G.R. No.

166245 April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,

vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.

DECISION

VELASCO, JR., J.:

The Case

Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the November 26, 2004 Decision 1 of the
Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the insurer on the insurance application be considered as
approval of the application? – Perfection of contract?

The Facts

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

The relevant provisions of the policy are:

ELIGIBILITY.

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

EVIDENCE OF INSURABILITY.

No medical examination shall be required for amounts of insurance up to P50,000.00. However, a declaration of good health shall be
required for all Lot Purchasers as part of the application. The Company reserves the right to require further evidence of insurability
satisfactory to the Company in respect of the following:

1. Any amount of insurance in excess of P50,000.00.

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

LIFE INSURANCE BENEFIT.

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

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall
be no insurance if the application of the Lot Purchaser is not approved by the Company. 3

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

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

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

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

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

In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter dated May 20, 1986, 9 a portion of which reads:
 The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens Memorial Park in October 1982
for the total maximum insurable amount of P100,000.00 each. No application for Group Insurance was submitted in our office prior to
his death on August 2, 1984.

In accordance with our Creditor’s Group Life Policy No. P-1920, under Evidence of Insurability provision, "a declaration of good health
shall be required for all Lot Purchasers as party of the application." We cite further the provision on Effective Date of Coverage under
the policy which states that "there shall be no insurance if the application is not approved by the Company." Since no application had
been submitted by the Insured/Assured, prior to his death, for our approval but was submitted instead on November 15, 1984, after
his death, Mr. John Uy Chuang was not covered under the Policy. We wish to point out that Eternal Gardens being the Assured was a
party to the Contract and was therefore aware of these pertinent provisions.

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

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

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

Philamlife appealed to the CA, which ruled, thus:

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

SO ORDERED.11

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

Hence, we have this petition with the following grounds:

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

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

II. There was no valid insurance coverage; and

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

The Court’s Ruling

As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised before the CA and first level courts, considering
their findings of facts are conclusive and binding on this Court. However, such rule is subject to exceptions, as enunciated in Sampayan v.
Court of Appeals:

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

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

Eternal claims that the evidence that it presented before the trial court supports its contention that it submitted a copy of the insurance
application of Chuang before his death. In Eternal’s letter dated December 29, 1982, a list of insurable interests of buyers for October 1982 was
attached, including Chuang in the list of new businesses. Eternal added it was noted at the bottom of said letter that the corresponding "Phil-Am
Life Insurance Application Forms & Cert." were enclosed in the letter that was apparently received by Philamlife on January 15, 1983. Finally,
Eternal alleged that it provided a copy of the insurance application which was signed by Chuang himself and executed before his death.

On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing that Eternal must present evidence showing
that Philamlife received a copy of Chuang’s insurance application.

The evidence on record supports Eternal’s position.

The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states that the insurance forms for the
attached list of burial lot buyers were attached to the letter. Such stamp of receipt has the effect of acknowledging receipt of the letter together
with the attachments. Such receipt is an admission by Philamlife against its own interest. 13 The burden of evidence has shifted to Philamlife,
which must prove that the letter did not contain Chuang’s insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed
to have received Chuang’s insurance application.

To reiterate, it was Philamlife’s bounden duty to make sure that before a transmittal letter is stamped as received, the contents of the letter are
correct and accounted for.

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

In the present case, the number of copies of the insurance application that Chuang executed is not at issue, neither is whether the insurance
application presented by Eternal has been falsified. Thus, the inconsistencies pointed out by Philamlife are minor and do not affect the
credibility of Eternal’s witnesses.

However, the question arises as to whether Philamlife assumed the risk of loss without approving the application.

This question must be answered in the affirmative.

As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920 dated December 10,
1980. In the policy, it is provided that:

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall
be no insurance if the application of the Lot Purchaser is not approved by the Company.

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

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

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

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

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

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

On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a party’s purchase of a memorial lot on
installment from Eternal, an insurance contract covering the lot purchaser is created and the same is effective, valid, and binding until
terminated by Philamlife by disapproving the insurance application. The second sentence of Creditor Group Life Policy No. P-1920 on the
Effective Date of Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance contract. Moreover, the
mere inaction of the insurer on the insurance application must not work to prejudice the insured; it cannot be interpreted as a termination of the
insurance contract. The termination of the insurance contract by the insurer must be explicit and unambiguous.

As a final note, insurance contracts are imbued with public interest. Hence, in order to protect the interest of insurance applicants, insurance
companies must be obligated to act with haste upon insurance applications, to either deny or approve the same, or otherwise be bound to
honor the application as a valid, binding, and effective insurance contract. 21

WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The
May 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife is hereby ORDERED:

(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of Chuang;

(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time of extra-judicial demand by
Eternal until Philamlife’s receipt of the May 29, 1996 RTC Decision on June 17, 1996;

(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June 17, 1996 until full payment
of this award; and

(4) To pay Eternal attorney’s fees in the amount of PhP 10,000.

No costs.

SO ORDERED.
Perfection of Insurance Contract

ETERNAL VS. PHILAMLIFE

G.R. No. 166245
April 09, 2008

FACTS: On December 10, 1980, Respondent Philamlife entered into an agreement denominated (designated) as Creditor Group Life
Policy with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who purchased
burial lots from it on instalment basis would be insured by Philamlife. The amount of insurance coverage depended upon the existing
balance of the purchased burial lots.

The relevant provisions of the policy are:

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured.
However, there shall be no insurance if the application of the Lot Purchaser is not approved by the Company.

xx

Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of the application of
each purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers.

