[G.R. No. 150094.
August 18, 2004] facilitate the release of its cargoes from the Bureau of Customs, of the impending arrival of its clients
FEDERAL EXPRESS CORPORATION, petitioner, vs. AMERICAN HOME ASSURANCE COMPANY and
PHILAM INSURANCE COMPANY, INC., respondents.
DECISION
PANGANIBAN, J.:
Basic is the requirement that before suing to recover loss of or damage to transported goods,
the plaintiff must give the carrier notice of the loss or damage, within the period prescribed by
the Warsaw Convention and/or the airway bill.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, challenging the June
4, 2001 Decision[2] and the September 21, 2001 Resolution[3] of the Court of Appeals (CA) in
CA-GR CV No. 58208. The assailed Decision disposed as follows:
WHEREFORE, premises considered, the present appeal is hereby DISMISSED for lack of merit. The
appealed Decision of Branch 149 of the Regional Trial Court of Makati City in Civil Case No. 95-
1219, entitled American Home Assurance Co. and PHILAM Insurance Co., Inc. v. FEDERAL EXPRESS
CORPORATION and/or CARGOHAUS, INC. (formerly U-WAREHOUSE, INC.), is
hereby AFFIRMED and REITERATED.
Costs against the [petitioner and Cargohaus, Inc.].[4]
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
The antecedent facts are summarized by the appellate court as follows:
On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity) of Nebraska, USA delivered to
Burlington Air Express (BURLINGTON), an agent of [Petitioner] Federal Express Corporation, a
shipment of 109 cartons of veterinary biologicals for delivery to consignee SMITHKLINE and French
Overseas Company in Makati City, Metro Manila. The shipment was covered by Burlington Airway Bill
No. 11263825 with the words, REFRIGERATE WHEN NOT IN TRANSIT and PERISHABLE stamp marked
on its face. That same day, Burlington insured the cargoes in the amount of $39,339.00 with
American Home Assurance Company (AHAC). The following day, Burlington turned over the custody
of said cargoes to Federal Express which transported the same to Manila. The first shipment,
consisting of 92 cartons arrived in Manila on January 29, 1994 in Flight No. 0071-28NRT and was
immediately stored at [Cargohaus Inc.s] warehouse. While the second, consisting of 17 cartons, came
in two (2) days later, or on January 31, 1994, in Flight No. 0071-30NRT which was likewise
immediately stored at Cargohaus warehouse. Prior to the arrival of the cargoes, Federal Express
informed GETC Cargo International Corporation, the customs broker hired by the consignee to
cargoes.
On February 10, 1994, DARIO C. DIONEDA (DIONEDA), twelve (12) days after the cargoes arrived in
Manila, a non-licensed customs broker who was assigned by GETC to facilitate the release of the
subject cargoes, found out, while he was about to cause the release of the said cargoes, that the
same [were] stored only in a room with two (2) air conditioners running, to cool the place instead of a
refrigerator. When he asked an employee of Cargohaus why the cargoes were stored in the cool
room only, the latter told him that the cartons where the vaccines were contained specifically
indicated therein that it should not be subjected to hot or cold temperature. Thereafter, DIONEDA,
upon instructions from GETC, did not proceed with the withdrawal of the vaccines and instead,
samples of the same were taken and brought to the Bureau of Animal Industry of the Department of
Agriculture in the Philippines by SMITHKLINE for examination wherein it was discovered that the
ELISA reading of vaccinates sera are below the positive reference serum.
As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE abandoned the
shipment and, declaring total loss for the unusable shipment, filed a claim with AHAC through its
representative in the Philippines, the Philam Insurance Co., Inc. (PHILAM) which recompensed
SMITHKLINE for the whole insured amount of THIRTY NINE THOUSAND THREE HUNDRED THIRTY NINE
DOLLARS ($39,339.00). Thereafter, [respondents] filed an action for damages against the [petitioner]
imputing negligence on either or both of them in the handling of the cargo.
Trial ensued and ultimately concluded on March 18, 1997 with the [petitioner] being held solidarily
liable for the loss as follows:
WHEREFORE, judgment is hereby rendered in favor of [respondents] and [petitioner and its Co-
Defendant Cargohaus] are directed to pay [respondents], jointly and severally, the following:
1. Actual damages in the amount of the peso equivalent of US$39,339.00 with interest from the time
of the filing of the complaint to the time the same is fully paid.
2. Attorneys fees in the amount of P50,000.00 and
3. Costs of suit.
SO ORDERED.
Aggrieved, [petitioner] appealed to [the CA].[5]
Ruling of the Court of Appeals
The Test Report issued by the United States Department of Agriculture (Animal and Plant
Health Inspection Service) was found by the CA to be inadmissible in evidence. Despite this
ruling, the appellate court held that the shipping Receipts were a prima facie proof that the
goods had indeed been delivered to the carrier in good condition. We quote from the ruling as Simply stated, the issues are as follows: (1) Is the Petition proper for review by the Supreme
follows: Court? (2) Is Federal Express liable for damage to or loss of the insured goods?

Where the plaintiff introduces evidence which shows prima facie that the goods were delivered to This Courts Ruling
the carrier in good condition [i.e., the shipping receipts], and that the carrier delivered the goods in a
The Petition has merit.
damaged condition, a presumption is raised that the damage occurred through the fault or
negligence of the carrier, and this casts upon the carrier the burden of showing that the goods were Preliminary Issue:
not in good condition when delivered to the carrier, or that the damage was occasioned by some
cause excepting the carrier from absolute liability. This the [petitioner] failed to discharge. x x x.[6] Propriety of Review

The correctness of legal conclusions drawn by the Court of Appeals from undisputed facts is
Found devoid of merit was petitioners claim that respondents had no personality to sue. This
a question of law cognizable by the Supreme Court.[9]
argument was supposedly not raised in the Answer or during trial.
In the present case, the facts are undisputed. As will be shown shortly, petitioner is
Hence, this Petition.[7]
questioning the conclusions drawn from such facts. Hence, this case is a proper subject for
The Issues review by this Court.

In its Memorandum, petitioner raises the following issues for our consideration: Main Issue:

I. Liability for Damages

Are the decision and resolution of the Honorable Court of Appeals proper subject for review by the Petitioner contends that respondents have no personality to sue -- thus, no cause of action
Honorable Court under Rule 45 of the 1997 Rules of Civil Procedure? against it -- because the payment made to Smithkline was erroneous.

