THIRD DIVISION

[G.R. No. 112360. July 18, 2000]

RIZAL SURETY & INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS and TRANSWORLD KNITTING
MILLS, INC., respondents.

DECISION

PURISIMA, J.:

At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to annul and set aside the July 15, 1993
Decision[1] and October 22, 1993 Resolution[2] of the Court of Appeals[3] in CA-G.R. CV NO. 28779, which modified the
Ruling[4] of the Regional Trial Court of Pasig, Branch 161, in Civil Case No. 46106.

The antecedent facts that matter are as follows:

On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued Fire Insurance Policy No. 45727 in favor of
Transworld Knitting Mills, Inc. (Transworld), initially for One Million (P1,000,000.00) Pesos and eventually increased to One
Million Five Hundred Thousand (P1,500,000.00) Pesos, covering the period from August 14, 1980 to March 13, 1981.

Pertinent portions of subject policy on the buildings insured, and location thereof, read:

"On stocks of finished and/or unfinished products, raw materials and supplies of every kind and description, the properties
of the Insureds and/or held by them in trust, on commission or on joint account with others and/or for which they (sic)
responsible in case of loss whilst 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 at MAGDALO STREET, BARRIO UGONG,
PASIG, METRO MANILA, PHILIPPINES, BLOCK NO. 601.

xxx...............xxx...............xxx

Said building of four-span lofty one storey in height with mezzanine portions is constructed of reinforced concrete and
hollow blocks and/or concrete under galvanized iron roof and occupied as hosiery mills, garment and lingerie factory,
transistor-stereo assembly plant, offices, warehouse and caretaker's quarters.

'Bounds in front partly by one-storey concrete building under galvanized iron roof occupied as canteen and guardhouse,
partly by building of two and partly one storey constructed of concrete below, timber above undergalvanized iron roof
occupied as garage and quarters and partly by open space and/or tracking/ packing, beyond which is the aforementioned
Magdalo Street; on its right and left by driveway, thence open spaces, and at the rear by open spaces.'" [5]

The same pieces of property insured with the petitioner were also insured with New India Assurance Company, Ltd., (New India).

On January 12, 1981, fire broke out in the compound of Transworld, razing the middle portion of its four-span building and partly
gutting the left and right sections thereof. A two-storey building (behind said 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 & Insurance Company and New India Assurance Company but to no avail.

On May 26, 1982, private respondent brought against the said insurance companies an action for collection of sum of money and
damages, docketed as Civil Case No. 46106 before Branch 161 of the then Court of First Instance of Rizal; praying for judgment
ordering Rizal Insurance and New India to pay the amount of P2,747, 867.00 plus legal interest, P400,000.00 as attorney's fees,
exemplary damages, expenses of litigation of P50,000.00 and costs of suit.[6]

Petitioner Rizal Insurance countered that its fire insurance policy sued upon covered only the contents of the four-span building,
which was partly burned, and not the damage caused by the fire on the two-storey annex building.[7]

On January 4, 1990, the trial court rendered its decision; disposing as follows:
 "ACCORDINGLY, judgment is hereby rendered as follows:

(1)Dismissing the case as against The New India Assurance Co., Ltd.;

(2) Ordering defendant Rizal Surety And Insurance Company to pay Transwrold (sic) Knitting Mills, Inc. the amount of
P826, 500.00 representing the actual value of the losses suffered by it; and

(3) Cost against defendant Rizal Surety and Insurance Company.

SO ORDERED."[8]

Both the petitioner, Rizal Insurance Company, and private respondent, Transworld Knitting Mills, Inc., went to the Court of
Appeals, which came out with its decision of July 15, 1993 under attack, the decretal portion of which reads:

"WHEREFORE, and upon all the foregoing, the decision of the court below is MODIFIED in that defendant New India
Assurance Company has and is hereby required to pay plaintiff-appellant the amount of P1,818,604.19 while the other
Rizal Surety has to pay the plaintiff-appellant P470,328.67, based on the actual losses sustained by plaintiff Transworld in
the fire, totalling P2,790,376.00 as against the amounts of fire insurance coverages respectively extended by New India in
the amount of P5,800,000.00 and Rizal Surety and Insurance Company in the amount of P1,500,000.00.

No costs.

SO ORDERED."[9]

On August 20, 1993, from the aforesaid judgment of the Court of Appeals New India appealed to this Court theorizing inter
alia that the private respondent could not be compensated for the loss of the fun and amusement machines and spare parts stored at
the two-storey building because it (Transworld) had no insurable interest in said goods or items.

On February 2, 1994, the Court denied the appeal with finality in G.R. No. L-111118 (New India Assurance Company Ltd. vs. Court
of Appeals).

Petitioner Rizal Insurance and private respondent Transworld, interposed a Motion for Reconsideration before the Court of Appeals,
and on October 22, 1993, the Court of Appeals reconsidered its decision of July 15, 1993, as regards the imposition of interest,
ruling thus:

"WHEREFORE, the Decision of July 15, 1993 is amended but only insofar as the imposition of legal interest is concerned,
that, on the assessment against New India Assurance Company on the amount of P1,818,604.19 and that against Rizal
Surety & Insurance Company on the amount of P470,328.67, from May 26, 1982 when the complaint was filed until
payment is made. The rest of the said decision is retained in all other respects.