Eternal complied on December 29, 1982.

One of those included in the list was a certain John Chuang. His balance of payments was 100K. On August 2, 1984, Chuang died.

August 20, 1984, Eternal sent a letter dated to Philamlife, which served as an insurance claim for Chuang’s death.

November 12, 1984, In reply, Philamlife wrote Eternal a letter requiring Eternal to submit the additional documents relative to its
insurance claim for Chuang’s death.

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

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

May 20, 1986, In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter a portion of which reads:
No application for Group Insurance was submitted in our office prior to his death on August 2, 1984

Eternal filed a case with the RTC for a sum of money against Philamlife, which decided in favor of Eternal, ordering Philamlife to pay
the former 100K representing the proceeds of the policy. For accordingly, due to Philamlife’s inaction from the submission of the
requirements of the group insurance on December 29, 1982 to Chuang’s death on August 2, 1984, as well as Philamlife’s acceptance of
the premiums during the same period, Philamlife was deemed to have approved Chuang’s application. The RTC said that since the
contract is a group life insurance, once proof of death is submitted, payment must follow.

CA reversed. Hence this petition.

- Nagkaron ng insurance agreement ang philam at eternal, na lahat ng oorder ng lupa sa sementeryo ay insured ng philam (parang pag di nagbayad
ang umorder ng lupa, yung philam ang magtutuloy ng hulog). Nag submit naman ng requirements ang eternal pero ndi naman inactionan ng
Philam ang application. Eto na nagayon, namatay ang isa. Eternal claim for the payment. But Philam replied that they should not pay bec of the
“effective date of the payment” provision on the policy.

ISSUE: May the inaction of the insurer on the insurance application be considered approval of the application?

HELD: petition granted.

YES

An examination of the provision of the POLICY under effective date of benefit, would show ambiguity between its two sentences.

The first sentence appears to state that the insurance coverage of the clients of Eternal already became effective upon contracting a
loan with Eternal

While the second sentence appears to require Philamlife to approve the insurance contract before the same can become effective.

It must be remembered that an insurance contract is a contract of adhesion which must be construed liberally in favor of the insured
and strictly against the insurer in order to safeguard the latter’s interest

On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a party’s purchase of a memorial lot on
installment from Eternal, an insurance contract covering the lot purchaser is created and the same is effective, valid, and binding until
terminated by Philamlife by disapproving the insurance application. The second sentence of the Creditor Group Life Policy on the
Effective Date of Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance contract.
Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the insured; it cannot be
interpreted as a termination of the insurance contract. The termination of the insurance contract by the insurer must be explicit and
unambiguous.
COUNTRY BANKERS INSURANCE CORPORATION, petitioner, vs. LIANGA BAY AND COMMUNITY MULTI-
PURPOSE COOPERATIVE, INC., respondent.

DECISION
DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Decision of the Court of Appeals dated December 29, 1998 in CA-G.R.
[1] [2]

CV Case No. 36902 affirming in toto the Decision dated December 26, 1991 of the Regional Trial Court of Lianga, Surigao del
[3]

Sur, Branch 28, in Civil Case No. L-518 which ordered petitioner Country Bankers Insurance Corporation to fully pay the
insurance claim of respondent Lianga Bay and Community Multi-Purpose Cooperative, Inc., under Fire Insurance Policy No. F-
1397, for loss sustained as a result of the fire that occurred on July 1, 1989 in the amount of Two Hundred Thousand Pesos
(P200,000.00), with interest at twelve percent (12%) per annum from the date of filing of the complaint until fully paid, as well as
Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty Thousand Pesos (P50,000.00) as exemplary damages, Five
Thousand Pesos (P5,000.00) as litigation expenses, Ten Thousand Pesos (P10,000.00) as attorneys fees, and the costs of suit.
The facts are undisputed:
The petitioner is a domestic corporation principally engaged in the insurance business wherein it undertakes, for a
consideration, to indemnify another against loss, damage or liability from an unknown or contingent event including fire while the
respondent is a duly registered cooperative judicially declared insolvent and represented by the elected assignee, Cornelio
Jamero.
It appears that sometime in 1989, the petitioner and the respondent entered into a contract of fire insurance. Under Fire
Insurance Policy No. F-1397, the petitioner insured the respondents stocks-in-trade against fire loss, damage or liability during
the period starting from June 20, 1989 at 4:00 p.m. to June 20, 1990 at 4:00 p.m., for the sum of Two Hundred Thousand Pesos
(P200,000.00).
On July 1, 1989, at or about 12:40 a.m., the respondents building located at Barangay Diatagon, Lianga, Surigao del Sur
was gutted by fire and reduced to ashes, resulting in the total loss of the respondents stocks-in-trade, pieces of furnitures and
fixtures, equipments and records.
Due to the loss, the respondent filed an insurance claim with the petitioner under its Fire Insurance Policy No. F-1397,
submitting: (a) the Spot Report of Pfc. Arturo V. Juarbal, INP Investigator, dated July 1, 1989; (b) the Sworn Statement of Jose
Lomocso; and (c) the Sworn Statement of Ernesto Urbiztondo.
The petitioner, however, denied the insurance claim on the ground that, based on the submitted documents, the building
was set on fire by two (2) NPA rebels who wanted to obtain canned goods, rice and medicines as provisions for their comrades
in the forest, and that such loss was an excepted risk under paragraph No. 6 of the policy conditions of Fire Insurance Policy No.
F-1397, which provides:

This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly, of any of the following
occurrences, namely:

xxx xxx xxx

(d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped power.

