Insurance Law Reviewer ‘20
Based on the Book of De Leon.
PART F
B. In Life Insurance
1. Incontestability Clause
SECTION 48. After a policy of life insurance made
payable on the death of the insured shall have been
in force during the lifetime of the insured for a period
of two (2) years from the date of its issue or of its
last reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindable by reason of
the fraudulent concealment or misrepresentation of
the insured or his agent.
Grounds to rescind a contract of insurance
1. Concealment;
2. False representation; and
3. Breach of warranty.
An action to rescind a contract, under the first
paragraph of Section 48, is founded upon and
presupposes the existence of the contract, which is
rescinded.
In non-life policy, in order that the insurer may
rescind a contract of insurance, such right must be
exercised prior to the commencement of an action
on the contract. In other words, the insurer is no
longer entitled to rescind a contract of insurance
after the insured has filed an action to collect the
amount of the insurance.
In life policy, the defenses mentioned are available
only during the first two years of a life insurance
policy.
Incontestability of life policies
Incontestable clauses, in life insurance policies,
stipulating that the policy shall be incontestable
after a stated period are in general use. They create
a kind of contractual statute of limitations on
certain defenses that may be raised by the insurer.
Incontestability means that after the requisites are
shown to exist, the insurer shall be estopped from
contesting the policy or setting up any defense,
except as is allowed, on the ground of public policy.
In order that the insurance shall be incontestable,
the following requisites must be present:
1. The policy is a life insurance policy;
2. It is payable on the death of the insured; and
3. It has been in force during the lifetime of the
insured for at least two years from its date
of issue or of its last reinstatement.
The period of two years for contesting a life
insurance policy by the insurer may be shortened
but it cannot be extended by stipulation.
Effect when policy becomes incontestable
When a policy of life insurance becomes
incontestable, the insurer may not refuse to pay the
same by claiming that:
1. The policy is void ab initio; or
2. It is rescissible by reason of the fraudulent
concealment of the insured or his agent, no
matter how patent or well-founded; or
3. It is rescissible by reason of the fraudulent
misrepresentations of the insured or his agent.
Defenses not barred by incontestable clause
The incontestability of a policy under the law is not
absolute. Otherwise, a beneficiary of any person
who had procured a life policy more than two years
before his death would automatically be entitled to
the proceeds upon that person’s death.
The insurer may still contest the policy by way of
defense to a suit brought upon the policy or by
action to rescind the same, on any of the following
grounds:
1. That the person taking the insurance lacked
insurable interest as required by law;
2. That the cause of the death of the insured is an
excepted risk;
3. That the premiums have not been paid;
4. That the conditions of the policy relating to
military or naval service have been violated;
5. That the fraud is of a particularly vicious type;
6. That the beneficiary failed to furnish proof of
death or to comply with any condition imposed
by the policy after the loss has happened; or
7. That the action was not brought within the time
specified.
SECTION 233. In the case of individual life or
endowment insurance, the policy shall contain in
substance the following conditions:
(b) A provision that the policy shall be
incontestable after it shall have been in force
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during the lifetime of the insured for a period of benefits in

two (2) years from its date of issue as shown in case of
the policy, or date of approval of last disability.
reinstatement, except for nonpayment of Violations of Violation of Violations of
premium and except for violation of the Conditions of provisions Conditions of
conditions of the policy relating to military or the policy granting the policy
naval service in time of war; relating to additional relating to
military or insurance military or
SECTION 234. No policy of group life insurance naval service against death naval service
shall be issued and delivered in the Philippines in time of war. by accident or in time of war.
unless it contains in substance the following by loss or loss
provisions, or provisions which in the opinion of the of use of
Commissioner are more favorable to the persons specific
insured, or at least as favorable to the persons members of
insured and more favorable to the policyholders: the body.
(b) A provision that the validity of the policy shall
not be contested, except for nonpayment of MANILA BANKERS LIFE INSURANCE
premiums after it has been in force for two (2) CORPORATION, vs. CRESENCIA P. ABAN.
years from its date of issue; and that no [G.R. No. 175666. July 29, 2013.]
statement made by any insured under the policy
Facts: Sotero took out a life insurance policy
relating to his insurability shall be used in
from Manila Bankers Life Insurance Corporation,
contesting the validity of the insurance with
designating Aban, her niece, as her beneficiary.
respect to which such statement was made
after such insurance has been in force prior to Petitioner issued Insurance Policy No. 747411 (the
the contest for a period of two (2) years during policy), with a face value of P100,000.00, in Sotero's
such person's lifetime nor unless contained in a favor on August 30, 1993, after the requisite medical
written instrument signed by him;
examination and payment of the insurance
premium.
SECTION 236. In the case of industrial life
insurance, the policy shall contain in substance the On April 10, 1996, when the insurance policy had
following provisions: been in force for more than two years and seven
(b) A provision that the policy shall be months, Sotero died. Respondent filed a claim for
incontestable after it has been in force during the insurance proceeds. Petitioner conducted an
the lifetime of the insured for a specified period,
investigation into the claim, and came out with the
not more than two (2) years from its date of
following findings:
issue, except for nonpayment of premiums and
except for violation of the conditions of the 1. Sotero did not personally apply for insurance
policy relating to naval or military service, or coverage, as she was illiterate;
services auxiliary thereto, and except as to 2. Sotero was sickly since 1990;
provisions relating to benefits in the event of 3. Sotero did not have the financial capability to pay the
disability as defined in the policy, and those insurance premiums on Insurance Policy No.
granting additional insurance specifically 747411;
against death by accident or by accidental 4. Sotero did not sign the July 3, 1993 application for
means, or to additional insurance against loss insurance; [and]
of, or loss of use of, specific members of the 5. Respondent was the one who filed the insurance
body; application, and . . . designated herself as the
beneficiary.
INDIVIDUAL GROUP LIFE INDUSTRIAL
LIFE LIFE Petitioner denied respondent's claim on April 16,
Non-payment Violation of Non-payment 1997 and refunded the premiums paid on the policy
of Premium. provisions on of Premium.

