White Gold Marine Services Inc.

v Pioneer Insurance & Surety Corporation

(Insurance)

[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.

FACTS:
White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity
coverage for its vessels from The Steamship Mutual Underwriting Association
(Bermuda) Limited (Steamship Mutual) through Pioneer Insurance and Surety
Corporation (Pioneer). Subsequently, White Gold was issued a Certificate of Entry and
Acceptance. Pioneer also issued receipts evidencing payments for the coverage. When
White Gold failed to fully pay its accounts, Steamship Mutual refused to renew the
coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of
money to recover the latter’s unpaid balance.

DECISION OF LOWER COURTS:

(1) Insurance Commissioner: dismissed the complaint. There was no violation of the
Insurance Code and the respondents do not need license as insurer and insurance
agent/broker because it was not engaged in the insurance business. It explained that
Steamship Mutual was a Protection and Indemnity Club (P & I Club). Moreover, Pioneer
was already licensed, hence, a separate license solely as agent/broker of Steamship
Mutual was already superfluous.
(2) CA: affirmed Insurance Commissioner.

ISSUES:
(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?

RULING:
(1) Yes. 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.
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.
It cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of
Appeals 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.”
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.
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. Additionally, mutual insurance associations, or clubs, provide three types of
coverage, namely, protection and indemnity, war risks, and defense costs. A P & I Club
is “a form of insurance against third party liability, where the third party is anyone other
than the P & I Club and the members.” By definition then, Steamship Mutual as a P & I
Club is a mutual insurance association engaged in the marine insurance business.
(2) Yes. 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.

Insurance Case Digest: Verendia V CA G.R. No. 75605 January 22, 1993

G.R. No. 75605 January 22, 1993

Lessons Applicable: Exception to Ambiguous Provisions Interpreted Against Insurer

(Insurance)

FACTS:

Rafael (Rex) Verendia's residential building was insured with Fidelity and Surety
Insurance Company, Country Bankers Insurance and Development Insurance with
Monte de Piedad & Savings Bank as beneficiary

December 28, 1980 early morning: the building was completely destroyed by fire

Fidelity refused the claim stating that there was a misrepresentation since the lessee
was not Roberto Garcia but Marcelo Garcia
trial court: favored Fidelity

CA: reversed

ISSUE: W/N there was false declaration which would forfeit his benefits under Section
13 of the policy

HELD: YES.

Section 13 thereof which is expressed in terms that are clear and unambiguous, that all
benefits under the policy shall be forfeited "If the claim be in any respect fraudulent, or if
any false declaration be made or used in support thereof, or if any fraudulent means or
devises are used by the Insured or anyone acting in his behalf to obtain any benefit
under the policy"

Robert Garcia then executed an affidavit before the National Intelligence and Security
Authority (NISA) to the effect that he was not the lessee of Verendia's house and that
his signature on the contract of lease was a complete forgery.

Worse yet, by presenting a false lease contract, Verendia, reprehensibly disregarded

the principle that insurance contracts are uberrimae fidae and demand the most
abundant good faith

Rizal Surety v CA G.R. No. 112360. July 18, 2000

J. Purisima

Facts:
Rizal Surety issued a 1 million peso fire insurance policy with Transworld. This was
increased to 1.5 million. A four span building was part of the policy. A fire broke out and
gutted the building, together with a two storey building behind it were gaming machines
were stored. The company filed its claims but to no avail. Hence, it brought a suit
in court. It aimed to make Rizal pay for almost 3 million including legal interest and
damages. Rizal claimed that the policy only covered damage on the four span building
and not the two storey building. The trial court ruled in Transworld’s favor and ordered
Rizal to pay actual damages only. The court of appeals increased the damages. The
insurance company filed a MFR. The CA answered by modifying the imposition of
interest. Not satisfied, the insurance company petitioned to the Supreme Court.

Issue:
WON Rizal Surety is liable for loss of the two-storey building considering that the fire
insurance policy sued upon covered only the contents of the four-span building.
Held: Yes. Petition dismissed.

