Pan Malayan Insurance Corp. v. CA (Hilario) 2.

  Through the negligence of Erlinda Fabie’s (FABIE) unknown driver (he

April 3, 1990 | Cortes, J. | Subrogation
PETITIONER: Pan Malayan Insurance Corp.
RESPONDENTS: Court of Appeals, Erlinda Fabie and her unkown driver
SUMMARY: Pan Malayan (PANMALAY) insured a Mitsubishi Colt Lancer. The
car was registered under the name of Canlubang Automotive Resources Corporation
(CANLUBANG). Through the negligence of Erlinda Fabie’s (FABIE) unknown
driver (he was driving a pick-up), the insured car was hit and suffered damages
worth P42, 052. Being the insurance company, Pan Malayan paid for the cost of
repair of the insured car and was therefore subrogated to the rights of CANLUBANG
against the driver of the pick-up and his employer Erlind Fabie. Despite repeated
demands, Fabie failed and refused to pay the claim of PANMALAY, so
PANMALAY filed a complaint for damages before the RTC of Makati against Fabie
and her driver. PANMALAY said that the damage caused to the insured car was
settled uner the “own damage” coverage of the insurance policy, and submitted a
copy of the insurance policy and the Release of Claim and Subrogation Receipt
executed by CANLUBANG in favor of PANMALAY. FABIE filed a Motion to
Dismiss saying PANMALAY had no cause of action against them, and claimed that
the “own damage” clause of the insurance policy precluded subrogation since
indemnification in Art. 2207 of the Civil Code was made on the assumption that
there was no wrongdoer or no third party at fault. RTC dismissed PANMALAY’s
complaint for no cause of action, and this was upheld by the CA. So now,
PANMALAY comes before the SC. Issue: WON PANMALAY (insurer) may
institute an action to recover the amound it had paid CANLUBANG (assured) in
settlement of an insurance claim against FABIE? YES, because payment by the
insurer to the assured operates as an equitable assignment to the assured of all
remedies with the latter 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 or upon written assignment of claim-- it
accrues simply upon payment of the insurance claim by the insurer. See ratio 3
for exceptions to that rule (but none of them apply here J).
was driving a pick-up), the insured car was hit and suffered damages worth
P42, 052.
3.   Being the insurance company, Pan Malayan paid for the cost of repair of the
insured car and was therefore subrogated to the rights of CANLUBANG
against the driver of the pick-up and his employer Erlind Fabie.
4.   Despite repeated demands, Fabie failed and refused to pay the claim of
PANMALAY, so PANMALAY filed a complaint for damages before the
RTC of Makati against Fabie and her driver.
1.   PANMALAY said that the damage caused to the insured car was
settled uner the “own damage” coverage of the insurance policy,
and submitted a copy of the insurance policy and the Release of
Claim and Subrogation Receipt executed by CANLUBANG in
favor of PANMALAY.
5.   FABIE filed a Motion to Dismiss saying PANMALAY had no cause of
action against them, and claimed that the “own damage” clause of the
insurance policy precluded subrocation since indemnification in Art. 2207
of the Civil Code1 was made on the assumption that there was no
wrongdoer or no third party at fault.
6.   RTC dismissed PANMALAY’s complaint for no cause of action, and this
was upheld by the CA. So now, PANMALAY comes before the SC.
ISSUE/s:
1.   WON PANMALAY (insurer) may institute an action to recover the amound
it had paid CANLUBANG (assured) in settlement of an insurance claim
against FABIE? – YES, PANMALAY has cause of action because payment
by the insurer to the assured operates as an equitable assignment to the
assured of all remedies with the latter may have against the third party
whose negligence or wrongful act caused the loss.
RULING: WHEREFORE, in view of the foregoing, the present petition is
GRANTED. Petitioner's complaint for damages against private respondents is hereby
REINSTATED. Let the case be remanded to the lower court for trial on the merits.

RATIO:
DOCTRINE: Payment by the insurer to the assured operates as an equitable 1.   Payment by the insurer (PANMALAYA) to the assured (CANLUBANG)
assignment to the assured of all remedies with the latter may have against the third operates as an equitable assignment to the assured (CANLUBANG) of
party whose negligence or wrongful act caused the loss. The right of subrogation all remedies which the latter may have against the third party whose
accrues simply upon payment of the insurance claim by the insurer. negligence or wrongful act caused the loss.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FACTS: 1

 Art.
 2207.
 If
 the
 plaintiff's
 property
 has
 been
 insured,
 and
 he
 has
 received
 indemnity
 from
 
1.   Pan Malayan (PANMALAY) insured a Mitsubishi Colt Lancer. The car was
the
 insurance
 company
 for
 the
 injury
 or
 loss
 arising
 out
 of
 the
 wrong
 or
 breach
 of
 contract
 
registered under the name of Canlubang Automotive Resources Corporation complained
  of,
  the
  insurance
  company
  shall
  be
  subrogated
  to
  the
  rights
  of
  the
  insured
 
(CANLUBANG). against
 the
 wrongdoer
 or
 the
 person
 who
 has
 violated
 the
 contract.
 If
 the
 amount
 paid
 by
 
the
  insurance
  company
  does
  not
  fully
  cover
  the
  injury
  or
  loss,
  the
  aggrieved
  party
  shall
  be
 
entitled
 to
 recover
 the
 deficiency
 from
 the
 person
 causing
 the
 loss
 or
 injury.
 
2.   The right of subrogation is not dependent upon, nor does it grow out of, any
privity of contract or upon written assignment of claim-- it accrues simply
upon payment of the insurance claim by the insurer.
3.   Exceptions to this rule:
1.   If the assured by his own act releases the wrongdoer or third party
liable for the loss or damage, from liability, the insurer's right of
subrogation is defeated; and
2.   Where the insurer pays the assured the value of the lost goods
without notifying the carrier who has in good faith settled the
assured's claim for loss, the settlement is binding on both the
assured and the insurer, and the latter cannot bring an action
against the carrier on his right of subrogation; and
3.   Where the insurer pays the assured for a loss which is not a risk
covered by the policy, thereby effecting "voluntary payment", the
former has no right of subrogation against the third party liable for
the loss. (But see ratio 5)
4.   (re: why the lower court is wrong in interpreting “own cause” clause; just in
case sir asks) It must be emphasized that the lower court's ruling that the
"own damage" coverage under the policy implies damage to the insured car
caused by the assured itself, instead of third parties, proceeds from an
incorrect comprehension of the phrase "own damage" as used by the
insurer. When PANMALAY utilized the phrase "own damage" — a phrase
which, incidentally, is not found in the insurance policy — to define the
basis for its settlement of CANLUBANG's claim under the policy, it simply
meant that it had assumed to reimburse the costs for repairing the
damage to the insured.
5.   Even if PANMALAY could not be deemed subrogated to the rights of its
assured under Article 2207 of the Civil Code, PANMALAY would still
have a cause of action against private respondents. In the pertinent case of
Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, the Court ruled
that the insurer who may have no rights of subrogation due to
"voluntary" payment may nevertheless recover from the third party
responsible for the damage to the insured property under Article 1236
of the Civil Code.
 002 FEDERAL EXPRESS CORPORATION v. AMERICAN HOME
ASSURANCE COMPANY and PHILAM INSURANCE COMPANY,
INC (HIRANG)
August 18, 2004 |Panganiban, J. | Subrogation
PETITIONER: FEDERAL EXPRESS CORPORATION
RESPONDENTS: AMERICAN HOME ASSURANCE COMPANY and PHILAM
INSURANCE COMPANY, INC
SUMMARY: SMITHKLINE, USA delivered to BURLINGTON (Agent of
FEDERAL EXPRESS) 109 cartons of veterinary biologicals for delivery to
consignee SMITHKLINE and French Overseas Company in Makati City, Metro
Manila. The same was insured by BURLINGTON in the amount of $39,339.00 with
American Home Assurance Company (AHAC). BURLINGTON then subsequently
turned over the goods to FEDERAL EXPRESS which then shipped the cargoes to
the consignee SMITHKLINE and French Overseas Company in Makati City, Metro
Manila. The cargoes was then stored in Cargohaus’ warehouse. The cargo reads
REFRIGERATE WHEN NOT IN TRANSIT and PERISHABLE stamp marked on
its face. 12 days after the shipment, DARIO C. DIONEDA, the broker of the GETC
(Custom Broker Corporation hired by SMITHKLINE to release the goods) found out
that the goods were stored inside a room with only 2 aircondition units. Upon
instructions for GETC, Dioneda did not proceed with the withdrawal of the vaccines
but instead samples were taken to the Bureau of Animal Industry and there it was
discovered that the ELISA reading of vaccinates sera are below the positive
reference serum. Because of the unusable vaccines, SMITHKLINE abandoned the
shipment and filed a claim against AHAC thorught its representative in the
Philippines, PHILAM. PHILAM paid SMITHKLINE and subsequently filed a case
for recovery of damages against FEDERAL EXPRESS and Cargohaus, imputing
negligence in handling the cargo. FEDERAL EXPRESS contends that PHILAM has
no personality to sue and thus, it has no cause of action against it. The issue in this
case is WoN, PHILAM has the capacity to sue and the court held in the affirmative.
The SC held that upon receipt of the insurance proceeds, SMITHKLINE executed a
subrogation Receipt in favor of PHILAM. PHILAM was thus authorized to file
claims and begin suit against any such carrier, vessel, person, corporation or
government. Upon payment to the consignee of an indemnity for the loss of or
damage to the insured goods, the insurers entitlement to subrogation pro tanto --
being of the highest equity -- equips it with a cause of action in case of a contractual
breach or negligence. Further, the insurers subrogatory right to sue for recovery
under the bill of lading in case of loss of or damage to the cargo is jurisprudentially
upheld.
DOCTRINE: In the exercise of its subrogatory right, an insurer may proceed against
an erring carrier. To all intents and purposes, it stands in the place and in substitution
of the consignee. A fortiori, both the insurer and the consignee are bound by the
contractual stipulations under the bill of lading
FACTS:
1.   SMITHKLINE Beecham (SMITHKLINE) of Nebraska, USA delivered to
Burlington Air Express (BURLINGTON), an agent of Federal Express
Corporation, a shipment of 109 cartons of veterinary biologicals for
delivery to consignee SMITHKLINE and French Overseas Company in
Makati City, Metro Manila.
2.   The shipment reads REFRIGERATE WHEN NOT IN TRANSIT and
PERISHABLE stamp marked on its face
3.   BURLINGTON insured the cargoes in the amount of $39,339.00 with
American Home Assurance Company (AHAC)
4.   BURLINGTON turned over the custody of said cargoes to FEDERAL
EXPRESS which transported the same to Manila.
5.   They were shipped in two batches. The first one consist of 92 cartons and
the next one came 2 days after which consist of 17 cartons. These were
immediately stored at Cargohaus Inc’s warehouse.
6.   Twelve (12) days after the cargoes arrived in Manila, a non-licensed
customs broker, DARIO C. DIONEDA (DIONEDA) who was assigned by
GETC (Custom broker Corporation hired by SMITHKLINE) to facilitate
the release of the subject cargoes, found out, that the goods were stored
only in a room with two (2) air conditioners running, to cool the place
instead of a refrigerator
7.   When he asked an employee of Cargohaus why the cargoes were stored in
the cool room only, the latter told him that the cartons where the vaccines
were contained specifically indicated therein that it should not be subjected
to hot or cold temperature.
8.   Upon instructions from GETC, Dioneda did not proceed with the
withdrawal of the vaccines but instead samples were taken to the Bureau
of Animal Industry and there it was discovered that the ELISA reading
of vaccinates sera are below the positive reference serum.
9.   As a result, SMITHKLINE abandoned the shipment and declared a total
loss for the unusable shipment of vaccines. SMITHKLINE then filed a
claim against AHAC through its representative in the Philippines, Philam
Insurance, the whole amount of the cargo.
10.   PHILAM paid SMITHKLINE the whole amount and subsequently it
(PHILAM) filed an action for damages against FEDERAL EXPRESS and
Cargohaus imputing negligence in handling the cargo.
11.   The Trial Court ruled in favor of PHILAM. FEDERAL EXPRESS and
Cargohaus were held to be solidarily liable.
12.   The CA also ruled in favor of PHILAM stating that the goods were
delivered to FEDERAL EXPRESS in good condition as provided for in the
shipping receipts. FEDERAL EXPRESS was not able to discharge the
presumption that the goods were indeed delivered to them in good condition
thus, creating a presumption that they were the one’s negligent in handling
the goods.
 13.   FEDERAL EXPRESS contends that PHILAM has no personality to
sue and thus, no cause of action against it - because the payment made
to SMITHKLINE was erroneous.
ISSUE/s:
-WoN payment made to SMITHKLINE was erroneous – NO, SMITHKLINE is
the holder of the Certificate of Insurance and under this, it had the right of
collecting or of being indemnified for loss of or damage to the insured shipment
-WoN PHILAM had the personality to sue – YES, Upon receipt of the insurance
proceeds, Smithkline executed a subrogation Receipt in favor of respondents. The
latter were thus authorized to file claims and begin suit against any such carrier,
vessel, person, corporation or government. (SUBROGATION ISSUE)
-WoN Federal Express is liable for the damage to or loss of the insured
products? – NO, SC stated that the reason they are not liable is because of the fact
that the claim has already prescribed. The filing of the claim within the time limit is a
condition precedent to the accrual of a right of action against a carrier for loss of or
damage to the goods.
RULING: WHEREFORE, the Petition is GRANTED, and the assailed
Decision REVERSED insofar as it pertains to Petitioner Federal Express
Corporation. No pronouncement as to costs.
RATIO:
(SUBROGATION ISSUE)
1.   Upon receipt of the insurance proceeds, Smithkline executed a subrogation
Receipt in favor of PHILAM. The latter was thus authorized to file claims
and begin suit against any such carrier, vessel, person, corporation or
government.
2.   Upon payment to the consignee of an indemnity for the loss of or damage to
the insured goods, the insurers entitlement to subrogation pro tanto -- being
of the highest equity -- equips it with a cause of action in case of a
contractual breach or negligence. Further, the insurers subrogatory right to
sue for recovery under the bill of lading in case of loss of or damage to the
cargo is jurisprudentially upheld
3.   In the exercise of its subrogatory right, an insurer may proceed against an
erring carrier. To all intents and purposes, it stands in the place and in
substitution of the consignee. A fortiori, both the insurer and the consignee
are bound by the contractual stipulations under the bill of lading
OTHER ISSUES:
(ERRONEOUS PAYMENT TO SMITHKLINE)
1.   The Certificate specifies that loss of or damage to the insured cargo is
payable to order x x x upon surrender of this Certificate. Such wording
conveys the right of collecting on any such damage or loss, as fully as if the
property were covered by a special policy in the name of the holder itself.
At the back of the Certificate appears the signature of the representative of
Burlington. This document has thus been duly indorsed in blank and is
deemed a bearer instrument.
2.   Since the Certificate was in the possession of Smithkline, the latter had the
right of collecting or of being indemnified for loss of or damage to the
insured shipment, as fully as if the property were covered by a special
policy in the name of the holder. Hence, being the holder of the Certificate
and having an insurable interest in the goods, Smithkline was the proper
payee of the insurance proceeds.
(CLAIM ALREADY PRESCRIBED)
1.   In this jurisdiction, the filing of a claim with the carrier within the time
limitation therefor actually constitutes a condition precedent to the accrual
of a right of action against a carrier for loss of or damage to the goods. The
shipper or consignee must allege and prove the fulfillment of the condition.
If it fails to do so, no right of action against the carrier can accrue in favor
of the former. The aforementioned requirement is a reasonable condition
precedent; it does not constitute a limitation of action
2.   In this case, even from the very start of the trial, PHILAM never submitted
any evidence to prove that it indeed made a complaint in writing when it
found out that the goods were damaged
3.   According to the Airway bill (contract of carriage), the person entitled
to delivery must make a complaint in writing in case of visible and
other damages within 14 days from the receipt of the goods.
4.   Nothing from the records show that PHILAM indeed made a complaint.
5.   The requirement of giving notice of loss of or injury to the goods is not an
empty formalism. The fundamental reasons for such a stipulation are (1) to
inform the carrier that the cargo has been damaged, and that it is being
charged with liability therefor; and (2) to give it an opportunity to examine
the nature and extent of the injury. This protects the carrier by affording it
an opportunity to make an investigation of a claim while the matter is fresh
and easily investigated so as to safeguard itself from false and fraudulent
claims
6.   When an airway bill -- or any contract of carriage for that matter -- has a
stipulation that requires a notice of claim for loss of or damage to goods
shipped and the stipulation is not complied with, its enforcement can be
prevented and the liability cannot be imposed on the carrier. To stress,
notice is a condition precedent, and the carrier is not liable if notice is not
given in accordance with the stipulation. Failure to comply with such a stipulation
bars recovery for the loss or damage suffered.
 03 FIREMAN’S FUND INSURANCE CO vs. JAMILA (LAGUILLES)
April 7, 1976 | Aquino, J. | Art. 2207
PETITIONER: Fireman’s Fund Insurance Company and Firestone Tire and
Rubber Company of the Philippines
RESPONDENTS: Jamila & Company, Ic. and First Quezon City Insurance Co
Inc.
SUMMARY: Jamila contracted to supply security guards to Firestone for
which Jamila assumed responsibility for the acts of its security guards. With
this, First Quezon City Insurance Co (surety) executed a bond in the sum of
P20,000 to guarantee Jamila’s obligations under the contract. Firestone
properties worth P19,000 were lost allegedly due to the acts of its employees
who connived with Jamila’s security guards. Fireman’s Fund as insurer, paid to
Firestone the amount of the loss and Fireman’s Fund was subrogated
(substituted) to Firestone’s right to get reimbursed from Jamila. However,
Jamila and its surety failed to pay. The lower court dismissed the complaint as
to Jamila on the ground that the latter never consented to the subrogation, hence
there is no cause of action. The issue is WoN the complaint states a cause of
action against Jamila.
The SC held that yes, there is a cause of action because as insurer, Fireman’s
Fund is entitled to go after the person or entity that violated its contractual
commitment. Subrogation is a normal incident of indemnity insurance. Upon
payment of the loss, the insurer is entitled to be subrogated pro tanto to any
right of action which the insured may have against the third person whose
negligence or wrongful act caused the loss. The loss in the first instance is that
of the insured but after reimbursement, it becomes the loss of the insurer.
DOCTRINE: Upon payment of the loss, the insurer is entitled to be subrogated
pro tanto to any right of action which the insured may have against the third
person whose negligence or wrongful act caused the loss.
FACTS:
1.   Jamila or the Veterans Philippine Scouts Security Agency contracted to
supply security guards to Firestone for which Jamila assumed responsibility
for the acts of its security guards.
2.   First Quezon City Insurance Co., Inc. executed a bond in the sum of
P20,000.00 to guarantee Jamila’s obligations under the contract.
3.   However, properties of Firestone valued at P11,925.00 were lost allegedly
due to the acts of its employees who connived with Jamila’s security
guards.
4.   Fireman’s Fund, as insurer, paid to Firestone the amount of the loss and
Fireman’s Fund was subrogated to Firestone’s right to get reimbursement
from Jamila, and Jamila and its surety, First Quezon City Insurance Co,
failed to pay the amount of the loss in spite of repeated demands.
5.   The lower court dismissed the complaint as to Jamila on the ground that
there was no allegation that it had consented to the subrogation, and,
therefore, Fireman’s Fund had no cause of action against it.
6.   The lower court also dismissed the complaint as to First Quezon City
Insurance Co on the ground of res judicata. It appears that the same action
was previously filed which was dismissed because of the failure of the
plaintiffs to appear at pre-trial.
7.   Firestone and Fireman’s Fund moved for the reconsideration of the order of
dismissal, and the lower court set aside its order of dismissal. It sustained
plaintiff’s contention that there was no res judicata as to First Quezon City
Insurance Co because the case was dismissed without prejudice.
8.   Due to inadvertence, the lower court did not state why it set aside its prior
order dismissing the complaint with respect to Jamila.
9.   Jamila, upon noticing that the order had obliterated its victory without any
reason therefore, filed a motion for reconsideration. It originally moved for
the dismissal of the complaint on the ground of lack of cause of action. Its
contention was based on two grounds:
a.   that the complaint did not allege that Firestone, pursuant to the
contractual stipulation quoted in the complaint, had investigated
the loss and that Jamila was represented in the investigation
b.   That Jamila did not consent to the subrogation of Fireman’s Fund
to Firestone’s right to get reimbursement from Jamila and its
surety.
10.   The lower court sustained the second ground. However, Jamila in its MR
invoked the first ground which was never passed upon by the lower court.
However, the lower court completely ignored the first ground and reverted
to the second ground which was relied upon in its order.
11.   The lower court reiterated that Fireman’s Fund had no cause of action
against Jamila because Jamila did not consent to the subrogation.
12.   Plaintiffs filed a second motion for reconsideration and called the lower
court’s attention to the fact that the issue of subrogation was of no moment
because Firestone, the subrogor, is a party-plaintiff and could sue directly
Jamila in its own right.
13.   The plaintiffs cited Art. 2207 of the Civil Code which provides:
“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.”
14.   Firestone and Fireman’s Fund contend that the trial court’s dismissal of
their complaint is contrary to the aforementioned provision which provides
for legal subrogation.
ISSUE/s:
1.   WoN the complaint of Firestone and Fireman’s Fund states a cause of
action against Jamila – YES, because as insurer, Fireman’s Fund is entitled
 to go after the person or entity that violated its contractual commitment. equitable assignment to the insurer of the property and all remedies which
the insured may have for the recovery thereof.

RULING: Finding the trial court's order of dismissal to be legally untenable, the
same is SET ASIDE with costs against defendant-appellee Jamila & Co., Inc.

RATIO:
1.   Jamila is of the opinion that legal subrogation under Art. 2207 requires the
debtor’s consent; that legal subrogation takes place in the cases mentioned
in Art. 1302 of the Civil Code and the instant case is not among the three
cases enumerated in that article.
2.   The Court holds that Fireman’s Fund’s action against Jamila is sanctioned
by Art. 22071. As the insurer, Fireman’s Fund is entitled to go after the
person or entity that violated its contractual commitment to answer for
the loss insured against.
3.   The lower court erred in applying to this case the rules on novation. The
plaintiffs in alleging in their complaint that Fireman’s Fund became a party
in interest in this case by virtue of a subrogation right given in its favor by
Firestone, were not relying on the novation by change of creditors as
contemplated in Arts. 1291, and 1300 to 1303 of the Civil Code, but rather
on Art. 2207.
4.   Subrogation has been referred to as the doctrine of substitution. It is an arm
of equity that may guide or even force one to pay a debt for which an
obligation was incurred but which was in whole or in part paid by another.
5.   Subrogation is founded on principles of justice and equity, and its operation
is governed by principles of equity. It rests on the principle that substantial
justice should be attained regardless of form, that is, its basis is the doing of
complete, essential, and perfect justice between all the parties without
regard to form.
6.   Subrogation is a normal incident of indemnity insurance. Upon payment of
the loss, the insurer is entitled to be subrogated pro tanto to any right of
action which the insured may have against the third person whose
negligence or wrongful act caused the loss.
7.   The loss in the first instance is that of the insured but after reimbursement, it
becomes the loss of the insurer.
8.   Although many policies now provide for subrogation, and thus determine
the rights of the insurer in this respect, the equitable right of subrogation as
the legal effect of payment inures to the insurer without any formal
assignment or any express stipulation to that effect in the policy.
9.   When the insurance company pays for the loss, such payment operates as an

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1

  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.”
 
 004 FF. Cruz & Co., Inc v. CA (Marcos)
Aug. 29, 1988 | Cortes, J. | Subrogation / Art. 2207
PETITIONER: F.F. Cruz and Co., Inc.
RESPONDENTS: The Court of Appeals, Gregorio Mable as substituted by his
wife Luz Almonte Mable and children Doming, Leonidas, Ligaya, Elena,
Gregorio, Jr., Salome, Antonio, and Bernardo all surnamed Mable.
SUMMARY: The manufacturing shop of FF. Cruz and the house of Mable was
situated adjacent with each other. Mable repeatedly requested that a firewall be
constructed between the shop and their house but such request fell on deaf ears.
A fire broke in the shop and it then spread to the residence. Both the shop and
the house were razed to the ground. The Mable family was able to recover
P35,000 from its insurance on the house. The family then filed an action for
damages against FF. Cruz. The CFI ruled in favor of the family, and later on the
CA affirmed the decision. Both Courts did not deduct the P35,000 from the
award of damages. The issue before the SC is WoN FF. Cruz is still liable to pay
for the 35,000 recovered by the Mable Family from its insurance – No, because
Art. 2207 of the Civil Code provides that it should be deducted from the amount
of award as damages. Having been indemnified by their insurer, The Mable
family are only entitled to recover the deficiency from FF. Cruz. The insurer, if it
is so minded, may seek reimbursement of the amount it indemnified the family
from FF. Cruz. Under Article 2207, the real party in interest with regard to the
indemnity received by the insured is the insurer. Whether or not the insurer
should exercise the rights of the insured to which it had been subrogated lies
solely within the former's sound discretion.
DOCTRINE: The insurer, if it is so minded, may seek reimbursement of the
amount it indemnified the family from FF. Cruz. This is the essence of its right
to be subrogated to the rights of the insured, as expressly provided in Article
2207. Upon payment of the loss incurred by the insured, the insurer is entitled to
be subrogated pro tanto to any right of action which the insured may have
against the third person whose negligence or wrongful act caused the loss.
FACTS:
1.   The furniture manufacturing shop of FF. Cruz in Caloocan was situated
adjacent to the resident of respondent Mable family.
2.   Sometime in Aug 1971, Mable approached Cruz, the plant manager, to
request that a firewall be constructed between the shop and the residence.
3.   The request was repeated several times but they fell on deaf ears.
4.   In the morning of Sept. 6, 1974, fire broke in the shop which then spread to
the house of the Mable family. Both the shop and the house were razed to
the ground. The cause of the conflagration was never discovered.
5.   The National Bureau of Investigation found specimens from the burned
structures negative for the presence of inflammable substances.
6.   The Mable family collected P35,000.00 on the insurance on their house and
the contents thereof.
7.   Subsequently, the family filed an action for damages against FF. Cruz.
8.   The CFI ruled in favor of the Mable family, and later on the CA affirmed
the decision of the trial court but reduced the award for damages.
9.   Both Courts did not deduct the P35,000 from the award of damages.
10.   FF. Cruz filed a petition for review with the SC after its MR with the CA
was dnid.
11.   FF. Cruz contends that the CA erred in not deducting the P35,000 recovered
insurance from the award of damages, in awarding excessive and unproved
damages, and in applying the doctrine of res ipsa loquitur.
ISSUE/s:
1.   WoN FF. Cruz is still liable to pay for the 35,000 recovered by the Mable
Family from its insurance – No, because Art. 2207 of the Civil Code
provides that it should be deducted from the amount of award as damages.
RULING: WHEREFORE, in view of the foregoing, the decision of the Court of
Appeals is hereby AFFIRMED with the following modifications as to the damages
awarded for the loss of private respondents' house, considering their receipt of
P35,000.00 from their insurer.
RATIO:
1.   Doctrine of res ipsa loquitur: Where the thing which caused the injury
complained of is shown to be under the management of the defendant or his
servants and the accident is such as in the ordinary course of things does not
happen if those who have its management or control use proper care, it
affords reasonable evidence, in the absence of explanation by the defendant,
that the accident arose from want of care.
2.   The facts of the case likewise call for the application of the doctrine,
considering that in the normal course of operations of a furniture
manufacturing shop, combustible material such as wood chips, sawdust,
paint, varnish and fuel and lubricants for machinery may be found thereon
3.   It must also be noted that negligence or want of care on the part of
petitioner or its employees was not merely presumed.
4.   The Court of Appeals found that petitioner failed to construct a firewall
between its shop and the residence of private respondents as required by a
city ordinance; that the fire could have been caused by a heated motor or a
lit cigarette; that gasoline and alcohol were used and stored in the shop; and
that workers sometimes smoked inside the shop
5.   In the instant case, with more reason should petitioner be found guilty of
negligence since it had failed to construct a firewall between its property
and private respondents' residence which sufficiently complies with the
pertinent city ordinances. The failure to comply with an ordinance
providing for safety regulations had been ruled by the Court as an act of
negligence
6.   [INSURANCE TOPIC] While this Court finds that petitioner is liable for
 damages to private respondents as found by the Court of Appeals, the fact
that private respondents have been indemnified by their insurer in the
amount of P35,000.00 for the damage caused to their house and its
contents has not escaped the attention of the Court.
7.   Hence, the Court holds that in accordance with Article 22072 of the
Civil Code the amount of P35,000.00 should be deducted from the
amount awarded as damages.
8.   Having been indemnified by their insurer, The Mable family are only
entitled to recover the deficiency from FF. Cruz.
9.   The insurer, if it is so minded, may seek reimbursement of the amount
it indemnified the family from FF. Cruz. This is the essence of its right
to be subrogated to the rights of the insured, as expressly provided in
Article 2207. Upon payment of the loss incurred by the insured, the
insurer is entitled to be subrogated pro tanto to any right of action
which the insured may have against the third person whose negligence
or wrongful act caused the loss
10.   Under Article 2207, the real party in interest with regard to the
indemnity received by the insured is the insurer
11.   Whether or not the insurer should exercise the rights of the insured to
which it had been subrogated lies solely within the former's sound
discretion.
12.   Since the insurer is not a party to the case, its identity is not of record and
no claim is made on its behalf, the private respondent's insurer has to claim
his right to reimbursement of the P35,000.00 paid to the insured.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2

  Art. 2207. If the plaintiffs 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 is subrogated to the rights of the insured against the wrongdoer or the person who 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.
 
 

 
 005 RIZAL SURETY & INSURANCE CO v. MANILA RAILROAD
COMPANY AND MANILA PORT SERVICES (MATSUMURA)
April 25, 1968 | Fernando, J. | Subrogation
PETITIONER: Rizal Surety & Insurance Company
RESPONDENTS:Manila Railroad Company and Manila Port Service
SUMMARY: On November 29, 1960, the SS Flying Trader loaded for shipment several
cargo from Genoa Italy to Manila. Among the cargo was 6 cases of OMH containing
Special Single Colour Offset Press Machines. When the vessel arrived in Manila, the
cargo was discharged completely and in good order to the custody of Manila Port services
(Arrastre operator). While the cargo was being lifted and loaded into Manila Port
Services’ truck via crane, one of the cases was dropped by the crane resulting to the
damage of one of the Special Single Colour Offset Press Machines. Rizal Surety (insurer)
paid P16,500 to Suter, Inc (consignee) representing the cost of the replacement and repair
of the machine, plus P180.70 to the International Adjustment Bureau as adjuster’s fee.
Clause 15 of the management contract between Suter, and Manila Railroad Co and
Manila Port Services appeared in the delivery permit of the cargo. The permit stated that
“presented subject to all the terms and conditions of the Management Contract between
the Bureau of Customs and Manila Port Service and amendments thereto or alterations
thereof, particularly but not limited to paragraph 15 thereof limiting the Company
liability to P500.00 per package, unless the value of the goods is otherwise, specified,
declared or manifested and the corresponding arrastre charges have been paid, . . .”
Rizal Surety now filed a suit against Manila Railroad and Manila Port Services to recover
the amount it paid to Suter arguing that as the insurance company it has been subrogated
to the rights of the insured. The lower court ruled that Rizal Surety is entitled to recovery
but only to the extent of P500 as stated in Clause 15. Hence, this appeal by Rizal Surety
arguing that it should be entitled to recover the full amount.
The SC ruled that Rizal Surety is only entitled to P500. The literal language of Article
2207 does not warrant such an interpretation. It is clear that in the event that the property
has been insured and the Insurance Company has paid the indemnity for the injury or loss
sustained, it "shall be subrogated to the rights of the insured against the wrong-doer or the
person who has violated the contract.” In this case, the management contract is clear that
the amount is limited to P500 per package. While yes the management contract stated
that a greater value could be recovered when it stated “unless the value of the goods is
otherwise specified, declared, or manifested”, Suter (consignee) failed to do so. Hence,
since the insurer is subrogated merely to the rights of the consignee its recovery
necessarily should be limited to what was recoverable by the insured -in this case P500
because no other value was declared.
DOCTRINE: Under Article 2207, in the event that the property has been insured and the
Insurance Company has paid the indemnity for the injury or loss sustained, it "shall be
subrogated to the rights of the insured against the wrong-doer or the person who has
violated the contract.”
In this case, Rizal Surety cannot recover from Manila Railroad and Manila Port Services
an amount greater than that to which the consignee could lawfully lay claim.
FACTS
1.   On or before November 29, 1960 the vessel, SS Flying Trader, loaded on
Board at Genoa, Italy for shipment to Manila, Philippines.
2.   Among the cargo was 6 cases of OMH, Special Single Colour Offset Press
Machine where Bill of Lading No. 1 was issued. Such machine was
consigned to Suter, Inc.
3.   When the vessel arrived at the Port of Manila on January 16, 1961, the
cargo was discharged complete and in good order into the custody of
Manila Port Service as arrastre operator.
4.   In the course of the handling, one of the six cases identified as Case No.
2143 containing the OMH, Special Single Colour Offset Press was dropped
by the crane as it was being lifted and loaded of the Manila Port Service
into the consignee's truck. Because of this, the machine was heavily
damaged.
5.   Rizal Surety, as insurer, paid
a.   P16,500.00 to consignee, Suter, Inc. — representing damages by
way of costs of replacement parts and repairs to put the machine in
working condition,
b.   P180.70 to the International Adjustment Bureau — as adjuster's
fee for the survey conducted on the damaged cargo
6.   In total, Rizal Surety paid a total of P16,680.70 representing its liability
under the insurance contract. The arrastre charges in this particular
shipment was paid on the weight or measurement basis whichever is higher,
and not on the value thereof.
7.   Clause 15 of the management contract appeared "at the dorsal part of the
Delivery Permit" and was "used in taking delivery of the subject shipment
from the Manila Port Service and Manila Railroad Co.’s custody and
control, issued in the name of consignee's broker," contained what was
referred to as "an important notice."
8.   Such permit is “presented subject to all the terms and conditions of the
Management Contract between the Bureau of Customs and Manila Port
Service and amendments thereto or alterations thereof, particularly but not
limited to paragraph 15 thereof limiting the Company liability to P500.00
per package, unless the value of the goods is otherwise, specified, declared
or manifested and the corresponding arrastre charges have been paid, . . .”
 9.   Rizal Surety filed a suit against Manila Railroad and Manila Port Services
to recover the amount it paid to consignee, Suter, Inc. based on the Civil
Code wherein it is tested that the Insurance Company "shall be subrogated
to the rights of the insured”. Rizal Surety argues that it is entitled to the
amount paid by it in full, by virtue of the insurance contract.
10.   The lower court ruled that the Manila Railroad and Manila Port Services
should jointly and severally pay Rizal Surety P500 with legal interest.
11.   Rizal Surety appealed the decision arguing that under the civil code, it could
recover in full. Hence, this petition. (Note, the case didn’t mention what
else happened in the lower court. It went straight to the SC decision)
ISSUE/S:
1.   W/N Rizal Surety is entitled to recover the full amount - NO because Rizal
Surety having been subrogated merely to the rights of the consignee (Suter,
Inc) which is only P500 per package. Rizal Surety could not recover more
because Suter as the consignee did not declare a higher amount which,
under Management Contract, should have been done by Suter if it wishes to
be entitled to a greater amount.
said payment — is not subject to the provisions of said stipulation, and that
the same is furthermore invalid. The lower court correctly rejected this
pretense because, having taken delivery of the shipment aforementioned by
virtue of a delivery permit, incorporating thereto, by reference, the
provisions of said management contract, particularly paragraph 15 thereof,
the gist of which was set forth in the permit, the consignee became bound
by said provisions, and because it could have avoided the application of said
maximum limit of P500.00 per package by stating the true value thereof in
its claim for delivery of the goods in question, which admittedly, the
consignee failed to do.
6.   Rizal Surety and Insurance Company having been subrogated merely to the
rights of the consignee its recovery necessarily should be limited to what
was recoverable by the insured.
7.   The lower court therefore did not err when in the decision appealed from, it
limited the amount which defendants were jointly and severally to pay
plaintiff-appellant to "Five Hundred Pesos (P500.00) with legal interest
thereon from January 31, 1962, the date of the filing of the complaint, . . . "

RULING: WHEREFORE, the decision appealed from is affirmed. With costs

against Rizal Surety and Insurance Company.

RATIO:
1.   The literal language of Article 2207 does not warrant such an interpretation.
It is clear that in the event that the property has been insured and the
Insurance Company has paid the indemnity for the injury or loss sustained,
it "shall be subrogated to the rights of the insured against the wrong-doer or
the person who has violated the contract.”
2.   In this case, Rizal Surety cannot recover from Manila Railroad and Manila
Port Services an amount greater than that to which the consignee could
lawfully lay claim.
3.   The management contract is clear. The amount is limited to Five Hundred
Pesos (P500.00).
4.   Such a stipulation has invariably received the approval of this Court from
the leading case of Bernabe & Co. v. Delgado Bros., Inc. Such a decision
was quoted with approval in the following subsequent cases: Atlantic
Mutual Insurance Co. v. Manila Port Service, Insurance Service Co. of
North America v. Manila Port Service, Insurance Company of North
America v. U.S. Lines, Co., and Insurance Company of North America v.
Manila Port Service.
5.   Rizal Surety maintains that, not being a party to the management contract,
the consignee — into whose shoes plaintiff had stepped in consequence of
 PIONEER INSURANCE V CA (ARMAND)
July 28, 1989| Gutierrez, J. | Subrogation
PETITIONER: Pioneer Insurance & Surety Corporation
RESPONDENTS: Hon. Court of Appeals, Border Machinery & Heavy Equipment
Inc, Constancio M. Maglana and Jacob S. Lim
SUMMARY: Lim is an owner-operator of Southern Airlines (SAL). Japan Domestic
Airlines (JDA) and Lim entered into a sales contract. Pioneer Insurance and Surety
Corp. as surety executed its surety bond in favor of JDA on behalf of its principal
Lim. Border Machinery and Heacy Equipment Co, Inc., Francisco and Modesto
Cervantes, and Constancio Maglana contributed funds based on the misrepresentation
of Lim that they will form a new corporation to expand his business. They executed
two separate indemnity agreements in favor of Pioneer, one signed by Maglana and
the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The
indemnity agreements stipulated that the indemnitors principally agree and bind
themselves jointly and severally to indemnify and hold and save Pioneer from and
against any/all damages, losses, etc. of whatever kind and nature may incur in
consequence of having become surety. Lim executed in favor of Pioneer a deed of
chattel mortgage as security. Upon default on the payments, Pioneer paid for him and
filed a petition for the foreclosure of chattel mortgage as security. Maglana,
Bormaheco and the Cervantes’s filed cross-claims against Lim alleging that they
were not privies to the contracts signed by Lim and for recovery of the sum of money
they advanced to Lim for the purchase of the aircrafts. The decision was rendered
holding Lim liable to pay. The issues are (1) Whether or not the CA erred when it
dismissed the appeal of Pioneer on the sole ground that it had already collected
the proceeds of the reinsurance on its bond in favor of the JDA and that it
cannot represent a reinsurer to recover the amount from herein respondents –
NO. Pioneer was already paid by the reinsurers the amount of P295,000, and had
already foreclosed the mortgaged chattels for the amount of 37,050, thus Pioneer is
already overpaid by P33,383, and has no more claim against the defendants. Pioneer,
having foreclosed the chattel mortgage on the planes and spare parts, no longer has
any further action against the defendants as indemnitors to recover any unpaid
balance. The indemnity agreement was ipso jure extinguished upon the foreclosure of
the chattel mortgage. These defendants, as indemnitors, would be entitled to be
subrogated to the right of Pioneer should they make payments to the latter.
(2) Whether or not Maglana, Bormaheco and the Cervanteses must share in the
loss of the venture in proportion to their contribution - NO. There was no de facto
partnership. Ordinarily, when co-investors agreed to do business through a
corporation but failed to incorporate, a de facto partnership would have been formed,
and as such, all must share in the losses and/or gains of the venture in proportion to
their contribution. But in this case, it was shown that Lim did not have the intent to
form a corporation with Maglana et al.
DOCTRINE: In general a reinsurer, on payment of a loss, acquires the same rights
by subrogation as are acquired in similar cases where the original insurer pays a loss.
If a property is insured and the owner receives the indemnity from the insurer, it is
provided in said article that the insurer is deemed subrogated to the rights of the
insured against the wrongdoer and if the amount paid by the insurer does not fully
cover the loss, then the aggrieved party is the one entitled to recover the
deficiency. Evidently, under this legal provision, the real party in interest with regard
to the portion of the indemnity paid is the insurer and not the insured
FACTS:
7.   This case involves consolidated petitions, one of which came from the
decision of the CA which modified the decision of the then CFI of Manila.
8.   In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the
airline business as owner-operator of Southern Air Lines (SAL) a single
proprietorship.
9.   On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and
Lim entered into and executed a sales contract for the sale and purchase of
two (2) aircrafts and one (1) set of necessary spare parts for the total agreed
price of US $109,000.00 to be paid in installments.
10.   On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer) as
surety executed and issued its Surety Bond No. 6639 in favor of JDA, in
behalf of its principal, Lim, for the balance price of the aircrafts and spare
parts.
11.   It appears that Border Machinery and Heavy Equipment Company, Inc.
(Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and
Constancio Maglana contributed some funds used in the purchase of the
above aircrafts and spare parts. The funds were supposed to be their
contributions to a new corporation proposed by Lim to expand his airline
business.
12.   They executed two (2) separate indemnity in favor of Pioneer, one signed
by Maglana and the other jointly signed by Lim for SAL, Bormaheco and
the Cervanteses. The indemnity agreements stipulated that the indemnitors
principally agree and bind themselves jointly and severally to indemnify
and hold and save harmless Pioneer from and against any/all damages,
losses, costs, damages, taxes, penalties, charges and expenses of whatever
kind and nature which Pioneer may incur in consequence of having become
surety upon the bond/note and to pay, reimburse and make good to Pioneer,
its successors and assigns, all sums and amounts of money which it or its
representatives should or may pay or cause to be paid or become liable to
pay on them of whatever kind and nature.
13.   On June 10, 1965, Lim doing business under the name and style of SAL
executed in favor of Pioneer as deed of chattel mortgage as security for
the latter's suretyship in favor of the former. It was stipulated therein that
Lim transfer and convey to the surety the two aircrafts. The deed was duly
registered with the Office of the Register of Deeds of the City of Manila
and with the Civil Aeronautics Administration pursuant to the Chattel
Mortgage Law and the Civil Aeronautics Law (Republic Act No. 776).
14.   Lim defaulted on his subsequent installment payments prompting JDA to
request payments from the surety. Pioneer paid a total sum of P298,626.12.
15.   Pioneer then filed a petition for the extrajudicial foreclosure of the said
chattel mortgage before the Sheriff of Davao City. The Cervanteses and
 Maglana, however, filed a third party claim alleging that they are co-owners
of the aircraft.
16.   On July 19, 1966, Pioneer filed an action for judicial foreclosure with an
application for a writ of preliminary attachment against Lim and
respondents, the Cervanteses, Bormaheco and Maglana.
17.   In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-
claims against Lim alleging that they were not privies to the contracts
signed by Lim and, by way of counterclaim, sought for damages for being
exposed to litigation and for recovery of the sums of money they advanced
to Lim for the purchase of the aircrafts in question.
18.   After trial, a decision was rendered holding Lim liable to pay Pioneer but
dismissed Pioneer's complaint against all other defendants.
19.   As stated earlier, the appellate court modified the trial court's decision in
that the plaintiffs complaint against all the defendants was dismissed. In all
other respects the trial court's decision was affirmed.
20.   The appellate court ruled that Pioneer's contention that it is representing the
reinsurer to recover the amount from defendants, hence, it instituted the
action is utterly devoid of merit. Plaintiff did not even present any evidence
that it is the attorney-in-fact of the reinsurance company, authorized to
institute an action for and in behalf of the latter. Moreover, the appellate
court ruled that Pioneer cannot be considered as the real party in interest as
it has already been paid by the reinsurer the sum of P295,000.00 — the bulk
of defendants' alleged obligation to Pioneer. It also ruled that in addition to
the said proceeds of the reinsurance received by plaintiff Pioneer from its
reinsurer, the former was able to foreclose extra-judicially one of the subject
airplanes and its spare engine, realizing the total amount of P37,050.00
from the sale of the mortgaged chattels. Adding the sum of P37,050.00, to
the proceeds of the reinsurance amounting to P295,000.00, it is patent that
plaintiff has been overpaid in the amount of P33,383.72 considering that the
total amount it had paid to JDA totals to only P298,666.28. To allow
plaintiff Pioneer to recover from defendants the amount in excess of
P298,666.28 would be tantamount to unjust enrichment
21.   Pioneer contends that (1) it is at a loss where respondent court based its
finding that Pioneer was paid by its reinsurer, (2) even assuming that it was
paid by its reinsurer, none of the respondents had any interest in the matter
since reinsurance is between the petitioner and the reinsurer pursuant to
Sec. 91 of the Insurance Code, (3) pursuant to the indemnity agreements,
the petitioner is entitled to recover from respondents Bormaheco and
Maglaa and (4) the principle of unjust enrichment is not applicable since
whatever amount he would recover from the co-indemnitor will be paid to
the insurer.
ISSUE/s:
2.   Whether or not the CA erred when it dismissed the appeal of Pioneer
on the sole ground that it had already collected the proceeds of the
reinsurance on its bond in favor of the JDA and that it cannot
represent a reinsurer to recover the amount from herein respondents –
NO. Pioneer was already paid by the reinsurers the amount of P295,000,
and had already foreclosed the mortgaged chattels for the amount of 37,050,
thus Pioneer is already overpaid by P33,383, and has no more claim against
the defendants.
3.   Whether or not Maglana, Bormaheco and the Cervanteses must share
in the loss of the venture in proportion to their contribution - NO. There
was no de facto partnership. Ordinarily, when co-investors agreed to do
business through a corporation but failed to incorporate, a de facto
partnership would have been formed, and as such, all must share in the
losses and/or gains of the venture in proportion to their contribution. But in
this case, it was shown that Lim did not have the intent to form a
corporation with Maglana et al.
RULING: WHEREFORE, the instant petitions are DISMISSED. The questioned
decision of the Court of Appeals is AFFIRMED.
RATIO:
6.   As for the first case, the payment to the petitioner made by the reinsurers
was not disputed in the appellate court. Considering this admitted payment,
the only issue that cropped up was the effect of payment made by the
reinsurers to the petitioner. Therefore, the petitioner's argument that the
respondents had no interest in the reinsurance contract as this is strictly
between the petitioner as insured and the reinsuring company pursuant to
Section 91 (should be Section 98) of the Insurance Code has no basis.
7.   Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury.
8.   Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines,
Inc. v. Heald Lumber Co. which we subsequently applied in Manila
Mahogany Manufacturing Corporation v. Court of Appeals:
Note that if a property is insured and the owner receives the indemnity from the insurer, it is
provided in said article that the insurer is deemed subrogated to the rights of the insured against
the wrongdoer and if the amount paid by the insurer does not fully cover the loss, then the
aggrieved party is the one entitled to recover the deficiency. Evidently, under this legal
provision, the real party in interest with regard to the portion of the indemnity paid is the
insurer and not the insured. (Emphasis supplied)
9.   It is clear from the records that Pioneer sued in its own name and not as an
attorney-in-fact of the reinsurer. Accordingly, the appellate court did not
commit a reversible error in dismissing the petitioner's complaint as
against the respondents for the reason that the petitioner was not the
real party in interest in the complaint and, therefore, has no cause of
action against the respondents.
10.   Nevertheless, the Pioneer argues that the appeal as regards the counter
indemnitors should not have been dismissed on the premise that the
 evidence on record shows that it is entitled to recover from the counter effect partners inter se, and their rights as members of the company to the
indemnitors. It does not, however, cite any grounds except its allegation that property acquired by the company will be recognized.
respondent "Maglanas defense and evidence are certainly incredible" 14.   A partnership relation between certain stockholders and other stockholders,
11.   On the other hand, we find the trial court's findings on the matter replete who were also directors, will not be implied in the absence of an agreement,
with evidence to substantiate its finding that the counter-indemnitors are so as to make the former liable to contribute for payment of debts illegally
not liable to the petitioner, to wit: contracted by the latter
Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved, agreed to 15.   In his answer, the petitioner denied having received any amount from
issue the bond provided that the same would be mortgaged to it, but this was not possible respondents Bormaheco, the Cervanteses and Maglana but the trial and
because the planes were still in Japan and could not be mortgaged here in the Philippines. As
soon as the aircrafts were brought to the Philippines, they would be mortgaged to Pioneer appellat court found that petitioner received various amounts from
Insurance to cover the bond, and this indemnity agreement would be cancelled. Pioneer, Bormaheco and Magnlana in the ownership of subject airplanes.
having foreclosed the chattel mortgage on the planes and spare parts, no longer has any 16.   It is therefore clear that the petitioner never had the intention to form a
further action against the defendants as indemnitors to recover any unpaid balance of the
corporation with the respondents despite his representations to them. This
price. The indemnity agreement was ipso jure extinguished upon the foreclosure of the chattel
mortgage. These defendants, as indemnitors, would be entitled to be subrogated to the gives credence to the cross-claims of the respondents to the effect that they
right of Pioneer should they make payments to the latter. were induced and lured by the petitioner to make contributions to a
Pioneer's election of the remedy of foreclosure precludes any further action to recover any proposed corporation which was never formed because the petitioner
unpaid balance of the price. SAL or Lim, having failed to pay the second to the eight and last
reneged on their agreement.
installments to JDA and Pioneer as surety having made of the payments to JDA, the alternative
remedies open to Pioneer were as provided in Article 1484 of the New Civil Code, known as 17.   Applying therefore the principles of law earlier cited to the facts of the case,
the Recto Law. necessarily, no de facto partnership was created among the parties which
Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial would entitle the petitioner to a reimbursement of the supposed losses of the
foreclosure and the instant suit. Such being the case, as provided by the aforementioned proposed corporation. The record shows that the petitioner was acting on
provisions, Pioneer shall have no further action against the purchaser to recover any unpaid
balance and any agreement to the contrary is void. The restructuring of the obligations of SAL his own and not in behalf of his other would-be incorporators in transacting
or Lim, thru the change of their maturity dates discharged these defendants from any liability the sale of the airplanes and spare parts.
as alleged indemnitors. The change of the maturity dates of the obligations of Lim, or SAL
extinguish the original obligations thru novations thus discharging the indemnitors. These
restructuring of the obligations with regard to their maturity dates, effected twice, were done
without the knowledge, much less, would have it believed that these defendants Maglana (sic).
Pioneer's official Numeriano Carbonel would have it believed that these defendants and
defendant Maglana knew of and consented to the modification of the obligations. But if that
were so, there would have been the corresponding documents in the form of a written notice to
as well as written conformity of these defendants, and there are no such document. The
consequence of this was the extinguishment of the obligations and of the surety bond secured
by the indemnity agreement which was thereby also extinguished.
Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same.
Consequently, Pioneer has no more cause of action to recover from these defendants, as
supposed indemnitors, what it has paid to JDA. By virtue of an express stipulation in the
surety bond, the failure of JDA to present its claim to Pioneer within ten days from default of
Lim or SAL on every installment, released Pioneer from liability from the claim. Therefore,
Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity
12.   As for the second case wherein the petioner is Jacob S. Lim, he theorizes
that as a result of the failure of respondents Bormaheco, Spouses Cervantes,
Constancio Maglana and petitioner Lim to incorporate, a de
facto partnership among them was created, and that as a consequence of
such relationship all must share in the losses and/or gains of the venture in
proportion to their contribution. Petitioner then questions the appellate
court’s findings ordering him to reimburse certain amounts given by
respondents as their contributions to the intended corporation.
13.   Where persons associate themselves together under articles to purchase
property to carry on a business, and their organization is so defective as to
come short of creating a corporation within the statute, they become in legal
 007 ORIENTAL ASSURANCE v. ONG (MERILLES)
October 11, 2017 | Leonen, J. | Subrogation
PETITIONER: Oriental Assurance Corporation
RESPONDENTS: Manuel Ong, doing business under the name of Western
Pacific Transport Services and/or Asian Terminals, Inc.
NOTE THE RELATIONSHIPS: Oriental = insurer; JEA = insured/consignee; Asian
Terminals = consignor
SUMMARY: JEA Steels imported from South Korea 72 coils. When it arrived
at Manila, it was stored under the custody of Asian Terminals. From storage it
was loaded on trucks of Manuel Ong to be delivered at the plant of JEA Steel.
However, upon arrival at the plant, 11 coils were found to be in damaged
condition.
JEA claimed insurance from Oriental Assurance. Oriental paid JEA the sum of
₱521,530.16. Oriental demanded indemnity form Ong and Asian Terminals, but
they refused. Hence, a complaint was filed for collection of sum of money. Ong
alleged that the coils were already damaged when he received it. Asian argues
hat it had exercised due diligence in caring for the consigned goods. The RTC
dismissed the case, which the CA affirmed. The CA stated that the action of
Oriental has already prescribed.
The issue relevant to our topic is wether the claim against Asian Terminals, Inc.
is barred by prescription. The court ruled that NO, the action is not barred.
Under the Management Contract between JEA and Asian Terminal, claims must
be filed within 15 days from the issuance of the Gate Pass. However, also under
the Management Contract, the consignee (JEA) had thirty (30) days from
receipt of the cargo to request for a certificate of loss from Asian Terminals.
Oriental claimed damages 17 days after last receipt of the goods or within the 30
day period. Although not a party to the contract, Oriental was subrogated to the
rights of JEA.
If the insured property is destroyed or damaged through the fault or
negligence of a party other than the assured, then the insurer, upon
payment to the assured, will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer has been
obligated to pay. As subrogee, Oriental merely stepped into the shoes of the
consignee and may only exercise those rights that the consignee may have
against the wrongdoer who caused the damage.
DOCTRINE: As subrogee, Oriental merely stepped into the shoes of the
consignee and may only exercise those rights that the consignee may have
against the wrongdoer who caused the damage.
FACTS:
1.   JEA Steel Industries imported from South Korea 72 aluminum-zinc-alloy-
coated steel sheets in coils. These steel sheets were transported to Manila on
board the vessel M/V Dooyang Glory as evidenced by a Bill of Lading.
2.   Upon arrival of the vessel at the Manila South Harbor on June 10, 2002, the
72 coils were discharged and stored in Pier 9 under the custody of the
arrastre contractor, Asian Terminals, Inc (respondent company in this case).
3.   From the storage compound, the coils were loaded on the trucks on Manuel
Ong (respondent) and delivered to JEA Steel’s plant in Trece Martirez,
Cavite.
4.   Eleven (11) of the coils ''were found to be in damaged condition, dented or
their normal round shape deformed.”
5.   JEA Steel filed a claim with Oriental for the value of the 11 damaged coils,
pursuant to Marine Insurance Policy No. OAC/M-12292.
6.   Oriental paid JEA Steel the sum of ₱521,530.16 and subsequently
demanded indemnity from Ong and Asian Terminals (respondents), but
they refused to pay.
7.   Oriental filed a complaint before the RTC of Manila for sum of money
against Ong and Asian Terminals.
8.   Ong countered that the 1l coils were already damaged when they were
loaded on board his trucks and transported to the consignee.
9.   Asian Terminals claimed that it exercised due diligence in handling the
cargo, that the cargo was released to the consignee's representative in the
same condition as when received from the vessel, and that the damages
were sustained while in the custody of the vessel or the customs broker.
a.   Asian Terminals further argued that Oriental's claim was barred for
the latter's failure to file a notice of claim within the 15-day period
provided in the Gate Pass and in Article VII, Section 7.01 of the
Contract for Cargo Handling Services (Management Contract)
between the Philippine Ports Authority and Asian Terminals
b.   Asian Terminals added that its liability, if any, should not exceed
₱5,000.00, pursuant to said Section 7.01.
10.   RTC dismissed the complaint as it found no preponderance of evidence to
establish that Ong and Asian Terminals were the ones responsible for the
damages. The MR was likewise denied.
11.   The CA dismissed Oriental’s appeal on the ground that its claim had
already prescribed.
a.   CA also found that the coils were already damaged when it was
loaded in Ong’s trucks
b.   Hence, the legal presumption of negligence applies against Asian
Terminals unless it is able to prove that it exercised extraordinary
diligence in the handling of the cargo.
c.   The CA held that as an arrastre operator, Asian Terminals was
bound to observe the same degree of care required of common
carriers.
 d.   The CA ultimately ruled that while Asian Terminals failed to rebut
the presumption of negligence against it, it cannot be held liable to
pay the value of the damaged coils because Oriental's claim was
filed beyond the 15-day prescriptive period stated in the Gate Pass
e.   An MR was also denied.
12.   Hence, this petition before the SC.
ISSUE/s:
1.   Whether or not the Court of Appeals gravely erred in passing upon the issue
of prescription even though it was not an assigned error in the appeal – NO,
the issue of prescription is closely related to, and determinant of, the
propriety of the lower court's ruling, absolving respondents from liability
for the damaged goods and dismissing Oriental's complaint.
2.   Whether or not the claim against Asian Terminals, Inc. is barred by
prescription – NO, the claim was received within the 30 day period to
request for a certificate of loss, damage, or injury from the arrastre operator.
3.   Whether or not the Court of Appeals gravely erred in ruling that Manuel
Ong is not liable for the damage of the cargo – NO. Manuel Ong is not
liable, Asian Terminal knows of the defect prior to it being loaded in his
truck.
RULING: WHEREFORE, the Petition for Review is GRANTED. The February 19,
2009 Decision and August 25, 2009 Resolution of the Court of Appeals in CA-G.R.
CV No. 89311 are SET ASIDE. Respondent Asian Terminals, Inc. is ORDERED to
pay petitioner Oriental Assurance Corporation the amount of ₱55,000.00, with
interest at the legal rate of six percent (6%) per annum from the date of finality of
this judgment until fully paid.
RATIO:
1.   ISSUE #1 ON RULING ON PRESCRIPTION (can skip):
a.   Oriental submits that the "Court of Appeals cannot rule on the
issue of prescription as this was not included in the assignment of
errors nor was this properly argued by any of the parties in their
respective briefs filed before the Court of Appeals.
b.   On the other hand, Asian Terminals counters that the Court of
Appeals properly reviewed the issue of prescription even though it
was not raised in Oriental's appeal brief. This issue is closely
related to the liability of Asian Terminals for the damaged
shipment, the first error in Oriental's appeal. Moreover, Asian
Terminals asserts that it raised the issue of prescription before the
trial court, although it was not resolved.
c.   THE COURT AGREES WITH ASIAN TERMINALS. The issue
of prescription is closely related to, and determinant of, the
propriety of the lower court's ruling, absolving respondents from
liability for the damaged goods and dismissing Oriental's
complaint. Thus, the Court finds no error on the part of the Court
of Appeals in passing upon this issue.
2.   [IMPORTANT] ISSUE #2 ON WHETHER THE CLAIM IS BARRED
BY PRESCRIPTION:
a.   Oriental contends that it was not aware of the provisions of the
Gate Pass or the Management Contract, neither of which it was a
party to. Consequently, it cannot be bound by the stipulation
limiting the liability of Asian Terminals.
b.   Asian Terminals counters that "the provisions of the Management
Contract and the Gate Pass are binding on Oriental as insurer-
subrogee and successor-in-interest of the consignee.”
c.   THE COURT AGREES WITH ASIAN TERMINALS. The fact
that Oriental is not a party to the Gate Pass and the Management
Contract does not mean that it cannot be bound by their provisions.
Oriental is subrogated to the rights of the consignee simply upon
its payment of the insurance claim.
d.   Citing GSIS v Manila Railroad: The SC has repeatedly held that,
by availing himself of the services of the arrastre operator and
taking delivery therefrom in pursuance of a permit and a pass
issued by the latter, which were "subject to all the terms and
conditions" of said management contract, including, inter alia, the
requirement thereof that "a claim is filed with the Company within
15 days from the date of arrival of the goods", the consignee - and,
hence, the insurer, or plaintiff herein, as successor to the rights of
the consignee - became bound by the provisions of said contract.
e.   Citing Summa Insurance v CA: However, a management contract,
which is a sort of a stipulation pour autrui within the meaning of
Article 1311 of the Civil Code, is also binding on a consignee
because it is incorporated in the gate pass and delivery receipt
which must be presented by the consignee before delivery can be
effected to it. The insurer, as successor-in-interest of the consignee,
is likewise bound by the management contract.
f.   The fact that Oriental is not a party to the Gate Pass and the
Management Contract does not mean that it cannot be bound by
their provisions. Oriental is subrogated to the rights of the
consignee simply upon its payment of the insurance claim.
g.   Art. 2207 of the Civil Code is founded on the well-settled
principle of subrogation. If the insured property is destroyed
or damaged through the fault or negligence of a party other
than the assured, then the insurer, upon payment to the
assured, will be subrogated to the rights of the assured to
recover from the wrongdoer to the extent that the insurer has
been obligated to pay.
i.   Payment by the insurer to the assured operates as an
equitable assignment to the former of all remedies which
the latter may have against the third party whose
negligence or wrongful act caused the loss,
 ii.   The right of subrogation is not dependent upon, nor does fact, Ong and Asian Terminals were sued in the alternative because
it grow out of, any privity of contract or upon written petitioner was uncertain against whom it was entitled for relief.
assignment of claim. d.   Furthermore, there was no proof of Ong's bad faith.
iii.   It accrues simply upon payment of the insurance claim e.   Mere allegation cannot take the place of evidence.
by the insurer f.   Besides, Ong's assertion that the loading of the cargo on the trucks
h.   As subrogee, Oriental merely stepped into the shoes of the was undertaken by Asian Terminals and the unloading of the same
consignee and may only exercise those rights that the consignee cargo was undertaken by the consignee at its warehouse remains
may have against the wrongdoer who caused the damage. unrequited
i.   Under the express terms of the Management Contract, the g.   Asian Terminals caused the inspection of the shipment before they
consignee had thirty (30) days from receipt of the cargo to request were loaded on Ong's trucks. At the consignee's warehouse, the
for a certificate of loss from the arrastre operator. inspection was done in the presence of the consignee's authorized
j.   Upon receipt of such request, the arrastre operator would have representative.
15 days to issue a certificate of loss, either actually or h.   Thus, Ong is not obliged to inform the consignee or Asian
constructively. Terminals about the damaged coils as they would have presumably
k.   From the date of issuance of the certificate of loss or where no known about them.
certificate was issued, from the expiration of the 15-day period, 5.   ASIAN TERMINALS IS FOUND LIABLE AND ORDERED TO PAY
the consignee has 15 days within which to file a formal claim ORIENTAL P55,000 with interests.
with the arrastre operator.
l.   In other words, the consignee had 45 to 60 days from the date of
last delivery of the goods within which to submit a formal claim to
the arrastre operator.
m.   The consignee's claim letter was received by Asian Terminals
on July 4, 2002, or 17 days from the last delivery of the goods,
still within the prescribed 30-day period to request a certificate
of loss, damage, or injury from the arrastre operator.
3.   LIABILITY OF ASIAN TERMINALS:
a.   Evidence showed that Upon Asian Terminal’s request, Ultraphil
conducted surveys which sowed that 11 coils were damaged before
it was loaded don Ong’s truck.
b.   Asian Terminals request for the cargo survey shows that it had
knowledge of the damage of the shipment while in its possession
and that the survey was sought specifically to ascertain the nature
and extent of the damage.
c.   Thus, Asian Cargos cannot escape liability for the damaged coils,
simply by its own act of not sending a representative, after it had
contracted for the survey of the shipment.
4.   ISSUE #3 ON LIABILITY OF MANUEL ONG:
a.   Both the Court of Appeals and the Regional Trial Court found that
the 11 coils were already damaged before the coils were loaded on
Ong's truck. Hence, Ong could not be responsible for the damaged
shipment.
b.   However, petitioner asserts that Ong should be held solidarily
liable with Asian Terminals for acting in bad faith when it did not
apprise the consignee or Asian Terminals about the damaged coils.
THE COURT FINDS THIS CONTENTION UNTENABLE.
c.   This issue was never raised by petitioner in the lower courts. In
 001 UNITED DOCTORS MEDICAL CENTER v. BERNADAS
(PELIÑO)
December 13, 2017 | Leonen, J. | Insurance and Retirement Benefits
PETITIONER: United Doctors Medical Center
RESPONDENT: Cesario Bernadas, represented by Leonila Bernadas
SUMMARY: Cesario was an employee of UDMC. UDMC and the rank-and-file
employees had a CBA where these employees were entitled to ORB. Based on this
optional retirement policy, an employee who has rendered at least 20 years of service is
entitled to optionally retire and the pay would be equal to a retiree’s salary for 11 days per
year of service. Cesario died of a freak accident. So Leonila, his wife, filed a Complaint
for payment of retirement benefits, damages, and atty’s fees with the NLRC. She was
already able to get 180k insurance proceeds based on the CBA. The LA dismissed her
complaint, saying that since Cesario didn’t apply for ORB, then the beneficiaries are not
entitled. She appealed to NLRC, and they reversed the LA. NLRC said that since the
optional retirement plan was never presented, it cast a doubt on whether an application is
required before an employee could be entitled, hence the doubt should be resolved in
favor of Cesario. On appeal to the CA, CA sustained the NLRC, saying that the
retirement benefits and insurance are 2 distinct benefits. Hence, this petition. The issue in
this case is whether or not Cesario is entitled to receive his ORB despite receiving
insurance benefits. The SC answered in the affirmative. The SC distinguished between
insurance and retirement plans, wherein a contract of insurance – indemnity; agreement
whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event, while retirement
plans are those which serve to secure loyalty and efficiency on the part of employees,
and to increase continuity of service and decrease the labor turnover, by giving to the
employees some assurance of security as they approach and reach the age at which
earning ability and earnings are materially impaired or at an end. Hence, grant of
insurance proceeds will not necessarily bar the grant of retirement benefits; these are
2 separate and distinct benefits that an employer may provide to its employees. In
addition, Cesario is also entitled to ORB because CBA does not mandate that an
application must first be filed before the benefits may vest, hence, this ambiguity
should be resolved in favor of the retiree.
DOCTRINE: Contract of insurance – indemnity; agreement whereby one undertakes
for a consideration to indemnify another against loss, damage or liability arising
from an unknown or contingent event, while retirement plans are those which serve
to secure loyalty and efficiency on the part of employees, and to increase continuity
of service and decrease the labor turnover, by giving to the employees some
assurance of security as they approach and reach the age at which earning ability and
earnings are materially impaired or at an end. Hence, grant of insurance proceeds
will not necessarily bar the grant of retirement benefits; these are 2 separate and
distinct benefits that an employer may provide to its employees
FACTS:
12.   This is a Petition for Review on Certiorari assailing the Decision and Resolution
of the CA, sustaining the NLRC’s finding.
3
Merriam-Webster defined this as a person who works in a hospital and does various jobs (such as
moving patients or cleaning)
13.   On July 17, 1986, Cesario Bernadas (Cesario) was an orderly3 in United
Doctors Medical Center’s (UDMC) housekeeping department; he was
eventually promoted as a utility man.
14.   UDMC and the rank-and-file employees had a collective bargaining agreement
(CBA) where the rank-and-file employees were entitled to optional retirement
benefits (ORB).
a.   The provision on the CBA reads: “Sec. 1. Retirement and Severance Pay.
The CENTER shall grant each employee retirement and severance pay in
accordance with law. It shall also continue its present policy on optional
retirement.”
b.   Based on this optional retirement policy, an employee who has rendered at
least 20 years of service is entitled to optionally retire and the retirement
pay is equal to a retiree’s salary for 11 days per year of service.
c.   Employees are also provided insurance where UDMC pays the
premiums and the family members would be the beneficiaries.
15.   October 20, 2009, Cesario, 53 years at that time, died in a “freak accident”
while working in a doctor’s residence.
16.   His wife, Leonila Bernadas (Leonila) filed a Complaint for payment of
retirement benefits, damages, and attorney’s fees with the NLRC. And Leonila
and her son also claimed and were able to receive insurance proceeds of Php
180k under the CBA.
17.   Labor Arbiter: dismissed Leonila’s complaint.
a.   Cesario should have applied for ORB during his lifetime, the benefits being
optional. But since he didn’t, then his beneficiaries are not entitled to claim
his ORB.
18.   Leonila appealed to the NLRC.
a.   NLRC reversed the Labor Arbiter.
b.   It found that the optional retirement plan was never presented so it cast a
doubt on whether or not the plan required an application for ORB before an
employee could become entitled to them. And considering the
“constitutional mandate to afford full protection to labor”, NLRC resolved
the doubt in favor of Cesario.
c.   UDMC filed a MR but was denied.
19.   UDMC subsequently filed a Petition for Certiorari with the CA.
a.   CA rendered a decision sustaining the ruling of the NLRC.
b.   CA held that the retirement plan and insurance are 2 separate and distinct
benefits that were granted to employees and that Leonila’s receipt of the
insurance proceeds did not bar her from being entitled to the retirement
benefits under the CBA.
c.   UDMC filed a MR but was denied as well.
20.   Hence, this petition.
21.   UDMC argues:
a.   Cesario’s beneficiaries do not have legal capacity to apply for his ORB
since Cesario never applied for it in his lifetime, and even assuming that he
was already qualified to apply for optional retirement 3 years prior to his
death, he never did. Hence, no basis for Cesario’s beneficiaries to be
 entitled to his optional retirement benefits.
b.   To grant them these ORB on top of the life insurance benefits would
amount to double compensation and unjust enrichment.
22.   Leonila argues:
a.   Had her husband died under normal circumstances, he would have applied
for the ORB.
b.   The fact that he was unable to apply before his death is a procedural
technicality that should be set aside so that “full protection to labor” is
afforded and “the ends of social and compassionate justice” are met.
ISSUE/s:
2.   WON Leonila, as her husband’s representative, may claim his optional
retirement benefits. – YES, she is a beneficiary of Cesario.
3.   WON Cesario can receive the ORB despite already receiving insurance
benefits. – YES, insurance and retirement plans are two separate benefits and
receiving one is not a bar to receiving the other.
4.   WON Cesario is entitled to receive his ORB despite his untimely death. – YES,
CBA does not mandate that an application must first be filed before the benefits
may vest, hence, this ambiguity should be resolved in favor of the retiree.
RULING: WHEREFORE, the petition is DENIED. The Decision and Resolution of the
CA are AFFIRMED. Petitioner UDMC is ordered to pay Cesario, through his beneficiary
Leonila, optional retirement benefits in the amount of Php 98,252.55 as provided by the
Labor Code.
RATIO:
1.   Retirement – result of a bilateral act of the parties, a voluntary agreement
between the employer and the employee whereby the latter, after reaching a
certain age, agrees to sever his or her employment with the former.
2.   Contract of Insurance – indemnity; agreement whereby one undertakes for
a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event.
3.   Retirement plans – Serve to secure loyalty and efficiency on the part of
employees, and to increase continuity of service and decrease the labor
turnover, by giving to the employees some assurance of security as they
approach and reach the age at which earning ability and earnings are
materially impaired or at an end.
4.   Given the above, it is clear that there is a difference between insurance and
retirement benefits. Hence, grant of insurance proceeds will not necessarily
bar the grant of retirement benefits; these are 2 separate and distinct
benefits that an employer may provide to its employees.
5.   Three types of retirement plans available to employees in the PH:
a.   Compulsory and Contributory – RA 8282 for private (SSS) and RA 8291
for government (GSIS). These laws provide mandatory contribution which
shall become a pension fund upon retirement. A mandatory contribution is
deducted from the employee’s monthly income; retirement packages are
usually crafted as ‘forced savings’. There is a vested right to the benefits
here, so the beneficiaries of retired employees are entitled to receive even
after the employee’s death.
b.   Voluntary4: by agreement between the employer and employee – This is
usually embodied in a CBA.
c.   Voluntary: given by the employer – Announced company policy or
impliedly as in a failure to contest the employee’s claim for retirement
benefits.
6.   These retirement plans are not meant to be a replacement to the compulsory
retirement scheme under social security laws.
On whether Cesario is entitled to receive his optional retirement benefits despite his
untimely death
1.   Issue in this case concerns the second type of retirement plan.
2.   The terms and conditions of a CBA constitute the law between the parties, but
the CBA involved in this case does not provide for the terms and conditions of
the “present policy on optional retirement”.
a.   Leonila merely alleged before the Labor Arbiter that UDMC grants an
employee a retirement or separation equivalent to 11 days per year of
service after serving for at least 20 years, which was not deisputed by
UDMC. Therefore, doubt arises as to what UDMC’s optional retirement
package actually entails.
3.   It is settled that doubts must be resolved in favor of labor.
a.   Retirement laws should be liberally construed and administered in favor of
the persons intended to be benefited and all doubts as to the intent of the
law should be resolved in favor of the retiree to achieve its humanitarian
purpose.
4.   UDMC: insists that Cesario would not have been entitled to his ORB as he
failed to exercise the option before his untimely death.
a.   SC: Retirement encompasses even the concept of death and that the Court
has considered death as a form of disability retirement since there is no
more permanent or total physicaly disability than death.
i.   Compulsory retirement and death both involve events beyond the
employee’s control.
b.   UDMC also admits that Cesario was already qualified to receive retirement
benefits since he was already working there for 23 years, and while the
choice to retire was within Cesario’s control, his death foreclosed that
possibility.
c.   UDMC’s optional retirement plan is based on length of service and not of
reaching a certain age. It rewards loyalty and continued service by granting
an employee an earlier age to claim his or her retirement benefits even if
the employee has not reached the twilight years. It would be iniquitous to
withhold it from he just because he died before he applied.
d.   CBA does not mandate that an application must first be filed before
the benefits may vest, hence, this ambiguity should be resolved in favor
of the retiree.
e.   Retirement benefits are the property interests of the retiree and his or her
beneficiaries. CBA doesn’t prohibit the beneficiaries from claiming
retirement benefits even if the retiree dies before the proceeds could be
released.
4
The last 2 retirement plans are governed by the Labor Code.
 damage through accident for an amount not exceeding P8,000 (Policy No.
02 CCC INSURANCE CORP. v. CA (PLEYTO) MC-1156)
January 30, 1970 | Reyes, J.B.L, J. | Insurance Contract Interpretation 24.   On June 25, 1961, and during the effectivity of the policy, the insured
vehicle, while being driven by the driver of Robes, became involved in a
vehicle collision along Rizal Avenue Extension, Potrero, Malabon, Rizal
PETITIONER: CCC Insurance Corporation
25.   The car was damaged and the repair was estimated to cost P5,300.
RESPONDENTS: Court of Appeals (Fourth Division) and Carlos F. Robes
26.   Robes instituted a civil case in the CFI of Rizal because the insurance
company refused either to pay for the repair or to cause the restoration of
SUMMARY: On Mar. 1, 1961, Robes took an insurance, with the CCC Insurance
the car to its original condition
Corp, on his Dodge Kingsway car against loss or damage through accident for an
27.   The civil case was for recovery not only of the amount necessary for the
amount not exceeding P8000 (policy). On June 25 (while policy was effective),
repair of the insured car but also of actual and moral damages, attys fees
Robes’ driver, while driving the insured car, got into a collision. The cost of damages
and costs
was estimated to cost P5,300. The insurance company refused to either pay for the
28.   Resisting plaintiff’s (Robes) claim, the insurance company disclaimed
repair or the restoration so Robes instituted a civil case for recovery of the amount
liability for payment, alleging that there had been violation of the insurance
necessary for the repair, actual and moral damages, and attys fees. CCC disclaimed
contract because the one driving the car at the time of the incident was not
liability, alleging that there had been a violation of the insurance contract because the
an “authorized driver”
one driving the car was not an authorized driver. The trial court ruled in favor of
29.   After due hearing, judgment was rendered for Robes and CCC was ordered
Robes, granting him the P5,031.28, for the cost of repair, actual and moral damages
to pay the cost of repair in the sum of P5,031.28; the sum of P150, for the
and attorneys fees. CA affirmed this except for actual damages, because it was said
hauling and impounding of the car at the repair shop; P2k as actual
to be too speculative. CCC was not content hence, this petition. The issue is WoN
damages; P1k as attys fees, plus costs
the damage to the insured car was not covered by the insurance policy because at the
30.   CCC went to the CA, raising inter alia the questions of the qualification of
time of the accident it was being driven by one who was not an authorized driver.
Robes’ driver to operate the insured vehicle and the correctness of the trial
CCC claims that the driver is not authorized because does not know how to read and
court’s award to Robes of the cost of repairs, actual and moral damages, and
write; that he was able to secure a driver’s license, without passing any examination
attys fees
thereof, by paying P25 to a certain woman; and that the Cavite agency of the Motor
31.   On Jan. 31, 1966, CA affirmed the ruling of the lower court except the
Vehicles Office has certified not having issued Reyes’ purported driver’s license. CA
award of actual damages in the sum of P2k, for being too speculative
argued that since Reyes' purported driver's license bears all the earmarks of a duly
32.   Not content, CCC filed the present petition of the decision of the CA
issued license, then it is a public document, and CCC then has the burden of
disproving its genuineness, which the latter has failed to do. Also, the fatal flaw in
ISSUE/s:
CCC’s argument is that it ignores the provisions of law existing at the time of the
4.   WoN the damage to the insured car was not covered by the insurance policy
mishap, which says that the issuance of a driving license without previous
because at the time of the accident it was being driven by one who was not
examination does not necessarily imply that the license issued is invalid. Considering
an authorized driver (main) – NO. The Court said that Reyes (the driver) is
that, as pointed out by the Court of Appeals the weight of authority is in favor of a
authorized and his license is genuine, as issued by the MVO. A
liberal interpretation of the insurance policy for the benefit of the party insured, and
5.   WoN the proceedings observed in the trial court were irregular and invalid
strictly against the insurer, SC finds no reason to diverge from the conclusion
– NO. There is nothing wrong with the practice of delegating to a
reached by the Court of Appeals that no breach was committed of the above- quoted
commissioner, usually the clerk of court, who is a duly sworn court officer,
provision of the policy.
the reception of both parties and for him to submit a report thereon to the
court. (not relevant)
DOCTRINE: The weight of authority is in favor of a liberal interpretation of the
insurance policy for the benefit of the party insured, and strictly against the insurer
RULING: the decision of the CA is affirmed, with costs against CCC

FACTS:
22.   This is a petition for review of the decision of the CA, affirming that of the
CFI of Rizal, QC, allowing insurance indemnification of plaintiff for his
damaged car and the payment of atty’s fees
23.   On March 1, 1961, Carlos F. Robes took an insurance, with the CCC
Insurance Corporation (CCC), on his Dodge Kingsway car against loss or
RATIO: license without previous examination does not necessarily imply that the
18.   It is vigorously urged by the insurer that the one driving the insured vehicle license issued is invalid.
at the time of the accident was not an authorized driver thereof within the 25.   As the law stood in 1961, when the claim arose, the examinations could be
5
purview of the provision of the insurance policy dispensed with in the discretion of the Motor Vehicles Office officials.
19.   It has been found as a fact by the CA that Domingo Reyes, the driver, does Whether discretion was abused in issuing the license without examination is
not know how to read and write; that he was able to secure a driver’s not a proper subject of inquiry in these proceedings, though, as a matter of
license, without passing any examination thereof, by paying P25 to a certain legislative policy, the discretion should be eliminated. There is no proof that
woman; and that the Cavite agency of the Motor Vehicles Office has the owner of the automobile knew that the circumstances surrounding such
certified not having issued Reyes’ purported driver’s license issuance showed that it was irregular.
20.   In holding that the damage sustained by the car comes within the coverage 26.   The issuance of the license is proof that the Motor Vehicles Office official
of the insurance policy, the CA argued that since Reyes' purported driver's considered Reyes, the driver of Robes, qualified to operate motor vehicles,
license bears all the earmarks of a duly issued license, then it is a public and the insured was entitled to rely upon such license.
document, and CCC then has the burden of disproving its genuineness, 27.   In this connection, it should be observed that the chauffeur, Reyes, had been
which the latter has failed to do driving since 1957, and without mishap, for all the record shows.
21.   CA ruled: 28.   Considering that, as pointed out by the Court of Appeals the weight of
a. the fact that the Cavite Agency of the Motor Vehicles Office authority is in favor of a liberal interpretation of the insurance policy
states that Drivers License was not issued by that office, does not for the benefit of the party insured, and strictly against the insurer, SC
remove the possibility that said office may have been mistaken or finds no reason to diverge from the conclusion reached by the Court of
that said license was issued by another agency. Appeals that no breach was committed of the above- quoted provision of
b. Indeed a certain Gloria Presa made the notation thereon "no the policy.
license issued" and which notation was the basis of the 1st
Indorsement, signed by the MVO Cavite City Agency's officer-in- 2nd issue
charge. 29.   The next issue is anchored on the fact that the decision of the trial court was
c. Neither Gloria Presa nor the officer-in-charge Marciano A. based on evidence presented to and received by the clerk of court who acted
Monzon was placed on the witness stand to be examined in order as commissioner, although allegedly, there was no written court order
to determine whether said license is indeed void. constituting him as such commissioner, no written request for his
d. thus, the fact remains that Domingo Reyes is in possession of a commission was made by the parties; he did not take an oath prior to
driver's license issued by the Motor Vehicles Office which on its entering into the discharge of his commission; no written report of his
face appears to have been regularly issued. findings was ever submitted to the court; and no notice thereof was sent to
22.   CA then found the license as genuine, that is, one really issued by the MVO the parties, contrary to the provisions of Rule 33 of the Rules of Court.
or its authorized deputy; and this finding of fact is now conclusive and may 30.   There is nothing wrong with the practice of delegating to a commissioner,
not be questioned in this appeal usually the clerk of court, who is a duly sworn court officer, the reception of
23.   Nevertheless, CCC insists that, under the established facts of this case, both parties and for him to submit a report thereon to the court.
Reyes, being admittedly one who cannot read and write, who has never 31.   In fact, this procedure is expressly sanctioned by Revised Rule 33 of the
passed any examination for drivers, and has not applied for a license from Rules of Court. CCC’s objection in this case, however, is directed not
the duly constituted government agency entrusted with the duty of licensing against its referral to the clerk of court but against the alleged non-
drivers, cannot be considered an authorized driver. observance of the prescribed steps in connection with such delegation.
24.   The fatal flaw in CCC’s argument is that it ignores the provisions of law 32.   SC finds no cause sufficient to invalidate the proceedings had in the trial
6 court. SC notes that this issue was brought up by CCC for the first time only
existing at the time of the mishap, which says that the issuance of a driving
in its motion for reconsideration filed in the Court of Appeals.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5

 "AUTHORIZED DRIVER: "Any of the following: 6
Under Section 24 of the revised Motor Vehicles Law:
(a)   The insured; “An examination or demonstration to show any applicant's ability to operate motor vehicles may also be
(b)   Any person driving on the Insured's order or with his permission, provided that the person required in the discretion of the Chief, Motor Vehicles Office or his deputies."
driving is permitted in accordance with licensing laws or regulations to drive the motor vehicle And reinforcing Section 24, Section 26 prescribes further:
covered by this Policy, or has been so permitted and is not disqualified by order of a court of "SEC. 26. Issuance of chauffeur's license; professional badge: If, after examination, or without the same,
law or by reason of any enactment or regulation from driving such Motor Vehicle." (Italics the Chief, Motor Vehicles Office or his deputies, believe the applicant to possess the necessary
ours) qualifications and knowledge, they shall issue to such applicant a license to operate as chauffeur . . ."
33.   It was not raised in the trial court, where the defect could still be remedied.
This circumstance precludes ventilation of the issue of validity of the
hearing at this stage; for, if such irregularity is to vitiate the proceeding, the
question should have been seasonably raised, i.e., either before the parties
proceeded with the hearing or before the court handed down its ruling. It is
a procedural point that can be waived by consent of the parties, express or
implied.
34.   For the same reason, appellant cannot insist now on the annulment of the
proceeding on the basis of alleged lack of written consent of the parties to
the commission, or of an order appointing the clerk as commissioner, or of
notice of the submission of his report to the court.
35.   Furthermore, appellant has presented no proof that the clerk of court
committed any mistake or abuse in the performance of the task entrusted to
him, or that the trial court was not able to properly appreciate the evidence
in the case because it was received by another person. If indeed there were
errors at all, they would be non-prejudicial and could not justify the holding
of a new trial, as urged by herein petitioner.
 003 Assoc. of Baptists for World Evangelism, Inc. v. Fieldmen’s with Motor No. 032433272555 and Plate No. E-73317 covered by
Insurance (Punsalan) Registration Certificate No. 288141 Rizal, issued by the Davao Motor
Sept. 21, 1983 | Melencio-Herrera, J. | Joyride in Davao; Insurance Contract Vehicles Office Agency No. 20 and owned by Reverend Clinton Bonnel
Interpretation 25.   Association insured said vehicle with Fieldmen’s with Private Car
Comprehensive Policy No. 22 (Comprehensive Policy) against loss or
damage up to P5,000.00.
PETITIONER: Association of Baptists for World Evangelism, Inc.
26.   1961: Association’s representative Dr. Antonio Lim (Dr. Lim) placed the
RESPONDENTS: Fieldmen’s Insurance Co., Inc.
Chevrolet Carry-all at the Jones Monument Mobilgas Service Station at
Davao City, under care of station operator Rene Te (Te) so that the vehicle
SUMMARY: Association has an insurable interest in its Chervrolet Carry-all. It
could be displayed as being for sale and that the station boys would
insured the vehicle with Fieldmen’s with Private Car Comprehensive Policy No.
receive 2% commission should they sell the vehicle.
22 (Comprehensive Policy) against loss or damage up to P5,000. Assoc.’s
27.   1962: One night, Romeo Catiben (station boy in said service station) and a
representative, Dr. Lim, proceeded to Jones Monument Mobilgas Service Station
nephew (unnamed in the case) of the wife of Te, took the vehicle for a
at Davao City where he left the car so that it could be displayed for sale and the
joyrde in Toril, Davao City, without the prior permission, authority, or
station boys would be entitled to 2% commission for it. One night, Romeo
consent of the Association or its rep. Dr. Lim, or of Te, and on its way back
Catiben (one of the station boys) and the nephew of station operator Rene Te,
to Davao City, the vehicle experienced a mechanical defect which led
rode the Chevrolet Carry-all and took it for a joyride to Toril, Davao City, w/o
into an accident, bumping an electric post (actual damages at
the consent of Association, Dr. Lim, or Te. Upon returning, however, the vehicle
P5,518.61)
experienced a mechanical defect and they accidentally bumped into an electric
28.   When the matter was brought up with the Trial Court, it tackled the issue of
post (actual damage from it was P5,518.61). Thus, Association wants to claim
whether the there should be a prior criminal conviction of Catiben for theft
the P5k compensation for the damage sustained by the vehicle but Fieldmen’s
before Association can claim compensation for the actual damage caused to
argue that there was no prior conviction of Catiben for theft of the vehicle, so
its vehicle under the Comprehensive Policy.
they did not give the insurance claim.
29.   The trial court rendered judgment and ordered Fieldmen’s to pay
Association the amount of P5,000.00 as indemnity for the damage sustained
ISSUE: WoN Catiben’s acts constitutes theft under the Comprehensive Policy –
by the vehicle, P2k for atty’s fees, and costs.
YES
30.   Upon appeal, the CA elevated the matter to the SC on a question of law.
It is settled that the act of Catiben in taking the vehicle for a joy ride to Toril,
ISSUE/s:
Davao City, constitutes theft within the meaning of the insurance policy and
5.   WoN the acts of Catiben constitutes theft under the Comprehensive Policy
that recovery for damage to the car is not barred by the illegal use of the car
of Fieldmen’s, thus entitling Association to compensation – YES, because
by one of the station boys. Even without prior conviction, his intent to gain is
theft under the policy does not need a prior conviction; his intent to gain
evident since he derives therefrom utility, satisfaction, enjoyment, and pleasure.
was evident from the joyride. As long as it can be proven by preponderance
Thus, there is no need for prior conviction for the crime of theft to make an
of evidence in a civil action for recovery, the amount on an insurance policy
insurer liable under the theft clause of the policy. (proceed to doctrine)
may be recovered.
DOCTRINE: In a civil action for recovery on an automobile insurance, the
RULING: Judgment in question is affirmed.
question whether a person using a certain automobile at the time of the accident
stole it or not is to be determined by a fair preponderance of evidence and
RATIO:
NOT by the rule of criminal law requiring proof of guilt beyond reasonable
13.   The Comprehensive Policy issued by the insurance company includes loss
doubt.
of or damage to the motor vehicle by "burglary . . . or theft.
14.   It is settled that the act of Catiben in taking the vehicle for a joy ride to
FACTS: Toril, Davao City, constitutes theft within the meaning of the insurance
23.   Association of Baptists for World Evangelism, Inc. (Association) is a policy and that recovery for damage to the car is not barred by the illegal
religious corporation duly organized and registered in PH; Fieldmen’s use of the car by one of the station boys.
Insurance Co., Inc. (Fieldmen’s) is also a domestic corporation duly 15.   Where a car is unlawfully and wrongfully taken by some people, be they
organized and existing under the laws of the PH employees of the car shop or not to whom it had been entrusted, and taken
24.   Association has an insurable interest in a Chevrolet Carry-all, 1955 Model
 on a long trip to Montalban without the owner’s consent or knowledge,
constitutes or partakes of the nature of theft as defined in Art. 308 of the
RPC:
(W)ho are liable for theft. — … any person who, with intent to
gain but without violence against or intimidation of persons nor
force upon things, shall take personal property of another without
the latter’s consent
16.   Court sustains that when a person, either with the object of going to a
certain place or learning how to drive or enjoying a free ride, takes
possession of a vehicle belonging to another, w/o the latter’s consent, he is
guilty of theft because his intent to gain is evident since he derives
therefrom utility, satisfaction, enjoyment, and pleasure.
17.   Thus, there is no need for prior conviction for the crime of theft to make an
insurer liable under the theft clause of the policy.
18.   The facts are stipulated where Catiben took the car for a joyride and
thereafter bumped it against an electric post resulting in damages. The act is
theft within the policy of insurance.
19.   In a civil action for recovery on an automobile insurance, the question
whether a person using a certain automobile at the time of the accident stole
it or not is to be determined by a fair preponderance of evidence and
NOT by the rule of criminal law requiring proof of guilt beyond
reasonable doubt. (NOTE: besides, there was no provision in the policy
requiring prior criminal conviction for theft)
 004 Mayer Steel Pipe Corporation v. CA (Cristelle)
June 19, 1997 | Puno J. | Insurance Contract Interpretation
PETITIONER: MAYER STEEL PIPE CORPORATION and HONGKONG
GOVERNMENT SUPPLIES DEPARTMENT
RESPONDENTS: COURT OF APPEALS, SOUTH SEA SURETY AND
INSURANCE CO., INC. and the CHARTER INSURANCE CORPORATION
SUMMARY: Hong Kong Government Supplies Department contracted Mayer Steel
Pipe Corporation to manufacture and supply various steel pipes and fittings. Prior to
the shipping, Mayer insured these pipes and fittings against all risks with South Sea
Surety and Insurance Co., Inc. and Charter Insurance Corp., with Industrial Inspection
Inc. appointed as third-party inspector. After examining the pipes and fittings,
Industrial Inspection certified that they are in good order condition. However, when
the goods reached Hong Kong, it was discovered that a substantial portion thereof was
damaged. The trial court found in favor of the insured. However, when the case was
elevated to the CA, it set aside the decision of the trial court and dismissed the
complaint on the ground of prescription. It held that the action was barred under Sec.
3(6) of the Carriage of Goods by Sea Act (COGSA) since it was filed only on April
17, 1986, more than two years from the time the goods were unloaded from the
vessel. Issue: Whether or not the action is barred by prescription? The cause of
action had not yet prescribed. Sec. 3(6) of the COGSA states that the carrier and the
ship shall be discharged from all liability for loss or damage to the goods if no suit is
filed within one year after delivery of the goods or the date when they should have
been delivered. Under this provision, only the carrier’s liability is extinguished if no
suit is brought within one year. But the liability of the insurer is not extinguished
because the insurer’s liability is based not on the contract of carriage but on the
contract of insurance. Thus, when private respondents issued the “all risks” policies to
Mayer, they bound themselves to indemnify the latter in case of loss or damage to the
goods insured. Such obligation prescribes in ten years, in accordance with Article
1144 of the New Civil Code.
DOCTRINE: An insurance contract is a contract whereby one party, for a
consideration known as the premium, agrees to indemnify another for loss or damage
which he may suffer from a specified peril. An “all risks” insurance policy covers all
kinds of loss other than those due to willful and fraudulent act of the insured.
FACTS:
1.   This is a petition for review on certiorari to annul and set aside the Decision
of respondent CA dated December 14, 1995 and its Resolution dated
February 22, 1996 in CA-G.R. CV No. 45805 entitled Mayer Steel Pipe
Corporation and Hongkong Government Supplies Department v. South Sea
Surety Insurance Co., Inc. and The Charter Insurance Corporation.
2.   In 1983, petitioner Hongkong Government Supplies Department
(Hongkong) contracted petitioner Mayer Steel Pipe Corporation (Mayer) to
manufacture and supply various steel pipes and fittings. From August to
October, 1983, Mayer shipped the pipes and fittings to Hongkong as
evidenced by Invoice Nos. MSPC-1014, MSPC-1015, MSPC-1025, MSPC-
1020, MSPC-1017 and MSPC-1022.
3.   Prior to the shipping, petitioner Mayer insured the pipes and fittings against
all risks with private respondents South Sea Surety and Insurance Co., Inc.
(South Sea) and Charter Insurance Corp. (Charter). The pipes and fittings
covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total amount of
US$212,772.09 were insured with respondent South Sea, while those
covered by Invoice Nos. 1020, 1017 and 1022 with a total amount of
US$149,470.00 were insured with respondent Charter.
4.   Petitioners Mayer and Hongkong jointly appointed Industrial Inspection
(International) Inc. as third-party inspector to examine whether the pipes
and fittings are manufactured in accordance with the specifications in the
contract. Industrial Inspection certified all the pipes and fittings to be in
good order condition before they were loaded in the vessel. Nonetheless,
when the goods reached Hongkong, it was discovered that a substantial
portion thereof was damaged.
5.   Hongkong & Mayer filed a claim against South Sea surety & charter
insurance corp. for indemnity under the insurance contract. Respondent
Charter paid petitioner Hongkong the amount of HK$64,904.75. HK &
Mayer demanded payment of the balance of HK$299,345.30 representing
the cost of repair of the damaged pipes. South Sea & charter refused to pay
because the insurance surveyor's report allegedly showed that the damage is
a factory defect.
6.   On April 17, 1986, petitioners filed an action against South Sea & charter to
recover the sum of HK$299,345.30 South Sea & charter averred that they
have no obligation to pay the amount claimed by petitioners because the
damage to the goods is due to factory defects which are not covered by the
insurance policies.
7.   TRIAL COURT - ruled in favor of petitioners. It found that the damage to
the goods is not due to manufacturing defects. It also noted that the
insurance contracts executed by petitioner Mayer and private respondents
are "all risks" policies which insure against all causes of conceivable loss or
damage. The only exceptions are those excluded in the policy, or those
sustained due to fraud or intentional misconduct on the part of the insured.
8.   South Sea & charter elevated the case to respondent Court of Appeals.
9.   CA - affirmed the finding of the trial court that the damage is not due to
factory defect and that it was covered by the "all risks" insurance policies
issued by South Sea & charter to petitioner Mayer. However, it set aside the
decision of the trial court and dismissed the complaint on the ground of
prescription. It held that the action is barred under Section 3(6) of the
Carriage of Goods by Sea Act since it was filed only on April 17, 1986,
more than two years from the time the goods were unloaded from the
vessel.
a.   Section 3(6) of the Carriage of Goods by Sea Act provides that
"the carrier and the ship shall be discharged from all liability in
respect of loss or damage unless suit is brought within one year
 after delivery of the goods or the date when the goods should have third-party complaint against the carrier for reimbursement of the amount it
been delivered." Respondent court ruled that this provision applies paid to the shipper. The insurer filed the third-party complaint on January 9,
not only to the carrier but also to the insurer, citing Filipino 1978, more than one year after delivery of the goods on December 17,
Merchants Insurance Co., Inc. vs. Alejandro. 1977. The court held that the Insurer was already barred from filing a claim
10.   Hence this petition for review. against the carrier because under the Carriage of Goods by Sea Act, the suit
a.   CA erred in holding that petitioners' cause of action had already against the carrier must be filed within one year after delivery of the goods
prescribed on the mistaken application of the Carriage of Goods by or the date when the goods should have been delivered. The court said that
Sea Act and the doctrine of Filipino Merchants Co., Inc. v. "the coverage of the Act includes the insurer of the goods."
Alejandro (145 SCRA 42); and 4.   The Filipino Merchants case is different from the case at bar. In Filipino
b.   CA committed an error in dismissing the complaint. Merchants, it was the insurer which filed a claim against the carrier for
reimbursement of the amount it paid to the shipper. In the case at bar, it was
ISSUES: Whether or not the action is barred by prescription? NO. The petition is the shipper which filed a claim against the insurer. The basis of the shipper's
impressed with merit. Respondent court erred in applying Section 3(6) of the claim is the "all risks" insurance policies issued by private respondents to
Carriage of Goods by Sea Act. An insurance contract is a contract whereby one petitioner Mayer.
party, for a consideration known as the premium, agrees to indemnify another for 5.   The ruling in Filipino Merchants should apply only to suits against the
loss or damage which he may suffer from a specified peril. An "all risks" insurance carrier filed either by the shipper, the consignee or the insurer. When
policy covers all kinds of loss other than those due to willful and fraudulent act of the court said in Filipino Merchants that Section 3(6) of the Carriage of
the insured. Thus, when private respondents issued the "all risks" policies to Goods by Sea Act applies to the insurer, it meant that the insurer, like the
petitioner Mayer, they bound themselves to indemnify the latter in case of loss or shipper, may no longer file a claim against the carrier beyond the one-year
damage to the goods insured. Such obligation prescribes in ten years, in accordance period provided in the law. But it does not mean that the shipper may no
with Article 1144 of the New Civil Code. longer file a claim against the insurer because the basis of the insurer's
liability is the insurance contract.
RULING: IN VIEW WHEREOF, the petition is GRANTED. The Decision of
respondent Court of Appeals dated December 14, 1995 and its Resolution dated
February 22, 1996 are hereby SET ASIDE and the Decision of the Regional Trial
Court is hereby REINSTATED. No costs. SO ORDERED.
RATIO:
1.   Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and
the ship shall be discharged from all liability for loss or damage to the
goods if no suit is filed within one year after delivery of the goods or the
date when they should have been delivered.
2.   Under this provision, only the carrier's liability is extinguished if no suit is
brought within one year. But the liability of the insurer is not extinguished
because the insurer's liability is based not on the contract of carriage but on
the contract of insurance. A close reading of the law reveals that the
Carriage of Goods by Sea Act governs the relationship between the carrier
on the one hand and the shipper, the consignee and/or the insurer on the
other hand. It defines the obligations of the carrier under the contract of
carriage. It does not, however, affect the relationship between the shipper
and the insurer. The latter case is governed by the Insurance Code.
3.   Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro and the
other cases cited therein does not support respondent court's view that the
insurer's liability prescribes after one year if no action for indemnity is filed
against the carrier or the insurer. In that case, the shipper filed a complaint
against the insurer for recovery of a sum of money as indemnity for the loss
and damage sustained by the insured goods. The insurer, in turn, filed a
 005 Great Pacific Life v. CA (Rosales)
April 30, 1979 | De Castro, J. | Insurance Contract Interpretation
PETITIONER: Great Pacific Life Assurance Company; Lapulapu D.
Mondragon
RESPONDENTS: Court of Appeals; Ngo Hing
SUMMARY: Ngo Hing filed an application with the Great Pacific Life
Assurance for a twenty-year endownment policy in the amount of P50,000.00 on
the life of his one-year old daughter Helen Go. Pacific Life supplied the essential
data which Lapulapu D. Mondragon, Branch Manager of the Pacific Life in
Cebu City wrote on the corresponding form. Upon the payment of the insurance
premuim, the binding deposit receipt was issued to Ngo Hing. Likewise,
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 non-acceptance of the insurance plan by Pacific Life was
allegedly not communicated by Mondragon to Ngo Hing. Instead, Mondragon
wrote back Pacific Life again strongly recommending the approval of the 20-
year endowment insurance plan. Helen Go died of influenza with complication
of bronchopneumonia. Thereupon, Ngo Hing 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. Issue is WoN the binding deposit receipt constituted a
temporary contract of the life insurance in question? The SC held NO, because
there is an absence of a meeting of the minds between Pacific Life and Ngo Hing
and there is and non-compliance of the abovequoted conditions stated in the
disputed binding deposit receipt. As held by this Court, where an agreement is
made between the applicant and the agent, no liability shall attach until the
principal approves the risk and a receipt is given by the agent. The acceptance is
merely conditional and is subordinated to the act of the company in approving or
rejecting the application. Thus, in life insurance, a "binding slip" or "binding
receipt" does not insure by itself.
DOCTRINE: A contract of insurance, like other contracts, must be assented to
by both parties either in person or by their agents ... The contract, to be binding
from the date of the application, must have been a completed contract, one that
leaves nothing to be dione, nothing to be completed, nothing to be passed upon,
or determined, before it shall take effect. There can be no contract of insurance
unless the minds of the parties have met in agreement.
FACTS:
1.   It appears that on March 14, 1957, Ngo Hing filed an application with the
Great Pacific Life Assurance for a twenty-year endownment policy in the
amount of P50,000.00 on the life of his one-year old daughter Helen Go.
Pacific Life supplied the essential data which 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 Ngo Hing.
2.   The Ngo Hing paid the annual premuim 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 premuim, the binding deposit receipt was issued to Ngo Hing.
Likewise, Mondragon handwrote at the bottom of the back page of the
application form his strong recommendation for the approval of the
insurance application. Then on April 30, 1957, 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.
3.   The non-acceptance of the insurance plan by Pacific Life was allegedly not
communicated by Mondragon to Ngo Hing. Instead, on May 6, 1957,
Mondragon wrote back Pacific Life again strongly recommending the
approval of the 20-year endowment insurance plan to children, pointing out
that since 1954 the customers, especially the Chinese, were asking for such
coverage.
4.   It was when things were in such state that on May 28, 1957 Helen Go died
of influenza with complication of bronchopneumonia. Thereupon, Ngo
Hing 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
Court of First Instance of Cebu, which rendered the adverse decision as
earlier refered to against both Pacific Life and Mondragon.
ISSUE/s:
6.   WoN the binding deposit receipt constituted a temporary contract of the life
insurance in question – NO, because there is an absence of a meeting of the
minds between Pacific Life and Ngo Hing and there is and non-compliance
of the abovequoted conditions stated in the disputed binding deposit receipt.
RULING: WHEREFORE, the decision appealed from is hereby set aside, and in
lieu thereof, one is hereby entered absolving petitioners Lapulapu D. Mondragon and
Great Pacific Life Assurance Company from their civil liabilities as found by
respondent Court and ordering the aforesaid insurance company to reimburse the
amount of P1,077.75, without interest, to private respondent, Ngo Hing. Costs
against private respondent.
RATIO:
1.   At the back of the binding receipt are condition precedents required before a
deposit is considered a BINDING RECEIPT. The aforequoted provisions
printed show that the binding deposit receipt is intended to be merely a
 provisional or temporary insurance contract and only upon compliance of
the following conditions:
(1)   that the company shall be satisfied that the applicant
was insurable on standard rates;
(2)   that if the company does not accept the application and
offers to issue a policy for a different plan, the
insurance contract shall not be binding until the
applicant accepts the policy offered; otherwise, the
deposit shall be reftmded; and
(3)   that if the applicant is not able according to the standard
rates, and the company disapproves the application, the
insurance applied for shall not be in force at any time,
and the premium paid shall be returned to the applicant.
2.   Clearly implied from the aforesaid conditions is that the binding deposit
receipt in question is merely an acknowledgment, on behalf of the company,
that the latter's branch office had received from the applicant the insurance
premium and had accepted the application subject for processing by the
insurance company; and that the latter will either approve or reject the same
on the basis of whether or not the applicant is "insurable on standard rates."
Since Pacific Life disapproved the insurance application of Ngo Hing, the
binding deposit receipt in question had never become in force at any time.
3.   Upon this premise, the binding deposit receipt is, manifestly, merely
conditional and does not insure outright. As held by this Court, where an
agreement is made between the applicant and the agent, no liability
shall attach until the principal approves the risk and a receipt is given
by the agent. The acceptance is merely conditional and is subordinated
to the act of the company in approving or rejecting the application.
Thus, in life insurance, a "binding slip" or "binding receipt" does not
insure by itself.
4.   In the absence of a meeting of the minds between Pacific Life and Ngo
Hing over the 20-year endowment life insurance in the amount of
P50,000.00 in favor of the latter's one-year old daughter, and with the non-
compliance of the abovequoted conditions stated in the disputed binding
deposit receipt, there could have been no insurance contract duly perfected
between the, Accordingly, the deposit paid by Ngo Hing shall have to be
refunded by Pacific Life.
5.   As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a
contract of insurance, like other contracts, must be assented to by both
parties either in person or by their agents ... The contract, to be binding
from the date of the application, must have been a completed contract,
one that leaves nothing to be dione, nothing to be completed, nothing to
be passed upon, or determined, before it shall take effect. There can be
no contract of insurance unless the minds of the parties have met in
agreement."
6.   We are not impressed with Ngo Hing’s contention that failure of
Mondragon to communicate to him the rejection of the insurance
application would not have any adverse effect on the allegedly perfected
temporary contract. There was no contract perfected between the parties
who had no meeting of their minds. Ngo Hing, being an authorized
insurance agent of Pacific Life at Cebu branch office, is indubitably aware
that said company does not offer the life insurance applied for. When he
filed the insurance application in dispute, Ngo Hing was, therefore, only
taking the chance that Pacific Life will approve the recommendation of
Mondragon for the acceptance and approval of the application in question
along with his proposal that the insurance company starts to offer the 20-
year endowment insurance plan for children less than seven years.
Nonetheless, the record discloses that Pacific Life had rejected the proposal
and recommendation.
7.   Also, having an insurable interest on the life of his one-year old daughter,
aside from being an insurance agent and an offense associate of
Mondragon, Ngo Hing must have known and followed the progress on the
processing of such application and could not pretend ignorance of the
Company's rejection of the 20-year endowment life insurance application.
8.   With regard to the issue that Ngo Hing concealed the state of health and
physical condition of Helen Go, which rendered void the aforesaid Binding
Receipt, where he supplied the required essential data for the insurance
application form, he was fully aware that his one-year old daughter is
typically a mongoloid child. Such a congenital physical defect could never
be ensconced nor disguished. Nonetheless, Ngo Hing, in apparent bad faith,
withheld the fact materal to the risk to be assumed by the insurance
compary. 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.
9.   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. Concealment is a neglect to
communicate that which a party knows and ought to communicate. Whether
intentional or unintentional the concealment entitles the insurer to rescind
the contract of insurance.
 006 AMERICAN HOME ASSURANCE COMPANY v. TANTUCO
ENTERPRISES (Sabaupan) FACTS:
8 October 2001 | Puno, J. | Insurance Contract Interpretation 31.   Tantuco Enterprises, Inc., engaged in the coconut oil milling and refining
industry, owns two oil mills. Both are located at its factory compound in
Lucena City. Initially, it has only one oil mill. It started operating its second
PETITIONER: American Home Assurance Company
oil mill in 1988 and this oil mill is commonly referred to as the new oil mill.
RESPONDENTS: Tantuco Enterprises, Inc.
32.   The two oil mills were separately covered by fire insurance policies issued
by American Home Assurance Co., Philippine Branch. The first oil mill
SUMMARY: Tantuco Enterprises owns two oil mills, one of which was
was insured for P3 million for the period 1 March 1991 to 1992 while the
commonly referred to as the new oil mill. Both oil mills are covered by
new oil mill is insured for P6 million for the same term.
insurance policy from American Home Assurance for P3 million and P6 million.
33.   In September 1991, a fire broke out which gutted and consumed the new oil
A fire broke which gutted and consumed the new oil mill. Tantuco immediately
mill. Tantuco immediately notified American Home of the incident. After
informed the insurance company of the incident. However, the insurance
inspection, American Home rejected Tantuco’s claim for the insurance
company refused to pay on the ground that the building covered as specified by
proceeds on the ground that no policy was issued by it covering the burned
the boundaries stated in the policy is not the building that was gutted by fire.
oil mill. It stated that the description of the insured establishment referred to
Tantuco filed a claim for specific performance and damages with the RTC. The
another building. The policies allegedly extend insurance coverage to oil
RTC and CA both ruled that American Home Assurance is liable under the
mill under Building No. 5, whilst the affected oil mill is under Building No.
insurance policy. The issue is whether the insurance policy covers the new oil
14.
mill. The Supreme Court ruled in the affirmative. Notwithstanding the
34.   Tantuco instituted a complaint for specific performance and damages with
misdescription in the policy, it is beyond dispute that what the parties manifestly
the RTC. The lower court ruled that American Home is liable on the
intended to insure was the new oil mill. This is obvious from the categorical
insurance policy. On appeal, the CA affirmed. Hence, the instant petition.
statement embodied in the policy, extending its protection the equipment and
35.   American Home’s arguments:
accessories contained in the new oil mill building. If the parties really intended
a.   The burned oil mill is not covered by any insurance policy. The oil
to protect the first oil mill, then there is no need to specify it as new. It would be
mill insured is specifically described in the policy by its boundaries
absurd to assume the Tantuco would protect its first oil mill for different
and the oil mill gutted by fire was not the one described by the
amounts and leave uncovered the new oil mill. The imperfection in the
specific boundaries in the contested policy.
description of the insured oil mill’s boundaries can be attributed to a
b.   Tantuco did not have the supposed wrong description or mistake
misunderstanding between American Home’s general agent, Mr. Borja, and its
corrected despite the fact that the policy was issued 3 years before
policy issuing clerk, who made the error of copying the boundaries of the first oil
the dire and the despite the “Important Notice” in the policy that
mill when typing the policy to be issued for the new one. Mr. Borja testified that
states “Please read and examine the policy and if incorrect, return
the intention of Tantuco is to cover the new oil mill and the policy issuing clerk
it immediately for alteration.”
copied the description of the boundaries from the old policy, but she inserted
c.   Tantuco is barred by the parole evidence rule from presenting
covering the new oil mill, and to Mr. Borja, the important thing is that it covered
evidence other than the policy of its self-serving intention that it
the new oil mill because it is just within one compound and there are only two
intended really to insure the burned oil mill just as it is barred by
oil mills. It is thus clear that the source of the discrepancy happened during the
estoppel from claiming that the description of the insured oil mill
preparation of the written contract.
in the policy was wrong.
d.   Tantuco forfeited the renewal policy for its failure to pay the full
DOCTRINE: In view of the custom of insurance agents to examine buildings
amount of the premium and breach of the Fire Extinguishing
before writing policies upon them, and since a mistake as to the identity and
Appliances Warranty.
character of the building is extremely unlikely, the courts are inclined to consider
that the policy of insurance covers any building which the parties manifestly
ISSUE/s:
intended to insure, however inaccurate the description may be.
7.   Whether insurance policy covers the new oil mill. YES because the intent
was the parties was to cover the new oil mill and the courts are inclined to
In determining what the parties intended, the courts will read and construe the
consider that the policy of insurance covers any building which the parties
policy as a whole and if possible, give effect to all the parts of the contract,
manifestly intended to insure, however inaccurate the description may be.
keeping in mind always, however, the prime rule that in the event of doubt, this
doubt is to be resolved against the insurer.
RULING: Judgment in question is affirmed. Petition dismissed.
RATIO:
Insurance Issue
20.   In construing the words used descriptive of a building insured, the greatest
liberality is shown by the courts in giving effect to the insurance. In view of
the custom of insurance agents to examine buildings before writing policies
upon them, and since a mistake as to the identity and character of the
building is extremely unlikely, the courts are inclined to consider that the
policy of insurance covers any building which the parties manifestly
intended to insure, however inaccurate the description may be.
21.   Notwithstanding the misdescription in the policy, it is beyond dispute that
what the parties manifestly intended to insure was the new oil mill. This is
obvious from the categorical statement embodied in the policy, extending
its protection:
“On machineries and equipment with complete accessories usual to a
coconut oil mill including stocks of copra, copra cake and copra mills whilst
contained in the new oil mill building x x x”
22.   If the parties really intended to protect the first oil mill, then there is no
need to specify it as new. It would be absurd to assume the Tantuco would
protect its first oil mill for different amounts and leave uncovered the new
oil mill. It is unthinkable for Tantuco to obtain the other policy from the
very same company considering that the first oil mill is already insured. The
latter ought to know that a second agreement over the same realty results in
its overinsurance.
23.   The imperfection in the description of the insured oil mill’s boundaries can
be attributed to a misunderstanding between American Home’s general
agent, Mr. Borja, and its policy issuing clerk, who made the error of
copying the boundaries of the first oil mill when typing the policy to be
issued for the new one. Mr. Borja testified that the intention of Tantuco is to
cover the new oil mill and the policy issuing clerk copied the description of
the boundaries from the old policy but she inserted covering the new oil
mill, and to Mr. Borja, the important thing is that it covered the new oil mill
because it is just within one compound and there are only two oil mills. It is
thus clear that the source of the discrepancy happened during the
preparation of the written contract.
24.   The object of the court in construing a contract is to ascertain the intent of
the parties and to enforce the agreement which the parties have entered into.
In determining what the parties intended, the courts will read and construe
the policy as a whole and if possible, give effect to all the parts of the
contract, keeping in mind always, however, the prime rule that in the event
of doubt, this doubt is to be resolved against the insurer.
25.   On the claim of non-payment of premiums, the CA refused to consider such
on the ground that said issue was raised for the first time on appeal, hence,
beyond its jurisdiction to resolve. The SC agrees. Moreover, American
Home fatally neglected to present, during the whole course of the trial, any
witness to testify that Tantuco indeed failed to pay the full amount of the
premium.
26.   On the claim of violation of warranty, the SC held that the warranty did not
require Tantuco to provide for all the fire extinguishing appliances (portable
extinguishers, internal and external hydrants, fire pump, and 24-hour
security services) enumerated therein. Neither did it require that the
appliances are restricted to those mentioned in the warranty. What the
warranty mandates is that Tantuco should maintain in efficient working
condition within the premises of the insured property, firefighting
equipment such as, but not limited to, those identified in the list. Tantuco
was compliant with the warranty for within the vicinity of the new oil mill
are the following: numerous portable fire extinguishers, two fire hoses, fire
hydrant, and an emergency fire engine.
27.   Not only are warranties strictly construed against the insurer, but they
should by themselves be reasonably interpreted. That reasonableness is to
be ascertained in light of the factual conditions prevailing in each case. in
this case, there is no more need for an internal hydrant considering that
inside the burned building were numerous portable fire extinguishers, an
emergency fire engine, and a fire hose which has a connection to one of the
external hydrants.
Evidence issue
28.   The present case falls within one of the recognized exceptions to the parole
evidence rule. Under the Rules of Court, a party may present evidence to
modify, explain or add to the terms of the written agreement if he puts in
issue in his pleading its failure to express the true intent and agreement of
the parties thereto.
29.   In this case, the contractual intention of the parties cannot be understood
from a mere reading of the instrument. While the contract explicitly
stipulated that it was for the insurance of the new oil mill, the boundary
description written on the policy concededly pertains to the first oil mill.
This irreconcilable difference can only be clarified by admitting evidence
aliunde, which will explain the imperfection and clarify the intent of the
parties.
30.   On the claim of estoppel, the Court ruled that evidence on record reveals
that Tantuco’s operating manager notified Mr. Borja about the inaccurate
description in the policy. However, Mr. Borja assured Tantuco that the use
of the adjective new will distinguish the insured property. The assurance
convinced Tantuco that despite the impreciseness in the specification of the
boundaries, the insurance will cover the new oil mill.
 RIZAL SURETY v. CA (Saldua)
July 18, 2000 | Purisima J. | Art. 1377, New Civil Code
PETITIONER: Rizal Surety & Insurance Company
RESPONDENTS: Court of Appeals and Transworld Knitting Mills, Inc.
SUMMARY:
Rizal Surety & Insurance Company issued Fire Insurance Policy No. 45727 in
favor of Transworld Knitting Mills, Inc. initially for ₱1M, and eventually increased
to ₱1.5M covering the period from August 14, 1980 to March 13, 1981. On January
12, 1981, a fire broke out in the compound of Transworld razing the middle portion
of its Main Building and partly gutting the left and right sections thereof. A 2-
storey annex building (behind the four-span building) where fun and amusement
machines and spare parts were stored, was also destroyed by the fire. Transworld
filed its insurance claims with Rizal Surety and New India Assurance Company,
but to no avail. On May 26, 1982 Transworld brought against the said insurance
companies an action for collection of sum of money and damages. Meanwhile,
Rizal Insurance countered that the subject fire insurance policy with Transworld
covered only the ocntents of the 4-span building (which was party burned), and
does not cover the damage caused by the fire on the 2-storey annex building.
Issue is WON the subject fire insurance policy protected only the contents of the
main building and did not include those stored in the annex building = NO. The
subject fire insurance policy protected both the contents of the main building and
the annex building. In this case, the loer courts found the so-called annex was
actually an integral and inseparable part of the four-span building described in the
policy. Consequently, the machines and spare parts stored in the annex were
covered by the stipulations in the subject fire insurance policy. Verily, the 2-storey
annex building involved a permanent structure which adjoins and
intercommunicates with the first right span of the lofty story main building, formed
part thereof, and meets the requisites for compensability under the fire insurance
policy sued upon. Moreover, the issue of whether or not private respondent has an
insurable interest in the fun and amusement machines and spare parts, which
entitles it to be indemnified for the loss thereof, had been settled in the case of New
India Assurance Company vs. CA. Accordingly, the assailed decision and
resolution of the Court of Appeals were affirmed.
DOCTRINE: The stipulation as to the coverage of the fire insurance policy under
controversy has created a doubt regarding the portions of the building insured
thereby. Article 1377 of the New Civil Code provides: "Art. 1377. The
interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity"
FACTS:
1.   On March 13, 1980, Rizal Insurance issued Fire Insurance Policy No.
45727 in favor of Transworld Knitting Mills Inc. (initialy for ₱1M and
eventually increased to ₱1.5M). It covered the period from Aug. 14, 1980 –
Mar. 13, 1981. The buildings covered by the said fire insurance policy were
also insured with New India Assurance Company, Ltd.
2.   On Jan. 12, 1981, a fire broke out in the compound of Transworld. The fire
razed the middle portion of its four-span building (hereinafter referred to as
“Main Building”). It also partly gutted ( and thus was also destroyed by the
fire) the left and right sections of the building (behind the said 4-span
building) where fun & amusement machines and spareparts were stored
(hereinafter reffered to as “Annex or Annex Building”).
3.   Transworld filed its insurance claims with Rizal Surety and New India
Assurance, but to no avail.
4.   Thus, Transworld brought against them an action for collection of sum of
money and damages praying for judgment ordering Rizal Insurance and
New India to pay the amount of ₱2,747,867.00 plus legal interest,
₱400,000.00 as attorney's fees, exemplary damages, expenses of litigation
of ₱50,000.00 and costs of suit.
5.   Meanwhile, Rizal Insurance countered that the subject fire insurance policy
with Transworld covered only the ocntents of the 4-span building (which
was party burned), and does not cover the damage caused by the fire on the
2-storey annex building.
6.   Trial Court = Dismissed the case against New India. Ordered Rizal Surety
to pay Transworld ₱826,500.00 representing the actual value of the losses
suffered by it.
7.   CA = New India is ordered to pay ₱1,818,604.19 while Rizal Surety has to
pay Transworld ₱470,328.67, based on the actual losses sustained in the
fire. Total amount of ₱2,790,376.00 is against the amounts of fire insurance
coverages respectively extended by New India (₱5,800,000.00) and Rizal
Surety (₱1,500,000.00).
8.   On Aug. 20, 1993, New India appealed the above order on the ground that
Transworld could not be compensated for the loss of the Annex Building
because Transworld had no insurable interest in the goods/items stored
therein. However, CA denied this appeal with finality.
ISSUE/s:
1.   WON the subject fire insurance policy protected only the contents of the
main building and did not include those stored in the annex building. NO.
The subject fire insurance policy protected both the contents of the main
building and the annex building.
RULING: WHEREFORE, the Decision, dated July 15, 1993, and the Resolution,
dated October 22, 1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are
AFFIRMED in toto. No pronouncement as to costs. SO ORDERED.
RATIO:
1.   The resolution of this case depends upon the interpretation of the stipulation
in the subject fire insurance policy with reference to the coverage reads:
". . . contained and/or stored during the currency of
this Policy in the premises occupied by them
 forming part of the buildings situate (sic) within
own Compound . . ."
2.   Thus, it can be understood from the stipulation that the subject fire
insurance policy did not limit its coverage to what were stored in the main
building only. As said by the RTC, 2 requirements must concur in order
that the Annex Building can be said to be protected by the subject fire
insurance policy:
A.   Said properties must be contained and/or stored in the areas
occupied by Transworld.
B.   Said areas must form part of the building described in the
policy.
3.   In this case, both the RTC and CA found that the Annex was actually an
integral and inseparable part of the main building described in the
policy. Consequently, the fun & amusement machines and spare parts
stored in the Annex Building are also covered by the subject fire
insurance policy.7
4.   The annex building (w/c is a 2-storey building) is a permanent structure w/c
adjoins and intercommunicates with the right span of the lofty storey
building formed part of said lofty storey building. Hence, it meets the
requisites for compensability under the subject fire insurance policy.
5.   Moreover, the 2-storey building (annex) was built in 1978, and the subject
fire insurance policy contract was entered into on Jan. 12, 1981. Given this,
Rizal Surety should have specifically excluded the said 2-storey annex
building from the coverage of the fire insurance.
6.   But Rizal Surety did not, and instead, it went on to provide that the said fire
insurance policy covers the products, raw materials and supplied that are
stored within the premises of Transworld which was an integral part of the
4-span main building occupied by Transworld. This is in spite knowing
fully well about the existence of the annex building that is adjoining and
intercommunicating with the right subject of the main building.
7.   Also, Article 1377, New Civil Code provides that the “interpretation of
obscure words or stipulations in a contract shall not favor the party
who caused the obscurity.” Thus, the doubt should be resolved against
Rizal Surety whose lawyer/managers drafted the subject fire insurance
policy.
8.   Considering that Transworld’s insurable interest in, and compensability for
the loss of subject fun and amusement machines and spare parts, had been
adjudicated, settled and sustained by the Court of Appeals (see fact #8) can
no longer be litigated, Rizal Surety is thus bound by this ruling.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
Annex Building - Two-storey building constructed of partly timber
and partly concrete hollow blocks under g.i. roof which is adjoining
and intercommunicating with the repair of the first right span of the
lofty storey building and thence by property fence wall.
 008 PERLA COMPANIA v. CA (EMAR)
May 28, 1990 | Fernan, C.J. | Insurance Contract Interpretation
PETITIONER: PERLA COMPANIA DE SEGUROS, INC.
RESPONDENTS: CA and MILAGRO CAYAS
SUMMARY: Cayas’ bus, insured by Perla Compania, figured in an accident, injuring
people. 3 injured entered into a settlement with Cayas to which Cayas paid P4k/person
while Perea filed a case against Cayas for damages in which the court ruled in favor of
Perea because Cayas failed to appear in the pre-trial and hence, she was declared as in
default. Cayas filed a complaint for a sum of money and damages against Perla
Compania (for items in Fact #5a-f). The CFI ordered Perla Compania P50k for the
injured passengers. CA affirmed. Perla Compania alleges that its liability should be
limited to a total of P12k, and that it should not be ordered to reimburse Cayas’
payments to the 3 injured with whom she entered a settlement without Perla
Compania’s written consent. The SC ruled in favor of Perla Compania, on the grounds
that the insurance policy explicitly limits Perla Compania’s liability to P12k/person;
and required Perla Compania’s written consent before any payment in settlement
of any claim could be made. Cayas is precluded from seeking reimbursement of
the payments made to the 3 injured in view of her failure to comply with the
condition contained in the insurance policy
DOCTRINE: The terms of the contract constitute the measure of the insurer's liability
and compliance therewith is a condition precedent to the insured's right of recovery
from the insurer.
FACTS:
1.   Cayas was the registered owner of a Mazda bus which was insured with Perla
Compania on February 3, 1978.
2.   December 1978: the bus figured in an accident in Naic, Cavite injuring several
passengers including19-year old Perea who sued Cayas for damages in the CFI;
and del Carmen, Magsarili and Antolin who agreed to a settlement of P4k each.
3.   Cayas failed to appear in the pre-trial and hence, she was declared as in
default. CFI decided in favor of Perea.
4.   When the decision was about to be executed, Cayas filed a complaint against
Perla Compania in the Office of the Insurance Commissioner praying that Perla
Compania be ordered to pay P40k for all the claims against her arising from the
vehicular accident plus legal and other expenses. Realizing her procedural
mistake, she later withdrew said complaint.
5.   November 11, 1981: Cayas filed a complaint for a sum of money and damages
against Perla Compania in the CFI, alleging that:
a.   to satisfy the judgment in her previous case, her house and lot were sold at
public auction for P38k;
b.   to avoid numerous suits and the "detention" of the insured vehicle, she paid
P4k to each of the 4 injured passengers;
c.   she could not have suffered said financial setback had the counsel for Perla
Compania, who also represented her, appeared at the trial and attended to the
claims of the 3 other victims;
d.   she sought reimbursement of said amounts from the Perla Compania, which
notwithstanding the fact that her claim was within its contractual liability
under the insurance policy, refused to make such re-imbursement;
e.   she suffered moral damages as a consequence of such refusal, and
f.   she was constrained to secure the services of counsel to protect her rights;
and praying that judgment be rendered directing Perla Compania to pay:
a.   P50k for compensation of the injured victims, such sum as the
court might approximate as damages, and
b.   P6k as atty's fees.
6.   Because of Cayas' failure to prosecute the case, the court motu propio ordered
dismissal without prejudice. Cayas filed an MR, alleging:
a.   She did not receive a copy of the answer to the complaint, and
b.   "out of sportsmanship", she did not file a motion to hold Perla Compania in
default.
7.   March 1982: The MR was granted.
8.   2 months later: Cayas filed a motion to declare Perla Compania in default for
failure to file an answer. The motion was granted and Cayas was allowed to
adduce evidence ex-parte. The court rendered judgment by default and ordered
Perla Compania to pay Cayas
a.   P50k as compensation for the injured passengers,
b.   P5k as moral damages and
c.   P5k as atty’s fees.
9.   Said decision was set aside after the Perla Compania filed a motion therefor.
Trial of the case ensued.
a.   Perla Compania’s defense: before it can be made to pay, the liability must
first be determined in an appropriate court action.
b.   Despite CFI’s determination of liability, Perla Compania sought escape from
its obligation by saying that Cayas lost the case due to her negligence
because of which, efforts exerted by Perla Compania’s lawyers in
protecting Cayas' rights proved futile and rendered nugatory. It alleges
that had Cayas cooperated fully with Perla Compania’s lawyers, the
latter could have won the suit and thus relieved of any obligation to
Perea. Even accepting Perla Compania’s postulate, it cannot be said, nor
was it shown positively and convincingly, that if the case had proceeded
on trial on the merits, a decision favorable to Cayas could have been
obtained. Nor was it definitely established that if the pre-trial was
undertaken in that case, defendant's lawyers could have mitigated the claim
for damages by Perea against Cayas.
c.   The court: There being proof that Cayas was compelled to engage the
services of counsel to protect her rights under the insurance policy, the
court granted P5k atty's fees.
10.   May 8, 1987: CA affirmed in toto the decision. MR was denied.
11.   Perla Compania seeks, before the SC, to limit its liability only to the payment
made by Cayas to Perea and only up to the amount of P12K. It denies liability
for Cayas’ payments to the other 3 injured passengers for a total of P12k.
ISSUES:
1.   WON Perla Compania should pay only P12k – YES, as limited by the contract.
2.   WON Cayas is precluded from seeking reimbursement of the payments
made to the 3 injured– YES because in view of her failure to comply with the
condition in the insurance policy to secure Perla Compania’s written consent
RULING: CA decision is modified in that Perla Compania shall pay Cayas P12k
plus legal interest from the promulgation of the decision of the lower court until it is
fully paid and P5k atty's fees. No pronouncement as to costs.
RATIO:
1.   There is merit in La Compania’s assertions.
2.   The insurance policy involved explicitly limits Perla Compania’s liability to
P12k/person and to P50k/accident. Pertinent provisions of the policy state:
SECTION I-Liability to the Public
xxx xxx xxx
3. The Limit of Liability stated in Schedule A as applicable
(a) to 3rd PARTY is the limit of the Company's liability for all damages arising out of death, bodily injury
and damage to property combined so sustained as the result of any 1 accident;
(b) "per person" for PASSENGER liability is the limit of the Company's liability for all damages arising
out of death or bodily injury sustained by one person as the result of any one accident:
(c) "per accident" for PASSENGER liability is, subject to the above provisions respecting per person, the
total limit of the Company's liability for all such damages arising out of death or bodily injury sustained
by two or more persons as the result of any one accident.
Conditions Applicable to All Sections
xxx xxx xxx
5. No admission, offer, promise or payment shall be made by or on behalf of the insured without the
written consent of the Company which shall be entitled, if it so desires, to take over and conduct in his
name the defense or settlement of any claim, or to prosecute in his name for its own benefit any claim for
indemnity or damages or otherwise, and shall have full discretion in the conduct of any proceedings in the
settlement of any claim, and the insured shall give all such information and assistance as the Company
may require. If the Company shall make any payment in settlement of any claim, and such payment
includes any amount not covered by this Policy, the Insured shall repay the Company the amount not so
covered.
3.   Stokes vs. Malayan Insurance Co.: The terms of the contract constitute the
measure of the insurer's liability and compliance therewith is a condition
precedent to the insured's right of recovery from the insurer.
4.   Here, the insurance policy clearly and categorically placed Perla Compania’s
liability for all damages arising out of death/bodily injury sustained by 1
person as a result of any 1 accident at P12k.
5.   Said amount complied with the minimum fixed by the law then prevailing,
Sec. 377, PD612 (which was retained by P.D. No. 1460, the Insurance Code of
1978), providing that the liability of land transportation vehicle operators for
bodily injuries sustained by a passenger arising out of the use of their
vehicles shall not be less than P12k, which means that the minimum liability is
P12k/passenger.
6.   Perla Compania’s liability under the insurance contract not being less than
P12k, and therefore not contrary to law, morals, good customs, public
order or public policy, said stipulation must be upheld as effective, valid
and binding as between the parties.
7.   SC ruled as valid and binding upon Cayas the condition requiring her to secure
the written permission of petitioner before effecting any payment in
settlement of any claim against her. There is nothing unreasonable, arbitrary
or objectionable in this stipulation as would warrant its nullification. The same
was obviously designed to safeguard the insurer's interest against collusion
between the insured and the claimants.
8.   In her cross-examination, Cayas admitted, thus:
Atty. Yabut:
Q: With respect to the other injured passengers of your bus wherein you made payments you did not
secure the consent of Perla Compania when you made those payments?
A: I informed them about that.
Q: But they did not give you the written authority that you were supposed to pay those claims?
A: No, sir.
9.   It being specifically required that Perla Compania’s written consent be first
secured before any payment in settlement of any claim could be made,
Cayas is precluded from seeking reimbursement of the payments made to
the 3 injured in view of her failure to comply with the condition contained in the
insurance policy.
10.   The principle that contracts are respected as the law between the contracting
parties finds application in the present case. Thus, it was error on the part of
the TC and CA to disregard the stipulations of the parties and to have substituted
their own interpretation of the insurance policy.
11.   Phil. American General Insurance vs. Mutuc: Contracts, private laws of the
contracting parties, should be fulfilled according to the literal sense of their
stipulations, if their terms are clear and leave no room for doubt as to the
intention of the contracting parties, for contracts are obligatory, no matter what
form they may be, whenever the essential requisites for their validity are present.
12.   Pacific Oxygen & Acetylene Co. vs. Central Bank: The first and fundamental
duty of the courts is the application of the law according to its express terms,
interpretation being called for only when such literal application is
impossible.
13.   Patent error: Although Cayas was able to prove a total loss of only P44k,
Perla Compania was made liable for the amount of P50k, the maximum
liability per accident stipulated in the policy. An insurance indemnity, being
merely an assistance or restitution insofar as can be fairly ascertained, cannot be
availed of by any accident victim or claimant as an instrument of enrichment by
reason of an accident.
14.   SC found no reason to disturb the award of atty's fees.
 009 Zenith Insurance v. CA (Sarmiento)
May 14, 1990 | Medialeda, J. | Insurance—damages
PETITIONER: Zenith Insurance Corporation
FACTS:
RESPONDENTS: Court of Appeals and Lawrence Fernandez
SUMMARY: Lawrence Fernandez insured his car for own damages under a
private car with petitioner Zenith Insurance. The car had an accident and
suffered actual damages in the amount of P3,640.00. Afer being given a run
around by Zenith for 2 months, Fernandez filed a complaint for sum of money
with damages resulting from the refusal of Zenith to pay the amount claimed. A
decision was rendered by the trial court A decision was rendered by the trial
court in favor of private respondent Fernandez. Zenith Insurance was ordered to
pay Fernandez, the amount of P3,640.00 representing the damage incurred plus
interest at the rate of twice the prevailing interest rates; P20,000.00 by way of
moral damages; P20,000.00 by way of exemplary damages, amount of
P5,000.00 as attorney’s fees; amount of P3,000.00 as litigation expenses. Zenith
insurance filed an appeal. Zenith questions the award of moral, exemplary
damages and attorney’s fees in an amount more than prayed for in the complaint.
The award of damages in case of unreasonable delay in the payment of insurance
claims is governed by the Philippine Insurance Code. It is clear that under the
Insurance Code, in case of unreasonable delay in the payment of the proceeds
of an insurance policy, the damages that may be awarded are: 1) attorney’s fees;
2) other expenses incurred by the insured person by reason of such unreasonable
denial or withholding of payment; 3) interest at twice the ceiling prescribed by
the Monetary Board of the amount of the claim due the injured; and 4) the
amount of the claim. As regards the moral and exemplary damages, it governed
by the New Civil Code. The act of petitioner Zenith of delaying payment for two
months cannot be considered as so wanton or malevolent to justify an award of
P20,000.00 as moral damages, taking into consideration also the fact that the
actual damage on the car was only P3,640. Moral damages of P10,000 is
equitable. On the other hand, exemplary or corrective damages are imposed,
by way of example or correction for the public good. The amount of P5,000.00
awarded as attorney’s fees is justified under the circumstances. As regards the
actual damages incurred by private respondent, the amount of P3,640.00 had
been established. Policy does not also mention the policy,
any deductible franchise.
DOCTRINE: It is clear that under the Insurance Code, in case of unreasonable
delay in the payment of the proceeds of an insurance policy, the damages that
may be awarded are: 1) attorney’s fees; 2) other expenses incurred by the
insured person by reason of such unreasonable denial or
withholding of payment; 3) interest at twice the ceiling prescribed by the
Monetary Board of the amount of the claim due the injured; and 4) the amount of
the claim. And under the new civil code, moral and exemplary damages can be
awarded as well.
1.   Private respondent Lawrence Fernandez insured his car for “own damage”
under private car Policy No. 50459 with petitioner Zenith Insurance
Corporation.
2.   The car figured in an accident and suffered actual damages in the amount of
P3,640.00. After allegedly being given a run around by Zenith for two (2)
months, Fernandez filed a complaint with the Regional Trial Court
of Cebu for sum of money and damages resulting from the refusal of Zenith
to pay the amount claimed.
3.   Zenith filed an answer alleging that it offered to pay the claim of Fernandez
pursuant to the terms and conditions of the contract which, the private
respondent rejected.
a.   Zenith wanted to settle the case, but it did not push through. Trial
ensued, and Fernandez presented his evidence. Zenith, however
failed to present its evidence, without any justifiable reason. The
trial court issued an order submitting the case for decision without
Zenith’s evidence.
b.   Zenith filed a petition for certiorari with the Court of Appeals
assailing the order of the trial court submitting the case for
decision without petitioner’s evidence. However, the petition was
denied
4.   A decision was rendered by the trial court in favor of private respondent
Fernandez. Zenith Insurance was ordered to pay Fernandez,
a.   The amount of P3,640.00 representing the damage incurred plus
interest at the rate of twice the prevailing interest rates;
b.   The amount of P20,000.00 by way of moral damages;
c.   The amount of P20,000.00 by way of exemplary damages;
d.   The amount of P5,000.00 as attorney’s fees;
e.   The amount of P3,000.00 as litigation expenses; and
f.   Costs.
5.   Upon motion of Fernandez and before the expiration of the period to appeal,
the trial court, ordered the execution of the decision pending appeal.
a.   The order was assailed by petitioner in a petition
for certiorari with the Court of Appeals but which petition was
also dismissed.
b.   Petitioner filed a notice of appeal before the trial court.
 i.   The notice of appeal was granted in the same order
granting private respondent’s motion for execution
pending appeal.
ISSUE: Whehter or not the award of moral and exemplary damages is
proper—NO. Moral damages cannot be awarded because there was no bad faith on
the part of Zenith in delaying the payment of the proceeds.
RULING: ACCORDINGLY, the appealed decision is MODIFIED as above stated.
RATIO:
1.   Court of Appeals rendered its decision affirming in toto the decision of the
trial court. It also ruled that the matter of the trial court’s denial of
Fernandez’ right to adduce evidence is a closed matter in view of its (CA)
ruling in AC-G.R. 04644 wherein Zenith’s petition questioning the trial
court’s order submitting the case for decision without Zenith’s evidence,
was dismissed
a.   The Motion for Reconsideration of the decision of the Court of
Appeals was denied for lack of merit.
b.   Hence, the instant petition was filed by Zenith on the allegation
that respondent Court of Appeals’ decision and resolution ran
counter to applicable decisions of this Court and that they were
rendered without or in excess of jurisdiction.
2.   Zenith insurance questions the legal basis of the CA in awarding moral
damages, exemplary damages and attorney’s fees in an amount more than
that prayed for in the complaint.
a.   The award of actual damages of P3,640.00 instead of only
P1,927.50 which was arrived at after deducting P250.00
and P274.00 as deductible franchise and 20% depreciation on parts
as agreed upon in the contract of insurance.
b.   Petitioner contends that while the complaint of private respondent
prayed for P10,000.00 moral damages, the lower court awarded
twice the amount, or P20,000.00 without factual or legal basis;
while private respondent prayed for P5,000.00 exemplary
damages, the trial court awarded P20,000.00; and while private
respondent prayed for P3,000.00 attorney’s fees, the trial court
awarded P5,000.00.
3.   The propriety of the award of moral damages, exemplary damages and
attorney’s fees is the main issue raised herein by Zenith.
4.   The award of damages in case of unreasonable delay in the payment of
insurance claims is governed by the Philippine Insurance Code, which
provides:
a.   “SEC. 244. In case of any litigation for the enforcement of any
policy or contract of insurance, it shall be the duty of the
Commissioner or the Court, as the case may be, to make a finding
as to whether the payment of the claim of the insured has
been unreasonably denied or withheld; and in the affirmative case,
the insurance company shall be adjudged to pay damages which
shall consist of attorney’s fees and other expenses incurred by the
insured person by reason of such unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed
by the Monetary Board of the amount of the claim due the insured,
from the date following the time prescribed in section two hundred
forty-two or in section two hundred forty-three, as the case may be,
until the claim is fully satisfied; Provided, That the failure to pay
any such claim within the time prescribed in said sections shall be
considered prima facie evidence of unreasonable delay in
payment.”
5.   It is clear that under the Insurance Code, in case of unreasonable delay in
the payment of the proceeds of an insurance policy, the damages that may
be awarded are: 1) attorney’s fees; 2) other expenses incurred by the
insured person by reason of such unreasonable denial or
withholding of payment; 3) interest at twice the ceiling prescribed by the
Monetary Board of the amount of the claim due the injured; and 4) the
amount of the claim.
6.   As regards the award of moral and exemplary damages, the rules under
the New Civil Code of the Philippines shall govern.
a.   “The purpose of moral damages is essentially indemnity or
reparation, not punishment or correction. Moral damages are
emphatically not intended to enrich a complainant at the expense
of a defendant, they are awarded only to enable the injured party to
obtain means, diversions or amusements that will serve to alleviate
the moral suffering he has undergone by reason of the defendant’s
culpable action.”
b.   While it is true that no proof of pecuniary loss is necessary in order
that moral damages may be adjudicated, the assessment of which is
left to the discretion of the court according to the circumstances of
each case (Art. 2216, New Civil Code), it is equally true that in
awarding moral damages in case of breach of contract, there must
be a showing that the breach was wanton and deliberately injurious
or the one responsible acted fraudulently or in bad faith
7.   In the instant case, there was a finding that private respondent was given a
“run-around” for two months, which is the basis for the award
of the damages granted under the Insurance Code for unreasonable delay in
the payment of the claim.
 a.   However, the act of petitioner Zenith of delaying payment for two b.   2) P10,000.00 as moral damages;
months cannot be considered as so wanton or malevolent to justify c.   3) P5,000.00 as attorney’s fees;
an award of P20,000.00 as moral damages, taking into d.   4) P3,000.00 as litigation expenses; and
consideration also the fact that the actual damage on the car was e.   4) Costs.
only P3,640.
b.   The reason for Zenith’s failure to indemnify private respondent
Fernandez within the two-month period was that the parties could
not come to an agreement as regards the amount of the actual
damage on the car.
c.   The amount of P10,000.00 prayed for by private respondent as
moral damages is equitable.

8.   On the other hand, exemplary or corrective damages are imposed, by way

of example or correction for the public good (Art. 2229, New Civil Code of
the Philippines).
a.   In the case of Noda v. Cruz-Arnaldo, exemplary damages were not
awarded at the insurance company had not acted in wanton,
oppressive or malevolent manner.
b.   The same is true in the case at bar.

9.   The amount of P5,000.00 awarded as attorney’s fees is justified

under the circumstances of this case considering that there were other
petitions filed and defended by private respondent in connection with this
case.

10.   As regards the actual damages incurred by private respondent, the amount
of P3,640.00 had been established before the trial court and affirmed by the
appellate court.

11.   Respondent appellate court correctly ruled that the deductions of P250.00
and P274.00 as deductible franchise and 20% depreciation on parts,
respectively claimed by petitioners as agreed upon in the contract, had no
basis.
a.   Respondent court CA ruled: “Under its second assigned error,
defendant-appellant puts forward two arguments, both of which are
entirely without merit. It is contented that the amount recoverable
under the insurance policy defendant-appellant issued over the
car of plaintiff-appellee is subject to deductible franchise, and “the
policy, does not mention any deductible franchise.”