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and filed a civil case for rescission and/or
annulment of the policy.
The main thesis of the Complaint was that the
policy was obtained by fraud, concealment and/or
misrepresentation under the Insurance Code, which
thus renders it voidable under Article 1390 of the
Civil Code.
The Regional Trial Court ruled in favor of
Respondent.
The Court of Appeals thus sustained the trial court.
Applying Section 48 to petitioner’s case.
Issue: WON the petitioner may rescind the
insurance contract by reason of concealment. NO.
Ruling: Section 48 serves a noble purpose, as it
regulates the actions of both the insurer and the
insured.
Under the provision, an insurer is given two years —
from the effectivity of a life insurance contract and
while the insured is alive — to discover or prove that
the policy is void ab initio or is rescindible by reason
of the fraudulent concealment or misrepresentation
of the insured or his agent. After the two-year period
lapses, or when the insured dies within the period,
the insurer must make good on the policy, even
though the policy was obtained by fraud,
concealment, or misrepresentation. This is not to
say that insurance fraud must be rewarded, but that
insurers who recklessly and indiscriminately solicit
and obtain business must be penalized, for such
recklessness and lack of discrimination ultimately
work to the detriment of bona fide takers of
insurance and the public in general.
Section 48 regulates both the actions of the
insurers and prospective takers of life insurance. It
gives insurers enough time to inquire whether the
policy was obtained by fraud, concealment, or
misrepresentation; on the other hand, it forewarns
scheming individuals that their attempts at
insurance fraud would be timely uncovered — thus
deterring them from venturing into such nefarious
enterprise. At the same time, legitimate policy
holders are absolutely protected from unwarranted
denial of their claims or delay in the collection of
insurance proceeds occasioned by allegations of
fraud, concealment, or misrepresentation by
insurers, claims which may no longer be set up after
the two-year period expires as ordained under the
law.
Thus, the self-regulating feature of Section 48 lies
in the fact that both the insurer and the insured are
given the assurance that any dishonest scheme to
obtain life insurance would be exposed and
attempts at unduly denying a claim would be struck
down. Life insurance policies that pass the
statutory two-year period are essentially treated as
legitimate and beyond question, and the individuals
who wield them are made secure by the thought
that they will be paid promptly upon claim. In this
manner, Section 48 contributes to the stability of
the insurance industry.
Section 48 prevents a situation where the insurer
knowingly continues to accept annual premium
payments on life insurance, only to later on deny a
claim on the policy on specious claims of fraudulent
concealment and misrepresentation, such as what
obtains in the instant case. Thus, instead of
conducting at the first instance an investigation
into the circumstances surrounding the issuance of
Insurance Policy No. 747411 which would have
timely exposed the supposed flaws and
irregularities attending it as it now professes,
petitioner appears to have turned a blind eye and
opted instead to continue collecting the premiums
on the policy. For nearly three years, petitioner
collected the premiums and devoted the same to its
own profit. It cannot now deny the claim when it is
called to account. Section 48 must be applied to it
with full force and effect.
The Court therefore agrees fully with the appellate
court's pronouncement that —
[t]he "incontestability clause" is a provision in law
that after a policy of life insurance made payable on
the death of the insured shall have been in force
during the lifetime of the insured for a period of two
(2) years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindible by reason of
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fraudulent concealment or misrepresentation of the
insured or his agent.
The purpose of the law is to give protection to the
insured or his beneficiary by limiting the rescinding
of the contract of insurance on the ground of
fraudulent concealment or misrepresentation to a
period of only two (2) years from the issuance of the
policy or its last reinstatement.
The insurer is deemed to have the necessary
facilities to discover such fraudulent concealment
or misrepresentation within a period of two (2)
years. It is not fair for the insurer to collect the
premiums as long as the insured is still alive, only
to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to
defeat the right of the beneficiary to recover under
the policy.
At least two (2) years from the issuance of the policy
or its last reinstatement, the beneficiary is given the
stability to recover under the policy when the
insured dies. The provision also makes clear when
the two-year period should commence in case the
policy should lapse and is reinstated, that is, from
the date of the last reinstatement.
After two years, the defenses of concealment or
misrepresentation, no matter how patent or well-
founded, will no longer lie.
The so-called "incontestability clause" precludes
the insurer from raising the defenses of false
representations or concealment of material facts
insofar as health and previous diseases are
concerned if the insurance has been in force for at
least two years during the insured's lifetime. The
phrase "during the lifetime" found in Section 48
simply means that the policy is no longer
considered in force after the insured has died. The
key phrase in the second paragraph of Section 48 is
"for a period of two years."
As borne by the records, the policy was issued on
August 30, 1993, the insured died on April 10, 1996,
and the claim was denied on April 16, 1997. The
insurance policy was thus in force for a period of 3
years, 7 months, and 24 days. Considering that the
insured died after the two-year period, the plaintiff-
appellant is, therefore, barred from proving that the
policy is void ab initio by reason of the insured's
fraudulent concealment or misrepresentation or
want of insurable interest on the part of the
beneficiary, herein defendant-appellee.
Petitioner claims that its insurance agent, who
solicited the Sotero account, happens to be the
cousin of respondent's husband, and thus
insinuates that both connived to commit insurance
fraud. If this were truly the case, then petitioner
would have discovered the scheme earlier if it had
in earnest conducted an investigation into the
circumstances surrounding the Sotero policy. But
because it did not and it investigated the Sotero
account only after a claim was filed thereon more
than two years later, naturally it was unable to
detect the scheme. For its negligence and inaction,
the Court cannot sympathize with its plight. Instead,
its case precisely provides the strong argument for
requiring insurers to diligently conduct
investigations on each policy they issue within the
two-year period mandated under Section 48, and
not after claims for insurance proceeds are filed
with them.
Besides, if insurers cannot vouch for the integrity
and honesty of their insurance agents/salesmen
and the insurance policies they issue, then they
should cease doing business. If they could not
properly screen their agents or salesmen before
taking them in to market their products, or if they do
not thoroughly investigate the insurance contracts
they enter into with their clients, then they have only
themselves to blame. Otherwise said, insurers
cannot be allowed to collect premiums on
insurance policies, use these amounts collected
and invest the same through the years, generating
profits and returns therefrom for their own benefit,
and thereafter conveniently deny insurance claims
by questioning the authority or integrity of their own
agents or the insurance policies they issued to their
premium-paying clients. This is exactly one of the
schemes which Section 48 aims to prevent.
Insurers may not be allowed to delay the payment
of claims by filing frivolous cases in court, hoping
that the inevitable may be put off for years — or even
decades — by the pendency of these unnecessary
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court cases. In the meantime, they benefit from
collecting the interest and/or returns on both the
premiums previously paid by the insured and the
insurance proceeds which should otherwise go to
their beneficiaries. The business of insurance is a
highly regulated commercial activity in the country,
and is imbued with public interest. "[A]n 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
[former's] interest."
2. Misrepresentation as to age
SECTION 233. In the case of individual life or
endowment insurance, the policy shall contain in
substance the following conditions:
(d) A provision that if the age of the insured is
considered in determining the premium and the
benefits accruing under the policy, and the age
of the insured has been misstated, the amount
payable under the policy shall be such as the
premium would have purchased at the correct
age;
Life policies contain a special clause covering the
subject that is equitable to both the insured and
insurer. The clause provides that if the age of the
insured has been misstated, the amount payable
under the policy shall be such as the premium paid
would have purchased at the correct age.
Since age misinterpretation is covered by a special
clause, it cannot fall within the scope of the
incontestable clause.
C. In Marine Insurance
SECTION 109. In marine insurance, each party is
bound to communicate, in addition to what is
required by Section 28, all the information which he
possesses, material to the risk, except such as is
mentioned in Section 30, and to state the exact and
whole truth in relation to all matters that he
represents, or upon inquiry discloses or assumes to
disclose.
Concealment in marine insurance is the failure to
disclose any material fact or circumstance which in
fact or law is within, or which ought to be within the
knowledge of one party and of which the other has
no actual or presumptive knowledge.
Under Section 107, to constitute concealment, it is
sufficient that the insured is in possession of the
material fact concealed although he may not be
aware of it.
SECTION 113. If a representation by a person
insured by a contract of marine insurance, is
intentionally false in any material respect, or in
respect of any fact on which the character and
nature of the risk depends, the insurer may rescind
the entire contract.
Effect of false representation by insured
1. Intentional. Any misrepresentation of a material
fact made with fraudulent intent avoids the
policy.
2. Not intentional. If the misrepresentation is not
intentional or fraudulent but the fact
misrepresented is material to the risk, the
insurer may also rescind the contract from the
time the representation becomes false.
SECTION 114. The eventual falsity of a
representation as to expectation does not, in the
absence of fraud, avoid a contract of marine
insurance.
Representations of expectation or intention are
statements of future facts or events which are in
their nature contingent and which the insurer is
bound to know that the insured could not have
intended to state as known facts, but as intentions
or expectations merely. Hence, unless made with
fraudulent intent, their failure of fulfillment is not a
ground for rescission.
III. Breach of Warranty- 74-75
SECTION 74. The violation of a material warranty, or
other material provision of a policy, on the part of
either party thereto, entitles the other to rescind.
The violation of the terms of a contract of insurance
entitles either party to terminate the contractual
relations.
The insurer is entitled to rescind a contract of
insurance for violation of a warranty only if said
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warranty is material; otherwise, the breach thereof
will not avoid the policy. The right of the insurer to
rescind under Section 74 exists even though the
violation was not the direct cause of the loss.
SECTION 75. A policy may declare that a violation
of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision
does not avoid the policy.
Under American jurisprudence, every warranty is
conclusively presumed material. Hence, a warranty
as to any fact will preclude any inquiry as to the
materiality of that fact. It need only be false.
However, the parties may expressly stipulate that
the violation of a particular provision (although
immaterial) in the policy shall avoid it. By such
stipulation, the parties convert an immaterial
warranty into a material one.
A. Warranty
TITLE 7
Warranties
SECTION 67. A warranty is either expressed or
implied.
3. Affirmative warranty. It is one which asserts the
existence of a fact or condition at the time it is
made. Such warranty is continuing if it is one that
must be satisfied during the entire coverage
period of the insurance.
4. Promissory warranty. It is one where the insured
stipulates that certain facts or conditions
pertaining to the risk shall exist or that certain
things with reference thereto shall be done or
omitted.
The presumption is that the warranty is merely
affirmative, unless the contrary intention appears.
SECTION 68. A warranty may relate to the past, the
present, the future, or to any or all of these.
However, in the case of a promissory warranty, the
same may refer only to future events.
SECTION 69. No particular form of words is
necessary to create a warranty.
Whether a statement made by the insured in the
policy is a warranty depends upon the intention of
the parties in regard therein.

