Pan Malayan Insurance Corp. v. CA (Hilario) 2.

  Through the negligence of Erlinda Fabie’s (FABIE) unknown driver (he

April 3, 1990 | Cortes, J. | Subrogation
PETITIONER: Pan Malayan Insurance Corp.
RESPONDENTS: Court of Appeals, Erlinda Fabie and her unkown driver
SUMMARY: Pan Malayan (PANMALAY) insured a Mitsubishi Colt Lancer. The
car was registered under the name of Canlubang Automotive Resources Corporation
(CANLUBANG). Through the negligence of Erlinda Fabie’s (FABIE) unknown
driver (he was driving a pick-up), the insured car was hit and suffered damages
worth P42, 052. Being the insurance company, Pan Malayan paid for the cost of
repair of the insured car and was therefore subrogated to the rights of CANLUBANG
against the driver of the pick-up and his employer Erlind Fabie. Despite repeated
demands, Fabie failed and refused to pay the claim of PANMALAY, so
PANMALAY filed a complaint for damages before the RTC of Makati against Fabie
and her driver. PANMALAY said that the damage caused to the insured car was
settled uner the “own damage” coverage of the insurance policy, and submitted a
copy of the insurance policy and the Release of Claim and Subrogation Receipt
executed by CANLUBANG in favor of PANMALAY. FABIE filed a Motion to
Dismiss saying PANMALAY had no cause of action against them, and claimed that
the “own damage” clause of the insurance policy precluded subrogation since
indemnification in Art. 2207 of the Civil Code was made on the assumption that
there was no wrongdoer or no third party at fault. RTC dismissed PANMALAY’s
complaint for no cause of action, and this was upheld by the CA. So now,
PANMALAY comes before the SC. Issue: WON PANMALAY (insurer) may
institute an action to recover the amound it had paid CANLUBANG (assured) in
settlement of an insurance claim against FABIE? YES, because payment by the
insurer to the assured operates as an equitable assignment to the assured of all
remedies with the latter may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor
does it grow out of, any privity of contract or upon written assignment of claim-- it
accrues simply upon payment of the insurance claim by the insurer. See ratio 3
for exceptions to that rule (but none of them apply here J).
was driving a pick-up), the insured car was hit and suffered damages worth
P42, 052.
3.   Being the insurance company, Pan Malayan paid for the cost of repair of the
insured car and was therefore subrogated to the rights of CANLUBANG
against the driver of the pick-up and his employer Erlind Fabie.
4.   Despite repeated demands, Fabie failed and refused to pay the claim of
PANMALAY, so PANMALAY filed a complaint for damages before the
RTC of Makati against Fabie and her driver.
1.   PANMALAY said that the damage caused to the insured car was
settled uner the “own damage” coverage of the insurance policy,
and submitted a copy of the insurance policy and the Release of
Claim and Subrogation Receipt executed by CANLUBANG in
favor of PANMALAY.
5.   FABIE filed a Motion to Dismiss saying PANMALAY had no cause of
action against them, and claimed that the “own damage” clause of the
insurance policy precluded subrocation since indemnification in Art. 2207
of the Civil Code1 was made on the assumption that there was no
wrongdoer or no third party at fault.
6.   RTC dismissed PANMALAY’s complaint for no cause of action, and this
was upheld by the CA. So now, PANMALAY comes before the SC.
ISSUE/s:
1.   WON PANMALAY (insurer) may institute an action to recover the amound
it had paid CANLUBANG (assured) in settlement of an insurance claim
against FABIE? – YES, PANMALAY has cause of action because payment
by the insurer to the assured operates as an equitable assignment to the
assured of all remedies with the latter may have against the third party
whose negligence or wrongful act caused the loss.
RULING: WHEREFORE, in view of the foregoing, the present petition is
GRANTED. Petitioner's complaint for damages against private respondents is hereby
REINSTATED. Let the case be remanded to the lower court for trial on the merits.

RATIO:
DOCTRINE: Payment by the insurer to the assured operates as an equitable 1.   Payment by the insurer (PANMALAYA) to the assured (CANLUBANG)
assignment to the assured of all remedies with the latter may have against the third operates as an equitable assignment to the assured (CANLUBANG) of
party whose negligence or wrongful act caused the loss. The right of subrogation all remedies which the latter may have against the third party whose
accrues simply upon payment of the insurance claim by the insurer. negligence or wrongful act caused the loss.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FACTS: 1

 Art.
 2207.
 If
 the
 plaintiff's
 property
 has
 been
 insured,
 and
 he
 has
 received
 indemnity
 from
 
1.   Pan Malayan (PANMALAY) insured a Mitsubishi Colt Lancer. The car was
the
 insurance
 company
 for
 the
 injury
 or
 loss
 arising
 out
 of
 the
 wrong
 or
 breach
 of
 contract
 
registered under the name of Canlubang Automotive Resources Corporation complained
  of,
  the
  insurance
  company
  shall
  be
  subrogated
  to
  the
  rights
  of
  the
  insured
 
(CANLUBANG). against
 the
 wrongdoer
 or
 the
 person
 who
 has
 violated
 the
 contract.
 If
 the
 amount
 paid
 by
 
the
  insurance
  company
  does
  not
  fully
  cover
  the
  injury
  or
  loss,
  the
  aggrieved
  party
  shall
  be
 
entitled
 to
 recover
 the
 deficiency
 from
 the
 person
 causing
 the
 loss
 or
 injury.
 
2.   The right of subrogation is not dependent upon, nor does it grow out of, any
privity of contract or upon written assignment of claim-- it accrues simply
upon payment of the insurance claim by the insurer.
3.   Exceptions to this rule:
1.   If the assured by his own act releases the wrongdoer or third party
liable for the loss or damage, from liability, the insurer's right of
subrogation is defeated; and
2.   Where the insurer pays the assured the value of the lost goods
without notifying the carrier who has in good faith settled the
assured's claim for loss, the settlement is binding on both the
assured and the insurer, and the latter cannot bring an action
against the carrier on his right of subrogation; and
3.   Where the insurer pays the assured for a loss which is not a risk
covered by the policy, thereby effecting "voluntary payment", the
former has no right of subrogation against the third party liable for
the loss. (But see ratio 5)
4.   (re: why the lower court is wrong in interpreting “own cause” clause; just in
case sir asks) It must be emphasized that the lower court's ruling that the
"own damage" coverage under the policy implies damage to the insured car
caused by the assured itself, instead of third parties, proceeds from an
incorrect comprehension of the phrase "own damage" as used by the
insurer. When PANMALAY utilized the phrase "own damage" — a phrase
which, incidentally, is not found in the insurance policy — to define the
basis for its settlement of CANLUBANG's claim under the policy, it simply
meant that it had assumed to reimburse the costs for repairing the
damage to the insured.
5.   Even if PANMALAY could not be deemed subrogated to the rights of its
assured under Article 2207 of the Civil Code, PANMALAY would still
have a cause of action against private respondents. In the pertinent case of
Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, the Court ruled
that the insurer who may have no rights of subrogation due to
"voluntary" payment may nevertheless recover from the third party
responsible for the damage to the insured property under Article 1236
of the Civil Code.
 002 FEDERAL EXPRESS CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY and PHILAM INSURANCE COMPANY,
INC (HIRANG)
August 18, 2004 |Panganiban, J. | Subrogation
PETITIONER: FEDERAL EXPRESS CORPORATION
RESPONDENTS: AMERICAN HOME ASSURANCE COMPANY and PHILAM
INSURANCE COMPANY, INC
SUMMARY: SMITHKLINE, USA delivered to BURLINGTON (Agent of
FEDERAL EXPRESS) 109 cartons of veterinary biologicals for delivery to
consignee SMITHKLINE and French Overseas Company in Makati City, Metro
Manila. The same was insured by BURLINGTON in the amount of $39,339.00 with
American Home Assurance Company (AHAC). BURLINGTON then subsequently
turned over the goods to FEDERAL EXPRESS which then shipped the cargoes to
the consignee SMITHKLINE and French Overseas Company in Makati City, Metro
Manila. The cargoes was then stored in Cargohaus’ warehouse. The cargo reads
REFRIGERATE WHEN NOT IN TRANSIT and PERISHABLE stamp marked on
its face. 12 days after the shipment, DARIO C. DIONEDA, the broker of the GETC
(Custom Broker Corporation hired by SMITHKLINE to release the goods) found out
that the goods were stored inside a room with only 2 aircondition units. Upon
instructions for GETC, Dioneda did not proceed with the withdrawal of the vaccines
but instead samples were taken to the Bureau of Animal Industry and there it was
discovered that the ELISA reading of vaccinates sera are below the positive
reference serum. Because of the unusable vaccines, SMITHKLINE abandoned the
shipment and filed a claim against AHAC thorught its representative in the
Philippines, PHILAM. PHILAM paid SMITHKLINE and subsequently filed a case
for recovery of damages against FEDERAL EXPRESS and Cargohaus, imputing
negligence in handling the cargo. FEDERAL EXPRESS contends that PHILAM has
no personality to sue and thus, it has no cause of action against it. The issue in this
case is WoN, PHILAM has the capacity to sue and the court held in the affirmative.
The SC held that upon receipt of the insurance proceeds, SMITHKLINE executed a
subrogation Receipt in favor of PHILAM. PHILAM was thus authorized to file
claims and begin suit against any such carrier, vessel, person, corporation or
government. 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. 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.
DOCTRINE: 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
FACTS:
1.   SMITHKLINE Beecham (SMITHKLINE) of Nebraska, USA delivered to
Burlington Air Express (BURLINGTON), an agent of 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.
2.   The shipment reads REFRIGERATE WHEN NOT IN TRANSIT and
PERISHABLE stamp marked on its face
3.   BURLINGTON insured the cargoes in the amount of $39,339.00 with
American Home Assurance Company (AHAC)
4.   BURLINGTON turned over the custody of said cargoes to FEDERAL
EXPRESS which transported the same to Manila.
5.   They were shipped in two batches. The first one consist of 92 cartons and
the next one came 2 days after which consist of 17 cartons. These were
immediately stored at Cargohaus Inc’s warehouse.
6.   Twelve (12) days after the cargoes arrived in Manila, a non-licensed
customs broker, DARIO C. DIONEDA (DIONEDA) who was assigned by
GETC (Custom broker Corporation hired by SMITHKLINE) to facilitate
the release of the subject cargoes, found out, that the goods were stored
only in a room with two (2) air conditioners running, to cool the place
instead of a refrigerator
7.   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.
8.   Upon instructions from GETC, Dioneda did not proceed with the
withdrawal of the vaccines but instead samples were taken to the Bureau
of Animal Industry and there it was discovered that the ELISA reading
of vaccinates sera are below the positive reference serum.
9.   As a result, SMITHKLINE abandoned the shipment and declared a total
loss for the unusable shipment of vaccines. SMITHKLINE then filed a
claim against AHAC through its representative in the Philippines, Philam
Insurance, the whole amount of the cargo.
10.   PHILAM paid SMITHKLINE the whole amount and subsequently it
(PHILAM) filed an action for damages against FEDERAL EXPRESS and
Cargohaus imputing negligence in handling the cargo.
11.   The Trial Court ruled in favor of PHILAM. FEDERAL EXPRESS and
Cargohaus were held to be solidarily liable.
12.   The CA also ruled in favor of PHILAM stating that the goods were
delivered to FEDERAL EXPRESS in good condition as provided for in the
shipping receipts. FEDERAL EXPRESS was not able to discharge the
presumption that the goods were indeed delivered to them in good condition
thus, creating a presumption that they were the one’s negligent in handling
the goods.
 13.   FEDERAL EXPRESS contends that PHILAM has no personality to
sue and thus, no cause of action against it - because the payment made
to SMITHKLINE was erroneous.
ISSUE/s:
-WoN payment made to SMITHKLINE was erroneous – NO, SMITHKLINE is
the holder of the Certificate of Insurance and under this, it had the right of
collecting or of being indemnified for loss of or damage to the insured shipment
-WoN PHILAM had the personality to sue – YES, Upon receipt of the insurance
proceeds, Smithkline executed a subrogation Receipt in favor of respondents. The
latter were thus authorized to file claims and begin suit against any such carrier,
vessel, person, corporation or government. (SUBROGATION ISSUE)
-WoN Federal Express is liable for the damage to or loss of the insured
products? – NO, SC stated that the reason they are not liable is because of the fact
that the claim has already prescribed. The filing of the claim within the time limit is a
condition precedent to the accrual of a right of action against a carrier for loss of or
damage to the goods.
RULING: WHEREFORE, the Petition is GRANTED, and the assailed
Decision REVERSED insofar as it pertains to Petitioner Federal Express
Corporation. No pronouncement as to costs.
RATIO:
(SUBROGATION ISSUE)
1.   Upon receipt of the insurance proceeds, Smithkline executed a subrogation
Receipt in favor of PHILAM. The latter was thus authorized to file claims
and begin suit against any such carrier, vessel, person, corporation or
government.
2.   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. 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
3.   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
OTHER ISSUES:
(ERRONEOUS PAYMENT TO SMITHKLINE)
1.   The Certificate specifies that loss of or damage to the insured cargo is
payable to order x x x upon surrender of this Certificate. Such wording
conveys the right of collecting on any such 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
Burlington. This document has thus been duly indorsed in blank and is
deemed a bearer instrument.
2.   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 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.
(CLAIM ALREADY PRESCRIBED)
1.   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. 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
2.   In this case, even from the very start of the trial, PHILAM never submitted
any evidence to prove that it indeed made a complaint in writing when it
found out that the goods were damaged
3.   According to the Airway bill (contract of carriage), the person entitled
to delivery must make a complaint in writing in case of visible and
other damages within 14 days from the receipt of the goods.
4.   Nothing from the records show that PHILAM indeed made a complaint.
5.   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
6.   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. Failure to comply with such a stipulation
bars recovery for the loss or damage suffered.
 03 FIREMAN’S FUND INSURANCE CO vs. JAMILA (LAGUILLES)
April 7, 1976 | Aquino, J. | Art. 2207
PETITIONER: Fireman’s Fund Insurance Company and Firestone Tire and
Rubber Company of the Philippines
RESPONDENTS: Jamila & Company, Ic. and First Quezon City Insurance Co
Inc.
SUMMARY: Jamila contracted to supply security guards to Firestone for
which Jamila assumed responsibility for the acts of its security guards. With
this, First Quezon City Insurance Co (surety) executed a bond in the sum of
P20,000 to guarantee Jamila’s obligations under the contract. Firestone
properties worth P19,000 were lost allegedly due to the acts of its employees
who connived with Jamila’s security guards. Fireman’s Fund as insurer, paid to
Firestone the amount of the loss and Fireman’s Fund was subrogated
(substituted) to Firestone’s right to get reimbursed from Jamila. However,
Jamila and its surety failed to pay. The lower court dismissed the complaint as
to Jamila on the ground that the latter never consented to the subrogation, hence
there is no cause of action. The issue is WoN the complaint states a cause of
action against Jamila.
The SC held that yes, there is a cause of action because as insurer, Fireman’s
Fund is entitled to go after the person or entity that violated its contractual
commitment. Subrogation is a normal incident of indemnity insurance. Upon
payment of the loss, the insurer is entitled to be subrogated pro tanto to any
right of action which the insured may have against the third person whose
negligence or wrongful act caused the loss. The loss in the first instance is that
of the insured but after reimbursement, it becomes the loss of the insurer.
DOCTRINE: Upon payment of the loss, the insurer is entitled to be subrogated
pro tanto to any right of action which the insured may have against the third
person whose negligence or wrongful act caused the loss.
FACTS:
1.   Jamila or the Veterans Philippine Scouts Security Agency contracted to
supply security guards to Firestone for which Jamila assumed responsibility
for the acts of its security guards.
2.   First Quezon City Insurance Co., Inc. executed a bond in the sum of
P20,000.00 to guarantee Jamila’s obligations under the contract.
3.   However, properties of Firestone valued at P11,925.00 were lost allegedly
due to the acts of its employees who connived with Jamila’s security
guards.
4.   Fireman’s Fund, as insurer, paid to Firestone the amount of the loss and
Fireman’s Fund was subrogated to Firestone’s right to get reimbursement
from Jamila, and Jamila and its surety, First Quezon City Insurance Co,
failed to pay the amount of the loss in spite of repeated demands.
5.   The lower court dismissed the complaint as to Jamila on the ground that
there was no allegation that it had consented to the subrogation, and,
therefore, Fireman’s Fund had no cause of action against it.
6.   The lower court also dismissed the complaint as to First Quezon City
Insurance Co on the ground of res judicata. It appears that the same action
was previously filed which was dismissed because of the failure of the
plaintiffs to appear at pre-trial.
7.   Firestone and Fireman’s Fund moved for the reconsideration of the order of
dismissal, and the lower court set aside its order of dismissal. It sustained
plaintiff’s contention that there was no res judicata as to First Quezon City
Insurance Co because the case was dismissed without prejudice.
8.   Due to inadvertence, the lower court did not state why it set aside its prior
order dismissing the complaint with respect to Jamila.
9.   Jamila, upon noticing that the order had obliterated its victory without any
reason therefore, filed a motion for reconsideration. It originally moved for
the dismissal of the complaint on the ground of lack of cause of action. Its
contention was based on two grounds:
a.   that the complaint did not allege that Firestone, pursuant to the
contractual stipulation quoted in the complaint, had investigated
the loss and that Jamila was represented in the investigation
b.   That Jamila did not consent to the subrogation of Fireman’s Fund
to Firestone’s right to get reimbursement from Jamila and its
surety.
10.   The lower court sustained the second ground. However, Jamila in its MR
invoked the first ground which was never passed upon by the lower court.
However, the lower court completely ignored the first ground and reverted
to the second ground which was relied upon in its order.
11.   The lower court reiterated that Fireman’s Fund had no cause of action
against Jamila because Jamila did not consent to the subrogation.
12.   Plaintiffs filed a second motion for reconsideration and called the lower
court’s attention to the fact that the issue of subrogation was of no moment
because Firestone, the subrogor, is a party-plaintiff and could sue directly
Jamila in its own right.
13.   The plaintiffs cited Art. 2207 of the Civil Code which provides:
“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.”
14.   Firestone and Fireman’s Fund contend that the trial court’s dismissal of
their complaint is contrary to the aforementioned provision which provides
for legal subrogation.
ISSUE/s:
1.   WoN the complaint of Firestone and Fireman’s Fund states a cause of
action against Jamila – YES, because as insurer, Fireman’s Fund is entitled
 to go after the person or entity that violated its contractual commitment. equitable assignment to the insurer of the property and all remedies which
the insured may have for the recovery thereof.

RULING: Finding the trial court's order of dismissal to be legally untenable, the
same is SET ASIDE with costs against defendant-appellee Jamila & Co., Inc.

RATIO:
1.   Jamila is of the opinion that legal subrogation under Art. 2207 requires the
debtor’s consent; that legal subrogation takes place in the cases mentioned
in Art. 1302 of the Civil Code and the instant case is not among the three
cases enumerated in that article.
2.   The Court holds that Fireman’s Fund’s action against Jamila is sanctioned
by Art. 22071. As the insurer, Fireman’s Fund is entitled to go after the
person or entity that violated its contractual commitment to answer for
the loss insured against.
3.   The lower court erred in applying to this case the rules on novation. The
plaintiffs in alleging in their complaint that Fireman’s Fund became a party
in interest in this case by virtue of a subrogation right given in its favor by
Firestone, were not relying on the novation by change of creditors as
contemplated in Arts. 1291, and 1300 to 1303 of the Civil Code, but rather
on Art. 2207.
4.   Subrogation has been referred to as the doctrine of substitution. It is an arm
of equity that may guide or even force one to pay a debt for which an
obligation was incurred but which was in whole or in part paid by another.
5.   Subrogation is founded on principles of justice and equity, and its operation
is governed by principles of equity. It rests on the principle that substantial
justice should be attained regardless of form, that is, its basis is the doing of
complete, essential, and perfect justice between all the parties without
regard to form.
6.   Subrogation is a normal incident of indemnity insurance. Upon payment of
the loss, the insurer is entitled to be subrogated pro tanto to any right of
action which the insured may have against the third person whose
negligence or wrongful act caused the loss.
7.   The loss in the first instance is that of the insured but after reimbursement, it
becomes the loss of the insurer.
8.   Although many policies now provide for subrogation, and thus determine
the rights of the insurer in this respect, the equitable right of subrogation as
the legal effect of payment inures to the insurer without any formal
assignment or any express stipulation to that effect in the policy.
9.   When the insurance company pays for the loss, such payment operates as an

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1

  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.”
 
 004 FF. Cruz & Co., Inc v. CA (Marcos)
Aug. 29, 1988 | Cortes, J. | Subrogation / Art. 2207
PETITIONER: F.F. Cruz and Co., Inc.
RESPONDENTS: The Court of Appeals, Gregorio Mable as substituted by his
wife Luz Almonte Mable and children Doming, Leonidas, Ligaya, Elena,
Gregorio, Jr., Salome, Antonio, and Bernardo all surnamed Mable.
SUMMARY: The manufacturing shop of FF. Cruz and the house of Mable was
situated adjacent with each other. Mable repeatedly requested that a firewall be
constructed between the shop and their house but such request fell on deaf ears.
A fire broke in the shop and it then spread to the residence. Both the shop and
the house were razed to the ground. The Mable family was able to recover
P35,000 from its insurance on the house. The family then filed an action for
damages against FF. Cruz. The CFI ruled in favor of the family, and later on the
CA affirmed the decision. Both Courts did not deduct the P35,000 from the
award of damages. The issue before the SC is WoN FF. Cruz is still liable to pay
for the 35,000 recovered by the Mable Family from its insurance – No, because
Art. 2207 of the Civil Code provides that it should be deducted from the amount
of award as damages. Having been indemnified by their insurer, The Mable
family are only entitled to recover the deficiency from FF. Cruz. The insurer, if it
is so minded, may seek reimbursement of the amount it indemnified the family
from FF. Cruz. Under Article 2207, the real party in interest with regard to the
indemnity received by the insured is the insurer. Whether or not the insurer
should exercise the rights of the insured to which it had been subrogated lies
solely within the former's sound discretion.
DOCTRINE: The insurer, if it is so minded, may seek reimbursement of the
amount it indemnified the family from FF. Cruz. This is the essence of its right
to be subrogated to the rights of the insured, as expressly provided in Article
2207. Upon payment of the loss incurred by the insured, the insurer is entitled to
be subrogated pro tanto to any right of action which the insured may have
against the third person whose negligence or wrongful act caused the loss.
FACTS:
1.   The furniture manufacturing shop of FF. Cruz in Caloocan was situated
adjacent to the resident of respondent Mable family.
2.   Sometime in Aug 1971, Mable approached Cruz, the plant manager, to
request that a firewall be constructed between the shop and the residence.
3.   The request was repeated several times but they fell on deaf ears.
4.   In the morning of Sept. 6, 1974, fire broke in the shop which then spread to
the house of the Mable family. Both the shop and the house were razed to
the ground. The cause of the conflagration was never discovered.
5.   The National Bureau of Investigation found specimens from the burned
structures negative for the presence of inflammable substances.
6.   The Mable family collected P35,000.00 on the insurance on their house and
the contents thereof.
7.   Subsequently, the family filed an action for damages against FF. Cruz.
8.   The CFI ruled in favor of the Mable family, and later on the CA affirmed
the decision of the trial court but reduced the award for damages.
9.   Both Courts did not deduct the P35,000 from the award of damages.
10.   FF. Cruz filed a petition for review with the SC after its MR with the CA
was dnid.
11.   FF. Cruz contends that the CA erred in not deducting the P35,000 recovered
insurance from the award of damages, in awarding excessive and unproved
damages, and in applying the doctrine of res ipsa loquitur.
ISSUE/s:
1.   WoN FF. Cruz is still liable to pay for the 35,000 recovered by the Mable
Family from its insurance – No, because Art. 2207 of the Civil Code
provides that it should be deducted from the amount of award as damages.
RULING: WHEREFORE, in view of the foregoing, the decision of the Court of
Appeals is hereby AFFIRMED with the following modifications as to the damages
awarded for the loss of private respondents' house, considering their receipt of
P35,000.00 from their insurer.
RATIO:
1.   Doctrine of res ipsa loquitur: Where the thing which caused the injury
complained of is shown to be under the management of the defendant or his
servants and the accident is such as in the ordinary course of things does not
happen if those who have its management or control use proper care, it
affords reasonable evidence, in the absence of explanation by the defendant,
that the accident arose from want of care.
2.   The facts of the case likewise call for the application of the doctrine,
considering that in the normal course of operations of a furniture
manufacturing shop, combustible material such as wood chips, sawdust,
paint, varnish and fuel and lubricants for machinery may be found thereon
3.   It must also be noted that negligence or want of care on the part of
petitioner or its employees was not merely presumed.
4.   The Court of Appeals found that petitioner failed to construct a firewall
between its shop and the residence of private respondents as required by a
city ordinance; that the fire could have been caused by a heated motor or a
lit cigarette; that gasoline and alcohol were used and stored in the shop; and
that workers sometimes smoked inside the shop
5.   In the instant case, with more reason should petitioner be found guilty of
negligence since it had failed to construct a firewall between its property
and private respondents' residence which sufficiently complies with the
pertinent city ordinances. The failure to comply with an ordinance
providing for safety regulations had been ruled by the Court as an act of
negligence
6.   [INSURANCE TOPIC] While this Court finds that petitioner is liable for
 damages to private respondents as found by the Court of Appeals, the fact
that private respondents have been indemnified by their insurer in the
amount of P35,000.00 for the damage caused to their house and its
contents has not escaped the attention of the Court.
7.   Hence, the Court holds that in accordance with Article 22072 of the
Civil Code the amount of P35,000.00 should be deducted from the
amount awarded as damages.
8.   Having been indemnified by their insurer, The Mable family are only
entitled to recover the deficiency from FF. Cruz.
9.   The insurer, if it is so minded, may seek reimbursement of the amount
it indemnified the family from FF. Cruz. This is the essence of its right
to be subrogated to the rights of the insured, as expressly provided in
Article 2207. Upon payment of the loss incurred by the insured, the
insurer is entitled to be subrogated pro tanto to any right of action
which the insured may have against the third person whose negligence
or wrongful act caused the loss
10.   Under Article 2207, the real party in interest with regard to the
indemnity received by the insured is the insurer
11.   Whether or not the insurer should exercise the rights of the insured to
which it had been subrogated lies solely within the former's sound
discretion.
12.   Since the insurer is not a party to the case, its identity is not of record and
no claim is made on its behalf, the private respondent's insurer has to claim
his right to reimbursement of the P35,000.00 paid to the insured.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2

  Art. 2207. If the plaintiffs 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 is subrogated to the rights of the insured against the wrongdoer or the person who violated the
contract. If the amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
 
 

 
 005 RIZAL SURETY & INSURANCE CO v. MANILA RAILROAD
COMPANY AND MANILA PORT SERVICES (MATSUMURA)
April 25, 1968 | Fernando, J. | Subrogation
PETITIONER: Rizal Surety & Insurance Company
RESPONDENTS:Manila Railroad Company and Manila Port Service
SUMMARY: On November 29, 1960, the SS Flying Trader loaded for shipment several
cargo from Genoa Italy to Manila. Among the cargo was 6 cases of OMH containing
Special Single Colour Offset Press Machines. When the vessel arrived in Manila, the
cargo was discharged completely and in good order to the custody of Manila Port services
(Arrastre operator). While the cargo was being lifted and loaded into Manila Port
Services’ truck via crane, one of the cases was dropped by the crane resulting to the
damage of one of the Special Single Colour Offset Press Machines. Rizal Surety (insurer)
paid P16,500 to Suter, Inc (consignee) representing the cost of the replacement and repair
of the machine, plus P180.70 to the International Adjustment Bureau as adjuster’s fee.
Clause 15 of the management contract between Suter, and Manila Railroad Co and
Manila Port Services appeared in the delivery permit of the cargo. The permit stated that
“presented subject to all the terms and conditions of the Management Contract between
the Bureau of Customs and Manila Port Service and amendments thereto or alterations
thereof, particularly but not limited to paragraph 15 thereof limiting the Company
liability to P500.00 per package, unless the value of the goods is otherwise, specified,
declared or manifested and the corresponding arrastre charges have been paid, . . .”
Rizal Surety now filed a suit against Manila Railroad and Manila Port Services to recover
the amount it paid to Suter arguing that as the insurance company it has been subrogated
to the rights of the insured. The lower court ruled that Rizal Surety is entitled to recovery
but only to the extent of P500 as stated in Clause 15. Hence, this appeal by Rizal Surety
arguing that it should be entitled to recover the full amount.
The SC ruled that Rizal Surety is only entitled to P500. The literal language of Article
2207 does not warrant such an interpretation. It is clear that in the event that the property
has been insured and the Insurance Company has paid the indemnity for the injury or loss
sustained, it "shall be subrogated to the rights of the insured against the wrong-doer or the
person who has violated the contract.” In this case, the management contract is clear that
the amount is limited to P500 per package. While yes the management contract stated
that a greater value could be recovered when it stated “unless the value of the goods is
otherwise specified, declared, or manifested”, Suter (consignee) failed to do so. Hence,
since the insurer is subrogated merely to the rights of the consignee its recovery
necessarily should be limited to what was recoverable by the insured -in this case P500
because no other value was declared.
DOCTRINE: Under Article 2207, in the event that the property has been insured and the
Insurance Company has paid the indemnity for the injury or loss sustained, it "shall be
subrogated to the rights of the insured against the wrong-doer or the person who has
violated the contract.”
In this case, Rizal Surety cannot recover from Manila Railroad and Manila Port Services
an amount greater than that to which the consignee could lawfully lay claim.
FACTS
1.   On or before November 29, 1960 the vessel, SS Flying Trader, loaded on
Board at Genoa, Italy for shipment to Manila, Philippines.
2.   Among the cargo was 6 cases of OMH, Special Single Colour Offset Press
Machine where Bill of Lading No. 1 was issued. Such machine was
consigned to Suter, Inc.
3.   When the vessel arrived at the Port of Manila on January 16, 1961, the
cargo was discharged complete and in good order into the custody of
Manila Port Service as arrastre operator.
4.   In the course of the handling, one of the six cases identified as Case No.
2143 containing the OMH, Special Single Colour Offset Press was dropped
by the crane as it was being lifted and loaded of the Manila Port Service
into the consignee's truck. Because of this, the machine was heavily
damaged.
5.   Rizal Surety, as insurer, paid
a.   P16,500.00 to consignee, Suter, Inc. — representing damages by
way of costs of replacement parts and repairs to put the machine in
working condition,
b.   P180.70 to the International Adjustment Bureau — as adjuster's
fee for the survey conducted on the damaged cargo
6.   In total, Rizal Surety paid a total of P16,680.70 representing its liability
under the insurance contract. The arrastre charges in this particular
shipment was paid on the weight or measurement basis whichever is higher,
and not on the value thereof.
7.   Clause 15 of the management contract appeared "at the dorsal part of the
Delivery Permit" and was "used in taking delivery of the subject shipment
from the Manila Port Service and Manila Railroad Co.’s custody and
control, issued in the name of consignee's broker," contained what was
referred to as "an important notice."
8.   Such permit is “presented subject to all the terms and conditions of the
Management Contract between the Bureau of Customs and Manila Port
Service and amendments thereto or alterations thereof, particularly but not
limited to paragraph 15 thereof limiting the Company liability to P500.00
per package, unless the value of the goods is otherwise, specified, declared
or manifested and the corresponding arrastre charges have been paid, . . .”
 9.   Rizal Surety filed a suit against Manila Railroad and Manila Port Services
to recover the amount it paid to consignee, Suter, Inc. based on the Civil
Code wherein it is tested that the Insurance Company "shall be subrogated
to the rights of the insured”. Rizal Surety argues that it is entitled to the
amount paid by it in full, by virtue of the insurance contract.
10.   The lower court ruled that the Manila Railroad and Manila Port Services
should jointly and severally pay Rizal Surety P500 with legal interest.
11.   Rizal Surety appealed the decision arguing that under the civil code, it could
recover in full. Hence, this petition. (Note, the case didn’t mention what
else happened in the lower court. It went straight to the SC decision)
ISSUE/S:
1.   W/N Rizal Surety is entitled to recover the full amount - NO because Rizal
Surety having been subrogated merely to the rights of the consignee (Suter,
Inc) which is only P500 per package. Rizal Surety could not recover more
because Suter as the consignee did not declare a higher amount which,
under Management Contract, should have been done by Suter if it wishes to
be entitled to a greater amount.
said payment — is not subject to the provisions of said stipulation, and that
the same is furthermore invalid. The lower court correctly rejected this
pretense because, having taken delivery of the shipment aforementioned by
virtue of a delivery permit, incorporating thereto, by reference, the
provisions of said management contract, particularly paragraph 15 thereof,
the gist of which was set forth in the permit, the consignee became bound
by said provisions, and because it could have avoided the application of said
maximum limit of P500.00 per package by stating the true value thereof in
its claim for delivery of the goods in question, which admittedly, the
consignee failed to do.
6.   Rizal Surety and Insurance Company having been subrogated merely to the
rights of the consignee its recovery necessarily should be limited to what
was recoverable by the insured.
7.   The lower court therefore did not err when in the decision appealed from, it
limited the amount which defendants were jointly and severally to pay
plaintiff-appellant to "Five Hundred Pesos (P500.00) with legal interest
thereon from January 31, 1962, the date of the filing of the complaint, . . . "

RULING: WHEREFORE, the decision appealed from is affirmed. With costs

against Rizal Surety and Insurance Company.

RATIO:
1.   The literal language of Article 2207 does not warrant such an interpretation.
It is clear that in the event that the property has been insured and the
Insurance Company has paid the indemnity for the injury or loss sustained,
it "shall be subrogated to the rights of the insured against the wrong-doer or
the person who has violated the contract.”
2.   In this case, Rizal Surety cannot recover from Manila Railroad and Manila
Port Services an amount greater than that to which the consignee could
lawfully lay claim.
3.   The management contract is clear. The amount is limited to Five Hundred
Pesos (P500.00).
4.   Such a stipulation has invariably received the approval of this Court from
the leading case of Bernabe & Co. v. Delgado Bros., Inc. Such a decision
was quoted with approval in the following subsequent cases: Atlantic
Mutual Insurance Co. v. Manila Port Service, Insurance Service Co. of
North America v. Manila Port Service, Insurance Company of North
America v. U.S. Lines, Co., and Insurance Company of North America v.
Manila Port Service.
5.   Rizal Surety maintains that, not being a party to the management contract,
the consignee — into whose shoes plaintiff had stepped in consequence of
 PIONEER INSURANCE V CA (ARMAND)
July 28, 1989| Gutierrez, J. | Subrogation
PETITIONER: Pioneer Insurance & Surety Corporation
RESPONDENTS: Hon. Court of Appeals, Border Machinery & Heavy Equipment
Inc, Constancio M. Maglana and Jacob S. Lim
SUMMARY: Lim is an owner-operator of Southern Airlines (SAL). Japan Domestic
Airlines (JDA) and Lim entered into a sales contract. Pioneer Insurance and Surety
Corp. as surety executed its surety bond in favor of JDA on behalf of its principal
Lim. Border Machinery and Heacy Equipment Co, Inc., Francisco and Modesto
Cervantes, and Constancio Maglana contributed funds based on the misrepresentation
of Lim that they will form a new corporation to expand his business. They executed
two separate indemnity agreements in favor of Pioneer, one signed by Maglana and
the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The
indemnity agreements stipulated that the indemnitors principally agree and bind
themselves jointly and severally to indemnify and hold and save Pioneer from and
against any/all damages, losses, etc. of whatever kind and nature may incur in
consequence of having become surety. Lim executed in favor of Pioneer a deed of
chattel mortgage as security. Upon default on the payments, Pioneer paid for him and
filed a petition for the foreclosure of chattel mortgage as security. Maglana,
Bormaheco and the Cervantes’s filed cross-claims against Lim alleging that they
were not privies to the contracts signed by Lim and for recovery of the sum of money
they advanced to Lim for the purchase of the aircrafts. The decision was rendered
holding Lim liable to pay. The issues are (1) Whether or not the CA erred when it
dismissed the appeal of Pioneer on the sole ground that it had already collected
the proceeds of the reinsurance on its bond in favor of the JDA and that it
cannot represent a reinsurer to recover the amount from herein respondents –
NO. Pioneer was already paid by the reinsurers the amount of P295,000, and had
already foreclosed the mortgaged chattels for the amount of 37,050, thus Pioneer is
already overpaid by P33,383, and has no more claim against the defendants. Pioneer,
having foreclosed the chattel mortgage on the planes and spare parts, no longer has
any further action against the defendants as indemnitors to recover any unpaid
balance. The indemnity agreement was ipso jure extinguished upon the foreclosure of
the chattel mortgage. These defendants, as indemnitors, would be entitled to be
subrogated to the right of Pioneer should they make payments to the latter.
(2) Whether or not Maglana, Bormaheco and the Cervanteses must share in the
loss of the venture in proportion to their contribution - NO. There was no de facto
partnership. Ordinarily, when co-investors agreed to do business through a
corporation but failed to incorporate, a de facto partnership would have been formed,
and as such, all must share in the losses and/or gains of the venture in proportion to
their contribution. But in this case, it was shown that Lim did not have the intent to
form a corporation with Maglana et al.
DOCTRINE: In general a reinsurer, on payment of a loss, acquires the same rights
by subrogation as are acquired in similar cases where the original insurer pays a loss.
If a property is insured and the owner receives the indemnity from the insurer, it is
provided in said article that the insurer is deemed subrogated to the rights 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. Evidently, under this legal provision, the real party in interest with regard
to the portion of the indemnity paid is the insurer and not the insured
FACTS:
7.   This case involves consolidated petitions, one of which came from the
decision of the CA which modified the decision of the then CFI of Manila.
8.   In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the
airline business as owner-operator of Southern Air Lines (SAL) a single
proprietorship.
9.   On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and
Lim entered into and executed a sales contract for the sale and purchase of
two (2) aircrafts and one (1) set of necessary spare parts for the total agreed
price of US $109,000.00 to be paid in installments.
10.   On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer) as
surety executed and issued its Surety Bond No. 6639 in favor of JDA, in
behalf of its principal, Lim, for the balance price of the aircrafts and spare
parts.
11.   It appears that Border Machinery and Heavy Equipment Company, Inc.
(Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and
Constancio Maglana contributed some funds used in the purchase of the
above aircrafts and spare parts. The funds were supposed to be their
contributions to a new corporation proposed by Lim to expand his airline
business.
12.   They executed two (2) separate indemnity in favor of Pioneer, one signed
by Maglana and the other jointly signed by Lim for SAL, Bormaheco and
the Cervanteses. The indemnity agreements stipulated that the indemnitors
principally agree and bind themselves jointly and severally to indemnify
and hold and save harmless Pioneer from and against any/all damages,
losses, costs, damages, taxes, penalties, charges and expenses of whatever
kind and nature which Pioneer may incur in consequence of having become
surety upon the bond/note and to pay, reimburse and make good to Pioneer,
its successors and assigns, all sums and amounts of money which it or its
representatives should or may pay or cause to be paid or become liable to
pay on them of whatever kind and nature.
13.   On June 10, 1965, Lim doing business under the name and style of SAL
executed in favor of Pioneer as deed of chattel mortgage as security for
the latter's suretyship in favor of the former. It was stipulated therein that
Lim transfer and convey to the surety the two aircrafts. The deed was duly
registered with the Office of the Register of Deeds of the City of Manila
and with the Civil Aeronautics Administration pursuant to the Chattel
Mortgage Law and the Civil Aeronautics Law (Republic Act No. 776).
14.   Lim defaulted on his subsequent installment payments prompting JDA to
request payments from the surety. Pioneer paid a total sum of P298,626.12.
15.   Pioneer then filed a petition for the extrajudicial foreclosure of the said
chattel mortgage before the Sheriff of Davao City. The Cervanteses and
 Maglana, however, filed a third party claim alleging that they are co-owners
of the aircraft.
16.   On July 19, 1966, Pioneer filed an action for judicial foreclosure with an
application for a writ of preliminary attachment against Lim and
respondents, the Cervanteses, Bormaheco and Maglana.
17.   In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-
claims against Lim alleging that they were not privies to the contracts
signed by Lim and, by way of counterclaim, sought for damages for being
exposed to litigation and for recovery of the sums of money they advanced
to Lim for the purchase of the aircrafts in question.
18.   After trial, a decision was rendered holding Lim liable to pay Pioneer but
dismissed Pioneer's complaint against all other defendants.
19.   As stated earlier, the appellate court modified the trial court's decision in
that the plaintiffs complaint against all the defendants was dismissed. In all
other respects the trial court's decision was affirmed.
20.   The appellate court ruled that Pioneer's contention that it is representing the
reinsurer to recover the amount from defendants, hence, it instituted the
action is utterly devoid of merit. Plaintiff did not even present any evidence
that it is the attorney-in-fact of the reinsurance company, authorized to
institute an action for and in behalf of the latter. Moreover, the appellate
court ruled that Pioneer cannot be considered as the real party in interest as
it has already been paid by the reinsurer the sum of P295,000.00 — the bulk
of defendants' alleged obligation to Pioneer. It also ruled that in addition to
the said proceeds of the reinsurance received by plaintiff Pioneer from its
reinsurer, the former was able to foreclose extra-judicially one of the subject
airplanes and its spare engine, realizing the total amount of P37,050.00
from the sale of the mortgaged chattels. Adding the sum of P37,050.00, to
the proceeds of the reinsurance amounting to P295,000.00, it is patent that
plaintiff has been overpaid in the amount of P33,383.72 considering that the
total amount it had paid to JDA totals to only P298,666.28. To allow
plaintiff Pioneer to recover from defendants the amount in excess of
P298,666.28 would be tantamount to unjust enrichment
21.   Pioneer contends that (1) it is at a loss where respondent court based its
finding that Pioneer was paid by its reinsurer, (2) even assuming that it was
paid by its reinsurer, none of the respondents had any interest in the matter
since reinsurance is between the petitioner and the reinsurer pursuant to
Sec. 91 of the Insurance Code, (3) pursuant to the indemnity agreements,
the petitioner is entitled to recover from respondents Bormaheco and
Maglaa and (4) the principle of unjust enrichment is not applicable since
whatever amount he would recover from the co-indemnitor will be paid to
the insurer.
ISSUE/s:
2.   Whether or not the CA erred when it dismissed the appeal of Pioneer
on the sole ground that it had already collected the proceeds of the
reinsurance on its bond in favor of the JDA and that it cannot
represent a reinsurer to recover the amount from herein respondents –
NO. Pioneer was already paid by the reinsurers the amount of P295,000,
and had already foreclosed the mortgaged chattels for the amount of 37,050,
thus Pioneer is already overpaid by P33,383, and has no more claim against
the defendants.
3.   Whether or not Maglana, Bormaheco and the Cervanteses must share
in the loss of the venture in proportion to their contribution - NO. There
was no de facto partnership. Ordinarily, when co-investors agreed to do
business through a corporation but failed to incorporate, a de facto
partnership would have been formed, and as such, all must share in the
losses and/or gains of the venture in proportion to their contribution. But in
this case, it was shown that Lim did not have the intent to form a
corporation with Maglana et al.
RULING: WHEREFORE, the instant petitions are DISMISSED. The questioned
decision of the Court of Appeals is AFFIRMED.
RATIO:
6.   As for the first case, the payment to the petitioner made by the reinsurers
was not disputed in the appellate court. Considering this admitted payment,
the only issue that cropped up was the effect of payment made by the
reinsurers to the petitioner. Therefore, the petitioner's argument that the
respondents had no interest in the reinsurance contract as this is strictly
between the petitioner as insured and the reinsuring company pursuant to
Section 91 (should be Section 98) of the Insurance Code has no basis.
7.   Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs 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. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury.
8.   Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines,
Inc. v. Heald Lumber Co. which we subsequently applied in Manila
Mahogany Manufacturing Corporation v. Court of Appeals:
Note that if a property is insured and the owner receives the indemnity from the insurer, it is
provided in said article that the insurer is deemed subrogated to the rights 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. Evidently, under this legal
provision, the real party in interest with regard to the portion of the indemnity paid is the
insurer and not the insured. (Emphasis supplied)
9.   It is clear from the records that Pioneer sued in its own name and not as an
attorney-in-fact of the reinsurer. Accordingly, the appellate court did not
commit a reversible error in dismissing the petitioner's complaint as
against the respondents for the reason that the petitioner was not the
real party in interest in the complaint and, therefore, has no cause of
action against the respondents.
10.   Nevertheless, the Pioneer argues that the appeal as regards the counter
indemnitors should not have been dismissed on the premise that the
 evidence on record shows that it is entitled to recover from the counter effect partners inter se, and their rights as members of the company to the
indemnitors. It does not, however, cite any grounds except its allegation that property acquired by the company will be recognized.
respondent "Maglanas defense and evidence are certainly incredible" 14.   A partnership relation between certain stockholders and other stockholders,
11.   On the other hand, we find the trial court's findings on the matter replete who were also directors, will not be implied in the absence of an agreement,
with evidence to substantiate its finding that the counter-indemnitors are so as to make the former liable to contribute for payment of debts illegally
not liable to the petitioner, to wit: contracted by the latter
Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved, agreed to 15.   In his answer, the petitioner denied having received any amount from
issue the bond provided that the same would be mortgaged to it, but this was not possible respondents Bormaheco, the Cervanteses and Maglana but the trial and
because the planes were still in Japan and could not be mortgaged here in the Philippines. As
soon as the aircrafts were brought to the Philippines, they would be mortgaged to Pioneer appellat court found that petitioner received various amounts from
Insurance to cover the bond, and this indemnity agreement would be cancelled. Pioneer, Bormaheco and Magnlana in the ownership of subject airplanes.
having foreclosed the chattel mortgage on the planes and spare parts, no longer has any 16.   It is therefore clear that the petitioner never had the intention to form a
further action against the defendants as indemnitors to recover any unpaid balance of the
corporation with the respondents despite his representations to them. This
price. The indemnity agreement was ipso jure extinguished upon the foreclosure of the chattel
mortgage. These defendants, as indemnitors, would be entitled to be subrogated to the gives credence to the cross-claims of the respondents to the effect that they
right of Pioneer should they make payments to the latter. were induced and lured by the petitioner to make contributions to a
Pioneer's election of the remedy of foreclosure precludes any further action to recover any proposed corporation which was never formed because the petitioner
unpaid balance of the price. SAL or Lim, having failed to pay the second to the eight and last
reneged on their agreement.
installments to JDA and Pioneer as surety having made of the payments to JDA, the alternative
remedies open to Pioneer were as provided in Article 1484 of the New Civil Code, known as 17.   Applying therefore the principles of law earlier cited to the facts of the case,
the Recto Law. necessarily, no de facto partnership was created among the parties which
Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial would entitle the petitioner to a reimbursement of the supposed losses of the
foreclosure and the instant suit. Such being the case, as provided by the aforementioned proposed corporation. The record shows that the petitioner was acting on
provisions, Pioneer shall have no further action against the purchaser to recover any unpaid
balance and any agreement to the contrary is void. The restructuring of the obligations of SAL his own and not in behalf of his other would-be incorporators in transacting
or Lim, thru the change of their maturity dates discharged these defendants from any liability the sale of the airplanes and spare parts.
as alleged indemnitors. The change of the maturity dates of the obligations of Lim, or SAL
extinguish the original obligations thru novations thus discharging the indemnitors. These
restructuring of the obligations with regard to their maturity dates, effected twice, were done
without the knowledge, much less, would have it believed that these defendants Maglana (sic).
Pioneer's official Numeriano Carbonel would have it believed that these defendants and
defendant Maglana knew of and consented to the modification of the obligations. But if that
were so, there would have been the corresponding documents in the form of a written notice to
as well as written conformity of these defendants, and there are no such document. The
consequence of this was the extinguishment of the obligations and of the surety bond secured
by the indemnity agreement which was thereby also extinguished.
Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same.
Consequently, Pioneer has no more cause of action to recover from these defendants, as
supposed indemnitors, what it has paid to JDA. By virtue of an express stipulation in the
surety bond, the failure of JDA to present its claim to Pioneer within ten days from default of
Lim or SAL on every installment, released Pioneer from liability from the claim. Therefore,
Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity
12.   As for the second case wherein the petioner is Jacob S. Lim, he theorizes
that as a result of the failure of respondents Bormaheco, Spouses Cervantes,
Constancio Maglana and petitioner Lim to incorporate, a de
facto partnership among them was created, and that as a consequence of
such relationship all must share in the losses and/or gains of the venture in
proportion to their contribution. Petitioner then questions the appellate
court’s findings ordering him to reimburse certain amounts given by
respondents as their contributions to the intended corporation.
13.   Where persons associate themselves together under articles to purchase
property to carry on a business, and their organization is so defective as to
come short of creating a corporation within the statute, they become in legal
 007 ORIENTAL ASSURANCE v. ONG (MERILLES)
October 11, 2017 | Leonen, J. | Subrogation
PETITIONER: Oriental Assurance Corporation
RESPONDENTS: Manuel Ong, doing business under the name of Western
Pacific Transport Services and/or Asian Terminals, Inc.
NOTE THE RELATIONSHIPS: Oriental = insurer; JEA = insured/consignee; Asian
Terminals = consignor
SUMMARY: JEA Steels imported from South Korea 72 coils. When it arrived
at Manila, it was stored under the custody of Asian Terminals. From storage it
was loaded on trucks of Manuel Ong to be delivered at the plant of JEA Steel.
However, upon arrival at the plant, 11 coils were found to be in damaged
condition.
JEA claimed insurance from Oriental Assurance. Oriental paid JEA the sum of
₱521,530.16. Oriental demanded indemnity form Ong and Asian Terminals, but
they refused. Hence, a complaint was filed for collection of sum of money. Ong
alleged that the coils were already damaged when he received it. Asian argues
hat it had exercised due diligence in caring for the consigned goods. The RTC
dismissed the case, which the CA affirmed. The CA stated that the action of
Oriental has already prescribed.
The issue relevant to our topic is wether the claim against Asian Terminals, Inc.
is barred by prescription. The court ruled that NO, the action is not barred.
Under the Management Contract between JEA and Asian Terminal, claims must
be filed within 15 days from the issuance of the Gate Pass. However, also under
the Management Contract, the consignee (JEA) had thirty (30) days from
receipt of the cargo to request for a certificate of loss from Asian Terminals.
Oriental claimed damages 17 days after last receipt of the goods or within the 30
day period. Although not a party to the contract, Oriental was subrogated to the
rights of JEA.
If the insured property is destroyed or damaged through the fault or
negligence of a party other than the assured, then the insurer, upon
payment to the assured, will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer has been
obligated to pay. As subrogee, Oriental merely stepped into the shoes of the
consignee and may only exercise those rights that the consignee may have
against the wrongdoer who caused the damage.
DOCTRINE: As subrogee, Oriental merely stepped into the shoes of the
consignee and may only exercise those rights that the consignee may have
against the wrongdoer who caused the damage.
FACTS:
1.   JEA Steel Industries imported from South Korea 72 aluminum-zinc-alloy-
coated steel sheets in coils. These steel sheets were transported to Manila on
board the vessel M/V Dooyang Glory as evidenced by a Bill of Lading.
2.   Upon arrival of the vessel at the Manila South Harbor on June 10, 2002, the
72 coils were discharged and stored in Pier 9 under the custody of the
arrastre contractor, Asian Terminals, Inc (respondent company in this case).
3.   From the storage compound, the coils were loaded on the trucks on Manuel
Ong (respondent) and delivered to JEA Steel’s plant in Trece Martirez,
Cavite.
4.   Eleven (11) of the coils ''were found to be in damaged condition, dented or
their normal round shape deformed.”
5.   JEA Steel filed a claim with Oriental for the value of the 11 damaged coils,
pursuant to Marine Insurance Policy No. OAC/M-12292.
6.   Oriental paid JEA Steel the sum of ₱521,530.16 and subsequently
demanded indemnity from Ong and Asian Terminals (respondents), but
they refused to pay.
7.   Oriental filed a complaint before the RTC of Manila for sum of money
against Ong and Asian Terminals.
8.   Ong countered that the 1l coils were already damaged when they were
loaded on board his trucks and transported to the consignee.
9.   Asian Terminals claimed that it exercised due diligence in handling the
cargo, that the cargo was released to the consignee's representative in the
same condition as when received from the vessel, and that the damages
were sustained while in the custody of the vessel or the customs broker.
a.   Asian Terminals further argued that Oriental's claim was barred for
the latter's failure to file a notice of claim within the 15-day period
provided in the Gate Pass and in Article VII, Section 7.01 of the
Contract for Cargo Handling Services (Management Contract)
between the Philippine Ports Authority and Asian Terminals
b.   Asian Terminals added that its liability, if any, should not exceed
₱5,000.00, pursuant to said Section 7.01.
10.   RTC dismissed the complaint as it found no preponderance of evidence to
establish that Ong and Asian Terminals were the ones responsible for the
damages. The MR was likewise denied.
11.   The CA dismissed Oriental’s appeal on the ground that its claim had
already prescribed.
a.   CA also found that the coils were already damaged when it was
loaded in Ong’s trucks
b.   Hence, the legal presumption of negligence applies against Asian
Terminals unless it is able to prove that it exercised extraordinary
diligence in the handling of the cargo.
c.   The CA held that as an arrastre operator, Asian Terminals was
bound to observe the same degree of care required of common
carriers.
 d.   The CA ultimately ruled that while Asian Terminals failed to rebut
the presumption of negligence against it, it cannot be held liable to
pay the value of the damaged coils because Oriental's claim was
filed beyond the 15-day prescriptive period stated in the Gate Pass
e.   An MR was also denied.
12.   Hence, this petition before the SC.
ISSUE/s:
1.   Whether or not the Court of Appeals gravely erred in passing upon the issue
of prescription even though it was not an assigned error in the appeal – NO,
the issue of prescription is closely related to, and determinant of, the
propriety of the lower court's ruling, absolving respondents from liability
for the damaged goods and dismissing Oriental's complaint.
2.   Whether or not the claim against Asian Terminals, Inc. is barred by
prescription – NO, the claim was received within the 30 day period to
request for a certificate of loss, damage, or injury from the arrastre operator.
3.   Whether or not the Court of Appeals gravely erred in ruling that Manuel
Ong is not liable for the damage of the cargo – NO. Manuel Ong is not
liable, Asian Terminal knows of the defect prior to it being loaded in his
truck.
RULING: WHEREFORE, the Petition for Review is GRANTED. The February 19,
2009 Decision and August 25, 2009 Resolution of the Court of Appeals in CA-G.R.
CV No. 89311 are SET ASIDE. Respondent Asian Terminals, Inc. is ORDERED to
pay petitioner Oriental Assurance Corporation the amount of ₱55,000.00, with
interest at the legal rate of six percent (6%) per annum from the date of finality of
this judgment until fully paid.
RATIO:
1.   ISSUE #1 ON RULING ON PRESCRIPTION (can skip):
a.   Oriental submits that the "Court of Appeals cannot rule on the
issue of prescription as this was not included in the assignment of
errors nor was this properly argued by any of the parties in their
respective briefs filed before the Court of Appeals.
b.   On the other hand, Asian Terminals counters that the Court of
Appeals properly reviewed the issue of prescription even though it
was not raised in Oriental's appeal brief. This issue is closely
related to the liability of Asian Terminals for the damaged
shipment, the first error in Oriental's appeal. Moreover, Asian
Terminals asserts that it raised the issue of prescription before the
trial court, although it was not resolved.
c.   THE COURT AGREES WITH ASIAN TERMINALS. The issue
of prescription is closely related to, and determinant of, the
propriety of the lower court's ruling, absolving respondents from
liability for the damaged goods and dismissing Oriental's
complaint. Thus, the Court finds no error on the part of the Court
of Appeals in passing upon this issue.
2.   [IMPORTANT] ISSUE #2 ON WHETHER THE CLAIM IS BARRED
BY PRESCRIPTION:
a.   Oriental contends that it was not aware of the provisions of the
Gate Pass or the Management Contract, neither of which it was a
party to. Consequently, it cannot be bound by the stipulation
limiting the liability of Asian Terminals.
b.   Asian Terminals counters that "the provisions of the Management
Contract and the Gate Pass are binding on Oriental as insurer-
subrogee and successor-in-interest of the consignee.”
c.   THE COURT AGREES WITH ASIAN TERMINALS. The fact
that Oriental is not a party to the Gate Pass and the Management
Contract does not mean that it cannot be bound by their provisions.
Oriental is subrogated to the rights of the consignee simply upon
its payment of the insurance claim.
d.   Citing GSIS v Manila Railroad: The SC has repeatedly held that,
by availing himself of the services of the arrastre operator and
taking delivery therefrom in pursuance of a permit and a pass
issued by the latter, which were "subject to all the terms and
conditions" of said management contract, including, inter alia, the
requirement thereof that "a claim is filed with the Company within
15 days from the date of arrival of the goods", the consignee - and,
hence, the insurer, or plaintiff herein, as successor to the rights of
the consignee - became bound by the provisions of said contract.
e.   Citing Summa Insurance v CA: However, a management contract,
which is a sort of a stipulation pour autrui within the meaning of
Article 1311 of the Civil Code, is also binding on a consignee
because it is incorporated in the gate pass and delivery receipt
which must be presented by the consignee before delivery can be
effected to it. The insurer, as successor-in-interest of the consignee,
is likewise bound by the management contract.
f.   The fact that Oriental is not a party to the Gate Pass and the
Management Contract does not mean that it cannot be bound by
their provisions. Oriental is subrogated to the rights of the
consignee simply upon its payment of the insurance claim.
g.   Art. 2207 of the Civil Code is founded on the well-settled
principle of subrogation. If the insured property is destroyed
or damaged through the fault or negligence of a party other
than the assured, then the insurer, upon payment to the
assured, will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer has
been obligated to pay.
i.   Payment by the insurer to the assured operates as an
equitable assignment to the former of all remedies which
the latter may have against the third party whose
negligence or wrongful act caused the loss,
 ii.   The right of subrogation is not dependent upon, nor does fact, Ong and Asian Terminals were sued in the alternative because
it grow out of, any privity of contract or upon written petitioner was uncertain against whom it was entitled for relief.
assignment of claim. d.   Furthermore, there was no proof of Ong's bad faith.
iii.   It accrues simply upon payment of the insurance claim e.   Mere allegation cannot take the place of evidence.
by the insurer f.   Besides, Ong's assertion that the loading of the cargo on the trucks
h.   As subrogee, Oriental merely stepped into the shoes of the was undertaken by Asian Terminals and the unloading of the same
consignee and may only exercise those rights that the consignee cargo was undertaken by the consignee at its warehouse remains
may have against the wrongdoer who caused the damage. unrequited
i.   Under the express terms of the Management Contract, the g.   Asian Terminals caused the inspection of the shipment before they
consignee had thirty (30) days from receipt of the cargo to request were loaded on Ong's trucks. At the consignee's warehouse, the
for a certificate of loss from the arrastre operator. inspection was done in the presence of the consignee's authorized
j.   Upon receipt of such request, the arrastre operator would have representative.
15 days to issue a certificate of loss, either actually or h.   Thus, Ong is not obliged to inform the consignee or Asian
constructively. Terminals about the damaged coils as they would have presumably
k.   From the date of issuance of the certificate of loss or where no known about them.
certificate was issued, from the expiration of the 15-day period, 5.   ASIAN TERMINALS IS FOUND LIABLE AND ORDERED TO PAY
the consignee has 15 days within which to file a formal claim ORIENTAL P55,000 with interests.
with the arrastre operator.
l.   In other words, the consignee had 45 to 60 days from the date of
last delivery of the goods within which to submit a formal claim to
the arrastre operator.
m.   The consignee's claim letter was received by Asian Terminals
on July 4, 2002, or 17 days from the last delivery of the goods,
still within the prescribed 30-day period to request a certificate
of loss, damage, or injury from the arrastre operator.
3.   LIABILITY OF ASIAN TERMINALS:
a.   Evidence showed that Upon Asian Terminal’s request, Ultraphil
conducted surveys which sowed that 11 coils were damaged before
it was loaded don Ong’s truck.
b.   Asian Terminals request for the cargo survey shows that it had
knowledge of the damage of the shipment while in its possession
and that the survey was sought specifically to ascertain the nature
and extent of the damage.
c.   Thus, Asian Cargos cannot escape liability for the damaged coils,
simply by its own act of not sending a representative, after it had
contracted for the survey of the shipment.
4.   ISSUE #3 ON LIABILITY OF MANUEL ONG:
a.   Both the Court of Appeals and the Regional Trial Court found that
the 11 coils were already damaged before the coils were loaded on
Ong's truck. Hence, Ong could not be responsible for the damaged
shipment.
b.   However, petitioner asserts that Ong should be held solidarily
liable with Asian Terminals for acting in bad faith when it did not
apprise the consignee or Asian Terminals about the damaged coils.
THE COURT FINDS THIS CONTENTION UNTENABLE.
c.   This issue was never raised by petitioner in the lower courts. In
 001 UNITED DOCTORS MEDICAL CENTER v. BERNADAS
(PELIÑO)
December 13, 2017 | Leonen, J. | Insurance and Retirement Benefits
PETITIONER: United Doctors Medical Center
RESPONDENT: Cesario Bernadas, represented by Leonila Bernadas
SUMMARY: Cesario was an employee of UDMC. UDMC and the rank-and-file
employees had a CBA where these employees were entitled to ORB. Based on this
optional retirement policy, an employee who has rendered at least 20 years of service is
entitled to optionally retire and the pay would be equal to a retiree’s salary for 11 days per
year of service. Cesario died of a freak accident. So Leonila, his wife, filed a Complaint
for payment of retirement benefits, damages, and atty’s fees with the NLRC. She was
already able to get 180k insurance proceeds based on the CBA. The LA dismissed her
complaint, saying that since Cesario didn’t apply for ORB, then the beneficiaries are not
entitled. She appealed to NLRC, and they reversed the LA. NLRC said that since the
optional retirement plan was never presented, it cast a doubt on whether an application is
required before an employee could be entitled, hence the doubt should be resolved in
favor of Cesario. On appeal to the CA, CA sustained the NLRC, saying that the
retirement benefits and insurance are 2 distinct benefits. Hence, this petition. The issue in
this case is whether or not Cesario is entitled to receive his ORB despite receiving
insurance benefits. The SC answered in the affirmative. The SC distinguished between
insurance and retirement plans, wherein a contract of insurance – indemnity; agreement
whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event, while retirement
plans are those which serve to secure loyalty and efficiency on the part of employees,
and to increase continuity of service and decrease the labor turnover, by giving to the
employees some assurance of security as they approach and reach the age at which
earning ability and earnings are materially impaired or at an end. Hence, grant of
insurance proceeds will not necessarily bar the grant of retirement benefits; these are
2 separate and distinct benefits that an employer may provide to its employees. In
addition, Cesario is also entitled to ORB because CBA does not mandate that an
application must first be filed before the benefits may vest, hence, this ambiguity
should be resolved in favor of the retiree.
DOCTRINE: Contract of insurance – indemnity; agreement whereby one undertakes
for a consideration to indemnify another against loss, damage or liability arising
from an unknown or contingent event, while retirement plans are those which serve
to secure loyalty and efficiency on the part of employees, and to increase continuity
of service and decrease the labor turnover, by giving to the employees some
assurance of security as they approach and reach the age at which earning ability and
earnings are materially impaired or at an end. Hence, grant of insurance proceeds
will not necessarily bar the grant of retirement benefits; these are 2 separate and
distinct benefits that an employer may provide to its employees
FACTS:
12.   This is a Petition for Review on Certiorari assailing the Decision and Resolution
of the CA, sustaining the NLRC’s finding.
3
Merriam-Webster defined this as a person who works in a hospital and does various jobs (such as
moving patients or cleaning)
13.   On July 17, 1986, Cesario Bernadas (Cesario) was an orderly3 in United
Doctors Medical Center’s (UDMC) housekeeping department; he was
eventually promoted as a utility man.
14.   UDMC and the rank-and-file employees had a collective bargaining agreement
(CBA) where the rank-and-file employees were entitled to optional retirement
benefits (ORB).
a.   The provision on the CBA reads: “Sec. 1. Retirement and Severance Pay.
The CENTER shall grant each employee retirement and severance pay in
accordance with law. It shall also continue its present policy on optional
retirement.”
b.   Based on this optional retirement policy, an employee who has rendered at
least 20 years of service is entitled to optionally retire and the retirement
pay is equal to a retiree’s salary for 11 days per year of service.
c.   Employees are also provided insurance where UDMC pays the
premiums and the family members would be the beneficiaries.
15.   October 20, 2009, Cesario, 53 years at that time, died in a “freak accident”
while working in a doctor’s residence.
16.   His wife, Leonila Bernadas (Leonila) filed a Complaint for payment of
retirement benefits, damages, and attorney’s fees with the NLRC. And Leonila
and her son also claimed and were able to receive insurance proceeds of Php
180k under the CBA.
17.   Labor Arbiter: dismissed Leonila’s complaint.
a.   Cesario should have applied for ORB during his lifetime, the benefits being
optional. But since he didn’t, then his beneficiaries are not entitled to claim
his ORB.
18.   Leonila appealed to the NLRC.
a.   NLRC reversed the Labor Arbiter.
b.   It found that the optional retirement plan was never presented so it cast a
doubt on whether or not the plan required an application for ORB before an
employee could become entitled to them. And considering the
“constitutional mandate to afford full protection to labor”, NLRC resolved
the doubt in favor of Cesario.
c.   UDMC filed a MR but was denied.
19.   UDMC subsequently filed a Petition for Certiorari with the CA.
a.   CA rendered a decision sustaining the ruling of the NLRC.
b.   CA held that the retirement plan and insurance are 2 separate and distinct
benefits that were granted to employees and that Leonila’s receipt of the
insurance proceeds did not bar her from being entitled to the retirement
benefits under the CBA.
c.   UDMC filed a MR but was denied as well.
20.   Hence, this petition.
21.   UDMC argues:
a.   Cesario’s beneficiaries do not have legal capacity to apply for his ORB
since Cesario never applied for it in his lifetime, and even assuming that he
was already qualified to apply for optional retirement 3 years prior to his
death, he never did. Hence, no basis for Cesario’s beneficiaries to be
 entitled to his optional retirement benefits.
b.   To grant them these ORB on top of the life insurance benefits would
amount to double compensation and unjust enrichment.
22.   Leonila argues:
a.   Had her husband died under normal circumstances, he would have applied
for the ORB.
b.   The fact that he was unable to apply before his death is a procedural
technicality that should be set aside so that “full protection to labor” is
afforded and “the ends of social and compassionate justice” are met.
ISSUE/s:
2.   WON Leonila, as her husband’s representative, may claim his optional
retirement benefits. – YES, she is a beneficiary of Cesario.
3.   WON Cesario can receive the ORB despite already receiving insurance
benefits. – YES, insurance and retirement plans are two separate benefits and
receiving one is not a bar to receiving the other.
4.   WON Cesario is entitled to receive his ORB despite his untimely death. – YES,
CBA does not mandate that an application must first be filed before the benefits
may vest, hence, this ambiguity should be resolved in favor of the retiree.
RULING: WHEREFORE, the petition is DENIED. The Decision and Resolution of the
CA are AFFIRMED. Petitioner UDMC is ordered to pay Cesario, through his beneficiary
Leonila, optional retirement benefits in the amount of Php 98,252.55 as provided by the
Labor Code.
RATIO:
1.   Retirement – result of a bilateral act of the parties, a voluntary agreement
between the employer and the employee whereby the latter, after reaching a
certain age, agrees to sever his or her employment with the former.
2.   Contract of Insurance – indemnity; agreement whereby one undertakes for
a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event.
3.   Retirement plans – Serve to secure loyalty and efficiency on the part of
employees, and to increase continuity of service and decrease the labor
turnover, by giving to the employees some assurance of security as they
approach and reach the age at which earning ability and earnings are
materially impaired or at an end.
4.   Given the above, it is clear that there is a difference between insurance and
retirement benefits. Hence, grant of insurance proceeds will not necessarily
bar the grant of retirement benefits; these are 2 separate and distinct
benefits that an employer may provide to its employees.
5.   Three types of retirement plans available to employees in the PH:
a.   Compulsory and Contributory – RA 8282 for private (SSS) and RA 8291
for government (GSIS). These laws provide mandatory contribution which
shall become a pension fund upon retirement. A mandatory contribution is
deducted from the employee’s monthly income; retirement packages are
usually crafted as ‘forced savings’. There is a vested right to the benefits
here, so the beneficiaries of retired employees are entitled to receive even
after the employee’s death.
b.   Voluntary4: by agreement between the employer and employee – This is
usually embodied in a CBA.
c.   Voluntary: given by the employer – Announced company policy or
impliedly as in a failure to contest the employee’s claim for retirement
benefits.
6.   These retirement plans are not meant to be a replacement to the compulsory
retirement scheme under social security laws.
On whether Cesario is entitled to receive his optional retirement benefits despite his
untimely death
1.   Issue in this case concerns the second type of retirement plan.
2.   The terms and conditions of a CBA constitute the law between the parties, but
the CBA involved in this case does not provide for the terms and conditions of
the “present policy on optional retirement”.
a.   Leonila merely alleged before the Labor Arbiter that UDMC grants an
employee a retirement or separation equivalent to 11 days per year of
service after serving for at least 20 years, which was not deisputed by
UDMC. Therefore, doubt arises as to what UDMC’s optional retirement
package actually entails.
3.   It is settled that doubts must be resolved in favor of labor.
a.   Retirement laws should be liberally construed and administered in favor of
the persons intended to be benefited and all doubts as to the intent of the
law should be resolved in favor of the retiree to achieve its humanitarian
purpose.
4.   UDMC: insists that Cesario would not have been entitled to his ORB as he
failed to exercise the option before his untimely death.
a.   SC: Retirement encompasses even the concept of death and that the Court
has considered death as a form of disability retirement since there is no
more permanent or total physicaly disability than death.
i.   Compulsory retirement and death both involve events beyond the
employee’s control.
b.   UDMC also admits that Cesario was already qualified to receive retirement
benefits since he was already working there for 23 years, and while the
choice to retire was within Cesario’s control, his death foreclosed that
possibility.
c.   UDMC’s optional retirement plan is based on length of service and not of
reaching a certain age. It rewards loyalty and continued service by granting
an employee an earlier age to claim his or her retirement benefits even if
the employee has not reached the twilight years. It would be iniquitous to
withhold it from he just because he died before he applied.
d.   CBA does not mandate that an application must first be filed before
the benefits may vest, hence, this ambiguity should be resolved in favor
of the retiree.
e.   Retirement benefits are the property interests of the retiree and his or her
beneficiaries. CBA doesn’t prohibit the beneficiaries from claiming
retirement benefits even if the retiree dies before the proceeds could be
released.
4
The last 2 retirement plans are governed by the Labor Code.
 damage through accident for an amount not exceeding P8,000 (Policy No.
02 CCC INSURANCE CORP. v. CA (PLEYTO) MC-1156)
January 30, 1970 | Reyes, J.B.L, J. | Insurance Contract Interpretation 24.   On June 25, 1961, and during the effectivity of the policy, the insured
vehicle, while being driven by the driver of Robes, became involved in a
vehicle collision along Rizal Avenue Extension, Potrero, Malabon, Rizal
PETITIONER: CCC Insurance Corporation
25.   The car was damaged and the repair was estimated to cost P5,300.
RESPONDENTS: Court of Appeals (Fourth Division) and Carlos F. Robes
26.   Robes instituted a civil case in the CFI of Rizal because the insurance
company refused either to pay for the repair or to cause the restoration of
SUMMARY: On Mar. 1, 1961, Robes took an insurance, with the CCC Insurance
the car to its original condition
Corp, on his Dodge Kingsway car against loss or damage through accident for an
27.   The civil case was for recovery not only of the amount necessary for the
amount not exceeding P8000 (policy). On June 25 (while policy was effective),
repair of the insured car but also of actual and moral damages, attys fees
Robes’ driver, while driving the insured car, got into a collision. The cost of damages
and costs
was estimated to cost P5,300. The insurance company refused to either pay for the
28.   Resisting plaintiff’s (Robes) claim, the insurance company disclaimed
repair or the restoration so Robes instituted a civil case for recovery of the amount
liability for payment, alleging that there had been violation of the insurance
necessary for the repair, actual and moral damages, and attys fees. CCC disclaimed
contract because the one driving the car at the time of the incident was not
liability, alleging that there had been a violation of the insurance contract because the
an “authorized driver”
one driving the car was not an authorized driver. The trial court ruled in favor of
29.   After due hearing, judgment was rendered for Robes and CCC was ordered
Robes, granting him the P5,031.28, for the cost of repair, actual and moral damages
to pay the cost of repair in the sum of P5,031.28; the sum of P150, for the
and attorneys fees. CA affirmed this except for actual damages, because it was said
hauling and impounding of the car at the repair shop; P2k as actual
to be too speculative. CCC was not content hence, this petition. The issue is WoN
damages; P1k as attys fees, plus costs
the damage to the insured car was not covered by the insurance policy because at the
30.   CCC went to the CA, raising inter alia the questions of the qualification of
time of the accident it was being driven by one who was not an authorized driver.
Robes’ driver to operate the insured vehicle and the correctness of the trial
CCC claims that the driver is not authorized because does not know how to read and
court’s award to Robes of the cost of repairs, actual and moral damages, and
write; that he was able to secure a driver’s license, without passing any examination
attys fees
thereof, by paying P25 to a certain woman; and that the Cavite agency of the Motor
31.   On Jan. 31, 1966, CA affirmed the ruling of the lower court except the
Vehicles Office has certified not having issued Reyes’ purported driver’s license. CA
award of actual damages in the sum of P2k, for being too speculative
argued that since Reyes' purported driver's license bears all the earmarks of a duly
32.   Not content, CCC filed the present petition of the decision of the CA
issued license, then it is a public document, and CCC then has the burden of
disproving its genuineness, which the latter has failed to do. Also, the fatal flaw in
ISSUE/s:
CCC’s argument is that it ignores the provisions of law existing at the time of the
4.   WoN the damage to the insured car was not covered by the insurance policy
mishap, which says that the issuance of a driving license without previous
because at the time of the accident it was being driven by one who was not
examination does not necessarily imply that the license issued is invalid. Considering
an authorized driver (main) – NO. The Court said that Reyes (the driver) is
that, as pointed out by the Court of Appeals the weight of authority is in favor of a
authorized and his license is genuine, as issued by the MVO. A
liberal interpretation of the insurance policy for the benefit of the party insured, and
5.   WoN the proceedings observed in the trial court were irregular and invalid
strictly against the insurer, SC finds no reason to diverge from the conclusion
– NO. There is nothing wrong with the practice of delegating to a
reached by the Court of Appeals that no breach was committed of the above- quoted
commissioner, usually the clerk of court, who is a duly sworn court officer,
provision of the policy.
the reception of both parties and for him to submit a report thereon to the
court. (not relevant)
DOCTRINE: The weight of authority is in favor of a liberal interpretation of the
insurance policy for the benefit of the party insured, and strictly against the insurer
RULING: the decision of the CA is affirmed, with costs against CCC

FACTS:
22.   This is a petition for review of the decision of the CA, affirming that of the
CFI of Rizal, QC, allowing insurance indemnification of plaintiff for his
damaged car and the payment of atty’s fees
23.   On March 1, 1961, Carlos F. Robes took an insurance, with the CCC
Insurance Corporation (CCC), on his Dodge Kingsway car against loss or
RATIO: license without previous examination does not necessarily imply that the
18.   It is vigorously urged by the insurer that the one driving the insured vehicle license issued is invalid.
at the time of the accident was not an authorized driver thereof within the 25.   As the law stood in 1961, when the claim arose, the examinations could be
5
purview of the provision of the insurance policy dispensed with in the discretion of the Motor Vehicles Office officials.
19.   It has been found as a fact by the CA that Domingo Reyes, the driver, does Whether discretion was abused in issuing the license without examination is
not know how to read and write; that he was able to secure a driver’s not a proper subject of inquiry in these proceedings, though, as a matter of
license, without passing any examination thereof, by paying P25 to a certain legislative policy, the discretion should be eliminated. There is no proof that
woman; and that the Cavite agency of the Motor Vehicles Office has the owner of the automobile knew that the circumstances surrounding such
certified not having issued Reyes’ purported driver’s license issuance showed that it was irregular.
20.   In holding that the damage sustained by the car comes within the coverage 26.   The issuance of the license is proof that the Motor Vehicles Office official
of the insurance policy, the CA argued that since Reyes' purported driver's considered Reyes, the driver of Robes, qualified to operate motor vehicles,
license bears all the earmarks of a duly issued license, then it is a public and the insured was entitled to rely upon such license.
document, and CCC then has the burden of disproving its genuineness, 27.   In this connection, it should be observed that the chauffeur, Reyes, had been
which the latter has failed to do driving since 1957, and without mishap, for all the record shows.
21.   CA ruled: 28.   Considering that, as pointed out by the Court of Appeals the weight of
a. the fact that the Cavite Agency of the Motor Vehicles Office authority is in favor of a liberal interpretation of the insurance policy
states that Drivers License was not issued by that office, does not for the benefit of the party insured, and strictly against the insurer, SC
remove the possibility that said office may have been mistaken or finds no reason to diverge from the conclusion reached by the Court of
that said license was issued by another agency. Appeals that no breach was committed of the above- quoted provision of
b. Indeed a certain Gloria Presa made the notation thereon "no the policy.
license issued" and which notation was the basis of the 1st
Indorsement, signed by the MVO Cavite City Agency's officer-in- 2nd issue
charge. 29.   The next issue is anchored on the fact that the decision of the trial court was
c. Neither Gloria Presa nor the officer-in-charge Marciano A. based on evidence presented to and received by the clerk of court who acted
Monzon was placed on the witness stand to be examined in order as commissioner, although allegedly, there was no written court order
to determine whether said license is indeed void. constituting him as such commissioner, no written request for his
d. thus, the fact remains that Domingo Reyes is in possession of a commission was made by the parties; he did not take an oath prior to
driver's license issued by the Motor Vehicles Office which on its entering into the discharge of his commission; no written report of his
face appears to have been regularly issued. findings was ever submitted to the court; and no notice thereof was sent to
22.   CA then found the license as genuine, that is, one really issued by the MVO the parties, contrary to the provisions of Rule 33 of the Rules of Court.
or its authorized deputy; and this finding of fact is now conclusive and may 30.   There is nothing wrong with the practice of delegating to a commissioner,
not be questioned in this appeal usually the clerk of court, who is a duly sworn court officer, the reception of
23.   Nevertheless, CCC insists that, under the established facts of this case, both parties and for him to submit a report thereon to the court.
Reyes, being admittedly one who cannot read and write, who has never 31.   In fact, this procedure is expressly sanctioned by Revised Rule 33 of the
passed any examination for drivers, and has not applied for a license from Rules of Court. CCC’s objection in this case, however, is directed not
the duly constituted government agency entrusted with the duty of licensing against its referral to the clerk of court but against the alleged non-
drivers, cannot be considered an authorized driver. observance of the prescribed steps in connection with such delegation.
24.   The fatal flaw in CCC’s argument is that it ignores the provisions of law 32.   SC finds no cause sufficient to invalidate the proceedings had in the trial
6 court. SC notes that this issue was brought up by CCC for the first time only
existing at the time of the mishap, which says that the issuance of a driving
in its motion for reconsideration filed in the Court of Appeals.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5