12.   Therefore, the award of moral damages is reduced to P10,000.00 and the
award of exemplary damages is hereby deleted. The awards due to private
respondent Fernandez are as follows:
a.   1) P3,640.00 as actual claim plus interest of twice the ceiling
prescribed by the Monetary Board computed from the time of
submission of proof of loss;
 010 STRONGHOLD INSURANCE v. INTERPACIFIC CONTAINER
SERVICES (SEE)
July 1, 2015 | Perez, J. | Insurance Contract Interpretation
PETITIONER: Stronghold Insurance Company Inc.
RESPONDENTS: Interpacific Container Services and Gloria Dee Chong
SUMMARY: Chong owned a Fuso truck which was insured with Stronghold
Insurance under a comprehensive motor car insurance policy which undertook to
indemnify the insured against loss or damage to the car and death or injury
caused to third persons by reason of accident. While the policy was in effect, the
truck figured into an accident along the National highway in Brgy. Palihan,
Hermosa, Bataan resulting in 4 deaths and 3 serious injuries. 2 vehicles were
also heavily damages. Chong then filed a claim for the recovery of P550,000.
Stronghold denied on the ground that the driver was heavily drunk at the time of
the accident as shown in the Pagpapatunay issued by the Barangay Chairman
and the Medico-Legal Certificate. Chong and Interpacific Services then sued for
recovery of sum of money before the RTC of Caloocan. The RTC and the CA
ruled for Chong and ordered Stronghold to pay. The issue in this case is WoN it
was proven during the trial that the driver of the insured vehicle was intoxicated
at the time of the accident thereby precluding Chong and Interpacific from
claiming the proceeds of the insurance policy-NO, the evidences provided by
Stronghold failed to prove intoxication. The RTC doubted the authenticity of the
Medico Legal Certificate because of the attendant alteration and tampering on
the face of the document. The evident tampering of the medico legal certificate
necessitated the presentation by Stronghold of additional evidence to buttress his
claim but it did not present any other evidence. What further dampens
Stronghold's position is the absence of the crucial fact of intoxication in the
blotter report which officially documented the incident.
DOCTRINE: This case involves a contract of insurance, the authenticity and
validity of which was uncontested. In exempting insurers from liability under
the contract, proof thereof must be clear, credible and convincing.
Fundamental is the rule that the contract is the law between the parties and, that
absent any showing that its provisions are wholly or in part contrary to law,
morals, good customs, public order, or public policy, it shall be enforced to the
letter by the courts.
FACTS:
36.   Gloria Dee Chong owned a Fuso truck with Plate number PWH 512. The
truch was insured with Stronghold Insurance under a comprehensive motor
car insurance policy which undertook to indemnify the insured against loss
or damage to the car and death or injury caused to third persons by reason
of accident.
37.   While the policy was in effect, the truck figured into an accident along the
National highway in Brgy. Palihan, Hermosa, Bataan resulting in 4 deaths
and 3 serious injuries. 2 vehicles were also heavily damages.
38.   Chong then filed a claim for the recovery of P550,000.
a.   Comprehensive Third Party Liability (CTPL) --------- ₱50,000.00
b.   Own Damage (OD) --------------------------------------- ₱300,000.00
c.   Excess I Bodily Injury (BI)------------------------------ ₱100,000.00
d.   Third Party Liability (TPL) ----------------------------- ₱100,000.00
e.   Total -------------------------------------------------------- ₱550,000.00
39.   Stronghold denied on the ground that the driver was heavily drunk at the
time of the accident as shown in the Pagpapatunay issued by the Barangay
Chairman Rafael Torres and the Medico-Legal Certificate signed by Dr.
Bautista.
40.   Chong and Interpacific Services (I assumed this is Chong’s company) then
sued for recovery of sum of money before the RTC of Caloocan. They
argued that there was no sufficient proof to support the claim of the
Stronghold that the driver was drunk at the time of the incident
underscoring the lack of mention of such crucial fact in the police blotter
report documenting the incident.
41.   Stronghold averred hat the intoxication of the driver of the insured vehicle
legally avoided the liability of the insurance company under the policy.
Stronghold further claimed that the insured violated Section 53 of the Land
Transportation and Traffic Code which prohibits driving of motor vehicles
under the influence of alcohol. Since the driver of the insured vehicle was
found drunk at the time of the accident, the denial of the insurance claim of
Chong is therefore justified under provisions of the insurance contract and
the existing statutes.
42.   The RTC ruled for Chong and Interpacific and ordered Stronghold to pay
them. The CA affirmed but deleted the award for exemplary damages.
ISSUE/s:
8.   WoN it was proven during the trial that the driver of the insured vehicle was
intoxicated at the time of the accident thereby precluding Chong and
Interpacific from claiming the proceeds of the insurance policy—NO, the
evidences provided by Stronghold failed to prove intoxication.
RULING: WHEREFORE, premises considered, the instant petition is hereby
DENIED. The assailed Decision of the Court of Appeals in CA-G.R. CV No. 80557
is hereby AFFIRMED.
RATIO:
1.   Stronghold claims that the factual findings of the lower courts were fallible.
However, the Supreme Court is not a trier of facs and as a rule, the factual
conclusion of the lower courts are rcognized by the Supreme Court, unless
of some facts and circumstances of weight and substance, having been
overlooked or misinterpreted, might materially affect the disposition of the
case. The exception has not been shown.
2.   Contrary to the claim of Stronghold; it miserably failed to prove the fact of
intoxication during the trial. Aside from the Medico Legal Certificate and
the Pagpapatunay, which were stripped of evidentiary value because of the
dubious circumstances under which they were obtained, the Stronghold did
not adduce other proof to justify the avoidance of the policy.
3.   The RTC doubted the authenticity of the Medico Legal Certificate because
of the attendant alteration and tampering on the face of the document.
In adopting the findings of the trial court, the appellate court reiterated the
evidentiary rule that the party alleging violation of the provision of the
contract bears the burden of proof to prove the same.
4.   The evident tampering of the medico legal certificate necessitated the
presentation by Stronghold of additional evidence to buttress his
claim. For instance, Stronghold could have adduced affidavits of witnesses
who were present at the scene of the accident to attest to the fact that the
driver was intoxicated. It did not. Upon the other hand, Chong and
Interpacific duly established their right to claim the proceeds of a validly
subsisting contract of insurance. Such contract was never denied.
5.   In civil cases, the party having the burden of proof must produce a
preponderance of evidence thereon, with plaintiff having to rely on the
strength of his own evidence and not upon the weakness of the defendant's.
The concept of "preponderance of evidence" refers to evidence which is of
greater weight or more convincing, than that which is offered in opposition
to it; at bottom, it means probability of truth.
6.   What further dampens Stronghold's position is the absence of the
crucial fact of intoxication in the blotter report which officially
documented the incident. Entries in police records made by a police
officer in the performance of the duty especially enjoined by law are prima
facie evidence of the fact therein stated, and their probative value may be
substantiated or nullified by other competent evidence. In this case, the lack
of statement to the effect that the driver was under the influence of alcohol
in the said report is too significant to escape the attention of this Court.
7.   This case involves a contract of insurance, the authenticity and validity of
which was uncontested. In exempting insurers from liability under the
contract, proof thereof must be clear, credible and convincing.
Fundamental is the rule that the contract is the law between the parties and,
that absent any showing that its provisions are wholly or in part contrary to
law, morals, good customs, public order, or public policy, it shall be
enforced to the letter by the courts.
 White Gold Marine Services, Inc. vs. Pioneer Insurance and Surety
Corporation (Siapno)
July 28, 2005 | Quisumbing, J. | Doing Insurance Business
PETITIONER: White Gold Marine Services, Inc.
RESPONDENT: Pioneer Insurance and Surety Corporation and the Steamship
Mutual Underwriting Association (Bermuda) LTD.
SUMMARY: White Gold Marine Services, Inc. (White Gold) procured a
protection and indemnity coverage for its vessels from The Steamship Mutual
Underwriting Association (Bermuda) Limited (Steamship Mutual) through
Pioneer Insurance and Surety Corporation (Pioneer). When White Gold failed to
fully pay its accounts, Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of
sum of money to recover the latter’s unpaid balance. White Gold on the other
hand, filed a complaint before the Insurance Commission claiming that
Steamship Mutual failed to secure the license needed for transacting insurance
businesses in the Philippines. Steamship Mutual claimed to be a Protection and
Indemnity Club and Pioneer claimed that it need not obtain another license as
insurance agent and/or a broker for Steamship Mutual because Steamship
Mutual was not engaged in the insurance business. Issues are:
1.   WoN Steamship Mutual, a P & I Club, engaged in the insurance business in
the Philippines – YES The test to determine if a contract is an insurance
contract or not, depends on the nature of the promise, the act required to be
performed, and the exact nature of the agreement in the light of the
occurrence, contingency, or circumstances under which the performance
becomes requisite. It is not by what it is called. 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.
2.   WoN Pioneer needs a license as an insurance agent/broker for Steamship
Mutual – YES. Although Pioneer is already licensed as an insurance
company, it needs a separate license to act as insurance agent for Steamship
Mutual as per Section 299 of the Insurance Code.
DOCTRINE: The test to determine if a contract is an insurance contract or not,
depends on the nature of the promise, the act required to be performed, and the
exact nature of the agreement in the light of the occurrence, contingency, or
circumstances under which the performance becomes requisite. It is not by what
it is called.
FACTS:
1.   White Gold Marine Services, Inc. (White Gold) procured a protection and
indemnity coverage for its vessels from The Steamship Mutual Underwriting
Association (Bermuda) Limited (Steamship Mutual) through Pioneer Insurance
and Surety Corporation (Pioneer).
2.   White Gold was issued a Certificate of Entry and Acceptance. Pioneer also issued
receipts evidencing payments for the coverage. When White Gold failed to fully
pay its accounts, Steamship Mutual refused to renew the coverage.
3.   Steamship Mutual thereafter filed a case against White Gold for collection of sum
of money to recover the latter’s unpaid balance. White Gold on the other hand,
filed a complaint before the Insurance Commission claiming that Steamship
Mutual violated Sections 186 and 187 of the Insurance Code, while Pioneer
violated Sections 299, 300 and 301 in relation to Sections 302 and 303, thereof
(see end of the digest, but these provisions talk about the requirements of
transacting insurance business in the Philippines)
4.   Insurance Commission: dismissed the complaint since was no need for Steamship
Mutual to secure a license because it was not engaged in the insurance business.
It explained that Steamship Mutual was a Protection and Indemnity Club (P & I
Club). Likewise, Pioneer need not obtain another license as insurance agent
and/or a broker for Steamship Mutual because Steamship Mutual was not
engaged in the insurance business. Moreover, Pioneer was already licensed,
hence, a separate license solely as agent/broker of Steamship Mutual was already
superfluous.
5.   CA: affirmed the decision of the Insurance Commissioner. In its decision, the
appellate court distinguished between P & I Clubs vis--vis conventional
insurance. The appellate court also held that Pioneer merely acted as a collection
agent of Steamship Mutual.
ISSUE:
1.   WoN Steamship Mutual, a P & I Club, engaged in the insurance business in
the Philippines – YES, 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.
2.   WoN Pioneer needs a license as an insurance agent/broker for Steamship
Mutual – YES, Although Pioneer is already licensed as an insurance company, it
needs a separate license to act as insurance agent for Steamship Mutual as per
Section 299 of the Insurance Code
RULING: The Steamship Mutual Underwriting Association (Bermuda) Ltd., and
Pioneer Insurance and Surety Corporation are ORDERED to obtain licenses and to
secure proper authorizations to do business as insurer and insurance agent,
respectively. The petitioners prayer for the revocation of Pioneers Certificate of
Authority and removal of its directors and officers, is DENIED. Costs against
respondents.
RATIO:
3.   The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual
admits it does not have a license to do business in the Philippines although
 Pioneer is its resident agent. This relationship is reflected in the certifications
issued by the Insurance Commission.
4.   Hyopsung Maritime Co., Ltd. v. CA: P & I Club is an association composed of
shipowners in general who band together for the specific purpose of providing
insurance cover on a mutual basis against liabilities incidental to shipowning that
the members incur in favor of third parties.
5.   It stresses that as a P & I Club, Steamship Mutuals primary purpose is to solicit
and provide protection and indemnity coverage and for this purpose, it has
engaged the services of Pioneer to act as its agent.
6.   Pioneer and Steamship Mutual contend that although Steamship Mutual is a P &
I Club, it is not engaged in the insurance business in the Philippines. It is merely
an association of vessel owners who have come together to provide mutual
protection against liabilities incidental to shipowning.
7.   Section 2(2) of the Insurance Code enumerates what constitutes doing an
insurance business or transacting an insurance business. These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation
and not as merely incidental to any other legitimate business or activity of the
surety;
(c) doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the meaning
of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the
foregoing in a manner designed to evade the provisions of this Code.
8.   The same provision also provides, the fact that no profit is derived from the
making of insurance contracts, agreements or transactions, or that no separate or
direct consideration is received therefor, shall not preclude the existence of an
insurance business.
9.   The test to determine if a contract is an insurance contract or not, depends
on the nature of the promise, the act required to be performed, and the exact
nature of the agreement in the light of the occurrence, contingency, or
circumstances under which the performance becomes requisite. It is not by
what it is called.
10.  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.
11.  In particular, 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.
12.  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. Additionally, mutual insurance
associations, or clubs, provide three types of coverage, namely, protection and
indemnity, war risks, and defense costs.
13.  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.
14.  The records reveal Steamship Mutual is doing business in the country albeit
without the requisite certificate of authority mandated by Section 187 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.
15.  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.
16.  Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate
of registration issued by the Insurance Commission. It has been licensed to do or
transact insurance business by virtue of the certificate of authority issued by the
same agency. However, a Certification from the Commission states that
Pioneer does not have a separate license to be an agent/broker of Steamship
Mutual.
17.  Although Pioneer is already licensed as an insurance company, it needs a
separate license to act as insurance agent for Steamship Mutual. Section 299
of the Insurance Code clearly states:
No person shall act as an insurance agent or as an insurance broker in the solicitation
or procurement of applications for insurance, or receive for services in obtaining
insurance, any commission or other compensation from any insurance company
doing business in the Philippines or any agent thereof, without first procuring a
license so to act from the Commissioner, which must be renewed annually on
the first day of January, or within six months thereafter.
18.  Finally, White Gold seeks revocation of Pioneers certificate of authority and
removal of its directors and officers. Regrettably, we are not the forum for these
issues.
RELATED PROVISIONS:
SEC. 186. No person, partnership, or association of persons shall transact any insurance business in the
Philippines except as agent of a person or corporation authorized to do the business of insurance in the
Philippines, unless possessed of the capital and assets required of an insurance corporation doing the same
kind of business in the Philippines and invested in the same manner; nor unless the Commissioner shall
have granted to him or them a certificate to the effect that he or they have complied with all the provisions
of law which an insurance corporation doing business in the Philippines is required to observe.
Every person, partnership, or association receiving any such certificate of authority shall be subject to the
insurance laws of the Philippines and to the jurisdiction and supervision of the Commissioner in the same
manner as if an insurance corporation authorized by the laws of the Philippines to engage in the business
of insurance specified in the certificate.
SEC. 187. No Insurance Company shall transact any insurance business in the Philippines until after it
shall have obtained a certificate of authority for that purpose from the Commissioner upon application
therefor and payment by the company concerned of the fees hereinafter prescribed.
SEC. 299. No insurance company doing business in the Philippines, nor any agent thereof, shall pay any
commission or other compensation to any person for services in obtaining insurance, unless such person
shall have first procured from the Commissioner a license to act as an insurance agent of such company or
as an insurance broker as hereinafter provided.
No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of
applications for insurance, or receive for services in obtaining insurance, any commission or other
compensation from any insurance company doing business in the Philippines or any agent thereof, without
first procuring a license so to act from the Commissioner, . . .
SEC. 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance
company or transmits for a person other than himself an application for a policy or contract of insurance to
or from such company or offers or assumes to act in the negotiating of such insurance shall be an
insurance agent within the intent of this section and shall thereby become liable to all the duties,
requirements, liabilities and penalties to which an insurance agent is subject.
SEC. 301. Any person who for any compensation, commission or other thing of value acts or aids in any
manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or
taking out insurance, on behalf of an insured other than himself, shall be an insurance broker within the
intent of this Code, and shall thereby become liable to all the duties, requirements, liabilities and penalties
to which an insurance broker is subject.
SEC. 99. Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits,
moneys, securities, choses in action, evidences of debt, valuable papers, bottomry, and respondentia
interests and all other kinds of property and interests therein, in respect to, appertaining to or in connection
with any and all risks or perils of navigation, transit or transportation, or while being assembled, packed,
crated, baled, compressed or similarly prepared for shipment or while awaiting shipment, or during any
delays, storage, trasshipment, or reshipment incident thereto, including war risks, marine builders risks,
and all personal property floater risks.
(b) Person or property in connection with or appertaining to a marine, inland marine, transit or
transportation insurance, including liability for loss of or damage arising out of or in connection with the
construction, repair, operation, maintenance or use of the subject matter of such insurance (but not
including life insurance or surety bonds nor insurance against loss by reason of bodily injury to any person
arising out of the ownership, maintenance, or use of automobiles).
(c) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise.
(d) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings,
their furniture and furnishings, fixed contents and supplies held in storage); piers, wharves, docks and
slips, and other aids to navigation and transportation, including dry docks and marine railways, dams and
appurtenant facilities for the control of waterways.
(2) Marine protection and indemnity insurance, meaning insurance against, or against legal liability of the
insured for loss, damage, or expense incident to ownership, operation, chartering, maintenance, use,
repair, or construction of any vessel, craft or instrumentality in use in ocean or inland waterways,
including liability of the insured for personal injury, illness or death or for loss of or damage to the
property of another person.
 001 GUINGON vs. DEL MONTE (SOLCO)
August 17, 1967 | BENGZON, J.P., J. | No Action Clause in Insurance Contracts
PETITIONER: DIONISIA GUINGON, et al.
RESPONDENTS: ILUMINADO DEL MONTE, et al.
SUMMARY: Julio Aguilar owned several Jeepneys which he insured with Capital
Insurance & Surety Co,. Inc. (CISC). The policy states that it will reimburse Aguilar,
subject to the limits of his liability, for all accidents caused by the use of the motor
vehicles covered against all sums including claimant's costs and expenses which
the Insured shall become legally liable to pay in respect of: (a.) death of or bodily
injury to any person and (b.) damage to property. His jeepney driver, Iluminado
bumped another jeepney while Gervacio, a passenger, was alighting from it, which
caused Gervacio to die. So an action for homicide thru reckless imprudence was filed
against him for which he was convicted. Corollary to the action, the heirs filed an
action for damages against Aguilar and CISC. CFI held both of them liable. CISC
appealed to SC stating that it isn’t liable for the death of Gervacio and also it cannot
be impleaded in the case against Aguilar because of a certain “no action” clause in
their insurance contract which requires that a final judgement be rendered first
against the insured before they can be sued for the proceeds. SC ruled against CISC
and stated that it is clear from the provisions of your contract with Aguilar that you
were insuring him against all damages which he may become legally liable for
arising out of any accident caused by his jeepneys which causes death or injury to a
person. Secondly, even if the “no action” clause in the insurance contract states that
you cannot be sued or impleaded until a final judgement is rendered against against
the insured, such clause cannot prevail against the Rules of Court which allows
permissive joinder of parties and was intended to avoid multiplicity of suits. Sec. 5
of Rule 2 on "Joinder of causes of action" and Sec. 6 of Rule 3 on "Permissive
joinder of parties" cannot be superseded, at least with respect to third persons not a
party to the contract, as herein, by a "no action" clause in the contract of insurance.
DOCTRINE: 1. The "no action" clause in the policy of insurance cannot prevail
over the Rules of Court provision aimed at avoiding multiplicity of suits
2.  The right of the person injured to sue the insurer of the party at fault (insured),
depends on whether the contract of insurance is intended to benefit third persons also
or only the insured. The test to be applied is: Where the contract provides for
indemnity against liability to third persons, then third persons to whom the insured is
liable,can sue the insurer.
FACTS:
1.   In 1961, Julio Aguilar owned and operated several jeepneys in Manila. He
entered into a contract with the Capital Insurance &Surety Co., Inc. insuring
the operation of his jeepneys against accidents with third-party liability.
2.   The insurance policy provides that “Capital Insurance & Surety Co., Inc.
will, subject to the limits of liability, indemnify the Insured in the event of
accident caused by or arising out of the use of the Motor Vehicle/s or in
connection with the loading or unloading of the Motor Vehicle/s, against all
sums including claimant's costs and expenses which the Insured shall
become legally liable to pay in respect of: (a.) death of or bodily injury to
any person and (b.) damage to property.”
3.   Iluminado del Monte, one of the drivers of the jeepneys, while driving
along the intersection of Juan Luna and Moro streets in Manila, bumped
with the jeepney of Gervacio Guingon who had just alighted from another
jeepney and as a consequence the latter died some days thereafter. A
corresponding information for homicide thru reckless imprudence was filed
against del Monte, who pleaded guilty. A penalty of four months
imprisonment was imposed on him.
4.   Corollary to the criminal action, the heirs of Gervacio Guingon filed an
action for damages against Julio Aguilar, and the Capital Insurance &
Surety Co., Inc. Julio Aguilar did not answer and was thus declared in
default.
5.   Capital Insurance & Surety Co., Inc answered, alleging that the plaintiff has
no cause of action against it.
6.   CFI ordered Del Monte and Aguilar jointly and severally to pay P8,572.95
to plaintiffs as damages for the death of their father and P1,000 as
attorney’s fees.
7.   Capital Insurance and Surety Co., Inc. was also sentenced to pay the
plaintiffs P5,000.00 and P500.00 as attorney's fees and costs which shall be
applied in partial satisfaction of the judgment rendered against Iluminado
del Monte and Julio Aguilar in this case.
8.   Hence this appeal by Capital Insurance & Surety Co., Inc.
ISSUE/s:
1.   Whether plaintiff can sue Capital Insurance & Surety Co., Inc.? If so, can
plaintiffs sue the insurer jointly with the insured? YES to both, Firstly, the
insurance contract expressly states that it covers said liability.
Secondly, the “no action” clause in the contract cannot prevail over the
Rules of Court as provided for by jurisprudence.
RULING: Wherefore, the judgment appealed from is affirmed in toto. Costs against
appellant. So ordered.
RATIO:
1.   The right of the person injured to sue the insurer of the party at fault
(insured), depends on whether the contract of insurance is intended to
benefit third persons also or only the insured. The test to be applied is:
Where the contract provides for indemnity against liability to third persons,
then third persons to whom the insured is liable, can sue the insurer. Where
the contract is for indemnity against actual loss or payment, then third
persons cannot proceed against the insurer, the contract being solely to
reimburse the insured for liability actually discharged by him thru payment
 to third persons, said third persons' recourse being thus limited to the
insured alone.
2.   The policy in the present case is one whereby the insurer agreed to
indemnify the insured "against all sums which the Insured shall
become legally liable to pay in respect of: a. death of or bodily injury to
any person." Clearly, therefore, it is one for indemnity against liability;
from the fact then that the insured is liable to the third person, such
third person is entitled to sue the insurer
3.   Appellant contends that the "no action" clause in the policy closes the
avenue to any third party which may be injured in an accident wherein the
jeepney of the insured might have been the cause of the injury of third
persons, alleging the freedom of contracts.

Action Against Company Clause:

1.   “No action shall lie against the Company unless, as a condition

precedent thereto, the Insured shall have fully complied with all of the
terms of this Policy, nor until the amount of the Insured's obligation to
pay shall have been finally determined either by judgment against the
Insured after actual trial or by written agreement of the Insured, the
claimant, and the Company.”
2.   “Any person or organization or the legal representative thereof who has
secured such judgment or written agreement shall thereafter be entitled to
recover under this policy to the extent of the insurance afforded by the
Policy. Nothing contained in this policy shall give any person or
organization any right to join the Company as a co-defendant in any
action against the Insured to determine the Insured's liability.”
3.   The "no action" clause in the policy of insurance cannot prevail over the
Rules of Court provision aimed at avoiding multiplicity of suits. In a case
squarely on the point, American Automobile Ins. Co. vs. Struwe, 218 SW
534 (Texas CCA), it was held that a "no action" clause in a policy of
insurance cannot override procedural rules aimed at avoidance of
multiplicity of suits.
4.   Similarly, in the instant suit, Sec. 5 of Rule 2 on "Joinder of causes of
action" and Sec. 6 of Rule 3 on "Permissive joinder of parties" cannot be
superseded, at least with respect to third persons not a party to the contract,
as herein, by a "no action" clause in the contract of insurance.
 002 ETERNAL GARDENS MPC. v. PHILAM (STA. MARIA) person is insured as soon as he contracts a loan with Eternal, it cannot be then shown that
April 9, 2008| Velasco, Jr., J. | Covered by Insurance Philam would first need to approve his application for it to be valid; group life insurance
covers all those who contracted with Eternal, with or without the approval.
PETITIONERS: Eternal Gardens Memorial Park Corporation
RESPONDENTS: The Philippine American Life Insurance Company FACTS:
1.   Philamlife entered into an agreement denominated as Creditor Group Life
SUMMARY: Philamlife entered into an agreement denominated as Creditor Group Life Policy with petitioner Eternal Gardens Memorial Park Corporation
Policy with Eternal. Under the policy, the clients of Eternal who purchased burial lots
(Eternal).
from it on installment basis would be insured by Philamlife. The amount of insurance
coverage depended upon the existing balance of the purchased burial lots. The most 2.   Under the policy, the clients of Eternal who purchased burial lots from it on
relevan provision of the policy is EFFECTIVE DATE OF BENEFIT. The insurance of installment basis would be insured by Philamlife. The amount of insurance
any eligible Lot Purchaser shall be effective on the date he contracts a loan with the coverage depended upon the existing balance of the purchased burial lots.
Assured. However, there shall be no insurance if the application of the Lot Purchaser is The policy was to be effective for a period of one year, renewable on a
not approved by the Company.Eternal was required under the policy to submit to yearly basis.
Philamlife a list of all new lot purchasers, together with a copy of the application of each 3.   The relevant provisions8 of the policy are: (MOST RELEVANT)
purchaser, and the amounts of the respective unpaid balances of all insured lot purchasers. EFFECTIVE DATE OF BENEFIT. The insurance of any eligible Lot
Eternal complied by submitting a letter containing a list of insurable balances of its lot Purchaser shall be effective on the date he contracts a loan with the
buyers. One of those included in the list as “new business” John Chuang. His balance of
Assured. However, there shall be no insurance if the application of the Lot
payments was 100K. Later on, Chuang died. Eternal sent a letter dated to Philamlife,
which served as an insurance claim for Chuang’s death. Attached to the claim were Purchaser is not approved by the Company.
certain documents. In reply, Philamlife wrote Eternal a letter requiring Eternal to submit 4.   Eternal was required under the policy to submit to Philamlife a list of all
the additional documents relative to its insurance claim for Chuang’s death. Eternal new lot purchasers, together with a copy of the application of each
transmitted the required documents through a letter which was received by purchaser, and the amounts of the respective unpaid balances of all insured
Philamlife.After more than a year, Philamlife had not furnished Eternal with any reply to lot purchasers.
the latter’s insurance claim. This prompted Eternal to demand from Philamlife the 5.   Eternal complied by submitting a letter containing a list of insurable
payment of the claim for PhP 100,000. Philamlife denied Eternal’s insurance claim as balances of its lot buyers. One of those included in the list as "new
there was no application for Group Insurance was submitted in our office prior to business" was John Chuang. His balance of payments was PhP 100,000. On
Chuang’s death and hence, this was not covered by the insurance. Eternal filed a case
August 2, 1984, Chuang died.
with the RTC for a sum of money against Philamlife, which decided in favor of Eternal,
ordering Philamlife to pay the former 100K representing the proceeds of the policy. CA 6.   Eternal sent a letter to Philamlife, which served as an insurance claim for
reversed. The issue in this case is WON Chuang’s death was covered by the insurance Chuang’s death. Attached to the claim were the following documents: (1)
policy?– Yes. An examination of the provision of the policy under effective date of Chuang’s Certificate of Death; (2) Identification Certificate stating that
benefit, would show ambiguity between its two sentences. The first sentence appears to Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant; (4)
state that the insurance coverage of the clients of Eternal already became effective upon Certificate of Attending Physician; and (5) Assured’s Certificate.
contracting a loan with Eternal while the second sentence appears to require Philamlife to 7.   Philamlife wrote Eternal a letter requiring Eternal to submit the following
approve the insurance contract before the same can become effective. The SC ruled that documents relative to its insurance claim for Chuang’s death: (1) Certificate
since, an insurance contract is a contract of adhesion this must be construed liberally in of Claimant (with form attached); (2) Assured’s Certificate (with form
favor of the insured and strictly against the insurer. The SC harmonized the sentences to
mean that upon a party’s purchase of a memorial lot on installment from Eternal, an
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
insurance contract covering the lot purchaser is created and the same is effective, valid,
 ELIGIBILITY.
 Any
 Lot
 Purchaser
 of
 the
 Assured
 who
 is
 at
 least
 18
 but
 not
 more
 than
 65
 years
 of
 age,
 is
 
and binding until terminated by Philamlife by disapproving the insurance application. indebted
  to
  the
  Assured
  for
  the
  unpaid
  balance
  of
  his
  loan
  with
  the
  Assured,
  and
  is
  accepted
  for
  Life
 
(Applied to this case, the purchase of the burial lot on installment basis by Chuang made Insurance
 coverage
 by
 the
 Company
 on
 its
 effective
 date
 is
 eligible
 for
 insurance
 under
 the
 Policy.
 
his death part of Philamlife’s insurance coverage.) EVIDENCE
  OF
  INSURABILITY.No
  medical
  examination
  shall
  be
  required
  for
  amounts
  of
  insurance
  up
  to
 
P50,000.00.
  However,
  a
  declaration
  of
  good
  health
  shall
  be
  required
  for
  all
  Lot
  Purchasers
  as
  part
  of
  the
 
application.
 The
 Company
 reserves
 the
 right
 to
 require
 further
 evidence
 of
 insurability
 satisfactory
 to
 the
 
DOCTRINE: (No specific doctrine with respect to the syllabus topic which is what may Company
 in
 respect
 of
 the
 following:
 (1).
 Any
 amount
 of
 insurance
 in
 excess
 of
 P50,000.00.
 (2).
 Any
 lot
 
be insured/insured against? – this can be seen in the application of the facts but the court purchaser
 who
 is
 more
 than
 55
 years
 of
 age.
 
used the rule on interpretation of a contract of adhesion in order to determine the coverage LIFE
  INSURANCE
  BENEFIT.
  The
  Life
  Insurance
  coverage
  of
  any
  Lot
  Purchaser
  at
  any
  time
  shall
  be
  the
 
of the insurance policy) An insurance contract is a contract of adhesion which must be amount
  of
  the
  unpaid
  balance
  of
  his
  loan
  (including
  arrears
  up
  to
  but
  not
  exceeding
  2
  months)
  as
 
construed liberally in favor of the insured and strictly against the insurer in order to reported
 by
 the
 Assured
 to
 the
 Company
 or
 the
 sum
 of
 P100,000.00,
 whichever
 is
 smaller.
 Such
 benefit
 
safeguard the latter’s interest. (As an application to the facts) When the contract states the shall
 be
 paid
 to
 the
 Assured
 if
 the
 Lot
 Purchaser
 dies
 while
 insured
 under
 the
 Policy.
 

 
 attached); (3) Application for Insurance accomplished and signed by the
insured, Chuang, while still living; and (4) Statement of Account showing
the unpaid balance of Chuang before his death.
8.   Eternal transmitted the required documents through a letter which was
received by Philamlife.
9.   After more than a year, Philamlife had not furnished Eternal with any reply
to the latter’s insurance claim. This prompted Eternal to demand from
Philamlife the payment of the claim for PhP 100,000.
10.   In response to Eternal’s demand, Philamlife denied Eternal’s insurance
claim in a letter a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal
Gardens Memorial Park in October 1982 for the total maximum insurable amount of
P100,000.00 each. No application for Group Insurance was submitted in our office prior
to his death. In accordance with our Creditor’s Group Life, under Evidence of Insurability
provision, "a declaration of good health shall be required for all Lot Purchasers as party of the
application." We cite further the provision on Effective Date of Coverage under the policy
which states that "there shall be no insurance if the application is not approved by the
Company." Since no application had been submitted by the Insured/Assured, prior to his
death, for our approval but was submitted instead after his death, Mr. John Uy Chuang
was not covered under the Policy. We wish to point out that Eternal Gardens being the
Assured was a party to the Contract and was therefore aware of these pertinent provisions. xxx
11.   Eternal filed a case before the RTC for a sum of money against Philamlife.
The RTC ruled in favor of Eternal, ordering Philamlife to pay P100,000
representing the proceeds of the Policy of John Uy Chuang.
12.   The RTC found that Eternal submitted Chuang’s application for insurance
which he accomplished before his death, as testified to by Eternal’s witness
and evidenced by a lettr. It further ruled that due to Philamlife’s inaction
from the submission of the requirements of the group insurance to Chuang’s
death, as well as Philamlife’s acceptance of the premiums during the same
period, Philamlife was deemed to have approved Chuang’s application. The
RTC said that since the contract is a group life insurance, once proof of
death is submitted, payment must follow.
13.   Philamlife appealed to the CA which reversed the RTC’s order and the
complaint was dismissed. It based its Decision on the factual finding that
Chuang’s application was not enclosed in Eternal’s letter. Thus, the CA
concluded, there being no application form, Chuang was not covered by
Philamlife’s insurance.
ISSUE:
1.   WON Chuang’s death was covered by the insurance policy? – Yes. An
examination of the provision of the policy under effective date of benefit,
would show ambiguity between its two sentences. The SC ruled that since,
an insurance contract is a contract of adhesion this must be construed
liberally in favor of the insured and strictly against the insurer. The SC
harmonized the sentences to mean that upon a party’s purchase of a
memorial lot on installment from Eternal, an insurance contract covering
the lot purchaser is created and the same is effective, valid, and binding
until terminated by Philamlife by disapproving the insurance application.
(Applied to this case, the purchase of the burial lot on installment basis by
Chuang made his death part of Philamlife’s insurance coverage.)
RULING: WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision
in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The May 29, 1996 Decision of
the Makati City RTC, Branch 138 is MODIFIED. Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance
Policy of Chuang; (2) To pay Eternal legal interest at the rate of six percent (6%) per annum of
PhP 100,000 from the time of extra-judicial demand by Eternal until Philamlife’s receipt of
the May 29, 1996 RTC Decision on June 17, 1996; (3) To pay Eternal legal interest at the rate
of twelve percent (12%) per annum of PhP 100,000 from June 17, 1996 until full payment of
this award; and (4) To pay Eternal attorney’s fees in the amount of PhP 10,000.
RATIO:
1.   As a general rule, this Court is not a trier of facts and will not re-examine
factual issues raised before the CA and first level courts, considering their
findings of facts are conclusive and binding on this Court. However, such
rule is subject to exceptions. One exception is when the findings of the CA
are contrary to the trial court which exception is present in the instant case.
Thus, the SC can review the factual findings.
2.   Eternal claims that the evidence that it presented before the trial court
supports its contention that it submitted a copy of the insurance application
of Chuang before his death. In Eternal’s letter, a list of insurable interests of
buyers for October 1982 was attached, including Chuang in the list of new
businesses. Eternal added it was noted at the bottom of said letter that the
corresponding "Phil-Am Life Insurance Application Forms & Cert." were
enclosed in the letter that was apparently received by Philamlife. Finally,
Eternal alleged that it provided a copy of the insurance application which
was signed by Chuang himself and executed before his death.
3.   Philamlife claims that the evidence presented by Eternal is insufficient,
arguing that Eternal must present evidence showing that Philamlife received
a copy of Chuang’s insurance application.
4.   The evidence on record supports Eternal’s position.
5.   The fact of the matter is, the letter, which Philamlife stamped as received,
states that the insurance forms for the attached list of burial lot buyers were
attached to the letter. Such stamp of receipt has the effect of acknowledging
receipt of the letter together with the attachments. Such receipt is an
admission by Philamlife against its own interest. The burden of evidence
has shifted to Philamlife, which must prove that the letter did not contain
Chuang’s insurance application. However, Philamlife failed to do so; thus,
Philamlife is deemed to have received Chuang’s insurance application.
6.   To reiterate, it was Philamlife’s bounden duty to make sure that before a
transmittal letter is stamped as received, the contents of the letter are correct
and accounted for.
7.   Philamlife’s allegation that Eternal’s witnesses ran out of credibility and
reliability due to inconsistencies is groundless.
8.   An examination of the testimonies of the witnesses mentioned by
Philamlife, however, reveals no overlooked facts of substance and value.
9.   Philamlife primarily claims that Eternal did not even know where the
original insurance application of Chuang was, as shown by the testimony of
Edilberto Mendoza, when asked where the original was he said: “As far as
I remember I do not know where the original but when I submitted with that
payment together with the new clients all the originals I see to it before I
sign the transmittal letter the originals are attached therein.”
10.   In other words, the witness admitted not knowing where the original
insurance application was, but believed that the application was transmitted
to Philamlife as an attachment to a transmittal letter.
11.   As to the seeming inconsistencies between the testimony of Manuel Cortez
on whether one or two insurance application forms were accomplished and
the testimony of Mendoza on who actually filled out the application form,
these are minor inconsistencies that do not affect the credibility of the
witnesses.
12.   In the present case, the number of copies of the insurance application that
Chuang executed is not at issue, neither is whether the insurance application
presented by Eternal has been falsified. Thus, the inconsistencies pointed
out by Philamlife are minor and do not affect the credibility of Eternal’s
witnesses. However, the question arises as to whether Philamlife assumed
the risk of loss without approving the application. This question must
be answered in the affirmative.
13.   Philamlife and Eternal entered into an agreement denominated as Creditor
Group Life Policy. In the policy, it is provided that: EFFECTIVE DATE
OF BENEFIT.The insurance of any eligible Lot Purchaser shall be
effective on the date he contracts a loan with the Assured. However, there
shall be no insurance if the application of the Lot Purchaser is not
approved by the Company.
14.   An examination of the above provision would show ambiguity between
its two sentences. The first sentence appears to state that the insurance
coverage of the clients of Eternal already became effective upon contracting
a loan with Eternal while the second sentence appears to require Philamlife
to approve the insurance contract before the same can become effective.
15.   It must be remembered that an insurance contract is a contract of
adhesion which must be construed liberally in favor of the insured and
strictly against the insurer in order to safeguard the latter’s interest.
16.   In Malayan Insurance Corporation v. Court of Appeals, this Court held
that: Indemnity and liability insurance policies are construed in accordance
with the general rule of resolving any ambiguity therein in favor of the
insured, where the contract or policy is prepared by the insurer. A contract
of insurance, being a contract of adhesion, par excellence, any
ambiguity therein should be resolved against the insurer; in other words,
it should be construed liberally in favor of the insured and strictly against
the insurer.
17.   The vague contractual provision, in Creditor Group Life Policy must
be construed in favor of the insured and in favor of the effectivity of the
insurance contract.
18.   On the other hand, the seemingly conflicting provisions must be
harmonized to mean that upon a party’s purchase of a memorial lot on
installment from Eternal, an insurance contract covering the lot
purchaser is created and the same is effective, valid, and binding until
terminated by Philamlife by disapproving the insurance application.
19.   The second sentence of Creditor Group Life Policy on the Effective Date of
Benefit is in the nature of a resolutory condition which would lead to the
cessation of the insurance contract. Moreover, the mere inaction of the
insurer on the insurance application must not work to prejudice the insured;
it cannot be interpreted as a termination of the insurance contract. The
termination of the insurance contract by the insurer must be explicit and
unambiguous.
20.   To characterize the insurer and the insured as contracting parties on equal
footing is inaccurate at best. Insurance contracts are wholly prepared by
the insurer with vast amounts of experience in the industry
purposefully used to its advantage. More often than not, insurance
contracts are contracts of adhesion containing technical terms and
conditions of the industry, confusing if at all understandable to laypersons,
that are imposed on those who wish to avail of insurance.
21.   As such, insurance contracts are imbued with public interest that must be
considered whenever the rights and obligations of the insurer and the
insured are to be delineated. Hence, in order to protect the interest of
insurance applicants, insurance companies must be obligated to act
with haste upon insurance applications, to either deny or approve the
same, or otherwise be bound to honor the application as a valid,
binding, and effective insurance contract.
 003 Blue Cross Health Care v. Olivares (Soriano)
February 12, 2008 | Corona, J. | The Contract of Insurance
PETITIONER: Clue Ceoss Health Care Inc.
RESPONDENTS: Neomi and Danilo Olivares
SUMMARY: Neomi Olivares applied for a health care program with Blue
Cross. In the health care agreement, ailments due to pre-existing conditions were
excluded from the coverage. Neomi suffered stroke and was admitted to Medical
City, one of the accredited hospitals. She incurred hospital exenses amounting to
P34,217.20. She requested from the representative of petitioner at Medical City a
letter of authorization in order to settle her medical bills. But petitioner refused
to issue the letter and suspended payment pending the submission of a
certification from her attending physician that the stroke she suffered was not
caused by a pre-existing condition. She demanded petitioner Blue Cross to pay
the medical bill. When the petitioner refused, the spouses were constrained to
settle the bill. Thereafter, they filed a complaint in the MeTC. Petitioner said that
it had not yet denied the claim, s it was awaiting for the attending physician’s
report. The Dr. Saniel, the attending physician, stated that as oer the request of
Neomi, he willnot release any medical information concerning neomi;s
neurologic status to anyone without her approval. MeTC then denied the
complaint. RTC reversed the MeTC ruling and held that it was the burden of
petitioner to prove that the stroke of Neomi was excluded. CA affirmed RTC
decision. Petitioner argues that respondents prevented Dr. Saniel from
submitting the medical report. Hence, the presumption that evidence willfully
suppressed would be adverse if produced should apply in its favor. Respondents
counter that the burden was on petitioner to prove that Neomi's stroke was
excluded from the coverage of their agreement because it was due to a pre-
existing condition. It failed to prove this. Issue: 1. Whther petitioner Blue
Cross was able to prove that Neomi’s stroke was caused by pre-existing
condition and therefore was excluded from the coverage of the health agreement
–No. Petitioner never presented any evidence to prove that respondent Neomi's
stroke was due to a pre-existing condition. It merely speculated that Dr. Saniel's
report would be adverse to Neomi, based on her invocation of the doctor-patient
privilege.
DOCTRINE: It is an established rule in insurance contracts that when their
terms contain limitations on liability, they should be construed strictly against
the insurer. These are contracts of adhesion the terms of which must be
interpreted and enforced stringently against the insurer which prepared the
contract. This doctrine is equally applicable to health care agreements.
FACTS:
43.   Respondent Neomi Olivares applied for a health care program with Blue
Cross, a health maintenance firm. For the period Oct 16, 2002 to Oct 15,
2003, she paid P11,117. For the same period, she also availed of additional
service of limitless consultations for additional p1,000. She paid those
amounts in full on oct 17, 2002. The application was approved on October
22, 2002.
44.   In the heath care agreement, ailments due to pre-existing conditions were
excludedfrom the coverage.
45.   On Nov 30, 2002, 38 days from the effectivity of her health insurance,
Neomi suffered stroke and was admitted at the Medical City hich was one
of the accredited hospitals by Blue Cross. During her confinement, she
underwent several lab tests.
46.   She incurred hospital expenses amounting tp P34,217.20. Consequently, she
requested from the representative of petitioner at Medical City a letter of
authorization in order to settle her medical bills. But petitioner refused to
issue the letter and suspended payment pending the submission of a
certification from her attending physician that the stroke she suffered was
not caused by a pre-existing condition.
47.   When she was discharged, she demanded the petitioner to pay her mdical
bill. hen petitioner still refused, she and her husband, respondent Danilo
Olivares, were constrained to settle the bill.
48.   Thereafter, they filed a complaint for collection of sum of money against
petitioner in the MeTC.
49.   Blue Cross maintained that it had not yet denied respondents’ claim as it
was still waiting Dr. Saniel’s report.
50.   Dr. Saniel in his letter to the petitioner state that Neomi called and stated
that she no longer has any relationship with Blue Cross, and that Dr. Saniel
should not release any medical information concerning Neomi’s neurologic
status to anyone without her approval.
51.   MeTC dismissed the complaint for lack of cause of action. Stating that the
evidence (letter) on record reveals that it was no less than [respondent
Neomi] herself who prevented her attending physician from issuing the
required certification, petitioner Blue Cross cannot be faulted from
suspending payment of her claim, for until and unless it can be shown from
the findings made by her attending physician that the stroke she suffered
was not due to pre-existing conditions could she demand entitlement to the
benefits of her policy
52.   RTC reversed the decision of the MeTC, ordered Blue Cross to pay the
medical bill, moral, exemplary damages, and attorney’s fees, and held that
that it was the burden of petitioner to prove that the stroke of respondent
Neomi was excluded from the coverage of the health care program for being
caused by a pre-existing condition. It was not able to discharge that burden.
53.   CA affirned RTC decision. Hence, this petition.
54.   Petitioner argues that respondents prevented Dr. Saniel from submitting the
medical report. Hence, the presumption that evidence willfully suppressed
would be adverse if produced should apply in its favor.
55.   Respondents counter that the burden was on petitioner to prove that Neomi's
stroke was excluded from the coverage of their agreement because it was
due to a pre-existing condition. It failed to prove this.
 of the agreement are excluded from its coverage if they become manifest
within one year from its effectivity. Stated otherwise, petitioner is not
ISSUE/s: liable for pre-existing conditions if they occur within one year from the
9.   Whther petitioner Blue Cross was able to prove that Neomi’s stroke was time the agreement takes effect.
caused by pre-existing condition and therefore was excluded from the 3.   The court ruled in a previous case that a health care agreement is in the
coverage of the health agreement –No. Petitioner never presented any nature of a non-life insurance.
evidence to prove that respondent Neomi's stroke was due to a pre-existing 4.   It is an established rule in insurance contracts that when their terms contain
condition. It merely speculated that Dr. Saniel's report would be adverse to limitations on liability, they should be construed strictly against the insurer.
Neomi, based on her invocation of the doctor-patient privilege These are contracts of adhesion the terms of which must be interpreted and
enforced stringently against the insurer which prepared the contract. This
RULING: WHEREFORE, the petition is hereby DENIED. The July 29, 2005 doctrine is equally applicable to health care agreements.
decision and September 21, 2005 resolution of the Court of Appeals in CA-G.R. SP 5.   Petitioner never presented any evidence to prove that respondent Neomi's
No. 84163 are AFFIRMED. stroke was due to a pre-existing condition. It merely speculated that Dr.
RATIO: Saniel's report would be adverse to Neomi, based on her invocation of the
1.   The court agrees with the respondents. doctor-patient privilege. This was a disputable presumption at best.
2.   The health care agreement defined a pre-existing condition as: 6.   Disputable presumption does not apply if (a) the evidence is at the disposal
a.   Disability which existed before the commencement date of membership of both parties; (b) the suppression was not willful; (c) it is merely
whose natural history can be clinically determined, whether the Member corroborative or cumulative and (d) the suppression is an exercise of a
was aware of such illness or condition. Such conditions also include privilege.
disabilities existing prior to reinstatement date in the case of lapse of an 7.   Here, respondents' refusal to present or allow the presentation of Dr.
Agreement. Notwithstanding, the following disabilities but not to the Saniel's report was justified. It was privileged communication between
exclusion of others are considered pre-existing conditions including their physician and patient.
complications when occurring during the first year of a Members 8.   Furthermore, as already stated, limitations of liability on the part of the
coverage: insurer or health care provider must be construed in such a way as to
I. Tumor of Internal Organs
preclude it from evading its obligations. Accordingly, they should be
II. Hemorrhoids/Anal Fistula scrutinized by the courts with extreme jealousy and care and with
III. Diseased tonsils and sinus conditions requiring surgery a jaundiced eye.
IV. Cataract/Glaucoma 9.   Since petitioner had the burden of proving exception to liability, it should
V. Pathological Abnormalities of nasal septum or turbinates
VI. Goiter and other thyroid disorders
have made its own assessment of whether respondent Neomi had a pre-
VII. Hernia/Benign prostatic hypertrophy existing condition when it failed to obtain the attending physician's report. It
VIII. Endometriosis could not just passively wait for Dr. Saniel's report to bail it out. The mere
IX. Asthma/Chronic Obstructive Lung disease reliance on a disputable presumption does not meet the strict standard
X. Epilepsy
XI. Scholiosis/Herniated disc and other Spinal column
required under our jurisprudence.
abnormalities 10.   On the issue on the grant of exemplary and moral damages: The RTC and
XII. Tuberculosis CA found that there was a factual basis for the damages adjudged against
XIII. Cholecysitis
petitioner. They found that it was guilty of bad faith in denying a claim
XIV. Gastric or Duodenal ulcer
XV. Hallux valgus
based merely on its own perception that there was a pre-existing condition
XVI. Hypertension and other Cardiovascular diseases
XVII. Calculi
XVIII. Tumors of skin, muscular tissue, bone or any form of
blood dyscracias
XIX. Diabetes Mellitus
XX. Collagen/Auto-Immune disease

After the Member has been continuously covered for 12

months, this pre-existing provision shall no longer be
applicable except for illnesses specifically excluded by an
endorsement and made part of this Agreement
b.   Under this provision, disabilities which existed before the commencement
 004 MALAYAN INSURANCE v. REGIS BROKERS (Paul)
Nov. 23, ’07 | Tinga, J. | What may be insured – has to be proven
PETITIONER: Malayan Insurance Co., Inc.
RESPONDENTS: Regis Brokerage Corp.
SUMMARY: On Feb, 1, ’95, Fasco Motors Group loaded 120 pieces of motors
on board board China Airlines Flight 621 bound for Manila from the United
States. The cargo was to be delivered to consignee ABB Koppel, Inc. (ABB
Koppel). When the cargo arrived at NAIA, it was cleared and forwarded to
Peoples Aircargo & Warehousing Corp’s (Paircargos) warehouse for temporary
storage pending release by the Bureau of Customs. Paircargo remained in
possession of the cargo until 7 March 1995, at which point respondent Regis
Brokerage Corp. (Regis) withdrew the cargo and delivered the same to ABB
Koppel at its warehouse. When the shipment arrived at ABB Koppels warehouse,
it was discovered that only 65 of the 120 pieces of motors were actually
delivered. Malayan paid and filed a complaint for damages against Regis
and Paircargo with the MeTCMalayan presented the Marine Risk Note
dated 21 March 1995 as proof that the cargo was insured by Malayan. The
MeTC and the RTC ruled in Malayan’s favor. However, the CA reversed it,
saying that the Marine Risk Note was procured from Malayan only on 21
March 1995, but the loss was discovered on March 7. The SC ruled that
Malayan failed to establish its cause of action because it never presented the
Marine Insurance Policy. Because Malayan's right to recovery derives from
contractual subrogation as an incident to an insurance relationship, and not
from any proximate injury to it inflicted by the Regis, it is critical that
Malayan establish the legal basis of such right to subrogation by presenting the
contract constitutive of the insurance relationship between it and ABB Koppel.
DOCTRINE: The particular date as to when such insurance contract was
constituted cannot be established with certainty without the contract itself,
and that point is crucial since there can be no insurance on a risk that had
already occurred by the time the contract was executed.
FACTS:
1.   On Feb, 1, ’95, Fasco Motors Group loaded 120 pieces of motors on board
board China Airlines Flight 621 bound for Manila from the United States.
The cargo was to be delivered to consignee ABB Koppel, Inc. (ABB
Koppel).
2.   When the cargo arrived at NAIA, it was cleared and forwarded to Peoples
Aircargo & Warehousing Corp’s (Paircargos) warehouse for temporary
storage pending release by the Bureau of Customs
3.   Paircargo remained in possession of the cargo until 7 March 1995, at which
point respondent Regis Brokerage Corp. (Regis) withdrew the cargo and
delivered the same to ABB Koppel at its warehouse.
4.   When the shipment arrived at ABB Koppels warehouse, it was discovered
that only 65 of the 120 pieces of motors were actually delivered and that
the remaining 55 motors, valued at US$2,374.35, could not be accounted
for.
5.   The shipment was insured by Malayan. Malayan paid ABB Koppel Php
156,549.55 and got subrogated to the right of ABB Koppel v. Regis and
Paircargo.
6.   Malayan then filed a complaint for damages against Regis and Paircargo
with the Manila MeTC. In the course of the trial, Malayan presented
Marine Risk Note No. RN-0001-19832 (Marine Risk Note) dated 21
March 1995 as proof that the cargo was insured by Malayan.
7.   MeTC ruled that Regis alone was solely liable. The RTC affirmed this.
8.   Regis brought it to the CA which reversed the RTC judgment and dismissed
Malayan’s complaint. It held that the Marine Risk Note presented as proof
that the cargo was insured was invalid.
9.   It was observed that the Marine Risk Note was procured from Malayan only
on 21 March 1995, when in fact the insured, ABB Koppel, had learned of
the partial loss of the motors as early as 7 March 1995.
10.   The CA noted that under Section 3 of the Insurance Code, the past event
which may be insured against must be unknown to the parties and so for
that reason the insurance contract in this case violated Section 3.
11.   Also, the CA held that due execution and authenticity of the subrogation
receipt presented before the trial court by Malayan were not duly proven
since the signatories thereto were not presented by Malayan before the trial
court to identify their signatures thereon, and neither was evidence
presented to establish the genuineness of such signatures
12.   Malayan filed an MR and said that the Marine Risk Note is an open policy
per Marine Open Cargo Policy No. OPEN POLICY-0001-00410
issued before February 1, 1995.
ISSUES:
1.   W/N Malayan was able to establish its cause of action against Regis? No
because it wasn’t able to conclusively prove the existence of an insurance
contract.
RULING: WHEREFORE, the petition is DENIED. Costs against petitioner.
RATIO:
1.   Malayan was arguing that the lost cargo was covered by not only the Marine
Risk Note but also by the Marine Insurance Policy (Fact 12) which was
issued days before the cargo arrived in Manila.
2.   The Marine Policy was attached to the petition of the SC, but it was not
presented in trial.
3.   Malayan tried to showed that it had an “open policy” with ABB Koppel
covered by Section 60 of the Insurance Code, wherein the value of the thing
insured is not agreed upon but left to be ascertained in case of loss, and that
the Marine Risk Note was nothing but a determination of the value of the
 thing insured pursuant to the open policy as established by the Marine 13.   What the Marine Risk Note bears, as a matter of evidence, is that it is not
Insurance Policy. apparently the contract of insurance by itself, but merely a complementary
4.   Unfortunately for Malayan, the Court could not attribute any evidentiary or supplementary document to the contract of insurance that may have
weight to the Marine Insurance Policy. existed as between Malayan and ABB Koppel.
5.   The SC is not a trier of facts. Therefore, it relied on CA’s conclusion that at 14.   But again, Malayan never introduced the Marine Insurance Policy as the
the very instance the Marine Risk Note was offered in evidence, Regis main insurance contract nor even referred to it in the original complaint.
already posed its objection to the admission of said document on the ground Therefore, it failed to establish its cause of action.
that such was "immaterial, impertinent and irrelevant to this case because 15.   Because Malayan's right to recovery derives from contractual subrogation
the same was issued on March 21, 1995 which is after the occurrence of as an incident to an insurance relationship, and not from any proximate
the loss on February 1, 1995." injury to it inflicted by the Regis, it is critical that Malayan establish the
6.   Since no insurance policy was presented at the trial by Malayan, or even legal basis of such right to subrogation by presenting the contract
before the CA, there is no basis for the SC to consider it, notwithstanding constitutive of the insurance relationship between it and ABB Koppel.
Malayans attempt to submit such document to us along with its present 16.   his should have been accomplished from the moment it filed the complaint.
petition, even it may have reflected the existence of an insurance contract Since the Marine Insurance Policy was constitutive of the insurer-insured
between Malayan and ABB Koppel prior to the loss of the motors. relationship from which Malayan draws its right to subrogation, such
7.   Malayan’s theory of the case it pursued before the trial court was that the document should have been attached to the complaint itself.
perfected insurance contract which it relied upon as basis for its right to 17.   It is an actionable document and Sec. 710, Rule 9 of the Rules of Civil
subrogation was not the Marine Insurance Policy but the Marine Risk Procedure governs it.
Note which, unlike the former, was actually presented at the trial and 18.   It was incumbent on Malayan, whose right of subrogation derived from the
offered in evidence. Marine Insurance Policy, to set forth the substance of such contract in its
8.   The Claims Processor of Malayan who testified in court in behalf of his complaint and to attach an original or a copy of such contract in the
employer actually acknowledged that the "proof that ABB Koppel insured complaint.
the shipment to Malayan" was the Marine Risk Note, and not the Marine 19.   Not doing so actually violates Regis’ right to due proves because the latter
Insurance Policy. cannot object to it.
9.   Even the very complaint filed by Malayan before the MeTC stated that "the 20.   It cannot be denied from the only established facts that Malayan and ABB
subject shipment was insured by Malayan under Risk Note No. 0001- Koppel comported as if there was an insurance relationship between them
19832," and not by the Marine Insurance Policy, which was not adverted to and documents exist that evince the presence of such legal relationship.
at all in the complaint. 21.   But under these premises, the very insurance contract emerges as the white
10.   Therefore, the SC can only consider the Marine Risk Note in determining elephant in the room — an obdurate presence which everybody reacts to,
the existence of an insurance contract. However, again, it is dated Mar. 21, yet legally invisible as a matter of evidence since no attempt had been made
1995 – after the loss9. However, the motors insured were already to prove its corporeal existence in the court of law.
compromised by then. 22.   Malayan would have us effectuate an insurance contract without having to
11.   The Court, in Aboitiz c. Philam Gen. has already held that a Marine Risk consider its particular terms and conditions, and on a blind leap of faith that
Note is not an insurance policy on its own. It is only an acknowledgment or such contract is indeed valid and subsisting.
declaration of the private respondent confirming the specific shipment 23.   The conclusion further works to the utter prejudice of Regis since it would
covered by its Marine Open Policy, the evaluation of the cargo, and the be deprived the opportunity to examine the document that gives rise to the
chargeable premium, a description that is reflective as well of the present Malayan’s right to recover against them, or to raise arguments or objections
Marine Risk Note, if not of marine risk notes in this country in general. against the validity or admissibility of such document.
12.   Malayan correctly points out that the Marine Risk Note itself adverts to
"Marine Cargo Policy Number Open Policy-0001-00410" as well as to "the
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10
standard Marine Cargo Policy and the Company's Marine Open Policy."
 SEC.
 7.
 Action
 or
 defense
 based
 on
 document.
  —
 Whenever
 an
 action
 or
 defense
 is
 based
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  upon
 a
 written
 instrument
 or
 document,
 the
 substance
 of
 such
 instrument
 or
 document
 shall
 
9

 "Had
 this
 day
 noted
 the
 above-­‐mentioned
 risk
 in
 your
 favor
 and
 hereby
 guarantees
 that
 this
  be
  set
  forth
  in
  the
  pleading,
  and
  the
  original
  or
  a
  copy
  thereof
  shall
  be
  attached
  to
  the
 
document
  has
  all
  the
  force
  and
  effect
  of
  the
  terms
  and
  conditions
  in
  the
  Corporation's
  pleading
 as
 an
 exhibit,
 which
 shall
 be
 deemed
 to
 be
 a
 part
 of
 the
 pleading,
 or
 said
 copy
 may
 
printed
 form
 of
 the
 standard
 Marine
 Cargo
 Policy
 and
 the
 Company's
 Marine
 Open
 Policy."
 
  with
 like
 effect
 be
 set
 forth
 in
 the
 pleading.
 
 

 
 
24.   If a legal claim is irrefragably sourced from an actionable document, the
defendants cannot be deprived of the right to examine or utilize such
document in order to intelligently raise a defense.
25.   The inability or refusal of the plaintiff to submit such document into
evidence constitutes an effective denial of that right of the defendant which
is ultimately rooted in due process of law.
26.   The particular date as to when such insurance contract was constituted
cannot be established with certainty without the contract itself, and that
point is crucial since there can be no insurance on a risk that had
already occurred by the time the contract was executed.
27.   Since the documents in evidence and testimonies allude to "marine
insurance" or "marine risk note," it also is a legitimate question whether
the particular marine insurance relationship between Malayan and ABB
Koppel also covers cargo delivered not by ships at sea but by airplane
flights, as had occurred in this case. Only the actual policy itself could
definitively settle such a question.
 005 EASTERN SHIPPING v. PRUDENTIAL (TIMBOL)
September 11, 2009 | Del Castillo, J. | What can be insured/insured against
PETITIONER: Eastern Shipping Lines, Inc.
RESPONDENTS: Prudential Guarantee and Assurance, Inc.
SUMMARY: 56 cases of completely knock-down auto parts of Nissan Motor
vehicles were loaded on board M/V Apollo Tujuh, owned by Eastern Shipping, at
Japan to be shipped to Manila. When it arrived to Manila, it was discharged to ATI
in good condition, except for the four cases. From ATI, they were then brought to
Nissan’s warehouse, and after conducting a survey, the four cases were found to
have shortage and damage due to the pilferage and improper handling of the vessel
and/or the Arrastre contractors. Thus, Nissan demanded for reimbursement from
Eastern Shipping and ATI, but failed. After which, Nissan claimed reimbursement
from Prudential as the insurer based on all risks per Marine Open Policy and Marine
Cargo Risk Notice. Upon payment of Prudential to Nissan, the former filed a claim
against Eastern and ATI. The RTC ruled in favor of Prudential finding Eastern and
ATI solidarily liable. However, on appeal, the CA exonerated ATI and held Eastern
Shipping solely responsible. And that the presentation of insurance policy is
dispensible.
Hence the issue before the Court being whether the Marine Risk Note and the
Subrogation Receipt, without the presentation of the Marine Insurance Policy, are
sufficient to prove Prudential’s right to subrogation.
The SC held that NO, presentation in this case is required for Prudential to claim the
right of subrogration. It must first be noted that a Marine Risk Note is not an
insurance policy. Rather, it is an acknowledgement or declaration of the insurer
confirming the specific shipment covered by its marine open policy, the evaluation
of the cargo and the chargeable premium. Furthermore, the Marine Risk Note was
questionable since the date of the such note is the same as the time the goods arrived
the port. Meaning that the goods were not specifically covered by any particular
insurance at the time of transit. And without the presentation of the Marine
Insurance Policy, it would be impossible to know the specifics of the Policy as
written in the Note, as well as the terms and conditions were complied before
Prudential paid Nissan’s claim. Moreover, the reading of the transcript of records
show that Eastern Shipping already objected to the non-presentation of the Marine
Insurance Policy. And since the claim of insurance is based on an actionable
document, it was incumbent upon Prudential to present the policy based on Sec 7,
Rule 9 of the Rules of Civil Procedure.
DOCTRINE: It is significant that the date when the alleged insurance contract was
constituted cannot be established with certainty without the contract itself. Said point
is crucial because there can be no insurance on a risk that had already occurred by
the time the contract was executed. Surely, the Marine Risk Note on its face does not
specify when the insurance was constituted
FACTS:
33.   56 cases of completely knock-down auto parts of Nissan motor vehicles
(cargoes) were loaded on board M/V Apollo Tujuh (carrier) at Nagoya,
Japan, to be shipped to Manila
1.   The shipment was consigned to Nissan Motor Philippines, Inc.
(Nissan) and was covered by Bill of Lading No. NMA-1
2.   The carrier was owned and operated by Eastern Shipping Lines,
Inc.
34.   The carrier arrived at the port of Manila. The shipment was then discharged
from the vessel onto the custody of the arrastre operator, Asian Terminals,
Inc. (ATI), complete and in good condition, except for four cases
35.   The shipment was withdrawn by Saefront Customs and Brokerage from the
pier and delivered to the warehouse of Nissan in Quezon City
36.   A survey of the shipment was then conducted by Tan-Gaute Adjustment
Company, Inc. (surveyor) at Nissan’s warehouse
1.   The surveyor submitted its report with a finding that there were
“short (missing)” items in Cases Nos. 10/A26/T3K and 10/A26/7K
and “broken/scratched” and “broken” items in Case No.
10/A26/70K”;
2.   And that in its opinion, the shortage and darnage sustained by the
shipment were due to pilferage and improper handling,
respectively while in the custody of the vessel and/or Arrastre
Contractors
37.   Nissan demanded the sum of P1,047,298.34 representing the cost of the
damages sustained by the shipment from Eastern Shipping, the owner of the
vessel, and ATI, the arrastre operated
1.   However, the demands were not heeded
38.   As insurer of the shipment against all risks per Marine Open Policy No. 86-
168 and Marine Cargo Risk Note No. 3921/95, Prudential Guarantee and
Assurance Inc. paid Nissan the sum of P1,047,298.34
39.   Prudential sued Eastern and ATI for reimbursement of the amount it paid to
Nissan before the RTC of Makati, and claimed that it was subrogated to the
rights of Nissan by virtue of said payment
40.   RTC rendered a decision in favor of Prudential and held that Eastern and
ATI are solidarily liable
41.   On appeal, the CA exonerated ATI and ruled that Eastern was solely
responsible for the damages caused to the cargoes.
1.   Moreover, the CA relying on Delsan Transport Lines, Inc. v. CA,
ruled that the right of subrogation accrues upon payment by the
insurance company of the insurance claim and that the presentation
of the insurance policy is not indispensable before the appellee
may recover in the exercise of its subrogatory right
42.   As such, Eastern argues that Prudential was not properly subrograted
because of the non-presentation of the marine insurance policy. In the
 case at bar, in order to prove its claim, Prudential presented a marine cargo
risk note and a subrogation receipt.
ISSUE/s:
6.   WoN the Marine Risk Note and the Subrogation Receipt, without the
Marine Insurance Policy, are sufficient to prove Prudential’s right of
subrogration – NO, because a Mairne Risk Note is only an
acknowledgement or declaration of the insurer confirming the specific
shipment covered by its marine open policy. The presentation of the marine
open policy indicating therein the extent of the note, as well as the terms
and conditions needed to be complied with.
RULING: WHEREFORE, premises considered, the petition is GRANTED. The
April 26, 2006 Decision and August 15, 2006 Resolution of the Court of Appeals in
CA G.R. CV No. 68165 are hereby REVERSED and SET ASIDE. The Complaint
in Civil Case No. 96 1665 is DISMISSED.
RATIO:
36.   Before anything else, it must be emphasized that a marine risk note is not
an insurance policy. It is only an acknowledgement or declaration of the
insurer confirming the specific shipment covered by its marine open policy,
the evaluation of the cargo and the chargeable premim
37.   The nature of a marine cargo risk note was explained in ICTSI v. FGU
Insurance Corporation:
1.   It is the marine open polic which is the main insurance contract. In
other words, the marine open policy is the blanket insurance ot be
undertaken by FGU on all goods to be shipped by RAGC during
the existence of the contract, while the marine risk note specifies
the particular goods/shipment insured by FGU on that specific
transaction, including the sum insured, the shipment
particulars as well as the premium paid for such shipment
38.   It is undisputed that the cargoes were already on board the carrier as early as
Nov. 8, 1995 and that the same arrived at the port of Manila on Nov. 16,
1995
39.   It is, however, very apparent that the Marine Cargo Risk Note was issued
only on November 16, 1995. The same, therefore, should have raised a red
flag, as it would be impossible to know whether said goods were actually
insured while the same were in transit from Japan to Manila.
40.   Malayan Insurance Co., Inc. v. Regis Brokerage Corp:
1.   Thus, we can only consider the Marine Risk Note in determining
whether there existed a contract of insurance between ABB Koppel
and Malayan at the time of the loss of the motors
2.   However, the very terms of the Marine Risk Note itself are
quite damning. It is dated 21 Marhc 1995, or after the
occurrence of the loss, and specifically states that Malayan “had
this day noted the above-mentioned risk in your favor and hereby
guarantees that this document has all the force and effect of the
terms and conditions in the Corporation’s printed form of the
standard Marine Cargo Policy and the Company’s Marine Open
Policy “
41.   Likewise, the date of the issuance of the Marine Risk Note also caught the
attention of Eastern Shipping, stating in it’s comment that:
1.   Exh. B, Marine Cargo Risk Note No. 39821 dated Nov. 16, 1995 is
being objected to for being irrelevant and immaterial as it was
executed on Nov.16, 1995. The cargoes arrived in Manila on Nov.
16, 1995.
2.   This means that the cargoes are not specifically covered by any
particular insurance at the time of transit
3.   The alleged Marine Open Policy was not presented. Marine Open
Policy may be subject to Institute Cargo Clauses which may
require arbitration prior to the filing of an action in court.
42.   The Marine Risk Note relied upon by Prudential as the basis for its
claim for subrogation is insufficient to prove said claim
1.   Hence, without a copy of the marine insurance policy, it would be
impossible and simply guesswork to know whether the cargo was
inusred during the voyage which started on Nov. 8, 1995
2.   Again, without the marine insurance policy, it would be
impossible for this Court to know the following:
1.   The specifics of the Institute Cargo Clauses A and
other terms and conditions per Marine Open Policy-
86-168 as alluded to in the Marine Risk Note;
2.   If the said terms and conditions were actually
complied with before Prudential paid Nissan’s claim
43.   Furthermore, a reading of the transcript of the records clearly show that, at
the RTC, Eastern Shipping had already objected to the non-presentation of
the marine insurance policy
1.   Clearly, Eastern Shipping was not remis when it openly objected to
the non-presentation oft eh Marine Insurance Policy
44.   In addition, it was Prudential’s burden to present the evidence necessary to
substantiate its claim
1.   In its Complaint, Prudential alleged: “That the above-described
shipment was insured for P14,173,042.91 against all risks under
Marine Cargo Risk Note No. 39821/Marine Open Policy No. 86-
168.”
2.   Therefore, other than the marine cargo risk note, Prudential should
have also presented the marine insurance policy, as the same also
served as the basis for its complaint
45.   Sec. 7, Rule 9 of the 1997 Rules of Civil Procedure, provide:
1.   Action or defense based on document – Whenever an action or
defense is based upon a written instrument or document, the
substance of such instrument or document shall be set forth in
the pleading, and the original or a copy thereof shall be
 attached to the pleading as an exhibit, which shall be deemed
to be a part of the pleading, or said copy may, with like effect,
be set forth in the pleading.
46.   Malayan Insurance Co., Inc. v. Regis Brokerage Corp is instructive:
1.   xxx Our procedural rules make plain how easily Malayan could
have adduced the Marine Insurance Policy. Ideally, this should
have been accomplished from the momen tit filed the coplaint.
Since the Marine Insurance Policy was constitute of the
insurer-insured relationship from which Malayan draws its
right to subrogation, such document should have been attached
to the complaint itself, as provided for in Section 7, Rule 9 of the
1997 Ruels of Civil Procedure x x x
47.   Therefore, since Prudential alluded to the actionable document in its
complaint, the contract of insurance between it and Nissan, as integral to its
cause of action against Eastern Shipping, the Marine Insurance Policy
should have been attached to the Complaint
48.   It is significant that the date when the alleged insurance contract was
constituted cannot be established with certainty without the contract
itself. Said point is crucial because there can be no insurance on a risk
that had already occurred by the timte the contract was executed.
Surely, the Marine Risk Note on its face does not specify when the
insurance was constituted
49.   The importance of the presentation of the Marine Insurance Policy was also
emphasized in Wallemn Philippines Shipping v. Prudential Guarantee &
Assurance:
1.   The contract of insurance must be presented in evidence to indicate
the extent of its coverage. As there was no determination of rights
under the insurance contract, this Court’s ruling in Home Insurance
Corporation v. CA is applicable:
1.   The insurance contract has not been presented. It may be
assumed for the sake of argument that the subrogration
receipt may nevertheless be used to establish the
relationship between Home Insurance and Nestle Phil
(consignee) and teha moutn paid to settle the claim. But
this is all the document can do. By itself alone, the
subrogation receipt is not sufficient to prove the
petitioner’s (Home Insurance) claim holding the
respondent (Mabuhay Brokerage) liable for the damage to
the engine
50.   There are however, cases where the Court ruled that the non-presentation of
the marine insurance policy is not fatal, as can be gleaned in the case of
ICTSI:
1.   However, as in every general rule, there are admitted exceptions.
In Delsan Transport Lines, Inc. v. CA, 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, unlike in Home Insurance in which the cargo passed
through several statges 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
51.   Although the CA may have ruled that the damage to the cargo
occurred while the same was in Eastern Shipping’s custody, this Court
cannot apply the ruling in ICTSI to the case at bar
1.   In contrast, unlike in ICTSI where there was no issue as
regrads the provisions of the marine insurance policy, such
that the presentation of the contract itself is necessary for
perusal, herein Eastern Shipping had repeatedly objected to
the non-presentation of the marine insurance policy and had
manifested its desire to know the specific provisions thereof
2.   Moreover, and the same is critical, the marine risk note in the
case at bar is questionable, because:
1.   It is dated on the same day the cargoes arrived at the
port of Manila and not during the duration of the
voyage
2.   Wihtout the marine insurance policy to elucidate on
the specifics of the terms and conditions allueded to in
the marine risk note, it would be simply guesswork to
know if the same were complied with
52.   The Court further recognizes the danger as precedent should we
sustain Malayan’s position, and not only because such a ruling would
formally violate the rule on actionable documents
53.   Malayan would have us effectuate an insurance contract without
having to consider its particular terms and conditions, and on a blind
leap of faith that such contract is indeed valid and subsisting
54.   The conclusion further works to the utter prejudice of defendants such
as Regis or Paircargo since they would be deprived the opportunity to
examine the document that gives rise to the plaintiff’s right to recover
against them, or to raise arguments or objections against the validity or
admissibility of such document
55.   If a legal claim is irrefragably sourced from an actionable document,
the defendant cannot be deprived of the right to examine or utilize such
document in order to intelligently raise a defense
56.   The inability or refusal of the plaintiff (insurer) to submit such
document into evidence constitutes an effective denial of that right of
the defendant which is ultimately rooted in due process of law, to say
nothing on how such failure fatally diminishes the plaintiff’s
substantiation of its own cause of action
57.   In conclusion, this Court rules that based on the applicable
jurisprudence, because of the inadequacy of the Marine Cargo Risk
Note for the reasons already stated, it was incumbent on respondent to
present in evidence the Marine Insurance Policy, and having failed in
doing so, its claim of subrogation must necessarily fail
 006 PARAMOUNT v. SPOUSES REMONDEULAZ (CHIQUI)
November 28, 2012 | Peralta, J. | What May Be Insured
PETITIONER: Paramount Insurance Corporation
RESPONDENTS: Spouses Yves and Maria Teresa Remondeulaz
SUMMARY: Spouses Remondeulaz insured their car under Paramount Insurance
for one year for own damage, theft, third-party property damage, and third-party
personal injury. The car was unlawfully taken by Sales who was supposed to add
accessories and improvements on it but failed to return the vehicle within the agreed
period. The Spouses sought for reimbursement from Paramount Insurance but the
latter refused to pay. Spouses then filed a case for a sum of money in the RTC. RTC
sided with Paramount Insurance stating that the Spouses already had reimbursement
for the same subject vehicle but from another insurance company. On the other
hand, CA reversed the decision saying that that car is different from the one insured
under Paramount Insurance. W/N Paramount Insurance is liable under the insurance
policy for the loss of the Spouses’ vehicle – YES, the Spouses’ policy clearly
undertook to indemnify the insured against loss of or damage to the scheduled
vehicle when caused by theft. (see doctrine) Sales did not have juridical possession
over the vehicle. Records would show that the Spouses 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 the Spouses constitutes Qualified Theft. Hence, since the
Spouses’ car is undeniably covered by a Comprehensive Motor Vehicle Insurance
Policy that allows for recovery in cases of theft, Paramount Insurance is liable under
the policy for the loss of the Spouses’ vehicle under the "theft clause."
DOCTRINE: In interpreting the theft clause, SC 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.
FACTS:
1.   Spouses Remondeulaz insured with Paramount Insurance their 1994 Toyota
Corolla Sedan under a Comprehensive Motor Vehicle Insurance Policy for
one year for Own Damage, Theft, Third-Party Property Damage and Third-
Party Personal Injury, for the period commencing 26 May 1994 to 26 May
1995.
2.   During the effectivity of said insurance, Spouses’ car was unlawfully taken.
Hence, they immediately reported the theft to the Traffic Management
Command of the PNP who made them accomplish a complaint sheet.
3.   In said complaint sheet, the Spouses alleged that a certain Ricardo Sales
(Sales) took possession of the subject vehicle to add accessories and
improvements thereon, however, Sales failed to return the subject vehicle
within the agreed three-day period.
4.   As a result, Spouses notified Paramount Insurance to claim for the
reimbursement of their lost vehicle. However, Paramount Insurance refused
to pay.
5.   The Spouse lodged a complaint for a sum of money against Paramount
Insurance before the RTC praying for the payment of the insured value of
their car plus damages. After presentation of the Spouses’ evidence,
Paramount Insurance filed a Demurrer to Evidence.
6.   RTC dismissed the complaint filed by the Spouses.
a.   Paramount Insurance had successfully prosecuted and had been
awarded the amount claimed in this action, in another action which
involved the loss of the same vehicle under the same circumstances
although under a different policy and insurance company (Standard
Insurance Company, Inc). This, considered with the principle that
an insured may not recover more than its interest in any property
subject of an insurance, leads the court to dismiss this action.
7.   CA reversed and set aside the Order issued by the trial court the subject car
is different from the one insured with another insurance company.
ISSUE/s:
1.   W/N Paramount Insurance is liable under the insurance policy for the loss
of the Spouses’ vehicle – YES, the Spouses’ policy clearly undertook to
indemnify the insured against loss of or damage to the scheduled vehicle
when caused by theft.
RULING: WHEREFORE, the instant petition is DENIED. The Decision dated April
12, 2005 and Resolution dated July 20, 2006 of the Court of Appeals are hereby
AFFIRMED in toto. SO ORDERED.
RATIO:
58.   Paramount Insurance argues that the loss of the Spouses vehicle is not a
peril covered by the policy. It maintains that it is not liable for the loss,
since the car cannot be classified as stolen as the Spouses entrusted the
possession thereof to another person.
59.   Adverse to Paramount Insurance’s claim, the Spouses’ policy clearly
undertook to indemnify the insured against loss of or damage to the
scheduled vehicle when caused by theft.
a.   SECTION III LOSS OR DAMAGE: The Company will, subject to
the Limits of Liability, indemnify the insured against loss of or
damage to the Scheduled Vehicle and its accessories and spare
parts whilst thereon: —
b.   xxx (b) by fire, external explosion, self-ignition or lightning or
burglary, housebreaking or theft;
60.   In People v. Bustinera, this Court had the occasion to interpret the "theft
clause" of an insurance policy. In this case, 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.
61.   Also, in Malayan Insurance Co., Inc. v. Court of Appeals, this Court held
that 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.
62.   Moreover, the case of Santos v. People is worthy of note. Similarly in
Santos, the owner of a car entrusted his vehicle to therein petitioner Lauro
Santos who owns a repair shop for carburetor repair and repainting.
However, when the owner tried to retrieve her car, she was not able to do so
since Santos had abandoned his shop. In the said case, the crime that was
actually committed was Qualified Theft. However, the Court held that
because of the fact that it was not alleged in the information that the object
of the crime was a car, which is a qualifying circumstance, the Court found
that Santos was only guilty of the crime of Theft and merely considered the
qualifying circumstance as an aggravating circumstance in the imposition of
the appropriate penalty.
63.   In the instant case, Sales did not have juridical possession over the vehicle.
Here, it is apparent that the taking of the Spouses’ vehicle by Sales is
without any consent or authority from the former.
64.   Records would show that the Spouses 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 the Spouses constitutes Qualified Theft.
65.   Hence, since the Spouses’ car is undeniably covered by a Comprehensive
Motor Vehicle Insurance Policy that allows for recovery in cases of theft,
Paramount Insurance is liable under the policy for the loss of the Spouses’
vehicle under the "theft clause."
66.   All told, Sales' act of depriving the Spouses of their motor vehicle at, or
soon after the transfer of physical possession of the movable property,
constitutes theft under the insurance policy, which is compensable.
 007 United Merchants v. Country Bankers (Valle)
11 july 2012 | Carpio, J. | What may be insured 58.   UMC and Country executed Endorsement F/96-154 and Fire Invoice No.
16583A to form part of the Insurance Policy. Endorsement F/96-154
PETITIONER: United Merchants Corporation provides that UMCs stocks in trade were insured against additional
RESPONDENTS: Country Bankers Insurance Corporation perils, to wit: typhoon, flood, ext. cover, and full earthquake. The sum
insured was also increased to P50,000,000.00 effective 7 May 1996 to 10
SUMMARY: January 1997. On 9 May 1996, CBIC issued Endorsement F/96-157 where
UMC owns a warehouse where UMC stored its products (Christmas lights). the name of the assured was changed from Alfredo Tan to UMC.
UMC insured the Christmas lights with Country. This was later changed into 59.   A fire gutted the warehouse. Country designated CRM Adjustment
insure stocks in trade. A fire gutted the warehouse. UMC is claiming Php 50M Corporation (CRM) to investigate and evaluate the loss. Country’s insurer,
from Country but Country refused to pay, alleging that the fire was done through Central Surety, also requested the NBI to conduct an investigation.
arson and that UMC committed fraud. Country claimed that UMC was declaring 60.   UMC submitted to Country its Sworn Statement of Formal claim with
loss and claiming for loss that wasn’t covered under the policy. proofs of the loss. UMC demanded for at least 50% payment of its claim.
The issue in this case is whether or not UMC can validly claim for the Php 50M Country rejected the claim due to breach of the Insurance Policy which
it allegedly lost due to the fire. states:
a.   Condition No 15. If the claim be in any respect fraudulent, or if
The SC held that UMC cannot claim from Country. The Insurance Policy any false declaration be made or used in support thereof, or if any
provides that Country agreed to insure UMCs stocks in trade. UMC defined fraudulent means or devices are used by the Insured or anyone
stock in trade as tangible personal property kept for sale or traffic. UMC was acting in his behalf to obtain any benefit under this Policy; or if the
showing invoices that were suspicious, the Certificate from the Bureau of Fire loss or damage be occasioned by the willful act, or with the
Protection showed that the 50M it was claiming from Country included both the connivance of the Insured, all the benefits under this Policy shall
building and the contents of the building. But the Insurance Policy covered the be forfeited
stocks in trade. Basically, UMC was trying to claim 50M from Country by 61.   UMC filed a complaint in the RTC against Country. Country raised the
presenting imvoices and documents which were fraudulent. The Supreme Court following defenses:
refused the claim of UMC since submisisons of false invoices is a clear case of a.   No cause of action
fraud and fraud voids the policy. b.   Already prescribed
c.   UMC’s fire claim is tainted with fraud because the Statement of
DOCTRINE: Inventory showed that it had no stocks in trade and that UMC’s
The submission of false invoices to the adjusters establishes a clear case of fraud suspicious purchases for the year didn’t amount to 25M. The GIS
and misrepresentation which voids the insurer’s liability as per condition of the and Financial reports of UMC revealed that it had insufficient
policy. capital, which meant that UMC couldn’t have afforded the alleged
50M worth of stocks in trade.
What can be insured is only what is covered by the Policy. 62.   UMC presented five witnesses. The first witness was Josie Ebora (Ebora),
UMCs disbursing officer. Ebora testified that UMCs stocks in trade, at the
time of the fire, consisted of:
FACTS: a.   raw materials for its Christmas lights;
56.   United Merchants Corporation (UMC) is engaged in buying, selling, and b.   Christmas lights already assembled; and
manufacturing Christmas lights. It leased a warehouse where UMC c.   Christmas lights purchased from local suppliers.
assembled and stored its products.
57.   UMC’s general manager, Alfredo Tan insured UMC’s stocks in trade
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Of Christmas lights against fire with Country Bankers Inusrance (Country) responsible
 in
 the
 event
 of
 loss
 and/or
 damage
 during
 the
 currency
 of
 this
 
for P 15M. The policy was valid until Sept 6 1996.11
policy,
  whilst
  contained
  in
  the
  building
  of
  one
  lofty
  storey
  in
  height,
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  constructed
  of
  concrete
  and/or
  hollow
  blocks
  with
  portion
  of
  galvanized
 
11

  PROPERTY
  INSURED:
  On
  stocks
  in
  trade
  only,
  consisting
  of
  Christmas
  iron
  sheets,
  under
  galvanized
  iron
  rood,
  occupied
  as
  Christmas
  lights
 
Lights,
  the
  properties
  of
  the
  Assured
  or
  held
  by
  them
  in
  trust,
  on
  storage.
 
commissions,
  or
  on
  joint
  account
  with
  others
  and/or
  for
  which
  they
  are
 
 
 d.   These stocks in trade were delivered from August 1995 to May
1996. She stated that Straight Cargo Commercial Forwarders
delivered the imported materials to the warehouse, evidenced by
delivery receipts. However, for the year 1996, UMC had no
importations and only bought from its local suppliers.
e.   Ebora identified the suppliers as Fiber Technology Corporation
from which UMC bought stocks worth P1,800,000.00 on 20 May
1996; Fuze Industries Manufacturer Philippines from which
UMC bought stocks worth P19,500,000.00 from 20 January 1996
to 23 February 1996; and Tomco Commercial Press from which
UMC bought several Christmas boxes.
f.   Ebora testified that all these deliveries were not yet paid. Ebora
also presented UMCs Balance Sheet, Income Statement and
Statement of Cash Flow. Per her testimony, UMCs purchases
amounted to P608,986.00 in 1994; P827,670.00 in 1995; and
P20,000,000.00 in 1996. Ebora also claimed that UMC had sales
only from its fruits business but no sales from its Christmas lights
for the year 1995.
63.   Annie Pabustan testified that the company provided 25 workers to assemble
and pack.
64.   The third witness is Cesar Martinez, Officer of Metrobank, who said that
UMC opened letters of credit with it for 1995 only
65.   The fourth witness presented was Ernesto Luna (Luna), the delivery
checker of Straight Commercial Cargo Forwarders. Luna affirmed the
delivery of UMCs goods to its warehouse
66.   . Lastly, CRMs adjuster Dominador Victorio testified that he inspected
UMCs warehouse and prepared preliminary reports in this connection.
67.   Country rpesented Cabrera and Lazar who testified that they were hired to
investigate and found that arson was committed based from the interview
with barangay officials and pictures that showed blackened surfaces were
present at different parts of the warehouse.
68.   RTC ruled in favor of UMC. The CA ruled in favor of Country. The CA
said that the claim under the policy was void and that the fire was
intentional in origin and that the claim was overvalued through fraudulent
transactions.
ISSUE/s:
10.   WoN UMC can claim payment from Country– NO, because it committed
fraud which is a breach of the Policy. Commission of fraud voids the policy.
RULING: Judgment in question is affirmed.
RATIO:
31.   The party who asserts affirmative of the ossue 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.
32.   Here, UMC established prima facie case against Country. Country doesn’t
dispute that UMC’s stocks were insured against fire and that the warehouse
was gutted with fire. But since Country alleged an excepted risk, the burden
is shifted to Country to prove such exception.
33.   Country failed to discharge its primordial burden of establishing that the
damage or loss was caused by arson, a limitation in the policy. Country’s
evidence did not prove that the fire was intentionally caused by UMC.
34.   First, the findings of Country’s 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.
35.   Cabrera and Lazaro even admitted that they did not conduct a forensic
investigation of the warehouse nor did they file a case for arson.
36.   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. Country is bound by this evidence because in its Answer, it
admitted that it designated CRM to evaluate UMCs loss.
37.   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 Country failed to rebut.
38.   In Uy Hu & Co. v. The Prudential Assurance Co., Ltd.,
a.   the Court held that 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 from recovering on
the policy even for the amount of his actual loss.
39.   In this case, proof of its loss of stocks in trade amounting to
P50,000,000.00, UMC submitted its Sworn Statement of Formal Claim
together with the following documents:
a.   letters of credit and invoices for raw materials, Christmas lights
and cartons purchased;
b.   charges for assembling the Christmas lights; and
c.   delivery receipts of the raw materials.
40.   However, the charges for assembling the Christmas lights and delivery
receipts could not support its insurance claim. The Insurance Policy
provides that Country agreed to insure UMCs stocks in trade. UMC
defined stock in trade as tangible personal property kept for sale or
traffic.Applying UMCs definition, only the letters of credit and invoices
for raw materials, Christmas lights and cartons may be considered.
41.   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.
42.   However, in the Statement of Inventory it submitted to the BIR, UMC
stated that it had no stocks in trade as of 31 December 1995. In its
defense, UMC alleged that it did not include as stocks in trade the raw
materials to be assembled as Christmas lights, which it had on 31
December 1995. However, as proof of its loss, UMC submitted invoices
for raw materials, knowing that the insurance covers only stocks in
trade.
43.   Plus, the invoices from Fuze Industries were suspicious. The purchases
amounted to Php 19, 550 400 worth of Christmas lights. But the testimony
of Cabrera revealed that there was no Fuze Industries located at the business
address appearing in the invoices.
44.   In UMC’s Income Statement, it says that UMC has 1050862.71as assets
and 167, 058.47 as liabilities. It is claiming for more.
45.   Plus, in the certification from the Bureau of Fire Protection, it says that it
estimated a damage of Php 55M to the building and its contents.
 008 VALENZUELA v. CA (VARGAS)
October 19, 1990 | Gutierrez, Jr., J. | Parties to the Contract
PETITIONER: Arturo P. Valenzuela and Hospitalita N. Valenzuela
RESPONDENTS: Hon. Court of Appeals, Bienvenido M. Aragon, Robert E.
Parnell, Carlos K. Catolico, and the Philippine American General Insurance
Company, Inc.
SUMMARY: Valenzuela is the General Agent for Philamgen (insurance
company). Valenzuela solicited marine insurance from Delta Motors from which
he was entitled to a commission of 32.5% from Philamgen. In 1977, Philamgen
started to become interested in and expressed its intent to share in the
commission due Valenzuela on a 50-50 basis thus giving Valenzuela an agent’s
commission of 16.25%. Despite several attempts to convince Valenzuela, he still
refused to accept such proposals to share commission with Philamgen.
Consequently, Philamgen did some acts of harassment against Valenzuela which
led to the decline of Valenzuela’s business as insurance agent. Eventually,
Philamgen terminated the General Agency Agreement with Valenzuela. The
issues in this case are
1.   WON Philamgen and/or its officers can be held liable for damages
due to the termination of the General Agency Agreement it entered
into with Valenzuela – YES. The agency involving Valenzuela and
Philamgen is one "coupled with an interest," and, therefore, should
not be freely revocable at the unilateral will of the latter. The principal
cause of the termination of Valenzuela as General Agent of Philamgen
arose from his refusal to share his Delta Commission. Such termination,
as held by the Trial Court, is tainted with bad faith. As such,
2.   WON Valenzuela is liable to Philamgen for the unpaid and
uncollected premiums – NO. The remedy for the non-payment of
premiums is to put an end to and render the insurance policy not
binding.
DOCTRINE: Valenzuela, being a mere agent of Philamgen, is not a party to the
contract of insurance. The contract is essentially between Philamgen and Delta
Motors. Consequently, Valenzuela is under no obligation to pay Philamgen for
the unpaid and uncollected premiums. The remedy for the non-payment of
premiums is to put an end to and render the insurance policy not binding.
FACTS:
1.   Characters:
Valenzuela – General Agent of Philamgen
Philamgen – Insurance Company
Delta Motors – Insured
2.   Valenzuela is a General Agent of Philamgen since 1965. As such, he was
authorized to solicit and sell in behalf of Philamgen all kinds of non-life
insurance, and in sconsideration of services rendered was entitled to receive
the full agent’s commission of 32.5% from Philamgen.
3.   From 1973-1975, Valenzuela solicited marine insurance from one of his
clients Delta Motors amounting to P4.4M from which he was entitled to a
commission of 32%. However, Valenzuela did not receive his commission
amounting to P1.6M. During 1976-1978, premium payments were paid
directly to Philamgen.
4.   In 1977, Philamgen started to become interested in and expressed its intent
to share in the commission due Valenzuela on a fifty-fifty basis.
Valenzuela refused. Philamgen insisted on the sharing of commission with
Valenzuela. Valenzuela firmly reiterated his objection to the proposals of
Philamgen.
5.   Because of the refusal of Valenzuela, Philamgen took drastic action against
Valenzuela:
a.   Reversed the commission due him by not crediting in his account the
commission earned from the Delta Motors, Inc.
b.   Placed agency transactions on a cash and carry basis
c.   Threatened the cancellation of policies issued by his agency
d.   Started to leak out news that Valenzuela has a substantial account with
Philamgen.
All of these acts resulted in the decline of his business as insurance agent.
Then on December 27, 1978, Philamgen terminated the General Agency
Agreement of Valenzuela.
6.   Vaenzuela filed a complaint against Philamgen.
7.   Trial Court ruled in favor of Valenzuela stating that the principal cause of
the termination of Valenzuela as General Agent of Philamgen was based on
his refusal to share his Delta Commission. The acts of harassment done by
Philamgen to force Valenzuela to agree to the sharing of his Delata
commission do not justify the termination of the General Agency
Agreement entered into by Philamgen and Valenzuela.
8.   CA ruled in favor of Philamgen stating that the principal’s power to revoke
an agency at will is so pervasive that termination may be effected even if
the principal acts in bad faith, subject only to the principal’s liability for
damages.
ISSUE:
1.   WON Philamgen and/or its officers can be held liable for damages due
to the termination of the General Agency Agreement it entered into
with Valenzuela – YES. The agency involving Valenzuela and Philamgen
is one "coupled with an interest," and, therefore, should not be freely
revocable at the unilateral will of the latter. The principal cause of the
termination of Valenzuela as General Agent of Philamgen arose from his
refusal to share his Delta Commission. Such termination, as held by the
Trial Court, is tainted with bad faith.
2.   WON Valenzuela is liable to Philamgen for the unpaid and uncollected
premiums – NO. The remedy for the non-payment of premiums is to put an
end to and render the insurance policy not binding.

RULING: ACCORDINGLY, the petition is GRANTED. The impugned decision of
January 29, 1988 and resolution of April 27, 1988 of respondent court are hereby
SET ASIDE. The decision of the trial court dated January 23, 1986 in Civil Case No.
121126 is REINSTATED with the MODIFICATIONS that the amount of FIVE
HUNDRED TWENTY ONE THOUSAND NINE HUNDRED SIXTY-FOUR AND
16/100 PESOS (P521,964.16) representing the petitioners Delta commission shall
earn only legal interests without any adjustments under Article 1250 of the Civil
Code and that the contractual relationship between Arturo P. Valenzuela and
Philippine American General Insurance Company shall be deemed terminated upon
the satisfaction of the judgment as modified.
RATIO:
46.   The principal cause of the termination of Valenzuela as General Agent of
Philamgen arose from his refusal to share his Delta commission. The
records sustain the conclusions of the trial court on the apparent bad faith of
the Philamgen in terminating the General Agency Agreement of
Valenzuela. In the case at bar, the records show that the findings and
conclusions of the trial court are supported by substantial evidence and
there appears to be no cogent reason to disturb them.
47.   As early as September 30,1977, Philamgen told the petitioners of its desire
to share the Delta Commission with them. It stated that should Delta back
out from the agreement, Valenzuela would be charged interests through a
reduced commission after full payment by Delta.
48.   On January 23, 1978 Philamgen proposed reducing the Valenzuela’s
commissions by 50% thus giving them an agent's commission of 16.25%.
On February 8, 1978, Philamgen insisted on the reduction scheme. There
were other pressures:
a.   The petitioners were told that the Delta commissions would not be
credited to their account
b.   They were informed that the Valenzuela agency would be placed on a
cash and carry basis thus removing the 60-day credit for premiums due
c.   Existing policies were threatened to be cancelled
d.   The Valenzuela business was threatened with diversion to other agencies
e.   Rumors were also spread about alleged accounts of the Valenzuela
agency
49.   It is also evident from the records that the agency involving Valenzuela and
Philamgen is one "coupled with an interest," and, therefore, should not be
freely revocable at the unilateral will of the latter.
50.   In the insurance business in the Philippines, the most difficult and
frustrating period is the solicitation and persuasion of the prospective clients
to buy insurance policies. Normally, agents would encounter much
embarrassment, difficulties, and oftentimes frustrations in the solicitation
and procurement of the insurance policies. To sell policies, an agent exerts
great effort, patience, perseverance, ingenuity, tact, imagination, time and
money.
51.   In the case of Valenzuela, he was able to build up an Agency from scratch
in 1965 to a highly productive enterprise. The records sustain the finding
that the Philamgen started to covet a share of the insurance business that
Valenzuela had built up, developed and nurtured to profitability through
over thirteen (13) years of patient work and perseverance. When Valenzuela
refused to share his commission in the Delta account, the boom suddenly
fell on him.
52.   With the termination of the General Agency Agreement, Valenzuela would
no longer be entitled to commission on the renewal of insurance policies of
clients sourced from his agency. Worse, despite the termination of the
agency, Philamgen continued to hold Valenzuela jointly and severally
liable with the insured for unpaid premiums. Under these circumstances,
it is clear that Valenzuela had an interest in the continuation of the
agency when it was unceremoniously terminated not only because of the
commissions he should continue to receive from the insurance business he
has solicited and procured but also for the fact that by the very acts of the
respondents, he was made liable to Philamgen in the event the insured fail
to pay the premiums due. They are estopped by their own positive
averments and claims for damages. Therefore, the respondents cannot state
that the agency relationship between Valenzuela and Philamgen is not
coupled with interest.
As to Valenzuela’s liability to pay Philamgen for the unpaid and uncollected
premiums
53.   We rule that the respondent court erred in holding Valenzuela liable. We
find no factual and legal basis for the award. Under Section 7712 of the
Insurance Code, the remedy for the non-payment of premiums is to put an
end to and render the insurance policy not binding.
54.   Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc.: Non-
payment of premium does not merely suspend but puts an end to an
12
Sec. 77 ... [N]otwithstanding any agreement to the contrary, no policy or contract of insurance is valid
and binding unless and until the premiums thereof have been paid except in the case of a life or industrial
life policy whenever the grace period provision applies (P.D. 612, as amended otherwise known as the
Insurance Code of 1974)
 insurance contract since the time of the payment is peculiarly of the essence
of the contract.
55.   Since admittedly the premiums have not been paid, the policies issued have
lapsed. The insurance coverage did not go into effect or did not continue
and the obligation of Philamgen as insurer ceased. Hence, for Philamgen
which had no more liability under the lapsed and inexistent policies to
demand, much less sue Valenzuela for the unpaid premiums would be the
height of injustice and unfair dealing. In this instance, with the lapsing of
the policies through the nonpayment of premiums by the insured there
were no more insurance contracts to speak of.
 009 RCBC v. CA (VICENCIO)
April 20, 1998 | Melo, J. | Parties to a Contract
PETITIONER: Rizal Commercial Banking Corporation (RCBC), Uy Chun Bing, Eli D. Law
RESPONDENTS: Court of Appeals and Goyu & Sons
SUMMARY: Goyu and Sons (GOYU) applied for credit facilities with RCBC. A credit
amount of P30M was granted, which was incrased to P117M. As security for its credit, GOYU
executed two real estate mortagages and two chattel mortgages, in favor of RCBC. Under each
of these contracts, GOYU committed itself to insure the mortgages property with an insurance
company approved by RCBC. GOYU obtained a total of 10 insurance policies from Malayan
Insurance Compan (MICO). Alchester Insurance Company (Alchester), MICO’s insurance
agent, issued nine endorsements in favor of RCBC. On April 27, 1992, one of GOYU’s
factory buildings in Valenzuela was gutted by fire. GOYU submitted its claim for indemnity
against MICO. MICO however denied the claim on the ground that the insurance policies
were already subject to attachments by other courts because the insurance proceeds were also
claimed by other creditors of GOYU.
RCBC, one of GOYU’s creditors, also filed with MICO its formal claim over the proceeds of
the insurance policies. RCBC here is claiming that since they are the mortgagee of security
provided by GOYU, the insured, they also have the right to claim the insurance proceeds from
MICO, the insurer. Its claim was also denied by MICO, however. The RTC ruled in favor of
GOYU, ordering MICO to pay GOYU its fire loss claims, but that GOYU should also pay
RCBC for its loan obligations with the latter. CA partly affirmed.
The issue before the SC is WoN RCBC, as mortgagee, has any right over the insurance
policies by GOYU, as mortgagor, in case of occurrence of loss. The SC held that YES, but
only because of the peculiarity of the circumstances obtaining in the instant case which
presented a justification to take exception to the strict application of Sec. 53 of the Insurance
Code. GOYU voluntarily procured insurance policies to cover the mortgaged property from
MICO, no less than a sister company of RCBC. Endorsement documents were prepared by
MICO’s underwriter, Alchester Insurance Agency, Inc., and copies thereof were sent to
GOYU, MICO, and RCBC. GOYU did not assail, until of late, the validity of said
endorsements. GOYU continued until the occurrence of the fire, to enjoy the benefits of the
credit facilities extended by RCBC. GOYU is bound by the principle of estoppel. The
intention of the parties was also plain: RCBC is truly the person or entity for whose benefit the
policies were clearly intended.
Being exclusively payable to RCBC by reason of the endorsement by Alchester to RCBC,
these 8 policies (of 10) can not be attached by GOYU’s other creditors up to the extent of the
GOYUs outstanding obligation in RCBC’s favor. The other 2 policies, since they have not
been proven to be endorsed and delivered by Alchester, can be subject of attachments by other
creditors.
DOCTRINE: Section 53 of the Insurance Code ordains that the insurance proceeds of the
endorsed policies shall be applied exclusively to the proper interest of the person for whose
benefit it was made.
FACTS:
43.   Parties: Insured: GOYU; Insurer: MICO thru its agent Alchester;
Mortgagor: GOYU; Mortgagee: RCBC
44.   Goyu & Sons (GOYU) applied for credit facilities and accomodations with
Rizal Commercial Banking Corporation (RCBC) at its Binondo Branch.
45.   After due evaluation, RCBC, through its key officers, petitioner Uy Chin
Bing and Eli D. Lao, recommended GOYU’s application for approval with
RCBC’s executive committee.
46.   A credit facilitiy in the amount of P30 million was initially granted. Upon
GOYU’s application and Uy’s and Lao’s recommendation, RCBCs
executive committee increased GOYUs credit facility to P50 million, then
to P90 million, and finally to P117 million.
47.   As security for its credit facilities with RCBC, GOYU executed two real
estate mortgages and two chattel mortgages in favor of RCBC.
48.   Under each of these four mortgage contracts, GOYU committed itself to
insure the mortgaged property with an insurance company approved by
RCBC, and subsequently, to endorse and deliver the insurance policies to
RCBC.
49.   GOYU obtained in its name a total of ten insurance policies from Malayan
Insurance Company (MICO). Alchester Insurance Agency, Inc. (Alchester),
the insurance agent where GOYU obtained the MICO policies, issued nine
endorsements in favor of RCBC seemingly upon instructions of GOYU.
50.   On April 27, 1992, one of GOYU’s factory buildings in Valenzuela was
gutted by fire.
51.   Consequently, GOYU submitted its claim for indemnity on account of the
loss insured against MICO.
52.   MICO denied the claim on the ground that the insurance policies were
either attached pursuant to writs of attachments/garnishments issued by
various courts or that the insurance proceeds were also claimed by other
creditors of GOYU alleging better rights to the proceeds than the insured.
53.   GOYU filed a complaint for specific performance and damages with the
RTC.
54.   RCBC, one of GOYU’s creditors, also filed with MICO its formal claim
over the proceeds of the insurance policies, but said claims were also denied
for the same reasons that MICO denied GOYU’s claims.
1.   Personal note: RCBC here is claiming that since they are the
mortgagee of security provided by GOYU, the insured, they also
have the right to claim the insurance proceeds from MICO, the
insurer
55.   The RTC confirmed that GOYU’s other creditors, namely, Urban Bank,
Alfredo Sebastian, and Philippine Trust Company obtained their respective
writs of attachments form various cours, covering an aggregate ammoung of
P14,938,080, and ordered that the proceeds of the ten insurance policies be
deposited with the said court minus the aforementioned 14M.
56.   Accordingly, MICO deposited the amoun gog P50,505,594 with the RTC.
57.   The RTC rendered judgment in favor of GOYU:
 1.   For defendant MICO to pay GOYU its fire loss claims in the total of P74,040,518,
less the amount of P50M which is deposited with this Court.
2.   To pay MICO damages by way of interest for the delay
3.   For RCBC to pay GOYU actual damages of 2PM
4.   For the both MICO and RCBC to pay GOYU exemplary and attorney’s fees.
5.   And on the counterclaim of RCBC: ordering GOYU to pay its loan obligations with
RCBC in the amoung of P68,785,069, with interest.
58.   All parties appealed. GOYU was unsatisfied with the amounts awarded in
its favor. MICO and RCBC disputed the trial courts findings of liability on
their part.
59.   The CA partly granted GOYUs appeal (it additionally ordered MICO to pay
GOYU damages by way of interest until GOYU receives the said amount),
but sustained the findings of the trial court with respect to MICO and
RCBCs liabilities.
60.   Hence this appeal by RCBC and MICO.
ISSUE/s:
7.   WoN RCBC, as mortgagee, has any right over the insurance policies taken
by GOYU, the mortgagor, in case of the occurrence of loss – YES, but only
because of the peculiarity of the circumstances obtaining in the instant case
which presented a justification to take exception to the strict application of
Sec. 53 of the Insurance Code, it having been sufficiently established that it
was the intention of the parties to designate RCBC as the party for whose
benefit the insurance policies were taken out.
RULING: Petitions are hereby GRANTED and the decision and resolution of
December 16, 1996 and April 3, 1997 in CA-G.R. CV No. 46162 are hereby
REVERSED and SET ASIDE. A new one entered:
1.   Dismissing the Complaint of private respondent GOYU in Civil Case No. 93-65442 before
Branch 3 of the Manila Regional Trial Court for lack of merit;
2.   Ordering Malayan Insurance Company, Inc. to deliver to Rizal Commercial Banking
Corporation the proceeds of the insurance policies in the amount of P51,862,390.94 (per report
of adjuster Toplis & Harding (Far East), Inc., Exhibits 2 and 2-1), less the amount of
P50,505,594.60 (per O.R. No. 3649285);
3.   Ordering the Clerk of Court to release the amount of P50,505,594.60 including the interests
earned to Rizal Commercial Banking Corporation;
4.   Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal Commercial Banking
Corporation in the principal amount of P107,246,887.90, with interest at the respective rates
stipulated in each promissory note from January 21, 1993 until finality of this judgment, and
surcharges at 2% and penalties at 3% from January 21, 1993 to March 9, 1993, minus
payments made by Malayan Insurance Company, Inc. and the proceeds of the amount
deposited with the trial court and its earned interest. The total amount due RCBC at the time of
the finality of this judgment shall earn interest at the legal rate of 12% in lieu of all other
stipulated interests and charges until fully paid
RATIO:
67.   It is settled that a mortgagor and a mortgagee have separate and distinct
insurable interests in the same mortgaged property, such that each one of
them may insure the same property for his own sole benefit.
68.   There is no question that GOYU could insure the mortgaged property for its
own exclusive benefit.
69.   In the present case, although it appears that GOYU obtained the subject
insurance policies naming itself as the sole payee, the intentions of the
parties as shown by their contemporaneous acts, must be given due
consideration in order to better serve the interest of justice and equity.
70.   It is to be noted that nine endorsement documents were prepared by
Alchester in favor of RCBC. The Court is in a quandary how Alchester
could arrive at the idea of endorsing any specific insurance policy in
favor of any particular beneficiary or payee (RCBC) other than the
insured (GOYU) had not such named payee or beneficiary been
specifically disclosed by the insured itself.
71.   It is also significant that GOYU voluntarily and purposely took the
insurance policies from MICO, a sister company of RCBC, and not just
from any other insurance company.
72.   Had it not been for GOYU, Alchester would not have known of GOYU’s
intention of obtaining insurance coverage in compliance with its
undertaking in the mortgage contracts with RCBC, and verily, Alchester
would not have endorsed the policies to RCBC had it not been so directed
by GOYU.
73.   On equitable principles, particularly on the ground of estoppel, the Court is
constrained to rule in favor of mortgagor RCBC.
74.   Evelyn Lozada of Alchester testified that upon instructions of Mr. Go,
through a certain Mr. Yam, she prepared in quadruplicate on February 11,
1992 the nine endorsement documents for GOYUs nine insurance policies
in favor of RCBC.
75.   RCBC, in good faith, relied upon the endorsement documents sent to it
as this was only pursuant to the stipulation in the mortgage contracts.
The Court finds such reliance to be justified under the circumstances of
the case.
76.   GOYU failed to seasonably repudiate the authority of the person or
persons who prepared such endorsements.
77.   Over and above this, GOYU continued, in the meantime, to enjoy the
benefits of the credit facilities extended to it by RCBC.
78.   After the occurrence of the loss insured against, it was too late for
GOYU to disown the endorsements for any imagined or contrived lack
of authority of Alchester to prepare and issue said endorsements.
79.   If there had not been actually an implied ratification of said endorsements
by virtue of GOYUs inaction in this case, GOYU is at the very least
estopped from assailing their operative effects.
80.   To permit GOYU to capitalize on its non-confirmation of these
endorsements while it continued to enjoy the benefits of the credit
facilities of RCBC which believed in good faith that there was due
endorsement pursuant to their mortgage contracts, is to countenance
grave contravention of public policy, fair dealing, good faith, and
justice.
81.   Under the peculiar circumstances obtaining in this case, the Court is bound
to recognize RCBC’s right to the proceeds of the insurance policies if not
 for the actual endorsement of the policies, at least on the basis of the
equitable principle of estoppel.
82.   GOYU cannot seek relief under Section 53 of the Insurance Code which
provides that the proceeds of insurance shall exclusively apply to the
interest of the person in whose name or for whose benefit it is made. The
peculiarity of the circumstances obtaining in the instant case presents a
justification to take exception to the strict application of said provision, it
having been sufficiently established that it was the intention of the parties to
designate RCBC as the party for whose benefit the insurance policies were
taken out.
83.   The Court considered the following:
1.   It is undisputed that the insured pieces of property were the subject of
mortgage contracts entered into between RCBC and GOYU in
consideration of and for securing GOYUs credit facilities from
RCBC. The mortgage contracts contained common provisions whereby
GOYU, as mortgagor, undertook to have the mortgaged property properly
covered against any loss by an insurance company acceptable to RCBC.
2.   GOYU voluntarily procured insurance policies to cover the mortgaged
property from MICO, no less than a sister company of RCBC and
definitely an acceptable insurance company to RCBC.
3.   Endorsement documents were prepared by MICOs underwriter, Alchester
Insurance Agency, Inc., and copies thereof were sent to GOYU, MICO,
and RCBC. GOYU did not assail, until of late, the validity of said
endorsements.
4.   GOYU continued until the occurrence of the fire, to enjoy the benefits of
the credit facilities extended by RCBC which was conditioned upon the
endorsement of the insurance policies to be taken by GOYU to cover the
mortgaged properties.
84.   This Court can not over stress the fact that upon receiving its copies of the
endorsement documents prepared by Alchester, GOYU, despite the
absence of its written conformity thereto, obviously considered said
endorsement to be sufficient compliance with its obligation under the
mortgage contracts since RCBC accordingly continued to extend the
benefits of its credit facilities and GOYU continued to benefit
therefrom.
85.   Just as plain too is the intention of the parties to constitute RCBC as the
beneficiary of the various insurance policies obtained by GOYU.
86.   The intention of the parties will have to be given full force and effect in this
particular case. The insurance proceeds may, therefore, be exclusively
applied to RCBC, which under the factual circumstances of the case, is
truly the person or entity for whose benefit the policies were clearly
intended.
87.   Moreover, the laws evident intention to protect the interests of the
mortgagee upon the mortgaged property is expressed in Article 2127 of the
Civil Code which states:
1.   ART. 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation
becomes due, and to the amount of the indemnity granted or owing to the proprietor
from the insurers of the property mortgaged, or in virtue of expropriation for public
use, with the declarations, amplifications and limitations established by law,
whether the estate remains in the possession of the mortgagor, or it passes into the
hands of a third person.
88.   Significantly, the Court notes that out of the 10 insurance policies subject of
this case, only 8 of them appear to have been subject of the endorsements
prepared and delivered by Alchester for and upon instructions of GOYU.
1.   Policy Number F-114-07795 has not been endorsed. This fact was
admitted by MICOs witness, Atty. Farolan.
2.   Likewise, the record shows no endorsement for Policy Number
CI/F-128-03341.
89.   Being exclusively payable to RCBC by reason of the endorsement by
Alchester to RCBC, which we already ruled to have the force and effect
of an endorsement by GOYU itself, these 8 policies can not be attached
by GOYU’s other creditors up to the extent of the GOYUs outstanding
obligation in RCBC’s favor.
90.   Section 53 of the Insurance Code ordains that the insurance proceeds of
the endorsed policies shall be applied exclusively to the proper interest
of the person for whose benefit it was made.
91.   In this case, to the extent of GOYUs obligation with RCBC, the interest of
GOYU in the subject policies had been transferred to RCBC effective
as of the time of the endorsement.
92.   These policies may no longer be attached by the other creditors of GOYU,
like Alfredo Sebastian, which may nonetheless forthwith be dismissed for
being moot and academic in view of the results reached herein.
93.   Only the two other policies may be validly attached, garnished, and levied
upon by GOYUs other creditors.
94.   To the extent of GOYUs outstanding obligation with RCBC, all the rest of
the other insurance policies above-listed which were endorsed to RCBC,
are, therefore, to be released from attachment, garnishment, and levy by the
other creditors of GOYU.
95.   Given the factual milieu spread hereover, the Court also rulse that it was
error to hold MICO liable in damages for denying or withholding the
proceeds of the insurance claim to GOYU:
1.   Firstly, by virtue of the mortgage contracts as well as the endorsements of
the insurance policies, RCBC has the right to claim the insurance
proceeds, in substitution of the property lost in the fire. Having assigned
its rights, GOYU lost its standing as the beneficiary of the said insurance
policies.
2.   Secondly, for an insurance company to be held liable for unreasonably
delaying and withholding payment of insurance proceeds, the delay must
be wanton, oppressive, or malevolent. The case at bar does not show that
MICO wantonly and in bad faith delayed the release of the proceeds. The
problem in the determination of who is the actual beneficiary of the
insurance policies, aggravated by the claim of various creditors who
wanted to partake of the insurance proceeds, not to mention the
importance of the endorsement to RCBC, to our mind, and as now borne
out by the outcome herein, justified MICO in withholding payment to
GOYU.
 010 PALILEO v. COSIO (VILLAVICENCIO)
November 28, 1955 | Bautista Angelo, J. | Parties to the contract
PETITIONER: Cherie Palileo
RESPONDENTS: Beatriz Cosio
SUMMARY: Palileo obtained a loan from Cosio. Cosio required Palileo to sign a
“Conditional sale of residential building” to secure the payment of the loan. This
document did not express the true intention of the parties that was merely to place
said property as security for the payment of the loan. Cosio insured the building with
Associated Insurance & Surety Co., Inc. The building was party destroyed by fire.
Cosio then collected 13,107 from Associated Insurance. Palileo demanded from
Cosio that she be credited with the necessary amount to pay her obligation out of the
insurance proceeds but Cosio refused to do so. Trial court rendered a decision
ordering Cosio to credit the 13,107 to Palileo’s payment to her. WoN the obligation
of Palileo can be fully compensated by the insurance amount – NO, because it runs
counter to the rule governing an insurance taken by a mortgagee independently of the
mortgagor. In that event, upon the destruction of the property the insurance money
paid to the mortgagee will not inure to the benefit of the mortgagor, and the amount
due under the mortgage debt remains unchanged. The mortgagee, however, is not
allowed to retain his claim against the mortgagor, but it passes by subrogation to the
insurer, to the extent of the insurance money paid.
DOCTRINE: The rule is that "where a mortgagee, independently of the mortgagor,
insures the mortgaged property in his own name and for his own interest, he is
entitled to the insurance proceeds in case of loss, but in such case, he is not allowed
to retain his claim against the mortgagor, but is passed by subrogation to the insurer
to the extent of the money paid." Or, stated in another way, "the mortgagee may
insure his interest in the property independently of the mortgagor.
FACTS:
1.   Palileo obtained from Cosio a loan in the sum of P12,000 subject to the
following conditions: (a) that Palileo shall pay to Cosio an interest in the amount
of P250 a month; (b) that Cosio shall deduct from the loan certain obligations of
Palileo to third persons amounting to P4,550, plus the sum of P250 as interest
for the first month; and (c) that after making the above deductions, Cosio shall
deliver to Palileo only the balance of the loan of P12,000.
2.   Pursuant to their agreement, Palileo paid to Cosio as interest on the loan a total
of P2,250.00 corresponding to nine months from December 18, 1951, on the
basis of P250.00 a month, which is more than the maximum interest authorized
by law.
3.   To secure the payment of the aforesaid loan, Cosio required Palileo to sign a
document known as "Conditional Sale of Residential Building", purporting to
convey to Cosio, with right to repurchase, a two-story building of strong
materials belonging to Palileo.
4.   This document did not express the true intention of the parties which was merely
to place said property as security for the payment of the loan.
5.   Cosio insured the building against fire with the Associated Insurance & Surety
Co., Inc. for the sum of P15,000, the insurance policy having been issued in the
name of Cosio.
6.   The building was partly destroyed by fire and, after proper demand, Cosio
collected from the insurance company an indemnity of P13,107.00.
7.   Palileo demanded from Cosio that she be credited with the necessary amount to
pay her obligation out of the insurance proceeds but Cosio refused to do so.
8.   Trial court rendered a decision ordering Cosio to credit the 13,107 to Palileo’s
payment to her.
ISSUE/s:
1.   WoN the obligation of Palileo can be fully compensated by the insurance
amount – NO, because it runs counter to the rule governing an insurance taken
by a mortgagee independently of the mortgagor.
RULING: Consistent with the foregoing pronouncement, we therefore modify the
judgment of the lower court as follows:(1) the transaction had between the plaintiff
and defendant as shown in Exhibit A is merely an equitable mortgage intended to
secure the payment of the loan of P12,000;(2) that the proceeds of the insurance
amounting to P13,107.00 was properly collected by defendant who is not required to
account for it to the plaintiff; (3) that the collection of said insurance proceeds shall
not be deemed to have compensated the obligation of the plaintiff to the defendant,
but bars the latter from claiming its payment from the former; and (4) defendant shall
pay to the plaintiff the sum of P810.00 representing the overpayment made by
plaintiff by way of interest on the loan. No pronouncement as to costs.
RATIO:
96.   The rule is that "where a mortgagee, independently of the mortgagor, insures the
mortgaged property in his own name and for his own interest, he is entitled to
the insurance proceeds in case of loss, but in such case, he is not allowed to
retain his claim against the mortgagor, but is passed by subrogation to the
insurer to the extent of the money paid."
97.   Or, stated in another way, "the mortgagee may insure his interest in the property
independently of the mortgagor.
98.   In that event, upon the destruction of the property the insurance money paid to
the mortgagee will not inure to the benefit of the mortgagor, and the amount due
under the mortgage debt remains unchanged.
99.   The mortgagee, however, is not allowed to retain his claim against the
mortgagor, but it passes by subrogation to the insurer, to the extent of the
insurance money paid."
100.  This is the same rule upheld by this Court in a case that arose in this jurisdiction.
In the case mentioned, an insurance contract was taken out by the mortgagee
upon his own interest, it being stipulated that the proceeds would be paid to him
only and when the case came up for decision, this Court held that the mortgagee,
 in case of loss, may only recover upon the policy to the extent of his credit at the
time of the loss. It was declared that the mortgaged had no right of action against
the mortgagee on the policy. (San Miguel Brewery vs. Law Union, 40 Phil.,
674.)
101.  The general rule and the weight of authority is, that the insurer is thereupon
subrogated to the rights of the mortgagee under the mortgage.
102.  the correct solution should be that the proceeds of the insurance should be
delivered to Cosio but that her claim against Palileo should be considered
assigned to the insurance company who is deemed subrogated to the rights of
Cosio to the extent of the money paid as indemnity.
 011 GREAT PACIFIC LIFE ASSURANCE v. CA (Yap)
October 13, 1999 | Quisumbing, J. | Parties to the contract
PETITIONER: Great Pacific Life Assurance Corp. (Grepalife)
RESPONDENT: Court of Appeals and Medarda V. Leuterio
SUMMARY: Grepalife and DBP entered into a group life insurance to insure
the lives of eligivle housing loan mortgagors of DBP (a.k.a., mortgage
redemption insurance). When Dr. Wilfredo Leuterio applied, he indicated that he
had never consulted a physician for a heart condition, high blood pressure, etc.
and that to the best of his knowledge, he is in good health. Thereafter, he died
due to massive cerebral hemorrhage. When DBP submitted its claim, from the
insurance, to Grepalife, the latter denied on the ground that it is entitled to
rescind the contract since Wilfredo disclosed his hypertension, as attested by Dr.
Hernando Mejia that “the cerebral hemorrhage was probably secondary to
hypertension.” Because of the denial, DBP proceeded to claim from Wilfredo
and even foreclosed on the mortgaged property. Medarda Leuterio, the widow,
filed a complaint for specific performance and damages against Grepalife to
fulfill its obligation under the insurance contract. Grepalife now argues that
Medarda is not the real party-in-interest, which should be DBP the mortgagee.
The pertinent issue is whether Medarda is the real party-in-interest.
The SC ruled in the affirmative. In Gonzales v. Yek Tong Lin, the SC ruled that
the 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. In this case, 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 (Medarda) of the
decedent may file the suit against the insurer (Grepalife). (To simplify, Wilfredo
remained as the real party-in-interest even though he assigned the DBP
mortgage indebtedness to Grepalife. By virtue of Wilfredo’s death, his heirs
succeeded to his rights in the insurance contract). Hence, Medarda has the
proper standing to claim from Grepalife, which erred in rescinding the insurance
contract on the ground of Wilfredo’s alleged concealment – there was no
concealment since the testimony of Dr. Mejia, as to the “probability” that the
cerebral hemorrhage was secondary to hypertension, was not conclusive proof
that Wilfredo was not in good health when he applied for the insurance policy.
There was no fraudulent intent established. Now, the rightful owners of the
proceeds are Wilfredo’s heirs.
DOCTRINE: 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 (Medarda) of the decedent may file the suit against the insurer
(Grepalife).
FACTS:
69.   Great Pacific Life Assurance (Petitioner / Grepalife) and the Development
Bank of the Philippines (DBP) entered into a Group Life Insurance to
insure the lives of eligible housing loan mortgagors of DBP (a.k.a.,
Mortgage Redemption Insurance).
70.   Dr. Wilfredo Leuterio, a physicial and a housing debtor of DBP, applied for
membership in the group life insurance.
a.   In his application, he answered that (1) “He had NEVER consulted
a physician for a heart condition, high blood pressure, cancer,
diabetes, lung, kidney or stomach disorder or any other physical
impairment;” and (2) “He was, to the best of his knowledge, in
good health.”
b.   Grepalife granted Wilfredo an insurance coverage of PHP86,200
over his DBP mortgage indebtedness.
71.   Wilfredo died due to massive cerebral hemorrhage.
72.   DBP submitted a death claim to Grepalife.
a.   Grepalife denied the claim on the ground that Wilfredo was not
physically healthy when he applied for an insurance coverage, and
that he concealed the fact that he ws suffering from hypertension,
which caused his death.
b.   According to Grepalife, this was attested to the attending
physician, Dr. Hernando Mejia, when he said that Wilfredo “died
of cerebral hemorrhage, PROBABLY secondary to hypertension.”
c.   Thus, DBP collected the debt from the mortgagor (Wilfredo) and
took the necessary action of foreclosure on the residential lot of the
Leuterios.
73.   Medarda Leuterio, Wilfredo’s widow, filed this complaint against Grepalife
for specific performance with damages, alleging that Grepalife’s claim
based on Dr. Mejia’s testimony was not a conclusive inference because
Wilfredo was not autopsied, hence other causes could not be ruled out.
a.   Trial court ruled in favor of Medarda. CA sustained.
74.   Grepalife now alleges that this complaint was not filed by the real party-in-
interest which is DBP.
ISSUE/s:
11.   Whether Medarda is a real party-in-interest – YES, because Wilfredo
remained the real party-in-interest despite the mortgage, and when he died,
his heirs succeeded thereto.
12.   Whether Grepalife may rescind the group life insurance of Wilfredo – NO,
because there is no conclusive proof of fraudulent intent since the testimony
of Dr. Mejia merely mentioned that his cerebral hemorrhage was
“probably” secaondary to hypertension.
RULING: Petition DENIED. CA decision AFFIRMED with MODIFICATION that c.   Misrepresentation as a defense of the insurer to avoid liability is an
Grepalife is ORDERED to pay PHP86,200 insurance proceeds to the heirs of the affirmative defense.
insured. i.   The duty to establish such defense by satisfactory and
RATIO: convincing evidence rests upon the insurer.
56.   Medarda is the real party-in-interest. 58.   Since there was no evidence on record as to the amount of Wilfredo’s
a.   Nature of a Mortgage Redemption Insurance contract: outstanding indebtedness to DBP at the time of his death, the measure of
i.   In favor of the mortgagee (DBP) – in the event of the indemnity under a policy of insurance upon life or health is the sum fixed in the
unexpected demise of the mortgagor during the substinence of policy (here, it’s PHP86,200).
the mortgage contract, the proceeds from such insurance will 59.   Considering that DBP already foreclosed on the residential lot subject of the
be applied to the payment of the mortgage debt, thereby mortgage, it cannot unjustly enrich itself by collecting the insurance proceeds.
relieving the heirs of the mortgagor from paying the a.   The proceeds now rightly belong to Wilfredo’s heirs.
obligation.
ii.   In favor of the mortgagor (Wilfredo) – in the event of death,
the mortgage obligation will be extinguished by the
application of the insurance proceeds to the mortgage
indebtedness.
iii.   Where the mortgagor pays the insurance premium under the
group insurance policy, making the loss payable to the
mortgagee, the insurance is on the mortgagor’s interest, and
the mortgagor continues to be a party to the contract. Here the
mortgagee is simply an appointee of the insurance fund,
such loss-payable clause does not make the mortgagee a
party to the contract.
b.   §8, Insurance Code – In the event of the debtor’s (Wilfredo’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.
c.   Gonzales La O v. Yek Tong Lin – the 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.
i.   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
(Medarda) of the decedent may file the suit against the insurer
(Grepalife).
57.   Grepalife may not rescind the group life insurance since Wilfredo did not
conceal the status of his health.
a.   The certification of Dr. Mejia was that Wilfredo “died of cerebral
hemorrhage, PROBABLY secondary to hypertension.” Hence, contrary
to Grepalife’s allegations, there was no sufficient proof that the
Wilfredo had suffered from hypertension.
b.   To entitle Grepalife to rescind the contract, the fraudulent intent on the
part of Wilfredo must be established.
 001 EL ORIENTE FABRICA DE TABACOS, INC. v. POSADAS (Adrias)
September 21, 1931 | Malcolm, J. | Life Insurance Proceeds – Taxable or Not
PLAINTIFF-APPELLANT: El Oriente Fabrica De Tabacos, Inc.
DEFENDANT-APPELLEE: Juan Posadas, Collector of Internal Revenue
Insurer: Manufacturers Life Insurance Co., of Toronto, Canada, thru its local agent
E.E. Elser
Insured: A. Velhagen (Manager of El Oriente)
Beneficiary: El Oriente Fabrica de Tabacos, Inc.
SUMMARY: El Oriente, in order to protect itself against the loss that it might
suffer by reason of the death of its manager A. Velhagen, who had more than 35
years of experience in the manufacture of cigars in the Philippines and whose death
would be a serious loss to El Oriente, procured from Manufacturers Life Insurance
Co. of Toronto, Canada through its local agent R.R. Elser (Manulife) an insurance
policy on the life of A. Velhagen for the sum of 50,000 USD. El Oriente designated
itself as the sole beneficiary. El Oriente charged as expenses of its business all the
said premiums and deducted the same from its gross incomes as reported in its
annual income tax returns. Upon the death of Manager A. Velhagen, El Oriente
received all the proceeds of the life insurance policy. Posadas assessed and levied the
sum of P3,148.74 as income tax on the proceeds of the insurance policy, which was
paid by El Oriente under protest. The issue in this case is WoN the proceeds of
insurance taken by a corporation on the life of an important official to indemnify it
against loss in case of his death, are taxable as income under the Philippine Income
Tax Law? The Court ruled in the negative. Act No. 2833 “Income Tax Law for the
Philippines” provides in Section 4, Chapter I on Individuals that life insurance
proceeds are exempt from Income Tax. However, no provisions in Chapter II on
Corporations explicitly provide for such exemption. Considering, however, the
purport of the stipulated facts, considering the uncertainty of Philippine law, and
considering the lack of express legislative intention to tax the proceeds of life
insurance policies paid to corporate beneficiaries, particularly when in the exemption
in favor of individual beneficiaries in the chapter on this subject, the clause is
inserted "exempt from the provisions of this law," we deem it reasonable to hold
the proceeds of the life insurance policy in question as representing an
indemnity and not taxable income.
DOCTRINE: El Oriente, as a corporation, can purchase a life insurance policy on an
employee and it can designate itself as the sole beneficiary. The corporation will not
be taxed on such proceeds, since it is considered as an indemnity and not income.
FACTS:
1.   El Oriente is a domestic corporation and existing under and by virtue of the
laws of the Philippine Islands.
2.   Juan Posadas (Posadas) is the duly appointed, qualified and acting Collector
of Internal Revenue of the Philippine Islands.
3.   El Oriente, in order to protect itself against the loss that it might suffer by
reason of the death of its manager A. Velhagen, who had more than 35
years of experience in the manufacture of cigars in the Philippines and
whose death would be a serious loss to El Oriente, procured from
Manufacturers Life Insurance Co. of Toronto, Canada through its local
agent R.R. Elser (Manulife) an insurance policy on the life of A. Velhagen
for the sum of 50,000 USD.
4.   El Oriente designated itself as the sole beneficiary. The insured has no
interest or participation in the proceeds of said life insurance policy.
5.   El Oriente charged as expenses of its business all the said premiums and
deducted the same from its gross incomes as reported in its annual income
tax returns, which deductions were allowed by Posadas upon showing by El
Oriente that such premiums were legitimate expenses of the business.
6.   Upon the death of Manager A. Velhagen, El Oriente received all the
proceeds of the life insurance policy together with the interest and the
dividends accruing thereon, aggregating P104,957.88.
7.   Posadas assessed and levied the sum of P3,148.74 as income tax on the
proceeds of the insurance policy, which was paid by El Oriente under
protest.
8.   RTC Decision: Ruled in favor of Posadas
9.   El Oriente’s contentions:
a.   That trial court erred in holding that section 4 of the Income Tax
Law (Act No. 2833) is not applicable to the present case.
b.   The trial court erred in reading into the law certain exceptions and
distinctions not warranted by its clear and unequivocal provisions.
c.   The trial court erred in assuming that the proceeds of the life
insurance policy in question represented a net profit to El Oriente
when, as a matter of fact, it merely represented an indemnity, for
the loss suffered by it thru the death of its manager, the insured.
d.   The trial court erred in refusing to hold that the proceeds of the life
insurance policy in question is not taxable income.
ISSUE/s:
1.   WoN the proceeds of insurance taken by a corporation on the life of an
important official to indemnify it against loss in case of his death, are
taxable as income under the Philippine Income Tax Law? – NO.
Considering, therefore, the purport of the stipulated facts, considering
the uncertainty of Philippine law, and considering the lack of express
legislative intention to tax the proceeds of life insurance policies paid to
corporate beneficiaries, particularly when in the exemption in favor of
individual beneficiaries in the chapter on this subject, the clause is
inserted "exempt from the provisions of this law," we deem it
reasonable to hold the proceeds of the life insurance policy in
question as representing an indemnity and not taxable income
RULING: WHEREFORE, The foregoing pronouncement will result in the judgment 9.   In reality, what El Oriente received was in the nature of an indemnity for
being reversed and in another judgment being rendered in favor of El Oriente and the loss, which it actually suffered because of the death of its manager A.
against Posadas for the sum of P3,148.74. So ordered, without costs in either Velhagen.
instance. 10.   Considering, therefore, the purport of the stipulated facts, considering the
uncertainty of Philippine law, and considering the lack of express legislative
RATIO: intention to tax the proceeds of life insurance policies paid to corporate
1.   The Income Tax Law for the Philippines is Act No. 2833, as amended. beneficiaries, particularly when in the exemption in favor of individual
a.   In Chapter I On Individuals, is to be found Section 4 which beneficiaries in the chapter on this subject, the clause is inserted "exempt
provides that, from the provisions of this law," we deem it reasonable to hold the
"The following incomes shall be exempt from the proceeds of the life insurance policy in question as representing an
provisions of this law: (a) The proceeds of life insurance indemnity and not taxable income.
policies paid to beneficiaries upon the death of the
insured ... ."
 
b.   In Chapter II on Corporations does not provide as above.
i.   Section 10, as amended, in Chapter II On Corporations,
provides that, There shall be levied, assessed, collected,
and paid annually upon the total net income received in
the preceding calendar year from all sources by every
corporation ... a tax of three per centum upon such
income ... ."
ii.   Section 11 in the same chapter, provides the exemptions
under the law, but neither here nor in any other section is
reference made to the provisions of section 4 in Chapter I.
2.   It is certain that the proceeds of life insurance policies are exempt. It is
not so certain that the proceeds of life insurance policies paid to corporate
beneficiaries upon the death of the insured are likewise exempt.
3.   The situation will be better elucidated by a brief reference to laws on the
same subject in the United States.
4.   The Income Tax Law of 1916 extended to the Philippine Legislature, when
it came to enact Act No. 2833, to copy the American statute.
5.   Subsequently, the Congress of the United States enacted its Income Tax
Law of 1919, in which certain doubtful subjects were clarified.
6.   Thus, as to the point before us, it was made clear, when not only in the part
of the law concerning individuals were exemptions provided for
beneficiaries, but also in the part concerning corporations, specific reference
was made to the exemptions in favor of individuals, thereby making the
same applicable to corporations.
7.   This was authoritatively pointed out and decided by the United States
Supreme Court in the case of United States vs. Supplee-Biddle Hardware
Co., which involved facts quite similar to those before us.
8.   To quote the exact words in the cited case of Chief Justice Taft delivering
the opinion of the court:
“It is earnestly pressed upon us that proceeds of life insurance paid
on the death of the insured are in fact capital, and cannot be taxed
as income … that proceeds of a life insurance policy paid on the
death of the insured are not usually classed as income.”
 002 INSULAR LIFE V. EBRADO (ALCAZAR)
October 28,1977 | Martin, J. | Designation of Beneficiary
PETITIONER: The Insular Life Assurance Company, Ltd.
RESPONDENTS: Carponia T. Ebrado and Pascuala Vda. De Ebrado
SUMMARY: Buenaventura Ebrado was insured by The Life Assurance Co.,
Ltd. a policy on a whole-life insurance with a rider on accidental death with
Carponia Ebrada as his beneficiary. He refered to her as his wife. He died
when a falling branch of a tree fell on him. Carponia (Common law wife)
filed a claim for the proceeds of the insurance as the designated beneficiary.
While Pascual Vda. De Ebrado (Legal wife) also filed her claim as the
widow of the deceased insured. The Insurer filed an interpleader before the
CFI to determine who to give the insurance proceeds to. The CFI rendered a
decision in favor Pascuala. The CA affirmed this decision and ruled that
Carponia was disqualified from becoming a beneficiary of Ebrado.
The issue is: Whether a common-law wife named as beneficiary in the life
insurance policy of a legally married man may claim the proceeds thereof in
case of death of the latter. NO. Common-law spouses are barred from
receiving donations from each other.
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. Article 739
of the new Civil Code provides: The following donations shall be void: (1)
Those made between persons who were guilty of adultery or concubinage at
the time of donation. As a consequence, the proscription in Article 739 of the
new Civil Code should equally operate in life insurance contracts. The
mandate of Article 2012 should be followed: any person who cannot receive
a donation cannot be named as beneficiary in the life insurance policy of the
person who cannot make the donation. Therefore, Carponia Ebrada as the
common law wife is disqualified to be a beneficiary. As a consequence, the
proceeds of the policy are hereby held payable to the estate of the deceased
insured.
DOCTRINE: Any person who is forbidden from receiving any donation
under Article 739 cannot be named a 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.
FACTS:
1.   Buenaventura Ebrado was issued by The Life Assurance Co., Ltd. a
policy on a whole-life insurance for P5,882.00 with a, rider for
Accidental Death for the same amount. He designated Carponia T.
Ebrado as the revocable beneficiary in his policy. He referred to her
as his wife.
2.   Ebrado diedwhen he was hit by a falling branch of a tree.
3.   As the policy was in force, The Insular Life Assurance Co., Ltd.
liable to pay the coverage in the total amount of P11,745.73,
representing the face value of the policy in the amount of P5,882.00
plus the additional benefits for accidental death also in the amount of
P5,882.00 and the refund of P18.00 paid for the premium minus the
unpaid premiums and interest thereon.
4.   Carponia T. Ebrado 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.
5.   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.
6.   In doubt as to whom the insurance proceeds shall be paid, the
insurer, The Insular Life Assurance Co., Ltd. commenced an action
for Interpleader before the Court of First Instance
7.   CFI: Found that Pascuala had 6 legitimate children with Ebrado and
Carponia had 2 illegitimate children with Ebrado. The court ruled
that Carponia T. Ebrado disqualified from becoming beneficiary of
the insured Buenaventura Ebrado and directing the payment of the
insurance proceeds to the estate of the deceased insured.
8.   CA: Affirmed the judgment of the lower court. It ruled that:
•   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".
•   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. Article 2011 of the New Civil
Code states: "The contract of insurance is governed by special
laws. Matters not expressly provided for in such special laws
 shall be regulated by this Code." When not otherwise specifically
provided for by the Insurance Law, the contract of life insurance
is governed by the general rules of the civil law regulating
contracts.
•   Article 739 of the new Civil Code provides: The following
donations shall be void: (1) Those made between persons who
were guilty of adultery or concubinage at the time of donation;
x x x 4.   A conviction for adultery or concubinage is not required before the
In the case referred to in No. 1, the action for declaration of
nullity may be brought by the spouse of the donor or donee; and
the guilt of the donee may be proved by preponderance of
evidence in the same action.
•   Under Article 2012 of the same Code, "any person who is
forbidden from receiving any donation under Article 739
cannot be named beneficiary of a life insurance policy by the
person who cannot make a donation to him. Common-law
spouses are, definitely, barred from receiving donations from
each other.
ISSUE/s:
1.   Whether a common-law wife named as beneficiary in the life
insurance policy of a legally married man may claim the
proceeds thereof in case of death of the latter. NO. Common-law
spouses are barred from receiving donations from each other.
RULING: ACCORDINGLY, the appealed judgment of the lower court is
hereby affirmed. 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.
RATIO:
1.   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.
2.   As a consequence, the proscription in Article 739 of the new Civil
Code should equally operate in life insurance contracts. The mandate
of Article 2012 should be followed: any person who cannot receive a
donation cannot be named as beneficiary in the life insurance policy
of the person who cannot make the donation.
3.   Family laws, reason and morality dictate that the impediments
imposed upon married couple should likewise be imposed upon
extra-marital relationship. If a legitimate relationship is
circumscribed by these legal disabilities, with more reason should an
illicit relationship be restricted by these disabilities.
disabilities mentioned in Article 739 may effectuate. The article says
that in the case referred to in No. 1, the action for declaration of
nullity may be brought by the spouse of the donor or donee; and the
guilty of the donee may be proved by preponderance of evidence in
the same action.
5.   The underscored clause neatly conveys that no criminal conviction
for the offense is a condition precedent. The law plainly states that
the guilt of the party may be proved “in the same acting for
declaration of nullity of donation.” And, it would be sufficient if
evidence preponderates.
6.   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. The judicial admissions are sufficient and are considered valid.
7.   Carponia Ebrada as the common law wife is disqualified to be a
beneficiary. As a consequence, the proceeds of the policy are hereby
held payable to the estate of the deceased insured.
 003 PHILAM v. PINEDA (APASAN)
July, 19, 1989 | Paras, J. | Designation of beneficiary
PETITIONER: Philippine American Insurance Company
RESPONDENTS: Honorable Gregorio G. Pineda and Rodolfo C. Dimayuga
SUMMARY: Rodolfo Dimayuga (Dimayuga) procured an ordinary life insurance
policy from Philippine American Insurance Company (Philam) designating his wife
and children as irrevocable beneficiaries. Subsequently, Dimayuga filed a petition
with the CFI to amend the designation in the policy from irrevocable to recovable.
Philam opposed, but the lower court denied such opposition and granted the petition.
Issues are: 1.) WoN the designation of irrevocable beneficiaries could be
amended without the consent of all the beneficiaries – No, under the Insurance
Act, which was the law applicable at that time, the beneficiary designated in a life
insurance contract cannot be changed without the consent of the beneficiary because
he has a vested interest in the policy. Also, the provisions of the Insurance Contract
did not provide for any exception regarding its irrevocability. Both the law and the
policy do not provide for any other exception, thus, abrogating the contention of the
Dimayuga that said designation can be amended if the Court finds a just, reasonable
ground to do so 2.) WoN the irrevocable beneficiaries herein who are all minors
(NOTE: wife, who was also a beneficiary, predeceased Dimayuga), could validly
give consent to the change or amendment in the designation of the irrevocable
beneficiaries – No. First, being minors, their ratification would be ineffective.
Second, neither could they act through their father insured since their interests are
quite divergent from one another. Lastly, parent-insured (Dimayuga) cannot exercise
rights and/or privileges pertaining to the insurance contract, for otherwise, the vested
rights of the irrevocable beneficiaries would be rendered inconsequential.
DOCTRINE: Under the Insurance Act, otherwise known as Act No. 2427, the
beneficiary designated in a life insurance contract cannot be changed without the
consent of the beneficiary because he has a vested interest in the policy. Further,
minor-beneficiaries cannot validly give their consent to such amendment.
FACTS:
1.   On January 15, 1968, Rodolfo Dimayuga (Dimayuga) procured an ordinary
life insurance policy from Philippine American Insurance Company
(Philam) and designated his wife and children as irrevocable beneficiaries
of said policy.
2.   On February 22, 1980 Dimayuga filed a petition before the Court of First
Instance of Rizal to amend the designation of the beneficiaries in his life
policy from irrevocable to revocable.
3.   Philam filed its Comment and/or Opposition to Petition.
a.   Respondent Judge Gregorio G. Pineda (Judge Pineda) denied this
opposition, and the consequence of which was the issuance of the
questioned Order granting the petition.
4.   Hence, this petition.
ISSUE/s:
8.   WoN the designation of the irrevocable beneficiaries could be changed or
amended without the consent of all the irrevocable beneficiaries – No, this
was expressly prohibited by the Insurance Act, which was the law
applicable at that time.
9.   WoN the irrevocable beneficiaries herein, who are all minors (NOTE: wife,
who was also a beneficiary, predeceased Dimayuga), could validly give
consent to the change or amendment in the designation of the irrevocable
beneficiaries – No, because being minors, this would not be an effective
ratification.
RULING: Order of the lower court was nullified and set aside.
RATIO:
First Issue
1.   Needless to say, the applicable law in the instant case is the Insurance Act,
otherwise known as Act No. 2427 as amended, the policy having been
procured in 1968.
a.   Under the said law, the beneficiary designated in a life insurance
contract cannot be changed without the consent of the
beneficiary because he has a vested interest in the policy.
2.   In this regard, it is worth noting that the Beneficiary Designation
Indorsement in the policy which forms part of Insurance Policy in the name
of Rodolfo Dimayuga states that the designation of the beneficiaries is
irrevocable, to wit:
a.   It is hereby understood and agreed that, notwithstanding the
provisions of this policy to the contrary, inasmuch as the
designation of the primary/contingent beneficiary/beneficiaries
in this Policy has been made without reserving the right to
change said beneficiary/ beneficiaries, such designation may not
be surrendered to the Company, released or assigned; and no right
or privilege under the Policy may be exercised, or agreement
made with the Company to any change in or amendment to the
Policy, without the consent of the said
beneficiary/beneficiaries.
3.   Be it noted that the foregoing is a fact which the private respondent did not
bother to disprove.
4.   Inevitably therefore, based on the aforequoted provision of the contract,
it is only with the consent of all the beneficiaries that any change or
amendment in the policy concerning the irrevocable beneficiaries may
be legally and validly effected. Both the law and the policy do NOT
provide for any other exception, thus, abrogating the contention of the
Dimayuga that said designation can be amended if the Court finds a
just, reasonable ground to do so.
Second Issue 10.   Finally, the fact that the contract of insurance does not contain a
5.   Similarly, the alleged acquiescence of the six (6) children beneficiaries of contingency when the change in the designation of beneficiaries could
the policy (the beneficiary-wife predeceased the insured) CANNOT be be validly effected means that it was never within the contemplation of
considered an effective ratification to the change of the beneficiaries the parties.
from irrevocable to revocable. a.   The lower court, in gratuitously providing for such contingency,
6.   Indubitable is the fact that all the six (6) children named as beneficiaries made a new contract for them, a proceeding which the Supreme
were minors at the time, for which reason, they could NOT validly give Court cannot tolerate.
their consent. Neither could they act through their father insured since b.   Ergo, the Supreme Court cannot help but conclude that the lower
their interests are quite divergent from one another. In point is an court acted in excess of its authority when it issued the Order dated
excerpt from the Notes and Cases on Insurance Law by Campos and March 19, 1980 amending the designation of the beneficiaries from
Campos, 1960, reading- "irrevocable" to "revocable" over the disapprobation of the
a.   The insured ... can do nothing to divest the beneficiary of his rights petitioner insurance company.
without the latter’s consent. He cannot assign his policy, nor even
take its cash surrender value without the consent of the beneficiary.
 
Neither can the insured's creditors seize the policy or any right
thereunder. The insured may not even add another beneficiary
because by doing so, he diminishes the amount which the
beneficiary may recover and this he cannot do without the
beneficiary's consent.
7.   Therefore, the parent-insured cannot exercise rights and/or privileges
pertaining to the insurance contract, for otherwise, the vested rights of
the irrevocable beneficiaries would be rendered inconsequential.
8.   Of equal importance is the well-settled rule that the contract between the
parties is the law binding on both of them and for so many times, this court
has consistently issued pronouncements upholding the validity and
effectivity of contracts.
a.   Where there is nothing in the contract which is contrary to law,
good morals, good customs, public policy or public order the
validity of the contract must be sustained.
b.   Likewise, contracts which are the private laws of the contracting
parties should be fulfilled according to the literal sense of their
stipulations, if their terms are clear and leave no room for doubt as
to the intention of the contracting parties, for contracts are
obligatory, no matter in what form they may be, whenever the
essential requisites for their validity are present.
9.   In the recent case of Francisco Herrera vs. Petrophil Corporation, 146
SCRA 385, this Court ruled that: ... it is settled that the parties may
establish such stipulations, clauses, terms, and conditions as they may want
to include; and as long as such agreements are not contrary to law, good
morals, good customs, public policy or public order, they shall have the
force of law between them.
a.   Undeniably, the contract in the case at bar, contains the
indispensable elements for its validity and does not in any way
violate the law, morals, customs, orders, etc. leaving no reason for
the Court to deny sanction thereto.
 004 HEIRS OF LORETO MARAMAG v. MARAMAG (Arcenas)
June 5, 2009| Nachura, C. J. | Designation of beneficiary
PETITIONERS: Heirs Of Loreto C. Maramag, Represented By Surviving Spouse
Vicenta Pangilinan Maramag
RESPONDENTS: Eva Verna De Guzman Maramag, Odessa De Guzman Maramag,
Karl Brian De Guzman Maramag, Trisha Angelie Maramag, The Insular Life
Assurance Company, Ltd., And Great Pacific Life Assurance Corporation
SUMMARY: Petitioners in this case are the legitimate heirs of Loreto, represented
by the legitimate wife, Vienta. They were not named as beneficiaries in the insurance
policies issued by Insular and Grepalife, instead, Loreto designated his concubine,
Eva, and their illegitimate children as his beneficiaries under policies with Insular
Life and Grepalife. Vicenta et al are seeking the revocation and reduction of
insurance proceeds in their favor. The basis of the claim is that Eva, being a
concubine of Loreto and a suspect in Loreto’s murder, is disqualified from being
designated as beneficiary of the insurance policies, and that Eva’s children with
Loreto, being illegitimate children, are entitled to a lesser share of the proceeds of
the policies. They also argued that pursuant to Section 12 of the Insurance Code,
Evas share in the proceeds should be forfeited in their favor, the former having
brought about the death of Loreto. Thus, they prayed that the share of Eva and
portions of the shares of Loretos illegitimate children should be awarded to them,
being the legitimate heirs of Loreto entitled to their respective legitimes. RTC
initially ruled that the claim be dismissed against the heirs and sustained the action
against Eva, Insular and Grepalife. However, reversed itself by granting the motion
for reconsideration of the same parties. On appeal, the same was denied for lack of
jurisdiction and was filed beyond reglementary period. Hence, this petition. The
issue is whether or not the legitimate children can claim Eva’s share since she was
disqualified as beneficiary under the insurance policy of the deceased, and that the
same should not have been distributed among the illegitimate children. SC held that
they cannot since the legitimate children are third parties to the insurance contracts,
and not entitled to the proceeds despite disqualification of Eva as beneficiary
because the designation of the illegitimate children as beneficiaries remained valid.
Also, Eva’s share whether forfeited by the court in view of the prohibition on
donations under Article 739 of the Civil Code or by the insurers themselves for
reasons based on the insurance contracts, must be awarded to the said illegitimate
children, the designated beneficiaries, to the exclusion of the legitimate children.
DOCTRINE: 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. 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.
FACTS:
1.   Vicenta Maramag (legal wife), representing the heirs of Loreto, filed a case
against Eva Maramag et al (kabit and anak ng kabit) with the RTC for
revocation and/or reduction of insurance proceeds for being void and/or
inofficious, with prayer for a temporary restraining order (TRO) and a writ
of preliminary injunction, alleging that
a.   Heirs were the legitimate wife and children of Loreto Maramag,
while Eva Maramag et al were Loretos illegitimate family;
b.   Eva de Guzman Maramag (Eva) was a concubine of Loreto and a
suspect in the killing of the latter, and thus disqualified to receive
any proceeds from his insurance policies from Insular Life
Assurance Company, Ltd. (Insular) and Great Pacific Life
Assurance Corporation (Grepalife);
c.   the illegitimate children of Loreto: Odessa, Karl Brian, and Trisha
Angelie were entitled only to one-half of the legitime of the
legitimate children, thus, the proceeds released to Odessa and those
to be released to Karl Brian and Trisha Angelie were inofficious
and should be reduced; and
d.   Heirs could not be deprived of their legitimes, which should be
satisfied first.
e.   That part of the insurance proceeds had already been released in
favor of Odessa, while the rest of the proceeds are to be released in
favor of Karl Brian and Trisha Angelie, both minors, upon the
appointment of their legal guardian.
f.   Prayer for the total amount of P320,000.00 as actual litigation
expenses and attorneys fees.
2.   INSULAR’S ANSWER: Insular admitted that Loreto misrepresented Eva
as his legitimate wife and Odessa, Karl Brian, and Trisha Angelie as his
legitimate children, and that they filed their claims for the insurance
proceeds of the insurance policies;
a.   that when it ascertained that Eva was not the legal wife of Loreto,
it disqualified her as a beneficiary and divided the proceeds among
illegitimate children, as the remaining designated beneficiaries;
and
b.   that it released Odessas share as she was of age, but withheld the
release of the shares of minors Karl Brian and Trisha Angelie
pending submission of letters of guardianship.
c.   Insular alleged that the complaint or petition failed to state a cause
of action: when it sought to declare as void the designation of Eva
as beneficiary, because Loreto already revoked Eva’s designation
as such in one policy and it disqualified her in another and when it
sought to declare as inofficious the shares of Odessa, Karl Brian,
and Trisha Angelie, considering that no settlement of Loretos
estate had been filed nor had the respective shares of the heirs been
determined.
 d.   Insular further claimed that it was bound to honor the insurance
policies designating the children of Loreto with Eva as
beneficiaries pursuant to Section 53 of the Insurance Code.
3.   GREPALIFE’s ANSWER: with compulsory counterclaim
a.   Grepalife alleged that Eva was not designated as an insurance
policy beneficiary;
b.   that the claims filed by Odessa, Karl Brian, and Trisha Angelie
were denied because Loreto was ineligible for insurance due to a
misrepresentation in his application form that he was born on
December 10, 1936 and, thus, not more than 65 years old when he
signed it in September 2001;
c.   that the case was premature, there being no claim filed by the
legitimate family of Loreto; and
d.   that the law on succession does not apply where the designation of
insurance beneficiaries is clear
4.   As the whereabouts of Eva et al were not known to Vicenta et al, summons
by publication was resorted to. Eva et al failed to answer, and declared in
default by the trial court.
5.   VICENTA ET AL’s comment: alleged that the issue raised by Insular and
Grepalife was purely legal whether the complaint itself was proper or not
and that the designation of a beneficiary is an act of liberality or a donation
and, therefore, subject to the provisions of Articles 752 and 772 of the Civil
Code.
6.   REPLY: Both insurance companies countered that the insurance proceeds
belong exclusively to the designated beneficiaries in the policies, not to the
estate or to the heirs of the insured.
a.   Grepalife also reiterated that it had disqualified Eva as a
beneficiary when it ascertained that Loreto was legally married to
Vicenta Pangilinan Maramag.
7.   RTC RULING: dismissed the complaint illegitimate children for the
reduction and/or declaration of inofficiousness of donation as primary
beneficiary in the insurances of the late Loreto C. Maramag, but it proceeds
against Eva, Insular and Grepalife.
a.   Can proceed against eva because she is the concubine of the
deceased: any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a life
insurance policy of the person who cannot make any donation to
him, according to said article (Art. 2012, Civil Code). If a
concubine is made the beneficiary, it is believed that the insurance
contract will still remain valid, but the indemnity must go to the
legal heirs and not to the concubine, for evidently, what is
prohibited under Art. 2012 is the naming of the improper
beneficiary
b.   Since designation to Eva is void, the insurance indemnity paid to
her must go to the legal heirs
8.   MR GRANTED: dismissed prosecution order against eva, insular and
grepalife.
a.   RTC ruled it is only in cases where there are no beneficiaries
designated, or when the only designated beneficiary is disqualified,
that the proceeds should be paid to the estate of the insured.
b.   As to the claim that the proceeds to be paid to Loreto’s illegitimate
children should be reduced based on the rules on legitime, the trial
court held that the distribution of the insurance proceeds is
governed primarily by the Insurance Code, and the provisions of
the Civil Code are irrelevant and inapplicable.
c.   Grepalife policy: Eva was never designated as a beneficiary, but
only the illegitimate children; thus, it upheld the dismissal of the
case as to them, matter of Loretos misrepresentation was premature
9.   CA RULING: dismissed Vicenta’s appeal for lack of jurisdiction, holding
that the decision of the trial court dismissing the complaint for failure to
state a cause of action involved a pure question of law, and that the appeal
was filed beyond the reglementary period. Hence, this petition
ISSUE/s:
1.   W/N the legitimate children can claim Eva’s share since she was
disqualified as beneficiary under the insurance policy of the deceased, and
that the same should not have been distributed among the illegitimate
children – NO, legitimate children are third parties to the insurance
contracts, and not entitled to the proceeds despite disqualification of Eva as
beneficiary because the designation of the illegitimate children as
beneficiaries remained valid. Also, Eva’s share whether forfeited by the
court in view of the prohibition on donations under Article 739 of the Civil
Code or by the insurers themselves for reasons based on the insurance
contracts, must be awarded to the said illegitimate children, the designated
beneficiaries, to the exclusion of the legitimate children.
RULING: WHEREFORE, the petition is DENIED for lack of merit. Costs against
petitioners.
RATIO:
1.   In this case, it is clear from the petition filed before the trial court that,
although Vicenta et al are the legitimate heirs of Loreto, they were not
named as beneficiaries in the insurance policies issued by Insular and
Grepalife.
a.   The basis of the claim is that Eva, being a concubine of Loreto and
a suspect in his murder, is disqualified from being designated as
beneficiary of the insurance policies, and that Evas children with
Loreto, being illegitimate children, are entitled to a lesser share of
the proceeds of the policies.
b.   They also argued that pursuant to Section 12 of the Insurance
Code, Evas share in the proceeds should be forfeited in their favor,
the former having brought about the death of Loreto.
 c.   Thus, they prayed that the share of Eva and portions of the shares
of Loretos illegitimate children should be awarded to them, being
the legitimate heirs of Loreto entitled to their respective legitimes.
2.   It is evident from the face of the complaint that Vicente et al are not entitled
to a favorable judgment in light of Article 2011 of the Civil Code which
expressly provides that insurance contracts shall be governed by special
laws, i.e., the Insurance Code, specifically Section 53.13
a.   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.
b.   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.
3.   Vicenta et al are third parties to the insurance contracts with Insular
and Grepalife and, thus, are not entitled to the proceeds.
a.   Accordingly, Insular and Grepalife have no legal obligation to turn
over the insurance proceeds to Vicenta et al.
b.   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.
c.   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, whether forfeited by the court in
view of the prohibition on donations under Article 739 of the Civil
Code or by the insurers themselves for reasons based on the
insurance contracts, must be awarded to the said illegitimate
children, the designated beneficiaries, to the exclusion of Vicenta
et al.
d.   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.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13
 
SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in
whose name or for whose benefit it is made unless otherwise specified in the policy.