Warranty is a statement or promise by the insured In case of doubt, a statement will be construed as a
contained in the policy itself or incorporated in or representation rather than a warranty especially if
attached to it by proper reference, the falsity or such statement is contained in any instrument
nonfulfillment of which and regardless of whether other than the policy like an application which is, in
or not the insurer has suffered loss or prejudice as itself, collateral merely to the contract of insurance.
a result of the falsity or nonfulfillment, renders the The parties must intend a statement to be a
policy voidable at the election of the insurer. warranty and it must be included as a part of the
contract.
Note: It may also be made by the insurer.
Warranty Representation
Kinds of Warranties: Considered a part of Collateral inducement
1. Express warranty. It is an agreement contained the contract
in the policy or clearly incorporated therein as Always writer on the May be written in a
part thereof whereby the insured stipulates that face of the policy, totally disconnected
certain facts relating to the risk are or shall be actually or by reference paper or may be oral
true or certain acts relating to the same subjects Falsity or non- Falsity renders the
have been or shall be done. fulfillment operates as policy voidable or
2. Implied warranty. It is a warranty which from the a breach of contract rescissible on the
very nature of the contract or from the general ground of fraud
tenor of the words, although no express warranty Presumed material Materiality must be
is mentioned, is necessarily embodied in the shown in order to
policy as a part thereof and which binds the defeat an action on the
insured as though expressed in the contract. policy