Any loss or damage happening during the existence of abnormal conditions (whether physical or otherwise) which are occasioned by or
through or in consequence, directly or indirectly, of any of said occurrences shall be deemed to be loss or damage which is not covered by
this insurance, except to the extent that the Insured shall prove that such loss or damage happened independently of the existence of such
abnormal conditions.

Finding the denial of its claim unacceptable, the respondent then instituted in the trial court the complaint for recovery of
loss, damage or liability against petitioner. The petitioner answered the complaint and reiterated the ground it earlier cited to
deny the insurance claim, that is, that the loss was due to NPA rebels, an excepted risk under the fire insurance policy.
In due time, the trial court rendered its Decision dated December 26, 1991 in favor of the respondent, declaring that:

Based on its findings, it is therefore the considered opinion of this Court, as it so holds, that the defenses raised by defendant-Country
Bankers has utterly crumbled on account of its inherent weakness, incredibility and unreliability, and after applying those helpful tools like
common sense, logic and the Courts honest appraisal of the real and actual situation obtaining in this area, such defenses remains (sic)
unimpressive and unconvincing, and therefore, the defendant-Country Bankers has to be irreversibly adjudged liable, as it should be, to
plaintiff-Insolvent Cooperative, represented in this action by its Assignee, Cornelio Jamero, and thus, ordering said defendant-Country
Bankers to pay the plaintiff-Insolvent Cooperative, as follows:

1. To fully pay the insurance claim for the loss the insured-plaintiff sustained as a result of the fire under its Fire Insurance Policy No. F-1397 in its full face value
of P200,000.00 with interest of 12% per annum from date of filing of the complaint until the same is fully paid;

2. To pay as and in the concept of actual or compensatory damages in the total sum of P50,000.00;

3. To pay as and in the concept of exemplary damages in the total sum of P50,000.00;

4. To pay in the concept of litigation expenses the sum of P5,000.00;

5. To pay by way of reimbursement the attorneys fees in the sum of P10,000.00; and

6. To pay the costs of the suit.

For being unsubstantiated with credible and positive evidence, the counterclaim is dismissed.

IT IS SO ORDERED.
 Petitioner interposed an appeal to the Court of Appeals. On December 29, 1998, the appellate court affirmed the
challenged decision of the trial court in its entirety. Petitioner now comes before us via the instant petition anchored on three (3)
assigned errors, to wit:
[4]

1. THE HONORABLE COURT OF APPEALS FAILED TO APPRECIATE AND GIVE CREDENCE TO THE SPOT REPORT OF PFC. ARTURO JUARBAL
(EXH. 3) AND THE SWORN STATEMENT OF JOSE LOMOCSO (EXH. 4) THAT THE RESPONDENTS STOCK-IN-TRADE WAS BURNED BY THE NPA
REBELS, HENCE AN EXCEPTED RISK UNDER THE FIRE INSURANCE POLICY.

2. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER LIABLE FOR 12% INTEREST PER ANNUM ON THE FACE VALUE OF
THE POLICY FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID.

3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THE PETITIONER LIABLE FOR ACTUAL AND EXEMPLARY DAMAGES, LITIGATION
EXPENSES, ATTORNEYS FEES AND COST OF SUIT.

A party is bound by his own affirmative allegations. This is a well-known postulate echoed in Section 1 of Rule 131 of the
Revised Rules of Court. Each party must prove his own affirmative allegations by the amount of evidence required by law which
in civil cases, as in this case, is preponderance of evidence, to obtain a favorable judgment. [5]

In the instant case, the petitioner does not dispute that the respondents stocks-in-trade were insured against fire loss,
damage or liability under Fire Insurance Policy No. F- 1397 and that the respondent lost its stocks-in-trade in a fire that occurred
on July 1, 1989, within the duration of said fire insurance. The petitioner, however, posits the view that the cause of the loss was
an excepted risk under the terms of the fire insurance policy.
Where a risk is excepted by the terms of a policy which insures against other perils or hazards, loss from such a risk
constitutes a defense which the insurer may urge, since it has not assumed that risk, and from this it follows that an insurer
seeking to defeat a claim because of an exception or limitation in the policy has the burden of proving that the loss comes within
the purview of the exception or limitation set up. If a proof is made of a loss apparently within a contract of insurance, the burden
is upon the insurer to prove that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a
cause which limits its liability. Stated elsewise, since the petitioner in this case is defending on the ground of non-coverage and
[6]

relying upon an exemption or exception clause in the fire insurance policy, it has the burden of proving the facts upon which
such excepted risk is based, by a preponderance of evidence. But petitioner failed to do so.
[7]

The petitioner relies on the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo as well as on the Spot Report of
Pfc. Arturo V. Juarbal dated July 1, 1989, more particularly the following statement therein:

xxx investigation revealed by Jose Lomocso that those armed men wanted to get can goods and rice for their consumption in the forest PD
investigation further disclosed that the perpetrator are member (sic) of the NPA PD end x x x

A witness can testify only to those facts which he knows of his personal knowledge, which means those facts which are
derived from his perception. Consequently, a witness may not testify as to what he merely learned from others either because
[8]

he was told or read or heard the same. Such testimony is considered hearsay and may not be received as proof of the truth of
what he has learned. Such is the hearsay rule which applies not only to oral testimony or statements but also to written evidence
as well.[9]

