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INTERPRETATION
1. GAISANO CAGAYAN, INC. vs. INSURANCE COMPANY OF
NORTH AMERICA,  of ready-made clothing materials with IMC was P2,119,205.00
G.R. No. 147839, June 8, 2006, AUSTRIA-MARTINEZ, J.:
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 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
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. Petitioner is a customer and dealer of the products of IMC
and LSPI. On February 25, 1991, 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.
On February 4, 1992, respondent filed a complaint for damages
against petitioner. It alleges that IMC and LSPI filed with
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respondent their claims under their respective fire insurance
policies with book debt endorsements; that as of February 25,
1991, the unpaid accounts of petitioner on the sale and delivery
while with LSPI it was P535,613.00; 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
On August 31, 1998, the RTC rendered its decision dismissing
respondent's complaint.
Dissatisfied, an appeal was taken to the CA, and the CA reversed
the decision rendered by the RTC.
Issue:
WON the Interpretation of the insurance policy by the CA is
correct?
Ruling:
The Court disagrees with petitioner's stand.
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
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intention of the parties, the terms are to be understood literally IMC and LSPI did not lose complete interest over the goods. They
just as they appear on the face of the contract. Thus, what were have an insurable interest until full payment of the value of the
insured against were the accounts of IMC and LSPI with delivered goods. Unlike the civil law concept of res perit domino,
petitioner which remained unpaid 45 days after the loss through where ownership is the basis for consideration of who bears the
fire, and not the loss or destruction of the goods delivered. risk of loss, in property insurance, one's interest is not
determined by concept of title, but whether insured has
Petitioner argues that IMC bears the risk of loss because it substantial economic interest in the property.
expressly reserved ownership of the goods by stipulating in the
sales invoices that "[i]t is further agreed that merely for purpose
of securing the payment of the purchase price the above
described merchandise remains the property of the vendor until
the purchase price thereof is fully paid."

The Court is not persuaded.

The present case clearly falls under paragraph (1), Article 1504
of the Civil Code:

ART. 1504. Unless otherwise agreed, the goods remain at the

seller's risk until the ownership therein is transferred to the
buyer, but when the ownership therein is transferred to the
buyer the goods are at the buyer's risk whether actual delivery
has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to
a bailee for the buyer, in pursuance of the contract and the
ownership in the goods has been retained by the seller merely to
secure performance by the buyer of his obligations under the
contract, the goods are at the buyer's risk from the time of such
delivery.

Thus, when the seller retains ownership only to insure that the
buyer will pay its debt, the risk of loss is borne by the buyer.
Accordingly, petitioner bears the risk of loss of the goods
delivered.
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2. MALAYAN INSURANCE CORPORATION vs. THE HON.
COURT OF APPEALS and TKC MARKETING CORPORATION
G.R. No. 119599 March 20, 1997 ROMERO, J.
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.  private respondent forthwith reduced its claim to US$448,806.09
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
petitioner Malayan Insurance Corporation for which it issued
two (2) Marine Cargo policy Nos. M/LP 97800305 amounting to
P18,986,902.45 and M/LP 97800306 amounting to
P1,195,005.45, 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. According to Malayan Insurance
Corporation, the arrest of the vessel by civil authority was not a
peril covered by the policies.
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TKC Marketing Corp. accordingly, advised petitioner that it might
tranship the cargo and requested an extension of the insurance
coverage until actual transhipment, which extension was
approved upon payment of additional premium. The insurance
coverage was extended under the same terms and conditions
embodied in the original policies while in the process of making
arrangements for the transhipment of the cargo from Durban to
Manila, covering the period October 4 - December 19, 1989.
However, on December 11, 1989, the cargo was sold in Durban,
South Africa, for US$154.40 per metric ton or a total of
P10,304,231.75 due to its perishable nature which could no
longer stand a voyage of twenty days to Manila and another
twenty days for the discharge thereof. On January 5, 1990,
(or its peso equivalent of P9,879,928.89 at the exchange rate of
P22.0138 per $1.00) representing private respondent's loss after
the proceeds of the sale were deducted from the original claim of
$916,886.66 or P20,184,159.55.
Petitioner maintained its position that the arrest of the vessel by
civil authorities on a question of ownership was an excepted risk
under the marine insurance policies.
Lower court and CA decided in favor of TKC Marketing
Corporation.
ISSUES:
a. Whether or not the arrest of the vessel was a risk covered
under the subject insurance policies.
b. Whether or not insurance policies must be strictly
construed against the insurer.
RULING:
a. YES.
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By way of a historical background, marine insurance developed
as an all-risk coverage, using the phrase "perils of the sea" to
encompass the wide and varied range of risks that were covered.
The subject policies contain the "Perils" clause which is a
standard form in any marine insurance policy. Said clause reads:
“they are of the Seas; Men-of-War, Fire, Enemies,
Pirates, Rovers, Thieves, Jettisons, Letters of Mart and
Counter Mart, Suprisals, Takings of the Sea, Arrests,
Restraints and Detainments of all Kings, Princess and
Peoples, of what Nation, Condition, or quality soever,
Barratry of the Master and Mariners, and of all other Perils,
Losses, and Misfortunes, that have come to hurt, detriment,
or damage of the said goods and merchandise or any part
thereof . AND in case of any loss or misfortune it shall be
lawful to the ASSURED, their factors, servants and assigns,
to sue, labour, and travel for, in and about the defence,
safeguards, and recovery of the said goods and
merchandises, and ship, & c., or any part thereof, without
prejudice to this INSURANCE; to the charges whereof the
said COMPANY, will contribute according to the rate and
quantity of the sum herein INSURED. AND it is expressly
declared and agreed that no acts of the Insurer or Insured
in recovering, saving, or preserving the Property insured
shall be considered as a Waiver, or Acceptance of
Abandonment.”
The exception or limitation to the "Perils" clause and the "All
other perils" clause in the subject policies is specifically referred
to as Clause 12 called the "Free from Capture & Seizure Clause"
or the F.C. & S. Clause.
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Should Clause 12 be deleted, the relevant current
institute war clauses shall be deemed to form part of this
insurance.
However, the F. C. & S. Clause was deleted from the policies.
Consequently, the Institute War Clauses (Cargo) was deemed
incorporated.
Petitioner cannot adopt the argument that the "arrest" caused by
ordinary judicial process is not included in the covered risk
simply because the F.C. & S. Clause under the Institute War
Clauses can only be operative in case of hostilities or warlike
operations on account of its heading "Institute War Clauses."
This Court agrees with the Court of Appeals when it held that ". . .
. Although the F.C. & S. Clause may have originally been inserted
in marine policies to protect against risks of war, (see generally
G. Gilmore & C. Black, The Law of Admiralty Section 2-9, at 71-73
[2d Ed. 1975]), its interpretation in recent years to include
seizure or detention by civil authorities seems consistent with
the general purposes of the clause, . . . ."  In fact, petitioner itself
averred that subsection 1.1 of Section 1 of the Institute War
Clauses included "arrest" even if it were not a result of hostilities
or warlike operations. 6 In this regard, since what was also
excluded in the deleted F.C. & S. Clause was "arrest" occasioned
by ordinary judicial process, logically, such "arrest" would now
become a covered risk under subsection 1.1 of Section 1 of the
Institute War Clauses, regardless of whether or not said "arrest"
by civil authorities occurred in a state of war.
b. YES, insurance policies must be strictly construed
against the insurer.
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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.

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. 
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3. Verendia vs. CA
G.R. No. 75605 January 22, 1993
An insurance contract should be liberally construed in favor of the
insured and strictly against the insurer company, which usually
prepares it.
Facts:
Rafael Verendia’s residential building was insured with Fidelity
and Surety Incsurance Company and two others, Country
Bankers Insurance and Development Insurance, with Monte de
Piedad and Savings Bank as beneficiary. The insured building
was completely destroyed by fire. With this, the petitioner claim
for insurance on which Fidelity refused to give depending on its
issued Fire Insurance Policy F-1887. Fidelity, among other
things, averred that the policy was avoided by reason of over-
insurance., that Verendia maliciously represented that the
building at the time of the fire were leases under a contract
executed to a certain Roberto Garcia, when actually it was a
Marcelo Garcia who was in the Lease.
Issue:
Whether or not Verendia forfeited all Benefits due to his
presentation of false declaration to support his claim.
Court of Appeals 168 SCRA 1 [1988]). Its terms and conditions
constitute the measure of the insurer's liability and compliance
therewith is a condition precedent to the insured's right to
recovery from the insurer (Oriental Assurance Corporation vs.
Court of Appeals, 200 SCRA 459 [1991], citing Perla Compania de
Seguros, Inc. vs. Court of Appeals, 185 SCRA 741 [1991]). As it is
also a contract of adhesion, an insurance contract should be
liberally construed in favor of the insured and strictly against the
insurer company, which usually prepares it (Western Guaranty
Corporation vs. Court of Appeals, 187 SCRA 652 [1980]).
Considering, however, the foregoing discussion pointing
to the fact that Verendia used a false lease contract to support his
claim under Fire Insurance Policy No. F-18876, the terms of the
policy should be strictly construed against the insured. Verendia
failed to live by the terms of the policy, specifically Section 13
thereof which is expressed in terms that are clear and
unambiguous, that all benefits under the policy shall be forfeited
"If the claim be in any respect fraudulent, or if any false
declaration be made or used in support thereof, or if any
fraudulent means or devises are used by the Insured or anyone
acting in his behalf to obtain any benefit under the policy."

Held:
Yes. Verendia, having presented a false declaration to
support his claim for benefits in the form of a fraudulent lease
contract, he forfeited all benefits therein by virtue of Section 13
of the policy in the absence of proof that Fidelity waived such
provision. Worse yet, by presenting a false lease contract,
Verendia, reprehensibly disregarded that principle that
insurance contracts are uberrimae fidae and demand the most
abundant good faith.
Basically a contract of indemnity, an insurance contract is
the law between the parties (Pacific Banking Corporation vs.
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4. New Life Enterprises v. Court of Appeals
207 SCRA 669
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
Ms. Julian Sy and Jose Sy Bong have a business partnership in the
City of Lucena under the business name of New Life Enterprises.
New Life Enterprises engaged in the sale of construction
materials at its two story building. Julian Sy insured their stocks
in trade with Western Guaranty Corporation, Reliance Surety
and Insurance Co., Inc., and Equitable Insurance Corporation.The
building occupied by the New Life Enterprises was gutted by fire,
the stocks inside the building were burned. After the fire, Julian
Sy went to the three insurance companies who were sister
companies to file her claim but the insurance companies denied
the claim on the ground that Julilan Sy violated the “Other
Insurance Clause” that was included in the 3 separate policy. The
other insurance clause stated that the insured shall give notice to
the Company of any insurance or insurances already effected to
the same property.
ISSUE
Whether or not the denial of the claim is proper on the ground of
the “Other Insurance Clause.”
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RULING
YES. The Supreme Court ruled that the denial of the claim
is proper.
The SC explained that the terms of the contract are clear and
unambiguous. 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. Furthermore, when the
words and language of documents are clear and plain or readily
understandable by an ordinary reader thereof, there is
absolutely no room for interpretation or construction anymore.
Petitioners should be aware of the fact that a party is not relieved
of the duty to exercise the ordinary care and prudence that
would be exacted in relation to other contracts. The conformity
of the insured to the terms of the policy is implied from failure to
express any disagreement with what is provided for. It may be
true that the majority rule is that injured persons may accept
policies without reading them, and that his is not negligence per
se. But, this is not without any exception. It is and was incumbent
upon petitioner Sy to read the insurance contracts and this can
be reasonably expected on him considering that he has been a
businessman since 1965.
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5. DIOSDADO TY v. FILIPINAS COMPAÑIA DE SEGUROS, et al.
G.R. No. L-21821-22 and L-21824-27, 31 May 1966,
BARRERA, J.
“[T]he 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.”
FACTS: Diosdado Ty was a mechanic operator of Broadway
Cotton Factory at Grace Park, Caloocan City. In the latter part of
1953, he took Personal Accident Policies from several insurance
companies, among which are herein defendants-appellees, on
different dates, effective for 12 months. During the effectivity of
these policies, or on December 24, 1953, a fire broke out in the
factory where Ty was working. As he was trying to put out said
fire with the help of a fire extinguisher, a heavy object fell upon
his left hand.
Ty received treatment at the National Orthopedic
Hospital from, most of which were merely fractures of his left
fingers, but no more than the amputation of any part thereof.
The attending surgeon certified that these injuries would cause
temporary total disability of appellant's left hand. The insurance
companies refused to pay his claim for compensation on the
ground that under the uniform terms of the insurance policies,
partial disability of the insured caused by loss of either hand to
be compensable, the loss must result in the amputation of that
hand. Also, under the insurance contract signed by Ty, it was
stipulated that: “The loss of a hand shall mean the loss, by
amputation through the bones of the wrist.”
Ty contends that to be entitled to indemnification under
the foregoing provision, it is enough that the insured is disabled
to such an extent that he cannot substantially perform all acts or
duties of the kind necessary in the prosecution of his business. It
8
is argued that what is compensable is the disability and not the
amputation of the hand. The definition of what constitutes loss of
hand, placed in the contract, according to appellant,
consequently, makes the provision ambiguous and calls for the
interpretation thereof by this Court.
ISSUE: How should the courts interpret an insurance policy
if ambiguity is raised by a party?
RULING:
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.
While we sympathize with the plaintiff or his employer,
for whose benefit the policies were issued, we can not 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 find no reason to depart from the foregoing ruling on
the matter.  Plaintiff-appellant cannot come to the courts and
claim that he was misled by the terms of the contract. The
provision is clear enough to inform the party entering into that
contract that the loss to be considered a disability entitled to
indemnity, must be severance or amputation of that affected
member from the body of the insured.
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6. GULF RESORTS, INC. vs. PHILIPPINE CHARTER INSURANCE
CORPORATION
G.R. No. 156167 May 16, 2005 J. Puno
A contract of adhesion is one wherein a party, usually a
corporation, prepares the stipulations in the contract, while the
other party merely affixes his signature or his "adhesion" thereto.
The parties do not bargain on equal footing, the weaker party's
participation being reduced to the alternative to take it or leave it.
Thus, these contracts are viewed as traps for the weaker party
whom the courts of justice must protect.
FACTS:
Gulf was insured by American Home Assurance Company which
includes loss or damage to shock to any of the property insured
by the Policy occasioned by or through in consequence of
earthquake. Later on, an earthquake struck Central and Northern
Luzon causing damage to the property of Gulf. Gulf claimed from
the insurance company but was denied as the earthquake shock
coverage only covered the swimming pools of the resort. Gulf
contends that pursuant to this rider, no qualifications were
placed on the scope of the earthquake’s shock coverage. Thus,
the policy extended to all of the insured properties. The RTC
ruled in favor of American Home to which the CA affirmed.
ISSUE: Whether or not Gulf was entitled to claim.
HELD: NO, Gulf was entitled to claim.
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.
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
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intention of the parties to extend earthquake shock coverage to
the two swimming pools only.A careful examination of the
premium recapitulation will show that it is the clear intent of the
parties to extend earthquake shock coverage only to the two
swimming pools.
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. A contract of adhesion is one
wherein a party, usually a corporation, prepares the stipulations
in the contract, while the other party merely affixes his signature
or his "adhesion" thereto. Through the years, the courts have
held that in these type of contracts, the parties do not bargain on
equal footing, the weaker party's participation being reduced to
the alternative to take it or leave it. Thus, these contracts are
viewed as traps for the weaker party whom the courts of justice
must protect. Consequently, any ambiguity therein is resolved
against the insurer, or construed liberally in favor of the insured.
The case law will show that this Court will only rule out
blind adherence to terms where facts and circumstances will
show that they are basically one-sided. Thus, we have called on
lower courts to remain careful in scrutinizing the factual
circumstances behind each case to determine the efficacy of the
claims of contending parties. In Development Bank of the
Philippines v. National Merchandising Corporation, et al., the
parties, who were acute businessmen of experience, were
presumed to have assented to the assailed documents with full
knowledge.
We cannot apply the general rule on contracts of
adhesion to the case at bar. Petitioner cannot claim it did not
know the provisions of the policy. From the inception of the
policy, petitioner had required the respondent to copy verbatim
the provisions and terms of its latest insurance policy from
AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct
participant in securing the insurance policy of petitioner, is
reflective of petitioner’s knowledge.
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7. SIMON DE LA CRUZ vs. THE CAPITAL INSURANCE AND
SURETY CO. INC.
G.R. No. L-21574 June 30, 1966 J. BARRERA
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. Thus, the terms have been taken to mean that which
happen by chance or fortuitously, without intention and design,
and which is unexpected, unusual, and unforeseen. An accident is
an event that takes place without one's foresight or expectation —
an event that proceeds from an unknown cause, or is an unusual
effect of a known cause and, therefore, not expected.
FACTS: Eduardo de la Cruz, employed as a mucker in the Itogon-
Suyoc Mines, Inc. in Baguio, was the holder of an accident
insurance policy underwritten by the Capital Insurance & Surety
Co., Inc., In connection with the celebration of the New Year, the
Itogon-Suyoc Mines, Inc. sponsored a boxing contest for general
entertainment wherein the insured Eduardo de la Cruz, a non-
professional boxer participated. In the course of his bout with
another person, likewise a non-professional, of the same height,
weight, and size, Eduardo slipped and was hit by his opponent on
the left part of the back of the head, causing Eduardo to fall, with
his head hitting the rope of the ring. He was brought to the
Baguio General Hospital where he expired the following day. The
cause of death was reported as hemorrhage, intracranial, left.
Simon de la Cruz, the father of the insured and who was
named beneficiary under the policy, thereupon filed a claim with
the insurance company for payment of the indemnity under the
insurance policy
Defendant insurer set up the defense that the death of the
insured, caused by his participation in a boxing contest, was not
accidental and, therefore, not covered by insurance.
ISSUE: Whether the death of Eduardo was accidental since he
entered in the boxing contest voluntarily.
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HELD: NO. 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. Thus, the terms have been taken to mean that which
happen by chance or fortuitously, without intention and design,
and which is unexpected, unusual, and unforeseen. An accident is
an event that takes place without one's foresight or expectation
— an event that proceeds from an unknown cause, or is an
unusual effect of a known cause and, therefore, not expected.
It may be mentioned in this connection, that the tendency
of court decisions in the United States in the recent years is to
eliminate the fine distinction between the terms "accidental" and
"accidental means" and to consider them as legally synonymous.
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 the
death or injury. There is no accident when a deliberate act is
performed unless some additional, unexpected, independent, and
unforeseen happening occurs which produces or brings about
the result of injury or death. 4 In other words, where the death
or injury is not the natural or probable result of the insured's
voluntary act which produces the injury, the resulting death is
within the protection of policies insuring against the death or
injury from accident.
In the present case, while the participation of the insured
in the boxing contest is voluntary, the injury was sustained when
he slid, giving occasion to the infliction by his opponent of the
blow that threw him to the ropes of the ring. Without this
unfortunate incident, that is, the unintentional slipping of the
deceased, perhaps he could not have received that blow in the
head and would not have died. The fact that boxing is attended
with some risks of external injuries does not make any injuries
received in the course of the game not accidental.
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BENEFICIARIES The trial court held that the petitioners cannot invoke the law on
donations or the rules on testamentary succession in order to
8. HEIRS OF LORETO C. MARAMAG, represented by surviving defeat the right of herein defendants to collect the insurance
spouse VICENTA PANGILINAN MARAMAG vs. EVA VERNA DE indemnity. The beneficiary in a contract of insurance is not the
GUZMAN MARAMAG, et al, donee spoken in the law of donation. The rules on testamentary
G.R. No. 181132, June 5, 2009 J.NACHURA succession cannot apply here, for the insurance indemnity does
not partake of a donation.
Insurance proceeds shall be applied exclusively to the proper
It also stated that the proceeds to the Life Insurance Policy
interest of the person in whose name or for whose benefit it is
belongs exclusively to the defendant as his individual and
made unless otherwise specified in the policy. (Sec. 53, Insurance
separate property, and not to the estate of the person whose life
Code)
was insured.
FACTS: The RTC disqualifed Loreto’s concubine, Eva, from being a
benficiary pursuant to Art. 2012: Any person who is forbidden
Petitioners were the legitimate wife and children of Loreto
from receiving any donation under Article 739 cannot be named
Maramag (Loreto), while respondents were Loretos illegitimate
beneficiary of a life insurance policy of the person who cannot
family. Loreto designated respondents as beneficiaries in his life
make any donation to him, but stated that the insurance contract
insurance policies from Insular Life and Great Pacific Life
will still remain valid, but the indemnity must go to the legal
(Grepalife).
heirs and not to the concubine, for evidently, what is prohibited
Petitioners insituted in the RTC a petition for revocation and/or under Art. 2012 is the naming of the improper beneficiary.
reduction of insurance proceeds for being void and/or
inofficious, with prayer for a temporary restraining order (TRO)
ISSUE:
and a writ of preliminary injunction. They claim that Eva de
1. Are the members of the legitimate family entitled to the
Guzman Maramag (Eva) was a concubine of Loreto and a suspect
proceeds of the insurance for the concubine?
in the killing of the latter, thus, she is disqualified to receive any
proceeds from his insurance policies; the illegitimate children of
2. Whether or not illegitimate children can be beneficiaries in an
Loreto were entitled only to one-half of the legitime of the
insurance contract.
legitimate children, thus, the proceeds released to them were
inofficious and should be reduced; and petitioners could not be
deprived of their legitimes, which should be satisfied first. HELD:

Petitioners allege that the designation of a beneficiary is an act of 1. NO. Section 53 of the Insurance Code states that the insurance
liberality or a donation and, therefore, subject to the provisions proceeds shall be applied exclusively to the proper interest of the
of Articles 752[8] and 772[9] of the Civil Code. person in whose name or for whose benefit it is made unless
otherwise specified in the policy.
MERCANTILE LAW REVIEW || Insurance Law 12
Compilation of Digests (Except 37)