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Before a representation will be considered a
warranty, it must be expressly included or
incorporated by clear reference in the policy and the
contract must clearly show that the parties
intended that the rights of the insured would depend
on the truth or fulfillment of the warranty.
PRUDENTIAL GUARANTEE and ASSURANCE
INC. vs. TRANS-ASIA SHIPPING LINES, INC.
[G.R. No. 151890. June 20, 2006.]
Facts: TRANS-ASIA is the owner of the vessel
M/V Asia Korea. In consideration of payment of
premiums, defendant PRUDENTIAL insured
M/V Asia Korea for loss/damage of the hull and
machinery arising from perils, inter alia, of fire and
explosion for the sum of P40 Million.
On October 25, 1993, while the policy was in force, a
fire broke out while M/V Asia Korea was undergoing
repairs at the port of Cebu. TRANS-ASIA filed its
notice of claim for damage sustained by the vessel.
Plaintiff TRANS-ASIA reserved its right to
subsequently notify PRUDENTIAL as to the full
amount of the claim upon final survey and
determination by average adjuster Phil. of the
damage sustained by reason of fire. An adjuster's
report on the fire in question was submitted by
Richard Hogg International together with the U-
Marine Surveyor Report.
On May 29, 1995 TRANS-ASIA executed a
document denominated "Loan and Trust receipt”.
Defendant [PRUDENTIAL] denied plaintiff's claim.
This was followed by defendant's letter requesting
the return or payment of the P3,000,000.00 within a
period of ten (10) days from receipt of the letter.
On 13 August 1997, TRANS-ASIA filed a Complaint
for Sum of Money against PRUDENTIAL with the
RTC of Cebu City.
PRUDENTIAL denied the material allegations of the
Complaint and interposed the defense that TRANS-
ASIA breached insurance policy conditions, in
particular: "WARRANTED VESSEL CLASSED AND
CLASS MAINTAINED." PRUDENTIAL further alleged
that it acted as facts and law require and incurred
no liability to TRANS-ASIA; that TRANS-ASIA has
no cause of action; and, that its claim has been
effectively waived and/or abandoned, or it is
estopped from pursuing the same.
The Trial Court ruled finding for (therein defendant)
PRUDENTIAL. It ruled that a determination of the
parties' liabilities hinged on whether TRANS-ASIA
violated and breached the policy conditions on
WARRANTED VESSEL CLASSED AND CLASS
MAINTAINED. It interpreted the provision to mean
that TRANS-ASIA is required to maintain the vessel
at a certain class at all times pertinent during the
life of the policy. According to the court a quo,
TRANS-ASIA failed to prove compliance of the
terms of the warranty, the violation thereof entitled
PRUDENTIAL, the insured party, to rescind the
contract.
The Court of Appeals in its assailed reversed the
Judgment of the RTC. It ruled that PRUDENTIAL, as
the party asserting the non-compensability of the
loss had the burden of proof to show that TRANS-
ASIA breached the warranty, which burden it failed
to discharge.
In the same token, the Court of Appeals found the
subject warranty allegedly breached by TRANS-
ASIA to be a rider which, while contained in the
policy, was inserted by PRUDENTIAL without the
intervention of TRANS-ASIA. As such, it partakes of
a nature of a contract d'adhesion which should be
construed against PRUDENTIAL, the party which
drafted the contract. Likewise, according to the
Court of Appeals, PRUDENTIAL's renewal of the
insurance policy from noon of 1 July 1994 to noon
of 1 July 1995, and then again, until noon of 1 July
1996 must be deemed a waiver by PRUDENTIAL of
any breach of warranty committed by TRANS-ASIA.
Issue: WON Trans-Asia breached the warranty
stated in the insurance policy. NO.
Ruling: PRUDENTIAL failed to establish that
TRANS-ASIA violated and breached the policy
condition on WARRANTED VESSEL CLASSED AND
CLASS MAINTAINED, as contained in the subject
insurance contract.
As found by the Court of Appeals and as supported
by the records, Bureau Veritas is a classification
society recognized in the marine industry. As it is
undisputed that TRANS-ASIA was properly classed
at the time the contract of insurance was entered
into, thus, it becomes incumbent upon PRUDENTIAL
to show evidence that the status of TRANS-ASIA as
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being properly CLASSED by Bureau Veritas had
shifted in violation of the warranty. Unfortunately,
PRUDENTIAL failed to support the allegation.
The lack of a certification in PRUDENTIAL’s records
to the effect that TRANS-ASIA’s "M/V Asia Korea"
was CLASSED AND CLASS MAINTAINED at the time
of the occurrence of the fire cannot be tantamount
to the conclusion that TRANS-ASIA in fact breached
the warranty contained in the policy.
It was likewise the responsibility of the average
adjuster, Richards Hogg International (Phils.), Inc.,
to secure a copy of such certification, and the
alleged breach of TRANS-ASIA cannot be gleaned
from the average adjuster’s survey report, or
adjustment of particular average per "M/V Asia
Korea" of the 25 October 1993 fire on board.
The Supreme Court is not unmindful of the clear
language of Sec. 74 of the Insurance Code which
provides that, "the violation of a material warranty
or other material provision of a policy on the part of
either party thereto, entitles the other to rescind."
It is generally accepted that "a warranty is a
statement or promise set forth in the policy, or by
reference incorporated therein, the untruth or non-
fulfillment of which in any respect, and without
reference to whether the insurer was in fact
prejudiced by such untruth or non- fulfillment,
renders the policy voidable by the insurer."
However, it is similarly indubitable that for the
breach of a warranty to avoid a policy, the same
must be duly shown by the party alleging the
same. We cannot sustain an allegation that
is unfounded. Consequently, PRUDENTIAL, not
having shown that TRANS-ASIA breached the
warranty condition, CLASSED AND CLASS
MAINTAINED, it remains that TRANS-ASIA must be
allowed to recover its rightful claims on the policy.
Assuming arguendo that TRANS-ASIA violated the
policy condition on WARRANTED VESSEL CLASSED
AND CLASS MAINTAINED, PRUDENTIAL made a
valid waiver of the same.
PRUDENTIAL can be deemed to have made a valid
waiver of TRANS-ASIA’s breach of warranty as
alleged. Because after the loss, Prudential renewed
the insurance policy of Trans-Asia for two (2)
consecutive years, from noon of 01 July 1994 to
noon of 01 July 1995, and then again until noon of
01 July 1996. This renewal is deemed a waiver of
any breach of warranty.
PRUDENTIAL, in renewing TRANS-ASIA’s insurance
policy for two consecutive years after the loss
covered by Policy No. MH93/1363, was considered
to have waived TRANS-ASIA’s breach of the subject
warranty, if any. Breach of a warranty or of a
condition renders the contract defeasible at the
option of the insurer; but if he so elects, he may
waive his privilege and power to rescind by the mere
expression of an intention so to do. In that event his
liability under the policy continues as before. There
can be no clearer intention of the waiver of the
alleged breach than the renewal of the policy
insurance granted by PRUDENTIAL to TRANS-ASIA
in MH94/1595 and MH95/1788, issued in the years
1994 and 1995, respectively.
UNION MANUFACTURING CO., INC. and the
REPUBLIC BANK, plaintiffs, REPUBLIC
BANK, vs. PHILIPPINE GUARANTY CO., INC.
[G.R. No. L-27932. October 30, 1972.]
Facts: Union Manufacturing Co., Inc. obtained
certain loans, overdrafts and other credit
accommodations from the Republic Bank for
P415,000.00 with interest at 9% per annum from
said date and to secure the payment, Union
Manufacturing executed a real and chattel
mortgages on certain properties. As additional
condition of the mortgage contract, Union
Manufacturing undertook to secure insurance
coverage over the mortgaged properties for the
same amount of P415,000.00.
As Union Manufacturing failed to secure insurance
coverage on the mortgaged properties, Republic
Bank procured from the Philippine Guaranty Co.,
Inc. an insurance coverage on loss against fire for
P500,000.00 over the properties of the Union
Manufacturing with the annotation that loss or
damage, if any, under is payable to Republic Bank
as its interest may appear, subject however to the
printed conditions of the Fire Insurance Policy
Form; Fire Insurance Policy No. 43170 was issued
for the sum of P500,000.00 in favor of the assured,
Union Manufacturing for which the corresponding
8
 Insurance Law Reviewer ‘20
Based on the Book of De Leon.
premium of was paid by the Republic Bank to
Philippine Guaranty.
Upon the expiration of said fire policy, the same was
renewed by the Republic Bank upon payment of the
corresponding premium.
A fire occurred in the premises of the Union
Manufacturing,
Union Manufacturing filed its fire claim with
Philippine Guaranty but was denied on the following
grounds:
(a) When Philippine Guaranty issued Fire Insurance
Policy No. 43170 ... in the sum of P500,000.00
to cover the properties of the Union
Manufacturing the same properties were
already covered by Fire Policy of the Sincere
Insurance Company and by insurance policies
of the Oceanic Insurance Agency; and
(b) When Fire Insurance Policy No. 43170 was
already in full force and effect, Union
Manufacturing without the consent of Philippine
Guaranty Co., Inc., obtained other insurance
policies totalling P305,000.00 over the same
properties prior to the fire.
Issue: WON Republic Bank can recover its interest
(as mortgagee) from the Fire Insurance Policy with
Philippine Guaranty. NO.
Ruling: In as much as the Union Manufacturing has
violated the condition of the policy to the effect that
it did not reveal the existence of other insurance
policies over the same properties, as required by the
warranty appearing on the face of the policy and
that said Union Manufacturing Co., Inc. represented
that there were no other insurance policies at the
time of the issuance of said defendant's policy, and
it appearing furthermore that while the policy of the
defendant was in full force and effect the Union
Manufacturing Co., Inc. secured other fire insurance
policies without the written consent of the
defendant endorsed on the policy, the conclusion is
inevitable that both the Republic Bank and Union
Manufacturing Co., Inc. cannot recover from the
same policy of the defendant because the same is
null and void.
It is to Santa Ana v. Commercial Union Assurance
Co. a 1930 decision:
"Without deciding whether notice of other insurance
upon the same property must be given in writing, or
whether a verbal notice is sufficient to render an
insurance valid which requires such notice, whether oral
or written, we hold that in the absolute absence of such
notice when it is one of the conditions specified in the fire
insurance policy, the policy is null and void."
The next year, in Ang Giok Chip v. Springfield Fire &
Marine Ins. Co., the conformity of the insured to the
terms of the policy, implied from the failure to
express any disagreement with what is provided for,
was stressed in these words of the ponente, Justice
Malcolm:
"It is admitted that the policy before us was accepted by
the plaintiff. The receipt of this policy by the insured
without objection binds both the acceptor and the
insured to the terms thereof. The insured may not
thereafter be heard to say that he did not read the policy
or know its terms, since it is his duty to read his policy
and it will be assumed that he did so."
As far back as 1915, in Young v. Midland Textile
Insurance Company, it was categorically set forth
that as a condition precedent to the right of
recovery, there must be compliance on the part of
the insured with the terms of the policy. As stated in
the opinion of the Court through Justice Johnson:
"If the insured has violated or failed to perform the
conditions of the contract, and such a violation or want
of performance has not been waived by the insurer, then
the insured cannot recover. Courts are not permitted to
make contracts for the parties. The function and duty of
the courts consist simply in enforcing and carrying out
the contracts actually made. While it is true, as a general
rule, that contracts of insurance are construed most
favorably to the insured, yet contracts of insurance, like
other contracts, are to be construed according to the
sense and meaning of the terms which the parties
themselves have used. If such terms are clear and
unambiguous they must be taken and understood in their
plain, ordinary and popular sense."
More specifically, there was a reiteration of this
Santa Ana ruling in a decision by the then Justice,
later Chief Justice, Bengzon, in General Insurance &
Surety Corp. v. Ng Hua. Thus:
"The annotation then, must be deemed to be a warranty
that the property was not insured by any other policy.
Violation thereof entitles the insurer to rescind. (Sec. 69,
Insurance Act) Such misrepresentation is fatal in the
light of our views in Santa Ana v. Commercial Union
Assurance Company, Ltd. . . . The materiality of non-
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 Insurance Law Reviewer ‘20
Based on the Book of De Leon.
disclosure of other insurance policies is not open to
doubt."
As a matter of fact, in a 1966 decision, Misamis
Lumber Corp. v. Capital Ins. & Surety Co.,
Inc., Justice J.B.L. Reyes, for this Court, made
manifest anew its adherence to such a principle in
the face of an assertion that thereby a highly
unfavorable provision for the insured would be
accorded recognition. This is the language used:
"The insurance contract may be rather ponerous ('one
sided', as the lower court put it), but that in itself does not
justify the abrogation of its express terms, terms which
the insured accepted or adhered to and which is the law
between the contracting parties."
1. Express
SECTION 70. Without prejudice to Section 51, every
express warranty, made at or before the execution
of a policy, must be contained in the policy itself, or
in another instrument signed by the insured and
referred to in the policy as making a part of it.
In order that a stipulation may be considered a
warranty, it must not only be clearly shown that the
parties intended it as such but it must also form part
of the contract itself or if contained in another
instrument, it must be signed by the insured and
referred to in the policy as making a part of it.
A rider attached to a policy is a part of the contract,
to the same extent and with like effect as if actually
embodied therein. Consequently, it need not be
signed by the insured nor referred to in the policy as
making a part of it.
SECTION 72. A statement in a policy, which imparts
that it is intended to do or not to do a thing which
materially affects the risk, is a warranty that such
act or omission shall take place.
Section 72 refers to a promissory warranty. Breach
of promises or agreements as to future acts will not
avoid a policy unless the promises are material to
the risk.
The act or omission is material to the risk if it
increases the risk, and under the law, only
substantial increase of risk works forfeiture of the
policy which is avoided for increase in hazard.
SECTION 73. When, before the time arrives for the
performance of a warranty relating to the future, a
loss insured against happens, or performance
becomes unlawful at the place of the contract, or
impossible, the omission to fulfill the warranty does
not avoid the policy.
General Rule: A violation of a warranty avoids a
contract of insurance.
Exceptions:
1. When loss occurs before time for performance
2. When performance becomes unlawful
3. When performance becomes impossible (legal
impossibility or physical impossibility)
Where insurer barred by waiver or estoppel
Breach of warranty operates to discharge the
insurer from liability unless the insurer is liable
because of a waiver of the warranty or an estoppel.
Waiver may be defined as "an intentional
relinquishment of a known right." It may be express
or implied. If waiver is to be implied from conduct
mainly, said conduct must be clearly indicative of a
clear intent of the insurer to waive its right under the
policy.
Under estoppel, the insurer is precluded, because of
some action or inaction on its part, from relying on
an otherwise valid defense as against the insured
who has been induced to enter into the contract by
