INSURANCE

INTERPRETATION

1. GAISANO CAGAYAN, INC. vs. INSURANCE COMPANY OF NORTH AMERICA

G.R. No. 147839 June 8, 2006
PONENTE: AUSTRIA-MARTINEZ, J.
BY: Baldonado

DOCTRINE:

“When the words of a contract are plain and readily understood, there is no room for
construction. Indeed, when the terms of the agreement are clear and explicit that they do not
justify an attempt to read into it any alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of the contract.”

FACTS:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss
(Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss
& Co.. IMC and LSPI separately obtained from Insurance Company of America (ICOA) fire
insurance policies with book debt endorsements. The insurance policies provide for coverage on
"book debts in connection with ready-made clothing materials which have been sold or delivered
to various customers and dealers of the Insured anywhere in the Philippines." The policies defined
book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days
after the time of the loss covered under this Policy." The policies also provide for the following
conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of
the merchandise sold and delivered by the Insured which are outstanding at the date of loss
for a period in excess of six (6) months from the date of the covering invoice or actual delivery
of the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after
the close of every calendar month all amount shown in their books of accounts as unpaid and
thus become receivable item from their customers and dealers.
Gaisano is a customer and dealer of the products of IMC and LSPI. On 1991, the Gaisano
Superstore Complex, owned by Gasano, was consumed by fire. Included in the items lost or
destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and
LSPI.
On 1992, Insurance Company of America filed a complaint for damages against Gisano. It
alleges that IMC and LSPI filed with ICOA their claims under their respective fire insurance
policies with book debt endorsements and that ICOA paid the claims of IMC and LSPI and, by
virtue thereof, ICOA was subrogated to their rights against Gaisano; that despite several demands
for payment upon Gaisano but these went unheeded.
RTC rendered its decision dismissing the complaint. Dissatisfied, Gaisano appealed to the CA.
CA rendered its decision setting aside the decision of the RTC.

ISSUE:
WON the term “book debts” as referred to the contact is construed as the goods held by
Gaisano.

HELD:
NO. It is well-settled that when the words of a contract are plain and readily understood, there
is no room for construction. In this case, the questioned insurance policies provide coverage for
"book debts in connection with ready-made clothing materials which have been sold or delivered
to various customers and dealers of the Insured anywhere in the Philippines." ; and defined book
debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after
the time of the loss covered under this Policy." Nowhere is it provided in the questioned insurance
policies that the subject of the insurance is the goods sold and delivered to the customers and
dealers of the insured. Indeed, when the terms of the agreement are clear and explicit that they do
not justify an attempt to read into it any alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of the contract. Thus, what were insured against
were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss
through fire, and not the loss or destruction of the goods delivered.
2. MALAYAN INSURANCE CORPORATION vs. THE HON. COURT OF APPEALS and
TKC MARKETING CORPORATION
G.R. No. 119599 March 20, 1997
PONENTE: ROMERO, J.
BY: Baldonado

DOCTRINE:
“It must be borne in mind that such contracts are invariably prepared by the companies and must
be accepted by the insured in the form in which they are written. Any construction of a marine
policy rendering it void should be avoided. Such policies will, therefore, be construed strictly
against the company in order to avoid a forfeiture, unless no other result is possible from the
language used.
An insurance contract should be so interpreted as to carry out the purpose for which the
parties entered into the contract which is, to insure against risks of loss or damage to the goods.
Such interpretation should result from the natural and reasonable meaning of language in the
policy. Where restrictive provisions are open to two interpretations, that which is most favorable
to the insured is adopted.”

FACTS:
TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric tons of soya bean
meal which was loaded on board the ship MV Al Kaziemah on or about September 8, 1989 for
carriage from the port of Rio del Grande, Brazil, to the port of Manila. Said cargo was insured
against the risk of loss by Malayan Insurance Corporation for which it issued two (2) Marine Cargo
Policy both dated September 1989.
While the vessel was docked in Durban, South Africa on September 11, 1989 enroute to
Manila, the civil authorities arrested and detained it because of a lawsuit on a question of
ownership and possession. As a result, TKC Marketing notified Malayan Insurance on October 4,
1989 of the arrest of the vessel and made a formal claim for the amount of US$916,886.66,
representing the dollar equivalent on the policies, for non-delivery of the cargo.
In assigning the first error, Malayan Insurance submits that: (a) an arrest by civil authority is
not compensable since the term "arrest" refers to "political or executive acts" and does not include
a loss caused by riot or by ordinary judicial process as in this case; (b) the rationale for the
exclusion of an arrest pursuant to judicial authorities is to eliminate collusion between
unscrupulous assured and civil authorities.
 TKC Marketig on the other hand, being the sole author of the policies, "arrests" should be
strictly interpreted against it because the rule is that any ambiguity is to be taken contra
proferentum. Risk policies should be construed reasonably and in a manner as to make effective
the intentions and expectations of the parties. It added that the policies clearly stipulate that they
cover the risks of non-delivery of an entire package and that it was Malayan itself that invited and
granted the extensions and collected premiums thereon.
The RTC decided in favor of TKC Marketing. On appeal, the Court of Appeals affirmed the
decision of the lower court.

ISSUE:
WON the seizure of the goods by authorities be considered covered by the insurance policy.

HELD:
YES.This Court cannot help the impression that petitioner is overly straining its interpretation
of the provisions of the policy in order to avoid being liable for private respondent's claim.
It has been held that a strained interpretation which is unnatural and forced, as to lead to an
absurd conclusion or to render the policy nonsensical, should, by all means, be avoided. Likewise,
it must be borne in mind that such contracts are invariably prepared by the companies and must be
accepted by the insured in the form in which they are written. Any construction of a marine policy
rendering it void should be avoided. Such policies will, therefore, be construed strictly against the
company in order to avoid a forfeiture, unless no other result is possible from the language used.
If a marine insurance company desires to limit or restrict the operation of the general
provisions of its contract by special proviso, exception, or exemption, it should express such
limitation in clear and unmistakable language. Obviously, the deletion of the F.C. & S. Clause and
the consequent incorporation of subsection 1.1 of Section 1 of the Institute War Clauses (Cargo)
gave rise to ambiguity. If the risk of arrest occasioned by ordinary judicial process was expressly
indicated as an exception in the subject policies, there would have been no controversy with respect
to the interpretation of the subject clauses.
Be that as it may, exceptions to the general coverage are construed most strongly against the
company. Even an express exception in a policy is to be construed against the underwriters by
whom the policy is framed, and for whose benefit the exception is introduced.
An insurance contract should be so interpreted as to carry out the purpose for which the parties
entered into the contract which is, to insure against risks of loss or damage to the goods. Such
interpretation should result from the natural and reasonable meaning of language in the policy.
Where restrictive provisions are open to two interpretations, that which is most favorable to the
insured is adopted.
 Indemnity and liability insurance policies are construed in accordance with the general rule
of resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared
by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity
therein should be resolved against the insurer; in other words, it should be construed liberally in
favor of the insured and strictly against the insurer. Limitations of liability should be regarded with
extreme jealousy and must be construed in such a way as to preclude the insurer from
noncompliance with its obligations.
3. NEW LIFE ENTERPRISES and JULIAN SY vs. COURT OF APPEALS
March 31, 1992, G.R. No. 94071
Ponente: Regalado
By: Bernardez

DOCTRINE: While it is a cardinal principle of insurance law that a policy or contract of insurance
is to be construed liberally in favor of the insured and strictly against the insurer company, 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.

FACTS: Julian Sy and Jose Sy Bang have formed a business partnership in the City of Lucena.
Under the business name of New Life Enterprises, the partnership engaged in the sale of
construction materials at its place of business, a two-storey building situated at Iyam, Lucena City.
Julian Sy insured the stocks in trade of New Life Enterprises with Western Guaranty Corporation,
Reliance Surety and Insurance. Co. Inc., and Equitable Insurance Corporation. He acquired three
different fire insurance policies from the three companies.

When the building occupied by the New Life Enterprises was gutted by fire at about 2:00 am of
October 19, 1982, stocks in the trade inside said building were insured against fire in the total
amount of P1,550,000.00. According to the certification issued by the Headquarters, Philippine
Constabulary /Integrated National Police, Camp Crame, the cause of fire was electrical in nature.

After the fire, Julian Sy went to the agent of Reliance Insurance whom he asked to accompany him
to the office of the company so that he can file his claim. In support of his claim, he submitted the
fire clearance, the insurance policies and inventory of stocks.