II. Pertinent to this issue is the Certificate of Insurance[10] (Certificate) that both opposing parties
cite in support of their respective positions. They differ only in their interpretation of what their
Is the conclusion of the Honorable Court of Appeals petitioners claim that respondents have no rights are under its terms. The determination of those rights involves a question of law, not a
personality to sue because the payment was made by the respondents to Smithkline when the question of fact. As distinguished from a question of law which exists when the doubt or
insured under the policy is Burlington Air Express is devoid of merit correct or not? difference arises as to what the law is on a certain state of facts -- there is a question of fact
when the doubt or difference arises as to the truth or the falsehood of alleged facts; or when
III. the query necessarily invites calibration of the whole evidence considering mainly the
Is the conclusion of the Honorable Court of Appeals that the goods were received in good condition, credibility of witnesses, existence and relevancy of specific surrounding circumstance, their
relation to each other and to the whole and the probabilities of the situation. [11]
correct or not?
Proper Payee
IV.
The Certificate specifies that loss of or damage to the insured cargo is payable to order x x x
Are Exhibits F and G hearsay evidence, and therefore, not admissible?
upon surrender of this Certificate. Such wording conveys the right of collecting on any such
V. damage or loss, as fully as if the property were covered by a special policy in the name of the
holder itself. At the back of the Certificate appears the signature of the representative of
Is the Honorable Court of Appeals correct in ignoring and disregarding respondents own admission Burlington. This document has thus been duly indorsed in blank and is deemed a bearer
that petitioner is not liable? and instrument.
VI. Since the Certificate was in the possession of Smithkline, the latter had the right of collecting
or of being indemnified for loss of or damage to the insured shipment, as fully as if the
Is the Honorable Court of Appeals correct in ignoring the Warsaw Convention?[8]
property were covered by a special policy in the name of the holder. Hence, being the holder
of the Certificate and having an insurable interest in the goods, Smithkline was the proper
payee of the insurance proceeds.
Subrogation
Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation
Receipt[12] in favor of respondents. The latter were thus authorized to file claims and begin
suit against any such carrier, vessel, person, corporation or government. Undeniably, the
consignee had a legal right to receive the goods in the same condition it was delivered for
transport to petitioner. If that right was violated, the consignee would have a cause of action
against the person responsible therefor.
Upon payment to the consignee of an indemnity for the loss of or damage to the insured
goods, the insurers entitlement to subrogation pro tanto -- being of the highest equity --
equips it with a cause of action in case of a contractual breach or negligence.[13] Further, the
insurers subrogatory right to sue for recovery under the bill of lading in case of loss of or
damage to the cargo is jurisprudentially upheld.[14]
In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To
all intents and purposes, it stands in the place and in substitution of the consignee. A
fortiori, both the insurer and the consignee are bound by the contractual stipulations under
the bill of lading.[15]
Prescription of Claim
From the initial proceedings in the trial court up to the present, petitioner has tirelessly
pointed out that respondents claim and right of action are already barred. The latter, and even
the consignee, never filed with the carrier any written notice or complaint regarding its claim
for damage of or loss to the subject cargo within the period required by the Warsaw
Convention and/or in the airway bill. Indeed, this fact has never been denied by respondents
and is plainly evident from the records.
Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states:
6. No action shall be maintained in the case of damage to or partial loss of the shipment unless a
written notice, sufficiently describing the goods concerned, the approximate date of the damage or
loss, and the details of the claim, is presented by shipper or consignee to an office of Burlington
within (14) days from the date the goods are placed at the disposal of the person entitled to delivery,
or in the case of total loss (including non-delivery) unless presented within (120) days from the date
of issue of the [Airway Bill].[16]
Relevantly, petitioners airway bill states:
12./12.1 The person entitled to delivery must make a complaint to the carrier in writing in the case:
12.1.1 of visible damage to the goods, immediately after discovery of the damage and at the latest
within fourteen (14) days from receipt of the goods;
12.1.2 of other damage to the goods, within fourteen (14) days from the date of receipt of the goods;
12.1.3 delay, within twenty-one (21) days of the date the goods are placed at his disposal; and
12.1.4 of non-delivery of the goods, within one hundred and twenty (120) days from the date of the
issue of the air waybill.
12.2 For the purpose of 12.1 complaint in writing may be made to the carrier whose air waybill was
used, or to the first carrier or to the last carrier or to the carrier who performed the transportation
during which the loss, damage or delay took place.[17]
Article 26 of the Warsaw Convention, on the other hand, provides:
ART. 26. (1) Receipt by the person entitled to the delivery of baggage or goods without complaint
shall be prima facie evidence that the same have been delivered in good condition and in accordance
with the document of transportation.
(2) In case of damage, the person entitled to delivery must complain to the carrier forthwith after the
discovery of the damage, and, at the latest, within 3 days from the date of receipt in the case of
baggage and 7 days from the date of receipt in the case of goods. In case of delay the complaint must
be made at the latest within 14 days from the date on which the baggage or goods have been placed
at his disposal.
(3) Every complaint must be made in writing upon the document of transportation or by separate
notice in writing dispatched within the times aforesaid.
(4) Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case
of fraud on his part.[18]
Condition Precedent
In this jurisdiction, the filing of a claim with the carrier within the time limitation therefor
actually constitutes a condition precedent to the accrual of a right of action against a carrier
for loss of or damage to the goods.[19] The shipper or consignee must allege and prove the
fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue
in favor of the former. The aforementioned requirement is a reasonable condition precedent;
it does not constitute a limitation of action.[20]
The requirement of giving notice of loss of or injury to the goods is not an empty formalism.
The fundamental reasons for such a stipulation are (1) to inform the carrier that the cargo has
been damaged, and that it is being charged with liability therefor; and (2) to give it an
opportunity to examine the nature and extent of the injury. This protects the carrier by
affording it an opportunity to make an investigation of a claim while the matter is fresh and
easily investigated so as to safeguard itself from false and fraudulent claims. [21]
When an airway bill -- or any contract of carriage for that matter -- has a stipulation that
requires a notice of claim for loss of or damage to goods shipped and the stipulation is not
complied with, its enforcement can be prevented and the liability cannot be imposed on the
carrier. To stress, notice is a condition precedent, and the carrier is not liable if notice is not
given in accordance with the stipulation.[22] Failure to comply with such a stipulation bars recovery for
the loss or damage suffered.[23]
Being a condition precedent, the notice must precede a suit for enforcement. [24] In the present
case, there is neither an allegation nor a showing of respondents compliance with this
requirement within the prescribed period. While respondents may have had a cause of action
then, they cannot now enforce it for their failure to comply with the aforesaid condition
precedent.
In view of the foregoing, we find no more necessity to pass upon the other issues raised by
petitioner.
We note that respondents are not without recourse. Cargohaus, Inc. -- petitioners co-
defendant in respondents Complaint below -- has been adjudged by the trial court as liable
for, inter alia, actual damages in the amount of the peso equivalent of US $39,339.[25] This
judgment was affirmed by the Court of Appeals and is already final and executory. [26]
WHEREFORE, the Petition is GRANTED, and the assailed Decision REVERSED insofar as it
pertains to Petitioner Federal Express Corporation. No pronouncement as to costs.
SO ORDERED.
[G.R. No. 154514. July 28, 2005]
WHITE GOLD MARINE SERVICES, INC., petitioner, vs. PIONEER INSURANCE AND SURETY
CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA)
LTD., respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision[1] dated July 30, 2002 of the Court of Appeals in
CA-G.R. SP No. 60144, affirming the Decision[2] dated May 3, 2000 of the Insurance
Commission in I.C. Adm. Case No. RD-277. Both decisions held that there was no violation of
the Insurance Code and the respondents do not need license as insurer and insurance
agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage
for its vessels from The Steamship Mutual Underwriting Association (Bermuda) Limited
(Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer).
Subsequently, White Gold was issued a Certificate of Entry and Acceptance. [3] Pioneer also
issued receipts evidencing payments for the coverage. When White Gold failed to fully pay its
accounts, Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to
recover the latters unpaid balance. White Gold on the other hand, filed a complaint before the
Insurance Commission claiming that Steamship Mutual violated Sections 186[4] and 187[5] of
the Insurance Code, while Pioneer violated Sections 299,[6] 300[7] and 301[8] in relation to
Sections 302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no need for
Steamship Mutual to secure a license because it was not engaged in the insurance business.
It explained that Steamship Mutual was a Protection and Indemnity Club (P & I Club).
Likewise, Pioneer need not obtain another license as insurance agent and/or a broker for
Steamship Mutual because Steamship Mutual was not engaged in the insurance business.
Moreover, Pioneer was already licensed, hence, a separate license solely as agent/broker of
Steamship Mutual was already superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision,
the appellate court distinguished between P & I Clubs vis--vis conventional insurance. The
appellate court also held that Pioneer merely acted as a collection agent of Steamship
Mutual.
In this petition, petitioner assigns the following errors allegedly committed by the appellate
court,
FIRST ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING BUSINESS
IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS AGENT
AND/OR BROKER HENCE AS AN INSURER IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE
BUSINESS IN THE PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY EVIDENCE THAT
RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT SECURE A
LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER AND [IN NOT
REMOVING] THE OFFICERS AND DIRECTORS OF RESPONDENT PIONEER.[9]
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the
insurance business in the Philippines? (2) Does Pioneer need a license as an insurance
agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not
have a license to do business in the Philippines although Pioneer is its resident agent. This
relationship is reflected in the certifications issued by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance
business. To buttress its assertion, it cites the definition of a P & I Club in Hyopsung Maritime
Co., Ltd. v. Court of Appeals[10] as an association composed of shipowners in general who
band together for the specific purpose of providing insurance cover on a mutual basis against
liabilities incidental to shipowning that the members incur in favor of third parties. It stresses
that as a P & I Club, Steamship Mutuals primary purpose is to solicit and provide protection
and indemnity coverage and for this purpose, it has engaged the services of Pioneer to act as
its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the
insurance business in the Philippines. It is merely an association of vessel owners who have
come together to provide mutual protection against liabilities incidental to
shipowning.[11] Respondents aver Hyopsung is inapplicable in this case because the issue
in Hyopsung was the jurisdiction of the court over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes doing an insurance
business or transacting an insurance business. These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting
the doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.
...
The same provision also provides, the fact that no profit is derived from the making of
insurance contracts, agreements or transactions, or that no separate or direct consideration is
received therefor, shall not preclude the existence of an insurance business. [12]
The test to determine if a contract is an insurance contract or not, depends on the nature of
the promise, the act required to be performed, and the exact nature of the agreement in the
light of the occurrence, contingency, or circumstances under which the performance becomes
requisite. It is not by what it is called.[13]
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown
or contingent event.[14]
In particular, a marine insurance undertakes to indemnify the assured against marine losses,
such as the losses incident to a marine adventure.[15] Section 99[16] of the Insurance Code
enumerates the coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the members are
both the insurer and insured. In it, the members all contribute, by a system of premiums or
assessments, to the creation of a fund from which all losses and liabilities are paid, and
where the profits are divided among themselves, in proportion to their interest.[17] Additionally,
mutual insurance associations, or clubs, provide three types of coverage, namely, protection
and indemnity, war risks, and defense costs.[18]
A P & I Club is a form of insurance against third party liability, where the third party is
anyone other than the P & I Club and the members.[19] By definition then, Steamship Mutual
as a P & I Club is a mutual insurance association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without the
requisite certificate of authority mandated by Section 187[20] of the Insurance Code. It
maintains a resident agent in the Philippines to solicit insurance and to collect payments in its
behalf. We note that Steamship Mutual even renewed its P & I Club cover until it was
cancelled due to non-payment of the calls. Thus, to continue doing business here, Steamship
Mutual or through its agent Pioneer, must secure a license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary.
Thus, no insurer or insurance company is allowed to engage in the insurance business
without a license or a certificate of authority from the Insurance Commission. [21]
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of
registration[22] issued by the Insurance Commission. It has been licensed to do or transact
insurance business by virtue of the certificate of authority[23] issued by the same agency.
However, a Certification from the Commission states that Pioneer does not have a separate
license to be an agent/broker of Steamship Mutual.[24]
Although Pioneer is already licensed as an insurance company, it needs a separate license to
act as insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly
states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement
of applications for insurance, or receive for services in obtaining insurance, any commission or other
compensation from any insurance company doing business in the Philippines or any agent thereof,
without first procuring a license so to act from the Commissioner, which must be renewed annually
on the first day of January, or within six months thereafter. . .
Finally, White Gold seeks revocation of Pioneers certificate of authority and removal of its
directors and officers. Regrettably, we are not the forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of
the Court of Appeals affirming the Decision dated May 3, 2000 of the Insurance Commission
is hereby REVERSED AND SET ASIDE. The Steamship Mutual Underwriting Association
(Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to obtain
licenses and to secure proper authorizations to do business as insurer and insurance agent,
respectively. The petitioners prayer for the revocation of Pioneers Certificate of Authority and
removal of its directors and officers, is DENIED. Costs against respondents.
SO ORDERED.
[4]SEC. 186. No person, partnership, or association of persons shall transact any insurance
business in the Philippines except as agent of a person or corporation authorized to do the
business of insurance in the Philippines, unless possessed of the capital and assets required
of an insurance corporation doing the same kind of business in the Philippines and invested
in the same manner; nor unless the Commissioner shall have granted to him or them a
certificate to the effect that he or they have complied with all the provisions of law which an
insurance corporation doing business in the Philippines is required to observe.
Every person, partnership, or association receiving any such certificate of authority shall be
subject to the insurance laws of the Philippines and to the jurisdiction and supervision of the
Commissioner in the same manner as if an insurance corporation authorized by the laws of
the Philippines to engage in the business of insurance specified in the certificate.
[5]
SEC. 187. No Insurance Company shall transact any insurance business in the Philippines
until after it shall have obtained a certificate of authority for that purpose from the
Commissioner upon application therefor and payment by the company concerned of the fees
hereinafter prescribed.
...
[6]
SEC. 299. No insurance company doing business in the Philippines, nor any agent thereof,
shall pay any commission or other compensation to any person for services in obtaining
insurance, unless such person shall have first procured from the Commissioner a license to
act as an insurance agent of such company or as an insurance broker as hereinafter
provided.
No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so to act from the
Commissioner, . . .
[7]SEC. 300. Any person who for compensation solicits or obtains insurance on behalf of any
insurance company or transmits for a person other than himself an application for a policy or
contract of insurance to or from such company or offers or assumes to act in the negotiating
of such insurance shall be an insurance agent within the intent of this section and shall
thereby become liable to all the duties, requirements, liabilities and penalties to which an
insurance agent is subject.
[8]SEC. 301. Any person who for any compensation, commission or other thing of value acts
or aids in any manner in soliciting, negotiating or procuring the making of any insurance
contract or in placing risk or taking out insurance, on behalf of an insured other than himself,
shall be an insurance broker within the intent of this Code, and shall thereby become liable to
all the duties, requirements, liabilities and penalties to which an insurance broker is subject.
[16] SEC. 99. Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects,
disbursements, profits, moneys, securities, choses in action, evidences of debt, valuable
papers, bottomry, and respondentia interests and all other kinds of property and interests
therein, in respect to, appertaining to or in connection with any and all risks or perils of
navigation, transit or transportation, or while being assembled, packed, crated, baled,
compressed or similarly prepared for shipment or while awaiting shipment, or during any
delays, storage, trasshipment, or reshipment incident thereto, including war risks, marine
builders risks, and all personal property floater risks.
(b) Person or property in connection with or appertaining to a marine, inland marine, transit or
transportation insurance, including liability for loss of or damage arising out of or in
connection with the construction, repair, operation, maintenance or use of the subject matter
of such insurance (but not including life insurance or surety bonds nor insurance against loss
by reason of bodily injury to any person arising out of the ownership, maintenance, or use of
automobiles).
(c) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or
otherwise.
(d) Bridges, tunnels and other instrumentalities of transportation and communication
(excluding buildings, their furniture and furnishings, fixed contents and supplies held in
storage); piers, wharves, docks and slips, and other aids to navigation and transportation,
including dry docks and marine railways, dams and appurtenant facilities for the control of
waterways.
(2) Marine protection and indemnity insurance, meaning insurance against, or against legal
liability of the insured for loss, damage, or expense incident to ownership, operation,
chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality in
use in ocean or inland waterways, including liability of the insured for personal injury, illness
or death or for loss of or damage to the property of another person.
G.R. No. 183526
VIOLETA R. LALICAN v Insular Life
DECISION
CHICO-NAZARIO, J.:
Challenged in this Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court are
the Decision[2]dated 30 August 2007 and the Orders dated 10 April 2008[3] and 3 July
2008[4] of the Regional Trial Court (RTC) of Gapan City, Branch 34, in Civil Case No. 2177. In
its assailed Decision, the RTC dismissed the claim for death benefits filed by petitioner
Violeta R. Lalican (Violeta) against respondent Insular Life Assurance Company Limited
(Insular Life); while in its questioned Orders dated 10 April 2008 and 3 July 2008,
respectively, the RTC declared the finality of the aforesaid Decision and denied petitioners
Notice of Appeal.
The factual and procedural antecedents of the case, as culled from the records, are as
follows:
Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio).
During his lifetime, Eulogio applied for an insurance policy with Insular Life. On 24 April
1997, Insular Life, through Josephine Malaluan (Malaluan), its agent in Gapan City, issued in
favor of Eulogio Policy No. 9011992,[5]which contained a 20-Year Endowment Variable
Income Package Flexi Plan worth P500,000.00,[6] with two riders valued at P500,000.00
each.[7] Thus, the value of the policy amounted to P1,500,000.00. Violeta was named as the
primary beneficiary.
Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a quarterly
basis in the amount of P8,062.00, payable every 24 April, 24 July, 24 October and 24 January
of each year, until the end of the 20-year period of the policy. According to the Policy
Contract, there was a grace period of 31 days for the payment of each premium subsequent
to the first. If any premium was not paid on or before the due date, the policy would be in
default, and if the premium remained unpaid until the end of the grace period, the policy
would automatically lapse and become void.[8]
Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he failed to
pay the premium due on 24 January 1998, even after the lapse of the grace period of 31
days. Policy No. 9011992, therefore, lapsed and became void.
Eulogio submitted to the Cabanatuan District Office of Insular Life, through Malaluan, on 26
May 1998, an Application for Reinstatement[9] of Policy No. 9011992, together with the
amount of P8,062.00 to pay for the premium due on 24 January 1998. In a letter[10] dated 17
July 1998, Insular Life notified Eulogio that his Application for Reinstatement could not be
fully processed because, although he already deposited P8,062.00 as payment for the 24
January 1998 premium, he left unpaid the overdue interest thereon amounting
to P322.48. Thus, Insular Life instructed Eulogio to pay the amount of interest and to file
another application for reinstatement. Eulogio was likewise advised by Malaluan to pay the
premiums that subsequently became due on 24 April 1998 and 24 July 1998, plus interest.
On 17 September 1998, Eulogio went to Malaluans house and submitted a second
Application for Reinstatement[11] of Policy No. 9011992, including the amount of P17,500.00,
representing payments for the overdue interest on the premium for 24 January 1998, and
the premiums which became due on 24 April 1998 and 24 July 1998.As Malaluan was away
on a business errand, her husband received Eulogios second Application for Reinstatement
and issued a receipt for the amount Eulogio deposited.
A while later, on the same day, 17 September 1998, Eulogio died of cardio-respiratory arrest
secondary to electrocution.
Without knowing of Eulogios death, Malaluan forwarded to the Insular Life Regional Office
in the City of San Fernando, on 18 September 1998, Eulogios second Application for
Reinstatement of Policy No. 9011992 and P17,500.00 deposit. However, Insular Life no
longer acted upon Eulogios second Application for Reinstatement, as the former was
informed on 21 September 1998 that Eulogio had already passed away.
On 28 September 1998, Violeta filed with Insular Life a claim for payment of the full
