Alpha Insurance and Surety Co. v.

Castor
G.R. No. 198174. September 2, 2013
Peralta, J.
FACTS:
Respondent Arsenia Castor entered into a contract of insurance with petitioner Alpha Insurance
and Surety Co. (AISC) for her motor vehicle. In the said contract, petitioner obligates to pay
Castor in case of loss or damage for a period of one year. Subsequently, when Castor
instructed her driver, Jose Lanuza to bring the subject vehicle to an auto-shop for tune-up, the
same was no longer returned to her. This prompted Castor to notify and demand payment of her
insurance proceeds from AISC for the loss of her motor vehicle. However, AISC denied the
insurance claim on the ground that based on the provision of their contract AISC shall not be
liable if the culprit of the damage suffered by the insured is her own employee. The said
provision states that “The Company shall not be liable for: xxx xxx xxx (4) Any malicious
damage caused by the Insured, any member of his family or by "A PERSON IN THE
INSURED'S SERVICE.”
Castor then filed a compliant for sum of money against AISC with the Regional Trial Court
(RTC). Castor contends that the exception under the said insurance policy refers to damage of
the motor vehicle and not to its loss. The RTC ruled in favor of Castor. On appeal, the Court of
Appeals affirmed in toto the RTC decision.
AISC for their part, argued that the word "damage," in the policy means loss due to injury or
harm to person, property or reputation, and should be construed to cover malicious "loss" as in
"theft." Thus, the loss of Castor’s vehicle as a result of it being stolen by her driver is excluded
from the policy.

ISSUE:
Based on the insurance policy, is the loss of the vehicle caused by the insured’s employee
covered in the exception from the insurance policy?

RULING:
No. Theft perpetrated by the driver of the insured is not an exception to the coverage from the
insurance policy, since the policy did not qualify as to who would commit the theft.
As held in the case of Philamcare Health Systems, Inc. v. Court of Appeals, when the terms of
insurance contract contain limitations on liability, courts should construe them in such a way as
to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion,
the terms of an insurance contract are to be construed strictly against the party which prepared
the contract, the insurer. By reason of the exclusive control of the insurance company over the
terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against
the insurer and liberally in favor of the insured, especially to avoid forfeiture.
Adverse to petitioner's claim, the words "loss" and "damage" mean different things in common
ordinary usage. The word "loss" refers to the act or fact of losing, or failure to keep possession,
while the word "damage" means deterioration or injury to property.
In this case, AISC cannot exclude the loss of respondent's vehicle under the insurance policy
under paragraph 4 of "Exceptions to Section III," since the same refers only to "malicious
damage," or more specifically, "injury" to the motor vehicle caused by a person under the
insured's service. Paragraph 4 clearly does not contemplate "loss of property," as what
happened in this case.
Therefore, the theft of the vehicle, even if committed by the insured’s employee will not exclude
it from the coverage of the insurance policy.