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WHITE GOLD MARINE SERVICES, INC. vs. PIONEER INSURANCE AND SURETY CORPORATION AND THE
STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD., G.R. No. 154514. July 28, 2005

FACTS:
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. 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 latter’s unpaid balance. White Gold on the other hand, filed a complaint before the Insurance
Commission claiming that Steamship Mutual violated Sections 186 and 187 of the Insurance Code, while
Pioneer violated Sections 299, 300 and 301 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 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-à-vis conventional insurance. The appellate court also held that Pioneer merely
acted as a collection agent of Steamship Mutual. Hence, this petition

ISSUE:
1) Whether or not Steamship Mutual is engaged in the insurance business in the Philippines
2) Whether or not Pioneer needs a license as an insurance agent/broker for Steamship Mutual?

RULING:
YES.
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;
(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.
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]
In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as
the losses incident to a marine adventure. Relatedly, a mutual insurance company is a cooperative
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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 among themselves, in proportion to their interest. Additionally,
mutual insurance associations, or clubs, provide three types of coverage, namely, protection and
indemnity, war risks, and defense costs. 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 187of 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.

Furthermore, 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 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. . .

CENTRAL SHIPPING COMPANY, INC. vs. INSURANCE COMPANY OF NORTH AMERICA,

G.R. No. 150751. September 20, 2004

FACTS:
On July 25, 1990 at Puerto Princesa, Palawan, the [petitioner] received on board its vessel, the M/V
‘Central Bohol’, 376 pieces [of] Philippine Apitong Round Logs and undertook to transport said shipment
to Manila for delivery to Alaska Lumber Co., Inc. The cargo was insured for P3,000,000.00 against total
loss under [respondent’s] Marine Cargo Policy No. MCPB-00170. On July 25, 1990, upon completion of
loading of the cargo, the vessel left Palawan and commenced the voyage to Manila. At about 0125 hours
on July 26, 1990, while enroute to Manila, the vessel listed about 10 degrees starboardside, due to the
shifting of logs in the hold. At about 0128 hours, after the listing of the vessel had increased to 15
degrees, the ship captain ordered his men to abandon ship and at about 0130 hours of the same day the
vessel completely sank. Due to the sinking of the vessel, the cargo was totally lost. [Respondent] alleged
that the total loss of the shipment was caused by the fault and negligence of the [petitioner] and its
captain and as direct consequence thereof the consignee suffered damage in the sum of P3,000,000.00.
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The consignee, Alaska Lumber Co. Inc., presented a claim for the value of the shipment to the
[petitioner] but the latter failed and refused to settle the claim, hence [respondent], being the insurer,
paid said claim and now seeks to be subrogated to all the rights and actions of the consignee as against
the [petitioner].[Petitioner], while admitting the sinking of the vessel, interposed the defense that the
vessel was fully manned, fully equipped and in all respects seaworthy; that all the logs were properly
loaded and secured; that the vessel’s master exercised due diligence to prevent or minimize the loss
before, during and after the occurrence of the storm. It raised as its main defense that the proximate and
only cause of the sinking of its vessel and the loss of its cargo was a natural disaster, a tropical storm
which neither [petitioner] nor the captain of its vessel could have foreseen.

The RTC was unconvinced that the sinking of M/V Central Bohol had been caused by the weather or any
other caso fortuito. Applying the rule of presumptive fault or negligence against the carrier, the trial
court held petitioner liable for the loss of the cargo. Thus, the RTC deducted the salvage value of the
logs in the amount of P200,000 from the principal claim of respondent and found that the latter was
entitled to be subrogated to the rights of the insured. The CA affirmed the trial court’s finding that the
southwestern monsoon encountered by the vessel was not unforeseeable. Given the season of rains and
monsoons, the ship captain and his crew should have anticipated the perils of the sea. The appellate
court further held that the weather disturbance was not the sole and proximate cause of the sinking of
the vessel, which was also due to the concurrent shifting of the logs in the hold that could have resulted
only from improper stowage. Thus, the carrier was held responsible for the consequent loss of or
damage to the cargo, because its own negligence had contributed thereto. Hence, this petition.

ISSUES:
1) Whether or not the carrier is liable for the loss of the cargo
2) Whether or not the doctrine of limited liability is applicable

RULING:
YES. From the nature of their business and for reasons of public policy, common carriers are bound
to observe extraordinary diligence over the goods they transport, according to all the circumstances of
each case. In the event of loss, destruction or deterioration of the insured goods, common carriers are
responsible; that is, unless they can prove that such loss, destruction or deterioration was brought about
-- among others -- by “flood, storm, earthquake, lightning or other natural disaster or calamity.” In all
other cases not specified under Article 1734 of the Civil Code, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence.
n the present case, petitioner has not given the Court sufficient cogent reasons to disturb the conclusion
of the CA that the weather encountered by the vessel was not a “storm” as contemplated by Article
1734(1). Established is the fact that between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26,
1990, M/V Central Bohol encountered a southwestern monsoon in the course of its voyage. Even if the
weather encountered by the ship is to be deemed a natural disaster under Article 1739 of the Civil Code,
petitioner failed to show that such natural disaster or calamity was the proximate and only cause of the
loss. Human agency must be entirely excluded from the cause of injury or loss. In other words, the
damaging effects blamed on the event or phenomenon must not have been caused, contributed to, or
worsened by the presence of human participation. The defense of fortuitous event or natural disaster
cannot be successfully made when the injury could have been avoided by human precaution. Hence, if a
common carrier fails to exercise due diligence -- or that ordinary care that the circumstances of the
particular case demand -- to prevent or minimize the loss before, during and after the occurrence of the
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natural disaster, the carrier shall be deemed to have been negligent. The loss or injury is not, in a legal
sense, due to a natural disaster under Article 1734(1).
We also find no reason to disturb the CA’s finding that the loss of the vessel was caused not only by
the southwestern monsoon, but also by the shifting of the logs in the hold. Such shifting could been due
only to improper stowage. The evidence indicated that strong southwest monsoons were common
occurrences during the month of July. Thus, the officers and crew of M/V Central Bohol should have
reasonably anticipated heavy rains, strong winds and rough seas. They should then have taken extra
precaution in stowing the logs in the hold, in consonance with their duty of observing extraordinary
diligence in safeguarding the goods. But the carrier took a calculated risk in improperly securing the
cargo. Having lost that risk, it cannot now escape responsibility for the loss.

NO. The doctrine of limited liability under Article 587 of the Code of Commerce is not applicable to
the present case. This rule does not apply to situations in which the loss or the injury is due to the
concurrent negligence of the shipowner and the captain. It has already been established that the sinking
of M/V Central Bohol had been caused by the fault or negligence of the ship captain and the crew, as
shown by the improper stowage of the cargo of logs. “Closer supervision on the part of the shipowner
could have prevented this fatal miscalculation.” As such, the shipowner was equally negligent. It cannot
escape liability by virtue of the limited liability rule.