proceeds of Policy No. 9011992.
In a letter[12] dated 14 January 1999, Insular Life informed Violeta that her claim could not be
granted since, at the time of Eulogios death, Policy No. 9011992 had already lapsed, and
Eulogio failed to reinstate the same. According to the Application for Reinstatement, the
policy would only be considered reinstated upon approval of the application by Insular Life
during the applicants lifetime and good health, and whatever amount the applicant paid in
connection thereto was considered to be a deposit only until approval of said
application. Enclosed with the 14 January 1999 letter of Insular Life to Violeta was DBP
Check No. 0000309734, for the amount of P25,417.00, drawn in Violetas favor, representing
the full refund of the payments made by Eulogio on Policy No. 9011992.
On 12 February 1998, Violeta requested a reconsideration of the disallowance of her
claim. In a letter[13] dated 10 March 1999, Insular Life stated that it could not find any reason
to reconsider its decision rejecting Violetas claim. Insular Life again tendered to Violeta the
above-mentioned check in the amount of P25,417.00.
Violeta returned the letter dated 10 March 1999 and the check enclosed therein to the
Cabanatuan District Office of Insular Life. Violetas counsel subsequently sent a
letter[14] dated 8 July 1999 to Insular Life, demanding payment of the full proceeds of Policy
No. 9011992. On 11 August 1999, Insular Life responded to the said demand letter by
agreeing to conduct a re-evaluation of Violetas claim.
Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the RTC,
on 11 October 1999, a Complaint for Death Claim Benefit,[15] which was docketed as Civil
Case No. 2177. Violeta alleged that Insular Life engaged in unfair claim settlement practice
and deliberately failed to act with reasonable promptness on her insurance claim. Violeta
prayed that Insular Life be ordered to pay her death claim benefits on Policy No. 9011992, in
the amount of P1,500,000.00, plus interests, attorneys fees, and cost of suit.
Insular Life filed with the RTC an Answer with Counterclaim,[16] asserting that Violetas
Complaint had no legal or factual bases. Insular Life maintained that Policy No. 9011992, on
which Violeta sought to recover, was rendered void by the non-payment of the 24 January
1998 premium and non-compliance with the requirements for the reinstatement of the
same. By way of counterclaim, Insular Life prayed that Violeta be ordered to pay attorneys
fees and expenses of litigation incurred by the former.
Violeta, in her Reply and Answer to Counterclaim, asserted that the requirements for the
reinstatement of Policy No. 9011992 had been complied with and the defenses put up by
Insular Life were purely invented and illusory.
After trial, the RTC rendered, on 30 August 2007, a Decision in favor of Insular Life.
The RTC found that Policy No. 9011992 had indeed lapsed and Eulogio needed to have the
same reinstated:
[The] arguments [of Insular Life] are not without basis. When the premiums for April 24
and July 24, 1998 were not paid by [Eulogio] even after the lapse of the 31-day grace period,
his insurance policy necessarily lapsed. This is clear from the terms and conditions of the
contract between [Insular Life] and [Eulogio] which are written in [the] Policy provisions of
Policy No. 9011992 x x x.[17]
The RTC, taking into account the clear provisions of the Policy Contract between Eulogio and
Insular Life and the Application for Reinstatement Eulogio subsequently signed and
submitted to Insular Life, held that Eulogio was not able to fully comply with the
requirements for the reinstatement of Policy No. 9011992:
The well-settled rule is that a contract has the force of law between the parties. In the
instant case, the terms of the insurance contract between [Eulogio] and [Insular Life] were
spelled out in the policy provisions of Insurance Policy No. 9011992. There is likewise no
dispute that said insurance contract is by nature a contract of adhesion[,] which is defined
as one in which one of the contracting parties imposes a ready-made form of contract which
the other party may accept or reject but cannot modify. (Polotan, Sr. vs. CA, 296 SCRA 247).
xxxx
The New Lexicon Websters Dictionary defines ambiguity as the quality of having more than
one meaning and an idea, statement or expression capable of being understood in more
than one sense. In Nacu vs. Court of Appeals, 231 SCRA 237 (1994), the Supreme Court
stated that[:]
Any ambiguity in a contract, whose terms are susceptible of different interpretations as a
result thereby, must be read and construed against the party who drafted it on the
assumption that it could have been avoided by the exercise of a little care.
In the instant case, the dispute arises from the afore-quoted provisions written on the face
of the second application for reinstatement. Examining the said provisions, the court finds
the same clearly written in terms that are simple enough to admit of only one
interpretation. They are clearly not ambiguous, equivocal or uncertain that would need
further construction. The same are written on the very face of the application just above the
space where [Eulogio] signed his name. It is inconceivable that he signed it without reading
and understanding its import.
Similarly, the provisions of the policy provisions (sic) earlier mentioned are written in simple
and clear laymans language, rendering it free from any ambiguity that would require a legal
interpretation or construction. Thus, the court believes that [Eulogio] was well aware that
when he filed the said application for reinstatement, his lapsed policy was not automatically
reinstated and that its approval was subject to certain conditions. Nowhere in the policy or
in the application for reinstatement was it ever mentioned that the payment of premiums
would have the effect of an automatic and immediate renewal of the lapsed policy. Instead,
what was clearly stated in the application for reinstatement is that pending approval
thereof, the premiums paid would be treated as a deposit only and shall not bind the
company until this application is finally approved during my/our lifetime and good health[.]
Again, the court finds nothing in the aforesaid provisions that would even suggest an
ambiguity either in the words used or in the manner they were written. [Violeta] did not
present any proof that [Eulogio] was not conversant with the English language.Hence, his
having personally signed the application for reinstatement[,] which consisted only of one
page, could only mean that he has read its contents and that he understood them. x x x
Therefore, consistent with the above Supreme Court ruling and finding no ambiguity both in
the policy provisions of Policy No. 9011992 and in the application for reinstatement subject
of this case, the court finds no merit in [Violetas] contention that the policy provision stating
that [the lapsed policy of Eulogio] should be reinstated during his lifetime is ambiguous and
should be construed in his favor. It is true that [Eulogio] submitted his application for
reinstatement, together with his premium and interest payments, to [Insular Life] through
its agent Josephine Malaluan in the morning of September 17, 1998. Unfortunately, he died
in the afternoon of that same day. It was only on the following day, September 18, 1998 that
Ms. Malaluan brought the said document to [the regional office of Insular Life] in San
Fernando, Pampanga for approval. As correctly pointed out by [Insular Life] there was no
more application to approve because the applicant was already dead and no insurance
company would issue an insurance policy to a dead person.[18] (Emphases ours.)
The RTC, in the end, explained that:
While the court truly empathizes with the [Violeta] for the loss of her husband, it cannot
express the same by interpreting the insurance agreement in her favor where there is no
need for such interpretation. It is conceded that [Eulogios] payment of overdue premiums
and interest was received by [Insular Life] through its agent Ms. Malaluan. It is also true that
[the] application for reinstatement was filed by [Eulogio] a day before his death. However,
there is nothing that would justify a conclusion that such receipt amounted to an automatic
reinstatement of the policy that has already lapsed. The evidence suggests clearly that no
such automatic renewal was contemplated in the contract between [Eulogio] and [Insular
Life].Neither was it shown that Ms. Malaluan was the officer authorized to approve the
application for reinstatement and that her receipt of the documents submitted by [Eulogio]
amounted to its approval.[19] (Emphasis ours.)
The fallo of the RTC Decision thus reads:
WHEREFORE, all the foregoing premises considered and finding that [Violeta] has failed to
establish by preponderance of evidence her cause of action against the defendant, let this
case be, as it is hereby DISMISSED.[20]
On 14 September 2007, Violeta filed a Motion for Reconsideration[21] of the afore-
mentioned RTC Decision. Insular Life opposed[22] the said motion, averring that the
arguments raised therein were merely a rehash of the issues already considered and
addressed by the RTC. In an Order[23] dated 8 November 2007, the RTC denied Violetas
Motion for Reconsideration, finding no cogent and compelling reason to disturb its earlier
findings. Per the Registry Return Receipt on record, the 8 November 2007 Order of the RTC
was received by Violeta on 3 December 2007.
In the interim, on 22 November 2007, Violeta filed with the RTC a Reply[24] to the Motion for
Reconsideration, wherein she reiterated the prayer in her Motion for Reconsideration for
the setting aside of the Decision dated 30 August 2007.Despite already receiving on 3
December 2007, a copy of the RTC Order dated 8 November 2007, which denied her Motion
for Reconsideration, Violeta still filed with the RTC, on 26 February 2008, a Reply Extended
Discussion elaborating on the arguments she had previously made in her Motion for
Reconsideration and Reply.
On 10 April 2008, the RTC issued an Order,[25] declaring that the Decision dated 30 August
2007 in Civil Case No. 2177 had already attained finality in view of Violetas failure to file the
appropriate notice of appeal within the reglementary period. Thus, any further discussions
on the issues raised by Violeta in her Reply and Reply Extended Discussion would be moot
and academic.
Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal with Motion,[26] praying that
the Order dated 10 April 2008 be set aside and that she be allowed to file an appeal with the
Court of Appeals.
In an Order[27] dated 3 July 2008, the RTC denied Violetas Notice of Appeal with Motion
given that the Decision dated 30 August 2007 had long since attained finality.
Violeta directly elevated her case to this Court via the instant Petition for Review
on Certiorari, raising the following issues for consideration:
1. Whether or not the Decision of the court a quo dated August 30, 2007, can still
be reviewed despite having allegedly attained finality and despite the fact that the mode of
appeal that has been availed of by Violeta is erroneous?
2. Whether or not the Regional Trial Court in its original jurisdiction has decided the
case on a question of law not in accord with law and applicable decisions of the Supreme
Court?
Violeta insists that her former counsel committed an honest mistake in filing a Reply,
instead of a Notice of Appeal of the RTC Decision dated 30 August 2007; and in the
computation of the reglementary period for appealing the said judgment.Violeta claims that
her former counsel suffered from poor health, which rapidly deteriorated from the first
week of July 2008 until the latters death just shortly after the filing of the instant Petition
on 8 August 2008. In light of these circumstances, Violeta entreats this Court to admit and
give due course to her appeal even if the same was filed out of time.
Violeta further posits that the Court should address the question of law arising in this case
involving the interpretation of the second sentence of Section 19 of the Insurance Code,
which provides:
Section. 19. x x x [I]nterest in the life or health of a person insured must exist when the
insurance takes effect, but need not exist thereafter or when the loss occurs.
On the basis thereof, Violeta argues that Eulogio still had insurable interest in his own life
when he reinstated Policy No. 9011992 just before he passed away on 17
September 1998. The RTC should have construed the provisions of the Policy Contract and
Application for Reinstatement in favor of the insured Eulogio and against the insurer Insular
Life, and considered the special circumstances of the case, to rule that Eulogio had complied
with the requisites for the reinstatement of Policy No. 9011992 prior to his death, and that
Violeta is entitled to claim the proceeds of said policy as the primary beneficiary thereof.
The Petition lacks merit.
At the outset, the Court notes that the elevation of the case to us via the instant Petition for
Review on Certiorari is not justified. Rule 41, Section 1 of the Rules of Court,[28] provides that
no appeal may be taken from an order disallowing or dismissing an appeal. In such a case,
the aggrieved party may file a Petition for Certiorari under Rule 65 of the Rules of Court.[29]
Furthermore, the RTC Decision dated 30 August 2007, assailed in this Petition, had long
become final and executory. Violeta filed a Motion for Reconsideration thereof, but the RTC
denied the same in an Order dated 8 November 2007. The records of the case reveal that
Violeta received a copy of the 8 November 2007 Order on 3 December 2007. Thus, Violeta
had 15 days[30] from said date of receipt, or until 18 December 2007, to file a Notice of
Appeal. Violeta filed a Notice of Appeal only on 20 May 2008, more than five months after
receipt of the RTC Order dated 8 November 2007 denying her Motion for Reconsideration.
Violetas claim that her former counsels failure to file the proper remedy within the
reglementary period was an honest mistake, attributable to the latters deteriorating health,
is unpersuasive.
Violeta merely made a general averment of her former counsels poor health, lacking
relevant details and supporting evidence. By Violetas own admission, her former counsels
health rapidly deteriorated only by the first week of July 2008. The events pertinent to
Violetas Notice of Appeal took place months before July 2008, i.e., a copy of the RTC Order
dated 8 November 2007, denying Violetas Motion for Reconsideration of the Decision dated
30 August 2007, was received on 3 December 2007; and Violetas Notice of Appeal was filed
on 20 May 2008. There is utter lack of proof to show that Violetas former counsel was
already suffering from ill health during these times; or that the illness of Violetas former
counsel would have affected his judgment and competence as a lawyer.
Moreover, the failure of her former counsel to file a Notice of Appeal within the
reglementary period binds Violeta, which failure the latter cannot now disown on the basis
of her bare allegation and self-serving pronouncement that the former was ill. A client is
bound by his counsels mistakes and negligence.[31]
The Court, therefore, finds no reversible error on the part of the RTC in denying Violetas
Notice of Appeal for being filed beyond the reglementary period. Without an appeal having
been timely filed, the RTC Decision dated 30 August 2007 in Civil Case No. 2177 already
became final and executory.
A judgment becomes "final and executory" by operation of law. Finality becomes a fact
when the reglementary period to appeal lapses and no appeal is perfected within such
period. As a consequence, no court (not even this Court) can exercise appellate jurisdiction
to review a case or modify a decision that has become final.[32] When a final judgment is
executory, it becomes immutable and unalterable. It may no longer be modified in any
respect either by the court, which rendered it or even by this Court. The doctrine is founded
on considerations of public policy and sound practice that, at the risk of occasional errors,
judgments must become final at some definite point in time.[33]
The only recognized exceptions to the doctrine of immutability and unalterability are the
correction of clerical errors, the so-called nunc pro tunc entries, which cause no prejudice to
any party, and void judgments.[34] The instant case does not fall under any of these
exceptions.
Even if the Court ignores the procedural lapses committed herein, and proceeds to resolve
the substantive issues raised, the Petition must still fail.
Violeta makes it appear that her present Petition involves a question of law, particularly,
whether Eulogio had an existing insurable interest in his own life until the day of his death.
An insurable interest is one of the most basic and essential requirements in an insurance
contract. In general, an insurable interest is that interest which a person is deemed to have
in the subject matter insured, where he has a relation or connection with or concern in it,
such that the person will derive pecuniary benefit or advantage from the preservation of the
subject matter insured and will suffer pecuniary loss or damage from its destruction,
termination, or injury by the happening of the event insured against.[35] The existence of an
insurable interest gives a person the legal right to insure the subject matter of the policy of
insurance.[36] Section 10 of the Insurance Code indeed provides that every person has an
insurable interest in his own life.[37] Section 19 of the same code also states that an interest
in the life or health of a person insured must exist when the insurance takes effect, but need
not exist thereafter or when the loss occurs.[38]
Upon more extensive study of the Petition, it becomes evident that the matter of insurable
interest is entirely irrelevant in the case at bar. It is actually beyond question that while
Eulogio was still alive, he had an insurable interest in his own life, which he did insure under
Policy No. 9011992. The real point of contention herein is whether Eulogio was able to
reinstate the lapsed insurance policy on his life before his death on 17 September 1998.
The Court rules in the negative.
Before proceeding, the Court must correct the erroneous declaration of the RTC in its 30
August 2007 Decision thatPolicy No. 9011992 lapsed because of Eulogios non-payment of
the premiums which became due on 24 April 1998 and 24 July 1998. Policy No. 9011992 had
lapsed and become void earlier, on 24 February 1998, upon the expiration of the 31-day
grace period for payment of the premium, which fell due on 24 January 1998, without any
payment having been made.
That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogios filing of his
first Application for Reinstatement with Insular Life, through Malaluan, on 26 May 1998,
constitutes an admission that Policy No. 9011992 had lapsed by then. Insular Life did not act
on Eulogios first Application for Reinstatement, since the amount Eulogio simultaneously
deposited was sufficient to cover only the P8,062.00 overdue premium for 24 January 1998,
but not the P322.48 overdue interests thereon. On 17 September 1998, Eulogio submitted a
second Application for Reinstatement to Insular Life, again through Malaluan, depositing at
the same time P17,500.00, to cover payment for the overdue interest on the premium
for 24 January 1998, and the premiums that had also become due on 24 April 1998 and 24
July 1998. On the very same day, Eulogio passed away.
To reinstate a policy means to restore the same to premium-paying status after it has been
permitted to lapse.[39] Both the Policy Contract and the Application for Reinstatement
provide for specific conditions for the reinstatement of a lapsed policy.
The Policy Contract between Eulogio and Insular Life identified the following conditions for
reinstatement should the policy lapse:
10. REINSTATEMENT
You may reinstate this policy at any time within three years after it lapsed if the following
conditions are met: (1) the policy has not been surrendered for its cash value or the period
of extension as a term insurance has not expired; (2) evidence of insurability satisfactory to
[Insular Life] is furnished; (3) overdue premiums are paid with compound interest at a rate
not exceeding that which would have been applicable to said premium and indebtedness in
the policy years prior to reinstatement; and (4) indebtedness which existed at the time of
lapsation is paid or renewed.[40]
Additional conditions for reinstatement of a lapsed policy were stated in the Application for
Reinstatement which Eulogio signed and submitted, to wit:
I/We agree that said Policy shall not be considered reinstated until this application is
approved by the Company during my/our lifetime and good health and until all other
Company requirements for the reinstatement of said Policy are fully satisfied.
I/We further agree that any payment made or to be made in connection with this
application shall be considered as deposit only and shall not bind the Company until this
application is finally approved by the Company during my/our lifetime and good health. If
this application is disapproved, I/We also agree to accept the refund of all payments made
in connection herewith, without interest, and to surrender the receipts for such
payment.[41] (Emphases ours.)
In the instant case, Eulogios death rendered impossible full compliance with the conditions
for reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to file his
Application for Reinstatement and deposit the amount for payment of his overdue
premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be
considered reinstated after the Application for Reinstatement had been processed and
approved by Insular Life duringEulogios lifetime and good health.
Relevant herein is the following pronouncement of the Court in Andres v. The Crown Life
Insurance Company,[42] citing McGuire v. The Manufacturer's Life Insurance Co.[43]:
The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon
written application does not give the insured absolute right to such reinstatement by the
mere filing of an application. The insurer has the right to deny the reinstatement if it is not
satisfied as to the insurability of the insured and if the latter does not pay all overdue
premium and all other indebtedness to the insurer. After the death of the insured the
insurance Company cannot be compelled to entertain an application for reinstatement of
the policy because the conditions precedent to reinstatement can no longer be determined
and satisfied. (Emphases ours.)
It does not matter that when he died, Eulogios Application for Reinstatement and deposits
for the overdue premiums and interests were already with Malaluan. Insular Life, through
the Policy Contract, expressly limits the power or authority of its insurance agents, thus:
Our agents have no authority to make or modify this contract, to extend the time limit for
payment of premiums, to waive any lapsation, forfeiture or any of our rights or
requirements, such powers being limited to our president, vice-president or persons
authorized by the Board of Trustees and only in writing.[44] (Emphasis ours.)
Malaluan did not have the authority to approve Eulogios Application for
Reinstatement. Malaluan still had to turn over to Insular Life Eulogios Application for
Reinstatement and accompanying deposits, for processing and approval by the latter.
The Court agrees with the RTC that the conditions for reinstatement under the Policy
Contract and Application for Reinstatement were written in clear and simple language,
which could not admit of any meaning or interpretation other than those that they so
obviously embody. A construction in favor of the insured is not called for, as there is no
ambiguity in the said provisions in the first place. The words thereof are clear, unequivocal,
and simple enough so as to preclude any mistake in the appreciation of the same.
Violeta did not adduce any evidence that Eulogio might have failed to fully understand the
import and meaning of the provisions of his Policy Contract and/or Application for
Reinstatement, both of which he voluntarily signed. While it is a cardinal principle of
insurance law that a policy or contract of insurance is to be construed liberally in favor of
the insured and strictly as against the insurer company, yet, contracts of insurance, like
other contracts, are to be construed according to the sense and meaning of the terms,
which the parties themselves have used. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular sense.[45]
Eulogios death, just hours after filing his Application for Reinstatement and depositing his
payment for overdue premiums and interests with Malaluan, does not constitute a special
circumstance that can persuade this Court to already consider Policy No. 9011992
reinstated. Said circumstance cannot override the clear and express provisions of the Policy
Contract and Application for Reinstatement, and operate to remove the prerogative of
Insular Life thereunder to approve or disapprove the Application for Reinstatement. Even
though the Court commiserates with Violeta, as the tragic and fateful turn of events leaves
her practically empty-handed, the Court cannot arbitrarily burden Insular Life with the
payment of proceeds on a lapsed insurance policy. Justice and fairness must equally apply to
all parties to a case. Courts are not permitted to make contracts for the parties. The function
and duty of the courts consist simply in enforcing and carrying out the contracts actually
made.[46]
Policy No. 9011992 remained lapsed and void, not having been reinstated in accordance
with the Policy Contract and Application for Reinstatement before Eulogios death. Violeta,
therefore, cannot claim any death benefits from Insular Life on the basis of Policy
No. 9011992; but she is entitled to receive the full refund of the payments made by Eulogio