The hearsay rule is based upon serious concerns about the trustworthiness and reliability of hearsay evidence inasmuch as
such evidence are not given under oath or solemn affirmation and, more importantly, have not been subjected to cross-
examination by opposing counsel to test the perception, memory, veracity and articulateness of the out-of-court declarant or
actor upon whose reliability on which the worth of the out-of-court statement depends. [10]

Thus, the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo are inadmissible in evidence, for being hearsay,
inasmuch as they did not take the witness stand and could not therefore be cross-examined.
There are exceptions to the hearsay rule, among which are entries in official records. To be admissible in evidence, [11]

however, three (3) requisites must concur, to wit:

(a) that the entry was made by a public officer, or by another person specially enjoined by law to do so;

(b) that it was made by the public officer in the performance of his duties, or by such other person in the performance of a duty specially enjoined by law; and

(c) that the public officer or other person had sufficient knowledge of the facts by him stated, which must have been acquired by him personally or through
official information.
[12]

The third requisite was not met in this case since no investigation, independent of the statements gathered from Jose Lomocso,
was conducted by Pfc. Arturo V. Juarbal. In fact, as the petitioner itself pointed out, citing the testimony of Pfc. Arturo
Juarbal, the latters Spot Report was based on the personal knowledge of the caretaker Jose Lomocso who witnessed every
[13]

single incident surrounding the facts and circumstances of the case. This argument undeniably weakens the petitioners defense,
for the Spot Report of Pfc. Arturo Juarbal relative to the statement of Jose Lomocso to the effect that NPA rebels allegedly set
fire to the respondents building is inadmissible in evidence, for the purpose of proving the truth of the statements contained in
the said report, for being hearsay.
The said Spot Report is admissible only insofar as it constitutes part of the testimony of Pfc. Arturo V. Juarbal since he
himself took the witness stand and was available for cross-examination. The portions of his Spot Report which were of his
personal knowledge or which consisted of his perceptions and conclusions are not hearsay. The rest of the said report relative to
the statement of Jose Lomocso may be considered as independently relevant statements gathered in the course of Juarbals
investigation and may be admitted as such but not necessarily to prove the truth thereof. [14]

SO ORDERED.
LOSS sec 85-89 Insurance Code

COUNTRY BANKERS INSURANCE CORPORATION, vs. LIANGA BAY AND COMMUNITY MULTI-
PURPOSE COOPERATIVE
G.R. No. 136914 January 25, 2002, DE LEON JR J:

Facts:

The petitioner (insurer) is a domestic corporation principally engaged in the insurance business wherein it undertakes, for a
consideration, to indemnify another against loss, damage or liability from an unknown or contingent event including fire while the
respondent (insured) is a duly registered cooperative judicially declared insolvent and represented by its assignee.

Sometime in 1989, the petitioner and the respondent entered into a contract of Fire Insurance. Under Fire Insurance, the petitioner
insured the respondent’s stocks-in-trade against fire loss, damage or liability during the period starting from June 20, 1989 to June 20,
1990 for the sum of Two Hundred Thousand Pesos.

On July 1, 1989, the respondent’s building located at Surigao del Sur was gutted by fire and reduced to ashes, resulting in the total loss
of the respondent’s stocks-in-trade, pieces of furniture and fixtures, equipments and records.

Due to the loss, the respondent filed an insurance claim with the petitioner under its Fire Insurance.

The petitioner, however, denied the insurance claim on the ground that, based on the submitted documents, the building was set on
fire by two NPA rebels who wanted to obtain canned goods, rice and medicines as provisions for their comrades in the forest, and that
such loss was an excepted risk under the policy conditions of Fire Insurance Policy which provides:

“This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly, of anyof
the following occurrences, namely:

(d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped power.”

Respondent then instituted in the trial court the complaint for recovery of "loss, damage or liability" against petitioner.

The trial court rendered its Decision in favor of the respondent (insured).

Petitioner appealed to the Court of Appeals which affirmed the decision of the trial court in its entirety. Hence, this petition.

Issue:
Whether Country Bankers (insurer) liable?

Ruling:

Yes Country Bankers (insurer) is liable.

The petitioner does not dispute that the respondent’s stocks-in-trade were insured against fire, loss, damage or liability under Fire
Insurance Policy and that the respondent lost its stocks-in-trade in a fire that occurred within the duration of said fire insurance.

The petitioner, however, posits the view that the cause of the loss was an excepted risk under the terms of the fire insurance policy.

Where a risk is excepted by the terms of a policy which insures against other perils or hazards, loss from such a risk constitutes a
defense which the insurer may urge, since it has not assumed that risk, and from this it follows that an insurer seeking to defeat a
claim because of an exception or limitation in the policy has the burden of proving that the loss comes within the purview of
the exception or limitation set up.

If a proof is made of a loss apparently within a contract of insurance, the burden is upon the insurer to prove that the loss arose from a
cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability.

Stated else wise, since the petitioner (insurer) in this case is defending on the ground of non-coverage and relying upon an exemption
or exception clause in the fire insurance policy, it has the burden of proving the facts upon which such excepted risk is based, by a
preponderance of evidence. But petitioner failed to do so.

The petitioner relies on the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo and on the Spot Report of Pfc. Arturo V.
Juarbal which was based on the personal knowledge of the caretaker specifically that: “investigation revealed by Jose Lomocso that
those armed men wanted to get can goods and rice for their consumption in the forest PD investigation further disclosed that the
perpetrator are members of the NPA” .