SO ORDERED."[10]

Undaunted, petitioner Rizal Surety & Insurance Company found its way to this Court via the present Petition, contending that:

I.....SAID DECISION (ANNEX A) ERRED IN ASSUMING THAT THE ANNEX BUILDING WHERE THE BULK OF
THE BURNED PROPERTIES WERE STORED, WAS INCLUDED IN THE COVERAGE OF THE INSURANCE
POLICY ISSUED BY RIZAL SURETY TO TRANSWORLD.

II.....SAID DECISION AND RESOLUTION (ANNEXES A AND B) ERRED IN NOT CONSIDERING THE PICTURES
(EXHS. 3 TO 7-C-RIZAL SURETY), TAKEN IMMEDIATELY AFTER THE FIRE, WHICH CLEARLY SHOW THAT
THE PREMISES OCCUPIED BY TRANSWORLD, WHERE THE INSURED PROPERTIES WERE LOCATED,
SUSTAINED PARTIAL DAMAGE ONLY.

III. SAID DECISION (ANNEX A) ERRED IN NOT HOLDING THAT TRANSWORLD HAD ACTED IN PALPABLE
BAD FAITH AND WITH MALICE IN FILING ITS CLEARLY UNFOUNDED CIVIL ACTION, AND IN NOT
ORDERING TRANSWORLD TO PAY TO RIZAL SURETY MORAL AND PUNITIVE DAMAGES (ART. 2205,
CIVIL CODE), PLUS ATTORNEY'S FEES AND EXPENSES OF LITIGATION (ART. 2208 PARS. 4 and 11, CIVIL
CODE).[11]

The Petition is not impressed with merit.

It is petitioner's submission that the fire insurance policy litigated upon protected only the contents of the main building (four-
span),[12] and did not include those stored in the two-storey annex building. On the other hand, the private respondent theorized that
the so called "annex" was not an annex but was actually an integral part of the four-span building[13] and therefore, the goods and
items stored therein were covered by the same fire insurance policy.

Resolution of the issues posited here hinges on the proper interpretation of the stipulation in subject fire insurance policy regarding
its coverage, which reads:

"xxx 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 xxx"

Therefrom, it can be gleaned unerringly that the fire insurance policy in question did not limit its coverage to what were stored in
the four-span building. As opined by the trial court of origin, two requirements must concur in order that the said fun and
amusement machines and spare parts would be deemed protected by the fire insurance policy under scrutiny, to wit:

"First, said properties must be contained and/or stored in the areas occupied by Transworld and second, said areas must
form part of the building described in the policy xxx" [14]

'Said building of four-span lofty one storey in height with mezzanine portions is constructed of
reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and occupied as
hosiery mills, garment and lingerie factory, transistor-stereo assembly plant, offices, ware house and
caretaker's quarter.'

The Court is mindful of the well-entrenched doctrine that factual findings by the Court of Appeals are conclusive on the parties and
not reviewable by this Court, and the same carry even more weight when the Court of Appeals has affirmed the findings of fact
arrived at by the lower court.[15]

In the case under consideration, both the trial court and the Court of Appeals found that the so called "annex " was not an annex
building but an integral and inseparable part of the four-span building described in the policy and consequently, the machines and
spare parts stored therein were covered by the fire insurance in dispute. The letter-report of the Manila Adjusters and Surveyor's
Company, which petitioner itself cited and invoked, describes the "annex" building as follows:

"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." [16]

Verily, the two-storey building involved, a permanent structure which adjoins and intercommunicates with the "first right span of
the lofty storey building",[17] formed part thereof, and meets the requisites for compensability under the fire insurance policy sued
upon.

So also, considering that the two-storey building aforementioned was already existing when subject fire insurance policy contract
was entered into on January 12, 1981, having been constructed sometime in 1978,[18] petitioner should have specifically excluded
the said two-storey building from the coverage of the fire insurance if minded to exclude the same but if did not, and instead, went
on to provide that such fire insurance policy covers the products, raw materials and supplies stored within the premises of
respondent Transworld which was an integral part of the four-span building occupied by Transworld, knowing fully well the
existence of such building adjoining and intercommunicating with the right section of the four-span building.

After a careful study, the Court does not find any basis for disturbing what the lower courts found and arrived at.

Indeed, 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"

Conformably, it stands to reason that the doubt should be resolved against the petitioner, Rizal Surety Insurance Company, whose
lawyer or managers drafted the fire insurance policy contract under scrutiny. Citing the aforecited provision of law in point, the
Court in Landicho vs. Government Service Insurance System,[19] ruled:

"This is particularly true as regards insurance policies, in respect of which it is settled that the 'terms in an insurance
policy, which are ambiguous, equivocal, or uncertain x x x are to be construed strictly and most strongly against the
insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured,
 especially where forfeiture is involved' (29 Am. Jur., 181), and the reason for this is that the 'insured usually has no voice
in the selection or arrangement of the words employed and that the language of the contract is selected with great care and
deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance company.'
(44 C.J.S., p. 1174)."" [20]

Equally relevant is the following disquisition of the Court in Fieldmen's Insurance Company, Inc. vs. Vda. De Songco, [21] to wit:

"'This rigid application of the rule on ambiguities has become necessary in view of current business practices. The courts
cannot ignore that nowadays monopolies, cartels and concentration of capital, endowed with overwhelming economic
power, manage to impose upon parties dealing with them cunningly prepared 'agreements' that the weaker party may not
change one whit, his participation in the 'agreement' being reduced to the alternative to 'take it or leave it' labelled since
Raymond Saleilles 'contracts by adherence' (contrats [sic] d'adhesion), in contrast to these entered into by parties
bargaining on an equal footing, such contracts (of which policies of insurance and international bills of lading are prime
example) obviously call for greater strictness and vigilance on the part of courts of justice with a view to protecting the
weaker party from abuses and imposition, and prevent their becoming traps for the unwary (New Civil Code, Article 24;
Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942.)'" [22]

The issue of whether or not Transworld has an insurable interest in the fun and amusement machines and spare parts, which entitles
it to be indemnified for the loss thereof, had been settled in G.R. No. L-111118, entitled New India Assurance Company, Ltd., vs.
Court of Appeals, where the appeal of New India from the decision of the Court of Appeals under review, was denied with finality
by this Court on February 2, 1994.

The rule on conclusiveness of judgment, which obtains under the premises, precludes the relitigation of a particular fact or issue in
another action between the same parties based on a different claim or cause of action. "xxx the judgment in the prior action operates
as estoppel only as to those matters in issue or points controverted, upon the determination of which the finding or judgment was
rendered. In fine, the previous judgment is conclusive in the second case, only as those matters actually and directly controverted
and determined and not as to matters merely involved therein." [23]

Applying the abovecited pronouncement, the Court, in Smith Bell and Company (Phils.), Inc. vs. Court of Appeals, [24] held that the
issue of negligence of the shipping line, which issue had already been passed upon in a case filed by one of the insurers, is
conclusive and can no longer be relitigated in a similar case filed by another insurer against the same shipping line on the basis of
the same factual circumstances. Ratiocinating further, the Court opined:

"In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai Maru') had been negligent, or so negligent as to have
proximately caused the collision between them, was an issue that was actually, directly and expressly raised, controverted
and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J., resolved that issue in his Decision and held the 'Don Carlos' to
have been negligent rather than the 'Yotai Maru' and, as already noted, that Decision was affirmed by this Court in G.R.
No. L-48839 in a Resolution dated 6 December 1987. The Reyes Decision thus became final and executory approximately
two (2) years before the Sison Decision, which is assailed in the case at bar, was promulgated. Applying the rule of
conclusiveness of judgment, the question of which vessel had been negligent in the collision between the two (2) vessels,
had long been settled by this Court and could no longer be relitigated in C.A.-G.R. No. 61206-R. Private respondent Go
Thong was certainly bound by the ruling or judgment of Reyes, L.B., J. and that of this Court. The Court of Appeals fell
into clear and reversible error when it disregarded the Decision of this Court affirming the Reyes Decision."[25]

The controversy at bar is on all fours with the aforecited case. Considering that private respondent'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 in CA-G.R. CV NO. 28779, and by this Court in G.R. No. L-111118, in a Resolution, dated February 2, 1994,
the same can no longer be relitigated and passed upon in the present case. Ineluctably, the petitioner, Rizal Surety Insurance
Company, is bound by the ruling of the Court of Appeals and of this Court that the private respondent has an insurable interest in
the aforesaid fun and amusement machines and spare parts; and should be indemnified for the loss of the same.

So also, the Court of Appeals correctly adjudged petitioner liable for the amount of P470,328.67, it being the total loss and damage
suffered by Transworld for which petitioner Rizal Insurance is liable. [26]

All things studiedly considered and viewed in proper perspective, the Court is of the irresistible conclusion, and so finds, that the
Court of Appeals erred not in holding the petitioner, Rizal Surety Insurance Company, liable for the destruction and loss of the
insured buildings and articles of the private respondent.

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.
 Melo, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.

FIRST DIVISION

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

PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA TRINOS, respondents.

DECISION
YNARES-SANTIAGO, J.:

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

Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease,
asthma or peptic ulcer? (If Yes, give details).[1]

The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was issued Health Care
Agreement No. P010194. Under the agreement, respondents husband was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of out-patient benefits such as annual physical examinations, preventive health care and
other out-patient services.
Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March
1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. [2]
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month
beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim the benefits under the health care
agreement. However, petitioner denied her claim saying that the Health Care Agreement was void. According to petitioner, there was a
concealment regarding Ernanis medical history. Doctors at the MMC allegedly discovered at the time of Ernanis confinement that he was
hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, respondent paid the hospitalization expenses herself,
amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese
General Hospital. Due to financial difficulties, however, respondent brought her husband home again. In the morning of April 13, 1990, Ernani
had fever and was feeling very weak. Respondent was constrained to bring him back to the Chinese General Hospital where he died on the
same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for damages against petitioner and
its president, Dr. Benito Reverente, which was docketed as Civil Case No. 90-53795. She asked for reimbursement of her expenses plus moral
damages and attorneys fees. After trial, the lower court ruled against petitioners, viz:

WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita Trinos, ordering:

1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00 plus interest,
until the amount is fully paid to plaintiff who paid the same;

2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;

4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.

