of the policies. Such a practice had existed up to the time the claims were filed. Thus:

Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but
premium was paid more than 90 days later on August 31, 1990 under O.R. No. 4771 (Exhs. "T" and "T-1"). Fire
Insurance Policy No. 34660 for Insurance Risk Coverage from May 22, 1990 to May 22, 1991 was issued by
UCPB on May 4, 1990 but premium was collected by UCPB only on July 13, 1990 or more than 60 days later
under O.R. No. 46487 (Exhs. "V" and "V-1"). And so were as other policies: Fire Insurance Policy No. 34657
covering risks from May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium therefor was paid
only on July 19, 1990 under O.R. No. 46583 (Exhs. "W" and "W-1"). Fire Insurance Policy No. 34661 covering
risks from May 22, 1990 to May 22, 1991 was issued on May 3, 1990 but premium was paid only on July 19,
1990 under O.R. No. 46582 (Exhs. "X' and "X-1"). Fire Insurance Policy No. 34688 for insurance coverage from
May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium was paid only on July 19, 1990 under
O.R. No. 46585 (Exhs. "Y" and "Y-1"). Fire Insurance Policy No. 29126 to cover insurance risks from May 22,
1989 to May 22, 1990 was issued on May 22, 1989 but premium therefor was collected only on July 25,
1990[sic] under O.R. No. 40799 (Exhs. "AA" and "AA-1"). Fire Insurance Policy No. HO/F-26408 covering risks
from January 12, 1989 to January 12, 1990 was issued to Intratrade Phils. (Masagana's sister company) dated
December 10, 1988 but premium therefor was paid only on February 15, 1989 under O.R. No. 38075 (Exhs.
"BB" and "BB-1"). Fire Insurance Policy No. 29128 was issued on May 22, 1989 but premium was paid only on
July 25, 1989 under O.R. No. 40800 for insurance coverage from May 22, 1989 to May 22, 1990 (Exhs. "CC"
and "CC-1"). Fire Insurance Policy No. 29127 was issued on May 22, 1989 but premium was paid only on July
17, 1989 under O.R. No. 40682 for insurance risk coverage from May 22, 1989 to May 22, 1990 (Exhs. "DD"
and "DD-1"). Fire Insurance Policy No. HO/F-29362 was issued on June 15, 1989 but premium was paid only on
February 13, 1990 under O.R. No. 39233 for insurance coverage from May 22, 1989 to May 22, 1990 (Exhs.
"EE" and "EE-1"). Fire Insurance Policy No. 26303 was issued on November 22, 1988 but premium therefor was
collected only on March 15, 1989 under O.R. NO. 38573 for insurance risks coverage from December 15, 1988
to December 15, 1989 (Exhs. "FF" and "FF-1").

Moreover, according to the Court of Appeals the following circumstances constitute preponderant proof that no
timely notice of non-renewal was made by Petitioner:

(1) Defendant-appellant received the confirmation (Exhibit 11, Record, p. 350) from Ultramar Reinsurance
Brokers that plaintiffs reinsurance facility had been confirmed up to 67.5% only on April 15, 1992 as indicated on
Exhibit 11. Apparently, the notice of non-renewal (Exhibit 7, Record, p. 320) was sent not earlier than said date,
or within 45 days from the expiry dates of the policies as provided under Policy Condition No. 26; (2) Defendant
insurer unconditionally accepted, and issued an official receipt for, the premium payment on July 1[3], 1992
which indicates defendant's willingness to assume the risk despite only a 67.5% reinsurance cover[age]; and (3)
Defendant insurer appointed Esteban Adjusters and Valuers to investigate plaintiffs claim as shown by the letter
dated July 17, 1992 (Exhibit 11, Record, p. 254).

In our decision of 15 June 1999, we defined the main issue to be whether the fire insurance policies issued by
petitioner to the respondent covering the period from May 22, 1991 to May 22, 1992 had been extended or
renewed by an implied credit arrangement though actual payment of premium was tendered on a later date and
after the occurrence of the (fire) risk insured against. We resolved this issue in the negative in view of Section 77
of the Insurance Code and our decisions in Valenzuela v. Court of Appeals[2]; South Sea Surety and Insurance
Co., Inc. v. Court of Appeals[3]; and Tibay v. Court of Appeals.[4] Accordingly, we reversed and set aside the
decision of the Court of Appeals.

Respondent seasonably filed a motion for the reconsideration of the adverse verdict. It alleges in the motion that
we had made in the decision our own findings of facts, which are not in accord with those of the trial court and
the Court of Appeals. The courts below correctly found that no notice of non-renewal was made within 45 days
before 22 May 1992, or before the expiration date of the fire insurance policies. Thus, the policies in question
were renewed by operation of law and were effective and valid on 30 June 1992 when the fire occurred, since
the premiums were paid within the 60- to 90-day credit term.