Such testimony is considered hearsay and may not be received as proof of the truth of what he has learned.
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 Decision dated May 31, 2011 and
1

Resolution dated August 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93027.
2

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. (included)

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. Accordingly, in interpreting the exclusions in an insurance contract, the terms used specifying the excluded classes
8

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. 1âwphi1

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, this Court ruled –
11

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.
Construction of Contract of Insurance

ALPHA INSURANCE AND SURETY CO., PETITIONER,

vs.
ARSENIA SONIA CASTOR, RESPONDENT.
G.R. No. 198174, September 2, 2013 (PERALTA, J.)

FACTS:
Arsenia Sonia Castor (Castor) obtained a Motor Car Policy for her Toyota Revo DLX DSL with Alpha Insurance and Surety Co (Alpha).
The contract of insurance obligates the petitioner (Alpha) to pay the respondent (Castor) the amount of P630,000 in case of loss or
damage to said vehicle during the period covered.

On April 16, 2007, Castor instructed her driver, Lanuza to bring the vehicle to nearby auto-shop for a tune up. However, Lanuza no
longer returned the motor vehicle and despite diligent efforts to locate the same, said efforts proved futile. Resultantly, Castor promptly
reported the incident to the police and concomitantly notified petitioner (Alpha – Insurance Coy) of the said loss and demanded
payment of the insurance proceeds.

However, Alpha denied the demand of Castor claiming that they are not liable since the culprit who stole the vehicle is employed with
Castor. Under the Exceptions to Section III of the Policy, the Company shall not be liable for (4) any malicious damage caused by the
insured, any member of his family or by “A PERSON IN THE INSURED’S SERVICE”.
Castor filed a Complaint for Sum of Money with Damages against Alpha before the Regional Trial Court of Quezon City.

The trial court rendered its decision in favor of Castor which decision is affirmed in toto by the Court of Appeals. Hence, this Petition for
Review on Certiorari.

ISSUE:
Whether or not the loss of respondent - Castor’s, vehicle is excluded under the insurance policy

HELD:
NO. 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.

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.

Therefore, petitioner cannot exclude the loss of Castor’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”.

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 vs. Philippine American Life Insurance Company, this Court ruled that 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.

NCC, Article 24. In all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral
dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection. –
DIIMAO

\
HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA PANGILINAN MARAMAG, Petitioners,- versus -EVA VERNA DE
GUZMAN MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN DE GUZMAN MARAMAG, TRISHA ANGELIE MARAMAG, THE
INSULAR LIFE ASSURANCE COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE CORPORATION, Respondents.
NACHURA, J.:
This is a petition[1] for review on certiorari under Rule 45 of the Rules, seeking to reverse and set aside the Resolution [2] dated January 8, 2008 of the Court of Appeals
(CA), in CA-G.R. CV No. 85948, dismissing petitioners appeal for lack of jurisdiction.

The case stems from a petition[3] filed against respondents with the Regional Trial Court, Branch 29, for revocation and/or reduction of insurance proceeds for being
void and/or inofficious, with prayer for a temporary restraining order (TRO) and a writ of preliminary injunction.

The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto Maramag (Loreto), while respondents were Loretos illegitimate
family; (2) Eva de Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the killing of the latter, thus, she is disqualified to receive any proceeds from his
insurance policies from Insular Life Assurance Company, Ltd. (Insular)[4] and Great Pacific Life Assurance Corporation (Grepalife); [5] (3) the illegitimate children of
Loreto Odessa, Karl Brian, and Trisha Angeliewere entitled only to one-half of the legitime of the legitimate children, thus, the proceeds released to Odessa and those to
be released to Karl Brian and Trisha Angelie were inofficious and should be reduced; and (4) petitioners could not be deprived of their legitimes, which should be
satisfied first.

In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among others, that part of the insurance proceeds had already been
released in favor of Odessa, while the rest of the proceeds are to be released in favor of Karl Brian and Trisha Angelie, both minors, upon the appointment of their legal
guardian. Petitioners also prayed for the total amount of P320,000.00 as actual litigation expenses and attorneys fees.

In answer,[6] Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that they
filed their claims for the insurance proceeds of the insurance policies; that when it ascertained that Eva was not the legal wife of Loreto, it disqualified her as a
beneficiary and divided the proceeds among Odessa, Karl Brian, and Trisha Angelie (illegitimate child), as the remaining designated beneficiaries; and that it released
Odessas share as she was of age, but withheld the release of the shares of minors Karl Brian and Trisha Angelie pending submission of letters of guardianship. Insular
alleged that the complaint or petition failed to state a cause of action insofar as it sought to declare as void the designation of Eva as beneficiary, because Loreto
revoked her designation as such in Policy No. A001544070 and it disqualified her in Policy No. A001693029; and insofar as it sought to declare as inofficious the
shares of Odessa, Karl Brian, and Trisha Angelie, considering that no settlement of Loretos estate had been filed nor had the respective shares of the heirs been
determined. Insular further claimed that it was bound to honor the insurance policies designating the children of Loreto with Eva as beneficiaries pursuant to Section 53
of the Insurance Code.

In its own answer[7] with compulsory counterclaim, Grepalife alleged that Eva was not designated as an insurance policy beneficiary; that the claims filed by Odessa,
Karl Brian, and Trisha Angelie were denied because Loreto was ineligible for insurance due to a misrepresentation in his application form that he was born on
December 10, 1936 and, thus, not more than 65 years old when he signed it in September 2001; that the case was premature, there being no claim filed by the legitimate
family of Loreto; and that the law on succession does not apply where the designation of insurance beneficiaries is clear.

