G.R. No. 154514.
July 28, 2005 TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER HENCE AS AN INSURER IT
WHITE GOLD MARINE SERVICES, INC., Petitioners,
vs.
PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL
UNDERWRITING ASSOCIATION (BERMUDA) LTD., Respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision1 dated July 30, 2002 of the Court of Appeals in
CA-G.R. SP No. 60144, affirming the Decision2 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. 3Pioneer 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
1875 of the Insurance Code, while Pioneer violated Sections 299, 63007 and 3018 in relation
to Sections 302 and 303, thereof.
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
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.
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 Appeals10 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;
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of
registration22 issued by the Insurance Commission. It has been licensed to do or transact
insurance business by virtue of the certificate of authority23 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

(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.
...
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 9916 of the Insurance Code
enumerates the coverage of marine insurance.
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
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.

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.

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?

G.R. No. 75605 January 22, 1993
RAFAEL (REX) VERENDIA, petitioner,
vs.
COURT OF APPEALS and FIDELITY & SURETY CO. OF THE
PHILIPPINES, respondents.
G.R. No. 76399 January 22, 1993
FIDELITY & SURETY CO. OF THE PHILIPPINES, INC., petitioner,
vs.
RAFAEL VERENDIA and THE COURT OF APPEALS, respondents.
B.L. Padilla for petitioner.
Sabino Padilla, Jr. for Fidelity & Surety, Co.
MELO, J.:
The two consolidated cases involved herein stemmed from the issuance by Fidelity
and Surety Insurance Company of the Philippines (Fidelity for short) of its Fire
Insurance Policy No. F-18876 effective between June 23, 1980 and June 23, 1981
covering Rafael (Rex) Verendia's residential building located at Tulip Drive, Beverly
Hills, Antipolo, Rizal in the amount of P385,000.00. Designated as beneficiary was the
Monte de Piedad & Savings Bank. Verendia also insured the same building with two
other companies, namely, The Country Bankers Insurance for P56,000.00 under Policy
No. PDB-80-1913 expiring on May 12, 1981, and The Development Insurance for
P400,000.00 under Policy No. F-48867 expiring on June 30, 198l.
While the three fire insurance policies were in force, the insured property was
completely destroyed by fire on the early morning of December 28, 1980. Fidelity was
accordingly informed of the loss and despite demands, refused payment under its
policy, thus prompting Verendia to file a complaint with the then Court of First
Instance of Quezon City, praying for payment of P385,000.00, legal interest thereon,
plus attorney's fees and litigation expenses. The complaint was later amended to
include Monte de Piedad as an "unwilling defendant" (P. 16, Record).
Answering the complaint, Fidelity, among other things, averred that the policy was
avoided by reason of over-insurance; that Verendia maliciously represented that the
building at the time of the fire was leased under a contract executed on June 25, 1980
to a certain Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee.
On May 24, 1983, the trial court rendered a decision, per Judge Rodolfo A. Ortiz, ruling
in favor of Fidelity. In sustaining the defenses set up by Fidelity, the trial court ruled
that Paragraph 3 of the policy was also violated by Verendia in that the insured failed
to inform Fidelity of his other insurance coverages with Country Bankers Insurance
and Development Insurance.
Verendia appealed to the then Intermediate Appellate Court and in a decision
promulgated on March 31, 1986, (CA-G.R. No. CV No. 02895, Coquia, Zosa, Bartolome,
and Ejercito (P), JJ.), the appellate court reversed for the following reasons: (a) there
was no misrepresentation concerning the lease for the contract was signed by
Marcelo Garcia in the name of Roberto Garcia; and (b) Paragraph 3 of the policy
contract requiring Verendia to give notice to Fidelity of other contracts of insurance
was waived by Fidelity as shown by its conduct in attempting to settle the claim of
Verendia (pp. 32-33, Rollo of G.R. No. 76399).
Fidelity received a copy of the appellate court's decision on April 4, 1986, but instead
of directly filing a motion for reconsideration within 15 days therefrom, Fidelity filed
on April 21, 1986, a motion for extension of 3 days within which to file a motion for
reconsideration. The motion for extension was not filed on April 19, 1986 which was
the 15th day after receipt of the decision because said 15th day was a Saturday and
of course, the following day was a Sunday (p. 14., Rollo of G.R. No. 75605). The motion
for extension was granted by the appellate court on April 30, 1986 (p. 15. ibid.), but
Fidelity had in the meantime filed its motion for reconsideration on April 24, 1986 (p.
16, ibid.).
Verendia filed a motion to expunge from the record Fidelity's motion for
reconsideration on the ground that the motion for extension was filed out of time
because the 15th day from receipt of the decision which fell on a Saturday was ignored
by Fidelity, for indeed, so Verendia contended, the Intermediate Appellate Court has
personnel receiving pleadings even on Saturdays.
The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and after a motion
for reconsideration was similarly brushed aside on July 22, 1986 (p. 30, ibid .), the
petition herein docketed as G.R. No. 75605 was initiated. Subsequently, or more
specifically on October 21, 1986, the appellate court denied Fidelity's motion for
reconsideration and account thereof. Fidelity filed on March 31, 1986, the petition for
review on certiorari now docketed as G.R. No. 76399. The two petitions, inter-related
as they are, were consolidated
(p. 54, Rollo of G.R. No. 76399) and thereafter given due course.
Before we can even begin to look into the merits of the main case which is the petition
for review on certiorari, we must first determine whether the decision of the appellate
court may still be reviewed, or whether the same is beyond further judicial scrutiny.
Stated otherwise, before anything else, inquiry must be made into the issue of whether
Fidelity could have legally asked for an extension of the 15-day reglementary period
for appealing or for moving for reconsideration.
As early as 1944, this Court through Justice Ozaeta already pronounced the doctrine
that the pendency of a motion for extension of time to perfect an appeal does not
suspend the running of the period sought to be extended (Garcia vs. Buenaventura 74
Phil. 611 [1944]). To the same effect were the rulings in Gibbs vs. CFI of Manila (80
Phil. 160 [1948]) Bello vs. Fernando (4 SCRA 138 [1962]), and Joe vs. King (20 SCRA
1120 [1967]).
The above cases notwithstanding and because the Rules of Court do not expressly
prohibit the filing of a motion for extension of time to file a motion for reconsideration
in regard to a final order or judgment, magistrates, including those in the Court of
Appeals, held sharply divided opinions on whether the period for appealing which also
includes the period for moving to reconsider may be extended. The matter was not
definitely settled until this Court issued its Resolution in Habaluyas Enterprises, Inc.
vs. Japson (142 SCRA [1986]), declaring that beginning one month from the
promulgation of the resolution on May 30, 1986 —
 . . . the rule shall be strictly enforced that no motion for extension of
time to file a motion for new trial or reconsideration shall be filed . . .
(at p. 212.)
In the instant case, the motion for extension was filed and granted before June 30,
1986, although, of course, Verendia's motion to expunge the motion for
reconsideration was not finally disposed until July 22, 1986, or after the dictum
in Habaluyas had taken effect. Seemingly, therefore, the filing of the motion for
extension came before its formal proscription under Habaluyas, for which reason we
now turn our attention to G.R. No. 76399.
Reduced to bare essentials, the issues Fidelity raises therein are: (a) whether or not
the contract of lease submitted by Verendia to support his claim on the fire insurance
policy constitutes a false declaration which would forfeit his benefits under Section
13 of the policy and (b) whether or not, in submitting the subrogation receipt in
evidence, Fidelity had in effect agreed to settle Verendia's claim in the amount stated
in said receipt.1
Verging on the factual, the issue of the veracity or falsity of the lease contract could have
been better resolved by the appellate court for, in a petition for review on certiorari under
Rule 45, the jurisdiction of this Court is limited to the review of errors of law. The appellate
court's findings of fact are, therefore, conclusive upon this Court except in the following
cases: (1) when the conclusion is a finding grounded entirely on speculation, surmises, or
conjectures; (2) when the inference made is manifestly absurd, mistaken, or impossible; (3)
when there is grave abuse of discretion in the appreciation of facts; (4) when the judgment
is premised on a misapprehension of facts; (5) when the findings of fact are conflicting; and
(6) when the Court of Appeals in making its findings went beyond the issues of the case and
the same are contrary to the admissions of both appellant and appellee (Ronquillo v. Court
of Appeals, 195 SCRA 433 [1991]). In view of the conflicting findings of the trial court and the
appellate court on important issues in these consolidated cases and it appearing that the
appellate court judgment is based on a misapprehension of facts, this Court shall review the
evidence on record.
The contract of lease upon which Verendia relies to support his claim for insurance benefits,
was entered into between him and one Robert Garcia, married to Helen Cawinian, on June
25, 1980 (Exh. "1"), a couple of days after the effectivity of the insurance policy. When the
rented residential building was razed to the ground on December 28, 1980, it appears that
Robert Garcia (or Roberto Garcia) was still within the premises. However, according to the
investigation report prepared by Pat. Eleuterio M. Buenviaje of the Antipolo police, the
building appeared to have "no occupant" and that Mr. Roberto Garcia was "renting on the
otherside (sic) portion of said compound"
(Exh. "E"). These pieces of evidence belie Verendia's uncorroborated testimony that Marcelo
Garcia, whom he considered as the real lessee, was occupying the building when it was
burned (TSN, July 27, 1982, p.10).
Robert Garcia disappeared after the fire. It was only on October 9, 1981 that an adjuster was
able to locate him. Robert Garcia then executed an affidavit before the National Intelligence
and Security Authority (NISA) to the effect that he was not the lessee of Verendia's house
and that his signature on the contract of lease was a complete forgery. Thus, on the strength
of these facts, the adjuster submitted a report dated December 4, 1981 recommending the
denial of Verendia's claim (Exh. "2").
Ironically, during the trial, Verendia admitted that it was not Robert Garcia who signed the
lease contract. According to Verendia, it was signed by Marcelo Garcia, cousin of Robert,
who had been paying the rentals all the while. Verendia, however, failed to explain why
Marcelo had to sign his cousin's name when he in fact was paying for the rent and why he
(Verendia) himself, the lessor, allowed such a ruse. Fidelity's conclusions on these proven
facts appear, therefore, to have sufficient bases; Verendia concocted the lease contract to
deflect responsibility for the fire towards an alleged "lessee", inflated the value of the property
by the alleged monthly rental of P6,500 when in fact, the Provincial Assessor of Rizal had
assessed the property's fair market value to be only P40,300.00, insured the same property
with two other insurance companies for a total coverage of around P900,000, and created a
dead-end for the adjuster by the disappearance of Robert Garcia.
Basically a contract of indemnity, an insurance contract is the law between the parties (Pacific
Banking Corporation vs. Court of Appeals 168 SCRA 1 [1988]). Its terms and conditions
constitute the measure of the insurer's liability and compliance therewith is a condition
precedent to the insured's right to recovery from the insurer (Oriental Assurance Corporation
vs. Court of Appeals, 200 SCRA 459 [1991], citing Perla Compania de Seguros, Inc. vs.
Court of Appeals, 185 SCRA 741 [1991]). As it is also a contract of adhesion, an insurance
contract should be liberally construed in favor of the insured and strictly against the insurer
company which usually prepares it (Western Guaranty Corporation vs. Court of Appeals, 187
SCRA 652 [1980]).
Considering, however, the foregoing discussion pointing to the fact that Verendia used a
false lease contract to support his claim under Fire Insurance Policy No. F-18876, the terms
of the policy should be strictly construed against the insured. Verendia failed to live by the
terms of the policy, specifically Section 13 thereof which is expressed in terms that are clear
and unambiguous, that all benefits under the policy shall be forfeited "If the claim be in any
respect fraudulent, or if any false declaration be made or used in support thereof, or if any
fraudulent means or devises are used by the Insured or anyone acting in his behalf to obtain
any benefit under the policy". Verendia, having presented a false declaration to support his
claim for benefits in the form of a fraudulent lease contract, he forfeited all benefits therein
by virtue of Section 13 of the policy in the absence of proof that Fidelity waived such provision
(Pacific Banking Corporation vs. Court of Appeals, supra). Worse yet, by presenting a false
lease contract, Verendia, reprehensibly disregarded the principle that insurance contracts
are uberrimae fidae and demand the most abundant good faith (Velasco vs. Apostol, 173
SCRA 228 [1989]).
There is also no reason to conclude that by submitting the subrogation receipt as evidence
in court, Fidelity bound itself to a "mutual agreement" to settle Verendia's claims in
consideration of the amount of P142,685.77. While the said receipt appears to have been a
filled-up form of Fidelity, no representative of Fidelity had signed it. It is even incomplete as
the blank spaces for a witness and his address are not filled up. More significantly, the same