the insurer's representation or conduct. The ground
of estoppel is that it would be against equity and
good conscience for the insurer to assert such
defense.
SECTION 76. A breach of warranty without fraud
merely exonerates an insurer from the time that it
occurs, or where it is broken in its inception,
prevents the policy from attaching to the risk.
The breach referred to under Section 76 is one
without fraud. In order that the insurer may be
entitled to rescind a contract of insurance on the
ground of a breach of warranty, fraud is not
essential. Falsity, not fraud, is the basis of liability
on a warranty.
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 Insurance Law Reviewer ‘20
Based on the Book of De Leon.
Where there is no fraud, the policy is avoided only
from the time of breach and the insured is entitled
(a) to the return of premium paid at a pro rata rate
from the time of breach if it occurs after the
inception of the contract; or
(b) to all the premiums if it is broken during the
inception of the contract.
In the latter case, the contract is void ab initio and
never becomes binding.
Where there is fraud, the policy is avoided ab initio,
and the insured is not entitled to the return of the
premium paid.
Summary
1. If there is no fraud, the policy is void only from
the time of the breach.
2. If there is fraud, the policy is void ab initio.
Conditions in insurance policy
A condition is an event signifying in its broadest
sense either an occurrence or a non-occurrence
that alters the previously existing legal relations of
the parties to the contract.
1. A condition precedent calls for the happening of
some event or the performance of some act
after the terms of the contract have been agreed
upon, before the contract shall be binding on the
parties, such as that the policy shall not take
effect until delivery and payment of the first
premium during the good health of the
applicant.
2. A condition subsequent is that which pertains
not to the attachment of the risk and the
inception of the policy, but to the contract of
insurance after the risk has attached and during
the existence thereof.
Exceptions in insurance policy
Exceptions are inserted in a contract of insurance
for the purpose of withdrawing from the coverage of
the policy, as delimited by the general language
describing the risk assumed, some specific risks
which the insurer declares himself unwilling to
undertake.
2. Implied
SECTION 115. In every marine insurance upon a
ship or freight, or freightage, or upon any thing
which is the subject of marine insurance, a warranty
is implied that the ship is seaworthy.
In marine insurance, a warranty has been defined as
a stipulation, either expressed or implied, forming
part of the policy as to some fact, condition or
circumstance relating to the risk.
Implied warranties in marine insurance
The insurer will not be liable for any loss under his
policy in case the vessel:
1. Is unseaworthy at the inception of the insurance
(Sec. 113); or
2. Deviates from the agreed voyage (Secs. 123-
125); or
3. Engages in an illegal venture; or
4. The ship carry the requisite documents of
nationality or neutrality of the ship or cargo
where such nationality or neutrality is expressly
warranted (Sec. 122).
Implied warranty of seaworthiness
In every voyage policy of marine insurance, there is
an implied warranty that the vessel is in all respects
seaworthy, and such warranty can be excluded only
by clear provisions of the policy.
If the policy provides that the seaworthiness of the
vessel as between insured and insurer is admitted,
the issue of seaworthiness cannot be raised by the
insurer without showing concealment or
misrepresentation by the insured.
Where cargo is the subject of marine insurance, the
implied warranty of seaworthiness attaches to
whoever is insuring the cargo, whether he be the
shipowner or not. The fact that the
unseaworthiness of the ship was unknown to
insured is immaterial in ordinary marine insurance
and may not be used by him as a defense in order
to recover on the marine insurance policy.
Where a vessel is found unseaworthy, a shipowner
is presumed to be negligent since it is tasked with
the maintenance of its vessel. Though its duty can
be delegated, still, the shipowner must exercise
close supervision over its men. An exception to the
limited liability doctrine which limits the insurer's
liability to it pro rata share in the insurance
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 Insurance Law Reviewer ‘20
Based on the Book of De Leon.
proceeds, is when the damage is due to the fault of
the shipowner and the captain. In such case, the
shipowner, unless it overcomes the presumption of
negligence, is liable to the total value of the damage
or loss.
SECTION 116. A ship is seaworthy when reasonably
fit to perform the service and to encounter the
ordinary perils of the voyage contemplated by the
parties to the policy.
Seaworthiness is a relative term depending upon
the nature of the ship, the voyage, and the service in
which she is at the time engaged. Generally, for a
vessel to be seaworthy, it must be adequately
equipped for the voyage and manned with a
sufficient number of competent officers and crew.
Seaworthiness relates to the vessel's actual
condition at the time of the commencement of the
voyage.
To comply with the implied warranty of
seaworthiness, the vessel must be in a fit state as
to repair, equipment, crew and in all other respects
to perform the voyage insured and to encounter the
ordinary perils of navigation. She must also be in a
suitable condition to carry the cargo put on board or
intended to be put on board. It is not necessary that
the cargo itself shall be seaworthy.
What is reasonable fitness to encounter the perils
expected to arise in the course of the voyage vary,
naturally, with the character of the particular
voyage.
However, the warranty of seaworthiness is not an
absolute guaranty that the vessel will safely meet
all possible perils.
SECTION 117. An implied warranty of
seaworthiness is complied with if the ship be
seaworthy at the time of the commencement of the
risk, except in the following cases:
(a) When the insurance is made for a specified
length of time, the implied warranty is not
complied with unless the ship be seaworthy
at the commencement of every voyage it
undertakes during that time;
(b) When the insurance is upon the cargo which,
by the terms of the policy, description of the
voyage, or established custom of the trade,
is to be transhipped at an intermediate port,
the implied warranty is not complied with
unless each vessel upon which the cargo is
shipped, or transhipped, be seaworthy at the
commencement of each particular voyage.
The general rule is that the warranty of
seaworthiness is complied with if the ship be
seaworthy at the time of the commencement of the
risk. Prior or subsequent unseaworthiness is not a
breach of the warranty; nor is it material that the
vessel arrives in safety at the end of her voyage.
There is no implied warranty that the vessel will
remain in seaworthy condition throughout the life of
the policy.
The following are the exceptions:
1. In the case of time policy, the ship must be
seaworthy at the commencement of every
voyage she may undertake;
2. In the case of cargo policy, each vessel upon
which the cargo is shipped or transhipped, must
be seaworthy at the commencement of each
particular voyage; and
3. In the case of voyage policy contemplating a
voyage in different stages, the ship must be
seaworthy at the commencement of each
portion.
SECTION 118. A warranty of seaworthiness extends
not only to the condition of the structure of the ship
itself, but requires that it be properly laden, and
provided with a competent master, a sufficient
number of competent officers and seamen, and the
requisite appurtenances and equipment, such as
ballasts, cables and anchors, cordage and sails,
food, water, fuel and lights, and other necessary or
proper stores and implements for the voyage.
In marine insurance covering ships and the cargo or
freight on such ships, the insured warrants that the
ship is seaworthy.
Seaworthiness requires that the vessel must have
equipment and appliances appropriate to the
voyage in which it is engaged and the cargo it
carries; it must have sufficient fuel, stores and
provisions to last for the entire voyage; it must have
sufficient number of competent officers and men;
and if the insurance is on cargo, the same must be
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 Insurance Law Reviewer ‘20
Based on the Book of De Leon.
properly loaded, stowed, dunnaged and secured so
as not to imperil the navigation of the vessel or to
cause injury to the vessel or cargo.
A ship, however, is not unseaworthy because of
some defect in loading or stowage which is easily
curable by those on board, and was cured before the
loss.
SECTION 119. Where different portions of the
voyage contemplated by a policy differ in respect to
the things requisite to make the ship seaworthy
therefor, a warranty of seaworthiness is complied
with if, at the commencement of each portion, the
ship is seaworthy with reference to that portion.
Where the policy contemplates a voyage in different
stages during which the subject matter insured will
be exposed to different degrees or kinds of perils, or
the ship will require different kinds of equipment,
she must be seaworthy at the commencement of
each stage, but it is sufficient if at the
commencement of each stage she is seaworthy for
the purpose of that stage.
SECTION 120. When the ship becomes
unseaworthy during the voyage to which an
insurance relates, an unreasonable delay in
repairing the defect exonerates the insurer on ship
or shipowner's interest from liability from any loss
arising therefrom.
As a general rule, the implied warranty of
seaworthiness is complied with if the ship be
seaworthy at the time of the commencement of the
risk. There is no implied warranty that the vessel will
remain in a seaworthy condition throughout the life
of the policy.
However, when the vessel becomes unseaworthy
during the voyage, it is the duty of the master, as the
shipowner's representative, to exercise due
diligence to make it seaworthy again, and if loss
should occur because of his negligence in repairing
the defect, the insurer is relieved of liability but the
contract of insurance is not affected as to any other
risk or loss covered by the policy and not caused or
increased by such particular defect.
SECTION 121. A ship which is seaworthy for the
purpose of an insurance upon the ship may,
nevertheless, by reason of being unfitted to receive
the cargo, be unseaworthy for the purpose of
insurance upon the cargo.
The seaworthiness of a vessel is also to be
determined with regard to the nature of the cargo
which she undertakes to transport, the requirement
being that she shall be reasonably capable of safely
conveying the cargo to its port of destination.
SECTION 122. Where the nationality or neutrality of
a ship or cargo is expressly warranted, it is implied
that the ship will carry the requisite documents to
show such nationality or neutrality and that it will
not carry any documents which cast reasonable
suspicion thereon.
A warranty of nationality does not mean that the
vessel was built in such country, but that the
property belongs to a subject thereof. It refers to the
beneficial ownership rather than to the legal title.
The warranty of nationality also requires that the
vessel be conducted and documented as of such
nation, and a breach of warranty in either particular
will avoid the policy. The warranty is a continuing
one and a change of nationality is a breach of the
warranty, but the warranty is not broken by a
contract for sale and transfer to an alien at a future
date.
A warranty of neutrality imports that the property
insured is neutral in fact, and shall be so in
appearance and conduct, that the property shall
belong to neutrals, and that no act of insured or his
agent shall be done which can legally compromise
its neutrality. The warranty extends to insured's
interest in all the property intended to be covered by
the policy, but not to the interest of a third person
not covered by the policy.
A warranty of neutrality requires that the insured
property shall be accompanied by documentary
evidence of its neutral character, and not by any
other papers which compromise such character.
The proper papers must be produced when
necessary to prove ownership, and such production
is not excused because the papers were lost by the
fault of the master.
SUB-TITLE 1-F
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 Insurance Law Reviewer ‘20
Based on the Book of De Leon.
The Voyage and Deviation
SECTION 123. When the voyage contemplated by a
marine insurance policy is described by the places
of beginning and ending, the voyage insured is one
which conforms to the course of sailing fixed by
mercantile usage between those places.
SECTION 124. If the course of sailing is not fixed by
mercantile usage, the voyage insured by a marine
insurance policy is that way between the places
specified, which to a master of ordinary skill and
discretion, would mean the most natural, direct and
advantageous.
SECTION 125. Deviation is a departure from the
course of the voyage insured, mentioned in the last
two (2) sections, or an unreasonable delay in
pursuing the voyage or the commencement of an
entirely different voyage.
Deviation refers to any unexcused departure from
the regular course or route of the insured voyage or
any other act which substantially alters the risk.
There are four cases of deviation in marine
insurance:
1. Departure from the course of sailing fixed by
mercantile usage between the places of
beginning and ending specified in the policy
(Sec. 121.);
2. Departure from the most natural, direct, and
advantageous route between the places
specified if the course of sailing is not fixed by
mercantile usage (Sec. 122.);
3. Unreasonable delay in pursuing the voyage
(Sec. 123.); and
4. The commencement of an entirely different
voyage.
SECTION 126. A deviation is proper:
(a) When caused by circumstances over which
neither the master nor the owner of the ship has
any control;
(b) When necessary to comply with a warranty, or
to avoid a peril, whether or not the peril is
insured against;
(c) When made in good faith, and upon reasonable
grounds of belief in its necessity to avoid a peril;
or
(d) When made in good faith, for the purpose of
saving human life or relieving another vessel in
distress.
SECTION 127. Every deviation not specified in the
last section is improper.
Deviation from the course of the voyage will not
vitiate a policy of marine insurance if the deviation
is justified or caused by actual necessity which is
equal in importance to such deviation.
But while deviation to save property is not justified,
unless it is to save another vessel in distress, a
deviation for the purpose of saving life does not
constitute a breach of warranty.
SECTION 128. An insurer is not liable for any loss
happening to the thing insured subsequent to an
improper deviation.
Where there has been any deviation or change of the
risk without just cause, the insurer becomes
immediately absolved from further liability under
the policy for losses occurring subsequent (not
before) to the deviation.
B. In Fire Insurance
SECTION 170. An alteration in the use or condition
of a thing insured from that to which it is limited by
the policy made without the consent of the insurer,
by means within the control of the insured, and
increasing the risks, entitles an insurer to rescind a
contract of fire insurance.
SECTION 171. An alteration in the use or condition
of a thing insured from that to which it is limited by
the policy, which does not increase the risk, does
not affect a contract of fire insurance.
When alteration in thing insured entitles insurer to
rescind
The following requisites must be present:
1. The use or condition of the thing is specifically
limited or stipulated in the policy;
2. Such use or condition as limited by the policy is
altered;
3. The alteration is made without the consent of
the insurer;
4. The alteration is made by means within the
control of the insured; and
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 Insurance Law Reviewer ‘20
Based on the Book of De Leon.