As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to petitioners, summons by publication was resorted to. Still, the illegitimate family
of Loreto failed to file their answer. Hence, the trial court, upon motion of petitioners, declared them in default in its Order dated May 7, 2004.

During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues raised in their respective answers be resolved first. The trial court ordered
petitioners to comment within 15 days.

In their comment, petitioners alleged that the issue raised by Insular and Grepalife was purely legal whether the complaint itself was proper or not and that the
designation of a beneficiary is an act of liberality or a donation and, therefore, subject to the provisions of Articles 752 [8] and 772[9] of the Civil Code.

In reply, both Insular and Grepalife countered that the insurance proceeds belong exclusively to the designated beneficiaries in the policies, not to the estate or to the
heirs of the insured. Grepalife also reiterated that it had disqualified Eva as a beneficiary when it ascertained that Loreto was legally married to Vicenta Pangilinan
Maramag.

On September 21, 2004, the trial court issued a Resolution, the dispositive portion of which reads

WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life and Grepalife is granted with respect to defendants Odessa,
Karl Brian and Trisha Maramag. The action shall proceed with respect to the other defendants Eva Verna de Guzman, Insular Life and Grepalife.
SO ORDERED.[10]

In so ruling, the trial court ratiocinated thus

Art. 2011 of the Civil Code provides that the contract of insurance is governed by the (sic) special laws. Matters not expressly provided for in such special
laws shall be regulated by this Code.The principal law on insurance is the Insurance Code, as amended. Only in case of deficiency in the Insurance Code
that the Civil Code may be resorted to. (Enriquez v. Sun Life Assurance Co., 41 Phil. 269.)
 The Insurance Code, as amended, contains a provision regarding to whom the insurance proceeds shall be paid. It is very clear under Sec. 53 thereof that
the insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made, unless otherwise
specified in the policy. Since the defendants are the ones named as the primary beneficiary (sic) in the insurances (sic) taken by the deceased Loreto C.
Maramag and there is no showing that herein plaintiffs were also included as beneficiary (sic) therein the insurance proceeds shall exclusively be paid to
them. This is because the beneficiary has a vested right to the indemnity, unless the insured reserves the right to change the beneficiary. (Grecio v. Sunlife
Assurance Co. of Canada, 48 Phil. [sic] 63).

Neither could the plaintiffs invoked (sic) the law on donations or the rules on testamentary succession in order to defeat the right of herein defendants to
collect the insurance indemnity. The beneficiary in a contract of insurance is not the donee spoken in the law of donation. The rules on testamentary
succession cannot apply here, for the insurance indemnity does not partake of a donation. As such, the insurance indemnity cannot be considered as an
advance of the inheritance which can be subject to collation (Del Val v. Del Val, 29 Phil. 534). In the case of Southern Luzon Employees Association v.
Juanita Golpeo, et al., the Honorable Supreme Court made the following pronouncements[:]

With the finding of the trial court that the proceeds to the Life Insurance Policy belongs exclusively to the defendant as
his individual and separate property, we agree that the proceeds of an insurance policy belong exclusively to the beneficiary and not
to the estate of the person whose life was insured, and that such proceeds are the separate and individual property of the beneficiary
and not of the heirs of the person whose life was insured, is the doctrine in America. We believe that the same doctrine obtains in
these Islands by virtue of Section 428 of the Code of Commerce x x x.

In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no sufficient cause of action against defendants Odessa, Karl Brian
and Trisha Angelie Maramag for the reduction and/or declaration of inofficiousness of donation as primary beneficiary (sic) in the insurances (sic) of the
late Loreto C. Maramag.

However, herein plaintiffs are not totally bereft of any cause of action. One of the named beneficiary (sic) in the insurances (sic) taken by the late Loreto C.
Maramag is his concubine Eva Verna De Guzman. Any person who is forbidden from receiving any donation under Article 739 cannot be named
beneficiary of a life insurance policy of the person who cannot make any donation to him, according to said article (Art. 2012, Civil Code). If a concubine
is made the beneficiary, it is believed that the insurance contract will still remain valid, but the indemnity must go to the legal heirs and not to the
concubine, for evidently, what is prohibited under Art. 2012 is the naming of the improper beneficiary. In such case, the action for the declaration of
nullity may be brought by the spouse of the donor or donee, and the guilt of the donor and donee may be proved by preponderance of evidence in the same
action (Comment of Edgardo L. Paras, Civil Code of the Philippines, page 897). Since the designation of defendant Eva Verna de Guzman as one of the
primary beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is void under Art. 739 of the Civil Code, the insurance indemnity that
should be paid to her must go to the legal heirs of the deceased which this court may properly take cognizance as the action for the declaration for the
nullity of a void donation falls within the general jurisdiction of this Court. [11]

Insular[12] and Grepalife[13] filed their respective motions for reconsideration, arguing, in the main, that the petition failed to state a cause of action. Insular further
averred that the proceeds were divided among the three children as the remaining named beneficiaries. Grepalife, for its part, also alleged that the premiums paid had
already been refunded.

Petitioners, in their comment, reiterated their earlier arguments and posited that whether the complaint may be dismissed for failure to state a cause of action must be
determined solely on the basis of the allegations in the complaint, such that the defenses of Insular and Grepalife would be better threshed out during trial.

On June 16, 2005, the trial court issued a Resolution, disposing, as follows:

WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration filed by defendants Grepalife and Insular Life are
hereby GRANTED. Accordingly, the portion of the Resolution of this Court dated 21 September 2004 which ordered the prosecution of the case against
defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET ASIDE, and the case against them is hereby ordered DISMISSED.