thereon.
WHEREFORE, premises considered, the Court DENIES the instant Petition for Review
on Certiorari under Rule 45 of the Rules of Court. The Court AFFIRMS the Orders dated 10
April 2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in Civil Case No. 2177,
denying petitioner Violeta R. Lalicans Notice of Appeal, on the ground that the Decision
dated 30 August 2007 subject thereof, was already final and executory. No costs.
SO ORDERED.
G.R. No. 147839 June 8, 2006
GAISANO CAGAYAN, INC.
Petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision1 dated October 11, 2000
of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated
August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92-
322 and upheld the causes of action for damages of Insurance Company of North America
(respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April
11, 2001 which denied petitioner's motion for reconsideration.
The factual background of the case is as follows:
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 conditions:
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 x4
xxxx
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.5
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; that 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. 6
At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus, trial on
the merits ensued.
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.
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its
decision setting aside the decision of the RTC. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET
ASIDE and a new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the
insured Inter Capitol Marketing Corporation, plus legal interest from the time of demand until
fully paid;
2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the
insured Levi Strauss Phil., Inc., plus legal interest from the time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed statements of the
nature, quantity and cost of 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.11
Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution
dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on the following Assignment of
Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE
INSTANT CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT
GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY
THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC
SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the present case cannot be
deemed to be over credit since an insurance "on credit" belies not only the nature of fire
insurance but the express terms of the policies; that it was not credit that was insured since
respondent paid on the occasion of the loss of the insured goods to fire and not because of
the non-payment by petitioner of any obligation; that, even if the insurance is deemed as one
over credit, there was no loss as the accounts were not yet due since no prior demands were
made by IMC and LSPI against petitioner for payment of the debt and such demands came
from respondent only after it had already paid IMC and LSPI under the fire insurance
policies.15
As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer
IMC and LSPI assumed the risk of loss when they secured fire insurance policies over the
goods.
Concerning the third ground, petitioner submits that there is no subrogation in favor of
respondent as no valid insurance could be maintained thereon by IMC and LSPI since all risk
had transferred to petitioner upon delivery of the goods; that petitioner was not privy to the
insurance contract or the payment between respondent and its insured nor was its consent or
approval ever secured; that this lack of privity forecloses any real interest on the part of
respondent in the obligation to pay, limiting its interest to keeping the insured goods safe from
fire.
For its part, respondent counters that while ownership over the ready- made clothing
materials was transferred upon delivery to petitioner, IMC and LSPI have insurable interest
over said goods as creditors who stand to suffer direct pecuniary loss from its destruction by
fire; that petitioner is liable for loss of the ready-made clothing materials since it failed to
overcome the presumption of liability under Article 126516 of the Civil Code; that the fire was
caused through petitioner's negligence in failing to provide stringent measures of caution,
care and maintenance on its property because electric wires do not usually short circuit
unless there are defects in their installation or when there is lack of proper maintenance and
supervision of the property; that petitioner is guilty of gross and evident bad faith in refusing to
pay respondent's valid claim and should be liable to respondent for contracted lawyer's fees,
litigation expenses and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before
it from the CA is limited to reviewing questions of law which involves no examination of the
probative value of the evidence presented by the litigants or any of them. 18 The Supreme
Court is not a trier of facts; it is not its function to analyze or weigh evidence all over
again.19 Accordingly, findings of fact of the appellate court are generally conclusive on the
Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions in which factual issues may
be resolved by this Court, such as: (1) when the findings are grounded entirely on
speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken,
absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when
in making its findings the CA went beyond the issues of the case, or its findings are contrary
to the admissions of both the appellant and the appellee; (7) when the findings are contrary to
the trial court; (8) when the findings are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as well as in the petitioner's
main and reply briefs are not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the evidence on record;
and (11) when the CA manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different conclusion. 21 Exceptions (4),
(5), (7), and (11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that
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.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily understood, there is
no room for construction.22 In this case, 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.
Indeed, when the terms of the agreement are clear and explicit that they do not justify an
attempt to read into it any alleged intention of the parties, the terms are to be understood
literally just as they appear on the face of the contract.25 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.
Petitioner argues that 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." 26
The Court is not persuaded.
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)
xxxx
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.27 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.28
Section 13 of our Insurance Code defines insurable interest as "every interest in property,
whether real or personal, 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.30Indeed, 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.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event under Article
117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article
1504 (1) of the Civil Code.
Moreover, it must be stressed that 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. 33 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. 34
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.37
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.
With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-
22"38 show that petitioner has an outstanding account with IMC in the amount
of P2,119,205.00. Exhibit "E"39 is the check voucher evidencing payment to IMC. Exhibit
"F"40 is the subrogation receipt executed by IMC in favor of respondent upon receipt of the
insurance proceeds. All these documents have been properly identified, presented and
marked as exhibits in court. 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 for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No
evidentiary weight can be given to Exhibit "F Levi Strauss",42 a letter dated April 23, 1991
from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an admission of
petitioner's unpaid account with LSPI. It only confirms the loss of Levi's products in the
amount of P535,613.00 in the fire that razed petitioner's building on February 25, 1991.
Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation
receipt was offered in evidence. Thus, there is no evidence that respondent has been
subrogated to any right which LSPI may have against petitioner. Failure to substantiate the
claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11,
2000 and Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848
are AFFIRMED with the MODIFICATION that the order to pay the amount of P535,613.00 to
respondent is DELETED for lack of factual basis.
No pronouncement as to costs.
[G.R. No. 125678. March 18, 2002]
PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA
TRINOS, respondents.
DECISION
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with
petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to the
following question:
Have you or any of your family members ever consulted or been treated for high blood pressure,
heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details). [1]
The application was approved for a period of one year from March 1, 1988 to March 1,
1989. Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement,
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.[2]
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila
Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the
hospital, respondent tried to claim the benefits under the health care agreement.However, petitioner
denied her claim saying that the Health Care Agreement was void. According to petitioner, there was
a concealment regarding 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, which was docketed as Civil
Case No. 90-53795. She asked for reimbursement of her expenses plus moral damages and attorneys
fees. After trial, the lower court ruled against petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita Trinos,
ordering:
1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the
amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;
4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.
SO ORDERED.[3]
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for
damages and absolved petitioner Reverente.[4] Petitioners motion for reconsideration was
denied.[5] Hence, petitioner brought the instant petition for review, raising the primary argument that
a health care agreement is not an insurance contract; hence the incontestability clause under the
Insurance Code[6] does not apply.
Petitioner argues that the agreement grants living benefits, such as medical check-ups and
hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the
agreement until its expiration one-year thereafter. Petitioner also points out that only medical and
hospitalization benefits are given under the agreement without any indemnification, unlike in an
insurance contract where the insured is indemnified for his loss. Moreover, since Health Care
Agreements are only for a period of one year, as compared to insurance contracts which last
longer,[7] petitioner argues that the incontestability clause does not apply, as the same requires an
effectivity period of at least two years. Petitioner further argues that it is not an insurance company,
which is governed by the Insurance Commission, but a Health Maintenance Organization under the
authority of the Department of Health.
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. [8]
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future,
which may damnify a person having an insurable interest against him, may be insured against. Every
person has an insurable interest in the life and health of himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in whom he has
a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting property or
service, of which death or illness might delay or prevent the performance; and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of 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 indemnity.[9] Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingent, the health care provider must
pay for the same to the extent agreed upon under the contract.
Petitioner argues that respondents husband concealed a material fact in his application. It appears
that in the application for health coverage, petitioners required respondents husband to sign an
express authorization for any person, organization or entity that has any record or knowledge of his
health to furnish any and all information relative to any hospitalization, consultation, treatment or
any other medical advice or examination.[10] Specifically, the Health Care Agreement signed by
respondents husband states:
We hereby declare and agree that all statement and answers contained herein and in any addendum
annexed to this application are full, complete and true and bind all parties in interest under the
Agreement herein applied for, that there shall be no contract of health care coverage unless and until
an Agreement is issued on this application and the full Membership Fee according to the mode of
payment applied for is actually paid during the lifetime and good health of proposed Members; that
no information acquired by any Representative of PhilamCare shall be binding upon PhilamCare
unless set out in writing in the application; that any physician is, by these presents, expressly
authorized to disclose or give testimony at anytime relative to any information acquired by him in his
professional capacity upon any question affecting the eligibility for health care coverage of the
Proposed Members and that the acceptance of any Agreement issued on this application shall be a
ratification of any correction in or addition to this application as stated in the space for Home Office
Endorsement.[11](Underscoring ours)
In addition to the above condition, petitioner additionally required the applicant for authorization to
inquire about the applicants medical history, thus:
I hereby authorize any person, organization, or entity that has any record or knowledge of my health
and/or that of __________ to give to the PhilamCare Health Systems, Inc. any and all information
relative to any hospitalization, consultation, treatment or any other medical advice or
examination. This authorization is in connection with the application for health care coverage only. A
photographic copy of this authorization shall be as valid as the original. [12] (Underscoring ours)
Petitioner cannot rely on the stipulation regarding Invalidation of agreement which reads:
Failure to disclose or misrepresentation of any material information by the member in the application
or medical examination, whether intentional or unintentional, shall automatically invalidate the
Agreement from the very beginning and liability of Philamcare shall be limited to return of all
Membership Fees paid. An undisclosed or misrepresented information is deemed material if its
revelation would have resulted in the declination of the applicant by Philamcare or the assessment of
a higher Membership Fee for the benefit or benefits applied for.[13]
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.[14] Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the
insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its
acceptance at a lower rate of premium, and this is likewise the rule although the statement is
material to the risk, if the statement is obviously of the foregoing character, since in such case the
insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There
is a clear distinction between such a case and one in which the insured is fraudulently and
intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be
actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such
case the intent to deceive the insurer is obvious and amounts to actual fraud. [15] (Underscoring ours)
The fraudulent intent on the part of the insured must be established to warrant rescission of the
insurance contract.[16] Concealment as a defense for the health care provider or insurer to avoid
liability is an affirmative defense and the duty to establish such defense by satisfactory and
convincing evidence rests upon the provider or insurer. In any case, with or without the authority to
investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility
under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end,
the liability of the health care provider attaches once the member is hospitalized for the disease or
injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, a concealment entitles the injured party to rescind a
contract of insurance. The right to rescind should be exercised previous to the commencement of an
action on the contract.[17] 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.[18]
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 obligation.[19] Being a contract of adhesion, the terms of an insurance
contract are to be construed strictly against the party which prepared the contract the insurer.[20] By
reason of the exclusive control of the insurance company over the terms and phraseology of the
insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of
the insured, especially to avoid forfeiture.[21] This is equally applicable to Health Care Agreements.
The phraseology used in medical or hospital service contracts, such as the one at bar, must be
liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two
interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of
doubtful import should be strictly construed against the provider.[22]
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. [23]
Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering
that at the time of their marriage, the deceased was previously married to another woman who was
still alive. The health care agreement is in the nature of a contract of indemnity. Hence, payment
should be made to the party who incurred the expenses. It is not controverted that respondent paid
all the hospital and medical expenses. She is therefore entitled to reimbursement. The records
adequately prove the expenses incurred by respondent for the deceaseds hospitalization, medication
and the professional fees of the attending physicians.[24]
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of
Appeals dated December 14, 1995 is AFFIRMED.
SO ORDERED.
G.R. No. 105135 June 22, 1995
SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,
vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA BACANI, respondents.
QUIASON, J.:
This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to
reverse and set aside the Decision dated February 21, 1992 of the Court of Appeals in CA-
G.R. CV No. 29068, and its Resolution dated April 22, 1992, denying reconsideration thereof.
We grant the petition.
I
On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from
petitioner. He was issued Policy No. 3-903-766-X valued at P100,000.00, with double
indemnity in case of accidental death. The designated beneficiary was his mother,
respondent Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a
claim with petitioner, seeking the benefits of the insurance policy taken by her son.
Petitioner conducted an investigation and its findings prompted it to reject the claim.
In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not
disclose material facts relevant to the issuance of the policy, thus rendering the contract of
insurance voidable. A check representing the total premiums paid in the amount of
P10,172.00 was attached to said letter.
Petitioner claimed that the insured gave false statements in his application when he
answered the following questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner?
b) submitted to:
EGG?
X-rays?
blood tests?
other tests?
c) attended or been admitted to any hospital or other medical facility?
6. Have you ever had or sought advice for:
xxx xxx xxx
b) urine, kidney or bladder disorder? (Rollo, p. 53)
The deceased answered question No. 5(a) in the affirmative but limited his answer to a
consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on
February 1986, for cough and flu complications. The other questions were answered in the
negative (Rollo, p. 53).
Petitioner discovered that two weeks prior to his application for insurance, the insured was
examined and confined at the Lung Center of the Philippines, where he was diagnosed for
renal failure. During his confinement, the deceased was subjected to urinalysis, ultra-
sonography and hematology tests.
On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando
Bacani, filed an action for specific performance against petitioner with the Regional Trial
Court, Branch 191, Valenzuela, Metro Manila. Petitioner filed its answer with counterclaim
and a list of exhibits consisting of medical records furnished by the Lung Center of the
Philippines.
On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for
Summary Judgment" where they manifested that they "have no evidence to refute the
documentary evidence of concealment/misrepresentation by the decedent of his health
condition (Rollo, p. 62).
Petitioner filed its Request for Admissions relative to the authenticity and due execution of
several documents as well as allegations regarding the health of the insured. Private
respondents failed to oppose said request or reply thereto, thereby rendering an admission
of the matters alleged.
Petitioner then moved for a summary judgment and the trial court decided in favor of
private respondents. The dispositive portion of the decision is reproduced as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendant, condemning the latter to pay the former the amount of One Hundred Thousand
Pesos (P100,000.00) the face value of insured's Insurance Policy No. 3903766, and the
Accidental Death Benefit in the amount of One Hundred Thousand Pesos (P100,000.00) and
further sum of P5,000.00 in the concept of reasonable attorney's fees and costs of suit.
Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).
In ruling for private respondents, the trial court concluded that the facts concealed by the
insured were made in good faith and under a belief that they need not be disclosed.
Moreover, it held that the health history of the insured was immaterial since the insurance
policy was "non-medical".
Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court.
The appellate court ruled that petitioner cannot avoid its obligation by claiming
concealment because the cause of death was unrelated to the facts concealed by the
insured. It also sustained the finding of the trial court that matters relating to the health
history of the insured were irrelevant since petitioner waived the medical examination prior
to the approval and issuance of the insurance policy. Moreover, the appellate court agreed
with the trial court that the policy was "non-medical" (Rollo, pp. 4-5).
Petitioner's motion for reconsideration was denied; hence, this petition.
II
We reverse the decision of the Court of Appeals.
The rule that factual findings of the lower court and the appellate court are binding on this
Court is not absolute and admits of exceptions, such as when the judgment is based on a
misappreciation of the facts (Geronimo v. Court of Appeals, 224 SCRA 494 [1993]).
In weighing the evidence presented, the trial court concluded that indeed there was
concealment and misrepresentation, however, the same was made in "good faith" and the
facts concealed or misrepresented were irrelevant since the policy was "non-medical". We
disagree.
Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within his knowledge which are material to
the contract and as to which he makes no warranty, and which the other has no means of
ascertaining. Said Section provides:
A neglect to communicate that which a party knows and ought to communicate, is called
concealment.
Materiality is to be determined not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom communication is due, in forming his
estimate of the disadvantages of the proposed contract or in making his inquiries (The
Insurance Code, Sec. 31).
The terms of the contract are clear. The insured is specifically required to disclose to the
insurer matters relating to his health.
The information which the insured failed to disclose were material and relevant to the
approval and issuance of the insurance policy. The matters concealed would have definitely
affected petitioner's action on his application, either by approving it with the corresponding
adjustment for a higher premium or rejecting the same. Moreover, a disclosure may have
warranted a medical examination of the insured by petitioner in order for it to reasonably
assess the risk involved in accepting the application.
Moreover, such argument of private respondents would make Section 27 of the Insurance
Code, which allows the injured party to rescind a contract of insurance where there is
concealment, ineffective (See Vda. de Canilang v. Court of Appeals, supra).
Anent the finding that the facts concealed had no bearing to the cause of death of the
insured, it is well settled that the insured need not die of the disease he had failed to
disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming
his estimates of the risks of the proposed insurance policy or in making inquiries (Henson v.
The Philippine American Life Insurance Co., 56 O.G. No. 48 [1960]).
We, therefore, rule that petitioner properly exercised its right to rescind the contract of
insurance by reason of the concealment employed by the insured. It must be emphasized
that rescission was exercised within the two-year contestability period as recognized in
Section 48 of The Insurance Code.
WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED
and SET ASIDE.
SO ORDERED.