SO ORDERED.[3]

On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner
Reverente.[4] Petitioners motion for reconsideration was denied.[5] Hence, petitioner brought the instant petition for review, raising the primary
argument that a health care agreement is not an insurance contract; hence the incontestability clause under the Insurance Code[6] does not apply.
 Petitioner argues that the agreement grants living benefits, such as medical check-ups and hospitalization which a member may
immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration one-year thereafter. Petitioner also points out that
only medical and hospitalization benefits are given under the agreement without any indemnification, unlike in an insurance contract where
the insured is indemnified for his loss. Moreover, since Health Care Agreements are only for a period of one year, as compared to insurance
contracts which last longer,[7] petitioner argues that the incontestability clause does not apply, as the same requires an effectivity period of at
least two years. Petitioner further argues that it is not an insurance company, which is governed by the Insurance Commission, but a Health
Maintenance Organization under the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the
following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar
risk; and
5. In consideration of the insurers promise, the insured pays a premium. [8]
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person having
an insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of himself. Section 10
provides:

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

(1) of himself, of his spouse and of his children;

(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;

(3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or
illness might delay or prevent the performance; and

(4) of any person upon whose life any estate or interest vested in him depends.

In the case at bar, the insurable interest of respondents husband in obtaining the health care agreement was his own health. The health
care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity.[9] Once the member incurs hospital, medical
or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent
agreed upon under the contract.
Petitioner argues that respondents husband concealed a material fact in his application. It appears that in the application for health
coverage, petitioners required respondents husband to sign an express authorization for any person, organization or entity that has any record
or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice
or examination.[10] Specifically, the Health Care Agreement signed by respondents husband states:

We hereby declare and agree that all statement and answers contained herein and in any addendum annexed to this application are full,
complete and true and bind all parties in interest under the Agreement herein applied for, that there shall be no contract of health care
coverage unless and until an Agreement is issued on this application and the full Membership Fee according to the mode of payment applied
for is actually paid during the lifetime and good health of proposed Members; that no information acquired by any Representative of
PhilamCare shall be binding upon PhilamCare unless set out in writing in the application; that any physician is, by these presents, expressly
authorized to disclose or give testimony at anytime relative to any information acquired by him in his professional capacity upon any
question affecting the eligibility for health care coverage of the Proposed Members and that the acceptance of any Agreement issued on this
application shall be a ratification of any correction in or addition to this application as stated in the space for Home Office
Endorsement.[11] (Underscoring ours)

In addition to the above condition, petitioner additionally required the applicant for authorization to inquire about the applicants medical
history, thus:

I hereby authorize any person, organization, or entity that has any record or knowledge of my health and/or that of __________ to give to the
PhilamCare Health Systems, Inc. any and all information relative to any hospitalization, consultation, treatment or any other medical advice
or examination. This authorization is in connection with the application for health care coverage only. A photographic copy of this
authorization shall be as valid as the original.[12] (Underscoring ours)
 Petitioner cannot rely on the stipulation regarding Invalidation of agreement which reads:

Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether
intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited
to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted
in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for.[13]

The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on
opinion rather than fact, especially coming from respondents husband who was not a medical doctor. Where matters of opinion or judgment
are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. [14] Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is
no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the
statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in
relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the
insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue,
or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and
amounts to actual fraud.[15] (Underscoring ours)

The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. [16] Concealment as a
defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory
and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for
claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent
agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury covered by
the agreement or whenever he avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, a concealment entitles the injured party to rescind a contract of insurance. The right to rescind
should be exercised previous to the commencement of an action on the contract. [17] In this case, no rescission was made. Besides, the
cancellation of health care agreements as in insurance policies require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which
cancellation is based.[18]

None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts
should construe them in such a way as to preclude the insurer from non-compliance with his obligation.[19] Being a contract of adhesion, the
terms of an insurance contract are to be construed strictly against the party which prepared the contract the insurer. [20] By reason of the exclusive
control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the
insurer and liberally in favor of the insured, especially to avoid forfeiture.[21] This is equally applicable to Health Care Agreements. The
phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if
doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of
doubtful import should be strictly construed against the provider.[22]
Anent the incontestability of the membership of respondents husband, we quote with approval the following findings of the trial court:

(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve months from the date of issuance
of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the
issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or
misrepresentation no longer lie.[23]

Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their marriage,
the deceased was previously married to another woman who was still alive. The health care agreement is in the nature of a contract of
indemnity. Hence, payment should be made to the party who incurred the expenses. It is not controverted that respondent paid all the hospital
and medical expenses. She is therefore entitled to reimbursement. The records adequately prove the expenses incurred by respondent for the
deceaseds hospitalization, medication and the professional fees of the attending physicians. [24]
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated December 14,
1995 is AFFIRMED.
 SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, and Kapunan, JJ., concur.

FIRST DIVISION
G.R. No. L-31845 April 30, 1979
GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
vs.
HONORABLE COURT OF APPEALS, respondents.

