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Pacific v CA G.R. No.

L-41014 November 28, 1988


Ratio:
J. Paras 1. Policy Condition No. 3 explicitly provides:
3. The Insured shall give notice to the Company of any insurance already
Facts: effected, or which may subsequently be effected, covering any of the property
An open fire insurance policy, was issued to Paramount Shirt Manufacturing by hereby insured, and unless such notice be given and the particulars of such
Oriental Assurance Corporation to indemnify P61,000.00, caused by fire to the insurance or insurances be stated in or endorsed on this Policy by or on behalf of
factory’s stocks, materials and supplies. the Company before the occurrence of any loss or damage, all benefit under this
The insured was a debtor of Pacific Banking in the amount of (P800,000.00) and policy shall be forfeited.
the goods described in the policy were held in trust by the insured for Pacific The insured failed to reveal before the loss three other insurances. Had the
Banking under trust receipts. insurer known that there were many co-insurances, it could have hesitated or
The policy was endorsed to Pacific Banking as mortgagee/ trustor of the plainly desisted from entering into such contract. Hence, the insured was guilty
properties insured, with the knowledge and consent of private respondent to the of clear fraud.
effect that "loss if any under this policy is payable to the Pacific Banking Concrete evidence of fraud or false declaration by the insured was furnished by
Corporation". the petitioner itself when the facts alleged in the policy under clauses "Co-
A fire broke out on the premises destroying the goods contained in the building. Insurances Declared" and "Other Insurance Clause" are materially different from
The bank sent a letter of demand to Oriental for indemnity. the actual number of co-insurances taken over the subject property.
The company wasn’t ready to give since it was awaiting the adjuster’s report. As the insurance policy against fire expressly required that notice should be
The company then made an excuse that the insured had not filed any claim with given by the insured of other insurance upon the same property, the total absence
it, nor submitted proof of loss which is a clear violation of Policy Condition No. of such notice nullifies the policy.
11, as a result, determination of the liability of private respondent could not be Petitioner points out that Condition No. 3 in the policy in relation to the "other
made. insurance clause" supposedly to have been violated, cannot certainly defeat the
Pacific Banking filed in the trial court an action for a sum of money for right of the petitioner to recover the insurance as mortgagee/assignee. Hence,
P61,000.00 against Oriental Assurance. they claimed that the purpose for which the endorsement or assignment was
At the trial, petitioner presented communications of the insurance adjuster to made was to protect the mortgagee/assignee against any untoward act or
Asian Surety revealing undeclared co-insurances with the following: P30,000 omission of the insured. It would be absurd to hold that petitioner is barred from
with Wellington Insurance; P25,000 with Empire Surety and P250,000 with recovering the insurance on account of the alleged violation committed by the
Asian Surety undertaken by insured Paramount on the same property covered by insured.
its policy with Oriental whereas the only co-insurances declared in the subject It is obvious that petitioner has missed all together the import of subject
policy are those of P30,000.00 with Malayan P50,000.00 with South Sea and mortgage clause which specifically provides:
P25.000.00 with Victory. “Loss, if any, under this policy, shall be payable to the PACIFIC BANKING
The defense of fraud, in the form of non-declaration of co-insurances which was CORPORATION Manila mortgagee/trustor as its interest may appear, it being
not pleaded in the answer, was also not pleaded in the Motion to Dismiss. hereby understood and agreed that this insurance as to the interest of the
The trial court denied the respondent’s motion. Oriental filed another motion to mortgagee/trustor only herein, shall not be invalidated by any act or neglect—
include additional evidence of the co-insurance which could amount to fraud. except fraud or misrepresentation, or arson—of the mortgagor or owner/trustee
The trial court still made Oriental liable for P 61,000. The CA reversed the of the property insured; provided, that in case the mortgagor or owner/ trustee
trial court decision. Pacific Banking filed a motion for reconsideration of the neglects or refuses to pay any premium, the mortgagee/ trustor shall, on demand
said decision of the respondent Court of Appeals, but this was denied for lack of pay the same.”
merit. The paragraph clearly states the exceptions to the general rule that insurance as
to the interest of the mortgagee, cannot be invalidated; namely: fraud, or
Issues: misrepresentation or arson. Concealment of the aforecited co-insurances can
1. WON unrevealed co-insurances Violated policy conditions No. 3 easily be fraud, or in the very least, misrepresentation.
2. WON the insured failed to file the required proof of loss prior to court action. Undoubtedly, it is but fair and just that where the insured who is primarily
entitled to receive the proceeds of the policy has by its fraud and/or
Held: Yes. Petition dismissed. misrepresentation, forfeited said right.

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Petitioner further stressed that fraud which was not pleaded as a defense in The sawmill filed a civil case against Oriental and the court ordered it to pay
private respondent's answer or motion to dismiss, should be deemed to have 410,000 as value for the missing logs. The CA affirmed the lower court
been waived. It will be noted that the fact of fraud was tried by express or at judgment but reduced the legal interest. Hence this appeal by Oriental.
least implied consent of the parties. Petitioner did not only object to the
introduction of evidence but on the contrary, presented the very evidence that Issue:
proved its existence. Whether or not Oriental Assurance can be held liable under its marine insurance
2. Generally, the cause of action on the policy accrues when the loss occurs, But policy based on the theory of a divisiblecontract of insurance and, consequently,
when the policy provides that no action shall be brought unless the claim is first a constructive total loss.
presented extrajudicially in the manner provided in the policy, the cause of
action will accrue from the time the insurer finally rejects the claim for payment Held: No. Petition granted.
In the case at bar, policy condition No. 11 specifically provides that the insured
shall on the happening of any loss or damage give notice to the company and Ratio:
shall within fifteen (15) days after such loss or damage deliver to the private Perla v CA- The terms of the contract constitute the measure of the insurer
respondent (a) a claim in writing giving particular account as to the articles or liability and compliance therewith is a condition precedent to the insured's right
goods destroyed and the amount of the loss or damage and (b) particulars of all to recovery from the insurer.
other insurances, if any. “Whether a contract is entire or severable is a question of intention to be
Twenty-four days after the fire did petitioner merely wrote letters to private determined by the language employed by the parties. The policy in question
respondent to serve as a notice of loss. It didn’t even furnish other documents. shows that the subject matter insured was the entire shipment of
Instead, petitioner shifted upon private respondent the burden of fishing out the 2,000 cubic meters of apitong logs. The fact that the logs were loaded on two
necessary information to ascertain the particular account of the articles destroyed different barges did not make the contract several and divisible as to the items
by fire as well as the amount of loss. Since the required claim by insured, insured. The logs on the two barges were not separately valued or separately
together with the preliminary submittal of relevant documents had not been insured. Only one premium was paid for the entire shipment, making for only
complied with, it follows that private respondent could not be deemed to have one cause or consideration. The insurance contract must, therefore, be
finally rejected petitioner's claim and therefore there was no cause of action. considered indivisible.”
It appearing that insured has violated or failed to perform the conditions under Also, the insurer's liability was for "total loss only" as stipulated. A total loss
No. 3 and 11 of the contract, and such violation or want of performance has not may be either actual or constructive. An actual total loss under Sec 130 of the
been waived by the insurer, the insured cannot recover, much less the herein Insurance Code is caused by:
petitioner. (a) A total destruction of the thing insured;

