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G.R. No. 166245 April 9, 2008

 On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife) entered into
an agreement denominated as Creditor Group Life Policy No. P-1920 with petitioner Eternal Gardens
Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who purchased burial lots
from it on installment basis would be insured by Philamlife. The amount of insurance coverage depended
upon the existing balance of the purchased burial lots. The policy was to be effective for a period of one
year, renewable on a yearly basis.


The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the
Assured. However, there shall be no insurance if the application of the Lot Purchaser is not approved by the

 Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with
a copy of the application of each purchaser, and the amounts of the respective unpaid balances of all
insured lot purchasers.
 Eternal complied by submitting a letter dated December 29, 1982, containing a list of insurable balances
of its lot buyers for October 1982. One of those included in the list as "new business" was a certain John
Chuang. His balance of payments was PhP 100,000.
 On August 2, 1984, Chuang died.
 On August 20, 1984, Eternal sent a letter to Philamlife, which served as an insurance claim for Chuang’s
death. Attached to the claim were the following documents: (1) Chuang’s Certificate of Death; (2)
Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant;
(4) Certificate of Attending Physician; and (5) Assured’s Certificate.
 In reply, Philamlife wrote Eternal a letter on November 12, 1984, requiring Eternal to submit the following
documents relative to its insurance claim for Chuang’s death: (1) Certificate of Claimant (with form
attached); (2) Assured’s Certificate (with form attached); (3) Application for Insurance accomplished and
signed by the insured, Chuang, while still living; and (4) Statement of Account showing the unpaid
balance of Chuang before his death.
 Eternal transmitted the required documents through a letter dated November 14, 1984, which was
received by Philamlife on November 15, 1984.
 After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s insurance claim.
This prompted Eternal to demand from Philamlife the payment of the claim for PhP 100,000 on April 25,
 In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter dated May 20,

1. under Evidence of Insurability provision, "a declaration of good health shall be required for all Lot
Purchasers as party of the application." - NONE
2. provision on Effective Date of Coverage under the policy which states that "there shall be no insurance if
the application is not approved by the Company." - INACTION

 RTC Ruling: in favor of Plaintiff ETERNAL, against Defendant PHILAMLIFE (collection of sum of money –
civil case)
 Eternal submitted Chuang’s application for insurance which he accomplished before his death, as testified
to by Eternal’s witness and evidenced by the letter dated December 29, 1982, stating, among others:
"Encl: Phil-Am Life Insurance Application Forms & Cert." It further ruled that due to Philamlife’s
inaction from the submission of the requirements of the group insurance on December 29, 1982 to
Chuang’s death on August 2, 1984, as well as Philamlife’s acceptance of the premiums during the same
period, Philamlife was deemed to have approved Chuang’s application. The RTC said that since the
contract is a group life insurance, once proof of death is submitted, payment must follow.

 CA Ruling: Reversed and Set Aside the ruling of RTC

 Philamlife appealed to the CA, which REVERSED and SET ASIDE the decision of the Regional Trial Court of
Makati. (BASIS: Chuang’s application was not enclosed in Eternal’s letter dated December 29, 1982. CA
concluded, there being no application form, Chuang was not covered by Philamlife’s insurance).

ISSUE: Whether Philamlife assumed the risk of loss without approving the application.

YES. The mere inaction of the insurer on the insurance application must not work to prejudice the insured; it
cannot be interpreted as a termination of the insurance contract. The termination of the insurance contract by the
insurer must be explicit and unambiguous.

To characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best. Insurance
contracts are wholly prepared by the insurer with vast amounts of experience in the industry purposefully used to
its advantage. More often than not, insurance contracts are contracts of adhesion containing technical terms and
conditions of the industry, confusing if at all understandable to laypersons, that are imposed on those who wish to
avail of insurance. As such, insurance contracts are imbued with public interest that must be considered whenever
the rights and obligations of the insurer and the insured are to be delineated.

Hence, in order to protect the interest of insurance applicants, insurance companies must be obligated to act with
haste upon insurance applications, to either deny or approve the same, or otherwise be bound to honor the
application as a valid, binding, and effective insurance contract.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured.
However, there shall be no insurance if the application of the Lot Purchaser is not approved by the Company.

