SECOND DIVISION

[G.R. No. 119599. March 20, 1997]

MALAYAN INSURANCE CORPORATION, Petitioner, v. THE HON. COURT OF

APPEALS and TKC MARKETING CORPORATION, Respondents.

DECISION

ROMERO, J.:
Assailed in this petition for review on certiorari is the decision of the Court of Appeals in CA-G.R. No. 430231 which
affirmed, with slight modification, the decision of the Regional Trial Court of Cebu, Branch 15.

Private respondent TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric tons of soya bean
meal which was loaded on board the ship MV Al Kaziemah on or about September 8, 1989 for carriage from the port
of Rio del Grande, Brazil, to the port of Manila. Said cargo was insured against the risk of loss by petitioner Malayan
Insurance Corporation for which it issued two (2) Marine Cargo Policy Nos. M/LP 97800305 amounting
to P18,986,902.45 and M/LP 97800306 amounting to P1,195,005.45, both dated September 1989.

While the vessel was docked in Durban, South Africa on September 11, 1989 enroute to Manila, the civil authorities
arrested and detained it because of a lawsuit on a question of ownership and possession. As a result, private
respondent notified petitioner on October 4, 1989 of the arrest of the vessel and made a formal claim for the amount
of US$916,886.66, representing the dollar equivalent on the policies, for non-delivery of the cargo. Private
respondent likewise sought the assistance of petitioner on what to do with the cargo.

Petitioner replied that the arrest of the vessel by civil authority was not a peril covered by the policies. Private
respondent, accordingly, advised petitioner that it might tranship the cargo and requested an extension of the
insurance coverage until actual transhipment, which extension was approved upon payment of additional premium.
The insurance coverage was extended under the same terms and conditions embodied in the original policies while
in the process of making arrangements for the transhipment of the cargo from Durban to Manila, covering the period
October 4-December 19, 1989.

However, on December 11, 1989, the cargo was sold in Durban, South Africa, for US$154.40 per metric ton or a
total of P10,304,231.75 due to its perishable nature which could no longer stand a voyage of twenty days to Manila
and another twenty days for the discharge thereof. On January 5, 1990, private respondent forthwith reduced its
claim to US$448,806.09 (or its peso equivalent of P9,879,928.89 at the exchange rate of P22.0138 per $1.00)
representing private respondent's loss after the proceeds of the sale were deducted from the original claim of
$916,886.66 or P20,184,159.55.

Petitioner maintained its position that the arrest of the vessel by civil authorities on a question of ownership was an
excepted risk under the marine insurance policies. This prompted private respondent to file a complaint for damages
praying that aside from its claim, it be reimbursed the amount of P128,770.88 as legal expenses and the interest it
paid for the loan it obtained to finance the shipment totalling P942,269.30. In addition, private respondent asked for
moral damages amounting to P200,000.00, exemplary damages amounting to P200,000.00 and attorney's fees
equivalent to 30% of what will be awarded by the court.
The lower court decided in favor of private respondent and required petitioner to pay, aside from the insurance
claim, consequential and liquidated damages amounting to P1,024,233.88, exemplary damages amounting
to P100,000.00, reimbursement in the amount equivalent to 10% of whatever is recovered as attorney's fees as well
as the costs of the suit. On private respondent's motion for reconsideration, petitioner was also required to further
pay interest at the rate of 12% per annum on all amounts due and owing to the private respondent by virtue of the
lower court decision counted from the inception of this case until the same is paid.

On appeal, the Court of Appeals affirmed the decision of the lower court stating that with the deletion of Clause 12 of
the policies issued to private respondent, the same became automatically covered under subsection 1.1 of Section 1
of the Institute War Clauses. The arrests, restraints or detainments contemplated in the former clause were those
effected by political or executive acts. Losses occasioned by riot or ordinary judicial processes were not covered
therein. In other words, arrest, restraint or detainment within the meaning of Clause 12 (or F.C. & S. Clause) rules
out detention by ordinary legal processes. Hence, arrests by civil authorities, such as what happened in the instant
case, is an excepted risk under Clause 12 of the Institute Cargo Clause or the F.C. & S. Clause. However, with the
deletion of Clause 12 of the Institute Cargo Clause and the consequent adoption or institution of the Institute War
Clauses (Cargo), the arrest and seizure by judicial processes which were excluded under the former policy became
one of the covered risks.

The appellate court added that the failure to deliver the consigned goods in the port of destination is a loss
compensable, not only under the Institute War Clause but also under the Theft, Pilferage, and Non-delivery Clause
(TNPD) of the insurance policies, as read in relation to Section 130 of the Insurance Code and as held in Williams v.
Cole.2chanroblesvirtuallawlibrary

Furthermore, the appellate court contended that since the vessel was prevented at an intermediate port from
completing the voyage due to its seizure by civil authorities, a peril insured against, the liability of petitioner
continued until the goods could have been transhipped. But due to the perishable nature of the goods, it had to be
promptly sold to minimize loss. Accordingly, the sale of the goods being reasonable and justified, it should not
operate to discharge petitioner from its contractual liability.

Hence this petition, claiming that the Court of Appeals erred:

1. In ruling that the arrest of the vessel was a risk covered under the subject insurance policies.

2. In ruling that there was constructive total loss over the cargo.

3. In ruling that petitioner was in bad faith in declining private respondent's claim.

4. In giving undue reliance to the doctrine that insurance policies are strictly construed against the insurer.

In assigning the first error, petitioner submits the following: (a) an arrest by civil authority is not compensable since
the term "arrest" refers to "political or executive acts" and does not include a loss caused by riot or by ordinary
judicial process as in this case; (b) the deletion of the Free from Capture or Seizure Clause would leave the assured
covered solely for the perils specified by the wording of the policy itself; (c) the rationale for the exclusion of an
arrest pursuant to judicial authorities is to eliminate collusion between unscrupulous assured and civil authorities.

As to the second assigned error, petitioner submits that any loss which private respondent may have incurred was in
the nature and form of unrecovered acquisition value brought about by a voluntary sacrifice sale and not by arrest,
detention or seizure of the ship.

As to the third issue, petitioner alleges that its act of rejecting the claim was a result of its honest belief that the
arrest of the vessel was not a compensable risk under the policies issued. In fact, petitioner supported private
respondent by accommodating the latter's request for an extension of the insurance coverage, notwithstanding that
it was then under no legal obligation to do so.

Private respondent, on the other hand, argued that when it appealed its case to the Court of Appeals, petitioner did
not raise as an issue the award of exemplary damages. It cannot now, for the first time, raise the same before this
Court. Likewise, petitioner cannot submit for the first time on appeal its argument that it was wrong for the Court of
Appeals to have ruled the way it did based on facts that would need inquiry into the evidence. Even if inquiry into the
facts were possible, such was not necessary because the coverage as ruled upon by the Court of Appeals is evident
from the very terms of the policies.

It also argued that petitioner, being the sole author of the policies, "arrests" should be strictly interpreted against it
because the rule is that any ambiguity is to be taken contra proferentum. Risk policies should be construed
reasonably and in a manner as to make effective the intentions and expectations of the parties. It added that the
policies clearly stipulate that they cover the risks of non-delivery of an entire package and that it was petitioner itself
that invited and granted the extensions and collected premiums thereon.

The resolution of this controversy hinges on the interpretation of the "Perils" clause of the subject policies in relation
to the excluded risks or warranty specifically stated therein.

By way of a historical background, marine insurance developed as an all-risk coverage, using the phrase "perils of
the sea" to encompass the wide and varied range of risks that were covered.3 The subject policies contain the
"Perils" clause which is a standard form in any marine insurance policy. Said clause reads:

"Touching the adventures which the said MALAYAN INSURANCE CO., are content to bear, and to take upon them
in this voyage; they are of the Seas; Men-of-War, Fire, Enemies, Pirates, Rovers, Thieves, Jettisons, Letters of Mart
and Counter Mart, Suprisals, Takings of the Sea, Arrests, Restraints and Detainments of all Kings, Princess and
Peoples, of what Nation, condition, or quality soever, Barratry of the Master and Mariners, and of all other Perils,
Losses, and Misfortunes, that have come to hurt, detriment, or damage of the said goods and merchandise or any
part thereof. AND in case of any loss or misfortune it shall be lawful to the ASSURED, their factors, servants and
assigns, to sue, labour, and travel for, in and about the defence, safeguards, and recovery of the said goods and
merchandises, and ship, & c., or any part thereof, without prejudice to this INSURANCE; to the charges whereof the
said COMPANY, will contribute according to the rate and quantity of the sum herein INSURED. AND it is expressly
declared and agreed that no acts of the Insurer or Insured in recovering, saving, or preserving the Property insured
shall be considered as a Waiver, or Acceptance of Abandonment. And it is agreed by the said COMPANY, that this
writing or Policy of INSURANCE shall be of as much Force and Effect as the surest Writing or Policy of
INSURANCE made in LONDON. And so the said MALAYAN INSURANCE COMPANY, INC., are contented, and do
hereby promise and bind themselves, their Heirs, Executors, Goods and Chattel, to the ASSURED, his or their
Executors, Administrators, or Assigns, for the true Performance of the Premises; confessing themselves paid the
Consideration due unto them for this INSURANCE at and after the rate arranged." (Underscoring supplied)

The exception or limitation to the "Perils" clause and the "All other perils" clause in the subject policies is specifically
referred to as Clause 12 called the "Free from Capture & Seizure Clause" or the F.C. & S. Clause which reads, thus:

"Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences thereof or of any attempt
thereat; also from the consequences of hostilities and warlike operations, whether there be a declaration of war or
not; but this warranty shall not exclude collision, contact with any fixed or floating object (other than a mine or
torpedo), stranding, heavy weather or fire unless caused directly (and independently of the nature of the voyage or
service which the vessel concerned or, in the case of a collision, any other vessel involved therein is performing) by
a hostile act by or against a belligerent power and for the purpose of this warranty 'power' includes any authorities
maintaining naval, military or air forces in association with power.

Further warranted free from the consequences of civil war, revolution, insurrection, or civil strike arising therefrom or
piracy.

Should Clause 12 be deleted, the relevant current institute war clauses shall be deemed to form part of this
insurance." (Underscoring supplied)

However, the F. C. & S. Clause was deleted from the policies. Consequently, the Institute War Clauses (Cargo) was
deemed incorporated which, in subsection 1.1 of Section 1, provides:

"1. This insurance covers:

1.1 The risks excluded from the standard form of English Marine Policy by the clause warranted free of capture,
seizure, arrest, restraint or detainment, and the consequences thereof of hostilities or warlike operations, whether
there be a declaration of war or not; but this warranty shall not exclude collision, contact with any fixed or floating
object (other than a mine or torpedo), stranding, heavy weather or fire unless caused directly (and independently of
the nature on voyage or service which the vessel concerned or, in the case of a collision any other vessel involved
therein is performing) by a hostile act by or against a belligerent power; and for the purpose of this warranty 'power'
includes any authority maintaining naval, military or air forces in association with a power. Further warranted free
from the consequences of civil war, revolution, rebellion, insurrection, or civil strike arising therefrom, or piracy."