Oriental v CA G.R. No. 94052 August 9, 1991 (b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the
J. Melencio-Herrera purpose for which he held it; or
(d) Any other event which effectively deprives the owner of the possession, at
Facts: the port of destination, of the thing insured.
Panama Sawmill shipped 1208 pieces of apitog logs to Manila and insured the A constructive total loss, gives to a person insured a right to abandon and it
logs with Oriental for the value of Php 1 million. Two barges were loaded with means:
610 and 598 logs. At sea, typhoons ravaged one of the barges, resulting in the SECTION 139. A person insured by a contract of marine insurance may
loss of 497 of 598 of the logs. abandon the thing insured, or any particular portion thereof separately valued by
The Insurance contract provided for indemnity under the following conditions: the policy, or otherwise separately insured, and recover for a total loss thereof,
Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to the when the cause of the loss is a peril injured against,
following clauses: (a) If more than three-fourths thereof in value is actually lost, or would have to
— Civil Code Article 1250 Waiver clause be expended to recover it from the peril;
— Typhoon warranty clause (b) If it is injured to such an extent as to reduce its value more than three-fourths
— Omnibus clause.
Oriental didn’t give an indemnity because there wasn’t total loss of the shipment.

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The appellate court considered the cargo in one barge as separate from the other activities which are directly related to the principal business of such employer. In
and ruled that 497 of 598 was more than ¾ of the amount lost, showing a such cases, the person or intermediary shall be considered merely as an agent of
constructive total loss. the employer who shall be responsible to the workers in the same manner and
The SC, however, said that although the logs were placed in two barges, they extent as if the latter were directly employed by him.
were not separately valued by the policy, nor separately insured. Of the entirety The bank asserted that the guards were not its employees since it had nothing to
of 1,208, pieces of logs, only 497 pieces thereof were lost or 41.45% of the do with their selection and engagement, the payment of their wages, their
entire shipment. Since the cost of those 497 pieces does not exceed 75% of the dismissal, and the control of their conduct.
value of all 1,208 pieces of logs, the shipment can not be said to have sustained a They cited a case where an employee-employer relationship was governed by (1)
constructive total loss under Section 139(a) of the Insurance Code. the selection and engagement of the employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the power to control the employee's conduct.
Fortune v CA G.R. No. 115278 May 23, 1995 The case was governed by Article 174 of the Insurance Code where it stated that
casualty insurance awarded an amount to loss cause by accident or mishap.
J. Davide Jr. “The term "employee," should be read as a person who qualifies as such
as generally and universally understood, or jurisprudentially established in the
Facts: light of the four standards in the determination of the employer-employee
Producers Bank’s money was stolen while it was being transported from Pasay relationship, or as statutorily declared even in a limited sense as in the case of
to Makati. The people guarding the money were charged with the theft. The bank Article 106 of the Labor Code which considers the employees under a "labor-
filed a claim for the amount of Php 725,000, and such was refused by the only" contract as employees of the party employing them and not of the party
insurance corporation due to the stipulation: who supplied them to the employer.”
GENERAL EXCEPTIONS But even if the contracts were not labor-only, the bank entrusted the suspects
The company shall not be liable under this policy in report of with the duty to safely transfer the money to its head office, thus, they were
(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or representatives. According to the court, “a ‘representative’ is defined as one who
any officer, employee, partner, director, trustee or authorized representative of represents or stands in the place of another; one who represents others or another
the Insured whether acting alone or in conjunction with others. . . . in a special capacity, as an agent, and is interchangeable with ‘agent.’”
In the trial court, the bank claimed that the suspects were not any of the above
mentioned. They won the case. The appellatecourt affirmed on the basis that the Great Pacific v CA G.R. No. L-31845 April 30, 1979
bank had no power to hire or dismiss the guard and could only ask for
replacements from the security agency. J. De Castro

Issue: Did the guards fall under the general exceptions clause of the insurance Facts:
policy and thus absolved the insurance company from liability? Ngo Hing filed an application with the Great Pacific for a twenty-year
endowment policy in the amount of P50,000.00 on the life of his one-year old
Held: Yes to both. Petition granted. daughter Helen. He supplied the essential data which petitioner Mondragon, the
Branch Manager, wrote on the form. The latter paid the annual premium the sum
Ratio: of P1,077.75 going over to the Company, but he retained the amount of
The insurance agency contended that the guards automatically became the P1,317.00 as his commission for being a duly authorized agent of Pacific Life.
authorized representatives of the bank when they cited International Timber Upon the payment of the insurance premium, the binding deposit receipt was
Corp. vs. NLRC where a contractor is a "labor-only" contractor in the sense that issued Ngo Hing. Likewise, petitioner Mondragon handwrote at the bottom of
there is an employer-employee relationship between the owner of the project and the back page of the application form his strong recommendation for the
the employees of the "labor-only" contractor. approval of the insurance application. Then Mondragon received a letter from
They cited Art. 106. Of the Labor Code which said: Pacific Life disapproving the insurance application. The letter stated that the said
Contractor or subcontractor. — There is "labor-only" contracting where the life insurance application for 20-year endowment plan is not available for minors
person supplying workers to an employer does not have substantial capital or below seven years old, but Pacific Life can consider the same under the Juvenile
investment in the form of tools, equipment, machineries, work premises, among Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-
others, and the workers recruited and placed by such persons are performing Medical Declaration be sent to the company.

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The non-acceptance of the insurance plan by Pacific Life was allegedly not Bonifacio Bros. v. Mora
communicated by petitioner Mondragon to private respondent Ngo Hing.
Instead, on May 6, 1957, Mondragon wrote back Pacific Life again strongly 20 SCRA 262
recommending the approval of the 20-year endowment insurance plan to
children, pointing out that since the customers were asking for such coverage. Facts:
Helen Go died of influenza. Ngo Hing sought the payment of the proceeds of the
insurance, but having failed in his effort, he filed the action for the recovery > Enrique Mora mortgaged his Odlsmobile sedan car to HS Reyes Inc. with the
before the Court of First Instance of Cebu, which ruled against him. condition that Mora would insure the car with HS Reyes as beneficiary.