Respondent likewise disagrees with our ruling that parties may neither agree expressly or impliedly on the
extension of credit or time to pay the premium nor consider a policy binding before actual payment. It urges the
Court to take judicial notice of the fact that despite the express provision of Section 77 of the Insurance Code,
extension of credit terms in premium payment has been the prevalent practice in the insurance industry. Most
insurance companies, including Petitioner, extend credit terms because Section 77 of the Insurance Code is not
a prohibitive injunction but is merely designed for the protection of the parties to an insurance contract. The
Code itself, in Section 78, authorizes the validity of a policy notwithstanding non-payment of premiums.

Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its awareness of Section 77
Petitioner persuaded and induced Respondent to believe that payment of premium on the 60- to 90-day credit
term was perfectly alright; in fact it accepted payments within 60 to 90 days after the due dates. By extending
credit and habitually accepting payments 60 to 90 days from the effective dates of the policies, it has implicitly
agreed to modify the tenor of the insurance policy and in effect waived the provision therein that it would pay
only for the loss or damage in case the same occurred after payment of the premium.

Petitioner filed an opposition to the Respondents motion for reconsideration. It argues that both the trial court
and the Court of Appeals overlooked the fact that on 6 April 1992 Petitioner sent by ordinary mail to Respondent
a notice of non-renewal and sent by personal delivery a copy thereof to Respondents broker, Zuellig. Both courts
likewise ignored the fact that Respondent was fully aware of the notice of non-renewal. A reading of Section 66
of the Insurance Code readily shows that in order for an insured to be entitled to a renewal of a non-life policy,
payment of the premium due on the effective date of renewal should first be made. Respondents argument that
Section 77 is not a prohibitive provision finds no authoritative support.

Upon a meticulous review of the records and reevaluation of the issues raised in the motion for reconsideration
and the pleadings filed thereafter by the parties, we resolved to grant the motion for reconsideration. The
following facts, as found by the trial court and the Court of Appeals, are indeed duly established:

1. For years, Petitioner had been issuing fire policies to the Respondent, and these policies were annually
renewed.

2. Petitioner had been granting Respondent a 60- to 90-day credit term within which to pay the premiums on the
renewed policies.

3. There was no valid notice of non-renewal of the policies in question, as there is no proof at all that the notice
sent by ordinary mail was received by Respondent, and the copy thereof allegedly sent to Zuellig was ever
transmitted to Respondent.

4. The premiums for the policies in question in the aggregate amount of P225,753.95 were paid by Respondent
within the 60- to 90-day credit term and were duly accepted and received by Petitioners cashier.

The instant case has to rise or fall on the core issue of whether Section 77 of the Insurance Code of 1978 (P.D.
No. 1460) must be strictly applied to Petitioners advantage despite its practice of granting a 60- to 90-day credit
term for the payment of premiums.

Section 77 of the Insurance Code of 1978 provides:

SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril
insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has been paid, except in the case
of a life or an industrial life policy whenever the grace period provision applies.

This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated on 18
December 1974. In turn, this Section has its source in Section 72 of Act No. 2427 otherwise known as the
Insurance Act as amended by R.A. No. 3540, approved on 21 June 1963, which read:

SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the peril
insured against, unless there is clear agreement to grant the insured credit extension of the premium due. No
policy issued by an insurance company is valid and binding unless and until the premium thereof has been paid.
(Underscoring supplied)

It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an
agreement to extend the period to pay the premium. But are there exceptions to Section 77?

The answer is in the affirmative.

The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever
the grace period provision applies.

The second is that covered by Section 78 of the Insurance Code, which provides:

SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive
evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall
not be binding until premium is actually paid.

A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals,[5] wherein
we ruled that Section 77 may not apply if the parties have agreed to the payment in installments of the premium
and partial payment has been made at the time of loss. We said therein, thus:
We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly
show that the petitioners and private respondent intended subject insurance policies to be binding and effective
notwithstanding the staggered payment of the premiums. The initial insurance contract entered into in 1982 was
renewed in 1983, then in 1984. In those three years, the insurer accepted all the installment payments. Such
acceptance of payments speaks loudly of the insurers intention to honor the policies it issued to petitioner.
Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting and accepting
the premiums, although paid on installments, and later deny liability on the lame excuse that the premiums were
not prepaid in full.

Not only that. In Tuscany, we also quoted with approval the following pronouncement of the Court of Appeals in
its Resolution denying the motion for reconsideration of its decision:

While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of
the contract, We are not prepared to rule that the request to make installment payments duly approved by the
insurer would prevent the entire contract of insurance from going into effect despite payment and acceptance of
the initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of
the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as
conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually
unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not
paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not
contrary to morals, good customs, public order or public policy (De Leon, The Insurance Code, p. 175). So is an
understanding to allow insured to pay premiums in installments not so prescribed. At the very least, both parties
should be deemed in estoppel to question the arrangement they have voluntarily accepted.