According to petitioner, the automatic incorporation of subsection 1.1 of section 1 of the Institute War Clauses
(Cargo), among others, means that any "capture, arrest, detention, etc." pertained exclusively to warlike operations
if this Court strictly construes the heading of the said Clauses. However, it also claims that the parties intended to
include arrests, etc. even if it were not the result of hostilities or warlike operations. It further claims that on the
strength of jurisprudence on the matter, the term "arrests" would only cover those arising from political or executive
acts, concluding that whether private respondent's claim is anchored on subsection 1.1 of Section 1 of the Institute
War Clauses (Cargo) or the F.C. & S. Clause, the arrest of the vessel by judicial authorities is an excluded
risk.4chanroblesvirtuallawlibrary

This Court cannot agree with petitioner's assertions, particularly when it alleges that in the "Perils" Clause, it
assumed the risk of arrest caused solely by executive or political acts of the government of the seizing state and
thereby excludes "arrests" caused by ordinary legal processes, such as in the instant case.

With the incorporation of subsection 1.1 of Section 1 of the Institute War Clauses, however, this Court agrees with
the Court of Appeals and the private respondent that "arrest" caused by ordinary judicial process is deemed
included among the covered risks. This interpretation becomes inevitable when subsection 1.1 of Section 1 of the
Institute War Clauses provided that "this insurance covers the risks excluded from the Standard Form of English
Marine Policy by the clause 'Warranted free of capture, seizure, arrest, etc. x x x'" or the F.C. & S. Clause.
Jurisprudentially, "arrests" caused by ordinary judicial process is also a risk excluded from the Standard Form of
English Marine Policy by the F.C. & S. Clause.

Petitioner cannot adopt the argument that the "arrest" caused by ordinary judicial process is not included in the
covered risk simply because the F.C. & S. Clause under the Institute War Clauses can only be operative in case of
hostilities or warlike operations on account of its heading "Institute War Clauses." This Court agrees with the Court
of Appeals when it held that "... Although the F.C. & S. Clause may have originally been inserted in marine policies
to protect against risks of war, (see generally G. Gilmore & C. Black, The Law of Admiralty Section 2-9, at 71-73 [2d
Ed. 1975]), its interpretation in recent years to include seizure or detention by civil authorities seems consistent with
the general purposes of the clause, x x x"5 In fact, petitioner itself averred that subsection 1.1 of Section 1 of the
Institute War Clauses included "arrest" even if it were not a result of hostilities or warlike operations.6 In this regard,
since what was also excluded in the deleted F.C. & S. Clause was "arrest" occasioned by ordinary judicial process,
logically, such "arrest" would now become a covered risk under subsection 1.1 of Section 1 of the Institute War
Clauses, regardless of whether or not said "arrest" by civil authorities occurred in a state of war.

Petitioner itself seems to be confused about the application of the F.C. & S. Clause as well as that of subsection 1.1
of Section 1 of the Institute War Clauses (Cargo). It stated that "the F.C. & S. Clause was "originally incorporated in
insurance policies to eliminate the risks of warlike operations". It also averred that the F.C. & S. Clause applies even
if there be no war or warlike operations x x x"7 In the same vein, it contended that subsection 1.1 of Section 1 of the
Institute War Clauses (Cargo) "pertained exclusively to warlike operations" and yet it also stated that "the deletion of
the F.C. & S. Clause and the consequent incorporation of subsection 1.1 of Section 1 of the Institute War Clauses
(Cargo) was to include "arrest, etc. even if it were not a result of hostilities or warlike
operations."8chanroblesvirtuallawlibrary

This Court cannot help the impression that petitioner is overly straining its interpretation of the provisions of the
policy in order to avoid being liable for private respondent's claim.

This Court finds it pointless for petitioner to maintain its position that it only insures risks of "arrest" occasioned by
executive or political acts of government which is interpreted as not referring to those caused by ordinary legal
processes as contained in the "Perils" Clause; deletes the F.C. & S. Clause which excludes risks of arrest
occasioned by executive or political acts of the government and naturally, also those caused by ordinary legal
processes; and, thereafter incorporates subsection 1.1 of Section 1 of the Institute War Clauses which now includes
in the coverage risks of arrest due to executive or political acts of a government but then still excludes "arrests"
occasioned by ordinary legal processes when subsection 1.1 of Section 1 of said Clauses should also have included
"arrests" previously excluded from the coverage of the F.C. & S. Clause.

It has been held that a strained interpretation which is unnatural and forced, as to lead to an absurd conclusion or to
render the policy nonsensical, should, by all means, be avoided.9 Likewise, it must be borne in mind that such
contracts are invariably prepared by the companies and must be accepted by the insured in the form in which they
are written.10 Any construction of a marine policy rendering it void should be avoided.11 Such policies will, therefore,
be construed strictly against the company in order to avoid a forfeiture, unless no other result is possible from the
language used.12chanroblesvirtuallawlibrary

If a marine insurance company desires to limit or restrict the operation of the general provisions of its contract by
special proviso, exception, or exemption, it should express such limitation in clear and unmistakable
language.13Obviously, the deletion of the F.C. & S. Clause and the consequent incorporation of subsection 1.1 of
Section 1 of the Institute War Clauses (Cargo) gave rise to ambiguity. If the risk of arrest occasioned by ordinary
judicial process was expressly indicated as an exception in the subject policies, there would have been no
controversy with respect to the interpretation of the subject clauses.

Be that as it may, exceptions to the general coverage are construed most strongly against the company.14 Even an
express exception in a policy is to be construed against the underwriters by whom the policy is framed, and for
whose benefit the exception is introduced.15chanroblesvirtuallawlibrary

An insurance contract should be so interpreted as to carry out the purpose for which the parties entered into the
contract which is, to insure against risks of loss or damage to the goods. Such interpretation should result from the
natural and reasonable meaning of language in the policy.16 Where restrictive provisions are open to two
interpretations, that which is most favorable to the insured is adopted.17chanroblesvirtuallawlibrary

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.18 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.19chanroblesvirtuallawlibrary

In view of the foregoing, this Court sees no need to discuss the other issues presented.

WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-16215 June 29, 1963

SIMEON DEL ROSARIO, plaintiff-appellee,

vs.
THE EQUITABLE INSURANCE AND CASUALTY CO., INC., defendant-appellant.

Vicente J. Francisco and Jose R. Francisco for plaintiff-appellee.

K. V. Faylona for defendant-appellant.

PAREDES, J.:

On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued Personal Accident Policy
No. 7136 on the life of Francisco del Rosario, alias Paquito Bolero, son of herein plaintiff-appellee, binding itself to
pay the sum of P1,000.00 to P3,000.00, as indemnity for the death of the insured. The pertinent provisions of the
Policy, recite:

Part I. Indemnity For Death

If the insured sustains any bodily injury which is effected solely through violent, external, visible and
accidental means, and which shall result, independently of all other causes and within sixty (60) days from
the occurrence thereof, in the Death of the Insured, the Company shall pay the amount set opposite such
injury:

Section 1. Injury sustained other than those specified

below unless excepted hereinafter. . . . . . . . P1,000.00

Section 2. Injury sustained by the wrecking or

disablement of a railroad passenger car or street railway
car in or on which the Insured is travelling as a
farepaying passenger. . . . . . . . P1,500.00

Section 3. Injury sustained by the burning of a church,

theatre, public library or municipal administration building
while the Insured is therein at the commencement of the
fire. . . . . . . . P2,000.00

Section 4. Injury sustained by the wrecking or

disablement of a regular passenger elevator car in which
the Insured is being conveyed as a passenger (Elevator
in mines excluded) P2,500.00

Section 5. Injury sustained by a stroke of lightning or by

a cyclone. . . . . . . . P3,000.00

xxx xxx xxx

Part VI. Exceptions

This policy shall not cover disappearance of the Insured nor shall it cover Death, Disability, Hospital fees, or
Loss of Time, caused to the insured:
 . . . (h) By drowning except as a consequence of the wrecking or disablement in the Philippine waters of a
passenger steam or motor vessel in which the Insured is travelling as a farepaying passenger; . . . .

A rider to the Policy contained the following:

IV. DROWNING

It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the policy is hereby
waived by the company, and to form a part of the provision covered by the policy.

On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero, while on board the motor launch
"ISLAMA" together with 33 others, including his beneficiary in the Policy, Remedios Jayme, were forced to jump off
said launch on account of fire which broke out on said vessel, resulting in the death of drowning, of the insured and
beneficiary in the waters of Jolo.1äw phï1.ñët

On April 13, 1957, Simeon del Rosario, father of the insured, and as the sole heir, filed a claim for payment with
defendant company, and on September 13, 1957, defendant company paid to him (plaintiff) the sum of P1,000.00,
pursuant to Section 1 of Part I of the policy. The receipt signed by plaintiff reads —

RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO., INC., the sum of PESOS — ONE
THOUSAND (P1,000.00) Philippine Currency, being settlement in full for all claims and demands
against said Company as a result of an accident which occurred on February 26, 1957, insured
under out ACCIDENT Policy No. 7136, causing the death of the Assured.

In view of the foregoing, this policy is hereby surrendered and CANCELLED.

LOSS COMPUTATION

Amount of Insurance P1,000.00

__________
vvvvv

On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote defendant company acknowledging
receipt by his client (plaintiff herein), of the P1,000.00, but informing said company that said amount was not the
correct one. Atty. Francisco claimed —

The amount payable under the policy, I believe should be P1,500.00 under the provision of Section 2, part 1
of the policy, based on the rule of pari materia as the death of the insured occurred under the circumstances
similar to that provided under the aforecited section.

Defendant company, upon receipt of the letter, referred the matter to the Insurance Commissioner, who rendered an
opinion that the liability of the company was only P1,000.00, pursuant to Section 1, Part I of the Provisions of the
policy (Exh. F, or 3). Because of the above opinion, defendant insurance company refused to pay more than
P1,000.00. In the meantime, Atty. Vicente Francisco, in a subsequent letter to the insurance company, asked for
P3,000.00 which the Company refused, to pay. Hence, a complaint for the recovery of the balance of P2,000.00
more was instituted with the Court of First Instance of Rizal (Pasay City, Branch VII), praying for it further sum of
P10,000.00 as attorney's fees, expenses of litigation and costs.

Defendant Insurance Company presented a Motion to Dismiss, alleging that the demand or claim is set forth in the
complaint had already been released, plaintiff having received the full amount due as appearing in policy and as per
opinion of the Insurance Commissioner. An opposition to the motion to dismiss, was presented by plaintiff, and other
pleadings were subsequently file by the parties. On December 28, 1957, the trial court deferred action on the motion
to dismiss until termination of the trial of the case, it appearing that the ground thereof was not indubitable. In the
Answer to the complaint, defendant company practically admitted all the allegations therein, denying only those
which stated that under the policy its liability was P3,000.00.