Issues: > The car was then insured with State Insurance Company and the policy
1. Whether the binding deposit receipt constituted a temporary contract of the delivered to Mora.
life insurance in question
> During the effectivity of the insurance contract, the car figured in an accident.
2. Whether Ngo Hing concealed the state of health and physical condition of
The company then assigned the accident to an insurance appraiser for
Helen Go, which rendered void the policy
investigation and appraisal of the damage.
Held: No. Yes. Petition dismissed. > Mora without the knowledge and consent of HS Reyes, authorized Bonifacio
Bros to fix the car, using materials supplied by the Ayala Auto Parts Company.
Ratio:
The receipt was intended to be merely a provisional insurance contract. Its > For the cost of Labor and materials, Mora was billed P2,102.73. The bill was
perfection was subject to compliance of the following conditions: (1) that the sent to the insurer’s appraiser. The insurance company drew a check in the
company shall be satisfied that the applicant was insurable on standard rates; (2) amount of the insurance proceeds and entrusted the check to its appraiser for
that if the company does not accept the application and offers to issue a policy delivery to the proper party.
for a different plan, the insurance contract shall not be binding until the applicant
accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that > The car was delivered to Mora without the consent of HS Reyes, and without
if the company disapproves the application, the insurance applied for shall not be payment to Bonifacio Bros and Ayala.
in force at any time, and the premium paid shall be returned to the applicant.
The receipt is merely an acknowledgment that the latter's branch office had > Upon the theory that the insurance proceeds should be directly paid to them,
received from the applicant the insurance premium and had accepted the Bonifacio and Ayala filed a complaint against Mora and the insurer with the
application subject for processing by the insurance company. There was still municipal court for the collection of P2,102.73.
approval or rejection the same on the basis of whether or not the applicant is
"insurable on standard rates." Since Pacific Life disapproved the insurance > The insurance company filed its answer with a counterclaim for interpleader,
application of respondent Ngo Hing, the binding deposit receipt in question had requiring Bonifacio and HS Reyes to interplead in order to determine who has a
never become in force at any time. The binding deposit receipt is conditional and better right to the proceeds.
does not insure outright. This was held in Lim v Sun.
The deposit paid by private respondent shall have to be refunded by Pacific Life. Issue:
2. Ngo Hing had deliberately concealed the state of health of his daughter Helen
Go. When he supplied data, he was fully aware that his one-year old daughter is Whether or not there is privity of contract between Bonficacio and Ayala on one
typically a mongoloid child. He withheld the fact material to the risk insured. hand and State Insurance on the other.
“The contract of insurance is one of perfect good faith uberrima fides meaning
good faith, absolute and perfect candor or openness and honesty; the absence of Held:
any concealment or demotion, however slight.”
The concealment entitles the insurer to rescind the contract of insurance. NONE.

It is fundamental that contracts take effect only between the parties thereto,
except in some specific instance provided by law where the contract contains

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some stipulation in favor of a third person. Such stipulation is known as a G.R. No. 181132 June 5, 2009
stipulation pour autrui; or a provision in favor of a third person not a party to the Lessons Applicable: To whom insurance proceeds payable (Insurance)
contract.
FACTS:
Under this doctrine, a third person is ed to avail himself of a benefit granted to • Loreto Maramag designated as beneficiary his concubine Eva
him by the terms of the contract, provided that the contracting parties have de Guzman Maramag
clearly and deliberately conferred a favor upon such person. Consequently, a • Vicenta Maramag and Odessa, Karl Brian, and Trisha Angelie
third person NOT a party to the contract has NO action against the aprties (heirs of Loreto Maramag) and his concubine Eva de Guzman
thereto, and cannot generally demand the enforcement of the same. Maramag, also suspected in the killing of Loreto and his illegitimate
children are claiming for his insurance.
The question of whether a third person has an enforceable interest in a contract • Vicenta alleges that Eva is disqualified from claiming
must be settled by determining whether the contracting parties intended to tender • RTC: Granted - civil code does NOT apply
him such an interest by deliberately inserting terms in their agreement with the • CA: dismissed the case for lack of jurisdiction for filing
avowed purpose of conferring favor upon such third person. IN this connection, beyond reglementary period
this court has laid down the rule that the fairest test to determine whether the ISSUE: W/N Eva can claim even though prohibited under the civil code against
interest of a 3rd person in a contract is a stipulation pour autrui or merely an donation
incidental interest, is to rely upon the intention of the parties as disclosed by
their contract. HELD: YES. Petition is DENIED.
• Any person who is forbidden from receiving any donation
In the instant case the insurance contract does not contain any words or clauses under Article 739 cannot be named beneficiary of a life insurance
to disclose an intent to give any benefit to any repairmen or material men in case policy of the person who cannot make any donation to him
of repair of the car in question. The parties to the insurance contract omitted If a concubine is made the beneficiary, it is believed

such stipulation, which is a circumstance that supports the said conclusion. On that the insurance contract will still remain valid, but the
the other hand, the "loss payable" clause of the insurance policy stipulates that indemnity must go to the legal heirs and not to the concubine,
"Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. for evidently, what is prohibited under Art. 2012 is the naming
Reyes, Inc. which they intended to benefit. of the improper beneficiary.
• SECTION 53. The insurance proceeds shall be applied
A policy of insurance is a distinct and independent contract between the insured exclusively to the proper interest of the person in whose name or for
and insurer, and third persons have no right either in a court of equity, or in a whose benefit it is made unless otherwise specified in the policy.
court of law, to the proceeds of it, unless there be some contract of trust, GR: only persons entitled to claim the insurance

expressed or implied, by the insured and third person. In this case, no contract proceeds are either the insured, if still alive; or the beneficiary,
of trust, express or implied. In this case, no contract of trust, expressed or if the insured is already deceased, upon the maturation of the
implied exists. We, therefore, agree with the trial court that no cause of action policy.
exists in favor of the appellants in so far as the proceeds of insurance are EX: situation where the insurance contract was

concerned. The appellant's claim, if at all, is merely equitable in nature and must intended to benefit third persons who are not parties to the
be made effective through Enrique Mora who entered into a contract with the same in the form of favorable stipulations or indemnity. In
Bonifacio Bros Inc. This conclusion is deducible not only from the principle such a case, third parties may directly sue and claim from the
governing the operation and effect of insurance contracts in general, but is insurer
clearly covered by the express provisions of section 50 of the Insurance Act It is only in cases where the insured has not designated any

(now Sec. 53). beneficiary, or when the designated beneficiary is disqualified by law to
receive the proceeds, that the insurance policy proceeds shall redound
The policy in question has been so framed that "Loss, if any, is payable to H. S. to the benefit of the estate of the insured
Reyes, Inc." which unmistakably shows the intention of the parties. Coquia v. Fieldmen’s Insurance
Insurance Case Digest: Heirs Of Loreto C. Maramag V Maramag (2009) 26 SCRA 172

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Facts: maintained this action by themselves, without the assistance of the insured it
goes without saying that they could and did properly join the latter in filing the
> On Dec. 1, 1961, Fieldmen’s Insurance co. Issued in favor of the Manila complaint herein.
Yellow Taxicab a common carrier insurance policy with a stipulation that the
company shall indemnify the insured of the sums which the latter wmy be held Lopez v. Del Rosario
liable for with respect to “death or bodily injury to any faire-paying passenger
including the driver and conductor”. 44 PHIL 98

> The policy also stated that in “the event of the death of the driver, the Facts:
Company shall indemnify his personal representatives and at the Company’s
option may make indemnity payable directly to the claimants or heirs of the > Benita Del Rosario is the owner of a bonded warehouse in Manila where
claimants.” copra and other merchandise are deposited.