Ratio:
The policy had clauses on the building coverage that read:
"contained and/or stored during the currency of this Policy in the premises occupied by
them forming part of the buildingssituated within own Compound"
"First, said properties must be contained and/or stored in the areas occupied by
Transworld and second, said areas must form part of the building described in the policy
xxx"
This generally means that the policy didn’t limit its coverage to what was stored in the
four-span building.
As to questions of fact, both the trial court and the Court of Appeals found that the so
called "annex " was not an annex building but an integral part of the four-span building
described in the policy and consequently, the machines and spare parts stored were
covered by the fire insurance.
A report said: "Two-storey building constructed of partly timber and partly concrete
hollow blocks under g.i. roof which is adjoining and intercommunicating with the
repair of the first right span of the lofty storey building and thence by property fence
wall."
"Art.1377. The interpretation of obscure words or stipulations in a contract shall not
favor the party who caused the obscurity"
Landicho v GSIS- the 'terms in an insurance policy, which are ambiguous, equivocal, or
uncertain are to be construed strictly and most strongly against the insurer, and liberally
in favor of the insured so as to effect the dominant purpose of indemnity or payment to
the insured’
The issue of whether or not Transworld has an insurable interest in the fun
and amusement machines and spare parts, which entitles it to be indemnified for the
loss thereof, had been settled in another SC case.
Philamcare Health Systems Inc. vs. CA (379 SCRA 356)

In 1988, Ernani Trinos applied for a health care insurance under the Philamcare Health
Systems, Inc. He was asked if he was ever treated for high blood, heart trouble,
diabetes, cancer, liver disease, asthma, or peptic ulcer; he answered no. His application
was approved and it was effective for one year. His coverage was subsequently
renewed twice for one year each. While the coverage was still in force in 1990, Ernani
suffered a heart attack for which he was hospitalized. The cost of the hospitalization
amounted to P76,000.00. Julita Trinos, wife of Ernani, filed a claim before Philamcare
for the latter to pay the hospitalization cost. Philamcare refused to pay as it alleged that
Ernani failed to disclose the fact that he was diabetic, hypertensive, and asthmatic.
Julita ended up paying the hospital expenses. Ernani eventually died. In July 1990,
Julita sued Philamcare for damages. Philamcare alleged that the health coverage is not
an insurance contract; that the concealment made by Ernani voided the agreement.
ISSUE: Whether or not Philamcare can avoid the health coverage agreement.
HELD: No. The health coverage agreement (health care agreement) entered upon by
Ernani with Philamcare is a non-life insurance contract and is covered by the Insurance
Law. It is primarily a contract of indemnity. Once the member incurs hospital, medical or
any other expense arising from sickness, injury or other stipulated contingent, the health
care provider must pay for the same to the extent agreed upon under the contract.
There is no concealment on the part of Ernani. He answered the question with good
faith. He was not a medical doctor hence his statement in answering the question asked
of him when he was applying is an opinion rather than a fact. Answers made in good
faith will not void the policy.
Further, Philamcare, in believing there was concealment, should have taken the
necessary steps to void the health coverage agreement prior to the filing of the suit by
Julita. Philamcare never gave notice to Julita of the fact that they are voiding the
agreement. Therefore, Philamcare should pay the expenses paid by Julita.

Fortune v CA G.R. No. 115278 May 23, 1995

J. Davide Jr.

Facts:
Producers Bank’s money was stolen while it was being transported from Pasay to
Makati. The people guarding the money were charged with the theft. The bank filed a
claim for the amount of Php 725,000, and such was refused by the insurance
corporation due to the stipulation:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any
officer, employee, partner, director, trustee or authorized representative of the Insured
whether acting alone or in conjunction with others. . . .
In the trial court, the bank claimed that the suspects were not any of the above
mentioned. They won the case. The appellatecourt affirmed on the basis that the bank
had no power to hire or dismiss the guard and could only ask for replacements from the
security agency.

Issue: Did the guards fall under the general exceptions clause of the insurance policy
and thus absolved the insurance company from liability?

Held: Yes to both. Petition granted.

Ratio:
The insurance agency contended that the guards automatically became the authorized
representatives of the bank when they cited International Timber Corp. vs. NLRC
where a contractor is a "labor-only" contractor in the sense that there is an employer-
employee relationship between the owner of the project and the employees of the
"labor-only" contractor.
They cited Art. 106. Of the Labor Code which said:
 Contractor or subcontractor. — There is "labor-only" contracting where the person
supplying workers to an employer does not have substantial capital or investment in the
form of tools, equipment, machineries, work premises, among others, and the workers
recruited and placed by such persons are performing activities which are directly related
to the principal business of such employer. In such cases, the person or intermediary
shall be considered merely as an agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter were directly employed by him.
The bank asserted that the guards were not its employees since it had nothing to do
with their selection and engagement, the payment of their wages, their dismissal, and
the control of their conduct.
They cited a case where an employee-employer relationship was governed by (1) the
selection and engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's conduct.
The case was governed by Article 174 of the Insurance Code where it stated
that casualty insurance awarded an amount to loss cause by accident or mishap.
“The term "employee," should be read as a person who qualifies as such as generally
and universally understood, or jurisprudentially established in the light of the four
standards in the determination of the employer-employee relationship, or as statutorily
declared even in a limited sense as in the case of Article 106 of the Labor Code which
considers the employees under a "labor-only" contract as employees of the party
employing them and not of the party who supplied them to the employer.”
But even if the contracts were not labor-only, the bank entrusted the suspects with the
duty to safely transfer the money to its head office, thus, they were representatives.
According to the court, “a ‘representative’ is defined as one who represents or stands in
the place of another; one who represents others or another in a special capacity, as
an agent, and is interchangeable with ‘agent.’”