On September 1, 1958, the trial court promulgated an Amended Decision, the pertinent portions of which read —
 xxx xxx xxx

Since the contemporaneous and subsequent acts of the parties show that it was not their intention that the
payment of P1,000.00 to the plaintiff and the signing of the loss receipt exhibit "1" would be considered as
releasing the defendant completely from its liability on the policy in question, said intention of the parties
should prevail over the contents of the loss receipt "1" (Articles 1370 and 1371, New Civil Code).

". . . . Under the terms of this policy, defendant company agreed to pay P1,000.00 to P3,000.00 as indemnity
for the death of the insured. The insured died of drowning. Death by drowning is covered by the policy the
pertinent provisions of which reads as follows:

xxx xxx xxx

"Part I of the policy fixes specific amounts as indemnities in case of death resulting from "bodily
injury which is effected solely thru violence, external, visible and accidental means" but, Part I of the
Policy is not applicable in case of death by drowning because death by drowning is not one resulting
from "bodily injury which is affected solely thru violent, external, visible and accidental means" as
"Bodily Injury" means a cut, a bruise, or a wound and drowning is death due to suffocation and not to
any cut, bruise or wound."

xxx xxx xxx

Besides, on the face of the policy Exhibit "A" itself, death by drowning is a ground for recovery apart from the
bodily injury because death by bodily injury is covered by Part I of the policy while death by drowning is
covered by Part VI thereof. But while the policy mentions specific amounts that may be recovered for death
for bodily injury, yet, there is not specific amount mentioned in the policy for death thru drowning although
the latter is, under Part VI of the policy, a ground for recovery thereunder. Since the defendant has bound
itself to pay P1000.00 to P3,000.00 as indemnity for the death of the insured but the policy does not
positively state any definite amount that may be recovered in case of death by drowning, there is an
ambiguity in this respect in the policy, which ambiguity must be interpreted in favor of the insured and strictly
against the insurer so as to allow greater indemnity.

xxx xxx xxx

. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had already paid the amount of
P1,000.00 to the plaintiff so that there still remains a balance of P2,000.00 of the amount to which plaintiff is
entitled to recover under the policy Exhibit "A".

The plaintiff asks for an award of P10,000.00 as attorney's fees and expenses of litigation. However, since it
is evident that the defendant had not acted in bad faith in refusing to pay plaintiff's claim, the Court cannot
award plaintiff's claim for attorney's fees and expenses of litigation.

IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside its decision dated July 21,
1958 and hereby renders judgment, ordering the defendant to pay plaintiff the sum of Two Thousand
(P2,000.00) Pesos and to pay the costs.

The above judgment was appealed to the Court of Appeals on three (3) counts. Said Court, in a Resolution dated
September 29, 1959, elevated the case to this Court, stating that the genuine issue is purely legal in nature.

All the parties agree that indemnity has to be paid. The conflict centers on how much should the indemnity be. We
believe that under the proven facts and circumstances, the findings and conclusions of the trial court, are well taken,
for they are supported by the generally accepted principles or rulings on insurance, which enunciate that where
there is an ambiguity with respect to the terms and conditions of the policy, the same will be resolved against the
one responsible thereof. It should be recalled in this connection, that generally, the insured, has little, if any,
participation in the preparation of the policy, together with the drafting of its terms and Conditions. The interpretation
of obscure stipulations in a contract should not favor the party who cause the obscurity (Art. 1377, N.C.C.), which, in
the case at bar, is the insurance company.
 . . . . And so it has been generally held that the "terms in an insurance policy, which are ambiguous,
equivocal or uncertain . . . are to be construed strictly 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 a
forfeiture is involved," (29 Am. Jur. 181) and the reason for this rule 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 expert and legal advisers employed by, and acting exclusively in the interest
of, the insurance company" (44 C.J.S. 1174). Calanoc v. Court of Appeals, et al., G.R. No. L-8151, Dec. 16,
1955.

. . . . Where two interpretations, equally fair, of languages used in an insurance policy may be made, that
which allows the greater indemnity will prevail. (L'Engel v. Scotish Union & Nat. F. Ins. Co., 48 Fla. 82, 37
So. 462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann. Cas. 749).

At any event, the policy under consideration, covers death or disability by accidental means, and the appellant
insurance company agreed to pay P1,000.00 to P3,000.00. is indemnity for death of the insured.

In view of the conclusions reached, it would seem unnecessary to discuss the other issues raised in the appeal.

The judgment appealed from is hereby affirmed. Without costs.

 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 75605 January 22, 1993

RAFAEL (REX) VERENDIA, petitioner,

vs.
COURT OF APPEALS and FIDELITY & SURETY CO. OF THE PHILIPPINES, respondents.

G.R. No. 76399 January 22, 1993

FIDELITY & SURETY CO. OF THE PHILIPPINES, INC., petitioner,

vs.
RAFAEL VERENDIA and THE COURT OF APPEALS, respondents.

B.L. Padilla for petitioner.

Sabino Padilla, Jr. for Fidelity & Surety, Co.

MELO, J.:

The two consolidated cases involved herein stemmed from the issuance by Fidelity and Surety Insurance Company
of the Philippines (Fidelity for short) of its Fire Insurance Policy No. F-18876 effective between June 23, 1980 and
June 23, 1981 covering Rafael (Rex) Verendia's residential building located at Tulip Drive, Beverly Hills, Antipolo,
Rizal in the amount of P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings Bank. Verendia
also insured the same building with two other companies, namely, The Country Bankers Insurance for P56,000.00
under Policy No. PDB-80-1913 expiring on May 12, 1981, and The Development Insurance for P400,000.00 under
Policy No. F-48867 expiring on June 30, 198l.

While the three fire insurance policies were in force, the insured property was completely destroyed by fire on the
early morning of December 28, 1980. Fidelity was accordingly informed of the loss and despite demands, refused
payment under its policy, thus prompting Verendia to file a complaint with the then Court of First Instance of Quezon
City, praying for payment of P385,000.00, legal interest thereon, plus attorney's fees and litigation expenses. The
complaint was later amended to include Monte de Piedad as an "unwilling defendant" (P. 16, Record).

Answering the complaint, Fidelity, among other things, averred that the policy was avoided by reason of over-
insurance; that Verendia maliciously represented that the building at the time of the fire was leased under a contract
executed on June 25, 1980 to a certain Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee.

On May 24, 1983, the trial court rendered a decision, per Judge Rodolfo A. Ortiz, ruling in favor of Fidelity. In
sustaining the defenses set up by Fidelity, the trial court ruled that Paragraph 3 of the policy was also violated by
Verendia in that the insured failed to inform Fidelity of his other insurance coverages with Country Bankers
Insurance and Development Insurance.

Verendia appealed to the then Intermediate Appellate Court and in a decision promulgated on March 31, 1986, (CA-
G.R. No. CV No. 02895, Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate court reversed for the
following reasons: (a) there was no misrepresentation concerning the lease for the contract was signed by Marcelo
Garcia in the name of Roberto Garcia; and (b) Paragraph 3 of the policy contract requiring Verendia to give notice to
Fidelity of other contracts of insurance was waived by Fidelity as shown by its conduct in attempting to settle the
claim of Verendia (pp. 32-33, Rollo of G.R. No. 76399).
Fidelity received a copy of the appellate court's decision on April 4, 1986, but instead of directly filing a motion for
reconsideration within 15 days therefrom, Fidelity filed on April 21, 1986, a motion for extension of 3 days within
which to file a motion for reconsideration. The motion for extension was not filed on April 19, 1986 which was the
15th day after receipt of the decision because said 15th day was a Saturday and of course, the following day was a
Sunday (p. 14., Rollo of G.R. No. 75605). The motion for extension was granted by the appellate court on April 30,
1986 (p. 15. ibid.), but Fidelity had in the meantime filed its motion for reconsideration on April 24, 1986 (p. 16, ibid.).

Verendia filed a motion to expunge from the record Fidelity's motion for reconsideration on the ground that the
motion for extension was filed out of time because the 15th day from receipt of the decision which fell on a Saturday
was ignored by Fidelity, for indeed, so Verendia contended, the Intermediate Appellate Court has personnel
receiving pleadings even on Saturdays.

The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and after a motion for reconsideration was
similarly brushed aside on July 22, 1986 (p. 30, ibid .), the petition herein docketed as G.R. No. 75605 was initiated.
Subsequently, or more specifically on October 21, 1986, the appellate court denied Fidelity's motion for
reconsideration and account thereof. Fidelity filed on March 31, 1986, the petition for review on certiorari now
docketed as G.R. No. 76399. The two petitions, inter-related as they are, were consolidated
(p. 54, Rollo of G.R. No. 76399) and thereafter given due course.

Before we can even begin to look into the merits of the main case which is the petition for review on certiorari, we
must first determine whether the decision of the appellate court may still be reviewed, or whether the same is
beyond further judicial scrutiny. Stated otherwise, before anything else, inquiry must be made into the issue of
whether Fidelity could have legally asked for an extension of the 15-day reglementary period for appealing or for
moving for reconsideration.

As early as 1944, this Court through Justice Ozaeta already pronounced the doctrine that the pendency of a motion
for extension of time to perfect an appeal does not suspend the running of the period sought to be extended (Garcia
vs. Buenaventura 74 Phil. 611 [1944]). To the same effect were the rulings in Gibbs vs. CFI of Manila (80 Phil. 160
[1948]) Bello vs. Fernando (4 SCRA 138 [1962]), and Joe vs. King (20 SCRA 1120 [1967]).

The above cases notwithstanding and because the Rules of Court do not expressly prohibit the filing of a motion for
extension of time to file a motion for reconsideration in regard to a final order or judgment, magistrates, including
those in the Court of Appeals, held sharply divided opinions on whether the period for appealing which also includes
the period for moving to reconsider may be extended. The matter was not definitely settled until this Court issued its
Resolution in Habaluyas Enterprises, Inc. vs. Japson (142 SCRA [1986]), declaring that beginning one month from
the promulgation of the resolution on May 30, 1986 —

. . . the rule shall be strictly enforced that no motion for extension of time to file a motion for new trial
or reconsideration shall be filed . . . (at p. 212.)

In the instant case, the motion for extension was filed and granted before June 30, 1986, although, of course,
Verendia's motion to expunge the motion for reconsideration was not finally disposed until July 22, 1986, or after the
dictum in Habaluyas had taken effect. Seemingly, therefore, the filing of the motion for extension came before its
formal proscription under Habaluyas, for which reason we now turn our attention to G.R. No. 76399.

