G.R. No.
151890 June 20, 2006 breach of policy conditions, among them "WARRANTED VESSEL
PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner,
vs.
TRANS-ASIA SHIPPING LINES, INC., Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 151991 June 20, 2006
TRANS-ASIA SHIPPING LINES, INC., petitioner,
vs.
PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent.
DECISION
CHICO-NAZARIO, J:
This is a consolidation of two separate Petitions for Review on
Certiorari filed by petitioner Prudential Guarantee and Assurance, Inc.
(PRUDENTIAL) in G.R. No. 151890 and Trans-Asia Shipping Lines,
Inc. (TRANS-ASIA) in G.R. No. 151991, assailing the Decision1 dated
6 November 2001 of the Court of Appeals in CA G.R. CV No. 68278,
which reversed the Judgment2 dated 6 June 2000 of the Regional Trial
Court (RTC), Branch 13, Cebu City in Civil Case No. CEB-20709. The
29 January 2002 Resolution3 of the Court of Appeals, denying
PRUDENTIAL’s Motion for Reconsideration and TRANS-ASIA’s Partial
Motion for Reconsideration of the 6 November 2001 Decision, is
likewise sought to be annulled and set aside.
The Facts
The material antecedents as found by the court a quo and adopted by
the appellate court are as follows:
Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In
consideration of payment of premiums, defendant [PRUDENTIAL]
insured M/V Asia Korea for loss/damage of the hull and machinery
arising from perils, inter alia, of fire and explosion for the sum of P40
Million, beginning [from] the period [of] July 1, 1993 up to July 1, 1994.
This is evidenced by Marine Policy No. MH93/1363 (Exhibits "A" to "A-
11"). On October 25, 1993, while the policy was in force, a fire broke
out while [M/V Asia Korea was] undergoing repairs at the port of Cebu.
On October 26, 1993 plaintiff [TRANS-ASIA] filed its notice of claim for
damage sustained by the vessel. This is evidenced by a letter/formal
claim of even date (Exhibit "B"). Plaintiff [TRANS-ASIA] reserved its
right to subsequently notify defendant [PRUDENTIAL] as to the full
amount of the claim upon final survey and determination by average
adjuster Richard Hogg International (Phil.) of the damage sustained by
reason of fire. An adjuster’s report on the fire in question was
submitted by Richard Hogg International together with the U-Marine
Surveyor Report (Exhibits "4" to "4-115").
On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document
denominated "Loan and Trust receipt", a portion of which read (sic):
"Received from Prudential Guarantee and Assurance, Inc., the sum of
PESOS THREE MILLION ONLY (P3,000,000.00) as a loan without
interest under Policy No. MH 93/1353 [sic], repayable only in the event
and to the extent that any net recovery is made by Trans-Asia Shipping
Corporation, from any person or persons, corporation or corporations,
or other parties, on account of loss by any casualty for which they may
be liable occasioned by the 25 October 1993: Fire on Board." (Exhibit
"4")
In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied
plaintiff’s claim (Exhibit "5"). The letter reads:
"After a careful review and evaluation of your claim arising from the
above-captioned incident, it has been ascertained that you are in
CLASSED AND CLASS MAINTAINED". Accordingly, we regret to
advise that your claim is not compensable and hereby DENIED."
This was followed by defendant’s letter dated 21 July 1997 requesting
the return or payment of the P3,000,000.00 within a period of ten (10)
days from receipt of the letter (Exhibit "6").4
Following this development, on 13 August 1997, TRANS-ASIA filed a
Complaint5 for Sum of Money against PRUDENTIAL with the RTC of
Cebu City, docketed as Civil Case No. CEB-20709, wherein TRANS-
ASIA sought the amount of P8,395,072.26 from PRUDENTIAL,
alleging that the same represents the balance of the indemnity due
upon the insurance policy in the total amount of P11,395,072.26.
TRANS-ASIA similarly sought interest at 42% per annum citing Section
2436 of Presidential Decreee No. 1460, otherwise known as the
"Insurance Code," as amended.
In its Answer,7 PRUDENTIAL denied the material allegations of the
Complaint and interposed the defense that TRANS-ASIA breached
insurance policy conditions, in particular: "WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED." PRUDENTIAL further alleged
that it acted as facts and law require and incurred no liability to
TRANS-ASIA; that TRANS-ASIA has no cause of action; and, that its
claim has been effectively waived and/or abandoned, or it is estopped
from pursuing the same. By way of a counterclaim, PRUDENTIAL
sought a refund of P3,000,000.00, which it allegedly advanced to
TRANS-ASIA by way of a loan without interest and without prejudice to
the final evaluation of the claim, including the amounts of P500,000.00,
for survey fees and P200,000.00, representing attorney’s fees.
The Ruling of the Trial Court
On 6 June 2000, the court a quo rendered Judgment8 finding for
(therein defendant) PRUDENTIAL. It ruled that a determination of the
parties’ liabilities hinged on whether TRANS-ASIA violated and
breached the policy conditions on WARRANTED VESSEL CLASSED
AND CLASS MAINTAINED. It interpreted the provision to mean that
TRANS-ASIA is required to maintain the vessel at a certain class at all
times pertinent during the life of the policy. According to the court a
quo, TRANS-ASIA failed to prove compliance of the terms of the
warranty, the violation thereof entitled PRUDENTIAL, the insured party,
to rescind the contract.9
Further, citing Section 10710 of the Insurance Code, the court a quo
ratiocinated that the concealment made by TRANS-ASIA that the
vessel was not adequately maintained to preserve its class was a
material concealment sufficient to avoid the policy and, thus, entitled
the injured party to rescind the contract. The court a quo found merit in
PRUDENTIAL’s contention that there was nothing in the adjustment of
the particular average submitted by the adjuster that would show that
TRANS-ASIA was not in breach of the policy. Ruling on the
denominated loan and trust receipt, the court a quo said that in
substance and in form, the same is a receipt for a loan. It held that if
TRANS-ASIA intended to receive the amount of P3,000,000.00 as
advance payment, it should have so clearly stated as such.
The court a quo did not award PRUDENTIAL’s claim for P500,000.00,
representing expert survey fees on the ground of lack of sufficient
basis in support thereof. Neither did it award attorney’s fees on the
rationalization that the instant case does not fall under the exceptions
stated in Article 220811 of the Civil Code. However, the court a quo
granted PRUDENTIAL’s counterclaim stating that there is factual and
legal basis for TRANS-ASIA to return the amount of P3,000,000.00 by
way of loan without interest.
The decretal portion of the Judgment of the RTC reads:
WHEREFORE, judgment is hereby rendered DISMISSING the
complaint for its failure to prove a cause of action.
On defendant’s counterclaim, plaintiff is directed to return the sum of
P3,000,000.00 representing the loan extended to it by the defendant,
within a period of ten (10) days from and after this judgment shall have
become final and executory.12
The Ruling of the Court of Appeals
On appeal by TRANS-ASIA, the Court of Appeals, in its assailed
Decision of 6 November 2001, reversed the 6 June 2000 Judgment of
the RTC.
On the issue of TRANS-ASIA’s alleged breach of warranty of the policy
condition CLASSED AND CLASS MAINTAINED, the Court of Appeals
ruled that PRUDENTIAL, as the party asserting the non-compensability
of the loss had the burden of proof to show that TRANS-ASIA
breached the warranty, which burden it failed to discharge.
PRUDENTIAL cannot rely on the lack of certification to the effect that
TRANS-ASIA was CLASSED AND CLASS MAINTAINED as its sole
basis for reaching the conclusion that the warranty was breached. The
Court of Appeals opined that the lack of a certification does not
necessarily mean that the warranty was breached by TRANS-ASIA.
Instead, the Court of Appeals considered PRUDENTIAL’s admission
that at the time the insurance contract was entered into between the
parties, the vessel was properly classed by Bureau Veritas, a
classification society recognized by the industry. The Court of Appeals
similarly gave weight to the fact that it was the responsibility of
Richards Hogg International (Phils.) Inc., the average adjuster hired by
PRUDENTIAL, to secure a copy of such certification to support its
conclusion that mere absence of a certification does not warrant denial
of TRANS-ASIA’s claim under the insurance policy.
In the same token, the Court of Appeals found the subject warranty
allegedly breached by TRANS-ASIA to be a rider which, while
contained in the policy, was inserted by PRUDENTIAL without the
intervention of TRANS-ASIA. As such, it partakes of a nature of a
contract d’adhesion which should be construed against PRUDENTIAL,
the party which drafted the contract. Likewise, according to the Court
of Appeals, PRUDENTIAL’s renewal of the insurance policy from noon
of 1 July 1994 to noon of 1 July 1995, and then again, until noon of 1
July 1996 must be deemed a waiver by PRUDENTIAL of any breach of
warranty committed by TRANS-ASIA.
Further, the Court of Appeals, contrary to the ruling of the court a quo,
interpreted the transaction between PRUDENTIAL and TRANS-ASIA
as one of subrogation, instead of a loan. The Court of Appeals
concluded that TRANS-ASIA has no obligation to pay back the amount
of P3,000.000.00 to PRUDENTIAL based on its finding that the
aforesaid amount was PRUDENTIAL’s partial payment to TRANS-
ASIA’s claim under the policy. Finally, the Court of Appeals denied
TRANS-ASIA’s prayer for attorney’s fees, but held TRANS-ASIA
entitled to double interest on the policy for the duration of the delay of
payment of the unpaid balance, citing Section 24413 of the Insurance
Code.
Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled
in this wise:
WHEREFORE, the foregoing consideration, We find for Appellant. The
instant appeal is ALLOWED and the Judgment appealed from
REVERSED. The P3,000,000.00 initially paid by appellee Prudential
Guarantee Assurance Incorporated to appellant Trans-Asia and
covered by a "Loan and Trust Receipt" dated 29 May 1995 is HELD to
be in partial settlement of the loss suffered by appellant and covered
by Marine Policy No. MH93/1363 issued by appellee. Further, appellee
is hereby ORDERED to pay appellant the additional amount of
P8,395,072.26 representing the balance of the loss suffered by the
latter as recommended by the average adjuster Richard Hogg
International (Philippines) in its Report, with double interest starting
from the time Richard Hogg’s Survey Report was completed, or on 13
August 1996, until the same is fully paid.