 "AUTHORIZED DRIVER: "Any of the following: 6
Under Section 24 of the revised Motor Vehicles Law:
(a)   The insured; “An examination or demonstration to show any applicant's ability to operate motor vehicles may also be
(b)   Any person driving on the Insured's order or with his permission, provided that the person required in the discretion of the Chief, Motor Vehicles Office or his deputies."
driving is permitted in accordance with licensing laws or regulations to drive the motor vehicle And reinforcing Section 24, Section 26 prescribes further:
covered by this Policy, or has been so permitted and is not disqualified by order of a court of "SEC. 26. Issuance of chauffeur's license; professional badge: If, after examination, or without the same,
law or by reason of any enactment or regulation from driving such Motor Vehicle." (Italics the Chief, Motor Vehicles Office or his deputies, believe the applicant to possess the necessary
ours) qualifications and knowledge, they shall issue to such applicant a license to operate as chauffeur . . ."
33.   It was not raised in the trial court, where the defect could still be remedied.
This circumstance precludes ventilation of the issue of validity of the
hearing at this stage; for, if such irregularity is to vitiate the proceeding, the
question should have been seasonably raised, i.e., either before the parties
proceeded with the hearing or before the court handed down its ruling. It is
a procedural point that can be waived by consent of the parties, express or
implied.
34.   For the same reason, appellant cannot insist now on the annulment of the
proceeding on the basis of alleged lack of written consent of the parties to
the commission, or of an order appointing the clerk as commissioner, or of
notice of the submission of his report to the court.
35.   Furthermore, appellant has presented no proof that the clerk of court
committed any mistake or abuse in the performance of the task entrusted to
him, or that the trial court was not able to properly appreciate the evidence
in the case because it was received by another person. If indeed there were
errors at all, they would be non-prejudicial and could not justify the holding
of a new trial, as urged by herein petitioner.
 003 Assoc. of Baptists for World Evangelism, Inc. v. Fieldmen’s with Motor No. 032433272555 and Plate No. E-73317 covered by
Insurance (Punsalan) Registration Certificate No. 288141 Rizal, issued by the Davao Motor
Sept. 21, 1983 | Melencio-Herrera, J. | Joyride in Davao; Insurance Contract Vehicles Office Agency No. 20 and owned by Reverend Clinton Bonnel
Interpretation 25.   Association insured said vehicle with Fieldmen’s with Private Car
Comprehensive Policy No. 22 (Comprehensive Policy) against loss or
damage up to P5,000.00.
PETITIONER: Association of Baptists for World Evangelism, Inc.
26.   1961: Association’s representative Dr. Antonio Lim (Dr. Lim) placed the
RESPONDENTS: Fieldmen’s Insurance Co., Inc.
Chevrolet Carry-all at the Jones Monument Mobilgas Service Station at
Davao City, under care of station operator Rene Te (Te) so that the vehicle
SUMMARY: Association has an insurable interest in its Chervrolet Carry-all. It
could be displayed as being for sale and that the station boys would
insured the vehicle with Fieldmen’s with Private Car Comprehensive Policy No.
receive 2% commission should they sell the vehicle.
22 (Comprehensive Policy) against loss or damage up to P5,000. Assoc.’s
27.   1962: One night, Romeo Catiben (station boy in said service station) and a
representative, Dr. Lim, proceeded to Jones Monument Mobilgas Service Station
nephew (unnamed in the case) of the wife of Te, took the vehicle for a
at Davao City where he left the car so that it could be displayed for sale and the
joyrde in Toril, Davao City, without the prior permission, authority, or
station boys would be entitled to 2% commission for it. One night, Romeo
consent of the Association or its rep. Dr. Lim, or of Te, and on its way back
Catiben (one of the station boys) and the nephew of station operator Rene Te,
to Davao City, the vehicle experienced a mechanical defect which led
rode the Chevrolet Carry-all and took it for a joyride to Toril, Davao City, w/o
into an accident, bumping an electric post (actual damages at
the consent of Association, Dr. Lim, or Te. Upon returning, however, the vehicle
P5,518.61)
experienced a mechanical defect and they accidentally bumped into an electric
28.   When the matter was brought up with the Trial Court, it tackled the issue of
post (actual damage from it was P5,518.61). Thus, Association wants to claim
whether the there should be a prior criminal conviction of Catiben for theft
the P5k compensation for the damage sustained by the vehicle but Fieldmen’s
before Association can claim compensation for the actual damage caused to
argue that there was no prior conviction of Catiben for theft of the vehicle, so
its vehicle under the Comprehensive Policy.
they did not give the insurance claim.
29.   The trial court rendered judgment and ordered Fieldmen’s to pay
Association the amount of P5,000.00 as indemnity for the damage sustained
ISSUE: WoN Catiben’s acts constitutes theft under the Comprehensive Policy –
by the vehicle, P2k for atty’s fees, and costs.
YES
30.   Upon appeal, the CA elevated the matter to the SC on a question of law.
It is settled that the act of Catiben in taking the vehicle for a joy ride to Toril,
ISSUE/s:
Davao City, constitutes theft within the meaning of the insurance policy and
5.   WoN the acts of Catiben constitutes theft under the Comprehensive Policy
that recovery for damage to the car is not barred by the illegal use of the car
of Fieldmen’s, thus entitling Association to compensation – YES, because
by one of the station boys. Even without prior conviction, his intent to gain is
theft under the policy does not need a prior conviction; his intent to gain
evident since he derives therefrom utility, satisfaction, enjoyment, and pleasure.
was evident from the joyride. As long as it can be proven by preponderance
Thus, there is no need for prior conviction for the crime of theft to make an
of evidence in a civil action for recovery, the amount on an insurance policy
insurer liable under the theft clause of the policy. (proceed to doctrine)
may be recovered.
DOCTRINE: In a civil action for recovery on an automobile insurance, the
RULING: Judgment in question is affirmed.
question whether a person using a certain automobile at the time of the accident
stole it or not is to be determined by a fair preponderance of evidence and
RATIO:
NOT by the rule of criminal law requiring proof of guilt beyond reasonable
13.   The Comprehensive Policy issued by the insurance company includes loss
doubt.
of or damage to the motor vehicle by "burglary . . . or theft.
14.   It is settled that the act of Catiben in taking the vehicle for a joy ride to
FACTS: Toril, Davao City, constitutes theft within the meaning of the insurance
23.   Association of Baptists for World Evangelism, Inc. (Association) is a policy and that recovery for damage to the car is not barred by the illegal
religious corporation duly organized and registered in PH; Fieldmen’s use of the car by one of the station boys.
Insurance Co., Inc. (Fieldmen’s) is also a domestic corporation duly 15.   Where a car is unlawfully and wrongfully taken by some people, be they
organized and existing under the laws of the PH employees of the car shop or not to whom it had been entrusted, and taken
24.   Association has an insurable interest in a Chevrolet Carry-all, 1955 Model
 on a long trip to Montalban without the owner’s consent or knowledge,
constitutes or partakes of the nature of theft as defined in Art. 308 of the
RPC:
(W)ho are liable for theft. — … any person who, with intent to
gain but without violence against or intimidation of persons nor
force upon things, shall take personal property of another without
the latter’s consent
16.   Court sustains that when a person, either with the object of going to a
certain place or learning how to drive or enjoying a free ride, takes
possession of a vehicle belonging to another, w/o the latter’s consent, he is
guilty of theft because his intent to gain is evident since he derives
therefrom utility, satisfaction, enjoyment, and pleasure.
17.   Thus, there is no need for prior conviction for the crime of theft to make an
insurer liable under the theft clause of the policy.
18.   The facts are stipulated where Catiben took the car for a joyride and
thereafter bumped it against an electric post resulting in damages. The act is
theft within the policy of insurance.
19.   In a civil action for recovery on an automobile insurance, the question
whether a person using a certain automobile at the time of the accident stole
it or not is to be determined by a fair preponderance of evidence and
NOT by the rule of criminal law requiring proof of guilt beyond
reasonable doubt. (NOTE: besides, there was no provision in the policy
requiring prior criminal conviction for theft)
 004 Mayer Steel Pipe Corporation v. CA (Cristelle)
June 19, 1997 | Puno J. | Insurance Contract Interpretation
PETITIONER: MAYER STEEL PIPE CORPORATION and HONGKONG
GOVERNMENT SUPPLIES DEPARTMENT
RESPONDENTS: COURT OF APPEALS, SOUTH SEA SURETY AND
INSURANCE CO., INC. and the CHARTER INSURANCE CORPORATION
SUMMARY: Hong Kong Government Supplies Department contracted Mayer Steel
Pipe Corporation to manufacture and supply various steel pipes and fittings. Prior to
the shipping, Mayer insured these pipes and fittings against all risks with South Sea
Surety and Insurance Co., Inc. and Charter Insurance Corp., with Industrial Inspection
Inc. appointed as third-party inspector. After examining the pipes and fittings,
Industrial Inspection certified that they are in good order condition. However, when
the goods reached Hong Kong, it was discovered that a substantial portion thereof was
damaged. The trial court found in favor of the insured. However, when the case was
elevated to the CA, it set aside the decision of the trial court and dismissed the
complaint on the ground of prescription. It held that the action was barred under Sec.
3(6) of the Carriage of Goods by Sea Act (COGSA) since it was filed only on April
17, 1986, more than two years from the time the goods were unloaded from the
vessel. Issue: Whether or not the action is barred by prescription? The cause of
action had not yet prescribed. Sec. 3(6) of the COGSA states that the carrier and the
ship shall be discharged from all liability for loss or damage to the goods if no suit is
filed within one year after delivery of the goods or the date when they should have
been delivered. Under this provision, only the carrier’s liability is extinguished if no
suit is brought within one year. But the liability of the insurer is not extinguished
because the insurer’s liability is based not on the contract of carriage but on the
contract of insurance. Thus, when private respondents issued the “all risks” policies to
Mayer, they bound themselves to indemnify the latter in case of loss or damage to the
goods insured. Such obligation prescribes in ten years, in accordance with Article
1144 of the New Civil Code.
DOCTRINE: An insurance contract is a contract whereby one party, for a
consideration known as the premium, agrees to indemnify another for loss or damage
which he may suffer from a specified peril. An “all risks” insurance policy covers all
kinds of loss other than those due to willful and fraudulent act of the insured.
FACTS:
1.   This is a petition for review on certiorari to annul and set aside the Decision
of respondent CA dated December 14, 1995 and its Resolution dated
February 22, 1996 in CA-G.R. CV No. 45805 entitled Mayer Steel Pipe
Corporation and Hongkong Government Supplies Department v. South Sea
Surety Insurance Co., Inc. and The Charter Insurance Corporation.
2.   In 1983, petitioner Hongkong Government Supplies Department
(Hongkong) contracted petitioner Mayer Steel Pipe Corporation (Mayer) to
manufacture and supply various steel pipes and fittings. From August to
October, 1983, Mayer shipped the pipes and fittings to Hongkong as
evidenced by Invoice Nos. MSPC-1014, MSPC-1015, MSPC-1025, MSPC-
1020, MSPC-1017 and MSPC-1022.
3.   Prior to the shipping, petitioner Mayer insured the pipes and fittings against
all risks with private respondents South Sea Surety and Insurance Co., Inc.
(South Sea) and Charter Insurance Corp. (Charter). The pipes and fittings
covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total amount of
US$212,772.09 were insured with respondent South Sea, while those
covered by Invoice Nos. 1020, 1017 and 1022 with a total amount of
US$149,470.00 were insured with respondent Charter.
4.   Petitioners Mayer and Hongkong jointly appointed Industrial Inspection
(International) Inc. as third-party inspector to examine whether the pipes
and fittings are manufactured in accordance with the specifications in the
contract. Industrial Inspection certified all the pipes and fittings to be in
good order condition before they were loaded in the vessel. Nonetheless,
when the goods reached Hongkong, it was discovered that a substantial
portion thereof was damaged.
5.   Hongkong & Mayer filed a claim against South Sea surety & charter
insurance corp. for indemnity under the insurance contract. Respondent
Charter paid petitioner Hongkong the amount of HK$64,904.75. HK &
Mayer demanded payment of the balance of HK$299,345.30 representing
the cost of repair of the damaged pipes. South Sea & charter refused to pay
because the insurance surveyor's report allegedly showed that the damage is
a factory defect.
6.   On April 17, 1986, petitioners filed an action against South Sea & charter to
recover the sum of HK$299,345.30 South Sea & charter averred that they
have no obligation to pay the amount claimed by petitioners because the
damage to the goods is due to factory defects which are not covered by the
insurance policies.
7.   TRIAL COURT - ruled in favor of petitioners. It found that the damage to
the goods is not due to manufacturing defects. It also noted that the
insurance contracts executed by petitioner Mayer and private respondents
are "all risks" policies which insure against all causes of conceivable loss or
damage. The only exceptions are those excluded in the policy, or those
sustained due to fraud or intentional misconduct on the part of the insured.
8.   South Sea & charter elevated the case to respondent Court of Appeals.
9.   CA - affirmed the finding of the trial court that the damage is not due to
factory defect and that it was covered by the "all risks" insurance policies
issued by South Sea & charter to petitioner Mayer. However, it set aside the
decision of the trial court and dismissed the complaint on the ground of
prescription. It held that the action is barred under Section 3(6) of the
Carriage of Goods by Sea Act since it was filed only on April 17, 1986,
more than two years from the time the goods were unloaded from the
vessel.
a.   Section 3(6) of the Carriage of Goods by Sea Act provides that
"the carrier and the ship shall be discharged from all liability in
respect of loss or damage unless suit is brought within one year
 after delivery of the goods or the date when the goods should have third-party complaint against the carrier for reimbursement of the amount it
been delivered." Respondent court ruled that this provision applies paid to the shipper. The insurer filed the third-party complaint on January 9,
not only to the carrier but also to the insurer, citing Filipino 1978, more than one year after delivery of the goods on December 17,
Merchants Insurance Co., Inc. vs. Alejandro. 1977. The court held that the Insurer was already barred from filing a claim
10.   Hence this petition for review. against the carrier because under the Carriage of Goods by Sea Act, the suit
a.   CA erred in holding that petitioners' cause of action had already against the carrier must be filed within one year after delivery of the goods
prescribed on the mistaken application of the Carriage of Goods by or the date when the goods should have been delivered. The court said that
Sea Act and the doctrine of Filipino Merchants Co., Inc. v. "the coverage of the Act includes the insurer of the goods."
Alejandro (145 SCRA 42); and 4.   The Filipino Merchants case is different from the case at bar. In Filipino
b.   CA committed an error in dismissing the complaint. Merchants, it was the insurer which filed a claim against the carrier for
reimbursement of the amount it paid to the shipper. In the case at bar, it was
ISSUES: Whether or not the action is barred by prescription? NO. The petition is the shipper which filed a claim against the insurer. The basis of the shipper's
impressed with merit. Respondent court erred in applying Section 3(6) of the claim is the "all risks" insurance policies issued by private respondents to
Carriage of Goods by Sea Act. An insurance contract is a contract whereby one petitioner Mayer.
party, for a consideration known as the premium, agrees to indemnify another for 5.   The ruling in Filipino Merchants should apply only to suits against the
loss or damage which he may suffer from a specified peril. An "all risks" insurance carrier filed either by the shipper, the consignee or the insurer. When
policy covers all kinds of loss other than those due to willful and fraudulent act of the court said in Filipino Merchants that Section 3(6) of the Carriage of
the insured. Thus, when private respondents issued the "all risks" policies to Goods by Sea Act applies to the insurer, it meant that the insurer, like the
petitioner Mayer, they bound themselves to indemnify the latter in case of loss or shipper, may no longer file a claim against the carrier beyond the one-year
damage to the goods insured. Such obligation prescribes in ten years, in accordance period provided in the law. But it does not mean that the shipper may no
with Article 1144 of the New Civil Code. longer file a claim against the insurer because the basis of the insurer's
liability is the insurance contract.
RULING: IN VIEW WHEREOF, the petition is GRANTED. The Decision of
respondent Court of Appeals dated December 14, 1995 and its Resolution dated
February 22, 1996 are hereby SET ASIDE and the Decision of the Regional Trial
Court is hereby REINSTATED. No costs. SO ORDERED.
RATIO:
1.   Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and
the ship shall be discharged from all liability for loss or damage to the
goods if no suit is filed within one year after delivery of the goods or the
date when they should have been delivered.
2.   Under this provision, only the carrier's liability is extinguished if no suit is
brought within one year. But the liability of the insurer is not extinguished
because the insurer's liability is based not on the contract of carriage but on
the contract of insurance. A close reading of the law reveals that the
Carriage of Goods by Sea Act governs the relationship between the carrier
on the one hand and the shipper, the consignee and/or the insurer on the
other hand. It defines the obligations of the carrier under the contract of
carriage. It does not, however, affect the relationship between the shipper
and the insurer. The latter case is governed by the Insurance Code.
3.   Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro and the
other cases cited therein does not support respondent court's view that the
insurer's liability prescribes after one year if no action for indemnity is filed
against the carrier or the insurer. In that case, the shipper filed a complaint
against the insurer for recovery of a sum of money as indemnity for the loss
and damage sustained by the insured goods. The insurer, in turn, filed a
 005 Great Pacific Life v. CA (Rosales)
April 30, 1979 | De Castro, J. | Insurance Contract Interpretation
PETITIONER: Great Pacific Life Assurance Company; Lapulapu D.
Mondragon
RESPONDENTS: Court of Appeals; Ngo Hing
SUMMARY: Ngo Hing filed an application with the Great Pacific Life
Assurance for a twenty-year endownment policy in the amount of P50,000.00 on
the life of his one-year old daughter Helen Go. Pacific Life supplied the essential
data which Lapulapu D. Mondragon, Branch Manager of the Pacific Life in
Cebu City wrote on the corresponding form. Upon the payment of the insurance
premuim, the binding deposit receipt was issued to Ngo Hing. Likewise,
Mondragon handwrote at the bottom of the back page of the application form his
strong recommendation for the approval of the insurance application.
Mondragon received a letter from Pacific Life disapproving the insurance
application. The non-acceptance of the insurance plan by Pacific Life was
allegedly not communicated by Mondragon to Ngo Hing. Instead, Mondragon
wrote back Pacific Life again strongly recommending the approval of the 20-
year endowment insurance plan. Helen Go died of influenza with complication
of bronchopneumonia. Thereupon, Ngo Hing 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. Issue is WoN the binding deposit receipt constituted a
temporary contract of the life insurance in question? The SC held NO, because
there is an absence of a meeting of the minds between Pacific Life and Ngo Hing
and there is and non-compliance of the abovequoted conditions stated in the
disputed binding deposit receipt. As held by this Court, where an agreement is
made between the applicant and the agent, no liability shall attach until the
principal approves the risk and a receipt is given by the agent. The acceptance is
merely conditional and is subordinated to the act of the company in approving or
rejecting the application. Thus, in life insurance, a "binding slip" or "binding
receipt" does not insure by itself.
DOCTRINE: A contract of insurance, like other contracts, must be assented to
by both parties either in person or by their agents ... The contract, to be binding
from the date of the application, must have been a completed contract, one that
leaves nothing to be dione, nothing to be completed, nothing to be passed upon,
or determined, before it shall take effect. There can be no contract of insurance
unless the minds of the parties have met in agreement.
FACTS:
1.   It appears that on March 14, 1957, Ngo Hing filed an application with the
Great Pacific Life Assurance for a twenty-year endownment policy in the
amount of P50,000.00 on the life of his one-year old daughter Helen Go.
Pacific Life supplied the essential data which Lapulapu D. Mondragon,
Branch Manager of the Pacific Life in Cebu City wrote on the
corresponding form in his own handwriting. Mondragon finally type-wrote
the data on the application form which was signed by Ngo Hing.
2.   The Ngo Hing paid the annual premuim the sum of P1,077.75 going over to
the Company, but he retained the amount of P1,317.00 as his commission
for being a duly authorized agent of Pacific Life. Upon the payment of the
insurance premuim, the binding deposit receipt was issued to Ngo Hing.
Likewise, Mondragon handwrote at the bottom of the back page of the
application form his strong recommendation for the approval of the
insurance application. Then on April 30, 1957, Mondragon received a letter
from Pacific Life disapproving the insurance application. The letter stated
that the said life insurance application for 20-year endowment plan is not
available for minors below seven years old, but Pacific Life can consider
the same under the Juvenile Triple Action Plan, and advised that if the offer
is acceptable, the Juvenile Non-Medical Declaration be sent to the
company.
3.   The non-acceptance of the insurance plan by Pacific Life was allegedly not
communicated by Mondragon to Ngo Hing. Instead, on May 6, 1957,
Mondragon wrote back Pacific Life again strongly recommending the
approval of the 20-year endowment insurance plan to children, pointing out
that since 1954 the customers, especially the Chinese, were asking for such
coverage.
4.   It was when things were in such state that on May 28, 1957 Helen Go died
of influenza with complication of bronchopneumonia. Thereupon, Ngo
Hing 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 refered to against both Pacific Life and Mondragon.
ISSUE/s:
6.   WoN the binding deposit receipt constituted a temporary contract of the life
insurance in question – NO, because there is an absence of a meeting of the
minds between Pacific Life and Ngo Hing and there is and non-compliance
of the abovequoted conditions stated in the disputed binding deposit receipt.
RULING: WHEREFORE, the decision appealed from is hereby set aside, and in
lieu thereof, one is hereby entered absolving petitioners Lapulapu D. Mondragon and
Great Pacific Life Assurance Company from their civil liabilities as found by
respondent Court and ordering the aforesaid insurance company to reimburse the
amount of P1,077.75, without interest, to private respondent, Ngo Hing. Costs
against private respondent.
RATIO:
1.   At the back of the binding receipt are condition precedents required before a
deposit is considered a BINDING RECEIPT. The aforequoted provisions
printed show that 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 reftmded; and
(3)   that if the applicant is not able 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.
2.   Clearly implied from the aforesaid conditions is that the binding deposit
receipt in question is merely an acknowledgment, on behalf of the company,
that the latter's branch office had received from the applicant the insurance
premium and had accepted the application subject for processing by the
insurance company; and that the latter will either approve or reject the same
on the basis of whether or not the applicant is "insurable on standard rates."
Since Pacific Life disapproved the insurance application of Ngo Hing, the
binding deposit receipt in question had never become in force at any time.
3.   Upon this premise, the binding deposit receipt is, manifestly, merely
conditional and does not insure outright. As held by this Court, where an
agreement is made between the applicant and the agent, no liability
shall attach until the principal approves the risk and a receipt is given
by the agent. The acceptance is merely conditional and is subordinated
to the act of the company in approving or rejecting the application.
Thus, in life insurance, a "binding slip" or "binding receipt" does not
insure by itself.
4.   In the absence of a meeting of the minds between Pacific Life and Ngo
Hing over the 20-year endowment life insurance in the amount of
P50,000.00 in favor of the latter's one-year old daughter, and with the non-
compliance of the abovequoted conditions stated in the disputed binding
deposit receipt, there could have been no insurance contract duly perfected
between the, Accordingly, the deposit paid by Ngo Hing shall have to be
refunded by Pacific Life.
5.   As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a
contract of insurance, like other contracts, must be assented to by both
parties either in person or by their agents ... The contract, to be binding
from the date of the application, must have been a completed contract,
one that leaves nothing to be dione, nothing to be completed, nothing to
be passed upon, or determined, before it shall take effect. There can be
no contract of insurance unless the minds of the parties have met in
agreement."
6.   We are not impressed with Ngo Hing’s contention that failure of
Mondragon to communicate to him the rejection of the insurance
application would not have any adverse effect on the allegedly perfected
temporary contract. There was no contract perfected between the parties
who had no meeting of their minds. Ngo Hing, being an authorized
insurance agent of Pacific Life at Cebu branch office, is indubitably aware
that said company does not offer the life insurance applied for. When he
filed the insurance application in dispute, Ngo Hing was, therefore, only
taking the chance that Pacific Life will approve the recommendation of
Mondragon for the acceptance and approval of the application in question
along with his proposal that the insurance company starts to offer the 20-
year endowment insurance plan for children less than seven years.
Nonetheless, the record discloses that Pacific Life had rejected the proposal
and recommendation.
7.   Also, having an insurable interest on the life of his one-year old daughter,
aside from being an insurance agent and an offense associate of
Mondragon, Ngo Hing must have known and followed the progress on the
processing of such application and could not pretend ignorance of the
Company's rejection of the 20-year endowment life insurance application.
8.   With regard to the issue that Ngo Hing concealed the state of health and
physical condition of Helen Go, which rendered void the aforesaid Binding
Receipt, where he supplied the required essential data for the insurance
application form, he was fully aware that his one-year old daughter is
typically a mongoloid child. Such a congenital physical defect could never
be ensconced nor disguished. Nonetheless, Ngo Hing, in apparent bad faith,
withheld the fact materal to the risk to be assumed by the insurance
compary. As an insurance agent of Pacific Life, he ought to know, as he
surely must have known his duty and responsibility to such a material fact.
9.   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. Concealment is a neglect to
communicate that which a party knows and ought to communicate. Whether
intentional or unintentional the concealment entitles the insurer to rescind
the contract of insurance.
 006 AMERICAN HOME ASSURANCE COMPANY v. TANTUCO
ENTERPRISES (Sabaupan) FACTS:
8 October 2001 | Puno, J. | Insurance Contract Interpretation 31.   Tantuco Enterprises, Inc., engaged in the coconut oil milling and refining
industry, owns two oil mills. Both are located at its factory compound in
Lucena City. Initially, it has only one oil mill. It started operating its second
PETITIONER: American Home Assurance Company
oil mill in 1988 and this oil mill is commonly referred to as the new oil mill.
RESPONDENTS: Tantuco Enterprises, Inc.
32.   The two oil mills were separately covered by fire insurance policies issued
by American Home Assurance Co., Philippine Branch. The first oil mill
SUMMARY: Tantuco Enterprises owns two oil mills, one of which was
was insured for P3 million for the period 1 March 1991 to 1992 while the
commonly referred to as the new oil mill. Both oil mills are covered by
new oil mill is insured for P6 million for the same term.
insurance policy from American Home Assurance for P3 million and P6 million.
33.   In September 1991, a fire broke out which gutted and consumed the new oil
A fire broke which gutted and consumed the new oil mill. Tantuco immediately
mill. Tantuco immediately notified American Home of the incident. After
informed the insurance company of the incident. However, the insurance
inspection, American Home rejected Tantuco’s claim for the insurance
company refused to pay on the ground that the building covered as specified by
proceeds on the ground that no policy was issued by it covering the burned
the boundaries stated in the policy is not the building that was gutted by fire.
oil mill. It stated that the description of the insured establishment referred to
Tantuco filed a claim for specific performance and damages with the RTC. The
another building. The policies allegedly extend insurance coverage to oil
RTC and CA both ruled that American Home Assurance is liable under the
mill under Building No. 5, whilst the affected oil mill is under Building No.
insurance policy. The issue is whether the insurance policy covers the new oil
14.
mill. The Supreme Court ruled in the affirmative. Notwithstanding the
34.   Tantuco instituted a complaint for specific performance and damages with
misdescription in the policy, it is beyond dispute that what the parties manifestly
the RTC. The lower court ruled that American Home is liable on the
intended to insure was the new oil mill. This is obvious from the categorical
insurance policy. On appeal, the CA affirmed. Hence, the instant petition.
statement embodied in the policy, extending its protection the equipment and
35.   American Home’s arguments:
accessories contained in the new oil mill building. If the parties really intended
a.   The burned oil mill is not covered by any insurance policy. The oil
to protect the first oil mill, then there is no need to specify it as new. It would be
mill insured is specifically described in the policy by its boundaries
absurd to assume the Tantuco would protect its first oil mill for different
and the oil mill gutted by fire was not the one described by the
amounts and leave uncovered the new oil mill. The imperfection in the
specific boundaries in the contested policy.
description of the insured oil mill’s boundaries can be attributed to a
b.   Tantuco did not have the supposed wrong description or mistake
misunderstanding between American Home’s general agent, Mr. Borja, and its
corrected despite the fact that the policy was issued 3 years before
policy issuing clerk, who made the error of copying the boundaries of the first oil
the dire and the despite the “Important Notice” in the policy that
mill when typing the policy to be issued for the new one. Mr. Borja testified that
states “Please read and examine the policy and if incorrect, return
the intention of Tantuco is to cover the new oil mill and the policy issuing clerk
it immediately for alteration.”
copied the description of the boundaries from the old policy, but she inserted
c.   Tantuco is barred by the parole evidence rule from presenting
covering the new oil mill, and to Mr. Borja, the important thing is that it covered
evidence other than the policy of its self-serving intention that it
the new oil mill because it is just within one compound and there are only two
intended really to insure the burned oil mill just as it is barred by
oil mills. It is thus clear that the source of the discrepancy happened during the
estoppel from claiming that the description of the insured oil mill
preparation of the written contract.
in the policy was wrong.
d.   Tantuco forfeited the renewal policy for its failure to pay the full
DOCTRINE: In view of the custom of insurance agents to examine buildings
amount of the premium and breach of the Fire Extinguishing
before writing policies upon them, and since a mistake as to the identity and
Appliances Warranty.
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
ISSUE/s:
intended to insure, however inaccurate the description may be.
7.   Whether insurance policy covers the new oil mill. YES because the intent
was the parties was to cover the new oil mill and the courts are inclined to
In determining what the parties intended, the courts will read and construe the
consider that the policy of insurance covers any building which the parties
policy as a whole and if possible, give effect to all the parts of the contract,
manifestly intended to insure, however inaccurate the description may be.
keeping in mind always, however, the prime rule that in the event of doubt, this
doubt is to be resolved against the insurer.
RULING: Judgment in question is affirmed. Petition dismissed.
RATIO:
Insurance Issue
20.   In construing the words used descriptive of a building insured, the greatest
liberality is shown by the courts in giving effect to the insurance. 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.
21.   Notwithstanding the misdescription in the policy, it is beyond dispute 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 x x x”
22.   If the parties really intended to protect the first oil mill, then there is no
need to specify it as new. It would be absurd to assume the Tantuco would
protect its first oil mill for different amounts and leave uncovered the new
oil mill. It is unthinkable for Tantuco to obtain the other policy from the
very same company considering that the first oil mill is already insured. The
latter ought to know that a second agreement over the same realty results in
its overinsurance.
23.   The imperfection in the description of the insured oil mill’s boundaries can
be attributed to a misunderstanding between American Home’s general
agent, Mr. 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. Mr. Borja testified that the intention of Tantuco is to
cover the new oil mill and the policy issuing clerk copied the description of
the boundaries from the old policy but she inserted covering the new oil
mill, and to Mr. Borja, the important thing is that it covered the new oil mill
because it is just within one compound and there are only two oil mills. It is
thus clear that the source of the discrepancy happened during the
preparation of the written contract.
24.   The object of the court in construing a contract is to ascertain the intent of
the parties 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.
25.   On the claim of non-payment of premiums, the CA refused to consider such
on the ground that said issue was raised for the first time on appeal, hence,
beyond its jurisdiction to resolve. The SC agrees. Moreover, American
Home fatally neglected to present, during the whole course of the trial, any
witness to testify that Tantuco indeed failed to pay the full amount of the
premium.
26.   On the claim of violation of warranty, the SC held that the warranty did not
require Tantuco to provide for all the fire extinguishing appliances (portable
extinguishers, internal and external hydrants, fire pump, and 24-hour
security services) enumerated therein. Neither did it require that the
appliances are restricted to those mentioned in the warranty. What the
warranty mandates is that Tantuco should maintain in efficient working
condition within the premises of the insured property, firefighting
equipment such as, but not limited to, those identified in the list. Tantuco
was compliant with the warranty for within the vicinity of the new oil mill
are the following: numerous portable fire extinguishers, two fire hoses, fire
hydrant, and an emergency fire engine.
27.   Not only are warranties strictly construed against the insurer, but they
should by themselves be reasonably interpreted. That reasonableness is to
be ascertained in light of the factual conditions prevailing in each case. in
this case, there is no more need for an internal hydrant considering that
inside the burned building were numerous portable fire extinguishers, an
emergency fire engine, and a fire hose which has a connection to one of the
external hydrants.
Evidence issue
28.   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 its failure to express the true intent and agreement of
the parties thereto.
29.   In this case, the contractual intention of the parties cannot be understood
from a mere reading of the instrument. 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.
30.   On the claim of estoppel, the Court ruled that evidence on record reveals
that Tantuco’s operating manager notified Mr. Borja about the inaccurate
description in the policy. However, Mr. Borja assured Tantuco that the use
of the adjective new will distinguish the insured property. The assurance
convinced Tantuco that despite the impreciseness in the specification of the
boundaries, the insurance will cover the new oil mill.
 RIZAL SURETY v. CA (Saldua)
July 18, 2000 | Purisima J. | Art. 1377, New Civil Code
PETITIONER: Rizal Surety & Insurance Company
RESPONDENTS: Court of Appeals and Transworld Knitting Mills, Inc.
SUMMARY:
Rizal Surety & Insurance Company issued Fire Insurance Policy No. 45727 in
favor of Transworld Knitting Mills, Inc. initially for ₱1M, and eventually increased
to ₱1.5M covering the period from August 14, 1980 to March 13, 1981. On January
12, 1981, a fire broke out in the compound of Transworld razing the middle portion
of its Main Building and partly gutting the left and right sections thereof. A 2-
storey annex building (behind the four-span building) where fun and amusement
machines and spare parts were stored, was also destroyed by the fire. Transworld
filed its insurance claims with Rizal Surety and New India Assurance Company,
but to no avail. On May 26, 1982 Transworld brought against the said insurance
companies an action for collection of sum of money and damages. Meanwhile,
Rizal Insurance countered that the subject fire insurance policy with Transworld
covered only the ocntents of the 4-span building (which was party burned), and
does not cover the damage caused by the fire on the 2-storey annex building.
Issue is WON the subject fire insurance policy protected only the contents of the
main building and did not include those stored in the annex building = NO. The
subject fire insurance policy protected both the contents of the main building and
the annex building. In this case, the loer courts found the so-called annex was
actually an integral and inseparable part of the four-span building described in the
policy. Consequently, the machines and spare parts stored in the annex were
covered by the stipulations in the subject fire insurance policy. Verily, the 2-storey
annex building involved a permanent structure which adjoins and
intercommunicates with the first right span of the lofty story main building, formed
part thereof, and meets the requisites for compensability under the fire insurance
policy sued upon. Moreover, the issue of whether or not private respondent 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 the case of New
India Assurance Company vs. CA. Accordingly, the assailed decision and
resolution of the Court of Appeals were affirmed.
DOCTRINE: The stipulation as to the coverage of the fire insurance policy under
controversy has created a doubt regarding the portions of the building insured
thereby. Article 1377 of the New Civil Code provides: "Art. 1377. The
interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity"
FACTS:
1.   On March 13, 1980, Rizal Insurance issued Fire Insurance Policy No.
45727 in favor of Transworld Knitting Mills Inc. (initialy for ₱1M and
eventually increased to ₱1.5M). It covered the period from Aug. 14, 1980 –
Mar. 13, 1981. The buildings covered by the said fire insurance policy were
also insured with New India Assurance Company, Ltd.
2.   On Jan. 12, 1981, a fire broke out in the compound of Transworld. The fire
razed the middle portion of its four-span building (hereinafter referred to as
“Main Building”). It also partly gutted ( and thus was also destroyed by the
fire) the left and right sections of the building (behind the said 4-span
building) where fun & amusement machines and spareparts were stored
(hereinafter reffered to as “Annex or Annex Building”).
3.   Transworld filed its insurance claims with Rizal Surety and New India
Assurance, but to no avail.
4.   Thus, Transworld brought against them an action for collection of sum of
money and damages praying for judgment ordering Rizal Insurance and
New India to pay the amount of ₱2,747,867.00 plus legal interest,
₱400,000.00 as attorney's fees, exemplary damages, expenses of litigation
of ₱50,000.00 and costs of suit.
5.   Meanwhile, Rizal Insurance countered that the subject fire insurance policy
with Transworld covered only the ocntents of the 4-span building (which
was party burned), and does not cover the damage caused by the fire on the
2-storey annex building.
6.   Trial Court = Dismissed the case against New India. Ordered Rizal Surety
to pay Transworld ₱826,500.00 representing the actual value of the losses
suffered by it.
7.   CA = New India is ordered to pay ₱1,818,604.19 while Rizal Surety has to
pay Transworld ₱470,328.67, based on the actual losses sustained in the
fire. Total amount of ₱2,790,376.00 is against the amounts of fire insurance
coverages respectively extended by New India (₱5,800,000.00) and Rizal
Surety (₱1,500,000.00).
8.   On Aug. 20, 1993, New India appealed the above order on the ground that
Transworld could not be compensated for the loss of the Annex Building
because Transworld had no insurable interest in the goods/items stored
therein. However, CA denied this appeal with finality.
ISSUE/s:
1.   WON the subject fire insurance policy protected only the contents of the
main building and did not include those stored in the annex building. NO.
The subject fire insurance policy protected both the contents of the main
building and the annex building.
RULING: WHEREFORE, the Decision, dated July 15, 1993, and the Resolution,
dated October 22, 1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are
AFFIRMED in toto. No pronouncement as to costs. SO ORDERED.
RATIO:
1.   The resolution of this case depends upon the interpretation of the stipulation
in the subject fire insurance policy with reference to the coverage reads:
". . . contained and/or stored during the currency of
this Policy in the premises occupied by them
 forming part of the buildings situate (sic) within
own Compound . . ."
2.   Thus, it can be understood from the stipulation that the subject fire
insurance policy did not limit its coverage to what were stored in the main
building only. As said by the RTC, 2 requirements must concur in order
that the Annex Building can be said to be protected by the subject fire
insurance policy:
A.   Said properties must be contained and/or stored in the areas
occupied by Transworld.
B.   Said areas must form part of the building described in the
policy.
3.   In this case, both the RTC and CA found that the Annex was actually an
integral and inseparable part of the main building described in the
policy. Consequently, the fun & amusement machines and spare parts
stored in the Annex Building are also covered by the subject fire
insurance policy.7
4.   The annex building (w/c is a 2-storey building) is a permanent structure w/c
adjoins and intercommunicates with the right span of the lofty storey
building formed part of said lofty storey building. Hence, it meets the
requisites for compensability under the subject fire insurance policy.
5.   Moreover, the 2-storey building (annex) was built in 1978, and the subject
fire insurance policy contract was entered into on Jan. 12, 1981. Given this,
Rizal Surety should have specifically excluded the said 2-storey annex
building from the coverage of the fire insurance.
6.   But Rizal Surety did not, and instead, it went on to provide that the said fire
insurance policy covers the products, raw materials and supplied that are
stored within the premises of Transworld which was an integral part of the
4-span main building occupied by Transworld. This is in spite knowing
fully well about the existence of the annex building that is adjoining and
intercommunicating with the right subject of the main building.
7.   Also, Article 1377, New Civil Code provides that the “interpretation of
obscure words or stipulations in a contract shall not favor the party
who caused the obscurity.” Thus, the doubt should be resolved against
Rizal Surety whose lawyer/managers drafted the subject fire insurance
policy.
8.   Considering that Transworld’s insurable interest in, and compensability for
the loss of subject fun and amusement machines and spare parts, had been
adjudicated, settled and sustained by the Court of Appeals (see fact #8) can
no longer be litigated, Rizal Surety is thus bound by this ruling.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
Annex Building - 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.
 008 PERLA COMPANIA v. CA (EMAR)
May 28, 1990 | Fernan, C.J. | Insurance Contract Interpretation
PETITIONER: PERLA COMPANIA DE SEGUROS, INC.
RESPONDENTS: CA and MILAGRO CAYAS
SUMMARY: Cayas’ bus, insured by Perla Compania, figured in an accident, injuring
people. 3 injured entered into a settlement with Cayas to which Cayas paid P4k/person
while Perea filed a case against Cayas for damages in which the court ruled in favor of
Perea because Cayas failed to appear in the pre-trial and hence, she was declared as in
default. Cayas filed a complaint for a sum of money and damages against Perla
Compania (for items in Fact #5a-f). The CFI ordered Perla Compania P50k for the
injured passengers. CA affirmed. Perla Compania alleges that its liability should be
limited to a total of P12k, and that it should not be ordered to reimburse Cayas’
payments to the 3 injured with whom she entered a settlement without Perla
Compania’s written consent. The SC ruled in favor of Perla Compania, on the grounds
that the insurance policy explicitly limits Perla Compania’s liability to P12k/person;
and required Perla Compania’s written consent before any payment in settlement
of any claim could be made. Cayas is precluded from seeking reimbursement of
the payments made to the 3 injured in view of her failure to comply with the
condition contained in the insurance policy
DOCTRINE: The terms of the contract constitute the measure of the insurer's liability
and compliance therewith is a condition precedent to the insured's right of recovery
from the insurer.
FACTS:
1.   Cayas was the registered owner of a Mazda bus which was insured with Perla
Compania on February 3, 1978.
2.   December 1978: the bus figured in an accident in Naic, Cavite injuring several
passengers including19-year old Perea who sued Cayas for damages in the CFI;
and del Carmen, Magsarili and Antolin who agreed to a settlement of P4k each.
3.   Cayas failed to appear in the pre-trial and hence, she was declared as in
default. CFI decided in favor of Perea.
4.   When the decision was about to be executed, Cayas filed a complaint against
Perla Compania in the Office of the Insurance Commissioner praying that Perla
Compania be ordered to pay P40k for all the claims against her arising from the
vehicular accident plus legal and other expenses. Realizing her procedural
mistake, she later withdrew said complaint.
5.   November 11, 1981: Cayas filed a complaint for a sum of money and damages
against Perla Compania in the CFI, alleging that:
a.   to satisfy the judgment in her previous case, her house and lot were sold at
public auction for P38k;
b.   to avoid numerous suits and the "detention" of the insured vehicle, she paid
P4k to each of the 4 injured passengers;
c.   she could not have suffered said financial setback had the counsel for Perla
Compania, who also represented her, appeared at the trial and attended to the
claims of the 3 other victims;
d.   she sought reimbursement of said amounts from the Perla Compania, which
notwithstanding the fact that her claim was within its contractual liability
under the insurance policy, refused to make such re-imbursement;
e.   she suffered moral damages as a consequence of such refusal, and
f.   she was constrained to secure the services of counsel to protect her rights;
and praying that judgment be rendered directing Perla Compania to pay:
a.   P50k for compensation of the injured victims, such sum as the
court might approximate as damages, and
b.   P6k as atty's fees.
6.   Because of Cayas' failure to prosecute the case, the court motu propio ordered
dismissal without prejudice. Cayas filed an MR, alleging:
a.   She did not receive a copy of the answer to the complaint, and
b.   "out of sportsmanship", she did not file a motion to hold Perla Compania in
default.
7.   March 1982: The MR was granted.
8.   2 months later: Cayas filed a motion to declare Perla Compania in default for
failure to file an answer. The motion was granted and Cayas was allowed to
adduce evidence ex-parte. The court rendered judgment by default and ordered
Perla Compania to pay Cayas
a.   P50k as compensation for the injured passengers,
b.   P5k as moral damages and
c.   P5k as atty’s fees.
9.   Said decision was set aside after the Perla Compania filed a motion therefor.
Trial of the case ensued.
a.   Perla Compania’s defense: before it can be made to pay, the liability must
first be determined in an appropriate court action.
b.   Despite CFI’s determination of liability, Perla Compania sought escape from
its obligation by saying that Cayas lost the case due to her negligence
because of which, efforts exerted by Perla Compania’s lawyers in
protecting Cayas' rights proved futile and rendered nugatory. It alleges
that had Cayas cooperated fully with Perla Compania’s lawyers, the
latter could have won the suit and thus relieved of any obligation to
Perea. Even accepting Perla Compania’s postulate, it cannot be said, nor
was it shown positively and convincingly, that if the case had proceeded
on trial on the merits, a decision favorable to Cayas could have been
obtained. Nor was it definitely established that if the pre-trial was
undertaken in that case, defendant's lawyers could have mitigated the claim
for damages by Perea against Cayas.
c.   The court: There being proof that Cayas was compelled to engage the
services of counsel to protect her rights under the insurance policy, the
court granted P5k atty's fees.
10.   May 8, 1987: CA affirmed in toto the decision. MR was denied.
11.   Perla Compania seeks, before the SC, to limit its liability only to the payment
made by Cayas to Perea and only up to the amount of P12K. It denies liability
for Cayas’ payments to the other 3 injured passengers for a total of P12k.
ISSUES:
1.   WON Perla Compania should pay only P12k – YES, as limited by the contract.
2.   WON Cayas is precluded from seeking reimbursement of the payments
made to the 3 injured– YES because in view of her failure to comply with the
condition in the insurance policy to secure Perla Compania’s written consent
RULING: CA decision is modified in that Perla Compania shall pay Cayas P12k
plus legal interest from the promulgation of the decision of the lower court until it is
fully paid and P5k atty's fees. No pronouncement as to costs.
RATIO:
1.   There is merit in La Compania’s assertions.
2.   The insurance policy involved explicitly limits Perla Compania’s liability to
P12k/person and to P50k/accident. Pertinent provisions of the policy state:
SECTION I-Liability to the Public
xxx xxx xxx
3. The Limit of Liability stated in Schedule A as applicable
(a) to 3rd PARTY is the limit of the Company's liability for all damages arising out of death, bodily injury
and damage to property combined so sustained as the result of any 1 accident;
(b) "per person" for PASSENGER liability is the limit of the Company's liability for all damages arising
out of death or bodily injury sustained by one person as the result of any one accident:
(c) "per accident" for PASSENGER liability is, subject to the above provisions respecting per person, the
total limit of the Company's liability for all such damages arising out of death or bodily injury sustained
by two or more persons as the result of any one accident.
Conditions Applicable to All Sections
xxx xxx xxx
5. No admission, offer, promise or payment shall be made by or on behalf of the insured without the
written consent of the Company which shall be entitled, if it so desires, to take over and conduct in his
name the defense or settlement of any claim, or to prosecute in his name for its own benefit any claim for
indemnity or damages or otherwise, and shall have full discretion in the conduct of any proceedings in the
settlement of any claim, and the insured shall give all such information and assistance as the Company
may require. If the Company shall make any payment in settlement of any claim, and such payment
includes any amount not covered by this Policy, the Insured shall repay the Company the amount not so
covered.
3.   Stokes vs. Malayan Insurance Co.: The terms of the contract constitute the
measure of the insurer's liability and compliance therewith is a condition
precedent to the insured's right of recovery from the insurer.
4.   Here, the insurance policy clearly and categorically placed Perla Compania’s
liability for all damages arising out of death/bodily injury sustained by 1
person as a result of any 1 accident at P12k.
5.   Said amount complied with the minimum fixed by the law then prevailing,
Sec. 377, PD612 (which was retained by P.D. No. 1460, the Insurance Code of
1978), providing that the liability of land transportation vehicle operators for
bodily injuries sustained by a passenger arising out of the use of their
vehicles shall not be less than P12k, which means that the minimum liability is
P12k/passenger.
6.   Perla Compania’s liability under the insurance contract not being less than
P12k, and therefore not contrary to law, morals, good customs, public
order or public policy, said stipulation must be upheld as effective, valid
and binding as between the parties.
7.   SC ruled as valid and binding upon Cayas the condition requiring her to secure
the written permission of petitioner before effecting any payment in
settlement of any claim against her. There is nothing unreasonable, arbitrary
or objectionable in this stipulation as would warrant its nullification. The same
was obviously designed to safeguard the insurer's interest against collusion
between the insured and the claimants.
8.   In her cross-examination, Cayas admitted, thus:
Atty. Yabut:
Q: With respect to the other injured passengers of your bus wherein you made payments you did not
secure the consent of Perla Compania when you made those payments?
A: I informed them about that.
Q: But they did not give you the written authority that you were supposed to pay those claims?
A: No, sir.
9.   It being specifically required that Perla Compania’s written consent be first
secured before any payment in settlement of any claim could be made,
Cayas is precluded from seeking reimbursement of the payments made to
the 3 injured in view of her failure to comply with the condition contained in the
insurance policy.
10.   The principle that contracts are respected as the law between the contracting
parties finds application in the present case. Thus, it was error on the part of
the TC and CA to disregard the stipulations of the parties and to have substituted
their own interpretation of the insurance policy.
11.   Phil. American General Insurance vs. Mutuc: Contracts, private laws of the
contracting parties, should be fulfilled according to the literal sense of their
stipulations, if their terms are clear and leave no room for doubt as to the
intention of the contracting parties, for contracts are obligatory, no matter what
form they may be, whenever the essential requisites for their validity are present.
12.   Pacific Oxygen & Acetylene Co. vs. Central Bank: The first and fundamental
duty of the courts is the application of the law according to its express terms,
interpretation being called for only when such literal application is
impossible.
13.   Patent error: Although Cayas was able to prove a total loss of only P44k,
Perla Compania was made liable for the amount of P50k, the maximum
liability per accident stipulated in the policy. An insurance indemnity, being
merely an assistance or restitution insofar as can be fairly ascertained, cannot be
availed of by any accident victim or claimant as an instrument of enrichment by
reason of an accident.
14.   SC found no reason to disturb the award of atty's fees.
 009 Zenith Insurance v. CA (Sarmiento)
May 14, 1990 | Medialeda, J. | Insurance—damages
PETITIONER: Zenith Insurance Corporation
FACTS:
RESPONDENTS: Court of Appeals and Lawrence Fernandez
SUMMARY: Lawrence Fernandez insured his car for own damages under a
private car with petitioner Zenith Insurance. The car had an accident and
suffered actual damages in the amount of P3,640.00. Afer being given a run
around by Zenith for 2 months, Fernandez filed a complaint for sum of money
with damages resulting from the refusal of Zenith to pay the amount claimed. A
decision was rendered by the trial court A decision was rendered by the trial
court in favor of private respondent Fernandez. Zenith Insurance was ordered to
pay Fernandez, the amount of P3,640.00 representing the damage incurred plus
interest at the rate of twice the prevailing interest rates; P20,000.00 by way of
moral damages; P20,000.00 by way of exemplary damages, amount of
P5,000.00 as attorney’s fees; amount of P3,000.00 as litigation expenses. Zenith
insurance filed an appeal. Zenith questions the award of moral, exemplary
damages and attorney’s fees in an amount more than prayed for in the complaint.
The award of damages in case of unreasonable delay in the payment of insurance
claims is governed by the Philippine Insurance Code. It is clear that under the
Insurance Code, in case of unreasonable delay in the payment of the proceeds
of an insurance policy, the damages that may be awarded are: 1) attorney’s fees;
2) other expenses incurred by the insured person by reason of such unreasonable
denial or withholding of payment; 3) interest at twice the ceiling prescribed by
the Monetary Board of the amount of the claim due the injured; and 4) the
amount of the claim. As regards the moral and exemplary damages, it governed
by the New Civil Code. The act of petitioner Zenith of delaying payment for two
months cannot be considered as so wanton or malevolent to justify an award of
P20,000.00 as moral damages, taking into consideration also the fact that the
actual damage on the car was only P3,640. Moral damages of P10,000 is
equitable. On the other hand, exemplary or corrective damages are imposed,
by way of example or correction for the public good. The amount of P5,000.00
awarded as attorney’s fees is justified under the circumstances. As regards the
actual damages incurred by private respondent, the amount of P3,640.00 had
been established. Policy does not also mention the policy,
any deductible franchise.
DOCTRINE: It is clear that under the Insurance Code, in case of unreasonable
delay in the payment of the proceeds of an insurance policy, the damages that
may be awarded are: 1) attorney’s fees; 2) other expenses incurred by the
insured person by reason of such unreasonable denial or
withholding of payment; 3) interest at twice the ceiling prescribed by the
Monetary Board of the amount of the claim due the injured; and 4) the amount of
the claim. And under the new civil code, moral and exemplary damages can be
awarded as well.
1.   Private respondent Lawrence Fernandez insured his car for “own damage”
under private car Policy No. 50459 with petitioner Zenith Insurance
Corporation.
2.   The car figured in an accident and suffered actual damages in the amount of
P3,640.00. After allegedly being given a run around by Zenith for two (2)
months, Fernandez filed a complaint with the Regional Trial Court
of Cebu for sum of money and damages resulting from the refusal of Zenith
to pay the amount claimed.
3.   Zenith filed an answer alleging that it offered to pay the claim of Fernandez
pursuant to the terms and conditions of the contract which, the private
respondent rejected.
a.   Zenith wanted to settle the case, but it did not push through. Trial
ensued, and Fernandez presented his evidence. Zenith, however
failed to present its evidence, without any justifiable reason. The
trial court issued an order submitting the case for decision without
Zenith’s evidence.
b.   Zenith filed a petition for certiorari with the Court of Appeals
assailing the order of the trial court submitting the case for
decision without petitioner’s evidence. However, the petition was
denied
4.   A decision was rendered by the trial court in favor of private respondent
Fernandez. Zenith Insurance was ordered to pay Fernandez,
a.   The amount of P3,640.00 representing the damage incurred plus
interest at the rate of twice the prevailing interest rates;
b.   The amount of P20,000.00 by way of moral damages;
c.   The amount of P20,000.00 by way of exemplary damages;
d.   The amount of P5,000.00 as attorney’s fees;
e.   The amount of P3,000.00 as litigation expenses; and
f.   Costs.
5.   Upon motion of Fernandez and before the expiration of the period to appeal,
the trial court, ordered the execution of the decision pending appeal.
a.   The order was assailed by petitioner in a petition
for certiorari with the Court of Appeals but which petition was
also dismissed.
b.   Petitioner filed a notice of appeal before the trial court.
 i.   The notice of appeal was granted in the same order
granting private respondent’s motion for execution
pending appeal.
ISSUE: Whehter or not the award of moral and exemplary damages is
proper—NO. Moral damages cannot be awarded because there was no bad faith on
the part of Zenith in delaying the payment of the proceeds.
RULING: ACCORDINGLY, the appealed decision is MODIFIED as above stated.
RATIO:
1.   Court of Appeals rendered its decision affirming in toto the decision of the
trial court. It also ruled that the matter of the trial court’s denial of
Fernandez’ right to adduce evidence is a closed matter in view of its (CA)
ruling in AC-G.R. 04644 wherein Zenith’s petition questioning the trial
court’s order submitting the case for decision without Zenith’s evidence,
was dismissed
a.   The Motion for Reconsideration of the decision of the Court of
Appeals was denied for lack of merit.
b.   Hence, the instant petition was filed by Zenith on the allegation
that respondent Court of Appeals’ decision and resolution ran
counter to applicable decisions of this Court and that they were
rendered without or in excess of jurisdiction.
2.   Zenith insurance questions the legal basis of the CA in awarding moral
damages, exemplary damages and attorney’s fees in an amount more than
that prayed for in the complaint.
a.   The award of actual damages of P3,640.00 instead of only
P1,927.50 which was arrived at after deducting P250.00
and P274.00 as deductible franchise and 20% depreciation on parts
as agreed upon in the contract of insurance.
b.   Petitioner contends that while the complaint of private respondent
prayed for P10,000.00 moral damages, the lower court awarded
twice the amount, or P20,000.00 without factual or legal basis;
while private respondent prayed for P5,000.00 exemplary
damages, the trial court awarded P20,000.00; and while private
respondent prayed for P3,000.00 attorney’s fees, the trial court
awarded P5,000.00.
3.   The propriety of the award of moral damages, exemplary damages and
attorney’s fees is the main issue raised herein by Zenith.
4.   The award of damages in case of unreasonable delay in the payment of
insurance claims is governed by the Philippine Insurance Code, which
provides:
a.   “SEC. 244. In case of any litigation for the enforcement of any
policy or contract of insurance, it shall be the duty of the
Commissioner or the Court, as the case may be, to make a finding
as to whether the payment of the claim of the insured has
been unreasonably denied or withheld; and in the affirmative case,
the insurance company shall be adjudged to pay damages which
shall consist of attorney’s fees and other expenses incurred by the
insured person by reason of such unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed
by the Monetary Board of the amount of the claim due the insured,
from the date following the time prescribed in section two hundred
forty-two or in section two hundred forty-three, as the case may be,
until the claim is fully satisfied; Provided, That the failure to pay
any such claim within the time prescribed in said sections shall be
considered prima facie evidence of unreasonable delay in
payment.”
5.   It is clear that under the Insurance Code, in case of unreasonable delay in
the payment of the proceeds of an insurance policy, the damages that may
be awarded are: 1) attorney’s fees; 2) other expenses incurred by the
insured person by reason of such unreasonable denial or
withholding of payment; 3) interest at twice the ceiling prescribed by the
Monetary Board of the amount of the claim due the injured; and 4) the
amount of the claim.
6.   As regards the award of moral and exemplary damages, the rules under
the New Civil Code of the Philippines shall govern.
a.   “The purpose of moral damages is essentially indemnity or
reparation, not punishment or correction. Moral damages are
emphatically not intended to enrich a complainant at the expense
of a defendant, they are awarded only to enable the injured party to
obtain means, diversions or amusements that will serve to alleviate
the moral suffering he has undergone by reason of the defendant’s
culpable action.”
b.   While it is true that no proof of pecuniary loss is necessary in order
that moral damages may be adjudicated, the assessment of which is
left to the discretion of the court according to the circumstances of
each case (Art. 2216, New Civil Code), it is equally true that in
awarding moral damages in case of breach of contract, there must
be a showing that the breach was wanton and deliberately injurious
or the one responsible acted fraudulently or in bad faith
7.   In the instant case, there was a finding that private respondent was given a
“run-around” for two months, which is the basis for the award
of the damages granted under the Insurance Code for unreasonable delay in
the payment of the claim.
 a.   However, the act of petitioner Zenith of delaying payment for two b.   2) P10,000.00 as moral damages;
months cannot be considered as so wanton or malevolent to justify c.   3) P5,000.00 as attorney’s fees;
an award of P20,000.00 as moral damages, taking into d.   4) P3,000.00 as litigation expenses; and
consideration also the fact that the actual damage on the car was e.   4) Costs.
only P3,640.
b.   The reason for Zenith’s failure to indemnify private respondent
Fernandez within the two-month period was that the parties could
not come to an agreement as regards the amount of the actual
damage on the car.
c.   The amount of P10,000.00 prayed for by private respondent as
moral damages is equitable.

8.   On the other hand, exemplary or corrective damages are imposed, by way

of example or correction for the public good (Art. 2229, New Civil Code of
the Philippines).
a.   In the case of Noda v. Cruz-Arnaldo, exemplary damages were not
awarded at the insurance company had not acted in wanton,
oppressive or malevolent manner.
b.   The same is true in the case at bar.

9.   The amount of P5,000.00 awarded as attorney’s fees is justified

under the circumstances of this case considering that there were other
petitions filed and defended by private respondent in connection with this
case.

10.   As regards the actual damages incurred by private respondent, the amount
of P3,640.00 had been established before the trial court and affirmed by the
appellate court.

11.   Respondent appellate court correctly ruled that the deductions of P250.00
and P274.00 as deductible franchise and 20% depreciation on parts,
respectively claimed by petitioners as agreed upon in the contract, had no
basis.
a.   Respondent court CA ruled: “Under its second assigned error,
defendant-appellant puts forward two arguments, both of which are
entirely without merit. It is contented that the amount recoverable
under the insurance policy defendant-appellant issued over the
car of plaintiff-appellee is subject to deductible franchise, and “the
policy, does not mention any deductible franchise.”

12.   Therefore, the award of moral damages is reduced to P10,000.00 and the
award of exemplary damages is hereby deleted. The awards due to private
respondent Fernandez are as follows:
a.   1) P3,640.00 as actual claim plus interest of twice the ceiling
prescribed by the Monetary Board computed from the time of
submission of proof of loss;
 010 STRONGHOLD INSURANCE v. INTERPACIFIC CONTAINER
SERVICES (SEE)
July 1, 2015 | Perez, J. | Insurance Contract Interpretation
PETITIONER: Stronghold Insurance Company Inc.
RESPONDENTS: Interpacific Container Services and Gloria Dee Chong
SUMMARY: Chong owned a Fuso truck which was insured with Stronghold
Insurance under a comprehensive motor car insurance policy which undertook to
indemnify the insured against loss or damage to the car and death or injury
caused to third persons by reason of accident. While the policy was in effect, the
truck figured into an accident along the National highway in Brgy. Palihan,
Hermosa, Bataan resulting in 4 deaths and 3 serious injuries. 2 vehicles were
also heavily damages. Chong then filed a claim for the recovery of P550,000.
Stronghold denied on the ground that the driver was heavily drunk at the time of
the accident as shown in the Pagpapatunay issued by the Barangay Chairman
and the Medico-Legal Certificate. Chong and Interpacific Services then sued for
recovery of sum of money before the RTC of Caloocan. The RTC and the CA
ruled for Chong and ordered Stronghold to pay. The issue in this case is WoN it
was proven during the trial that the driver of the insured vehicle was intoxicated
at the time of the accident thereby precluding Chong and Interpacific from
claiming the proceeds of the insurance policy-NO, the evidences provided by
Stronghold failed to prove intoxication. The RTC doubted the authenticity of the
Medico Legal Certificate because of the attendant alteration and tampering on
the face of the document. The evident tampering of the medico legal certificate
necessitated the presentation by Stronghold of additional evidence to buttress his
claim but it did not present any other evidence. What further dampens
Stronghold's position is the absence of the crucial fact of intoxication in the
blotter report which officially documented the incident.
DOCTRINE: This case involves a contract of insurance, the authenticity and
validity of which was uncontested. In exempting insurers from liability under
the contract, proof thereof must be clear, credible and convincing.
Fundamental is the rule that the contract is the law between the parties and, that
absent any showing that its provisions are wholly or in part contrary to law,
morals, good customs, public order, or public policy, it shall be enforced to the
letter by the courts.
FACTS:
36.   Gloria Dee Chong owned a Fuso truck with Plate number PWH 512. The
truch was insured with Stronghold Insurance under a comprehensive motor
car insurance policy which undertook to indemnify the insured against loss
or damage to the car and death or injury caused to third persons by reason
of accident.
37.   While the policy was in effect, the truck figured into an accident along the
National highway in Brgy. Palihan, Hermosa, Bataan resulting in 4 deaths
and 3 serious injuries. 2 vehicles were also heavily damages.
38.   Chong then filed a claim for the recovery of P550,000.
a.   Comprehensive Third Party Liability (CTPL) --------- ₱50,000.00
b.   Own Damage (OD) --------------------------------------- ₱300,000.00
c.   Excess I Bodily Injury (BI)------------------------------ ₱100,000.00
d.   Third Party Liability (TPL) ----------------------------- ₱100,000.00
e.   Total -------------------------------------------------------- ₱550,000.00
39.   Stronghold denied on the ground that the driver was heavily drunk at the
time of the accident as shown in the Pagpapatunay issued by the Barangay
Chairman Rafael Torres and the Medico-Legal Certificate signed by Dr.
Bautista.
40.   Chong and Interpacific Services (I assumed this is Chong’s company) then
sued for recovery of sum of money before the RTC of Caloocan. They
argued that there was no sufficient proof to support the claim of the
Stronghold that the driver was drunk at the time of the incident
underscoring the lack of mention of such crucial fact in the police blotter
report documenting the incident.
41.   Stronghold averred hat the intoxication of the driver of the insured vehicle
legally avoided the liability of the insurance company under the policy.
Stronghold further claimed that the insured violated Section 53 of the Land
Transportation and Traffic Code which prohibits driving of motor vehicles
under the influence of alcohol. Since the driver of the insured vehicle was
found drunk at the time of the accident, the denial of the insurance claim of
Chong is therefore justified under provisions of the insurance contract and
the existing statutes.
42.   The RTC ruled for Chong and Interpacific and ordered Stronghold to pay
them. The CA affirmed but deleted the award for exemplary damages.
ISSUE/s:
8.   WoN it was proven during the trial that the driver of the insured vehicle was
intoxicated at the time of the accident thereby precluding Chong and
Interpacific from claiming the proceeds of the insurance policy—NO, the
evidences provided by Stronghold failed to prove intoxication.
RULING: WHEREFORE, premises considered, the instant petition is hereby
DENIED. The assailed Decision of the Court of Appeals in CA-G.R. CV No. 80557
is hereby AFFIRMED.
RATIO:
1.   Stronghold claims that the factual findings of the lower courts were fallible.
However, the Supreme Court is not a trier of facs and as a rule, the factual
conclusion of the lower courts are rcognized by the Supreme Court, unless
of some facts and circumstances of weight and substance, having been
overlooked or misinterpreted, might materially affect the disposition of the
case. The exception has not been shown.
2.   Contrary to the claim of Stronghold; it miserably failed to prove the fact of
intoxication during the trial. Aside from the Medico Legal Certificate and
the Pagpapatunay, which were stripped of evidentiary value because of the
dubious circumstances under which they were obtained, the Stronghold did
not adduce other proof to justify the avoidance of the policy.
3.   The RTC doubted the authenticity of the Medico Legal Certificate because
of the attendant alteration and tampering on the face of the document.
In adopting the findings of the trial court, the appellate court reiterated the
evidentiary rule that the party alleging violation of the provision of the
contract bears the burden of proof to prove the same.
4.   The evident tampering of the medico legal certificate necessitated the
presentation by Stronghold of additional evidence to buttress his
claim. For instance, Stronghold could have adduced affidavits of witnesses
who were present at the scene of the accident to attest to the fact that the
driver was intoxicated. It did not. Upon the other hand, Chong and
Interpacific duly established their right to claim the proceeds of a validly
subsisting contract of insurance. Such contract was never denied.
5.   In civil cases, the party having the burden of proof must produce a
preponderance of evidence thereon, with plaintiff having to rely on the
strength of his own evidence and not upon the weakness of the defendant's.
The concept of "preponderance of evidence" refers to evidence which is of
greater weight or more convincing, than that which is offered in opposition
to it; at bottom, it means probability of truth.
6.   What further dampens Stronghold's position is the absence of the
crucial fact of intoxication in the blotter report which officially
documented the incident. Entries in police records made by a police
officer in the performance of the duty especially enjoined by law are prima
facie evidence of the fact therein stated, and their probative value may be
substantiated or nullified by other competent evidence. In this case, the lack
of statement to the effect that the driver was under the influence of alcohol
in the said report is too significant to escape the attention of this Court.
7.   This case involves a contract of insurance, the authenticity and validity of
which was uncontested. In exempting insurers from liability under the
contract, proof thereof must be clear, credible and convincing.
Fundamental is the rule that the contract is the law between the parties and,
that absent any showing that its provisions are wholly or in part contrary to
law, morals, good customs, public order, or public policy, it shall be
enforced to the letter by the courts.
 White Gold Marine Services, Inc. vs. Pioneer Insurance and Surety
Corporation (Siapno)
July 28, 2005 | Quisumbing, J. | Doing Insurance Business
PETITIONER: White Gold Marine Services, Inc.
RESPONDENT: Pioneer Insurance and Surety Corporation and the Steamship
Mutual Underwriting Association (Bermuda) LTD.
SUMMARY: 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). 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. White Gold on the other
hand, filed a complaint before the Insurance Commission claiming that
Steamship Mutual failed to secure the license needed for transacting insurance
businesses in the Philippines. Steamship Mutual claimed to be a Protection and
Indemnity Club and Pioneer claimed that it 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. Issues are:
1.   WoN Steamship Mutual, a P & I Club, engaged in the insurance business in
the Philippines – YES 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. 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.   WoN Pioneer needs a license as an insurance agent/broker for Steamship
Mutual – YES. Although Pioneer is already licensed as an insurance
company, it needs a separate license to act as insurance agent for Steamship
Mutual as per Section 299 of the Insurance Code.
DOCTRINE: 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.
FACTS:
1.   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).
2.   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.
3.   Steamship Mutual thereafter filed a case against White Gold for collection of sum
of money to recover the latter’s unpaid balance. White Gold on the other hand,
filed a complaint before the Insurance Commission claiming that Steamship
Mutual violated Sections 186 and 187 of the Insurance Code, while Pioneer
violated Sections 299, 300 and 301 in relation to Sections 302 and 303, thereof
(see end of the digest, but these provisions talk about the requirements of
transacting insurance business in the Philippines)
4.   Insurance Commission: dismissed the complaint since 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.
5.   CA: 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.
ISSUE:
1.   WoN Steamship Mutual, a P & I Club, engaged in the insurance business in
the Philippines – YES, 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.   WoN Pioneer needs a license as an insurance agent/broker for Steamship
Mutual – YES, Although Pioneer is already licensed as an insurance company, it
needs a separate license to act as insurance agent for Steamship Mutual as per
Section 299 of the Insurance Code
RULING: 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.
RATIO:
3.   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.
4.   Hyopsung Maritime Co., Ltd. v. CA: P & I Club is 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.
5.   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.
6.   Pioneer and Steamship Mutual 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.
7.   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.
8.   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.
9.   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.
10.  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.
11.  In particular, a marine insurance undertakes to indemnify the assured against
marine losses, such as the losses incident to a marine adventure. Section 99 of the
Insurance Code enumerates the coverage of marine insurance.
12.  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.
13.  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.
14.  The records reveal Steamship Mutual is doing business in the country albeit
without the requisite certificate of authority mandated by Section 187 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.
15.  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.
16.  Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate
of registration issued by the Insurance Commission. It has been licensed to do or
transact insurance business by virtue of the certificate of authority 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.
17.  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:
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.
18.  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.
RELATED PROVISIONS:
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.
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.
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, . . .
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.
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.
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.
 001 GUINGON vs. DEL MONTE (SOLCO)
August 17, 1967 | BENGZON, J.P., J. | No Action Clause in Insurance Contracts
PETITIONER: DIONISIA GUINGON, et al.
RESPONDENTS: ILUMINADO DEL MONTE, et al.
SUMMARY: Julio Aguilar owned several Jeepneys which he insured with Capital
Insurance & Surety Co,. Inc. (CISC). The policy states that it will reimburse Aguilar,
subject to the limits of his liability, for all accidents caused by the use of the motor
vehicles covered against all sums including claimant's costs and expenses which
the Insured shall become legally liable to pay in respect of: (a.) death of or bodily
injury to any person and (b.) damage to property. His jeepney driver, Iluminado
bumped another jeepney while Gervacio, a passenger, was alighting from it, which
caused Gervacio to die. So an action for homicide thru reckless imprudence was filed
against him for which he was convicted. Corollary to the action, the heirs filed an
action for damages against Aguilar and CISC. CFI held both of them liable. CISC
appealed to SC stating that it isn’t liable for the death of Gervacio and also it cannot
be impleaded in the case against Aguilar because of a certain “no action” clause in
their insurance contract which requires that a final judgement be rendered first
against the insured before they can be sued for the proceeds. SC ruled against CISC
and stated that it is clear from the provisions of your contract with Aguilar that you
were insuring him against all damages which he may become legally liable for
arising out of any accident caused by his jeepneys which causes death or injury to a
person. Secondly, even if the “no action” clause in the insurance contract states that
you cannot be sued or impleaded until a final judgement is rendered against against
the insured, such clause cannot prevail against the Rules of Court which allows
permissive joinder of parties and was intended to avoid multiplicity of suits. Sec. 5
of Rule 2 on "Joinder of causes of action" and Sec. 6 of Rule 3 on "Permissive
joinder of parties" cannot be superseded, at least with respect to third persons not a
party to the contract, as herein, by a "no action" clause in the contract of insurance.
DOCTRINE: 1. The "no action" clause in the policy of insurance cannot prevail
over the Rules of Court provision aimed at avoiding multiplicity of suits
2.  The right of the person injured to sue the insurer of the party at fault (insured),
depends on whether the contract of insurance is intended to benefit third persons also
or only the insured. The test to be applied is: Where the contract provides for
indemnity against liability to third persons, then third persons to whom the insured is
liable,can sue the insurer.
FACTS:
1.   In 1961, Julio Aguilar owned and operated several jeepneys in Manila. He
entered into a contract with the Capital Insurance &Surety Co., Inc. insuring
the operation of his jeepneys against accidents with third-party liability.
2.   The insurance policy provides that “Capital Insurance & Surety Co., Inc.
will, subject to the limits of liability, indemnify the Insured in the event of
accident caused by or arising out of the use of the Motor Vehicle/s or in
connection with the loading or unloading of the Motor Vehicle/s, against all
sums including claimant's costs and expenses which the Insured shall
become legally liable to pay in respect of: (a.) death of or bodily injury to
any person and (b.) damage to property.”
3.   Iluminado del Monte, one of the drivers of the jeepneys, while driving
along the intersection of Juan Luna and Moro streets in Manila, bumped
with the jeepney of Gervacio Guingon who had just alighted from another
jeepney and as a consequence the latter died some days thereafter. A
corresponding information for homicide thru reckless imprudence was filed
against del Monte, who pleaded guilty. A penalty of four months
imprisonment was imposed on him.
4.   Corollary to the criminal action, the heirs of Gervacio Guingon filed an
action for damages against Julio Aguilar, and the Capital Insurance &
Surety Co., Inc. Julio Aguilar did not answer and was thus declared in
default.
5.   Capital Insurance & Surety Co., Inc answered, alleging that the plaintiff has
no cause of action against it.
6.   CFI ordered Del Monte and Aguilar jointly and severally to pay P8,572.95
to plaintiffs as damages for the death of their father and P1,000 as
attorney’s fees.
7.   Capital Insurance and Surety Co., Inc. was also sentenced to pay the
plaintiffs P5,000.00 and P500.00 as attorney's fees and costs which shall be
applied in partial satisfaction of the judgment rendered against Iluminado
del Monte and Julio Aguilar in this case.
8.   Hence this appeal by Capital Insurance & Surety Co., Inc.
ISSUE/s:
1.   Whether plaintiff can sue Capital Insurance & Surety Co., Inc.? If so, can
plaintiffs sue the insurer jointly with the insured? YES to both, Firstly, the
insurance contract expressly states that it covers said liability.
Secondly, the “no action” clause in the contract cannot prevail over the
Rules of Court as provided for by jurisprudence.
RULING: Wherefore, the judgment appealed from is affirmed in toto. Costs against
appellant. So ordered.
RATIO:
1.   The right of the person injured to sue the insurer of the party at fault
(insured), depends on whether the contract of insurance is intended to
benefit third persons also or only the insured. The test to be applied is:
Where the contract provides for indemnity against liability to third persons,
then third persons to whom the insured is liable, can sue the insurer. Where
the contract is for indemnity against actual loss or payment, then third
persons cannot proceed against the insurer, the contract being solely to
reimburse the insured for liability actually discharged by him thru payment
 to third persons, said third persons' recourse being thus limited to the
insured alone.
2.   The policy in the present case is one whereby the insurer agreed to
indemnify the insured "against all sums which the Insured shall
become legally liable to pay in respect of: a. death of or bodily injury to
any person." Clearly, therefore, it is one for indemnity against liability;
from the fact then that the insured is liable to the third person, such
third person is entitled to sue the insurer
3.   Appellant contends that the "no action" clause in the policy closes the
avenue to any third party which may be injured in an accident wherein the
jeepney of the insured might have been the cause of the injury of third
persons, alleging the freedom of contracts.

