WHITE GOLD MARINE SERVICES, INC. vs.

PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP

MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD. [G.R. No. 154514. July 28, 2005]
QUISUMBING, J p:
This petition for review assails the Decision 1 dated July 30, 2002 of the Court of Appeals in CA.-G.R. SP No. 60144,
affirming the Decision 2 dated May 3, 2000 of the Insurance Commission in I.C. Adm. Case No. RD-277. Both decisions held that
there was no violation of the Insurance Code and the respondents do not need license as insurer and insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage for its vessels from The
Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual) through Pioneer Insurance and Surety
Corporation (Pioneer). Subsequently, White Gold was issued a Certificate of Entry and Acceptance. 3 Pioneer also issued receipts
evidencing payments for the coverage. When White Gold failed to fully pay its accounts, Steamship Mutual refused to renew the
coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the latter's
unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission claiming that Steamship
Mutual violated Sections 186 4 and 187 5 of the Insurance Code, while Pioneer violated Sections 299, 6 300 7 and 301 8 in
relation to Sections 302 and 303, thereof. STaCIA
The Insurance Commission dismissed the complaint. It said that there was no need for Steamship Mutual to secure a
license because it was not engaged in the insurance business. It explained that Steamship Mutual was a Protection and
Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another license as insurance agent and/or a broker for Steamship
Mutual because Steamship Mutual was not engaged in the insurance business. Moreover, Pioneer was already licensed, hence, a
separate license solely as agent/broker of Steamship Mutual was already superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the appellate court
distinguished between P & I Clubs vis-à-vis conventional insurance. The appellate court also held that Pioneer merely acted as a
collection agent of Steamship Mutual.
In this petition, petitioner assigns the following errors allegedly committed by the appellate court,
FIRST ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING BUSINESS IN THE
PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS AGENT AND/OR
BROKER HENCE AS AN INSURER IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE
PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY EVIDENCE THAT
RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT SECURE A LICENSE
WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER AND [IN NOT
REMOVING] THE OFFICERS AND DIRECTORS OF RESPONDENT PIONEER. 9
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the insurance business in the
Philippines? (2) Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not have a license to do
business in the Philippines although Pioneer is its resident agent. This relationship is reflected in the certifications issued by the
Insurance Commission. ECcTaS
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To buttress its assertion, it
cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals 10 as "an association composed of
shipowners in general who band together for the specific purpose of providing insurance cover on a mutual basis against
liabilities incidental to shipowning that the members incur in favor of third parties." It stresses that as a P & I Club, Steamship
Mutual's primary purpose is to solicit and provide protection and indemnity coverage and for this purpose, it has engaged the
services of Pioneer to act as its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the insurance business in the
Philippines. It is merely an association of vessel owners who have come together to provide mutual protection against liabilities
incidental to shipowning. 11 Respondents aver Hyopsung is inapplicable in this case because the issue in Hyopsung was the
jurisdiction of the court over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance business" or "transacting an
insurance business". These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the
doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.
xxx xxx xxx
The same provision also provides, the fact that no profit is derived from the making of insurance contracts, agreements
or transactions, or that no separate or direct consideration is received therefor, shall not preclude the existence of an insurance
business. 12
The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the act
required to be performed, and the exact nature of the agreement in the light of the occurrence, contingency, or circumstances
under which the performance becomes requisite. It is not by what it is called. 13
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event. 14
In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the losses incident
to a marine adventure. 15 Section 99 16 of the Insurance Code enumerates the coverage of marine insurance. HEacDA
Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer and
insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a fund from which all
losses and liabilities are paid, and where the profits are divided among themselves, in proportion to their
interest. 17 Additionally, mutual insurance associations, or clubs, provide three types of coverage, namely, protection and
indemnity, war risks, and defense costs. 18
A P & I Club is "a form of insurance against third party liability, where the third party is anyone other than the P & I Club
and the members." 19 By definition then, Steamship Mutual as a P & I Club is a mutual insurance association engaged in the
marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without the requisite certificate of authority
mandated by Section 187 20 of the Insurance Code. It maintains a resident agent in the Philippines to solicit insurance and to
collect payments in its behalf. We note that Steamship Mutual even renewed its P & I Club cover until it was cancelled due to
non-payment of the calls. Thus, to continue doing business here, Steamship Mutual or through its agent Pioneer, must secure a
license from the Insurance Commission. AEaSTC
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no insurer or insurance
company is allowed to engage in the insurance business without a license or a certificate of authority from the Insurance
Commission. 21
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration 22 issued by the
Insurance Commission. It has been licensed to do or transact insurance business by virtue of the certificate of authority 23 issued
by the same agency. However, a Certification from the Commission states that Pioneer does not have a separate license to be an
agent/broker of Steamship Mutual. 24
Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance agent for
Steamship Mutual. Section 299 of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining insurance, any commission or
other compensation from any insurance company doing business in the Philippines or any agent thereof,
without first procuring a license so to act from the Commissioner, which must be renewed annually on the
first day of January, or within six months thereafter. . .
 Finally, White Gold seeks revocation of Pioneer's certificate of authority and removal of its directors and officers.
Regrettably, we are not the forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the Court of Appeals affirming the
Decision dated May 3, 2000 of the Insurance Commission is hereby REVERSED AND SET ASIDE. The Steamship Mutual
Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to obtain licenses and to
secure proper authorizations to do business as insurer and insurance agent, respectively. The petitioner's prayer for the
revocation of Pioneer's Certificate of Authority and removal of its directors and officers, is DENIED. Costs against respondents.

SO ORDERED.
||| (White Gold Marine Services Inc. v. Pioneer Insurance and Surety Corp., G.R. No. 154514, [July 28, 2005], 502 PHIL 692-701)

[G.R. No. 156167. May 16, 2005.]

GULF RESORTS, INC., petitioner, vs. PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.
DECISION
PUNO, J p:
Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of Court by
petitioner GULF RESORTS, INC., against respondent PHILIPPINE CHARTER INSURANCE CORPORATION. Petitioner assails the
appellate court decision 1 which dismissed its two appeals and affirmed the judgment of the trial court.
For review are the warring interpretations of petitioner and respondent on the scope of the insurance company's
liability for earthquake damage to petitioner's properties. Petitioner avers that, pursuant to its earthquake shock endorsement
rider, Insurance Policy No. 31944 covers all damages to the properties within its resort caused by earthquake. Respondent
contends that the rider limits its liability for loss to the two swimming pools of petitioner.
The facts as established by the court a quo, and affirmed by the appellate court are as follows:
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said
resort insured originally with the American Home Assurance Company (AHAC-AIU). In the first
four insurance policies issued by AHAC-AIU from 1984-85; 1985-86; 1986-1987; and 1987-88 (Exhs. "C", "D",
"E" and "F"; also Exhs. "1", "2", "3" and "4" respectively), the risk of loss from earthquake shock was
extended only to plaintiff's two swimming pools, thus, "earthquake shock endt." (Item 5 only) (Exhs. "C-1";
"D-1," and "E" and two (2) swimming pools only (Exhs. "C-1"; 'D-1", "E" and "F-1"). "Item 5" in those policies
referred to the two (2) swimming pools only (Exhs. "1-B", "2-B", "3-B" and "F-2"); that subsequently
AHAC(AIU) issued in plaintiff's favor Policy No. 206-4182383-0 covering the period March 14, 1988 to March
14, 1989 (Exhs. "G" also "G-1") and in said policy the earthquake endorsement clause as indicated in Exhibits
"C-1", "D-1", Exhibits "E" and "F-1" was deleted and the entry under Endorsements/Warranties at the time of
issue read that plaintiff renewed its policy with AHAC (AIU) for the period of March 14, 1989 to March 14,
1990 under Policy No. 206-4568061-9 (Exh. "H") which carried the entry under "Endorsement/Warranties at
Time of Issue", which read "Endorsement to Include Earthquake Shock (Exh. "6-B-1") in the amount of
P10,700.00 and paid P42,658.14 (Exhs. "6-A" and "6-B") as premium thereof, computed as follows: EDCcaS

Item P7,691,000.00 — on the Clubhouse only

@ .392%;

1,500,000.00 — on the furniture, etc.

contained in the building
above-mentioned@ .490%;

393,000.00 — on the two swimming

pools, only (against the
peril of earthquake
shock only) @ 0.100%

116,600.00 — other buildings include

as follows:

a) Tilter House — P19,800.00-0.551%

b) Power House — P41,000.00-0.551%

c) House Shed — P55,000.00-0.540%

P100,000.00 for furniture, fixtures,
lines air-con and
operating equipment
that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU) Policy No. 206-
4568061-9 (Exh. "H") provided that the policy wording and rates in said policy be copied in the policy to be
issued by defendant; that defendant issued Policy No. 31944 to plaintiff covering the period of March 14,
1990 to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92 (Exh. "I"); that in the
computation of the premium, defendant's Policy No. 31944 (Exh. "I"), which is the policy in question,
contained on the right-hand upper portion of page 7 thereof, the following:
Rate-Various