All other claims and counterclaims are hereby DISMISSED.
All costs against appellee.14
Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed
a Motion for Reconsideration and Partial Motion for Reconsideration
thereon, respectively, which motions were denied by the Court of
Appeals in the Resolution dated 29 January 2002.
The Issues
Aggrieved, PRUDENTIAL filed before this Court a Petition for Review,
docketed as G.R. No. 151890, relying on the following grounds, viz:
I.
THE AWARD IS GROSSLY UNCONSCIONABLE.
II.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
NO VIOLATION BY TRANS-ASIA OF A MATERIAL WARRANTY,
NAMELY, WARRANTY CLAUSE NO. 5, OF THE INSURANCE
POLICY.
III.
THE COURT OF APPEALS ERRED IN HOLDING THAT
PRUDENTIAL, AS INSURER HAD THE BURDEN OF PROVING THAT
THE ASSURED, TRANS-ASIA, VIOLATED A MATERIAL WARRANTY.
IV.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
WARRANTY CLAUSE EMBODIED IN THE INSURANCE POLICY
CONTRACT WAS A MERE RIDER.
V.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
ALLEGED RENEWALS OF THE POLICY CONSTITUTED A WAIVER
ON THE PART OF PRUDENTIAL OF THE BREACH OF THE
WARRANTY BY TRANS-ASIA.
VI.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN
AND TRUST RECEIPT" EXECUTED BY TRANS-ASIA IS AN
ADVANCE ON THE POLICY, THUS CONSTITUTING PARTIAL
PAYMENT THEREOF.
VII.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
ACCEPTANCE BY PRUDENTIAL OF THE FINDINGS OF RICHARDS
HOGG IS INDICATIVE OF A WAIVER ON THE PART OF
PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE
WARRANTY.
VIII.
THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE
TRIAL COURT, IN FINDING THAT PRUDENTIAL "UNJUSTIFIABLY
REFUSED" TO PAY THE CLAIM AND IN ORDERING PRUDENTIAL
TO PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE INTEREST
FROM 13 AUGUST 1996, UNTIL [THE] SAME IS FULLY PAID. 15
Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of
Appeals filed a Petition for Review docketed as G.R. No. 151991,
raising the following grounds for the allowance of the petition, to wit:
 I.
THE HONORABLE COURT OF APPEALS ERRED IN NOT
AWARDING ATTORNEY’S FEES TO PETITIONER TRANS-ASIA ON
THE GROUND THAT SUCH CAN ONLY BE AWARDED IN THE
CASES ENUMERATED IN ARTICLE 2208 OF THE CIVIL CODE, AND
THERE BEING NO BAD FAITH ON THE PART OF RESPONDENT
PRUDENTIAL IN DENYING HEREIN PETITIONER TRANS-ASIA’S
INSURANCE CLAIM.
II.
THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION
DATED 06 NOVEMBER 2001 SHOULD BE CONSTRUED TO MEAN
DOUBLE INTEREST BASED ON THE LEGAL INTEREST OF 12%,
OR INTEREST AT THE RATE OF 24% PER ANNUM.16
In our Resolution of 2 December 2002, we granted TRANS-ASIA’s
Motion for Consolidation17 of G.R. Nos. 151890 and 151991;18 hence,
the instant consolidated petitions.
In sum, for our main resolution are: (1) the liability, if any, of
PRUDENTIAL to TRANS-ASIA arising from the subject insurance
contract; (2) the liability, if any, of TRANS-ASIA to PRUDENTIAL
arising from the transaction between the parties as evidenced by a
document denominated as "Loan and Trust Receipt," dated 29 May
1995; and (3) the amount of interest to be imposed on the liability, if
any, of either or both parties.
Ruling of the Court
Prefatorily, it must be emphasized that in a petition for review, only
questions of law, and not questions of fact, may be raised.19 This rule
may be disregarded only when the findings of fact of the Court of
Appeals are contrary to the findings and conclusions of the trial court,
or are not supported by the evidence on record.20 In the case at bar,
we find an incongruence between the findings of fact of the Court of
Appeals and the court a quo, thus, in our determination of the issues,
we are constrained to assess the evidence adduced by the parties to
make appropriate findings of facts as are necessary.
I.
A. PRUDENTIAL failed to establish that TRANS-ASIA
violated and breached the policy condition on WARRANTED
VESSEL CLASSED AND CLASS MAINTAINED, as
contained in the subject insurance contract.
In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that
TRANS-ASIA violated an express and material warranty in the subject
insurance contract, i.e., Marine Insurance Policy No. MH93/1363,
specifically Warranty Clause No. 5 thereof, which stipulates that the
insured vessel, "M/V ASIA KOREA" is required to be CLASSED AND
CLASS MAINTAINED. According to PRUDENTIAL, on 25 October
1993, or at the time of the occurrence of the fire, "M/V ASIA KOREA"
was in violation of the warranty as it was not CLASSED AND CLASS
MAINTAINED. PRUDENTIAL submits that Warranty Clause No. 5 was
a condition precedent to the recovery of TRANS-ASIA under the policy,
the violation of which entitled PRUDENTIAL to rescind the contract
under Sec. 7421 of the Insurance Code.
The warranty condition CLASSED AND CLASS MAINTAINED was
explained by PRUDENTIAL’s Senior Manager of the Marine and
Aviation Division, Lucio Fernandez. The pertinent portions of his
testimony on direct examination is reproduced hereunder, viz:
ATTY. LIM
Q Please tell the court, Mr. Witness, the result of the evaluation of this
claim, what final action was taken?
A It was eventually determined that there was a breach of the policy
condition, and basically there is a breach of policy warranty condition
and on that basis the claim was denied.
Q To refer you (sic) the "policy warranty condition," I am showing to
you a policy here marked as Exhibits "1", "1-A" series, please point to
the warranty in the policy which you said was breached or violated by
the plaintiff which constituted your basis for denying the claim as you
testified.
A Warranted Vessel Classed and Class Maintained.
ATTY. LIM
Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is
the second page of the policy below the printed words: "Clauses,
Endorsements, Special Conditions and Warranties," below this are
several typewritten clauses and the witness pointed out in particular
the clause reading: "Warranted Vessel Classed and Class Maintained."
COURT
Q Will you explain that particular phrase?
A Yes, a warranty is a condition that has to be complied with by the
insured. When we say a class warranty, it must be entered in the
classification society.
COURT
Slowly.
WITNESS
(continued)
A A classification society is an organization which sets certain
standards for a vessel to maintain in order to maintain their
membership in the classification society. So, if they failed to meet that
standard, they are considered not members of that class, and thus
breaching the warranty, that requires them to maintain membership or
to maintain their class on that classification society. And it is not
sufficient that the member of this classification society at the time of a
loss, their membership must be continuous for the whole length of the
policy such that during the effectivity of the policy, their classification is
suspended, and then thereafter, they get reinstated, that again still a
breach of the warranty that they maintained their class (sic). Our
maintaining team membership in the classification society thereby
maintaining the standards of the vessel (sic).
ATTY. LIM
Q Can you mention some classification societies that you know?
A Well we have the Bureau Veritas, American Bureau of Shipping, D&V
Local Classification Society, The Philippine Registration of Ships
Society, China Classification, NKK and Company Classification
Society, and many others, we have among others, there are over 20
worldwide. 22
At the outset, it must be emphasized that the party which alleges a fact
as a matter of defense has the burden of proving it. PRUDENTIAL, as
the party which asserted the claim that TRANS-ASIA breached the
warranty in the policy, has the burden of evidence to establish the
same. Hence, on the part of PRUDENTIAL lies the initiative to show
proof in support of its defense; otherwise, failing to establish the same,
it remains self-serving. Clearly, if no evidence on the alleged breach of
TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA
would be successful in claiming on the policy. It follows that
PRUDENTIAL bears the burden of evidence to establish the fact of
breach.
In our rule on evidence, TRANS-ASIA, as the plaintiff below,
necessarily has the burden of proof to show proof of loss, and the
coverage thereof, in the subject insurance policy. However, in the
course of trial in a civil case, once plaintiff makes out a prima facie
case in his favor, the duty or the burden of evidence shifts to defendant
to controvert plaintiff’s prima facie case, otherwise, a verdict must be
returned in favor of plaintiff. 23 TRANS-ASIA was able to establish proof
of loss and the coverage of the loss, i.e., 25 October 1993: Fire on
Board. Thereafter, the burden of evidence shifted to PRUDENTIAL to
counter TRANS-ASIA’s case, and to prove its special and affirmative
defense that TRANS-ASIA was in violation of the particular condition
on CLASSED AND CLASS MAINTAINED.
We sustain the findings of the Court of Appeals that PRUDENTIAL was
not successful in discharging the burden of evidence that TRANS-ASIA
breached the subject policy condition on CLASSED AND CLASS
MAINTAINED.
Foremost, PRUDENTIAL, through the Senior Manager of its Marine
and Aviation Division, Lucio Fernandez, made a categorical admission
that at the time of the procurement of the insurance contract in July
1993, TRANS-ASIA’s vessel, "M/V Asia Korea" was properly classed
by Bureau Veritas, thus:
Q Kindly examine the records particularly the policy, please tell us if
you know whether M/V Asia Korea was classed at the time (sic) policy
was procured perthe (sic) insurance was procured that Exhibit "1" on
1st July 1993 (sic).
WITNESS
A I recall that they were classed.
ATTY. LIM
Q With what classification society?
A I believe with Bureau Veritas.24
As found by the Court of Appeals and as supported by the records,
Bureau Veritas is a classification society recognized in the marine
industry. As it is undisputed that TRANS-ASIA was properly classed at
the time the contract of insurance was entered into, thus, it becomes
incumbent upon PRUDENTIAL to show evidence that the status of
TRANS-ASIA as being properly CLASSED by Bureau Veritas had
shifted in violation of the warranty. Unfortunately, PRUDENTIAL failed
to support the allegation.