An examination of the above provision would show ambiguity between its two sentences. The first sentence
appears to state that the insurance coverage of the clients of Eternal already became effective upon contracting a
loan with Eternal while the second sentence appears to require Philamlife to approve the insurance contract before
the same can become effective.

It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in
favor of the insured and strictly against the insurer in order to safeguard the latter’s interest. Thus, in Malayan
Insurance Corporation v. Court of Appeals, this Court held that:

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any
ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of
insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved
against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the
insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as
to preclude the insurer from noncompliance with its obligations. (Emphasis supplied.)

Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980, must
be construed in favor of the insured and in favor of the effectivity of the insurance contract.


G.R. No. 125678. March 18, 2002

 Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with
petitioner Philamcare Health Systems, Inc. In the standard application form, he answered NO to the
following question:

Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble,
diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).

 The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly,
he was issued Health Care Agreement No. P010194. Under the agreement, respondents husband was
entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also
entitled to avail of out-patient benefits such as annual physical examinations, preventive health care and
other out-patient services.
 Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to
March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability.
 During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical
Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital, respondent
tried to claim the benefits under the health care agreement. However, petitioner denied her claim saying
that the Health Care Agreement was void.
 According to petitioner, there was a concealment regarding Ernanis medical history. Doctors at the MMC
allegedly discovered at the time of Ernanis confinement that he was hypertensive, diabetic and asthmatic,
contrary to his answer in the application form. Thus, respondent paid the hospitalization expenses herself,
amounting to about P76,000.00.
 After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later,
he was admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent
brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very
weak. Respondent was constrained to bring him back to the Chinese General Hospital where he died on
the same day.
 On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for
damages against petitioner and its president, Dr. Benito Reverente. She asked for reimbursement of her
expenses plus moral damages and attorneys fees.

 RTC - rendered judgment in favor of the plaintiff Julita Trinos

 CA - the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and
absolved petitioner Reverente (President). MFR was denied.

ISSUE: W/N the incontestability clause under the Insurance Code will apply to the health care agreement.

YES. Anent the incontestability of the membership of respondents husband, we quote with approval the following
findings of the trial court:

(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve months
from the date of issuance of the Agreement within which to contest the membership of the patient if he had
previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes
or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie.

Nature: NON-LIFE

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.
An insurance contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large
group of persons bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays a premium.

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may
damnify a person having an insurable interest against him, may be insured against. Every person has an insurable
interest in the life and health of himself. Section 10 provides:

Every person has an insurable interest in the life and health:

(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a
pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting property or
service, of which death or illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him depends.

In the case at bar, the insurable interest of respondents husband in obtaining the health care agreement was his
own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of

The answer assailed by petitioner was in response to the question relating to the medical history of the applicant.
This largely depends on opinion rather than fact, especially coming from respondents husband who was not a
medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without
intent to deceive will not avoid a policy even though they are untrue.

The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance
contract. Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or
insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the

Under Section 27 of the Insurance Code, a concealment entitles the injured party to rescind a contract of
insurance. The right to rescind should be exercised previous to the commencement of an action on the

In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance
policies require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the
grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request
of insured, to furnish facts on which cancellation is based.

None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations
on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his

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


G.R. No. 185964 June 16, 2014


Consignee - Grand Asian Sales, Inc. (GASI)
Ship - M/V "Da Feng" (owned by China Ocean Shipping Co. (COSCO); Philippine agent: Smith Bell Shipping Lines,
Broker Proven Customs Brokerage Corporation (PROVEN)
arrastre operator – ATI