 
 Lampano v. Jose, et. al. (Lindon)
March 30, 1915 | Trent, J. | Insurable Interest
PETITIONER: Antonina Lampano
RESPONDENTS: Placida Jose
SUMMARY: Barretto built a house for Jose in Manila. Then, Jose sold the same
to Lampano for 6k. A few months later, house was gutted by fire. At that time,
Lampano still owed Jose 2k, evidenced by a promissory note, and Jose still owed
Barretto the cost of construction (2k as well). After the completion of the house
and before it was destroyed, Barretto took out an insurance policy in his name
with consent of Jose for 4k. Barretto was able to collect 3.6k after paying 300 as
premiums.
Lampano sued Jose and Barretto for the amount of the insurance collected. Jose
denied the transfer of the policy to Lampano since it was Barretto’s. Jose filed a
counterclaim against Lamoano for the balance of the purchase price. Trial court
ruled in favor of Jose against Barretto for the difference between insurance
proceeds and the amount yet due him. TC did not rule on Barretto v. Lampano
for lack of privity. Hence, review before SC as Barretto and Lampano appealed.
sum of P2,000, evidenced by a promissory note, and Placida A. Jose still
owed Mariano R. Barretto on the cost of the construction the sum of
P2,000.
5.   After the completion of the house and sometime before it was destroyed,
Mariano R. Barretto took out an insurance policy upon it in his own name,
with the consent of Placida A. Jose, for the sum of P4,000.
6.   After its destruction, he collected P3,600 from the insurance company,
having paid in premiums the sum of P301.50.
Arguments before the lower courts
Petitioner’s Side
7.   Antonina Lampano alleged in her complaint that there was a verbal
agreement between her and Placida A. Jose, at the time of the purchase and
sale of the house, to the effect that the latter14 agreed to deliver to her the
insurance policy on the building;
8.   She15 did not learn that the policy was in the name of Barretto16 until after
the fire; and the neither Placida A. Jose17 nor Mariano R. Barretto18 has any
right to the insurance or to the money received therefrom.
9.   She19 prayed for judgment against each20 of them for the sum of P3,600, the
amount of the insurance collected.

In the case at bar Barretto assumed the responsibility for the insurance. Respondents’ Side
The premiums, as we have indicated, were paid by him without any 10.   To this complaint the defendant, Placida A. Jose,21 answered, denying that
agreement or right to recoup the amount paid therefor should no loss result she agreed to transfer the policy of insurance to the plaintiff22 and alleging:
to the property. It would not, therefore, be in accordance with the law and his a.   that the insurance was taken out and paid for by Barretto before the
contractual obligations to compel him to account for the insurance money, or any sale of the house to the plaintiff;
par thereof, to Antonina Lampano, who assumed no risk whatever. b.   that Barretto did this because he had constructed the house and she
was owing him therefor; and
DOCTRINE: Where different persons have different interests in the same c.   that the insurance was entirely for the personal account and in the
property, the insurance taken by one in his own right and in his own interest does exclusive interest of Barretto.
not in any way insure to the benefit of another. This is the general rule prevailing 23
in the United States and we find nothing different in this jurisdiction. 11.   In her cross-complaint she asked for judgment against Antonina

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
14
N.B. The alleged oral transfer of the policy was not proven in the court below.
 PLACIDA
 A
 JOSE
 
15

 ANTONINA
 LAMPANO
 

  16

 THE
 CO-­‐DEFENDANT
 WHO
 CONSTRUCTED
 THE
 HOUSE
 
FACTS: 17

 THE
 DEFENDANT
 WHOM
 BARRETTO
 BUILT
 THE
 HOUSE
 FOR
 
1.   Mariano R. Barretto constructed a house for the other defendant, Placida 18
A. Jose on land described as No. 72, plot F. Estate of Nagtahan, district of
 THE
 CO-­‐DEFENDANT
 WHO
 CONSTRUCTED
 THE
 HOUSE
 
19
Sampaloc, city of Manila, for the agreed price of P6,000.
 PLACIDA
 A
 JOSE
 
20
2.   Subsequent thereto and on November 12, 1912, Placida A. Jose sold the
 PLACIDA
 A
 JOSE
 and
 MARIANO
 R.
 BARRETTO
 
house to the plaintiff, Antonina Lampano, for the sum of P6,000. 21

 THE
 PERSON
 WHOM
 THE
 HOUSE
 WAS
 CONSTRUCTED
 FOR
 
3.   On March 22, 1913, the house was destroyed by fire. 22

 ANTONINA
 LAMPANO
 
4.   At the time of the fire Antonina Lampano still owed Placida A. Jose the 23

 I
 think
 this
 should
 have
 been
 a
 counter-­‐claim
 
 Lampano for the sum of P2,000, the balance due on the purchase price.
Barretto answered, reciting the facts giving rise to his taking out the
insurance on the house and denying any obligation to Antonina Lampano in
connection therewith.
Judgment of the lower courts
12.   Judgment was entered against Barretto and in favor of Placida A. Jose for
the sum of P1,298.50, being the difference between the amount collected by
Barretto on the insurance and the amount yet due him for the construction
of the house, including the premiums paid.
13.   Judgment was also entered in favor of the defendant, Placida A. Jose,
against the plaintiff for the sum of P2,000, being the balance of the purchase
price of the house.
14.   The plaintiff was authorized to offset this judgment against her for P2,000
by the P2,000 which the court declared had been paid the defendant, Placida
A. Jose, by Barretto out of the insurance money. A final judgment was
entered in favor of the plaintiff against the defendant, Placida A. Jose, for
the sum of P1,298.50, being the amount of the judgment against Barretto.
15.   Barretto appealed the judgment in the CROSS-CLAIM.
16.   No judgment was rendered in favor of the Antonina Lampano since they
have no juridical tie. Antonina Lampano appealed as well.
ISSUE/s:
1.   Has Antonina Lampano any right to recover from Barretto any portion of
the insurance money? (This was the wording in the case) – No. Barretto
alone assumed the responsibility for the insurance.
RULING: For the foregoing reasons the judgment appealed from, in so far as it
affects the appellant, is reversed and he is absolved. Without costs. So ordered.
RATIO:
Complications
1.   The plaintiff does not contend that Barretto participated in this sale, or even
had any knowledge of it, until sometime after it was consummated. Placida
A. Jose denies that she agreed to transfer the policy to the plaintiff, and the
deed of purchase and sale makes no mention of such an agreement. The
policy is not mentioned in this document, although it was agreed that the
vendor would transfer to the vendee all of the former's right, title, and
interest in the leasehold to the land upon which the house was built. It
would seem that if the vendor agreed to transfer the policy, this agreement
would have been inserted in the document of purchase and sale, the same as
that with reference to the lease. The trial court did not find that such an
agreement existed and we think the plaintiff has failed to establish this
verbal agreement.
Ruling Proper
2.   If Barretto had an insurable interest in the house, he could insure this
interest for his sole protection. The policy was in the name of Barretto
alone. It was, therefore, a personal contract between him and the
company and not a contract which ran with the property. According to
this personal contract the insurance policy was payable to the insured
without regard to the nature and extent of his interest in the property,
provided that he had, as we have said, an insurable interest at the time of the
making of the contract, and also at the time of the fire. Where different
persons have different interests in the same property, the insurance
taken by one in his own right and in his own interest does not in any
way insure to the benefit of another. This is the general rule prevailing
in the United States and we find nothing different in this jurisdiction.
3.   In the case of Shadgett vs. Phillips and Crew Co., reported in 56 L. R. A.,
461, Mrs. Shagett received a piano as a gift from her husband and insured it.
She knew that it was the obligation of her husband to insure he piano for the
benefit of the vendor. The court held, however, that the vendor (mortgagee)
was not entitled to the proceeds of the insurance as "there was no
undertaking on the part of Mrs. Shadgett to either insure for complainant's
benefit, or to assume her husband's obligation to so insure, and mere
knowledge of that obligation did not impose it upon her."
a.   The contract of insurance was wholly between the defendant and
the insurance company, and was personal, in the sense that the
money agreed to be paid in case of loss was not to stand in the
place of the piano itself, but was a mere indemnity against the loss
of defendant's interest therein. If her interest was small, on account
of incumbrances existing in favor of the complainant, that fact was
for the consideration only of the insurer and defendant, for
complaint has no concern with the adjustment of the loss between
them. We know of no principle, either of law or equity, which
would bind defendant to carry out her donor's contract to insure, in
the absence of any agreement on her part to do so, even though the
property in her hands was subject to complainant's rights therein as
a conditional vendor.
b.   A contract of insurance made for the insurer's (insured) indemnity
only, as where there is no agreement, express or implied, that it
shall be for the benefit of a third person, does not attach to or run
with the title to the insured property on a transfer thereof personal
as between the insurer and the insured. In such case strangers to
the contract cannot require in their own right any interest in the
insurance money, except through an assignment or some contract
with which they are connected.
4.   In Vandergraf vs. Medlock (3 Porter, 389; 29 Am. Dec., 256), it was held
that the mortgage is not entitled to the proceeds of an insurance policy
procured by the mortgages, there being no agreement that such insurance
should be effected by the latter for the benefit of the former. The court says:
"It is well settled that a policy of insurance is a distinct independent contract
 between the insured and insurers, and third person have no right either in a
court of equity, or in a court of law, to the proceeds of it, unless there be
some contract or trust, expressed or implied, between the insured and third
persons."
5.   In Burlingane vs. Goodspeed (10 L. R. A., 495), the court says that where a
mortgage at his own expense and without any agreement or understanding
with he mortgagor obtains insurance upon his interest as a mortgage and
collects the money from the insurer after a loss, he is not bound to account
for it to the mortgagor.
6.   In the case at bar Barretto assumed the responsibility for the
insurance. The premiums, as we have indicated, were paid by him
without any agreement or right to recoup the amount paid therefor
should no loss result to the property. It would not, therefore, be in
accordance with t he law and his contractual obligations to compel him to
account for the insurance money, or any par thereof, to Antonina Lampano,
who assumed no risk whatever.
7.   That Barretto had an insurable interest in the house, we think there can be
no question. He construed the building, furnishing all the materials and
supplies, and insured it after it had been completed

 
 006 TAI TONG CHUACHE & CO. v. INSURANCE COMMISSION Building 50,000 24,918.79
(BALISONG) SSS Building 25,000 5,938.50
29 Feb. 1988 | Gancayco, J. | Insurable Interest; Fire Insurance Accredited
Traveller’s Contents 70,000 16,628.00
PETITIONER: Tai Tong Chuache & Co. Building 30,000 14,467.31
RESPONDENTS: Insurance Commission and Traveller’s Multi-Indemnity Zenith, Phil. British, and SSS paid the whole or a portion of the claim. However,
Corporation Traveller’s disclaimed liability, prompting Palomo to claim from the other insurers
Traveller’s share based on the adjusted computation:
SUMMARY: Tai Tong loaned P100,000 to Palomo. The loan was secured by a
mortgage over a land and a building owned by Palomo. The building and its contents COMPANY RISK INSURES PAYS
were insured by Palomo with SSS, Zenith, and Phil. British. Tai Tong insured its Zenith Building P50,000 17,610.93
interest over the building and its contents with Traveller’s through Arsenio Chua. Phil. British Household 70,000 24,655.31
The building was gutted by fire. Claims were made by Palomo. Traveller’s refused to Building 50,000 39,186.10
pay on the ground that Palomo was not the beneficiary of the Policy, but Arsenio SSS Building 25,000 8,805.47
Chua. It also denied Tai Tong’s claim, saying that the loan and mortgage was Accredited
between Palomo and Chua. The issue is whether Tai tong has an insurable interest
over the building and the contents thereof. The Court held in the affirmative.
Arsenio, in contracting with the parties here, was acting as an agent of Tai Tong,
4.   The Zenith and Phil. British denied the claim on the ground that the claim
being its managing partner. Further, Palomo admitted that the mortgage remained
effective at the time of the fire as she has yet to pay Tai Tong. The Insurance had already been waived, extinguished, or paid. SSS paid the balance in
Commission was reversed. full.

DOCTRINE: The mortgagee has insurable interest over the subject of the mortgage 5.   Traveller’s reason for non-payment was that the Fire Insurance Policy over
is it can be shown that the loan secured by the same has not yet been paid at the time the building and the furniture inside was taken by Arsenio Chua as
the risk happened. mortgage creditor, and that it was Arsenio Chua who paid the premiums,
and that Palomo endorsed the Policy to Chua to protect the latter’s interest
FACTS: therein. Tai Tong filed a complaint in intervention, but was opposed by
1.   Palomo acquired a parcel of land and a building under an assumption of Traveller’s arguing that Tai Tong did not have insurable interest as it is not
mortgage arrangement. The building was insured with S.S.S. Accredited a party to the contract, the real party being Arsenio Chua.
Group of Insurers for P25,000.00.
6.   The Insurance Commission ruled in favor of Traveller’s. It held that Palomo
2.   Palomo obtained a P100,000-loan from Tai Tong Chuache, Inc. (Tai Tong), had no interest on the proceeds of the policy because it was taken out by the
secured by a mortgage over the land and the building. Aresenio Chua, in mortgagee. It also denied Tai Tong’s intervention on the strength of a
representation of Tai Tong, insured the partnership’s interest with certification from the CFI of Davao that a case between Arsenio Chua and
Traveller’s Multi-Indemnity Corporation for P100,000. Palomo secured a Palomo is pending before said court, which case, the Commission surmised,
Fire Insurance Policy over the building for P50,000 with Zenith was grounded on the mortgage contract between Arsenio Chua and Palomo,
Corporation, and for P50,000 (building) and P70,000 (contents) with NOT Tai Tong and Palomo, hence Tai Tong cannot claim under the policy
Philippine British Assurance Corporation. The building was razed by fire. as it had no insurable interest on the building, its contents, and the land over
which it stands.
3.   Palomo filed claims based on the following:
ISSUE/s:
COMPANY RISK INSURES PAYS
1.   Whether Tai Tong had insurable interest on the building and its contents.
Zenith Building P50,000 11,877.14
YES — The fact that Palomo admitted that she was indebted to Tai Tong
Phil. British Household 70,000 16,628.00
should have settled the matter. Further to this, Arsenio Chua is the
 managing partner of Tai Tong, and was acting in representation of the
partnership in the above actions.

RULING: IN VIEW OF THE FOREGOING, the decision appealed from is hereby

SET ASIDE and ANOTHER judgment is rendered ordering private respondent
Travellers Multi-Indemnity Corporation to pay petitioner the face value of Insurance
Policy No. 599-DV in the amount of P100,000.00. Costs against said private
respondent.

RATIO:
1.   Traveller’s did not assail the validity of the insurance policy taken out by
petitioner over the mortgaged property. Neither did it deny that the said
property was totally razed by fire within the period covered by the
insurance.

2.   The record of the case shows that Tai Tong, to support its claim for the
insurance proceeds, offered as evidence the contract of mortgage which has
not been cancelled nor released. It has been held in a long line of cases that
when the creditor is in possession of the document of credit, he need not
prove non-payment for it is presumed.

3.   Tai Tong being a partnership may sue and be sued in its name or by its duly
authorized representative. The fact that Arsenio Lopez Chua is the
representative of Tai Tong is not questioned. Tai Tong’s declaration that
Arsenio Lopez Chua acts as the managing partner of the partnership was
corroborated by Traveller’s.

 
 007 SPOUSES CHA v. CA (Buenaventura) FACTS:
August 18, 1997 | Padilla, J. | Lack of insurable interest
1.   Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a
lease contract with private respondent CKS Development Corporation
PETITIONER: Spouses Nilo and Stella Cha, and United Insurance Co., Inc
(hereinafter CKS), as lessor, on 5 October 1988.
RESPONDENTS: CA and CKS Development Corporation
2.   One of the stipulations of the one (1) year lease contract states:
SUMMARY:
a.   18. x x x. The LESSEE shall not insure against fire the chattels,
Spouses Nilo Cha and Stella Uy-Cha and CKS Development Corporation
merchandise, textiles, goods and effects placed at any stall or store
entered a 1 year lease contract with a stipulation not to insure against fire the
or space in the leased premises without first obtaining the written
chattels, merchandise, textiles, goods and effects placed at any stall or store or
consent and approval of the LESSOR. If the LESSEE obtain(s) the
space in the leased premises without first obtaining the written consent and
insurance thereof without the consent of the LESSOR then the
approval of the lessor. But it insured against loss by fire their merchandise
policy is deemed assigned and transferred to the LESSOR for its
inside the leased premises for P500,000 with the United Insurance Co., Inc.
own benefit; x x x
without the written consent of CKS
3.   Notwithstanding the above stipulation in the lease contract, the Cha spouses
On the day the lease contract was to expire, fire broke out inside the leased
insured against loss by fire their merchandise inside the leased premises for
premises and CKS learning that the spouses procured an insurance wrote to
Five Hundred Thousand (P500,000.00) with the United Insurance Co., Inc.
United to have the proceeds be paid directly to them. But United refused so CKS
(hereinafter United) without the written consent of private respondents
filed against Spouses Cha and United.
CKS.
RTC: United to pay CKS the amount of P335,063.11 and Spouses Cha to
4.   On the day that the lease contract was to expire, fire broke out inside the
pay P50,000 as exemplary damages, P20,000 as attorney’s fees and costs of suit
leased premises.
CA: deleted exemplary damages and attorney’s fees
5.   When CKS learned of the insurance earlier procured by the Cha spouses
The issue is whether or not the paragraph 18 of the lease contract entered
without its consent, it wrote the insurer (United) a demand letter asking that
into between CKS and the Cha spouses is valid insofar as it provides that any
the proceeds of the insurance contract (between the Cha spouses and
fire insurance policy obtained by the lessee Cha spouses over their merchandise
United) be paid directly to CKS, based on its lease contract with Cha
inside the leased premises is deemed assigned or transferred to the lessor CKS.
spouses.
SC held that NO, the provision is void, as against public policy. CKS has
6.   United refused to pay CKS. Hence, the latter filed a complaint against the
no insurable interest over the merchandise.
Cha spouses and United.
A non-life insurance policy such as the fire insurance policy taken by
7.   RTC Manila, rendered a decision* ordering therein defendant United to pay
petitioner-spouses over their merchandise is primarily a contract of
CKS the amount of P335,063.11 and defendant Cha spouses to
indemnity. Insurable interest in the property insured must exist at the time the
pay P50,000.00 as exemplary damages, P20,000.00 as attorney’s fees and
insurance takes effect and at the time the loss occurs.
costs of suit.
The automatic assignment of the policy to CKS under the provision of the
8.   CA rendered a decision affirming the trial court decision, deleting however
lease contract previously quoted is void for being contrary to law and/or public
the awards for exemplary damages and attorneys fees. A motion for
policy. The proceeds of the fire insurance policy thus rightfully belong to the
reconsideration by United was denied on 29 March 1996.
spouses.
ISSUE:
DOCTRINE:
1.   Whether or not the paragraph 18 of the lease contract entered into between
The basis of such requirement of insurable interest in property insured is based
CKS and the Cha spouses is valid insofar as it provides that any fire
on sound public policy: to prevent a person from taking out an insurance policy
insurance policy obtained by the lessee Cha spouses over their merchandise
on property upon which he has no insurable interest and collecting the proceeds
inside the leased premises is deemed assigned or transferred to the lessor
of said policy in case of loss of the property.
CKS – NO, the provision is void, as against public policy. CKS has no
insurable interest over the merchandise.

RULING: WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV

No. 39328 is SET ASIDE and a new decision is hereby entered, awarding the
proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha. SO merchandise, without the consent of CKS, is a separate and distinct issue
ORDERED. which we do not resolve in this case.

RATIO:

 
1.   It is, of course, basic in the law on contracts that the stipulations contained
in a contract cannot be contrary to law, morals, good customs, public order
or public policy.
2.   Sec. 18 of the Insurance Code provides:
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.
3.   A non-life insurance policy such as the fire insurance policy taken by
petitioner-spouses over their merchandise is primarily a contract of
indemnity. Insurable interest in the property insured must exist at the time
the insurance takes effect and at the time the loss occurs. The basis of such
requirement of insurable interest in property insured is based on sound
public policy: to prevent a person from taking out an insurance policy
on property upon which he has no insurable interest and collecting the
proceeds of said policy in case of loss of the property.
4.   In such a case, the contract of insurance is a mere wager which is void
under Section 25 of the Insurance Code, which provides:
SECTION 25. Every stipulation in a policy of Insurance for the
payment of loss, whether the person insured has or has not any interest
in the property insured, or that the policy shall be received as proof of
such interest, and every policy executed by way of gaming or
wagering, is void.
5.   In the present case, it cannot be denied that CKS has no insurable interest in
the goods and merchandise inside the leased premises under the provisions
of Section 17 of the Insurance Code which provide.
Section 17. The measure of an insurable interest in property is the
extent to which the insured might be damnified by loss of injury
thereof."
6.   Therefore, respondent CKS cannot, under the Insurance Code a special law
be validly a beneficiary of the fire insurance policy taken by the petitioner-
spouses over their merchandise. This insurable interest over said
merchandise remains with the insured, the Cha spouses. The automatic
assignment of the policy to CKS under the provision of the lease
contract previously quoted is void for being contrary to law and/or
public policy. The proceeds of the fire insurance policy thus rightfully
belong to the spouses. The insurer (United) cannot be compelled to pay the
proceeds of the fire insurance policy to a person (CKS) who has no
insurable interest in the property insured.
7.   The liability of the Cha spouses to CKS for violating their lease contract in
that Cha spouses obtained a fire insurance policy over their own
 008 DELSAN TRANSPORT LINES, INC. v. CA (CABUSORA) 61.   Caltex Philippines (Caltex) entered into a contract of affreightment with
November 15, 2001 | De Leon, Jr., J. | Measure of Indemnity the petitioner Delsan Transport Lines, Inc. (common carrier), for a one
year where Delsan would transport Caltex’s industrial fuel oil from the
PETITIONER: Delsan Transport Lines, Inc. Batangas-Bataan Refinery to different parts of the country.
RESPONDENTS: The Hon. Court Of Appeals and American Home Assurance 62.   Under the contract, Delsan took on board its vessel (MT Maysun)
Corporation 2,277.314 kiloliters of said oil to be transported to Caltex Oil Terminal in
Zamboanga City. Said shipment was insured with private respondent
SUMMARY: Caltex and Delsan entered into a contract of affreightment where American Home Assurance Corporation (AHAC).
Delsan would transport industrial fuel oil from the Batangas-Bataan Refinery to 63.   (14 Aug 1986) MT Maysun set sail to Zamboanga City.
Caltex Oil Terminal in Zamboanga City. Said shipment was insured by Caltex with 64.   (16 Aug 1986) MT Maysun sank near Panay Gulf and Cuyo East Pass in
AHAC. While in transit, Delsan’s ship (MT Maysun) sunk allegedly due to bad Visayas.
weather. AHAC paid Caltex for the lost shipment. When AHAC went after Delsan 65.   AHAC subsequently paid Caltex P5,096,635.57 (amount of insured cargo).
for reimbursement, the latter refused. Thus AHAC filed a complaint for complaint 66.   AHAC later demanded Delsan the same amount as an exercise of its right
for sum of money. The TC dismissed the case holding that Delsan was liable due to of subrogation under Art. 2207, New Civil Code.
force majeure. On appeal, the CA reversed the decision stating that there was no 67.   Delsan refused to pay, thus AHAC filed a complaint for collection of sum
force majeure. of money with the RTC, Makati.
The issues were (1) WON payment of AHAC to Caltex amounted to a and admission 68.   Trial Court: Dismissed the complaint reasoning that MT Maysun was
that MT Maysun was seaworthy and thus precluding any action AHAC may have seaworthy as determined by the Philippine Coast Guard per Survey
against Delsan (NO) and (2) WON the marine insurance policy in this case was Certificate Report No. M5-016-MH upon inspection during its annual
necessary (NO). dry-docking and that the incident was caused by unexpected inclement
Payment by AHAC to Caltex was only a waiver of AHAC’s right to enforce the weather condition or force majeure, thus exempting the common carrier
term of the implied warranty against Caltex under the marine insurance policy but (Delsan) from liability for the loss of its cargo.
does not mean admission of the vessel’s seaworthiness by AHAC as to foreclose 69.   CA: Reversed the TC Decision. CA gave credence to the weather report
recourse against Delsan for any liability under its contractual obligation as a issued by PAGASA which which showed that from 2-8 a.m. on 16 Aug
common carrier. The marine insurance policy is not necessary in this case and that 1986, the wind speed remained at 10-20 knots per hour while the waves
the subrogation receipt was already sufficient having showed both (1) relationship measured from 0.7-2 meters in height only in contrast to herein Delsan’s
of AHAC and Caltex, as insurer and assured, respectively and (2) amount paid to allegation that the waves were 20 ft. high.
settle the insurance claim. 70.   Delsan filed an MR which was however denied and hence this petition.
71.   Delsan invokes/alleges:
1.   Sec. 113, Insurance Code states that in every marine insurance upon a
DOCTRINE24: Payment by insurer to insured under a marine insurance policy ship or freight, or freightage, or upon any thing which is the subject of
means the waiver of the insurer’s right to enforce the term of the implied warranty marine insurance there is an implied warranty by the shipper that the
against the insured but does not mean waiver of the insurer’s right to subrogation. ship is seaworthy. Consequently, the insurer will not be liable to the
The presentation in evidence of the insurance policy is not indispensable before the assured for any loss under the policy in case the vessel would later on be
insurer may recover. The subrogation receipt, by itself, is sufficient to establish not found as not seaworthy at the inception of the insurance. The act of
only the relationship of the insurer and the insured, but also the amount paid to settle AHAC of paying Caltex the value of the lost cargo amounted to a tacit
the insurance. recognition that MT Maysun was seaworthy, otherwise, AHAC was not
legally liable to Caltex due to the latter’s breach of implied warranty under
the marine insurance policy that the vessel was seaworthy.
FACTS: 2.   CA erred in finding that MT Maysun was not seaworthy on the ground

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  that Francisco Berina, chief mate of the vessel, was not qualified. Under
24

 Contracts
 of
 marine
 insurance
 are
 contracts
 of
 indemnity
 which
 means
 its
 purpose
 is,
 in
 case
 of
 loss,
 to
  Sec. 116, Insurance Code, the implied warranty of seaworthiness of the
place
  the
  insured
  in
  the
  same
  situation
  in
  which
  he
  was
  before
  the
  loss
  subject
  to
  the
  terms
  and
  vessel, which AHAC admitted as having been fulfilled by its payment of
conditions
 of
 the
 policy.
 Amount
 of
 indemnity
 may
 be
 determined
 after
 the
 loss
 or
 is
 previously
 fixed
 in
  the insurance proceeds to Caltex of its lost cargo, extends to the vessel’s
the
  contract.
  The
  amount
  of
  insurance
  fixed
  in
  the
  policy
  of
  a
  marine
  insurance
  is
  not
  the
  exact
  measure
  complement. Despite Berina having merely a 2nd officer’s license, he was
of
 indemnity
 to
 which
 the
 insured
 is
 entitled,
 but
 the
 maximum
 indemnity
 which
 he
 might
 obtain.
 The
  qualified to act as the vessel’s chief officer under Chapter IV(403),
insured
 cannot
 recover
 in
 excess
 of
 his
 actual
 loss.
 (The
 case
 makes
 no
 mention
 of
 the
 topic
 this
 case
 was
  Category III(a)(3)(ii)(aa) of the Philippine Merchant Marine Rules and
assigned
  –
  Measure
  of
  Indemnity.
  This
  doctrine
  is
  from
  De
  Leon,
  and
  it’s
  the
  closest
  I
  can
  relate
  the
  case
  Regulations. In fact, all the crew and officers of MT Maysun were
to.
 Apologies.)
 
 exonerated in the administrative investigation conducted by the Board of company of the insurance claim. Consequently, the payment made by the
Marine Inquiry after the subject accident. AHAC (insurer) to Caltex (assured) operates as an equitable assignment to
3.   The doctrine in Home Insurance Corporation v. CA (i.e. failure of the the former of all the remedies which the latter may have against Delsan.
private respondent to present the insurance policy in evidence is allegedly 105.  From the nature of their business and for reasons of public policy, common
fatal to its claim inasmuch as there is no way to determine the rights of the
carriers are bound to observe extraordinary diligence in the vigilance over
parties thereto), should have been applied herein, since AHAC failed to
present the subject marine cargo insurance policy as evidence. the goods and for the safety of passengers transported by them, according to
all the circumstances of each case.
ISSUE/s: 1.   GR: In the event of loss, destruction or deterioration of the insured
10.   WON the payment made by the AHAC to Caltex for the insured value of goods, common carriers shall be responsible.
the lost cargo amounted to an admission that the vessel was seaworthy, thus Exception: If the same is brought about, among others, by flood,
precluding any action for recovery against the petitioner. – NO. Payment by storm, earthquake, lightning or other natural disaster or calamity.
AHAC to Caltex was only a waiver of AHAC’s right to enforce the term 2.   GR: If the goods are lost, destroyed or deteriorated, common
of the implied warranty against Caltex under the marine insurance policy carriers are presumed to have been at fault or to have acted
but does not mean admission of the vessel’s seaworthiness by AHAC as negligently.
to foreclose recourse against Delsan for any liability under its contractual Exception: If the common carrier proves that they observed
obligation as a common carrier. extraordinary diligence.
11.   WON the non-presentation of the marine insurance policy bars the 106.  Jaime Jarabe, captain of MT Maysun, and Berina testified that at around
complaint for recovery of sum of money for lack of cause of action. – NO. 3:15 a.m. a squall ("unos") carrying strong winds with an approximate
In this case, said insurance policy is not necessary. The subrogation receipt velocity of 30 knots per hour and big waves averaging 18-20 ft. high caused
was already sufficient and it showed both (1) relationship of AHAC and the vessel to sink. However, this tale was effectively rebutted PAGASA’s
Caltex, as insurer and assured, respectively and (2) amount paid to settle weather report. (See Fact #9) Thus, Delsan’s defense of force majeure
the insurance claim. cannot be sustained. Also, said witnesses as employees of Delsan, cannot be
expected to testify against the latter. (See Fact #11.2) Exoneration of MT
RULING: WHEREFORE, the instant petition is DENIED. The Decision dated June Maysun’s officers and crew to liability is only with respect to administrative
17, 1996 of the Court of Appeals in CA-G.R. CV No. 39836 is AFFIRMED. Costs liabilities and does not operate to absolve Delsan’s civil liabilities arising
against the petitioner. SO ORDERED. from its negligence as a common carrier. (See Fact #11.2)
107.  Evidence certificates that MT Maysun was fit for voyage at the time of
RATIO: dry-docking and inspection by the Philippine Coast Guard, was also not
103.  (First Issue) The payment made by the AHAC for the insured value of the credited by the court to prove the vessel’s fitness for voyage at the time of
lost cargo operates as waiver of its (AHAC) right to enforce the term of the the commencement of the voyage. “Seaworthiness relates to a vessel's
implied warranty against Caltex under the marine insurance policy. actual condition. Neither the granting of classification or the issuance of
However, the same cannot be validly interpreted as an automatic certificates establishes seaworthiness.”
admission of the vessel's seaworthiness by the AHAC as to foreclose 108.  (Second Issue) The marine insurance policy is not necessary in this case.
recourse against the Delsan for any liability under its contractual obligation The subrogation receipt, by itself, is sufficient to establish (1) the
as a common carrier. Said payment grants AHAC subrogatory right to relationship of AHAC, as insurer, and Caltex, as the assured shipper of
exercise legal remedies available to Caltex against Delsan, the common the lost cargo and (2) the amount paid to settle the insurance claim. The
carrier by virtue of Art. 2207, Civil Code25. right of subrogation accrues simply upon payment by the insurance
104.  The right of subrogation has its roots in equity. It is not dependent upon, company of the insu rance claim.
nor does it grow out of, any privity of contract or upon written 109.  The presentation of the insurance policy was necessary in the case of Home
assignment of claim. It accrues simply upon payment by the insurance Insurance Corporation v. CA because the shipment therein passed through
several stages with different parties involved in each stage. In that case, in

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  the absence of proof of stipulations to the contrary, the hauler can be liable
25

  Art.
  2207.
  If
  the
  plaintiff's
  property
  has
  been
  insured,
  and
  he
  has
  received
  indemnity
  from
  the
  only for any damage that occurred from the time it received the cargo until
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
 
it finally delivered it to the consignee. It cannot be held responsible for the
person
 who
 has
 violated
 the
 contract.
 If
 the
 amount
 paid
 by
 the
 insurance
 company
 does
 not
 fully
 cover
  handling of the cargo before it actually received it. The insurance contract,
the
 injury
 or
 loss,
 the
 aggrieved
 party
 shall
 be
 entitled
 to
 recover
 the
 deficiency
 from
 the
 person
 causing
  which was not presented in evidence in that case would have indicated the
the
 loss
 or
 injury.
 
 scope of the insurer's liability, if any, since no evidence was adduced
indicating at what stage in the handling process the damage to the
cargo was sustained.
110.  In this case, there is no doubt that the cargo of oil belonging to Caltex was
lost while on board MT Maysun, which was owned by Delsan. Thus,
Delsan cannot deny its liability.

 
 009 GAISANO CAGAYAN, INC. v. INSURANCE COMPANY OF
NORTH AMERICA (Callueng)
June 8, 2006 | Austria-Martinez, J. | Measure of Indemnity
PETITIONER: Gaisano Cagayan, Inc.
RESPONDENTS: Insurance Company of North America
SUMMARY: IMC is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.)
Inc. LSPI is the local distributor of products bearing trademarks owned by Levi
Strauss & Co.. IMC and LSPI separately obtained from Insurance Company of
North America 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."
Gaisano Cagayan is a customer and dealer of the products of IMC and LSPI. The
Gaisano Superstore Complex in Cagayan de Oro City, owned by Gaisano, 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. Insurance Company filed a complaint for damages against Gaisano. It
alleges that IMC and LSPI filed with Insurance Company their claims under
their respective fire insurance policies with book debt endorsements; that there
are unpaid accounts of Gaisano with IMC for P2,119,205.00 while with LSPI
for P535,613.00; Insurance Company paid the claims of IMC and LSPI and, by
virtue thereof, , Insurance Company was subrogated to their rights against
Gaisano. Gaisano Cagayan 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. The RTC dismissed Insurance Company’s complaint. But, the
CA rendered its decision setting aside the decision of the RTC. ISSUE: WoN
Gaisano Cagayan is liable for the unpaid accounts. YES, because the insurance
in this case is not for loss of goods by fire but for Gaisano Cagayan's accounts
with IMC and LSPI that remained unpaid 45 days after the fire. Gaisano
Cagayan's argument that it is not liable because the fire is a fortuitous event
under Article 1174 of the Civil Code is misplaced. As held earlier, Gaisano
Cagayan bears the loss under Article 1504 (1) of the Civil Code. Moreover, it
must be stressed that the insurance in this case is not for loss of goods by fire but
for Gaisano Cagayan's accounts with IMC and LSPI that remained unpaid 45
days after the fire. Accordingly, Gaisano Cagayan's obligation is for the payment
of money. As correctly stated by the CA, where the obligation consists in the
payment of money, the failure of the debtor to make the payment even by reason
of a fortuitous event shall not relieve him of his liability. Thus, whether fire is a
fortuitous event or Gaisano Cagayan was negligent are matters immaterial to this
case. What is relevant here is whether it has been established that Gaisano
Cagayan has outstanding accounts with IMC and LSPI. With respect to IMC, the
Insurance Company has adequately established its claim. However, as to LSPI,
Insurance Company failed to present sufficient evidence to prove its cause of
action. Hence, the claim of subrogation to Gaisano Cagayan's case for recovery
of the amount of P535,613.00 for LSPI is fatal.
DOCTRINE: A vendor or seller retains an insurable interest in the property sold
so long as he has any interest therein, in other words, so long as he would suffer
by its destruction, as where he has a vendor's lien.
FACTS:
1.   Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue
Jeans. Levi Strauss (Phils.) Inc. LSPI is the local distributor of products
bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately
obtained from Insurance Company of North America (Insurance Company)
fire insurance policies with book debt endorsements.
2.   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."
3.   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."
4.   The policies also provide for the following conditions:
1.   Warranted that the Company shall not be liable for any unpaid account in respect of
the merchandise sold and delivered by the Insured which are outstanding at the date
of loss for a period in excess of six (6) months from the date of the covering invoice
or actual delivery of the merchandise whichever shall first occur.
2.   Warranted that the Insured shall submit to the Company within twelve (12) days
after the close of every calendar month all amount shown in their books of accounts
as unpaid and thus become receivable item from their customers and dealers.
5.   Gaisano Cagayan, Inc. (Gaisano Cagayan) 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 Gaisano, 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.
6.   On February 4, 1992, Insurance Company filed a complaint for damages
against Gaisano. It alleges that IMC and LSPI filed with , Insurance
Company their claims under their respective fire insurance policies with
book debt endorsements; that as of February 25, 1991, the unpaid accounts
of Gaisano 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 ,
Insurance Company paid the claims of IMC and LSPI and, by virtue
thereof, , Insurance Company was subrogated to their rights against
Gaisano; that , Insurance Company made several demands for payment
upon Gaisano but these went unheeded.
7.   In its Answer with Counter Claim, Gaisano Cagayan 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 , Insurance
Company 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.
8.   The parties failed to arrive at an amicable settlement.
9.   The RTC rendered its decision dismissing, Insurance Company’s
complaint. It held that the fire was purely accidental; that the cause of the
fire was not attributable to the negligence of the Gaisano Cagayan; that it
has not been established that Gaisano Cagayan is the debtor of IMC and
LSPI; that since the sales invoices state that "it is further agreed that merely
for purpose of securing the payment of purchase price, the above-described
merchandise remains the property of the vendor until the purchase price is
fully paid", IMC and LSPI retained ownership of the delivered goods and
must bear the loss.
10.   Dissatisfied, Gaisano Cagayan appealed to the CA. The CA rendered its
decision setting aside the decision of the RTC.
11.   The CA held that the sales invoices are proofs of sale, being detailed
statements of the nature, quantity and cost of the thing sold; that loss of the
goods in the fire must be borne by Gaisano Cagayan since
the proviso contained in the sales invoices is an exception under Article
1504 (1) of the Civil Code, to the general rule that if the thing is lost by a
fortuitous event, the risk is borne by the owner of the thing at the time the
loss under the principle of res perit domino; that Gaisano Cagayan's
obligation to IMC and LSPI is not the delivery of the lost goods but the
payment of its unpaid account and as such the obligation to pay is not
extinguished, even if the fire is considered a fortuitous event; that by
subrogation, the insurer has the right to go against Gaisano Cagayan; that,
being a fire insurance with book debt endorsements, what was insured was
the vendor's interest as a creditor.
12.   Gaisano Cagayan filed a motion for reconsideration but it was denied by the
CA.
ISSUE/s:
1.   WoN Gaisano Cagayan is liable for the unpaid accounts. YES, because the
insurance in this case is not for loss of goods by fire but for Gaisano
Cagayan's accounts with IMC and LSPI that remained unpaid 45 days
after the fire.
RULING: WHEREFORE, the petition is partly GRANTED. The assailed Decision
dated October 11, 2000 and Resolution dated April 11, 2001 of the Court of Appeals
in CA-G.R. CV No. 61848 are AFFIRMED with the MODIFICATION that the
order to pay the amount of P535,613.00 to Insurance Company is DELETED for
lack of factual basis.
RATIO:
1.   Gaisano Cagayan contends that the insurance in the present case cannot be
deemed to be over credit since an insurance "on credit" belies not only the
nature of fire insurance but the express terms of the policies; that it was not
credit that was insured since Insurance Company paid on the occasion of
the loss of the insured goods to fire and not because of the non-payment by
Gaisano Cagayan of any obligation; that, even if the insurance is deemed as
one over credit, there was no loss as the accounts were not yet due since no
prior demands were made by IMC and LSPI against Gaisano Cagayan for
payment of the debt and such demands came from Insurance Company only
after it had already paid IMC and LSPI under the fire insurance policies.
2.   Gaisano Cagayan avers that despite delivery of the goods, Gaisano
Cagayan-buyer IMC and LSPI assumed the risk of loss when they secured
fire insurance policies over the goods.
3.   Gaisano Cagayan submits that there is no subrogation in favor of Insurance
Company as no valid insurance could be maintained thereon by IMC and
LSPI since all risk had transferred to Gaisano Cagayan upon delivery of the
goods; that Gaisano Cagayan was not privy to the insurance contract or the
payment between Insurance Company and its insured nor was its consent or
approval ever secured; that this lack of privity forecloses any real interest on
the part of Insurance Company in the obligation to pay, limiting its interest
to keeping the insured goods safe from fire.
4.   Insurance Company counters that while ownership over the ready- made
clothing materials was transferred upon delivery to Gaisano Cagayan, IMC
and LSPI have insurable interest over said goods as creditors who stand to
suffer direct pecuniary loss from its destruction by fire; that Gaisano
Cagayan is liable for loss of the ready-made clothing materials since it
failed to overcome the presumption of liability under Article 1265 of the
Civil Code; that the fire was caused through Gaisano Cagayan's negligence
in failing to provide stringent measures of caution, care and maintenance on
its property because electric wires do not usually short circuit unless there
are defects in their installation or when there is lack of proper maintenance
and supervision of the property; that Gaisano Cagayan is guilty of gross and
evident bad faith in refusing to pay Insurance Company's valid claim and
should be liable to Insurance Company for contracted lawyer's fees,
litigation expenses and cost of suit.
5.   At issue is the proper interpretation of the questioned insurance policy.
Gaisano Cagayan claims that the CA erred in construing a fire insurance
policy on book debts as one covering the unpaid accounts of IMC and LSPI
since such insurance applies to loss of the ready-made clothing materials
sold and delivered to Gaisano Cagayan.
6.   Indeed, when the terms of the agreement are clear and explicit that they do
not justify an attempt to read into it any alleged intention of the parties, the
terms are to be understood literally just as they appear on the face of the
contract. Thus, what were insured against were the accounts of IMC and
LSPI with Gaisano Cagayan which remained unpaid 45 days after the loss
through fire, and not the loss or destruction of the goods delivered.
7.   Gaisano Cagayan argues that IMC bears the risk of loss because it 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."
8.   The Court is not persuaded.
9.   The present case clearly falls under paragraph (1), Article 1504 of the Civil
Code:
(1)   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:
i.   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;
10.   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, Gaisano
Cagayan bears the risk of loss of the goods delivered.
11.   IMC and LSPI did not lose complete interest over the goods. They have an
insurable interest until full payment of the value of the delivered goods.
Unlike the civil law concept of res perit domino, where ownership is the
basis for consideration of who bears the risk of loss, in property insurance,
one's interest is not determined by concept of title, but whether insured has
substantial economic interest in the property.
12.   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.
13.   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.
14.   Gaisano Cagayan's argument that it is not liable because the fire is a
fortuitous event under Article 1174 of the Civil Code is misplaced. As held
earlier, Gaisano Cagayan bears the loss under Article 1504 (1) of the Civil
Code.
15.   Moreover, it must be stressed that the insurance in this case is not for loss of
goods by fire but for Gaisano Cagayan's accounts with IMC and LSPI that
remained unpaid 45 days after the fire. Accordingly, Gaisano Cagayan's
obligation is for the payment of money. As correctly stated by the CA,
where the obligation consists in the payment of money, the failure of the
debtor to make the payment even by reason of a fortuitous event shall not
relieve him of his liability. The rationale for this is that the rule that an
obligor should be held exempt from liability when the loss occurs thru a
fortuitous event only holds true when the obligation consists in the delivery
of a determinate thing and there is no stipulation holding him liable even in
case of fortuitous event. It does not apply when the obligation is pecuniary
in nature.
16.   Thus, whether fire is a fortuitous event or Gaisano Cagayan was negligent
are matters immaterial to this case. What is relevant here is whether it has
been established that Gaisano Cagayan has outstanding accounts with IMC
and LSPI.
17.   With respect to IMC, the Insurance Company has adequately established its
claim. Exhibits "C" to "C-22"show that Gaisano Cagayan has an
outstanding account with IMC in the amount of P2,119,205.00. Exhibit
"E"is the check voucher evidencing payment to IMC. Exhibit "F"is the
subrogation receipt executed by IMC in favor of Insurance Company upon
receipt of the insurance proceeds. All these documents have been properly
identified, presented and marked as exhibits in court. The subrogation
receipt, by itself, is sufficient to establish not only the relationship of
Insurance Company 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. Insurance
Company's action against Gaisano Cagayan is squarely sanctioned by
Article 2207 of the Civil Code which provides:
(1)   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.
18.   Gaisano Cagayan failed to refute Insurance Company's evidence.
19.   As to LSPI, Insurance Company failed to present sufficient evidence to
prove its cause of action. No evidentiary weight can be given to Exhibit "F
Levi Strauss", a letter dated April 23, 1991 from Gaisano Cagayan's
General Manager, Stephen S. Gaisano, Jr., since it is not an admission of
Gaisano Cagayan's unpaid account with LSPI. It only confirms the loss of
Levi's products in the amount of P535,613.00 in the fire that razed Gaisano
Cagayan's building on February 25, 1991.
20.   Moreover, there is no proof of full settlement of the insurance claim of
LSPI; no subrogation receipt was offered in evidence. Thus, there is no
evidence that Insurance Company has been subrogated to any right which
LSPI may have against Gaisano Cagayan. Failure to substantiate the claim
of subrogation is fatal to Gaisano Cagayan's case for recovery of the amount
of P535,613.00.
 010 GLARAGA V. SUN LIFE ASSURANCE (CANDELARIA)
December 14, 1926 | J. Johns | Premium Payment
PETITIONER: SUSANA GLARAGA
RESPONDENTS: SUN LIFE ASSURANCE COMPANY OF CANADA and O.O.
HANSON
SUMMARY: Sunlife executed a life insurance policy in favor of Juares. The terms
of the insurance policy provided specific powers and limitations which shall be
complied with in order to bind Sunlife (see FACTS, par. 6). Juares paid the first
premium, but defaulted in the second premium because Hanson, the insurance agent,
sent a letter informing Juares that Hanson will pay the second premium, subject to
reimbursement from Juares. However, no payment was made. When Juares died,
Glaraga, as the administratrix, made a demand for the proceeds of the policy. Sunlife
refused, alleging that the policy was no longer in effect because of the default in the
second premium. The trial court ruled in favor of Glaraga.
The issue is whether or not the policy was still in effect upon Glaraga’s demand.
The Supreme Court stated that the policy was no longer in effect, and ruled in favor
of Sunlife. The Court emphasized that when an insurance policy specifically defines
and limits the powers and duties of an agent, it shall bind the parties. Non-
compliance, as stated in this case, shall render the policy ineffective. When Hanson
sent the letter to Juares assuming the obligation to pay the premium was contrary to
the terms of the policy. Adding to the fact that no one paid the second premium, the
policy officially lapsed after the 30-day grace period. Hanson’s promise bound only
him and the insured party. Sunlife is absolved from liability, as agreed in the
contract, and Hanson will be held liable to Glaraga.
DOCTRINE: Where a life insurance company issued and delivered one of its
policies to the insured in and by which the powers of its pecial agents were limited
and defined, and the policy specified how and in what manner the premiums were to
be paid and to whom they were to paid, in the absence of allegation and proof of an
established custom or another rule of conduct ratified and approved by the company
the premiums on the policy must be paid at the time and in the way and manner
specified in the policy and be forfeited by its own terms.
FACTS:
72.   Sun Life Assurance (Sunlife), a domestic corporation, issued a life
insurance policy on the life of Juares by which it promised to pay Php 5K to
the legal representatives of the insured, upon the condition that the policy
was in legal force and effect at the time of death of the insured. Juares died.
73.   Glaraga, the insured, was appointed as the administratrix of his estate, and
she made a demand against Sunlife. Sunlife refused to pay, which led to
Glaraga filing for collection and damages.
74.   Glaraga alleges that defendant O.O. Hanson, the insurance agent (Hanson)
who insured Juares, was the same person who collected the first premiums.
75.   Juares, during his life, defaulted in paying his second premium, upon the
allegation that Hanson allegedly made written instructions not to send the
premium because Hanson would pay the premium, subject to Juares’
reimbursement.
76.   Sunlife alleges that the terms of the policy provided that the premiums
should be paid on the 1st of June and December of each year, or within a
grace period of not more than 30 days. However, Juares defaulted with the
second premium because no payment was made on the due date and
within the grace period. By reason of the default, the policy elapsed and
was of no legal force or effect at the time of death of Juares.
77.   * RELEVANT PROVISION: “No persons, except the President,
Managing-Director or Secretary has power to alter this contract, to extend
the time for paying a premium, to bind the Company by making any
promise or by receiving any representation or information not contained
in the application for this policy. No payment made to any person, except
in exchange for the Company’s official receipt, will be recognized by the
Company. This policy does not take effect until the first premium has been
actually paid, during the life and good health of the insured.”
78.   Sunlife alleges that Hanson was not authorized or empowered to modify the
terms of the policy, and that Hanson is not an official of Sunlife. Neither did
the company know that a promise was made by Hanson, and it never
received from him any payment for the second premium.
79.   The trial court ruled in favor of Glaraga. Hence, this appeal by Sunlife.
ISSUE/s:
1.   W/N the insurance policy was still in effect upon Glaraga’s demand – NO.
When an insurance policy specifically defines and limits the powers and
duties of an agent, it shall bind the parties. Non-compliance, as stated in
this case, shall render the policy ineffective. Under the relevant provisions
of the contract, payment made to any person, except in exchange for the
company’s official receipt would not be recognized by the company, and
that no person except those provided, had any power to alter the contract or
extend the time for the premium, or bind the company itself by making of
any promise.
RULING: The SC reversed the trial court’s decision, but affirmed against Hanson.
There was a written contract, in the form of the policy, duly signed and accepted by
both parties, which expressed the manner the premiums are to be paid, and the terms
which specifies and limits the powers and dutiesof the agent to the delivery of the
official receipt of the company upon the payment to him of the amount of the
premium. Without compliance with such terms, the subsequent acts after the
perfection of the contract will have no effect; and non-compliance with the grace
period, as expressly stated, extinguished the conract.
 method by which Hanston collects premiums which would be binding upon
RATIO: the company.
 
1.   It is conclusive that the second premium was never paid to Sunlife.
  10.   Failure to comply with the contract after the default, the insurance policy
2.   The written promise by Hanson stated that Hanson assumed payment of the was no longer binding and effective against the Sunlife. However, Hanson
second premium, subject to the reimbursement from Juares.
  is bound because he promised and agreed to premium. It is an established in
3.   On the other hand, the insurance policy, in writing and issued to Juares, the law on agency that when an agent acts beyond the authority given to
provided for 30 days grace period. If the insured party defaults and fails to him by the principal, it shall be binding on him as if he had entered into the
pay within the grace period, or if the balance due at the end of the term of contract by himself. Therefore, damage resulting to a third party, such as
the policy exceeds the coverage of the premium, then the policy shall lapse Glaraga, must be enforceable against him.
 
and become void.
 
 
4.   By its express terms, the non-payment of any premium when due or within
 
the 30-day grace period, ipso facto causes the policy to lapse, and relieves
 
 
the insurance company from all liability.
 
5.   Under the relevant provision (see FACTS, par. 6), a payment made to any
person, except in exchange for the company’s official receipt would not be
recognized by the company, and that no person except those provided, had
any power to alter the contract or extend the time for the premium, or bind
the company itself by making of any promise.
 
6.   In this case, there is no claim that in the writing of Hanson, he claimed that
he was acting for, or representing, the company, either as its agent or
otherwise. Juares relied on Hanson’s promise to pay the premium. But that
promise of Hanson, and of Hanson only, and was made by him to Juares,
and was made by him only.
 
7.   There is no evidence that Sunlife ever ratified or approved Hanson’s letter,
or that it ever knew that it was written. It was not proven that Hanson or
anyone else paid the premium, or that Sunlife extended the time for its
payment. The letter was not the act of company or even that of its agent,
and even if it purported to be the act of the agent of the company, it
might well be doubted whether it would be binding upon the company,
in the absence of ratification or approval.
 
8.   There is a marked distinction between the legal force and effect of the
powers and duties of a life insurance agent in soliciting insurance, and what
he says and does before the policy is issued, and what he says and does after
the policy is issued.
 
a.   No written contract between the insured and insurer – insurance is
stopped to deny the authority of its agent as to acts previous to and
upon issuance of the policy; or
 
b.   With written contract – specifically defined and limiting the
powers the duties of the agent, agent must comply to bind the
insurer
 
9.   If Hansons was vested with all the powers of a general agent of the
company, such contract made by him would then be binding upon the
company, but there is no claim or pretense that Hanson was anything more
than a special agent with limited powers and dutes as the receipt of
premiums which are specifically defined by the express provisions of
the policy. Neither is there proof of an established custom as to manner or
 011 ARCE v. CAPITAL INSURANCE (Castillo)
September 30, 1982 | Abad Santos, J. | Payment of premiums necessary for
effectivity of policy
PLAINTIFF-APPELLEE: Pedro Arce
DEFENDANT-APPELLANT: The Capital Insurance & Surety Co., Inc.
SUMMARY: The appellee owned a residential house which was insured with
the appellant COMPANY since 1961. In November 1965, the COMPANY sent
to the INSURED a Renewal Certificate to cover the period from December 5,
1965 to December 5,1966, and requested payment of the corresponding
premium. Anticipating that the premium could not be paid on time, the
INSURED asked for an extension which was granted by the COMPANY. After
the lapse of the requested extension, INSURED still failed to pay the premium.
Thereafter, the house of the INSURED was totally destroyed by fire. Upon
INSURED's presentation of claim for indemnity, he was told that no indemnity
was due because the premium was not paid. The INSURED sued the
COMPANY for indemnity. The trial court held the COMPANY liable to
indemnify the INSURED on the ground that since the COMPANY could have
demanded payment of the premium, mutuality of obligation required that it
should be liable on the policy. Issue is WoN the Company is liable to indemnify
the Insured even if no premium was paid. The Court ruled in the negative
stating that Section 72 of the Insurance Act as amended by R.A.. 3540 states
that "no policy issued by an insurance company is valid and binding unless and
until the premium thereof has been paid.” Because of this amendment, the legal
regime changed in that unless the premium is paid there is no insurance.
DOCTRINE: It is obvious from both the Insurance Act, as amended, and the
stipulation of the parties that time is of the essence in respect to 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.
FACTS:
1.   In Civil Case No. 66466 of the Court of First Instance of Manila, the
Capital Insurance and Surety Co., Inc., (COMPANY) was ordered to pay
Pedro Arce (INSURED) the proceeds of a fire insurance policy. Not
satisfied with the decision, the company appealed to this Court on questions
of law.
2.   The INSURED was the owner of a residential house in Tondo, Manila,
which had been insured with the COMPANY since 1961 under Fire Policy
No. 24204
3.   November 27, 1965 - COMPANY sent to the INSURED Renewal
Certificate No. 47302 to cover the period December 5, 1965 to December 5,
1966. The COMPANY also requested payment of the corresponding
premium in the amount of P38.10.
4.   Anticipating that the premium could not be paid on time, the INSURED,
thru his wife, promised to pay it on January 4, 1966. The COMPANY
accepted the promise but the premium was not paid on January 4, 1966. On
January 8, 1966, the house of the INSURED was totally destroyed by fire.
5.   January 10, 1966 - NSURED's wife presented a claim for indemnity to the
COMPANY. She was told that no indemnity was due because the premium
on the policy was not paid.
6.   Nonetheless the COMPANY tendered a check for P300.00 as financial aid
which was received by the INSURED's daughter, Evelina R. Arce. The
voucher for the check which Evelina signed stated that it was "in full
settlement (ex gratia) of the fire loss under Claim No. F-554 Policy No. F-
24202.”
7.   INSURED and his wife went to the office of the COMPANY to have his
signature on the check identified preparatory to encashment.
8.   At that time the COMPANY reiterated that the check was given "not as
an obligation, but as a concession" because the renewal premium had
not been paid. The INSURED cashed the check but then sued the
COMPANY on the policy.
9.   The court a quo held that since the COMPANY could have demanded
payment of the premium, mutuality of obligation requires that it should
also be liable on its policy. The court a quo also held that the INSURED
was not bound by the signature of Evelina on the check voucher because he
did not authorize her to sign the waiver.
ISSUES:
1.   WoN the Company is liable to indemnify the Insured even if no premium
was paid – NO because Section 72 of the Insurance Act as amended by
R.A.. 3540 states that "no policy issued by an insurance company is valid
and binding unless and until the premium thereof has been paid."
RULING: WHEREFORE, the decision of the court a quo is reversed; the appellee's
complaint is dismissed. No special pronouncement as to costs.
RATIO:
1.   Capital Insurance and Surety Co., Inc. vs. Delgado: appellants failed to pay
a balance of P583.95 on the premium charges due, notwithstanding
demands made upon them. As with the issuance of the policy to appellants
the same became effective and binding upon the contracting parties, the
latter can not avoid the obligation of paying the premiums agreed upon. It is
clear from the foregoing that appellants are under obligation to pay the
amount sued upon.
 2.   Sec. 72 of the Insurance Act, as amended by R.A. No. 3540: 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.
3.   Parties in this case had stipulated: notwithstanding 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.
4.   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.
5.   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.
6.   Delgado was decided in the light of the Insurance Act before Sec. 72 was
amended. Prior to the amendment, an insurance contract was effective even
if the premium had not been paid so that an insurer was obligated to pay
indemnity in case of loss and correlatively he had also the right to sue for
payment of the premium.
7.   But the amendment to Sec. 72 has radically changed the legal regime in
that unless the premium is paid there is no insurance.
8.   With the foregoing, it is not necessary to dwell at length on the trial court's
second proposition that the INSURED had not authorized his daughter
Evelina to make a waiver because the INSURED had nothing to waive; his
policy ceased to have effect when he failed to pay the premium.

 
 
 012 MAKATI TUSCANY CONDOMINIUM v. CA (CASTRO)
November 6, 1992 | Bellosillo, J. | Insurance Premium
PETITIONER: MAKATI TUSCANY CONDOMINIUM CORPORATION
RESPONDENTS: THE COURT OF APPEALS, AMERICAN HOME
ASSURANCE CO., represented by American International Underwriters
(Phils.), Inc.,
SUMMARY: Basically, this case involves 3 insurance policies (1982-1983,
1983-1984, and the source of the controversy 1984-1985). In these insurance
policies, Makati Tuscany pays its premiums by installments which were
accepted by American Home Assuance. For the 3rd insurance policy, Makati
Tuscany refused to complete its payment of premium by claiming that because
of the arrangement of paying in installments, then the insurance policy was no
valid and binding because the said arrangement is proscribed by the insurance
code. Hence, American Home filed a collection case against Makati Tuscany for
the payment of balance while Makati filed for a counterclaim refunding the said
premiums paid. RTC ruled that he insurance policy is valid and that Makati
Tuscany should pay the balance which was affirmed by the CA with some
modifications. CA further stated that Makati Tuscany cannot deny liability on
the payment of other premiums while AHAC cannot also deny liability on the
insurance because it agreed with the set-up and it accepted the installment
payments. The issue now before the SC is W/N an arrangement to pay the
premiums in installment will invalidate the contract of insurance and SC said
NO, because what merely the law precludes is the stipulation making the
contract valid despite non-payment of premiums at all. The installment
arrangement is not contrary to law, morals, good customs, or public policy.
DOCTRINE: Section 77 merely precludes the parties from stipulating that the
policy is valid even if premiums are not paid, but does not expressly prohibit an
agreement granting credit extension, and such an agreement is not contrary to
morals, good customs, public order or public policy). So is an understanding to
allow insured to pay premiums in installments not so proscribed. At the very
least, both parties should be deemed in estoppel to question the arrangement they
have voluntarily accepted.
 
FACTS:
INSURED: (Petitioner in the SC but the Defendant in the lower court case):
MANILA TUSCANY CONDOMINIUM
INSURER: AHAC through American Underwriters (Plaintiff in the lower
court)
1.   Sometime in early 1982, private respondent American Home Assurance Co.
(AHAC), represented by American International Underwriters (Phils.), Inc.,
issued in favor of petitioner Makati Tuscany Condominium Corporation
(TUSCANY) an insurance policy on the latter's building and premises, for a
period beginning INSURANCE POLICY 1: 1 March 1982 and ending 1
March 1983, with a total premium of P466,103.05.
2.   The premium was paid on installments on 12 March 1982, 20 May 1982, 21
June 1982 and 16 November 1982, all of which were accepted by AHAC
3.   On 10 February 1983, AHAC issued to Makati Tuscany an insurance policy
which replaced and renewed the previous policy, for a term covering
INSURANCE POLICY 2: 1 March 1983 to 1 March 1984. The premium
in the amount of P466,103.05 was again paid on installments on 13 April
1983, 13 July 1983, 3 August 1983, 9 September 1983, and 21 November
1983. All payments were likewise accepted
4.   On 20 January 1984, the policy was again renewed for the period
INSURANCE POLICY 3: 1 March 1984 to 1 March 1985. On this
renewed policy, Makati Tuscany made two installment payments
(amounting to 152,000), both accepted by AHAC. After the two
installments, Makati Tuscany refused to pay the balance of the premium
5.   Consequently, AHAC filed an action to recover the unpaid balance
amounting 314,103.05 (arrived by deducting the installments paid which is
152,000 from the amount of the policy which is 466,103.05)
6.   In its answer, Makati Tuscany admitted the issuance of the insurance policy.
It explained that it discontinued the payment premiums because the policy
did not contain a credit clause in its favor and the receipts of the installment
payments covering the policy for 1984-1985, as well as the two previous
policies, stated the following reservations:
a.   Acceptance of this payment shall not waive any of the company
rights to deny liability on any claim under the policy arising
before such payments or after the expiration of the credit clause of
the policy; and
b.   Subject to no loss prior to premium payment. If there be any
loss such is not covered.
7.   Makati Tuscany claimed that the policy was never binding and valid, and no
risk attached to the policy. It then pleaded a counterclaim for 152,000
refund for the premiums already paid for 1984-1985. Later on it amended
the counterclaim, sought the refund of 924,206 representing the premium
payments for 1982-1985.
8.   After some incidents, Makati Tuscany and AHAC moved for summary
judgment
9.   RTC dismissed the complaint and the counterclaim upon the following
fiindings:
a.   While it is true that the receipts issued to Makati Tuscany
contained the aforementioned reservations, it is equally true that
 payment of the premiums of the three aforementioned policies
(being sought to be refunded) were made during the lifetime or 12.   Makati Tuscany now asserts that its payment by installment of the
term of said policies, hence, it could not be said, inspite of the premiums for the insurance policies for 1982, 1983 and 1984 invalidated
reservations, that no risk attached under the policies. said policies because of the provisions of Sec. 77 of the Insurance Code26,
Consequently, Makati Tuscany's counterclaim for refund is not as amended, and by the conditions stipulated by the insurer in its receipts,
justified. disclaiming liability for loss for occurring before payment of premiums.
b.   As regards the unpaid premiums, in view of the reservation in the
receipts ordinarily issued by AHAC on premium payments the 13.   Hence this petition
only plausible conclusion is that AHAC has no right to demand
their payment after the lapse of the term of said policy on
March 1, 1985. Therefore, the defendant was justified in refusing ISSUE/s:
to pay the same. 1.   W/N the payment by installments of the premiums due on an insurance
policy invalidates a contract of insurance in view of Sec. 77 of PD 612 –
10.   Both parties appealed from the judgment of the trial court. Thereafter, the No,, Sec 77 merely precludes the parties from stipulating that the policy is
Court of Appeals rendered a decision modifying that of the trial court by valid even if premiums are not paid, but does not expreslly prohibit
ordering Makati Tuscany to pay the balance of the premiums due on granting credit extension in a form of payment by installments.
policy plus legal interest until fully paid, and affirming the denial of the
counterclaim. RULING: WHEREFORE, finding no reversible error in the judgment appealed
from, the same is AFFIRMED. Costs against petitioner.
11.   CA explained the decision by saying:
a.   The obligation to pay premiums when due is ordinarily as SO ORDERED.
indivisible obligation to pay the entire premium. Here, the parties
herein agreed to make the premiums payable in installments, and
there is no pretense that the parties never envisioned to make the RATIO:
insurance contract binding between them. It was renewed for two SUBJECT POLICIES ARE VALID DESPITE INSTALLMENT PAYMENTS
succeeding years, the second and third policies being a 1.   The records clearly show that Makati Tuscany and AHAC intended subject
renewal/replacement for the previous one. And the insured never insurance policies to be binding and effective notwithstanding the staggered
informed the insurer that it was terminating the policy because the payment of the premiums. The initial insurance contract entered into in
terms were unacceptable. 1982 was renewed in 1983, then in 1984. In those three (3) years, the
insurer accepted all the installment payments. Such acceptance of
b.   While it may be true that under Section 77 of the Insurance Code, payments speaks loudly of the insurer's intention to honor the policies
the parties may not agree to make the insurance contract valid it issued to Makati Tuscany. Certainly, basic principles of equity and
and binding without payment of premiums, there is nothing in fairness would not allow the insurer to continue collecting and
said section which suggests that the parties may not agree to accepting the premiums, although paid on installments, and later deny
allow payment of the premiums in installment, or to consider liability on the lame excuse that the premiums were not prepared in
the contract as valid and binding upon payment of the first full.
premium. Otherwise, the court would allow the insurer to renege
on its liability under the contract, had a loss incurred (sic) before
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
completion of payment of the entire premium, despite its voluntary 26

  Sec.
  77.
  An
  insurer
  is
  entitled
  to
  the
  payment
  of
  the
  premium
  as
 
acceptance of partial payments, a result eschewed by a basic
considerations of fairness and equity.
soon
  as
  the
  thing
  is
  exposed
  to
  the
  peril
  insured
  against.
 
Notwithstanding
 any
 agreement
 to
 the
 contrary,
 no
 policy
 or
 contract
 
c.   the insurance contract became valid and binding upon payment of of
  insurance
  issued
  by
  an
  insurance
  company
  is
  valid
  and
  binding
 
the first premium, and AHAC could not have denied liability on unless
  and
  until
  the
  premium
  thereof
  has
  been
  paid,
  except
  in
  the
 
the ground that payment was not made in full, for the reason
that it agreed to accept installment payment. case
  of
  a
  life
  or
  an
  industrial
  life
  policy
  whenever
  the
  grace
  period
 
provision
 applies
 
 2.   While the import of Section 77 is that prepayment of premiums is strictly
required as a condition to the validity of the contract, The court is not
prepared to rule that the request to make installment payments duly
approved by the insurer, would prevent the entire contract of insurance
from going into effect despite payment and acceptance of the initial
premium or first installment. Section 78 of the Insurance Code in effect
allows waiver by the insurer of the condition of prepayment by making an
acknowledgment in the insurance policy of receipt of premium as
conclusive evidence of payment so far as to make the policy binding despite
the fact that premium is actually unpaid.
3.   Section 77 merely precludes the parties from stipulating that the policy
is valid even if premiums are not paid, but does not expressly prohibit
an agreement granting credit extension, and such an agreement is not
contrary to morals, good customs, public order or public policy). So is
an understanding to allow insured to pay premiums in installments not
so proscribed. At the very least, both parties should be deemed in
estoppel to question the arrangement they have voluntarily accepted.
4.   Lastly, Makati Tuscany’s reliance on Arce v. Capital Surety is unavailing,
for the facts therein are substantially different because there was no
premium paid at all in Arce. While in this case Makati Tuscany paid the
initial installment and thereafter made staggered payments.
5.   It appearing from the peculiar circumstances that the parties actually
intended to make three (3) insurance contracts valid, effective and
binding, Makati Tuscany 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 (No. AH-CPP-9210651) in March 1985.
6.   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.

 
 
 013 Areola v. CA (COSCOLLUELA)
September 22, 1994 | Romero, J. | Premium Payment
PETITIONER: Santos B. Areola and Lydia D. Areola
RESPONDENTS: Court of Appeals, Prudential Guarantee and Assurance, Inc.
SUMMARY: 7 months after the issuance of Santos Areola’s Personal Accident
Insurance Policy, Prudential unilaterally cancelled the same since company records
revealed that Areola failed to pay his premiums evidenced by the lack of Official
Receipt which was supposed to be issued within 7 days after the Provisional Receipt.
Prudential offered to reinstate same policy it had previously cancelled and even
proposed to extend its lifetime, upon a finding that the cancellation was erroneous
and that the premiums were paid in full by Areola but were not remitted by Teofilo
M. Malapit, Prudential’s Baguio City branch manager. Areola and his wife filed a
complaint with the trial court which rendered a decision in favor of them but this was
reversed by the CA.
The issue is WoN Prudential should be held liable for the fraudulent act of Malapit.
Yes, because a corporation acts solely thru its employees. The latter’s acts are
considered as its own for which it can be held to account. It is beyond doubt that
Malapit represented the interests of Prudential and acted in its behalf. His act of
receiving the premiums collected is well within the provice of his authority. The fact
that Prudential was itself defrauded due to the anomalies that took place in its Baguio
branch office, such as the non-accrual of said premiums to its account, does not free
the same from its obligation to Areola. Consequently, Prudential is liable by way of
damages for the fraudulent acts committed by Malapit that gave occasion to the
erroneous cancellation of subject insurance policy. Its earlier act of reinstating the
insurance policy also can not obliterate the injury.
DOCTRINE: A corporation acts solely thru its employees. The latter’s acts are
considered as its own for which it can be held to account.
FACTS:
80.   Santos Areola (Areola), a lawyer from Dagupan bought from Prudential
Guarantee and Assurance, Inc. (Prudential) a personal accident insurance
policy covering the one-year period between noon of November 28, 1984
and noon of November 28, 1985.
81.   Areola was allegedly not able to pay the total amount of P1,609.65 which
included the premium, documentary stamp and premium tax.
82.   On December 17, 1984, Prudential issued a collector’s provisional receipt
to Areola for the total amount. It noted thereon that the collector’s
provisional receipt will be confirmed by their official receipt.
83.   The Branch Manager of Baguio City sent Areola an Endorsement which
“cancelled flat” his insurance policy for non-payment of premium. The
same credited “a return premium of P1,609.65 plus documentary stamps
and premium tax” to the account of Areola.
84.   Shocked, Areola confronted the representative of Prudential, Carlito Ang.
Areola still failed to receive any official receipt from Prudential
85.   Areola sent a letter demanding from Prudential that he be insured under the
same terms and conditions of his previous policy commencing upon the
receipt of his letter, or that the current commercial rate of increase on the
payment he had made under the provisional receipt be return within 5 days.
86.   Areola received a letter from production manager Malapit, informing him of
the “partial payment” of P1,000 he had made on the policy had been
exhausted pursuant to the provisions of the Short Period Rate Scale. He was
also warned that failure to pay the balance, the company’s liability would
cease to operate.
87.   Prudential, in response to Areola’s letter, wrote a letter to the latter stating
that the company was verifying whether the payment had in fact been
remitted to the company and why no official receipt had been issued
therefor. Asst. Vice-President Mariano Ampil III emphasized that the OR
should have been issued 7 days from the issuance of the provisional receipt,
and because there was no such OR, there was reason to believe that no
payment had been made.
1.   Ampil apologized for the inconvenience and said they will hold Areola
covered under the terms of the policy until such time that the matter is
cleared.
2.   Ampil wrote another letter confirming the total amount was received and
that Prudential was amenable to extending the policy up to December 17,
1985.
88.   Unfortunately, as early as August 6, 1985 Areola and his wife already filed
a breach of contract with damages.
89.   Prudential admitted that the cancellation was due to Malapit’s failure to turn
over the premiums. However, it argued that by acknowledging the
inconvenience and taking steps to rectify its omission, Prudential had
complied with its obligation. Hence, Areola has no longer a cause of action.
90.   Trial court ruled in favor of Areola ruling that Prudential was in bad faith in
unilaterally cancelling the insurance policy. Had Areola met an accident,
Prudential would certainly have disclaimed liability. It held that Prudential
breached its contract with Areola.
91.   CA reversed the trial court. It held that Prudential was not motivated by bad
faith or malice and that the cancellation was based on what the existing
records merely showed. In fact, it’s subsequent acts of rectifying the wrong
indicate that Prudential did not ct precipitately or willfully to inflict a wrong
on Areola.
92.   Hence, this appeal.
93.   Areola argues that it was Malapit’s misappropriation of the premiums
which was the proximate cause of the cancellation of the insurance policy.
Malapit’s act of signing and even sending the notice of cancellation himself,
notwithstanding his personal knowledge of Areola’s full payment of
 premiums, further reinforces the allegation of bad faith. Subsequent
reinstatement could not possibly absolve Prudential from liability, there
being an obvious breach of contract.
94.   Prudential however argues that where reinstatement, the equitable relief
sought by Areola was granted at an opportune moment i.e. prior to the filing
of the complaint, he was left without a cause of action
ISSUE/s:
111.  WoN Prudential should be held liable for its agent’s fraudulent act of
misappropriating the premiums paid by Areola – YES, because a
corporation acts solely thru its employees. The latter’s acts are considered
as its own for which it can be held to account.
and a creditor of the other, such that the obligation of one is dependent upon
the obligation of the other.
118.  Under the law governing reciprocal obligations the injured party is given a
choice between fulfillment or rescission of the obligation. The law also
entitles Areola to payment of damages, regardless of whether he demands
fulfillment or rescission.
119.  The nature of the damages is in the form of nominal damages contrary to
what was awarded by the trial court because o actual or substantial damage
or injury was inflicted on Areola at the time the insurance policy was
cancelled. (Areola was awarded actual, moral, exemplary, and atty’s fees)

RULING: WHEREFORE, the petition for review on certiorari is

hereby GRANTED and the decision of the Court of Appeals in CA-G.R. No. 16902  
on May 31, 1990, REVERSED. The decision of Branch 40, RTC Dagupan City, in    
Civil Case No. D-7972 rendered on June 30, 1987 is hereby REINSTATED subject
to the following modifications: (a) that nominal damages amounting to P30,000.00
be awarded petitioner in lieu of the damages adjudicated by court a quo; and (b) that
in the satisfaction of the damages awarded therein, respondent insurance company is
ORDERED to pay the legal rate of interest computed from date of filing of
complaint until final payment thereof.

SO ORDERED.

RATIO:
112.  Malapit’s fraudulent act of misappropriating the premiums paid by Areola
is beyond doubt directly imputable to Prudential. A corporation acts solely
thru its employees. The latter’s acts are considered as its own for which it
can be held to account.
113.  It is beyond doubt that Malapit represented the interests of Prudential and
acted in its behalf. His act of receiving the premiums collected is well
within the provice of his authority.
114.  Malapit’s failure to remit the premiums he received cannot constitute as a
defense for Prudential.
115.  The fact that Prudential was itself defrauded due to the anomalies that took
place in its Baguio branch office, such as the non-accrual of said premiums
to its account, does not free the same from its obligation to Areola.
Consequently, Prudential is liable by way of damages for the fraudulent acts
committed by Malapit that gave occasion to the erroneous cancellation of
subject insurance policy.
116.  Its earlier act of reinstating the insurance policy also can not obliterate the
injury.
117.  Prudential should be reminded that a contract of insurance creates reciprocal
obligations for both insurer and insured. Reciprocal obligations are those
which arise from the same cause and in which each party is both a debtor
 014 TIBAY v. CA (Cruz)
May 24, 1996 | Bellosillo, J. | Partial Payment of premiums
Petitioners: Sps. Antonio A. Tibay & Violeta R. Tibay and Ofelia Roraldo,
Victorina Roraldo, Virgilio Roraldo, Myrna Roraldo and Rosabella Roraldo
Respondent: CA and Fortune Life & General Insurance Co., Inc.,
SUMMARY: FORTUNE issued Fire Insurance Policy in favor of Violeta
and/or Nicolas on their two-storey residential building. The insurance was for
P600,000.00. Violeta only paid P600.00 out of the total premium of P2,983.50,
thus leaving a considerable balance unpaid. The insured building was completely
destroyed by fire. Two days later Violeta paid the balance of the premium. On
the same day, she filed with FORTUNE a claim on the fire insurance policy In a
letter FORTUNE denied the claim of Violeta for violation of Policy Condition
No. 2 and of Sec. 77 of the Insurance Code. Violeta et al sued FORTUNE for
damages. The trial court ruled for Violeta et al and adjudged FORTUNE liable
for the total value of the insured building and personal properties The CA
reversed this. The issue in this case is WoN fire insurance policy is valid,
binding and enforceable upon mere partial payment of premium. The SC
ruled in the negative. The Fire Insurance Policy provides for payment of
premium in full. Accordingly, 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 stipulations in the policy explicitly worded and taken in conjunction
with Sec. 77 of the Insurance Code the payment of partial premium by the
assured in this particular instance should not be considered the payment required
by the law and the stipulation of the parties. Rather, it must be taken in the
concept of a deposit to be held in trust by the insurer until such time that the full
amount has been tendered and duly receipted for. In other words, as expressly
agreed upon in the contract, full payment must be made before the risk occurs
for the policy to be considered effective and in force. Moreover, The case
of South Sea Surety and Insurance Company, Inc. v. Court of Appeals, speaks
only of two (2) statutory exceptions to the requirement of payment of the entire
premium as a prerequisite to the validity of the insurance contract. These
exceptions are: a) in case the insurance coverage relates to life or industrial life
(health) insurance when a grace period applies, and b) when the insurer makes a
written acknowledgment of the receipt of premium, this acknowledgment being
declared by law to, be then conclusive evidence of the premium payment. under
Sec. 77, as well as Sec. 78, until the premium is paid, and the law has not
expressly excepted partial payments, there is no valid and binding
contract. Hence, in the absence of clear waiver of prepayment in full by the
insurer, the insured cannot collect on the proceeds of the policy
DOCTRINE: For as long as the current Insurance Code remains unchanged and
partial payment of premiums is not mentioned at all as among the exceptions
provided in Secs. 77 and 78, no policy of insurance can ever pretend to be
efficacious or effective until premium has been fully paid.
FACTS:
75.   Fortune Life and General Insurance Co., Inc. (FORTUNE) issued
Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay (Violeta)
and/or Nicolas Roraldo (Nicolas) on their two-storey residential building
located at 5855 Zobel Street, Makati City, together with all their personal
effects therein. The insurance was for P600,000.00 covering the period from
23 January 1987 to 23 January 1988. On 23 January 1987, of the total
premium of P2,983.50, Violeta Tibay only paid P600.00 thus leaving a
considerable balance unpaid.
76.   The insured building was completely destroyed by fire. Two days later
Violeta Tibay paid the balance of the premium. On the same day, she filed
with FORTUNE a claim on the fire insurance policy.
a.   Her claim was accordingly referred to its adjuster, Goodwill
Adjustment Services, Inc. (GASI), which immediately wrote
Violeta requesting her to furnish it with the necessary documents
for the investigation and processing of her claim. To which Violeta
forthwith complied.
77.   On 28 March 1987 she signed a non-waiver agreement with GASI to the
effect that any action taken by the companies or their representatives in
investigating the claim made by the claimant for his loss which occurred at
5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or
ascertainment of the amount of actual cash value and loss, shall not waive
or invalidate any condition of the policies of such companies held by said
claimant, nor the rights of either or any of the parties to this agreement,
and such action shall not be, or be claimed to be, an admission of liability
on the part of said companies or any of them.
78.   In a letter FORTUNE denied the claim of Violeta for violation of Policy
Condition No. 2 and of Sec. 77 of the Insurance Code. Efforts to settle the
case before the Insurance Commission proved futile.
79.   Violeta and the other petitioners sued FORTUNE for damages in the
amount of P600,000.00 representing the total coverage of the fire insurance
policy plus 12% interest per annum, P 100,000.00 moral damages, and
attorneys fees equivalent to 20% of the total claim.
80.   The trial court ruled for Sps Tibay and adjudged FORTUNE liable for the
total value of the insured building and personal properties in the amount of
P600,000.00 plus interest at the legal rate of 6% per annum from the filing
of the complaint until full payment, and attorneys fees equivalent to 20% of
the total amount claimed plus costs of suit.
81.   The CA reversed the court a quo by declaring FORTUNE not to be liable
therein but ordering the return of the premium of P2,983.50 plus 12%
interest from when Violeta paid the balance of the premium (2 days after
the fire) until full payment.
82.   Hence this petition for review.
ISSUE/s:
13.   WoN fire insurance policy is valid, binding and enforceable upon mere
 partial payment of premium – NO where the premium has only been an insurance contract with the insured. In the case before
partially paid and the balance paid only after the peril insured against has us, there is, quite unlike in Phoenix, a specific stipulation
occurred, the insurance contract did not take effect and the insured cannot that (t)his policy xxx is not in force until the premium has
collect at all on the policy been fully paid and duly receipted by the Company x x x.
ii.   It is correct to say that in Phoenix a contract was
RULING: WHEREFORE, the petition is DENIED and the assailed Decision of the perfected upon partial payment of the premium since the
Court of Appeals dated 24 March 1995 is AFFIRMED. parties had not otherwise stipulated that prepayment of
SO ORDERED. the premium in full was a condition precedent to the
existence of a contract.
RATIO: b.   In Phoenix, by accepting the initial payment of P3,000.00 and then
1.   Insurance is a contract whereby one undertakes for a consideration to later demanding the remainder of the premium without any other
indemnify another against loss, damage or liability arising from an precondition to its enforceability as in the instant case, the insurer
unknown or contingent event. in effect had shown its intention to continue with the existing
a.   The consideration is the premium, which must be paid at the time contract of insurance, as in fact it was enforcing its right to collect
and in the way and manner specified in the policy, and if not so premium, or exact specific performance from the insured. This is
paid, the policy will lapse and be forfeited by its own terms. not so here. By express agreement of the parties, no vinculum
2.   the Policy provides for payment of premium in full. Accordingly, where the juris or bond of law was to be established until full payment was
premium has only been partially paid and the balance paid only after the effected prior to the occurrence of the risk insured against.
peril insured against has occurred, the insurance contract did not take effect 5.   In Makati Tuscany Condominium Corp. v. Court of Appeals the parties
and the insured cannot collect at all on the policy. This is fully supported by mutually agreed that the premiums could be paid in installments, which in
Sec. 7727 of the Insurance Code fact they did for three (3) years, hence, this Court refused to invalidate the
3.   Apparently the crux of the controversy lies in the phrase unless and until the insurance policy.
premium thereof has been paid. For whatever judicial construction may be 6.   While it maybe true that under Section 77 of the Insurance Code, the parties
accorded the disputed phrase must ultimately yield to the clear mandate of may not agree to make the insurance contract valid and binding without
the law. The principle that where the law does not distinguish the court payment of premiums, there is nothing in said section which suggests that
should neither distinguish assumes that the legislature made no qualification the parties may not agree to allow payment of the premiums in installment,
on the use of a general word or expression. or to consider the contract as valid and binding upon payment of the first
4.   Violeta et al insists that FORTUNE is liable on the policy despite partial premium. Otherwise we would allow the insurer to renege on its liability
payment of the premium due and the express stipulation thereof to the under the contract, had a loss incurred (sic) before completion of payment
contrary. They rely heavily on the 1967 case of Philippine Phoenix and of the entire premium, despite its voluntary acceptance of partial payments,
Insurance Co., Inc. v. Woodworks, Inc. where the Court sustained the ruling a result eschewed by basic considerations of fairness and equity.
of the trial court that partial payment of the premium made the policy 7.   These two (2) cases, Phoenix and Tuscany, adequately demonstrate the
effective during the whole period of the policy. In that case, the insurance waiver, either express or implied, of prepayment in full by the insurer:
company commenced action against the insured for the unpaid balance on a impliedly, by suing for the balance of the premium as inPhoenix, and
fire insurance policy. In its defense the insured claimed that nonpayment of expressly, by agreeing to make premiums payable in installments as
premium produced the cancellation of the insurance contract. in Tuscany.
a.   The 1967 Phoenix case is not persuasive; neither is it decisive of 8.   But contrary to the stance taken by Violeta et al, there is no waiver express
the instant dispute. or implied in the case at bench. Precisely, the insurer and the insured
i.   The factual scenario is different.In Phoenix it was the expressly stipulated that (t)his policy including any renewal thereof and/or
insurance company that sued for the balance of the any indorsement thereon is not in force until the premium has been fully
premium, i.e., it recognized and admitted the existence of paid to and duly receipted by the Company x x x and that 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.
27

 SEC.
 77.
 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
 
9.   Conformably with the aforesaid stipulations explicitly worded and taken in
insurance
 issued
 by
 an
 insurance
 company
 is
 valid
 and
 binding
 unless
 and
 until
 the
 premium
 thereof
 has
  conjunction with Sec. 77 of the Insurance Code the payment of partial
been
  paid,
 except
  in
  the
  case
  of
  a
  life
  or
  an
  industrial
  life
  policy
  whenever
  the
  grace
  period
  provision
  premium by the assured in this particular instance should not be considered
applies
 (Italics
 supplied).
 
 the payment required by the law and the stipulation of the parties. Rather, it
must be taken in the concept of a deposit to be held in trust by the insurer
until such time that the full amount has been tendered and duly receipted
for. In other words, as expressly agreed upon in the contract, full payment
must be made before the risk occurs for the policy to be considered
effective and in force.
10.   Thus, no vinculum juris whereby the insurer bound itself to indemnify the
assured according to law ever resulted 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. It would have
been altogether different were it not so stipulated. Ergo, petitioners had
absolute freedom of choice whether or not to be insured by FORTUNE
under the terms of its policy and they freely opted to adhere thereto.
11.   In the construction of an insurance contract is the intention of the parties as
expressed in the policy. Courts have no other function but to enforce the
same. The rule that contracts of insurance will be construed in favor of the
insured and most strongly against the insurer should not be permitted to
have the effect of making a plain agreement ambiguous and then construe it
in favor of the insured.
a.   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 even for such
fractional part of the year as the part payment bears to the whole
payment.
12.   Applying further the rules of statutory construction, the position maintained
by Violeta et al becomes even more untenable.
13.   The case of South Sea Surety and Insurance Company, Inc. v. Court of
Appeals, speaks only of two (2) statutory exceptions to the requirement
of payment of the entire premium as a prerequisite to the validity of the
insurance contract. These exceptions are:
a.   in case the insurance coverage relates to life or industrial life
(health) insurance when a grace period applies, and
b.   when the insurer makes a written acknowledgment of the receipt of
premium, this acknowledgment being declared by law to, be then
conclusive evidence of the premium payment.
14.   A maxim of recognized practicality is the rule that the expressed exception
or exemption excludes others. Exceptio firm at regulim in casibus non
exceptis.
a.   Thus, under Sec. 77, as well as Sec. 78, until the premium is paid,
and the law has not expressly excepted partial payments, there is
no valid and binding contract. Hence, in the absence of clear
waiver of prepayment in full by the insurer, the insured cannot
collect on the proceeds of the policy.
15.   In the desire to safeguard the interest of the assured, it must not be ignored
that the contract of insurance is primarily a risk-distributing device, a
mechanism by which all members of a group exposed to a particular risk
contribute premiums to an insurer. To ensure payment for losses, the law
mandates all insurance companies to maintain a legal reserve fund in favor
of those claiming under their policies.
a.   It should be understood that the integrity of this fund cannot be
secured and maintained if by judicial fiat partial offerings of
premiums were to be construed as a legal nexus between the
applicant and the insurer despite an express agreement to the
contrary.
b.   What could prevent the insurance applicant from deliberately or
wilfully holding back full premium payment and wait for the risk
insured against to transpire and then conveniently pass on the
balance of the premium to be deducted from the proceeds of the
insurance?
16.   For as long as the current Insurance Code remains unchanged and
partial payment of premiums is not mentioned at all as among the
exceptions provided in Secs. 77 and 78, no policy of insurance can ever
pretend to be efficacious or effective until premium has been fully paid.
17.   Premium is the elixir vitae of the insurance business because by law the
insurer must maintain a legal reserve fund to meet its contingent obligations
to the public, hence, the imperative need for its prompt payment and full
satisfaction
18.   Once payment of premium is left to the whim and caprice of the insured, as
when the courts tolerate the payment of a mere P600.00 as partial
undertaking out of the stipulated total premium of P2,983.50 and the
balance to be paid even after the risk insured against has occurred, as
Violeta have done in this case, on the principle that the strength of
the vinculumjuris is not measured by any specific amount of premium
payment, we will surely wreak havoc on the business and set to naught what
has taken actuarians centuries to devise to arrive at a fair and equitable
distribution of risks and benefits between the insurer and the insured.
19.   The terms of the insurance policy constitute the measure of the insurers
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. The validity of these limitations is by law
passed upon by the Insurance Commissioner who is empowered to approve
all forms of policies, certificates or contracts of insurance which insurers
intend to issue or deliver. That the policy contract in the case at bench was
approved and allowed issuance simply reaffirms the validity of such policy,
particularly the provision in question.
 015 American Home Assurance Co. v. Chua (Daguman)
June 28,1999 | Davide,Jr, J. | Premiums
PETITIONER: American Home Assurance Company
RESPONDENT: Antonio Chua
SUMMARY: 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 to its agent James Uy who delivered the
Renewal Certificate to him. On April 6, 1990, Moonlight Enterprises was
completely razed by fire. 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) American Home refused
alleging the no premium was paid RTC: favored Antonio Chua for paying by
way of check a day before the fire occurred CA: Affirmed in toto. Won there
was a valid payment of premium, considering that Chua’s check was cashed
after the occurrence of the fire? YES. the renewal certificate issued to Chua
contained the acknowledgment that premium had been paid. It is not disputed
that the check drawn by Chua in favor of AHAC and delivered to its agent was
honored when presented and AHAC forthwith issued its official receipt to Chua
on 10 April 1990. 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 becomes
due thereon. In the instant case, the best evidence of such authority is the fact
that AHAC 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. WoN
Chua violated the policy by his submission of fraudulent documents and non-
disclosure of the other existing insurance contracts; and finally? NO. The
submission of the alleged fraudulent documents pertained to Chua’s income tax
returns for 1987 to 1989. Chua, however, presented a BIR certification that he
had paid the proper taxes for the said years. AHAC’s loss adjuster had known all
along of the other existing insurance contracts, yet, he did not use that as basis
for his recommendation of denial. The loss adjuster, being an employee of
AHAC, is deemed a representative of the latter whose awareness of the other
insurance contracts binds AHAC
DOCTRINE: The general rule in insurance laws is that unless the premium is
paid the insurance policy is not valid and binding. The only exceptions are life
and industrial life insurance
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 becomes due thereon.
Section 78 of the Insurance Code explicitly provides: “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.”
FACTS:
83.   American Home Assurance Company (AHAC) is a domestic corporation
engaged in the insurance business. In 1990, Chua obtained a fire insurance
from AHAC covering the stock-in trade of his business, Moonlight
Enterprises. The insurance was to expire on 25 March 1990.
84.   5 April 1990, Chua issued a PCIBank Check to AHAC’s agent, for the
renewal of the policy. The check was drawn and deposited in AHAC’s bank
account.
85.   A corresponding official receipt was issued on April 10.
86.   Subsequently, a new insurance policy was issued, whereby AHAC
undertook t indemnify Chua for any damage or loss arising from fire for the
period March 25 1990- March 25 1991
87.   6 April 1990, Moonlight Enterprises was completely razed by fire. Chua
filed an insurance claim with AHAC and 4 other co-insurers (Pioneer,
Prudential, Filipino Merchants and Domestic Insurance- Insurance
Companies)
88.   AHAC refused to honor the insurance despite demands. Chua filed an
action before the trial court against AHAC.
89.   AHAC argued that there was no existing insurance contract when the fire
occurred since Chua did not pay the premium. And even assuming that
there is a contract, Chua violated several conditions: 1. submission of
fraudulent income tax returns and financial statements. 2. Failure to
establish actual loss 3. Failure to notify AHAC of any insurance already
effected to cover the insured goods.
90.   The trial court ruled in favor of Chua. It found Chua paid by way of check a
day before the fire occurred, which was deposited in AHAC’s account.
There was even an acknowledged certificate issued by AHAC’s agent. The
fraudulent documents were limited to a disparity of official receipts inssued
by the BIR and the income tax returns for years 1987 to 1989. As to Chua’s
failure to notify AHAC of other insurance contracts, it held that AHAC
failed to show such fraudulent omission was intentional and fraudulent.
91.   CA affirmed in toto, MR was denied.
92.   [AHAC’s Argument]
93.   AHAC cites the case of Arce v. Capital Insurance & Surety Co., Inc., where
we ruled that unless and until the premium is paid there is no insurance.
AHAC emphasizes that when the fire occurred on 6 April 1990 the
insurance contract was not yet subsisting pursuant to Article 1249 of the
Civil Code, which recognizes that a check can only effect payment once it
 has been cashed. Although Chua testified that he gave the check on 5 April
to a certain James Uy, the check, drawn against a Manila bank and
deposited in a Cagayan de Oro City bank, could not have been cleared by 6
April, the date of the fire. In fact, the official receipt issued for Chua’s
check payment was dated 10 April 1990, four days after the fire occurred.
94.   Citing jurisprudence, AHAC also contends that Chua’s non-disclosure of
the other insurance contracts rendered the policy void. It underscores the
trial court’s neglect in considering the Commission on Audit’s certification
that the BIR receipts submitted by Chua were, in effect, fake since they
were issued to other persons
95.   [Chua’s Argument]
96.   Chua refutes the reason for AHAC’s denial of his claim. As found by the
trial court, AHAC’s loss adjuster admitted prior knowledge of Chua’s
existing insurance contracts with the other insurance companies.
Nonetheless, the loss adjuster recommended the denial of the claim, not
because of the said contracts, but because he was suspicious of the
authenticity of certain documents which Chua submitted in filing his claim.
97.   To bolster his argument, Chua cites Section 66 of the Insurance Code,
which requires the insurer to give a notice to the insured of its intention to
terminate the policy fortyfive days before the policy period ends. In the
instant case, AHAC opted not to terminate the policy. Instead, it renewed
the policy by sending its agent to Chua, who was issued a renewal
certificate upon delivery of his check payment for the renewal of premium.
At this precise moment the contract of insurance was executed and already
in effect. He also claims that it is standard operating procedure in the
provinces to pay insurance premiums by check when collected by insurance
agents.
98.   Hence, these issues.
ISSUE/s:
1.   Won there was a valid payment of premium, considering that Chua’s check
was cashed after the occurrence of the fire? YES. 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 becomes due
thereon. In the instant case, the best evidence of such authority is the fact
that AHAC 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.
2.   WoN Chua violated the policy by his submission of fraudulent documents
and non-disclosure of the other existing insurance contracts; and finally?
NO. The submission of the alleged fraudulent documents pertained to
Chua’s income tax returns for 1987 to 1989. Chua, however, presented a
BIR certification that he had paid the proper taxes for the said years.
AHAC’s loss adjuster had known all along of the other existing insurance
contracts, yet, he did not use that as basis for his recommendation of denial.
The loss adjuster, being an employee of AHAC, is deemed a representative
of the latter whose awareness of the other insurance contracts binds AHAC
RULING: Whereby, petition is denied.
RATIO:
1.   The general rule in insurance laws is that unless the premium is paid the
insurance policy is not valid and binding. The only exceptions are life
and industrial life insurance. Whether payment was indeed made is a
question of fact which is best determined by the trial court
2.   According to the trial court the renewal certificate issued to Chua contained
the acknowledgment that premium had been paid. It is not disputed that the
check drawn by Chua in favor of AHAC and delivered to its agent was
honored when presented and AHAC forthwith issued its official receipt to
Chua on 10 April 1990. 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 becomes due thereon.
3.   In the instant case, the best evidence of such authority is the fact that
AHAC 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 explicitly provides:
“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.”
4.   This Section establishes a legal fiction of payment and should be interpreted
as an exception to Section 77. Is Chua guilty of the policy violations
imputed against him? We are not convinced by AHAC’s arguments. The
submission of the alleged fraudulent documents pertained to Chua’s income
tax returns for 1987 to 1989. Chua, however, presented a BIR certification
that he had paid the proper taxes for the said years. The trial court and the
Court of Appeals gave credence to the certification and it being a question
of fact, we hold that said finding is conclusive.
5.   Ordinarily, where the insurance policy specifies as a condition the
disclosure of existing co-insurers, nondisclosure thereof is a violation
that entitles the insurer to avoid the policy. This condition is common in
fire insurance policies and is known as the “other insurance clause.”
The purpose for the inclusion of this clause is to prevent an increase in the
 moral hazard. We have ruled on its validity and the case of Geagonia v.
 
 
Court of Appeals clearly illustrates such principle. However, we see an
exception in the instant case.
6.   Citing Section 29 of the Insurance Code, the trial court reasoned that Chua’s
failure to disclose was not intentional and fraudulent. The application of
Section 29 is misplaced. Section 29 concerns concealment which is
intentional. The relevant provision is Section 75, which provides that:

“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. contracts must be upon the
same subject matter and with the same interest and risk.”

7.   Indeed, Chua acquired several co-insurers and he failed to disclose this

information to AHAC. Nonetheless, AHAC is estopped from invoking
this argument. The trial court cited the testimony of AHAC’s loss
adjuster who admitted previous knowledge of the coinsurers.

Thus, COURT:
Q The matter of additional insurance of other companies,
was that ever discussed in your investigation?
A Yes, sir.
Q In other words, from the start, you were aware the
insured was insured with other companies like Pioneer
and so on?
A Yes, Your Honor.
Q But in your report you never recommended the denial of
the claim simply because of the non-disclosure of other
insurance? [sic]
A Yes, Your Honor.
Q In other words, to be emphatic about this, the only
reason you recommended the denial of the claim, you
found three documents to be spurious. That is your only
basis?
A Yes, Your Honor. [Emphasis supplied]

8.   Indubitably, it cannot be said that AHAC was deceived by Chua by the

latter’s non-disclosure of the other insurance contracts when AHAC
actually had prior knowledge thereof. AHAC’s loss adjuster had known
all along of the other existing insurance contracts, yet, he did not use
that as basis for his recommendation of denial. The loss adjuster, being
an employee of AHAC, is deemed a representative of the latter whose
awareness of the other insurance contracts binds AHAC. We, therefore,
hold that there was no violation of the “other insurance” clause by Chua.

 
 016 UCPB GENERAL INSURANCE v. MASAGANA TELAMART (Dim)
June 15, 1999 | J. Pardo | Actual payment of premium is needed
PETITIONER: UCPB General Insurance Co Inc.
RESPONDENT: Masagana Telamart, Inc.
SUMMARY: UCPB issued 5 insurance policies covering Masagana Telamart’s
properties against fire from May 22, 1991 to May 22, 1992. UCPB decided not
to renew the policies upon their expiration and sent notice to Masagana’s
insurance broker. On June 13, 1992, a fire razed the properties of Masagana
covered by those insurance policies. On the same day, Masagana presented 5
checks to UCPB representing premiums for the renewal of the policies. A month
later, Masagana filed a formal claim for indemnification for the properties razed
by the fire. UCPB returned the 5 checks and rejected the claim of Masagana
because the policies had expired and were not renewed when the fire occurred.
Masagana filed a civil complaint against UCPB for the recovery of the value of
the razed properties. The RTC and CA ruled in favor of Masagana, first stating
that in previous practice, Masagana was allowed a 60-90 day credit term for the
renewal of its policies, second, that the acceptance of the late premium payment
suggested an understanding that payment could be made later, and third, that
notice to the broker was not notice to Masagana.The issue before the SC is WoN
the fire insurance polcies had been renewed upon payment of premiums on a
date later than the expiration of the policies. The Court ruled in the negative.
Any 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. 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.
policies. Written notice was given to the addresses stated in the policies.
101.  On June 13, 1992, a fire razed Masagana's property covered by three of
the insurance policies UCPB issued. On the same day, Masagana
presented 5 manager’s checks to the cashier of UCPB worth
P225,753.95, representing the premium for the renewal of the policies.
No notice of loss was filed by Masagana under the policies at this time
102.  On July 14, 1992, Masagana filed with UCPB its formal claim for
indemnification of the insured property. On the same day, UCPB returned
to Masagana the five (5) manager's checks that it tendered, and at the
same time rejected Masagana'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 Masagana's tender of premium
payment.
103.  Masagana filed with the RTC of Makati a civil complaint against UCPB for
recovery of P18,645,000.00, representing the face value of the policies
covering Masagana's insured property razed by fire, and for attorney's fees
104.  UCPB filed an answer, stating that the complaint fails to state a cause of
action, and that UCPB was not liable for insurance proceeds under the
policies because at the time of the loss of the property due to fire, the
policies had long expired and were not renewed.
105.  The RTC ruled in favor of Masagana. Upon appeal, the CA affirmed the
ruling, holding that following previous practise, Masagana was allowed
a sixty (60) to ninety (90) day credit term for the renewal of its policies,
and that the acceptance of the late premium payment suggested an
understanding that payment could be made later. Hence the appeal to the
SC.

DOCTRINE: Notwithstanding any agreement to the contrary, no policy or 106.  Masagana submits that the CA correctly ruled that no timely notice of non-
contract of insurance issued by an insurance company is valid and binding unless renewal was sent. The notice of non-renewal sent to broker Zuellig which
and until the premium thereof has been paid, except in the case of a life or an claimed that it verbally notified the insurance agency but not Masagana
industrial life policy. itself did not suffice.

FACTS: [this case is shorter than my attention span] ISSUE/s:

WoN the fire insurance policies had been extended or renewed by an implied
99.   UCPB General Insurance Company Inc. issued five (5) insurance policies credit arrangement though actual payment of premium was tendered on a later
covering Masagana Telamart Inc.'s various property described therein date after the occurrence of the risk insured against. – NO. This is against
against fire, for the period from May 22, 1991 to May 22, 1992. Section 7728 of the Insurance Code.
100.  UCPB evaluated the policies and decided not to renew them upon                                                                                                                        
expiration of their terms on May 22, 1992. UCPB advised Masagana's 28
    Section   77.   An   insurer   is   entitled   to   payment   of   the   premium   as  
broker, Zuellig Insurance Brokers, Inc. of its intention not to renew the
soon   as   the   thing   insured   is   exposed   to   the   peril   insured   against.  
RULING: WHEREFORE, the Court hereby REVERSES and SETS ASIDE the
decision of the Court of Appeals. In lieu thereof, the Court renders judgment
dismissing respondent's complaint and petitioner's counterclaims thereto filed with
the Regional Trial Court, Branch 58, Makati City. Without costs.

RATIO:
60.   The answer is easily found in the Insurance Code. Any 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. 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.

61.   The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo, cited by the CA,
is not applicable. In that case, payment of the premium was in fact actually
made on December 24, 1981, and the fire occurred on January 18, 1982.

62.   In this case, 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.

 
   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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,
  or
  whenever
  under
  the
  broker
  and
  agency
 
agreements
 with
 duly
 licensed
 intermediaries,
 a
 ninety
 (90)-­‐day
 credit
 
extension
 is
 given.
 No
 credit
 extension
 to
 a
 duly
 licensed
 intermediary
 
should
 exceed
 ninety
 (90)
 days
 from
 date
 of
 issuance
 of
 the
 policy.
 
017 UCPB GENERAL INSURANCE vs. MASAGANA TELEMART (Eleazar)
April 4, 2001 | Davide, C.J. | Premium Payment
PETITIONERS: UCPB GENERAL INSURANCE CO. INC.
RESPONDENTS: MASAGANA TELAMART, INC.
SUMMARY: Masagana obtained from UCPB five (5) insurance policies on its
Manila properties. The policies were effective from May 22, 1991 to May 22,
1992. On June 13, 1992, Masagana’s properties were razed by fire. On July 13,
1992, Masagana tendered five checks for as renewal premium payments. A
receipt was issued. On July 14, 1992, Masagana made its formal demand for
indemnification for the burned insured properties. UCPB then rejected
Masagana’s claims under the argument that the fire took place before the tender
of payment. Hence Masagana filed a case. The Court of Appeals disagreed with
UCPB’s argument that Masagana’s tender of payment of the premiums on 13
July 1992 did not result in the renewal of the policies, having been made within
the effective date of renewal as provided under Policy Condition No. 26, which
states: 26. Renewal Clause. -- Unless the company at least 45 days in advance of
the end of the policy period mails or delivers to the assured at the address shown
in the policy notice of its intention not to renew the policy or to condition its
renewal upon reduction of limits or elimination of coverages, the assured shall
be entitled to renew the policy upon payment of the premium due on the
effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists
that Masagana, which had procured insurance coverage from UCPB for a
number of years, had been granted a 60 to 90-day credit term for the renewal of
the policies.
The Supreme Court ruled against UCPB in the first case on the issue of whether
the fire insurance policies issued by UCPB to the Masagana covering the period
from May 22, 1991 to May 22, 1992 had been extended or renewed by an
implied credit arrangement though actual payment of premium was tendered on
a later date and after the occurrence of the risk insured against. UCPB filed a
motion for reconsideration. The Supreme Court, upon observing the facts,
affirmed that there was no valid notice of non-renewal of the policies in
question, as there is no proof at all that the notice sent by ordinary mail was
received by Masagana. Also, the premiums were paid within the grace period.
The issue in this case is whether Section 77 of the Insurance Code of 1978 must
be strictly applied to UCPB’s advantage despite its practice of granting a 60- to
90-day credit term for the payment of premiums? The SC said no. Section 77 of
the Insurance Code provides: No policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has
been paid. An exception to this section is Section 78 which provides: Any
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 premium
is actually paid. Makati Tuscany v Court of Appeals- Section 77 may not apply
if the parties have agreed to the payment in installments of the premium and
partial payment has been made at the time of loss. Section 78 allows waiver by
the insurer of the condition of prepayment and makes the policy binding despite
the fact that premium is actually unpaid.
Section 77 does not expressly prohibit an agreement granting credit extension.
At the very least, both parties should be deemed in estoppel to question the
arrangement they have voluntarily accepted.
The Tuscany case has provided another exception to Section 77 that the insurer
may grant credit extension for the payment of the premium. If the insurer has
granted the insured a credit term for the payment of the premium and loss occurs
before the expiration of the term, recovery on the policy should be allowed even
though the premium is paid after the loss but within the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an
insurance contract to provide a credit term within which to pay the premiums.
That agreement is not against the law, morals, good customs, public order or
public policy. The agreement binds the parties.
It would be unjust if recovery on the policy would not be permitted against
UCPB, which had consistently granted a 60- to 90-day credit term for the
payment of premiums. Estoppel bars it from taking refuge since Masagana
relied in good faith on such practice. Estoppel then is the fifth exception.
DOCTRINE: There are exceptions to IC Sec. 77.
1.   In case of a life or industrial life policy whenever the grace period
provision applies [Sec. 77]
2.   Any acknowledgment of the receipt of premiumis conclusive evidence
of payment [Sec. 78]
3.   If the parties have agreed to the payment ininstallments of the premium
and partial payment has been made at the time of loss [Makati Tuscany
Condominium v. CA]
4.   The insurer may grant credit extension for the payment of the premium
[Makati Tuscany Condominium]
5.   Estoppel
Sec. 77 merely precludes the parties from stipulating that the policy is valid even
if premiums are not paid, but does not expressly prohibit an agreement granting
credit extension, and such an agreement is not contrary to morals, good customs,
public order or public policy.
FACTS:
1.   In the SC’s decision of 15 June 1999 in this case, they reversed and set
aside the assailed decision of the Court of Appeals, which affirmed with
modification the judgment of the trial court
a.   (a) allowing Masagana to consign the sum of P225,753.95 as full
payment of the premiums for the renewal of the five insurance
 policies on Respondents properties;
b.   (b) declaring the replacement-renewal policies effective and
binding from 22 May 1992 until 22 May 1993; and
c.   (c) ordering Petitioner to pay Respondent P18,645,000.00 as
indemnity for the burned properties covered by the renewal-
replacement policies. The modification consisted in the (1)
deletion of the trial courts declaration that three of the policies
were in force from August 1991 to August 1992; and (2) reduction
of the award of the attorneys fees from 25% to 10% of the total
amount due the Respondent.
2.   The material operative facts upon which the appealed judgment was based
are summarized by the Court of Appeals in its assailed decision as follows.
a.   Masagana obtained from UCPB five (5) insurance policies on its
properties in Pasay City and Manila.
b.   All 5 policies reflect on their face the effectivity term: "from 4:00
P.M. of 22 May 1991 to 4:00 P.M. of 22 May 1992."
c.   On June 13, 1992, Masagana's properties located at 2410-2432 and
2442-2450 Taft Avenue, Pasay City were razed by fire.
d.   On July 13, 1992, Masagana tendered, and UCPB accepted, five
(5) Equitable Bank Manager's Checks in the total amount of
P225,753.45 as renewal premium payments for which Official
Receipt Direct Premium No. 62926 was issued by UCPB.
e.   On July 14, 1992, Masagana made its formal demand for
indemnification for the burned insured properties. On the same
day, UCPB returned the five (5) manager's checks stating in its
letter that it was rejecting Masagana's claim on the following
grounds:
i.   "a) Said policies expired last May 22, 1992 and were not
renewed for another term;
ii.   b) Defendant had put plaintiff and its alleged broker on
notice of non-renewal earlier; and
iii.   c) The properties covered by the said policies were
burned in a fire that took place last June 13, 1992, or
before tender of premium payment.”
3.   Hence Masagana filed this case.
4.   The Court of Appeals disagreed with UCPB’s stand that Masagana’s tender
of payment of the premiums on 13 July 1992 did not result in the renewal of
the policies, having been made beyond the effective date of renewal as
provided under Policy Condition No. 26, which states:
a.   26. Renewal Clause. -- Unless the company at least forty five days
in advance of the end of the policy period mails or delivers to the
assured at the address shown in the policy notice of its intention
not to renew the policy or to condition its renewal upon reduction
of limits or elimination of coverages, the assured shall be entitled
to renew the policy upon payment of the premium due on the
effective date of renewal.
5.   Both the Court of Appeals and the trial court found that sufficient proof
exists that Masagana, which had procured insurance coverage from UCPB
for a number of years, had been granted a 60 to 90-day credit term for the
renewal of the policies. Such a practice had existed up to the time the claims
were filed.
6.   In the decision of 15 June 1999, the SC defined the main issue to be
whether the fire insurance policies issued by UCPB to the Masagana
covering the period from May 22, 1991 to May 22, 1992 had been extended
or renewed by an implied credit arrangement though actual payment of
premium was tendered on a later date and after the occurrence of the (fire)
risk insured against.
7.   The Court resolved this issue in the negative in view of Section 77 of the
Insurance Code and the decisions in Valenzuela v. Court of Appeals; South
Sea Surety and Insurance Co., Inc. v. Court of Appeals; and Tibay v. Court
of Appeals. Accordingly, we reversed and set aside the decision of the Court
of Appeals.
8.   Masagana seasonably filed a motion for the reconsideration of the adverse
verdict. It alleges in the motion that the Court had made in the decision their
own findings of facts, which are not in accord with those of the trial court
and the Court of Appeals.
9.   The courts below correctly found that no notice of non-renewal was made
within 45 days before 22 May 1992, or before the expiration date of the fire
insurance policies. Thus, the policies in question were renewed by operation
of law and were effective and valid on 30 June 1992 when the fire
occurred, since the premiums were paid within the 60- to 90-day credit
term.
10.   Masagana likewise disagrees with the Court’s ruling that parties may
neither agree expressly or impliedly on the extension of credit or time to pay
the premium nor consider a policy binding before actual payment. It urges
the Court to take judicial notice of the fact that despite the express provision
of Section 77 of the Insurance Code, extension of credit terms in premium
payment has been the prevalent practice in the insurance industry.
11.   Most insurance companies, including UCPB, extend credit terms because
Section 77 of the Insurance Code is not a prohibitive injunction but is
merely designed for the protection of the parties to an insurance
contract. The Code itself, in Section 78, authorizes the validity of a policy
notwithstanding non-payment of premiums.
12.   Masagana also asserts that the principle of estoppel applies to UCPB.
Despite its awareness of Section 77 UCPB persuaded and induced
Masagana to believe that payment of premium on the 60- to 90-day credit
term was perfectly alright; in fact it accepted payments within 60 to 90 days
after the due dates.
13.   By extending credit and habitually accepting payments 60 to 90 days from
the effective dates of the policies, UCPB has implicitly agreed to modify the
tenor of the insurance policy and in effect waived the provision therein that
it would pay only for the loss or damage in case the same occurred after
 payment of the premium.
14.   UCPB filed an opposition to Masagana’s motion for reconsideration. It
argues that both the trial court and the Court of Appeals overlooked the fact
that on 6 April 1992 UCPB sent by ordinary mail to Masagana a notice of
non-renewal and sent by personal delivery a copy thereof to Masagana’s
broker, Zuellig. Both courts likewise ignored the fact that Masagana was
fully aware of the notice of non-renewal. A reading of Section 66 of the
Insurance Code readily shows that in order for an insured to be entitled to a
renewal of a non-life policy, payment of the premium due on the effective
date of renewal should first be made. Masagana’s argument that Section 77
is not a prohibitive provision finds no authoritative support.
15.   Upon a meticulous review of the records and reevaluation of the issues
raised in the motion for reconsideration and the pleadings filed thereafter by
the parties, the Court resolved to grant the motion for reconsideration.
16.   The following facts, as found by the trial court and the Court of Appeals,
are indeed duly established:
a.   For years, UCPB had been issuing fire policies to the Masagana,
and these policies were annually renewed.
b.   UCPB had been granting Masagana a 60- to 90-day credit term
within which to pay the premiums on the renewed policies.
c.   There was no valid notice of non-renewal of the policies in
question, as there is no proof at all that the notice sent by ordinary
mail was received by Masagana, and the copy thereof allegedly
sent to Zuellig was ever transmitted to Masagana.
d.   The premiums for the policies in question in the aggregate amount
of P225,753.95 were paid by Masagana within the 60- to 90-day
credit term and were duly accepted and received by UCPB cashier.
ISSUE/s
WoN Section 77 of the Insurance Code must be strictly applied to UCPB’s
advantage despite its practice of granting a 60- to 90-day credit term for the payment
of premiums.
RULING: WHEREFORE, the Decision in this case of 15 June 1999 is
RECONSIDERED and SET ASIDE, and a new one is hereby entered DENYING the
instant petition for failure of UCPB to sufficiently show that a reversible error was
committed by the Court of Appeals in its challenged decision, which is hereby
AFFIRMED in toto.
RATIO:
1.   Section 77 of the Insurance Code of 1978 provides:
a.   SEC. 77. 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.
2.   This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance
Code) promulgated on 18 December 1974. In turn, this Section has its
source in Section 72 of Act No. 2427 otherwise known as the Insurance Act
as amended by R.A. No. 3540, approved on 21 June 1963, which reads:
a.   SEC. 72. An insurer is entitled to payment of premium as soon as
the thing insured is exposed to the peril insured against, unless
there is clear agreement to grant the insured credit extension of the
premium due. No policy issued by an insurance company is valid
and binding unless and until the premium thereof has been paid.
(Underscoring supplied)
3.   It can be seen at once that Section 77 does not restate the portion of Section
72 expressly permitting an agreement to extend the period to pay the
premium. But there exceptions to Sec. 77.
4.   The first exception is provided by Section 77 itself, and that is, in case of a
life or industrial life policy whenever the grace period provision applies.
5.   The second is that covered by Section 78 of the Insurance Code, which
provides:
a.   SEC. 78. Any 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 premium is actually paid.
6.   A third exception was laid down in Makati Tuscany
Condominium Corporation vs. Court of Appeals, wherein the Court ruled
that Section 77 may not apply if the parties have agreed to the payment in
installments of the premium and partial payment has been made at the time
of loss. Thus:
a.   We hold that the subject policies are valid even if the premiums
were paid on installments. The records clearly show that the
petitioners 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
years, the insurer accepted all the installment payments. Such
acceptance of payments speaks loudly of the insurers 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 prepaid in full.
7.   Not only that. In Tuscany, the Court also quoted with approval the
following pronouncement of the Court of Appeals in its Resolution denying
the motion for reconsideration of its decision:
a.   While the import of Section 77 is that prepayment of premiums is
strictly required as a condition to the validity of the contract, We
 are not prepared to rule that the request to make installment
payments duly approved by the insurer would prevent the entire
contract of insurance from going into effect despite payment and
acceptance of the initial premium or first installment. Section 78 of
the Insurance Code in effect allows waiver by the insurer of the
condition of prepayment by making an acknowledgment in the
insurance policy of receipt of premium as conclusive evidence of
payment so far as to make the policy binding despite the fact that
premium is actually unpaid. Section 77 merely precludes the
parties from stipulating that the policy is valid even if premiums
are not paid, but does not expressly prohibit an agreement granting
credit extension, and such an agreement is not contrary to morals,
good customs, public order or public policy. So is an
understanding to allow insured to pay premiums in installments not
so prescribed. At the very least, both parties should be deemed in
estoppel to question the arrangement they have voluntarily
accepted.
8.   By the approval of the aforequoted findings and conclusion of the Court of
Appeals, Tuscany has provided a fourth exception to Section 77, namely,
that the insurer may grant credit extension for the payment of the premium.
9.   This simply means that if the insurer has granted the insured a credit term
for the payment of the premium and loss occurs before the expiration of the
term, recovery on the policy should be allowed even though the premium is
paid after the loss but within the credit term.
10.   Moreover, there is nothing in Section 77 which prohibits the parties in an
insurance contract to provide a credit term within which to pay the
premiums. That agreement is not against the law, morals, good customs,
public order or public policy. The agreement binds the parties. Article 1306
of the Civil Code provides:
a.   ART. 1306. The contracting parties may establish such stipulations
clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs,
public order, or public policy.
11.   Finally in the instant case, it would be unjust and inequitable if recovery on
the policy would not be permitted against UCPB, which had consistently
granted a 60- to 90-day credit term for the payment of premiums despite its
full awareness of Section 77. Estoppel bars it from taking refuge under said
Section, since Masagana relied in good faith on such practice. Estoppel then
is the fifth exception to Section 77.

 
 
 18 SOUTH SEA SURETY AND INSURANCE COMPANY INC. v. CA insurance policy for the plaintiffs logs, he is deemed to have been authorized by
(HORTALEZA) the South Sea Surety and Insurance Co., Inc. to receive the premium which is
June, 02, 1995 | VITUG, J. | PREMIUM PAYMENT due on its behalf. When therefore the insured logs were lost, the insured had
already paid the premium to an agent of the South Sea Surety and Insurance
PETITIONER: South Sea Surety and Insurance Company Inc. Co., Inc., which is consequently liable to pay the insurance proceeds under the
RESPONDENTS: Hon.Court of Appeals and Valenzuela Hardwood and Industrial policy it issued to the insured.
Supply Inc. DOCTRINE: Sec. 306. . . . Any insurance company which delivers to an insurance
SUMMARY: (take note of the dates!) Valenzuela Hardwood and Industrial Supply agent or insurance broker a policy or contract of insurance shall be deemed to have
Inc. (Hardwood) undertook to board lauan round logs numbering 940 on January 16 authorized such agent or broker to receive on its behalf payment of any
1984 with Seven Brothers. On January 20 1984 the logs were then insured with premium which is due on such policy of contract of insurance at the time of its
South Sea Surety and Insurance Company Inc. (South Sea) for 2 million pesos. The issuance or delivery or which becomes due thereon.
logs were then boarded into vessel M/V Seven Ambassador owned by Seven (the doctrine in my own words) When an insurer delivers the insurance policy to
Brothers Shipping Corporation. On January 24 1984, Hardwood gave a check to an individual or a person he/she is deemed to have been authorized by the
Victorio Chua who works as an administrative assistant for the past ten years and an insurer to receive the premium which is due on its behalf. Thus when the
agent for less than ten years of the Columbia Insurance Brokers, Ltd. The M/V payment is made to the agent it is deemed as if made to the insurer himself.
Seven Ambassador ultimately sank on January 25 1984, and led to Hardwood
claiming upon the obligations of South Sea to pay the value of the loss logs. South FACTS:
Sea denies the claim on the premise that they only received on January 30 1984 a 1.   Two issues on the subject of insurance are raised in this petition, that assails
check for P5,625.00 serving as the Payment for the Premium agreed upon. The the decision, that assails the decision of the Court of Appeals. (in CA G.R.
refusal of South Sea to indemnify Hardwood led to the filing of the case. Hardwood NO. CV- 20156), the first dealing on the requirement of premium
and South Sea argue on whether Chua was acting as an agent for the insured payment and the second relating to the agency relationship of parties
(Hardwood) or the insurer (South Sea). South Sea claims that since Chua received under that contract.
the insurance premiums as an agent of the Columbia Insurance Broker, acted as an 2.   It appears that on 16 January 1984, Valenzuela Hardwood and Industrial
agent of the insured under Section 301 of the insurance code: Sec. 301.”Any person Supply, Inc. entered into an agreement with the defendant Seven Brothers
who for any compensation, commission or other thing of value, acts, or aids in whereby the latter undertook to load on board its vessel M/V Seven
soliciting, negotiating or procuring the making of any insurance contract or in Ambassador the former's lauan round logs numbering 940 at the port of
placing risk or taking out insurance, on behalf of an insured other than himself, shall Maconacon, Isabela for shipment to Manila.
be an insurance broker within the intent of this Code, and shall thereby become liable 3.   On 20 January 1984, plaintiff insured the logs, against loss and/or,
to all the duties requirements, liabilities and penalties to which an insurance broker is damage with defendant South Sea Surety and Insurance Co., Inc. for
subject.” while Hardwood claims under the second paragraph of Sec 306 of the P2,000,000.00 end the latter issued its Marine Cargo Insurance Policy
insurance code Sec. 306. “. . . Any insurance company which delivers to an No. 84/24229 for P2,000,000.00 on said date.
insurance agent or insurance broker a policy or contract of insurance shall be 4.   On 24 January 1984, the plaintiff gave the check in payment of the
deemed to have authorized such agent or broker to receive on its behalf premium on the insurance policy to Mr. Victorio Chua.
payment of any premium which is due on such policy of contract of insurance at 5.   In the meantime, the said vessel M/V Seven Ambassador sank on 25
the time of its issuance or delivery or which becomes due thereon”. In this January 1984 resulting in the loss of the plaintiffs insured logs.
petition for review on certiorari brought by South Sea Surety and Insurance Co., Inc 6.   On 30 January 1984, a check for P5,625.00 to cover payment of the
it argues that it likewise should have been freed from any liability to Hardwood. The premium and documentary stamps due on the policy was tendered to the
Issue was WoN the appellate court erred (a) for having Supposedly disregarded insurer but was not accepted. Instead, the South Sea Surety and Insurance
Section 7729 of the insurance Code and (b) for holding Victorio Chua to have been an Co., Inc. cancelled the insurance policy it issued as of the date of inception
authorized representative of the insurer.? NO to both,When the appellant South for non payment of the premium due in accordance with Section 77 of the
Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine cargo Insurance Code.
7.   On 2 February 1984, plaintiff demanded from defendant South Sea Surety

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
29 and Insurance Co., Inc. the payment of the proceeds of the policy but the

 Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the latter denied liability under the policy. Plaintiff likewise filed a formal
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,
claim with defendant Seven Brothers Shipping Corporation for the value of
except in the case of a life or an industrial life policy whenever the grace period provision applies.
 
the lost logs but the latter denied the claim.
8.   In its decision, dated 11 May 1988, the trial court rendered judgment in
favor of plaintiff Hardwood.
9.   In the decision the court dismissed the claims against the Seven Brothers
Shipping corporation because there was a stipulation exempting them from
liability and they were deemed here to be a private carrier (only relevant
information about the shipping corporation is this)
10.   In this petition for review on certiorari brought by South Sea Surety and
Insurance Co., Inc., argues that it likewise should have been freed from any
liability to Hardwood. It faults the appellate court (a) for having Supposedly
disregarded Section 77 of the insurance Code and (b) for holding Victorio
Chua to have been an authorized representative of the insurer.
a.   Sec. 77. 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.
11.   No attempt becloud the issues can disguise the fact that the sole question
raised in the instant petition is really evidentiary in nature, i.e., whether
or not Victorio Chua, in receiving the check for the insurance premium
prior to the occurrence of the risk insured against has so acted as an
agent of South Sea. The appellate court, like the trial court, has found in
the affirmative. Said the appellate court:
a.   In the instant case, the Marine Cargo Insurance Policy No.
84/24229 was issued by defendant insurance company on 20
January 1984. At the time the vessel sank on 25 January 1984
resulting in the loss of the insured logs, the insured had already
delivered to Victorio Chua the check in payment of premium.
But, as Victorio Chua testified, it was only in the morning of 30
January 1984 or 5 days after the vessel sank when his
messenger tendered the check to defendant South Sea Surety
and Insurance Co., Inc.
b.   Appellant surety company insists that Mr. Chua is an
administrative assistant for the past ten years and an agent for less
than ten years of the Columbia Insurance Brokers, Ltd. He is paid a
salary as a administrative assistant and a commission as agent
based on the premiums he turns over to the broker. Appellant
therefore argues that Mr. Chua, having received the insurance
premiums as an agent of the Columbia Insurance Broker, acted as
an agent of the insured under Section 301 of the Insurance Code
which provides as follows:
i.   Sec. 301. Any person who for any compensation,
commission or other thing of value, acts, or aids in
soliciting, negotiating or procuring the making of any
insurance contract or in placing risk or taking out
insurance, on behalf of an insured other than himself,
shall be an insurance broker within the intent of this
Code, and shall thereby become liable to all the duties
requirements, liabilities and penalties to which an
insurance broker is subject.
c.   The appellees, upon the other hand, claim that the second
paragraph of Section 306 of the Insurance Code provide as
follows:
i.   Sec. 306. . . . Any insurance company which
delivers to an insurance agent or insurance broker a policy
or contract of insurance 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 of
contract of insurance at the time of its issuance or delivery
or which becomes due thereon.
ISSUE/s:
1.   WoN the appellate court erred (a) for having Supposedly disregarded
Section 77 of the insurance Code and (b) for holding Victorio Chua to have
been an authorized representative of the insurer.? No to both,When the
appellant South Sea Surety and Insurance Co., Inc. delivered to Mr.
Chua the marine cargo insurance policy for the plaintiffs logs, he is
deemed to have been authorized by the South Sea Surety and Insurance
Co., Inc. to receive the premium which is due on its behalf. When
therefore the insured logs were lost, the insured had already paid the
premium to an agent of the South Sea Surety and Insurance Co., Inc.,
which is consequently liable to pay the insurance proceeds under the
policy it issued to the insured.
RULING: WHEREFORE, the resolution, dated 01 February 1993, granting due
course to the petition is RECALLED, and the petition is DENIED. Costs against
petitioner.
RATIO:
1.   Undoubtedly, the payment of the premium is a condition precedent to, and
essential for, the efficaciousness of the contract. The only two statutorily
provided exceptions are (a) in case the insurance coverage relates to life or
industrial life (health) insurance when a grace period applies and (b) when
the insurer makes a written acknowledgment of the receipt of premium, this
acknowledgment being declared by law to be then conclusive evidence of
the premium payment (Secs. 77-78, Insurance Code). The appellate court,
contrary to what the petition suggests, did not make any pronouncement to
the contrary. Indeed, it has said:
a.   Concerning the issue as to whether there is a valid contract of
insurance between plaintiff-appellee and defendant-appellant
South Sea Surety and Insurance Co., Inc., Section 77 of the
 Insurance Code explicitly provides that notwithstanding any
agreement to the contrary, no policy issued by an insurance
company is valid and binding unless and until premium thereof has
been paid. It is therefore important to determine whether at the
time of the loss, the premium was already paid
2.   On cross-examination in behalf of South Sea Surety and Insurance Co., Inc.
Mr. Chua testified that the marine cargo insurance policy for the plaintiff's
logs was delivered to him on 21 January 1984 at his office to be
delivered to the plaintiff.
3.   When the appellant South Sea Surety and Insurance Co., Inc. delivered to
Mr. Chua the marine cargo insurance policy for the plaintiffs logs, he is
deemed to have been authorized by the South Sea Surety and Insurance
Co., Inc. to receive the premium which is due on its behalf.
4.   When therefore the insured logs were lost, the insured had already paid
the premium to an agent of the South Sea Surety and Insurance Co.,
Inc., which is consequently liable to pay the insurance proceeds under
the policy it issued to the insured

 

 
 
 019 GAISANO v. DEVELOPMENT INSURANCE (Fordan)
Feb. 27, 2017 | Jardeleza, J. | Payment of insurance premiums
PETITIONER: Jaime T. Gaisano
RESPONDENTS: Development Insurance and Surety Corporation
SUMMARY: 2. On Sept. 27, 1996, Development Insurance issued a
comprehensive commercial vehicle policy to Gaisano of P1.5M over his vehicle,
Mitsubishi Montero for 1 year commencing on said date. It also issued 2 other
commercial vehicle policies to Gaisano covering 2 other motor vehicles for the
same period. A statement of account was sent to Noah’s Ark, Gaisano’s
company, wherein it immediately processed and issued a check for the payment
of the premiums. However, Trans-Pacific, agent of Development Insurance,
informed Noah’s Ark that it would pick-up the check the following day since
there was a celebration in the company. Meanwhile, on the evening of Sept. 27,
while under the custody of Pacquing, Noah’s Ark Marketing Manager, the
vehicle was stolen in SM Megamall. The incident was reported to the PNP and
despite the search and retrieval efforts, the vehicle was not recovered. Oblivious
of the incident, Trans-Pacific did picked-up the check on Sept. 28, issued an OR,
and deposited it to Metrobank on Oct. 1. Upon notice from Pacquing, Gaisano
reported the loss and and filed a claim with Development Insurance for the
insurance proceeds of P1.5M. However, Development Insurance denied the
claim on the ground that there was no insurance contract since non-payment of
the premium rendered the policy ineffective. The premium was received only on
Oct. 2, 1996, and there was no known loss covered by the policy to which the
payment could be applied.. Gaisano then filed a complaint for collection of sum
of money and damages with the RTC. RTC ruled in favor of Gaisano. However,
the CA reversed the decision. Hence, the current petition.
The issue is whether or not there is a binding insurance contract between
Gaisano and Development Insurance. NO. The SC held that just like any other
contract, insurance contract requires a cause or consideration. The consideration
is the premium, which must be paid at the time and in the way and manner
specified in the policy. If not so paid, the policy will lapse and be forfeited by its
own terms. The general rule in insurance laws is that unless the premium is paid,
the insurance policy is not valid and binding pursuant to Sec. 77 of the Insurance
Code. 4. In this case, there is no dispute that the check was delivered to and was
accepted by Trans-Pacific, only on Sept. 28. No payment of premium had thus
been made at the time of the loss of the vehicle on Sept. 27. However, there are
exceptions to the rule that no insurance contract takes effect unless premium is
paid as summarized in UCPB General Insurance Co., Inc. v. Masagana
Telamart, Inc. (kindly see doctrine). In this case, the insurance policy in question
does not fall under the 1st to 3rd exceptions laid out in UCPB General Insurance
Co., Inc.: (1) the policy is not a life or industrial life policy; (2) the policy does
not contain an acknowledgment of the receipt of premium but merely a
statement of account on its face; and (3) no payment of an installment was made
at the time of loss on Sept. 27. It does not also falls in the 4th and 5th exceptions
since Gaisano failed to establish the fact of a grant by Development Insurance of
a credit term in his favor, or that the grant has been consistent. While there was
mention of a credit agreement between Trans-Pacific and Development
Insurance, such arrangement was not proven and was internal between agent and
principal. Under the principle of relativity of contracts, contracts bind the parties
who entered into it. It cannot favor or prejudice a third person, even if he is
aware of the contract and has acted with knowledge. Moreover, the policy itself
states that the insured's application for the insurance is subject to the payment of
the premium. There is no waiver of pre-payment, in full or in installment, of the
premiums under the policy. Consequently, Development Insurance cannot be
placed in estoppel. Thus, SC find that Gaisano is not entitled to the insurance
proceeds because no insurance policy became effective for lack of premium
payment.
DOCTRINE: The general rule in insurance laws is that unless the premium is
paid, the insurance policy is not valid and binding pursuant to Sec. 77 of the
Insurance Code. However, UCPB General Insurance Co., Inc. v. Masagana
Telamart, Inc., summarized the following exceptions:
1.  in case of life or industrial life policy, whenever the grace period provision
applies, as expressly provided by Sec. 77 itself;
2.  where the insurer acknowledged in the policy or contract of insurance itself
the receipt of premium, even if premium has not been actually paid, as
expressly provided by Sec. 78 itself;
3.  where the parties agreed that premium payment shall be in installments and
partial payment has been made at the time of loss, as held in Makati
Tuscany Condominium Corp. v. Court of Appeals;
4.  where the insurer granted the insured a credit term for the payment of the
premium, and loss occurs before the expiration of the term, as held in
Makati Tuscany Condominium Corp.; and
5.  where the insurer is in estoppel as when it has consistently granted a 60-to
90-day credit term for the payment of premiums.
FACTS:
107.  Petitioner Jaime T. Gaisano (Gaisano) was the registered owner of a 1992
Mitsubishi Montero with plate number GTJ 777 (vehicle) while
respondent Development Insurance and Surety Corporation (Development
Insurance) is a domestic corporation engaged in the insurance business.
108.  On Sept. 27, 1996, Development Insurance issued a comprehensive
commercial vehicle policy to Gaisano of P1.5M over the vehicle for 1 year
commencing on Sept. 27, 1996. It also issued 2 other commercial vehicle
policies to Gaisano covering 2 other motor vehicles for the same period.
109.  To collect the premiums, Trans-Pacific Underwriters Agency (Trans-
Pacific), agent of Development Insurance, issued a statement of account to
Gaisano’s company, Noah’s Ark Merchandising (Noah’s Ark).
110.  Noah's Ark immediately processed the payments and issued a Far East Bank
 check (of P140,893.50) dated Sept. 27, 1996 payable to Trans Pacific on
the same day. The check represents payment for the 3 insurance policies,
with P55,620.60 for the premium and other charges over the vehicle.
111.  However, nobody from Trans Pacific picked up the check that day (Sept.
27) because its president and general manager, Rolando Herradura, was
celebrating his birthday. Trans Pacific informed Noah's Ark that its
messenger would get the check the next day, Sept. 28.
112.  Meanwhile, in the evening of Sept. 27, while under the official custody of
Noah's Ark marketing manager Achilles Pacquing (Pacquing) as a service
company vehicle, the vehicle was stolen in the vicinity of SM Megamall at
Ortigas, Mandaluyong City.
113.  Pacquing reported the loss to the PNP Traffic Management Command at
Camp Crame in Quezon City. Despite search and retrieval efforts, the
vehicle was not recovered.
114.  Oblivious of the incident, Trans-Pacific picked up the check the next day
(Sept. 28). It issued an OR (dated Sept. 28) acknowledging the receipt of
the premium and other charges over the vehicle. The check was then
deposited with Metrobank for encashment on Oct. 1 which was the same
day that Pacquing informed Gaisano of the vehicle's loss.
115.  Thereafter, Gaisano reported the loss and filed a claim with Development
Insurance for the insurance proceeds of P1.5M. However, Development
Insurance denied the claim on the ground that there was no insurance
contract.
116.  Gaisano, through counsel, sent a final demand but Development Insurance
still refused to pay the insurance proceeds or return the premium paid on the
vehicle. Thus, Gaisano filed a complaint for collection of sum of money and
damages with the RTC.
117.  In its Answer, Development Insurance asserted that the nonpayment of the
premium rendered the policy ineffective. The premium was received only
on Oct. 2, 1996, and there was no known loss covered by the policy to
which the payment could be applied.
118.  The RTC ruled in favor of Gaisano It considered the premium paid as of
Sept. 27, even if the check was received only on Sept. 28 because (1) Trans-
Pacific, agent, acknowledged payment of the premium on that date (Sept.
27), and (2) the check issued was honored in acknowledgment of the
authority of the agent to receive it.
119.  On appeal, the CA reversed the decision of the RTC. It upheld
Development Insurance’s position that an insurance contract becomes valid
and binding only after the premium is paid pursuant to Sec. 77 of the
Insurance Code. It found that the premium was not yet paid at the time of
the loss on Sept. 27, but only a day after, when the check was picked up by
TransPacific. It also found that none of the exceptions to Sec. 77 obtains in
this case. Nevertheless, the CA ordered Development Insurance to return
the premium it received in of P55,620.60, with interest at the rate of 6% per
annum from the date of the denial of the claim on Oct. 9, 1996 until
payment.
120.  Hence, the current petition. Gaisano argues that:
a.   there was a valid and binding insurance contract between him and
Development Insurance;
b.   it comes within the exceptions to the rule in Sec. 77 of the Insurance
Code that no contract of insurance becomes binding unless and until
the premium thereof has been paid;
c.   the prohibitive tenor of Sec. 77 does not apply because the parties
stipulated for the payment of premiums wherein the parties intended
the contract of insurance to be immediately effective upon issuance,
despite nonpayment of the premium, because Development Insurance
trusted him;
d.   Development Insurance waived its right to a prepayment in full of the
terms of the policy, and is in estoppel;
e.   assuming he is not entitled to recover insurance proceeds but only to
the return of the premiums paid, then he should be able to recover the
full P140,893.50 and not merely P55,620.60 since the insurance policy
covered 3 vehicles yet Development Insurance's intention was merely
to disregard the contract for only the lost vehicle. Thus, the principle
of mutuality of contracts is violated, at his expense.
ISSUE: Whether or not there is a binding insurance contract between Gaisano
and Development Insurance would be binding. – NO, since there was no payment
of premium that has been made at the time of the loss of the vehicle on Sept. 27 and
the circumstances does not fall into any of the exceptions noted in the case of UCPB
General Insurance Co., Inc.
RULING: The petition is denied. The assailed decision of the CA and the
Resolution are affirmed with the modification that Development Insurance should
return the P55,620.60 with the legal interest computed at the rate of 6% per annum
reckoned from July 7, 1997 until finality of this judgment. Thereafter, the total
amount shall earn interest at the rate of 6% per annum from the finality of this
judgment until its full satisfaction.
RATIO:
63.   Insurance is a contract whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an
unknown or contingent event. Just like any other contract, it requires a
cause or consideration. The consideration is the premium, which must
be paid at the time and in the way and manner specified in the policy. If
not so paid, the policy will lapse and be forfeited by its own terms.
64.   The law, however, limits the parties' autonomy as to when payment of
premium may be made for the contract to take effect. The general rule in
insurance laws is that unless the premium is paid, the insurance policy
is not valid and binding. Section 77 of the Insurance Code, applicable at
the time of the issuance of the policy, provides:
Sec. 77. 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 60-to 90-day credit term for the payment of premiums.
insurance company is valid and binding unless and until the premium 69.   In this case, the insurance policy in question does not fall under the 1st
thereof has been paid, except in the case of a life or an industrial life to 3rd exceptions laid out in UCPB General Insurance Co., Inc.: (1) the
policy whenever the grace period provision applies. policy is not a life or industrial life policy; (2) the policy does not
65.   In Tibay v. Court of Appeals, we explained that in an insurance contract, contain an acknowledgment of the receipt of premium but merely a
both the insured and insurer undertake risks. On one hand, there is the statement of account on its face; and (3) no payment of an installment
insured, a member of a group exposed to a particular peril, who contributes was made at the time of loss on Sept. 27.
premiums under the risk of receiving nothing in return in case the 70.   Furthermore, the SC does not agree with Gaisano that his case falls under
contingency does not happen; on the other, there is the insurer, who the 4th and 5th exceptions.
undertakes to pay the entire sum agreed upon in case the contingency 71.   The 4th and 5th exceptions to Sec. 77 operate under the facts obtaining in
happens. This risk-distributing mechanism operates under a system where, Makati Tuscany Condominium Corp. and UCPB General Insurance Co.,
by prompt payment of the premiums, the insurer is able to meet its legal Inc. Both contemplate situations where the insurers have consistently
obligation to maintain a legal reserve fund needed to meet its contingent granted the insured a credit extension or term for the payment of the
obligations to the public. The premium, therefore, is the elixir vitae or premium.
source of life of the insurance business. 72.   Here, Gaisano failed to establish the fact of a grant by Development
66.   In this case, there is no dispute that the check was delivered to and was Insurance of a credit term in his favor, or that the grant has been
accepted by Trans-Pacific, only on Sept. 28. No payment of premium consistent. While there was mention of a credit agreement between
had thus been made at the time of the loss of the vehicle on Sept. 27. Trans-Pacific and Development Insurance, such arrangement was not
67.   While Gaisano claims that Trans-Pacific was informed that the check was proven and was internal between agent and principal. Under the
ready for pick-up on Sept. 27, the notice of the availability of the check, by principle of relativity of contracts, contracts bind the parties who
itself, does not produce the effect of payment of the premium. Trans-Pacific entered into it. It cannot favor or prejudice a third person, even if he is
could not be considered in delay in accepting the check because when it aware of the contract and has acted with knowledge.
informed Gaisano that it will only be able to pick-up the check the next day, 73.   Furthermore, the SC cannot sustain Gaisano’s claim that the parties agreed
the latter did not protest to this, but instead allowed it to do so. Thus, at the that the insurance contract is immediately effective upon issuance despite
time of loss, there was no payment of premium yet to make the insurance non-payment of the premiums.
policy effective. 74.   Even if there is a waiver of prepayment of premiums, that in itself does not
68.   There are, of course, exceptions to the rule that no insurance contract become an exception to Sec. 77, unless the insured clearly gave a credit
takes effect unless premium is paid. In UCPB General Insurance Co., term or extension. This is the clear import of the 4th exception in the UCPB
Inc. v. Masagana Telamart, Inc., we summarized the exceptions as General Insurance Co., Inc. To rule otherwise would render nugatory the
follows: requirement in Sec. 77 that "[n]otwithstanding any agreement to the
a.   in case of life or industrial life policy, whenever the grace period contrary, no policy or contract of insurance issued by an insurance company
provision applies, as expressly provided by Sec. 77 itself; is valid and binding unless and until the premium thereof has been paid, x x
b.   where the insurer acknowledged in the policy or contract of x."
insurance itself the receipt of premium, even if premium has not 75.   Moreover, the policy itself states:
been actually paid, as expressly provided by Sec. 7830 itself; WHEREAS THE INSURED, by his corresponding proposal and
c.   where the parties agreed that premium payment shall be in declaration, and which shall be the basis of this Contract and deemed
installments and partial payment has been made at the time of loss, incorporated herein, has applied to the company for the insurance
as held in Makati Tuscany Condominium Corp. v. Court of Appeals; hereinafter contained, subject to the payment of the Premium as
d.   where the insurer granted the insured a credit term for the payment consideration for such insurance. (Emphasis supplied.)
of the premium, and loss occurs before the expiration of the term, as 76.   The policy states that the insured's application for the insurance is
held in Makati Tuscany Condominium Corp.; and subject to the payment of the premium. There is no waiver of pre-
e.   where the insurer is in estoppel as when it has consistently granted a payment, in full or in installment, of the premiums under the policy.
Consequently, Development Insurance cannot be placed in estoppel.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  77.   Thus, SC find that Gaisano is not entitled to the insurance proceeds
30
SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of because no insurance policy became effective for lack of premium
premium is conclusive evidence of its payment, so far as to make the policy binding, payment.
notwithstanding any stipulation therein that it shall not be binding until premium is actually
78.   The consequence of this declaration is that Gaisano is entitled to a return of
paid.
 the premium paid for the vehicle of P55,620.60 under the principle of unjust
enrichment.
79.   There is unjust enrichment when a person unjustly retains a benefit to the
loss of another, or when a person retains money or property of another
against the fundamental principles of justice, equity and good conscience.
80.   Gaisano cannot claim the full P140,893.50, which includes the payment of
premiums for the 2 other vehicles. These two policies are not affected by
the ruling on the policy subject of this case because they were issued as
separate and independent contracts of insurance.

 

 
 
 020 PHILIPPINE PHOENIX SURETY & INSURANCE v.
WOODWORKS (GALINDEZ)
August 31, 1967 | Dizon, J. | Return of Premium
PETITIONER: Philippine Phoenix Surety & Insurance, Inc.
RESPONDENTS: Woodworks, Inc.
SUMMARY: Phoenix Surety issued to Woodworks on April 1, 1960 Fire
Policy No. 9652 for P300,000 under the terms and conditions set forth in the
policy. The premiums of the policy amounted to P6,051.95, the margin fee
amounted to P363.72 and documentary stamp tax, P96.42. Woodworks paid
P3,000 on September 22, 1960. Phoenix Surety made several demands on
Woodworks to pay P3,522.09.
Phoenix Surety instituted an action to recover from Woodworks the balance of
P3,522.09 for the premium of the fire policy. Woodworks refused to pay and the
case reached the SC. Woodworks’ theory: non-payment by it of the premium
due produced the cancellation of the contract of insurance. However, 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.
ISSUE: WoN the nonpayment of premiums produced the cancellation of the
insurance contract – NO. (See Doctrine)
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.
DOCTRINE: 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.
This is more or less the whole case J
FACTS:
1.   Appellee Phoenix Surety commenced this action in the Municipal Court of
Manila to recover from appellant Woodworks, Inc. P3,522.09 representing
the unpaid balance of the premiums on a fire insurance policy issued by
Phoenix Surety in favor of Woodworks for a term of one year, from April 1
1960 to 1961.
2.   From an adverse decision of said court, Woodworks appealed to the CFI of
Manila where the parties submitted the following stipulation of facts:
a.   Both parties are corporations duly organized and existing by virtue
of Philippine laws
b.   Phoenix Surety issued to Woodworks on April 1, 1960 Fire Policy
No. 9652 for P300,000 under the terms and conditions set forth in
the policy
c.   The premiums of the policy amounted to P6,051.95, the margin fee
amounted to P363.72 and documentary stamp tax, P96.42
d.   Woodworks paid P3,000 on September 22, 1960
e.   Phoenix Surety made several demands on Woodworks to pay
P3,522.09.
ISSUE/s:
1.   WoN the nonpayment of premiums produced the cancellation of the
insurance contract – NO. 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.
RULING: Wherefore, the appealed decision being in accordance with law and the
evidence, the same is hereby affirmed, with costs.
RATIO:
1.   There is no doubt that between the insurer and 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.
2.   After, the obligation of the insurer to pay the insured the amount for which
the policy was issued in case the conditions had been complied with, arose
and became binding upon it, while the obligation of the insured to pay the
remainder of the total amount of the premium became due and demandable.
3.   The Court cannot agree with Woodworks’ theory that non-payment by it of
the premium due produced the cancellation of the contract of insurance.
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.
4.   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.
5.   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.
6.   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.
 021 CAPITAL INSURANCE v. PLASTIC ERA (Gonzales)
July 18, 1975 | Martin, J. | Return of Premium
PETITIONER: Capital Insurance & Surety Co., Inc.
RESPONDENT: Plastic Era Co., Inc. and Court of Appeals
SUMMARY: When Capital Insurance delivered to Plastic Era its open fire policy
whereby the former undertook to insure the latter's property, the latter did not pay the
premium, but instead executed an acknowledgment receipt with a promise to pay the
premium within 30 days from December 17, 1960, the effectivity date of the policy.
Capital Insurance duly accepted the receipt. On January 8, 1961, Plastic Era, in
partial payment of the premium, delivered a check of P1,000, postdated January 16,
1961. Capital Insurance tried to deposit the check only on February 20, 1961, and the
same was dishonored for lack of funds. But the records show that as of January 19,
1961, Plastic Era had sufficient funds with the bank to cover the check. On January
18, 1961, or two days after the insurance premium became due, the insured
properties were destroyed by fire. Plastic Era demanded payment of indemnity but
Capital Insurance refused on the ground of non-payment of premium. Plastic Era
sued Capital Insurance and the trial court rendered judgment in favor of the former.
The Court of Appeals sustained the trial court. The issue is WoN a contract of
insurance has been duly perfected between Capital Insurance and Plastic Era – YES.
By accepting the Plastic Era’s promise to pay the insurance premium, Capital
Insurance, in effect, had extended credit to the former and did not have the right to
cancel the policy except by putting Plastic Era in default by giving it personal notice
to that effect.
DOCTRINE: Where the insurer accepted the promise of the insured to pay the
insurance premium within 30 days from the effectivity date of the policy, the former
implicitly agreed to modify the tenor of the insurance contract and in effect waived
the provisions therein that it would only pay for the loss or damage in case the same
occurs after the payment of the premium; and where the policy is silent as to the
mode of payment, the insurer is deemed to have accepted the promissory note in
payment of the premium. This rendered, the policy is immediately operative.
FACTS:
1.   Capital Insurance delivered to Plastic Era its open Fire Policy No.
22760 wherein the former undertook to insure the latter's building,
equipments, raw materials, products and accessories located at Sheridan
Street, Mandaluyong, Rizal.
2.   The policy provides that if the property insured would be destroyed or
damaged by fire after the payment of the premiums, at any time between the
15th day of December 1960 and one o'clock in the afternoon of the 15th day
of December 1961, the insurance company shall make good all such loss or
damage in an amount not exceeding P100,000.00.
3.   When the policy was delivered, Plastic Era failed to pay the corresponding
insurance premium. However, through its duly authorized representative, it
executed acknowledgment receipt.31
4.   In partial payment, Plastic Era delivered to Capital Insurance, a check for
the amount of P1,000.00 postdated January 16, 1961.
5.   However, Capital Insurance tried to deposit the check only on February 20,
1961 and the same was dishonored for lack of funds. The records show that
as of January 19, 1961 Plastic Era had a balance of P1,193.41 with the bank
6.   On January 18, 1961 or two days after the insurance premium became due,
at about 4:00 to 5:00 o'clock in the morning, the property insured by Plastic
Era was destroyed by fire.
7.   The loss and/or damage was estimated to be P283,875. However, according
to the records the same property has been insured by Plastic Era with the
Philamgen Insurance Company for P200,000.00.
8.   Plastic Era demanded from Capital Insurance the payment of the sum of
P100,000.00 but the latter refused because of Plastic Era’s failure to pay the
insurance premium. Plastic Era thus filed a complaint for the recover of the
sum of P100,000 plus attorney’s fees and additional expenses.
9.   The trial court ordered Capital Insurance to pay Plastic Era P88,325.63.
10.   CA affirmed the decision of the trial court.
ISSUE:
1.   WoN a contract of insurance has been duly perfected between Capital
Insurance and Plastic Era – YES. By accepting the promise of Plastic Era to
pay the insurance premium within thirty (30) days from the effective date of
policy, Capital Insurance has implicitly agreed to modify the tenor of the
insurance policy and in effect, waived the provision therein that it would
only pay for the loss or damage in case the same occurs after the payment of
the premium.
RULING: Petition denied. CA decision affirmed.
RATIO:
1.   In clear and unequivocal terms the insurance policy32 provides that it is only
upon payment of the premiums by Plastic Era that Capital Insurance agrees
31
"This acknowledged receipt of Fire Policy) NO. 22760 Premium. . .) (I promise to pay)
(P2,220.00) (has been paid) THIRTY DAYS AFTER on effective date ______ (Date)”
32
"This Policy of Insurance Witnesseth That in consideration of PLASTIC ERA hereinafter called the
Insured, paying to the Capital Insurance hereinafter called the Company, the sum of PESOS TWO
THOUSAND ONE HUNDRED EIGHTY EIGHT the premium for the first period hereinafter mentioned,
for insuring against Loss or Damage by only Fire or Lightning, as hereinafter appears, the Property
hereinafter described and contained, or described herein and not elsewhere, in the several sums following
namely: PESOS ONE HUNDRED THOUSAND ONLY, PHILIPPINE CURRENCY; . . . THE
COMPANY HEREBY AGREES with the Insured but subject to the terms and conditions endorsed or
otherwise expressed hereon, which are to be taken as part of this Policy), that if the Property described, or
any part thereof, shall be destroyed or damaged by Fire or Lightning after payment of the Premiums, at
any time between the 15th day of December One Thousand Nine Hundred and Sixty and 1 o'clock in the
afternoon of the 15th day of December One Thousand Nine Hundred and Sixty-One of the last day of any
 to insure the properties of the former against loss or damage in an amount claiming a forfeiture of its policy for non-payment even if the check had
not exceeding P100,000.00. been dishonored later.
2.   The crux of the problem then is whether at the time the insurance policy 9.   Finally, it is submitted by Capital Insurance that: "We are here concerned
was delivered to Plastic Era on December 17, 1960, the latter was able to with a case of reciprocal obligations, and Plastic Era having failed to
pay the stipulated premium. comply with its obligation to pay the insurance premium due on the policy
3.   On the day the insurance policy was delivered, Plastic Era did not pay the within thirty days from December 17, 1960, Capital Insurace was relieved
Capital Insurance, but instead executed an acknowledgment receipt wherein of its obligation to pay anything under the policy, without the necessity of
it promised to pay the premium within thirty (30) days from the effectivity first instituting an action for rescission of the contract of ensured entered
date of the policy on December 17, 1960 and Capital Insurance accepted it. into by the parties."
4.   Under Article 124933 of the Civil Code, the mere delivery of a bill of 10.   But precisely in this case, Plastic Era has complied with its obligation to
exchange in payment of a debt does not immediately effect payment. pay the insurance premium and therefore Capital Insurance is obliged to
5.   Here, Capital Insurance accepted the promise of Plastic Era to pay the make good its undertaking to Plastic Era.
insurance premium within thirty (30) days from the effective date of policy. |
By so doing, it has implicitly agreed to modify the tenor of the
insurance policy and in effect, waived the provision therein that it
 
would only pay for the loss or damage in case the same occurs after the
payment of the premium. Considering that the insurance policy is silent as
to the mode of payment, Capital Insurance is deemed to have accepted the
promissory note in payment of the premium.
6.   Hence, when the damage of the insured property occurred, the insurance
policy was in full force and effect. The fact that the check issued by
Plastic Era in partial payment of the promissory note was later on
dishonored did not in any way operate as a forfeiture of its rights under
the policy, there being no express stipulation therein to that effect.
7.   The payment of the premium on the insurance policy became an
independent obligation the non-fulfillment of which would entitle Capital
Insurance to recover. It could just deduct the premium due and unpaid upon
the satisfaction of the loss under the policy. It did not have the right to
cancel the policy for nonpayment of the premium except by putting Plastic
Era in default and giving it personal notice to that effect.
8.   Although the check was due for payment on January 16, 1961 and Plastic
Era had sufficient funds to cover it as of January 19, 1961, Capital
Insurance decided to hold the same for thirty-five (35) days before
presenting it for payment. Having held the check for such an
unreasonable period of time, Capital Insurance was estopped from

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
subsequent period in respect of which the insured, or a successor in interest to whom the insurance is by
an endorsement hereon declared to be or is otherwise continued, shall pay to the Company and the
Company shall accept the sum required for the renewal of this Policy, the Company will pay or make
good all such loss or Damage, to an amount not exceeding during any one period of the insurance in
respect of the several matters specified, the sum; set opposite thereto respectively, and not exceeding the
whole sum of PESOS, ONE HUNDRED THOUSAND ONLY, PHIL. CUR. . . ."
33
"The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired." xxx "In the meantime, the action derived from the original obligation
shall be held in abeyance."