PAN MALAYAN INSURANCE CORPORATION, vs. COURT OF APPEALS, ERLINDA FABIE AND HER
UNKNOWN DRIVER, G.R. No. 81026 April 3, 1990

FACTS:
On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of Makati against private
respondents Erlinda Fabie and her driver. PANMALAY averred the following: that it insured a Mitsubishi
Colt Lancer car with plate No. DDZ-431 and registered in the name of Canlubang Automotive Resources
Corporation [CANLUBANG]; that on May 26, 1985, due to the "carelessness, recklessness, and
imprudence" of the unknown driver of a pick-up with plate no. PCR-220, the insured car was hit and
suffered damages in the amount of P42,052.00; that PANMALAY defrayed the cost of repair of the
insured car and, therefore, was subrogated to the rights of CANLUBANG against the driver of the pick-up
and his employer, Erlinda Fabie; and that, despite repeated demands, defendants, failed and refused to
pay the claim of PANMALAY.Private respondents, thereafter, filed a Motion for Bill of Particulars and a
supplemental motion thereto. In compliance therewith, PANMALAY clarified, among others, that the
damage caused to the insured car was settled under the "own damage", coverage of the insurance
policy, and that the driver of the insured car was, at the time of the accident, an authorized driver duly
licensed to drive the vehicle. PANMALAY also submitted a copy of the insurance policy and the Release of
Claim and Subrogation Receipt executed by CANLUBANG in favor of PANMALAY.
On February 12, 1986, private respondents filed a Motion to Dismiss alleging that PANMALAY had no
cause of action against them. They argued that payment under the "own damage" clause of the
insurance policy precluded subrogation under Article 2207 of the Civil Code, since indemnification
thereunder was made on the assumption that there was no wrongdoer or no third party at fault.
After hearings conducted on the motion, opposition thereto, reply and rejoinder, the RTC issued an order
dated June 16, 1986 dismissing PANMALAY's complaint for no cause of action. On August 19, 1986, the
RTC denied PANMALAY's motion for reconsideration.On appeal taken by PANMALAY, these orders were
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upheld by the Court of Appeals on November 27, 1987. Consequently, PANMALAY filed the present
petition for review.

ISSUE:
1) Whether or not the insurer PANMALAY may institute an action to recover the amount it had paid
its assured in settlement of an insurance claim against private respondents

RULING:
Yes. Deliberating on the various arguments adduced in the pleadings, the Court finds merit in the
petition. PANMALAY alleged in its complaint that, pursuant to a motor vehicle insurance policy, it had
indemnified CANLUBANG for the damage to the insured car resulting from a traffic accident allegedly
caused by the negligence of the driver of private respondent, Erlinda Fabie. PANMALAY contended,
therefore, that its cause of action against private respondents was anchored upon Article 2207 of the
Civil Code, which reads:

If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. . . .

PANMALAY is correct. Article 2207 of the Civil Code is founded on the well-settled principle of
subrogation. If the insured property is destroyed or damaged through the fault or negligence of a party
other than the assured, then the insurer, upon payment to the assured, will be subrogated to the rights
of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay.
Payment by the insurer to the assured operates as an equitable assignment to the former of all remedies
which the latter may have against the third party whose negligence or wrongful act caused the loss. The
right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon
written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer There
are a few recognized exceptions to this rule. For instance, if the assured by his own act releases the
wrongdoer or third party liable for the loss or damage, from liability, the insurer's right of subrogation is
defeated. Similarly, where the insurer pays the assured the value of the lost goods without notifying the
carrier who has in good faith settled the assured's claim for loss, the settlement is binding on both the
assured and the insurer, and the latter cannot bring an action against the carrier on his right of
subrogation. And where the insurer pays the assured for a loss which is not a risk covered by the policy,
thereby effecting "voluntary payment", the former has no right of subrogation against the third party
liable for the loss. None of the exceptions are availing in the present case.

It must be emphasized that the lower court's ruling that the "own damage" coverage under the policy
implies damage to the insured car caused by the assured itself, instead of third parties, proceeds from an
incorrect comprehension of the phrase "own damage" as used by the insurer. When PANMALAY utilized
the phrase "own damage" — a phrase which, incidentally, is not found in the insurance policy — to
define the basis for its settlement of CANLUBANG's claim under the policy, it simply meant that it had
assumed to reimburse the costs for repairing the damage to the insured vehicle [See PANMALAY's
Compliance with Supplementary Motion for Bill of Particulars, p. 1; Record, p. 31]. It is in this sense that
the so-called "own damage" coverage under Section III of the insurance policy is differentiated from
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Sections I and IV-1 which refer to "Third Party Liability" coverage (liabilities arising from the death of, or
bodily injuries suffered by, third parties) and from Section IV-2 which refer to "Property Damage"
coverage (liabilities arising from damage caused by the insured vehicle to the properties of third parties).
Neither is there merit in the Court of Appeals' ruling that the coverage of insured risks under Section III-1
of the policy does not include to the insured vehicle arising from collision or overturning due to the
negligent acts of the third party. Not only does it stem from an erroneous interpretation of the
provisions of the section, but it also violates a fundamental rule on the interpretation of property
insurance contracts.

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 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. It is only
when the terms of the policy are ambiguous, equivocal or uncertain, such that the parties themselves
disagree about the meaning of particular provisions, that the courts will intervene. In such an event, the
policy will be construed by the courts liberally in favor of the assured and strictly against the insurer.

PANMALAY contends that the coverage of insured risks, specifically Section III-1(a), is comprehensive
enough to include damage to the insured vehicle arising from collision or overturning due to the fault or
negligence of a third party. Considering that the very parties to the policy were not shown to be in
disagreement regarding the meaning and coverage of Section III-1 thereof, it was improper for the
appellate court to indulge in contract construction, to apply the ejusdem generis rule, and to ascribe
meaning contrary to the clear intention and understanding of these parties. It cannot be said that the
meaning given by PANMALAY and CANLUBANG to the phrase "by accidental collision or overturning"
found in the first paint of sub-paragraph (a) is untenable. Although the terms "accident" or "accidental"
as used in insurance contracts have not acquired a technical meaning, the Court has on several occasions
defined these terms to mean that which takes place "without one's foresight or expectation, an event
that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not
expected". Certainly, it cannot be inferred from jurisprudence that these terms, without qualification,
exclude events resulting in damage or loss due to the fault, recklessness or negligence of third parties.
The concept "accident" is not necessarily synonymous with the concept of "no fault". It may be utilized
simply to distinguish intentional or malicious acts from negligent or careless acts of man. Moreover, a
perusal of the provisions of the insurance policy reveals that damage to, or loss of, the insured vehicle
due to negligent or careless acts of third parties is not listed under the general and specific exceptions to
the coverage of insured risks which are enumerated in detail in the insurance policy itself.

The Court, furthermore. finds it noteworthy that the meaning advanced by PANMALAY regarding the
coverage of Section III-1(a) of the policy is undeniably more beneficial to CANLUBANG than that insisted
upon by respondents herein. By arguing that this section covers losses or damages due not only to
malicious, but also to negligent acts of third parties, PANMALAY in effect advocates for a more
comprehensive coverage of insured risks. And this, in the final analysis, is more in keeping with the
rationale behind the various rules on the interpretation of insurance contracts favoring the assured or
beneficiary so as to effect the dominant purpose of indemnity or payment.

Parenthetically, even assuming for the sake of argument that Section III-1(a) of the insurance policy does
not cover damage to the insured vehicle caused by negligent acts of third parties, and that PANMALAY's
settlement of CANLUBANG's claim for damages allegedly arising from a collision due to private
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respondents' negligence would amount to unwarranted or "voluntary payment", dismissal of

PANMALAY's complaint against private respondents for no cause of action would still be a grave error of
law. For even if under the above circumstances PANMALAY could not be deemed subrogated to the
rights of its assured under Article 2207 of the Civil Code, PANMALAY would still have a cause of action
against private respondents. In the pertinent case of Sveriges Angfartygs Assurans Forening v. Qua Chee
Gan, supra., the Court ruled that the insurer who may have no rights of subrogation due to "voluntary"
payment may nevertheless recover from the third party responsible for the damage to the insured
property under Article 1236 of the Civil Code.