SO ORDERED.[14]

In granting the motions for reconsideration of Insular and Grepalife, the trial court considered the allegations of Insular that Loreto revoked the designation of Eva in
one policy and that Insular disqualified her as a beneficiary in the other policy such that the entire proceeds would be paid to the illegitimate children of Loreto with Eva
pursuant to Section 53 of the Insurance Code. It ruled that it is only in cases where there are no beneficiaries designated, or when the only designated beneficiary
is disqualified, that the proceeds should be paid to the estate of the insured. As to the claim that the proceeds to be paid to Loretos illegitimate children should be
reduced based on the rules on legitime, the trial court held that the distribution of the insurance proceeds is governed primarily by the Insurance Code, and the
provisions of the Civil Code are irrelevant and inapplicable. With respect to the Grepalife policy, the trial court noted that Eva was never designated as a beneficiary,
but only Odessa, Karl Brian, and Trisha Angelie; thus, it upheld the dismissal of the case as to the illegitimate children. It further held that the matter of Loretos
misrepresentation was premature; the appropriate action may be filed only upon denial of the claim of the named beneficiaries for the insurance proceeds by Grepalife.

Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for lack of jurisdiction, holding that the decision of the trial court dismissing
the complaint for failure to state a cause of action involved a pure question of law. The appellate court also noted that petitioners did not file within the reglementary
period a motion for reconsideration of the trial courts Resolution, dated September 21, 2004, dismissing the complaint as against Odessa, Karl Brian, and Trisha
Angelie; thus, the said Resolution had already attained finality.

Hence, this petition raising the following issues:

a. In determining the merits of a motion to dismiss for failure to state a cause of action, may the Court consider matters which were not alleged
in the Complaint, particularly the defenses put up by the defendants in their Answer?
b. In granting a motion for reconsideration of a motion to dismiss for failure to state a cause of action, did not the Regional Trial Court engage
in the examination and determination of what were the facts and their probative value, or the truth thereof, when it premised the dismissal on allegations of
the defendants in their answer which had not been proven?

c. x x x (A)re the members of the legitimate family entitled to the proceeds of the insurance for the concubine?[15]

In essence, petitioners posit that their petition before the trial court should not have been dismissed for failure to state a cause of action because the finding
that Eva was either disqualified as a beneficiary by the insurance companies or that her designation was revoked by Loreto, hypothetically admitted as true, was raised
only in the answers and motions for reconsideration of both Insular and Grepalife. They argue that for a motion to dismiss to prosper on that ground, only the
allegations in the complaint should be considered. They further contend that, even assuming Insular disqualified Eva as a beneficiary, her share should not have been
distributed to her children with Loreto but, instead, awarded to them, being the legitimate heirs of the insured deceased, in accordance with law and jurisprudence.

The petition should be denied.

The grant of the motion to dismiss was based on the trial courts finding that the petition failed to state a cause of action, as provided in Rule 16, Section 1(g), of the
Rules of Court, which reads

SECTION 1. Grounds. Within the time for but before filing the answer to the complaint or pleading asserting a claim, a motion to dismiss may be made on
any of the following grounds:

xxxx

(g) That the pleading asserting the claim states no cause of action.

A cause of action is the act or omission by which a party violates a right of another. [16] A complaint states a cause of action when it contains the three (3) elements of a
cause of action(1) the legal right of the plaintiff; (2) the correlative obligation of the defendant; and (3) the act or omission of the defendant in violation of the legal
right. If any of these elements is absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action.[17]

When a motion to dismiss is premised on this ground, the ruling thereon should be based only on the facts alleged in the complaint. The court must resolve
the issue on the strength of such allegations, assuming them to be true. The test of sufficiency of a cause of action rests on whether, hypothetically admitting the facts
alleged in the complaint to be true, the court can render a valid judgment upon the same, in accordance with the prayer in the complaint. This is the general rule.

However, this rule is subject to well-recognized exceptions, such that there is no hypothetical admission of the veracity of the allegations if:

1. the falsity of the allegations is subject to judicial notice;

2. such allegations are legally impossible;
3. the allegations refer to facts which are inadmissible in evidence;
4. by the record or document in the pleading, the allegations appear unfounded; or
5. there is evidence which has been presented to the court by stipulation of the parties or in the course of the hearings related to the case. [18]

In this case, it is clear from the petition filed before the trial court that, although petitioners are the legitimate heirs of Loreto, they were not named as
beneficiaries in the insurance policies issued by Insular and Grepalife.

It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment in light of Article 2011 of the Civil Code which expressly
provides that insurance contracts shall be governed by special laws, i.e., the Insurance Code. Section 53 of the Insurance Code states

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is
made unless otherwise specified in the policy.

Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the beneficiary, if the insured is
already deceased, upon the maturation of the policy.[20] The exception to this rule is a situation where the insurance contract was intended to benefit third persons who
are not parties to the same in the form of favorable stipulations or indemnity. In such a case, third parties may directly sue and claim from the insurer. [21]

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not entitled to the proceeds thereof. Accordingly, respondents
Insular and Grepalife have no legal obligation to turn over the insurance proceeds to petitioners. The revocation of Eva as a beneficiary in one policy and her
disqualification as such in another are of no moment considering that the designation of the illegitimate children as beneficiaries in Loretos insurance policies remains
valid. Because no legal proscription exists in naming as beneficiaries the children of illicit relationships by the insured, [22] the shares of Eva in the insurance proceeds,
whether forfeited by the court in view of the prohibition on donations under Article 739 of the Civil Code or by the insurers themselves for reasons based on the
insurance contracts, must be awarded to the said illegitimate children, the designated beneficiaries, to the exclusion of petitioners. It is only in cases where the
insured has not designated any beneficiary, [23] or when the designated beneficiary is disqualified by law to receive the proceeds, [24] that the insurance policy
proceeds shall redound to the benefit of the estate of the insured.