> During the policy’s lifetime, a taxicab of the insured driven by Coquia met an > Among those who had copra deposited in the warehouse was Froilan Lopez,
accident and Coquia died. the owner of 14 warehouse receipts with a declared value of P107,990.40 in his
name.
> When the company refused to pay the only heirs of Coquia, his parents, they
institued this complaint. The company contends that plaintiffs have no cause of > Del Rosario secured insurance on the warehouse and its contents with 5
action since the Coquias have no contractual relationship with the company. different insurance companies in the amount of P404,800.

Issue: > All policies were in the name of Del Rosario, except for one (with Nat’l
Insurance Co.) for 40T, in favor of Compania Copra de Tayabas.
Whether or not plaintiffs have the right to collect on the policy.
> The warehouse and its contents were destroyed by fire. When Bayne, a fire
Held: loss adjuster, failed to effect a settlement between the Insurance companies and
Del Rosario, the latter authorized Atty. Fisher to negotiate with the Companies.
YES.
> An agreement was reached to submit the matter to arbitration. The claims by
Athough, in general, only parties to a contract may bring an action based different people who had stored copra in the warehouse were settled with the
thereon, this rule is subject to exceptions, one of which is found in the second exception of Friolan Lopez.
paragraph of Article 1311 of the Civil Code of the Philippines, reading: "If a
contract should contain some stipulation in favor of a third person, he may > A case was filed in CFI by Lopez. The court awarded him the sum of
demand its fulfillment provided he communicated his acceptance to the obligor P88,492.21 with legal interest.
before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a Issue:
favor upon a third person." This is but the restatement of a well-known principle
concerning contracts pour autrui, the enforcement of which may be demanded by Whether or not Del Rosario acted as the agent of Lopez in taking out the
a third party for whose benefit it was made, although not a party to the contract, insurance on the contents of the warehouse or whether she acted as the reinsurer
before the stipulation in his favor has been revoked by the contracting parties of the copra.

In the case at bar, the policy under consideration is typical of contracts pour 

autrui this character being made more manifest by the fact that the deceased Held:
driver paid fifty percent (50%) of the corresponding premiums, which were
deducted from his weekly commissions. Under these conditions, it is clear that She acted as the agent of Lopez.
the Coquias — who, admittedly, are the sole heirs of the deceased — have a
direct cause of action against the Company, and, since they could have
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The agency can be deduced from the warehouse receipts, the insurance policies “In the event of loss, whether total or partial, it is understood that the amount of
and the circumstances surrounding the transaction. Under any aspect, Del the loss shall be subject to appraisal and the liability of the company,
Rosario is liable. The law is that a policy effected by a bailee and covering by if established, shall be limited to the actual loss, subject to the applicable terms,
its terms in his own property and property held in trust, inures, in the event of conditions, warranties and clauses of this Policy, and in no case shall exceed the
loss, equally and proportionately to the benefit of all owners of the property amount of the policy.”
insured. Even if one secured insurance covering his own goods and goods Section 60 of the Insurance Code defines an open policy is one in which the
stored with him, and even if the owner of the stored goods did not request or value of the thing insured is not agreed upon but is left to be ascertained in case
know the insurance, and did not ratify it before the payment of the loss, it has of loss." This means that the actual loss, as determined, will represent the
been held by a reputable court that the warehouseman is liable to the owner of total indemnity due the insured from the insurer except only that the
such stored goods for his share. total indemnity shall not exceed the face value of the policy.
The actual loss has been ascertained in this case. Hence, applying the open
In a case of contributing policies, adjustments of loss made by an expert or by a policy clause as expressly agreed upon, the private respondent is entitled
board of arbitrators may be submitted to the court NOT as evidence of the facts to indemnity in the total amount of P508,867.00.
stated therein, or as obligatory, but for the purpose of assisting the court in The refusal of its vice-president to receive the private respondent's complaint
calculating the amount of liability. was the first indication of the petitioner's intention to prolong this case and
postpone the discharge of its obligation to the private respondent under this
Development Insurance v IAC G.R. No. 71360 July 16, 1986 agreement. They still evaded payment for 5 years.

J. Cruz Paulo Ang and Sally Ang v. Fulton Fire Insurance Co. et al
No. L-15862. July 31, 1961; J. Labrador
Facts:
A fire occurred in the building of Philippine Union. It sued for recovery of FACTS:
damages from the petitioner on the basis of an insurance contract between them. (chronological arrangement of facts)
The petitioner failed to answer on time despite the numerous extensions it asked 1. Sept 1953: P&S Department Store (Sally Ang) was insured with Fulton Fire
for. It was declared in default by the trial court. A judgment of default was Insurance Co over stocks of general merchandise, consisting principally of
subsequently rendered on the strength of the evidence given by the private dried goods. It contained a stipulation stating “if the claim is made and
respondent, which was allowed damages. The petitioner moved to lift the order rejected but no action is commenced within 12 months after such rejection,
of default. Its motion was denied. It went to the appellate court, which affirmed all benefits under the policy would be forfeited.”
the decision of the trial court. Hence this appeal. 2. Dec 1954: fire consumed the store and Ang filed claims. However, on April
1956, Fulton denied claims.
Issue: Was Philippine Union required to jointly indemnify the building? 3. January 1955: Paulo Ang and 10 others were charged for arson in the Justice
of the Peace Court of Ilocos Norte. Remanded to CFI and the latter
Held: No. Petition dismissed. acquitted Paulo Ang of the crime of arson.
4. May 1956: Ang filed case against Fulton’s agent. On Sept 1957, this case
Ratio: was dismissed without prejudice.
The policy insured the private respondent's building against fire for 5. May 1958: Ang filed the present case against Fulton. CFI ruled in favor of
P2,500,000.00. Ang, holding that the 12-month prescription period (from insurer’s denial of
The petitioner argued that the respondent must share the difference between that claim) was suspended by the case against the agent.
amount and the face value of the policy and the loss sustained for 5.8 million
under Condition 17 of the policy. ISSUE: whether or not the filing of the previous suit against the agent suspended
The building was insured at P2,500,000.00 by agreement of the insurer and the running of the prescriptive period.
the insured.
The agreement is known as an open policy and is subject to the express HELD:
condition that: 1. SC ruled that no, period was not suspended, and action had already
prescribed. CFI ruling set aside, case dismissed.