By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has provided a
fourth exception to Section 77, namely, that the insurer may grant credit extension for the payment of the
premium. This simply means that if the insurer has granted the insured a credit term for the payment of the
premium and loss occurs before the expiration of the term, recovery on the policy should be allowed even
though the premium is paid after the loss but within the credit term.

Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit
term within which to pay the premiums. That agreement is not against the law, morals, good customs, public
order or public policy. The agreement binds the parties. Article 1306 of the Civil Code provides:

ART. 1306. The contracting parties may establish such stipulations clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be permitted
against Petitioner, which had consistently granted a 60- to 90-day credit term for the payment of premiums
despite its full awareness of Section 77. Estoppel bars it from taking refuge under said Section, since
Respondent relied in good faith on such practice. Estoppel then is the fifth exception to Section 77.

WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED and SET ASIDE, and a new one
is hereby entered DENYING the instant petition for failure of Petitioner to sufficiently show that a reversible error
was committed by the Court of Appeals in its challenged decision, which is hereby AFFIRMED in toto.
No pronouncement as to cost.

SO ORDERED.

G.R. No. L-24833 September 23, 1968

FIELDMEN'S INSURANCE CO., INC., petitioner, vs. MERCEDES VARGAS VDA. DE SONGCO, ET AL. and
COURT OF APPEALS, respondents.

An insurance firm, petitioner Fieldmen's Insurance Co., Inc., was not allowed to escape liability under a common
carrier insurance policy on the pretext that what was insured, not once but twice, was a private vehicle and not a
common carrier, the policy being issued upon the insistence of its agent who discounted fears of the insured that
his privately owned vehicle might not fall within its terms, the insured moreover being "a man of scant
education," finishing only the first grade. So it was held in a decision of the lower court thereafter affirmed by
respondent Court of Appeals. Petitioner in seeking the review of the above decision of respondent Court of
Appeals cannot be so sanguine as to entertain the belief that a different outcome could be expected. To be more
explicit, we sustain the Court of Appeals.

The facts as found by respondent Court of Appeals, binding upon us, follow: "This is a peculiar case. Federico
Songco of Floridablanca, Pampanga, a man of scant education being only a first grader ..., owned a private
jeepney with Plate No. 41-289 for the year 1960. On September 15, 1960, as such private vehicle owner, he was
induced by Fieldmen's Insurance Company Pampanga agent Benjamin Sambat to apply for a Common Carrier's
Liability Insurance Policy covering his motor vehicle ... Upon paying an annual premium of P16.50, defendant
Fieldmen's Insurance Company, Inc. issued on September 19, 1960, Common Carriers Accident Insurance
Policy No. 45-HO- 4254 ... the duration of which will be for one (1) year, effective September 15, 1960 to
September 15, 1961. On September 22, 1961, the defendant company, upon payment of the corresponding
premium, renewed the policy by extending the coverage from October 15, 1961 to October 15, 1962. This time
Federico Songco's private jeepney carried Plate No. J-68136-Pampanga-1961. ... On October 29, 1961, during
the effectivity of the renewed policy, the insured vehicle while being driven by Rodolfo Songco, a duly licensed
driver and son of Federico (the vehicle owner) collided with a car in the municipality of Calumpit, province of
Bulacan, as a result of which mishap Federico Songco (father) and Rodolfo Songco (son) died, Carlos Songco
(another son), the latter's wife, Angelita Songco, and a family friend by the name of Jose Manuel sustained
physical injuries of varying degree." 1

It was further shown according to the decision of respondent Court of Appeals: "Amor Songco, 42-year-old son
of deceased Federico Songco, testifying as witness, declared that when insurance agent Benjamin Sambat was
inducing his father to insure his vehicle, he butted in saying: 'That cannot be, Mr. Sambat, because our vehicle is
an "owner" private vehicle and not for passengers,' to which agent Sambat replied: 'whether our vehicle was an
"owner" type or for passengers it could be insured because their company is not owned by the Government and
the Government has nothing to do with their company. So they could do what they please whenever they believe
a vehicle is insurable' ... In spite of the fact that the present case was filed and tried in the CFI of Pampanga, the
defendant company did not even care to rebut Amor Songco's testimony by calling on the witness-stand agent
Benjamin Sambat, its Pampanga Field Representative." 2

The plaintiffs in the lower court, likewise respondents here, were the surviving widow and children of the
deceased Federico Songco as well as the injured passenger Jose Manuel. On the above facts they prevailed, as
had been mentioned, in the lower court and in the respondent Court of Appeals.1awphl.nt