Julian Sy further testified that the three insurance companies are sister companies, when he was
following-up his claim with Equitable Insurance, the Claims Manager told him to go first to
Reliance Insurance and if said company agrees to pay, they would also pay. The same treatment
was given him by the other insurance companies. Ultimately, the three insurance companies denied
plaintiffs' claim for payment because of breach of policy conditions, i.e. disclosure of other
insurance policies over the same property.

ISSUES: Whether Conditions 3 and 27 of the Insurance Contracts were violated by petitioners
thereby resulting in their forfeiture of all the benefits thereunder

RULING:
YES, Sy never disclosed co-insurance in the contracts he entered into with the three corporations.
The insured is specifically required to disclose the insurance that he had contracted with other
companies. Sy also contended that the insurance agents knew of the co-insurance. However, the
theory of imputed knowledge, that the knowledge of the agent is presumed to be known by the
principal, is not enough.

While it is a cardinal principle of insurance law that a policy or contract of insurance is to be

construed liberally in favor of the insured and strictly against the insurer company, 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.

The conformity of the insured to the terms of the policy is implied with his failure to disagree with
the terms of the contract. Since Sy, was a businessman, it was incumbent upon him to read the
contracts.

In Pioneer Insurance and Surety Corporation vs. Yap, the obvious purpose of the aforesaid
requirement in the policy is to prevent over-insurance and thus avert the perpetration of fraud. The
public, as well as the insurer, is interested in preventing the situation in which a fire would be
profitable to the insured.

WHEREFORE, finding no cogent reason to disturb the judgment of respondent Court of Appeals,
the same is hereby AFFIRMED.
4. DIOSDADO C. TY vs. FILIPINAS COMPAÑIA DE SEGUROS
May 31, 1966, G.R. No. L-21821-22 and L-21824-27
Ponente: Barrera
By: Bernardez

DOCTRINE:

The agreement contained in the insurance policies is the law between the parties. The Court cannot
go beyond the clear and express conditions of the insurance policies.

FACTS: Diosdado C. Ty was an employee of Broadway Cotton Factory at Grace Park, Caloocan
City, working as mechanic operator. In 1953, he took personal accident policies from 7 insurance
companies (6 defendants), on different dates, effective for 12 months.

On December 24, 1953, a fire broke out in the factory were Ty was working. A heavy object fell
on his hand when he was trying to put out the fire. He received treatment at the National Orthopedic
Hospital from December 26, 1953 to February 8, 1954 for injuries. The attending surgeon certified
that these injuries would cause the temporary total disability of Ty’s left hand.

The insurance companies refused to pay Ty’s claim for compensation under the policies by reason
of said disability of his left hand. Ty filed a complaint in the municipal court who decided in his
favor. CFI reversed on the ground that under the uniform terms of the policies, partial disability
due to loss of either hand of the insured, to be compensable must be the result of amputation.

ISSUES: Whether or not Ty should be indemnified under his accident policies

RULING:
NO. [The Court] cannot go beyond the clear and express conditions of the insurance policies, all
of which definite partial disability as loss of either hand by amputation through the bones of the
wrist. There was no such amputation in the case at bar. All that was found by the trial court, which
is not disputed on appeal, was that the physical injuries "caused temporary total disability of
plaintiff's left hand." Note that the disability of plaintiff's hand was merely temporary, having been
caused by fractures of the index, the middle and the fourth fingers of the left hand.

We might add that the agreement contained in the insurance policies is the law between the parties.
As the terms of the policies are clear, express and specific that only amputation of the left hand
should be considered as a loss thereof, an interpretation that would include the mere fracture or
other temporary disability not covered by the policies would certainly be unwarranted.

WHEREFORE, finding no error in the decision appealed from, the same is hereby affirmed,
without costs.
5. GULF RESORTS INC v. PCIC (GR no. 156167; May 16, 2005)
Ponente: Puno, J.
By: Bernardo

DOCTRINE:

It is basic that all the provisions of the insurance policy should be examined and interpreted in
consonance with each other. All its parts are reflective of the true intent of the parties. The
policy cannot be construed piecemeal. Certain stipulations cannot be segregated and then made
to control; neither do particular words or phrases necessarily determine its character.

The “fine print” or “contract of adhesion” rule cannot be applied to limit the coverage of the
policy where there is no ambiguity in the terms of the contract and its riders.

FACTS:
● Gulf Resorts Inc. (GULF) is the owner of the Plaza Resort situated in Agoo La Union and
had its properties insured originally with American Home Assurance Company (AHAC).
● In their first 4 policies, the provision on risks of loss from earthquake shock was extended
only to Gulf’s 2 swimming pools.
● Later on, Gulf agreed to insure with Phil Charter the properties covered by the AHAC
policy provided that the policy wording and rates in said policy be copied in the policy to
be issued by Phil Charter.
● Phil Charter issued Policy # 31944 to Gulf covering March 1990-1991 with the
breakdown of premiums showing that Gulf paid only P393.00 as premium against
earthquake shock.
○ Stated in such policy was a rider provision, the shock endorsement which
provided that: “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"). In Exhibit "7-C" the word
"included" above the underlined portion was deleted.
● In 1990, an eawrthquake struck and Gulf’s properties includinf the 2 swimming pools in
its Agoo Plaa Resort were damaged.
● When Gulf made a claim under its insurance policy, Phil Charter denied its claim on the
ground that its insurance policy only afforded earthquake shock coverage to the 2
swimming pools of the resort.
● The RTC ruled in favor of respondent, which the CA affirmed.
ISSUE:
WON the policy covers only the 2 swimming pools and does not extend to all properties
damaged by the earthquake.

RATIO: YES.
● The insurance policy covers only the 2 swimming pools damaged by the earthquake
shock.
● Gulf contends that pursuant to the earthquake shock endorsement rider, no qualifications
were placed on the scope of the earthquake shock coverage. Thus the policy extended
earthquake shock coverage to all of the insured properties. The Court finds the petition
devoid of merit.
● It is basic that all the provisions of the insurance policy should be examined and
interpreted on consonance with each other. All its parts are reflective of the true intent of
the parties. The policy cannot be construed piecemeal. Certain stipulations cannot be
segregated and then made to control; neither do particular words or phrases necessarily
determine its character.
○ Petitioner cannot focus on the earthquake shock endorsement to the exclusion of
the other provisions. All the provisions and riders, taken and interpreted together
indubitably show the intention of the parties to extend earthquake shock coverage
to the 2 swimming pools only.
● A careful examination of the premium recapitulation will show that it is the clear intent
of the parties to extend earthquake shock coverage to the 2 pools only.
● 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
libility arising from an unknown or contingent event, where the following elements
concur:
….
5. In consideration of the insurer’s promise, the insured pays a premium.
(Emphasis)
● An insurance premium is the consideration paid an insurer for undertaking to indemnify
the insured against a specified peril. In fire, casualty, and marine insurance, the premium
becomes a debt as soon as the risk attaches.
● In the subject policy, no premium payments were made with regard to earthquake shock
coverage, except on the 2 swimming pools. There is no mention of any premium payable
for the other resort properties with regard to earthquake shock. This is consistent with the
history of the petitioners previous insurance policies from AHAC.
● 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.
● They cannot claim that it didnt know the other provisions of the policy. From the
inception of the policy, petitioner had required the respondent to copy verbatim the
provisions and terms of its latest insurance policy from AHAC.
6. SIMON DE LA CRUZ v. THE CAPITAL INSURANCE AND SURETY (GR no. L-
21574; June 30, 1966)
PONENTE: Barrera, J.
By: Bernardo

DOCTRINE:

The generally accepted rule is that, death or injury does not result from accident or accidental
means within the terms of an accident-policy if it is the natural result of the insured’s voluntary
act, unaccompanied by anything unforeseen except death or injury. In other words, where the
death or injury is not the natural or probable result of the insured’s voluntary act, or if
something unforeseen occurs in the doing of an act which produces the injury, the resulting
death is within the protection of policies insuring against death or injury from accident.

The terms “accident” and accidental” as used in insurance contracts, have not acquired any
technical meaning, and are construed by the courts in their ordinary and common acceptation.

FACTS:
● Eduardo de la Cruz, a mucker (a person who removes dirt and waste) in the Itogon-Suyoc
Mines company in Baguio, was a holder of an accident insurance policy.
● To celebrate NY, the company sponsored a boxing contest wherein Eduardo participated
● In the course of the bout with another non-pro fighter, he slipped and was hit by his
opponent on the left part of the back of his head, causing him to fall and hit the ropes.
● He was brought to the Baguio General Hospital the following day.
● He died with the cause of death reported as hemorrhage, intracranial, left.
● His beneficiary father, Simon, filed a claim with the insurance company which was
denied.
● Capital Insurance claims that the death of the insured was caused by his voluntary
participation in a boxing contest, hence not an accident covered by the insurance. The
participation in the contest was allegedly the “means” that produced the injury causing
the death.