Reduced to bare essentials, the issues Fidelity raises therein are: (a) whether or not the contract of lease submitted
by Verendia to support his claim on the fire insurance policy constitutes a false declaration which would forfeit his
benefits under Section 13 of the policy and (b) whether or not, in submitting the subrogation receipt in evidence,
Fidelity had in effect agreed to settle Verendia's claim in the amount stated in said receipt.1

Verging on the factual, the issue of the veracity or falsity of the lease contract could have been better resolved by
the appellate court for, in a petition for review on certiorari under Rule 45, the jurisdiction of this Court is limited to
the review of errors of law. The appellate court's findings of fact are, therefore, conclusive upon this Court except in
the following cases: (1) when the conclusion is a finding grounded entirely on speculation, surmises, or conjectures;
(2) when the inference made is manifestly absurd, mistaken, or impossible; (3) when there is grave abuse of
discretion in the appreciation of facts; (4) when the judgment is premised on a misapprehension of facts; (5) when
the findings of fact are conflicting; and (6) when the Court of Appeals in making its findings went beyond the issues
of the case and the same are contrary to the admissions of both appellant and appellee (Ronquillo v. Court of
Appeals, 195 SCRA 433 [1991]). In view of the conflicting findings of the trial court and the appellate court on
important issues in these consolidated cases and it appearing that the appellate court judgment is based on a
misapprehension of facts, this Court shall review the evidence on record.

The contract of lease upon which Verendia relies to support his claim for insurance benefits, was entered into
between him and one Robert Garcia, married to Helen Cawinian, on June 25, 1980 (Exh. "1"), a couple of days after
the effectivity of the insurance policy. When the rented residential building was razed to the ground on December
28, 1980, it appears that Robert Garcia (or Roberto Garcia) was still within the premises. However, according to the
investigation report prepared by Pat. Eleuterio M. Buenviaje of the Antipolo police, the building appeared to have
"no occupant" and that Mr. Roberto Garcia was "renting on the otherside (sic) portion of said compound"
(Exh. "E"). These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo Garcia, whom he
considered as the real lessee, was occupying the building when it was burned (TSN, July 27, 1982, p.10).

Robert Garcia disappeared after the fire. It was only on October 9, 1981 that an adjuster was able to locate him.
Robert Garcia then executed an affidavit before the National Intelligence and Security Authority (NISA) to the effect
that he was not the lessee of Verendia's house and that his signature on the contract of lease was a complete
forgery. Thus, on the strength of these facts, the adjuster submitted a report dated December 4, 1981
recommending the denial of Verendia's claim (Exh. "2").

Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the lease contract. According
to Verendia, it was signed by Marcelo Garcia, cousin of Robert, who had been paying the rentals all the while.
Verendia, however, failed to explain why Marcelo had to sign his cousin's name when he in fact was paying for the
rent and why he (Verendia) himself, the lessor, allowed such a ruse. Fidelity's conclusions on these proven facts
appear, therefore, to have sufficient bases; Verendia concocted the lease contract to deflect responsibility for the fire
towards an alleged "lessee", inflated the value of the property by the alleged monthly rental of P6,500 when in fact,
the Provincial Assessor of Rizal had assessed the property's fair market value to be only P40,300.00, insured the
same property with two other insurance companies for a total coverage of around P900,000, and created a dead-
end for the adjuster by the disappearance of Robert Garcia.

Basically a contract of indemnity, an insurance contract is the law between the parties (Pacific Banking Corporation
vs. Court of Appeals 168 SCRA 1 [1988]). Its terms and conditions constitute the measure of the insurer's liability
and compliance therewith is a condition precedent to the insured's right to recovery from the insurer (Oriental
Assurance Corporation vs. Court of Appeals, 200 SCRA 459 [1991], citing Perla Compania de Seguros, Inc. vs.
Court of Appeals, 185 SCRA 741 [1991]). As it is also a contract of adhesion, an insurance contract should be
liberally construed in favor of the insured and strictly against the insurer company which usually prepares it (Western
Guaranty Corporation vs. Court of Appeals, 187 SCRA 652 [1980]).

Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease contract to
support his claim under Fire Insurance Policy No. F-18876, the terms of the policy should be strictly construed
against the insured. Verendia failed to live by the terms of the policy, specifically Section 13 thereof which is
expressed in terms that are clear and unambiguous, that all benefits under the policy shall be forfeited "If the claim
be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent
means or devises are used by the Insured or anyone acting in his behalf to obtain any benefit under the policy".
Verendia, having presented a false declaration to support his claim for benefits in the form of a fraudulent lease
contract, he forfeited all benefits therein by virtue of Section 13 of the policy in the absence of proof that Fidelity
waived such provision (Pacific Banking Corporation vs. Court of Appeals, supra). Worse yet, by presenting a false
lease contract, Verendia, reprehensibly disregarded the principle that insurance contracts are uberrimae fidae and
demand the most abundant good faith (Velasco vs. Apostol, 173 SCRA 228 [1989]).

There is also no reason to conclude that by submitting the subrogation receipt as evidence in court, Fidelity bound
itself to a "mutual agreement" to settle Verendia's claims in consideration of the amount of P142,685.77. While the
said receipt appears to have been a filled-up form of Fidelity, no representative of Fidelity had signed it. It is even
incomplete as the blank spaces for a witness and his address are not filled up. More significantly, the same receipt
states that Verendia had received the aforesaid amount. However, that Verendia had not received the amount
stated therein, is proven by the fact that Verendia himself filed the complaint for the full amount of P385,000.00
stated in the policy. It might be that there had been efforts to settle Verendia's claims, but surely, the subrogation
receipt by itself does not prove that a settlement had been arrived at and enforced. Thus, to interpret Fidelity's
presentation of the subrogation receipt in evidence as indicative of its accession to its "terms" is not only wanting in
rational basis but would be substituting the will of the Court for that of the parties.

WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in G.R. No. 76399 is GRANTED and the
decision of the then Intermediate Appellate Court under review is REVERSED and SET ASIDE and that of the trial
court is hereby REINSTATED and UPHELD.

SO ORDERED.

Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 94071 March 31, 1992

NEW LIFE ENTERPRISES and JULIAN SY, petitioners,

vs.
HON. COURT OF APPEALS, EQUITABLE INSURANCE CORPORATION, RELIANCE SURETY AND
INSURANCE CO., INC. and WESTERN GUARANTY CORPORATION, respondents.

REGALADO, J.:

This appeal by certiorari seeks the nullification of the decision 1 of respondent Court of Appeals in CA-G.R. CV No.
13866 which reversed the decision of the Regional Trial Court, Branch LVII at Lucena City, jointly deciding Civil
Cases Nos. 6-84, 7-84 and 8-84 thereof and consequently ordered the dismissal of the aforesaid actions filed by
herein petitioners.

The undisputed background of this case as found by the court a quo and adopted by respondent court, being
sustained by the evidence on record, we hereby reproduce the same with approval. 2

The antecedents of this case show that Julian Sy and Jose Sy Bang have formed a business
partnership in the City of Lucena. Under the business name of New Life Enterprises, the partnership
engaged in the sale of construction materials at its place of business, a two storey building situated
at Iyam, Lucena City. The facts show that Julian Sy insured the stocks in trade of New Life
Enterpriseswith Western Guaranty Corporation, Reliance Surety and Insurance. Co., Inc., and
Equitable Insurance Corporation.

On May 15, 1981, Western Guaranty Corporation issued Fire Insurance Policy No. 37201 in the
amount of P350,000.00. This policy was renewed on May, 13, 1982.

On July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire Insurance Policy No.
69135 inthe amount of P300,000.00 (Renewed under Renewal Certificate No. 41997) An additional
insurancewas issued by the same company on November 12, 1981 under Fire Insurance Policy No.
71547 in the amount of P700,000.00.

On February 8, 1982, Equitable Insurance Corporation issued Fire Insurance Policy No. 39328 in the
amount of P200,000.00.

Thus when the building occupied by the New Life Enterprises was gutted by fire at about 2:00
o'clock inthe morning of October 19, 1982, the stocks in the trade inside said building were insured
against firein the total amount of P1,550,000.00. According to the certification issued by the
Headquarters,Philippine Constabulary /Integrated National Police,
Camp Crame, the cause of fire was electrical innature. According to the plaintiffs,
the building and the stocks inside were burned. After the fire, JulianSy went to the agent of
Reliance Insurance whom he asked to accompany him to the
office of thecompany so that he can file his claim. He averred that in support of his claim, he
submitted the fireclearance, the insurance policies and inventory of stocks. He further testified
that the three insurance companies are sister companies, and as a matter of fact when he was
following-up his claim with Equitable Insurance, the Claims Manager told him to go first to Reliance
Insurance and if said company agrees to pay, they would also pay. The same treatment was given
 him by the other insurance companies. Ultimately, the three insurance companies denied plaintiffs'
claim for payment.

In its letter of denial dated March 9, 1983, (Exhibit "C" No. 8-

84) Western Guaranty Corporationthrough Claims Manager Bernard S. Razon told the plaintiff that
his claim "is denied for breach of policyconditions." Reliance Insurance purveyed the same message
in its letter dated November 23, 1982and signed by Executive Vice-President Mary Dee
Co (Exhibit "C" No. 7-84) which said that "plaintiff's claim is denied for breach of policy conditions."
The letter of denial received by the plaintiff fromEquitable Insurance Corporation (Exhibit "C" No. 6-
84) was of the same tenor, as said letter dated February 22, 1983, and signed by Vice-President
Elma R. Bondad, said "we find that certain policyconditions were violated, therefore, we regret,
we have to deny your claim, as it is hereby denied in its entirety."

In relation to the case against Reliance Surety and Insurance Company, a certain Atty. Serafin
D.Dator, acting in behalf of the plaintiff, sent a letter dated February 13, 1983 (Exhibit "G-l" No 7-
84) toExecutive Vice-President Mary Dee Co asking that he be informed as to the specific policy
conditions allegedly violated by the plaintiff. In her reply-letter dated March 30, 1983, Executive Vice-
PresidentMary Dee Co informed Atty. Dator that Julian Sy violated Policy Condition No.
"3" which requires theinsured to give notice of any insurance or insurances already effected covering
the stocks in trade. 3

Because of the denial of their claims for payment by the three (3) insurance companies, petitioner filed separate
civilactions against the former before the Regional Trial Court of Lucena City, which cases were consolidated for
trial, and thereafter the court below rendered its decision on December 19, l986 with the following disposition:

WHEREFORE, judgment in the above-entitled cases is rendered in the following manner, viz:

1. In Civil Case No. 6-84, judgment is rendered for the plaintiff New Life Enterprises and against the
defendant Equitable Insurance Corporation ordering the latter to pay the former the sum of
TwoHundred Thousand (P200,000.00) Pesos and
considering that payment of the claim of the insured hasbeen unreasonably denied, pursuant to Sec.
244 of the Insurance Code, defendant is further orderedto pay the plaintiff attorney's fees in the
amount of Twenty Thousand (P20,000.00) Pesos. All sums ofmoney to be paid by virtue
hereof shall bear interest at 12% per annum (pursuant to Sec. 244 of theInsurance Code) from
February 14, 1983, (91st day from November 16, 1982, when Sworn Statementof Fire Claim
was received from the insured) until they are fully paid;

2. In Civil Case No. 7-84, judgment is rendered for the plaintiff Julian Sy and against
the defendantReliance Surety and Insurance Co., Inc., ordering the latter to pay the former the sum
of P1,000,000.00(P300,000.00 under Policy No. 69135 and P700,000.00 under Policy No. 71547)
and considering thatpayment of the claim of the insured has been unreasonably denied, pursuant to
Sec. 244 of theInsurance Code, defendant is further ordered to pay the plaintiff the amount of
P100,000.00 as attorney's fees.