receipt states that Verendia had received the aforesaid amount. However, that Verendia had
not received the amount stated therein, is proven by the fact that Verendia himself filed the
complaint for the full amount of P385,000.00 stated in the policy. It might be that there had
been efforts to settle Verendia's claims, but surely, the subrogation receipt by itself does not
prove that a settlement had been arrived at and enforced. Thus, to interpret Fidelity's
presentation of the subrogation receipt in evidence as indicative of its accession to its "terms"
is not only wanting in rational basis but would be substituting the will of the Court for that of
the parties.
WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in G.R. No. 76399
is GRANTED and the decision of the then Intermediate Appellate Court under review is
REVERSED and SET ASIDE and that of the trial court is hereby REINSTATED and
UPHELD. SO ORDERED.
G.R. No. 112360 July 18, 2000
RIZAL SURETY & INSURANCE COMPANY, petitioner,
vs.
COURT OF APPEALS and TRANSWORLD KNITTING MILLS, INC., respondents.
DECISION
PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to
annul and set aside the July 15, 1993 Decision1 and October 22, 1993 Resolution2 of the
Court of Appeals3 in CA-G.R. CV NO. 28779, which modified the Ruling4 of the Regional Trial
Court of Pasig, Branch 161, in Civil Case No. 46106.
The antecedent facts that matter are as follows:
On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued Fire
Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc. (Transworld), initially
for One Million (₱1,000,000.00) Pesos and eventually increased to One Million Five Hundred
Thousand (₱1,500,000.00) Pesos, covering the period from August 14, 1980 to March 13,
1981.
Pertinent portions of subject policy on the buildings insured, and location thereof, read:
"‘On stocks of finished and/or unfinished products, raw materials and supplies of every kind
and description, the properties of the Insureds and/or held by them in trust, on commission
or on joint account with others and/or for which they (sic) responsible in case of loss whilst
contained and/or stored during the currency of this Policy in the premises occupied by them
forming part of the buildings situate (sic) within own Compound at MAGDALO STREET,
BARRIO UGONG, PASIG, METRO MANILA, PHILIPPINES, BLOCK NO. 601.’
xxx xxx xxx
‘Said building of four-span lofty one storey in height with mezzanine portions is constructed
of reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and
occupied as hosiery mills, garment and lingerie factory, transistor-stereo assembly plant,
offices, warehouse and caretaker's quarters.
'Bounds in front partly by one-storey concrete building under galvanized iron roof occupied
as canteen and guardhouse, partly by building of two and partly one storey constructed of
concrete below, timber above undergalvanized iron roof occupied as garage and quarters
and partly by open space and/or tracking/ packing, beyond which is the aforementioned
Magdalo Street; on its right and left by driveway, thence open spaces, and at the rear by
open spaces.'"5
The same pieces of property insured with the petitioner were also insured with New India
Assurance Company, Ltd., (New India).
On January 12, 1981, fire broke out in the compound of Transworld, razing the middle portion
of its four-span building and partly gutting the left and right sections thereof. A two-storey
building (behind said four-span building) where fun and amusement machines and spare
parts were stored, was also destroyed by the fire.
Transworld filed its insurance claims with Rizal Surety & Insurance Company and New India
Assurance Company but to no avail.
On May 26, 1982, private respondent brought against the said insurance companies an
action for collection of sum of money and damages, docketed as Civil Case No. 46106 before
Branch 161 of the then Court of First Instance of Rizal; praying for judgment ordering Rizal
Insurance and New India to pay the amount of ₱2,747, 867.00 plus legal interest,
₱400,000.00 as attorney's fees, exemplary damages, expenses of litigation of ₱50,000.00
and costs of suit.6
Petitioner Rizal Insurance countered that its fire insurance policy sued upon covered only the
contents of the four-span building, which was partly burned, and not the damage caused by
the fire on the two-storey annex building.7
On January 4, 1990, the trial court rendered its decision; disposing as follows:
"ACCORDINGLY, judgment is hereby rendered as follows:
(1)Dismissing the case as against The New India Assurance Co., Ltd.;
(2) Ordering defendant Rizal Surety And Insurance Company to pay Transwrold
(sic) Knitting Mills, Inc. the amount of P826, 500.00 representing the actual value of
the losses suffered by it; and
(3) Cost against defendant Rizal Surety and Insurance Company.
SO ORDERED."8
Both the petitioner, Rizal Insurance Company, and private respondent, Transworld Knitting
Mills, Inc., went to the Court of Appeals, which came out with its decision of July 15, 1993
under attack, the decretal portion of which reads:
"WHEREFORE, and upon all the foregoing, the decision of the court below is MODIFIED in
that defendant New India Assurance Company has and is hereby required to pay plaintiff-
appellant the amount of P1,818,604.19 while the other Rizal Surety has to pay the plaintiff-
appellant P470,328.67, based on the actual losses sustained by plaintiff Transworld in the
fire, totalling P2,790,376.00 as against the amounts of fire insurance coverages respectively
extended by New India in the amount of P5,800,000.00 and Rizal Surety and Insurance
Company in the amount of P1,500,000.00.
No costs.
SO ORDERED."9
On August 20, 1993, from the aforesaid judgment of the Court of Appeals New India
appealed to this Court theorizing inter alia that the private respondent could not be
compensated for the loss of the fun and amusement machines and spare parts stored at the
two-storey building because it (Transworld) had no insurable interest in said goods or items.
On February 2, 1994, the Court denied the appeal with finality in G.R. No. L-111118 (New
India Assurance Company Ltd. vs. Court of Appeals).
Petitioner Rizal Insurance and private respondent Transworld, interposed a Motion for
Reconsideration before the Court of Appeals, and on October 22, 1993, the Court of Appeals
reconsidered its decision of July 15, 1993, as regards the imposition of interest, ruling thus:
"WHEREFORE, the Decision of July 15, 1993 is amended but only insofar as the imposition
of legal interest is concerned, that, on the assessment against New India Assurance
Company on the amount of P1,818,604.19 and that against Rizal Surety & Insurance
Company on the amount of P470,328.67, from May 26, 1982 when the complaint was filed
until payment is made. The rest of the said decision is retained in all other respects.
SO ORDERED."10
Undaunted, petitioner Rizal Surety & Insurance Company found its way to this Court via the
present Petition, contending that:
I.....SAID DECISION (ANNEX A) ERRED IN ASSUMING THAT THE ANNEX
BUILDING WHERE THE BULK OF THE BURNED PROPERTIES WERE STORED,
WAS INCLUDED IN THE COVERAGE OF THE INSURANCE POLICY ISSUED BY
RIZAL SURETY TO TRANSWORLD.
II.....SAID DECISION AND RESOLUTION (ANNEXES A AND B) ERRED IN NOT
CONSIDERING THE PICTURES (EXHS. 3 TO 7-C-RIZAL SURETY), TAKEN
IMMEDIATELY AFTER THE FIRE, WHICH CLEARLY SHOW THAT THE
PREMISES OCCUPIED BY TRANSWORLD, WHERE THE INSURED
PROPERTIES WERE LOCATED, SUSTAINED PARTIAL DAMAGE ONLY.
III. SAID DECISION (ANNEX A) ERRED IN NOT HOLDING THAT TRANSWORLD
HAD ACTED IN PALPABLE BAD FAITH AND WITH MALICE IN FILING ITS
CLEARLY UNFOUNDED CIVIL ACTION, AND IN NOT ORDERING
TRANSWORLD TO PAY TO RIZAL SURETY MORAL AND PUNITIVE DAMAGES
(ART. 2205, CIVIL CODE), PLUS ATTORNEY'S FEES AND EXPENSES OF
LITIGATION (ART. 2208 PARS. 4 and 11, CIVIL CODE).11
The Petition is not impressed with merit.
It is petitioner's submission that the fire insurance policy litigated upon protected only the
contents of the main building (four-span),12 and did not include those stored in the two-storey
annex building. On the other hand, the private respondent theorized that the so called
"annex" was not an annex but was actually an integral part of the four-span building13 and
therefore, the goods and items stored therein were covered by the same fire insurance policy.
Resolution of the issues posited here hinges on the proper interpretation of the stipulation in
subject fire insurance policy regarding its coverage, which reads:
"xxx contained and/or stored during the currency of this Policy in the premises occupied by
them forming part of the buildings situate (sic) within own Compound xxx"
Therefrom, it can be gleaned unerringly that the fire insurance policy in question did not limit
its coverage to what were stored in the four-span building. As opined by the trial court of
origin, two requirements must concur in order that the said fun and amusement machines
and spare parts would be deemed protected by the fire insurance policy under scrutiny, to
wit:
"First, said properties must be contained and/or stored in the areas occupied by Transworld
and second, said areas must form part of the building described in the policy xxx" 14
'Said building of four-span lofty one storey in height with mezzanine portions is constructed
of reinforced concrete and hollow blocks and/or concrete under galvanized iron roof and
occupied as hosiery mills, garment and lingerie factory, transistor-stereo assembly plant,
offices, ware house and caretaker's quarter.'
The Court is mindful of the well-entrenched doctrine that factual findings by the Court of
Appeals are conclusive on the parties and not reviewable by this Court, and the same carry
even more weight when the Court of Appeals has affirmed the findings of fact arrived at by
the lower court.15
In the case under consideration, both the trial court and the Court of Appeals found that the
so called "annex " was not an annex building but an integral and inseparable part of the four-
span building described in the policy and consequently, the machines and spare parts stored
therein were covered by the fire insurance in dispute. The letter-report of the Manila Adjusters
and Surveyor's Company, which petitioner itself cited and invoked, describes the "annex"
building as follows:
"Two-storey building constructed of partly timber and partly concrete hollow blocks under g.i.
roof which is adjoining and intercommunicating with the repair of the first right span of the
lofty storey building and thence by property fence wall."16
Verily, the two-storey building involved, a permanent structure which adjoins and
intercommunicates with the "first right span of the lofty storey building", 17 formed part thereof,
and meets the requisites for compensability under the fire insurance policy sued upon.
So also, considering that the two-storey building aforementioned was already existing when
subject fire insurance policy contract was entered into on January 12, 1981, having been
constructed sometime in 1978,18 petitioner should have specifically excluded the said two-
storey building from the coverage of the fire insurance if minded to exclude the same but if
did not, and instead, went on to provide that such fire insurance policy covers the products,
raw materials and supplies stored within the premises of respondent Transworld which was
an integral part of the four-span building occupied by Transworld, knowing fully well the
existence of such building adjoining and intercommunicating with the right section of the four-
span building.
After a careful study, the Court does not find any basis for disturbing what the lower courts
found and arrived at.
Indeed, the stipulation as to the coverage of the fire insurance policy under controversy has
created a doubt regarding the portions of the building insured thereby. Article 1377 of the
New Civil Code provides:
"Art.1377. The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity"
Conformably, it stands to reason that the doubt should be resolved against the petitioner,
Rizal Surety Insurance Company, whose lawyer or managers drafted the fire insurance
policy contract under scrutiny. Citing the aforecited provision of law in point, the Court
in Landicho vs. Government Service Insurance System,19 ruled:
"This is particularly true as regards insurance policies, in respect of which it is settled that
the 'terms in an insurance policy, which are ambiguous, equivocal, or uncertain x x x are to
be construed strictly and most strongly against the insurer, and liberally in favor of the insured
so as to effect the dominant purpose of indemnity or payment to the insured, especially where
forfeiture is involved' (29 Am. Jur., 181), and the reason for this is that the 'insured usually
has no voice in the selection or arrangement of the words employed and that the language
of the contract is selected with great care and deliberation by experts and legal advisers
employed by, and acting exclusively in the interest of, the insurance company.' (44 C.J.S., p.
1174).""20
Equally relevant is the following disquisition of the Court in Fieldmen's Insurance Company,
Inc. vs. Vda. De Songco,21 to wit:
"'This rigid application of the rule on ambiguities has become necessary in view of current
business practices.1âwphi1 The courts cannot ignore that nowadays monopolies, cartels
and concentration of capital, endowed with overwhelming economic power, manage to
impose upon parties dealing with them cunningly prepared 'agreements' that the weaker
party may not change one whit, his participation in the 'agreement' being reduced to the
alternative to 'take it or leave it' labelled since Raymond Saleilles 'contracts by adherence'
(contrats [sic] d'adhesion), in contrast to these entered into by parties bargaining on an equal
footing, such contracts (of which policies of insurance and international bills of lading are
prime example) obviously call for greater strictness and vigilance on the part of courts of
justice with a view to protecting the weaker party from abuses and imposition, and prevent
their becoming traps for the unwary (New Civil Code, Article 24; Sent. of Supreme Court of
Spain, 13 Dec. 1934, 27 February 1942.)'"22
The issue of whether or not Transworld has an insurable interest in the fun and amusement
machines and spare parts, which entitles it to be indemnified for the loss thereof, had been
settled in G.R. No. L-111118, entitled New India Assurance Company, Ltd., vs. Court of
Appeals, where the appeal of New India from the decision of the Court of Appeals under
review, was denied with finality by this Court on February 2, 1994.
The rule on conclusiveness of judgment, which obtains under the premises, precludes the
relitigation of a particular fact or issue in another action between the same parties based on