Premium — P37,420.60 F/L

2,061.52 - Typhoon
1,030.76 - EC
393.00 - ES

Doc. Stamps 3,068.10

 F.S.T. 776.89

Prem. Tax 409.05

TOTAL 45,159.92;
that the above break-down of premiums shows that plaintiff paid only P393.00 as premium against
earthquake shock (ES); that in all the six insurance policies (Exhs. "C", "D", "E", "F", "G" and "H"), the
premium against the peril of earthquake shock is the same, that is P393.00 (Exhs. "C" and "1-B"; "2-B" and
"3-B-1" and "3-B-2"; "F-02" and "4-A-1"; "G-2" and "5-C-1"; "6-C-1"; issued by AHAC (Exhs. "C", "D", "E", "F",
"G" and "H") and in Policy No. 31944 issued by defendant, the shock endorsement provide(sic):
In consideration of the payment by the insured to the company of the
sum included additional premium the Company agrees, notwithstanding what is stated in the
printed conditions of this policy due to the contrary, that this insurance covers loss or damage to
shock to any of the property insured by this Policy occasioned by or through or in consequence of
earthquake (Exhs. "1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C"); cDCaTS
that in Exhibit "7-C" the word "included" above the underlined portion was deleted; that on July 16,
1990 an earthquake struck Central Luzon and Northern Luzon and plaintiff's properties covered by Policy No.
31944 issued by defendant, including the two swimming pools in its Agoo Playa Resort were damaged. 2
After the earthquake, petitioner advised respondent that it would be making a claim under its Insurance Policy No.
31944 for damages on its properties. Respondent instructed petitioner to file a formal claim, then assigned the investigation of
the claim to an independent claims adjuster, Bayne Adjusters and Surveyors, Inc. 3 On July 30, 1990, respondent, through its
adjuster, requested petitioner to submit various documents in support of its claim. On August 7, 1990, Bayne Adjusters and
Surveyors, Inc., through its Vice-President A.R. de Leon, 4 rendered a preliminary report 5 finding extensive damage caused by
the earthquake to the clubhouse and to the two swimming pools. Mr. de Leon stated that "except for the swimming pools, all
affected items have no coverage for earthquake shocks." 6 On August 11, 1990, petitioner filed its formal demand 7 for
settlement of the damage to all its properties in the Agoo Playa Resort. On August 23, 1990, respondent denied petitioner's claim
on the ground that its insurance policy only afforded earthquake shock coverage to the two swimming pools of the
resort. 8 Petitioner and respondent failed to arrive at a settlement. 9 Thus, on January 24, 1991, petitioner filed a
complaint 10 with the regional trial court of Pasig praying for the payment of the following:
1.) The sum of P5,427,779.00, representing losses sustained by the insured properties, with interest thereon,
as computed under par. 29 of the policy (Annex "B") until fully paid;
2.) The sum of P428,842.00 per month, representing continuing losses sustained by plaintiff on account of
defendant's refusal to pay the claims;
3.) The sum of P500,000.00, by way of exemplary damages;
4.) The sum of P500,000.00 by way of attorney's fees and expenses of litigation;
5.) Costs. 11
Respondent filed its Answer with Special and Affirmative Defenses with Compulsory Counterclaims. 12
On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:
The above schedule clearly shows that plaintiff paid only a premium of P393.00 against the peril of
earthquake shock, the same premium it paid against earthquake shock only on the two swimming pools in all
the policies issued by AHAC(AIU) (Exhibits "C", "D", "E", "F" and "G"). From this fact the Court must
consequently agree with the position of defendant that the endorsement rider (Exhibit "7-C") means that
only the two swimming pools were insured against earthquake shock. CSTHca
Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence, where the
language used in an insurance contract or application is such as to create ambiguity the same should be
resolved against the party responsible therefor, i.e., the insurance company which prepared the contract. To
the mind of [the] Court, the language used in the policy in litigation is clear and unambiguous hence there is
no need for interpretation or construction but only application of the provisions therein.
From the above observations the Court finds that only the two (2) swimming pools had earthquake
shock coverage and were heavily damaged by the earthquake which struck on July 16, 1990. Defendant
having admitted that the damage to the swimming pools was appraised by defendant's adjuster at
P386,000.00, defendant must, by virtue of the contract of insurance, pay plaintiff said amount.
 Because it is the finding of the Court as stated in the immediately preceding paragraph that
defendant is liable only for the damage caused to the two (2) swimming pools and that defendant has made
known to plaintiff its willingness and readiness to settle said liability, there is no basis for the grant of the
other damages prayed for by plaintiff. As to the counterclaims of defendant, the Court does not agree that
the action filed by plaintiff is baseless and highly speculative since such action is a lawful exercise of the
plaintiff's right to come to Court in the honest belief that their Complaint is meritorious. The prayer,
therefore, of defendant for damages is likewise denied.
WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum of THREE
HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00) representing damage to the two (2) swimming pools,
with interest at 6% per annum from the date of the filing of the Complaint until defendant's obligation to
plaintiff is fully paid.
No pronouncement as to costs. 13
Petitioner's Motion for Reconsideration was denied. Thus, petitioner filed an appeal with the Court of Appeals based on
the following assigned errors: 14
A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY RECOVER FOR THE
DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS FIRE POLICY NO. 31944, CONSIDERING ITS PROVISIONS,
THE CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID POLICY AND THE ACTUATIONS OF THE PARTIES
SUBSEQUENT TO THE EARTHQUAKE OF JULY 16, 1990.

B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANT'S RIGHT TO RECOVER UNDER

DEFENDANT-APPELLEE'S POLICY (NO. 31944; EXH "I") BY LIMITING ITSELF TO A CONSIDERATION OF THE SAID
POLICY ISOLATED FROM THE CIRCUMSTANCES SURROUNDING ITS ISSUANCE AND THE ACTUATIONS OF THE
PARTIES AFTER THE EARTHQUAKE OF JULY 16, 1990. cHSIAC
C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS ENTITLED TO THE
DAMAGES CLAIMED, WITH INTEREST COMPUTED AT 24% PER ANNUM ON CLAIMS ON PROCEEDS OF POLICY.
On the other hand, respondent filed a partial appeal, assailing the lower court's failure to award it attorney's fees and
damages on its compulsory counterclaim.
After review, the appellate court affirmed the decision of the trial court and ruled, thus:
However, after carefully perusing the documentary evidence of both parties, We are not convinced
that the last two (2) insurance contracts (Exhs. "G" and "H"), which the plaintiff-appellant had with AHAC
(AIU) and upon which the subject insurance contract with Philippine Charter Insurance Corporation is said to
have been based and copied (Exh. "I"), covered an extended earthquake shock insurance on all the insured
properties.
xxx xxx xxx
We also find that the Court a quo was correct in not granting the plaintiff-appellant's prayer for the
imposition of interest — 24% on the insurance claim and 6% on loss of income allegedly amounting to
P4,280,000.00. Since the defendant-appellant has expressed its willingness to pay the damage caused on the
two (2) swimming pools, as the Court a quo and this Court correctly found it to be liable only, it then cannot
be said that it was in default and therefore liable for interest.
Coming to the defendant-appellant's prayer for an attorney's fees, long-standing is the rule that the
award thereof is subject to the sound discretion of the court. Thus, if such discretion is well-exercised, it will
not be disturbed on appeal (Castro et al. v. CA, et al., G.R. No. 115838, July 18, 2002). Moreover, being the
award thereof an exception rather than a rule, it is necessary for the court to make findings of facts and law
that would bring the case within the exception and justify the grant of such award (Country
Bankers Insurance Corp. v. Lianga Bay and Community Multi-Purpose Coop., Inc., G.R. No. 136914, January
25, 2002). Therefore, holding that the plaintiff-appellant's action is not baseless and highly speculative, We
find that the Court a quo did not err in granting the same.
WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and judgment of the
Trial Court hereby AFFIRMED in toto. No costs. 15
Petitioner filed the present petition raising the following issues: 16
A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER RESPONDENT'S INSURANCE POLICY
NO. 31944, ONLY THE TWO (2) SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES COVERED
THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK.
 B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONER'S PRAYER FOR DAMAGES WITH
INTEREST THEREON AT THE RATE CLAIMED, ATTORNEY'S FEES AND EXPENSES OF
LITIGATION. SDHETI
Petitioner contends:
First, that the policy's earthquake shock endorsement clearly covers all of the properties insured and not only the
swimming pools. It used the words "any property insured by this policy," and it should be interpreted as all inclusive.
Second, the unqualified and unrestricted nature of the earthquake shock endorsement is confirmed in the body of
the insurance policy itself, which states that it is "[s]ubject to: Other Insurance Clause, Typhoon Endorsement, Earthquake Shock
Endt., Extended Coverage Endt., FEA Warranty & Annual Payment Agreement On Long Term Policies." 17
Third, that the qualification referring to the two swimming pools had already been deleted in the earthquake shock
endorsement.
Fourth, it is unbelievable for respondent to claim that it only made an inadvertent omission when it deleted the said
qualification.
Fifth, that the earthquake shock endorsement rider should be given precedence over the wording of
the insurance policy, because the rider is the more deliberate expression of the agreement of the contracting parties.
Sixth, that in their previous insurance policies, limits were placed on the endorsements/warranties enumerated at the
time of issue.
Seventh, any ambiguity in the earthquake shock endorsement should be resolved in favor of petitioner and against
respondent. It was respondent which caused the ambiguity when it made the policy in issue.
Eighth, the qualification of the endorsement limiting the earthquake shock endorsement should be interpreted as a
caveat on the standard fire insurance policy, such as to remove the two swimming pools from the coverage for the risk of fire. It
should not be used to limit the respondent's liability for earthquake shock to the two swimming pools only.
Ninth, there is no basis for the appellate court to hold that the additional premium was not paid under the extended
coverage. The premium for the earthquake shock coverage was already included in the premium paid for the policy.
Tenth, the parties' contemporaneous and subsequent acts show that they intended to extend earthquake shock
coverage to all insured properties. When it secured an insurance policy from respondent, petitioner told respondent that it
wanted an exact replica of its latest insurance policy from American Home Assurance Company (AHAC-AIU), which covered all
the resort's properties for earthquake shock damage and respondent agreed. After the July 16, 1990 earthquake, respondent
assured petitioner that it was covered for earthquake shock. Respondent's insurance adjuster, Bayne Adjusters and
Surveyors, Inc., likewise requested petitioner to submit the necessary documents for its building claims and other repair costs.
Thus, under the doctrine of equitable estoppel, it cannot deny that the insurance policy it issued to petitioner covered all of the
properties within the resort.
Eleventh, that it is proper for it to avail of a petition for review by certiorari under Rule 45 of the Revised Rules of
Court as its remedy, and there is no need for calibration of the evidence in order to establish the facts upon which this petition is
based. cDCSTA
On the other hand, respondent made the following counter arguments: 18
First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended coverage against
earthquake shock to petitioner's insured properties other than on the two swimming pools. Petitioner admitted that from 1984
to 1988, only the two swimming pools were insured against earthquake shock. From 1988 until 1990, the provisions in its policy
were practically identical to its earlier policies, and there was no increase in the premium paid. AHAC-AIU, in a letter 19 by its
representative Manuel C. Quijano, categorically stated that its previous policy, from which respondent's policy was copied,
covered only earthquake shock for the two swimming pools.
Second, petitioner's payment of additional premium in the amount of P393.00 shows that the policy only covered
earthquake shock damage on the two swimming pools. The amount was the same amount paid by petitioner for earthquake
shock coverage on the two swimming pools from 1990-1991. No additional premium was paid to warrant coverage of the other
properties in the resort.
Third, the deletion of the phrase pertaining to the limitation of the earthquake shock endorsement to the two
swimming pools in the policy schedule did not expand the earthquake shock coverage to all of petitioner's properties. As per its
agreement with petitioner, respondent copied its policy from the AHAC-AIU policy provided by petitioner. Although the first five
policies contained the said qualification in their rider's title, in the last two policies, this qualification in the title was deleted.
AHAC-AIU, through Mr. J. Baranda III, stated that such deletion was a mere inadvertence. This inadvertence did not make the
policy incomplete, nor did it broaden the scope of the endorsement whose descriptive title was merely enumerated. Any
ambiguity in the policy can be easily resolved by looking at the other provisions, specially the enumeration of the items insured,
where only the two swimming pools were noted as covered for earthquake shock damage.
 Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988, the phrase "Item 5 —
P393,000.00 — on the two swimming pools only (against the peril of earthquake shock only)" meant that only the swimming
pools were insured for earthquake damage. The same phrase is used in toto in the policies from 1989 to 1990, the only
difference being the designation of the two swimming pools as "Item 3."
Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paid for all the properties
covered. In all of its seven insurance policies, petitioner only paid P393.00 as premium for coverage of the swimming pools
against earthquake shock. No other premium was paid for earthquake shock coverage on the other properties. In addition, the
use of the qualifier "ANY" instead of "ALL" to describe the property covered was done deliberately to enable the parties to
specify the properties included for earthquake coverage.
Sixth, petitioner did not inform respondent of its requirement that all of its properties must be included in the
earthquake shock coverage. Petitioner's own evidence shows that it only required respondent to follow the exact provisions of
its previous policy from AHAC-AIU. Respondent complied with this requirement. Respondent's only deviation from the
agreement was when it modified the provisions regarding the replacement cost endorsement. With regard to the issue under
litigation, the riders of the old policy and the policy in issue are identical.
Seventh, respondent did not do any act or give any assurance to petitioner as would estop it from maintaining that only
the two swimming pools were covered for earthquake shock. The adjuster's letter notifying petitioner to present certain
documents for its building claims and repair costs was given to petitioner before the adjuster knew the full coverage of its
policy. cDTSHE