 On July 6, 1996, 3,000 bags of sodium tripolyphosphate contained in 100 plain jumbo bags complete and
in good condition were loaded and received on board M/V "Da Feng" owned by China Ocean Shipping Co.
(COSCO) in favor of consignee, Grand Asian Sales, Inc. (GASI). Based on a Certificate of Insurance dated
August 24, 1995, it appears that the shipment was insured against all risks by GASI with FIRST LEPANTO
for ₱7,959,550.50 under Marine Open Policy No. 0123.
 The shipment arrived in Manila on July 18, 1996 and was discharged into the possession and custody of
ATI, a domestic corporation engaged in arrastre business. The shipment remained for quite some time at
ATI’s storage area until it was withdrawn by broker, Proven Customs Brokerage Corporation (PROVEN), on
August 8 and 9, 1996 for delivery to the consignee. Upon receipt of the shipment, GASI subjected the
same to inspection and found that the delivered goods incurred shortages of 8,600 kilograms and spillage
of 3,315 kg for a total of11,915 kg of loss/damage valued at ₱166,772.41.
 GASI sought recompense from COSCO, thru its Philippine agent Smith Bell Shipping Lines, Inc. (SMITH
BELL), ATI and PROVEN but was denied. Hence, it pursued indemnification from the shipment’s insurer.
 After the requisite investigation and adjustment, FIRST LEPANTO paid GASI the amount of ₱165,772.40 as
insurance indemnity.
 Thereafter, GASI executed a Release of Claim discharging FIRST LEPANTO from any and all liabilities
pertaining to the lost/damaged shipment and subrogating it to all the rights of recovery and claims the
former may have against any person or corporation in relation to the lost/damaged shipment.
 As such subrogee, FIRST LEPANTO demanded from COSCO, its shipping agency in the Philippines, SMITH
BELL, PROVEN and ATI, reimbursement of the amount it paid to GASI. When FIRST LEPANTO’s demands
were not heeded, it filed on May 29, 1997 a Complaint12 for sum of money before the Metropolitan Trial
Court (MeTC) of Manila, Branch 3. FIRST LEPANTO sought that it be reimbursed the amount of
166,772.41, twenty-five percent (25%) thereof as attorney’s fees, and costs of suit.
 ATI denied liability for the lost/damaged shipment and claimed that it exercised due diligence and care in
handling the same.13 ATI averred that upon arrival of the shipment, SMITH BELL requested for its
inspection14 and it was discovered that one jumbo bag thereof sustained loss/damage while in the
custody of COSCO as evidenced by Turn Over Survey of Bad Order Cargo No. 47890 dated August 6,
199615 jointly executed by the respective representatives of ATI and COSCO. During the withdrawal of
the shipment by PROVEN from ATI’s warehouse, the entire shipment was re-examined and it was found to
be exactly in the same condition as when it was turned over to ATI such that one jumbo bag was
damaged. To bolster this claim, ATI submitted Request for Bad Order Survey No. 40622 dated August 9,
199616 jointly executed by the respective representatives of ATI and PROVEN. ATI also submitted various
Cargo Gate Passes17 showing that PROVEN was able to completely withdraw all the shipment from ATI’s
warehouse in good order condition except for that one damaged jumbo bag.
 In the alternative, ATI asserted that even if it is found liable for the lost/damaged portion of the shipment,
its contract for cargo handling services limits its liability to not more than ₱5,000.00 per package. PROVEN
denied any liability for the lost/damaged shipment and averred that the complaint alleged no specific acts
or omissions that makes it liable for damages. PROVEN claimed that the damages in the shipment were
sustained before they were withdrawn from ATI’s custody under which the shipment was left in an open
area exposed to the elements, thieves and vandals.
 Despite receipt of summons on December 4, 1996,20 COSCO and SMITH BELL failed to file an answer to
the complaint. FIRST LEPANTO thus moved that they be declared in default21 but the motion was denied
by the MeTC on the ground that under Rule 9, Section 3 of the Rules of Civil Procedure, "when a pleading
asserting a claim states a common cause of action against several defending parties, some of whom
answer and the other fail to do so, the Court shall try the case against all upon the answers thus filed, and
render judgment upon the evidence presented.

 MeTC - absolved ATI and PROVEN from any liability and instead found COSCO to be the party at fault and
hence liable for the loss/damage sustained by the subject shipment. However, the MeTC ruled it has no
jurisdiction over COSCO because it is a foreign corporation. Also, it cannot enforce judgment upon SMITH
BELL because no evidence was presented establishing that it is indeed the Philippine agent of COSCO.
There is also no evidence attributing any fault to SMITH BELL. Consequently, the complaint was dismissed.

 RTC - Regional Trial Court (RTC) reversed the MeTC’s findings. The RTC remarked that, if, as alleged by
ATI, one jumbo bag was already in bad order condition upon its receipt of the shipment from COSCO on
July 18, 1996, then how come that the Request for Bad Order Survey and the Turn Over Survey of Bad
Order Cargo were prepared only weeks thereafter or on August 9, 1996 and August 6, 1996, respectively.
ATI was adjudged unable to prove that it exercised due diligence while in custody of the shipment and
hence, negligent and should be held liable for the damages caused to GASI which, in turn, is subrogated
 The RTC rejected ATI’s contention that its liability is limited only to ₱5,000.00 per package because its
Management Contract with the Philippine Ports Authority (PPA) purportedly containing the same was not
presented as evidence. FIRST LEPANTO or GASI cannot be deemed bound thereby because they were not
parties thereto.