a different claim or cause of action. "xxx the judgment in the prior action operates as estoppel
only as to those matters in issue or points controverted, upon the determination of which the
finding or judgment was rendered. In fine, the previous judgment is conclusive in the second
case, only as those matters actually and directly controverted and determined and not as to
matters merely involved therein."23
Applying the abovecited pronouncement, the Court, in Smith Bell and Company (Phils.), Inc.
vs. Court of Appeals,24held that the issue of negligence of the shipping line, which issue had
already been passed upon in a case filed by one of the insurers, is conclusive and can no
longer be relitigated in a similar case filed by another insurer against the same shipping line
on the basis of the same factual circumstances. Ratiocinating further, the Court opined:
"In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai Maru') had been
negligent, or so negligent as to have proximately caused the collision between them, was an
issue that was actually, directly and expressly raised, controverted and litigated in C.A.-G.R.
No. 61320-R. Reyes, L.B., J., resolved that issue in his Decision and held the 'Don Carlos'
to have been negligent rather than the 'Yotai Maru' and, as already noted, that Decision was
affirmed by this Court in G.R. No. L-48839 in a Resolution dated 6 December 1987. The
Reyes Decision thus became final and executory approximately two (2) years before the
Sison Decision, which is assailed in the case at bar, was promulgated. Applying the rule of
conclusiveness of judgment, the question of which vessel had been negligent in the collision
between the two (2) vessels, had long been settled by this Court and could no longer be
relitigated in C.A.-G.R. No. 61206-R. Private respondent Go Thong was certainly bound by
the ruling or judgment of Reyes, L.B., J. and that of this Court. The Court of Appeals fell into
clear and reversible error when it disregarded the Decision of this Court affirming the Reyes
Decision."25
The controversy at bar is on all fours with the aforecited case. Considering that private
respondent's insurable interest in, and compensability for the loss of subject fun and
amusement machines and spare parts, had been adjudicated, settled and sustained by the
Court of Appeals in CA-G.R. CV NO. 28779, and by this Court in G.R. No. L-111118, in a
Resolution, dated February 2, 1994, the same can no longer be relitigated and passed upon
in the present case. Ineluctably, the petitioner, Rizal Surety Insurance Company, is bound
by the ruling of the Court of Appeals and of this Court that the private respondent has an
insurable interest in the aforesaid fun and amusement machines and spare parts; and should
be indemnified for the loss of the same.
So also, the Court of Appeals correctly adjudged petitioner liable for the amount of
P470,328.67, it being the total loss and damage suffered by Transworld for which petitioner
Rizal Insurance is liable.26
All things studiedly considered and viewed in proper perspective, the Court is of the
irresistible conclusion, and so finds, that the Court of Appeals erred not in holding the
petitioner, Rizal Surety Insurance Company, liable for the destruction and loss of the insured
buildings and articles of the private respondent.
WHEREFORE, the Decision, dated July 15, 1993, and the Resolution, dated October 22,
1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are AFFIRMED in toto. No
pronouncement as to costs.
SO ORDERED.
G.R. No. 125678 March 18, 2002
PHILAMCARE HEALTH SYSTEMS, INC., petitioner,
vs.
COURT OF APPEALS and JULITA TRINOS, respondents.
YNARES-SANTIAGO, J.:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care
coverage with petitioner Philamcare Health Systems, Inc. In the standard application form,
he answered no to the following question:
Have you or any of your family members ever consulted or been treated for high
blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic
ulcer? (If Yes, give details).1
The application was approved for a period of one year from March 1, 1988 to March 1, 1989.
Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement,
respondent’s husband was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as
annual physical examinations, preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another year from March
1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage
was increased to a maximum sum of P75,000.00 per disability.2
During the period of his coverage, Ernani suffered a heart attack and was confined at the
Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband
was in the hospital, respondent tried to claim the benefits under the health care agreement.
However, petitioner denied her claim saying that the Health Care Agreement was void.
According to petitioner, there was a concealment regarding Ernani’s medical history. Doctors
at the MMC allegedly discovered at the time of Ernani’s confinement that he was
hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus,
respondent paid the hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical therapist
at home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties,
however, respondent brought her husband home again. In the morning of April 13, 1990,
Ernani had fever and was feeling very weak. Respondent was constrained to bring him back
to the Chinese General Hospital where he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44,
an action for damages against petitioner and its president, Dr. Benito Reverente, which was
docketed as Civil Case No. 90-53795. She asked for reimbursement of her expenses plus
moral damages and attorney’s fees. After trial, the lower court ruled against petitioners, viz:
WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the
plaintiff Julita Trinos, ordering:
1. Defendants to pay and reimburse the medical and hospital coverage of the late
Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully
paid to plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to
plaintiff;
3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to
plaintiff;
4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.
SO ORDERED.3
On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards
for damages and absolved petitioner Reverente.4 Petitioner’s motion for reconsideration was
denied.5 Hence, petitioner brought the instant petition for review, raising the primary
argument that a health care agreement is not an insurance contract; hence the
"incontestability clause" under the Insurance Code6 does not apply.1âwphi1.nêt
Petitioner argues that the agreement grants "living benefits," such as medical check-ups and
hospitalization which a member may immediately enjoy so long as he is alive upon effectivity
of the agreement until its expiration one-year thereafter. Petitioner also points out that only
medical and hospitalization benefits are given under the agreement without any
indemnification, unlike in an insurance contract where the insured is indemnified for his loss.
Moreover, since Health Care Agreements are only for a period of one year, as compared to
insurance contracts which last longer,7 petitioner argues that the incontestability clause does
not apply, as the same requires an effectivity period of at least two years. Petitioner further
argues that it is not an insurance company, which is governed by the Insurance Commission,
but a Health Maintenance Organization under the authority of the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. An insurance contract exists where the
following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk; and
5. In consideration of the insurer’s promise, the insured pays a premium. 8
Section 3 of the Insurance Code states that any contingent or unknown event, whether past
or future, which may damnify a person having an insurable interest against him, may be
insured against. Every person has an insurable interest in the life and health of himself.
Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
 (2) of any person on whom he depends wholly or in part for education or support,
or in whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money,
respecting property or service, of which death or illness might delay or prevent the
performance; and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondent’s husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life
insurance, which is primarily a contract of indemnity. 9 Once the member incurs hospital,
medical or any other expense arising from sickness, injury or other stipulated contingent, the
health care provider must pay for the same to the extent agreed upon under the contract.
Petitioner argues that respondent’s husband concealed a material fact in his application. It
appears that in the application for health coverage, petitioners required respondent’s
husband to sign an express authorization for any person, organization or entity that has any
record or knowledge of his health to furnish any and all information relative to any
hospitalization, consultation, treatment or any other medical advice or
examination.10 Specifically, the Health Care Agreement signed by respondent’s husband
states:
We hereby declare and agree that all statement and answers contained herein and
in any addendum annexed to this application are full, complete and true and bind
all parties in interest under the Agreement herein applied for, that there shall be no
contract of health care coverage unless and until an Agreement is issued on this
application and the full Membership Fee according to the mode of payment applied
for is actually paid during the lifetime and good health of proposed Members; that
no information acquired by any Representative of PhilamCare shall be binding upon
PhilamCare unless set out in writing in the application; that any physician is, by
these presents, expressly authorized to disclose or give testimony at anytime
relative to any information acquired by him in his professional capacity upon any
question affecting the eligibility for health care coverage of the Proposed
Members and that the acceptance of any Agreement issued on this application shall
be a ratification of any correction in or addition to this application as stated in the
space for Home Office Endorsement.11 (Underscoring ours)
In addition to the above condition, petitioner additionally required the applicant for
authorization to inquire about the applicant’s medical history, thus:
I hereby authorize any person, organization, or entity that has any record or
knowledge of my health and/or that of __________ to give to the PhilamCare Health
Systems, Inc. any and all information relative to any hospitalization, consultation,
treatment or any other medical advice or examination. This authorization is in
connection with the application for health care coverage only. A photographic copy
of this authorization shall be as valid as the original. 12 (Underscoring ours)
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads:
Failure to disclose or misrepresentation of any material information by the member
in the application or medical examination, whether intentional or unintentional, shall
automatically invalidate the Agreement from the very beginning and liability of
Philamcare shall be limited to return of all Membership Fees paid. An undisclosed
or misrepresented information is deemed material if its revelation would have
resulted in the declination of the applicant by Philamcare or the assessment of a
higher Membership Fee for the benefit or benefits applied for. 13
The answer assailed by petitioner was in response to the question relating to the medical
history of the applicant. This largely depends on opinion rather than fact, especially coming
from respondent’s husband who was not a medical doctor. Where matters of opinion or
judgment are called for, answers made in good faith and without intent to deceive will not
avoid a policy even though they are untrue.14 Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or
judgment of the insured will not avoid the policy if there is no actual fraud in inducing
the acceptance of the risk, or its acceptance at a lower rate of premium, and this is
likewise the rule although the statement is material to the risk, if the statement is
obviously of the foregoing character, since in such case the insurer is not justified
in relying upon such statement, but is obligated to make further inquiry. There is a
clear distinction between such a case and one in which the insured is fraudulently
and intentionally states to be true, as a matter of expectation or belief, that which
he then knows, to be actually untrue, or the impossibility of which is shown by the
facts within his knowledge, since in such case the intent to deceive the insurer is
obvious and amounts to actual fraud.15(Underscoring ours)
The fraudulent intent on the part of the insured must be established to warrant rescission of
the insurance contract.16 Concealment as a defense for the health care provider or insurer
to avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or
without the authority to investigate, petitioner is liable for claims made under the contract.
Having assumed a responsibility under the agreement, petitioner is bound to answer the
same to the extent agreed upon. In the end, the liability of the health care provider attaches
once the member is hospitalized for the disease or injury covered by the agreement or
whenever he avails of the covered benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind
a contract of insurance." The right to rescind should be exercised previous to the
commencement of an action on the contract.17In this case, no rescission was made. Besides,
the cancellation of health care agreements as in insurance policies require the concurrence
of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more
of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon
request of insured, to furnish facts on which cancellation is based. 18
None of the above pre-conditions was fulfilled in this case. When the terms of insurance
contract contain limitations on liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his obligation.19 Being a contract of adhesion,
the terms of an insurance contract are to be construed strictly against the party which
prepared the contract – the insurer.20 By reason of the exclusive control of the insurance
company over the terms and phraseology of the insurance contract, ambiguity must be
strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid
forfeiture.21 This is equally applicable to Health Care Agreements. The phraseology used in
medical or hospital service contracts, such as the one at bar, must be liberally construed in
favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and exclusionary clauses of doubtful
import should be strictly construed against the provider.22