THE CAPITAL INSURANCE & SURETY CO., INC., vs.PLASTIC ERA CO., INC., AND COURT OF APPEALS, G.R.
No. L-22375, July 18, 1975

FACTS:
On December 17, 1960, petitioner Capital Insurance & Surety Co., Inc. delivered to the respondent
Plastic Era Manufacturing Co., Inc., its open Fire Policy No. 22760 1 wherein the former undertook to
insure the latter's building, equipments, raw materials, products and accessories located at Sheridan
Street, Mandaluyong, Rizal. The policy expressly provides that if the property insured would be
destroyed or damaged by fire after the payment of the premiums, at anytime between the 15th day of
December 1960 and one o'clock in the afternoon of the 15th day of December 1961, the insurance
company shall make good all such loss or damage in an amount not exceeding P100,000.00. When the
policy was delivered, Plastic Era failed to pay the corresponding insurance premium. However, through
its duly authorized representative, it executed the following acknowledgment receipt:
This acknowledged receipt of Fire Policy) NO. 22760 Premium
x x x x x) (I promise to pay)
(P2,220.00) (has been paid)
THIRTY DAYS AFTER on effective date ---------------------
(Date)
On January 8, 1961, in partial payment of the insurance premium, Plastic Era delivered to Capital
Insurance, a check 2 for the amount of P1,000.00 postdated January 16, 1961 payable to the order of the
latter and drawn against the Bank of America. However, Capital Insurance tried to deposit the check only
on February 20, 1961 and the same was dishonored by the bank for lack of funds. The records show that
as of January 19, 1961 Plastic Era had a balance of P1,193.41 with the Bank of America.
On January 18, 1961 or two days after the insurance premium became due, at about 4:00 to 5:00 o'clock
in the morning, the property insured by Plastic Era was destroyed by fire. In due time, the latter notified
Capital Insurance of the loss of the insured property by fire 3 and accordingly filed its claim for indemnity
thru the Manila Adjustment Company. 4 In less than a month Plastic Era demanded from Capital
Insurance the payment of the sum of P100,000.00 as indemnity for the loss of the insured property
under Policy No. 22760 but the latter refused for the reason that, among others, Plastic Era failed to pay
the insurance premium.On August 25, 1961, Plastic Era filed its complaint against Capital Insurance for
the recovery of the sum of P100,000.00 plus P25,000.00 for attorney's fees and P20,000.00 for additional
expenses. Capital Insurance filed a counterclaim of P25,000.00 as and for attorney's fees.
On November 15, 1961, the trial court rendered judgment in favor of the plaintiff and against the
defendant for the sum of P88,325.63 with interest at the legal rate from the filing of the complaint and
to pay the costs.From said decision, Capital Insurance appealed to the Court of Appeals which rendered
its decision affirming that of the trial court. Hence, this petition for review by certiorari.
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ISSUE:
1) Whether or not a contract of insurance has been duly perfected between the petitioner, Capital
Insurance, and respondent Plastic Era

RULING:
YES. In clear and unequivocal terms, the insurance policy provides that it is only upon payment of the
premiums by Plastic Era that Capital Insurance agrees to insure the properties of the former against loss
or damage in an amount not exceeding P100,000.00. Significantly, Capital Insurance accepted the
promise of Plastic Era to pay the insurance premium within thirty (30) days from the effective date of
policy. By so doing, it has implicitly agreed to modify the tenor of the insurance policy and in effect,
waived the provision therein that it would only pay for the loss or damage in case the same occurs after
the payment of the premium. Considering that the insurance policy is silent as to the mode of payment,
Capital Insurance is deemed to have accepted the promissory note in payment of the premium. This
rendered the policy immediately operative on the date it was delivered. The view taken in most cases in
the United States:
... is that although one of conditions of an insurance policy is that "it shall not be valid or
binding until the first premium is paid", if it is silent as to the mode of payment,
promissory notes received by the company must be deemed to have been accepted in
payment of the premium. In other words, a requirement for the payment of the first or
initial premium in advance or actual cash may be waived by acceptance of a promissory
note ...
Precisely, this was what actually happened when the Capital Insurance accepted the acknowledgment
receipt of the Plastic Era promising to pay the insurance premium within thirty (30) days from December
17, 1960. Hence, when the damage or loss of the insured property occurred, the insurance policy was in
full force and effect. The fact that the check issued by Plastic Era in partial payment of the promissory
note was later on dishonored did not in any way operate as a forfeiture of its rights under the policy,
there being no express stipulation therein to that effect. By accepting its promise to pay the insurance
premium within thirty (30) days from the effectivity date of the policy — December 17, 1960 Capital
Insurance had in effect extended credit to Plastic Era. The payment of the premium on the insurance
policy therefore became an independent obligation the non-fulfillment of which would entitle Capital
Insurance to recover. It could just deduct the premium due and unpaid upon the satisfaction of the
loss under the policy. It did not have the right to cancel the policy for nonpayment of the premium
except by putting Plastic Era in default and giving it personal notice to that effect. This Capital
Insurance failed to do. On the contrary Capital Insurance had accepted a check for P1,000.00 from
Plastic Era in partial payment of the premium on the insurance policy. Although the check was due for
payment on January 16, 1961 and Plastic Era had sufficient funds to cover it as of January 19, 1961,
Capital Insurance decided to hold the same for thirty-five (35) days before presenting it for payment.
Having held the check for such an unreasonable period of time, Capital Insurance was estopped from
claiming a forfeiture of its policy for non-payment even if the check had been dishonored later.
Where the check is held for an unreasonable time before presenting it for payment, the
insurer may be held estopped from claiming a forfeiture if the check is dishonored
MALAYAN INSURANCE CO., INC. (MICO), vs.GREGORIA CRUZ ARNALDO, in her capacity as the
INSURANCE COMMISSIONER, and CORONACION PINCA, G.R. No. L-67835, October 12, 1987

FACTS:
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On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private respondent, Coronacion
Pinca, Fire Insurance Policy No. F-001-17212 on her property for the amount of P14,000.00 effective July
22, 1981, until July 22, 1982. On October 15,1981, MICO allegedly cancelled the policy for non-payment,
of the premium and sent the corresponding notice to Pinca. On December 24, 1981, payment of the
premium for Pinca was received by Domingo Adora, agent of MICO.On January 15, 1982, Adora remitted
this payment to MICO,together with other payments. On January 18, 1982, Pinca's property was
completely burned. On February 5, 1982, Pinca's payment was returned by MICO to Adora on the
ground that her policy had been cancelled earlier. But Adora refused to accept it.In due time, Pinca made
the requisite demands for payment, which MICO rejected. She then went to the Insurance Commission.
It is because she was ultimately sustained by the public respondent that the petitioner has come to us
for relief. The records show that notice of the decision of the public respondent dated April 5, 1982, was
received by MICO on April 10, 1982. On April 25, 1982, it filed a motion for reconsideration, which was
denied on June 4, 1982. Notice of this denial was received by MICO on June 13, 1982, as evidenced by
Annex "1" duly authenticated by the Insurance Commission. The instant petition was filed with this Court
on July 2, 1982.

ISSUE:
1) Whether or not this petition was filed in time and must be given due course
2) Whether or not there was no payment of premium and that the policy had been cancelled
before the occurence of the loss are not acceptable

RULING:

NO. The position of the petition is that the petition is governed by Section 416 0f the Insurance Code
giving it thirty days wthin which to appeal by certiorari to this Court. Alternatively, it also invokes Rule 45
of the Rules of Court. For their part, the public and private respondents insist that the applicable law is
B.P. 129, which they say governs not only courts of justice but also quasi-judicial bodies like the
Insurance Commission. The period for appeal under this law is also fifteen days, as under Rule 45. Under
Section 416 of the Insurance Code, the period for appeal is thirty days from notice of the decision of the
Insurance Commission. The petitioner filed its motion for reconsideration on April 25, 1981, or fifteen
days such notice, and the reglementary period began to run again after June 13, 1981, date of its receipt
of notice of the denial of the said motion for reconsideration. As the herein petition was filed on July 2,
1981, or nineteen days later, there is no question that it is tardy by four days.
Counted from June 13, the fifteen-day period prescribed under Rule 45, assuming it is applicable, would
end on June 28, 1982, or also four days from July 2, when the petition was filed. If it was filed under B.P.
129, then, considering that the motion for reconsideration was filed on the fifteenth day after MICO
received notice of the decision, only one more day would have remained for it to appeal, to wit, June 14,
1982. That would make the petition eighteen days late by July 2. Indeed, even if the applicable law were
still R.A. 5434, governing appeals from administrative bodies, the petition would still be tardy. The law
provides for a fixed period of ten days from notice of the denial of a seasonable motion for
reconsideration within which to appeal from the decision. Accordingly, that ten-day period, counted
from June 13, 1982, would have ended on June 23, 1982, making the petition filed on July 2, 1982, nine
days late.
MICO's acknowledgment of Adora as its agent defeats its contention that he was not authorized to
receive the premium payment on its behalf. It is clearly provided in Section 306 of the Insurance Code
that:
SEC. 306. xxx xxx xxx
 10