Petitioner anchors its claims on AHAC-AIU's inadvertent deletion of the phrase "Item 5 Only" after the descriptive name
or title of the Earthquake Shock Endorsement. However, the words of the policy reflect the parties' clear intention to limit
earthquake shock coverage to the two swimming pools.
Before petitioner accepted the policy, it had the opportunity to read its conditions. It did not object to any deficiency
nor did it institute any action to reform the policy. The policy binds the petitioner.
Eighth, there is no basis for petitioner to claim damages, attorney's fees and litigation expenses. Since respondent was
willing and able to pay for the damage caused on the two swimming pools, it cannot be considered to be in default, and
therefore, it is not liable for interest.
We hold that the petition is devoid of merit.
In Insurance Policy No. 31944, four key items are important in the resolution of the case at bar.
First, in the designation of location of risk, only the two swimming pools were specified as included, viz:
ITEM 3 — 393,000.00 — On the two (2) swimming pools only (against the peril of earthquake shock
only) 20
Second, under the breakdown for premium payments, 21 it was stated that:
PREMIUM RECAPITULATION
ITEM NOS. AMOUNT RATES PREMIUM

xxx xxx xxx

3 393,000.00 0.100%-E/S 393.00 22

Third, Policy Condition No. 6 stated:
6. 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: —
(a) Earthquake, volcanic eruption or other convulsion of nature. 23
Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement (To Include the Perils of Explosion,
Aircraft, Vehicle and Smoke)," stated, viz:
ANNUAL PAYMENT AGREEMENT ON
LONG TERM POLICIES
THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS INSURED IN EXCESS OF
FIVE MILLION PESOS, IN CONSIDERATION OF A DISCOUNT OF 5% OR 7 1/2% OF THE NET PREMIUM . . .
POLICY HEREBY UNDERTAKES TO CONTINUE THE INSURANCE UNDER THE ABOVE NAMED . . . AND TO PAY
THE PREMIUM. CIAacS
 Earthquake Endorsement
In consideration of the payment by the Insured to the Company of the sum of P. . . . . . . . . . . . . . . . .
additional premium the Company agrees, notwithstanding what is stated in the printed conditions of this
Policy to the contrary, that this insurance covers loss or damage (including loss or damage by fire) to any of
the property insured by this Policy occasioned by or through or in consequence of Earthquake.
Provided always that all the conditions of this Policy shall apply (except in so far as they may be
hereby expressly varied) and that any reference therein to loss or damage by fire should be deemed to apply
also to loss or damage occasioned by or through or in consequence of Earthquake. 24
Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the earthquake shock
coverage. Thus, the policy extended earthquake shock coverage to all of the insured properties.
It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance with each
other. 25 All its parts are reflective of the true intent of the parties. The policy cannot be construed piecemeal. Certain
stipulations cannot be segregated and then made to control; neither do particular words or phrases necessarily determine its
character. Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other provisions. All the
provisions and riders, taken and interpreted together, indubitably show the intention of the parties to extend earthquake shock
coverage to the two swimming pools only.
A careful examination of the premium recapitulation will show that it is the clear intent of the parties to extend
earthquake shock coverage only to the two swimming pools. Section 2(1) of the Insurance Code defines a contract
of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event. Thus, an insurance contract exists where the following elements concur:
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. 26 (Emphasis ours)
An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a specified
peril. 27 In fire, casualty, and marine insurance, the premium payable becomes a debt as soon as the risk attaches. 28 In the
subject policy, no premium payments were made with regard to earthquake shock coverage, except on the two swimming pools.
There is no mention of any premium payable for the other resort properties with regard to earthquake shock. This is consistent
with the history of petitioner's previous insurance policies from AHAC-AIU. As borne out by petitioner's witnesses: HCEaDI
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
pp. 12-13
Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance policy during the period
from March 4, 1984 to March 4, 1985 the coverage on earthquake shock was limited to the two
swimming pools only?
A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty, there is a provision
here that it was only for item 5.
Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two swimming pools
only?
A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989, did you personally arrange for the
procurement of this policy?
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes.
Q. Is Forte Insurance Agency a department or division of your company?
A. No, sir. They are our insurance agency.
 Q. And they are independent of your company insofar as operations are concerned?
A. Yes, sir, they are separate entity.
Q. But insofar as the procurement of the insurance policy is concerned they are of course subject to your
instruction, is that not correct?
A. Yes, sir. The final action is still with us although they can recommend what insurance to take.
Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14, 1989, did you give
written instruction to Forte Insurance Agency advising it that the earthquake shock coverage must
extend to all properties of Agoo Playa Resort in La Union?
A. No, sir. We did not make any written instruction, although we made an oral instruction to that effect of
extending the coverage on (sic) the other properties of the company.
Q. And that instruction, according to you, was very important because in April 1987 there was an earthquake
tremor in La Union?
A. Yes, sir. TcIHDa
Q. And you wanted to protect all your properties against similar tremors in the [future], is that correct?
A. Yes, sir.
Q. Now, after this policy was delivered to you did you bother to check the provisions with respect to your
instructions that all properties must be covered again by earthquake shock endorsement?
A. Are you referring to the insurance policy issued by American Home Assurance Company marked Exhibit
"G"?
Atty. Mejia:
Yes.
Witness:
A. I examined the policy and seeing that the warranty on the earthquake shock endorsement has no more
limitation referring to the two swimming pools only, I was contented already that the previous
limitation pertaining to the two swimming pools was already removed.
Petitioner also cited and relies on the attachment of the phrase "Subject to: Other Insurance Clause, Typhoon
Endorsement, Earthquake Shock Endorsement, Extended Coverage Endorsement, FEA Warranty & Annual Payment Agreement on
Long Term Policies" 29 to the insurance policy as proof of the intent of the parties to extend the coverage for earthquake shock.
However, this phrase is merely an enumeration of the descriptive titles of the riders, clauses, warranties or endorsements to
which the policy is subject, as required under Section 50, paragraph 2 of the Insurance Code.
We also hold that no significance can be placed on the deletion of the qualification limiting the coverage to the two
swimming pools. The earthquake shock endorsement cannot stand alone. As explained by the testimony of Juan Baranda III,
underwriter for AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III 30
TSN, August 11, 1992
pp. 9-12
Atty. Mejia:
We respectfully manifest that the same exhibits C to H inclusive have been previously marked by counsel for
defendant as Exhibit[s] 1-6 inclusive. Did you have occasion to review of (sic) these six (6) policies
issued by your company [in favor] of Agoo Playa Resort?
WITNESS:
Yes[,] I remember having gone over these policies at one point of time, sir.
Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H respectively carries an
earthquake shock endorsement[?] My question to you is, on the basis on (sic) the wordings
indicated in Exhibits C to H respectively what was the extent of the coverage [against] the peril of
earthquake shock as provided for in each of the six (6) policies? ADaSET
xxx xxx xxx
WITNESS:
The extent of the coverage is only up to the two (2) swimming pools, sir.
Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?
A. Yes, sir.
ATTY. MEJIA:
What is your basis for stating that the coverage against earthquake shock as provided for in each of the six
(6) policies extend to the two (2) swimming pools only?

WITNESS:
Because it says here in the policies, in the enumeration "Earthquake Shock Endorsement, in the Clauses and
Warranties: Item 5 only (Earthquake Shock Endorsement)," sir.
ATTY. MEJIA:
Witness referring to Exhibit C-1, your Honor.
WITNESS:
We do not normally cover earthquake shock endorsement on stand alone basis. For swimming pools we do
cover earthquake shock. For building we covered it for full earthquake coverage which includes
earthquake shock. . .
COURT:
As far as earthquake shock endorsement you do not have a specific coverage for other things other than
swimming pool? You are covering building? They are covered by a general insurance?
WITNESS:
Earthquake shock coverage could not stand alone. If we are covering building or another we can issue
earthquake shock solely but that the moment I see this, the thing that comes to my mind is either
insuring a swimming pool, foundations, they are normally affected by earthquake but not by fire, sir.
DIRECT EXAMINATION OF JUAN BARANDA III
TSN, August 11, 1992
pp. 23-25
Q. Plaintiff's witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E and F inclusive
[remained] its coverage against earthquake shock to two (2) swimming pools only but that Exhibits
G and H respectively entend the coverage against earthquake shock to all the properties indicated in
the respective schedules attached to said policies, what can you say about that testimony of
plaintiff's witness? aSADIC
WITNESS:
As I have mentioned earlier, earthquake shock cannot stand alone without the other half of it. I assure you
that this one covers the two swimming pools with respect to earthquake shock endorsement. Based
on it, if we are going to look at the premium there has been no change with respect to the rates.
Everytime (sic) there is a renewal if the intention of the insurer was to include the earthquake
shock, I think there is a substantial increase in the premium. We are not only going to consider the
two (2) swimming pools of the other as stated in the policy. As I see, there is no increase in the
amount of the premium. I must say that the coverage was not broaden (sic) to include the other
items.
COURT:
They are the same, the premium rates?
WITNESS:
They are the same in the sence (sic), in the amount of the coverage. If you are going to do some
computation based on the rates you will arrive at the same premiums, your Honor.
CROSS-EXAMINATION OF JUAN BARANDA III
TSN, September 7, 1992
pp. 4-6
ATTY. ANDRES:
Would you as a matter of practice [insure] swimming pools for fire insurance?
 WITNESS:
No, we don't, sir.
Q. That is why the phrase "earthquake shock to the two (2) swimming pools only" was placed, is it not?
A. Yes, sir.
ATTY. ANDRES:
Will you not also agree with me that these exhibits, Exhibits G and H which you have pointed to during your
direct-examination, the phrase "Item no. 5 only" meaning to (sic) the two (2) swimming pools was
deleted from the policies issued by AIU, is it not?
xxx xxx xxx
ATTY. ANDRES:
As an insurance executive will you not attach any significance to the deletion of the qualifying phrase for the
policies? SaHcAC
WITNESS:
My answer to that would be, the deletion of that particular phrase is inadvertent. Being a company
underwriter, we do not cover. . it was inadvertent because of the previous policies that we have
issued with no specific attachments, premium rates and so on. It was inadvertent, sir.
The Court also rejects petitioner's contention that respondent's contemporaneous and subsequent acts to the issuance
of the insurance policy falsely gave the petitioner assurance that the coverage of the earthquake shock endorsement included all
its properties in the resort. Respondent only insured the properties as intended by the petitioner. Petitioner's own witness
testified to this agreement, viz:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 4-5
Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did you tell Atty. Omlas
(sic) to copy from Exhibit "H" for purposes of procuring the policy
from Philippine Charter Insurance Corporation?
A. I told him that the insurance that they will have to get will have the same provisions as this American
Home Insurance Policy No. 206-4568061-9.
Q. You are referring to Exhibit "H" of course?
A. Yes, sir, to Exhibit "H".
Q. So, all the provisions here will be the same except that of the premium rates?
A. Yes, sir. He assured me that with regards to the insurance premium rates that they will be charging will be
limited to this one. I (sic) can even be lesser.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, January 14, 1992
pp. 12-14
Atty. Mejia:
Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the provisions and scope of
coverage of Exhibits "I" and "H" sometime in the third week of March, 1990 or thereabout?
A. Yes, sir, about that time.
Q. And at that time did you notice any discrepancy or difference between the policy wordings as well as
scope of coverage of Exhibits "I" and "H" respectively? IHaECA
A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that the policy wordings
and rates were copied from the insurance policy I sent them but it was only when this case erupted
that we discovered some discrepancies.
Q. With respect to the items declared for insurance coverage did you notice any discrepancy at any time
between those indicated in Exhibit "I" and those indicated in Exhibit "H" respectively?
A. With regard to the wordings I did not notice any difference because it was exactly the same P393,000.00
on the two (2) swimming pools only against the peril of earthquake shock which I understood
before that this provision will have to be placed here because this particular provision under the
 peril of earthquake shock only is requested because this is an insurance policy and therefore cannot
be insured against fire, so this has to be placed.
The verbal assurances allegedly given by respondent's representative Atty. Umlas were not proved. Atty. Umlas
categorically denied having given such assurances.
Finally, petitioner puts much stress on the letter of respondent's independent claims adjuster, Bayne Adjusters and
Surveyors, Inc. But as testified to by the representative of Bayne Adjusters and Surveyors, Inc., respondent never meant to lead
petitioner to believe that the endorsement for earthquake shock covered properties other than the two swimming pools, viz:
DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and Surveyors, Inc.)
TSN, January 26, 1993
pp. 22-26
Q. Do you recall the circumstances that led to your discussion regarding the extent of coverage of the policy
issued by Philippine Charter Insurance Corporation?
A. I remember that when I returned to the office after the inspection, I got a photocopy of
the insurance coverage policy and it was indicated under Item 3 specifically that the coverage is only
for earthquake shock. Then, I remember I had a talk with Atty. Umlas (sic), and I relayed to him what
I had found out in the policy and he confirmed to me indeed only Item 3 which were the two
swimming pools have coverage for earthquake shock.
xxx xxx xxx
Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that except for the swimming
pools all affected items have no coverage for earthquake shock?
xxx xxx xxx
A. I based my statement on my findings, because upon my examination of the policy I found out that under
Item 3 it was specific on the wordings that on the two swimming pools only, then enclosed in
parenthesis (against the peril[s] of earthquake shock only), and secondly, when I examined the
summary of premium payment only Item 3 which refers to the swimming pools have a computation
for premium payment for earthquake shock and all the other items have no computation for
payment of premiums. TAcDHS
In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the general rule
that insurance contracts are contracts of adhesion which should be liberally construed in favor of the insured and strictly against
the insurer company which usually prepares it. 31 A contract of adhesion is one wherein a party, usually a corporation, prepares
the stipulations in the contract, while the other party merely affixes his signature or his "adhesion" thereto. Through the years,
the courts have held that in these type of contracts, the parties do not bargain on equal footing, the weaker party's participation
being reduced to the alternative to take it or leave it. Thus, these contracts are viewed as traps for the weaker party whom the
courts of justice must protect. 32 Consequently, any ambiguity therein is resolved against the insurer, or construed liberally in
favor of the insured. 33
The case law will show that this Court will only rule out blind adherence to terms where facts and circumstances will
show that they are basically one-sided. 34 Thus, we have called on lower courts to remain careful in scrutinizing the factual
circumstances behind each case to determine the efficacy of the claims of contending parties. In Development Bank of the
Philippines v. National Merchandising Corporation, et al., 35 the parties, who were acute businessmen of experience, were
presumed to have assented to the assailed documents with full knowledge.
We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot claim it did not know the
provisions of the policy. From the inception of the policy, petitioner had required the respondent to copy verbatim the provisions
and terms of its latest insurance policy from AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct participant in securing
the insurance policy of petitioner, is reflective of petitioner's knowledge, viz:

DIRECT EXAMINATION OF LEOPOLDO MANTOHAC 36

TSN, September 23, 1991
pp. 20-21
Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those facilities in Agoo Playa?
A. Yes, sir. I told him that I will agree to that renewal of this policy
under Philippine Charter Insurance Corporation as long as it will follow the same or exact provisions
of the previous insurance policy we had with American Home Assurance Corporation.
 Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in the American
Home Insurance policy are to be incorporated in the PCIC policy?
A. Yes, sir.
Q. What steps did you take?
A. When I examined the policy of the Philippine Charter Insurance Corporation I specifically told him that the
policy and wordings shall be copied from the AIU Policy No. 206-4568061-9.
Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206-4568061-9 in drafting
its Insurance Policy No. 31944. It is true that there was variance in some terms, specifically in the replacement cost endorsement,
but the principal provisions of the policy remained essentially similar to AHAC-AIU's policy. Consequently, we cannot apply the
"fine print" or "contract of adhesion" rule in this case as the parties' intent to limit the coverage of the policy to the two
swimming pools only is not ambiguous. 37
IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The petition for certiorari is dismissed. No
costs. cIEHAC
SO ORDERED.
||| (Gulf Resorts Inc. v. Phil. Charter Insurance Corp., G.R. No. 156167, [May 16, 2005], 497 PHIL 837-863)
 [G.R. No. 186983. February 22, 2012.]
MA. LOURDES S. FLORENDO, petitioner, vs. PHILAM PLANS, INC., PERLA ABCEDE and MA. CELESTE
ABCEDE, respondents.
DECISION
ABAD, J p:
This case is about an insured's alleged concealment in his pension plan application of his true state of health and its
effect on the life insurance portion of that plan in case of death.
The Facts and the Case
On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with respondent Philam
Plans, Inc. (Philam Plans) after some convincing by respondent Perla Abcede. The plan had a pre-need price of P997,050.00,
payable in 10 years, and had a maturity value of P2,890,000.00 after 20 years. 1 Manuel signed the application and left to Perla
the task of supplying the information needed in the application. 2 Respondent Ma. Celeste Abcede, Perla's daughter, signed the
application as sales counselor. 3
Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage to Florendo. 4 This
was covered by a Group Master Policy that Philippine American Life Insurance Company (Philam Life) issued to Philam
Plans. 5 Under the master policy, Philam Life was to automatically provide life insurance coverage, including accidental death, to
all who signed up for Philam Plans' comprehensive pension plan. 6 If the plan holder died before the maturity of the plan, his
beneficiary was to instead receive the proceeds of the life insurance, equivalent to the pre-need price. Further, the life insurance
was to take care of any unpaid premium until the pension plan matured, entitling the beneficiary to the maturity value of the
pension plan. 7
On October 30, 1997 Philam Plans issued Pension Plan Agreement PP43005584 8 to Manuel, with petitioner Ma.
Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly premiums. 9
Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently, Lourdes filed a claim
with Philam Plans for the payment of the benefits under her husband's plan. 10 Because Manuel died before his pension plan
matured and his wife was to get only the benefits of his life insurance, Philam Plans forwarded her claim to Philam Life. 11
On May 3, 1999 Philam Plans wrote Lourdes a letter, 12 declining her claim. Philam Life found that Manuel was on
maintenance medicine for his heart and had an implanted pacemaker. Further, he suffered from diabetes mellitus and was taking
insulin. Lourdes renewed her demand for payment under the plan 13 but Philam Plans rejected it, 14 prompting her to file the
present action against the pension plan company before the Regional Trial Court (RTC) of Quezon City. 15 IEAacS
On March 30, 2006 the RTC rendered judgment, 16 ordering Philam Plans, Perla and Ma. Celeste, solidarily, to pay
Lourdes all the benefits from her husband's pension plan, namely: P997,050.00, the proceeds of his term insurance, and
P2,890,000.00 lump sum pension benefit upon maturity of his plan; P100,000.00 as moral damages, and to pay the costs of the
suit. The RTC ruled that Manuel was not guilty of concealing the state of his health from his pension plan application.
On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision, 17 holding that insurance policies are
traditionally contracts uberrimae fidae or contracts of utmost good faith. As such, it required Manuel to disclose to Philam Plans
conditions affecting the risk of which he was aware or material facts that he knew or ought to know. 18
Issues Presented
The issues presented in this case are:
1. Whether or not the CA erred in finding Manuel guilty of concealing his illness when he kept blank and did not answer
questions in his pension plan application regarding the ailments he suffered from;
2. Whether or not the CA erred in holding that Manuel was bound by the failure of respondents Perla and Ma. Celeste
to declare the condition of Manuel's health in the pension plan application; and
3. Whether or not the CA erred in finding that Philam Plans' approval of Manuel's pension plan application and
acceptance of his premium payments precluded it from denying Lourdes' claim.
Rulings of the Court
One. Lourdes points out that, seeing the unfilled spaces in Manuel's pension plan application relating to his medical
history, Philam Plans should have returned it to him for completion. Since Philam Plans chose to approve the application just as it
was, it cannot cry concealment on Manuel's part. Further, Lourdes adds that Philam Plans never queried Manuel directly
regarding the state of his health. Consequently, it could not blame him for not mentioning it. 19
But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the true state of Manuel's
health. She forgets that since Philam Plans waived medical examination for Manuel, it had to rely largely on his stating the truth
regarding his health in his application. For, after all, he knew more than anyone that he had been under treatment for heart
condition and diabetes for more than five years preceding his submission of that application. But he kept those crucial facts from
Philam Plans.
Besides, when Manuel signed the pension plan application, he adopted as his own the written representations and
declarations embodied in it. It is clear from these representations that he concealed his chronic heart ailment and diabetes from
Philam Plans. The pertinent portion of his representations and declarations read as follows:
I hereby represent and declare to the best of my knowledge that:
xxx xxx xxx
(c) I have never been treated for heart condition, high blood pressure, cancer, diabetes, lung, kidney or
stomach disorder or any other physical impairment in the last five years.
(d) I am in good health and physical condition.
If your answer to any of the statements above reveal otherwise, please give details in the space
provided for:
Date of confinement : ___________________
Name of Hospital or Clinic : ___________________
Name of Attending Physician : ___________________
Findings : ___________________
Others: (Please specify) : ___________________
xxx xxx xxx. 20 (Emphasis supplied)
Since Manuel signed the application without filling in the details regarding his continuing treatments for heart condition
and diabetes, the assumption is that he has never been treated for the said illnesses in the last five years preceding his
application. This is implicit from the phrase "If your answer to any of the statements above (specifically, the statement: I have
never been treated for heart condition or diabetes) reveal otherwise, please give details in the space provided for." But this is
untrue since he had been on "Coumadin," a treatment for venous thrombosis, 21 and insulin, a drug used in the treatment of
diabetes mellitus, at that time. 22
Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that Manuel had a pacemaker
implanted on his chest in the 70s or about 20 years before he signed up for the pension plan. 23 But by its tenor, the
responsibility for preparing the application belonged to Manuel. Nothing in it implies that someone else may provide the
information that Philam Plans needed. Manuel cannot sign the application and disown the responsibility for having it filled up. If
he furnished Perla the needed information and delegated to her the filling up of the application, then she acted on his
instruction, not on Philam Plans' instruction. cCESTA
Lourdes next points out that it made no difference if Manuel failed to reveal the fact that he had a pacemaker implant in
the early 70s since this did not fall within the five-year timeframe that the disclosure contemplated. 24 But a pacemaker is an
electronic device implanted into the body and connected to the wall of the heart, designed to provide regular, mild, electric
shock that stimulates the contraction of the heart muscles and restores normalcy to the heartbeat. 25 That Manuel still had his
pacemaker when he applied for a pension plan in October 1997 is an admission that he remained under treatment for irregular
heartbeat within five years preceding that application.
Besides, as already stated, Manuel had been taking medicine for his heart condition and diabetes when he submitted
his pension plan application. These clearly fell within the five-year period. More, even if Perla's knowledge of Manuel's
pacemaker may be applied to Philam Plans under the theory of imputed knowledge, 26 it is not claimed that Perla was aware of
his two other afflictions that needed medical treatments. Pursuant to Section 27 27 of the Insurance Code, Manuel's
concealment entitles Philam Plans to rescind its contract of insurance with him.
Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let Perla fill in the required
details did not make her his agent and bind him to her concealment of his true state of health. Since there is no evidence of
collusion between them, Perla's fault must be considered solely her own and cannot prejudice Manuel. 28
But Manuel forgot that in signing the pension plan application, he certified that he wrote all the information stated in it
or had someone do it under his direction. Thus:
APPLICATION FOR PENSION PLAN
(Comprehensive)
I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan Program described herein in
accordance with the General Provisions set forth in this application and hereby certify that the date and
other information stated herein are written by me or under my direction. . . . . 29 (Emphasis supplied)
 Assuming that it was Perla who filled up the application form, Manuel is still bound by what it contains since he certified
that he authorized her action. Philam Plans had every right to act on the faith of that certification.
Lourdes could not seek comfort from her claim that Perla had assured Manuel that the state of his health would not
hinder the approval of his application and that what is written on his application made no difference to the insurance company.
But, indubitably, Manuel was made aware when he signed the pension plan application that, in granting the same, Philam Plans
and Philam Life were acting on the truth of the representations contained in that application. Thus:
DECLARATIONS AND REPRESENTATIONS
xxx xxx xxx
I agree that the insurance coverage of this application is based on the truth of the foregoing
representations and is subject to the provisions of the Group Life Insurance Policy issued by THE PHILIPPINE
AMERICAN LIFE INSURANCE CO. to PHILAM PLANS, INC. 30 (Emphasis supplied)
As the Court said in New Life Enterprises v. Court of Appeals: 31
It may be true that . . . insured persons may accept policies without reading them, and that this is
not negligence per se. 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 1965 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 precisely the reason for his