Anent the incontestability of the membership of respondent’s husband, we quote with

approval the following findings of the trial court:

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

Finally, petitioner alleges that respondent was not the legal wife of the deceased member
considering that at the time of their marriage, the deceased was previously married to another
woman who was still alive. The health care agreement is in the nature of a contract of
indemnity. Hence, payment should be made to the party who incurred the expenses. It is not
controverted that respondent paid all the hospital and medical expenses. She is therefore
entitled to reimbursement. The records adequately prove the expenses incurred by
respondent for the deceased’s hospitalization, medication and the professional fees of the
attending physicians.24

WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the
Court of Appeals dated December 14, 1995 is AFFIRMED.

SO ORDERED.
G.R. No. 115278 May 23, 1995
FORTUNE INSURANCE AND SURETY CO., INC., petitioner,
vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.
DAVIDE, JR., J.:
The fundamental legal issue raised in this petition for review on certiorari is whether the
petitioner is liable under the Money, Security, and Payroll Robbery policy it issued to the
private respondent or whether recovery thereunder is precluded under the general
exceptions clause thereof. Both the trial court and the Court of Appeals held that there should
be recovery. The petitioner contends otherwise.
This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila,
by private respondent Producers Bank of the Philippines (hereinafter Producers) against
petitioner Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for
recovery of the sum of P725,000.00 under the policy issued by Fortune. The sum was
allegedly lost during a robbery of Producer's armored vehicle while it was in transit to transfer
the money from its Pasay City Branch to its head office in Makati. The case was docketed
as Civil Case No. 1817 and assigned to Branch 146 thereof.
After joinder of issues, the parties asked the trial court to render judgment based on the
following stipulation of facts:
1. The plaintiff was insured by the defendants and an
insurance policy was issued, the duplicate original of
which is hereto attached as Exhibit "A";
2. An armored car of the plaintiff, while in the process of
transferring cash in the sum of P725,000.00 under the
custody of its teller, Maribeth Alampay, from its Pasay
Branch to its Head Office at 8737 Paseo de Roxas,
Makati, Metro Manila on June 29, 1987, was robbed of
the said cash. The robbery took place while the armored
car was traveling along Taft Avenue in Pasay City;
3. The said armored car was driven by Benjamin
Magalong Y de Vera, escorted by Security Guard
Saturnino Atiga Y Rosete. Driver Magalong was
assigned by PRC Management Systems with the
plaintiff by virtue of an Agreement executed on August
7, 1983, a duplicate original copy of which is hereto
attached as Exhibit "B";
4. The Security Guard Atiga was assigned by Unicorn
Security Services, Inc. with the plaintiff by virtue of a
contract of Security Service executed on October 25,
1982, a duplicate original copy of which is hereto
attached as Exhibit "C";
5. After an investigation conducted by the Pasay police
authorities, the driver Magalong and guard Atiga were
charged, together with Edelmer Bantigue Y Eulalio,
Reynaldo Aquino and John Doe, with violation of P.D.
532 (Anti-Highway Robbery Law) before the Fiscal of
Pasay City. A copy of the complaint is hereto attached
as Exhibit "D";
6. The Fiscal of Pasay City then filed an information
charging the aforesaid persons with the said crime
before Branch 112 of the Regional Trial Court of Pasay
City. A copy of the said information is hereto attached
as Exhibit "E." The case is still being tried as of this date;
7. Demands were made by the plaintiff upon the
defendant to pay the amount of the loss of P725,000.00,
but the latter refused to pay as the loss is excluded from
the coverage of the insurance policy, attached hereto as
Exhibit "A," specifically under page 1 thereof, "General
Exceptions" Section (b), which is marked as Exhibit "A-
1," and which reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in
report of
xxx xxx xxx
(b) any loss caused by any dishonest,
fraudulent or criminal act of the
insured or any officer, employee,
partner, director, trustee or
authorized representative of the
Insured whether acting alone or in
conjunction with others. . . .
8. The plaintiff opposes the contention of the defendant
and contends that Atiga and Magalong are not its
"officer, employee, . . . trustee or authorized
representative . . . at the time of the robbery.1
On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive
portion thereof reads as follows:
WHEREFORE, premises considered, the Court finds for plaintiff and
against defendant, and
(a) orders defendant to pay plaintiff
the net amount of P540,000.00 as
liability under Policy No. 0207 (as
mitigated by the P40,000.00 special
 clause deduction and by the
recovered sum of P145,000.00), with
interest thereon at the legal rate, until
fully paid;
(b) orders defendant to pay plaintiff
the sum of P30,000.00 as and for
attorney's fees; and
(c) orders defendant to pay costs of
suit.
All other claims and counterclaims are accordingly dismissed forthwith.
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or representatives of
Producers. It Said:
The Court is satisfied that plaintiff may not be said to have selected and
engaged Magalong and Atiga, their services as armored car driver and as
security guard having been merely offered by PRC Management and by
Unicorn Security and which latter firms assigned them to plaintiff. The
wages and salaries of both Magalong and Atiga are presumably paid by
their respective firms, which alone wields the power to dismiss them.
Magalong and Atiga are assigned to plaintiff in fulfillment of agreements to
provide driving services and property protection as such — in a context
which does not impress the Court as translating into plaintiff's power to
control the conduct of any assigned driver or security guard, beyond
perhaps entitling plaintiff to request are replacement for such driver guard.
The finding is accordingly compelled that neither Magalong nor Atiga were
plaintiff's "employees" in avoidance of defendant's liability under the policy,
particularly the general exceptions therein embodied.
Neither is the Court prepared to accept the proposition that driver
Magalong and guard Atiga were the "authorized representatives" of
plaintiff. They were merely an assigned armored car driver and security
guard, respectively, for the June 29, 1987 money transfer from plaintiff's
Pasay Branch to its Makati Head Office. Quite plainly — it was teller
Maribeth Alampay who had "custody" of the P725,000.00 cash being
transferred along a specified money route, and hence plaintiff's then
designated "messenger" adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R.
CV No. 32946. In its decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed
decision.
The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga
were neither employees nor authorized representatives of Producers and ratiocinated as
follows:
A policy or contract of insurance is to be construed liberally in favor of the
insured and strictly against the insurance company (New Life Enterprises
vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court
of Appeals, 211 SCRA 554). Contracts of insurance, like other contracts,
are to be construed according to the sense and meaning of the terms
which the parties themselves have used. If such terms are clear and
unambiguous, they must be taken and understood in their plain, ordinary
and popular sense (New Life Enterprises Case, supra, p. 676; Sun
Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted stipulation
is plain, ordinary and simple. No other interpretation is necessary. The
word "employee" must be taken to mean in the ordinary sense.
The Labor Code is a special law specifically dealing with/and specifically
designed to protect labor and therefore its definition as to employer-
employee relationships insofar as the application/enforcement of said
Code is concerned must necessarily be inapplicable to an insurance
contract which defendant-appellant itself had formulated. Had it intended
to apply the Labor Code in defining what the word "employee" refers to, it
must/should have so stated expressly in the insurance policy.
Said driver and security guard cannot be considered as employees of
plaintiff-appellee bank because it has no power to hire or to dismiss said
driver and security guard under the contracts (Exhs. 8 and C) except only
to ask for their replacements from the contractors.5
On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial
court and the Court of Appeals erred in holding it liable under the insurance policy because
the loss falls within the general exceptions clause considering that driver Magalong and
security guard Atiga were Producers' authorized representatives or employees in the transfer
of the money and payroll from its branch office in Pasay City to its head office in Makati.
According to Fortune, when Producers commissioned a guard and a driver to transfer its
funds from one branch to another, they effectively and necessarily became its authorized
representatives in the care and custody of the money. Assuming that they could not be
considered authorized representatives, they were, nevertheless, employees of Producers. It
asserts that the existence of an employer-employee relationship "is determined by law and
being such, it cannot be the subject of agreement." Thus, if there was in reality an employer-
employee relationship between Producers, on the one hand, and Magalong and Atiga, on
the other, the provisions in the contracts of Producers with PRC Management System for
Magalong and with Unicorn Security Services for Atiga which state that Producers is not their
employer and that it is absolved from any liability as an employer, would not obliterate the
relationship.
Fortune points out that an employer-employee relationship depends upon four standards: (1)
the manner of selection and engagement of the putative employee; (2) the mode of payment
of wages; (3) the presence or absence of a power to dismiss; and (4) the presence and
absence of a power to control the putative employee's conduct. Of the four, the right-of-
control test has been held to be the decisive factor. 6 It asserts that the power of control over
Magalong and Atiga was vested in and exercised by Producers. Fortune further insists that
PRC Management System and Unicorn Security Services are but "labor-only" contractors
under Article 106 of the Labor Code which provides:
 Art. 106. Contractor or subcontractor. — There is "labor-only" contracting
where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and
placed by such persons are performing activities which are directly related
to the principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer who
shall be responsible to the workers in the same manner and extent as if
the latter were directly employed by him.
Fortune thus contends that Magalong and Atiga were employees of Producers, following the
ruling in International Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-
only" contractor is equivalent to a finding that there is an employer-employee relationship
between the owner of the project and the employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were not its employees
since it had nothing to do with their selection and engagement, the payment of their wages,
their dismissal, and the control of their conduct. Producers argued that the rule
in International Timber Corp. is not applicable to all cases but only when it becomes
necessary to prevent any violation or circumvention of the Labor Code, a social legislation
whose provisions may set aside contracts entered into by parties in order to give protection
to the working man.
Producers further asseverates that what should be applied is the rule in American President
Lines vs. Clave, 8 to wit:
In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's conduct.
Since under Producers' contract with PRC Management Systems it is the latter which
assigned Magalong as the driver of Producers' armored car and was responsible for his
faithful discharge of his duties and responsibilities, and since Producers paid the monthly
compensation of P1,400.00 per driver to PRC Management Systems and not to Magalong,
it is clear that Magalong was not Producers' employee. As to Atiga, Producers relies on the
provision of its contract with Unicorn Security Services which provides that the guards of the
latter "are in no sense employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a theft or robbery
insurance policy which is a form of casualty insurance. Section 174 of the Insurance Code
provides:
Sec. 174. Casualty insurance is insurance covering loss or liability arising
from accident or mishap, excluding certain types of loss which by law or
custom are considered as falling exclusively within the scope of insurance
such as fire or marine. It includes, but is not limited to, employer's liability
insurance, public liability insurance, motor vehicle liability insurance, plate
glass insurance, burglary and theft insurance, personal accident and
health insurance as written by non-life insurance companies, and other
substantially similar kinds of insurance. (emphases supplied)
Except with respect to compulsory motor vehicle liability insurance, the Insurance Code
contains no other provisions applicable to casualty insurance or to robbery insurance in
particular. These contracts are, therefore, governed by the general provisions applicable to
all types of insurance. Outside of these, the rights and obligations of the parties must be
determined by the terms of their contract, taking into consideration its purpose and always in
accordance with the general principles of insurance law. 9
It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to
defraud the insurer — the moral hazard — is so great that insurers have found it necessary
to fill up their policies with countless restrictions, many designed to reduce this hazard.
Seldom does the insurer assume the risk of all losses due to the hazards insured
against." 10 Persons frequently excluded under such provisions are those in the insured's
service and employment. 11 The purpose of the exception is to guard against liability should
the theft be committed by one having unrestricted access to the property. 12 In such cases,
the terms specifying the excluded classes are to be given their meaning as understood in
common speech. 13 The terms "service" and "employment" are generally associated with the
idea of selection, control, and compensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity therein should be
resolved against the insurer, 15 or it should be construed liberally in favor of the insured and
strictly against the insurer. 16 Limitations of liability should be regarded with extreme jealousy
and must be construed
in such a way, as to preclude the insurer from non-compliance with its obligation. 17 It goes
without saying then that if the terms of the contract are clear and unambiguous, there is no
room for construction and such terms cannot be enlarged or diminished by judicial
construction. 18
An insurance contract is a contract of indemnity upon the terms and conditions specified
therein. 19 It is settled that the terms of the policy constitute the measure of the insurer's
liability. 20 In the absence of statutory prohibition to the contrary, insurance companies have
the same rights as individuals to limit their liability and to impose whatever conditions they
deem best upon their obligations not inconsistent with public policy.
With the foregoing principles in mind, it may now be asked whether Magalong and Atiga
qualify as employees or authorized representatives of Producers under paragraph (b) of the
general exceptions clause of the policy which, for easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or
criminal act of the insured or any officer, employee,
partner, director, trustee or authorized representative of
the Insured whether acting alone or in conjunction with
others. . . . (emphases supplied)
There is marked disagreement between the parties on the correct meaning of the terms
"employee" and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt
from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of
persons granted or having unrestricted access to Producers' money or payroll. When it used
then the term "employee," it must have had in mind any person who qualifies as such as
generally and universally understood, or jurisprudentially established in the light of the four
standards in the determination of the employer-employee relationship, 21 or as statutorily
declared even in a limited sense as in the case of Article 106 of the Labor Code which
considers the employees under a "labor-only" contract as employees of the party employing
them and not of the party who supplied them to the employer. 22