All sums of money to be paid by virtue hereof shall bear interest at 12% per annum (pursuant to Sec.
244 of the Insurance Code) from February 14, 1983, (91st day from November 16,
1982 when SwornStatement of Fire Claim was received from the insured) until they are fully paid;

3. In Civil Case No. 8-84, judgment is rendered for

the plaintiff New Life Enterprises and against thedefendant Western Guaranty Corporation ordering
the latter to pay the sum of P350,000.00 to theConsolidated Bank and Trust Corporation,
Lucena Branch, Lucena City, as stipulated on the face ofPolicy No. 37201, and considering that
payment of the aforementioned sum of money has been
unreasonably denied, pursuant to Sec. 244 of the Insurance Code,
defendant is further ordered to pay the plaintiff attorney's fees in the amount of P35,000.00.

All sums of money to be paid by virtue hereof shall bear interest at 12% per annum (pursuant to Sec.
244 of the Insurance Code) from February 5, 1982, (91st day from 1st week of November
 1983 when insured filed formal claim for full indemnity according to adjuster
Vetremar Dela Merced) until they are fully paid. 4

As aforestated, respondent Court of Appeals reversed said judgment of the trial court, hence this petition the
cruxwherein is whether or not Conditions Nos. 3 and 27 of
the insurance contracts were violated by petitioners thereby resulting in their forfeiture of all the benefits thereunder.

Condition No. 3 of said insurance policies, otherwise known as the "Other Insurance Clause," is uniformly contained
in all the aforestated insurance contracts of herein petitioners, as follows:

3. The insured shall give notice to the Company of any insurance or insurances already
effected, orwhich may subsequently be effected, covering any of the property or properties
consisting of stocks intrade, goods in process and/or inventories only hereby insured, and unless
such notice be given andthe particulars of such insurance or insurances be stated therein or
endorsed on this policy pursuant to Section 50 of the Insurance
Code, by or on behalf of the Company before the occurrence of any loss ordamage, all benefits
under this policy shall be deemed forfeited, provided however, that this condition shall not apply
when the total insurance or insurances in force at the time of loss or damage not morethan
P200,000.00. 5

Petitioners admit that the respective insurance policies issued by private respondents did not state or endorse
thereon the other insurance coverage obtained or subsequently effected on the same stocks in trade for the loss of
which compensation is claimed by petitioners. 6 The policy
issued by respondent Western Guaranty Corporation(Western) did not
declare respondent Reliance Surety and Insurance Co., Inc. (Reliance) and respondent Equitable Insurance
Corporation (Equitable) as co-insurers on the same stocks,
while Reliance's Policies covering the samestocks did not likewise declare Western and Equitable as such co-
insurers. It is further admitted by petitioners thatEquitable's policy stated "nil" in the space thereon requiring
indication of any co-insurance although there were three (3) policies subsisting on the same stocks in trade
at the time of the loss, namely, that of Western in the amount ofP350,000.00 and two (2) policies of Reliance in the
total amount of P1,000,000.00. 7

In other words, the coverage by other insurance or co-insurance effected or subsequently arranged by petitioners
were neither stated nor endorsed in the policies of the three (3) private respondents, warranting forfeiture of all
benefits thereunder if we are to follow the express stipulation in the aforequoted Policy Condition No. 3.

Petitioners contend that they are not to be blamed for the omissions, alleging that insurance agent Leon Alvarez (for
Western) and Yap Kam Chuan (for Reliance and Equitable) knew about the existence of the additional
insurancecoverage and that they were not informed about the requirement that such other or additional insurance
should bestated in the policy, as they have not even read policies.8 These contentions cannot pass judicial muster.

The terms of the contract are clear and unambiguous. The insured is specifically required to disclose to the insurer
any other insurance and its particulars which he may have effected on the same subject matter. The knowledge of
such insurance by the insurer's agents, even assuming the acquisition thereof by the former, is not the "notice" that
would estop the insurers from denying the claim. Besides, the so-called theory of imputed knowledge, that is,
knowledge of the agent is knowledge of the principal, aside from being
of dubious applicability here has likewisebeen roundly refuted by respondent court whose factual findings we find
acceptable.

Thus, it points out that while petitioner Julian Sy claimed that he had informed insurance agent Alvarez regarding
the co-insurance on the property, he contradicted himself by inexplicably claiming that he had not read the terms of
the policies; that Yap Dam Chuan could not likewise have obtained such knowledge for the same reason, aside from
the fact that the insurance with Western was obtained before those of
Reliance and Equitable; and that theconclusion of the trial court that Reliance and Equitable are "sister
companies" is an unfounded conjecture drawnfrom the mere fact that Yap Kam Chuan was
an agent for both companies which also had the same insuranceclaims adjuster. Availment of the
services of the same agents and adjusters by different companies is a
commonpractice in the insurance business and such facts do not warrant the speculative conclusion of the trial
court.

Furthermore, when the words and language of documents are clear and plain or readily understandable by an
ordinary reader thereof, there is absolutely no room for interpretation or construction anymore.9 Courts are not
allowed to make contracts for the parties; rather, they will intervene only when the terms of the policy areambiguous,
equivocal, or uncertain. 10 The parties must abide by the terms of the contract because such termsconstitute the
measure of the insurer's liability and compliance therewith is a condition precedent to the insured'sright of recovery
from the insurer. 11

While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally
infavor of the insured and strictly against the insurer company, yet contracts of insurance, like other contracts, are to
be construed according to the sense and meaning of the terms which
the parties themselves have used. If suchterms are clear and unambiguous, they must be taken and understood
in their plain, ordinary and popular sense. 12Moreover, obligations arising from contracts have the force of law
between the contracting parties and should becomplied with in good faith. 13

Petitioners should be aware of the fact that a party is not relieved of the duty to exercise the ordinary care and
prudence that would be exacted in relation to other contracts. The conformity of the insured to the terms of the
policy is implied from his failure to express any disagreement with what is provided for.14 It may be true that
themajority rule, as cited by petitioners, is that injured persons may accept policies without reading them, and
that this is not negligence per se. 15 But, this is not without any exception. It is and was incumbent upon petitioner Sy to read the insurance contracts,
and this can be reasonably expected of him considering that he has been a businessman since 196516 and the contract concerns indemnity in case
of loss in his money-making trade of which important consideration he could not have been unaware as it was pre-in case of loss in his money-making trade of
which important consideration he could not have been unaware as it was precisely the reason for his procuring the same.

We reiterate our pronouncement in Pioneer Insurance and Surety Corporation vs. Yap: 17

...
And considering the terms of the policy which required the insured to declare other insurances, thest
atement in question must be deemed to be a statement (warranty) binding on both insurer and
insured, that there were no other insurance on the property. . . .

The annotation then, must be deemed to be a warranty that the property was not insured by any
other policy. Violation thereof entitled the insurer to rescind (Sec. 69, Insurance
Act). Such misrepresentation is fatal in the light of our views in Santa Ana vs. Commercial Union
Assurance Company, Ltd., 55 Phil. 329. The materiality of non-disclosure of other insurance policies
is not open to doubt.

xxx xxx xxx

The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance and thus
avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing the
situation in which a fire would be profitable to the insured. According to Justice Story: "The insured
has no right to complain, for he assents to comply with all the stipulations on
his side, in order to entitlehimself to the benefit of the contract, which, upon reason or principle, he
has no right to ask the court to dispense with the performance of his own part of the agreement, and
yet to bind the other party to obligations, which, but for those stipulations, would not have been
entered into."

Subsequently, in the case of Pacific Banking Corporation vs. Court of Appeals, et al., 18 we held:

It is not disputed that the insured 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
falsedeclaration; 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 the
insurer known that there were many co-insurances, it could have hesitated or plainly desisted from
entering into such contract. Hence, theinsured was guilty of clear fraud (Rollo, p. 25).
 Petitioner's contention that the allegation of fraud is but a mere inference or suspicion is untenable.
In fact, concrete evidence of fraud or false declaration by the insured was furnished by the petitioner
itself when the facts alleged in the policy under clauses "Co-Insurances Declared" and
"Other InsuranceClause" are materially different from the actual number of co-insurances taken over
the subjectproperty. Consequently, "the whole foundation of the contract fails, the
risk does not attach and thepolicy never becomes a contract between the
parties." Representations of facts are the foundation ofthe contract and if the foundation does not
exist, the superstructure does not arise. Falsehood in suchrepresentations is not shown to vary
or add to the contract, or to terminate a contract which has oncebeen made, but to
show that no contract has ever existed (Tolentino, Commercial Laws of thePhilippines, p.
991, Vol. II, 8th Ed.,) A void or inexistent contract is one which has no force and effectfrom the very
beginning, as if it had never been entered into, and which cannot be validated either bytime or by
ratification (Tongoy vs. C.A., 123 SCRA 99 (1983); Avila v. C.A., 145 SCRA, 1986).

As the insurance policy against fire expressly required that notice should be given by
the insured ofother insurance upon the same property, the total absence of such notice nullifies the
policy.

To further warrant and justify the forfeiture of the benefits under the insurance contracts involved, we need
merely toturn to Policy Condition No. 15 thereof, which reads in part:

15. . . . if any false declaration be made or used in support thereof, . . . all benefits under this Policy
shall be forfeited . . . . 19

Additionally, insofar as the liability of respondent Reliance is concerned, it is not denied that the complaint for
recovery was filed in court by petitioners only on January 31, 1984, or after more than one (1) year had
elapsedfrom petitioners' receipt of the insurers' letter of denial on November 29, 1982. Policy Condition No. 27 of
their insurance contract with Reliance provides:

27. Action or suit clause. — If a claim be made and rejected and an action or suit be not commenced
either in the Insurance Commission or any court of competent jurisdiction of notice of such
rejection, orin case of arbitration taking place as provided herein, within twelve (12) months after due
notice of theaward made by the arbitrator or arbitrators or umpire, then the claim shall for all
purposes be deemedto have been abandoned and shall not thereafter be recoverable hereunder. 20

On this point, the trial court ruled:

. . . However, because of the peculiar circumstances of this case, we hesitate

in concluding thatplaintiff's right to ventilate his claim in court has been barred by reason of the time
constraint provided in the insurance contract. It is evident that after the plaintiff had received
the letter of denial, he stillfound it necessary to be informed of the specific causes or reasons for
the denial of his claim, reasonfor which his lawyer, Atty. Dator deemed it wise to send a
letter of inquiry to the defendant which wasanswered by defendant's Executive Vice-
President in a letter dated March 30, 1983, . . .
. Assuming,gratuitously, that the letter of Executive Vice-President Mary Dee Co dated March 30,
1983, was received by plaintiff on the same date, the period of limitation should
start to run only from said date in the spirit of fair play and equity. . . . 21

We have perforce to reject this theory of the court below for being contrary to what we have heretofore declared:

It is important to note the principle laid down by this Court in the case of Ang vs. Fulton Fire
Insurance Co. (2 SCRA 945 [1961]) to wit:

The condition contained in an insurance policy that claims must be presented within
one year
after rejection is not merely a procedural requirement but an important matter
essential to a prompt settlement of claims against insurance companies as it
 demandsthat insurance suits be brought by the insured while the evidence as to the
origin andcause of destruction have not yet disappeared.