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2. The condition contained that claims must be presented within 12 months or Ratio:
one year after rejection is not merely a procedural requirement, but is 1. The policy states in section 27.
essential to a prompt settlement of claims against insurance companies. Action or suit clause — If a claim be made and rejected and an action or suit be
3. It demands that insurance suits be brought by the insured while the evidence not commenced either in the Insurance Commission or in any court of competent
as to the origins and causes of destruction have not yet disappeared. jurisdiction within twelve (12) months from receipt of notice of such rejection,
4. Its purpose is to terminate all liabilities in case the action is not filed by the or in case of arbitration taking place as provided herein, within twelve (12)
insured within the period stipulated. months after due notice of the award made by the arbitrator or arbitrators or
5. The action against the agent cannot have any other legal effect except that of umpire, then the claim shall for all purposes be deemed to have
notifying the agent of the claim if there is no condition in the policy that an been abandoned and shall not thereafter be recoverable hereunder.
action should be filed by the insured against the agent for his claim. There is Respondent Tan admitted that he received a copy of the letter of rejection on
no law giving any effect to such action upon the principal, and courts cannot April 2, 1984. Thus, the 12-month prescriptive period started to run from the
by interpretation extend the clear scope of the agreement beyond what is said date of April 2, 1984, under section 27.
agreed upon by the parties. 2. It was clear in the letter.
6. Contractual limitations in insurance policies prevail over the statutory Ang v. Fulton Fire Insurance Co.- The condition contained in an insurance
limitations, as well as over the exceptions to the latter, because the rights of policy that claims must be presented within one year after rejection is not merely
the parties flow from the contract of insurance. Their contract is the law a procedural requirement but an important matter essential to a prompt
between the parties, and their agreement that an action on a claim denied by settlement of claims against insurance companies as it demands that insurance
the insurer must be brought within one year from the denial, governs, not suits be brought by the insured while the evidence as to the origin and cause of
the rules on the prescription of actions. destruction have not yet disappeared.
Therefore, there was a necessity of bringing suits against the Insurer within one
Sun v CA G.R. No. 89741 March 13, 1991 year from the rejection of the claim. (1984) The contention of the respondents
that the one-year prescriptive period does not start to run until the petition for
J. Paras reconsideration had been resolved by the insurer (1985), runs counter to the
doctrine.
Facts: The provision in the contract was pursuant to Sec. 63.
Tan took from Sun Insurance a Php 300,000 policy to cover his electrical store in A condition, stipulation or agreement in any policy of insurance, limiting the
Iloilo city. Tan’s request for an indemnity in 1983 was repeatedly denied, firstly time for commencing an action thereunder to a period of less than one year from
in 1984. He wrote for a reconsideration in the same year. This was rejected in the time when the cause of action accrues, is void.
1985, prompting him to file a civil case in the same year. The insurance 3. Eagle star- The right of the insured to the payment of his loss accrues from the
company filed a motion to dismiss due to prescription in 1987, but this was happening of the loss. However, the cause of action in an insurance contract does
denied. The company went to the court of appeals to petition the same thing, but not accrue until the insured's claim is finally rejected by the insurer. This is
this was denied. because before such final rejection there is no real necessity for bringing suit.
The cause of action, then, started when the insurer denied his claim in the first
Issue: instance(1984). This rejection of a petition for reconsideration as insisted by
1. WON the filing of a motion for reconsideration interrupts the twelve months respondents wasn’t the beginning of the cause of action.
prescriptive period to contest the denial of the insurance claim.
2. WON the rejection of the claim shall be deemed final only if it contains words Pacific v CA G.R. No. L-41014 November 28, 1988
to the effect that denial is final. (ie. the first letter in 1984)
3. When does the cause of action accrue? J. Paras

Held: Facts:
1.No An open fire insurance policy, was issued to Paramount Shirt Manufacturing by
2.No Oriental Assurance Corporation to indemnify P61,000.00, caused by fire to the
3. At the time of the first rejection of the insurance company factory’s stocks, materials and supplies.

Page 8 of 14
The insured was a debtor of Pacific Banking in the amount of (P800,000.00) and the Company before the occurrence of any loss or damage, all benefit under this
the goods described in the policy were held in trust by the insured for Pacific policy shall be forfeited.
Banking under trust receipts. The insured failed to reveal before the loss three other insurances. Had the
The policy was endorsed to Pacific Banking as mortgagee/ trustor of the insurer known that there were many co-insurances, it could have hesitated or
properties insured, with the knowledge and consent of private respondent to the plainly desisted from entering into such contract. Hence, the insured was guilty
effect that "loss if any under this policy is payable to the Pacific Banking of clear fraud.
Corporation". Concrete evidence of fraud or false declaration by the insured was furnished by
A fire broke out on the premises destroying the goods contained in the building. the petitioner itself when the facts alleged in the policy under clauses "Co-
The bank sent a letter of demand to Oriental for indemnity. Insurances Declared" and "Other Insurance Clause" are materially different from
The company wasn’t ready to give since it was awaiting the adjuster’s report. the actual number of co-insurances taken over the subject property.
The company then made an excuse that the insured had not filed any claim with As the insurance policy against fire expressly required that notice should be
it, nor submitted proof of loss which is a clear violation of Policy Condition No. given by the insured of other insurance upon the same property, the total absence
11, as a result, determination of the liability of private respondent could not be of such notice nullifies the policy.
made. Petitioner points out that Condition No. 3 in the policy in relation to the "other
Pacific Banking filed in the trial court an action for a sum of money for insurance clause" supposedly to have been violated, cannot certainly defeat the
P61,000.00 against Oriental Assurance. right of the petitioner to recover the insurance as mortgagee/assignee. Hence,
At the trial, petitioner presented communications of the insurance adjuster to they claimed that the purpose for which the endorsement or assignment was
Asian Surety revealing undeclared co-insurances with the following: P30,000 made was to protect the mortgagee/assignee against any untoward act or
with Wellington Insurance; P25,000 with Empire Surety and P250,000 with omission of the insured. It would be absurd to hold that petitioner is barred from
Asian Surety undertaken by insured Paramount on the same property covered by recovering the insurance on account of the alleged violation committed by the
its policy with Oriental whereas the only co-insurances declared in the subject insured.
policy are those of P30,000.00 with Malayan P50,000.00 with South Sea and It is obvious that petitioner has missed all together the import of subject
P25.000.00 with Victory. mortgage clause which specifically provides:
The defense of fraud, in the form of non-declaration of co-insurances which was “Loss, if any, under this policy, shall be payable to the PACIFIC BANKING
not pleaded in the answer, was also not pleaded in the Motion to Dismiss. CORPORATION Manila mortgagee/trustor as its interest may appear, it being
The trial court denied the respondent’s motion. Oriental filed another motion to hereby understood and agreed that this insurance as to the interest of the
include additional evidence of the co-insurance which could amount to fraud. mortgagee/trustor only herein, shall not be invalidated by any act or neglect—
The trial court still made Oriental liable for P 61,000. The CA reversed the except fraud or misrepresentation, or arson—of the mortgagor or owner/trustee
trial court decision. Pacific Banking filed a motion for reconsideration of the of the property insured; provided, that in case the mortgagor or owner/ trustee
said decision of the respondent Court of Appeals, but this was denied for lack of neglects or refuses to pay any premium, the mortgagee/ trustor shall, on demand
merit. pay the same.”
The paragraph clearly states the exceptions to the general rule that insurance as
Issues: to the interest of the mortgagee, cannot be invalidated; namely: fraud, or
1. WON unrevealed co-insurances Violated policy conditions No. 3 misrepresentation or arson. Concealment of the aforecited co-insurances can
2. WON the insured failed to file the required proof of loss prior to court action. easily be fraud, or in the very least, misrepresentation.
Undoubtedly, it is but fair and just that where the insured who is primarily
Held: Yes. Petition dismissed. entitled to receive the proceeds of the policy has by its fraud and/or
misrepresentation, forfeited said right.
Ratio: Petitioner further stressed that fraud which was not pleaded as a defense in
1. Policy Condition No. 3 explicitly provides: private respondent's answer or motion to dismiss, should be deemed to have
3. The Insured shall give notice to the Company of any insurance already been waived. It will be noted that the fact of fraud was tried by express or at
effected, or which may subsequently be effected, covering any of the property least implied consent of the parties. Petitioner did not only object to the
hereby insured, and unless such notice be given and the particulars of such introduction of evidence but on the contrary, presented the very evidence that
insurance or insurances be stated in or endorsed on this Policy by or on behalf of proved its existence.