Any insurance company which delivers to an insurance agant or insurance broker a policy or contract of
insurance shall be demmed to have authorized such agent or broker to receive on its behalf payment of
any premium which is due on such policy or contract of insurance at the time of its issuance or delivery
or which becomes due thereon.
And it is a well-known principle under the law of agency that:
Payment to an agent having authority to receive or collect payment is equivalent to
payment to the principal himself; such payment is complete when the money delivered
is into the agent's hands and is a discharge of the indebtedness owing to the principal.
MICO's view that there was no existing insurance at the time of the loss sustained by Pinca because her
policy never became effective for non-payment of premium is defective. Payment was in fact made,
rendering the policy operative as of June 22, 1981, and removing it from the provisions of Article 77,
Thereafter, the policy could be cancelled on any of the supervening grounds enumerated in Article 64
(except "nonpayment of premium") provided the cancellation was made in accordance therewith and
with Article 65.
Section 64 reads as follows:
SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except
upon prior notice thereof to the insured, and no notice of cancellation shall be effective
unless it is based on the occurrence, after the effective date of the policy, of one or more
of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful, or reckless acts or commissions increasing the hazard insured
against;
(e) physical changes in the property insured which result in the property becoming
uninsurable;or
(f) a determination by the Commissioner that the continuation of the policy would
violate or would place the insurer in violation of this Code.
As for the method of cancellation, Section 65 provides as follows:
SEC. 65. All notices of cancellation mentioned in the preceding section shall be in
writing, mailed or delivered to the named insured at the address shown in the policy,
and shall state (a) which of the grounds set forth in section sixty-four is relied upon and
(b) that, upon written request of the named insured, the insurer will furnish the facts on
which the cancellation is based.
A valid cancellation must, therefore, require concurrence of the following conditions:
(1) There must be prior notice of cancellation to the insured;
(2) The notice must be based on the occurrence, after the effective date of the policy, of one or more
of the grounds mentioned;
(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address
shown in the policy;
(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon
written request of the insured, the insurer will furnish the facts on which the cancellation is based.
Considering the strict language of Section 64 that no insurance policy shall be cancelled except upon
prior notice, it behooved MICO's to make sure that the cancellation was actually sent to and received by
the insured. The presumption cited is unavailing against the positive duty enjoined by Section 64 upon
MICO and the flat denial made by the private respondent that she had received notice of the claimed
cancellation.It stands to reason that if Pinca had really received the said notice, she would not have
 11

made payment on the original policy on December 24, 1981. Instead, she would have asked for a new
insurance, effective on that date and until one year later, and so taken advantage of the extended period.
The Court finds that if she did pay on that date, it was because she honestly believed that the policy
issued on June 7, 1981, was still in effect and she was willing to make her payment retroact to July 22,
1981, its stipulated commencement date. After all, agent Adora was very accomodating and had earlier
told her "to call him up any time" she was ready with her payment on the policy earlier issued. She was
obviously only reciprocating in kind when she paid her premium for the period beginning July 22, 1981,
and not December 24, 1981. A close study of the proceedings will show that Pinca meant to renew the
policy if it had really been already cancelled but not if it was still effective. It was all conditional. As it has
not been shown that there was a valid cancellation of the policy, there was consequently no need to
renew it but to pay the premium thereon. Payment was thus legally made on the original transaction
and it could be, and was, validly received on behalf of the insurer by its agent Adora. Adora incidentally,
had not been informed of the cancellation either and saw no reason not to accept the said payment.

Finally, there is nothing in the Insurance Code that makes the participation of an adjuster in the
assessment of the loss imperative or indispensable, as MICO suggests. Section 325, which it cites, simply
speaks of the licensing and duties of adjusters.

ISABELA ROQUE, doing busines under the name and style of Isabela Roque Timber Enterprises and
ONG CHIONG, , vs.HON. INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND SURETY
CORPORATION, G.R. No. L-66935 November 11, 1985

FACTS:
On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a common carrier, entered
into a contract with the petitioners whereby the former would load and carry on board its barge Mable
10 about 422.18 cubic meters of logs from Malampaya Sound, Palawan to North Harbor, Manila. The
petitioners insured the logs against loss for P100,000.00 with respondent Pioneer Insurance and Surety
Corporation (Pioneer). On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at
Malampaya Sound, Palawan for carriage and delivery to North Harbor, Port of Manila, but the shipment
never reached its destination because Mable 10 sank with the 811 pieces of logs somewhere off Cabuli
Point in Palawan on its way to Manila. As alleged by the petitioners in their complaint and as found by
both the trial and appellate courts, the barge where the logs were loaded was not seaworthy such that it
developed a leak. The appellate court further found that one of the hatches was left open causing water
to enter the barge and because the barge was not provided with the necessary cover or tarpaulin, the
ordinary splash of sea waves brought more water inside the barge.On March 8, 1972, the petitioners
wrote a letter to Manila Bay demanding payment of P150,000.00 for the loss of the shipment plus
P100,000.00 as unrealized profits but the latter ignored the demand. Another letter was sent to
respondent Pioneer claiming the full amount of P100,000.00 under the insurance policy but respondent
refused to pay on the ground that its hability depended upon the "Total loss by Total Loss of Vessel only".
Hence, petitioners commenced Civil Case No. 86599 against Manila Bay and respondent Pioneer.
After hearing, the trial court found in favor of the petitioners thereby
(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer Insurance
and Surety Corporation to pay plaintiffs, jointly and severally, the sum of P100,000.00;
(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, in addition,
the sum of P50,000.00, plus P12,500.00, that the latter advanced to the former as down
payment for transporting the logs in question;
 12

(c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed, for
lack of merit, but as to its cross-claim against its co-defendant Manila Bay Lighterage
Corporation, the latter is ordered to reimburse the former for whatever amount it may
pay the plaintiffs as such surety;
(d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed for
lack of merit;
(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary damages
are ordered dismissed, for lack of merits; plaintiffs' claim for attorney's fees in the sum
of P10,000.00 is hereby granted, against both defendants, who are, moreover ordered to
pay the costs; and
(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent (6%)
from March 25, 1975, until amount is fully paid.
Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did not appeal.According
to the petitioners, the transportation company is no longer doing business and is without funds.During
the initial stages of the hearing, Manila Bay informed the trial court that it had salvaged part of the logs.
The court ordered them to be sold to the highest bidder with the funds to be deposited in a bank in the
name of Civil Case No. 86599. On January 30, 1984, the appellate court modified the trial court's
decision and absolved Pioneer from liability after finding that there was a breach of implied warranty of
seaworthiness on the part of the petitioners and that the loss of the insured cargo was caused by the
"perils of the ship" and not by the "perils of the sea". It ruled that the loss is not covered by the marine
insurance policy. Hence, this petition

ISSUES:
1) Whether or not there is a warranty of seaworthiness by the cargo owner
2) Whether or not the loss of the cargo was caused by the “perils of the ship” and not by “perils of
the sea”
3) Whether or not the petitioner is entitled to the salvage value of the logs

RULING:
YES. The liability of the insurance company is governed by law. Section 113 of the Insurance Code
provides:
In every marine insurance upon a ship or freight, or freightage, or upon any thing which
is the subject of marine insurance, a warranty is implied that the ship is seaworthy.
Section 99 of the same Code also provides in part.
Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...
From the above-quoted provisions, there can be no mistaking the fact that the term "cargo" can be the
subject of marine insurance and that once it is so made, the implied warranty of seaworthiness
immediately attaches to whoever is insuring the cargo whether he be the shipowner or not.
As ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40 Phil. 40):
The same conclusion must be reached if the question be discussed with reference to the
seaworthiness of the ship. It is universally accepted that in every contract of insurance
upon anything which is the subject of marine insurance, a warranty is implied that the
ship shall be seaworthy at the time of the inception of the voyage. This rule is accepted
in our own Insurance Law (Act No. 2427, sec. 106). ...
 13

Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is immaterial in
ordinary marine insurance and may not be used by him as a defense in order to recover on the marine
insurance policy. Since the law provides for an implied warranty of seaworthiness in every contract of
ordinary marine insurance, it becomes the obligation of a cargo owner to look for a reliable common
carrier which keeps its vessels in seaworthy condition. The shipper of cargo may have no control over the
vessel but he has full control in the choice of the common carrier that will transport his goods. Or the
cargo owner may enter into a contract of insurance which specifically provides that the insurer answers
not only for the perils of the sea but also provides for coverage of perils of the ship.
We are constrained to apply Section 113 of the Insurance Code to the facts of this case. As stated by the
private respondents:
In marine cases, the risks insured against are "perils of the sea" (Chute v. North River Ins. Co.,
Minn—214 NW 472, 55 ALR 933). The purpose of such insurance is protection against contingencies and
against possible damages and such a policy does not cover a loss or injury which must inevitably take
place in the ordinary course of things. There is no doubt that the term 'perils of the sea' extends only to
losses caused by sea damage, or by the violence of the elements, and does not embrace all losses
happening at sea. They insure against losses from extraordinary occurrences only, such as stress of
weather, winds and waves, lightning, tempests, rocks and the like. These are understood to be the
"perils of the sea" referred in the policy, and not those ordinary perils which every vessel must
encounter. "Perils of the sea" has been said to include only such losses as are of extraordinary nature,
or arise from some overwhelming power, which cannot be guarded against by the ordinary exertion of
human skill and prudence. Damage done to a vessel by perils of the sea includes every species of
damages done to a vessel at sea, as distinguished from the ordinary wear and tear of the voyage,
anddistinct from injuries suffered by the vessel in consequence of her not being seaworthy at the outset
of her voyage (as in this case). It is also the general rule that everything which happens thru the inherent
vice of the thing, or by the act of the owners, master or shipper, shall not be reputed a peril, if not
otherwise borne in the policy. It is quite unmistakable that the loss of the cargo was due to the perils of
the ship rather than the perils of the sea. The facts clearly negate the petitioners' claim under the
insurance policy. In the case of Go Tiaoco y Hermanos v. Union Ins. Society of Canton, supra, we had
occasion to elaborate on the term "perils of the ship." We ruled:
It must be considered to be settled, furthermore, that a loss which, in the ordinary
course of events, results from the natural and inevitable action of the sea, from the
ordinary wear and tear of the ship, or from the negligent failure of the ship's owner to
provide the vessel with proper equipment to convey the cargo under ordinary
conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly
called the "peril of the ship." The insurer undertakes to insure against perils of the sea
and similar perils, not against perils of the ship….. The loss was therefore more
analogous to that which directly results from simple unseaworthiness than to that which
result from the perils of the sea.
xxx xxx xxx
Suffice it to say that upon the authority of those cases there is no room to doubt the
liability of the shipowner for such a loss as occurred in this case. By parity of reasoning
the insurer is not liable; for generally speaking, the shipowner excepts the perils of the
sea from his engagement under the bill of lading, while this is the very perils against
which the insurer intends to give protection.
Neither can petitioners allege barratry on the basis of the findings showing negligence on the part of the
vessel's crew. Barratry as defined in American Insurance Law is "any willful misconduct on the part of
master or crew in pursuance of some unlawful or fraudulent purpose without the consent of the owners,
 14

and to the prejudice of the owner's interest.” Barratry necessarily requires a willful and intentional act in
its commission. No honest error of judgment or mere negligence, unless criminally gross, can be
barratry. In the case at bar, there is no finding that the loss was occasioned by the willful or fraudulent
acts of the vessel's crew. There was only simple negligence or lack of skill. Hence, the second assignment
of error must likewise be dismissed. Anent the third assignment of error, the amount of P8,000.00
representing the amount of the salvaged logs should have been awarded to the petitioners. However,
this should be deducted from the amounts which have been adjudicated against Manila Bay Lighterage
Corporation by the trial court.

MAKATI TUSCANY CONDOMINIUM CORPORATION, vs.THE COURT OF APPEALS, AMERICAN HOME

ASSURANCE CO., represented by American International Underwriters (Phils.), Inc., G.R. No. 95546,
November 6, 1992

FACTS:
Sometime in early 1982, private respondent American Home Assurance Co. (AHAC), represented by
American International Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany
Condominium Corporation (TUSCANY) Insurance Policy No. AH-CPP-9210452 on the latter's building and
premises, for a period beginning 1 March 1982 and ending 1 March 1983, with a total premium of
P466,103.05. The premium was paid on installments on 12 March 1982, 20 May 1982, 21 June 1982 and
16 November 1982, all of which were accepted by private respondent.On 10 February 1983, private
respondent issued to petitioner Insurance Policy No. AH-CPP-9210596, which replaced and renewed the
previous policy, for a term covering 1 March 1983 to 1 March 1984. The premium in the amount of
P466,103.05 was again paid on installments on 13 April 1983, 13 July 1983, 3 August 1983, 9 September
1983, and 21 November 1983. All payments were likewise accepted by private respondent. On 20
January 1984, the policy was again renewed and private respondent issued to petitioner Insurance Policy
No. AH-CPP-9210651 for the period 1 March 1984 to 1 March 1985. On this renewed policy, petitioner
made two installment payments, both accepted by private respondent, the first on 6 February 1984 for
P52,000.00 and the second, on 6 June 1984 for P100,000.00. Thereafter, petitioner refused to pay the
balance of the premium.

Consequently, private respondent filed an action to recover the unpaid balance of P314,103.05 for
Insurance Policy No. AH-CPP-9210651. In its answer with counterclaim, petitioner admitted the issuance
of Insurance Policy No. AH-CPP-9210651. It explained that it discontinued the payment of premiums
because the policy did not contain a credit clause in its favor. Petitioner further claimed that the policy
was never binding and valid, and no risk attached to the policy. It then pleaded a counterclaim for
P152,000.00 for the premiums already paid for 1984-85, and in its answer with amended counterclaim,
sought the refund of P924,206.10 representing the premium payments for 1982-85. After some
incidents, petitioner and private respondent moved for summary judgment.
On 8 October 1987, the trial court dismissed the complaint and the counterclaim. Both parties appealed
from the judgment of the trial court. Thereafter, the Court of Appeals rendered a decision 2modifying
that of the trial court by ordering herein petitioner to pay the balance of the premiums due on Policy No.
AH-CPP-921-651, or P314,103.05 plus legal interest until fully paid, and affirming the denial of the
counterclaim. Hence, this petition.
 15

ISSUE:
1) Whether or not payment by installment of the premiums due on an insurance policy invalidates
the contract of insurance

RULING:
NO. The subject policies are valid even if the premiums were paid on installments. Although Section 77
of the Insurance Code provides that “An insurer is entitled to the payment of the premium as soon as
the thing 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.” The records clearly show that petitioner 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 (3) years, the insurer accepted all the installment payments. Such acceptance of payments
speaks loudly of the insurer's intention to honor the policies it issued to 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 prepared in full.
The ruling of the Court of Appeals is thereby sustained that —
While the import of Section 77 is that prepayment of premiums is strictly required as a
condition to the validity of the contract, We are not prepared to rule that the request to
make installment payments duly approved by the insurer, would prevent the entire
contract of insurance from going into effect despite payment and acceptance of the
initial premium or first installment. Section 78 of the Insurance Code in effect allows
waiver by the insurer of the condition of prepayment by making an acknowledgment in
the insurance policy of receipt of premium as conclusive evidence of payment so far as
to make the policy binding despite the fact that premium is actually unpaid. Section 77
merely precludes the parties from stipulating that the policy is valid even if premiums
are not paid, but does not expressly prohibit an agreement granting credit extension,
and such an agreement is not contrary to morals, good customs, public order or public
policy (De Leon, the Insurance Code, at p. 175). So is an understanding to allow insured
to pay premiums in installments not so proscribed. At the very least, both parties
should be deemed in estoppel to question the arrangement they have voluntarily
accepted.
It appearing from the peculiar circumstances that the parties actually intended to make three (3)
insurance contracts valid, effective and binding, petitioner may not be allowed to renege on its
obligation to pay the balance of the premium after the expiration of the whole term of the third policy
(No. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by the appellate court, where
the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums
paid if the insurer was exposed to the risk insured for any period, however brief or momentary.