procuring the same. 32
The same may be said of Manuel, a civil engineer and manager of a construction company. 33 He could be expected to
know that one must read every document, especially if it creates rights and obligations affecting him, before signing the same.
Manuel is not unschooled that the Court must come to his succor. It could reasonably be expected that he would not trifle with
something that would provide additional financial security to him and to his wife in his twilight years.
Three. In a final attempt to defend her claim for benefits under Manuel's pension plan, Lourdes points out that any
defect or insufficiency in the information provided by his pension plan application should be deemed waived after the same has
been approved, the policy has been issued, and the premiums have been collected. 34
The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a one-year incontestability
period. It states:
VIII. INCONTESTABILITY
After this Agreement has remained in force for one ( 1) year, we can no longer contest for health
reasons any claim for insurance under this Agreement, except for the reason that installment has not been
paid (lapsed), or that you are not insurable at the time you bought this pension program by reason of age. If
this Agreement lapses but is reinstated afterwards, the one (1) year contestability period shall start again on
the date of approval of your request for reinstatement. 35
The above incontestability clause precludes the insurer from disowning liability under the policy it issued on the ground
of concealment or misrepresentation regarding the health of the insured after a year of its issuance. EcTaSC
Since Manuel died on the eleventh month following the issuance of his plan, 36 the one year incontestability period has
not yet set in. Consequently, Philam Plans was not barred from questioning Lourdes' entitlement to the benefits of her husband's
pension plan.
WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of Appeals in CA-G.R. CV 87085 dated
December 18, 2007.
SO ORDERED.
||| (Florendo v. Philam Plans, Inc., G.R. No. 186983, [February 22, 2012], 682 PHIL 582-592)
 UCPB GENERAL INSURANCE CO., INC., petitioner, vs. MASAGANA TELAMART, INC., respondent.
Abello, Concepcion, Regala and Cruz for petitioner.
Arturo S. Santos for respondent.
SYNOPSIS
On April 15, 1991, petitioner issued five (5) insurance policies covering respondent's various properties against fire. On
April 6, 1992, petitioner gave written notice to respondent of the non-renewal of the policies. On June 13, 1992, fire razed
respondent's property covered by three of the insurance policies petitioner issued. On July 13, 1992, respondent presented to
petitioner's cashier five (5) manager's checks representing premium for the renewal of the policies from May 22, 1992 to May 22,
1993. No notice of loss was filed by respondent under the policies prior to July 14, 1992. On July 14, 1992, respondent filed with
petitioner its claim for indemnification of the insured property razed by fire. On the same day, petitioner returned to respondent
the manager's checks it tendered and at the same time rejected its claim. Respondent thus filed a civil complaint against
petitioner with the Regional Trial Court (RTC) for recovery of the face value of the policies. The RTC rendered judgment in favor of
the plaintiff. The Court of Appeals affirmed the decision rendered by the RTC. Hence, this appeal. CDASIA
The Court reversed the decision of the Court of Appeals. It held that an insurance policy, other than life, issued originally
or on renewal, is not valid and binding until actual payment of the premium. Any agreement to the contrary is void. The parties
may not agree expressly or impliedly on the extension of credit or time to pay the premium and consider the policy binding
before actual payment.
SYLLABUS
1. MERCANTILE LAW; INSURANCE; NO INSURANCE CONTRACT, OTHER THAN LIFE, IS VALID AND BINDING UNTIL ACTUAL
PAYMENT OF PREMIUM. — An insurance policy, other than life, issued originally or on renewal, is not valid and binding until
actual payment of the premium. Any agreement to the contrary is void. The parties may not agree expressly or impliedly on the
extension of credit or time to pay the premium and consider the policy binding before actual payment. cdasia
2. ID.; ID.; ID.; CASE AT BAR. — The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo, cited by the Court of Appeals, is
not applicable. In that case, payment of the premium was in fact actually made on December 24, 1981, and the fire occurred on
January 18, 1982. Here, the payment of the premium for renewal of the policies was tendered on July 13, 1992, a month after
the fire occurred on June 13, 1992. The assured did not even give the insurer a notice of loss within a reasonable time after
occurrence of the fire.
DECISION
PARDO, J p:
The case is an appeal via certiorari seeking to set aside the decision of the Court of Appeals, 1 affirming with
modification that of the Regional Trial Court, Branch 58, Makati, ordering petitioner to pay respondent the sum of
P18,645,000.00, as the proceeds of the insurance coverage of respondent's property razed by fire; 25% of the total amount due
as attorney's fees and P25,000.00 as litigation expenses, and costs. prLL
The facts are undisputed and may be related as follows:
On April 15, 1991, petitioner issued five (5) insurance policies covering respondent's various property described therein
against fire, for the period from May 22, 1991 to May 22, 1992.
In March 1992, petitioner evaluated the policies and decided not to renew them upon expiration of their terms on May
22, 1992. Petitioner advised respondent's broker, Zuellig Insurance Brokers, Inc. of its intention not to renew the policies.
 On April 6, 1992, petitioner gave written notice to respondent of the non-renewal of the policies at the address stated in
the policies.
On June 13, 1992, fire razed respondent's property covered by three of the insurance policies petitioner issued.
On July 13, 1992, respondent presented to petitioner's cashier at its head office five (5) manager's checks in the total
amount of P225,753.95, representing premium for the renewal of the policies from May 22, 1992 to May 22, 1993. No notice of
loss was filed by respondent under the policies prior to July 14, 1992.
On July 14, 1992, respondent filed with petitioner its formal claim for indemnification of the insured property razed by
fire. LibLex
On the same day, July 14, 1992, petitioner returned to respondent the five (5) manager's checks that it tendered, and at
the same time rejected respondent's claim for the reasons (a) that the policies had expired and were not renewed, and (b) that
the fire occurred on June 13, 1992, before respondent's tender of premium payment.
On July 21, 1992, respondent filed with the Regional Trial Court, Branch 58, Makati City, a civil complaint against
petitioner for recovery of P18,645,000.00, representing the face value of the policies covering respondent's insured property
razed by fire, and for attorney's fees. 2
On October 23, 1992, after its motion to dismiss had been denied, petitioner filed an answer to the complaint. It alleged
that the complaint "fails to state a cause of action"; that petitioner was not liable to respondent for insurance proceeds under
the policies because at the time of the loss of respondent's property due to fire, the policies had long expired and were not
renewed. 3
After due trial, on March 10, 1993, the Regional Trial Court, Branch 58, Makati, rendered decision, the dispositive
portion of which reads: cdasia
"WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendant, as follows.
"(1) Authorizing and allowing the plaintiff to consign/deposit with this Court the sum of P225,753.95
(refused by the defendant) as full payment of the corresponding premiums for the replacement-
renewal policies for Exhibits A, B, C, D and E;
"(2) Declaring plaintiff to have fully complied with its obligation to pay the premium thereby rendering the
replacement-renewal policy of Exhibits A, B, C, D and E effective and binding for the duration May
22, 1992 until May 22, 1993; and, ordering defendant to deliver forthwith to plaintiff the said
replacement-renewal policies;
"(3) Declaring Exhibits A & B, in force from August 22, 1991 up to August 23, 1992 and August 9, 1991 to
August 9, 1992, respectively; and
"(4) Ordering the defendant to pay plaintiff the sums of: (a) P18,645,000.00 representing the latter's claim
for indemnity under Exhibits A, B & C and/or its replacement-renewal policies; (b) 25% of the total
amount due as and for attorney's fees; (c) P25,000.00 as necessary litigation expenses; and, (d) the
costs of suit.
"All other claims and counterclaims asserted by the parties are denied and/or dismissed, including
plaintiffs claim for interests.
"SO ORDERED.
"Makati, Metro-Manila, March 10, 1993.
"ZOSIMO Z. ANGELES
Judge." 4
In due time, petitioner appealed to the Court of Appeals. 5
On September 7, 1998, the Court of Appeals promulgated its decision 6 affirming that of the Regional Trial Court with
the modification that item No. 3 of the dispositive portion was deleted, and the award of attorney's fees was reduced to 10% of
the total amount due. 7
The Court of Appeals held that following previous practise, respondent was allowed a sixty (60) to ninety (90) day credit
term for the renewal of its policies, and that the acceptance of the late premium payment suggested an understanding that
payment could be made later.
Hence, this appeal.
By resolution adopted on March 24, 1999, we required respondent to comment on the petition, not to file a motion to
dismiss within ten (10) days from notice. 8 On April 22, 1999, respondent filed its comment. 9
 Respondent submits that the Court of Appeals correctly ruled that no timely notice of non-renewal was sent. The notice
of non-renewal sent to broker Zuellig which claimed that it verbally notified the insurance agency but not respondent itself did
not suffice. Respondent submits further that the Court of Appeals did not err in finding that there existed a sixty (60) to ninety
(90) days credit agreement between UCPB and Masagana, and that, finally, the Supreme Court could not review factual findings
of the lower court affirmed by the Court of Appeals. 10
We give due course to the appeal.
The basic issue raised is whether the fire insurance policies issued by petitioner to the respondent covering the period
May 22, 1991 to May 22, 1992, had expired on the latter date or had been extended or renewed by an implied credit
arrangement though actual payment of premium was tendered on a latter date after the occurrence of the risk (fire) insured
against. prLL
The answer is easily found in the Insurance Code. No, an insurance policy, other than life, issued originally or on
renewal, is not valid and binding until actual payment of the premium. Any agreement to the contrary is void. 11 The parties may
not agree expressly or impliedly on the extension of credit or time to pay the premium and consider the policy binding before
actual payment. llcd
The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo, 12 cited by the Court of Appeals, is not applicable. In that
case, payment of the premium was in fact actually made on December 24, 1981, and the fire occurred on January 18, 1982.
Here, the payment of the premium for renewal of the policies was tendered on July 13, 1992, a month after the fire occurred on
June 13, 1992. The assured did not even give the insurer a notice of loss within a reasonable time after occurrence of the fire.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals in CA-G.R. CV No. 42321.
In lieu thereof, the Court renders judgment dismissing respondent's complaint and petitioner's counterclaims thereto filed with
the Regional Trial Court, Branch 58, Makati City, in Civil Case No. 92-2023. Without costs. prLL
SO ORDERED.
||| (UCPB General Insurance Co., Inc. v. Masagana Telamart, Inc., G.R. No. 137172, [June 15, 1999], 367 PHIL 539-545)

[G.R. No. 137172. April 4, 2001.]