5. The alteration increases the risk. resulting from adjacent premises over which the
insured has no control will not avoid a policy unless:
But a contract of fire insurance is not affected by 1. actually known to the insured, or
any act of the insured subsequent to the execution 2. from act of the insured's tenant provided the
of the policy, which does not violate its provisions act is not known to the insured.
even though it increases the risk and is the cause of
the loss. Application of Section 75 and Section 171
Section 75. A policy may declare that a violation of specified
Alterations avoiding policy provisions thereof shall avoid it, otherwise the breach of an
immaterial provision does not avoid the policy.
1. Where risk of loss increased. The policy is
avoided by any alteration in the use or condition
An alteration in the risk or condition of the thing
of the property insured increasing the risk.
insured which does not increase the risk will not\
2. Where the increase no longer existing at time of
affect a contract of fire insurance. This is the rule
loss. The insurer would still be liable if the
embodied in Section 171, and it is logical as the
increase in hazard was no longer existing at the
basis upon which the contract rests is not changed.
time of the loss.
Furthermore, it is consistent with the provision of
Section 75 that the breach of an immaterial
Alterations not avoiding policy
provision does not avoid the policy.
1. Where risk of loss not increased. There is not an
increase of risk and the policy is not avoided
However, under Section 75, the insurer is given the
where a different use is made of the insured
right to insert terms and conditions in the policy
premises, which use is not of a dangerous
which if violated would avoid it. An alteration made
character and does not differ materially from the
in the use of condition of the thing insured will thus
use specified in the policy, even though an
avoid a policy under the same section if such
additional or increased premium may be
alteration is expressly prohibited although it does
demanded therefor.
not increase the risk. Therefore, Section 171 applies
2. Where questioned articles required by insured’s
to policies which are silent upon the subject.
business. Even though the policy contains
certain provisions prohibiting specified articles
SECTION 172. A contract of fire insurance is not
from being kept in the insured premises, the
affected by any act of the insured subsequent to the
policy will not be avoided by a violation of these
execution of the policy, which does not violate its
provisions if the articles are necessary or
provisions, even though it increases the risk and is
ordinarily used in the business conducted in the
the cause of the loss.
insured premises.
3. Where insured property would be useless if
Amount stated in policy/amount of partial loss.
questioned acts were prohibited. The making of
The valuation of a building or structure insured
repairs, painting or doing other acts of similar
under a policy against fire may be fixed as provided
character on the thing insured are not to be
in Section 172. In case of a total loss, the insured
regarded as increasing the risk since the
can recover the whole amount so insured as stated
property would be useless to the insured if such
in the policy and in case of partial loss, the full
acts were prohibited even though by reason
amount of the partial loss.
thereof, the property may be exposed to some
additional risk.
Note: A total loss of the insured building exists
when the result of the fire is such as to render the
Where insured has no control or knowledge of
property wholly unfit for use as a building however
alteration
valuable it may be as mere material.
The insurer is not relieved from liability if the acts or
circumstances by which the risk is increased are
E. M. BACHRACH, vs. BRITISH AMERICAN
occasioned by accident, or a cause over which the
ASSURANCE COMPANY, a corporation.
insured has no control. Thus, increase in risk [G.R. No. L-5715. December 20, 1910.]