ISSUE:
WON the death of the insured was indeed accidental falling under the coverage of the policy.

RULING: YES.
● The generally accepted rule is that, death or injury does not result from accident or
accidental means within the terms of an accident-policy if it is the natural result of the
insured’s voluntary act, unaccompanied by anything unforeseen except death or injury. In
 other words, where the death or injury is not the natural or probable result of the
insured’s voluntary act, or if something unforeseen occurs in the doing of an act which
produces the injury, the resulting death is within the protection of policies insuring
against death or injury from accident.
● The terms “accident” and accidental” as used in insurance contracts, have not acquired
any technical meaning, and are construed by the courts in their ordinary and common
acceptation.
● In the present case, while the insured’s participation in the boxing contest was voluntary,
the injury was sustained when he slid, giving the occasion to the infliction of the fatal
blow. Without this unfortunate incident, perhaps he could not have received the blow in
the head and would not have died.
○ The fact that boxing is attended with some risks of external injuries doesnt make
any injuries received in the course of the game not accidental. In boxing as in
other equally physically rigorous sports, such as basketball or baseball, death is
not ordinarily anticipated to result.
● Furthermore, the policy involved herein specifically excluded from its coverage specific
sports and other physical activity. Boxing was curiously not included in the prohibitive
list of risks declared outside of the protection of the insurance contract.
7. UNITED MERCHANTS CORPORATION VS. COUNTRY BANKERS INSURANCE
CORPORATION, G.R. 198588, 11 JULY 2012

Doctrine:
While it is a cardinal principle of insurance law that a contract of insurance is to be construed
liberally in favor of the insured and strictly against the insurer company, 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. Courts are not permitted to make
contracts for the parties; the function and duty of the courts is simply to enforce and carry out the
contracts actually made.

PONENTE: CArpio, J.

By: Calbe, Norhaisah A.

Facts:

United Merchants was a manufacturer and retailer of Christmas lights. It insured (fire policy) its
Christmas lights stored in the warehouse with Country Bankers Insurance Corporation.

The warehouse was burned down hence United sought indemnity from Country.

Country rejected the claim on the ground of Condition 15 of the policy which states that “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 devices are used by the Insured or anyone acting in his behalf to
obtain any benefit under this Policy; or if the loss or damage be occasioned by the willful act, or
with the connivance of the Insured, all the benefits under this Policy shall be forfeited.”

CBIC alleged that UMC’s claim was fraudulent because:

 ● UMC’s Statement of Inventory showed that it had no stocks in trade as of 31
December 1995, and that UMC’s suspicious purchases for the year 1996 did not
even amount to P25,000,000.00.
● UMC’s GIS and Financial Reports further revealed that it had insufficient capital,
which meant UMC could not afford the alleged P50,000,000.00 worth of stocks in
trade.

UMC answered back saying that they have a certificate from the Bureau of Fire Protection
which states that: “The Bureau further certifies that no evidence was gathered to prove that the
establishment was willfully, feloniously and intentionally set on fire.”

The RTC ruled for UMC’s entitlement to the insurance proceeds.

The CA ruled in favor of CBIC. The CA ruled that

● UMC’s claim under the Insurance Policy is void.
● the fire was intentional in origin, considering the array of evidence submitted by CBIC,
particularly the pictures taken and the reports of Cabrera and Lazaro, as opposed to UMC’s
failure to explain the details of the alleged fire accident.
● claim was overvalued through fraudulent transactions.

Issue: Whether UMC is entitled to claim from CBIC the full coverage of its fire insurance policy

Held: No.

If loss is proved apparently within a contract of insurance, the burden is upon the insurer to
establish that the loss arose from a cause of loss which is excepted or for which it is not liable, or
from a cause which limits its liability. In the present case, CBIC failed to discharge its primordial
burden of establishing that the damage or loss was caused by arson, a limitation in the policy.
Nevertheless, just because the defense failed to prove arson does not mean that fraud does not exist.
In fact, fraud exists in this case.
The Court ruled that the submission of false invoices to the adjusters establishes a clear case of
fraud and misrepresentation which voids the insurer’s liability as per condition of the policy. A
fraudulent discrepancy between the actual loss and that claimed in the proof of loss voids the
insurance policy. Mere filing of such a claim will exonerate the insurer. It has long been settled
that a false and material statement made with an intent to deceive or defraud voids an insurance
policy. In the present case, the claim is twenty five times the actual claim proved.

Considering that all the circumstances point to the inevitable conclusion that UMC padded its
claim and was guilty of fraud, UMC violated Condition No. 15 of the Insurance Policy.

While it is a cardinal principle of insurance law that a contract of insurance is to be construed

liberally in favor of the insured and strictly against the insurer company, 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. Courts are not permitted to make contracts
for the parties; the function and duty of the courts is simply to enforce and carry out the contracts
actually made.

Thus, UMC forfeited whatever benefits it may be entitled under the Insurance Policy, including
its insurance claim.
BENEFICIARIES

8. HEIRS OF LORETO C. MARAMAG VS. DE GUZMAN MARAMAG, G.R. 181132, 5

JUNE 2009

DOCTRINE:

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

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

It is only in cases where the insured has not designated any beneficiary, or when the
designated beneficiary is disqualified by law to receive the proceeds, that the insurance
policy proceeds shall redound to the benefit of the estate of the insured

PONENTE: NACHURA, J.

By: Calbe, Norhaisah A.

FACTS:
● Petitioners were the legitimate wife and children of Loreto Maramag, while, the defendants were
the illegitimate family of Loreto.
● Petitioner alleged that Eva de Guzman Maramag, concubine of Loreto, and the illegitimate
children, Odessa, Karl Brian and Trisha Angelie, are disqualified to receive the proceeds from
Loreto’s insurance policies, both from Insular Life Assurance Company (Insular) and Great
Pacific Life Assurance Corporation (Grepalife).
● In answer, Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa,
Karl Brian and Trisha Angelie as his legitimate children. Insular already disqualified Eva as
beneficiary and divided the proceeds among the illegitimate children. Insular further claimed
that it was bound to honor the insurance policies designating the illegitimate children as
beneficiaries pursuant to Section 53 of Insurance Code.
● Grepalife, on the other hand, alleged that Eva was not designated as beneficiary in the insurance
policy and that the claims filed by the illegitimate children were denied due to Loreto’s
misrepresentation in his application form.
● In a comment, petitioner alleged that the designation of a beneficiary is an act of liberality or a
donation, which is subject to the provisions of Arts 752 and 772 of the Civil Code.
● In reply, both the insurance companies countered that the insurance proceeds belong exclusively
to the designated beneficiaries in the policies, not to the estate or to the heirs of the insured.
● The trial court granted the motion to dismiss incorporated in the answer of the insurance
companies with respect to the illegitimate children, but the action shall proceed with respect to
Eva and the insurance companies. The law on donations cannot also be invoked because the
beneficiary in the contract of insurance is not the donee under the law of donation. With regard
to Eva, any person is forbidden from receiving any donation under art 739 cannot be named
beneficiary of a life insurance policy of the person who cannot make any donation to him, as
stated in art 2012 of the Civil code. Since the designation of Eva as one of the beneficiaries is
void under art 739 of the Civil Code, the insurance proceeds should go to the legal heirs of the
deceased
● Insular and Grepalife filed their respective motions for reconsideration, while the petitioners
reiterated their earlier arguments
● The Court granted the motions of Insular and Grepalife. The Court ruled that the entire proceeds
would be paid to the illegitimate children pursuant to Sec 53 of the Insurance Code and only in
cases where there are no beneficiaries designated, or when the only designated beneficiary is
disqualified, that the proceeds should be paid to the estate of the insured.
● The trial court, with respect to Grepalife, dismissed the case as to the illegitimate children
● Petitioners appealed to the CA but dismissed it for lack of jurisdiction for filing beyond
reglementary period.

ISSUE: Whether or not the members of the legitimate family are entitled to the proceeds of the
insurance for the concubine

HELD: No.

The legitimate family is not entitled to the proceeds.

According to the court, although they are the legitimate heirs, they were not named as beneficiaries
in the insurance policies. Petitioners are not entitled to a favorable judgment in light of Art 2011
of the Civil Code which expressly provides that insurance contracts shall be governed by special
laws.