We are in accord with the ruling of the Court of Appeals that the lack of
a certification in PRUDENTIAL’s records to the effect that TRANS-
ASIA’s "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED at
the time of the occurrence of the fire cannot be tantamount to the
conclusion that TRANS-ASIA in fact breached the warranty contained
in the policy. With more reason must we sustain the findings of the
Court of Appeals on the ground that as admitted by PRUDENTIAL, it
was likewise the responsibility of the average adjuster, Richards Hogg
International (Phils.), Inc., to secure a copy of such certification, and
the alleged breach of TRANS-ASIA cannot be gleaned from the
average adjuster’s survey report, or adjustment of particular average
per "M/V Asia Korea" of the 25 October 1993 fire on board.
We are not unmindful of the clear language of Sec. 74 of the Insurance
Code which provides that, "the violation of a material warranty, or other
material provision of a policy on the part of either party thereto, entitles
the other to rescind." It is generally accepted that "[a] warranty is a
statement or promise set forth in the policy, or by reference
incorporated therein, the untruth or non-fulfillment of which in any
respect, and without reference to whether the insurer was in fact
prejudiced by such untruth or non-fulfillment, renders the policy
voidable by the insurer."25However, it is similarly indubitable that for the
breach of a warranty to avoid a policy, the same must be duly shown
by the party alleging the same. We cannot sustain an allegation that is
unfounded. Consequently, PRUDENTIAL, not having shown that
TRANS-ASIA breached the warranty condition, CLASSED AND
CLASS MAINTAINED, it remains that TRANS-ASIA must be allowed to
recover its rightful claims on the policy.
B. Assuming arguendo that TRANS-ASIA violated the policy condition
on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED,
PRUDENTIAL made a valid waiver of the same.
The Court of Appeals, in reversing the Judgment of the RTC which
held that TRANS-ASIA breached the warranty provision on CLASSED
AND CLASS MAINTAINED, underscored that PRUDENTIAL can be
deemed to have made a valid waiver of TRANS-ASIA’s breach of
warranty as alleged, ratiocinating, thus:
Third, after the loss, Prudential renewed the insurance policy of Trans-
Asia for two (2) consecutive years, from noon of 01 July 1994 to noon
of 01 July 1995, and then again until noon of 01 July 1996. This
renewal is deemed a waiver of any breach of warranty.26
PRUDENTIAL finds fault with the ruling of the appellate court when it
ruled that the renewal policies are deemed a waiver of TRANS-ASIA’s
alleged breach, averring herein that the subsequent policies,
designated as MH94/1595 and MH95/1788 show that they were issued
only on 1 July 1994 and 3 July 1995, respectively, prior to the time it
made a request to TRANS-ASIA that it be furnished a copy of the
certification specifying that the insured vessel "M/V Asia Korea" was
CLASSED AND CLASS MAINTAINED. PRUDENTIAL posits that it
came to know of the breach by TRANS-ASIA of the subject warranty
clause only on 21 April 1997. On even date, PRUDENTIAL sent
TRANS-ASIA a letter of denial, advising the latter that their claim is not
compensable. In fine, PRUDENTIAL would have this Court believe that
the issuance of the renewal policies cannot be a waiver because they
were issued without knowledge of the alleged breach of warranty
committed by TRANS-ASIA.27
We are not impressed. We do not find that the Court of Appeals was in
error when it held that PRUDENTIAL, in renewing TRANS-ASIA’s
insurance policy for two consecutive years after the loss covered by
Policy No. MH93/1363, was considered to have waived TRANS-ASIA’s
breach of the subject warranty, if any. Breach of a warranty or of a
condition renders the contract defeasible at the option of the insurer;
but if he so elects, he may waive his privilege and power to rescind by
the mere expression of an intention so to do. In that event his liability
under the policy continues as before.28 There can be no clearer
intention of the waiver of the alleged breach than the renewal of the
policy insurance granted by PRUDENTIAL to TRANS-ASIA in
MH94/1595 and MH95/1788, issued in the years 1994 and 1995,
respectively.
To our mind, the argument is made even more credulous by
PRUDENTIAL’s lack of proof to support its allegation that the renewals
of the policies were taken only after a request was made to TRANS-
ASIA to furnish them a copy of the certificate attesting that "M/V Asia
Korea" was CLASSED AND CLASS MAINTAINED. Notwithstanding
PRUDENTIAL’s claim that no certification was issued to that effect, it
renewed the policy, thereby, evidencing an intention to waive TRANS-
ASIA’s alleged breach. Clearly, by granting the renewal policies twice
and successively after the loss, the intent was to benefit the insured,
TRANS-ASIA, as well as to waive compliance of the warranty.
The foregoing finding renders a determination of whether the subject
warranty is a rider, moot, as raised by the PRUDENTIAL in its
assignment of errors. Whether it is a rider will not effectively alter the
result for the reasons that: (1) PRUDENTIAL was not able to discharge
the burden of evidence to show that TRANS-ASIA committed a breach,
thereof; and (2) assuming arguendo the commission of a breach by
TRANS-ASIA, the same was shown to have been waived by
PRUDENTIAL.
II.
A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS-
ASIA via a transaction between the parties evidenced by a document
denominated as "Loan and Trust Receipt," dated 29 May 1995
constituted partial payment on the policy.
It is undisputed that TRANS-ASIA received from PRUDENTIAL the
amount of P3,000,000.00. The same was evidenced by a transaction
receipt denominated as a "Loan and Trust Receipt," dated 29 May
1995, reproduced hereunder:
LOAN AND TRUST RECEIPT
Claim File No. MH-93-025 May 29, 1995
P3,000,000.00
Check No. PCIB066755
Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE
INC., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a
loan without interest, under Policy No. MH93/1353, repayable only in
the event and to the extent that any net recovery is made by TRANS
ASIA SHIPPING CORP., from any person or persons, corporation or
corporations, or other parties, on account of loss by any casualty for
which they may be liable, occasioned by the 25 October 1993: Fire on
Board.
As security for such repayment, we hereby pledge to PRUDENTIAL
GUARANTEE AND ASSURANCE INC. whatever recovery we may
make and deliver to it all documents necessary to prove our interest in
said property. We also hereby agree to promptly prosecute suit against
such persons, corporation or corporations through whose negligence
the aforesaid loss was caused or who may otherwise be responsible
therefore, with all due diligence, in our own name, but at the expense
of and under the exclusive direction and control of PRUDENTIAL
GUARANTEE AND ASSURANCE INC.
29
TRANS-ASIA SHIPPING CORPORATION
PRUDENTIAL largely contends that the "Loan and Trust Receipt"
executed by the parties evidenced a loan of P3,000,000.00 which it
granted to TRANS-ASIA, and not an advance payment on the policy or
a partial payment for the loss. It further submits that it is a customary
practice for insurance companies in this country to extend loans
gratuitously as part of good business dealing with their assured, in
order to afford their assured the chance to continue business without
embarrassment while awaiting outcome of the settlement of their
claims.30 According to PRUDENTIAL, the "Trust and Loan Agreement"
did not subrogate to it whatever rights and/or actions TRANS-ASIA
may have against third persons, and it cannot by no means be taken
that by virtue thereof, PRUDENTIAL was granted irrevocable power of
attorney by TRANS-ASIA, as the sole power to prosecute lies solely
with the latter.
The Court of Appeals held that the real character of the transaction
between the parties as evidenced by the "Loan and Trust Receipt" is
that of an advance payment by PRUDENTIAL of TRANS-ASIA’s claim
on the insurance, thus:
The Philippine Insurance Code (PD 1460 as amended) was derived
from the old Insurance Law Act No. 2427 of the Philippine Legislature
during the American Regime. The Insurance Act was lifted verbatim
from the law of California, except Chapter V thereof, which was taken
largely from the insurance law of New York. Therefore, ruling case law
in that jurisdiction is to Us persuasive in interpreting provisions of our
own Insurance Code. In addition, the application of the adopted statute
should correspond in fundamental points with the application in its
country of origin x x x.
xxxx
Likewise, it is settled in that jurisdiction that the (sic) notwithstanding
recitals in the Loan Receipt that the money was intended as a loan
does not detract from its real character as payment of claim, thus:
"The receipt of money by the insured employers from a surety
company for losses on account of forgery of drafts by an employee
where no provision or repayment of the money was made except upon
condition that it be recovered from other parties and neither interest
nor security for the asserted debts was provided for, the money
constituted the payment of a liability and not a mere loan,
notwithstanding recitals in the written receipt that the money was
intended as a mere loan."
What is clear from the wordings of the so-called "Loan and Trust
Receipt Agreement" is that appellant is obligated to hand over to
appellee "whatever recovery (Trans Asia) may make and deliver to
(Prudential) all documents necessary to prove its interest in the said
property." For all intents and purposes therefore, the money receipted
is payment under the policy, with Prudential having the right of
subrogation to whatever net recovery Trans-Asia may obtain from third
parties resulting from the fire. In the law on insurance, subrogation is
an equitable assignment to the insurer of all remedies which the
insured may have against third person whose negligence or wrongful
act caused the loss covered by the insurance policy, which is created
as the legal effect of payment by the insurer as an assignee in equity.
The loss in the first instance is that of the insured but after
reimbursement or compensation, it becomes the loss of the insurer. It
has been referred to as the doctrine of substitution and rests on the
principle that substantial justice should be attained regardless of form,
that is, its basis is the doing of complete, essential, and perfect justice
between all the parties without regard to form.31
We agree. Notwithstanding its designation, the tenor of the "Loan and
Trust Receipt" evidences that the real nature of the transaction
between the parties was that the amount of P3,000,000.00 was not
intended as a loan whereby TRANS-ASIA is obligated to pay
PRUDENTIAL, but rather, the same was a partial payment or an
advance on the policy of the claims due to TRANS-ASIA.