In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the
information withheld does not depend on the state of mind of the insured. Neither does it
depend on the actual or physical events which ensue.

Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact
that he was hospitalized for two weeks prior to filing his application for insurance, raises
grave doubts about his bonafides. It appears that such concealment was deliberate on his
part.

The argument, that petitioner's waiver of the medical examination of the insured debunks
the materiality of the facts concealed, is untenable. We reiterate our ruling in Saturnino v.
Philippine American Life Insurance Company, 7 SCRA 316 (1963), that " . . . the waiver of a
medical examination [in a non-medical insurance contract] renders even more material the
information required of the applicant concerning previous condition of health and diseases
suffered, for such information necessarily constitutes an important factor which the insurer
takes into consideration in deciding whether to issue the policy or not . . . "
G.R. No. 181132
HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA PANGILINAN
MARAMAG
Vs
EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN DE GUZMAN
MARAMAG, TRISHA ANGELIE MARAMAG, THE INSULAR LIFE ASSURANCE COMPANY, LTD., and
GREAT PACIFIC LIFE ASSURANCE CORPORATION
DECISION
NACHURA, J.:
This is a petition[1] for review on certiorari under Rule 45 of the Rules, seeking to reverse and
set aside the Resolution[2] dated January 8, 2008 of the Court of Appeals (CA), in CA-G.R. CV
No. 85948, dismissing petitioners appeal for lack of jurisdiction.
The case stems from a petition[3] filed against respondents with the Regional Trial Court,
Branch 29, for revocation and/or reduction of insurance proceeds for being void and/or
inofficious, with prayer for a temporary restraining order (TRO) and a writ of preliminary
injunction.
The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto
Maramag (Loreto), while respondents were Loretos illegitimate family; (2) Eva de Guzman
Maramag (Eva) was a concubine of Loreto and a suspect in the killing of the latter, thus, she
is disqualified to receive any proceeds from his insurance policies from Insular Life
Assurance Company, Ltd. (Insular)[4] and Great Pacific Life Assurance Corporation
(Grepalife);[5] (3) the illegitimate children of LoretoOdessa, Karl Brian, and Trisha
Angeliewere entitled only to one-half of the legitime of the legitimate children, thus, the
proceeds released to Odessa and those to be released to Karl Brian and Trisha Angelie were
inofficious and should be reduced; and (4) petitioners could not be deprived of their
legitimes, which should be satisfied first.
In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged,
among others, that part of the insurance proceeds had already been released in favor
of Odessa, while the rest of the proceeds are to be released in favor of Karl Brian and Trisha
Angelie, both minors, upon the appointment of their legal guardian. Petitioners also prayed
for the total amount of P320,000.00 as actual litigation expenses and attorneys fees.
In answer,[6] Insular admitted that Loreto misrepresented Eva as his legitimate wife and
Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that they filed their
claims for the insurance proceeds of the insurance policies; that when it ascertained that
Eva was not the legal wife of Loreto, it disqualified her as a beneficiary and divided the
proceeds among Odessa, Karl Brian, and Trisha Angelie, as the remaining designated
beneficiaries; and that it released Odessas share as she was of age, but withheld the release
of the shares of minors Karl Brian and Trisha Angelie pending submission of letters of
guardianship. Insular alleged that the complaint or petition failed to state a cause of action
insofar as it sought to declare as void the designation of Eva as beneficiary, because Loreto
revoked her designation as such in Policy No. A001544070 and it disqualified her in Policy
No. A001693029; and insofar as it sought to declare as inofficious the shares of Odessa, Karl
Brian, and Trisha Angelie, considering that no settlement of Loretos estate had been filed
nor had the respective shares of the heirs been determined. Insular further claimed that it
was bound to honor the insurance policies designating the children of Loreto with Eva as
beneficiaries pursuant to Section 53 of the Insurance Code.
In its own answer[7] with compulsory counterclaim, Grepalife alleged that Eva was not
designated as an insurance policy beneficiary; that the claims filed by Odessa, Karl Brian, and
Trisha Angelie were denied because Loreto was ineligible for insurance due to a
misrepresentation in his application form that he was born on December 10, 1936 and, thus,
not more than 65 years old when he signed it in September 2001; that the case was
premature, there being no claim filed by the legitimate family of Loreto; and that the law on
succession does not apply where the designation of insurance beneficiaries is clear.
As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to
petitioners, summons by publication was resorted to. Still, the illegitimate family of Loreto
failed to file their answer. Hence, the trial court, upon motion of petitioners, declared them
in default in its Order dated May 7, 2004.
During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues raised
in their respective answers be resolved first. The trial court ordered petitioners to comment
within 15 days.
In their comment, petitioners alleged that the issue raised by Insular and Grepalife was
purely legal whether the complaint itself was proper or not and that the designation of a
beneficiary is an act of liberality or a donation and, therefore, subject to the provisions of
Articles 752[8] and 772[9] of the Civil Code.