Action Against Company Clause:

1.   “No action shall lie against the Company unless, as a condition

precedent thereto, the Insured shall have fully complied with all of the
terms of this Policy, nor until the amount of the Insured's obligation to
pay shall have been finally determined either by judgment against the
Insured after actual trial or by written agreement of the Insured, the
claimant, and the Company.”
2.   “Any person or organization or the legal representative thereof who has
secured such judgment or written agreement shall thereafter be entitled to
recover under this policy to the extent of the insurance afforded by the
Policy. Nothing contained in this policy shall give any person or
organization any right to join the Company as a co-defendant in any
action against the Insured to determine the Insured's liability.”
3.   The "no action" clause in the policy of insurance cannot prevail over the
Rules of Court provision aimed at avoiding multiplicity of suits. In a case
squarely on the point, American Automobile Ins. Co. vs. Struwe, 218 SW
534 (Texas CCA), it was held that a "no action" clause in a policy of
insurance cannot override procedural rules aimed at avoidance of
multiplicity of suits.
4.   Similarly, in the instant suit, Sec. 5 of Rule 2 on "Joinder of causes of
action" and Sec. 6 of Rule 3 on "Permissive joinder of parties" cannot be
superseded, at least with respect to third persons not a party to the contract,
as herein, by a "no action" clause in the contract of insurance.
 002 ETERNAL GARDENS MPC. v. PHILAM (STA. MARIA) person is insured as soon as he contracts a loan with Eternal, it cannot be then shown that
April 9, 2008| Velasco, Jr., J. | Covered by Insurance Philam would first need to approve his application for it to be valid; group life insurance
covers all those who contracted with Eternal, with or without the approval.
PETITIONERS: Eternal Gardens Memorial Park Corporation
RESPONDENTS: The Philippine American Life Insurance Company FACTS:
1.   Philamlife entered into an agreement denominated as Creditor Group Life
SUMMARY: Philamlife entered into an agreement denominated as Creditor Group Life Policy with petitioner Eternal Gardens Memorial Park Corporation
Policy with Eternal. Under the policy, the clients of Eternal who purchased burial lots
(Eternal).
from it on installment basis would be insured by Philamlife. The amount of insurance
coverage depended upon the existing balance of the purchased burial lots. The most 2.   Under the policy, the clients of Eternal who purchased burial lots from it on
relevan provision of the policy is EFFECTIVE DATE OF BENEFIT. The insurance of installment basis would be insured by Philamlife. The amount of insurance
any eligible Lot Purchaser shall be effective on the date he contracts a loan with the coverage depended upon the existing balance of the purchased burial lots.
Assured. However, there shall be no insurance if the application of the Lot Purchaser is The policy was to be effective for a period of one year, renewable on a
not approved by the Company.Eternal was required under the policy to submit to yearly basis.
Philamlife a list of all new lot purchasers, together with a copy of the application of each 3.   The relevant provisions8 of the policy are: (MOST RELEVANT)
purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. EFFECTIVE DATE OF BENEFIT. The insurance of any eligible Lot
Eternal complied by submitting a letter containing a list of insurable balances of its lot Purchaser shall be effective on the date he contracts a loan with the
buyers. One of those included in the list as “new business” John Chuang. His balance of
Assured. However, there shall be no insurance if the application of the Lot
payments was 100K. Later on, Chuang died. Eternal sent a letter dated to Philamlife,
which served as an insurance claim for Chuang’s death. Attached to the claim were Purchaser is not approved by the Company.
certain documents. In reply, Philamlife wrote Eternal a letter requiring Eternal to submit 4.   Eternal was required under the policy to submit to Philamlife a list of all
the additional documents relative to its insurance claim for Chuang’s death. Eternal new lot purchasers, together with a copy of the application of each
transmitted the required documents through a letter which was received by purchaser, and the amounts of the respective unpaid balances of all insured
Philamlife.After more than a year, Philamlife had not furnished Eternal with any reply to lot purchasers.
the latter’s insurance claim. This prompted Eternal to demand from Philamlife the 5.   Eternal complied by submitting a letter containing a list of insurable
payment of the claim for PhP 100,000. Philamlife denied Eternal’s insurance claim as balances of its lot buyers. One of those included in the list as "new
there was no application for Group Insurance was submitted in our office prior to business" was John Chuang. His balance of payments was PhP 100,000. On
Chuang’s death and hence, this was not covered by the insurance. Eternal filed a case
August 2, 1984, Chuang died.
with the RTC for a sum of money against Philamlife, which decided in favor of Eternal,
ordering Philamlife to pay the former 100K representing the proceeds of the policy. CA 6.   Eternal sent a letter to Philamlife, which served as an insurance claim for
reversed. The issue in this case is WON Chuang’s death was covered by the insurance Chuang’s death. Attached to the claim were the following documents: (1)
policy?– Yes. An examination of the provision of the policy under effective date of Chuang’s Certificate of Death; (2) Identification Certificate stating that
benefit, would show ambiguity between its two sentences. The first sentence appears to Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant; (4)
state that the insurance coverage of the clients of Eternal already became effective upon Certificate of Attending Physician; and (5) Assured’s Certificate.
contracting a loan with Eternal while the second sentence appears to require Philamlife to 7.   Philamlife wrote Eternal a letter requiring Eternal to submit the following
approve the insurance contract before the same can become effective. The SC ruled that documents relative to its insurance claim for Chuang’s death: (1) Certificate
since, an insurance contract is a contract of adhesion this must be construed liberally in of Claimant (with form attached); (2) Assured’s Certificate (with form
favor of the insured and strictly against the insurer. The SC harmonized the sentences to
mean that upon a party’s purchase of a memorial lot on installment from Eternal, an
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
insurance contract covering the lot purchaser is created and the same is effective, valid,
 ELIGIBILITY.
 Any
 Lot
 Purchaser
 of
 the
 Assured
 who
 is
 at
 least
 18
 but
 not
 more
 than
 65
 years
 of
 age,
 is
 
and binding until terminated by Philamlife by disapproving the insurance application. indebted
  to
  the
  Assured
  for
  the
  unpaid
  balance
  of
  his
  loan
  with
  the
  Assured,
  and
  is
  accepted
  for
  Life
 
(Applied to this case, the purchase of the burial lot on installment basis by Chuang made Insurance
 coverage
 by
 the
 Company
 on
 its
 effective
 date
 is
 eligible
 for
 insurance
 under
 the
 Policy.
 
his death part of Philamlife’s insurance coverage.) EVIDENCE
  OF
  INSURABILITY.No
  medical
  examination
  shall
  be
  required
  for
  amounts
  of
  insurance
  up
  to
 
P50,000.00.
  However,
  a
  declaration
  of
  good
  health
  shall
  be
  required
  for
  all
  Lot
  Purchasers
  as
  part
  of
  the
 
application.
 The
 Company
 reserves
 the
 right
 to
 require
 further
 evidence
 of
 insurability
 satisfactory
 to
 the
 
DOCTRINE: (No specific doctrine with respect to the syllabus topic which is what may Company
 in
 respect
 of
 the
 following:
 (1).
 Any
 amount
 of
 insurance
 in
 excess
 of
 P50,000.00.
 (2).
 Any
 lot
 
be insured/insured against? – this can be seen in the application of the facts but the court purchaser
 who
 is
 more
 than
 55
 years
 of
 age.
 
used the rule on interpretation of a contract of adhesion in order to determine the coverage LIFE
  INSURANCE
  BENEFIT.
  The
  Life
  Insurance
  coverage
  of
  any
  Lot
  Purchaser
  at
  any
  time
  shall
  be
  the
 
of the insurance policy) An insurance contract is a contract of adhesion which must be amount
  of
  the
  unpaid
  balance
  of
  his
  loan
  (including
  arrears
  up
  to
  but
  not
  exceeding
  2
  months)
  as
 
construed liberally in favor of the insured and strictly against the insurer in order to reported
 by
 the
 Assured
 to
 the
 Company
 or
 the
 sum
 of
 P100,000.00,
 whichever
 is
 smaller.
 Such
 benefit
 
safeguard the latter’s interest. (As an application to the facts) When the contract states the shall
 be
 paid
 to
 the
 Assured
 if
 the
 Lot
 Purchaser
 dies
 while
 insured
 under
 the
 Policy.
 

 
 attached); (3) Application for Insurance accomplished and signed by the
insured, Chuang, while still living; and (4) Statement of Account showing
the unpaid balance of Chuang before his death.
8.   Eternal transmitted the required documents through a letter which was
received by Philamlife.
9.   After more than a year, Philamlife had not furnished Eternal with any reply
to the latter’s insurance claim. This prompted Eternal to demand from
Philamlife the payment of the claim for PhP 100,000.
10.   In response to Eternal’s demand, Philamlife denied Eternal’s insurance
claim in a letter a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal
Gardens Memorial Park in October 1982 for the total maximum insurable amount of
P100,000.00 each. No application for Group Insurance was submitted in our office prior
to his death. In accordance with our Creditor’s Group Life, under Evidence of Insurability
provision, "a declaration of good health shall be required for all Lot Purchasers as party of the
application." We cite further the provision on Effective Date of Coverage under the policy
which states that "there shall be no insurance if the application is not approved by the
Company." Since no application had been submitted by the Insured/Assured, prior to his
death, for our approval but was submitted instead after his death, Mr. John Uy Chuang
was not covered under the Policy. We wish to point out that Eternal Gardens being the
Assured was a party to the Contract and was therefore aware of these pertinent provisions. xxx
11.   Eternal filed a case before the RTC for a sum of money against Philamlife.
The RTC ruled in favor of Eternal, ordering Philamlife to pay P100,000
representing the proceeds of the Policy of John Uy Chuang.
12.   The RTC found that Eternal submitted Chuang’s application for insurance
which he accomplished before his death, as testified to by Eternal’s witness
and evidenced by a lettr. It further ruled that due to Philamlife’s inaction
from the submission of the requirements of the group insurance to Chuang’s
death, as well as Philamlife’s acceptance of the premiums during the same
period, Philamlife was deemed to have approved Chuang’s application. The
RTC said that since the contract is a group life insurance, once proof of
death is submitted, payment must follow.
13.   Philamlife appealed to the CA which reversed the RTC’s order and the
complaint was dismissed. It based its Decision on the factual finding that
Chuang’s application was not enclosed in Eternal’s letter. Thus, the CA
concluded, there being no application form, Chuang was not covered by
Philamlife’s insurance.
ISSUE:
1.   WON Chuang’s death was covered by the insurance policy? – Yes. An
examination of the provision of the policy under effective date of benefit,
would show ambiguity between its two sentences. The SC ruled that since,
an insurance contract is a contract of adhesion this must be construed
liberally in favor of the insured and strictly against the insurer. The SC
harmonized the sentences to mean that 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.
(Applied to this case, the purchase of the burial lot on installment basis by
Chuang made his death part of Philamlife’s insurance coverage.)
RULING: WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision
in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The May 29, 1996 Decision of
the Makati City RTC, Branch 138 is MODIFIED. Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance
Policy of Chuang; (2) To pay Eternal legal interest at the rate of six percent (6%) per annum of
PhP 100,000 from the time of extra-judicial demand by Eternal until Philamlife’s receipt of
the May 29, 1996 RTC Decision on June 17, 1996; (3) To pay Eternal legal interest at the rate
of twelve percent (12%) per annum of PhP 100,000 from June 17, 1996 until full payment of
this award; and (4) To pay Eternal attorney’s fees in the amount of PhP 10,000.
RATIO:
1.   As a general rule, this Court is not a trier of facts and will not re-examine
factual issues raised before the CA and first level courts, considering their
findings of facts are conclusive and binding on this Court. However, such
rule is subject to exceptions. One exception is when the findings of the CA
are contrary to the trial court which exception is present in the instant case.
Thus, the SC can review the factual findings.
2.   Eternal claims that the evidence that it presented before the trial court
supports its contention that it submitted a copy of the insurance application
of Chuang before his death. In Eternal’s letter, a list of insurable interests of
buyers for October 1982 was attached, including Chuang in the list of new
businesses. Eternal added it was noted at the bottom of said letter that the
corresponding "Phil-Am Life Insurance Application Forms & Cert." were
enclosed in the letter that was apparently received by Philamlife. Finally,
Eternal alleged that it provided a copy of the insurance application which
was signed by Chuang himself and executed before his death.
3.   Philamlife claims that the evidence presented by Eternal is insufficient,
arguing that Eternal must present evidence showing that Philamlife received
a copy of Chuang’s insurance application.
4.   The evidence on record supports Eternal’s position.
5.   The fact of the matter is, the letter, which Philamlife stamped as received,
states that the insurance forms for the attached list of burial lot buyers were
attached to the letter. Such stamp of receipt has the effect of acknowledging
receipt of the letter together with the attachments. Such receipt is an
admission by Philamlife against its own interest. The burden of evidence
has shifted to Philamlife, which must prove that the letter did not contain
Chuang’s insurance application. However, Philamlife failed to do so; thus,
Philamlife is deemed to have received Chuang’s insurance application.
6.   To reiterate, it was Philamlife’s bounden duty to make sure that before a
transmittal letter is stamped as received, the contents of the letter are correct
and accounted for.
7.   Philamlife’s allegation that Eternal’s witnesses ran out of credibility and
reliability due to inconsistencies is groundless.
8.   An examination of the testimonies of the witnesses mentioned by
Philamlife, however, reveals no overlooked facts of substance and value.
9.   Philamlife primarily claims that Eternal did not even know where the
original insurance application of Chuang was, as shown by the testimony of
Edilberto Mendoza, when asked where the original was he said: “As far as
I remember I do not know where the original but when I submitted with that
payment together with the new clients all the originals I see to it before I
sign the transmittal letter the originals are attached therein.”
10.   In other words, the witness admitted not knowing where the original
insurance application was, but believed that the application was transmitted
to Philamlife as an attachment to a transmittal letter.
11.   As to the seeming inconsistencies between the testimony of Manuel Cortez
on whether one or two insurance application forms were accomplished and
the testimony of Mendoza on who actually filled out the application form,
these are minor inconsistencies that do not affect the credibility of the
witnesses.
12.   In the present case, the number of copies of the insurance application that
Chuang executed is not at issue, neither is whether the insurance application
presented by Eternal has been falsified. Thus, the inconsistencies pointed
out by Philamlife are minor and do not affect the credibility of Eternal’s
witnesses. However, the question arises as to whether Philamlife assumed
the risk of loss without approving the application. This question must
be answered in the affirmative.
13.   Philamlife and Eternal entered into an agreement denominated as Creditor
Group Life Policy. In the policy, it is provided that: EFFECTIVE DATE
OF BENEFIT.The insurance of any eligible Lot Purchaser shall be
effective on the date he contracts a loan with the Assured. However, there
shall be no insurance if the application of the Lot Purchaser is not
approved by the Company.
14.   An examination of the above provision would show ambiguity between
its two sentences. The first sentence appears to state that the insurance
coverage of the clients of Eternal already became effective upon contracting
a loan with Eternal while the second sentence appears to require Philamlife
to approve the insurance contract before the same can become effective.
15.   It must be remembered that an insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured and
strictly against the insurer in order to safeguard the latter’s interest.
16.   In Malayan Insurance Corporation v. Court of Appeals, this Court held
that: Indemnity and liability insurance policies are construed in accordance
with the general rule of resolving any ambiguity therein in favor of the
insured, where the contract or policy is prepared by the insurer. A contract
of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words,
it should be construed liberally in favor of the insured and strictly against
the insurer.
17.   The vague contractual provision, in Creditor Group Life Policy must
be construed in favor of the insured and in favor of the effectivity of the
insurance contract.
18.   On the other hand, the seemingly conflicting provisions must be
harmonized to mean that 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.
19.   The second sentence of Creditor Group Life Policy on the Effective Date of
Benefit is in the nature of a resolutory condition which would lead to the
cessation of the insurance contract. Moreover, the mere inaction of the
insurer on the insurance application must not work to prejudice the insured;
it cannot be interpreted as a termination of the insurance contract. The
termination of the insurance contract by the insurer must be explicit and
unambiguous.
20.   To characterize the insurer and the insured as contracting parties on equal
footing is inaccurate at best. Insurance contracts are wholly prepared by
the insurer with vast amounts of experience in the industry
purposefully used to its advantage. More often than not, insurance
contracts are contracts of adhesion containing technical terms and
conditions of the industry, confusing if at all understandable to laypersons,
that are imposed on those who wish to avail of insurance.
21.   As such, insurance contracts are imbued with public interest that must be
considered whenever the rights and obligations of the insurer and the
insured are to be delineated. Hence, in order to protect the interest of
insurance applicants, insurance companies must be obligated to act
with haste upon insurance applications, to either deny or approve the
same, or otherwise be bound to honor the application as a valid,
binding, and effective insurance contract.
 003 Blue Cross Health Care v. Olivares (Soriano)
February 12, 2008 | Corona, J. | The Contract of Insurance
PETITIONER: Clue Ceoss Health Care Inc.
RESPONDENTS: Neomi and Danilo Olivares
SUMMARY: Neomi Olivares applied for a health care program with Blue
Cross. In the health care agreement, ailments due to pre-existing conditions were
excluded from the coverage. Neomi suffered stroke and was admitted to Medical
City, one of the accredited hospitals. She incurred hospital exenses amounting to
P34,217.20. She requested from the representative of petitioner at Medical City a
letter of authorization in order to settle her medical bills. But petitioner refused
to issue the letter and suspended payment pending the submission of a
certification from her attending physician that the stroke she suffered was not
caused by a pre-existing condition. She demanded petitioner Blue Cross to pay
the medical bill. When the petitioner refused, the spouses were constrained to
settle the bill. Thereafter, they filed a complaint in the MeTC. Petitioner said that
it had not yet denied the claim, s it was awaiting for the attending physician’s
report. The Dr. Saniel, the attending physician, stated that as oer the request of
Neomi, he willnot release any medical information concerning neomi;s
neurologic status to anyone without her approval. MeTC then denied the
complaint. RTC reversed the MeTC ruling and held that it was the burden of
petitioner to prove that the stroke of Neomi was excluded. CA affirmed RTC
decision. Petitioner argues that respondents prevented Dr. Saniel from
submitting the medical report. Hence, the presumption that evidence willfully
suppressed would be adverse if produced should apply in its favor. Respondents
counter that the burden was on petitioner to prove that Neomi's stroke was
excluded from the coverage of their agreement because it was due to a pre-
existing condition. It failed to prove this. Issue: 1. Whther petitioner Blue
Cross was able to prove that Neomi’s stroke was caused by pre-existing
condition and therefore was excluded from the coverage of the health agreement
–No. Petitioner never presented any evidence to prove that respondent Neomi's
stroke was due to a pre-existing condition. It merely speculated that Dr. Saniel's
report would be adverse to Neomi, based on her invocation of the doctor-patient
privilege.
DOCTRINE: It is an established rule in insurance contracts that when their
terms contain limitations on liability, they should be construed strictly against
the insurer. These are contracts of adhesion the terms of which must be
interpreted and enforced stringently against the insurer which prepared the
contract. This doctrine is equally applicable to health care agreements.
FACTS:
43.   Respondent Neomi Olivares applied for a health care program with Blue
Cross, a health maintenance firm. For the period Oct 16, 2002 to Oct 15,
2003, she paid P11,117. For the same period, she also availed of additional
service of limitless consultations for additional p1,000. She paid those
amounts in full on oct 17, 2002. The application was approved on October
22, 2002.
44.   In the heath care agreement, ailments due to pre-existing conditions were
excludedfrom the coverage.
45.   On Nov 30, 2002, 38 days from the effectivity of her health insurance,
Neomi suffered stroke and was admitted at the Medical City hich was one
of the accredited hospitals by Blue Cross. During her confinement, she
underwent several lab tests.
46.   She incurred hospital expenses amounting tp P34,217.20. Consequently, she
requested from the representative of petitioner at Medical City a letter of
authorization in order to settle her medical bills. But petitioner refused to
issue the letter and suspended payment pending the submission of a
certification from her attending physician that the stroke she suffered was
not caused by a pre-existing condition.
47.   When she was discharged, she demanded the petitioner to pay her mdical
bill. hen petitioner still refused, she and her husband, respondent Danilo
Olivares, were constrained to settle the bill.
48.   Thereafter, they filed a complaint for collection of sum of money against
petitioner in the MeTC.
49.   Blue Cross maintained that it had not yet denied respondents’ claim as it
was still waiting Dr. Saniel’s report.
50.   Dr. Saniel in his letter to the petitioner state that Neomi called and stated
that she no longer has any relationship with Blue Cross, and that Dr. Saniel
should not release any medical information concerning Neomi’s neurologic
status to anyone without her approval.
51.   MeTC dismissed the complaint for lack of cause of action. Stating that the
evidence (letter) on record reveals that it was no less than [respondent
Neomi] herself who prevented her attending physician from issuing the
required certification, petitioner Blue Cross cannot be faulted from
suspending payment of her claim, for until and unless it can be shown from
the findings made by her attending physician that the stroke she suffered
was not due to pre-existing conditions could she demand entitlement to the
benefits of her policy
52.   RTC reversed the decision of the MeTC, ordered Blue Cross to pay the
medical bill, moral, exemplary damages, and attorney’s fees, and held that
that it was the burden of petitioner to prove that the stroke of respondent
Neomi was excluded from the coverage of the health care program for being
caused by a pre-existing condition. It was not able to discharge that burden.
53.   CA affirned RTC decision. Hence, this petition.
54.   Petitioner argues that respondents prevented Dr. Saniel from submitting the
medical report. Hence, the presumption that evidence willfully suppressed
would be adverse if produced should apply in its favor.
55.   Respondents counter that the burden was on petitioner to prove that Neomi's
stroke was excluded from the coverage of their agreement because it was
due to a pre-existing condition. It failed to prove this.
 of the agreement are excluded from its coverage if they become manifest
within one year from its effectivity. Stated otherwise, petitioner is not
ISSUE/s: liable for pre-existing conditions if they occur within one year from the
9.   Whther petitioner Blue Cross was able to prove that Neomi’s stroke was time the agreement takes effect.
caused by pre-existing condition and therefore was excluded from the 3.   The court ruled in a previous case that a health care agreement is in the
coverage of the health agreement –No. Petitioner never presented any nature of a non-life insurance.
evidence to prove that respondent Neomi's stroke was due to a pre-existing 4.   It is an established rule in insurance contracts that when their terms contain
condition. It merely speculated that Dr. Saniel's report would be adverse to limitations on liability, they should be construed strictly against the insurer.
Neomi, based on her invocation of the doctor-patient privilege These are contracts of adhesion the terms of which must be interpreted and
enforced stringently against the insurer which prepared the contract. This
RULING: WHEREFORE, the petition is hereby DENIED. The July 29, 2005 doctrine is equally applicable to health care agreements.
decision and September 21, 2005 resolution of the Court of Appeals in CA-G.R. SP 5.   Petitioner never presented any evidence to prove that respondent Neomi's
No. 84163 are AFFIRMED. stroke was due to a pre-existing condition. It merely speculated that Dr.
RATIO: Saniel's report would be adverse to Neomi, based on her invocation of the
1.   The court agrees with the respondents. doctor-patient privilege. This was a disputable presumption at best.
2.   The health care agreement defined a pre-existing condition as: 6.   Disputable presumption does not apply if (a) the evidence is at the disposal
a.   Disability which existed before the commencement date of membership of both parties; (b) the suppression was not willful; (c) it is merely
whose natural history can be clinically determined, whether the Member corroborative or cumulative and (d) the suppression is an exercise of a
was aware of such illness or condition. Such conditions also include privilege.
disabilities existing prior to reinstatement date in the case of lapse of an 7.   Here, respondents' refusal to present or allow the presentation of Dr.
Agreement. Notwithstanding, the following disabilities but not to the Saniel's report was justified. It was privileged communication between
exclusion of others are considered pre-existing conditions including their physician and patient.
complications when occurring during the first year of a Members 8.   Furthermore, as already stated, limitations of liability on the part of the
coverage: insurer or health care provider must be construed in such a way as to
I. Tumor of Internal Organs
preclude it from evading its obligations. Accordingly, they should be
II. Hemorrhoids/Anal Fistula scrutinized by the courts with extreme jealousy and care and with
III. Diseased tonsils and sinus conditions requiring surgery a jaundiced eye.
IV. Cataract/Glaucoma 9.   Since petitioner had the burden of proving exception to liability, it should
V. Pathological Abnormalities of nasal septum or turbinates
VI. Goiter and other thyroid disorders
have made its own assessment of whether respondent Neomi had a pre-
VII. Hernia/Benign prostatic hypertrophy existing condition when it failed to obtain the attending physician's report. It
VIII. Endometriosis could not just passively wait for Dr. Saniel's report to bail it out. The mere
IX. Asthma/Chronic Obstructive Lung disease reliance on a disputable presumption does not meet the strict standard
X. Epilepsy
XI. Scholiosis/Herniated disc and other Spinal column
required under our jurisprudence.
abnormalities 10.   On the issue on the grant of exemplary and moral damages: The RTC and
XII. Tuberculosis CA found that there was a factual basis for the damages adjudged against
XIII. Cholecysitis
petitioner. They found that it was guilty of bad faith in denying a claim
XIV. Gastric or Duodenal ulcer
XV. Hallux valgus
based merely on its own perception that there was a pre-existing condition
XVI. Hypertension and other Cardiovascular diseases
XVII. Calculi
XVIII. Tumors of skin, muscular tissue, bone or any form of
blood dyscracias
XIX. Diabetes Mellitus
XX. Collagen/Auto-Immune disease

After the Member has been continuously covered for 12

months, this pre-existing provision shall no longer be
applicable except for illnesses specifically excluded by an
endorsement and made part of this Agreement
b.   Under this provision, disabilities which existed before the commencement
 004 MALAYAN INSURANCE v. REGIS BROKERS (Paul)
Nov. 23, ’07 | Tinga, J. | What may be insured – has to be proven
PETITIONER: Malayan Insurance Co., Inc.
RESPONDENTS: Regis Brokerage Corp.
SUMMARY: On Feb, 1, ’95, Fasco Motors Group loaded 120 pieces of motors
on board board China Airlines Flight 621 bound for Manila from the United
States. The cargo was to be delivered to consignee ABB Koppel, Inc. (ABB
Koppel). When the cargo arrived at NAIA, it was cleared and forwarded to
Peoples Aircargo & Warehousing Corp’s (Paircargos) warehouse for temporary
storage pending release by the Bureau of Customs. Paircargo remained in
possession of the cargo until 7 March 1995, at which point respondent Regis
Brokerage Corp. (Regis) withdrew the cargo and delivered the same to ABB
Koppel at its warehouse. When the shipment arrived at ABB Koppels warehouse,
it was discovered that only 65 of the 120 pieces of motors were actually
delivered. Malayan paid and filed a complaint for damages against Regis
and Paircargo with the MeTCMalayan presented the Marine Risk Note
dated 21 March 1995 as proof that the cargo was insured by Malayan. The
MeTC and the RTC ruled in Malayan’s favor. However, the CA reversed it,
saying that the Marine Risk Note was procured from Malayan only on 21
March 1995, but the loss was discovered on March 7. The SC ruled that
Malayan failed to establish its cause of action because it never presented the
Marine Insurance Policy. Because Malayan's right to recovery derives from
contractual subrogation as an incident to an insurance relationship, and not
from any proximate injury to it inflicted by the Regis, it is critical that
Malayan establish the legal basis of such right to subrogation by presenting the
contract constitutive of the insurance relationship between it and ABB Koppel.
DOCTRINE: The particular date as to when such insurance contract was
constituted cannot be established with certainty without the contract itself,
and that point is crucial since there can be no insurance on a risk that had
already occurred by the time the contract was executed.
FACTS:
1.   On Feb, 1, ’95, Fasco Motors Group loaded 120 pieces of motors on board
board China Airlines Flight 621 bound for Manila from the United States.
The cargo was to be delivered to consignee ABB Koppel, Inc. (ABB
Koppel).
2.   When the cargo arrived at NAIA, it was cleared and forwarded to Peoples
Aircargo & Warehousing Corp’s (Paircargos) warehouse for temporary
storage pending release by the Bureau of Customs
3.   Paircargo remained in possession of the cargo until 7 March 1995, at which
point respondent Regis Brokerage Corp. (Regis) withdrew the cargo and
delivered the same to ABB Koppel at its warehouse.
4.   When the shipment arrived at ABB Koppels warehouse, it was discovered
that only 65 of the 120 pieces of motors were actually delivered and that
the remaining 55 motors, valued at US$2,374.35, could not be accounted
for.
5.   The shipment was insured by Malayan. Malayan paid ABB Koppel Php
156,549.55 and got subrogated to the right of ABB Koppel v. Regis and
Paircargo.
6.   Malayan then filed a complaint for damages against Regis and Paircargo
with the Manila MeTC. In the course of the trial, Malayan presented
Marine Risk Note No. RN-0001-19832 (Marine Risk Note) dated 21
March 1995 as proof that the cargo was insured by Malayan.
7.   MeTC ruled that Regis alone was solely liable. The RTC affirmed this.
8.   Regis brought it to the CA which reversed the RTC judgment and dismissed
Malayan’s complaint. It held that the Marine Risk Note presented as proof
that the cargo was insured was invalid.
9.   It was observed that the Marine Risk Note was procured from Malayan only
on 21 March 1995, when in fact the insured, ABB Koppel, had learned of
the partial loss of the motors as early as 7 March 1995.
10.   The CA noted that under Section 3 of the Insurance Code, the past event
which may be insured against must be unknown to the parties and so for
that reason the insurance contract in this case violated Section 3.
11.   Also, the CA held that due execution and authenticity of the subrogation
receipt presented before the trial court by Malayan were not duly proven
since the signatories thereto were not presented by Malayan before the trial
court to identify their signatures thereon, and neither was evidence
presented to establish the genuineness of such signatures
12.   Malayan filed an MR and said that the Marine Risk Note is an open policy
per Marine Open Cargo Policy No. OPEN POLICY-0001-00410
issued before February 1, 1995.
ISSUES:
1.   W/N Malayan was able to establish its cause of action against Regis? No
because it wasn’t able to conclusively prove the existence of an insurance
contract.
RULING: WHEREFORE, the petition is DENIED. Costs against petitioner.
RATIO:
1.   Malayan was arguing that the lost cargo was covered by not only the Marine
Risk Note but also by the Marine Insurance Policy (Fact 12) which was
issued days before the cargo arrived in Manila.
2.   The Marine Policy was attached to the petition of the SC, but it was not
presented in trial.
3.   Malayan tried to showed that it had an “open policy” with ABB Koppel
covered by Section 60 of the Insurance Code, wherein the value of the thing
insured is not agreed upon but left to be ascertained in case of loss, and that
the Marine Risk Note was nothing but a determination of the value of the
 thing insured pursuant to the open policy as established by the Marine 13.   What the Marine Risk Note bears, as a matter of evidence, is that it is not
Insurance Policy. apparently the contract of insurance by itself, but merely a complementary
4.   Unfortunately for Malayan, the Court could not attribute any evidentiary or supplementary document to the contract of insurance that may have
weight to the Marine Insurance Policy. existed as between Malayan and ABB Koppel.
5.   The SC is not a trier of facts. Therefore, it relied on CA’s conclusion that at 14.   But again, Malayan never introduced the Marine Insurance Policy as the
the very instance the Marine Risk Note was offered in evidence, Regis main insurance contract nor even referred to it in the original complaint.
already posed its objection to the admission of said document on the ground Therefore, it failed to establish its cause of action.
that such was "immaterial, impertinent and irrelevant to this case because 15.   Because Malayan's right to recovery derives from contractual subrogation
the same was issued on March 21, 1995 which is after the occurrence of as an incident to an insurance relationship, and not from any proximate
the loss on February 1, 1995." injury to it inflicted by the Regis, it is critical that Malayan establish the
6.   Since no insurance policy was presented at the trial by Malayan, or even legal basis of such right to subrogation by presenting the contract
before the CA, there is no basis for the SC to consider it, notwithstanding constitutive of the insurance relationship between it and ABB Koppel.
Malayans attempt to submit such document to us along with its present 16.   his should have been accomplished from the moment it filed the complaint.
petition, even it may have reflected the existence of an insurance contract Since the Marine Insurance Policy was constitutive of the insurer-insured
between Malayan and ABB Koppel prior to the loss of the motors. relationship from which Malayan draws its right to subrogation, such
7.   Malayan’s theory of the case it pursued before the trial court was that the document should have been attached to the complaint itself.
perfected insurance contract which it relied upon as basis for its right to 17.   It is an actionable document and Sec. 710, Rule 9 of the Rules of Civil
subrogation was not the Marine Insurance Policy but the Marine Risk Procedure governs it.
Note which, unlike the former, was actually presented at the trial and 18.   It was incumbent on Malayan, whose right of subrogation derived from the
offered in evidence. Marine Insurance Policy, to set forth the substance of such contract in its
8.   The Claims Processor of Malayan who testified in court in behalf of his complaint and to attach an original or a copy of such contract in the
employer actually acknowledged that the "proof that ABB Koppel insured complaint.
the shipment to Malayan" was the Marine Risk Note, and not the Marine 19.   Not doing so actually violates Regis’ right to due proves because the latter
Insurance Policy. cannot object to it.
9.   Even the very complaint filed by Malayan before the MeTC stated that "the 20.   It cannot be denied from the only established facts that Malayan and ABB
subject shipment was insured by Malayan under Risk Note No. 0001- Koppel comported as if there was an insurance relationship between them
19832," and not by the Marine Insurance Policy, which was not adverted to and documents exist that evince the presence of such legal relationship.
at all in the complaint. 21.   But under these premises, the very insurance contract emerges as the white
10.   Therefore, the SC can only consider the Marine Risk Note in determining elephant in the room — an obdurate presence which everybody reacts to,
the existence of an insurance contract. However, again, it is dated Mar. 21, yet legally invisible as a matter of evidence since no attempt had been made
1995 – after the loss9. However, the motors insured were already to prove its corporeal existence in the court of law.
compromised by then. 22.   Malayan would have us effectuate an insurance contract without having to
11.   The Court, in Aboitiz c. Philam Gen. has already held that a Marine Risk consider its particular terms and conditions, and on a blind leap of faith that
Note is not an insurance policy on its own. It is only an acknowledgment or such contract is indeed valid and subsisting.
declaration of the private respondent confirming the specific shipment 23.   The conclusion further works to the utter prejudice of Regis since it would
covered by its Marine Open Policy, the evaluation of the cargo, and the be deprived the opportunity to examine the document that gives rise to the
chargeable premium, a description that is reflective as well of the present Malayan’s right to recover against them, or to raise arguments or objections
Marine Risk Note, if not of marine risk notes in this country in general. against the validity or admissibility of such document.
12.   Malayan correctly points out that the Marine Risk Note itself adverts to
"Marine Cargo Policy Number Open Policy-0001-00410" as well as to "the
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10
standard Marine Cargo Policy and the Company's Marine Open Policy."
 SEC.
 7.
 Action
 or
 defense
 based
 on
 document.
  —
 Whenever
 an
 action
 or
 defense
 is
 based
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  upon
 a
 written
 instrument
 or
 document,
 the
 substance
 of
 such
 instrument
 or
 document
 shall
 
9

 "Had
 this
 day
 noted
 the
 above-­‐mentioned
 risk
 in
 your
 favor
 and
 hereby
 guarantees
 that
 this
  be
  set
  forth
  in
  the
  pleading,
  and
  the
  original
  or
  a
  copy
  thereof
  shall
  be
  attached
  to
  the
 
document
  has
  all
  the
  force
  and
  effect
  of
  the
  terms
  and
  conditions
  in
  the
  Corporation's
  pleading
 as
 an
 exhibit,
 which
 shall
 be
 deemed
 to
 be
 a
 part
 of
 the
 pleading,
 or
 said
 copy
 may
 
printed
 form
 of
 the
 standard
 Marine
 Cargo
 Policy
 and
 the
 Company's
 Marine
 Open
 Policy."
 
  with
 like
 effect
 be
 set
 forth
 in
 the
 pleading.
 
 

 
 
24.   If a legal claim is irrefragably sourced from an actionable document, the
defendants cannot be deprived of the right to examine or utilize such
document in order to intelligently raise a defense.
25.   The inability or refusal of the plaintiff to submit such document into
evidence constitutes an effective denial of that right of the defendant which
is ultimately rooted in due process of law.
26.   The particular date as to when such insurance contract was constituted
cannot be established with certainty without the contract itself, and that
point is crucial since there can be no insurance on a risk that had
already occurred by the time the contract was executed.
27.   Since the documents in evidence and testimonies allude to "marine
insurance" or "marine risk note," it also is a legitimate question whether
the particular marine insurance relationship between Malayan and ABB
Koppel also covers cargo delivered not by ships at sea but by airplane
flights, as had occurred in this case. Only the actual policy itself could
definitively settle such a question.
 005 EASTERN SHIPPING v. PRUDENTIAL (TIMBOL)
September 11, 2009 | Del Castillo, J. | What can be insured/insured against
PETITIONER: Eastern Shipping Lines, Inc.
RESPONDENTS: Prudential Guarantee and Assurance, Inc.
SUMMARY: 56 cases of completely knock-down auto parts of Nissan Motor
vehicles were loaded on board M/V Apollo Tujuh, owned by Eastern Shipping, at
Japan to be shipped to Manila. When it arrived to Manila, it was discharged to ATI
in good condition, except for the four cases. From ATI, they were then brought to
Nissan’s warehouse, and after conducting a survey, the four cases were found to
have shortage and damage due to the pilferage and improper handling of the vessel
and/or the Arrastre contractors. Thus, Nissan demanded for reimbursement from
Eastern Shipping and ATI, but failed. After which, Nissan claimed reimbursement
from Prudential as the insurer based on all risks per Marine Open Policy and Marine
Cargo Risk Notice. Upon payment of Prudential to Nissan, the former filed a claim
against Eastern and ATI. The RTC ruled in favor of Prudential finding Eastern and
ATI solidarily liable. However, on appeal, the CA exonerated ATI and held Eastern
Shipping solely responsible. And that the presentation of insurance policy is
dispensible.
Hence the issue before the Court being whether the Marine Risk Note and the
Subrogation Receipt, without the presentation of the Marine Insurance Policy, are
sufficient to prove Prudential’s right to subrogation.
The SC held that NO, presentation in this case is required for Prudential to claim the
right of subrogration. It must first be noted that a Marine Risk Note is not an
insurance policy. Rather, it is an acknowledgement or declaration of the insurer
confirming the specific shipment covered by its marine open policy, the evaluation
of the cargo and the chargeable premium. Furthermore, the Marine Risk Note was
questionable since the date of the such note is the same as the time the goods arrived
the port. Meaning that the goods were not specifically covered by any particular
insurance at the time of transit. And without the presentation of the Marine
Insurance Policy, it would be impossible to know the specifics of the Policy as
written in the Note, as well as the terms and conditions were complied before
Prudential paid Nissan’s claim. Moreover, the reading of the transcript of records
show that Eastern Shipping already objected to the non-presentation of the Marine
Insurance Policy. And since the claim of insurance is based on an actionable
document, it was incumbent upon Prudential to present the policy based on Sec 7,
Rule 9 of the Rules of Civil Procedure.
DOCTRINE: It is significant that the date when the alleged insurance contract was
constituted cannot be established with certainty without the contract itself. Said point
is crucial because there can be no insurance on a risk that had already occurred by
the time the contract was executed. Surely, the Marine Risk Note on its face does not
specify when the insurance was constituted
FACTS:
33.   56 cases of completely knock-down auto parts of Nissan motor vehicles
(cargoes) were loaded on board M/V Apollo Tujuh (carrier) at Nagoya,
Japan, to be shipped to Manila
1.   The shipment was consigned to Nissan Motor Philippines, Inc.
(Nissan) and was covered by Bill of Lading No. NMA-1
2.   The carrier was owned and operated by Eastern Shipping Lines,
Inc.
34.   The carrier arrived at the port of Manila. The shipment was then discharged
from the vessel onto the custody of the arrastre operator, Asian Terminals,
Inc. (ATI), complete and in good condition, except for four cases
35.   The shipment was withdrawn by Saefront Customs and Brokerage from the
pier and delivered to the warehouse of Nissan in Quezon City
36.   A survey of the shipment was then conducted by Tan-Gaute Adjustment
Company, Inc. (surveyor) at Nissan’s warehouse
1.   The surveyor submitted its report with a finding that there were
“short (missing)” items in Cases Nos. 10/A26/T3K and 10/A26/7K
and “broken/scratched” and “broken” items in Case No.
10/A26/70K”;
2.   And that in its opinion, the shortage and darnage sustained by the
shipment were due to pilferage and improper handling,
respectively while in the custody of the vessel and/or Arrastre
Contractors
37.   Nissan demanded the sum of P1,047,298.34 representing the cost of the
damages sustained by the shipment from Eastern Shipping, the owner of the
vessel, and ATI, the arrastre operated
1.   However, the demands were not heeded
38.   As insurer of the shipment against all risks per Marine Open Policy No. 86-
168 and Marine Cargo Risk Note No. 3921/95, Prudential Guarantee and
Assurance Inc. paid Nissan the sum of P1,047,298.34
39.   Prudential sued Eastern and ATI for reimbursement of the amount it paid to
Nissan before the RTC of Makati, and claimed that it was subrogated to the
rights of Nissan by virtue of said payment
40.   RTC rendered a decision in favor of Prudential and held that Eastern and
ATI are solidarily liable
41.   On appeal, the CA exonerated ATI and ruled that Eastern was solely
responsible for the damages caused to the cargoes.
1.   Moreover, the CA relying on Delsan Transport Lines, Inc. v. CA,
ruled that the right of subrogation accrues upon payment by the
insurance company of the insurance claim and that the presentation
of the insurance policy is not indispensable before the appellee
may recover in the exercise of its subrogatory right
42.   As such, Eastern argues that Prudential was not properly subrograted
because of the non-presentation of the marine insurance policy. In the
 case at bar, in order to prove its claim, Prudential presented a marine cargo
risk note and a subrogation receipt.
ISSUE/s:
6.   WoN the Marine Risk Note and the Subrogation Receipt, without the
Marine Insurance Policy, are sufficient to prove Prudential’s right of
subrogration – NO, because a Mairne Risk Note is only an
acknowledgement or declaration of the insurer confirming the specific
shipment covered by its marine open policy. The presentation of the marine
open policy indicating therein the extent of the note, as well as the terms
and conditions needed to be complied with.
RULING: WHEREFORE, premises considered, the petition is GRANTED. The
April 26, 2006 Decision and August 15, 2006 Resolution of the Court of Appeals in
CA G.R. CV No. 68165 are hereby REVERSED and SET ASIDE. The Complaint
in Civil Case No. 96 1665 is DISMISSED.
RATIO:
36.   Before anything else, it must be emphasized that a marine risk note is not
an insurance policy. It is only an acknowledgement or declaration of the
insurer confirming the specific shipment covered by its marine open policy,
the evaluation of the cargo and the chargeable premim
37.   The nature of a marine cargo risk note was explained in ICTSI v. FGU
Insurance Corporation:
1.   It is the marine open polic which is the main insurance contract. In
other words, the marine open policy is the blanket insurance ot be
undertaken by FGU on all goods to be shipped by RAGC during
the existence of the contract, while the marine risk note specifies
the particular goods/shipment insured by FGU on that specific
transaction, including the sum insured, the shipment
particulars as well as the premium paid for such shipment
38.   It is undisputed that the cargoes were already on board the carrier as early as
Nov. 8, 1995 and that the same arrived at the port of Manila on Nov. 16,
1995
39.   It is, however, very apparent that the Marine Cargo Risk Note was issued
only on November 16, 1995. The same, therefore, should have raised a red
flag, as it would be impossible to know whether said goods were actually
insured while the same were in transit from Japan to Manila.
40.   Malayan Insurance Co., Inc. v. Regis Brokerage Corp:
1.   Thus, we can only consider the Marine Risk Note in determining
whether there existed a contract of insurance between ABB Koppel
and Malayan at the time of the loss of the motors
2.   However, the very terms of the Marine Risk Note itself are
quite damning. It is dated 21 Marhc 1995, or after the
occurrence of the loss, and specifically states that Malayan “had
this day noted the above-mentioned risk in your favor and hereby
guarantees that this document has all the force and effect of the
terms and conditions in the Corporation’s printed form of the
standard Marine Cargo Policy and the Company’s Marine Open
Policy “
41.   Likewise, the date of the issuance of the Marine Risk Note also caught the
attention of Eastern Shipping, stating in it’s comment that:
1.   Exh. B, Marine Cargo Risk Note No. 39821 dated Nov. 16, 1995 is
being objected to for being irrelevant and immaterial as it was
executed on Nov.16, 1995. The cargoes arrived in Manila on Nov.
16, 1995.
2.   This means that the cargoes are not specifically covered by any
particular insurance at the time of transit
3.   The alleged Marine Open Policy was not presented. Marine Open
Policy may be subject to Institute Cargo Clauses which may
require arbitration prior to the filing of an action in court.
42.   The Marine Risk Note relied upon by Prudential as the basis for its
claim for subrogation is insufficient to prove said claim
1.   Hence, without a copy of the marine insurance policy, it would be
impossible and simply guesswork to know whether the cargo was
inusred during the voyage which started on Nov. 8, 1995
2.   Again, without the marine insurance policy, it would be
impossible for this Court to know the following:
1.   The specifics of the Institute Cargo Clauses A and
other terms and conditions per Marine Open Policy-
86-168 as alluded to in the Marine Risk Note;
2.   If the said terms and conditions were actually
complied with before Prudential paid Nissan’s claim
43.   Furthermore, a reading of the transcript of the records clearly show that, at
the RTC, Eastern Shipping had already objected to the non-presentation of
the marine insurance policy
1.   Clearly, Eastern Shipping was not remis when it openly objected to
the non-presentation oft eh Marine Insurance Policy
44.   In addition, it was Prudential’s burden to present the evidence necessary to
substantiate its claim
1.   In its Complaint, Prudential alleged: “That the above-described
shipment was insured for P14,173,042.91 against all risks under
Marine Cargo Risk Note No. 39821/Marine Open Policy No. 86-
168.”
2.   Therefore, other than the marine cargo risk note, Prudential should
have also presented the marine insurance policy, as the same also
served as the basis for its complaint
45.   Sec. 7, Rule 9 of the 1997 Rules of Civil Procedure, provide:
1.   Action or defense based on document – Whenever an action or
defense is based upon a written instrument or document, the
substance of such instrument or document shall be set forth in
the pleading, and the original or a copy thereof shall be
 attached to the pleading as an exhibit, which shall be deemed
to be a part of the pleading, or said copy may, with like effect,
be set forth in the pleading.
46.   Malayan Insurance Co., Inc. v. Regis Brokerage Corp is instructive:
1.   xxx Our procedural rules make plain how easily Malayan could
have adduced the Marine Insurance Policy. Ideally, this should
have been accomplished from the momen tit filed the coplaint.
Since the Marine Insurance Policy was constitute of the
insurer-insured relationship from which Malayan draws its
right to subrogation, such document should have been attached
to the complaint itself, as provided for in Section 7, Rule 9 of the
1997 Ruels of Civil Procedure x x x
47.   Therefore, since Prudential alluded to the actionable document in its
complaint, the contract of insurance between it and Nissan, as integral to its
cause of action against Eastern Shipping, the Marine Insurance Policy
should have been attached to the Complaint
48.   It is significant that the date when the alleged insurance contract was
constituted cannot be established with certainty without the contract
itself. Said point is crucial because there can be no insurance on a risk
that had already occurred by the timte the contract was executed.
Surely, the Marine Risk Note on its face does not specify when the
insurance was constituted
49.   The importance of the presentation of the Marine Insurance Policy was also
emphasized in Wallemn Philippines Shipping v. Prudential Guarantee &
Assurance:
1.   The contract of insurance must be presented in evidence to indicate
the extent of its coverage. As there was no determination of rights
under the insurance contract, this Court’s ruling in Home Insurance
Corporation v. CA is applicable:
1.   The insurance contract has not been presented. It may be
assumed for the sake of argument that the subrogration
receipt may nevertheless be used to establish the
relationship between Home Insurance and Nestle Phil
(consignee) and teha moutn paid to settle the claim. But
this is all the document can do. By itself alone, the
subrogation receipt is not sufficient to prove the
petitioner’s (Home Insurance) claim holding the
respondent (Mabuhay Brokerage) liable for the damage to
the engine
50.   There are however, cases where the Court ruled that the non-presentation of
the marine insurance policy is not fatal, as can be gleaned in the case of
ICTSI:
1.   However, as in every general rule, there are admitted exceptions.
In Delsan Transport Lines, Inc. v. CA, the Court stated that the
presentation of the insurance policy was not fatal because the loss
of the cargo undoubtedly occurred while on board the petitioner’s
vessel, unlike in Home Insurance in which the cargo passed
through several statges with different parties and it could not be
determined when the damage to the cargo occurred, such that the
insurer should be liable for it
51.   Although the CA may have ruled that the damage to the cargo
occurred while the same was in Eastern Shipping’s custody, this Court
cannot apply the ruling in ICTSI to the case at bar
1.   In contrast, unlike in ICTSI where there was no issue as
regrads the provisions of the marine insurance policy, such
that the presentation of the contract itself is necessary for
perusal, herein Eastern Shipping had repeatedly objected to
the non-presentation of the marine insurance policy and had
manifested its desire to know the specific provisions thereof
2.   Moreover, and the same is critical, the marine risk note in the
case at bar is questionable, because:
1.   It is dated on the same day the cargoes arrived at the
port of Manila and not during the duration of the
voyage
2.   Wihtout the marine insurance policy to elucidate on
the specifics of the terms and conditions allueded to in
the marine risk note, it would be simply guesswork to
know if the same were complied with
52.   The Court further recognizes the danger as precedent should we
sustain Malayan’s position, and not only because such a ruling would
formally violate the rule on actionable documents
53.   Malayan would have us effectuate an insurance contract without
having to consider its particular terms and conditions, and on a blind
leap of faith that such contract is indeed valid and subsisting
54.   The conclusion further works to the utter prejudice of defendants such
as Regis or Paircargo since they would be deprived the opportunity to
examine the document that gives rise to the plaintiff’s right to recover
against them, or to raise arguments or objections against the validity or
admissibility of such document
55.   If a legal claim is irrefragably sourced from an actionable document,
the defendant cannot be deprived of the right to examine or utilize such
document in order to intelligently raise a defense
56.   The inability or refusal of the plaintiff (insurer) to submit such
document into evidence constitutes an effective denial of that right of
the defendant which is ultimately rooted in due process of law, to say
nothing on how such failure fatally diminishes the plaintiff’s
substantiation of its own cause of action
57.   In conclusion, this Court rules that based on the applicable
jurisprudence, because of the inadequacy of the Marine Cargo Risk
Note for the reasons already stated, it was incumbent on respondent to
present in evidence the Marine Insurance Policy, and having failed in
doing so, its claim of subrogation must necessarily fail
 006 PARAMOUNT v. SPOUSES REMONDEULAZ (CHIQUI)
November 28, 2012 | Peralta, J. | What May Be Insured
PETITIONER: Paramount Insurance Corporation
RESPONDENTS: Spouses Yves and Maria Teresa Remondeulaz
SUMMARY: Spouses Remondeulaz insured their car under Paramount Insurance
for one year for own damage, theft, third-party property damage, and third-party
personal injury. The car was unlawfully taken by Sales who was supposed to add
accessories and improvements on it but failed to return the vehicle within the agreed
period. The Spouses sought for reimbursement from Paramount Insurance but the
latter refused to pay. Spouses then filed a case for a sum of money in the RTC. RTC
sided with Paramount Insurance stating that the Spouses already had reimbursement
for the same subject vehicle but from another insurance company. On the other
hand, CA reversed the decision saying that that car is different from the one insured
under Paramount Insurance. W/N Paramount Insurance is liable under the insurance
policy for the loss of the Spouses’ vehicle – YES, the Spouses’ policy clearly
undertook to indemnify the insured against loss of or damage to the scheduled
vehicle when caused by theft. (see doctrine) Sales did not have juridical possession
over the vehicle. Records would show that the Spouses entrusted possession of their
vehicle only to the extent that Sales will introduce repairs and improvements
thereon, and not to permanently deprive them of possession thereof. Since, theft can
also be committed through misappropriation, the fact that Sales failed to return the
subject vehicle to the Spouses constitutes Qualified Theft. Hence, since the
Spouses’ car is undeniably covered by a Comprehensive Motor Vehicle Insurance
Policy that allows for recovery in cases of theft, Paramount Insurance is liable under
the policy for the loss of the Spouses’ vehicle under the "theft clause."
DOCTRINE: In interpreting the theft clause, SC explained that when one takes the
motor vehicle of another without the latter's consent even if the motor vehicle is
later returned, there is theft — there being intent to gain as the use of the thing
unlawfully taken constitutes gain.
FACTS:
1.   Spouses Remondeulaz insured with Paramount Insurance their 1994 Toyota
Corolla Sedan under a Comprehensive Motor Vehicle Insurance Policy for
one year for Own Damage, Theft, Third-Party Property Damage and Third-
Party Personal Injury, for the period commencing 26 May 1994 to 26 May
1995.
2.   During the effectivity of said insurance, Spouses’ car was unlawfully taken.
Hence, they immediately reported the theft to the Traffic Management
Command of the PNP who made them accomplish a complaint sheet.
3.   In said complaint sheet, the Spouses alleged that a certain Ricardo Sales
(Sales) took possession of the subject vehicle to add accessories and
improvements thereon, however, Sales failed to return the subject vehicle
within the agreed three-day period.
4.   As a result, Spouses notified Paramount Insurance to claim for the
reimbursement of their lost vehicle. However, Paramount Insurance refused
to pay.
5.   The Spouse lodged a complaint for a sum of money against Paramount
Insurance before the RTC praying for the payment of the insured value of
their car plus damages. After presentation of the Spouses’ evidence,
Paramount Insurance filed a Demurrer to Evidence.
6.   RTC dismissed the complaint filed by the Spouses.
a.   Paramount Insurance had successfully prosecuted and had been
awarded the amount claimed in this action, in another action which
involved the loss of the same vehicle under the same circumstances
although under a different policy and insurance company (Standard
Insurance Company, Inc). This, considered with the principle that
an insured may not recover more than its interest in any property
subject of an insurance, leads the court to dismiss this action.
7.   CA reversed and set aside the Order issued by the trial court the subject car
is different from the one insured with another insurance company.
ISSUE/s:
1.   W/N Paramount Insurance is liable under the insurance policy for the loss
of the Spouses’ vehicle – YES, the Spouses’ policy clearly undertook to
indemnify the insured against loss of or damage to the scheduled vehicle
when caused by theft.
RULING: WHEREFORE, the instant petition is DENIED. The Decision dated April
12, 2005 and Resolution dated July 20, 2006 of the Court of Appeals are hereby
AFFIRMED in toto. SO ORDERED.
RATIO:
58.   Paramount Insurance argues that the loss of the Spouses vehicle is not a
peril covered by the policy. It maintains that it is not liable for the loss,
since the car cannot be classified as stolen as the Spouses entrusted the
possession thereof to another person.
59.   Adverse to Paramount Insurance’s claim, the Spouses’ policy clearly
undertook to indemnify the insured against loss of or damage to the
scheduled vehicle when caused by theft.
a.   SECTION III LOSS OR DAMAGE: The Company will, subject to
the Limits of Liability, indemnify the insured against loss of or
damage to the Scheduled Vehicle and its accessories and spare
parts whilst thereon: —
b.   xxx (b) by fire, external explosion, self-ignition or lightning or
burglary, housebreaking or theft;
60.   In People v. Bustinera, this Court had the occasion to interpret the "theft
clause" of an insurance policy. In this case, the Court explained that when
one takes the motor vehicle of another without the latter's consent even if
the motor vehicle is later returned, there is theft — there being intent to gain
as the use of the thing unlawfully taken constitutes gain.
61.   Also, in Malayan Insurance Co., Inc. v. Court of Appeals, this Court held
that the taking of a vehicle by another person without the permission or
authority from the owner thereof is sufficient to place it within the
ambit of the word theft as contemplated in the policy, and is therefore,
compensable.
62.   Moreover, the case of Santos v. People is worthy of note. Similarly in
Santos, the owner of a car entrusted his vehicle to therein petitioner Lauro
Santos who owns a repair shop for carburetor repair and repainting.
However, when the owner tried to retrieve her car, she was not able to do so
since Santos had abandoned his shop. In the said case, the crime that was
actually committed was Qualified Theft. However, the Court held that
because of the fact that it was not alleged in the information that the object
of the crime was a car, which is a qualifying circumstance, the Court found
that Santos was only guilty of the crime of Theft and merely considered the
qualifying circumstance as an aggravating circumstance in the imposition of
the appropriate penalty.
63.   In the instant case, Sales did not have juridical possession over the vehicle.
Here, it is apparent that the taking of the Spouses’ vehicle by Sales is
without any consent or authority from the former.
64.   Records would show that the Spouses entrusted possession of their
vehicle only to the extent that Sales will introduce repairs and
improvements thereon, and not to permanently deprive them of
possession thereof. Since, theft can also be committed through
misappropriation, the fact that Sales failed to return the subject vehicle
to the Spouses constitutes Qualified Theft.
65.   Hence, since the Spouses’ car is undeniably covered by a Comprehensive
Motor Vehicle Insurance Policy that allows for recovery in cases of theft,
Paramount Insurance is liable under the policy for the loss of the Spouses’
vehicle under the "theft clause."
66.   All told, Sales' act of depriving the Spouses of their motor vehicle at, or
soon after the transfer of physical possession of the movable property,
constitutes theft under the insurance policy, which is compensable.
 007 United Merchants v. Country Bankers (Valle)
11 july 2012 | Carpio, J. | What may be insured 58.   UMC and Country executed Endorsement F/96-154 and Fire Invoice No.
16583A to form part of the Insurance Policy. Endorsement F/96-154
PETITIONER: United Merchants Corporation provides that UMCs stocks in trade were insured against additional
RESPONDENTS: Country Bankers Insurance Corporation perils, to wit: typhoon, flood, ext. cover, and full earthquake. The sum
insured was also increased to P50,000,000.00 effective 7 May 1996 to 10
SUMMARY: January 1997. On 9 May 1996, CBIC issued Endorsement F/96-157 where
UMC owns a warehouse where UMC stored its products (Christmas lights). the name of the assured was changed from Alfredo Tan to UMC.
UMC insured the Christmas lights with Country. This was later changed into 59.   A fire gutted the warehouse. Country designated CRM Adjustment
insure stocks in trade. A fire gutted the warehouse. UMC is claiming Php 50M Corporation (CRM) to investigate and evaluate the loss. Country’s insurer,
from Country but Country refused to pay, alleging that the fire was done through Central Surety, also requested the NBI to conduct an investigation.
arson and that UMC committed fraud. Country claimed that UMC was declaring 60.   UMC submitted to Country its Sworn Statement of Formal claim with
loss and claiming for loss that wasn’t covered under the policy. proofs of the loss. UMC demanded for at least 50% payment of its claim.
The issue in this case is whether or not UMC can validly claim for the Php 50M Country rejected the claim due to breach of the Insurance Policy which
it allegedly lost due to the fire. states:
a.   Condition No 15. If the claim be in any respect fraudulent, or if
The SC held that UMC cannot claim from Country. The Insurance Policy any false declaration be made or used in support thereof, or if any
provides that Country agreed to insure UMCs stocks in trade. UMC defined fraudulent means or devices are used by the Insured or anyone
stock in trade as tangible personal property kept for sale or traffic. UMC was acting in his behalf to obtain any benefit under this Policy; or if the
showing invoices that were suspicious, the Certificate from the Bureau of Fire loss or damage be occasioned by the willful act, or with the
Protection showed that the 50M it was claiming from Country included both the connivance of the Insured, all the benefits under this Policy shall
building and the contents of the building. But the Insurance Policy covered the be forfeited
stocks in trade. Basically, UMC was trying to claim 50M from Country by 61.   UMC filed a complaint in the RTC against Country. Country raised the
presenting imvoices and documents which were fraudulent. The Supreme Court following defenses:
refused the claim of UMC since submisisons of false invoices is a clear case of a.   No cause of action
fraud and fraud voids the policy. b.   Already prescribed
c.   UMC’s fire claim is tainted with fraud because the Statement of
DOCTRINE: Inventory showed that it had no stocks in trade and that UMC’s
The submission of false invoices to the adjusters establishes a clear case of fraud suspicious purchases for the year didn’t amount to 25M. The GIS
and misrepresentation which voids the insurer’s liability as per condition of the and Financial reports of UMC revealed that it had insufficient
policy. capital, which meant that UMC couldn’t have afforded the alleged
50M worth of stocks in trade.
What can be insured is only what is covered by the Policy. 62.   UMC presented five witnesses. The first witness was Josie Ebora (Ebora),
UMCs disbursing officer. Ebora testified that UMCs stocks in trade, at the
time of the fire, consisted of:
FACTS: a.   raw materials for its Christmas lights;
56.   United Merchants Corporation (UMC) is engaged in buying, selling, and b.   Christmas lights already assembled; and
manufacturing Christmas lights. It leased a warehouse where UMC c.   Christmas lights purchased from local suppliers.
assembled and stored its products.
57.   UMC’s general manager, Alfredo Tan insured UMC’s stocks in trade
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Of Christmas lights against fire with Country Bankers Inusrance (Country) responsible
 in
 the
 event
 of
 loss
 and/or
 damage
 during
 the
 currency
 of
 this
 
for P 15M. The policy was valid until Sept 6 1996.11
policy,
  whilst
  contained
  in
  the
  building
  of
  one
  lofty
  storey
  in
  height,
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  constructed
  of
  concrete
  and/or
  hollow
  blocks
  with
  portion
  of
  galvanized
 
11

  PROPERTY
  INSURED:
  On
  stocks
  in
  trade
  only,
  consisting
  of
  Christmas
  iron
  sheets,
  under
  galvanized
  iron
  rood,
  occupied
  as
  Christmas
  lights
 
Lights,
  the
  properties
  of
  the
  Assured
  or
  held
  by
  them
  in
  trust,
  on
  storage.
 
commissions,
  or
  on
  joint
  account
  with
  others
  and/or
  for
  which
  they
  are
 
 
 d.   These stocks in trade were delivered from August 1995 to May
1996. She stated that Straight Cargo Commercial Forwarders
delivered the imported materials to the warehouse, evidenced by
delivery receipts. However, for the year 1996, UMC had no
importations and only bought from its local suppliers.
e.   Ebora identified the suppliers as Fiber Technology Corporation
from which UMC bought stocks worth P1,800,000.00 on 20 May
1996; Fuze Industries Manufacturer Philippines from which
UMC bought stocks worth P19,500,000.00 from 20 January 1996
to 23 February 1996; and Tomco Commercial Press from which
UMC bought several Christmas boxes.
f.   Ebora testified that all these deliveries were not yet paid. Ebora
also presented UMCs Balance Sheet, Income Statement and
Statement of Cash Flow. Per her testimony, UMCs purchases
amounted to P608,986.00 in 1994; P827,670.00 in 1995; and
P20,000,000.00 in 1996. Ebora also claimed that UMC had sales
only from its fruits business but no sales from its Christmas lights
for the year 1995.
63.   Annie Pabustan testified that the company provided 25 workers to assemble
and pack.
64.   The third witness is Cesar Martinez, Officer of Metrobank, who said that
UMC opened letters of credit with it for 1995 only
65.   The fourth witness presented was Ernesto Luna (Luna), the delivery
checker of Straight Commercial Cargo Forwarders. Luna affirmed the
delivery of UMCs goods to its warehouse
66.   . Lastly, CRMs adjuster Dominador Victorio testified that he inspected
UMCs warehouse and prepared preliminary reports in this connection.
67.   Country rpesented Cabrera and Lazar who testified that they were hired to
investigate and found that arson was committed based from the interview
with barangay officials and pictures that showed blackened surfaces were
present at different parts of the warehouse.
68.   RTC ruled in favor of UMC. The CA ruled in favor of Country. The CA
said that the claim under the policy was void and that the fire was
intentional in origin and that the claim was overvalued through fraudulent
transactions.
ISSUE/s:
10.   WoN UMC can claim payment from Country– NO, because it committed
fraud which is a breach of the Policy. Commission of fraud voids the policy.
RULING: Judgment in question is affirmed.
RATIO:
31.   The party who asserts affirmative of the ossue has the burden of proof to
obtain a favorable judgment. Particularly, in insurance cases, once an
insured makes out a prima facie case in its favor, the burden of evidence
shifts to the insurer to controvert the insureds prima facie case.
32.   Here, UMC established prima facie case against Country. Country doesn’t
dispute that UMC’s stocks were insured against fire and that the warehouse
was gutted with fire. But since Country alleged an excepted risk, the burden
is shifted to Country to prove such exception.
33.   Country failed to discharge its primordial burden of establishing that the
damage or loss was caused by arson, a limitation in the policy. Country’s
evidence did not prove that the fire was intentionally caused by UMC.
34.   First, the findings of Country’s witnesses, Cabrera and Lazaro, were based
on an investigation conducted more than four months after the fire. The
testimonies of Cabrera and Lazaro, as to the boxes doused with kerosene as
told to them by barangay officials, are hearsay because the barangay
officials were not presented in court.
35.   Cabrera and Lazaro even admitted that they did not conduct a forensic
investigation of the warehouse nor did they file a case for arson.
36.   Second, the Sworn Statement of Formal Claim submitted by UMC, through
CRM, states that the cause of the fire was faulty electrical wiring/accidental
in nature. Country is bound by this evidence because in its Answer, it
admitted that it designated CRM to evaluate UMCs loss.
37.   Third, the Certification by the Bureau of Fire Protection states that the fire
was accidental in origin. This Certification enjoys the presumption of
regularity, which Country failed to rebut.
38.   In Uy Hu & Co. v. The Prudential Assurance Co., Ltd.,
a.   the Court held that where a fire insurance policy provides that 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
devices are used by the Insured or anyone acting on his behalf
to obtain any benefit under this Policy, and the evidence is
conclusive that the proof of claim which the insured submitted
was false and fraudulent both as to the kind, quality and
amount of the goods and their value destroyed by the fire, such
a proof of claim is a bar against the insured from recovering on
the policy even for the amount of his actual loss.
39.   In this case, proof of its loss of stocks in trade amounting to
P50,000,000.00, UMC submitted its Sworn Statement of Formal Claim
together with the following documents:
a.   letters of credit and invoices for raw materials, Christmas lights
and cartons purchased;
b.   charges for assembling the Christmas lights; and
c.   delivery receipts of the raw materials.
40.   However, the charges for assembling the Christmas lights and delivery
receipts could not support its insurance claim. The Insurance Policy
provides that Country agreed to insure UMCs stocks in trade. UMC
defined stock in trade as tangible personal property kept for sale or
traffic.Applying UMCs definition, only the letters of credit and invoices
for raw materials, Christmas lights and cartons may be considered.
41.   The invoices, however, cannot be taken as genuine. The invoices reveal that
the stocks in trade purchased for 1996 amounts to P20,000,000.00 which
were purchased in one month. Thus, UMC needs to prove purchases
amounting to P30,000,000.00 worth of stocks in trade for 1995 and prior
years.
42.   However, in the Statement of Inventory it submitted to the BIR, UMC
stated that it had no stocks in trade as of 31 December 1995. In its
defense, UMC alleged that it did not include as stocks in trade the raw
materials to be assembled as Christmas lights, which it had on 31
December 1995. However, as proof of its loss, UMC submitted invoices
for raw materials, knowing that the insurance covers only stocks in
trade.
43.   Plus, the invoices from Fuze Industries were suspicious. The purchases
amounted to Php 19, 550 400 worth of Christmas lights. But the testimony
of Cabrera revealed that there was no Fuze Industries located at the business
address appearing in the invoices.
44.   In UMC’s Income Statement, it says that UMC has 1050862.71as assets
and 167, 058.47 as liabilities. It is claiming for more.
45.   Plus, in the certification from the Bureau of Fire Protection, it says that it
estimated a damage of Php 55M to the building and its contents.
 008 VALENZUELA v. CA (VARGAS)
October 19, 1990 | Gutierrez, Jr., J. | Parties to the Contract
PETITIONER: Arturo P. Valenzuela and Hospitalita N. Valenzuela
RESPONDENTS: Hon. Court of Appeals, Bienvenido M. Aragon, Robert E.
Parnell, Carlos K. Catolico, and the Philippine American General Insurance
Company, Inc.
SUMMARY: Valenzuela is the General Agent for Philamgen (insurance
company). Valenzuela solicited marine insurance from Delta Motors from which
he was entitled to a commission of 32.5% from Philamgen. In 1977, Philamgen
started to become interested in and expressed its intent to share in the
commission due Valenzuela on a 50-50 basis thus giving Valenzuela an agent’s
commission of 16.25%. Despite several attempts to convince Valenzuela, he still
refused to accept such proposals to share commission with Philamgen.
Consequently, Philamgen did some acts of harassment against Valenzuela which
led to the decline of Valenzuela’s business as insurance agent. Eventually,
Philamgen terminated the General Agency Agreement with Valenzuela. The
issues in this case are
1.   WON Philamgen and/or its officers can be held liable for damages
due to the termination of the General Agency Agreement it entered
into with Valenzuela – YES. The agency involving Valenzuela and
Philamgen is one "coupled with an interest," and, therefore, should
not be freely revocable at the unilateral will of the latter. The principal
cause of the termination of Valenzuela as General Agent of Philamgen
arose from his refusal to share his Delta Commission. Such termination,
as held by the Trial Court, is tainted with bad faith. As such,
2.   WON Valenzuela is liable to Philamgen for the unpaid and
uncollected premiums – NO. The remedy for the non-payment of
premiums is to put an end to and render the insurance policy not
binding.
DOCTRINE: Valenzuela, being a mere agent of Philamgen, is not a party to the
contract of insurance. The contract is essentially between Philamgen and Delta
Motors. Consequently, Valenzuela is under no obligation to pay Philamgen for
the unpaid and uncollected premiums. The remedy for the non-payment of
premiums is to put an end to and render the insurance policy not binding.
FACTS:
1.   Characters:
Valenzuela – General Agent of Philamgen
Philamgen – Insurance Company
Delta Motors – Insured
2.   Valenzuela is a General Agent of Philamgen since 1965. As such, he was
authorized to solicit and sell in behalf of Philamgen all kinds of non-life
insurance, and in sconsideration of services rendered was entitled to receive
the full agent’s commission of 32.5% from Philamgen.
3.   From 1973-1975, Valenzuela solicited marine insurance from one of his
clients Delta Motors amounting to P4.4M from which he was entitled to a
commission of 32%. However, Valenzuela did not receive his commission
amounting to P1.6M. During 1976-1978, premium payments were paid
directly to Philamgen.
4.   In 1977, Philamgen started to become interested in and expressed its intent
to share in the commission due Valenzuela on a fifty-fifty basis.
Valenzuela refused. Philamgen insisted on the sharing of commission with
Valenzuela. Valenzuela firmly reiterated his objection to the proposals of
Philamgen.
5.   Because of the refusal of Valenzuela, Philamgen took drastic action against
Valenzuela:
a.   Reversed the commission due him by not crediting in his account the
commission earned from the Delta Motors, Inc.
b.   Placed agency transactions on a cash and carry basis
c.   Threatened the cancellation of policies issued by his agency
d.   Started to leak out news that Valenzuela has a substantial account with
Philamgen.
All of these acts resulted in the decline of his business as insurance agent.
Then on December 27, 1978, Philamgen terminated the General Agency
Agreement of Valenzuela.
6.   Vaenzuela filed a complaint against Philamgen.
7.   Trial Court ruled in favor of Valenzuela stating that the principal cause of
the termination of Valenzuela as General Agent of Philamgen was based on
his refusal to share his Delta Commission. The acts of harassment done by
Philamgen to force Valenzuela to agree to the sharing of his Delata
commission do not justify the termination of the General Agency
Agreement entered into by Philamgen and Valenzuela.
8.   CA ruled in favor of Philamgen stating that the principal’s power to revoke
an agency at will is so pervasive that termination may be effected even if
the principal acts in bad faith, subject only to the principal’s liability for
damages.
ISSUE:
1.   WON Philamgen and/or its officers can be held liable for damages due
to the termination of the General Agency Agreement it entered into
with Valenzuela – YES. The agency involving Valenzuela and Philamgen
is one "coupled with an interest," and, therefore, should not be freely
revocable at the unilateral will of the latter. The principal cause of the
termination of Valenzuela as General Agent of Philamgen arose from his
refusal to share his Delta Commission. Such termination, as held by the
Trial Court, is tainted with bad faith.
2.   WON Valenzuela is liable to Philamgen for the unpaid and uncollected
premiums – NO. The remedy for the non-payment of premiums is to put an
end to and render the insurance policy not binding.