Gulf Resorts Inc. vs. Philippine Charter Insurance Corp. GR No. 155167, 16 May 2005
G.R. No. 156167 May 16, 2005
Lessons Applicable: Stipulations Cannot Be Segregated (Insurance)

FACTS:
 Gulf Resorts, Inc at Agoo, La Union was insured with American Home Assurance
Company which includes loss or damage to shock to any of the property insured by
this Policy occasioned by or through or in consequence of earthquake
 July 16, 1990: an earthquake struck Central Luzon and Northern Luzon so the
properties and 2 swimming pools in its Agoo Playa Resort were damaged
 August 23, 1990: Gulf's claim was denied on the ground that its insurance policy
only afforded earthquake shock coverage to the two swimming pools of the resort
 Petitioner contends that pursuant to this rider, no qualifications were placed on the
scope of the earthquake shock coverage. Thus, the policy extended earthquake
shock coverage to all of the insured properties.
 RTC: Favored American Home - endorsement rider means that only the two
swimming pools were insured against earthquake shock
 CA: affirmed RTC
ISSUE: W/N Gulf can claim for its properties aside from the 2 swimming pools

HELD: YES. Affirmed.

 It is basic that all the provisions of the insurance policy should be examined and
interpreted in consonance with each other.
 All its parts are reflective of the true intent of the parties.

Manila Mahogany vs. CA (154 SCRA 650)

FACTS:

Petitioner Manila Mahogany Manufacturing Corporation insured its Mercedes Benz 4-

door sedan withrespondent Zenith Insurance Corporation. The insured vehicle was
bumped and damaged by a truck owned bySan Miguel Corporation. For the damage
caused, respondent company paid petitioner five thousand pesos(P5,000.00) in
amicable settlement. Petitioner's general manager executed a Release of Claim,
subrogatingrespondent company to all its right to action against San Miguel
Corporation.Thereafter, respondent company wrote Insurance Adjusters, Inc. to
demand reimbursement from SanMiguel Corporation of the amount it had paid
petitioner. Insurance Adjusters, Inc. refused reimbursement,alleging that San Miguel
Corporation had already paid petitioner P4,500.00 for the damages to petitioner'smotor
vehicle, as evidenced by a cash voucher and a Release of Claim executed by the
General Manager of petitioner discharging San Miguel Corporation from "all actions,
claims, demands the rights of action that nowexist or hereafter develop arising out of or
as a consequence of the accident."Respondent insurance company thus demanded
from petitioner reimbursement of the sum of P4,500.00 paid by San Miguel Corporation.
Petitioner refused; hence, the instant case.

ISSUE:

Whether or not the respondent insurance company is subrogated to the rights of the
petitioner againstSan Miguel Corporation.

HELD:

YES

RULING:
The Supreme Court held that if a property is insured and the owner receives the
indemnity from theinsurer, it is provided in [Article 2207 of the New Civil Code] that the
insurer is

deemed subrogated

to therights of the insured against the wrongdoer and if the amount paid by the insurer
does not fully cover the loss,then the aggrieved party is the one entitled to recover the
deficiency. Under this legal provision,

the real partyin interest with regard to the portion of the indemnity paid is the insurer and
not the insured.

Hence, petitioner is entitled to keep the sum of P4,500.00 paid by San Miguel
Corporation under itsclear right to file a deficiency claim for damages incurred, against
the wrongdoer, should the insurancecompany not fully pay for the injury caused (Article
2207, New Civil Code).