First, the amount of P3,000,000.00 constitutes an advance payment to
TRANS-ASIA by PRUDENTIAL, subrogating the former to the extent of
"any net recovery made by TRANS ASIA SHIPPING CORP., from any
person or persons, corporation or corporations, or other parties, on
account of loss by any casualty for which they may be liable,
occasioned by the 25 October 1993: Fire on Board."32
Second, we find that per the "Loan and Trust Receipt," even as
TRANS-ASIA agreed to "promptly prosecute suit against such persons,
corporation or corporations through whose negligence the aforesaid
loss was caused or who may otherwise be responsible therefore, with
all due diligence" in its name, the prosecution of the claims against
such third persons are to be carried on "at the expense of and under
the exclusive direction and control of PRUDENTIAL GUARANTEE
AND ASSURANCE INC."33 The clear import of the phrase "at the
expense of and under the exclusive direction and control" as used in
the "Loan and Trust Receipt" grants solely to PRUDENTIAL the power
to prosecute, even as the same is carried in the name of TRANS-ASIA,
thereby making TRANS-ASIA merely an agent of PRUDENTIAL, the
principal, in the prosecution of the suit against parties who may have
occasioned the loss.
Third, per the subject "Loan and Trust Receipt," the obligation of
TRANS-ASIA to repay PRUDENTIAL is highly speculative and
contingent, i.e., only in the event and to the extent that any net
recovery is made by TRANS-ASIA from any person on account of loss
occasioned by the fire of 25 October 1993. The transaction, therefore,
was made to benefit TRANS-ASIA, such that, if no recovery from third
parties is made, PRUDENTIAL cannot be repaid the amount. Verily, we
do not think that this is constitutive of a loan.34 The liberality in the
tenor of the "Loan and Trust Receipt" in favor of TRANS-ASIA leads to
the conclusion that the amount of P3,000,000.00 was a form of an
advance payment on TRANS-ASIA’s claim on MH93/1353.
III.
A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of
P8,395,072.26, representing the balance of the loss suffered by
TRANS-ASIA and covered by Marine Policy No. MH93/1363.
Our foregoing discussion supports the conclusion that TRANS-ASIA is
entitled to the unpaid claims covered by Marine Policy No. MH93/1363,
or a total amount of P8,395,072.26.
B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages
in the form of attorney’s fees equivalent to 10% of P8,395,072.26.
As can be gleaned from the foregoing, there was an unreasonable
delay on the part of PRUDENTIAL to pay TRANS-ASIA, as in fact, it
refuted the latter’s right to the insurance claims, from the time proof of
loss was shown and the ascertainment of the loss was made by the
insurance adjuster. Evidently, PRUDENTIAL’s unreasonable delay in
satisfying TRANS-ASIA’s unpaid claims compelled the latter to file a
suit for collection.

The Court of Appeals denied the grant of attorney’s fees. It held that
Succinctly, an award equivalent to ten percent (10%) of the unpaid
attorney’s fees cannot be awarded absent a showing of bad faith on
proceeds of the policy as attorney’s fees to TRANS-ASIA is reasonable
the part of PRUDENTIAL in rejecting TRANS-ASIA’s claim,
under the circumstances, or otherwise stated, ten percent (10%) of
notwithstanding that the rejection was erroneous. According to the
P8,395,072.26. In the case of Cathay Insurance, Co., Inc. v. Court of
Court of Appeals, attorney’s fees can be awarded only in the cases
Appeals,41 where a finding of an unreasonable delay under Section
enumerated in Article 2208 of the Civil Code which finds no application
244 of the Insurance Code was made by this Court, we grant an award
in the instant case.
of attorney’s fees equivalent to ten percent (10%) of the total proceeds.
We find no reason to deviate from this judicial precedent in the case at
We disagree. Sec. 244 of the Insurance Code grants damages bar.
consisting of attorney’s fees and other expenses incurred by the
insured after a finding by the Insurance Commissioner or the Court, as
C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as
the case may be, of an unreasonable denial or withholding of the
attorney’s fees) shall be imposed double interest in accordance with
payment of the claims due. Moreover, the law imposes an interest of
Section 244 of the Insurance Code.
twice the ceiling prescribed by the Monetary Board on the amount of
the claim due the insured from the date following the time prescribed in
Section 24235 or in Section 243,36 as the case may be, until the claim is Section 244 of the Insurance Code is categorical in imposing an
fully satisfied. Finally, Section 244 considers the failure to pay the interest twice the ceiling prescribed by the Monetary Board due the
claims within the time prescribed in Sections 242 or 243, when insured, from the date following the time prescribed in Section 242 or
applicable, as prima facie evidence of unreasonable delay in payment. in Section 243, as the case may be, until the claim is fully satisfied. In
the case at bar, we find Section 243 to be applicable as what is
involved herein is a marine insurance, clearly, a policy other than life
To the mind of this Court, Section 244 does not require a showing of
insurance.
bad faith in order that attorney’s fees be granted. As earlier stated,
under Section 244, a prima facie evidence of unreasonable delay in
payment of the claim is created by failure of the insurer to pay the Section 243 is hereunder reproduced:
claim within the time fixed in both Sections 242 and 243 of the
Insurance Code. As established in Section 244, by reason of the delay
SEC. 243. The amount of any loss or damage for which an insurer may
and the consequent filing of the suit by the insured, the insurers shall
be liable, under any policy other than life insurance policy, shall be paid
be adjudged to pay damages which shall consist of attorney’s fees and
within thirty days after proof of loss is received by the insurer and
other expenses incurred by the insured.37
ascertainment of the loss or damage is made either by agreement
between the insured and the insurer or by arbitration; but if such
Section 244 reads: ascertainment is not had or made within sixty days after such receipt
by the insurer of the proof of loss, then the loss or damage shall be
paid within ninety days after such receipt. Refusal or failure to pay the
In case of any litigation for the enforcement of any policy or contract of
loss or damage within the time prescribed herein will entitle the
insurance, it shall be the duty of the Commissioner or the Court, as the
assured to collect interest on the proceeds of the policy for the duration
case may be, to make a finding as to whether the payment of the claim
of the delay at the rate of twice the ceiling prescribed by the Monetary
of the insured has been unreasonably denied or withheld; and in the
Board, unless such failure or refusal to pay is based on the ground that
affirmative case, the insurance company shall be adjudged to pay
the claim is fraudulent.
damages which shall consist of attorney’s fees and other expenses
incurred by the insured person by reason of such unreasonable denial
or withholding of payment plus interest of twice the ceiling prescribed As specified, the assured is entitled to interest on the proceeds for the
by the Monetary Board of the amount of the claim due the insured, duration of the delay at the rate of twice the ceiling prescribed by the
from the date following the time prescribed in section two hundred Monetary Board except when the failure or refusal of the insurer to pay
forty-two or in section two hundred forty-three, as the case may be, was founded on the ground that the claim is fraudulent.
until the claim is fully satisfied; Provided, That the failure to pay any
such claim within the time prescribed in said sections shall be
D. The term "double interest" as used in the Decision of the Court of
considered prima facie evidence of unreasonable delay in payment.
Appeals must be interpreted to mean 24% per annum.

Sections 243 and 244 of the Insurance Code apply when the court
PRUDENTIAL assails the award of interest, granted by the Court of
finds an unreasonable delay or refusal in the payment of the insurance
Appeals, in favor of TRANS-ASIA in the assailed Decision of 6
claims.
November 2001. It is PRUDENTIAL’s stance that the award is
extortionate and grossly unsconscionable. In support thereto,
In the case at bar, the facts as found by the Court of Appeals, and PRUDENTIAL makes a reference to TRANS-ASIA’s prayer in the
confirmed by the records show that there was an unreasonable delay Complaint filed with the court a quo wherein the latter sought, "interest
by PRUDENTIAL in the payment of the unpaid balance of double the prevailing rate of interest of 21% per annum now obtaining
P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day after the in the banking business or plus 42% per annum pursuant to Article 243
occurrence of the fire in "M/V Asia Korea", TRANS-ASIA filed its notice of the Insurance Code x x x."42
of claim. On 13 August 1996, the adjuster, Richards Hogg International
(Phils.), Inc., completed its survey report recommending the amount of
The contention fails to persuade. It is settled that an award of double
P11,395,072.26 as the total indemnity due to TRANS-ASIA.38 On 21
interest is lawful and justified under Sections 243 and 244 of the
April 1997, PRUDENTIAL, in a letter39 addressed to TRANS-ASIA
Insurance Code.43 In Finman General Assurance Corporation v. Court
denied the latter’s claim for the amount of P8,395,072.26 representing
of Appeals,44 this Court held that the payment of 24% interest per
the balance of the total indemnity. On 21 July 1997, PRUDENTIAL sent
annum is authorized by the Insurance Code.45 There is no gainsaying
a second letter40 to TRANS-ASIA seeking a return of the amount of
that the term "double interest" as used in Sections 243 and 244 can
P3,000,000.00. On 13 August 1997, TRANS-ASIA was constrained to
only be interpreted to mean twice 12% per annum or 24% per annum
file a complaint for sum of money against PRUDENTIAL praying, inter
interest, thus:
alia, for the sum of P8,395,072.26 representing the balance of the
proceeds of the insurance claim.
The term "ceiling prescribed by the Monetary Board" means the legal
rate of interest of twelve per centum per annum (12%) as prescribed
by the Monetary Board in C.B. Circular No. 416, pursuant to P.D. No.
116, amending the Usury Law; so that when Sections 242, 243 and
244 of the Insurance Code provide that the insurer shall be liable to
pay interest "twice the ceiling prescribed by the Monetary Board", it
means twice 12% per annum or 24% per annum interest on the
proceeds of the insurance.46
E. The payment of double interest should be counted from 13
September 1996.
The Court of Appeals, in imposing double interest for the duration of
the delay of the payment of the unpaid balance due TRANS-ASIA,
computed the same from 13 August 1996 until such time when the
amount is fully paid. Although not raised by the parties, we find the
computation of the duration of the delay made by the appellate court to
be patently erroneous.