RULING: ACCORDINGLY, the petition is GRANTED. The impugned decision of
January 29, 1988 and resolution of April 27, 1988 of respondent court are hereby
SET ASIDE. The decision of the trial court dated January 23, 1986 in Civil Case No.
121126 is REINSTATED with the MODIFICATIONS that the amount of FIVE
HUNDRED TWENTY ONE THOUSAND NINE HUNDRED SIXTY-FOUR AND
16/100 PESOS (P521,964.16) representing the petitioners Delta commission shall
earn only legal interests without any adjustments under Article 1250 of the Civil
Code and that the contractual relationship between Arturo P. Valenzuela and
Philippine American General Insurance Company shall be deemed terminated upon
the satisfaction of the judgment as modified.
RATIO:
46.   The principal cause of the termination of Valenzuela as General Agent of
Philamgen arose from his refusal to share his Delta commission. The
records sustain the conclusions of the trial court on the apparent bad faith of
the Philamgen in terminating the General Agency Agreement of
Valenzuela. In the case at bar, the records show that the findings and
conclusions of the trial court are supported by substantial evidence and
there appears to be no cogent reason to disturb them.
47.   As early as September 30,1977, Philamgen told the petitioners of its desire
to share the Delta Commission with them. It stated that should Delta back
out from the agreement, Valenzuela would be charged interests through a
reduced commission after full payment by Delta.
48.   On January 23, 1978 Philamgen proposed reducing the Valenzuela’s
commissions by 50% thus giving them an agent's commission of 16.25%.
On February 8, 1978, Philamgen insisted on the reduction scheme. There
were other pressures:
a.   The petitioners were told that the Delta commissions would not be
credited to their account
b.   They were informed that the Valenzuela agency would be placed on a
cash and carry basis thus removing the 60-day credit for premiums due
c.   Existing policies were threatened to be cancelled
d.   The Valenzuela business was threatened with diversion to other agencies
e.   Rumors were also spread about alleged accounts of the Valenzuela
agency
49.   It is also evident from the records that the agency involving Valenzuela and
Philamgen is one "coupled with an interest," and, therefore, should not be
freely revocable at the unilateral will of the latter.
50.   In the insurance business in the Philippines, the most difficult and
frustrating period is the solicitation and persuasion of the prospective clients
to buy insurance policies. Normally, agents would encounter much
embarrassment, difficulties, and oftentimes frustrations in the solicitation
and procurement of the insurance policies. To sell policies, an agent exerts
great effort, patience, perseverance, ingenuity, tact, imagination, time and
money.
51.   In the case of Valenzuela, he was able to build up an Agency from scratch
in 1965 to a highly productive enterprise. The records sustain the finding
that the Philamgen started to covet a share of the insurance business that
Valenzuela had built up, developed and nurtured to profitability through
over thirteen (13) years of patient work and perseverance. When Valenzuela
refused to share his commission in the Delta account, the boom suddenly
fell on him.
52.   With the termination of the General Agency Agreement, Valenzuela would
no longer be entitled to commission on the renewal of insurance policies of
clients sourced from his agency. Worse, despite the termination of the
agency, Philamgen continued to hold Valenzuela jointly and severally
liable with the insured for unpaid premiums. Under these circumstances,
it is clear that Valenzuela had an interest in the continuation of the
agency when it was unceremoniously terminated not only because of the
commissions he should continue to receive from the insurance business he
has solicited and procured but also for the fact that by the very acts of the
respondents, he was made liable to Philamgen in the event the insured fail
to pay the premiums due. They are estopped by their own positive
averments and claims for damages. Therefore, the respondents cannot state
that the agency relationship between Valenzuela and Philamgen is not
coupled with interest.
As to Valenzuela’s liability to pay Philamgen for the unpaid and uncollected
premiums
53.   We rule that the respondent court erred in holding Valenzuela liable. We
find no factual and legal basis for the award. Under Section 7712 of the
Insurance Code, the remedy for the non-payment of premiums is to put an
end to and render the insurance policy not binding.
54.   Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc.: Non-
payment of premium does not merely suspend but puts an end to an
12
Sec. 77 ... [N]otwithstanding any agreement to the contrary, no policy or contract of insurance is valid
and binding unless and until the premiums thereof have been paid except in the case of a life or industrial
life policy whenever the grace period provision applies (P.D. 612, as amended otherwise known as the
Insurance Code of 1974)
 insurance contract since the time of the payment is peculiarly of the essence
of the contract.
55.   Since admittedly the premiums have not been paid, the policies issued have
lapsed. The insurance coverage did not go into effect or did not continue
and the obligation of Philamgen as insurer ceased. Hence, for Philamgen
which had no more liability under the lapsed and inexistent policies to
demand, much less sue Valenzuela for the unpaid premiums would be the
height of injustice and unfair dealing. In this instance, with the lapsing of
the policies through the nonpayment of premiums by the insured there
were no more insurance contracts to speak of.
 009 RCBC v. CA (VICENCIO)
April 20, 1998 | Melo, J. | Parties to a Contract
PETITIONER: Rizal Commercial Banking Corporation (RCBC), Uy Chun Bing, Eli D. Law
RESPONDENTS: Court of Appeals and Goyu & Sons
SUMMARY: Goyu and Sons (GOYU) applied for credit facilities with RCBC. A credit
amount of P30M was granted, which was incrased to P117M. As security for its credit, GOYU
executed two real estate mortagages and two chattel mortgages, in favor of RCBC. Under each
of these contracts, GOYU committed itself to insure the mortgages property with an insurance
company approved by RCBC. GOYU obtained a total of 10 insurance policies from Malayan
Insurance Compan (MICO). Alchester Insurance Company (Alchester), MICO’s insurance
agent, issued nine endorsements in favor of RCBC. On April 27, 1992, one of GOYU’s
factory buildings in Valenzuela was gutted by fire. GOYU submitted its claim for indemnity
against MICO. MICO however denied the claim on the ground that the insurance policies
were already subject to attachments by other courts because the insurance proceeds were also
claimed by other creditors of GOYU.
RCBC, one of GOYU’s creditors, also filed with MICO its formal claim over the proceeds of
the insurance policies. RCBC here is claiming that since they are the mortgagee of security
provided by GOYU, the insured, they also have the right to claim the insurance proceeds from
MICO, the insurer. Its claim was also denied by MICO, however. The RTC ruled in favor of
GOYU, ordering MICO to pay GOYU its fire loss claims, but that GOYU should also pay
RCBC for its loan obligations with the latter. CA partly affirmed.
The issue before the SC is WoN RCBC, as mortgagee, has any right over the insurance
policies by GOYU, as mortgagor, in case of occurrence of loss. The SC held that YES, but
only because of the peculiarity of the circumstances obtaining in the instant case which
presented a justification to take exception to the strict application of Sec. 53 of the Insurance
Code. GOYU voluntarily procured insurance policies to cover the mortgaged property from
MICO, no less than a sister company of RCBC. Endorsement documents were prepared by
MICO’s underwriter, Alchester Insurance Agency, Inc., and copies thereof were sent to
GOYU, MICO, and RCBC. GOYU did not assail, until of late, the validity of said
endorsements. GOYU continued until the occurrence of the fire, to enjoy the benefits of the
credit facilities extended by RCBC. GOYU is bound by the principle of estoppel. The
intention of the parties was also plain: RCBC is truly the person or entity for whose benefit the
policies were clearly intended.
Being exclusively payable to RCBC by reason of the endorsement by Alchester to RCBC,
these 8 policies (of 10) can not be attached by GOYU’s other creditors up to the extent of the
GOYUs outstanding obligation in RCBC’s favor. The other 2 policies, since they have not
been proven to be endorsed and delivered by Alchester, can be subject of attachments by other
creditors.
DOCTRINE: Section 53 of the Insurance Code ordains that the insurance proceeds of the
endorsed policies shall be applied exclusively to the proper interest of the person for whose
benefit it was made.
FACTS:
43.   Parties: Insured: GOYU; Insurer: MICO thru its agent Alchester;
Mortgagor: GOYU; Mortgagee: RCBC
44.   Goyu & Sons (GOYU) applied for credit facilities and accomodations with
Rizal Commercial Banking Corporation (RCBC) at its Binondo Branch.
45.   After due evaluation, RCBC, through its key officers, petitioner Uy Chin
Bing and Eli D. Lao, recommended GOYU’s application for approval with
RCBC’s executive committee.
46.   A credit facilitiy in the amount of P30 million was initially granted. Upon
GOYU’s application and Uy’s and Lao’s recommendation, RCBCs
executive committee increased GOYUs credit facility to P50 million, then
to P90 million, and finally to P117 million.
47.   As security for its credit facilities with RCBC, GOYU executed two real
estate mortgages and two chattel mortgages in favor of RCBC.
48.   Under each of these four mortgage contracts, GOYU committed itself to
insure the mortgaged property with an insurance company approved by
RCBC, and subsequently, to endorse and deliver the insurance policies to
RCBC.
49.   GOYU obtained in its name a total of ten insurance policies from Malayan
Insurance Company (MICO). Alchester Insurance Agency, Inc. (Alchester),
the insurance agent where GOYU obtained the MICO policies, issued nine
endorsements in favor of RCBC seemingly upon instructions of GOYU.
50.   On April 27, 1992, one of GOYU’s factory buildings in Valenzuela was
gutted by fire.
51.   Consequently, GOYU submitted its claim for indemnity on account of the
loss insured against MICO.
52.   MICO 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 insurance proceeds were also claimed by other
creditors of GOYU alleging better rights to the proceeds than the insured.
53.   GOYU filed a complaint for specific performance and damages with the
RTC.
54.   RCBC, one of GOYU’s creditors, also filed with MICO its formal claim
over the proceeds of the insurance policies, but said claims were also denied
for the same reasons that MICO denied GOYU’s claims.
1.   Personal note: RCBC here is claiming that since they are the
mortgagee of security provided by GOYU, the insured, they also
have the right to claim the insurance proceeds from MICO, the
insurer
55.   The RTC confirmed that GOYU’s other creditors, namely, Urban Bank,
Alfredo Sebastian, and Philippine Trust Company obtained their respective
writs of attachments form various cours, covering an aggregate ammoung of
P14,938,080, and ordered that the proceeds of the ten insurance policies be
deposited with the said court minus the aforementioned 14M.
56.   Accordingly, MICO deposited the amoun gog P50,505,594 with the RTC.
57.   The RTC rendered judgment in favor of GOYU:
 1.   For defendant MICO to pay GOYU its fire loss claims in the total of P74,040,518,
less the amount of P50M which is deposited with this Court.
2.   To pay MICO damages by way of interest for the delay
3.   For RCBC to pay GOYU actual damages of 2PM
4.   For the both MICO and RCBC to pay GOYU exemplary and attorney’s fees.
5.   And on the counterclaim of RCBC: ordering GOYU to pay its loan obligations with
RCBC in the amoung of P68,785,069, with interest.
58.   All parties appealed. GOYU was unsatisfied with the amounts awarded in
its favor. MICO and RCBC disputed the trial courts findings of liability on
their part.
59.   The CA partly granted GOYUs appeal (it additionally ordered MICO to pay
GOYU damages by way of interest until GOYU receives the said amount),
but sustained the findings of the trial court with respect to MICO and
RCBCs liabilities.
60.   Hence this appeal by RCBC and MICO.
ISSUE/s:
7.   WoN RCBC, as mortgagee, has any right over the insurance policies taken
by GOYU, the mortgagor, in case of the occurrence of loss – YES, but only
because of the peculiarity of the circumstances obtaining in the instant case
which presented a justification to take exception to the strict application of
Sec. 53 of the Insurance Code, it having been sufficiently established that it
was the intention of the parties to designate RCBC as the party for whose
benefit the insurance policies were taken out.
RULING: Petitions are hereby GRANTED and the decision and resolution of
December 16, 1996 and April 3, 1997 in CA-G.R. CV No. 46162 are hereby
REVERSED and SET ASIDE. A new one entered:
1.   Dismissing the Complaint of private respondent GOYU in Civil Case No. 93-65442 before
Branch 3 of the Manila Regional Trial Court for lack of merit;
2.   Ordering Malayan Insurance Company, Inc. to deliver to Rizal Commercial Banking
Corporation the proceeds of the insurance policies in the amount of P51,862,390.94 (per report
of adjuster Toplis & Harding (Far East), Inc., Exhibits 2 and 2-1), less the amount of
P50,505,594.60 (per O.R. No. 3649285);
3.   Ordering the Clerk of Court to release the amount of P50,505,594.60 including the interests
earned to Rizal Commercial Banking Corporation;
4.   Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal Commercial Banking
Corporation in the principal amount of P107,246,887.90, with interest at the respective rates
stipulated in each promissory note from January 21, 1993 until finality of this judgment, and
surcharges at 2% and penalties at 3% from January 21, 1993 to March 9, 1993, minus
payments made by Malayan Insurance Company, Inc. and the proceeds of the amount
deposited with the trial court and its earned interest. The total amount due RCBC at the time of
the finality of this judgment shall earn interest at the legal rate of 12% in lieu of all other
stipulated interests and charges until fully paid
RATIO:
67.   It is settled that a mortgagor and a mortgagee have separate and distinct
insurable interests in the same mortgaged property, such that each one of
them may insure the same property for his own sole benefit.
68.   There is no question that GOYU could insure the mortgaged property for its
own exclusive benefit.
69.   In the present case, although it appears that GOYU obtained the subject
insurance policies naming itself as the sole payee, the intentions of the
parties as shown by their contemporaneous acts, must be given due
consideration in order to better serve the interest of justice and equity.
70.   It is to be noted that nine endorsement documents were prepared by
Alchester in favor of RCBC. The Court is in a quandary how Alchester
could arrive at the idea of endorsing any specific insurance policy in
favor of any particular beneficiary or payee (RCBC) other than the
insured (GOYU) had not such named payee or beneficiary been
specifically disclosed by the insured itself.
71.   It is also significant that GOYU voluntarily and purposely took the
insurance policies from MICO, a sister company of RCBC, and not just
from any other insurance company.
72.   Had it not been for GOYU, Alchester would not have known of GOYU’s
intention of obtaining insurance coverage in compliance with its
undertaking in the mortgage contracts with RCBC, and verily, Alchester
would not have endorsed the policies to RCBC had it not been so directed
by GOYU.
73.   On equitable principles, particularly on the ground of estoppel, the Court is
constrained to rule in favor of mortgagor RCBC.
74.   Evelyn Lozada of Alchester testified that upon instructions of Mr. Go,
through a certain Mr. Yam, she prepared in quadruplicate on February 11,
1992 the nine endorsement documents for GOYUs nine insurance policies
in favor of RCBC.
75.   RCBC, in good faith, relied upon the endorsement documents sent to it
as this was only pursuant to the stipulation in the mortgage contracts.
The Court finds such reliance to be justified under the circumstances of
the case.
76.   GOYU failed to seasonably repudiate the authority of the person or
persons who prepared such endorsements.
77.   Over and above this, GOYU continued, in the meantime, to enjoy the
benefits of the credit facilities extended to it by RCBC.
78.   After the occurrence of the loss insured against, it was too late for
GOYU to disown the endorsements for any imagined or contrived lack
of authority of Alchester to prepare and issue said endorsements.
79.   If there had not been actually an implied ratification of said endorsements
by virtue of GOYUs inaction in this case, GOYU is at the very least
estopped from assailing their operative effects.
80.   To permit GOYU to capitalize on its non-confirmation of these
endorsements while it continued to enjoy the benefits of the credit
facilities of RCBC which believed in good faith that there was due
endorsement pursuant to their mortgage contracts, is to countenance
grave contravention of public policy, fair dealing, good faith, and
justice.
81.   Under the peculiar circumstances obtaining in this case, the Court is bound
to recognize RCBC’s right to the proceeds of the insurance policies if not
 for the actual endorsement of the policies, at least on the basis of the
equitable principle of estoppel.
82.   GOYU cannot seek relief under Section 53 of the Insurance Code which
provides that the proceeds of insurance shall exclusively apply to the
interest of the person in whose name or for whose benefit it is made. The
peculiarity of the circumstances obtaining in the instant case presents a
justification to take exception to the strict application of said provision, it
having been sufficiently established that it was the intention of the parties to
designate RCBC as the party for whose benefit the insurance policies were
taken out.
83.   The Court considered the following:
1.   It is undisputed that the insured pieces of property were the subject of
mortgage contracts entered into between RCBC and GOYU in
consideration of and for securing GOYUs credit facilities from
RCBC. The mortgage contracts contained common provisions whereby
GOYU, as mortgagor, undertook to have the mortgaged property properly
covered against any loss by an insurance company acceptable to RCBC.
2.   GOYU voluntarily procured insurance policies to cover the mortgaged
property from MICO, no less than a sister company of RCBC and
definitely an acceptable insurance company to RCBC.
3.   Endorsement documents were prepared by MICOs underwriter, Alchester
Insurance Agency, Inc., and copies thereof were sent to GOYU, MICO,
and RCBC. GOYU did not assail, until of late, the validity of said
endorsements.
4.   GOYU continued until the occurrence of the fire, to enjoy the benefits of
the credit facilities extended by RCBC which was conditioned upon the
endorsement of the insurance policies to be taken by GOYU to cover the
mortgaged properties.
84.   This Court can not over stress the fact that upon receiving its copies of the
endorsement documents prepared by Alchester, GOYU, despite the
absence of its written conformity thereto, obviously considered said
endorsement to be sufficient compliance with its obligation under the
mortgage contracts since RCBC accordingly continued to extend the
benefits of its credit facilities and GOYU continued to benefit
therefrom.
85.   Just as plain too is the intention of the parties to constitute RCBC as the
beneficiary of the various insurance policies obtained by GOYU.
86.   The intention of the parties will have to be given full force and effect in this
particular case. The insurance proceeds may, therefore, be exclusively
applied to RCBC, which under the factual circumstances of the case, is
truly the person or entity for whose benefit the policies were clearly
intended.
87.   Moreover, the laws evident intention to protect the interests of the
mortgagee upon the mortgaged property is expressed in Article 2127 of the
Civil Code which states:
1.   ART. 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation
becomes due, and to the amount of the indemnity granted or owing to the proprietor
from the insurers of the property mortgaged, or in virtue of expropriation for public
use, with the declarations, amplifications and limitations established by law,
whether the estate remains in the possession of the mortgagor, or it passes into the
hands of a third person.
88.   Significantly, the Court notes that out of the 10 insurance policies subject of
this case, only 8 of them appear to have been subject of the endorsements
prepared and delivered by Alchester for and upon instructions of GOYU.
1.   Policy Number F-114-07795 has not been endorsed. This fact was
admitted by MICOs witness, Atty. Farolan.
2.   Likewise, the record shows no endorsement for Policy Number
CI/F-128-03341.
89.   Being exclusively payable to RCBC by reason of the endorsement by
Alchester to RCBC, which we already ruled to have the force and effect
of an endorsement by GOYU itself, these 8 policies can not be attached
by GOYU’s other creditors up to the extent of the GOYUs outstanding
obligation in RCBC’s favor.
90.   Section 53 of the Insurance Code ordains that the insurance proceeds of
the endorsed policies shall be applied exclusively to the proper interest
of the person for whose benefit it was made.
91.   In this case, to the extent of GOYUs obligation with RCBC, the interest of
GOYU in the subject policies had been transferred to RCBC effective
as of the time of the endorsement.
92.   These policies may no longer be attached by the other creditors of GOYU,
like Alfredo Sebastian, which may nonetheless forthwith be dismissed for
being moot and academic in view of the results reached herein.
93.   Only the two other policies may be validly attached, garnished, and levied
upon by GOYUs other creditors.
94.   To the extent of GOYUs outstanding obligation with RCBC, all the rest of
the other insurance policies above-listed which were endorsed to RCBC,
are, therefore, to be released from attachment, garnishment, and levy by the
other creditors of GOYU.
95.   Given the factual milieu spread hereover, the Court also rulse that it was
error to hold MICO liable in damages for denying or withholding the
proceeds of the insurance claim to GOYU:
1.   Firstly, by virtue of the mortgage contracts as well as the endorsements of
the insurance policies, RCBC has the right to claim the insurance
proceeds, in substitution of the property lost in the fire. Having assigned
its rights, GOYU lost its standing as the beneficiary of the said insurance
policies.
2.   Secondly, for an insurance company to be held liable for unreasonably
delaying and withholding payment of insurance proceeds, the delay must
be wanton, oppressive, or malevolent. The case at bar does not show that
MICO wantonly and in bad faith delayed the release of the proceeds. The
problem in the determination of who is the actual beneficiary of the
insurance policies, aggravated by the claim of various creditors who
wanted to partake of the insurance proceeds, not to mention the
importance of the endorsement to RCBC, to our mind, and as now borne
out by the outcome herein, justified MICO in withholding payment to
GOYU.
 010 PALILEO v. COSIO (VILLAVICENCIO)
November 28, 1955 | Bautista Angelo, J. | Parties to the contract
PETITIONER: Cherie Palileo
RESPONDENTS: Beatriz Cosio
SUMMARY: Palileo obtained a loan from Cosio. Cosio required Palileo to sign a
“Conditional sale of residential building” to secure the payment of the loan. This
document did not express the true intention of the parties that was merely to place
said property as security for the payment of the loan. Cosio insured the building with
Associated Insurance & Surety Co., Inc. The building was party destroyed by fire.
Cosio then collected 13,107 from Associated Insurance. Palileo demanded from
Cosio that she be credited with the necessary amount to pay her obligation out of the
insurance proceeds but Cosio refused to do so. Trial court rendered a decision
ordering Cosio to credit the 13,107 to Palileo’s payment to her. WoN the obligation
of Palileo can be fully compensated by the insurance amount – NO, because it runs
counter to the rule governing an insurance taken by a mortgagee independently of the
mortgagor. In that event, upon the destruction of the property the insurance money
paid to the mortgagee will not inure to the benefit of the mortgagor, and the amount
due under the mortgage debt remains unchanged. The mortgagee, however, is not
allowed to retain his claim against the mortgagor, but it passes by subrogation to the
insurer, to the extent of the insurance money paid.
DOCTRINE: The rule is that "where a mortgagee, independently of the mortgagor,
insures the mortgaged property in his own name and for his own interest, he is
entitled to the insurance proceeds in case of loss, but in such case, he is not allowed
to retain his claim against the mortgagor, but is passed by subrogation to the insurer
to the extent of the money paid." Or, stated in another way, "the mortgagee may
insure his interest in the property independently of the mortgagor.
FACTS:
1.   Palileo obtained from Cosio a loan in the sum of P12,000 subject to the
following conditions: (a) that Palileo shall pay to Cosio an interest in the amount
of P250 a month; (b) that Cosio shall deduct from the loan certain obligations of
Palileo to third persons amounting to P4,550, plus the sum of P250 as interest
for the first month; and (c) that after making the above deductions, Cosio shall
deliver to Palileo only the balance of the loan of P12,000.
2.   Pursuant to their agreement, Palileo paid to Cosio as interest on the loan a total
of P2,250.00 corresponding to nine months from December 18, 1951, on the
basis of P250.00 a month, which is more than the maximum interest authorized
by law.
3.   To secure the payment of the aforesaid loan, Cosio required Palileo to sign a
document known as "Conditional Sale of Residential Building", purporting to
convey to Cosio, with right to repurchase, a two-story building of strong
materials belonging to Palileo.
4.   This document did not express the true intention of the parties which was merely
to place said property as security for the payment of the loan.
5.   Cosio insured the building against fire with the Associated Insurance & Surety
Co., Inc. for the sum of P15,000, the insurance policy having been issued in the
name of Cosio.
6.   The building was partly destroyed by fire and, after proper demand, Cosio
collected from the insurance company an indemnity of P13,107.00.
7.   Palileo demanded from Cosio that she be credited with the necessary amount to
pay her obligation out of the insurance proceeds but Cosio refused to do so.
8.   Trial court rendered a decision ordering Cosio to credit the 13,107 to Palileo’s
payment to her.
ISSUE/s:
1.   WoN the obligation of Palileo can be fully compensated by the insurance
amount – NO, because it runs counter to the rule governing an insurance taken
by a mortgagee independently of the mortgagor.
RULING: Consistent with the foregoing pronouncement, we therefore modify the
judgment of the lower court as follows:(1) the transaction had between the plaintiff
and defendant as shown in Exhibit A is merely an equitable mortgage intended to
secure the payment of the loan of P12,000;(2) that the proceeds of the insurance
amounting to P13,107.00 was properly collected by defendant who is not required to
account for it to the plaintiff; (3) that the collection of said insurance proceeds shall
not be deemed to have compensated the obligation of the plaintiff to the defendant,
but bars the latter from claiming its payment from the former; and (4) defendant shall
pay to the plaintiff the sum of P810.00 representing the overpayment made by
plaintiff by way of interest on the loan. No pronouncement as to costs.
RATIO:
96.   The rule is that "where a mortgagee, independently of the mortgagor, insures the
mortgaged property in his own name and for his own interest, he is entitled to
the insurance proceeds in case of loss, but in such case, he is not allowed to
retain his claim against the mortgagor, but is passed by subrogation to the
insurer to the extent of the money paid."
97.   Or, stated in another way, "the mortgagee may insure his interest in the property
independently of the mortgagor.
98.   In that event, upon the destruction of the property the insurance money paid to
the mortgagee will not inure to the benefit of the mortgagor, and the amount due
under the mortgage debt remains unchanged.
99.   The mortgagee, however, is not allowed to retain his claim against the
mortgagor, but it passes by subrogation to the insurer, to the extent of the
insurance money paid."
100.  This is the same rule upheld by this Court in a case that arose in this jurisdiction.
In the case mentioned, an insurance contract was taken out by the mortgagee
upon his own interest, it being stipulated that the proceeds would be paid to him
only and when the case came up for decision, this Court held that the mortgagee,
 in case of loss, may only recover upon the policy to the extent of his credit at the
time of the loss. It was declared that the mortgaged had no right of action against
the mortgagee on the policy. (San Miguel Brewery vs. Law Union, 40 Phil.,
674.)
101.  The general rule and the weight of authority is, that the insurer is thereupon
subrogated to the rights of the mortgagee under the mortgage.
102.  the correct solution should be that the proceeds of the insurance should be
delivered to Cosio but that her claim against Palileo should be considered
assigned to the insurance company who is deemed subrogated to the rights of
Cosio to the extent of the money paid as indemnity.
 011 GREAT PACIFIC LIFE ASSURANCE v. CA (Yap)
October 13, 1999 | Quisumbing, J. | Parties to the contract
PETITIONER: Great Pacific Life Assurance Corp. (Grepalife)
RESPONDENT: Court of Appeals and Medarda V. Leuterio
SUMMARY: Grepalife and DBP entered into a group life insurance to insure
the lives of eligivle housing loan mortgagors of DBP (a.k.a., mortgage
redemption insurance). When Dr. Wilfredo Leuterio applied, he indicated that he
had never consulted a physician for a heart condition, high blood pressure, etc.
and that to the best of his knowledge, he is in good health. Thereafter, he died
due to massive cerebral hemorrhage. When DBP submitted its claim, from the
insurance, to Grepalife, the latter denied on the ground that it is entitled to
rescind the contract since Wilfredo disclosed his hypertension, as attested by Dr.
Hernando Mejia that “the cerebral hemorrhage was probably secondary to
hypertension.” Because of the denial, DBP proceeded to claim from Wilfredo
and even foreclosed on the mortgaged property. Medarda Leuterio, the widow,
filed a complaint for specific performance and damages against Grepalife to
fulfill its obligation under the insurance contract. Grepalife now argues that
Medarda is not the real party-in-interest, which should be DBP the mortgagee.
The pertinent issue is whether Medarda is the real party-in-interest.
The SC ruled in the affirmative. In Gonzales v. Yek Tong Lin, the SC ruled that
the insured may be regarded as the real party-in-interest, ALTHOUGH he has
assigned the policy for the purpose of collection, or has assigned as collateral
security any judgment he may obtain. In this case, since a policy of insurance
upon life or health MAY PASS by transfer, will or succession to any person,
whether he has an insurable interest or not, and such person may recover it
whatever the insured might have recovered, the widow (Medarda) of the
decedent may file the suit against the insurer (Grepalife). (To simplify, Wilfredo
remained as the real party-in-interest even though he assigned the DBP
mortgage indebtedness to Grepalife. By virtue of Wilfredo’s death, his heirs
succeeded to his rights in the insurance contract). Hence, Medarda has the
proper standing to claim from Grepalife, which erred in rescinding the insurance
contract on the ground of Wilfredo’s alleged concealment – there was no
concealment since the testimony of Dr. Mejia, as to the “probability” that the
cerebral hemorrhage was secondary to hypertension, was not conclusive proof
that Wilfredo was not in good health when he applied for the insurance policy.
There was no fraudulent intent established. Now, the rightful owners of the
proceeds are Wilfredo’s heirs.
DOCTRINE: Since a policy of insurance upon life or health MAY PASS by
transfer, will or succession to any person, whether he has an insurable interest or
not, and such person may recover it whatever the insured might have recovered,
the widow (Medarda) of the decedent may file the suit against the insurer
(Grepalife).
FACTS:
69.   Great Pacific Life Assurance (Petitioner / Grepalife) and the Development
Bank of the Philippines (DBP) entered into a Group Life Insurance to
insure the lives of eligible housing loan mortgagors of DBP (a.k.a.,
Mortgage Redemption Insurance).
70.   Dr. Wilfredo Leuterio, a physicial and a housing debtor of DBP, applied for
membership in the group life insurance.
a.   In his application, he answered that (1) “He had NEVER consulted
a physician for a heart condition, high blood pressure, cancer,
diabetes, lung, kidney or stomach disorder or any other physical
impairment;” and (2) “He was, to the best of his knowledge, in
good health.”
b.   Grepalife granted Wilfredo an insurance coverage of PHP86,200
over his DBP mortgage indebtedness.
71.   Wilfredo died due to massive cerebral hemorrhage.
72.   DBP submitted a death claim to Grepalife.
a.   Grepalife denied the claim on the ground that Wilfredo was not
physically healthy when he applied for an insurance coverage, and
that he concealed the fact that he ws suffering from hypertension,
which caused his death.
b.   According to Grepalife, this was attested to the attending
physician, Dr. Hernando Mejia, when he said that Wilfredo “died
of cerebral hemorrhage, PROBABLY secondary to hypertension.”
c.   Thus, DBP collected the debt from the mortgagor (Wilfredo) and
took the necessary action of foreclosure on the residential lot of the
Leuterios.
73.   Medarda Leuterio, Wilfredo’s widow, filed this complaint against Grepalife
for specific performance with damages, alleging that Grepalife’s claim
based on Dr. Mejia’s testimony was not a conclusive inference because
Wilfredo was not autopsied, hence other causes could not be ruled out.
a.   Trial court ruled in favor of Medarda. CA sustained.
74.   Grepalife now alleges that this complaint was not filed by the real party-in-
interest which is DBP.
ISSUE/s:
11.   Whether Medarda is a real party-in-interest – YES, because Wilfredo
remained the real party-in-interest despite the mortgage, and when he died,
his heirs succeeded thereto.
12.   Whether Grepalife may rescind the group life insurance of Wilfredo – NO,
because there is no conclusive proof of fraudulent intent since the testimony
of Dr. Mejia merely mentioned that his cerebral hemorrhage was
“probably” secaondary to hypertension.
RULING: Petition DENIED. CA decision AFFIRMED with MODIFICATION that c.   Misrepresentation as a defense of the insurer to avoid liability is an
Grepalife is ORDERED to pay PHP86,200 insurance proceeds to the heirs of the affirmative defense.
insured. i.   The duty to establish such defense by satisfactory and
RATIO: convincing evidence rests upon the insurer.
56.   Medarda is the real party-in-interest. 58.   Since there was no evidence on record as to the amount of Wilfredo’s
a.   Nature of a Mortgage Redemption Insurance contract: outstanding indebtedness to DBP at the time of his death, the measure of
i.   In favor of the mortgagee (DBP) – in the event of the indemnity under a policy of insurance upon life or health is the sum fixed in the
unexpected demise of the mortgagor during the substinence of policy (here, it’s PHP86,200).
the mortgage contract, the proceeds from such insurance will 59.   Considering that DBP already foreclosed on the residential lot subject of the
be applied to the payment of the mortgage debt, thereby mortgage, it cannot unjustly enrich itself by collecting the insurance proceeds.
relieving the heirs of the mortgagor from paying the a.   The proceeds now rightly belong to Wilfredo’s heirs.
obligation.
ii.   In favor of the mortgagor (Wilfredo) – in the event of death,
the mortgage obligation will be extinguished by the
application of the insurance proceeds to the mortgage
indebtedness.
iii.   Where the mortgagor pays the insurance premium under the
group insurance policy, making the loss payable to the
mortgagee, the insurance is on the mortgagor’s interest, and
the mortgagor continues to be a party to the contract. Here the
mortgagee is simply an appointee of the insurance fund,
such loss-payable clause does not make the mortgagee a
party to the contract.
b.   §8, Insurance Code – In the event of the debtor’s (Wilfredo’s) death
before his indebtedness with the creditor (DBP) shall have been fully
paid, an amount to pay the outstanding indebtedness shall first be paid
to the creditor and the balance of sum assured, if there is any, shall then
be paid to the beneficiary/ies designated by the debtor.
c.   Gonzales La O v. Yek Tong Lin – the insured may be regarded as the
real party-in-interest, ALTHOUGH he has assigned the policy for the
purpose of collection, or has assigned as collateral security any
judgment he may obtain.
i.   Since a policy of insurance upon life or health MAY PASS by
transfer, will or succession to any person, whether he has an
insurable interest or not, and such person may recover it
whatever the insured might have recovered, the widow
(Medarda) of the decedent may file the suit against the insurer
(Grepalife).
57.   Grepalife may not rescind the group life insurance since Wilfredo did not
conceal the status of his health.
a.   The certification of Dr. Mejia was that Wilfredo “died of cerebral
hemorrhage, PROBABLY secondary to hypertension.” Hence, contrary
to Grepalife’s allegations, there was no sufficient proof that the
Wilfredo had suffered from hypertension.
b.   To entitle Grepalife to rescind the contract, the fraudulent intent on the
part of Wilfredo must be established.
 001 EL ORIENTE FABRICA DE TABACOS, INC. v. POSADAS (Adrias)
September 21, 1931 | Malcolm, J. | Life Insurance Proceeds – Taxable or Not
PLAINTIFF-APPELLANT: El Oriente Fabrica De Tabacos, Inc.
DEFENDANT-APPELLEE: Juan Posadas, Collector of Internal Revenue
Insurer: Manufacturers Life Insurance Co., of Toronto, Canada, thru its local agent
E.E. Elser
Insured: A. Velhagen (Manager of El Oriente)
Beneficiary: El Oriente Fabrica de Tabacos, Inc.
SUMMARY: El Oriente, in order to protect itself against the loss that it might
suffer by reason of the death of its manager A. Velhagen, who had more than 35
years of experience in the manufacture of cigars in the Philippines and whose death
would be a serious loss to El Oriente, procured from Manufacturers Life Insurance
Co. of Toronto, Canada through its local agent R.R. Elser (Manulife) an insurance
policy on the life of A. Velhagen for the sum of 50,000 USD. El Oriente designated
itself as the sole beneficiary. El Oriente charged as expenses of its business all the
said premiums and deducted the same from its gross incomes as reported in its
annual income tax returns. Upon the death of Manager A. Velhagen, El Oriente
received all the proceeds of the life insurance policy. Posadas assessed and levied the
sum of P3,148.74 as income tax on the proceeds of the insurance policy, which was
paid by El Oriente under protest. The issue in this case is WoN the proceeds of
insurance taken by a corporation on the life of an important official to indemnify it
against loss in case of his death, are taxable as income under the Philippine Income
Tax Law? The Court ruled in the negative. Act No. 2833 “Income Tax Law for the
Philippines” provides in Section 4, Chapter I on Individuals that life insurance
proceeds are exempt from Income Tax. However, no provisions in Chapter II on
Corporations explicitly provide for such exemption. Considering, however, the
purport of the stipulated facts, considering the uncertainty of Philippine law, and
considering the lack of express legislative intention to tax the proceeds of life
insurance policies paid to corporate beneficiaries, particularly when in the exemption
in favor of individual beneficiaries in the chapter on this subject, the clause is
inserted "exempt from the provisions of this law," we deem it reasonable to hold
the proceeds of the life insurance policy in question as representing an
indemnity and not taxable income.
DOCTRINE: El Oriente, as a corporation, can purchase a life insurance policy on an
employee and it can designate itself as the sole beneficiary. The corporation will not
be taxed on such proceeds, since it is considered as an indemnity and not income.
FACTS:
1.   El Oriente is a domestic corporation and existing under and by virtue of the
laws of the Philippine Islands.
2.   Juan Posadas (Posadas) is the duly appointed, qualified and acting Collector
of Internal Revenue of the Philippine Islands.
3.   El Oriente, in order to protect itself against the loss that it might suffer by
reason of the death of its manager A. Velhagen, who had more than 35
years of experience in the manufacture of cigars in the Philippines and
whose death would be a serious loss to El Oriente, procured from
Manufacturers Life Insurance Co. of Toronto, Canada through its local
agent R.R. Elser (Manulife) an insurance policy on the life of A. Velhagen
for the sum of 50,000 USD.
4.   El Oriente designated itself as the sole beneficiary. The insured has no
interest or participation in the proceeds of said life insurance policy.
5.   El Oriente charged as expenses of its business all the said premiums and
deducted the same from its gross incomes as reported in its annual income
tax returns, which deductions were allowed by Posadas upon showing by El
Oriente that such premiums were legitimate expenses of the business.
6.   Upon the death of Manager A. Velhagen, El Oriente received all the
proceeds of the life insurance policy together with the interest and the
dividends accruing thereon, aggregating P104,957.88.
7.   Posadas assessed and levied the sum of P3,148.74 as income tax on the
proceeds of the insurance policy, which was paid by El Oriente under
protest.
8.   RTC Decision: Ruled in favor of Posadas
9.   El Oriente’s contentions:
a.   That trial court erred in holding that section 4 of the Income Tax
Law (Act No. 2833) is not applicable to the present case.
b.   The trial court erred in reading into the law certain exceptions and
distinctions not warranted by its clear and unequivocal provisions.
c.   The trial court erred in assuming that the proceeds of the life
insurance policy in question represented a net profit to El Oriente
when, as a matter of fact, it merely represented an indemnity, for
the loss suffered by it thru the death of its manager, the insured.
d.   The trial court erred in refusing to hold that the proceeds of the life
insurance policy in question is not taxable income.
ISSUE/s:
1.   WoN the proceeds of insurance taken by a corporation on the life of an
important official to indemnify it against loss in case of his death, are
taxable as income under the Philippine Income Tax Law? – NO.
Considering, therefore, the purport of the stipulated facts, considering
the uncertainty of Philippine law, and considering the lack of express
legislative intention to tax the proceeds of life insurance policies paid to
corporate beneficiaries, particularly when in the exemption in favor of
individual beneficiaries in the chapter on this subject, the clause is
inserted "exempt from the provisions of this law," we deem it
reasonable to hold the proceeds of the life insurance policy in
question as representing an indemnity and not taxable income
RULING: WHEREFORE, The foregoing pronouncement will result in the judgment 9.   In reality, what El Oriente received was in the nature of an indemnity for
being reversed and in another judgment being rendered in favor of El Oriente and the loss, which it actually suffered because of the death of its manager A.
against Posadas for the sum of P3,148.74. So ordered, without costs in either Velhagen.
instance. 10.   Considering, therefore, the purport of the stipulated facts, considering the
uncertainty of Philippine law, and considering the lack of express legislative
RATIO: intention to tax the proceeds of life insurance policies paid to corporate
1.   The Income Tax Law for the Philippines is Act No. 2833, as amended. beneficiaries, particularly when in the exemption in favor of individual
a.   In Chapter I On Individuals, is to be found Section 4 which beneficiaries in the chapter on this subject, the clause is inserted "exempt
provides that, from the provisions of this law," we deem it reasonable to hold the
"The following incomes shall be exempt from the proceeds of the life insurance policy in question as representing an
provisions of this law: (a) The proceeds of life insurance indemnity and not taxable income.
policies paid to beneficiaries upon the death of the
insured ... ."
 
b.   In Chapter II on Corporations does not provide as above.
i.   Section 10, as amended, in Chapter II On Corporations,
provides that, There shall be levied, assessed, collected,
and paid annually upon the total net income received in
the preceding calendar year from all sources by every
corporation ... a tax of three per centum upon such
income ... ."
ii.   Section 11 in the same chapter, provides the exemptions
under the law, but neither here nor in any other section is
reference made to the provisions of section 4 in Chapter I.
2.   It is certain that the proceeds of life insurance policies are exempt. It is
not so certain that the proceeds of life insurance policies paid to corporate
beneficiaries upon the death of the insured are likewise exempt.
3.   The situation will be better elucidated by a brief reference to laws on the
same subject in the United States.
4.   The Income Tax Law of 1916 extended to the Philippine Legislature, when
it came to enact Act No. 2833, to copy the American statute.
5.   Subsequently, the Congress of the United States enacted its Income Tax
Law of 1919, in which certain doubtful subjects were clarified.
6.   Thus, as to the point before us, it was made clear, when not only in the part
of the law concerning individuals were exemptions provided for
beneficiaries, but also in the part concerning corporations, specific reference
was made to the exemptions in favor of individuals, thereby making the
same applicable to corporations.
7.   This was authoritatively pointed out and decided by the United States
Supreme Court in the case of United States vs. Supplee-Biddle Hardware
Co., which involved facts quite similar to those before us.
8.   To quote the exact words in the cited case of Chief Justice Taft delivering
the opinion of the court:
“It is earnestly pressed upon us that proceeds of life insurance paid
on the death of the insured are in fact capital, and cannot be taxed
as income … that proceeds of a life insurance policy paid on the
death of the insured are not usually classed as income.”
 002 INSULAR LIFE V. EBRADO (ALCAZAR)
October 28,1977 | Martin, J. | Designation of Beneficiary
PETITIONER: The Insular Life Assurance Company, Ltd.
RESPONDENTS: Carponia T. Ebrado and Pascuala Vda. De Ebrado
SUMMARY: Buenaventura Ebrado was insured by The Life Assurance Co.,
Ltd. a policy on a whole-life insurance with a rider on accidental death with
Carponia Ebrada as his beneficiary. He refered to her as his wife. He died
when a falling branch of a tree fell on him. Carponia (Common law wife)
filed a claim for the proceeds of the insurance as the designated beneficiary.
While Pascual Vda. De Ebrado (Legal wife) also filed her claim as the
widow of the deceased insured. The Insurer filed an interpleader before the
CFI to determine who to give the insurance proceeds to. The CFI rendered a
decision in favor Pascuala. The CA affirmed this decision and ruled that
Carponia was disqualified from becoming a beneficiary of Ebrado.
The issue is: Whether a common-law wife named as beneficiary in the life
insurance policy of a legally married man may claim the proceeds thereof in
case of death of the latter. NO. Common-law spouses are barred from
receiving donations from each other.
In essence, a life insurance policy is no different from a civil donation insofar
as the beneficiary is concerned. Both are founded upon the same
consideration: liberality. A beneficiary is like a donee, because from the
premiums of the policy, which the insured pays out of liberality, the
beneficiary will receive the proceeds or profits of said insurance. Article 739
of the new Civil Code provides: The following donations shall be void: (1)
Those made between persons who were guilty of adultery or concubinage at
the time of donation. As a consequence, the proscription in Article 739 of the
new Civil Code should equally operate in life insurance contracts. The
mandate of Article 2012 should be followed: any person who cannot receive
a donation cannot be named as beneficiary in the life insurance policy of the
person who cannot make the donation. Therefore, Carponia Ebrada as the
common law wife is disqualified to be a beneficiary. As a consequence, the
proceeds of the policy are hereby held payable to the estate of the deceased
insured.
DOCTRINE: Any person who is forbidden from receiving any donation
under Article 739 cannot be named a beneficiary of a life insurance policy by
the person who cannot make a donation to him. Common-law spouses are,
definitely, barred from receiving donations from each other.
FACTS:
1.   Buenaventura Ebrado was issued by The Life Assurance Co., Ltd. a
policy on a whole-life insurance for P5,882.00 with a, rider for
Accidental Death for the same amount. He designated Carponia T.
Ebrado as the revocable beneficiary in his policy. He referred to her
as his wife.
2.   Ebrado diedwhen he was hit by a falling branch of a tree.
3.   As the policy was in force, The Insular Life Assurance Co., Ltd.
liable to pay the coverage in the total amount of P11,745.73,
representing the face value of the policy in the amount of P5,882.00
plus the additional benefits for accidental death also in the amount of
P5,882.00 and the refund of P18.00 paid for the premium minus the
unpaid premiums and interest thereon.
4.   Carponia T. Ebrado filed with the insurer a claim for the proceeds of
the Policy as the designated beneficiary therein, although she admits
that she and the insured Buenaventura C. Ebrado were merely living
as husband and wife without the benefit of marriage.
5.   Pascuala Vda. de Ebrado also filed her claim as the widow of the
deceased insured. She asserts that she is the one entitled to the
insurance proceeds, not the common-law wife, Carponia T. Ebrado.
6.   In doubt as to whom the insurance proceeds shall be paid, the
insurer, The Insular Life Assurance Co., Ltd. commenced an action
for Interpleader before the Court of First Instance
7.   CFI: Found that Pascuala had 6 legitimate children with Ebrado and
Carponia had 2 illegitimate children with Ebrado. The court ruled
that Carponia T. Ebrado disqualified from becoming beneficiary of
the insured Buenaventura Ebrado and directing the payment of the
insurance proceeds to the estate of the deceased insured.
8.   CA: Affirmed the judgment of the lower court. It ruled that:
•   Section 50 of the Insurance Act which provides that "(t)he
insurance shall be applied exclusively to the proper interest of
the person in whose name it is made".
•   The word "interest" highly suggests that the provision refers
only to the "insured" and not to the beneficiary, since a contract
of insurance is personal in character. Otherwise, the prohibitory
laws against illicit relationships especially on property and
descent will be rendered nugatory, as the same could easily be
circumvented by modes of insurance.
•   Rather, the general rules of civil law should be applied to resolve
this void in the Insurance Law. Article 2011 of the New Civil
Code states: "The contract of insurance is governed by special
laws. Matters not expressly provided for in such special laws
 shall be regulated by this Code." When not otherwise specifically
provided for by the Insurance Law, the contract of life insurance
is governed by the general rules of the civil law regulating
contracts.
•   Article 739 of the new Civil Code provides: The following
donations shall be void: (1) Those made between persons who
were guilty of adultery or concubinage at the time of donation;
x x x 4.   A conviction for adultery or concubinage is not required before the
In the case referred to in No. 1, the action for declaration of
nullity may be brought by the spouse of the donor or donee; and
the guilt of the donee may be proved by preponderance of
evidence in the same action.
•   Under Article 2012 of the same Code, "any person who is
forbidden from receiving any donation under Article 739
cannot be named beneficiary of a life insurance policy by the
person who cannot make a donation to him. Common-law
spouses are, definitely, barred from receiving donations from
each other.
ISSUE/s:
1.   Whether a common-law wife named as beneficiary in the life
insurance policy of a legally married man may claim the
proceeds thereof in case of death of the latter. NO. Common-law
spouses are barred from receiving donations from each other.
RULING: ACCORDINGLY, the appealed judgment of the lower court is
hereby affirmed. Carponia T. Ebrado is hereby declared disqualified to be the
beneficiary of the late Buenaventura C. Ebrado in his life insurance policy.
As a consequence, the proceeds of the policy are hereby held payable to the
estate of the deceased insured.
RATIO:
1.   In essence, a life insurance policy is no different from a civil
donation insofar as the beneficiary is concerned. Both are founded
upon the same consideration: liberality. A beneficiary is like a
donee, because from the premiums of the policy, which the
insured pays out of liberality, the beneficiary will receive the
proceeds or profits of said insurance.
2.   As a consequence, the proscription in Article 739 of the new Civil
Code should equally operate in life insurance contracts. The mandate
of Article 2012 should be followed: any person who cannot receive a
donation cannot be named as beneficiary in the life insurance policy
of the person who cannot make the donation.
3.   Family laws, reason and morality dictate that the impediments
imposed upon married couple should likewise be imposed upon
extra-marital relationship. If a legitimate relationship is
circumscribed by these legal disabilities, with more reason should an
illicit relationship be restricted by these disabilities.
disabilities mentioned in Article 739 may effectuate. The article says
that in the case referred to in No. 1, the action for declaration of
nullity may be brought by the spouse of the donor or donee; and the
guilty of the donee may be proved by preponderance of evidence in
the same action.
5.   The underscored clause neatly conveys that no criminal conviction
for the offense is a condition precedent. The law plainly states that
the guilt of the party may be proved “in the same acting for
declaration of nullity of donation.” And, it would be sufficient if
evidence preponderates.
6.   The requisite proof of common-law relationship between the insured
and the beneficiary has been conveniently supplied by the
stipulations between the parties in the pre-trial conference of the
case. The judicial admissions are sufficient and are considered valid.
7.   Carponia Ebrada as the common law wife is disqualified to be a
beneficiary. As a consequence, the proceeds of the policy are hereby
held payable to the estate of the deceased insured.
 003 PHILAM v. PINEDA (APASAN)
July, 19, 1989 | Paras, J. | Designation of beneficiary
PETITIONER: Philippine American Insurance Company
RESPONDENTS: Honorable Gregorio G. Pineda and Rodolfo C. Dimayuga
SUMMARY: Rodolfo Dimayuga (Dimayuga) procured an ordinary life insurance
policy from Philippine American Insurance Company (Philam) designating his wife
and children as irrevocable beneficiaries. Subsequently, Dimayuga filed a petition
with the CFI to amend the designation in the policy from irrevocable to recovable.
Philam opposed, but the lower court denied such opposition and granted the petition.
Issues are: 1.) WoN the designation of irrevocable beneficiaries could be
amended without the consent of all the beneficiaries – No, under the Insurance
Act, which was the law applicable at that time, the beneficiary designated in a life
insurance contract cannot be changed without the consent of the beneficiary because
he has a vested interest in the policy. Also, the provisions of the Insurance Contract
did not provide for any exception regarding its irrevocability. Both the law and the
policy do not provide for any other exception, thus, abrogating the contention of the
Dimayuga that said designation can be amended if the Court finds a just, reasonable
ground to do so 2.) WoN the irrevocable beneficiaries herein who are all minors
(NOTE: wife, who was also a beneficiary, predeceased Dimayuga), could validly
give consent to the change or amendment in the designation of the irrevocable
beneficiaries – No. First, being minors, their ratification would be ineffective.
Second, neither could they act through their father insured since their interests are
quite divergent from one another. Lastly, parent-insured (Dimayuga) cannot exercise
rights and/or privileges pertaining to the insurance contract, for otherwise, the vested
rights of the irrevocable beneficiaries would be rendered inconsequential.
DOCTRINE: Under the Insurance Act, otherwise known as Act No. 2427, the
beneficiary designated in a life insurance contract cannot be changed without the
consent of the beneficiary because he has a vested interest in the policy. Further,
minor-beneficiaries cannot validly give their consent to such amendment.
FACTS:
1.   On January 15, 1968, Rodolfo Dimayuga (Dimayuga) procured an ordinary
life insurance policy from Philippine American Insurance Company
(Philam) and designated his wife and children as irrevocable beneficiaries
of said policy.
2.   On February 22, 1980 Dimayuga filed a petition before the Court of First
Instance of Rizal to amend the designation of the beneficiaries in his life
policy from irrevocable to revocable.
3.   Philam filed its Comment and/or Opposition to Petition.
a.   Respondent Judge Gregorio G. Pineda (Judge Pineda) denied this
opposition, and the consequence of which was the issuance of the
questioned Order granting the petition.
4.   Hence, this petition.
ISSUE/s:
8.   WoN the designation of the irrevocable beneficiaries could be changed or
amended without the consent of all the irrevocable beneficiaries – No, this
was expressly prohibited by the Insurance Act, which was the law
applicable at that time.
9.   WoN the irrevocable beneficiaries herein, who are all minors (NOTE: wife,
who was also a beneficiary, predeceased Dimayuga), could validly give
consent to the change or amendment in the designation of the irrevocable
beneficiaries – No, because being minors, this would not be an effective
ratification.
RULING: Order of the lower court was nullified and set aside.
RATIO:
First Issue
1.   Needless to say, the applicable law in the instant case is the Insurance Act,
otherwise known as Act No. 2427 as amended, the policy having been
procured in 1968.
a.   Under the said law, the beneficiary designated in a life insurance
contract cannot be changed without the consent of the
beneficiary because he has a vested interest in the policy.
2.   In this regard, it is worth noting that the Beneficiary Designation
Indorsement in the policy which forms part of Insurance Policy in the name
of Rodolfo Dimayuga states that the designation of the beneficiaries is
irrevocable, to wit:
a.   It is hereby understood and agreed that, notwithstanding the
provisions of this policy to the contrary, inasmuch as the
designation of the primary/contingent beneficiary/beneficiaries
in this Policy has been made without reserving the right to
change said beneficiary/ beneficiaries, such designation may not
be surrendered to the Company, released or assigned; and no right
or privilege under the Policy may be exercised, or agreement
made with the Company to any change in or amendment to the
Policy, without the consent of the said
beneficiary/beneficiaries.
3.   Be it noted that the foregoing is a fact which the private respondent did not
bother to disprove.
4.   Inevitably therefore, based on the aforequoted provision of the contract,
it is only with the consent of all the beneficiaries that any change or
amendment in the policy concerning the irrevocable beneficiaries may
be legally and validly effected. Both the law and the policy do NOT
provide for any other exception, thus, abrogating the contention of the
Dimayuga that said designation can be amended if the Court finds a
just, reasonable ground to do so.
Second Issue 10.   Finally, the fact that the contract of insurance does not contain a
5.   Similarly, the alleged acquiescence of the six (6) children beneficiaries of contingency when the change in the designation of beneficiaries could
the policy (the beneficiary-wife predeceased the insured) CANNOT be be validly effected means that it was never within the contemplation of
considered an effective ratification to the change of the beneficiaries the parties.
from irrevocable to revocable. a.   The lower court, in gratuitously providing for such contingency,
6.   Indubitable is the fact that all the six (6) children named as beneficiaries made a new contract for them, a proceeding which the Supreme
were minors at the time, for which reason, they could NOT validly give Court cannot tolerate.
their consent. Neither could they act through their father insured since b.   Ergo, the Supreme Court cannot help but conclude that the lower
their interests are quite divergent from one another. In point is an court acted in excess of its authority when it issued the Order dated
excerpt from the Notes and Cases on Insurance Law by Campos and March 19, 1980 amending the designation of the beneficiaries from
Campos, 1960, reading- "irrevocable" to "revocable" over the disapprobation of the
a.   The insured ... can do nothing to divest the beneficiary of his rights petitioner insurance company.
without the latter’s consent. He cannot assign his policy, nor even
take its cash surrender value without the consent of the beneficiary.
 
Neither can the insured's creditors seize the policy or any right
thereunder. The insured may not even add another beneficiary
because by doing so, he diminishes the amount which the
beneficiary may recover and this he cannot do without the
beneficiary's consent.
7.   Therefore, the parent-insured cannot exercise rights and/or privileges
pertaining to the insurance contract, for otherwise, the vested rights of
the irrevocable beneficiaries would be rendered inconsequential.
8.   Of equal importance is the well-settled rule that the contract between the
parties is the law binding on both of them and for so many times, this court
has consistently issued pronouncements upholding the validity and
effectivity of contracts.
a.   Where there is nothing in the contract which is contrary to law,
good morals, good customs, public policy or public order the
validity of the contract must be sustained.
b.   Likewise, contracts which are the private laws of the contracting
parties should be fulfilled according to the literal sense of their
stipulations, if their terms are clear and leave no room for doubt as
to the intention of the contracting parties, for contracts are
obligatory, no matter in what form they may be, whenever the
essential requisites for their validity are present.
9.   In the recent case of Francisco Herrera vs. Petrophil Corporation, 146
SCRA 385, this Court ruled that: ... it is settled that the parties may
establish such stipulations, clauses, terms, and conditions as they may want
to include; and as long as such agreements are not contrary to law, good
morals, good customs, public policy or public order, they shall have the
force of law between them.
a.   Undeniably, the contract in the case at bar, contains the
indispensable elements for its validity and does not in any way
violate the law, morals, customs, orders, etc. leaving no reason for
the Court to deny sanction thereto.
 004 HEIRS OF LORETO MARAMAG v. MARAMAG (Arcenas)
June 5, 2009| Nachura, C. J. | Designation of beneficiary
PETITIONERS: Heirs Of Loreto C. Maramag, Represented By Surviving Spouse
Vicenta Pangilinan Maramag
RESPONDENTS: 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
SUMMARY: Petitioners in this case are the legitimate heirs of Loreto, represented
by the legitimate wife, Vienta. They were not named as beneficiaries in the insurance
policies issued by Insular and Grepalife, instead, Loreto designated his concubine,
Eva, and their illegitimate children as his beneficiaries under policies with Insular
Life and Grepalife. Vicenta et al are seeking the revocation and reduction of
insurance proceeds in their favor. The basis of the claim is that Eva, being a
concubine of Loreto and a suspect in Loreto’s murder, is disqualified from being
designated as beneficiary of the insurance policies, and that Eva’s 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,
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. RTC
initially ruled that the claim be dismissed against the heirs and sustained the action
against Eva, Insular and Grepalife. However, reversed itself by granting the motion
for reconsideration of the same parties. On appeal, the same was denied for lack of
jurisdiction and was filed beyond reglementary period. Hence, this petition. The
issue is whether or not the legitimate children can claim Eva’s share since she was
disqualified as beneficiary under the insurance policy of the deceased, and that the
same should not have been distributed among the illegitimate children. SC held that
they cannot since the legitimate children are third parties to the insurance contracts,
and not entitled to the proceeds despite disqualification of Eva as beneficiary
because the designation of the illegitimate children as beneficiaries remained valid.
Also, Eva’s share 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 the legitimate children.
DOCTRINE: 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. It is only in cases where the insured has not designated
any beneficiary, or when the designated beneficiary is disqualified by law to receive
the proceeds, that the insurance policy proceeds shall redound to the benefit of the
estate of the insured.
FACTS:
1.   Vicenta Maramag (legal wife), representing the heirs of Loreto, filed a case
against Eva Maramag et al (kabit and anak ng kabit) with the RTC 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, alleging that
a.   Heirs were the legitimate wife and children of Loreto Maramag,
while Eva Maramag et al were Loretos illegitimate family;
b.   Eva de Guzman Maramag (Eva) was a concubine of Loreto and a
suspect in the killing of the latter, and thus disqualified to receive
any proceeds from his insurance policies from Insular Life
Assurance Company, Ltd. (Insular) and Great Pacific Life
Assurance Corporation (Grepalife);
c.   the illegitimate children of Loreto: Odessa, Karl Brian, and Trisha
Angelie were 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
d.   Heirs could not be deprived of their legitimes, which should be
satisfied first.
e.   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.
f.   Prayer for the total amount of P320,000.00 as actual litigation
expenses and attorneys fees.
2.   INSULAR’S ANSWER: 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;
a.   that when it ascertained that Eva was not the legal wife of Loreto,
it disqualified her as a beneficiary and divided the proceeds among
illegitimate children, as the remaining designated beneficiaries;
and
b.   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.
c.   Insular alleged that the complaint or petition failed to state a cause
of action: when it sought to declare as void the designation of Eva
as beneficiary, because Loreto already revoked Eva’s designation
as such in one policy and it disqualified her in another and when 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.
 d.   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.
3.   GREPALIFE’s ANSWER: with compulsory counterclaim
a.   Grepalife alleged that Eva was not designated as an insurance
policy beneficiary;
b.   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;
c.   that the case was premature, there being no claim filed by the
legitimate family of Loreto; and
d.   that the law on succession does not apply where the designation of
insurance beneficiaries is clear
4.   As the whereabouts of Eva et al were not known to Vicenta et al, summons
by publication was resorted to. Eva et al failed to answer, and declared in
default by the trial court.
5.   VICENTA ET AL’s comment: 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 and 772 of the Civil
Code.
6.   REPLY: Both insurance companies 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.
a.   Grepalife also reiterated that it had disqualified Eva as a
beneficiary when it ascertained that Loreto was legally married to
Vicenta Pangilinan Maramag.
7.   RTC RULING: dismissed the complaint illegitimate children for the
reduction and/or declaration of inofficiousness of donation as primary
beneficiary in the insurances of the late Loreto C. Maramag, but it proceeds
against Eva, Insular and Grepalife.
a.   Can proceed against eva because she is the concubine of the
deceased: 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
b.   Since designation to Eva is void, the insurance indemnity paid to
her must go to the legal heirs
8.   MR GRANTED: dismissed prosecution order against eva, insular and
grepalife.
a.   RTC ruled 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.
b.   As to the claim that the proceeds to be paid to Loreto’s 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.
c.   Grepalife policy: Eva was never designated as a beneficiary, but
only the illegitimate children; thus, it upheld the dismissal of the
case as to them, matter of Loretos misrepresentation was premature
9.   CA RULING: dismissed Vicenta’s 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, and that the appeal
was filed beyond the reglementary period. Hence, this petition
ISSUE/s:
1.   W/N the legitimate children can claim Eva’s share since she was
disqualified as beneficiary under the insurance policy of the deceased, and
that the same should not have been distributed among the illegitimate
children – NO, legitimate children are third parties to the insurance
contracts, and not entitled to the proceeds despite disqualification of Eva as
beneficiary because the designation of the illegitimate children as
beneficiaries remained valid. Also, Eva’s share 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 the legitimate children.
RULING: WHEREFORE, the petition is DENIED for lack of merit. Costs against
petitioners.
RATIO:
1.   In this case, it is clear from the petition filed before the trial court that,
although Vicenta et al are the legitimate heirs of Loreto, they were not
named as beneficiaries in the insurance policies issued by Insular and
Grepalife.
a.   The basis of the 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.
b.   They also argued that pursuant to Section 12 of the Insurance
Code, Evas share in the proceeds should be forfeited in their favor,
the former having brought about the death of Loreto.
 c.   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.
2.   It is evident from the face of the complaint that Vicente et al 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, specifically Section 53.13
a.   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.
b.   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.
3.   Vicenta et al are third parties to the insurance contracts with Insular
and Grepalife and, thus, are not entitled to the proceeds.
a.   Accordingly, Insular and Grepalife have no legal obligation to turn
over the insurance proceeds to Vicenta et al.
b.   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.
c.   Because no legal proscription exists in naming as beneficiaries
the children of illicit relationships by the insured, 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 Vicenta
et al.
d.   It is only in cases where the insured has not designated any
beneficiary, or when the designated beneficiary is disqualified by
law to receive the proceeds, that the insurance policy proceeds
shall redound to the benefit of the estate of the insured.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13
 
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.

 
 Lampano v. Jose, et. al. (Lindon)
March 30, 1915 | Trent, J. | Insurable Interest
PETITIONER: Antonina Lampano
RESPONDENTS: Placida Jose
SUMMARY: Barretto built a house for Jose in Manila. Then, Jose sold the same
to Lampano for 6k. A few months later, house was gutted by fire. At that time,
Lampano still owed Jose 2k, evidenced by a promissory note, and Jose still owed
Barretto the cost of construction (2k as well). After the completion of the house
and before it was destroyed, Barretto took out an insurance policy in his name
with consent of Jose for 4k. Barretto was able to collect 3.6k after paying 300 as
premiums.
Lampano sued Jose and Barretto for the amount of the insurance collected. Jose
denied the transfer of the policy to Lampano since it was Barretto’s. Jose filed a
counterclaim against Lamoano for the balance of the purchase price. Trial court
ruled in favor of Jose against Barretto for the difference between insurance
proceeds and the amount yet due him. TC did not rule on Barretto v. Lampano
for lack of privity. Hence, review before SC as Barretto and Lampano appealed.
sum of P2,000, evidenced by a promissory note, and Placida A. Jose still
owed Mariano R. Barretto on the cost of the construction the sum of
P2,000.
5.   After the completion of the house and sometime before it was destroyed,
Mariano R. Barretto took out an insurance policy upon it in his own name,
with the consent of Placida A. Jose, for the sum of P4,000.
6.   After its destruction, he collected P3,600 from the insurance company,
having paid in premiums the sum of P301.50.
Arguments before the lower courts
Petitioner’s Side
7.   Antonina Lampano alleged in her complaint that there was a verbal
agreement between her and Placida A. Jose, at the time of the purchase and
sale of the house, to the effect that the latter14 agreed to deliver to her the
insurance policy on the building;
8.   She15 did not learn that the policy was in the name of Barretto16 until after
the fire; and the neither Placida A. Jose17 nor Mariano R. Barretto18 has any
right to the insurance or to the money received therefrom.
9.   She19 prayed for judgment against each20 of them for the sum of P3,600, the
amount of the insurance collected.

In the case at bar Barretto assumed the responsibility for the insurance. Respondents’ Side
The premiums, as we have indicated, were paid by him without any 10.   To this complaint the defendant, Placida A. Jose,21 answered, denying that
agreement or right to recoup the amount paid therefor should no loss result she agreed to transfer the policy of insurance to the plaintiff22 and alleging:
to the property. It would not, therefore, be in accordance with the law and his a.   that the insurance was taken out and paid for by Barretto before the
contractual obligations to compel him to account for the insurance money, or any sale of the house to the plaintiff;
par thereof, to Antonina Lampano, who assumed no risk whatever. b.   that Barretto did this because he had constructed the house and she
was owing him therefor; and
DOCTRINE: Where different persons have different interests in the same c.   that the insurance was entirely for the personal account and in the
property, the insurance taken by one in his own right and in his own interest does exclusive interest of Barretto.
not in any way insure to the benefit of another. This is the general rule prevailing 23
in the United States and we find nothing different in this jurisdiction. 11.   In her cross-complaint she asked for judgment against Antonina

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14
N.B. The alleged oral transfer of the policy was not proven in the court below.
 PLACIDA
 A
 JOSE
 
15

 ANTONINA
 LAMPANO
 

  16

 THE
 CO-­‐DEFENDANT
 WHO
 CONSTRUCTED
 THE
 HOUSE
 
FACTS: 17

 THE
 DEFENDANT
 WHOM
 BARRETTO
 BUILT
 THE
 HOUSE
 FOR
 
1.   Mariano R. Barretto constructed a house for the other defendant, Placida 18
A. Jose on land described as No. 72, plot F. Estate of Nagtahan, district of
 THE
 CO-­‐DEFENDANT
 WHO
 CONSTRUCTED
 THE
 HOUSE
 
19
Sampaloc, city of Manila, for the agreed price of P6,000.
 PLACIDA
 A
 JOSE
 
20
2.   Subsequent thereto and on November 12, 1912, Placida A. Jose sold the
 PLACIDA
 A
 JOSE
 and
 MARIANO
 R.
 BARRETTO
 
house to the plaintiff, Antonina Lampano, for the sum of P6,000. 21

 THE
 PERSON
 WHOM
 THE
 HOUSE
 WAS
 CONSTRUCTED
 FOR
 
3.   On March 22, 1913, the house was destroyed by fire. 22

 ANTONINA
 LAMPANO
 
4.   At the time of the fire Antonina Lampano still owed Placida A. Jose the 23

 I
 think
 this
 should
 have
 been
 a
 counter-­‐claim
 
 Lampano for the sum of P2,000, the balance due on the purchase price.
Barretto answered, reciting the facts giving rise to his taking out the
insurance on the house and denying any obligation to Antonina Lampano in
connection therewith.
Judgment of the lower courts
12.   Judgment was entered against Barretto and in favor of Placida A. Jose for
the sum of P1,298.50, being the difference between the amount collected by
Barretto on the insurance and the amount yet due him for the construction
of the house, including the premiums paid.
13.   Judgment was also entered in favor of the defendant, Placida A. Jose,
against the plaintiff for the sum of P2,000, being the balance of the purchase
price of the house.
14.   The plaintiff was authorized to offset this judgment against her for P2,000
by the P2,000 which the court declared had been paid the defendant, Placida
A. Jose, by Barretto out of the insurance money. A final judgment was
entered in favor of the plaintiff against the defendant, Placida A. Jose, for
the sum of P1,298.50, being the amount of the judgment against Barretto.
15.   Barretto appealed the judgment in the CROSS-CLAIM.
16.   No judgment was rendered in favor of the Antonina Lampano since they
have no juridical tie. Antonina Lampano appealed as well.
ISSUE/s:
1.   Has Antonina Lampano any right to recover from Barretto any portion of
the insurance money? (This was the wording in the case) – No. Barretto
alone assumed the responsibility for the insurance.
RULING: For the foregoing reasons the judgment appealed from, in so far as it
affects the appellant, is reversed and he is absolved. Without costs. So ordered.
RATIO:
Complications
1.   The plaintiff does not contend that Barretto participated in this sale, or even
had any knowledge of it, until sometime after it was consummated. Placida
A. Jose denies that she agreed to transfer the policy to the plaintiff, and the
deed of purchase and sale makes no mention of such an agreement. The
policy is not mentioned in this document, although it was agreed that the
vendor would transfer to the vendee all of the former's right, title, and
interest in the leasehold to the land upon which the house was built. It
would seem that if the vendor agreed to transfer the policy, this agreement
would have been inserted in the document of purchase and sale, the same as
that with reference to the lease. The trial court did not find that such an
agreement existed and we think the plaintiff has failed to establish this
verbal agreement.
Ruling Proper
2.   If Barretto had an insurable interest in the house, he could insure this
interest for his sole protection. The policy was in the name of Barretto
alone. It was, therefore, a personal contract between him and the
company and not a contract which ran with the property. According to
this personal contract the insurance policy was payable to the insured
without regard to the nature and extent of his interest in the property,
provided that he had, as we have said, an insurable interest at the time of the
making of the contract, and also at the time of the fire. Where different
persons have different interests in the same property, the insurance
taken by one in his own right and in his own interest does not in any
way insure to the benefit of another. This is the general rule prevailing
in the United States and we find nothing different in this jurisdiction.
3.   In the case of Shadgett vs. Phillips and Crew Co., reported in 56 L. R. A.,
461, Mrs. Shagett received a piano as a gift from her husband and insured it.
She knew that it was the obligation of her husband to insure he piano for the
benefit of the vendor. The court held, however, that the vendor (mortgagee)
was not entitled to the proceeds of the insurance as "there was no
undertaking on the part of Mrs. Shadgett to either insure for complainant's
benefit, or to assume her husband's obligation to so insure, and mere
knowledge of that obligation did not impose it upon her."
a.   The contract of insurance was wholly between the defendant and
the insurance company, and was personal, in the sense that the
money agreed to be paid in case of loss was not to stand in the
place of the piano itself, but was a mere indemnity against the loss
of defendant's interest therein. If her interest was small, on account
of incumbrances existing in favor of the complainant, that fact was
for the consideration only of the insurer and defendant, for
complaint has no concern with the adjustment of the loss between
them. We know of no principle, either of law or equity, which
would bind defendant to carry out her donor's contract to insure, in
the absence of any agreement on her part to do so, even though the
property in her hands was subject to complainant's rights therein as
a conditional vendor.
b.   A contract of insurance made for the insurer's (insured) indemnity
only, as where there is no agreement, express or implied, that it
shall be for the benefit of a third person, does not attach to or run
with the title to the insured property on a transfer thereof personal
as between the insurer and the insured. In such case strangers to
the contract cannot require in their own right any interest in the
insurance money, except through an assignment or some contract
with which they are connected.
4.   In Vandergraf vs. Medlock (3 Porter, 389; 29 Am. Dec., 256), it was held
that the mortgage is not entitled to the proceeds of an insurance policy
procured by the mortgages, there being no agreement that such insurance
should be effected by the latter for the benefit of the former. The court says:
"It is well settled that a policy of insurance is a distinct independent contract
 between the insured and insurers, and third person have no right either in a
court of equity, or in a court of law, to the proceeds of it, unless there be
some contract or trust, expressed or implied, between the insured and third
persons."
5.   In Burlingane vs. Goodspeed (10 L. R. A., 495), the court says that where a
mortgage at his own expense and without any agreement or understanding
with he mortgagor obtains insurance upon his interest as a mortgage and
collects the money from the insurer after a loss, he is not bound to account
for it to the mortgagor.
6.   In the case at bar Barretto assumed the responsibility for the
insurance. The premiums, as we have indicated, were paid by him
without any agreement or right to recoup the amount paid therefor
should no loss result to the property. It would not, therefore, be in
accordance with t he law and his contractual obligations to compel him to
account for the insurance money, or any par thereof, to Antonina Lampano,
who assumed no risk whatever.
7.   That Barretto had an insurable interest in the house, we think there can be
no question. He construed the building, furnishing all the materials and
supplies, and insured it after it had been completed

 
 006 TAI TONG CHUACHE & CO. v. INSURANCE COMMISSION Building 50,000 24,918.79
(BALISONG) SSS Building 25,000 5,938.50
29 Feb. 1988 | Gancayco, J. | Insurable Interest; Fire Insurance Accredited
Traveller’s Contents 70,000 16,628.00
PETITIONER: Tai Tong Chuache & Co. Building 30,000 14,467.31
RESPONDENTS: Insurance Commission and Traveller’s Multi-Indemnity Zenith, Phil. British, and SSS paid the whole or a portion of the claim. However,
Corporation Traveller’s disclaimed liability, prompting Palomo to claim from the other insurers
Traveller’s share based on the adjusted computation:
SUMMARY: Tai Tong loaned P100,000 to Palomo. The loan was secured by a
mortgage over a land and a building owned by Palomo. The building and its contents COMPANY RISK INSURES PAYS
were insured by Palomo with SSS, Zenith, and Phil. British. Tai Tong insured its Zenith Building P50,000 17,610.93
interest over the building and its contents with Traveller’s through Arsenio Chua. Phil. British Household 70,000 24,655.31
The building was gutted by fire. Claims were made by Palomo. Traveller’s refused to Building 50,000 39,186.10
pay on the ground that Palomo was not the beneficiary of the Policy, but Arsenio SSS Building 25,000 8,805.47
Chua. It also denied Tai Tong’s claim, saying that the loan and mortgage was Accredited
between Palomo and Chua. The issue is whether Tai tong has an insurable interest
over the building and the contents thereof. The Court held in the affirmative.
Arsenio, in contracting with the parties here, was acting as an agent of Tai Tong,
4.   The Zenith and Phil. British denied the claim on the ground that the claim
being its managing partner. Further, Palomo admitted that the mortgage remained
effective at the time of the fire as she has yet to pay Tai Tong. The Insurance had already been waived, extinguished, or paid. SSS paid the balance in
Commission was reversed. full.

DOCTRINE: The mortgagee has insurable interest over the subject of the mortgage 5.   Traveller’s reason for non-payment was that the Fire Insurance Policy over
is it can be shown that the loan secured by the same has not yet been paid at the time the building and the furniture inside was taken by Arsenio Chua as
the risk happened. mortgage creditor, and that it was Arsenio Chua who paid the premiums,
and that Palomo endorsed the Policy to Chua to protect the latter’s interest
FACTS: therein. Tai Tong filed a complaint in intervention, but was opposed by
1.   Palomo acquired a parcel of land and a building under an assumption of Traveller’s arguing that Tai Tong did not have insurable interest as it is not
mortgage arrangement. The building was insured with S.S.S. Accredited a party to the contract, the real party being Arsenio Chua.
Group of Insurers for P25,000.00.
6.   The Insurance Commission ruled in favor of Traveller’s. It held that Palomo
2.   Palomo obtained a P100,000-loan from Tai Tong Chuache, Inc. (Tai Tong), had no interest on the proceeds of the policy because it was taken out by the
secured by a mortgage over the land and the building. Aresenio Chua, in mortgagee. It also denied Tai Tong’s intervention on the strength of a
representation of Tai Tong, insured the partnership’s interest with certification from the CFI of Davao that a case between Arsenio Chua and
Traveller’s Multi-Indemnity Corporation for P100,000. Palomo secured a Palomo is pending before said court, which case, the Commission surmised,
Fire Insurance Policy over the building for P50,000 with Zenith was grounded on the mortgage contract between Arsenio Chua and Palomo,
Corporation, and for P50,000 (building) and P70,000 (contents) with NOT Tai Tong and Palomo, hence Tai Tong cannot claim under the policy
Philippine British Assurance Corporation. The building was razed by fire. as it had no insurable interest on the building, its contents, and the land over
which it stands.
3.   Palomo filed claims based on the following:
ISSUE/s:
COMPANY RISK INSURES PAYS
1.   Whether Tai Tong had insurable interest on the building and its contents.
Zenith Building P50,000 11,877.14
YES — The fact that Palomo admitted that she was indebted to Tai Tong
Phil. British Household 70,000 16,628.00
should have settled the matter. Further to this, Arsenio Chua is the
 managing partner of Tai Tong, and was acting in representation of the
partnership in the above actions.

RULING: IN VIEW OF THE FOREGOING, the decision appealed from is hereby

SET ASIDE and ANOTHER judgment is rendered ordering private respondent
Travellers Multi-Indemnity Corporation to pay petitioner the face value of Insurance
Policy No. 599-DV in the amount of P100,000.00. Costs against said private
respondent.

RATIO:
1.   Traveller’s did not assail the validity of the insurance policy taken out by
petitioner over the mortgaged property. Neither did it deny that the said
property was totally razed by fire within the period covered by the
insurance.

2.   The record of the case shows that Tai Tong, to support its claim for the
insurance proceeds, offered as evidence the contract of mortgage which has
not been cancelled nor released. It has been held in a long line of cases that
when the creditor is in possession of the document of credit, he need not
prove non-payment for it is presumed.

3.   Tai Tong being a partnership may sue and be sued in its name or by its duly
authorized representative. The fact that Arsenio Lopez Chua is the
representative of Tai Tong is not questioned. Tai Tong’s declaration that
Arsenio Lopez Chua acts as the managing partner of the partnership was
corroborated by Traveller’s.

 
 007 SPOUSES CHA v. CA (Buenaventura) FACTS:
August 18, 1997 | Padilla, J. | Lack of insurable interest
1.   Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a
lease contract with private respondent CKS Development Corporation
PETITIONER: Spouses Nilo and Stella Cha, and United Insurance Co., Inc
(hereinafter CKS), as lessor, on 5 October 1988.
RESPONDENTS: CA and CKS Development Corporation
2.   One of the stipulations of the one (1) year lease contract states:
SUMMARY:
a.   18. x x x. The LESSEE shall not insure against fire the chattels,
Spouses Nilo Cha and Stella Uy-Cha and CKS Development Corporation
merchandise, textiles, goods and effects placed at any stall or store
entered a 1 year lease contract with a stipulation not to insure against fire the
or space in the leased premises without first obtaining the written
chattels, merchandise, textiles, goods and effects placed at any stall or store or
consent and approval of the LESSOR. If the LESSEE obtain(s) the
space in the leased premises without first obtaining the written consent and
insurance thereof without the consent of the LESSOR then the
approval of the lessor. But it insured against loss by fire their merchandise
policy is deemed assigned and transferred to the LESSOR for its
inside the leased premises for P500,000 with the United Insurance Co., Inc.
own benefit; x x x
without the written consent of CKS
3.   Notwithstanding the above stipulation in the lease contract, the Cha spouses
On the day the lease contract was to expire, fire broke out inside the leased
insured against loss by fire their merchandise inside the leased premises for
premises and CKS learning that the spouses procured an insurance wrote to
Five Hundred Thousand (P500,000.00) with the United Insurance Co., Inc.
United to have the proceeds be paid directly to them. But United refused so CKS
(hereinafter United) without the written consent of private respondents
filed against Spouses Cha and United.
CKS.
RTC: United to pay CKS the amount of P335,063.11 and Spouses Cha to
4.   On the day that the lease contract was to expire, fire broke out inside the
pay P50,000 as exemplary damages, P20,000 as attorney’s fees and costs of suit
leased premises.
CA: deleted exemplary damages and attorney’s fees
5.   When CKS learned of the insurance earlier procured by the Cha spouses
The issue is whether or not the paragraph 18 of the lease contract entered
without its consent, it wrote the insurer (United) a demand letter asking that
into between CKS and the Cha spouses is valid insofar as it provides that any
the proceeds of the insurance contract (between the Cha spouses and
fire insurance policy obtained by the lessee Cha spouses over their merchandise
United) be paid directly to CKS, based on its lease contract with Cha
inside the leased premises is deemed assigned or transferred to the lessor CKS.
spouses.
SC held that NO, the provision is void, as against public policy. CKS has
6.   United refused to pay CKS. Hence, the latter filed a complaint against the
no insurable interest over the merchandise.
Cha spouses and United.
A non-life insurance policy such as the fire insurance policy taken by
7.   RTC Manila, rendered a decision* ordering therein defendant United to pay
petitioner-spouses over their merchandise is primarily a contract of
CKS the amount of P335,063.11 and defendant Cha spouses to
indemnity. Insurable interest in the property insured must exist at the time the
pay P50,000.00 as exemplary damages, P20,000.00 as attorney’s fees and
insurance takes effect and at the time the loss occurs.
costs of suit.
The automatic assignment of the policy to CKS under the provision of the
8.   CA rendered a decision affirming the trial court decision, deleting however
lease contract previously quoted is void for being contrary to law and/or public
the awards for exemplary damages and attorneys fees. A motion for
policy. The proceeds of the fire insurance policy thus rightfully belong to the
reconsideration by United was denied on 29 March 1996.
spouses.
ISSUE:
DOCTRINE:
1.   Whether or not the paragraph 18 of the lease contract entered into between
The basis of such requirement of insurable interest in property insured is based
CKS and the Cha spouses is valid insofar as it provides that any fire
on sound public policy: to prevent a person from taking out an insurance policy
insurance policy obtained by the lessee Cha spouses over their merchandise
on property upon which he has no insurable interest and collecting the proceeds
inside the leased premises is deemed assigned or transferred to the lessor
of said policy in case of loss of the property.
CKS – NO, the provision is void, as against public policy. CKS has no
insurable interest over the merchandise.

RULING: WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV

No. 39328 is SET ASIDE and a new decision is hereby entered, awarding the
proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha. SO merchandise, without the consent of CKS, is a separate and distinct issue
ORDERED. which we do not resolve in this case.

RATIO:

 
1.   It is, of course, basic in the law on contracts that the stipulations contained
in a contract cannot be contrary to law, morals, good customs, public order
or public policy.
2.   Sec. 18 of the Insurance Code provides:
Sec. 18. No contract or policy of insurance on property shall be
enforceable except for the benefit of some person having an insurable
interest in the property insured.
3.   A non-life insurance policy such as the fire insurance policy taken by
petitioner-spouses over their merchandise is primarily a contract of
indemnity. Insurable interest in the property insured must exist at the time
the insurance takes effect and at the time the loss occurs. The basis of such
requirement of insurable interest in property insured is based on sound
public policy: to prevent a person from taking out an insurance policy
on property upon which he has no insurable interest and collecting the
proceeds of said policy in case of loss of the property.
4.   In such a case, the contract of insurance is a mere wager which is void
under Section 25 of the Insurance Code, which provides:
SECTION 25. Every stipulation in a policy of Insurance for the
payment of loss, whether the person insured has or has not any interest
in the property insured, or that the policy shall be received as proof of
such interest, and every policy executed by way of gaming or
wagering, is void.
5.   In the present case, it cannot be denied that CKS has no insurable interest in
the goods and merchandise inside the leased premises under the provisions
of Section 17 of the Insurance Code which provide.
Section 17. The measure of an insurable interest in property is the
extent to which the insured might be damnified by loss of injury
thereof."
6.   Therefore, respondent CKS cannot, under the Insurance Code a special law
be validly a beneficiary of the fire insurance policy taken by the petitioner-
spouses over their merchandise. This insurable interest over said
merchandise remains with the insured, the Cha spouses. The automatic
assignment of the policy to CKS under the provision of the lease
contract previously quoted is void for being contrary to law and/or
public policy. The proceeds of the fire insurance policy thus rightfully
belong to the spouses. The insurer (United) cannot be compelled to pay the
proceeds of the fire insurance policy to a person (CKS) who has no
insurable interest in the property insured.
7.   The liability of the Cha spouses to CKS for violating their lease contract in
that Cha spouses obtained a fire insurance policy over their own
 008 DELSAN TRANSPORT LINES, INC. v. CA (CABUSORA) 61.   Caltex Philippines (Caltex) entered into a contract of affreightment with
November 15, 2001 | De Leon, Jr., J. | Measure of Indemnity the petitioner Delsan Transport Lines, Inc. (common carrier), for a one
year where Delsan would transport Caltex’s industrial fuel oil from the
PETITIONER: Delsan Transport Lines, Inc. Batangas-Bataan Refinery to different parts of the country.
RESPONDENTS: The Hon. Court Of Appeals and American Home Assurance 62.   Under the contract, Delsan took on board its vessel (MT Maysun)
Corporation 2,277.314 kiloliters of said oil to be transported to Caltex Oil Terminal in
Zamboanga City. Said shipment was insured with private respondent
SUMMARY: Caltex and Delsan entered into a contract of affreightment where American Home Assurance Corporation (AHAC).
Delsan would transport industrial fuel oil from the Batangas-Bataan Refinery to 63.   (14 Aug 1986) MT Maysun set sail to Zamboanga City.
Caltex Oil Terminal in Zamboanga City. Said shipment was insured by Caltex with 64.   (16 Aug 1986) MT Maysun sank near Panay Gulf and Cuyo East Pass in
AHAC. While in transit, Delsan’s ship (MT Maysun) sunk allegedly due to bad Visayas.
weather. AHAC paid Caltex for the lost shipment. When AHAC went after Delsan 65.   AHAC subsequently paid Caltex P5,096,635.57 (amount of insured cargo).
for reimbursement, the latter refused. Thus AHAC filed a complaint for complaint 66.   AHAC later demanded Delsan the same amount as an exercise of its right
for sum of money. The TC dismissed the case holding that Delsan was liable due to of subrogation under Art. 2207, New Civil Code.
force majeure. On appeal, the CA reversed the decision stating that there was no 67.   Delsan refused to pay, thus AHAC filed a complaint for collection of sum
force majeure. of money with the RTC, Makati.
The issues were (1) WON payment of AHAC to Caltex amounted to a and admission 68.   Trial Court: Dismissed the complaint reasoning that MT Maysun was
that MT Maysun was seaworthy and thus precluding any action AHAC may have seaworthy as determined by the Philippine Coast Guard per Survey
against Delsan (NO) and (2) WON the marine insurance policy in this case was Certificate Report No. M5-016-MH upon inspection during its annual
necessary (NO). dry-docking and that the incident was caused by unexpected inclement
Payment by AHAC to Caltex was only a waiver of AHAC’s right to enforce the weather condition or force majeure, thus exempting the common carrier
term of the implied warranty against Caltex under the marine insurance policy but (Delsan) from liability for the loss of its cargo.
does not mean admission of the vessel’s seaworthiness by AHAC as to foreclose 69.   CA: Reversed the TC Decision. CA gave credence to the weather report
recourse against Delsan for any liability under its contractual obligation as a issued by PAGASA which which showed that from 2-8 a.m. on 16 Aug
common carrier. The marine insurance policy is not necessary in this case and that 1986, the wind speed remained at 10-20 knots per hour while the waves
the subrogation receipt was already sufficient having showed both (1) relationship measured from 0.7-2 meters in height only in contrast to herein Delsan’s
of AHAC and Caltex, as insurer and assured, respectively and (2) amount paid to allegation that the waves were 20 ft. high.
settle the insurance claim. 70.   Delsan filed an MR which was however denied and hence this petition.
71.   Delsan invokes/alleges:
1.   Sec. 113, Insurance Code states that in every marine insurance upon a
DOCTRINE24: Payment by insurer to insured under a marine insurance policy ship or freight, or freightage, or upon any thing which is the subject of
means the waiver of the insurer’s right to enforce the term of the implied warranty marine insurance there is an implied warranty by the shipper that the
against the insured but does not mean waiver of the insurer’s right to subrogation. ship is seaworthy. Consequently, the insurer will not be liable to the
The presentation in evidence of the insurance policy is not indispensable before the assured for any loss under the policy in case the vessel would later on be
insurer may recover. The subrogation receipt, by itself, is sufficient to establish not found as not seaworthy at the inception of the insurance. The act of
only the relationship of the insurer and the insured, but also the amount paid to settle AHAC of paying Caltex the value of the lost cargo amounted to a tacit
the insurance. recognition that MT Maysun was seaworthy, otherwise, AHAC was not
legally liable to Caltex due to the latter’s breach of implied warranty under
the marine insurance policy that the vessel was seaworthy.
FACTS: 2.   CA erred in finding that MT Maysun was not seaworthy on the ground

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  that Francisco Berina, chief mate of the vessel, was not qualified. Under
24

 Contracts
 of
 marine
 insurance
 are
 contracts
 of
 indemnity
 which
 means
 its
 purpose
 is,
 in
 case
 of
 loss,
 to
  Sec. 116, Insurance Code, the implied warranty of seaworthiness of the
place
  the
  insured
  in
  the
  same
  situation
  in
  which
  he
  was
  before
  the
  loss
  subject
  to
  the
  terms
  and
  vessel, which AHAC admitted as having been fulfilled by its payment of
conditions
 of
 the
 policy.
 Amount
 of
 indemnity
 may
 be
 determined
 after
 the
 loss
 or
 is
 previously
 fixed
 in
  the insurance proceeds to Caltex of its lost cargo, extends to the vessel’s
the
  contract.
  The
  amount
  of
  insurance
  fixed
  in
  the
  policy
  of
  a
  marine
  insurance
  is
  not
  the
  exact
  measure
  complement. Despite Berina having merely a 2nd officer’s license, he was
of
 indemnity
 to
 which
 the
 insured
 is
 entitled,
 but
 the
 maximum
 indemnity
 which
 he
 might
 obtain.
 The
  qualified to act as the vessel’s chief officer under Chapter IV(403),
insured
 cannot
 recover
 in
 excess
 of
 his
 actual
 loss.
 (The
 case
 makes
 no
 mention
 of
 the
 topic
 this
 case
 was
  Category III(a)(3)(ii)(aa) of the Philippine Merchant Marine Rules and
assigned
  –
  Measure
  of
  Indemnity.
  This
  doctrine
  is
  from
  De
  Leon,
  and
  it’s
  the
  closest
  I
  can
  relate
  the
  case
  Regulations. In fact, all the crew and officers of MT Maysun were
to.
 Apologies.)
 
 exonerated in the administrative investigation conducted by the Board of company of the insurance claim. Consequently, the payment made by the
Marine Inquiry after the subject accident. AHAC (insurer) to Caltex (assured) operates as an equitable assignment to
3.   The doctrine in Home Insurance Corporation v. CA (i.e. failure of the the former of all the remedies which the latter may have against Delsan.
private respondent to present the insurance policy in evidence is allegedly 105.  From the nature of their business and for reasons of public policy, common
fatal to its claim inasmuch as there is no way to determine the rights of the
carriers are bound to observe extraordinary diligence in the vigilance over
parties thereto), should have been applied herein, since AHAC failed to
present the subject marine cargo insurance policy as evidence. the goods and for the safety of passengers transported by them, according to
all the circumstances of each case.
ISSUE/s: 1.   GR: In the event of loss, destruction or deterioration of the insured
10.   WON the payment made by the AHAC to Caltex for the insured value of goods, common carriers shall be responsible.
the lost cargo amounted to an admission that the vessel was seaworthy, thus Exception: If the same is brought about, among others, by flood,
precluding any action for recovery against the petitioner. – NO. Payment by storm, earthquake, lightning or other natural disaster or calamity.
AHAC to Caltex was only a waiver of AHAC’s right to enforce the term 2.   GR: If the goods are lost, destroyed or deteriorated, common
of the implied warranty against Caltex under the marine insurance policy carriers are presumed to have been at fault or to have acted
but does not mean admission of the vessel’s seaworthiness by AHAC as negligently.
to foreclose recourse against Delsan for any liability under its contractual Exception: If the common carrier proves that they observed
obligation as a common carrier. extraordinary diligence.
11.   WON the non-presentation of the marine insurance policy bars the 106.  Jaime Jarabe, captain of MT Maysun, and Berina testified that at around
complaint for recovery of sum of money for lack of cause of action. – NO. 3:15 a.m. a squall ("unos") carrying strong winds with an approximate
In this case, said insurance policy is not necessary. The subrogation receipt velocity of 30 knots per hour and big waves averaging 18-20 ft. high caused
was already sufficient and it showed both (1) relationship of AHAC and the vessel to sink. However, this tale was effectively rebutted PAGASA’s
Caltex, as insurer and assured, respectively and (2) amount paid to settle weather report. (See Fact #9) Thus, Delsan’s defense of force majeure
the insurance claim. cannot be sustained. Also, said witnesses as employees of Delsan, cannot be
expected to testify against the latter. (See Fact #11.2) Exoneration of MT
RULING: WHEREFORE, the instant petition is DENIED. The Decision dated June Maysun’s officers and crew to liability is only with respect to administrative
17, 1996 of the Court of Appeals in CA-G.R. CV No. 39836 is AFFIRMED. Costs liabilities and does not operate to absolve Delsan’s civil liabilities arising
against the petitioner. SO ORDERED. from its negligence as a common carrier. (See Fact #11.2)
107.  Evidence certificates that MT Maysun was fit for voyage at the time of
RATIO: dry-docking and inspection by the Philippine Coast Guard, was also not
103.  (First Issue) The payment made by the AHAC for the insured value of the credited by the court to prove the vessel’s fitness for voyage at the time of
lost cargo operates as waiver of its (AHAC) right to enforce the term of the the commencement of the voyage. “Seaworthiness relates to a vessel's
implied warranty against Caltex under the marine insurance policy. actual condition. Neither the granting of classification or the issuance of
However, the same cannot be validly interpreted as an automatic certificates establishes seaworthiness.”
admission of the vessel's seaworthiness by the AHAC as to foreclose 108.  (Second Issue) The marine insurance policy is not necessary in this case.
recourse against the Delsan for any liability under its contractual obligation The subrogation receipt, by itself, is sufficient to establish (1) the
as a common carrier. Said payment grants AHAC subrogatory right to relationship of AHAC, as insurer, and Caltex, as the assured shipper of
exercise legal remedies available to Caltex against Delsan, the common the lost cargo and (2) the amount paid to settle the insurance claim. The
carrier by virtue of Art. 2207, Civil Code25. right of subrogation accrues simply upon payment by the insurance
104.  The right of subrogation has its roots in equity. It is not dependent upon, company of the insu rance claim.
nor does it grow out of, any privity of contract or upon written 109.  The presentation of the insurance policy was necessary in the case of Home
assignment of claim. It accrues simply upon payment by the insurance Insurance Corporation v. CA because the shipment therein passed through
several stages with different parties involved in each stage. In that case, in

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  the absence of proof of stipulations to the contrary, the hauler can be liable
25

  Art.
  2207.
  If
  the
  plaintiff's
  property
  has
  been
  insured,
  and
  he
  has
  received
  indemnity
  from
  the
  only for any damage that occurred from the time it received the cargo until
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
 
it finally delivered it to the consignee. It cannot be held responsible for the
person
 who
 has
 violated
 the
 contract.
 If
 the
 amount
 paid
 by
 the
 insurance
 company
 does
 not
 fully
 cover
  handling of the cargo before it actually received it. The insurance contract,
the
 injury
 or
 loss,
 the
 aggrieved
 party
  shall
 be
 entitled
 to
 recover
 the
 deficiency
 from
 the
 person
 causing
  which was not presented in evidence in that case would have indicated the
the
 loss
 or
 injury.
 
 scope of the insurer's liability, if any, since no evidence was adduced
indicating at what stage in the handling process the damage to the
cargo was sustained.
110.  In this case, there is no doubt that the cargo of oil belonging to Caltex was
lost while on board MT Maysun, which was owned by Delsan. Thus,
Delsan cannot deny its liability.