According to Sec 53 of the Insurance Code, the only people entitled to claim the insurance
proceeds are either the insured, if still alive; or the beneficiary, if the insured is already deceased.
The exception to the rule is a situation where the insurance contract was intended to benefit third
persons who are not parties to the same in the form of favorable stipulations or indemnity. In such
a case, third parties may directly sue and claim from the insurer .

The revocation of Eva as beneficiary in one policy, and her disqualification in the other are of no
moment considering that the designation of the illegitimate children as beneficiaries remains valid.

No legal prescription exists in naming as beneficiaries the children of illicit relationships by the
insured, the shares of Eva, whether forfeited by the court in view of the prohibition on donations
under art. 739 of the CC or by the insurers themselves for reasons based on the insurance contracts,
must be awarded to the said illegitimate children, the designated beneficiaries.

It is only in cases where the insured has not designated any beneficiary, or when the designated
beneficiary is disqualified by law to receive the proceeds, that the insurance policy proceeds shall
redound to the benefit of the estate of the insured.
9. Southern Luzon Employees Association vs. Galpeo

Doctrine:
Any person who is forbidden from receiving any donation under article 739 cannot be
named as beneficiary of a life insurance policy and by the person who cannot make any donation
to him. Example: mistress.
The disqualification, however, does not extend to their children. Hence, if their child was named
as beneficiary, then it would be valid.

FACTS:

Roman Concepcion was a member of Southern Luzon Employees Association of Laguna

Tayabas and Batangas Transportation company (plaintiff).
In the form required by the association to be accomplished by its members, with reference
to the death benefit, Roman listed as his benificiaries Aquilina Maloles, Roman Jr. , Estela
Concepcion, Rolando Concepcion and Robin Concepcion. After death of Roman Sr., the
association was able to collect voluntary contributions from its members. Three sets of claimants
presented themselves, namely 1) Juanita Golpeo (legal wife); 2) her children named as the
beneficiaries; and 3) Elsie Hicban (another common law wife of Roman Sr.)
Southern Luzon Association (Plaintiff) institute an action for interpleading against the three
conflicting claimants as defendants.
The lower court rendered a decision declaring the defendants Aquilina Maloles and her
children as the sole beneficiaries. The decision is based mainly on the theory that the contract
between the plaintiff and the deceased Roman partook of the nature of an insurance and that the
amount in question belonged exclusively to the beneficiaries.
Galpeo and her minor children appealed. They contend that: 1) insurance law is not
applicable since the plaintiff is a mutual benefit association; 2) the stipulation between the plaintiff
and deceased Roman regarding the specification of beneficiaries are void for being contrary to law,
moral or public policy. Specifically, the appellants cite Article 2012 of the New Civil Code
providing that “any person who is forbidden from receiving any donation under Art. 739 cannot
be named as beneficiary of a life insurance policy and by the person who cannot make any donation
to him, according to said article. They also alleged that Aquilina Maloles, cannot be named as
beneficiary, even assuming that the insurance law is applicable.

ISSUE:
Whether the disqualification of beneficiary applies to the children of Aquilina Maloles who
are likewise named as beneficiaries by Roman?

RULING:
 No, the appellant argument with respect to the disqualification as beneficiary would
certainly not apply to the children of Aquilina who are named as beneficiaries by the deceased
Roman.
10. Vda. de Consuegra vs. GSIS

Doctrine:

In the case of the proceeds of a life insurance, the same are paid to whoever is named the
beneficiary in the life insurance policy. As in the case of a life insurance provided for in the
Insurance Act, the beneficiary in a life insurance under the GSIS may not necessarily be an heir
of the insured. The insured in a life insurance may designate any person as beneficiary unless
disqualified to be so under the provisions of the Civil Code. And in the absence of any beneficiary
named in the life insurance policy, the proceeds of the insurance will go to the estate of the insured.

FACTS:
Late Jose Consuegra was employed as a shop foreman of the office of the District Engineer.
He contracted two marriage, the first is Diaz, out of which marriage were born 2 children; and the
second is Berdin which was contracted in good faith out of which marriage were born 7 children.
Being a member of GSIS when Consuegra died, the proceeds of his life insurance were
paid by the GSIS to Berdin(2nd wife) and her children who were the beneficiaries named in the
policy.
Having been in the service for 22 years, Consuegra was entitled to retirement insurance
benefits. He did not designate any beneficiary who would receive the retirement insurance benefits
due to him. Diaz(first wife) filed a claim with GSIS asking the retirement insurance benefits be
paid to her as the only legal heir on Consuegra, considering that the deceased did not designate
any beneficiary with respect to his retirement insurance benefits. Berdin (2 nd wife) and her children
filed a similar claim with the GSIS asserting that being the beneficiaries named in the life insurance
policy of Consuegra, they are the only ones entitled to receive the retirement insurance benefits
due the deceased.
The GSIS ruled that each of them (Diaz and Berdin) are entitled to receive one-half, an
equal share.
Berdin appealed. They contend that the designated beneficiaries in the life insurance of the
late Consuegro are also the exclusive beneficiaries in the retirement insurance of said deceased.
Hence, appellants who were the beneficiaries named in the life insurance would automatically be
considered the beneficiaries to receive the retirement benefits, to the exclusion of respondent Diaz.

ISSUE:
Whether the designated beneficiaries in life insurance automatically become the beneficiaries
of retirement insurance. - NO
In the absence of named beneficiary, where will be the proceeds of the insurance go? –
estate of the deceased.
RULING:
No.
The law (RA 660) clearly indicated that there is a need for the employee to file an
application for retirement insurance benefits when he becomes a member of the GSIS, and he
should state in his application the beneficiary to his retirement insurance. Hence, the beneficiary
named in the life insurance does not automatically become the beneficiary in the retirement
insurance unless the same beneficiary in the life insurance is so designated in the application for
retirement insurance.
The GSIS offers two separate and distinct systems of benefits to its members – one is the
life insurance and the other is the retirement insurance. These two distinct systems of benefits are
paid out from two distinct and separate funds that are maintained by the GSIS.
In the case of the proceeds of a life insurance, the same are paid to whoever is named the
beneficiary in the life insurance policy. As in the case of a life insurance provided for in the
Insurance Act, the beneficiary in a life insurance under the GSIS may not necessarily be an heir of
the insured. The insured in a life insurance may designate any person as beneficiary unless
disqualified to be so under the provisions of the Civil Code. And in the absence of any beneficiary
named in the life insurance policy, the proceeds of the insurance will go to the estate of the insured.
Therefore, respondent GSIS had correctly acted when it ruled that the proceeds of the
retirement insurance of the late Jose Consuegra should be divided equally between his first living
wife and his second wife and his children by her.

11. THE INSULAR LIFE ASSURANCE vs. EBRADO

[G.R. No. L-44059, 28 October 1977]
Justice Martin
Digested by: De Vera, Queenie, S.
DOCTRINE:

Any person who cannot receive a donation cannot be named as beneficiary in the life insurance
policy of the person who cannot make the donation. Hence, a common law wife cannot be made
as a beneficiary in the life insurance.

FACTS:
Buenaventura Cristor Ebrado was issued by petitioner The Life Assurance Co., Ltd., a
Policy fon a whole-life planor P5,882.00 with a rider for Accidental Death for the same amount.
He designated respondent Carponia T. Ebrado as the revocable beneficiary in his policy. He
referred to her as his wife. Buenaventura C. Ebrado died when he was hit by a failing branch of a
tree.

Respondent Carponia T. Ebrad, as the designated beneficiary therein and common-law

wife of the insured, filed with the insurer a claim for the proceeds of the Policy, although she
admits that she and the insured Buenaventura C. Ebrado were merely living as husband and wife
without the benefit of marriage. Respondent Pascuala Vda. de Ebrado also filed her claim as the
widow of the deceased insured. She asserts that she is the one entitled to the insurance proceeds,
not the common-law wife, Carponia T. Ebrado.

In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life
Assurance Co., Ltd. commenced an action for Interpleader before the Court of First Instance.

Trial court rendered judgment disqualifying Carponia T. Ebrado from becoming

beneficiary of the insured Buenaventura Cristor Ebrado and directing the payment of the insurance
proceeds to the estate of the deceased insured. CA affirmed.

ISSUE:Whether or not, a common-law wife named as beneficiary in the life insurance policy of a
legally married man can claim the proceeds thereof in case of death of the latter.
RULING:
NO. Sec. 50 of the Insurance Act which provides that "the insurance shall be applied
exclusively to the proper interest of the person in whose name it is made". The word "interest"
highly suggests that the provision refers only to the "insured" and not to the beneficiary, since a
contract of insurance is personal in character. Otherwise, the prohibitory laws against illicit
relationships especially on property and descent will be rendered nugatory, as the same could
easily be circumvented by modes of insurance.