However, when petitioner released San Miguel Corporation from any liability, petitioner's
right to retain the sum of P5,000.00 no longer existed, thereby entitling private
respondent to recover the same

.The right of subrogation can only exist after the insurer has paid the insured otherwise
the insured will be deprived of his right to full indemnity. If the insurance proceeds are
not sufficient to cover the damagessuffered by the insured, then he may sue the party
responsible for the damage for the remainder. To the extentof the amount he has
already received from, the insurer enjoys the right of subrogation.Since the insurer can
be subrogated to only such rights as the insured may have,

should the insured,after receiving payment from the insurer, release the wrongdoer
who caused the loss, the insurer loses hisrights against the latter. But in such a case,
the insurer will be entitled to recover from the insured whatever it has paid to the latter,
unless the release was made with the consent of the insurer
Federal Express Corporation vs American Home Insurance Corp and Philam
Insurance Company

(GR No 150094, Aug 18, 2004)

Facts:

Smithklein caused the transportation of 109 cartons of veterinary biologicals. The

Shipment was initially loaded to Burlington Air Express and then later on forwarded to
the petitioner for delivery to the consignee. When the consignee received the same it
was found out that goods was damaged and decided to abandon the shipment and
declared a total loss and then claimed against the insurance company. The insurance
company paid the loss.

Issue:

Is there legal subrogation on the part of the Insurance Company?

Held:Yes. Upon payment, the insurer’s entitlement to subrogation pro tanto equips the
insurance company with a cause of action in case of a contractual breach or
negligence. The insurance company stands in the same footing or in substitution of the
insured party.

Insurance Case Digest: Eternal Gardens Memorial Park Corp. V. Philippine

American Life Insurance Corp. (2008)

G.R. No. 166245 April 9, 2008

Lessons Applicable: Exception to Perfection (Insurance)

FACTS:

December 10, 1980: Philippine American Life Insurance Company (Philamlife) entered
into an agreement denominated as Creditor Group Life Policy No. P-19202 with Eternal
Gardens Memorial Park Corporation (Eternal)

Under the policy (renewable annually), the clients of Eternal who purchased burial lots
from it on installment basis would be insured by Philamlife

amount of insurance coverage depended upon the existing balance

Eternal complied by submitting a letter dated December 29, 1982, a list of insurable
balances of its lot buyers for October 1982 which includes John Chuang which was
stamped as received by Philam Life

August 2, 1984, Chuang died with a balance of 100,000 php

April 25, 1986: Philamlife had not furnished Eternal with any reply on its insurance claim
so its demanded its claim

According to Philam Life, since the application was submitted only on November 15,
1984, after his death, Mr. John Uy Chuang was not covered under the Policy since his
application was not approved. Moreover, the acceptance of the premiums are only in
trust for and not a sign of approval.

RTC: favored Eternal

CA: Reversed RTC

ISSUE: W/N Philam's inaction or non-approval meant the perfection of the insurance
contract.

HELD: YES. CA reversed

construed in favor of the insured and in favor of the effectivity of the insurance contract

Upon a party’s purchase of a memorial lot on installment from Eternal, an insurance

contract covering the lot purchaser is created and the same is effective, valid, and
binding until terminated by Philamlife by disapproving the insurance application

Moreover, the mere inaction of the insurer on the insurance application must not work to
prejudice the insured

The termination of the insurance contract by the insurer must be explicit and
unambiguous

RAFAEL ENRIQUEZ vs. SUN LIFE ASSURANCE COMPANY OF CANADA

G.R. No. L-15895 November 29, 1920
FACTS:
On September 24, 1917, Joaquin Herrer made application to the Sun Life Assurance
Company of Canada through its office in Manila for a life annuity. Two days later he
paid the sum of P6,000 to the manager of the company's Manila office and was given a
provisional receipt.
The application was forwarded to the head office of the company at Montreal, Canada
and on November 26, 1917 a notice of acceptance was sent by cable to Manila. (There
is no evidence however, whether on the same day the cable was received notice was
sent by the Manila office of Herrer that the application had been accepted)

On December 4, 1917, the policy was issued. On December 18, 1917, Herrer
communicated his desire to withdraw his application through his lawyer.

The local office replied to Mr. Torres, stating that the policy had been issued, and called
attention to the notification of November 26, 1917. The reply was received by Herrer's
council a day after the latter died.

Plaintiff ad administrator of the estate of the late Joaquin Ma. Herrer to recover from the
defendant life insurance company the sum of pesos 6,000 paid by the deceased for a
life annuity. The trial court gave judgment for the defendant.