The basis for the favorable judgment is the doctrine announced in Qua Chee Gan v. Law Union and Rock
Insurance Co., Ltd., 3 with Justice J. B. L. Reyes speaking for the Court. It is now beyond question that where
inequitable conduct is shown by an insurance firm, it is "estopped from enforcing forfeitures in its favor, in order
to forestall fraud or imposition on the insured." 4

As much, if not much more so than the Qua Chee Gan decision, this is a case where the doctrine of estoppel
undeniably calls for application. After petitioner Fieldmen's Insurance Co., Inc. had led the insured Federico
Songco to believe that he could qualify under the common carrier liability insurance policy, and to enter into
contract of insurance paying the premiums due, it could not, thereafter, in any litigation arising out of such
representation, be permitted to change its stand to the detriment of the heirs of the insured. As estoppel is
primarily based on the doctrine of good faith and the avoidance of harm that will befall the innocent party due to
its injurious reliance, the failure to apply it in this case would result in a gross travesty of justice.

That is all that needs be said insofar as the first alleged error of respondent Court of Appeals is concerned,
petitioner being adamant in its far-from-reasonable plea that estoppel could not be invoked by the heirs of the
insured as a bar to the alleged breach of warranty and condition in the policy. lt would now rely on the fact that
the insured owned a private vehicle, not a common carrier, something which it knew all along when not once but
twice its agent, no doubt without any objection in its part, exerted the utmost pressure on the insured, a man of
scant education, to enter into such a contract.
Nor is there any merit to the second alleged error of respondent Court that no legal liability was incurred under
the policy by petitioner. Why liability under the terms of the policy 5 was inescapable was set forth in the decision
of respondent Court of Appeals. Thus: "Since some of the conditions contained in the policy issued by the
defendant-appellant were impossible to comply with under the existing conditions at the time and 'inconsistent
with the known facts,' the insurer 'is estopped from asserting breach of such conditions.' From this jurisprudence,
we find no valid reason to deviate and consequently hold that the decision appealed from should be affirmed.
The injured parties, to wit, Carlos Songco, Angelito Songco and Jose Manuel, for whose hospital and medical
expenses the defendant company was being made liable, were passengers of the jeepney at the time of the
occurrence, and Rodolfo Songco, for whose burial expenses the defendant company was also being made liable
was the driver of the vehicle in question. Except for the fact, that they were not fare paying passengers, their
status as beneficiaries under the policy is recognized therein." 6

Even if it be assumed that there was an ambiguity, an excerpt from the Qua Chee Gan decision would reveal
anew the weakness of petitioner's contention. Thus: "Moreover, taking into account the well known rule that
ambiguities or obscurities must be strictly interpreted against the party that caused them, the '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 ...,' admits of interpretation as an admission of the existence
of such appliances which appellant cannot now contradict, should the parol evidence rule apply." 7

To the same effect is the following citation from the same leading case: "This rigid application of the rule on
ambiguities has become necessary in view of current business practices. The courts cannot ignore that
nowadays monopolies, cartels and concentration of capital, endowed with overwhelming economic power,
manage to impose upon parties dealing with them cunningly prepared 'agreements' that the weaker party may
not change one whit, his participation in the 'agreement' being reduced to the alternative to 'take it or leave it'
labelled since Raymond Saleilles 'contracts by adherence' (contrats d'adhesion), in contrast to those 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 unwary (New Civil Code. Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February
1942)." 8

The last error assigned which would find fault with the decision of respondent Court of Appeals insofar as it
affirmed the lower court award for exemplary damages as well as attorney's fees is, on its face, of no persuasive
force at all.

The conclusion that inescapably emerges from the above is the correctness of the decision of respondent Court
of Appeals sought to be reviewed. For, to borrow once again from the language of the Qua Chee Gan opinion:
"The contract of insurance is one of perfect good faith (uberima fides) not for the insured alone,but equally so for
the insurer; in fact, it is more so for the latter, since its dominant bargaining position carries with it stricter
responsibility."9

This is merely to stress that while the morality of the business world is not the morality of institutions of rectitude
like the pulpit and the academe, it cannot descend so low as to be another name for guile or deception.
Moreover, should it happen thus, no court of justice should allow itself to lend its approval and support.

We have no choice but to recognize the monetary responsibility of petitioner Fieldmen's Insurance Co., Inc. It did
not succeed in its persistent effort to avoid complying with its obligation in the lower court and the Court of
Appeals. Much less should it find any receptivity from us for its unwarranted and unjustified plea to escape from
its liability.

WHEREFORE, the decision of respondent Court of Appeals of July 20, 1965, is affirmed in its entirety. Costs
against petitioner Fieldmen's Insurance Co., Inc.
 [G.R. No. 119599. March 20, 1997]
MALAYAN INSURANCE CORPORATION, petitioner, vs. THE HON. COURT OF APPEALS and TKC
MARKETING CORPORATION, respondents.