 
 001 GULF RESORT INC. v. PHIL. CHARTER (Escalona)
May 16, 2005 | Puno, J. | The Policy
PETITIONER: Gulf Resort Inc.
RESPONDENTS: Philippine Charter Insurance Corporation
SUMMARY: Gulf Resort, Inc at Agoo, La Union was insured with American
Home Assurance Company, which includes loss or damage to shock to any of
the property insured by this Policy occasioned by or through or in consequence
of earthquake. Gulf Resort then insured its properties with PCIC based on the
same insurance contract they had with AHAC. Later on, an earthquake struck
Central Luzon and Northern Luzon so the properties and 2 swimming pools in its
Agoo Playa Resort were damaged. Gulf then claimed against PCIC for the
damages the earthquake created on its properties. Gulf's claim was denied on the
ground that its insurance policy only afforded earthquake shock coverage to the
two swimming pools of the resort. Gulf contends that pursuant to this rider, no
qualifications were placed on the scope of the earthquake shock coverage, thus
the policy extended earthquake shock coverage to all of the insured properties.
The RTC ruled in favor of PCIC that the policy only covered the two swimming
pools. The CA affirmed the decision of the RTC.
The issue is WoN the insurance policy covers the other properties beyond the
two swimming pools.
The Court ruled that the insurance policy did not cover the other properties. The
Court first ruled that a stipulation in the contract cannot be construed piecemeal,
such that the contract should be construed as a whole, including the provisions
and riders. They should all be construed together in order to evidence the
intention of the parties of whether they wanted to insure the other properties
against earthquake shocks. The Court held that there was no intention of the
parties to include such because there were no premiums paid for the other
properties against earthquake shocks, apart from the two swimming pools. This
is in consonance with the history of the deletion of the other properties from
insurance against earthquake shocks in the insurance contracts that Gulf had with
AHAC.
DOCTRINE: All 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.
FACTS:
1.   Gulf Resort is the owner of the Plaza Resort situated at Agoo,
La Union and had its properties in said resort insured originally
with the American Home Assurance Company (AHAC). In the
first four insurance policies issued by AHAC, the risk of loss
from earthquake shock was extended only to Gulf Resort’s two
swimming pools. Item 5 in those policies referred to the two
(2) swimming pools only; that subsequently AHAC issued in
Gulf Resort’s favor Policy No. 206-4182383-0 and in said
policy the earthquake endorsement clause was deleted and
the entry under Endorsements/Warranties at the time of issue
read that Gulf Resort renewed its policy with AHAC for the
period of March 14, 1989 to March 14, 1990 under Policy No.
206-4568061-9, which carried the entry under
Endorsement/Warranties at Time of Issue, which read
Endorsement to Include Earthquake Shock in the amount
of P10,700.00 and paid P42,658.14 as premium thereof.
2.   Gulf then insured its properties with PCIC using the exact same
contract it used to have with AHAC.
3.   On July 16, 1990, an earthquake struck Central Luzon and
Northern Luzon and Gulf Resort’s properties covered by Policy
No. 31944 issued by PCIC, including the two swimming pools
in its Agoo Playa Resort were damaged.
4.   After the earthquake, Gulf Resort advised PCIC that it would
be making a claim under its Insurance Policy No. 31944 for
damages on its properties. PCIC instructed Gulf Resort to file a
formal claim, then assigned the investigation of the claim to an
independent claims adjuster, Bayne Adjusters and Surveyors,
Inc. On July 30, 1990, PCIC, through its adjuster, requested
Gulf Resort to submit various documents in support of its
claim. On August 7, 1990, Bayne Adjusters and Surveyors,
Inc., through its Vice-President A.R. de Leon, rendered a
preliminary report finding extensive damage caused by the
earthquake to the clubhouse and to the two swimming
pools. Mr. de Leon stated that except for the swimming
pools, all affected items have no coverage for earthquake
shocks. On August 11, 1990, Gulf Resort filed its form
demand for settlement of the damage to all its properties in the
Agoo Playa Resort. On August 23, 1990, PCIC denied Gulf
Resort’s claim on the ground that its insurance policy only
 afforded earthquake shock coverage to the two swimming
pools of the resort. Gulf Resort and PCIC failed to arrive at a
settlement. Thus, on January 24, 1991, Gulf Resort filed a
complaint with the regional trial court of Pasig.
5.   The lower court after trial ruled in favor of the PCIC, stating:
a.   The above schedule clearly shows that plaintiff paid
only a premium of P393.00 against the peril of
earthquake shock, the same premium it paid against
earthquake shock only on the two swimming pools in
all the policies issued by PCIC. From this fact the Court
must consequently agree with the position of PCIC that
the endorsement rider means that only the two
swimming pools were insured against earthquake
shock.
b.   Gulf Resort correctly points out that a policy of
insurance is a contract of adhesion hence, where the
language used in an insurance contract or application is
such as to create ambiguity the same should be resolved
against the party responsible therefor, i.e., the insurance
company which prepared the contract. To the mind of
the Court, the language used in the policy in litigation is
clear and unambiguous hence there is no need for
interpretation or construction but only application of the
provisions therein.
c.   From the above observations the Court finds that only
the two (2) swimming pools had earthquake shock
coverage and were heavily damaged by the earthquake,
which struck on July 16, 1990. PCIC having admitted
that the damage to the swimming pools was appraised
by PCIC’s adjuster at P386,000.00, PCIC must, by
virtue of the contract of insurance, pay Gulf Resort said
amount.
6.   Gulf Resort’s Motion for Reconsideration was denied. Thus,
Gulf Resort filed an appeal with the Court of Appeals. After
review, the appellate court affirmed the decision of the trial
court and ruled, thus:
a.   However, after carefully perusing the documentary
evidence of both parties, We are not convinced that
the last two (2) insurance contracts, which the Gulf
Resort had with PCIC and upon which the subject
insurance contract with Philippine Charter
Insurance Corporation is said to have been based
and copied, covered an extended earthquake shock
insurance on all the insured properties.
ISSUES:
1.   WoN the insurance policy covered only the two swimming pools, rather
than all the properties insured, against the risk of an earthquake shock –
YES. Only the two swimming pools are covered because the contract that
reflected the intent of the parties evidenced that only the two swimming
pools were insured against earthquake shocks. This was proven through the
lack of payment of premiums and testimonies of witnesses.
RULING: The judgment of the Court of Appeals is affirmed. The petition
for certiorari is dismissed.
RATIO:
81.  The policy stated:
ANNUAL PAYMENT AGREEMENT ON
LONG TERM POLICIES
THE INSURED UNDER THIS POLICY HAVING
ESTABLISHED AGGREGATE SUMS INSURED IN
EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION
OF A DISCOUNT OF 5% OR 7 % OF THE NET PREMIUM
x x x POLICY HEREBY UNDERTAKES TO CONTINUE
THE INSURANCE UNDER THE ABOVE NAMED x x x
AND TO PAY THE PREMIUM.
Earthquake Endorsement
In consideration of the payment by the Insured to the Company
of the sum of P. . . . . . . . . . . . . . . . . additional premium the
Company agrees, notwithstanding what is stated in the printed
conditions of this Policy to the contrary, that this insurance
covers loss or damage (including loss or damage by fire) to
any of the property insured by this Policy occasioned by or
through or in consequence of Earthquake.
Provided always that all the conditions of this Policy shall
apply (except in so far as they may be hereby expressly varied)
and that any reference therein to loss or damage by fire should
be deemed to apply also to loss or damage occasioned by or
through or in consequence of Earthquake.

82.  Gulf Resort contends that pursuant to this rider, no
qualifications were placed on the scope of the earthquake
shock coverage. Thus, the policy extended earthquake
shock coverage to all of the insured properties.
83.  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. Gulf Resort cannot focus on the
earthquake shock endorsement to the exclusion of the other
provisions. All the provisions and riders, taken and interpreted
together, indubitably show the intention of the parties to extend
earthquake shock coverage to the two swimming pools only.
84.  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 indemnify another against loss, damage or
liability arising from an unknown or contingent event. Thus, an
insurance contract exists where the following elements concur:
a.   The insured has an insurable interest;
b.   The insured is subject to a risk of loss by the happening
of the designated peril;
c.   The insurer assumes the risk;
d.   Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons
bearing a similar risk;
e.   In consideration of the insurer's promise, the
insured pays a premium.
85.  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. This is consistent with the history of Gulf
Resort’s previous insurance policies from AHAC.
86.  PCIC, in compliance with the condition set by Gulf Resort,
copied AIU Policy No. 206-4568061-9 in drafting its Insurance
Policy No. 31944. It is true that there was variance in some
terms, specifically in the replacement cost endorsement, but the
principal provisions of the policy remained essentially similar
to AHAC’s policy. Consequently, we cannot apply the "fine
print" or "contract of adhesion" rule in this case as the parties
intent to limit the coverage of the policy to the two swimming
pools only is not ambiguous.
There were a lot of testimonies used as evidence of showing the intent
of the parties to exclude the other properties from being insured
against earthquake shocks. Here’s the transcript of those testimonies:
87.   CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
88.   pp. 12-13
89.   Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance
policy during the period from March 4, 1984 to March 4, 1985 the coverage on
earthquake shock was limited to the two swimming pools only?
90.   A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty,
there is a provision here that it was only for item 5.
91.   Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two
swimming pools only?
92.   A. Yes, sir.
93.   CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
94.   pp. 23-26
95.   Q. For the period from March 14, 1988 up to March 14, 1989, did you personally
arrange for the procurement of this policy?
96.   A. Yes, sir.
97.   Q. Did you also do this through your insurance agency?
98.   A. If you are referring to Forte Insurance Agency, yes.
99.   Q. Is Forte Insurance Agency a department or division of your company?
100.   A. No, sir. They are our insurance agency.
101.   Q. And they are independent of your company insofar as operations are concerned?
102.   A. Yes, sir, they are separate entity.
103.   Q. But insofar as the procurement of the insurance policy is concerned they are of
course subject to your instruction, is that not correct?
104.   A. Yes, sir. The final action is still with us although they can recommend what insurance
to take.
105.   Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14,
1989, did you give written instruction to Forte Insurance Agency advising it that the
earthquake shock coverage must extend to all properties of Agoo Playa Resort in La
Union?
106.   A. No, sir. We did not make any written instruction, although we made an oral
instruction to that effect of extending the coverage on (sic) the other properties of the
company.
107.   Q. And that instruction, according to you, was very important because in April 1987
there was an earthquake tremor in La Union?
108.   A. Yes, sir.
109.   Q. And you wanted to protect all your properties against similar tremors in the [future],
is that correct?
110.   A. Yes, sir.
111.   Q. Now, after this policy was delivered to you did you bother to check the provisions
with respect to your instructions that all properties must be covered again by earthquake
shock endorsement?
112.   A. Are you referring to the insurance policy issued by American Home Assurance
Company marked Exhibit G?
113.   Atty. Mejia: Yes.
114.   Witness:
115.   A. I examined the policy and seeing that the warranty on the earthquake shock
endorsement has no more limitation referring to the two swimming pools only, I was
contented already that the previous limitation pertaining to the two swimming pools was
already removed.
116.   Petitioner also cited and relies on the attachment of the phrase Subject to: Other Insurance
Clause, Typhoon Endorsement, Earthquake Shock Endorsement, Extended Coverage
Endorsement, FEA Warranty & Annual Payment Agreement on Long Term Policies to
the insurance policy as proof of the intent of the parties to extend the coverage for earthquake
shock. However, this phrase is merely an enumeration of the descriptive titles of the riders,
clauses, warranties or endorsements to which the policy is subject, as required under Section
50, paragraph 2 of the Insurance Code.
117.   We also hold that no significance can be placed on the deletion of the qualification limiting the
coverage to the two swimming pools. The earthquake shock endorsement cannot stand alone.
As explained by the testimony of Juan Baranda III, underwriter for AHAC-AIU:
118.   DIRECT EXAMINATION OF JUAN BARANDA III
119.   TSN, August 11, 1992
120.   pp. 9-12
121.   Atty. Mejia:
122.   We respectfully manifest that the same exhibits C to H inclusive have been previously
marked by counsel for defendant as Exhibit[s] 1-6 inclusive. Did you have occasion to
review of (sic) these six (6) policies issued by your company [in favor] of Agoo Playa
Resort?
123.   WITNESS:
124.   Yes[,] I remember having gone over these policies at one point of time, sir.
125.   Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H
respectively carries an earthquake shock endorsement[?] My question to you is, on the
basis on (sic) the wordings indicated in Exhibits C to H respectively what was the extent
of the coverage [against] the peril of earthquake shock as provided for in each of the six
(6) policies?
126.   x x x
127.   WITNESS:
128.   The extent of the coverage is only up to the two (2) swimming pools, sir.
129.   Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?
130.   A. Yes, sir.
131.   ATTY. MEJIA:
132.   What is your basis for stating that the coverage against earthquake shock as provided for
in each of the six (6) policies extend to the two (2) swimming pools only?
133.   WITNESS:
134.   Because it says here in the policies, in the enumeration Earthquake Shock Endorsement,
in the Clauses and Warranties: Item 5 only (Earthquake Shock Endorsement), sir.
135.   ATTY. MEJIA:
136.   Witness referring to Exhibit C-1, your Honor.
137.   WITNESS:
138.   We do not normally cover earthquake shock endorsement on stand alone basis. For
swimming pools we do cover earthquake shock. For building we covered it for full
earthquake coverage which includes earthquake shock
139.   COURT:
140.   As far as earthquake shock endorsement you do not have a specific coverage for other
things other than swimming pool? You are covering building? They are covered by a
general insurance?
141.   WITNESS:
142.   Earthquake shock coverage could not stand alone. If we are covering building or another
we can issue earthquake shock solely but that the moment I see this, the thing that
comes to my mind is either insuring a swimming pool, foundations, they are normally
affected by earthquake but not by fire, sir.
143.   DIRECT EXAMINATION OF JUAN BARANDA III
144.   TSN, August 11, 1992
145.   pp. 23-25
146.   Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E
and F inclusive [remained] its coverage against earthquake shock to two (2) swimming
pools only but that Exhibits G and H respectively entend the coverage against
earthquake shock to all the properties indicated in the respective schedules attached to
said policies, what can you say about that testimony of plaintiffs witness?
147.   WITNESS:
148.   As I have mentioned earlier, earthquake shock cannot stand alone without the other half
of it. I assure you that this one covers the two swimming pools with respect to
earthquake shock endorsement. Based on it, if we are going to look at the premium there
has been no change with respect to the rates. Everytime (sic) there is a renewal if the
intention of the insurer was to include the earthquake shock, I think there is a substantial
increase in the premium. We are not only going to consider the two (2) swimming pools
of the other as stated in the policy. As I see, there is no increase in the amount of the
premium. I must say that the coverage was not broaden (sic) to include the other items.
149.   COURT:
150.   They are the same, the premium rates?
151.   WITNESS:
152.   They are the same in the sence (sic), in the amount of the coverage. If you are going to
do some computation based on the rates you will arrive at the same premiums, your
Honor.
153.   CROSS-EXAMINATION OF JUAN BARANDA III
154.   TSN, September 7, 1992
155.   pp. 4-6
156.   ATTY. ANDRES:
157.   Would you as a matter of practice [insure] swimming pools for fire insurance?
158.   WITNESS:
159.   No, we dont, sir.
160.   Q. That is why the phrase earthquake shock to the two (2) swimming pools only was
placed, is it not?
161.   A. Yes, sir.
162.   ATTY. ANDRES:
163.   Will you not also agree with me that these exhibits, Exhibits G and H which you have
pointed to during your direct-examination, the phrase Item no. 5 only meaning to (sic)
the two (2) swimming pools was deleted from the policies issued by AIU, is it not?
164.   x x x
165.   ATTY. ANDRES:
166.   As an insurance executive will you not attach any significance to the deletion of the
qualifying phrase for the policies?
167.   WITNESS:
168.   My answer to that would be, the deletion of that particular phrase is inadvertent. Being a
company underwriter, we do not cover. . it was inadvertent because of the previous
 policies that we have issued with no specific attachments, premium rates and so on. It
was inadvertent, sir.
169.   The Court also rejects petitioners contention that respondents contemporaneous and subsequent
acts to the issuance of the insurance policy falsely gave the petitioner assurance that the
coverage of the earthquake shock endorsement included all its properties in the resort.
Respondent only insured the properties as intended by the petitioner. Petitioners own witness
testified to this agreement, viz:
170.   CROSS EXAMINATION OF LEOPOLDO MANTOHAC
171.   TSN, January 14, 1992
172.   pp. 4-5
173.   Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did
you tell Atty. Omlas (sic) to copy from Exhibit H for purposes of procuring the policy
from Philippine Charter Insurance Corporation?
174.   A. I told him that the insurance that they will have to get will have the same provisions
as this American Home Insurance Policy No. 206-4568061-9.
175.   Q. You are referring to Exhibit H of course?
176.   A. Yes, sir, to Exhibit H.
177.   Q. So, all the provisions here will be the same except that of the premium rates?
178.   A. Yes, sir. He assured me that with regards to the insurance premium rates that they
will be charging will be limited to this one. I (sic) can even be lesser.
179.   CROSS EXAMINATION OF LEOPOLDO MANTOHAC
180.   TSN, January 14, 1992
181.   pp. 12-14
182.   Atty. Mejia:
183.   Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the
provisions and scope of coverage of Exhibits I and H sometime in the third week of
March, 1990 or thereabout?
184.   A. Yes, sir, about that time.
185.   Q. And at that time did you notice any discrepancy or difference between the policy
wordings as well as scope of coverage of Exhibits I and H respectively?
186.   A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that
the policy wordings and rates were copied from the insurance policy I sent them but it
was only when this case erupted that we discovered some discrepancies.
187.   Q. With respect to the items declared for insurance coverage did you notice any
discrepancy at any time between those indicated in Exhibit I and those indicated in
Exhibit H respectively?
188.   A. With regard to the wordings I did not notice any difference because it was exactly the
same P393,000.00 on the two (2) swimming pools only against the peril of earthquake
shock which I understood before that this provision will have to be placed here because
this particular provision under the peril of earthquake shock only is requested because
this is an insurance policy and therefore cannot be insured against fire, so this has to be
placed.
189.   The verbal assurances allegedly given by respondents representative Atty. Umlas were not
proved. Atty. Umlas categorically denied having given such assurances.
190.   Finally, petitioner puts much stress on the letter of respondents independent claims adjuster,
Bayne Adjusters and Surveyors, Inc. But as testified to by the representative of Bayne
Adjusters and Surveyors, Inc., respondent never meant to lead petitioner to believe that the
endorsement for earthquake shock covered properties other than the two swimming pools, viz:
191.   DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne
192.   Adjusters and Surveyors, Inc.)
193.   TSN, January 26, 1993
194.   pp. 22-26
195.   Q. Do you recall the circumstances that led to your discussion regarding the extent of
coverage of the policy issued by Philippine Charter Insurance Corporation?
196.   A. I remember that when I returned to the office after the inspection, I got a photocopy
of the insurance coverage policy and it was indicated under Item 3 specifically that the
coverage is only for earthquake shock. Then, I remember I had a talk with Atty. Umlas
(sic), and I relayed to him what I had found out in the policy and he confirmed to me
indeed only Item 3 which were the two swimming pools have coverage for earthquake
shock.
197.   x x x
198.   Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that except
for the swimming pools all affected items have no coverage for earthquake shock?
199.   x x x
200.   A. I based my statement on my findings, because upon my examination of the policy I
found out that under Item 3 it was specific on the wordings that on the two swimming
pools only, then enclosed in parenthesis (against the peril[s] of earthquake shock only),
and secondly, when I examined the summary of premium payment only Item 3 which
refers to the swimming pools have a computation for premium payment for earthquake
shock and all the other items have no computation for payment of premiums.
201.   In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely
on the general rule that insurance contracts are contracts of adhesion which should be liberally
construed in favor of the insured and strictly against the insurer company which usually
prepares it. 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.
202.   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.
203.   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 petitioners knowledge, viz:
204.   DIRECT EXAMINATION OF LEOPOLDO MANTOHAC
205.   TSN, September 23, 1991
206.   pp. 20-21
207.   Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those
facilities in Agoo Playa?
208.   A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine
Charter Insurance Corporation as long as it will follow the same or exact provisions of
the previous insurance policy we had with American Home Assurance Corporation.
209.   Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in
the American Home Insurance policy are to be incorporated in the PCIC policy?
210.   A. Yes, sir.
211.   Q. What steps did you take?
212.   A. When I examined the policy of the Philippine Charter Insurance Corporation I specifically
told him that the policy and wordings shall be copied from the AIU Policy No. 206-4568061-9.
 002 Pineda v. CA (for Gueco c/o Daguman)
September 27, 1993 | Davide Jr., J. | Group Policy
PETITIONER: LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA
ALARCON, DINA LORENA AYO, CELIA CALUMBAG and LUCIA
LONTOK,
RESPONDENTS: HON. COURT OF APPEALS and THE INSULAR LIFE
ASSURANCE COMPANY, LIMITED
SUMMARY: Prime Marine Services, Inc. (PMSI), a crewing/manning outfit,
procured a Group Policy from Insular Life Assurance Co., Ltd. to provide life
insurance coverage to its sea-based employees. During the effectivity of the
policy, six covered employees perished at sea when their vessel sunk. They were
survived by the complainants-appellees, the beneficiaries under the policy. The
beneficiaries, except the spouses Alarcon, executed special powers of attorney
authorizing Capt. Nuval, President and General Manager of PMSI, to, among
others, “follow-up, ask, demand, collect and receive” for their benefit
indemnities of sums of money due them relative to the sinking of the vessel. By
virtue of these written powers of attorney, complainants-appellees were able to
receive their respective death benefits. Unknown to them, however, PMSI, in its
capacity as employer and policyholder of the life insurance of its deceased
workers, filed with Insular Life formal claims for and in behalf of the
beneficiaries, through Capt. Nuval. On the basis of the five special powers of
attorney, Insular Life drew against its account six (6) checks, four for
P200,000.00 each, one for P50,000.00 and another for P40,000.00 payable to the
order of complainants-appellees. Capt. Nuval, upon receipt of these checks
endorsed and deposited them in his own account.
When Pineda et.al. learned that they were entitled, as beneficiaries, to life
insurance benefits under a group policy, they sought to recover these benefits
from Insular Life but the latter denied their claim on the ground that their
liability was already extinguished. WoN the CA erred in the appreciation of the
SPA to include granting of authority to Capt. Nuval to obtain the insurance
proceeds from Insular Life? YES, because the special powers of attorney "do not
contain in unequivocal and clear terms authority to Capt. Nuval to obtain,
receive, receipt from respondent company insurance proceeds arising from the
death of the seaman-insured. On the contrary, the said powers of attorney are
couched in terms which could easily arouse suspicion of an ordinary man. We
are convinced that the employer is the agent of the insurer in performing the
duties of administering group insurance policies. It cannot be said that the
employer acts entirely for its own benefit or for the benefit of its employees in
undertaking administrative functions. While a reduced premium may result if the
employer relieves the insurer of these tasks, and this, of course, is advantageous
to both the employer and the employees, the insurer also enjoys significant
advantages from the arrangement. The reduction in the premium which results
from employer-administration permits the insurer to realize a larger volume of
sales, and at the same time the insurer's own administrative costs are markedly
reduced. The most persuasive rationale for adopting the view that the employer
acts as the agent of the insurer, however, is that the employee has no knowledge
of or control over the employer's actions in handling the policy or its
administration. An agency relationship is based upon consent by one person that
another shall act in his behalf and be subject to his control. It is clear from the
evidence regarding procedural techniques here that the insurer-employer
relationship meets this agency test with regard to the administration of the
policy, whereas that between the employer and its employees fails to reflect true
agency. The insurer directs the performance of the employer's administrative
acts, and if these duties are not undertaken properly the insurer is in a position to
exercise more constricted control over the employer's conduct. In the light of the
above disquisitions and after an examination of the facts of this case, we hold
that PMSI, through its President and General Manager, Capt. Nuval, acted as the
agent of Insular Life. The latter is thus bound by the misconduct of its agent.
DOCTRINE: Group insurance is a comparatively new form of insurance. In the
United States, the first modern group insurance policies appear to have been
issued in 1911 by the Equitable Life Assurance Society. Group insurance is
essentially a single insurance contract that provides coverage for many
individuals. In its original and most common form, group insurance provides life
or health insurance coverage for the employees of one employer.
We are convinced that the employer is the agent of the insurer in performing the
duties of administering group insurance policies. It cannot be said that the
employer acts entirely for its own benefit or for the benefit of its employees in
undertaking administrative functions
FACTS:
121.  September 1983, Prime Marine Services Inc. (PMSI), a manning agency,
procured a Group Policy from Insular Life Assurance Co. (Insular Life) to
provide life insurance coverage to its sea-based employees enrolled under
the plan.
122.  During the effectivity of the policy, six covered employees of the PMSI
perished at sea when their vessel, M/V Nemos sunk in Morocco. They were
survived by Pineda et.al., the beneficiaries under the policy.
123.  Pineda et. al, sought to claim death benefits, they approached the President
and General Manager of PMSI, Capt. Nuval. The latter evinced willingness
to assist Pineda to recover Overseas Workers Welfare Administration
(OWWA) benefits from the POEA arising frim the deaths of their
husbands/sons.
124.  They executed, with the exception of spouses Alarcon, a special power of
attorney authorizing Capt. Nuval to “follow up, ask, demand, collect and
receive” for the benefit indemnities of sums due to them relative to the
sinking of M/V Nemos. By virtue of this authority, they were able to
receive death benefits.
 125.  Unknown to them, PMSI, in its capacity as employer and policyholder of released two checks in the amount of P150,000.00 for the three minor
the life insurance of the deceased workers, filed formal claims with Insular children (P50,000.00 each) of complainant, Dina Ayo and another check of
Life in behalf of the beneficiaries through Capt. Nuval. Among the P40,000.00 for minor beneficiary Marissa Lontok, daughter of another
documents for the processing of the claims were the five SPAs executed by complainant Lucia Lontok, there being no showing of any court
Pineda et.al. authorization presented or the requisite bond posted.
126.  Insular Life drew against its bank six checks four for 200k each, one for 50k 130.  On the other hand, the CA ruled that the powers of attorney, Exhibits "1" to
and another for 40k, payable to the order of Pineda et al. These checks were "5," relied upon by Insular Life were sufficient to authorize Capt. Nuval to
released to the treasurer of PMSI, who happened to be Capt. Nuval’s son- receive the proceeds of the insurance pertaining to the beneficiaries.
in-law deposited them in his account with Boston Bank. 131.  Hence, this issue.
127.  Pineda et.al. learned that they were entitled, as beneficiaries under the group
policy with Insular Life sought to recover these but the latter denied their
claim on the ground that the liability of Insular Life was already
ISSUE/s:
extinguished upon deliver to PMSI the six checks issued under their names.
1.   WoN the CA erred in the appreciation of the SPA to include granting of
128.  Pineda et.al. filed an administrative complaint against private respondent
authority to Capt. Nuval to obtain the insurance proceeds from Insular Life?
Insular Life which was filed with the Insurance Commission on 20
YES, because the special powers of attorney "do not contain in unequivocal
September 1989. They prayed therein that after due proceedings, Insular
and clear terms authority to Capt. Nuval to obtain, receive, receipt from
Life "be ordered to pay the claimants their insurance claims" and that
respondent company insurance proceeds arising from the death of the
"proper sanctions/penalties be imposed on" it "for its deliberate, feckless
seaman-insured. On the contrary, the said powers of attorney are couched in
violation of its contractual obligations to the complainants, and of the
terms which could easily arouse suspicion of an ordinary man.
Insurance Code." 5 Insular Life's motion to dismiss the complaint on the
ground that "the claims of complainants are all respectively beyond the
jurisdiction of the Insurance Commission as provided in Section 416 of the RULING: Petition is hereby affirmed.
Insurance Code.
129.  The Insurance Commission made the following conclusions: After taking RATIO:
into consideration the evidences [sic], testimonial and documentary for the
complainants and the respondent, the Commission finds that; First: The 1.   We rule for the petitioners Pineda et. al.
respondent erred in appreciating that the powers of attorney executed by 2.   We have carefully examined the specific powers of attorney, Exhibits "1" to
five (5) of the several beneficiaries convey absolute authority to Capt. "5," which were executed by petitioners Luz Pineda, Lucia B. Lontok, Dina
Nuval, to demand, receive, receipt and take delivery of insurance proceeds Ayo, Celia Calumag, and Marilyn Montenegro, respectively, on 14 May
from respondent Insular Life. A cursory reading of the questioned powers 1986 and uniformly granted to Capt. Rosendo Nuval the following powers:
of authority would disclosed [sic] that they do not contain in unequivocal
and clear terms authority to Capt. Nuval to obtain, receive, receipt from To follow-up, ask, demand, collect and receipt for my benefit
indemnities or sum of money due me relative to the sinking of
respondent company insurance proceeds arising from the death of the
M.V. NEMOS in the vicinity of El Jadida, Casablanca,
seaman-insured. On the contrary, the said powers of attorney are couched in
Morocco on the evening of February 17, 1986; and
terms which could easily arouse suspicion of an ordinary man. Insular Life
did not observe Section 18034 of the Insurance Code, when it issued or
To sign receipts, documents, pertinent waivers of indemnities
or other writings of whatsoever nature with any and all third

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
34 court authority or the giving of a bond where the interest of the minor in the
Section 180 is quotes [sic] partly as follows: In the absence of a judicial guardian,
particular act involved does not exceed twenty thousand pesos . . . .
the father, or in the latter's absence or incapacity, the mother of any minor, who is an
insured or a beneficiary under a contract of life, health or accident insurance, may
exercise, in behalf of said minor, any right, under the policy, without necessity of
 
 persons, concerns and entities, upon terms and conditions
acceptable to my said attorney.
3. We agree with the Insurance Commission that the special powers of attorney "do
not contain in unequivocal and clear terms authority to Capt. Nuval to obtain,
receive, receipt from respondent company insurance proceeds arising from the death
of the seaman-insured. On the contrary, the said powers of attorney are couched in
terms which could easily arouse suspicion of an ordinary man." The holding of the
CA to the contrary is principally premised on its opinion that:
[t]here is nothing in the law which mandates a specific or special
power of attorney to be executed to collect insurance proceeds.
Such authority is not included in the enumeration of art. 1878 of
the New Civil Code. Neither do we perceive collection of
insurance claims as an act of strict dominion as to require a special
power of attorney.
4. If this be so, then they could not have been meant to be a general power of
attorney since Exhibits "1" to "5" are special powers of attorney. The execution by
the principals of special powers of attorney, which clearly appeared to be in prepared
forms and only had to be filled up with their names, residences, dates of execution,
dates of acknowledgment and others, excludes any intent to grant a general power of
attorney or to constitute a universal agency. Being special powers of attorney, they
must be strictly construed.
5. Certainly, it would be highly imprudent to read into the special powers of attorney
in question the power to collect and receive the insurance proceeds due to Pineda
et.al from Group Policy No. G-004694. Insular Life knew that a power of attorney in
favor of Capt. Nuval for the collection and receipt of such proceeds was a deviation
from its practice with respect to group policies. Such practice was testified to by Mr.
Marciano Urbano, Insular Life's Assistant Manager of the Group Administrative
Department
ATTY. CAGUIOA:
Can you explain to us why in this case, the claim was filed by a certain Capt.
Noval [sic]?
WITNESS:
A: The practice of our company in claim pertaining to group insurance, the
policyholder is the one who files the claim for the beneficiaries of the deceased.
At that time, Capt. Noval [sic] is the President and General Manager of Prime
Marine.
Q: What is the reason why policyholders are the ones who file the claim and
not the designated beneficiaries of the employees of the policyholders?
A: Yes because group insurance is normally taken by the employer as an
employee-benefit program and as such, the benefit should be awarded by the
policyholder to make it appear that the benefit really is given by the employer
6. On cross-examination, Urbano further elaborated that even payments, among other
things, are coursed through the policyholder:
Q: What is the corporate concept of group insurance insofar as Insular Life is
concerned?
WITNESS:
A: Group insurance is a contract where a group of individuals are covered
under one master contract. The individual underwriting characteristics of each
individual is not considered in the determination of whether the individual is
insurable or not. The contract is between the policyholder and the insurance
company. In our case, it is Prime Marine and Insular Life. We do not have
contractual obligations with the individual employees; it is between Prime
Marine and Insular Life.
Q: And so it is part of that concept that all inquiries, follow-up, payment of
claims, premium billings, etc. should always be coursed thru the policyholder?
A: Yes that is our practice.
Q: And when you say claim payments should always be coursed thru the
policyholder, do you require a power of attorney to be presented by the
policyholder or not?
a Not necessarily.
7. This practice is usual in the group insurance business and is consistent with the
jurisprudence thereon in the State of California — from whose laws our Insurance
Code has been mainly patterned — which holds that the employer-policyholder is
the agent of the insurer.
8. Group insurance is a comparatively new form of insurance. In the United States,
the first modern group insurance policies appear to have been issued in 1911 by the
Equitable Life Assurance Society. Group insurance is essentially a single insurance
contract that provides coverage for many individuals. In its original and most
common form, group insurance provides life or health insurance coverage for the
employees of one employer.
9. The coverage terms for group insurance are usually stated in a master agreement
or policy that is issued by the insurer to a representative of the group or to an
administrator of the insurance program, such as an employer. The employer acts as a
functionary in the collection and payment of premiums and in performing related
duties. Likewise falling within the ambit of administration of a group policy is the
disbursement of insurance payments by the employer to the employees. Most
policies, such as the one in this case, require an employee to pay a portion of the
premium, which the employer deducts from wages while the remainder is paid by the
employer. This is known as a contributory plan as compared to a non-contributory
plan where the premiums are solely paid by the employer.
10. Although the employer may be the titular or named insured, the insurance is
actually related to the life and health of the employee. Indeed, the employee is in the
position of a real party to the master policy, and even in a non-contributory plan, the
payment by the employer of the entire premium is a part of the total compensation
paid for the services of the employee. Put differently, the labor of the employees is
the true source of the benefits, which are a form of additional compensation to them.
11. It has been stated that every problem concerning group insurance presented to a
court should be approached with the purpose of giving to it every legitimate
opportunity of becoming a social agency of real consequence considering that the
primary aim is to provide the employer with a means of procuring insurance
protection for his employees and their families at the lowest possible cost, and in so
doing, the employer creates goodwill with his employees, enables the employees to
carry a larger amount of insurance than they could otherwise, and helps to attract and
hold a permanent class of employees.
12. In Elfstrom vs. New York Life Insurance Company, 27 the California Supreme
Court explicitly ruled that in group insurance policies, the employer is the agent of
the insurer. Thus:
We are convinced that the employer is the agent of the insurer in
performing the duties of administering group insurance policies. It
cannot be said that the employer acts entirely for its own benefit or
for the benefit of its employees in undertaking administrative
functions. While a reduced premium may result if the employer
relieves the insurer of these tasks, and this, of course, is
advantageous to both the employer and the employees, the insurer
also enjoys significant advantages from the arrangement. The
reduction in the premium which results from employer-
administration permits the insurer to realize a larger volume of
sales, and at the same time the insurer’s own administrative costs
are markedly reduced.
Xxx xxx xxx
The most persuasive rationale for adopting the view that the
employer acts as the agent of the insurer, however, is that the
employee has no knowledge of or control over the employer’s
actions in handling the policy or its administration. An agency
relationship is based upon consent by one person that another shall
act in his behalf and be subject to his control. It is clear from the
evidence regarding procedural techniques here that the insurer-
employer relationship meets this agency test with regard to the
administration of the policy, whereas that between the employer
and its employees fails to reflect true agency. The insurer directs
the performance of the employer’s administrative acts, and if these
duties are not undertaken properly the insurer is in a position to
exercise more constricted control over the employer’s conduct.
14.   In the light of the above disquisitions and after an examination of the facts
of this case, we hold that PMSI, through its President and General Manager,
Capt. Nuval, acted as the agent of Insular Life. The latter is thus bound by
the misconduct of its agent.
15.   Insular Life, however, likewise recognized Capt. Nuval as the attorney-in-
fact of the petitioners. Unfortunately, through its official, Mr. Urbano, it
acted imprudently and negligently in the premises by relying without
question on the special power of attorney. In Strong vs. Repide, this Court
ruled that it is among the established principles in the civil law of Europe as
well as the common law of American that third persons deal with agents at
their peril and are bound to inquire as to the extent of the power of the agent
with whom they contract
16.   Even granting for the sake of argument that the special powers of attorney
were in due form, Insular Life was grossly negligent in delivering the
checks, drawn in favor of the petitioners, to a party who is not the agent
mentioned in the special power of attorney.
MINOR ISSUE
17.   Nor can we agree with the opinion of the public respondent that since the
shares of the minors in the insurance proceeds are less than P50,000.00,
then under Article 225 of the Family Code their mothers could receive such
shares without need of either court appointments as guardian or the posting
of a bond. It is of the view that said Article had repealed the third paragraph
of Section 180 of the Insurance Code. The pertinent portion of Article 225
of the Family Code reads as follows:
 Art. 225. The father and the mother shall jointly exercise legal
guardianship over the property of their unemancipated common
child without the necessity of a court appointment. In case of
disagreement, the father's decision shall prevail, unless there is
judicial order to the contrary.

Where the market value of the property or the annual income of the
child exceeds P50,000, the parent concerned shall be required to
furnish a bond in such amount as the court may determine, but not
less than ten per centum (10%) of the value of the property or
annual income, to guarantee the performance of the obligations
prescribed for general guardians.

18.   It is clear from the said Article that regardless of the value of the
unemancipated common child's property, the father and mother ipso
jure become the legal guardian of the child's property. However, if the
market value of the property or the annual income of the child exceeds
P50,000.00, a bond has to be posted by the parents concerned to guarantee
the performance of the obligations of a general guardian.
 003 Vda. De Sindayen v. Insular (GUSTILO)
September 4, 1935| Butte, J | Delivery of the Policy
PETITIONER: Fortunata Lucero Viuda De Sindayen
RESPONDENTS: Insular Life Assurance Co. Ltd
SUMMARY: A. Sindayen was employed as a linotype operator in the Bureau of
Printing at Manila.He was in Camiling Tarlac with his wife to spend Christmas
vacation with his aunt, Felicidad Estrada. While there he made a written application
to Insular for a policy of insurance on his life in the sum of P1,000 and he paid to the
agent Mendoza P15 cash as part of the first premium. It was agreed with the agent,
Mendoza that the policy, when and if issued, should be delivered to his aunt. Estrada,
with whom A. Sindayen left the sum of P26.06 to complete the payment of the first
annual premium of P40.06. On January 1, 1933, A. Sindayen, was examined by
Insular’'s doctor who made a favorable report, to Insular. The next day, January 2, A.
Sindayen returned to Manila and resumed his work as a linotype operator in the
Bureau of Printing. On January 11, Insular accepted the risk and issued policy No.
47710 dated back to December 1, 1932, and mailed the same to its agent, Mendoza,
for delivery to A Sindayen which was eventually received by Estrada upon her
payment of the balance of the 1st year premium.
A.  Sindayen died on January 19 and on January 20 Mendoza, learned of the death of
A. Sindayen and called on Estrada and asked her to return the policy but Mendoza
did not return or offer to return the premium paid. Estrada on his aforesaid statement
gave him the policy. Insular obtained from the beneficiary, the widow of A,
Sindayen, her signature to a legal document entitled "ACCORD, SATISFACTION
AND RELEASE" whereby in consideration of the sum of P40.06 paid to her by a
check of Insular, she "assigns, releases and forever discharges said Insular, its
successors and assigns, of all claims, obligation in or indebtedness which she, as
such beneficiary ever had. The said check for P40.06 was never cashed but returned
to Insular. Thereupon this action was brought to enforce payment of the policy. The
issue is WoN the policy took effect?- YES because Mendoza was an agent of
Insular and his decision to deliver the policy is binding on the company.
The main defense of Insular is that the said policy never took effect because of
paragraph 3 of the application above quoted, for at the time of its delivery by the
agent as aforesaid the insured was not in good health. The SC held that Mendoza was
duly licensed by the Insurance Commissioner to act as the agent of the Insular. The
well known custom of the insurance business and the evidence in this case prove that
Mendoza was not regarded by Insular as a mere conduit or automaton for the
performance of the physical act of placing the policy in the hands of the insured.
Further, when the policy is issued and delivered, in the absence of fraud or other
grounds for rescission, it is plainly not within the intention of the parties that there
should be any questions held in abeyance or reserved for future determination that
leave the very existence of the contract in suspense and doubt. If this were not so, the
entire business world which deals so voluminously in insurance would be affected by
this uncertainly.
DOCTRINE: When the policy is issued and delivered, in the absence of fraud or
other grounds for rescission, it is plainly not within the intention of the parties that
there should be any questions held in abeyance or reserved for future determination
that leave the very existence of the contract in suspense and doubt. It is therefore in
the public interest, for the public is profoundly and generally interested in life
insurance, as well as in the interest of the insurance companies themselves by giving
certainly and security to their policies, that we are constrained to hold, as we, do, that
the delivery of the policy to the insured by an agent of the company who is
authorized to make delivery or without delivery is the final act which binds the
company and the insured as well in the absence of fraud or other legal ground for
rescission.
FACTS:
95.   Arturo Sindayen (A. Sindayen), up to the time of his death on January 19,
1933, was employed as a linotype operator in the Bureau of Printing at
Manila and had been such for eleven years prior thereto. He and his wife
went to Camiling, Tarlac, to spend the Christmas vacation with his aunt,
Felicidad Estrada (Estrada).
96.   While there he made a written application on December 26, 1932, to Insular
Life Assurance Co., Ltd. (Insular) through its agent, Cristobal Mendoza
(Mendoza), for a policy of insurance on his life in the sum of P1,000 and he
paid to the agent Mendoza P15 cash as part of the first premium. It was
agreed with the agent, Mendoza that the policy, when and if issued, should
be delivered to his aunt. Estrada, with whom A. Sindayen left the sum of
P26.06 to complete the payment of the first annual premium of P40.06.
97.   On January 1, 1933, A. Sindayen, who was then twenty-nine years of age,
was examined by Insular’'s doctor who made a favorable report, to Insular.
The next day, January 2, A. Sindayen returned to Manila and resumed his
work as a linotype operator in the Bureau of Printing. On January 11, 1933,
Insular accepted the risk and issued policy No. 47710 dated back to
December 1, 1932, and mailed the same to its agent, Mendoza, for delivery
to A Sindayen. On January 11, 1933, A. Sindayen was at work in the
Bureau of Printing. On January 12, he complained of a severe headache and
remained at home. On January 15, he called a physician who found that he
was suffering from acute nephritis and uremia. His illness did not yield to
treatment and on January 19, he died.
98.   The policy which Insular issued and mailed in Manila on January 11 was
received by its agent, Mendoza, in Camiling, Tarlac, on January 16. On
January 18, the agent, Mendoza, in accordance with his agreement with the
insured, delivered the policy to Estrada upon her payment of the balance of
the first year's annual premium. The agent, Mendoza, asked Estrada if her
nephew was in good health and she replied that she believed so because she
had no information that he was sick and he thereupon delivered to her the
policy.
99.   On January 20 the agent, Mendoza, learned of the death of A. Sindayen and
called on Estrada and asked her to return the policy but Mendoza did not
 return or offer to return the premium paid. Estrada on his aforesaid
statement gave him the policy.
100.  On February 4, Insular obtained from the beneficiary, the widow of A,
Sindayen, her signature to a legal document entitled "ACCORD,
SATISFACTION AND RELEASE" whereby in consideration of the sum of
P40.06 paid to her by a check of Insular, she "assigns, releases and forever
discharges said Insular, its successors and assigns, of all claims, obligation
in or indebtedness which she, as such beneficiary ever had or now has,
hereafter shall, or may have, for, upon, or by reason of said policy of life
insurance numbered 47710 upon the life of said A. Sindayen, the latter now
deceased, or arising therefrom or connected therewith in any manner",
101.  The said check for P40.06 was never cashed but returned to Insular.
Thereupon this action was brought to enforce payment of the policy. By the
terms of the policy, an annual premium of P40.06 is due on the first day of
December of each year, the first premium already paid by the insured
covering the period from December 1, 1932 which is to December 1, 1933.
It is to be noted that the policy was not issued and Insular assumed no actual
risk prior to January 11, 1933.
102.  The policy contains the following paragraph: THE CONTRACT. This
Policy and the application herefor constitute the entire contract between the
parties hereto. All statements made by the Insured shall, in the absence
of fraud, be deemed representations and not warranties, and no such
statement shall void the Policy unless it is contained in the written
application, a copy of which is attached to this Policy. Only the
President, or the Manager, acting jointly with the Secretary or Assistant
Secretary (and then only in writing signed by them) have power in behalf of
the Company to issue permits, or to modify this or any contract, or to
extend the time for making any premium payment, and the Company shall
bound by any promise or representation heretofore hereafter given by any
person other than the above-named officials, and by them only in writing
and signed conjointly as stated.
103.  The application which A. Sindayen signed in Camiling, Tarlac, on
December 26, 1932, contained among others the following provisions: (a)
That if this application is accepted and a policy issued in my favor, I bind
myself to accept the same and to pay at least the first year's premium
thereon in the City of Manila; (b) That the said policy shall not take effect
until the first premium has been paid and the policy has been delivered to
and accepted by me, while I am in good health; (c) That the agent taking
this application has no authority to make, modify or discharge contracts, or
to waive any of the Company's right or requirements.
ISSUE/s:
1.  WoN the policy took effect?- YES because Mendoza was an agent of Insular and
his decision to deliver the policy is binding on the company
Other issues:
2.  WoN the Accord, Satisfaction & Releae made by Insular is fraudulent?-YES
it is inequitable
3.  WoN there was delivery of the policy even if it was not delivered to the
insured himself? YES because delivery to the insured in person is not necessary.
Delivery may be made by mail or to a duly constituted agent.
RULING :In view of the premises, we hold that Insular assumed the risk covered by
policy No. 47710 on the life of A. Sindayen on January 18, 1933, the date when the
policy was delivered to A Sindayen. The judgment appealed from is therefore
reversed with directions to enter judgment against Insular in the sum of P1,000
together with interest at the legal rate from and after May 4, 1933, with costs in both
instances against Insular.
RATIO:
Main issue:
104.  The main defense of Insular is that the said policy never took effect because
of paragraph 3 of the application above quoted, for at the time of its
delivery by the agent as aforesaid the insured was not in good health. We
have not heretofore been called upon to interpret and apply this clause in
life insurance application, but identical or substantially identical clauses
have been construed and applied in a number of cases in the United States
and the decisions thereon are far from uniform or harmonious. We do not
find it practicable to attempt to determine where the weight of the authority
lies and propose to resolve this case on its own facts.
105.  There is one line of cases which holds that the stipulation contained in
paragraph 3 is in the nature of a condition precedent, that is to say, that
there can be no valid delivery to the insured unless he is in good health at
the time; that this condition precedent goes to the very essence of the
contract and cannot be waived by the agent making delivery of the policy.
On the other hand, a number of American decisions hold that an agent to
whom a life insurance policy similar to the one here involved was sent with
instructions to deliver it to the insured has authority to bind the company by
making such delivery, although the insured was not in good health at the
time of delivery, on the theory that the delivery of the policy being the final
act to the consummation of the contract, the condition as to the insurer's
good health was waived by the company.
106.  A number of these cases go to the of holding that the delivery of the policy
by the agent to the insured consummates the contract even though the agent
knew that the insured was not in good health at the time, the theory being
that his knowledge is the company's knowledge and his delivery of the
policy is the company's delivery; that when the delivery is made
notwithstanding this knowledge of the defect, the company is deemed to
have waived the defect. Although that appears to be the prevailing view in
the American decisions and leads to the same conclusion, namely, that the
act of delivery of the policy in the absence of fraud or other ground for
recission consummates the insurance, we are inclined to the view that it is
more consonant with the well known practice of life insurance companies
and the evidence in the present case to rest our decision on the proposition
that Mendoza was authorized by the company to make the delivery of the
 policy when he received the payment of the first premium and he was
satisfied that the insured was in good health.
107.  Mendoza was duly licensed by the Insurance Commissioner to act as
the agent of the Insular. The well known custom of the insurance
business and the evidence in this case prove that Mendoza was not
regarded by Insular as a mere conduit or automaton for the
performance of the physical act of placing the policy in the hands of the
insured. If Mendoza were only an automaton then the legally effective
delivery of the policy and the consummation of the contract occurred when
Insular expressed its will to release the policy by mailing it to Mendoza,
namely, on January 11, 1933. In such a case Mendoza would perform a
purely ministerial act and have no discretion. He could do nothing but make
unconditional delivery. The legal result would be the same as if Insular had
mailed the policy on January 11, to the insured directly using the post-office
as its conduit for delivery. On January 11, A. Sindayen was in good health
performing his regular duties in the Bureau of Printing.
108.  But we are not inclined to take such a restrictive view of the agent's
authority because the evidence in the record shows that Mendoza had the
authority, given him by Insular, to withhold the delivery of the policy to
the insured "until the first premium has been paid and the policy has
been delivered to and accepted by the insured while I am in good
health". Whether that condition had been met or not plainly calls for
the exercise of discretion. Granted that Mendoza's decision that the
condition had been met by the insured and that it was proper to make a
delivery of the policy to him is just as binding on the company as if the
decision had been made by its board of directors. Granted that Mendoza
made a mistake of judgement because he acted on insufficient evidence as
to the state of health of the insured. But it is not charged that the mistake
was induced by any misconduct or omission of duty of the insured.
109.  It is the interest not only the applicant but of all insurance companies
as well that there should be some act which gives the applicant the
definite assurance that the contract has been consummated. This sense
of security and of peace of mind that one's defendants are provided for
without risk either of loss or of litigation is the bedrock of life
insurance. A cloud will be thrown over the entire insurance business if the
condition of health of the the insured at the time of delivery of the policy
may be required into years afterwards with the view to avoiding the policy
on the ground that it never took effect because of an alleged lack of good
health, at the time of delivery.
110.  It is difficult to imagine that the insurance company would take such a
position in the face of the common belief of the insuring public that when
the policy is delivered, in the absence of fraud or other grounds for
rescission, the contract of insurance is consummated. The insured rests and
acts on that faith. So does the insurance company, for that matter, for from
the date of delivery of the policy it appropriates to its own use the premium
paid by the insured. When the policy is issued and delivered, in the
absence of fraud or other grounds for rescission, it is plainly not within
the intention of the parties that there should be any questions held in
abeyance or reserved for future determination that leave the very
existence of the contract in suspense and doubt. If this were not so, the
entire business world which deals so voluminously in insurance would be
affected by this uncertainly.
111.  It is therefore in the public interest, for the public is profoundly and
generally interested in life insurance, as well as in the interest of the
insurance companies themselves by giving certainly and security to
their policies, that we are constrained to hold, as we, do, that the
delivery of the policy to the insured by an agent of the company who is
authorized to make delivery or without delivery is the final act which
binds the company and the insured as well in the absence of fraud or
other legal ground for rescission. The fact that the agent to whom it has
entrusted this duty and corporation can only act through agents is derelict or
negligent or even dishonest in the performance of the duty which has been
entrusted to him would create a liability of the agent to the company but
does not resolve the company's obligation based upon the authorized acts of
the agent toward a third party who was not in collusion with the agent.
112.  Paragraph 4 of the application to the effect "that the agent taking this
application has no authority to make, modify or discharge contracts or to
waive any of the company's rights or requirements" is not in point.
Mendoza neither waived nor pretended to waive any right or requirement of
Insular. In fact, his inquiry as to the state of health of the insured discloses
that he was endeavoring to assure himself that this requirement of Insular
had been satisfied. In doing so, he acted within the authority conferred
on him by his agency and his acts within that authority bind the
company. Insular therefore having decided that all the conditions
precedent to the taking effect of the policy had been complied with and
having accepted the premium and delivered the policy thereafter to the
insured, Insular is now estopped to assert that it never intended that
the policy should take effect.
Accord, Satisfaction & Release is Fraudulent
113.  Insular does not set up any defense of fraud, misconduct or omission of
duty of A. Sindayen or his agent, Estrada or of the beneficiary. In its answer
it pleads the "ACCORD, SATISFACTION AND RELEASE" signed by the
widow of A. Sindayen.
114.  With respect to the Accord, Satisfaction & Release, it suffices to say
that this release is so inequitable, not to say fraudulent.
Delivery of the Policy
115.  It is suggested in Insular’'s brief that fhere was no delivery of the policy in
this case because the policy was not delivered to and accepted by A.
Sindayen in person.
116.  Delivery to the insured in person is not necessary. Delivery may be made
by mail or to a duly constituted agent. Insular cites no authorities to support
its proposition and none need be cited to refute it.
Dissenting of Imperial, J.:
117.   The stipulation that the insurance contract shall produce no effect unless the payment of the first premium
and the delivery of the policy be made when the insured is in good health, is not in conflict with any
provision of the Insurance Law now in force, nor with any other law of a general character; neither is said
stipulation contrary to morals or public order, and therefore the same is valid and binding upon the parties.
118.   The majority opinion states that the delivery of the policy by the agent after he has made use of the
discretion conferred upon him by Insular to deliver or to withhold said policy, is binding upon Insular and
the latter cannot evade the consequences thereof. This same legal question has been raised before various
appellate courts of several states of the Union, which made a distinction between agents whose only power
consisted in soliciting insurance and in delivering policies and those who, in addition to such power, were
authorized to issue policies and accept risks on behalf of insurance companies. In the first case the doctrine
is uniform that the acts of agents with limited powers are not binding upon the insurance companies, whereas
in the second case the acts of the agents bind and prejudice the insurance companies represented by them.
119.   It is clear, therefore, that the delivery of the policy by Mendoza does not bind Insular nor is Insulart estopped
from alleging its defense, for the simple reason that Mendoza was not an agent with authority to issue
policies or to accept risks in the name of his principle.
120.   However, it it said that Insular ikewise waived the defense which has hereinbefore been extensively
considered, because it failed to return the first premium collected, and this alleged failure is predicated upon
the statement contained in the penultimate paragraph of the instrument stating that the check for P40.06 was
returned to the widow in consideration of her waiver of any claim whatsoever. A careful reading of the
instrument will convince the mind that what was really meant is that the delivery of the check was another
consideration of the widow's waiver, it being self-evident that said check constituted, in effect, a refund of
the first premium paid by insured and received by the insurer. It is ridiculous to think that such a negligible
amount has been the only consideration of the widow’s waiver of any right or benefit accurring to her from
the policy. A careful perusal of the instrument will show that the real consideration of the widow's waiver
was the unenforceability of the policy due to her husband's illness and the mutual desire of the plaintiff of
the insurer to settle amicably the cases instead of resorting to courts.
121.   In conclusion it is my opinion: (1) That the policy has not produced any effect from which the widow may
derive any right, and (2) that she has expressly waived any all rights accurring from the policy; and for these
reasons I dissent from the majority opinion.
 004 Argente v. West Coast Life Insurance Co. (Hilario)
March 19, 1928 | Malcolm, J. | Concealment
PETITIONER: Bernardo Argente
RESPONDENTS: West Coast Life Insurance
SUMMARY: Bernardo Argente and his wife, Vicenta de Ocampo, applied for a
joint life insurance policy with West Coast Life Insurance Co. They were medically
examined by the company’s doctor, and they supplied the answers to the questions in
the Medical Examiner’s Report. Vicenta died of cerebral apoplexy a few months
after the issuance of the policy, prompting Argente to claim on the policy (he was
asking for P 15000). Upon the investigation of West Coast, it was discovered that the
spouses made several fraudulent declarations regarding the condition of their health
for the last five years, concealing the time the husband was hospitalized and that the
wife had several neurological/phsycological problems (like she was diagnosed with
alcoholism, then later manic depressive psychosis, then a final diagnosis of psycho-
neurosis). Thus, West Coast refused to honor Argente’s claim, prompting him to file
an action before the Trial Court. The Trial Court ruled in favor of West Coast, and
the Supreme Court upheld the Trial Court’s decision.
In an action on a life insurance policy where the evidence conclusively shows that
the answers to questions concerning diseases were untrue, the truth of falsity of the
answers become the determining factor. In the policy was procured by fraudulent
representations, the contract of insurance apparently set forth therein was
never legally existent. It can fairly be assumed that had the true facts been
disclosed by the assured, the insurance would never have been granted. Assurer in
assuming a risk is entitled to know every material fact of which the assured has
exclusive or peculiar knowledge, as well as all material facts which directly tend to
increase the hazard or risk which are known by the assured, or which ought to be or
are presumed to be known by him. And a concealment of such facts vitiates the
policy.
DOCTRINE: One ground for the rescission of a contract of insurance under the
Insurance Act is "a concealment," which in section 25 is defined as "A neglect to
communicate that which a party knows and ought to communicate."
The principal question, therefore, must be, Was the assurer misled or deceived into
entering a contract obligation or in fixing the premium of insurance by a
withholding of material information of facts within the assured's knowledge or
presumed knowledge?
FACTS:
122.  West Coast issued a joint life insurance policy in favor of Bernardo Argente
and his wife, Vicenta de Ocampo.
1.   The wife signed a like application for the same policy as her
husband. Both applications (except names and signatures of the
spouses applicants) were written by Jose Geronimo del Rosario,
an agent for West Coast.
2.   But all information contained in applications were furnished to
agent del Rosario by Argente.
123.  Argente was examined by a medical examiner for Wesst Coast, and the
results were recorded in the Medical Examiner’s Report. This was all in the
hand writing of the doctor, but information and answers to questions on the
Report were furnished to the doctor by Argente. The same happened with
Vicenta, and she gave the answers to the questions to the doctor.
124.  The spouses increased the amount of the insurance from P2000 to P15000,
and asked that the policy be dated May 15, 1925 (they asked this on May 9).
125.  A temporary policy for P 15 000 was issued in favor of the spouses, b ut it
was not delivered to Argente until the first quarterly premium on the policy
was paid.
1.   Since 30 days had elapsed since the applicants were examined,
each of them was required to file a certificate of health before the
policy was delivered on July 2.
126.  On November 18 of the same year (4 months after delivery of policy)
Vicenta died of cerebral apoplexy, and her husband Argente presented a
claim for P 15 000.
1.   Following investigation by West Coast, it was discovered that the
answers given by the insured in their medical examinations
with regard to their health and previous illness and medical
attendance were untrue.
127.  For that reason, the West Coast Life Insurance Co. refused to pay the
claim of Bernardo Argente, and on May 25, 1926, wrote him to the effect
that the claim was rejected because the insurance was obtained through
fraud and misrepresentation. This prompted Argente to file an action in the
trial court.
128.  What they concealed (I don’t think you have to read this in detail, but just in
case sir asks!): In the Medical Examiner's Report that Bernardo Argente, in
response to the question asked by the medical examiner, "Have you ever
consulted a physician for, or have you ever suffered from any ailment or
disease of, the brain or nervous system?" answered "No." To the question,
"Have you consulted a physician for any ailment or disease not included in
your above answer," answered "Yes. Nature of Ailment, Disease or Injury.
Scabies, Number of attacks 1, Date 1911. Duration 1 month, Severity Fair,
results and, if within five years, name and address of every physician
consulted. Dr. P. Guazon. Cured. Dr. Guazon is dead now." And to the
question, "What physician or physicians, if any, not named above, have you
consulted or been treated by, within the last five years and for what illness
or ailment? (If none, so state)" answered "No." It is, however, not disputed
that on January 10, 11, and 13, 1923, Bernardo Argente was confined in
 the Philippine General Hospital where he was treated by Dr. Agerico B.
M. Sison for cerebral congestion and Bell's Palsy.
129.  What they concealed (I don’t think you have to read this in detail, but just in
case sir asks!): Vicenta de Ocampo, in response to the question asked by the
medical examiner, "How frequently, if at all, and in what quantity do you
use beer, wine, spirits or other intoxicants?" answered "Beer only in small
quantities occasionally." To the question, "Have you ever consulted a
physician for or have you ever suffered from any ailment or disease of the
brain or nervous system?" answered "No." To the question, "What
physician or physicians, if any, not named above, have you consulted or
been treated by, within the last five years and for what illness or ailment?
(If none, so state)" answered "None." And to the question, "Are you in good
health as far as you know and believe?" answered "Yes."
130.  It is, however, not disputed that Vicenta de Ocampo was taken by a
patrolman, at the request of her husband, Bernardo Argente, on May 19,
1924, to the Meisic police station, and from there was transferred to the
San Lazaro Hospital. In San Lazaro Hospital, her case was diagnosed by
the admitting physician as "alcoholism," but later Doctor Domingo made
a diagnosis of probable "manic-depressive psychosis," and still, later in
Mary Chiles Hospital, made a final diagnosis of "phycho-neurosis."
131.  Argente concedes and admits most of these facts, yet alleges that both he
and his wife revealed their medical conditions to the doctor who
examined them from the insurance company, but that the doctor,
presumably acting in collusion with the insurance agent, failed to
record them in the medical reports.
132.  The Trial Court ruled in favor of West Coast, and disregarded the
testimonies presented by Argente (his own testimony, his clerk’s, the
doctor’s, and the agent’s).
1.   There appears no motive on the part of the doctor to fasify the
Medical Examiner’s Reports.
2.   Further, from the evidence and representations in their applications
regarding their health for the last 5 years before they applied for
insurance, they were totally false.
133.  He now questions the trial court’s ruling before the SC.
ISSUE/s:
12.   WoN the Trial Court was correct in saying that West Coast correctly
refused to pay Argente’s claim – YES, because Argente is guilty of
concealment, on of the grounds for rescission of a contract of insurance
under the Insurance Act.
RULING: SC affirmed the lower courts decision. Pwede rin wherefore.
RATIO:
120.  One ground for the rescission of a contract of insurance under the
Insurance Act is "a concealment," which in section 25 is defined as "A
neglect to communicate that which a party knows and ought to
communicate."
121.  Argente claims that the alleged concealment was immaterial and
insufficient to avoid the policy.
122.  The SC does not buy this.
123.  In an action on a life insurance policy where the evidence conclusively
shows that the answers to questions concerning diseases were untrue, the
truth of falsity of the answers become the determining factor. In the policy
was procured by fraudulent representations, the contract of insurance
apparently set forth therein was never legally existent. It can fairly be
assumed that had the true facts been disclosed by the assured, the
insurance would never have been granted.
124.  In Joyce, The Law of Insurance, second edition, volume 3, Chapter LV, is
found the following: Concealment exists where the assured has
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 designated and intentionally with holds the same. Another rule is that
if the assured undertakes to state all the circumstances affecting the
risk, a full and fair statement of all is required.
125.  It is also held that the concealment must, in the absence of inquiries, be
not only material, but fraudulent, or the fact must have been
intentionally withheld.
1.   if no inquiries are made and no fraud or design to conceal
enters into the concealment the contract is not avoided.
126.  But it would seem that if a material fact is actually known to the assured, its
concealment must of itself necessarily be a fraud, and if the fact is one
which the assured ought to know, or is presumed to know, the
presumption of knowledge ought to place the assured in the same
position as in the former case with relation to material facts;
127.  The basis of the rule vitiating the contract in case of concealment is that it
misleads or deceives the insurer into accepting the risk, or accepting it at the
rate of premium agreed upon. The insurer, relying upon the belief that the
assured will disclose every material within his actual or presumed
knowledge, is misled into a belief that the circumstance withheld does not
exist, and he is thereby induced to estimate the risk upon a false basis that it
does not exist.
128.  The principal question, therefore, must be, Was the assurer misled or
deceived into entering a contract obligation or in fixing the premium of
insurance by a withholding of material information of facts within the
assured's knowledge or presumed knowledge?
129.  Assurer in assuming a risk is entitled to know every material fact of which
the assured has exclusive or peculiar knowledge, as well as all material
facts which directly tend to increase the hazard or risk which are known by
the assured, or which ought to be or are presumed to be known by him. And
a concealment of such facts vitiates the policy.
 005 EDILLON VS MANILA BANKERS LIFE (HIRANG)
30 September 1982 |Vasquez, J. | Concealment
PETITIONER: REGINA EDILLON
RESPONDENTS: MANILA BANKERS LIFE INSURANCE CORPORATION
SUMMARY:
Insured: Carmen Lapuz
Insurer: Manila Bankers Life Insurance Corporation (MBL)
Beneficiary: Regina Edillon
Policy: Insurance against accident and injuries
In 1969, Lapuz applied with MBL for a life insurance coverage against accident and
injuries. When she applied for the insurance she was already over 60 years of age
but despite this, her application was accepted. Under such policy, her beneficiary
was her sister, Regina Edillon. During the effectivy of the policy, Lapuz died due to
an accident and as such, Edillon, as beneficiary filed a claim to collect the insurance
proceeds but was denied by MBL contending that in the Insurance Certicifacate
provided for a provision which states that it is not liable to pay claims under the
policy in behalf of "persons who are under the age of sixteen (16) years of age or
over the age of sixty (60) years x x x." It is to note that when Lapuz applied for the
policy, she was already over 60 years old. The issue in this case is WoN MBL is
liable and the court ruled in the affirmative. The age of Lapuz was never concealed
to MBL. In fact, the application clearly showed that at the time of application Lapuz
was almost 65 yrs old. The accident which resulted in the death of the insured, a
risk covered by the policy, occurred on May 31, 1969 - 45 DAYS after the
insurance coverage was applied for. There was sufficient time for the private
respondent to process the application and to notice that the applicant was over 60
years of age and thereby cancel the policy on that ground if it was minded to do
so. If MBL failed to act, it is either because it was willing to waive such
disqualification; or, through the negligence or incompetence of its employees for
which it has only itself to blame, it simply overlooked such fact. Under the
circumstances, the insurance corporation is already deemed in estoppel
DOCTRINE: It is usually held that where the insurer, at the time of the issuance of
a policy of insurance, has knowledge of 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 known 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 execute 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
FACTS:
132.  In April 1969, Carmen O. Lapuz applied with Manila Bankers Life (MBL)
for insurance coverage against accident and injuries. She filled up the blank
application form given to her and filed the same with MBL
133.  In the said application form which was dated April 15, 1969, she gave the
date of her birth as July 11, 1904. On the same date, she paid the sum of
P20.00 representing the premium for which she was issued the
corresponding receipt signed by an authorized agent of the MBL
134.  During the effectivity of the Insurance Policy, Carmen Lapuz died, and as
such, Regina L. Edillon, the sister of the insured and who was the named
beneficiary in the policy, filed her claim for the proceeds of the insurance
135.  MBL denied the claim of Edillon stating that it is not liable to pay claims
under the policy in behalf of "persons who are under the age of sixteen (16)
years of age or over the age of sixty (60) years x x x." It is to note that when
Lapuz applied for the policy, she was already over 60 years old
136.  The trial court ruled in favor of MBL stating that:
a.   The policy of insurance being a contract of adhesion, it was the
duty of the insured to know the terms of the contract he or she is
entering into; the insured in this case, upon learning from its terms
that she could not have been qualified under the conditions stated
in said contract, what she should have done is simply to ask for a
refund of the premium that she paid
ISSUE/s: WoN Manila Bankers Life is liable – Yes, the court ruled that the fact
that MBL accepted the application, knowing that the age of the applicant is an
important element, showed that MBL either waived such criteria or it’s employees
are negligence or incompetence for overlooking such fact
RULING: WHEREFORE, the judgment appealed from is hereby REVERSED and
SET ASIDE.
RATIO:
213.  The age of the insured Carmen O. Lapuz was not concealed to the insurance
company. Her application for insurance coverage which was on a printed
form furnished by private respondent and which contained very few items
of information clearly indicated her age at the time of filing the same to be
almost 65 years of age
214.  Despite such information which would hardly be overlooked in the
application form, considering its prominence thereon and its materiality to
the coverage applied for, the respondent insurance corporation received her
payment of premium and issued the corresponding certificate of insurance
without question
215.  The accident which resulted in the death of the insured, a risk covered by
the policy, occurred on May 31, 1969 - 45 DAYS after the insurance
coverage was applied for. There was sufficient time for the private
respondent to process the application and to notice that the applicant was
over 60 years of age and thereby cancel the policy on that ground if it was
 minded to do so. If MBL failed to act, it is either because it was willing to
waive such disqualification; or, through the negligence or incompetence of
its employees for which it has only itself to blame, it simply overlooked
such fact. Under the circumstances, the insurance corporation is already
deemed in estoppel
216.  Its inaction to revoke the policy despite a departure from the exclusionary
condition contained in the said policy constituted a waiver of such
condition. This doctrine was upheld by several cases:
a.   " Que Chee Gan vs. Law Union Rock Insurance Co., Ltd." - In this
case, the requirement of the insurance policy was to have 11 fire
hydrants however, the insurance company in this case, from the
very beginning, knew that the insured only had 2 but nevertheless
accepted the insurance policy and never revoked such policy. The
court in this case said that: “It is usually held that where the
insurer, at the time of the issuance of a policy of insurance, has
knowledge of 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 known
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 execute 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”

b.   Capital Insurance & Surety Co., Inc. vs. Plastic Era Co., Inc, -
The company issued the policy upon the execution of a promissory
note for the payment of the premium. A check given subsequently
by the insured as partial payment of the premium was dishonored
for lack of funds. Despite such deviation from the terms of the
policy, the insurer was held liable. The insurance corporation
impliedly agreed to modify the tenor of the insurance policy and in
effect, waived the provision therein that it would only pay for the
loss or damage in case the same occurs after the payment of the
premium. Considering that the insurance policy is silent as to the
mode of payment, Capital Insurance is deemed to have accepted
the promissory note in payment of the premium
 006 CANILANG v. CA (LAGUILLES)
June 7, 1993 | Feliciano, J. | Concealment
PETITIONER: Thelma vda. De Canilang
RESPONDENTS: CA and Great Pacific Life Insurance Corporation
SUMMARY: Jaime consulted a doctor and he was diagnosed with sinus
tachycardia and later on acute bronchitis. He then applied for a non-medical
insurance policy with Great Pacific Life Assurance Company, naming his wife,
Thelma as his beneficiary. Subsequently, Jaime died of congestive heart failure and
anemia. Thelma then filed a claim with Great Pacific but the latter refused because
Jaime allegedly concealed material information from it. Thelma filed a complaint
against Great Pacific for the recovery of the insurance proceeds. Thelma testified
that she was not aware of any serious illness suffered by Jaime. The Insurance
Commissioner ruled in favor of Thelma on the ground that the ailment of Jaime was
not so serious that even if it had been disclosed, it would not have affected Great
Pacific’s decision to insure him. On appeal, the CA reversed the IC’s decision and
found that the failure to disclose previous medical consultation and treatment
constituted material information which should have been communicated to Great
Pacific. The issue is WoN Jaime concealed his true state of health.
The SC held in the affirmative. In Jaime’s application for the insurance, he left
blank the portion for the exceptions that he consulted Dr. Claudio who found him to
be suffering from sinus tachycardia and acute bronchitis. The Court agrees with the
CA that the information which Jaime Canilang failed to disclose was material to the
ability of Great Pacific to estimate the probable risk he presented as subject of life
insurance. Had he disclosed his visits to his doctor, the diagnosis made and the
medicines prescribed, in the insurance application, it may be reasonably assumed
that Great Pacific would have made further inquiries and would have probably
refused to issue a non-medical insurance policy or at the very least, required a
higher premium. Sec. 27 of the 1978 Insurance Code is properly read as referring to
any concealment without regard to whether such is intentional or unintentional.
DOCTRINE: It is immaterial whether the concealment is intentional or
unintentional.
FACTS:
15.   On June 18, 1982, Jaime Canilang consulted Dr. Claudio and was
diagnosed as suffering from sinus tachycardia. The doctor prescribed
trazepam, a tranquilizer, and aptin, a beta-blocker drug. Canilang consulted
the doctor again after two months after, and he was found to have acute
bronchitis.
16.   Jaime Canilang then applied for a non-medical insurance policy with Great
Pacific Life Assurance Company naming his wife, petitioner Thelma
Canilang, as his beneficiary. Jaime Canilang was issued an ordinary life
insurance effective as of August 9, 1982.
17.   On August 5, Jaime Canilang died of congestive heart failure, anemia, and
chronic anemia. Thelma filed a claim with Great Pacific which the latter
denied, upon the ground that Jaime had concealed material information
from it.
18.   Thelma then filed a complaint against Great Pacific for the recovery of the
insurance proceeds. During the hearing called by the Insurance
Commissioner, Thelma testified that she was not aware of any serious
illness suffered by her late husband and that, as far as she knew, her
husband died because of a kidney disorder.
19.   A deposition was given by Dr. Claudio, stating that he previously treated
Jaime for sinus tachycardia and acute bronchitis. Great Pacific presented Dr.
Quismorio, a physician and a medical underwriter working for Great
Pacific. She testified that as a rule, medical examinations are required only
in cases where the applicant has indicated in his application that he has
previously undergone medical consultation and hospitalization.
20.   The Insurance Commissioner ordered Great Pacific to pay P19,700 plus
legal interest after holding that:
a.   The ailment of Jaime was not so serious that even if it had been disclosed, it would
not have affected Great Pacific’s decision to insure him;
b.   Great Pacific waived its rights to inquire into the health condition of the applicant
by the issuance of the policy despite the lack of answers to some of the pertinent
questions in the insurance application;
c.   There was no intentional concealment on the part of the insured as he had thought
that he was merely suffering from a minor ailment and simple cold;
d.   BP 874 which voids an insurance contract whether or not concealment was
intentionally made, was not applicable to Jaime’s case because the law only became
effective in 1985.
21.   On appeal, the CA reversed and set aside the decision of the Insurance
Commissioner:
a.   It found that the use of the word “intentionally” by the Insurance Commissioner in
defining and resolving the issue was not supported by evidence;
b.   That the issue agreed upon by the parties had been whether the deceased insured
made a material concealment as to the state of his health at the time of the filing of
the application.
c.   The CA also held that the failure to disclose previous medical consultation and
treatment constituted material information which should have been communicated
to Great Pacific to enable the latter to make proper inquiries.
22.   Hence, this petition by Thelma Canilang.
ISSUE:
WoN Jaime Canilang concealed his true state of health at the time of the filing of the
insurance application – YES, because he did not disclose that he had consulted a
doctor prior to the application for the insurance policy, and that he suffered from an
illness.
RULING: WHEREFORE, the Petition for Review is DENIED for lack of merit and the
Decision of the Court of Appeals dated 16 October 1989 in C.A-G.R. SP No. 08696 is hereby
AFFIRMED. No pronouncement as to costs.
RATIO:
 1.   In addition to the negative statements made by Jaime in paragraphs 1 and 2 certain information to the insurer was not intentional in nature, for the
of the medical declaration, he failed to disclose in the appropriate space, reason that Jaime believed that he was suffering from a common cold.
under the caption “Exceptions,” that he had twice consulted Dr. Claudio 10.   The unspoken theory of the Insurance Commissioner appears to have been
who found him to be suffering from sinus tachycardia and acute bronchitis. that by deleting the phrase “intentional or unintentional,” the Insurance
2.   The relevant statutory provisions as they stood at the time are set out in PD Code of 1978 intended to limit the kinds of concealment which generate a
1460 or the Insurance Code of 1978: right to rescind on the part of the injured party to “intentional
a.   Sec. 26. A neglect to communicate that which a party knows and ought to concealments.” This argument is not persuasive. As a simple matter of
communicate, is called a concealment. grammar, it may be noted that “intentional and unintentional” cancel each
b.   Sec. 28. Each party to a contract of insurance must communicate to the other, in
good faith, all factors within his knowledge which are material to the contract and other out. The net result therefore of the phrase is precisely to leave
as to which he makes no warranty, and which the other has not the means of unqualified the term “concealment.”
ascertaining. 11.   Thus, Sec. 272 of the Insurance Code of 1978 is properly read as
3.   Under those provisions, the information concealed must be information referring to any concealment without regard to whether such is
which the concealing party knew and ought to have communicated, that is intentional or unintentional.
to say, information which was material to the contract. The test of 12.   In the case at bar, the nature of the facts not conveyed to the insurer was
materiality is contained in Sec. 31.1 such that the failure to communicate must have been intentional rather than
4.   Sinus tachycardia is considered present when the heart rate exceeds 100 merely inadvertent. For Jaime Canilang could not have been unaware that
beats per minute. The symptoms include pounding in the chest and his heart beat would at times rise to high and alarming levels and that he
sometimes faintness and weakness. had consulted a doctor twice in the two months before applying for the
5.   The Court agrees with the CA that the information which Jaime insurance.
Canilang failed to disclose was material to the ability of Great Pacific to 13.   The Court finds it difficult to take seriously the argument that Great Pacific
estimate the probable risk he presented as subject of life insurance. Had had waived inquiry into the concealment by issuing the insurance policy
he disclosed his visits to his doctor, the diagnosis made and the medicines notwithstanding Jaime’s failure to set out answers to some of the questions
prescribed, in the insurance application, it may be reasonably assumed that in the insurance application. Such failure precisely constituted concealment
Great Pacific would have made further inquiries and would have probably on the part of Jaime.
refused to issue a non-medical insurance policy or at the very least, required
a higher premium. The medical declaration which was set out in the application for insurance executed by Jaime
6.   The materiality of the information withheld by Great Pacific did not depend Canilang read as follows:
upon the state of mind of Jaime. A man’s state of mind is not capable of "MEDICAL DECLARATION `I hereby declare that:
(1) I have not been confined in any hospital, sanitarium or infirmary, nor received any medical or
proof in our judicial process, except through proof of external acts from
surgical advice/attention within the last five (5) years.
which inferences as to his subjective belief may be reasonably drawn. (2) I have never been treated nor consulted a physician for a heart condition, high blood pressure,
7.   Neither does materiality depend upon the actual or physical events which cancer, diabetes, lung, kidney, stomach disorder, or any other physical impairment.
ensue. Materiality relates rather to the “probable and reasonable influence (3) I am, to the best of my knowledge, in good health.
of the fact” upon the party to whom the communication should have been EXCEPTIONS:
made, in assessing the risk involved in making or omitting to make further
inquiries and in accepting the application for insurance.
8.   The insurance Great Pacific applied for was a non-medical insurance. It was GENERAL DECLARATION
I hereby declare that all the foregoing answers and statements are complete, true and correct. I
held that the waiver of medical examination in a non-medical insurance hereby agree that if there be any fraud or misrepresentation in the above statements material to the
contract renders even more material the information required of the risk, the INSURANCE COMPANY upon discovery within two (2) years from the effective
applicant concerning previous condition of health and diseases suffered, for date of insurance shall have the right to declare such insurance null and void. That the
such information constitutes an important factor which the insurer takes into liabilities of the Company under the said Policy/TA/Certificate shall accrue and begin only from the
consideration in deciding whether to issue the policy or not. date of commencement of risk stated in the Policy/TA/Certificate, provided that the first premium is
paid and the Policy/TA/Certificate is delivered to, and accepted by me in person, when I am in
9.   The Insurance Commissioner also ruled that the failure Jaime to convey
actual good health.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1

  Sec.
  31.
  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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
estimate
 of
 the
 disadvantages
 of
 the
 proposed
 contract,
 or
 in
 making
 his
 inquiries.
 
 
 Sec.
 27.
 A
 concealment
 entitles
 the
 injured
 party
 to
 rescind
 a
 contract
 of
 insurance.
 
 

 
 
 007 SUNLIFE v. CA (Marcos)
June 22, 1995 | Quiason, J. | Concealment
PETITIONER: Sunlife Assurance Company of Canada
RESPONDENTS: The Hon. Court of Appeals and Sps. Rolando and Bernarda
Bacani
SUMMARY: Robert Bacani procured a life insurance from Sunlife for himself,
making his mother, Bernarda, the beneficiary. Robert died in a plane crash.
Bernarda filed a claim with Sunlife, seeking the benefits of the insurance policy.
Sunlife, however, rejected the claim of Bernarda given that after conducting an
investigation, it found that Robert did not disclose material facts relevant to the
issuance of the policy. Sunlife claimed that Robert gave false statements
regarding his medical history (See Fact 7 for the questions asked). It found that 2
weeks prior to his application, he was examined and confined at the Lung Center
for renal failure and was subject to different kinds of tests. Bernarda filed an
action for specific performance against Sunlife. The RTC and CA ruled in favor
of Bernards contending that the facts concealed where made in good faith and
under the belief that they need not be disclosed, further the cause of death was
unrelated to the facts concealed by the insured. The issue is WoN there was
concealment or misrepresentation by Robert that would warrant the rejection of
Bernarda’s claim in the insurance policy – YES, because Section 26 of the
Insurance Code is explicit in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within his knowledge which are
material to the contract and as to which he makes no warranty, and which the
other has no means of ascertaining. 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 communication is due, in forming his estimate of the
disadvantages of the proposed contract or in making his inquiries. The matters
concealed would have definitely affected Sunlife’s action on his application,
either by approving it with the corresponding adjustment for a higher premium
or rejecting the same. "Good faith" is no defense in concealment. The insured's
failure to disclose the fact that he was hospitalized for two weeks prior to ling his
application for insurance, raises grave doubts about his bonafides. It appears that
such concealment was deliberate on his part.
DOCTRINE: Section 26 of The Insurance Code is explicit in requiring a party
to a contract of insurance to communicate to the other, in good faith, all facts
within his knowledge which are material to the contract and as to which he
makes no warranty, and which the other has no means of ascertaining. Said
Section provides: "A neglect to communicate that which a party knows and
ought to communicate, is called concealment."
FACTS:
137.  Robert John B. Bacani procured a life insurance contract for himself from
Sunlife.
138.  He was issued issued Policy No. 3-903-766-X valued P100,000.00, with
double indemnity in case of accidental death
139.  The designated beneficiary was his mother, Bernarda Bacani
140.  Robert died in a plane crash. Subsequently, Bernarda filed a claim with
Sunlife, seeking the benefits of the insurance policy taken by her son.
141.  Sunlife conducted an investigation and its findings prompted it to reject the
claim.
142.  In its letter, Sunlife informed Bernarda that Robert did not disclose material
facts relevant to the issuance of the policy, thus rendering the contract
voidable. Attached to the letter was a check representing the total premiums
paid.
143.  Sunlife claimed that the insured gave false statements in his application
when he answered the ff. questions:
5. Within the past 5 years have you:
a) consulted any doctor or other health practitioner? 

b) submitted to: 
ECG? X-rays? blood tests? other tests? 

c) attended or been admitted to any hospital or other medical facility?
6. Have you ever had or sought advice for:
xxx xxx xxx
b) urine, kidney or bladder disorder?"
144.  Robert answered 5(a) in the affirmative but limited his answer to a
consultation for flu and cough complications, while the other questions
were answered in the negative.
145.  However, it was discovered that two weeks prior to his application for
insurance, Robert was examined and confined at the Lung Center of the
Philippines, where he was diagnosed for renal failure. During his
confinement, he was subject to urinalysis, ultra-sonography and hematology
tests.
146.  Bernarda and her husband filed an action for specific performance against
Sunlife with the RTC of Valenzuela.
147.  Sunflife filed its answer with counterclaim and a list of exibits consisting of
medical records furnished by Lung Center.
148.  The RTC ruled in favor of Bernarda and concluded that the facts concealed
were made in good faith and under the belief that they need not be
disclosed. Moreover, it held that the health history of the insured was
immaterial since the insurance policy was “non-medical”.
149.  An appeal was made to the CA, which affirmed the decision of the RTC.
150.  The CA held that the cause of death was unrelated to the facts concealed by
the insured.
151.  Sunlife’s MR was denied, hence a petition was made to the SC.
ISSUE/s: WoN there was concealment or misrepresentation by Robert that would
warrant the rejection of Bernarda’s claim in the insurance policy – YES, because
Section 26 of the Insurance Code is explicit in requiring a party to a contract of
insurance to communicate to the other, in good faith, all facts within his knowledge
which are material to the contract and as to which he makes no warranty, and which
the other has no means of ascertaining

RULING: Judgment in question is affirmed.

RATIO:
217.  Section 26 of the Insurance Code is explicit in requiring a party to a
contract of insurance to communicate to the other, in good faith, all facts
within his knowledge which are material to the contract and as to which he
makes no warranty, and which the other has no means of ascertaining.
218.  Said Section provides: "A neglect to communicate that which a party knows
and ought to communicate, is called concealment."
219.  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
communication is due, in forming his estimate of the disadvantages of the
proposed contract or in making his inquiries.
220.  The terms of the contract are clear. The insured is specifically required to
disclose to the insurer matters relating to his health.
221.  The information which the insured failed to disclose were material and
relevant to the approval and the issuance of the insurance policy.
222.  The matters concealed would have definitely affected Sunlife’s action on
his application, either by approving it with the corresponding adjustment for
a higher premium or rejecting the same.
223.  Moreover, a disclosure may have warranted a medical examination of the
insured by Sunlife in order for it to reasonably assess the risk involved in
accepting the application.
224.  "Good faith" is no defense in concealment.
225.  The insured's failure to disclose the fact that he was hospitalized for two
weeks prior to ling his application for insurance, raises grave doubts about
his bonafides. It appears that such concealment was deliberate on his part.
226.  The argument, that Sunlife's waiver of the medical examination of the
insured debunks the materiality of the facts concealed, is untenable.
227.  We reiterate our ruling in Saturnino v. Philippine American Life Insurance
Company, that ". . . the waiver of a medical examination [in a non-medical
insurance contract] 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 . . . ."
228.  Anent the finding that the facts concealed had no bearing to the cause of
death of the insured, it is well settled that the insured need not die of the
disease he had failed to disclose to the insurer. It is sufficient that his non-
disclosure misled the insurer in forming his estimates of the risks of the
proposed insurance policy or in making inquiries.
 008 Saturnino v. Philam (MATSUMURA)
February 28, 1963 | Makalintal, J. | Concealment
PETITIONER: Ignacio Saturnino, in his own behalf and as the judicial guardian of
Carlos Saturnino, minor
RESPONDENTS: The Philippine American Life Insurance Policy
SUMMARY: Estefania Saturnino (saturnino) applied for a non-medical insurance
with Philam. Here, Saturnino was asked to detail her medical history wherein she
stated that she never had any of the ailments listen in the application, cancer, or other
tumors. Moreover, that she had not consulted any physician, undergone any operation
or suffered any injury within the last five years. The insurance policy was issued after
Saturnino paid the first year’s premium. Less than a year later, Saturnino died of
pneumonia secondly to influenza. Her husband and child claimed from Philam the
insurance proceeds of P5,000 but was denied. Apparently, months before the issuance
of the policy, Saturnino was operated on for cancer (her right break was removed) and
that the doctor said she could not be considered definitely cured since her cancer was
malignant. Thus, the saturnino family filed this case to recover the insurance.
The SC rueld that first, Saturnino did make false representation of material facts which
would avoid the policy. While the Saturnino family argue that the misrepresentation
was not material because the insurance was “non-medical”, the court ruled that the
waiver of the medical examination renders even more material the meedical
information that was asked from Saturnino. Second, the argument that Philam’s agent,
Santos, was aware of Saturnino’s ailment was rejected because it was already settled in
the trial court. Such being a question of fact will not be disrupted by the court since
what is assailed are pure questions of law. Third, as to the argument that Saturnino was
not aware that she had cancer (that the doctor allegedly didn’t tell her it was cancer),
the court ruled that concealment of the fact of the operation itself was fraudulent.
Moreover, that in avoiding a policy, it is not necessary to show actual fraud. In this
jurisdiction, a concealment, whether intentional or unintentional, entitles the insurer to
rescind the contract of insurance, concealment being defined as "negligence to
communicate that which a party knows and ought to communicate"
DOCTRINE: A concealment, whether intentional or unintentional, entitles the insurer
to rescind the contract of insurance, concealment being defined as "negligence to
communicate that which a party knows and ought to communicate.
FACTS
1.   Estefania Saturnino (Saturnino) applied for a non-medical insurance with
Philippine American Life Insurance Policy (Philam) on November 16,
1957, witnessed by Edward Santos (Philam’s agent)
a.   This kind of policy dispenses with the medical examination of
the applicant usually required in ordinary life policies. However, a
detailed information regarding the applicant’s health and medical
history is needed.
2.   The policy was issued on the same day upon Saturnino’s payment of the
first year’s premium of P339.25.
3.   On September 19, 1958, Saturnino died of pneumonia, secondly to
influenza.
4.   Estefania’s husband, Ignacio Saturnino, and their minor child Carlos
Saturnino demanded payment of the face value of the policy which is
P5,000.
5.   It appears that the months prior to the issuance of the policy,
Saturnino was operated on for cancer, involving complete removal of
the right breast, including the pectoral muscles and the glands found in
the right armpit.
6.   She stayed in the hospital for a period of eight days, after which she was
discharged, although according to the surgeon who operated on her she
could not be considered definitely cured, her ailment being of the
malignant type.
7.   Notwithstanding the fact of her operation Saturnino did not disclose this
information in her application for insurance.
8.   On the contrary, she stated therein that she did not have, nor had she ever
had, among other ailments listed in the application, cancer or other
tumors; that she had not consulted any physician, undergone any
operation or suffered any injury within the preceding five years; and that
she had never been treated for, nor did she ever have any illness or
disease peculiar to her sex, particularly of the breast, ovaries, uterus, and
menstrual disorders.
9.   The application also recites that the foregoing declarations constituted "a
further basis for the issuance of the policy."
10.   Thus, the insurance claim was rejected by Philam., and so the Saturnino
family filed an action to recover the P5,000.
11.   The CFI of Manila dismissed the case, but the Saturnino family were
declared to be entitled to the return of the premium already paid plus
interest.
12.   Hence, this appeal.
ISSUE/S:
1.   W/N Saturnino made false representations of material facts which would
avoid the policy – YES because Saturnino misrepresented herself as
someone who’s never had any cancel or undergone any operation within the
past 5 years when in fact she did.

RULING: The judgment appealed from, dismissing the complaint and awarding the
return to appellants of the premium already paid, with interest at 6% up to January
29, 1959, is affirmed, with costs against appellants.
RATIO:
1.   There can be no dispute that the information given by Saturnino in
her application for insurance was false, namely, that she had never had
cancer or tumors, or consulted any physician or undergone any operation
within the preceding period of five years.
2.   Are the facts thus falsely represented material? Section 30 of The
Insurance Law provides that "materiality is to be determined not by the
event, but solely by the probable and reasonable influence of informing
his estimate of the proposed contract, or in facts upon the party to whom
the communication is due, making his inquiries."
3.   The Saturnino family argue that the facts subject of the representations
was 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.
4.   However, such is without merit. 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.
5.   It is logical to assume that if Philam had been properly apprised of the
insured's medical history Saturnino would at least have been made to
undergo medical examination in order to determine her insurability.
6.   The Saturnino family also argue that due information concerning
Saturnino's previous illness and operation had been given Philam’s
agenct, Edward Santos, who filed the application form after it was signed
in blank by Saturnino.
7.   This was denied by Santos in his testimony, and the trial court found such
testimony to be true. This is a finding of fact which is binding upon the
SC, this appeal having been taken upon questions of law alone.
8.   The SC did not deem it necessary to consider Philam's additional
argument, which was upheld by the trial court, that in signing the
application form in blank and leaving it to Santos to fill (assuming that to
be the truth) the insured in effect made Santos her agent for that purpose
and consequently was responsible for the errors in the entries made by
him in that capacity.
9.   In the application for insurance signed by the Saturnino in this case, she
agreed to submit to a medical examination by a duly appointed examiner
of Philam if in the latter's opinion such examination was necessary as
further evidence of insurability. In not asking her to submit to a medical
examination, the Saturnino family argue that Philam was negligent which
precluded it from finding about her actual state of health.
10.   The SC rueld thst No such negligence can be imputed to Philam. It was
precisely because the insured had given herself a clean bill of health that
Philam no longer considered an actual medical checkup necessary.
11.   The Saturnino family also contend there was no fraudulent
concealment of the truth as much as Saturnino herself did not know,
since her doctor never told her, that the disease for which she had
been operated on was cancer.
12.   In the first place the 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.
13.   Secondly, in order to avoid a policy, it is not necessary to show actual
fraud on the part of the insured.
14.   According to Kasprzyk vs. Metropolitan Insurance Co.,: "Moreover, if it
were the law that an insurance company could not defend a policy on the
ground of misrepresentation, unless it could show actual knowledge on
the part of the applicant that the statements were false, then it is plain
that it would be impossible for it to protect itself and its honest
policyholders against fraudulent and improper claims. It would be
wholly at the mercy of any one who wished to apply for insurance, as it
would be impossible to show actual fraud except in the extremest cases.
It could not rely on an application as containing information on which it
could act. There would be no incentive to an applicant to tell the truth."
15.   In this jurisdiction, a concealment, whether intentional or
unintentional, entitles the insurer to rescind the contract of
insurance, concealment being defined as "negligence to communicate
that which a party knows and ought to communicate"
16.   In Argente vs. West Coast Life Insurance Co, the court said: "'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 the rate of
premium agreed upon. The insurer, relying upon the belief that the
assured will disclose every material fact within his actual or presumed
knowledge, is misled into a belief that the circumstance withheld does not
exist, and he is thereby induced to estimate the risk upon a false basis that
it does not exist.'"
 009 FLORENDO v. PHILAM PLANS (MERILLES)
February 22, 2012 | Abad, J. | Concealment
PETITIONER: Ma. Lourdes S. Florendo
RESPONDENTS: Philam Plans Inc., Perla Abcede. and Ma. Celeste Abcede
SUMMARY: Manuel filed an application for a comprehensive pension plan
with Philam Plans through Perla Abcede. Manuel signed the forms and left to
Perla the accomplishment the contents. The pension plan had with it a life
insurance coverage. Philam Plans subsequently issued a Pension Plan
Agreement to Manuel. Manuel paid his quarterly premiums.
11 months after acquiring the pension, Manuel died. His beneficiary, Lourdes
Florendo (his wife), claims for the payment of the benefits but was denied.
Philam Plans alleges that Manuel concealed material facts as to his health when
he applied for the pension plans, therefore cannot recover from the insurer.
Lourdes field an action against Philam plans. The RTC ruled that Manuel was
not guilty of concealment. The CA reversed saying that nsurance policies are
traditionally contracts uberrimae fidae or contracts of utmost good faith. As
such, it required Manuel to disclose to Philam Plans conditions affecting the risk
of which he was aware or material facts that he knew or ought to know.
The issue before the SC is whether Manuel is guilty of concealing his illness in
his application forms. The Court ruled that YES, he is guilty. When Manuel
signed the pension plan application, he adopted as his own the written
representations and declarations embodied in it. Assuming that it was Perla
who filled up the application form, Manuel is still bound by what it
contains since he certified that he authorized her action. Philam Plans had
every right to act on the faith of that certification
DOCTRINE: (repetition of above) When Manuel signed the pension plan
application, he adopted as his own the written representations and declarations
embodied in it. Assuming that it was Perla who filled up the application form,
Manuel is still bound by what it contains since he certified that he authorized
her action. Philam Plans had every right to act on the faith of that certification
FACTS:
1.   Manuel Florendo filed an application for comprehensive pension plan with
respondent Philam Plans, Inc. (Philam Plans) after some convincing by
respondent Perla Abcede
a.   The plan had a pre-need price of P997,050.00, payable in 10 years,
and had a maturity value of P2,890,000.00 after 20 years
2.   Manuel signed the application and left to Perla the task of supplying the
information needed in the application.
3.   Ma. Celeste Abcede, Perla’s duaghter, signed tha application as sales
counselor
4.   Aside from pension benefits, the comprehensive pension plan also provided
life insurance coverage to Florendo
5.   This was covered by a Group Master Policy that Philippine American Life
Insurance Company (Philam Life) issued to Philam Plans
a.   Under the master policy, Philam Life was to automatically provide
life insurance coverage, including accidental death, to all who
signed up for Philam Plans' comprehensive pension plan
b.   If the plan holder died before the maturity of the plan, his
beneficiary was to instead receive the proceeds of the life
insurance, equivalent to the pre-need price. F
c.   urther, the life insurance was to take care of any unpaid premium
until the pension plan matured, entitling the beneficiary to the
maturity value of the pension plan
6.   Philam Plans issued Pension Plan Agreement PP 43005584 to Manuel, with
Ma. Lourdes S. Florendo, his wife, as beneficiary. Manuel paid his
quarterly premiums
7.   11 months later, Manuel died of blood poisoning.
8.   Lourdes filed a claim with Philam Plans for the payment of the benefits
under her husband’s plan.
9.   Because Manuel died before his pension plan matured and his wife was to
get only the benefits of his life insurance, Philam Plans forwarded her claim
to Philam Life
10.   On May 3, 1999, Philam Plans wrote Lourdes a letter, declining her claim.
a.   Philam Life found that Manuel was on maintenance medicine for
his heart and had an implanted pacemaker.
b.   Further, he suffered from diabetes mellitus and was taking insulin.
11.   Lourdes renewed her demand for payment under the plan
but Philam Plansrejected it, prompting her to file the present action against
the pension plan company before the Regional Trial Court (RTC) of
Quezon City
12.   RTC rendered judgment ordering Philam PLans, Perla and Celeste
solidarity to pay lourdes all the benefits form her husband’s pension plan.
a.   RTC ruled that Manuel was not guilty of concealing the state of his
health from his pension plan application
13.   CA reversed the RTC decision holding that insurance policies are
traditionally contracts uberrimae fidae or contracts of utmost good faith. As
such, it required Manuel to disclose to Philam Plans conditions affecting the
risk of which he was aware or material facts that he knew or ought to know
14.   Hence, this case.
ISSUE/s:
1.   Whether the CA erred in finding Manuel guilty of concealing his illness
when he kept blank and did not answer questions ins pension plan
application regarding the ailments he suffered - YES. In signing the forms
he attests to the completeness and truthfulness of its contents.
 5.   Lourdes next points out that it made no difference if Manuel failed to reveal
RULING: WHEREFORE, the Court AFFIRMS in its entirety the decision of the the fact that he had a pacemaker implant in the early 70s since this did not
Court of Appeals in CA-G.R. CV 87085 dated December 18, 2007 fall within the five-year timeframe that the disclosure contemplated
a.   But a pacemaker is an electronic device implanted into the body
RATIO: and connected to the wall of the heart, designed to provide regular,
1.   Lourdes points out that, seeing the unfilled spaces in Manuel's pension plan mild, electric shock that stimulates the contraction of the heart
application relating to his medical history, Philam Plans should have muscles and restores normalcy to the heartbeat
returned it to him for completion. 6.   Assuming that it was Perla who filled up the application form, Manuel
a.   Since Philam Planschose to approve the application just as it was, is still bound by what it contains since he certified that he authorized
it cannot cry concealment on Manuel's part. her action. Philam Plans had every right to act on the faith of that
b.   Further, Lourdes adds that Philam Plans never queried Manuel certification
directly regarding the state of his health. Consequently, it could not 7.   In a final attempt to defend her claim for benefits under Manuel's pension
blame him for not mentioning it plan, Lourdes points out that any defect or insufficiency in the information
2.   However, the Court says that Lourdes forgets that provided by his pension plan application should be deemed waived after the
since Philam Plans waived medical examination for Manuel, it had to rely same has been approved, the policy has been issued, and the premiums have
largely on his stating the truth regarding his health in his application. been collected
a.   For, after all, he knew more than anyone that he had been under a.   The Court cannot agree. The comprehensive pension plan
treatment for heart condition and diabetes for more than five years that Philam Plans issued contains a one-year incontestability period
preceding his submission of that application. b.   The incontestability clause precludes the insurer from disowning
b.   But he kept those crucial facts from Philam Plans liability under the policy it issued on the ground of concealment or
c.   Besides, when Manuel signed the pension plan application, he misrepresentation regarding the health of the insured after a year of
adopted as his own the written representations and its issuance
declarations embodied in it. 8.   Since Manuel died on the eleventh month following the issuance of his
d.   It is clear from these representations that he concealed his chronic plan, the one year incontestability period has not yet set in.
heart ailment and diabetes from PhilamPlans Consequently, Philam Plans was not barred from questioning Lourdes'
3.   Since Manuel signed the application without filling in the details regarding entitlement to the benefits of her husband's pension plan.
his continuing treatments for heart condition and diabetes, the assumption is
that he has never been treated for the said illnesses in the last five years
preceding his application.
a.   This is implicit from the phrase "If your answer to any of the
statements above (specifically, the statement: I have never been
treated for heart condition or diabetes) reveal otherwise, please
give details in the space provided for."
b.   But this is untrue since he had been on "Coumadin," a treatment
for venous thrombosis, and insulin, a drug used in the treatment of
diabetes mellitus, at that time.
4.   Lourdes insists that Manuel had concealed nothing since Perla, the
soliciting agent, knew that Manuel had a pacemaker implanted on his chest
in the 70s or about 20 years before he signed up for the pension plan
a.   Nothing in it implies that someone else may provide the
information that Philam Plans needed.
b.   Manuel cannot sign the application and disown the
responsibility for having it filled up.
c.   If he furnished Perla the needed information and delegated to
her the filling up of the application, then she acted on his
instruction, not on Philam Plans' instruction
 010 NG GAN ZEE V ASIAN CRUSADER LIFE INSURANCE (ARMAND)
May 30, 1983 | Escolin, J. | Concealment
PETITIONER: Ng Gan Zee
RESPONDENTS: Asian Crusader Life Assurance Corporation
SUMMARY: In May 1962, Kwong Nam applied for a 20-year policy with Asian
Crusader Life Assurance Corporation. Asian Crusader asked the following question:
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. – to which Kwong Nam answered “No”. Kwong
Nam was also examined by Asian Crusader’s medical examiner to whom he
disclosed that he was once operated and a tumor was removed from his stomach and
such was “associated with ulcer of the stomach.” Kwong Nam’s application was
approved. In May 1963, he died. His widow, Ng Gan Zee, filed an insurance claim
but Asian Crusader refused her claim as it insisted that Kwong Nam concealed
material facts from them when he was applying for the insurance; that he
misrepresented the fact that he was actually denied application by Insular Life when
he was renewing his application with them; that Kwong Nam was actually operated
for peptic ulcer. The issue is WoN because of the aforementioned representation,
the insured has misled, or deceived the insurer in entering the contract or in
accepting the risk at the rate of premium agreed upon – NO. The representation
was not material, nor fraudulent, and there was no proof to show that it was
intentionally withheld. Asian Crusader was not able to prove that Kwong Nam’s
statement that Insular Life did not deny his insurance renewal with them is untrue. In
fact, evidence showed that in April 1962, Insular Life approved Kwong Nam’s
request of reinstatement only with the condition that Kwong Nam’s plan will be
lowered from P50,000.00 to P20,000.00 considering his medical history. Kwong
Nam did not conceal anything from Asian Crusader. His statement that his operation,
in which a tumor the size of a hen’s egg was removed from his stomach, was only
“associated with ulcer of the stomach” and not peptic ulcer can be considered as an
expression made in good faith of his belief as to the nature of his ailment and
operation. Indeed, such statement must be presumed to have been made by him
without knowledge of its incorrectness and without any deliberate intent on his part to
mislead Asian Crusader.While it may be conceded that, from the viewpoint of a
medical expert, the information communicated was imperfect, the same was
nevertheless sufficient to have induced Asian Crusader to make further inquiries
about the ailment and operation of Kwong Nam. It has been held that where, upon the
face of the application, 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.
DOCTRINE: The duty to establish such affirmative defense of fraudulent intent by
satisfactory and convincing evidence rests upon the defendant.
It has been held that where, upon the face of the application, 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.
FACTS:
134.  On May 12, 1962, 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 (Asian), upon receipt of the
required premium from the insured, approved the application and issued the
corresponding policy. On December 6, 1963, Kwong Nam died of cancer
of the liver with metastasis. All premiums had been religiously paid at the
time of his death.
135.  On January 10, 1964, his widow Ng Gan Zee presented a claim in due form
to the Asian for payment of the face value of the policy. On the same date,
she submitted the required proof of death of the insured. Asian denied the
claim on the ground that the answers given by the insured to the questions
appealing in his application for life insurance were untrue.
136.  Ng Gan Zee brought the matter to the attention of the Insurance
Commissioner, the Hon. Francisco Y. Mandamus, and the latter, after
conducting an investigation, wrote that Asian that he had found no material
concealment on the part of the insured and that, therefore, Ng Gan Zee
should be paid the full face value of the policy. This opinion of the
Insurance Commissioner notwithstanding, appellant refused to settle its
obligation.
137.  Asian alleged that the insured was guilty of misrepresentation when he
answeres “No” to the following question: “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.”
138.  In its brief, Ng Gan Zee stated: “... As pointed out in the foregoing
summary of the essential facts in this case, the insured had in January, 1962,
applied for reinstatement of his lapsed life insurance policy with the Insular
Life Insurance Co., Ltd, but this was declined by the insurance company,
although later on approved for reinstatement with a very high premium as a
result of his medical examination. Thus notwithstanding the said insured
answered 'No' to the [above] question propounded to him.”
139.  Lower court found the argument bereft of factual basis, to wit: “On the first
question there is no evidence that the Insular Life Assurance Co., Ltd. ever
refused any application of Kwong Nam for insurance. Neither is there any
evidence that any other insurance company has refused any application of
Kwong Nam for insurance… No new policy was issued by the Insular Life
Assurance Co., Ltd. to Kwong Nam in connection with said application for
reinstatement and amendment. Such being the case, the Court finds that
there is no misrepresentation on this matter.”
140.  Asian 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 alleged false statements given by Kwong Nam was that that
he was operated on for a tumor in the stomach and that it was associated
 with ulcer of the stomach, operated on at Chinese General Hospital 2 years
ago.
141.  Asian alleges that the physician who treated Kwong Nam at the Chinese
Gen Hospital had diagnosed the patient’s ailment as peptic ulcer. Asian
argues that the insured’s statement in his application that a tumor was
removed during said operation constituted material concealment. (So
basically a discrepancy between “peptic ulcer” and “tumor of hen’s egg
size”
ISSUE/s:
13.   Whether or not because of the aforementioned representation, the
insured has misled, or deceived the insurer in entering the contract or
in accepting the risk at the rate of premium agreed upon – NO. The
representation was not material, nor fraudulent, and there was no proof to
show that it was intentionally withheld.
RULING: Finding no reversible error committed by the trial court, the judgment
appealed from is hereby affirmed, with costs against appellant Asian-Crusader life
Assurance Corporation
RATIO:
130.  Section 27 of the Insurance Law (Act 2427) provides:
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.
131.  Thus, "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."
132.  Assuming that the aforesaid answer given by the insured is false, as
claimed by the appellant. Sec. 27 of the Insurance Law, above-quoted,
nevertheless requires that fraudulent intent on the part of the insured
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 defense by satisfactory and convincing evidence rests
upon the defendant. The evidence before the Court does not clearly and
satisfactorily establish that defense."
133.  It bears emphasis that Kwong Nam had informed the insurer’s medical
examiner that the tumor for which he was operated on was "associated with
ulcer of the stomach." In the absence of evidence that the insured had
sufficient medical knowledge as to enable him to distinguish between
"peptic ulcer" and "a 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. Indeed,
such statement must be presumed to have been made by him without
knowledge of its incorrectness and without any deliberate intent on his part
to mislead the insurer.
134.  While it may be conceded that, from the viewpoint of a medical expert, the
information communicated was imperfect, the same was nevertheless
sufficient to have induced insurer to make further inquiries about the
ailment and operation of the insured.
135.  Section 32 of the Insurance Law provides:
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.
136.  It has been held that where, upon the face of the application, 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.
137.  As aptly noted by the lower court, "if the ailment and operation of Kwong
Nam had such an important bearing on the question of whether the
defendant would undertake the insurance or not, the court cannot
understand why the defendant or its medical examiner did not make any
further inquiries on such matters from the Chinese General Hospital or
require copies of the hospital records from the appellant 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."
 011 FIELDMEN’S INSURANCE v. VDA. DE SONGCO (PELIÑO) a.   This time, the jeep had a different Plate No: J-68136
September 23, 1968 | Fernando, J. | Misrepresentation35 3.   On October 29, 1961 (policy was still effective), the jeep was being driven
by Rodolfo, son of Federico and a duly licensed driver.
PETITIONER: Fieldmen’s Insurance Co. a.   The jeep collided with a car in Calumpit, Bulacan, and as a result,
RESPONDENTS: Mercedes Vargas Vda. De Songco, et. al. and Court of Appeals Federico and Rodolfo died, while Carlos (another son), Angelita (wife
of Carlos), and a family friend sustained physical injuries.
SUMMARY: Federico, a person who only reached grade 1, owned a private jeepney. He 4.   The injured parties or the heirs wanted to claim from Fieldmen’s, but
was induced by Fieldmen’s agent, Sambat, to apply for a Common Carrier’s Liability Fieldmen’s denied, saying that what was insured was a private vehicle and
Insurance Policy to cover his motor vehicle. This was insured twice under the same
not a common carrier.
policy. While the policy was still effective, the jeep collided with a car, resulting to the
death of Federico and a son, and injuries to the other passengers who were members of 5.   During trial in the CFI, another son of Federico, Amor, testified that when
his family. The heirs wanted to claim on the insurance policy but Fieldmen’s said that Sambat was inducing Federico to insure the vehicle, he butted in saying that
they can’t since what was insured was a private vehicle and not a common carrier. When they can’t insure the vehicle since it is an “owner” private vehicle, but then
the heirs filed in the CFI, the surviving son, Amor, testified that Sambat induced Sambat said that whether the vehicle was an “owner” type or for
Federico to insure the vehicle despite knowing that the vehicle wasn’t a common carrier. passengers, it could be insured because their company is not owned by the
Lower court ruled in favor of the heirs. On appeal to the CA, the CA also affirmed the government, so they could do as they please whenever they believe that the
lower court. Hence, this petition. The issue in this case is whether or not Fieldmen’s is vehicle is insurable.
liable on the policy despite the fact that the vehicle insured is a private one and not a a.   Fieldmen’s didn’t rebut the testimony of Amor.
common carrier. The SC held in the affirmative. Where inequitable conduct is shown by
b.   Lower court ruled in their favor. Fieldmen’s appealed to the CA, and
an insurance firm, it is estopped from enforcing forfeitures in its favor in order to
forestall fraud or imposition on the insured. After Fieldmen’s led Federico to believe that
the also affirmed the lower court.
he could qualify under the common carrier liability insurance, it could not be permitted 6.   Hence, this case.
to change its stand to the detriment of the heirs of the insured. Estoppel is primarily 7.   Fieldmen’s claims that:
based on the doctrine of good faith and the avoidance of harm that will befall the a.   Estoppel cannot be invoked by the heirs as a bar to the alleged breach
innocent party due to its injurious reliance. A contract of insurance is one of perfect good of warranty and condition in the policy
faith not for the insured alone, but equally so for the insurer; in fact, it is more so for the b.   No legal liability was incurred under the policy by Fieldmen’s.
latter, since its dominant bargaining position carries with it stricter responsibility.
ISSUE/s:
DOCTRINE: Where inequitable conduct is shown by an insurance firm, it is estopped
1.   WON Fieldmen’s is liable on the policy despite the fact that the vehicle is a
from enforcing forfeitures in its favor in order to forestall fraud or imposition on the
insured. Contractual duty of disclosure imposed by utmost good faith is not required of private one and not a common carrier. – YES, after Fieldmen’s led Federico
the insured alone, but it is imposed with equal stringency upon the insurer, moreso upon to believe that he could qualify under the common carrier liability
the latter since his dominant bargaining position carries with it stricter responsibility. insurance, it could not be permitted to change its stand to the detriment of

  the heirs of the insured.
FACTS:
1.   Federico Songco (Federico) was a man of scant education, since he only RULING: WHEREFORE, the decision of the CA is AFFIRMED in its entirety.
reached first grade.
a.   He owned a private jeepney with Plate No. 41-289 for the year 1960. RATIO:
b.   On September 15, 1960, he was induced by Fieldmen’s Insurance On whether Fieldmen’s is liable on the policy
Co. (Fieldmen’s) Pampanga agent, Benjamin Sambat (Sambat) to 1.   Where inequitable conduct is shown by an insurance firm, it is
apply for a Common Carrier’s Liability Insurance Policy covering estopped from enforcing forfeitures in its favor in order to forestall
his motor vehicle upon paying annual premium of P16.50. fraud or imposition on the insured.
c.   4 days after, Fieldmen’s issued the Common Carriers Accident 2.   After Fieldmen’s led Federico to believe that he could qualify under the
Insurance Policy which will be effective for 1 year (Sept. 15, 1960- common carrier liability insurance, it could not be permitted to change its
Sept. 15, 1961). stand to the detriment of the heirs of the insured.
2.   On September 22, 1961, Fieldmen’s renewed the policy upon payment of 3.   Estoppel is primarily based on the doctrine of good faith and the
the premium, this time effective from October 15, 1961-October 15, 1962. avoidance of harm that will befall the innocent party due to its
injurious reliance. The failure to apply in this case would result in a gross

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  travesty of justice.
35
The case never mentioned the words concealment or misrepresentation.
4.   As to the issue on breach, CA said (which the SC also agreed with) that,
some of the conditions contained in the policy were impossible to comply
with under the existing conditions at the time and inconsistent with the
known facts, so the insurer (Fieldmen’s) is estopped from asserting
breach of such conditions.
5.   Even it be assumed that there was an ambiguity, based on Qua Chee Gan v.
Law Union and Rock Insurance, taking into account the well-known rule
that ambiguities or obscurities must be strictly interpreted against the party
that caused them.
a.   Nowadays, monopolies, cartels, those with overwhelming economic
power, manage to impose upon parties dealing with them contracts of
adhesion, in contrast to those entered by parties bargaining on equal
footing. So these kinds of contracts call for greater strictness and
vigilance on the part of courts of justice with a view to protecting the
weaker party.
6.   Contract of insurance is one of perfect good faith (uberima fides);
contractual duty of disclosure imposed by utmost good faith is not for
the insured alone, but equally so for the insurer; in fact, it is more so
for the latter, since its dominant bargaining position carries with it
stricter responsibility.
 012 YU PANG CHENG v. CA (PLEYTO)
May 29, 1959 | Bautista Angelo, J. | Misrepresentation
PETITIONER: Yu Pang Cheng alias Yu Pang Ching
RESPONDENTS: The Court of Appeals, et. al.
SUMMARY: Yu Pand Eng submitted his application for insurance of Sept. 1950.
He was issued a policy 3 days after. He entered St. Lukes on Dec. 29, 1950 but he
eventually died of “infiltrating medullary carcinoma, Grade 4, advanced catdiac and
lesser curvature, stomach metastases spleen” on Feb. 1951. Cheng, brother and
beneficiary of Yu Pand Eng, demanded from the defendant-insurer the proceeds of
the insurance but it was denied. Hence, this petition. Defendant-insurer in its answer,
set up the defense that Yu Pand Eng was guilty of misrepresentation and
concealment of material facts in that he gave false and untruthful answers to certain
questions asked him in his application for insurance which were material to the risk
against and have the effect of avoiding the insurance policy. Trial court ruled in
favor of Cheng but this was reversed by the CA. The issue in this case is WoN the
insured is guilty of concealment of some facts material to the risk insured against
which has the effect of avoiding the policy as found by the CA. It appears that Yu
Pand Eng entered the Chinese General Hospital for medical treatment on January 29,
1950 having stayed there up to February 11, 1950. Upon entering the hospital, he
complained of dizziness, anemia, abdominal paids and tarry stools, and in the
evening of his admission he had several abdominal pains and his discharges were
with black tarry stools and felt dizzy and weak. Yu Pand Eng's confinement in the
Chinese General Hospital took place from January 29, 1950 to February 11, 1950,
whereas his application for insurance wherein he stated his answers to the questions
propounded to him by the examining physician of defendant-insurer was submitted
to defendant-insurer on September 5, 1950. (check ratio #1) 5. It is apparent that
when the insured gave his answers regarding his previous ailment, particularly with
regard to "Gaztritis, Ulcer of the Stomach or any disease of that organ" and "Vertigo,
Dizziness, Fainting-spells or Unconsciousness", he concealed the ailment of which
he was treated in the Chinese General Hospital which precisely has direct connection
with the subject of the questions propounded. This deprived defendant-insurer of the
opportunity to make the necessary inquiry as to the nature of his past illness so that it
may form its estimate relative to the approval of his application. Had defendant-
insurer been given such opportunity, considering the previous illness of the insured
as disclosed by the records of the Chinese General Hospital, defendant-insurer would
probably had never consented to the issuance of the policy in question. (Doctrine)
DOCTRINE: Concealment is the neglect to communicate that which a party knows
and ought to communicate. Whenever intentional, the concealment entitles the
insurer to rescind the contract of insurance. The insurance law requires the insured to
communicate to the insurer all facts within his knowledge which are material to the
contract and which the other party has no means of ascertaining, and the 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.
FACTS:
1.   On Sept. 5, 1950, Yu Pand Eng submitted parts II and III of his application
for insurance consisting of the medical declaration made by him to the
medical examiner of defendant (SORRY, HINDI TALAGA NAKALAGAY SA
CASE SINO SIYA so not sure who kasi may “et. al” so defendant-insurer
na lang sa next parts), and the medical examiner’s report.
2.   On Sept. 7, he submitted part I of his application which is the declaration
made by him to an agent of defendant-insurer
3.   Sept. 8: based on said application, and upon payment of the first premium in
the sum of P591.70, defendant-insurer issued to the insured Policy No.
812858
4.   Dec. 27, 1950: Yu Pand Eng entered St. Luke’s Hospital for medical
treatment but he died on Feb. 27, 1951. According to the death certificate,
he died of “infiltrating medullary carcinoma, Grade 4, advanced catdiac and
lesser curvature, stomach metastases spleen.”
5.   Yu Pang Cheng (Cheng), brother and beneficiary of the insured, demanded
from defendant-insurer the payment of the proceeds of the insurance polic.
6.   Defendant-insurer refused. Thus, Cheng brought this action to collect from
the defendant-insurer the sum of P10,000, value of an insurance policy
taken upon the life of one Yu Pand Eng, plus interest thereon at the legal
rate, the sum of P10,000 as moral damages, P3000 as attorney’s fees, and
the costs of action
7.   Defendant-insurer in its answer, set up the defense that Yu Pand Eng was
guilty of misrepresentation and concealment of material facts in that he
gave false and untruthful answers to certain questions asked him in his
application for insurance which were material to the risk against and
have the effect of avoiding the insurance policy
8.   After trial, the court rendered judgment ordering defendant-insurer to pay
Cheng the sum of P10k, with legal interest from the filing of the complaint,
plus P2k as attorney’s fees, and the costs of the suit
9.   On appeal, the CA reversed the decision of the trial court, holding that the
insured was guilty from liability.
10.   Hence, the present petition for review.
ISSUE/s:
1.   WoN the insured is guilty of concealment of some facts material to the risk
insured against which has the effect of avoiding the policy as found by the
CA – YES. Eng lied on the application despite actually knowing his
sickness.
RULING: the decision appealed from is affirmed, with costs against Cheng
RATIO:
 1.   The insured, in his application for insurance, particularly in his declarations
to the examining physician, stated the following in answering the questions
propounded to him:
"14. Have you ever had any of the following diseases or symptoms? Each question
must be read and answered "Yes" or "No."
xxx xxx xxx
"Gastritis, Ulcer of the Stomach or any disease of that organ? No.
"Vertigo, Dizziness, Fainting-spells or Unconsciousness? No.
"Cancer, Tumors or Ulcers of any kind? No.
"15. Have you ever consulted any physician not included in any of the above
answers? Give names and address or physicians list ailments or accidents and date.
No."
2.   It appears that Yu Pand Eng entered the Chinese General Hospital for
medical treatment on January 29, 1950 having stayed there up to February
11, 1950. Upon entering the hospital, he complained of dizziness, anemia,
abdominal paids and tarry stools, and in the evening of his admission he had
several abdominal pains and his discharges were with black tarry stools and
felt dizzy and weak.
3.   The history of his illness shows that the same "started a year ago as frequent
dizziness." An X-ray picture of his stomach was taken and the diagnosis
made of him by his doctors showed that his illness was "peptic ulcer,
bleeding."
4.   Note: Yu Pand Eng's confinement in the Chinese General Hospital took
place from January 29, 1950 to February 11, 1950, whereas his
application for insurance wherein he stated his answers to the questions
propounded to him by the examining physician of defendant-insurer
was submitted to defendant-insurer on September 5, 1950.
5.   It is apparent that when the insured gave his answers regarding his
previous ailment, particularly with regard to "Gaztritis, Ulcer of the
Stomach or any disease of that organ" and "Vertigo, Dizziness,
Fainting-spells or Unconsciousness", he concealed the ailment of which
he was treated in the Chinese General Hospital which precisely has
direct connection with the subject of the questions propounded.
6.   The negative answers given by the insured regarding his previous ailment,
or his concealment of the fact that he was hospitalized and treated for
sometime of peptic ulcer and had suffered form "dizziness, anemia,
abdominal pains and tarry stools", deprived defendant-insurer of the
opportunity to make the necessary inquiry as to the nature of his past
illness so that it may form its estimate relative to the approval of his
application.
7.   Had defendant-insurer been given such opportunity, considering the
previous illness of the insured as disclosed by the records of the Chinese
General Hospital, defendant-insurer would probably had never
consented to the issuance of the policy in question.
8.   In fact, according to the death certificate, the insured died of "infiltrating
medullary carcinoma, Grade 4, advanced cardiac and of lesser curvature,
stomach metastases spleen", which may have a direct connection with his
previous illness.
9.   Our Insurance Law provides that A neglect to communicate that which
a party knows and ought to communicate, is called concealment"
(Section 25, Act No. 2427 or the Insurance Act (not Code)).
10.   Whether intentional or unintentional, the concealment entitles the
insurer to rescind the contract of insurance (Section 26).
11.   Our law even requires the insured to communicate to the insurer all
facts within his knowledge which are material to the contract and
which the other partty has not the means of ascertaining (Section 27)
12.   the materiality is to be determined not by the event but solely by the
probable and reasonable in uence of the facts upon the party to whom
the communication is due (Section 30).
13.   In the case of Argente vs. West Coast Life Insurance Co., 51 Phil., 725, this
Court said:
"One ground for the rescission of a contract of insurance under the
Insurance Act is 'a concealment', which in section 25 is defined 'A neglect
to communicate that which a party knows and ought to communicate.'
Appellant argues that the concealment was immaterial and isu ceint to avoid
the policy. We cannot agree. In an action on a life insurance policy where
the evidence conclusively shows that the answers to questions concerning
diseases were untrue, the truth or falsity of the answers become the
determining factor. If the policy was procured by fraudulent representations,
the contract of insurance apparently set forth therein was never legally
existent. It can fairly be assumed become that had the true facts been
disclosed by he assured, the insurance would never have been granted."
14.   CA did not err in declaring the policy ineffective on the ground of
concealment and in relieving appellee from liability
 013 EGUARAS v. GREAT EASTERN (Punsalan)
Jan. 24, 1916 | Torres, J. | Misrepresentation
PETITIONER: Francisca Eguaras
RESPONDENTS: The Great Eastern Life Assurance Co., Ltd., West Smith
SUMMARY: Great Eastern Life Assurance, Co., Ltd. accepted Dominador Albay’s
application for insurance where P5,000.00 is to be paid by the insurer to Albay’s
beneficiary, Francisca Eguaras (mother-in-law). In perfection of the contract thereof,
Albay, who was not in good health and by connivance with insurance agent Remigio,
presented Castor Garcia (fake Albay) to Dr. Vidal who was commissioned by Great
Eastern to examine applicants for life insurance. In view of the favorable report of Dr.
Vidal that Albay (who was actually Garcia) was in good health and possessed the
qualifications required by Great Eastern for perfecting the contract, the company freely
and willingly consented to the execution thereof. Such medical examination and of the
favorable professional report induced Great Eastern to indeed believe that Albay was in
good health but who in fact was Castor Garcia. Actual insured Albay died 1 month and 23
days in Sta. Cruz, Laguna after the insurance had been granted.
Issue: (1) WoN the life insurance obtained by Albay, with the assistance of Remigio
(insurance agent), is legal and valid – NO
The person who was actually examined was not Dominador Albay, but was another
(Castor Garcia), in order to get a favorable recommendation on the health of the insured
which induced Great Eastern to approve of the application and thus issue the contested
life insurance policy of Albay where Eguaras is the beneficiary. Furthermore, the
signatures that appear on the papers referring to the insurance are so different from
those which appear on the other documents which unquestionably bear the
signature of the real Dominador Albay that SC can do no less than reach the
conclusion that there was a person who passed himself off as Dominador Albay and
said person was the one who went on signing the documents relating to the alleged
insurance of Dominador Albay.
(2) WoN Great Eastern Life Assurance is under obligation to pay the value to Francisca
Eguaras – NO
Having proven the misrepresentation by the insurance agent, serious deceit indeed
occurred in perfecting the insurance contract. The company would not have granted
insurance applied for had misrepresentation and deception not occurred. Therefore, it is
improper nor is it permitted by the law to order collection of the P5,000.00
DOCTRINE: Misrepresentation in applying for life insurance, also in connivance with
an insurance agent, constitutes serious deceit which cannot entitle a party to the proceeds
of the policy despite being previously issued by the insurance company.
 
FACTS:
1.   Characters:
Francisca Eguaras (Eguaras) – beneficiary; mother-in-law
Dominador Albay (Albay) – insured
The Great Eastern Life Assurance Co., Ltd. (Great Eastern) – insurer
Ponciano Remigio (Remigio) – insurance agent
2.   Oct. 14, 1912: Albay, through the efforts of Great Eastern’s agent, Ponciano
Remigio, got to insure his life for the sum of P5,000.00, naming Eguaras (who
was his mother-in-law) as the beneficiary in case of his death.
a.   That through Albay’s representations and statements in his application and
the favorable medical examination made by Dr. Jose Vidal, Great Eastern
agreed to the life insurance sought.
3.   The contract of life insurance executed between The Great Eastern Life Assurance
Company, Ltd., and Dominador Albay is set forth in the policy itself and in the
original and supplementary applications signed by Albay, it appeared to stipulate
that:
a.   "This insurance is granted in consideration of the foregoing statements and
agreement in the application presented to obtain this policy, which
application forms a part of the present contract."
4.   Such condition is repeated in Clause VIII of the conditions and privileges
granted to the insured, that:
a.   "This policy and the application presented to secure it, taken together,
constitute the whole contract, which cannot be altered except in writing by
the general manager or some person expressly appointed therefor by the
board of directors."
5.   (IMPT) In the supplementary application presented by Albay to the question “Do
you think that you are free from disease and that you have a good
constitution?” He answered “Yes.”
6.   (IMPT) Furthermore, in another question “Have you suffered from any affection
of … (c) Chest – Cough, asthma, spitting blood, pleurisy?” he answered “No.”
7.   Dr. Vidal, the physician of the insurance company in charge of the physical
examination of the person applying for insurance in Laguna, did the check-up on
Albay and recorded that the development, expansion, percussion, and auscultation of
the applicant's chest were "normal" and recommended to the company that it could
"take the risk" of insuring the applicant Dominador Albay
a.   The report also had medical officer Lunn placing “O.K.” on it.
8.   A month after the issuance of the insurance policy, Albay allegedly died of
intestinal occlusion (intestinal blockage which causes blockage of bowel) in Sta.
Cruz, Laguna, as proven in Dr. Kamatoy’s certificate.
9.   Great Eastern, despite having received satisfactory proofs of its insured/Albay’s
death, refused to pay the amount of the insurance and alleged that the policy was
secured through fraud and deceit and was therefore illegal and void.
NOTE: this recounts how the insurance policy was applied for and how the misrepresentation went about
10.   It appears that Albay had knowledge of the false replies contained in the two
applications for insurance and knowingly permitted fraud to be practiced upon
Great Eastern
a.   For in his acknowledgment and consent his mother-in-law was designated
as the beneficiary of the insurance, despite the fact that he had children
and his mother was still living
11.   The fraud consisted in the fact that a healthy and robust person was substituted in
place of the Albay when Dr. Vidal made the physical exam of the one who was
seeking to be insured, for Albay was in bad health on and before the date of
executing the insurance contract, of which facts the insured Albay and the
insurance agent Remigio had full knowledge.
a.   Such person was presented to him by insurance agent Remigio who told
him that such was Albay
b.   But in truth, the person was Castor Garcia who presented himself to
be Dominador Albay.
12.   The insurance company endeavored to prove by means of cross-examination of
Ponciano Remigioand by means of the declaration of another insurance agent, Jose
D. Arce, that Remigio had always been in the habit of securing the insurance of
 sick persons, who died shortly after it was issued, in fraud and to the serious
injury of the defendant company.
a.   Court overruled this attempt of Great Eastern and did not permit proof of
specific fraudulent acts performed by its agent Remigio
b.   It is observed that Remigio has already been convicted of the crime of
estafa and was to restitute The Insular Life Insurance Co. an amount of
P20.
13.   There was also a sworn declaration by Atty. O’Brien indicating that agent Remigio
interviewed him in his office telling him that the signatures affixed to the original
and supplemental application for insurance signed before Dr. Vidal were false.
a.   Remigio further told him that the former was disgusted with his
accomplices because they could not reach an agreement regarding the
distribution among them of the amount of the policy. (scammaz)
14.   Remigio denied all this in his testimony.
15.   Dr. Reyes also testified and said that Albay consulted him regarding the cough he
had and after a medical examination, the conclusion was that Albay was actually
suffering from tuberculosis in the first stage.
16.   There is circumstantial evidence in the case that Albay died of tuberculosis because
his own mother, Manuela Flores, so affirmed in the affidavit. However, it was not
presented as evidence because Flores repudiated it in court.
a.   It was repudiated because Great Eastern was unwilling to give her money
for the statements they would make in the court in the event that West
Smith, Great Eastern’s agent, should win the case, and accordingly to
execute “an instrument we can hold to.”
NOTE: at this point, I’ll go back to what happened in the courts; though I think you can skip this sa recit
17.   CFI rendered judgment where Great Eastern was to pay P5,000.00 to Eguaras with
legal interest.
18.   Great Eastern moved for a reopening of the case and a new trial which was denied
19.   Great Eastern filed a Bill of exceptions, approved and forwarded to the clerk of the
SC.
ISSUE/s:
1.   WoN the life insurance obtained by Albay, with the assistance of Remigio
(insurance agent), is legal and valid – NO, the person who was examined was not
Dominador Albay, but was another (Castor Garcia), in order to get a favorable
recommendation on the health of the insured which induced Great Eastern to
approve of the application and thus issue the contested life insurance policy of
Albay where Eguaras is the beneficiary. (misrepresentation)
2.   WoN Great Eastern Life Assurance is under obligation to pay the value (P5,000) to
Francisca Eguaras – NO. Having proven the misrepresentation by the insurance
agent, serious deceit indeed occurred in perfecting the insurance contract.
RULING: 1st part of judgment appealed from (regarding payment of P5000) is reversed. The
Great Eastern Life Assurance Company, Ltd. is absolved from the complaint. 2nd part of said
judgment in so far as it absolves West Smith is affirmed and petition for damages dismissed.
RATIO:
1.   Eguaras’ claim is based on the genuineness of the signature of “Dominador Albay”
in the elector’s oath on the contention that if the signature on said election oath is
genuine, those which appear on the insurance applications, and that affixed to the
Albay’s letter to Great Eastern, must also be true and genuine.
2.   But if the real Albay wrote in the Spanish style in the months of Jan-March
1912, as demonstrated by the signatures affixed to certain documents, it is
impossible to believe that he should have radically changed his form of writing
2 months later by adopting a different handwriting as can be seen in the alleged
signature in the electors.
3.   The signatures that appear on the papers referring to the insurance are so
different from those which appear on the other documents which
unquestionably bear the signature of the real Dominador Albay that, in
consideration of the short time which elapsed between the last genuine signature in
March, 1912, when he sold a tract of land, and his oath as elector in May of the
same year, 1912, and the great difference that exists between the two signatures, we
can do no less than reach the conclusion already stated that there was a person
who passed himself off as Dominador Albay and said person was the one who
went on signing the documents relating to the alleged insurance of Dominador
Albay, who died on December 6, 1912
4.   Moreover, Dominador Albay's age, according to the application and the insurance
policy, was 40 years in 1912, while according to his personal cedulas he was only 32
years of age in 1911, so that when he was insured he must have been only 33.
5.   It is therefore proven that the signatures on the insurance applications reading
"Dominador Albay" are false and forged
6.   Under Art. 126936(OLD CIVIL CODE), it is essential to the nature of the deceit that
said deceit be prior to or contemporaneous with the consent that is a necessary
prerequisite for perfecting the contract, but not that it may have occurred or
happened thereafter.
a.   A contract is therefore deceitful, for the execution whereof the consent
of one of the parties has been secured by means of fraud, because he
was persuaded by words or insidious machinations, statements or false
promises, and a defective consent wrung from him, even though such do
not constitute estafa or any other criminal act subject to the penal
law.
7.   This fraud consisted in the substitution at the examination of Castor Garcia in
place of the insured Dominador Albay, and as the deceit practiced in the said
contract is of a serious nature, the same is ipso facto void and ineffective, in
accordance with the provisions of article 1270 of the [old] Civil Code.
8.   Serious deceit occurred in perfecting the insurance contract, for had the agent of the
company not been deceived it would not have granted the insurance applied for by
Albay, nor would it have executed the contract by virtue whereof payment is
claimed of the value of the policy obtained through fraud; and consequently on such
assumptions it is improper, nor is it permitted by the law, to order collection of the
amount claimed.
36
Art. 1269: "There is deceit when by words or insidious machinations on the part of one of the
contracting parties the other is induced to execute a contract which without them he would not have
made."
 014 Soliman v. US (Cristelle)
1958 | N/A | Misrepresentation

Dean Hofi can’t find the original copy of this case, ito lang nasa internet
and super short digest pa ito.

DOCTRINE: One who solicits insurance is an underwriter and not an agent

of the insurance company. If insurer appoints a general agent, then such
agent can bind the company by virtue of the written appointment. On the
other hand, when an underwriter fills up a policy with false answers and
later the insured signs the policy, the false answers become the insured’s
own answers because he signed the policy.

FACTS:
1.   US Life issued a 20 year endowment life policy on the joint lives of
Patricio Soliman and his wife Rosario, each of them being the
beneficiary of the other.
2.   In March 1949, the spouses were informed that the premium for
January 1949 was still unpaid notwithstanding that the 31-day grace
period has already expired, and they were furnished at the same time
long-form health certificates for the reinstatement of the policies.
3.   In April 1949, they submitted the certificates and paid the premiums.
4.   In January 1950, Rosario died of acute dilation of the heart, and
thereafter, Patricio filed a claim for the proceeds of the insurance.
5.   US Life denied the claim and filed action for the rescission of the
contract on the ground that the certificates failed to disclose that
Rosario had been suffering from bronchial asthma for 3 years prior
to their submission.

ISSUES: Whether or not the contract can still be rescinded? Yes, it can
be rescinded.