 
 009 GAISANO CAGAYAN, INC. v. INSURANCE COMPANY OF
NORTH AMERICA (Callueng)
June 8, 2006 | Austria-Martinez, J. | Measure of Indemnity
PETITIONER: Gaisano Cagayan, Inc.
RESPONDENTS: Insurance Company of North America
SUMMARY: 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 Insurance Company of
North America 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."
Gaisano Cagayan is a customer and dealer of the products of IMC and LSPI. The
Gaisano Superstore Complex in Cagayan de Oro City, owned by Gaisano, 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 Company filed a complaint for damages against Gaisano. It
alleges that IMC and LSPI filed with Insurance Company their claims under
their respective fire insurance policies with book debt endorsements; that there
are unpaid accounts of Gaisano with IMC for P2,119,205.00 while with LSPI
for P535,613.00; Insurance Company paid the claims of IMC and LSPI and, by
virtue thereof, , Insurance Company was subrogated to their rights against
Gaisano. Gaisano Cagayan 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. The RTC dismissed Insurance Company’s complaint. But, the
CA rendered its decision setting aside the decision of the RTC. ISSUE: WoN
Gaisano Cagayan is liable for the unpaid accounts. YES, because the insurance
in this case is not for loss of goods by fire but for Gaisano Cagayan's accounts
with IMC and LSPI that remained unpaid 45 days after the fire. Gaisano
Cagayan's argument that it is not liable because the fire is a fortuitous event
under Article 1174 of the Civil Code is misplaced. As held earlier, Gaisano
Cagayan 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 Gaisano Cagayan's accounts with IMC and LSPI that remained unpaid 45
days after the fire. Accordingly, Gaisano Cagayan'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. Thus, whether fire is a
fortuitous event or Gaisano Cagayan was negligent are matters immaterial to this
case. What is relevant here is whether it has been established that Gaisano
Cagayan has outstanding accounts with IMC and LSPI. With respect to IMC, the
Insurance Company has adequately established its claim. However, as to LSPI,
Insurance Company failed to present sufficient evidence to prove its cause of
action. Hence, the claim of subrogation to Gaisano Cagayan's case for recovery
of the amount of P535,613.00 for LSPI is fatal.
DOCTRINE: 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.
FACTS:
1.   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 Insurance Company of North America (Insurance Company)
fire insurance policies with book debt endorsements.
2.   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."
3.   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."
4.   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.
5.   Gaisano Cagayan, Inc. (Gaisano Cagayan) 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 Gaisano, 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.
6.   On February 4, 1992, Insurance Company filed a complaint for damages
against Gaisano. It alleges that IMC and LSPI filed with , Insurance
Company their claims under their respective fire insurance policies with
book debt endorsements; that as of February 25, 1991, the unpaid accounts
of Gaisano 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 ,
Insurance Company paid the claims of IMC and LSPI and, by virtue
thereof, , Insurance Company was subrogated to their rights against
Gaisano; that , Insurance Company made several demands for payment
upon Gaisano but these went unheeded.
7.   In its Answer with Counter Claim, Gaisano Cagayan 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 , Insurance
Company 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.
8.   The parties failed to arrive at an amicable settlement.
9.   The RTC rendered its decision dismissing, Insurance Company’s
complaint. It held that the fire was purely accidental; that the cause of the
fire was not attributable to the negligence of the Gaisano Cagayan; that it
has not been established that Gaisano Cagayan 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.
10.   Dissatisfied, Gaisano Cagayan appealed to the CA. The CA rendered its
decision setting aside the decision of the RTC.
11.   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 Gaisano Cagayan 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 Gaisano Cagayan'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 Gaisano Cagayan; that,
being a fire insurance with book debt endorsements, what was insured was
the vendor's interest as a creditor.
12.   Gaisano Cagayan filed a motion for reconsideration but it was denied by the
CA.
ISSUE/s:
1.   WoN Gaisano Cagayan is liable for the unpaid accounts. YES, because the
insurance in this case is not for loss of goods by fire but for Gaisano
Cagayan's accounts with IMC and LSPI that remained unpaid 45 days
after the fire.
RULING: 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 Insurance Company is DELETED for
lack of factual basis.
RATIO:
1.   Gaisano Cagayan 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 Insurance Company paid on the occasion of
the loss of the insured goods to fire and not because of the non-payment by
Gaisano Cagayan 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 Gaisano Cagayan for
payment of the debt and such demands came from Insurance Company only
after it had already paid IMC and LSPI under the fire insurance policies.
2.   Gaisano Cagayan avers that despite delivery of the goods, Gaisano
Cagayan-buyer IMC and LSPI assumed the risk of loss when they secured
fire insurance policies over the goods.
3.   Gaisano Cagayan submits that there is no subrogation in favor of Insurance
Company as no valid insurance could be maintained thereon by IMC and
LSPI since all risk had transferred to Gaisano Cagayan upon delivery of the
goods; that Gaisano Cagayan was not privy to the insurance contract or the
payment between Insurance Company and its insured nor was its consent or
approval ever secured; that this lack of privity forecloses any real interest on
the part of Insurance Company in the obligation to pay, limiting its interest
to keeping the insured goods safe from fire.
4.   Insurance Company counters that while ownership over the ready- made
clothing materials was transferred upon delivery to Gaisano Cagayan, IMC
and LSPI have insurable interest over said goods as creditors who stand to
suffer direct pecuniary loss from its destruction by fire; that Gaisano
Cagayan is liable for loss of the ready-made clothing materials since it
failed to overcome the presumption of liability under Article 1265 of the
Civil Code; that the fire was caused through Gaisano Cagayan'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 Gaisano Cagayan is guilty of gross and
evident bad faith in refusing to pay Insurance Company's valid claim and
should be liable to Insurance Company for contracted lawyer's fees,
litigation expenses and cost of suit.
5.   At issue is the proper interpretation of the questioned insurance policy.
Gaisano Cagayan 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 Gaisano Cagayan.
6.   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. Thus, what were insured against were the accounts of IMC and
LSPI with Gaisano Cagayan which remained unpaid 45 days after the loss
through fire, and not the loss or destruction of the goods delivered.
7.   Gaisano Cagayan 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."
8.   The Court is not persuaded.
9.   The present case clearly falls under paragraph (1), Article 1504 of the Civil
Code:
(1)   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:
i.   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;
10.   Thus, when the seller retains ownership only to insure that the buyer will
pay its debt, the risk of loss is borne by the buyer. Accordingly, Gaisano
Cagayan bears the risk of loss of the goods delivered.
11.   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.
12.   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.
13.   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.
14.   Gaisano Cagayan's argument that it is not liable because the fire is a
fortuitous event under Article 1174 of the Civil Code is misplaced. As held
earlier, Gaisano Cagayan bears the loss under Article 1504 (1) of the Civil
Code.
15.   Moreover, it must be stressed that the insurance in this case is not for loss of
goods by fire but for Gaisano Cagayan's accounts with IMC and LSPI that
remained unpaid 45 days after the fire. Accordingly, Gaisano Cagayan'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.
16.   Thus, whether fire is a fortuitous event or Gaisano Cagayan was negligent
are matters immaterial to this case. What is relevant here is whether it has
been established that Gaisano Cagayan has outstanding accounts with IMC
and LSPI.
17.   With respect to IMC, the Insurance Company has adequately established its
claim. Exhibits "C" to "C-22"show that Gaisano Cagayan has an
outstanding account with IMC in the amount of P2,119,205.00. Exhibit
"E"is the check voucher evidencing payment to IMC. Exhibit "F"is the
subrogation receipt executed by IMC in favor of Insurance Company 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
Insurance Company 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. Insurance
Company's action against Gaisano Cagayan is squarely sanctioned by
Article 2207 of the Civil Code which provides:
(1)   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.
18.   Gaisano Cagayan failed to refute Insurance Company's evidence.
19.   As to LSPI, Insurance Company failed to present sufficient evidence to
prove its cause of action. No evidentiary weight can be given to Exhibit "F
Levi Strauss", a letter dated April 23, 1991 from Gaisano Cagayan's
General Manager, Stephen S. Gaisano, Jr., since it is not an admission of
Gaisano Cagayan'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 Gaisano
Cagayan's building on February 25, 1991.
20.   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 Insurance Company has been subrogated to any right which
LSPI may have against Gaisano Cagayan. Failure to substantiate the claim
of subrogation is fatal to Gaisano Cagayan's case for recovery of the amount
of P535,613.00.
 010 GLARAGA V. SUN LIFE ASSURANCE (CANDELARIA)
December 14, 1926 | J. Johns | Premium Payment
PETITIONER: SUSANA GLARAGA
RESPONDENTS: SUN LIFE ASSURANCE COMPANY OF CANADA and O.O.
HANSON
SUMMARY: Sunlife executed a life insurance policy in favor of Juares. The terms
of the insurance policy provided specific powers and limitations which shall be
complied with in order to bind Sunlife (see FACTS, par. 6). Juares paid the first
premium, but defaulted in the second premium because Hanson, the insurance agent,
sent a letter informing Juares that Hanson will pay the second premium, subject to
reimbursement from Juares. However, no payment was made. When Juares died,
Glaraga, as the administratrix, made a demand for the proceeds of the policy. Sunlife
refused, alleging that the policy was no longer in effect because of the default in the
second premium. The trial court ruled in favor of Glaraga.
The issue is whether or not the policy was still in effect upon Glaraga’s demand.
The Supreme Court stated that the policy was no longer in effect, and ruled in favor
of Sunlife. The Court emphasized that when an insurance policy specifically defines
and limits the powers and duties of an agent, it shall bind the parties. Non-
compliance, as stated in this case, shall render the policy ineffective. When Hanson
sent the letter to Juares assuming the obligation to pay the premium was contrary to
the terms of the policy. Adding to the fact that no one paid the second premium, the
policy officially lapsed after the 30-day grace period. Hanson’s promise bound only
him and the insured party. Sunlife is absolved from liability, as agreed in the
contract, and Hanson will be held liable to Glaraga.
DOCTRINE: Where a life insurance company issued and delivered one of its
policies to the insured in and by which the powers of its pecial agents were limited
and defined, and the policy specified how and in what manner the premiums were to
be paid and to whom they were to paid, in the absence of allegation and proof of an
established custom or another rule of conduct ratified and approved by the company
the premiums on the policy must be paid at the time and in the way and manner
specified in the policy and be forfeited by its own terms.
FACTS:
72.   Sun Life Assurance (Sunlife), a domestic corporation, issued a life
insurance policy on the life of Juares by which it promised to pay Php 5K to
the legal representatives of the insured, upon the condition that the policy
was in legal force and effect at the time of death of the insured. Juares died.
73.   Glaraga, the insured, was appointed as the administratrix of his estate, and
she made a demand against Sunlife. Sunlife refused to pay, which led to
Glaraga filing for collection and damages.
74.   Glaraga alleges that defendant O.O. Hanson, the insurance agent (Hanson)
who insured Juares, was the same person who collected the first premiums.
75.   Juares, during his life, defaulted in paying his second premium, upon the
allegation that Hanson allegedly made written instructions not to send the
premium because Hanson would pay the premium, subject to Juares’
reimbursement.
76.   Sunlife alleges that the terms of the policy provided that the premiums
should be paid on the 1st of June and December of each year, or within a
grace period of not more than 30 days. However, Juares defaulted with the
second premium because no payment was made on the due date and
within the grace period. By reason of the default, the policy elapsed and
was of no legal force or effect at the time of death of Juares.
77.   * RELEVANT PROVISION: “No persons, except the President,
Managing-Director or Secretary has power to alter this contract, to extend
the time for paying a premium, to bind the Company by making any
promise or by receiving any representation or information not contained
in the application for this policy. No payment made to any person, except
in exchange for the Company’s official receipt, will be recognized by the
Company. This policy does not take effect until the first premium has been
actually paid, during the life and good health of the insured.”
78.   Sunlife alleges that Hanson was not authorized or empowered to modify the
terms of the policy, and that Hanson is not an official of Sunlife. Neither did
the company know that a promise was made by Hanson, and it never
received from him any payment for the second premium.
79.   The trial court ruled in favor of Glaraga. Hence, this appeal by Sunlife.
ISSUE/s:
1.   W/N the insurance policy was still in effect upon Glaraga’s demand – NO.
When an insurance policy specifically defines and limits the powers and
duties of an agent, it shall bind the parties. Non-compliance, as stated in
this case, shall render the policy ineffective. Under the relevant provisions
of the contract, payment made to any person, except in exchange for the
company’s official receipt would not be recognized by the company, and
that no person except those provided, had any power to alter the contract or
extend the time for the premium, or bind the company itself by making of
any promise.
RULING: The SC reversed the trial court’s decision, but affirmed against Hanson.
There was a written contract, in the form of the policy, duly signed and accepted by
both parties, which expressed the manner the premiums are to be paid, and the terms
which specifies and limits the powers and dutiesof the agent to the delivery of the
official receipt of the company upon the payment to him of the amount of the
premium. Without compliance with such terms, the subsequent acts after the
perfection of the contract will have no effect; and non-compliance with the grace
period, as expressly stated, extinguished the conract.
 method by which Hanston collects premiums which would be binding upon
RATIO: the company.
 
1.   It is conclusive that the second premium was never paid to Sunlife.
  10.   Failure to comply with the contract after the default, the insurance policy
2.   The written promise by Hanson stated that Hanson assumed payment of the was no longer binding and effective against the Sunlife. However, Hanson
second premium, subject to the reimbursement from Juares.
  is bound because he promised and agreed to premium. It is an established in
3.   On the other hand, the insurance policy, in writing and issued to Juares, the law on agency that when an agent acts beyond the authority given to
provided for 30 days grace period. If the insured party defaults and fails to him by the principal, it shall be binding on him as if he had entered into the
pay within the grace period, or if the balance due at the end of the term of contract by himself. Therefore, damage resulting to a third party, such as
the policy exceeds the coverage of the premium, then the policy shall lapse Glaraga, must be enforceable against him.
 
and become void.
 
 
4.   By its express terms, the non-payment of any premium when due or within
 
the 30-day grace period, ipso facto causes the policy to lapse, and relieves
 
 
the insurance company from all liability.
 
5.   Under the relevant provision (see FACTS, par. 6), a payment made to any
person, except in exchange for the company’s official receipt would not be
recognized by the company, and that no person except those provided, had
any power to alter the contract or extend the time for the premium, or bind
the company itself by making of any promise.
 
6.   In this case, there is no claim that in the writing of Hanson, he claimed that
he was acting for, or representing, the company, either as its agent or
otherwise. Juares relied on Hanson’s promise to pay the premium. But that
promise of Hanson, and of Hanson only, and was made by him to Juares,
and was made by him only.
 
7.   There is no evidence that Sunlife ever ratified or approved Hanson’s letter,
or that it ever knew that it was written. It was not proven that Hanson or
anyone else paid the premium, or that Sunlife extended the time for its
payment. The letter was not the act of company or even that of its agent,
and even if it purported to be the act of the agent of the company, it
might well be doubted whether it would be binding upon the company,
in the absence of ratification or approval.
 
8.   There is a marked distinction between the legal force and effect of the
powers and duties of a life insurance agent in soliciting insurance, and what
he says and does before the policy is issued, and what he says and does after
the policy is issued.
 
a.   No written contract between the insured and insurer – insurance is
stopped to deny the authority of its agent as to acts previous to and
upon issuance of the policy; or
 
b.   With written contract – specifically defined and limiting the
powers the duties of the agent, agent must comply to bind the
insurer
 
9.   If Hansons was vested with all the powers of a general agent of the
company, such contract made by him would then be binding upon the
company, but there is no claim or pretense that Hanson was anything more
than a special agent with limited powers and dutes as the receipt of
premiums which are specifically defined by the express provisions of
the policy. Neither is there proof of an established custom as to manner or
 011 ARCE v. CAPITAL INSURANCE (Castillo)
September 30, 1982 | Abad Santos, J. | Payment of premiums necessary for
effectivity of policy
PLAINTIFF-APPELLEE: Pedro Arce
DEFENDANT-APPELLANT: The Capital Insurance & Surety Co., Inc.
SUMMARY: The appellee owned a residential house which was insured with
the appellant COMPANY since 1961. In November 1965, the COMPANY sent
to the INSURED a Renewal Certificate to cover the period from December 5,
1965 to December 5,1966, and requested payment of the corresponding
premium. Anticipating that the premium could not be paid on time, the
INSURED asked for an extension which was granted by the COMPANY. After
the lapse of the requested extension, INSURED still failed to pay the premium.
Thereafter, the house of the INSURED was totally destroyed by fire. Upon
INSURED's presentation of claim for indemnity, he was told that no indemnity
was due because the premium was not paid. The INSURED sued the
COMPANY for indemnity. The trial court held the COMPANY liable to
indemnify the INSURED on the ground that since the COMPANY could have
demanded payment of the premium, mutuality of obligation required that it
should be liable on the policy. Issue is WoN the Company is liable to indemnify
the Insured even if no premium was paid. The Court ruled in the negative
stating that Section 72 of the Insurance Act as amended by R.A.. 3540 states
that "no policy issued by an insurance company is valid and binding unless and
until the premium thereof has been paid.” Because of this amendment, the legal
regime changed in that unless the premium is paid there is no insurance.
DOCTRINE: It is obvious from both the Insurance Act, as amended, and the
stipulation of the parties that time is of the essence in respect to the payment of
the insurance premium so that if it is not paid the contract does not take effect
unless there is still another stipulation to the contrary. In the instant case, the
INSURED was given a grace period to pay the premium but the period
having expired with no payment made, he cannot insist that the
COMPANY is nonetheless obligated to him.
FACTS:
1.   In Civil Case No. 66466 of the Court of First Instance of Manila, the
Capital Insurance and Surety Co., Inc., (COMPANY) was ordered to pay
Pedro Arce (INSURED) the proceeds of a fire insurance policy. Not
satisfied with the decision, the company appealed to this Court on questions
of law.
2.   The INSURED was the owner of a residential house in Tondo, Manila,
which had been insured with the COMPANY since 1961 under Fire Policy
No. 24204
3.   November 27, 1965 - COMPANY sent to the INSURED Renewal
Certificate No. 47302 to cover the period December 5, 1965 to December 5,
1966. The COMPANY also requested payment of the corresponding
premium in the amount of P38.10.
4.   Anticipating that the premium could not be paid on time, the INSURED,
thru his wife, promised to pay it on January 4, 1966. The COMPANY
accepted the promise but the premium was not paid on January 4, 1966. On
January 8, 1966, the house of the INSURED was totally destroyed by fire.
5.   January 10, 1966 - NSURED's wife presented a claim for indemnity to the
COMPANY. She was told that no indemnity was due because the premium
on the policy was not paid.
6.   Nonetheless the COMPANY tendered a check for P300.00 as financial aid
which was received by the INSURED's daughter, Evelina R. Arce. The
voucher for the check which Evelina signed stated that it was "in full
settlement (ex gratia) of the fire loss under Claim No. F-554 Policy No. F-
24202.”
7.   INSURED and his wife went to the office of the COMPANY to have his
signature on the check identified preparatory to encashment.
8.   At that time the COMPANY reiterated that the check was given "not as
an obligation, but as a concession" because the renewal premium had
not been paid. The INSURED cashed the check but then sued the
COMPANY on the policy.
9.   The court a quo held that since the COMPANY could have demanded
payment of the premium, mutuality of obligation requires that it should
also be liable on its policy. The court a quo also held that the INSURED
was not bound by the signature of Evelina on the check voucher because he
did not authorize her to sign the waiver.
ISSUES:
1.   WoN the Company is liable to indemnify the Insured even if no premium
was paid – NO because Section 72 of the Insurance Act as amended by
R.A.. 3540 states that "no policy issued by an insurance company is valid
and binding unless and until the premium thereof has been paid."
RULING: WHEREFORE, the decision of the court a quo is reversed; the appellee's
complaint is dismissed. No special pronouncement as to costs.
RATIO:
1.   Capital Insurance and Surety Co., Inc. vs. Delgado: appellants failed to pay
a balance of P583.95 on the premium charges due, notwithstanding
demands made upon them. As with the issuance of the policy to appellants
the same became effective and binding upon the contracting parties, the
latter can not avoid the obligation of paying the premiums agreed upon. It is
clear from the foregoing that appellants are under obligation to pay the
amount sued upon.
 2.   Sec. 72 of the Insurance Act, as amended by R.A. No. 3540: SEC. 72. An
insurer is entitled to payment of premium as soon as the thing insured is
exposed to the perils insured against, unless there is clear agreement to
grant credit extension for the premium due. No policy issued by an
insurance company is valid and binding unless and until the premium
thereof has been paid.
3.   Parties in this case had stipulated: notwithstanding anything to the
contrary contained in the within policy, this insurance will be deemed valid
and binding upon the Company only when the premium and documentary
stamps therefor have actually been paid in full and duly acknowledged in an
official receipt signed by an authorized official/representative of the
Company.
4.   It is obvious from both the Insurance Act, as amended, and the stipulation
of the parties that time is of the essence in respect of the payment of the
insurance premium so that if it is not paid the contract does not take effect
unless there is still another stipulation to the contrary.
5.   In the instant case, the INSURED was given a grace period to pay the
premium but the period having expired with no payment made, he cannot
insist that the COMPANY is nonetheless obligated to him.
6.   Delgado was decided in the light of the Insurance Act before Sec. 72 was
amended. Prior to the amendment, an insurance contract was effective even
if the premium had not been paid so that an insurer was obligated to pay
indemnity in case of loss and correlatively he had also the right to sue for
payment of the premium.
7.   But the amendment to Sec. 72 has radically changed the legal regime in
that unless the premium is paid there is no insurance.
8.   With the foregoing, it is not necessary to dwell at length on the trial court's
second proposition that the INSURED had not authorized his daughter
Evelina to make a waiver because the INSURED had nothing to waive; his
policy ceased to have effect when he failed to pay the premium.

 
 
 012 MAKATI TUSCANY CONDOMINIUM v. CA (CASTRO)
November 6, 1992 | Bellosillo, J. | Insurance Premium
PETITIONER: MAKATI TUSCANY CONDOMINIUM CORPORATION
RESPONDENTS: THE COURT OF APPEALS, AMERICAN HOME
ASSURANCE CO., represented by American International Underwriters
(Phils.), Inc.,
SUMMARY: Basically, this case involves 3 insurance policies (1982-1983,
1983-1984, and the source of the controversy 1984-1985). In these insurance
policies, Makati Tuscany pays its premiums by installments which were
accepted by American Home Assuance. For the 3rd insurance policy, Makati
Tuscany refused to complete its payment of premium by claiming that because
of the arrangement of paying in installments, then the insurance policy was no
valid and binding because the said arrangement is proscribed by the insurance
code. Hence, American Home filed a collection case against Makati Tuscany for
the payment of balance while Makati filed for a counterclaim refunding the said
premiums paid. RTC ruled that he insurance policy is valid and that Makati
Tuscany should pay the balance which was affirmed by the CA with some
modifications. CA further stated that Makati Tuscany cannot deny liability on
the payment of other premiums while AHAC cannot also deny liability on the
insurance because it agreed with the set-up and it accepted the installment
payments. The issue now before the SC is W/N an arrangement to pay the
premiums in installment will invalidate the contract of insurance and SC said
NO, because what merely the law precludes is the stipulation making the
contract valid despite non-payment of premiums at all. The installment
arrangement is not contrary to law, morals, good customs, or public policy.
DOCTRINE: Section 77 merely precludes the parties from stipulating that the
policy is valid even if premiums are not paid, but does not expressly prohibit an
agreement granting credit extension, and such an agreement is not contrary to
morals, good customs, public order or public policy). So is an understanding to
allow insured to pay premiums in installments not so proscribed. At the very
least, both parties should be deemed in estoppel to question the arrangement they
have voluntarily accepted.
 
FACTS:
INSURED: (Petitioner in the SC but the Defendant in the lower court case):
MANILA TUSCANY CONDOMINIUM
INSURER: AHAC through American Underwriters (Plaintiff in the lower
court)
1.   Sometime in early 1982, private respondent American Home Assurance Co.
(AHAC), represented by American International Underwriters (Phils.), Inc.,
issued in favor of petitioner Makati Tuscany Condominium Corporation
(TUSCANY) an insurance policy on the latter's building and premises, for a
period beginning INSURANCE POLICY 1: 1 March 1982 and ending 1
March 1983, with a total premium of P466,103.05.
2.   The premium was paid on installments on 12 March 1982, 20 May 1982, 21
June 1982 and 16 November 1982, all of which were accepted by AHAC
3.   On 10 February 1983, AHAC issued to Makati Tuscany an insurance policy
which replaced and renewed the previous policy, for a term covering
INSURANCE POLICY 2: 1 March 1983 to 1 March 1984. The premium
in the amount of P466,103.05 was again paid on installments on 13 April
1983, 13 July 1983, 3 August 1983, 9 September 1983, and 21 November
1983. All payments were likewise accepted
4.   On 20 January 1984, the policy was again renewed for the period
INSURANCE POLICY 3: 1 March 1984 to 1 March 1985. On this
renewed policy, Makati Tuscany made two installment payments
(amounting to 152,000), both accepted by AHAC. After the two
installments, Makati Tuscany refused to pay the balance of the premium
5.   Consequently, AHAC filed an action to recover the unpaid balance
amounting 314,103.05 (arrived by deducting the installments paid which is
152,000 from the amount of the policy which is 466,103.05)
6.   In its answer, Makati Tuscany admitted the issuance of the insurance policy.
It explained that it discontinued the payment premiums because the policy
did not contain a credit clause in its favor and the receipts of the installment
payments covering the policy for 1984-1985, as well as the two previous
policies, stated the following reservations:
a.   Acceptance of this payment shall not waive any of the company
rights to deny liability on any claim under the policy arising
before such payments or after the expiration of the credit clause of
the policy; and
b.   Subject to no loss prior to premium payment. If there be any
loss such is not covered.
7.   Makati Tuscany claimed that the policy was never binding and valid, and no
risk attached to the policy. It then pleaded a counterclaim for 152,000
refund for the premiums already paid for 1984-1985. Later on it amended
the counterclaim, sought the refund of 924,206 representing the premium
payments for 1982-1985.
8.   After some incidents, Makati Tuscany and AHAC moved for summary
judgment
9.   RTC dismissed the complaint and the counterclaim upon the following
fiindings:
a.   While it is true that the receipts issued to Makati Tuscany
contained the aforementioned reservations, it is equally true that
 payment of the premiums of the three aforementioned policies
(being sought to be refunded) were made during the lifetime or 12.   Makati Tuscany now asserts that its payment by installment of the
term of said policies, hence, it could not be said, inspite of the premiums for the insurance policies for 1982, 1983 and 1984 invalidated
reservations, that no risk attached under the policies. said policies because of the provisions of Sec. 77 of the Insurance Code26,
Consequently, Makati Tuscany's counterclaim for refund is not as amended, and by the conditions stipulated by the insurer in its receipts,
justified. disclaiming liability for loss for occurring before payment of premiums.
b.   As regards the unpaid premiums, in view of the reservation in the
receipts ordinarily issued by AHAC on premium payments the 13.   Hence this petition
only plausible conclusion is that AHAC has no right to demand
their payment after the lapse of the term of said policy on
March 1, 1985. Therefore, the defendant was justified in refusing ISSUE/s:
to pay the same. 1.   W/N the payment by installments of the premiums due on an insurance
policy invalidates a contract of insurance in view of Sec. 77 of PD 612 –
10.   Both parties appealed from the judgment of the trial court. Thereafter, the No,, Sec 77 merely precludes the parties from stipulating that the policy is
Court of Appeals rendered a decision modifying that of the trial court by valid even if premiums are not paid, but does not expreslly prohibit
ordering Makati Tuscany to pay the balance of the premiums due on granting credit extension in a form of payment by installments.
policy plus legal interest until fully paid, and affirming the denial of the
counterclaim. RULING: WHEREFORE, finding no reversible error in the judgment appealed
from, the same is AFFIRMED. Costs against petitioner.
11.   CA explained the decision by saying:
a.   The obligation to pay premiums when due is ordinarily as SO ORDERED.
indivisible obligation to pay the entire premium. Here, the parties
herein agreed to make the premiums payable in installments, and
there is no pretense that the parties never envisioned to make the RATIO:
insurance contract binding between them. It was renewed for two SUBJECT POLICIES ARE VALID DESPITE INSTALLMENT PAYMENTS
succeeding years, the second and third policies being a 1.   The records clearly show that Makati Tuscany and AHAC intended subject
renewal/replacement for the previous one. And the insured never insurance policies to be binding and effective notwithstanding the staggered
informed the insurer that it was terminating the policy because the payment of the premiums. The initial insurance contract entered into in
terms were unacceptable. 1982 was renewed in 1983, then in 1984. In those three (3) years, the
insurer accepted all the installment payments. Such acceptance of
b.   While it may be true that under Section 77 of the Insurance Code, payments speaks loudly of the insurer's intention to honor the policies
the parties may not agree to make the insurance contract valid it issued to Makati Tuscany. Certainly, basic principles of equity and
and binding without payment of premiums, there is nothing in fairness would not allow the insurer to continue collecting and
said section which suggests that the parties may not agree to accepting the premiums, although paid on installments, and later deny
allow payment of the premiums in installment, or to consider liability on the lame excuse that the premiums were not prepared in
the contract as valid and binding upon payment of the first full.
premium. Otherwise, the court would allow the insurer to renege
on its liability under the contract, had a loss incurred (sic) before
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
completion of payment of the entire premium, despite its voluntary 26

  Sec.
  77.
  An
  insurer
  is
  entitled
  to
  the
  payment
  of
  the
  premium
  as
 
acceptance of partial payments, a result eschewed by a basic
considerations of fairness and equity.
soon
  as
  the
  thing
  is
  exposed
  to
  the
  peril
  insured
  against.
 
Notwithstanding
 any
 agreement
 to
 the
 contrary,
 no
 policy
 or
 contract
 
c.   the insurance contract became valid and binding upon payment of of
  insurance
  issued
  by
  an
  insurance
  company
  is
  valid
  and
  binding
 
the first premium, and AHAC could not have denied liability on unless
  and
  until
  the
  premium
  thereof
  has
  been
  paid,
  except
  in
  the
 
the ground that payment was not made in full, for the reason
that it agreed to accept installment payment. case
  of
  a
  life
  or
  an
  industrial
  life
  policy
  whenever
  the
  grace
  period
 
provision
 applies
 
 2.   While the import of Section 77 is that prepayment of premiums is strictly
required as a condition to the validity of the contract, The court is not
prepared to rule that the request to make installment payments duly
approved by the insurer, would prevent the entire contract of insurance
from going into effect despite payment and acceptance of the initial
premium or first installment. Section 78 of the Insurance Code in effect
allows waiver by the insurer of the condition of prepayment by making an
acknowledgment in the insurance policy of receipt of premium as
conclusive evidence of payment so far as to make the policy binding despite
the fact that premium is actually unpaid.
3.   Section 77 merely precludes the parties from stipulating that the policy
is valid even if premiums are not paid, but does not expressly prohibit
an agreement granting credit extension, and such an agreement is not
contrary to morals, good customs, public order or public policy). So is
an understanding to allow insured to pay premiums in installments not
so proscribed. At the very least, both parties should be deemed in
estoppel to question the arrangement they have voluntarily accepted.
4.   Lastly, Makati Tuscany’s reliance on Arce v. Capital Surety is unavailing,
for the facts therein are substantially different because there was no
premium paid at all in Arce. While in this case Makati Tuscany paid the
initial installment and thereafter made staggered payments.
5.   It appearing from the peculiar circumstances that the parties actually
intended to make three (3) insurance contracts valid, effective and
binding, Makati Tuscany may not be allowed to renege on its obligation
to pay the balance of the premium after the expiration of the whole
term of the third policy (No. AH-CPP-9210651) in March 1985.
6.   Moreover, as correctly observed by the appellate court, where the risk
is entire and the contract is indivisible, the insured is not entitled to a
refund of the premiums paid if the insurer was exposed to the risk
insured for any period, however brief or momentary.

 
 
 013 Areola v. CA (COSCOLLUELA)
September 22, 1994 | Romero, J. | Premium Payment
PETITIONER: Santos B. Areola and Lydia D. Areola
RESPONDENTS: Court of Appeals, Prudential Guarantee and Assurance, Inc.
SUMMARY: 7 months after the issuance of Santos Areola’s Personal Accident
Insurance Policy, Prudential unilaterally cancelled the same since company records
revealed that Areola failed to pay his premiums evidenced by the lack of Official
Receipt which was supposed to be issued within 7 days after the Provisional Receipt.
Prudential offered to reinstate same policy it had previously cancelled and even
proposed to extend its lifetime, upon a finding that the cancellation was erroneous
and that the premiums were paid in full by Areola but were not remitted by Teofilo
M. Malapit, Prudential’s Baguio City branch manager. Areola and his wife filed a
complaint with the trial court which rendered a decision in favor of them but this was
reversed by the CA.
The issue is WoN Prudential should be held liable for the fraudulent act of Malapit.
Yes, because a corporation acts solely thru its employees. The latter’s acts are
considered as its own for which it can be held to account. It is beyond doubt that
Malapit represented the interests of Prudential and acted in its behalf. His act of
receiving the premiums collected is well within the provice of his authority. The fact
that Prudential was itself defrauded due to the anomalies that took place in its Baguio
branch office, such as the non-accrual of said premiums to its account, does not free
the same from its obligation to Areola. Consequently, Prudential is liable by way of
damages for the fraudulent acts committed by Malapit that gave occasion to the
erroneous cancellation of subject insurance policy. Its earlier act of reinstating the
insurance policy also can not obliterate the injury.
DOCTRINE: A corporation acts solely thru its employees. The latter’s acts are
considered as its own for which it can be held to account.
FACTS:
80.   Santos Areola (Areola), a lawyer from Dagupan bought from Prudential
Guarantee and Assurance, Inc. (Prudential) a personal accident insurance
policy covering the one-year period between noon of November 28, 1984
and noon of November 28, 1985.
81.   Areola was allegedly not able to pay the total amount of P1,609.65 which
included the premium, documentary stamp and premium tax.
82.   On December 17, 1984, Prudential issued a collector’s provisional receipt
to Areola for the total amount. It noted thereon that the collector’s
provisional receipt will be confirmed by their official receipt.
83.   The Branch Manager of Baguio City sent Areola an Endorsement which
“cancelled flat” his insurance policy for non-payment of premium. The
same credited “a return premium of P1,609.65 plus documentary stamps
and premium tax” to the account of Areola.
84.   Shocked, Areola confronted the representative of Prudential, Carlito Ang.
Areola still failed to receive any official receipt from Prudential
85.   Areola sent a letter demanding from Prudential that he be insured under the
same terms and conditions of his previous policy commencing upon the
receipt of his letter, or that the current commercial rate of increase on the
payment he had made under the provisional receipt be return within 5 days.
86.   Areola received a letter from production manager Malapit, informing him of
the “partial payment” of P1,000 he had made on the policy had been
exhausted pursuant to the provisions of the Short Period Rate Scale. He was
also warned that failure to pay the balance, the company’s liability would
cease to operate.
87.   Prudential, in response to Areola’s letter, wrote a letter to the latter stating
that the company was verifying whether the payment had in fact been
remitted to the company and why no official receipt had been issued
therefor. Asst. Vice-President Mariano Ampil III emphasized that the OR
should have been issued 7 days from the issuance of the provisional receipt,
and because there was no such OR, there was reason to believe that no
payment had been made.
1.   Ampil apologized for the inconvenience and said they will hold Areola
covered under the terms of the policy until such time that the matter is
cleared.
2.   Ampil wrote another letter confirming the total amount was received and
that Prudential was amenable to extending the policy up to December 17,
1985.
88.   Unfortunately, as early as August 6, 1985 Areola and his wife already filed
a breach of contract with damages.
89.   Prudential admitted that the cancellation was due to Malapit’s failure to turn
over the premiums. However, it argued that by acknowledging the
inconvenience and taking steps to rectify its omission, Prudential had
complied with its obligation. Hence, Areola has no longer a cause of action.
90.   Trial court ruled in favor of Areola ruling that Prudential was in bad faith in
unilaterally cancelling the insurance policy. Had Areola met an accident,
Prudential would certainly have disclaimed liability. It held that Prudential
breached its contract with Areola.
91.   CA reversed the trial court. It held that Prudential was not motivated by bad
faith or malice and that the cancellation was based on what the existing
records merely showed. In fact, it’s subsequent acts of rectifying the wrong
indicate that Prudential did not ct precipitately or willfully to inflict a wrong
on Areola.
92.   Hence, this appeal.
93.   Areola argues that it was Malapit’s misappropriation of the premiums
which was the proximate cause of the cancellation of the insurance policy.
Malapit’s act of signing and even sending the notice of cancellation himself,
notwithstanding his personal knowledge of Areola’s full payment of
 premiums, further reinforces the allegation of bad faith. Subsequent
reinstatement could not possibly absolve Prudential from liability, there
being an obvious breach of contract.
94.   Prudential however argues that where reinstatement, the equitable relief
sought by Areola was granted at an opportune moment i.e. prior to the filing
of the complaint, he was left without a cause of action
ISSUE/s:
111.  WoN Prudential should be held liable for its agent’s fraudulent act of
misappropriating the premiums paid by Areola – YES, because a
corporation acts solely thru its employees. The latter’s acts are considered
as its own for which it can be held to account.
and a creditor of the other, such that the obligation of one is dependent upon
the obligation of the other.
118.  Under the law governing reciprocal obligations the injured party is given a
choice between fulfillment or rescission of the obligation. The law also
entitles Areola to payment of damages, regardless of whether he demands
fulfillment or rescission.
119.  The nature of the damages is in the form of nominal damages contrary to
what was awarded by the trial court because o actual or substantial damage
or injury was inflicted on Areola at the time the insurance policy was
cancelled. (Areola was awarded actual, moral, exemplary, and atty’s fees)

RULING: WHEREFORE, the petition for review on certiorari is

hereby GRANTED and the decision of the Court of Appeals in CA-G.R. No. 16902  
on May 31, 1990, REVERSED. The decision of Branch 40, RTC Dagupan City, in    
Civil Case No. D-7972 rendered on June 30, 1987 is hereby REINSTATED subject
to the following modifications: (a) that nominal damages amounting to P30,000.00
be awarded petitioner in lieu of the damages adjudicated by court a quo; and (b) that
in the satisfaction of the damages awarded therein, respondent insurance company is
ORDERED to pay the legal rate of interest computed from date of filing of
complaint until final payment thereof.

SO ORDERED.

RATIO:
112.  Malapit’s fraudulent act of misappropriating the premiums paid by Areola
is beyond doubt directly imputable to Prudential. A corporation acts solely
thru its employees. The latter’s acts are considered as its own for which it
can be held to account.
113.  It is beyond doubt that Malapit represented the interests of Prudential and
acted in its behalf. His act of receiving the premiums collected is well
within the provice of his authority.
114.  Malapit’s failure to remit the premiums he received cannot constitute as a
defense for Prudential.
115.  The fact that Prudential was itself defrauded due to the anomalies that took
place in its Baguio branch office, such as the non-accrual of said premiums
to its account, does not free the same from its obligation to Areola.
Consequently, Prudential is liable by way of damages for the fraudulent acts
committed by Malapit that gave occasion to the erroneous cancellation of
subject insurance policy.
116.  Its earlier act of reinstating the insurance policy also can not obliterate the
injury.
117.  Prudential should be reminded that a contract of insurance creates reciprocal
obligations for both insurer and insured. Reciprocal obligations are those
which arise from the same cause and in which each party is both a debtor
 014 TIBAY v. CA (Cruz)
May 24, 1996 | Bellosillo, J. | Partial Payment of premiums
Petitioners: Sps. Antonio A. Tibay & Violeta R. Tibay and Ofelia Roraldo,
Victorina Roraldo, Virgilio Roraldo, Myrna Roraldo and Rosabella Roraldo
Respondent: CA and Fortune Life & General Insurance Co., Inc.,
SUMMARY: FORTUNE issued Fire Insurance Policy in favor of Violeta
and/or Nicolas on their two-storey residential building. The insurance was for
P600,000.00. Violeta only paid P600.00 out of the total premium of P2,983.50,
thus leaving a considerable balance unpaid. The insured building was completely
destroyed by fire. Two days later Violeta paid the balance of the premium. On
the same day, she filed with FORTUNE a claim on the fire insurance policy In a
letter FORTUNE denied the claim of Violeta for violation of Policy Condition
No. 2 and of Sec. 77 of the Insurance Code. Violeta et al sued FORTUNE for
damages. The trial court ruled for Violeta et al and adjudged FORTUNE liable
for the total value of the insured building and personal properties The CA
reversed this. The issue in this case is WoN fire insurance policy is valid,
binding and enforceable upon mere partial payment of premium. The SC
ruled in the negative. The Fire Insurance Policy provides for payment of
premium in full. Accordingly, where the premium has only been partially paid
and the balance paid only after the peril insured against has occurred, the
insurance contract did not take effect and the insured cannot collect at all on the
policy. The stipulations in the policy explicitly worded and taken in conjunction
with Sec. 77 of the Insurance Code the payment of partial premium by the
assured in this particular instance should not be considered the payment required
by the law and the stipulation of the parties. Rather, it must be taken in the
concept of a deposit to be held in trust by the insurer until such time that the full
amount has been tendered and duly receipted for. In other words, as expressly
agreed upon in the contract, full payment must be made before the risk occurs
for the policy to be considered effective and in force. Moreover, The case
of South Sea Surety and Insurance Company, Inc. v. Court of Appeals, speaks
only of two (2) statutory exceptions to the requirement of payment of the entire
premium as a prerequisite to the validity of the insurance contract. These
exceptions are: a) in case the insurance coverage relates to life or industrial life
(health) insurance when a grace period applies, and b) when the insurer makes a
written acknowledgment of the receipt of premium, this acknowledgment being
declared by law to, be then conclusive evidence of the premium payment. under
Sec. 77, as well as Sec. 78, until the premium is paid, and the law has not
expressly excepted partial payments, there is no valid and binding
contract. Hence, in the absence of clear waiver of prepayment in full by the
insurer, the insured cannot collect on the proceeds of the policy
DOCTRINE: For as long as the current Insurance Code remains unchanged and
partial payment of premiums is not mentioned at all as among the exceptions
provided in Secs. 77 and 78, no policy of insurance can ever pretend to be
efficacious or effective until premium has been fully paid.
FACTS:
75.   Fortune Life and General Insurance Co., Inc. (FORTUNE) issued
Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay (Violeta)
and/or Nicolas Roraldo (Nicolas) on their two-storey residential building
located at 5855 Zobel Street, Makati City, together with all their personal
effects therein. The insurance was for P600,000.00 covering the period from
23 January 1987 to 23 January 1988. On 23 January 1987, of the total
premium of P2,983.50, Violeta Tibay only paid P600.00 thus leaving a
considerable balance unpaid.
76.   The insured building was completely destroyed by fire. Two days later
Violeta Tibay paid the balance of the premium. On the same day, she filed
with FORTUNE a claim on the fire insurance policy.
a.   Her claim was accordingly referred to its adjuster, Goodwill
Adjustment Services, Inc. (GASI), which immediately wrote
Violeta requesting her to furnish it with the necessary documents
for the investigation and processing of her claim. To which Violeta
forthwith complied.
77.   On 28 March 1987 she signed a non-waiver agreement with GASI to the
effect that any action taken by the companies or their representatives in
investigating the claim made by the claimant for his loss which occurred at
5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or
ascertainment of the amount of actual cash value and loss, shall not waive
or invalidate any condition of the policies of such companies held by said
claimant, nor the rights of either or any of the parties to this agreement,
and such action shall not be, or be claimed to be, an admission of liability
on the part of said companies or any of them.
78.   In a letter FORTUNE denied the claim of Violeta for violation of Policy
Condition No. 2 and of Sec. 77 of the Insurance Code. Efforts to settle the
case before the Insurance Commission proved futile.
79.   Violeta and the other petitioners sued FORTUNE for damages in the
amount of P600,000.00 representing the total coverage of the fire insurance
policy plus 12% interest per annum, P 100,000.00 moral damages, and
attorneys fees equivalent to 20% of the total claim.
80.   The trial court ruled for Sps Tibay and adjudged FORTUNE liable for the
total value of the insured building and personal properties in the amount of
P600,000.00 plus interest at the legal rate of 6% per annum from the filing
of the complaint until full payment, and attorneys fees equivalent to 20% of
the total amount claimed plus costs of suit.
81.   The CA reversed the court a quo by declaring FORTUNE not to be liable
therein but ordering the return of the premium of P2,983.50 plus 12%
interest from when Violeta paid the balance of the premium (2 days after
the fire) until full payment.
82.   Hence this petition for review.
ISSUE/s:
13.   WoN fire insurance policy is valid, binding and enforceable upon mere
 partial payment of premium – NO where the premium has only been an insurance contract with the insured. In the case before
partially paid and the balance paid only after the peril insured against has us, there is, quite unlike in Phoenix, a specific stipulation
occurred, the insurance contract did not take effect and the insured cannot that (t)his policy xxx is not in force until the premium has
collect at all on the policy been fully paid and duly receipted by the Company x x x.
ii.   It is correct to say that in Phoenix a contract was
RULING: WHEREFORE, the petition is DENIED and the assailed Decision of the perfected upon partial payment of the premium since the
Court of Appeals dated 24 March 1995 is AFFIRMED. parties had not otherwise stipulated that prepayment of
SO ORDERED. the premium in full was a condition precedent to the
existence of a contract.
RATIO: b.   In Phoenix, by accepting the initial payment of P3,000.00 and then
1.   Insurance is a contract whereby one undertakes for a consideration to later demanding the remainder of the premium without any other
indemnify another against loss, damage or liability arising from an precondition to its enforceability as in the instant case, the insurer
unknown or contingent event. in effect had shown its intention to continue with the existing
a.   The consideration is the premium, which must be paid at the time contract of insurance, as in fact it was enforcing its right to collect
and in the way and manner specified in the policy, and if not so premium, or exact specific performance from the insured. This is
paid, the policy will lapse and be forfeited by its own terms. not so here. By express agreement of the parties, no vinculum
2.   the Policy provides for payment of premium in full. Accordingly, where the juris or bond of law was to be established until full payment was
premium has only been partially paid and the balance paid only after the effected prior to the occurrence of the risk insured against.
peril insured against has occurred, the insurance contract did not take effect 5.   In Makati Tuscany Condominium Corp. v. Court of Appeals the parties
and the insured cannot collect at all on the policy. This is fully supported by mutually agreed that the premiums could be paid in installments, which in
Sec. 7727 of the Insurance Code fact they did for three (3) years, hence, this Court refused to invalidate the
3.   Apparently the crux of the controversy lies in the phrase unless and until the insurance policy.
premium thereof has been paid. For whatever judicial construction may be 6.   While it maybe true that under Section 77 of the Insurance Code, the parties
accorded the disputed phrase must ultimately yield to the clear mandate of may not agree to make the insurance contract valid and binding without
the law. The principle that where the law does not distinguish the court payment of premiums, there is nothing in said section which suggests that
should neither distinguish assumes that the legislature made no qualification the parties may not agree to allow payment of the premiums in installment,
on the use of a general word or expression. or to consider the contract as valid and binding upon payment of the first
4.   Violeta et al insists that FORTUNE is liable on the policy despite partial premium. Otherwise we would allow the insurer to renege on its liability
payment of the premium due and the express stipulation thereof to the under the contract, had a loss incurred (sic) before completion of payment
contrary. They rely heavily on the 1967 case of Philippine Phoenix and of the entire premium, despite its voluntary acceptance of partial payments,
Insurance Co., Inc. v. Woodworks, Inc. where the Court sustained the ruling a result eschewed by basic considerations of fairness and equity.
of the trial court that partial payment of the premium made the policy 7.   These two (2) cases, Phoenix and Tuscany, adequately demonstrate the
effective during the whole period of the policy. In that case, the insurance waiver, either express or implied, of prepayment in full by the insurer:
company commenced action against the insured for the unpaid balance on a impliedly, by suing for the balance of the premium as inPhoenix, and
fire insurance policy. In its defense the insured claimed that nonpayment of expressly, by agreeing to make premiums payable in installments as
premium produced the cancellation of the insurance contract. in Tuscany.
a.   The 1967 Phoenix case is not persuasive; neither is it decisive of 8.   But contrary to the stance taken by Violeta et al, there is no waiver express
the instant dispute. or implied in the case at bench. Precisely, the insurer and the insured
i.   The factual scenario is different.In Phoenix it was the expressly stipulated that (t)his policy including any renewal thereof and/or
insurance company that sued for the balance of the any indorsement thereon is not in force until the premium has been fully
premium, i.e., it recognized and admitted the existence of paid to and duly receipted by the Company x x x and that this policy shall
be deemed effective, valid and binding upon the Company only when the

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  premiums therefor have actually been paid in full and duly acknowledged.
27

 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
 
9.   Conformably with the aforesaid stipulations explicitly worded and taken in
insurance
 issued
 by
 an
 insurance
 company
 is
 valid
 and
 binding
 unless
 and
 until
 the
 premium
 thereof
 has
  conjunction with Sec. 77 of the Insurance Code the payment of partial
been
  paid,
 except
  in
  the
  case
  of
  a
  life
  or
  an
  industrial
  life
  policy
  whenever
  the
  grace
  period
  provision
  premium by the assured in this particular instance should not be considered
applies
 (Italics
 supplied).
 
 the payment required by the law and the stipulation of the parties. Rather, it
must be taken in the concept of a deposit to be held in trust by the insurer
until such time that the full amount has been tendered and duly receipted
for. In other words, as expressly agreed upon in the contract, full payment
must be made before the risk occurs for the policy to be considered
effective and in force.
10.   Thus, no vinculum juris whereby the insurer bound itself to indemnify the
assured according to law ever resulted from the fractional payment of
premium. The insurance contract itself expressly provided that the policy
would be effective only when the premium was paid in full. It would have
been altogether different were it not so stipulated. Ergo, petitioners had
absolute freedom of choice whether or not to be insured by FORTUNE
under the terms of its policy and they freely opted to adhere thereto.
11.   In the construction of an insurance contract is the intention of the parties as
expressed in the policy. Courts have no other function but to enforce the
same. The rule that contracts of insurance will be construed in favor of the
insured and most strongly against the insurer should not be permitted to
have the effect of making a plain agreement ambiguous and then construe it
in favor of the insured.
a.   Verily, it is elemental law that the payment of premium is requisite
to keep the policy of insurance in force. If the premium is not paid
in the manner prescribed in the policy as intended by the parties
the policy is ineffective. Partial payment even when accepted as a
partial payment will not keep the policy alive even for such
fractional part of the year as the part payment bears to the whole
payment.
12.   Applying further the rules of statutory construction, the position maintained
by Violeta et al becomes even more untenable.
13.   The case of South Sea Surety and Insurance Company, Inc. v. Court of
Appeals, speaks only of two (2) statutory exceptions to the requirement
of payment of the entire premium as a prerequisite to the validity of the
insurance contract. These exceptions are:
a.   in case the insurance coverage relates to life or industrial life
(health) insurance when a grace period applies, and
b.   when the insurer makes a written acknowledgment of the receipt of
premium, this acknowledgment being declared by law to, be then
conclusive evidence of the premium payment.
14.   A maxim of recognized practicality is the rule that the expressed exception
or exemption excludes others. Exceptio firm at regulim in casibus non
exceptis.
a.   Thus, under Sec. 77, as well as Sec. 78, until the premium is paid,
and the law has not expressly excepted partial payments, there is
no valid and binding contract. Hence, in the absence of clear
waiver of prepayment in full by the insurer, the insured cannot
collect on the proceeds of the policy.
15.   In the desire to safeguard the interest of the assured, it must not be ignored
that the contract of insurance is primarily a risk-distributing device, a
mechanism by which all members of a group exposed to a particular risk
contribute premiums to an insurer. To ensure payment for losses, the law
mandates all insurance companies to maintain a legal reserve fund in favor
of those claiming under their policies.
a.   It should be understood that the integrity of this fund cannot be
secured and maintained if by judicial fiat partial offerings of
premiums were to be construed as a legal nexus between the
applicant and the insurer despite an express agreement to the
contrary.
b.   What could prevent the insurance applicant from deliberately or
wilfully holding back full premium payment and wait for the risk
insured against to transpire and then conveniently pass on the
balance of the premium to be deducted from the proceeds of the
insurance?
16.   For as long as the current Insurance Code remains unchanged and
partial payment of premiums is not mentioned at all as among the
exceptions provided in Secs. 77 and 78, no policy of insurance can ever
pretend to be efficacious or effective until premium has been fully paid.
17.   Premium is the elixir vitae of the insurance business because by law the
insurer must maintain a legal reserve fund to meet its contingent obligations
to the public, hence, the imperative need for its prompt payment and full
satisfaction
18.   Once payment of premium is left to the whim and caprice of the insured, as
when the courts tolerate the payment of a mere P600.00 as partial
undertaking out of the stipulated total premium of P2,983.50 and the
balance to be paid even after the risk insured against has occurred, as
Violeta have done in this case, on the principle that the strength of
the vinculumjuris is not measured by any specific amount of premium
payment, we will surely wreak havoc on the business and set to naught what
has taken actuarians centuries to devise to arrive at a fair and equitable
distribution of risks and benefits between the insurer and the insured.
19.   The terms of the insurance policy constitute the measure of the insurers
liability. In the absence of statutory prohibition to the contrary, insurance
companies have the same rights as individuals to limit their liability and to
impose whatever conditions they deem best upon their obligations not
inconsistent with public policy. The validity of these limitations is by law
passed upon by the Insurance Commissioner who is empowered to approve
all forms of policies, certificates or contracts of insurance which insurers
intend to issue or deliver. That the policy contract in the case at bench was
approved and allowed issuance simply reaffirms the validity of such policy,
particularly the provision in question.
 015 American Home Assurance Co. v. Chua (Daguman)
June 28,1999 | Davide,Jr, J. | Premiums
PETITIONER: American Home Assurance Company
RESPONDENT: Antonio Chua
SUMMARY: On April 5, 1990, Antonio Chua renewed the fire insurance for
its stock-in-trade of his business, Moonlight Enterprises with American Home
Assurance Company by issuing a check to its agent James Uy who delivered the
Renewal Certificate to him. On April 6, 1990, Moonlight Enterprises was
completely razed by fire. On April 10, 1990, an official receipt was issued and
subsequently, a policy was issued covering March 25 1990 to March 25 1991
Antonio Chua filed an insurance claim with American Home and 4 other co-
insurers (Pioneer Insurance and Surety Corporation, Prudential Guarantee and
Assurance, Inc. and Filipino Merchants Insurance Co) American Home refused
alleging the no premium was paid RTC: favored Antonio Chua for paying by
way of check a day before the fire occurred CA: Affirmed in toto. Won there
was a valid payment of premium, considering that Chua’s check was cashed
after the occurrence of the fire? YES. the renewal certificate issued to Chua
contained the acknowledgment that premium had been paid. It is not disputed
that the check drawn by Chua in favor of AHAC and delivered to its agent was
honored when presented and AHAC forthwith issued its official receipt to Chua
on 10 April 1990. Section 306 of the Insurance Code provides that any insurance
company which delivers a policy or contract of insurance to an insurance agent
or insurance broker shall be deemed to have authorized such agent or broker to
receive on its behalf payment of any premium which is due on such policy or
contract of insurance at the time of its issuance or delivery or which becomes
due thereon. In the instant case, the best evidence of such authority is the fact
that AHAC accepted the check and issued the official receipt for the payment. It
is, as well, bound by its agent’s acknowledgment of receipt of payment. WoN
Chua violated the policy by his submission of fraudulent documents and non-
disclosure of the other existing insurance contracts; and finally? NO. The
submission of the alleged fraudulent documents pertained to Chua’s income tax
returns for 1987 to 1989. Chua, however, presented a BIR certification that he
had paid the proper taxes for the said years. AHAC’s loss adjuster had known all
along of the other existing insurance contracts, yet, he did not use that as basis
for his recommendation of denial. The loss adjuster, being an employee of
AHAC, is deemed a representative of the latter whose awareness of the other
insurance contracts binds AHAC
DOCTRINE: The general rule in insurance laws is that unless the premium is
paid the insurance policy is not valid and binding. The only exceptions are life
and industrial life insurance
Section 306 of the Insurance Code provides that any insurance company which
delivers a policy or contract of insurance to an insurance agent or insurance
broker shall be deemed to have authorized such agent or broker to receive on its
behalf payment of any premium which is due on such policy or contract of
insurance at the time of its issuance or delivery or which becomes due thereon.
Section 78 of the Insurance Code explicitly provides: “An acknowledgment in a
policy or contract of insurance of the receipt of premium is conclusive evidence
of its payment, so far as to make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until the premium is actually paid.”
FACTS:
83.   American Home Assurance Company (AHAC) is a domestic corporation
engaged in the insurance business. In 1990, Chua obtained a fire insurance
from AHAC covering the stock-in trade of his business, Moonlight
Enterprises. The insurance was to expire on 25 March 1990.
84.   5 April 1990, Chua issued a PCIBank Check to AHAC’s agent, for the
renewal of the policy. The check was drawn and deposited in AHAC’s bank
account.
85.   A corresponding official receipt was issued on April 10.
86.   Subsequently, a new insurance policy was issued, whereby AHAC
undertook t indemnify Chua for any damage or loss arising from fire for the
period March 25 1990- March 25 1991
87.   6 April 1990, Moonlight Enterprises was completely razed by fire. Chua
filed an insurance claim with AHAC and 4 other co-insurers (Pioneer,
Prudential, Filipino Merchants and Domestic Insurance- Insurance
Companies)
88.   AHAC refused to honor the insurance despite demands. Chua filed an
action before the trial court against AHAC.
89.   AHAC argued that there was no existing insurance contract when the fire
occurred since Chua did not pay the premium. And even assuming that
there is a contract, Chua violated several conditions: 1. submission of
fraudulent income tax returns and financial statements. 2. Failure to
establish actual loss 3. Failure to notify AHAC of any insurance already
effected to cover the insured goods.
90.   The trial court ruled in favor of Chua. It found Chua paid by way of check a
day before the fire occurred, which was deposited in AHAC’s account.
There was even an acknowledged certificate issued by AHAC’s agent. The
fraudulent documents were limited to a disparity of official receipts inssued
by the BIR and the income tax returns for years 1987 to 1989. As to Chua’s
failure to notify AHAC of other insurance contracts, it held that AHAC
failed to show such fraudulent omission was intentional and fraudulent.
91.   CA affirmed in toto, MR was denied.
92.   [AHAC’s Argument]
93.   AHAC cites the case of Arce v. Capital Insurance & Surety Co., Inc., where
we ruled that unless and until the premium is paid there is no insurance.
AHAC emphasizes that when the fire occurred on 6 April 1990 the
insurance contract was not yet subsisting pursuant to Article 1249 of the
Civil Code, which recognizes that a check can only effect payment once it
 has been cashed. Although Chua testified that he gave the check on 5 April
to a certain James Uy, the check, drawn against a Manila bank and
deposited in a Cagayan de Oro City bank, could not have been cleared by 6
April, the date of the fire. In fact, the official receipt issued for Chua’s
check payment was dated 10 April 1990, four days after the fire occurred.
94.   Citing jurisprudence, AHAC also contends that Chua’s non-disclosure of
the other insurance contracts rendered the policy void. It underscores the
trial court’s neglect in considering the Commission on Audit’s certification
that the BIR receipts submitted by Chua were, in effect, fake since they
were issued to other persons
95.   [Chua’s Argument]
96.   Chua refutes the reason for AHAC’s denial of his claim. As found by the
trial court, AHAC’s loss adjuster admitted prior knowledge of Chua’s
existing insurance contracts with the other insurance companies.
Nonetheless, the loss adjuster recommended the denial of the claim, not
because of the said contracts, but because he was suspicious of the
authenticity of certain documents which Chua submitted in filing his claim.
97.   To bolster his argument, Chua cites Section 66 of the Insurance Code,
which requires the insurer to give a notice to the insured of its intention to
terminate the policy fortyfive days before the policy period ends. In the
instant case, AHAC opted not to terminate the policy. Instead, it renewed
the policy by sending its agent to Chua, who was issued a renewal
certificate upon delivery of his check payment for the renewal of premium.
At this precise moment the contract of insurance was executed and already
in effect. He also claims that it is standard operating procedure in the
provinces to pay insurance premiums by check when collected by insurance
agents.
98.   Hence, these issues.
ISSUE/s:
1.   Won there was a valid payment of premium, considering that Chua’s check
was cashed after the occurrence of the fire? YES. Section 306 of the
Insurance Code provides that any insurance company which delivers a
policy or contract of insurance to an insurance agent or insurance broker
shall be deemed to have authorized such agent or broker to receive on its
behalf payment of any premium which is due on such policy or contract of
insurance at the time of its issuance or delivery or which becomes due
thereon. In the instant case, the best evidence of such authority is the fact
that AHAC accepted the check and issued the official receipt for the
payment. It is, as well, bound by its agent’s acknowledgment of receipt of
payment.
2.   WoN Chua violated the policy by his submission of fraudulent documents
and non-disclosure of the other existing insurance contracts; and finally?
NO. The submission of the alleged fraudulent documents pertained to
Chua’s income tax returns for 1987 to 1989. Chua, however, presented a
BIR certification that he had paid the proper taxes for the said years.
AHAC’s loss adjuster had known all along of the other existing insurance
contracts, yet, he did not use that as basis for his recommendation of denial.
The loss adjuster, being an employee of AHAC, is deemed a representative
of the latter whose awareness of the other insurance contracts binds AHAC
RULING: Whereby, petition is denied.
RATIO:
1.   The general rule in insurance laws is that unless the premium is paid the
insurance policy is not valid and binding. The only exceptions are life
and industrial life insurance. Whether payment was indeed made is a
question of fact which is best determined by the trial court
2.   According to the trial court the renewal certificate issued to Chua contained
the acknowledgment that premium had been paid. It is not disputed that the
check drawn by Chua in favor of AHAC and delivered to its agent was
honored when presented and AHAC forthwith issued its official receipt to
Chua on 10 April 1990. Section 306 of the Insurance Code provides that
any insurance company which delivers a policy or contract of insurance
to an insurance agent or insurance broker shall be deemed to have
authorized such agent or broker to receive on its behalf payment of any
premium which is due on such policy or contract of insurance at the
time of its issuance or delivery or which becomes due thereon.
3.   In the instant case, the best evidence of such authority is the fact that
AHAC accepted the check and issued the official receipt for the
payment. It is, as well, bound by its agent’s acknowledgment of receipt
of payment. Section 78 of the Insurance Code explicitly provides:
“An acknowledgment in a policy or contract of insurance of the
receipt of premium is conclusive evidence of its payment, so far as
to make the policy binding, notwithstanding any stipulation
therein that it shall not be binding until the premium is actually
paid.”
4.   This Section establishes a legal fiction of payment and should be interpreted
as an exception to Section 77. Is Chua guilty of the policy violations
imputed against him? We are not convinced by AHAC’s arguments. The
submission of the alleged fraudulent documents pertained to Chua’s income
tax returns for 1987 to 1989. Chua, however, presented a BIR certification
that he had paid the proper taxes for the said years. The trial court and the
Court of Appeals gave credence to the certification and it being a question
of fact, we hold that said finding is conclusive.
5.   Ordinarily, where the insurance policy specifies as a condition the
disclosure of existing co-insurers, nondisclosure thereof is a violation
that entitles the insurer to avoid the policy. This condition is common in
fire insurance policies and is known as the “other insurance clause.”
The purpose for the inclusion of this clause is to prevent an increase in the
 moral hazard. We have ruled on its validity and the case of Geagonia v.
 
 
Court of Appeals clearly illustrates such principle. However, we see an
exception in the instant case.
6.   Citing Section 29 of the Insurance Code, the trial court reasoned that Chua’s
failure to disclose was not intentional and fraudulent. The application of
Section 29 is misplaced. Section 29 concerns concealment which is
intentional. The relevant provision is Section 75, which provides that:

“A policy may declare that a violation of specified provisions

thereof shall avoid it, otherwise the breach of an immaterial
provision does not avoid the policy. contracts must be upon the
same subject matter and with the same interest and risk.”

7.   Indeed, Chua acquired several co-insurers and he failed to disclose this

information to AHAC. Nonetheless, AHAC is estopped from invoking
this argument. The trial court cited the testimony of AHAC’s loss
adjuster who admitted previous knowledge of the coinsurers.

Thus, COURT:
Q The matter of additional insurance of other companies,
was that ever discussed in your investigation?
A Yes, sir.
Q In other words, from the start, you were aware the
insured was insured with other companies like Pioneer
and so on?
A Yes, Your Honor.
Q But in your report you never recommended the denial of
the claim simply because of the non-disclosure of other
insurance? [sic]
A Yes, Your Honor.
Q In other words, to be emphatic about this, the only
reason you recommended the denial of the claim, you
found three documents to be spurious. That is your only
basis?
A Yes, Your Honor. [Emphasis supplied]

8.   Indubitably, it cannot be said that AHAC was deceived by Chua by the

latter’s non-disclosure of the other insurance contracts when AHAC
actually had prior knowledge thereof. AHAC’s loss adjuster had known
all along of the other existing insurance contracts, yet, he did not use
that as basis for his recommendation of denial. The loss adjuster, being
an employee of AHAC, is deemed a representative of the latter whose
awareness of the other insurance contracts binds AHAC. We, therefore,
hold that there was no violation of the “other insurance” clause by Chua.

 
 016 UCPB GENERAL INSURANCE v. MASAGANA TELAMART (Dim)
June 15, 1999 | J. Pardo | Actual payment of premium is needed
PETITIONER: UCPB General Insurance Co Inc.
RESPONDENT: Masagana Telamart, Inc.
SUMMARY: UCPB issued 5 insurance policies covering Masagana Telamart’s
properties against fire from May 22, 1991 to May 22, 1992. UCPB decided not
to renew the policies upon their expiration and sent notice to Masagana’s
insurance broker. On June 13, 1992, a fire razed the properties of Masagana
covered by those insurance policies. On the same day, Masagana presented 5
checks to UCPB representing premiums for the renewal of the policies. A month
later, Masagana filed a formal claim for indemnification for the properties razed
by the fire. UCPB returned the 5 checks and rejected the claim of Masagana
because the policies had expired and were not renewed when the fire occurred.
Masagana filed a civil complaint against UCPB for the recovery of the value of
the razed properties. The RTC and CA ruled in favor of Masagana, first stating
that in previous practice, Masagana was allowed a 60-90 day credit term for the
renewal of its policies, second, that the acceptance of the late premium payment
suggested an understanding that payment could be made later, and third, that
notice to the broker was not notice to Masagana.The issue before the SC is WoN
the fire insurance polcies had been renewed upon payment of premiums on a
date later than the expiration of the policies. The Court ruled in the negative.
Any insurance policy, other than life, issued originally or on renewal, is not valid
and binding until actual payment of the premium. Any agreement to the contrary
is void. The parties may not agree expressly or impliedly on the extension of
credit or time to pay the premium and consider the policy binding before actual
payment.
policies. Written notice was given to the addresses stated in the policies.
101.  On June 13, 1992, a fire razed Masagana's property covered by three of
the insurance policies UCPB issued. On the same day, Masagana
presented 5 manager’s checks to the cashier of UCPB worth
P225,753.95, representing the premium for the renewal of the policies.
No notice of loss was filed by Masagana under the policies at this time
102.  On July 14, 1992, Masagana filed with UCPB its formal claim for
indemnification of the insured property. On the same day, UCPB returned
to Masagana the five (5) manager's checks that it tendered, and at the
same time rejected Masagana's claim for the reasons (a) that the
policies had expired and were not renewed, and (b) that the fire
occurred on June 13, 1992, before Masagana's tender of premium
payment.
103.  Masagana filed with the RTC of Makati a civil complaint against UCPB for
recovery of P18,645,000.00, representing the face value of the policies
covering Masagana's insured property razed by fire, and for attorney's fees
104.  UCPB filed an answer, stating that the complaint fails to state a cause of
action, and that UCPB was not liable for insurance proceeds under the
policies because at the time of the loss of the property due to fire, the
policies had long expired and were not renewed.
105.  The RTC ruled in favor of Masagana. Upon appeal, the CA affirmed the
ruling, holding that following previous practise, Masagana was allowed
a sixty (60) to ninety (90) day credit term for the renewal of its policies,
and that the acceptance of the late premium payment suggested an
understanding that payment could be made later. Hence the appeal to the
SC.

DOCTRINE: Notwithstanding any agreement to the contrary, no policy or 106.  Masagana submits that the CA correctly ruled that no timely notice of non-
contract of insurance issued by an insurance company is valid and binding unless renewal was sent. The notice of non-renewal sent to broker Zuellig which
and until the premium thereof has been paid, except in the case of a life or an claimed that it verbally notified the insurance agency but not Masagana
industrial life policy. itself did not suffice.

FACTS: [this case is shorter than my attention span] ISSUE/s:

WoN the fire insurance policies had been extended or renewed by an implied
99.   UCPB General Insurance Company Inc. issued five (5) insurance policies credit arrangement though actual payment of premium was tendered on a later
covering Masagana Telamart Inc.'s various property described therein date after the occurrence of the risk insured against. – NO. This is against
against fire, for the period from May 22, 1991 to May 22, 1992. Section 7728 of the Insurance Code.
100.  UCPB evaluated the policies and decided not to renew them upon                                                                                                                        
expiration of their terms on May 22, 1992. UCPB advised Masagana's 28
    Section   77.   An   insurer   is   entitled   to   payment   of   the   premium   as  
broker, Zuellig Insurance Brokers, Inc. of its intention not to renew the
soon   as   the   thing   insured   is   exposed   to   the   peril   insured   against.  
RULING: WHEREFORE, the Court hereby REVERSES and SETS ASIDE the
decision of the Court of Appeals. In lieu thereof, the Court renders judgment
dismissing respondent's complaint and petitioner's counterclaims thereto filed with
the Regional Trial Court, Branch 58, Makati City. Without costs.

RATIO:
60.   The answer is easily found in the Insurance Code. Any insurance policy,
other than life, issued originally or on renewal, is not valid and binding
until actual payment of the premium. Any agreement to the contrary is
void. The parties may not agree expressly or impliedly on the extension of
credit or time to pay the premium and consider the policy binding before
actual payment.

61.   The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo, cited by the CA,
is not applicable. In that case, payment of the premium was in fact actually
made on December 24, 1981, and the fire occurred on January 18, 1982.

62.   In this case, the payment of the premium for renewal of the policies was
tendered on July 13, 1992, a month after the fire occurred on June 13,
1992. The assured did not even give the insurer a notice of loss within a
reasonable time after occurrence of the fire.

 
   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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,
  or
  whenever
  under
  the
  broker
  and
  agency
 
agreements
 with
 duly
 licensed
 intermediaries,
 a
 ninety
 (90)-­‐day
 credit
 
extension
 is
 given.
 No
 credit
 extension
 to
 a
 duly
 licensed
 intermediary
 
should
 exceed
 ninety
 (90)
 days
 from
 date
 of
 issuance
 of
 the
 policy.
 