In enunciating the above-cited principle, this Court had definitely settled the rationale for the
necessityof bringing suits against the Insurer within one year from the rejection of the claim. The
contention ofthe respondents that the one-year prescriptive period does
not start to run until the petition forreconsideration had been resolved by the insurer, runs counter to
the declared purpose for requiringthat an action or suit be filed in the Insurance
Commission or in a court of competent jurisdiction fromthe denial of the claim. To uphold
respondents' contention would contradict and defeat the very principle which this Court had
laid down. Moreover, it can easily be used by insured persons as a scheme or device to waste time
until any evidence which may be considered against them is destroyed.

xxx xxx xxx

While in the Eagle Star case (96 Phil. 701), this Court uses the phrase "final rejection", the
samecannot be taken to mean the rejection of a petition for reconsideration as insisted by
respondents. Suchwas clearly not the meaning contemplated by this Court. The insurance policy in
said case providesthat the insured should file his claim first, with the carrier and then with the
insurer. The "final rejection"being referred to in said case is the rejection by the
insurance company. 22

Furthermore, assuming arguendo that petitioners felt the legitimate need to be clarified as to the policy condition
violated, there was a considerable lapse of time from their receipt of the insurer's clarificatory letter dated March 30,
1983, up to the time the complaint was filed in court on January 31, 1984. The one-year prescriptive period was yet
to expire on November 29, 1983, or about eight (8) months from the receipt of the clarificatory letter, but petitioners
let the period lapse without bringing their action in court. We accordingly find no "peculiar circumstances" sufficient
to relax the enforcement of the one-year prescriptive period and we, therefore, hold that petitioners' claim was
definitely filed out of time.

WHEREFORE, finding no cogent reason to disturb the judgment

of respondent Court of Appeals, the same ishereby AFFIRMED.

SO ORDERED.

Melencio-Hererra and Nocon, JJ., concur.

Paras, J., took no part.

Padilla, J., took no part.

 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-43706 November 14, 1986

NATIONAL POWER CORPORATION, petitioner,

vs.
COURT OF APPEALS and PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., respondents.

Conrado Q. Crucillo for petitioner.

Gregorio D. David for private respondent.

PARAS, J.:

This is a petition for review on certiorari seeking to set aside: (a) the judgment of respondent Court of Appeals dated
March 25, 1976 in CA-G.R. No. 50112-R, entitled National Power Corporation, Plaintiff-Appellee vs. The Philippine
American Insurance Company, Inc. Defendant-Appellant, which reversed the decision of the Court of First Instance
of Manila in Civil Case No. 70811 entitled "National Power Corporation v. Far Eastern Electric, Inc., et al." and (b)
respondent's Court's resolution dated April 19, 1976 denying petitioner National Power Corporation's Motion for
Reconsideration (Petition, p. 13, Rollo).

The undisputed facts of this case are as follows:

The National Power Corporation (NPC) entered into a contract with the Far Eastern Electric, Inc. (FFEI) on
December 26, 1962 for the erection of the Angat Balintawak 115-KW-3-Phase transmission lines for the Angat
Hydroelectric Project. FEEI agreed to complete the work within 120 days from the signing of the contract, otherwise
it would pay NPC P200.00 per calendar day as liquidated damages, while NPC agreed to pay the sum of
P97,829.00 as consideration. On the other hand, Philippine American General Insurance Co., Inc. (Philamgen)
issued a surety bond in the amount of P30,672.00 for the faithful performance of the undertaking by FEEI, as
required.

The condition of the bond reads:

The liability of the PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC. under this
bond will expire One (1) year from final Completion and Acceptance and said bond will be cancelled
30 days after its expiration, unless surety is notified of any existing obligation thereunder. (Exhibit 1-
a)

in correlation with the provisions of the construction contract between Petitioner and Far Eastern Electric, Inc.
particularly the following provisions of the Specifications. to wit:

1. Par. 1B-2l Release of Bond

1B-21 Release of Bond

The Contractor's performance bond will be released by the National Power Corporation at the
expiration of one (1) year from the completion and final acceptance of the work, pursuant to the
provisions of Act No. 3959, and subject to the General Conditions of this contract. (Page 49, Printed
Record on Appeal); and
 2. GP-19 of Specifications, which reads:

(a) Should the Contractor fail to complete the construction of the work as herein specified and
agreed upon, or if the work is abandoned, ... the Corporation shall have the power to take over the
work by giving notice in writing to that effect to the Contractor and his sureties of its intention to take
over the construction work.

(b) ... It is expressly agreed that in the event the corporation takes over the work from the Contractor,
the latter and his bondsmen shall continue to be liable under this contract for any expense in the
completion of the work in excess of the contract price and the bond filed by the Contractor shall be
answerable for the same and for any and all damages that the Corporation may suffer as a result
thereof. (pp. 76-78, Printed Record on Appeal)

FEEI started construction on December 26, 1962 but on May 30, 1963, both FEEI and Philamgen wrote NPC
requesting the assistance of the latter to complete the project due to unavailability of the equipment of FEEI. The
work was abandoned on June 26, 1963, leaving the construction unfinished. On July 19, 1963, in a joint letter,
Philamgen and FEEI informed NPC that FEEI was giving up the construction due to financial difficulties. On the
same date, NPC wrote Philamgen informing it of the withdrawal of FEEI from the work and formally holding both
FEEI and Philamgen liable for the cost of the work to be completed as of July 20, 1962 plus damages.

The work was completed by NPC on September 30, 1963. On January 30, 1967 NPC notified Philamgen that FEEI
had an outstanding obligation in the amount of P75,019.85, exclusive of interest and damages, and demanded the
remittance of the amount of the surety bond the answer for the cost of completion of the work. In reply, Philamgen
requested for a detailed statement of account, but after receipt of the same, Philamgen did not pay as demanded
but contended instead that its liability under the bond has expired on September 20, 1964 and claimed that no
notice of any obligation of the surety was made within 30 days after its expiration. (Record on Appeal, pp. 191-194;
Rollo, pp. 62-64).

NPC filed Civil Case No. 70811 for collection of the amount of P75,019.89 spent to complete the work abandoned;
P144,000.00 as liquidated damages and P20,000.00 as attorney's fees. Only Philamgen answered while FEEI was
declared in default.

The trial court rendered judgment in favor of NPC, the dispositive portion of which reads:

WHEREFORE, the defendant Far Eastern Electric, Inc., is ordered to pay the plaintiff the sum of
P75,019.86 plus interest at the legal rate from September 21, 1967 until fully paid. Out of said
amount, both defendants, Far Eastern Electric, Inc., and the Philippine American Insurance
Company, Inc., are ordered to pay, jointly and severally, the amount of P30,672.00 covered by
Surety Bond No. 26268, dated December 26, 1962, plus interest at the legal rate from September
21, 1967 until fully paid,

Both defendants are also ordered to pay plaintiff the sum of P3,000.00 as attorney's fees and costs.

On appeal by Philamgen, the Court of Appeals reversed the lower court's decision and dismissed the complaint.

Hence this petition.

Respondent Philamgen filed its comment on the petition on August 6, 1978 (Rollo, p. 62) in compliance with the
resolution dated June 16, 1976 of the First Division of this Court (Rollo, p. 52) while petitioner NPC filed its Reply to
the comment of respondent (Rollo, p. 76) as required in the resolution of this Court of August 16, 1976, (Rollo, p.
70). In the resolution of September 20, 1976, the petition for certiorari was given due course (Rollo, p. 85).
Petitioner's brief was filed on November 27, 1976 (Rollo, p. 97) while Philamgen failed to file brief within the required
period and this case was submitted for decision without respondent's brief in the resolution of this Court of February
25. 1977) Rollo, p. 103).

In its brief, petitioner raised the following assignment of errors:

 I

RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER SHOULD HAVE

GIVEN NOTICE TO PRIVATE RESPONDENT PHILAMGEN OF ANY EXISTING OBLIGATION
WITHIN 30 DAYS FROM EXPIRATION OF THE BOND TO HOLD SAID SURETY LIABLE
THEREUNDER, DESPITE PETITIONER'S TAKING OVER OF THE WORK ABANDONED BY THE
CONTRACTOR BEFORE ITS COMPLETION.

II

ASSUMING ARGUENDO THAT PETITIONER SHOULD STILL NOTIFY PRIVATE RESPONDENT

PHILAMGEN OF ANY EXISTING OBLIGATION UNDER THE BOND DESPITE THE TAKE-OVER
OF WORK BY PETITIONER, RESPONDENT COURT OF APPEALS NONETHELESS ERRED IN
HOLDING THAT PETITIONER'S LETTER DATED JULY 19, 1963 (EXH. E) TO PRIVATE
RESPONDENT WAS NOT SUFFICIENT COMPLIANCE WITH THE CONDITION OF THE BOND.

III

RESPONDENT COURT OF APPEALS ERRED IN ABSOLVING PRIVATE RESPONDENT

PHILAMGEN FROM ITS LIABILITY UNDER THE BOND.

The decisive issue in this case is the correct interpretation and/or application of the condition of the bond relative to
its expiration, in correlation with the provisions of the construction contract, the faithful performance of which, said
bond was issued to secure.

The bone of contention in this case is the compliance with the notice requirement as a condition in order to hold the
surety liable under the bond.

Petitioner claims that it has already complied with such requirement by virtue of its notice dated July 19, 1963 of
abandonment of work by FEEI and of its takeover to finish the construction, at the same time formally holding both
FEEI and Philamgen liable for the uncompleted work and damages. It further argued that the notice required in the
bond within 30 days after its expiration of any existing obligation, is applicable only in case the contractor itself had
completed the contract and not when the contractor failed to complete the work, from which arises the continued
liability of the surety under its bond as expressly provided for in the contract. Petitioner's contention was sustained
by the trial court.

On the other hand, private respondent insists that petitioner's notice dated July 19, 1983 is not sufficient despite
previous events that it had knowledge of FEEI's failure to comply with the contract and claims that it cannot be held
liable under the bond without notice within thirty days from the expiration of the bond, that there is a subsisting
obligation. Private respondent's contention is sustained by the Court of Appeals.

The petition is impressed with merit.

As correctly assessed by the trial court, the evidence on record shows that as early as May 30, 1963, Philamgen
was duly informed of the failure of its principal to comply with its undertaking. In fact, said notice of failure was also
signed by its Assistant Vice President. On July 19, 1963, when FEEI informed NPC that it was abandoning the
construction job, the latter forthwith informed Philamgen of the fact on the same date. Moreover, on August 1, 1963,
the fact that Philamgen was seasonably notified, was even bolstered by its request from NPC for information of the
percentage completed by the bond principal prior to the relinquishment of the job to the latter and the reason for said
relinquishment. (Record on Appeal, pp. 193-195). The 30-day notice adverted to in the surety bond applies to the
completion of the work by the contractor. This completion by the contractor never materialized.