Pursuant thereto, it is obvious that the 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.The exception to this 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.
Petitioners are third parties to the insurance contracts with
Insular and Grepalife and, thus, are not entitled to the proceeds
thereof.
2. YES. The revocation of Eva as a beneficiary in one policy and
her disqualification as such in another are of no moment
considering that the designation of the illegitimate children as
beneficiaries in Loretos insurance policies remains valid.
Because no legal proscription exists in naming as beneficiaries
the children of illicit relationships by the insured, the shares of
Eva in the insurance proceeds must be awarded to the said
illegitimate children, the designated beneficiaries, to the
exclusion of petitioners. 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.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
9. SOUTHERN LUZON EMPLOYEES' ASSOCIATION vs. JUANITA
GOLPEO, ET AL.
G.R. No. L-6114 October 30, 1954 C.J. Paras
The contract of life insurance is a special contract and the
destination of the proceeds thereof is determined by special laws
which deal exclusively with that subject. The Civil Code has no
provisions which relate directly and specifically to life-insurance
contract or to the destination of life-insurance proceeds. That
subject is regulate exclusively by the Code of Commerce which
provides for the terms of the contract, the relations of the parties
and the destination of the proceeds of the policy.
FACTS:
One of SLEA’s purpose is mutual aid of its members in case of
death. Roman A. Concepcion was a member until his death. SLEA
adopted a resolution with respect to claims in case of death
stating that a member may name his common-law wife as
beneficiary and children he we had with her and that SLEA will
recognize only the same as the beneficiary entitled to condolence
contributions. Roman listed as his eneficiaries Aquilina Maloles,
Roman Jr., Esela, Rolando and Robin. After the death of Roman,
the association was able to collect contributions from its
members amounting to 2505. Three sets of claimants presented
themselves: Juanita Golpeo, Roman’s legal wife and her children
and Elsie Hicban, another common law wife of Roman and her
children. SLEA filed an interpleader with the CFI of Laguna to
determine who is entitled to the claim. The court rendered a
decision declaring Aquilina and her children the sole beneficiary
of P2,505 and ordering SLEA to deliver the same.
ISSUE:
Whether or not the children of Aquilina are entitled to claim.
13
HELD:
YES. The children are entitled to claim.
Inasmuch as, according to article 739 of the new Civil Code, a
donation is valid when made "between persons who are guilty or
adultery or concubinage at the time of the donation," it is alleged
that the defendant-appellee Aquilina Maloles, cannot be named a
beneficiary, every assuming that the insurance law is applicable.
Without considering the intimation in the brief for the defendant
appellees that appellant Juanita Golpeo, by her silence and
actions, had acquiesced in the illicit relations between her
husband and appellee Aquilina Maloles, appellant argument
would certainly not apply to the children of Aquilina likewise
named beneficiaries by the deceased Roman A. Concepcion. As a
matter of a fact the new Civil Code recognized certain
successional rights of illegitimate children.
The contract of life insurance is a special contract and the
destination of the proceeds thereof is determined by special laws
which deal exclusively with that subject. The Civil Code has no
provisions which relate directly and specifically to life-insurance
contract or to the destination of life-insurance proceeds. That
subject is regulate exclusively by the Code of Commerce which
provides for the terms of the contract, the relations of the parties
and the destination of the proceeds of the policy.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
10. Basilia Berdin Vda. De Consuegra; Juliana, Pacita, Maria
Lourdes, Jose, JR., Rodrigo, Lineda and Luis, all surnamed
CONSUEGRA vs. Government Service Insurance System,
Commisioner of Public Highways, Highway District Engineer
of Surigao Del Norte, Commissioner of Civil Service, and
Rosario Diaz
G.R. No. L-28093 January 30, 1971 J. Zaldivar
The insured in a life insurance may designate any person as
beneficiary unless disqualified to be so under the provisions of the
Civil Code. In the absence of any beneficiary named in the life
insurance policy or where the designated beneficiary is
disqualified, the proceeds of the insurance will go to the estate of
the deceased insured and will go to his legal heirs in accordance
with law. Where two women, innocently and in good faith,
contracted marriage with the same man, the insured, and the
latter did not designate any beneficiary who would receive the
proceeds of his life insurance, each family shall be entitled to one
half of the insurance benefits.
FACTS:
The late Jose Consuegra, at the time of his death, was employed
as a shop foreman of DPWH in the province of Surigao del Norte.
In his lifetime, he contracted 2 marriages, the first with
respondent Rosario Diaz, solemnized in the parish church of San
Nicolas de Tolentino, Surigao, on July 15, 1937 bearing 2
children, Jose Consuegra, Jr. and Pedro Consuegra, but both
predeceased their father; and the second with herein petitioner
Basilia Berdin, which was contracted in good faith while the first
marriage was subsisting, on May 1, 1957 in the same parish and
municipality, out of which marriage were born seven children,
namely, Juliana, Pacita, Maria Lourdes, Jose, Rodrigo, Lenida and
Luz *(Luis) all surnamed Consuegra.
When Consuegra died the proceeds of his life insurance were
paid by the GSIS to petitioner Basilia Berdin and her children
14
who were the beneficiaries named in the policy. Having been in
the service of the government for 22.5028 years, Consuegra was
entitled to retirement insurance benefits in the sum of P6,
304.47, however, he did not designate any beneficiary who
would receive the retirement insurance benefits due to him.
Respondent Diaz, the widow (1st), filed a claim with the GSIS
asking that the retirement insurance benefits be paid to her as
the only legal heir. Petitioner Berdin and her children, likewise,
filed a similar claim with the GSIS, asserting that being the
beneficiaries named in the life insurance policy, they are the only
ones entitled to receive the retirement insurance benefits due
the deceased.
GSIS: Diaz is entitled to one-half, or 8/16, of the retirement
insurance benefits while Berdin and their 7 children are entitled
to the remaining one-half, or 8/16, each of them to receive an
equal share of 1/16.
Dissatisfied, Berdin and her children filed a petition for
mandamus with preliminary injunction in the CFI of Surigao,
against the respondents praying that they be declared the legal
heirs and exclusive beneficiaries of the retirement insurance.
CFI confirmed the action of GSIS.
Hence the present appeal by herein petitioners-appellants,
Basilia Berdin and her children contending that because the
deceased failed to designate the beneficiaries in his retirement
insurance, they being beneficiaries named in the life insurance
should automatically be considered the beneficiaries to receive
the retirement insurance benefits, to the exclusion of Diaz.
ISSUES:
(1) Is the contention tenable?
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
(2) To whom should this retirement insurance benefits be paid?
HELD: (1) NO. The contention of appellants is untenable.
When Consuegra designated his beneficiaries in his life
insurance he could not have intended those beneficiaries
of his life insurance as also the beneficiaries of his
retirement insurance because the provisions on
retirement insurance under the GSIS came about only
when Com. Act 186 was amended by Rep. Act 660 on
June 16, 1951. Hence, it cannot be said that because
appellants were designated beneficiaries in Consuegra’s
life insurance they automatically became the
beneficiaries also of his retirement insurance. The
provisions clearly indicate that there is 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 of 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 paid out from two distinct and
separate funds:
(a) Life insurance- proceeds are paid to whoever is
named the beneficiary in the life insurance policy as
provided for in the Insurance Act (Act 2427, as
amended), 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
15
beneficiary named in the life insurance policy, the
proceeds of the insurance will go to the estate of the
insured.
(b) Retirement insurance- primarily intended for the
benefit of the employee to provide for his old age, or
incapacity, after rendering service in the government for
a required number of years. If the employee reaches the
age of retirement, he gets the retirement benefits even to
the exclusion of the beneficiary or beneficiaries named in
his application for retirement insurance. The beneficiary
of the retirement insurance can only claim the proceeds
of the retirement insurance if the employee dies before
retirement.
If the employee failed or overlooked to state the
beneficiary of his retirement insurance, the retirement
benefits will accrue to his estate and will be given to his
legal heirs in accordance with law, as in the case of a life
insurance if no beneficiary is named in the insurance
policy.
(2) BOTH. The proceeds of the retirement insurance of the
late Jose Consuegra should be divided equally between
Rosario Diaz and his second wife Basilia Berdin and his
children by her. The fact that the second marriage was
contracted in good faith, the only just and equitable solution
in this case would be to recognize the right of the second wife
to her share of one-half in the property acquired by her and
her husband, and consider the other half as pertaining to the
conjugal partnership of the first marriage.
The decision appealed from is affirmed.
MERCANTILE LAW REVIEW || Insurance Law 16
Compilation of Digests (Except 37)

11. THE INSULAR LIFE ASSURANCE COMPANY, LTD. vs. Buenaventura Cristor Ebrado and directing the payment of the
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO insurance proceeds to the estate of the deceased insured.
G.R NO. L-44059, OCT. 28, 1977, MARTIN, J.
ISSUE/S:
Under Article 2012 of the Civil Code, "any person who is forbidden
Can a common-law wife named as beneficiary in the life
from receiving any donation under Article 739 cannot be named
insurance policy of a legally married man claim the proceeds
beneficiary of a life insurance policy by the person who cannot
thereof in case of death of the latter?
make a donation to him. Common-law spouses are, definitely,
barred from receiving donations from each other.
HELD:
FACTS:

On 1968, Buenaventura Cristor Ebrado was issued by No.

The Life Assurance Co., Ltd., a policy on a whole-life for
P5,882.00 with a rider for Accidental Death. For the same
amount, Buenaventura C. Ebrado designated Carponia T. Ebrado,
as his wife as the revocable beneficiary in his policy.
On 1969, Buenaventura died when he was hit by a failing
branch of a tree. The Insular Life Assurance Co., Ltd. liable to pay
the coverage representing the face value of the policy.
Carponia filed with the insurer a claim for the proceeds
of the Policy as the designated beneficiary therein, although she
admits that she and the insured Buenaventura C. Ebrado were
merely living as husband and wife without the benefit of
marriage.
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.
Trial court rendered judgment declaring that Carponia T.
Ebrado is disqualified from becoming beneficiary of the insured
Section 50 of the Insurance Act which provides that
"(t)he insurance shall be applied exclusively to the proper
interest of the person in whose name it is made" cannot be
validly seized upon to hold that the policy includes the
beneficiary. 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. Rather, the
general rules of civil law should be applied to resolve this void in
the Insurance Law.
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. Under Article
2012 of the Civil 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.
MERCANTILE LAW REVIEW || Insurance Law 17
Compilation of Digests (Except 37)

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.

There is every reason to hold that the bar in donations

between legitimate spouses and those between illegitimate ones
should be enforced in life insurance policies since the same are
based on similar consideration. If legitimate relationship is
circumscribed by legal disabilities, with more reason should an
illicit relationship be restricted by these disabilities.

The requisite proof of common-law relationship between

the insured and the beneficiary has been conveniently supplied
by the stipulations between the parties in the pre-trial
conference of the case. It was agreed upon and stipulated therein
that the deceased insured Buenaventura C. Ebrado was married
to Pascuala Ebrado with whom she has six legitimate children;
that during his lifetime, the deceased insured was living with his
common-law wife, Carponia Ebrado, with whom he has two
children. These stipulations are nothing less than judicial
admissions which, as a consequence, no longer require proof and
cannot be contradicted. 

Carponia T. Ebrado is hereby declared disqualified to be

the beneficiary of the late Buenaventura C. Ebrado in his life
insurance policy. As a consequence, the proceeds of the policy
are hereby held payable to the estate of the deceased insured.
MERCANTILE LAW REVIEW || Insurance Law 18
Compilation of Digests (Except 37)

INSURABLE INTEREST exist at the time the insurance takes effect and at the time the
loss occurs. The basis of such requirement of insurable interest
12. Sps. Nilo and Stella Cha, et. Al. vs Court of Appeals, et. al. in the property insured is based on sound public policy: to
GR NO.124520, August 18, 1997 prevent a person from taking out a 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
FACTS: case, the contract of insurance is a mere wager which is void
Sps. Nilo Cha and Stella Uy Cha entered into a contract of lease under Sec. 25 of the Insurance Code.
with CKS Development Corporation. One of the stipulations of In the present case, it cannot be denied that CKS has no insurable
the contract of lease provides that the lessee cannot insure interest in the goods and merchandise inside the lease premises.
against fire the chattels, merchandise and effects stored in the Therefore, CKS cannot, under the Insurance Code, be validly a
lease premises without written consent and approval of the beneficiary of the fire insurance taken by the Spouses Cha over
lessor. If the lessee violates this stipulation then the policy is their merchandise.
deemed assigned and transferred to the lessor for its own
benefit. Despite such stipulation, the Sps. Cha insured against
loss by fire the merchandise inside the lease premises with the
United Insurance Co. without the written consent of CKS. On the
day the lease contract was to expire, fire broke out in the lease
premises. When CKS learned of the insurance, it wrote United a
demand letter asking that the proceeds of the insurance be paid
directly to them.
ISSUE:
Whether or not CKS is a valid beneficiary in the fire insurance
taken by Spouses Cha over their merchandise.
RULING:
NO.
Sec. 18. 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 Sps. Cha over their merchandise is primarily a contract
of indemnity. Insurable interest in the property insured must
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
13. GAISANO CAGAYAN, INC. vs. INSURANCE COMPANY OF
NORTH AMERICA
G.R. No. 147839, June 8, 2006; AUSTRIA-MARTINEZ, J.:
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.
Art. 2207. If the plaintiff's property has been insured, and
he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has
violated the contract.
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 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
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."
Petitioner is a customer and dealer of the products of IMC and
LSPI. On February 25, 1991, the Gaisano Superstore Complex in
Cagayan de Oro City, owned by petitioner, was consumed by fire.
19
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 February 4, 1992, 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 as of February 25,
1991, the unpaid accounts of petitioner on the sale and delivery
of ready-made clothing materials with IMC was P2,119,205.00
while with LSPI it was P535,613.00; 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.
In its Answer with Counter Claim dated July 4, 1995, petitioner
contends that it could not be held liable because the property
covered by the insurance policies were destroyed due to
fortuities event or force majeure; that respondent's right of
subrogation has no basis inasmuch as there was no breach of
contract committed by it since the loss was due to fire which it
could not prevent or foresee; that IMC and LSPI never
communicated to it that they insured their properties; that it
never consented to paying the claim of the insured.
ISSUE: Whether the insurance in the instant case was one over
credit.
RULING: Yes. The insurable interest is the credit. 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.” Thus, the insured against were the
accounts of IMC and LSPI with petitioner which remained unpaid
MERCANTILE LAW REVIEW || Insurance Law 20
Compilation of Digests (Except 37)

45 days after the loss through fire, and not the loss or the insurance company shall be subrogated to the rights of the
destruction of the goods delivered.  insured against the wrongdoer or the person who has violated
the contract.
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. In property insurance, one's interest is not
determined by concept of title, but whether insured has
substantial economic interest in the property.

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.

With respect to IMC, the respondent has adequately established

its claim. The subrogation receipt, by itself, is sufficient to
establish not only the relationship of respondent as insurer and
IMC as the insured, but also the amount paid to settle the
insurance claim. The right of subrogation accrues simply upon
payment by the insurance company of the insurance
claim. Respondent's action against petitioner is squarely
sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has
received indemnity from the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of,
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
14. GREAT PACIFIC LIFE ASSURANCE CORP. v. COURT OF
APPEALS and
MEDARDA V. LEUTERIO
G.R. No. 113899, October 13, 1999, J. QUISUMBING 1
FACTS
A contract of group life insurance was executed between
petitioner Great Pacific Life Assurance Corporation (Grepalife)
and Development Bank of the Philippines (DBP). Grepalife
agreed to insure the lives of eligible housing loan mortgagors of
DBP.
Dr. Wilfredo Leuterio, a physician and a housing debtor
of DBP applied for membership in the group life insurance plan.
In an application form, Dr. Leuterio answered questions
concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart
condition, high blood pressure, cancer, diabetes, lung;
kidney or stomach disorder or any other physical
impairment?
Answer: No. If so give details _____________.
8. Are you now, to the best of your knowledge, in good
health?
Answer: [x] Yes [ ] NO.
Thereafter, Grepalife insured Dr. Leuterio to the extent of
his DBP mortgage indebtedness amounting to Php 86,200.00.
Dr. Leuterio died. As certified in his death certificate, the
cause of death is due to to "massive cerebral hemorrhage."
Consequently, DBP submitted a death claim to Grepalife.
Grepalife denied the claim alleging concealment, i.e. Dr. Leuterio
1
Same with case numbers 17 and 53
21
was not physically healthy when he applied for an insurance
coverage.
The widow of the late Dr. Leuterio, respondent Medarda
V. Leuterio (Medarda), filed a complaint with RTC 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. Mejia's 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. Aside from the death certiticate, the
statement of Medarda was presented. Her testimony was the
medicines that Dr. Letuerio took which she was not even sure if it
were for hypertension. Grepalife did not further produce any
witness who could attest to Dr. Leuterio’s medical history.
The RTC rendered a decision in favor of Medarda. Upon
appeal, the CA sustained the RTC decision. Hence, this petition.
ISSUES
1. Whether or not Dr. Leuterio’s widow, Medarda, has insurable
interest for her to claim benefits from the group life
insurance contract of the DBP against Grepalife.
2. Whether or not Dr. Leuterio concealed a material fact, i.e. his
hypertension, at the time of his application for insurance
which would vitiate the insurance contract.
3. Whether or not there is truth to Grepalife’s allegation that
there was no evidence as to the amount of Dr. Leuterio’s
outstanding indebtedness to DBP at the time of the
mortgagor’s death.
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Compilation of Digests (Except 37)
RULING
1. YES. As held in Gonzales La O v. Yek Tong Lin Fire & Marine
Ins. Co.:
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, * * *.
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. (Emphasis supplied)
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.
(Emphasis supplied)
Moreover, 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."
22
Sec. 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.
2. NO. 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.
Fraudulent intent on the part of the insured must be
established to entitle the insurer to rescind the contract.
Misrepresentation as a defense of the insurer to avoid
liability is an affirmative defense and the duty to establish
such defense by satisfactory and convincing evidence rests
upon the insurer. 
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. Mejia's technical diagnosis of the cause of
death of Dr. Leuterio was a duly documented hospital record,
and that the widow's 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
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
the decedent. As the attending physician, Dr. Mejia stated
that he had no knowledge of Dr. Leuterio's any previous
hospital confinement. Dr. Leuterio's death certificate stated
that hypertension was only "the possible cause of death." The
private respondent's 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.
The insured, Dr. Leuterio, had answered in his insurance
application that he was in good health and that he had not
consulted a doctor or any of the enumerated ailments, including
hypertension; when he died the attending physician had certified
in the death certificate that the former died of cerebral
hemorrhage, probably secondary to hypertension. From this
report, the appellant insurance company refused to pay the
insurance claim. Appellant alleged that the insured had
concealed the fact that he had hypertension.
Contrary to appellant's allegations, there was no sufficient
proof that the insured had suffered from hypertension. Aside
from the statement of the insured's widow who was not even
sure if the medicines taken by Dr. Leuterio were for
hypertension, the appellant had not proven nor produced any
witness who could attest to Dr. Leuterio's medical history.
Hence, in the case at bar, the petitioner failed to clearly and
satisfactorily establish its defense, and is therefore liable to pay
the proceeds of the insurance.
3. NO. A life insurance policy is a valued policy. Unless the
interest of a person insured is susceptible of exact pecuniary
measurement, the measure of indemnity under a policy of
insurance upon life or health is the sum fixed in the policy.
The mortgagor paid the premium according to the coverage
of his insurance, which states that:
23
The policy states that upon receipt of due proof of
the Debtor's death during the terms of this insurance, a
death benefit in the amount of P86,200.00 shall be paid.
In the event of the debtor's death before his
indebtedness with the creditor shall have been
fully paid, an amount to pay the outstanding
indebtedness shall first be paid to the Creditor
and the balance of the Sum Assured, if there is
any shall then be paid to the beneficiary/ies
designated by the debtor." (Emphasis omitted)
However, the SC notes that the Court of Appeals' decision
was promulgated on May 17, 1993. In private respondent's
memorandum, she states that DBP foreclosed in 1995 their
residential lot, in satisfaction of mortgagor's outstanding loan.
Considering this supervening event, the insurance proceeds shall
inure to the benefit of the heirs of the deceased person or his
beneficiaries. Equity dictates that DBP should not unjustly enrich
itself at the expense of another (Nemo cum alterius detrimenio
protest). Hence, it cannot collect the insurance proceeds, after it
already foreclosed on the mortgage. The proceeds now rightly
belong to Dr. Leuterio's heirs represented by his widow, herein
private respondent Medarda Leuterio.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
15. ONG LIM SING, JR. vs. FEB LEASING AND FINANCE
CORPORATION
G.R. No. 168115 - June 8, 2007
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.
FACTS:
On March 9, 1995, FEB Leasing and Finance Corporation entered
into a lease of equipment and motor vehicles with JVL Food
Products. 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. Corresponding Lease Schedules
with Delivery and Acceptance Certificates over the equipment
and motor vehicles formed part of the agreement. Under the
contract, JVL was obliged to pay FEB an aggregate gross monthly
rental of One Hundred Seventy Thousand Four Hundred Ninety-
Four Pesos (P170,494.00).
JVL defaulted in the payment of the monthly rentals. As of July
31, 2000, the amount in arrears, including the 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 an Amended Answer, JVL and Lim admitted the existence of
the lease agreement but asserted that it is in reality a sale of
equipment on instalment basis, with FEB acting as the financier.
24
On November 22, 2002, the trial court ruled in favor of JVL and
Lim and stressed the contradictory terms found in the lease
agreement. The trial court stated, among others, that if JVL and
Lim (then defendants) were to be regarded as only a lessee,
logically the lessor who asserts ownership will be the one
directly benefited or injured and therefore the lessee is not
supposed to be the assured as he has no insurable interest.
On December 27, 2002, FEB filed its Notice of Appeal.
Accordingly, on January 17, 2003, the court issued an Order
elevating the entire records of the case to the Court of Appeals.
On March 15, 2005, the Court of Appeals issued its Decision
declaring the transaction between the parties as a financial lease
agreement. The said decision reversed and set aside the trial
court’s decision dated November 22, 2002. Hence, Lim filed the
present Petition for Review on Certiorari.
ISSUE:
Whether or not petitioner has an insurable interest in the
equipment and motor vehicles leased.
RULING:
Yes. The stipulation in Section 14 of the leased contract, that the
equipment shall be insured at the cost and expense of the lessee
against loss, damage, or destruction from fire, theft, accident, or
other insurable risk for the full term of the lease, is a binding and
valid stipulation. 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.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
CONCEALMENT
16. NG GAN ZEE vs. ASIAN CRUSADER LIFE ASSURANCE CORP.
G.R. No. L-30685 May 30, 1983, ESCOLIN, J.
"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 assurer, but he
designedly and intentionally withholds the same."
FACTS:
Kwong Nam applied for a 20-year endowment insurance on his
life for the sum of P20,000.00, with his wife, appellee Ng Gan Zee
as beneficiary. On the same date, Asian Crusader, upon receipt of
the required premium from the insured, approved the
application and issued the corresponding policy. Kwong Nam
died of cancer of the liver with metastasis. All premiums had
been paid at the time of his death.
Ng Gan Zee presented a claim for payment of the face value of the
policy. On the same date, she submitted the required proof of
death of the insured. Appellant denied the claim on the ground
that the answers given by the insured to the questions in his
application for life insurance were untrue.
Appellee brought the matter to the attention of the Insurance
Commissioner. The latter, after conducting an investigation,
wrote the appellant that he had found no material concealment
on the part of the insured and that, therefore, appellee should be
paid the full face value of the policy. The company refused to
settle its obligation.
Appellant alleged that the insured was guilty of
misrepresentation when he answered "No" to the following
question appearing in the application for life insurance
25
- Has any life insurance company ever refused your application
for insurance or for reinstatement of a lapsed policy or offered
you a policy different from that applied for? If, so, name company
and date.
The lower court ruled against the company on lack of evidence.
Appellant further maintains that when the insured was examined
in connection with his application for life insurance, he gave the
appellant's medical examiner false and misleading information
as to his ailment and previous operation. The company
contended that he was operated on for peptic ulcer 2 years
before the policy was applied for and that he never disclosed
such an operation.
ISSUE:
WON Asian Crusader was deceived into entering the contract or
in accepting the risk at the rate of premium agreed upon because
of insured's representation?
HELD:
NO. Petition dismissed. Section 27 of the Insurance Law: Sec. 27.
Such party a contract of insurance must communicate to the
other, in good faith, all facts within his knowledge which are
material to the contract, and which the other has not the means
of ascertaining, and as to which he makes no warranty.
"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 assurer, but he
designedly and intentionally withholds the same." It has also
been held "that the concealment must, in the absence of
inquiries, be not only material, but fraudulent, or the fact must
have been intentionally withheld." Fraudulent intent on the part
of the insured must be established to entitle the insurer to
rescind the contract. And as correctly observed by the lower
court, "misrepresentation as a defense of the insurer to avoid
liability is an 'affirmative' defense. The duty to establish such a
MERCANTILE LAW REVIEW || Insurance Law 26
Compilation of Digests (Except 37)

defense by satisfactory and convincing evidence rests upon the

defendant. The evidence before the Court does not clearly and
satisfactorily establish that defense." It bears emphasis that
Kwong Nam had informed the appellant's medical examiner of
the tumor. His statement that said tumor was "associated with
ulcer of the stomach" should be construed as an expression made
in good faith of his belief as to the nature of his ailment and
operation. While the information communicated was imperfect,
the same was sufficient to have induced appellant to make
further inquiries about the ailment and operation of the insured.

Section 32 of Insurance Law: Section 32. The right to information

of material facts maybe waived either by the terms of insurance
or by neglect to make inquiries as to such facts where they are
distinctly implied in other facts of which information is
communicated. Where a question appears to be not answered at
all or to be imperfectly answered, and the insurers issue a policy
without any further inquiry, they waive the imperfection of the
answer and render the omission to answer more fully
immaterial. The company or its medical examiner did not make
any further inquiries on such matters from the hospital before
acting on the application for insurance. The fact of the matter is
that the defendant was too eager to accept the application and
receive the insured's premium. It would be inequitable now to
allow the defendant to avoid liability under the circumstances.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
17. GREAT PACIFIC LIFE ASS. CORP. vs. CA AND MEDARDA
LEUTERIO
G.R. No. 113899, Oct. 13, 1999, Quisimbing, J.2
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
Great Pacific Life Assurance Corporation (Grepalife) and
Development Bank of the Philippines (DBP). Grepalife agreed to
insure the lives of eligible housing loan mortgagors of DBP. Dr.
Wilfredo Leuterio, a physician and a housing debtor of DBP
applied for membership in the group life insurance plan. In an
application form, Dr. Leuterio answered questions concerning
his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart
condition, high blood pressure, cancer, diabetes, lung,
kidney or stomach disorder or any other physical
impairment?
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [ x ] Yes [ ] No
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. Grepalife insisted that Dr. Leuterio did not disclose he
had been suffering from hypertension, which caused his death
2
Same with case numbers 14 and 53
27
based from the findings of attending physician, Dr.
Mejia. Allegedly, such non-disclosure constituted concealment
that justified the denial of the claim.
ISSUE: Whether Dr. Leuterio concealed that he had hypertension,
which would vitiate the insurance contract.
RULING: NO. Petitioner contends that Dr. Leuterio failed to
disclose that he had hypertension, which might have caused his
death. 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. 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. Mejia’s technical diagnosis of the cause
of death of Dr. Leuterio was a duly documented hospital record,
and that the widow’s 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. Leuterio’s
death certificate stated that hypertension was only the possible
cause of death. The private respondent’s 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.
MERCANTILE LAW REVIEW || Insurance Law 28
Compilation of Digests (Except 37)

18. NEW LIFE ENTERPRISES and JULIAN SY vs. HON. COURT On February 8, 1982, Equitable Insurance
OF APPEALS, Corporation issued Fire Insurance Policy No. 39328 in the
G.R. No. 94071 March 31, 1992, REGALADO, J: amount of P200,000.00.