The general rules of civil law should be applied to resolve this void in the Insurance Law.
Article 2011 of the New Civil Code states: "The contract of insurance is governed by special laws.
Matters not expressly provided for in such special laws shall be regulated by this Code." When
not otherwise specifically provided for by the Insurance Law, the contract of life insurance is
governed by the general rules of the civil law regulating contracts.

And under Article 2012 of the same Code, "any person who is forbidden from receiving
any donation under Article 739 cannot be named beneficiary of a life insurance policy by the
person who cannot make a donation to him. Common-law spouses are, definitely, barred from
receiving donations from each other. Article 739 of the new Civil Code provides that donations
made between persons who were guilty of adultery or concubinage at the time of donation shall
be void.

In essence, a life insurance policy is no different from a civil donation insofar as the
beneficiary is concerned. Both are founded upon the same consideration: liberality. A beneficiary
is like a donee, because from the premiums of the policy which the insured pays out of liberality,
the beneficiary will receive the proceeds or profits of said insurance.
 The mandate of Article 2012 cannot be laid aside: any person who cannot receive a
donation cannot be named as beneficiary in the life insurance policy of the person who cannot
make the donation.
12. SPS. NILO CHA AND STELLA UY CHA, ET AL. vs. CA
[G.R. No. 124520, 18 August 1997]
Justice Padilla
Digested by: De Vera, Queenie, S.

DOCTRINE:

Sec. 18 of the Insurance Code provides that no contract or policy of insurance on property shall
be enforceable except for the benefit of some person having an insurable interest in the property
insured.Insurable interest in the property insured must exist at the time the insurance takes effect
and at the time the loss occurs.The basis of such requirement is sound public policy: to prevent a
person from taking out an insurance policy on property upon which he has no insurable interest
and collecting the proceeds of said policy in case of loss of the property. In such a case, the
contract of insurance is a mere wager which is void.

FACTS:
Petitioner-spouses Nilo and Stella Cha, as lessees, entered into a lease contract with
respondent CKS, as lessor. One of the stipulations of the lease contract states:
18. x x x. The LESSEE shall not insure against fire the chattels, merchandise,
textiles, goods and effects placed at any stall or store or space in the leased
premises without first obtaining the written consent and approval of the
LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of
the LESSOR then the policy is deemed assigned and transferred to the LESSOR
for its own benefit

Notwithstanding the above stipulation, the Sps. Cha insured with United against loss by
fire their merchandise inside the leased premises. On the day that the lease contract was to expire,
fire broke out inside the leased premises. When CKS learned of the insurance earlier procured by
the Cha spouses (without its consent), it demanded from United the proceeds of the insurance
contract, based on its lease contract with Cha spouses. United refused to pay CKS. Hence, the
latter filed a complaint against the Cha spouses and United.
 The RTC rendered a decision ordering United to pay CKS.
On appeal, respondent CA rendered a decision affirming the trial court decision. United
moved for reconsideration but was denied. Hence, this Petition

ISSUE:Whether CKS has insurable interest in the goods and merchandise inside the leased
premises insofar as paragraph 18 of the lease contract provides that any fire insurance policy
obtained by the lessee over their merchandise inside the leased premises is deemed assigned or
transferred to the lessor if said policy is obtained without prior written consent of the lessor.
RULING:
NO. It is basic on the law on contracts that the stipulations contained in acontract cannot
be contrary to law, morals, good customs, public order or public policy. Sec. 18 of the Insurance
Code provides that no contract or policy of insurance on property shall be enforceable except for
the benefit of some person having an insurable interest in the property insured.
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses
over their merchandise is primarily a contract of indemnity. Insurable interest in the property
insured must exist at the time the insurance takes effect and at the time the loss occurs. The basis
of such requirement is sound public policy: to prevent a person from taking out an insurance policy
on property upon which he has no insurable interest and collecting the proceeds of said policy in
case of loss of the property. In such a case, the contract of insurance is a mere wager which is void
under Section 25 of the Insurance Code, which provides that:
SECTION 25. Every stipulation in a policy of Insurance for the payment of loss,
whether the person insured has or has not any interest in the property insured, or
that the policy shall be received as proof of such interest, and every policy
executed by way of gaming or wagering, is void.

In the present case, CKS has no insurable interest in the goods inside the leased premises
under the provisions of Section 17 1 of the Insurance Code. Therefore, CKS cannot be validly a
beneficiary of the fire insurance policy taken by the petitioner-spouses over their merchandise.

1 [1]
Section 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss of injury
thereof.s
This insurable interest over said merchandise remains with the insured. The automatic assignment
of the policy to CKS under the lease contract is void for being contrary to law and/or public policy.
The proceeds of the fire insurance policy thus rightfully belong to the Sps Cha. United cannot be
compelled to pay the proceeds of the fire insurance policy to CKS who has no insurable interest in
the property insured.
13. GAISANO CAGAYAN, INC. vs INSURANCE COMPANY OF NORTH AMERICA
G.R. No. 147839. June 8, 2006.
AUSTRIA-MARTINEZ, J.
Topic: Insurable Interest

Doctrine: Unlike the civil law concept of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property insurance, one’s interest is not determined
by concept of title, but whether insured has substantial economic interest in the property. An
insurable interest in property does not necessarily imply a property interest in, or a lien upon, or
possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is
requisite to the existence of such an interest, it is sufficient that the insured is so situated with
reference to the property that he would be liable to loss should it be injured or destroyed by the
peril against which it is insured.

Thus, anyone has an insurable interest in property who derives a benefit from its existence or
would suffer loss from its destruction. Indeed, a vendor or seller retains an insurable interest in the
property sold so long as he has any interest therein, in other words, so long as he would suffer by
its destruction, as where he has a vendor’s lien.

FACTS:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans.

Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by
Levi Strauss & Co.

IMC and LSPI separately obtained from Insurance Company of North America (respondent) fire
insurance policies with book debt endorsements. The insurance policies provide for coverage on
‘book debts’ in connection with ready-made clothing materials which have been sold or delivered
to various customers and dealers of the Insured.

The policies defined book debts as the “unpaid account still appearing in the Book of Account of
the Insured 45 days after the time of the loss covered under this Policy.”

Gaisano Cagayan Inc. (petitioner) is a customer and dealer of the products of IMC and LSPI. The
Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire.
Included in the items lost or destroyed in the fire were stocks of ready-made clothing materials
sold and delivered by IMC and LSPI.

The sales invoice between IMC LSPI and Gaisano in the transfer of the destroyed merchandise
contains the provision that for purposes of securing the payment of the purchase price the
merchandise delivered remains the property of the vendor until the purchase price thereof is fully
paid.

Respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed
with respondent their claims under their respective fire insurance policies with book debt
endorsements; that there are unpaid accounts of petitioner on the sale and delivery of ready-made
clothing materials with IMC and LSPI; that respondent paid the claims of IMC and LSPI and, by
virtue thereof, respondent was subrogated to their rights against petitioner; that respondent made
several demands for payment upon petitioner but these went unheeded.

RTC
RTC rendered its decision dismissing respondent’s complaint. It held that since the sales invoices
state that “it is further agreed that merely for purpose of securing the payment of purchase price,
the above-described merchandise remains the property of the vendor until the purchase price is
fully paid” then IMC and LSPI retained ownership of the delivered goods and must bear the loss.

CA
CA set aside the decision of the RTC. It held that the sales invoices are proofs of sale, that loss of
the goods in the fire must be borne by petitioner since the proviso contained in the sales invoices
is an exception under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost
by a fortuitous event, the risk is borne by the owner of the thing at the time the loss under the
principle of res perit domino; that petitioner’s obligation to IMC and LSPI is not the delivery of
the lost goods but the payment of its unpaid account and as such the obligation to pay is not
extinguished, even if the fire is considered a fortuitous event; that by subrogation, the insurer has
the right to go against petitioner; that, being a fire insurance with book debt endorsements, what
was insured was the vendors interest as a creditor.

MR filed by the petitioner is denied hence the present petition for review.

ISSUE:
Whether IMC and LSPI retains an insurable interest over the merchandise sold or delivered to
Gaisano

RULING:
Yes. IMC and LSPI have an insurable interest over the delivered merchandise.

IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until
full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino,
where ownership is the basis for consideration of who bears the risk of loss, in property insurance,
one’s interest is not determined by concept of title, but whether insured has substantial economic
interest in the property.

Section 13 of our Insurance Code defines insurable interest as “every interest in property, whether
real or personal, or any relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured.”

Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist
in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy,
coupled with an existing interest in that out of which the expectancy arises.

Therefore, an insurable interest in property does not necessarily imply a property interest in, or a
lien upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial
interest is requisite to the existence of such an interest, it is sufficient that the insured is so situated
with reference to the property that he would be liable to loss should it be injured or destroyed by
the peril against which it is insured.

Anyone has an insurable interest in property who derives a benefit from its existence or would
suffer loss from its destruction. Indeed, a vendor or seller retains an insurable interest in the
property sold so long as he has any interest therein, in other words, so long as he would suffer by
its destruction, as where he has a vendor’s lien.

In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in
their Books of Account 45 days after the time of the loss covered by the policies.

Thus, the petitioner is liable for the unpaid accounts as the insurance in this case is not for loss of
goods by fire but for petitioner’s accounts with IMC and LSPI that remained unpaid 45 days after
the fire. Accordingly, petitioner’s obligation is for the payment of money.

With respect to IMC, respondent has adequately established its claim showing that petitioner has
an outstanding account with IMC and the subrogation evidenced by the receipt executed by IMC
in favor of respondent upon receipt of the insurance proceeds.

As to LSPI, respondent failed to present sufficient evidence to prove its cause of action and thus,
there is no evidence that respondent has been subrogated to any right which LSPI may have against
petitioner.

WHEREFORE, the petition is partly GRANTED.

14. GREAT PACIFIC LIFE ASSURANCE CORP. vs. COURT OF APPEALS AND
MEDARDA V. LEUTERIO
G.R. No. 113899. October 13, 1999
QUISUMBING, J.

Topic: Insurable Interest

Doctrine:
Insured, being the person with whom the contract was made, is primarily the proper person
to bring suit thereon. Subject to some exceptions, insured may thus sue, although the policy is
taken wholly or in part for the benefit of another person named or unnamed, and although it is
expressly made payable to another as his interest may appear or otherwise.Thus, although a policy
issued to a mortgagor is taken out for the benefit of the mortgagee and is made payable to him, the
mortgagor may sue thereon in his own name, especially where the mortgagee’s interest is less than
the full amount recoverable under the policy.

FACTS:
A contract of group life insurance was executed between Great Pacific Life Assurance Corporation
(Grepalife) (petitioner) and Development Bank of the Philippines (DBP). Grepalife agreed to
insure the lives of eligible housing loan mortgagors of DBP.

Dr. Wilfredo Leuterio,a housing debtor of DBP applied for membership in the group life insurance
plan. In his insurance plan application, he disclosed that he has no medical condition or health
issues. Therewith, Grepalife issued Certificate No. B- 18558, as insurance coverage of Dr. Leuterio,
to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand, two hundred
(P86,200.00) pesos.

Dr. Leuterio died due to massive cerebral hemorrhage. Consequently, DBP submitted a death
claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy
when he applied for an insurance coverage on November 15, 1983. Grepalife insisted that Dr.
Leuterio did not disclose he had been suffering from hypertension, which caused his death.
Allegedly, such non-disclosure constituted concealment that justified the denial of the claim.

The widow of the late Dr. Leuterio, Medarda V. Leuterio (respondent), filed a complaint with the
RTC of Misamis Oriental against Grepalife for Specific Performance with Damages.

RTC
RTC rendered a decision in favor of respondent widow and against Grepalife.

CA
CA sustained the RTC’s decision. Hence, the present petition.

ISSUE:

Whether the respondent-wife has insurable interest over the ‘mortgage redemption insurance’
taken for the benefit of the DBP

RULING:
Yes. Respondent-wife has an insurable interest upon the policy and may file the suit against
Grepalife to recover what the insured might have recovered.

The rationale of a group insurance policy of mortgagors, otherwise known as the “mortgage
redemption insurance,” is a device for the protection of both the mortgagee and the mortgagor. On
the part of the mortgagee, it has to enter into such form of contract so that in the event of the
unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds
from such insurance will be applied to the payment of the mortgage debt, thereby relieving the
heirs of the mortgagor from paying the obligation. In a similar vein, ample protection is given to
the mortgagor under such a concept so that in the event of death; the mortgage obligation will be
extinguished by the application of the insurance proceeds to the mortgage indebtedness.
Consequently, where the mortgagor pays the insurance premium under the group insurance policy,
making the loss payable to the mortgagee, the insurance is on the mortgagor’s interest, and the
mortgagor continues to be a party to the contract. In this type of policy insurance, the mortgagee
is simply an appointee of the insurance fund, such loss-payable clause does not make the
mortgagee a party to the contract.

Section 8 of the Insurance Code provides:

“Unless the policy provides, where a mortgagor of property effects insurance in his own name
providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a
mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not cease
to be a party to the original contract, and any act of his, prior to the loss, which would otherwise
avoid the insurance, will have the same effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of insurance, is to be performed by the mortgagor,
may be performed by the mortgagee therein named, with the same effect as if it had been performed
by the mortgagor.”

The insured private respondent did not cede to the mortgagee all his rights or interests in the
insurance, the policy stating that: “In the event of the debtor’s death before his indebtedness with
the Creditor [DBP] shall have been fully paid, an amount to pay the outstanding indebtedness shall
first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the
beneficiary/ies designated by the debtor.”
In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co. it was held that:

“Insured, being the person with whom the contract was made, is primarily the proper
person to bring suit thereon. * * * Subject to some exceptions, insured may thus sue, although the
policy is taken wholly or in part for the benefit of another person named or unnamed, and although
it is expressly made payable to another as his interest may appear or otherwise. * * * Although a
policy issued to a mortgagor is taken out for the benefit of the mortgagee and is made payable to
him, yet the mortgagor may sue thereon in his own name, especially where the mortgagee’s interest
is less than the full amount recoverable under the policy, * * *.”

And in volume 33, page 82, of the same work, we read the following:
“Insured may be regarded as the real party in interest, although he has assigned the policy
for the purpose of collection, or has assigned as collateral security any judgment he may obtain.”

And since a policy of insurance upon life or health may pass by transfer, will or succession to any
person, whether he has an insurable interest or not, and such person may recover it whatever the
insured might have recovered, the widow of the decedent Dr. Leuterio may file the suit against the
insurer, Grepalife.

15. VICENTE ONG LIM SING, JR., vs. FEB LEASING & FINANCE CORPORATION
G.R. No. 168115. June 8, 2007.
PONENTE: NACHURA, J.
Digested by: Evangelista-Javier, Judith a.

DOCTRINE: A lessee has an insurable interest in the equipment and motor vehicles leased,
and the measure of its insurable interest is the extent to which it may be damnified by loss or
injury thereof.

FACTS:
On March 9, 1995, FEB Leasing and Finance Corporation entered into a lease of equipment and
motor vehicles with JVL Food Products (JVL). On the same date, Vicente Ong Lim Sing, Jr.
executed an Individual Guaranty Agreement with FEB to guarantee the prompt and faithful
performance of the terms and conditions of the aforesaid lease agreement.

JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in arrears,
including penalty charges and insurance premiums, amounted to Three Million Four Hundred
Fourteen Thousand Four Hundred Sixty-Eight and 75/100 Pesos (P3,414,468.75).
On August 23, 2000, FEB sent a letter to JVL demanding payment of the said amount. However,
JVL failed to pay.

On December 6, 2000, FEB filed a Complaint with the Regional Trial Court of Manila, for sum of
money, damages, and replevin against JVL, Lim, and John Doe.

In the Amended Answer, JVL and Lim admitted the existence of the lease agreement but asserted
that it is in reality a sale of equipment on installment basis, with FEB acting as the financier. JVL
and Lim claimed that this intention was apparent from the fact that they were made to believe that
when full payment was effected, a Deed of Sale will be executed by FEB as vendor in favor of
JVL and Lim as vendees.

FEB purportedly assured them that documenting the transaction as a lease agreement is just an
industry practice and that the proper documentation would be effected as soon as full payment for
every item was made.

RTC ruled in favor of JVL

On December 27, 2002, FEB filed its Notice of Appeal.

On January 17, 2003, the court issued an Order elevating the entire records of the case to the CA.
FEB averred that the trial court erred when it ruled that the agreement between the Parties-
Litigants is one of sale of personal properties on installment and not of lease.
On March 15, 2005, the CA issued its Decision declaring the transaction between the parties as a
financial lease agreement under Republic Act (R.A.) No. 8556.

ISSUE:WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN

RULING THAT THE PETITIONER IS A LESSEE WITH INSURABLE INTEREST
OVER THE SUBJECT PERSONAL PROPERTIES.