 CA -
*** ATI argued that there was no valid subrogation because FIRSTLEPANTO failed to present a
valid, existing and enforceable Marine Open Policy or insurance contract. ATI reasoned that the Certificate
of Insurance or Marine Cover Note submitted by FIRST LEPANTO as evidence is not the same as an actual
insurance contract.
CA dismissed the appeal and held that the Release of Claim and the Certificate of Insurance presented by FIRST
LEPANTO sufficiently established its relationship with the consignee and that upon proof of payment of the latter’s
claim for damages, FIRST LEPANTO was subrogated to its rights against those liable for the lost/damaged
shipment. CA also affirmed the ruling of the RTC that the subject shipment was damaged while in the custody
of ATI.

MFR – Denied

1. W/N ATI sufficiently proved due diligence in handling the subject cargoes.
2. W/N non-presentation of the insurance contract is fatal to First Lepanto's cause of action.

1. NO. The RTC and CA were both correct in concluding that ATI’s contention was improbable and illogical. As
judiciously discerned by the courts a quo, the date of the document was too distant from the date when the
shipment was actually received by ATI from COSCO on July 18, 1996. In fact, what the document established is
that when the loss/damage was discovered, the shipment has been in ATI’s custody for at least two weeks. This
circumstance, coupled with the undisputed declaration of PROVEN’s witnesses that while the shipment was in ATI’s
custody, it was left in an open area exposed to the elements, thieves and vandals, all generate the conclusion that
ATI failed to exercise due care and diligence while the subject shipment was under its custody, control and
possession as arrastre operator.

To prove the exercise of diligence in handling the subject cargoes, an arrastre operator must do more than merely
show the possibility that some other party could be responsible for the loss or the damage. It must prove that it
used all reasonable means to handle and store the shipment with due care and diligence including safeguarding it
from weather elements, thieves or vandals.

2. NO. (Exception) In Delsan Transport Lines, Inc. v. CA, the Court ruled that the right of subrogation accrues
simply upon payment by the insurance company of the insurance claim. Hence, presentation in evidence of the
marine insurance policy is not indispensable before the insurer may recover from the common carrier the insured
value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, was held sufficient
to establish not only the relationship between the insurer and consignee, but also the amount paid to settle the
insurance claim. The presentation of the insurance contract was deemed not fatal to the insurer’s cause of action
because the loss of the cargo undoubtedly occurred while on board the petitioner’s vessel.

The same rationale was the basis of the judgment in International Container Terminal Services, Inc. v. FGU
Insurance Corporation, wherein the arrastre operator was found liable for the lost shipment despite the failure of
the insurance company to offer in evidence the insurance contract or policy. As in Delsan, it was certain that the
loss of the cargo occurred while in the petitioner’s custody.

Based on the attendant facts of the instant case, the application of the exception is warranted.1âwphi1 As \
discussed above, it is already settled that the loss/damage to the GASI’s shipment occurred while they were in
ATI’s custody, possession and control as arrastre operator. Verily, the Certificate of Insurance and the Release of
Claim presented as evidence sufficiently established FIRST LEPANTO’s right to collect reimbursement as the
subrogee of the consignee, GASI.


General Rule:
As a general rule, the marine insurance policy needs to be presented in evidence before the insurer may
recover the insured value of the lost/damaged cargo in the exercise of its subrogatory right. In Malayan Insurance
Co., Inc. v.Regis Brokerage Corp., the Court stated that the presentation of the contract constitutive of the
insurance relationship between the consignee and insurer is critical because it is the legal basis of the latter’s right
to subrogation.

In Home Insurance Corporation v. CA,45 the Court also held that the insurance contract was necessary to prove
that it covered the hauling portion of the shipment and was not limited to the transport of the cargo while at sea.
The shipment in that case passed through six stages with different parties involved in each stage until it reached
the consignee. The insurance contract, which was not presented in evidence, was necessary to determine the scope
of the insurer’s liability, if any, since no evidence was adduced indicating at what stage in the handling process the
damage to the cargo was sustained.

"Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so
that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies
or securities." The right of subrogation springs from Article 2207 of the Civil Code which states:

Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrong-doer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled
to recover the deficiency from the person causing the loss or injury.

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC., petitioners,
G.R. No. 124520. August 18, 1997

 Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private
respondent CKS Development Corporation (hereinafter CKS), as lessor, on 5 October 1988.
 One of the stipulations of the one (1) year lease contract states:

18. x x x. The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed at
any stall or store or space in the leased premises without first obtaining the written consent and approval of the
LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy is
deemed assigned and transferred to the LESSOR for its own benefit; x x x[1]

 Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire'
their merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United
Insurance Co., Inc. (hereinafter United) without the written consent of private respondents CKS.
 On the day that the lease contract was to expire, fire broke out inside the leased premises.
 When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the
insurer (United) a demand letter asking that the proceeds of the insurance contract (between the Cha
spouses and United) be paid directly to CKS, based on its lease contract with Cha spouses.
 United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United.
 RTC – ruled in favor of CKS. Ordered therein defendant United to pay CKS the amount of P335,063.11
and defendant Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 as attorneys fees and
costs of suit.
 CA – affirmed RTC decision. Deleted the awards for exemplary damages and attorneys fees.

 MFR - denied
ISSUE: whether or not the aforequoted paragraph 18 of the lease contract entered into between CKS and the Cha
spouses is valid insofar as it provides that any fire insurance policy obtained by the lessee (Cha spouses) over their
merchandise inside the leased premises is deemed assigned or transferred to the lessor (CKS) if said policy is
obtained without the prior written of the latter.

NO. The respondent CKS cannot, under the Insurance Code a special law be validly a beneficiary of the fire
insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said
merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS under the
provision of the lease contract previously quoted is void for being contrary to law and/or public policy. The
proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein
copetitioners). The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a
person (CKS) who has no insurable interest in the property insured.

It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law,
morals, good customs, public order or public policy.

Sec. 18 of the Insurance Code provides:

Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some person
having an insurable interest in the property insured.

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is
primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance
takes effect and at the time the loss occurs. The basis of such requirement of insurable interest in property insured
is based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he
has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case,
the contract of insurance is a mere wager which is void under Section 25 of the Insurance Code, which provides:

SECTION 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or
has not any interest in the property insured, or that the policy shall be received as proof of such interest, and
every policy executed by way of gaming or wagering, is void.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside
the leased premises under the provisions of Section 17 of the Insurance Code which provide.

Section 17. The measure of an insurable interest in property is the extent to which the insured might be
damnified by loss of injury thereof."


G.R. No. 147839 June 8, 2006

Intercapitol Marketing Corporation (IMC) – Local distriutor (Wrangler blue jeans)

Levi Strauss (Phils.) Inc. (LSPI) – Local distributor of products bearing trademarks owned by Levi Strauss & Co..
Gaisano Cagayan Inc – customer and dealer of the products

 Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc.
(LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI
separately obtained from respondent fire insurance policies with book debt endorsements. The insurance
policies provide for coverage on "book debts in connection with ready-made clothing materials which have
been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines."2 The
policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45
days after the time of the loss covered under this Policy."3 The policies also provide for the following

1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and
delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from the
date of the covering invoice or actual delivery of the merchandise whichever shall first occur.

2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every
calendar month all amount shown in their books of accounts as unpaid and thus become receivable item from their
customers and dealers. x x x


 Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano
Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the
items lost or destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC
and LSPI.
 On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and
LSPI filed with respondent their claims under their respective fire insurance policies with book debt
endorsements; that as of February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of
ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00; that
respondent paid the claims of IMC and LSPI and, by virtue thereof, respondent was subrogated to their
rights against petitioner; that respondent made several demands for payment upon petitioner but these
went unheeded.
 In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable
because the property covered by the insurance policies were destroyed due to fortuities event or force
majeure; tha respondent's right of subrogation has no basis inasmuch as there was no breach of contract
committed by it since the loss was due to fire which it could not prevent or foresee; that IMC and LSPI
never communicated to it that they insured their properties; that it never consented to paying the claim of
the insured.
 At the pre-trial conference the parties failed to arrive at an amicable settlement.