To be sure, Section 243 imposes interest on the proceeds of the policy
for the duration of the delay at the rate of twice the ceiling prescribed
by the Monetary Board. Significantly, Section 243 mandates the
payment of any loss or damage for which an insurer may be liable,
under any policy other than life insurance policy, within thirty days after
proof of loss is received by the insurer and ascertainment of the loss or
damage is made either by agreement between the insured and the
insurer or by arbitration. It is clear that under Section 243, the insurer
has until the 30th day after proof of loss and ascertainment of the loss
or damage to pay its liability under the insurance, and only after such
time can the insurer be held to be in delay, thereby necessitating the
imposition of double interest.
In the case at bar, it was not disputed that the survey report on the
ascertainment of the loss was completed by the adjuster, Richard
Hoggs International (Phils.), Inc. on 13 August 1996. PRUDENTIAL
had thirty days from 13 August 1996 within which to pay its liability to
TRANS-ASIA under the insurance policy, or until 13 September 1996.
Therefore, the double interest can begin to run from 13 September
1996 only.
IV.
A. An interest of 12% per annum is similarly imposed on the TOTAL
amount of liability adjudged in section III herein, computed from the
time of finality of judgment until the full satisfaction thereof in
conformity with this Court’s ruling in Eastern Shipping Lines, Inc. v.
Court of Appeals.
This Court in Eastern Shipping Lines, Inc. v. Court of
Appeals,47 inscribed the rule of thumb48 in the application of interest to
be imposed on obligations, regardless of their source. Eastern
emphasized beyond cavil that when the judgment of the court
awarding a sum of money becomes final and executory, the rate of
legal interest, regardless of whether the obligation involves a loan or
forbearance of money, shall be 12% per annum from such finality until
its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance49 of credit.
We find application of the rule in the case at bar proper, thus, a rate of
12% per annum from the finality of judgment until the full satisfaction
thereof must be imposed on the total amount of liability adjudged to
PRUDENTIAL. It is clear that the interim period from the finality of
judgment until the satisfaction of the same is deemed equivalent to a
forbearance of credit, hence, the imposition of the aforesaid interest.
Fallo
WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However,
the Petition in G.R. No. 151991 is GRANTED, thus, we award the
grant of attorney’s fees and make a clarification that the term "double
interest" as used in the 6 November 2001 Decision of the Court of
Appeals in CA GR CV No. 68278 should be construed to mean interest
at the rate of 24% per annum, with a further clarification, that the same
should be computed from 13 September 1996 until fully paid. The
Decision and Resolution of the Court of Appeals, in CA-G.R. CV No.
68278, dated 6 November 2001 and 29 January 2002, respectively,
are, thus, MODIFIED in the following manner, to wit:
1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the
amount of P8,395,072.26, representing the balance of the
loss suffered by TRANS-ASIA and covered by Marine Policy
No. MH93/1363;
2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA
damages in the form of attorney’s fees equivalent to 10% of
the amount of P8,395,072.26;
3. The aggregate amount (P8,395,072.26 plus 10% thereof
as attorney’s fees) shall be imposed double interest at the
rate of 24% per annum to be computed from 13 September
1996 until fully paid; and
4. An interest of 12% per annum is similarly imposed on the
TOTAL amount of liability adjudged as abovestated in
paragraphs (1), (2), and (3) herein, computed from the time
of finality of judgment until the full satisfaction thereof.
No costs.
SO ORDERED.
G.R. No. 75605 January 22, 1993
RAFAEL (REX) VERENDIA, petitioner,
vs.
COURT OF APPEALS and FIDELITY & SURETY CO. OF THE
PHILIPPINES, respondents.
G.R. No. 76399 January 22, 1993
FIDELITY & SURETY CO. OF THE PHILIPPINES, INC., petitioner,
vs.
RAFAEL VERENDIA and THE COURT OF APPEALS, respondents.
MELO, J.:
The two consolidated cases involved herein stemmed from the
issuance by Fidelity and Surety Insurance Company of the Philippines
(Fidelity for short) of its Fire Insurance Policy No. F-18876 effective
between June 23, 1980 and June 23, 1981 covering Rafael (Rex)
Verendia's residential building located at Tulip Drive, Beverly Hills,
Antipolo, Rizal in the amount of P385,000.00. Designated as
beneficiary was the Monte de Piedad & Savings Bank. Verendia also
insured the same building with two other companies, namely, The
Country Bankers Insurance for P56,000.00 under Policy No. PDB-80-
1913 expiring on May 12, 1981, and The Development Insurance for
P400,000.00 under Policy No. F-48867 expiring on June 30, 198l.
While the three fire insurance policies were in force, the insured
property was completely destroyed by fire on the early morning of
December 28, 1980. Fidelity was accordingly informed of the loss and
despite demands, refused payment under its policy, thus prompting
Verendia to file a complaint with the then Court of First Instance of
Quezon City, praying for payment of P385,000.00, legal interest
thereon, plus attorney's fees and litigation expenses. The complaint
was later amended to include Monte de Piedad as an "unwilling
defendant" (P. 16, Record).
Answering the complaint, Fidelity, among other things, averred that the
policy was avoided by reason of over-insurance; that Verendia
maliciously represented that the building at the time of the fire was
leased under a contract executed on June 25, 1980 to a certain
Roberto Garcia, when actually it was a Marcelo Garcia who was the
lessee.
On May 24, 1983, the trial court rendered a decision, per Judge
Rodolfo A. Ortiz, ruling in favor of Fidelity. In sustaining the defenses
set up by Fidelity, the trial court ruled that Paragraph 3 of the policy
was also violated by Verendia in that the insured failed to inform
Fidelity of his other insurance coverages with Country Bankers
Insurance and Development Insurance.
Verendia appealed to the then Intermediate Appellate Court and in a
decision promulgated on March 31, 1986, (CA-G.R. No. CV No. 02895,
Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate court
reversed for the following reasons: (a) there was no misrepresentation
concerning the lease for the contract was signed by Marcelo Garcia in
the name of Roberto Garcia; and (b) Paragraph 3 of the policy contract
requiring Verendia to give notice to Fidelity of other contracts of
insurance was waived by Fidelity as shown by its conduct in attempting
to settle the claim of Verendia (pp. 32-33, Rollo of G.R. No. 76399).
Fidelity received a copy of the appellate court's decision on April 4,
1986, but instead of directly filing a motion for reconsideration within 15
days therefrom, Fidelity filed on April 21, 1986, a motion for extension
of 3 days within which to file a motion for reconsideration. The motion
for extension was not filed on April 19, 1986 which was the 15th day
after receipt of the decision because said 15th day was a Saturday and
of course, the following day was a Sunday (p. 14., Rollo of G.R. No.
75605). The motion for extension was granted by the appellate court
on April 30, 1986 (p. 15. ibid.), but Fidelity had in the meantime filed its
motion for reconsideration on April 24, 1986 (p. 16, ibid.).
Verendia filed a motion to expunge from the record Fidelity's motion for
reconsideration on the ground that the motion for extension was filed
out of time because the 15th day from receipt of the decision which fell
on a Saturday was ignored by Fidelity, for indeed, so Verendia
contended, the Intermediate Appellate Court has personnel receiving
pleadings even on Saturdays.
The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and
after a motion for reconsideration was similarly brushed aside on July
22, 1986 (p. 30, ibid .), the petition herein docketed as G.R. No. 75605
was initiated. Subsequently, or more specifically on October 21, 1986,
the appellate court denied Fidelity's motion for reconsideration and
account thereof. Fidelity filed on March 31, 1986, the petition for review
on certiorari now docketed as G.R. No. 76399. The two petitions, inter-
related as they are, were consolidated (p. 54, Rollo of G.R. No. 76399)
and thereafter given due course.
Before we can even begin to look into the merits of the main case
which is the petition for review on certiorari, we must first determine
whether the decision of the appellate court may still be reviewed, or
whether the same is beyond further judicial scrutiny. Stated otherwise,
before anything else, inquiry must be made into the issue of whether
Fidelity could have legally asked for an extension of the 15-day
reglementary period for appealing or for moving for reconsideration.
As early as 1944, this Court through Justice Ozaeta already
pronounced the doctrine that the pendency of a motion for extension of
time to perfect an appeal does not suspend the running of the period
sought to be extended (Garcia vs. Buenaventura 74 Phil. 611 [1944]).
To the same effect were the rulings in Gibbs vs. CFI of Manila (80 Phil.
160 [1948]) Bello vs. Fernando (4 SCRA 138 [1962]), and Joe vs.
King (20 SCRA 1120 [1967]).
The above cases notwithstanding and because the Rules of Court do
not expressly prohibit the filing of a motion for extension of time to file a
motion for reconsideration in regard to a final order or judgment,
magistrates, including those in the Court of Appeals, held sharply
divided opinions on whether the period for appealing which also
includes the period for moving to reconsider may be extended. The
matter was not definitely settled until this Court issued its Resolution
in Habaluyas Enterprises, Inc. vs. Japson (142 SCRA [1986]),
declaring that beginning one month from the promulgation of the
resolution on May 30, 1986 —
. . . the rule shall be strictly enforced that no
motion for extension of time to file a motion for
new trial or reconsideration shall be filed . . . (at p.
212.)
In the instant case, the motion for extension was filed and granted
before June 30, 1986, although, of course, Verendia's motion to
expunge the motion for reconsideration was not finally disposed until
July 22, 1986, or after the dictum in Habaluyas had taken effect.
Seemingly, therefore, the filing of the motion for extension came before
its formal proscription under Habaluyas, for which reason we now turn
our attention to G.R. No. 76399.