In reply, both Insular and Grepalife countered that the insurance proceeds belong
exclusively to the designated beneficiaries in the policies, not to the estate or to the heirs of
the insured. Grepalife also reiterated that it had disqualified Eva as a beneficiary when it
ascertained that Loreto was legally married to Vicenta Pangilinan Maramag.
On September 21, 2004, the trial court issued a Resolution, the dispositive portion of which
reads
WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life
and Grepalife is granted with respect to defendants Odessa, Karl Brian and Trisha
Maramag. The action shall proceed with respect to the other defendants Eva Verna de
Guzman, Insular Life and Grepalife.
SO ORDERED.[10]
In so ruling, the trial court ratiocinated thus
Art. 2011 of the Civil Code provides that the contract of insurance is governed by the (sic)
special laws. Matters not expressly provided for in such special laws shall be regulated by
this Code. The principal law on insurance is the Insurance Code, as amended. Only in case of
deficiency in the Insurance Code that the Civil Code may be resorted to. (Enriquez v. Sun Life
Assurance Co., 41 Phil. 269.)
The Insurance Code, as amended, contains a provision regarding to whom the insurance
proceeds shall be paid. It is very clear under Sec. 53 thereof that the insurance proceeds
shall be applied exclusively to the proper interest of the person in whose name or for whose
benefit it is made, unless otherwise specified in the policy. Since the defendants are the
ones named as the primary beneficiary (sic) in the insurances (sic) taken by the deceased
Loreto C. Maramag and there is no showing that herein plaintiffs were also included as
beneficiary (sic) therein the insurance proceeds shall exclusively be paid to them. This is
because the beneficiary has a vested right to the indemnity, unless the insured reserves the
right to change the beneficiary. (Grecio v. Sunlife Assurance Co. of Canada, 48 Phil. [sic] 63).
Neither could the plaintiffs invoked (sic) the law on donations or the rules on testamentary
succession in order to defeat the right of herein defendants to collect the insurance
indemnity. The beneficiary in a contract of insurance is not the donee spoken in the law of
donation. The rules on testamentary succession cannot apply here, for the insurance
indemnity does not partake of a donation. As such, the insurance indemnity cannot be
considered as an advance of the inheritance which can be subject to collation (Del Val
v. Del Val, 29 Phil. 534). In the case of Southern Luzon Employees Association v. Juanita
Golpeo, et al., the Honorable Supreme Court made the following pronouncements[:]
With the finding of the trial court that the proceeds to the Life Insurance Policy belongs
exclusively to the defendant as his individual and separate property, we agree that the
proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate
of the person whose life was insured, and that such proceeds are the separate and
individual property of the beneficiary and not of the heirs of the person whose life was
insured, is the doctrine in America. We believe that the same doctrine obtains in
these Islands by virtue of Section 428 of the Code of Commerce x x x.
In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no
sufficient cause of action against defendants Odessa, Karl Brian and Trisha Angelie Maramag
for the reduction and/or declaration of inofficiousness of donation as primary beneficiary
(sic) in the insurances (sic) of the late Loreto C. Maramag.
However, herein plaintiffs are not totally bereft of any cause of action. One of the named
beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is his concubine
Eva Verna De Guzman. Any person who is forbidden from receiving any donation under
Article 739 cannot be named beneficiary of a life insurance policy of the person who cannot
make any donation to him, according to said article (Art. 2012, Civil Code). If a concubine is
made the beneficiary, it is believed that the insurance contract will still remain valid, but the
indemnity must go to the legal heirs and not to the concubine, for evidently, what is
prohibited under Art. 2012 is the naming of the improper beneficiary. In such case, the
action for the declaration of nullity may be brought by the spouse of the donor or donee,
and the guilt of the donor and donee may be proved by preponderance of evidence in the
same action (Comment of Edgardo L. Paras, Civil Code of the Philippines, page 897). Since
the designation of defendant Eva Verna de Guzman as one of the primary beneficiary (sic) in
the insurances (sic) taken by the late Loreto C. Maramag is void under Art. 739 of the Civil
Code, the insurance indemnity that should be paid to her must go to the legal heirs of the
deceased which this court may properly take cognizance as the action for the declaration for
the nullity of a void donation falls within the general jurisdiction of this Court.[11]
Insular[12] and Grepalife[13] filed their respective motions for reconsideration, arguing, in the
main, that the petition failed to state a cause of action. Insular further averred that the
proceeds were divided among the three children as the remaining named
beneficiaries. Grepalife, for its part, also alleged that the premiums paid had already been
refunded.
Petitioners, in their comment, reiterated their earlier arguments and posited that whether
the complaint may be dismissed for failure to state a cause of action must be determined
solely on the basis of the allegations in the complaint, such that the defenses of Insular and
Grepalife would be better threshed out during trial.
On June 16, 2005, the trial court issued a Resolution, disposing, as follows:
WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration filed by
defendants Grepalife and Insular Life are hereby GRANTED. Accordingly, the portion of the
Resolution of this Court dated 21 September 2004 which ordered the prosecution of the
case against defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET ASIDE,
and the case against them is hereby ordered DISMISSED.
SO ORDERED.[14]
In granting the motions for reconsideration of Insular and Grepalife, the trial court
considered the allegations of Insular that Loreto revoked the designation of Eva in one policy
and that Insular disqualified her as a beneficiary in the other policy such that the entire
proceeds would be paid to the illegitimate children of Loreto with Eva pursuant to Section
53 of the Insurance Code. It ruled that it is only in cases where there are no beneficiaries
designated, or when the only designated beneficiary is disqualified, that the proceeds
should be paid to the estate of the insured. As to the claim that the proceeds to be paid to
Loretos illegitimate children should be reduced based on the rules on legitime, the trial
court held that the distribution of the insurance proceeds is governed primarily by the
Insurance Code, and the provisions of the Civil Code are irrelevant and inapplicable. With
respect to the Grepalife policy, the trial court noted that Eva was never designated as a
beneficiary, but only Odessa, Karl Brian, and Trisha Angelie; thus, it upheld the dismissal of
the case as to the illegitimate children. It further held that the matter of Loretos
misrepresentation was premature; the appropriate action may be filed only upon denial of
the claim of the named beneficiaries for the insurance proceeds by Grepalife.
Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for
lack of jurisdiction, holding that the decision of the trial court dismissing the complaint for
failure to state a cause of action involved a pure question of law. The appellate court also
noted that petitioners did not file within the reglementary period a motion for
reconsideration of the trial courts Resolution, dated September 21, 2004, dismissing the
complaint as against Odessa, Karl Brian, and Trisha Angelie; thus, the said Resolution had
already attained finality.
Hence, this petition raising the following issues:
a. In determining the merits of a motion to dismiss for failure to state a cause of
action, may the Court consider matters which were not alleged in the Complaint, particularly
the defenses put up by the defendants in their Answer?
b. In granting a motion for reconsideration of a motion to dismiss for failure to
state a cause of action, did not the Regional Trial Court engage in the examination and
determination of what were the facts and their probative value, or the truth thereof, when
it premised the dismissal on allegations of the defendants in their answer which had not
been proven?
c. x x x (A)re the members of the legitimate family entitled to the proceeds of the
insurance for the concubine?[15]
In essence, petitioners posit that their petition before the trial court should not have been
dismissed for failure to state a cause of action because the finding that Eva was either
disqualified as a beneficiary by the insurance companies or that her designation was
revoked by Loreto, hypothetically admitted as true, was raised only in the answers and
motions for reconsideration of both Insular and Grepalife. They argue that for a motion to
dismiss to prosper on that ground, only the allegations in the complaint should be
considered. They further contend that, even assuming Insular disqualified Eva as a
beneficiary, her share should not have been distributed to her children with Loreto but,
instead, awarded to them, being the legitimate heirs of the insured deceased, in accordance
with law and jurisprudence.
The petition should be denied.
The grant of the motion to dismiss was based on the trial courts finding that the petition
failed to state a cause of action, as provided in Rule 16, Section 1(g), of the Rules of Court,
which reads
SECTION 1. Grounds. Within the time for but before filing the answer to the complaint or
pleading asserting a claim, a motion to dismiss may be made on any of the following
grounds:
xxxx
(g) That the pleading asserting the claim states no cause of action.