The terms of the contract are clear and unambiguous. Thus when the building occupied by the New Life Enterprises

The insured is specifically required to disclose to the insurer any was gutted by fire at about 2:00 o'clock in
other insurance and its particulars which he may have effected on the morning of October 19, 1982, the stocks in the
the same subject matter. The knowledge of such insurance trade inside said building were insured against fire in
by the insurer's agents, even assuming the acquisition thereof by the total amount of P1,550,000.00. 
the former, is not the "notice" that would estop the insurers from
denying the claim. Besides, the so-called theory of imputed After the fire, Julian Sy went to the agent of
knowledge, that is, knowledge of the agent is Reliance Insurance whom he asked to accompany him to the
knowledge of the principal, aside from being office of the company so that he can file his claim.  He further
of dubious applicability here has likewise been roundly testified that the three insurance companies are sister
refuted by respondent court whose factual findings we find companies, and as a matter of fact when he was following-
acceptable. up his claim with Equitable Insurance, the
Claims Manager told him to go first to Reliance
Facts: Insurance and if said company agrees to pay, they would
Julian Sy and Jose Sy Bang have formed a business partnership also pay. The same treatment was given him
in the City of Lucena. Under the business name of New Life by the other insurance companies. Ultimately, the
Enterprises, the partnership engaged in the sale of construction three insurance companies denied plaintiffs' claim for payment.
materials at its place of business, a two storey building situated
at Iyam, Lucena City. The facts show that Julian Sy insured the Issue:
stocks in trade of New Life Enterprises with Western Guaranty WON there was a violation of the insurance contract by obtaining
Corporation, Reliance Surety and Insurance. Co., Inc., and three insurance contracts, thus constituting concealment on the
Equitable Insurance Corporation. part of Sy?

On May 15, 1981, Western Guaranty Corporation Ruling:

issued Fire Insurance Policy No. 37201 in the amount
of P350,000.00. This policy was renewed on May, 13, 1982. On
July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire
Insurance Policy No. 69135 in the amount of P300,000.00
(Renewed under Renewal Certificate No. 41997) An additional
insurance was issued by the same company on
November 12, 1981 under Fire Insurance Policy No. 71547 in
the amount of P700,000.00.
The court finds that there was a violation of the insurance
contract by Sy.
The insured shall give notice to the Company of any insurance or
insurances already effected, or which may subsequently be
effected, covering any of the property or properties consisting of
stocks in trade, goods in process and/or inventories only hereby
insured, and unless such notice be given and the particulars of
MERCANTILE LAW REVIEW || Insurance Law 29
Compilation of Digests (Except 37)

such insurance or insurances be stated therein or endorsed on Since Sy, was a businessman, it was incumbent upon him to read
this policy pursuant to Section 50 of the Insurance Code, by or on the contracts.
behalf of the Company before the occurrence of any loss or
damage, all benefits under this policy shall be deemed forfeited,
provided however, that this condition shall not apply when the
total insurance or insurances in force at the time of loss or
damage not more than P200,000.00.

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.

When the words of the document are readily understandable by

an ordinary reader, there is no need for construction anymore.
The terms of the contract are clear and unambiguous.
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.

The conformity of the insured to the terms of the policy is

implied with his failure to disagree with the terms of the
contract.
MERCANTILE LAW REVIEW || Insurance Law 30
Compilation of Digests (Except 37)

19. Ma. Lourdes S. Florendo vs. Philam Plans, G.R. No.
186983, Feb. 22, 2012, Abad, J.
It may be true that insured persons may accept policies without
reading them, and that this is not negligence per se. But, this is not
without any exception.
Facts:
Philam Plans, Inc. (Philam Plans) issued a comprehensive
pension plan with life insurance coverage, containing a one-year
incontestability period to Manuel Florendo. Eleven months later
after the issuance Florendo died of blood poisoning. Lourdes
filed a claim for the payment of the benefits under her husband’s
plan but Philam Plans declined her claim on the ground of
concealment. Lourdes points out that, seeing the unfilled spaces
in Manuel’s pension plan application relating to his medical
history, Philam Plans should have returned it to him for
completion. Since Philam Plans chose to approve the application
just as it was, it cannot cry concealment on Manuel’s part. She
claims that any defect or insufficiency in the information
provided by his pension plan application should be deemed
waived after the same has been approved, the policy has been
issued, and the premiums have been collected.
diabetes, the assumption is that he has never been treated for the
said illnesses in the last five years preceding his application.
Since Philam Plans waived medical examination for Florendo, it
had to rely largely on his stating the truth regarding his health in
his application. It is clear from these representations that there
was concealment.
The insurance plan contains an incontestability clause, which
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.
Since Florendo died on the eleventh month following the
issuance of his plan, the one-year incontestability period has not
yet set in. Consequently, Philam Plans was not barred from
questioning Lourdes entitlement to the benefits of her husband’s
pension plan.

Issue:

Whether Florendo is guilty of concealing his illness when he kept

blank and did not answer questions in his pension plan
application and whether Philam Plan’s approval of Florendo’s
pension plan application and acceptance of his premium
payments precluded it from denying Lourde’s claim.

Held:

Yes. In signing the application without filling in the details

regarding his continuing treatments for heart condition and
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
20. GREAT PACIFIC LIFE ASSURANCE COMPANY vs.
HONORABLE COURT OF APPEALS
G.R. No. L-31845 April 30, 1979, De Castro, J.
LAPULAPU D. MONDRAGON vs. HON. COURT OF APPEALS
and NGO HING
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 demotion,
however slight, not for the alone but equally so for the insurer.
FACTS: Private respondent Ngo Hing filed an application with
the Great Pacific Life Assurance Company (Pacific Life) for a 20-
year endowment policy on the life of his one-year old daughter
Helen Go. Said respondent supplied the essential data which
petitioner Lapulapu D. Mondragon, Branch Manager of the
Pacific Life in Cebu City wrote on the corresponding form in his
own handwriting. Mondragon finally type-wrote the data on the
application form which was signed by private respondent Ngo
Hing. The latter paid the annual premium the sum of P1,077.75
going over to the Company, but he retained the amount of
P1,317.00 as his commission for being a duly authorized agent of
Pacific Life. Upon the payment of the insurance premium, the
binding deposit receipt was issued to private respondent Ngo
Hing. Likewise, petitioner Mondragon handwrote at the bottom
of the back page of the application form his strong
recommendation for the approval of the insurance application.
Mondragon received a letter from Pacific Life disapproving the
insurance application. The letter stated that the said life
insurance application for 20-year endowment plan is not
available for minors below seven years old, but Pacific Life can
consider the same under the Juvenile Triple Action Plan, and
advised that if the offer is acceptable, the Juvenile Non-Medical
Declaration be sent to the company.
31
The non-acceptance of the insurance plan by Pacific Life was
allegedly not communicated by petitioner Mondragon to private
respondent Ngo Hing. Instead, Mondragon wrote back Pacific
Life again strongly recommending the approval of the 20-year
endowment insurance plan to children.
Helen Go died of influenza with complication of
bronchopneumonia. Thereupon, private respondent sought the
payment of the proceeds of the insurance, but having failed in his
effort, he filed the action for the recovery of the same before the
CFI of Cebu, which rendered the adverse decision.
ISSUE:
WON Ngo Hing concealed the state of health and physical
condition of Helen Go, which rendered void the policy.
HELD:
YES. This Court is of the firm belief that private respondent had
deliberately concealed the state of health and physical condition
of his daughter Helen Go. Where private respondent 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 such a material fact. Had he stated 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
demotion, however slight [Black's Law Dictionary, 2nd Edition],
MERCANTILE LAW REVIEW || Insurance Law 32
Compilation of Digests (Except 37)

not for the alone but equally so for the insurer (Field man's
Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70). Concealment
is a neglect to communicate that which a party knows and Ought
to communicate (Section 25, Act No. 2427). Whether intentional
or unintentional the concealment entitles the insurer to rescind
the contract of insurance (Section 26, Id.: Yu Pang Cheng vs.
Court of Appeals, et al, 105 Phil 930; Satumino vs. Philippine
American Life Insurance Company, 7 SCRA 316). Private
respondent appears guilty thereof.

We are thus constrained to hold that no insurance contract was

perfected between the parties with the noncompliance of the
conditions provided in the binding receipt, and concealment, as
legally defined, having been committed by herein private
respondent.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
21. SATURNINO VS. PHIL. AMERICAN LIFE
G.R. No. L-16163, February 28, 1963, Makalintal, J.
Concealment, whether intentional or unintentional entitled the
insurer to rescind the contract of insurance, concealment being
defined as “negligence to communicate that which a party knows
and ought to communicate.” The basis of the rule vitiating the
contract in cases of concealment is that it misleads or deceives the
insurer into accepting the risk, or accepting it at a rate of premium
agreed upon.
FACTS: Prior to the application for insurance policy, Saturnino
was operated on for cancer involving complete removal of the
right breast, including the pectoral muscles and the glands.
Notwithstanding the fact of her operation, Saturnino did not
make a disclosure thereof in her application for insurance. She
stated therein that she did not have, nor had she ever had, among
others 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 5 years. She also stated
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
recited that the declarations of Saturnino constituted a further
basis for the issuance of the policy.
ISSUE: Whether the insured fraudulently concealed material
facts.
RULING: YES. PhilAm Life contend that there was no fraudulent
concealment of the truth as the insured herself did not know,
since her doctor never told her, that the disease for which she
had been operated on was cancer. Such contention should fail,
concealment of the fact of the operation itself was fraudulent, as
there could not have been any mistake about it, no matter what
the ailment was. In order to avoid a policy, it is not necessary to
33
show actual fraud on the part of the insured.
In this jurisdiction, concealment, whether intentional or
unintentional entitled the insurer to rescind the contract of
insurance, concealment being defined as “negligence to
communicate that which a party knows and ought to
communicate.” The basis of the rule vitiating the contract in
cases of concealment is that it misleads or deceives the insurer
into accepting the risk, or accepting it at a rate of premium
agreed upon. The insurer, relying upon the belief that the
insured will disclose every material fact within his actual or
presumed knowledge, is misled into a belief that the
circumstances withheld does not exist, and he is thereby induced
to estimate the risk upon a false basis that it does not exist.
The information given by her in the application for insurance
was false, namely, that she never had cancer or tumors or
consulted any physician or undergone any operation within the
preceding period of 5 years. The question to determine is: Are
the facts then falsely represented material? The Insurance Law
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 making his inquiries.
PhilAm Life contends 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.
We hold that 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.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
WARRANTIES
22. QUA CHEE GAN v. LAW UNION AND ROCK INSURANCE CO.,
LTD., represented by its agent, WARNER, BARNES AND CO.,
LTD.
G.R. No. L-4611, 17 December 1955, REYES, J. B. L., J
Qua Chee Gan, a merchant, owned 4 warehouses in Albay
which were used for storage of copra and hemp. The
warehouses, together with its contents, were insured with Law
Union and Rock Insurance Co., Ltd. The insurance policy states
that Qua Chee Gan should install 11 hydrants in the warehouses’
premises. Qua Chee Gan installed only two, but Law Union
nevertheless went on with the insurance policy and collected
premiums from Qua Chee Gan. The insurance contract also
provides that “oil” should not be stored within the premises of
the warehouses.
In 1940, three of the warehouses were destroyed by fire.
Qua Chee Gan demanded insurance from Law Union but the
latter refused as it alleged that after investigation from their part,
they found out that Qua Chee Gan caused the fire. Law Union in
fact sued Qua Chee Gan for Arson but was acquitted. This time,
Law Union averred that the insurance contract is void because
Qua Chee Gan failed to install 11 hydrants; and that gasoline was
found in one of the warehouses.
ISSUE: Was there a violation of warranties of the insurance
policy?
RULING: NO.
The appellant is barred by waiver (or rather estoppel) to claim
violation of the so-called fire hydrants warranty, for the reason
that knowing fully all that the number of hydrants demanded
therein never existed from the very beginning, the appellant
34
nevertheless issued the policies in question subject to such
warranty, and received the corresponding premiums.
The insurance company was aware, even before the policies
were issued, that in the premises insured there were only two
fire hydrants installed by Qua Chee Gan and two others nearby,
owned by the municipality of Tabaco, contrary to the
requirements of the warranty in question. The inequitableness of
the conduct observed by the insurance company in this case is
heightened by the fact that after the insured had incurred the
expense of installing the two hydrants, the company collected the
premiums and issued him a policy so worded that it gave the
insured a discount much smaller than that he was normaly
entitledto. According to the "Scale of Allowances," a policy
subject to a warranty of the existence of one fire hydrant for
every 150 feet of external wall entitled the insured to a discount
of 7 1/2 per cent of the premium; while the existence of
"hydrants, in compund" (regardless of number) reduced the
allowance on the premium to a mere 2 1/2 per cent. This
schedule was logical, since a greater number of hydrants and fire
fighting appliances reduced the risk of loss. But the appellant
company, in the particular case now before us, so worded the
policies that while exacting the greater number of fire hydrants
and appliances, it kept the premium discount at the minimum of
2 1/2 per cent, thereby giving the insurance company a double
benefit. No reason is shown why appellant's premises, that had
been insured with appellant for several years past, suddenly
should be regarded in 1939 as so hazardous as to be accorded a
treatment beyond the limits of appellant's own scale of
allowances. Such abnormal treatment of the insured strongly
points at an abuse of the insurance company's selection of the
words and terms of the contract, over which it had absolute
control.
It is usually held that where the insurer, at the time of the
issuance of a policy of insurance, has knowledge of
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
existing facts which, if insisted on, would invalidate the
contract from its very inception, such knowledge
constitutes a waiver of conditions in the contract
inconsistent with the facts, and the insurer is stopped
thereafter from asserting the breach of such conditions.
The law is charitable enough to assume, in the absence of
any showing to the contrary, that an insurance company
intends to executed a valid contract in return for the
premium received; and when the policy contains a
condition which renders it voidable at its inception, and
this result is known to the insurer, it will be presumed to
have intended to waive the conditions and to execute a
binding contract, rather than to have deceived the
insured into thinking he is insured when in fact he is not,
and to have taken his money without consideration. (29
Am. Jur., Insurance, section 807, at pp. 611-612.)
Also, appellant insurance company avers, that the insured
violated the "Hemp Warranty" provisions of the Policy against
the storage of gasoline, since appellee admitted that there were
36 cans (latas) of gasoline in the building designed as "Bodega
No. 2" that was a separate structure not affected by the fire. It is
well to note that gasoline is not specifically mentioned among the
prohibited articles listed in the so-called "hemp warranty." The
cause relied upon by the insurer speaks of "oils (animal and/or
vegetable and/or mineral and/or their liquid products having a
flash point below 300 degrees Fahrenheit", and is decidedly
ambiguous and uncertain; for in ordinary parlance, "Oils" mean
"lubricants" and not gasoline or kerosene. And how many
insured, it may well be wondered, are in a position to understand
or determine "flash point below 003o Fahrenheit. Here, again, by
reason of the exclusive control of the insurance company over
the terms and phraseology of the contract, the ambiguity must be
held strictly against the insurer and liberraly in favor of the
insured, specially to avoid a forfeiture (44 C. J. S., pp. 1166-1175;
29 Am. Jur. 180).
35
Insurance is, in its nature, complex and difficult for the
layman to understand. Policies are prepared by experts
who know and can anticipate the hearing and possible
complications of every contingency. So long as insurance
companies insist upon the use of ambiguous, intricate
and technical provisions, which conceal rather than
frankly disclose, their own intentions, the courts must, in
fairness to those who purchase insurance, construe every
ambiguity in favor of the insured. (Algoe vs. Pacific Mut.
L. Ins. Co., 91 Wash. 324, LRA 1917A, 1237.)
An insurer should not be allowed, by the use of obscure phrases
and exceptions, to defeat the very purpose for which the policy
was procured (Moore vs. Aetna Life Insurance Co., LRA 1915D,
264).
We see no reason why the prohibition of keeping gasoline in the
premises could not be expressed clearly and unmistakably, in the
language and terms that the general public can readily
understand, without resort to obscure esoteric expression (now
derisively termed "gobbledygook"). We reiterate the rule stated
in Bachrach vs. British American Assurance Co. (17 Phil. 555,
561):
If the company intended to rely upon a condition of that
character, it ought to have been plainly expressed in the
policy.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
DOUBLE INSURANCE
23. ARMANDO GEAGONIA, vs. COURT OF APPEALS and
COUNTRY BANKERS INSURANCE CORPORATION
G.R. No. 114427 February 6, 1995 Davide, Jr. J
A double insurance exists where the same person is insured by
several insurers separately in respect of the same subject and
interest. As earlier stated, the insurable interests of a mortgagor
and a mortgagee on the mortgaged property are distinct and
separate.
FACTS
Armando Geagonia is the owner of Norman's Mart in San
Francisco, Agusan del Sur. On 22 December 1989, he obtained
from Country Bankers Insurance Corporation {CBIC} fire
insurance policy No. F-14622 for P100,000.00. The period of the
policy was from 22 December 1989 to 22 December 1990 and
covered the following: "Stock-in-trade consisting principally of
dry goods such as RTW's for men and women wear and other
usual to assured's business."
The petitioner declared in the policy under the subheading
entitled CO-INSURANCE that Mercantile Insurance Co., Inc. was
the co-insurer for P50,000.00. From 1989 to 1990, the petitioner
had in his inventory stocks amounting to P392,130.50,
The policy contained the following condition:
3. The insured shall give notice to the Company of any
insurance or insurances already affected, or which may
subsequently be effected, covering any of the property or
properties consisting of stocks in trade, goods in process
and/or inventories only hereby insured, and unless such
notice be given and the particulars of such insurance or
insurances be stated therein or endorsed in this policy
pursuant to Section 50 of the Insurance Code, by or on
behalf of the Company before the occurrence of any loss
36
or damage, all benefits under this policy shall be deemed
forfeited, provided however, that this condition shall not
apply when the total insurance or insurances in force at
the time of the loss or damage is not more than
P200,000.00.
On 27 May 1990, fire of accidental origin broke out and the
insured stock-in-trade were completely destroyed prompting
Geagonia to file with CBIC a claim under the policy. On 28
December 1990, CBIC denied the claim because it found that at
the time of the loss, the petitioner's stocks-in-trade were
likewise covered by fire insurance policies No. GA-28146 and No.
GA-28144, for P100,000.00 each, issued by the Cebu Branch of
the Philippines First Insurance Co., Inc. (hereinafter PFIC). These
policies indicate that the insured was "Messrs. Discount Mart
(Mr. Armando Geagonia, Prop.)" with a mortgage clause reading:
MORTGAGE: Loss, if any shall be payable to Messrs. Cebu
Tesing Textiles, Cebu City as their interest may appear
subject to the terms of this policy. CO-INSURANCE
DECLARED: P100,000. — Phils. First CEB/F 24758.
The basis of the private respondent's denial was the petitioner's
alleged violation of Condition 3 of the policy.
The petitioner then filed a complaint against the private
respondent with the Insurance Commission (Case No. 3340) for
the recovery of P100,000.00 under fire insurance policy No. F-
14622.
The Insurance Commission found that the petitioner did not
violate Condition 3. The Court of Appeals reversed the decision
of the Insurance Commission
ISSUE: Whether or not Double Insurance exist thereby
prohibiting petitioner Geagonia from recovering.
MERCANTILE LAW REVIEW || Insurance Law 37
Compilation of Digests (Except 37)

RULING: NO, double insurance does not exist.
Provisions, conditions or exceptions in policies, which tend to
work a forfeiture of insurance policies, should be construed most
strictly against those for whose benefits they are inserted, and
most favorably toward those against whom they are intended to
operate.  The reason for this is that, except for riders, which may
later be inserted, the insured sees the contract already in its final
form and has had no voice in the selection or arrangement of the
words employed therein. On the other hand, the language of the
contract was carefully chosen and deliberated upon by experts
and legal advisers who had acted exclusively in the interest of
the insurers and the technical language employed therein is
rarely understood by ordinary laymen.
With these principles in mind, Condition 3 of the subject policy is
not totally free from ambiguity and must, perforce, be
meticulously analyzed. Such analysis leads us to conclude that
(a) the prohibition applies only to double insurance, and (b) the
nullity of the policy shall only be to the extent exceeding
P200,000.00 of the total policies obtained.
disclosure then of the former policies was not fatal to the
petitioner's right to recover on the private respondent's policy.
Furthermore, by stating within Condition 3 itself that such
condition shall not apply if the total insurance in force at the time
of loss does not exceed P200,000.00, the private respondent was
amenable to assume a co-insurer's liability up to a loss not
exceeding P200,000.00. What it had in mind was to discourage
over-insurance. Indeed, the rationale behind the incorporation of
"other insurance" clause in fire policies is to prevent over-
insurance and thus avert the perpetration of fraud. When a
property owner obtains insurance policies from two or more
insurers in a total amount that exceeds the property's value, the
insured may have an inducement to destroy the property for the
purpose of collecting the insurance. The public as well as the
insurer is interested in preventing a situation in which a fire
would be profitable to the insured.

The first conclusion is supported by the portion of the condition

referring to other insurance "covering any of the property or
properties consisting of stocks in trade, goods in process and/or
inventories only hereby insured," and the portion regarding the
insured's declaration on the subheading CO-INSURANCE that the
co-insurer is Mercantile Insurance Co., Inc. in the sum of
P50,000.00. A double insurance exists where the same person is
insured by several insurers separately in respect of the same
subject and interest. As earlier stated, the insurable interests of a
mortgagor and a mortgagee on the mortgaged property are
distinct and separate. Since the two policies of the PFIC do not
cover the same interest as that covered by the policy of the
private respondent, no double insurance exists. The non-
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
24. MALAYAN INSURANCE CO., INC. vs. PHILIPPINES FIRST
INSURANCE CO., INC. and REPUTABLE FORWARDER
SERVICES, INC.
G.R. No. 184300, July 11, 2012 J. REYES3
By the express provision of Section 93 of the Insurance Code,
double insurance exists where the same person is insured by
several insurers separately in respect to the same subject and
interest.
FACTS:  Reputable signed a Special Risk Insurance Policy (SR Policy) with
Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent
Reputable Forwarder Services, Inc. (Reputable) had been
annually executing a contract of carriage, whereby the latter
undertook to transport and deliver the former’s products to its
customers, dealers or salesmen. On November 18, 1993, Wyeth
procured Marine Policy No. MAR 13797 (Marine Policy) from
respondent Philippines First Insurance Co., Inc. (Philippines
First) to secure its interest over its own products. Philippines
First thereby insured Wyeth’s nutritional, pharmaceutical and
other products usual or incidental to the insured’s business
while the same were being transported or shipped in the
Philippines.
The policy covers all risks of direct physical loss or damage from
any external cause, if by land, and provides a limit of
P6,000,000.00 per any one land vehicle. On December 1, 1993,
Wyeth executed its annual contract of carriage with Reputable. It
turned out, however, that the contract was not signed by Wyeth’s
representative/s. Nevertheless, it was admittedly signed by
Reputable’s representatives, the terms thereof faithfully
observed by the parties and, as previously stated, the same
contract of carriage had been annually executed by the parties
every year since 1989.
3
Same with case number 57
38
Under the contract, Reputable undertook to answer for “all risks
with respect to the goods and shall be liable to the COMPANY
(Wyeth), for the loss, destruction, or damage of the
goods/products due to any and all causes whatsoever, including
theft, robbery, flood, storm, earthquakes, lightning, and other
force majeure while the goods/products are in transit and until
actual delivery to the customers, salesmen, and dealers of the
COMPANY”. The contract also required Reputable to secure an
insurance policy on Wyeth’s goods. Thus, on February 11, 1994,
petitioner Malayan for the amount of P1,000,000.00. On October
6, 1994, during the effectivity of the Marine Policy and SR Policy,
Reputable received from Wyeth 1,000 boxes of Promil infant
formula worth P2,357,582.70 to be delivered by Reputable to
Mercury Drug Corporation in Libis, Quezon City.
Unfortunately, on the same date, the truck carrying Wyeth’s
products was hijacked by about 10 armed men. They threatened
to kill the truck driver and two of his helpers should they refuse
to turn over the truck and its contents to the said highway
robbers. The hijacked truck was recovered two weeks later
without its cargo. Malayan questions its liability based on
sections 5 and 12 of the SR Policy.
ISSUE: 
Whether or not there is double insurance in this case such that
either Section 5 or Section 12 of the SR Policy may be applied.
HELD: 
NO. By the express provision of Section 93 of the Insurance Code,
double insurance exists where the same person is insured by
several insurers separately in respect to the same subject and
interest. The requisites in order for double insurance to arise are
as follows:
MERCANTILE LAW REVIEW || Insurance Law 39
Compilation of Digests (Except 37)

1. The person insured is the same; 

2. Two or more insurers insuring separately; 
3. There is identity of subject matter; 
4. There is identity of interest insured; and 
5. There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the
SR Policy were both issued over the same subject matter, i.e.
goods belonging to Wyeth, and both covered the same peril
insured against, it is, however, beyond cavil that the said policies
were issued to two different persons or entities. It is undisputed
that Wyeth is the recognized insured of Philippines First under
its Marine Policy, while Reputable is the recognized insured of
Malayan under the SR Policy. The fact that Reputable procured
Malayan’s SR Policy over the goods of Wyeth pursuant merely to
the stipulated requirement under its contract of carriage with
the latter does not make Reputable a mere agent of Wyeth in
obtaining the said SR Policy.

The interest of Wyeth over the property subject matter of both

insurance contracts is also different and distinct from that of
Reputable’s. The policy issued by Philippines First was in
consideration of the legal and/or equitable interest of Wyeth
over its own goods. On the other hand, what was issued by
Malayan to Reputable was over the latter’s insurable interest
over the safety of the goods, which may become the basis of the
latter’s liability in case of loss or damage to the property and falls
within the contemplation of Section 15 of the Insurance Code.