Page 9 of 14
2. Generally, the cause of action on the policy accrues when the loss occurs, But
when the policy provides that no action shall be brought unless the claim is first
presented extrajudicially in the manner provided in the policy, the cause of ISSUE: Whether petitioner is liable to private respondent?
action will accrue from the time the insurer finally rejects the claim for payment HELD: NO.
In the case at bar, policy condition No. 11 specifically provides that the insured
shall on the happening of any loss or damage give notice to the company and I. The right of the person injured to sue the insurer of the party at fault (insured),
shall within fifteen (15) days after such loss or damage deliver to the private depends on whether the contract of insurance is intended to benefit third persons
respondent (a) a claim in writing giving particular account as to the articles or also or on the insured. And the test applied has been this: Where the contract
goods destroyed and the amount of the loss or damage and (b) particulars of all provides for indemnity against liability to third persons, then third persons to
other insurances, if any. whom the insured is liable can sue the insurer. Where the contract is for
Twenty-four days after the fire did petitioner merely wrote letters to private indemnity against actual loss or payment, then third persons cannot proceed
respondent to serve as a notice of loss. It didn’t even furnish other documents. against the insurer, the contract being solely to reimburse the insured for liability
Instead, petitioner shifted upon private respondent the burden of fishing out the actually discharged by him thru payment to third persons, said third persons’
necessary information to ascertain the particular account of the articles destroyed recourse being thus limited to the insured alone.”
by fire as well as the amount of loss. Since the required claim by insured,
together with the preliminary submittal of relevant documents had not been The trial court did not distinguish between the private respondent’s cause
complied with, it follows that private respondent could not be deemed to have of action against the owner and the driver of the Lady Love taxicab and his
finally rejected petitioner's claim and therefore there was no cause of action. cause of action against petitioner. The former is based on torts and quasi-
It appearing that insured has violated or failed to perform the conditions under delicts while the latter is based on contract. Confusing these two sources of
No. 3 and 11 of the contract, and such violation or want of performance has not obligations as they arise from the same act of the taxicab fatally hitting private
been waived by the insurer, the insured cannot recover, much less the herein respondent’s mother, and in the face of overwhelming evidence of the reckless
petitioner. imprudence of the driver of the Lady Love taxicab, the trial court brushed aside
its ignorance of the terms and conditions of the insurance contract and forthwith
[G.R. No. 82036. May 22, 1997] found all three - the driver of the taxicab, the owner of the taxicab, and the
Travellers Insurance & Surety Corporation vs. Hon. Court of Appeals & alleged insurer of the taxicab - jointly and severally liable for actual, moral and
Vicente Mendoza exemplary damages as well as attorney’s fees and litigation expenses. This is
clearly a misapplication of the law by the trial court, and respondent appellate
Facts: court grievously erred in not having reversed the trial court on this ground.
Vicente Mendoza, Jr. as heir of his mother (Feliza Vineza de Mendoza) “While it is true that where the insurance contract provides for indemnity against
who was killed in a vehicular accident, filed an action for damages against the liability to third persons, such third persons can directly sue the insurer,
erring taxicab driver (Rodrigo Dumlao), the owner (Armando Abellon) of the however, the direct liability of the insurer under indemnity contracts against
taxicab (Lady Love Taxi with Plate No. 438-HA Pilipinas Taxi 1980) and the third-party liability does not mean that the insurer can be held solidarily liable
alleged insurer of the vehicle which featured in the vehicular accident. The with the insured and/or the other parties found at fault. The liability of the
erring taxicab was allegedly covered by a third-party liability insurance policy insurer is based on contract; that of the insured is based on tort.”
issued by petitioner Travellers Insurance & Surety Corporation. Petitioner was
included in the complaint as the compulsory insurer of the said taxicab under II. At the time of the vehicular incident which resulted in the death of private
Certificate of Cover No. 1447785-3. respondent’s mother, during which time the Insurance Code had not yet been
amended by Batas Pambansa (B.P.) Blg. 874, Section 384 provided as follows:
The trial court rendered judgment in favor of private respondent and
ordered Rodrigo Dumlao, Armando Abellon and petitioner to pay private “Any person having any claim upon the policy issued pursuant to this chapter
respondent death indemnity, moral damages, exemplary damages, attorney’s fees shall, without any unnecessary delay, present to the insurance company
and other litigation expenses, jointly and severally. concerned a written notice of claim setting forth the amount of his loss, and/or
the nature, extent and duration of the injuries sustained as certified by a duly
The decision was affirmed by the CA and the subsequent MR was denied. licensed physician. Notice of claim must be filed within six months from date of
the accident, otherwise, the claim shall be deemed waived. Action or suit for
Hence this petition. recovery of damage due to loss or injury must be brought in proper cases, with
Page 10 of 14
the Commission or the Courts within one year from date of accident, otherwise • The vehicles mentioned figured in an accident resulting in the total loss
the claimant’s right of action shall prescribe” [emphasis and underscoring of the tractor and partial damage to the trailer. Plaintiff demand upon
supplied]. the defendant for the payment to him the total amt. of damages
resulting from the accident.
It is significant to note that the aforecited Section 384 was amended by B.P. • On April 28, 1960, defendant rejected the claim on the ground of
Blg. 874 to categorically provide that “action or suit for recovery of damage due concealment of a material fact: that the insured property previously
to loss or injury must be brought in proper cases, with the Commissioner or the been declined insurance by another company.
Courts within one year from denial of the claim, otherwise the claimant’s right • May 27, 1960, the plaintiff filed with the Office of the Insurance
of action shall prescribe” [emphasis ours]. Commissioner a complaint against the said company.
We have certainly ruled with consistency that the prescriptive period to • As suggested, the plaintiff was willing to submit his claim to
bring suit in court under an insurance policy, begins to run from the date of the arbitration but was contested by the defendant since "the claim of the
insurer’s rejection of the claim filed by the insured, the beneficiary or any person plaintiff cannot be resolved by arbitration, as recourse to arbitration
claiming under an insurance contract. This ruling is premised upon the referred to in the policy contract, envisioned only differences or
compliance by the persons suing under an insurance contract, with the disputes, 'with respect to the amount of the company's liability,' and not
indispensable requirement of having filed the written claim mandated by to cases where the company does not admit its liability to the insured.
Section 384 of the Insurance Code before and after its amendment. Absent such • With this rejection, the plaintiff filed his complaint with the CFI of
written claim filed by the person suing under an insurance contract, no cause of Manila on September 19,1961.
action accrues under such insurance contract, considering that it is the rejection • Against the above complaint, the defendant-appellee filed on
of that claim that triggers the running of the one-year prescriptive period to bring September 29, 1961 a motion to dismiss on the ground of prescription.
suit in court, and there can be no opportunity for the insurer to even reject a The latter argued that the plaintiff's claim had already prescribed since
claim if none has been filed in the first place, as in the instant case. it was not filed within twelve months from its rejection by the insurance
company as stipulated under paragraph 9 of the General Conditions of
WHEREFORE, the instant petition is HEREBY GRANTED. Commercial Vehicle Comprehensive Policy Nos. 5598 and 5599, to
wit:
Lopez vs. Filipinas Compañia de Seguros If a claim be made and rejected and an action or suit be not commenced within
G.R. No. L-19613 April 30, 1966 twelve months after such rejection or (in case of an arbitration taking place as
provided herein) within twelve months after the arbitrator, arbitrators, or umpire
FACTS: shall have made their award then the claim shall for all purposes be deemed to
• Plaintiff applied with the defendant company for the insurance of his have been abandoned and shall not thereafter be recovered hereunder.
properties: Biederman truck tractor and a Winter Weils trailer from loss
or damage in the amount of P20,000.00 and P10,000.00, respectively.
• During the application, the defendant company inquired of the plaintiff ISSUE: Whether the complaint filed by the plaintiff-appellant with the Office of
the ff: the Insurance Comm. on May 27,1960 a commencement of an "action or suit"
• Has any company in respect of the insurance of any car or within the meaning and intent of general condition? No.
vehicle
• (A) declined, cancelled or refused to renew your insurance? RATIO:
• (B) increased your premium renewal? • "Action" and "suit":
• Plaintiff answered in negative but the truth was that the American
International Underwriters of the Philippines (AIU) had already Rule 2, Section 1 of the Rules of Court
declined similar application for insurance by the plaintiff with respect Section 1. Action defined.—Action means an ordinary suit in a Court of Justice
of the above-mentioned vehicles. by which one party prosecutes another for the enforcement or protection of a
• The defendant issued to the plaintiff two Commercial Vehicle right, or the prevention or redress of a wrong. (Emphasis supplied.)
Comprehensive Policies covering the said properties.
Jurisprudence