A cause of action is the act or omission by which a party violates a right of another.[16] A
complaint states a cause of action when it contains the three (3) elements of a cause of
action(1) the legal right of the plaintiff; (2) the correlative obligation of the defendant; and
(3) the act or omission of the defendant in violation of the legal right. If any of these
elements is absent, the complaint becomes vulnerable to a motion to dismiss on the ground
of failure to state a cause of action.[17]
When a motion to dismiss is premised on this ground, the ruling thereon should be based
only on the facts alleged in the complaint. The court must resolve the issue on the strength
of such allegations, assuming them to be true. The test of sufficiency of a cause of action
rests on whether, hypothetically admitting the facts alleged in the complaint to be true, the
court can render a valid judgment upon the same, in accordance with the prayer in the
complaint. This is the general rule.
However, this rule is subject to well-recognized exceptions, such that there is no
hypothetical admission of the veracity of the allegations if:
1. the falsity of the allegations is subject to judicial notice;
2. such allegations are legally impossible;
3. the allegations refer to facts which are inadmissible in evidence;
4. by the record or document in the pleading, the allegations appear unfounded; or
5. there is evidence which has been presented to the court by stipulation of the
parties or in the course of the hearings related to the case.[18]
In this case, it is clear from the petition filed before the trial court that, although petitioners
are the legitimate heirs of Loreto, they were not named as beneficiaries in the insurance
policies issued by Insular and Grepalife. The basis of petitioners claim is that Eva, being a
concubine of Loreto and a suspect in his murder, is disqualified from being designated as
beneficiary of the insurance policies, and that Evas children with Loreto, being illegitimate
children, are entitled to a lesser share of the proceeds of the policies. They also argued that
pursuant to Section 12 of the Insurance Code,[19] Evas share in the proceeds should be
forfeited in their favor, the former having brought about the death of Loreto. Thus, they
prayed that the share of Eva and portions of the shares of Loretos illegitimate children
should be awarded to them, being the legitimate heirs of Loreto entitled to their respective
legitimes.
It is evident from the face of the complaint that petitioners are not entitled to a favorable
judgment in light of Article 2011 of the Civil Code which expressly provides that insurance
contracts shall be governed by special laws, i.e., the Insurance Code. Section 53 of the
Insurance Code states
SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of
the person in whose name or for whose benefit it is made unless otherwise specified in the
policy.
Pursuant thereto, it is obvious that the only persons entitled to claim the insurance
proceeds are either the insured, if still alive; or the beneficiary, if the insured is already
deceased, upon the maturation of the policy.[20] The exception to this rule is a situation
where the insurance contract was intended to benefit third persons who are not parties to
the same in the form of favorable stipulations or indemnity. In such a case, third parties may
directly sue and claim from the insurer.[21]
Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus,
are not entitled to the proceeds thereof. Accordingly, respondents Insular and Grepalife
have no legal obligation to turn over the insurance proceeds to petitioners. The revocation
of Eva as a beneficiary in one policy and her disqualification as such in another are of no
moment considering that the designation of the illegitimate children as beneficiaries in
Loretos insurance policies remains valid. Because no legal proscription exists in naming as
beneficiaries the children of illicit relationships by the insured,[22] the shares of Eva in the
insurance proceeds, whether forfeited by the court in view of the prohibition on donations
under Article 739 of the Civil Code or by the insurers themselves for reasons based on the
insurance contracts, must be awarded to the said illegitimate children, the designated
beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has not
designated any beneficiary,[23] or when the designated beneficiary is disqualified by law to
receive the proceeds,[24] that the insurance policy proceeds shall redound to the benefit of
the estate of the insured.
In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In
the same light, the Decision of the CA dated January 8, 2008 should be sustained. Indeed,
the appellate court had no jurisdiction to take cognizance of the appeal; the issue of failure
to state a cause of action is a question of law and not of fact, there being no findings of fact
in the first place.[25]
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners.
SO ORDERED.
 (a) P4,406,536.40 representing damages for loss by fire of its insured property with interest at the
legal rate;

(b) P80,000.00 for litigation expenses;