UCPB GENERAL INSURANCE CO., INC., petitioner, vs. MASAGANA TELAMART, INC., respondent.
RESOLUTION
DAVIDE, JR., C .J p:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision 1 of the Court of Appeals,
which affirmed with modification the judgment of the trial court (a) allowing Respondent to consign the sum of P225,753.95 as
full payment of the premiums for the renewal of the five insurance policies on Respondent's properties; (b) declaring the
replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering Petitioner to pay
Respondent P18,645,000.00 as indemnity for the burned properties covered by the renewal-replacement policies. The
modification consisted in the (1) deletion of the trial court's declaration that three of the policies were in force from August 1991
to August 1992; and (2) reduction of the award of the attorney's fees from 25% to 10% of the total amount due the
Respondent. AcTDaH
The material operative facts upon which the appealed judgment was based are summarized by the Court of Appeals in
its assailed decision as follows:
Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5) insurance policies
(Exhibits "A" to "E", Record, pp. 158-175) on its properties [in Pasay City and Manila] . . . .
All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to 4:00
P.M. of 22 May 1992." On June 13, 1992, plaintiffs properties located at 2410-2432 and 2442-2450 Taft
Avenue, Pasay City were razed by fire. On July 13, 1992, plaintiff tendered, and defendant accepted, five (5)
Equitable Bank Manager's Checks in the total amount of P225,753.45 as renewal premium payments for
which Official Receipt Direct Premium No. 62926 (Exhibit "Q", Record, p. 191) was issued by defendant. On
July 14, 1992, Masagana made its formal demand for indemnification for the burned insured properties. On
the same day, defendant returned the five (5) manager's checks stating in its letter (Exhibit "R" / "8", Record,
p. 192) that it was rejecting Masagana's claim on the following grounds:
"a) Said policies expired last May 22, 1992 and were not renewed for another term;
b) Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier; and
c) The properties covered by the said policies were burned in a fire that took place last June 13,
1992, or before tender of premium payment."
(Record, p. 5)
Hence Masagana filed this case.
The Court of Appeals disagreed with Petitioner's stand that Respondent's tender of payment of the premiums on 13 July
1992 did not result in the renewal of the policies, having been made beyond the effective date of renewal as provided under
Policy Condition No. 26, which states:
26. Renewal Clause. — Unless the company at least forty five days in advance of the end of the
policy period mails or delivers to the assured at the address shown in the policy notice of its intention not to
renew the policy or to condition its renewal upon reduction of limits or elimination of coverages, the assured
shall be entitled to renew the policy upon payment of the premium due on the effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists that Respondent, which had
procured insurance coverage from Petitioner for a number of years, had been granted a 60 to 90-day credit term for the
renewal of the policies. Such a practice had existed up to the time the claims were filed. Thus:
Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22, 1991 was issued on May 7, 1990
but premium was paid more than 90 days later on August 31, 1990 under O.R. No. 4771 (Exhs. "T" and "T-1").
Fire Insurance Policy No. 34660 for Insurance Risk Coverage from May 22, 1990 to May 22, 1991 was issued
by UCPB on May 4, 1990 but premium was collected by UCPB only on July 13, 1990 or more than 60 days
later under O.R. No. 46487 (Exhs. "V" and "V-1"). And so were as other policies: Fire Insurance Policy No.
34657 covering risks from May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium therefor
was paid only on July 19, 1990 under O.R. No. 46583 (Exhs. "W" and "W-1"). Fire Insurance Policy No. 34661
covering risks from May 22, 1990 to May 22, 1991 was issued on May 3, 1990 but premium was paid only on
July 19, 1990 under O.R. No. 46582 (Exhs. "X" and "X-1"). Fire Insurance Policy No. 34688
for insurance coverage from May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium was
paid only on July 19, 1990 under O.R. No. 46585 (Exhs. "Y" and "Y-1"). Fire Insurance Policy No. 29126 to
cover insurance risks from May 22, 1989 to May 22, 1990 was issued on May 22, 1989 but premium therefor
was collected only on July 25, 1990[sic] under O.R. No. 40799 (Exhs. "AA" and "AA-1"). Fire Insurance Policy
No. HO/F-26408 covering risks from January 12, 1989 to January 12, 1990 was issued to Intratrade Phils.
(Masagana's sister company) dated December 10, 1988 but premium therefor was paid only on February 15,
1989 under O.R. No. 38075 (Exhs. "BB" and "BB-1"). Fire Insurance Policy No. 29128 was issued on May 22,
1989 but premium was paid only on July 25, 1989 under O.R. No. 40800 for insurance coverage from May 22,
1989 to May 22, 1990 (Exhs. "CC" and "CC-1"). Fire Insurance Policy No. 29127 was issued on May 22, 1989
but premium was paid only on July 17, 1989 under O.R. No. 40682 for insurance risk coverage from May 22,
1989 to May 22, 1990 (Exhs. "DD" and "DD-1"). Fire Insurance Policy No. HO/F-29362 was issued on June 15,
1989 but premium was paid only on February 13, 1990 under O.R. No. 39233 for insurance coverage from
May 22, 1989 to May 22, 1990 (Exhs. "EE" and "EE-1"). Fire Insurance Policy No. 26303 was issued on
November 22, 1988 but premium therefor was collected only on March 15, 1989 under O.R. NO. 38573
for insurance risks coverage from December 15, 1988 to December 15, 1989 (Exhs. "FF" and "FF-1"). HIcTDE
 Moreover, according to the Court of Appeals the following circumstances constitute preponderant proof that no timely
notice of non-renewal was made by Petitioner:
(1) Defendant-appellant received the confirmation (Exhibit "11", Record, p. 350) from Ultramar
Reinsurance Brokers that plaintiff's reinsurance facility had been confirmed up to 67.5% only on April 15,
1992 as indicated on Exhibit "11". Apparently, the notice of non-renewal (Exhibit "7," Record, p. 320) was
sent not earlier than said date, or within 45 days from the expiry dates of the policies as provided under
Policy Condition No. 26; (2) Defendant insurer unconditionally accepted, and issued an official receipt for, the
premium payment on July 1[3], 1992 which indicates defendant's willingness to assume the risk despite only
a 67.5% reinsurance cover[age]; and (3) Defendant insurer appointed Esteban Adjusters and Valuers to
investigate plaintiff's claim as shown by the letter dated July 17, 1992 (Exhibit "11", Record, p. 254).
In our decision of 15 June 1999, we defined the main issue to be "whether the fire insurance policies issued by
petitioner to the respondent covering the period from May 22, 1991 to May 22, 1992 . . . had been extended or renewed by an
implied credit arrangement though actual payment of premium was tendered on a later date and after the occurrence of the
(fire) risk insured against." We resolved this issue in the negative in view of Section 77 of the Insurance Code and our decisions
in Valenzuela v. Court of Appeals; 2 South Sea Surety and Insurance Co., Inc. v. Court of Appeals; 3 and Tibay v. Court of
Appeals. 4 Accordingly, we reversed and set aside the decision of the Court of Appeals.
Respondent seasonably filed a motion for the reconsideration of the adverse verdict. It alleges in the motion that we
had made in the decision our own findings of facts, which are not in accord with those of the trial court and the Court of
Appeals. The courts below correctly found that no notice of non-renewal was made within 45 days before 22 May 1992, or
before the expiration date of the fire insurance policies. Thus, the policies in question were renewed by operation of law and
were effective and valid on 30 June 1992 when the fire occurred, since the premiums were paid within the 60- to 90-day credit
term.
Respondent likewise disagrees with our ruling that parties may neither agree expressly or impliedly on the extension of
credit or time to pay the premium nor consider a policy binding before actual payment. It urges the Court to take judicial notice
of the fact that despite the express provision of Section 77 of the Insurance Code, extension of credit terms in premium payment
has been the prevalent practice in the insurance industry. Most insurance companies, including Petitioner, extend credit terms
because Section 77 of the Insurance Code is not a prohibitive injunction but is merely designed for the protection of the parties
to an insurance contract. The Code itself, in Section 78, authorizes the validity of a policy notwithstanding non-payment of
premiums.
Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its awareness of Section 77
Petitioner persuaded and induced Respondent to believe that payment of premium on the 60- to 90-day credit term was
perfectly alright; in fact it accepted payments within 60 to 90 days after the due dates. By extending credit and habitually
accepting payments 60 to 90 days from the effective dates of the policies, it has implicitly agreed to modify the tenor of
the insurance policy and in effect waived the provision therein that it would pay only for the loss or damage in case the same
occurred after payment of the premium.
Petitioner filed an opposition to the Respondent's motion for reconsideration. It argues that both the trial court and the
Court of Appeals overlooked the fact that on 6 April 1992 Petitioner sent by ordinary mail to Respondent a notice of non-renewal
and sent by personal delivery a copy thereof to Respondent's broker, Zuellig. Both courts likewise ignored the fact that
Respondent was fully aware of the notice of non-renewal. A reading of Section 66 of the Insurance Code readily shows that in
order for an insured to be entitled to a renewal of a non-life policy, payment of the premium due on the effective date of renewal
should first be made. Respondent's argument that Section 77 is not a prohibitive provision finds no authoritative support.
Upon a meticulous review of the records and reevaluation of the issues raised in the motion for reconsideration and the
pleadings filed thereafter by the parties, we resolved to grant the motion for reconsideration. The following facts, as found by
the trial court and the Court of Appeals, are indeed duly established:
1. For years, Petitioner had been issuing fire policies to the Respondent, and these policies were annually
renewed.
2. Petitioner had been granting Respondent a 60- to 90-day credit term within which to pay the premiums on
the renewed policies. AaITCS
3. There was no valid notice of non-renewal of the policies in question, as there is no proof at all that the
notice sent by ordinary mail was received by Respondent, and the copy thereof allegedly sent to
Zuellig was ever transmitted to Respondent.
4. The premiums for the policies in question in the aggregate amount of P225,753.95 were paid by
Respondent within the 60- to 90-day credit term and were duly accepted and received by
Petitioner's cashier.
The instant case has to rise or fall on the core issue of whether Section 77 of the Insurance Code of 1978 (P.D. No. 1460)
must be strictly applied to Petitioner's advantage despite its practice of granting a 60- to 90-day credit term for the payment of
premiums.
 Section 77 of the Insurance Code of 1978 provides:
SECTION 77. An insurer is entitled to payment of the premium as soon as the thing insured is
exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract
of insurance issued by an insurance company is valid and binding unless and until the premium thereof has
been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.
This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated on 18 December 1974. In
turn, this Section has its source in Section 72 of Act No. 2427 otherwise known as the Insurance Act as amended by R.A. No.
3540, approved on 21 June 1963, which read:
SECTION 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to
the peril insured against, unless there is clear agreement to grant the insured credit extension of the
premium due. No policy issued by an insurance company is valid and binding unless and until the premium
thereof has been paid. (Emphasis supplied)
It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an agreement to
extend the period to pay the premium. But are there exceptions to Section 77?
The answer is in the affirmative.
The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the grace
period provision applies.
The second is that covered by Section 78 of the Insurance Code, which provides:
SECTION 78. Any acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation
therein that it shall not be binding until premium is actually paid.
A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals, 5 wherein we ruled
that Section 77 may not apply if the parties have agreed to the payment in installments of the premium and partial payment has
been made at the time of loss. We said therein, thus:
We hold that the subject policies are valid even if the premiums were paid on installments. The
records clearly show that the petitioners and private respondent intended subject insurance policies to be
binding and effective notwithstanding the staggered payment of the premiums. The initial insurance contract
entered into in 1982 was renewed in 1983, then in 1984. In those three years, the insurer accepted all the
installment payments. Such acceptance of payments speaks loudly of the insurer's intention to honor the
policies it issued to petitioner. Certainly, basic principles of equity and fairness would not allow the insurer to
continue collecting and accepting the premiums, although paid on installments, and later deny liability on
the lame excuse that the premiums were not prepaid in full. TASCEc
Not only that. In Tuscany, we also quoted with approval the following pronouncement of the Court of Appeals in its
Resolution denying the motion for reconsideration of its decision:
While the import of Section 77 is that prepayment of premiums is strictly required as a condition to
the validity of the contract, We are not prepared to rule that the request to make installment payments duly
approved by the insurer would prevent the entire contract of insurance from going into effect despite
payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in effect
allows waiver by the insurer of the condition of prepayment by making an acknowledgment in
the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy
binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from
stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an
agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public
order or public policy (De Leon, The Insurance Code, p. 175). So is an understanding to allow insured to pay
premiums in installments not so prescribed. At the very least, both parties should be deemed in estoppel to
question the arrangement they have voluntarily accepted.
By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has provided a fourth
exception to Section 77, namely, that the insurer may grant credit extension for the payment of the premium. This simply means
that if the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the expiration of
the term, recovery on the policy should be allowed even though the premium is paid after the loss but within the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term
within which to pay the premiums. That agreement is not against the law, morals, good customs, public order or public policy.
The agreement binds the parties. Article 1306 of the Civil Code provides:
 ARTICLE 1306. The contracting parties may establish such stipulations clauses, terms and conditions
as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or
public policy.
Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be permitted against
Petitioner, which had consistently granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of
Section 77. Estoppel bars it from taking refuge under said Section, since Respondent relied in good faith on such practice.
Estoppel then is the fifth exception to Section 77.
WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED and SET ASIDE, and a new one is hereby
entered DENYING the instant petition for failure of Petitioner to sufficiently show that a reversible error was committed by the
Court of Appeals in its challenged decision, which is hereby AFFIRMED in toto.
No pronouncement as to cost.
SO ORDERED.
||| (UCPB General Insurance Co., Inc. v. Masagana Telemart, Inc., G.R. No. 137172 (Resolution), [April 4, 2001], 408 PHIL 423-
447)