Reduced to bare essentials, the issues Fidelity raises therein are: (a)
whether or not the contract of lease submitted by Verendia to support
his claim on the fire insurance policy constitutes a false declaration
which would forfeit his benefits under Section 13 of the policy and (b)
whether or not, in submitting the subrogation receipt in evidence,
Fidelity had in effect agreed to settle Verendia's claim in the amount
stated in said receipt.1
Verging on the factual, the issue of the veracity or falsity of the lease
contract could have been better resolved by the appellate court for, in a
petition for review on certiorari under Rule 45, the jurisdiction of this
Court is limited to the review of errors of law. The appellate court's
findings of fact are, therefore, conclusive upon this Court except in the
following cases: (1) when the conclusion is a finding grounded entirely
on speculation, surmises, or conjectures; (2) when the inference made
is manifestly absurd, mistaken, or impossible; (3) when there is grave
abuse of discretion in the appreciation of facts; (4) when the judgment
is premised on a misapprehension of facts; (5) when the findings of
fact are conflicting; and (6) when the Court of Appeals in making its
findings went beyond the issues of the case and the same are contrary
to the admissions of both appellant and appellee (Ronquillo v. Court of
Appeals, 195 SCRA 433 [1991]). In view of the conflicting findings of
the trial court and the appellate court on important issues in these
consolidated cases and it appearing that the appellate court judgment
is based on a misapprehension of facts, this Court shall review the
evidence on record.
The contract of lease upon which Verendia relies to support his claim
for insurance benefits, was entered into between him and one Robert
Garcia, married to Helen Cawinian, on June 25, 1980 (Exh. "1"), a
couple of days after the effectivity of the insurance policy. When the
rented residential building was razed to the ground on December 28,
1980, it appears that Robert Garcia (or Roberto Garcia) was still within
the premises. However, according to the investigation report prepared
by Pat. Eleuterio M. Buenviaje of the Antipolo police, the building
appeared to have "no occupant" and that Mr. Roberto Garcia was
"renting on the otherside (sic) portion of said compound"
(Exh. "E"). These pieces of evidence belie Verendia's uncorroborated
testimony that Marcelo Garcia, whom he considered as the real lessee,
was occupying the building when it was burned (TSN, July 27, 1982,
p.10).
Robert Garcia disappeared after the fire. It was only on October 9,
1981 that an adjuster was able to locate him. Robert Garcia then
executed an affidavit before the National Intelligence and Security
Authority (NISA) to the effect that he was not the lessee of Verendia's
house and that his signature on the contract of lease was a complete
forgery. Thus, on the strength of these facts, the adjuster submitted a
report dated December 4, 1981 recommending the denial of Verendia's
claim (Exh. "2").
Ironically, during the trial, Verendia admitted that it was not Robert
Garcia who signed the lease contract. According to Verendia, it was
signed by Marcelo Garcia, cousin of Robert, who had been paying the
rentals all the while. Verendia, however, failed to explain why Marcelo
had to sign his cousin's name when he in fact was paying for the rent
and why he (Verendia) himself, the lessor, allowed such a ruse.
Fidelity's conclusions on these proven facts appear, therefore, to have
sufficient bases; Verendia concocted the lease contract to deflect
responsibility for the fire towards an alleged "lessee", inflated the value
of the property by the alleged monthly rental of P6,500 when in fact,
the Provincial Assessor of Rizal had assessed the property's fair
market value to be only P40,300.00, insured the same property with
two other insurance companies for a total coverage of around
P900,000, and created a dead-end for the adjuster by the
disappearance of Robert Garcia.
Basically a contract of indemnity, an insurance contract is the law
between the parties (Pacific Banking Corporation vs. Court of Appeals
168 SCRA 1 [1988]). Its terms and conditions constitute the measure
of the insurer's liability and compliance therewith is a condition
precedent to the insured's right to recovery from the insurer (Oriental
Assurance Corporation vs. Court of Appeals, 200 SCRA 459 [1991],
citing Perla Compania de Seguros, Inc. vs. Court of Appeals, 185
SCRA 741 [1991]). As it is also a contract of adhesion, an insurance
contract should be liberally construed in favor of the insured and strictly
against the insurer company which usually prepares it (Western
Guaranty Corporation vs. Court of Appeals, 187 SCRA 652 [1980]).
Considering, however, the foregoing discussion pointing to the fact that
Verendia used a false lease contract to support his claim under Fire
Insurance Policy No. F-18876, the terms of the policy should be strictly
construed against the insured. Verendia failed to live by the terms of
the policy, specifically Section 13 thereof which is expressed in terms
that are clear and unambiguous, that all benefits under the policy shall
be forfeited "If the claim be in any respect fraudulent, or if any false
declaration be made or used in support thereof, or if any fraudulent
means or devises are used by the Insured or anyone acting in his
behalf to obtain any benefit under the policy". Verendia, having
presented a false declaration to support his claim for benefits in the
form of a fraudulent lease contract, he forfeited all benefits therein by
virtue of Section 13 of the policy in the absence of proof that Fidelity
waived such provision (Pacific Banking Corporation vs. Court of
Appeals, supra). Worse yet, by presenting a false lease contract,
Verendia, reprehensibly disregarded the principle that insurance
contracts are uberrimae fidae and demand the most abundant good
faith (Velasco vs. Apostol, 173 SCRA 228 [1989]).
There is also no reason to conclude that by submitting the subrogation
receipt as evidence in court, Fidelity bound itself to a "mutual
agreement" to settle Verendia's claims in consideration of the amount
of P142,685.77. While the said receipt appears to have been a filled-up
form of Fidelity, no representative of Fidelity had signed it. It is even
incomplete as the blank spaces for a witness and his address are not
filled up. More significantly, the same receipt states that Verendia had
received the aforesaid amount. However, that Verendia had not
received the amount stated therein, is proven by the fact that Verendia
himself filed the complaint for the full amount of P385,000.00 stated in
the policy. It might be that there had been efforts to settle Verendia's
claims, but surely, the subrogation receipt by itself does not prove that
a settlement had been arrived at and enforced. Thus, to interpret
Fidelity's presentation of the subrogation receipt in evidence as
indicative of its accession to its "terms" is not only wanting in rational
basis but would be substituting the will of the Court for that of the
parties.
WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The
petition in G.R. No. 76399 is GRANTED and the decision of the then
Intermediate Appellate Court under review is REVERSED and SET
ASIDE and that of the trial court is hereby REINSTATED and UPHELD.
SO ORDERED.
G.R. No. 119599 March 20, 1997
MALAYAN INSURANCE CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS and TKC MARKETING
CORPORATION, respondents.
ROMERO, J.:
Assailed in this petition for review on certiorari is the decision of the
Court of Appeals in CA-G. R. No. 43023 1 which affirmed, with slight
modification, the decision of the Regional Trial Court of Cebu, Branch
15.
Private respondent TKC Marketing Corp. was the owner/consignee of
some 3,189.171 metric tons of soya bean meal which was loaded on
board the ship MV Al Kaziemah on or about September 8, 1989 for
carriage from the port of Rio del Grande, Brazil, to the port of Manila.
Said cargo was insured against the risk of loss by petitioner Malayan
Insurance Corporation for which it issued two (2) Marine Cargo policy
Nos. M/LP 97800305 amounting to P18,986,902.45 and M/LP
97800306 amounting to P1,195,005.45, both dated September 1989.
While the vessel was docked in Durban, South Africa on September
11, 1989 enroute to Manila, the civil authorities arrested and detained it
because of a lawsuit on a question of ownership and possession. As a
result, private respondent notified petitioner on October 4, 1989 of the
arrest of the vessel and made a formal claim for the amount of
US$916,886.66, representing the dollar equivalent on the policies, for
non-delivery of the cargo. Private respondent likewise sought the
assistance of petitioner on what to do with the cargo.
Petitioner replied that the arrest of the vessel by civil authority was not
a peril covered by the policies. Private respondent, accordingly,
advised petitioner that it might tranship the cargo and requested an
extension of the insurance coverage until actual transhipment, which
extension was approved upon payment of additional premium. The
insurance coverage was extended under the same terms and
conditions embodied in the original policies while in the process of
making arrangements for the transhipment of the cargo from Durban to
Manila, covering the period October 4 - December 19, 1989.
However, on December 11, 1989, the cargo was sold in Durban, South
Africa, for US$154.40 per metric ton or a total of P10,304,231.75 due
to its perishable nature which could no longer stand a voyage of twenty
days to Manila and another twenty days for the discharge thereof. On
January 5, 1990, private respondent forthwith reduced its claim to
US$448,806.09 (or its peso equivalent of P9,879,928.89 at the
exchange rate of P22.0138 per $1.00) representing private
respondent's loss after the proceeds of the sale were deducted from
the original claim of $916,886.66 or P20,184,159.55.
Petitioner maintained its position that the arrest of the vessel by civil
authorities on a question of ownership was an excepted risk under the
marine insurance policies. This prompted private respondent to file a
complaint for damages praying that aside from its claim, it be
reimbursed the amount of P128,770.88 as legal expenses and the
interest it paid for the loan it obtained to finance the shipment totalling
P942,269.30. In addition, private respondent asked for moral damages
amounting to P200,000.00, exemplary damages amounting to
P200,000.00 and attorney's fees equivalent to 30% of what will be
awarded by the court.
The lower court decided in favor of private respondent and required
petitioner to pay, aside from the insurance claim, consequential and
liquidated damages amounting to P1,024,233.88, exemplary damages
amounting to P100,000.00, reimbursement in the amount equivalent to
10% of whatever is recovered as attorney's fees as well as the costs of
the suit. On private respondent's motion for reconsideration, petitioner
was also required to further pay interest at the rate of 12% per
annum on all amounts due and owing to the private respondent by
virtue of the lower court decision counted from the inception of this
case until the same is paid.
On appeal, the Court of Appeals affirmed the decision of the lower
court stating that with the deletion of Clause 12 of the policies issued to
private respondent, the same became automatically covered under
subsection 1.1 of Section 1 of the Institute War Clauses. The arrests,
restraints or detainments contemplated in the former clause were
those effected by political or executive acts. Losses occasioned by riot
or ordinary judicial processes were not covered therein. In other words,
arrest, restraint or detainment within the meaning of Clause 12 (or F.C.