G.R. No. L-31878 April 30, 1979

LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

DECISION
DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the Resolution of this Court dated April 29, 1970, (Rollo, No. L-31878, p. 58),
because the petitioners in both cases seek similar relief, through these petitions for certiorari by way of appeal, from the amended decision of
respondent Court of Appeals which affirmed in toto the decision of the Court of First Instance of Cebu, ordering “the defendants (herein
petitioners Great Pacific Life Assurance Company and Mondragon) jointly and severally to pay plaintiff (herein private respondent Ngo Hing)
the amount of P50,000.00 with interest at 6% from the date of the filing of the complaint, and the sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing filed an application with the Great Pacific Life Assurance Company
(hereinafter referred to as Pacific Life) for a twenty-year endowment policy in the amount of P50,000.00 on the life of his one-year old daughter
Helen Go. Said respondent supplied the essential data which petitioner Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu
City wrote on the corresponding form in his own handwriting (Exhibit I-M). Mondragon finally type-wrote the data on the application form
which was signed by private respondent Ngo Hing. The latter paid the annual premium 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
premium, the binding deposit receipt (Exhibit E) was issued to private respondent Ngo Hing. Likewise, petitioner 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 (Exhibit 3-M). 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.
The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by petitioner Mondragon to private respondent 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 (Exhibit 4-M).
It was when things were in such state that on May 28, 1957 Helen Go died of influenza with complication of bronchopneumonia. Thereupon,
private respondent sought the payment of the proceeds of the insurance, but having failed in his effort, he filed the action for the recovery of
the same before the Court of First Instance of Cebu, which rendered the adverse decision as earlier referred to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit E) constituted a temporary contract of the life insurance
in question; and (2) whether private respondent Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered
void the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before a deposit is considered a BINDING RECEIPT. These conditions state
that:
A. If the Company or its agent, shan have received the premium deposit … and the insurance application, ON or PRIOR to the date of medical
examination … said insurance shall be in force and in effect from the date of such medical examination, for such period as is covered by the
deposit …, PROVIDED the company shall be satisfied that on said date the applicant was insurable on standard rates under its rule for the
amount of insurance and the kind of policy requested in the application.
D. If the Company does not accept the application on standard rate for the amount of insurance and/or the kind of policy requested in the
application but issue, or offers to issue a policy for a different plan and/or amount …, the insurance shall not be in force and in effect until the
applicant shall have accepted the policy as issued or offered by the Company and shall have paid the full premium thereof. If the applicant
does not accept the policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under Condition A above, and the Company declines to approve the application the insurance
applied for shall not have been in force at any time and the sum paid be returned to the applicant upon the surrender of this receipt. (Emphasis
Ours).
The aforequoted provisions printed on Exhibit E 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 refunded; and (3) that if the applicant is not
insurable according to the standard rates, and the company disapproves the application, the insurance applied for shall not be in force at any
time, and the premium paid shall be returned to the applicant.
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 petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing, the binding deposit
receipt in question had never become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) 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 (De Lim vs. Sun Life Assurance Company of Canada, 41
Phil. 264).
It bears repeating that through the intra-company communication of April 30, 1957 (Exhibit 3-M), Pacific Life disapproved the insurance
application in question on the ground that it is not offering the twenty-year endowment insurance policy to children less than seven years of
age. What it offered instead is another plan known as the Juvenile Triple Action, which private respondent failed to accept. In the absence of
a meeting of the minds between petitioner Pacific Life and private respondent 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 thenl Accordingly, the deposit paid by
private respondent shall have to be refunded by Pacific Life.
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 done, 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.”
We are not impressed with private respondent’s contention that failure of petitioner Mondragon to communicate to him the rejection of the
insurance application would not have any adverse effect on the allegedly perfected temporary contract (Respondent’s Brief, pp. 13-14). In this
first place, there was no contract perfected between the parties who had no meeting of their minds. Private respondent, 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, private respondent 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. Secondly, having an insurable interest on the life of his one-year old daughter, aside from
being an insurance agent and an offense associate of petitioner Mondragon, private respondent 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.
At this juncture, We find it fit to quote with approval, the very apt observation of then Appellate Associate Justice Ruperto G. Martin who later
came up to this Court, from his dissenting opinion to the amended decision of the respondent court which completely reversed the original
decision, the following:
Of course, there is the insinuation that neither the memorandum of rejection (Exhibit 3-M) nor the reply thereto of appellant Mondragon
reiterating the desire for applicant’s father to have the application considered as one for a 20-year endowment plan was ever duly communicated
to Ngo Hing, father of the minor applicant. I am not quite convinced that this was so. Ngo Hing, as father of the applicant herself, was precisely
the “underwriter who wrote this case” (Exhibit H-1). The unchallenged statement of appellant Mondragon in his letter of May 6, 1957) (Exhibit
4-M), specifically admits that said Ngo Hing was “our associate” and that it was the latter who “insisted that the plan be placed on the 20-year
endowment plan.” Under these circumstances, it is inconceivable that the progress in the processing of the application was not brought home
to his knowledge. He must have been duly apprised of the rejection of the application for a 20-year endowment plan otherwise Mondragon
would not have asserted that it was Ngo Hing himself who insisted on the application as originally filed, thereby implicitly declining the offer
to consider the application under the Juvenile Triple Action Plan. Besides, the associate of Mondragon that he was, Ngo Hing should only be
presumed to know what kind of policies are available in the company for minors below 7 years old. What he and Mondragon were apparently
trying to do in the premises was merely to prod the company into going into the business of issuing endowment policies for minors just as
other insurance companies allegedly do. Until such a definite policy is however, adopted by the company, it can hardly be said that it could
have been bound at all under the binding slip for a plan of insurance that it could not have, by then issued at all. (Amended Decision, Rollo,
pp- 52-53).
2. Relative to the second issue of alleged concealment. this Court is of the firm belief that private respondent had deliberately concealed the
state of health and physical condition of his daughter Helen Go. When private respondent 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 disguised. Nonetheless, private respondent, in apparent bad faith, withheld the fact material to the risk to be assumed
by the insurance company. 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. Had he diamond said significant fact in the insurance application form Pacific Life would have verified the same and
would have had no choice but to disapprove the application outright.
The contract of insurance is one of perfect good faith (uberrima fides meaning good faith, absolute and perfect candor or openness and honesty;
the absence of any concealment or demotion, however slight [Black’s Law Dictionary, 2nd Edition], not for the alone but equally so for the
insurer (Fieldman’s Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70). Concealment is a neglect to communicate that which a party knows
and ought to communicate (Section 25, Act No. 2427). Whether intentional or unintentional the concealment entitles the insurer to rescind the
contract of insurance (Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Saturnino vs. Philippine American Life
Insurance Company, 7 SCRA 316). Private respondent appears guilty thereof.
We are thus constrained to hold that no insurance contract was perfected between the parties with the noncompliance of the conditions provided
in the binding receipt, and concealment, as legally defined, having been comraitted by herein private respondent.
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.
SO ORDERED.