Fortune claims that Producers' contracts with PRC Management Systems and Unicorn
Security Services are "labor-only" contracts.

Producers, however, insists that by the express terms thereof, it is not the employer
of Magalong. Notwithstanding such express assumption of PRC Management
Systems and Unicorn Security Services that the drivers and the security guards
each shall supply to Producers are not the latter's employees, it may, in fact, be that
it is because the contracts are, indeed, "labor-only" contracts. Whether they are is,
in the light of the criteria provided for in Article 106 of the Labor Code, a question of
fact. Since the parties opted to submit the case for judgment on the basis of their
stipulation of facts which are strictly limited to the insurance policy, the contracts
with PRC Management Systems and Unicorn Security Services, the complaint for
violation of P.D. No. 532, and the information therefor filed by the City Fiscal of
Pasay City, there is a paucity of evidence as to whether the contracts between
Producers and PRC Management Systems and Unicorn Security Services are
"labor-only" contracts.

But even granting for the sake of argument that these contracts were not "labor-only"
contracts, and PRC Management Systems and Unicorn Security Services were truly
independent contractors, we are satisfied that Magalong and Atiga were, in respect of the
transfer of Producer's money from its Pasay City branch to its head office in Makati, its
"authorized representatives" who served as such with its teller Maribeth Alampay.
Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer the
money to its head office, with Alampay to be responsible for its custody in transit; Magalong
to drive the armored vehicle which would carry the money; and Atiga to provide the needed
security for the money, the vehicle, and his two other companions. In short, for these
particular tasks, the three acted as agents of Producers. A "representative" is defined as one
who represents or stands in the place of another; one who represents others or another in a
special capacity, as an agent, and is interchangeable with "agent." 23

In view of the foregoing, Fortune is exempt from liability under the general exceptions clause
of the insurance policy.

WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of
Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the
Regional Trial Court of Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The
complaint in Civil Case No. 1817 is DISMISSED.

No pronouncement as to costs.

SO ORDERED.
G.R. No. 156167 May 16, 2005 - 116,600.00 other buildings include as follows:
a) Tilter House - P19,800.00 - 0.551%
GULF RESORTS, INC., petitioner,
vs. b) Power House - P41,000.00 - 0.551%
PHILIPPINE CHARTER INSURANCE CORPORATION, respondent. c) House Shed - P55,000.00 - 0.540%
P100,000.00 - for furniture, fixtures, lines air-con
DECISION

PUNO, J.:
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:
Item - P7,691,000.00 - on the Clubhouse only
@ .392%;
- 1,500,000.00 - on the furniture, etc. contained in the building
mentioned@ .490%;
- 393,000.00 - After the earthquake,
on the two swimming pools, only (against
earthquake shock only) @ 0.100% 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
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");
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
above- pools in its Agoo Playa Resort were damaged.2
two swimming
the peril ofpetitioner advised respondent that it would be making a claim under its
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 report5 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 demand7 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 complaint10 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.
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.
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
 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.
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.
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 letter19 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, First, in the designation of location of risk, only the two swimming pools were specified as
stated that such deletion was a mere inadvertence. This inadvertence did not make the policy included, viz:
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 ITEM 3 – 393,000.00 – On the two (2) swimming pools only (against the peril of
provisions, specially the enumeration of the items insured, where only the two swimming earthquake shock only)20
pools were noted as covered for earthquake shock damage.
Second, under the breakdown for premium payments,21 it was stated that:
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 PREMIUM RECAPITULATION
damage. The same phrase is used in toto in the policies from 1989 to 1990, the only ITEM NOS. AMOUNT RATES PREMIUM
difference being the designation of the two swimming pools as "Item 3."
xxx
Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paid 3 393,000.00 0.100%-E/S 393.0022]
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 Third, Policy Condition No. 6 stated:
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. 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:--
Sixth, petitioner did not inform respondent of its requirement that all of its properties must be
23
included in the earthquake shock coverage. Petitioner’s own evidence shows that it only (a) Earthquake, volcanic eruption or other convulsion of nature.
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 Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement (To Include
agreement was when it modified the provisions regarding the replacement cost the Perils of Explosion, Aircraft, Vehicle and Smoke)," stated, viz:
endorsement. With regard to the issue under litigation, the riders of the old policy and the
policy in issue are identical.
ANNUAL PAYMENT AGREEMENT ON
LONG TERM POLICIES
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 INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE
The adjuster’s letter notifying petitioner to present certain documents for its building claims
SUMS INSURED IN EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION
and repair costs was given to petitioner before the adjuster knew the full coverage of its
OF A DISCOUNT OF 5% OR 7 ½ % OF THE NET PREMIUM x x x POLICY
policy.
HEREBY UNDERTAKES TO CONTINUE THE INSURANCE UNDER THE ABOVE
NAMED x x x AND TO PAY THE PREMIUM.
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
Earthquake Endorsement
of the policy reflect the parties’ clear intention to limit earthquake shock coverage to the two
swimming pools.
In consideration of the payment by the Insured to the Company of the sum of P. . .
. . . . . . . . . . . . . . additional premium the Company agrees, notwithstanding what is
Before petitioner accepted the policy, it had the opportunity to read its conditions. It did not
stated in the printed conditions of this Policy to the contrary, that this insurance
object to any deficiency nor did it institute any action to reform the policy. The policy binds
covers loss or damage (including loss or damage by fire) to any of the property
the petitioner.
insured by this Policy occasioned by or through or in consequence of Earthquake.

Eighth, there is no basis for petitioner to claim damages, attorney’s fees and litigation
Provided always that all the conditions of this Policy shall apply (except in so far as
expenses. Since respondent was willing and able to pay for the damage caused on the two
they may be hereby expressly varied) and that any reference therein to loss or
swimming pools, it cannot be considered to be in default, and therefore, it is not liable for
damage by fire should be deemed to apply also to loss or damage occasioned by
interest.
or through or in consequence of Earthquake.24

We hold that the petition is devoid of merit.

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
In Insurance Policy No. 31944, four key items are important in the resolution of the case at of the insured properties.
bar.
It is basic that all the provisions of the insurance policy should be examined and interpreted CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
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 pp. 23-26
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 Q. For the period from March 14, 1988 up to March 14, 1989, did you personally
show the intention of the parties to extend earthquake shock coverage to the two swimming arrange for the procurement of this policy?
pools only.
A. Yes, sir.
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) Q. Did you also do this through your insurance agency?
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 A. If you are referring to Forte Insurance Agency, yes.
from an unknown or contingent event. Thus, an insurance contract exists where the following
elements concur:
Q. Is Forte Insurance Agency a department or division of your company?
1. The insured has an insurable interest;
A. No, sir. They are our insurance agency.
2. The insured is subject to a risk of loss by the happening of the designated peril;
Q. And they are independent of your company insofar as operations are concerned?
3. The insurer assumes the risk;
A. Yes, sir, they are separate entity.
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 Q. But insofar as the procurement of the insurance policy is concerned they are of
course subject to your instruction, is that not correct?
5. In consideration of the insurer's promise, the insured pays a
premium.26 (Emphasis ours) A. Yes, sir. The final action is still with us although they can recommend what
insurance to take.
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 Q. In the procurement of the insurance police (sic) from March 14, 1988 to March
payable becomes a debt as soon as the risk attaches.28 In the subject policy, no premium 14, 1989, did you give written instruction to Forte Insurance Agency advising it that
payments were made with regard to earthquake shock coverage, except on the two the earthquake shock coverage must extend to all properties of Agoo Playa Resort
swimming pools. There is no mention of any premium payable for the other resort properties in La Union?
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: 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
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991 the company.
pp. 12-13
Q. And that instruction, according to you, was very important because in April 1987
Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance there was an earthquake tremor in La Union?
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.

A. Yes, sir. It is limited to the two swimming pools, specifically shown in the Q. And you wanted to protect all your properties against similar tremors in the
warranty, there is a provision here that it was only for item 5. [future], is that correct?

Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the A. Yes, sir.
two swimming pools only?
Q. Now, after this policy was delivered to you did you bother to check the provisions
A. Yes, sir. 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 Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?
Company marked Exhibit "G"?
A. Yes, sir.
Atty. Mejia: Yes.
ATTY. MEJIA:
Witness:
What is your basis for stating that the coverage against earthquake shock
A. I examined the policy and seeing that the warranty on the earthquake shock as provided for in each of the six (6) policies extend to the two (2)
endorsement has no more limitation referring to the two swimming pools only, I was swimming pools only?
contented already that the previous limitation pertaining to the two swimming pools
was already removed. WITNESS:

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 III30
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?
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:

WITNESS: Earthquake shock coverage could not stand alone. If we are covering
building or another we can issue earthquake shock solely but that the
Yes[,] I remember having gone over these policies at one point of time, sir. 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
Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H not by fire, sir.
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 DIRECT EXAMINATION OF JUAN BARANDA III
the extent of the coverage [against] the peril of earthquake shock as provided for in TSN, August 11, 1992
each of the six (6) policies? pp. 23-25

xxx 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)
WITNESS: 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
The extent of the coverage is only up to the two (2) swimming pools, sir. witness?
WITNESS: ATTY. ANDRES:

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.
As an insurance executive will you not attach any significance to the
deletion of the qualifying phrase for the policies?
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.