Page 11 of 14
Suit is the prosecution or pursuit of some claim or demand in a court of justice complaint on the ground that the action was filed beyond the contractual
or any proceeding in a court of justice in which a plaintiff pursues his remedy to limitation period. Hence, this appeal.
recover a right or claim. (Emphasis supplied.)
ISSUE:
- Upon the authorities, therefore, it is settled that the terms "action" and "suit" WON the provision of a fidelity bond that no action shall be had or maintained
are synonymous. Moreover, it is clear that the determinative or operative fact thereon unless commenced within one year from the making of a claim for the
which converts a claim into an "action or suit" is the filing of the same with a loss upon which the action is based, is valid, in view of Section 61-A of the
"court or justice." Filed elsewhere, as with some other body or office not a court Insurance Act invalidating stipulations limiting the time for commencing an
of justice, the claim may not properly be categorized under either term. action thereon to less than one year from the time the cause of action accrues?
NO
• An "action or suit" is essentially "for the enforcement or protection of a
right, or the prevention or redress of a wrong." (Rule 2, Sec. 1, Rules of RATIO
Court). There is nothing in the Insurance Law, which empowers the • A fidelity bond is, in the nature of a contract of insurance against loss from
Insurance Commissioner to adjudicate on disputes relating to an misconduct, and is governed by the same principles of interpretation.
insurance company's liability to an insured under a policy issued by the Consequently, the condition of the bond in question, limiting the period for
former to the latter. The validity of an insured's claim under a specific bringing action is subject to the provisions of Section 61-A of the Insurance
policy, its amount, and all such other matters as might involve the Act (No. 2427), as amended by Act 4101 of the preCommonwealth Philippine
interpretation and construction of the insurance policy, are issues which Legislature, prescribing that: SEC. 61-A: A condition, stipulation or
only a regular court of justice may resolve and settle. Consequently, the agreement in any policy of insurance, limiting the time for commencing an
complaint filed by the appellant herein with the Office of the Insurance action thereunder to a period of less than one year from the time when the
Commission could not have been an "action or suit." cause of action accrues is void. Page 2 of 2
• • Since a "cause of action" requires, as essential elements, not only a legal
ACCFA v. Alpha Insurance July 29, 1968 right of the plaintiff and a correlative obligation of the defendant but also "an
act or omission of the defendant in violation of said legal right," the cause of
FACTS action does not accrue until the party obligated refuses, expressly or impliedly,
• To guarantee the Asingan Farmers' Cooperative Marketing Association, Inc. to comply with its duty (in this case, to pay the amount of the bond).
(FACOMA) against loss on account of personal dishonesty, amounting to • • The year for instituting action in court must be reckoned from the time of
larceny/estafa of its Secretary-Treasurer, Ladines, appellee Alpha Insurance & appellee's refusal to comply with its bond. It can’t be counted from the
Surety Company had issued, on 14 February 1958, its bond with Ladines as creditor's filing of the claim of loss, for that does not import that the surety
principal and the appellee as solidary surety. On the same date, the Asingan company will refuse to pay.
FACOMA assigned its rights to the appellant, Agricultural Credit Cooperative • • In so far, therefore, as condition eight of the bond requires action to be filed
and Financing Administration (ACCFA) with approval of the principal and the within one year from the filing of the claim for loss, such stipulation
surety. contradicts the public policy expressed in Section 61-A of the Philippine
• • During the effectivity of the bond, Ladines converted and misappropriated, Insurance Act.
to his personal benefit, some of the FACOMA funds, of which a part belonged • • Condition eight of the bond, therefore, is null and void, and the appellant is
to the ACCFA. Upon discovery of the loss, ACCFA immediately notified in not bound to comply with its provisions. The discouraging of unnecessary
writing the survey company on 10 October 1958, and presented the proof of litigation must be deemed a rule of public policy, considering the unrelieved
loss within the period fixed in the bond; but despite repeated demands the congestion in the courts.
surety company refused and failed to pay. ACCFA filed suit against appellee • • As a consequence, the action may be brought within the statutory period of
on 30 May 1960. limitation for written contracts (New Civil Code, Article 1144).
• • Defendant Alpha Insurance & Surety Co., Inc., (now appellee) moved to
dismiss the complaint as it was filed more than one year after plaintiff made Saura Import and Export v Philippine International Surety Co
claim for loss, contrary to the eighth condition of the bond GR L – 15184
• • At first, the Court of First Instance denied dismissal; but, upon May 31, 1963
reconsideration, the court reversed its original stand, and dismissed the