ISSUE:
Whether or not the insurance contract between Sun Life and Herrer has been perfected

RULING:
No, the contract for a life annuity in the case at bar was not perfected because it has not
been proved satisfactorily that the acceptance of the application ever came to the
knowledge of the applicant.

An acceptance of an offer of insurance not actually or constructively communicated to

the proposer does not make a contract. Only the mailing of acceptance, it has been
said, completes the contract of insurance, as the locus poenitentiae is ended when the
acceptance has passed beyond the control of the party.

An acceptance made by letter shall not bind the person making the offer except from
the time it came to his knowledge (Civil Code Art. 1262). When a letter or other mail
matter is addressed and mailed with postage prepaid there is a rebuttable
presumption of fact that it was received by the addressee as soon as it could have been
transmitted to him in the ordinary course of the mails. But if any one of these elemental
facts fails to appear, it is fatal to the presumption. A letter will not be presumed to have
been received by the addressee unless it is shown that it was deposited in the post-
office, properly addressed and stamped.

GREAT PACIFIC LIFE ASSURANCE COMPANY vs. CA G.R. No. L-31845 April 30,
1979
FACTS:
Ngo Hing filed an application with the Great Pacific Life Assurance Company for a
twenty-year endownment on the life of his one-year old daughter Helen Go. Respondent
supplied the essential data and paid the premium retaining the agent commission.
Binding deposit receipt was issued to private respondent. He supplied the necessary
information to the branch Manager Mondragon.

On April 30 1957, Mondragon received a letter from Pacific life disapproving the
insurance for the reason that the plan applied for is not available for minors below seven
years old and offered Juvenile Triple Action Plan which allegedly was not
communicated to Ngo Hing.

On May 28, 1957 Helen Go died of influenza with complication of bronchopneumonia.

Thereupon, private respondent sought the payment of the proceeds of the insurance,
but having failed in his effort, he filed the action for the recovery of the same before the
Court of First Instance of Cebu, which rendered the adverse decision as earlier referred
to against both petitioners.

ISSUES
(1) Whether the insurance contract was perfected
(2) Whether private respondent Ngo Hing concealed the state of health and physical
condition of Helen Go, which rendered void the aforesaid receipt

RULING:
(1)
No, the contract of insurance was not perfected.
Based on the conditions printed at the back of the receipt, the binding deposit receipt is
intended to be merely a provisional or temporary insurance contract and only upon
compliance of the following conditions: (1) that the company shall be satisfied that the
applicant was insurable on standard rates; (2) that if the company does not accept the
application and offers to issue a policy for a different plan, the insurance contract shall
not be binding until the applicant accepts the policy offered; otherwise, the deposit shall
be refunded; and (3) that if the applicant is not insurable according to the standard
rates, and the company disapproves the application, the insurance applied for shall not
be in force at any time, and the premium paid shall be returned to the applicant.

The binding deposit receipt is merely conditional and is subordinated to the act of the
company in approving or rejecting the application. (Since Ngo Hing failed to fulfill the
condition, for the application to be accepted by the insurer, the contract was not
perfected)

Failure of petitioner Mondragon to communicate to respondent, as the respondent

alleged, the rejection of the insurance application would not have any adverse effect on
the allegedly perfected temporary contract. First, there is no perfected contract. In
applying for the pla, he is aware, being agent of the petitioner that the plan being
applied for is not available for minors below 7 years old. Second, being the underwriter
and having insurable interest over this daughter’s life, must have known and followed
the progress on the processing of such application and could not pretend ignorance.

(2)
Private respondent had deliberately concealed the state of health and physical condition
of his daughter Helen Go. He was fully aware that his one-year old daughter is typically
a mongoloid child. Had he communicated said significant fact in the insurance
application fom Pacific Life would have verified the same and would have had no choice
but to disapprove the application outright.

The contract of insurance is one of perfect good faith uberrima fides meaning good
faith, absolute and perfect candor or openness and honesty; the absence of any
concealment or demotion, however slight, not for the alone but equally so for the
insurer. Whether intentional or unintentional the concealment entitles the insurer to
rescind the contract of insurance.