COURT: 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
They are the same, the premium rates? resort. Respondent only insured the properties as intended by the petitioner. Petitioner’s own
witness testified to this agreement, viz:
WITNESS:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
They are the same in the sence (sic), in the amount of the coverage. If you TSN, January 14, 1992
are going to do some computation based on the rates you will arrive at the pp. 4-5
same premiums, your Honor.
Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly
CROSS-EXAMINATION OF JUAN BARANDA III did you tell Atty. Omlas (sic) to copy from Exhibit "H" for purposes of procuring the
TSN, September 7, 1992 policy from Philippine Charter Insurance Corporation?
pp. 4-6
A. I told him that the insurance that they will have to get will have the same
ATTY. ANDRES: provisions as this American Home Insurance Policy No. 206-4568061-9.

Would you as a matter of practice [insure] swimming pools for fire Q. You are referring to Exhibit "H" of course?
insurance?
A. Yes, sir, to Exhibit "H".
WITNESS:
Q. So, all the provisions here will be the same except that of the premium rates?
No, we don’t, sir.
A. Yes, sir. He assured me that with regards to the insurance premium rates that
Q. That is why the phrase "earthquake shock to the two (2) swimming pools only" they will be charging will be limited to this one. I (sic) can even be lesser.
was placed, is it not?
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
A. Yes, sir. TSN, January 14, 1992
pp. 12-14
ATTY. ANDRES:
Atty. Mejia:
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. Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the
5 only" meaning to (sic) the two (2) swimming pools was deleted from the provisions and scope of coverage of Exhibits "I" and "H" sometime in the third week
policies issued by AIU, is it not? of March, 1990 or thereabout?

xxx 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?
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
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
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.
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 verbatimthe 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 MANTOHAC36
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.

SO ORDERED.
G.R. No. L-52756 October 12, 1987
MANILA MAHOGANY MANUFACTURING CORPORATION, petitioner,
vs.
COURT OF APPEALS AND ZENITH INSURANCE CORPORATION, respondents.
PADILLA, J:
Petition to review the decision * of the Court of Appeals, in CA-G.R. No. SP-08642, dated 21
March 1979, ordering petitioner Manila Mahogany Manufacturing Corporation to pay private
respondent Zenith Insurance Corporation the sum of Five Thousand Pesos (P5,000.00) with
6% annual interest from 18 January 1973, attorney's fees in the sum of five hundred pesos
(P500.00), and costs of suit, and the resolution of the same Court, dated 8 February 1980,
denying petitioner's motion for reconsideration of it's decision.
From 6 March 1970 to 6 March 1971, petitioner insured its Mercedes Benz 4-door sedan
with respondent insurance company. On 4 May 1970 the insured vehicle was bumped and
damaged by a truck owned by San Miguel Corporation. For the damage caused, respondent
company paid petitioner five thousand pesos (P5,000.00) in amicable settlement. Petitioner's
general manager executed a Release of Claim, subrogating respondent company to all its
right to action against San Miguel Corporation.
On 11 December 1972, respondent company wrote Insurance Adjusters, Inc. to demand
reimbursement from San Miguel Corporation of the amount it had paid petitioner. Insurance
Adjusters, Inc. refused reimbursement, alleging that San Miguel Corporation had already
paid petitioner P4,500.00 for the damages to petitioner's motor vehicle, as evidenced by a
cash voucher and a Release of Claim executed by the General Manager of petitioner
discharging San Miguel Corporation from "all actions, claims, demands the rights of action
that now exist or hereafter [sic] develop arising out of or as a consequence of the accident."
Respondent insurance company thus demanded from petitioner reimbursement of the sum
of P4,500.00 paid by San Miguel Corporation. Petitioner refused; hence, respondent
company filed suit in the City Court of Manila for the recovery of P4,500.00. The City Court
ordered petitioner to pay respondent P4,500.00. On appeal the Court of First Instance of
Manila affirmed the City Court's decision in toto, which CFI decision was affirmed by the
Court of Appeals, with the modification that petitioner was to pay respondent the total amount
of P5,000.00 that it had earlier received from the respondent insurance company.
Petitioner now contends it is not bound to pay P4,500.00, and much more, P5,000.00 to
respondent company as the subrogation in the Release of Claim it executed in favor of
respondent was conditioned on recovery of the total amount of damages petitioner had
sustained. Since total damages were valued by petitioner at P9,486.43 and only P5,000.00
was received by petitioner from respondent, petitioner argues that it was entitled to go after
San Miguel Corporation to claim the additional P4,500.00 eventually paid to it by the latter,
without having to turn over said amount to respondent. Respondent of course disputes this
allegation and states that there was no qualification to its right of subrogation under the
Release of Claim executed by petitioner, the contents of said deed having expressed all the
intents and purposes of the parties.
To support its alleged right not to return the P4,500.00 paid by San Miguel Corporation,
petitioner cites Art. 2207 of the Civil Code, which states:
If the plaintiff's property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong
or breach of contract complained of the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss the aggrieved party shall
be entitled to recover the deficiency from the person causing the loss or
injury.
Petitioner also invokes Art. 1304 of the Civil Code, stating.
A creditor, to whom partial payment has been made, may exercise his right
for the remainder, and he shall be preferred to the person who has been
subrogated in his place in virtue of the partial payment of the same credit.
We find petitioners arguments to be untenable and without merit. In the absence of any other
evidence to support its allegation that a gentlemen's agreement existed between it and
respondent, not embodied in the Release of Claim, such ease of Claim must be taken as the
best evidence of the intent and purpose of the parties. Thus, the Court of Appeals rightly
stated:
Petitioner argues that the release claim it executed subrogating Private
respondent to any right of action it had against San Miguel Corporation did
not preclude Manila Mahogany from filing a deficiency claim against the
wrongdoer. Citing Article 2207, New Civil Code, to the effect that if the
amount paid by an insurance company does not fully cover the loss, the
aggrieved party shall be entitled to recover the deficiency from the person
causing the loss, petitioner claims a preferred right to retain the amount
coming from San Miguel Corporation, despite the subrogation in favor of
Private respondent.
Although petitioners right to file a deficiency claim against San Miguel
Corporation is with legal basis, without prejudice to the insurer's right of
subrogation, nevertheless when Manila Mahogany executed another
release claim (Exhibit K) discharging San Miguel Corporation from "all
actions, claims, demands and rights of action that now exist or hereafter
arising out of or as a consequence of the accident" after the insurer had
paid the proceeds of the policy- the compromise agreement of P5,000.00
being based on the insurance policy-the insurer is entitled to recover from
the insured the amount of insurance money paid (Metropolitan Casualty
Insurance Company of New York vs. Badler, 229 N.Y.S. 61, 132 Misc. 132
cited in Insurance Code and Insolvency Law with comments and
annotations, H.B. Perez 1976, p. 151). Since petitioner by its own acts
released San Miguel Corporation, thereby defeating private respondents,
the right of subrogation, the right of action of petitioner against the insurer
was also nullified. (Sy Keng & Co. vs. Queensland Insurance Co., Ltd., 54
O.G. 391) Otherwise stated: private respondent may recover the sum of
P5,000.00 it had earlier paid to petitioner. 1
As held in Phil. Air Lines v. Heald Lumber Co., 2
If a property is insured and the owner receives the indemnity from the
insurer, it is provided in [Article 2207 of the New Civil Code] that the insurer
 is deemed subrogated to the rights of the insured against the wrongdoer SO ORDERED.
and if the amount paid by the insurer does not fully cover the loss, then the
aggrieved party is the one entitled to recover the deficiency. ... Under this
legal provision, the real party in interest with regard to the portion of the
indemnity paid is the insurer and not the insured 3 (Emphasis supplied)

The decision of the respondent court ordering petitioner to pay respondent company, not the
P4,500.00 as originally asked for, but P5,000.00, the amount respondent company paid
petitioner as insurance, is also in accord with law and jurisprudence. In disposing of this
issue, the Court of Appeals held:

... petitioner is entitled to keep the sum of P4,500.00 paid by San Miguel
Corporation under its clear right to file a deficiency claim for damages
incurred, against the wrongdoer, should the insurance company not fully
pay for the injury caused (Article 2207, New Civil Code). However, when
petitioner released San Miguel Corporation from any liability, petitioner's
right to retain the sum of P5,000.00 no longer existed, thereby entitling
private respondent to recover the same. (Emphasis supplied)

As has been observed:

... The right of subrogation can only exist after the insurer has paid the
otherwise the insured will be deprived of his right to full indemnity. If the
insurance proceeds are not sufficient to cover the damages suffered by
the insured, then he may sue the party responsible for the damage for the
the [sic] remainder. To the extent of the amount he has already received
from the insurer enjoy's [sic] the right of subrogation.

Since the insurer can be subrogated to only such rights as the insured may
have, should the insured, after receiving payment from the insurer, release
the wrongdoer who caused the loss, the insurer loses his rights against
the latter. But in such a case, the insurer will be entitled to recover from
the insured whatever it has paid to the latter, unless the release was made
with the consent of the insurer. 4(Emphasis supplied.)

And even if the specific amount asked for in the complaint is P4,500.00 only and not
P5,000.00, still, the respondent Court acted well within its discretion in awarding P5,000.00,
the total amount paid by the insurer. The Court of Appeals rightly reasoned as follows:

It is to be noted that private respondent, in its companies, prays for the

recovery, not of P5,000.00 it had paid under the insurance policy but
P4,500.00 San Miguel Corporation had paid to petitioner. On this score,
We believe the City Court and Court of First Instance erred in not awarding
the proper relief. Although private respondent prays for the reimbursement
of P4,500.00 paid by San Miguel Corporation, instead of P5,000.00 paid
under the insurance policy, the trial court should have awarded the latter,
although not prayed for, under the general prayer in the complaint "for such
further or other relief as may be deemed just or equitable, (Rule 6, Sec. 3,
Revised Rules of Court; Rosales vs. Reyes Ordoveza, 25 Phil. 495 ;
Cabigao vs. Lim, 50 Phil. 844; Baguiro vs. Barrios Tupas, 77 Phil 120).