RULING:

RATIO:
1.   The insurer is once again given two years from the date of
reinstatement to investigate into the veracity of the facts represented
by the insured in the application for reinstatement. When US life
sought to rescind the contract on the ground of
concealment/misrepresentation, two years had not yet
elapsed. Hence, the contract can still be rescinded.
 015 Pacific Banking Corp v. CA (Rosales)
November 28, 1988 | Paras, J. | Misrepresentation
PETITIONER: Pacific Banking Corporation
RESPONDENTS: Court of Appeals and Oriental Assurance Corporation
SUMMARY: On October 21,1963, Fire Policy No. F-3770, an open policy, was
issued to the Paramount Shirt Manufacturing Co., by which Oriental Assurance
Corporation bound itself to indemnify the insured for any loss or damage, not
exceeding P61,000.00, caused by fire to its property for a period of one year.
Paramount Shirt is a debtor of Pacific Banking in the amount of not less than
P800,000.00 and the goods described in the policy were held in trust by the
insured for Pacific Banking under thrust receipts. A fire broke out on the subject
premises destroying the goods contained in its ground and second floors. Pacific
Banking sent a letter of demand to Oriental Assurance for indemnity due to the
loss of property by fire. Oriental Assurance said it is not yet ready to accede to
the latter's demand as it is awaiting the final report of the insurance adjuster,
H.H. Bayne Adjustment Company. The insurance adjuster notified Pacific
Banking that Paramount Shirt under the policy had not filed any claim with it,
nor submitted proof of loss which is a clear violation of Policy Condition No.11,
and for which reason, determination of the liability of Oriental Assurance could
not be had. For failure of the insurance company to pay the loss as demanded,
Pacific Banking on filed in the court an action for a sum of money. Pacific
Banking presented in evidence a communication revealing undeclared co-
insurances undertaken by Paramount. RTC rendered a decision adjudging
Oriental Assurance liable to Pacific Banking under the said contract of
insurance. The CA reversed.
WoN Paramount Shirt, the insured, was guilty of fraud which rendered the
contract of insurance void? – YES, because Paramount Shirt failed to reveal
before the loss three other insurances. By reason of said unrevealed insurances,
Paramount Shirt had been guilty of a false declaration; a clear misrepresentation
and a vital one because where the insured had been asked to reveal but did not,
that was deception. Concrete evidence of fraud or false declaration by
Paramount Shirt was furnished by Pacific Banking itself when the facts alleged
in the policy under clauses "Co-Insurances Declared" and "Other Insurance
Clause" are materially different from the actual number of co-insurances taken
over the subject property. As the insurance policy against fire expressly required
that notice should be given by the insured of other insurance upon the same
property, the total absence of such notice nullifies the policy. Undoubtedly, it is
but fair and just that where the insured who is primarily entitled to receive the
proceeds of the policy has by its fraud and/or misrepresentation, forfeited said
right, with more reason Pacific Banking which is merely claiming as indorsee of
said insured, cannot be entitled to such proceeds.
DOCTRINE: Representations of facts are the foundation of the contract and if
the foundation does not exist, the superstructure does not arise. Falsehood in
such representations is not shown to vary or add to the contract, or to terminate a
contract which has once been made, but to show that no contract has ever
existed. A void or inexistent contract is one which has no force and effect from
the very beginning, as if it had never been entered into, and which cannot be
validated either by time or by ratification.
FACTS:
1.   On October 21,1963, Fire Policy No. F-3770, an open policy, was issued to
the Paramount Shirt Manufacturing Co., by which Oriental Assurance
Corporation bound itself to indemnify the insured for any loss or damage,
not exceeding P61,000.00, caused by fire to its property consisting of
stocks, materials and supplies usual to a shirt factory, including furniture,
fixtures, machinery and equipment while contained in the ground, second
and third floors of the building situated at number 256 Jaboneros St., San
Nicolas, Manila, for a period of one year commencing from that date to
October 21, 1964.
2.   Paramount Shirt was at the time of the issuance of the policy and is up to
this time, a debtor of Pacific Banking in the amount of not less than
P800,000.00 and the goods described in the policy were held in trust by the
insured for Pacific Banking under thrust receipts.
3.   Said policy was duly endorsed to Pacific Banking as mortgagee/ trustor of
the properties insured, with the knowledge and consent of Oriental
Assurance to the effect that "loss if any under this policy is payable to the
Pacific Banking Corporation".
4.   On January 4, 1964, while the aforesaid policy was in full force and effect,
a fire broke out on the subject premises destroying the goods contained in
its ground and second floors.
5.   On January 24, 1964, counsel for Pacific Banking sent a letter of demand to
Oriental Assurance for indemnity due to the loss of property by fire under
the endorsement of said policy.
6.   On January 28, 1964, Oriental Assurance informed counsel for Pacific
Baking that it was not yet ready to accede to the latter's demand as the
former is awaiting the final report of the insurance adjuster, H.H. Bayne
Adjustment Company.
7.   On March 25, 1964, the said insurance adjuster notified counsel for Pacific
Banking that Paramount Shirt under the policy had not filed any claim with
it, nor submitted proof of loss which is a clear violation of Policy Condition
No.11, and for which reason, determination of the liability of Oriental
Assurance could not be had.
8.   On April 24, 1964, Pacific Banking’s counsel replied to aforesaid letter
asking the insurance adjuster to verify from the records of the Bureau of
Customs the entries of merchandise taken into the customs bonded
warehouse razed by fire as a reliable proof of loss.
9.   For failure of the insurance company to pay the loss as demanded, Pacific
Banking on filed in the court an action for a sum of money against Oriental
 Assurance Corporation in the principal sum of P61,000.00 issued in favor of
Paramount Shirt Manufacturing Co.
10.   Oriental Assurance raised the following defenses in its answer to wit: (a)
lack of formal claim by insured over the loss and (b) premature filing of the
suit as neither Pacific Banking nor Paramount Shirt had submitted any proof
of loss on the basis of which Oriental Assurance would determine its
liability and the amount thereof, either to Oriental Assurance or its adjuster
H.H. Bayne Adjustment Co., both in violation of Policy Condition No.11.
11.   At the trial, Pacific Banking presented in evidence a communication dated
December 22, 1965 of the insurance adjuster, H.H. Bayne Adjustment Co.
to Asian Surety Insurance Co., Inc., revealing undeclared co-insurances
with the following: P30,000.00 with Wellington Insurance; P25,000. 00
with Empire Surety and P250,000.00 with Asian Surety; undertaken by
insured Paramount on the same property covered by its policy with
Oriental Assurance whereas the only co-insurances declared in the
subject policy are those of P30,000.00 with Malayan P50,000.00 with
South Sea and P25.000.00 with Victory.
12.   It will be noted that the defense of fraud and/or violation of Condition No. 3
in the Policy, in the form of non-declaration of co-insurances which was
not pleaded in the answer was also not pleaded in the Motion to
Dismiss.
13.   At any rate the RTC denied Oriental Assurance’s motion on the ground that
the defense of lack of proof of loss or defects therein was raised for the
first time after the commencement of the suit and that it must be
deemed to have waived the requirement of proof of loss.
14.   The case was considered submitted for decision from which order Oriental
Assurance filed a motion for reconsideration to set the case or further
reception of Oriental Assurance’s additional evidence, “in order to prove
that insured has committed a violation of condition No. 3 of the policy in
relation to the other Insurance Clause.”
15.   The case was set for the continuation of the hearing for the reception merely
of the testimony of Alejandro Tan Gatue, Manager of the Adjustment Co.,
over the vehement opposition of Pacific Banking.
16.   RTC rendered a decision adjudging Oriental Assurance liable to Pacific
Banking under the said contract of insurance. The CA reversed the decision
of the trial court.
ISSUE/s:
3.   WoN Paramount Shirt, the insured, was guilty of fraud which rendered the
contract of insurance void? – YES, because Paramount Shirt failed to reveal
before the loss three other insurances. By reason of said unrevealed
insurances, Paramount Shirt had been guilty of a false declaration; a clear
misrepresentation and a vital one because where the insured had been asked
to reveal but did not, that was deception.
RULING: PREMISES CONSIDERED, the petition is DISMISSED for lack of
merit, and the decision appealed from is AFFIRMED. No costs.
RATIO:
1.   Policy Condition No. 3 explicitly provides:
The Insured shall give notice to the Company of any insurance
already effected, or which may subsequently be effected, covering
any of the property hereby insured, and unless such notice be given
and the particulars of such insurance or insurances be stated in or
endorsed on this Policy by or on behalf of the Company before the
occurrence of any loss or damage, all benefit under this policy
shall be forfeited.
2.   It is not disputed that Paramount Shirt failed to reveal before the loss
three other insurances. As found by the Court of Appeals, by reason of
said unrevealed insurances, the insured had been guilty of a false
declaration; a clear misrepresentation and a vital one because where
the insured had been asked to reveal but did not, that was deception.
Otherwise stated, had Paramount Shirt have known that there were
many co-insurances, it could have hesitated or plainly desisted from
entering into such contract. Hence, the Paramount Shirt was guilty of
clear fraud.
3.   Concrete evidence of fraud or false declaration by Paramount Shirt was
furnished by Pacific Banking itself when the facts alleged in the policy
under clauses "Co-Insurances Declared" and "Other Insurance Clause" are
materially different from the actual number of co-insurances taken over the
subject property.
4.   Consequently, the whole foundation of the contract fails, the risk does
not attach and the policy never becomes a contract between the parties.
Representations of facts are the foundation of the contract and if the
foundation does not exist, the superstructure does not arise. Falsehood
in such representations is not shown to vary or add to the contract, or
to terminate a contract which has once been made, but to show that no
contract has ever existed. A void or inexistent contract is one which has
no force and effect from the very beginning, as if it had never been
entered into, and which cannot be validated either by time or by
ratification.
5.   As the insurance policy against fire expressly required that notice
should be given by the insured of other insurance upon the same
property, the total absence of such notice nullifies the policy.
6.   The argument that notice of co-insurances may be made orally negates
policy condition No. 20 which requires every notice and other
communications to the insurer to be written or printed.
7.   Particularly referring to the mortgage clause of the policy, Pacific Banking
argues that considering the purpose for which the endorsement or
assignment was made, that is, to protect the mortgagee/assignee against any
untoward act or omission of the insured, it would be absurd to hold that
 Pacific Banking is barred from recovering the insurance on account of the necessary information to ascertain the particular account of the articles
alleged violation committed by the insured. destroyed by fire as well as the amount of loss. It is noteworthy that
8.   It is obvious that Pacific Banking has missed all together the import of Oriental Assurance and its adjuster notified Pacific Banking that insured
subject mortgage clause which specifically provides: had not yet filed a written claim nor submitted the supporting documents in
Mortgage Clause compliance with the requirements set forth in the policy. Despite the notice,
Loss, if any, under this policy, shall be payable to the PACIFIC the latter remained unheedful. Since the required claim by insured, together
BANKING CORPORATION Manila mortgagee/trustor as its with the preliminary submittal of relevant documents had not been
interest may appear, it being hereby understood and agreed that complied with, it follows that Oriental Assurance could not be deemed to
this insurance as to the interest of the mortgagee/trustor only have finally rejected Pacific Banking’s claim and therefore the latter's cause
herein, shall not be invalidated by any act or neglect—except of action had not yet arisen.
fraud or misrepresentation, or arson—of the mortgagor or 15.   Contracts of insurance are contracts of indemnity upon the terms and
owner/trustee of the property insured; provided, that in case the conditions specified in the policy. The parties have a right to impose
mortgagor or owner/ trustee neglects or refuses to pay any such reasonable conditions at the time of the making of the contract as
premium, the mortgagee/ trustor shall, on demand pay the same. they may deem wise and necessary. The agreement has the force of law
9.   The paragraph clearly states the exceptions to the general rule that between the parties. The terms of the policy constitute the measure of
insurance as to the interest of the mortgagee, cannot be invalidated; the insurer's liability, and in order to recover, the insured must show
namely: fraud, or misrepresentation or arson. As correctly found by the himself within those terms. The compliance of the insured with the
Court of Appeals, concealment of the aforecited co-insurances can easily be terms of the policy is a condition precedent to the light of recovery.
fraud, or in the very least, misrepresentation.
10.   Undoubtedly, it is but fair and just that where the insured who is
primarily entitled to receive the proceeds of the policy has by its fraud
and/or misrepresentation, forfeited said right, with more reason Pacific
Banking which is merely claiming as indorsee of said insured, cannot
be entitled to such proceeds.
11.   Pacific Banking further stressed that fraud which was not pleaded as a
defense in Oriental Assurance’s answer or motion to dismiss, should be
deemed to have been waived.
12.   It will be noted that the fact of fraud was tried by express or at least implied
consent of the parties. Pacific Banking did not only object to the
introduction of evidence but on the contrary, presented the very
evidence that proved its existence.
13.   In the case at bar, policy condition No. 11 specifically provides that the
insured shall on the happening of any loss or damage give notice to the
company and shall within fifteen days after such loss or damage deliver to
Oriental Assurance (a) a claim in writing giving particular account as to the
articles or goods destroyed and the amount of the loss or damage and (b)
particulars of all other insurances, if any. Likewise, insured was required "at
his own expense to produce, procure and give to the company all such
further particulars, plans, specifications, books, vouchers, invoices,
duplicates or copies thereof, documents, proofs and information with
respect to the claim".
14.   The evidence adduced shows that twenty-four days after the fire, Pacific
Banking merely wrote letters to Oriental Assurance to serve as a notice of
loss, thereafter, the former did not furnish the latter whatever pertinent
documents were necessary to prove and estimate its loss. Instead, Pacific
Banking shifted upon Oriental Assurance the burden of fishing out the
 016 QUA CHEE GAN v. LAW UNION (Sabaupan)
17 December 1955 | Reyes, J.B.L, J. | Breach of Warranty
PETITIONER: Qua Chee Gan
RESPONDENTS: Law Union and Rock Insurance Co., Ltd., represented by its
agent, Warner, Barnes and Co., Ltd.
SUMMARY: Qua Chee Gan owned 4 warehouses used for storage of stocks of
copra and of hemp. Bodegas 1, 3, and 4 were gutted by fire of unknown origin.
Qua Chee Gan submitted fore claims to the insurance company but the latter
resisted payment claiming that the fire had been deliberately caused by the
insured. Qua Chee Gan then instituted a civil action to collect the insurance
proceeds. The insurance company argues among others that the insurance polices
were avoided for breach of warranty. The issue is whether there was a breach of
warranty, specifically the fire hydrant warranty and the hemp warranty. The
Supreme Court ruled in the negative. The insurance company is barred by waiver
(or rather estoppel) to claim violation of the fire hydrants warranty, because
knowing fully all the number of hydrants demanded therein never existed from
the very beginning, the insurance company 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 2 fire hydrants installed and 2 others nearby,
owned by the municipality of Tabaco, contrary to the requirements of the
warranty in question. For the hemp warranty, the Court noted that gasoline is not
specifically mentioned among the prohibited articles listed in the “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 of
below 300°F). This is ambiguous and uncertain, for in ordinary parlance, “oils”
mean lubricants and not gasoline or kerosene. And how many insured are in a
position to understand or determine “flash point below 300°F.” 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 liberally in favor of the insured, specially to avoid forfeiture.
Another point that is in favor of the insured is that the gasoline kept in Bodega
No. 2 was only incidental to his business. It should also be noted that the "Hemp
Warranty" forbade storage only "in the building to which this insurance applies
and/or in any building communicating therewith", and it is undisputed that no
gasoline was stored in the burned bodegas, and that "Bodega No. 2" which was
not burned and where the gasoline was found, stood isolated from the other
insured bodegas.
DOCTRINE: It is usually held that where the insurer, at the time of the issuance
of a policy of insurance, has knowledge of existing facts which, if insisted on,
would invalidate the contract from its very inception, each knowledge constitutes
a waiver of conditions in the contract inconsistent with the known 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 execute 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.”
It is well settled that the keeping of inflammable oils on the premises, though
prohibited by the policy, does not void it if such keeping is incidental to the
business.
FACTS:
20.   Qua Chee Gan, a merchant from Albay, owned four warehouses or bodegas
(designated as Bodegas nos. 1-4) used for the storage of stocks of copra and
of hemp, baled and loose. The bodegas, with their contents, were insured
with the Law Union (insurance company) since 1937, and the loss made
payable to the Philippine National Bank (PNB) as mortgage of the hemp
and copra, to the extent of its interest.
21.   Fire of undetermined origin broke out in July 1940 and lasted for almost
one week. It gutted and completely destroyed Bodegas Nos. 1, 3, and 4,
with the merchandise stored therein. Qua Chee Gan informed the insurer on
the same day of the fire and the next day, fire adjusters engaged by the
insurance company arrived and proceeded to conduct an extensive
investigation.
22.   Qua Chee Gan submitted fire claims amounting to P398,562 (but reduced to
the full amount of the insurance, P370,000). The insurance company
resisted payment, claiming violation of warranties and conditions, filing of
fraudulent claims, and that the fire had been deliberately caused by the
insured or by other persons in connivance with him.
23.   Qua Chee Gan and his brother, Qua Chee Pao, and some employees of his,
were indicted and tried in 1940 for the crime of arson, it being claimed that
they had set fire to the destroyed warehouses to collect the insurance. They
were acquitted.
24.   Thereafter, a civil suit to collect the insurance money was filed before the
CFI to recover the proceeds of certain life insurance policies. The CFI ruled
in favor of Qua Chee Gan. Hence, the instant petition.
25.   Insurance Company’s arguments:
a.   The trial court should have held that the policies were avoided for
breach of warranty, specifically the one appearing on a rider pasted
on the face of the policies. These riders were attached for the first
time in 1939, and the pertinent portions read as follows:
“Memo. Of Warranty. – The undernoted Appliances for the
extinction of fire being kept on the premises insured hereby, and it
 being declared and understood that there is an ample end constant
water supply with sufficient pressure available at all seasons for
the same, it is hereby warranted that the said appliances shall be
maintained in efficient working order during the currency of this
policy, by reason whereof a discount of 2.5% is allowed on the
premium chargeable under this policy.
Hydrants in the compound, not less in number than one for each
150 feet of external wall measurement of buildings, protected, with
not less than 100 feet of hose piping and nozzles for every 2
hydrants kept under cover in convenient places, the hydrants being
supplied with water pressure by a pumping engine, or from some
other source, capable of discharging at the rate of not less than 200
gallons of water per minute into the upper story of the highest
building protected, and a trained brigade of not less than 20 mean
to work the same.”
b.   Given the size of the external wall of the bodegas, Qua Chee Gan
should have 11 fire hydrants in the compound, and that he actually
had only two, with a further pair nearby, belonging to the
municipality of Tabaco.
c.   The insured violated the “Hemp Warranty” provisions of the
policy covering Bodega No. 2 against the storage of gasoline, since
Qua Chee Gan admitted that there were 36 cans of gasoline
Bodega No. 2.
d.   There was fraudulent overvaluation and the insured caused the fire
so that he can pay the mortgagee bank.
e.   The burned bodegas could not have contained the quantities of
copra and hemp stated in the fire claims.
f.   The insured made false and fraudulent statements that voids the
policy.
ISSUE/s:
4.   Whether there was a violation of the fire hydrant warranty. – NO, the
insurer is barred by estoppel to claim such violation.
5.   Whether there was a violation of the hemp warranty. – NO, gasoline is not
specifically mentioned among the prohibited articles listed in the “hemp
warranty.”
6.   Whether the insured made false and fraudulent statements that voids the
policy. – NO, the discrepancies were a result of the insured’s erroneous
interpretation of the provisions of the insurance policies and claim forms,
caused by his imperfect knowledge of English, and that the misstatements
were innocently made and without intent to defraud.
RULING: We find no reversible error in the judgment appealed from, wherefore the
same is hereby affirmed.
RATIO:
On the violation of fire hydrant warranty
9.   The insurance company is barred by waiver (or rather estoppel) to claim
violation of the fire hydrants warranty, because knowing fully all the
number of hydrants demanded therein never existed from the very
beginning, the insurance company nevertheless issued the policies in
question subject to such warranty and received the corresponding
premiums.
10.   It would perilously close to conniving at fraud upon the insured to allow the
insurance company to claim now as void ab initio the policies that it had
issued to Qua Chee Gan without warning of their fatal defect, of which it
was informed, and after it had misled Qua Chee Gan into believing that the
policies were effective.
11.   The insurance company was aware, even before the policies were issued,
that in the premises insured, there were only 2 fire hydrants installed and 2
others nearby, owned by the municipality of Tabaco, contrary to the
requirements of the warranty in question. This fact was established by a
positive testimony of the insurance company’s agents that they inspected
the premises. That such inspection was made is rendered probable by its
being a prerequisite for the fixing of the discount on the premium to which
the insured was entitled, since the discount depended on the number of
hydrants, and the firefighting equipment available.
12.   The law, supported by a long line of cases, is expressed by American
Jurisprudence: “It is usually held that where the insurer, at the time of
the issuance of a policy of insurance, has knowledge of existing facts
which, if insisted on, would invalidate the contract from its very
inception, each knowledge constitutes a waiver of conditions in the
contract inconsistent with the known 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 execute 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.”
13.   The reason for this rule is as follows: “x x x To allow a company to accept
one's money for a policy of insurance which it then knows to be void and of
no effect, though it knows as it must, that the assured believes it to be valid
and binding, is so contrary to the dictates of honesty and fair dealing, and so
closely related to positive fraud, as to be abhorrent to fairminded men. It
would be to allow the company to treat the policy as valid long enough to
get the premium on it and leave it at liberty to repudiate it the next moment.
x x x”
14.   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 normally entitled to. According to the "Scale of
Allowances," a policy subject to a warranty of the existence of one re
hydrant for every 150 feet of external wall entitled the insured to a discount
of 7.5% of the premium; while the existence of "hydrants, in compound"
(regardless of number) reduced the allowance on the premium to a mere
2.5%.
15.   But the insurance company in this case, so worded the policies that while
exacting the greater number of fire hydrants and appliances, it kept the
premium discount at the minimum of 2.5%, thereby giving the insurance
company a double benefit. No reason is shown why Qua Chee Gan’s
premises, that had been insured with the insurance company for several
years past, should suddenly be regarded in 1939 as so hazardous as to be
accorded a treatment beyond the limits of the insurance company’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.
16.   Parol evidence is not applicable in the instant case. It is a well settled rule
of law that an insurer which with knowledge of facts entitling it to treat
a policy as no longer in force, receives and accepts a premium on the
policy, estopped to take advantage of the forfeiture. x x x It would be
unconscionable to permit a company to issue a policy under circumstances
which it knew rendered the policy void and then to accept and retain
premiums under such a void policy.
17.   Moreover, taking into account the well-known rule that ambiguities or
obscurities must be strictly interpreted against the party that caused them,
the "memo of warranty" invoked by the insurance company bars the latter
from questioning the existence of the appliances called for in the insured
premises, since its initial expression, "the undernoted appliances for the
extinction of fire being kept on the premises insured hereby, . . . it is hereby
warranted . . . ", admits of interpretation as an admission of the existence of
such appliances which appellant cannot now contradict, should the parol
evidence rule apply.
18.   The alleged violation of the firehose warranty must be equally rejected,
since the insurance company’s argument thereon is based on the assumption
that the insured was bound to maintain no less than eleven hydrants (one per
150 feet of wall), which requirement the insurance company is estopped
from enforcing.
19.   On the breach of water pressure condition, the court found such claim
worthless because the witness repeatedly refused and professed inability to
estimate the rate of discharge of the water.
20.   As to the maintenance of a trained fire brigade of 20 mean, the records
shows that the same was organized, and drilled, although not maintained as
a permanently separate unit, which the warranty did not require. Anyway, it
would be unreasonable to expect the insured to maintain for his compound
alone a firefighting force that many municipalities in the islands do not even
possess.
On the violation of hemp warranty
21.   The Court noted that gasoline is not specifically mentioned among the
prohibited articles listed in the “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 of below 300°F). This is
ambiguous and uncertain, for in ordinary parlance, “oils” mean lubricants
and not gasoline or kerosene. And how many insured are in a position to
understand or determine “flash point below 300°F.” 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 liberally in favor of the insured, specially to avoid forfeiture.
22.   There is 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. If intended to rely upon a condition of that character, it
ought to have been plainly expressed in the policy.
23.   Another point that is in favor of the insured is that the gasoline kept in
Bodega No. 2 was only incidental to his business, being no more than a
customary 2 day's supply for the five or six motor vehicles used for
transporting of the stored merchandise. It is well settled that the keeping
of inflammable oils on the premises, though prohibited by the policy,
does not void it if such keeping is incidental to the business. According
to the weight of authority, even though there are printed prohibitions against
keeping certain articles on the insured premises the policy will not be
avoided by a violation of these prohibitions, if the prohibited articles are
necessary or in customary use in carrying on the trade or business
conducted on the premises.
24.   It should also be noted that the "Hemp Warranty" forbade storage only "in
the building to which this insurance applies and/or in any building
communicating therewith", and it is undisputed that no gasoline was stored
in the burned bodegas, and that "Bodega No. 2" which was not burned and
where the gasoline was found, stood isolated from the other insured
bodegas.
On the charge of fraudulent overvaluation
25.   This charge was found unsubstantiated by the trial court, and no reason has
been shown to alter this finding. The insured gave the insurance examiner
all the data he asked for and the examiner even kept and photograph some
of the examined books in his possession.
On the insured’s connivance at the loss
26.   This defense is predicated on the assumption that the insured was n
 financial difficulties and set the fire to defraud the insurance company, under the terms of the policies, and the trial court correctly deducted the
presumably in order to pay off PNB, to which most of the insured hemp and same from its award.
copra was pledged.
27.   This defense is fatally undermined by the established fact that,
notwithstanding the insurer’s refusal to pay the value of the policies,
insured was able to pay off PNB in a short time, and if he was able to do so,
no motive appears for attempt to defraud the insurer.
28.   While the acquittal of the insured in the arson case is not res judicata on the
present civil action, the insurer's evidence, to judge from the decision in the
criminal case, is practically identical in both cases and must lead to the
same result, since the proof to establish the defense of connivance at the re
in order to defraud the insurer "cannot be materially less convincing than
that required in order to convict the insured of the crime of arson.”

On the claim that the burned bodegas could not have contained the quantities of
copra and hemp stated in the fire claims
29.   The basis of the claim was the testimony of the insurer’s adjuster
investigator who examined the premises during and after the fire. His
testimony was however based on inferences from photographs and traces
found after the fire, and must yield to the contradictory testimony of the
engineer, the Chief of the loan department of PNB Legazpi branch, and of
the bank appraiser, who actually saw the contents of the bodegas shortly
before the fire, while inspecting them for the mortgagee bank.

On the claim of false and fraudulent statements by the insured

30.   The trial court found that the discrepancies were a result of the insured’s
erroneous interpretation of the provisions of the insurance policies and
claim forms, caused by his imperfect knowledge of English, and that the
misstatements were innocently made and without intent to defraud.
31.   Considering that all these claims were submitted to the same agent, and that
this same agent had paid the loss caused by the 1939 fire, the Court found
no error in the trial Court's acceptance of the insured's explanation that the
omission in certain policies was due to inadvertance, for the insured could
hardly expect under such circumstances, that the 1939 would pass unnoticed
by the insurance agents.
32.   Moreover, the 20% overclaim on 70% of the hemp stock, was explained by
the insured as caused by his belief that he was entitled to include in the
claim his expected profit on the 70 per cent of the hemp, because the same
as already contracted for and sold to other parties before the fire occurred.
The insured’s overclaim of 20% in the case at bar cannot be regarded as
“more than misstatement, more than inadvertence of mistake, more than a
mere error in opinion, more than a slight exaggeration” that would entitle
the insurer to avoid the policy.
33.   The rule is that to avoid a policy, the false swearing must be willful and
with intent to defraud which was not the cause. Of course, the lack of
fraudulent intent would not authorize the collection of the expected profit
 017 FILIPINAS COMPAÑIA v. CA (Saldua)
Jan. 31, 1950 | Padilla J. | Breach of Waranty
PETITIONER: Filipinas Compania de Seguros
RESPONDENTS: Tan Chauco
SUMMARY:
Tan Chauco insured his building under 2 insurance policies with Filipinas Compania.
During the term of the 2 policies, a fire occurred which completely destroyed the
building. Tan Chauco claimed compensation under the policies but Filipinas Compania
denied alleging that there was breach of warranties of the insurance policies rendering
it not compensable. The breach of warranties alleged are: 1) Sealing of the building by
the Japanese Forces changed the nature of the building insured which increased the risk
of loss/damage violating Art. 8 of the policies; 2) The fire occurred was an indirect
result of the abnormal conditions at that time i.e. Japanese occupation and as per Art. 6
of the policies, since the fire was connected with the abnormal conditions, it is not
compensable; and 3) Tan Chauco cannot recover bec. he had made a fraudulent
declaration in the policy in w/c he denied a previous fire while in the trial, he admitted
that there had been a previous fire on the land on which the insured building was built,
which was also had been destroyed by fire from neighboring buildings, violating Art.
13. Issue is WON there was a breach of warranty. SC said NO. As to the 1st allegation,
the building was actually sealed as a form of precaution since looting was rampant and
the stores were abandoned by the owners, not because the contents of the building were
owned by enemy nationals. The sealing alone could not have increased the risk/hazard
to which a building is exposed of. As to the 2nd, Abnormal conditions are not just
disorders but also situations which deviated from the normal/ordinary. In this case, it
came in the form of the absence of a regularly organized government with its police,
health & fire depts. Meanwhile, the fire actually originated from the kitchen of a
neighboring Panciteria. They were next to each other such that while they were
separated by a narrow alley, the roofs of both houses almost touched each other and
covered the alley. Tan Chauco has in fact admitted that the fire could have occurred
even if there was a functioning fire dept. Thus, the risk caused by the proximity of the
building to the Panciteria is not a new one, and must have already been considered at
the time of issuing the policy. The fire could have occurred just as well in times of
peace and under normal conditions. Thus, the fire occurred from causes independent of
the abnormal conditions. As to the 3rd, SC held that the previous fire is irrelevant as far
as the subject Jan. 5, 1942 fire is concerned. Hence, there was no breach of warranty.
DOCTRINE:
As the words of the policy are those of the company, they should be taken most
strongly against it. Interpretation should be adopted which is most favorable to the
insured, if such interpretation be not inconsistent with the words used.
It should mean that the policy covered loss by fire occurring during the existence of
any invasion, foreign enemy, rebellion, insurrection, riot, civil commotion,
military/usurped power, or martial law, in the general locality where the property
insured was located (so long as the fire was not connected with the said situations).
FACTS:
1.   Filipinas Compania de Seguros is a domestic insurance corp. licensed to
engage in the insurance business in PH. Tan Chauco is the owner of a
building located in Lucena (then w/in Tayabas province). Tan Chauco
insured the building for P20,000 and P10,000 in 2 policies issued by
Filipinas Compania.
2.   On Jan. 5, 1942, during the term of said 2 policies, the building insured
was burned and completely destroyed. Notice of proof & loss had been
duly made, but since Filipinas Compania refused to pay, Tan Chauco filed
an action to recover on the policies.
3.   After trial, judgment was rendered against Filipinas Compania for the
amount of the 2 policies w/ legal interest from the date of filing of the
complaint. CA affirmed this.
4.   Meanwhile, Filipinas Compania went up to the SC raised 3 contentions:
A.   That Art. 8 of the policies provides that if the circumstances
affecting the building insured (or its contents) are changed in such a
way as to increase the risk of loss/damage by fire, the insurance
ceases to attach as regards the property affected; UNLESS the
insured obtains the permission of the company before the occurrence
through an endorsement upon the policy by or on behalf of the
company.
•   Filipinas Compania alleges that the sealing of the subject
property by the Japanese Forces on Dec. 28, 1941 (before
the fire occurred) had the effect of changing the nature of
the occupation thereof in a manner which increased the risk
of loss. It allegedly resulted to its conversion into an arsenal
of war materials that it became the bounden duty of all loyal
forces, whether the regular USAFFE or the guerrilla
elements to destroy, and so increasing the risk of
loss/damage to the building insured.
•   Thus, in accordance w/ the provisions of Art. 8, the
insurance ceased to attach as of the Dec. 28, 1941.
B.   That under Art. 6, the inferential finding that the fire of Jan. 5, 1942
was of accidental origin, and nothing more, could not make Tan
Chauco’s loss compensable since the contracts of insurance between
the parties specifically required that Tan Chauco prove that the loss
happened independently of the abnormal conditions.Thus, the fire,
being an indirect result of the abnormal conditions, is not
compensable.
C.   That Art. 13 provides for the grounds of forfeiture of the benefits
under the policies among which is: If any false declaration be made
or used in support thereof.
•   Filipinas Compania is alleging that Tan Chauco cannot
recover because he had made fraudulent declaration in the
insurance claim that he submitted to the former i.e. that Tan
Chauco denied that there had been a previous fire in the
 premises in which he was interested, while at the trial, Tan
Chauco admitted that there had been a previous fire on the
land on which the insured building was built, which had
also been destroyed by fire from neighboring buildings.
ISSUE/s:
1.   WON there was a breach of warranty in the insurance policies? = NO.
First, building was actually sealed as a form of precaution since looting was
rampant, not because the contents of the building were owned by enemy
nationals. The sealing alone could not have increased the risk/hazard to
which a building is exposed of. The fire actually originated from the kitchen
of a neighboring Panciteria. They were next to each other such that while
they were separated by a narrow alley, roofs of both houses almost touched
each other and covered the alley. Tan Chauco has in fact admitted that the
fire could have occurred even if there was a functioning fire dept.. Thus, the
risk caused by the prixmity of the building to the Panciteria is not a new
one, and must have already been considered at the time of issuing the
policy. The fire could have occurred just as well in times of peace and under
normal conditions.
RULING: The petition for a writ of certiorari is dismissed, with costs against the
petitioner.
RATIO:
RE. ART. 8 OF THE POLICY: SEALING OF THE BUILDING BY THE JAP.
FORCES DID NOT CHANGE THE NATURE OF THE BUILDING INSURED
AND SO IT DID INCREASE THE RISK OF LOSS/DAMAGE
1.   At the time that the Japanese forces entered Lucena on Dec. 27, 1941, said
building was closed. On Dec. 28, 1941, all the stores including the stores in
Tan Chauco’s building were sealed by the Japanese Forces (except those
that were open).
2.   SC affirmed the finding of the trial court that the reason for the sealing
of the building is a form of precaution since looting was rampant and
the stores were abandoned by the owners, not because the contents of
the building were owned by enemy nationals.
3.   As to the supposed increase in the risk, there were only 3 possible sources
of danger to which the building insured could have been exposed to either
by the acts of USAFFE, guerilla or civilian saboteurs.
4.   However, there was no danger. The operations between the Jap. Army and
USAFFE Forces shifted to the fortifications around Bataan & Corregidor.
The guerilla units also only begun organizing only after the fall of Bataan
in April 1942 (well after the date of the fire). There was also no acts of
sabotage by civilians in Lucena or in Tayabas after the Jap. occupied
Lucena on Dec. 27, 1941. Thus, except for looting, there was peace & quiet
in Lucena upon the Jap. Occupation.
5.   Hence, sealing alone could not have increased the risk/hazard to which a
building is exposed of. Besides, the sealing was an act of the enemy over
which Tan Chauco had no influence or control.
RE. ART. 6 OF THE POLICY: THE FIRE ACTUALLY OCCURRED FROM
CAUSES INDEPENDENT OF THE ABNORMAL CONDITIONS AT THE
TIME AND IS THUS COMPENSABLE.
1.   Abnormal Conditions, accdg. to the SC, should be interpreted as to mean “a
situation, a condition of things deviating from the normal/ordinary, and
produced only by war of invasion, etc. Abnormal conditions do not
necessarily imply disorders, fighting, looting, etc. The existence of a
regularly organized government with its police, health & fire depts. is a sign
of normalcy in a community. The absence thereof is a sign of abnormal
conditions.
2.   Thus, the fact that the Lucena gov’t. ceased to function even before the
entry of the Japs, and that there was no police dept. (Jap. Soldiers kept
peace & order), the fire dept. had not yet been organized (no equipment as
well except for the hose), electrical service was suspended until Feb. 3,
1942, and that there was a curfew imposed even after the date of the fire on
Jan 5, 1942, shows there were abnormal conditions in Lucena on and before
the fire occurred.
3.   The fire that consumed Tan Chauco’s building was actually caused by a fire
that originated in the kitchen of Perrera’s Panciteria. They were next to each
other such that while they were separated by a narrow alley, the roofs of
both houses almost touched each other and covered the alley.
4.   Tan Chauco has in fact admitted that the fire could have occurred even if
there was a functioning fire department. Thus, the risk caused by the
prixmity of the building to the Panciteria is not a new one, and must have
already been considered at the time of issuing the policy. The fire could
have occurred just as well in times of peace and under normal conditions.
RE. ART. 13 OF THE POLICY: FRADULENT CLAIM NOT RELEVANT
1.   SC held that the the previous fire that Tan Chauco failed to mention is
immaterial and irrelevant so far as the subject Jan. 5, 1942 fire is
concerned.
INTERPRETATION OF THE INSURANCE POLICIES/CONTRACTS
1.   As the words of the policy are those of the company, they should be taken
most strongly against it. Interpretation should be adopted which is most
favorable to the insured, if such interpretation be not inconsistent with the
words used.
2.   Thus, it should mean that the policy covered loss by fire occurring during
the existence of any invasion, foreign enemy, rebellion, insurrection, riot,
civil commotion, military/usurped power, or martial law, in the general
locality where the property insured was located (so long as the fire was not
connected with the said situations).
3.   In this case, the lower court has correctly found that the loss was occasion
by causes that are independent of the existence of any invasion, foreign
enemy, rebellion, insurrection, etc.
 018 YOUNG V. MIDLAND TEXTILE INSURANCE (EMAR)
March 31, 1915 | Johnson, J. | Breach of Warranty
PLAINTIFF-APPELLEE: K.S. Young
DEFENDANT-APPELLANT: The Midland Textile Insurance Company
SUMMARY: Young and Midland Insurance entered into an insurance contract
where Young would pay P60 for premium and Midland Ins. promised to pay
Young P3k, in case the residence, bodega and its contents should be destroyed by
fire. The insurance contract has a condition under “Warranty B” that “during the
pendency of the policy, no hazardous goods [shall be] stored in the building”.
Young was given 3 boxes of fireworks, intended to be used for the Chinese New
Year but the city authorities prohibited the use of such so Young kept them in the
insured premises. The insured residence, bodega and contents were partly
destroyed by fire but the part where the fireworks were kept was not destroyed.
The issue in this case is WON placing of said fireworks in the building insured is
a violation of the terms of the insurance contract – YES. The "hazardous goods"
in question were "stored" in the bodega, as that word is generally defined.
Suppose Midland Ins made an examination of the premises, even in the absence of
a fire, and had found he "hazardous goods" there, under the conditions above
described, it would be justified in declaring the policy null and of no effect by
reason of Young’s violation of its terms. Young paid a premium based upon the
risk at the time the policy was issued. Placing of the firecrackers in the building
insured increased the risk. Young did not pay a premium based upon the increased
risk, neither had Midland Ins issued a policy upon the theory of a different risk.
DOCTRINE: If the "warranty" is a term of the contract, its violation causes a
breach and justify noncompliance or a repudiation.
FACTS:
1. Young has a candy and fruit store in Manila, and occupied a building at Calle
Claveria, as a residence and bodega (storehouse).
2. May 1912: The Midland Textile Insurance Company (Midland Ins), in
consideration of the payment of a premium of P60, entered into a contract of Ins.
with the plaintiff (policy No. 509105) where Midland Ins. promised to pay Young
P3k, in case the residence, bodega and contents should be destroyed by fire.
3. A condition of the insurance contract states: "Waranty B. — It is agreed that
during the pendency of this policy no hazardous goods stored or kept for sale, and
no hazardous trade or process be carried on, in the building to which this Ins. applies,
or in any building connected therewith."
4. Feb 1913: Young was given fireworks, intended to be used for the Chinese New
Year but since City authorities prohibited its use, the 3 boxes of fireworks were
placed in the residence and bodega, in order that Young might later send them to a
friend in the provinces.
5. March 1913: The residence, bodega and its contents were partially destroyed by
fire but the part of the building
6. Young and Midland Ins agree that fireworks come within the phrase "hazardous
goods," mentioned in "warranty B" of the policy and that fireworks were found in a
part of the building not destroyed by the fire; that they did not contribute to the fire,
or to the loss occasioned thereby.
7. Midland Ins alleged that the fireworks were "stored" within the meaning of
“Warranty B”.
8. Young contends that under all the facts and circumstances of the case, they were
not "stored" in said building, and that placing them in the building was not a
violation of the terms of the contract.
9. Both parties agree that if they were "hazardous goods," and were "stored," then the
Young’s act was a violation of the terms of the contract of Ins. and the Midland Ins
was justified in repudiating its liability.
10. Young sought to recover P3k upon the policy.
11. The lower court rendered a judgment in favor of the Young; against Midland Ins
for P2,708.78, and costs.
12. Midland Ins appealed to this court.
ISSUE: WON the placing of the fireworks in the building insured, under the
conditions enumerated, they being "hazardous goods," is a violation of the terms of
the contract of Ins. and especially of "warranty B." – YES. The "hazardous goods"
were "stored" in the bodega, as that word is generally defined.
RULING: Judgment of the lower court is revoked and Midland Ins. is relieved from
any responsibility under said complaint, and, without any finding as to costs.
RATIO:
1.   WON a particular article is "stored" must depend upon the intention of the
parties.
2.   Most cases cited by the lower court are cases where the article was being put to
some reasonable and actual use, which might easily have been permitted by
the terms of the policy, and within the intent of the parties, and excepted
from the operation of the warranty, like the present. Said decision are upon cases
like:
a. Where merchants have had or kept the "hazardous" articles in small
quantities, and for actual daily use, for safe, such as gasoline, gunpowder, etc.;
b. Where such articles have been brought on the premises for actual use thereon,
and in small quantities, such as oil, paints, etc; and
c. Where such articles or goods were used for lighting purpose, and in small
quantities.
3.   Century and Standard Dictionaries define “Store”: to be a deposit in a store or
warehouse for preservation/safe keeping; place in a warehouse/other place of
deposit for safe keeping.
4.   The definitions do not include a deposit in a store, in small quantities, for daily
use. "Daily use" precludes the idea of a deposit for preservation or safe keeping,
as well as a deposit for future consumption, or safe keeping.
5.   In this case, no claim is made that the "hazardous goods" were placed in the
bodega for present/daily use. They were placed in the bodega for sake keeping,
future use or consumption. Young did not claim that he deposited them there
with any other idea than "for future use" — for future consumption.
6.   The "hazardous goods" in question were "stored" in the bodega, as that word is the terms of the contract. The violation of the terms of the contract, by virtue
generally defined. of the provisions of the policy itself, terminated, at the election of either party,
7.   If Midland Ins examined the premises, even in the absence of a fire, and found he contractual relations. (Kyte vs. Commercial Union Assurance)
"hazardous goods" there, under the conditions above described, it would be 15.   Young paid a premium based upon the risk at the time the policy was issued.
justified, then and there, in declaring the policy null and of no effect because of Placing of the firecrackers in the building insured increased the risk, for which
Young’s violation of its terms. Young did not pay a premium based upon and, neither had Midland Ins issued a
8.   Midland Ins may repudiate is liability, even after the fire. If the "warranty" is a policy upon the theory of a different risk.
term of the contract, its violation causes a breach and justify 16.   Young was enjoying, if his contention may be allowed may be allowed, the
noncompliance/repudiation. benefits of an insurance policy upon one risk, whereas, as a matter of fact, it was
9.   Insurance Contracts are contracts of indemnity upon the terms and conditions issued upon an entirely different risk.
specified in the policy. The parties have a right to impose reasonable conditions 17.   Midland Ins had neither been paid nor had issued a policy to cover the increased
at the time of the making of the contract as they may deem wise and necessary. risk.
10.   The rate of premium is measured by the character of the risk assumed. The 18.   A substantial increase of risk and which is continued for a considerable period
insurance company, for a comparatively small consideration, undertakes to of time, is a direct and certain injury to the insurer, and changes the basis upon
guarantee the insured against loss or damage, upon the terms and conditions which the insurance contract rests. (Kyte vs. Commercial Union Assurance Co;
agreed upon, and upon no other, and when called upon to pay, in case of loss, Frost's Detroit Lumber vs. Millers' Mutual Ins. Co; Moore vs. Phoenix Ins.;
the insurer, therefore, may justly insist upon a fulfillment of these terms. Ferree vs. Oxford Fire & Life Ins.)
11.   If the insured cannot bring himself within the conditions of the policy, he is
not entitled to recover for the loss. Terms of the policy constitute the measure
of the insurer's liability, and in order to recover the insured must show himself
within those terms; and if it appears that the contract has been terminated by a
violation, on the part of the insured, of its conditions, then there can be no right
of recovery.
12.   Insured’s compliance with the terms of the contract is a condition precedent to
the right of recovery. If the insured has violated or failed to perform the
conditions of the contract, and such a violation or want of performance has
not been waived by the insurer, then the insured cannot recover. Courts are
not permitted to make contracts for the parties. The function and duty of the
courts consist simply in enforcing and carrying out he contracts actually made.
13.   GR: Insurance contracts of are construed most favorably to the insured, yet
contracts of Ins., 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. (Imperial Fire Ins. v. County of Coos; Kyte
v. Commercial Union Assurance) Conditions of insurance contracts, when
plainly expressed in a policy, are binding upon the parties and should be
enforced by the courts, if the evidence brings the case clearly within their
meaning and intent. It tends to bring the law itself into disrepute when, by astute
and subtle distinctions, a plain case is attempted to be taken without the
operation of a clear, reasonable, and material obligation of the contract. (Mack v.
Rochester German Ins.)
14.   Young argues that in view of the fact that the "storing" of the fireworks on the
premises of the insured did not contribute in any way to the damage occasioned
by the fire, he should be permitted to recover — that the "storing" of the
"hazardous goods" in no way caused injury to the defendant company. That
argument, however, is beside the question, if the "storing" was a violation of
 001 Saura Import v. Phil International (Sarmiento)
May 31, 1963 | Paredes J. | Cancellation
PETITIONER: Saura Import and Export Co. Inc
RESPONDENTS: Philippine International Surety
SUMMARY: Saura mortgaged to PNB a parcel of land to secure a payment of
the loan. There was a building erected on the property, and it was agreed that the
Saura must insure the property against fire and earthquake. Thus, Saura insured
it with Philippines International Surety for a a period of one year from Oct.2,
1954. Then the policy was endorsed to PNB. However, 13 days after the
issuance of the policy, the insured cancelled the policy. Notice of cancellation
was given to the bank. Then on April 6, 1955, the building and its contents were
burned. Saura filed a claim against the Insurer and mortgagee bank. It was only
then that it was discovered that the policy had been previously cancelled. The
trial court dismissed the complaint. Insurance policies provide a provision on
cancellation of policy by the insurer upon prior notice. Where the policy contains
no provisions that a certain number of days notice shall be given, a reasonable
notice and opportunity to obtain other insurance must be given. The policy in
question, does not provide for the notice, its form or period. This being the case,
it devolves upon the Court to apply the generally accepted principles of
insurance, regarding cancellation of the insurance policy by the insurer. Actual
notice of cancellation in a clear and unequivocal manner, preferably in writing,
in view of the importance of an insurance contract, should be given by the
insurer to the insured, so that the latter might be given an opportunity to obtain
other insurance for his own protection. The notice should be personal to the
insured and not to and/or through any unauthorized person by the policy. In this
case, It was the primary duty of the insurance company to notify the insured, but
it did not. The house and its contents were burned on April 6, 1955, at the time
when the policy was enforced, and it is evident that both the insurance company
and the appellee bank failed, to notify the insured appellant Saura of the
cancellation made. While the insurance company gave notice to the mortgagee, it
was not enough to constitute notice to Saura. Thus, as there is ineffective
cancellation and a loss occurred while the policy was in effect, insurance
company shall pay the insured.
DOCTRINE: If a mortgage or lien exists against the property insured, and the
policy contains a clause stating that loss, if any, shall be payable to such
mortgagee or the holder of such lien as his interest may appear, notice of
cancellation to the mortgagee or lien holder alone is ineffective as a cancellation
of the policy as to the owner of the property. Therefore, the liability of the
insurance company becomes a fact.
FACTS:
1.   the Saura Import & Expert Co., Inc., mortgaged to the Phil. National Bank,
a parcel of land to secure the payment of a promissory note of P27,000.00
a.   the mortgage was amended to guarantee an increased amount,
bringing the total mortgaged debt to P37,000.00
b.   The provisions of the mortgage contract, pertinent to the resolution
of the present case, provide as follows that Saura shall insure the
mortgage property at all times against fire and earthquake for an
amount and with such company satisfactory to the mortgagee,
indorsing to the latter the corresponding policies; he shall keep the
mortgaged property in good condition, making repairs and
protecting walls that may be necessary;
2.   Erected on the land mortgaged, was a building of strong materials owned by
the mortgagor Saura Import & Export Co., Inc., which had always been
covered by insurance, many years prior to the mortgage contract.
3.   Pursuant to the requirement, Saura insured the building and its contents
with the Philippines International Surety, an insurance firm acceptable to
mortgagee Bank, for P29,000.00 against fire for the period of one year from
October 2, 1954. As required therefor, the insurance policy was endorsed to
the mortgagee PNB, in a Memo which states that loss if any, is payable to
Philippine National Bank as their interest may appear, subject to the terms,
conditions and warranties of this policy.
4.   The policy was delivered to the mortgagee Bank by Saura.
a.   On October 15, 1954, barely thirteen (13) days after the issuance
of the fire insurance policy (October 2, 1954), the insurer cancelled
the same, effective as of the date of issue.
b.   Notice of the cancellation was given to appellee Bank in writing,
sent by Registered Mail and was received by the Bank on
November 8,1954.
c.   On April 6, 1955, the building and its contents, worth P40,685.69
were burned.
5.   Saura filed a claim with the Insurer and mortgagee Bank.
a.   Upon the presentation of notice of loss with the PNB, Saura
learned for the first time that the policy had previously been
cancelled on October 2, 1954, by the Insurer, when Saura's folder
in the Bank's file was opened and the notice of cancellation
(original and duplicate) sent by the Insurer to the Bank, was found.
6.   Upon refusal of the Insurer Philippines International Surety to pay the
amount of the Insurance, Civil Case No. 26847 was filed with the Manila
CFI against the Insurer, and the PNB was later included as party defendant,
 after it had refused to prosecute the case jointly with Saura Import & Export
Co., Inc.
7.   Trial Court: Complaint dismissed. neither the insurer or the mortgagee
bank informed the plaintiff Saura of the cancellation of the policy.
ISSUE: Whether or not proper notice of cancellation was effected by the
insurance company—NO. The notice was not given to the mortgagor but to the
mortgagee, which should not be the case.
RULING:
WHEREFORE, the decision appealed from is hereby REVERSED, and
another is entered, condemning the defendant-appellee Philippines International
Surety Co., Inc., to pay Saura Import & Export Co., Inc., appellant herein, the sum of
P29,000.00, the amount involved in Policy No. 429, subject-matter of the instant
case. Without costs.
RATIO:
1.   Fire insurance policies and other contracts of insurance upon property, in
addition to the common provision for cancellation of the policy upon
request of the insured, generally provide for cancellation by the insurer by
notice to the insured for a prescribed period, which is usually 5 days, and
the return of the unearned portion of the premium paid by the insured, such
provision for cancellation upon notice being authorized by statutes in some
jurisdiction, either specifically or as a provision of an adopted standard
form of policy.
a.   The purpose of provisions or stipulations for notice to the insured,
is to prevent the cancellation of the policy, without allowing the
insured ample opportunity to negotiate for other insurance in its
stead.
b.   The form and sufficiency of a notice of cancellation is determined
by policy provisions.
c.   In order to form the basis of the cancellation of a policy, notice to
the insured need not be in any particular form, in the absence of a
statute or policy provision prescribing such form, and it is
sufficient, so long as it positively and unequivocally indicates to
the insured, that it is the intention of the company that the policy
shall cease to be binding.
d.   Where the policy contains no provisions that a certain number of
days notice shall be given, a reasonable notice and opportunity to
obtain other insurance must be given. Actual personal notice to the
insured is essential to a cancellation under a provision for
cancellation by notice. The actual receipt by the insured of a notice
of cancellation is universally recognized as a condition precedent
to a cancellation of the policy by the insurer, and consequently a
letter containing notice of cancellation which is mailed by the
insurer but not received by the insured, is ineffective as
cancellation
2.   The policy in question, does not provide for the notice, its form or period.
The insurance Law, Act No. 2427, does not likewise provide for such
notice.
a.   This being the case, it devolves upon the Court to apply the
generally accepted principles of insurance, regarding cancellation
of the insurance policy by the insurer.
b.   Actual notice of cancellation in a clear and unequivocal manner,
preferably in writing, in view of the importance of an insurance
contract, should be given by the insurer to the insured, so that the
latter might be given an opportunity to obtain other insurance for
his own protection. The notice should be personal to the insured
and not to and/or through any unauthorized person by the policy.
3.   In the case at bar, the defendant insurance company, must have realized the
paramount importance of sending a notice of cancellation, when it sent the
notice of cancellation of the policy to the defendant bank (as mortgagee),
but not to the insured with which it (insurance company) had direct dealing.
a.   It was the primary duty of the defendant-appellee insurance
company to notify the insured, but it did not.
b.   It should be stated that the house and its contents were burned on
April 6, 1955, at the time when the policy was enforced (October
2, 1954 to October 2, 1955); and it is evident that both the
insurance company and the appellee bank failed, to notify the
insured appellant Saura of the cancellation made.
4.   Of course, the defendant insurance company contends that it gave notice to
the defendant-appellee bank as mortgagee of the property, and that was
already a substantial compliance with its duty to notify the insured of the
cancellation of the policy.
a.   But notice to the bank, as far as appellant herein is concerned, is
not effective notice.
5.   "If a mortgage or lien exists against the property insured, and the policy
contains a clause stating that loss, if any, shall be payable to such mortgagee
or the holder of such lien as his interest may appear, notice of cancellation
to the mortgagee or lien holder alone is ineffective as a cancellation of the
policy as to the owner of the property."
a.   therefore, the liability of the insurance company becomes a fact.
6.   It may be argued that, no error has been assigned against the insurance
company and no prayer is found therein asking that it be made liable.
 a.   It must be noted, however, that the case was dismissed by the
lower court and the main object of the appeal is to secure a reversal
of the said judgment. This Court is clothed with ample authority to
review matters, even if they are not assigned as errors in the
appeal, if it finds that their consideration is necessary in arriving at
a just decision of the case.

7.   Although assigned errors apparently appear to be directed against the

appellee bank alone, they in essence, seek a reversal of the decision on
dismissal, entered by the lower court, which in the main has for its purpose
the finding of liability on the policy.
a.   In the course of our examination of the records of the case, court
found that liability attached principally upon the insurance
company, for its failure to give notice of the cancellation of the
policy to herein appellant itself.
 002 MALAYAN INSURANCE INC. v. CRUZ ARNALDO (SEE)
October 12, 1987|Cruz, J. | Right to rescind or cancel
PETITIONER: Malayan Insurance Inc.
RESPONDENTS: Gregoria Cruz Arnaldo, in her capacity as Insurance
Commissioner and Coronacion Pinca
SUMMARY: Pinca insured her house with Malayan Insurance (MICO) on June
22, 1981. Mico allegedly cancelled the policy and sent notice on Oct 15, 1981
for non payment. Pinca then paid the premium to Adora, agent of MICO on Dec.
24, 1981 which was remitted to MICO on January 15. On January 18, 1982, the
house was burned. On Feb. 5, 1982 MICO returned the premiums to Adora on
the ground that the policy was already cancelled early on but Adora refused to
accept the payment. Pinca then claimed on the policy which MICO rejected.
(read facts #9-11 for procedural events). The issue in this case is WoN the
contract was validly rescinded by the alleged cancellation sent by MICO to
Pinca.—No, it wasn’t validly cancelled. MICO banks on Sec 77 which states that
no premiums paid=no insurance contract but such provision is not applicable
since premiums were actually paid here. We do not share MICO's view 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. Payment was in fact
made, rendering the policy operative as of June 22, 1981, and removing it from
the provisions of Sec 77. Thereafter, the policy could be cancelled on any of the
supervening grounds enumerated in Article 64 (except "nonpayment of
premium") provided the cancellation was made in accordance therewith and with
Article 65. (insert doctrine). In this case, there is no proof that the notice,
assuming it complied with the other requisites mentioned, was actually mailed to
and received by Pinca. All MICO 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. On
the other hand, there is the flat denial of Pinca, who says she never received the
claimed cancellation and who, of course, did not have to prove such denial
considering the strict language of Section 64 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. The presumption
cited is unavailing against the positive duty enjoined by Section 64 upon MICO
and the flat denial made by Pinca that she had received notice of the claimed
cancellation.
DOCTRINE: A valid cancellation must, therefore, require concurrence of the
following conditions:
1.   There must be prior notice of cancellation to the insured;
2.   The notice must be based on the occurrence, after the effective date of the
policy, of one or more of the grounds mentioned;
3.   The notice must be (a) in writing, (b) mailed, or delivered to the named insured,
(c) at the address shown in the policy;
4.   It must state (a) which of the grounds mentioned in Section 64 is relied upon
and (b) that upon written request of the insured, the insurer will furnish the facts
on which the cancellation is based.
FACTS:
26.   On June 7, 1981, Malayan Insurance Inc. (MICO) issued to Coronacion
Pinca, a Fire Insurance Policy on her property for the amount of P14,000
effective July 22, 1981 until July 22, 1982.
27.   On October 15, 1981, MICO allegedly cancelled the policy for non-
payment of the premium and send the notice to Pinca
28.   On December 24, 1981, Pinca paid the premium to Domingo Adora, agent
of MICO.
29.   On January 15, 1982, Adora remitted the payment to MICO, together with
other payments.
30.   On January 18, the insured property was completely burned.
31.   On February 5, 1982, Pinca’s payment was returned by MICO to Adora on
the ground that the policy had been cancelled early on but Adora refused to
accept it.
32.   Pinca then made the demand for payment of the insurance proceeds but
MICO rejected her claims on the ground that the policy was cancelled.
33.   Pinca then went to the Insurance Commission where she won. So MICO
brought the case to the courts.
34.   Insurance Commission decided the case on April 5, 1982. Notice of which
was received by MICO on April 10, 1982. It then filed an MR on April 25
which was denied on June 4. Notice of denial was received by MICO on
June 13, 1982. The present case was filed with the SC on July 2, 1982.
35.   MICO claims that it has 30 days within which to appeal via certiorari under
Sec. 416 of the Insurance Code. Alternatively, it invokes Rule 45 of the
ROC.
36.   Arnaldo, as Insurance Commissioner and Pinca, insist that the applicable
law is BP 129 which provides for a 15 day period for appeal.
ISSUE/s:
7.   WoN the case was filed out of time.—Yes. It doesn't matter which law was
applied, under all 3, Sec 416 of the Insurance Code, Rule 45 of the ROC,
and BP 129, the case was filed out of time.
8.   WoN the insurance contract was validly cancelled.—No, there is no proof
that the notice, assuming it complied with the other requisites mentioned
above, was actually mailed to and received by Pinca.
RULING: WHEREFORE, the petition is DENIED. The decision of the Insurance
Commission dated April 10, 1981, and its Order of June 4, 1981, are AFFIRMED in
full, with costs against the petitioner. This decision is immediately executory.
RATIO:
The appeal was filed out of time
 1.   The pivotal date is the date the notice of denial of the MR was received by
MICO.
2.   MICO claims that it received the notice on June 18, 1982 and offered as
evidence a copy of the Order on June 14 with a rubber-stamped notation on
the upper left hand corner that it was received on June 18, 1982 without
indication from whom it was received. At the bottom of the copy, there is
another signature under which “6-13-82” was written.
3.   Pinca presented an authenticated copy of the same Order with a rubber-
stamped notation at the bottom indicating that it was received for MICO by
J. Gotladera on “6-13-82”
4.   Between the two dates, the court chooses to believe June 13, 1982, not only
because the numbers "6-13-82" appear on both annexes but also because it
is the date authenticated by the administrative division of the Insurance
Commission. The document presented by MICO is at worst self-serving; at
best, it might only indicate that it was received on June 18, 1982, by the
legal department of MICO, after it had been received earlier by some other
of its personnel on June 13, 1982. Whatever the reason for the delay in
transmitting it to the legal department need not detain us here.
5.   Under Section 416 of the Insurance Code, the period for appeal is thirty
days from notice of the decision of the Insurance Commission. MICO filed
its motion for reconsideration on April 25, 1981, or fifteen days such notice,
and the reglementary period began to run again after June 13, 1981, date of
its receipt of notice of the denial of the said motion for reconsideration. As
the herein petition was filed on July 2, 1981, or nineteen days later, there is
no question that it is tardy by four days.
6.   Counted from June 13, the fifteen-day period prescribed under Rule 45,
assuming it is applicable, would end on June 28, 1982, or also four
days from July 2, when the petition was filed.
7.   If it was filed under B.P. 129, then, considering that the motion for
reconsideration was filed on the fifteenth day after MICO received notice of
the decision, only one more day would have remained for it to appeal, to
wit, June 14, 1982. That would make the petition eighteen days late by July
2.
8.   Indeed, even if the applicable law were still R.A. 5434, governing appeals
from administrative bodies, the petition would still be tardy. The law
provides for a fixed period of ten days from notice of the denial of a
seasonable motion for reconsideration within which to appeal from the
decision. Accordingly, that ten-day period, counted from June 13, 1982,
would have ended on June 23, 1982, making the petition filed on July 2,
1982, nine days late.
9.   Whichever law is applicable, therefore, the petition can and should be
dismissed for late filing.
The insurance contract WAS NOT validly cancelled (important)
1.   MICO contends that the contract was cancelled before the fire because there
was no payment of premiums and that the claim was without proof of loss.
2.   MICO banks on Sec 77 of the Insurance Code which states that:
a.   SEC. 77. An insurer is entitled to payment of the premium as soon as the
thing 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.
3.   The above provision is not applicable because payment of the premium
was in fact eventually made in this case. Notably, the premium invoice
issued to Pinca at the time of the delivery of the policy on June 7, 1981 was
stamped "Payment Received" of the amoung of P930.60 on "12-24-81" by
Domingo Adora. This is important because it suggests an understanding
between MICO and the insured that such payment could be made later, as
agent Adora had assured Pinca. In any event, it is not denied that this
payment was actually made by Pinca to Adora, who remitted the same to
MICO.
4.   MICO’s theory is that the policy became effective only upon payment
which was on December 24, 1981 and valid only up to July 22, 1982. So the
policy would only run for 8 months despite payment of a year’s worth of
premiums.
5.   MICO also claims that Adora was not authorized to receive the premium
payment on its behalf but at the same time, MICO acknowledges Adora as
its agent. This acknowledgment of Adora as an agent defeats MICO’s claim
that Adora was not authorized to receive the premiums. It is a well known
principle under the law of agency that payment to an agent has the same
effect as payment to the principal himself.
6.   There is the MICO’s argument, however, that Adora was not authorized to
accept the premium payment because six months had elapsed since the
issuance by the policy itself. It is argued that this prohibition was binding
upon Pinca, who made the payment to Adora at her own riskl as she was
bound to first check his authority to receive it.
7.   MICO is taking an inconsistent stand. While contending that acceptance of
the premium payment was prohibited by the policy, it at the same time
insists that the policy never came into force because the premium had not
been paid. One surely, cannot have his cake and eat it too.
8.   We do not share MICO's view 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. Payment was in fact made,
rendering the policy operative as of June 22, 1981, and removing it from the
provisions of Article 77, Thereafter, the policy could be cancelled on any of
the supervening grounds enumerated in Article 6437 (except "nonpayment of
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: (a) non-payment of
premium; (b) conviction of a crime arising out of acts increasing the hazard insured against; (c) discovery
of fraud or material misrepresentation; (d) discovery of willful, or reckless acts or commissions increasing
 premium") provided the cancellation was made in accordance therewith and was willing to make her payment retroact to July 22, 1981, its stipulated
with Article 6538. commencement date. After all, agent Adora was very accomodating and had
9.   A valid cancellation must, therefore, require concurrence of the following earlier told her "to call him up any time" she was ready with her payment on
conditions: the policy earlier issued. She was obviously only reciprocating in kind when
a.   There must be prior notice of cancellation to the insured; she paid her premium for the period beginning July 22, 1981, and not
b.   The notice must be based on the occurrence, after the effective date of the December 24, 1981.
policy, of one or more of the grounds mentioned; 13.   MICO claims that Pinca knew of the cancellation but a close study of the
c.   The notice must be (a) in writing, (b) mailed, or delivered to the named transcript will show that Pinca meant to renew the policy if it had already
insured, (c) at the address shown in the policy;
been cancelled but not it if was still effective. It was all conditional. As it
d.   It must state (a) which of the grounds mentioned in Section 64 is relied
upon and (b) that upon written request of the insured, the insurer will has not been shown that there was a valid cancellation of the policy, there
furnish the facts on which the cancellation is based. was no need to renew it but merely to pay the premium. Payment was thus
10.   MICO claims it cancelled the policy in question on October 15, 1981, for made on the original transaction.
non-payment of premium. To support this assertion, it presented one of its
employees, who testified that "the original of the endorsement and credit Valuation of the loss
memo" — presumably meaning the alleged cancellation — "were sent the 14.   The last point raised by MICO should not pose much difficulty. The
assured by mail through our mailing section" However, there is no proof valuation fixed in fire insurance policy is conclusive in case of total loss in
that the notice, assuming it complied with the other requisites the absence of fraud, which is not shown here. Loss and its amount may be
mentioned above, was actually mailed to and received by Pinca. All determined on the basis of such proof as may be offered by the insured,
MICO offers to show that the cancellation was communicated to the insured which need not be of such persuasiveness as is required in judicial
is its employee's testimony that the said cancellation was sent "by mail proceedings. If, as in this case, the insured files notice and preliminary
through our mailing section." without more. MICO then says that its "stand proof of loss and the insurer fails to specify to the former all the defects
is enervated (sic) by the legal presumption of regularity and due thereof and without unnecessary delay, all objections to notice and proof of
performance of duty." (not realizing perhaps that "enervated" means loss are deemed waived under Section 90 of the Insurance Code.
"debilitated" not "strengthened"). 15.   The certification issued by the Integrated National Police, Lao-ang, Samar,
11.   On the other hand, there is the flat denial of Pinca, who says she never as to the extent of Pinca's loss should be considered sufficient. Notably,
received the claimed cancellation and who, of course, did not have to MICO submitted no evidence to the contrary nor did it even question the
prove such denial considering the strict language of Section 64 that no extent of the loss in its answer before the Insurance Commission. It is also
insurance policy shall be cancelled except upon prior notice, it worth observing that Pinca's property was not the only building bumed in
behooved MICO to make sure that the cancellation was actually sent to the fire that razed the commercial district of Lao-ang, Samar, on January 18,
and received by the insured. The presumption cited is unavailing against 1982.
the positive duty enjoined by Section 64 upon MICO and the flat denial 16.   There is nothing in the Insurance Code that makes the participation of an
made by Pinca that she had received notice of the claimed cancellation. adjuster in the assessment of the loss imperative or indespensable, as MICO
12.   It stands to reason that if Pinca had really received the said notice, she suggests. Section 325, which it cites, simply speaks of the licensing and
would not have made payment on the original policy on December 24, duties of adjusters.
1981. Instead, she would have asked for a new insurance, effective on that
date and until one year later, and so taken advantage of the extended period.
The Court finds that if she did pay on that date, it was because she honestly
believed that the policy issued on June 7, 1981, was still in effect and she

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
the hazard insured against; (e) physical changes in the property insured which result in the property
becoming uninsurable;or (f) a determination by the Commissioner that the continuation of the policy
would violate or would place the insurer in violation of this Code.

38

  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,
  upon
  written
  request
  of
  the
  named
 
insured,
 the
 insurer
 will
 furnish
 the
 facts
 on
 which
 the
 cancellation
 is
 based.
 
 003 Areola v. CA (COSCOLLUELA revised by SIAPNO)
September 22, 1994 | Romero, J. | Right to Rescind
PETITIONER: Santos B. Areola and Lydia D. Areola
RESPONDENTS: Court of Appeals, Prudential Guarantee and Assurance, Inc.
SUMMARY: 7 months after the issuance of Santos Areola’s Personal Accident
Insurance Policy, Prudential unilaterally cancelled the same since company records
revealed that Areola failed to pay his premiums evidenced by the lack of Official
Receipt which was supposed to be issued within 7 days after the Provisional
Receipt. Shocked by the cancellation of the policy, Santos approached Carlito Ang,
agent of Prudential and demanded the issuance of an official receipt. Ang told
Santos that it was a mistake and assured its rectification. Santos demanded the same
terms and same rate increase as when he paid the provincial receipt but Malapit
insisted that the partial payment he made was exhausted and that he should pay the
balance or his policy will cease to operate. Assistant Vice-President Ampil III
apologized but Areola still filed a complaint for breach of contract with damages
before the lower court. Areola received through Carlito Ang the leeter of Assistant
Vice-President Mariano M. Ampil III finding error on their part since premiums
were not remitted Malapit, proposed to extend its lifetime. The RTC favored Areola
stating that Prudential was in bad faith in the cancellation of the policy. The CA
reversed the decision of the RTC stating that the cancellation was not motivated by
bad faith.
The issue is WoN the Areolas can file against damages despite the effort to rectify
the cancellation. SC held YES. The decision of the RTC was correct. Malapit's
fraudulent act of misappropriating the premiums paid is beyond doubt directly
imputable to Prudential. Malapit’s receipt of said premiums is receipt by private
respondent insurance company who, by provision of law, under Article 1910 of the
Civil Code, is bound by the acts of its agent. “Art. 1910. The principal must comply
with all the obligations which the agent may have contracted within the scope of his
authority.” As for any obligation wherein the agent has exceeded his power, the
principal is not bound except when he ratifies it expressly or tacitly. Subsequent
reinstatement could not possibly absolve Prudential there being an obvious breach
of contract a contract of insurance creates reciprocal obligations for both insurer
and insured Article 1191. There is a choice between fulfillment or rescission of the
obligation in case one of the obligors fails to comply with what is incumbent upon
him. The circumstances entitle the injured party to payment of damages, regardless
of whether he demands fulfillment or rescission of the obligation. Nominal
damages are "recoverable where a legal right is technically violated and must be
vindicated against an invasion that has produced no actual present loss of any kind,
or where there has been a breach of contract and no substantial injury or actual
damages whatsoever have been or can be shown.
DOCTRINE: Subsequent reinstatement could not absolve the insurer there being
an obvious breach of contract a contract of insurance creates reciprocal obligations
for both insurer and insured Article 1191.
FACTS:
11.   Santos Areola (Areola), a lawyer from Dagupan bought from Prudential
Guarantee and Assurance, Inc. (Prudential) a personal accident insurance
policy covering the one-year period between noon of November 28, 1984
and noon of November 28, 1985.
12.   Areola was allegedly not able to pay the total amount of P1,609.65 which
included the premium, documentary stamp and premium tax.
13.   On December 17, 1984, Prudential issued a collector’s provisional receipt
to Areola for the total amount. It noted thereon that the collector’s
provisional receipt will be confirmed by their official receipt.
14.   The Branch Manager of Baguio City sent Areola an Endorsement which
“cancelled flat” his insurance policy for non-payment of premium. The
same credited “a return premium of P1,609.65 plus documentary stamps
and premium tax” to the account of Areola.
15.   Shocked, Areola confronted the representative of Prudential, Carlito Ang.
Areola still failed to receive any official receipt from Prudential
16.   Areola sent a letter demanding from Prudential that he be insured under the
same terms and conditions of his previous policy commencing upon the
receipt of his letter, or that the current commercial rate of increase on the
payment he had made under the provisional receipt be return within 5 days.
17.   Areola received a letter from production manager Malapit, informing him of
the “partial payment” of P1,000 he had made on the policy had been
exhausted pursuant to the provisions of the Short Period Rate Scale. He was
also warned that failure to pay the balance, the company’s liability would
cease to operate.
18.   Prudential, in response to Areola’s letter, wrote a letter to the latter stating
that the company was verifying whether the payment had in fact been
remitted to the company and why no official receipt had been issued
therefor. Asst. Vice-President Mariano Ampil III emphasized that the OR
should have been issued 7 days from the issuance of the provisional receipt,
and because there was no such OR, there was reason to believe that no
payment had been made.
1.   Ampil apologized for the inconvenience and said they will hold
Areola covered under the terms of the policy until such time that
the matter is cleared.
2.   Ampil wrote another letter confirming the total amount was
received and that Prudential was amenable to extending the policy
up to December 17, 1985.
19.   Unfortunately, as early as August 6, 1985 Areola and his wife already filed
a breach of contract with damages.
20.   Prudential admitted that the cancellation was due to Malapit’s failure to turn
over the premiums. However, it argued that by acknowledging the
 inconvenience and taking steps to rectify its omission, Prudential had
complied with its obligation. Hence, Areola has no longer a cause of action.
21.   Trial court ruled in favor of Areola ruling that Prudential was in bad faith in
unilaterally cancelling the insurance policy. Had Areola met an accident,
Prudential would certainly have disclaimed liability. It held that Prudential
breached its contract with Areola.
22.   CA reversed the trial court. It held that Prudential was not motivated by bad
faith or malice and that the cancellation was based on what the existing
records merely showed. In fact, it’s subsequent acts of rectifying the wrong
indicate that Prudential did not ct precipitately or willfully to inflict a wrong
on Areola.
23.   Hence, this appeal.
24.   Areola argues that it was Malapit’s misappropriation of the premiums
which was the proximate cause of the cancellation of the insurance policy.
Malapit’s act of signing and even sending the notice of cancellation himself,
notwithstanding his personal knowledge of Areola’s full payment of
premiums, further reinforces the allegation of bad faith. Subsequent
reinstatement could not possibly absolve Prudential from liability, there
being an obvious breach of contract.
25.   Prudential however argues that where reinstatement, the equitable relief
sought by Areola was granted at an opportune moment i.e. prior to the filing
of the complaint, he was left without a cause of action
ISSUE: WoN the Areolas can file against damages despite the effort to rectify the
cancellation – SC held YES Malapit's fraudulent act of misappropriating the
premiums paid is beyond doubt directly imputable to Prudential.
RULING: WHEREFORE, the petition for review on certiorari is
hereby GRANTED and the decision of the Court of Appeals in CA-G.R. No. 16902
on May 31, 1990, REVERSED. The decision of Branch 40, RTC Dagupan City, in
Civil Case No. D-7972 rendered on June 30, 1987 is hereby REINSTATED subject
to the following modifications: (a) that nominal damages amounting to P30,000.00
be awarded petitioner in lieu of the damages adjudicated by court a quo; and (b) that
in the satisfaction of the damages awarded therein, respondent insurance company is
ORDERED to pay the legal rate of interest computed from date of filing of
complaint until final payment thereof.
SO ORDERED.
RATIO:
1.   Malapit’s fraudulent act of misappropriating the premiums paid by Areola
is beyond doubt directly imputable to Prudential. A corporation acts solely
thru its employees. The latter’s acts are considered as its own for which it
can be held to account.
15.   It is beyond doubt that Malapit represented the interests of Prudential and
acted in its behalf. His act of receiving the premiums collected is well
within the provice of his authority.
16.   Malapit’s failure to remit the premiums he received cannot constitute as a
defense for Prudential. no exoneration from liability could result therefrom.
17.   The fact that Prudential was itself defrauded due to the anomalies that took
place in its Baguio branch office, such as the non-accrual of said premiums
to its account, does not free the same from its obligation to Areola.
Consequently, Prudential is liable by way of damages for the fraudulent acts
committed by Malapit that gave occasion to the erroneous cancellation of
subject insurance policy.
18.   Its earlier act of reinstating the insurance policy also can not obliterate the
injury. Prudential should be reminded that a contract of insurance
creates reciprocal obligations for both insurer and insured. Reciprocal
obligations are those which arise from the same cause and in which
each party is both a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other.
19.   Under the law governing reciprocal obligations the injured party is given a
choice between fulfillment or rescission of the obligation. The law also
entitles Areola to payment of damages, regardless of whether he demands
fulfillment or rescission.
20.   Under the circumstances of the instant case, the relationship as creditor and
debtor between the parties arose from a common cause: i.e., by reason of
their agreement to enter into a contract of insurance under whose terms,
respondent insurance company promised to extend protection to petitioner-
insured against the risk insured for a consideration in the form of premiums
to be paid by the latter.
21.   Under the law governing reciprocal obligations, particularly the second
paragraph of Article 1191, the injured party, petitioner-insured in this case,
is given a choice between fulfillment or rescission of the obligation in case
one of the obligors, such as respondent insurance company, fails to comply
with what is incumbent upon him. However, said article entitles the injured
party to payment of damages, regardless of whether he demands fulfillment
or rescission of the obligation. Untenable then is respondent insurance
company’s argument, namely, that reinstatement being equivalent to
fulfillment of its obligation, divests petitioner-insured of a rightful claim for
payment of damages. Such a claim finds no support in our laws on
obligations and contracts.
22.   The nature of the damages is in the form of nominal damages contrary to
what was awarded by the trial court because no actual or substantial damage
or injury was inflicted on Areola at the time the insurance policy was
cancelled. (Areola was awarded actual, moral, exemplary, and atty’s fees)
 004 Tan v. CA (SOLCO) years. Despite the death of the insured, the insurance company can still rescind the
June, 29, 1989 | Gutierrez, J. | Right to cancel or rescind contract so long as it is within the two period and prior to the commencement of the
action.
PETITIONER: Emilio Tan, et al.
RESPONDENTS: The Court of Appeals, et al.
FACTS:
26.   Petitioners appeal from the Decision of the Insurance Commissioner
SUMMARY: On November 6, 1973 Tan Lee Siong was issued an 80k life insurance
dismissing herein petitioners' complaint against respondent Philippine
policy from American Life Insurance Company. On April 26, 1975. Tan Lee Siong
American Life Insurance Company for the recovery of the proceeds of
died from hepatoma. His heirs then filed a claim with the insurance company, but
Policy No. 1082467 in the amount of P 80,000.00.
they rejected his claim, stating that they are rescinding the contract because of the
27.   On September 23,1973, Tan Lee Siong, father of herein petitioners, applied
concealment and misrepresentation of Tan Lee Siong. Apparently, he had diabetes,
for life insurance in the amount of P 80,000.00 with respondent company.
liver, problems, and hypertension, but he failed to disclose this in his application. So
Said application was approved and Policy No. 1082467 was issued effective
the heirs filed a case against the insurance company with the Insurance
November 6,1973, with petitioners the beneficiaries thereof.
Commissioner (IC) to claim the insurance proceeds. The IC dismissed the case. CA
28.   On April 26,1975, Tan Lee Siong died of hepatoma. Petitioners then filed
affirmed. Hence petitioners are now appealing to the SC. Their main contention is
with respondent company their claim for the proceeds of the life insurance
that the insurance company no longer has any right to rescind the contract because
policy. However, in a letter dated September 11, 1975, respondent company
they did so after Tan Lee Siong already died. According to them, Section 48 of the
denied petitioners' claim and rescinded the policy by reason of the alleged
code only allows rescission if the insured is still alive. They claim that it must be
misrepresentation and concealment of material facts made by the deceased
given this interpretation because insurance company’s exert “overwhelming
Tan Lee Siong in his application for insurance. The premiums paid on the
influence” on their clients. Furthermore, they also argue that there was no
policy were thereupon refunded.
misrepresentation or concealment on their part because the insurance company did
29.   Alleging that respondent company's refusal to pay them the proceeds of the
not adduce evidence that the application was sufficiently explained to Tan Lee Siong
policy was unjustified and unreasonable, petitioners filed on November 27,
in layman’s terms. Moreover, they additionally state that it was the insurance agent
1975, a complaint against the former with the Office of the Insurance
who filled up the application. The issue in this case is (1) WON an insurance
Commissioner.
company still rescind the policy despite the death of the insured? And (2) WON Tan
30.   After hearing the evidence of both parties, the Insurance Commissioner
Lee Siong was guilty of concealment. With regard to the 1st issue, the phrase “
rendered judgment on August 9, 1977, dismissing petitioners' complaint.
during the lifetime” found in section 48 simply means that the policy is no longer
31.   The Court of Appeals dismissed ' the petitioners' appeal from the Insurance
considered in force after the insured has died. It doesn’t state that the insurer loses
Commissioner's decision for lack of merit
his right to rescind after the death of the insured. The key phrase is “for a period of
32.   Hence, this petition
two years.” The petitioners' interpretation would give rise to the incongruous
situation where the beneficiaries of an insured who dies right after taking out
ISSUE/s:
and paying for a life insurance policy, would be allowed to collect on the policy
2.   Did the insured commit an act of misrepresentation/concealment? YES, it
even if the insured fraudulently concealed material facts. Addressing the 2nd
was established that he had diabetes, hypertension, and liver problems
issue, the court stated that Tan Lee Siong’s defense is without merit. First of all, he
5 years even before the insurance contract was obtained. He failed to
signed the insurance contract which meant that he clearly understood what was in the
disclose these material details.
contract. It can be reasonably presumed that his signature affirms the correctness of
all the entries therein. Being a businessman, Tan Lee Siong would not have signed
3.   Can the insurance company rescind the insurance contract AFTER the death
something that he did not understand. The presumption is that a person intends
of the insured party? YES, to hold that the insurance contract can only
the ordinary consequence of his voluntary act and takes ordinary care of his
be rescinded when the insured party is still alive would result in the
concerns. His defense that it wasn’t filled up by him, or that it wasn’t reasonably
incongruous situation that despite the concealment and fraud of the
explained, or that the insurance company waived its right by ratification is thus
insured, the beneficiaries can nonetheless collect from him.
untenable. Lastly, he had hypertension, diabetes, and liver problems for a period of at
least 5 years before his application . He clearly knew that he was sick but he didn’t
RULING: WHEREFORE, the petition is hereby DENIED for lack of merit. The
disclose these facts.
questioned decision of the Court of Appeals is AFFIRMED..
DOCTRINE: The action to rescind a life insurance contract lasts for a period of two
RATIO:
 1.  The petitioners contend that the respondent company no longer had the right to their companies, concluding the transactions and otherwise smoothing out all
to rescind the contract of insurance as rescission must allegedly be done during difficulties.
the lifetime of the insured within two years and prior to the commencement of 8.   It would thus be unjust if having been subjected to the whirlwind pressure of
action insurance salesmanship this Court itself has long denounced, the assured who
2.  According to the petitioners, the Insurance Law was amended and the second dies within the two-year period, should stand charged of fraudulent concealment
paragraph of Section 4839 added to prevent the insurance company from and misrepresentation.
exercising a right to rescind after the death of the insured. 9.  The legislative answer to the arguments posed by the petitioners is the
3.  The so-called "incontestability clause" precludes the insurer from raising the "incontestability clause" added by the second paragraph of Section 48.
defenses of false representations or concealment of material facts insofar as 10.  The insurer has two years from the date of issuance of the insurance
health and previous diseases are concerned if the insurance has been in force for contract or of its last reinstatement within which to contest the policy,
at least two years during the insured's lifetime. The phrase "during the whether or not, the insured still lives within such period. After two years, the
lifetime" found in Section 48 simply means that the policy is no longer defenses of concealment or misrepresentation, no matter how patent or well
considered in force after the insured has died. The key phrase in the second founded, no longer lie. Congress felt this was a sufficient answer to the
paragraph of Section 48 is "for a period of two years." various tactics employed by insurance companies to avoid liability. The
4.  As noted by the Court of Appeals, to wit: The policy was issued on petitioners' interpretation would give rise to the incongruous situation
November 6,1973 and the insured died on April 26,1975. The policy was where the beneficiaries of an insured who dies right after taking out and
thus in force for a period of only one year and five months. Considering paying for a life insurance policy, would be allowed to collect on the policy
that the insured died before the two-year period had lapsed, respondent even if the insured fraudulently concealed material facts.
company is not, therefore, barred from proving that the policy is void ab 11.  The petitioners further argue that no evidence was presented to show that the
initio by reason of the insured's fraudulent concealment or medical terms were explained in a layman's language to the insured. They state
misrepresentation. Moreover, respondent company rescinded the contract that the insurer should have presented its two medical field examiners as
of insurance and refunded the premiums paid on September 11, 1975, witnesses. Moreover, the petitioners allege that the policy intends that the
previous to the commencement of this action on November 27,1975. medical examination must be conducted before its issuance otherwise the insurer
5.  The petitioners then contend that there could have been no concealment or "waives whatever imperfection by ratification."
misrepresentation by their late father because Tan Lee Siong did not have to buy 12.  We agree with the Court of Appeals which ruled:
insurance. He was only pressured by insistent salesmen to do so. 13.  On the other hand, petitioners argue that no evidence was presented by
6.  According to them, it was the insurance agents repeated visits and respondent company to show that the questions appearing in Part II of the
solicitations which caused their father to accept the contract. Their father wasn’t application for insurance were asked, explained to and understood by the
the one who “knocked on the door” of the insurance company. In addition, deceased so as to prove concealment on his part. The same is not well taken.
assured was a man of means. If he intended to defraud the insurance company The deceased, by affixing his signature on the application form, affirmed
he could’ve obtained a insurance policy way more than 80k. Moreover, it was the correctness of all the entries and answers appearing therein. It is but to
the insurance agent who filled out the forms. be expected that he, a businessman, would not have affixed his signature on
7.  Petitioners state further: This Honorable Supreme Court has had occasion to the application form unless he clearly understood its significance. For, the
denounce the pressure and practice indulged in by agents in selling insurance. At presumption is that a person intends the ordinary consequence of his
one time or another most of us have been subjected to that pressure, that voluntary act and takes ordinary care of his concerns.
practice. This court took judicial cognizance of the whirlwind pressure of 14.  The evidence for respondent company shows that on September 19,1972, the
insurance selling-especially of the agent's practice of 'supplying the deceased was examined by Dr. Victoriano Lim and was found to be diabetic and
information, preparing and answering the application, submitting the application hypertensive; that by January, 1973, the deceased was complaining of
progressive weight loss and abdominal pain and was diagnosed to be suffering

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  from hepatoma, Another physician, Dr. Wenceslao Vitug, testified that the
39

 Section
 48.
 Whenever
 a
 right
 to
 rescind
 a
 contract
 of
 insurance
 is
 given
 to
 the
 insurer
 by
 any
 provision
 of
 this
  deceased came to see him on December 14, 1973 for consolation and
chapter,
 such
 right
 must
 be
 exercised
 previous
 to
 the
 commencement
 of
 an
 action
 on
 the
 contract.
  claimed to have been diabetic for five years. Because of the concealment

 
After
 a
 policy
 of
 life
 insurance
 made
 payable
 on
 the
 death
 of
 the
 insured
 shall
 have
 been
 in
 force
 during
 the
 
made by the deceased of his consultations and treatments for hypertension,
lifetime
  of
  the
  insured
  for
  a
  period
  of
  two
  years
  from
  the
  date
  of
  its
  issue
  or
  of
  its
  last
  reinstatement,
  the
  diabetes and liver disorders, respondent company was thus misled into
insurer
  cannot
  prove
  that
  the
  policy
  is
  void
 ab
  initio
 or
  is
  rescindable
  by
  reason
  of
  the
  fraudulent
  accepting the risk and approving his application as medically standard and
concealment
 or
 misrepresentation
 of
 the
 insured
 or
 his
 agent.
  dispensing with further medical investigation and examination. For as long

 
as no adverse medical history is revealed in the application form, an applicant
for insurance is presumed to be healthy and physically fit and no further medical
investigation or examination is conducted by respondent company.
15.  There is also no strong showing that we should apply the "fine print" or
"contract of adhesion" rule in this case.
16.  There is no showing that the questions in the application form for insurance
regarding the insured's medical history are in smaller print than the rest of the
printed form or that they are designed in such a way as to conceal from the
applicant their importance.
 005 Great Pacific Life Assurance Corp. v. CA (Soriano)
13 October 1999 | Quisumbing, J. | Right to Cancel or Rescind
PETITIONER: Great Pacific Life Assurance Corp
RESPONDENT: Court of Appeals
SUMMARY: Grepalife and DBP entered into a group life insurance to
insure the lives of eligible housing mortgagors of DBP. Dr. Leuterio,
physician and a housing debtor of DBP applied for membership in the
group life insurance plan, and indicated in his application form that he
never consulted, a physician for a heart condition, high blood pressure,
cancer, diabetes, lung, kidney or stomach disorder or any other physical
impairment and that to the best of his knowledge he is in good health.
Grepalife issued a certificate as insurance coverage of Dr. Leuterio to the
extent of his DBP mortbage indebtedness. Almost a year after, Dr.
Leuterio died due to massive cerebral hemmorage. DBP submitted its
claim to Grepalife but was denied on the ground of concealment hence it
was entitled to rescind the contract. The issue in this case is whether
Grepalife is entitled to rescind the insurance contract. The Supreme Court
held No, Contrary to petitioner'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 petitioner had not
proven nor produced any witness who could attest to Dr. Leuterio's
medical history. Clearly, it had failed to establish that there was
concealment made by the insured, hence it cannot refuse payment of the
claim.
DOCTRINE: The 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. 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.
FACTS:
37.   A contract of life insurance was executed between petitioner
Grepalife and Development bank of the Philippines (DBP). Grepalife
agreed to insure the lives if eligible housing loan mortgagors of
DBP.
38.   Dr. Leuterio, 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:
a.   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.
b.   Are you now, to the best of your knowledge, in good health?
– Dr. Leuterio answered yes.
39.   Nov 15, 1983 - Grepalife issued a certificate as insurance coverage
of Dr. Leuterio to the extent of his DBP mortbage indebtedness.
40.   Aug 6, 1984 – Dr. Leuterio died due to massive cerebral hemmorage.
41.   DBP submitted a death claim to Grepalife.
42.   Grepalife denied the claim alleging that Dr. Leuterio was not
physically healthy when he applied for an insurance coverage on
November 15, 1983. Grepalife insisted that Dr. Leuterio did not
disclose he had been suffering from hypertension, which caused his
death. Allegedly, such non-disclosure constituted concealment that
justified the denial of the claim.
43.   The widow of Leuterio Merdarda, filed a complaint with the RTC
against Grepalife for Specific Performance with Damages.
44.   During the trial, Dr. Hernando Mejia, who issued the death
certificate, was called to testify. Dr. Mejias findings, based
partly from the information given by the respondent widow,
stated that Dr. Leuterio complained of headaches presumably
due to high blood pressure. The inference was not conclusive
because Dr. Leuterio was not autopsied, hence, other causes
were not ruled out.
45.   RTC rendered a decision in favor of respondent widow and
against Grepalife. CA affirmed RTC’s decision.
46.   Hence this petition.
ISSUE/s:
9.   WoN Grepalife has the right to rescind the insurance contract based
on the alleged concealment of Dr. Leuterio? – No. The Supreme
Court found the petition not meritorious. Contrary to petitioner'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 petitioner had not proven nor produced
any witness who could attest to Dr. Leuterio's medical history.
Clearly, it had failed to establish that there was concealment made by
the insured, hence it cannot refuse payment of the claim.
 defense of the insurer to avoid liability is an affirmative defense and
RULING: WHEREFORE, the petition is hereby DENIED. The Decision the duty to establish such defense by satisfactory and convincing
and Resolution of the Court of Appeals in CA-G.R. CV 18341 is evidence rests upon the insurer. In the case at bar, the petitioner
AFFIRMED with MODIFICATION that the petitioner is ORDERED to pay failed to clearly and satisfactorily establish its defense, and is
the insurance proceeds amounting to Eighty-six thousand, two hundred therefore liable to pay the proceeds of the insurance.
(P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio
(deceased), upon presentation of proof of prior settlement of mortgagors
indebtedness to Development Bank of the Philippines. Costs against
petitioner.

RATIO:
34.   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.
35.   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.
36.   Dr. Leuterios death certificate stated that hypertension was only the
possible cause of death. The private respondents statement, as to the
medical history of her husband, was due to her unreliable
recollection of events. Hence, the statement of the physician was
properly considered by the trial court as hearsay.
37.   Contrary to appellants allegations, there was no sufficient proof that
the insured had suffered from hypertension. Aside from the
statement of the insureds 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.
Leuterios medical history.
38.   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 . . . Appellant insurance
company had failed to establish that there was concealment made by
the insured, hence, it cannot refuse payment of the claim.
39.   Grepalife had failed to establish that there was concealment made by
the insured, hence, it cannot refuse payment of the claim.
40.   The fraudulent intent on the part of the insured must be established
to entitle the insurer to rescind the contract. Misrepresentation as a
 006 SUN LIFE OF CANADA (PH) INC vs SIBYA (STA. MARIA)
June 8, 2016 | Reyes, J. | Right to Rescind or Cancel (none in this case)
PETITIONER: SUN LIFE OF CANADA (PHILIPPINES), INC.
RESPONDENT: MA. DAISY'S. SIBYA, JESUS MANUEL S. SIBYA III, JAIME
LUIS S. SIBYA, AND THE ESTATE OF THE DECEASED ATTY. JESUS SIBYA,
JR.
SUMMARRY: Atty. Jesus Jr. applied for life insurance with Sun Life. In his
Application, he indicated that he had sought advice for kidney problems. Sun Life
approved the application and issued the Policy. The policy indicated the respondents
as beneficiaries and entitles them to a death benefit of P1,000,000.00 should Atty.
Jesus Jr. die on or before February 5, 2021, or a sum of money if Atty. Jesus Jr. is still
living on the endowment date. On May 11, 2001, Atty. Jesus Jr. died as a result of a
gunshot wound. As such, Ma. Daisy filed a Claimant's Statement with Sun Life to
seek the death benefits. In a letter, however, Sun Life denied the claim on the ground
that the details on Atty. Jesus Jr.'s medical history were not disclosed in his
application. Sun Life tendered a check representing the refund of the premiums paid.
Respondents reiterated their claim against Sun Life which still refused to pay. Sun
Life instead filed a Complaint for Rescission before the RTC and prayed for judicial
confirmation of Atty. Jesus Jr.'s rescission of insurance policy. Sun Life alleged that
Atty. Jesus Jr. did not disclose in his insurance application his previous medical
treatment at the National Kidney Transplant Institute. This undisclosed fact suggested
that the insured was in "renal failure" and at a high risk medical condition, had it
known such, it would not have issued the insurance policy. For their defense, the
respondents claimed that Atty. Jesus Jr. did not commit misrepresentation in his
application for insurance. They averred that Atty. Jesus Jr. was in good faith when he
signed the insurance application and even authorized Sun Life to inquire further into
his medical history for verification purposes. RTC dismissed the complaint for lack
of merit. RTC held that Atty. Jesus Jr. did not commit material concealment and
misrepresentation when he applied for life insurance with Sun Life. CA ruled that the
evidence show that there was no fraudulent intent on the part of Atty. Jesus Jr. in
submitting his insurance application. The issue is WON Sun Life has the right to
rescind the policy? – No. It has already been held that when the insured dies within
the incontestability period, the insurer must make good on the policy, even though the
policy was obtained by fraud, concealment, or misrepresentation. In the present case,
Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has two years
from its issuance, to investigate and verify whether the policy was obtained by fraud,
concealment, or misrepresentation. Upon the death of Atty. Jesus Jr., however, on
May 11, 2001, or a mere three months from the issuance of the policy, Sun Life loses
its right to rescind the policy. As discussed in Manila Bankers, the death of the
insured within the two-year period will render the right of the insurer to rescind the
policy nugatory. As such, the incontestability period will now set in. Also, Sun Life
failed to clearly and satisfactorily establish its allegations of concealment and
misrepresentation, and is therefore liable to pay the proceeds of the insurance.
DOCTRINE: Section 48 serves a noble purpose, as it regulates the actions of both
the insurer and the insured. Under the provision, an insurer is given two years - from
the effectivity of a life insurance contract and while the insured is alive - to discover
or prove that the policy is void ab initio or is rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or his agent. After the two-year
period lapses, or when the insured dies within the period, the insurer must make
good on the policy, even though the policy was obtained by fraud, concealment,
or misrepresentation. This is not to say that insurance fraud must be rewarded, but
that insurers who recklessly and indiscriminately solicit and obtain business must be
penalized, for such recklessness and lack of discrimination ultimately work to the
detriment of bona fide takers of insurance and the public in general.
FACTS:
1.   Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun
Life. In his Application for Insurance, he indicated that he had sought
advice for kidney problems.
2.   Atty. Jesus Jr. indicated the following in his application:
"Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus
Benjamin Mendoza at National Kidney Institute, discharged after 3 days, no
recurrence as claimed."hanRoblesVirtualawlibrary
3.   Sun Life approved Atty. Jesus Jr.'s application and issued Insurance Policy
No. 031097335. The policy indicated the respondents as beneficiaries and
entitles them to a death benefit of P1,000,000.00 should Atty. Jesus Jr. die
on or before February 5, 2021, or a sum of money if Atty. Jesus Jr. is still
living on the endowment date.
4.   On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San
Joaquin, Iloilo. As such, Ma. Daisy filed a Claimant's Statement with Sun
Life to seek the death benefits indicated in his insurance policy.
5.   In a letter, however, Sun Life denied the claim on the ground that the details
on Atty. Jesus Jr.'s medical history were not disclosed in his application.
Simultaneously, Sun Life tendered a check representing the refund of the
premiums paid by Atty. Jesus Jr.
6.   The respondents reiterated their claim against Sun Life thru a letter. Sun
Life refused to heed the respondents' requests and instead filed a Complaint
for Rescission before the RTC and prayed for judicial confirmation of Atty.
Jesus Jr.'s rescission of insurance policy.
7.   In its Complaint, Sun Life alleged that Atty. Jesus Jr. did not disclose in his
insurance application his previous medical treatment at the National Kidney
Transplant Institute in May and August of 1994. According to Sun Life, the
undisclosed fact suggested that the insured was in "renal failure" and at a
high risk medical condition. Consequently, had it known such fact, it would
not have issued the insurance policy in favor of Atty. Jesus Jr.
8.   For their defense, the respondents claimed that Atty. Jesus Jr. did not
commit misrepresentation in his application for insurance. They averred
that Atty. Jesus Jr. was in good faith when he signed the insurance
application and even authorized Sun Life to inquire further into his medical
 history for verification purposes. According to them, the complaint is just a modified the RTC decision by absolving Sun Life from the charges of
ploy to avoid the payment of insurance claims. violation of Sections 241 and 242 of the Insurance Code.
9.   The RTC dismissed the complaint for lack of merit. It held that Sun Life 14.   The CA ruled that the evidence on records show that there was no
violated Sections 241, paragraph 1(b), (d), and (e)40 and 24241 of the fraudulent intent on the part of Atty. Jesus Jr. in submitting his insurance
Insurance Code when it refused to pay the rightful claim of the respondents. application. Instead, it found that Atty. Jesus Jr. admitted in his application
10.   Moreover, the RTC ordered Sun Life to pay the amounts of P1,000,000.00 that he had sought medical treatment for kidney ailment.
as death benefits, P100,000.00 as moral damages, P100,000.00 as 15.   Sun Life filed a Motion for Partial Reconsideration the same was denied
exemplary damages, and P100,000.00 as attorney's fees and costs of suit.
11.   The RTC held that Atty. Jesus Jr. did not commit material concealment and ISSUE:
misrepresentation when he applied for life insurance with Sun Life. It 1.   WON Sun Life has the right to rescind the policy? – No. It has already
observed that given the disclosures and the waiver and authorization to been held that when the insured dies within the period, the insurer
investigate executed by Atty. Jesus Jr. to Sun Life, the latter had all the must make good on the policy, even though the policy was obtained by
means of ascertaining the facts allegedly concealed by the applicant. fraud, concealment, or misrepresentation. Also, Sun Life failed to clearly
12.   Aggrieved, Sun Life elevated the case to the CA. and satisfactorily establish its allegations of concealment and
13.   The CA affirmed the RTC decision with respect to payment of death misrepresentation, and is therefore liable to pay the proceeds of the
benefits and damages in favor of the respondents. The CA, however, insurance.

RULING: WHEREFORE, the petition for review is DENIED. The Decision dated
                                                                                                                        November 18, 2013 and Resolution dated February 13, 2014 of the Court of Appeals
40
 Sec.  241.  (1)  No  insurance  company  doing  business  in  the  Philippines  shall  refuse,  without  
in CA-G.R. CV. No. 93269 are hereby AFFIRMED.
just  cause,  to  pay  or  settle  claims  arising  under  coverages  provided  by  its  policies,  nor  shall  
any  such  company  engage  in  unfair  claim  settlement  practices.  Any  of  the  following  acts  by  
an  insurance  company,  if  committed  without  just  cause  and  performed  with  such  frequency  
RATIO:
as  to  indicate  a  general  business  practice,  shall  constitute  unfair  claim  settlement  practices:   1.   In Manila Bankers Life Insurance Corporation v. Aban, the Court held that
x   xxx   if the insured dies within the two-year contestability period, the insurer is
(b)   failing   to   acknowledge   with   reasonable   promptness   pertinent   communications   with   bound to make good its obligation under the policy, regardless of the
respect   to   claims   arising   under   its   policies;   presence or lack of concealment or misrepresentation. The Court held:
x  x  x  x   Section 48 serves a noble purpose, as it regulates the actions of both the insurer and
(d)  not  attempting  in  good  faith  to  effectuate  prompt,  fair  and  equitable  settlement  of  claims   the insured. Under the provision, an insurer is given two years - from the effectivity
submitted   in   which   liability   has   become   reasonably   clear;   or   of a life insurance contract and while the insured is alive - to discover or prove that
(e)   compelling   policyholders   to   institute   suits   to   recover   amounts   due   under   its   policies   by   the policy is void ab initio or is rescindible by reason of the fraudulent concealment
offering  without  justifiable  reason  substantially  less  than  the  amounts  ultimately  recovered   or misrepresentation of the insured or his agent. After the two-year period lapses,
in  suits  brought  by  them.   or when the insured dies within the period, the insurer must make good on the
  policy, even though the policy was obtained by fraud, concealment, or
41
 Sec.  242.  The  proceeds  of  a  life  insurance  policy  shall  be  paid  immediately  upon  maturity  of   misrepresentation. This is not to say that insurance fraud must be rewarded, but that
the  policy,  unless  such  proceeds  are  made  payable  in  installments  or  as  an  annuity,  in  which   insurers who recklessly and indiscriminately solicit and obtain business must be
case  the  installments,  or  annuities  shall  be  paid  as  they  become  due:  Provided,  however,  That   penalized, for such recklessness and lack of discrimination ultimately work to the
in   the   case   of   a   policy   maturing   by   the   death   of   the   insured,   the   proceeds   thereof   shall   be   detriment of bona fide takers of insurance and the public in general.
paid  within  sixty  days  after  presentation  of  the  claim  and  filing  of  the  proof  of  the  death  of   2.   In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5,
the  insured.  Refusal  or  failure  to  pay  the  claim  within  the  time  prescribed  herein  will  entitle   2001. Thus, it has two years from its issuance, to investigate and verify
the  beneficiary  to  collect  interest  on  the  proceeds  of  the  policy  for  the  duration  of  the  delay   whether the policy was obtained by fraud, concealment, or
at   the   rate   of   twice   the   ceiling   prescribed   by   the   Monetary   Board,   unless   such   failure   or   misrepresentation.
refusal   to   pay   is   based   on   the   ground   that   the   claim   is   fraudulent.   3.   Upon the death of Atty. Jesus Jr., however, on May 11, 2001, or a mere
  three months from the issuance of the policy, Sun Life loses its right to
The  proceeds  of  the  policy  maturing  by  the  death  of  the  insured  payable  to  the  beneficiary   rescind the policy. As discussed in Manila Bankers, the death of the
shall  include  the  discounted  value  of  all  premiums  paid  in  advance  of  their  due  dates,  but  are   insured within the two-year period will render the right of the insurer
not  due  and  payable  at  maturity.  
 
 to rescind the policy nugatory. As such, the incontestability period will
now set in.
4.   Assuming, however, for the sake of argument, that the incontestability
period has not yet set in, the Court agrees, nonetheless, with the CA
when it held that Sun Life failed to show that Atty. Jesus Jr. committed
concealment and misrepresentation.
5.   As correctly observed by the CA, Atty. Jesus Jr. admitted in his application
his medical treatment for kidney ailment. Moreover, he executed an
authorization in favor of Sun Life to conduct investigation in reference with
his medical history. The decision in part states:
Records show that in the Application for Insurance, [Atty. Jesus Jr.]
admitted that he had sought medical treatment for kidney ailment. When
asked to provide details on the said medication, [Atty. Jesus Jr.] indicated
the following information: year ("1987"), medical procedure ("undergone
lithotripsy due to kidney stone"), length of confinement ("3 days"),
attending physician ("Dr. Jesus Benjamin Mendoza") and the hospital
("National Kidney Institute").

It appears that [Atty. Jesus Jr.] also signed the Authorization which gave
[Sun Life] the opportunity to obtain information on the facts disclosed by
[Atty. Jesus Jr.] in his insurance application.

Given the express language of the Authorization, it cannot be said that

[Atty. Jesus Jr.] concealed his medical history since [Sun Life] had the
means of ascertaining [Atty. Jesus Jr.'s] medical record.

With regard to allegations of misrepresentation, we note that [Atty. Jesus

Jr.] was not a medical doctor, and his answer "no recurrence" may be
construed as an honest opinion. Where matters of opinion or judgment are
called for, answers made in good faith and without intent to deceive will not
avoid a policy even though they are untrue.24 (Citations omitted and italics
in the original)
6.   Indeed, the intent to defraud on the part of the insured must be ascertained
to merit rescission of the insurance contract. Concealment as a defense for
the insurer to avoid liability is an affirmative defense and the duty to
establish such defense by satisfactory and convincing evidence rests upon
the provider or insurer.
7.   In the present case, Sun Life failed to clearly and satisfactorily establish
its allegations, and is therefore liable to pay the proceeds of the
insurance.
 007 DEL ROSARIO v. EQUITABLE INSURANCE (TAN)
Jun. 29, ’63 | Paredes, J. | In doubt, rule in favor of the insured
PETITIONER: Simeon Del Rosario
RESPONDENTS: The Equitable Insurance and Casualty Co., Inc.
SUMMARY: Equitable Insurance issued Personal Accident Policy No. 7136 on
the life of Francisco del Rosario, alias Paquito Bolero, son Simeon Del Rosario,
binding itself to pay the sum of P1,000.00 to P3,000.00, as indemnity for the
death of the insured. Please refer to the facts for the provisions of the policy, but
it basically provided different amounts to be paid for the different ways which
Francisco may die. However, the policy did not state any specific amount in case
Francisco dies due to drowning. While Francisco was on a ship, (well obvious
naman hahaha), he jumped off due to a fire which broke out, and he drowned.
His father, Simeon, then filed for a claim but Equitable only paid Php 1,000.
Atty. Francisco, lawyer of Simeon, then filed a claim asking that Equitable pay
Php 3,000. Equitable then asked for the opinion of the Insurance Commissioner
and the latter said that the amount to be paid was only Php 1,000. The issue is
whether or not Equitable should pay Php 1,000 or Php 3,000. The SC, agreeing
with the RTC, said that where there is an ambiguity with respect to the terms
and conditions of the policy, the same will be resolved against the one
responsible thereof. Since Equitable promised to pay Php 1,000 to Php 3,000,
and it didn’t state a specific amount for drowning, the courts must rule in favor of
the insured, and the maximum amount promised should be given.
RATIO: Where two interpretations, equally fair, of languages used in an
insurance policy may be made, that which allows the greater indemnity will
prevail.
FACTS:
1.   Equitable Insurance issued Personal Accident Policy No. 7136 on the life of
Francisco del Rosario, alias Paquito Bolero, son Simeon Del Rosario,
binding itself to pay the sum of P1,000.00 to P3,000.00, as indemnity for
the death of the insured.
2.   The policy is as follows:
Part I. Indemnity For Death
If the insured sustains any bodily injury which is effected solely through
violent, external, visible and accidental means, and which shall result,
independently of all other causes and within sixty (60) days from the
occurrence thereof, in the Death of the Insured, the Company shall pay the
amount set opposite such injury:
Section 1. Injury sustained other than those specified below unless excepted
hereinafter.................... Php 1,000
Section 2. Injury sustained by the wrecking or disablement of a railroad
passenger car or street railway car in or on which the Insured is travelling as a
farepaying passenger.................... Php 1,500
Section 3. Injury sustained by the burning of a church, theatre, public library
or municipal administration building while the Insured is therein at the
commencement of the fire.................... Php 2,000
Section 4. Injury sustained by the wrecking or disablement of a regular
passenger elevator car in which the Insured is being conveyed as a passenger
(Elevator in mines excluded).................... Php 2,500
Section 5. Injury sustained by a stroke of lightning or by a cyclone..... Php
3,000
Part VI. Exceptions
This policy shall not cover disappearance of the Insured nor shall it cover
Death, Disability, Hospital fees, or Loss of Time, caused to the insured:
x x x (h.) By drowning except as a consequence of the wrecking or
disablement in the Philippine waters of a passenger steam or motor vessel
in which the Insured is travelling as a farepaying passenger; x x x."
3.   A rider was then executed:
"IV. DROWNING
It is hereby declared and agreed that exemption clause Letter- (h) embodied in PART VI of
the policy is hereby waived by the company, and to form a part of the provision covered
by the policy."
4.   On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero,
while on board the motor launch "ISLAMA" together with 33 others, including
his beneficiary in the Policy, Remedios Jayme, were forced to jump off said
launch on account of fire which broke out on said vessel, resulting in the death
of drowning, of the insured and beneficiary in the waters of Jolo.
5.   On April 13, 1957, Simeon del Rosario, father of the Francisco, and as the sole
heir, filed a claim for payment with defendant company, and on September 13,
1957, Equitable paid to him the sum of P1,000.00, pursuant to Section 1 of Part
I of the policy and was issued this receipt:
RECEIVED of the EQUITABLE INSURANCE & CASUALTY CO., INC.,
the sum of PESOS — ONE THOUSAND (P1,000.00) Philippine Currency,
being settlement in full for all claims and demands against said Company as a
result of an accident which occurred on February 26, 1957, insured under out
ACCIDENT Policy No. 7136, causing the death of the Assured. In view of
the foregoing, this policy is hereby surrendered and CANCELLED.
6.   On the same day, Atty. Vicente J. Francisco, wrote defendant company
acknowledging receipt by his client (plaintiff herein), of the P1,000.00, but
informing said company that said amount was not the correct one. He said that it
should be Php 1,500 under sec. 2 of the policy because the circumstances of
Francisco’s death was similar to what was provided therein.
7.   Equitable then referred the matter to the Insurance Commissioner who rendered
 an opinion stating that the former’s liability was only Php 1,000, pursuant to
Sec. 1 of the policy. Because of this, Equitable refused to pay more than the RATIO:
original Php 1,000. 1.   The SC stated that the findings of the lower court are supported by the generally
8.   However, Atty. Francisco then sent another letter, stating that the total amount accepted principles or rulings on insurance, which enunciate that where there is
that should be paid is Php 3,000. However, Equitable refused to pay the same. an ambiguity with respect to the terms and conditions of the policy, the same
9.   This led to a case filed in the RTC. Equitable then filed motion to dismiss, will be resolved against the one responsible thereof.
stating that the claim is already extinguished due to the Php 1,000 already being 2.   It should be recalled in this connection, that generally, the insured, has little, if
paid. any, participation in the preparation of the policy, together with the drafting
10.   The RTC then ruled that (Take note of this because the SC didn’t really add of its terms and Conditions.
much): 3.   The interpretation of obscure stipulations in a contract should not favor the party
a.   Under the terms of this policy, defendant company agreed to pay who cause the obscurity (Art. 1377, N.C.C.), which, in the case at bar, is the
P1,000.00 to P3,000.00 as indemnity for the death of the insured. The insurance company.
insured died of drowning. 4.   And so it has been generally held that the "terms in an insurance policy, which
b.   Death by drowning is covered by the policy the pertinent provisions of are ambiguous, equivocal or uncertain . . . are to be construed strictly against, the
which reads as follows: Part I of the policy fixes specific amounts as insurer, and liberally in favor of the insured so as to effect the dominant purpose
indemnities in case of death resulting from "bodily injury which is of indemnity or payment to the insured, especially where a forfeiture is
effected solely thru violence, external, visible and accidental means." involved.”
c.   However, Part I of the Policy is not applicable in case of death by 5.   The reason for this rule is that the "insured usually has no voice in the selection
drowning because death by drowning is not one resulting from "bodily or arrangement of the words employed and that the language of the contract is
injury which is affected solely thru violent, external, visible and selected with great care and deliberation by expert and legal advisers employed
accidental means" as "Bodily Injury" means a cut, a bruise, or a wound by, and acting exclusively in the interest of, the insurance company"
and drowning is death due to suffocation and not to any cut, bruise or 6.   Where two interpretations, equally fair, of languages used in an insurance
wound. policy may be made, that which allows the greater indemnity will prevail.
d.   Besides, on the face of the policy Exhibit "A" itself, death by drowning
is a ground for recovery apart from the bodily injury because death by
bodily injury is covered by Part I of the policy while death by drowning
is covered by Part VI thereof.
e.   But while the policy mentions specific amounts that may be recovered
for death for bodily injury, yet, there is not specific amount mentioned
in the policy for death through drowning although the latter is, under
Part VI of the policy, a ground for recovery thereunder.
f.   Since the defendant has bound itself to pay P1000.00 to P3,000.00 as
indemnity for the death of the insured but the policy does not positively
state any definite amount that may be recovered in case of death by
drowning, there is an ambiguity in this respect in the policy, which
ambiguity must be interpreted in favor of the insured and strictly
against the insurer so as to allow greater indemnity.
g.   Therefore, Php 3,000 should be paid. However, in the absence of bad
faith, the attys fees and expenses of litigation cannot be awarded.
11.   Equitable appealed to the CA it just forwarded it to the SC.

ISSUES:
2.   W/N Equitable should pay Php 1000 or Php 3000? Php 3000 because the
ambiguity should be construed in favor of the insured.

RULING: The judgment appealed from is hereby affirmed. Without costs.

 008 SUN INSURANCE v. CA (TIMBOL)
July 17, 1992 | Cruz, J. | Liability of Insurer for Loss
PETITIONER: Sun Insurance Office, LTD
RESPONDENTS: CA and Nerissa Lim
SUMMARY: Felix Lim, Jr. obtained a Personal Accident Policy worth P200,000
with Sun Insurance Office, assigning Nerissa Lim, his wife, as the beneficiary. Two
months later, after Felix’s mother’s birthday party, Lim died with a bullet wound in
his head. According to Nalagon, Lim’s secretary, Lim was playing with his handgun,
from which he had previously removed the magazine. Nalagon asked him to put it
aside but Lim assured her that it was not loaded, and the next moment there was an
explosion. This prompted the wife, Nerissa, to recover from Sun Insurance, which
the RTC allowed and was affirmed by the CA. However, Sun Insurance claims that
there was no accident and that Sun Insurance should not be liable because under the
exception, the company should not be liable for bodily injury consequent upon
committing or attempting to commit suicide or willfully exposing himself to needless
peril except in an attempt to save human life. Hence, the issue before the court.
Whether or not Nerissa Lim may be entitled to receive the proceeds.
The SC held that Nerissa Lim is entitled to receive the proceeds of the Personal
Accident Policy. Lim was unquestionably negligent but this does not bar Nerissa
from claimaing against an accident. There is nothing in the policy that relieves the
insurer of the responsibility to pay the indemnity agreed upon if the insured is shown
to have contributed to his own accident. Neither does the circumstances relieve the
company, because Lim did not willfully expose himself to needless peril. The act
was precisely intended to assure Nalagon that the gun was indeed harmless.
DOCTRINE: There is nothing in the policy that relieves the insurer of the
responsibility to pay the indemnity agreed upon if the insured is shown to have
contributed to his own accident. Indeed, most accidents are caused by negligence.
There are only four exceptions expressly made in the contract to relieve the insurer
from liability, and none of these exceptions (Ratio 11) is applicable in the case at bar
FACTS:
33.   Sun Insurance issued Personal Accident Policy No. 05687 to Felix Lim, Jr.
wih a face value of P200,000
1.   Two months later, he was dead with a bullet wound in his head
34.   As beneficiary, his wife Nerissa Lim sought payment on the policy but her
claim was rejected
1.   Sun Insurance agreed that there was no suicide
2.   It argued, however that there was no accident either
35.   Pilar Nalagon, Lim’s secretary, was the only eyewitness to his death
1.   According to Nalagaon, Lim was in a happy mood (but not drunk)
and was playing with his handgun, from which he had previously
removed the magazine
2.   As she watched television, he stood in front of her and pointed the
gun at her
3.   She pushed it aside and said it might be loaded
4.   He assured her it was not and then pointed it to his temple
5.   The next moment there was an explosion and Lim slumped to the
floor
6.   He was dead before he fell
36.   The widow sued Sun Insurance in the RTC of Zamboanga City and was
sustained. This decision was affirmed on appeal, and the MR was denied.
The Sun Insurance then came to this SC to fault the CA for approving the
payment of the claim and the award of damages
ISSUE/s:
4.   WoN Nerissa can claim– YES, there was an accident, and Felix Lim did not
willfully expose himself in peril. There is nothing in the policy that relieves
the insurer of the responsibility to pay indemnity agreed upon if the insured
is shown to have contributed to his own accident.
RULING: WHEREFORE, the challenged decision of the Court of Appeals is
AFFIRMED in so far as it holds the petitioner liable to the private respondent in the
sum of P200,000.00 representing the face value of the insurance contract, with
interest at the legal rate from the date of the filing of the complaint until the full
amount is paid, but MODIFIED with the deletion of all awards for damages,
including attorney's fees, except the costs of the suit.
RATIO:
23.   The words “accident” and “accidental” have never acquired any technical
signification in law, and when used in an insurance contract are to be
construed and considered according to the ordinary understanding and
common usage and speech of people generally
24.   In-substance, the courts are practically agreed that the words “accident” and
“accidental” mean that which happens by chance or fortuitously, without
intention or design, and which is unexpected, unusual, and unforeseen
25.   The definition that has usually been adopted by the courts is that 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
case, and therefore not expected
26.   An accident is an event which happens without any human agency or, if
happening through human agency, an event which, under the circumstances,
is unusual to and not expected by the person to whom it happens
1.   It has also been defined as an injury which happens by reason of
some violence or casualty to the injured without his design,
consent, or voluntary co-operation
27.   In light of these definitions, the Court is convinced that the incident that
resulted in Lim’s death was indeed an accident
 1.   Sun Insurance invoking the case of De La Cruz v. Capital
Insurance, says that there is no accident when a deliberate act is
performed unless some additional, unexpected, independent and
unforeseen happening occurs which produces or brings about their
injury death
2.   There was such a happening. This was the firing of the gun which
was the additional unexpected and independent and unforeseen
occurrence that led to the isnured person’s death
28.   Sun Insurance also cited an exception that the company shall not be liable in
respect of bodily injury, consequent upon the insured person attempting to
commit suicie or willfully exposing himself to needless peril except in an
attempt to save human life
29.   Sun Insurance also maintains that by the mere act of pointing the gun to his
temple, Lim had willfully exposed himself to needless peril and so came
under the exception. The theory that a gun is per se dangerous and should
therefore be handled cautiously in every case
1.   The SC held that as testified by the seceraty, im had removed
the magazine from the gun and believe it as no longer
danagerous
2.   He expressly assuredher that the gun was not loaded
3.   It is submitted that Lim did not wilfuly expose himself to
needless peril when he pointed the gun to his temple because
the fact is that he thought it was not unsafe to do so
4.   The act was precisely intended to assure Nalagon that the gun
was indeed harmless
30.   Lim was unquestionably negligent and that negligence cost him his own
life. But it should not prevent his widow from recovering from the
insurance policy he obtained precisely against accident
31.   There is nothing in the policy that relieves the insurer of the
responsibility to pay the indemnity agreed upon if the insured is shown
to have contributed to his own accident
32.   Indeed, most accidents are caused by negligence. There are only four
exceptions expressly made in the contract to relieve the insurer from
liability, and none of these exceptions is applicable in the case at bar
33.   Exceptions:
1.   The Company shall not be liable in respect of:
1.   Bodily Injury
1.   Sustained
1.   While the Insured Person is engaging
in (or practicing for or taking part in
training peculiar to) any of the
Excluded Activities
2.   By any person before such person
attains the Lower Age Limit or after
tehe xpiry of the Period of Insurance
during whci such person attains the
Upper Age Limit
2.   Consequent Upon
1.   The Insured Person committing or
attempting to commit suicide or
willfully exposing himself to needless
peril except in an attempt to save
human life
2.   War, invasion, act of foreign enemy,
hostilities (whether war be declared
or not) civil war, rebellion,
revolution, insurrection, or military
or usurped power
2.   Bodily injury or death disablement or medical
expenses consequent upon or contributed to by the
Insured Person
1.   Having taken a drug unless the Insured
proves that the drug was taken in accordance
with proper medical prescription and
directions and not for treatment of drug
addiction
2.   Suffering from pre-existing physical or
mental defect or infirmity which had not been
declared to and accepted in wriitn gby the
Company
3.   Death Disablement or Medical Expenses consequent
upon or contributed to by the Insured Person being
pregnant or suffering from sickness or disease not
resulting from bodily injury due to a gradually
operating cause
4.   Risks of Murder and Assault
34.   It bears noting that insurance contracts are as a rule supposed to be
interpreted liberally in favor of the assured. There is no reason to
deviate from this rule, especially in view of the circumstances of this
case as above analyzed
35.   It is evident that Sun Insurance was acting in good faith then it resisted
Nerissa Lim’s case on the ground that the death of the insured was covered
by the exception
36.   The issue was indeed debatable ad was clearly not raised only for the
purpose of evaiding a legitimate obligation. The Court therefore holds that
the award of mrla and exemplary damages and of attorney’s fees is unjust
and so must be disapproved
37.   In order that a person may be liable to the payment of moral damages, the
law requires that his act be wrongful
1.   The adverse result of an action does not per se make the act
wrongful and subject the act or to the payment of moral damages
2.   The law could not have meant to impose a penalty on the right to
litigate; such right is so precious that moral damages may not be
charged on those who may exercise it erroneously. For these the
law taxes costs
3.   If a party wins, he cannot as a rule, recover attorney’s fees and
litigation expenses, since it is not the fact of winning alone that
entitles him to recover such damages of the exceptional
circumstnaces enumerated in Art. 2208
1.   Otherwise, every time a defendant wins, automatically the
plaintiff must pay attorney’s fees thereby putting a
premium on the right to litigate which should not be so
2.   For those expenses, the law deems the award of costs as
sufficient
 009 GULF RESORT v. PH CHARTER (Escalona edited by Chiqui)
May 16, 2005 | Puno, J. | Liability of insurer for loss
PETITIONER: Gulf Resort Inc.
RESPONDENTS: Philippine Charter Insurance Corporation
SUMMARY: Gulf Resort, Inc. was insured with AHAC, which includes loss or
damage to shock to the two swimming pools insured by a policy occasioned by
or through or in consequence of earthquakes. Gulf Resort then insured its
properties with PCIC based on the same insurance contract they had with
AHAC. Later on, an earthquake struck Central Luzon and Northern Luzon so the
properties and 2 swimming pools in its Agoo Playa Resort were damaged. Gulf
then claimed against PCIC for the damages the earthquake created on its
properties. Gulf's claim was denied on the ground that its insurance policy only
afforded earthquake shock coverage to the two swimming pools of the resort.
Gulf contends that pursuant to a rider, no qualifications were placed on the scope
of the earthquake shock coverage, thus the policy extended earthquake shock
coverage to all of the insured properties. The RTC ruled in favor of PCIC that
the policy only covered the two swimming pools. The CA affirmed the decision
of the RTC. W/N the insurance policy covers the other properties beyond the
two swimming pools – NO, the Court ruled that the insurance policy did not
cover the other properties. The Court first ruled that a stipulation in the contract
cannot be construed piecemeal, such that the contract should be construed as a
whole, including the provisions and riders. They should all be construed together
in order to evidence the intention of the parties of whether they wanted to insure
the other properties against earthquake shocks. The Court held that there was no
intention of the parties to include such because there were no premiums paid for
the other properties against earthquake shocks, apart from the two swimming
pools. This is in consonance with the history of the deletion of the other
properties from insurance against earthquake shocks in the insurance contracts
that Gulf had with AHAC.
DOCTRINE: All 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.
FACTS:
7.   Gulf Resort is the owner of the Plaza Resort situated at Agoo,
La Union and had its properties in said resort insured originally
with the American Home Assurance Company (AHAC). In the
first four insurance policies issued by AHAC, the risk of loss
from earthquake shock was extended only to Gulf Resort’s two
swimming pools. Item 5 in those policies referred to the two
(2) swimming pools only; that subsequently AHAC issued in
Gulf Resort’s favor Policy No. 206-4182383-0 and in said
policy the earthquake endorsement clause was deleted and
the entry under Endorsements/Warranties at the time of issue
read that Gulf Resort renewed its policy with AHAC for the
period of March 14, 1989 to March 14, 1990 under Policy No.
206-4568061-9, which carried the entry under
Endorsement/Warranties at Time of Issue, which read
Endorsement to Include Earthquake Shock in the amount
of P10,700.00 and paid P42,658.14 as premium thereof.
8.   Gulf then insured its properties with PCIC using the exact same
contract it used to have with AHAC. Gulf paid only P393.00 as
premium against earthquake shock.
9.   In all six insurance policies prior to the one with PCIC, the
premium against peril of earthquake shock is the same.
10.  On July 16, 1990, an earthquake struck Central Luzon and
Northern Luzon and Gulf Resort’s properties covered by Policy
No. 31944 issued by PCIC, including the two swimming pools
in its Agoo Playa Resort were damaged.
11.  After the earthquake, Gulf Resort advised PCIC that it would
be making a claim under its Insurance Policy No. 31944 for
damages on its properties. PCIC instructed Gulf Resort to file a
formal claim, then assigned the investigation of the claim to an
independent claims adjuster, Bayne Adjusters and Surveyors,
Inc.
12.  On July 30, 1990, PCIC, through its adjuster, requested Gulf
Resort to submit various documents in support of its claim. On
August 7, 1990, Bayne Adjusters and Surveyors, Inc., through
its Vice-President A.R. de Leon, rendered a preliminary
report finding extensive damage caused by the earthquake
to the clubhouse and to the two swimming pools. Mr. de
Leon stated that except for the swimming pools, all affected
items have no coverage for earthquake shocks.
13.  On August 11, 1990, Gulf Resort filed its form demand for
settlement of the damage to all its properties in the Agoo Playa
Resort. On August 23, 1990, PCIC denied Gulf Resort’s
claim on the ground that its insurance policy only afforded
earthquake shock coverage to the two swimming pools of
 the resort. Gulf Resort and PCIC failed to arrive at a
settlement. Thus, on January 24, 1991, Gulf Resort filed a
complaint with the regional trial court of Pasig.
14.  RTC ruled in favor of the PCIC, stating:
a.   The above schedule clearly shows that plaintiff paid
only a premium of P393.00 against the peril of
earthquake shock, the same premium it paid against
earthquake shock only on the two swimming pools in
all the policies issued by PCIC. From this fact the Court
must consequently agree with the position of PCIC that
the endorsement rider means that only the two
swimming pools were insured against earthquake
shock.
b.   Gulf Resort correctly points out that a policy of
insurance is a contract of adhesion hence, where the
language used in an insurance contract or application is
such as to create ambiguity the same should be resolved
against the party responsible therefor, i.e., the insurance
company which prepared the contract. To the mind of
the Court, the language used in the policy in litigation is
clear and unambiguous hence there is no need for
interpretation or construction but only application of the
provisions therein.
c.   From the above observations the Court finds that only
the two (2) swimming pools had earthquake shock
coverage and were heavily damaged by the earthquake,
which struck on July 16, 1990. PCIC having admitted
that the damage to the swimming pools was appraised
by PCIC’s adjuster at P386,000.00, PCIC must, by
virtue of the contract of insurance, pay Gulf Resort said
amount.
15.  Gulf Resort’s Motion for Reconsideration was denied. Thus,
Gulf Resort filed an appeal with the Court of Appeals. After
review, the appellate court affirmed the decision of the trial
court and ruled, thus:
a.   However, after carefully perusing the documentary
evidence of both parties, We are not convinced that
the last two (2) insurance contracts, which the Gulf
Resort had with PCIC and upon which the subject
insurance contract PCIC is said to have been based
and copied, covered an extended earthquake shock
insurance on all the insured properties.
ISSUES:
2.   WoN the insurance policy covered only the two swimming pools, rather
than all the properties insured, against the risk of an earthquake shock –
YES. Only the two swimming pools are covered because the contract that
reflected the intent of the parties evidenced that only the two swimming
pools were insured against earthquake shocks. This was proven through the
lack of payment of premiums and testimonies of witnesses.
RULING: The judgment of the Court of Appeals is affirmed. The petition
for certiorari is dismissed.
RATIO:
41.  Four key important points in the insurance policy are
important.
a.   in the designation of location of risk, only the two
swimming pools were specified as included, viz:
i.   ITEM 3 — 393,000.00 — On the two (2)
swimming pools only (against the peril of
earthquake shock only)
b.   Under the breakdown for premium payments, it was
stated that:
i.   PREMIUM RECAPITULATION
ITEM NOS. AMNT RATES
PREMIUM 393K 0.100%-
E/S 393.00
c.   Third, Policy Condition No. 6 stated:
i.   This insurance does not cover any loss or
damage occasioned by or through or in
consequence, directly or indirectly of any of the
following occurrences, namely: — Earthquake,
volcanic eruption or other convulsion of nature.
d.   The rider attached to the policy titled, “Extended
Coverage Endorsement (To Include the Perils of
Explosion, Aircraft, Vehicle and Smoke) stated:
ANNUAL PAYMENT AGREEMENT ON
LONG TERM POLICIES
THE INSURED UNDER THIS POLICY HAVING ESTABLISHED
AGGREGATE SUMS INSURED IN EXCESS OF FIVE MILLION
PESOS, IN CONSIDERATION OF A DISCOUNT OF 5% OR 7 %
OF THE NET PREMIUM x x x POLICY HEREBY UNDERTAKES
 TO CONTINUE THE INSURANCE UNDER THE ABOVE
NAMED x x x AND TO PAY THE PREMIUM.
Earthquake Endorsement
In consideration of the payment by the Insured to the Company of the
sum of P. . . . . . . . . . . . . . . . . additional premium the Company
agrees, notwithstanding what is stated in the printed conditions of this
Policy to the contrary, that this insurance covers loss or damage
(including loss or damage by fire) to any of the property insured by
this Policy occasioned by or through or in consequence of
Earthquake.
Provided always that all the conditions of this Policy shall apply
(except in so far as they may be hereby expressly varied) and that any
reference therein to loss or damage by fire should be deemed to apply
also to loss or damage occasioned by or through or in consequence of
Earthquake.
42.  Gulf Resort contends that pursuant to this rider, no
qualifications were placed on the scope of the earthquake
shock coverage. Thus, the policy extended earthquake
shock coverage to all of the insured properties.
43.  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.
44.  Gulf Resort cannot focus on the earthquake shock endorsement
to the exclusion of the other provisions. All the provisions and
riders, taken and interpreted together, indubitably show the
intention of the parties to extend earthquake shock coverage to
the two swimming pools only.
45.  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 indemnify another against loss, damage or
liability arising from an unknown or contingent event. Thus, an
insurance contract exists where the following elements concur:
a.   The insured has an insurable interest;
b.   The insured is subject to a risk of loss by the happening
of the designated peril;
c.   The insurer assumes the risk;
d.   Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons
bearing a similar risk;
e.   In consideration of the insurer's promise, the
insured pays a premium.
46.  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. This is consistent with the history of Gulf
Resort’s previous insurance policies from AHAC.
47.  PCIC, in compliance with the condition set by Gulf Resort,
copied AIU Policy No. 206-4568061-9 in drafting its Insurance
Policy No. 31944. It is true that there was variance in some
terms, specifically in the replacement cost endorsement, but the
principal provisions of the policy remained essentially similar
to AHAC’s policy. Consequently, we cannot apply the "fine
print" or "contract of adhesion" rule in this case as the
parties intent to limit the coverage of the policy to the two
swimming pools only is not ambiguous.
48.   Gulf Resort also cited and relies on the attachment of the phrase "Subject to:
Other Insurance Clause, Typhoon Endorsement, Earthquake Shock
Endorsement, Extended Coverage Endorsement, FEA Warranty & Annual
Payment Agreement on Long Term Policies" to the insurance policy as
proof of the intent of the parties to extend the coverage for earthquake
shock.
a.   However, this phrase is merely an enumeration of the descriptive
titles of the riders, clauses, warranties or endorsements to which
the policy is subject, as required under Section 50, paragraph 2 of
the Insurance Code.
49.   SC also holds that no significance can be placed on the deletion of the
qualification limiting the coverage to the two swimming pools. The
earthquake shock endorsement cannot stand alone.
50.   The Court also rejects Gulf Resort’s contention that PCIC’s
contemporaneous and subsequent acts to the issuance of the insurance
policy falsely gave the Gulf Resort’s assurance that the coverage of the
 earthquake shock endorsement included all its properties in the resort. PCIC
only insured the properties as intended by the Gulf Resort.
a.   The verbal assurances allegedly given by PCIC’s representative
Atty. Umlas were not proved. Atty. Umlas categorically denied
having given such assurances.
b.   But as testified to by the representative of Bayne Adjusters and
Surveyors, Inc., PCIC never meant to lead Gulf Resort to believe
that the endorsement for earthquake shock covered properties other
than the two swimming pools
51.   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 e
cacy 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.
52.   We cannot apply the general rule on contracts of adhesion to the case at bar.
Gulf Resort cannot claim it did not know the provisions of the policy. From
the inception of the policy, Gulf Resort had required the PCIC to copy
verbatim the provisions and terms of its latest insurance policy from
AHAC-AIU.
There were a lot of testimonies used as evidence of showing the intent
of the parties to exclude the other properties from being insured
against earthquake shocks. Here’s the transcript of those testimonies:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
pp. 12-13
Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance policy
during the period from March 4, 1984 to March 4, 1985 the coverage on earthquake shock
was limited to the two swimming pools only?
A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty, there
is a provision here that it was only for item 5.
Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two
swimming pools only?
A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989, did you personally arrange for
the procurement of this policy?
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes.
Q. Is Forte Insurance Agency a department or division of your company?
A. No, sir. They are our insurance agency.
Q. And they are independent of your company insofar as operations are concerned?
A. Yes, sir, they are separate entity.
Q. But insofar as the procurement of the insurance policy is concerned they are of course
subject to your instruction, is that not correct?
A. Yes, sir. The final action is still with us although they can recommend what insurance to
take.
Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14, 1989,
did you give written instruction to Forte Insurance Agency advising it that the earthquake
shock coverage must extend to all properties of Agoo Playa Resort in La Union?
A. No, sir. We did not make any written instruction, although we made an oral instruction to
that effect of extending the coverage on (sic) the other properties of the company.
Q. And that instruction, according to you, was very important because in April 1987 there was
an earthquake tremor in La Union?
A. Yes, sir.
Q. And you wanted to protect all your properties against similar tremors in the [future], is that
correct?
A. Yes, sir.
Q. Now, after this policy was delivered to you did you bother to check the provisions with
respect to your instructions that all properties must be covered again by earthquake shock
endorsement?
A. Are you referring to the insurance policy issued by American Home Assurance Company
marked Exhibit G?
Atty. Mejia: Yes.
Witness:
A. I examined the policy and seeing that the warranty on the earthquake shock endorsement
has no more limitation referring to the two swimming pools only, I was contented already that
the previous limitation pertaining to the two swimming pools was already removed.
Petitioner also cited and relies on the attachment of the phrase Subject to: Other Insurance Clause,
Typhoon Endorsement, Earthquake Shock Endorsement, Extended Coverage Endorsement,
FEA Warranty & Annual Payment Agreement on Long Term Policies to the insurance policy as
proof of the intent of the parties to extend the coverage for earthquake shock. However, this phrase
is merely an enumeration of the descriptive titles of the riders, clauses, warranties or endorsements
to which the policy is subject, as required under Section 50, paragraph 2 of the Insurance Code.
We also hold that no significance can be placed on the deletion of the qualification limiting the
coverage to the two swimming pools. The earthquake shock endorsement cannot stand alone. As
explained by the testimony of Juan Baranda III, underwriter for AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III
TSN, August 11, 1992
pp. 9-12
Atty. Mejia:
We respectfully manifest that the same exhibits C to H inclusive have been previously marked
by counsel for defendant as Exhibit[s] 1-6 inclusive. Did you have occasion to review of (sic)
these six (6) policies issued by your company [in favor] of Agoo Playa Resort?
WITNESS:
Yes[,] I remember having gone over these policies at one point of time, sir.
Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H
respectively carries an earthquake shock endorsement[?] My question to you is, on the basis
on (sic) the wordings indicated in Exhibits C to H respectively what was the extent of the
coverage [against] the peril of earthquake shock as provided for in each of the six (6)
policies?
xxx
WITNESS:
The extent of the coverage is only up to the two (2) swimming pools, sir.
Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?
A. Yes, sir.
ATTY. MEJIA:
What is your basis for stating that the coverage against earthquake shock as provided for in
each of the six (6) policies extend to the two (2) swimming pools only?
WITNESS:
Because it says here in the policies, in the enumeration Earthquake Shock Endorsement, in the
Clauses and Warranties: Item 5 only (Earthquake Shock Endorsement), sir.
ATTY. MEJIA:
Witness referring to Exhibit C-1, your Honor. that we have issued with no specific attachments, premium rates and so on. It was inadvertent,
WITNESS: sir.
We do not normally cover earthquake shock endorsement on stand alone basis. For swimming The Court also rejects petitioners contention that respondents contemporaneous and subsequent acts
pools we do cover earthquake shock. For building we covered it for full earthquake coverage to the issuance of the insurance policy falsely gave the petitioner assurance that the coverage of the
which includes earthquake shock earthquake shock endorsement included all its properties in the resort. Respondent only insured the
COURT: properties as intended by the petitioner. Petitioners own witness testified to this agreement, viz:
As far as earthquake shock endorsement you do not have a specific coverage for other things CROSS EXAMINATION OF LEOPOLDO MANTOHAC
other than swimming pool? You are covering building? They are covered by a general TSN, January 14, 1992
insurance? pp. 4-5
WITNESS: Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did you tell
Earthquake shock coverage could not stand alone. If we are covering building or another we Atty. Omlas (sic) to copy from Exhibit H for purposes of procuring the policy from Philippine
can issue earthquake shock solely but that the moment I see this, the thing that comes to my Charter Insurance Corporation?
mind is either insuring a swimming pool, foundations, they are normally affected by A. I told him that the insurance that they will have to get will have the same provisions as this
earthquake but not by fire, sir. American Home Insurance Policy No. 206-4568061-9.
DIRECT EXAMINATION OF JUAN BARANDA III Q. You are referring to Exhibit H of course?
TSN, August 11, 1992 A. Yes, sir, to Exhibit H.
pp. 23-25 Q. So, all the provisions here will be the same except that of the premium rates?
Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E and F A. Yes, sir. He assured me that with regards to the insurance premium rates that they will be
inclusive [remained] its coverage against earthquake shock to two (2) swimming pools only charging will be limited to this one. I (sic) can even be lesser.
but that Exhibits G and H respectively entend the coverage against earthquake shock to all the CROSS EXAMINATION OF LEOPOLDO MANTOHAC
properties indicated in the respective schedules attached to said policies, what can you say TSN, January 14, 1992
about that testimony of plaintiffs witness? pp. 12-14
WITNESS: Atty. Mejia:
As I have mentioned earlier, earthquake shock cannot stand alone without the other half of it. Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the provisions and
I assure you that this one covers the two swimming pools with respect to earthquake shock scope of coverage of Exhibits I and H sometime in the third week of March, 1990 or
endorsement. Based on it, if we are going to look at the premium there has been no change thereabout?
with respect to the rates. Everytime (sic) there is a renewal if the intention of the insurer was A. Yes, sir, about that time.
to include the earthquake shock, I think there is a substantial increase in the premium. We are Q. And at that time did you notice any discrepancy or difference between the policy wordings
not only going to consider the two (2) swimming pools of the other as stated in the policy. As as well as scope of coverage of Exhibits I and H respectively?
I see, there is no increase in the amount of the premium. I must say that the coverage was not A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that the
broaden (sic) to include the other items. policy wordings and rates were copied from the insurance policy I sent them but it was only
COURT: when this case erupted that we discovered some discrepancies.
They are the same, the premium rates? Q. With respect to the items declared for insurance coverage did you notice any discrepancy
WITNESS: at any time between those indicated in Exhibit I and those indicated in Exhibit H respectively?
They are the same in the sence (sic), in the amount of the coverage. If you are going to do A. With regard to the wordings I did not notice any difference because it was exactly the
some computation based on the rates you will arrive at the same premiums, your Honor. same P393,000.00 on the two (2) swimming pools only against the peril of earthquake shock
CROSS-EXAMINATION OF JUAN BARANDA III which I understood before that this provision will have to be placed here because this
TSN, September 7, 1992 particular provision under the peril of earthquake shock only is requested because this is an
pp. 4-6 insurance policy and therefore cannot be insured against fire, so this has to be placed.
ATTY. ANDRES: The verbal assurances allegedly given by respondents representative Atty. Umlas were not proved.
Would you as a matter of practice [insure] swimming pools for fire insurance? Atty. Umlas categorically denied having given such assurances.
WITNESS: Finally, petitioner puts much stress on the letter of respondents independent claims adjuster, Bayne
No, we dont, sir. Adjusters and Surveyors, Inc. But as testified to by the representative of Bayne Adjusters and
Q. That is why the phrase earthquake shock to the two (2) swimming pools only was placed, Surveyors, Inc., respondent never meant to lead petitioner to believe that the endorsement for
is it not? earthquake shock covered properties other than the two swimming pools, viz:
A. Yes, sir. DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne
ATTY. ANDRES: Adjusters and Surveyors, Inc.)
Will you not also agree with me that these exhibits, Exhibits G and H which you have pointed TSN, January 26, 1993
to during your direct-examination, the phrase Item no. 5 only meaning to (sic) the two (2) pp. 22-26
swimming pools was deleted from the policies issued by AIU, is it not? Q. Do you recall the circumstances that led to your discussion regarding the extent of
xxx coverage of the policy issued by Philippine Charter Insurance Corporation?
ATTY. ANDRES: A. I remember that when I returned to the office after the inspection, I got a photocopy of the
As an insurance executive will you not attach any significance to the deletion of the insurance coverage policy and it was indicated under Item 3 specifically that the coverage is
qualifying phrase for the policies? only for earthquake shock. Then, I remember I had a talk with Atty. Umlas (sic), and I relayed
WITNESS: to him what I had found out in the policy and he confirmed to me indeed only Item 3 which
My answer to that would be, the deletion of that particular phrase is inadvertent. Being a were the two swimming pools have coverage for earthquake shock.
company underwriter, we do not cover. . it was inadvertent because of the previous policies xxx
Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that except for
the swimming pools all affected items have no coverage for earthquake shock?
xxx
A. I based my statement on my findings, because upon my examination of the policy I found
out that under Item 3 it was specific on the wordings that on the two swimming pools only,
then enclosed in parenthesis (against the peril[s] of earthquake shock only), and secondly,
when I examined the summary of premium payment only Item 3 which refers to the
swimming pools have a computation for premium payment for earthquake shock and all the
other items have no computation for payment of premiums.
In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the
general rule that insurance contracts are contracts of adhesion which should be liberally construed in
favor of the insured and strictly against the insurer company which usually prepares it. 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 petitioners knowledge, viz:
DIRECT EXAMINATION OF LEOPOLDO MANTOHAC
TSN, September 23, 1991
pp. 20-21
Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those
facilities in Agoo Playa?
A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine Charter
Insurance Corporation as long as it will follow the same or exact provisions of the previous
insurance policy we had with American Home Assurance Corporation.
Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in the
American Home Insurance policy are to be incorporated in the PCIC policy?
A. Yes, sir.
Q. What steps did you take?
A. When I examined the policy of the Philippine Charter Insurance Corporation I specifically told
him that the policy and wordings shall be copied from the AIU Policy No. 206-4568061-9.
 010 Bonifacio Bros v. Mora (Valle)
29 May 1967 | Castro, J. | Liability of insurer for loss
PETITIONER: Bonifacio Bros. Inc, et al
RESPONDENTS: Enrique Mora et al
SUMMARY:
Mora entered into a policy contract with State Bonding (Insurance company)
covering an Oldsmobile Sedan Model 1956. This was mortgaged to HS Reyes
and HS Reyes was named as beneficiary in the policy. During the effectivity of
the contract, the car got into an accident. The insurance company had Bayne
Adjustment Co for the investigayion and appraisal of the damage done. Mora
also enlisted the help from Bonifacio Bros for the repair of the car. Bonifacio
Bros used the parts of Ayala. Mora was billed 2102.73 for the cost of materials
and labor. The insurance company drew a check payable to Mora or to HS
Reyes. The car was delivered to Mora without paying Bonifacio and Ayala. Now
Bonifacio and Ayala filed this case claiming that they are the ones entitled to the
proceeds of the insurance.
The issue in this case is whether or not Bonifacio and Ayala are entitled to the
proceeds. To answer this issue, we must also answer the question of whether or
nt Bonifacio and Ayala are parties to the insurance contract. In relation to the
topic for class, the issue is whether or not the contention of Bonifacio and Ayala
that the right of HS Reyes as beneficiary to the proceeds arises only if tehre was
loss and not damage. They argue that damage is in this case and not loss.
Bonifacio and Ayala are not parties to the contract because if the parties truly
intended to include them, it should have been shown in the policy. Also, an
insurance contract is between the insured and insurer and a third party has no
rights to the proceeds of it.
The court held that there should be no distinction between loss and damage since
loss necessarily includes damage. Loss is defined as the injury or damage
sustained by the insured in consequence of the happening of one or ore if the
accidents or misfortune against which the insurer, in consideration of the
premium, has undertaen to indemnifty the insured. (Black Law’s dictionary).
DOCTRINE:
Loss in insurance is defined as the injury or damage sustained by the insured in
consequence of the happening of one or ore if the accidents or misfortune against
which the insurer, in consideration of the premium, has undertaen to indemnifty
the insured. (Black Law’s dictionary).
FACTS:
47.   Enrique Mora is the owner of an Oldsmobile Sedan Model 1956 with plate
number QC-8088. This was mortgaged to HS Reyes Inc with the condition
 end
 for
 the
 contents
 of
 the
 policy
that Mora would insure the automobile with HS Reyes as beneficiary.
48.   The car was insured with State Bonding and Insurance Co and motor car
insurance policy was issued to Mora.42
49.   During effectivity of the contract, the car had an accident. The insurance
company assigned the accident to HH Bayne Adjustment Co for
investigation and apparaisal. Mora, without HS Reyes’ knowledge and
consent, authorized Bonifacio Bros to furnish the labor and materials (some
supplied by Ayala Auto Parts).
50.   For the cost of labor and materials, Mora was billed Php 2102.73 through
HH Bayne Adjustment.
51.   The insurane company after claiming a franchise of 100 pesos drew a check
for php 2002.73 as proceeds payable to the order of Mora or HS Reyes and
entrusted the check to HH Bayne for disposition and delivery to the proper
party.
52.   The car was delivered to Mora without the consent of HS Reyes and
without payment to Bonifacio Bros and Ayala.
53.   Bonifacio Bros and Ayala filed a complaint with the Municpal court of
Manila against Mora and State Bonding on the theory that the proceeds be
paid directly to them.
54.   The insurance company filed an answer with counterclaim for interpleader,
requiring Bonifacio and HS Reyes to interplead to determine who has a
better rght to the proceeds. Mora was declared in default.
55.   Municipal court: declared HS Reyes as having better right to the proceeds
and ordered State Bonding to pay
56.   CFI: affirmed the lower court’s decision. Bonifacio and Ayala moved for
reconsideration but was denied. Hence this appeal.
57.   Bonifacio and Ayala argue that the insurance company andMora are parties
to the repair of the car as well as the wages due. They based this argument
on par 4 of the insurance contract (see end of digest). They claim that
Bayne’s recommendation of payment of the bill of materials and repairs for
which Bonifacio and Ayala drew a check indicates that Mora and Bayne
acted and in representation of the insurance company.
58.   Bonifacio and Aayla contend that the right of HS Reyes to the proceeds
arises only if there was loss and not where there is mere damage.
ISSUE/s:
10.   WoN there is privity of contract between Bonifacio and ayala on one hand
and insurance company on another– No. The contract is between the
insurance ompany and Mora. If tehre was any intention to include them, it
should have been stipulated in the contract. But there is none here.
11.   WoN the insurance proceeds arises only if there was loss and not where
there is mere damage as in the instant case – The court held that there
shouldn’t be a distinction between the two words: loss and damage.
Since loss, in insurance law, embraces damage.
See