SECOND DIVISION

G.R. No. 166245 April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,

vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.

DECISION

VELASCO, JR., J.:

The Case

Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the November 26, 2004 Decision1 of the
Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the insurer on the insurance application be considered as
approval of the application?

The Facts

On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife) entered into an agreement denominated as
Creditor Group Life Policy No. P-19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients
of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. The amount of insurance coverage
depended upon the existing balance of the purchased burial lots. The policy was to be effective for a period of one year, renewable on a
yearly basis.

The relevant provisions of the policy are:

ELIGIBILITY.

Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the Assured for the unpaid
balance of his loan with the Assured, and is accepted for Life Insurance coverage by the Company on its effective date is eligible for
insurance under the Policy.

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 Company in respect of the following:
 1. Any amount of insurance in excess of P50,000.00.

2. Any lot purchaser who is more than 55 years of age.

LIFE INSURANCE BENEFIT.

The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance of his loan (including
arrears up to but not exceeding 2 months) as reported by the Assured to the Company or the sum of P100,000.00, whichever is
smaller. Such benefit shall be paid to the Assured if the Lot Purchaser dies while insured under the Policy.

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. 3

Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of the application of each
purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal complied
by submitting a letter dated December 29, 1982, 4 containing a list of insurable balances of its lot buyers for October 1982. One of those
included in the list as "new business" was a certain John Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang
died.

Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for Chuang’s death. Attached to the claim were
the following documents: (1) Chuang’s Certificate of Death; (2) Identification Certificate stating that Chuang is a naturalized Filipino
Citizen; (3) Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assured’s Certificate.

In reply, Philamlife wrote Eternal a letter on November 12, 1984, 6 requiring Eternal to submit the following documents relative to its
insurance claim for Chuang’s death: (1) Certificate of Claimant (with form attached); (2) Assured’s Certificate (with form attached); (3)
Application for Insurance accomplished and signed by the insured, Chuang, while still living; and (4) Statement of Account showing the
unpaid balance of Chuang before his death.

Eternal transmitted the required documents through a letter dated November 14, 1984,7 which was received by Philamlife on November 15,
1984.

After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s insurance claim. This prompted Eternal to demand
from Philamlife the payment of the claim for PhP 100,000 on April 25, 1986. 8

In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter dated May 20, 1986, 9 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 on August 2, 1984.

In accordance with our Creditor’s Group Life Policy No. P-1920, 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 on
November 15, 1984, 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.

With regard to our acceptance of premiums, these do not connote our approval per se of the insurance coverage but are held by us in
trust for the payor until the prerequisites for insurance coverage shall have been met. We will however, return all the premiums
which have been paid in behalf of John Uy Chuang.

Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money against Philamlife, docketed as
Civil Case No. 14736. The trial court decided in favor of Eternal, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff ETERNAL, against Defendant
PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the sum of P100,000.00, representing the proceeds of the Policy of
John Uy Chuang, plus legal rate of interest, until fully paid; and, to pay the sum of P10,000.00 as attorney’s fees.

SO ORDERED.
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 the letter dated December 29, 1982, stating, among others: "Encl: Phil-Am Life Insurance Application
Forms & Cert."10 It further ruled that due to Philamlife’s inaction from the submission of the requirements of the group insurance on
December 29, 1982 to Chuang’s death on August 2, 1984, as well as Philamlife’s acceptance of the premiums during the same period,
Philamlife was deemed to have approved Chuang’s application. The RTC said that since the contract is a group life insurance, once proof of
death is submitted, payment must follow.

Philamlife appealed to the CA, which ruled, thus:

WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810 is REVERSED and SET ASIDE, and
the complaint is DISMISSED. No costs.

SO ORDERED.11

The CA based its Decision on the factual finding that Chuang’s application was not enclosed in Eternal’s letter dated December 29, 1982. It
further ruled that the non-accomplishment of the submitted application form violated Section 26 of the Insurance Code. Thus, the CA
concluded, there being no application form, Chuang was not covered by Philamlife’s insurance.

Hence, we have this petition with the following grounds:

The Honorable Court of Appeals has decided a question of substance, not therefore determined by this Honorable Court, or has
decided it in a way not in accord with law or with the applicable jurisprudence, in holding that:

I. The application for insurance was not duly submitted to respondent PhilamLife before the death of John Chuang;

II. There was no valid insurance coverage; and

III. Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996.

The Court’s Ruling

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, as enunciated
in Sampayan v. Court of Appeals:

(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension
of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the [CA] went beyond the issues of the case,
or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings [of the CA] are
contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9)
when the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondent; (10)
when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11)
when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered,
would justify a different conclusion.12(Emphasis supplied.)