In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In the same light, the Decision of the CA dated January 8, 2008
should be sustained. Indeed, the appellate court had no jurisdiction to take cognizance of the appeal; the issue of failure to state a cause of action is a question of law
and not of fact, there being no findings of fact in the first place.[25]
Beneficiaries

HEIRS OF MARAMAG V MARAMAG

G.R. No. 181132 June 5, 2009
Lessons Applicable: To whom insurance proceeds payable (Insurance)

FACTS:

Petitioners were the legitimate wife and children of Loreto Maramag (Loreto - insured), while respondents were Loreto’s illegitimate
family.

Loreto designated respondents as beneficiaries in his life insurance policies from Insular Life Assurance Company, Ltd. (Insular) and
Great Pacific Life Assurance Corporation (Grepalife).

Petitioners insituted in the RTC a petition for revocation and/or reduction of insurance proceeds for being void and/or inofficious, with
prayer for a temporary restraining order (TRO) and a writ of preliminary injunction, on the ground that Eva, being a concubine of
Loreto and a suspect in his murder, is disqualified from being designated as beneficiary of the insurance policies, and that Eva’s
children with Loreto, being illegitimate children, are entitled to a lesser share of the proceeds of the policies. They also argued that
pursuant to Section 12 of the Insurance Code. Evas share in the proceeds should be forfeited in their favor, the former having brought
about the death of Loreto. Thus, they prayed that the share of Eva and portions of the shares of Loretos illegitimate children should be
awarded to them, being the legitimate heirs of Loreto entitled to their respective legitimes.

ISSUE:
1. Whether or not illegitimate children can be beneficiaries in an insurance contract
2. whether the members of the legitimate family entitled to the proceeds of the insurance for the concubine? [15]

HELD:

1. YES, illegitimate children can be beneficiaries.

 Any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy
of the person who cannot make any donation to him.
 If a concubine is made the beneficiary, it is believed that the insurance contract will still remain valid, but the indemnity must
go to the legal heirs and not to the concubine, for evidently, what is prohibited under Art. 2012 is the naming of the improper
beneficiary.

2. Legitimate family in this case are not entitled to the proceeds of the insurance for the concubine

Although petitioners are the legitimate heirs of Loreto, they were not named as beneficiaries in the insurance policies issued by Insular
and Grepalife.

It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment in light of Article 2011 of the Civil
Code which expressly provides that insurance contracts shall be governed by special laws, i.e., the Insurance Code. Section 53 of the
Insurance Code states

 SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose
benefit it is made unless otherwise specified in the policy.
 GR: only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the beneficiary, if the insured is
already deceased, upon the maturation of the policy.
 EX: situation where the insurance contract was intended to benefit third persons who are not parties to the same in the form of
favorable stipulations or indemnity. In such a case, third parties may directly sue and claim from the insurer

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not entitled to the proceeds
thereof. Accordingly, respondents Insular and Grepalife have no legal obligation to turn over the insurance proceeds to petitioners
considering that the designation of the illegitimate children as beneficiaries in Loretos insurance policies remains valid because no legal
proscription exists in naming as beneficiaries the children of illicit relationships by the insured, [22] the shares of Eva in the insurance
proceeds, whether forfeited by the court in view of the prohibition on donations under Article 739 of the Civil Code or by the insurers
themselves for reasons based on the insurance contracts, must be awarded to the said illegitimate children, the designated
beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has not designated any
beneficiary,[23] or when the designated beneficiary is disqualified by law to receive the proceeds, [24] that the insurance
policy proceeds shall redound to the benefit of the estate of the insured.
Requisites of Insurance Contract
PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs.
COURT OF APPEALS and JULITA TRINOS, respondents. 379 SCRA 356 (2002)

Facts
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner Philamcare Health
Systems, Inc. Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement, respondent's husband was
entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability. During the period of his coverage, Ernani suffered a heart attack and was confined at the
Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim
the benefits under the health care agreement. However, petitioner denied her claim saying that the Health Care Agreement was void.
According to petitioner, there was a concealment regarding Ernani's medical history. Doctors at the MMC allegedly discovered at the
time of Ernani's confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus,
respondent paid the hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical therapist at home.
Respondent was constrained to bring him back to the Chinese General Hospital where he died on the same day.
After trial, the lower court ruled against petitioners. On appeal, the Court of Appeals affirmed the decision of the trial court but deleted
all awards for damages and absolved petitioner Reverente.

Issue:
WON a health care agreement is an insurance contract

Ruling:
An insurance contract exists where the following elements concur: 1. The insured has an insurable interest; 2. The insured is subject to
a risk of loss by the happening of the designated peril; 3. The insurer assumes the risk; 4. Such assumption of risk is part of a general
scheme to distribute actual losses among a large group of persons bearing a similar risk; and 5. In consideration of the insurer's
promise, the insured pays a premium.
In the case at bar, the insurable interest of respondent's husband in obtaining the health care agreement was his own health. The
health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. 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.