Therefore, even though the two concerned insurance policies

were issued over the same goods and cover the same risk, there
arises no double insurance since they were issued to two
different persons/entities having distinct insurable interests.
Necessarily, over insurance by double insurance cannot likewise
exist. Hence, as correctly ruled by the RTC and CA, neither
Section 5 nor Section 12 of the SR Policy can be applied.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
NOTICE OF LOSS
25. PHILIPPINES AMERICAN GENERAL INSURANCE Co., INC.
and TAGUM PLASTICS, INC. vs. SWEET LINES INC., DAVAO
VETERANS ARRASTRE and CA
G.R. no. 87434, August 5, 1992, J. REGALADO
Before an action can properly be commenced all the
essential elements of the cause of action must be in existence.
FACTS
Petitioners Philippine American General Insurance Co.,
(PHILAMGEN) and Tagum Plastics, Inc. (TAGUM) were insurers
and importers of Low Density Polyethylene (basic material for
plastics). The said merchandise are to be shipped from the U.S.
through an Indian Ship “ SS Visva Yash” and are to be received in
Manila. After which the imported items will be shipped off to
Davao.
The Indian vessel arrived in Manila and sought the
services of respondent Sweet Lines for the inter-island shipment
to Davao. However, when respondent’s MV Sweet Love arrived
in Davao, TAGUM found out that some of the imported
polyethylene were either missing or damaged beyond point of
being useful for the intended purpose. Delivered were only
5,820 bags only out of the ordered 7,000 bags.
As a consequence, PHILAMGEN and TAGUM filed a suit
against Sweet Lines and Davao Veterans Arrastre based on the
Bills of Lading. However, bills of lading and notice of loss were
not formally offered as evidence, hence it was not shown that
damage were incurred by the carrier and that a contractual
40
prescriptive period was indicated therein.
The trial court ruled in favor of PHILAMGEN and TAGUM
and ordered Sweet Lines to pay the sum of P34,902.00 with legal
interest. On appeal, the CA reversed the decision of thhe trial
court on the basis of prescription.
ISSUE: Whether or not there was substantial compliance on the
part of petitioners with regard to their claims for loss/damages.
RULING
NO. The petitioners have not substantially complied with
the conditions precedent to their right of action. All valid
conditions precedent to the institution of the particular action
wheter prescribed by statute, fixed by agreement of the parties
or implied by law must be performed or complied with before
commencing the action, unless the conduct of the adverse party
has been such as to prevent or waive performance or excuse
non-performance of the condition.
Stipulations in bills of lading requiring notice of claim for
loss or damage is a condition precedent. The carrier is not liable
if notice is not given in accordance with the stipulation.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
PREMIUMS
26. Arce v. Capital Insurance & Surety Co., Inc.,
117 SCRA 63 (1982), ABAD SANTOS, J.:
The amendment to Sec. 72 has radically changed the legal regime
in that unless the premium is paid, there is no insurance.
FACTS:
The INSURED (Pedro Arce) was the owner of a residential house
in Tondo, Manila, which had been insured with the COMPANY
(CISCI) for Fire Insurance since 1961 When the COMPANY sent
to the INSURED a Renewal Certificate, the COMPANY also
requested payment of the corresponding premium. However, the
INSURED could not yet able to pay the premium so he ask the
COMPANY for an extension to pay the premium. The COMPANY
acceded. Unfortunately, the INSURED still failed to pay the
premium on the agreed extension date. Four days after the lapse
of the agreed extension date, the house of the INSURED was
totally destroyed by fire.
The INSURED then presented a claim for indemnity to the
COMPANY. The COMPANY answered that no indemnity was due
because the premium on the policy was not paid. Nonetheless,
the COMPANY tendered a financial aid to the INSURED. After
receiving the financial aid, the INSURED then sued the COMPANY
on the policy for non-payment of indemnity.
The trial court ruled in favor of the INSURED and so ordered the
COMAPANY to pay the INSURED for indemnity under the policy.
The COMPANY appealed to the SC via a petition for review on
pure questions of law.
ISSUE: Whether or not the INSURED is entitled to indemnity
under the fire insurance policy even if no premium was paid?
41
HELD: No.
Sec. 72 of the Insurance Act, as amended by R.A. No. 3540 reads:
SEC. 72. An insurer is entitled to payment of
premium as soon as the thing insured is exposed
to the perils insured against, unless there is clear
agreement to grant credit extension for the
premium due. No policy issued by an insurance
company is valid and binding unless and until the
premium thereof has been paid " (Italics supplied.)
Moreover, the parties in this case had stipulated:
IT IS HEREBY DECLARED AND AGREED that not.
withstanding anything to the contrary contained
in the within policy, this insurance will be
deemed valid and binding upon the Company
only when the premium and documentary stamps
therefor have actually been paid in full and duly
acknowledged in an official receipt signed by an
authorized official/representative of the
Company, " (pp. 45-46, Record on Appeal.)
It is obvious from both the Insurance Act, as amended, and the
stipulation of the parties that time is of the essence in respect of
the payment of the insurance premium so that if it is not paid the
contract does not take effect unless there is still another
stipulation to the contrary. In the instant case, the INSURED was
given a grace period to pay the premium but the period having
expired with no payment made, he cannot insist that the
COMPANY is nonetheless obligated to him.
The amendment to Sec. 72 has radically changed the legal regime
in that unless the premium is paid there is no insurance.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
27. MALAYAN INSURANCE CO., INC. (MICO) vs. GREGORIA
CRUZ ARNALDO
G.R. No. L-67835 October 12, 1987, CRUZ, J
SEC. 64. No policy of insurance other than life shall be cancelled by
the insurer except upon prior notice thereof to the insured, and no
notice of cancellation shall be effective unless it is based on the
occurrence, after the effective date of the policy, of one or more of
the following:
(a) non-payment of premium;
SEC. 65. All notices of cancellation mentioned in the preceding
section shall be in writing, mailed or delivered to the named
insured at the address shown in the policy, and shall state
(a) which of the grounds set forth in section sixty-four is relied
upon and
(b) that, insured, the upon written request of the named insurer
will furnish the facts on which the cancellation is based.
FACTS:
The petitioner (hereinafter called MICO) issued to the private
respondent, Coronacion Pinca, Fire Insurance Policy on her
property effective July 22, 1981, until July 22, 1982.
On October 15,1981, MICO allegedly cancelled the policy for non-
payment, of the premium and sent the corresponding notice to
Pinca.
On December 24, 1981, payment of the premium for Pinca was
received by Domingo Adora, agent of MICO.  payment of premiums under Section 64 in accordance with
On January 15, 1982, Adora remitted this payment to MICO,
together with other payments.  RULING: No. Citing the relevant provisions of the Insurance
On January 18, 1982, Pinca's property was completely burned.  Section 64 reads as follows:
42
On February 5, 1982, Pinca's payment was returned by MICO to
Adora on the ground that her policy had been cancelled earlier.
But Adora refused to accept it.
Pinca made the requisite demands for payment, which MICO
rejected. She then went to the Insurance Commission and was
ultimately sustained by the latter.
MICO's contends that there was no existing insurance at the time
of the loss sustained by Pinca because her policy never became
effective for non-payment of premium. It also further argued that
since there was no payment of premium, the policy had been
cancelled before the occurrence of the loss.
Pinca denied the contention of MICO that it cancelled the policy
in question on October 15, 1981, for non-payment of premium
and considering the strict language of Section 64 of the Insurance
Code that no insurance policy shall be cancelled except upon
prior notice, it behooved MICO to make sure that the cancellation
was actually sent to and received by the insured.
MICO contends that Pinca knew the policy had already been
cancelled and that when she paid the premium on December 24,
1981, her purpose was "to renew it." As this could NOT be done
by the agent alone under the terms of the original policy, the
renewal thereof did not legally bind MICO. which had not ratified
it.
ISSUE: Whether MICO validly cancelled the policy due to non-
Section 65 of the Insurance Code.
Code
MERCANTILE LAW REVIEW || Insurance Law 43
Compilation of Digests (Except 37)

SEC. 64. No policy of insurance other than life shall be

cancelled by the insurer except upon prior notice thereof
to the insured, and no notice of cancellation shall be
effective unless it is based on the occurrence, after the
effective date of the policy, of one or more of the
following:
(b) non-payment of premium;
XXXX
(Other grounds omitted)

As for the method of cancellation, Section 65 provides as follows:

SEC. 65. All notices of cancellation mentioned in the
preceding section shall be in writing, mailed or delivered
to the named insured at the address shown in the policy,
and shall state (a) which of the grounds set forth in
section sixty-four is relied upon and (b) that, insured, the
upon written request of the named insurer will furnish
the facts on which the cancellation is based.

The court finds no proof that the notice, assuming it complied

with the other requisites mentioned above, was actually mailed
to and received by Pinca. All MICO's offers to show that the
cancellation was communicated to the insured is its employee's
testimony that the said cancellation was sent "by mail through
our mailing section." without more.

The court also look askance (with disapproval or distrust) at the

alleged cancellation, of which the insured and MICO's agent
himself had no knowledge, and the curious fact that although
Pinca's payment was remitted to MICO's by its agent on January
15, 1982, MICO sought to return it to Adora only on February 5,
1982, after it presumably had learned of the occurrence of the
loss insured against on January 18, 1982. These circumstances
make the motives of the petitioner highly suspect, to say the
least, and cast serious doubts upon its candor and bona fides.
MERCANTILE LAW REVIEW || Insurance Law 44
Compilation of Digests (Except 37)

28. PHILIPPINE PHOENIX SURETY & INSURANCE, INC. vs. therefor had been complied with, arose and became binding
WOODWORKS, INC. upon it, while the obligation of the insured to pay the remainder
G.R. No. L-22684, August 31, 1967, DIZON, J.: of the total amount of the premium due became demandable. 

As the contract had become perfected, the parties could demand
from each other the performance of whatever obligations they had
assumed.
FACTS:
Appellee Philippine Phoenix Surety & Insurance Co., Inc.
commenced this action in the Municipal Court of Manila to
recover from appellant Woodworks, Inc. the sum of P3,522.09,
representing the unpaid balance of the premiums on a fire
insurance policy issued by appellee in favor of appellant for a
term of one year from April 1, 1960 to April 1, 1961.
On April 1, 1960, Philippine Phoenix Surety issued to
Woodworks, Inc. Fire Policy No. 9652 for the amount of
P300,000.00. The premiums of said policy amounted to
P6,051.95. Woodworks paid P3,000.00 on September 22, 1960.
Philippine Phoenix Surety made several demands on defendant
to pay the amount of P3,522.09.1äwphï1.ñët
The appellant's theory that non-payment by it of the premium
due, produced the cancellation of the contract of insurance is
misplaced. Such theory would place exclusively in the hands of
one of the contracting parties the right to decide whether the
contract should stand or not. Rather the correct view would
seem to be this: as the contract had become perfected, the parties
could demand from each other the performance of whatever
obligations they had assumed. In the case of the insurer, it is
obvious that it had the right to demand from the insured the
completion of the payment of the premium due or sue for the
rescission of the contract. As it chose to demand specific
performance of the insured's obligation to pay the balance of the
premium, the latter's duty to pay is indeed indubitable.

ISSUE:
Whether the risk in fire insurance policies attached upon the
partial payment of premium and subsequently the issuance and
delivery of the policy to the insured.

HELD:
YES. The risk already attached. There is, consequently, no doubt
at all that, as between the insurer and the insured, there was not
only a perfected contract of insurance but a partially performed
one as far as the payment of the agreed premium was concerned.
Thereafter the obligation of the insurer to pay the insured the
amount for which the policy was issued in case the conditions
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
29. SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and
OFELIA M. RORALDO, VICTORINA M. RORALDO, VIRGILIO M.
RORALDO, MYRNA M. RORALDO and ROSABELLA M.
RORALDO vs. COURT OF APPEALS and FORTUNE LIFE AND
GENERAL INSURANCE CO., INC
G.R. No. 119655 May 24, 1996, BELLOSILLO, J
FACTS:
Violeta R. Tibay and/or Nicolas Roraldo insured their 2-story
residential building with Fortune Life and General Insurance Co.,
Inc. (FORTUNE) for the amount Php 600,000.00 with total
premium of P2, 983.50. Tibay only paid P600.00 for the period
January 23, 1987 to January 23, 1988. On March 8, 1987, the
insured building was completely burned. Two days after, Tibay
paid the balance premium and on the same day, demanded
payment she filed with FORTUNE a claim on the fire insurance
policy. FORTUNE denied the claim of Violeta for violation of
Policy Condition No. 2 and of Sec. 77 of the Insurance Code.
Violeta and other petitioners filed a case for damages. The trial
court adjudged FORTUNE liable for the insured value of the
building and the personal properties. On appeal, the CA reversed
the decision. Hence, a petition was raised to the SC.
ISSUE:
Whether or not a fire insurance policy is valid, binding and
enforceable upon mere partial payment of premium.
RULING:
The pertinent provisions read:
2. This policy including any renewal thereof and/or any
endorsement thereon is not in force until the premium has been
fully paid to and duly receipted by the Company in the manner
45
provided herein. This policy shall be deemed effective, valid and
binding upon the Company only when the premiums therefor
have actually been paid in full and duly acknowledged in a
receipt signed by any authorized official of the company
Where the premium has only been partially paid and the balance
paid only after the peril insured against has occurred, the
insurance contract did not take effect and the insured cannot
collect at all on the policy. 
The Insurance Code which says that no policy or contract of
insurance issued by an insurance company is valid and binding
unless and until the premium has been paid.
What does “unless and until the premium thereof has been paid”
mean?
Escosura v. San Miguel- the legislative practice was to interpret
“with pay” in accordance to the intention of distinguish between
full and partial payment, where the modifying term is used.
Petitioners used Philippine Phoenix v. Woodworks, where partial
payment of the premium made the policy effective during the
whole period of the policy.
The SC didn’t consider the 1967 Phoenix case as persuasive due
to the different factual scenario.
In Makati Tuscany v CA, the parties mutually agreed that the
premiums could be paid in installments, hence, this Court
refused to invalidate the insurance policy.
Nothing in Article 77 of the Code suggested that the parties may
not agree to allow payment of the premiums in installment, or to
consider the contract as valid and binding upon payment of the
first premium. Phoenix and Tuscany demonstrated the waiver of
prepayment in full by the insurer. In this case however, there
MERCANTILE LAW REVIEW || Insurance Law 46
Compilation of Digests (Except 37)

was no waiver. There was a stipulation that the policy wasn’t in

force until the premium has been fully paid and receipted.

There was no juridical tie of indemnification from the fractional

payment of premium.  The insurance contract itself expressly
provided that the policy would be effective only when
the premium was paid in full. Verily, it is elemental law that the
payment of premium is requisite to keep the policy of insurance
in force.  If the premium is not paid in the manner prescribed in
the policy as intended by the parties the policy is ineffective. 
Partial payment even when accepted as a partial payment will
not keep the policy alive.

South Sea v CA stipulated 2 exceptions to the requirement of

payment of the entire premium as a prerequisite to the validity
of the insurance contract.  These are when in case the insurance
coverage relates to life or insurance when a grace period applies,
and when the insurer makes a written acknowledgment of the
receipt of premium to be conclusive evidence of payment.
Hence, in the absence of clear waiver of prepayment in full by the
insurer, the insured cannot collect on the proceeds of the policy.

“The terms of the insurance policy constitute the measure of the

insurer’s liability. In the absence of statutory prohibition to the
contrary, insurance companies have the same rights as
individuals to limit their liability and to impose whatever
conditions they deem best upon their obligations not
inconsistent with public policy.”
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
30. UCPB Gen. Insurance Co. Inc vs Masagana Telamart Inc
G.R. No. 137172 June 15, 19994
An insurer is entitled to payment of the premium as soon as the
thing insured is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or
contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, except
in the case of a life or an industrial life policy whenever the grace
period provision applies.
Facts:
On April 15, 1991, petitioner issued five (5) insurance
policies covering respondent’s various property described
therein against fire, for the period from May 22, 1991 to May 22,
1992. In March 1992, petitioner evaluated the policies and
decided not to renew them upon expiration of their terms on
May 22, 1992. Petitioner advised respondent’s broker, Zuellig
Insurance Brokers, Inc. of its intention not to renew the policies.
On April 6, 1992, petitioner gave written notice to respondent of
the non-renewal of the policies at the address stated in the
policies. On June 13, 1992, fire razed respondent’s property
covered by three of the insurance policies petitioner issued. On
July 13, 1992, respondent presented to petitioner’s cashier at its
head office five (5) manager’s checks in the total amount of
P225,753.95, representing premium for the renewal of the
policies from May 22, 1992 to May 22, 1993. No notice of loss
was filed by respondent under the policies prior to July 14, 1992.
On July 14, 1992, respondent filed with petitioner its formal
claim for indemnification of the insured property razed by fire.
4
Same with case number 33
47
On the same day, July 14, 1992, petitioner returned to
respondent the five (5) manager’s checks that it tendered, and at
the same time rejected respondent’s claim for the reasons (a)
that the policies had expired and were not renewed, and (b) that
the fire occurred on June 13, 1992, before respondent’s tender of
premium payment.
Issue:
Whether or not respondent is entitled to compensation
despite the renewal of the insurance policy after the occurrence
of the event insured.
Held:
No. An insurance policy, other than life, issued originally
or on renewal, is not valid and binding until actual payment of
the premium. Any agreement to the contrary is void. 11 The
parties may not agree expressly or impliedly on the extension of
creditor time to pay the premium and consider the policy
binding before actual payment.
Here, the payment of the premium for renewal of the
policies was tendered on July 13, 1992, a month after the fire
occurred on June 13, 1992. The assured did not even give the
insurer a notice of loss within a reasonable time after occurrence
of the fire.
MERCANTILE LAW REVIEW || Insurance Law 48
Compilation of Digests (Except 37)

31. GULF RESORTS, INC. vs. PHILIPPINE CHARTER
INSURANCE CORPORATION
G.R. No. 156167 May 16, 2005 J. Puno
A contract of adhesion is one wherein a party, usually a
corporation, prepares the stipulations in the contract, while the
other party merely affixes his signature or his "adhesion" thereto.
Through the years, the courts have held that in these type of
contracts, the parties do not bargain on equal footing, the weaker
party's participation being reduced to the alternative to take it or
leave it. Thus, these contracts are viewed as traps for the weaker
party whom the courts of justice must protect.
FACTS:
Gulf was insured by American Home Assurance Company which
includes loss or damage to shock to any of the property insured
by the Policy occasioned by or through in consequence of
earthquake. Later on, an earthquake struck Central and Northern
Luzon causing damage to the property of Gulf. Gulf claimed from
the insurance company but was denied as the earthquake shock
coverage only covered the swimming pools of the resort. Gulf
contends that pursuant to this rider, no qualifications were
placed on the scope of the earthquake’s shock coverage. Thus,
the policy extended to all of the insured properties. The RTC
ruled in favor of American Home to which the CA affirmed.
ISSUE:
Whether or not Gulf is entitled to the earthquake shock coverage.
indemnify another against loss, damage or liability arising from
an unknown or contingent event. Thus, an insurance contract
exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the
designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons bearing a
similar risk; and
5. In consideration of the insurer's promise, the insured pays a
premium.26 (Emphasis ours)
An insurance premium is the consideration paid an insurer for
undertaking to indemnify the insured against a specified peril. In
fire, casualty, and marine insurance, the premium payable
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 two swimming pools. There is no
mention of any premium payable for the other resort properties
with regard to earthquake shock.

HELD:
NO. Gulf was entitled to claim.

A careful examination of the premium recapitulation will show

that it is the clear intent of the parties to extend earthquake
shock coverage only to the two swimming pools. Section 2(1) of
the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
32. American Home Association Co. vs Antonio Chua
G.R. No. 130421, June 28, 1999, Davide, Jr. C.J.
An insurer is entitled to payment of the premium as soon as the
thing insured is exposed to the peril insured against. 
Notwithstanding any agreement to the contrary, no policy or
contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, except
in the case of life or an industrial life policy whenever the grace
period provision applies.
Also, Section 306 of the Insurance Code provides that any
insurance company which delivers a policy or contract of
insurance to an insurance agent or insurance broker shall be
deemed to have authorized such such agent or broker to receive on
its behalf payment of any premium which is due on such policy or
contract of insurance at the time of its issuance or delivery or
which becomes due thereon
FACTS: On April 5, 1990: Antonio Chua renewed the fire
insurance for its stock-in-trade of his business, Moonlight
Enterprises with American Home Assurance Company by issuing
a check of P2,983.50 to its agent James Uy who delivered the
Renewal Certificate to him. On April 6, 1990: Moonlight
Enterprises was completely razed by fire with an est. loss
of P4,000,000 to P5,000,000. On April 10, 1990: An official
receipt was issued and subsequently, a policy was issued
covering March 25 1990 to March 25 1991.
Antonio Chua filed an insurance claim with American Home and
4 other co-insurers (Pioneer Insurance and Surety Corporation,
Prudential Guarantee and Assurance, Inc. and Filipino Merchants
Insurance Co), however American Home refused alleging the no
premium was paid
49
Regional Trial Court rule in favour of Antonio Chua for paying by
way of check a day before the fire occurred and the Court of
Appeals Affirmed. 
ISSUE/S:
1. W/N there was a valid payment of premium considering that
the check was cashed after the occurrence of the fire since the
renewal certificate issued containing the acknowledgement
receipt
2. W/N Chua violated the policy by his submission of fraudulent
documents and non-disclosure of the other existing insurance
contracts or “other insurance clause"
HELD:
1. YES. 
Basis is Section 77 of the Insurance Code. An insurer is entitled to
payment of the premium as soon as the thing insured is exposed
to the peril insured against.  Notwithstanding any agreement to
the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the
premium thereof has been paid, except in the case of life or an
industrial life policy whenever the grace period provision
applies.
Section 66 of the Insurance Code is not applicable since
not termination but renewal
renewal certificate issued contained the acknowledgment that
premium had been paid. 
Section 306 of the Insurance Code provides that any insurance
company which delivers a policy or contract of insurance to an
insurance agent or insurance broker shall be deemed to have
authorized such agent or broker to receive on its behalf payment
of any premium which is due on such policy or contract of
insurance at the time of its issuance or delivery or which
MERCANTILE LAW REVIEW || Insurance Law 50
Compilation of Digests (Except 37)

becomes due thereon. Best evidence of such authority is the fact

that petitioner accepted the check and issued the official receipt
for the payment.  It is, as well, bound by its agent’s
acknowledgment of receipt of payment.

Section 78 of the Insurance Code provides that an

acknowledgment in a policy or contract of insurance of the
receipt of premium is conclusive evidence of its payment, so far
as to make the policy binding, notwithstanding any stipulation
therein that it shall not be binding until the premium is actually
paid.

This Section establishes a legal fiction of payment and

should be interpreted as an exception to Section 77.
 
2. NO.

The purpose for the “other insurance clause”  is to prevent an

increase in the moral hazard
failure to disclose was not intentional and fraudulent. A policy
may declare that a violation of specified provisions thereof shall
avoid it, otherwise the breach of an immaterial provision does
not avoid the policy.
American Home is estopped because its loss adjusters
had previous knowledge of the co-insurers.
 