The surety bond must be read in its entirety and together with the contract between NPC and the contractors. The
provisions must be construed together to arrive at their true meaning. Certain stipulations cannot be segregated and
then made to control.
Furthermore, it is well settled that contracts of insurance are to be construed liberally in favor of the insured and
strictly against the insurer. Thus ambiguity in the words of an insurance contract should be interpreted in favor of its
beneficiary. (Serrano v. Court of Appeals, 130 SCRA 327, July 16, 1984).

In the case at bar, it cannot be denied that the breach of contract in this case, that is, the abandonment of the
unfinished work of the transmission line of the petitioner by the contractor Far Eastern Electric, Inc. was within the
effective date of the contract and the surety bond. Such abandonment gave rise to the continuing liability of the bond
as provided for in the contract which is deemed incorporated in the surety bond executed for its completion. To rule
therefore that private respondent was not properly notified would be gross error.

PREMISES CONSIDERED, the decision dated March 25, 1976 and the resolution dated April 19, 1976 of the Court
of Appeals are hereby SET ASIDE, and a new one is hereby rendered reinstating the decision of the Court of First
Instance of Manila in Civil Case No. 70811 entitled "National Power Corporation v. Far Eastern Electric, Inc., et al."

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 198174 September 2, 2013

ALPHA INSURANCE AND SURETY CO., PETITIONER,

vs.
ARSENIA SONIA CASTOR, RESPONDENT.

DECISION

PERALTA, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision1 dated
May 31, 2011 and Resolution2 dated August 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93027.

The facts follow.

On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No. MAND/CV-00186, with
petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The contract of insurance obligates the petitioner to
pay the respondent the amount of Six Hundred Thirty Thousand Pesos (₱630,000.00) in case of loss or damage to
said vehicle during the period covered, which is from February 26, 2007 to February 26, 2008.

On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza (Lanuza), to bring
the above-described vehicle to a nearby auto-shop for a tune-up. However, Lanuza no longer returned the motor
vehicle to respondent and despite diligent efforts to locate the same, said efforts proved futile. Resultantly,
respondent promptly reported the incident to the police and concomitantly notified petitioner of the said loss and
demanded payment of the insurance proceeds in the total sum of ₱630,000.00.

In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating among others, thus:

Upon verification of the documents submitted, particularly the Police Report and your Affidavit, which states that the
culprit, who stole the Insure[d] unit, is employed with you. We would like to invite you on the provision of the Policy
under Exceptions to Section-III, which we quote:

1.) The Company shall not be liable for:

xxxx

(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON IN THE INSURED’S
SERVICE."

In view [of] the foregoing, we regret that we cannot act favorably on your claim.

In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued that the exception
refers to damage of the motor vehicle and not to its loss. However, petitioner’s denial of respondent’s insured claim
remains firm.

Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before the Regional
Trial Court (RTC) of Quezon City on September 10, 2007.

In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent in this wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant
ordering the latter as follows:

To pay plaintiff the amount of ₱466,000.00 plus legal interest of 6% per annum from the time of demand up to the
time the amount is fully settled;

To pay attorney’s fees in the sum of ₱65,000.00; and

To pay the costs of suit.

All other claims not granted are hereby denied for lack of legal and factual basis.3

Aggrieved, petitioner filed an appeal with the CA.

On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon City’s decision. The fallo reads:

WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision, dated December 19,
2008, of Branch 215 of the Regional Trial Court of Quezon City, in Civil Case No. Q-07-61099, is hereby AFFIRMED
in toto.

SO ORDERED.4

Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in a Resolution dated
August 10, 2011.

Hence, the present petition wherein petitioner raises the following grounds for the allowance of its petition:

WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND GROSSLY OR GRAVELY
ABUSED ITS DISCRETION WHEN IT ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT AND AGAINST
THE PETITIONER AND RULED THAT EXCEPTION DOES NOT COVER LOSS BUT ONLY DAMAGE BECAUSE
THE TERMS OF THE INSURANCE POLICY ARE [AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH THAT
THE PARTIES THEMSELVES DISAGREE ABOUT THE MEANING OF PARTICULAR PROVISIONS, THE POLICY
WILL BE CONSTRUED BY THE COURTS LIBERALLY IN FAVOR OF THE ASSURED AND STRICTLY AGAINST
THE INSURER.

WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND COMMITTED GRAVE
ABUSE OF DISCRETION WHEN IT [AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT.5

Simply, the core issue boils down to whether or not the loss of respondent’s vehicle is excluded under the insurance
policy.

We rule in the negative.

Significant portions of Section III of the Insurance Policy states:

SECTION III – LOSS OR DAMAGE

The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the Schedule
Vehicle and its accessories and spare parts whilst thereon:

(a)

by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or

consequent upon wear and tear;

(b)
by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;

(c)

by malicious act;

(d)

whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail, inland
waterway, lift or elevator.

xxxx

EXCEPTIONS TO SECTION III

The Company shall not be liable to pay for:

Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of each and
every loss for each and every vehicle insured by this Policy, such amount being equal to one percent (1.00%) of the
Insured’s estimate of Fair Market Value as shown in the Policy Schedule with a minimum deductible amount of
Php3,000.00;

Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or breakages;

Damage to tires, unless the Schedule Vehicle is damaged at the same time;

Any malicious damage caused by the Insured, any member of his family or by a person in the Insured’s service.6

In denying respondent’s claim, petitioner takes exception by arguing that the word "damage," under paragraph 4 of
"Exceptions to Section III," means loss due to injury or harm to person, property or reputation, and should be
construed to cover malicious "loss" as in "theft." Thus, it asserts that the loss of respondent’s vehicle as a result of it
being stolen by the latter’s driver is excluded from the policy.

We do not agree.

Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft perpetrated by the driver of
the insured is not an exception to the coverage from the insurance policy, since Section III thereof did not qualify as
to who would commit the theft. Thus:

Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance policy subject of
this case. This is evident from the very provision of Section III – "Loss or Damage." The insurance company, subject
to the limits of liability, is obligated to indemnify the insured against theft. Said provision does not qualify as to who
would commit the theft. Thus, even if the same is committed by the driver of the insured, there being no categorical
declaration of exception, the same must be covered. As correctly pointed out by the plaintiff, "(A)n insurance
contract should be interpreted as to carry out the purpose for which the parties entered into the contract which is to
insure against risks of loss or damage to the goods. Such interpretation should result from the natural and
reasonable meaning of language in the policy. Where restrictive provisions are open to two interpretations, that
which is most favorable to the insured is adopted." The defendant would argue that if the person employed by the
insured would commit the theft and the insurer would be held liable, then this would result to an absurd situation
where the insurer would also be held liable if the insured would commit the theft. This argument is certainly flawed.
Of course, if the theft would be committed by the insured himself, the same would be an exception to the coverage
since in that case there would be fraud on the part of the insured or breach of material warranty under Section 69 of
the Insurance Code.7

Moreover, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of
the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken
and understood in their plain, ordinary and popular sense.8 Accordingly, in interpreting the exclusions in an
insurance contract, the terms used specifying the excluded classes therein are to be given their meaning as
understood in common speech.9

Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in common ordinary usage. The
word "loss" refers to the act or fact of losing, or failure to keep possession, while the word "damage" means
deterioration or injury to property.
1âwphi 1

Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy under paragraph 4
of "Exceptions to Section III," since the same refers only to "malicious damage," or more specifically, "injury" to the
motor vehicle caused by a person under the insured’s service. Paragraph 4 clearly does not contemplate "loss of
property," as what happened in the instant case.

Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one of the exceptions
from coverage, is the damage that is the direct result from the deliberate or willful act of the insured, members of his
family, and any person in the insured’s service, whose clear plan or purpose was to cause damage to the insured
vehicle for purposes of defrauding the insurer, viz.:

This interpretation by the Court is bolstered by the observation that the subject policy appears to clearly delineate
between the terms "loss" and "damage" by using both terms throughout the said policy. x x x

xxxx

If the intention of the defendant-appellant was to include the term "loss" within the term "damage" then logic dictates
that it should have used the term "damage" alone in the entire policy or otherwise included a clear definition of the
said term as part of the provisions of the said insurance contract. Which is why the Court finds it puzzling that in the
said policy’s provision detailing the exceptions to the policy’s coverage in Section III thereof, which is one of the
crucial parts in the insurance contract, the insurer, after liberally using the words "loss" and "damage" in the entire
policy, suddenly went specific by using the word "damage" only in the policy’s exception regarding "malicious
damage." Now, the defendant-appellant would like this Court to believe that it really intended the word "damage" in
the term "malicious damage" to include the theft of the insured vehicle.

The Court does not find the particular contention to be well taken.

True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to
the sense and meaning of the terms which the parties thereto have used. In the case of property insurance policies,
the evident intention of the contracting parties, i.e., the insurer and the assured, determine the import of the various
terms and provisions embodied in the policy. However, when the terms of the insurance policy are ambiguous,
equivocal or uncertain, such that the parties themselves disagree about the meaning of particular provisions, the
policy will be construed by the courts liberally in favor of the assured and strictly against the insurer.10

Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the 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. Thus, in Eternal Gardens Memorial Park Corporation v. Philippine American Life Insurance
Company,11 this Court ruled –

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 non-compliance with its obligations.
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.12

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. Accordingly, the
Decision dated May 31, 2011 and Resolution dated August 10, 2011 of the Court of Appeals are hereby
AFFIRMED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 195872 March 12, 2014

FORTUNE MEDICARE, INC., Petitioner,

vs.
DAVID ROBERT U. AMORIN, Respondent.

DECISION

REYES, J.:

This is a petition for review on certiorari1 under Rule 45 of the Rules of Court, which challenges the Decision2 dated
September 27, 2010 and Resolution3 dated February 24, 2011 of the Court of Appeals (CA) in CA-G.R. CV No.
87255.

The Facts

David Robert U. Amorin (Amorin) was a cardholder/member of Fortune Medicare, Inc. (Fortune Care), a corporation
engaged in providing health maintenance services to its members. The terms of Amorin's medical coverage were
provided in a Corporate Health Program Contract4 (Health Care Contract) which was executed on January 6, 2000
by Fortune Care and the House of Representatives, where Amorin was a permanent employee.