15
 Insurance Law Reviewer ‘20
Based on the Book of De Leon.
Facts: On the 13th of July, 1908, the plaintiff
commenced an action against the defendant to
recover the sum of P9,841.50, the amount due,
deducting the salvage, upon the following fire
insurance policy issued by the defendant to the
plaintiff.
Contents of the Fire policy No. 3007499
Insurer: British American Assurance Company
Insured: E. M. Bachrach, esq., Manila
Location of the Property: ground floor and first story
of house and dwelling No. 16 Calle Martinez, district
3, block 70, Manila
1. 2,000 php - for insuring against loss or damage by
fire, as hereinafter mentioned, the property
hereinafter described, in the sum of several sums
following, viz:
2. 10,000 php- on goods, belonging to a general
furniture store, such as iron and brass bedsteads,
toilet tables, chairs, ice boxes, bureaus, washstands,
mirrors, and sea-grass furniture (in accordance with
warranty "D" of the tariff attached hereto)
The policy also provides that if the property above
described, or any part thereof, shall be destroyed or
damaged by fire, at any time between the 21st day
of February, 1908, and 4 o'clock in the afternoon of
the 21st day of February, 1909, or (in case of the
renewal of this policy) at any time afterwards, so
long as, and during the period in respect of which
the insured shall have paid to the company, and
they shall have accepted, the sum required for the
renewal of this policy, the company will, out of their
capital stock, and funds, pay or make good to the
insured the value of the property so destroyed, or
the amount of such damage thereto, to any amount
not exceeding, in respect of each or any of the
several matters above specified, the sum set
opposite thereto, respectively, and not exceeding in
the whole the sum of ten thousand pesos, and also
not exceeding, in any case, the amount of the
insurable interest therein of the insured at the time
of the happening of such fire.
Defendant’s contentions:
1. That the plaintiff maintained a paint and varnish
shop in the said building where the goods which were
insured were stored.
2. That the plaintiff transferred his interest in and to the
property covered by the policy to H. W. Peabody & Co.
to secure certain indebtedness due and owing to said
company, and also that the plaintiff had transferred
his interest in certain of the goods covered by the
said policy to one Macke, to secure certain
obligations assumed by the said Macke for and on
behalf of the insured. That the sanction of the said
defendant had not been obtained by the plaintiff, as
required by the said policy.
3. That the plaintiff, on the 18th of April, 1908, and
immediately preceding the outbreak of the alleged
fire, willfully placed a gasoline can containing 10
gallons of gasoline in the upper story of said building
in close proximity to a portion of said goods, wares,
and merchandise, which can was so placed by the
plaintiff as to permit the gasoline to run on the floor
of said second story, and after so placing said
gasoline, he, the plaintiff, placed in close proximity to
said escaping gasoline a lighted lamp containing
alcohol, thereby greatly increasing the risk of fire.
4. That the plaintiff made no proof of the loss within the
time required by condition five of said policy, nor did
the insured file a statement with he municipal or any
other judge or court of the goods alleged to have
been in said building at the time of the alleged fire,
nor of the goods saved, nor the loss suffered.
Plaintiff’s contentions:
1. That he had been acquitted in a criminal action
against him, after a trial duly and regularly had, upon
a charge of arson, based upon the same alleged facts
set out in the answer of the defendant.
2. That her had made no proof of the loss set up in his
complaint for the reason that immediately after he
had, on the 20th of April, 1908, given the defendant
due notice in writing of said loss, the defendant, on
the 21st of April, 1908, and thereafter on other
occasions, had waived all right to require proof of
said loss by denying all liability under the policy and
by declaring said policy to be null and void.
The lower court found that the defendant was liable
to the plaintiff and rendered a judgment against the
defendant for the sum of P9,841.50, with interest for
a period of one year at 6 per cent, making a total of
P10,431.99, with costs.
From that decision the defendant appealed and
contended that:
• The court erred in holding that the keeping of
gasoline and alcohol not in bottles in the building No.
16 Calle Martinez was not such a violation of the
conditions of the policy as to render the same null
and void.
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 Insurance Law Reviewer ‘20
Based on the Book of De Leon.