The loss adjuster, being an employee of petitioner, is deemed a
representative of the latter whose awareness of the other
insurance contracts binds petitioner. There is no legal and factual
basis for the award of P200,000 for loss of profit. Also, no such
fraud or bad faith therefore no moral damages.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
33. UCPB General Ins. Co. Inc., vs. Masagana Telamart, Inc.
G.R. No. 137172, April5
An insurance policy, other than life, issued originally or on
renewal, is not valid and binding until actual payment of the
premium. Any agreement to the contrary is void.  another year [22 May 1992 – 22 May 1993].
FACTS
In 1991, UCPB issued 5 fire insurance policies covering
Masagana Telamart’s various properties for the period from 22
May 1991 to 22 May 1992.
On March 1992 [2 months before policy expiration],
UCPB evaluated the policies and decided not to renew them upon
expiration of their terms on 22 May 1992.  UCPB advised
Masagana’s broker of its intention not to renew the policies. On
April 1992 [1 month before policy expiration], UCPB gave
written notice to Masagana of the non-renewal of the policies. On
June 1992 [policy already expired], Masagana’s property covered
by 3 UCPB-issued policies was razed by fire.
On 13 July 1992, Masagana presented to UCPB’s cashier 5
manager’s checks, representing premium for the renewal of the
policies for another year.
It was only on the following day, 14 July 1992, when
Masagana filed with UCPB a formal claim for indemnification of
the insured property razed by fire. On the same day, UCPB
returned the 5 manager’s checks, and rejected Masagana’s claim
since the policies had expired and were not renewed, and the fire
occurred on 13 June 1992 (or before tender of premium
payment).
5
Same with case number 30
51
            Masagana filed a civil complaint for recovery of the face
value of the policies covering the insured property razed by fire.
RTC ruled in favor of Masagana, as it found it to have complied
with the obligation to pay the premium; hence, the replacement-
renewal policy of these policies are effective and binding for
            CA affirmed RTC, holding that following previous practice,
Masagana was allowed a 60-90 day credit term for the renewal
of its policies, and that the acceptance of the late premium
payment suggested that payment could be made later.
ISSUE
Whether or not the fire insurance policies had expired on
22 May 1992, or had been extended or renewed by an implied
credit arrangement though actual payment of premium was
tendered on a later date after the occurrence of the risk insured
against fire.
HELD
YES. The fire insurance policies had expired.
An insurance policy, other than life is not valid and
binding until actual payment of the premium.  Any agreement to
the contrary is void. The parties may not agree expressly or
impliedly on the extension of credit or time to pay the premium
and consider the policy binding before actual payment.
The case of Malayan Insurance v. Cruz-Arnaldo cited by
the CA is not applicable. In that case, payment of the premium
was made on before the occurrence of the fire.  In the present
case, the payment of the premium for renewal of the policies was
tendered a month after the fire occurred.  Masagana did not even
give UCPB a notice of loss within a reasonable time after
occurrence of the fire.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
34. Makati Tuscany Condo. Corp. vs. Court of Appeals,
G.R. No. 95546, Nov. 6, 1992, Bellosillo, J.
Basic principles of equity and fairness would not allow the insurer
to continue collecting and accepting the premiums, although paid
on installments, and later deny liability on the lame excuse that
the premiums were not prepared in full.
Facts:
American Home Assurance Co. (AHAC) issued in favor of Makati
Tuscany Condominium Corporation (TUSCANY) Insurance Policy
on the latter's building and premises for 2 consecutive years. The
premium was paid on installments, all of which were accepted by
AHAC. The policy was again renewed. On this renewed policy,
Tuscany made two installment payments, both accepted by
AHAC. Thereafter, Tuscany refused to pay the balance of the
premium. AHAC filed an action to recover the unpaid balance.
Tuscany argues that there cannot be a perfected contract of
insurance upon mere partial payment of the premiums because
under Sec. 77 of the Insurance Code, no contract of insurance is
valid and binding unless the premium thereof has been paid,
notwithstanding any agreement to the contrary. As a
consequence, Tuscany seeks a refund of all premium payments
made on the alleged invalid insurance policies.
Issue:
Whether payment by installment of the premiums due on an
insurance policy invalidates the contract of insurance, in view of
Sec. 77 of the Insurance Code and entitles the insured for the
refund of premium.
52
Held:
No. We hold that the subject policies are valid even if the
premiums were paid on installments. The records clearly show
that petitioner and private respondent intended subject
insurance policies to be binding and effective notwithstanding
the staggered payment of the premiums. The initial insurance
contract entered into in 1982 was renewed in 1983, then in
1984. In those three (3) years, the insurer accepted all the
installment payments. Such acceptance of payments speaks
loudly of the insurer's intention to honor the policies it issued to
petitioner. Certainly, basic principles of equity and fairness
would not allow the insurer to continue collecting and accepting
the premiums, although paid on installments, and later deny
liability on the lame excuse that the premiums were not
prepared in full.
It appearing from the peculiar circumstances that the parties
actually intended to make three (3) insurance contracts valid,
effective and binding, petitioner may not be allowed to renege on
its obligation to pay the balance of the premium after the
expiration of the whole term of the third policy in March 1985.
Moreover, as correctly observed by the appellate court, where
the risk is entire and the contract is indivisible, the insured is not
entitled to a refund of the premiums paid if the insurer was
exposed to the risk insured for any period, however brief or
momentary.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
REINSTATEMENT
35. VIOLETA R. LALICAN vs. THE INSULAR LIFE ASSURANCE
COMPANY LIMITED, AS REPRESENTED BY THE PRESIDENT
VICENTE R. AVILON
GR No. 183526 August 25, 2009 J. Chico Nazario
The stipulation in a life insurance policy giving the insured the
privilege to reinstate it upon written application does not give the
insured absolute right to such reinstatement by the mere filing of
an application. The insurer has the right to deny the reinstatement
if it is not satisfied as to the insurability of the insured and if the
latter does not pay all overdue premium and all other
indebtedness to the insurer.
FACTS:
Eulogio Lalican applied for an insurance policy with Insular Life.
Malaluan, agent of Insular Life, issued in a policy in favor of
Eulogio which contained a 20-Year Endowment Variable Income
Package. Violeta, Eulogio’s wife was named as primary
beneficiary. Under the terms of the policy, Eulogio was to pay
premiums on a quarterly basis. In the same, there was a 31-day
grace period and failure to make payments on the due dates
would render the policy in default and if unpaid within the grace
period the policy remains unpaid, it would make the policy void.
Eulogio faid to pay one of the premiums even within the grace
period causing the policy to become void. Eulogio submitted to
Insular Life, through Malaluan an Application for the
Reinstatement of the Policy but the same could not be reinstated
yet because of an interest he owes Insular Life. As Malaluan was
on a business errand, her husband received Eulogio’s second
Application for Reinstatement and issued a receipt for the
amount Eugolio deposited however, on the same day, Eulogio
died of cardio-respiratory arrest secondary to electrocution.
53
Violeta filed a claim however the same was denied as the
contract was not reinstated.
ISSUE:
Whether or not the Violeta could still recover from Insular Life.
HELD:
NO. Violeta could no longer claim from Insular Life.
In the instant case, Eulogio’s death rendered impossible full
compliance with the conditions for reinstatement of Policy No.
9011992. True, Eulogio, before his death, managed to file his
Application for Reinstatement and deposit the amount for
payment of his overdue premiums and interests thereon with
Malaluan; but Policy No. 9011992 could only be considered
reinstated after the Application for Reinstatement had been
processed and approved by Insular Life during Eulogio’s lifetime
and good health.
Relevant herein is the following pronouncement of the Court in
Andres v. The Crown Life Insurance Company, citing McGuire v.
The Manufacturer's Life Insurance Co.:
"The stipulation in a life insurance policy giving the insured the
privilege to reinstate it upon written application does not give
the insured absolute right to such reinstatement by the mere
filing of an application. The insurer has the right to deny the
reinstatement if it is not satisfied as to the insurability of the
insured and if the latter does not pay all overdue premium and
all other indebtedness to the insurer. After the death of the
insured the insurance Company cannot be compelled to
entertain an application for reinstatement of the policy because
the conditions precedent to reinstatement can no longer be
determined and satisfied."
MERCANTILE LAW REVIEW || Insurance Law 54
Compilation of Digests (Except 37)

It does not matter that when he died, Eulogio’s Application for

Reinstatement and deposits for the overdue premiums and
interests were already with Malaluan. Insular Life, through the
Policy Contract, expressly limits the power or authority of its
insurance agents, thus:

Our agents have no authority to make or modify this contract, to

extend the time limit for payment of premiums, to waive any
lapsation, forfeiture or any of our rights or requirements, such
powers being limited to our president, vice-president or persons
authorized by the Board of Trustees and only in writing.
(Emphasis ours.)

Malaluan did not have the authority to approve Eulogio’s

Application for Reinstatement. Malaluan still had to turn over to
Insular Life Eulogio’s Application for Reinstatement and
accompanying deposits, for processing and approval by the
latter.
MERCANTILE LAW REVIEW || Insurance Law 55
Compilation of Digests (Except 37)

MARINE INSURANCE Held:

No. A perusal of the decisions of the courts below in all three
36. Aboitiz Shipping Corporation vs. Court of Appeals, et. al.,
petitions reveals that there is a categorical finding of negligence
G.R. No. 121833, Oct. 17, 2008, Tinga, J.
on the part of Aboitiz.
As a general rule, a ship owners liability is merely co-extensive
In this jurisdiction, the limited liability rule is embodied in
with his interest in the vessel, except where actual fault
Articles 587, 590 and 837 under Book III of the Code of
is attributable to the shipowner.
Commerce, thus:
Facts: Respondent Malayan Insurance Company, Inc. (Malayan)  
filed five separate actions against several defendants for the Art. 587. The ship agent shall also be civilly liable
collection of the amounts of the cargoes allegedly paid by for the indemnities in favor of third persons
Malayan under various marine cargo policies issued to the which may arise from the conduct of the captain
insurance claimants. Aboitiz raised the defenses of lack of in the care of the goods which he loaded on the
jurisdiction, lack of cause of action and prescription. It also vessel; but he may exempt himself therefrom by
claimed that M/V P. Aboitiz was seaworthy, that it exercised abandoning the vessel with all her equipment and
extraordinary diligence and that the loss was caused by a the freight it may have earned during the voyage.
fortuitous event.  
Art. 590. The co-owners of the vessel shall be
Respondents Asia Traders Insurance Corporation (Asia civilly liable in the proportion of their interests in
Traders) and Allied Guarantee Insurance Corporation (Allied) the common fund for the results of the acts of the
filed separate actions for damages against Aboitiz to recover by captain referred to in Art. 587.
way of subrogation the value of the cargoes insured by them and  
lost in the sinking of the vessel M/V P. Aboitiz. Aboitiz Each co-owner may exempt himself from this
reiterated the defense of force majeure. liability by the abandonment, before a notary, of
the part of the vessel belonging to him.
On 27 February 1981, Equitable Insurance Corporation  
(Equitable) filed an action for damages against Aboitiz to Art. 837. The civil liability incurred
recover by way of subrogation the value of the cargoes by shipowners in the case prescribed in this
insured by Equitable that were lost in the sinking of M/V P. section, shall be understood as limited to the
Aboitiz. Aboitiz invoked the doctrine of limited liability and value of the vessel with all its appurtenances and
claimed that the typhoon was the proximate cause of the loss. freightage served during the voyage.

Issue: Whether Aboitiz can avail limited liability on the basis of These articles precisely intend to limit the liability of
the real and hypothecary doctrine of maritime law. the shipowner or agent to the value of the vessel, its
appurtenances and freightage earned in the voyage, provided
that the owner or agent abandons the vessel. When the vessel is
MERCANTILE LAW REVIEW || Insurance Law 56
Compilation of Digests (Except 37)

totally lost in which case there is no vessel to abandon,

abandonment is not required. Because of such total loss the
liability of the shipowner or agent for damages is extinguished.
However, despite the total loss of the vessel, its insurance
answers for the damages for which a shipowner or agent may be
held liable. 

Nonetheless, there are exceptional circumstances wherein the

ship agent could still be held answerable despite the
abandonment of the vessel, as where the loss or injury was due
to the fault of the shipowner and the captain. The international
rule is to the effect that the right of abandonment of vessels, as a
legal limitation of a shipowners liability, does not apply to cases
where the injury or average was occasioned by
the shipowners own fault. Likewise, the shipowner may be held
liable for injuries to passengers notwithstanding the exclusively
real and hypothecary nature of maritime law if fault can be
attributed to the shipowner.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
37. WHITE GOLD MARINE SERVICES, INC. vs. PIONEER
INSURANCE AND SURETY CORPORATION AND THE
STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION
(BERMUDA) LTD
G.R. No. 154514 July 28, 2005 J. Quisumbing
A marine insurance undertakes to indemnify the assured against
marine losses, such as the losses incident to a marine adventure.
Section 99 of the Insurance Code enumerates the coverage of
marine insurance.
FACTS: White Gold took a protection and indemnity coverage for
its vessels from Steamship Mutual through Pioneer. White Gold
was issued a Certificate of Entry and Acceptance. When White
Gold failed to fully pay its obligation, Steamship Mutual refused
to renew the coverage extended to them. Steamship Mutual filed
a case against White Gold for the unpaid amount. White Gold,
filed a complaint before the Insurance Commission claiming
Steamship Mutual and Pioneer violated the Insurance Code but it
was dismissed by the Commission on the ground that Steamship
did not need to secure a license because it was not engaged in the
insurance business and that it was a P & I club. On the other
hand, Pioneer was not required to obtain another license as an
insurance agent because Steamship was not engaged in the
business of insurance. The CA affirmed the decision of the
insurance Commissioner.
ISSUE: Whether or not Steamship Mutual is engaged in the
business of insurance.
HELD: YES. Steamship Manual is engaged in the business of
insurance.
The test to determine if a contract is an insurance contract or
not, depends on the nature of the promise, the act required to be
performed, and the exact nature of the agreement in the light of
57
the occurrence, contingency, or circumstances under which the
performance becomes requisite. It is not by what it is called.
Basically, an insurance contract is a contract of
indemnity. In it, one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an
unknown or contingent event.
In particular, a marine insurance undertakes to
indemnify the assured against marine losses, such as the losses
incident to a marine adventure.
Relatedly, a mutual insurance company is a cooperative
enterprise where the members are both the insurer and insured.
In it, the members all contribute, by a system of premiums or
assessments, to the creation of a fund from which all losses and
liabilities are paid, and where the profits are divided among
themselves, in proportion to their interest.
A P & I Club is "a form of insurance against third party
liability, where the third party is anyone other than the P & I Club
and the members." By definition then, Steamship Mutual as a P &
I Club is a mutual insurance association engaged in the marine
insurance business.
The records reveal Steamship Mutual is doing business in
the country albeit without the requisite certificate of authority
mandated by Section 18720 of the Insurance Code. It maintains a
resident agent in the Philippines to solicit insurance and to
collect payments in its behalf. We note that Steamship Mutual
even renewed its P & I Club cover until it was cancelled due to
non-payment of the calls. Thus, to continue doing business here,
Steamship Mutual or through its agent Pioneer, must secure a
license from the Insurance Commission.
Since a contract of insurance involves public interest,
regulation by the State is necessary. Thus, no insurer or
insurance company is allowed to engage in the insurance
business without a license or a certificate of authority from the
Insurance Commission.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
38. FGU INSURANCE CORPORATION vs. THE COURT OF
APPEALS, SAN MIGUEL CORPORATION, and ESTATE OF ANG
GUI, represented by LUCIO, JULIAN, and JAIME, all surnamed
ANG, and CO TO6
G.R. No. 137775. March 31, 2005 Chico-Nazario J.
It is a basic rule in insurance that the carelessness and negligence
of the insured or his agents constitute no defense on the part of the
insurer. This rule however presupposes that the loss has occurred
due to causes which could not have been prevented by the insured,
despite the exercise of due diligence.
Facts:
Anco Enterprises Company (ANCO), is a partnership between
Ang Gui and Co To and was engaged in the shipping business
operating two common carriers M/T ANCO tugboat and D/B
Lucio barge. D/B Lucio barge has no engine of its own, it could
not maneuver by itself and had to be towed by a tugboat for it to
move from one place to another. On September 23 1979, San
Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on
board the D/B Lucio, for towage by M/T ANCO the following
cargoes:
 25,000 cases Pale Pilsen and 350 cases Cerveza
Negra - consignee SMC’s Beer Marketing Division (BMD)-
Estancia Beer Sales Office, Estancia, Iloilo
 15,000 cases Pale Pilsen and 200 cases Cerveza
Negra - consignee SMC’s BMD-San Jose Beer Sales Office, San
Jose, Antique
On September 30, 1979, D/B Lucio was towed by the M/T
ANCO to San Jose, Antique and immediately left the barge. The
clouds were dark and the waves were big so SMC’s District Sales
6
Same with case number 60
58
Supervisor, Fernando Macabuag, requested ANCO’s
representative to transfer the barge to a safer place but it
refused so around the midnight, the barge sunk along
with 29,210 cases of Pale Pilsen and 500 cases of Cerveza Negra
totalling to P1,346,197.
When SMC claimed against ANCO it stated that they agreed
that it would not be liable for any losses or damages resulting to
the cargoes by reason of fortuitous event and it was agreed to be
insured with FGU for 20,000 cases or P858,500.
ANCO filed a third party complaint against FGU, alleging that
before the vessel of ANCO left for San Jose, Antique with the
cargoes owned by SMC, the cargoes, to the extent of Twenty
Thousand (20,000) cases, were insured with FGU for a total
amount of PhpP858,500.00 under Marine Insurance Policy No.
29591. According to ANCO, the loss of said cargoes occurred as a
result of risks insured against in the insurance policy and during
the existence and lifetime of said insurance policy.
FGU admitted the existence of the Insurance Policy under
Marine Cover Note No. 29591 but maintained that the alleged
loss of the cargoes covered by the said insurance policy cannot
be attributed directly or indirectly to any of the risks insured
against in the said insurance policy. According to FGU, it is only
liable under the policy to Third-party Plaintiff ANCO and/or
Plaintiff SMC in case of any of the following:
a) total loss of the entire shipment;
b) loss of any case as a result of the sinking of the vessel; or
c) loss as a result of the vessel being on fire.
Furthermore, FGU alleged that the Third-Party Plaintiff
ANCO and Plaintiff SMC failed to exercise ordinary diligence or
the diligence of a good father of the family in the care and
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
supervision of the cargoes insured to prevent its loss and/or
destruction.
The trial court found that while the cargoes were indeed
lost due to fortuitous event, there was failure on ANCO’s part,
through their representatives, to observe the degree of diligence
required that would exonerate them from liability. The appellate
court affirmed the decision of the lower court.
Issues:
Whether or not FGU can be held liable under the insurance policy
to reimburse ANCO for the loss of the cargoes despite the
findings of the respondent court that such loss was occasioned
by the blatant negligence of the latter’s employees.
Ruling:
NO. One of the purposes for taking out insurance is to
protect the insured against the consequences of his own
negligence and that of his agents. Thus, it is a basic rule in
insurance that the carelessness and negligence of the insured or
his agents constitute no defense on the part of the insurer. This
rule however presupposes that the loss has occurred due to
causes which could not have been prevented by the insured,
despite the exercise of due diligence. When evidence show that
the insured’s negligence or recklessness is so gross as to be
sufficient to constitute a willful act, the insurer must be
exonerated.
The United States Supreme Court has made a distinction
between ordinary negligence and gross negligence or negligence
amounting to misconduct and its effect on the insured’s right to
recover under the insurance contract. According to the Court,
while mistake and negligence of the master or crew are incident
59
to navigation and constitute a part of the perils that the insurer is
obliged to incur, such negligence or recklessness must not be of
such gross character as to amount to misconduct or wrongful
acts; otherwise, such negligence shall release the insurer from
liability under the insurance contract.
In the instant case, there was blatant negligence on the
part of the employees of defendants-appellants when the patron
(operator) of the tug boat immediately left the barge at the San
Jose, Antique wharf despite the looming bad weather. Negligence
was likewise exhibited by the defendants-appellants’
representative who did not heed Macabuag’s request that the
barge be moved to a more secure place. The prudent thing to do,
as was done by the other sea vessels at San Jose, Antique during
the time in question, was to transfer the vessel to a safer
wharf. The negligence of the defendants-appellants is proved by
the fact that on 01 October 1979, the only simple vessel left at the
wharf in San Jose was the D/B Lucio.
Such blatant negligence being the proximate cause of the
loss of the cargoes amounting to P1,346,197. This Court
concludes that the blatant negligence of ANCO’s employees is of
such gross character that it amounts to a wrongful act which
must exonerate FGU from liability under the insurance contract.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
39. The Philippine American General Insurance Company,
Inc. vs. Court of Appeals and Felman Shipping Lines
G.R. No. 116940 June 11, 1997 J. Bellosillo
If the policy provides that the seaworthiness of the vessel as
between insured and insurer is admitted, the issue of
seaworthiness cannot be raised by the insurer without showing
concealment or misrepresentation by the insured. It may mean:
1. That the warranty of seaworthiness is to be taken as
fulfilled; or  entered the engine room and cargo holds of the vessel. At that
2. That the risk of unseaworthiness is assumed by the insurer.
FACTS
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc. (Coca-
Cola Bottlers), loaded on board "MV Asilda" a vessel owned and
operated by respondent Felman Shipping Lines (FELMAN), 7,500
cases of 1-liter Coca-Cola softdrink bottles to be transported
from Zamboanga City to Cebu City for consignee Coca-Cola
Bottlers Philippines, Inc., Cebu. The shipment was insured with
petitioner Philippine American General Insurance Co., Inc.
(PHILAMGEN)
In a joint statement, the Captain as well as the chief mate
of the vessel confirmed that the weather was fine when "MV
Asilda" left the port of Zamboanga at 8 p.m. on 6 July. The ship
captain stated that around 4 a.m. of 7 July 1983 he was
awakened by the officer on duty to inform him that the vessel
had hit a floating log.
At that time, he noticed that the weather had
deteriorated with strong southeast winds inducing big waves.
After 30 minutes, he observed that the vessel was listing slightly
to starboard and would not correct itself despite the heavy
rolling and pitching. He then ordered his crew to shift the cargo
from starboard to portside until the vessel was balanced. At
60
about 7 a.m., the master of the vessel stopped the engine because
the vessel was listing dangerously to portside. He ordered his
crew to shift the cargo back to starboard (right). The shifting of
cargo took about an hour after which he rang the engine room to
resume full speed.
At around 8:45 a.m., the vessel suddenly listed to
portside and before the captain could decide on his next move,
some of the cargo on deck were thrown overboard and seawater
instance, the master of the vessel ordered his crew to abandon
ship.
Shortly thereafter, "MV Asilda" capsized and sank in the
waters of Zamboanga del Norte bringing down her entire cargo
with her including the subject 7,500 cases of 1-liter Coca-Cola
softdrink bottles. The Ship Captain ascribed the sinking to the
entry of seawater through a hole in the hull caused by the
vessel's collision with a partially submerged log.
On 15 July 1983 the consignee Coca-Cola Bottlers
Philippines, Inc., Cebu plant, filed a claim with respondent
FELMAN for recovery of damages. FELMAN denied the claim thus
prompting the consignee to file an insurance claim with
PHILAMGEN which paid its claim of P755,250.00.
Claiming its right of subrogation PHILAMGEN sought
recourse against respondent FELMAN which disclaimed any
liability for the loss. Consequently, on 29 November 1983
PHILAMGEN sued the shipowner for sum of money and damages,
alleging that the total loss of cargo was due to the vessel’s
unseaworthiness as she was put to sea in an unstable condition.
FELMAN, on the other hand, filed a motion to dismiss contending
that there was no right of subrogation in favor of PHILAMGEN
since it had abandoned all its rights, interests and ownership
over the vessel together with her freight and appurtenances for
MERCANTILE LAW REVIEW || Insurance Law 61
Compilation of Digests (Except 37)

the purpose of limiting and extinguishing its liability under Art.
587 of the Code of Commerce.
The RTC dismissed PHILAMGEN’s complaint and
appealed to the CA which remanded the case and denied its
motion for reconsideration. The RTC then ruled that the vessel
was seaworthy and even if assumed unseaworthy, PHILAMGEN
still could not recover from FELMAN since Coca-Cola Bottlers
had breached its implied warranty on the vessel’s seaworthiness.
On appeal, the CA ruled that the vessel was unseaworthy
for being topheavy as 2,500 cases of Coca-Cola softdrinks bottles
were improperly stowed on deck. Even though the vessel
possessed the necessary Coast Guard certification indicating its
seaworthiness with respect to the structure of the ship itself, it
was not seaworthy with respect to the cargo. However, it denied
the money claim of PHILAMGEN because of the implied breach of
warranty of seaworthiness by Coca-Cola Bottlers. Furthermore,
the filing of notice of abandonment had absolved FELMAN from
liability under the limited liability rule.
international rule is to the effect that the right of abandonment of
vessels, as a legal limitation of a ship owner's liability, does not
apply to cases where the injury or average was occasioned by the
ship owner's own fault. It must be stressed at this point that Art.
587 speaks only of situations where the fault or negligence is
committed solely by the captain. Where the ship owner is
likewise to be blamed, Art. 587 will not apply, and such situation
will be covered by the provisions of the Civil Code on common
carrier. Under Art 1733 of the Civil Code, "(c)ommon carriers,
from the nature of their business and for reasons of public policy,
are bound to observe extraordinary diligence in the vigilance
over the goods and for the safety of the passengers transported
by them, according to all the circumstances of each case . . ." In
the event of loss of goods, common carriers are presumed to
have acted negligently. FELMAN, the ship owner, was not able to
rebut this presumption.