In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review them.

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 dated December 29, 1982, 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 on January 15,
1983. Finally, Eternal alleged that it provided a copy of the insurance application which was signed by Chuang himself and executed before
his death.

On the other hand, 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.

The evidence on record supports Eternal’s position.

The fact of the matter is, the letter dated December 29, 1982, 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.13 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.

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.

Philamlife’s allegation that Eternal’s witnesses ran out of credibility and reliability due to inconsistencies is groundless. The trial court is in
the best position to determine the reliability and credibility of the witnesses, because it has the opportunity to observe firsthand the witnesses’
demeanor, conduct, and attitude. Findings of the trial court on such matters are binding and conclusive on the appellate court, unless some
facts or circumstances of weight and substance have been overlooked, misapprehended, or misinterpreted, 14 that, if considered, might affect
the result of the case.15

An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no overlooked facts of substance and value.

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:

Atty. Arevalo:

Q Where is the original of the application form which is required in case of new coverage?

[Mendoza:]

A It is [a] standard operating procedure for the new client to fill up two copies of this form and the original of this is submitted to
Philamlife together with the monthly remittances and the second copy is remained or retained with the marketing department of
Eternal Gardens.

Atty. Miranda:

We move to strike out the answer as it is not responsive as counsel is merely asking for the location and does not [ask] for the
number of copy.

Atty. Arevalo:

Q Where is the original?

[Mendoza:]

A 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. 16

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.

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. Thus, we ruled in People v. Paredes that minor inconsistencies are too trivial to affect the credibility of
witnesses, and these may even serve to strengthen their credibility as these negate any suspicion that the testimonies have been rehearsed.17

We reiterated the above ruling in Merencillo v. People:

Minor discrepancies or inconsistencies do not impair the essential integrity of the prosecution’s evidence as a whole or reflect on the
witnesses’ honesty. The test is whether the testimonies agree on essential facts and whether the respective versions corroborate and
substantially coincide with each other so as to make a consistent and coherent whole. 18

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.

As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920 dated December
10, 1980. 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.

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

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

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in
favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of
adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed
liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and
must be construed in such a way as to preclude the insurer from noncompliance with its obligations. 19 (Emphasis supplied.)

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating that:

When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the
insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract, the insurer. By reason of the exclusive control of the insurance
company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture.20

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

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. The second sentence of Creditor Group Life Policy No. P-1920 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.

As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best. Insurance contracts are
wholly prepared by the insurer with vast amounts of experience in the industry purposefully used to its advantage. More often than not,
insurance contracts are contracts of adhesion containing technical terms and conditions of the industry, confusing if at all understandable to
laypersons, that are imposed on those who wish to avail of insurance. As such, insurance contracts are imbued with public interest that must
be considered whenever the rights and obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest of
insurance applicants, insurance companies must be obligated to act with haste upon insurance applications, to either deny or approve the
same, or otherwise be bound to honor the application as a valid, binding, and effective insurance contract. 21

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.

No costs.

SO ORDERED.

Carpio-Morales, Acting Chairperson, Tinga, Brion, Chico-Nazario*, JJ., concur.

EN BANC

G.R. No. L-15895 November 29, 1920

RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin Ma. Herrer, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.

Jose A. Espiritu for appellant.

Cohn, Fisher and DeWitt for appellee.

MALCOLM, J.:

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

The undisputed facts are these: On September 24, 1917, Joaquin Herrer made application to the Sun Life Assurance Company of Canada
through its office in Manila for a life annuity. Two days later he paid the sum of P6,000 to the manager of the company's Manila office and
was given a receipt reading as follows:

MANILA, I. F., 26 de septiembre, 1917.

PROVISIONAL RECEIPT Pesos 6,000

Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como prima dela Renta Vitalicia solicitada por dicho Don Joaquin Herrer
hoy, sujeta al examen medico y aprobacion de la Oficina Central de la Compañia.

The application was immediately forwarded to the head office of the company at Montreal, Canada. On November 26, 1917, the head office
gave notice of acceptance by cable to Manila. (Whether on the same day the cable was received notice was sent by the Manila office of
Herrer that the application had been accepted, is a disputed point, which will be discussed later.) On December 4, 1917, the policy was issued
at Montreal. On December 18, 1917, attorney Aurelio A. Torres wrote to the Manila office of the company stating that Herrer desired to
withdraw his application. The following day the local office replied to Mr. Torres, stating that the policy had been issued, and called
attention to the notification of November 26, 1917. This letter was received by Mr. Torres on the morning of December 21, 1917. Mr. Herrer
died on December 20, 1917.

As above suggested, the issue of fact raised by the evidence is whether Herrer received notice of acceptance of his application. To resolve
this question, we propose to go directly to the evidence of record.