DECISION
ROMERO, J.:

Assailed in this petition for review on certiorari is the decision of the Court of Appeals in CA-G.R. No.
43023[1] which affirmed, with slight modification, the decision of the Regional Trial Court of Cebu, Branch 15.
Private respondent TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric tons of soya
bean meal which was loaded on board the ship MV Al Kaziemah on or about September 8, 1989 for carriage
from the port of Rio del Grande, Brazil, to the port of Manila. Said cargo was insured against the risk of loss by
petitioner Malayan Insurance Corporation for which it issued two (2) Marine Cargo Policy Nos. M/LP 97800305
amounting to P18,986,902.45 and M/LP 97800306 amounting to P1,195,005.45, both dated September 1989.
While the vessel was docked in Durban, South Africa on September 11, 1989 enroute to Manila, the civil
authorities arrested and detained it because of a lawsuit on a question of ownership and possession. As a result,
private respondent notified petitioner on October 4, 1989 of the arrest of the vessel and made a formal claim for
the amount of US$916,886.66, representing the dollar equivalent on the policies, for non-delivery of the cargo.
Private respondent likewise sought the assistance of petitioner on what to do with the cargo.
Petitioner replied that the arrest of the vessel by civil authority was not a peril covered by the policies.
Private respondent, accordingly, advised petitioner that it might tranship the cargo and requested an extension
of the insurance coverage until actual transhipment, which extension was approved upon payment of additional
premium. The insurance coverage was extended under the same terms and conditions embodied in the original
policies while in the process of making arrangements for the transhipment of the cargo from Durban to Manila,
covering the period October 4-December 19, 1989.
However, on December 11, 1989, the cargo was sold in Durban, South Africa, for US$154.40 per metric ton
or a total of P10,304,231.75 due to its perishable nature which could no longer stand a voyage of twenty days to
Manila and another twenty days for the discharge thereof. On January 5, 1990, private respondent forthwith
reduced its claim to US$448,806.09 (or its peso equivalent of P9,879,928.89 at the exchange rate of P22.0138
per $1.00) representing private respondent's loss after the proceeds of the sale were deducted from the original
claim of $916,886.66 or P20,184,159.55.
Petitioner maintained its position that the arrest of the vessel by civil authorities on a question of ownership
was an excepted risk under the marine insurance policies. This prompted private respondent to file a complaint
for damages praying that aside from its claim, it be reimbursed the amount of P128,770.88 as legal expenses
and the interest it paid for the loan it obtained to finance the shipment totalling P942,269.30. In addition, private
respondent asked for moral damages amounting to P200,000.00, exemplary damages amounting
to P200,000.00 and attorney's fees equivalent to 30% of what will be awarded by the court.
The lower court decided in favor of private respondent and required petitioner to pay, aside from the
insurance claim, consequential and liquidated damages amounting to P1,024,233.88, exemplary damages
amounting to P100,000.00, reimbursement in the amount equivalent to 10% of whatever is recovered as
attorney's fees as well as the costs of the suit. On private respondent's motion for reconsideration, petitioner was
also required to further pay interest at the rate of 12% per annum on all amounts due and owing to the private
respondent by virtue of the lower court decision counted from the inception of this case until the same is paid.
On appeal, the Court of Appeals affirmed the decision of the lower court stating that with the deletion of
Clause 12 of the policies issued to private respondent, the same became automatically covered under
subsection 1.1 of Section 1 of the Institute War Clauses. The arrests, restraints or detainments contemplated in
the former clause were those effected by political or executive acts. Losses occasioned by riot or ordinary
judicial processes were not covered therein. In other words, arrest, restraint or detainment within the meaning of
Clause 12 (or F.C. & S. Clause) rules out detention by ordinary legal processes. Hence, arrests by civil
authorities, such as what happened in the instant case, is an excepted risk under Clause 12 of the Institute
Cargo Clause or the F.C. & S. Clause. However, with the deletion of Clause 12 of the Institute Cargo Clause and
the consequent adoption or institution of the Institute War Clauses (Cargo), the arrest and seizure by judicial
processes which were excluded under the former policy became one of the covered risks.
 The appellate court added that the failure to deliver the consigned goods in the port of destination is a loss
compensable, not only under the Institute War Clause but also under the Theft, Pilferage, and Non-delivery
Clause (TNPD) of the insurance policies, as read in relation to Section 130 of the Insurance Code and as held
in Williams v. Cole.[2]
Furthermore, the appellate court contended that since the vessel was prevented at an intermediate port
from completing the voyage due to its seizure by civil authorities, a peril insured against, the liability of petitioner
continued until the goods could have been transhipped. But due to the perishable nature of the goods, it had to
be promptly sold to minimize loss. Accordingly, the sale of the goods being reasonable and justified, it should not
operate to discharge petitioner from its contractual liability.
Hence this petition, claiming that the Court of Appeals erred:

1. In ruling that the arrest of the vessel was a risk covered under the subject insurance policies.

2. In ruling that there was constructive total loss over the cargo.

3. In ruling that petitioner was in bad faith in declining private respondent's claim.

4. In giving undue reliance to the doctrine that insurance policies are strictly construed against the insurer.

In assigning the first error, petitioner submits the following: (a) an arrest by civil authority is not
compensable since the term "arrest" refers to "political or executive acts" and does not include a loss caused by
riot or by ordinary judicial process as in this case; (b) the deletion of the Free from Capture or Seizure Clause
would leave the assured covered solely for the perils specified by the wording of the policy itself; (c) the rationale
for the exclusion of an arrest pursuant to judicial authorities is to eliminate collusion between unscrupulous
assured and civil authorities.
As to the second assigned error, petitioner submits that any loss which private respondent may have
incurred was in the nature and form of unrecovered acquisition value brought about by a voluntary sacrifice sale
and not by arrest, detention or seizure of the ship.
As to the third issue, petitioner alleges that its act of rejecting the claim was a result of its honest belief that
the arrest of the vessel was not a compensable risk under the policies issued. In fact, petitioner supported
private respondent by accommodating the latter's request for an extension of the insurance coverage,
notwithstanding that it was then under no legal obligation to do so.
Private respondent, on the other hand, argued that when it appealed its case to the Court of Appeals,
petitioner did not raise as an issue the award of exemplary damages. It cannot now, for the first time, raise the
same before this Court. Likewise, petitioner cannot submit for the first time on appeal its argument that it was
wrong for the Court of Appeals to have ruled the way it did based on facts that would need inquiry into the
evidence. Even if inquiry into the facts were possible, such was not necessary because the coverage as ruled
upon by the Court of Appeals is evident from the very terms of the policies.
It also argued that petitioner, being the sole author of the policies, "arrests" should be strictly interpreted
against it because the rule is that any ambiguity is to be taken contra proferentum. Risk policies should be
construed reasonably and in a manner as to make effective the intentions and expectations of the parties. It
added that the policies clearly stipulate that they cover the risks of non-delivery of an entire package and that it
was petitioner itself that invited and granted the extensions and collected premiums thereon.
The resolution of this controversy hinges on the interpretation of the "Perils" clause of the subject policies in
relation to the excluded risks or warranty specifically stated therein.
By way of a historical background, marine insurance developed as an all-risk coverage, using the phrase
"perils of the sea" to encompass the wide and varied range of risks that were covered. [3] The subject policies
contain the "Perils" clause which is a standard form in any marine insurance policy. Said clause reads:

"Touching the adventures which the said MALAYAN INSURANCE CO., are content to bear, and to take upon
them in this voyage; they are of the Seas; Men-of-War, Fire, Enemies, Pirates, Rovers, Thieves, Jettisons,
Letters of Mart and Counter Mart, Suprisals, Takings of the Sea, Arrests, Restraints and Detainments of all
Kings, Princess and Peoples, of what Nation, condition, or quality soever, Barratry of the Master and Mariners,
and of all other Perils, Losses, and Misfortunes, that have come to hurt, detriment, or damage of the said goods
and merchandise or any part thereof . AND in case of any loss or misfortune it shall be lawful to the ASSURED,
their factors, servants and assigns, to sue, labour, and travel for, in and about the defence, safeguards, and
recovery of the said goods and merchandises, and ship, & c., or any part thereof, without prejudice to this
INSURANCE; to the charges whereof the said COMPANY, will contribute according to the rate and quantity of
the sum herein INSURED. AND it is expressly declared and agreed that no acts of the Insurer or Insured in
recovering, saving, or preserving the Property insured shall be considered as a Waiver, or Acceptance of
Abandonment. And it is agreed by the said COMPANY, that this writing or Policy of INSURANCE shall be of as
much Force and Effect as the surest Writing or Policy of INSURANCE made in LONDON. And so the said
MALAYAN INSURANCE COMPANY, INC., are contented, and do hereby promise and bind themselves, their
Heirs, Executors, Goods and Chattel, to the ASSURED, his or their Executors, Administrators, or Assigns, for the
true Performance of the Premises; confessing themselves paid the Consideration due unto them for this
INSURANCE at and after the rate arranged." (Underscoring supplied)

The exception or limitation to the "Perils" clause and the "All other perils" clause in the subject policies is
specifically referred to as Clause 12 called the "Free from Capture & Seizure Clause" or the F.C. & S. Clause
which reads, thus:

"Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences thereof or of any
attempt thereat; also from the consequences of hostilities and warlike operations, whether there be a declaration
of war or not; but this warranty shall not exclude collision, contact with any fixed or floating object (other than a
mine or torpedo), stranding, heavy weather or fire unless caused directly (and independently of the nature of the
voyage or service which the vessel concerned or, in the case of a collision, any other vessel involved therein is
performing) by a hostile act by or against a belligerent power and for the purpose of this warranty 'power'
includes any authorities maintaining naval, military or air forces in association with power.