(c) P300,000.00 for and as attorneys fees; and

[G.R. No. 138941. October 8, 2001]
(d) Pay the costs.
AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. TANTUCO ENTERPRISES, INC., respondent.
SO ORDERED.[6]
DECISION
Petitioner assailed this judgment before the Court of Appeals. The appellate court upheld the same in
PUNO, J.:
a Decision promulgated on January 14, 1999, the pertinent portion of which states:
Before us is a Petition for Review on Certiorari assailing the Decision of the Court of Appeals in CA-
WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit and the trial courts Decision
G.R. CV No. 52221 promulgated on January 14, 1999, which affirmed in toto the Decision of the
dated October 16, 1995 is hereby AFFIRMED in toto.
Regional Trial Court, Branch 53, Lucena City in Civil Case No. 92-51 dated October 16, 1995.
SO ORDERED.[7]
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining industry. It
owns two oil mills. Both are located at its factory compound at Iyam, Lucena City. It appears that Petitioner moved for reconsideration. The motion, however, was denied for lack of merit in a
respondent commenced its business operations with only one oil mill. In 1988, it started operating its Resolution promulgated on June 10, 1999.
second oil mill. The latter came to be commonly referred to as the new oil mill.
Hence, the present course of action, where petitioner ascribes to the appellate court the following
The two oil mills were separately covered by fire insurance policies issued by petitioner American errors:
Home Assurance Co., Philippine Branch.[1] The first oil mill was insured for three million pesos
(1) The Court of Appeals erred in its conclusion that the issue of non-payment of the premium was
(P3,000,000.00) under Policy No. 306-7432324-3 for the period March 1, 1991 to 1992.[2] The new oil
beyond its jurisdiction because it was raised for the first time on appeal. [8]
mill was insured for six million pesos (P6,000,000.00) under Policy No. 306-7432321-9 for the same
term.[3]Official receipts indicating payment for the full amount of the premium were issued by the (2) The Court of Appeals erred in its legal interpretation of 'Fire Extinguishing Appliances Warranty' of
petitioner's agent.[4] the policy.[9]
A fire that broke out in the early morning of September 30,1991 gutted and consumed the new oil (3) With due respect, the conclusion of the Court of Appeals giving no regard to the parole evidence
mill. Respondent immediately notified the petitioner of the incident. The latter then sent its rule and the principle of estoppel is erroneous.[10]
appraisers who inspected the burned premises and the properties destroyed. Thereafter, in a letter
dated October 15, 1991, petitioner rejected respondents claim for the insurance proceeds on the The petition is devoid of merit.
ground that no policy was issued by it covering the burned oil mill. It stated that the description of
The primary reason advanced by the petitioner in resisting the claim of the respondent is that the
the insured establishment referred to another building thus: Our policy nos. 306-7432321-9 (Ps 6M)
burned oil mill is not covered by any insurance policy. According to it, the oil mill insured is specifically
and 306-7432324-4 (Ps 3M) extend insurance coverage to your oil mill under Building No. 5, whilst
described in the policy by its boundaries in the following manner:
the affected oil mill was under Building No. 14.[5]
Front: by a driveway thence at 18 meters distance by Bldg. No. 2.
A complaint for specific performance and damages was consequently instituted by the respondent
with the RTC, Branch 53 of Lucena City. On October 16, 1995, after trial, the lower court rendered a Right: by an open space thence by Bldg. No. 4.
Decision finding the petitioner liable on the insurance policy thus:
Left: Adjoining thence an imperfect wall by Bldg. No. 4.
WHEREFORE, judgment is rendered in favor of the plaintiff ordering defendant to pay plaintiff:
Rear: by an open space thence at 8 meters distance.
However, it argues that this specific boundary description clearly pertains, not to the burned oil mill,
but to the other mill. In other words, the oil mill gutted by fire was not the one described by the
specific boundaries in the contested policy.
What exacerbates respondents predicament, petitioner posits, is that it did not have the supposed
wrong description or mistake corrected.Despite the fact that the policy in question was issued way
back in 1988, or about three years before the fire, and despite the Important Notice in the policy
that Please read and examine the policy and if incorrect, return it immediately for alteration,
respondent apparently did not call petitioners attention with respect to the misdescription.
By way of conclusion, petitioner argues that respondent is barred by the parole evidence rule from
presenting evidence (other than the policy in question) of its self-serving intention (sic) that it
intended really to insure the burned oil mill, just as it is barred by estoppel from claiming that the
description of the insured oil mill in the policy was wrong, because it retained the policy without
having the same corrected before the fire by an endorsement in accordance with its Condition No.
28.
These contentions can not pass judicial muster.
In construing the words used descriptive of a building insured, the greatest liberality is shown by the
courts in giving effect to the insurance.[11] In view of the custom of insurance agents to examine
buildings before writing policies upon them, and since a mistake as to the identity and character of
the building is extremely unlikely, the courts are inclined to consider that the policy of insurance
covers any building which the parties manifestly intended to insure, however inaccurate the
description may be.[12]
Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that
what the parties manifestly intended to insure was the new oil mill. This is obvious from the
categorical statement embodied in the policy, extending its protection:
On machineries and equipment with complete accessories usual to a coconut oil mill including stocks
of copra, copra cake and copra mills whilst contained in the new oil mill building, situate (sic) at
UNNO. ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY UNBLOCKED.[13] (emphasis supplied.)
If the parties really intended to protect the first oil mill, then there is no need to specify it as new.
Indeed, it would be absurd to assume that respondent would protect its first oil mill for different
amounts and leave uncovered its second one. As mentioned earlier, the first oil mill is already
covered under Policy No. 306-7432324-4 issued by the petitioner. It is unthinkable for respondent to
obtain the other policy from the very same company. The latter ought to know that a second
agreement over that same realty results in its overinsurance.
The imperfection in the description of the insured oil mills boundaries can be attributed to a
misunderstanding between the petitioners general agent, Mr. Alfredo Borja, and its policy issuing
clerk, who made the error of copying the boundaries of the first oil mill when typing the policy to be
issued for the new one. As testified to by Mr.Borja:
Atty. G. Camaligan:
Q: What did you do when you received the report?
A: I told them as will be shown by the map the intention really of Mr. Edison Tantuco is to cover the
new oil mill that is why when I presented the existing policy of the old policy, the policy issuing clerk
just merely (sic) copied the wording from the old policy and what she typed is that the description of
the boundaries from the old policy was copied but she inserted covering the new oil mill and to me
at that time the important thing is that it covered the new oil mill because it is just within one
compound and there are only two oil mill[s] and so just enough, I had the policy prepared. In fact,
two policies were prepared having the same date one for the old one and the other for the new oil
mill and exactly the same policy period, sir.[14] (emphasis supplied)
It is thus clear that the source of the discrepancy happened during the preparation of the written
contract.
These facts lead us to hold that the present case falls within one of the recognized exceptions to the
parole evidence rule. Under the Rules of Court, a party may present evidence to modify, explain or
add to the terms of the written agreement if he puts in issue in his pleading, among others, its failure
to express the true intent and agreement of the parties thereto. [15] Here, the contractual intention of
the parties cannot be understood from a mere reading of the instrument. Thus, while the contract
explicitly stipulated that it was for the insurance of the new oil mill, the boundary description written
on the policy concededly pertains to the first oil mill. This irreconcilable difference can only be
clarified by admitting evidence aliunde, which will explain the imperfection and clarify the intent of
the parties.
Anent petitioners argument that the respondent is barred by estoppel from claiming that the
description of the insured oil mill in the policy was wrong, we find that the same proceeds from a
wrong assumption. Evidence on record reveals that respondents operating manager, Mr. Edison
Tantuco, notified Mr. Borja (the petitioners agent with whom respondent negotiated for the contract)
about the inaccurate description in the policy. However, Mr. Borja assured Mr. Tantuco that the use
of the adjective new will distinguish the insured property. The assurance convinced respondent that,
despite the impreciseness in the specification of the boundaries, the insurance will cover the new oil
mill. This can be seen from the testimony on cross of Mr. Tantuco:
"ATTY. SALONGA:
Q: You mentioned, sir, that at least in so far as Exhibit A is concern you have read what the policy
contents.(sic)
Kindly take a look in the page of Exhibit A which was marked as Exhibit A-2 particularly the
boundaries of the property insured by the insurance policy Exhibit A, will you tell us as the manager
of the company whether the boundaries stated in Exhibit A-2 are the boundaries of the old (sic) mill
that was burned or not.
A: It was not, I called up Mr. Borja regarding this matter and he told me that what is important is
the word new oil mill. Mr. Borja said, as a matter of fact, you can never insured (sic) one property
with two (2) policies, you will only do that if you will make to increase the amount and it is by
indorsement not by another policy, sir."[16]
We again stress that the object of the court in construing a contract is to ascertain the intent of the
parties to the contract and to enforce the agreement which the parties have entered into. In
determining what the parties intended, the courts will read and construe the policy as a whole and if
possible, give effect to all the parts of the contract, keeping in mind always, however, the prime rule
that in the event of doubt, this doubt is to be resolved against the insurer. In determining the intent
of the parties to the contract, the courts will consider the purpose and object of the contract.[17]
In a further attempt to avoid liability, petitioner claims that respondent forfeited the renewal policy
for its failure to pay the full amount of the premium and breach of the Fire Extinguishing Appliances
Warranty.
The amount of the premium stated on the face of the policy was P89,770.20. From the admission of
respondents own witness, Mr. Borja, which the petitioner cited, the former only paid it P75,147.00,
leaving a difference of P14,623.20. The deficiency, petitioner argues, suffices to invalidate the policy,
in accordance with Section 77 of the Insurance Code.[18]
The Court of Appeals refused to consider this contention of the petitioner. It held that this issue was
raised for the first time on appeal, hence, beyond its jurisdiction to resolve, pursuant to Rule 46,
Section 18 of the Rules of Court.[19]
Petitioner, however, contests this finding of the appellate court. It insists that the issue was raised in
paragraph 24 of its Answer, viz.:
24. Plaintiff has not complied with the condition of the policy and renewal certificate that the renewal
premium should be paid on or before renewal date.
Petitioner adds that the issue was the subject of the cross-examination of Mr. Borja, who
acknowledged that the paid amount was lacking by P14,623.20 by reason of a discount or rebate,
which rebate under Sec. 361 of the Insurance Code is illegal.
The argument fails to impress. It is true that the asseverations petitioner made in paragraph 24 of its
Answer ostensibly spoke of the policys condition for payment of the renewal premium on time and
respondents non-compliance with it. Yet, it did not contain any specific and definite allegation that
respondent did not pay the premium, or that it did not pay the full amount, or that it did not pay the
amount on time.
Likewise, when the issues to be resolved in the trial court were formulated at the pre-trial
proceedings, the question of the supposed inadequate payment was never raised. Most significant to
point, petitioner fatally neglected to present, during the whole course of the trial, any witness to
testify that respondent indeed failed to pay the full amount of the premium. The thrust of the cross-
examination of Mr. Borja, on the other hand, was not for the purpose of proving this fact. Though it
briefly touched on the alleged deficiency, such was made in the course of discussing a discount or
rebate, which the agent apparently gave the respondent. Certainly, the whole tenor of Mr. Borjas
testimony, both during direct and cross examinations, implicitly assumed a valid and subsisting
insurance policy. It must be remembered that he was called to the stand basically to demonstrate
that an existing policy issued by the petitioner covers the burned building.
Finally, petitioner contends that respondent violated the express terms of the Fire Extinguishing
Appliances Warranty. The said warranty provides:
WARRANTED that during the currency of this Policy, Fire Extinguishing Appliances as mentioned
below shall be maintained in efficient working order on the premises to which insurance applies:
- PORTABLE EXTINGUISHERS
- INTERNAL HYDRANTS
- EXTERNAL HYDRANTS
- FIRE PUMP
- 24-HOUR SECURITY SERVICES
BREACH of this warranty shall render this policy null and void and the Company shall no longer be
liable for any loss which may occur.[20]
Petitioner argues that the warranty clearly obligates the insured to maintain all the appliances
specified therein. The breach occurred when the respondent failed to install internal fire hydrants
inside the burned building as warranted. This fact was admitted by the oil mills expeller operator,
Gerardo Zarsuela.
Again, the argument lacks merit. We agree with the appellate courts conclusion that the
aforementioned warranty did not require respondent to provide for all the fire extinguishing
appliances enumerated therein. Additionally, we find that neither did it require that the appliances
are restricted to those mentioned in the warranty. In other words, what the warranty mandates is
that respondent should maintain in efficient working condition within the premises of the insured
property, fire fighting equipments such as, but not limited to, those identified in the list, which will
serve as the oil mills first line of defense in case any part of it bursts into flame.
To be sure, respondent was able to comply with the warranty. Within the vicinity of the new oil mill
can be found the following devices: numerous portable fire extinguishers, two fire hoses, [21] fire
hydrant,[22] and an emergency fire engine.[23] All of these equipments were in efficient working order
when the fire occurred.

It ought to be remembered that not only are warranties strictly construed against the insurer, but
they should, likewise, by themselves be reasonably interpreted.[24] That reasonableness is to be
ascertained in light of the factual conditions prevailing in each case. Here, we find that there is no
more need for an internal hydrant considering that inside the burned building were: (1) numerous
portable fire extinguishers, (2) an emergency fire engine, and (3) a fire hose which has a connection
to one of the external hydrants.

IN VIEW WHEREOF, finding no reversible error in the impugned Decision, the instant petition is
hereby DISMISSED.

SO ORDERED.
[18]
The provision states:

Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to
the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy whenever the grace period
provision applies.
[19]
Now Rule 44, Section 15 of the 1997 Rules of Civil Procedure:

Sec. 15. Questions that may be raised on appeal. - Whether or not the appellant has filed a motion for
new trial in the court below, he may include in his assignment of errors any question of law or fact
that has been raised in the court below and which is within the issues framed by the parties.