017 UCPB GENERAL INSURANCE vs. MASAGANA TELEMART (Eleazar)
April 4, 2001 | Davide, C.J. | Premium Payment
PETITIONERS: UCPB GENERAL INSURANCE CO. INC.
RESPONDENTS: MASAGANA TELAMART, INC.
SUMMARY: Masagana obtained from UCPB five (5) insurance policies on its
Manila properties. The policies were effective from May 22, 1991 to May 22,
1992. On June 13, 1992, Masagana’s properties were razed by fire. On July 13,
1992, Masagana tendered five checks for as renewal premium payments. A
receipt was issued. On July 14, 1992, Masagana made its formal demand for
indemnification for the burned insured properties. UCPB then rejected
Masagana’s claims under the argument that the fire took place before the tender
of payment. Hence Masagana filed a case. The Court of Appeals disagreed with
UCPB’s argument that Masagana’s tender of payment of the premiums on 13
July 1992 did not result in the renewal of the policies, having been made within
the effective date of renewal as provided under Policy Condition No. 26, which
states: 26. Renewal Clause. -- Unless the company at least 45 days in advance of
the end of the policy period mails or delivers to the assured at the address shown
in the policy notice of its intention not to renew the policy or to condition its
renewal upon reduction of limits or elimination of coverages, the assured shall
be entitled to renew the policy upon payment of the premium due on the
effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists
that Masagana, which had procured insurance coverage from UCPB for a
number of years, had been granted a 60 to 90-day credit term for the renewal of
the policies.
The Supreme Court ruled against UCPB in the first case on the issue of whether
the fire insurance policies issued by UCPB to the Masagana covering the period
from May 22, 1991 to May 22, 1992 had been extended or renewed by an
implied credit arrangement though actual payment of premium was tendered on
a later date and after the occurrence of the risk insured against. UCPB filed a
motion for reconsideration. The Supreme Court, upon observing the facts,
affirmed that there was no valid notice of non-renewal of the policies in
question, as there is no proof at all that the notice sent by ordinary mail was
received by Masagana. Also, the premiums were paid within the grace period.
The issue in this case is whether Section 77 of the Insurance Code of 1978 must
be strictly applied to UCPB’s advantage despite its practice of granting a 60- to
90-day credit term for the payment of premiums? The SC said no. Section 77 of
the Insurance Code provides: No policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has
been paid. An exception to this section is Section 78 which provides: Any
acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until premium
is actually paid. Makati Tuscany v Court of Appeals- Section 77 may not apply
if the parties have agreed to the payment in installments of the premium and
partial payment has been made at the time of loss. Section 78 allows waiver by
the insurer of the condition of prepayment and makes the policy binding despite
the fact that premium is actually unpaid.
Section 77 does not expressly prohibit an agreement granting credit extension.
At the very least, both parties should be deemed in estoppel to question the
arrangement they have voluntarily accepted.
The Tuscany case has provided another exception to Section 77 that the insurer
may grant credit extension for the payment of the premium. If the insurer has
granted the insured a credit term for the payment of the premium and loss occurs
before the expiration of the term, recovery on the policy should be allowed even
though the premium is paid after the loss but within the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an
insurance contract to provide a credit term within which to pay the premiums.
That agreement is not against the law, morals, good customs, public order or
public policy. The agreement binds the parties.
It would be unjust if recovery on the policy would not be permitted against
UCPB, which had consistently granted a 60- to 90-day credit term for the
payment of premiums. Estoppel bars it from taking refuge since Masagana
relied in good faith on such practice. Estoppel then is the fifth exception.
DOCTRINE: There are exceptions to IC Sec. 77.
1.   In case of a life or industrial life policy whenever the grace period
provision applies [Sec. 77]
2.   Any acknowledgment of the receipt of premiumis conclusive evidence
of payment [Sec. 78]
3.   If the parties have agreed to the payment ininstallments of the premium
and partial payment has been made at the time of loss [Makati Tuscany
Condominium v. CA]
4.   The insurer may grant credit extension for the payment of the premium
[Makati Tuscany Condominium]
5.   Estoppel
Sec. 77 merely precludes the parties from stipulating that the policy is valid even
if premiums are not paid, but does not expressly prohibit an agreement granting
credit extension, and such an agreement is not contrary to morals, good customs,
public order or public policy.
FACTS:
1.   In the SC’s decision of 15 June 1999 in this case, they reversed and set
aside the assailed decision of the Court of Appeals, which affirmed with
modification the judgment of the trial court
a.   (a) allowing Masagana to consign the sum of P225,753.95 as full
payment of the premiums for the renewal of the five insurance
 policies on Respondents properties;
b.   (b) declaring the replacement-renewal policies effective and
binding from 22 May 1992 until 22 May 1993; and
c.   (c) ordering Petitioner to pay Respondent P18,645,000.00 as
indemnity for the burned properties covered by the renewal-
replacement policies. The modification consisted in the (1)
deletion of the trial courts declaration that three of the policies
were in force from August 1991 to August 1992; and (2) reduction
of the award of the attorneys fees from 25% to 10% of the total
amount due the Respondent.
2.   The material operative facts upon which the appealed judgment was based
are summarized by the Court of Appeals in its assailed decision as follows.
a.   Masagana obtained from UCPB five (5) insurance policies on its
properties in Pasay City and Manila.
b.   All 5 policies reflect on their face the effectivity term: "from 4:00
P.M. of 22 May 1991 to 4:00 P.M. of 22 May 1992."
c.   On June 13, 1992, Masagana's properties located at 2410-2432 and
2442-2450 Taft Avenue, Pasay City were razed by fire.
d.   On July 13, 1992, Masagana tendered, and UCPB accepted, five
(5) Equitable Bank Manager's Checks in the total amount of
P225,753.45 as renewal premium payments for which Official
Receipt Direct Premium No. 62926 was issued by UCPB.
e.   On July 14, 1992, Masagana made its formal demand for
indemnification for the burned insured properties. On the same
day, UCPB returned the five (5) manager's checks stating in its
letter that it was rejecting Masagana's claim on the following
grounds:
i.   "a) Said policies expired last May 22, 1992 and were not
renewed for another term;
ii.   b) Defendant had put plaintiff and its alleged broker on
notice of non-renewal earlier; and
iii.   c) The properties covered by the said policies were
burned in a fire that took place last June 13, 1992, or
before tender of premium payment.”
3.   Hence Masagana filed this case.
4.   The Court of Appeals disagreed with UCPB’s stand that Masagana’s tender
of payment of the premiums on 13 July 1992 did not result in the renewal of
the policies, having been made beyond the effective date of renewal as
provided under Policy Condition No. 26, which states:
a.   26. Renewal Clause. -- Unless the company at least forty five days
in advance of the end of the policy period mails or delivers to the
assured at the address shown in the policy notice of its intention
not to renew the policy or to condition its renewal upon reduction
of limits or elimination of coverages, the assured shall be entitled
to renew the policy upon payment of the premium due on the
effective date of renewal.
5.   Both the Court of Appeals and the trial court found that sufficient proof
exists that Masagana, which had procured insurance coverage from UCPB
for a number of years, had been granted a 60 to 90-day credit term for the
renewal of the policies. Such a practice had existed up to the time the claims
were filed.
6.   In the decision of 15 June 1999, the SC defined the main issue to be
whether the fire insurance policies issued by UCPB to the Masagana
covering the period from May 22, 1991 to May 22, 1992 had been extended
or renewed by an implied credit arrangement though actual payment of
premium was tendered on a later date and after the occurrence of the (fire)
risk insured against.
7.   The Court resolved this issue in the negative in view of Section 77 of the
Insurance Code and the decisions in Valenzuela v. Court of Appeals; South
Sea Surety and Insurance Co., Inc. v. Court of Appeals; and Tibay v. Court
of Appeals. Accordingly, we reversed and set aside the decision of the Court
of Appeals.
8.   Masagana seasonably filed a motion for the reconsideration of the adverse
verdict. It alleges in the motion that the Court had made in the decision their
own findings of facts, which are not in accord with those of the trial court
and the Court of Appeals.
9.   The courts below correctly found that no notice of non-renewal was made
within 45 days before 22 May 1992, or before the expiration date of the fire
insurance policies. Thus, the policies in question were renewed by operation
of law and were effective and valid on 30 June 1992 when the fire
occurred, since the premiums were paid within the 60- to 90-day credit
term.
10.   Masagana likewise disagrees with the Court’s ruling that parties may
neither agree expressly or impliedly on the extension of credit or time to pay
the premium nor consider a policy binding before actual payment. It urges
the Court to take judicial notice of the fact that despite the express provision
of Section 77 of the Insurance Code, extension of credit terms in premium
payment has been the prevalent practice in the insurance industry.
11.   Most insurance companies, including UCPB, extend credit terms because
Section 77 of the Insurance Code is not a prohibitive injunction but is
merely designed for the protection of the parties to an insurance
contract. The Code itself, in Section 78, authorizes the validity of a policy
notwithstanding non-payment of premiums.
12.   Masagana also asserts that the principle of estoppel applies to UCPB.
Despite its awareness of Section 77 UCPB persuaded and induced
Masagana to believe that payment of premium on the 60- to 90-day credit
term was perfectly alright; in fact it accepted payments within 60 to 90 days
after the due dates.
13.   By extending credit and habitually accepting payments 60 to 90 days from
the effective dates of the policies, UCPB has implicitly agreed to modify the
tenor of the insurance policy and in effect waived the provision therein that
it would pay only for the loss or damage in case the same occurred after
 payment of the premium.
14.   UCPB filed an opposition to Masagana’s motion for reconsideration. It
argues that both the trial court and the Court of Appeals overlooked the fact
that on 6 April 1992 UCPB sent by ordinary mail to Masagana a notice of
non-renewal and sent by personal delivery a copy thereof to Masagana’s
broker, Zuellig. Both courts likewise ignored the fact that Masagana was
fully aware of the notice of non-renewal. A reading of Section 66 of the
Insurance Code readily shows that in order for an insured to be entitled to a
renewal of a non-life policy, payment of the premium due on the effective
date of renewal should first be made. Masagana’s argument that Section 77
is not a prohibitive provision finds no authoritative support.
15.   Upon a meticulous review of the records and reevaluation of the issues
raised in the motion for reconsideration and the pleadings filed thereafter by
the parties, the Court resolved to grant the motion for reconsideration.
16.   The following facts, as found by the trial court and the Court of Appeals,
are indeed duly established:
a.   For years, UCPB had been issuing fire policies to the Masagana,
and these policies were annually renewed.
b.   UCPB had been granting Masagana a 60- to 90-day credit term
within which to pay the premiums on the renewed policies.
c.   There was no valid notice of non-renewal of the policies in
question, as there is no proof at all that the notice sent by ordinary
mail was received by Masagana, and the copy thereof allegedly
sent to Zuellig was ever transmitted to Masagana.
d.   The premiums for the policies in question in the aggregate amount
of P225,753.95 were paid by Masagana within the 60- to 90-day
credit term and were duly accepted and received by UCPB cashier.
ISSUE/s
WoN Section 77 of the Insurance Code must be strictly applied to UCPB’s
advantage despite its practice of granting a 60- to 90-day credit term for the payment
of premiums.
RULING: WHEREFORE, the Decision in this case of 15 June 1999 is
RECONSIDERED and SET ASIDE, and a new one is hereby entered DENYING the
instant petition for failure of UCPB to sufficiently show that a reversible error was
committed by the Court of Appeals in its challenged decision, which is hereby
AFFIRMED in toto.
RATIO:
1.   Section 77 of the Insurance Code of 1978 provides:
a.   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.
2.   This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance
Code) promulgated on 18 December 1974. In turn, this Section has its
source in Section 72 of Act No. 2427 otherwise known as the Insurance Act
as amended by R.A. No. 3540, approved on 21 June 1963, which reads:
a.   SEC. 72. An insurer is entitled to payment of premium as soon as
the thing insured is exposed to the peril insured against, unless
there is clear agreement to grant the insured credit extension of the
premium due. No policy issued by an insurance company is valid
and binding unless and until the premium thereof has been paid.
(Underscoring supplied)
3.   It can be seen at once that Section 77 does not restate the portion of Section
72 expressly permitting an agreement to extend the period to pay the
premium. But there exceptions to Sec. 77.
4.   The first exception is provided by Section 77 itself, and that is, in case of a
life or industrial life policy whenever the grace period provision applies.
5.   The second is that covered by Section 78 of the Insurance Code, which
provides:
a.   SEC. 78. Any acknowledgment in a policy or contract of insurance
of the receipt of premium is conclusive evidence of its payment, so
far as to make the policy binding, notwithstanding any stipulation
therein that it shall not be binding until premium is actually paid.
6.   A third exception was laid down in Makati Tuscany
Condominium Corporation vs. Court of Appeals, wherein the Court ruled
that Section 77 may not apply if the parties have agreed to the payment in
installments of the premium and partial payment has been made at the time
of loss. Thus:
a.   We hold that the subject policies are valid even if the premiums
were paid on installments. The records clearly show that the
petitioners and private respondent intended subject insurance
policies to be binding and effective notwithstanding the staggered
payment of the premiums. The initial insurance contract entered
into in 1982 was renewed in 1983, then in 1984. In those three
years, the insurer accepted all the installment payments. Such
acceptance of payments speaks loudly of the insurers intention to
honor the policies it issued to petitioner. Certainly, basic principles
of equity and fairness would not allow the insurer to continue
collecting and accepting the premiums, although paid on
installments, and later deny liability on the lame excuse that the
premiums were not prepaid in full.
7.   Not only that. In Tuscany, the Court also quoted with approval the
following pronouncement of the Court of Appeals in its Resolution denying
the motion for reconsideration of its decision:
a.   While the import of Section 77 is that prepayment of premiums is
strictly required as a condition to the validity of the contract, We
 are not prepared to rule that the request to make installment
payments duly approved by the insurer would prevent the entire
contract of insurance from going into effect despite payment and
acceptance of the initial premium or first installment. Section 78 of
the Insurance Code in effect allows waiver by the insurer of the
condition of prepayment by making an acknowledgment in the
insurance policy of receipt of premium as conclusive evidence of
payment so far as to make the policy binding despite the fact that
premium is actually unpaid. Section 77 merely precludes the
parties from stipulating that the policy is valid even if premiums
are not paid, but does not expressly prohibit an agreement granting
credit extension, and such an agreement is not contrary to morals,
good customs, public order or public policy. So is an
understanding to allow insured to pay premiums in installments not
so prescribed. At the very least, both parties should be deemed in
estoppel to question the arrangement they have voluntarily
accepted.
8.   By the approval of the aforequoted findings and conclusion of the Court of
Appeals, Tuscany has provided a fourth exception to Section 77, namely,
that the insurer may grant credit extension for the payment of the premium.
9.   This simply means that if the insurer has granted the insured a credit term
for the payment of the premium and loss occurs before the expiration of the
term, recovery on the policy should be allowed even though the premium is
paid after the loss but within the credit term.
10.   Moreover, there is nothing in Section 77 which prohibits the parties in an
insurance contract to provide a credit term within which to pay the
premiums. That agreement is not against the law, morals, good customs,
public order or public policy. The agreement binds the parties. Article 1306
of the Civil Code provides:
a.   ART. 1306. The contracting parties may establish such stipulations
clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs,
public order, or public policy.
11.   Finally in the instant case, it would be unjust and inequitable if recovery on
the policy would not be permitted against UCPB, which had consistently
granted a 60- to 90-day credit term for the payment of premiums despite its
full awareness of Section 77. Estoppel bars it from taking refuge under said
Section, since Masagana relied in good faith on such practice. Estoppel then
is the fifth exception to Section 77.

 
 
 18 SOUTH SEA SURETY AND INSURANCE COMPANY INC. v. CA insurance policy for the plaintiffs logs, he is deemed to have been authorized by
(HORTALEZA) the South Sea Surety and Insurance Co., Inc. to receive the premium which is
June, 02, 1995 | VITUG, J. | PREMIUM PAYMENT due on its behalf. When therefore the insured logs were lost, the insured had
already paid the premium to an agent of the South Sea Surety and Insurance
PETITIONER: South Sea Surety and Insurance Company Inc. Co., Inc., which is consequently liable to pay the insurance proceeds under the
RESPONDENTS: Hon.Court of Appeals and Valenzuela Hardwood and Industrial policy it issued to the insured.
Supply Inc. DOCTRINE: Sec. 306. . . . Any insurance company which delivers to an insurance
SUMMARY: (take note of the dates!) Valenzuela Hardwood and Industrial Supply agent or insurance broker a policy or contract of insurance shall be deemed to have
Inc. (Hardwood) undertook to board lauan round logs numbering 940 on January 16 authorized such agent or broker to receive on its behalf payment of any
1984 with Seven Brothers. On January 20 1984 the logs were then insured with premium which is due on such policy of contract of insurance at the time of its
South Sea Surety and Insurance Company Inc. (South Sea) for 2 million pesos. The issuance or delivery or which becomes due thereon.
logs were then boarded into vessel M/V Seven Ambassador owned by Seven (the doctrine in my own words) When an insurer delivers the insurance policy to
Brothers Shipping Corporation. On January 24 1984, Hardwood gave a check to an individual or a person he/she is deemed to have been authorized by the
Victorio Chua who works as an administrative assistant for the past ten years and an insurer to receive the premium which is due on its behalf. Thus when the
agent for less than ten years of the Columbia Insurance Brokers, Ltd. The M/V payment is made to the agent it is deemed as if made to the insurer himself.
Seven Ambassador ultimately sank on January 25 1984, and led to Hardwood
claiming upon the obligations of South Sea to pay the value of the loss logs. South FACTS:
Sea denies the claim on the premise that they only received on January 30 1984 a 1.   Two issues on the subject of insurance are raised in this petition, that assails
check for P5,625.00 serving as the Payment for the Premium agreed upon. The the decision, that assails the decision of the Court of Appeals. (in CA G.R.
refusal of South Sea to indemnify Hardwood led to the filing of the case. Hardwood NO. CV- 20156), the first dealing on the requirement of premium
and South Sea argue on whether Chua was acting as an agent for the insured payment and the second relating to the agency relationship of parties
(Hardwood) or the insurer (South Sea). South Sea claims that since Chua received under that contract.
the insurance premiums as an agent of the Columbia Insurance Broker, acted as an 2.   It appears that on 16 January 1984, Valenzuela Hardwood and Industrial
agent of the insured under Section 301 of the insurance code: Sec. 301.”Any person Supply, Inc. entered into an agreement with the defendant Seven Brothers
who for any compensation, commission or other thing of value, acts, or aids in whereby the latter undertook to load on board its vessel M/V Seven
soliciting, negotiating or procuring the making of any insurance contract or in Ambassador the former's lauan round logs numbering 940 at the port of
placing risk or taking out insurance, on behalf of an insured other than himself, shall Maconacon, Isabela for shipment to Manila.
be an insurance broker within the intent of this Code, and shall thereby become liable 3.   On 20 January 1984, plaintiff insured the logs, against loss and/or,
to all the duties requirements, liabilities and penalties to which an insurance broker is damage with defendant South Sea Surety and Insurance Co., Inc. for
subject.” while Hardwood claims under the second paragraph of Sec 306 of the P2,000,000.00 end the latter issued its Marine Cargo Insurance Policy
insurance code Sec. 306. “. . . Any insurance company which delivers to an No. 84/24229 for P2,000,000.00 on said date.
insurance agent or insurance broker a policy or contract of insurance shall be 4.   On 24 January 1984, the plaintiff gave the check in payment of the
deemed to have authorized such agent or broker to receive on its behalf premium on the insurance policy to Mr. Victorio Chua.
payment of any premium which is due on such policy of contract of insurance at 5.   In the meantime, the said vessel M/V Seven Ambassador sank on 25
the time of its issuance or delivery or which becomes due thereon”. In this January 1984 resulting in the loss of the plaintiffs insured logs.
petition for review on certiorari brought by South Sea Surety and Insurance Co., Inc 6.   On 30 January 1984, a check for P5,625.00 to cover payment of the
it argues that it likewise should have been freed from any liability to Hardwood. The premium and documentary stamps due on the policy was tendered to the
Issue was WoN the appellate court erred (a) for having Supposedly disregarded insurer but was not accepted. Instead, the South Sea Surety and Insurance
Section 7729 of the insurance Code and (b) for holding Victorio Chua to have been an Co., Inc. cancelled the insurance policy it issued as of the date of inception
authorized representative of the insurer.? NO to both,When the appellant South for non payment of the premium due in accordance with Section 77 of the
Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine cargo Insurance Code.
7.   On 2 February 1984, plaintiff demanded from defendant South Sea Surety

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
29 and Insurance Co., Inc. the payment of the proceeds of the policy but the

 Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the latter denied liability under the policy. Plaintiff likewise filed a formal
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,
claim with defendant Seven Brothers Shipping Corporation for the value of
except in the case of a life or an industrial life policy whenever the grace period provision applies.
 
the lost logs but the latter denied the claim.
8.   In its decision, dated 11 May 1988, the trial court rendered judgment in
favor of plaintiff Hardwood.
9.   In the decision the court dismissed the claims against the Seven Brothers
Shipping corporation because there was a stipulation exempting them from
liability and they were deemed here to be a private carrier (only relevant
information about the shipping corporation is this)
10.   In this petition for review on certiorari brought by South Sea Surety and
Insurance Co., Inc., argues that it likewise should have been freed from any
liability to Hardwood. It faults the appellate court (a) for having Supposedly
disregarded Section 77 of the insurance Code and (b) for holding Victorio
Chua to have been an authorized representative of the insurer.
a.   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.
11.   No attempt becloud the issues can disguise the fact that the sole question
raised in the instant petition is really evidentiary in nature, i.e., whether
or not Victorio Chua, in receiving the check for the insurance premium
prior to the occurrence of the risk insured against has so acted as an
agent of South Sea. The appellate court, like the trial court, has found in
the affirmative. Said the appellate court:
a.   In the instant case, the Marine Cargo Insurance Policy No.
84/24229 was issued by defendant insurance company on 20
January 1984. At the time the vessel sank on 25 January 1984
resulting in the loss of the insured logs, the insured had already
delivered to Victorio Chua the check in payment of premium.
But, as Victorio Chua testified, it was only in the morning of 30
January 1984 or 5 days after the vessel sank when his
messenger tendered the check to defendant South Sea Surety
and Insurance Co., Inc.
b.   Appellant surety company insists that Mr. Chua is an
administrative assistant for the past ten years and an agent for less
than ten years of the Columbia Insurance Brokers, Ltd. He is paid a
salary as a administrative assistant and a commission as agent
based on the premiums he turns over to the broker. Appellant
therefore argues that Mr. Chua, having received the insurance
premiums as an agent of the Columbia Insurance Broker, acted as
an agent of the insured under Section 301 of the Insurance Code
which provides as follows:
i.   Sec. 301. Any person who for any compensation,
commission or other thing of value, acts, or aids 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.
c.   The appellees, upon the other hand, claim that the second
paragraph of Section 306 of the Insurance Code provide as
follows:
i.   Sec. 306. . . . Any insurance company which
delivers to an insurance agent or insurance broker a policy
or contract of insurance shall be deemed to have
authorized such agent or broker to receive on its behalf
payment of any premium which is due on such policy of
contract of insurance at the time of its issuance or delivery
or which becomes due thereon.
ISSUE/s:
1.   WoN the appellate court erred (a) for having Supposedly disregarded
Section 77 of the insurance Code and (b) for holding Victorio Chua to have
been an authorized representative of the insurer.? No to both,When the
appellant South Sea Surety and Insurance Co., Inc. delivered to Mr.
Chua the marine cargo insurance policy for the plaintiffs logs, he is
deemed to have been authorized by the South Sea Surety and Insurance
Co., Inc. to receive the premium which is due on its behalf. When
therefore the insured logs were lost, the insured had already paid the
premium to an agent of the South Sea Surety and Insurance Co., Inc.,
which is consequently liable to pay the insurance proceeds under the
policy it issued to the insured.
RULING: WHEREFORE, the resolution, dated 01 February 1993, granting due
course to the petition is RECALLED, and the petition is DENIED. Costs against
petitioner.
RATIO:
1.   Undoubtedly, the payment of the premium is a condition precedent to, and
essential for, the efficaciousness of the contract. The only two statutorily
provided exceptions are (a) in case the insurance coverage relates to life or
industrial life (health) insurance when a grace period applies and (b) when
the insurer makes a written acknowledgment of the receipt of premium, this
acknowledgment being declared by law to be then conclusive evidence of
the premium payment (Secs. 77-78, Insurance Code). The appellate court,
contrary to what the petition suggests, did not make any pronouncement to
the contrary. Indeed, it has said:
a.   Concerning the issue as to whether there is a valid contract of
insurance between plaintiff-appellee and defendant-appellant
South Sea Surety and Insurance Co., Inc., Section 77 of the
 Insurance Code explicitly provides that notwithstanding any
agreement to the contrary, no policy issued by an insurance
company is valid and binding unless and until premium thereof has
been paid. It is therefore important to determine whether at the
time of the loss, the premium was already paid
2.   On cross-examination in behalf of South Sea Surety and Insurance Co., Inc.
Mr. Chua testified that the marine cargo insurance policy for the plaintiff's
logs was delivered to him on 21 January 1984 at his office to be
delivered to the plaintiff.
3.   When the appellant South Sea Surety and Insurance Co., Inc. delivered to
Mr. Chua the marine cargo insurance policy for the plaintiffs logs, he is
deemed to have been authorized by the South Sea Surety and Insurance
Co., Inc. to receive the premium which is due on its behalf.
4.   When therefore the insured logs were lost, the insured had already paid
the premium to an agent of the South Sea Surety and Insurance Co.,
Inc., which is consequently liable to pay the insurance proceeds under
the policy it issued to the insured

 

 
 
 019 GAISANO v. DEVELOPMENT INSURANCE (Fordan)
Feb. 27, 2017 | Jardeleza, J. | Payment of insurance premiums
PETITIONER: Jaime T. Gaisano
RESPONDENTS: Development Insurance and Surety Corporation
SUMMARY: 2. On Sept. 27, 1996, Development Insurance issued a
comprehensive commercial vehicle policy to Gaisano of P1.5M over his vehicle,
Mitsubishi Montero for 1 year commencing on said date. It also issued 2 other
commercial vehicle policies to Gaisano covering 2 other motor vehicles for the
same period. A statement of account was sent to Noah’s Ark, Gaisano’s
company, wherein it immediately processed and issued a check for the payment
of the premiums. However, Trans-Pacific, agent of Development Insurance,
informed Noah’s Ark that it would pick-up the check the following day since
there was a celebration in the company. Meanwhile, on the evening of Sept. 27,
while under the custody of Pacquing, Noah’s Ark Marketing Manager, the
vehicle was stolen in SM Megamall. The incident was reported to the PNP and
despite the search and retrieval efforts, the vehicle was not recovered. Oblivious
of the incident, Trans-Pacific did picked-up the check on Sept. 28, issued an OR,
and deposited it to Metrobank on Oct. 1. Upon notice from Pacquing, Gaisano
reported the loss and and filed a claim with Development Insurance for the
insurance proceeds of P1.5M. However, Development Insurance denied the
claim on the ground that there was no insurance contract since non-payment of
the premium rendered the policy ineffective. The premium was received only on
Oct. 2, 1996, and there was no known loss covered by the policy to which the
payment could be applied.. Gaisano then filed a complaint for collection of sum
of money and damages with the RTC. RTC ruled in favor of Gaisano. However,
the CA reversed the decision. Hence, the current petition.
The issue is whether or not there is a binding insurance contract between
Gaisano and Development Insurance. NO. The SC held that just like any other
contract, insurance contract requires a cause or consideration. The consideration
is the premium, which must be paid at the time and in the way and manner
specified in the policy. If not so paid, the policy will lapse and be forfeited by its
own terms. The general rule in insurance laws is that unless the premium is paid,
the insurance policy is not valid and binding pursuant to Sec. 77 of the Insurance
Code. 4. In this case, there is no dispute that the check was delivered to and was
accepted by Trans-Pacific, only on Sept. 28. No payment of premium had thus
been made at the time of the loss of the vehicle on Sept. 27. However, there are
exceptions to the rule that no insurance contract takes effect unless premium is
paid as summarized in UCPB General Insurance Co., Inc. v. Masagana
Telamart, Inc. (kindly see doctrine). In this case, the insurance policy in question
does not fall under the 1st to 3rd exceptions laid out in UCPB General Insurance
Co., Inc.: (1) the policy is not a life or industrial life policy; (2) the policy does
not contain an acknowledgment of the receipt of premium but merely a
statement of account on its face; and (3) no payment of an installment was made
at the time of loss on Sept. 27. It does not also falls in the 4th and 5th exceptions
since Gaisano failed to establish the fact of a grant by Development Insurance of
a credit term in his favor, or that the grant has been consistent. While there was
mention of a credit agreement between Trans-Pacific and Development
Insurance, such arrangement was not proven and was internal between agent and
principal. Under the principle of relativity of contracts, contracts bind the parties
who entered into it. It cannot favor or prejudice a third person, even if he is
aware of the contract and has acted with knowledge. Moreover, the policy itself
states that the insured's application for the insurance is subject to the payment of
the premium. There is no waiver of pre-payment, in full or in installment, of the
premiums under the policy. Consequently, Development Insurance cannot be
placed in estoppel. Thus, SC find that Gaisano is not entitled to the insurance
proceeds because no insurance policy became effective for lack of premium
payment.
DOCTRINE: The general rule in insurance laws is that unless the premium is
paid, the insurance policy is not valid and binding pursuant to Sec. 77 of the
Insurance Code. However, UCPB General Insurance Co., Inc. v. Masagana
Telamart, Inc., summarized the following exceptions:
1.  in case of life or industrial life policy, whenever the grace period provision
applies, as expressly provided by Sec. 77 itself;
2.  where the insurer acknowledged in the policy or contract of insurance itself
the receipt of premium, even if premium has not been actually paid, as
expressly provided by Sec. 78 itself;
3.  where the parties agreed that premium payment shall be in installments and
partial payment has been made at the time of loss, as held in Makati
Tuscany Condominium Corp. v. Court of Appeals;
4.  where the insurer granted the insured a credit term for the payment of the
premium, and loss occurs before the expiration of the term, as held in
Makati Tuscany Condominium Corp.; and
5.  where the insurer is in estoppel as when it has consistently granted a 60-to
90-day credit term for the payment of premiums.
FACTS:
107.  Petitioner Jaime T. Gaisano (Gaisano) was the registered owner of a 1992
Mitsubishi Montero with plate number GTJ 777 (vehicle) while
respondent Development Insurance and Surety Corporation (Development
Insurance) is a domestic corporation engaged in the insurance business.
108.  On Sept. 27, 1996, Development Insurance issued a comprehensive
commercial vehicle policy to Gaisano of P1.5M over the vehicle for 1 year
commencing on Sept. 27, 1996. It also issued 2 other commercial vehicle
policies to Gaisano covering 2 other motor vehicles for the same period.
109.  To collect the premiums, Trans-Pacific Underwriters Agency (Trans-
Pacific), agent of Development Insurance, issued a statement of account to
Gaisano’s company, Noah’s Ark Merchandising (Noah’s Ark).
110.  Noah's Ark immediately processed the payments and issued a Far East Bank
 check (of P140,893.50) dated Sept. 27, 1996 payable to Trans Pacific on
the same day. The check represents payment for the 3 insurance policies,
with P55,620.60 for the premium and other charges over the vehicle.
111.  However, nobody from Trans Pacific picked up the check that day (Sept.
27) because its president and general manager, Rolando Herradura, was
celebrating his birthday. Trans Pacific informed Noah's Ark that its
messenger would get the check the next day, Sept. 28.
112.  Meanwhile, in the evening of Sept. 27, while under the official custody of
Noah's Ark marketing manager Achilles Pacquing (Pacquing) as a service
company vehicle, the vehicle was stolen in the vicinity of SM Megamall at
Ortigas, Mandaluyong City.
113.  Pacquing reported the loss to the PNP Traffic Management Command at
Camp Crame in Quezon City. Despite search and retrieval efforts, the
vehicle was not recovered.
114.  Oblivious of the incident, Trans-Pacific picked up the check the next day
(Sept. 28). It issued an OR (dated Sept. 28) acknowledging the receipt of
the premium and other charges over the vehicle. The check was then
deposited with Metrobank for encashment on Oct. 1 which was the same
day that Pacquing informed Gaisano of the vehicle's loss.
115.  Thereafter, Gaisano reported the loss and filed a claim with Development
Insurance for the insurance proceeds of P1.5M. However, Development
Insurance denied the claim on the ground that there was no insurance
contract.
116.  Gaisano, through counsel, sent a final demand but Development Insurance
still refused to pay the insurance proceeds or return the premium paid on the
vehicle. Thus, Gaisano filed a complaint for collection of sum of money and
damages with the RTC.
117.  In its Answer, Development Insurance asserted that the nonpayment of the
premium rendered the policy ineffective. The premium was received only
on Oct. 2, 1996, and there was no known loss covered by the policy to
which the payment could be applied.
118.  The RTC ruled in favor of Gaisano It considered the premium paid as of
Sept. 27, even if the check was received only on Sept. 28 because (1) Trans-
Pacific, agent, acknowledged payment of the premium on that date (Sept.
27), and (2) the check issued was honored in acknowledgment of the
authority of the agent to receive it.
119.  On appeal, the CA reversed the decision of the RTC. It upheld
Development Insurance’s position that an insurance contract becomes valid
and binding only after the premium is paid pursuant to Sec. 77 of the
Insurance Code. It found that the premium was not yet paid at the time of
the loss on Sept. 27, but only a day after, when the check was picked up by
TransPacific. It also found that none of the exceptions to Sec. 77 obtains in
this case. Nevertheless, the CA ordered Development Insurance to return
the premium it received in of P55,620.60, with interest at the rate of 6% per
annum from the date of the denial of the claim on Oct. 9, 1996 until
payment.
120.  Hence, the current petition. Gaisano argues that:
a.   there was a valid and binding insurance contract between him and
Development Insurance;
b.   it comes within the exceptions to the rule in Sec. 77 of the Insurance
Code that no contract of insurance becomes binding unless and until
the premium thereof has been paid;
c.   the prohibitive tenor of Sec. 77 does not apply because the parties
stipulated for the payment of premiums wherein the parties intended
the contract of insurance to be immediately effective upon issuance,
despite nonpayment of the premium, because Development Insurance
trusted him;
d.   Development Insurance waived its right to a prepayment in full of the
terms of the policy, and is in estoppel;
e.   assuming he is not entitled to recover insurance proceeds but only to
the return of the premiums paid, then he should be able to recover the
full P140,893.50 and not merely P55,620.60 since the insurance policy
covered 3 vehicles yet Development Insurance's intention was merely
to disregard the contract for only the lost vehicle. Thus, the principle
of mutuality of contracts is violated, at his expense.
ISSUE: Whether or not there is a binding insurance contract between Gaisano
and Development Insurance would be binding. – NO, since there was no payment
of premium that has been made at the time of the loss of the vehicle on Sept. 27 and
the circumstances does not fall into any of the exceptions noted in the case of UCPB
General Insurance Co., Inc.
RULING: The petition is denied. The assailed decision of the CA and the
Resolution are affirmed with the modification that Development Insurance should
return the P55,620.60 with the legal interest computed at the rate of 6% per annum
reckoned from July 7, 1997 until finality of this judgment. Thereafter, the total
amount shall earn interest at the rate of 6% per annum from the finality of this
judgment until its full satisfaction.
RATIO:
63.   Insurance is a contract whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an
unknown or contingent event. Just like any other contract, it requires a
cause or consideration. The consideration is the premium, which must
be paid at the time and in the way and manner specified in the policy. If
not so paid, the policy will lapse and be forfeited by its own terms.
64.   The law, however, limits the parties' autonomy as to when payment of
premium may be made for the contract to take effect. The general rule in
insurance laws is that unless the premium is paid, the insurance policy
is not valid and binding. Section 77 of the Insurance Code, applicable at
the time of the issuance of the policy, provides:
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 60-to 90-day credit term for the payment of premiums.
insurance company is valid and binding unless and until the premium 69.   In this case, the insurance policy in question does not fall under the 1st
thereof has been paid, except in the case of a life or an industrial life to 3rd exceptions laid out in UCPB General Insurance Co., Inc.: (1) the
policy whenever the grace period provision applies. policy is not a life or industrial life policy; (2) the policy does not
65.   In Tibay v. Court of Appeals, we explained that in an insurance contract, contain an acknowledgment of the receipt of premium but merely a
both the insured and insurer undertake risks. On one hand, there is the statement of account on its face; and (3) no payment of an installment
insured, a member of a group exposed to a particular peril, who contributes was made at the time of loss on Sept. 27.
premiums under the risk of receiving nothing in return in case the 70.   Furthermore, the SC does not agree with Gaisano that his case falls under
contingency does not happen; on the other, there is the insurer, who the 4th and 5th exceptions.
undertakes to pay the entire sum agreed upon in case the contingency 71.   The 4th and 5th exceptions to Sec. 77 operate under the facts obtaining in
happens. This risk-distributing mechanism operates under a system where, Makati Tuscany Condominium Corp. and UCPB General Insurance Co.,
by prompt payment of the premiums, the insurer is able to meet its legal Inc. Both contemplate situations where the insurers have consistently
obligation to maintain a legal reserve fund needed to meet its contingent granted the insured a credit extension or term for the payment of the
obligations to the public. The premium, therefore, is the elixir vitae or premium.
source of life of the insurance business. 72.   Here, Gaisano failed to establish the fact of a grant by Development
66.   In this case, there is no dispute that the check was delivered to and was Insurance of a credit term in his favor, or that the grant has been
accepted by Trans-Pacific, only on Sept. 28. No payment of premium consistent. While there was mention of a credit agreement between
had thus been made at the time of the loss of the vehicle on Sept. 27. Trans-Pacific and Development Insurance, such arrangement was not
67.   While Gaisano claims that Trans-Pacific was informed that the check was proven and was internal between agent and principal. Under the
ready for pick-up on Sept. 27, the notice of the availability of the check, by principle of relativity of contracts, contracts bind the parties who
itself, does not produce the effect of payment of the premium. Trans-Pacific entered into it. It cannot favor or prejudice a third person, even if he is
could not be considered in delay in accepting the check because when it aware of the contract and has acted with knowledge.
informed Gaisano that it will only be able to pick-up the check the next day, 73.   Furthermore, the SC cannot sustain Gaisano’s claim that the parties agreed
the latter did not protest to this, but instead allowed it to do so. Thus, at the that the insurance contract is immediately effective upon issuance despite
time of loss, there was no payment of premium yet to make the insurance non-payment of the premiums.
policy effective. 74.   Even if there is a waiver of prepayment of premiums, that in itself does not
68.   There are, of course, exceptions to the rule that no insurance contract become an exception to Sec. 77, unless the insured clearly gave a credit
takes effect unless premium is paid. In UCPB General Insurance Co., term or extension. This is the clear import of the 4th exception in the UCPB
Inc. v. Masagana Telamart, Inc., we summarized the exceptions as General Insurance Co., Inc. To rule otherwise would render nugatory the
follows: requirement in Sec. 77 that "[n]otwithstanding any agreement to the
a.   in case of life or industrial life policy, whenever the grace period contrary, no policy or contract of insurance issued by an insurance company
provision applies, as expressly provided by Sec. 77 itself; is valid and binding unless and until the premium thereof has been paid, x x
b.   where the insurer acknowledged in the policy or contract of x."
insurance itself the receipt of premium, even if premium has not 75.   Moreover, the policy itself states:
been actually paid, as expressly provided by Sec. 7830 itself; WHEREAS THE INSURED, by his corresponding proposal and
c.   where the parties agreed that premium payment shall be in declaration, and which shall be the basis of this Contract and deemed
installments and partial payment has been made at the time of loss, incorporated herein, has applied to the company for the insurance
as held in Makati Tuscany Condominium Corp. v. Court of Appeals; hereinafter contained, subject to the payment of the Premium as
d.   where the insurer granted the insured a credit term for the payment consideration for such insurance. (Emphasis supplied.)
of the premium, and loss occurs before the expiration of the term, as 76.   The policy states that the insured's application for the insurance is
held in Makati Tuscany Condominium Corp.; and subject to the payment of the premium. There is no waiver of pre-
e.   where the insurer is in estoppel as when it has consistently granted a payment, in full or in installment, of the premiums under the policy.
Consequently, Development Insurance cannot be placed in estoppel.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  77.   Thus, SC find that Gaisano is not entitled to the insurance proceeds
30
SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of because no insurance policy became effective for lack of premium
premium is conclusive evidence of its payment, so far as to make the policy binding, payment.
notwithstanding any stipulation therein that it shall not be binding until premium is actually
78.   The consequence of this declaration is that Gaisano is entitled to a return of
paid.
 the premium paid for the vehicle of P55,620.60 under the principle of unjust
enrichment.
79.   There is unjust enrichment when a person unjustly retains a benefit to the
loss of another, or when a person retains money or property of another
against the fundamental principles of justice, equity and good conscience.
80.   Gaisano cannot claim the full P140,893.50, which includes the payment of
premiums for the 2 other vehicles. These two policies are not affected by
the ruling on the policy subject of this case because they were issued as
separate and independent contracts of insurance.

 

 
 
 020 PHILIPPINE PHOENIX SURETY & INSURANCE v.
WOODWORKS (GALINDEZ)
August 31, 1967 | Dizon, J. | Return of Premium
PETITIONER: Philippine Phoenix Surety & Insurance, Inc.
RESPONDENTS: Woodworks, Inc.
SUMMARY: Phoenix Surety issued to Woodworks on April 1, 1960 Fire
Policy No. 9652 for P300,000 under the terms and conditions set forth in the
policy. The premiums of the policy amounted to P6,051.95, the margin fee
amounted to P363.72 and documentary stamp tax, P96.42. Woodworks paid
P3,000 on September 22, 1960. Phoenix Surety made several demands on
Woodworks to pay P3,522.09.
Phoenix Surety instituted an action to recover from Woodworks the balance of
P3,522.09 for the premium of the fire policy. Woodworks refused to pay and the
case reached the SC. Woodworks’ theory: non-payment by it of the premium
due produced the cancellation of the contract of insurance. However, such
theory would place exclusively in the hands of one of the contracting parties the
right to decide whether the contract should stand or not.
ISSUE: WoN the nonpayment of premiums produced the cancellation of the
insurance contract – NO. (See Doctrine)
In the case of the insurer, it is obvious that it had the right to demand from the
insured the completion of the payment of the premium due or sue for the
rescission of the contract. As it chose to demand specific performance of the
insured's obligation to pay the balance of the premium, the latter's duty to pay is
indeed indubitable.
DOCTRINE: The correct view would seem to be this: as the contract had
become perfected, the parties could demand from each other the performance of
whatever obligations they had assumed.
This is more or less the whole case J
FACTS:
1.   Appellee Phoenix Surety commenced this action in the Municipal Court of
Manila to recover from appellant Woodworks, Inc. P3,522.09 representing
the unpaid balance of the premiums on a fire insurance policy issued by
Phoenix Surety in favor of Woodworks for a term of one year, from April 1
1960 to 1961.
2.   From an adverse decision of said court, Woodworks appealed to the CFI of
Manila where the parties submitted the following stipulation of facts:
a.   Both parties are corporations duly organized and existing by virtue
of Philippine laws
b.   Phoenix Surety issued to Woodworks on April 1, 1960 Fire Policy
No. 9652 for P300,000 under the terms and conditions set forth in
the policy
c.   The premiums of the policy amounted to P6,051.95, the margin fee
amounted to P363.72 and documentary stamp tax, P96.42
d.   Woodworks paid P3,000 on September 22, 1960
e.   Phoenix Surety made several demands on Woodworks to pay
P3,522.09.
ISSUE/s:
1.   WoN the nonpayment of premiums produced the cancellation of the
insurance contract – NO. The correct view would seem to be this: as the
contract had become perfected, the parties could demand from each other
the performance of whatever obligations they had assumed.
RULING: Wherefore, the appealed decision being in accordance with law and the
evidence, the same is hereby affirmed, with costs.
RATIO:
1.   There is no doubt that between the insurer and insured, there was not only a
perfected contract of insurance but a partially performed one as far as the
payment of the agreed premium was concerned.
2.   After, the obligation of the insurer to pay the insured the amount for which
the policy was issued in case the conditions had been complied with, arose
and became binding upon it, while the obligation of the insured to pay the
remainder of the total amount of the premium became due and demandable.
3.   The Court cannot agree with Woodworks’ theory that non-payment by it of
the premium due produced the cancellation of the contract of insurance.
Such theory would place exclusively in the hands of one of the contracting
parties the right to decide whether the contract should stand or not.
4.   Rather the correct view would seem to be this: as the contract had become
perfected, the parties could demand from each other the performance of
whatever obligations they had assumed.
5.   In the case of the insurer, it is obvious that it had the right to demand from
the insured the completion of the payment of the premium due or sue for the
rescission of the contract.
6.   As it chose to demand specific performance of the insured's obligation to
pay the balance of the premium, the latter's duty to pay is indeed
indubitable.
 021 CAPITAL INSURANCE v. PLASTIC ERA (Gonzales)
July 18, 1975 | Martin, J. | Return of Premium
PETITIONER: Capital Insurance & Surety Co., Inc.
RESPONDENT: Plastic Era Co., Inc. and Court of Appeals
SUMMARY: When Capital Insurance delivered to Plastic Era its open fire policy
whereby the former undertook to insure the latter's property, the latter did not pay the
premium, but instead executed an acknowledgment receipt with a promise to pay the
premium within 30 days from December 17, 1960, the effectivity date of the policy.
Capital Insurance duly accepted the receipt. On January 8, 1961, Plastic Era, in
partial payment of the premium, delivered a check of P1,000, postdated January 16,
1961. Capital Insurance tried to deposit the check only on February 20, 1961, and the
same was dishonored for lack of funds. But the records show that as of January 19,
1961, Plastic Era had sufficient funds with the bank to cover the check. On January
18, 1961, or two days after the insurance premium became due, the insured
properties were destroyed by fire. Plastic Era demanded payment of indemnity but
Capital Insurance refused on the ground of non-payment of premium. Plastic Era
sued Capital Insurance and the trial court rendered judgment in favor of the former.
The Court of Appeals sustained the trial court. The issue is WoN a contract of
insurance has been duly perfected between Capital Insurance and Plastic Era – YES.
By accepting the Plastic Era’s promise to pay the insurance premium, Capital
Insurance, in effect, had extended credit to the former and did not have the right to
cancel the policy except by putting Plastic Era in default by giving it personal notice
to that effect.
DOCTRINE: Where the insurer accepted the promise of the insured to pay the
insurance premium within 30 days from the effectivity date of the policy, the former
implicitly agreed to modify the tenor of the insurance contract and in effect waived
the provisions therein that it would only pay for the loss or damage in case the same
occurs after the payment of the premium; and where the policy is silent as to the
mode of payment, the insurer is deemed to have accepted the promissory note in
payment of the premium. This rendered, the policy is immediately operative.
FACTS:
1.   Capital Insurance delivered to Plastic Era its open Fire Policy No.
22760 wherein the former undertook to insure the latter's building,
equipments, raw materials, products and accessories located at Sheridan
Street, Mandaluyong, Rizal.
2.   The policy provides that if the property insured would be destroyed or
damaged by fire after the payment of the premiums, at any time between the
15th day of December 1960 and one o'clock in the afternoon of the 15th day
of December 1961, the insurance company shall make good all such loss or
damage in an amount not exceeding P100,000.00.
3.   When the policy was delivered, Plastic Era failed to pay the corresponding
insurance premium. However, through its duly authorized representative, it
executed acknowledgment receipt.31
4.   In partial payment, Plastic Era delivered to Capital Insurance, a check for
the amount of P1,000.00 postdated January 16, 1961.
5.   However, Capital Insurance tried to deposit the check only on February 20,
1961 and the same was dishonored for lack of funds. The records show that
as of January 19, 1961 Plastic Era had a balance of P1,193.41 with the bank
6.   On January 18, 1961 or two days after the insurance premium became due,
at about 4:00 to 5:00 o'clock in the morning, the property insured by Plastic
Era was destroyed by fire.
7.   The loss and/or damage was estimated to be P283,875. However, according
to the records the same property has been insured by Plastic Era with the
Philamgen Insurance Company for P200,000.00.
8.   Plastic Era demanded from Capital Insurance the payment of the sum of
P100,000.00 but the latter refused because of Plastic Era’s failure to pay the
insurance premium. Plastic Era thus filed a complaint for the recover of the
sum of P100,000 plus attorney’s fees and additional expenses.
9.   The trial court ordered Capital Insurance to pay Plastic Era P88,325.63.
10.   CA affirmed the decision of the trial court.
ISSUE:
1.   WoN a contract of insurance has been duly perfected between Capital
Insurance and Plastic Era – YES. By accepting the promise of Plastic Era to
pay the insurance premium within thirty (30) days from the effective date of
policy, Capital Insurance has implicitly agreed to modify the tenor of the
insurance policy and in effect, waived the provision therein that it would
only pay for the loss or damage in case the same occurs after the payment of
the premium.
RULING: Petition denied. CA decision affirmed.
RATIO:
1.   In clear and unequivocal terms the insurance policy32 provides that it is only
upon payment of the premiums by Plastic Era that Capital Insurance agrees
31
"This acknowledged receipt of Fire Policy) NO. 22760 Premium. . .) (I promise to pay)
(P2,220.00) (has been paid) THIRTY DAYS AFTER on effective date ______ (Date)”
32
"This Policy of Insurance Witnesseth That in consideration of PLASTIC ERA hereinafter called the
Insured, paying to the Capital Insurance hereinafter called the Company, the sum of PESOS TWO
THOUSAND ONE HUNDRED EIGHTY EIGHT the premium for the first period hereinafter mentioned,
for insuring against Loss or Damage by only Fire or Lightning, as hereinafter appears, the Property
hereinafter described and contained, or described herein and not elsewhere, in the several sums following
namely: PESOS ONE HUNDRED THOUSAND ONLY, PHILIPPINE CURRENCY; . . . THE
COMPANY HEREBY AGREES with the Insured but subject to the terms and conditions endorsed or
otherwise expressed hereon, which are to be taken as part of this Policy), that if the Property described, or
any part thereof, shall be destroyed or damaged by Fire or Lightning after payment of the Premiums, at
any time between the 15th day of December One Thousand Nine Hundred and Sixty and 1 o'clock in the
afternoon of the 15th day of December One Thousand Nine Hundred and Sixty-One of the last day of any
 to insure the properties of the former against loss or damage in an amount claiming a forfeiture of its policy for non-payment even if the check had
not exceeding P100,000.00. been dishonored later.
2.   The crux of the problem then is whether at the time the insurance policy 9.   Finally, it is submitted by Capital Insurance that: "We are here concerned
was delivered to Plastic Era on December 17, 1960, the latter was able to with a case of reciprocal obligations, and Plastic Era having failed to
pay the stipulated premium. comply with its obligation to pay the insurance premium due on the policy
3.   On the day the insurance policy was delivered, Plastic Era did not pay the within thirty days from December 17, 1960, Capital Insurace was relieved
Capital Insurance, but instead executed an acknowledgment receipt wherein of its obligation to pay anything under the policy, without the necessity of
it promised to pay the premium within thirty (30) days from the effectivity first instituting an action for rescission of the contract of ensured entered
date of the policy on December 17, 1960 and Capital Insurance accepted it. into by the parties."
4.   Under Article 124933 of the Civil Code, the mere delivery of a bill of 10.   But precisely in this case, Plastic Era has complied with its obligation to
exchange in payment of a debt does not immediately effect payment. pay the insurance premium and therefore Capital Insurance is obliged to
5.   Here, Capital Insurance accepted the promise of Plastic Era to pay the make good its undertaking to Plastic Era.
insurance premium within thirty (30) days from the effective date of policy. |
By so doing, it has implicitly agreed to modify the tenor of the
insurance policy and in effect, waived the provision therein that it
 
would only pay for the loss or damage in case the same occurs after the
payment of the premium. Considering that the insurance policy is silent as
to the mode of payment, Capital Insurance is deemed to have accepted the
promissory note in payment of the premium.
6.   Hence, when the damage of the insured property occurred, the insurance
policy was in full force and effect. The fact that the check issued by
Plastic Era in partial payment of the promissory note was later on
dishonored did not in any way operate as a forfeiture of its rights under
the policy, there being no express stipulation therein to that effect.
7.   The payment of the premium on the insurance policy became an
independent obligation the non-fulfillment of which would entitle Capital
Insurance to recover. It could just deduct the premium due and unpaid upon
the satisfaction of the loss under the policy. It did not have the right to
cancel the policy for nonpayment of the premium except by putting Plastic
Era in default and giving it personal notice to that effect.
8.   Although the check was due for payment on January 16, 1961 and Plastic
Era had sufficient funds to cover it as of January 19, 1961, Capital
Insurance decided to hold the same for thirty-five (35) days before
presenting it for payment. Having held the check for such an
unreasonable period of time, Capital Insurance was estopped from

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
subsequent period in respect of which the insured, or a successor in interest to whom the insurance is by
an endorsement hereon declared to be or is otherwise continued, shall pay to the Company and the
Company shall accept the sum required for the renewal of this Policy, the Company will pay or make
good all such loss or Damage, to an amount not exceeding during any one period of the insurance in
respect of the several matters specified, the sum; set opposite thereto respectively, and not exceeding the
whole sum of PESOS, ONE HUNDRED THOUSAND ONLY, PHIL. CUR. . . ."
33
"The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired." xxx "In the meantime, the action derived from the original obligation
shall be held in abeyance."

 
 001 GULF RESORT INC. v. PHIL. CHARTER (Escalona)
May 16, 2005 | Puno, J. | The Policy
PETITIONER: Gulf Resort Inc.
RESPONDENTS: Philippine Charter Insurance Corporation
SUMMARY: Gulf Resort, 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. Gulf Resort then insured its properties with PCIC based on the
same insurance contract they had with AHAC. Later on, an earthquake struck
Central Luzon and Northern Luzon so the properties and 2 swimming pools in its
Agoo Playa Resort were damaged. Gulf then claimed against PCIC for the
damages the earthquake created on its properties. 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. Gulf 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.
The RTC ruled in favor of PCIC that the policy only covered the two swimming
pools. The CA affirmed the decision of the RTC.
The issue is WoN the insurance policy covers the other properties beyond the
two swimming pools.
The Court ruled that the insurance policy did not cover the other properties. The
Court first ruled that a stipulation in the contract cannot be construed piecemeal,
such that the contract should be construed as a whole, including the provisions
and riders. They should all be construed together in order to evidence the
intention of the parties of whether they wanted to insure the other properties
against earthquake shocks. The Court held that there was no intention of the
parties to include such because there were no premiums paid for the other
properties against earthquake shocks, apart from the two swimming pools. This
is in consonance with the history of the deletion of the other properties from
insurance against earthquake shocks in the insurance contracts that Gulf had with
AHAC.
DOCTRINE: All 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. The policy cannot be construed piecemeal. Certain
stipulations cannot be segregated and then made to control; neither do particular
words or phrases necessarily determine its character.
FACTS:
1.   Gulf Resort is the owner of the Plaza Resort situated at Agoo,
La Union and had its properties in said resort insured originally
with the American Home Assurance Company (AHAC). In the
first four insurance policies issued by AHAC, the risk of loss
from earthquake shock was extended only to Gulf Resort’s two
swimming pools. Item 5 in those policies referred to the two
(2) swimming pools only; that subsequently AHAC issued in
Gulf Resort’s favor Policy No. 206-4182383-0 and in said
policy the earthquake endorsement clause was deleted and
the entry under Endorsements/Warranties at the time of issue
read that Gulf Resort renewed its policy with AHAC for the
period of March 14, 1989 to March 14, 1990 under Policy No.
206-4568061-9, which carried the entry under
Endorsement/Warranties at Time of Issue, which read
Endorsement to Include Earthquake Shock in the amount
of P10,700.00 and paid P42,658.14 as premium thereof.
2.   Gulf then insured its properties with PCIC using the exact same
contract it used to have with AHAC.
3.   On July 16, 1990, an earthquake struck Central Luzon and
Northern Luzon and Gulf Resort’s properties covered by Policy
No. 31944 issued by PCIC, including the two swimming pools
in its Agoo Playa Resort were damaged.
4.   After the earthquake, Gulf Resort advised PCIC that it would
be making a claim under its Insurance Policy No. 31944 for
damages on its properties. PCIC instructed Gulf Resort to file a
formal claim, then assigned the investigation of the claim to an
independent claims adjuster, Bayne Adjusters and Surveyors,
Inc. On July 30, 1990, PCIC, through its adjuster, requested
Gulf Resort to submit various documents in support of its
claim. On August 7, 1990, Bayne Adjusters and Surveyors,
Inc., through its Vice-President A.R. de Leon, rendered a
preliminary report finding extensive damage caused by the
earthquake to the clubhouse and to the two swimming
pools. Mr. de Leon stated that except for the swimming
pools, all affected items have no coverage for earthquake
shocks. On August 11, 1990, Gulf Resort filed its form
demand for settlement of the damage to all its properties in the
Agoo Playa Resort. On August 23, 1990, PCIC denied Gulf
Resort’s claim on the ground that its insurance policy only
 afforded earthquake shock coverage to the two swimming
pools of the resort. Gulf Resort and PCIC failed to arrive at a
settlement. Thus, on January 24, 1991, Gulf Resort filed a
complaint with the regional trial court of Pasig.
5.   The lower court after trial ruled in favor of the PCIC, stating:
a.   The above schedule clearly shows that plaintiff paid
only a premium of P393.00 against the peril of
earthquake shock, the same premium it paid against
earthquake shock only on the two swimming pools in
all the policies issued by PCIC. From this fact the Court
must consequently agree with the position of PCIC that
the endorsement rider means that only the two
swimming pools were insured against earthquake
shock.
b.   Gulf Resort correctly points out that a policy of
insurance is a contract of adhesion hence, where the
language used in an insurance contract or application is
such as to create ambiguity the same should be resolved
against the party responsible therefor, i.e., the insurance
company which prepared the contract. To the mind of
the Court, the language used in the policy in litigation is
clear and unambiguous hence there is no need for
interpretation or construction but only application of the
provisions therein.
c.   From the above observations the Court finds that only
the two (2) swimming pools had earthquake shock
coverage and were heavily damaged by the earthquake,
which struck on July 16, 1990. PCIC having admitted
that the damage to the swimming pools was appraised
by PCIC’s adjuster at P386,000.00, PCIC must, by
virtue of the contract of insurance, pay Gulf Resort said
amount.
6.   Gulf Resort’s Motion for Reconsideration was denied. Thus,
Gulf Resort filed an appeal with the Court of Appeals. After
review, the appellate court affirmed the decision of the trial
court and ruled, thus:
a.   However, after carefully perusing the documentary
evidence of both parties, We are not convinced that
the last two (2) insurance contracts, which the Gulf
Resort had with PCIC and upon which the subject
insurance contract with Philippine Charter
Insurance Corporation is said to have been based
and copied, covered an extended earthquake shock
insurance on all the insured properties.
ISSUES:
1.   WoN the insurance policy covered only the two swimming pools, rather
than all the properties insured, against the risk of an earthquake shock –
YES. Only the two swimming pools are covered because the contract that
reflected the intent of the parties evidenced that only the two swimming
pools were insured against earthquake shocks. This was proven through the
lack of payment of premiums and testimonies of witnesses.
RULING: The judgment of the Court of Appeals is affirmed. The petition
for certiorari is dismissed.
RATIO:
81.  The policy stated:
ANNUAL PAYMENT AGREEMENT ON
LONG TERM POLICIES
THE INSURED UNDER THIS POLICY HAVING
ESTABLISHED AGGREGATE SUMS INSURED IN
EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION
OF A DISCOUNT OF 5% OR 7 % OF THE NET PREMIUM
x x x POLICY HEREBY UNDERTAKES TO CONTINUE
THE INSURANCE UNDER THE ABOVE NAMED x x x
AND TO PAY THE PREMIUM.
Earthquake Endorsement
In consideration of the payment by the Insured to the Company
of the sum of P. . . . . . . . . . . . . . . . . additional premium the
Company agrees, notwithstanding what is stated in the printed
conditions of this Policy to the contrary, that this insurance
covers loss or damage (including loss or damage by fire) to
any of the property insured by this Policy occasioned by or
through or in consequence of Earthquake.
Provided always that all the conditions of this Policy shall
apply (except in so far as they may be hereby expressly varied)
and that any reference therein to loss or damage by fire should
be deemed to apply also to loss or damage occasioned by or
through or in consequence of Earthquake.

82.  Gulf Resort 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.
83.  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. The policy cannot be construed piecemeal.
Certain stipulations cannot be segregated and then made to
control; neither do particular words or phrases necessarily
determine its character. Gulf Resort cannot focus on the
earthquake shock endorsement to the exclusion of the other
provisions. All the provisions and riders, taken and interpreted
together, indubitably show the intention of the parties to extend
earthquake shock coverage to the two swimming pools only.
84.  A careful examination of the premium recapitulation will
show that it is the clear intent of the parties to extend
earthquake shock coverage only to the two swimming
pools. 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. Thus, an
insurance contract exists where the following elements concur:
a.   The insured has an insurable interest;
b.   The insured is subject to a risk of loss by the happening
of the designated peril;
c.   The insurer assumes the risk;
d.   Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons
bearing a similar risk;
e.   In consideration of the insurer's promise, the
insured pays a premium.
85.  An insurance premium is the consideration paid an insurer for
undertaking to indemnify the insured against a specified
peril. In fire, casualty, and marine insurance, the premium
payable becomes a debt as soon as the risk attaches. In the
subject policy, no premium payments were made with
regard to earthquake shock coverage, except on the two
swimming pools. There is no mention of any premium
payable for the other resort properties with regard to
earthquake shock. This is consistent with the history of Gulf
Resort’s previous insurance policies from AHAC.
86.  PCIC, in compliance with the condition set by Gulf Resort,
copied AIU Policy No. 206-4568061-9 in drafting its Insurance
Policy No. 31944. It is true that there was variance in some
terms, specifically in the replacement cost endorsement, but the
principal provisions of the policy remained essentially similar
to AHAC’s policy. Consequently, we cannot apply the "fine
print" or "contract of adhesion" rule in this case as the parties
intent to limit the coverage of the policy to the two swimming
pools only is not ambiguous.
There were a lot of testimonies used as evidence of showing the intent
of the parties to exclude the other properties from being insured
against earthquake shocks. Here’s the transcript of those testimonies:
87.   CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
88.   pp. 12-13
89.   Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance
policy during the period from March 4, 1984 to March 4, 1985 the coverage on
earthquake shock was limited to the two swimming pools only?
90.   A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty,
there is a provision here that it was only for item 5.
91.   Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two
swimming pools only?
92.   A. Yes, sir.
93.   CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
94.   pp. 23-26
95.   Q. For the period from March 14, 1988 up to March 14, 1989, did you personally
arrange for the procurement of this policy?
96.   A. Yes, sir.
97.   Q. Did you also do this through your insurance agency?
98.   A. If you are referring to Forte Insurance Agency, yes.
99.   Q. Is Forte Insurance Agency a department or division of your company?
100.   A. No, sir. They are our insurance agency.
101.   Q. And they are independent of your company insofar as operations are concerned?
102.   A. Yes, sir, they are separate entity.
103.   Q. But insofar as the procurement of the insurance policy is concerned they are of
course subject to your instruction, is that not correct?
104.   A. Yes, sir. The final action is still with us although they can recommend what insurance
to take.
105.   Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14,
1989, did you give written instruction to Forte Insurance Agency advising it that the
earthquake shock coverage must extend to all properties of Agoo Playa Resort in La
Union?
106.   A. No, sir. We did not make any written instruction, although we made an oral
instruction to that effect of extending the coverage on (sic) the other properties of the
company.
107.   Q. And that instruction, according to you, was very important because in April 1987
there was an earthquake tremor in La Union?
108.   A. Yes, sir.
109.   Q. And you wanted to protect all your properties against similar tremors in the [future],
is that correct?
110.   A. Yes, sir.
111.   Q. Now, after this policy was delivered to you did you bother to check the provisions
with respect to your instructions that all properties must be covered again by earthquake
shock endorsement?
112.   A. Are you referring to the insurance policy issued by American Home Assurance
Company marked Exhibit G?
113.   Atty. Mejia: Yes.
114.   Witness:
115.   A. I examined the policy and seeing that the warranty on the earthquake shock
endorsement has no more limitation referring to the two swimming pools only, I was
contented already that the previous limitation pertaining to the two swimming pools was
already removed.
116.   Petitioner also cited and relies on the attachment of the phrase Subject to: Other Insurance
Clause, Typhoon Endorsement, Earthquake Shock Endorsement, Extended Coverage
Endorsement, FEA Warranty & Annual Payment Agreement on Long Term Policies to
the insurance policy as proof of the intent of the parties to extend the coverage for earthquake
shock. However, this phrase is merely an enumeration of the descriptive titles of the riders,
clauses, warranties or endorsements to which the policy is subject, as required under Section
50, paragraph 2 of the Insurance Code.
117.   We also hold that no significance can be placed on the deletion of the qualification limiting the
coverage to the two swimming pools. The earthquake shock endorsement cannot stand alone.
As explained by the testimony of Juan Baranda III, underwriter for AHAC-AIU:
118.   DIRECT EXAMINATION OF JUAN BARANDA III
119.   TSN, August 11, 1992
120.   pp. 9-12
121.   Atty. Mejia:
122.   We respectfully manifest that the same exhibits C to H inclusive have been previously
marked by counsel for defendant as Exhibit[s] 1-6 inclusive. Did you have occasion to
review of (sic) these six (6) policies issued by your company [in favor] of Agoo Playa
Resort?
123.   WITNESS:
124.   Yes[,] I remember having gone over these policies at one point of time, sir.
125.   Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H
respectively carries an earthquake shock endorsement[?] My question to you is, on the
basis on (sic) the wordings indicated in Exhibits C to H respectively what was the extent
of the coverage [against] the peril of earthquake shock as provided for in each of the six
(6) policies?
126.   x x x
127.   WITNESS:
128.   The extent of the coverage is only up to the two (2) swimming pools, sir.
129.   Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?
130.   A. Yes, sir.
131.   ATTY. MEJIA:
132.   What is your basis for stating that the coverage against earthquake shock as provided for
in each of the six (6) policies extend to the two (2) swimming pools only?
133.   WITNESS:
134.   Because it says here in the policies, in the enumeration Earthquake Shock Endorsement,
in the Clauses and Warranties: Item 5 only (Earthquake Shock Endorsement), sir.
135.   ATTY. MEJIA:
136.   Witness referring to Exhibit C-1, your Honor.
137.   WITNESS:
138.   We do not normally cover earthquake shock endorsement on stand alone basis. For
swimming pools we do cover earthquake shock. For building we covered it for full
earthquake coverage which includes earthquake shock
139.   COURT:
140.   As far as earthquake shock endorsement you do not have a specific coverage for other
things other than swimming pool? You are covering building? They are covered by a
general insurance?
141.   WITNESS:
142.   Earthquake shock coverage could not stand alone. If we are covering building or another
we can issue earthquake shock solely but that the moment I see this, the thing that
comes to my mind is either insuring a swimming pool, foundations, they are normally
affected by earthquake but not by fire, sir.
143.   DIRECT EXAMINATION OF JUAN BARANDA III
144.   TSN, August 11, 1992
145.   pp. 23-25
146.   Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E
and F inclusive [remained] its coverage against earthquake shock to two (2) swimming
pools only but that Exhibits G and H respectively entend the coverage against
earthquake shock to all the properties indicated in the respective schedules attached to
said policies, what can you say about that testimony of plaintiffs witness?
147.   WITNESS:
148.   As I have mentioned earlier, earthquake shock cannot stand alone without the other half
of it. I assure you that this one covers the two swimming pools with respect to
earthquake shock endorsement. Based on it, if we are going to look at the premium there
has been no change with respect to the rates. Everytime (sic) there is a renewal if the
intention of the insurer was to include the earthquake shock, I think there is a substantial
increase in the premium. We are not only going to consider the two (2) swimming pools
of the other as stated in the policy. As I see, there is no increase in the amount of the
premium. I must say that the coverage was not broaden (sic) to include the other items.
149.   COURT:
150.   They are the same, the premium rates?
151.   WITNESS:
152.   They are the same in the sence (sic), in the amount of the coverage. If you are going to
do some computation based on the rates you will arrive at the same premiums, your
Honor.
153.   CROSS-EXAMINATION OF JUAN BARANDA III
154.   TSN, September 7, 1992
155.   pp. 4-6
156.   ATTY. ANDRES:
157.   Would you as a matter of practice [insure] swimming pools for fire insurance?
158.   WITNESS:
159.   No, we dont, sir.
160.   Q. That is why the phrase earthquake shock to the two (2) swimming pools only was
placed, is it not?
161.   A. Yes, sir.
162.   ATTY. ANDRES:
163.   Will you not also agree with me that these exhibits, Exhibits G and H which you have
pointed to during your direct-examination, the phrase Item no. 5 only meaning to (sic)
the two (2) swimming pools was deleted from the policies issued by AIU, is it not?
164.   x x x
165.   ATTY. ANDRES:
166.   As an insurance executive will you not attach any significance to the deletion of the
qualifying phrase for the policies?
167.   WITNESS:
168.   My answer to that would be, the deletion of that particular phrase is inadvertent. Being a
company underwriter, we do not cover. . it was inadvertent because of the previous
 policies that we have issued with no specific attachments, premium rates and so on. It
was inadvertent, sir.
169.   The Court also rejects petitioners contention that respondents contemporaneous and subsequent
acts to the issuance of the insurance policy falsely gave the petitioner assurance that the
coverage of the earthquake shock endorsement included all its properties in the resort.
Respondent only insured the properties as intended by the petitioner. Petitioners own witness
testified to this agreement, viz:
170.   CROSS EXAMINATION OF LEOPOLDO MANTOHAC
171.   TSN, January 14, 1992
172.   pp. 4-5
173.   Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did
you tell Atty. Omlas (sic) to copy from Exhibit H for purposes of procuring the policy
from Philippine Charter Insurance Corporation?
174.   A. I told him that the insurance that they will have to get will have the same provisions
as this American Home Insurance Policy No. 206-4568061-9.
175.   Q. You are referring to Exhibit H of course?
176.   A. Yes, sir, to Exhibit H.
177.   Q. So, all the provisions here will be the same except that of the premium rates?
178.   A. Yes, sir. He assured me that with regards to the insurance premium rates that they
will be charging will be limited to this one. I (sic) can even be lesser.
179.   CROSS EXAMINATION OF LEOPOLDO MANTOHAC
180.   TSN, January 14, 1992
181.   pp. 12-14
182.   Atty. Mejia:
183.   Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the
provisions and scope of coverage of Exhibits I and H sometime in the third week of
March, 1990 or thereabout?
184.   A. Yes, sir, about that time.
185.   Q. And at that time did you notice any discrepancy or difference between the policy
wordings as well as scope of coverage of Exhibits I and H respectively?
186.   A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that
the policy wordings and rates were copied from the insurance policy I sent them but it
was only when this case erupted that we discovered some discrepancies.
187.   Q. With respect to the items declared for insurance coverage did you notice any
discrepancy at any time between those indicated in Exhibit I and those indicated in
Exhibit H respectively?
188.   A. With regard to the wordings I did not notice any difference because it was exactly the
same P393,000.00 on the two (2) swimming pools only against the peril of earthquake
shock which I understood before that this provision will have to be placed here because
this particular provision under the peril of earthquake shock only is requested because
this is an insurance policy and therefore cannot be insured against fire, so this has to be
placed.
189.   The verbal assurances allegedly given by respondents representative Atty. Umlas were not
proved. Atty. Umlas categorically denied having given such assurances.
190.   Finally, petitioner puts much stress on the letter of respondents independent claims adjuster,
Bayne Adjusters and Surveyors, Inc. But as testified to by the representative of Bayne
Adjusters and Surveyors, Inc., respondent never meant to lead petitioner to believe that the
endorsement for earthquake shock covered properties other than the two swimming pools, viz:
191.   DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne
192.   Adjusters and Surveyors, Inc.)
193.   TSN, January 26, 1993
194.   pp. 22-26
195.   Q. Do you recall the circumstances that led to your discussion regarding the extent of
coverage of the policy issued by Philippine Charter Insurance Corporation?
196.   A. I remember that when I returned to the office after the inspection, I got a photocopy
of the insurance coverage policy and it was indicated under Item 3 specifically that the
coverage is only for earthquake shock. Then, I remember I had a talk with Atty. Umlas
(sic), and I relayed to him what I had found out in the policy and he confirmed to me
indeed only Item 3 which were the two swimming pools have coverage for earthquake
shock.
197.   x x x
198.   Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that except
for the swimming pools all affected items have no coverage for earthquake shock?
199.   x x x
200.   A. I based my statement on my findings, because upon my examination of the policy I
found out that under Item 3 it was specific on the wordings that on the two swimming
pools only, then enclosed in parenthesis (against the peril[s] of earthquake shock only),
and secondly, when I examined the summary of premium payment only Item 3 which
refers to the swimming pools have a computation for premium payment for earthquake
shock and all the other items have no computation for payment of premiums.
201.   In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely
on the general rule that insurance contracts are contracts of adhesion which should be liberally
construed in favor of the insured and strictly against the insurer company which usually
prepares it. A contract of adhesion is one wherein a party, usually a corporation, prepares the
stipulations in the contract, while the other party merely affixes his signature or his "adhesion"
thereto. Through the years, the courts have held that in these type of contracts, the parties do
not bargain on equal footing, the weaker party's participation being reduced to the alternative to
take it or leave it. Thus, these contracts are viewed as traps for the weaker party whom the
courts of justice must protect. Consequently, any ambiguity therein is resolved against the
insurer, or construed liberally in favor of the insured.
202.   The case law will show that this Court will only rule out blind adherence to terms where facts
and circumstances will show that they are basically one-sided. Thus, we have called on lower
courts to remain careful in scrutinizing the factual circumstances behind each case to determine
the efficacy of the claims of contending parties. In Development Bank of the Philippines v.
National Merchandising Corporation, et al., the parties, who were acute businessmen of
experience, were presumed to have assented to the assailed documents with full knowledge.
203.   We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot
claim it did not know the provisions of the policy. From the inception of the policy, petitioner
had required the respondent to copy verbatim the provisions and terms of its latest insurance
policy from AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct participant in
securing the insurance policy of petitioner, is reflective of petitioners knowledge, viz:
204.   DIRECT EXAMINATION OF LEOPOLDO MANTOHAC
205.   TSN, September 23, 1991
206.   pp. 20-21
207.   Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those
facilities in Agoo Playa?
208.   A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine
Charter Insurance Corporation as long as it will follow the same or exact provisions of
the previous insurance policy we had with American Home Assurance Corporation.
209.   Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in
the American Home Insurance policy are to be incorporated in the PCIC policy?
210.   A. Yes, sir.
211.   Q. What steps did you take?
212.   A. When I examined the policy of the Philippine Charter Insurance Corporation I specifically
told him that the policy and wordings shall be copied from the AIU Policy No. 206-4568061-9.
 002 Pineda v. CA (for Gueco c/o Daguman)
September 27, 1993 | Davide Jr., J. | Group Policy
PETITIONER: LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA
ALARCON, DINA LORENA AYO, CELIA CALUMBAG and LUCIA
LONTOK,
RESPONDENTS: HON. COURT OF APPEALS and THE INSULAR LIFE
ASSURANCE COMPANY, LIMITED
SUMMARY: Prime Marine Services, Inc. (PMSI), a crewing/manning outfit,
procured a Group Policy from Insular Life Assurance Co., Ltd. to provide life
insurance coverage to its sea-based employees. During the effectivity of the
policy, six covered employees perished at sea when their vessel sunk. They were
survived by the complainants-appellees, the beneficiaries under the policy. The
beneficiaries, except the spouses Alarcon, executed special powers of attorney
authorizing Capt. Nuval, President and General Manager of PMSI, to, among
others, “follow-up, ask, demand, collect and receive” for their benefit
indemnities of sums of money due them relative to the sinking of the vessel. By
virtue of these written powers of attorney, complainants-appellees were able to
receive their respective death benefits. Unknown to them, however, PMSI, in its
capacity as employer and policyholder of the life insurance of its deceased
workers, filed with Insular Life formal claims for and in behalf of the
beneficiaries, through Capt. Nuval. On the basis of the five special powers of
attorney, Insular Life drew against its account six (6) checks, four for
P200,000.00 each, one for P50,000.00 and another for P40,000.00 payable to the
order of complainants-appellees. Capt. Nuval, upon receipt of these checks
endorsed and deposited them in his own account.
When Pineda et.al. learned that they were entitled, as beneficiaries, to life
insurance benefits under a group policy, they sought to recover these benefits
from Insular Life but the latter denied their claim on the ground that their
liability was already extinguished. WoN the CA erred in the appreciation of the
SPA to include granting of authority to Capt. Nuval to obtain the insurance
proceeds from Insular Life? YES, because the special powers of attorney "do not
contain in unequivocal and clear terms authority to Capt. Nuval to obtain,
receive, receipt from respondent company insurance proceeds arising from the
death of the seaman-insured. On the contrary, the said powers of attorney are
couched in terms which could easily arouse suspicion of an ordinary man. We
are convinced that the employer is the agent of the insurer in performing the
duties of administering group insurance policies. It cannot be said that the
employer acts entirely for its own benefit or for the benefit of its employees in
undertaking administrative functions. While a reduced premium may result if the
employer relieves the insurer of these tasks, and this, of course, is advantageous
to both the employer and the employees, the insurer also enjoys significant
advantages from the arrangement. The reduction in the premium which results
from employer-administration permits the insurer to realize a larger volume of
sales, and at the same time the insurer's own administrative costs are markedly
reduced. The most persuasive rationale for adopting the view that the employer
acts as the agent of the insurer, however, is that the employee has no knowledge
of or control over the employer's actions in handling the policy or its
administration. An agency relationship is based upon consent by one person that
another shall act in his behalf and be subject to his control. It is clear from the
evidence regarding procedural techniques here that the insurer-employer
relationship meets this agency test with regard to the administration of the
policy, whereas that between the employer and its employees fails to reflect true
agency. The insurer directs the performance of the employer's administrative
acts, and if these duties are not undertaken properly the insurer is in a position to
exercise more constricted control over the employer's conduct. In the light of the
above disquisitions and after an examination of the facts of this case, we hold
that PMSI, through its President and General Manager, Capt. Nuval, acted as the
agent of Insular Life. The latter is thus bound by the misconduct of its agent.
DOCTRINE: Group insurance is a comparatively new form of insurance. In the
United States, the first modern group insurance policies appear to have been
issued in 1911 by the Equitable Life Assurance Society. Group insurance is
essentially a single insurance contract that provides coverage for many
individuals. In its original and most common form, group insurance provides life
or health insurance coverage for the employees of one employer.
We are convinced that the employer is the agent of the insurer in performing the
duties of administering group insurance policies. It cannot be said that the
employer acts entirely for its own benefit or for the benefit of its employees in
undertaking administrative functions
FACTS:
121.  September 1983, Prime Marine Services Inc. (PMSI), a manning agency,
procured a Group Policy from Insular Life Assurance Co. (Insular Life) to
provide life insurance coverage to its sea-based employees enrolled under
the plan.
122.  During the effectivity of the policy, six covered employees of the PMSI
perished at sea when their vessel, M/V Nemos sunk in Morocco. They were
survived by Pineda et.al., the beneficiaries under the policy.
123.  Pineda et. al, sought to claim death benefits, they approached the President
and General Manager of PMSI, Capt. Nuval. The latter evinced willingness
to assist Pineda to recover Overseas Workers Welfare Administration
(OWWA) benefits from the POEA arising frim the deaths of their
husbands/sons.
124.  They executed, with the exception of spouses Alarcon, a special power of
attorney authorizing Capt. Nuval to “follow up, ask, demand, collect and
receive” for the benefit indemnities of sums due to them relative to the
sinking of M/V Nemos. By virtue of this authority, they were able to
receive death benefits.
 125.  Unknown to them, PMSI, in its capacity as employer and policyholder of released two checks in the amount of P150,000.00 for the three minor
the life insurance of the deceased workers, filed formal claims with Insular children (P50,000.00 each) of complainant, Dina Ayo and another check of
Life in behalf of the beneficiaries through Capt. Nuval. Among the P40,000.00 for minor beneficiary Marissa Lontok, daughter of another
documents for the processing of the claims were the five SPAs executed by complainant Lucia Lontok, there being no showing of any court
Pineda et.al. authorization presented or the requisite bond posted.
126.  Insular Life drew against its bank six checks four for 200k each, one for 50k 130.  On the other hand, the CA ruled that the powers of attorney, Exhibits "1" to
and another for 40k, payable to the order of Pineda et al. These checks were "5," relied upon by Insular Life were sufficient to authorize Capt. Nuval to
released to the treasurer of PMSI, who happened to be Capt. Nuval’s son- receive the proceeds of the insurance pertaining to the beneficiaries.
in-law deposited them in his account with Boston Bank. 131.  Hence, this issue.
127.  Pineda et.al. learned that they were entitled, as beneficiaries under the group
policy with Insular Life sought to recover these but the latter denied their
claim on the ground that the liability of Insular Life was already
ISSUE/s:
extinguished upon deliver to PMSI the six checks issued under their names.
1.   WoN the CA erred in the appreciation of the SPA to include granting of
128.  Pineda et.al. filed an administrative complaint against private respondent
authority to Capt. Nuval to obtain the insurance proceeds from Insular Life?
Insular Life which was filed with the Insurance Commission on 20
YES, because the special powers of attorney "do not contain in unequivocal
September 1989. They prayed therein that after due proceedings, Insular
and clear terms authority to Capt. Nuval to obtain, receive, receipt from
Life "be ordered to pay the claimants their insurance claims" and that
respondent company insurance proceeds arising from the death of the
"proper sanctions/penalties be imposed on" it "for its deliberate, feckless
seaman-insured. On the contrary, the said powers of attorney are couched in
violation of its contractual obligations to the complainants, and of the
terms which could easily arouse suspicion of an ordinary man.
Insurance Code." 5 Insular Life's motion to dismiss the complaint on the
ground that "the claims of complainants are all respectively beyond the
jurisdiction of the Insurance Commission as provided in Section 416 of the RULING: Petition is hereby affirmed.
Insurance Code.
129.  The Insurance Commission made the following conclusions: After taking RATIO:
into consideration the evidences [sic], testimonial and documentary for the
complainants and the respondent, the Commission finds that; First: The 1.   We rule for the petitioners Pineda et. al.
respondent erred in appreciating that the powers of attorney executed by 2.   We have carefully examined the specific powers of attorney, Exhibits "1" to
five (5) of the several beneficiaries convey absolute authority to Capt. "5," which were executed by petitioners Luz Pineda, Lucia B. Lontok, Dina
Nuval, to demand, receive, receipt and take delivery of insurance proceeds Ayo, Celia Calumag, and Marilyn Montenegro, respectively, on 14 May
from respondent Insular Life. A cursory reading of the questioned powers 1986 and uniformly granted to Capt. Rosendo Nuval the following powers:
of authority would disclosed [sic] that they do not contain in unequivocal
and clear terms authority to Capt. Nuval to obtain, receive, receipt from To follow-up, ask, demand, collect and receipt for my benefit
indemnities or sum of money due me relative to the sinking of
respondent company insurance proceeds arising from the death of the
M.V. NEMOS in the vicinity of El Jadida, Casablanca,
seaman-insured. On the contrary, the said powers of attorney are couched in
Morocco on the evening of February 17, 1986; and
terms which could easily arouse suspicion of an ordinary man. Insular Life
did not observe Section 18034 of the Insurance Code, when it issued or
To sign receipts, documents, pertinent waivers of indemnities
or other writings of whatsoever nature with any and all third

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
34 court authority or the giving of a bond where the interest of the minor in the
Section 180 is quotes [sic] partly as follows: In the absence of a judicial guardian,
particular act involved does not exceed twenty thousand pesos . . . .
the father, or in the latter's absence or incapacity, the mother of any minor, who is an
insured or a beneficiary under a contract of life, health or accident insurance, may
exercise, in behalf of said minor, any right, under the policy, without necessity of
 
 persons, concerns and entities, upon terms and conditions
acceptable to my said attorney.
3. We agree with the Insurance Commission that the special powers of attorney "do
not contain in unequivocal and clear terms authority to Capt. Nuval to obtain,
receive, receipt from respondent company insurance proceeds arising from the death
of the seaman-insured. On the contrary, the said powers of attorney are couched in
terms which could easily arouse suspicion of an ordinary man." The holding of the
CA to the contrary is principally premised on its opinion that:
[t]here is nothing in the law which mandates a specific or special
power of attorney to be executed to collect insurance proceeds.
Such authority is not included in the enumeration of art. 1878 of
the New Civil Code. Neither do we perceive collection of
insurance claims as an act of strict dominion as to require a special
power of attorney.
4. If this be so, then they could not have been meant to be a general power of
attorney since Exhibits "1" to "5" are special powers of attorney. The execution by
the principals of special powers of attorney, which clearly appeared to be in prepared
forms and only had to be filled up with their names, residences, dates of execution,
dates of acknowledgment and others, excludes any intent to grant a general power of
attorney or to constitute a universal agency. Being special powers of attorney, they
must be strictly construed.
5. Certainly, it would be highly imprudent to read into the special powers of attorney
in question the power to collect and receive the insurance proceeds due to Pineda
et.al from Group Policy No. G-004694. Insular Life knew that a power of attorney in
favor of Capt. Nuval for the collection and receipt of such proceeds was a deviation
from its practice with respect to group policies. Such practice was testified to by Mr.
Marciano Urbano, Insular Life's Assistant Manager of the Group Administrative
Department
ATTY. CAGUIOA:
Can you explain to us why in this case, the claim was filed by a certain Capt.
Noval [sic]?
WITNESS:
A: The practice of our company in claim pertaining to group insurance, the
policyholder is the one who files the claim for the beneficiaries of the deceased.
At that time, Capt. Noval [sic] is the President and General Manager of Prime
Marine.
Q: What is the reason why policyholders are the ones who file the claim and
not the designated beneficiaries of the employees of the policyholders?
A: Yes because group insurance is normally taken by the employer as an
employee-benefit program and as such, the benefit should be awarded by the
policyholder to make it appear that the benefit really is given by the employer
6. On cross-examination, Urbano further elaborated that even payments, among other
things, are coursed through the policyholder:
Q: What is the corporate concept of group insurance insofar as Insular Life is
concerned?
WITNESS:
A: Group insurance is a contract where a group of individuals are covered
under one master contract. The individual underwriting characteristics of each
individual is not considered in the determination of whether the individual is
insurable or not. The contract is between the policyholder and the insurance
company. In our case, it is Prime Marine and Insular Life. We do not have
contractual obligations with the individual employees; it is between Prime
Marine and Insular Life.
Q: And so it is part of that concept that all inquiries, follow-up, payment of
claims, premium billings, etc. should always be coursed thru the policyholder?
A: Yes that is our practice.
Q: And when you say claim payments should always be coursed thru the
policyholder, do you require a power of attorney to be presented by the
policyholder or not?
a Not necessarily.
7. This practice is usual in the group insurance business and is consistent with the
jurisprudence thereon in the State of California — from whose laws our Insurance
Code has been mainly patterned — which holds that the employer-policyholder is
the agent of the insurer.
8. Group insurance is a comparatively new form of insurance. In the United States,
the first modern group insurance policies appear to have been issued in 1911 by the
Equitable Life Assurance Society. Group insurance is essentially a single insurance
contract that provides coverage for many individuals. In its original and most
common form, group insurance provides life or health insurance coverage for the
employees of one employer.
9. The coverage terms for group insurance are usually stated in a master agreement
or policy that is issued by the insurer to a representative of the group or to an
administrator of the insurance program, such as an employer. The employer acts as a
functionary in the collection and payment of premiums and in performing related
duties. Likewise falling within the ambit of administration of a group policy is the
disbursement of insurance payments by the employer to the employees. Most
policies, such as the one in this case, require an employee to pay a portion of the
premium, which the employer deducts from wages while the remainder is paid by the
employer. This is known as a contributory plan as compared to a non-contributory
plan where the premiums are solely paid by the employer.
10. Although the employer may be the titular or named insured, the insurance is
actually related to the life and health of the employee. Indeed, the employee is in the
position of a real party to the master policy, and even in a non-contributory plan, the
payment by the employer of the entire premium is a part of the total compensation
paid for the services of the employee. Put differently, the labor of the employees is
the true source of the benefits, which are a form of additional compensation to them.
11. It has been stated that every problem concerning group insurance presented to a
court should be approached with the purpose of giving to it every legitimate
opportunity of becoming a social agency of real consequence considering that the
primary aim is to provide the employer with a means of procuring insurance
protection for his employees and their families at the lowest possible cost, and in so
doing, the employer creates goodwill with his employees, enables the employees to
carry a larger amount of insurance than they could otherwise, and helps to attract and
hold a permanent class of employees.
12. In Elfstrom vs. New York Life Insurance Company, 27 the California Supreme
Court explicitly ruled that in group insurance policies, the employer is the agent of
the insurer. Thus:
We are convinced that the employer is the agent of the insurer in
performing the duties of administering group insurance policies. It
cannot be said that the employer acts entirely for its own benefit or
for the benefit of its employees in undertaking administrative
functions. While a reduced premium may result if the employer
relieves the insurer of these tasks, and this, of course, is
advantageous to both the employer and the employees, the insurer
also enjoys significant advantages from the arrangement. The
reduction in the premium which results from employer-
administration permits the insurer to realize a larger volume of
sales, and at the same time the insurer’s own administrative costs
are markedly reduced.
Xxx xxx xxx
The most persuasive rationale for adopting the view that the
employer acts as the agent of the insurer, however, is that the
employee has no knowledge of or control over the employer’s
actions in handling the policy or its administration. An agency
relationship is based upon consent by one person that another shall
act in his behalf and be subject to his control. It is clear from the
evidence regarding procedural techniques here that the insurer-
employer relationship meets this agency test with regard to the
administration of the policy, whereas that between the employer
and its employees fails to reflect true agency. The insurer directs
the performance of the employer’s administrative acts, and if these
duties are not undertaken properly the insurer is in a position to
exercise more constricted control over the employer’s conduct.
14.   In the light of the above disquisitions and after an examination of the facts
of this case, we hold that PMSI, through its President and General Manager,
Capt. Nuval, acted as the agent of Insular Life. The latter is thus bound by
the misconduct of its agent.
15.   Insular Life, however, likewise recognized Capt. Nuval as the attorney-in-
fact of the petitioners. Unfortunately, through its official, Mr. Urbano, it
acted imprudently and negligently in the premises by relying without
question on the special power of attorney. In Strong vs. Repide, this Court
ruled that it is among the established principles in the civil law of Europe as
well as the common law of American that third persons deal with agents at
their peril and are bound to inquire as to the extent of the power of the agent
with whom they contract
16.   Even granting for the sake of argument that the special powers of attorney
were in due form, Insular Life was grossly negligent in delivering the
checks, drawn in favor of the petitioners, to a party who is not the agent
mentioned in the special power of attorney.
MINOR ISSUE
17.   Nor can we agree with the opinion of the public respondent that since the
shares of the minors in the insurance proceeds are less than P50,000.00,
then under Article 225 of the Family Code their mothers could receive such
shares without need of either court appointments as guardian or the posting
of a bond. It is of the view that said Article had repealed the third paragraph
of Section 180 of the Insurance Code. The pertinent portion of Article 225
of the Family Code reads as follows:
 Art. 225. The father and the mother shall jointly exercise legal
guardianship over the property of their unemancipated common
child without the necessity of a court appointment. In case of
disagreement, the father's decision shall prevail, unless there is
judicial order to the contrary.