Further warranted free from the consequences of civil war, revolution, insurrection, or civil strike arising
therefrom or piracy.

Should Clause 12 be deleted, the relevant current institute war clauses shall be deemed to form part of this
insurance." (Underscoring supplied)

However, the F. C. & S. Clause was deleted from the policies. Consequently, the Institute War Clauses
(Cargo) was deemed incorporated which, in subsection 1.1 of Section 1, provides:

"1. This insurance covers:

1.1 The risks excluded from the standard form of English Marine Policy by the clause warranted free of capture,
seizure, arrest, restraint or detainment, and the consequences thereof of hostilities or warlike operations,
whether there be a declaration of war or not; but this warranty shall not exclude collision, contact with any fixed
or floating object (other than a mine or torpedo), stranding, heavy weather or fire unless caused directly (and
independently of the nature on voyage or service which the vessel concerned or, in the case of a collision any
other vessel involved therein is performing) by a hostile act by or against a belligerent power; and for the
purpose of this warranty 'power' includes any authority maintaining naval, military or air forces in association with
a power. Further warranted free from the consequences of civil war, revolution, rebellion, insurrection, or civil
strike arising therefrom, or piracy."

According to petitioner, the automatic incorporation of subsection 1.1 of section 1 of the Institute War
Clauses (Cargo), among others, means that any "capture, arrest, detention, etc." pertained exclusively to warlike
operations if this Court strictly construes the heading of the said Clauses. However, it also claims that the parties
intended to include arrests, etc. even if it were not the result of hostilities or warlike operations. It further claims
that on the strength of jurisprudence on the matter, the term "arrests" would only cover those arising from
political or executive acts, concluding that whether private respondent's claim is anchored on subsection 1.1 of
Section 1 of the Institute War Clauses (Cargo) or the F.C. & S. Clause, the arrest of the vessel by judicial
authorities is an excluded risk.[4]
This Court cannot agree with petitioner's assertions, particularly when it alleges that in the "Perils" Clause, it
assumed the risk of arrest caused solely by executive or political acts of the government of the seizing state and
thereby excludes "arrests" caused by ordinary legal processes, such as in the instant case.
 With the incorporation of subsection 1.1 of Section 1 of the Institute War Clauses, however, this Court
agrees with the Court of Appeals and the private respondent that "arrest" caused by ordinary judicial process is
deemed included among the covered risks. This interpretation becomes inevitable when subsection 1.1 of
Section 1 of the Institute War Clauses provided that "this insurance covers the risks excluded from the Standard
Form of English Marine Policy by the clause 'Warranted free of capture, seizure, arrest, etc. x x x'" or the F.C. &
S. Clause. Jurisprudentially, "arrests" caused by ordinary judicial process is also a risk excluded from the
Standard Form of English Marine Policy by the F.C. & S. Clause.
Petitioner cannot adopt the argument that the "arrest" caused by ordinary judicial process is not included in
the covered risk simply because the F.C. & S. Clause under the Institute War Clauses can only be operative in
case of hostilities or warlike operations on account of its heading "Institute War Clauses." This Court agrees with
the Court of Appeals when it held that ". . . Although the F.C. & S. Clause may have originally been inserted in
marine policies to protect against risks of war, (see generally G. Gilmore & C. Black, The Law of Admiralty
Section 2-9, at 71-73 [2d Ed. 1975]), its interpretation in recent years to include seizure or detention by civil
authorities seems consistent with the general purposes of the clause, x x x"[5] In fact, petitioner itself averred that
subsection 1.1 of Section 1 of the Institute War Clauses included "arrest" even if it were not a result of hostilities
or warlike operations.[6] In this regard, since what was also excluded in the deleted F.C. & S. Clause was "arrest"
occasioned by ordinary judicial process, logically, such "arrest" would now become a covered risk under
subsection 1.1 of Section 1 of the Institute War Clauses, regardless of whether or not said "arrest" by civil
authorities occurred in a state of war.
Petitioner itself seems to be confused about the application of the F.C. & S. Clause as well as that of
subsection 1.1 of Section 1 of the Institute War Clauses (Cargo). It stated that "the F.C. & S. Clause was
"originally incorporated in insurance policies to eliminate the risks of warlike operations". It also averred that the
F.C. & S. Clause applies even if there be no war or warlike operations x x x"[7] In the same vein, it contended that
subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) "pertained exclusively to warlike operations"
and yet it also stated that "the deletion of the F.C. & S. Clause and the consequent incorporation of subsection
1.1 of Section 1 of the Institute War Clauses (Cargo) was to include "arrest, etc. even if it were not a result of
hostilities or warlike operations."[8]
This Court cannot help the impression that petitioner is overly straining its interpretation of the provisions of
the policy in order to avoid being liable for private respondent's claim.
This Court finds it pointless for petitioner to maintain its position that it only insures risks of "arrest"
occasioned by executive or political acts of government which is interpreted as not referring to those caused by
ordinary legal processes as contained in the "Perils" Clause; deletes the F.C. & S. Clause which excludes risks
of arrest occasioned by executive or political acts of the government and naturally, also those caused by
ordinary legal processes; and, thereafter incorporates subsection 1.1 of Section 1 of the Institute War Clauses
which now includes in the coverage risks of arrest due to executive or political acts of a government but then still
excludes "arrests" occasioned by ordinary legal processes when subsection 1.1 of Section 1 of said Clauses
should also have included "arrests" previously excluded from the coverage of the F.C. & S. Clause.
It has been held that a strained interpretation which is unnatural and forced, as to lead to an absurd
conclusion or to render the policy nonsensical, should, by all means, be avoided. [9] Likewise, it must be borne in
mind that such contracts are invariably prepared by the companies and must be accepted by the insured in the
form in which they are written.[10] Any construction of a marine policy rendering it void should be avoided. [11] Such
policies will, therefore, be construed strictly against the company in order to avoid a forfeiture, unless no other
result is possible from the language used.[12]
If a marine insurance company desires to limit or restrict the operation of the general provisions of its
contract by special proviso, exception, or exemption, it should express such limitation in clear and unmistakable
language.[13] Obviously, the deletion of the F.C. & S. Clause and the consequent incorporation of subsection 1.1
of Section 1 of the Institute War Clauses (Cargo) gave rise to ambiguity. If the risk of arrest occasioned by
ordinary judicial process was expressly indicated as an exception in the subject policies, there would have been
no controversy with respect to the interpretation of the subject clauses.
Be that as it may, exceptions to the general coverage are construed most strongly against the company.
[14]
Even an express exception in a policy is to be construed against the underwriters by whom the policy is
framed, and for whose benefit the exception is introduced. [15]
An insurance contract should be so 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. [16] Where restrictive provisions are
open to two interpretations, that which is most favorable to the insured is adopted. [17]
 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. [18] 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]
In view of the foregoing, this Court sees no need to discuss the other issues presented.
WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.