RULING: Accordingly, the judgment appealed from is hereby affirmed, at
appellants' cost.
RATIO:
53.   The SC held that Bonifacio and Ayala’s argument is beside the
pointbecause from the facts and pleadings, it will be seen that Bonifacio and
Ayala’s cause of action is upon the terms of the insurance contract. They
seek to recover the insurance proceeds and for this purpose, they relyon par
4. They are not mentioned in the contract as parties nor is there any clause
or provision from which the court can infer there is an obligatioj on the part
of the insurance company to pay the cost of repairs directly to them.
54.   It is fundamental that contracts take effect only between the parties thereto.
Except in some specific instances provided by. Law where the contract
contains some stipulation in favor of a third person or a stipulation pour
autrui.
55.   Under this doctrine, a third person is allowed to avail himself of a benefit
granted to him by the terms of the contract, provided that the contracting
parties have clearly and deliberately conferred a favor upon such person.
Consequently a third person not a party to the contract has no action against
the parties thereto, and cannot generally demand the enforcement of the
same.
56.   The fairest test to determine whether the interest of a third person in a
contract is a stipulation pour autrui or merely an incidental interest, is to
rely upon the intention of the parties as disclosed by their contract.
57.   Here, the contract does not contain any words or clauses to disclose the
intent to give any benefit to any repairmen or material men in case of repair.
The parties omitted such stipulation which is a circumstance that supports
the conclusion.
58.   The “loss payable clause” in the policy stipulates that the loss if any is
payable to HS Reyes.
59.   If the insurance company had the intention to make itself liable to the repair
shop or material men, it could have easily inserted a stipulation to that
effect.
60.   A perusal of par 4 would show that instead of establishing privity between
the appellant and the insurance company, such stipulation merely
establishes the procedure that the insured has to follow in order to be
entitled to indemnity for repair. This paragraph therefore should not be
construed as bringing into existence in favor of the appellants a right of
action against the insurance company as such intention can never be
inferred therefrom.
61.   Also, a policy of insurance is a distinct and independent contract
between the insured and insurer, and third persons have no right either
in a court of equity, or in a court of law, to the proceeds of it, unless
there be some contract of trust, expressed or implied, by the insured and
third person.
62.   Here, there is no trust, expressed or implied.
63.   No cause of action exists in favor of Bonifacio and Ayala in so far as the
proceeds are concerned. Their claim, if at all, is merely equitable in nature
and must be made through Mora who entered into a contract with them.
64.   The situation is also covered by sec. 50 of the insurance act which reads:
“The insurance shall be applied exclusively to the proper intrest of the
person in whose name it is made unless otherwise specified in the policy.”
65.   The policy here has been framed that. “Loss if any is payable to HS REYES
INC.” which unmistajably shows the intention of the parties.
ISSUE ABOUT LOSS
66.   Any attempt to draw a distinction between loss and damage is uncalled for
because the word loss in insurance embraces injury or damage.
67.   Loss in insurance is defined as the injury or damage sustained by the
insured in consequence of the happening of one or ore if the accidents or
misfortune against which the insurer, in consideration of the premium, has
undertaen to indemnifty the insured. (Black Law’s dictionary).
68.   A loss may either be total or partial.
"1. The Company (referring to the State Bonding & Insurance Co., Inc) will, subject
to the Limits of Liability, indemnify the Insured against loss of or damages to the
Motor Vehicle and its accessories and spare parts whilst thereon; (a) by accidental
collision or overturning or collision or overturning consequently upon mechanical
breakdown or consequent upon wear and tear.
xxx xxx xxx
2. At its own option the Company may pay in cash the amount of the loss or damage
or may repair, reinstate, or replace the Motor Vehicle or any part thereof or its
accessories or spare parts. The liability of the Company shall not exceed to value of
the parts whichever is the less. The Insured's estimate of value stated in the schedule
will be the maximum amount payable by the Company in respect of any claim for
loss or damage.
xxx xxx xxx
4. The Insured may authorize the repair of the Motor Vehicle necessitated by
damage for which the Company may he liable under this Policy provided that: —
(a) The estimated cost of such repair does not exceed the Authorized Repair
Limit. (b) A detailed estimate of the cost is forwarded to the Company without
delay, subject to the condition that 'Loss, if any, is payable to H.S. Reyes, Inc.', by
virtue of the fact that said Oldsmobile sedan was mortgaged in favor of the said H.S.
Reyes, Inc. and that under a clause in said insurance policy, any loss was made
payable to the H.S. Reyes, Inc. as Mortgagee;
 11 Finman General Assurance v. CA (VARGAS)
1992 September 2 | Nocon, J. | Liability of insurer for loss
PETITIONER: Finman General Assurance Corporation
RESPONDENTS: The Honorable Court of Appeals and Julia Surposa
SUMMARY: Carlie Surposa is insured with Finman under a Personal Accident
Insurance Policy. He died as a result of a stab wound without provocation and
warning on the part of Carlie as he was just waiting for a ride home after
attending the Maskarra Annual Festival. Julia Surposa filed a notice of claim
which denied the claim saying that murder and assault are not within the scope
of the insurance policy since death resulting from murder/assault is not
accidental but rather a deliberate or intentional act. The issue in this case is
WON Finman is liable to pay Julia Surposa the proceeds of personal accident
insurance policy based on the murder of Carlie Surposa. The Court ruled in the
affirmative. 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. 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. In this
case, the insured died from an event that took place without his foresight or
expectation, an event that proceeded from an unusual effect of a known cause
and, therefore, not expected. Neither can it be said that where was a capricious
desire on the part of the accused to expose his life to danger considering that he
was just going home after attending a festival. Furthermore, the personal
accident insurance policy involved herein specifically enumerated only ten (10)
circumstances wherein no liability attaches to petitioner insurance company for
any injury, disability or loss suffered by the insured as a result of any of the
stimulated causes. The principle of " expresso unius exclusio alterius" — the
mention of one thing implies the exclusion of another thing — is therefore
applicable in the instant case since murder and assault, not having been expressly
included in the enumeration of the circumstances that would negate liability in
said insurance policy cannot be considered by implication to discharge the
petitioner insurance company from liability for, any injury, disability or loss
suffered by the insured. It is well settled that contracts of insurance are to be
construed liberally in favor of the insured and strictly against the insurer. Thus
ambiguity in the words of an insurance contract should be interpreted in favor of
its beneficiary.
DOCTRINE: Where the death or injury is not the natural or probable result of
the insured's voluntary act, or if something unforeseen occurs in the doing of the
act which produces the injury, the resulting death is within the protection of the
policies insuring against death or injury from accident.
FACTS:
9.   Characters:
Finman General Assurance Corporation – insurance company
Julia Surposa – assured
Carlie Surposa – insured; deceased
Type of Policy: Personal accident insurance policy
10.   Carlie Surposa was insured with Finman under Finman General Teachers
Protection Plan together with his parents, Sps. Julia and Carlos Surposa, and
brothers.
11.   While said insurance was in full force and effect, the insured Carlie, died a
result of the stab wound inflicted by one of the three unidentified men
without provocation and warning on the part of Carlie as he and his cousin
were waiting for a ride home after attending the celebration of Maskarra
Annual Festival.
12.   Thereafter, private respondent Surosa and other beneficiaries of said policy
filed a written notice of claim with Finman which denied said claim
contending that murder and assault are not within the scope of the coverage
of the insurance policy.
13.   Both the Insurance Commission and the appellate court ruled against
Finman and held that it is liable to pay the proceeds of the policy.
14.   Finman filed this present petition alleging grave abuse of discretion on the
part of the appellate court in applying the principle of expresso unius
exclusion alterius in a personal accident insurance policy since death
resulting from murder/assault are impliedly excluded in said insurance
policy considering that the cause of death was not accidental but rather a
deliberate and intentional act.
ISSUE: WON Finman is liable to pay Julia Surposa the proceeds of personal
accident insurance policy based on the murder of Carlie Surposa – YES. Where the
death or injury is not the natural or probable result of the insured's voluntary act, or if
something unforeseen occurs in the doing of the act which produces the injury, the
resulting death is within the protection of the policies insuring against death or injury
from accident.
RULING: WHEREFORE, finding no irreversible error in the decision of the
respondent Court of Appeals, the petition for certiorari with restraining order and
preliminary injunction is hereby DENIED for lack of merit.
RATIO:
69.   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.
70.   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. In other words, where the death or injury
is not the natural or probable result of the insured's voluntary act, or if
something unforeseen occurs in the doing of the act which produces the
injury, the resulting death is within the protection of the policies insuring
against death or injury from accident.
71.   In the case at bar, it cannot be pretended that Carlie Surposa died in the
course of an assault or murder as a result of his voluntary act considering
the very nature of these crimes. In the first place, the insured and his
companion were on their way home from attending a festival. They were
confronted by unidentified persons. The record is barren of any
circumstance showing how the stab wound was inflicted. Nor can it be
pretended that the malefactor aimed at the insured precisely because the
killer wanted to take his life. In any event, while the act may not exempt the
unknown perpetrator from criminal liability, the fact remains that the
happening was a pure accident on the part of the victim. The insured died
from an event that took place without his foresight or expectation, an
event that proceeded from an unusual effect of a known cause and,
therefore, not expected. Neither can it be said that where was a
capricious desire on the part of the accused to expose his life to danger
considering that he was just going home after attending a festival.
72.   Furthermore, the personal accident insurance policy involved herein
specifically enumerated only ten (10) circumstances wherein no liability
attaches to petitioner insurance company for any injury, disability or loss
suffered by the insured as a result of any of the stimulated causes. The
principle of " expresso unius exclusio alterius" — the mention of one thing
implies the exclusion of another thing — is therefore applicable in the
instant case since murder and assault, not having been expressly included in
the enumeration of the circumstances that would negate liability in said
insurance policy cannot be considered by implication to discharge the
petitioner insurance company from liability for, any injury, disability or loss
suffered by the insured. Thus, the failure of the petitioner insurance
company to include death resulting from murder or assault among the
prohibited risks leads inevitably to the conclusion that it did not intend to
limit or exempt itself from liability for such death.
73.   Article 1377 of the Civil Code of the Philippines provides that the
interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity. Moreover, it is well settled that
contracts of insurance are to be construed liberally in favor of the insured
and strictly against the insurer. Thus ambiguity in the words of an insurance
contract should be interpreted in favor of its beneficiary.
 012 FORTUNE INSURANCE v. CA (VICENCIO)
May 23, 1995 | Davide, Jr., J. | Liability of insurer for loss
PETITIONER: Fortune Insurance and Surety Co., Inc.
RESPONDENTS: Court of Appeals, and Producers Bank of the Philippines
SUMMARY: Producers Bank was insured by Fortune Insurance through a theft or
robbery insurance policy. During the term of the policy, an armored car of Producer,
while in the process of transferring cash under the custoy of its teller, from its Pasay
Branch to its Head Office in Makati, was robbed of the said cash. The armored car
was escorted by Security Guard Atiga (assigned by Unicorn Security Services), and
was driven by Driver Magalong (assigned by PRC Managament Systems). After an
investigation, Guard Atiga and Driver Magalong, were charged, together with a few
others for violation of PD 532 (Anti-Highway Robbery Law). Fortune refused to pay
as the loss is excluded from the coverage of the insurance policy which excludes:
“any loss caused by any dishonest, fraudulent or criminal act of the insured or any
officer, employee, partner, director, trustee or authorized representative of the
Insured whether acting alone or in conjunction with others.” The trial court ruled in
favor of Producers. It held that their services were merely offered by PRC
Managament and Unicorn Services and assigned by them to Producers. Fortune
however insists that under the four-fold test, it is Producers who exercises control
over the Atiga and Magalong, and that PRC Management Systems and Unicorn
Services are only labor-only contractors. The CA however, affirmed the TC decision.
The SC sides with Fortune. Although there is paucity in evidence in saying that PRC
and Unicorn are labor-only contractors, and hence it may not be said with clearness
that Atiga and Magalong were indeed “employees” of Producers, the Court held that
regardless, they are undoubtedly under the “authorized representatives” part of the
exception clause. Producers entrusted the three (with the teller Alampay) with the
specific duty to safely transfer the money to its head office, with Alampay to be
responsible for its custody in transit; Magalong to drive the armored vehicle which
would carry the money; and Atiga to provide the needed security for the money, the
vehicle, and his two other companions.
DOCTRINE: It has been aptly observed that in burglary, robbery, and theft
insurance, the opportunity to defraud the insurer — the moral hazard — is so great
that insurers have found it necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard. Persons frequently excluded under
such provisions are those in the insured’s service and employment. The purpose of
the exception is to guard against liability should the theft be committed by one
having unrestricted access to the property. In such cases, the terms specifying the
excluded classes are to be given their meaning as understood in common speech. The
terms “service” and “employment” are generally associated with the idea of
selection, control, and compensation.
FACTS:
37.   Producers Bank of the Philippines (Producer) was insured by defendant
Fortune Insurance and Surety Co., Inc. (Fortune) and an insurance policy
was issued.
38.   An armored car of the Producer, while in the process of transferring cash in
the sum of P725,000.00 under the custody of its teller, Maribeth Alampay,
from its Pasay Branch to its Head Office at Makati, Metro Manila on June
29, 1987, was robbed of the said cash. The robbery took place while the
armored car was traveling along Taft Avenue in Pasay City;
39.   The said armored car was driven by Benjamin Magalong Y de Vera,
escorted by Security Guard Saturnino Atiga Y Rosete. Driver Magalong
was assigned by PRC Management Systems with the Producers by virtue of
an Agreement.
40.   The Security Guard Atiga was assigned by Unicorn Security Services, Inc.
with the Producers by virtue of a contract of Security Service.
41.   After an investigation conducted by the Pasay police authorities, the driver
Magalong and guard Atiga were charged, together with Edelmer Bantigue
Y Eulalio, Reynaldo Aquino and John Doe, with violation of P.D. 532
(Anti-Highway Robbery Law) before the Fiscal of Pasay City.
42.   The Fiscal of Pasay City then filed an information charging the aforesaid
persons with the said crime before RTC of Pasay City. The case is still
being tried as of this date;
43.   Demands were made by the Producers upon the defendant Fortune to pay
the amount of the loss of P725,000.00, but the latter refused to pay as the
loss is excluded from the coverage of the insurance policy, specifically
under page 1 thereof, "General Exceptions" Section (b),
44.   The said section reads as follows: “any loss caused by any dishonest,
fraudulent or criminal act of the insured or any officer, employee, partner,
director, trustee or authorized representative of the Insured whether acting
alone or in conjunction with others”
45.   Producers opposes the contention of the Fortune and contends that Atiga
and Magalong are not “its officer, employee, trustee or authorized
representative, at the time of the robbery.”
46.   The Trial Court rendered a decision in favor of Producers, ordering Fortune
to pay the net amount of Php 540,000 as liability under the policy, with
special clause deductions.
47.   The TC ruled that Magalong and Atiga were not employees or
representatives of Producers.
48.   The Court is satisfied that Producers may not be said to have selected and
engaged Magalong and Atiga, their services as armored car driver and as
security guard having been merely offered by PRC Management and by
Unicorn Security and which latter firms assigned them to Producers. The
wages and salaries of both Magalong and Atiga are presumably paid by
their respective firms, which alone wields the power to dismiss them.
49.   Neither is the Court prepared to accept the proposition that driver Magalong
and guard Atiga were the "authorized representatives" of Producers. They
 were merely an assigned armored car driver and security guard,
respectively, for the June 29, 1987 money transfer from plaintiff's Pasay
Branch to its Makati Head Office.
50.   Quite plainly — it was teller Maribeth Alampay who had "custody" of the
P725,000.00 cash being transferred along a specified money route, and
hence plaintiff's then designated "messenger" adverted to in the policy.
51.   The CA affirmed the decision in toto, saying that the language used by
defendant-appellant in the above quoted stipulation is plain, ordinary and
simple. No other interpretation is necessary. The word "employee" must be
taken to mean in the ordinary sense.
52.   Said driver and security guard cannot be considered as employees of
Producers bank because it has no power to hire or to dismiss said driver and
security guard under the contracts except only to ask for their replacements
from the contractors.
53.   According to Fortune, when Producers commissioned a guard and a driver
to transfer its funds from one branch to another, they effectively and
necessarily became its authorized representatives in the care and custody of
the money. Assuming that they could not be considered authorized
representatives, they were, nevertheless, employees of Producers.
54.   It asserts that the existence of an employer-employee relationship "is
determined by law and being such, it cannot be the subject of agreement."
55.   Thus, if there was in reality an employer-employee relationship between
Producers, on the one hand, and Magalong and Atiga, on the other, the
provisions in the contracts of Producers with PRC Management System for
Magalong and with Unicorn Security Services for Atiga which state that
Producers is not their employer and that it is absolved from any liability as
an employer, would not obliterate the relationship.
56.   Fortune points out that an employer-employee relationship depends upon
four standards: (1) the manner of selection and engagement of the putative
employee; (2) the mode of payment of wages; (3) the presence or absence
of a power to dismiss; and (4) the presence and absence of a power to
control the putative employee's conduct.
57.   Of the four, the right-of-control test has been held to be the decisive factor.
It asserts that the power of control over Magalong and Atiga was vested in
and exercised by Producers. Fortune further insists that PRC Management
System and Unicorn Security Services are but "labor-only" contractors
under Article 106 of the Labor Code.
58.   Fortune thus contends that Magalong and Atiga were employees of
Producers, following the ruling in International Timber Corp. vs. NLRC that
a finding that a contractor is a "labor-only" contractor is equivalent to a
finding that there is an employer-employee relationship between the owner
of the project and the employees of the "labor-only" contractor.
ISSUE/s:
5.   WoN the Fortune Insurance is liable under the Money, Security and Payroll
Robbery policy it issued to Producers Bank – NO, because Fortune is
exempt from liability under the general exceptions clause of the insurance
policy.
RULING: WHEREFORE , the instant petition is hereby GRANTED. The decision
of the Court of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that
of Branch 146 of the Regional Trial Court of Makati in Civil Case No. 1817 are
REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is
DISMISSED.
RATIO:
38.   It should be noted that the insurance policy entered into by the parties is a
theft or robbery insurance policy which is a form of casualty insurance.
Section 174 of the Insurance Code provides:
1.   Sec. 174. Casualty insurance is insurance covering loss or liability
arising from accident or mishap, excluding certain types of loss
which by law or custom are considered as falling exclusively
within the scope of insurance such as fire or marine. It includes,
but is not limited to, employer's liability insurance, public liability
insurance, motor vehicle liability insurance, plate glass
insurance, burglary and theft insurance, personal accident and
health insurance as written by non-life insurance companies, and
other substantially similar kinds of insurance.
39.   It has been aptly observed that in burglary, robbery, and theft insurance,
“the opportunity to defraud the insurer — the moral hazard — is so great
that insurers have found it necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard. Seldom does the insurer
assume the risk of all losses due to the hazards insured against.”
40.   Persons frequently excluded under such provisions are those in the
insured’s service and employment. The purpose of the exception is to guard
against liability should the theft be committed by one having unrestricted
access to the property. In such cases, the terms specifying the excluded
classes are to be given their meaning as understood in common speech. The
terms “service” and “employment” are generally associated with the idea of
selection, control, and compensation.
41.   A contract of insurance is a contract of adhesion, thus any ambiguity therein
should be resolved against the insurer, or it should be construed liberally in
favor of the insured and strictly against the insurer.
42.   Limitations of liability should be regarded with extreme jealousy and must
be construed in such a way, as to preclude the insurer from non-compliance
with its obligation.
43.   It goes without saying then that if the terms of the contract are clear and
unambiguous, there is no room for construction and such terms cannot be
enlarged or diminished by judicial construction.
44.   With the foregoing principles in mind, it may now be asked whether
Magalong and Atiga qualify as employees or authorized representatives of
Producers under paragraph (b) of the general exceptions clause of the policy
 which, for easy reference, is again quoted: “any loss caused by any vehicle which would carry the money; and Atiga to provide the needed
dishonest, fraudulent or criminal act of the insured or any officer, employee, security for the money, the vehicle, and his two other companions.
partner, director, trustee or authorized representative of the Insured whether 54.   In short, for these particular tasks, the three acted as agents of
acting alone or in conjunction with others.” Producers. A "representative" is defined as one who represents or
45.   There is marked disagreement between the parties on the correct meaning of stands in the place of another; one who represents others or another in
the terms "employee" and "authorized representatives." a special capacity, as an agent, and is interchangeable with "agent."
46.   It is clear to us that insofar as Fortune is concerned, it was its intention
to exclude and exempt from protection and coverage losses arising
from dishonest, fraudulent, or criminal acts of persons granted or
having unrestricted access to Producers' money or payroll.
47.   When it used then the term "employee," it must have had in mind any
person who qualifies as such as generally and universally understood,
or jurisprudentially established in the light of the four standards in the
determination of the employer-employee relationship, or as statutorily
declared even in a limited sense as in the case of Article 106 of the
Labor Code which considers the employees under a "labor-only"
contract as employees of the party employing them and not of the party
who supplied them to the employer.
48.   Fortune claims that Producers’ contracts with PRC Management Systems
and Unicorn Security Services are "labor-only" contracts.
49.   Producers, however, insists that by the express terms thereof, it is not the
employer of Magalong.
50.   Notwithstanding such express assumption of PRC Management Systems
and Unicorn Security Services that the drivers and the security guards each
shall supply to Producers are not the latter's employees, it may, in fact, be
that it is because the contracts are, indeed, "labor-only" contracts.
51.   Whether they are is, in the light of the criteria provided for in Article
106 of the Labor Code, a question of fact. Since the parties opted to
submit the case for judgment on the basis of their stipulation of facts
which are strictly limited to the insurance policy, the contracts with PRC
Management Systems and Unicorn Security Services, the complaint for
violation of P.D. No. 532, and the information therefor filed by the City
Fiscal of Pasay City, there is a paucity (insuffiency) of evidence as to
whether the contracts between Producers and PRC Management
Systems and Unicorn Security Services are "labor-only" contracts.
52.   But even granting for the sake of argument that these contracts were
not "labor-only" contracts, and PRC Management Systems and Unicorn
Security Services were truly independent contractors, we are satisfied that
Magalong and Atiga were, in respect of the transfer of Producer's
money from its Pasay City branch to its head office in Makati, its
"authorized representatives" who served as such with its teller
Maribeth Alampay.
53.   Howsoever viewed, Producers entrusted the three with the specific duty
to safely transfer the money to its head office, with Alampay to be
responsible for its custody in transit; Magalong to drive the armored
 013 DBP POOL v. RADIO MINDANAO (Villavicencio)
January 27, 2006 | Austria-Martinez, J. | Liability of insurer for loss
PETITIONER: DBP POOL OF ACCREDITED INSURANCE COMPANIES
RESPONDENTS: RADIO MINDANAO NETWORK,
INC.
 military or usurped power.
SUMMARY: Radio Mindanao was insured by fire insurance policies from
Provident and DBP Pool for its equipment and transmitter facilities. Radio Mindanao
station located in SSS Building, Bacolod City, was razed by fire. Radio Mindanao
sought recovery under the two insurance policies but the claims were denied on the
ground that the cause of loss was an excepted risk that the loss or damage was
because of rebellion, specifically the insurance companies maintained that the
evidence showed that the fire was caused by members of the Communist Party of the
Philippines/New Peoples Army. Radio Mindanao filed Civil Case No. 90-602
against DBP Pool and Provident for the proceeds of the insurance policies. RTC and
CA ruled in favor of Radio Mindanao because there is no evidence to prove the
attack of the CPP/NPA. WoN the burden of proof rests upon the insured to prove
that it is not part of the excepted risk – NO, an insurer seeking to defeat a claim
because of an exception or limitation in the policy has the burden of proving that the
loss comes within the purview of the exception or limitation set up. It is sufficient for
Radio Mindanao to prove the fact of damage or loss. Once Radio Mindanao makes
out a prima facie case in its favor, the duty or the burden of evidence shifts DBP
Pool to controvert Radio Mindanao prima facie case. It is only when DBP Pool has
sufficiently proven that the damage or loss was caused by an excepted risk does the
burden of evidence shift back to Radio Mindanao who is then under a duty of
producing evidence to show why such excepted risk does not release DBP Pool from
any liability.
DOCTRINE: An insurer seeking to defeat a claim because of an exception or
limitation in the policy has the burden of proving that the loss comes within the
purview of the exception or limitation set up.
FACTS:
1.   Radio Mindanao owns several broadcasting stations all over the country.
2.   Provident covered Radio Mindanao’s transmitter equipment and generating set
for the amount of P13,550,000.00 under Fire Insurance Policy No. 30354.
3.   DBP Pool covered respondents transmitter, furniture, fixture and other
transmitter facilities for the amount of P5,883,650.00 under Fire Insurance
Policy No. F-66860.
4.   Radio Mindanao station located in SSS Building, Bacolod City, was razed by
fire causing damage in the amount of P1,044,040.00.
5.   Radio Mindanao sought recovery under the two insurance policies but the
claims were denied on the ground that the cause of loss was an excepted risk
excluded under condition no. 6 (c) and (d), to wit:
6.   This insurance does not cover any loss or damage occasioned by or through or in
consequence, directly or indirectly, of any of the following consequences,
namely:
(c)War, invasion, act of foreign enemy, hostilities, or warlike operations
(whether war be declared or not), civil war.
(d) Mutiny, riot, military or popular rising, insurrection, rebellion, revolution,
7.   The insurance companies maintained that the evidence showed that the fire was
caused by members of the Communist Party of the Philippines/New Peoples
Army (CPP/NPA); and consequently, denied the claims.
8.   Radio Mindanao filed Civil Case No. 90-602 against DBP Pool and Provident
for the proceeds of the insurance policies.
9.   Regional Trial Court of Makati, Branch 138, rendered a decision in favor of
Radio Mindanao, ordered insurance companies to pay.
10.   CA affirmed the decision, with the modification that the applicable interest rate
was reduced to 6% per annum.
11.   The only evidence which the Court can consider to determine if the fire was due
to the intentional act committed by the members of the New Peoples Army
(NPA), are the testimony [sic] of witnesses Lt. Col. Nicolas Torres and SPO3
Leonardo Rochar who were admittedly not present when the fire occurred.
12.   They were informed by bystanders that heavily armed men entered the
transmitter house, poured gasoline in (sic) it and then lighted it. After that, they
went out shouting Mabuhay ang NPA.
13.   The persons whom they investigated and actually saw the burning of the station
were not presented as witnesses.
14.   The documentary evidence particularly Exhibits 5 and 5-C do not satisfactorily
prove that the author of the burning were members of the NPA.
15.   Exhibit 5-B which is a letter released by the NPA merely mentions some
dissatisfaction with the activities of some people in the media in Bacolod. There
was no mention there of any threat on media facilities.
16.   Even SFO III Rochas admitted that he was not sure that the said armed men
were members of the CPP-NPA
17.   In fact the only person who seems to be so sure that that the CPP-NPA had a
hand in the burning of DYHB was Lt. Col. Nicolas Torres.
18.   We cannot nevertheless admit his testimony as conclusive proof that the CPP-
NPA was really involved in the incident considering that he admitted that he did
not personally see the armed men even as he tried to pursue them.
19.   Anent the letter of a certain Celso Magsilang, who claims to be a member of
NPA-NIROC, being an admission of person which is not a party to the present
action, is likewise inadmissibl
20.   The reason being that an admission is competent only when the declarant, or
someone identified in legal interest with him, is a party to the action.
ISSUE/s:
6.   WoN the fire was caused by an excepted risk, thus the insurance companies are
not liable – NO, because evidence failed to show that the fire was indeed caused
by NPA members as the evidence were mere hearsay.
7.   WoN the burden of proof rests upon the insured to prove that it is not part of the
excepted risk – NO, an insurer seeking to defeat a claim because of an exception
or limitation in the policy has the burden of proving that the loss comes within
the purview of the exception or limitation set up. It is sufficient for Radio
Mindanao to prove the fact of damage or loss. Once Radio Mindanao makes out
a prima facie case in its favor, the duty or the burden of evidence shifts DBP
Pool to controvert Radio Mindanao prima facie case. It is only when DBP Pool
has sufficiently proven that the damage or loss was caused by an excepted risk
does the burden of evidence shift back to Radio Mindanao who is then under a
duty of producing evidence to show why such excepted risk does not release
DBP Pool from any liability.
RULING: WHEREFORE, the petition is DISMISSED. The Court of Appeals
Decision dated November 16, 2000 and Resolution dated January 30, 2001 rendered
in CA-G.R. CV No. 56351 are AFFIRMED in toto.
RATIO:
55.   Both the trial court and the CA were correct in ruling that petitioner failed to
prove that the loss was caused by an excepted risk.
56.   DBP Pool argues that Radio Mindanao is responsible for proving that the cause
of the damage/loss is covered by the insurance policy, as stipulated in the
insurance policy, to wit:
Any loss or damage happening during the existence of abnormal conditions
(whether physical or otherwise) which are occasioned by or through in
consequence directly or indirectly, of any of the said occurrences shall be
deemed to be loss or damage which is not covered by the insurance, except to
the extent that the Insured shall prove that such loss or damage happened
independently of the existence of such abnormal conditions.
In any action, suit or other proceeding where the Companies allege that by
reason of the provisions of this condition any loss or damage is not covered by
this insurance, the burden of proving that such loss or damage is covered shall
be upon the Insured.
57.   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.
58.   The burden of proof contemplated by the aforesaid provision actually refers to
the burden of evidence (burden of going forward).As applied in this case, it
refers to the duty of the insured to show that the loss or damage is covered by
the policy.
59.   The foregoing clause notwithstanding, the burden of proof still rests upon DBP
Pool to prove that the damage or loss was caused by an excepted risk in order to
escape any liability under the contract.
60.   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.
61.   an insurer seeking to defeat a claim because of an exception or limitation in
the policy has the burden of proving that the loss comes within the purview
of the exception or limitation set up. If a proof is made of a loss apparently
within a contract of insurance, the burden is upon the insurer to prove 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.
62.   Consequently, it is sufficient for Radio Mindanao to prove the fact of damage or
loss. Once Radio Mindanao makes out a prima facie case in its favor, the duty or
the burden of evidence shifts DBP Pool to controvert Radio Mindanao prima
facie case.
63.   It is only when DBP Pool has sufficiently proven that the damage or loss was
caused by an excepted risk does the burden of evidence shift back to Radio
Mindanao who is then under a duty of producing evidence to show why such
excepted risk does not release DBP Pool from any liability.
64.   Unfortunately for DBP Pool, it failed to discharge its primordial burden of
proving that the damage or loss was caused by an excepted risk.
Res Gestae
1.   DBP Pool argues that the trial court and the CA erred in not appreciating the
reports of witnesses Lt. Col Torres and SFO II Rochar that the bystanders they
interviewed claimed that the perpetrators were members of the CPP/NPA as an
exception to the hearsay rule as part of res gestae.
2.   Res gestae, as an exception to the hearsay rule, refers to those exclamations and
statements made by either the participants, victims, or spectators to a crime
immediately before, during, or after the commission of the crime, when the
circumstances are such that the statements were made as a spontaneous reaction
or utterance inspired by the excitement of the occasion and there was no
opportunity for the declarant to deliberate and to fabricate a false statement.
3.   The rule in res gestae applies when the declarant himself did not testify and
provided that the testimony of the witness who heard the declarant complies
with the following requisites: (1) that the principal act, the res gestae, be a
startling occurrence; (2) the statements were made before the declarant had the
time to contrive or devise a falsehood; and (3) that the statements must concern
the occurrence in question and its immediate attending circumstances.
4.   The Court is not convinced to accept the declarations as part of res gestae.
5.   it cannot be said however, that these utterances were made spontaneously by
the bystanders and before they had the time to contrive or devise a falsehood.
6.   Both SFO III Rochar and Lt. Col. Torres received the bystanders statements
while they were making their investigations during and after the fire. It is
reasonable to assume that when these statements were noted down, the
bystanders already had enough time and opportunity to mill around, talk to one
another and exchange information, not to mention theories and speculations, as
is the usual experience in disquieting situations where hysteria is likely to take
place. It cannot therefore be ascertained whether these utterances were the
 products of truth.
7.   Furthermore, admissibility of evidence should not be equated with its weight
and sufficiency. Admissibility of evidence depends on its relevance and
competence
8.   These declarations should be calibrated vis--vis the other evidence on record.
9.   The documentary evidence presented by DBP Pool, i.e., (1) the police blotter;
(2) the certification from the Bacolod Police Station; and (3) the Fire
Investigation Report, none of these documents categorically stated that the
perpetrators were members of the CPP/NPA.
10.   All these documents show that indeed, the suspected executor of the fire were
believed to be members of the CPP/NPA.But suspicion alone is not sufficient,
preponderance of evidence being the quantum of proof.
 014 FGU INSURANCE v. CA (Yap)
Date | Justice, J. | Liability of Insurer for Loss
PETITIONER: FGU Insurance
RESPONDENTS: San Miguel Corporation (SMC), Estate of Ang Gui
represented by Lucid, Julian and Jaime Ang
SUMMARY: SMC contracted with ANCO to carry, via its barge and tugboat,
cases of Pale Pilsen and Cerveza Negra from Mandaue City, Cebu to Iloilo and
Antique. When the boats arrived in Antique, the tugboat left the barge. At that
time, the clouds over the area were already dark and the waves were already big.
The arrestre workers were likewise having a hard time unloading the cases onto
the dock. SMC’s district sales supervisor advised ANCO’s representative to
move the barge to a safer place, but the latter was confident that the barge could
withstand the waves. When the barge’s rope attached to the wharf was cut due to
the waves, the workers abandoned the vessel, which run aground and was broken
and the cargoes of beer were swept away. SMC filed a case for breach of
contract against ANCO (now represented by the Estate of Ang Gui, one of the
partners). ANCO argues that the loss was caso fortuito, and that FGU Insurane is
the party liable to SMC for the lost cases. FGU counters that ANCO failed to
exercise the diligence of a good father of a family in the care and supervision of
the cases of beer. The RTC and CA ruled the ANCO was blatantly negligent, but
that FGU Insurance is still liable for 53% due to partial loss. Hence, this petition.
The pertinent issue is whether FGU Insurance is liable.
The SC ruled in the negative. First, there is no res judicata (with the original
case) in this petition for certiorari from the third-party complaint since the issues
discussed in the original case did not touch on the issues herein: negligence of
ANCO and its liability, and the liability of FGU. Second, there was no caso
fortuito since the event herein was neither unforeseen (ie., signs of the
impending storm were already present) nor unavoidable (ie., the barge could
have been moved to a safer place). Third, the records clearly show ANCO’s
failure to exercise the extraordinary diligence mandated by law for common
carriers. Fourth, the US Supreme Court’s ruling in Standard Marine Insurance
v. Nome Beach (ie., that ordinary negligence of the insured’s agents is part of the
risk assumed by the insurer, but the insurer is exonerated when such negligence
amounts to gross negligence, misconduct, or wrongful acts) is applicable herein.
Here, both the trial court and the CA concluded from the evidence that ANCO
was indeed blatantly (ie., grossly) negligent.
DOCTRINE: While mistake and negligence of the master or crew are incident
to navigation and constitute 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.
FACTS:
59.   Parties:
a.   Estate of Ang Gui – owner of ANCO (partnership engaged in the
shipping business)
b.   San Miguel Corporation (SMC) – shipper-consignee
c.   FGU Insurance – insurer of SMC
60.   SMC contracted ANCO, via its barge and tugboat, to deliver case of Pale
Pilsen and Cerveza Negra from Mandaue City to Iloilo and Antique.
a.   When the boats arrived in Antique, the tugboat left the barge
(which did not have its own).
b.   That afternoon, the clouds over the area were dark and the waves
were already big. The arrastre workers unloading the cargoes of
SMS were already complainting about the difficulty in unloading
the cargo, so SMC’s district sales supervisor requested ANCO’s
representative to transfer the barge to a safer place because the
vessel might not be able to withstand the big waves.
c.   ANCO’s representative was, however, confident that the barge
could withstand the waves.
d.   At that time, only ANCO’s barge was left at the wharf, the rest of
the boats already left to seek shelter.
e.   Later on, the crew abandoned the vessel since the barge’s rope
attached to the wharf was cut off by the big waves – the barge run
aground and was broken and the cargoes of beer in the barge were
swept away. Only 10,790 (out of 40,550) cases of beer were
discharged into the custody of the arrastre operator.
61.   SMC filed a complaint for breach of contract against ANCO. The
partnership was dissolved due to Ang Gui’s death, so the Estate now
represents ANCO in the case.
a.   ANCO, although admitting that the cases were indeed loaded on
the vessel, argues that it had agreed with SMC that the former
would not be liable for any loss or damage resulting to the cargoes
by reason of fortuitous event, and that FGU Insurance insured
20,000 cases under a Marine Insurance Policy. ANCO alleged that
to expect them to leave the wharf “was like advising the fish to jum
from the frying pan into the fire and an advice that borders on
madness.” Hence, ANCO filed a third-party complaint against
FGU Insurance.
b.   FGU Insurance counters that it is liable to SMC for only 3
situations: (1) total loss of the entire shipment; (2) loss of any case
asa result of the sinking of the vessel; or (3) loss as a result of the
vessel being on fire. FGU alleged that ANCO failed to exercise the
diligence of a good father of the family in the care and supervision
of the cargoes insured to prevent its loss and/or destruction. Hence,
FGU Insurance filed a motion to dismiss.
62.   RTC found that the cargoes were lost due to fortuitous event, but there was
failure on ANCO’s part to observe the degree of diligence required that
 would exonerate them from liability. However, FGU Insurance would be
liable for 53% since there was partial loss. CA affirmed in toto.
63.   Hence, this petition.
ISSUE/s:
12.   Whether the doctrine of res judicata applies – NO, because the former
decision did not pass upon the issues raised in the instance case.
13.   Whether FGU Insurance is liable to SMC – NO, because the gross
negligence of ANCO exonerated FGU Insurance’s liability.
RULING: CA decision is AFFIRMED with MODIFICATION dismissing the third-
party complaint (against FGU Insurance).
RATIO:
74.   The doctrine of res judicata DOES NOT apply herein.
a.   Since the case at bar arose from the same incident involved in Civil
Case No. R-19341, only findings with respect to matters passed
upon by the court in the former judgment are conclusive in the
disposition of the instant case.
b.   The former case ruled on the following matters: (1) that the barge
before and during the voyage was seaworthy (2) that there was
proper notice of loss made by ANCO within the reglementary
period and (3) that the barge was a constructive total loss.
c.   Said decision, however, did not pass upon the issue regarding the
liability of ANCO for the loss of the cargoes. Neither did the court
pass upon the issue of the alleged negligence of the crewmembers
of the barge being the cause of the loss of the cargoes owned by
SMC.
75.   FGU Insurance is exonerated from liability.
a.   ANCO admitted that they failed to deliver to the designated
consignee the cases of beer.
b.   The gross negligence of ANCO is found on the following facts:
i.   The barge did not have its own engine, yet the tugboat left
it to fend for itself notwithstanding the fact that as the
vessels arrived in Antique, signs of the impending storm
were already manifest.
ii.   SMC’s district sale supervisor already requested the barge
to transfer to a safer place, but ANCO’s representative
faied to do so.
iii.   Transferring to another place “was not like asking a fish
to jump out the frying pan and into the fire” since the
other boats were able to move safely to Malandong, 5km
from the wharf where the barge remained.
c.   There is no caso fortuito since the event herein was neither
unforeseen (ie., signs of the impending storm were already present)
nor unavoidable (ie., the barge could have been moved to a safer
place).
d.   While the loss of the cargoes was admittedly caused by Typhoon
Sisang, a natural disaster, ANCO could not escape liability to
respondent SMC – the records clearly show ANCO’s failure to
exercise the extraordinary diligence mandated by law for common
carriers.
e.   Regarding FGU Insurance’s liablity, the US Supreme Court’s
following decision is relevant:
i.   Standard Marine Insurance v. Nome Beach – the ordinary
diligence of the insured and his agents has long been held
as a part of the risk which the insurer takes upon himself,
and the existence of which, where it is the proximate
cause of the loss, does not absolve the insurer from
liability. But willful exposure, gross negligence,
negligence amounting to misconduct, etc., have often been
held to release the insurer from such liability.
f.   From the above-mentioned decision, 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 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.
g.   Here, both the tril court and the CA concluded from the evidence
that ANCO was indeed blatantly negligent.
 015 TRAVELLERS INSURANCE v. CA (Adrias)
May 22, 1997 | Hermosisima, Jr. J. | Notice of Loss
PETITIONER: Travellers Insurance & Surety Corporation
RESPONDENTS: Court of Appeals and Vicente Mendoza
amendment. Absent such written claim filed by the person suing under an insurance
contract, no cause of action accrues under such insurance contract.Considering that
it is the rejection of that claim that triggers the running of the one-year prescriptive
period to bring suit in court, and there can be no opportunity for the insurer to even
reject a claim if none has been filed in the first place.

Insurer: Travellers Insurance & Surety Corporation (Travellers)

Insured: Lady Love Taxicab
SUMMARY:
At about 5:30am July 20, 1980, a 78-year old woman, Feliza Vineza
de Mendoza (Feliza) was on her way to hear mass at the Tayuman
Cathedral. While walking, she was hit by a taxi that was running fast.
As a result of the bumping, Fileza died. Defendant Armando Abello,
the registered owner of the taxi certified to the fact that Rodrigo
Dumlao drove the vehicle on July 20, 1980. Thus, the police
apprehended Dumlao; the State charged and convicted him of reckless
imprudence resulting to Homicide. The representatives of Fileza then
filed a complaint for damages against Armando Abello as the owner
and Dumlao as the driver. Subsequently, Travellers Insurance was
impleaded because it was the compulsory insurer of the taxicab. The
RTC ordered Abellon, Dumlao and Travellers to pay the respondents
Mendoza solidarily. CA affirmed.Travellers contention: it did not
issue a policy as compulsory insurer and assuming that it had indeed
covered the taxicab for third-party liability insurance, Mendoza failed
to file a written notice of claim with Travellers as required by Sec.
384 of the Insurance Code. The issue in this case is WoN Mendoza
can claim from Travellers? The SC held in the negative.Travellers
asserts that no written claim was filed by Mendoza and rejected by it,
and Mendoza does not dispute such assertion through a denial in his
pleadings, we are constrained to rule that the CA committed reversible
error in finding Travellers liable under an insurance contract the
existence of which had not at all been proven in court. Even if there
were such a contract, Mendoza’s cause of action cannot prevail
because he failed to file the written claim mandated by Section 384 of FACTS:
the Insurance Code. He is deemed, under this legal provision, to have 10.  The petition herein seeks the review and reversal of the
waived his rights as against Travellers. decision of respondent CA affirming in toto the judgment of
the RTC in an action for damages filed by private respondent
DOCTRINE: There exist an indispensable requirement of having filed the written Vicente Mendoza, Jr. as heir of his mother who was killed in a
claim mandated by Section 384 of the Insurance Code before and after its vehicular accident.
11.  At about 5:30am July 20, 1980, a 78-year old woman, Feliza
Vineza de Mendoza (Feliza) was on her way to hear mass at
the Tayuman Cathedral. While walking, she was hit by a taxi
that was running fast.
12.  Several persons witnessed the accident among who were
Rolando Marvilla, Ernesto Lopez and Eulogio Tabalno.
13.  Maravilla ran towards Feliza and at this moment, a private jeep
stopped and brought Feliza to the Mary Johnston Hospital in
Tondo.
14.  One of the witnesses, Lopez saw Mendoza Jr. and his brother
crying near the scene of the accident and informed them of
what happened. The brothers then proceeded to the Mary
Johnston Hospital where they were informed that Feliza was
brought to UST hospital where she passed away.
15.  Evidently, as a result of the bumping, Fileza died.
16.  In a criminal case, evidence showed that the driver of the
taxicab was driving in a careless, reckless and imprudent
manner at a high speed. The driver fled from the scene of the
accident and did not render assistance to the victim.
17.  The taxicab was identified to be a Lady Love Taxi with Plane
No. 438.
18.  Defendant Armando Abello, the registered owner of the taxi
certified to the fact that Rodrigo Dumlao drove the vehicle on
July 20, 1980.
19.  Thus, the police apprehended Dumlao; the State charged and
convicted him of reckless imprudence resulting to Homicide.
20.  The representatives of Fileza then filed a complaint for
damages against Armando Abello as the owner and Dumlao as
the driver.
21.  Subsequently, Travellers Insurance was impleaded because it
was the compulsory insurer of the taxicab.
22.  The RTC ordered Abellon, Dumlao and Travellers to pay the
respondents Mendoza solidarily.
23.  The CA affirmed the decision.
24.  Travellers contention: it did not issue a policy as compulsory
insurer and assuming that it had indeed covered the taxicab for
third-party liability insurance, Mendoza failed to file a written
notice of claim with Travellers as required by Sec. 384 of the
Insurance Code.
ISSUE/s:
2.   WoN Mendoza can claim from Travellers? NO because the insurance
contract was never presented in court and a written notice of claim was
never filed.
RULING: WHEREFORE, the instant petition is HEREBY GRANTED. The
decision of the Court of Appeals in CA-G.R. CV No. 09416 and the decision of the
Regional Trial Court in Civil Case No. 135486 are REVERSED and SET ASIDE
insofar as Travellers Insurance & Surety Corporation was found jointly and severally
liable to pay actual, moral and exemplary damages, death indemnity, attorney’s fees
and litigation expenses in Civil Case No. 135486. The complaint against Travellers
Insurance & Surety Corporation in said case is hereby ordered dismissed. No
pronouncement as to costs. SO ORDERED.
RATIO:
Third-party Liability Insurance Contract
11.   When Mendoza filed his amended complaint to implead Travellers as party
defendant and alleged Travellers as the third-party liability insurer of the
Lady Love taxicab, Mendoza failed to attach a copy of the insurance
contract to the amended complaint. Mendoza does not deny this omission.
12.   It is significant to point out that the right of a third person to sue the insurer
depends on whether the contract of insurance is intended to benefit third
persons also or only the insured.
13.   And the test applied has been this:
a.   Where the contract provides for indemnity against liability to
third persons, then third persons to whom the insured is liable can
sue the insurer.
b.   Where the contract is for indemnity against actual loss or
payment, then third persons cannot proceed against the insurer,
the contract being solely to reimburse the insured for liability
actually discharged by him thru payment to third persons, said
third persons’ recourse being thus limited to the insured alone.”
14.   Since Mendoza failed to attach a copy of the insurance contract to his
complaint, the trial court could not possibly know the real nature and
pecuniary limits of Travellers liability.
15.   The trial court did not distinguish between Mendoza’s cause of action
against the owner and the driver of the Lady Love taxicab and his cause of
action against Travellers. The former is based on torts and quasi-delicts
while the latter is based on contract.
16.   While it is true that where the insurance contract provides for indemnity
against liability to third persons, such third persons can directly sue the
insurer, however, the direct liability of the insurer under indemnity
contracts against third-party liability does not mean that the insurer can be
held solidarily liable with the insured and/or the other parties found at fault.
 17.   The liability of the insurer is based on contract; that of the insured is based 26.   Even if there were such a contract, Mendoza’s cause of action cannot
on tort. prevail because he failed to file the written claim mandated by Section 384
18.   The trial court proceeded to hold Travellers liable for an award of damages of the Insurance Code. He is deemed, under this legal provision, to have
exceeding its limited liability of P50,000.00. This only shows beyond doubt waived his rights as against Travellers.
that the trial court was under the erroneous presumption that Travellers
could be found liable absent proof of the contract and based merely on the
proof of reckless imprudence on the part of the driver of the Lady Love
taxicab that fatally hit Feliza.

Notice of Claim
19.   At the time of the vehicular incident which resulted in the death of
Mendoza’s mother, during which time the Insurance Code had not yet been
amended by Batas Pambansa (B.P.) Blg. 874, Section 384 provided as
follows:
Any person having any claim upon the policy issued pursuant to
this chapter shall, without any unnecessary delay, present to the
insurance company concerned a written notice of claim setting
forth the amount of his loss, and/or the nature, extent and duration
of the injuries sustained as certified by a duly licensed physician.
Notice of claim must be filed within six months from date of the
accident, otherwise, the claim shall be deemed waived. Action or
suit for recovery of damage due to loss or injury must be brought
in proper cases, with the Commission or the Courts within one year
from date of accident, otherwise the claimants right of action shall
prescribe.
20.   It is significant to note that Section 384 was amended by B.P. Blg. 874 to
categorically provide that “action or suit for recovery of damage due to loss
or injury must be brought in proper cases, with the Commissioner or the
Courts within one year from denial of the claim, otherwise the claimant’s
right of action shall prescribe.”
21.   There exist an indispensable requirement of having filed the written claim
mandated by Section 384 of the Insurance Code before and after its
amendment.
22.   Absent such written claim filed by the person suing under an insurance
contract, no cause of action accrues under such insurance contract.
23.   Considering that it is the rejection of that claim that triggers the
running of the one-year prescriptive period to bring suit in court, and
there can be no opportunity for the insurer to even reject a claim if
none has been filed in the first place.
24.   The one-year period should instead be counted from the date of rejection by
the insurer as this is the time when the cause of action accrues.
25.   Travellers therefore asserts that no written claim was filed by Mendoza and
rejected by it, and Mendoza does not dispute such assertion through a denial
in his pleadings, we are constrained to rule that the CA committed
reversible error in finding Travellers liable under an insurance contract the
existence of which had not at all been proven in court.
 016 PACIFIC TIMBER EXPORT CORP. v. CA (ALCAZAR)
February 25, 1982 | De Castro, J. | Notice of Loss
PETITIONER: Pacific Timber Export Corporation
RESPONDENTS: Court of Appeals and Workmen’s Insurance Company Inc.
SUMMARY: Plaintiff secured a temporary temporary insurance from the defendant
for its exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs and
the defendant subsequently issued Cover Note No. 1010. Then on April 2, 1963,
defendant issued two more marine insurance policies covering 1,195.498 bd. ft. of
logs. Some of the logs intended to be exported were lost during loading operations
due to bad weather. So on April 4, 1963, Plaintiff filed its claims against insurer
under the 2 marine insurance policies. The defendant then asked an adjuster to
investigate the loss. The adjuster submitted that the 30 pieces of logs lost were not
covered by the two policies issued on April 2, 1963 but were covered by Cover Note
No. 1010. The defendant denied the claims on the ground that Cover Note No. 1010
has already become null and void by virtue of the issuance of Marine Policy Nos. 53
HO 1032 and 1033. The Insurance Commissioner and Trial Court ruled in favor of
the plaintiff while the CA dismissed the case because there was allegedly no
premium paid for the Cover Note. The issue is: Whether the Insurance Company was
absolved from responsibility due to unreasonable delay in giving the notice of loss.
NO. The ground of delay was not promptly and specifically asserted when plaintiff
filed their claim on the insurance agreement. The law requires this ground of delay to
be promptly and specifically asserted when a claim on the insurance agreement is
made. From April 15,1963 the date of receipt of the claim up to July 1963, enough
time was available for the defendant to determine if plaintiff was guilty of delay in
communicating the loss. Defendant also had the opportunity to raise the ground of
delay during the proceedings with the Insurance Commissioner. However, it did not
do so. Even on the assumption that there was delay, waiver can be raised against the
Insurance Company because Section 84 of the Insurance Act provides: Delay in the
presentation to an insurer of notice or proof of loss is waived if caused by any act of
his or if he omits to take objection promptly and specifically upon that ground.
DOCTRINE: Section 84 of the Insurance Act requires that the ground of delay must
be promptly and specifically asserted when a claim on the insurance agreement is
made. The nature of this specific ground for resisting a claim places the insurer on
duty to inquire when the loss took place, so that it could determine whether delay
would be a valid ground upon which to object to a claim against it.
ISSUE/s:
FACTS:
1.   On March 19, 1963 Plaintiff secured temporary insurance from the
defendant for its exportation of 1,250,000 board feet of Philippine Lauan
and Apitong logs to be shipped from the Diapitan Bay, Quezon Province to
Okinawa and Tokyo, Japan.
2.   The defendant issued Cover Note No. 1010, insuring the said cargo of the
plaintiff "Subject to the Terms and Conditions of the WORKMEN'S
INSURANCE COMPANY, INC. printed Marine Policy form as filed with
and approved by the Office of the Insurance Commissioner
3.   On April 2, 1963, two marine cargo insurance policies were issued: Policy
No. 53 H0 1033 for 542 pieces of logs equivalent to 499,950 board feet and
Policy No. 53 H0 1033 was for 853 pieces of logs equivalent to 695,548
board feet. The total cargo insured under the two marine policies
accordingly consisted of 1,395 logs, or the equivalent of 1,195.498 bd. ft.
4.   Some of the logs intended to be exported were lost during loading
operations in the Diapitan Bay.
5.   The logs were taken from the log pond of the plaintiff and from there were
towed in rafts to the vessel. However, while the logs were alongside the
vessel, bad weather developed causing 75 pieces of logs which were rafted
together to break loose from each other. 45 pieces of logs were salvaged,
but 30 pieces were verified to have been lost or washed away as a result of
the accident.
6.   The plaintiff then informed the defendant about the loss of 32 pieces of logs
through a letter dated April 4, 1963. The defendant only received the letter
on April 15, 1963.
7.   The plaintiff subsequently submitted a 'Claim Statement demanding
payment of the loss under Policies Nos. 53 HO 1032 and 53 HO 1033.
8.   The defendant then asked an adjuster to investigate the loss. The adjuster
submitted that the 30 pieces of logs lost were not covered by the two
policies issued on April 2, 1963 but were covered by Cover Note No. 1010
insuring 1,250,000 bd. feet for the amount of $70,000.00.
9.   The defendant denied liability on that its investigation revealed that the
entire shipment of logs covered by the two marines policies No. 53 HO
1032 and 53 HO 1033 were received in good order at their point of
destination.
10.   It was also stated that the loss may not be considered as covered under
Cover Note No. 1010 because the said Note had become 'null and void by
virtue of the issuance of Marine Policy Nos. 53 HO 1032 and 1033'
11.   Insurance Commissioner: Ruled in favor of plaintiff stating that ‘it is only
fair and equitable to indemnify the insured under Cover Note No. 1010,' and
advised early settlement of the said marine loss and salvage claim.
12.   TC: Ruled in favor of Insured
13.   CA: Dismissed the case and ruled that the cover note is void for lack of
valuable consideration as it appeared that no premium payment therefor was
made by PTEC.
1.   Whether a separate premium is needed for cover notes. NO.
65.   [IMPORTANT] Whether the Insurance Company was absolved from
responsibility due to unreasonable delay in giving the notice of loss. NO.
The ground of delay was not promptly and specifically asserted when
plaintiff filed their claim on the insurance agreement.
RULING: ACCORDINGLY, the appealed decision is set aside and the decision of waived if caused by any act of his or if he omits to take objection promptly
the Court of First Instance is reinstated in toto with the affirmance of this Court. No and specifically upon that ground.
special pronouncement as to costs.

RATIO:

Cover note is Valid

1.   The fact that no separate premium was paid on the Cover Note before the
loss insured against occurred, does not militate against the validity of
plaintiff’s contention, for no such premium could have been paid, since by
the nature of the Cover Note, it did not contain, as all Cover Notes do not
contain particulars of the shipment that would serve as basis for the
computation of the premiums. As a logical consequence, no separate
premiums are intended or required to be paid on a Cover Note.
2.   At any rate, it is not disputed that Plaintiff paid in full all the premiums as
called for by the statement issued by Defendant after the issuance of the two
regular marine insurance policies, thereby leaving no account unpaid by
Plaintiff due on the insurance coverage, which must be deemed to include
the Cover Note.
3.   If the Note is to be treated as a separate policy instead of integrating it to the
regular policies subsequently issued, the purpose and function of the Cover
Note would be set at naught or rendered meaningless, for it is in a real sense
a contract, not a mere application for insurance which is a mere offer.

Insurance Company cannot be absolved from liability

66.   The defense of delay as raised by private respondent in resisting the claim
cannot be sustained. The law requires this ground of delay to be promptly
and specifically asserted when a claim on the insurance agreement is made.
67.   The facts show that instead of invoking the ground of delay in objecting to
petitioner's claim of recovery on the cover note, it took steps indicative that
this particular ground for objection to the claim was never in its mind.
68.   The nature of this specific ground for resisting a claim places the insurer on
duty to inquire when the loss took place, so that it could determine whether
delay would be a valid ground upon which to object to a claim against it.
69.   From April 15,1963 the date of receipt of the claim up to July 1963, enough
time was available for the defendant to determine if plaintiff was guilty of
delay in communicating the loss.
70.   Defendant also had the opportunity to raise the ground of delay during the
proceedings with the Insurance Commissioner. However, tt did not do so.
71.   The SC stated that it must be because it did not find any delay, as this Court
fails to find a real and substantial sign thereof.
72.   But even on the assumption that there was delay, waiver can be raised
against the Insurance Company because Section 84 of the Insurance Act
provides: Delay in the presentation to an insurer of notice or proof of loss is
 017 ANG v. FULTON (APASAN)
July, 31, 1961 | Labrador, J. | Statute of Limitations
PETITIONER: Paulo Ang and Sally Ang
RESPONDENTS: Fulton Fire Insurance Co.
SUMMARY: On September 9, 1953, Fulton Fire Insurance Company (Fulton
Insurance) issued a fire insurance policy in favor of P&S Department Store owned
by the Spouses Ang (Spouses Ang) over stocks of general merchandise contained in
the building. On December 17, 1954, the store containing the goods insured was
destroyed by fire. Spouses Ang filed their claim and Fulton Insurance forwarded
this to its adjuster, Manila Adjustment Company (Adjuster). In the meantime, Paulo
Ang and 10 other accused were charged with Arson, but Paulo Ang was acquitted.
Subsequently, the claim was denied and the Spouses Ang received the notice of
denial on April 19, 1956. Hence, this present civil action was filed by the Spouses
Ang on May 5, 1958 against Fulton Insurance and Paramount Surety and Insurance
Company Inc., (Paramount Surety).
CONTENTION OF FULTON: Fulton Insurance objected that the claim had already
been forfeited since under paragraph 13 of the policy, it provides that “if the claim is
made and rejected but no action is commenced within 12 months after such
rejection, all benefits under the policy would be forfeited.” And since in the present
case, the notice of denial was received on April 19, 1956 but the action was filed
only on May 5, 1958, then the claim should be considered as already forfeited.
CONTENTION OF SPOUSES ANG: Spouses Ang replied that they instituted a civil
case on May 11, 1956 (the alleged case was really just mentioned in the reply), and
although the said case was dismissed without prejudice, the filing thereof tolled the
12 month period.
The RTC ruled in favor of the Spouses Ang and held that since the dismissal was due
to a mere procedural lapse (see fact 11[a]) and the dismissal was without prejudice,
then it effectively tolled the running of the period. Hence this petition. Issue is
whether or not the filing of the civil case tolled or suspended the running of the
12-month period as stipulated in the policy – NO, the condition contained in the
insurance policy that claims must be presented within one year after rejection is
NOT merely a procedural requirement. The condition is an important matter,
essential to a prompt settlement of claims against insurance companies, as it
demands that insurance suits be brought by the insured while the evidence as to the
origin and cause of destruction have not yet disappeared. It is in the nature of a
condition precedent to the liability of the insurer, or in other terms, a resolutory
cause, the purpose of which is to terminate all liabilities in case the action is not filed
by the insured within the period stipulated. The bringing of the action against the
Paramount Surety, the agent of Fulton cannot have any legal effect except that of
notifying the agent of the claim. Beyond such notification, the filing of the action can
serve no other purpose. There is no law giving any effect to such action upon the
principal. Besides, there is no condition in the policy that the action must be filed
against the agent, and this Court can not by interpretation, extend the clear scope of
the agreement beyond what is agreed upon by the parties.
DOCTRINE: The condition contained in the insurance policy that claims must be
presented within one year after rejection is NOT merely a procedural requirement.
The condition is an important matter, essential to a prompt settlement of claims
against insurance companies, as it demands that insurance suits be brought by the
insured while the evidence as to the origin and cause of destruction have not yet
disappeared. It is in the nature of a condition precedent to the liability of the insurer,
or in other terms, a resolutory cause, the purpose of which is to terminate all
liabilities in case the action is not filed by the insured within the period stipulated.
FACTS:
Material dates in the case:
April 19, 1956 – receipt of the denial of the claim
May 11, 1956 – first civil case filed by Spouses Ang against Paramount Surety
(Agent)
May 5, 1958 – second civil case filed by Spouses Ang against Fulton Insurance
(principal)
1.   September 9, 1953 – Fulton Fire Insurance Company (Fulton Insurance)
issued a fire insurance policy, in favor of P. & S Department Store (owned
by Spouses Ang) over stocks of general merchandise, consisting principally
of dry goods, contained in a building occupied by the Spouses Ang at
Laoag, Ilocos Norte.
a.   The premium is P500.00 annually.
b.   The insurance was issued for one year, but the same was renewed
for another year on September 31, 1954.
2.   December 17, 1954 – the store containing the goods insured was destroyed
by fire.
3.   December 30 – Spouses Ang executed the first claim form. The claim,
together with all the necessary papers relating thereto, were forwarded to
the Manila Adjustment Company, Fulton's adjusters.
4.   January 12, 1955 – The Manila Adjustment Company accepted receipt of
the claim and requested the submission of the books of accounts of the
insured for the year 1953-1954 and a clearance from the Philippine
Constabulary and the police.
5.   January 13, 1955 – Paulo Ang and ten others (Paulo et al) were charged for
arson in the Court of First Instance of Ilocos Norte. The court acquitted
plaintiff Paulo Ang of the crime of arson.
6.   April 6, 1956 – the Fulton wrote the Spouses Ang that their claim was
denied.
7.   April 19, 1956 – the above denial was received by the Spouses Ang.
8.   May 5, 1958 – this present action was filed by the Spouses Ang. The action
was originally instituted against both Fulton and the Paramount Surety and
Insurance Company, Inc., (Paramount Surety) but on June 16, 1958, upon
motion of the Paramount Surety, the latter was dropped from the complaint.
9.   May 26, 1958 – Fulton filed an answer to the complaint, admitting the
existence of the contract of insurance, its renewal and the loss by fire of the
 department store and the merchandise contained therein, but denying that
the loss by the fire was accidental, alleging that it was occasioned by the
willful act of the plaintiff Paulo Ang himself. It claims that under
paragraph 13 of the policy, if the loss or damage is occasioned by the
willful act of the insured, or if the claim is made and rejected but no action
is commenced within 12 months after such rejection, all benefits under the
policy would be forfeited, and that since the claim of the plaintiffs was
denied and plaintiffs received notice of denial on April 19, 1956, and they
brought the action only on May 5, 1958, all the benefits under the policy
have been forfeited.
10.   February 12, 1959 – Spouses Ang filed a reply to the above answer of the
Fulton, alleging that:
a.   on May 11, 1956, they had instituted Civil Case No. 2949 in the
Court of First Instance of Manila, to assert the claim (NOTE: this
alleged case was really not mentioned in the previous facts);
b.   that this case was dismissed without prejudice on September 3,
1957 and that deducting the period within which said action was
pending, the present action was still within the 12 month period
from April 12, 1956.
11.   The CFI held that the bringing of the civil action on May 11, 1956 (fact
10[a]), tolled the running of the 12 month period within which the action
must be filed. Said the court on this point:
a.   “True, indeed, plaintiffs (Spouses Ang) committed a procedural
mistake in first suing the agent (Paramount Surety) instead of its
principal (Fulton), the herein defendant, as correctly pointed out by
counsel for the defendant. But the mistake being merely
procedural, and the defendant not having been misled by the error,
'There is nothing sacred about process or pleadings, their forms or
contents.”
b.   “The complaint was dismissed by the Court without prejudice on
September 3, 1957, and motion for reconsideration dated
September 21, 1957. The instant complaint was filed on May 8,
1958. The Rules of Court is applicable in the computation of time.
Now, as correctly pointed out by the plaintiffs' counsel, by simple
mathematical computation, the present action was filed leas thin
nine (9) months after the notice of rejection received by plaintiffs
on April 19, 1956, because the filing of the original complaint
stopped the running of the period.”
12.   In view of the reasons thus above quoted, the court rendered decision in
favor of the Spouses Ang. Hence, this petition.
ISSUE:
1.   Whether or not the court below erred in holding that the filing of the
previous suit tolled or suspended the running of the prescriptive period –
YES, - The condition contained in the insurance policy that claims must be
presented within one year after rejection is NOT merely a procedural
requirement.
RULING: Judgment of the CFI was SET ASIDE.
RATIO:
1.   The clause subject of the issue is paragraph 13 of the policy, which reads as
follows:
13. If the claim be in any respect fraudulent, or if any false
declaration is made or used in support thereof, or if any
fraudulent means or devices are used by the Insured or any
one acting on his behalf to obtain any benefit under this
Policy, or, if the loss or damage be occasioned by the willful
act or with connivance of the Insured, or, if the claim be
made and rejected and an action or suit be not
commenced within twelve months after such rejection or
(in case of arbitration place in pursuance of the 18th
condition of this Policy) within twelve months after the
arbitrator or arbitrators or umpire shall have made their
award, all benefits under this Policy shall be forfeited.
2.   Fulton cited in support of its contention the cases of (but only the second
case was explained by the SC in ratio no. 6)
a.   E. Macias & Co. vs. Warner, Barnes & Co., Ltd.,;
b.   E. Macias & Co. vs. China Fire Insurance Co., and
c.   Castillo etc. vs. Metropolitan Insurance Co.,
3.   Paulo et al contend that their action had not yet prescribed at the time of the
bringing of the action, because the period of prescription was interrupted by
the filing of the first action against the Paramount Surety & Insurance Co.,
in accordance with Article 1155 of the Civil Code.
a.   Counsel further argues that the basis of prescription of an action is
the abandonment by a person of his right of action or claim, so that
any act of said person tending to show his intention not to abandon
his right of action or claim, as the filing of the previous action in
the case at bar, interrupts the period of prescription.
b.   Furthermore, counsel argues, the dismissal of the previous action is
without prejudice, which means that plaintiffs have the right to file
another complaint against the principal.
4.   The basic error committed by the trial court is its view that the filing of the
action against the agent of Fulton was "merely a procedural mistake of no
significance or consequence, which may be overlooked." The condition
contained in the insurance policy that claims must be presented within
one year after rejection is NOT merely a procedural requirement. The
condition is an important matter, essential to a prompt settlement of
claims against insurance companies, as it demands that insurance suits
be brought by the insured while the evidence as to the origin and cause
 of destruction have not yet disappeared. It is in the nature of a
condition precedent to the liability of the insurer, or in other terms, a
resolutory cause, the purpose of which is to terminate all liabilities in
case the action is not filed by the insured within the period stipulated.
5.   The bringing of the action against the Paramount Surety, the agent of
Fulton CANNOT have any legal effect except that of notifying the agent
of the claim. Beyond such notification, the filing of the action can serve
no other purpose. There is no law giving any effect to such action upon
the principal. Besides, there is no condition in the policy that the action
must be filed against the agent, and this Court can not by
interpretation, extend the clear scope of the agreement beyond what is
agreed upon by the parties.
6.   The case of E. Macias & Co. vs. China Fire Insurance Co. has settled the
issue presented by Paulo et al in the case at bar definitely against their
claim. In that case, the SC declared that the contractual station in an
insurance policy prevails over the statutory limitation, as well as over
the exceptions to the statutory limitations that the contract necessarily
supersedes the statute (of limitations) and the limitation is in all phases
governed by the former.
7.   As stated in said case and in accordance with the decision of the Supreme
Court of the United States in Riddlesbarger vs. Hartford Fire Insurance Co.,
the rights of the parties flow from the contract of insurance, hence they
are NOT bound by the statute of limitations nor by exemptions thereto.
In the words of our own law, their contract is the law between the parties,
and their agreement that an action on a claim denied by the insurer
must be brought within one year from the denial, governs, NOT the
rules on the prescription of actions.
 018 SUN INSURANCE v. CA and TAN (Arcenas) 3.   August 20, 1983 - Tan filed his claim for fire loss with SUN INSURANCE,
March 13, 1991 | Paras, J. | Statute of Limitations but on February 29, 1984, SUN INSURANCE wrote to Tan denying his
claim.
4.   April 3, 1984 - Tan sought reconsideration of the denial of his claim.
PETITIONER: Sun Insurance Office, Ltd.
5.   September 3, 1985 - Tan's counsel wrote to SUN INSURANCE inquiring
RESPONDENTS: Court of Appeals and Emilio Tan
about the status of his April 3, 1984 request for reconsideration to which
SUN INSURNACE replied that the denial of Tan's claim remained
SUMMARY: Emilio Tan insured his electrical supply store with Sun Insurance (the
unchanged, enclosing copies of petitioners' letters of February 29, 1984 and
store was located inside the building of his brother in Iloilo City). Four days after the
May 17, 1985 (response to petition for reconsideration).
issuance of the policy (Aug 19 ’83), the building burned, including the insured store.
6.   November 20, 1985 - Tan filed a civil case with the RTC but SUN
Tan’s claimed for fire loss the day after (aug 20 ’83) but was denied by Sun
INSURANCE filed a motion to dismiss on the alleged ground that the
Insurance months later (Feb 29 ’84). Tan received the denial letter (apr 2, ’84) and
action had already prescribed.
sought reconsideration (apr 3 ’84). But there was no communication from Sun
7.   RTC RULING: MTD and the subsequent motion for reconsideration was
Insurance so Tan’s counsel inquired about the status a year later (Sep 3, ’85) to
denied
which Sun Insurance reiterated the denial. Hence, Tan filed a civil case against Sun
8.   CA RULING: SUN INSURNANCE’s petition was denied and the court
Insurnace with the RTC. Sun Insurance filed a motion to dismiss alleging that the
held that the court a quo may continue until its final termination. SUN
action had already prescribed. The MTD was denied by RTC which was also
INSURANCE’s MR was also denied.
affirmed by the CA. Hence, this petition. The issue before the SC is w/n the filing of
9.   Hence, the instant petition.
a motion for reconsideration interrupts the 12-month prescriptive period to contest
denial of claim. The Court held in the negative. The clear and unambigious wording
ISSUE/s:
of the insurance policy must be taken and understood in their plain, ordinary and
1.   w/n the filing of a motion for reconsideration interrupts the twelve (12)
popular sense; hence, since condition 27 of the insurance policy states that if no
months prescriptive period to contest the denial of the insurance claim –
action or suit is commenced within 12 months from receipt of rejection or in case of
NO. The clear and unambigious wording of the insurance policy must be
arbitration, within 12 months after due notice of the award made by the arbitrator,
taken and understood in their plain, ordinary and popular sense; hence,
the claim is deemed abandoned and shall not be recoverable. Since Tan admitted
since condition 27 of the insurance policy states that if no action or suit is
that he received a copy of the letter of rejection on April 2, 1984, the 12-month
commenced within 12 months from receipt of rejection or in case of
prescriptive period started to run from the said date of April 2, 1984, for such is the
arbitration, within 12 months after due notice of the award made by the
plain meaning and intention of Section 27 of the insurance policy. Furthermore, it is
arbitrator, the claim is deemed abandoned and shall not be recoverable.
apparent that Section 27 of the insurance policy was stipulated pursuant to Section
63 of the Insurance Code. The condition contained in an insurance policy that claims
RULING: the questioned decision of the Court of Appeals is REVERSED and SET
must be presented within one year after rejection is not merely a procedural
ASIDE, and Civil Case No. 16817 filed with the Regional Trial Court is hereby
requirement but an important matter essential to a prompt settlement of claims
DISMISSED
against insurance companies as it demands that insurance suits be brought by the
insured while the evidence as to the origin and cause of destruction have not yet
RATIO:
disappeared.
Filing of MR does not interrupt 12-month prescriptive period to contest denial of
insurance claim
DOCTRINE: Sec. 63. A condition, stipulation or agreement in any policy of
1.   While it is a cardinal principle of insurance law that a policy or contract of
insurance, limiting the time for commencing an action thereunder to a period of less
insurance is to be construed liberally in favor of the insured and strictly
than one year from the time when the cause of action accrues, is void.
against the insurer company, yet, contracts of insurance, like other
contracts, are to be construed according to the sense and meaning of the
FACTS: terms which the parties themselves have used.
1.   Aug 15, 1983- Emilio Tan (Tan) took from Sun Insurance Office, Ltd (SUN 2.   If such terms are clear and unambiguous, they must be taken and
INSURANCE) a P300,000.00 property insurance policy to cover his understood in their plain, ordinary and popular sense.
interest in the electrical supply store of his brother which is in a building in 3.   Condition 27 of the Insurance Policy, which is the subject of the conflicting
Iloilo City. contentions of the parties, reads:
2.   Aug 19 - Four (4) days after the issuance of the policy, the building was
burned including the insured store.
 a.   27. Action or suit clause — If a claim be made and rejected and an
action or suit be not commenced either in the Insurance
Commission or in any court of competent jurisdiction within
twelve (12) months from receipt of notice of such rejection, or
in case of arbitration taking place as provided herein, within
twelve (12) months after due notice of the award made by the
arbitrator or arbitrators or umpire, then the claim shall for all
purposes be deemed to have been abandoned and shall not
thereafter be recoverable hereunder.
4.   As the terms are very clear and free from any doubt or ambiguity
whatsoever, it must be taken and understood in its plain, ordinary and
popular sense pursuant to the above-cited principle laid down by this Court.
5.   Tan, in his letter addressed to SUN INSURANCE, admitted that he received
a copy of the letter of rejection on April 2, 1984. Thus, the 12-month
prescriptive period started to run from the said date of April 2, 1984, for
such is the plain meaning and intention of Section 27 of the insurance
policy.
6.   While the question of whether or not the insured was definitely advised of
the rejection of his claim through the letter dated February 29, 1984, may
arise, the certainty of the denial of Tan's claim was clearly manifested in
said letter (see end of digest)
7.   In Ang v. Fulton Fire Insurance Co, the Court had settled the rationale for
the necessity of bringing suits against the Insurer within one year from the
rejection of the claim. The condition contained in an insurance policy that
claims must be presented within one year after rejection is not merely a
procedural requirement but an important matter essential to a prompt
settlement of claims against insurance companies as it demands that
insurance suits be brought by the insured while the evidence as to the
origin and cause of destruction have not yet disappeared.
Applying to this case:
8.   It is apparent that Section 27 of the insurance policy was stipulated pursuant
to Section 63 of the Insurance Code, which states that:
a.   Sec. 63. A condition, stipulation or agreement in any policy of
insurance, limiting the time for commencing an action thereunder
to a period of less than one year from the time when the cause of
action accrues, is void.
When does the cause of action accrue?
1.   Tan used two cases to prove his point:
a.   Eagle Star Insurance Co. vs. Chia Yu where the Court held:
i.   The right of the insured to the payment of his loss accrues
from the happening of the loss. However, the cause of
action in an insurance contract does not accrue until
the insured's claim is finally rejected by the insurer.
This is because before such final rejection there is no real
necessity for bringing suit;
b.   ACCFA vs. Alpha Insurance & Surety Co., Inc.
i.   Since "cause of action" requires as essential elements
not only a legal right of the plaintiff and a correlated
obligation of the defendant in violation of the said
legal right, the cause of action does not accrue until the
party obligated (surety) refuses, expressly or impliedly, to
comply with its duty (in this case to pay the amount of the
bond).
2.   Indisputably, the above-cited pronouncements of this Court may be taken to
mean that the insured's cause of action or his right to file a claim either
in the Insurance Commission or in a court of competent jurisdiction
commences from the time of the denial of his claim by the Insurer,
either expressly or impliedly.
3.   But as pointed out by the SUN INSURANCE, the rejection referred to
should be construed as the rejection, in the first instance, for if what is being
referred to is a reiterated rejection conveyed in a resolution of a petition for
reconsideration, such should have been expressly stipulated.
a.   Thus, to allow the filing of a motion for reconsideration to suspend
the running of the prescriptive period of twelve months, a whole
new body of rules on the matter should be promulgated so as to
avoid any conflict that may be brought by it, such as:
i.   whether the mere filing of a plea for reconsideration of a
denial is sufficient or must it be supported by
arguments/affidavits/material evidence;
ii.   how many petitions for reconsideration should be
permitted?
4.   Contrary to Tan’s view, SC held that the use of the phrase "final rejection"
cannot be taken to mean the rejection of a petition for reconsideration
as insisted by CA and Tan. Such was clearly not the meaning
contemplated by this Court. The Insurance policy in said case provides that
the insured should file his claim, first, with the carrier and then with the
insurer. The "final rejection" being referred to in said case is the rejection
by SUN INSURANCE
DENIAL LETTER
We refer to your claim for fire loss of 20th August, 1983 at Huervana St., La Paz, Iloilo City.
We now have the report of our adjusters and after a thorough and careful review of the same
and the accompanying documents at hand, we are rejecting, much to our regrets, liability for
the claim under our policies for one or more of the following reasons:
1. xxx xxx xxx
2. xxx xxx xxx
For your information, we have referred all these matters to our lawyers for their opinion as to
the compensability of your claim, particularly referring to the above violations. It is their
opinion and in fact their strong recomendation to us to deny your claim. By this letter, we do
not intend to waive or relinquish any of our rights or defenses under our policies of insurance.
 019 Coastwise Lighterage v. Court of Appeals (Linds)
July 12, 1995 | Francisco, R., J. | Affreightment; Subrogation
PETITIONER: Coastwise Lighterage Corporation
RESPONDENTS: Court of Appeals, and Phil Gen Insurance
SUMMARY: Pag-asa entered into a contract to transport molasses from Negros
to Manila with Coastwise using latter’s dumb barges which were towed in
tandem by MT Marica, owned by Coastwise. Upon reaching Pier 18 in Manila
bay, one of the barges hit an unknown object, which caused a hole and the
molasses inside were contaminated. Pag-asa rejected the shipment as a total loss.
Pag-asa filed formal claims against PhilGen (Pag-asa’s insurer) and Coastwise.
Coastwise rejected, forcing Philgen to pay the claim amounting to P700T.
Philgen filed a claim against Coastwise by virtue of subrogation. RTC granted.
CA affirmed.
The issues before the Court are whether Coastwise was acting as common carrier
under the agreement, and whether Philgen was subrogated upon payment of Pag-
asa’s goods.
Anent the first issue, Coastwise was a common carrier. Coastwise Lighterage, by
the contract of affreightment, was not converted into a private carrier, but remained a
common carrier and was still liable as such. the presumption of negligence that attaches to
common carriers, once the goods it transports are lost, destroyed or deteriorated, applies
to the petitioner. This presumption, which is overcome only by proof of the exercise of
extraordinary diligence, remained unrebutted in this case. Coastwise was negligent since
the patron of the vessel was unlicensed.
Anent the second issue, Undoubtedly, upon payment by respondent insurer PhilGen of the
amount of P700,000.00 to Pag-asa Sales, Inc., the consignee of the cargo of molasses
totally damaged while being transported by petitioner Coastwise Lighterage, the former
was subrogated into all the rights which Pag-asa Sales, Inc. may have had against the
carrier, herein petitioner Coastwise Lighterage.
DOCTRINE: A common carrier, by the contract of affreightment, was not converted
into a private carrier, but remained a common carrier and was still liable as such.
Payment by the insurer to the assured operated as an equitable assignment to the former
of all remedies which the latter 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 or upon written assignment of claim. It accrues simply
upon payment of the insurance claim by the insurer.
FACTS:
64.   Pag-asa Sales, Inc. entered into a contract to transport molasses from the
province of Negros to Manila with Coastwise Lighterage Corporation
(Coastwise for brevity), using the latter's dumb barges. The barges were
towed in tandem by the tugboat MT Marica, which is likewise owned by
Coastwise.
65.   Upon reaching Manila Bay, while approaching Pier 18, one of the barges,
"Coastwise 9", struck an unknown sunken object. The forward buoyancy
compartment was damaged, and water gushed in through a hole "two inches
wide and twenty-two inches long.
66.   As a consequence, the molasses at the cargo tanks were contaminated and
rendered unfit for the use it was intended. This prompted the consignee,
Pag-asa Sales, Inc. to reject the shipment of molasses as a total loss.
Thereafter, Pag-asa Sales, Inc. filed a formal claim with the insurer of its
lost cargo, herein private respondent, Philippine General Insurance
Company (PhilGen, for short) and against the carrier, herein petitioner,
Coastwise Lighterage.
67.   Coastwise Lighterage denied the claim and it was PhilGen which paid the
consignee, Pag-asa Sales, Inc., the amount of P700,000.00, representing the
value of the damaged cargo of molasses.
68.   In turn, PhilGen then filed an action against Coastwise Lighterage before
the Regional Trial Court of Manila, seeking to recover the amount of
P700,000.00 which it paid to Pag-asa Sales, Inc. for the latter's lost cargo.
69.   PhilGen now claims to be subrogated to all the contractual rights and claims
which the consignee may have against the carrier, which is presumed to
have violated the contract of carriage.
70.   The RTC awarded the amount prayed for by PhilGen. On Coastwise
Lighterage's appeal to the Court of Appeals, the award was affirmed.
ISSUE/s:
1.   Whether petitioner Coastwise Lighterage was transformed into a private
carrier, by virtue of the contract of affreightment which it entered into with
the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact transformed
into a private carrier, did it exercise the ordinary diligence to which a
private carrier is in turn bound.
a.   No, still common carrier, which needs to exercise
extraordinary diligence in the vigilance over cargoes.
2.   Whether the insurer was subrogated into the rights of the consignee against
the carrier, upon payment by the insurer of the value of the consignee's
goods lost while on board one of the carrier's vessels.
RULING: WHEREFORE, premises considered, this petition is DENIED and the
appealed decision affirming the order of Branch 35 of the Regional Trial Court of
Manila for petitioner Coastwise Lighterage to pay respondent Philippine General
Insurance Company the "principal amount of P700,000.00 plus interest thereon at the
legal rate computed from March 29, 1989, the date the complaint was filed until fully
paid and another sum of P100,000.00 as attorney's fees and costs"10 is likewise
hereby AFFIRMED petitioner. This presumption, which is overcome only by proof of the exercise of
extraordinary diligence, remained unrebutted in this case.
RATIO: 6.   Based on the records, the patron of Coastwise’ vessel was not even licensed.
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an
unlicensed patron cannot safely claim to have exercised extraordinary
Arguments before the Court re: first issue
diligence, by placing a person whose navigational skills are questionable, at the
helm of the vessel which eventually met the fateful accident. It may also
1.   On the first issue, petitioner (Coastwise) contends that the RTC and the logically, follow that a person without license to navigate, lacks not just the skill to
Court of Appeals erred in finding that it was a common carrier. It stresses do so, but also the utmost familiarity with the usual and safe routes taken by
the fact that it contracted with Pag-asa Sales, Inc. to transport the shipment seasoned and legally authorized ones. Had the patron been licensed, he could be
of molasses from Negros Oriental to Manila and refers to this contract as a presumed to have both the skill and the knowledge that would have prevented the
"charter agreement". It then proceeds to cite the case of Home Insurance vessel's hitting the sunken derelict ship that lay on their way to Pier 18.
Company vs. American Steamship Agencies, Inc. wherein this Court held:
". . . a common carrier undertaking to carry a special cargo or chartered to a Ruling re: second issue
7.   On the issue of subrogation, which petitioner contends as inapplicable in this case,
special person only becomes a private carrier."
we once more rule against the petitioner. We have already found petitioner liable for
breach of the contract of carriage it entered into with Pag-asa Sales, Inc. However,
Ruling re: first issue
for the damage sustained by the loss of the cargo which petitioner-carrier was
2.   Petitioner's (Coastwise’) reliance on the aforementioned case is misplaced. In its
transporting, it was not the carrier which paid the value thereof to Pag-asa Sales, Inc.
entirety, the conclusions of the court are as follows:
but the latter's insurer, herein private respondent PhilGen.
a.   Accordingly, the charter party contract is one of affreightment over the
8.   Article 2207 of the Civil Code is explicit on this point:
whole vessel, rather than a demise. As such, the liability of the shipowner
a.   Art. 2207. If the plaintiffs property has been insured, and he has received
for acts or negligence of its captain and crew, would remain in the absence
indemnity from the insurance company for the injury or loss arising out of
of stipulation.
the wrong or breach of contract complained of, the insurance company
3.   The distinction between the two kinds of charter parties (i.e. bareboat or
shall be subrogated to the rights of the insured against the wrongdoer or
demise and contract of affreightment) is more clearly set out in the case of
the person who violated the contract.
Puromines, Inc. vs. Court of Appeals, wherein we ruled:
9.   Article 2207 of the Civil Code is founded on the well-settled principle of
a.   Under the demise or bareboat charter of the vessel, the charterer will
subrogation. If the insured property is destroyed or damaged through the fault or
generally be regarded as the owner for the voyage or service stipulated.
negligence of a party other than the assured, then the insurer, upon payment to the
The charterer mans the vessel with his own people and becomes the owner
assured will be subrogated to the rights of the assured to recover from the wrongdoer
pro hac vice, subject to liability to others for damages caused by
to the extent that the insurer has been obligated to pay. Payment by the insurer to the
negligence. To create a demise, the owner of a vessel must completely and
assured operated as an equitable assignment to the former of all remedies which the
exclusively relinquish possession, command and navigation thereof to the
latter may have against the third party whose negligence or wrongful act caused the
charterer, anything short of such a complete transfer is a contract of
loss. The right of subrogation is not dependent upon, nor does it grow out of, any
affreightment (time or voyage charter party) or not a charter party at all.
privity of contract or upon written assignment of claim. It accrues simply upon
b.   On the other hand a contract of affreightment is one in which the owner of
payment of the insurance claim by the insurer.
the vessel leases part or all of its space to haul goods for others. It is a
10.   Undoubtedly, upon payment by respondent insurer PhilGen of the amount of
contract for special service to be rendered by the owner of the vessel and
P700,000.00 to Pag-asa Sales, Inc., the consignee of the cargo of molasses totally
under such contract the general owner retains the possession, command
damaged while being transported by petitioner Coastwise Lighterage, the former
and navigation of the ship, the charterer or freighter merely having use of
was subrogated into all the rights which Pag-asa Sales, Inc. may have had against
the space in the vessel in return for his payment of the charter hire.
the carrier, herein petitioner Coastwise Lighterage.
c.   An owner who retains possession of the ship though the hold is the
property of the charterer, remains liable as carrier and must answer for any
breach of duty as to the care, loading and unloading of the cargo
4.   Although a charter party may transform a common carrier into a private one, the
same however is not true in a contract of affreightment on account of the
aforementioned distinctions between the two. Pursuant therefore to the ruling in
the aforecited Puromines case, Coastwise Lighterage, by the contract of
affreightment, was not converted into a private carrier, but remained a
common carrier and was still liable as such.
5.   It follows then that the presumption of negligence that attaches to common carriers,
once the goods it transports are lost, destroyed or deteriorated, applies to the
 015 TRAVELLERS INSURANCE v. CA (Adrias)
May 22, 1997 | Hermosisima, Jr. J. | Notice of Loss
PETITIONER: Travellers Insurance & Surety Corporation
RESPONDENTS: Court of Appeals and Vicente Mendoza
Insurer: Travellers Insurance & Surety Corporation (Travellers)
Insured: Lady Love Taxicab
SUMMARY:
At about 5:30am July 20, 1980, a 78-year old woman, Feliza Vineza de Mendoza
(Feliza) was on her way to hear mass at the Tayuman Cathedral. While walking, she
was hit by a taxi that was running fast. As a result of the bumping, Fileza died.
Defendant Armando Abello, the registered owner of the taxi certified to the fact that
Rodrigo Dumlao drove the vehicle on July 20, 1980. Thus, the police apprehended
Dumlao; the State charged and convicted him of reckless imprudence resulting to
Homicide. The representatives of Fileza then filed a complaint for damages against
Armando Abello as the owner and Dumlao as the driver. Subsequently, Travellers
Insurance was impleaded because it was the compulsory insurer of the taxicab. The
RTC ordered Abellon, Dumlao and Travellers to pay the respondents Mendoza
solidarily. CA affirmed.Travellers contention: it did not issue a policy as
compulsory insurer and assuming that it had indeed covered the taxicab for third-
party liability insurance, Mendoza failed to file a written notice of claim with
Travellers as required by Sec. 384 of the Insurance Code. The issue in this case is
WoN Mendoza can claim from Travellers? The SC held in the negative.Travellers
asserts that no written claim was filed by Mendoza and rejected by it, and Mendoza
does not dispute such assertion through a denial in his pleadings, we are constrained
to rule that the CA committed reversible error in finding Travellers liable under an
insurance contract the existence of which had not at all been proven in court. Even if
there were such a contract, Mendoza’s cause of action cannot prevail because he
failed to file the written claim mandated by Section 384 of the Insurance Code. He
is deemed, under this legal provision, to have waived his rights as against
Travellers.
DOCTRINE: There exist an indispensable requirement of having filed the written
claim mandated by Section 384 of the Insurance Code before and after its
amendment. Absent such written claim filed by the person suing under an insurance
contract, no cause of action accrues under such insurance contract.Considering that
it is the rejection of that claim that triggers the running of the one-year prescriptive
period to bring suit in court, and there can be no opportunity for the insurer to even
reject a claim if none has been filed in the first place.
FACTS:
25.   The petition herein seeks the review and reversal of the decision of
respondent CA affirming in toto the judgment of the RTC in an action for
damages filed by private respondent Vicente Mendoza, Jr. as heir of his
mother who was killed in a vehicular accident.
26.   At about 5:30am July 20, 1980, a 78-year old woman, Feliza Vineza de
Mendoza (Feliza) was on her way to hear mass at the Tayuman Cathedral.
While walking, she was hit by a taxi that was running fast.
27.   Several persons witnessed the accident among who were Rolando Marvilla,
Ernesto Lopez and Eulogio Tabalno.
28.   Maravilla ran towards Feliza and at this moment, a private jeep stopped and
brought Feliza to the Mary Johnston Hospital in Tondo.
29.   One of the witnesses, Lopez saw Mendoza Jr. and his brother crying near
the scene of the accident and informed them of what happened. The
brothers then proceeded to the Mary Johnston Hospital where they were
informed that Feliza was brought to UST hospital where she passed away.
30.   Evidently, as a result of the bumping, Fileza died.
31.   In a criminal case, evidence showed that the driver of the taxicab was
driving in a careless, reckless and imprudent manner at a high speed. The
driver fled from the scene of the accident and did not render assistance to
the victim.
32.   The taxicab was identified to be a Lady Love Taxi with Plane No. 438.
33.   Defendant Armando Abello, the registered owner of the taxi certified to the
fact that Rodrigo Dumlao drove the vehicle on July 20, 1980.
34.   Thus, the police apprehended Dumlao; the State charged and convicted him
of reckless imprudence resulting to Homicide.
35.   The representatives of Fileza then filed a complaint for damages against
Armando Abello as the owner and Dumlao as the driver.
36.   Subsequently, Travellers Insurance was impleaded because it was the
compulsory insurer of the taxicab.
37.   The RTC ordered Abellon, Dumlao and Travellers to pay the respondents
Mendoza solidarily.
38.   The CA affirmed the decision.
39.   Travellers contention: it did not issue a policy as compulsory insurer and
assuming that it had indeed covered the taxicab for third-party liability
insurance, Mendoza failed to file a written notice of claim with Travellers
as required by Sec. 384 of the Insurance Code.
ISSUE/s:
3.   WoN Mendoza can claim from Travellers? NO because the insurance
contract was never presented in court and a written notice of claim was
never filed.
RULING: WHEREFORE, the instant petition is HEREBY GRANTED. The
decision of the Court of Appeals in CA-G.R. CV No. 09416 and the decision of the
Regional Trial Court in Civil Case No. 135486 are REVERSED and SET ASIDE
insofar as Travellers Insurance & Surety Corporation was found jointly and severally
liable to pay actual, moral and exemplary damages, death indemnity, attorney’s fees
and litigation expenses in Civil Case No. 135486. The complaint against Travellers
Insurance & Surety Corporation in said case is hereby ordered dismissed. No
pronouncement as to costs. SO ORDERED.
RATIO:
Third-party Liability Insurance Contract
27.   When Mendoza filed his amended complaint to implead Travellers as party
defendant and alleged Travellers as the third-party liability insurer of the
Lady Love taxicab, Mendoza failed to attach a copy of the insurance
contract to the amended complaint. Mendoza does not deny this omission.
28.   It is significant to point out that the right of a third person to sue the insurer
depends on whether the contract of insurance is intended to benefit third
persons also or only the insured.
29.   And the test applied has been this:
a.   Where the contract provides for indemnity against liability to
third persons, then third persons to whom the insured is liable can
sue the insurer.
b.   Where the contract is for indemnity against actual loss or
payment, then third persons cannot proceed against the insurer,
the contract being solely to reimburse the insured for liability
actually discharged by him thru payment to third persons, said
third persons’ recourse being thus limited to the insured alone.”
30.   Since Mendoza failed to attach a copy of the insurance contract to his
complaint, the trial court could not possibly know the real nature and
pecuniary limits of Travellers liability.
31.   The trial court did not distinguish between Mendoza’s cause of action
against the owner and the driver of the Lady Love taxicab and his cause of
action against Travellers. The former is based on torts and quasi-delicts
while the latter is based on contract.
32.   While it is true that where the insurance contract provides for indemnity
against liability to third persons, such third persons can directly sue the
insurer, however, the direct liability of the insurer under indemnity
contracts against third-party liability does not mean that the insurer can be
held solidarily liable with the insured and/or the other parties found at fault.
33.   The liability of the insurer is based on contract; that of the insured is based
on tort.
34.   The trial court proceeded to hold Travellers liable for an award of damages
exceeding its limited liability of P50,000.00. This only shows beyond doubt
that the trial court was under the erroneous presumption that Travellers
could be found liable absent proof of the contract and based merely on the
proof of reckless imprudence on the part of the driver of the Lady Love
taxicab that fatally hit Feliza.
Notice of Claim
35.   At the time of the vehicular incident which resulted in the death of
Mendoza’s mother, during which time the Insurance Code had not yet been
amended by Batas Pambansa (B.P.) Blg. 874, Section 384 provided as
follows:
Any person having any claim upon the policy issued pursuant to
this chapter shall, without any unnecessary delay, present to the
insurance company concerned a written notice of claim setting
forth the amount of his loss, and/or the nature, extent and duration
of the injuries sustained as certified by a duly licensed physician.
Notice of claim must be filed within six months from date of the
accident, otherwise, the claim shall be deemed waived. Action or
suit for recovery of damage due to loss or injury must be brought
in proper cases, with the Commission or the Courts within one year
from date of accident, otherwise the claimants right of action shall
prescribe.
36.   It is significant to note that Section 384 was amended by B.P. Blg. 874 to
categorically provide that “action or suit for recovery of damage due to loss
or injury must be brought in proper cases, with the Commissioner or the
Courts within one year from denial of the claim, otherwise the claimant’s
right of action shall prescribe.”
37.   There exist an indispensable requirement of having filed the written claim
mandated by Section 384 of the Insurance Code before and after its
amendment.
38.   Absent such written claim filed by the person suing under an insurance
contract, no cause of action accrues under such insurance contract.
39.   Considering that it is the rejection of that claim that triggers the
running of the one-year prescriptive period to bring suit in court, and
there can be no opportunity for the insurer to even reject a claim if
none has been filed in the first place.
40.   The one-year period should instead be counted from the date of rejection by
the insurer as this is the time when the cause of action accrues.
41.   Travellers therefore asserts that no written claim was filed by Mendoza and
rejected by it, and Mendoza does not dispute such assertion through a denial
in his pleadings, we are constrained to rule that the CA committed
reversible error in finding Travellers liable under an insurance contract the
existence of which had not at all been proven in court.
42.   Even if there were such a contract, Mendoza’s cause of action cannot
prevail because he failed to file the written claim mandated by Section 384
of the Insurance Code. He is deemed, under this legal provision, to have
waived his rights as against Travellers.
 PACIFIC TIMBER EXPORT CORP. v. CA (ALCAZAR)
February 25, 1982 | De Castro, J. | Notice of Loss
PETITIONER: Pacific Timber Export Corporation
RESPONDENTS: Court of Appeals and Workmen’s Insurance Company Inc.
SUMMARY: Plaintiff secured a temporary temporary insurance from the defendant
for its exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs and
the defendant subsequently issued Cover Note No. 1010. Then on April 2, 1963,
defendant issued two more marine insurance policies covering 1,195.498 bd. ft. of
logs. Some of the logs intended to be exported were lost during loading operations
due to bad weather. So on April 4, 1963, Plaintiff filed its claims against insurer
under the 2 marine insurance policies. The defendant then asked an adjuster to
investigate the loss. The adjuster submitted that the 30 pieces of logs lost were not
covered by the two policies issued on April 2, 1963 but were covered by Cover Note
No. 1010. The defendant denied the claims on the ground that Cover Note No. 1010
has already become null and void by virtue of the issuance of Marine Policy Nos. 53
HO 1032 and 1033. The Insurance Commissioner and Trial Court ruled in favor of
the plaintiff while the CA dismissed the case because there was allegedly no
premium paid for the Cover Note. The issue is: Whether the Insurance Company was
absolved from responsibility due to unreasonable delay in giving the notice of loss.
NO. The ground of delay was not promptly and specifically asserted when plaintiff
filed their claim on the insurance agreement. The law requires this ground of delay to
be promptly and specifically asserted when a claim on the insurance agreement is
made. From April 15,1963 the date of receipt of the claim up to July 1963, enough
time was available for the defendant to determine if plaintiff was guilty of delay in
communicating the loss. Defendant also had the opportunity to raise the ground of
delay during the proceedings with the Insurance Commissioner. However, it did not
do so. Even on the assumption that there was delay, waiver can be raised against the
Insurance Company because Section 84 of the Insurance Act provides: Delay in the
presentation to an insurer of notice or proof of loss is waived if caused by any act of
his or if he omits to take objection promptly and specifically upon that ground.
DOCTRINE: Section 84 of the Insurance Act requires that the ground of delay must
be promptly and specifically asserted when a claim on the insurance agreement is
made. The nature of this specific ground for resisting a claim places the insurer on
duty to inquire when the loss took place, so that it could determine whether delay
would be a valid ground upon which to object to a claim against it.
ISSUE/s:
FACTS:
14.   On March 19, 1963 Plaintiff secured temporary insurance from the
defendant for its exportation of 1,250,000 board feet of Philippine Lauan
and Apitong logs to be shipped from the Diapitan Bay, Quezon Province to
Okinawa and Tokyo, Japan.
15.   The defendant issued Cover Note No. 1010, insuring the said cargo of the
plaintiff "Subject to the Terms and Conditions of the WORKMEN'S
INSURANCE COMPANY, INC. printed Marine Policy form as filed with
and approved by the Office of the Insurance Commissioner
16.   On April 2, 1963, two marine cargo insurance policies were issued: Policy
No. 53 H0 1033 for 542 pieces of logs equivalent to 499,950 board feet and
Policy No. 53 H0 1033 was for 853 pieces of logs equivalent to 695,548
board feet. The total cargo insured under the two marine policies
accordingly consisted of 1,395 logs, or the equivalent of 1,195.498 bd. ft.
17.   Some of the logs intended to be exported were lost during loading
operations in the Diapitan Bay.
18.   The logs were taken from the log pond of the plaintiff and from there were
towed in rafts to the vessel. However, while the logs were alongside the
vessel, bad weather developed causing 75 pieces of logs which were rafted
together to break loose from each other. 45 pieces of logs were salvaged,
but 30 pieces were verified to have been lost or washed away as a result of
the accident.
19.   The plaintiff then informed the defendant about the loss of 32 pieces of logs
through a letter dated April 4, 1963. The defendant only received the letter
on April 15, 1963.
20.   The plaintiff subsequently submitted a 'Claim Statement demanding
payment of the loss under Policies Nos. 53 HO 1032 and 53 HO 1033.
21.   The defendant then asked an adjuster to investigate the loss. The adjuster
submitted that the 30 pieces of logs lost were not covered by the two
policies issued on April 2, 1963 but were covered by Cover Note No. 1010
insuring 1,250,000 bd. feet for the amount of $70,000.00.
22.   The defendant denied liability on that its investigation revealed that the
entire shipment of logs covered by the two marines policies No. 53 HO
1032 and 53 HO 1033 were received in good order at their point of
destination.
23.   It was also stated that the loss may not be considered as covered under
Cover Note No. 1010 because the said Note had become 'null and void by
virtue of the issuance of Marine Policy Nos. 53 HO 1032 and 1033'
24.   Insurance Commissioner: Ruled in favor of plaintiff stating that ‘it is only
fair and equitable to indemnify the insured under Cover Note No. 1010,' and
advised early settlement of the said marine loss and salvage claim.
25.   TC: Ruled in favor of Insured
26.   CA: Dismissed the case and ruled that the cover note is void for lack of
valuable consideration as it appeared that no premium payment therefor was
made by PTEC.
2.   Whether a separate premium is needed for cover notes. NO.
73.   [IMPORTANT] Whether the Insurance Company was absolved from
responsibility due to unreasonable delay in giving the notice of loss. NO.
The ground of delay was not promptly and specifically asserted when
plaintiff filed their claim on the insurance agreement.
RULING: ACCORDINGLY, the appealed decision is set aside and the decision of waived if caused by any act of his or if he omits to take objection promptly
the Court of First Instance is reinstated in toto with the affirmance of this Court. No and specifically upon that ground.
special pronouncement as to costs.

RATIO:

Cover note is Valid

4.   The fact that no separate premium was paid on the Cover Note before the
loss insured against occurred, does not militate against the validity of
plaintiff’s contention, for no such premium could have been paid, since by
the nature of the Cover Note, it did not contain, as all Cover Notes do not
contain particulars of the shipment that would serve as basis for the
computation of the premiums. As a logical consequence, no separate
premiums are intended or required to be paid on a Cover Note.
5.   At any rate, it is not disputed that Plaintiff paid in full all the premiums as
called for by the statement issued by Defendant after the issuance of the two
regular marine insurance policies, thereby leaving no account unpaid by
Plaintiff due on the insurance coverage, which must be deemed to include
the Cover Note.
6.   If the Note is to be treated as a separate policy instead of integrating it to the
regular policies subsequently issued, the purpose and function of the Cover
Note would be set at naught or rendered meaningless, for it is in a real sense
a contract, not a mere application for insurance which is a mere offer.

Insurance Company cannot be absolved from liability

74.   The defense of delay as raised by private respondent in resisting the claim
cannot be sustained. The law requires this ground of delay to be promptly
and specifically asserted when a claim on the insurance agreement is made.
75.   The facts show that instead of invoking the ground of delay in objecting to
petitioner's claim of recovery on the cover note, it took steps indicative that
this particular ground for objection to the claim was never in its mind.
76.   The nature of this specific ground for resisting a claim places the insurer on
duty to inquire when the loss took place, so that it could determine whether
delay would be a valid ground upon which to object to a claim against it.
77.   From April 15,1963 the date of receipt of the claim up to July 1963, enough
time was available for the defendant to determine if plaintiff was guilty of
delay in communicating the loss.
78.   Defendant also had the opportunity to raise the ground of delay during the
proceedings with the Insurance Commissioner. However, tt did not do so.
79.   The SC stated that it must be because it did not find any delay, as this Court
fails to find a real and substantial sign thereof.
80.   But even on the assumption that there was delay, waiver can be raised
against the Insurance Company because Section 84 of the Insurance Act
provides: Delay in the presentation to an insurer of notice or proof of loss is
 017 ANG v. FULTON (APASAN)
July, 31, 1961 | Labrador, J. | Statute of Limitations
PETITIONER: Paulo Ang and Sally Ang
RESPONDENTS: Fulton Fire Insurance Co.
SUMMARY: On September 9, 1953, Fulton Fire Insurance Company (Fulton
Insurance) issued a fire insurance policy in favor of P&S Department Store owned
by the Spouses Ang (Spouses Ang) over stocks of general merchandise contained in
the building. On December 17, 1954, the store containing the goods insured was
destroyed by fire. Spouses Ang filed their claim and Fulton Insurance forwarded
this to its adjuster, Manila Adjustment Company (Adjuster). In the meantime, Paulo
Ang and 10 other accused were charged with Arson, but Paulo Ang was acquitted.
Subsequently, the claim was denied and the Spouses Ang received the notice of
denial on April 19, 1956. Hence, this present civil action was filed by the Spouses
Ang on May 5, 1958 against Fulton Insurance and Paramount Surety and Insurance
Company Inc., (Paramount Surety).
CONTENTION OF FULTON: Fulton Insurance objected that the claim had already
been forfeited since under paragraph 13 of the policy, it provides that “if the claim is
made and rejected but no action is commenced within 12 months after such
rejection, all benefits under the policy would be forfeited.” And since in the present
case, the notice of denial was received on April 19, 1956 but the action was filed
only on May 5, 1958, then the claim should be considered as already forfeited.
CONTENTION OF SPOUSES ANG: Spouses Ang replied that they instituted a civil
case on May 11, 1956 (the alleged case was really just mentioned in the reply), and
although the said case was dismissed without prejudice, the filing thereof tolled the
12 month period.
The RTC ruled in favor of the Spouses Ang and held that since the dismissal was due
to a mere procedural lapse (see fact 11[a]) and the dismissal was without prejudice,
then it effectively tolled the running of the period. Hence this petition. Issue is
whether or not the filing of the civil case tolled or suspended the running of the
12-month period as stipulated in the policy – NO, the condition contained in the
insurance policy that claims must be presented within one year after rejection is
NOT merely a procedural requirement. The condition is an important matter,
essential to a prompt settlement of claims against insurance companies, as it
demands that insurance suits be brought by the insured while the evidence as to the
origin and cause of destruction have not yet disappeared. It is in the nature of a
condition precedent to the liability of the insurer, or in other terms, a resolutory
cause, the purpose of which is to terminate all liabilities in case the action is not filed
by the insured within the period stipulated. The bringing of the action against the
Paramount Surety, the agent of Fulton cannot have any legal effect except that of
notifying the agent of the claim. Beyond such notification, the filing of the action can
serve no other purpose. There is no law giving any effect to such action upon the
principal. Besides, there is no condition in the policy that the action must be filed
against the agent, and this Court can not by interpretation, extend the clear scope of
the agreement beyond what is agreed upon by the parties.
DOCTRINE: The condition contained in the insurance policy that claims must be
presented within one year after rejection is NOT merely a procedural requirement.
The condition is an important matter, essential to a prompt settlement of claims
against insurance companies, as it demands that insurance suits be brought by the
insured while the evidence as to the origin and cause of destruction have not yet
disappeared. It is in the nature of a condition precedent to the liability of the insurer,
or in other terms, a resolutory cause, the purpose of which is to terminate all
liabilities in case the action is not filed by the insured within the period stipulated.
FACTS:
Material dates in the case:
April 19, 1956 – receipt of the denial of the claim
May 11, 1956 – first civil case filed by Spouses Ang against Paramount Surety
(Agent)
May 5, 1958 – second civil case filed by Spouses Ang against Fulton Insurance
(principal)
13.   September 9, 1953 – Fulton Fire Insurance Company (Fulton Insurance)
issued a fire insurance policy, in favor of P. & S Department Store (owned
by Spouses Ang) over stocks of general merchandise, consisting principally
of dry goods, contained in a building occupied by the Spouses Ang at
Laoag, Ilocos Norte.
a.   The premium is P500.00 annually.
b.   The insurance was issued for one year, but the same was renewed
for another year on September 31, 1954.
14.   December 17, 1954 – the store containing the goods insured was destroyed
by fire.
15.   December 30 – Spouses Ang executed the first claim form. The claim,
together with all the necessary papers relating thereto, were forwarded to
the Manila Adjustment Company, Fulton's adjusters.
16.   January 12, 1955 – The Manila Adjustment Company accepted receipt of
the claim and requested the submission of the books of accounts of the
insured for the year 1953-1954 and a clearance from the Philippine
Constabulary and the police.
17.   January 13, 1955 – Paulo Ang and ten others (Paulo et al) were charged for
arson in the Court of First Instance of Ilocos Norte. The court acquitted
plaintiff Paulo Ang of the crime of arson.
18.   April 6, 1956 – the Fulton wrote the Spouses Ang that their claim was
denied.
19.   April 19, 1956 – the above denial was received by the Spouses Ang.
20.   May 5, 1958 – this present action was filed by the Spouses Ang. The action
was originally instituted against both Fulton and the Paramount Surety and
Insurance Company, Inc., (Paramount Surety) but on June 16, 1958, upon
motion of the Paramount Surety, the latter was dropped from the complaint.
21.   May 26, 1958 – Fulton filed an answer to the complaint, admitting the
existence of the contract of insurance, its renewal and the loss by fire of the
 department store and the merchandise contained therein, but denying that
the loss by the fire was accidental, alleging that it was occasioned by the
willful act of the plaintiff Paulo Ang himself. It claims that under
paragraph 13 of the policy, if the loss or damage is occasioned by the
willful act of the insured, or if the claim is made and rejected but no action
is commenced within 12 months after such rejection, all benefits under the
policy would be forfeited, and that since the claim of the plaintiffs was
denied and plaintiffs received notice of denial on April 19, 1956, and they
brought the action only on May 5, 1958, all the benefits under the policy
have been forfeited.
22.   February 12, 1959 – Spouses Ang filed a reply to the above answer of the
Fulton, alleging that:
a.   on May 11, 1956, they had instituted Civil Case No. 2949 in the
Court of First Instance of Manila, to assert the claim (NOTE: this
alleged case was really not mentioned in the previous facts);
b.   that this case was dismissed without prejudice on September 3,
1957 and that deducting the period within which said action was
pending, the present action was still within the 12 month period
from April 12, 1956.
23.   The CFI held that the bringing of the civil action on May 11, 1956 (fact
10[a]), tolled the running of the 12 month period within which the action
must be filed. Said the court on this point:
a.   “True, indeed, plaintiffs (Spouses Ang) committed a procedural
mistake in first suing the agent (Paramount Surety) instead of its
principal (Fulton), the herein defendant, as correctly pointed out by
counsel for the defendant. But the mistake being merely
procedural, and the defendant not having been misled by the error,
'There is nothing sacred about process or pleadings, their forms or
contents.”
b.   “The complaint was dismissed by the Court without prejudice on
September 3, 1957, and motion for reconsideration dated
September 21, 1957. The instant complaint was filed on May 8,
1958. The Rules of Court is applicable in the computation of time.
Now, as correctly pointed out by the plaintiffs' counsel, by simple
mathematical computation, the present action was filed leas thin
nine (9) months after the notice of rejection received by plaintiffs
on April 19, 1956, because the filing of the original complaint
stopped the running of the period.”
24.   In view of the reasons thus above quoted, the court rendered decision in
favor of the Spouses Ang. Hence, this petition.
ISSUE:
2.   Whether or not the court below erred in holding that the filing of the
previous suit tolled or suspended the running of the prescriptive period –
YES, - The condition contained in the insurance policy that claims must be
presented within one year after rejection is NOT merely a procedural
requirement.
RULING: Judgment of the CFI was SET ASIDE.
RATIO:
8.   The clause subject of the issue is paragraph 13 of the policy, which reads as
follows:
13. If the claim be in any respect fraudulent, or if any false
declaration is made or used in support thereof, or if any
fraudulent means or devices are used by the Insured or any
one acting on his behalf to obtain any benefit under this
Policy, or, if the loss or damage be occasioned by the willful
act or with connivance of the Insured, or, if the claim be
made and rejected and an action or suit be not
commenced within twelve months after such rejection or
(in case of arbitration place in pursuance of the 18th
condition of this Policy) within twelve months after the
arbitrator or arbitrators or umpire shall have made their
award, all benefits under this Policy shall be forfeited.
9.   Fulton cited in support of its contention the cases of (but only the second
case was explained by the SC in ratio no. 6)
a.   E. Macias & Co. vs. Warner, Barnes & Co., Ltd.,;
b.   E. Macias & Co. vs. China Fire Insurance Co., and
c.   Castillo etc. vs. Metropolitan Insurance Co.,
10.   Paulo et al contend that their action had not yet prescribed at the time of the
bringing of the action, because the period of prescription was interrupted by
the filing of the first action against the Paramount Surety & Insurance Co.,
in accordance with Article 1155 of the Civil Code.
a.   Counsel further argues that the basis of prescription of an action is
the abandonment by a person of his right of action or claim, so that
any act of said person tending to show his intention not to abandon
his right of action or claim, as the filing of the previous action in
the case at bar, interrupts the period of prescription.
b.   Furthermore, counsel argues, the dismissal of the previous action is
without prejudice, which means that plaintiffs have the right to file
another complaint against the principal.
11.   The basic error committed by the trial court is its view that the filing of the
action against the agent of Fulton was "merely a procedural mistake of no
significance or consequence, which may be overlooked." The condition
contained in the insurance policy that claims must be presented within
one year after rejection is NOT merely a procedural requirement. The
condition is an important matter, essential to a prompt settlement of
claims against insurance companies, as it demands that insurance suits
be brought by the insured while the evidence as to the origin and cause
 of destruction have not yet disappeared. It is in the nature of a
condition precedent to the liability of the insurer, or in other terms, a
resolutory cause, the purpose of which is to terminate all liabilities in
case the action is not filed by the insured within the period stipulated.
12.   The bringing of the action against the Paramount Surety, the agent of
Fulton CANNOT have any legal effect except that of notifying the agent
of the claim. Beyond such notification, the filing of the action can serve
no other purpose. There is no law giving any effect to such action upon
the principal. Besides, there is no condition in the policy that the action
must be filed against the agent, and this Court can not by
interpretation, extend the clear scope of the agreement beyond what is
agreed upon by the parties.
13.   The case of E. Macias & Co. vs. China Fire Insurance Co. has settled the
issue presented by Paulo et al in the case at bar definitely against their
claim. In that case, the SC declared that the contractual station in an
insurance policy prevails over the statutory limitation, as well as over
the exceptions to the statutory limitations that the contract necessarily
supersedes the statute (of limitations) and the limitation is in all phases
governed by the former.
14.   As stated in said case and in accordance with the decision of the Supreme
Court of the United States in Riddlesbarger vs. Hartford Fire Insurance Co.,
the rights of the parties flow from the contract of insurance, hence they
are NOT bound by the statute of limitations nor by exemptions thereto.
In the words of our own law, their contract is the law between the parties,
and their agreement that an action on a claim denied by the insurer
must be brought within one year from the denial, governs, NOT the
rules on the prescription of actions.
 018 SUN INSURANCE v. CA and TAN (Arcenas) 12.   August 20, 1983 - Tan filed his claim for fire loss with SUN INSURANCE,
March 13, 1991 | Paras, J. | Statute of Limitations but on February 29, 1984, SUN INSURANCE wrote to Tan denying his
claim.
13.   April 3, 1984 - Tan sought reconsideration of the denial of his claim.
PETITIONER: Sun Insurance Office, Ltd.
14.   September 3, 1985 - Tan's counsel wrote to SUN INSURANCE inquiring
RESPONDENTS: Court of Appeals and Emilio Tan
about the status of his April 3, 1984 request for reconsideration to which
SUN INSURNACE replied that the denial of Tan's claim remained
SUMMARY: Emilio Tan insured his electrical supply store with Sun Insurance (the
unchanged, enclosing copies of petitioners' letters of February 29, 1984 and
store was located inside the building of his brother in Iloilo City). Four days after the
May 17, 1985 (response to petition for reconsideration).
issuance of the policy (Aug 19 ’83), the building burned, including the insured store.
15.   November 20, 1985 - Tan filed a civil case with the RTC but SUN
Tan’s claimed for fire loss the day after (aug 20 ’83) but was denied by Sun
INSURANCE filed a motion to dismiss on the alleged ground that the
Insurance months later (Feb 29 ’84). Tan received the denial letter (apr 2, ’84) and
action had already prescribed.
sought reconsideration (apr 3 ’84). But there was no communication from Sun
16.   RTC RULING: MTD and the subsequent motion for reconsideration was
Insurance so Tan’s counsel inquired about the status a year later (Sep 3, ’85) to
denied
which Sun Insurance reiterated the denial. Hence, Tan filed a civil case against Sun
17.   CA RULING: SUN INSURNANCE’s petition was denied and the court
Insurnace with the RTC. Sun Insurance filed a motion to dismiss alleging that the
held that the court a quo may continue until its final termination. SUN
action had already prescribed. The MTD was denied by RTC which was also
INSURANCE’s MR was also denied.
affirmed by the CA. Hence, this petition. The issue before the SC is w/n the filing of
18.   Hence, the instant petition.
a motion for reconsideration interrupts the 12-month prescriptive period to contest
denial of claim. The Court held in the negative. The clear and unambigious wording
ISSUE/s:
of the insurance policy must be taken and understood in their plain, ordinary and
2.   w/n the filing of a motion for reconsideration interrupts the twelve (12)
popular sense; hence, since condition 27 of the insurance policy states that if no
months prescriptive period to contest the denial of the insurance claim –
action or suit is commenced within 12 months from receipt of rejection or in case of
NO. The clear and unambigious wording of the insurance policy must be
arbitration, within 12 months after due notice of the award made by the arbitrator,
taken and understood in their plain, ordinary and popular sense; hence,
the claim is deemed abandoned and shall not be recoverable. Since Tan admitted
since condition 27 of the insurance policy states that if no action or suit is
that he received a copy of the letter of rejection on April 2, 1984, the 12-month
commenced within 12 months from receipt of rejection or in case of
prescriptive period started to run from the said date of April 2, 1984, for such is the
arbitration, within 12 months after due notice of the award made by the
plain meaning and intention of Section 27 of the insurance policy. Furthermore, it is
arbitrator, the claim is deemed abandoned and shall not be recoverable.
apparent that Section 27 of the insurance policy was stipulated pursuant to Section
63 of the Insurance Code. The condition contained in an insurance policy that claims
RULING: the questioned decision of the Court of Appeals is REVERSED and SET
must be presented within one year after rejection is not merely a procedural
ASIDE, and Civil Case No. 16817 filed with the Regional Trial Court is hereby
requirement but an important matter essential to a prompt settlement of claims
DISMISSED
against insurance companies as it demands that insurance suits be brought by the
insured while the evidence as to the origin and cause of destruction have not yet
RATIO:
disappeared.
Filing of MR does not interrupt 12-month prescriptive period to contest denial of
insurance claim
DOCTRINE: Sec. 63. A condition, stipulation or agreement in any policy of
9.   While it is a cardinal principle of insurance law that a policy or contract of
insurance, limiting the time for commencing an action thereunder to a period of less
insurance is to be construed liberally in favor of the insured and strictly
than one year from the time when the cause of action accrues, is void.
against the insurer company, yet, contracts of insurance, like other
contracts, are to be construed according to the sense and meaning of the
FACTS: terms which the parties themselves have used.
10.   Aug 15, 1983- Emilio Tan (Tan) took from Sun Insurance Office, Ltd (SUN 10.   If such terms are clear and unambiguous, they must be taken and
INSURANCE) a P300,000.00 property insurance policy to cover his understood in their plain, ordinary and popular sense.
interest in the electrical supply store of his brother which is in a building in 11.   Condition 27 of the Insurance Policy, which is the subject of the conflicting
Iloilo City. contentions of the parties, reads:
11.   Aug 19 - Four (4) days after the issuance of the policy, the building was
burned including the insured store.
 a.   27. Action or suit clause — If a claim be made and rejected and an
action or suit be not commenced either in the Insurance
Commission or in any court of competent jurisdiction within
twelve (12) months from receipt of notice of such rejection, or
in case of arbitration taking place as provided herein, within
twelve (12) months after due notice of the award made by the
arbitrator or arbitrators or umpire, then the claim shall for all
purposes be deemed to have been abandoned and shall not
thereafter be recoverable hereunder.
12.   As the terms are very clear and free from any doubt or ambiguity
whatsoever, it must be taken and understood in its plain, ordinary and
popular sense pursuant to the above-cited principle laid down by this Court.
13.   Tan, in his letter addressed to SUN INSURANCE, admitted that he received
a copy of the letter of rejection on April 2, 1984. Thus, the 12-month
prescriptive period started to run from the said date of April 2, 1984, for
such is the plain meaning and intention of Section 27 of the insurance
policy.
14.   While the question of whether or not the insured was definitely advised of
the rejection of his claim through the letter dated February 29, 1984, may
arise, the certainty of the denial of Tan's claim was clearly manifested in
said letter (see end of digest)
15.   In Ang v. Fulton Fire Insurance Co, the Court had settled the rationale for
the necessity of bringing suits against the Insurer within one year from the
rejection of the claim. The condition contained in an insurance policy that
claims must be presented within one year after rejection is not merely a
procedural requirement but an important matter essential to a prompt
settlement of claims against insurance companies as it demands that
insurance suits be brought by the insured while the evidence as to the
origin and cause of destruction have not yet disappeared.
Applying to this case:
16.   It is apparent that Section 27 of the insurance policy was stipulated pursuant
to Section 63 of the Insurance Code, which states that:
a.   Sec. 63. A condition, stipulation or agreement in any policy of
insurance, limiting the time for commencing an action thereunder
to a period of less than one year from the time when the cause of
action accrues, is void.
When does the cause of action accrue?
5.   Tan used two cases to prove his point:
a.   Eagle Star Insurance Co. vs. Chia Yu where the Court held:
i.   The right of the insured to the payment of his loss accrues
from the happening of the loss. However, the cause of
action in an insurance contract does not accrue until
the insured's claim is finally rejected by the insurer.
This is because before such final rejection there is no real
necessity for bringing suit;
b.   ACCFA vs. Alpha Insurance & Surety Co., Inc.
i.   Since "cause of action" requires as essential elements
not only a legal right of the plaintiff and a correlated
obligation of the defendant in violation of the said
legal right, the cause of action does not accrue until the
party obligated (surety) refuses, expressly or impliedly, to
comply with its duty (in this case to pay the amount of the
bond).
6.   Indisputably, the above-cited pronouncements of this Court may be taken to
mean that the insured's cause of action or his right to file a claim either
in the Insurance Commission or in a court of competent jurisdiction
commences from the time of the denial of his claim by the Insurer,
either expressly or impliedly.
7.   But as pointed out by the SUN INSURANCE, the rejection referred to
should be construed as the rejection, in the first instance, for if what is being
referred to is a reiterated rejection conveyed in a resolution of a petition for
reconsideration, such should have been expressly stipulated.
a.   Thus, to allow the filing of a motion for reconsideration to suspend
the running of the prescriptive period of twelve months, a whole
new body of rules on the matter should be promulgated so as to
avoid any conflict that may be brought by it, such as:
i.   whether the mere filing of a plea for reconsideration of a
denial is sufficient or must it be supported by
arguments/affidavits/material evidence;
ii.   how many petitions for reconsideration should be
permitted?
8.   Contrary to Tan’s view, SC held that the use of the phrase "final rejection"
cannot be taken to mean the rejection of a petition for reconsideration
as insisted by CA and Tan. Such was clearly not the meaning
contemplated by this Court. The Insurance policy in said case provides that
the insured should file his claim, first, with the carrier and then with the
insurer. The "final rejection" being referred to in said case is the rejection
by SUN INSURANCE
DENIAL LETTER
We refer to your claim for fire loss of 20th August, 1983 at Huervana St., La Paz, Iloilo City.
We now have the report of our adjusters and after a thorough and careful review of the same
and the accompanying documents at hand, we are rejecting, much to our regrets, liability for
the claim under our policies for one or more of the following reasons:
1. xxx xxx xxx
2. xxx xxx xxx
For your information, we have referred all these matters to our lawyers for their opinion as to
the compensability of your claim, particularly referring to the above violations. It is their
opinion and in fact their strong recomendation to us to deny your claim. By this letter, we do
not intend to waive or relinquish any of our rights or defenses under our policies of insurance.
019 Coastwise Lighterage v. Court of Appeals (Linds)
July 12, 1995 | Francisco, R., J. | Affreightment; Subrogation
 PETITIONER: Coastwise Lighterage Corporation
RESPONDENTS: Court of Appeals, and Phil Gen Insurance
SUMMARY: Pag-asa entered into a contract to transport molasses from Negros
to Manila with Coastwise using latter’s dumb barges which were towed in
tandem by MT Marica, owned by Coastwise. Upon reaching Pier 18 in Manila
bay, one of the barges hit an unknown object, which caused a hole and the
molasses inside were contaminated. Pag-asa rejected the shipment as a total loss.
Pag-asa filed formal claims against PhilGen (Pag-asa’s insurer) and Coastwise.
Coastwise rejected, forcing Philgen to pay the claim amounting to P700T.
Philgen filed a claim against Coastwise by virtue of subrogation. RTC granted.
CA affirmed.
The issues before the Court are whether Coastwise was acting as common carrier
under the agreement, and whether Philgen was subrogated upon payment of Pag-
asa’s goods.
Anent the first issue, Coastwise was a common carrier. Coastwise Lighterage, by
the contract of affreightment, was not converted into a private carrier, but remained a
common carrier and was still liable as such. the presumption of negligence that attaches to
common carriers, once the goods it transports are lost, destroyed or deteriorated, applies
to the petitioner. This presumption, which is overcome only by proof of the exercise of
extraordinary diligence, remained unrebutted in this case. Coastwise was negligent since
the patron of the vessel was unlicensed.
Anent the second issue, Undoubtedly, upon payment by respondent insurer PhilGen of the
amount of P700,000.00 to Pag-asa Sales, Inc., the consignee of the cargo of molasses
totally damaged while being transported by petitioner Coastwise Lighterage, the former
was subrogated into all the rights which Pag-asa Sales, Inc. may have had against the
carrier, herein petitioner Coastwise Lighterage.
DOCTRINE: A common carrier, by the contract of affreightment, was not converted
into a private carrier, but remained a common carrier and was still liable as such.
Payment by the insurer to the assured operated as an equitable assignment to the former
of all remedies which the latter 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 or upon written assignment of claim. It accrues simply
upon payment of the insurance claim by the insurer.
FACTS:
71.   Pag-asa Sales, Inc. entered into a contract to transport molasses from the
province of Negros to Manila with Coastwise Lighterage Corporation
(Coastwise for brevity), using the latter's dumb barges. The barges were
towed in tandem by the tugboat MT Marica, which is likewise owned by
Coastwise.
72.   Upon reaching Manila Bay, while approaching Pier 18, one of the barges,
"Coastwise 9", struck an unknown sunken object. The forward buoyancy
compartment was damaged, and water gushed in through a hole "two inches
wide and twenty-two inches long.
73.   As a consequence, the molasses at the cargo tanks were contaminated and
rendered unfit for the use it was intended. This prompted the consignee,
Pag-asa Sales, Inc. to reject the shipment of molasses as a total loss.
Thereafter, Pag-asa Sales, Inc. filed a formal claim with the insurer of its
lost cargo, herein private respondent, Philippine General Insurance
Company (PhilGen, for short) and against the carrier, herein petitioner,
Coastwise Lighterage.
74.   Coastwise Lighterage denied the claim and it was PhilGen which paid the
consignee, Pag-asa Sales, Inc., the amount of P700,000.00, representing the
value of the damaged cargo of molasses.
75.   In turn, PhilGen then filed an action against Coastwise Lighterage before
the Regional Trial Court of Manila, seeking to recover the amount of
P700,000.00 which it paid to Pag-asa Sales, Inc. for the latter's lost cargo.
76.   PhilGen now claims to be subrogated to all the contractual rights and claims
which the consignee may have against the carrier, which is presumed to
have violated the contract of carriage.
77.   The RTC awarded the amount prayed for by PhilGen. On Coastwise
Lighterage's appeal to the Court of Appeals, the award was affirmed.
ISSUE/s:
3.   Whether petitioner Coastwise Lighterage was transformed into a private
carrier, by virtue of the contract of affreightment which it entered into with
the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact transformed
into a private carrier, did it exercise the ordinary diligence to which a
private carrier is in turn bound.
a.   No, still common carrier, which needs to exercise
extraordinary diligence in the vigilance over cargoes.
4.   Whether the insurer was subrogated into the rights of the consignee against
the carrier, upon payment by the insurer of the value of the consignee's
goods lost while on board one of the carrier's vessels.
RULING: WHEREFORE, premises considered, this petition is DENIED and the
appealed decision affirming the order of Branch 35 of the Regional Trial Court of
Manila for petitioner Coastwise Lighterage to pay respondent Philippine General
Insurance Company the "principal amount of P700,000.00 plus interest thereon at the
legal rate computed from March 29, 1989, the date the complaint was filed until fully
paid and another sum of P100,000.00 as attorney's fees and costs"10 is likewise
hereby AFFIRMED
RATIO:

Arguments before the Court re: first issue
11.   On the first issue, petitioner (Coastwise) contends that the RTC and the
Court of Appeals erred in finding that it was a common carrier. It stresses
the fact that it contracted with Pag-asa Sales, Inc. to transport the shipment
of molasses from Negros Oriental to Manila and refers to this contract as a
"charter agreement". It then proceeds to cite the case of Home Insurance
Company vs. American Steamship Agencies, Inc. wherein this Court held:
". . . a common carrier undertaking to carry a special cargo or chartered to a
special person only becomes a private carrier."
Ruling re: first issue
12.   Petitioner's (Coastwise’) reliance on the aforementioned case is misplaced. In its
entirety, the conclusions of the court are as follows:
a.   Accordingly, the charter party contract is one of affreightment over the
whole vessel, rather than a demise. As such, the liability of the shipowner
for acts or negligence of its captain and crew, would remain in the absence
of stipulation.
13.   The distinction between the two kinds of charter parties (i.e. bareboat or
demise and contract of affreightment) is more clearly set out in the case of
Puromines, Inc. vs. Court of Appeals, wherein we ruled:
a.   Under the demise or bareboat charter of the vessel, the charterer will
generally be regarded as the owner for the voyage or service stipulated.
The charterer mans the vessel with his own people and becomes the owner
pro hac vice, subject to liability to others for damages caused by
negligence. To create a demise, the owner of a vessel must completely and
exclusively relinquish possession, command and navigation thereof to the
charterer, anything short of such a complete transfer is a contract of
affreightment (time or voyage charter party) or not a charter party at all.
b.   On the other hand a contract of affreightment is one in which the owner of
the vessel leases part or all of its space to haul goods for others. It is a
contract for special service to be rendered by the owner of the vessel and
under such contract the general owner retains the possession, command
and navigation of the ship, the charterer or freighter merely having use of
the space in the vessel in return for his payment of the charter hire.
c.   An owner who retains possession of the ship though the hold is the
property of the charterer, remains liable as carrier and must answer for any
breach of duty as to the care, loading and unloading of the cargo
14.   Although a charter party may transform a common carrier into a private one, the
same however is not true in a contract of affreightment on account of the
aforementioned distinctions between the two. Pursuant therefore to the ruling in
the aforecited Puromines case, Coastwise Lighterage, by the contract of
affreightment, was not converted into a private carrier, but remained a
common carrier and was still liable as such.
15.   It follows then that the presumption of negligence that attaches to common carriers,
once the goods it transports are lost, destroyed or deteriorated, applies to the
petitioner. This presumption, which is overcome only by proof of the exercise of
extraordinary diligence, remained unrebutted in this case.
16.   Based on the records, the patron of Coastwise’ vessel was not even licensed.
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an
unlicensed patron cannot safely claim to have exercised extraordinary
diligence, by placing a person whose navigational skills are questionable, at the
helm of the vessel which eventually met the fateful accident. It may also
logically, follow that a person without license to navigate, lacks not just the skill to
do so, but also the utmost familiarity with the usual and safe routes taken by
seasoned and legally authorized ones. Had the patron been licensed, he could be
presumed to have both the skill and the knowledge that would have prevented the
vessel's hitting the sunken derelict ship that lay on their way to Pier 18.
Ruling re: second issue
17.   On the issue of subrogation, which petitioner contends as inapplicable in this case,
we once more rule against the petitioner. We have already found petitioner liable for
breach of the contract of carriage it entered into with Pag-asa Sales, Inc. However,
for the damage sustained by the loss of the cargo which petitioner-carrier was
transporting, it was not the carrier which paid the value thereof to Pag-asa Sales, Inc.
but the latter's insurer, herein private respondent PhilGen.
18.   Article 2207 of the Civil Code is explicit on this point:
a.   Art. 2207. If the plaintiffs 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 violated the contract.
19.   Article 2207 of the Civil Code is founded on the well-settled principle of
subrogation. If the insured property is destroyed or damaged through the fault or
negligence of a party other than the assured, then the insurer, upon payment to the
assured will be subrogated to the rights of the assured to recover from the wrongdoer
to the extent that the insurer has been obligated to pay. Payment by the insurer to the
assured operated as an equitable assignment to the former of all remedies which the
latter 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 or upon written assignment of claim. It accrues simply upon
payment of the insurance claim by the insurer.
20.   Undoubtedly, upon payment by respondent insurer PhilGen of the amount of
P700,000.00 to Pag-asa Sales, Inc., the consignee of the cargo of molasses totally
damaged while being transported by petitioner Coastwise Lighterage, the former
was subrogated into all the rights which Pag-asa Sales, Inc. may have had against
the carrier, herein petitioner Coastwise Lighterage.
 001 GEAGONIA v. CA (BALISONG)
6 Feb. 1995 | Davide, Jr., J. | “Other Insurance” Clause; Insurable Interest in
Mortgage
PETITIONER: Armando Geagonia
RESPONDENTS: Court of Appeals and Country Bankers Insurance Corporation
SUMMARY: Geagonia insured his stocks-in-trade with Country Bankers for
P100,000. Pursuant to Condition 3 requiring disclosure of other insurance policies
covering the same subject matter for more than P200,000, Geagonia declared that
Mercantile Insurance was a co-insurer for P50,000. The goods were razed by fire.
Geagonia filed a claim, Country Bankers denied the claim on the ground that the
Condition 3 was violated when Geagonia did not declare that the goods were also
covered by two insurance policies issued by PFIC for P100,000 each. The PFIC
policies contained loss-payable clauses in favor of mortgagee Cebu Tesing. The
issue is whether Geagonia may claim from Country Bankers. The Court held that he
may. The “Other Insurance” clause is not proscribed by law. It is a provision which
invariably appears in fire insurance policies and is intended to prevent an increase in
the moral hazard. However, in order to constitute a violation, the other insurance
must be upon the same subject matter, the same interest therein, and the same
risk. Condition 3 in the Country Banker’s policy does not absolutely declare void
any violation thereof. It expressly provides that the 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. 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 prohibition applies only to
double insurance, and the nullity of the policy shall only be to the extent exceeding
P200,000.00 of the total policies obtained.
DOCTRINE: In order to constitute a violation, the other insurance must be upon the
same subject matter, the same interest therein, and the same risk.
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.
FACTS:
7.   Geagonia is the owner of Norman's Mart located in the public market of San
Francisco, Agusan del Sur. On 22 December 1989, he obtained from the
Country Bankers a fire insurance policy 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."
8.   Geagonia declared in the policy under the subheading entitled CO-
INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for
P50,000.00.
9.   The policy contained the following condition:
Condition 3. 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 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 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.
10.   On 27 May 1990 a fire broke out in the public market. The insured stocks-
in-trade were completely destroyed. Geagonia filed a claim against Country
Bankers, but the claim was denied because Country Bankers found that at
the time of the loss, Geagonia’s stocks-in-trade were likewise insured by
two insurance policies worth P100,000 each with Philippines First
Insurance, Co., Inc. (PFIC) in violation of the condition in the policy.
11.   The PFIC policies indicate that the insured was Discount Mart under the
proprietorship of Geagonia, and with a mortgage clause making the loss
payable to Cebu Tesing Textiles, as their interest may appear. Hence, this
petition for collection of sum of money for the recovery of P100,000.
12.   The Insurance Commission ruled in favor of Geagonia saying that he had
no knowledge of the PFIC policies because it was Cebu Tesing which
procured them. The CA reversed the IC, holding that Geagonia knew of the
PFIC policies when it procured insurance from Country Bankers as
admitted in his letter dated 18 January 1991.
ISSUE/s:
2.   Whether Geagonia may claim from the policy. YES — Condition 3 in the
Country Banker’s policy does not absolutely declare void any violation
thereof. It expressly provides that the 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.
RULING: WHEREFORE, the instant petition is hereby GRANTED. The decision
of the Court of Appeals in CA-G.R. SP No. 31916 is SET ASIDE and the decision of
the Insurance Commission in Case No. 3340 is REINSTATED.
RATIO:
4.   Geagonia knew of the PFIC policies when he applied for insurance with
Country Bankers. It was incredible that he did not know about the prior
policies since these policies were not new or original. Policy No. GA-28144
was a renewal of Policy No. F-24758, while Policy No. GA-28146 had been
renewed twice, the previous policy being F-24792.

5.   The “Other Insurance” clause is not proscribed by law. It is a provision

which invariably appears in fire insurance policies and is intended to
prevent an increase in the moral hazard. However, in order to constitute a
violation, the other insurance must be upon the same subject matter,
the same interest therein, and the same risk.

6.   As to mortgaged property, the mortgagor and mortgagee have independent

interests therein. The mortgagor’s interest covers the full value of the
property, the mortgagee’s interest is to the extent of the debt to which the
property is attached as security.

7.   In the policy obtained by the mortgagor with loss payable clause in favor of
the mortgagee as his interest may appear, the mortgagee is only a
beneficiary under the contract, and recognized as such by the insurer but not
made a party to the contract itself. Hence, any act of the mortgagor which
defeats his right will also defeat the right of the mortgagee. This kind of
policy covers only such interest as the mortgagee has at the issuing of the
policy. The PFIC policies contain a loss payable clause. This would have
violated the “Other Insurance” clause.

8.   Be that as it may, Condition 3 in the Country Banker’s policy does not

absolutely declare void any violation thereof. It expressly provides that the
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. 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.