ISSUE

Whether or not the limited liability under Article 587 of

the Code of Commerce should apply

HELD

NO. The Supreme Court held that Article 587 of the Code
of Commerce is not applicable. The ship agent is liable for the
negligent acts of the captain in the care of the goods loaded on
the vessel. This liability, although can be limited through
abandonment of the vessel, its equipment and freightage, as
provided in Art. 587, there exceptional circumstances wherein
the ship agent could still be held answerable, as where the loss or
injury was due to the fault of the ship owner and the captain. The
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
40. CENTRAL SHIPPING COMPANY, INC. vs. INSURANCE
COMPANY OF NORTH AMERICA
G.R. No. 150751, September 20, 2004, J. PANGANIBAN
Common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed
extraordinary diligence.
FACTS
On July 25,1990 at Puerto Princesa, Palawan, the
petitioner received on board its vessel, the M/V “Central Bohol”
376 pcs. of Apitong Round Logs and undertook to transport them
to Manila for delivery to Alaska Lumber Co., Inc. The cargo was
insured by Insurance Company of North America for
P3,000,000.00 against total loss.
Upon completion of loading of the cargo, the vessel
commenced the voyage to Manila. On July 26,1990 at about 1:28
am, while enroute to Manila, the vessel turned 15 degrees
sideward, the ship captain ordered his men to abandon the ship
and at exactly 1:30 am of the same day, the vessel completely
sank and the cargo was totally lost.
As a consequence, the consignee (Alaska Lumber) presented
a claim for the value of the shipment to the petitioner but the
latter failed and refused to settle the claim. The insurer paid said
claim and now seeks to be subrogated to all the rights and
actions of the consignee against the petitioner.
The Trial Court ruled in favor of the insurer and ordered the
petitioner to pay P3,000,000.00 to the insurer. On appeal , the
appellate court affirmed the ruling of the trial court.
62
ISSUES
1. Whether or not the carrier is liable for the loss of the cargo.
2. Whether or not the doctrine of limited liability is applicable.
RULING
1. YES. In the present case, petitioner has not given the Court
sufficient cogent reasons to disturb the conclusion of the CA
that the weather encountered by the vessel was not a “storm”
as contemplated by Article 1734(1). The evidence indicated
that strong southwest monsoons were common occurrence
during the month of July. Thus, the officers and crew of the
vessel should have reasonably anticipated heavy rains,
strong winds and rough seas. They should then have taken
extra precaution in stowing the logs in the hold, in
consonance with their duty of observing extraordinary
diligence in safeguarding the goods. But the carrier took a
calculated risk in improperly securing the cargo. Having lost
that risk, it cannot now escape responsibility for the loss.
2. NO. The doctrine of limited liability under Art. 587 of the
Code of Commerce is not applicable to the present case. This
rule does not apply to situations in which the loss or the
injury is due to the concurrent negligence of the shipowner
and the captain. It has already been established that the
sinking of the vessel had been caused by the fault or
negligence of the ship captain and the crews as shown by the
improper stowage of the cargo logs. A closer supervision on
the part of the shipowner could have prevented this fatal
miscalculation. The shipowner cannot escape liability by
virtue of the limited liability rule.
MERCANTILE LAW REVIEW || Insurance Law 63
Compilation of Digests (Except 37)

ON PRESENTATION OF POLICIES merely a complementary or supplementary document to the

contract of insurance that may have existed as between Malayan
41. MALAYAN INSURANCE CO., INC. vs. REGIS BROKERAGE and ABB Koppel. And while this observation may deviate from
CORP., the tenor of the assailed CA decisions, it does not presage any
GR NO.172156, November 23, 2007 ruling in favour of petitioner. Fundamentally, since Malayan
failed to introduced in evidence the Marine Insurance Policy
itself as the main insurance contract, or even advert to said
FACTS:
document in the complaint, ultimately then it failed to establish
A 120 pieces of motors on board China Airlines bound for Manila its cause of action for restitution as a subrogee for ABB Koppel.
from US was to be delivered to ABB Koppel. When the cargo
Malayan’s right of recovery as a subrogee of ABB Koppel cannot
arrive at NAIA, it was forwarded to Paircargo for temporary
be predicated alone on the liability of the respondent to ABB
storage until March 7, 1995. REGIS withdraw the cargo and
Koppel eventhough such liabity will necessarily have to be
delivered to ABB KOPPEL, however, the latter discovered that
established at the trial for Malayan to recover. Because Malayan’s
only 65 were actually delivered. The shipment was insured with
right to recovery derives from contractual subrogation as an
MALAYAN by ABB KOPPEL. Demand was made first upon REGIS
incident to an insurance relationship, and not from any
but the latter refused to pay, thus, MALAYAN paid by ABB
proximate injury to it inflicted by respondents, it is critical that
KOPPEL pursuant to its insurance agreement, and MALAYAN
Malayan establish the legal basis of such right to subrogation by
was on that basis subrogated to the rights of ABB KOPPEL
presenting the contract constitutive of the insurance relationship
against REGIS and Paircargo. On June 1986 MALAYAN filed a
between it and ABB Koppel. Without such legal basis, its casuse
complaint for damages against REGIS and Paircargo with the
of action cannot survive.
MeTC, and presented Marine Risk Note as proof that the cargo
was insured by MALAYAN. MeTC found REGIS alone liable to
MALAYAN and it was affirmed by the RTC. However, on appeal
by REGIS to the CA, the latter reversed the decision of the RTC
finding that the Marine Risk Note was invalid.
ISSUE: Whether or not the evidence presented by Malayan
specifically the Marine Risk Note is valid as a basis on their
subrogation rights.
RULING:
NO. What the Marine Risk Note bears, as a matter of evidence, is
that it is not apparently the contract of insurance by itself, but
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
42. INTERNATIONAL CONTAINER TERMINAL SERVICES, INC.
vs. FGU INSURANCE CORPORATION
G.R. No. 161539, June 27, 2008, AUSTRIA-MARTINEZ, J.
The presentation of the insurance policy was not fatal because the
loss of the cargo undoubtedly occurred while on board the petitioner's
vessel (Delsan Transport Lines, Inc. v. Court of Appeals) unlike when the
cargo passed through several stages with different parties and it could not
be determined when the damage to the cargo occurred, such that the
insurer should be liable for it.
FACTS: Petitioner's liability arose from a lost shipment of
400kgs. Silver Nitrate shipped by Hapag-Lloyd AG through the
vessel Hannover Express from Hamburg, Germany with Manila,
Philippines as the port of discharge. Said shipment was insured
by FGU Insurance Corporation (FGU).
When RAGC's customs broker was claiming the shipment,
petitioner, could not find it in its storage area. After investigation
by the NBI and The AAREMA Marine and Cargo Surveyors, Inc.
Both found that the shipment was lost while in the custody and
responsibility of petitioner.
As insurer, FGU paid RAGC . In turn, FGU sought reimbursement
from petitioner, but the latter refused. This constrained FGU to
file with the RTC of Manila Civil Case for the collection of sum of
money.
The RTC rendered its Decision finding petitioner liable.
Petitioner appealed to the Court of Appeals which only affirmed
the RTC Decision. Petitioner filed a motion for reconsideration
averring that the case should be dismissed on the ground that
respondent failed to offer the insurance policy in evidence.
64
ISSUE: Whether or not the case should be dismissed on the
ground that respondent’s failure to offer as evidence the
insurance policy.
RULING
NO. Jurisprudence has it that the marine insurance policy
needs to be presented in evidence before the trial court or even
belatedly before the appellate court. Jurisprudence dictates that
the presentation of the marine insurance policy was necessary,
as the issues raised therein arose from the very existence of an
insurance contract between the insurance company and its
consignee even prior to the loss of the shipment. (Malayan
Insurance Co., Inc. v. Regis Brokerage Corp)
Also the court already ruled that the insurance contract must be
presented in evidence in order to determine the extent of the
coverage. (Wallem Philippines Shipping, Inc. v. Prudential
Guarantee and Assurance, Inc. & Home Insurance Corporation v.
Court of Appeals)
However, as in every general rule, there are admitted exceptions.
The Court stated that the presentation of the insurance policy
was not fatal because the loss of the cargo undoubtedly occurred
while on board the petitioner's vessel (Delsan Transport Lines,
Inc. v. Court of Appeals), unlike in Home Insurance Case in which
the cargo passed through several stages with different parties
and it could not be determined when the damage to the cargo
occurred, such that the insurer should be liable for it.
As in Delsan case, there is no doubt that the loss of the cargo in
the present case occurred while in petitioner's custody.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
SUBROGATION
43. KEPPEL CEBU SHIPYARD, INC. v. PIONEER INSURANCE
AND SURETY CORPORATION
G.R. No. 180880-81 & 180896-97, September 25, 2009, J.
NACHURA
Subrogation is the substitution of one person by another with
reference to a lawful claim or right, so that he who is substituted
succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities.
The right of subrogation is not dependent upon, nor does it grow
out of, any privity of contract. It accrues simply upon payment by
the insurance company of the insurance claim. The doctrine of
subrogation has its roots in equity. It is designed to promote and to
accomplish justice; and is the mode that equity adopts to compel
the ultimate payment of a debt by one who, in justice, equity, and
good conscience, ought to pay.
The Loss and Subrogation Receipt issued by the insured to the
insurer is the best evidence of payment of the insurance proceeds
to the insured.
FACTS: Keppel Cebu Shipyard, Inc. (KCSI) and WG&A Jebsens
Shipmanagement, Inc. (WG&A) executed a Ship Repair
Agreement wherein KCSI (a.k.a . the Yard) would renovate and
reconstruct WG&A’s (a.k.a. the Vessel) M/V “Superferry 3” using
its dry docking facilities in Lapu-Lapu City, Cebu. Further, KCSI’s
liability thereunder is P50M. Prior to the agreement, the ferry
was already insured with Pioneer Insurance and Surety
Corportion (Pioneer) for $8,472,581.72.
In the course of the repair, the ferry was gutted by fire allegedly
caused by the welder, Severino Sevillejo (Sevillejo), who is KCSI’s
employee, who did hot works (i.e. welding) on Deck A. The fire
was inside the ceiling void of Deck B therefore it was extremely
difficult to contain or extinguish it despite the use of fire
65
extinguishers and buckets of water. Moreover, life jackets and
construction materials of the Deck B ceiling were combustible
that permitted the fire to spread within the ceiling void. There
were also cans of paint and thinner, in addition to plywood
partitions and foam mattresses on Deck B.
WG&A declared the vessel’s damage as a “total constructive loss”
and, hence, filed an insurance claim with Pioneer. The latter paid
the Vessel $8,472,581.78 equivalent to P360M. WG&A executed a
Loss and Subrogation Receipt in favor of Pioneer. Pioneer tried
to collect from KCSI by virtue of such receipt but the latter
denied any responsibility despite repeated demands.
Pioneer filed a Request for Arbitration before the Construction
Industry Arbitration Commission (CIAC). It declared both WG&A
and KCSI negligent thereby ordering KCSI to pay Pioneer P25M
with interest and arbitration costs. Upon appeal, the CA
dismissed it. When Pioneer and KCSI sought reconsideration and
partial reconsideration, the Former Fifth Division of the CA
partially granted the petition ordering KCSI to pay Pioneer for
P25M without legal interest.
Pioneer’s argument before the CIAC was that KCSI was solely
responsible for the loss because its employee, Sevillejo, at the
time the fire broke out, was doing his assigned task as to the hot
works done on board the vessel. KCSI claims otherwise, stating
that the hot work done was beyond the scope of Sevillejo’s
assigned tasks, i.e. not having being authorized under the Work
Order or under the Ship Repair Agreement. KCSI further posits
that WG&A was also negligent through its crew, Dr. Raymundo
Joniga (Dr. Joniga), for failing to remove the life jackets from the
ceiling void, causing the immediate spread of the fire to the other
areas of the ship.
Pioneer argues that there is total constructive loss so that it had
to pay WG&A the full amount of the insurance coverage and, by
operation of law, it was entitled to be subrogated to the rights of
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
WG&A to claim the amount of the loss. It further contends that
the limitation of liability clause in the Ship Repair Agreement is
null and void for being iniquitous and against public policy.
KCSI counters that a total constructive loss was not adequately
proven by Pioneer, and that there is no proof of payment of the
insurance proceeds. KCSI insists on the validity of the limited-
liability clause up to P50M, because WG&A assented to the
provision when it executed the Ship Repair Agreement. KCSI also
claims that the salvage value of the vessel should be deducted
from whatever amount it will be made to pay Pioneer.
ISSUE: Is subrogation proper? If proper, to what extend can
subrogation be made?
RULING: YES. Subrogation is proper. Considering the extent of
the damage, WG&A opted to abandon the ship and claimed the
value of its policies. Pioneer, finding the claim compensable, paid
the claim, with WG&A issuing a Loss and Subrogation Receipt
evidencing receipt of the payment of the insurance proceeds
from Pioneer. On this note, we find as unacceptable the claim of
KCSI that there was no ample proof of payment simply because
the person who signed the Receipt appeared to be an employee
of Aboitiz Shipping Corporation. The Loss and Subrogation
Receipt issued by WG&A to Pioneer is the best evidence of
payment of the insurance proceeds to the former, and no
controverting evidence was presented by KCSI to rebut the
presumed authority of the signatory to receive such payment.
On the matter of subrogation, Article 2207 of the Civil Code
provides—
Art. 2207. If the plaintiff’s property has been insured and
he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be
subrogated to the rights of the insured against the
66
wrongdoer or the person who has violated the contract.
If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person
causing the loss or injury.
Subrogation is the substitution of one person by another with
reference to a lawful claim or right, so that he who is substituted
succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities. The principle covers a
situation wherein an insurer has paid a loss under an insurance
policy is entitled to all the rights and remedies belonging to the
insured against a third party with respect to any loss covered by
the policy. It contemplates full substitution such that it places the
party subrogated in the shoes of the creditor, and he may use all
means that the creditor could employ to enforce payment.
We have held that payment by the insurer to the insured
operates as an equitable assignment to the insurer of all the
remedies that the insured may have against the third party
whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any
privity of contract. It accrues simply upon payment by the
insurance company of the insurance claim. The doctrine of
subrogation has its roots in equity. It is designed to promote and
to accomplish justice; and is the mode that equity adopts to
compel the ultimate payment of a debt by one who, in justice,
equity, and good conscience, ought to pay.
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44. Malayan Insurance Co vs Alberto all the remedies that the insured may have against the third
GR No. 194320, February 1, 2012, J. Velasco party whose negligence or wrongful act caused the loss. The
right of subrogation is not dependent upon, nor does it grow out
FACTS of, any privity ofcontract. It accrues simply upon payment by the
insurance company of the insurance claim. The doctrine of
A Mitsubishi Galant was insured by Malayan Insurance subrogation has its roots in equity. It is designed to promote
against third party liability, own damage and theft. The and to accomplish justice; and is the mode that equity adopts to
Mitsubishi Galant got into an accident with three other vehicles compel the ultimate payment of a debt by one who, in justice,
(Nissan Bus, Isuzu Tanker and Fuzo Cargo Truck). Malayan equity, and good conscience, ought to pay.
Insurance paid the owner of the Mitsubishi Galant for the
damages its vehicle suffered. Maintaining that it has been
subrogated to the rights and interests of the assured by
operation of law upon its payment to the latter,
Malayan Insurance sent several demand letters to the owner and
driver of the Fuzo Cargo Truck to Malayan Insurance nut they
refused. Malayan Insurance filed a complaint for damages.

ISSUE

Whether or Not Malayan Insurance can be subrogated to

the rights of the owner of the Mitsubishi Galant

HELD

YES. Subrogation is the substitution of one person by

another with reference to a lawful claim or right, so that he who
is substituted succeeds to the rights of the other in relation to a
debt or claim, including its remedies or securities. The principle
covers a situation wherein an insurer has paid a loss under an
insurance policy is entitled to all the rights and remedies
belonging to the insured against a third party with respect to any
loss covered by the policy. It contemplates full substitution such
that it places the party subrogated in the shoes of the creditor,
and he may use all means that the creditor could employ to
enforce payment. We have held that payment by the insurer to
the insured operates as an equitable assignment to the insurer of
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FIRE INSURANCE ISSUE:

45. UY HO & CO. VS PRUDENTIAL ASSURANCE CO., LTD., G.R. Won evidence for claiming would bar the recovery of issurance
No. 27778, December 16, 1927 proceeds?

Where a fire insurance policy provides 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 on his behalf to obtain any benefit
under this Policy," and the evidence is conclusive that the proof of
claim which the insured submitted was false and fraudulent both
as to the kind, quality and amount of the goods and their value
destroyed by the fire, such a proof of claim is a bar against the
insured to recover on the policy even for the amount of his actual
loss.
FACTS:
HELD:
Yes. Where a fire insurance policy provides 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 on his behalf to obtain
any benefit under this Policy," and the evidence is conclusive that
the proof of claim which the insured submitted was false and
fraudulent both as to the kind, quality and amount of the goods
and their value destroyed by the fire, such a proof of claim is a
bar against the insured to recover on the policy even for the
amount of his actual loss.

Uy Ho & Co entered into an insurance contract with the

Prudential Assurance against loss or destruction of its
merchadise by fire. A fire broke out engulfing its store and
destroying their alleged merchardise. For this, Uy Ho claimed to
be indemnified by virtue of the issurance policy from the
Prudential Assurance with list of merchandise desteoyed by fire
as evidence. However, the latyer refuse to indemnify the former
on the contwntion that the evidence sumbitted or the claim is
fraudulent invoking one of the provisions in the policy that
states, any false or fraudulent declaration, or claims, or use of
fraudulent means and devices to claim payment for the loss shall
declare the policy null and void. Dismayed, the Uy Ho filed a
cased against the Prudential. The trial court held infavor of the
petitioner, however, it reduced the amount from 30k to 16k. MR
was filed bybthe respondent but was seasonably denied. Hence,
this petition.
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46. MALAYAN INSURANCE COMPANY, INC. v. PAP CO., LTD.

G.R. No. 200784, J. Mendoza ISSUE:

FACTS Is Malayan liable under the insurance contract?

On May 13, 1996, Malayan Insurance Company HELD

(Malayan) issued Fire Insurance Policy to PAP Co., Ltd. (PAP Co.)
for the latter’s machineries and equipment located at Sanyo
Precision Philsin Rosario, Cavite (Sanyo Building). The insurance,
which was for Fifteen Million Pesos and effective for a period of
one (1) year, was procured by PAP Co. for Rizal Commercial
Banking Corporation (RCBC), the mortgagee of the insured
machineries and equipment.
After the passage of almost a year but prior to the
expiration of the insurance coverage, PAP Co. renewed the policy
on an "as is" basis. Pursuant thereto, a renewal policy, Fire
Insurance Policy was issued by Malayan to PAP Co. for the period
May 13, 1997 to May 13, 1998.
NO. Under the policy and when it was renewed, it
forbade the removal of the insured properties unless sanctioned
or consented by Malayan. PAP failed to notify and to obtain
consent of Malayan regarding the removal. The transfer also
increased the risk. With the transfer of location of the subject
properties, without notice to and consent of Malayan, PAP
committed concealment, misrepresentation and breach of material
warranty. Under Insurance Code, Malayan can rescind the
insurance contract.

On October 12, 1997 and during the subsistence of the

renewal policy, the insured machineries and equipment were
totally lost by fire. Hence, PAP Co. filed a fire insurance claim
with Malayan in the amount insured.

In a letter, dated December 15, 1997, Malayan denied the

claim upon the ground that, at the time of the loss, the insured
machineries and equipment were transferred by PAP Co. to a
location different from that indicated in the policy. Specifically,
that the insured machineries were transferred in September
1996 from the Sanyo Building to the Pace Pacific Bldg in Rosario,
Cavite (Pace Pacific). Contesting the denial, PAP Co. argued that
Malayan cannot avoid liability as it was informed of the transfer
by RCBC, the party duty-bound to relay such information.
However, Malayan reiterated its denial of PAP Co.’s claim.
Distraught, PAP Co. filed the complaint below against Malayan.
MERCANTILE LAW REVIEW || Insurance Law
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47. UNITED MERCHANTS CORPORATION vs COUNTRY
BANKERS INSURANCE CORPORATION
G.R. No. 198588, July 11, 2012, CARPIO, J.
Burden of proof is the duty of any party to present
evidence to establish his claim or defense by the amount of
evidence required by law, which is preponderance of evidence in
civil cases. The party, whether plaintiff or defendant, who asserts
the affirmative of the issue has the burden of proof to obtain a
favorable judgment. Particularly, in insurance cases, once an
insured makes out a prima facie case in its favor, the burden of
evidence shifts to the insurer to controvert the insureds prima
facie case.; The most liberal human judgment cannot attribute
such difference to mere innocent error in estimating or counting
but to a deliberate intent to demand from insurance companies
payment for indemnity of goods not existing at the time of the
fire. This constitutes the so-called fraudulent claim which, by
express agreement between the insurers and the insured, is a
ground for the exemption of insurers from civil liability.
FACTS
Petitioner United Merchants Corporation (UMC) is
engaged in the business of buying, selling, and manufacturing
Christmas lights. UMC leased a warehouse at 19-B Dagot Street,
San Jose Subdivision, Barrio Manresa, Quezon City, where UMC
assembled and stored its products.
 
On 6 September 1995, UMCs General Manager Alfredo
Tan insured UMCs stocks in trade of Christmas lights against fire
with defendant Country Bankers Insurance Corporation (CBIC)
for P15,000,000.00. The Fire Insurance Policy No. F-HO/95-576
(Insurance Policy) and Fire Invoice No. 12959A, valid until 6
September 1996
70
On 3 July 1996, a fire gutted the warehouse rented by
UMC. CBIC designated CRM Adjustment Corporation (CRM) to
investigate and evaluate UMCs loss by reason of the fire. CBICs
reinsurer, Central Surety, likewise requested the National
Bureau of Investigation (NBI) to conduct a parallel investigation.
On 6 July 1996, UMC, through CRM, submitted to CBIC its Sworn
Statement of Formal Claim, with proofs of its loss. On 20
November 1996, UMC demanded for at least fifty percent (50%)
payment of its claim from CBIC. On 25 February 1997, UMC
received CBICs letter, dated 10 January 1997, rejecting UMCs
claim due to breach of Condition No. 15 of the Insurance Policy.
Condition No. 15 states:
 
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.
ISSUE
Wheter UMC is entitled to claim from CBIC the full
coverage of its fire insurance policy.
RULING
The Court DENIES the claim of the insurer based on
fraud.
Particularly, in insurance cases, once an insured makes
out a prima facie case in its favor, the burden of evidence shifts to
the insurer to controvert the insureds prima facie case. In the
present case, UMC established a prima facie case against CBIC.
MERCANTILE LAW REVIEW || Insurance Law
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CBIC does not dispute that UMCs stocks in trade were insured
against fire under the Insurance Policy and that the warehouse,
where UMCs stocks in trade were stored, was gutted by fire on 3
July 1996, within the duration of the fire insurance. However,
since CBIC alleged an excepted risk, then the burden of evidence
shifted to CBIC to prove such exception.
 
An insurer who seeks to defeat a claim because of an
exception or limitation in the policy has the burden of
establishing that the loss comes within the purview of the
exception or limitation.[23] 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.
In prosecutions for arson, proof of the crime charged is
complete where the evidence establishes: (1) the corpus delicti,
that is, a fire caused by a criminal act; and (2) the identity of the
defendants as the one responsible for the crime.
 
In the present case, CBICs evidence did not prove that the
fire was intentionally caused by the insured. First, the findings of
CBICs witnesses, Cabrera and Lazaro, were based on an
investigation conducted more than four months after the fire.
The testimonies of Cabrera and Lazaro, as to the boxes doused
with kerosene as told to them by barangay officials, are hearsay
because the barangay officials were not presented in court.
Cabrera and Lazaro even admitted that they did not conduct a
forensic investigation of the warehouse nor did they file a case
for arson.[28] Second, the Sworn Statement of Formal Claim
submitted by UMC, through CRM, states that the cause of the fire
was faulty electrical wiring/accidental in nature. CBIC is bound
by this evidence because in its Answer, it admitted that it
71
designated CRM to evaluate UMCs loss. Third, the Certification by
the Bureau of Fire Protection states that the fire was accidental
in origin. This Certification enjoys the presumption of regularity,
which CBIC failed to rebut.
However, in the present case, arson and fraud are two
separate grounds based on two different sets of evidence, either
of which can void the insurance claim of UMC. The absence of
one does not necessarily result in the absence of the other.
Thus, on the allegation of fraud, we affirm the findings of
the Court of Appeals. The invoices, however, cannot be taken as
genuine. The invoices reveal that the stocks in trade purchased
for 1996 amounts to P20,000,000.00 which were purchased in
one month. Thus, UMC needs to prove purchases amounting
to P30,000,000.00 worth of stocks in trade for 1995 and prior
years.
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.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
SURETY
48. Paramount Insurance Corporation v. Court of Appeals
310 SCRA 377
It may not be amiss to point out that by the contract of
suretyship, it is not for the obligee to see to it that the principal
pays the debt or fulfills the contract, but for the surety to see to it
that the principal pay or perform.
FACTS
McAdore Finance and Investment, Inc. (McADORE) was
the owner and operator of the McAdore International Palace
Hotel. McADORE and DECORP entered into a contract whereby
DECORP shall provide electric power to McADORE's Hotel.
DECORP noticed discrepancies between the actual monthly
billings and the estimated monthly billings of McADORE. It was
discovered that the terminal in the transformers connected to
the meter had been interchanged resulting in the slow rotation of
the meter. DECORP issued a corrected bill but McADORE refused
to pay. As a result, DECORP disconnected power supply to the
hotel.
McADORE commenced a suit against DECORP for
damages with prayer for a writ of preliminary injunction.
McADORE posted injunction bonds from several sureties, one of
which was herein petitioner PARAMOUNT.
The Regional Trial Court rendered judgment in favor of
DECORP. McADORE did not appeal. PARAMOUNT, however,
appealed to the Court of Appeals. PARAMOUNT contended that it
was not given its day in court because it was not notified by
DECORP of its intention to present evidence of damages against
its injunction bond.
72
The Court of Appeals was not convinced with petitioner's
contentions; it affirmed the decision of the trial court.
In the instant petition, PARAMOUNT seeks to reverse and
set aside the decision of the Court of Appeals.
ISSUE
Whether or not there was a sufficient evidence to
establish the liability of the petitioner on its injunction bond.
RULING
NO. The petition is devoid of merit.
Injunction is an extraordinary remedy calculated to
preserve the status quo of things  and to prevent actual or
threatened acts violative of the rules of equity and good
conscience as would consequently afford an injured party a
cause of action resulting from the failure of the law to provide for
an adequate or complete relief. Its sole purpose is not to correct
a wrong of the past, in the sense of redress for injury already
sustained, but to prevent further injury.
A preliminary injunction or temporary restraining order
may be granted only when the applicant files with the court
where the action or proceeding is pending a bond executed to
the party or person enjoined to the effect that the applicant will
pay such party or person all damages which he may sustain by
reason of the injunction or temporary restraining order if the
court should finally decide that the applicant was not entitled
thereto.
In order for the injunction bond to become answerable
for the above-described damages, the following requisites must
concur:
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1. The application for damages must be filed in the
same case where the bond was issued;
2. Such application for damages must be filed before
the entry of judgment; and
3. After hearing with notice to the surety.
DECORP filed its Answer raising compulsory
counterclaims for rescission of contract, moral damages,
exemplary damages, attorney's fees and litigation expenses.
During the trial, Atty. Nonito Cordero appearedas counsel for
petitioner. PARAMOUNT as well as the other sureties were
properly notified of the hearing and given their day in court.
Specifically, notice was sent to Atty. Cordero of the hearing on
April 27, 1985, which was set for the purpose of determining the
liability of the sureties. The counterclaims for damages of
DECORP were proven at the trial and yet PARAMOUNT did not
exert any effort to controvert the evidence presented.
PARAMOUNT cannot hide under the cloak of non-liability on its
injunction bond on the mere expediency that it was deprived of
due process.
PARAMOUNT argues that contrary to the ruling of the
Court of Appeals, there is a need for a separate hearing for the
purpose of presenting evidence on the alleged damages claimed
by DECORP on petitioner's injunction bond.
Contrary to petitioner's thesis, it is neither mandatory
nor fatal that there should be a separate hearing in order that
damages upon the bond can be claimed, ascertained and
awarded, as can be gleaned from a cursory reading of the
provisions of Rule 57, Section 20.
A final adjudication that the applicant is not entitled to
the injunction does not suffice to make the surety liable. It is
necessary, in addition, that the surety be accorded due process,
that is, that it be given an opportunity to be heard on the
73
question of its solidary liability for damages arising from a
wrongful injunction order. Withal, the fact that the matter of
damages was among the issues tried during the hearings on the
merits will not render unnecessary or superfluous a summary
hearing to determine the extent of a surety's liability unless: (1)
the surety had been impleaded as a party, or (2) otherwise earlier
notified and given opportunity to be present and ventilate its side
on the matter during the trial.
What is necessary only is for the attaching party and his
surety or sureties to be duly notified and given the opportunity
to be heard. In the case at bench, this Court accords due respect
to the factual finding of the Court of Appeals that PARAMOUNT
was present and represented by its counsel.
PARAMOUNT also argues that assuming it is liable on its
injunction bond, its liability should be limited only to the amount
of damages accruing from the time the injunction bond was
issued until the termination of the case, and not from the time
the suit was commenced. In short, it claims that the injunction
bond is prospective and not retroactive in application.
PARAMOUNT further maintains that it is liable to pay actual
damages only.
This Court does not agree.
Rule 58, Section 4(b), provides that a bond is executed in
favor of the party enjoined to answer for all damages which he
may sustain by reason of the injunction .No distinction was made
as to when the damages should have been incurred.
PARAMOUNT is liable, jointly and severally, for actual damages,
moral damages, exemplary damages, attorney's fees and costs of
the suit, to the extent of the amount of the bond.
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49. SPOUSES NOE and CLARITA QUIAMCO (Petitioners) vs.
CAPITAL INSURANCE & SURETY CO., INC. (Respondent)
G.R. No. 170852, September 12, 2008, Corona, J.
Contracts are perfected by mere consent. This is manifested by the
meeting of the offer and the acceptance upon the object and cause
which are to constitute the contract. Here, the object of the
contract was the issuance of the bond. The cause or consideration
consisted of the premiums paid. The bond was issued after
petitioners complied with the requirements. At this point, the
contract of suretyship was perfected.
FACTS:
Petitioners applied for a supersedeas bond with respondent
Capital Insurance & Surety Co., Inc., a surety and non-life
insurance company. This bond was required in order to perfect
their appeal to the National Labor Relations Commission
(NLRC). Respondent required petitioners to do the following: (1)
to issue and deliver to it an undated check in the amount
equivalent to that of the supersedeas bond which it would issue;
(2) to execute a supplementary counter-guaranty with chattel
mortgage over the sea vessel M/L Gretchen 2 owned by
petitioners and to surrender their original copy of certificate of
ownership over the vessel; (3) to execute an indemnity
agreement wherein petitioners would agree to indemnify
respondent all damages it might sustain in its capacity as surety
and (4) to pay the premiums. Except for the original copy of the
certificate of ownership of M/L Gretchen 2, these requirements
were complied with.
Accordingly, the bond was issued and delivered to petitioners
who filed it in the NLRC. The NLRC dismissed the appeal for
petitioners’ failure to post the bond within 10 days from receipt
of the decision. This made the decision in the labor case final
against them.
74
A writ of execution was served by the sheriff of the NLRC on
respondent to collect on the supersedeas bond. This was to fully
satisfy the judgment amount in the labor case. Respondent paid
to the NLRC the amount guaranteed by the bond. It notified
petitioners and forthwith deposited the undated check. It was,
however, dishonored because the account was already closed.
 