 RTC – rendered decision in favor of Gaisano. (On August 31, 1998, the RTC rendered its decision
dismissing respondent's complaint.8 It held that the fire was purely accidental; that the cause of the fire
was not attributable to the negligence of the petitioner; that it has not been established that petitioner is
the debtor of IMC and LSPI; that since the sales invoices state that "it is further agreed that merely for
purpose of securing the payment of purchase price, the above-described merchandise remains the
property of the vendor until the purchase price is fully paid", IMC and LSPI retained ownership of the
delivered goods and must bear the loss.)

 CA - rendered its decision setting aside the decision of the RTC. Ordered gaisano to pay INS URANCE

(The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity and cost
the thing sold; that loss of the goods in the fire must be borne by petitioner since the proviso contained in the sales
invoices is an exception under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a
fortuitous event, the risk is borne by the owner of the thing at the time the loss under the principle of res perit
domino; that petitioner's obligation to IMC and LSPI is not the delivery of the lost goods but the payment of its
unpaid account and as such the obligation to pay is not extinguished, even if the fire is considered a fortuitous
event; that by subrogation, the insurer has the right to go against petitioner; that, being a fire insurance with book
debt endorsements, what was insured was the vendor's interest as a creditor.)

 MFR – Denied

1. W/N the CA erred in construing a fire insurance policy on book debts as one covering the unpaid accounts
of IMC and LSPI since such insurance applies to loss of the ready-made clothing materials sold and
delivered to petitioner.
2. W/N the IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in
the sales invoices that "[i]t is further agreed that merely for purpose of securing the payment of the
purchase price the above described merchandise remains the property of the vendor until the purchase
price thereof is fully paid."
3. W/N petitioner is liable for the unpaid accounts.

1. NO. The questioned insurance policies provide coverage for "book debts in connection with ready-made clothing
materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the
Philippines."23 ; and defined book debts as the "unpaid account still appearing in the Book of Account of the
Insured 45 days after the time of the loss covered under this Policy."24 Nowhere is it provided in the questioned
insurance policies that the subject of the insurance is the goods sold and delivered to the customers and dealers of
the insured.

Thus, what were insured against were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days
after the loss through fire, and not the loss or destruction of the goods delivered.

2. NO. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:

ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's
risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been retained by the seller merely to secure performance by the
buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery;
(Emphasis supplied)


Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by
the buyer. Accordingly, petitioner bears the risk of loss of the goods delivered.

IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of
the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of
title, but whether insured has substantial economic interest in the property.

Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or
or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly
damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may
consist in:
(a) an existing interest;
(b) an inchoate interest founded on existing interest; or
(c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or
possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the
existence of such an interest, it is sufficient that the insured is so situated with reference to the property that he
would be liable to loss should it be injured or destroyed by the peril against which it is insured.29 Anyone has an
insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction.30
Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has any interest therein,
in other words, so long as he would suffer by its destruction, as where he has a vendor's lien.31 In this case, the
insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after
the time of the loss covered by the policies.

3. YES. Petitioner bears the loss under Article 1504 (1) of the Civil Code.

The insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that
remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the payment of money. As
correctly stated by the CA, where the obligation consists in the payment of money, the failure of the debtor to
make the payment even by reason of a fortuitous event shall not relieve him of his liability. The rationale for this is
that the rule that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event only
holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding
him liable even in case of fortuitous event. It does not apply when the obligation is pecuniary in nature.

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish the obligation." If the obligation is generic in the sense that the
object thereof is designated merely by its class or genus without any particular designation or physical segregation
from all others of the same class, the loss or destruction of anything of the same kind even without the debtor's
fault and before he has incurred in delay will not have the effect of extinguishing the obligation.35 This rule is
based on the principle that the genus of a thing can never perish. Genus nunquan perit.36 An obligation to pay
money is generic; therefore, it is not excused by fortuitous loss of any specific property of the debtor.

Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. What is
relevant here is whether it has been established that petitioner has outstanding accounts with IMC and LSPI.


The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and
IMC as the insured, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply
upon payment by the insurance company of the insurance claim.41 Respondent's action against petitioner is
squarely sanctioned by Article 2207 of the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company
the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. x x x


G.R. No. 211212, June 08, 2016

 On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun Life. In his
Application for Insurance, he indicated that he had sought advice for kidney problems.5 Atty. Jesus Jr.
indicated the following in his application:

"Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus Benjamin Mendoza at National Kidney
Institute, discharged after 3 days, no recurrence as claimed."