RCBC vs CA, GR Nos. 128833, 128834, 128866, 20 April 1998, 289 SCRA 292

24 FEB

FACTS

GOYU was granted credit facilities and accommodations by the RCBC initially in
the amount of P 30 million. Upon GOYU’s application, the credit was increased to P50
Million, then P90 Million, then P117 Million. As security, GOYU executed 2 REM and 2
CM in favor of RCBC, which were registered with the RD. Under the 4 contracts, GOYU
committed itself to insure the mortgaged properties with an insurance company
approved by RCBC, and subsequently endorse and deliver the insurance policies to
RCBC. GOYU then obtained 10 policies from MICO. GOYU’s buildings were gutted by
fire and it claimed indemnity from MICO but the latter denied the claim on the ground
that the insurance policies were either attached pursuant to writs of
attachments/garnishments issued by various courts or that the proceeds were also
claimed by other creditors of GOYU. GOYU, alleging better rights to the proceeds, filed
for specific performance and damges before the RTC of Manila Br 3. The trial court
ruled in favor of GOYU for the fire loss claims but ordered it to pay RCBC its loan
obligations. On appeal to the CA, it affirmed the ruling with regard to the liabilities of
MICO and RCBC. The trial court and appellate courts both held that, since the
endorsements do not bear the signature of any officer of GOYU, they concluded that the
endorsements are defective. The CA then ordered GOYU to pay its obligation to RCBC
without any interest, surcharges and penalties.

ISSUE

Whether or not the ruling of the appellate court is correct.

HELD

The Court held in the negative. The essence or rationale for the payment of interest or
cost of money is separate and distinct from that of surcharges and penalties. The
charging of interest for loans forms a very essential and fundamental element of the
banking business.

Petitions granted.

GAISANO V INSURANCE G.R. NO. 147839 JUNE 8, 2006

J. Martinez

Facts:
IMC and Levi Strauss (Phils.) Inc. (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."
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." 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.
Gaisano 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.
Insurance of America filed a complaint for damages against Gaisano. It alleges that IMC
and LSPI were paid for their claims and that 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.
The RTC rendered its decision dismissing Insurance's complaint. It held that the fire
was purely accidental; that the cause of the fire was not attributable to the negligence of
the petitioner. Also, it said that IMC and LSPI retained ownership of the delivered goods
and must bear the loss.
The CA rendered its decision and set aside the decision of the RTC. It ordered Gaisano
to pay Insurance the P 2 million and the P 500,000 the latter paid to IMC and Levi
Strauss.
Hence this petition.
Issues:
1. WON the CA erred in construing a fire insurance policy on book debts as one
covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of
the ready-made clothing materials sold and delivered to petitioner
2. WON IMC bears the risk of loss because it expressly reserved ownership of the
goods by stipulating in the sales invoices that "[i]t is further agreed that merely for
purpose of securing the payment of the purchase price the above described
merchandise remains the property of the vendor until the purchase price thereof is fully
paid."
3. WON petitioner is liable for the unpaid accounts
4. WON it has been established that petitioner has outstanding accounts with IMC and
LSPI.

Held: No. Yes. Yes. Yes but account with LSPI unsubstantiated. Petition partly granted.

Ratio:
1. Nowhere is it provided in the questioned insurance policies that the subject of the
insurance is the goods sold and delivered to the customers and dealers of the insured.
Thus, what were insured against were the accounts of IMC and LSPI with petitioner
which remained unpaid 45 days after the loss through fire, and not the loss or
destruction of the goods delivered.
2. 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
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. Petitioner bears the risk of loss of the goods
delivered.
IMC and LSPI had an insurable interest until full payment of the value of the delivered
goods. Unlike the civil law concept of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property insurance, one's interest is not
determined by concept of title, but whether insured has substantial economic interest in
the property.
Section 13 of our Insurance Code defines insurable interest as "every interest in
property, whether real or 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.
Anyone has an insurable interest in property who derives a benefit from its existence or
would suffer loss from its destruction. Indeed, a vendor or seller retains an insurable
interest in the property sold so long as he has any interest therein, in other words, so
long as he would suffer by its destruction, as where he has a vendor's lien. In this case,
the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their
Books of Account 45 days after the time of the loss covered by the policies.
3. 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. The rationale for this is that the rule that an obligor should be held
exempt from liability when the loss occurs thru a fortuitous event only holds true when
the obligation consists in the delivery of a determinate thing and there is no stipulation
holding him liable even in case of fortuitous event. It does not apply when the obligation
is pecuniary in nature.
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the
loss or destruction of anything of the same kind does not extinguish the obligation." This
rule is based on the principle that the genus of a thing can never perish. An obligation to
pay money is generic; therefore, it is not excused by fortuitous loss of any specific
property of the debtor.
4. With respect to IMC, the respondent has adequately established its claim. The P 3 m
claim has been proven. 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 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.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action.
There was 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 P535,613.00.