9.   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.
 002 PIONEER INSURANCE v. YAP (Buenaventura)
December 19, 1974 | Fernandez, J. | Double Insurance
PETITIONER: Pioneer Insurance and Surety Corporation
RESPONDENTS: Oliva Yap
SUMMARY:
Oliva Yap was the owner of a store in a two-storey building where she sold
shopping bags and footwear.
Yap took out a Fire Insurance Policy No. 4216 from Pioneer Insurance with a
value of P25,000.00 covering her stocks, office furniture, fixtures and fittings.
Among the conditions in the policy executed by the parties are the following:
The Insured shall give notice to the Company of any insurance or insurances
already effected, or which may subsequently be effected and unless such notice
be given and the particulars of such insurance or insurances be stated in, or
endorsed on this Policy by or on behalf of the Company before the occurrence
of any loss or damage, all benefits under this Policy shall be forfeited
Another insurance policy for P20,000.00 issued by Great American covering the
same properties. The endorsement recognized co-insurance by Northwest for
the same value.
Oliva Yap took out another fire insurance policy for P20,000.00 covering the
same properties from the Federal Insurance Company, Inc., which was procured
WITHOUT notice to and the written consent of Pioneer.
A fire broke out in the building, and the store was burned. Yap filed an
insurance claim, but the same was denied for a breach.
Oliva Yap filed a case for payment of the face value of her fire insurance policy.
The insurance company refused to pay because she never informed Pioneer of
another insurer. The trial court decided in favor of Yap. The CA affirmed saying
there was a substitution of insurance policies.
The issue is Whether or not Pioneer should be absolved from liability on the
policy on account of any violation of the co-insurance clause. SC held yes, there
was a violation.
The insurance policy for P20,000.00 issued by the Great American, ceased to be
recognized by them as a co-insurance policy.
The endorsement shows the clear intention of the parties to recognize on the
date the endorsement was made, the existence of only one co-insurance, the
Northwest one. The finding of the Court of Appeals that the Great American
Insurance policy was substituted by the Federal Insurance policy is indeed
contrary to said stipulation.
Other insurance without the consent of Pioneer would avoid the contract. It
required no affirmative act of election on the part of the company to make
operative the clause avoiding the contract, wherever the specified conditions
should occur. Its obligations ceased, unless, being informed of the fact, it
consented to the additional insurance.
DOCTRINE:
The validity of a clause in a fire insurance policy to the effect that the
procurement of additional insurance WITHOUT the consent of the insurer
renders ipso facto the policy void
The obvious purpose of the aforesaid requirement in the policy is to prevent
over-insurance and thus avert the perpetration of fraud. The public, as well as
the insurer, is interested in preventing the situation in which a fire would be
profitable to the insured.
FACTS:
1.   Respondent Oliva Yap was the owner of a store in a two-storey building
where she sold shopping bags and footwear, such as shoes, sandals and
step-ins. Chua Soon Poon, Oliva Yap's son-in-law, was in charge of the
store.
2.   On April 19, 1962, respondent Yap took out Fire Insurance Policy No.
4216 from petitioner Pioneer Insurance & Surety Corporation with a
face value of P25,000.00 covering her stocks, office furniture, fixtures and
fittings of every kind and description. Among the conditions in the policy
executed by the parties are the following:
i.   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
hereby insured, and unless such notice be given and the
particulars of such insurance or insurances be stated in,
or endorsed on this Policy by or on behalf of the
Company before the occurrence of any loss or damage,
all benefits under this Policy shall be forfeited.
ii.   It is understood that, except as may be stated on the face
of this policy there is no other insurance on the property
hereby covered and no other insurance is allowed except
by the consent of the Company endorsed hereon. Any
false declaration or breach or this condition will render
this policy null and void.
3.   At the time of the insurance on April 19, 1962 of Policy No. 4219 in favor
of respondent Yap, an insurance policy for P20,000.00 issued by the
Great American Insurance Company covering the same properties was
noted on said policy as co-insurance. Later, on August 29, 1962, the
parties executed as an endorsement on Policy No. 4219, stating:
i.   It is hereby declared and agreed that the co-insurance
existing at present under this policy is as follows:
P20,000.00 — Northwest Ins., and not as originally
stated. (emphasis supplied)
ii.   Except as varied by this endorsement, all other terms and
conditions remain unchanged.
 4.   Still later, or on September 26, 1962, respondent Oliva Yap took out
another fire insurance policy for P20,000.00 covering the same
properties, this time from the Federal Insurance Company, Inc., which
new policy was, however, procured without notice to and the written
consent of petitioner Pioneer Insurance & Surety Corporation and,
therefore, was not noted as a co-insurance in Policy No. 4219.
5.   At dawn on December 19, 1962, a fire broke out in the building housing
respondent Yap's above-mentioned store, and the said store was burned.
Respondent Yap filed an insurance claim, but the same was denied in on the
ground of "breach and/or violation of any and/or all terms and conditions"
of Policy No. 4219.
6.   Yap filed with the CFI of Manila the present complaint, asking, among
others, for payment of the face value of her fire insurance policy. In its
answer, Pioneer alleged that no property belonging to plaintiff Yap and
covered by the insurance policy was destroyed by the fire; that Yap's claim
was filed out of time; and that Yap took out an insurance policy from
another insurance company without petitioner's knowledge and/or
endorsement, in violation of the express stipulations in Policy No. 4219,
hence, all benefits accruing from the policy were deemed forfeited.
7.   The trial court decided for plaintiff Oliva Yap; and its judgment was
affirmed in full by the Court of Appeals.
ISSUE:
1.   whether or not Pioneer should be absolved from liability on account of any
violation by Yap of the co-insurance clause – YES, The validity of a clause
in a fire insurance policy to the effect that the procurement of additional
insurance without the consent of the insurer renders ipso facto the policy
void
RULING: WHEREFORE, the appealed judgment of the Court of Appeals is
reversed and set aside, and the petitioner absolved from all liability under the policy.
Costs against private respondent. SO ORDERED.
RATIO:
1.   There was a violation by respondent Oliva Yap of the co-insurance clause
contained in Policy No. 4219 that resulted in the avoidance of petitioner's
liability. The insurance policy for P20,000.00 issued by the Great American
Insurance Company covering the same properties of respondent Yap and
duly noted on Policy No. 4219 as c-insurance, ceased, by agreement of the
parties, to be recognized by them as a co-insurance policy.
2.   The Court of Appeals says that the Great American Insurance policy was
substituted by the Federal Insurance policy for the same amount, and
because it was a mere case of substitution, there was no necessity for its
endorsement on Policy No. 4219. This finding, as well as reasoning, suffers
from several flaws. There is no evidence to establish and prove such a
substitution. If anything was substituted for the Great American Insurance
policy, it could only be the Northwest Insurance policy for the same amount
of P20,000.00. The endorsement quoted above shows the clear intention of
the parties to recognize on the date the endorsement was made the existence
of only one co-insurance, and that is the Northwest Insurance policy, which
according to the stipulation of the parties during the hearing and endorsed
only on August 20, 1962. The finding of the Court of Appeals that the Great
American Insurance policy was substituted by the Federal Insurance policy
is unsubstantiated by the evidence of record.
3.   The Court of Appeals would consider petitioner to have waived the formal
requirement of endorsing the policy of co-insurance "since there was
absolutely no showing that it was not aware of said substitution and
preferred to continue the policy." The fallacy of this argument is that,
contrary to Section 1, Rule 131 of the Revised Rules of Court, which
requires each party to prove his own allegations, it would shift to petitioner
Pioneer, respondent Yap's burden of proving her proposition that Pioneer
was aware of the alleged substitution, and with such knowledge preferred to
continue the policy. Respondent Yap cites Gonzales La O vs. Yek Tong Lin
Fire and Marine Insurance Co., Ltd. to justify the assumption but in that
case, unlike here, there was knowledge by the insurer of violations of the
contract, to wit: "If, with the knowledge of the existence of other insurances
which the defendant deemed violations of the contract, it has preferred to
continue the policy, its action amounts to a waiver of the annulment of the
contract ..." A waiver must be express. If it is to be implied from conduct
mainly, said conduct must be clearly indicative of a clear intent to
waive such right. Especially in the case at bar where petitioner is assumed
to have waived a valuable right, nothing less than a clear, positive waiver,
made with full knowledge of the circumstances, must be required.
4.   By the plain terms of the policy, other insurance without the consent of
petitioner would ipso facto avoid the contract. It required no
affirmative act of election on the part of the company to make
operative the clause avoiding the contract, wherever the specified
conditions should occur. Its obligations ceased, unless, being informed of
the fact, it consented to the additional insurance.
5.   The validity of a clause in a fire insurance policy to the effect that the
procurement of additional insurance without the consent of the insurer
renders ipso facto the policy void is well-settled:
6.   In Milwaukee Mechanids' Lumber Co., vs. Gibson, a substantially identical
clause was sustained and enforced, the court saying: "The rule in this state
and practically all of the states is to the effect that a clause in a policy to the
effect that the procurement of additional insurance without the consent of
the insurer renders the policy void is a valid provision. The earlier cases of
Planters Mutual Insurance Co., vs. Green are to the same effect.
7.   Where a policy contains a clause providing that the policy shall be void if
insured has or shall procure any other insurance on the property, the
procurement of additional insurance without the consent of the insurer
avoids the policy." (Planters' Mut. Ins. Ass'n vs. Green)
8.   The policy provided that it should be void in case of other insurance
"without notice and consent of this company. ..." It also authorized the
company to terminate the contract at any time, at its option, by giving notice
and refunding a ratable proportion of the premium. Held, that additional
insurance, unless consented to, or unless a waiver was shown, ipso
facto avoided the contract, and the fact that the company had not, after
notice of such insurance, cancelled the policy, did not justify the legal
conclusion that it had elected to allow it to continue in force." (Johnson vs.
American Fire Ins., Co.)
9.   The aforecited principles have been applied in this jurisdiction in General
Insurance & Surety Corporation vs. Ng Hua. There, the policy issued by the
General Insurance & Surety Corporation in favor of respondent Ng Hua
contained a provision identical with the provisions in Policy No. 4219
quoted above.
10.   “The annotation then, must be deemed to be a warranty that the property
was not insured by any other policy. Violation thereof entitled the insurer to
rescind. Furthermore, even if the annotations were overlooked the defendant
insurer would still be free from liability because there is no question that the
policy issued by General Indemnity has not been stated in nor endorsed on
Policy No. 471 of defendant. The obvious purpose of the aforesaid
requirement in the policy is to prevent over-insurance and thus avert the
perpetration of fraud where a fire would be profitable to the insured
11.   The obvious purpose of the aforesaid requirement in the policy is to
prevent over-insurance and thus avert the perpetration of fraud. The
public, as well as the insurer, is interested in preventing the situation in
which a fire would be profitable to the insured. According to Justice
Story: "The insured has no right to complain, for he assents to comply with
all the stipulation on his side, in order to entitle himself to the benefit of the
contract, which, upon reason or principle, he has no right to ask the court to
dispense with the performance of his own part of the agreement, and yet to
bind the other party to obligations, which, but for those stipulation would
not have been entered into."
Malayan Insurance Co., Inc. v. Phil. First Insurance Co., Inc. (CABUSORA)
July 11, 2012 | Reyes, J. | Double/Overinsurance
PETITIONER: Malayan Insurance Co., Inc.
RESPONDENTS: Philippines First Insurance Co., Inc. and Reputable Forwarder
Services, Inc.
SUMMARY: Wyeth and Reputable entered into a contract of carriage where
Reputable is to deliver Wyeth’s products and that Reputable is to required to secure
said products with an insurance. Wyeth secured an insurance (Marine Insurance
Policy) on its own products from Philippines First and Reputable secured said
products as well with a Special Risk Insurance Policy with Malayan as required by
the contract of carriage. Truck carrying the said cargo was hijacked. Philippines First
paid Wyeth and asked from Reputable for reimbursement. Reputable refused to pay
and impleaded Malayan for the payment in its own insurance policy. Malayan denies
liability according to Secs. 5 and 12 of the SR Insurance Policy with respect to
having double insurance policy.
(Issue) WON Malayan should be liable. YES. There was no double insurance in this
case. Under Sec. 93, Insurance Code, double insurance exists where the same
person is insured by several insurers separately in respect to the same subject and
interest (see elements in Ratio #9). 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.
DOCTRINE: The requirements of double insurance are:
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 this case, the two insurance policies (Marine and Special Risk) were acquired by
two different entities (i.e. Marine by Wyeth and Special Risk by Reputable).
FACTS:
59.   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.
60.   (18 Nov 1993) Wyeth procured Marine Policy No. MAR 13797 from
respondent Philippines First Insurance Co., Inc. (Philippines First) to
secure its products (nutritional, pharmaceutical and other products
usual or incidental to the insured’s business) while in transit to the
Philippines. The policy covers all risks of direct physical loss or damage
from any external cause, if by land, with a limit of P6M per any one
land vehicle.
61.   (1 Dec 1993) Wyeth executed its annual contract of carriage with
Reputable. It was signed by Reputable’s representative however not by
Wyeth’s but the terms thereof still faithfully observed by the parties.
62.   Reputable undertook to answer for "all risks with respect to the goods and shall be
liable to the 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 Wyeth.
63.   (11 Feb 1994) Reputable signed a Special Risk Insurance Policy with
petitioner Malayan for the amount of P1M since the contract of carriage
required Reputable to secure an insurance policy on Wyeth’s goods.
64.   (6 Oct 1994) 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. However, the truck carrying
Wyeth’s products was hijacked by about 10 armed men. They threatened to
kill the truck driver and two helpers if they refuse to turn over the truck.
The hijacked truck was recovered two weeks later without its cargo.
65.   (8 Mar 1995) Philippines First paid Wyeth P2,133,257.00 as indemnity.
66.   Philippines First demanded reimbursement from Reputable who ignored it.
67.   Philippines First instituted an action for sum of money against Reputable.
Complaint stated that Reputable is a "private corporation engaged in the business of
a common carrier."
68.   Reputable claimed (Answer) that it is a private carrier, and it cannot be liable under
the contract of carriage since it was not signed by Wyeth’s representative (Fact #3)
and that the cause of the loss was force majeure (hijacking).
69.   Reputable impleaded Malayan as third-party defendant to collect under the SR
Policy which covered the risk of robbery or hijacking.
70.   Malayan disclaimed liability stating that Sec. 5, SR Policy43, 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.
71.   RTC: Reputable liable to Philippines First for the amount of indemnity it
paid to Wyeth. In turn, Malayan is liable to Reputable to the extent of the
policy coverage.
72.   Malayan appealed. It further contended that it should be liable for no more
than P468,766.70, its alleged pro-rata share of the loss based on the amount
covered by the policy according to Sec. 12, SR Policy44.
43
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.
44
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.
 73.   CA45: Affirmed with modification RTC Decision. Attorney’s fee awarded to 4.   Sec. 5, SR Policy is actually the other insurance clause (also called
Reputable is deleted. "additional insurance" and "double insurance").
74.   Malayan filed an MR which was denied. Hence, this petition. 5.   In a similar case (Geagonia v. CA) the Court upheld Condition No. 3
(similar to Sec. 5) which was a warranty that no other insurance exists and
ISSUE/s: in case of a violation the condition shall not apply when the total
8.   WON Reputable is a private carrier; – NO. The judicial admission that Reputable is a insurance/s in force is not more than P200K. Such condition is not
common carrier which would be conclusive as to the pleader was made by Philippines proscribed by law as its incorporation in the policy is allowed by Sec. 75,
First and not Reputable, thus, such is not conclusive as to Reputable. Reputable actually
Insurance Code. In this case, Sec. 5 does not provide for the nullity of the
consistently claimed that it is a private carrier.
9.   WON Reputable is strictly bound by the stipulations in its contract of carriage with SR Policy but simply limits the liability of Malayan only up to the excess of
Wyeth, such that it should be liable for any risk of loss or damage, for any cause the amount that was not covered by the other insurance policy.
whatsoever, including that due to theft or robbery and other force majeure; – YES. The 6.   In interpreting the "other insurance clause" in Geagonia, the Court ruled
contract provides for such and a private carrier is bound by the stipulations of such that the prohibition applies only in case of double insurance. The Court
contract. ruled that in order to constitute a violation of the clause, the other
10.   WON the RTC and CA erred in rendering "nugatory" Secs. 5 and 12, insurance must be upon same subject matter, the same interest therein,
SR Policy; – YES. Court found that from the intention of the parties was and the same risk. Thus, even though the multiple insurance policies
that both provisions were to apply in case there is double insurance, involved were all issued in the name of the same assured, over the same
however, Court did not found that this was a case of double insurance, the subject matter and covering the same risk, it was ruled that there was no
two insurances being secured by two different entities. violation of the "other insurance clause" since there was no double
11.   WON Reputable should be held solidarily liable with Malayan for the amount of
P998,000.00 due to Philippines First.
insurance.
7.   Sec. 12, SR Policy, on the other hand, is the over insurance clause. More
RULING: WHEREFORE, premises considered, the petition is DENIED. The particularly, it covers the situation where there is over insurance due to
Decision dated February 29, 2008 and Resolution dated August 28, 2008 of the double insurance. In such case, Sec. 15 provides that Malayan shall "not be
Court of Appeals in CA-G.R. CV No. 71204 are hereby AFFIRMED. Cost against liable to pay or contribute more than its ratable proportion of such loss or
petitioner Malayan Insurance Co., Inc. SO ORDERED. damage." This is in accord with the principle of contribution provided under
Sec. 94(e), Insurance Code, which states that "where the insured is over
RATIO: insured by double insurance, each insurer is bound, as between himself and
On the third issue other insurance vis-a-vis over insurance. the other insurers, to contribute ratably to the loss in proportion to the
1.   Malayan refers to Sec. 5, SR Policy as an "over insurance clause" and to amount for which he is liable under his contract."
Sec. 12 as a "modified other insurance clause." 8.   Clearly, both Secs. 5 and 12 presuppose the existence of a double insurance.
2.   Malayan claims that Secs. 5 and 12 are separate provisions applicable under The pivotal question that now arises is whether there is double insurance.
distinct circumstances. Sec. 5 operates in the case were the assured itself 9.   Under Sec. 93, Insurance Code, double insurance exists where the same
who obtained additional insurance coverage on the same property and the person is insured by several insurers separately in respect to the same
loss incurred by Wyeth’s cargo was more than that insured by Philippines subject and interest. Requirements are:
First’s marine policy. While, Sec. 12 will not completely absolve Malayan 1.   The person insured is the same;
if additional insurance coverage on the same cargo were obtained by 2.   Two or more insurers insuring separately;
someone besides Reputable, in which case Malayan’s SR policy will 3.   There is identity of subject matter;
contribute or share ratable proportion of a covered cargo loss." 4.   There is identity of interest insured; and
3.   Malayan’s position cannot be countenanced. 5.   There is identity of the risk or peril insured against.
10.   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,
45
CA findings: (1) Reputable is estopped from assailing the validity of the contract of carriage on the beyond cavil that the said policies were issued to two different persons or
ground of lack of signature of Wyeth s representative/s; (2) Reputable is liable under the contract for the entities. It is undisputed that Wyeth is the recognized insured of Philippines
value of the goods even if the same was lost due to fortuitous event; and (3) Section 12 of the SR Policy First under its Marine Policy, while Reputable is the recognized insured of
prevails over Section 5, it being the latter provision; however, since the ratable proportion provision
of Section 12 applies only in case of double insurance, which is not present, then it should not be
Malayan under the SR Policy.
applied and Malayan should be held liable for the full amount of the policy coverage, that is,
P1,000,000.00.
 11.   The fact that Reputable procured Malayan’s SR Policy over the goods 21.   According to the contract of carriage, Reputable shall be liable to Wyeth for the loss of
of Wyeth pursuant merely to the stipulated requirement under its the goods/products due to any and all causes whatsoever, including theft, robbery and
other force majeure while the goods/products are in transit and until actual delivery to
contract of carriage with the latter does not make Reputable a mere Wyeth’s customers, salesmen and dealers.
agent of Wyeth in obtaining the said SR Policy. On the fourth issue Reputable is not solidarily liable with Malayan.
12.   The interest of Wyeth over the property subject matter of both 22.   There is solidary liability only when the obligation expressly so states, when the law so
insurance contracts is also different and distinct from that of provides or when the nature of the obligation so requires.
Reputable’s. The policy issued by Philippines First was in consideration of 23.   Heirs of George Y. Poe v. Malayan lnsurance Company., lnc.: Where the insurance
the legal and/or equitable interest of Wyeth over its own goods. On the contract provides for indemnity against liability to third persons, the liability of the
insurer is direct and such third persons can directly sue the insurer. The direct
other hand, what was issued by Malayan to Reputable was over the latter’s liability of the insurer under indemnity contracts against third party-liability does
insurable interest over the safety of the goods, which may become the not mean, however, that the insurer can be held solidarily liable with the insured
basis of the latter s liability in case of loss or damage to the property and and/or the other parties found at fault, since they are being held liable under
falls within the contemplation of Sec. 15, Insurance Code. different obligations. The liability of the insured carrier or vehicle owner is based on
13.   There arises no double insurance since they were issued to two different tort, in accordance with the provisions of the Civil Code; while that of the insurer arises
from contract, particularly, the insurance policy:
persons/entities having distinct insurable interests. Necessarily, over
1.   Malayan's obligation is based on the SR Policy while Reputable's is based on the contract
insurance by double insurance cannot likewise exist. of carriage.
14.   Hence, as correctly ruled by the RTC and CA, neither Sec. 5 nor Sec. 12 of
the SR Policy can be applied.
On the first issue Reputable is a private carrier.
15.   Malayan relies on the alleged judicial admission of Philippines First in its complaint that
Reputable is a common carrier. Invoking Sec. 4, Rule 129, Rules on Evidence that "an
admission verbal or written, made by a party in the course of the proceeding in the same
case, does not require proof."
16.   Judicial admissions, such as matters alleged in the pleadings do not require proof, and
need not be offered to be considered by the court however, such allegation, statement, or
admission is conclusive as against the pleader, and that the facts alleged in the
complaint are deemed admissions of the plaintiff and binding upon him.
17.   In this case, the pleader or the plaintiff who alleged that Reputable is a common carrier
was Philippines First. Thus, such cannot be conclusive as to Reputable.
18.   Records show that the alleged judicial admission of Philippines First was essentially
disputed by Reputable in its answer and claimed that latter is actually a private or special
carrier. Also, Malayan in it’s answer admitted such fact. RTC and CA findings that
Reputable is a special or private carrier is warranted by the evidence on record (e.g.
unrebutted testimony of Reputable’s Vice President and General Manager, Mr. William
Ang Lian Suan, who expressly stated in open court that Reputable serves only one
customer, Wyeth).
19.   Article 1732, Civil Code: Common carriers are persons, corporations, firms, or
associations engaged in the business of carrying or transporting passenger or goods, or
both by land, water or air for compensation, offering their services to the public. On the
other hand, a private carrier is one wherein the carriage is generally undertaken by special
agreement and it does not hold itself out to carry goods for the general public. A common
carrier becomes a private carrier when it undertakes to carry a special cargo or chartered
to a special person only. For all intents and purposes, therefore, Reputable operated as a
private/special carrier with regard to its contract of carriage with Wyeth.
On the second issue Reputable is bound by the terms of the contract of carriage.
20.   The extent of a private carrier’s obligation is dictated by the stipulations of a contract it
entered into, provided its stipulations, clauses, terms and conditions are not contrary to
law, morals, good customs, public order, or public policy. "The Civil Code provisions on
common carriers should not be applied where the carrier is not acting as such but as a
private carrier. Public policy governing common carriers has no force where the public at
large is not involved."
 004 PHILAM v. AUDITOR GENERAL (Callueng)
January 18, 1968 | Sanchez, J. | Reinsurance
PETITIONER: The Philippine American Life Insurance Company
RESPONDENTS: The Auditor General
FACTS:
SUMMARY: On January 1950, Philamlife and Airco entered into a reinsurance
treaty where Philamlife agreed to reinsure with Airco the excess of life insurance
on the lives of persons written by Philamlife. In their agreement it is also
stipulated that even though Philamlife is already on a risk for its maximum
retention under policies previously issued, when new policies are applied for and
issued they can cede automatically any amount, within the limits specified. No
question ever arose with respect to the remittances made by Philamlife to Airco
before July 16, 1959, the date of approval of the Margin Law. Subsequently, the
Central Bank of the Philippines collected the sum of P268,747.48 as foreign
exchange margin on Philamlife remittances to Airco made subsequent to July 16,
1959. Philamlife then filed with the Central Bank a claim for refund for the same
amount arguing that the reinsurance premiums remitted were paid on January
1950 and is therefore exempt from the 25% foreign exchange margin fee. The
Acting legal counsel of the Monetary board resolved that reinsurance contracts
entered into and approved by the Central Bank before July 17, 1959 are exempt
from the payment of the 25% foreign exchange margin, even if remittances
thereof are made after July 17, 1959. Still the Auditor of the CB denied
Philamlife’s claim for refund and reconsideration was denied, hence the petition.
ISSUE: WoN Philamlife’s claim was covered by the exemption. NO. The Court
stated that for an exemption to come into play, there must be a reinsurance
policy or, as in the reinsurance treaty provided, a "reinsurance cession" which
may be automatic or facultative. To distinguish, a reinsurance policy is a
contract of indemnity one insurer makes with another to protect the first insurer
from a risk it has already assumed. On the other hand, a reinsurance treaty is
merely an agreement between two insurance companies whereby one agrees to
surrender and the other to accept reinsurance business pursuant to provisions
specified in the treaty. Treaties are contracts for insurance; reinsurance policies
or cessions are contracts of insurance. Although the reinsurance treaty precedes
the Margin Law by over nine years nothing in that treaty obligates Philamlife to
remit to Airco a fixed, certain, and obligatory sum by way of reinsurance
premiums. All that the reinsurance treaty provides on this point is that Philamlife
"agrees to reinsure." The treaty speaks of a probability; not a reality. Philamlife’s
obligation to remit reinsurance premiums becomes fixed and definite upon the
execution of the reinsurance cession. Because, for every life insurance policy
surrendered to Airco, Philamlife agrees to pay premium. It is only after a
reinsurance cession is made that payment of reinsurance premium may be
exacted, as it is only after Philamlife seeks to remit that reinsurance premium
that the obligation to pay the margin fee arises.
DOCTRINE: A reinsurance policy is a contract of indemnity one insurer makes
with another to protect the first insurer from a risk it has already assumed. In
contradistinction a reinsurance treaty is merely an agreement between two
insurance companies whereby one agrees to cede and the other to
accept reinsurance business pursuant to provisions specified in the treaty.
1.   On January 1, 1950, Philippine American Life Insurance Company
(Philamlife), a domestic life insurance corporation, and American
International Reinsurance Company (Airco) of Pembroke, Bermuda, a
corporation organized under the laws of the Republic of Panama, entered
into an agreement — reinsurance treaty — which provides in its
paragraph 1, Article I, the following:
a.   Art. I. On and after the 1st day of January 1950, the Ceding
Company [Philamlife] agrees to reinsure with AIRCO the
entire first excess of such life insurance on the lives of persons
as may be written by the Ceding Company under direct
application over and above its maximum limit of retention for life
insurance, and AIRCO binds itself, subject to the terms and
provisions of this agreement, to accept such reinsurances on the
same terms and for an amount not exceeding its maximum limit for
automatic acceptance of life reinsurance. . . .
2.   By the third paragraph of the same Article I, it is also stipulated that even
though Philamlife "is already on a risk for its maximum retention
under policies previously issued, when new policies are applied for and
issued [Philamlife] can cede automatically any amount, within the limits .
. . specified, on the same terms on which it would be willing to accept the
risk for its own account, if it did not already have its limit of retention."
3.   Reinsurances under said reinsurance treaty of January 1, 1950 may also be
had facultatively upon other cases pursuant to Article II thereof,
whereby Airco's liability begins from acceptance of the risk. These cases
include those set forth in paragraph 2 of the treaty's Article I which
expressly excludes from automatic reinsurance the following: (a) any
application for life insurance with Philamlife which, together with other
papers containing information as to insurability of the risk, shows that "the
total amount of life insurance (including accidental death benefit) applied
for to or already issued by all companies [other life insurance companies
which had previously accepted the risk] exceeds the equivalent of Five
Hundred Thousand Dollars ($500,000) United States currency," and (b) any
life on which Philamlife 'retains for its own account less than its regular
maximum limit of retention for the age, sex, plan, rating and occupation of
the risk.'
4.   Every life insurance policy reinsured under the aforecited agreement "shall
be upon the yearly renewable term plan for the amount at risk under
the policy reinsured."
5.   Philamlife agrees to pay premiums for all reinsurances "on an annual
premium basis."
 6.   It is conceded that no question ever arose with respect to the remittances
made by Philamlife to Airco before July 16, 1959, the date of approval of
the Margin Law.
7.   The Central Bank of the Philippines collected the sum of P268,747.48 as
foreign exchange margin on Philamlife remittances to Airco purportedly
totalling $610,998.63 and made subsequent to July 16, 1959.
8.   Philamlife subsequently filed with the Central Bank a claim for the
refund of the above sum of P268,747.48. The ground therefor was that the
reinsurance premiums so remitted were paid pursuant to the January
1, 1950 reinsurance treaty, and, therefore, were pre-existing obligations
expressly exempt from the margin fee.
9.   The Monetary Board resolved that "reinsurance contracts entered into
and approved by the Central Bank before July 17, 1959 are exempt
from the payment of the 25% foreign exchange margin, even if
remittances thereof are made after July 17, 1959," because such
remittances "are only made in the implementation of a mother
contract, a continuing contract, which is the reinsurance treaty."
10.   The foregoing resolution notwithstanding, the Auditor of the Central
Bank, on April 19, 1961, refused to pass in audit Philamlife's claim for
refund.
11.   Philamlife sought reconsideration with the Auditor General.
12.   The request for reconsideration was denied. The Auditor General in
effect expressed the view that the existence of the reinsurance treaty of
January 1, 1950 did not place reinsurance premia — on reinsurance
effected on or after the approval of the Margin Law on July 17, 1959 —
out of the reach of said statute.
ISSUE/s:
1.   WoN Philamlife’s claim was covered by the exemption. NO, because for
an exemption to come into play, there must be a reinsurance policy or,
as in the reinsurance treaty provided, a "reinsurance cession" which
may be automatic or facultative.
RULING: For the reasons given, the petition for review is hereby denied, and the
ruling of the Auditor General of October 24, 1961 denying refund is hereby affirmed.
RATIO:
1.   True, the reinsurance treaty precedes the Margin Law by over nine years.
Nothing in that treaty, however, obligates Philamlife to remit to Airco a
fixed, certain, and obligatory sum by way of reinsurance premiums. All that
the reinsurance treaty provides on this point is that Philamlife "agrees to
reinsure." The treaty speaks of a probability; not a reality. For, without
reinsurance, no premium is due. Of course, the reinsurance treaty lays down
the duty to remit premiums — if any reinsurance is effected upon the
covenants in that treaty written. So it is that the reinsurance treaty per
se cannot give rise to a contractual obligation calling for the payment of
foreign exchange "issued, approved and outstanding as of the date this Act
[Republic Act 2609] takes effect."
2.   For an exemption to come into play, there must be a reinsurance
policy or, as in the reinsurance treaty provided, a "reinsurance
cession" which may be automatic or facultative.
3.   There should not be any misapprehension as to the distinction between
a reinsurance treaty, on the one hand, and a reinsurance policy or
a reinsurance cession, on the other. The concept of one and the other is well
expressed thus:
a.   . . . A reinsurance policy is thus a contract of indemnity one
insurer makes with another to protect the first insurer from a
risk it has already assumed. . . . In contradistinction a
reinsurance treaty is merely an agreement between two
insurance companies whereby one agrees to cede and the
other to accept reinsurance business pursuant to provisions
specified in the treaty. The practice of issuing policies by
insurance companies includes, among other things, the issuance of
reinsurance policies on standard risks and also on substandard risks
under special arrangements. The lumping of the different
agreements under a contract has resulted in the term known to the
insurance world as "treaties." Such a treaty is, in fact, an agreement
between insurance companies to cover the different situations
described. Reinsurance treaties and reinsurance policies are not
synonymous. Treaties are contracts for insurance; reinsurance
policies or cessions . . . are contracts of insurance.
4.   Philamlife's obligation to remit reinsurance premiums becomes fixed
and definite upon the execution of the reinsurance cession. Because, for
every life insurance policy ceded to Airco, Philamlife agrees to pay
premium. It is only after a reinsurance cession is made that payment of
reinsurance premium may be exacted, as it is only after Philamlife seeks to
remit that reinsurance premium that the obligation to pay the margin fee
arises.
5.   Upon the premise that the margin fee of P268,747.48 was collected on
remittances made on reinsurance effected on or after the Margin Law took
effect, refund thereof does not come within the coverage of the
exemption circumscribed in Section 3 of the said law.
6.   Philamlife’s point is that if the Margin Law were, applied, it "would have
paid much more to have the continuing benefit of reinsurance of its risks
than it has been required to do so by the reinsurance treaty in question" and
that "the theoretical equality between the contracting parties . . . would be
disturbed and one of them placed at a distinct disadvantage in relation to the
other."
7.   This pose at once loses potency on the face of the rule long recognized that,
existing laws form part of the contract "as the measure of the
obligation to perform them by the one party and the right acquired by
the other." Stated otherwise, "[t]he obligation does not inhere and subsist
 in the contract itself, propio vigore, but in the law applicable to the
contract." Indeed, Article 1315 of the Civil Code gives out the precept that
parties to a perfected contract "are bound . . . to all the consequences which,
according to their nature, may be in keeping with . . . law."
8.   Accordingly, when Philamlife entered into the reinsurance treaty of
January 1, 1950 with Airco, it did so with the understanding that the
municipal laws of the Philippines at the time said treaty was executed,
became an unwritten condition thereof. Such municipal laws constitute
part of the obligations of contract. It is in this context that we say that
Republic Act 265, the Central Bank Act, enacted on June 15, 1948 —
previous to the date of the reinsurance treaty — became a part of the
obligations of contract created by the latter. And under Republic Act 265,
reasonable restrictions may be imposed by the State through the
Central Bank on all foreign exchange transactions "in order to protect
the international reserve of the Central Bank during an exchange
crisis." The Margin Law is nothing more than a supplement to the
Central Bank Act; it is a reasonable restriction on transactions in
foreign exchange. It, too, is an additional arm given, the Central Bank to
attain its objectives, to wit: (1) "to maintain monetary stability in the
Philippines;" and (2) "to preserve the international value of the peso and the
convertibility of the peso into other freely convertible currencies." On top of
all these is that that statute was enacted in a background of "dangerously
low international reserves."
9.   That some such law as Republic Act 2609 was envisioned by the
contracting parties, Philamlife and Airco, when the January 1, 1950
reinsurance treaty was executed, may be gleaned from the provisions of
Article VI of said treaty whereunder "[e]xcept in those instances where
AIRCO is taxed directly and independently on premiums collected by it
from the Ceding Company, AIRCO shall reimburse the Ceding Company
for the tax paid on reinsurance premiums paid AIRCO by the Ceding
Company which are not allowed the Ceding Company, as a deduction in the
statement of the Ceding Company."
10.   Philamlife complains that reinsurance contracts abroad would be made
impractical by the imposition of the 25% margin fee. Reasons there are
which should deter us from giving in to this view. First, there is no concrete
evidence that such imposition of the 25% margin fee is unreasonable.
Second, if really continuance of the existing reinsurance treaty becomes
unbearable that contract itself provides that Philamlife may potestatively
write finis thereto on ninety days' written notice. In truth, Philamlife is not
forced to continue its reinsurance treaty indefinitely with Airco.
11.   The Margin Law, Republic Act 2609, it is well to remember, is a
remedial currency measure. It was thus passed to reduce as far as is
practicable the excessive demand for foreign exchange. Philamlife's
stand that because it had a continuing — though revocable — reinsurance
treaty with Airco, all remittances of reinsurance premia made by it to its
foreign reinsurer should be withdrawn from the operation of the Margin
Law, we are constrained to state, is at war with the State's economic policy
of preserving the stability of our currency. Philamlife may not, in the
words of the Solicitor General, "tie the hands of the State and render it
powerless to impose certain margin or cost restrictions on its
remittances of reinsurance premia in foreign exchange to fall due as
policies become reinsurable under said treaty, whenever such
remittances would constitute an excessive demand on our international
reserves."
12.   Viewed from this focal point, there cannot be an impairment of the
obligation of contracts. For, the State may, through its police power,
adopt whatever economic policy may reasonably be deemed to promote
public welfare, and to enforce that policy by legislation adapted to its
purpose.
SEPARATE CONCURRING, FERNANDO, J.
1.   This opinion deals solely with the possible unconstitutional application of
Section 3 of the Law in view of the command of the non-impairment clause.
It is undeniable that the claim made by petitioner Philamlife as to its
applicability cannot be sustained. It is equally accurate to affirm that "the
State may, through its police power, adopt whatever economic policy may
reasonably be deemed to promote public welfare, and to enforce that policy
by legislation adapted to its purpose." In that sense necessarily, the
guarantee against non-impairment as the majority opinions so aptly state
"does not bar a proper exercise of the police power."
2.   Such a statement provokes further thought. It cannot be said without
rendering nugatory the constitutional guarantee of non-impairment, and for
that matter both the equal protection and due process clauses which equally
serve to protect property rights, that at the mere invocation of the police
power, the objection on non-impairment grounds automatically loses force.
Here, as in other cases where governmental authority may trench upon
property rights, the process of balancing, adjustment or harmonization is
called for.
3.   It is not then the formulation of the applicable constitutional principle
which, as above stated, has been set forth with clarity and accuracy that
invites further scrutiny. It is rather the process by which the disposition of a
controversy whenever the protection of the contract clause is sought that, to
my mind, needs additional emphasis.
 005 - PHILAMGEN V CA & FELMAN (CANDELARIA)
June 11, 1997 | Bellosillo, J. | Topic
PETITIONER: PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY
RESPONDENTS: COURT OF APPEALS AND FELMAN SHIPPING LINES
SUMMARY: Coca-Cola loaded on board MV Asilda, a vessel owned and operated
by respondent Felman 7,500 cases of 1L Coca-Cola soft drink bottles to be
transported from Zamboanga to Cebu to Coca-Cola Cebu. The shipment was insured
with Philamgen. MV Asilda left Zamboanga in fine weather, but sank by Zamboanga
del Norte, bringing down her entire cargo. Philamgen was subrogated to Coca-Cola
Cebu’s rights after payment to Coca-Cola due to the damages. Philamgen claimed
from Felman.
The trial court ruled in favor of Felman, stating that it was seaworthy, and that the
damage was due to fortuitous event. In addition, Coca-Cola breached its implied
warranty on the vessel’s seaworthiness. The CA ruled that the MV Asilda was
unseaworthy, but retained the TC ruling that Coca-Cola breached its implied
warranty.
The issue in this case is whether or not Philamgen was properly subrogated to the
rights of Felman, in light of the breach of warranty.
The Court granted the petition, stating that Felman was equally negligent because
the unseaworthiness arose from the point when the ship was on deck. As the shipper,
Felman was negligent in allowing the excessive amount of cargo. The Court also
ruled that there was a breach of warranty of seaworthiness that removed the
entitlement of Coca-Cola from payment of its claim in the policy. When Philamgen
paid the claim, there was in effect a voluntary payment and no right of subrogation
accrued in its favor. Philamgen paid it at its own risk. It is generally held that in
every marine insurance policy, the assured impliedly warrants to the assurer that
the vessel is seaworthy and such warranty is as much a term of the contract as if
expressly written on the face of the policy. However, since under Article 2207 of
the Civil Code gives by equitable assignment to the insurer the right to claim against
a third-party offender, precluded only by a contract of insurance, Philamgen is
entitled to claim from Felman.
DOCTRINE: It is generally held that in every marine insurance policy, the assured
impliedly warrants to the assurer that the vessel is seaworthy and such
warranty is as much a term of the contract as if expressly written on the face of
the policy.
FACTS:
1.   1983: Coca-Cola Bottlers Philippines, Inc. (Coca-Cola), loaded on
board MV Asilda, a vessel owned and operated by respondent Felman
Shipping Lines (Felman), 7,500 cases of 1L Coca-Cola soft drink bottles to
be transported from Zamboanga to Cebu to consignee Coca-Cola PH, Cebu
(Coca-Cola Cebu). The shipment was insured with Philamgen under a
Marine Open Policy.
2.   MV Asilda left Zamboanga in fine weather, but it sank in Zamboanga del
Norte, bringing down her entire cargo.
3.   Coca-Cola Cebu filed a claim with Felman for recovery of damages for the
loss of the soft drink bottles. Filamgen denied prompting Coca-Cola
Cebu to file an insurance claim with Philamgen which paid its claim of
Php 750K.
4.   Under its right of subrogation, Philamgen claimed against Felman which
disclaimed liability. Philamgen sued the ship owner for sum of money
and damages. Philamgen alleged that the sinking and loss of MV Asilda
and its cargo were due to the unseaworthiness as she was put to sea in an
unstable condition, and that it was improperly manned and that its
officers were grossly negligent in failing to take appropriate measures to
proceed a nearby port or beach after the vessel started to list.
5.   Felman filed a Motion to Dismiss alleging there was no right of
subrogation in favor of Philamgen, and that Felman had abandoned its
rights and interests over MV Asilda together with her freight and
appurtenances for the purpose of limiting and extinguishing its liability
under Article 587 of the Code of Commerce.
6.   TC: ruled in favor of Felman. MV Asilda was seaworthy when it left the
port of Zamboanga. The loss of the vessel and its entire shipment could
only be attributed to either a fortuitous event, in which case, no liability
should attach unless there was a stipulation to the contrary, or to the
negligence of the captain and his crew, in which case, Art. 587 of the Code
of Commerce should apply.The lower court further ruled that assuming MV
Asilda was unseaworthy, still PHILAMGEN could not recover from
FELMAN since Coca-Cola has breached its implied warranty on the
vessels seaworthiness. The payment made by Philamgen to the assured was
undue, wrong and mistaken payment. . Since it was not legally owing, it did
not give PHILAMGEN the right of subrogation so as to permit it to bring an
action in court as a subrogee.
7.   CA: MV Asilda was unseaworthy, and that 2,500 cases of Coca-Cola
softdrink bottles were improperly stowed on deck. While 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, the CA still denied
Philamgen’s claim because Coca-Cola’s implied warranty was not complied
with.
ISSUE/s: W/N Philamgen was properly subrogated to the rights of Felman
RULING: SC affirmed the lower courts decision. Pwede rin wherefore.
RATIO: seaworthiness cannot be raised by the assurer without showing concealment
Preliminary Issue #1: Unseaworthiness of the vessel or misrepresentation by the assured.
81.   The vessel MV Asilda was unseaworthy for being top heavy. 90.   The marine policy issued by Philamgen to Coca-Cola had disposed of usual
1.   While the vessel may not have been overloaded, yet the distribution or stowage of warranty of worthiness. The seaworthiness of the vessel as between the
the cargo on board was done in such a manner that the vessel was in top-heavy
Coca-Cola and Philamgen is admitted.
condition at the time of her departure and which condition rendered her unstable
and unseaworthy for that particular voyage. The vessel was designed for fishing, 91.   The result of the admission of seaworthiness by the assurer PHILAMGEN
and was not designed to carry a substantial amount or quantity of cargo on deck. If may mean one or two things: (a) that the warranty of the seaworthiness is to
the cargo had been confined to those that could have been accommodated under be taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed by
deck, her stability would not have been affected, and would not have been in danger the insurance company.
of capsizing.
2.   From the moment that the vessel was utilized to load heavy cargo on its deck, the 92.   The insertion of such waiver clauses in cargo policies is in recognition of
vessel was rendered unseaworthy for the purpose of carrying the type of cargo the realistic fact that cargo owners cannot control the state of the
because the weight of the deck cargo so decreased the vessels metacentric height as vessel. Thus it can be said that with such categorical waiver, PHILAMGEN
to cause it to become unstable.
has accepted the risk of unseaworthiness so that if the ship should sink by
82.   Approximately 2,500 cases of softdrink bottles were stowed on unseaworthiness, as what occurred in this case, PHILAMGEN is liable.
deck. Several days after MV Asilda sank, an estimated 2,500 empty Coca-
Cola plastic cases were recovered near the vicinity of the
sinking. Considering that the ships hatches were properly secured, the
empty Coca-Cola cases recovered could have come only from the vessels
deck cargo.
83.   Carrying a deck cargo raises the presumption of unseaworthiness unless it
can be shown that the deck cargo will not interfere with the proper
management of the ship. It was established that MV Asilda was not designed
to carry substantial amount of cargo on deck.
Preliminary Issue #2: Art. 587 of Code of Commerce not applicable
84.   The ship agent is liable for the negligent acts of the captain in the care of
goods loaded on the vessel. This liability however can be limited through abandonment of the
vessel, its equipment and freightage as provided in Art. 587
85.   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. Art.
587 applies only to situations where the fault or negligence is committed solely by the
captain. Where the shipowner 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.
86.   In addition, Felman was equally negligent because the unseaworthiness arose from the point
when the ship was on deck. As the shipper, Felman was negligent in allowing the excessive
amount of cargo.
SUBROGATION ISSUE:
87.   Due to the unseaworthiness of the vessel, the Court ruled that there was a
breach of warranty of seaworthiness that removed the entitlement of Coca-
Cola from payment of its claim in the policy. When Philamgen paid the
claim, there was in effect a voluntary payment and no right of subrogation
accrued in its favor. Philamgen paid it at its own risk.
88.   It is generally held that in every marine insurance policy, the assured
impliedly warrants to the assurer that the vessel is seaworthy and such
warranty is as much a term of the contract as if expressly written on
the face of the policy.
89.   In policies where the law will generally imply a warranty of seaworthiness,
it can be excluded by terms in writing in the policy in the clearest language.
And where the policy stipulated that the seaworthiness of the vessel
between the assured and the assurer is admitted, the question of
006 MALAYAN INSURANCE v. CA and TKC MARKETING(Castillo)
March 20, 1997 | Romero, J. | Perils of the sea
PETITIONER: Malayan Insurance Corporation
RESPONDENTS: CA, TKC Marketing Corporations
SUMMARY: Respondent TKC was the owner/consignee of some metric tons
of soya bean meal which was loaded on board the ship MV Al Kaziema. Said
cargo was insured against the risk of loss by petitioner Malayan Insurance
Corporation for which it issued two (2) Marine Cargo Policies. While vessel
was docked in South Africa, the civil authorities arrested and detained it
because of a lawsuit on a question of ownership and possession. TKC notified
Malayan and made a claim. Malayan replied that the arrest of the vessel by civil
authority was not a peril covered by the policies. Private respondent TKC
advised petitioner Malayan 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. However, cargo was sold
in South Africa because of its perishable nature, it cannot withstand voyage of
20 days to Manila and another 20 for discharge. TKC reduced its claim,
deducting the proceeds from the sale. Malayan maintains 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. Hence, TKC filed for
damages. Lower court ruled in favor of TKC. CA. affirmed. Issue is WoN the
arrest of the vessel was a risk covered under the subject insurance policies. The
Court ruled in the affirmative saying that the “arrest" in the instant case is
covered under “perils” under the marine policy, and not just arrest caused solely
by executive or political acts. The Court held that with the deletion of Clause 12
in the F.C. & S Clause, the Institute War Clauses was deemed incorporated in
subsection 1of Section 1. With the incorporation of subsection 1.1 of Section
1 of the Institute War Clauses, however, this Court agrees with the Court of
Appeals and the private respondent that “arrest” caused by ordinary
judicial process is deemed included among the covered risks.
DOCTRINE: 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.
FACTS:
1.   Private respondent 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.
2.   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.
3.   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.
4.   As a result, private respondent TKC notified petitioner on October 4, 1989
of the arrest of the vessel and made a formal claim for the amount of
US$916,886.66, representing the dollar equivalent on the policies, for non-
delivery of the cargo. Private respondent likewise sought the assistance of
petitioner on what to do with the cargo.
5.   Petitioner Malayan replied that the arrest of the vessel by civil authority was
not a peril covered by the policies. Private respondent TKC advised
petitioner Malayan 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.
6.   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.
7.   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.
8.   On January 5, 1990, private respondent TKC forthwith reduced its claim to
US$448,806.09 (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.
9.   Petitioner Malayan 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.
10.   This prompted private respondent TKC to file a complaint for damages
praying that aside from its claim, it be reimbursed the amount of
P128,770.88 as legal expenses and the interest it paid for the loan it
obtained to finance the shipment totalling P942,269.30. Private respondent
TKC also asked for moral damages, exemplary damages, and attorney’s
fees.
11.   Lower court decided in favor of private respondent TKC, and required
Malayan to pay insurance claim, and additional consequential and
liquidated damages, exemplary damages, reimbursement, attorney’s fees,
and cost of the suit. Plus interest of 12%.
12.   CA affirmed the decision of lower court stating that with the deletion of
Clause 12 of the policies issued to private respondent, the same became
automatically covered under subsection 1.1 of Section 1 of the Institute War
Clauses.
a.   The arrests, restraints or detainments contemplated in the former
 clause were those effected by political or executive acts. Losses
occasioned by riot or ordinary judicial processes were not covered
therein. In other words, arrest, restraint or detainment within the
meaning of Clause 12 (or F.C. & S. Clause) rules out detention by
ordinary legal processes.
b.   Hence, arrests by civil authorities, such as what happened in the
instant case, is an excepted risk under Clause 12 of the Institute
Cargo Clause or the F.C. & S. Clause.
c.   However, with the deletion of Clause 12 of the Institute Cargo
Clause and the consequent adoption or institution of the Institute
War Clauses (Cargo), the arrest and seizure by judicial processes
which were excluded under the former policy became one of the
covered risks.
13.   The appellate court added that the failure to deliver the consigned goods in
the port of destination is a loss compensable, not only under the Institute
War Clause but also under the Theft, Pilferage, and Non-delivery Clause
(TNPD) of the insurance policies, as read in relation to Section 130 of the
Insurance Code and as held in Williams v. Cole.
14.   The appellate court contended that since the vessel was prevented at an
intermediate port from completing the voyage due to its seizure by civil
authorities, a peril insured against, the liability of petitioner continued until
the goods could have been transhipped.
a.   But due to the perishable nature of the goods, it had to be promptly
sold to minimize loss. Accordingly, the sale of the goods being
reasonable and justified, it should not operate to discharge
petitioner from its contractual liability.
ISSUES:
1.   WoN the arrest of the vessel was a risk covered under the subject insurance
policies – YES, the “arrest" in the instant case is covered under “perils”
under the marine policy, and not just arrest caused solely by executive or
political acts. 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. [MAIN ISSUE]
2.   WoN there was undue reliance on the doctrine that insurance policies are
construed strictly against insurer - NO, 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.
RULING: WHEREFORE, the petition for review is DENIED and the decision of
the Court of Appeals is AFFIRMED.
RATIO:
Arrests included in “perils” covered by policy
1.   Petitioner Malayan submits the following: (a) an arrest by civil authority is
not compensable since the term “arrest” refers to “political or executive
acts” and does not include a loss caused by riot or by ordinary judicial
process as in this case; (b) the deletion of the Free from Capture or Seizure
Clause would leave the assured covered solely for the perils specified by the
wording of the policy itself; (c) the rationale for the exclusion of an arrest
pursuant to judicial authorities is to eliminate collusion between
unscrupulous assured and civil authorities.
2.   The resolution of this controversy hinges on the interpretation of the
“Perils” clause of the subject policies in relation to the excluded risks or
warranty specifically stated therein.
3.   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:
a.   “Touching the adventures which the said MALAYAN
INSURANCE CO., are content to bear, and to take upon them in
this voyage; 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…”
4.   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
which reads, thus:
a.   “Warranted free of capture, seizure, arrest, restraint or detainment,
and the consequences thereof or of any attempt thereat; also from
the consequences of hostilities and warlike operations, whether
there be a declaration of war or not; but this warranty shall not
 exclude collision, contact with any fixed or floating object (other
than a mine or torpedo), stranding, heavy weather or fire unless
caused directly (and independently of the nature of the voyage or
service which the vessel concerned or, in the case of a collision,
any other vessel involved therein is performing) by a hostile act by
or against a belligerent power and for the purpose of this warranty
‘power’ includes any authorities maintaining naval, military or air
forces in association with power.
b.   Further warranted free from the consequences of civil war,
revolution, insurrection, or civil strike arising therefrom or piracy.
c.   Should Clause 12 be deleted, the relevant current institute war
clauses shall be deemed to form part of this insurance.”
5.   However, the F.C. & S. Clause was deleted from the policies.
Consequently, the Institute War Clauses (Cargo) was deemed incorporated
in subsection 1.1 of Section 1.
6.   According to petitioner Malayan, the automatic incorporation of subsection
1.1 of Section 1 of the Institute War Clauses (Cargo), among others, means
that any “capture, arrest, detention, etc.” pertained exclusively to warlike
operations if this Court strictly construes the heading of the said Clauses.
7.   It further claims that on the strength of jurisprudence on the matter, the
term “arrests” would only cover those arising from political or
executive acts, concluding that whether private respondent’s claim is
anchored on subsection 1.1 of Section 1 of the Institute War Clauses
(Cargo) or the F.C. & S. Clause, the arrest of the vessel by judicial
authorities is an excluded risk.
8.   This Court cannot agree with petitioner’s assertions, particularly when it
alleges that in the “Perils” Clause, it assumed the risk of arrest caused solely
by executive or political acts of the government of the seizing state and
thereby excludes “arrests” caused by ordinary legal processes, such as in the
instant case.
9.   With the incorporation of subsection 1.1 of Section 1 of the Institute War
Clauses, however, this Court agrees with the Court of Appeals and the
private respondent that “arrest” caused by ordinary judicial process is
deemed included among the covered risks.
10.   This interpretation becomes inevitable when subsection 1.1 of Section 1 of
the Institute War Clauses provided that “this insurance covers the risks
excluded from the Standard Form of English Marine Policy by the
clause ‘Warranted free of capture, seizure, arrest, etc. x x x’ ” or the
F.C. & S. Clause.
11.   Jurisprudentially, “arrests” caused by ordinary judicial process is also a
risk excluded from the Standard Form of English Marine Policy by the
F.C. & S. Clause.
12.   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.”
13.   This Court agrees with the Court of Appeals when it held that “x x x.
Although the F.C. & S. Clause may have originally been inserted in marine
policies to protect against risks of war, its interpretation in recent years to
include seizure or detention by civil authorities seems consistent with the
general purposes of the clause, x x x.”
14.   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.
Insurance contracts are strictly construed against the company
15.   Respondent TKC argued that Malayan, being the sole author of the policies,
“arrests” should be strictly interpreted against it because the rule is that any
ambiguity is to be taken contra proferentum.
a.   Risk policies should be construed reasonably and in a manner as to
make effective the intentions and expectations of the parties.
b.   It added that the policies clearly stipulate that they cover the risks
of non-delivery of an entire package and that it was petitioner itself
that invited and granted the extensions and collected premiums
thereon.
16.   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.
17.   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.
18.   Exceptions to the general coverage are construed most strongly against the
company.
19.   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.
Subsection 1.1 of Section 1 of Institute of War Clauses:
“1. This insurance covers:
1.1. The risks excluded from the standard form of English Marine Policy by the
clause warranted free of capture, seizure, arrest, restraint or detainment, and the
consequences thereof of hostilities or warlike operations, whether there be a
declaration of war or not; but this warranty shall not exclude collision, contact with
any fixed or floating object (other than a mine or torpedo), stranding, heavy weather
or fire unless caused directly (and independently of the nature on voyage or service
which the vessel concerned or, in the case of a collision any other vessel involved
therein is performing) by a hostile act by or against a belligerent power; and for the
purpose of this warranty ‘power’ includes any authority maintaining naval, military
or air forces in association with a power. Further warranted free from the
consequences of civil war, revolution, rebellion, insurrection, or civil strike arising
therefrom, or piracy.”
 007 CATHAY INSURANCE CO. v. CA (Surname)
June 30, 1987 | Paras, J. | Perils of the Sea/Ship
PETITIONER: CATHAY INSURANCE CO.
RESPONDENTS: HON. COURT OF APPEALS AND REMINGTON
INDUSTRIAL SALES CORPORATION
SUMMARY: Remington filed a claim against Cathay Insurance amounting to
868,339 representing Remington’s losses and damages incurred in a shipment of
seamless steel pipes under an insurance contract in favor of it as the insured,
consignee or importer of the aforesaid merchandise while in transit from Japan
to Philippines on board vessel SS Eadtern Mariner. It was said that during the
voyage, there some rusting of the steel pipes on board. Cathay disclaims liability
on the ground that the rusting of the steel pipe is not considered “perils of the
sea” The issue is WoN the rusting of the steel pipe is a risk covered under the
phrase “peril of the sea? The supreme court rule in the affirmative because
rusting of the steel occurs in the course of the voyage in view of the toll on the
cargo of wind, water and salt conditions
DOCTRINE:
At any rate if the insurer cannot be held accountable therefor, the court would
fail to observe a cardinal rule in the interpretation of contracts, namely, that any
ambiguity therein should be construed against the maker/issuer/drafter thereof,
namely, the insurer.
FACTS:
78.   This case was originated from a complaint filed by Remington corporation
against Cathay insurance seeking collection off the sum of 868,339
representing Remington’s losses and damages incurred in a shipment of
seamless steel pipes under an insurance contract in favor of it as the insured,
consignee or importer of the aforesaid merchandise while in transit from
Japan to Philippines on board vessel SS Eadtern Mariner. The total value of
the shipment was 2.8 million at the prevailing rate of 7.95 pesos to a dollar
in the June and July of 1984 when the shipment was made
79.   RTC Decision: In favor of Remington Corporation ordering Cathay
insurance to pay it the sum of P866,339.15 as its recoverable insured loss
equivalent to 30% of the value of the seamless steel pipes; ordering Cathay
to pay Remington interest on the aforecited amount at the rate of 34% or
double the ceiling prescribed by the Monetary Board per annum from
February 3, 1982 or 90 days from Remington’s submission of proof of loss
to Cathay until paid as provided in the settlement of claim provision of the
policy; and ordering Cathay to pay Remington certain amounts for marine
surveyor's fee, attorney's fees and costs of the suit.
80.   Cathay insurance brought the case before the Supreme Court
81.   Remington in its comment to the petition contends that:
a.   Coverage of Remington’s loss under the insurance policy issued by
Cathay is unmistakable.
b.   Alleged contractual limitations contained in insurance policies are
regarded with extreme caution by courts and are to be strictly
construed against the insurer; obscure phrases and exceptions
should not be allowed to defeat the very purpose for which the
policy was procured.
c.   Rust is not an inherent vice of the seamless steel pipes without
interference of external factors.
d.   No matter how Cathay might want it otherwise, the 15-day clause
of the policy had been foreclosed in the pre-trial order and it was
not even raised in petitioner's answer to private respondent's
complaint.
e.   The decision was correct in not holding that the heavy rusting of
the seamless steel pipes did not occur during the voyage of 7 days
from July 1 to July 7, 1981.
f.   The alleged lack of supposed bad order survey from the arrastre
capitalized on by Cathay was more than clarified by no less than 2
witnesses.
g.   The placing of notation "rusty" in the way bills is not only private
respondent's right but a natural and spontaneous reaction of
whoever received the seamless steel pipes in a rusty condition at
private respondent's bodega.
h.   The Court of Appeals did not engage in any guesswork or
speculation in concluding a loss allowance of 30% in the amount
of P868,339.15.
i.   The rate of 34% per annum double the ceiling prescribed by the
Monetary Board is the rate of interest fixed by the Insurance Policy
itself and the Insurance Code.
82.   While Cathay in its petition maintains that:
a.   Remington does not dispute the fact that, contrary to the finding of
the respondent Court (Cathay has failed "to present any evidence
of any viable exeption to the application of the policy") there is in
fact an express exeption to the application of the policy.
b.   As adverted to in the Petition for Review, Remington has admitted
that the question shipment in not covered by a " square provision
of the contract," but Remington claims implied coverage from
the phrase " perils of the sea" mentioned in the opening
sentenced of the policy.
c.   The insistence of Remington that rusting is a peril of the sea is
erroneous.
d.   Remington inaccurately invokes the rule of strict construction
against insurer under the guise of construction in order to impart a
non-existing ambiguity or doubt into the policy so as to resolve it
against the insurer.
e.   Remington while impliedly admitting that a loss occasioned by an
inherent defect or vice in the insured article is not within the terms
 of the policy, erroneously insists that rusting is not an inherent vice
or in the nature of steel pipes.
f.   Rusting is not a risk insured against, since a risk to be insured
against should be a casualty or some casualty, something which
could not be foreseen as one of the necessary incidents of
adventure.
g.   A fact capable of unquestionable demonstration or of public
knowledge needs no evidence. This fact of unquestionable
demonstration or of public knowledge is that heavy rusting of steel
or iron pipes cannot occur within a period of a seven (7) day
voyage. Besides, Cathay had introduced the clear cargo receipts or
tally sheets indicating that there was no damage on the steel pipes
during the voyage.
h.   The evidence of Remington betrays the fact that the account of
P868,339.15 awarded by the respondent Court is founded on
speculation, surmises or conjectures and the amount of less has not
been proven by competent, satisfactory and clear evidence.

ISSUE/s:
14.   WoN the rusting of the steel pipe is a risk covered under the phrase “peril of
the sea”– YES, because rusting of the steel occurs in the course of the
voyage in view of the toll on the cargo of wind, water and salt conditions

RULING: WHEREFORE, this petition is hereby DENIED, and the assailed

decision of the Court of Appeals is hereby AFFIRMED.

RATIO:
76.   There is no question that the rusting of steel pipes in the course of a
voyage is a "peril of the sea" in view of the toll on the cargo of wind,
water, and salt conditions.
77.   At any rate if the insurer cannot be held accountable therefor, the court
would fail to observe a cardinal rule in the interpretation of contracts,
namely, that any ambiguity therein should be construed against the
maker/issuer/drafter thereof, namely, the insurer.
78.   Besides the precise purpose of insuring cargo during a voyage would be
rendered fruitless. Be it noted that any attack of the 15-day clause in the
policy was foreclosed right in the pre-trial conference.
79.   Finally, it is a cardinal rule that save for certain exceptions, findings of facts
of the appellate tribunal are binding on the SC. Not one of said exceptions
can apply to this case.
 008 Filipino Merchants Insurance Co v. CA (COSCOLLUELA)
November 28, 1989 | Regalado, J. | Insurable Interest (Marine Insurance)
PETITIONER: Filipino Merchants Insurance Co., Inc.
RESPONDENTS: Court of Appeals, Choa Tiek Seng
SUMMARY: Seng was the consignee of a shipment of fishmeal from Bangkok.
Upon arrival at the Port of Manila, it was certified by the arrastre operator Razon,
Filipino Merchants’ surveyor and Reunis that the same was in bad condition. Seng
brought a formal claim with the insurance company Filipino Marchants, but it
refused to pay. Thus, Seng brought suit against the Filipino Merchants. The trial
court and CA ruled that it was liable to Seng. Filipino Merchants, however, argued
that Seng had no insurable interest in the cargo, thus the marine insurance policy is
null and void.
The issue is WoN Seng has insurable interest in the goods.
YES, as consignee of the goods in transit under an invoice containing the terms
under “C & F Manila”, Seng has an insurable interest in the goods. His interest over
the goods is based on the perfected contract of sale. The perfected contract of sale
between him and the shipper of the goods operates to vest in him an equitable title
even before delivery or before he performed the conditions of the sale. The contract
of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in
the determination of whether the vendee has an insurable interest or not in the goods
in transit. The perfected contract of sale even without delivery vests in the vendee an
equitable title, an existing interest over the goods sufficient to be the subject of
insurance. The delivery of the goods on board the carrying vessels partake of the
nature of actual delivery since, from that time, the foreign buyers assumed the risks
of loss of the goods and paid the insurance premium covering them. C & F contracts
are shipment contracts. The term means that the price fixed includes in a lump sum
the cost of the goods and freight to the named destination. It simply means that the
seller must pay the costs and freight necessary to bring the goods to the named
destination but the risk of loss or damage to the goods is transferred from the seller
to the buyer when the goods pass the ship’s rail in the port of shipment.
DOCTRINE: In principle, anyone has an insurable interest in property who derives
a benefit from its existence or would suffer loss from its destruction whether he has
or has not any title in, or lien upon or possession of the property.
FACTS:
ISSUE/s:
75.   Choa Tiek Seng (Seng) was the consignee of a shipment of fishmeal loaded
WoN Seng has insurable interest in the goods – YES, As consignee of the goods in
on board the vessel SS Bougainville owned by Compagnie Maritime Des
transit under an invoice containing the terms under “C & F Manila”, Seng has an
Chargeurs Reunis (Reunis). The same was unloaded at the Port of Manila
insurable interest in the goods.
unto the arrastre contractor E. Razon, Inc. (Razon)
76.   The goods described as 600 metric tons of fishmeal in new gunny bags of
90 kilos each from Bangkok, Thailand were insured by Filipino Merchants
Insurance Co. (Filipino Merchants) against all risks under warehouse to
warehouse terms.
77.   The fishmeal in 666 new gunny bags were unloaded unto Razon and the
surveyor of Filipino Merchant ascertained and certified that in such
discharge 105 bags were in bad order condition as jointy surveyed by
Reunis’ agent.
78.   The condition of the bad order was reflected in the turn over survey report.
The cargo was again surveyed by Razon before delivery to Send and such
condition was reflected in a certificate.
79.   Filipino Merchants’ surveyor conducted a final and detailed survey of the
cargo in the warehouse for which a survey report was prepared with the
findings on the extent of shortage or loss on the bad order bags totaling 227
bags.
80.   Seng made a formal claim against Filipino Merchants for P51,568.62. A
formal claim statement was also presented by Seng against Reunis, but
Filipino Merchants refused to pay the claim. Consequently, Seng brought an
action against Filipino Merchants, and then Filipino Merchants presented a
third-party complaint against Reunis and Razon.
81.   The trial cour ruled in favor of Seng. On the third-party complaint, Reunis
and Razon were ordered to pay Filipino Merchant jointly and severally of
the amounts paid.
82.   On appeal, the CA affirmed the decision of the trial court. It modified the
same with regard to the adjudication of the third-party complaint, absolving
Reunis.
83.   Hence this petition.
84.   Filipino Merchants argue that the CA erred:
1.   In its interpretation and application of the all risks clause of the
maritime insurance policy when it helf that Filipino Merchant was
liable to Seng for the partial loss of the cargo, notwithstanding the
clear absence of proof of some fortuitous event, casualty, or
accidental cause to which the loss is attributable
2.   In not holding that Seng had no insurable interest in the
subject cargo, hence, the marine insurance policy taken out is
null and void
3.   In not holding that Send was guilty of fraud in not disclosing
the fact, it being bound out of utmost good faith to do so, that it
had no insurable interest in the subject cargo, which bars its
recovery on the policy
RULING: WHEREFORE, the instant petition is DENIED and the assailed decision
of the respondent Court of Appeals is AFFIRMED in toto. SO ORDERED.

RATIO:
93.   As consignee of the goods in transit under an invoice containing the terms
under “C & F Manila”, Seng has an insurable interest in the goods.
94.   Sec. 13 of the Insurance Code defines insurable interest in property 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.
95.   In principle, anyone has an insurable interest in property who derives a
benefit from its existence or would suffer loss from its destruction whether
he has or has not any title in, or lien upon or possession of the property.
96.   Seng, as vendee/consignee of the goods in transit has such existing interest
therein as may be the subject of a valid contract of insurance.
97.   His interest over the goods is based on the perfected contract of sale. The
perfected contract of sale between him and the shipper of the goods operates
to vest in him an equitable title even before delivery or before he performed
the conditions of the sale.
98.   The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this
case, is immaterial in the determination of whether the vendee has an
insurable interest or not in the goods in transit. The perfected contract of
sale even without delivery vests in the vendee an equitable title, an existing
interest over the goods sufficient to be the subject of insurance.
99.   Further, Article 1523 of the Civil Code provides that where, in pursuance of
a contract of sale, the seller is authorized or required to send the goods to
the buyer, delivery of the goods to a carrier, whether named by the buyer or
not, for, the purpose of transmission to the buyer is deemed to be a delivery
of the goods to the buyer, the exceptions to said rule not obtaining in the
present case.
100.  The delivery of the goods on board the carrying vessels partake of the
nature of actual delivery since, from that time, the foreign buyers assumed
the risks of loss of the goods and paid the insurance premium covering
them.
101.  C & F contracts are shipment contracts. The term means that the price fixed
includes in a lump sum the cost of the goods and freight to the named
destination. It simply means that the seller must pay the costs and freight
necessary to bring the goods to the named destination but the risk of loss or
damage to the goods is transferred from the seller to the buyer when the
goods pass the ship’s rail in the port of shipment
102.  Moreover, the issue of lack of insurable interest was not among the defenses
averred in Filipino Merchants’ answer. It is a settled rule that an issue
which has not been raised in the court a quo cannot be raised for the first
time on appeal as it would be offensive to the basic rules of fair play, justice
and due process.
 009 DELSAN TRANSPORT v. CA (CASTRO edited by CRUZ)
 
15 November 2001 | De Leon, J. | Implied Warranties FACTS:
83.   Caltex entered into a contract of affreightment (legal term used in shipping)
PETITIONER: DELSAN TRANSPORT LINES, INC with Delsan Transport for a period of one year whereby the latter agreed to
RESPONDENTS: THE HON. COURT OF APPEALS and AMERICAN transport Caltex’s indusrial fuel oil from Batangas-Bataan refinery to other
HOME ASSURANCE CORPORATION parts of the country
84.   Under the said contract, Delsan took on board its vessel, MT Maysun the
SUMMARY: industrial fuel oil of Caltex to be delivered to Caltex Oil Terminal in
Common carrier company: Delsan Transport Zamboanga
Vessel proper: MT Maysun 85.   The shipment was insured with American Home Assurance
Shipper: Caltex 86.   MT Maysun set sail from Batangas for Zamboanga. Unfortunately, the
Insurance company: American Home Assurance vessel sank near Panay Gulf in the Visayas taking with it the entire cargo of
fuel il
Caltex entered into a shipping contract with Delsan Transport. The latter took on 87.   Subsequently, American Home Assurance paid Caltex, the sum of 5,096,
board in its vessel (MT Maysun) the industial fuel oil of Caltex from the 635.57 representing the insured value of the lost cargo
Batangas-Bataan Refinery to Zamboanga. The said cargo is insured to American 88.   Exercising its rght of subrogation under Art. 220746 of the New Civil Code,
Home Assurance. Unfortunately, MT Maysun sank and American Home paid Ameican Home demanded from Delsan the same amount it paid to Caltex
Caltex the amount of the lost cargo. After the said payment, on the basis of 89.   Due to its failure to collect from Delsan despite prior demand, American
Subrogation under Art. 2207, American Home asked Delsan to pay them for the Home filed a complaint before the RTC of Makati for collection of sum of
amount of the insured cargo. However, Delsan refused to pay. American Home money.
sued Delsan for collection of sum of money. RTC dismissed the complaint. CA 90.   RTC dismissed the complaint. The trial court found that the vessel, was
reversed the decision and ordered Delsan to pay American Home. seaworthy to undertake the voyage as determined by the PH Coast Guard
per survey certificate upon inspection during its annual dry-docking and
Delsan argues that American Home’s payment of insurance policy is an implied that the incident was caused by unexpected inclement weather condition or
force majeure, thus exempting Delsan from liability for the loss of its cargo
admission of MT Maysun’s seaworthiness. The issue is WoN said payment of
91.   The decision of the trial court, however, was reversed, on appeal, by the
insurance policy is an implied admission of MT Maysun’s seaworthiness Court of Appeals. The appellate court gave credence to the weather report
and therefore not liable for payment. The SC ruled on the negative saying that issued by the Philippine Atmospheric, Geophysical and Astronomical
though payment made by American Home for the insured value of the lost cargo Services Administration (PAGASA for brevity) which showed that from
operates as waiver of its right to enforce the term of implied warranty against 2:00 oclock to 8:00 oclock in the morning on August 16, 1986, the wind
Caltex under the marine insurance, this cannot be validly interpreted as an speed remained at 10 to 20 knots per hour while the waves measured
automatic admission of the sea vessels seaworthiness as to foreclose recourse for from .7 to two (2) meters in height only in the vicinity of the Panay Gulf
where the subject vessel sank, in contrast to herein Delsan’s allegation that
any obligation as a common carrier. The fact of payment by American Home
the waves were twenty (20) feet high.
grants it the subrogatory right which enables it to exercise legal remedies that 92.   PETITIONER DELSAN’S ARGUMENT: It invokes the provision of
would be available to Caltex as owner of the lost cargo against the common
carrier.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46

  Art.
  2207.
  If
  the
  plaintiffs
  property
  has
  been
  insured,
  and
  he
  has
 
received
  indemnity
  from
  the
  insurance
  company
  for
  the
  injury
  or
  loss
 
DOCTRINE:
Section 113 of the Insurance Code of the Philippines states that in every marine
arising
  out
  of
  the
  wrong
  or
  breach
  of
  contract
  complained
  of,
  the
 
insurance upon a ship or freight, or freightage, or upon any thing which is the insurance
  company
  shall
  be
  subrogated
  to
  the
  rights
  of
  the
  insured
 
subject of marine insurance there is an implied warranty by the shipper that the against
 the
 wrongdoer
 or
 the
 person
 who
 has
 violated
 the
 contract.
 If
 
ship is seaworthy. Consequently, the insurer will not be liable to the assured for the
 amount
 paid
 by
 the
 insurance
 company
 does
 not
 fully
 cover
 the
 
any loss under the policy in case the vessel would later on be found as not
seaworthy at the inception of the insurance. injury
  or
  loss,
  the
  aggrieved
  party
  shall
  be
  entitled
  to
  recover
  the
 
deficiency
 from
 the
 person
 causing
 the
 loss
 or
 injury.
 
 Section 113 of the Insurance Code of the Philippines, which states that in
every marine insurance upon a ship or freight, or freightage, or upon
any thing which is the subject of marine insurance there is an implied
warranty by the shipper that the ship is seaworthy. Consequently, the
insurer will not be liable to the assured for any loss under the policy in
case the vessel would later on be found as not seaworthy at the
inception of the insurance.
a.   It theorized that when American Home paid Caltex the value of its
lost cargo, its act is equivalent to a tacit recognition that the ill-
fated vessel was seaworthy; otherwise, American Home was not
legally liable to Caltex due to the latters breach of implied
warranty under the marine insurance policy that the vessel was
seaworthy.
93.   It also alleges that the Court of Appeals erred in ruling that MT Maysun
was not seaworthy on the ground that the marine officer who served as the
chief mate of the vessel, Francisco Berina, was allegedly not qualified.
Under Section 116 of the Insurance Code of the Philippines, the implied
warranty of seaworthiness of the vessel, which the private respondent
admitted as having been fulfilled by its payment of the insurance
proceeds to Caltex of its lost cargo, extends to the vessels complement.
Besides, petitioner avers that although Berina had merely a 2nd officers
license, he was qualified to act as the vessels chief officer
ISSUE/s:
15.   WoN the payment of American Home to Calex for the insured value of the
lost cargo amounted to an admission that the vessel was seaworthy – No,
there is no provision in the contract of insurance that said payment is an
admission that such vessel is seaworthy besides it would run contrary to the
nature of an insurance policy itself
16.   WoN the non-presentation of the arine insurance policy bars the complaint
for recovery of sum of lack of money for lack of cause of action – No, mere
failure to present its insurance policy is not a ground to dismiss the case for
lack of cause of action
RULING: WHEREFORE, the instant petition is DENIED. The Decision dated
June 17, 1996 of the Court of Appeals in CA-G.R. CV No. 39836 is AFFIRMED.
Costs against the petitioner.
SO ORDERED
RATIO:
NOT AN ADMISSION OF VESSEL’S SEAWORTHINESS
80.   Though payment made by American Home for the insured value of the lost
cargo operates as waiver of its right to enforce the term of implied warranty
against Caltex under the marine insurance, this cannot be validly
interpreted as an automatic admission of the sea vessels seaworthiness
as to foreclose recourse for any obligation as a common carrier
81.   The fact of payment by American Home grants it the subrogatory right
which enables it to exercise legal remedies that would be available to
Caltex as owner of the lost cargo against the common carrier.
82.   The right of subrogation has its roots in equity. It is designed to promote
and to accomplish justice and is the mode which equity adopts to compel
the ultimate payment of a debt by one who in justice and good conscience
ought to pay. It is not dependent upon, nor does it grow out of, any privity
of contract or upon written assignment of claim. It accrues simply upon
payment by the insurance company of the insurance claim.
83.   From the nature of their business and for reasons of public policy, common
carriers are bound to observe extraordinary diligence in the vigilance over
the goods and for the safety of passengers transported by them, according to
all the circumstances of each case.
84.   In the event of loss, destruction or deterioration of the insured goods,
common carriers shall be responsible unless the same is brought about,
among others, by flood, storm, earthquake, lightning or other natural
disaster or calamity.
85.   In order to escape liability for the loss of its cargo of industrial fuel oil
belonging to Caltex, Delsan attributes the sinking of MT Maysun to
fortuitous event or force majeure. From the testimonies of Jaime Jarabe and
Francisco Berina, captain and chief mate, respectively of the ill-fated vessel,
it appears that a sudden and unexpected change of weather condition
occurred in the early morning of August 16, 1986; that at around 3:15
oclock in the morning a squall (unos) carrying strong winds with an
approximate velocity of 30 knots per hour and big waves averaging
eighteen (18) to twenty (20) feet high, repeatedly buffeted MT Maysun
causing it to tilt, take in water and eventually sink with its cargo
86.   This tale of strong winds and big waves by the said officers of the petitioner
however, was effectively rebutted and belied by the weather report[15] from
the Philippine Atmospheric, Geophysical and Astronomical Services
Administration (PAGASA), the independent government agency charged
with monitoring weather and sea conditions, showing that from 2:00 oclock
to 8:00 oclock in the morning on August 16, 1986, the wind speed remained
at ten (10) to twenty (20) knots per hour while the height of the waves
ranged from .7 to two (2) meters in the vicinity of Cuyo East Pass and
Panay Gulf where the subject vessel sank. Thus, as the appellate court
correctly ruled, petitioners vessel, MT Maysun, sank with its entire cargo
for the reason that it was not seaworthy. There was no squall or bad weather
or extremely poor sea condition in the vicinity when the said vessel sank.
87.   The appellate court also correctly opined that the Delsan’s witnesses, Jaime
Jarabe and Francisco Berina, ship captain and chief mate, respectively, of
the said vessel, could not be expected to testify against the interest of their
 employer, the herein common carrier.
88.   Neither may Delsan escape liability on the basis of certificates at the time of
dry-docking and inspection, because at that time the ship may have
appeared fit, however it does not negate the presumption of
unseaworthiness triggered by an unexplained sinking.
89.   Additionally, the exoneration of MT Maysuns officers and crew by the
Board of Marine Inquiry merely concerns their respective administrative
liabilities. It does not in any way operate to absolve the petitioner common
carrier from its civil liability arising from its failure to observe
extraordinary diligence in the vigilance over the goods it was transporting
and for the negligent acts or omissions of its employees, the determination
of which properly belongs to the courts.

NON-PRESENTATION OF INSURANCE POLICY

90.   Presentation in evidence of the marine insurance policy is not indispensable
in this case before the insurer may recover from the common carrier the
insured value of the lost cargo in the exercise of its subrogatory right. The
subrogation receipt, by itself, is sufficient to establish not only the
relationship of herein American Home as insurer and Caltex, as the
assured shipper of the lost cargo of industrial fuel oil, 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
 010 Oriental Assurance Corp. v. CA (Daguman) Voyage or Period of Insurance:
From Palawan-ETD January 16, 1986
August 9, 1991 | Melencio-Herrera, J. | Loss To: Manila

PETITIONER: Oriental Assurance Corporation Subject matter Insured:

2,000 cubic meters apitong Logs
RESPONDENTS: Court of Appeals and Panama Saw Mill Co. Agreed Value
Amount Insured Hereunder:
SUMMARY: Panama Sawmill Co bought apitong logs to be shipped from Pesos: One Million Only (P1,000,000.00)
Palawan to Manila vila Transpacific Towage. These logs were insured against Philippine Currency
Premium — P2,500.00 rate — 0.250%
loss with Oriental Assurance corporation. The logs were loaded on two barges. Doc. stamps 187.60 Invoice No. 157862
On the way to Manila, one of the barges was damages causing the loss of 497 l % P/tax 25.00
out of the 598 logs loaded on it. When Panama demanded payment for the loss, TOTAL P2,712.50
Oriental refused to pay since not all the shipment were lost (as stipulated in their CLAUSES, ENDORSEMENTS, SPECIAL CONDITIONS and WARRANTIES
Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to the following clauses:
insurance contract). Both the RTC and CA ruled in favor of Panama saying that — Civil Code Article 1250 Waiver clause
the insurance contract should be liberally construed in order to avoid a denial of — Typhoon warranty clause
substantial justice and that the logs loaded in the two barges should be treated — Omnibus clause.
separately. Issue WoN Oriental Assurance can be held liable under its marine
insurance policy based on the theory of a divisible contract of insurance, and 96.   The logs were loaded on two (2) barges: (1) on barge PCT-7000,610 pieces
consequently, a constructive loss? – NO, because the fact that the logs were of logs with a volume of 1,000 cubicmeters; and (2) on Barge TPAC-1000,
loaded on two different barges did not make the contract several and divisible as 598 pieces of logs, also with a volume of 1,000 cubic meters. On 28
to the items insured. The logs on the two barges were not separately valued or January 1986, the two barges were towed by one tug-boat, the MT
separately insured. Only one premium was paid for the entire shipment, making 'Seminole' But, as fate would have it, during the voyage, rough seas and
for only one cause or consideration. The insurance contract must, therefore, be strong winds caused damage to Barge TPAC-1000 resulting in the loss
considered indivisible. of 497 pieces of logs out of the 598 pieces loaded thereon.
97.   Panama demanded payment for the loss but Oriental Assurance refuse on
DOCTRINE: The terms of the contract constitute the measure of the insurer the ground that its contracted liability was for "TOTAL LOSS ONLY." The
liability and compliance therewith is a condition precedent to the insured's right rejection was upon the recommendation of the Tan Gatue Adjustment
to recovery from the insurer. Whether a contract is entire or severable is a Company
question of intention to be determined by the language employed by the parties 98.   Unable to convince Oriental Assurance to pay its claim, Panama filed a
Complaint for Damages against Ever Insurance Agency (allegedly, also
FACTS: liable), Benito Sy Lee Yong and Oriental Assurance, before the Regional
94.   Panama Sawmill Co. (Panama) bought in Palawan, 1208 pieces of Apitong Trial Court,  Kalookan
Logs, with a volume of 2000 cubic meters. It hired Transpacific Towage, to 99.   The trial court ruled in favor of Panama.
transport the logs to Manila and insured it against loss for 1M pesos with 100.  CA affirmed the judgment.
Oriental Assurance. 101.  Both Courts shared the view that the insurance contract should be liberally
95.   There is a claim by Panama that the insurance coverage could have been for construed in order to avoid a denial of substantial justice; and that the logs
3M pesos were it not for the fraudulent act of Benito Ling to whom it had loaded in the two barges should be treated separately such that the loss
entrusted the amount of 6k for the payment of the premium for a 3M policy. sustained by the shipment in one of them may be considered as
"constructive total loss" and correspondingly compensable.
Oriental Assurance issued Marine Insurance Policy No. OACM 86/002, which stipulated, among others: 102.  In this Petition for Review on Certiorari, Oriental Assurance challenges the
aforesaid dispositions. In its Comment, Panama, in turn, maintains that the
Name of Insured: constructive total loss should be based on a policy value of P3-M and not
Panama Sawmill, Inc.
Karuhatan, Valenzuela
P1-M, and prays that the award to Ever Insurance Agency or Antonio Sy
Metro Manila Lee Yong of damages and attorney's fees be set aside.
ISSUE/s:
Vessel: 1.   WoN   Oriental   Assurance   can   be   held   liable   under   its   marine   insurance  
MT. 'Seminole' Barge PCT 7,000-1,000 cubic meter apitong Logs
Barge Transpac 1,000-1,000 cubic meter apitong Logs policy   based   on   the   theory   of   a   divisible   contract   of   insurance,   and  
 consequently,  a  constructive  loss?  –  NO,  because  the fact that the logs were Thus, it concluded that the loss of 497 pieces of logs from barge TPAC-
loaded on two different barges did not make the contract several and 1000, mathematically speaking, is more than three-fourths (¾) of the 598
divisible as to the items insured. The logs on the two barges were not pieces of logs loaded in that barge and may, therefore, be considered as
separately valued or separately insured. Only one premium was paid for the constructive total loss.
entire shipment, making for only one cause or consideration. The insurance 7.   The basis thus used is, in our opinion, reversible error. The
contract must, therefore, be considered indivisible. requirements for the application of Section 139 of the Insurance Code,
quoted above, have not been met. The logs involved, although placed in
RULING: Judgment in question is dismissed. two barges, were not separately valued by the policy, nor separately
insured. Resultantly, the logs lost in barge TPAC-1000 in relation to the
RATIO: total number of logs loaded on the same barge cannot be made the basis
2.   Whether a contract is entire or severable is a question of intention to be for determining constructive total loss.
determined by the language employed by the parties. The policy in question 8.   The logs having been insured as one inseparable unit, the correct basis for
shows that the subject matter insured was the entire shipment of 2,000 cubic determining the existence of constructive total loss is the totality of the
meters of apitong logs. shipment of logs. Of the entirety of 1,208, pieces of logs, only 497 pieces
3.   The fact that the logs were loaded on two different barges did not make thereof were lost or 41.45% of the entire shipment. Since the cost of those
the contract several and divisible as to the items insured. The logs on 497 pieces does not exceed 75% of the value of all 1,208 pieces of logs, the
the two barges were not separately valued or separately insured. Only shipment cannot be said to have sustained a constructive total loss under
one premium was paid for the entire shipment, making for only one Section 139(a) of the Insurance Code.
cause or consideration. The insurance contract must, therefore, be 9.   In the absence of either actual or constructive total loss, there can be no
considered indivisible. recovery by the insured Panama against the  insurer,  Oriental  Assurance.
4.   More importantly, the insurer's liability was for "total loss only." A total
loss may be either actual or constructive (Sec. 129, Insurance Code). An  
actual total loss is caused by:

(a) A total destruction of the thing insured;

(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the purpose
for which he held it; or
(d) Any other event which effectively deprives the owner of the possession, at the
port of destination, of the thing insured. (Section 130, Insurance Code).

5.   A constructive total loss is one which gives to a person insured a right to

abandon, under Section 139 of the Insurance Code. This provision reads:

SECTION 139. A person insured by a contract of marine insurance may abandon the
thing insured, or any particular portion thereof separately valued by the policy, or
otherwise separately insured, and recover for a total loss thereof, when the cause of
the loss is a peril injured against,

(a)   If more than three-fourths thereof in value is actually lost, or would have to
be expended to recover it from the peril; (b) If it is injured to such an extent
as to reduce its value more than three-fourths.

6.   The CA treated the loss as a constructive total loss, and for the purpose of
computing the more than three-fourths value of the logs actually lost,
considered the cargo in one barge as separate from the logs in the other.
 011 KEPPEL CEBU SHIPYARD v. PIONEER INSURANCE (Dim)
September 25, 2009 | J. Nachura | Loss or Abandonment
PETITIONER: Keppel Cebu Shipyard Inc.
RESPONDENT: Pioneer Insurance and Surety Corporation
SUMMARY: Keppel and WG&A entered into a shiprepair agreement to
renovate the latter’s superferry using Keppel’s dry docking facilities. WG&A
had the ship insured with Pioneer. During the course of the repair, while the ship
was dry docked in Keppel’s shipyard, the ship was gutted by fire. WG&A
declared a total constructive loss and filed an insurance claim with Pioneer.
Pioneer paid the total constructive loss value and tried to collect from Keppel.
Keppel refused so Pioneer filed a claim with CIAC. Keppel counters that a total
constructive loss was not adequately proven. Pioneer adduced evidence the
estimates made by three (3) disinterested and qualified shipyards for the cost of
the repair of the vessel. All the estimates showed that the repair expense would
exceed P270,000,000.00, the amount equivalent to of the vessel’s insured value
of P360,000,000. Keppel denies the liability because, aside from its claim that it
cannot be held culpable for negligence resulting in the destructive fire, there was
no constructive total loss, as the amount of damage was only P170,611,260.00,
the amount of repair expense quoted by a different assessor. The issue is WoN
there exists a total constructive loss, thus entitling Pioneer to be subrogated to
the rights of the shipowner – YES. The SC ruled Pioneer is entitled to 360
million pesos less the salvage value of the ship from Keppel. In the seeming
legal conflict between the insurance policy’s provisions and the Insurance Code,
the SC held that Section 139 of the Insurance Code should govern, because (1)
Philippine law is deemed incorporated in every locally executed contract; and (2)
the marine insurance policies in question expressly provided that Philippine laws
will govern in conflicts with English law. 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.
DOCTRINE: Sec. 139 - A person insured by a contract of marine insurance
may abandon the thing insured, or any particular portion hereof separately
valued by the policy, or otherwise separately insured, and recover for a total loss
thereof..
Sec. 131. A constructive total loss is one which gives to a person insured a right
to abandon under Section 139.
FACTS:
103.  In 2000, Keppel Cebu Shipyard Inc. (Keppel), and WG&A Jebsens
Shipmanagement, Inc., executed a shiprepair agreement, where Keppel
would renovate WG&A’s M/V Superferry 3 using its dry docking facilities.
Prior to the execution of the shiprepair agreement, the M/V Superferry 3
was insured by WG&A with Pioneer Insurance and Surety Corporation
(Pioneer) for $8,472,581.
104.  During the course of its repair, M/V Superferry 3, which was dry docked in
Keppel’s shipyward, was gutted by fire. WG&A declared the vessels
damage as a total constructive loss and, hence, filed an insurance claim with
Pioneer. Pioneer paid the insurance claim of WG&A. WG&A, in turn,
executed a Loss and Subrogation Receipt in favor of Pioneer.
105.  Pioneer tried to collect from Keppel, but the latter denied any responsibility
for the loss of the subject vessel. As Keppel continuously refused to pay
despite repeated demands. Pioneer filed a request for arbitration before the
Construction Industry Arbitration Commission (CIAC).
106.  Pioneer argues that Keppel had custody of and control over the M/V
Superferry 3 while said vessel was in Keppel’s premises. Sevillejo (who did
welding works on the ship) was an employee under the control of Keppel.
107.  Keppel argues that the proximate cause of the fire was not the negligence of
Sevillejo, but the shipowner’s own negligence in allowing Sevillejo to do
welding work in such extremely hazardous circumstances (apparently, there
were flammable lifevests left by the vessel’s crew under the place where the
welder was working).
CIAC’s decision
108.  The CIAC held both WG&A and Keppel negligent, with the latter being
held to pay Pioneer 50 million pesos. Both parties appealed to the CA. The
CA ultimately affirmed the decision of the CIAC. Both parties appealed to
the SC.
Insurance issue brought up to the SC
109.  Pioneer claims that there existed a 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
WG&A to claim the amount of the loss. It further argues that the
limitation of liability clause found in the Shiprepair Agreement is null and
void for being iniquitous and against public policy.
110.  Keppel 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
P50,000,000.00, because WG&A acceded to the provision when it executed
the Shiprepair Agreement. Keppel also claims that the salvage value of the
vessel should be deducted from whatever amount it will be made to pay to
 Pioneer. 93.   It appears, however, that in the execution of the insurance policies over
M/V Superferry 3, WG&A and Pioneer incorporated by reference the
ISSUES: American Institute Hull Clauses 2/6/77, the Total Loss Provision of which
(1)   [not so important] WoN negligence over the fire breaking out in the
reads:
ship can be attributed to Keppel
(2)   WoN there exists a total constructive loss, thus entitling Pioneer to be Total Loss
subrogated to the rights of the shipowner
In ascertaining whether the Vessel is a constructive Total Loss the Agreed
RULING: WHEREFORE, the Petition of Pioneer is PARTIALLY GRANTED. Value shall be taken as the repaired value and nothing in respect of the
Accordingly, KCSI is ordered to pay Pioneer the amount of P360,000,000.00 less damaged or break-up value of the Vessel or wreck shall be taken into
P30,252,648.09, equivalent to the salvage value recovered by Pioneer from M/V account.
Superferry 3, or the net total amount of P329,747,351.91, with 6% interest per
annum reckoned from the time the Request for Arbitration was filed until this There shall be no recovery for a constructive Total Loss hereunder
Decision becomes final and executory, plus 12% interest per annum on the said unless the expense of recovering and repairing the Vessel would
amount or any balance thereof from the finality of the Decision until the same will exceed the Agreed Value in policies on Hull and Machinery. In making
have been fully paid. The arbitration costs shall be borne by both parties on a pro rata this determination, only expenses incurred or to be incurred by reason of a
basis. Costs against Keppel.
single accident or a sequence of damages arising from the same accident
shall be taken into account, but expenses incurred prior to tender of
RATIO:
abandonment shall not be considered if such are to be claimed separately
[Torts Issue: Negligence]
under the Sue and Labor clause. x x x.
91.   Sevillejo, being one of the specially trained welders specifically authorized
by KCSI to do the hot works on M/V Superferry 3 to the exclusion of other 94.   In the course of the arbitration proceedings, Pioneer adduced in evidence
workers, failed to comply with the strict safety standards of KCSI, not only the estimates made by three (3) disinterested and qualified shipyards
because he worked without the required permit, fire watch, fire buckets, and for the cost of the repair of the vessel. All the estimates showed that the
extinguishers, but also because he failed to undertake other precautionary repair expense would exceed P270,000,000.00, the amount equivalent to
measures for preventing the fire. The greater the danger, the greater the of the vessels insured value of P360,000,000.00.
degree of care required. Extraordinary risk demands extraordinary care.
Similarly, the more imminent the danger, the higher degree of care 95.   Thus, WG&A opted to abandon M/V Superferry 3 and claimed from
warranted. Keppel failed to exercise the necessary degree of caution and Pioneer the full amount of the policies. Pioneer paid WG&As claim, and
foresight called for by the circumstances. now demands from KCSI the full amount of P360,000,000.00, by virtue of
subrogation.
[Total Constructive Loss] [Main Topic]
96.   Keppel denies the liability because, aside from its claim that it cannot
92.   In marine insurance, a constructive total loss occurs under any of the be held culpable for negligence resulting in the destructive fire, there
conditions set forth in Section 139 of the Insurance Code47 was no constructive total loss, as the amount of damage was only
US$3,800,000.00 or P170,611,260.00, the amount of repair expense

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  quoted by Simpson, Spence & Young.
47

  Sec. 139. A person insured by a contract of marine insurance may 97.   In the face of this apparent conflict, we hold that Section 139 of the
abandon the thing insured, or any particular portion hereof separately Insurance Code should govern, because (1) Philippine law is deemed
valued by the policy, or otherwise separately insured, and recover for a
total loss thereof, when the cause of the loss is a peril insured against:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) If more than three-fourths thereof in value is actually lost, or (b) If it is injured to such an extent as to reduce its value more than
would have to be expended to recover it from the peril; three-fourths; x x x.
 
 incorporated in every locally executed contract; and (2) the marine
insurance policies in question expressly provided the following:
a.   “This insurance is subject to English jurisdiction, except in the
event that loss or losses are payable in the Philippines, in which
case if the said laws and customs of England shall be in conflict
with the laws of the Republic of the Philippines, then the laws of
the Republic of the Philippines shall govern.”
102.  Likewise, Clause 20 is a stipulation that may be considered contrary to
public policy. To allow KCSI to limit its liability to only P50,000,000.00,
notwithstanding the fact that there was a constructive total loss in the
amount of P360,000,000.00, would sanction the exercise of a degree of
diligence short of what is ordinarily required. It would not be difficult for a
negligent party to escape liability by the simple expedient of paying an
amount very much lower than the actual damage or loss sustained by the
other.

98.   The CA held that Section 139 of the Insurance Code is merely permissive
on account of the word may in the provision. This is incorrect. Properly
considered, the word may in the provision is intended to grant the
insured (WG&A) the option or discretion to choose the abandonment
of the thing insured (M/V Superferry 3), or any particular portion
thereof separately valued by the policy, or otherwise separately
insured, and recover for a total loss when the cause of the loss is a peril
insured against.

99.   This option or discretion is expressed as a right in Section 131 of the same
Code, to wit:

a.   Sec. 131. A constructive total loss is one which gives to a person

insured a right to abandon under Section 139.

100.  It cannot be denied that M/V Superferry 3 suffered widespread damage
from the fire that occurred on February 8, 2000, a covered peril under the
marine insurance policies obtained by WG&A from Pioneer. These
estimates constituted credible and acceptable proof of the extent of the
damage sustained by the vessel. It is significant that these estimates were
confirmed by the Adjustment Report submitted by the average adjuster that
Pioneer had enlisted to verify and confirm the extent of the damage. The
Adjustment Report verified and confirmed that the damage to the vessel
amounted to a constructive total loss and that the claim for P360,000,000.00
under the policies was compensable

101.  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.

[Limited Liability Clause] [not so important]

 012 PAN MALAYAN vs. COURT OF APPEALS (Eleazar)
September 5, 1991 | Regalado, J. | Loss/Abandonment
PETITIONERS: Pan Malayan Insurance Corporation
RESPONDENTS: Court of Appeals and The Food and Agricultural
Organization of the United Nations
SUMMARY: The Food and Agricultural Organization of the United Nations
(FAO), intended and made arrangements to send to Kampuchea 1,500 metric
petitions of IR-36 certified rice seeds to be distributed to the people for
seedling purposes. LUZTEVECO was to ship the cargo amounting to
US$83,325.92. The cargo was loaded on board LUZTEVECO Barge No. LC-
3000 and consisted of 34,122 bags of IR-36 certified rice seeds purchased by
FAO from the Bureau of Plant Industry for P4,602,270.00. FAO secured
insurance coverage in the amount of P5,250,000.00 from Pan Malayan
Insurance Corporation. On June 16, 1980, FAO gave instructions to
LUZTEVECO to leave for Vaung Tau, Vietnam to deliver the cargo which, by
its nature, could not withstand delay because of the inherent risks of
termination and/or spoilage. On the same date, the insurance premiums on the
shipment was paid by FAO petitioner. On June 26, 1980, FAO was advised of
the sinking of the barge in the China Sea, hence it informed petitioner thereof
and, later, formally filed its claim under the marine insurance policy. On July
29, 1980, FAO was informed by LUSTEVECO of the recovery of the lost
shipment, for which reason FAO formally filed its claim with LUZTEVECO
for compensation of damage to its cargo. LUZTEVECO failed and refused to
pay. Pan Malayan likewise failed to pay for the losses and damages sustained
by FAO by reason of its inability to recover the value of the shipment from
LUZTEVECO. Pan Malayan claims that part of the cargo was recovered and
thus the claim by FAO was unwarranted. This is evidenced by two surveys
upon the cargo wherein it was found that only around 78% was lost. FAO filed
a civil case against both LUZTEVECO and Pan Malayan. Trial court found in
favor of FAO and ordered both to pay jointly and severally the full amount of
the claim. This was affirmed by CA. The issue is WoN respondent court
committed a reversible error in holding that the trial court is correct in holding
that there is a total loss of the shipment. The SC said no, the law classifies loss
into either total or partial. As said and proven, the seeds were of fragile nature.
And the wetting of said seeds affected the state of seeds. Thus rendering them
useless for FAO. Although there were bags which were recovered, these were
“stained” and not in the same condition it was brought in. In addition to this,
FAO did not receive any compensation for said recovered bags as the same
were distributed by LUZVETECO without authorization of FAO.
DOCTRINE: Under Sections 129 and 130 of the New Insurance Code, a total
loss may either be actual or constructive. In case of total loss in Marine
Insurance, the assured isentitled to recover from the underwriter the whole
amount of his subscription
FACTS:
17.   This case had its origin in a shipment of 1,500 metric petitions of IR-36
certified rice seeds which private respondent, The Food and Agricultural
Organization of the United Nations (FAO) to send to Kampuchea to be
distributed to the people for seedling purposes. Respondent court, CA,
affirms the factual findings therein of the court a quo as chronologized
hereunder.
18.   On May 22, 1980, FAO received a formal offer from the Luzon Stevedoring
Corporation (LUZTEVECO) whereby the latter offered to ship the former's
aforesaid cargo, consisting of 3,000 metric petitions in two lots of rice
seeds, to Vietnam Ocean Shipping Industry in Vaung Tau, Vietnam for
freight fees of $55.50/MT, subject to the terms and conditions indicated in
the corresponding communication.
19.   On May 28, 1980, FAO wrote LUZTEVECO formally confirming its
acceptance of the foregoing offer amounting to US$83,325.92 in respect of
one lot of 1,500 metric petitions winch is the subject of the present action.
20.   The cargo was loaded on board LUZTEVECO Barge No. LC-3000 and
consisted of 34,122 bags of IR-36 certified rice seeds purchased by FAO
from the Bureau of Plant Industry for P4,602,270.00.
21.   On June 12, 1980, the loading was completed and LUZTEVECO issued its
Bill of Lading No. 01 in favor of FAO. The latter then secured insurance
coverage in the amount of P5,250,000.00 from petitioner, Pan Malayan
Insurance Corporation, as evidenced by the latter's Marine Cargo Policy
No. B-11474A and Premium Invoice No. 78615, dated June 16, 1980.
22.   On June 16, 1980, FAO gave instructions to LUZTEVECO to leave for
Vaung Tau, Vietnam to deliver the cargo which, by its nature, could not
withstand delay because of the inherent risks of termination and/or spoilage.
On the same date, the insurance premiums on the shipment was paid by
FAO to Pan Malayan.
23.   On June 23, 1980, FAO was informed by LUZTEVECO that the tugboat
and barge carrying FAO's shipment returned to Manila after leaving on June
16, 1980 and that the shipment again left Manila for Vaung Tau Vietnam on
June 21, 1980 with the barge being towed by a different tugboat. Since
this was an unauthorized deviation, FAO demanded an explanation on
June 25, 1980.
24.   On June 26, 1980, FAO was advised of the sinking of the barge in the
China Sea, hence it informed Pan Malayan thereof and, later, formally
filed its claim under the marine insurance policy. On July 29, 1980, FAO
was informed by LUSTEVECO of the recovery of the lost shipment, for
which reason FAO formally filed its claim with LUZTEVECO for
compensation of damage to its cargo.
25.   Thereafter, despite repeated demands to replace the same or to pay for the
total insured value in the sum of P5,250,000.00, LUSTEVECO failed and
refused to do so. Pan Malayan likewise failed to pay for the losses and
damages sustained by FAO by reason of its inability to recover the value of
 the shipment from LUZTEVECO.
26.   Pan Malayan claims that on July 31, 1980 it supposedly engaged the
services of Pan Asiatic Adjustment and Marine Surveying Corporation to
investigate and examine the shipment. On August 4, 1980, J.A. Barroso, Jr.
of said corporation reportedly conducted a survey on the shipment and
found that 9,629 bags of rice seeds were in good order, 23,510 bags
sustained wattage of 10% to 15%, and 983 bags were shorthanded or
missing.
27.   After the alleged survey, Barroso, Jr. made a report recommending to Pan
Malayan the denial of FAO's claim because the partial damage suffered by
the shipment is not compensable under the policy. On the basis of said
recommendation, Pan Malayan denied FAO's claim.
28.   Pan Malayan further avers that upon the request of counsel of FAO, a
survey of the shipment was conducted on September 26, 27 and 29, 1980 by
Conrado Catalan, Jr. of Manila Adjusters & Surveyors Company and he
found 6,200 bags in good order condition. At the time of his survey, 23,510
bags of the shipment had allegedly already been sold by LUZTEVECO.
29.   Pan Malayan further asserts that on September 29, 1980, FAO wrote a
letter to Pan Malayan signifying its willingness to abandon the proceeds
of the sale of the 23,510 bags and the remaining good order bags, but
that on October 6, 1980 Pan Malayan rejected FAO's proposed
abandonment.
30.   FAO then instituted Civil Case No. 41716 against LUZTEVECO and/or
Pan Malayan, as defendants, with the Regional Trial Court of Pasig, Metro
Manila which, on December 14, 1987, rendered judgment in favor of FAO
with the following decretal portion:
a.   WHEREFORE, by virtue of preponderance of evidence and in
consideration of justice and equity, this Court hereby renders
judgment in favor of the plaintiff against the defendant Luzon
Stevedoring Corporation and defendant Pan Malayan Insurance
Corporation, ordering both the defendants, to pay jointly and
severally, the plaintiff, to wit:
i.   The sum of P5,250,000.00 with interest thereon, at legal
rate from September 29, 1980 until fully paid;
ii.   The sum of P250,000.00 by way of attorney's fees and
expenses of litigation; and
iii.   The cost of this suit.
31.   Pan Malayan alone appealed the said decision to respondent Court of
Appeals, docketed therein as CA-G.R. CV No. 22114, and on July 20, 1990
respondent court, CA, affirmed the decision of the trial court except for the
award of attorney's fees which was reduced to P25,000.00.
32.   Pan Malayan's motion for reconsideration was denied in respondent court's
resolution of September 3, 1990.
ISSUE/s
1.   WoN respondent court committed a reversible error in holding that the trial
court is correct in holding that there is a total loss of the shipment – NO, as
said and proven, the seeds were of fragile nature. And the wetting of said
seeds affected the state of seeds. Thus rendering them useless for FAO.
Although there were bags which were recovered, these were “stained” and
not in the same condition it was brought in
RULING: WHEREFORE, the assailed judgment and resolution of respondent Court
of Appeals are hereby AFFIRMED in toto.
RATIO:
12.   The law classifies loss into either total or partial. Total loss may be actual or
absolute, or it may otherwise be constructive or technical. Pan Malayan
submits that the CA erred in ruling that there was total loss of the shipment
despite the fact that only 27,922 bags of rice seeds out of 34,122 bags were
rendered valueless to FAO and the shipment sustained only a loss of 78%.
13.   FAO, however, claims that, for all intents and purposes, it has practically
lost its total or entire shipment in this case, inclusive of expenses, premium
fees, and so forth, despite the alleged recovery by defendant LUZTEVECO.
14.   As found by the court below and reproduced with approval by respondent
court, FAO "has never been compensated for this total loss or damage, a
fact which is not denied nor controverted. If there were some cargoes saved,
by LUZTEVECO, private respondent abandoned it and the same was sold
or used for the benefit of LUZTEVECO or Pan Malayan Corporation.
Under Sections 129 and 130 of the New Insurance Code, a total loss may
either be actual or constructive. In case of total loss in Marine Insurance,
the assured is entitled to recover from the underwriter the whole amount of
his subscription.
15.   It is a fact that on July 9, 1980, FAO formally filed its claim under the
marine insurance policy issued by Pan Malayan. FAO thus claims actual
loss under paragraphs (c) and (d) of Section 130 of the Insurance Code
which provides:
a.   SEC. 130. An actual total loss is caused by:
i.   (a) A total destruction of the thing insured;
ii.   (b) The irretrievable loss of the thing by sinking, or by
being broken up;
iii.   (c) Any damage to the thing which renders it valueless to
the owner for the purpose for which he held it; or
iv.   (d) Any other event which effectively deprives the owner
of the possession, at the port of destination of the thing
insured.
16.   Respondent court affirmed the ruling of the trial court to the effect that there
was indeed actual total loss, painstakingly explaining therein the following
grounds for holding petitioner liable for the entire amount of the insurance
coverage:
a.   ... The lower court was not incorrect in holding that there is a total
or entire loss of shipment in the case at bar.
 b.   First, the fact of the sinking of Barge LC-3000 as the occurrence of
the risk insured against under the marine insurance was proved
17.   Pan Malayan, on the other hand, claims that respondent court gravely erred
in sustaining the ruling of the trial court that there was total loss of the
shipment since from the evidence on record and the findings of respondent
court itself, only 27,922 bags of rice seeds out of 34,122 bags were rendered
valueless to FAO and the shipment sustained only a loss of 78%.
18.   Thus, Pan Malayan concludes that the findings of the court a quo, as
affirmed by the Court of Appeals, are contrary to the evidence. Upon an
examination, however, of the records presented before this Court, it is quite
clear that there was indeed actual total loss.
19.   While this Court is not a trier of facts, yet, when the findings of the Court of
Appeals are alleged to be without citation of specific evidence on which
they are based, there is sufficient reason for us to review the appellate
court's decision. Under the factual milieu of this case, we find that there is
abundant evidence to support the conclusion of respondent court.
20.   It will be recalled that said rice seeds were treated and would germinate
upon mere contact with water. The rule is that where the cargo by the
process of decomposition or other chemical agency no longer remains the
same kind of thing as before, an actual total loss has been suffered.
a.   ... However, the complete physical destruction of the subject
matter is not essential to constitute an actual total loss.
b.   Such a loss may exist where the form and specie of the thing is
destroyed, although the materials of which it consisted still exist,
as where the cargo by the process of decomposition or other
chemical agency no longer remains the same kind of thing as
before.
21.   Moreover, it is undisputed that no replacement whatsoever or any payment,
for that matter, of the value of said lost cargo was made to FAO by Pan
Malayan or LUZTEVECO. It is thus clear that FAO suffered actual total
loss under Section 130 of the Insurance Code, specifically under paragraphs
(c) and (d) thereof, recompense for which it has been denied up to the
present
22.   In view of our aforestated holding that there was actual total loss of the
goods insured in this case, it is no longer necessary to pass upon the issue of
the validity of the abandonment made by FAO.
23.   Section 135 of the Insurance Code explicitly provides that "(u)pon an actual
total loss, a person insured is entitled to payment without notice of
abandonment."
24.   This is a statutory adoption of a long standing doctrine in maritime
insurance law that in case of actual total loss, the right of the insured to
claim the whole insurance is absolute, without need of a notice of
abandonment.
 013 ROQUE v. IAC (Escalona)
November 11, 1985 | Gutierrez, J. | Loss or Abandonment
PETITIONER: Isabela Roque under the name of Isabela Roque Timber
Enterprises
RESPONDENTS: Hon. Intermediate Appellate Court and Pioneer Insurance
And Surety Corporation
SUMMARY: Manila Bay Lighterage Corporation, a common carrier, entered
into a contract with Isabela Roque Timber Enterprises, to load and carry about
422.18 cubic meters of logs from Malampaya Sound, Palawan to North Harbor,
Manila. Timber Enterprises insured the logs for P100,000 with Pioneer
Insurance and Surety Corporation. Timber Enterprises loaded 811 pieces of logs
on the barge, but never reached the destination because the barge sank. Timber
Enterprises alleged that the barge was not seaworthy and developed a leak, one
of the hatches were open causing water to enter, and that the barge did not have
sufficient tarpaulin allowing the ordinary splash of sea waves to bring in more
water in the barge. Timber Enterprises demanded Manila Bay payment for the
loss of the shipment and unrealized profits, as well as demanding from Pioneer
the P100,000 from the insurance. Pioneer refused to pay on the ground that its
liability was only on “Total loss by the total loss of vessel only”. Hence Timber
Enterprises commenced a civil case against Manila Bay and Pioneer, rendering
judgment in favor of Timber Enterprises. Pioneer was the only one who
appealed. The appellate court absolved the liability of Pioneer on the ground that
there was a breach of implied warranty of seaworthiness by Timber Enterprises
and that the loss was due to the perils of the ship, not the perils of the sea.
The relevant issues are WoN there is a warranty of seaworthiness by the cargo
owner in cases of Marine Cargo Insurance and WoN the loss of the cargo was
caused by “perils of the ship” and not “perils of the sea”.
On the first issue, the liability of the insurance company is governed by law.
Section 113 of the Insurance Code provides that “In every marine insurance
upon a ship or freight, or freightage, or upon anything which is the subject of
marine insurance, a warranty is implied that the ship is seaworthy.” Hence, there
can be no mistaking the fact that the term "cargo" can be the subject of marine
insurance and that once it is so made, the implied warranty of seaworthiness
immediately attaches to whoever is insuring the cargo whether he be the
shipowner or not. Moreover, the fact that the unseaworthiness of the ship was
unknown to the insured is immaterial in ordinary marine insurance and may not
be used by him as a defense in order to recover on the marine insurance policy.
As to the second issue, by applying Sec. 113 of the Insurance Code, there is no
doubt that the term 'perils of the sea' extends only to losses caused by sea
damage, or by the violence of the elements, and does not embrace all losses
happening at sea; it is said to include only such losses as are
of extraordinary nature, or arise from some overwhelming power, which cannot
be guarded against by the ordinary exertion of human skill and prudence. It is
also the general rule that everything which happens thru the inherent vice of the
thing, or by the act of the owners, master or shipper, shall not be reputed a peril,
if not otherwise borne in the policy. It must be considered to be settled,
furthermore, that a loss which, in the ordinary course of events, results from the
natural and inevitable action of the sea, from the ordinary wear and tear of the
ship, or from the negligent failure of the ship's owner to provide the vessel with
proper equipment to convey the cargo under ordinary conditions, is not a peril of
the sea. Such a loss is rather due to what has been aptly called the "peril of the
ship." The insurer undertakes to insure against perils of the sea and similar
perils, not against perils of the ship. Neither barratry can be used as a ground by
Roque. Barratry as defined in American Insurance Law is "any willful
misconduct on the part of master or crew in pursuance of some unlawful or
fraudulent purpose without the consent of the owners, and to the prejudice of the
owner's interest." Barratry necessarily requires a willful and intentional act in its
commission. No honest error of judgment or mere negligence, unless criminally
gross, can be barratry. In the case at bar, there is no finding that the loss was
occasioned by the willful or fraudulent acts of the vessel's crew. There was only
simple negligence or lack of skill.
DOCTRINE: Since the law provides for an implied warranty of seaworthiness
in every contract of ordinary marine insurance, it becomes the obligation of a
cargo owner to look for a reliable common carrier, which keeps its vessels in
seaworthy condition. The shipper of cargo may have no control over the vessel
but he has full control in the choice of the common carrier that will transport his
goods.
In marine cases, the risks insured against are "perils of the sea". The purpose of
such insurance is protection against contingencies and against possible damages
and such a policy does not cover a loss or injury, which must inevitably take
place in the ordinary course of things. There is no doubt that the term 'perils of
the sea' extends only to losses caused by sea damage, or by the violence of the
elements, and does not embrace all losses happening at sea. They insure against
losses from extraordinary occurrences only, such as stress of weather, winds and
waves, lightning, tempests, rocks and the like.
FACTS:
16.   On February 19, 1972, the Manila Bay Lighterage Corporation (Manila
Bay), a common carrier, entered into a contract with the petitioners whereby
the former would load and carry on board its barge Mable 10 about 422.18
cubic meters of logs from Malampaya Sound, Palawan to North Harbor,
Manila. The petitioners insured the logs against loss for P100,000.00 with
respondent Pioneer Insurance and Surety Corporation (Pioneer).
17.   On February 29, 1972, the petitioners loaded on the barge, 811 pieces of
logs at Malampaya Sound, Palawan for carriage and delivery to North
Harbor, Port of Manila, but the shipment never reached its destination
because Mable 10 sank with the 811 pieces of logs somewhere off Cabuli
Point in Palawan on its way to Manila. As alleged by the petitioners in their
complaint and as found by both the trial and appellate courts, the barge
where the logs were loaded was not seaworthy such that it developed a leak.
The appellate court further found that one of the hatches was left open
causing water to enter the barge and because the barge was not provided
with the necessary cover or tarpaulin, the ordinary splash of sea waves
brought more water inside the barge.
18.   On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding
payment of P150,000.00 for the loss of the shipment plus P100,000.00 as
unrealized profits but the latter ignored the demand. Another letter was sent
to respondent Pioneer claiming the full amount of P100,000.00 under the
insurance policy but respondent refused to pay on the ground that its
liability depended upon the "Total loss by Total Loss of Vessel only".
19.   Hence, petitioners commenced Civil Case No. 86599 against Manila Bay
and respondent Pioneer.
20.   After hearing, the trial court found in favor of the petitioners. The
dispositive portion of the decision reads:
a.   FOR ALL THE FOREGOING, the Court hereby rendered
judgment as follows:
i.   Condemning defendants Manila Bay Lighterage
Corporation and Pioneer Insurance and Surety
Corporation to pay plaintiffs, jointly and severally, the
sum of P100,000.00;
ii.   Sentencing defendant Manila Bay Lighterage Corporation
to pay plaintiff, in addition, the sum of P50,000.00, plus
P12,500.00, that the latter advanced to the former as down
payment for transporting the logs in question;
iii.   Ordering the counterclaim of defendant Insurance against
plaintiffs, dismissed, for lack of merit, but as to its cross-
claim against its co-defendant Manila Bay Lighterage
Corporation, the latter is ordered to reimburse the former
for whatever amount it may pay the plaintiffs as such
surety;
iv.   Ordering the counterclaim of defendant Lighterage
against plaintiffs, dismissed for lack of merit;
v.   Plaintiffs' claim of not less than P100,000.00 and
P75,000.00 as exemplary damages are ordered dismissed,
for lack of merits; plaintiffs' claim for attorney's fees in
the sum of P10,000.00 is hereby granted, against both
defendants, who are, moreover ordered to pay the costs;
and
vi.   The sum of P150,000.00 award to plaintiffs, shall bear
interest of six per cent (6%) from March 25, 1975, until
amount is fully paid.
21.   Respondent Pioneer appealed to the Intermediate Appellate Court. Manila
Bay did not appeal. According to the petitioners, the transportation
company is no longer doing business and is without funds.
22.   During the initial stages of the hearing, Manila Bay informed the trial court
that it had salvaged part of the logs. The court ordered them to be sold to the
highest bidder with the funds to be deposited in a bank in the name of Civil
Case No. 86599.
23.   On January 30, 1984, the appellate court modified the trial court's decision
and absolved Pioneer from liability after finding that there was a breach of
implied warranty of seaworthiness on the part of the petitioners and that the
loss of the insured cargo was caused by the "perils of the ship" and not by
the "perils of the sea". It ruled that the loss is not covered by the marine
insurance policy.
ISSUES:
1.   WoN there is a warranty of seaworthiness by the cargo owner in cases of
Marine Cargo Insurance – YES. The fact that the term "cargo" can be the
subject of marine insurance and that once it is so made, the implied
warranty of seaworthiness immediately attaches to whoever is insuring the
cargo whether he be the shipowner or not.
1.   WoN the loss of the cargo was caused by “perils of the ship” and not “perils
of the sea” – The loss was caused by the perils of the ship because there was
lack of evidence of extreme weather and the petitioner’s complaint included
allegations of negligence by the ship crew, attributing to the perils of the
ship.
2.   WoN the IAC erred in not ordering the return to petitioner the amount of
P8,000, which was deposited in the trial court as salvage value of the logs
that were recovered – YES. The IAC should have ordered to return the
salvaged value of the logs to the petitioner.
RULING: WHEREFORE, the decision appealed from is AFFIRMED with the
modification that the amount of P8,000.00 representing the value of the salvaged
logs which was ordered to be deposited in the Manila Banking Corporation in the
name of Civil Case No. 86599 is hereby awarded and ordered paid to the petitioners.
The liability adjudged against Manila Bay Lighterage Corporation in the decision of
the trial court is accordingly reduced by the same amount.
RATIO:
103.  In their first assignment of error, the petitioners contend that the implied
warranty of seaworthiness provided for in the Insurance Code refers only to
the responsibility of the shipowner who must see to it that his ship is
reasonably fit to make in safety the contemplated voyage.
104.  The Timber Enterprises states that a mere shipper of cargo, having no
control over the ship, has nothing to do with its seaworthiness. They
argue that a cargo owner has no control over the structure of the ship,
its cables, anchors, fuel and provisions, the manner of loading his cargo
and the cargo of other shippers, and the hiring of a sufficient number
of competent officers and seamen. The petitioners' arguments have no
merit.
105.  There is no dispute over the liability of the common carrier Manila Bay. In
fact, it did not bother to appeal the questioned decision. However, the
petitioners state that Manila Bay has ceased operating as a firm and nothing
may be recovered from it. They are, therefore, trying to recover their losses
from the insurer.
106.  The liability of the insurance company is governed by law. Section 113 of
the Insurance Code provides:
a.   In every marine insurance upon a ship or freight, or freightage, or
upon any thing which is the subject of marine insurance, a
warranty is implied that the ship is seaworthy.
107.  Section 99 of the same Code also provides in part.
a.   Marine insurance includes:
i.   Insurance against loss of or damage to:
1.   Vessels, craft, aircraft, vehicles, goods, freights,
cargoes, merchandise, ...
b.   From the above-quoted provisions, there can be no mistaking the
fact that the term "cargo" can be the subject of marine insurance
and that once it is so made, the implied warranty of seaworthiness
immediately attaches to whoever is insuring the cargo whether he
be the shipowner or not.
108.  As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance
Society of Canton (40 Phil. 40):
a.   The same conclusion must be reached if the question be discussed
with reference to the seaworthiness of the ship. It is universally
accepted that in every contract of insurance upon anything which is
the subject of marine insurance, a warranty is implied that the ship
shall be seaworthy at the time of the inception of the voyage. This
rule is accepted in our own Insurance Law (Act No. 2427, sec.
106). ...
109.  Moreover, the fact that the unseaworthiness of the ship was unknown to
the insured is immaterial in ordinary marine insurance and may not be
used by him as a defense in order to recover on the marine insurance
policy.
110.  As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc.,
Co. (136 U.S. 406):
a.   There was no look-out, and both that and the rate of speed were
contrary to the Canadian Statute. The exception of losses
occasioned by unseaworthiness was in effect a warranty that a loss
should not be so occasioned, and whether the fact of
unseaworthiness were known or unknown would be immaterial.
111.  Since the law provides for an implied warranty of seaworthiness in
every contract of ordinary marine insurance, it becomes the obligation
of a cargo owner to look for a reliable common carrier, which keeps its
vessels in seaworthy condition. The shipper of cargo may have no
control over the vessel but he has full control in the choice of the
common carrier that will transport his goods. Or the cargo owner may
enter into a contract of insurance, which specifically provides that the
insurer answers not only for the perils of the sea but also provides for
coverage of perils of the ship.
112.  We are constrained to apply Section 113 of the Insurance Code to the facts
of this case. As stated by the private respondents:
a.   In marine cases, the risks insured against are "perils of the
sea" (Chute v. North River Ins. Co., Minn—214 NW 472, 55 ALR
933). The purpose of such insurance is protection against
contingencies and against possible damages and such a policy
does not cover a loss or injury which must inevitably take place
in the ordinary course of things. There is no doubt that the
term 'perils of the sea' extends only to losses caused by sea
damage, or by the violence of the elements, and does not
embrace all losses happening at sea. They insure against losses
from extraordinary occurrences only, such as stress of weather,
winds and waves, lightning, tempests, rocks and the like. These
are understood to be the "perils of the sea" referred in the policy,
and not those ordinary perils which every vessel must encounter.
"Perils of the sea" has been said to include only such losses as are
of extraordinary nature, or arise from some overwhelming power,
which cannot be guarded against by the ordinary exertion of
human skill and prudence. Damage done to a vessel by perils of
the sea includes every species of damages done to a vessel at
sea, as distinguished from the ordinary wear and tear of the
voyage, and distinct from injuries suffered by the vessel in
consequence of her not being seaworthy at the outset of her
voyage (as in this case). It is also the general rule that everything
which happens thru the inherent vice of the thing, or by the act of
the owners, master or shipper, shall not be reputed a peril, if not
otherwise borne in the policy. (14 RCL on Insurance, Sec. 384, pp.
1203- 1204; Cia. de Navegacion v. Firemen's Fund Ins. Co., 277
US 66, 72 L. ed. 787, 48 S. Ct. 459).
113.  With regard to the second assignment of error, petitioners maintain, that
the loss of the cargo was caused by the perils of the sea, not by the
perils of the ship because as found by the trial court, the barge was
turned loose from the tugboat east of Cabuli Point "where it was
buffeted by storm and waves." Moreover, petitioners also maintain that
 barratry, against which the cargo was also insured, existed when the
personnel of the tugboat and the barge committed a mistake by turning
loose the barge from the tugboat east of Cabuli Point. The trial court also
found that the stranding and foundering of Mable 10 was due to improper
loading of the logs as well as to a leak in the barge which constituted
negligence.
114.  On the contention of the petitioners that the trial court found that the loss
was occasioned by the perils of the sea characterized by the "storm and
waves" which buffeted the vessel, the records show that the court ruled
otherwise. It stated:
a.   ... The other affirmative defense of defendant Lighterage, 'That the
supposed loss of the logs was occasioned by force majeure... "was
not supported by the evidence. At the time Mable 10 sank, there
was no typhoon but ordinary strong wind and waves, a condition
which is natural and normal in the open sea. The evidence shows
that the sinking of Mable 10 was due to improper loading of the
logs on one side so that the barge was tilting on one side and for
that it did not navigate on even keel; that it was no longer
seaworthy that was why it developed leak; that the personnel of the
tugboat and the barge committed a mistake when it turned loose
the barge from the tugboat east of Cabuli point where it was
buffeted by storm and waves, while the tugboat proceeded to west
of Cabuli point where it was protected by the mountain side from
the storm and waves coming from the east direction. ..."
115.  In fact, in the petitioners' complaint, it is alleged that "the barge Mable
10 of defendant carrier developed a leak which allowed water to come
in and that one of the hatches of said barge was negligently left open by
the person in charge thereof causing more water to come in and that
"the loss of said plaintiffs' cargo was due to the fault, negligence,
and/or lack of skill of defendant carrier and/or defendant carrier's
representatives on barge Mable 10."
116.  It is quite unmistakable that the loss of the cargo was due to the perils
of the ship rather than the perils of the sea. The facts clearly negate the
petitioners' claim under the insurance policy. In the case of Go Tiaoco y
Hermanos v. Union Ins. Society of Canton, supra, we had occasion to
elaborate on the term "perils of the ship." We ruled:
117.  It must be considered to be settled, furthermore, that a loss which, in the
ordinary course of events, results from the natural and inevitable
action of the sea, from the ordinary wear and tear of the ship, or from
the negligent failure of the ship's owner to provide the vessel with
proper equipment to convey the cargo under ordinary conditions, is not
a peril of the sea. Such a loss is rather due to what has been aptly called the
"peril of the ship." The insurer undertakes to insure against perils of the sea
and similar perils, not against perils of the ship. As was well said by Lord
Herschell in Wilson, Sons & Co. v. Owners of Cargo per the
Xantho ([1887], 12 A. C., 503, 509), there must, in order to make the
insurer liable, be some casualty, something which could not be foreseen as
one of the necessary incidents of the adventure. The purpose of the policy is
to secure an indemnity against accidents which may happen, not against
events which must happen.
118.  In the present case the entrance of the sea water into the ship's hold through
the defective pipe already described was not due to any accident which
happened during the voyage, but to the failure of the ship's owner properly
to repair a defect of the existence of which he was apprised. The loss was
therefore more analogous to that which directly results from simple
unseaworthiness than to that which result from the perils of the sea.
119.  Suffice it to say that upon the authority of those cases there is no room to
doubt the liability of the shipowner for such a loss as occurred in this case.
By parity of reasoning the insurer is not liable; for generally speaking, the
shipowner excepts the perils of the sea from his engagement under the bill
of lading, while this is the very perils against which the insurer intends to
give protection. As applied to the present case it results that the owners of
the damaged rice must look to the shipowner for redress and not to the
insurer.
120.  Neither can petitioners allege barratry on the basis of the findings
showing negligence on the part of the vessel's crew.
121.  Barratry as defined in American Insurance Law is "any willful
misconduct on the part of master or crew in pursuance of some
unlawful or fraudulent purpose without the consent of the owners, and
to the prejudice of the owner's interest." (Sec. 171, U.S. Insurance Law,
quoted in Vance, Handbook on Law of Insurance, 1951, p. 929.)
122.  Barratry necessarily requires a willful and intentional act in its commission.
No honest error of judgment or mere negligence, unless criminally gross,
can be barratry. (See Vance on Law of Insurance, p. 929 and cases cited
therein.)
123.  In the case at bar, there is no finding that the loss was occasioned by the
willful or fraudulent acts of the vessel's crew. There was only simple
negligence or lack of skill. Hence, the second assignment of error must
likewise be dismissed.
124.  Anent the third assignment of error, we agree with the petitioners that the
amount of P8,000.00 representing the amount of the salvaged logs should
have been awarded to them. However, this should be deducted from the
amounts which have been adjudicated against Manila Bay Lighterage
Corporation by the trial court.
 014 PHILHOME ASSURANCE v. CA (Fordan)
June 20, 1996 | Kapunan, J. | Measure of indemnity
PETITIONER: Philippine Home Assurance Corporation
RESPONDENTS: Court of Appeals and Eastern Shipping Lines, Inc.
SUMMARY: ESLI loaded on board SS Eastern Explorer in Kobe, Japan, the
following shipment for carriage to Manila and Cebu, freight pre-paid and in
good order and condition: 2 boxes internal combustion engine parts, 334 bags
ammonium chloride, 200 bags Glue 300, and garments. While the vessel was off
Okinawa, Japan, a small flame was detected on the acetylene cylinder located in
the accommodation area near the engine room on the main deck level. As the
crew was trying to extinguish the fire, the acetylene cylinder suddenly exploded
sending a flash of flame throughout the accommodation area, thus causing death
and severe injuries to the crew and instantly setting fire to the whole
superstructure of the vessel. The incident forced the master and the crew to
abandon the ship. Several hours later, a tugboat under the control of Fukuda
Salvage Co. arrived near the vessel and commenced to tow the vessel for the port
of Naha, Japan. Fire fighting operations were again conducted at the said port.
After the fire was extinguished, the cargoes which were saved were loaded to
another vessel for delivery to their original ports of destination. ESLI then
charged the consignees several amounts corresponding to additional freight and
salvage charges (see fact 7). The charges were all paid by PHAC under protest
for and in behalf of the consignees and the former, as subrogee, filed a complaint
before the RTC of Manila against ESLI to recover the sum paid under protest on
the ground that the same were actually damages directly brought about by the
fault, negligence, illegal act and/or breach of contract of ESLI. On the other
hand, ESLI contended that it exercised the diligence required by law in the
handling, custody and carriage of the shipment; that the fire was caused by an
unforeseen event; that the additional freight charges are due and demandable
pursuant to the BOL; and that salvage charges are properly collectible under the
Salvage Law. The RTC dismissed PHAC’s complaint and ruled in favor of
ESLI. This was also affirmed by the CA. Hence, the current petition. The
following are the issues and ratio:
a. Whether or not the fire on the vessel which was caused by the explosion
of an acetylene cylinder loaded on the same was the fault or negligence of
ESLI. YES. The SC held that, in our jurisprudence, fire may not be considered a
natural disaster or calamity since it almost always arises from some act of man
or by human means. It cannot be an act of God unless caused by lightning or a
natural disaster or casualty not attributable to human agency. In the case at bar, it
is not disputed that a small flame was detected on the acetylene cylinder and that
by reason thereof, the same exploded despite efforts to extinguish the fire.
Neither is there any doubt that the acetylene cylinder, obviously fully loaded,
was stored in the accommodation area near the engine room and not in a storage
area considerably far, and in a safe distance, from the engine room. Moreover,
there was no showing, and none was alleged by the parties, that the fire was
caused by a natural disaster or calamity not attributable to human agency. On the
contrary, there is strong evidence indicating that the acetylene cylinder caught
fire because of the fault and negligence of ESLI, its captain and its crew.
b. Whether or not PHAC is liable for the additional charges or expenses
incurred by the owner of the ship in the salvage operations and in the
transshipment of the goods via a different carrier. NO. As a rule, general or
gross averages include all damages and expenses which are deliberately caused
in order to save the vessel, its cargo, or both at the same time, from a real and
known risk. While the instant case may technically fall within the purview of the
said provision, the formalities prescribed under Arts. 813 and 814 of the Code
of Commerce in order to incur the expenses and cause the damage corresponding
to gross average were not complied with. Consequently, ESLI’s claim for
contribution from the consignees of the cargo at the time of the occurrence of the
average turns to naught. Prescinding from the foregoing premises, it indubitably
follows that the cargo consignees cannot be made liable to ESLI for additional
freight and salvage charges. Consequently, ESLI must refund to PHAC the
amount it paid under protest for additional freight and salvage charges in behalf
of the consignees.
DOCTRINE: In our jurisprudence, fire may not be considered a natural disaster
or calamity since it almost always arises from some act of man or by human
means. It cannot be an act of God unless caused by lightning or a natural disaster
or casualty not attributable to human agency.
As a rule, general or gross averages include all damages and expenses which are
deliberately caused in order to save the vessel, its cargo, or both at the same
time, from a real and known risk. Furthermore, the formalities prescribed under
Arts. 813 and 814 of the Code of Commerce in order to incur the expenses and
cause the damage corresponding to gross average should be complied with.
FACTS:
111.  Eastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern Explorer in
Kobe, Japan, the following shipment for carriage to Manila and Cebu,
freight pre-paid and in good order and condition:
a.   2 boxes internal combustion engine parts consigned to William Lines,
Inc. under Bill of Lading (BOL) No. 042283;
b.   10 metric tons (334 bags) ammonium chloride consigned to Orca’s
Company under BOL No. KCE-12;
c.   200 bags Glue 300 consigned to Pan Oriental Match Company under
BOL No. KCE-8; and
d.   garments consigned to Ding Velayo under BOL Nos. KMA-73 and
KMA-74.
112.  While the vessel was off Okinawa, Japan, a small flame was detected on the
acetylene cylinder located in the accommodation area near the engine room
 on the main deck level.
113.  As the crew was trying to extinguish the fire, the acetylene cylinder
suddenly exploded sending a flash of flame throughout the accommodation
area, thus causing death and severe injuries to the crew and instantly setting
fire to the whole superstructure of the vessel. The incident forced the master
and the crew to abandon the ship.
114.  Thereafter, SS Eastern Explorer was found to be a constructive total loss
and its voyage was declared abandoned.
115.  Several hours later, a tugboat under the control of Fukuda Salvage Co.
arrived near the vessel and commenced to tow the vessel for the port of
Naha, Japan.
116.  Fire fighting operations were again conducted at the said port. After the fire
was extinguished, the cargoes which were saved were loaded to another
vessel for delivery to their original ports of destination.
117.  ESLI charged the consignees several amounts corresponding to additional
freight and salvage charges, as follows:
a.   P1,927.65, representing salvage charges assessed against the goods for
the goods covered by BOL No. 042283;
b.   P2,980.64 for additional freight and P826.14 for salvage charges against
the goods for BOL No. KCE-12;
c.   P3,292.26 for additional freight and P4,130.68 for salvage charges
against the goods covered by BOL No. KCE-8; and
d.   P8,337.06 for salvage charges against the goods for BOL Nos. KMA-73
and KMA-74.
118.  The charges were all paid by Philippine Home Assurance Corporation
(PHAC) under protest for and in behalf of the consignees.
119.  PHAC, as subrogee of the consignees, thereafter filed a complaint before
the RTC of Manila against ESLI to recover the sum paid under protest on
the ground that the same were actually damages directly brought about by
the fault, negligence, illegal act and/or breach of contract of ESLI.
120.  In its answer, ESLI contended that it exercised the diligence required by law
in the handling, custody and carriage of the shipment; that the fire was
caused by an unforeseen event; that the additional freight charges are due
and demandable pursuant to the Bill of Lading; and that salvage charges are
properly collectible under Act No. 2616 (Salvage Law).
121.  The RTC dismissed PHAC’s complaint and ruled in favor of ESLI. It held
that the question to be resolved is whether or not the fire on the vessel
which was caused by the explosion of an acetylene cylinder loaded on the
same was the fault or negligence of ESLI.
a.   Based on evidence, SS Eastern Explorer was a seaworthy vessel and
before the ship loaded the Acetylene Cylinder No. NCW 875, the same
has been tested, checked and examined and was certified to have
complied with the required safety measures and standards.
b.   When the fire was detected by the crew, fire fighting operations was
immediately conducted but due to the explosion of the acetylene
cylinder, the crew were unable to contain the fire and had to abandon the
ship to save their lives and were saved from drowning by passing vessels
in the vicinity.
c.   The burning of the vessel rendering it a constructive total loss and
incapable of pursuing its voyage to the Philippines was, therefore, not
the fault or negligence of defendant but a natural disaster or calamity
which nobody would like to happen.
d.   The salvage operations conducted by Fukuda Salvage Company was
perfectly a legal operation and charges made on the goods recovered
were legitimate charges.
e.   The Salvage Law48 is thus applicable to the case at bar.
f.   With respect to the additional freight charged by ESLI from the
consignees of the goods, the same are also validly demandable as
provided by Art. 117449 and Art. 126650 of the Civil Code.
g.   The burning of SS Eastern Explorer while off Okinawa rendered it
physically impossible for ESLI to comply with its obligation of
delivering the goods to their port of destination pursuant to the contract
of carriage.
h.   Under Art. 1266 of the Civil Code, the physical impossibility of the
prestation extinguished ESLI’s obligation.
i.   It is but legal and equitable for ESLI therefore, to demand additional
freight from the consignees for forwarding the goods from Naha, Japan
to Manila and Cebu City on board another vessel, the “EASTERN
MARS”. This also finds support under Art. 84451 of the Code of
Commerce.
j.   Furthermore, the terms and conditions of the Bill of Lading authorize the
imposition of additional freight charges in case of forced interruption or
abandonment of the voyage.
122.  On appeal, the CA affirmed the findings of the RTC. Hence, the current
petition.
48
Section 1. When in case of shipwreck, the vessel or its cargo shall be beyond the control of
the crew, or shall have been abandoned by them, and picked up and conveyed to a safe place
by other persons, the latter shall be entitled to a reward for the salvage.
Those who, not being included in the above paragraph, assist in saving a vessel or its cargo
from shipwreck, shall be entitled to like reward.
49
Article 1174. Except in cases expressly specified by law, or when it is otherwise declared by
stipulation, or when the nature of the obligation require the assumption of risk, no person shall
be responsible for those events which could not be foreseen, or which though foreseen, were
inevitable.
50
Article 1266. The debtor in obligations to do shall also be released when the prestation
becomes legally or physically impossible without the fault of the obligor.
51
Article 844. A captain who may have taken on board the goods saved from the wreck shall
continue his course to the port of destination; and on arrival should deposit the same, with
judicial intervention at the disposal of their legitimate owners. xxx
The owners of the cargo shall defray all the expenses of this arrival as well as the payment of
the freight which, after taking into consideration the circumstances of the case, may be fixed
by agreement or by a judicial decision.
ISSUES:
1.   Whether or not the fire on the vessel which was caused by the explosion
of an acetylene cylinder loaded on the same was the fault or negligence
of ESLI. – YES, since fire is not considered a natural disaster or calamity
and there is strong evidence indicating that the acetylene cylinder caught
fire because of the fault and negligence of ESLI, its captain and its crew.
2.   Whether or not PHAC is liable for the additional charges or expenses
incurred by the owner of the ship in the salvage operations and in the
transshipment of the goods via a different carrier. – NO, since
formalities prescribed under Arts. 813 and 814 of the Code of Commerce
in order to incur the expenses and cause the damage corresponding to gross
average were not complied with.
RULING: The judgment appealed from is hereby reversed and set aside. ESLI is
ordered to return to PHAC the amount it paid under protest in behalf of the
consignees.
RATIO:
First Issue:
125.  It is worthy to note at the outset that the goods subject of the present
controversy were neither lost nor damaged in transit by the fire that razed
the carrier. In fact, the said goods were all delivered to the consignees, even
if the transshipment took longer than necessary.
126.  What is at issue therefore is not whether or not the carrier is liable for the
loss, damage, or deterioration of the goods transported by them but who,
among the carrier, consignee or insurer of the goods, is liable for the
additional charges or expenses incurred by the owner of the ship in the
salvage operations and in the transshipment of the goods via a different
carrier.
127.  In absolving ESLI of any liability, CA sustained the RTC’s finding that the
fire that gutted the ship was a natural disaster or calamity. PHAC takes
exception to this conclusion and the SC agree.
128.  In our jurisprudence, fire may not be considered a natural disaster or
calamity since it almost always arises from some act of man or by human
means. It cannot be an act of God unless caused by lightning or a natural
disaster or casualty not attributable to human agency.
129.  In the case at bar, it is not disputed that a small flame was detected on the
acetylene cylinder and that by reason thereof, the same exploded despite
efforts to extinguish the fire. Neither is there any doubt that the acetylene
cylinder, obviously fully loaded, was stored in the accommodation area near
the engine room and not in a storage area considerably far, and in a safe
distance, from the engine room.
130.  Moreover, there was no showing, and none was alleged by the parties, that
the fire was caused by a natural disaster or calamity not attributable to
human agency.
131.  On the contrary, there is strong evidence indicating that the acetylene
cylinder caught fire because of the fault and negligence of ESLI, its captain
and its crew.
a.   First, the acetylene cylinder which was fully loaded should not have
been stored in the accommodation area near the engine room where the
heat generated therefrom could cause the acetylene cylinder to explode
by reason of spontaneous combustion. ESLI should have easily foreseen
that the acetylene cylinder, containing highly inflammable material, was
in real danger of exploding because it was stored in close proximity to
the engine room.
b.   Second, ESLI should have known that by storing the acetylene cylinder
in the accommodation area supposed to be reserved for passengers, it
unnecessarily exposed its passengers to grave danger and injury. Curious
passengers, ignorant of the danger the tank might have on humans and
property, could have handled the same or could have lighted and smoked
cigarettes while repairing in the accommodation area.
c.   Third, the fact that the acetylene cylinder was checked, tested and
examined and subsequently certified as having complied with the safety
measures and standards by qualified experts before it was loaded in the
vessel only shows to a great extent that negligence was present in the
handling of the acetylene cylinder after it was loaded and while it was
on board the ship. Indeed, had the ESLI and its agents not been
negligent in storing the acetylene cylinder near the engine room, then the
same would not have leaked and exploded during the voyage.
132.  Verily, there is no merit in the finding of the RTC to which CA erroneously
agreed that the fire was not the fault or negligence of ESLI but a natural
disaster or calamity. The records are simply wanting in this regard.
133.  On PHAC’s objection to the admissibility of the Statement of Facts and the
Marine Note Protest issued by Capt. Tiburcio A. Licaylicay, said documents
are hearsay evidence.
a.   Capt. Licaylicay, Master of SS Eastern Explorer who issued the said
documents, was not presented in court to testify to the truth of the facts
he stated therein; instead, ESLI presented Junpei Maeda, its Branch
Manager in Tokyo and Yokohama, Japan, who evidently had no
personal knowledge of the facts stated in the documents at issue.
b.   It is clear from Sec. 36, Rule 130 of the Rules of Court that any
evidence, whether oral or documentary, is hearsay if its probative value
is not based on the personal knowledge of the witness but on the
knowledge of some other person not on the witness stand.
c.   Consequently, hearsay evidence, whether objected to or not, has no
probative value unless the proponent can show that the evidence falls
within the exceptions to the hearsay evidence rule. It is excluded
because the party against whom it is presented is deprived of his right
and opportunity to cross-examine the persons to whom the statements or
writings are attributed.
Second Issue:
134.  On the issue on the expenses incurred in saving the cargo which was based
on general average.
a.   As a rule, general or gross averages include all damages and expenses
which are deliberately caused in order to save the vessel, its cargo, or
both at the same time, from a real and known risk.
b.   While the instant case may technically fall within the purview of the said
provision, the formalities prescribed under Arts. 81352 and 81453 of the
Code of Commerce in order to incur the expenses and cause the damage
corresponding to gross average were not complied with.
c.   Consequently, ESLI’s claim for contribution from the consignees of the
cargo at the time of the occurrence of the average turns to naught.
d.   Prescinding from the foregoing premises, it indubitably follows that the
cargo consignees cannot be made liable to ESLI for additional freight
and salvage charges.
e.   Consequently, ESLI must refund to PHAC the amount it paid under
protest for additional freight and salvage charges in behalf of the
consignees.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
52
ARTICLE 813. In order to incur the expenses and cause the damages corresponding to gross
average, there must be a resolution of the captain, adopted after deliberation with the sailing
mate and other officers of the vessel, and after hearing the persons interested in the cargo who
may be present.
If the latter shall object, and the captain and officers or a majority of them, or the
captain, if opposed to the majority, should consider certain measures necessary, they may be
executed under his responsibility, without prejudice to the right of the shippers to proceed
against the captain before the competent judge or court, if they can prove that he acted with
malice, lack of skill, or negligence.
If the persons interested in the cargo, being on board the vessel, have not been heard,
they shall not contribute to the gross average, their share being chargeable against the captain,
unless the urgency of the case should be such that the time necessary for previous
deliberations was wanting.
53
ARTICLE 814. The resolution adopted to cause the damages which constitute general
average must necessarily be entered in the log book, stating the motives and reasons for the
dissent, should there be any, and the irresistible and urgent causes which impelled the captain
if he acted of his own accord.
In the first case the minutes shall be signed by all the persons present who could do
so before taking action, if possible; and if not, at the first opportunity. In the second case, it
shall be signed by the captain and by the officers of the vessel.
In the minutes, and after the resolution, shall be stated in detail all the goods
jettisoned, and mention shall be made of the injuries caused to those kept on board. The
captain shall be obliged to deliver one copy of these minutes to the maritime judicial authority
of the first port he may make, within twenty-four hours after his arrival, and to ratify it
immediately under oath.
 001 MALAYAN INSURANCE v. CRUZ ARNALDO (GALINDEZ)
October 12, 1987 | Cruz, J. | Measure of Indemnity
PETITIONER: Malayan Insurance Co. Inc.
RESPONDENTS: Gregoria Cruz Arnaldo, in her capacity as the Insurance
Commissioner, and Coronacion Pinca
SUMMARY: MICO issued to Pinca a fire insurance policy for P14,000,
effective from July 22, 1981 to July 22, 1982. MICO allegedly cancelled the
policy for non-payment of premium on October 15. However, Pinca’s payment
for the premium was received by Adora, MICO’s agent on December 24.
On January 15, 1982, Pinca’s property was burned. On February 5 of the same
year, her payment was returned by MICO to Adora on the ground that the policy
had been cancelled earlier. Pinca still demanded for payment from MICO but
MICO refused hence Pinca brought the matter to the Insurance Commissioner,
which sustained Pinca. Hence, MICO filed the present case before the Court.
ISSUE RELATED TO SYLLABUS TOPIC: WoN the valuation fixed in the
policy is conclusive – YES. Valuation fixed in the fire insurance policy is
conclusive in case of total loss in the absence of fraud, which is not shown here.
(SEE DOCTRINE)
The certification issued by the Integrated National Police, Lao-ang, Samar, as to
the extent of Pinca's loss should be considered sufficient. Notably, MICO
submitted no evidence to the contrary nor did it even question the extent of the
loss in its answer before the Insurance Commission. It is also worth observing
that Pinca's property was not the only building bumed in the fire that razed the
commercial district of Lao-ang, Samar, on January 18, 1982.
DOCTRINE: Loss and its amount may be determined on the basis of such
proof as may be offered by the insured, which need not be of such
persuasiveness as is required in judicial proceedings. If, as in this case, the
insured files notice and preliminary proof of loss and the insurer fails to specify
to the former all the defects thereof and without unnecessary delay, all
objections to notice and proof of loss are deemed waived under Section 90 of
the Insurance Code.
When a person's house is razed, the fire usually burns down the efforts of a lifetime
and forecloses hope for the suddenly somber future. The vanished abode becomes a
charred and painful memory. Where once stood a home, there is now, in the sighing
wisps of smoke, only a gray desolation. The dying embers leave ashes in the heart.
(Dean Hofi likes these things….)
FACTS:
3.   On June 7, 1981, Malayan Insurance Co (MICO) issued to Coronacion
Pinca (Pinca) a fire insurance policy on her property for P14,000 effective
July 22, 1981 until July 22, 1982.
4.   On October 15, 1981, MICO allegedly cancelled the policy for non-
payment of the premium and sent a corresponding notice to Pinca.
5.   On December 24, 1981, payment of the premium for Pinca was received by
Domingo Adora (Adora), MICO’s agent.
6.   On January 15, 1981, Adora remitted this payment to MICO, with the other
payments.
7.   On January 18, 1982, Pinca’s property was completely burned.
8.   On February 5, 1982, Pinca’s payment was returned by MICO to Adora on
the ground that the policy had been cancelled earlier, but Adora refused to
accept it.
9.   Pinca made demands for payment, which MICO rejected. Hence, she went
to the Insurance Commission. It is because Pinca was ultimately sustained
by Insurance Commissioner Gregoria Cruz Arnaldo (Gregoria) which is
why MICO comes to the Court for relief.
ISSUE/s:
2.   WoN the petition is procedurally infirm – YES. It was filed out of time,
hence for this alone, it must be dismissed.
3.   WoN there was valid notice of cancellation – NO. There is flat denial by
Pinca who says she never received the cancellation and who did not have to
prove such denial as Sec. 64 states that no insurance policy shall be
cancelled except upon prior notice, it behooved MICO's to make sure that
the cancellation was actually sent to and received by the insured.
4.   (RELEVANT) WoN the valuation fixed in the policy is conclusive – YES.
Valuation fixed in the fire insurance policy is conclusive in case of total loss
in the absence of fraud, which is not shown here.
RULING: WHEREFORE, the petition is DENIED. The decision of the Insurance
Commission dated April 10, 1981, and its Order of June 4, 1981, are AFFIRMED in
full, with costs against the petitioner. This decision is immediately executory.
RATIO:
PROCEDURAL
7.   The Court referred to the petition as stillborn (Hofs might ask) on a
procedural viewpoint alone.
8.   The notice of Gregoria dated April 5, 1982 was received by MICO on April
10, 1982. On April 25, it filed an MR which was denied on June 4. Notice
was received by MICO on June 13.
9.   MICO’s position is that the petition is governed by Section 416 of the
Insurance Code giving it 30 days within which to appeal by certiorari to the
SC. Alternatively, it invokes Rule 45 of the ROC.
10.   Gregoria and Pinca insist that the applicable law is BP 129, which states
that the period for appeal is 15 days, as in the ROC.
 11.   The pivotal date is the date the notice of the denial of the MR was received 21.   The payment was made on December 24 and the fire occurred on January
by MICO. 18.
12.   MICO avers it’s June 18, but Pinca states it’s June 13, because an 22.   Suppose the payment was made an accepted in August 1981, would the
authenticated copy of the Order with a rubber-stamped notation at its commencement of the policy have been changed to the date of the payment,
bottom indicates that it was received for MICO by J. Gotladera on 6/13/82. or would the payment have retroacted to July 22, 1981? If MICO accepted
13.   Between the two dates, the Court believes the latter because it is the date the payment in December 1981 and the insured property had not been
authenticated by the administrative division of the Insurance Commission. burned, would that policy not have expired just the same on July 22, 1982,
14.   Under Section 416 of the Insurance Code, the period for appeal is thirty pursuant to its original terms, and not on December 24, 1982?
days from notice of the decision of the Insurance Commission. MICO filed 23.   In MICO’s theory, the policy would have been effective only upon payment
its MR on April 25, 1981, or fifteen days such notice, and the reglementary if accepted. Hence, it would’ve been valid only from December 24, 1981 to
period began to run again after June 13, 1981, date of its receipt of notice of July 22, 1981. In other words, the policy would have run for only eight
the denial of the said motion for reconsideration. As the herein petition was months although the premium paid was for one whole year.
filed on July 2, 1981, or nineteen days later, there is no question that it is 24.   MICO’s acknowledgment of Adora as its agent defeats its contention that
tardy by four days. he was not authorized to receive the premium payment on its behalf.
15.   Counted from June 13, the fifteen-day period prescribed under Rule 45, 25.   Under the insurance code and law on agency, payment to Adora is payment
assuming it is applicable, would end on June 28, 1982, or also four days to MICO.
from July 2, when the petition was filed. 26.   The Court moreover went on to discuss the grounds of cancellation and the
16.   If it was filed under B.P. 129, then, considering that the motion for proper method56.
reconsideration was filed on the fifteenth day after MICO received notice of 27.   A valid cancellation must therefore require the following:
the decision, only one more day would have remained for it to appeal, to a.   There must be prior notice of cancellation to the insured
wit, June 14, 1982. That would make the petition eighteen days late by July b.   The notice must be based on the occurrence, after the effective date of the policy, of
one or more of the grounds mentioned
2. c.   The notice must be (a) in writing, (b) mailed, or delivered to the name insured, (c)
17.   Even if the applicable law were still R.A. 5434, governing appeals from at the address shown in the policy
administrative bodies, the petition would still be tardy. The law provides for d.   It must state (a) which of the grounds mentioned under Sec. 64 is relied upon and
(b) upon the written request of the insured, the insurer will furnish the facts on
a fixed period of ten days from notice of the denial of a seasonable motion
which the cancellation is based.
for reconsideration within which to appeal from the decision. Accordingly, 28.   MICO’s claims that it cancelled the policy on October 15 for non-payment
that ten-day period, counted from June 13, 1982, would have ended on June of premiums. It presented one of its employees who testified that the alleged
23, 1982, making the petition filed on July 2, 1982, nine days late. cancellation was sent the assured by mail. However, there is no proof that
the notice was actually mailed to and received by Pinca.
ON THE MERITS 29.   On the other hand, there is flat denial by Pinca who says she never received
18.   MICO’s arguments that there was no payment of premium and that the the cancellation and who did not have to prove such denial as Sec. 64 states
policy had been cancelled before the occurence of the loss are not
acceptable. Its contention that the claim was allowed without proof of loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
56
is also untenable.
 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
 
19.   MICO relies on Section 77 of the Insurance Code54. However, the provision
occurrence,
 after
 the
 effective
 date
 of
 the
 policy,
 of
 one
 or
 more
 of
 the
 following:
 
is not applicable because the payment of premium was made. (a)
  non-­‐payment
 of
 premium;
 
20.   The premium invoice issued to Pinca at the time of delivery of the policy on (b)
  conviction
 of
 a
 crime
 arising
 out
 of
 acts
 increasing
 the
 hazard
 insured
 against;
 
June 7 was stamped with “PAYMENT RECEIVED” of the amount of (c)
  discovery
 of
 fraud
 or
 material
 misrepresentation;
 
P930.60 by Domingo Adora55. (d)
  discovery
 of
 willful,
 or
 reckless
 acts
 or
 commissions
 increasing
 the
 hazard
 insured
 against;
 
(e)
  physical
  changes
  in
  the
  property
  insured
  which
  result
  in
  the
  property
  becoming
 
uninsurable;or
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
54 (f)
  a
  determination
  by
  the
  Commissioner
  that
  the
  continuation
  of
  the
  policy
  would
  violate
  or
 

 SEC.
 77.
 An
 insurer
 is
 entitled
 to
 payment
 of
 the
 premium
 as
 soon
 as
 the
 thing
 is
 exposed
 to
 the
 peril
 
would
 place
 the
 insurer
 in
 violation
 of
 this
 Code.
 
insured
  against.
  Notwithstanding
  any
  agreement
  to
  the
  contrary,
  no
  policy
  or
  contract
  of
  insurance
 
SEC.
 65.
  All
  notices
  of
  cancellation
  mentioned
  in
  the
  preceding
  section
  shall
  be
  in
  writing,
  mailed
  or
 
issued
 by
 an
 insurance
 company
 is
 valid
 and
 binding
 unless
 and
 until
 the
 premium
 thereof
 has
 been
 paid,
 
delivered
  to
  the
  named
  insured
  at
  the
  address
  shown
  in
  the
  policy,
  and
  shall
  state
  (a)
  which
  of
  the
 
except
 in
 the
 case
 of
 a
 life
 or
 an
 industrial
 life
 policy
 whenever
 the
 grace
 period
 provision
 applies.
 
55 grounds
  set
  forth
  in
  section
  sixty-­‐four
  is
  relied
  upon
  and
  (b)
  that,
  upon
  written
  request
  of
  the
  named
 

  This
  is
  important
  because
  it
  suggests
  an
  understanding
  between
  MICO
  and
  the
  insured
  that
  such
 
insured,
 the
 insurer
 will
 furnish
 the
 facts
 on
 which
 the
 cancellation
 is
 based.
 
payment
 could
 be
 made
 later,
 as
 agent
 Adora
 had
 assured
 Pinca.
 In
 any
 event,
 it
 is
 not
 denied
 that
 this
 
payment
 was
 actually
 made
 by
 Pinca
 to
 Adora,
 who
 remitted
 the
 same
 to
 MICO.
 
 
 that no insurance policy shall be cancelled except upon prior notice, it 39.   The certification issued by the Integrated National Police, Lao-ang, Samar,
behooved MICO's to make sure that the cancellation was actually sent to as to the extent of Pinca's loss should be considered sufficient.
and received by the insured. 40.   Notably, MICO submitted no evidence to the contrary nor did it even
30.   The presumption cited is unavailing against the positive duty enjoined by question the extent of the loss in its answer before the Insurance
Section 64 upon MICO and the flat denial made by Pinca that she had Commission. It is also worth observing that Pinca's property was not the
received notice of the claimed cancellation. only building bumed in the fire that razed the commercial district of Lao-
31.   If Pinca really received the notice, she wouldn’t have made payment on the ang, Samar, on January 18, 1982.
original policy on December 24. Instead, she would have asked for a new 41.   There is nothing in the Insurance Code that makes the participation of an
insurance effective on that date until one year later, to take advantage of the adjuster in the assessment of the loss imperative or indispensable, as MICO
extended period. suggests. Section 325, which it cites, simply speaks of the licensing and
32.   The Court finds that if she paid on that date, it’s because she honestly duties of adjusters.
believed the policy issued on June 7 was still in effect and she was willing
to make her payment retroact to July 22, its stipulated commencement date.
 
 
33.   MICO suggests 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.
34.   However, a study of the transcript57 will show that Pinca meant to renew the
policy if it had really been already cancelled but not if it was still
effective—it was conditional.
35.   Since it was not shown that there was a valid cancellation of the policy,
there was no need to renew it but to pay the premium thereon. Payment was
legally made on the original transaction and was validly received on behalf
of MICO by Adora. Adora was not informed of the cancellation either and
saw no reason not to accept the payment.

RELEVANT TO SYLLABUS TOPIC

36.   The valuation fixed in the fire insurance policy is conclusive in case of total
loss in the absence of fraud, which is not shown here.
37.   Loss and its amount may be determined on the basis of such proof as may
be offered by the insured, which need not be of such persuasiveness as is
required in judicial proceedings.
38.   If, as in this case, the insured files notice and preliminary proof of loss and
the insurer fails to specify to the former all the defects thereof and without
unnecessary delay, all objections to notice and proof of loss are deemed
waived under Section 90 of the Insurance Code.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
57

  Q:
  Now,
  Madam
  Witness,
  on
  December
  25th
  you
  made
  the
  alleged
  payment.
  Now,
  my
  question
  is
 
that,
 did
 it
 not
 come
 to
 your
 mind
 that
 after
 the
 lapse
 of
 six
 (6)
 months,
 your
 policy
 was
 cancelled?
 
A:
 I
 have
 thought
 of
 that
 but
 the
 agent
 told
 me
 to
 call
 him
 up
 at
 anytime.
 
Q:
 So
 if
 you
 thought
 that
 your
 policy
 was
 already
 intended
 to
 revive
 cancelled
 policy?
 
A:
 Misleading,
 Your
 Honor.
 
Hearing
 Officer:
 The
 testimony
 of
 witness
 is
 that,
 she
 thought
 of
 that.
 
Q:
 I
 will
 revise
 the
 question.
 Now,
 Mrs.
 Witness,
 you
 stated
 that
 you
 thought
 the
 policy
 was
 cancelled.
 
Now,
 when
 you
 made
 the
 payment
 of
 December
 24,
 1981,
 your
 intention
 was
 to
 revive
 the
 policy
 if
 it
 
was
 already
 cancelled?
 
A:
 Yes,
 to
 renew
 it.
 

 
 002
 NEW
 LIFE
 ENTERPRISES
 v.
 CA
 (Gonzales)
  5.   However, the three insurance companies denied his claim for payment for
March
 31,
 1992
 |
 Regalado,
 J.
 |
 Other
 Insurance
 Clause
  breach of Conditions No. 358 and 27.59 Condition No. 3 requires the insured

  to give notice of any insurance or insurances already effected covering the
stocks in trade.
PETITIONERS:
 New
 Life
 Enterprises
 and
 Julian
 Sy
  6.   New Life then filed separate civil actions against the insurance companies.
RESPONDENT:
  Court
  of
  Appeals,
  Equitable
  Insurance
  Corporation,
  Reliance
  Surety
  7.   RTC ruled in favor of New Life.
and
 Insurance,
 Western
 Guaranty
 Corporation
  8.   CA reversed the RTC decision

  9.   Hence this petition.

 
 
SUMMARY: Julian Sy, a partner in New Life, insured against fire New Life’s ISSUE:
 
stocks in trade with Western, Reliance, and Equitable. The building occupied by 2.   WoN Conditions No. 3 and 27 of the insurance contracts were violated
New Life and the stocks in trade therein were gutted by fire. Sy failed a claim thereby resulting in their forfeiture of all the benefits thereunder – YES.
against the three insurance companies. The latter denied the claim for breach of New Life failed to give notice of any insurance already effected covering
Condition 3, which requires the insured to give notice of any insurance or insurances the stocks in trade.
already effected covering the stocks in trade. New Life filed a case against the three
insurance companies. RTC ruled in favor of New Life. CA reversed. The issue is RULING:
 CA
 Decision
 affirmed.
 
 
WoN Condition 3 was violated – YES. New Life failed to give notice of any
 
insurance already effected covering the stocks in trade. RATIO:
 
1.   Condition No. 3, otherwise known as the "Other Insurance Clause," is

  uniformly contained in all the-aforestated insurance contracts.
DOCTRINE: Violation of the Other Insurance Clause entitled the insurer to rescind. 2.   New Life admits that the insurance policies did not state or endorse

  thereon the other insurance coverage obtained or subsequently effected
FACTS:
  on the same stocks in trade for the loss of which compensation is claimed
1.   Julian Sy and Jose Sy Bang formed a business partnership under the by New Life. (aka the insurance companies are not co-insurers)
business name of New Life Enterprises. The partnership engaged in the sale 3.   In other words, the coverage by other insurance or co-insurance effected
of construction materials at a two storey building in Iyam, Lucena City. or subsequently arranged by New Life were neither stated nor endorsed
Julian Sy insured against fire the stocks in trade of New Life with in the policies of the three insurance companies, warranting forfeiture of
a.   Western in the amount of P350,000 (May 15, 1981; renewed on all benefits thereunder if we are to follow the express stipulation in the
May 13, 1982) aforequoted Policy Condition No. 3.
b.   Reliance in the amount of P300,000 (July 30, 1981, renewed) and
P700,000 (November 12, 1981)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
c.   Equitable in the amount of P200,000 (February 8, 1982)
d.   Notice that when Sy renewed the insurance with Western, the 58
"3. The insured shall give notice to the Company of any insurance or insurances already effected, or
other insurances were subsisting. That is why even though which may subsequently be effected, covering any of the property or properties consisting of stocks in
Western’s policy is the first, there is still a violation of the 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 on this policy pursuant to Section
condition. 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss or damage,
2.   The building occupied by New Life was gutted by fire. all benefits under this policy shall be deemed forfeited, provided however, that this condition shall not
3.   According to the police, the cause of fire was electrical in nature. apply when the total insurance or insurances in force at the time of loss or damage is not more than
4.   After the fire, Julian Sy went to the agent of Reliance whom he asked to
accompany him to the office of the company so that he can file his claim. P200,000.00."
He submitted the fire clearance, the insurance policies and inventory of
stocks. The three insurance companies are sister companies, and when he 59

 27.
 Action
 or
 suit
 clause.
 —
 If
 a
 claim
 be
 made
 and
 rejected
 and
 an
 action
 or
 suit
 be
 not
 commenced
 
was following-up his claim with Equitable, the Claims Manager told him to either
  in
  the
  Insurance
  Commission
  or
  any
  court
  of
  competent
  jurisdiction
  of
  notice
  of
  such
  rejection,
  or
 
go first to Reliance and if said company agrees to pay, they would also pay. in
 case
 of
 arbitration
 taking
 place
 as
 provided
 herein,
 within
 twelve
 (12)
 months
 after
 due
 notice
 of
 the
 
award
 made
 by
 the
 arbitrator
 or
 abitrators
 or
 umpire,
 then
 the
 claim
 shall
 for
 all
 purposes
 be
 deemed
 to
 
The same treatment was given him by the other insurance companies. have
 been
 abandoned
 and
 shall
 not
 thereafter
 be
 recoverable
 hereunder."
 

 
4.   New Life contends that they are not to be blamed for the omissions, not insured by any other policy. Violation thereof entitled the insurer to
alleging that insurance agent Leon Alvarez (for Western) and Yap Kam rescind.”
Chuan (for Reliance and Equitable) knew about the existence of the 13.   Pacific Banking Corporation vs. Court of Appeals: “had the insurer
additional insurance coverage and that they were not informed about the known that there were many co-insurances, it could have hesitated or
requirement that such other or additional insurance should be stated in plainly desisted from entering into such contract. Hence, the insured was
the policy, as they have not even read said policies. guilty of clear fraud”
5.   These contentions cannot pass judicial muster. 14.   To further warrant and justify the forfeiture of the benefits under the
6.   The insured is specifically required to disclose to the insurer any other insurance contracts involved, we need merely to turn to Policy Condition
insurance and its particulars which he may have effected on the same No. 15 thereof: "… if any false declaration be made or used in support
subject matter. thereof, … all benefits under this Policy shall be forfeited…"
7.   The knowledge of such insurance by the insurer's agents, even assuming 15.   Additionally, insofar as the liability of Reliance is concerned, the
the acquisition thereof by the former, is not the "notice" that would stop complaint for recovery was filed in court only on January 31, 1984, or
the insurers from denying the claim. Besides, the so-called theory of after more than one (1) year had elapsed from New Life’s receipt of the
imputed knowledge, that is, knowledge of the agent is knowledge of the insurers' letter of denial. Thus, the claim has prescribed.
principal, aside from being of dubious applicability here has likewise 16.   Assuming arguendo that New Life felt the legitimate need to be clarified
been roundly refuted by the CA. as to the policy condition violated, there was a considerable lapse of time
8.   Thus, it points out that while Julian Sy claimed that he had informed from their receipt of the insurer's clarificatory letter dated March 30,
agent Alvarez regarding the co-insurance on the property, he contradicted 1983, up to the time the complaint was filed in court on January 31,
himself by inexplicably claiming that he had not read the terms of the 1984. The one-year prescriptive period was yet to expire on November
policies; that Yap Dam Chuan could not likewise have obtained such 29, 1983, or about eight (8) months from the receipt of the clarificatory
knowledge for the same reason, aside from the fact that the insurance letter, but New Life let the period lapse without bringing their action in
with Western was obtained before those of Reliance and Equitable; and court. We accordingly find no "peculiar circumstances" sufficient to
that the conclusion of the trial court that Reliance and Equitable are relax the enforcement of the one-year prescriptive period and we,
"sister companies" is an unfounded conjecture drawn from the mere fact therefore, hold that New Life’s claim was definitely filed out of
that Yap Kam Chuan was an agent for both companies which also had time. LLjur
the same insurance claims adjuster. Availment of the services of the same
agents and adjusters by different companies is a common practice in the
insurance business and such facts do not warrant the speculative
conclusion of the trial court.

 
 
9.   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.
10.   It may be true that the majority rule is that insured persons may accept
policies without reading them, and that this is not negligence per se. But,
this is not without any exception.
11.   It is and was incumbent upon Sy to read the insurance contracts, and this
can be reasonably expected of him considering that he has been a
businessman since 1965 and the contract concerns indemnity in case of
loss in his money-making trade of which important consideration he
could not have been unaware as it was precisely the reason for his
procuring the same.
12.   Pioneer Insurance vs. Yap: “considering the terms of the policy which
required the insured to declare other insurances, the statement in question
must be deemed to be a statement (warranty) binding on both insurer and
insured, that there were no other insurance on the property… The
annotation then, must be deemed to be a warranty that the property was
 003
 SUN
 INSURANCE
 v.
 CA
 (TIMBOL
 edited
 by
 GUECO)
 
 
July
 17,
 1992
 |
 Cruz,
 J.
 |
 Casualty
 Insurance
 
 

  FACTS:
 
PETITIONER:
 Sun
 Insurance
 Office,
 LTD
  1.   Sun
  Insurance
  issued
  Personal
  Accident
  Policy
  No.
  05687
  to
  Felix
  Lim,
  Jr.
 
RESPONDENTS:
 CA
 and
 Nerissa
 Lim
  (“Felix”)
 with
 a
 face
 value
 of
 P200,000.
 

  i.   Two
 months
 later,
 he
 was
 dead
 with
 a
 bullet
 wound
 in
 his
 head
 
SUMMARY:
  Felix
  obtained
  a
  Personal
  Accident
  Policy
  from
  Sun
  Insurance,
  assigning
  2.   As
 beneficiary,
 his
 wife
 Nerissa
 Lim
 sought
 payment
 on
 the
 policy,
 but
 her
 
his
  wife,
  Nerissa,
  as
  his
  beneficiary.
  Two
  months
  later,
  after
  his
  mother’s
  birthday
  claim
 was
 rejected
 
party,
  Felix
  died
  with
  a
  bullet
  wound
  in
  his
  head.
  According
  to
  Nalagon,
  his
  i.   Sun
 Insurance
 agreed
 that
 there
 was
 no
 suicide
 
secretary,
 Felix
 pointed
 the
 gun
 at
 her
 (Nalagon)
 and
 when
 she
 pushed
 it
 aside,
 he
  ii.   It
 argued,
 however
 that
 there
 was
 no
 accident
 either
 
 
assured
  her
  that
  he
  had
  removed
  the
  magazine
  (ammunition
  storage).
  To
  prove
  his
  3.   Pilar
 Nalagon,
 Lim’s
 secretary,
 was
 the
 only
 eyewitness
 to
 his
 death
 
 
point,
 he
 placed
 the
 gun
 to
 his
 temple
 and
 fired
 it.
 There
 was
 then
 an
 explosion
 and
  i.   According
  to
  Nalagon,
  Lim
  was
  in
  a
  happy
  mood
  (but
  not
  drunk)
 
Felix
 fell
 to
 the
 floor.
 
  and
 was
 playing
 with
 his
 handgun,
 from
 which
 he
 had
 previously
 
Nerissa
  sought
  to
  recover
  the
  insurance
  proceeds
  from
  Sun
  Insurance.
  However,
  removed
 the
 magazine
 
Sun
  Insurance
  refused,
  arguing
  that
  when
  Felix
  placed
  the
  gun
  to
  his
  head,
  he
  ii.   As
  she
  watched
  television,
  he
  stood
  in
  front
  of
  her
  and
  pointed
 
willfully
  exposed
  himself
  to
  needless
  peril;
  thus,
  removing
  himself
  from
  the
  the
 gun
 at
 her
 
coverage
 of
 the
 policy
 (which
 absolves
 Sun
 Insurance
 from
 liability
 for
 bodily
 injury
  iii.   She
 pushed
 it
 aside
 and
 said
 it
 might
 be
 loaded
 
 
caused
  by
  a
  commission
  or
  an
  attempt
  to
  commit
  suicide
  or
  when
  the
  insured
  iv.   He
 assured
 her
 it
 was
 not
 and
 then
 pointed
 it
 to
 his
 temple
 
willfully
 exposes
 himself
 to
 needless
 peril).
 
  v.   The
  next
  moment
  there
  was
  an
  explosion
  and
  Lim
  slumped
  to
  the
 
ISSUE:
  WON
  the
  death
  of
  Felix
  was
  an
  accident—YES.
  RULING:
  (See
  doctrine
  for
  floor
 
definition
 of
 accident).
 In
 De
 la
 Cruz
 v.
 Capital
 Insurance,
 the
 Court
 stated
 that
 there
  vi.   He
 was
 dead
 before
 he
 fell
 
is
  no
  accident
  when
  a
  deliberate
  act
  is
  performed.
  This
  is
  unless
  some
  additional,
  4.   The
  widow
  sued
  Sun
  Insurance
  in
  the
  RTC
  of
  Zamboanga
  City
  and
  was
 
unexpected,
  independent
  and
  unforeseen
  happening
  occurs
  which
  produces
  or
  sustained.
 This
 decision
 was
 affirmed
 on
 appeal,
 and
 the
 MR
 was
 denied.
 
brings
  about
  their
  injury
  or
  death.
  There
  was
  such
  a
  happening
  in
  this
  case.
  The
  The
 Sun
 Insurance
 then
 came
 to
 this
 SC
 to
 fault
 the
 CA
 for
 approving
 the
 
firing
  of
  the
  gun
  was
  the
  additional,
  unexpected,
  independent,
  and
  unforeseen
  payment
 of
 the
 claim
 and
 the
 award
 of
 damages
 
 
occurrence
 that
 led
 to
 Felix’s
 death.
 His
 act
 of
 pointing
 the
 gun
 to
 his
 temple
 was
 
 
NOT
  deliberate.
  Although
  he
  was
  negligent,
  he
  did
  not,
  however,
  willfully
  expose
  ISSUE/s:
 
himself
  to
  needless
  peril
  because
  he
  believed
  in
  good
  faith
  that
  it
  was
  safe
  to
  do
  so
  1.   WoN
  the
  death
  of
  Felix
  was
  an
  accident—YES.
  In
  De
  la
  Cruz
  v.
  Capital
 
(the
 act
 being
 intended
 to
 assure
 Nalagon
 that
 the
 gun
 was
 indeed
 harmless).
 
  Insurance,
  the
  Court
  stated
  that
  there
  is
  no
  accident
  when
  a
  deliberate
  act
 

  is
 performed.
 This
 is
 unless
 some
 additional,
 unexpected,
 independent
 and
 
DOCTRINE:
 Casualty
 insurance
 is
 insurance
 covering
 loss
 or
 liability
 arising
 from
 an
  unforeseen
 happening
 occurs
 which
 produces
 or
 brings
 about
 their
 injury
 
accident
  or
  mishap,
  excluding
  certain
  types
  of
  loss
  which
  by
  law
  or
  custom
  are
  or
  death.
  There
  was
  such
  a
  happening
  in
  this
  case.
  The
  firing
  of
  the
  gun
 
considered
 as
 falling
 exclusively
 within
 the
 scope
 of
 other
 types
 of
 insurance
 such
 as
  was
  the
  additional,
  unexpected
  and
  independent,
  and
  unforeseen
 
fire
 or
 marine.
 It
 includes,
 but
 is
 not
 limited
 to,
 employer’s
 liability
 insurance,
 motor
  occurrence
 that
 led
 to
 Felix’s
 death.
 
vehicle
  liability
  insurance,
  plate
  glass
  insurance,
  burglary
  and
  theft
  insurance,
 
 
personal
  accident
  and
  health
  insurance
  as
  written
  by
  non-­‐life
  insurance
  companies,
  RULING:
  WHEREFORE,
  the
  challenged
  decision
  of
  the
  Court
  of
  Appeals
  is
  AFFIRMED
 
and
 other
 substantially
 similar
 kinds
 of
 insurance
 (Sec.
 176
 of
 the
 Insurance
 Code).
  in
  so
  far
  as
  it
  holds
  the
  petitioner
  liable
  to
  the
  private
  respondent
  in
  the
  sum
  of
 

  P200,000.00
 representing
 the
 face
 value
 of
 the
 insurance
 contract,
 with
 interest
 at
 
An
 accident
 is
 an
 event
 which
 happens
 without
 any
 human
 agency
 or,
 if
 happening
  the
  legal
  rate
  from
  the
  date
  of
  the
  filing
  of
  the
  complaint
  until
  the
  full
  amount
  is
 
through
 human
 agency,
 an
 event
 which,
 under
 the
 circumstances,
 is
 unusual
 to
 and
  paid,
  but
  MODIFIED
  with
  the
  deletion
  of
  all
  awards
  for
  damages,
  including
 
not
  expected
  by
  the
  person
  to
  whom
  it
  happens.
  It
  has
  also
  been
  defined
  as
  an
  attorney's
 fees,
 except
 the
 costs
 of
 the
 suit.
 
 
injury
 which
 happens
 by
 reason
 of
 some
 violence
 or
 casualty
 to
 the
 insured
 without
 
 
his
 design,
 consent,
 or
 voluntary
 cooperation.
 