While on vacation in Honolulu, Hawaii, United States of America (U.S.A.) in May 1999, Amorin underwent an
emergency surgery, specifically appendectomy, at the St. Francis Medical Center, causing him to incur professional
and hospitalization expenses of US$7,242.35 and US$1,777.79, respectively. He attempted to recover from Fortune
Care the full amount thereof upon his return to Manila, but the company merely approved a reimbursement of
₱12,151.36, an amount that was based on the average cost of appendectomy, net of medicare deduction, if the
procedure were performed in an accredited hospital in Metro Manila.5 Amorin received under protest the approved
amount, but asked for its adjustment to cover the total amount of professional fees which he had paid, and eighty
percent (80%) of the approved standard charges based on "American standard", considering that the emergency
procedure occurred in the U.S.A. To support his claim, Amorin cited Section 3, Article V on Benefits and Coverages
of the Health Care Contract, to wit:

A. EMERGENCY CARE IN ACCREDITED HOSPITAL. Whether as an in-patient or out-patient, the member

shall be entitled to full coverage under the benefits provisions of the Contract at any FortuneCare accredited
hospitals subject only to the pertinent provision of Article VII (Exclusions/Limitations) hereof. For emergency
care attended by non affiliated physician (MSU), the member shall be reimbursed 80% of the professional
fee which should have been paid, had the member been treated by an affiliated physician. The availment of
emergency care from an unaffiliated physician shall not invalidate or diminish any claim if it shall be shown
to have been reasonably impossible to obtain such emergency care from an affiliated physician.

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost including the
professional fee (based on the total approved charges) to a member who receives emergency care in a non-
accredited hospital. The above coverage applies only to Emergency confinement within Philippine Territory.
However, if the emergency confinement occurs in a foreign territory, Fortune Care will be obligated to reimburse or
pay eighty (80%) percent of the approved standard charges which shall cover the hospitalization costs and
professional fees. x x x6

Still, Fortune Care denied Amorin’s request, prompting the latter to file a complaint7 for breach of contract with
damages with the Regional Trial Court (RTC) of Makati City.
For its part, Fortune Care argued that the Health Care Contract did not cover hospitalization costs and professional
fees incurred in foreign countries, as the contract’s operation was confined to Philippine territory.8 Further, it argued
that its liability to Amorin was extinguished upon the latter’s acceptance from the company of the amount of
₱12,151.36.

The RTC Ruling

On May 8, 2006, the RTC of Makati, Branch 66 rendered its Decision9 dismissing Amorin’s complaint. Citing Section
3, Article V of the Health Care Contract, the RTC explained:

Taking the contract as a whole, the Court is convinced that the parties intended to use the Philippine standard as
basis. Section 3 of the Corporate Health Care Program Contract provides that:

xxxx

On the basis of the clause providing for reimbursement equivalent to 80% of the professional fee which should have
been paid, had the member been treated by an affiliated physician, the Court concludes that the basis for
reimbursement shall be Philippine rates. That provision, taken with Article V of the health program contract, which
identifies affiliated hospitals as only those accredited clinics, hospitals and medical centers located "nationwide" only
point to the Philippine standard as basis for reimbursement.

The clause providing for reimbursement in case of emergency operation in a foreign territory equivalent to 80% of
the approved standard charges which shall cover hospitalization costs and professional fees, can only be
reasonably construed in connection with the preceding clause on professional fees to give meaning to a somewhat
vague clause. A particular clause should not be studied as a detached and isolated expression, but the whole and
every part of the contract must be considered in fixing the meaning of its parts.10

In the absence of evidence to the contrary, the trial court considered the amount of ₱12,151.36 already paid by
Fortune Care to Amorin as equivalent to 80% of the hospitalization and professional fees payable to the latter had
he been treated in an affiliated hospital.11

Dissatisfied, Amorin appealed the RTC decision to the CA.

The CA Ruling

On September 27, 2010, the CA rendered its Decision12 granting the appeal. Thus, the dispositive portion of its
decision reads:

WHEREFORE, all the foregoing premises considered, the instant appeal is hereby GRANTED. The May 8, 2006
assailed Decision of the Regional Trial Court (RTC) of Makati City, Branch 66 is hereby REVERSED and SET
ASIDE, and a new one entered ordering Fortune Medicare, Inc. to reimburse [Amorin] 80% of the total amount of
the actual hospitalization expenses of $7,242.35 and professional fee of $1,777.79 paid by him to St. Francis
Medical Center pursuant to Section 3, Article V of the Corporate Health Care Program Contract, or their peso
equivalent at the time the amounts became due, less the [P]12,151.36 already paid by Fortunecare.

SO ORDERED.13

In so ruling, the appellate court pointed out that, first, health care agreements such as the subject Health Care
Contract, being like insurance contracts, must be liberally construed in favor of the subscriber. In case its provisions
are 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.14 Second, the CA
explained that there was nothing under Article V of the Health Care Contract which provided that the Philippine
standard should be used even in the event of an emergency confinement in a foreign territory.15

Fortune Care’s motion for reconsideration was denied in a Resolution16 dated February 24, 2011. Hence, the filing of
the present petition for review on certiorari.
The Present Petition

Fortune Care cites the following grounds to support its petition:

I. The CA gravely erred in concluding that the phrase "approved standard charges" is subject to
interpretation, and that it did not automatically mean "Philippine Standard"; and

II. The CA gravely erred in denying Fortune Care’s motion for reconsideration, which in effect affirmed its
decision that the American Standard Cost shall be applied in the payment of medical and hospitalization
expenses and professional fees incurred by the respondent.17

The Court’s Ruling

The petition is bereft of merit.

The Court finds no cogent reason to disturb the CA’s finding that Fortune Care’s liability to Amorin under the subject
Health Care Contract should be based on the expenses for hospital and professional fees which he actually
incurred, and should not be limited by the amount that he would have incurred had his emergency treatment been
performed in an accredited hospital in the Philippines.

We emphasize that for purposes of determining the liability of a health care provider to its members, jurisprudence
holds that a health care agreement is in the nature of non-life insurance, which is primarily a contract of indemnity.
Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated
contingent, the health care provider must pay for the same to the extent agreed upon under the contract.18

To aid in the interpretation of health care agreements, the Court laid down the following guidelines in Philamcare
Health Systems v. CA19:

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. 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.20 (Citations omitted and
emphasis ours)

Consistent with the foregoing, we reiterated in Blue Cross Health Care, Inc. v. Spouses Olivares21:

In Philamcare Health Systems, Inc. v. CA, we ruled that a health care agreement is in the nature of a non-life
insurance. 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.

xxxx

x x x [L]imitations of liability on the part of the insurer or health care provider must be construed in such a way as to
preclude it from evading its obligations. Accordingly, they should be scrutinized by the courts with "extreme
jealousy" and "care" and with a "jaundiced eye." x x x.22 (Citations omitted and emphasis supplied)

In the instant case, the extent of Fortune Care’s liability to Amorin under the attendant circumstances was governed
by Section 3(B), Article V of the subject Health Care Contract, considering that the appendectomy which the
member had to undergo qualified as an emergency care, but the treatment was performed at St. Francis Medical
Center in Honolulu, Hawaii, U.S.A., a non-accredited hospital. We restate the pertinent portions of Section 3(B):
B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost including the
professional fee (based on the total approved charges) to a member who receives emergency care in a non-
accredited hospital. The above coverage applies only to Emergency confinement within Philippine Territory.
However, if the emergency confinement occurs in foreign territory, Fortune Care will be obligated to reimburse or
pay eighty (80%) percent of the approved standard charges which shall cover the hospitalization costs and
professional fees. x x x23 (Emphasis supplied)

The point of dispute now concerns the proper interpretation of the phrase "approved standard charges", which shall
be the base for the allowable 80% benefit. The trial court ruled that the phrase should be interpreted in light of the
provisions of Section 3(A), i.e., to the extent that may be allowed for treatments performed by accredited physicians
in accredited hospitals. As the appellate court however held, this must be interpreted in its literal sense, guided by
the rule that any ambiguity shall be strictly construed against Fortune Care, and liberally in favor of Amorin.

The Court agrees with the CA. As may be gleaned from the Health Care Contract, the parties thereto contemplated
the possibility of emergency care in a foreign country. As the contract recognized Fortune Care’s liability for
emergency treatments even in foreign territories, it expressly limited its liability only insofar as the percentage of
hospitalization and professional fees that must be paid or reimbursed was concerned, pegged at a mere 80% of the
approved standard charges.

The word "standard" as used in the cited stipulation was vague and ambiguous, as it could be susceptible of
different meanings. Plainly, the term "standard charges" could be read as referring to the "hospitalization costs and
professional fees" which were specifically cited as compensable even when incurred in a foreign country. Contrary
to Fortune Care’s argument, from nowhere in the Health Care Contract could it be reasonably deduced that these
"standard charges" referred to the "Philippine standard", or that cost which would have been incurred if the medical
services were performed in an accredited hospital situated in the Philippines. The RTC ruling that the use of the
"Philippine standard" could be inferred from the provisions of Section 3(A), which covered emergency care in an
accredited hospital, was misplaced. Evidently, the parties to the Health Care Contract made a clear distinction
between emergency care in an accredited hospital, and that obtained from a non-accredited hospital. The limitation
1âwphi1

on payment based on "Philippine standard" for services of accredited physicians was expressly made applicable
only in the case of an emergency care in an accredited hospital.

The proper interpretation of the phrase "standard charges" could instead be correlated with and reasonably inferred
from the other provisions of Section 3(B), considering that Amorin’s case fell under the second case, i.e., emergency
care in a non-accredited hospital. Rather than a determination of Philippine or American standards, the first part of
the provision speaks of the full reimbursement of "the total hospitalization cost including the professional fee (based
on the total approved charges) to a member who receives emergency care in a non-accredited hospital" within the
Philippines. Thus, for emergency care in non-accredited hospitals, this cited clause declared the standard in the
determination of the amount to be paid, without any reference to and regardless of the amounts that would have
been payable if the treatment was done by an affiliated physician or in an affiliated hospital. For treatments in
foreign territories, the only qualification was only as to the percentage, or 80% of that payable for treatments
performed in non-accredited hospital.

All told, in the absence of any qualifying word that clearly limited Fortune Care's liability to costs that are applicable
in the Philippines, the amount payable by Fortune Care should not be limited to the cost of treatment in the
Philippines, as to do so would result in the clear disadvantage of its member. If, as Fortune Care argued, the
premium and other charges in the Health Care Contract were merely computed on assumption and risk under
Philippine cost and, that the American cost standard or any foreign country's cost was never considered, such
limitations should have been distinctly specified and clearly reflected in the extent of coverage which the company
voluntarily assumed. This was what Fortune Care found appropriate when in its new health care agreement with the
House of Representatives, particularly in their 2006 agreement, the provision on emergency care in non-accredited
hospitals was modified to read as follows:

However, if the emergency confinement occurs in a foreign territory, Fortunecare will be obligated to reimburse or
pay one hundred (100%) percent under approved Philippine Standard covered charges for hospitalization costs and
professional fees but not to exceed maximum allowable coverage, payable in pesos at prevailing currency exchange
rate at the time of availment in said territory where he/she is confined. x x x24
Settled is the rule that ambiguities in a contract are interpreted against the party that caused the ambiguity. "Any
ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who
drafted it."25

WHEREFORE, the petition is DENIED. The Decision dated September 27, 2010 and Resolution dated February 24,
2011 of the Court of Appeals in CA-G.R. CV No. 87255 are AFFIRMED.

SO ORDERED.