PHILAMCARE HEALTH SYSTEMS, INC., vs.COURT OF APPEALS and JULITA TRINOS, G.R. No.
125678, March 18, 2002

FACTS:
 16

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with
petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to the
following question:
Have you or any of your family members ever consulted or been treated for high blood pressure,
heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details). 1
The application was approved for a period of one year from March 1, 1988 to March 1, 1989.
Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement, respondent’s
husband was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein.
He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive
health care and other out-patient services. Upon the termination of the agreement, the same was
extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1,
1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. 2
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical
Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital,
respondent tried to claim the benefits under the health care agreement. However, petitioner denied her
claim saying that the Health Care Agreement was void. According to petitioner, there was a concealment
regarding Ernani’s medical history. Doctors at the MMC allegedly discovered at the time of Ernani’s
confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application
form. Thus, respondent paid the hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical therapist at home.
Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent
brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very
weak. Respondent was constrained to bring him back to the Chinese General Hospital where he died on
the same day. On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44,
an action for damages against petitioner and its president, Dr. Benito Reverente. She asked for
reimbursement of her expenses plus moral damages and attorney’s fees. After trial, the lower court
ruled against petitioners, viz:
1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos
in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the
same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;
4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for
damages and absolved petitioner Reverente. Petitioner’s motion for reconsideration was denied. Hence
this petition.

ISSUES:
1) Whether or not a health care agreement is not an insurance contract
2) Whether or not the "incontestability clause" under the Insurance Code does not apply in a
healthcare agreement

RULING:
NO. Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the following elements concur:
 17

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large
group of persons bearing a similar risk; and
5. In consideration of the insurer’s promise, the insured pays a premium. 8
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future,
which may damnify a person having an insurable interest against him, may be insured against. Every
person has an insurable interest in the life and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in whom
he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting property
or service, of which death or illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondent’s husband in obtaining the health care agreement
was his own health. The health care agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense
arising from sickness, injury or other stipulated contingent, the health care provider must pay for the
same to the extent agreed upon under the contract.
Furthermore, the answer assailed by petitioner was in response to the question relating to the medical
history of the applicant. This largely depends on opinion rather than fact, especially coming from
respondent’s husband who was not a medical doctor. Where matters of opinion or judgment are called
for, answers made in good faith and without intent to deceive will not avoid a policy even though they
are untrue. Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of
the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of
the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the
statement is material to the risk, if the statement is obviously of the foregoing character,
since in such case the insurer is not justified in relying upon such statement, but is obligated to
make further inquiry. There is a clear distinction between such a case and one in which the
insured is fraudulently and intentionally states to be true, as a matter of expectation or belief,
that which he then knows, to be actually untrue, or the impossibility of which is shown by the
facts within his knowledge, since in such case the intent to deceive the insurer is obvious and
amounts to actual fraud.15(Underscoring ours)
The fraudulent intent on the part of the insured must be established to warrant rescission of the
insurance contract.16 Concealment as a defense for the health care provider or insurer to avoid liability
is an affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the provider or insurer. In any case, with or without the authority to investigate,
petitioner is liable for claims made under the contract. Having assumed a responsibility under the
agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability
of the health care provider attaches once the member is hospitalized for the disease or injury covered
by the agreement or whenever he avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract
of insurance." The right to rescind should be exercised previous to the commencement of an action on
 18

the contract.17In this case, no rescission was made. Besides, the cancellation of health care agreements
as in insurance policies require the concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more of the
grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request
of insured, to furnish facts on which cancellation is based. 18
None of the above pre-conditions was fulfilled in this case.

Anent the incontestability of the membership of respondent’s husband, we quote with approval the
following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc.
had twelve months from the date of issuance of the Agreement within which to contest the
membership of the patient if he had previous ailment of asthma, and six months from the
issuance of the agreement if the patient was sick of diabetes or hypertension. The periods
having expired, the defense of concealment or misrepresentation no longer lie.

Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering
that at the time of their marriage, the deceased was previously married to another woman who was still
alive. The health care agreement is in the nature of a contract of indemnity. Hence, payment should be
made to the party who incurred the expenses. It is not controverted that respondent paid all the
hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately
prove the expenses incurred by respondent for the deceased’s hospitalization, medication and the
professional fees of the attending physicians.

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC., vs. COURT OF APPEALS and
CKS DEVELOPMENT CORPORATION, G.R. No. 124520, August 18, 1997

FACTS:
Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private
respondent CKS Development Corporation (hereinafter CKS), as lessor, on 5 October 1988. One of the
stipulations of the one (1) year lease contract states:
18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and
effects placed at any stall or store or space in the leased premises without first obtaining the
written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof
without the consent of the LESSOR then the policy is deemed assigned and transferred to the
LESSOR for its own benefit; . . .
Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire
the merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United
Insurance Co., Inc. (hereinafter United) without the written consent of private respondent CKS. On the
day that the lease contract was to expire, fire broke out inside the leased premises. When CKS learned of
the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer (United) a
demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United)
be paid directly to CKS, based on its lease contract with the Cha spouses. United refused to pay CKS.
 19

Hence, the latter filed a complaint against the Cha spouses and United. On 2 June 1992, the Regional
Trial Court, Branch 6, Manila, rendered a decision * ordering therein defendant United to pay CKS the
amount of P335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary damages,
P20,000.00 as attorney's fees and costs of suit. On appeal, respondent Court of Appeals in CA GR CV No.
39328 rendered a decision ** dated 11 January 1996, affirming the trial court decision, deleting however
the awards for exemplary damages and attorney's fees. A motion for reconsideration by United was
denied on 29 March 1996.

ISSUE:
1) Whether or not the stipulation in the lease contract entered into stating that, any fire insurance
policy obtained by the lessee over their merchandise inside the leased premises is deemed
assigned or transferred to the lessor if said policy is obtained without the prior written consent
of the latter, is valid

RULING:
NO. It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be
contrary to law, morals, good customs, public order or public policy.
Sec. 18 of the Insurance Code provides:
No contract or policy of insurance on property shall be enforceable except for the benefit of
some person having an insurable interest in the property insured.
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist
at the time the insurance takes effect and at the time the loss occurs. The basis of such requirement of
insurable interest in property insured is based on sound public policy: to prevent a person from taking
out an insurance policy on property upon which he has no insurable interest and collecting the proceeds
of said policy in case of loss of the property. In the present case, it cannot be denied that CKS has no
insurable interest in the goods and merchandise inside the leased premises under the provisions of
Section 17 of the Insurance Code which provide:
The measure of an insurable interest in property is the extent to which the insured might be
damnified by loss of injury thereof.
Therefore, respondent CKS cannot, under the Insurance Code — a special law — be validly a beneficiary
of the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable
interest over said merchandise remains with the insured, the Cha spouses. The automatic assignment of
the policy to CKS under the provision of the lease contract previously quoted is void for being contrary
to law and/or public policy. The proceeds of the fire insurance policy thus rightfully belong to the
spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to
pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the
property insured. The liability of the Cha spouses to CKS for violating their lease contract in that the Cha
spouses obtained a fire insurance policy over their own merchandise, without the consent of CKS, is a
separate and distinct issue which cannot be resolved in this case.