RULING : YES PETITIONER HAS INSURABLE INTEREST

Petitioner, as a lessee, has an insurable interest in the equipment and motor vehicles leased. Section
17 of the Insurance Code provides that the measure of an insurable interest in property is the extent
to which the insured might be damnified by loss or injury thereof. It cannot be denied that JVL
will be directly damnified in case of loss, damage, or destruction of any of the properties leased.

In the financial lease agreement, FEB did not assume responsibility as to the quality,
merchantability, or capacity of the equipment. This stipulation provides that, in case of defect of
any kind that will be found by the lessee in any of the equipment, recourse should be made to the
manufacturer.

“The financial lessor, being a financing company, i.e., an extender of credit rather than an ordinary
equipment rental company, does not extend a warranty of the fitness of the equipment for any
particular use. Thus, the financial lessee was precisely in a position to enforce such warranty
directly against the supplier of the equipment and not against the financial lessor. We find nothing
contra legem or contrary to public policy in such a contractual arrangement.”

CONCEALMENT
16. GREAT PACIFIC LIFE ASSURANCE CORP.vs. COURT OF APPEALS AND
MEDARDA V. LEUTERIO
G.R. No. 113899. October 13, 1999.
PONENTE: QUISUMBING, J.:

Digested by: Evangelista Javier, Judith A.

DOCTRINE: Concealment exists where the assured had knowledge of a fact material to the risk,
and honesty, good faith, and fair dealing requires that he should communicate it to the assured,
but he designedly and intentionally withholds the same

FACTS: A contract of group life insurance was executed between petitioner Great Pacific Life
Assurance Corporation and Development Bank of the Philippines. Grepalife agreed to insure the
lives of eligible housing loan mortgagors of DBP.
On August 6, 1984, Dr. Leuterio a housing loan mortgagor, died due to massive cerebral
hemorrhage. DBP submitted a death claim to Grepalife.

Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied
for an insurance coverage on November 15, 1983. Grepalife insisted that Dr. Leuterio did not
disclose he had been suffering from hypertension, which caused his death. Allegedly, such non-
disclosure constituted concealment that justified the denial of the claim.

On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a
complaint with the Regional Trial Court of Misamis Oriental, against Grepalife for Specific
Performance with Damages.

During the trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr.
Mejias findings, based partly from the information given by the respondent widow, stated that Dr.
Leuterio complained of headaches presumably due to high blood pressure. The inference was not
conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out.

On February 22, 1988, the trial court rendered a decision in favor of respondent widow and against
Grepalife.

On May 17, 1993, the Court of Appeals sustained the trial courts decision. Hence, the present
petition.

ISSUE: Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that
he had hypertension, which would vitiate the insurance contract?
RULING:Appellant insurance company had failed to establish that there was concealment
made by the insured, hence, it cannot refuse payment of the claim.

Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as
supported by the information given by the widow of the decedent.

Grepalife asserts that Dr. Mejias technical diagnosis of the cause of death of Dr. Leuterio was a
duly documented hospital record, and that the widows declaration that her husband had possible
hypertension several years ago should not be considered as hearsay, but as part of res gestae.

On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an
autopsy on the body of the decedent. As the attending physician, Dr. Mejia stated that he had no
knowledge of Dr. Leuterios any previous hospital confinement. Dr. Leuterios death certificate
stated that hypertension was only the possible cause of death. The private respondents statement,
as to the medical history of her husband, was due to her unreliable recollection of events. Hence,
the statement of the physician was properly considered by the trial court as hearsay.

17. New Life Enterprises v. CA

GR No. 94071, March 31, 1992
Regalado, J.
By: Ferreras

Doctrine: While it is a cardinal principle of insurance law that a policy or contract of insurance
is to be construed liberally in favor of the insured and strictly against the insurer company, 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.
Moreover, obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith.

Facts: Julian Sy and Jose Sy Bang have formed a business partnership named New Life
Enterprises. The partnership is engaged in the sale of construction materials at its place of business,
a two storey building. Julian Sy insured the stocks in trade of New Life Enterprises with Western
Guaranty Corporation, Reliance Surety and Insurance. Co., Inc., and Equitable Insurance
Corporation.
When the building occupied by the New Life Enterprises was gutted by fire at about 2:00 o'clock
in the morning of October 19, 1982, the stocks in the trade inside said building were insured against
fire in the total amount of P1,550,000.00. According to the certification issued by the Headquarters,
Philippine Constabulary /Integrated National Police, the cause of fire was electrical in nature.
According to the plaintiffs, the building and the stocks inside were burned. After the fire, Julian
Sy went to the agent of Reliance Insurance whom he asked to accompany him to the office of the
company so that he can file his claim. He averred that in support of his claim, he submitted the fire
clearance, the insurance policies and inventory of stocks. He further testified that the three
insurance companies are sister companies, and as a matter of fact when he was following-up his
claim with Equitable Insurance, the Claims Manager told him to go first to Reliance Insurance and
if said company agrees to pay, they would also pay. The same treatment was given him by the
other insurance companies. Ultimately, the three insurance companies denied plaintiffs' claim for
payment.
In its letter of denial, the Insurance companies told the plaintiff that his claim "is denied for breach
of policy conditions." The Executive Vice-President of the Reliance Surety, through a letter,
informed Julian Sy about the violation of Policy Condition No. "3" which requires the insured to
give notice of any insurance or insurances already effected covering the stocks in trade.
Because of the denial of their claims for payment by the three (3) insurance companies, petitioner
filed separate civil actions against them. RTC ruled in favor of the plaintiffs. But, CA reversed
said judgment.

Issue: WON conditions Nos. 3 and 27 of the insurance contracts were violated by petitioners
thereby resulting in their forfeiture of all the benefits thereunder.
Ruling: Yes. Petitioners admit that the respective insurance policies issued by private respondents
did not state or endorse thereon the other insurance coverage obtained or subsequently effected on
the same stocks in trade for the loss of which compensation is claimed by petitioners. The coverage
by other insurance or co-insurance effected or subsequently arranged by petitioners were neither
stated nor endorsed in the policies of the three (3) private respondents, warranting forfeiture of all
benefits thereunder if we are to follow the express stipulation in the Policy Condition No. 3. It is
further admitted by petitioners that Equitable's policy stated "nil" in the space thereon requiring
indication of any co-insurance although there were 3 policies subsisting on the same stocks in trade
at the time of the loss.
Petitioners contend that they are not to be blamed for the omissions, alleging that insurance agent
Leon Alvarez (for Western) and Yap Kam Chuan (for Reliance and Equitable) knew about the
existence of the additional insurance coverage and that they were not informed about the
requirement that such other or additional insurance should be stated in the policy, as they have not
even read policies.These contentions cannot pass judicial muster.
Here, the insured is specifically required to disclose to the insurer any other insurance and its
particulars which he may have effected on the same subject matter. The knowledge of such
insurance by the insurer's agents, even assuming the acquisition thereof by the former, is not the
"notice" that would estop the insurers from denying the claim. Besides, the so-called theory of
imputed knowledge, that is, knowledge of the agent is knowledge of the principal, aside from being
of dubious applicability here has likewise been roundly refuted by respondent court whose factual
findings we find acceptable.

While it is a cardinal principle of insurance law that a policy or contract of insurance is to be

construed liberally in favor of the insured and strictly against the insurer company, 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. Moreover, obligations arising
from contracts have the force of law between the contracting parties and should be complied with
in good faith.

Additionally, insofar as the liability of respondent Reliance is concerned, it is not denied that the
complaint for recovery was filed in court by petitioners only on January 31, 1984, or after more
than one (1) year had elapsed from petitioners' receipt of the insurers' letter of denial on November
29, 1982. Policy Condition No. 27 of their insurance contract with Reliance provides: 27. Action
or suit clause. — If a claim be made and rejected and an action or suit be not commenced either
in the Insurance Commission or any court of competent jurisdiction of notice of such rejection, or
in case of arbitration taking place as provided herein, within twelve (12) months after due notice
of the award made by the arbitrator or arbitrators or umpire, then the claim shall for all purposes
be deemed to have been abandoned and shall not thereafter be recoverable hereunder. Here,
petitioners let the period lapse without bringing their action in court.
18. Ma. Lourdes S. Florendo v. Philam Plans, Inc., et. al.
GR No. 186983, February 22, 2012
Abad, J.
By: Ferreras

Doctrine:

A concealment whether intentional or unintentional entitles the injured party to rescind a contract
of insurance. (Section 27)
Facts: Manuel Florendo filed an application for comprehensive pension plan with respondent
Philam Plans after some convincing by respondent Perla Abcede. The plan had a pre-need price of
P997,050.00, payable in 10 years, and had a maturity value of P2,890,000.00 after 20 years.
Manuel signed the application and left to Perla the task of supplying the information needed in the
application. Aside from pension benefits, the comprehensive pension plan also provided life
insurance coverage to Florendo. This was covered by a Group Master Policy that Philam Life
issued to Philam Plans. If the plan holder died before the maturity of the plan, his beneficiary was
to instead receive the proceeds of the life insurance.
Philam Plans issued Pension Plan Agreement to Manuel, with petitioner Ma. Lourdes S. Florendo,
his wife, as beneficiary. Eleven months later or on September 15, 1998, Manuel died of blood
poisoning. Subsequently, Lourdes filed a claim with Philam Plans. Philam Plans wrote a letter
declining her claim. They found that Manuel was on maintenance medicine for his heart and had
an implanted pacemaker. Further, he suffered from diabetes mellitus and was taking insulin.
Lourdes renewed her demand for payment under the plan but Philam Plans rejected it.