WHEREFORE, premises considered, the petition is DENIED. The judgment appealed from
is hereby AFFIRMED with costs against petitioner.
G.R. No. 150094 August 18, 2004
FEDERAL EXPRESS CORPORATION, petitioner,
vs.
AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE COMPANY,
INC., respondents.
DECISION
PANGANIBAN, J.:
Basic is the requirement that before suing to recover loss of or damage to transported goods,
the plaintiff must give the carrier notice of the loss or damage, within the period prescribed
by the Warsaw Convention and/or the airway bill.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the June
4, 2001 Decision2 and the September 21, 2001 Resolution3 of the Court of Appeals (CA) in
CA-GR CV No. 58208. The assailed Decision disposed as follows:
"WHEREFORE, premises considered, the present appeal is hereby DISMISSED
for lack of merit. The appealed Decision of Branch 149 of the Regional Trial Court
of Makati City in Civil Case No. 95-1219, entitled 'American Home Assurance Co.
and PHILAM Insurance Co., Inc. v. FEDERAL EXPRESS CORPORATION and/or
CARGOHAUS, INC. (formerly U-WAREHOUSE, INC.),' is
hereby AFFIRMED and REITERATED.
"Costs against the [petitioner and Cargohaus, Inc.]." 4
The assailed Resolution denied petitioner's Motion for Reconsideration.
The Facts
The antecedent facts are summarized by the appellate court as follows:
"On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity) of
Nebraska, USA delivered to Burlington Air Express (BURLINGTON), an agent of
[Petitioner] Federal Express Corporation, a shipment of 109 cartons of veterinary
biologicals for delivery to consignee SMITHKLINE and French Overseas Company
in Makati City, Metro Manila. The shipment was covered by Burlington Airway Bill
No. 11263825 with the words, 'REFRIGERATE WHEN NOT IN TRANSIT' and
'PERISHABLE' stamp marked on its face. That same day, Burlington insured the
cargoes in the amount of $39,339.00 with American Home Assurance Company
(AHAC). The following day, Burlington turned over the custody of said cargoes to
Federal Express which transported the same to Manila. The first shipment,
consisting of 92 cartons arrived in Manila on January 29, 1994 in Flight No. 0071-
28NRT and was immediately stored at [Cargohaus Inc.'s] warehouse. While the
second, consisting of 17 cartons, came in two (2) days later, or on January 31, 1994,
in Flight No. 0071-30NRT which was likewise immediately stored at Cargohaus'
warehouse. Prior to the arrival of the cargoes, Federal Express informed GETC
Cargo International Corporation, the customs broker hired by the consignee to
facilitate the release of its cargoes from the Bureau of Customs, of the impending
arrival of its client's cargoes.
"On February 10, 1994, DARIO C. DIONEDA ('DIONEDA'), twelve (12) days after
the cargoes arrived in Manila, a non-licensed custom's broker who was assigned
by GETC to facilitate the release of the subject cargoes, found out, while he was
about to cause the release of the said cargoes, that the same [were] stored only in
a room with two (2) air conditioners running, to cool the place instead of a
refrigerator. When he asked an employee of Cargohaus why the cargoes were
stored in the 'cool room' only, the latter told him that the cartons where the vaccines
were contained specifically indicated therein that it should not be subjected to hot
or cold temperature. Thereafter, DIONEDA, upon instructions from GETC, did not
proceed with the withdrawal of the vaccines and instead, samples of the same were
taken and brought to the Bureau of Animal Industry of the Department of Agriculture
in the Philippines by SMITHKLINE for examination wherein it was discovered that
the 'ELISA reading of vaccinates sera are below the positive reference serum.'
"As a consequence of the foregoing result of the veterinary biologics test,
SMITHKLINE abandoned the shipment and, declaring 'total loss' for the unusable
shipment, filed a claim with AHAC through its representative in the Philippines, the
Philam Insurance Co., Inc. ('PHILAM') which recompensed SMITHKLINE for the
whole insured amount of THIRTY NINE THOUSAND THREE HUNDRED THIRTY
NINE DOLLARS ($39,339.00). Thereafter, [respondents] filed an action for
damages against the [petitioner] imputing negligence on either or both of them in
the handling of the cargo.
"Trial ensued and ultimately concluded on March 18, 1997 with the [petitioner] being
held solidarily liable for the loss as follows:
'WHEREFORE, judgment is hereby rendered in favor of [respondents] and
[petitioner and its Co-Defendant Cargohaus] are directed to pay
[respondents], jointly and severally, the following:
1. Actual damages in the amount of the peso equivalent of
US$39,339.00 with interest from the time of the filing of the
complaint to the time the same is fully paid.
2. Attorney's fees in the amount of P50,000.00 and
3. Costs of suit.
'SO ORDERED.'
"Aggrieved, [petitioner] appealed to [the CA]." 5
Ruling of the Court of Appeals
The Test Report issued by the United States Department of Agriculture (Animal and Plant
Health Inspection Service) was found by the CA to be inadmissible in evidence. Despite this
ruling, the appellate court held that the shipping Receipts were a prima facie proof that the
goods had indeed been delivered to the carrier in good condition. We quote from the ruling
as follows:
"Where the plaintiff introduces evidence which shows prima facie that the goods
were delivered to the carrier in good condition [i.e., the shipping receipts], and that
the carrier delivered the goods in a damaged condition, a presumption is raised that
the damage occurred through the fault or negligence of the carrier, and this casts
upon the carrier the burden of showing that the goods were not in good condition
when delivered to the carrier, or that the damage was occasioned by some cause
excepting the carrier from absolute liability. This the [petitioner] failed to discharge.
x x x."6
Found devoid of merit was petitioner's claim that respondents had no personality to sue. This
argument was supposedly not raised in the Answer or during trial.
Hence, this Petition.7
The Issues
In its Memorandum, petitioner raises the following issues for our consideration:
"I.
Are the decision and resolution of the Honorable Court of Appeals proper subject
for review by the Honorable Court under Rule 45 of the 1997 Rules of Civil
Procedure?
"II.
Is the conclusion of the Honorable Court of Appeals – petitioner's claim that
respondents have no personality to sue because the payment was made by the
respondents to Smithkline when the insured under the policy is Burlington Air
Express is devoid of merit – correct or not?
"III.
Is the conclusion of the Honorable Court of Appeals that the goods were received
in good condition, correct or not?
"IV.
Are Exhibits 'F' and 'G' hearsay evidence, and therefore, not admissible?
"V.
Is the Honorable Court of Appeals correct in ignoring and disregarding respondents'
own admission that petitioner is not liable? and
"VI.
Is the Honorable Court of Appeals correct in ignoring the Warsaw Convention?" 8
Simply stated, the issues are as follows: (1) Is the Petition proper for review by the Supreme
Court? (2) Is Federal Express liable for damage to or loss of the insured goods?
This Court's Ruling
The Petition has merit.
Preliminary Issue:
Propriety of Review
The correctness of legal conclusions drawn by the Court of Appeals from undisputed facts is
a question of law cognizable by the Supreme Court.9
In the present case, the facts are undisputed. As will be shown shortly, petitioner is
questioning the conclusions drawn from such facts. Hence, this case is a proper subject for
review by this Court.
Main Issue:
Liability for Damages
Petitioner contends that respondents have no personality to sue -- thus, no cause of action
against it -- because the payment made to Smithkline was erroneous.
Pertinent to this issue is the Certificate of Insurance10 ("Certificate") that both opposing
parties cite in support of their respective positions. They differ only in their interpretation of
what their rights are under its terms. The determination of those rights involves a question of
law, not a question of fact. "As distinguished from a question of law which exists 'when the
doubt or difference arises as to what the law is on a certain state of facts' -- 'there is a question
of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts';
or when the 'query necessarily invites calibration of the whole evidence considering mainly
the credibility of witnesses, existence and relevancy of specific surrounding circumstance,
their relation to each other and to the whole and the probabilities of the situation.'" 11
Proper Payee
The Certificate specifies that loss of or damage to the insured cargo is "payable to order x x
x upon surrender of this Certificate." Such wording conveys the right of collecting on any
such damage or loss, as fully as if the property were covered by a special policy in the name
of the holder itself. At the back of the Certificate appears the signature of the representative
of Burlington. This document has thus been duly indorsed in blank and is deemed a bearer
instrument.
Since the Certificate was in the possession of Smithkline, the latter had the right of collecting
or of being indemnified for loss of or damage to the insured shipment, as fully as if the
property were covered by a special policy in the name of the holder. Hence, being the holder
of the Certificate and having an insurable interest in the goods, Smithkline was the proper
payee of the insurance proceeds.
Subrogation
Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation
Receipt12 in favor of respondents. The latter were thus authorized "to file claims and begin
suit against any such carrier, vessel, person, corporation or government." Undeniably, the
consignee had a legal right to receive the goods in the same condition it was delivered for
transport to petitioner. If that right was violated, the consignee would have a cause of action
against the person responsible therefor.
Upon payment to the consignee of an indemnity for the loss of or damage to the insured
goods, the insurer's entitlement to subrogation pro tanto -- being of the highest equity --
equips it with a cause of action in case of a contractual breach or negligence. 13 "Further, the
insurer's subrogatory right to sue for recovery under the bill of lading in case of loss of or
damage to the cargo is jurisprudentially upheld." 14
In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To
all intents and purposes, it stands in the place and in substitution of the consignee. A
fortiori, both the insurer and the consignee are bound by the contractual stipulations under
the bill of lading.15
Prescription of Claim
From the initial proceedings in the trial court up to the present, petitioner has tirelessly pointed
out that respondents' claim and right of action are already barred. The latter, and even the
consignee, never filed with the carrier any written notice or complaint regarding its claim for
damage of or loss to the subject cargo within the period required by the Warsaw Convention
and/or in the airway bill. Indeed, this fact has never been denied by respondents and is plainly
evident from the records.
Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states:
"6. No action shall be maintained in the case of damage to or partial loss of the
shipment unless a written notice, sufficiently describing the goods concerned, the
approximate date of the damage or loss, and the details of the claim, is presented
by shipper or consignee to an office of Burlington within (14) days from the date the
goods are placed at the disposal of the person entitled to delivery, or in the case of
total loss (including non-delivery) unless presented within (120) days from the date
of issue of the [Airway Bill]."16
Relevantly, petitioner's airway bill states:
"12./12.1 The person entitled to delivery must make a complaint to the carrier in
writing in the case:
12.1.1 of visible damage to the goods, immediately after discovery of the damage
and at the latest within fourteen (14) days from receipt of the goods;
12.1.2 of other damage to the goods, within fourteen (14) days from the date of
receipt of the goods;
12.1.3 delay, within twenty-one (21) days of the date the goods are placed at his
disposal; and
12.1.4 of non-delivery of the goods, within one hundred and twenty (120) days from
the date of the issue of the air waybill.
12.2 For the purpose of 12.1 complaint in writing may be made to the carrier whose
air waybill was used, or to the first carrier or to the last carrier or to the carrier who
performed the transportation during which the loss, damage or delay took place."17
Article 26 of the Warsaw Convention, on the other hand, provides:
"ART. 26. (1) Receipt by the person entitled to the delivery of baggage or goods
without complaint shall be prima facie evidence that the same have been delivered
in good condition and in accordance with the document of transportation.
(2) In case of damage, the person entitled to delivery must complain to the carrier
forthwith after the discovery of the damage, and, at the latest, within 3 days from
the date of receipt in the case of baggage and 7 days from the date of receipt in the
case of goods. In case of delay the complaint must be made at the latest within 14
days from the date on which the baggage or goods have been placed at his
disposal.
(3) Every complaint must be made in writing upon the document of transportation
or by separate notice in writing dispatched within the times aforesaid.
(4) Failing complaint within the times aforesaid, no action shall lie against the carrier,
save in the case of fraud on his part."18
Condition Precedent
In this jurisdiction, the filing of a claim with the carrier within the time limitation therefor
actually constitutes a condition precedent to the accrual of a right of action against a carrier
for loss of or damage to the goods.19 The shipper or consignee must allege and prove the
fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue
in favor of the former. The aforementioned requirement is a reasonable condition precedent;
it does not constitute a limitation of action.20
The requirement of giving notice of loss of or injury to the goods is not an empty formalism.
The fundamental reasons for such a stipulation are (1) to inform the carrier that the cargo
has been damaged, and that it is being charged with liability therefor; and (2) to give it an
opportunity to examine the nature and extent of the injury. "This protects the carrier by
affording it an opportunity to make an investigation of a claim while the matter is fresh and
easily investigated so as to safeguard itself from false and fraudulent claims." 21
When an airway bill -- or any contract of carriage for that matter -- has a stipulation that
requires a notice of claim for loss of or damage to goods shipped and the stipulation is not
complied with, its enforcement can be prevented and the liability cannot be imposed on the
carrier. To stress, notice is a condition precedent, and the carrier is not liable if notice is not
given in accordance with the stipulation. 22 Failure to comply with such a stipulation bars
recovery for the loss or damage suffered.23

Being a condition precedent, the notice must precede a suit for enforcement. 24 In the present
case, there is neither an allegation nor a showing of respondents' compliance with this
requirement within the prescribed period. While respondents may have had a cause of action
then, they cannot now enforce it for their failure to comply with the aforesaid condition
precedent.

In view of the foregoing, we find no more necessity to pass upon the other issues raised by
petitioner.