GREAT PACIFIC LIFE ASSURANCE CORP., vs.COURT OF APPEALS AND MEDARDA V. LEUTERIO,
G.R. No. 113899, October 13, 1999
 20

FACTS:
A contract of group life insurance was executed between petitioner Great Pacific Life Assurance
Corporation (Grepalife) and Development Bank of the Philippines (DBP). Grepalife agreed to insure the
lives of eligible housing loan mortgagors of DBP.On November 11, 1983, Dr. Wilfredo Leuterio, a
physician and a housing debtor of DBP applied for membership in the group life insurance plan. In an
application form, Dr. Leuterio answered questions concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure,
cancer, diabetes, lung; kidney or stomach disorder or any other physical impairment?
Answer: No. If so give details _____________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [x] Yes [ ] NO.
On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr. Leuterio,
to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two hundred
(P86,200.00) pesos.On August 6, 1984, Dr. Leuterio died due to "massive cerebral hemorrhage."
Consequently, DBP submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr.
Leuterio was not physically healthy when he applied for an insurance coverage on November 15, 1983.
Grepalife insisted that Dr. Leuterio did not disclose he had been suffering from hypertension, which
caused his death. Allegedly, such non-disclosure constituted concealment that justified the denial of the
claim. On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a
complaint with the Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife for "Specific
Performance with Damages." During the trial, Dr. Hernando Mejia, who issued the death certificate, was
called to testify. Dr. Mejia's findings, based partly from the information given by the respondent widow,
stated that Dr. Leuterio complained of headaches presumably due to high blood pressure. The inference
was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out. On
February 22, 1988, the trial court rendered a decision in favor of respondent widow and against
Grepalife. On May 17, 1993, the Court of Appeals sustained the trial court's decision. Hence, the present
petition

ISSUE:
1) Whether or not petitioner is liable to DBP as beneficiary in a group life insurance contract
2) Whether or not Dr. Leuterio’s concealment of his hypertension thereby vitiated the insurance
contract
3) Whether Grepalife is liable in the amount of eighty six thousand, two hundred (P86,200.00)
pesos without proof of the actual outstanding mortgage payable by the mortgagor to DBP
RULING:
To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to
this type of contract. The rationale of a group insurance policy of mortgagors, otherwise known as the
"mortgage redemption insurance," is a device for the protection of both the mortgagee and the
mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the event
of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the
proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving
the heirs of the mortgagor from paying the obligation. In a similar vein, ample protection is given to
the mortgagor under such a concept so that in the event of death; the mortgage obligation will be
extinguished by the application of the insurance proceeds to the mortgage
indebtedness. Consequently, where the mortgagor pays the insurance premium under the group
 21

insurance policy, making the loss payable to the mortgagee, the insurance is on the mortgagor's
interest, and the mortgagor continues to be a party to the contract. In this type of policy insurance,
the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make
the mortgagee a party to the contract. (Sec 8, Insurance Code)
In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co. 12 we held:
Insured, being the person with whom the contract was made, is primarily the proper
person to bring suit thereon. * * * Subject to some exceptions, insured may thus sue,
although the policy is taken wholly or in part for the benefit of another person named or
unnamed, and although it is expressly made payable to another as his interest may
appear or otherwise. * * * Although a policy issued to a mortgagor is taken out for the
benefit of the mortgagee and is made payable to him, yet the mortgagor may sue
thereon in his own name, especially where the mortgagee's interest is less than the
full amount recoverable under the policy, * * *.
And in volume 33, page 82, of the same work, we read the following:
Insured may be regarded as the real party in interest, although he has assigned the
policy for the purpose of collection, or has assigned as collateral security any judgment
he may obtain.
And since a policy of insurance upon life or health may pass by transfer, will or succession to any
person, whether he has an insurable interest or not, and such person may recover it whatever the
insured might have recovered, the widow of the decedent Dr. Leuterio may file the suit against the
insurer, Grepalife.

The second assigned error refers to an alleged concealment that the petitioner interposed as its defense
to annul the insurance contract. Petitioner contends that Dr. Leuterio failed to disclose that he had
hypertension, which might have caused his death. Concealment exists where the assured had
knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he
should communicate it to the assured, but he designedly and intentionally withholds the same.
The medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body of
the decedent. As the attending physician, Dr. Mejia stated that he had no knowledge of Dr. Leuterio's any
previous hospital confinement. Dr. Leuterio's death certificate stated that hypertension was only "the
possible cause of death." The private respondent's statement, as to the medical history of her husband,
was due to her unreliable recollection of events. Hence, the statement of the physician was properly
considered by the trial court as hearsay. The question of whether there was concealment was aptly
answered by the appellate court, thus:
The insured, Dr. Leuterio, had answered in his insurance application that he was in good
health and that he had not consulted a doctor or any of the enumerated ailments,
including hypertension; when he died the attending physician had certified in the death
certificate that the former died of cerebral hemorrhage, probably secondary to
hypertension
Contrary to appellant's allegations, there was no sufficient proof that the insured had
suffered from hypertension. Aside from the statement of the insured's widow who was
not even sure if the medicines taken by Dr. Leuterio were for hypertension, the appellant
had not proven nor produced any witness who could attest to Dr. Leuterio's medical
history . . .
xxx xxx xxx
Appellant insurance company had failed to establish that there was concealment
made by the insured, hence, it cannot refuse payment of the claim. 17
 22

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind
the contract. Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and
the duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. 19 In
the case at bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore
liable to pay the proceeds of the insurance.

Finally, petitioner claims that there was no evidence as to the amount of Dr. Leuterio's outstanding
indebtedness to DBP at the time of the mortgagor's death. Hence, for private respondent's failure to
establish the same, the action for specific performance should be dismissed. Petitioner's claim is without
merit. A life insurance policy is a valued policy. 20 Unless the interest of a person insured is susceptible
of exact pecuniary measurement, the measure of indemnity under a policy of insurance upon life or
health is the sum fixed in the policy. The mortgagor paid the premium according to the coverage of his
insurance, which states that:
The policy states that upon receipt of due proof of the Debtor's death during the terms
of this insurance, a death benefit in the amount of P86,200.00 shall be paid.
In the event of the debtor's death before his indebtedness with the creditor shall have
been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the
Creditor and the balance of the Sum Assured, if there is any shall then be paid to the
beneficiary/ies designated by the debtor."
However, we noted that the Court of Appeals' decision was promulgated on May 17, 1993. In private
respondent's memorandum, she states that DBP foreclosed in 1995 their residential lot, in satisfaction of
mortgagor's outstanding loan. Considering this supervening event, the insurance proceeds shall inure to
the benefit of the heirs of the deceased person or his beneficiaries. Equity dictates that DBP should not
unjustly enrich itself at the expense of another (Nemo cum alterius detrimenio protest). Hence, it cannot
collect the insurance proceeds, after it already foreclosed on the mortgage. The proceeds now rightly
belong to Dr. Leuterio's heirs represented by his widow, herein private respondent Medarda Leuterio.