Where the market value of the property or the annual income of the
child exceeds P50,000, the parent concerned shall be required to
furnish a bond in such amount as the court may determine, but not
less than ten per centum (10%) of the value of the property or
annual income, to guarantee the performance of the obligations
prescribed for general guardians.

18.   It is clear from the said Article that regardless of the value of the
unemancipated common child's property, the father and mother ipso
jure become the legal guardian of the child's property. However, if the
market value of the property or the annual income of the child exceeds
P50,000.00, a bond has to be posted by the parents concerned to guarantee
the performance of the obligations of a general guardian.
 003 Vda. De Sindayen v. Insular (GUSTILO)
September 4, 1935| Butte, J | Delivery of the Policy
PETITIONER: Fortunata Lucero Viuda De Sindayen
RESPONDENTS: Insular Life Assurance Co. Ltd
SUMMARY: A. Sindayen was employed as a linotype operator in the Bureau of
Printing at Manila.He was in Camiling Tarlac with his wife to spend Christmas
vacation with his aunt, Felicidad Estrada. While there he made a written application
to Insular for a policy of insurance on his life in the sum of P1,000 and he paid to the
agent Mendoza P15 cash as part of the first premium. It was agreed with the agent,
Mendoza that the policy, when and if issued, should be delivered to his aunt. Estrada,
with whom A. Sindayen left the sum of P26.06 to complete the payment of the first
annual premium of P40.06. On January 1, 1933, A. Sindayen, was examined by
Insular’'s doctor who made a favorable report, to Insular. The next day, January 2, A.
Sindayen returned to Manila and resumed his work as a linotype operator in the
Bureau of Printing. On January 11, Insular accepted the risk and issued policy No.
47710 dated back to December 1, 1932, and mailed the same to its agent, Mendoza,
for delivery to A Sindayen which was eventually received by Estrada upon her
payment of the balance of the 1st year premium.
A.  Sindayen died on January 19 and on January 20 Mendoza, learned of the death of
A. Sindayen and called on Estrada and asked her to return the policy but Mendoza
did not return or offer to return the premium paid. Estrada on his aforesaid statement
gave him the policy. Insular obtained from the beneficiary, the widow of A,
Sindayen, her signature to a legal document entitled "ACCORD, SATISFACTION
AND RELEASE" whereby in consideration of the sum of P40.06 paid to her by a
check of Insular, she "assigns, releases and forever discharges said Insular, its
successors and assigns, of all claims, obligation in or indebtedness which she, as
such beneficiary ever had. The said check for P40.06 was never cashed but returned
to Insular. Thereupon this action was brought to enforce payment of the policy. The
issue is WoN the policy took effect?- YES because Mendoza was an agent of
Insular and his decision to deliver the policy is binding on the company.
The main defense of Insular is that the said policy never took effect because of
paragraph 3 of the application above quoted, for at the time of its delivery by the
agent as aforesaid the insured was not in good health. The SC held that Mendoza was
duly licensed by the Insurance Commissioner to act as the agent of the Insular. The
well known custom of the insurance business and the evidence in this case prove that
Mendoza was not regarded by Insular as a mere conduit or automaton for the
performance of the physical act of placing the policy in the hands of the insured.
Further, when the policy is issued and delivered, in the absence of fraud or other
grounds for rescission, it is plainly not within the intention of the parties that there
should be any questions held in abeyance or reserved for future determination that
leave the very existence of the contract in suspense and doubt. If this were not so, the
entire business world which deals so voluminously in insurance would be affected by
this uncertainly.
DOCTRINE: When the policy is issued and delivered, in the absence of fraud or
other grounds for rescission, it is plainly not within the intention of the parties that
there should be any questions held in abeyance or reserved for future determination
that leave the very existence of the contract in suspense and doubt. It is therefore in
the public interest, for the public is profoundly and generally interested in life
insurance, as well as in the interest of the insurance companies themselves by giving
certainly and security to their policies, that we are constrained to hold, as we, do, that
the delivery of the policy to the insured by an agent of the company who is
authorized to make delivery or without delivery is the final act which binds the
company and the insured as well in the absence of fraud or other legal ground for
rescission.
FACTS:
95.   Arturo Sindayen (A. Sindayen), up to the time of his death on January 19,
1933, was employed as a linotype operator in the Bureau of Printing at
Manila and had been such for eleven years prior thereto. He and his wife
went to Camiling, Tarlac, to spend the Christmas vacation with his aunt,
Felicidad Estrada (Estrada).
96.   While there he made a written application on December 26, 1932, to Insular
Life Assurance Co., Ltd. (Insular) through its agent, Cristobal Mendoza
(Mendoza), for a policy of insurance on his life in the sum of P1,000 and he
paid to the agent Mendoza P15 cash as part of the first premium. It was
agreed with the agent, Mendoza that the policy, when and if issued, should
be delivered to his aunt. Estrada, with whom A. Sindayen left the sum of
P26.06 to complete the payment of the first annual premium of P40.06.
97.   On January 1, 1933, A. Sindayen, who was then twenty-nine years of age,
was examined by Insular’'s doctor who made a favorable report, to Insular.
The next day, January 2, A. Sindayen returned to Manila and resumed his
work as a linotype operator in the Bureau of Printing. On January 11, 1933,
Insular accepted the risk and issued policy No. 47710 dated back to
December 1, 1932, and mailed the same to its agent, Mendoza, for delivery
to A Sindayen. On January 11, 1933, A. Sindayen was at work in the
Bureau of Printing. On January 12, he complained of a severe headache and
remained at home. On January 15, he called a physician who found that he
was suffering from acute nephritis and uremia. His illness did not yield to
treatment and on January 19, he died.
98.   The policy which Insular issued and mailed in Manila on January 11 was
received by its agent, Mendoza, in Camiling, Tarlac, on January 16. On
January 18, the agent, Mendoza, in accordance with his agreement with the
insured, delivered the policy to Estrada upon her payment of the balance of
the first year's annual premium. The agent, Mendoza, asked Estrada if her
nephew was in good health and she replied that she believed so because she
had no information that he was sick and he thereupon delivered to her the
policy.
99.   On January 20 the agent, Mendoza, learned of the death of A. Sindayen and
called on Estrada and asked her to return the policy but Mendoza did not
 return or offer to return the premium paid. Estrada on his aforesaid
statement gave him the policy.
100.  On February 4, Insular obtained from the beneficiary, the widow of A,
Sindayen, her signature to a legal document entitled "ACCORD,
SATISFACTION AND RELEASE" whereby in consideration of the sum of
P40.06 paid to her by a check of Insular, she "assigns, releases and forever
discharges said Insular, its successors and assigns, of all claims, obligation
in or indebtedness which she, as such beneficiary ever had or now has,
hereafter shall, or may have, for, upon, or by reason of said policy of life
insurance numbered 47710 upon the life of said A. Sindayen, the latter now
deceased, or arising therefrom or connected therewith in any manner",
101.  The said check for P40.06 was never cashed but returned to Insular.
Thereupon this action was brought to enforce payment of the policy. By the
terms of the policy, an annual premium of P40.06 is due on the first day of
December of each year, the first premium already paid by the insured
covering the period from December 1, 1932 which is to December 1, 1933.
It is to be noted that the policy was not issued and Insular assumed no actual
risk prior to January 11, 1933.
102.  The policy contains the following paragraph: THE CONTRACT. This
Policy and the application herefor constitute the entire contract between the
parties hereto. All statements made by the Insured shall, in the absence
of fraud, be deemed representations and not warranties, and no such
statement shall void the Policy unless it is contained in the written
application, a copy of which is attached to this Policy. Only the
President, or the Manager, acting jointly with the Secretary or Assistant
Secretary (and then only in writing signed by them) have power in behalf of
the Company to issue permits, or to modify this or any contract, or to
extend the time for making any premium payment, and the Company shall
bound by any promise or representation heretofore hereafter given by any
person other than the above-named officials, and by them only in writing
and signed conjointly as stated.
103.  The application which A. Sindayen signed in Camiling, Tarlac, on
December 26, 1932, contained among others the following provisions: (a)
That if this application is accepted and a policy issued in my favor, I bind
myself to accept the same and to pay at least the first year's premium
thereon in the City of Manila; (b) That the said policy shall not take effect
until the first premium has been paid and the policy has been delivered to
and accepted by me, while I am in good health; (c) That the agent taking
this application has no authority to make, modify or discharge contracts, or
to waive any of the Company's right or requirements.
ISSUE/s:
1.  WoN the policy took effect?- YES because Mendoza was an agent of Insular and
his decision to deliver the policy is binding on the company
Other issues:
2.  WoN the Accord, Satisfaction & Releae made by Insular is fraudulent?-YES
it is inequitable
3.  WoN there was delivery of the policy even if it was not delivered to the
insured himself? YES because delivery to the insured in person is not necessary.
Delivery may be made by mail or to a duly constituted agent.
RULING :In view of the premises, we hold that Insular assumed the risk covered by
policy No. 47710 on the life of A. Sindayen on January 18, 1933, the date when the
policy was delivered to A Sindayen. The judgment appealed from is therefore
reversed with directions to enter judgment against Insular in the sum of P1,000
together with interest at the legal rate from and after May 4, 1933, with costs in both
instances against Insular.
RATIO:
Main issue:
104.  The main defense of Insular is that the said policy never took effect because
of paragraph 3 of the application above quoted, for at the time of its
delivery by the agent as aforesaid the insured was not in good health. We
have not heretofore been called upon to interpret and apply this clause in
life insurance application, but identical or substantially identical clauses
have been construed and applied in a number of cases in the United States
and the decisions thereon are far from uniform or harmonious. We do not
find it practicable to attempt to determine where the weight of the authority
lies and propose to resolve this case on its own facts.
105.  There is one line of cases which holds that the stipulation contained in
paragraph 3 is in the nature of a condition precedent, that is to say, that
there can be no valid delivery to the insured unless he is in good health at
the time; that this condition precedent goes to the very essence of the
contract and cannot be waived by the agent making delivery of the policy.
On the other hand, a number of American decisions hold that an agent to
whom a life insurance policy similar to the one here involved was sent with
instructions to deliver it to the insured has authority to bind the company by
making such delivery, although the insured was not in good health at the
time of delivery, on the theory that the delivery of the policy being the final
act to the consummation of the contract, the condition as to the insurer's
good health was waived by the company.
106.  A number of these cases go to the of holding that the delivery of the policy
by the agent to the insured consummates the contract even though the agent
knew that the insured was not in good health at the time, the theory being
that his knowledge is the company's knowledge and his delivery of the
policy is the company's delivery; that when the delivery is made
notwithstanding this knowledge of the defect, the company is deemed to
have waived the defect. Although that appears to be the prevailing view in
the American decisions and leads to the same conclusion, namely, that the
act of delivery of the policy in the absence of fraud or other ground for
recission consummates the insurance, we are inclined to the view that it is
more consonant with the well known practice of life insurance companies
and the evidence in the present case to rest our decision on the proposition
that Mendoza was authorized by the company to make the delivery of the
 policy when he received the payment of the first premium and he was
satisfied that the insured was in good health.
107.  Mendoza was duly licensed by the Insurance Commissioner to act as
the agent of the Insular. The well known custom of the insurance
business and the evidence in this case prove that Mendoza was not
regarded by Insular as a mere conduit or automaton for the
performance of the physical act of placing the policy in the hands of the
insured. If Mendoza were only an automaton then the legally effective
delivery of the policy and the consummation of the contract occurred when
Insular expressed its will to release the policy by mailing it to Mendoza,
namely, on January 11, 1933. In such a case Mendoza would perform a
purely ministerial act and have no discretion. He could do nothing but make
unconditional delivery. The legal result would be the same as if Insular had
mailed the policy on January 11, to the insured directly using the post-office
as its conduit for delivery. On January 11, A. Sindayen was in good health
performing his regular duties in the Bureau of Printing.
108.  But we are not inclined to take such a restrictive view of the agent's
authority because the evidence in the record shows that Mendoza had the
authority, given him by Insular, to withhold the delivery of the policy to
the insured "until the first premium has been paid and the policy has
been delivered to and accepted by the insured while I am in good
health". Whether that condition had been met or not plainly calls for
the exercise of discretion. Granted that Mendoza's decision that the
condition had been met by the insured and that it was proper to make a
delivery of the policy to him is just as binding on the company as if the
decision had been made by its board of directors. Granted that Mendoza
made a mistake of judgement because he acted on insufficient evidence as
to the state of health of the insured. But it is not charged that the mistake
was induced by any misconduct or omission of duty of the insured.
109.  It is the interest not only the applicant but of all insurance companies
as well that there should be some act which gives the applicant the
definite assurance that the contract has been consummated. This sense
of security and of peace of mind that one's defendants are provided for
without risk either of loss or of litigation is the bedrock of life
insurance. A cloud will be thrown over the entire insurance business if the
condition of health of the the insured at the time of delivery of the policy
may be required into years afterwards with the view to avoiding the policy
on the ground that it never took effect because of an alleged lack of good
health, at the time of delivery.
110.  It is difficult to imagine that the insurance company would take such a
position in the face of the common belief of the insuring public that when
the policy is delivered, in the absence of fraud or other grounds for
rescission, the contract of insurance is consummated. The insured rests and
acts on that faith. So does the insurance company, for that matter, for from
the date of delivery of the policy it appropriates to its own use the premium
paid by the insured. When the policy is issued and delivered, in the
absence of fraud or other grounds for rescission, it is plainly not within
the intention of the parties that there should be any questions held in
abeyance or reserved for future determination that leave the very
existence of the contract in suspense and doubt. If this were not so, the
entire business world which deals so voluminously in insurance would be
affected by this uncertainly.
111.  It is therefore in the public interest, for the public is profoundly and
generally interested in life insurance, as well as in the interest of the
insurance companies themselves by giving certainly and security to
their policies, that we are constrained to hold, as we, do, that the
delivery of the policy to the insured by an agent of the company who is
authorized to make delivery or without delivery is the final act which
binds the company and the insured as well in the absence of fraud or
other legal ground for rescission. The fact that the agent to whom it has
entrusted this duty and corporation can only act through agents is derelict or
negligent or even dishonest in the performance of the duty which has been
entrusted to him would create a liability of the agent to the company but
does not resolve the company's obligation based upon the authorized acts of
the agent toward a third party who was not in collusion with the agent.
112.  Paragraph 4 of the application to the effect "that the agent taking this
application has no authority to make, modify or discharge contracts or to
waive any of the company's rights or requirements" is not in point.
Mendoza neither waived nor pretended to waive any right or requirement of
Insular. In fact, his inquiry as to the state of health of the insured discloses
that he was endeavoring to assure himself that this requirement of Insular
had been satisfied. In doing so, he acted within the authority conferred
on him by his agency and his acts within that authority bind the
company. Insular therefore having decided that all the conditions
precedent to the taking effect of the policy had been complied with and
having accepted the premium and delivered the policy thereafter to the
insured, Insular is now estopped to assert that it never intended that
the policy should take effect.
Accord, Satisfaction & Release is Fraudulent
113.  Insular does not set up any defense of fraud, misconduct or omission of
duty of A. Sindayen or his agent, Estrada or of the beneficiary. In its answer
it pleads the "ACCORD, SATISFACTION AND RELEASE" signed by the
widow of A. Sindayen.
114.  With respect to the Accord, Satisfaction & Release, it suffices to say
that this release is so inequitable, not to say fraudulent.
Delivery of the Policy
115.  It is suggested in Insular’'s brief that fhere was no delivery of the policy in
this case because the policy was not delivered to and accepted by A.
Sindayen in person.
116.  Delivery to the insured in person is not necessary. Delivery may be made
by mail or to a duly constituted agent. Insular cites no authorities to support
its proposition and none need be cited to refute it.
Dissenting of Imperial, J.:
117.   The stipulation that the insurance contract shall produce no effect unless the payment of the first premium
and the delivery of the policy be made when the insured is in good health, is not in conflict with any
provision of the Insurance Law now in force, nor with any other law of a general character; neither is said
stipulation contrary to morals or public order, and therefore the same is valid and binding upon the parties.
118.   The majority opinion states that the delivery of the policy by the agent after he has made use of the
discretion conferred upon him by Insular to deliver or to withhold said policy, is binding upon Insular and
the latter cannot evade the consequences thereof. This same legal question has been raised before various
appellate courts of several states of the Union, which made a distinction between agents whose only power
consisted in soliciting insurance and in delivering policies and those who, in addition to such power, were
authorized to issue policies and accept risks on behalf of insurance companies. In the first case the doctrine
is uniform that the acts of agents with limited powers are not binding upon the insurance companies, whereas
in the second case the acts of the agents bind and prejudice the insurance companies represented by them.
119.   It is clear, therefore, that the delivery of the policy by Mendoza does not bind Insular nor is Insulart estopped
from alleging its defense, for the simple reason that Mendoza was not an agent with authority to issue
policies or to accept risks in the name of his principle.
120.   However, it it said that Insular ikewise waived the defense which has hereinbefore been extensively
considered, because it failed to return the first premium collected, and this alleged failure is predicated upon
the statement contained in the penultimate paragraph of the instrument stating that the check for P40.06 was
returned to the widow in consideration of her waiver of any claim whatsoever. A careful reading of the
instrument will convince the mind that what was really meant is that the delivery of the check was another
consideration of the widow's waiver, it being self-evident that said check constituted, in effect, a refund of
the first premium paid by insured and received by the insurer. It is ridiculous to think that such a negligible
amount has been the only consideration of the widow’s waiver of any right or benefit accurring to her from
the policy. A careful perusal of the instrument will show that the real consideration of the widow's waiver
was the unenforceability of the policy due to her husband's illness and the mutual desire of the plaintiff of
the insurer to settle amicably the cases instead of resorting to courts.
121.   In conclusion it is my opinion: (1) That the policy has not produced any effect from which the widow may
derive any right, and (2) that she has expressly waived any all rights accurring from the policy; and for these
reasons I dissent from the majority opinion.
 004 Argente v. West Coast Life Insurance Co. (Hilario)
March 19, 1928 | Malcolm, J. | Concealment
PETITIONER: Bernardo Argente
RESPONDENTS: West Coast Life Insurance
SUMMARY: Bernardo Argente and his wife, Vicenta de Ocampo, applied for a
joint life insurance policy with West Coast Life Insurance Co. They were medically
examined by the company’s doctor, and they supplied the answers to the questions in
the Medical Examiner’s Report. Vicenta died of cerebral apoplexy a few months
after the issuance of the policy, prompting Argente to claim on the policy (he was
asking for P 15000). Upon the investigation of West Coast, it was discovered that the
spouses made several fraudulent declarations regarding the condition of their health
for the last five years, concealing the time the husband was hospitalized and that the
wife had several neurological/phsycological problems (like she was diagnosed with
alcoholism, then later manic depressive psychosis, then a final diagnosis of psycho-
neurosis). Thus, West Coast refused to honor Argente’s claim, prompting him to file
an action before the Trial Court. The Trial Court ruled in favor of West Coast, and
the Supreme Court upheld the Trial Court’s decision.
In an action on a life insurance policy where the evidence conclusively shows that
the answers to questions concerning diseases were untrue, the truth of falsity of the
answers become the determining factor. In the policy was procured by fraudulent
representations, the contract of insurance apparently set forth therein was
never legally existent. It can fairly be assumed that had the true facts been
disclosed by the assured, the insurance would never have been granted. Assurer in
assuming a risk is entitled to know every material fact of which the assured has
exclusive or peculiar knowledge, as well as all material facts which directly tend to
increase the hazard or risk which are known by the assured, or which ought to be or
are presumed to be known by him. And a concealment of such facts vitiates the
policy.
DOCTRINE: One ground for the rescission of a contract of insurance under the
Insurance Act is "a concealment," which in section 25 is defined as "A neglect to
communicate that which a party knows and ought to communicate."
The principal question, therefore, must be, Was the assurer misled or deceived into
entering a contract obligation or in fixing the premium of insurance by a
withholding of material information of facts within the assured's knowledge or
presumed knowledge?
FACTS:
122.  West Coast issued a joint life insurance policy in favor of Bernardo Argente
and his wife, Vicenta de Ocampo.
1.   The wife signed a like application for the same policy as her
husband. Both applications (except names and signatures of the
spouses applicants) were written by Jose Geronimo del Rosario,
an agent for West Coast.
2.   But all information contained in applications were furnished to
agent del Rosario by Argente.
123.  Argente was examined by a medical examiner for Wesst Coast, and the
results were recorded in the Medical Examiner’s Report. This was all in the
hand writing of the doctor, but information and answers to questions on the
Report were furnished to the doctor by Argente. The same happened with
Vicenta, and she gave the answers to the questions to the doctor.
124.  The spouses increased the amount of the insurance from P2000 to P15000,
and asked that the policy be dated May 15, 1925 (they asked this on May 9).
125.  A temporary policy for P 15 000 was issued in favor of the spouses, b ut it
was not delivered to Argente until the first quarterly premium on the policy
was paid.
1.   Since 30 days had elapsed since the applicants were examined,
each of them was required to file a certificate of health before the
policy was delivered on July 2.
126.  On November 18 of the same year (4 months after delivery of policy)
Vicenta died of cerebral apoplexy, and her husband Argente presented a
claim for P 15 000.
1.   Following investigation by West Coast, it was discovered that the
answers given by the insured in their medical examinations
with regard to their health and previous illness and medical
attendance were untrue.
127.  For that reason, the West Coast Life Insurance Co. refused to pay the
claim of Bernardo Argente, and on May 25, 1926, wrote him to the effect
that the claim was rejected because the insurance was obtained through
fraud and misrepresentation. This prompted Argente to file an action in the
trial court.
128.  What they concealed (I don’t think you have to read this in detail, but just in
case sir asks!): In the Medical Examiner's Report that Bernardo Argente, in
response to the question asked by the medical examiner, "Have you ever
consulted a physician for, or have you ever suffered from any ailment or
disease of, the brain or nervous system?" answered "No." To the question,
"Have you consulted a physician for any ailment or disease not included in
your above answer," answered "Yes. Nature of Ailment, Disease or Injury.
Scabies, Number of attacks 1, Date 1911. Duration 1 month, Severity Fair,
results and, if within five years, name and address of every physician
consulted. Dr. P. Guazon. Cured. Dr. Guazon is dead now." And to the
question, "What physician or physicians, if any, not named above, have you
consulted or been treated by, within the last five years and for what illness
or ailment? (If none, so state)" answered "No." It is, however, not disputed
that on January 10, 11, and 13, 1923, Bernardo Argente was confined in
 the Philippine General Hospital where he was treated by Dr. Agerico B.
M. Sison for cerebral congestion and Bell's Palsy.
129.  What they concealed (I don’t think you have to read this in detail, but just in
case sir asks!): Vicenta de Ocampo, in response to the question asked by the
medical examiner, "How frequently, if at all, and in what quantity do you
use beer, wine, spirits or other intoxicants?" answered "Beer only in small
quantities occasionally." To the question, "Have you ever consulted a
physician for or have you ever suffered from any ailment or disease of the
brain or nervous system?" answered "No." To the question, "What
physician or physicians, if any, not named above, have you consulted or
been treated by, within the last five years and for what illness or ailment?
(If none, so state)" answered "None." And to the question, "Are you in good
health as far as you know and believe?" answered "Yes."
130.  It is, however, not disputed that Vicenta de Ocampo was taken by a
patrolman, at the request of her husband, Bernardo Argente, on May 19,
1924, to the Meisic police station, and from there was transferred to the
San Lazaro Hospital. In San Lazaro Hospital, her case was diagnosed by
the admitting physician as "alcoholism," but later Doctor Domingo made
a diagnosis of probable "manic-depressive psychosis," and still, later in
Mary Chiles Hospital, made a final diagnosis of "phycho-neurosis."
131.  Argente concedes and admits most of these facts, yet alleges that both he
and his wife revealed their medical conditions to the doctor who
examined them from the insurance company, but that the doctor,
presumably acting in collusion with the insurance agent, failed to
record them in the medical reports.
132.  The Trial Court ruled in favor of West Coast, and disregarded the
testimonies presented by Argente (his own testimony, his clerk’s, the
doctor’s, and the agent’s).
1.   There appears no motive on the part of the doctor to fasify the
Medical Examiner’s Reports.
2.   Further, from the evidence and representations in their applications
regarding their health for the last 5 years before they applied for
insurance, they were totally false.
133.  He now questions the trial court’s ruling before the SC.
ISSUE/s:
12.   WoN the Trial Court was correct in saying that West Coast correctly
refused to pay Argente’s claim – YES, because Argente is guilty of
concealment, on of the grounds for rescission of a contract of insurance
under the Insurance Act.
RULING: SC affirmed the lower courts decision. Pwede rin wherefore.
RATIO:
120.  One ground for the rescission of a contract of insurance under the
Insurance Act is "a concealment," which in section 25 is defined as "A
neglect to communicate that which a party knows and ought to
communicate."
121.  Argente claims that the alleged concealment was immaterial and
insufficient to avoid the policy.
122.  The SC does not buy this.
123.  In an action on a life insurance policy where the evidence conclusively
shows that the answers to questions concerning diseases were untrue, the
truth of falsity of the answers become the determining factor. In the policy
was procured by fraudulent representations, the contract of insurance
apparently set forth therein was never legally existent. It can fairly be
assumed that had the true facts been disclosed by the assured, the
insurance would never have been granted.
124.  In Joyce, The Law of Insurance, second edition, volume 3, Chapter LV, is
found the following: Concealment exists where the assured has
knowledge of a fact material to the risk, and honesty, good faith, and
fair dealing requires that he should communicate it to the assured, but
he designated and intentionally with holds the same. Another rule is that
if the assured undertakes to state all the circumstances affecting the
risk, a full and fair statement of all is required.
125.  It is also held that the concealment must, in the absence of inquiries, be
not only material, but fraudulent, or the fact must have been
intentionally withheld.
1.   if no inquiries are made and no fraud or design to conceal
enters into the concealment the contract is not avoided.
126.  But it would seem that if a material fact is actually known to the assured, its
concealment must of itself necessarily be a fraud, and if the fact is one
which the assured ought to know, or is presumed to know, the
presumption of knowledge ought to place the assured in the same
position as in the former case with relation to material facts;
127.  The basis of the rule vitiating the contract in case of concealment is that it
misleads or deceives the insurer into accepting the risk, or accepting it at the
rate of premium agreed upon. The insurer, relying upon the belief that the
assured will disclose every material within his actual or presumed
knowledge, is misled into a belief that the circumstance withheld does not
exist, and he is thereby induced to estimate the risk upon a false basis that it
does not exist.
128.  The principal question, therefore, must be, Was the assurer misled or
deceived into entering a contract obligation or in fixing the premium of
insurance by a withholding of material information of facts within the
assured's knowledge or presumed knowledge?
129.  Assurer in assuming a risk is entitled to know every material fact of which
the assured has exclusive or peculiar knowledge, as well as all material
facts which directly tend to increase the hazard or risk which are known by
the assured, or which ought to be or are presumed to be known by him. And
a concealment of such facts vitiates the policy.
 005 EDILLON VS MANILA BANKERS LIFE (HIRANG)
30 September 1982 |Vasquez, J. | Concealment
PETITIONER: REGINA EDILLON
RESPONDENTS: MANILA BANKERS LIFE INSURANCE CORPORATION
SUMMARY:
Insured: Carmen Lapuz
Insurer: Manila Bankers Life Insurance Corporation (MBL)
Beneficiary: Regina Edillon
Policy: Insurance against accident and injuries
In 1969, Lapuz applied with MBL for a life insurance coverage against accident and
injuries. When she applied for the insurance she was already over 60 years of age
but despite this, her application was accepted. Under such policy, her beneficiary
was her sister, Regina Edillon. During the effectivy of the policy, Lapuz died due to
an accident and as such, Edillon, as beneficiary filed a claim to collect the insurance
proceeds but was denied by MBL contending that in the Insurance Certicifacate
provided for a provision which states that it is not liable to pay claims under the
policy in behalf of "persons who are under the age of sixteen (16) years of age or
over the age of sixty (60) years x x x." It is to note that when Lapuz applied for the
policy, she was already over 60 years old. The issue in this case is WoN MBL is
liable and the court ruled in the affirmative. The age of Lapuz was never concealed
to MBL. In fact, the application clearly showed that at the time of application Lapuz
was almost 65 yrs old. The accident which resulted in the death of the insured, a
risk covered by the policy, occurred on May 31, 1969 - 45 DAYS after the
insurance coverage was applied for. There was sufficient time for the private
respondent to process the application and to notice that the applicant was over 60
years of age and thereby cancel the policy on that ground if it was minded to do
so. If MBL failed to act, it is either because it was willing to waive such
disqualification; or, through the negligence or incompetence of its employees for
which it has only itself to blame, it simply overlooked such fact. Under the
circumstances, the insurance corporation is already deemed in estoppel
DOCTRINE: It is usually held that where the insurer, at the time of the issuance of
a policy of insurance, has knowledge of existing facts which, if insisted on, would
invalidate the contract from its very inception, such knowledge constitutes a waiver
of conditions in the contract inconsistent with the known facts, and the insurer is
stopped thereafter from asserting the breach of such conditions. The law is
charitable enough to assume, in the absence of any showing to the contrary, that an
insurance company intends to execute a valid contract in return for the premium
received; and when the policy contains a condition which renders it voidable at its
inception, and this result is known to the insurer, it will be presumed to have
intended to waive the conditions and to execute a binding contract, rather than to
have deceived the insured into thinking he is insured when in fact he is not, and to
have taken his money without consideration
FACTS:
132.  In April 1969, Carmen O. Lapuz applied with Manila Bankers Life (MBL)
for insurance coverage against accident and injuries. She filled up the blank
application form given to her and filed the same with MBL
133.  In the said application form which was dated April 15, 1969, she gave the
date of her birth as July 11, 1904. On the same date, she paid the sum of
P20.00 representing the premium for which she was issued the
corresponding receipt signed by an authorized agent of the MBL
134.  During the effectivity of the Insurance Policy, Carmen Lapuz died, and as
such, Regina L. Edillon, the sister of the insured and who was the named
beneficiary in the policy, filed her claim for the proceeds of the insurance
135.  MBL denied the claim of Edillon stating that it is not liable to pay claims
under the policy in behalf of "persons who are under the age of sixteen (16)
years of age or over the age of sixty (60) years x x x." It is to note that when
Lapuz applied for the policy, she was already over 60 years old
136.  The trial court ruled in favor of MBL stating that:
a.   The policy of insurance being a contract of adhesion, it was the
duty of the insured to know the terms of the contract he or she is
entering into; the insured in this case, upon learning from its terms
that she could not have been qualified under the conditions stated
in said contract, what she should have done is simply to ask for a
refund of the premium that she paid
ISSUE/s: WoN Manila Bankers Life is liable – Yes, the court ruled that the fact
that MBL accepted the application, knowing that the age of the applicant is an
important element, showed that MBL either waived such criteria or it’s employees
are negligence or incompetence for overlooking such fact
RULING: WHEREFORE, the judgment appealed from is hereby REVERSED and
SET ASIDE.
RATIO:
213.  The age of the insured Carmen O. Lapuz was not concealed to the insurance
company. Her application for insurance coverage which was on a printed
form furnished by private respondent and which contained very few items
of information clearly indicated her age at the time of filing the same to be
almost 65 years of age
214.  Despite such information which would hardly be overlooked in the
application form, considering its prominence thereon and its materiality to
the coverage applied for, the respondent insurance corporation received her
payment of premium and issued the corresponding certificate of insurance
without question
215.  The accident which resulted in the death of the insured, a risk covered by
the policy, occurred on May 31, 1969 - 45 DAYS after the insurance
coverage was applied for. There was sufficient time for the private
respondent to process the application and to notice that the applicant was
over 60 years of age and thereby cancel the policy on that ground if it was
 minded to do so. If MBL failed to act, it is either because it was willing to
waive such disqualification; or, through the negligence or incompetence of
its employees for which it has only itself to blame, it simply overlooked
such fact. Under the circumstances, the insurance corporation is already
deemed in estoppel
216.  Its inaction to revoke the policy despite a departure from the exclusionary
condition contained in the said policy constituted a waiver of such
condition. This doctrine was upheld by several cases:
a.   " Que Chee Gan vs. Law Union Rock Insurance Co., Ltd." - In this
case, the requirement of the insurance policy was to have 11 fire
hydrants however, the insurance company in this case, from the
very beginning, knew that the insured only had 2 but nevertheless
accepted the insurance policy and never revoked such policy. The
court in this case said that: “It is usually held that where the
insurer, at the time of the issuance of a policy of insurance, has
knowledge of existing facts which, if insisted on, would invalidate
the contract from its very inception, such knowledge constitutes a
waiver of conditions in the contract inconsistent with the known
facts, and the insurer is stopped thereafter from asserting the
breach of such conditions. The law is charitable enough to
assume, in the absence of any showing to the contrary, that an
insurance company intends to execute a valid contract in return for
the premium received; and when the policy contains a condition
which renders it voidable at its inception, and this result is known
to the insurer, it will be presumed to have intended to waive the
conditions and to execute a binding contract, rather than to have
deceived the insured into thinking he is insured when in fact he is
not, and to have taken his money without consideration”

b.   Capital Insurance & Surety Co., Inc. vs. Plastic Era Co., Inc, -
The company issued the policy upon the execution of a promissory
note for the payment of the premium. A check given subsequently
by the insured as partial payment of the premium was dishonored
for lack of funds. Despite such deviation from the terms of the
policy, the insurer was held liable. The insurance corporation
impliedly agreed to modify the tenor of the insurance policy and in
effect, waived the provision therein that it would only pay for the
loss or damage in case the same occurs after the payment of the
premium. Considering that the insurance policy is silent as to the
mode of payment, Capital Insurance is deemed to have accepted
the promissory note in payment of the premium
 006 CANILANG v. CA (LAGUILLES)
June 7, 1993 | Feliciano, J. | Concealment
PETITIONER: Thelma vda. De Canilang
RESPONDENTS: CA and Great Pacific Life Insurance Corporation
SUMMARY: Jaime consulted a doctor and he was diagnosed with sinus
tachycardia and later on acute bronchitis. He then applied for a non-medical
insurance policy with Great Pacific Life Assurance Company, naming his wife,
Thelma as his beneficiary. Subsequently, Jaime died of congestive heart failure and
anemia. Thelma then filed a claim with Great Pacific but the latter refused because
Jaime allegedly concealed material information from it. Thelma filed a complaint
against Great Pacific for the recovery of the insurance proceeds. Thelma testified
that she was not aware of any serious illness suffered by Jaime. The Insurance
Commissioner ruled in favor of Thelma on the ground that the ailment of Jaime was
not so serious that even if it had been disclosed, it would not have affected Great
Pacific’s decision to insure him. On appeal, the CA reversed the IC’s decision and
found that the failure to disclose previous medical consultation and treatment
constituted material information which should have been communicated to Great
Pacific. The issue is WoN Jaime concealed his true state of health.
The SC held in the affirmative. In Jaime’s application for the insurance, he left
blank the portion for the exceptions that he consulted Dr. Claudio who found him to
be suffering from sinus tachycardia and acute bronchitis. The Court agrees with the
CA that the information which Jaime Canilang failed to disclose was material to the
ability of Great Pacific to estimate the probable risk he presented as subject of life
insurance. Had he disclosed his visits to his doctor, the diagnosis made and the
medicines prescribed, in the insurance application, it may be reasonably assumed
that Great Pacific would have made further inquiries and would have probably
refused to issue a non-medical insurance policy or at the very least, required a
higher premium. Sec. 27 of the 1978 Insurance Code is properly read as referring to
any concealment without regard to whether such is intentional or unintentional.
DOCTRINE: It is immaterial whether the concealment is intentional or
unintentional.
FACTS:
15.   On June 18, 1982, Jaime Canilang consulted Dr. Claudio and was
diagnosed as suffering from sinus tachycardia. The doctor prescribed
trazepam, a tranquilizer, and aptin, a beta-blocker drug. Canilang consulted
the doctor again after two months after, and he was found to have acute
bronchitis.
16.   Jaime Canilang then applied for a non-medical insurance policy with Great
Pacific Life Assurance Company naming his wife, petitioner Thelma
Canilang, as his beneficiary. Jaime Canilang was issued an ordinary life
insurance effective as of August 9, 1982.
17.   On August 5, Jaime Canilang died of congestive heart failure, anemia, and
chronic anemia. Thelma filed a claim with Great Pacific which the latter
denied, upon the ground that Jaime had concealed material information
from it.
18.   Thelma then filed a complaint against Great Pacific for the recovery of the
insurance proceeds. During the hearing called by the Insurance
Commissioner, Thelma testified that she was not aware of any serious
illness suffered by her late husband and that, as far as she knew, her
husband died because of a kidney disorder.
19.   A deposition was given by Dr. Claudio, stating that he previously treated
Jaime for sinus tachycardia and acute bronchitis. Great Pacific presented Dr.
Quismorio, a physician and a medical underwriter working for Great
Pacific. She testified that as a rule, medical examinations are required only
in cases where the applicant has indicated in his application that he has
previously undergone medical consultation and hospitalization.
20.   The Insurance Commissioner ordered Great Pacific to pay P19,700 plus
legal interest after holding that:
a.   The ailment of Jaime was not so serious that even if it had been disclosed, it would
not have affected Great Pacific’s decision to insure him;
b.   Great Pacific waived its rights to inquire into the health condition of the applicant
by the issuance of the policy despite the lack of answers to some of the pertinent
questions in the insurance application;
c.   There was no intentional concealment on the part of the insured as he had thought
that he was merely suffering from a minor ailment and simple cold;
d.   BP 874 which voids an insurance contract whether or not concealment was
intentionally made, was not applicable to Jaime’s case because the law only became
effective in 1985.
21.   On appeal, the CA reversed and set aside the decision of the Insurance
Commissioner:
a.   It found that the use of the word “intentionally” by the Insurance Commissioner in
defining and resolving the issue was not supported by evidence;
b.   That the issue agreed upon by the parties had been whether the deceased insured
made a material concealment as to the state of his health at the time of the filing of
the application.
c.   The CA also held that the failure to disclose previous medical consultation and
treatment constituted material information which should have been communicated
to Great Pacific to enable the latter to make proper inquiries.
22.   Hence, this petition by Thelma Canilang.
ISSUE:
WoN Jaime Canilang concealed his true state of health at the time of the filing of the
insurance application – YES, because he did not disclose that he had consulted a
doctor prior to the application for the insurance policy, and that he suffered from an
illness.
RULING: WHEREFORE, the Petition for Review is DENIED for lack of merit and the
Decision of the Court of Appeals dated 16 October 1989 in C.A-G.R. SP No. 08696 is hereby
AFFIRMED. No pronouncement as to costs.
RATIO:
 1.   In addition to the negative statements made by Jaime in paragraphs 1 and 2 certain information to the insurer was not intentional in nature, for the
of the medical declaration, he failed to disclose in the appropriate space, reason that Jaime believed that he was suffering from a common cold.
under the caption “Exceptions,” that he had twice consulted Dr. Claudio 10.   The unspoken theory of the Insurance Commissioner appears to have been
who found him to be suffering from sinus tachycardia and acute bronchitis. that by deleting the phrase “intentional or unintentional,” the Insurance
2.   The relevant statutory provisions as they stood at the time are set out in PD Code of 1978 intended to limit the kinds of concealment which generate a
1460 or the Insurance Code of 1978: right to rescind on the part of the injured party to “intentional
a.   Sec. 26. A neglect to communicate that which a party knows and ought to concealments.” This argument is not persuasive. As a simple matter of
communicate, is called a concealment. grammar, it may be noted that “intentional and unintentional” cancel each
b.   Sec. 28. Each party to a contract of insurance must communicate to the other, in
good faith, all factors within his knowledge which are material to the contract and other out. The net result therefore of the phrase is precisely to leave
as to which he makes no warranty, and which the other has not the means of unqualified the term “concealment.”
ascertaining. 11.   Thus, Sec. 272 of the Insurance Code of 1978 is properly read as
3.   Under those provisions, the information concealed must be information referring to any concealment without regard to whether such is
which the concealing party knew and ought to have communicated, that is intentional or unintentional.
to say, information which was material to the contract. The test of 12.   In the case at bar, the nature of the facts not conveyed to the insurer was
materiality is contained in Sec. 31.1 such that the failure to communicate must have been intentional rather than
4.   Sinus tachycardia is considered present when the heart rate exceeds 100 merely inadvertent. For Jaime Canilang could not have been unaware that
beats per minute. The symptoms include pounding in the chest and his heart beat would at times rise to high and alarming levels and that he
sometimes faintness and weakness. had consulted a doctor twice in the two months before applying for the
5.   The Court agrees with the CA that the information which Jaime insurance.
Canilang failed to disclose was material to the ability of Great Pacific to 13.   The Court finds it difficult to take seriously the argument that Great Pacific
estimate the probable risk he presented as subject of life insurance. Had had waived inquiry into the concealment by issuing the insurance policy
he disclosed his visits to his doctor, the diagnosis made and the medicines notwithstanding Jaime’s failure to set out answers to some of the questions
prescribed, in the insurance application, it may be reasonably assumed that in the insurance application. Such failure precisely constituted concealment
Great Pacific would have made further inquiries and would have probably on the part of Jaime.
refused to issue a non-medical insurance policy or at the very least, required
a higher premium. The medical declaration which was set out in the application for insurance executed by Jaime
6.   The materiality of the information withheld by Great Pacific did not depend Canilang read as follows:
upon the state of mind of Jaime. A man’s state of mind is not capable of "MEDICAL DECLARATION `I hereby declare that:
(1) I have not been confined in any hospital, sanitarium or infirmary, nor received any medical or
proof in our judicial process, except through proof of external acts from
surgical advice/attention within the last five (5) years.
which inferences as to his subjective belief may be reasonably drawn. (2) I have never been treated nor consulted a physician for a heart condition, high blood pressure,
7.   Neither does materiality depend upon the actual or physical events which cancer, diabetes, lung, kidney, stomach disorder, or any other physical impairment.
ensue. Materiality relates rather to the “probable and reasonable influence (3) I am, to the best of my knowledge, in good health.
of the fact” upon the party to whom the communication should have been EXCEPTIONS:
made, in assessing the risk involved in making or omitting to make further
inquiries and in accepting the application for insurance.
8.   The insurance Great Pacific applied for was a non-medical insurance. It was GENERAL DECLARATION
I hereby declare that all the foregoing answers and statements are complete, true and correct. I
held that the waiver of medical examination in a non-medical insurance hereby agree that if there be any fraud or misrepresentation in the above statements material to the
contract renders even more material the information required of the risk, the INSURANCE COMPANY upon discovery within two (2) years from the effective
applicant concerning previous condition of health and diseases suffered, for date of insurance shall have the right to declare such insurance null and void. That the
such information constitutes an important factor which the insurer takes into liabilities of the Company under the said Policy/TA/Certificate shall accrue and begin only from the
consideration in deciding whether to issue the policy or not. date of commencement of risk stated in the Policy/TA/Certificate, provided that the first premium is
paid and the Policy/TA/Certificate is delivered to, and accepted by me in person, when I am in
9.   The Insurance Commissioner also ruled that the failure Jaime to convey
actual good health.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1

  Sec.
  31.
  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
 the
 communication
 is
 due,
 in
 forming
 his
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
estimate
 of
 the
 disadvantages
 of
 the
 proposed
 contract,
 or
 in
 making
 his
 inquiries.
 
 
 Sec.
 27.
 A
 concealment
 entitles
 the
 injured
 party
 to
 rescind
 a
 contract
 of
 insurance.
 
 

 
 
 007 SUNLIFE v. CA (Marcos)
June 22, 1995 | Quiason, J. | Concealment
PETITIONER: Sunlife Assurance Company of Canada
RESPONDENTS: The Hon. Court of Appeals and Sps. Rolando and Bernarda
Bacani
SUMMARY: Robert Bacani procured a life insurance from Sunlife for himself,
making his mother, Bernarda, the beneficiary. Robert died in a plane crash.
Bernarda filed a claim with Sunlife, seeking the benefits of the insurance policy.
Sunlife, however, rejected the claim of Bernarda given that after conducting an
investigation, it found that Robert did not disclose material facts relevant to the
issuance of the policy. Sunlife claimed that Robert gave false statements
regarding his medical history (See Fact 7 for the questions asked). It found that 2
weeks prior to his application, he was examined and confined at the Lung Center
for renal failure and was subject to different kinds of tests. Bernarda filed an
action for specific performance against Sunlife. The RTC and CA ruled in favor
of Bernards contending that the facts concealed where made in good faith and
under the belief that they need not be disclosed, further the cause of death was
unrelated to the facts concealed by the insured. The issue is WoN there was
concealment or misrepresentation by Robert that would warrant the rejection of
Bernarda’s claim in the insurance policy – YES, because 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. 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 matters
concealed would have definitely affected Sunlife’s action on his application,
either by approving it with the corresponding adjustment for a higher premium
or rejecting the same. "Good faith" is no defense in concealment. The insured's
failure to disclose the fact that he was hospitalized for two weeks prior to ling his
application for insurance, raises grave doubts about his bonafides. It appears that
such concealment was deliberate on his part.
DOCTRINE: 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."
FACTS:
137.  Robert John B. Bacani procured a life insurance contract for himself from
Sunlife.
138.  He was issued issued Policy No. 3-903-766-X valued P100,000.00, with
double indemnity in case of accidental death
139.  The designated beneficiary was his mother, Bernarda Bacani
140.  Robert died in a plane crash. Subsequently, Bernarda filed a claim with
Sunlife, seeking the benefits of the insurance policy taken by her son.
141.  Sunlife conducted an investigation and its findings prompted it to reject the
claim.
142.  In its letter, Sunlife informed Bernarda that Robert did not disclose material
facts relevant to the issuance of the policy, thus rendering the contract
voidable. Attached to the letter was a check representing the total premiums
paid.
143.  Sunlife claimed that the insured gave false statements in his application
when he answered the ff. questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner? 

b) submitted to: 
ECG? 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?"
144.  Robert answered 5(a) in the affirmative but limited his answer to a
consultation for flu and cough complications, while the other questions
were answered in the negative.
145.  However, it was discovered that two weeks prior to his application for
insurance, Robert was examined and confined at the Lung Center of the
Philippines, where he was diagnosed for renal failure. During his
confinement, he was subject to urinalysis, ultra-sonography and hematology
tests.
146.  Bernarda and her husband filed an action for specific performance against
Sunlife with the RTC of Valenzuela.
147.  Sunflife filed its answer with counterclaim and a list of exibits consisting of
medical records furnished by Lung Center.
148.  The RTC ruled in favor of Bernarda and concluded that the facts concealed
were made in good faith and under the 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”.
149.  An appeal was made to the CA, which affirmed the decision of the RTC.
150.  The CA held that the cause of death was unrelated to the facts concealed by
the insured.
151.  Sunlife’s MR was denied, hence a petition was made to the SC.
ISSUE/s: WoN there was concealment or misrepresentation by Robert that would
warrant the rejection of Bernarda’s claim in the insurance policy – YES, because
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

RULING: Judgment in question is affirmed.

RATIO:
217.  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.
218.  Said Section provides: "A neglect to communicate that which a party knows
and ought to communicate, is called concealment."
219.  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.
220.  The terms of the contract are clear. The insured is specifically required to
disclose to the insurer matters relating to his health.
221.  The information which the insured failed to disclose were material and
relevant to the approval and the issuance of the insurance policy.
222.  The matters concealed would have definitely affected Sunlife’s action on
his application, either by approving it with the corresponding adjustment for
a higher premium or rejecting the same.
223.  Moreover, a disclosure may have warranted a medical examination of the
insured by Sunlife in order for it to reasonably assess the risk involved in
accepting the application.
224.  "Good faith" is no defense in concealment.
225.  The insured's failure to disclose the fact that he was hospitalized for two
weeks prior to ling his application for insurance, raises grave doubts about
his bonafides. It appears that such concealment was deliberate on his part.
226.  The argument, that Sunlife's waiver of the medical examination of the
insured debunks the materiality of the facts concealed, is untenable.
227.  We reiterate our ruling in Saturnino v. Philippine American Life Insurance
Company, 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 . . . ."
228.  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.
 008 Saturnino v. Philam (MATSUMURA)
February 28, 1963 | Makalintal, J. | Concealment
PETITIONER: Ignacio Saturnino, in his own behalf and as the judicial guardian of
Carlos Saturnino, minor
RESPONDENTS: The Philippine American Life Insurance Policy
SUMMARY: Estefania Saturnino (saturnino) applied for a non-medical insurance
with Philam. Here, Saturnino was asked to detail her medical history wherein she
stated that she never had any of the ailments listen in the application, cancer, or other
tumors. Moreover, that she had not consulted any physician, undergone any operation
or suffered any injury within the last five years. The insurance policy was issued after
Saturnino paid the first year’s premium. Less than a year later, Saturnino died of
pneumonia secondly to influenza. Her husband and child claimed from Philam the
insurance proceeds of P5,000 but was denied. Apparently, months before the issuance
of the policy, Saturnino was operated on for cancer (her right break was removed) and
that the doctor said she could not be considered definitely cured since her cancer was
malignant. Thus, the saturnino family filed this case to recover the insurance.
The SC rueld that first, Saturnino did make false representation of material facts which
would avoid the policy. While the Saturnino family argue that the misrepresentation
was not material because the insurance was “non-medical”, the court ruled that the
waiver of the medical examination renders even more material the meedical
information that was asked from Saturnino. Second, the argument that Philam’s agent,
Santos, was aware of Saturnino’s ailment was rejected because it was already settled in
the trial court. Such being a question of fact will not be disrupted by the court since
what is assailed are pure questions of law. Third, as to the argument that Saturnino was
not aware that she had cancer (that the doctor allegedly didn’t tell her it was cancer),
the court ruled that concealment of the fact of the operation itself was fraudulent.
Moreover, that in avoiding a policy, it is not necessary to show actual fraud. In this
jurisdiction, a concealment, whether intentional or unintentional, entitles the insurer to
rescind the contract of insurance, concealment being defined as "negligence to
communicate that which a party knows and ought to communicate"
DOCTRINE: A concealment, whether intentional or unintentional, entitles the insurer
to rescind the contract of insurance, concealment being defined as "negligence to
communicate that which a party knows and ought to communicate.
FACTS
1.   Estefania Saturnino (Saturnino) applied for a non-medical insurance with
Philippine American Life Insurance Policy (Philam) on November 16,
1957, witnessed by Edward Santos (Philam’s agent)
a.   This kind of policy dispenses with the medical examination of
the applicant usually required in ordinary life policies. However, a
detailed information regarding the applicant’s health and medical
history is needed.
2.   The policy was issued on the same day upon Saturnino’s payment of the
first year’s premium of P339.25.
3.   On September 19, 1958, Saturnino died of pneumonia, secondly to
influenza.
4.   Estefania’s husband, Ignacio Saturnino, and their minor child Carlos
Saturnino demanded payment of the face value of the policy which is
P5,000.
5.   It appears that the months prior to the issuance of the policy,
Saturnino was operated on for cancer, involving complete removal of
the right breast, including the pectoral muscles and the glands found in
the right armpit.
6.   She stayed in the hospital for a period of eight days, after which she was
discharged, although according to the surgeon who operated on her she
could not be considered definitely cured, her ailment being of the
malignant type.
7.   Notwithstanding the fact of her operation Saturnino did not disclose this
information in her application for insurance.
8.   On the contrary, she stated therein that she did not have, nor had she ever
had, among other ailments listed in the application, cancer or other
tumors; that she had not consulted any physician, undergone any
operation or suffered any injury within the preceding five years; and that
she had never been treated for, nor did she ever have any illness or
disease peculiar to her sex, particularly of the breast, ovaries, uterus, and
menstrual disorders.
9.   The application also recites that the foregoing declarations constituted "a
further basis for the issuance of the policy."
10.   Thus, the insurance claim was rejected by Philam., and so the Saturnino
family filed an action to recover the P5,000.
11.   The CFI of Manila dismissed the case, but the Saturnino family were
declared to be entitled to the return of the premium already paid plus
interest.
12.   Hence, this appeal.
ISSUE/S:
1.   W/N Saturnino made false representations of material facts which would
avoid the policy – YES because Saturnino misrepresented herself as
someone who’s never had any cancel or undergone any operation within the
past 5 years when in fact she did.

RULING: The judgment appealed from, dismissing the complaint and awarding the
return to appellants of the premium already paid, with interest at 6% up to January
29, 1959, is affirmed, with costs against appellants.
RATIO:
1.   There can be no dispute that the information given by Saturnino in
her application for insurance was false, namely, that she had never had
cancer or tumors, or consulted any physician or undergone any operation
within the preceding period of five years.
2.   Are the facts thus falsely represented material? Section 30 of The
Insurance Law provides that "materiality is to be determined not by the
event, but solely by the probable and reasonable influence of informing
his estimate of the proposed contract, or in facts upon the party to whom
the communication is due, making his inquiries."
3.   The Saturnino family argue that the facts subject of the representations
was not material in view of the "non-medical" nature of the insurance
applied for, which does away with the usual requirement of medical
examination before the policy is issued.
4.   However, such is without merit. If anything, the waiver of medical
examination 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.
5.   It is logical to assume that if Philam had been properly apprised of the
insured's medical history Saturnino would at least have been made to
undergo medical examination in order to determine her insurability.
6.   The Saturnino family also argue that due information concerning
Saturnino's previous illness and operation had been given Philam’s
agenct, Edward Santos, who filed the application form after it was signed
in blank by Saturnino.
7.   This was denied by Santos in his testimony, and the trial court found such
testimony to be true. This is a finding of fact which is binding upon the
SC, this appeal having been taken upon questions of law alone.
8.   The SC did not deem it necessary to consider Philam's additional
argument, which was upheld by the trial court, that in signing the
application form in blank and leaving it to Santos to fill (assuming that to
be the truth) the insured in effect made Santos her agent for that purpose
and consequently was responsible for the errors in the entries made by
him in that capacity.
9.   In the application for insurance signed by the Saturnino in this case, she
agreed to submit to a medical examination by a duly appointed examiner
of Philam if in the latter's opinion such examination was necessary as
further evidence of insurability. In not asking her to submit to a medical
examination, the Saturnino family argue that Philam was negligent which
precluded it from finding about her actual state of health.
10.   The SC rueld thst No such negligence can be imputed to Philam. It was
precisely because the insured had given herself a clean bill of health that
Philam no longer considered an actual medical checkup necessary.
11.   The Saturnino family also contend there was no fraudulent
concealment of the truth as much as Saturnino herself did not know,
since her doctor never told her, that the disease for which she had
been operated on was cancer.
12.   In the first place the concealment of the fact of the operation itself was
fraudulent, as there could not have been any mistake about it, no matter
what the ailment.
13.   Secondly, in order to avoid a policy, it is not necessary to show actual
fraud on the part of the insured.
14.   According to Kasprzyk vs. Metropolitan Insurance Co.,: "Moreover, if it
were the law that an insurance company could not defend a policy on the
ground of misrepresentation, unless it could show actual knowledge on
the part of the applicant that the statements were false, then it is plain
that it would be impossible for it to protect itself and its honest
policyholders against fraudulent and improper claims. It would be
wholly at the mercy of any one who wished to apply for insurance, as it
would be impossible to show actual fraud except in the extremest cases.
It could not rely on an application as containing information on which it
could act. There would be no incentive to an applicant to tell the truth."
15.   In this jurisdiction, a concealment, whether intentional or
unintentional, entitles the insurer to rescind the contract of
insurance, concealment being defined as "negligence to communicate
that which a party knows and ought to communicate"
16.   In Argente vs. West Coast Life Insurance Co, the court said: "'The basis
of the rule vitiating the contract in cases of concealment is that it misleads
or deceives the insurer into accepting the risk, or accepting it at the rate of
premium agreed upon. The insurer, relying upon the belief that the
assured will disclose every material fact within his actual or presumed
knowledge, is misled into a belief that the circumstance withheld does not
exist, and he is thereby induced to estimate the risk upon a false basis that
it does not exist.'"
 009 FLORENDO v. PHILAM PLANS (MERILLES)
February 22, 2012 | Abad, J. | Concealment
PETITIONER: Ma. Lourdes S. Florendo
RESPONDENTS: Philam Plans Inc., Perla Abcede. and Ma. Celeste Abcede
SUMMARY: Manuel filed an application for a comprehensive pension plan
with Philam Plans through Perla Abcede. Manuel signed the forms and left to
Perla the accomplishment the contents. The pension plan had with it a life
insurance coverage. Philam Plans subsequently issued a Pension Plan
Agreement to Manuel. Manuel paid his quarterly premiums.
11 months after acquiring the pension, Manuel died. His beneficiary, Lourdes
Florendo (his wife), claims for the payment of the benefits but was denied.
Philam Plans alleges that Manuel concealed material facts as to his health when
he applied for the pension plans, therefore cannot recover from the insurer.
Lourdes field an action against Philam plans. The RTC ruled that Manuel was
not guilty of concealment. The CA reversed saying that nsurance policies are
traditionally contracts uberrimae fidae or contracts of utmost good faith. As
such, it required Manuel to disclose to Philam Plans conditions affecting the risk
of which he was aware or material facts that he knew or ought to know.
The issue before the SC is whether Manuel is guilty of concealing his illness in
his application forms. The Court ruled that YES, he is guilty. When Manuel
signed the pension plan application, he adopted as his own the written
representations and declarations embodied in it. Assuming that it was Perla
who filled up the application form, Manuel is still bound by what it
contains since he certified that he authorized her action. Philam Plans had
every right to act on the faith of that certification
DOCTRINE: (repetition of above) When Manuel signed the pension plan
application, he adopted as his own the written representations and declarations
embodied in it. Assuming that it was Perla who filled up the application form,
Manuel is still bound by what it contains since he certified that he authorized
her action. Philam Plans had every right to act on the faith of that certification
FACTS:
1.   Manuel Florendo filed an application for comprehensive pension plan with
respondent Philam Plans, Inc. (Philam Plans) after some convincing by
respondent Perla Abcede
a.   The plan had a pre-need price of P997,050.00, payable in 10 years,
and had a maturity value of P2,890,000.00 after 20 years
2.   Manuel signed the application and left to Perla the task of supplying the
information needed in the application.
3.   Ma. Celeste Abcede, Perla’s duaghter, signed tha application as sales
counselor
4.   Aside from pension benefits, the comprehensive pension plan also provided
life insurance coverage to Florendo
5.   This was covered by a Group Master Policy that Philippine American Life
Insurance Company (Philam Life) issued to Philam Plans
a.   Under the master policy, Philam Life was to automatically provide
life insurance coverage, including accidental death, to all who
signed up for Philam Plans' comprehensive pension plan
b.   If the plan holder died before the maturity of the plan, his
beneficiary was to instead receive the proceeds of the life
insurance, equivalent to the pre-need price. F
c.   urther, the life insurance was to take care of any unpaid premium
until the pension plan matured, entitling the beneficiary to the
maturity value of the pension plan
6.   Philam Plans issued Pension Plan Agreement PP 43005584 to Manuel, with
Ma. Lourdes S. Florendo, his wife, as beneficiary. Manuel paid his
quarterly premiums
7.   11 months later, Manuel died of blood poisoning.
8.   Lourdes filed a claim with Philam Plans for the payment of the benefits
under her husband’s plan.
9.   Because Manuel died before his pension plan matured and his wife was to
get only the benefits of his life insurance, Philam Plans forwarded her claim
to Philam Life
10.   On May 3, 1999, Philam Plans wrote Lourdes a letter, declining her claim.
a.   Philam Life found that Manuel was on maintenance medicine for
his heart and had an implanted pacemaker.
b.   Further, he suffered from diabetes mellitus and was taking insulin.
11.   Lourdes renewed her demand for payment under the plan
but Philam Plansrejected it, prompting her to file the present action against
the pension plan company before the Regional Trial Court (RTC) of
Quezon City
12.   RTC rendered judgment ordering Philam PLans, Perla and Celeste
solidarity to pay lourdes all the benefits form her husband’s pension plan.
a.   RTC ruled that Manuel was not guilty of concealing the state of his
health from his pension plan application
13.   CA reversed the RTC decision holding that insurance policies are
traditionally contracts uberrimae fidae or contracts of utmost good faith. As
such, it required Manuel to disclose to Philam Plans conditions affecting the
risk of which he was aware or material facts that he knew or ought to know
14.   Hence, this case.
ISSUE/s:
1.   Whether the CA erred in finding Manuel guilty of concealing his illness
when he kept blank and did not answer questions ins pension plan
application regarding the ailments he suffered - YES. In signing the forms
he attests to the completeness and truthfulness of its contents.
 5.   Lourdes next points out that it made no difference if Manuel failed to reveal
RULING: WHEREFORE, the Court AFFIRMS in its entirety the decision of the the fact that he had a pacemaker implant in the early 70s since this did not
Court of Appeals in CA-G.R. CV 87085 dated December 18, 2007 fall within the five-year timeframe that the disclosure contemplated
a.   But a pacemaker is an electronic device implanted into the body
RATIO: and connected to the wall of the heart, designed to provide regular,
1.   Lourdes points out that, seeing the unfilled spaces in Manuel's pension plan mild, electric shock that stimulates the contraction of the heart
application relating to his medical history, Philam Plans should have muscles and restores normalcy to the heartbeat
returned it to him for completion. 6.   Assuming that it was Perla who filled up the application form, Manuel
a.   Since Philam Planschose to approve the application just as it was, is still bound by what it contains since he certified that he authorized
it cannot cry concealment on Manuel's part. her action. Philam Plans had every right to act on the faith of that
b.   Further, Lourdes adds that Philam Plans never queried Manuel certification
directly regarding the state of his health. Consequently, it could not 7.   In a final attempt to defend her claim for benefits under Manuel's pension
blame him for not mentioning it plan, Lourdes points out that any defect or insufficiency in the information
2.   However, the Court says that Lourdes forgets that provided by his pension plan application should be deemed waived after the
since Philam Plans waived medical examination for Manuel, it had to rely same has been approved, the policy has been issued, and the premiums have
largely on his stating the truth regarding his health in his application. been collected
a.   For, after all, he knew more than anyone that he had been under a.   The Court cannot agree. The comprehensive pension plan
treatment for heart condition and diabetes for more than five years that Philam Plans issued contains a one-year incontestability period
preceding his submission of that application. b.   The incontestability clause precludes the insurer from disowning
b.   But he kept those crucial facts from Philam Plans liability under the policy it issued on the ground of concealment or
c.   Besides, when Manuel signed the pension plan application, he misrepresentation regarding the health of the insured after a year of
adopted as his own the written representations and its issuance
declarations embodied in it. 8.   Since Manuel died on the eleventh month following the issuance of his
d.   It is clear from these representations that he concealed his chronic plan, the one year incontestability period has not yet set in.
heart ailment and diabetes from PhilamPlans Consequently, Philam Plans was not barred from questioning Lourdes'
3.   Since Manuel signed the application without filling in the details regarding entitlement to the benefits of her husband's pension plan.
his continuing treatments for heart condition and diabetes, the assumption is
that he has never been treated for the said illnesses in the last five years
preceding his application.
a.   This is implicit from the phrase "If your answer to any of the
statements above (specifically, the statement: I have never been
treated for heart condition or diabetes) reveal otherwise, please
give details in the space provided for."
b.   But this is untrue since he had been on "Coumadin," a treatment
for venous thrombosis, and insulin, a drug used in the treatment of
diabetes mellitus, at that time.
4.   Lourdes insists that Manuel had concealed nothing since Perla, the
soliciting agent, knew that Manuel had a pacemaker implanted on his chest
in the 70s or about 20 years before he signed up for the pension plan
a.   Nothing in it implies that someone else may provide the
information that Philam Plans needed.
b.   Manuel cannot sign the application and disown the
responsibility for having it filled up.
c.   If he furnished Perla the needed information and delegated to
her the filling up of the application, then she acted on his
instruction, not on Philam Plans' instruction
 010 NG GAN ZEE V ASIAN CRUSADER LIFE INSURANCE (ARMAND)
May 30, 1983 | Escolin, J. | Concealment
PETITIONER: Ng Gan Zee
RESPONDENTS: Asian Crusader Life Assurance Corporation
SUMMARY: In May 1962, Kwong Nam applied for a 20-year policy with Asian
Crusader Life Assurance Corporation. Asian Crusader asked the following question:
Has any life insurance company ever refused your application for insurance or for
reinstatement of a lapsed policy or offered you a policy different from that applied
for? If, so, name company and date. – to which Kwong Nam answered “No”. Kwong
Nam was also examined by Asian Crusader’s medical examiner to whom he
disclosed that he was once operated and a tumor was removed from his stomach and
such was “associated with ulcer of the stomach.” Kwong Nam’s application was
approved. In May 1963, he died. His widow, Ng Gan Zee, filed an insurance claim
but Asian Crusader refused her claim as it insisted that Kwong Nam concealed
material facts from them when he was applying for the insurance; that he
misrepresented the fact that he was actually denied application by Insular Life when
he was renewing his application with them; that Kwong Nam was actually operated
for peptic ulcer. The issue is WoN because of the aforementioned representation,
the insured has misled, or deceived the insurer in entering the contract or in
accepting the risk at the rate of premium agreed upon – NO. The representation
was not material, nor fraudulent, and there was no proof to show that it was
intentionally withheld. Asian Crusader was not able to prove that Kwong Nam’s
statement that Insular Life did not deny his insurance renewal with them is untrue. In
fact, evidence showed that in April 1962, Insular Life approved Kwong Nam’s
request of reinstatement only with the condition that Kwong Nam’s plan will be
lowered from P50,000.00 to P20,000.00 considering his medical history. Kwong
Nam did not conceal anything from Asian Crusader. His statement that his operation,
in which a tumor the size of a hen’s egg was removed from his stomach, was only
“associated with ulcer of the stomach” and not peptic ulcer can be considered as an
expression made in good faith of his belief as to the nature of his ailment and
operation. Indeed, such statement must be presumed to have been made by him
without knowledge of its incorrectness and without any deliberate intent on his part to
mislead Asian Crusader.While it may be conceded that, from the viewpoint of a
medical expert, the information communicated was imperfect, the same was
nevertheless sufficient to have induced Asian Crusader to make further inquiries
about the ailment and operation of Kwong Nam. It has been held that where, upon the
face of the application, a question appears to be not answered at all or to be
imperfectly answered, and the insurers issue a policy without any further inquiry,
they waive the imperfection of the answer and render the omission to answer more
fully immaterial.
DOCTRINE: The duty to establish such affirmative defense of fraudulent intent by
satisfactory and convincing evidence rests upon the defendant.
It has been held that where, upon the face of the application, a question appears to be
not answered at all or to be imperfectly answered, and the insurers issue a policy
without any further inquiry, they waive the imperfection of the answer and render the
omission to answer more fully immaterial.
FACTS:
134.  On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance
on his life for the sum of P20,000.00, with his wife, appellee Ng Gan Zee as
beneficiary. On the same date, Asian Crusader (Asian), upon receipt of the
required premium from the insured, approved the application and issued the
corresponding policy. On December 6, 1963, Kwong Nam died of cancer
of the liver with metastasis. All premiums had been religiously paid at the
time of his death.
135.  On January 10, 1964, his widow Ng Gan Zee presented a claim in due form
to the Asian for payment of the face value of the policy. On the same date,
she submitted the required proof of death of the insured. Asian denied the
claim on the ground that the answers given by the insured to the questions
appealing in his application for life insurance were untrue.
136.  Ng Gan Zee brought the matter to the attention of the Insurance
Commissioner, the Hon. Francisco Y. Mandamus, and the latter, after
conducting an investigation, wrote that Asian that he had found no material
concealment on the part of the insured and that, therefore, Ng Gan Zee
should be paid the full face value of the policy. This opinion of the
Insurance Commissioner notwithstanding, appellant refused to settle its
obligation.
137.  Asian alleged that the insured was guilty of misrepresentation when he
answeres “No” to the following question: “Has any life insurance company
ever refused your application for insurance or for reinstatement of a lapsed
policy or offered you a policy different from that applied for? If, so, name
company and date.”
138.  In its brief, Ng Gan Zee stated: “... As pointed out in the foregoing
summary of the essential facts in this case, the insured had in January, 1962,
applied for reinstatement of his lapsed life insurance policy with the Insular
Life Insurance Co., Ltd, but this was declined by the insurance company,
although later on approved for reinstatement with a very high premium as a
result of his medical examination. Thus notwithstanding the said insured
answered 'No' to the [above] question propounded to him.”
139.  Lower court found the argument bereft of factual basis, to wit: “On the first
question there is no evidence that the Insular Life Assurance Co., Ltd. ever
refused any application of Kwong Nam for insurance. Neither is there any
evidence that any other insurance company has refused any application of
Kwong Nam for insurance… No new policy was issued by the Insular Life
Assurance Co., Ltd. to Kwong Nam in connection with said application for
reinstatement and amendment. Such being the case, the Court finds that
there is no misrepresentation on this matter.”
140.  Asian further maintains that when the insured was examined in connection
with his application for life insurance, he gave the appellant's medical
examiner false and misleading information as to his ailment and previous
operation. The alleged false statements given by Kwong Nam was that that
he was operated on for a tumor in the stomach and that it was associated
 with ulcer of the stomach, operated on at Chinese General Hospital 2 years
ago.
141.  Asian alleges that the physician who treated Kwong Nam at the Chinese
Gen Hospital had diagnosed the patient’s ailment as peptic ulcer. Asian
argues that the insured’s statement in his application that a tumor was
removed during said operation constituted material concealment. (So
basically a discrepancy between “peptic ulcer” and “tumor of hen’s egg
size”
ISSUE/s:
13.   Whether or not because of the aforementioned representation, the
insured has misled, or deceived the insurer in entering the contract or
in accepting the risk at the rate of premium agreed upon – NO. The
representation was not material, nor fraudulent, and there was no proof to
show that it was intentionally withheld.
RULING: Finding no reversible error committed by the trial court, the judgment
appealed from is hereby affirmed, with costs against appellant Asian-Crusader life
Assurance Corporation
RATIO:
130.  Section 27 of the Insurance Law (Act 2427) provides:
Sec. 27. Such party a contract of insurance must communicate to the other,
in good faith, all facts within his knowledge which are material to the
contract, and which the other has not the means of ascertaining, and as to
which he makes no warranty.
131.  Thus, "concealment exists where the assured had knowledge of a fact
material to the risk, and honesty, good faith, and fair dealing requires that
he should communicate it to the assurer, but he designedly and intentionally
withholds the same." It has also been held "that the concealment must, in
the absence of inquiries, be not only material, but fraudulent, or the
fact must have been intentionally withheld."
132.  Assuming that the aforesaid answer given by the insured is false, as
claimed by the appellant. Sec. 27 of the Insurance Law, above-quoted,
nevertheless requires that fraudulent intent on the part of the insured
be established to entitle the insurer to rescind the contract. And as
correctly observed by the lower court, "misrepresentation as a defense of
the insurer to avoid liability is an 'affirmative' defense. The duty to
establish such a defense by satisfactory and convincing evidence rests
upon the defendant. The evidence before the Court does not clearly and
satisfactorily establish that defense."
133.  It bears emphasis that Kwong Nam had informed the insurer’s medical
examiner that the tumor for which he was operated on was "associated with
ulcer of the stomach." In the absence of evidence that the insured had
sufficient medical knowledge as to enable him to distinguish between
"peptic ulcer" and "a tumor", his statement that said tumor was "associated
with ulcer of the stomach, " should be construed as an expression made in
good faith of his belief as to the nature of his ailment and operation. Indeed,
such statement must be presumed to have been made by him without
knowledge of its incorrectness and without any deliberate intent on his part
to mislead the insurer.
134.  While it may be conceded that, from the viewpoint of a medical expert, the
information communicated was imperfect, the same was nevertheless
sufficient to have induced insurer to make further inquiries about the
ailment and operation of the insured.
135.  Section 32 of the Insurance Law provides:
Section 32. The right to information of material facts maybe waived either
by the terms of insurance or by neglect to make inquiries as to such facts
where they are distinctly implied in other facts of which information is
communicated.
136.  It has been held that where, upon the face of the application, a question
appears to be not answered at all or to be imperfectly answered, and
the insurers issue a policy without any further inquiry, they waive the
imperfection of the answer and render the omission to answer more
fully immaterial.
137.  As aptly noted by the lower court, "if the ailment and operation of Kwong
Nam had such an important bearing on the question of whether the
defendant would undertake the insurance or not, the court cannot
understand why the defendant or its medical examiner did not make any
further inquiries on such matters from the Chinese General Hospital or
require copies of the hospital records from the appellant before acting on the
application for insurance. The fact of the matter is that the defendant was
too eager to accept the application and receive the insured's premium. It
would be inequitable now to allow the defendant to avoid liability under the
circumstances."
 011 FIELDMEN’S INSURANCE v. VDA. DE SONGCO (PELIÑO) a.   This time, the jeep had a different Plate No: J-68136
September 23, 1968 | Fernando, J. | Misrepresentation35 3.   On October 29, 1961 (policy was still effective), the jeep was being driven
by Rodolfo, son of Federico and a duly licensed driver.
PETITIONER: Fieldmen’s Insurance Co. a.   The jeep collided with a car in Calumpit, Bulacan, and as a result,
RESPONDENTS: Mercedes Vargas Vda. De Songco, et. al. and Court of Appeals Federico and Rodolfo died, while Carlos (another son), Angelita (wife
of Carlos), and a family friend sustained physical injuries.
SUMMARY: Federico, a person who only reached grade 1, owned a private jeepney. He 4.   The injured parties or the heirs wanted to claim from Fieldmen’s, but
was induced by Fieldmen’s agent, Sambat, to apply for a Common Carrier’s Liability Fieldmen’s denied, saying that what was insured was a private vehicle and
Insurance Policy to cover his motor vehicle. This was insured twice under the same
not a common carrier.
policy. While the policy was still effective, the jeep collided with a car, resulting to the
death of Federico and a son, and injuries to the other passengers who were members of 5.   During trial in the CFI, another son of Federico, Amor, testified that when
his family. The heirs wanted to claim on the insurance policy but Fieldmen’s said that Sambat was inducing Federico to insure the vehicle, he butted in saying that
they can’t since what was insured was a private vehicle and not a common carrier. When they can’t insure the vehicle since it is an “owner” private vehicle, but then
the heirs filed in the CFI, the surviving son, Amor, testified that Sambat induced Sambat said that whether the vehicle was an “owner” type or for
Federico to insure the vehicle despite knowing that the vehicle wasn’t a common carrier. passengers, it could be insured because their company is not owned by the
Lower court ruled in favor of the heirs. On appeal to the CA, the CA also affirmed the government, so they could do as they please whenever they believe that the
lower court. Hence, this petition. The issue in this case is whether or not Fieldmen’s is vehicle is insurable.
liable on the policy despite the fact that the vehicle insured is a private one and not a a.   Fieldmen’s didn’t rebut the testimony of Amor.
common carrier. The SC held in the affirmative. Where inequitable conduct is shown by
b.   Lower court ruled in their favor. Fieldmen’s appealed to the CA, and
an insurance firm, it is estopped from enforcing forfeitures in its favor in order to
forestall fraud or imposition on the insured. After Fieldmen’s led Federico to believe that
the also affirmed the lower court.
he could qualify under the common carrier liability insurance, it could not be permitted 6.   Hence, this case.
to change its stand to the detriment of the heirs of the insured. Estoppel is primarily 7.   Fieldmen’s claims that:
based on the doctrine of good faith and the avoidance of harm that will befall the a.   Estoppel cannot be invoked by the heirs as a bar to the alleged breach
innocent party due to its injurious reliance. A contract of insurance is one of perfect good of warranty and condition in the policy
faith not for the insured alone, but equally so for the insurer; in fact, it is more so for the b.   No legal liability was incurred under the policy by Fieldmen’s.
latter, since its dominant bargaining position carries with it stricter responsibility.
ISSUE/s:
DOCTRINE: Where inequitable conduct is shown by an insurance firm, it is estopped
1.   WON Fieldmen’s is liable on the policy despite the fact that the vehicle is a
from enforcing forfeitures in its favor in order to forestall fraud or imposition on the
insured. Contractual duty of disclosure imposed by utmost good faith is not required of private one and not a common carrier. – YES, after Fieldmen’s led Federico
the insured alone, but it is imposed with equal stringency upon the insurer, moreso upon to believe that he could qualify under the common carrier liability
the latter since his dominant bargaining position carries with it stricter responsibility. insurance, it could not be permitted to change its stand to the detriment of

  the heirs of the insured.
FACTS:
1.   Federico Songco (Federico) was a man of scant education, since he only RULING: WHEREFORE, the decision of the CA is AFFIRMED in its entirety.
reached first grade.
a.   He owned a private jeepney with Plate No. 41-289 for the year 1960. RATIO:
b.   On September 15, 1960, he was induced by Fieldmen’s Insurance On whether Fieldmen’s is liable on the policy
Co. (Fieldmen’s) Pampanga agent, Benjamin Sambat (Sambat) to 1.   Where inequitable conduct is shown by an insurance firm, it is
apply for a Common Carrier’s Liability Insurance Policy covering estopped from enforcing forfeitures in its favor in order to forestall
his motor vehicle upon paying annual premium of P16.50. fraud or imposition on the insured.
c.   4 days after, Fieldmen’s issued the Common Carriers Accident 2.   After Fieldmen’s led Federico to believe that he could qualify under the
Insurance Policy which will be effective for 1 year (Sept. 15, 1960- common carrier liability insurance, it could not be permitted to change its
Sept. 15, 1961). stand to the detriment of the heirs of the insured.
2.   On September 22, 1961, Fieldmen’s renewed the policy upon payment of 3.   Estoppel is primarily based on the doctrine of good faith and the
the premium, this time effective from October 15, 1961-October 15, 1962. avoidance of harm that will befall the innocent party due to its
injurious reliance. The failure to apply in this case would result in a gross