Page 12 of 14
Mortgagor/Insured: Saura Import and Export Co., Inc. (Saura) RATIO: The policy in question does NOT provide for the notice of cancellation,
Mortgagee: Philippine National Bank (PNB) its form or period. The Insurance Law does not likewise provide for such notice.
Insurer: Philippine International Surety Co. (PISC) This being the case, it devolves upon the Court to apply the generally accepted
principles of insurance, regarding cancellation of the insurance policy by the
EMERGENCY RECIT: Saura mortgaged its property to PNB. Saura insured insurer.
its mortgaged property to Philippine International Surety Co. from October 2,
1954 to October 2, 1955. However, on October 15, 1954 Philippine International Actual notice of cancellation in a clear and unequivocal manner, preferably in
Surety Co. cancelled the insurance policy without informing the insured Saura. writing should be given by the insurer to the insured so that the latter might be
SC: If a mortgage or lien exists against the property insured, and the policy given an opportunity to obtain other insurance for his own protection. The
contains a clause stating that loss, if any, shall be payable to such mortgagee or notice should be personal to the insurer and not to and/or through any
the holder of such lien as his interest may appear, notice of cancellation to the unauthorized person by the policy. Both the PSIC and the PNB failed, wittingly
mortgagee or lienholder alone is ineffective as a cancellation of the policy as to or unwittingly to notify Saura of the cancellation made.
the owner of the property.
The insurer contends that it gave notice to PNB as mortgagee of the property and
FACTS: that was already substantial compliance with its duty to notify the insured of the
• On Dec. 26, 1952, Saura mortgaged to PNB its registered parcel of land cancellation of the policy. But notice to the bank, as far as Saura herein is
in Davao to secure the payment of a promissory note amounting to Php concerned, is not effective notice. PISC is then ordered to pay Saura Php
27,000. 29,000, the amount involved in the policy subject matter of this case.
• A building of strong materials which was also owned by Saura, was
erected on the parcel of land and the building had always been covered Malayan Insurance Corp vs CA G.R. 119599 March 20, 1997
by insurance even before the execution of the mortgage contract.
• Pursuant to the mortgage agreement which required Saura to insure the J. Romero
building and its contents, it obtained a fire insurance for Php 29,000
from PISC for a period of 1 year starting Oct. 2, 1954 to Oct. 2, 1955. Facts:
• The mortgage also required Saura to endorse the insurance policy to TKC Marketing imported 3,000 metric tons of soya from Brazil to Manila. It
PNB. The memo stated: Loss if any, payable to PNG as their interest was insured by Malayan at the value of almost 20 million pesos. The vessel,
may appear, subject to the terms, conditions and warranties of this however, was stranded on South Africa because of a lawsuit regarding the
policy. possession of the soya. TKC consulted Malayan on recovery of the amount, but
• The policy was delivered to PNB by Saura. the latter claimed that it wasn’t covered by the policy. The soya was sold in
• However on Oct. 15, 1954, barely 13 days after the issuance of the fire Africa for Php 10 million, but TKC wanted Malayan to shoulder the remaining
insurance, PISC canceled the same, effective as of the date of issue. value of 10 million as well.
Notice of the cancellation was sent to PNB (but not to Saura) in writing Petitioner filed suit due to Malayan’s reticence to pay. Malayan claimed that
and was received by the bank on Nov. 8, 1954. arrest by civil authorities wasn’t covered by the policy. The trial court ruled in
• On April 6, 1955, the building and its contents worth Php 4,685 were TKC’s favor with damages to boot. The appellate court affirmed the decision
burned. under the reason that clause 12 of the policy regarding an excepted risk due to
• On April 11, 1985, Saura filed a claim with PISC and mortgagee bank. arrest by civil authorities was deleted by Section 1.1 of the Institute
• Upon presentation of notice of loss with PNB, Saura learned for the War Clauses which covered ordinary arrests by civil authorities. Failure of the
first time that the policy had been previously canceled by PISC, when cargo to arrive was also covered by the Theft, Pilferage, and Non-delivery
Saura’s folder in the bank’s file was opened and the notice of the Clause of the contract. Hence this petition.
cancellation by PISC was found.
Issues:
ISSUE: W/N cancellation by PISC was proper. 1. WON the arrest of the vessel was a risk covered under the subject insurance
policies.
HELD: No. SC ordered PISC to pay Saura in the amount of Php 29,000. 2. WON the insurance policies must strictly construed against the insurer.

Page 13 of 14
Held: Yes. Yes. Petition dismissed.

Ratio:
1. Section 12 or the "Free from Capture & Seizure Clause" states: "Warranted
free of capture, seizure, arrest, restraint or detainment, and the consequences
thereof or of any attempt thereat… Should Clause 12 be deleted, the relevant
current institute war clauses shall be deemed to form part of this insurance.”
This was really replaced by the subsection 1.1 of section 1 of Institute
War Clauses (Cargo) which included “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.”
The petitioner’s claim that the Institute War Clauses can be operative in case of
hostilities or warlike operations on account of its heading "Institute
War Clauses" is not tenable. It reiterated the CA’s stand that “its interpretation in
recent years to include seizure or detention by civil authorities seems consistent
with the general purposes of the clause.” This interpretation was regardless of
the fact whether the arrest was in war or by civil authorities.
The petitioner was said to have confused the Institute War clauses and the F.C.S.
in English law.
“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. 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."
The court found that the insurance agency tried to interpret executive and
political acts as those not including ordinary arrestsin the exceptions of the FCS
clause , and claims that the War Clauses now included executive and
political acts without including ordinary arrests in the new stipulation.
“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.”
2. Indemnity and liability insurance policies are construed in accordance with the
general rule of resolving any ambiguitytherein in favor of the insured, where the
contract or policy is prepared by the insurer. A contract of insurance, being a
contract of adhesion, means that any ambiguity should be resolved against the
insurer.

Page 14 of 14