Insurance Case #048 Malayan Insurance Co. Inc. vs. PAP Ltd. Co. (Phil. Br.

)
G.R. No. 200784, 7 August 2013
Topic: Concealment, Rescission of Insurance Contract, Alteration in the use of the
thing insured
Ponente: Mendoza, J.
Doctrine: Under the Insurance Code of the Philippines:

“Sec. 26. A neglect to communicate that which a party knows and ought to
communicate, is called a concealment.

Sec. 27. A concealment whether intentional or unintentional entitles the injured party
to rescind a contract of insurance. (As amended by Batasang Pambansa Blg. 874)

Sec. 168. An alteration in the use or condition of a thing insured from that to which it is
limited by the policy made without the consent of the insurer, by means within the
control of the insured, and increasing the risks, entitles an insurer to rescind a
contract of fire insurance.”

Facts:
1. 13 May 1996- Malayan Insurance Company (Malayan) issued Fire Insurance Policy
to PAP Co., Ltd. (PAP Co) for the latter’s machineries and equipment located at
Sanyo Precision Phils, Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo
Building).
2. Insurance was worth P15M and effective for 1 year. It was procured by PAP Co for
RCBC, the mortgagee of the insured machineries and equipment.
3. Prior to expiration of the insurance coverage, PAP Co. renewed policy on an “as is”
basis. This was for 13 May 1997 to 13 May 1998.
4. 12 October 1997 and during the subsistence of the renewal policy, the insured
machineries and equipment were totally lost by fir.
5. PAP Co. filed a fire insurance claim with Malayan in the amount insured.
6. 15 December 1997- Malayan denied since at the time of loss, the insured
machineries and equipment were transferred by PAP Co. to a location different from
that indicated in the policy.
7. PAP Co. argued that Malayan cannot avoid liability since it was informed of the
transfer by RCBC, the mortgage and the party duty-bound to relay such information.
8. 17 September 2009- RTC ordered Malayan to pay PAP an indemnity for the loss.
9. 27 October 2011- CA affirmed RTC decision. Hence this case.
Issue: Is Malayan liable under the insurance contract?
Ruling: No. Under the policy and when it was renewed, it forbade the removal of the
insured properties unless sanctioned/consented by Malayan. PAP failed to notify and to
obtain consent of Malayan regarding the removal. The transfer also increased the risk. With
the transfer of location of the subject properties, without notice to and consent of Malayan,
PAP committed concealment, misrepresentation and breach of a material warranty. Under
the Insurance Code, Malayan can rescind the insurance contract.
Dispositive: WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby
REVERSED and SET ASIDE. Petitioner Malayan Insurance Company, Inc. is hereby declared
NOT liable for the loss of the insured machineries and equipment suffered by PAP Co., Ltd.