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  travesty of justice.
35
The case never mentioned the words concealment or misrepresentation.
4.   As to the issue on breach, CA said (which the SC also agreed with) that,
some of the conditions contained in the policy were impossible to comply
with under the existing conditions at the time and inconsistent with the
known facts, so the insurer (Fieldmen’s) is estopped from asserting
breach of such conditions.
5.   Even it be assumed that there was an ambiguity, based on Qua Chee Gan v.
Law Union and Rock Insurance, taking into account the well-known rule
that ambiguities or obscurities must be strictly interpreted against the party
that caused them.
a.   Nowadays, monopolies, cartels, those with overwhelming economic
power, manage to impose upon parties dealing with them contracts of
adhesion, in contrast to those entered by parties bargaining on equal
footing. So these kinds of contracts call for greater strictness and
vigilance on the part of courts of justice with a view to protecting the
weaker party.
6.   Contract of insurance is one of perfect good faith (uberima fides);
contractual duty of disclosure imposed by utmost good faith is not for
the insured alone, but equally so for the insurer; in fact, it is more so
for the latter, since its dominant bargaining position carries with it
stricter responsibility.
 012 YU PANG CHENG v. CA (PLEYTO)
May 29, 1959 | Bautista Angelo, J. | Misrepresentation
PETITIONER: Yu Pang Cheng alias Yu Pang Ching
RESPONDENTS: The Court of Appeals, et. al.
SUMMARY: Yu Pand Eng submitted his application for insurance of Sept. 1950.
He was issued a policy 3 days after. He entered St. Lukes on Dec. 29, 1950 but he
eventually died of “infiltrating medullary carcinoma, Grade 4, advanced catdiac and
lesser curvature, stomach metastases spleen” on Feb. 1951. Cheng, brother and
beneficiary of Yu Pand Eng, demanded from the defendant-insurer the proceeds of
the insurance but it was denied. Hence, this petition. Defendant-insurer in its answer,
set up the defense that Yu Pand Eng was guilty of misrepresentation and
concealment of material facts in that he gave false and untruthful answers to certain
questions asked him in his application for insurance which were material to the risk
against and have the effect of avoiding the insurance policy. Trial court ruled in
favor of Cheng but this was reversed by the CA. The issue in this case is WoN the
insured is guilty of concealment of some facts material to the risk insured against
which has the effect of avoiding the policy as found by the CA. It appears that Yu
Pand Eng entered the Chinese General Hospital for medical treatment on January 29,
1950 having stayed there up to February 11, 1950. Upon entering the hospital, he
complained of dizziness, anemia, abdominal paids and tarry stools, and in the
evening of his admission he had several abdominal pains and his discharges were
with black tarry stools and felt dizzy and weak. Yu Pand Eng's confinement in the
Chinese General Hospital took place from January 29, 1950 to February 11, 1950,
whereas his application for insurance wherein he stated his answers to the questions
propounded to him by the examining physician of defendant-insurer was submitted
to defendant-insurer on September 5, 1950. (check ratio #1) 5. It is apparent that
when the insured gave his answers regarding his previous ailment, particularly with
regard to "Gaztritis, Ulcer of the Stomach or any disease of that organ" and "Vertigo,
Dizziness, Fainting-spells or Unconsciousness", he concealed the ailment of which
he was treated in the Chinese General Hospital which precisely has direct connection
with the subject of the questions propounded. This deprived defendant-insurer of the
opportunity to make the necessary inquiry as to the nature of his past illness so that it
may form its estimate relative to the approval of his application. Had defendant-
insurer been given such opportunity, considering the previous illness of the insured
as disclosed by the records of the Chinese General Hospital, defendant-insurer would
probably had never consented to the issuance of the policy in question. (Doctrine)
DOCTRINE: Concealment is the neglect to communicate that which a party knows
and ought to communicate. Whenever intentional, the concealment entitles the
insurer to rescind the contract of insurance. The insurance law requires the insured to
communicate to the insurer all facts within his knowledge which are material to the
contract and which the other party has no means of ascertaining, and the 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 the communication is due.
FACTS:
1.   On Sept. 5, 1950, Yu Pand Eng submitted parts II and III of his application
for insurance consisting of the medical declaration made by him to the
medical examiner of defendant (SORRY, HINDI TALAGA NAKALAGAY SA
CASE SINO SIYA so not sure who kasi may “et. al” so defendant-insurer
na lang sa next parts), and the medical examiner’s report.
2.   On Sept. 7, he submitted part I of his application which is the declaration
made by him to an agent of defendant-insurer
3.   Sept. 8: based on said application, and upon payment of the first premium in
the sum of P591.70, defendant-insurer issued to the insured Policy No.
812858
4.   Dec. 27, 1950: Yu Pand Eng entered St. Luke’s Hospital for medical
treatment but he died on Feb. 27, 1951. According to the death certificate,
he died of “infiltrating medullary carcinoma, Grade 4, advanced catdiac and
lesser curvature, stomach metastases spleen.”
5.   Yu Pang Cheng (Cheng), brother and beneficiary of the insured, demanded
from defendant-insurer the payment of the proceeds of the insurance polic.
6.   Defendant-insurer refused. Thus, Cheng brought this action to collect from
the defendant-insurer the sum of P10,000, value of an insurance policy
taken upon the life of one Yu Pand Eng, plus interest thereon at the legal
rate, the sum of P10,000 as moral damages, P3000 as attorney’s fees, and
the costs of action
7.   Defendant-insurer in its answer, set up the defense that Yu Pand Eng was
guilty of misrepresentation and concealment of material facts in that he
gave false and untruthful answers to certain questions asked him in his
application for insurance which were material to the risk against and
have the effect of avoiding the insurance policy
8.   After trial, the court rendered judgment ordering defendant-insurer to pay
Cheng the sum of P10k, with legal interest from the filing of the complaint,
plus P2k as attorney’s fees, and the costs of the suit
9.   On appeal, the CA reversed the decision of the trial court, holding that the
insured was guilty from liability.
10.   Hence, the present petition for review.
ISSUE/s:
1.   WoN the insured is guilty of concealment of some facts material to the risk
insured against which has the effect of avoiding the policy as found by the
CA – YES. Eng lied on the application despite actually knowing his
sickness.
RULING: the decision appealed from is affirmed, with costs against Cheng
RATIO:
 1.   The insured, in his application for insurance, particularly in his declarations
to the examining physician, stated the following in answering the questions
propounded to him:
"14. Have you ever had any of the following diseases or symptoms? Each question
must be read and answered "Yes" or "No."
xxx xxx xxx
"Gastritis, Ulcer of the Stomach or any disease of that organ? No.
"Vertigo, Dizziness, Fainting-spells or Unconsciousness? No.
"Cancer, Tumors or Ulcers of any kind? No.
"15. Have you ever consulted any physician not included in any of the above
answers? Give names and address or physicians list ailments or accidents and date.
No."
2.   It appears that Yu Pand Eng entered the Chinese General Hospital for
medical treatment on January 29, 1950 having stayed there up to February
11, 1950. Upon entering the hospital, he complained of dizziness, anemia,
abdominal paids and tarry stools, and in the evening of his admission he had
several abdominal pains and his discharges were with black tarry stools and
felt dizzy and weak.
3.   The history of his illness shows that the same "started a year ago as frequent
dizziness." An X-ray picture of his stomach was taken and the diagnosis
made of him by his doctors showed that his illness was "peptic ulcer,
bleeding."
4.   Note: Yu Pand Eng's confinement in the Chinese General Hospital took
place from January 29, 1950 to February 11, 1950, whereas his
application for insurance wherein he stated his answers to the questions
propounded to him by the examining physician of defendant-insurer
was submitted to defendant-insurer on September 5, 1950.
5.   It is apparent that when the insured gave his answers regarding his
previous ailment, particularly with regard to "Gaztritis, Ulcer of the
Stomach or any disease of that organ" and "Vertigo, Dizziness,
Fainting-spells or Unconsciousness", he concealed the ailment of which
he was treated in the Chinese General Hospital which precisely has
direct connection with the subject of the questions propounded.
6.   The negative answers given by the insured regarding his previous ailment,
or his concealment of the fact that he was hospitalized and treated for
sometime of peptic ulcer and had suffered form "dizziness, anemia,
abdominal pains and tarry stools", deprived defendant-insurer of the
opportunity to make the necessary inquiry as to the nature of his past
illness so that it may form its estimate relative to the approval of his
application.
7.   Had defendant-insurer been given such opportunity, considering the
previous illness of the insured as disclosed by the records of the Chinese
General Hospital, defendant-insurer would probably had never
consented to the issuance of the policy in question.
8.   In fact, according to the death certificate, the insured died of "infiltrating
medullary carcinoma, Grade 4, advanced cardiac and of lesser curvature,
stomach metastases spleen", which may have a direct connection with his
previous illness.
9.   Our Insurance Law provides that A neglect to communicate that which
a party knows and ought to communicate, is called concealment"
(Section 25, Act No. 2427 or the Insurance Act (not Code)).
10.   Whether intentional or unintentional, the concealment entitles the
insurer to rescind the contract of insurance (Section 26).
11.   Our law even requires the insured to communicate to the insurer all
facts within his knowledge which are material to the contract and
which the other partty has not the means of ascertaining (Section 27)
12.   the materiality is to be determined not by the event but solely by the
probable and reasonable in uence of the facts upon the party to whom
the communication is due (Section 30).
13.   In the case of Argente vs. West Coast Life Insurance Co., 51 Phil., 725, this
Court said:
"One ground for the rescission of a contract of insurance under the
Insurance Act is 'a concealment', which in section 25 is defined 'A neglect
to communicate that which a party knows and ought to communicate.'
Appellant argues that the concealment was immaterial and isu ceint to avoid
the policy. We cannot agree. In an action on a life insurance policy where
the evidence conclusively shows that the answers to questions concerning
diseases were untrue, the truth or falsity of the answers become the
determining factor. If the policy was procured by fraudulent representations,
the contract of insurance apparently set forth therein was never legally
existent. It can fairly be assumed become that had the true facts been
disclosed by he assured, the insurance would never have been granted."
14.   CA did not err in declaring the policy ineffective on the ground of
concealment and in relieving appellee from liability
 013 EGUARAS v. GREAT EASTERN (Punsalan)
Jan. 24, 1916 | Torres, J. | Misrepresentation
PETITIONER: Francisca Eguaras
RESPONDENTS: The Great Eastern Life Assurance Co., Ltd., West Smith
SUMMARY: Great Eastern Life Assurance, Co., Ltd. accepted Dominador Albay’s
application for insurance where P5,000.00 is to be paid by the insurer to Albay’s
beneficiary, Francisca Eguaras (mother-in-law). In perfection of the contract thereof,
Albay, who was not in good health and by connivance with insurance agent Remigio,
presented Castor Garcia (fake Albay) to Dr. Vidal who was commissioned by Great
Eastern to examine applicants for life insurance. In view of the favorable report of Dr.
Vidal that Albay (who was actually Garcia) was in good health and possessed the
qualifications required by Great Eastern for perfecting the contract, the company freely
and willingly consented to the execution thereof. Such medical examination and of the
favorable professional report induced Great Eastern to indeed believe that Albay was in
good health but who in fact was Castor Garcia. Actual insured Albay died 1 month and 23
days in Sta. Cruz, Laguna after the insurance had been granted.
Issue: (1) WoN the life insurance obtained by Albay, with the assistance of Remigio
(insurance agent), is legal and valid – NO
The person who was actually examined was not Dominador Albay, but was another
(Castor Garcia), in order to get a favorable recommendation on the health of the insured
which induced Great Eastern to approve of the application and thus issue the contested
life insurance policy of Albay where Eguaras is the beneficiary. Furthermore, the
signatures that appear on the papers referring to the insurance are so different from
those which appear on the other documents which unquestionably bear the
signature of the real Dominador Albay that SC can do no less than reach the
conclusion that there was a person who passed himself off as Dominador Albay and
said person was the one who went on signing the documents relating to the alleged
insurance of Dominador Albay.
(2) WoN Great Eastern Life Assurance is under obligation to pay the value to Francisca
Eguaras – NO
Having proven the misrepresentation by the insurance agent, serious deceit indeed
occurred in perfecting the insurance contract. The company would not have granted
insurance applied for had misrepresentation and deception not occurred. Therefore, it is
improper nor is it permitted by the law to order collection of the P5,000.00
DOCTRINE: Misrepresentation in applying for life insurance, also in connivance with
an insurance agent, constitutes serious deceit which cannot entitle a party to the proceeds
of the policy despite being previously issued by the insurance company.
 
FACTS:
1.   Characters:
Francisca Eguaras (Eguaras) – beneficiary; mother-in-law
Dominador Albay (Albay) – insured
The Great Eastern Life Assurance Co., Ltd. (Great Eastern) – insurer
Ponciano Remigio (Remigio) – insurance agent
2.   Oct. 14, 1912: Albay, through the efforts of Great Eastern’s agent, Ponciano
Remigio, got to insure his life for the sum of P5,000.00, naming Eguaras (who
was his mother-in-law) as the beneficiary in case of his death.
a.   That through Albay’s representations and statements in his application and
the favorable medical examination made by Dr. Jose Vidal, Great Eastern
agreed to the life insurance sought.
3.   The contract of life insurance executed between The Great Eastern Life Assurance
Company, Ltd., and Dominador Albay is set forth in the policy itself and in the
original and supplementary applications signed by Albay, it appeared to stipulate
that:
a.   "This insurance is granted in consideration of the foregoing statements and
agreement in the application presented to obtain this policy, which
application forms a part of the present contract."
4.   Such condition is repeated in Clause VIII of the conditions and privileges
granted to the insured, that:
a.   "This policy and the application presented to secure it, taken together,
constitute the whole contract, which cannot be altered except in writing by
the general manager or some person expressly appointed therefor by the
board of directors."
5.   (IMPT) In the supplementary application presented by Albay to the question “Do
you think that you are free from disease and that you have a good
constitution?” He answered “Yes.”
6.   (IMPT) Furthermore, in another question “Have you suffered from any affection
of … (c) Chest – Cough, asthma, spitting blood, pleurisy?” he answered “No.”
7.   Dr. Vidal, the physician of the insurance company in charge of the physical
examination of the person applying for insurance in Laguna, did the check-up on
Albay and recorded that the development, expansion, percussion, and auscultation of
the applicant's chest were "normal" and recommended to the company that it could
"take the risk" of insuring the applicant Dominador Albay
a.   The report also had medical officer Lunn placing “O.K.” on it.
8.   A month after the issuance of the insurance policy, Albay allegedly died of
intestinal occlusion (intestinal blockage which causes blockage of bowel) in Sta.
Cruz, Laguna, as proven in Dr. Kamatoy’s certificate.
9.   Great Eastern, despite having received satisfactory proofs of its insured/Albay’s
death, refused to pay the amount of the insurance and alleged that the policy was
secured through fraud and deceit and was therefore illegal and void.
NOTE: this recounts how the insurance policy was applied for and how the misrepresentation went about
10.   It appears that Albay had knowledge of the false replies contained in the two
applications for insurance and knowingly permitted fraud to be practiced upon
Great Eastern
a.   For in his acknowledgment and consent his mother-in-law was designated
as the beneficiary of the insurance, despite the fact that he had children
and his mother was still living
11.   The fraud consisted in the fact that a healthy and robust person was substituted in
place of the Albay when Dr. Vidal made the physical exam of the one who was
seeking to be insured, for Albay was in bad health on and before the date of
executing the insurance contract, of which facts the insured Albay and the
insurance agent Remigio had full knowledge.
a.   Such person was presented to him by insurance agent Remigio who told
him that such was Albay
b.   But in truth, the person was Castor Garcia who presented himself to
be Dominador Albay.
12.   The insurance company endeavored to prove by means of cross-examination of
Ponciano Remigioand by means of the declaration of another insurance agent, Jose
D. Arce, that Remigio had always been in the habit of securing the insurance of
 sick persons, who died shortly after it was issued, in fraud and to the serious
injury of the defendant company.
a.   Court overruled this attempt of Great Eastern and did not permit proof of
specific fraudulent acts performed by its agent Remigio
b.   It is observed that Remigio has already been convicted of the crime of
estafa and was to restitute The Insular Life Insurance Co. an amount of
P20.
13.   There was also a sworn declaration by Atty. O’Brien indicating that agent Remigio
interviewed him in his office telling him that the signatures affixed to the original
and supplemental application for insurance signed before Dr. Vidal were false.
a.   Remigio further told him that the former was disgusted with his
accomplices because they could not reach an agreement regarding the
distribution among them of the amount of the policy. (scammaz)
14.   Remigio denied all this in his testimony.
15.   Dr. Reyes also testified and said that Albay consulted him regarding the cough he
had and after a medical examination, the conclusion was that Albay was actually
suffering from tuberculosis in the first stage.
16.   There is circumstantial evidence in the case that Albay died of tuberculosis because
his own mother, Manuela Flores, so affirmed in the affidavit. However, it was not
presented as evidence because Flores repudiated it in court.
a.   It was repudiated because Great Eastern was unwilling to give her money
for the statements they would make in the court in the event that West
Smith, Great Eastern’s agent, should win the case, and accordingly to
execute “an instrument we can hold to.”
NOTE: at this point, I’ll go back to what happened in the courts; though I think you can skip this sa recit
17.   CFI rendered judgment where Great Eastern was to pay P5,000.00 to Eguaras with
legal interest.
18.   Great Eastern moved for a reopening of the case and a new trial which was denied
19.   Great Eastern filed a Bill of exceptions, approved and forwarded to the clerk of the
SC.
ISSUE/s:
1.   WoN the life insurance obtained by Albay, with the assistance of Remigio
(insurance agent), is legal and valid – NO, the person who was examined was not
Dominador Albay, but was another (Castor Garcia), in order to get a favorable
recommendation on the health of the insured which induced Great Eastern to
approve of the application and thus issue the contested life insurance policy of
Albay where Eguaras is the beneficiary. (misrepresentation)
2.   WoN Great Eastern Life Assurance is under obligation to pay the value (P5,000) to
Francisca Eguaras – NO. Having proven the misrepresentation by the insurance
agent, serious deceit indeed occurred in perfecting the insurance contract.
RULING: 1st part of judgment appealed from (regarding payment of P5000) is reversed. The
Great Eastern Life Assurance Company, Ltd. is absolved from the complaint. 2nd part of said
judgment in so far as it absolves West Smith is affirmed and petition for damages dismissed.
RATIO:
1.   Eguaras’ claim is based on the genuineness of the signature of “Dominador Albay”
in the elector’s oath on the contention that if the signature on said election oath is
genuine, those which appear on the insurance applications, and that affixed to the
Albay’s letter to Great Eastern, must also be true and genuine.
2.   But if the real Albay wrote in the Spanish style in the months of Jan-March
1912, as demonstrated by the signatures affixed to certain documents, it is
impossible to believe that he should have radically changed his form of writing
2 months later by adopting a different handwriting as can be seen in the alleged
signature in the electors.
3.   The signatures that appear on the papers referring to the insurance are so
different from those which appear on the other documents which
unquestionably bear the signature of the real Dominador Albay that, in
consideration of the short time which elapsed between the last genuine signature in
March, 1912, when he sold a tract of land, and his oath as elector in May of the
same year, 1912, and the great difference that exists between the two signatures, we
can do no less than reach the conclusion already stated that there was a person
who passed himself off as Dominador Albay and said person was the one who
went on signing the documents relating to the alleged insurance of Dominador
Albay, who died on December 6, 1912
4.   Moreover, Dominador Albay's age, according to the application and the insurance
policy, was 40 years in 1912, while according to his personal cedulas he was only 32
years of age in 1911, so that when he was insured he must have been only 33.
5.   It is therefore proven that the signatures on the insurance applications reading
"Dominador Albay" are false and forged
6.   Under Art. 126936(OLD CIVIL CODE), it is essential to the nature of the deceit that
said deceit be prior to or contemporaneous with the consent that is a necessary
prerequisite for perfecting the contract, but not that it may have occurred or
happened thereafter.
a.   A contract is therefore deceitful, for the execution whereof the consent
of one of the parties has been secured by means of fraud, because he
was persuaded by words or insidious machinations, statements or false
promises, and a defective consent wrung from him, even though such do
not constitute estafa or any other criminal act subject to the penal
law.
7.   This fraud consisted in the substitution at the examination of Castor Garcia in
place of the insured Dominador Albay, and as the deceit practiced in the said
contract is of a serious nature, the same is ipso facto void and ineffective, in
accordance with the provisions of article 1270 of the [old] Civil Code.
8.   Serious deceit occurred in perfecting the insurance contract, for had the agent of the
company not been deceived it would not have granted the insurance applied for by
Albay, nor would it have executed the contract by virtue whereof payment is
claimed of the value of the policy obtained through fraud; and consequently on such
assumptions it is improper, nor is it permitted by the law, to order collection of the
amount claimed.
36
Art. 1269: "There is deceit when by words or insidious machinations on the part of one of the
contracting parties the other is induced to execute a contract which without them he would not have
made."
 014 Soliman v. US (Cristelle)
1958 | N/A | Misrepresentation

Dean Hofi can’t find the original copy of this case, ito lang nasa internet
and super short digest pa ito.

DOCTRINE: One who solicits insurance is an underwriter and not an agent

of the insurance company. If insurer appoints a general agent, then such
agent can bind the company by virtue of the written appointment. On the
other hand, when an underwriter fills up a policy with false answers and
later the insured signs the policy, the false answers become the insured’s
own answers because he signed the policy.

FACTS:
1.   US Life issued a 20 year endowment life policy on the joint lives of
Patricio Soliman and his wife Rosario, each of them being the
beneficiary of the other.
2.   In March 1949, the spouses were informed that the premium for
January 1949 was still unpaid notwithstanding that the 31-day grace
period has already expired, and they were furnished at the same time
long-form health certificates for the reinstatement of the policies.
3.   In April 1949, they submitted the certificates and paid the premiums.
4.   In January 1950, Rosario died of acute dilation of the heart, and
thereafter, Patricio filed a claim for the proceeds of the insurance.
5.   US Life denied the claim and filed action for the rescission of the
contract on the ground that the certificates failed to disclose that
Rosario had been suffering from bronchial asthma for 3 years prior
to their submission.

ISSUES: Whether or not the contract can still be rescinded? Yes, it can
be rescinded.

RULING:

RATIO:
1.   The insurer is once again given two years from the date of
reinstatement to investigate into the veracity of the facts represented
by the insured in the application for reinstatement. When US life
sought to rescind the contract on the ground of
concealment/misrepresentation, two years had not yet
elapsed. Hence, the contract can still be rescinded.
 015 Pacific Banking Corp v. CA (Rosales)
November 28, 1988 | Paras, J. | Misrepresentation
PETITIONER: Pacific Banking Corporation
RESPONDENTS: Court of Appeals and Oriental Assurance Corporation
SUMMARY: On October 21,1963, Fire Policy No. F-3770, an open policy, was
issued to the Paramount Shirt Manufacturing Co., by which Oriental Assurance
Corporation bound itself to indemnify the insured for any loss or damage, not
exceeding P61,000.00, caused by fire to its property for a period of one year.
Paramount Shirt is a debtor of Pacific Banking in the amount of not less than
P800,000.00 and the goods described in the policy were held in trust by the
insured for Pacific Banking under thrust receipts. A fire broke out on the subject
premises destroying the goods contained in its ground and second floors. Pacific
Banking sent a letter of demand to Oriental Assurance for indemnity due to the
loss of property by fire. Oriental Assurance said it is not yet ready to accede to
the latter's demand as it is awaiting the final report of the insurance adjuster,
H.H. Bayne Adjustment Company. The insurance adjuster notified Pacific
Banking that Paramount Shirt under the policy had not filed any claim with it,
nor submitted proof of loss which is a clear violation of Policy Condition No.11,
and for which reason, determination of the liability of Oriental Assurance could
not be had. For failure of the insurance company to pay the loss as demanded,
Pacific Banking on filed in the court an action for a sum of money. Pacific
Banking presented in evidence a communication revealing undeclared co-
insurances undertaken by Paramount. RTC rendered a decision adjudging
Oriental Assurance liable to Pacific Banking under the said contract of
insurance. The CA reversed.
WoN Paramount Shirt, the insured, was guilty of fraud which rendered the
contract of insurance void? – YES, because Paramount Shirt failed to reveal
before the loss three other insurances. By reason of said unrevealed insurances,
Paramount Shirt had been guilty of a false declaration; a clear misrepresentation
and a vital one because where the insured had been asked to reveal but did not,
that was deception. Concrete evidence of fraud or false declaration by
Paramount Shirt was furnished by Pacific Banking itself when the facts alleged
in the policy under clauses "Co-Insurances Declared" and "Other Insurance
Clause" are materially different from the actual number of co-insurances taken
over the subject property. As the insurance policy against fire expressly required
that notice should be given by the insured of other insurance upon the same
property, the total absence of such notice nullifies the policy. Undoubtedly, it is
but fair and just that where the insured who is primarily entitled to receive the
proceeds of the policy has by its fraud and/or misrepresentation, forfeited said
right, with more reason Pacific Banking which is merely claiming as indorsee of
said insured, cannot be entitled to such proceeds.
DOCTRINE: Representations of facts are the foundation of the contract and if
the foundation does not exist, the superstructure does not arise. Falsehood in
such representations is not shown to vary or add to the contract, or to terminate a
contract which has once been made, but to show that no contract has ever
existed. A void or inexistent contract is one which has no force and effect from
the very beginning, as if it had never been entered into, and which cannot be
validated either by time or by ratification.
FACTS:
1.   On October 21,1963, Fire Policy No. F-3770, an open policy, was issued to
the Paramount Shirt Manufacturing Co., by which Oriental Assurance
Corporation bound itself to indemnify the insured for any loss or damage,
not exceeding P61,000.00, caused by fire to its property consisting of
stocks, materials and supplies usual to a shirt factory, including furniture,
fixtures, machinery and equipment while contained in the ground, second
and third floors of the building situated at number 256 Jaboneros St., San
Nicolas, Manila, for a period of one year commencing from that date to
October 21, 1964.
2.   Paramount Shirt was at the time of the issuance of the policy and is up to
this time, a debtor of Pacific Banking in the amount of not less than
P800,000.00 and the goods described in the policy were held in trust by the
insured for Pacific Banking under thrust receipts.
3.   Said policy was duly endorsed to Pacific Banking as mortgagee/ trustor of
the properties insured, with the knowledge and consent of Oriental
Assurance to the effect that "loss if any under this policy is payable to the
Pacific Banking Corporation".
4.   On January 4, 1964, while the aforesaid policy was in full force and effect,
a fire broke out on the subject premises destroying the goods contained in
its ground and second floors.
5.   On January 24, 1964, counsel for Pacific Banking sent a letter of demand to
Oriental Assurance for indemnity due to the loss of property by fire under
the endorsement of said policy.
6.   On January 28, 1964, Oriental Assurance informed counsel for Pacific
Baking that it was not yet ready to accede to the latter's demand as the
former is awaiting the final report of the insurance adjuster, H.H. Bayne
Adjustment Company.
7.   On March 25, 1964, the said insurance adjuster notified counsel for Pacific
Banking that Paramount Shirt under the policy had not filed any claim with
it, nor submitted proof of loss which is a clear violation of Policy Condition
No.11, and for which reason, determination of the liability of Oriental
Assurance could not be had.
8.   On April 24, 1964, Pacific Banking’s counsel replied to aforesaid letter
asking the insurance adjuster to verify from the records of the Bureau of
Customs the entries of merchandise taken into the customs bonded
warehouse razed by fire as a reliable proof of loss.
9.   For failure of the insurance company to pay the loss as demanded, Pacific
Banking on filed in the court an action for a sum of money against Oriental
 Assurance Corporation in the principal sum of P61,000.00 issued in favor of
Paramount Shirt Manufacturing Co.
10.   Oriental Assurance raised the following defenses in its answer to wit: (a)
lack of formal claim by insured over the loss and (b) premature filing of the
suit as neither Pacific Banking nor Paramount Shirt had submitted any proof
of loss on the basis of which Oriental Assurance would determine its
liability and the amount thereof, either to Oriental Assurance or its adjuster
H.H. Bayne Adjustment Co., both in violation of Policy Condition No.11.
11.   At the trial, Pacific Banking presented in evidence a communication dated
December 22, 1965 of the insurance adjuster, H.H. Bayne Adjustment Co.
to Asian Surety Insurance Co., Inc., revealing undeclared co-insurances
with the following: P30,000.00 with Wellington Insurance; P25,000. 00
with Empire Surety and P250,000.00 with Asian Surety; undertaken by
insured Paramount on the same property covered by its policy with
Oriental Assurance whereas the only co-insurances declared in the
subject policy are those of P30,000.00 with Malayan P50,000.00 with
South Sea and P25.000.00 with Victory.
12.   It will be noted that the defense of fraud and/or violation of Condition No. 3
in the Policy, in the form of non-declaration of co-insurances which was
not pleaded in the answer was also not pleaded in the Motion to
Dismiss.
13.   At any rate the RTC denied Oriental Assurance’s motion on the ground that
the defense of lack of proof of loss or defects therein was raised for the
first time after the commencement of the suit and that it must be
deemed to have waived the requirement of proof of loss.
14.   The case was considered submitted for decision from which order Oriental
Assurance filed a motion for reconsideration to set the case or further
reception of Oriental Assurance’s additional evidence, “in order to prove
that insured has committed a violation of condition No. 3 of the policy in
relation to the other Insurance Clause.”
15.   The case was set for the continuation of the hearing for the reception merely
of the testimony of Alejandro Tan Gatue, Manager of the Adjustment Co.,
over the vehement opposition of Pacific Banking.
16.   RTC rendered a decision adjudging Oriental Assurance liable to Pacific
Banking under the said contract of insurance. The CA reversed the decision
of the trial court.
ISSUE/s:
3.   WoN Paramount Shirt, the insured, was guilty of fraud which rendered the
contract of insurance void? – YES, because Paramount Shirt failed to reveal
before the loss three other insurances. By reason of said unrevealed
insurances, Paramount Shirt had been guilty of a false declaration; a clear
misrepresentation and a vital one because where the insured had been asked
to reveal but did not, that was deception.
RULING: PREMISES CONSIDERED, the petition is DISMISSED for lack of
merit, and the decision appealed from is AFFIRMED. No costs.
RATIO:
1.   Policy Condition No. 3 explicitly provides:
The Insured shall give notice to the Company of any insurance
already effected, or which may subsequently be effected, covering
any of the property hereby insured, and unless such notice be given
and the particulars of such insurance or insurances be stated in or
endorsed on this Policy by or on behalf of the Company before the
occurrence of any loss or damage, all benefit under this policy
shall be forfeited.
2.   It is not disputed that Paramount Shirt failed to reveal before the loss
three other insurances. As found by the Court of Appeals, by reason of
said unrevealed insurances, the insured had been guilty of a false
declaration; a clear misrepresentation and a vital one because where
the insured had been asked to reveal but did not, that was deception.
Otherwise stated, had Paramount Shirt have known that there were
many co-insurances, it could have hesitated or plainly desisted from
entering into such contract. Hence, the Paramount Shirt was guilty of
clear fraud.
3.   Concrete evidence of fraud or false declaration by Paramount Shirt was
furnished by Pacific Banking itself when the facts alleged in the policy
under clauses "Co-Insurances Declared" and "Other Insurance Clause" are
materially different from the actual number of co-insurances taken over the
subject property.
4.   Consequently, the whole foundation of the contract fails, the risk does
not attach and the policy never becomes a contract between the parties.
Representations of facts are the foundation of the contract and if the
foundation does not exist, the superstructure does not arise. Falsehood
in such representations is not shown to vary or add to the contract, or
to terminate a contract which has once been made, but to show that no
contract has ever existed. A void or inexistent contract is one which has
no force and effect from the very beginning, as if it had never been
entered into, and which cannot be validated either by time or by
ratification.
5.   As the insurance policy against fire expressly required that notice
should be given by the insured of other insurance upon the same
property, the total absence of such notice nullifies the policy.
6.   The argument that notice of co-insurances may be made orally negates
policy condition No. 20 which requires every notice and other
communications to the insurer to be written or printed.
7.   Particularly referring to the mortgage clause of the policy, Pacific Banking
argues that considering the purpose for which the endorsement or
assignment was made, that is, to protect the mortgagee/assignee against any
untoward act or omission of the insured, it would be absurd to hold that
 Pacific Banking is barred from recovering the insurance on account of the necessary information to ascertain the particular account of the articles
alleged violation committed by the insured. destroyed by fire as well as the amount of loss. It is noteworthy that
8.   It is obvious that Pacific Banking has missed all together the import of Oriental Assurance and its adjuster notified Pacific Banking that insured
subject mortgage clause which specifically provides: had not yet filed a written claim nor submitted the supporting documents in
Mortgage Clause compliance with the requirements set forth in the policy. Despite the notice,
Loss, if any, under this policy, shall be payable to the PACIFIC the latter remained unheedful. Since the required claim by insured, together
BANKING CORPORATION Manila mortgagee/trustor as its with the preliminary submittal of relevant documents had not been
interest may appear, it being hereby understood and agreed that complied with, it follows that Oriental Assurance could not be deemed to
this insurance as to the interest of the mortgagee/trustor only have finally rejected Pacific Banking’s claim and therefore the latter's cause
herein, shall not be invalidated by any act or neglect—except of action had not yet arisen.
fraud or misrepresentation, or arson—of the mortgagor or 15.   Contracts of insurance are contracts of indemnity upon the terms and
owner/trustee of the property insured; provided, that in case the conditions specified in the policy. The parties have a right to impose
mortgagor or owner/ trustee neglects or refuses to pay any such reasonable conditions at the time of the making of the contract as
premium, the mortgagee/ trustor shall, on demand pay the same. they may deem wise and necessary. The agreement has the force of law
9.   The paragraph clearly states the exceptions to the general rule that between the parties. The terms of the policy constitute the measure of
insurance as to the interest of the mortgagee, cannot be invalidated; the insurer's liability, and in order to recover, the insured must show
namely: fraud, or misrepresentation or arson. As correctly found by the himself within those terms. The compliance of the insured with the
Court of Appeals, concealment of the aforecited co-insurances can easily be terms of the policy is a condition precedent to the light of recovery.
fraud, or in the very least, misrepresentation.
10.   Undoubtedly, it is but fair and just that where the insured who is
primarily entitled to receive the proceeds of the policy has by its fraud
and/or misrepresentation, forfeited said right, with more reason Pacific
Banking which is merely claiming as indorsee of said insured, cannot
be entitled to such proceeds.
11.   Pacific Banking further stressed that fraud which was not pleaded as a
defense in Oriental Assurance’s answer or motion to dismiss, should be
deemed to have been waived.
12.   It will be noted that the fact of fraud was tried by express or at least implied
consent of the parties. Pacific Banking did not only object to the
introduction of evidence but on the contrary, presented the very
evidence that proved its existence.
13.   In the case at bar, policy condition No. 11 specifically provides that the
insured shall on the happening of any loss or damage give notice to the
company and shall within fifteen days after such loss or damage deliver to
Oriental Assurance (a) a claim in writing giving particular account as to the
articles or goods destroyed and the amount of the loss or damage and (b)
particulars of all other insurances, if any. Likewise, insured was required "at
his own expense to produce, procure and give to the company all such
further particulars, plans, specifications, books, vouchers, invoices,
duplicates or copies thereof, documents, proofs and information with
respect to the claim".
14.   The evidence adduced shows that twenty-four days after the fire, Pacific
Banking merely wrote letters to Oriental Assurance to serve as a notice of
loss, thereafter, the former did not furnish the latter whatever pertinent
documents were necessary to prove and estimate its loss. Instead, Pacific
Banking shifted upon Oriental Assurance the burden of fishing out the
 016 QUA CHEE GAN v. LAW UNION (Sabaupan)
17 December 1955 | Reyes, J.B.L, J. | Breach of Warranty
PETITIONER: Qua Chee Gan
RESPONDENTS: Law Union and Rock Insurance Co., Ltd., represented by its
agent, Warner, Barnes and Co., Ltd.
SUMMARY: Qua Chee Gan owned 4 warehouses used for storage of stocks of
copra and of hemp. Bodegas 1, 3, and 4 were gutted by fire of unknown origin.
Qua Chee Gan submitted fore claims to the insurance company but the latter
resisted payment claiming that the fire had been deliberately caused by the
insured. Qua Chee Gan then instituted a civil action to collect the insurance
proceeds. The insurance company argues among others that the insurance polices
were avoided for breach of warranty. The issue is whether there was a breach of
warranty, specifically the fire hydrant warranty and the hemp warranty. The
Supreme Court ruled in the negative. The insurance company is barred by waiver
(or rather estoppel) to claim violation of the fire hydrants warranty, because
knowing fully all the number of hydrants demanded therein never existed from
the very beginning, the insurance company nevertheless issued the policies in
question subject to such warranty and received the corresponding premiums. The
insurance company was aware, even before the policies were issued, that in the
premises insured, there were only 2 fire hydrants installed and 2 others nearby,
owned by the municipality of Tabaco, contrary to the requirements of the
warranty in question. For the hemp warranty, the Court noted that gasoline is not
specifically mentioned among the prohibited articles listed in the “hemp
warranty.” The cause relied upon by the insurer speaks of “oils” (animal and/or
vegetable and/or mineral and/or their liquid products having a flash point of
below 300°F). This is ambiguous and uncertain, for in ordinary parlance, “oils”
mean lubricants and not gasoline or kerosene. And how many insured are in a
position to understand or determine “flash point below 300°F.” Here, again, by
reason of the exclusive control of the insurance company over the terms and
phraseology of the contract, the ambiguity must be held strictly against the
insurer and liberally in favor of the insured, specially to avoid forfeiture.
Another point that is in favor of the insured is that the gasoline kept in Bodega
No. 2 was only incidental to his business. It should also be noted that the "Hemp
Warranty" forbade storage only "in the building to which this insurance applies
and/or in any building communicating therewith", and it is undisputed that no
gasoline was stored in the burned bodegas, and that "Bodega No. 2" which was
not burned and where the gasoline was found, stood isolated from the other
insured bodegas.
DOCTRINE: It is usually held that where the insurer, at the time of the issuance
of a policy of insurance, has knowledge of existing facts which, if insisted on,
would invalidate the contract from its very inception, each knowledge constitutes
a waiver of conditions in the contract inconsistent with the known facts, and the
insurer is stopped thereafter from asserting the breach of such conditions. The
law is charitable enough to assume, in the absence of any showing to the
contrary, that an insurance company intends to execute a valid contract in return
for the premium received; and when the policy contains a condition which
renders it voidable at its inception, and this result is known to the insurer, it will
be presumed to have intended to waive the conditions and to execute a binding
contract, rather than to have deceived the insured into thinking he is insured
when in fact he is not, and to have taken his money without consideration.”
It is well settled that the keeping of inflammable oils on the premises, though
prohibited by the policy, does not void it if such keeping is incidental to the
business.
FACTS:
20.   Qua Chee Gan, a merchant from Albay, owned four warehouses or bodegas
(designated as Bodegas nos. 1-4) used for the storage of stocks of copra and
of hemp, baled and loose. The bodegas, with their contents, were insured
with the Law Union (insurance company) since 1937, and the loss made
payable to the Philippine National Bank (PNB) as mortgage of the hemp
and copra, to the extent of its interest.
21.   Fire of undetermined origin broke out in July 1940 and lasted for almost
one week. It gutted and completely destroyed Bodegas Nos. 1, 3, and 4,
with the merchandise stored therein. Qua Chee Gan informed the insurer on
the same day of the fire and the next day, fire adjusters engaged by the
insurance company arrived and proceeded to conduct an extensive
investigation.
22.   Qua Chee Gan submitted fire claims amounting to P398,562 (but reduced to
the full amount of the insurance, P370,000). The insurance company
resisted payment, claiming violation of warranties and conditions, filing of
fraudulent claims, and that the fire had been deliberately caused by the
insured or by other persons in connivance with him.
23.   Qua Chee Gan and his brother, Qua Chee Pao, and some employees of his,
were indicted and tried in 1940 for the crime of arson, it being claimed that
they had set fire to the destroyed warehouses to collect the insurance. They
were acquitted.
24.   Thereafter, a civil suit to collect the insurance money was filed before the
CFI to recover the proceeds of certain life insurance policies. The CFI ruled
in favor of Qua Chee Gan. Hence, the instant petition.
25.   Insurance Company’s arguments:
a.   The trial court should have held that the policies were avoided for
breach of warranty, specifically the one appearing on a rider pasted
on the face of the policies. These riders were attached for the first
time in 1939, and the pertinent portions read as follows:
“Memo. Of Warranty. – The undernoted Appliances for the
extinction of fire being kept on the premises insured hereby, and it
 being declared and understood that there is an ample end constant
water supply with sufficient pressure available at all seasons for
the same, it is hereby warranted that the said appliances shall be
maintained in efficient working order during the currency of this
policy, by reason whereof a discount of 2.5% is allowed on the
premium chargeable under this policy.
Hydrants in the compound, not less in number than one for each
150 feet of external wall measurement of buildings, protected, with
not less than 100 feet of hose piping and nozzles for every 2
hydrants kept under cover in convenient places, the hydrants being
supplied with water pressure by a pumping engine, or from some
other source, capable of discharging at the rate of not less than 200
gallons of water per minute into the upper story of the highest
building protected, and a trained brigade of not less than 20 mean
to work the same.”
b.   Given the size of the external wall of the bodegas, Qua Chee Gan
should have 11 fire hydrants in the compound, and that he actually
had only two, with a further pair nearby, belonging to the
municipality of Tabaco.
c.   The insured violated the “Hemp Warranty” provisions of the
policy covering Bodega No. 2 against the storage of gasoline, since
Qua Chee Gan admitted that there were 36 cans of gasoline
Bodega No. 2.
d.   There was fraudulent overvaluation and the insured caused the fire
so that he can pay the mortgagee bank.
e.   The burned bodegas could not have contained the quantities of
copra and hemp stated in the fire claims.
f.   The insured made false and fraudulent statements that voids the
policy.
ISSUE/s:
4.   Whether there was a violation of the fire hydrant warranty. – NO, the
insurer is barred by estoppel to claim such violation.
5.   Whether there was a violation of the hemp warranty. – NO, gasoline is not
specifically mentioned among the prohibited articles listed in the “hemp
warranty.”
6.   Whether the insured made false and fraudulent statements that voids the
policy. – NO, the discrepancies were a result of the insured’s erroneous
interpretation of the provisions of the insurance policies and claim forms,
caused by his imperfect knowledge of English, and that the misstatements
were innocently made and without intent to defraud.
RULING: We find no reversible error in the judgment appealed from, wherefore the
same is hereby affirmed.
RATIO:
On the violation of fire hydrant warranty
9.   The insurance company is barred by waiver (or rather estoppel) to claim
violation of the fire hydrants warranty, because knowing fully all the
number of hydrants demanded therein never existed from the very
beginning, the insurance company nevertheless issued the policies in
question subject to such warranty and received the corresponding
premiums.
10.   It would perilously close to conniving at fraud upon the insured to allow the
insurance company to claim now as void ab initio the policies that it had
issued to Qua Chee Gan without warning of their fatal defect, of which it
was informed, and after it had misled Qua Chee Gan into believing that the
policies were effective.
11.   The insurance company was aware, even before the policies were issued,
that in the premises insured, there were only 2 fire hydrants installed and 2
others nearby, owned by the municipality of Tabaco, contrary to the
requirements of the warranty in question. This fact was established by a
positive testimony of the insurance company’s agents that they inspected
the premises. That such inspection was made is rendered probable by its
being a prerequisite for the fixing of the discount on the premium to which
the insured was entitled, since the discount depended on the number of
hydrants, and the firefighting equipment available.
12.   The law, supported by a long line of cases, is expressed by American
Jurisprudence: “It is usually held that where the insurer, at the time of
the issuance of a policy of insurance, has knowledge of existing facts
which, if insisted on, would invalidate the contract from its very
inception, each knowledge constitutes a waiver of conditions in the
contract inconsistent with the known facts, and the insurer is stopped
thereafter from asserting the breach of such conditions. The law is
charitable enough to assume, in the absence of any showing to the contrary,
that an insurance company intends to execute a valid contract in return for
the premium received; and when the policy contains a condition which
renders it voidable at its inception, and this result is known to the insurer, it
will be presumed to have intended to waive the conditions and to execute a
binding contract, rather than to have deceived the insured into thinking he is
insured when in fact he is not, and to have taken his money without
consideration.”
13.   The reason for this rule is as follows: “x x x To allow a company to accept
one's money for a policy of insurance which it then knows to be void and of
no effect, though it knows as it must, that the assured believes it to be valid
and binding, is so contrary to the dictates of honesty and fair dealing, and so
closely related to positive fraud, as to be abhorrent to fairminded men. It
would be to allow the company to treat the policy as valid long enough to
get the premium on it and leave it at liberty to repudiate it the next moment.
x x x”
14.   The inequitableness of the conduct observed by the insurance company in
 this case is heightened by the fact that after the insured had incurred the
expense of installing the two hydrants, the company collected the premiums
and issued him a policy so worded that it gave the insured a discount much
smaller than that he was normally entitled to. According to the "Scale of
Allowances," a policy subject to a warranty of the existence of one re
hydrant for every 150 feet of external wall entitled the insured to a discount
of 7.5% of the premium; while the existence of "hydrants, in compound"
(regardless of number) reduced the allowance on the premium to a mere
2.5%.
15.   But the insurance company in this case, so worded the policies that while
exacting the greater number of fire hydrants and appliances, it kept the
premium discount at the minimum of 2.5%, thereby giving the insurance
company a double benefit. No reason is shown why Qua Chee Gan’s
premises, that had been insured with the insurance company for several
years past, should suddenly be regarded in 1939 as so hazardous as to be
accorded a treatment beyond the limits of the insurance company’s own
scale of allowances. Such abnormal treatment of the insured strongly points
at an abuse of the insurance company’s selection of the words and terms of
the contract, over which it had absolute control.
16.   Parol evidence is not applicable in the instant case. It is a well settled rule
of law that an insurer which with knowledge of facts entitling it to treat
a policy as no longer in force, receives and accepts a premium on the
policy, estopped to take advantage of the forfeiture. x x x It would be
unconscionable to permit a company to issue a policy under circumstances
which it knew rendered the policy void and then to accept and retain
premiums under such a void policy.
17.   Moreover, taking into account the well-known rule that ambiguities or
obscurities must be strictly interpreted against the party that caused them,
the "memo of warranty" invoked by the insurance company bars the latter
from questioning the existence of the appliances called for in the insured
premises, since its initial expression, "the undernoted appliances for the
extinction of fire being kept on the premises insured hereby, . . . it is hereby
warranted . . . ", admits of interpretation as an admission of the existence of
such appliances which appellant cannot now contradict, should the parol
evidence rule apply.
18.   The alleged violation of the firehose warranty must be equally rejected,
since the insurance company’s argument thereon is based on the assumption
that the insured was bound to maintain no less than eleven hydrants (one per
150 feet of wall), which requirement the insurance company is estopped
from enforcing.
19.   On the breach of water pressure condition, the court found such claim
worthless because the witness repeatedly refused and professed inability to
estimate the rate of discharge of the water.
20.   As to the maintenance of a trained fire brigade of 20 mean, the records
shows that the same was organized, and drilled, although not maintained as
a permanently separate unit, which the warranty did not require. Anyway, it
would be unreasonable to expect the insured to maintain for his compound
alone a firefighting force that many municipalities in the islands do not even
possess.
On the violation of hemp warranty
21.   The Court noted that gasoline is not specifically mentioned among the
prohibited articles listed in the “hemp warranty.” The cause relied upon by
the insurer speaks of “oils” (animal and/or vegetable and/or mineral and/or
their liquid products having a flash point of below 300°F). This is
ambiguous and uncertain, for in ordinary parlance, “oils” mean lubricants
and not gasoline or kerosene. And how many insured are in a position to
understand or determine “flash point below 300°F.” Here, again, by reason
of the exclusive control of the insurance company over the terms and
phraseology of the contract, the ambiguity must be held strictly against the
insurer and liberally in favor of the insured, specially to avoid forfeiture.
22.   There is no reason why the prohibition of keeping gasoline in the premises
could not be expressed clearly and unmistakably, in the language and terms
that the general public can readily understand, without resort to obscure
esoteric expression. If intended to rely upon a condition of that character, it
ought to have been plainly expressed in the policy.
23.   Another point that is in favor of the insured is that the gasoline kept in
Bodega No. 2 was only incidental to his business, being no more than a
customary 2 day's supply for the five or six motor vehicles used for
transporting of the stored merchandise. It is well settled that the keeping
of inflammable oils on the premises, though prohibited by the policy,
does not void it if such keeping is incidental to the business. According
to the weight of authority, even though there are printed prohibitions against
keeping certain articles on the insured premises the policy will not be
avoided by a violation of these prohibitions, if the prohibited articles are
necessary or in customary use in carrying on the trade or business
conducted on the premises.
24.   It should also be noted that the "Hemp Warranty" forbade storage only "in
the building to which this insurance applies and/or in any building
communicating therewith", and it is undisputed that no gasoline was stored
in the burned bodegas, and that "Bodega No. 2" which was not burned and
where the gasoline was found, stood isolated from the other insured
bodegas.
On the charge of fraudulent overvaluation
25.   This charge was found unsubstantiated by the trial court, and no reason has
been shown to alter this finding. The insured gave the insurance examiner
all the data he asked for and the examiner even kept and photograph some
of the examined books in his possession.
On the insured’s connivance at the loss
26.   This defense is predicated on the assumption that the insured was n
 financial difficulties and set the fire to defraud the insurance company, under the terms of the policies, and the trial court correctly deducted the
presumably in order to pay off PNB, to which most of the insured hemp and same from its award.
copra was pledged.
27.   This defense is fatally undermined by the established fact that,
notwithstanding the insurer’s refusal to pay the value of the policies,
insured was able to pay off PNB in a short time, and if he was able to do so,
no motive appears for attempt to defraud the insurer.
28.   While the acquittal of the insured in the arson case is not res judicata on the
present civil action, the insurer's evidence, to judge from the decision in the
criminal case, is practically identical in both cases and must lead to the
same result, since the proof to establish the defense of connivance at the re
in order to defraud the insurer "cannot be materially less convincing than
that required in order to convict the insured of the crime of arson.”

On the claim that the burned bodegas could not have contained the quantities of
copra and hemp stated in the fire claims
29.   The basis of the claim was the testimony of the insurer’s adjuster
investigator who examined the premises during and after the fire. His
testimony was however based on inferences from photographs and traces
found after the fire, and must yield to the contradictory testimony of the
engineer, the Chief of the loan department of PNB Legazpi branch, and of
the bank appraiser, who actually saw the contents of the bodegas shortly
before the fire, while inspecting them for the mortgagee bank.

On the claim of false and fraudulent statements by the insured

30.   The trial court found that the discrepancies were a result of the insured’s
erroneous interpretation of the provisions of the insurance policies and
claim forms, caused by his imperfect knowledge of English, and that the
misstatements were innocently made and without intent to defraud.
31.   Considering that all these claims were submitted to the same agent, and that
this same agent had paid the loss caused by the 1939 fire, the Court found
no error in the trial Court's acceptance of the insured's explanation that the
omission in certain policies was due to inadvertance, for the insured could
hardly expect under such circumstances, that the 1939 would pass unnoticed
by the insurance agents.
32.   Moreover, the 20% overclaim on 70% of the hemp stock, was explained by
the insured as caused by his belief that he was entitled to include in the
claim his expected profit on the 70 per cent of the hemp, because the same
as already contracted for and sold to other parties before the fire occurred.
The insured’s overclaim of 20% in the case at bar cannot be regarded as
“more than misstatement, more than inadvertence of mistake, more than a
mere error in opinion, more than a slight exaggeration” that would entitle
the insurer to avoid the policy.
33.   The rule is that to avoid a policy, the false swearing must be willful and
with intent to defraud which was not the cause. Of course, the lack of
fraudulent intent would not authorize the collection of the expected profit
 017 FILIPINAS COMPAÑIA v. CA (Saldua)
Jan. 31, 1950 | Padilla J. | Breach of Waranty
PETITIONER: Filipinas Compania de Seguros
RESPONDENTS: Tan Chauco
SUMMARY:
Tan Chauco insured his building under 2 insurance policies with Filipinas Compania.
During the term of the 2 policies, a fire occurred which completely destroyed the
building. Tan Chauco claimed compensation under the policies but Filipinas Compania
denied alleging that there was breach of warranties of the insurance policies rendering
it not compensable. The breach of warranties alleged are: 1) Sealing of the building by
the Japanese Forces changed the nature of the building insured which increased the risk
of loss/damage violating Art. 8 of the policies; 2) The fire occurred was an indirect
result of the abnormal conditions at that time i.e. Japanese occupation and as per Art. 6
of the policies, since the fire was connected with the abnormal conditions, it is not
compensable; and 3) Tan Chauco cannot recover bec. he had made a fraudulent
declaration in the policy in w/c he denied a previous fire while in the trial, he admitted
that there had been a previous fire on the land on which the insured building was built,
which was also had been destroyed by fire from neighboring buildings, violating Art.
13. Issue is WON there was a breach of warranty. SC said NO. As to the 1st allegation,
the building was actually sealed as a form of precaution since looting was rampant and
the stores were abandoned by the owners, not because the contents of the building were
owned by enemy nationals. The sealing alone could not have increased the risk/hazard
to which a building is exposed of. As to the 2nd, Abnormal conditions are not just
disorders but also situations which deviated from the normal/ordinary. In this case, it
came in the form of the absence of a regularly organized government with its police,
health & fire depts. Meanwhile, the fire actually originated from the kitchen of a
neighboring Panciteria. They were next to each other such that while they were
separated by a narrow alley, the roofs of both houses almost touched each other and
covered the alley. Tan Chauco has in fact admitted that the fire could have occurred
even if there was a functioning fire dept. Thus, the risk caused by the proximity of the
building to the Panciteria is not a new one, and must have already been considered at
the time of issuing the policy. The fire could have occurred just as well in times of
peace and under normal conditions. Thus, the fire occurred from causes independent of
the abnormal conditions. As to the 3rd, SC held that the previous fire is irrelevant as far
as the subject Jan. 5, 1942 fire is concerned. Hence, there was no breach of warranty.
DOCTRINE:
As the words of the policy are those of the company, they should be taken most
strongly against it. Interpretation should be adopted which is most favorable to the
insured, if such interpretation be not inconsistent with the words used.
It should mean that the policy covered loss by fire occurring during the existence of
any invasion, foreign enemy, rebellion, insurrection, riot, civil commotion,
military/usurped power, or martial law, in the general locality where the property
insured was located (so long as the fire was not connected with the said situations).
FACTS:
1.   Filipinas Compania de Seguros is a domestic insurance corp. licensed to
engage in the insurance business in PH. Tan Chauco is the owner of a
building located in Lucena (then w/in Tayabas province). Tan Chauco
insured the building for P20,000 and P10,000 in 2 policies issued by
Filipinas Compania.
2.   On Jan. 5, 1942, during the term of said 2 policies, the building insured
was burned and completely destroyed. Notice of proof & loss had been
duly made, but since Filipinas Compania refused to pay, Tan Chauco filed
an action to recover on the policies.
3.   After trial, judgment was rendered against Filipinas Compania for the
amount of the 2 policies w/ legal interest from the date of filing of the
complaint. CA affirmed this.
4.   Meanwhile, Filipinas Compania went up to the SC raised 3 contentions:
A.   That Art. 8 of the policies provides that if the circumstances
affecting the building insured (or its contents) are changed in such a
way as to increase the risk of loss/damage by fire, the insurance
ceases to attach as regards the property affected; UNLESS the
insured obtains the permission of the company before the occurrence
through an endorsement upon the policy by or on behalf of the
company.
•   Filipinas Compania alleges that the sealing of the subject
property by the Japanese Forces on Dec. 28, 1941 (before
the fire occurred) had the effect of changing the nature of
the occupation thereof in a manner which increased the risk
of loss. It allegedly resulted to its conversion into an arsenal
of war materials that it became the bounden duty of all loyal
forces, whether the regular USAFFE or the guerrilla
elements to destroy, and so increasing the risk of
loss/damage to the building insured.
•   Thus, in accordance w/ the provisions of Art. 8, the
insurance ceased to attach as of the Dec. 28, 1941.
B.   That under Art. 6, the inferential finding that the fire of Jan. 5, 1942
was of accidental origin, and nothing more, could not make Tan
Chauco’s loss compensable since the contracts of insurance between
the parties specifically required that Tan Chauco prove that the loss
happened independently of the abnormal conditions.Thus, the fire,
being an indirect result of the abnormal conditions, is not
compensable.
C.   That Art. 13 provides for the grounds of forfeiture of the benefits
under the policies among which is: If any false declaration be made
or used in support thereof.
•   Filipinas Compania is alleging that Tan Chauco cannot
recover because he had made fraudulent declaration in the
insurance claim that he submitted to the former i.e. that Tan
Chauco denied that there had been a previous fire in the
 premises in which he was interested, while at the trial, Tan
Chauco admitted that there had been a previous fire on the
land on which the insured building was built, which had
also been destroyed by fire from neighboring buildings.
ISSUE/s:
1.   WON there was a breach of warranty in the insurance policies? = NO.
First, building was actually sealed as a form of precaution since looting was
rampant, not because the contents of the building were owned by enemy
nationals. The sealing alone could not have increased the risk/hazard to
which a building is exposed of. The fire actually originated from the kitchen
of a neighboring Panciteria. They were next to each other such that while
they were separated by a narrow alley, roofs of both houses almost touched
each other and covered the alley. Tan Chauco has in fact admitted that the
fire could have occurred even if there was a functioning fire dept.. Thus, the
risk caused by the prixmity of the building to the Panciteria is not a new
one, and must have already been considered at the time of issuing the
policy. The fire could have occurred just as well in times of peace and under
normal conditions.
RULING: The petition for a writ of certiorari is dismissed, with costs against the
petitioner.
RATIO:
RE. ART. 8 OF THE POLICY: SEALING OF THE BUILDING BY THE JAP.
FORCES DID NOT CHANGE THE NATURE OF THE BUILDING INSURED
AND SO IT DID INCREASE THE RISK OF LOSS/DAMAGE
1.   At the time that the Japanese forces entered Lucena on Dec. 27, 1941, said
building was closed. On Dec. 28, 1941, all the stores including the stores in
Tan Chauco’s building were sealed by the Japanese Forces (except those
that were open).
2.   SC affirmed the finding of the trial court that the reason for the sealing
of the building is a form of precaution since looting was rampant and
the stores were abandoned by the owners, not because the contents of
the building were owned by enemy nationals.
3.   As to the supposed increase in the risk, there were only 3 possible sources
of danger to which the building insured could have been exposed to either
by the acts of USAFFE, guerilla or civilian saboteurs.
4.   However, there was no danger. The operations between the Jap. Army and
USAFFE Forces shifted to the fortifications around Bataan & Corregidor.
The guerilla units also only begun organizing only after the fall of Bataan
in April 1942 (well after the date of the fire). There was also no acts of
sabotage by civilians in Lucena or in Tayabas after the Jap. occupied
Lucena on Dec. 27, 1941. Thus, except for looting, there was peace & quiet
in Lucena upon the Jap. Occupation.
5.   Hence, sealing alone could not have increased the risk/hazard to which a
building is exposed of. Besides, the sealing was an act of the enemy over
which Tan Chauco had no influence or control.
RE. ART. 6 OF THE POLICY: THE FIRE ACTUALLY OCCURRED FROM
CAUSES INDEPENDENT OF THE ABNORMAL CONDITIONS AT THE
TIME AND IS THUS COMPENSABLE.
1.   Abnormal Conditions, accdg. to the SC, should be interpreted as to mean “a
situation, a condition of things deviating from the normal/ordinary, and
produced only by war of invasion, etc. Abnormal conditions do not
necessarily imply disorders, fighting, looting, etc. The existence of a
regularly organized government with its police, health & fire depts. is a sign
of normalcy in a community. The absence thereof is a sign of abnormal
conditions.
2.   Thus, the fact that the Lucena gov’t. ceased to function even before the
entry of the Japs, and that there was no police dept. (Jap. Soldiers kept
peace & order), the fire dept. had not yet been organized (no equipment as
well except for the hose), electrical service was suspended until Feb. 3,
1942, and that there was a curfew imposed even after the date of the fire on
Jan 5, 1942, shows there were abnormal conditions in Lucena on and before
the fire occurred.
3.   The fire that consumed Tan Chauco’s building was actually caused by a fire
that originated in the kitchen of Perrera’s Panciteria. They were next to each
other such that while they were separated by a narrow alley, the roofs of
both houses almost touched each other and covered the alley.
4.   Tan Chauco has in fact admitted that the fire could have occurred even if
there was a functioning fire department. Thus, the risk caused by the
prixmity of the building to the Panciteria is not a new one, and must have
already been considered at the time of issuing the policy. The fire could
have occurred just as well in times of peace and under normal conditions.
RE. ART. 13 OF THE POLICY: FRADULENT CLAIM NOT RELEVANT
1.   SC held that the the previous fire that Tan Chauco failed to mention is
immaterial and irrelevant so far as the subject Jan. 5, 1942 fire is
concerned.
INTERPRETATION OF THE INSURANCE POLICIES/CONTRACTS
1.   As the words of the policy are those of the company, they should be taken
most strongly against it. Interpretation should be adopted which is most
favorable to the insured, if such interpretation be not inconsistent with the
words used.
2.   Thus, it should mean that the policy covered loss by fire occurring during
the existence of any invasion, foreign enemy, rebellion, insurrection, riot,
civil commotion, military/usurped power, or martial law, in the general
locality where the property insured was located (so long as the fire was not
connected with the said situations).
3.   In this case, the lower court has correctly found that the loss was occasion
by causes that are independent of the existence of any invasion, foreign
enemy, rebellion, insurrection, etc.
 018 YOUNG V. MIDLAND TEXTILE INSURANCE (EMAR)
March 31, 1915 | Johnson, J. | Breach of Warranty
PLAINTIFF-APPELLEE: K.S. Young
DEFENDANT-APPELLANT: The Midland Textile Insurance Company
SUMMARY: Young and Midland Insurance entered into an insurance contract
where Young would pay P60 for premium and Midland Ins. promised to pay
Young P3k, in case the residence, bodega and its contents should be destroyed by
fire. The insurance contract has a condition under “Warranty B” that “during the
pendency of the policy, no hazardous goods [shall be] stored in the building”.
Young was given 3 boxes of fireworks, intended to be used for the Chinese New
Year but the city authorities prohibited the use of such so Young kept them in the
insured premises. The insured residence, bodega and contents were partly
destroyed by fire but the part where the fireworks were kept was not destroyed.
The issue in this case is WON placing of said fireworks in the building insured is
a violation of the terms of the insurance contract – YES. The "hazardous goods"
in question were "stored" in the bodega, as that word is generally defined.
Suppose Midland Ins made an examination of the premises, even in the absence of
a fire, and had found he "hazardous goods" there, under the conditions above
described, it would be justified in declaring the policy null and of no effect by
reason of Young’s violation of its terms. Young paid a premium based upon the
risk at the time the policy was issued. Placing of the firecrackers in the building
insured increased the risk. Young did not pay a premium based upon the increased
risk, neither had Midland Ins issued a policy upon the theory of a different risk.
DOCTRINE: If the "warranty" is a term of the contract, its violation causes a
breach and justify noncompliance or a repudiation.
FACTS:
1. Young has a candy and fruit store in Manila, and occupied a building at Calle
Claveria, as a residence and bodega (storehouse).
2. May 1912: The Midland Textile Insurance Company (Midland Ins), in
consideration of the payment of a premium of P60, entered into a contract of Ins.
with the plaintiff (policy No. 509105) where Midland Ins. promised to pay Young
P3k, in case the residence, bodega and contents should be destroyed by fire.
3. A condition of the insurance contract states: "Waranty B. — It is agreed that
during the pendency of this policy no hazardous goods stored or kept for sale, and
no hazardous trade or process be carried on, in the building to which this Ins. applies,
or in any building connected therewith."
4. Feb 1913: Young was given fireworks, intended to be used for the Chinese New
Year but since City authorities prohibited its use, the 3 boxes of fireworks were
placed in the residence and bodega, in order that Young might later send them to a
friend in the provinces.
5. March 1913: The residence, bodega and its contents were partially destroyed by
fire but the part of the building
6. Young and Midland Ins agree that fireworks come within the phrase "hazardous
goods," mentioned in "warranty B" of the policy and that fireworks were found in a
part of the building not destroyed by the fire; that they did not contribute to the fire,
or to the loss occasioned thereby.
7. Midland Ins alleged that the fireworks were "stored" within the meaning of
“Warranty B”.
8. Young contends that under all the facts and circumstances of the case, they were
not "stored" in said building, and that placing them in the building was not a
violation of the terms of the contract.
9. Both parties agree that if they were "hazardous goods," and were "stored," then the
Young’s act was a violation of the terms of the contract of Ins. and the Midland Ins
was justified in repudiating its liability.
10. Young sought to recover P3k upon the policy.
11. The lower court rendered a judgment in favor of the Young; against Midland Ins
for P2,708.78, and costs.
12. Midland Ins appealed to this court.
ISSUE: WON the placing of the fireworks in the building insured, under the
conditions enumerated, they being "hazardous goods," is a violation of the terms of
the contract of Ins. and especially of "warranty B." – YES. The "hazardous goods"
were "stored" in the bodega, as that word is generally defined.
RULING: Judgment of the lower court is revoked and Midland Ins. is relieved from
any responsibility under said complaint, and, without any finding as to costs.
RATIO:
1.   WON a particular article is "stored" must depend upon the intention of the
parties.
2.   Most cases cited by the lower court are cases where the article was being put to
some reasonable and actual use, which might easily have been permitted by
the terms of the policy, and within the intent of the parties, and excepted
from the operation of the warranty, like the present. Said decision are upon cases
like:
a. Where merchants have had or kept the "hazardous" articles in small
quantities, and for actual daily use, for safe, such as gasoline, gunpowder, etc.;
b. Where such articles have been brought on the premises for actual use thereon,
and in small quantities, such as oil, paints, etc; and
c. Where such articles or goods were used for lighting purpose, and in small
quantities.
3.   Century and Standard Dictionaries define “Store”: to be a deposit in a store or
warehouse for preservation/safe keeping; place in a warehouse/other place of
deposit for safe keeping.
4.   The definitions do not include a deposit in a store, in small quantities, for daily
use. "Daily use" precludes the idea of a deposit for preservation or safe keeping,
as well as a deposit for future consumption, or safe keeping.
5.   In this case, no claim is made that the "hazardous goods" were placed in the
bodega for present/daily use. They were placed in the bodega for sake keeping,
future use or consumption. Young did not claim that he deposited them there
with any other idea than "for future use" — for future consumption.
6.   The "hazardous goods" in question were "stored" in the bodega, as that word is the terms of the contract. The violation of the terms of the contract, by virtue
generally defined. of the provisions of the policy itself, terminated, at the election of either party,
7.   If Midland Ins examined the premises, even in the absence of a fire, and found he contractual relations. (Kyte vs. Commercial Union Assurance)
"hazardous goods" there, under the conditions above described, it would be 15.   Young paid a premium based upon the risk at the time the policy was issued.
justified, then and there, in declaring the policy null and of no effect because of Placing of the firecrackers in the building insured increased the risk, for which
Young’s violation of its terms. Young did not pay a premium based upon and, neither had Midland Ins issued a
8.   Midland Ins may repudiate is liability, even after the fire. If the "warranty" is a policy upon the theory of a different risk.
term of the contract, its violation causes a breach and justify 16.   Young was enjoying, if his contention may be allowed may be allowed, the
noncompliance/repudiation. benefits of an insurance policy upon one risk, whereas, as a matter of fact, it was
9.   Insurance Contracts are contracts of indemnity upon the terms and conditions issued upon an entirely different risk.
specified in the policy. The parties have a right to impose reasonable conditions 17.   Midland Ins had neither been paid nor had issued a policy to cover the increased
at the time of the making of the contract as they may deem wise and necessary. risk.
10.   The rate of premium is measured by the character of the risk assumed. The 18.   A substantial increase of risk and which is continued for a considerable period
insurance company, for a comparatively small consideration, undertakes to of time, is a direct and certain injury to the insurer, and changes the basis upon
guarantee the insured against loss or damage, upon the terms and conditions which the insurance contract rests. (Kyte vs. Commercial Union Assurance Co;
agreed upon, and upon no other, and when called upon to pay, in case of loss, Frost's Detroit Lumber vs. Millers' Mutual Ins. Co; Moore vs. Phoenix Ins.;
the insurer, therefore, may justly insist upon a fulfillment of these terms. Ferree vs. Oxford Fire & Life Ins.)
11.   If the insured cannot bring himself within the conditions of the policy, he is
not entitled to recover for the loss. Terms of the policy constitute the measure
of the insurer's liability, and in order to recover the insured must show himself
within those terms; and if it appears that the contract has been terminated by a
violation, on the part of the insured, of its conditions, then there can be no right
of recovery.
12.   Insured’s compliance with the terms of the contract is a condition precedent to
the right of recovery. If the insured has violated or failed to perform the
conditions of the contract, and such a violation or want of performance has
not been waived by the insurer, then the insured cannot recover. Courts are
not permitted to make contracts for the parties. The function and duty of the
courts consist simply in enforcing and carrying out he contracts actually made.
13.   GR: Insurance contracts of are construed most favorably to the insured, yet
contracts of Ins., 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. (Imperial Fire Ins. v. County of Coos; Kyte
v. Commercial Union Assurance) Conditions of insurance contracts, when
plainly expressed in a policy, are binding upon the parties and should be
enforced by the courts, if the evidence brings the case clearly within their
meaning and intent. It tends to bring the law itself into disrepute when, by astute
and subtle distinctions, a plain case is attempted to be taken without the
operation of a clear, reasonable, and material obligation of the contract. (Mack v.
Rochester German Ins.)
14.   Young argues that in view of the fact that the "storing" of the fireworks on the
premises of the insured did not contribute in any way to the damage occasioned
by the fire, he should be permitted to recover — that the "storing" of the
"hazardous goods" in no way caused injury to the defendant company. That
argument, however, is beside the question, if the "storing" was a violation of