[G.R. No. 92383. July 17, 1992.]

SUN INSURANCE OFFICE, LTD., petitioner, vs. THE HON. COURT OF APPEALS and NERISSA LIM, respondents.
Alfonso Felix, Jr. for petitioner.
Armando T. Puno for private respondent.
SYLLABUS
1. LAW ON INSURANCE; DEFINITION OF TERM "ACCIDENT"; INSURED PERSON'S DEATH CONSIDERED AN ACCIDENT. — The term
"accident" has been defined as follows: The words "accident" and "accidental" have never acquired any technical signification in
law, and when used in an insurance contract are to be construed and considered according to the ordinary understanding and
common usage and speech of people generally. In substance, the courts are practically agreed that the words "accident" and
"accidental" mean that which happens by chance or fortuitously, without intention or design, and which is unexpected, unusual,
and unforeseen. The definition that has usually been adopted by the courts is that an accident is an event that takes place
without one's foresight or expectation - an event that proceeds from an unknown cause, or is an unusual effect of a known case,
and therefore not expected. An accident is an event which happens without any human agency or, if happening through human
agency, an event which, under the circumstances, is unusual to and not expected by the person to whom it happens. It has also
been defined as an injury which happens by reason of some violence or casualty to the insured without his design, consent, or
voluntary co-operation. In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was
indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital Insurance, (17 SCRA 559) says that "there is no
accident when a deliberate act is performed unless some additional, unexpected, independent and unforeseen happening occurs
which produces or brings about their injury or death." There was such a happening. This was the firing of the gun, which was the
additional unexpected and independent and unforeseen occurrence that led to the insured person's death.
2. ID.; ID.; ID.; SUICIDE AND WILLFUL EXPOSURE TO NEEDLESS PERIL, BOTH IN PARI MATERIA BUT DIFFERS ONLY IN DEGREE; CASE
AT BAR. — The parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends that the insured willfully
exposed himself to needless peril and thus removed himself from the coverage of the insurance policy. It should be noted at the
outset that suicide and willful exposure to needless peril are in pari materia because they both signify a disregard for one's life.
The only difference is in degree, as suicide imports a positive act of ending such life whereas the second act indicates a reckless
risking of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one thousand meters above the ground
and without any safety device may not actually be intending to commit suicide, but his act is nonetheless suicidal. He would thus
be considered as "willfully exposing himself to needless peril" within the meaning of the exception in question. The petitioner
maintains that by the mere act of pointing the gun to his temple, Lim had willfully exposed himself to needless peril and so came
under the exception. The theory is that a gun is per se dangerous and should therefore be handled cautiously in every case. That
posture is arguable. But what is not is that, as the secretary testified, Lim had removed the magazine from the gun and believed
it was no longer dangerous. He expressly assured her that the gun was not loaded. It is submitted that Lim did not willfully
expose himself to needless peril when he pointed the gun to his temple because the fact is that he thought it was not unsafe to
do so. The act was precisely intended to assure Nalagon that the gun was indeed harmless.
3. ID.; POLICY CONTRACTS; AS A RULE, INTERPRETED LIBERALLY IN FAVOR OF THE ASSURED. — Lim was unquestionably negligent
and that negligence cost him his own life. But it should not prevent his widow from recovering from the insurance policy he
obtained precisely against accident. There is nothing in the policy that relieves the insurer of the responsibility to pay the
indemnity agreed upon if the insured is shown to have contributed to his own accident. Indeed, most accidents are caused by
negligence. There are only four exceptions expressly made in the contract to relieve the insurer from liability, and none of these
exceptions is applicable in the case at bar. It bears noting that insurance contracts are as a rule supposed to be interpreted
liberally in favor of the assured.
4. CIVIL LAW; MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES; WHEN AWARD THEREOF IS PROPER. — The basic issue
raised in this case is, one of first impression, It is evident that the petitioner was acting in good faith when it resisted the private
respondent's claim on the ground that the death of the insured was covered by the exception. The issue was indeed debatable
and was clearly not raised only for the purpose of evading a legitimate obligation. We hold therefore that the award of moral and
exemplary damages and of attorney's fees is unjust and so must be disapproved. In order that a person may be made liable to
the payment of moral damages, the law requires that his act be wrongful. The adverse result of an action does not per se make
the act wrongful and subject the actor to the payment of moral damages. The law could not have meant to impose a penalty on
the right to litigate; such right is so precious that moral damages may not be charged on those who may exercise it erroneously.
For these the law taxes costs. . . . If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses, since it is
not the fact of winning alone that entitles him to recover such damages of the exceptional circumstances enumerated in Art.
2208. Otherwise, every time a defendant wins, automatically the plaintiff must pay attorney's fees thereby putting a premium on
the right to litigate which should not be so. For those expenses, the law deems the award of costs as sufficient.
DECISION
CRUZ, J p:
The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of P200,000.00. Two months later, he
was dead with a bullet wound in his head. As beneficiary, his wife Nerissa Lim sought payment on the policy but her claim was
rejected. The petitioner agreed that there was no suicide. It argued, however, that there was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6, 1982, at about 10 o'clock in the
evening, after his mother's birthday party. According to Nalagon, Lim was in a happy mood (but not drunk) and was playing with
his handgun, from which he had previously removed the magazine. As she watched the television, he stood in front of her and
pointed the gun at her. She pushed it aside and said it might be loaded. He assured her it was not and then pointed it to his
temple. The next moment there was an explosion and Lim slumped to the floor. He was dead before he fell. 1
The widow sued the petitioner in the Regional Trial Court of Zamboanga City and was sustained. 2 The petitioner was sentenced
to pay her P200,000.00, representing the face value of the policy, with interest at the legal rate; P10,000.00 as moral damages;
P5,000.00 as exemplary damages; P50,000.00 as actual and compensatory damages; and P5,000.00 as attorney's fees, plus the
cost of the suit. This decision was affirmed on appeal, and the motion for reconsideration was denied. 3 The petitioner then
came to this Court of Appeals for approving the payment of the claim and the award of damages.
The term "accident" has been defined as follows:
The words "accident" and "accidental" have never acquired any technical signification in law, and when used
in an insurance contract are to be construed and considered according to the ordinary understanding and
common usage and speech of people generally. In substance, the courts are practically agreed that the words
"accident" and "accidental" mean that which happens by change or fortuitously, without intention or design,
 and which is unexpected, unusual, and unforeseen. The definition that has usually been adopted by the
courts is that an accident is an event that takes place without one's foresight or expectation — an event that
proceeds from an unknown cause, or is an unusual effect of a known case, and therefore not expected. 4
An accident is an event which happens without any human agency or, if happening through human agency,
an event which, under the circumstances, is unusual to and not expected by the person to whom it happens.
It has also been defined as an injury which happens by reason of some violence or casualty to the insured
without his design, consent, or voluntary co-operation. 5
In light of these definitions, the Court is convinced that the incident that resulted in Lim's death was indeed an accident. The
petitioner, invoking the case of De la Cruz v. Capital Insurance, 6 says that "there is no accident when a deliberate act is
performed unless some additional, unexpected, independent and unforeseen happening occurs which produces or brings about
their injury or death." There was such a happening. This was the firing of the gun, which was the additional unexpected and
independent and unforeseen occurrence that led to the insured person's death. LibLex
The petitioner also cites one of the four exceptions provided for in the insurance contract and contends that the private
petitioner's claim is barred by such provision. It is there stated:
Exceptions —
The company shall not be liable in respect of.
1. Bodily injury.
xxx xxx xxx
b. consequent upon.
i) The insured persons attempting to commit suicide or wilfully exposing himself to needless peril except in
an attempt to save human life.