The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time of the trial testified that he prepared the letter
introduced in evidence as Exhibit 3, of date November 26, 1917, and handed it to the local manager, Mr. E. E. White, for signature. The
witness admitted on cross-examination that after preparing the letter and giving it to he manager, he new nothing of what became of it. The
local manager, Mr. White, testified to having received the cablegram accepting the application of Mr. Herrer from the home office on
November 26, 1917. He said that on the same day he signed a letter notifying Mr. Herrer of this acceptance. The witness further said that
letters, after being signed, were sent to the chief clerk and placed on the mailing desk for transmission. The witness could not tell if the letter
had every actually been placed in the mails. Mr. Tuason, who was the chief clerk, on November 26, 1917, was not called as a witness. For
the defense, attorney Manuel Torres testified to having prepared the will of Joaquin Ma. Herrer, that on this occasion, Mr. Herrer mentioned
his application for a life annuity, and that he said that the only document relating to the transaction in his possession was the provisional
receipt. Rafael Enriquez, the administrator of the estate, testified that he had gone through the effects of the deceased and had found no letter
of notification from the insurance company to Mr. Herrer.

Our deduction from the evidence on this issue must be that the letter of November 26, 1917, notifying Mr. Herrer that his application had
been accepted, was prepared and signed in the local office of the insurance company, was placed in the ordinary channels for transmission,
but as far as we know, was never actually mailed and thus was never received by the applicant.

Not forgetting our conclusion of fact, it next becomes necessary to determine the law which should be applied to the facts. In order to reach
our legal goal, the obvious signposts along the way must be noticed.

Until quite recently, all of the provisions concerning life insurance in the Philippines were found in the Code of Commerce and the Civil
Code. In the Code of the Commerce, there formerly existed Title VIII of Book III and Section III of Title III of Book III, which dealt with
insurance contracts. In the Civil Code there formerly existed and presumably still exist, Chapters II and IV, entitled insurance contracts and
life annuities, respectively, of Title XII of Book IV. On the after July 1, 1915, there was, however, in force the Insurance Act. No. 2427.
Chapter IV of this Act concerns life and health insurance. The Act expressly repealed Title VIII of Book II and Section III of Title III of
Book III of the code of Commerce. The law of insurance is consequently now found in the Insurance Act and the Civil Code.

While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the methods to be followed in order that there may be a
contract of insurance. On the other hand, the Civil Code, in article 1802, not only describes a contact of life annuity markedly similar to the
one we are considering, but in two other articles, gives strong clues as to the proper disposition of the case. For instance, article 16 of the
Civil Code provides that "In matters which are governed by special laws, any deficiency of the latter shall be supplied by the provisions of
this Code." On the supposition, therefore, which is incontestable, that the special law on the subject of insurance is deficient in enunciating
the principles governing acceptance, the subject-matter of the Civil code, if there be any, would be controlling. In the Civil Code is found
article 1262 providing that "Consent is shown by the concurrence of offer and acceptance with respect to the thing and the consideration
which are to constitute the contract. An acceptance made by letter shall not bind the person making the offer except from the time it came to
his knowledge. The contract, in such case, is presumed to have been entered into at the place where the offer was made." This latter article is
in opposition to the provisions of article 54 of the Code of Commerce.

If no mistake has been made in announcing the successive steps by which we reach a conclusion, then the only duty remaining is for the
court to apply the law as it is found. The legislature in its wisdom having enacted a new law on insurance, and expressly repealed the
provisions in the Code of Commerce on the same subject, and having thus left a void in the commercial law, it would seem logical to make
use of the only pertinent provision of law found in the Civil code, closely related to the chapter concerning life annuities.

The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only from the date it came to his knowledge,
may not be the best expression of modern commercial usage. Still it must be admitted that its enforcement avoids uncertainty and tends to
security. Not only this, but in order that the principle may not be taken too lightly, let it be noticed that it is identical with the principles
announced by a considerable number of respectable courts in the United States. The courts who take this view have expressly held that an
acceptance of an offer of insurance not actually or constructively communicated to the proposer does not make a contract. Only the mailing
of acceptance, it has been said, completes the contract of insurance, as the locus poenitentiae is ended when the acceptance has passed
beyond the control of the party. (I Joyce, The Law of Insurance, pp. 235, 244.)

In resume, therefore, the law applicable to the case is found to be the second paragraph of article 1262 of the Civil Code providing that an
acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. The pertinent fact is,
that according to the provisional receipt, three things had to be accomplished by the insurance company before there was a contract: (1)
There had to be a medical examination of the applicant; (2) there had to be approval of the application by the head office of the company;
and (3) this approval had in some way to be communicated by the company to the applicant. The further admitted facts are that the head
office in Montreal did accept the application, did cable the Manila office to that effect, did actually issue the policy and did, through its agent
in Manila, actually write the letter of notification and place it in the usual channels for transmission to the addressee. The fact as to the letter
of notification thus fails to concur with the essential elements of the general rule pertaining to the mailing and delivery of mail matter as
announced by the American courts, namely, when a letter or other mail matter is addressed and mailed with postage prepaid there is a
rebuttable presumption of fact that it was received by the addressee as soon as it could have been transmitted to him in the ordinary course of
the mails. But if any one of these elemental facts fails to appear, it is fatal to the presumption. For instance, a letter will not be presumed to
have been received by the addressee unless it is shown that it was deposited in the post-office, properly addressed and stamped. (See 22 C.J.,
96, and 49 L. R. A. [N. S.], pp. 458, et seq., notes.)

We hold that the contract for a life annuity in the case at bar was not perfected because it has not been proved satisfactorily that the
acceptance of the application ever came to the knowledge of the applicant.lawph!l.net

Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum of P6,000 with legal interest from November 20,
1918, until paid, without special finding as to costs in either instance. So ordered.
Mapa, C.J., Araullo, Avanceña and Villamor, JJ., concur.
Johnson, J., dissents.