Respondent filed in the RTC of Cebu City, a complaint for sum of
money and damages with prayer for a writ of preliminary
attachment against petitioners. The RTC ruled in favor of
respondent. It ordered petitioners to pay to respondent.
On appeal, the CA affirmed the RTCs decision. Reconsideration
was denied in its resolution. The CA agreed with the RTC that the
surety agreement between petitioners and respondent had been
perfected. Its perfection was not dependent on the acceptance by
the NLRC of the appeal of petitioners in the labor case. Thus,
respondent correctly paid the indebtedness of petitioners.
ISSUE:
WON the Surety Agreement was perfected.
HELD:
YES. There is no dispute that the parties entered into a contract
of suretyship wherein respondent as surety bound itself
solidarily with petitioners (the principal debtors) to fulfill an
obligation. The obligation was to pay the monetary award in the
labor case should the decision become final and executory
against petitioners.
Contracts are perfected by mere consent. This is manifested by
the meeting of the offer and the acceptance upon the object and
cause which are to constitute the contract. Here, the object of the
contract was the issuance of the bond. The cause or
consideration consisted of the premiums paid. The bond was
MERCANTILE LAW REVIEW || Insurance Law 75
Compilation of Digests (Except 37)

issued after petitioners complied with the requirements. At this indemnity for attorneys fees shall be twenty (20%) percent of
point, the contract of suretyship was perfected. the amount claimed by the SURETY, but in no case less than TWO
  THOUSAND PESOS (P2,000.00), whether the SURETYS claim is
Petitioners cannot insist that the contract was subject to a settled judicially or extra-judicially.
suspensive condition, that is, the stay of the judgment of the  
labor arbiter. This was not a condition for the perfection of the INCONSTESTABILITY OF PAYMENT MADE BY THE SURETY:
contract but merely a statement of the purpose of the bond in its - Any payment or disbursement made by the SURETY on
whereas clauses. Aside from this, there was no mention of the account of the above-mentioned bond, either in the belief that
condition that before the contract could become valid and the SURETY was obligated to made such payment or in the belief
binding, perfection of the appeal was necessary. If the intention that said payment was necessary in order to avoid a greater loss
was to make it a suspensive condition, then the parties should or obligation for which the SURETY might be liable by virtue of
have made it clear in certain and unambiguous terms. the terms of the above-mentioned bond shall be final, and will
  not be contested by the undersigned, who jointly and
From the moment the contract is perfected, the parties are severally bind themselves to indemnity the SURETY for any
bound to comply with what is expressly stipulated as well as such payment or disbursement. (Emphasis supplied)
with what is required by the nature of the obligation in keeping  
with good faith, usage and the law. A surety is considered in law Undoubtedly, under these provisions, they are obligated to
to be on the same footing as the principal debtor in relation to reimburse respondent.
whatever is adjudged against the latter. Accordingly, as surety of
petitioners, respondent was obliged to pay on the bond when a
writ of execution was served on it. Consequently, it now has the
right to seek full reimbursement from petitioners for the amount
paid.
 
Moreover, petitioners signed an indemnity agreement which
contained the following stipulations:
 
INDEMNIFICATION: - To indemnify the SURETY for all damages,
payments, advances, losses, costs, taxes, penalties, charges,
attorney’s fees and expenses of whatever kind and nature that
the SURETY may at any time sustain or incur as a consequence of
having become surety upon the above-mentioned bond, and to
pay, reimburse and make good to the SURETY, its successors
and assigns, all sums or all money which it shall pay or
become liable to pay by virtue to said bond even if said
payment/s or liability exceeds the amount of the bond. The
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50. STRONGHOLD INSURANCE COMPANY, INCORPORATED
vs. TOKYU CONSTRUCTION COMPANY, LTD.
GR Nos. 158820-21 June 5, 2009 J. Nachura
A surety is released from its obligation when there is a material
alteration of the principal contract in connection with which the
bond is given, such as a change which imposes a new obligation on
the promising party, or which takes away some obligation already
imposed, or one which changes the legal effect of the original
contract and not merely its form. However, a surety is not released
by a change in the contract, which does not have the effect of
making its obligation more onerous.
FACTS: MIAA awarded Tokyu a contract to construct NAIA
Terminal 2. Tokyu entered into a sub-contract agreement with
Gabriel Enterprise for the construction of a storm drainage and a
sewage treatment plant in the area. In relation to this, Gabriel
Enterprise obtained a surety bond with Stronghold. Gabriel
failed to satisfy its obligation on the maturity date however,
Tokyu modified the sub-contract agreement and extended
Gabriel’s completion date however it still failed to satisfy its
obligation prompting Tokyu to file for claims against Stronghold
and a second insurance company, Tico, which Tokyu contracted
with.
ISSUE: Whether or not Stronghold is exonerated from its liability
due to the revision of the subcontract.
HELD:
NO. Stronghold is not exonerated from liability.
We wish to stress herein the nature of suretyship, which actually
involves two types of relationship --- the underlying principal
relationship between the creditor (respondent) and the debtor
(Gabriel), and the accessory surety relationship between the
principal (Gabriel) and the surety (petitioner).The creditor
76
accepts the surety’s solidary undertaking to pay if the debtor
does not pay. Such acceptance, however, does not change in any
material way the creditor’s relationship with the principal debtor
nor does it make the surety an active party to the principal
creditor-debtor relationship. In other words, the acceptance does
not give the surety the right to intervene in the principal
contract. The surety’s role arises only upon the debtor’s default,
at which time, it can be directly held liable by the creditor for
payment as a solidary obligor.
The surety is considered in law as possessed of the identity of the
debtor in relation to whatever is adjudged touching upon the
obligation of the latter. Their liabilities are so interwoven as to
be inseparable. Although the contract of a surety is, in essence,
secondary only to a valid principal obligation, the surety’s
liability to the creditor is direct, primary, and absolute; he
becomes liable for the debt and duty of another although he
possesses no direct or personal interest over the obligations nor
does he receive any benefit therefrom.
Indeed, a surety is released from its obligation when there is a
material alteration of the principal contract in connection with
which the bond is given, such as a change which imposes a new
obligation on the promising party, or which takes away some
obligation already imposed, or one which changes the legal effect
of the original contract and not merely its form. However, a
surety is not released by a change in the contract, which does not
have the effect of making its obligation more onerous.
In the instant case, the revision of the subcontract agreement did
not in any way make the obligations of both the principal and the
surety more onerous. To be sure, petitioner never assumed
added obligations, nor were there any additional obligations
imposed, due to the modification of the terms of the contract.
Failure to receive any notice of such change did not, therefore,
exonerate petitioner from its liabilities as surety.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
51. FIRST LEPANTO-TAISHO INSURANCE CORP. (now known
as FLT PRIME INSURANCE CORP.) vs. CHEVRON PHILIPPINES,
INC. (formerly known as CALTEX [PHILIPPINES], INC.)
G.R. No. 177839, 18 January 2012, VILLARAMA, JR., J.
A surety contract is merely a collateral one, its basis is the
principal contract or undertaking which it secures. Necessarily, the
stipulations in such principal agreement must at least be
communicated or made known to the surety. It is basic that if the
terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its
stipulations shall control. Hence, non-compliance by the creditor
impacts not on the validity or legality of the surety contract but on
the creditor’s right to demand performance from the surety.
FACTS:
Chevron Philippines, Inc. (Chevron) sued First Lepanto-Taisho
Insurance Corp. (First Lepanto) as surety of Fumitechniks for the
latter’s non-compliance of its obligation to pay its oil and
petroleum purchases as a distributor of Chevron. However, First
Lepanto refused to pay Chevron on the ground that the latter
failed to submit to the former a copy of the distributor
agreement in which the surety agreement depends. First Lepanto
argues that the bond agreement specifically requires Chevron to
submit a copy of the principal agreement such that the non-
compliance of which will make the surety agreement ineffective.
Chevron maintains that the delivery of the bond and acceptance
of premium payment by First Lepanto binds the latter as surety,
notwithstanding the non-submission of the oral distributorship
and credit agreement which understandably cannot be attached
to the bond.
77
ISSUE:
Is First Lepanto liable notwithstanding the fact that there was
non-compliance of the requirement under the bond agreement to
submit the principal contract?
RULING:
No.
The law is clear that a surety contract should be read and
interpreted together with the contract entered into between the
creditor and the principal. Section 176 of the Insurance
Code states:
Sec. 176. The liability of the surety or sureties shall be
joint and several with the obligor and shall be limited to
the amount of the bond. It is determined strictly by the
terms of the contract of suretyship in relation to the
principal contract between the obligor and the obligee.
A surety contract is merely a collateral one, its basis is the
principal contract or undertaking which it secures. Necessarily,
the stipulations in such principal agreement must at least be
communicated or made known to the surety particularly in this
case where the bond expressly guarantees the payment of
Chevron’s fuel products withdrawn by Fumitechniks in
accordance with the terms and conditions of their agreement.
The bond specifically makes reference to a written agreement. It
is basic that if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control.  Moreover, being an
onerous undertaking, a surety agreement is strictly construed
against the creditor, and every doubt is resolved in favor of the
solidary debtor. Having accepted the bond, Chevron as creditor
must be held bound by the recital in the surety bond that the
MERCANTILE LAW REVIEW || Insurance Law 78
Compilation of Digests (Except 37)

terms and conditions of its distributorship contract be reduced

in writing or at the very least communicated in writing to the
surety. Such non-compliance by the creditor (Chevron) impacts
not on the validity or legality of the surety contract but on the
creditor’s right to demand performance.

It bears stressing that the contract of suretyship imports entire

good faith and confidence between the parties in regard to the
whole transaction, although it has been said that the creditor
does not stand as a fiduciary in his relation to the surety. The
creditor is generally held bound to a faithful observance of the
rights of the surety and to the performance of every duty
necessary for the protection of those rights.  Moreover, in this
jurisdiction, obligations arising from contracts have the force of
law between the parties and should be complied with in good
faith. Chevron is charged with notice of the specified form of the
agreement or at least the disclosure of basic terms and
conditions of its distributorship and credit agreements with its
client Fumitechniks after its acceptance of the bond delivered by
the latter. However, it never made any effort to relay those terms
and conditions of its contract with Fumitechniks upon the
commencement of its transactions with said client, which
obligations are covered by the surety bond issued by First
Lepanto. Contrary to Chevron’s assertion, there is no indication
in the records that First Lepanto had actual knowledge of its
alleged business practice of not having written contracts with
distributors; and even assuming First Lepanto was aware of such
practice, the bond issued to Fumitechniks and accepted by
Chevron specifically referred to a "written agreement."
MERCANTILE LAW REVIEW || Insurance Law 79
Compilation of Digests (Except 37)

52. INTRA-STRATA ASSURANCE CORPORATION and Customs demanded payment of the amounts due from Grand
PHILIPPINE HOME ASSURANCE CORPORATION vs. REPUBLIC Textile as importer, and from Intra-Strata and PhilHome as
OF THE PHILIPPINES, represented by the BUREAU OF sureties. All three failed to pay. The government responded on
CUSTOMS January 14, 1983 by filing a collection suit against the parties
with the RTC of Manila.
G.R. No. 156571, July 9, 2008, BRION, J.:
After hearing, the RTC rendered its January 4, 1995 decision
Section 175 of the Insurance Code defines a contract of suretyship
finding Grand Textile (as importer) and the petitioners (as
as an agreement whereby a party called the surety guarantees the
sureties) liable for the taxes, duties, and charges due on the
performance by another party called the principal or obligor of an
imported articles.
obligation or undertaking in favor of another party called the
obligee.
The CA fully affirmed the RTC decision in its decision dated
November 26, 2002.
FACTS: Grand Textile is a local manufacturing corporation. In
1974, it imported from different countries various articles such
ISSUE: Whether the withdrawal of the stored goods, wares, and
as dyestuffs, spare parts for textile machinery, polyester filament
merchandise – without notice to them as sureties – released
yarn, textile auxiliary chemicals, trans open type reciprocating
them from any liability for the duties, taxes, and charges they
compressor, and trevira filament. Subsequent to the importation,
committed to pay under the bonds they issued.
these articles were transferred to Customs Bonded Warehouse
No. 462. As computed by the Bureau of Customs, the customs
HELD:
duties, internal revenue taxes, and other charges due on the
importations amounted to ₱2,363,147.00. To secure the payment
No. The surety is still liable in the absence of the express
of these obligations pursuant to Section 1904 of the Tariff and
provision requiring prior notice.
Customs Code (Code),4 Intra-Strata and PhilHome each issued
general warehousing bonds in favor of the Bureau of Customs.
Section 175 of the Insurance Code defines a contract of
These bonds, the terms of which are fully quoted below,
suretyship as an agreement whereby a party called the surety
commonly provide that the goods shall be withdrawn from the
guarantees the performance by another party called the
bonded warehouse "on payment of the legal customs duties,
principal or obligor of an obligation or undertaking in favor of
internal revenue, and other charges to which they shall then be
another party called the obligee, and includes among its various
subject."
species bonds such as those issued pursuant to Section 1904 of
the Code. Significantly, "pertinent provisions of the Civil Code of
Without payment of the taxes, customs duties, and charges due
the Philippines shall be applied in a suppletory character
and for purposes of domestic consumption, Grand Textile
whenever necessary in interpreting the provisions of a contract
withdrew the imported goods from storage. 6 The Bureau of
MERCANTILE LAW REVIEW || Insurance Law 80
Compilation of Digests (Except 37)

of suretyship." By its very nature under the terms of the laws

regulating suretyship, the liability of the surety is joint and
several but limited to the amount of the bond, and its terms are
determined strictly by the terms of the contract of suretyship in
relation to the principal contract between the obligor and the
obligee.

There are effectively two (2) contracts involved when a surety

agreement comes into play – a principal contract and an
accessory contract of suretyship. Under the accessory contract,
the surety becomes directly, primarily, and equally bound with
the principal as the original promissor although he possesses no
direct or personal interest over the latter’s obligations and does
not receive any benefit therefrom.

The obligation to pay, principally by the importer, is shared by

the latter with a willing third party under a suretyship
agreement under Section 1904 of the Code.

There is, firstly, a principal obligation belonging to the importer-

obligor as provided under Section 101; secondly, there is an
accessory obligation, assumed by the sureties pursuant to
Section 1904 which, by the nature of a surety agreement,
directly, primarily, and equally bind them to the obligee to pay
the obligor’s obligation.

Significantly, nowhere in the petitioners’ bonds does it state that

prior notice is required to fix the sureties’ liabilities. Without
such express requirement, the creditor’s right to enforce
payment cannot be denied as the petitioners became bound as
soon as Grand Textile, the principal debtor, defaulted. Thus, the
filing of the collection suit was sufficient notice to the sureties of
their principal’s default.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
LIFE INSURANCE
53. GREAT PACIFIC LIFE ASSURANCE CORP. vs. COURT OF
APPEALS AND MEDARDA V. LEUTERIO
G.R. No. 113899 October 13, 1999 J. QUISUMBING7
A life insurance policy is a valued policy. Unless the interest of a
person insured is susceptible of exact pecuniary measurement, the
measure of indemnity under a policy of insurance upon life or
health is the sum fixed in the policy.
FACTS:
A contract of group life insurance was executed between
petitioner Great Pacific Life Assurance Corporation (Grepalife)
and Development Bank of the Philippines (DBP). Grepalife
agreed to insure the lives of eligible housing loan mortgagors of
DBP. Dr. Wilfredo Leuterio, a physician and a housing debtor of
DBP applied for membership in the group life insurance plan. In
an application form, Dr. Leuterio answered questions concerning
his health condition. Among those questions were: Have you ever
had, or consulted, a physician for a heart condition, high blood
pressure, cancer, diabetes, lung, kidney or stomach disorder or
any other physical impairment? Dr. Leuterio answered “no.” and
answered “yes” to the question: Are you now, to the best of your
knowledge, in good health? Grepalife issued Certificate No. B-
18558, as insurance coverage of Dr. Leuterio, to the extent of his
DBP mortgage indebtedness amounting P86,200.00. On August 6,
1984, 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 nondisclosure constituted concealment
7
Same with case numbers 14 and 17
81
that justified the denial of the claim. The widow of the late Dr.
Leuterio, respondent Medarda V. Leuterio, filed a complaint
against Grepalife for Specific Performance with Damages. During
the trial, Dr. Hernando Mejia, who issued the death certificate,
was called to testify. Dr. Mejia’s 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. The
trial court rendered a decision in favor of respondent widow and
against Grepalife. The Court of Appeals sustained the trial courts
decision. Hence, the present petition.
ISSUE:
Whether the Court of Appeals erred in holding Grepalife liable in
the amount of eighty six thousand, two hundred (P86,200.00)
pesos without proof of the actual outstanding mortgage payable
by the mortgagor to DBP? (Note: There are many issues in this
case, but this is the one which is related to the topic of life
isurance. This case is repeated four times in the insurance case
list)
HELD:
NO. Petitioner claims that there was no evidence as to the
amount of Dr. Leuterio's outstanding indebtedness to DBP at the
time of the mortgagor's death. Hence, for private respondent's
failure to establish the same, the action for specific performance
should be dismissed. Petitioner's claim is without merit. A life
insurance policy is a valued policy. Unless the interest of a
person insured is susceptible of exact pecuniary measurement,
the measure of indemnity under a policy of insurance upon life
or health is the sum fixed in the policy. The mortgagor paid the
premium according to the coverage of his insurance, which
states that:
MERCANTILE LAW REVIEW || Insurance Law 82
Compilation of Digests (Except 37)

The policy states that upon receipt of due proof of

the Debtor's death during the terms of this
insurance, a death benefit in the amount of
P86,200.00 shall be paid.

In the event of the debtor's death before his

indebtedness with the creditor shall have been
fully paid, an amount to pay the outstanding
indebtedness shall first be paid to the Creditor
and the balance of the Sum Assured, if there is
any shall then be paid to the beneficiary/ies
designated by the debtor." 

However, we noted that the Court of Appeals' decision was

promulgated on May 17, 1993. In private respondent's
memorandum, she states that DBP foreclosed in 1995 their
residential lot, in satisfaction of mortgagor's outstanding loan.
Considering this supervening event, the insurance proceeds shall
inure to the benefit of the heirs of the deceased person or his
beneficiaries. Equity dictates that DBP should not unjustly enrich
itself at the expense of another (Nemo cum alterius detrimenio
protest). Hence, it cannot collect the insurance proceeds, after it
already foreclosed on the mortgage. The proceeds now rightly
belong to Dr. Leuterio's heirs represented by his widow, herein
private respondent Medarda Leuterio
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
ON MOTOR VEHICLE INSURANCE
54. Perla Compania De Seguros, Inc. vs. The Court of Appeals,
Herminio Lim and Evelyn Lim
G.R. No. 96452 May 7, 1992 J. Nocon
There is no causal connection between the possession of a
valid driver's license and the loss of a vehicle. To rule otherwise
would render car insurance practically a sham since an insurance
company can easily escape liability by citing restrictions which are
not applicable or germane to the claim, thereby reducing
indemnity to a shadow.
The insurance policy was therefore meant to be an
additional security to the principal contract, that is, to insure that
the promissory note will be paid in case the automobile is lost
through accident or theft.
Theft is an entirely different legal concept from that of
accident. Theft is committed by a person with the intent to gain or,
to put it in another way, with the concurrence of the doer's will. On
the other hand, accident, although it may proceed or result... from
negligence, is the happening of an event without the concurrence
of the will of the person by whose agency it was caused.
Clearly, the risk against accident is distinct from the risk
against theft. The 'authorized driver clause' in a typical insurance
policy is in contemplation or anticipation of accident in the legal
sense in which it should be understood, and not in... contemplation
or anticipation of an event such as theft.
FACTS
On December 24, 1981, private respondents spouses
Herminio and Evelyn Lim executed a promissory note in favor of
Supercars, Inc. in the sum of P77,940.00, payable in monthly
83
installments according to the schedule of payment indicated in
said note and secured by a chattel mortgage over a brand new
red Ford Laser 1300 5DR Hatchback 1981 model which is
registered under the name of private respondent Herminio Lim
and insured with the petitioner Perla Compania de Seguros, Inc.
(Perla) for comprehensive coverage under Policy No. PC/41PP-
QCB-43383.
Supercars, Inc., with notice to private respondent
spouses, assigned to petitioner FCP Credit Corporation (FCP) its
rights, title and interest on said promissory note and chattel
mortgage as shown by the Deed of Assignment.
At around 2:30 P.M. of November 9, 1982, said vehicle
was carnapped while parked at the back of Broadway Centrum
along N. Domingo Street, Quezon City.
On November 10, 1982, private respondent Evelyn Lim
reported said incident to the Land Transportation Commission in
Quezon City, as shown by the letter of her counsel to said office,
[8] in compliance with the insurance... requirement. She also
filed a complaint with the Headquarters, Constabulary Highway
Patrol Group.
Private respondent filed a claim for loss with the
petitioner Perla but said claim was denied on November 18,
1982 on the ground that Evelyn Lim, who was using the vehicle
before it was carnapped, was... in possession of an expired
driver's license at the time of the loss of said vehicle which is in
violation of the authorized driver clause of the insurance policy...
private respondents requested from petitioner FCP for a
suspension of payment.
Perla, however, denied private respondents' claim.
MERCANTILE LAW REVIEW || Insurance Law 84
Compilation of Digests (Except 37)

Consequently, petitioner FCP demanded that private
respondents pay the whole balance of the promissory note or to
return the vehicle but the latter refused.
Private respondents appealed the same to the Court of
Appeals, which reversed said decision.
applicable or germane to the claim, thereby reducing indemnity
to a shadow.
Private respondents are not relieved of their obligation
to pay the former the installments due on the promissory note
on account of the loss of the automobile.