& S. Clause) rules out detention by ordinary legal processes. Hence,
arrests by civil authorities, such as what happened in the instant case,
is an excepted risk under Clause 12 of the Institute Cargo Clause or
the F.C. & S. Clause. However, with the deletion of Clause 12 of the
Institute Cargo Clause and the consequent adoption or institution of
the Institute War Clauses (Cargo), the arrest and seizure by judicial
processes which were excluded under the former policy became one
of the covered risks.
The appellate court added that the failure to deliver the consigned
goods in the port of destination is a loss compensable, not only under
the Institute War Clause but also under the Theft, Pilferage, and Non-
delivery Clause (TNPD) of the insurance policies, as read in relation to
Section 130 of the Insurance Code and as held in Williams v. Cole. 2
Furthermore, the appellate court contended that since the vessel was
prevented at an intermediate port from completing the voyage due to
its seizure by civil authorities, a peril insured against, the liability of
petitioner continued until the goods could have been transhipped. But
due to the perishable nature of the goods, it had to be promptly sold to
minimize loss. Accordingly, the sale of the goods being reasonable and
justified, it should not operate to discharge petitioner from its
contractual liability.
Hence this petition, claiming that the Court of Appeals erred:
1. In ruling that the arrest of the vessel was a risk covered under the
subject insurance policies.
2. In ruling that there was constructive total loss over the cargo.
3. In ruling that petitioner was in bad faith in declining private
respondent's claim.
4. In giving undue reliance to the doctrine that insurance policies are
strictly construed against the insurer.
In assigning the first error, petitioner submits the following: (a) an arrest
by civil authority is not compensable since the term "arrest" refers to
"political or executive acts" and does not include a loss caused by riot
or by ordinary judicial process as in this case; (b) the deletion of the
Free from capture or Seizure Clause would leave the assured covered
solely for the perils specified by the wording of the policy itself; (c) the
rationale for the exclusion of an arrest pursuant to judicial authorities is
to eliminate collusion between unscrupulous assured and civil
authorities.
As to the second assigned error, petitioner submits that any loss which
private respondent may have incurred was in the nature and form of
unrecovered acquisition value brought about by a voluntary sacrifice
sale and not by arrest, detention or seizure of the ship.
As to the third issue, petitioner alleges that its act of rejecting the claim
was a result of its honest belief that the arrest of the vessel was not a
compensable risk under the policies issued. In fact, petitioner
supported private respondent by accommodating the latter's request
for an extension of the insurance coverage, notwithstanding that it was
then under no legal obligation to do so.
Private respondent, on the other hand, argued that when it appealed
its case to the Court of Appeals, petitioner did not raise as an issue the
award of exemplary damages. It cannot now, for the first time, raise the
same before this Court. Likewise, petitioner cannot submit for the first
time on appeal its argument that it was wrong for the Court of Appeals
to have ruled the way it did based on facts that would need inquiry into
the evidence. Even if inquiry into the facts were possible, such was not
necessary because the coverage as ruled upon by the Court of
Appeals is evident from the very terms of the policies.
It also argued that petitioner, being the sole author of the policies,
"arrests" should be strictly interpreted against it because the rule is that
any ambiguity is to be taken contra proferentum. Risk policies should
be construed reasonably and in a manner as to make effective the
intentions and expectations of the parties. It added that the policies
clearly stipulate that they cover the risks of non-delivery of an entire
package and that it was petitioner itself that invited and granted the
extensions and collected premiums thereon.
The resolution of this controversy hinges on the interpretation of the
"Perils" clause of the subject policies in relation to the excluded risks or
warranty specifically stated therein.
By way of a historical background, marine insurance developed as an
all-risk coverage, using the phrase "perils of the sea" to encompass the
wide and varied range of risks that were covered. 3 The subject policies
contain the "Perils" clause which is a standard form in any marine
insurance policy. Said clause reads:
Touching the adventures which the said MALAYAN
INSURANCE CO., are content to bear, and to take
upon them in this voyage; they are of the Seas;
Men-of-War, Fire, Enemies, Pirates, Rovers,
Thieves, Jettisons, Letters of Mart and Counter
Mart, Suprisals, Takings of the Sea, Arrests,
Restraints and Detainments of all Kings, Princess
and Peoples, of what Nation, Condition, or quality
soever, Barratry of the Master and Mariners, and
of all other Perils, Losses, and Misfortunes, that
have come to hurt, detriment, or damage of the
said goods and merchandise or any part thereof .
AND in case of any loss or misfortune it shall be
lawful to the ASSURED, their factors, servants and
assigns, to sue, labour, and travel for, in and about
the defence, safeguards, and recovery of the said
goods and merchandises, and ship, & c., or any
part thereof, without prejudice to this
INSURANCE; to the charges whereof the said
COMPANY, will contribute according to the rate
and quantity of the sum herein INSURED. AND it
is expressly declared and agreed that no acts of
the Insurer or Insured in recovering, saving, or
preserving the Property insured shall be
considered as a Waiver, or Acceptance of
Abandonment. And it is agreed by the said
COMPANY, that this writing or Policy of
INSURANCE shall be of as much Force and Effect
as the surest Writing or policy of INSURANCE
made in LONDON. And so the said MALAYAN
INSURANCE COMPANY., INC., are contented,
and do hereby promise and bind themselves, their
Heirs, Executors, Goods and Chattel, to the
ASSURED, his or their Executors, Administrators,
or Assigns, for the true Performance of the
Premises; confessing themselves paid the
Consideration due unto them for this INSURANCE
at and after the rate arranged. (Emphasis
supplied)
The exception or limitation to the "Perils" clause and the "All other
perils" clause in the subject policies is specifically referred to as Clause
12 called the "Free from Capture & Seizure Clause" or the F.C. & S.
Clause which reads, thus:
Warranted free of capture, seizure, arrest,
restraint or detainment, and the consequences
thereof or of any attempt thereat; also from the
consequences of hostilities and warlike
operations, whether there be a declaration of war
or not; but this warranty shall not exclude collision,
contact with any fixed or floating object (other than
a mine or torpedo), stranding, heavy weather or
fire unless caused directly (and independently of
the nature of the voyage or service which the
vessel concerned or, in the case of a collision, any
other vessel involved therein is performing) by a
hostile act by or against a belligerent power and
for the purpose of this warranty "power" includes
 any authorities maintaining naval, military or air
forces in association with power.
Further warranted free from the consequences of
civil war, revolution, insurrection, or civil strike
arising therefrom or piracy.
Should Clause 12 be deleted, the relevant current
institute war clauses shall be deemed to form part
of this insurance. (Emphasis supplied)
However, the F. C. & S. Clause was deleted from the policies.
Consequently, the Institute War Clauses (Cargo) was deemed
incorporated which, in subsection 1.1 of Section 1, provides:
1. This insurance covers:
1.1 The risks excluded from the standard form of
English Marine Policy by the clause warranted free
of capture, seizure, arrest, restraint or detainment,
and the consequences thereof of hostilities or
warlike operations, whether there be a declaration
of war or not; but this warranty shall not exclude
collision, contact with any fixed or floating object
(other than a mine or torpedo), stranding, heavy
weather or fire unless caused directly (and
independently of the nature on voyage or service
which the vessel concerned or, in the case of a
collision any other vessel involved therein is
performing) by a hostile act by or against a
belligerent power; and for the purpose of this
warranty "power" includes any authority
maintaining naval, military or air forces in
association with a power. Further warranted free
from the consequences of civil war, revolution,
rebellion, insurrection, or civil strike arising
therefrom, or piracy.
According to petitioner, the automatic incorporation of subsection 1.1 of
section 1 of the Institute War Clauses (Cargo), among others, means
that any "capture, arrest, detention, etc." pertained exclusively to
warlike operations if this Court strictly construes the heading of the
said clauses. However, it also claims that the parties intended to
include arrests, etc. even if it were not the result of hostilities or warlike
operations. It further claims that on the strength of jurisprudence on the
matter, the term "arrests" would only cover those arising from political
or executive acts, concluding that whether private respondent's claim is
anchored on subsection 1.1 of Section 1 of the Institute War Clauses
(Cargo) or the F.C. & S. Clause, the arrest of the vessel by judicial
authorities is an excluded risk.4
This Court cannot agree with petitioner's assertions, particularly when
it alleges that in the "Perils" Clause, it assumed the risk of arrest
caused solely by executive or political acts of the government of the
seizing state and thereby excludes "arrests" caused by ordinary legal
processes, such as in the instant case.
With the incorporation of subsection 1.1 of Section 1 of the Institute
War Clauses, however, this Court agrees with the Court of Appeals and
the private respondent that "arrest" caused by ordinary judicial process
is deemed included among the covered risks. This interpretation
becomes inevitable when subsection 1.1 of Section 1 of the Institute
War Clauses provided that "this insurance covers the risks excluded
from the Standard Form of English Marine Policy by the clause
"Warranted free of capture, seizure, arrest, etc. . . ." or the F.C. & S.
Clause. Jurisprudentially, "arrests" caused by ordinary judicial process
is also a risk excluded from the Standard Form of English Marine
Policy by the F.C. & S. Clause.
Petitioner cannot adopt the argument that the "arrest" caused by
ordinary judicial process is not included in the covered risk simply
because the F.C. & S. Clause under the Institute War Clauses can only
be operative in case of hostilities or warlike operations on account of
its heading "Institute War Clauses." This Court agrees with the Court of
Appeals when it held that ". . . . Although the F.C. & S. Clause may
have originally been inserted in marine policies to protect against risks
of war, (see generally G. Gilmore & C. Black, The Law of Admiralty
Section 2-9, at 71-73 [2d Ed. 1975]), its interpretation in recent years to
include seizure or detention by civil authorities seems consistent with
the general purposes of the clause, . . . ." 5 In fact, petitioner itself
averred that subsection 1.1 of Section 1 of the Institute War Clauses
included "arrest" even if it were not a result of hostilities or warlike
operations. 6 In this regard, since what was also excluded in the
deleted F.C. & S. Clause was "arrest" occasioned by ordinary judicial
process, logically, such "arrest" would now become a covered risk
under subsection 1.1 of Section 1 of the Institute War Clauses,
regardless of whether or not said "arrest" by civil authorities occurred
in a state of war.