We note that respondents are not without recourse. Cargohaus, Inc. -- petitioner's co-
defendant in respondents' Complaint below -- has been adjudged by the trial court as liable
for, inter alia, "actual damages in the amount of the peso equivalent of US $39,339." 25 This
judgment was affirmed by the Court of Appeals and is already final and executory. 26

WHEREFORE, the Petition is GRANTED, and the assailed Decision REVERSED insofar as
it pertains to Petitioner Federal Express Corporation. No pronouncement as to costs.

SO ORDERED.
G.R. No. 166245 April 9, 2008 The Life Insurance coverage of any Lot Purchaser at any time shall be the amount
of the unpaid balance of his loan (including arrears up to but not exceeding 2
ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner, months) as reported by the Assured to the Company or the sum of P100,000.00,
vs. whichever is smaller. Such benefit shall be paid to the Assured if the Lot Purchaser
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent. dies while insured under the Policy.

DECISION EFFECTIVE DATE OF BENEFIT.

VELASCO, JR., J.: The insurance of any eligible Lot Purchaser shall be effective on the date he
contracts a loan with the Assured. However, there shall be no insurance if the
application of the Lot Purchaser is not approved by the Company. 3
The Case
Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers,
Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and together with a copy of the application of each purchaser, and the amounts of the respective
set aside the November 26, 2004 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal
57810 is the query: May the inaction of the insurer on the insurance application be considered complied by submitting a letter dated December 29, 1982,4 containing a list of insurable
as approval of the application? balances of its lot buyers for October 1982. One of those included in the list as "new
business" was a certain John Chuang. His balance of payments was PhP 100,000. On
The Facts August 2, 1984, Chuang died.

On December 10, 1980, respondent Philippine American Life Insurance Company
(Philamlife) entered into an agreement denominated as Creditor Group Life Policy No. P-
19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy,
the clients of Eternal who purchased burial lots from it on installment basis would be insured
by Philamlife. The amount of insurance coverage depended upon the existing balance of the
purchased burial lots. The policy was to be effective for a period of one year, renewable on
a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Eternal sent a letter dated August 20, 1984 5 to Philamlife, which served as an insurance
claim for Chuang’s death. Attached to the claim were the following documents: (1) Chuang’s
Certificate of Death; (2) Identification Certificate stating that Chuang is a naturalized Filipino
Citizen; (3) Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assured’s
Certificate.
In reply, Philamlife wrote Eternal a letter on November 12, 1984, 6 requiring Eternal to submit
the following documents relative to its insurance claim for Chuang’s death: (1) Certificate of
Claimant (with form attached); (2) Assured’s Certificate (with form attached); (3) Application
for Insurance accomplished and signed by the insured, Chuang, while still living; and (4)
Statement of Account showing the unpaid balance of Chuang before his death.

Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of
age, is indebted to the Assured for the unpaid balance of his loan with the Assured,
and is accepted for Life Insurance coverage by the Company on its effective date
is eligible for insurance under the Policy.
EVIDENCE OF INSURABILITY.
Eternal transmitted the required documents through a letter dated November 14,
1984,7 which was received by Philamlife on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply to the latter’s
insurance claim. This prompted Eternal to demand from Philamlife the payment of the claim
for PhP 100,000 on April 25, 1986.8

No medical examination shall be required for amounts of insurance up to
P50,000.00. However, a declaration of good health shall be required for all Lot
Purchasers as part of the application. The Company reserves the right to require
further evidence of insurability satisfactory to the Company in respect of the
following:
1. Any amount of insurance in excess of P50,000.00.
In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter dated
May 20, 1986,9 a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and 9529
with Eternal Gardens Memorial Park in October 1982 for the total maximum
insurable amount of P100,000.00 each. No application for Group Insurance was
submitted in our office prior to his death on August 2, 1984.

2. Any lot purchaser who is more than 55 years of age. In accordance with our Creditor’s Group Life Policy No. P-1920, under Evidence of
Insurability provision, "a declaration of good health shall be required for all Lot
Purchasers as party of the application." We cite further the provision on Effective
LIFE INSURANCE BENEFIT. Date of Coverage under the policy which states that "there shall be no insurance if
the application is not approved by the Company." Since no application had been
 submitted by the Insured/Assured, prior to his death, for our approval but was
submitted instead on November 15, 1984, after his death, Mr. John Uy Chuang was
not covered under the Policy. We wish to point out that Eternal Gardens being the
Assured was a party to the Contract and was therefore aware of these pertinent
provisions.
With regard to our acceptance of premiums, these do not connote our approval per
se of the insurance coverage but are held by us in trust for the payor until the
prerequisites for insurance coverage shall have been met. We will however, return
all the premiums which have been paid in behalf of John Uy Chuang.
Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a
sum of money against Philamlife, docketed as Civil Case No. 14736. The trial court decided
in favor of Eternal, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
Plaintiff ETERNAL, against Defendant PHILAMLIFE, ordering the Defendant
PHILAMLIFE, to pay the sum of P100,000.00, representing the proceeds of the
Policy of John Uy Chuang, plus legal rate of interest, until fully paid; and, to pay the
sum of P10,000.00 as attorney’s fees.
SO ORDERED.
The RTC found that Eternal submitted Chuang’s application for insurance which he
accomplished before his death, as testified to by Eternal’s witness and evidenced by the
letter dated December 29, 1982, stating, among others: "Encl: Phil-Am Life Insurance
Application Forms & Cert."10 It further ruled that due to Philamlife’s inaction from the
submission of the requirements of the group insurance on December 29, 1982 to Chuang’s
death on August 2, 1984, as well as Philamlife’s acceptance of the premiums during the
same period, Philamlife was deemed to have approved Chuang’s application. The RTC said
that since the contract is a group life insurance, once proof of death is submitted, payment
must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No.
57810 is REVERSED and SET ASIDE, and the complaint is DISMISSED. No costs.
SO ORDERED.11
The CA based its Decision on the factual finding that Chuang’s application was not enclosed
in Eternal’s letter dated December 29, 1982. It further ruled that the non-accomplishment of
the submitted application form violated Section 26 of the Insurance Code. Thus, the CA
concluded, there being no application form, Chuang was not covered by Philamlife’s
insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of substance, not therefore
determined by this Honorable Court, or has decided it in a way not in accord with
law or with the applicable jurisprudence, in holding that:
I. The application for insurance was not duly submitted to respondent
PhilamLife before the death of John Chuang;
II. There was no valid insurance coverage; and
III. Reversing and setting aside the Decision of the Regional Trial Court
dated May 29, 1996.
The Court’s Ruling
As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised
before the CA and first level courts, considering their findings of facts are conclusive and
binding on this Court. However, such rule is subject to exceptions, as enunciated
in Sampayan v. Court of Appeals:
(1) when the findings are grounded entirely on speculation, surmises or conjectures;
(2) when the inference made is manifestly mistaken, absurd or impossible; (3) when
there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in
making its findings the [CA] went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the appellee; (7) when the
findings [of the CA] are contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are based; (9) when
the facts set forth in the petition as well as in the petitioner’s main and reply briefs
are not disputed by the respondent; (10) when the findings of fact are premised on
the supposed absence of evidence and contradicted by the evidence on record; and
(11) when the Court of Appeals manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a different
conclusion.12(Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court
may review them.
Eternal claims that the evidence that it presented before the trial court supports its contention
that it submitted a copy of the insurance application of Chuang before his death. In Eternal’s
letter dated December 29, 1982, a list of insurable interests of buyers for October 1982 was
attached, including Chuang in the list of new businesses. Eternal added it was noted at the
bottom of said letter that the corresponding "Phil-Am Life Insurance Application Forms &
Cert." were enclosed in the letter that was apparently received by Philamlife on January 15,
1983. Finally, Eternal alleged that it provided a copy of the insurance application which was
signed by Chuang himself and executed before his death.
On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient,
arguing that Eternal must present evidence showing that Philamlife received a copy of
Chuang’s insurance application.
The evidence on record supports Eternal’s position.
The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as
received, states that the insurance forms for the attached list of burial lot buyers were
attached to the letter. Such stamp of receipt has the effect of acknowledging receipt of the
letter together with the attachments. Such receipt is an admission by Philamlife against its
own interest.13 The burden of evidence has shifted to Philamlife, which must prove that the
letter did not contain Chuang’s insurance application. However, Philamlife failed to do so;
thus, Philamlife is deemed to have received Chuang’s insurance application.
To reiterate, it was Philamlife’s bounden duty to make sure that before a transmittal letter is
stamped as received, the contents of the letter are correct and accounted for.
Philamlife’s allegation that Eternal’s witnesses ran out of credibility and reliability due to
inconsistencies is groundless. The trial court is in the best position to determine the reliability
and credibility of the witnesses, because it has the opportunity to observe firsthand the
witnesses’ demeanor, conduct, and attitude. Findings of the trial court on such matters are
binding and conclusive on the appellate court, unless some facts or circumstances of weight
and substance have been overlooked, misapprehended, or misinterpreted, 14 that, if
considered, might affect the result of the case.15
An examination of the testimonies of the witnesses mentioned by Philamlife, however,
reveals no overlooked facts of substance and value.
Philamlife primarily claims that Eternal did not even know where the original insurance
application of Chuang was, as shown by the testimony of Edilberto Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required in case of new
coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill up two copies of this
form and the original of this is submitted to Philamlife together with the monthly
remittances and the second copy is remained or retained with the marketing
department of Eternal Gardens.
Atty. Miranda:
We move to strike out the answer as it is not responsive as counsel is merely asking
for the location and does not [ask] for the number of copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but when I submitted with
that payment together with the new clients all the originals I see to it before I sign
the transmittal letter the originals are attached therein. 16
In other words, the witness admitted not knowing where the original insurance application
was, but believed that the application was transmitted to Philamlife as an attachment to a
transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one
or two insurance application forms were accomplished and the testimony of Mendoza on who
actually filled out the application form, these are minor inconsistencies that do not affect the
credibility of the witnesses. Thus, we ruled in People v. Paredes that minor inconsistencies
are too trivial to affect the credibility of witnesses, and these may even serve to strengthen
their credibility as these negate any suspicion that the testimonies have been rehearsed.17
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential integrity of the
prosecution’s evidence as a whole or reflect on the witnesses’ honesty. The test is
whether the testimonies agree on essential facts and whether the respective
versions corroborate and substantially coincide with each other so as to make a
consistent and coherent whole.18
In the present case, the number of copies of the insurance application that Chuang executed
is not at issue, neither is whether the insurance application presented by Eternal has been
falsified. Thus, the inconsistencies pointed out by Philamlife are minor and do not affect the
credibility of Eternal’s witnesses.
However, the question arises as to whether Philamlife assumed the risk of loss without
approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor
Group Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he
contracts a loan with the Assured. However, there shall be no insurance if the
application of the Lot Purchaser is not approved by the Company.
An examination of the above provision would show ambiguity between its two sentences.
The first sentence appears to state that the insurance coverage of the clients of Eternal
already became effective upon contracting a loan with Eternal while the second sentence
appears to require Philamlife to approve the insurance contract before the same can become
effective.
It must be remembered that an insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer in order to safeguard
the latter’s interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court
held that:
Indemnity and liability insurance policies are construed in accordance with the
general rule of resolving any ambiguity therein in favor of the insured, where the
contract or policy is prepared by the insurer. A contract of insurance, being a
contract of adhesion, par excellence, any ambiguity therein should be
resolved against the insurer; in other words, it should be construed liberally in
favor of the insured and strictly against the insurer. Limitations of liability should be
 regarded with extreme jealousy and must be construed in such a way as to preclude (4) To pay Eternal attorney’s fees in the amount of PhP 10,000.
the insurer from noncompliance with its obligations. 19 (Emphasis supplied.)
No costs.
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we
reiterated the above ruling, stating that: SO ORDERED.

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

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

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

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

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

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

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

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