• The court erred in failing to find as a fact that E. M.

Bachrach, the insured, willfully placed a gasoline can
containing about 10 gallons of gasoline in the upper
story of said building, No. 16 Calle Martinez, in close
proximity to a portion of the goods, wares, and
merchandise stored therein, and that said can was
so placed by said Bachrach as to permit the gasoline
to run on the floor of said second story.
• The court erred in failing to find as a fact that E. M.
Bachrach, after placing said gasoline can in close
proximity to the goods, wares, and merchandise
covered by the policy of insurance, that he
(Bachrach) placed in close proximity to said
escaping gasoline a lighted lamp containing alcohol,
thereby greatly increasing the risk of fire.
• The court erred in holding that the policy of insurance
was in force at the time of said fire, and that the acts
or omissions on the part of the insured which caused,
or tended to cause, the forfeiture of the policy, were
waived by the defendant.

Issue: WON petitioner could claim insurance

notwithstanding the keeping of inflammable oils on the
premises. NO.

Ruling: It is well settled that the keeping of inflammable

oils on the premises, though prohibited by the
policy, does not void it if such keeping is incidental to the
business.

Thus, where a furniture factory keeps benzine for the

purposes of operation or where it is used for cleaning
machinery, the insurer cannot on that ground avoid
payment of a loss, though the keeping of the benzine on
the premises is expressly prohibited. These authorities
also appear sufficient to answer the objection that the
insured automobile contained gasoline and that the
plaintiff on one occasion was seen in the bodega with a
lighted lamp. The first was incidental to the use of the
insured article and the second being a single instance
falls within the doctrine of the case last cited.
It may be added that there was no provision in the policy
prohibiting the keeping of paints and varnishes upon the
premises where the insured property was stored. If the
company intended to rely upon a condition of that
character, it ought to have been plainly expressed in the
policy.

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