Petitioner itself seems to be confused about the application of the F.C.
& S. Clause as well as that of subsection 1.1 of Section 1 of the
Institute War Clauses (Cargo). It stated that "the F.C. & S. Clause was
"originally incorporated in insurance policies to eliminate the risks of
warlike operations". It also averred that the F.C. & S. Clause applies
even if there be no war or warlike operations . . . ." 7 In the same vein,
it contended that subsection 1.1 of Section 1 of the Institute War
Clauses (Cargo) "pertained exclusively to warlike operations" and yet it
also stated that "the deletion of the F.C. & S. Clause and the
consequent incorporation of subsection 1.1 of Section 1 of the Institute
War Clauses (Cargo) was to include "arrest, etc. even if were not a
result of hostilities or warlike operations. 8
This Court cannot help the impression that petitioner is overly straining
its interpretation of the provisions of the policy in order to avoid being
liable for private respondent's claim.
This Court finds it pointless for petitioner to maintain its position that it
only insures risks of "arrest" occasioned by executive or political acts
of government which is interpreted as not referring to those caused by
ordinary legal processes as contained in the "Perils" Clause; deletes
the F.C. & S. Clause which excludes risks of arrest occasioned by
executive or political acts of the government and naturally, also those
caused by ordinary legal processes; and, thereafter incorporates
subsection 1.1 of Section 1 of the Institute War Clauses which now
includes in the coverage risks of arrest due to executive or political
acts of a government but then still excludes "arrests" occasioned by
ordinary legal processes when subsection 1.1 of Section 1 of said
Clauses should also have included "arrests" previously excluded from
the coverage of the F.C. & S. Clause.
It has been held that a strained interpretation which is unnatural and
forced, as to lead to an absurd conclusion or to render the policy
nonsensical, should, by all means, be avoided. 9 Likewise, it must be
borne in mind that such contracts are invariably prepared by the
companies and must be accepted by the insured in the form in which
they are written. 10 Any construction of a marine policy rendering it void
should be avoided. 11 Such policies will, therefore, be construed strictly
against the company in order to avoid a forfeiture, unless no other
result is possible from the language used. 12
If a marine insurance company desires to limit or restrict the operation
of the general provisions of its contract by special proviso, exception,
or exemption, it should express such limitation in clear and
unmistakable language. 13Obviously, the deletion of the F.C. & S.
Clause and the consequent incorporation of subsection 1.1 of Section
1 of the Institute War Clauses (Cargo) gave rise to ambiguity. If the risk
of arrest occasioned by ordinary judicial process was expressly
indicated as an exception in the subject policies, there would have
been no controversy with respect to the interpretation of the subject
clauses.
Be that as it may, exceptions to the general coverage are construed
most strongly against the company. 14 Even an express exception in a
policy is to be construed against the underwriters by whom the policy is
framed, and for whose benefit the exception is introduced. 15
An insurance contract should be so interpreted as to carry out the
purpose for which the parties entered into the contract which is, to
insure against risks of loss or damage to the goods. Such
interpretation should result from the natural and reasonable meaning of
language in the policy. 16 Where restrictive provisions are open to two
interpretations, that which is most favorable to the insured is
adopted. 17
Indemnity and liability insurance policies are construed in accordance
with the general rule of resolving any ambiguity therein in favor of the
insured, where the contract or policy is prepared by the insurer. 18 A
contract of insurance, being a contract of adhesion, par excellence,
any ambiguity therein should be resolved against the insurer; in other
words, it should be construed liberally in favor of the insured and
strictly against the insurer. Limitations of liability should be regarded
with extreme jealousy and must be construed in such a way as to
preclude the insurer from noncompliance with its obligations. 19
In view of the foregoing, this Court sees no need to discuss the other
issues presented.
WHEREFORE, the petition for review is DENIED and the decision of
the Court of Appeals is AFFIRMED.
SO ORDERED.
G.R. No. 100970 September 2, 1992
FINMAN GENERAL ASSURANCE CORPORATION, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and JULIA
SURPOSA, respondents.
Aquino and Associates for petitioner.
Public Attorney's Office for private respondent.
NOCON, J.:
This is a petition for certiorari with a prayer for the issuance of a
restraining order and preliminary mandatory injunction to annul and set
aside the decision of the Court of Appeals dated July 11,
1991, 1 affirming the decision dated March 20, 1990 of the Insurance
Commission 2 in ordering petitioner Finman General Assurance
Corporation to pay private respondent Julia Surposa the proceeds of
the personal accident Insurance policy with interest.
It appears on record that on October 22, 1986, deceased, Carlie
Surposa was insured with petitioner Finman General Assurance
Corporation under Finman General Teachers Protection Plan Master
Policy No. 2005 and Individual Policy No. 08924 with his parents,
spouses Julia and Carlos Surposa, and brothers Christopher, Charles,
Chester and Clifton, all surnamed, Surposa, as beneficiaries. 3
While said insurance policy was in full force and effect, the insured,
Carlie Surposa, died on October 18, 1988 as a result of a stab wound
inflicted by one of the three (3) unidentified men without provocation
and warning on the part of the former as he and his cousin, Winston
Surposa, were waiting for a ride on their way home along Rizal-Locsin
Streets, Bacolod City after attending the celebration of the "Maskarra
Annual Festival."
Thereafter, private respondent and the other beneficiaries of said
insurance policy filed a written notice of claim with the petitioner
insurance company which denied said claim contending that murder
and assault are not within the scope of the coverage of the insurance
policy.
On February 24, 1989, private respondent filed a complaint with the
Insurance Commission which subsequently rendered a decision, the
pertinent portion of which reads:
In the light of the foregoing. we find respondent
liable to pay complainant the sum of P15,000.00
representing the proceeds of the policy with
interest. As no evidence was submitted to prove
the claim for mortuary aid in the sum of P1,000.00,
the same cannot be entertained.
WHEREFORE, judgment is hereby rendered
ordering respondent to pay complainant the sum
of P15,000.00 with legal interest from the date of
the filing of the complaint until fully satisfied. With
costs. 4
On July 11, 1991, the appellate court affirmed said decision.
Hence, petitioner filed this petition alleging grove abuse of discretion
on the part of the appellate court in applying the principle of "expresso
unius exclusio alterius" in a personal accident insurance policy since
death resulting from murder and/or assault are impliedly excluded in
said insurance policy considering that the cause of death of the insured
was not accidental but rather a deliberate and intentional act of the
assailant in killing the former as indicated by the location of the lone
stab wound on the insured. Therefore, said death was committed with
deliberate intent which, by the very nature of a personal accident
insurance policy, cannot be indemnified.
We do not agree.
The terms "accident" and "accidental" as used in
insurance contracts have not acquired any
technical meaning, and are construed by the
courts in their ordinary and common acceptation.
Thus, the terms have been taken to mean that
which happen by chance or fortuitously, without
intention and design, and which is unexpected,
unusual, and unforeseen. An accident is an event
that takes place without one's foresight or
expectation — an event that proceeds from an
unknown cause, or is an unusual effect of a known
cause and, therefore, not expected.
. . . The generally accepted rule is that, death or
injury does not result from accident or accidental
means within the terms of an accident-policy if it is
the natural result of the insured's voluntary act,
unaccompanied by anything unforeseen except
the death or injury. There is no accident when a
deliberate act is performed unless some
additional, unexpected, independent, and
unforeseen happening occurs which produces or
brings about the result of injury or death. In other
words, where the death or injury is not the natural
or probable result of the insured's voluntary act, or
if something unforeseen occurs in the doing of the
act which produces the injury, the resulting death
is within the protection of the policies insuring
against death or injury from accident. 5
As correctly pointed out by the respondent appellate court in its
decision:
In the case at bar, it cannot be pretended that
Carlie Surposa died in the course of an assault or
murder as a result of his voluntary act considering
the very nature of these crimes. In the first place,
the insured and his companion were on their way
home from attending a festival. They were
confronted by unidentified persons. The record is
barren of any circumstance showing how the stab
 wound was inflicted. Nor can it be pretended that
the malefactor aimed at the insured precisely
because the killer wanted to take his life. In any
event, while the act may not exempt the unknown
perpetrator from criminal liability, the fact remains
that the happening was a pure accident on the
part of the victim. The insured died from an event
that took place without his foresight or expectation,
an event that proceeded from an unusual effect of
a known cause and, therefore, not expected.
Neither can it be said that where was a capricious
desire on the part of the accused to expose his life
to danger considering that he was just going home
after attending a festival. 6

Furthermore, the personal accident insurance policy involved herein

specifically enumerated only ten (10) circumstances wherein no liability
attaches to petitioner insurance company for any injury, disability or
loss suffered by the insured as a result of any of the stimulated causes.
The principle of " expresso unius exclusio alterius" — the mention of
one thing implies the exclusion of another thing — is therefore
applicable in the instant case since murder and assault, not having
been expressly included in the enumeration of the circumstances that
would negate liability in said insurance policy cannot be considered by
implication to discharge the petitioner insurance company from liability
for, any injury, disability or loss suffered by the insured. Thus, the
failure of the petitioner insurance company to include death resulting
from murder or assault among the prohibited risks leads inevitably to
the conclusion that it did not intend to limit or exempt itself from liability
for such death.

Article 1377 of the Civil Code of the Philippines provides that:

The interpretation of obscure words or stipulations

in a contract shall not favor the party who caused
the obscurity.

Moreover,

it is well settled that contracts of insurance are to

be construed liberally in favor of the insured and
strictly against the insurer. Thus ambiguity in the
words of an insurance contract should be
interpreted in favor of its beneficiary. 7

WHEREFORE, finding no irreversible error in the decision of the

respondent Court of Appeals, the petition for certiorari with restraining
order and preliminary injunction is hereby DENIED for lack of merit.

SO ORDERED.