G.R. No. 166245 April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,

vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.

The Case

Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the
November 26, 2004 Decision1 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-1920 2 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 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,
1982,4 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 PhP 100,000. On August 2, 1984,
Chuang died.

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, 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:

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 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 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 Chuangs insurance application. However, Philamlife failed to do so; thus, Philamlife is
deemed to have received Chuangs insurance application.

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 and accounted for.

Philamlifes allegation that Eternals witnesses ran out of credibility and reliability due to inconsistencies is
groundless. The trial court is in the best position to determine the reliability and credibility of the witnesses,
because it has the opportunity to observe firsthand the witnesses demeanor, conduct, and attitude. Findings of
the trial court on such matters are binding and conclusive on the appellate court, unless some facts or
circumstances of weight and substance have been overlooked, misapprehended, or misinterpreted, 14 that, if
considered, might affect the result of the case.15

An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no overlooked
facts of substance and value.
Philamlife primarily claims that Eternal did not even know where the original insurance application of Chuang
was, as shown by the testimony of Edilberto Mendoza:

Atty. Arevalo:

Q Where is the original of the application form which is required in case of new coverage?

[Mendoza:]

A It is [a] standard operating procedure for the new client to fill up two copies of this form and the original
of this is submitted to Philamlife together with the monthly remittances and the second copy is remained
or retained with the marketing department of Eternal Gardens.

Atty. Miranda:

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.

Atty. Arevalo:

Q Where is the original?

[Mendoza:]

A As far as I remember I do not know where the original but when I submitted with that payment together
with the new clients all the originals I see to it before I sign the transmittal letter the originals are
attached therein.16

In other words, the witness admitted not knowing where the original insurance application was, but believed that
the application was transmitted to Philamlife as an attachment to a transmittal letter.

As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two insurance
application forms were accomplished and the testimony of Mendoza on who actually filled out the application
form, these are minor inconsistencies that do not affect the credibility of the 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 strengthen their credibility as these negate any suspicion that the testimonies have been rehearsed. 17

We reiterated the above ruling in Merencillo v. People:

Minor discrepancies or inconsistencies do not impair the essential integrity of the prosecutions evidence
as a whole or reflect on the witnesses honesty. 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:

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.

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
is REVERSED 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.

SO ORDERED.