FGU INSURANCE CORPORATION, vs.THE COURT OF APPEALS, SAN MIGUEL CORPORATION, and ESTATE
OF ANG GUI, represented by LUCIO, JULIAN, and JAIME, all surnamed ANG, and CO TO, G.R. No.
137775, March 31, 2005

FACTS:
Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was engaged in the
shipping business. It owned the M/T ANCO tugboat and the D/B Lucio barge which were operated as
common carriers. Since the D/B Lucio had no engine of its own, it could not maneuver by itself and had
to be towed by a tugboat for it to move from one place to another.On 23 September 1979, San Miguel
Corporation (SMC) shipped from Mandaue City, Cebu, on board the D/B Lucio, for towage by M/T ANCO,
 23

the several cargoes which were cases of beer. The consignee for the cargoes covered by Bill of Lading No.
1 was SMC’s Beer Marketing Division (BMD)-Estancia Beer Sales Office, Estancia, Iloilo, while the
consignee for the cargoes covered by Bill of Lading No. 2 was SMC’s BMD-San Jose Beer Sales Office, San
Jose, Antique. The D/B Lucio was towed by the M/T ANCO all the way from Mandaue City to San Jose,
Antique. The vessels arrived at San Jose, Antique, at about one o’clock in the afternoon of 30 September
1979. The tugboat M/T ANCO left the barge immediately after reaching San Jose, Antique.
When the barge and tugboat arrived at San Jose, Antique, in the afternoon of 30 September 1979, the
clouds over the area were dark and the waves were already big. The arrastre workers unloading the
cargoes of SMC on board the D/B Lucio began to complain about their difficulty in unloading the cargoes.
SMC’s District Sales Supervisor, Fernando Macabuag, requested ANCO’s representative to transfer the
barge to a safer place because the vessel might not be able to withstand the big waves.
ANCO’s representative did not heed the request because he was confident that the barge could
withstand the waves. This, notwithstanding the fact that at that time, only the M/T ANCO was left at the
wharf of San Jose, Antique, as all other vessels already left the wharf to seek shelter. With the waves
growing bigger and bigger, only Ten Thousand Seven Hundred Ninety (10,790) cases of beer were
discharged into the custody of the arrastre operator. At about ten to eleven o’clock in the evening of 01
October 1979, the crew of D/B Lucio abandoned the vessel because the barge’s rope attached to the
wharf was cut off by the big waves. At around midnight, the barge run aground and was broken and the
cargoes of beer in the barge were swept away. As a result, ANCO failed to deliver to SMC’s consignee
Twenty-Nine Thousand Two Hundred Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases
of Cerveza Negra with the total amounting to One Million Three Hundred Forty-Six Thousand One
Hundred Ninety-Seven Pesos (P1,346,197.00). As a consequence of the incident, SMC filed a complaint
for Breach of Contract of Carriage and Damages against ANCO for the amount of One Million Three
Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00) plus interest, litigation
expenses and Twenty-Five Percent (25%) of the total claim as attorney’s fees. Upon Ang Gui’s death,
ANCO, as a partnership, was dissolved hence, on 26 January 1993, SMC filed a second amended
complaint which was admitted by the Court impleading the surviving partner, Co To and the Estate of
Ang Gui represented by Lucio, Julian and Jaime, all surnamed Ang. The substituted defendants adopted
the original answer with counterclaim of ANCO "since the substantial allegations of the original
complaint and the amended complaint are practically the same." ANCO admitted that the cases of beer
Pale Pilsen and Cerveza Negra mentioned in the complaint were indeed loaded on the vessel belonging
to ANCO. It claimed however that it had an agreement with SMC that ANCO would not be liable for any
losses or damages resulting to the cargoes by reason of fortuitous event. Since the cases of beer Pale
Pilsen and Cerveza Negra were lost by reason of a storm, a fortuitous event which battered and sunk the
vessel in which they were loaded, they should not be held liable. ANCO further asserted that there was
an agreement between them and SMC to insure the cargoes in order to recover indemnity in case of
loss. Pursuant to that agreement, the cargoes to the extent of Twenty Thousand (20,000) cases was
insured with FGU Insurance Corporation (FGU) for the total amount of Eight Hundred Fifty-Eight
Thousand Five Hundred Pesos (P858,500.00) per Marine Insurance Policy No. 29591. Subsequently,
ANCO, with leave of court, filed a Third-Party Complaint against FGU, alleging that before the vessel of
ANCO left for San Jose, Antique with the cargoes owned by SMC, the cargoes, to the extent of Twenty
Thousand (20,000) cases, were insured with FGU for a total amount of Eight Hundred Fifty-Eight
Thousand Five Hundred Pesos (P858,500.00) under Marine Insurance Policy No. 29591. ANCO further
alleged that on or about 02 October 1979, by reason of very strong winds and heavy waves brought
about by a passing typhoon, the vessel run aground near the vicinity of San Jose, Antique, as a result of
which, the vessel was totally wrecked and its cargoes owned by SMC were lost and/or destroyed.
According to ANCO, the loss of said cargoes occurred as a result of risks insured against in the insurance
 24

policy and during the existence and lifetime of said insurance policy. ANCO went on to assert that in the
remote possibility that the court will order ANCO to pay SMC’s claim, the third-party defendant
corporation should be held liable to indemnify or reimburse ANCO whatever amounts, or damages, it
may be required to pay to SMC. Third-Party defendant FGU prayed for the dismissal of the Third-Party
Complaint and asked for actual, moral, and exemplary damages and attorney’s fees. The trial court found
that while the cargoes were indeed lost due to fortuitous event, there was failure on ANCO’s part,
through their representatives, to observe the degree of diligence required that would exonerate them
from liability. The trial court thus held the Estate of Ang Gui and Co To liable to SMC for the amount of
the lost shipment. With respect to the Third-Party complaint, the court a quo found FGU liable to bear
Fifty-Three Percent (53%) of the amount of the lost cargoes. According to the trial court:
. . . Evidence is to the effect that the D/B Lucio, on which the cargo insured, run-aground and was broken
and the beer cargoes on the said barge were swept away. It is the sense of this Court that the risk insured
against was the cause of the loss.
Since the total cargo was 40,550 cases which had a total amount of P1,833,905.00 and the amount of
the policy was only for P858,500.00, defendants as assured, therefore, were considered co-insurers of
third-party defendant FGU Insurance Corporation to the extent of 975,405.00 value of the
cargo. Consequently, inasmuch as there was partial loss of only P1,346,197.00, the assured shall bear
53% of the loss…
The appellate court affirmed in toto the decision of the lower court and denied the motion for
reconsideration and the supplemental motion for reconsideration. Hence, the petitions.

ISSUE:
Whether or not FGU can be held liable under the insurance policy to reimburse ANCO for the loss of the
cargoes

RULING:
NO. One of the purposes for taking out insurance is to protect the insured against the consequences of
his own negligence and that of his agents. Thus, it is a basic rule in insurance that the carelessness and
negligence of the insured or his agents constitute no defense on the part of the insurer. This rule
however presupposes that the loss has occurred due to causes which could not have been prevented by
the insured, despite the exercise of due diligence. When evidence show that the insured’s negligence or
recklessness is so gross as to be sufficient to constitute a willful act, the insurer must be exonerated.
In the case of Standard Marine Ins. Co. v. Nome Beach L. & T. Co.,24 the United States Supreme Court held
that:
The ordinary negligence of the insured and his agents has long been held as a part of the risk which the
insurer takes upon himself, and the existence of which, where it is the proximate cause of the loss, does
not absolve the insurer from liability. But willful exposure, gross negligence, negligence amounting to
misconduct, etc., have often been held to release the insurer from such liability.
The United States Supreme Court has made a distinction between ordinary negligence and gross
negligence or negligence amounting to misconduct and its effect on the insured’s right to recover
under the insurance contract. According to the Court, while mistake and negligence of the master or
crew are incident to navigation and constitute a part of the perils that the insurer is obliged to incur,
such negligence or recklessness must not be of such gross character as to amount to misconduct or
wrongful acts; otherwise, such negligence shall release the insurer from liability under the insurance
contract. In the case at bar, both the trial court and the appellate court had concluded from the evidence
 25

that the crewmembers of both the D/B Lucio and the M/T ANCO were blatantly negligent. There
was blatant negligence on the part of the employees of defendants-appellants when the patron
(operator) of the tug boat immediately left the barge at the San Jose, Antique wharf despite the looming
bad weather. Negligence was likewise exhibited by the defendants-appellants’ representative who did
not heed Macabuag’s request that the barge be moved to a more secure place. The prudent thing to do,
as was done by the other sea vessels at San Jose, Antique during the time in question, was to transfer
the vessel to a safer wharf. The negligence of the defendants-appellants is proved by the fact that on 01
October 1979, the only simple vessel left at the wharf in San Jose was the D/B Lucio. Thus, taking into
account all the circumstances the court concluded that the blatant negligence of ANCO’s employees is
of such gross character that it amounts to a wrongful act which must exonerate FGU from liability
under the insurance contract.