To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner contends that the insured willfully
exposed himself to needless peril and thus removed himself from the coverage of the insurance policy.
It should be noted at the outset that suicide and willful exposure to needless peril are in pari materia because they both signify a
disregard for one's life. The only difference is in degree, as suicide imports a positive act of ending such life whereas the
second act indicates a reckless risking of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one
thousand meters above the ground and without any safety device may not actually be intending to commit suicide, but his act is
nonetheless suicidal. He would thus be considered as "willfully exposing himself to needless peril" within the meaning of the
exception in question.
The petitioner maintains that by the mere act of pointing the gun to his temple, Lim had willfully exposed himself to needless
peril and so came under the exception. The theory is that a gun is per se dangerous and should therefore be handled cautiously
in every case.
That posture is arguable. But what is not is that, as the secretary testified, Lim had removed the magazine from the gun and
believed it was no longer dangerous. He expressly assured her that the gun was not loaded. It is submitted that Lim did not
willfully expose himself to needless peril when he pointed the gun to his temple because the fact is that he thought it was not
unsafe to do so. The act was precisely intended to assure Nalagon that the gun was indeed harmless. LLphil
The contrary view is expressed by the petitioner thus:
Accident insurance polices were never intended to reward the insured for his tendency to show off or for his
miscalculations. They were intended to provide for contingencies. Hence, when I miscalculate and jump from
the Quezon Bridge into the Pasig River in the belief that I can overcome the current, I have wilfully exposed
myself to peril and must accept the consequences of my act. If I drown I cannot go to the insurance company
to ask them to compensate me for my failure to swim as well as I thought I could. The insured in the case at
bar deliberately put the gun to his head and pulled the trigger. He wilfully exposed himself to peril.
The Court certainly agrees that a drowned man cannot go to the insurance company to ask for compensation. That might
frighten the insurance people to death. We also agree that under the circumstances narrated, his beneficiary would not be able
to collect on the insurance policy for it is clear that when he braved the currents below, he deliberately exposed himself to
a known peril.
The private respondent maintains that Lim did not. That is where she says the analogy fails. The petitioner's hypothetical
swimmer knew when he dived off the Quezon Bridge that the currents below were dangerous. By contrast, Lim did not know
that the gun he put to his head was loaded.
Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent his widow from recovering
from the insurance policy he obtained precisely against accident. There is nothing in the policy that relieves the insurer of the
responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his own accident. Indeed, most
accidents are caused by negligence. There are only four exceptions expressly made in the contract to relieve the insurer from
liability, and none of these exceptions is applicable in the case at bar. *
It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of the assured. There is no
reason to deviate from this rule, especially in view of the circumstances of this case as above analyzed.
On the second assigned error, however, the Court must rule in favor of the petitioner. The basic issue raised in this case is, as the
petitioner correctly observed, one of first impression. It is evident that the petitioner was acting in good faith when it resisted
the private respondent's claim on the ground that the death of the insured was covered by the exception. The issue was indeed
debatable and was clearly not raised only for the purpose of evading a legitimate obligation. We hold therefore that the
award of moral and exemplary damages and of attorney's fees is unjust and so must be disapproved.
In order that a person may be made liable to the payment of moral damages, the law requires that his act be
wrongful. The adverse result of an action does not per se make the act wrongful and subject the act or to the
payment of moral damages. The law could not have meant to impose a penalty on the right to litigate; such
right is so precious that moral damages may not be charged on those who may exercise it erroneously. For
these the law taxes costs. 7
The fact that the results of the trial were adverse to Barreto did not alone make his act in bringing the action
wrongful because in most cases one party will lose; we would be imposing an unjust condition or limitation
on the right to litigate. We hold that the award of moral damages in the case at bar is not justified by the
facts and circumstances, as well as the law. cdphil
If a party wins, he cannot, as a rule, recover attorney's fees and litigation expenses, since it is not the
fact of winning alone that entitles him to recover such damages of the exceptional circumstances
enumerated in Art. 2208. Otherwise, every time a defendant wins, automatically the plaintiff must pay
attorney's fees thereby putting premium on the right to litigate which should not be so. For those expenses,
the law deems the award of costs as sufficient. 8
WHEREFORE, the challenged decision of the Court of Appeals is AFFIRMED insofar as it holds the petitioner liable to the private
respondent in the sum of P200,000.00 representing the face value of the insurance contract, with interest at the legal rate from
the date of the filing of the complaint until the full amount is paid, but MODIFIED with the deletion of all awards for damages,
including attorney's fees, except the costs of the suit.
SO ORDERED.
||| (Sun Insurance Office, Ltd. v. Court of Appeals, G.R. No. 92383, [July 17, 1992], 286 PHIL 693-701)

[G.R. Nos. 76101-02. September 30, 1991.]

TIO KHE CHIO, petitioner, vs. THE HONORABLE COURT OF APPEALS and EASTERN ASSURANCE AND SURETY
CORPORATION, respondents.
Rodolfo M. Morelos for petitioner.
Ferrer, Mariano, Sangalang & Gatdula for private respondent.
SYLLABUS
CIVIL LAW; ACTUAL DAMAGES; INTEREST FOR JUDGMENT AWARDED BASED THEREON. — In the case of Philippine
Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28, 1986, 143 SCRA 158, the Court declared that the legal rate of interest
is six (6%) per cent per annum, and not twelve (12%) per cent, where a judgment award is based on an action for damages
for personal injury, not use or forbearance of money, goods or credit. In the same vein, the Court held in
GSIS vs. Court of Appeals, G.R. No. 52478, October 30, 1986, 145 SCRA 311, that the rates under the Usury Law (amended
by P.D. 116) are applicable only to interest by way of compensation for the use or forbearance of money, interest by
way of damages is governed by Article 2209 of the Civil Code.
DECISION
FERNAN, C.J p:
The issue in this petition for certiorari and prohibition is the legal rate of interest to be imposed in actions for
damages arising from unpaid insurance claims. Petitioner Tio Khe Chio claims that it should be twelve (12%) per cent
pursuant to Articles 243 and 244 of the Insurance Code while private respondent Eastern Assurance and Surety Corporation
(EASCO) claims that it should be six (6%) per cent under Article 2209 of the Civil Code. LibLex
The facts are as follows: On December 18, 1978, petitioner Tio Khe Chio imported one thousand (1,000)
bags of fishmeal valued at $36,000.30 from Agro Impex, S.A. Dallas, Texas, U.S.A. The goods were insured with respondent
EASCO and shipped on board the M/V Peskov, a vessel owned by Far Eastern Shipping Company. When the goods reached
Manila on January 28, 1979, they were found to have been damaged by sea water which rendered the fishmeal useless.
Petitioner filed a claim with EASCO and Far Eastern Shipping. Both refused to pay. Whereupon, petitioner sued them before
the then Court of First Instance of Cebu, Branch II for damages. EASCO, as the insurer, filed a counterclaim against the
petitioner for the recovery of P18,387.86 representing the unpaid insurance premiums.
On June 30, 1982, the trial court rendered judgment ordering EASCO and Far Eastern Shipping to pay petitioner
solidarily the sum of P105,986.68 less the amount of P18,387.86 for unpaid premiums with interest at the legal rate from
the filing of the complaint, the sum of P15,000.00 as attorney's fees and the costs. 1
The judgment became final as to EASCO but the shipping company appealed to the Court of Appeals and was
absolved from liability by the said court in AC-G.R. No. 00161, entitled "Tio Khe Chio vs. Eastern Assurance and Surety
Corporation."
The trial court, upon motion by petitioner, issued a writ of execution against EASCO. The sheriff enforcing the writ
reportedly fixed the legal rate of interest at twelve (12%). Respondent EASCO moved to quash the writ alleging that the legal
interest to be computed should be six (6%) per cent per annum in accordance with Article 2209 of the Civil Code and not
twelve (12%) per cent as insisted upon by petitioner s counsel. In its order of July 30, 1986, the trial court denied EASCO's
motion. EASCO then filed a petition for certiorari and prohibition before the Court of Appeals.
On July 30, 1986, the Appellate Court rendered the assailed judgment, the dispositive part of which states:
"WHEREFORE, the order dated July 30, 1986 is hereby SET ASIDE in so far as it fixes the interest at
12% on the principal amount of P87,598.82 from the date of filing of the complaint until the full
payment of the amount, and the interest that the private respondent is entitled to collect from the
petitioner is hereby reduced to 6% per annum.
No pronouncement as to costs." 2
In disputing the aforesaid decision of the Court of Appeals, petitioner maintains that not only is it unjust and unfair
but it is also contrary to the correct interpretation of the fixing of interest rates under Sections 243 and 244 of the Insurance
Code. And since petitioner's claims is based on an insurance contract, then it is the Insurance Code which must govern and
not the Civil Code.
We rule for respondent EASCO. The legal rate of interest in the case at bar is six (6%) per annum as correctly held by
the Appellate Court. LLpr
Section 243 of the Insurance Code provides:
"The amount of any loss or damage for which an insurer may be liable, under any policy other
than life insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and
ascertainment of the loss or damage is made either by agreement between the insured and the insurer or
by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the
insurer of the proof of loss, then the loss or damage shell be paid within ninety days after such receipt.
Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to
collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the
claim is fraudulent."
Section 244 of the aforementioned Code also provides:
"In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the
duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the
payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative
case, the insurance company shall be adjudged to pay damages which shall consist of attorney's fees and
other expenses incurred by the insured person by reason of such undeniable denial or
withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the
amount of the claim due the insured, from the date following the time prescribed in section two hundred
forty-two or in section two hundred forty-three, as the case may be, until the claim is fully satisfied;
Provided, That the failure to pay any such claim within the time prescribed in said sections shall be
considered prima facie evidence of unreasonable delay in payment."
 In the case at bar, the Court of Appeals made no finding that there was an unjustified refusal or
withholding of payment on petitioner's claim. In fact, respondent court had this to say on EASCO's refusal to settle the
claim of petitioner:
". . . EASCO's refusal to settle the claim to Tio Khe Chio was based on some ground which, while
not sufficient to free it from liability under its policy, nevertheless is sufficient to negate any assertion that
in refusing to pay, it acted unjustifiably.
xxx xxx xxx
"The case posed some genuine issues of interpretation of the terms of the policy as to which
persons may honestly differ. This is the reason the trial court did not say EASCO's refusal was unjustified." 3
Simply put, the aforecited sections of the Insurance Code are not pertinent to the instant case. They apply only
when the court finds an unreasonable delay or refusal in the payment of the claims. Cdpr
Neither does Circular No. 416 of the Central Bank which took effect on July 29, 1974 pursuant to Presidential
Decree No. 116 (Usury Law) which raised the legal rate of interest from six (6%) to twelve (12%) per cent apply to the case at
bar as contended by the petitioner. The adjusted rate mentioned in the circular refers only to loans or
forbearances of money, goods or credits and court judgments thereon but not to court judgments for damages arising from
injury to persons and loss of property which does not involve a loan. 4
In the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28, 1986, 143 SCRA 158,
the Court declared that the legal rate of interest is six (6%) per cent per annum, and not twelve (12%) per cent, where a
judgment award is based on an action for damages for personal injury, not use or forbearance of money, goods or credit. In
the same vein, the Court held in GSIS vs. Court of Appeals, G.R. No. 52478, October 30, 1986, 145 SCRA 311, that the rates
under the Usury Law (amended by P.D. 116) are applicable only to interest by way of compensation for the use or
forbearance of money, interest by way of damages is governed by Article 2209 of the Civil Code.
Clearly, the applicable law is Article 2209 of the Civil Code which reads:
"If the obligation consists in the payment of a sum of money and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed
upon, and in the absence of stipulation, the legal interest which is six per cent per annum."
And in the light of the fact that the contending parties did not allege the rate of interest stipulated in the insurance contract,
the legal interest was properly pegged by the Appellate Court at six (6%) per cent.
WHEREFORE, in view of the foregoing, the petition is DENIED for lack of merit. LLphil
SO ORDERED.
||| (Tio Khe Chio v. Court of Appeals, G.R. Nos. 76101-02, [September 30, 1991], 279 PHIL 127-131)