RTC ruled in favor of Lourdes and held that Manuel was not guilty of concealing the state of his
health from his pension plan application. CA reversed the RTC decision holding that insurance
policies are traditionally contracts uberrimae fidae or contracts of utmost good faith. As such, it
required Manuel to disclose to Philam Plans conditions affecting the risk of which he was aware
or material facts that he knew or ought to know.
Issue: WON Manuel is guilty of concealing his illness when he kept blank and did not answer
questions in his pension plan application regarding the ailments he suffered from.
Ruling: Yes. Lourdes is shifting to Philam Plans the burden of putting on the pension plan
application the true state of Manuels health. She forgets that since Philam Plans waived medical
examination for Manuel, it had to rely largely on his stating the truth regarding his health in his
application. For, after all, he knew more than anyone that he had been under treatment for heart
condition and diabetes for more than five years preceding his submission of that application. But
he kept those crucial facts from Philam Plans.
It is clear from these representations that he concealed his chronic heart ailment and diabetes from
Philam Plans. Since Manuel signed the application without filling in the details regarding his
continuing treatments for heart condition and diabetes, the assumption is that he has never been
treated for the said illnesses in the last five years preceding his application.

Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that
Manuel had a pacemaker implanted on his chest in the 70s or about 20 years before he signed up
for the pension plan. But by its tenor, the responsibility for preparing the application belonged to
Manuel. Nothing in it implies that someone else may provide the information that Philam Plans
needed.

That Manuel still had his pacemaker when he applied for a pension plan in October 1997 is an
admission that he remained under treatment for irregular heartbeat within five years preceding that
application. Besides, as already stated, Manuel had been taking medicine for his heart condition
and diabetes when he submitted his pension plan application. These clearly fell within the five-
year period. Pursuant to Section 27 of the Insurance Code, Manuels concealment entitles Philam
Plans to rescind its contract of insurance with him.

Lourdes points out that any defect or insufficiency in the information provided by his pension plan
application should be deemed waived after the same has been approved. The Court cannot agree.
The comprehensive pension plan that Philam Plans issued contains a one-year incontestability
period. It precludes the insurer from disowning liability under the policy it issued on the ground
of concealment or misrepresentation regarding the health of the insured after a year of its issuance.

19. GREAT PACIFIC LIFE INSURANCE COMPANY V. CA, G.R. No. L-31845 (1979)
By: Gabriel, Roselle A.

Topic: Concealment

Doctrine:
Concealment is a neglect to communicate that which a party knows and ought to communicate.

Facts:
Ngo Hing filed an application with the Great Pacific Life Assurance Company (Pacific
Life) for a twenty-year endowment policy in the amount of Php50,000 on the life of his one-year
old daughter, thru Mondragon as Pacific Life’s agent. Ngo Hing paid insurance premium to
Mondragon evidenced by binding deposit receipt where the latter wrote his strong
recommendation for the approval of the insurance application. The application, however, was
denied by Pacific Life as the insurance for 20-year endowment is not available for minors below
seven years old. The non-acceptance of the insurance application was not communicated to Ngo
Hing. Instead, Mondragon insisted for Pacific Life’s approval. Later, Ngo Hing’s one-year old
daughter died of influenza with complication of bronchopneumonia. Ngo Hing is now claiming
for the proceeds of the insurance policy that it filed for an action for the recovery of the same with
the RTC upon failure to claim it before Pacific Life.

Issue:
Whether Ngo Hing concealed the state of health and physical condition of his one-year old
daughter which rendered void his payment on the insurance policy.

Ruling:
Ngo Hing deliberately concealed the state of health and physical condition of his daughter.
When he supplied the required essential data for the insurance application form, he was fully aware
that his one-year old daughter is typically a mongoloid child. Such a congenital physical defect
could never be ensconced nor disguised. Nonetheless, private respondent, in apparent bad faith,
withheld the fact material to the risk to be assumed by the insurance company. As an insurance
agent of Pacific Life, he ought to know, as he surely must have known, his duty and responsibility
to supply such a material fact. Had he divulged said significant fact in the insurance application
form, Pacific Life would have verified the same and would have had no choice but to disapprove
the application outright.
The contract of insurance is one of perfect good faith (uberrima fides meaning good faith);
absolute and perfect candor or openness and honesty; the absence of any concealment or deception,
however slight not for the insured alone but equally so for the insurer Concealment is a neglect to
communicate that which a party knows and ought to communicate. Whether intentional or
unintentional, the concealment entitles the insurer to rescind the contract of insurance Ngo Hing
appears guilty thereof.
20. SATURNINO V. PHIL. AMERICAN LIFE, 7 SCRA 316, 319
By: Gabriel, Roselle A.
Topic: Concealment

Doctrine: The Insurance Law (Section 30) provides that "materiality is to be determined not by the
event, but solely by the probable and reasonable influence of the facts upon the party to whom the
communication is due, in forming his estimate of the proposed contract, or in making his inquiries.”
In this jurisdiction, a concealment, whether intentional or unintentional entitles the insurer
to rescind the contract of insurance, concealment being defined as “negligence to communicate
that which a party knows and ought to communicate”

Facts:
The policy sued upon is one for 20-year endowment non-medical insurance. This kind of
policy dispenses with the medical examination of the applicant usually required in ordinary life
policies. However, detailed information is called for in the application concerning the applicant's
health and medical history. The written application in this case was submitted by Saturnino to
Philam Life. Later, Saturnino died of pneumonia, secondary to influenza. The surviving husband
and minor child (appellants), respectively, demanded payment of the face value of the policy. The
claim was rejected and this suit was subsequently instituted.
It appears that two months prior to the issuance of the policy, Saturnino was operated on
for cancer. She stayed in the hospital for a period of eight days, after which she was discharged,
although according to the surgeon who operated on her she could not be considered definitely
cured, her ailment being of the malignant type.
Notwithstanding the fact of her operation, Saturnino did not make a disclosure thereof in
her application for insurance. On the contrary, she stated therein that she did not have, nor had she
ever had, among other ailments listed in the application, cancer or other tumors; that she had not
consulted any physician, undergone any operation or suffered any injury within the preceding five
years; and that she had never been treated for nor did she ever have any illness or disease peculiar
to her sex, particularly of the breast, ovaries, uterus, and menstrual disorders. The application also
recites that the foregoing declarations constituted "a further basis for the issuance of the policy."
The appellants contend that the facts subject of the representation were not material in view
of the non-medical nature of the insurance applied for, which does away with the usual requirement
of medical examination before the policy is issued.

Issue:
Whether Saturnino made false representations of material facts on the insurance policy

Held:
There can be no dispute that the information given by her in her application for insurance
was false, namely, that she had never had cancer or tumors, or consulted any physician or
undergone any operation within the preceding period of five years. The Insurance Law (Section
30) provides that "materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in forming his
estimate of the proposed contract, or in making his inquiries.” If anything, the waiver of medical
examination renders even more material the information required of the applicant concerning
previous condition of health and diseases suffered, for such information necessarily constitutes an
important factor which the insurer takes into consideration in deciding whether to issue the policy
or not. It is logical to assume that if Philam Life had been properly apprised of the insured's medical
history she would at least have been made to undergo medical examination in order to determine
her insurability. Here, it was precisely because Saturnino had given herself a clean bill of health
that Philam Life no longer considered an actual medical check up necessary.
In this jurisdiction, a concealment, whether intentional or unintentional entitles the insurer
to rescind the contract of insurance, concealment being defined as “negligence to communicate
that which a party knows and ought to communicate”