 On February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and issued Insurance Policy No.
031097335. The policy indicated the respondents as beneficiaries and entitles them to a death benefit of
P1,000,000.00 should Atty. Jesus Jr. dies on or before February 5, 2021, or a sum of money if Atty. Jesus
Jr. is still living on the endowment date.
 On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San Joaquin, Iloilo. As such, Ma.
Daisy filed a Claimant's Statement with Sun Life to seek the death benefits indicated in his insurance
 In a letter dated August 27, 2001, however, Sun Life denied the claim on the ground that the details on
Atty. Jesus Jr.'s medical history were not disclosed in his application. Simultaneously, Sun Life tendered a
check representing the refund of the premiums paid by Atty. Jesus Jr.
 The respondents reiterated their claim against Sun Life thru a letter dated September 17, 2001. Sun Life,
however, refused to heed the respondents' requests and instead filed a Complaint for Rescission before
the RTC and prayed for judicial confirmation of Atty. Jesus Jr.'s rescission of insurance policy.
 In its Complaint, Sun Life alleged that Atty. Jesus Jr. did not disclose in his insurance application his
previous medical treatment at the National Kidney Transplant Institute in May and August of 1994.
According to Sun Life, the undisclosed fact suggested that the insured was in "renal failure" and at a high
risk medical condition. Consequently, had it known such fact, it would not have issued the insurance policy
in favor of Atty. Jesus Jr.
 For their defense, the respondents claimed that Atty. Jesus Jr. did not commit misrepresentation in his
application for insurance. They averred that Atty. Jesus Jr. was in good faith when he signed the insurance
application and even authorized Sun Life to inquire further into his medical history for verification
purposes. According to them, the complaint is just a ploy to avoid the payment of insurance claims.
 RTC - issued its Decision13 dismissing the complaint for lack of merit. The RTC held that Sun Life violated
Sections 241, paragraph 1(b), (d), and (e)14 and 24215 of the Insurance Code when it refused to pay the
rightful claim of the respondents. (The RTC held that Atty. Jesus Jr. did not commit material concealment
and misrepresentation when he applied for life insurance with Sun Life. It observed that given the
disclosures and the waiver and authorization to investigate executed by Atty. Jesus Jr. to Sun Life, the
latter had all the means of ascertaining the facts allegedly concealed by the applicant.)

 CA - affrimed the RTC decision in ordering Sun Life to pay death benefits and damages in favor of the
respondents. The CA, however, modified the RTC decision by absolving Sun Life from the charges of
violation of Sections 241 and 242 of the Insurance Code.

(The CA ruled that the evidence on records show that there was no fraudulent intent on the part of Atty. Jesus Jr.
in submitting his insurance application. Instead, it found that Atty. Jesus Jr. admitted in his application that he had
sought medical treatment for kidney ailment.)

 MFR – denied

ISSUE: W/N Sun Life can still rescind the insurance policy.

NO. In Manila Bankers Life Insurance Corporation v. Aban,22 the Court held that if the insured dies within the two-
year contestability period, the insurer is bound to make good its obligation under the policy, regardless of the
presence or lack of concealment or misrepresentation. The Court held:

Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured. Under the
provision, an insurer is given two years - from the effectivity of a life insurance contract and while the insured is
alive - to discover or prove that the policy is void ab initio or is rescindible by reason of the fraudulent concealment
or misrepresentation of the insured or his agent. After the two-year period lapses, or when the insured dies within
the period, the insurer must make good on the policy, even though the policy was obtained by fraud, concealment,
o misrepresentation. This is not to say that insurance fraud must be rewarded, but that insurers who recklessly and
indiscriminately solicit and obtain business must be penalized, for such recklessness and lack of discrimination
ultimately work to the detriment of bona fide takers of insurance and the public in general.23 (Emphasis ours)

In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has two years from its
issuance, to investigate and verify whether the policy was obtained by fraud, concealment, or misrepresentation.
Upon the death of Atty. Jesus Jr., however, on May 11, 2001, or a mere three months from the issuance of the
policy, Sun Life loses its right to rescind the policy. As discussed in Manila Bankers, the death of the insured within
the two-year period will render the right of the insurer to rescind the policy nugatory. As such, the incontestability
period will now set in.