ISSUE The insurance policy was therefore meant to be an

Whether or not there is a grave abuse of discretion on the
part of the appellate court in holding that private respondents
did not violate the insurance contract because the authorized
driver clause is not applicable to the "Theft" clause of said
Contract?
HELD
NO. The car was insured against a malicious act such as
theft. Therefore the “Theft” clause in the contract should apply
and not the authorized driver clause. The risk against accident is
different from the risk against theft. 
additional security to the principal contract, that is, to insure that
the promissory note will still be paid in case the automobile is
lost through accident or theft.
It is clear from the abovementioned provision that upon
the loss of the insured vehicle, the insurance company Perla
undertakes to pay directly to the mortgagor or to their assignee,
FCP, the outstanding balance of the mortgage at the time of said
loss under the mortgage... contract.

The appellate court stated: The "authorized driver

clause" in a typical insurance policy is in contemplation or
anticipation of accident in the legal sense in which it should be
understood, and not in contemplation or anticipation of an event
such as theft. The distinction — often seized upon by insurance
companies in resisting claims from their assureds — between
death occurring as a result of accident and death occurring as a
result of intent may, by analogy, apply to the case at bar.

There was no connection between valid possession of a

license and the loss of a vehicle. To rule otherwise would render
car insurance practically a sham since an insurance company can
easily escape liability by citing restrictions... which are not
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
THEFT CLAUSE
55. PARAMOUNT INSURANCE CORPORATION vs. SPOUSES
YVES and MARIA TERESA REMONDEULAZ
G.R. No. 173773, November 28, 2012, Justice Peralta
The taking of a vehicle by another person without the permission
or authority from the owner thereof is sufficient to place it within
the ambit of the word theft as contemplated in the policy, and is
therefore, compensable
FACTS:
On May 26, 1994, respondent spouses Yves and Maria
Teresa (Remondeulaz) insured their 1994 Toyota Corolla sedan
under a comprehensive car insurance policy with petitioner
Paramount Insurance Corporation. While the contract was in
effect, the spouses’ car was taken by one Ricardo Sales, to whom
they entrusted the car to add accessories and improvement, but
did not return the same within the agreed three-day period. 
They filed a complaint sheet and immediately reported the theft
to the Traffic Management Command of the PNP.  They notified
the petitioner insurance company to claim for reimbursement,
but the latter refused to pay, hence they filed a case for sum of
money against the company before the RTC. RTC dismissed the
complaint. Aggrieved, respondents filed an appeal to the Court of
Appeals. The appellate court reversed and set aside the Order
issued by the trial court stating that the company is liable to the
spouses under the “theft clause” of their insurance contract,
hence, the present case. Petitioner argued that they are not liable
because the car was not stolen but was entrusted to another
person.
85
ISSUE/S:
Whether or not the loss of the car of the spouses falls
within the “theft clause” of the insurance contract, making it
compensable
HELD:
Yes. To interpret the "theft clause" of an insurance policy,
the Court explained that when one takes the motor vehicle of
another without the latter’s consent even if the motor vehicle is
later returned, there is theft – there being intent to gain as the
use of the thing unlawfully taken constitutes gain. The taking of a
vehicle by another person without the permission or authority
from the owner thereof is sufficient to place it within the ambit
of the word theft as contemplated in the policy, and is therefore,
compensable.
In the instant case, Sales did not have juridical possession
over the vehicle.  Here, it is apparent that the taking of
respondents’ vehicle by Sales is without any consent or authority
from the former. Records would show that respondents
entrusted possession of their vehicle only to the extent that Sales
will introduce repairs and improvements thereon, and not to
permanently deprive them of possession thereof.  Since, theft can
also be committed through misappropriation, the fact that Sales
failed to return the subject vehicle to respondents constitutes
Qualified Theft.  Hence, since respondents’ car is undeniably
covered by a Comprehensive Motor Vehicle Insurance Policy that
allows for recovery in cases of theft, petitioner is liable under the
policy for the loss of respondents’ vehicle under the “theft
clause.”
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
56. ALPHA INSURANCE AND SURETY CO. vs. ARSENIA SONIA
CASTOR
G.R. No. 198174, September 2, 2013
FACTS:
On February 21, 2007, respondent entered into a contract of
insurance, Motor Car Policy No. MAND/CV-00186, with
petitioner, involving her motor vehicle, a Toyota Revo DLX DSL.
The contract of insurance obligates the petitioner to pay the
respondent the amount of P630,000.00 in case of loss or damage
to said vehicle during the period covered, shiich is from February
26, 2007 to February 26, 2008. On April 16, 2007, at about 9:00
am., respondent instructed her driver, Jose Joel Salazr Lanuza, to
bring the above-described vehicle to a nearby auto-shop for a
tune-up. However, Lanuza no longer returned the motor vehicle
to respondet and despite diligent efforts to locate the same, said
efforts proved futile. Resultantly, respondent promptly reorted
the incident to the police and notified the petitioner of the said
loss and demanded payment of the insurance proceeds. In a
letter dated July 5, 20017, petitioner denied the insurance claim
of respondent, stating among others, thus: Upon verification of
the documents submitted, particularly the police report and your
affidavit, which states that the culprit, who stole the Insured unit,
is employed with you. We would like it invite you on the
provision of the Policy under Exceptions to Section-III.
ISSUE:
Whether or not the loss of respondent’s vehicle is excluded
under the insurance policy.
RULING:
NO. The RTC scrupulously elaborated that theft perpetrated by
the driver of the insured is not an exception to the coverage from
86
the insurance policy, since Section III thereof did not qualify as to
who would commit the theft. Thus:
Theft perpetrated by a driver of the insured is not an exception
to the coverage from the insurance policy subject of this case.
This is evident from the very provision of Section III – “Loss or
Damage.” The insurance company, subject to the limits of
liability, is obligated to indemnify the insured against theft. Said
provision does not qualify as to who would commit the theft.
Thus, even if the same is committed by the driver of the insured,
there being no categorical declaration of exception, the same
must be covered. As correctly pointed out by the plaintiff, “An
insurance contract should be 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 favourable to
the insured is adopted.”
Moreover, 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 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. Accordingly, in interpreting the
exclusions in an insurance contract, the terms used specifying
the excluded classes therein are to be given their meaning as
understood in common speech.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
OTHER INSURANCE CLAUSE
57. MALAYAN INSURANCE CO., INC. vs. PHILIPPINES FIRST
INSURANCE CO., INC. and REPUTABLE FORWARDER
SERVICES, INC. 8
G.R. No. 184300, July 11, 2012, REYES, J.
FACTS: On November 18, 1993, Wyeth procured Marine Policy
No. MAR 13797 (Marine Policy) from respondent Philippines
First Insurance Co., Inc. (Philippines First) to secure its interest
over its own products. The policy covers all risks of direct
physical loss or damage from any external cause. On December 1,
1993, Wyeth executed its annual contract of carriage with
Reputable.
Under the contract, Reputable undertook to answer for all risks
with respect to the goods while the goods/products are in transit
and until actual delivery to the customers, salesmen, and dealers
of the COMPANY. On February 11, 1994, Reputable signed a
Special Risk Insurance Policy (SR Policy) with petitioner Malayan
for the amount of P1,000,000.00.
On October 6, 1994, during the effectivity of the Marine Policy
and SR Policy, Reputable received from Wyeth 1,000 boxes of
Promil infant formula worth P2,357,582.70 to be delivered by
Reputable to Mercury Drug Corporation in Libis, Quezon City.
Unfortunately, on the same date, the truck carrying Wyeth’s
products was hijacked by about 10 armed men.
Philippines First paid Wyeth P2,133,257.00 as indemnity.
Philippines First then demanded reimbursement from
Reputable. The latter, however, ignored the demand.
8
Same with case number 24
87
Subsequently, Reputable impleaded Malayan as third-party
defendant.
Malayan argued, among others, that under Section 5 of the SR
Policy, the insurance does not cover any loss or damage to
property which at the time of the happening of such loss or
damage is insured by any marine policy and that the SR Policy
expressly excluded third-party liability.
Section 5. INSURANCE WITH OTHER COMPANIES. The
insurance does not cover any loss or damage to property
which at the time of the happening of such loss or
damage is insured by or would but for the existence of
this policy, be insured by any Fire or Marine policy or
policies except in respect of any excess beyond the
amount which would have been payable under the Fire
or Marine policy or policies had this insurance not been
effected.
Malayan sought the dismissal of the third-party complaint
against it. In the alternative, it prayed that it be held liable for no
more than P468,766.70, its alleged pro-rata share of the loss
based on the amount covered by the policy, subject to the
provision of Section 12 of the SR Policy, which states:
12. OTHER INSURANCE CLAUSE. If at the time of any loss
or damage happening to any property hereby insured,
there be any other subsisting insurance or insurances,
whether effected by the insured or by any other person
or persons, covering the same property, the company
shall not be liable to pay or contribute more than its
ratable proportion of such loss or damage.
RTC rendered its Decision finding Reputable liable to Philippines
First for the amount of indemnity it paid to Wyeth, among others.
MERCANTILE LAW REVIEW || Insurance Law 88
Compilation of Digests (Except 37)

In turn, Malayan was found by the RTC to be liable to Reputable
to the extent of the policy coverage.
CA rendered the assailed decision sustaining the ruling of the
RTC.
ISSUE: Whether the “other insurance” clause and “over
insurance” clause are applicable.
HELD: No. Neither Sections (5 and 12) were applicable.
Section 5 is actually the other insurance clause (also called
"additional insurance" and "double insurance"). Section 5 does
not provide for the nullity of the SR Policy but simply limits the
liability of Malayan only up to the excess of the amount that was
not covered by the other insurance policy. In interpreting the
"other insurance clause" in Geagonia, the Court ruled that the
prohibition applies only in case of double insurance.
Even though the two concerned insurance policies were issued
over the same goods and cover the same risk, there arises no
double insurance since they were issued to two different
persons/entities having distinct insurable interests. Necessarily,
over insurance by double insurance cannot likewise exist. Hence,
as correctly ruled by the RTC and CA, neither Section 5 nor
Section 12 of the SR Policy can be applied.
Suffice it to say that Malayan's and Reputable's respective
liabilities arose from different obligations- Malayan's is based on
the SR Policy while Reputable's is based on the contract of
carriage.

Section 12 of the SR Policy, on the other hand, is the over

insurance clause. More particularly, it covers the situation where
there is over insurance due to double insurance. In such case,
Section 15 provides that Malayan shall "not be liable to pay or
contribute more than its ratable proportion of such loss or
damage." This is in accord with the principle of contribution
provided under Section 94(e) of the Insurance Code,  which states
that "where the insured is over insured by double insurance,
each insurer is bound, as between himself and the other insurers,
to contribute ratably to the loss in proportion to the amount for
which he is liable under his contract."

Clearly, both Sections 5 and 12 presuppose the existence of a

double insurance. The pivotal question that now arises is
whether there is double insurance in this case such that either
Section 5 or Section 12 of the SR Policy may be applied.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
ON MORTGAGE REDEMPTION INSURANCE
58. NORA CANSING SERRANO v. COURT OF APPEALS and
SOCIAL SECURITY COMMISSION
G.R. No. L-35529, July 16, 1984, J. MAKASIAR
Section 2 of Article II of the Group Mortgage Redemption
Insurance Policy provides tha the insurance coverage shall be
“automatic” and limited only by the amount of insurance and age
requirement. While the same section has for its title the mode of
acceptance, what is controlling is the meaning of the provision
itself. The said section can only convey the idea that the mortgagor
who is eligible for coverage on or after the date of issue shall be
automatically insured. The only condition is that the age
requirement should be satisfied, which had been complied with by
the deceased mortgagor in the instant case. Under said Section 2,
mortgage redemption insurance is not just automatic; it is
compulsory for all qualified borrowers. This is the same automatic
redemption insurance applied to all qualified borrowers by the
GSIS (Government Service Insurance System) and the DBP
(Development Bank of the Philippines).
However, Section 3 of Article II of the Group Mortgage
Redemption Insurance Policy presents and ambiguity. The effective
date of coverage can be interpreted to mean that the insurance
contract takes effect “from the beginning of the amortization
perios of such Mortgage Loan” or “partial release of Mortgage
Loan.” The ambiguity in Section 3 of Article II should be resolved in
favor of the petitioner. The Civil Code provides:
Article 1377. The interpretation of obscure words or
stipulations in a contract shall not favor the party who
caused the obscurity.
89
We have held that provisions, conditions or exceptions
tending to work a forfeiture of insurance policies should be
construed most strongly against those for whose benefit they are
inserted, and most favorably toward those against whome they are
intended to operate. (Trinidad v. Orient Protective Ass., 67 Phil.
181)
The Mortgage Redemption Insurance device is not only for
the protection of the SYSTEM but also for the benefit of the
mortgagor. On the part of the SYSTEM, 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. The SYSTEM insures the payment to
itself of the loan with the insurance proceeds. It also negates any
future problem that can crop up should the heirs be not in a
position to pay the mortgage loan. In short, the process of
amortization is hastened and possible litigation in the future is
avoided. In a similar vein, ample protection is given to the
mortgagor under such a concept so that in the event of his death;
the mortgage obligation will be extinguished by the application of
the insurance proceeds to the mortgage indebtedness.
FACTS
Petitioner Nora Cansing Serrano (Nora) is the widow of
the late Bernardo G. Serrano (Bernardo). The latter was an
airline pilot of Air Manila, Inc. and a member of the Social
Security System (SSS). Bernardo applied for a Group Mortgage
Redemption Policy and was issued by Private Life Insurance
Companies, operating in the Philippines, for Php 37,4000.00 for
the construction of Bernardo’s house. Nora was a co-mortgagor.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
It was group life insurance policy on the lives of housing
loan mortgagors of the SYSTEM. Under this Group Mortgage
Redemption scheme, a grantee of a housing loan of the SYSTEM
is required to mortgage the house constructed out of the loan
and the lot on which it stands. The SYSTEM takes a life insurance
on the eligible mortgagor to the extent of the mortgage
indebtedness such that if the mortgagor dies, the proceeds of his
life insurance under the Group Redemption Policy will be used to
pay his indebtedness to the SYSTEM and the deceased's heirs
will thereby be relieved of the burden of paying for the
amortization of the deceased's still unpaid loan to the SYSTEM
A partial release in the amount of Php 35,400.00 was
effected. In less than a year therefrom, Captain Serrano died in a
plane crash. The SYSTEM closed his housing loan account to the
released amount of Php 35,400.00.
Nora sent a request letter to the SSS Chairman for the
exension of the benefits of the Group Mortgage Redemption
Insurance to her. The Administrator of the SYTEM recommended
its disapproval because Cpt. Serrano was allegedly not covered
by the Group Mortgage Redemption Insurance policy at the time
of his death. The SSS sustained the SYSTEM’s decision. Upon
appeal, the CA affirmed the SSS.
The pertitent provisions of the insurance policy under
Article II are as follows:
Section 1. Eligibility.— Every mortgagor who is not over
age 65 nearest birthday at the time the Mortgage Loan is
granted (or, in the case of a Mortgagor applying for
insurance coverage on a Mortgage Loan granted before
the Date of Issue, at the time he makes such application)
90
and who would not be over 75 nearest birthday on the
date on which the original term of the Mortgage Loan
expires shall be eligible for insurance coverage under this
Policy, provided that if the total indebtedness to the
Creditor under the new Mortgage Loan and the
outstanding balance of any prior Mortgage Loan or Loans
insured hereunder, exceeds P70,000.00, he will be
eligible for insurance coverage up to this maximum limit
only. 
Co-makers or co-signers of mortgage contract are not
eligible for coverage under this Policy. 
Section 2.  Mode of Acceptance. — Any Mortgagor who is
eligible for coverage on or after the Date of Issue shall
be automatically insured, subject to the amount of
insurance limit in Section 1 hereof, without proof of
insurability provided that he is not more than age 60
nearest birthday at the time the Mortgage Loan is
granted. Such a mortgagor who is over age 60 nearest
birthday at the time the Mortgage Loan is granted may be
accepted for insurance only subject to the submission of
evidence of insurability satisfactory to the Subscribing
Companies. 
Any eligible Mortgagor who was already a Mortgagor
before the Date of Issue shall be automatically insured,
subject to the amount of insurance limit in Section 1
hereof, without proof of insurability provided that he is
not more than age 60 nearest birthday on the Date of
Issue and that he makes written application to the
Creditor for coverage within ninety (90) days from the
Date of Issue. If such a Mortgagor applies for coverage
after ninety (90) days from the Date of Issue. he may be
accepted for insurance upon written application therefor,
MERCANTILE LAW REVIEW || Insurance Law 91
Compilation of Digests (Except 37)

subject to the submission of evidence of insurability to

the Subscribing Companies.  ISSUE

Section 3. Effective Date of Insurance. — The insurance on When is the effective date of coverage for the Mortgage
the life of each eligible Mortgagor Loan or partial release Redemption Insurance?
of Mortgage Loan accepted for coverage who becomes a
Mortgagor on or after the Date of Issue shall take effect
RULING
from the beginning of the amortization period of such
Mortgage Loan or partial release of Mortgage Loan. 
From the partial release of the loan. Noteworthy is
The beginning of the amortization period as used herein Section 16 of the Mortgage Contract of Social Security System in
shall mean the first day of the month preceding the connection with the applications for housing loans:
month in which the first monthly amortization payment
falls due.  Section 16. – (a) The loan shall be secured against the
death of the borrower through the Mortgage Redemption
It is hereby understood that before any release on any Insurance Plan; (b) Coverage shall take effect on the date
approved Mortgage Loan is made by the Creditor, the of the first release voucher of the loan and shall continue
requisites binding the Mortgagor and the Creditor as until the real estate mortgage loan is fully paid;…”
regards to said Mortgage Loan shall have been (Emphasis supplied)
completed 
Further, considering Section 3 of Article II, the ambiguity
xxx xxx xxx
should be resolved in favor of Nora. The interpretation of
obscure words or stipulations in a contract shall not favor the
Sections 2 and 3 of the policy are conflicting. Section 2
party who caused the obscurity. (Article 1377, Civil Code)
provides that “any mortgagor who is eligible for coverage on or
after the Date of Issue shall be automatically insured,…” (Italics
While the issuance of the Group Mortgage Redemption
supplied) Further, the limit of the coverage is the age
Insurance is a contract between SSS and Private Life Insurance
requirement laid down in the provision.
Companies, the fact is that the SYSTEM entered into such a
contract to afford protection not only to itself should the
Section 3 provides that the insurance “shall take effect
mortgagor die before fully paying the loan but also to afford
from the beginning of the amortization period of such Mortgage
protection to the mortgagor. The rationale of the insurance
Loan or partial release of Mortgage loan.” (Italics supplied) Said
scheme by the SSS is in such a way that upon the death of the
provision is ambiguous wherein the effectivity date of coverage
mortgagor before the debt has been paid, the proceeds from such
can either be “from the beginning of the amortization period of
insurance will be applied to the payment of the mortgage debt
such Mortgage Loan” or “partial release of Mortgage Loan.”
MERCANTILE LAW REVIEW || Insurance Law 92
Compilation of Digests (Except 37)

thereby relieving the mortgagor’s heirs from paying the

obligation. It negates future problems that may arise should the
heirs be not in a position to pay the mortgage loan. It also
hastens amortization and avoids possible litigation. On the part
of the mortgagor, he is protected in the event of his death by the
extinguishment of the obligation upon the application of the
insurance proceeds to the mortgage indebtedness.

Further, SSS cannot be allowed to collect insurance

benefits from private life insurance companies and at the same
time avoid giving benefits of the Mortgage Redemption
Insurance plan to the mortgagor. It cannot unjustly enrich itself
at the expense of another (Nemo cum alterius detriment protest).
Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith. (Article 19, Civil Code)
Furthermore, the raison d’être of the SSS is to extend social
benefits “to establish, develop to establish, develop, promote and
perfect a sound and viable tax-exempt social security service
suitable to the needs of the people throughout the Philippines,
which shall provide to covered employees and their families
protection against the hazards of disability, sickness, old age, and
death with a view to promote their well-being in the spirit of
social justice" (The Social Security Law, R.A. No. 1161, as
amended)

By the principle of social justice, as enshrined in the

Constitution (Section 6, Article II, 1976 Constitution), the SC
rules in favor of Nora.
MERCANTILE LAW REVIEW || Insurance Law
Compilation of Digests (Except 37)
59. GREAT PACIFIC LIFE ASSURANCE CORP. vs. COURT OF
APPEALS AND MEDARDA V. LEUTERIO9
G.R. No. 113899. October 13, 1999 QUISUMBING, J.
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.
FACTS:
Great Pacific Life Assurance Corporation (Grepalife) executed a
contract of group life insurance with Development Bank of the
Philippines (DBP) wherein Grepalife agreed to insure the lives of
eligible housing loan mortgagors of DBP.
One such loan mortgagor is Dr. Wilfredo Leuterio. In an
application form, Dr. Leuterio answered questions concerning
his test, attesting among others that he does not have any heart
conditions and that he is in good health to the best of his
knowledge.
However, after about a year, Dr. Leuterio died due to “massive
cerebral hemorrhage.” When DBP submitted a death claim to
Grepalife, the latter denied the claim, alleging 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.
Hence, the widow of the late Dr. Leuterio filed a complaint
against Grepalife for “Specific Performance with Damages.” Both
the trial court and the Court of Appeals found in favor of the
widow and ordered Grepalife to pay DBP.
9
Same with case number 14, 17, and 53
93
ISSUE:
Whether the CA erred in holding Grepalife liable to DBP as
beneficiary in a group life insurance contract from a complaint
filed by the widow of the decedent/mortgagor.
HELD:
NO. The CA did not erred in holding Grepalife liable to
DBP.
The rationale of a group of 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. 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.
The 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,
such as a mortgagee.
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.
MERCANTILE LAW REVIEW || Insurance Law 94
Compilation of Digests (Except 37)

ON THE LIABILITY OF THE INSURER DUE TO negligence, if there is no pre-existing contractual relation
NEGLIGENCE between the parties, is called a quasi-delict . . . . ". To sustain a
claim based thereon, the following requisites must concur: (a)
60. FGU Insurance Corp. v. Court of Appeals10 damage suffered by the plaintiff; (b) fault or negligence of the
defendant; and, (c) connection of cause and effect between the
G.R. No. 137775, March 31, 2005
fault or negligence of the defendant and the damage incurred by
the plaintiff. We agree with respondent court that petitioner
FACTS:
failed to prove the existence of the second requisite, i.e., fault or
negligence of defendant FILCAR, because only the fault or
On April 21, 1987, a car owned by private respondent FILCAR
negligence of Dahl-Jensen was sufficiently established, not that of
Transport Inc., rented to and driven by Dahl-Jensen, a Danish
FILCAR. It should be noted that the damage caused on the vehicle
tourist, swerved into the right and hit the car owned by Lydia
of Soriano was brought about by the circumstance that Dahl-
Soriano and driven by Benjamin Jacildone. Dahl-Jensen did not
Jensen swerved to the right while the vehicle that he was driving
possess a Philippine driver’s license. Petitioner, as the insurer of
was at the center lane. It is plain that the negligence was solely
Soriano’s car, paid the latter P25,382.20 and, by way of
attributable to Dahl-Jensen thus making the damage suffered by
subrogation, sued FILCAR, Dahl-Jensen, and Fortune Insurance
the other vehicle his personal liability. Respondent FILCAR did
Corporation, FILCAR’s insurer, for quasi-delict. The trial court
not have any participation therein. Respondent FILCAR being
dismissed the petition for failure to substantiate the claim for
engaged in a rent-a-car business was only the owner of the car
subrogation. The Court of Appeals affirmed the decision, but on
leased to Dahl-Jensen. As such, there was no vinculum juris
the ground that only Dahl-Jensen’s negligence was proven, not
between them as employer and employee. Respondent FILCAR
that of FILCAR. Hence, this instant petition.
cannot in any way be responsible for the negligent act of Dahl-
Jensen, the former not being an employer of the latter. In that
ISSUE:
case, the negligent and reckless operation of the truck owned by
petitioner corporation caused injuries to several persons and
Whether an action based on quasi-delict will prosper against a
damage to property. Intending to exculpate itself from liability,
rent-a-car company and, consequently, its insurer for fault or
the corporation raised the defense that at the time of the
negligence of the car lessee in driving the rented vehicle.
collision it had no more control over the vehicle as it was leased
to another; and, that the driver was not its employee but of the
HELD:
lessee. The trial court was not persuaded as it found that the true
nature of the alleged lease contract was nothing more than a
We find no reversible error committed by respondent court in
disguise effected by the corporation to relieve itself of the
upholding the dismissal of petitioner's complaint. The pertinent
burdens and responsibilities of an employer. We upheld this
provision is Art. 2176 of the Civil Code which states: "Whoever
finding and affirmed the declaration of joint and several liability
by act or omission causes damage to another, there being fault or
of the corporation with its driver.
negligence, is obliged to pay for the damage done. Such fault or
10
Same with case number 38