  RATIO:
 
1.   The
 words
 “accident”
 and
 “accidental”
 have
 never
 acquired
 any
 technical
  iv.   The
  act
  was
  precisely
  intended
  to
  assure
  Nalagon
  that
  the
  gun
 
signification
  in
  law,
  and
  when
  used
  in
  an
  insurance
  contract
  are
  to
  be
  was
 indeed
 harmless
 
construed
  and
  considered
  according
  to
  the
  ordinary
  understanding
  and
  8.   Lim
 was
 unquestionably
 negligent,
 and
 that
 negligence
 costed
 him
 his
 own
 
common
 usage
 and
 speech
 of
 people
 generally
  life.
  But
  it
  should
  not
  prevent
  his
  widow
  from
  recovering
  from
  the
 
2.   In-­‐substance,
 the
 courts
 are
 practically
 agreed
 that
 the
 words
 “accident”
  insurance
 policy
 he
 obtained
 precisely
 against
 accident
 
 
and
  “accidental”
  mean
  that
  which
  happens
  by
  chance
  or
  fortuitously,
  9.   There
 is
 nothing
 in
 the
 policy
 that
 relieves
 the
 insurer
 of
 the
 responsibility
 
without
  intention
  or
  design,
  and
  which
  is
  unexpected,
  unusual,
  and
  to
  pay
  the
  indemnity
  agreed
  upon
  if
  the
  insured
  is
  shown
  to
  have
 
unforeseen
  contributed
 to
 his
 own
 accident
 
 
3.   The
  definition
  that
  has
  usually
  been
  adopted
  by
  the
  courts
  is
  that
  an
  10.   Indeed,
  most
  accidents
  are
  caused
  by
  negligence.
  There
  are
  only
  four
 
accident
 is
 an
 event
 that
 takes
 place
 without
 one’s
 foresight
 or
 expectation
  exceptions
  expressly
  made
  in
  the
  contract
  to
  relieve
  the
  insurer
  from
 
–
 an
 event
 that
 proceeds
 from
 an
 unknown
 cause,
 or
 is
 an
 unusual
 effect
  liability,
 and
 none
 of
 these
 exceptions
 is
 applicable
 in
 the
 case
 at
 bar
 
 
of
 a
 known
 case,
 and
 therefore
 not
 expected
 
  11.   Exceptions:
 
4.   An
  accident
  is
  an
  event
  which
  happens
  without
  any
  human
  agency
  or,
  if
  i.   The
 Company
 shall
 not
 be
 liable
 in
 respect
 of:
 
happening
  through
  human
  agency,
  an
  event
  which,
  under
  the
  1.   Bodily
 Injury
 
circumstances,
  is
  unusual
  to
  and
  not
  expected
  by
  the
  person
  to
  whom
  it
  a)   Sustained
 
happens
  i.   While
  the
  Insured
  Person
  is
  engaging
  in
 
i.   It
 has
 also
 been
 defined
 as
 an
 injury
 which
 happens
 by
 reason
 of
  (or
  practicing
  for
  or
  taking
  part
  in
 
some
  violence
  or
  casualty
  to
  the
  injured
  without
  his
  design,
  training
  peculiar
  to)
  any
  of
  the
 
consent,
 or
 voluntary
 co-­‐operation
  Excluded
 Activities
 
5.   In
  light
  of
  these
  definitions,
  the
  Court
  is
  convinced
  that
  the
  incident
  that
  ii.   By
  any
  person
  before
  such
  person
 
resulted
 in
 Lim’s
 death
 was
 indeed
 an
 accident
 
  attains
  the
  Lower
  Age
  Limit
  or
  after
  the
 
i.   Sun
 Insurance
 invoking
 the
 case
 of
 De
 La
 Cruz
 v.
 Capital
 Insurance,
  expiry
 of
 the
 Period
 of
 Insurance
 during
 
says
 that
 there
 is
 no
 accident
 when
 a
 deliberate
 act
 is
 performed
  which
  such
  person
  attains
  the
  Upper
 
unless
 some
 additional,
 unexpected,
 independent
 and
 unforeseen
  Age
 Limit
 
happening
  occurs
  which
  produces
  or
  brings
  about
  their
  injury
  b)   Consequent
 Upon
 
death
 
  i.   The
  Insured
  Person
  committing
  or
 
ii.   There
 was
 such
 a
 happening.
 This
 was
 the
 firing
 of
 the
 gun
 which
  attempting
  to
  commit
  suicide
  or
 
was
  the
  additional
  unexpected
  and
  independent
  and
  unforeseen
  willfully
  exposing
  himself
  to
  needless
 
occurrence
 that
 led
 to
 the
 insured
 person’s
 death
 
  peril
  except
  in
  an
  attempt
  to
  save
 
6.   Sun
 Insurance
 also
 cited
 an
 exception
 that
 the
 company
 shall
 not
 be
 liable
  human
 life
 
in
 respect
 of
 bodily
 injury,
 consequent
 upon
 the
 insured
 person
 attempting
  ii.   War,
  invasion,
  act
  of
  foreign
  enemy,
 
to
 commit
 suicide
 or
 willfully
 exposing
 himself
 to
 needless
 peril
 except
 in
  hostilities
 (whether
 war
 be
 declared
 or
 
an
 attempt
 to
 save
 human
 life
 
  not)
  civil
  war,
  rebellion,
  revolution,
 
7.   Sun
 Insurance
 also
 maintains
 that
 by
 the
 mere
 act
 of
 pointing
 the
 gun
 to
  insurrection,
  or
  military
  or
  usurped
 
his
 temple,
 Lim
 had
 willfully
 exposed
 himself
 to
 needless
 peril
 and
 so
 came
  power
 
under
 the
 exception.
 The
 theory
 that
 a
 gun
 is
 per
 se
 dangerous
 and
 should
  2.   Bodily
  injury
  or
  death
  disablement
  or
  medical
  expenses
 
therefore
 be
 handled
 cautiously
 in
 every
 case
  consequent
  upon
  or
  contributed
  to
  by
  the
  Insured
 
i.   The
  SC
  held
  that
  as
  testified
  by
  the
  secretary,
  Lim
  had
  removed
  Person
 
the
 magazine
 from
 the
 gun
 and
 believe
 it
 as
 no
 longer
 dangerous
  a)   Having
  taken
  a
  drug
  unless
  the
  Insured
  proves
 
ii.   He
 expressly
 assured
 her
 that
 the
 gun
 was
 not
 loaded
  that
  the
  drug
  was
  taken
  in
  accordance
  with
 
iii.   It
  is
  submitted
  that
  Lim
  did
  not
  willfully
  expose
  himself
  to
  proper
  medical
  prescription
  and
  directions
  and
 
needless
 peril
 when
 he
 pointed
 the
 gun
 to
 his
 temple
 because
 the
  not
 for
 treatment
 of
 drug
 addiction
 
fact
 is
 that
 he
 thought
 it
 was
 not
 unsafe
 to
 do
 so
 
 b)   Suffering
  from
  pre-­‐existing
  physical
  or
  mental
 
defect
 or
 infirmity
 which
 had
 not
 been
 declared
 
to
 and
 accepted
 in
 wriitn
 gby
 the
 Company
 
3.   Death
  Disablement
  or
  Medical
  Expenses
  consequent
 
upon
  or
  contributed
  to
  by
  the
  Insured
  Person
  being
 
pregnant
  or
  suffering
  from
  sickness
  or
  disease
  not
 
resulting
 from
 bodily
 injury
 due
 to
 a
 gradually
 operating
 
cause
 
4.   Risks
 of
 Murder
 and
 Assault
 
12.   It
  bears
  noting
  that
  insurance
  contracts
  are
  as
  a
  rule
  supposed
  to
  be
 
interpreted
 liberally
 in
 favor
 of
 the
 assured.
 There
 is
 no
 reason
 to
 deviate
 
from
 this
 rule,
 especially
 in
 view
 of
 the
 circumstances
 of
 this
 case
 as
 above
 
analyzed
 
 
13.   It
  is
  evident
  that
  Sun
  Insurance
  was
  acting
  in
  good
  faith
  then
  it
  resisted
 
Nerissa
  Lim’s
  case
  on
  the
  ground
  that
  the
  death
  of
  the
  insured
  was
 
covered
 by
 the
 exception
 
14.   The
  issue
  was
  indeed
  debatable
  ad
  was
  clearly
  not
  raised
  only
  for
  the
 
purpose
  of
  evaiding
  a
  legitimate
  obligation.
  The
  Court
  therefore
  holds
  that
 
the
 award
 of
 mrla
 and
 exemplary
 damages
 and
 of
 attorney’s
 fees
 is
 unjust
 
and
 so
 must
 be
 disapproved
 
15.   In
 order
 that
 a
 person
 may
 be
 liable
 to
 the
 payment
 of
 moral
 damages,
 the
 
law
 requires
 that
 his
 act
 be
 wrongful
 
i.   The
  adverse
  result
  of
  an
  action
  does
  not
  per
  se
  make
  the
  act
 
wrongful
 and
 subject
 the
 act
 or
 to
 the
 payment
 of
 moral
 damages
 
ii.   The
  law
  could
  not
  have
  meant
  to
  impose
  a
  penalty
  on
  the
  right
  to
 
litigate;
 such
 right
 is
 so
 precious
 that
 moral
 damages
 may
 not
 be
 
charged
 on
 those
 who
 may
 exercise
 it
 erroneously.
 For
 these
 the
 
law
 taxes
 costs
 
iii.   If
  a
  party
  wins,
  he
  cannot
  as
  a
  rule,
  recover
  attorney’s
  fees
  and
 
litigation
  expenses,
  since
  it
  is
  not
  the
  fact
  of
  winning
  alone
  that
 
entitles
  him
  to
  recover
  such
  damages
  of
  the
  exceptional
 
circumstances
 enumerated
 in
 Art.
 2208
 
1.   Otherwise,
  every
  time
  a
  defendant
  wins,
  automatically
 
the
  plaintiff
  must
  pay
  attorney’s
  fees
  thereby
  putting
  a
 
premium
 on
 the
 right
 to
 litigate
 which
 should
 not
 be
 so
 
2.   For
  those
  expenses,
  the
  law
  deems
  the
  award
  of
  costs
  as
 
sufficient
 

 

 
 
 004
 Biagtan
 v
 Insular
 Life
 Assurance
 Company
 Ltd.
 (GUSTILO)
  is
  controlling.
 If
  the
  injuries
  suffered
  by
  the
  insured
  clearly
  resulted
  from
  the
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 March
 29,
 1972|
 Makalintal,
 J
 |
 Accident
 Policy
  intentional
 act
 of
 a
 third
 person
 the
 insurer
 is
 relieved
 from
 liability
 as
 stipulated.
 

 

 
PETITIONER:
 Emilia
 Biagtan,
 Juan
 T.
 Biagtan
 Jr.,
 Miguel
 Biagtan,
 Gil
 Biagtan
 &
 Gracia
  FACTS:
 
Biagtan
  85.   Juan
  S.
  Biagtan
  (J.
  Bigtan)
  was
  insured
  with
  InsularLife
  Assurance
  Company
 
RESPONDENTS:
 Insular
 Life
 Assurance
 Company
 Ltd
  (Insular
  Life)
  under
  Policy
  No.
  398075
  for
  the
  sum
  of
  P5,000.00
  and,
  under
 
SUMMARY:
 Juan
 Bigtan
 (J.
 Bigtan)
 was
 insured
 with
 Insular
 Life
 Assurance
 Company
  a
 supplementary
 contract
 denominated
 "Accidental
 Death
 Benefit
 Clause,
 
(Insular
  Life)
  for
  the
  sum
  of
  P5,000.00
  and,
  under
  a
  supplementary
  contract
  for
  an
  additional
  sum
  of
  P5,000.00
  if
  "the
  death
  of
  the
  Insured
  resulted
 
denominated
 "Accidental
 Death
 Benefit
 Clause,
 for
 an
 additional
 sum
 of
 P5,000.00
  directly
  from
  bodily
  injury
  effected
  solely
  through
  external
  and
  violent
 
if
  "the
  death
  of
  the
  Insured
  resulted
  directly
  from
  bodily
  injury
  effected
  solely
  means
 sustained
 in
 an
 accident
 ...
 and
 independently
 of
 all
 other
 causes."
 
through
 external
 and
 violent
 means
 sustained
 in
 an
 accident
 ...
 and
 independently
  The
  clause,
  however,expressly
  provided
  that
  it
  would
  not
  apply
  where
 
of
 all
 other
 causes."
 The
 clause,
 however,expressly
 provided
 that
 it
 would
 not
 apply
  death
 resulted
 from
 an
 injury"intentionally
 inflicted
 by
 another
 party.
 
where
  death
  resulted
  from
  an
  injury"intentionally
  inflicted
  by
  another
  party.
  The
  86.   On
 the
 night
 of
 May
 20,
 1964,
 or
 during
 the
 first
 hours
 of
 the
 following
 day
 
house
 of
 insured
 J.
 Biagtan
 was
 robbed
 by
 a
 band
 of
 robbers
 who
 were
 charged
 in
  a
  band
  of
  robbers
  entered
  the
  house
  of
  J.
  Biagtan.
  What
  transpired
  is
  as
 
and
  convicted
  by
  the
  CFI
  of
  Pangasinan
  for
  robbery
  with
  homicide;
  that
  in
  follows:
  “that
  on
  the
  night
  of
  May
  20,
  1964
  or
  the
  first
  hours
  of
  May
  21,
 
committing
  the
  robbery,
  the
  robbers,
  on
  reaching
  the
  staircase
  landing
  on
  the
  1964,
  while
  the
  said
  life
  policy
  and
  supplementary
  contract
  were
  in
  full
 
second
  floor,
  rushed
  towards
  the
  door
  of
  the
  second
  floor
  room,
  where
  they
  force
 and
 effect,
 the
 house
 of
 insured
 J.
 Biagtan
 was
 robbed
 by
 a
 band
 of
 
suddenly
 met
 a
 person
 near
 the
 door
 of
 one
 of
 the
 rooms
 who
 turned
 out
 to
 be
 J.
  robbers
  who
  were
  charged
  in
  and
  convicted
  by
  the
  CFI
  of
  Pangasinan
  for
 
Biagtan
  who
  received
  thrusts
  from
  their
  sharp-­‐pointed
  instruments,
  causing
  robbery
  with
  homicide;
  that
  in
  committing
  the
  robbery,
  the
  robbers,
  on
 
wounds
 on
 the
 body
 of
 said
 J.
 Biagtan
 resulting
 in
 his
 death.
 Emilia
 Bigtan
 (E
 Bigtan)
  reaching
  the
  staircase
  landing
  on
  the
  second
  floor,
  rushed
  towards
  the
 
et
  al
  as
  beneficiaries
  of
  the
  insured,
  filed
  a
  claim
  under
  the
  policy.
  The
  insurance
  door
 of
 the
 second
 floor
 room,
 where
 they
 suddenly
 met
 a
 person
 near
 the
 
company
 paid
 the
 basic
 amount
 of
 P5,000.00
 but
 refused
 to
 pay
 the
 additional
 sum
  door
  of
  one
  of
  the
  rooms
  who
  turned
  out
  to
  be
  J.
  Biagtan
  who
  received
 
of
  P5,000.00
  under
  the
  accidental
  death
  benefit
  clause,
  on
  the
  ground
  that
  the
  thrusts
 from
 their
 sharp-­‐pointed
 instruments,
 causing
 wounds
 on
 the
 body
 
insured's
  death
  resulted
  from
  injuries
  intentionally
  inflicted
  by
  third
  parties
  and
  of
  said
  J.
  Biagtan
  resulting
  in
  his
  death
  at
  about
  7
  a.m.
  on
  the
  same
  day,
 
therefore
 was
 not
 covered.
 E
 Bigtan
 et
 al,
 filed
 suit
 to
 recover.
 The
 trial
 court
 ruled
  May
 21,
 1964.”
 
in
 favor
 of
 E
 Bigtan
 et
 al.
 Hence,
 this
 appeal.
 Issue
 is
 WoN
 the
 wounds
 received
 by
  87.   Emilia
 Bigtan
 (E.
 Bigtan),
 et
 al
 as
 beneficiaries
 of
 the
 insured,
 filed
 a
 claim
 
the
  insured
  at
  the
  hands
  of
  the
  robbers
  (9
  in
  all,
  5
  mortal,
  4
  non
  mortal)
  were
  under
  the
  policy.
  The
  insurance
  company
  paid
  the
  basic
  amount
  of
 
inflicted
 intentionally?
 YES.
  P5,000.00
  but
  refused
  to
  pay
  the
  additional
  sum
  of
  P5,000.00
  under
  the
 
The
 SC
 held
 that
 9
 wounds
 were
 inflicted
 upon
 the
 insured,
 all
 by
 means
 of
 thrusts
  accidental
  death
  benefit
  clause,
  on
  the
  ground
  that
  the
  insured's
  death
 
with
 sharp-­‐pointed
 instruments
 wielded
 by
 the
 robbers.
 This
 is
 a
 physical
 fact
 as
 to
  resulted
 from
 injuries
 intentionally
 inflicted
 by
 third
 parties
 and
 therefore
 
which
 there
 is
 no
 dispute.
 So
 is
 the
 fact
 that
  5
 of
 those
 wounds
 caused
 the
 death
 of
  was
  not
  covered.
 E
 Bigtan
 et
 al,
  filed
 suit
 to
 recover.
 After
  due
 hearing
 the
 
the
 insured.
 Whether
 the
 robbers
 had
 the
 intent
 to
 kill
 or
 merely
 to
 scare
 the
 victim
  court
 a
  quo
 rendered
  judgment
  in
  their
  favor.
 
  Hence,
  the
  present
  appeal
 
or
 to
 ward
 off
 any
 defense
 he
 might
 offer,
 it
 cannot
 be
 denied
 that
 the
 act
 itself
 of
  by
 Insular
 Life.
 
 
inflicting
  the
  injuries
  was
  intentional.
  Where
  a
  gang
  of
  robbers
  enter
  a
  house
  and
  ISSUE/s:
 
coming
  face
  to
  face
  with
  the
  owner,
  even
  if
  unexpectedly,
  stab
  him
  repeatedly,
  it
  is
  4.  WoN
 under
 the
 facts
 stipulated
 and
 found
 by
 the
 trial
 court
 the
 wounds
 received
 
contrary
 to
 all
 reason
 and
 logic
 to
 say
 that
 his
 injuries
 are
 not
 intentionally
 inflicted,
  by
 the
 insured
 at
 the
 hands
 of
 the
 robbers
 (9
 in
 all,
 5
 mortal,
 4
 non
 mortal)
 were
 
regardless
 of
 whether
 they
 prove
 fatal
 or
 not.
 As
 it
 was,
 in
 the
 present
 case
 they
 did
  inflicted
  intentionally?
  YES
  because
  where
  a
  gang
  of
  robbers
  enter
  a
  house
  and
 
prove
  fatal,
  and
  the
  robbers
  have
  been
  accused
  and
  convicted
  of
  the
  crime
  of
  coming
  face
  to
  face
  with
  the
  owner,
  even
  if
  unexpectedly,
  stab
  him
  repeatedly
  (9
 
robbery
 with
 homicide.
  times),
  it
  is
  contrary
  to
  all
  reason
  and
  logic
  to
  say
  that
  his
  injuries
  are
  not
 
DOCTRINE:
  Intentional
  as
  used
  in
  an
  accident
  policy
  excepting
  intentional
  injuries
  intentionally
  inflicted,
  regardless
  of
  whether
  they
  prove
  fatal
  or
  not.
  As
  it
  was,
  in
 
inflicted
  by
  the
  insured
  or
  any
  other
  person,
  etc.,
  implies
  the
  exercise
  of
  the
  the
 present
 case
 they
 did
 prove
 fatal.
 
reasoning
  faculties,
  consciousness
  and
  volition.
  Where
  a
  provision
  of
  the
  policy
 
 
excludes
 intentional
 injury,
 it
 is
 the
 intention
 of
 the
 person
 inflicting
 the
 injury
 that
 
RULING:
  WHEREFORE,
  the
  decision
  appealed
  from
  is
  reversed
  and
  the
  complaint
  them,
  together
  with
  the
  owner
  of
  the
  house,
  approached
  and
  stood
  in
 
dismissed,
 without
 pronouncement
 as
 to
 costs.
  front
 of
 the
 main
 gate,
 a
 shot
 was
 fired
 and
 it
 turned
 out
 afterwards
 that
 
RATIO:
  the
  watchman
  was
  hit
  in
  the
  abdomen,
  the
  wound
  causing
  his
  death.
 
103.  The
  trial
  court
  stated
  that
  since
  the
  parties
  presented
  no
  evidence
  and
  Under
  those
  circumstances
  this
  Court
  held
  that
  it
  could
  not
  be
  said
  that
 
submitted
  the
  case
  upon
  stipulation,
  there
  was
  no
  "proof
  that
  the
  act
  of
  the
 killing
 was
 intentional
 for
 there
 was
 the
 possibility
 that
 the
 malefactor
 
receiving
  thrust
  from
  the
  sharp-­‐pointed
  instrument
  of
  the
  robbers
  was
  had
 fired
 the
 shot
 to
 scare
 people
 around
 for
 his
 own
 protection
 and
 not
 
intended
  to
  inflict
  injuries
  upon
  the
  person
  of
  the
  insured
  or
  any
  other
  necessarrily
 to
 kill
 or
 hit
 the
 victim.
 
person
 or
 merely
 to
 scare
 away
 any
 person
 so
 as
 to
 ward
 off
 any
 resistance
  107.  However,
  in
  this
  case,
  9
  wounds
  inflicted
  with
  bladed
  weapons
  at
  close
 
or
  obstacle
  that
  might
  be
  offered
  in
  the
  pursuit
  of
  their
  main
  objective
  range
 cannot
 conceivably
 be
 considered
 as
 innocent
 insofar
 as
 such
 intent
 
which
 was
 robbery.
  is
  concerned.
  The
  manner
  of
  execution
  of
  the
  crime
  permits
  no
  other
 
104.  The
  SC
  stated
  that
  the
  trial
  court
  committed
  a
  plain
  error
  in
  drawing
  the
  conclusion.
 Thus,
 it
 has
 been
 held
 that
 "intentional"
 as
 used
 in
 an
 accident
 
conclusion
  it
  did
  from
  the
  admitted
  facts.
  9
  wounds
  were
  inflicted
  upon
  policy
 excepting
 intentional
 injuries
 inflicted
 by
 the
 insured
 or
 any
 other
 
the
  insured,
  all
  by
  means
  of
  thrusts
  with
  sharp-­‐pointed
  instruments
  person,
  etc.,
  implies
  the
  exercise
  of
  the
  reasoning
  faculties,
 
wielded
  by
  the
  robbers.
  This
  is
  a
  physical
  fact
  as
  to
  which
  there
  is
  no
  consciousness
  and
  volition.
  Where
  a
  provision
  of
  the
  policy
  excludes
 
dispute.
  So
  is
  the
  fact
  that
  5
  of
  those
  wounds
  caused
  the
  death
  of
  the
  intentional
  injury,
  it
  is
  the
  intention
  of
  the
  person
  inflicting
  the
  injury
 
insured.
 Whether
 the
 robbers
 had
 the
 intent
 to
 kill
 or
 merely
 to
 scare
 the
  that
 is
 controlling.
 If
 the
 injuries
 suffered
 by
 the
 insured
 clearly
 resulted
 
victim
 or
 to
 ward
 off
 any
 defense
 he
 might
 offer,
 it
 cannot
 be
 denied
 that
  from
  the
  intentional
  act
  of
  a
  third
  person
  the
  insurer
  is
  relieved
  from
 
the
 act
 itself
 of
 inflicting
 the
 injuries
 was
 intentional.
  liability
 as
 stipulated.
 
105.  It
  should
  be
  noted
  that
  the
  exception
  in
  the
  accidental
  benefit
  clause
  108.  The
 SC
 cited
 2
 American
 cases.
 The
 first
 Hutchcraft's
 Ex'r
 v.
 Travelers'
 Ins.
 
invoked
  by
  E.
  Bigtan
  et
  al
  does
  not
  speak
  of
  the
  purpose
  whether
  Co,
 
 the
 insured
 was
 waylaid
 and
 assassinated
 for
 the
 purpose
 of
 robbery.
 
homicidal
 or
 not
 of
 a
 third
 party
 in
 causing
 the
 injuries,
 but
 only
 of
 the
 fact
  The
 Court
 held
 that
 while
 the
 assassination
 of
 the
 insured
 was
 as
 to
 him
 an
 
that
  such
  injuries
  have
  been
  "intentionally"
  inflicted,
  this
  obviously
  to
  unforeseen
 event
 and
 therefore
 accidental,
 "the
 clause
 of
 the
 proviso
 that
 
distinguish
 them
 from
 injuries
 which,
 although
 received
 at
 the
 hands
 of
 a
  excludes
  the
  insurer's
  liability,
  in
  case
  death
  or
  injury
  is
  intentionally
 
third
  party,
  are
  purely
  accidental.
  This
  construction
  is
  the
  basic
  idea
  inflicted
 by
 another
 person,
 applies
 to
 this
 case.The
 other
 one
 was
 Butero
 
expressed
 in
 the
 coverage
 of
 the
 clause
 itself,
 namely,
 that
 "the
 death
 of
  v.
  Travelers'
  Acc.
  Ins.
  Co,
 
 the
  insured
  was
  shot
  three
  times
  by
  a
  person
 
the
  insured
  resulted
  directly
  from
  bodily
  injury
  effected
  solely
  through
  unknown
 late
 on
 a
 dark
 and
 stormy
 night,
 while
 working
 in
 the
 coal
 shed
 of
 
external
  and
  violent
  means
  sustained
  in
  an
 accident
 ...
  and
  a
  railroad
  company.
  The
  policy
  did
  not
  cover
  death
  resulting
  from
 
independently
  of
  all
  other
  causes."
  A
  gun
  which
  discharges
  while
  being
  "intentional
  injuries
  inflicted
  by
  the
  insured
  or
  any
  other
  person."
 The
 
cleaned
  and
  kills
  a
  bystander;
  a
  hunter
  who
  shoots
  at
  his
  prey
  and
  hits
  a
  Court
  found
  that
  under
  the
  facts,
  showing
  that
  the
  murderer
  knew
  his
 
person
 instead;
 an
 athlete
 in
 a
 competitive
 game
 involving
 physical
 effort
  victim
  and
  that
  he
  fired
  with
  intent
  to
  kill,
  there
  could
  be
  no
  recovery
 
who
 collides
 with
 an
 opponent
 and
 fatally
 injures
 him
 as
 a
 result:
 these
 are
  under
  the
  policy
  which
  excepted
  death
  from
  intentional
  injuries
  inflicted
 
instances
  where
  the
  infliction
  of
  the
  injury
  is
  unintentional
  and
  therefore
  by
 any
 person
 
would
 be
 within
 the
 coverage
 of
 an
 accidental
 death
 benefit
 clause
 such
  as
 
 
that
 in
 question
 in
 this
 case.
 But
 where
 a
 gang
 of
 robbers
 enter
 a
 house
  Separate
 Opinions:
 
Concurring,
 Barredo,
 J.
 
 
and
 coming
 face
 to
 face
 with
 the
 owner,
 even
 if
 unexpectedly,
 stab
 him
 
1.  Examining
 the
 unequivocal
 language
 of
 the
 provision
 in
 controversy
 and
 considering
 that
 
repeatedly,
 it
 is
 contrary
 to
 all
 reason
 and
 logic
 to
 say
 that
 his
 injuries
 are
 
the
 insured
 accepted
 the
 policy
 without
 asking
 that
 it
 be
 made
 clear
 that
 the
 phrase
 "injury
 
not
 intentionally
 inflicted,
 regardless
 of
 whether
 they
 prove
 fatal
 or
 not.
  intentionally
 inflicted
 by
 a
 third
 party"
 should
 be
 understood
 to
 refer
 only
 to
 injuries
 inflicted
 
As
 it
 was,
 in
 the
 present
 case
 they
 did
 prove
 fatal,
 and
 the
 robbers
 have
  by
 a
 third
 party
 without
 any
 wilful
 intervention
 on
 his
 part
 of
 the
 insured
 or,
 in
 other
 words,
 
been
 accused
 and
 convicted
 of
 the
 crime
 of
 robbery
 with
 homicide.
  without
  any
  connivance
  with
  him
  the
  insured
  in
  order
  to
  augment
  the
  proceeds
  of
  the
  policy
 
106.  The
  trial
  court
  relied
  on
  the
  case
  of
  Calanoc
  v
  CA
  in
  support
  of
  its
  decision.
  for
  his
  benificiaries,
  I
  am
  inclined
  to
  agree
  that
  death
  caused
  by
  criminal
  assault
  is
  not
 
The
  facts
  in
  that
  case,
  however,
  are
  different
  from
  those
  obtaining
  here.
  covered
  by
  the
  policies
  of
  the
  kind
  here
  in
  question,
  specially
  if
  the
  assault,
  as
  a
  matter
  of
 
The
 insured
 there
 was
 a
 watchman
 in
 a
 certain
 company,
 who
 happened
 to
  fact,
  could
  have
  been
  more
  or
  less
  anticipated,
  as
  when
  the
  insured
  happens
  to
  have
  violent
 
be
  invited
  by
  a
  policeman
  to
  come
  along
  as
  the
  latter
  was
  on
  his
  way
  to
  enemies
 or
 is
 found
 in
 circumstances
 that
 would
 make
 his
 life
 fair
 game
 of
 third
 parties.
 
investigate
 a
 reported
 robbery
 going
 on
 in
 a
 private
 house.
 As
 the
 two
 of
 
2.  As
 to
 the
 rest,
 I
 have
 no
 doubt
 that
 the
 killing
 of
 the
 insured
 in
 this
 case
 is
 as
 intentional
 as
 
any
 intentional
 act
 can
 be,
 hence
 this
 concurrence
 
Teehankee,
 dissenting:
 
1.  It
  is
  respectfully
  submitted
  that
  the
  lower
  court
  committed
  no
  error
  in
  law
  in
  holding
 
defendant
  insurance
  company
  liable
  to
  plaintiffs-­‐beneficiaries
  under
  its
  accidental
  death
 
benefit
  clause,
  by
  virtue
  of
  the
  following
  considerations:
  The
  case
  of
 Calanoc
 cited
  by
  the
 
lower
 court
 is
 indeed
 controlling
 here.
 This
 Court,
 there
 construing
 a
 similar
 clause,
 squarely
 
ruled
  that
  fatal
  injuries
  inflicted
  upon
  an
  insured
  by
  a
  malefactors
  during
  the
  latter's
 
commission
  of
  a
  crime
  are
  deemed
  accidental
  and
  within
  the
  coverage
  of
  such
  accidental
 
death
 benefit
 clauses
 and
 the
 burden
 of
 proving
 that
 the
 killing
 was
 intentional
 so
 as
 to
 have
 
it
 fall
 within
 the
 stipulated
 exception
 of
 having
 resulted
 from
 injuries
 "intentionally
 inflicted
 
by
 a
 third
 party"
 must
 be
 discharged
 by
 the
 insurance
 company.
 This
 Court
 there
 clearly
 held
 
that
 in
 such
 cases
 where
 the
 killing
 does
 not
 amount
 to
 murder,
 it
 must
 be
 held
 to
 be
 a
 "pure
 
accident"
  on
  the
  part
  of
  the
  victim,
  compensable
  with
  double-­‐indemnity,
  even
  though
  the
 
malefactor
 is
 criminally
 liable
 for
 his
 act.
 
2.  E.
 Bigtan,
 et
 al
 properly
 assert
 in
 their
 brief
 that
 the
 sole
 error
 assigned
 by
 Insular
 Life,
 to
 
wit,
 that
 the
 fatal
 injuries
 were
 not
 accidental
 as
 held
 by
 the
 lower
 court
 but
 should
 be
 held
 
to
 have
 been
 intentionally
 inflicted,
 raises
 a
 question
 of
 fact
 which
 Insular
 Life
 is
 now
 barred
 
from
 raising,
 since
 it
 expressly
 limited
 its
 appeal
 to
 this
 Court
 purely
 "on
 questions
 of
 law",
 
per
 its
 noitice
 of
 appeal.
 
3.  It
 has
 long
 been
 an
 established
 rule
 of
 construction
 of
 so-­‐called
 contracts
 of
 adhesion
 such
 
as
 insurance
 contracts,
 where
 the
 insured
 is
 handed
 a
 printed
 insurance
 policy
 whose
 fine-­‐
print
  language
  has
  long
  been
  selected
  with
  great
  care
  and
  deliberation
  by
  specialists
  and
 
legal
 advisers
 employed
 by
 and
 acting
 exclusively
 in
 the
 interest
 of
 the
 insurance
 company,
 
that
 the
 terms
 and
 phraseology
 of
 the
 policy,
 particularly
 of
 any
 exception
 clauses,
 must
 be
 
clearly
 expressed
 so
 as
 to
 be
 easily
 understood
 by
 the
 insured
 and
 any
 "ambiguous,
 equivocal
 
or
 uncertain
 terms"
 are
 to
 be
 "construed
 strictly
 and
 most
 strongly
 against
 the
 insurer
 and
 
liberally
  in
  favor
  of
  the
  insured
  so
  as
  to
  effect
  the
  dominant
  purpose
  of
  indemnity
  or
 
payment
 to
 the
 insured,
 especially
 where
 a
 forfeiture
 is
 involved.
 
4.  It
 is
 obvious
 from
 the
 very
 classification
 of
 the
 exceptions
 and
 applying
 the
 rule
 of
 noscitus
 
a
  sociis
 that
  the
  double-­‐indemnity
  policy
  covers
  the
  insured
  against
  accidental
  death,
 
whether
  caused
  by
  fault,
  negligence
  or
  intent
  of
  a
  third
  party
  which
  is
  unforeseen
  and
 
unexpected
  by
  the
  insured.
  All
  the
  associated
  words
  and
  concepts
  in
  the
  policy
  plainly
 
exclude
 the
 accidental
 death
 from
 the
 coverage
 of
 the
 policy
 only
 where
 the
 injuries
 are
 self-­‐
inflicted
 or
 attended
 by
 some
 proscribed
 act
 of
 the
 insured
 or
 are
 incurred
 in
 some
 expressly
 
excluded
  calamity
  such
  as
  riot,
  war
  or
  atomic
  explosion.
  Finally,
  the
  untenability
  of
  herein
 
Insular
  Life’s
  claim
  that
  the
  insured's
  death
  fell
  within
  the
  exception
  is
  further
  heightened
  by
 
the
  stipulated
  fact
  that
  two
  other
  insurance
  companies
  which
  likewise
  covered
  the
  insured
 
for
  which
  larger
  sums
  under
  similar
  accidental
  death
  benefit
  clauses
  promptly
  paid
  the
 
benefits
 thereof
 to
 E.
 Bigtan
 et
 al.
 
 

 
 
 005
 Malayan
 Insurance
 Co.
 v.
 CA
 (Hilario) respondent
  Vallejos,
  but
  it
  cannot,
  as
  incorrectly
  held
  by
  the
  trial
  court,
  be
  made
 
September
 26,
 1998
 |
 Padilla,
 J.
 |
 Casualty
 Insurance "solidarily"
  liable
  with
  the
  two
  principal
  tortfeasors
  namely
  respondents
  Sio
  Choy
 
and
 San
 Leon
 Rice
 Mill,
 Inc.
 For
 if
 Malayan
 Insurance
 were
 solidarily
 liable
 with
 Sio
 
PETITIONER:
 Malayan
 Insurance
 Co.
 Inc. Choy
 and
 San
 Leon
 Rice
 Mill
 by
 reason
 of
 the
 indemnity
 contract
 against
 third
 party
 
RESPONDENTS:
 CA
 (Third
 Division,
 Martin
 C.
 Vallejos,
 Sio
 Choy,
 San
 Leon
 Rice
 Mill
  liability-­‐under
  which
  an
  insurer
  can
  be
  directly
  sued
  by
  a
  third
  party
  —
  this
  will
 
Inc.,
 Pangasinan
 Transportation
 Co.,
 Inc. result
  in
  a
  violation
  of
  the
  principles
  underlying
  solidary
  obligation
  and
  insurance
 
contracts.
  To
  recapitulate
  then:
  We
  hold
  that
  only
  respondents
  Sio
  Choy
  and
  San
 
SUMMARY:
  Sio
  Choy
  owns
  a
  jeep,
  and
  had
  it
  insured
  with
  Malayan
  Insurance.
  A
  Leon
 Rice
 Mill,
 Inc.
 are
 solidarily
 liable
 to
 the
 respondent
 Martin
 C.
 Vallejos
 for
 the
 
Private
 Car
 Comprehensive
 Policy
 was
 issued,
 with
 coverage
 for
 “own
 damage”
 not
  amount
  of
  P29,103.00.
  Vallejos
  may
  enforce
  the
  entire
  obligation
  on
  only
  one
  of
 
to
  exceed
  P600,
  and
  “third
  party
  liability”
  in
  the
  amount
  of
  P
  20,000.
  During
  the
  said
  solidary
  debtors.
  If
  Sio
  Choy
  as
  solidary
  debtor
  is
  made
  to
  pay
  for
  the
  entire
 
effectivity
 of
 the
 policy,
 the
 insured
 jeep
 was
 being
 driven
 by
 an
 employee
 of
 San
  obligation
 (P29,103.00)
 and
 Malayan
 Insurance,
 as
 insurer
 of
 Sio
 Choy,
 is
 compelled
 
Leon
  Rice
  Mill,
  and
  it
  collided
  with
  a
  passenger
  bus
  belonging
  to
  Pangasinan
  to
 pay
 P20,000.00
 of
 said
 entire
 obligation,
 Malayan
 Insurance
 would
 be
 entitled,
 as
 
Transportation
  Co.
  (PANTRANCO),
  causing
  damage
  to
  the
  insured
  vehicle
  and
  subrogee
 of
 Sio
 Choy
 as
 against
 San
 Leon
 Rice
 Mills,
 Inc.,
 to
 be
 reimbursed
 by
 the
 
injuries
  to
  the
  driver
  and
  a
  passenger
  of
  the
  jeep,
  Vallejos.
  So,
  Valles
  filed
  an
  action
  latter
 in
 the
 amount
 of
 P14,551.50
 (which
 is
 1/2
 of
 P29,103.00
 )
 
for
  damages
  against
  Sio
  Choy,
  Malayan
  Insurance,
  and
  PANTRANCO.
  Malayan
 
Insurance
 on
 the
 other
 hand,
 tried
 to
 evade
 liability
 by
 claiming
 that
 the
 driver
 of
  DOCTRINE:
  While
  it
  is
  true
  that
  where
  the
  insurance
  contract
  provides
  for
 
the
  insured
  car
  at
  the
  time
  of
  the
  accident
  was
  not
  Sio
  Choy’s
  employee,
  but
  of
  San
  indemnity
 against
 liability
 to
 third
 persons,
 such
 third
 persons
 can
 directly
 sue
 the
 
Leon
 Rice
 Mill,
 and
 that
 the
 real
 party
 which
 should
 be
 held
 liable
 is
 San
 Leon
 Rice
  insurer,
 
  however,
  the
  direct
  liability
  of
  the
  insurer
  under
  indemnity
  contracts
 
Mill,
 not
 Malayan
 Insurance.
 RTC
 ruled
 in
 favor
 of
 Vallejos,
 saying
 that
 the
 parties
  against
  third
  party
  liability
  does
  not
  mean
  that
  the
  insurer
  can
  be
  held
  solidarily
 
are
  solidarily
  liable
  to
  Vallejos,
  and
  the
  CA
  affirmed
  but
  absolved
  San
  Leon
  Rice
  Mill
  liable
  with
  the
  insured
  and/or
  the
  other
  parties
  found
  at
  fault.
  The
  liability
  of
  the
 
of
 liability,
 saying
 that
 it
 was
 not
 liable
 to
 pay
 Malayan
 Insurance,
 because
 it
 is
 not
  insurer
 is
 based
 on
 contract;
 that
 of
 the
 insured
 is
 based
 on
 tort.
privy
  to
  the
  insurance
  policy
  issued
  by
  Malayan
  Insurance
  in
  favor
  of
  Sio
  Choy.
 
Malayn
  Insurance
  appeals
  before
  the
  SC,
  claiming
  that
  San
  Leon
  Rice
  Mill
  should
  FACTS:
reimburse
  Malayan
  Insurance
  any
  amount
  in
  excess
  of
  ½
  of
  the
  entire
  amount
  of
  88.   Malayan
  Insurance
  issued
  a
  Private
  Car
  Comprehensive
  Policy
  covering
  a
 
damages
 it
 may
 be
 ordered
 to
 pay
 jointly
 and
 severally
 with
 Sio
 Choy.
  Willys
 jeep
 in
 favor
 of
 Sio
 Choy.
 The
 coverage
 was
 for
 “own
 damage”
 not
 

  to
 exceed
 P600,
 and
 “third-­‐party
 liability”
 in
 the
 amount
 of
 P20,000.
 
Issues:
 
  89.   During
 the
 effectivity
 of
 the
 policy,
 the
 insured
 jeep
 was
 being
 driven
 by
 an
 
1.
  Whether
  the
  RTC
  was
  correct
  in
  holding
  Malayan
  Insurance,
  Sio
  Choy,
  and
  San
  employee
  of
  San
  Leon
  Rice
  Mill,
  and
  it
  collided
  with
  a
  passenger
  bus
 
Leon
 Rice
 Mill
 solidarily
 liable
 to
 Vallejos
 –
 NO,
 only
 Sio
 Choy
 and
 San
 Leon
 Rice
 Mill
  belonging
  to
  Pangasinan
  Transportation
  Co.
  (PANTRANCO),
  causing
 
are
 solidarily
 liable
 to
 Vallejos
 for
 damages
 awarded
 in
 his
 favor.
  damage
 to
 the
 insured
 vehicle
 and
 injuries
 to
 the
 driver
 and
 a
 passenger
 of
 
2.
  Whether
  Malayan
  Insurance
  is
  entitled
  to
  be
  reimbursed
  by
  San
  Leon
  Rice
  Mill
  the
 jeep,
 Vallejos.
 
for
  whatever
  amount
  Malayan
  Insurance
  has
  been
  adjudged
  to
  pay
  respondent
  90.   So,
 Valles
 filed
 an
 action
 for
 damages
 against
 Sio
 Choy,
 Malayan
 Insurance,
 
Vallejos
  on
  its
  insurance
  policy—
  NO,
  Malayan
  Insurance
  is
  entitled
  to
  be
  and
 PANTRANCO.
 
reimbursed
 by
 San
 Leon
 Rice
 Mill
 because
 of
 subrogation.
 Malayan
 Insurance,
 upon
  91.   In
  its
  answer,
  PANTRANCO
  claimed
  that
  the
  jeep
  of
  Sio
  Choy
  was
 operated
 
paying
 respondent
 Vallejos
 the
 amount
 of
 riot
 exceeding
 P20,000.00,
 shall
 become
  at
  an
  excessive
  speed
  and
  bumped
  the
  PANTRANCO
  bus
  which
  moved
  to
 
the
 subrogee
 of
 the
 insured,
 the
 respondent
 Sio
 Choy;
 as
 such,
 it
 is
 subrogated
 to
  avoid
  the
  jeep,
  that
  it
  had
  observed
  the
  diligence
  of
  a
  good
  father
  of
  a
 
whatever
 rights
 the
 latter
 has
 against
 respondent
 San
 Leon
 Rice
 Mill,
 Inc.
 
  family
  to
  prevent
  damage,
  especially
  in
  the
  selection
  and
  supervision
  of
  its
 

  employees
 and
 in
 the
 maintenance
 of
 its
 motor
 vehicles,
 trying
 to
 absolve
 
Sio
  Choy
  and
  San
  Leon
  Rice
  Mill
  are
  the
  principal
  tortfeasors
  who
  are
  primarily
  itself
 of
 liability.
 
liable
  to
  Vallejos,
  thus
  their
  liability
  is
  solidary.
  On
  the
  other
  hand,
  Malayan
  92.   Sio
 Choy
 filed
 an
 answer
 with
 counterclaim,
 and
 said
 that
 he
 had
 already
 
Insurance’s
  liability
  is
  its
  insurance
  contract
  with
  Sio
  Choy.
  It
  is
  only
  liable
  for
  paid
 Vallejos
 for
 his
 hospitalization
 and
 other
 expenses,
 and
 another
 cross
 
P20,000
 because
 it
 is
 the
 insurer
 of
 Sio
 Choy
 under
 the
 third
 party
 liability
 clause.
  claim
 against
 Malayan
 Insurance
 invoking
 the
 policy
 covering
 the
 jeep.
 Sio
 
(see
  doctrine)
  In
  the
  case
  at
  bar,
  petitioner
  as
  insurer
  of
  Sio
  Choy,
  is
  liable
  to
  Choy
  alleged
  that
  the
  insurance
  company
  obliged
  itself
  to
  indemnify
  Sio
 
 Choy,
  as
  insured,
  for
  the
  damage
  to
  his
  motor
  vehicle,
  as
  well
  as
  for
  any
 
liability
 to
 third
 persons
 arising
 out
 of
 any
 accident
 during
 the
 effectivity
 of
  RATIO:
such
 insurance
 contract.
  Issue
 1
 
93.   Malayan
  Insurance
  on
  the
  other
  hand,
  tried
  to
  evade
  liability
  by
  claiming
  109.  Only
  Sio
  Choy
  and
  San
  Leon
  Rice
  Mill
  are
  solidarily
  liable
  to
  Vallejos
  for
 
that
  the
  driver
  of
  the
  insured
  car
  at
  the
  time
  of
  the
  accident
  was
  not
  Sio
  damages
 awarded
 in
 his
 favor.
 
Choy’s
 employee,
 but
 of
 San
 Leon
 Rice
 Mill,
 and
 that
 the
 real
 party
 which
  110.   Sio
 Choy
 was
 made
 liable
 to
 Vallejos
 as
 owner
 of
 the
 jeep
 pursuant
 to
 Art.
 
should
 be
 held
 liable
 is
 San
 Leon
 Rice
 Mill,
 not
 Malayan
 Insurance.
  2184
  of
  the
  CC:
  Art.
 2184.
 In
 motor
 vehicle
 mishaps,
 the
 owner
 is
 solidarily
 liable
 with
 his
 
94.   RTC
  ruled
  in
  favor
  of
  Vallejos
  and
  ordered
  Sio
  Choy,
  Malayan
  Insurance,
  driver,
  if
  the
  former,
  who
  was
  in
  the
  vehicle,
  could
  have,
  by
  the
  use
  of
  due
  diligence,
 
prevented
  the
  misfortune
  it
  is
  disputably
  presumed
  that
  a
  driver
  was
  negligent,
  if
  he
  had
 
and
 San
 Leon
 Rice
 Mill
 to
 pay
 damages,
 their
 liability
 being
 solidary.
  been
 found
 guilty
 of
 reckless
 driving
 or
 violating
 traffic
 regulations
 at
 least
 twice
 within
 the
 
1.   The
 trial
 court
 held
 petitioner
 together
 with
 respondents
 Sio
 Choy
  next
 preceding
 two
 months.
 
 
and
 San
 Leon
 Rice
 Mills
 Inc.
 solidarily
 liable
 to
 respondent
 Vallejos
  If
 the
 owner
 was
 not
 in
 the
 motor
 vehicle,
 the
 provisions
 of
 article
 2180
 are
 applicable.
 
for
  a
  total
  amount
  of
  P29,103.00,
  with
  the
  qualification
  that
  111.  San
  Leon
  Rice
  Mill
  as
  adjudged
  liable
  to
  Vallejos
  because
  it
  is
  the
  employer
 
Malayn
 Insurance’s
 liability
 is
 only
 up
 to
 P20,000.00.
  of
 the
 driver
 of
 the
 insured
 jeep
 at
 the
 time
 of
 the
 mishap,
 in
 accordance
 
95.   The
  CA
  affirmed
  the
  ruling
  of
  the
  RTC,
  except
  that
  it
  ruled
  that
  San
  Leon
  with
 Art.
 2180
 of
 the
 CC:
 
 
Rice
  Mill
  has
  no
  obligation
  to
  indemnify
  or
  reimburse
  the
  Malayan
  Art.
 2180.
 The
 obligation
 imposed
 by
 article
 2176
 is
 demandable
 not
 only
 for
 one's
 own
 acts
 
or
 omissions,
 but
 also
 for
 those
 of
 persons
 for
 whom
 one
 is
 responsible.
 
 
Insurance
 since
 San
 Leon
 Rice
 Mill
 is
 not
 privy
 to
 the
 contract
 of
 insurance
  xxx
 xxx
 xxx
 
between
 Sio
 Choy
 and
 Malayan
 Insurance.
  Employers
 shall
 be
 liable
 for
 the
 damages
 caused
 by
 their
 employees
 and
 household
 helpers
 
96.   Malayn
 Insurance
 appeals
 before
 the
 SC,
 claiming
 that
 San
 Leon
 Rice
 Mill
  acting
  within
  the
  scope
  of
  their
  assigned
  tasks,
  even
  though
  the
  former
  are
  not
  engaged
  ill
 
should
  reimburse
  Malayan
  Insurance
  any
  amount
  in
  excess
  of
  ½
  of
  the
  any
 business
 or
 industry.
 
 
xxx
 xxx
 xxx
 
entire
  amount
  of
  damages
  it
  may
  be
  ordered
  to
  pay
  jointly
  and
  severally
  The
  responsibility
  treated
  in
  this
  article
  shall
  cease
  when
  the
  persons
  herein
  mentioned
 
with
 Sio
 Choy.
  proved
 that
 they
 observed
 all
 the
 diligence
 of
 a
 good
 father
 of
 a
 family
 to
 prevent
 damage.
 
112.  Sio
  Choy
  and
  San
  Leon
  Rice
  Mill
  are
  the
  principal
  tortfeasors
  who
  are
 
ISSUE/s: primarily
 liable
 to
 Vallejos,
 thus
 their
 liability
 is
 solidary.
 
12.   Whether
 the
 RTC
 was
 correct
 in
 holding
 Malayan
 Insurance,
 Sio
 Choy,
 and
  113.  On
  the
  other
  hand,
  Malayan
  Insurance’s
  liability
  is
  its
  insurance
  contract
 
San
 Leon
 Rice
 Mill
 solidarily
 liable
 to
 Vallejos
 –
 NO,
 only
 Sio
 Choy
 and
 San
  with
  Sio
  Choy.
  It
  is
  only
  liable
  for
  P20,000
  because
  it
  is
  the
  insurer
  of
  Sio
 
Leon
  Rice
  Mill
  are
  solidarily
  liable
  to
  Vallejos
  for
  damages
  awarded
  in
  his
  Choy
 under
 the
 third
 party
 liability
 clause.
 
favor.
  114.  While
  it
  is
  true
  that
  where
  the
  insurance
  contract
  provides
  for
  indemnity
 
13.   Whether
 Malayan
 Insurance
 is
 entitled
 to
 be
 reimbursed
 by
 San
 Leon
 Rice
  against
 liability
 to
 third
 persons,
 such
 third
 persons
 can
 directly
 sue
 the
 
Mill
  for
  whatever
  amount
  Malayan
  Insurance
  has
  been
  adjudged
  to
  pay
  insurer,
  however,
  the
  direct
  liability
  of
  the
  insurer
  under
  indemnity
 
respondent
  Vallejos
  on
  its
  insurance
  policy—
  NO,
  Malayan
  Insurance
  is
  contracts
 against
 third
 party
 liability
 does
 not
 mean
 that
 the
 insurer
 can
 
entitled
  to
  be
  reimbursed
  by
  San
  Leon
  Rice
  Mill
  because
  of
  subrogation.
  be
 held
 solidarily
 liable
 with
 the
 insured
 and/or
 the
 other
 parties
 found
 
Malayan
  Insurance,
  upon
  paying
  respondent
  Vallejos
  the
  amount
  of
  riot
  at
  fault.
  The
  liability
  of
  the
  insurer
  is
  based
  on
  contract;
  that
  of
  the
 
exceeding
  P20,000.00,
  shall
  become
  the
  subrogee
  of
  the
  insured,
  the
  insured
 is
 based
 on
 tort.
 
 
respondent
 Sio
 Choy;
 as
 such,
 it
 is
 subrogated
 to
 whatever
 rights
 the
 latter
  115.  In
 the
 case
 at
 bar,
 petitioner
 as
 insurer
 of
 Sio
 Choy,
 is
 liable
 to
 respondent
 
has
 against
 respondent
 San
 Leon
 Rice
 Mill,
 Inc.
  Vallejos,
  but
  it
  cannot,
  as
  incorrectly
  held
  by
  the
  trial
  court,
  be
  made
 
"solidarily"
  liable
  with
  the
  two
  principal
  tortfeasors
  namely
  respondents
 
RULING:
  To
  recapitulate
  then:
  We
  hold
  that
  only
  respondents
  Sio
  Choy
  and
  San
  Sio
  Choy
  and
  San
  Leon
  Rice
  Mill,
  Inc.
  For
  if
  Malayan
  Insurance
  were
 
Leon
 Rice
 Mill,
 Inc.
 are
 solidarily
 liable
 to
 the
 respondent
 Martin
 C.
 Vallejos
 for
 the
  solidarily
  liable
  with
  Sio
  Choy
  and
  San
  Leon
  Rice
  Mill
  by
  reason
  of
  the
 
amount
  of
  P29,103.00.
  Vallejos
  may
  enforce
  the
  entire
  obligation
  on
  only
  one
  of
  indemnity
 contract
 against
 third
 party
 liability-­‐under
 which
 an
 insurer
 can
 
said
  solidary
  debtors.
  If
  Sio
  Choy
  as
  solidary
  debtor
  is
  made
  to
  pay
  for
  the
  entire
  be
  directly
  sued
  by
  a
  third
  party
  —
  this
  will
  result
  in
  a
  violation
  of
  the
 
obligation
 (P29,103.00)
 and
 Malayan
 Insurance,
 as
 insurer
 of
 Sio
 Choy,
 is
 compelled
  principles
 underlying
 solidary
 obligation
 and
 insurance
 contracts.
 
to
 pay
 P20,000.00
 of
 said
 entire
 obligation,
 Malayan
 Insurance
 would
 be
 entitled,
 as
  Issue
 2
 
subrogee
 of
 Sio
 Choy
 as
 against
 San
 Leon
 Rice
 Mills,
 Inc.,
 to
 be
 reimbursed
 by
 the
  116.  Malayan
 Insurance
 is
 entitled
 to
 be
 reimbursed
 by
 San
 Leon
 Rice
 Mill.
 
latter
 in
 the
 amount
 of
 P14,551.50
 (which
 is
 1/2
 of
 P29,103.00
 )
 117.  Subrogation
  is
  a
  normal
  incident
  of
  indemnity
  insurance.
  Upon
  payment
  of
 
the
 loss,
 the
 insurer
 is
 entitled
 to
 be
 subrogated
 pro
 tanto
 to
 any
 right
 of
 
action
  which
  the
  insured
  may
  have
  against
  the
  third
  person
  whose
 
negligence
 or
 wrongful
 act
 caused
 the
 loss.
 
118.  It
  follows,
  therefore,
  that
  Malayan
  Insurance,
  upon
  paying
  respondent
 
Vallejos
  the
  amount
  of
  riot
  exceeding
  P20,000.00,
  shall
  become
  the
 
subrogee
 of
 the
 insured,
 the
 respondent
 Sio
 Choy;
 as
 such,
 it
 is
 subrogated
 
to
  whatever
  rights
  the
  latter
  has
  against
  respondent
  San
  Leon
  Rice
  Mill,
 
Inc.
 

 
 
 006 FAR EASTERN SURETY VS DE MISA (HIRANG)
26 October 1968 |Reyes, J. | 3rd party Claim
PETITIONER: FAR EASTERN SURETY & INSURANCE COMPANY, INC
RESPONDENTS: SOCORRO DANCEL VDA. DE MISA, ARACELI MARIA
PINTO and LA MALLORCA
SUMMARY: Socorro Dancel Vda. de Misa and Araceli Pinto hired a taxicab
operated by respondent La Mallorca in Quezon City. While proceeding south
toward the Archbishop's Palace in Shaw Boulevard, the taxicab collided with a
gravel and sand truck. The two passengers of the La Mallorca taxicab were
injured and filed suit for damage. La Mallorca denied liability but but instituted
a third-party complaint against herein appellant, Far Eastern Surety and Insurance
Company, to recoup from the latter, based on its Common Carrier's Accident
Insurance No. CCA 106, any damages that might be recovered by the
plaintiff’s taxicab passengers. CFI ruled in favor of the passengers and also
ordered Far Eastern to pay to La Mallorca P10,000.00 on its third-party liability
insurance. Upon appeal to the CA, Far Eastern Interposes the defense that it cannot
be held liable because La Mallorca was not legally liable to pay the passengers
since it was found out the that the accident was because of the fault of the Sand
truck driver but CA still held them liable. (PLESE SEE FACT 5 IMPORTANT).
The issue is whether Far Eastern is liable and the SC held in the negative. The SC
stated that indeed La Mallorca was estopped from asserting that it was not liable
because of the fact that it placed stickers in its taxicabs showing that the
passengers were insured against accidents however, it does not necessarily
follow that the estoppel, likewise, applied to the appellant insurer. There was
no showing that Far Eastern consented to, or even knew of, the representation
made by the taxicab company to its passengers.
DOCTRINE: Estoppel of the insured does not necessarily bind the insurer without
any evidence that insurer consented to, or even knew of, the representation made
FACTS:
1.   On 3 September 1957 the two respondents, Socorro Dancel Vda. de Misa
and Araceli Pinto hired a taxicab operated by respondent La Mallorca
in Quezon City. While proceeding south toward the Archbishop's Palace in
Shaw Boulevard, the taxicab collided with a gravel and sand truck, driven
by one Faustino Nabor.
2.   As a result, the two passengers of the La Mallorca taxicab were injured
and filed suit for damages against the taxicab company in the Court of
First Instance.
3.   The operator denied liability, but instituted a third-party complaint against
herein appellant, Far Eastern Surety and Insurance Company, to recoup
from the latter, based on its Common Carrier's Accident Insurance No.
CCA 106, any damages that might be recovered by the plaintiff’s
taxicab passengers. The insurer, likewise, denied responsibility.
4.   CFI ruled in favor of Socorro Dancel Vda. De Misa, Araceli Maria Pinto
and awarded them actual, moral, and exemplary damages and attorney's
fees, payable by La Mallorca; and sentenced the insurance company to pay
to La Mallorca P10,000.00 on its third-party liability insurance
5.   Upon appeal to the CA, Far Eastern interposes the defense that it was not
answerable except for whatever amounts the insured might be legally liable
for in the event of accident caused by, or arising out of, the use of the motor
vehicle, however the CA said that while the collision was due to the fault
of the driver of the sand truck, CA nevertheless held the taxicab
operator liable in damages to the passengers of its motor vehicle on the
strength of its representation that the passengers were insured against
accidents(in view of its third party liability insurance contract), as shown
by the sticker affixed to the taxicab – Basically the CA reasoned that even
if it was found out that Far Eastern is not liable to pay since as per the
contract it is only liable if the insured is legally liable to pay, Far Eastern
still needs to pay because of the representation La Mallorca did.
(representation that the passengers were insured against, as shown by
the sticker affixed to the taxicab)
ISSUE/s: WoN Far Eastern Surety is liable to the La Mallorca on its policy of
insurance. – No, while the decision correctly held that La Mallorca was in estoppel,
and could not be heard to deny that its passengers were insured, it does not
necessarily follow that the estoppel, likewise, applied to the appellant insurer
RULING: WHEREFORE, the decision of the Court of Appeals is modified, by
eliminating therefrom the award against the appellant, Far Eastern Insurance Co.,
Inc., in favor of the taxicab operator, La Mallorca, including the sharing of the costs
of litigation, which shall be exclusively borne by the latter entity. Without costs in
this instance.
RATIO:
135.  SC held that the appealed decision itself shows that the indemnity awarded
to the passengers of the La Mallorca taxicab was not because of the accident
but was exclusively predicated on the representation made by the
taxicab company to its passengers that the latter were insured against
accidents
a.   This is plain from the consideranda made in the appealed decision
“... indeed, the notice in the sticker evidently being intended in
order to court the riding public into patronizing La Mallorca,
and being placed there right in the taxi, the only meaning that
can be given to it — and certainly it must have a meaning for
it could not have been there placed if intended to be useless —
was that La Mallorca bound itself, in its contract of carriage,
with that additional stipulation therein indicated, that the
passengers were "Insured", and if there be any ambiguity in its
meaning, such ambiguity must be construed most strongly
against the party causing the ambiguity”
 136.  Having that as a basis, this Court must find that La Mallorca had indeed,
insured its pasengers and since such a stipulation was not at all illegal, it
must bind La Mallorca, and would be enough to render it liable for injuries
to the passengers thereof, even though it had not been at fault, i.e., that the
damage had come from & fortuitous event coming from the fault of a third
party for which it was not responsible, since the Law also dictates that:
a.   ART. 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which, though foreseen, are
inevitable.
137.   While the decision correctly held that la Mallorca was in estoppel and
could not be heard to deny that its passengers were insured, it does not
necessarily follow that the estoppel, likewise, applied to the appellant
insurer. As it does not appear that the insurance company authorized or
consented to, or even knew of, the representation made by the taxicab
company to its passengers, it follows that the source of the award of
damages against the taxicab company was beyond, or outside of, the
contemplation of the parties to the contract of Accident Insurance No. CCA
106, and that the insurer may not be held liable for such damages.
Contract

Liability  of  the  Far  Eastern  Surety  is  defined  as  follows:  —  

"l.  The  Company  will  subject  to  the  Limits  of  Liability  indemnify  the  Insured  in  the  
event   of   accident   caused   by   or   arising   out   of   the   use   of   the   Motor   Vehicle   or   in  
connection   with   the   loading   or   unloading   of   the   Motor   Vehicle   against   all   sums  
including   claimant's   costs   and   expense   which   the   Insured   shall   become   legally  
liable  to  pay  in  respect  of:  

(a)  death  of  or  bodily  injury  to  any  person  

(b)  damage  to  property  

"The   above-­‐quoted   stipulation   exempts   the   Far   Eastern   Surety   from   paying  
damages  other  than  actual  bodily  injuries  sustained  by  third  parties  

 
 
 007
 Dela
 Cruz
 v.
 Capital
 Insurance
 (HORTALEZA)
  Additionally,
 Furthermore,
 the
 policy
 involved
 herein
 specifically
 excluded
 from
 its
 
June,
 30,
 1966
 |
 Barrera,
 J.
 |
 Casualty
 Insurance
  coverage,
 Death
 or
 disablement
 resulting
 from
 engagement
 in
 boxing
 contests
 was
 

  not
  declared
  outside
  of
  the
  protection
  of
  the
  insurance
  contract.
  Failure
  of
  the
 
PETITIONER:Simon
 Dela
 Cruz
  defendant
 insurance
 company
 to
 include
 death
 resulting
 from
 a
 boxing
 match
 or
 
RESPONDENTS:
 The
 Capital
 Insurance
 and
 Surety
 co.,
 inc.
  other
 sports
 among
 the
 prohibitive
 risks
 leads
 inevitably
 to
 the
 conclusion
 that
 it
 
SUMMARY:
 Eduardo
 de
 la
 Cruz,
 employed
 as
 a
 mucker
 in
 the
 Itogon-­‐Suyoc
 Mines,
  did
 not
 intend
 to
 limit
 or
 exempt
 itself
 from
 liability
 for
 such
 death(
 read
 ratio,
 to
 
Inc.
  in
  Baguio,
  was
  the
  holder
  of
  an
  accident
  insurance
  policy
  (No.
  ITO-­‐BFE-­‐170)
  see
 the
 list
 of
 excluded
 risks)
 
underwritten
  by
  the
  Capital
  Insurance
  &
  Surety
  Co.,
  Inc.,(Capital)
  for
  the
  period
 
 
beginning
  November
  13,
  1956
  to
  November
  12,
  1957.
  On
  January
  1,
  1957
  in
  DOCTRINE
 1:
 The
 fact
 that
 boxing
 is
 attended
 with
 some
 risks
 of
 external
 injuries
 
connection
  with
  an
  Itogon
  festival,
  Eduardo
  joined
  an
  organized
  amateur
  boxing
  does
 not
 make
 any
 injuries
 received
 in
 the
 course
 of
 the
 game
 not
 accidental.
 In
 
match,
  to
  which
  he
  was
  paired
  with
  an
  individual
  with
  the
  same
  general
  height
  and
  boxing
  as
  in
  other
  equally
  physically
  rigorous
  sports,
  such
  as
  basketball
  or
 
weight.
  During,
  the
  fight
  Eduardo
  slipped
  simultaneously
  his
  opponent
  threw
  a
  baseball,
  death
  is
  not
  ordinarily
  anticipated
  to
  result.
  If,
  therefore,
  it
  ever
  does,
 
punch
  to
  which
  resulted
  in
  him
  getting
  punched
  at
  the
  back
  of
  the
  head.
  After
  the
  injury
  or
  death
  can
  only
  be
  accidental
  or
  produced
  by
  some
  unforeseen
 
which
 he
 was
 brought
 to
 the
 hospital
 and
 died
 the
 very
 next
 day.
 
  happening
 or
 event
 as
 what
 occurred
 in
 this
 case
 

 
 
Simon
 de
 la
 Cruz,
 the
 father
 of
 the
 insured
 and
 who
 was
 named
 beneficiary
 under
  DOCTRINE
  2:
  Failure
  of
  the
  defendant
  insurance
  company
  to
  include
  death
 
the
  policy,
  thereupon
  filed
  a
  claim
  with
  Capital
  for
  payment
  of
  the
  indemnity
  under
  resulting
  from
  a
  boxing
  match
  or
  other
  sports
  among
  the
  prohibitive
  risks
  leads
 
the
  insurance
  policy.
  As
  the
  claim
  was
  denied,Simon
  instituted
  the
  action
  in
  the
  inevitably
  to
  the
  conclusion
  that
  it
  did
  not
  intend
  to
  limit
  or
  exempt
  itself
  from
 
Court
  of
  First
  Instance
  of
  Pangasinan
  for
  specific
  performance.
  The
  defense
  of
  liability
 for
 such
 death
 
Capital
 was
 based
 on
 the
 fact
 that
 the
 death
 of
 Eduardo
 was
 not
 accidental
 as
 the
 
 
death
 was
 caused
 by
 his
 participation
 in
 the
 boxing
 match.
 
  DOCTRINE
  3:
  In
  other
  words,
  where
  the
  death
  or
  injury
  is
  not
  the
  natural
  or
 

  probable
 result
 of
 the
 insured's
 voluntary
 act,
 or
 if
 something
 unforeseen
 occurs
 
The
  terms
  "accident"
  and
  "accidental",
  as
  used
  in
  insurance
  contracts,
  have
  not
  in
 the
 doing
 of
 the
 act
 which
 produces
 the
 injury,
 the
 resulting
 death
 is
 within
 the
 
acquired
  any
  technical
  meaning,
  and
  are
  construed
  by
  the
  courts
  in
  their
  ordinary
  protection
 of
 policies
 insuring
 against
 death
 or
 injury
 from
 accident.
 
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
  FACTS:
 
unexpected,
  unusual,
  and
  unforeseen.
  An
  accident
  is
  an
  event
  that
  takes
  place
  1.   This
 is
 an
 appeal
 by
 the
 Capital
 Insurance
 &
 Surety
 Company,
 Inc.,
 from
 the
 
without
  one's
  foresight
  or
  expectation
  —
  an
  event
  that
  proceeds
  from
  an
  unknown
  decision
  of
  the
  Court
  of
  First
  Instance
  of
  Pangasinan
  (in
  Civ
  Case
  No.
  U-­‐
cause,
 or
 is
 an
 unusual
 effect
 of
 a
 known
 cause
 and,
 therefore,
 not
 expected
  265),
  ordering
  it
  to
  indemnify
  therein
  plaintiff
  Simon
  de
  la
  Cruz
  for
  the
 

  death
 of
 the
 latter's
 son,
 to
 pay
 the
 burial
 expenses,
 and
 attorney's
 fees.
 
WoN
 Eduardo’s
 participation
 in
 the
 boxing
 match
 which
 led
 to
 his
 death
 was
 not
  2.   Eduardo
 de
 la
 Cruz,
 employed
 as
 a
 mucker
 in
 the
 Itogon-­‐Suyoc
 Mines,
 Inc.
 
accidental?
  Capital
  is
  wrong,
  it
  was
  accidental.
  It
  is
  not
  denied,
  that
  Eduardo’s
  in
 Baguio,
 was
 the
 holder
 of
 an
 accident
 insurance
 policy
 (No.
 ITO-­‐BFE-­‐170)
 
slipping
  during
  the
  boxing
  match,
  was
  accidental.
  In
  the
  present
  case,
  Eduardo’s
  underwritten
  by
  the
  Capital
  Insurance
  &
  Surety
  Co.,
  Inc.,
  for
  the
  period
 
participation
  in
  the
  boxing
  match
  was
  voluntary
  the
  injury
  that
  caused
  Eduardo’s
  beginning
 November
 13,
 1956
 to
 November
 12,
 1957.
 
death
 was
 accidental.
 Without
 this
 unfortunate
 incident,
 that
 is,
 the
 unintentional
  3.  
 On
 January
 1,
 1957,
 in
 connection
 with
 the
 celebration
 of
 the
 New
 Year,
 
slipping
  of
  the
  deceased,
  perhaps
  he
  could
  not
  have
  received
  that
  blow
  in
  the
  head
  the
  Itogon-­‐Suyoc
  Mines,
  Inc.
  sponsored
  a
  boxing
  contest
  for
  general
 
and
  would
  not
  have
  died.
  The
  fact
  that
  boxing
  is
  attended
  with
  some
  risks
  of
  entertainment
 wherein
 the
 insured
 Eduardo
 de
 la
 Cruz,
 a
 non-­‐professional
 
external
  injuries
  does
  not
  make
  any
  injuries
  received
  in
  the
  course
  of
  the
  game
  boxer
 participated.
 
not
  accidental.
  In
  boxing
  as
  in
  other
  equally
  physically
  rigorous
  sports,
  such
  as
  4.   In
 the
 course
 of
 his
 bout
 with
 another
 person,
 likewise
 a
 non-­‐professional,
 
basketball
 or
 baseball,
 death
 is
 not
 ordinarily
 anticipated
 to
 result.
 If,
 therefore,
 it
  of
  the
  same
  height,
  weight,
  and
  size,
  Eduardo
  slipped
  and
  was
  hit
  by
  his
 
ever
  does,
  the
  injury
  or
  death
  can
  only
  be
  accidental
  or
  produced
  by
  some
  opponent
 on
 the
 left
 part
 of
 the
 back
 of
 the
 head,
 causing
 Eduardo
 to
 fall,
 
unforeseen
 happening
 or
 event
 as
 what
 occurred
 in
 this
 case.
  with
  his
  head
  hitting
  the
  rope
  of
  the
  ring.
  He
  was
  brought
  to
  the
  Baguio
 

 
 
 General
  Hospital
  the
  following
  day.
  The
  cause
  of
  death
  was
  reported
  as
  received
 in
 the
 course
 of
 the
 game
 not
 accidental.
 In
 boxing
 as
 in
 other
 
hemorrhage,
 intracranial,
 left.
  equally
 physically
 rigorous
 sports,
 such
 as
 basketball
 or
 baseball,
 death
 is
 
5.   Simon
 de
 la
 Cruz,
 the
 father
 of
 the
 insured
 and
 who
 was
 named
 beneficiary
  not
 ordinarily
 anticipated
 to
 result.
 If,
 therefore,
 it
 ever
 does,
 the
 injury
 
under
 the
 policy,
 thereupon
 filed
 a
 claim
 with
 the
 insurance
 company
 for
  or
  death
  can
  only
  be
  accidental
  or
  produced
  by
  some
  unforeseen
 
payment
  of
  the
  indemnity
  under
  the
  insurance
  policy.
  As
  the
  claim
  was
  happening
  or
  event
  as
  what
  occurred
  in
  this
  case.
  And
  considering
  that
  it
 
denied,
  De
  la
  Cruz
  instituted
  the
  action
  in
  the
  Court
  of
  First
  Instance
  of
  was
  not
  an
  accident
  Capital
  failed
  to
  exclude
  such
  sport
  event
  from
  its
 
Pangasinan
 for
 specific
 performance.
 Defendant
 insurer
 set
 up
 the
 defense
  policy.
 
  Failure
  of
  the
  defendant
  insurance
  company
  to
  include
  death
 
that
  the
  death
  of
  the
  insured,
  caused
  by
  his
  participation
  in
  a
  boxing
  resulting
 from
 a
 boxing
 match
 or
 other
 sports
 among
 the
 prohibitive
 risks
 
contest,
 was
 not
 accidental
 and,
 therefore,
 not
 covered
 by
 insurance.
 After
  leads
 inevitably
 to
 the
 conclusion
 that
 it
 did
 not
 intend
 to
 limit
 or
 exempt
 
due
 hearing
 the
 court
 rendered
 the
 decision
 in
 favor
 of
 the
 plaintiff
 which
  itself
 from
 liability
 for
 such
 death
 
is
 the
 subject
 of
 the
 present
 appeal.
 
 
6.   It
 is
 not
 disputed
 that
 during
 the
 ring
 fight
 with
 another
 non-­‐professional
  RULING:
  Wherefore,
  in
  view
  of
  the
  foregoing
  considerations,
  the
  decision
 
boxer,
  Eduardo
  slipped,
  which
  was
  unintentional.
  At
  this
  opportunity,
  his
  appealed
 from
 is
 hereby
 affirmed,
 with
 costs
 against
 appellant.
 so
 ordered.
 
opponent
  landed
  on
  Eduardo's
  head
  a
  blow,
  which
  sent
  the
  latter
  to
  the
 
 
ropes.
  That
  must
  have
  caused
  the
  cranial
  injury
  that
  led
  to
  his
  death.
  RATIO:
 
Eduardo
  was
  insured
  "against
  death
  or
  disability
  caused
  by
  accidental
  1.   even
 if
 we
 take
 appellant's
 theory,
 the
 death
 of
 the
 insured
 in
 the
 case
 at
 
means".
  Appellant
  insurer
  now
  contends
  that
  while
  the
  death
  of
  the
  bar
  would
  still
  be
  entitled
  to
  indemnification
  under
  the
  policy.
  The
 
insured
  was
  due
  to
  head
  injury,
  said
  injury
  was
  sustained
  because
  of
  his
  generally
  accepted
  rule
  is
  that,
  death
  or
  injury
  does
  not
  result
  from
 
voluntary
 participation
  in
 the
 contest.
 It
  is
  claimed
 that
 the
 participation
 in
  accident
  or
  accidental
  means
  within
  the
  terms
  of
  an
 
  accident-­‐policy
  if
  it
  is
 
the
  boxing
  contest
  was
  the
  "means"
  that
  produced
  the
  injury
  which,
  in
  the
  natural
  result
  of
  the
  insured's
  voluntary
  act,
  unaccompanied
  by
 
turn,
 caused
 the
 death
 of
 the
 insured.
 And,
 since
 his
 inclusion
 in
 the
 boxing
  anything
 unforeseen
 except
 the
 death
 or
 injury.
 
card
 was
 voluntary
 on
 the
 part
 of
 the
 insured,
 he
 cannot
 be
 considered
 to
  2.   There
  is
  no
  accident
  when
  a
  deliberate
  act
  is
  performed
  unless
  some
 
have
 met
 his
 death
 by
 "accidental
 means"
  additional,
  unexpected,
  independent,
  and
  unforeseen
  happening
  occurs
 
7.   The
  terms
  "accident"
  and
  "accidental",
  as
  used
  in
  insurance
  contracts,
  which
 produces
 or
 brings
 about
 the
 result
 of
 injury
 or
 death.
 
have
 not
 acquired
 any
 technical
 meaning,
 and
 are
 construed
 by
 the
 courts
  3.   In
 other
 words,
 where
 the
 death
 or
 injury
 is
 not
 the
 natural
 or
 probable
 
in
  their
  ordinary
  and
  common
  acceptation.
  Thus,
  the
  terms
  have
  been
  result
 of
 the
 insured's
 voluntary
 act,
 or
 if
 something
 unforeseen
 occurs
 in
 
taken
  to
  mean
  that
  which
  happen
  by
  chance
  or
  fortuitously,
  without
  the
  doing
  of
  the
  act
  which
  produces
  the
  injury,
  the
  resulting
  death
  is
 
intention
  and
  design,
  and
  which
  is
  unexpected,
  unusual,
  and
  unforeseen.
  within
  the
  protection
  of
  policies
  insuring
  against
  death
  or
  injury
  from
 
An
  accident
  is
  an
  event
  that
  takes
  place
  without
  one's
  foresight
  or
  accident.
 
expectation
  —
  an
  event
  that
  proceeds
  from
  an
  unknown
  cause,
  or
  is
  an
  4.   In
  the
  present
  case,
  while
  the
  participation
  of
  the
  insured
  in
  the
  boxing
 
unusual
 effect
 of
 a
 known
 cause
 and,
 therefore,
 not
 expected.
  contest
  is
  voluntary,
  the
  injury
  was
  sustained
  when
  he
  slid,
  giving
 
8.   Appellant
 however,
 would
 like
 to
 make
 a
 distinction
 between
 "accident
 or
  occasion
 to
 the
 infliction
 by
 his
 opponent
 of
 the
 blow
 that
 threw
 him
 to
 
accidental"
  and
  "accidental
  means",
  which
  is
  the
  term
  used
  in
  the
  the
  ropes
  of
  the
  ring.
  Without
  this
  unfortunate
  incident,
  that
  is,
  the
 
insurance
  policy
  involved
  here.
  It
  is
  argued
  that
  to
  be
  considered
  within
  unintentional
 slipping
 of
 the
 deceased,
 perhaps
 he
 could
 not
 have
 received
 
the
 protection
 of
 the
 policy,
 what
 is
 required
 to
 be
 accidental
 is
 the
 means
  that
  blow
  in
  the
  head
  and
  would
  not
  have
  died.
  The
  fact
  that
  boxing
  is
 
that
  caused
  or
  brought
  the
  death
  and
  not
  the
  death
  itself.
  It
  may
  be
  attended
 with
 some
 risks
 of
 external
 injuries
 does
 not
 make
 any
 injuries
 
mentioned
 in
 this
 connection,
 that
 the
 tendency
 of
 court
 decisions
 in
 the
  received
 in
 the
 course
 of
 the
 game
 not
 accidental.
 In
 boxing
 as
 in
 other
 
United
  States
  in
  recent
  years
  is
  to
  eliminate
  the
  fine
  distinction
  between
  equally
 physically
 rigorous
 sports,
 such
 as
 basketball
 or
 baseball,
 death
 is
 
the
  terms
  "accidental"
  and
  "accidental
  means"
  and
  to
  consider
  them
  as
  not
 ordinarily
 anticipated
 to
 result.
 If,
 therefore,
 it
 ever
 does,
 the
 injury
 
legally
 synonymous
  or
  death
  can
  only
  be
  accidental
  or
  produced
  by
  some
  unforeseen
 
ISSUE/s:
  happening
 or
 event
 as
 what
 occurred
 in
 this
 case.
 
 
1.   WoN
 Eduardo’s
 participation
 in
 the
 boxing
 match
 which
 led
 to
 his
 death
  5.   Furthermore,
  the
  policy
  involved
  herein
  specifically
  excluded
  from
  its
 
was
  not
  accidental?
  No,
  it
  was
  accidental.
 
  The
  fact
  that
  boxing
  is
  coverage
 —
 
attended
 with
 some
 risks
 of
 external
 injuries
 does
 not
 make
 any
 injuries
 
 a.   (e)
  Death
  or
  disablement
  consequent
  upon
  the
  Insured
 engaging
 
in
  football,
  hunting,
  pigsticking,
  steeplechasing,
  polo-­‐playing,
 
racing
 of
 any
 kind,
 mountaineering,
 or
 motorcycling.
 
6.   Death
  or
  disablement
  resulting
  from
  engagement
  in
  boxing
  contests
  was
 
not
  declared
  outside
  of
  the
  protection
  of
  the
  insurance
  contract.
  Failure
  of
 
the
 defendant
 insurance
 company
 to
 include
 death
 resulting
 from
 a
 boxing
 
match
  or
  other
  sports
  among
  the
  prohibitive
  risks
  leads
  inevitably
  to
  the
 
conclusion
 that
 it
 did
 not
 intend
 to
 limit
 or
 exempt
 itself
 from
 liability
 for
 
such
 death.
 

 
 
 
 
 

 
 
 
 

 
 
 

 

 
 
 008
 BIAGTAN
 v.
 INSULAR
 LIFE
 (LAGUILLES)
  resulted directly from bodily injury effected solely through external and
March
 29,
 1972
 |
 Makalintal,
 J.
 |
 Casualty
 Insurance
  violent means sustained in an accident, and independently of all other

  causes.”
PETITIONER:
  Emilia
  Biagtan,
  Juan
  Biagtan,
  Miguel
  Biagtan,
  Gil
  Biagtan
  and
  24.   The clause, however, expressly provided that it would not apply where
Gracia
 Biagtan
  death resulted from an injury intentionally inflicted by a third party.
RESPONDENTS:
 Insular
 Life
 Assurance
 Company
 
  25.   On the night of May 1964, a band of robbers entered the house of Biagtan
where they committed robbery upon reaching the staircase landing of the

 
second floor, rushed towards the doors of the second floor room where they
SUMMARY:
 Biagtan
 was
 insured
 with
 Insular
 Life
 for
 P5,000,
 which
 included
 an
 
suddenly met Biagtan who received thrusts from their sharp-pointed
accidental
 death
 benefit
 clause
 for
 an
 additional
 P5,000
 which
 can
 be
 claimed
 
instruments, resulting to his death.
if
  the
  death
  of
  the
  insured
  was
  caused
  solely
  through
  external
  and
  violent
  26.   Plaintiffs as beneficiaries of Biagtan, filed a claim under the policy. Insular
means
 sustained
 in
 an
 accident.
 The
 accidental
 death
 benefit
 clause
 provided
  Life paid the basic amount of P5,000, but refused to pay the additional sum
that
  the
  clause
  will
  not
  apply
  if
  the
  death
  was
  due
  to
  an
  injury
  intentionally
  of P5,000 under the accidental death benefit clause, on the ground that
inflicted
 by
 a
 third
 party.
 Biagtan’s
 house
 was
 then
 robbed,
 and
 in
 the
 course
  Biagtan’s death resulted from injuries intentionally inflicted by third parties
of
  the
  robbery,
  the
  band
  of
  robbers
  stabbed
  him,
  which
  caused
  Biagtan’s
  and therefore was not covered.
death.
  Biagtan’s
  beneficiaries
  then
  claimed
  from
  Insular
  Life,
  and
  the
  latter
  27.   Plaintiffs filed suit to recover, and the court rendered a decision in their
paid
  the
  basic
  amount
  of
  P5,000,
  without
  the
  additional
  P5,000
  from
  the
  favor.
accidental
  death
  benefit.
  Insular
  Life
  contends
  that
  Biagtan’s
  death
  resulted
  ISSUE:
 
from
  injuries
  intentionally
  inflicted
  by
  third
  parties,
  and
  therefore
  was
  not
  1.   WoN the wounds received by the insured at the hands of the robbers were
covered.
  The
  lower
  court
  rendered
  a
  decision
  in
  favor
  the
  beneficiaries.
  The
  inflicted intentionally, so as to bar recovery under the accidental death
issue
 is
 WoN
 the
 wounds
 received
 by
 the
 insured
 were
 intentionally
 inflicted,
  benefit clause – Yes, because the case was decided based on stipulation, and
so
 as
 to
 bar
 recovery
 under
 the
 accidental
 death
 benefit
 clause.
 
  there was no proof that the act was intentionally done or merely to scare

  away Biagtan.
The
  SC
  held
  in
  the
  affirmative.
  The
  parties
  presented
  no
  evidence
  and
 
 
submitted
  the
  case
  upon
  stipulation,
  so
  there
  was
  no
  proof
  that
  the
  injuries
  RULING:
  WHEREFORE,
  the
  decision
  appealed
  from
  is
  reversed
  and
  the
  complaint
 
were
 intentionally
 inflicted,
 were
 done
 merely
 to
 scare
 away
 Biagtan
 to
 ward
  dismissed,
 without
 pronouncement
 as
 to
 costs.
 
 
off
  any
  resistance
  on
  his
  part.
  Whether
  the
  robbers
  had
  the
  intent
  to
  kill
  or
 
 
merely
  to
  scare
  away
  the
  victim,
  it
  cannot
  be
  denied
  that
  the
  act
  itself
  of
  RATIO:
 
 
inflicting
  the
  injuries
  was
  intentional.
  The
  exception
  in
  the
  accidental
  death
  14.   Since the parties presented no evidence and submitted the case upon
benefit
  clause
  does
  not
  speak
  of
  the
  purpose
  of
  a
  third
  party
  causing
  the
  stipulation, there was no proof that the act of receiving thrusts from the
sharp-pointed instrument of the robbers was intended to inflict injuries upon
injuries,
 but
 only
 of
 the
 fact
 that
 such
 injuries
 have
 been
 intentionally
 inflicted.
 
the person of Biagtan, or merely to scare away any person so as to ward off
Where
  a
  gang
  of
  robbers
  enter
  a
  house
  and
  coming
  face
  to
  face
  with
  the
 
any resistance or obstacle that might be offered in the pursuit of their main
owner,
  even
  if
  unexpectedly,
  stab
  him
  repeatedly,
  it
  is
  contrary
  to
  all
  reason
  objective, which was robbery.
and
 logic
 to
 say
 that
 his
 injuries
 are
 not
 intentionally
 inflicted.
 
  15.   Nine wounds were inflicted upon the deceased, all by means of thrusts with

  sharp pointed instruments. This is a physical fact as to which there is no
DOCTRINE:
  The
  exception
 in
 the
 accidental
 benefit
 clause
 invoked
 by
 the
 heirs
  dispute. So is the fact that five of those wounds caused the death of the
of
  Biagtan
  does
  not
  speak
  of
  the
  purpose
  –
  whether
  homicidal
  or
  not
  –
  of
  a
  insured.
third
 party
 in
 causing
 the
 injuries,
 but
 only
 of
 the
 fact
 that
 such
 injuries
 have
  16.   Whether the robbers had the intent to kill or merely to scare the victim or to
been
 “intentionally”
 inflicted
 –
 this
 obviously
 to
 distinguish
 them
 from
 injuries
  ward off any defense he might offer, it cannot be denied that the act itself of
which,
 although
 received
 at
 the
 hands
 of
 a
 third
 party,
 are
 purely
 accidental.
 
  inflicting the injuries was intentional.

  17.   It should be noted that the exception in the accidental benefit clause
FACTS:
 
  invoked by the heirs of Biagtan does not speak of the purpose – whether
23.   Juan S. Biagtan was insured with Insular Life Assurance Company for homicidal or not – of a third party in causing the injuries, but only of the
P5,000 and, under a supplementary contract denominated “Accidental fact that such injuries have been “intentionally” inflicted – this obviously to
Death Benefit Clause,” for an additional P5,000 if the “death of the insured distinguish them from injuries which, although received at the hands of a
 third party, are purely accidental.
18.   Where a gang of robbers enter a house and coming face to face with the
owner, even if unexpectedly, stab him repeatedly, it is contrary to all reason
and logic to say that his injuries are not intentionally inflicted.

 
Dissenting
 opinion,
 Teehankee:
 
1.   The insurance company is liable to the beneficiaries under its accidental
death benefit clause, because the case of Calanoc cited by the lower court is
indeed controlling. The Court held that fatal injuries inflicted upon an
insured by a malefactor during the latter’s commission of a crime are
deemed accidental and the burden of proving that the killing was intentional
must be discharged by the insurance company.
2.   The insurance company failed to discharge its burden of proving that the
injuries were inflicted intentionally. The lower court correctly held that
since the case was submitted upon the parties’ stipulation of facts which did
not cover the malefactors’ intent at all, there was an utter absence of
evidence as to the real intention of the malefactors.
3.   Also, the beneficiaries properly assert in their brief the sole error assigned
by the insurance company, that the fatal injuries were not accidental but
should be held to have been intentionally inflicted, raises a question of fact
– which insurance company is now barred from raising, since it expressly
limited its appeal to the SC purely on questions of law.
4.   The accidental death benefit clause assuring the insured’s beneficiaries of
double indemnity, upon payment of an extra premium, in the event that the
insured meets violent accidental death is contractually stipulated in the
policy.
5.   The only exception which is NOT susceptible of classification is provided
also in the policy, which excepts injuries inflicted intentionally by a third
patty, either with or without provocation on the part of the insure, and
whether or not the attack or the defense by the third party was caused by a
violation of the law by the insured.

 

 
 
 009 PHIL-NIPPON KYOEI, CORP. v. GUDELOSAO (Marcos)
July 13, 2016 | Jardeleza, J. | Casualty Insurance
PETITIONER: Phil-Nippon Kyoei, Corp.
RESPONDENTS: Rosalia T. Gudelosao, on her behalf and in behalf of minor
children Christy Mae T. Gudelosao and Rose Elden T. Gudelosao, Carmen
Tancontian, on her behalf and in behalf of the children Camela B. Tancontian,
Beverly B. Tancontian, And Ace B. Tancontian
SUMMARY: Phil-Nippon purchased a “Ro-Ro” passenger/cargo vessel named
“MV Mahlia” in Japan. For its conduction voyage, Phil-Nippon and TMLC hired
crew members through the latter’s local manning agency, TEMMPC. Phil-
Nippon secured a Marine Insurance Policy from SSSICI over the vessel against
loss, damage, and third party liability or expense arising from the occurrence of
the perils of the sea for the voyage of the vessel. The insurance policy included
Personal Accident Policies for the 8 crewmembers in case of accidental death or
injury. While still within Japanese waters, the vessel sank due to extreme bad
weather conditions. Only one survived the incident while the rest of the
crewmembers perished. The heirs and beneficiaries of Gudelasao and
Tancontian filed separate complaints for death benefits and other damages
against Phil-Nippon, TEMMPC, Capt. Orbeta, TMCL, and SSSICI with the
NLRC. The Labor Arbiter rendered a Decision finding solidary liability among
Phil-Nippon, TEMMPC, TMCL, and Capt. Orbeta. It also found SSSICI liable
to the heirs for the proceeds of the Personal Accident Policies and attorney’s
fees. On appeal, the NLRC modified the LA Decision. The heirs then filed a
petition for certiorari before the CA and the CA granted the petition. The CA
held that TEMMPC and TMCL are liable under POEA-SEC, while Phil-Nippon
is not liable under the POEA-SEC, but by virtue of its being a shipowner.
Further, SSSICIS’s liability as Phil-Nippon’s insurer directly arose from the
contract of insurance against liability. The CA then ordered that Phil-Nippon’s
liability will only be extinguished upon payment by SSSICI of the insurance
proceeds. The issue before the Court is WoN the CA erred in ruling that the
liability of Phil-Nippon is extinguished only upon SSSICI's payment of
insurance proceeds. – YES. Because although the Personal Accident Policies are
casualty insurance, they do not answer for petitioner's liabilities arising from the
sinking of the vessel. It is an indemnity insurance procured by petitioner for the
benefit of the seafarers. As a result, petitioner is not directly liable to pay under
the policies because it is merely the policyholder of the Personal Accident
Policies. Based on the pleadings submitted by the parties, the insurer itself
admits that what is being insured against is not the liability of the shipowner for
death or injuries to passengers but the death of the seafarers arising from
accident.
DOCTRINE: Casualty insurance is insurance covering loss or liability arising
from accident or mishap, excluding certain types of loss which by law or custom
are considered as falling exclusively within the scope of other types of insurance
such as fire or marine. It includes, but is not limited to, employer's liability
insurance, motor vehicle liability insurance, plate glass insurance, burglary and
theft insurance, personal accident and health insurance as written by non-life
insurance companies, and other substantially similar kinds of insurance.
FACTS:
123.  Phil-Nippon purchased a “Ro-Ro” passenger/cargo vessel named “MV
Mahlia” in Japan.
124.  For the vessel’s one month conduction voyage from Japan to the PH, Phil-
Nippon and Top Ever Marine Management Maritime Co, Ltd. (TMLC)
hired crew members through the latter’s local manning agency, Top Ever
Marine Management Philippine Corporation (TEMMPC).
125.  Edwin Gudelasao and Virgilio A. Tancontian, and six other crewmembers
were hired.
126.  TEMMPC, through Capt. Orbeta, and the 8 crewmembers signed separate
contracts of employment.
127.  Phil-Nippon secured a Marine Insurance Policy from South Sea Surety &
Insurance Co., Inc. (SSSICI) over the vessel against loss, damage, and third
party liability or expense arising from the occurrence of the perils of the sea
for the voyage of the vessel.
128.  The insurance policy included Personal Accident Policies for the 8
crewmembers in case of accidental death or injury.
129.  On Feb. 24, 2003, while still within Japanese waters, the vessel sank due to
extreme bad weather conditions. Only one survived the incident while the
rest of the crewmembers perished.
130.  The heirs and beneficiaries of Gudelasao and Tancontian filed separate
complaints for death benefits and other damages against Phil-Nippon,
TEMMPC, Capt. Orbeta, TMCL, and SSSICI with the NLRC.
131.  The Labor Arbiter rendered a Decision finding solidary liability among
Phil-Nippon, TEMMPC, TMCL, and Capt. Orbeta. It also found SSSICI
liable to the heirs for the proceeds of the Personal Accident Policies and
attorney’s fees.
132.  The LA, however, ruled that the liability of Phil-Nippon shall be deemed
extinguished only upon SSSICI’s payment of the insurance proceeds.
133.  On appeal, the NLRC modified the LA Decision. It absolved Phil-Nippon,
TEMMPC, TMLC, and Capt. Orbeta from any liability based on the limited
liability rule. It however, affirmed SSSICI’s liability after finding that the
Personal Accident Policies answer for the death benefit claims under the
Philippine Overseas Employment Administration Standard Employment
Contract (POEA-SEC)
134.  The heirs filed a Parital MR but the NLRC denied it in a Resolution.
135.  The heirs then filed a petition for certiorari before the CA where they
argued that the NLRC gravely abused its discretion.
136.  The CA granted the petition and set aside the decision of the NLRC.
137.  The CA found that the NLRC erred when it ruled that the obligation of Phil-
 Nippon, TEMMPC and TMCL for the payment of death benefits under the
POEA-SEC was ipso facto transferred to SSSICI upon the death of the
seafarers. Its liability under the POEA-SEC is separate and distinct from the
liability of the shipowner. (liable daw TEMMPC and TMCL under POEA-
SEC)
138.  However, the CA ruled that Phil-Nippon is not liable under the POEA-SEC,
but by virtue of its being a shipowner. (dito naman liable Phil-Nippon as a
shipowner pero hindi under POEA-SEC)
139.  Thus, it is liable for the injuries to the passengers even without a
determination of its fault or negligence. SSSICIS’s liability as Phil-
Nippon’s insurer directly arose from the contract of insurance against
liability. The CA then ordered that Phil-Nippon’s liability will only be
extinguished upon payment by SSSICI of the insurance proceeds.
140.  Phil-Nippon filed an MR which was denied by the CA. SSSICI did not file
a MR therefore the CA decision is final and executory as to it.
141.  Hence, this petition.
142.  PETITIONER’S ARGUMENT: Phil-Nippon claims that the CA erred in
ignoring the fundamental rule in Maritime Law that the shipowner may
exempt itself from liability by abandoning the vessel and freight it may
have earned during the voyage, and the proceeds of the insurance of any
that it may have earned during the voyage, and the proceeds of the
insurance if any. Since the liability of the shipowner is limited to the value
of the vessel unless there is insurance, any claim against petitioner is limited
to the proceeds arising from the insurance policies procured from SSSICI.
Thus, there is no reason in making petitioner's exoneration from liability
conditional on SSSICI's payment of the insurance proceeds.
143.  SSSICI filed a comment alleging that the NLRC has no jurisdiction over the
insurance claim because claims on the Personal Accident Policies did not
arise from employer-employee relations. It also alleged that a separate case
was filed against it for a sum of money in the RTC praying for the payment
of proceeds under the individual Marine Insurance Policy with a Personal
Accident Policy covering the crewmembers of MV Mahlia. This case was
eventually dismissed and is now subject of an appeal before the CA. SSSICI
prays that this matter be considered in resolving the present case.
144.  TEMMPC filed its Manifestation informing us of TEMMPC and TMCL's
Joint Motion to Dismiss the Petition and the CA's Resolution granting it.
The dismissal is based on the execution of the Release of All Rights and
Full Satisfaction Claim (Release and Quitclaim) between respondents and
TEMMPC, TMCL, and Capt. Orbeta.
ISSUE/s:
17.   WoN the doctrine of real and hypothecary nature of maritime law (also
known as the limited liability rule) applies in favor of Phil-Nippon. – NO
because the claim for death benefits under the POEA-SEC is the same
species as the workmen's compensation claims under the Labor Code —
both of which belong to a different realm from that of Maritime Law.
18.   [INSURANCE] WoN the CA erred in ruling that the liability of Phil-
Nippon is extinguished only upon SSSICI's payment of insurance proceeds.
– YES. Because although the Personal Accident Policies are casualty
insurance, they do not answer for petitioner's liabilities arising from the
sinking of the vessel. It is an indemnity insurance procured by petitioner for
the benefit of the seafarers. As a result, petitioner is not directly liable to
pay under the policies because it is merely the policyholder of the Personal
Accident Policies.
RULING: WHEREFORE, the petition is PARTLY GRANTED . The CA Decision
dated October 4, 2007 and the Resolution dated January 11, 2008 of the Court of
Appeals are AFFIRMED WITH THE FOLLOWING MODIFICATIONS:
(1)   The death benefits are limited to the amount granted under the Release of
All Rights and Full Satisfaction of Claim dated December 14, 2007
executed between respondents and Top Ever Marine Management
Company Ltd., Top Ever Marine Management Philippine Corporation, and
Captain Oscar Orbeta;
(2)   As a solidary co-debtor, petitioner's liability to respondents under the
POEA-SEC is also extinguished by virtue of the Release of All Rights and
Full Satisfaction of Claim dated December 14, 2007; and
(3)   The last paragraph of the dispositive portion of the CA Decision dated
October 4, 2007 stating: "Nevertheless, upon payment of said proceeds
to said widows by respondent SOUTH SEA SURETY & INSURANCE
CO., INC., respondent PHIL-NIPPON CORPORATION's liability to
all the complainants is deemed extinguished. . ." is DELETED.
RATIO:
First Issue:
LIABILITY UNDER THE POEA STANDARD EMPLOYMENT CONTRACT
138.  At the outset, the CA erred in absolving Phil-Nippon from the liabilities
under the POEA-SEC.
139.  It was the local principal of the deceased seafarers for the conduction trip of
MV Mahlia. It hired them through TMCL, which also acted through its
agent, TEMMPC. It admitted its role as a principal of its agents TMCL,
TEMMPC and Capt. Orbeta in their Joint Partial Appeal before the NLRC.
As such, it is solidarily liable with TEMMPC and TMCL for the benefits
under the POEA-SEC.
140.  The doctrine of limited liability is not applicable to claims under POEA-
SEC.
141.  The claim for death benefits under the POEA-SEC is the same species as
the workmen's compensation claims under the Labor Code — both of which
belong to a different realm from that of Maritime Law. Therefore, the
limited liability rule does not apply to petitioner's liability under the POEA-
SEC.
142.  Nevertheless, the Release and Quitclaim benefit Phil-Nippon as a solidary
 debtor.
143.  We have consistently applied the Civil Code provisions on solidary
obligations, specifcally Articles 1217 and 1222, to labor cases.
144.  Considering that Phil-Nippon is solidarily liable with TEMMPC and
TMCL, we hold that the Release and Quitclaim executed by the heirs in
favor of TEMMPC and TMCL redounded to the former's benefit.
Accordingly, the liabilities of Phil-Nippon under the POEA-SEC to the
heirs are now deemed extinguished. We emphasize, however, that this
pronouncement does not foreclose the right of reimbursement of the
solidary debtors who paid (i.e., TEMMPC and TMCL) from Phil-Nippon as
their co-debtor.
Second Issue: [INSURANCE TOPIC]
LIABILITY UNDER THE PERSONAL ACCIDENT POLICIES
1.   First, the CA correctly upheld the NLRC’s jurisdiction to order SSSICI to
pay the heirs the value of the proceeds of the Personal Accident Policies.
2.   The Migrant Workers and Overseas Filipinos Act of 1995 gives the Labor
Arbiters of the NLRC the original and exclusive jurisdiction over claims
arising out of an employer-employee relationship or by virtue of any law or
contract involving Filipino workers for overseas deployment, including
claims for actual, moral, exemplary and other forms of damage. It further
creates a joint and several liability among the principal or employer, and the
recruitment/placement agency, for any and all claims
3.   Here, the award of the insurance proceeds arose out of the personal accident
insurance procured by petitioner as the local principal over the deceased
seafarers who were Filipino overseas workers.
4.   The premiums paid by Phil-Nippon were, in actuality, part of the total
compensation paid for the services of the crewmembers.
5.   Put differently, the labor of the employees is the true source of the benefitts
which are a form of additional compensation to them. Undeniably, such
claim on the personal accident cover is a claim under an insurance contract
involving Filipino workers for overseas deployment within the jurisdiction
of the NLRC.
6.   In any event, SSSICI can no longer assail its liability under the Personal
Accident Policies. SSSICI failed to file a motion for reconsideration on the
CA Decision. In a Resolution, the CA certified in a Partial Entry of
Judgment that the CA Decision with respect to SSSICI has become final
and executory and is recorded in the Book of Entries of Judgments.
7.   Thus, SSSICI's liability on the Personal Accident Policies can no longer be
disturbed in this petition.
8.   [IMPORTANT UNDER CASUALTY INSURANCE] The CA
determined that the Personal Accident Policies are casualty insurance,
specifically one of liability insurance.
9.   The CA determined that Phil-Nippon, as insured, procured from SSSICI the
Personal Accident Policies in order to protect itself from the consequences
of the total loss of the vessel caused by the perils of the sea. The CA found
that the liabilities insured against are all monetary claims, excluding the
bene ts under the POEA-SEC, of respondents in connection with the sinking
of the vessel.
10.   We rule that while the Personal Accident Policies are casualty insurance,
they do not answer for petitioner's liabilities arising from the sinking of the
vessel. It is an indemnity insurance procured by petitioner for the
benefit of the seafarers. As a result, Phil-Nippon is not directly liable to
pay under the policies because it is merely the policyholder of the
Personal Accident Policies.
11.   Section 176 (formerly Sec. 174) of The Insurance Code defines casualty
insurance as follows:
SEC. 174. Casualty insurance is insurance covering loss or liability arising
from accident or mishap, excluding certain types of loss which by law or
custom are considered as falling exclusively within the scope of other types of
insurance such as fire or marine. It includes, but is not limited to, employer's
liability insurance, motor vehicle liability insurance, plate glass insurance, burglary
and theft insurance, personal accident and health insurance as written by non-life
insurance companies, and other substantially similar kinds of insurance.
12.   Notably, the parties did not submit the Personal Accident Policies with the
NLRC or the CA. However, based on the pleadings submitted by the
parties, SSSICI admitted that the crewmembers of MV Mahlia are insured
for the amount of P3,240,000.00, payable upon the accidental death of the
crewmembers. It further admitted that the insured risk is the loss of life or
bodily injury brought about by the violent external event or accidental
means. Based on the foregoing, the insurer itself admits that what is
being insured against is not the liability of the shipowner for death or
injuries to passengers but the death of the seafarers arising from
accident.
13.   The liability of SSSICI to the beneficiaries is direct under the insurance
contract.
14.   Under the contract, petitioner is the policyholder, with SSSICI as the
insurer, the crewmembers as the cestui que vie or the person whose life
is being insured with another as beneficiary of the proceeds, and the
latter's heirs as beneficiaries of the policies.
15.   Upon Phil-Nippon's payment of the premiums intended as additional
compensation to the crewmembers, SSSICI as insurer undertook to
indemnify the crewmembers' beneficiaries from an unknown or
contingent event.
16.   Thus, when the CA conditioned the extinguishment of petitioner's
liability on SSSICI's payment of the Personal Accident Policies'
proceeds, it made a finding that petitioner is subsidiarily liable for the
face value of the policies. To reiterate, however, there is no basis for
such finding; there is no obligation on the part of Phil-Nippon to pay
the insurance proceeds because it is, in fact, the obligee or policyholder
in the Personal Accident Policies.
17.   Since it is not the party liable for the value of the insurance proceeds, it
follows that the limited liability rule does not apply as well.

 
 
 010 Mercantile Insurance v. Felipe Ysmael, Jr & Co (Matsumura) FACTS:
January 13, 1989 | Bidin, J. | Suretyship 145.  Felipe Ysmael Jr., & Co., Inc (Felipe Co) filed an application for an
overdraft line of 1 million pesos, and a credit line of 1 million pesos with
PETITIONER: Mercantile Insurance Co., Inc Philippine National Bank (PNB).
RESPONDENTS: Felipe Ysmael, Jr, & Co, Inc. 146.  PNB was willing to grant the credit accommodation provided that Felipe Co
file a bond in the sum of P140,000 to guarantee the payment of the credit.
SUMMARY: Felipe Ysmael Jr., & Co (Felipe Co) applied for an overdraft line 147.  Felipe Co, represented by Felipe Ysmael, filed a surety bond (Surety bond
and credit line totaling to 2 million pesos with PNB. PNB granted the same upon 1) with Mercantile Insurance in the sum of P100,000.
the condition that Felipe Co would file a surety bond worth P140,000 –which 148.  Felipe Co and Mercantile Insurance executed another surety bond (Surety
was later decreased to P100,000. Hence, Felipe Co executed 2 surety bonds with bond 2) in the sum of P40,000.
Mercantile Insurance totaling to P100,000. As surety and in consideration of the 149.  Under both surety agreements, it was stipulated that if Felipe Co performs
surety bonds, Felipe Co and Magdalena Estate (represented by Felipe Ysmael in and fulfills its undertakings with PNB, then the surety bonds would be null
his capacity as President and in his personal capacity) executed an indemnity and void.
agreement per surety bond. Under the said agreement, it was stipulated that that 150.  As security and in consideration of the surety bonds, Felipe Co and
indemnification can be claimed by Mercantile Insurance irrespective of whether Magdalena Estate –represented by Felipe Ysmael as president and in his
or not Mercantile actually paid to PNB. personal capacity –executed an indemnity agreement. In this agreement, it
was stated that Felipe Co and Felipe Ysmael bound themselves jointly and
Felipe Co failed to pay PNB, so PNB sent a demand letter to Mercantile severally to indemnify Mercantile Insurance for any and all payments it
Insurance asking it to pay the P1000,000 surety. Mercantile Insurance then sent a shall incur or become liable to pay as surety in surety bond 1.
letter to Felipe Co demanding that it pay in accordance with the indemnity 151.  Gabriel Daza Jr, Edgardo Trodesillas, and Augusto Torres in their official
agreement. Felipe Co didn’t want to pay, so Mercantile Insurance filed a civil capacities, and Felipe Co executed another indemnity agreement with
case against Felipe Co and Felipe Ysmael. The RTC ordered Felipe Co and Mercantile Insurance in consideration of surety bond 2. This agreement had
Felipe Ysmael to pay Mercantile, and that upon payment Mercantile should pay the same stipulation as the first indemnity agreement (See Fact #6).
PNB. This decision was appealed to the CA, but because it was a question of law 152.  In September 5, 1957, the bond of P140,000 (in fact #2) was reduced to
it was directed to the SC. P100,000
a.   P60,000 on surety bond 1
b.   P40,000 on surety bond 2
The
 issue
 is
 W/N
 Mercantile
 can
 be
 allowed
 indemnification
 upon
 Felipe
 
153.  Felipe Co failed to pay the overdraft and credit line. Thus, PNB demanded
Co
  and
  Felipe
  Ysmael’s
  default
  even
  if
  the
  former
  hasn’t
  paid
  PNB
  yet.
  Mercantile Insurance to pay P100,000 pursuant to the surety bonds -60K
The
  SC
  ruled
  YES.
  It
  is
  settled
  that
  the
  parties
  may
  establish
  such
  from surety bond 1; 40k from surety bond 2.
stipulations,
 clauses,
 terms,
 and
 conditions
 as
 they
 may
 want
 to
 include,
  154.  Thereafter the Legal Department of Mercantile Insurance wrote a letter of
as
  long
  as
  they
  are
  not
  contrary
  to
  law,
  morals,
  good
  customs,
  public
  demand to Felipe Co
policy,
  or
  public
  order.
  In
  the
  case
  at
  bar,
  the
  stipulation
  was
  freely
  a.   inviting their attention to the letter of demand of PNB; and
b.   demanding that Felipe Co settle the account.
entered
  by
  the
  parties.
  The
  next
  question
  then
  is
  whether
  this
 
155.  When Felipe Co failed to settle their obligation with PNB, Mercantile
stipulation
 is
 valid.
 Jurisprudence
 has
 provided
 that
 a
 stipulation
 in
 the
  Insurance filed a civil case against Felipe Co. and Felipe Ysmael (the case
indemnity
 agreement
 allowing
 the
 surety
 to
 recover
 even
 before
 it
 paid
  didn’t say what exactly the civil case was)
the
 creditor
 is
 enforceable.
 Thus,
 the
 indemnity
 agreement
 has
 the
 force
  156.  [Fact #12 –15 are civpro aspects, so you can skip if you want] Instead of
and
 effect
 of
 law
  filing an answer, Felipe Co and Felipe Ysmael filed a motion to dismiss
which was denied.
157.  Thereafter Felipe Co and Felipe Ysmael filed an answer, and the case was
DOCTRINE:
  The
  stipulation
  in
  the
  indemnity
  agreement
  allowing
  the
  set for pre-trial.
surety
  to
  recover
  even
  before
  it
  paid
  the
  creditor
  is
  enforceable.
  In
  158.  During the pre-trial, Felipe Co and Felipe Ysmael and its counsel failed to
accordance
  therewith,
  the
  surety
  may
  demand
  from
  the
  indemnitors
  appear, hence upon motion, it was declared in default. Mercantile Insurance
presented its evidence ex parte.
even
 before
 paying
 the
 creditors.
 
159.  Upon a MR by Felipe Co and Felipe Ysmael, the case was re-opened and
 was scheduled for the reception of Felipe Co’s evidence. Thereafter both
parties were required to submit a memorandum.
160.  The RTC ruled that Felipe Co and Felipe Ysmael are solidarily liable to pay
Mercantile Insurance P100,000, plus 15% for attorney’s fees and costs.
Moreover, that upon payment by Felipe Co and Felipe Ysmael, Mercantile
Insurance shall deliver the money to PNB to satisfy Felipe Co’s obligation
to the bank.
161.  On appeal to the CA, the CA saw it as a question of law and directed the
case to the SC.
162.  Hence, this petition.
163.   Felipe Co and Felipe Ysmael argue that
a.   The stipulation that indemnification can be claimed by
Mercantile Insurance irrespective of whether or not
Mercantile actually paid to PNB is void for being contrary to
public policy and good morals because to receive an
indemnity for something it has not paid in its capacity as
surety would be tantamount to unjust enrichment.
b.   A cause of action needs to have a wrongful violation and
damages. That in this case, these are not present for
Mercantile Insurance suffered no injury.
ISSUE/s:
1.   W/N Mercantile Insurance can be allowed indemnification from
Felipe Co and Felipe Ysmael, upon the latter’s default even before
Mercantile Insurnace has paid to the creditor PNB –YES.
Jurisprudence has provided that such a stipulation is valid. Thus,
when such is stated in a contract entered between the parties, it has
the force and effect of law between the parties.
RULING: WHEREFORE, the decision appealed from is hereby AFFIRMED.
RATIO:
1.   It has been held that in previous cases that "The stipulation in the
indemnity agreement allowing the surety to recover even before
it paid the creditor is enforceable. In accordance therewith, the
surety may demand from the indemnitors even before paying the
creditors."
2.   Hence, the case is not premature, nor fails to state a cause of action.
3.   It is apparent that the cause of action was derived from the terms of
the Indemnity agreement
a.   That Mercantile Insurnace may proceed against Felipe Co
and Felipe Ysmael to impose payment, even prior to making
payments to the PNB.
4.   Contracts are respected as the law between the contracting parties. It
is settled that the parties may establish such stipulations, clauses,
terms, and conditions as they may want to include, as long as they
are not contrary to law, morals, good customs, public policy, or
public order.
5.   It is a basic and fundamental rule in the interpretation of contracts
that if the terms thereof are clear and leave no doubt as to the
intention of the contracting parties, the literal meaning of the
stipulation shall control.
6.   In the case at bar, there is no dispute as to meaning of the terms of
the Indemnity Agreement. The only bone of contention is whether
or not such terms are null and void.
7.   A careful analysis of the contract in question will show that the
provisions therein do not contravene any law or public policy
much less do they militate against the public good.
8.   In fact, such stipulation is sanctioned by well-established
jurisprudence.
9.   Having voluntarily entered into such contract, the Felipe Co and
Felipe Ysmael cannot now be heard to complain. Their indemnity
agreement has the force and effect of law.
10.   The indemnity agreement was not executed for the benefit of the
creditors; it was rather for the benefit of the surety and if the latter
thought it necessary in its own interest to impose this stipulation, and
the indemnitors voluntarily agreed to the same, the court should
respect the agreement of the parties and require them to abide by
their contract.
11.   Thus, the lower court did not err in ordering Felipe Co and Felipe
Ysmael to pay jointly and severally the sum of P100,000.00 plus
15% as attorney's fees.
12.   It must be stressed that in the case at bar, the principal debtors are
simultaneously the same persons who executed the Indemnity
Agreement. Thus, the position occupied by them is that of a
principal debtor and indemnitor at the same time, and their
liability being joint and several with the Mercantile Insurance,
PNB may proceed against either for fulfillment of the obligation
as covered by the Surety bonds.
13.   There is, therefore, no principle of guaranty involved and, therefore,
the provision of Article 2071 of the Civil Code does not apply.
Otherwise stated, there is no more need for PNB to exhaust all the
properties of the Felipe Co before it may proceed against Mercantile
Insurance.
 14.   As to the attorney's fees, it has been squarely ruled by this Court that
the award of fifteen (15) per cent for cases of this nature is not
unreasonable

 
 
 011
 FIRST
 LEPANTO-­‐TAISHO
 INSURANCE
 v.
 CHEVRON
 PH
 (CHIQUI)
  97.   Chevron Philippines, Inc., (Chevron) sued First Lepanto-Taisho Insurance
January
 18,
 2012
 |
 Villarama,
 Jr.
 J.
 |
 Contract
 of
 Surety
 Strict
 Interpretation
  Corporation (First Lepanto) for the payment of unpaid oil and petroleum

  purchases made by its distributor Fumitechniks Corporation
(Fumitechniks).
PETITIONER:
  First
  Lepanto-­‐Taisho
  Insurance
  Corporation
  (FLT
  Prime
  Insurance
 
98.   Fumitechniks, represented by Ma. Lourdes Apostol, had applied for and
Corporation)
 
 
was issued Surety Bond FLTICG (16) No. 01012 by First Lepanto for the
RESPONDENTS:
 Chevron
 Philippines,
 Inc
 (formerly
 known
 as
 CALTEX)
  amount of P15,700,000.00. As stated in the attached rider, the bond was in
compliance with the requirement for the grant of a credit line with Chevron
SUMMARY: Fumitechniks purchased oil and petroleum from Chevron. Because of "to guarantee payment/remittance of the cost of fuel products withdrawn
this, Fumitechniks applied for a surety bond from First Lepanto. Fumitechniks then within the stipulated time in accordance with the terms and conditions of
defaulted on its obligation since the check it issued was dishonored. Chevron the agreement." The surety bond was executed on October 15, 2001 and
demanded payment from First Lepanto. First Lepanto refused to pay and argued that will expire on October 15, 2002.
the principal agreement between Fumitechniks and Chevron does not exist and 99.   Fumitechniks defaulted on its obligation. The check it issued to Chevron in
since First Lepanto’s contract with Fumitechniks is merely an accessory contract, no the amount of P11,461,773.10, when presented for payment, was
demand can be made. RTC ruled in favor of First Lepanto. CA reversed. W/N First dishonored for reason of "Account Closed." Chevron notified First Lepanto
Lepanto is liable as surety for the obligation of Fumitechniks – NO, the surety bond of Fumitechniks' unpaid purchases in the total amount of P15,084,030.30.
specifically makes reference to a written agreement. It is basic that if the terms of a 100.  First Lepanto through its counsel, requested that it be furnished copies of
contract are clear and leave no doubt upon the intention of the contracting parties, the documents such as delivery receipts. Chevron complied by sending
the literal meaning of its stipulations shall control. A reading of the Surety Bond copies of invoices showing deliveries of fuel and petroleum products
shows that it secures the payment of purchases on credit by Fumitechniks in between November 11, 2001 and December 1, 2001.
accordance with the terms and conditions of the "agreement" it entered into with 101.  Simultaneously, a letter was sent to Fumitechniks demanding that the latter
Chevron. The word "agreement" has reference to the distributorship agreement, the submit to First Lepanto the following: (1) its comment on Chevron notice
principal contract and by implication included the credit agreement mentioned in letter; (2) copy of the agreement secured by the Bond, together with copies
the rider. However, it turned out that Chevron has executed written agreements only of documents such as delivery receipts; and (3) information on the
with its direct customers but not distributors like Fumitechniks and it also never particulars, including "the terms and conditions, of any arrangement that
relayed the terms and conditions of its distributorship agreement to the First [Fumitechniks] might have made or any ongoing negotiation with Caltex in
Lepanto after the delivery of the bond. Moreover, being an onerous undertaking, a connection with the settlement of the obligations subject of the Caltex
surety agreement is strictly construed against the creditor, and every doubt is letter."
resolved in favor of the solidary debtor. Having accepted the bond, Chevron as 102.  Fumitechniks through its counsel wrote First Lepanto counsel informing
creditor must be held bound by the recital in the surety bond that the terms and that it cannot submit the requested agreement since no such agreement was
conditions of its distributorship contract be reduced in writing or at the very least executed between Fumitechniks and Chevron. Fumitechniks also enclosed a
communicated in writing to the surety. Chevron is charged with notice of the copy of another surety bond issued by CICI General Insurance Corporation
specified form of the agreement or at least the disclosure of basic terms and in favor of Chevron to secure the obligation of Fumitechniks and/or Prime
conditions of its distributorship and credit agreements with its client Fumitechniks Asia Sales and Services, Inc. in the amount of P15,000,000.00.
after its acceptance of the bond delivered by the latter. Also, it never made any 103.  Consequently, First Lepanto advised Chevron of the non-existence of the
effort to relay those terms and conditions of its contract with Fumitechniks upon the principal agreement as confirmed by Fumitechniks. First Lepanto explained
commencement of its transactions with said client, which obligations are covered by that being an accessory contract, the bond cannot exist without a principal
the surety bond issued by First Lepanto. agreement as it is essential that the copy of the basic contract be submitted
to the proposed surety for the appreciation of the extent of the obligation to
DOCTRINE: Section 176 of the Insurance Code states: The liability of the surety be covered by the bond applied for.
or sureties shall be joint and several with the obligor and shall be limited to the 104.  Chevron formally demanded from First Lepanto the payment of its claim
amount of the bond. It is determined strictly by the terms of the contract of under the surety bond. However, First Lepanto reiterated its position that
suretyship in relation to the principal contract between the obligor and the without the basic contract subject of the bond, it cannot act on Chevron
obligee. claim.

  105.  Alleging that First Lepanto unjustifiably refused to heed its demand for
payment, Chevron prayed for judgment ordering First Lepanto to pay the
FACTS:
 
 sum of P15,080,030.30, plus interest, costs and attorney's fees equivalent to RATIO:
 
ten percent of the total obligation.
106.  First Lepanto, in its Answer with Counterclaim, asserted that the Surety 119.  The main issue to be resolved is one of first impression: whether a surety is
Bond was issued for the purpose of securing the performance of the liable to the creditor in the absence of a written contract with the principal.
obligations embodied in the Principal Agreement stated therein, which
contract should have been attached and made part thereof.
1.   Section 175 of the Insurance Code defines a suretyship as a contract or
107.  RTC rendered judgment dismissing the complaint as well as First Lepanto
agreement whereby a party, called the surety, guarantees the performance
counterclaim
by another party, called the principal or obligor, of an obligation or
1.   Terms and conditions of the oral credit line agreement between
undertaking in favor of a third party, called the obligee.
Chevron and Fumitechniks have not been relayed to First Lepanto
a.   It includes official recognizances, stipulations, bonds or
and neither were the same conveyed even during trial
undertakings issued under Act 536, as amended. Suretyship arises
2.   Since the surety bond is a mere accessory contract, the bond cannot
upon the solidary binding of a person — deemed the surety — with
stand in the absence of the written agreement secured thereby.
the principal debtor, for the purpose of fulfilling an obligation.
3.   RTC noted the practice of First Lepanto, as testified on by its
b.   Although the contract of a surety is in essence secondary only to a
witnesses, to attach a copy of the written agreement (principal
valid principal obligation, the surety becomes liable for the debt or
contract) whenever it issues a surety bond, or to be submitted later
duty of another although it possesses no direct or personal interest
if not yet in the possession of the assured, and in case of failure to
over the obligations nor does it receive any benefit therefrom. And
submit the said written agreement, the surety contract will not be
notwithstanding the fact that the surety contract is secondary to the
binding despite payment of the premium.
principal obligation, the surety assumes liability as a regular party
108.  CA ruled in favor of Chevron
to the undertaking.
1.   First Lepanto cannot insist on the submission of a written
2.   The extent of a surety's liability is determined by the language of the
agreement to be attached to the surety bond considering that
suretyship contract or bond itself. It cannot be extended by implication,
Chevron was not aware of such requirement and unwritten
beyond the terms of the contract. Thus, to determine whether First Lepanto
company policy.
is liable to Chevron under the surety bond, it becomes necessary to examine
2.   First Lepanto is estopped from assailing the oral credit line
the terms of the contract itself. (Terms and conditions of the contract can be
agreement, having consented to the same upon presentation by
seen at the end of the digest)
Fumitechniks of the surety bond it issued.
3.   A reading of Surety Bond FLTICG (16) No. 01012 shows that it secures
3.   Considering that such oral contract between Fumitechniks and
the payment of purchases on credit by Fumitechniks in accordance
Chevron has been partially executed, the CA ruled that the
with the terms and conditions of the "agreement" it entered into with
provisions of the Statute of Frauds do not apply.
Chevron. The word "agreement" has reference to the distributorship
agreement, the principal contract and by implication included the
ISSUE/s:
  credit agreement mentioned in the rider. However, it turned out that
1.   W/N First Lepanto is liable as surety for the obligation of Fumitechniks – Chevron has executed written agreements only with its direct
NO, the surety bond specifically makes reference to a written agreement. It customers but not distributors like Fumitechniks and it also never
is basic that if the terms of a contract are clear and leave no doubt upon the relayed the terms and conditions of its distributorship agreement to the
intention of the contracting parties, the literal meaning of its stipulations First Lepanto after the delivery of the bond. This was clearly admitted by
shall control. Chevron Marketing Coordinator, Alden Casas Fajardo.
4.   Chevron, however, maintains that the delivery of the bond and acceptance
RULING: WHEREFORE, the petition for review on certiorari is PARTLY of premium payment by First Lepanto binds the latter as surety,
GRANTED . The Decision dated November 20, 2006 and Resolution dated May 8, notwithstanding the non- submission of the oral distributorship and credit
2007 of the Court of Appeals in CA-G.R. CV No. 86623, are REVERSED and SET agreement which understandably cannot be attached to the bond.
ASIDE. The Decision dated August 5, 2005 of the Regional Trial Court of Makati 5.   The law is clear that a surety contract should be read and interpreted
City, Branch 59 in Civil Case No. 02-857 dismissing respondent's complaint as well together with the contract entered into between the creditor and the
as petitioner's counterclaim, is hereby REINSTATED and UPHELD. No principal.
pronouncement as to costs.SO ORDERED. 6.   Section 176 of the Insurance Code states: 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 ends to which a motion for reconsideration is addressed is precisely to
of suretyship in relation to the principal contract between the obligor convince the court that its ruling is erroneous and improper, contrary to the
and the obligee. law or evidence; the movant has to dwell of necessity on issues already
a.   A surety contract is merely a collateral one, its basis is the passed upon.
principal contract or undertaking which it secures. Necessarily, the
stipulations in such principal agreement must at least be Damages
communicated or made known to the surety particularly in this
case where the bond expressly guarantees the payment of Chevron
2.   Finally, we hold that the RTC correctly dismissed First Lepanto
fuel products withdrawn by Fumitechniks in accordance with the
counterclaim for moral damages and attorney's fees. The filing alone of a
terms and conditions of their agreement.
civil action should not be a ground for an award of moral damages in the
b.   The bond specifically makes reference to a written agreement.
same way that a clearly unfounded civil action is not among the grounds for
It is basic that if the terms of a contract are clear and leave no
moral damages. Besides, a juridical person is generally not entitled to moral
doubt upon the intention of the contracting parties, the literal
damages because, unlike a natural person, it cannot experience physical
meaning of its stipulations shall control.
suffering or such sentiments as wounded feelings, serious anxiety, mental
c.   Moreover, being an onerous undertaking, a surety agreement is
anguish or moral shock.
strictly construed against the creditor, and every doubt is
a.   This is so because moral damages, though incapable of pecuniary
resolved in favor of the solidary debtor. Having accepted the estimation, are in the category of an award designed to compensate
bond, Chevron as creditor must be held bound by the recital in the the claimant for actual injury suffered and not to impose a penalty
surety bond that the terms and conditions of its distributorship
on the wrongdoer There is no evidence presented to establish the
contract be reduced in writing or at the very least communicated in
factual basis of First Lepanto claim for moral damages.
writing to the surety.
3.   First Lepanto is likewise not entitled to attorney's fees. The settled rule is
7.   The creditor is generally held bound to a faithful observance of the rights of
that no premium should be placed on the right to litigate and that not every
the surety and to the performance of every duty necessary for the protection
winning party is entitled to an automatic grant of attorney's fees. In pursuing
of those rights. Moreover, in this jurisdiction, obligations arising from
its claim on the surety bond, Chevron was acting on the belief that it can
contracts have the force of law between the parties and should be complied
collect on the obligation of Fumitechniks notwithstanding the non-
with in good faith. Chevron is charged with notice of the specified form
submission of the written principal contract.
of the agreement or at least the disclosure of basic terms and conditions
of its distributorship and credit agreements with its client Fumitechniks
Surety
 Bond
 FLTICG
 (16)
 No.
 01012
 is
 a
 standard
 form
 used
 by
 First
 Lepanto,
 which
 states:
 
 
after its acceptance of the bond delivered by the latter. However, it
never made any effort to relay those terms and conditions of its
That we, FUMITECHNIKS CORP. OF THE PHILS. of#154 Anahaw St., Project 7, Quezon City as
contract with Fumitechniks upon the commencement of its transactions principal and First Lepanto-Taisho Insurance Corporation a corporation duly organized and existing under
with said client, which obligations are covered by the surety bond and by virtue of the laws of the Philippines as Surety, are held firmly bound unto CALTEX
issued by First Lepanto. Contrary to Chevron’s assertion, there is no PHILIPPINES, INC. of ______ in the sum of FIFTEEN MILLION SEVEN HUNDRED THOUSAND
indication in the records that First Lepanto had actual knowledge of its ONLY PESOS (P15,700,000.00), Philippine Currency, for the payment of which sum, well and truly to be
made, we bind ourselves, our heirs, executors, administrators, successors, and assigns, jointly and
alleged business practice of not having written contracts with severally, firmly by these presents:
distributors; and even assuming First Lepanto was aware of such
practice, the bond issued to Fumitechniks and accepted by Chevron The conditions of this obligation are as follows:
specifically referred to a "written agreement."
WHEREAS, the above-bounden principal, on 15th day of October, 2001 entered into [an] agreement with
Motion for reconsideration CALTEX PHILIPPINES, INC. of ________________ to fully and faithfully

1.   As to the contention of First Lepanto that Chevron’s motion for a copy of which is attached hereto and made a part hereof:
reconsideration filed before the trial court should have been deemed not
filed for being pro forma, the Court finds it to be without merit. The mere WHEREAS, said Obligee__ requires said principal to give a good and sufficient bond in the above stated
sum to secure the full and faithful performance on his part of said agreement__. aAHDIc
fact that a motion for reconsideration reiterates issues already passed upon
by the court does not, by itself, make it a pro forma motion. Among the
NOW THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings,
covenants, terms, conditions, and agreements stipulated in said agreement__ then this obligation shall be
null and void; otherwise it shall remain in full force and effect.

The liability of First Lepanto-Taisho Insurance Corporation under this bond will expire on October 15,
2002__.

xxx xxx xxx (Emphasis supplied.) The rider attached to the bond sets forth the following:

WHEREAS, the Principal has applied for a Credit Line in the amount of P E S O S : Fifteen Million
Seven Hundred thousand only (P15,700,000.00), Philippine Currency with the Obligee for the purchase of
Fuel Products;

WHEREAS, the obligee requires the Principal to post a bond to guarantee payment/remittance of the cost
of fuel products withdrawn within the stipulated timein accordance with terms and conditions of the
agreement;

IN NO CASE, however, shall the liability of the Surety hereunder exceed the sum of PESOS: Fifteen
million seven hundred thousand only (P15,700,000.00), Philippine Currency.

NOW THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings,
covenants, terms and conditions and agreements stipulated in said undertakings, then this obligation shall
be null and void; otherwise, it shall remain in full force and effect.

The liability of FIRST LEPANTO-TAISHO INSURANCE CORPORATION, under this Bond will expire
on 10.15.01_. Furthermore, it is hereby understood that FIRST LEPANTO-TAISHO INSURANCE
CORPORATION will not be liable for any claim not presented to it in writing within fifteen (15) days
from the expiration of this bond, and that the Obligee hereby waives its right to claim or le any court
action against the Surety after the termination of fifteen (15) days from the time its cause of action
accrues.

 

 
 
 012 PHILIPPINE PRYCE v. CA (MERILLES)
February 21, 1994 | Nocon, J. | Suretyship
PETITIONER: Philippine Pryce Assurance Corp
RESPONDENTS: Court of Appeals and Gegroco, Inc.
SUMMARY: Gegroco alleges that Phil. Pryce issued two surety bonds to
Gegroco, in behalf of its Principal Sagum. Phil. Pryce admitted having executed
the two bonds, but denies liability. (To clarify, Phil. Pryce is the surety of
Sagum) It alleges that the checks issued by Sagum, which were to pay for the
premiums bounced and were dishonored, hence there is no contract to speak of
between it and Sagum (principal). Thefore, as surety, it is not liable for the
bonds it executed as the contract with Sagum was not perfected.
The issue before the SC is whether Phil. Pryce is liable for the bonds it issued to
Gegroco. The SC held that Phil. Pryce is laible.
Under the Insurance Code: The surety is entitled to payment of the premium as
soon as the contract of suretyship or bond is perfected and delivered to the
obligor. No contract of suretyship or bonding shall be valid and binding unless
and until the premium therefor has been paid, except where the obligee has
accepted the bond, in which case the bond becomes valid and enforceable
irrespective of whether or not the premium has been paid by the obligor to the
surety.
From the records of the case, it appears that Phil. Pryce actually received surety
bonds issued by Sagum. By accepting the bonds, the suretyship becomes valid
and enforceable irrespective of whether or not the premium has beed paid. As
surety, Phil. Pryce is liable to Gegroco.
DOCTRINE: No contract of suretyship or bonding shall be valid and binding
unless and until the premium therefor has been paid, except where the obligee
has accepted the bond, in which case the bond becomes valid and enforceable
irrespective of whether or not the premium has been paid by the obligor to the
surety.
 
FACTS:
1.   Gegroco filed a complaint for collection of sum of money against Philippine
Pryce before the Makati RTC
2.   The complaint alleged that Phi. Pryce issued two surety bonds (No. 0029,
dated July 24, 1987 and No. 0037, dated October 7, 1987) in behalf of its
principal Sagum General Merchandise for FIVE HUNDRED THOUSAND
(P500,000.00) PESOS and ONE MILLION (1,000,000.00) PESOS,
respectively.
3.   On June 16, 1988, summons, together with the copy of the complaint, was
served on Philippine Pryce. Within the reglementary period, two successive
motions were filed by Philippine Pryce praying for a total of thirty (30) days
extention within which to file a responsible pleading.
4.   In its Answer, dated July 29, 1988, but filed only on August 4, 1988,
petitioner admitted having executed the said bonds, but denied liability
because allegedly:
a.   the checks which were to pay for the premiums bounced and were
dishonored hence there is no contract to speak of between Phil.
Pryce and its supposed principal; and
b.   that the bonds were merely to guarantee payment of its principal's
obligation, thus, excussion is necessary.
5.   After the issues had been joined, the case was set for pre-trial conference on
September 29, 1988.
6.   Philippine Pryce received its notice on September 9, 1988, while the notice
addressed to its counsel was returned to the trial court with the notation
"Return to Sender, Unclaimed."
7.   On the scheduled date for pre-trial conference, only the counsel for
Philippine Pryce appeared while both the representative of Gegroco and its
counsel were present.
8.   The counsel for Philippine Pryce manifested that he was unable to contract
the Vice-President for operations of petitioner, although his client intended
to file a third party complaint against its principal.
a.   Hence, the pre-trial was re-set to October 14, 1988.
9.   Philippine Pryce filed a "Motion with Leave to Admit Third-Party
Complaint" with the Third-Party Complaint attached. On the same day, in
the presence of the representative for both Philippine Pryce and Gegroco
and their counsel, the pre-trial conference was re-set to December 1, 1988.
10.   Meanwhile on November 29, 1988, the court admitted the Third Party
Complaint and ordered service of summons on third party defendants.
11.   On the scheduled conference, Philippine Pryce and its counsel did not
appear notwithstanding their notice in open court.
a.   The case again was re-set to February 1.
12.   However, on February 1, Philippine Pryce and counsel was also absent
despite being duly notified.
13.   Hence, Philippine Pryce was considered as in default and Gegroco was
permitted to present evidence ex-parte.
14.   When Philippine Pryce received the notice of Order of Default, it field a
Motion for Reconsideration and New Trial
15.   The motion was denied. Philippine Pryce elevated the case to the CA. The
CA affirmed the RTC deicsion.
16.   Hence, this case.
ISSUE/s:
1.   WON Phil. Pryce is liable for the bonds it issued to Gegroco - YES, it is
liable because by accepting the bonds, the suretyship becomes valid and
 enforceable irrespective of whether or not the premium has beed paid.
RULING: WHEREFORE, in view of the foregoing, the decision of the Court of
Appeals dismissing the petition before them and affirming the decision of the trial
court and its order denying petitioner's Motion for Reconsideration are hereby
AFFIRMED. The present petition is DISMISSED for lack of merit.
RATIO: (SKIP TO RATIO #4 FOR INSURANCE RELATED DISCUSSION)
1.   Philippine Pryce argues that that since the last pleading, which was
supposed to be the third-party defendant's answer has not been filed, the
case is not yet ripe for pre-trial.
2.   The SC does not agree and cites 3 main points:
a.   First, the trial court asserted, and the SC agrees, that no answer to
the third party complaint is forthcoming as Philippine Pryce never
initiated the service of summons on the third party defendant.
b.   Second, in the regular course of events, the third-party defendant's
answer would have been regarded as the last pleading referred to in
Sec. 1, Rule 20. However, Philippine Pryce cannot just disregard
the court's order to be present during the pre-trial and give a flimsy
excuse, such as that the answer has yet to be filed.
i.   The pre-trial is mandatory in any action, the main
objective being to simplify, abbreviate and expedite trial,
if not to fully dispense with it. Hence, consistent with its
mandatory character the Rules oblige not only the
lawyers but the parties as well to appear for this purpose
before the Court and when a party fails to appear at a
pre-trial conference he may be non-suited or considered
as in default.
ii.   Records show that even at the very start, Philippine
Pryce could have been declared as in default since it was
not properly presented during the first scheduled pre-trial
on September 29, 1988. Nothing in the record is attached
which would show that petitioner's counsel had a special
authority to act in behalf of his client other than as its
lawyer.
c.   Third, the court of Appeals properly considered the third-party
complaint as a mere scrap of paper due to Philippine Pryce’s
failure to pay the requisite docket fees.
3.   The SC laid down the rules as follows:
a.   It is not simply the filing of the complaint or appropriate initiatory
pleading, but the payment of the prescribed docket fee, that vests a
trial court with jurisdiction over the subject-matter or nature of the
action. Where the filing of the initiatory pleading is not
accompanied by payment of the docket fee, the court may allow
payment of the fee within a reasonable time, but in no case beyond
the applicable prescriptive or reglamentary period.
b.   The same rule applies to permissive counterclaims, third-party
claims and similar pleadings, which shall not be considered filed
until and unless the filing fee prescribed therefor is paid. The court
may also allow payment of said fee within a prescriptive or
reglementary period.
c.   Where the trial court acquires jurisdiction over a claim by the
filing of the appropriate pleading and payment of the prescribed
filing fee, but subsequently, the judgment awards a claim nor
specified in the pleading, or if specified the same has not been left
for determination by the court, the additional filing fee therefor
shall constitute a lien on the judgment. It shall be the responsibility
of the clerk of court or his duly authorized deputy to enforce said
lien and assess and collect the additional fee.
4.   [INSURANCE RELATED TOPIC] Finally, there is reason to believe that
Philippine Pryce does not really have a good defense. It hinges its defense
on two arguments, namely:
a.   that the checks issued by its principal which were supposed to pay
for the premiums, bounced, hence there is no contract of surety to
speak of; and
b.   that as early as 1986 and covering the time of the Surety Bond,
Phil. Pryce was not yet authorized by the insurance Commission to
issue such bonds.
5.   The Insurance Code states that:
a.   Sec. 177. The surety is entitled to payment of the premium as soon
as the contract of suretyship or bond is perfected and delivered to
the obligor. No contract of suretyship or bonding shall be valid and
binding unless and until the premium therefor has been paid,
except where the obligee has accepted the bond, in which case the
bond becomes valid and enforceable irrespective of whether or not
the premium has been paid by the obligor to the surety. . . .
(emphasis added)
6.   The above provision outrightly negates Philippine Pryce’s first defense. In a
desperate attempt to escape liability, Phil. Pryce further asserts that the
above provision is not applicable because allegedly had not accepted the
surety bond, hence could not have delivered the goods to Sagum
Enterprises. This statement clearly intends to muddle the facts as found by
the trial court and which are on record.
7.   Phil. Pryce it its answer admitted to have issued the bonds subject matter of
the original action.
8.   Also, the testimony of Mr. Leonardo T. Guzman, witness of Gegroco
reveals that Phil. Pryce accepted the two surety bonds issued by Sagum.
9.   Also attached to the records are exhibits consisting of delivery invoices
addressed to Sagum providing that parts were purchased, delivered, and
received.
10.   On the other hand, Phil. Pryce’s defense that it did not have authority to
issue a Surety Bond when it did is an admission of fraud committed against
 Gegroco.
11.   No person can claim benefit from the wrong he himself committed. A
representation made is rendered conclusive upon the person making it and
cannot be denied or disproved as against the person relying thereon.

 
 
 013 CAPITAL INSURANCE v. RONQUILLO TRADING (PELIÑO)
July 25, 1983 | Gutierrez, J. | Surety
PLAINTIFF-APPELLANT: Capital Insurance & Surety Co., Inc., herein represented by
its General Agent, the Pan American Insurance Agencies, Inc.
DEFENDANTS-APPELLEES: Ronquillo Trading and Jose L. Bautista
SUMMARY: Capital through its general agent executed and issued a surety bond for
$14,800 in behalf of Ronquillo Trading and in favor of Delgado Shipping. The bond was
a guarantee for any additional freight which may be determined to be due on a cargo for
258 surplus army vehicles consigned by PMSCI. Ronquillo executed an indemnity
agreement where they solidarily promised to pay Capital Php 1,827 in advance as
premium and docu stamps while the surety bond was in effect. 5 days before the
expiration of the liability on the bond, Delgado and P.D. Marchessini filed a case against
PMSCI, Bautista (Ronquillo), and Capital for $14,800 for the loss that they suffered since
Ronquillo failed to load the stipulated quantity of 406 US surplus army vehicles. Capital
was made a defendant because of the bond it posted on behalf of Ronquillo. Upon
expiration of the 12 mos life of the bond, Capital made a formal demand or payment of
renewal of premiums. But Ronquillo refused to pay, saying that Ronquillo’s liability
under the surety bond accrued during the 12 mo period the bond was originally in force
and before its expiration, so Ronquillo was under no obligation to renew the surety bond.
Capital filed a complaint in the city court, absolved Ronquillo. On appeal to CFI,
affirmed. Hence, this appeal. The issue in this case is whether or not Ronquillo still has
the obligation to pay the premiums and costs for the succeeding period once the surety’s
liability under the bond has accrued. The SC held in the negative. In the surety bond, it is
stipulated that the liability of the surety will expire on 5 May 1963, unless surety is
notified of any existing oblgiations thereunder. Under this stipulation, the bond expired
on the stated date, and the phrase “unless surety… thereunder” refers to obligations
incurred during the term of the bond. Under the Indemnity Agreement, the duration of the
bond is for “every 12 mos or fraction thereof, while this bond or any renewal or
substistution is in effect”. Since Ronquillo opted not to renew the contract, they can’t be
obliged to pay the premiums. Where a contract of surety is terminated under its terms, the
liability of the principal for premiums after such termination ceases notwithstanding the
pendency of the lawsuit to enforce a liability that accrued during its stipulated lifetime.
DOCTRINE: Where a contract of surety is terminated under its terms, the liability of the
principal for premiums after such termination ceases notwithstanding the pendency of the
lawsuit to enforce a liability that accrued during its stipulated lifetime.
FACTS:
164.  Capital Insurance & Surety Insurance Co., Inc. (Capital) through its general
agent, executed and issued a surety bond in the amount of $14,800.00 or its
peso equivalent in behalf of Ronquillo Trading and Jose Bautista
(collectively will be called Ronquillo) and in favor of S.S. Eurygenes, its
master, and/or its agents, Delgado Shipping Agencies.
a.   The bond was a guarantee for any additional freight which may be
determined to be due on a cargo for 258 surplus army vehicles
consigned from Pusan, Korea to Ronquillo on board the S.S. Eurygenes
and booked on said vessel by Philippine Merchants Steamship
Company, Inc (PMSCI).
b.   In consideration for the issuance of Capital of the surety bond,
Ronquillo executed an indemnity agreement, where they solidarily
promised to pay Capital the sum of Php 1,827.00 in advance as
premium and documentary stamps for each period of 12 mos while the
surety bond was in effect.
165.  On 30 April 1963, or 5 days before the expiration of liability on the bond,
P.D. Marchessini and Co, Ltd. and Delgado Shipping Agencies filed a case
against PMSCI and Bautista, doing business under Ronquillo Trading, and
Capital for $14,800 or its equivalent in Philippine currency for the loss they
suffered as a direct consequence of the failure to load the stipulated quantity
of 406 US surplus army vehicles.
a.   Capital was made party because of the bond it posted on behalf of
Ronquillo Trading and Bautista.
166.  Upon the expiration of the 12 mos life of the bond, Capital made a formal
demand for the payment of the renewal premiums and cost of DST for
another year in the amount of Php 1,827, but Ronquillo refused to pay,
saying that the liability of Capital under the surety bond accrued during the
period of 12 mos the bond was originally in force and before its expiration
and that Ronquillo was under no obligation to renew the surety bond.
167.  Capital filed a complaint to recover the said sum in the City Court of
Manila.
a.   The court absolved Ronquillo from the complaint.
168.  Capital appealed the judgment to the CFI where the decision of the city
court was affirmed and the complaint was dismissed.
a.   Capital filed a MR but was denied.
169.  Hence, this appeal.
ISSUE/s:
1.   WON Ronquillo still has the obligation to pay the premiums and costs for
the succeeding period once the surety’s liability under the bond has accrued.
– NO, where a contract of surety is terminated under its terms, the liability
of the principal for premiums after such termination ceases notwithstanding
the pendency of the lawsuit to enforce a liability that accrued during its
stipulated lifetime.
RULING: WHEREFORE, the appeal is DISMISSED for alck of merit. The
decision of the court a quo is AFFIRMED.
RATIO:
On whether Ronquillo still has the obligation to pay the premiums and costs for the
succeeding period once the surety’s liability under the bond has accrued.
1.   Capital: the trial court’s finding that once the surety’s liability has accrued,
the defendants are under no obligation to pay the premiums for the
succeeding period that it is in effect by reason of existing obligation of the
surety bond, is erroneous since it contradicts the provision in the indemnity
 agreement.60
a.   It can be deduced that the payment of renewal premiums should depend
upon the life and effectivity of the bond and not on the accrual of its
liability.
b.   As long as the bond is in full force and effect, the principal should pay
the renewal premium and continue to do so even if the liability on the
bond has accrued, otherwise, surety companies will be at the mercy of
their principals because while their liability continues to subsist as long
as their accrued liability is not determined, the principals pay no
consideration for the use of their bond.
2.   Ronquillo: the only purpose of the civil case was to enforce liability which
existed even before the bond was executed.
a.   The bond was given to secure payment by Ronquillo of additional
freight as would already be due on the cargo when it actually arrived in
Manila. It wasn’t executed to secure obligation or liability which was
still to arise after the 12 mo life.
b.   While it’s true that the lower court held that the bond was still in effect
after expiry date, the effectivity was not because of a renewal made by
Ronquillo but because the surety bond provides that the “liaibility of
the surety will not expire if, as in this case, it is notified of an existing
obligation there under.” The meaning of the bond’s still being in effect
is that, suit on the bond instituted by the obliges prior to the expiration
of the “liability” thereunder was only for purpose of enforcing that
liability and amounter to notice to capital of an already existing or
accrued liability so as not to let that liability lapse or expire and bar
enforcement.
3.   SC: Agrees with Ronquillo.
a.   In the surety bond, it is stipulated that the liability of the surety will
expire on 5 May 1963, unless surety is notified of any existing
oblgiations thereunder.
b.   Under this stipulation, the bond expired on the stated date, and the
phrase “unless surety… thereunder” refers to obligations incurred
during the term of the bond.
c.   Under the Indemnity Agreement, the duration of the bond is for “every
12 mos or fraction thereof, while this bond or any renewal or
substistution is in effect”. Since Ronquillo opted not to renew the
contract, they can’t be obliged to pay the premiums.
d.   Where a contract of surety is terminated under its terms, the
liability of the principal for premiums after such termination
ceases notwithstanding the pendency of the lawsuit to enforce a
liability that accrued during its stipulated lifetime.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60

 PREMIUMS
 –
 As
 consideration
 for
 the
 surety,
 the
 undersigned
 jointly
 and
 severally,
 agree
 to
 pay
 the
 
company
 the
 sum
 of
 1,800
 pesos,
 Philippine
 currency,
 in
 advance
 as
 premium
 thereof
 for
 every
 12
 mos
 
or
 fraction
 thereof,
 while
 this
 bond
 or
 any
 renewal
 or
 substitution
 is
 in
 effect.
 
 001 VDA. DE GABRIEL v. CA (PLEYTO)
Nov. 14, 1996 | Vitug, J. | Life Insurance
PETITIONER: Jacqueline Jimenez Vda. De Gabriel
RESPONDENTS: Hon. Court of Appeals and Fortune Insurance & Surety
Company, Inc.
SUMMARY: Gabriel was employed by ECDC at its construction project in Iraq. He
was covered by a personal accident insurance in the amount of P100k, under a group
policy procured from Fortune Insurance & Surety Company, Inc. by ECDC for its
overseas workers. The insured risk was for bodily injury caused by violent accidental
external and visible means which injury would solely and independently of any other
cause result in death or disability. Within the life of the policy, Gabriel died. More
than a year later, ECDC reported Gabriel’s death to Fortune by telephone. Among
the documents submitted to Fortune were a copy of the the death certificate issued by
the Ministry of Health of the Republic of Iraq, which stated that the reason of death
is not yet known and that it is still under examination; and an autopsy report of the
NBI to the effect that “due to advanced state of postmortem decomposition, cause of
death could not be determined. Fortune denied the claim on the ground of
prescription. So Jacqueline filed a case before the RTC. She averred that Gabriel
died of electrocution while in the performance of his work and prayed for the
recovery of the 100k and other damages. Fortune filed its answer alleging that both
the death cert and the autopsy report failed to disclose the cause of death. It also
raised the defense of prescription. RTC ruled in favor of Jacqueline. Both Jacqueline
and Fortune appealed to the CA. CA reversed the decision. The issue in this case,
with regard to life insurance, WoN there is sufficient evidence to prove that the
insured suffered from an accidental death, the risk covered by the policy. The
affidavit of Jacqueline and the letter of Gabriel’s co-working saying that Gabriel died
of electrocution were all ruled to be hearsay as both were not testified to by the
affiants. Not one of the other documents submitted, to wit, the POEA decision, the
death certificate issued by the Ministry of Health of Iraq and the NBI autopsy report,
could give any probative value to the claim. The POEA decision did not make any
categorical holding on the specific cause of Gabriel's death. Neither did the death
certificate issued by the health authorities in Iraq nor the NBI autopsy report provide
any clue on the cause of death. Evidence is utterly wanting to establish that the
insured suffered from an accidental death, the risk covered by the policy. In an
accident insurance, the insured's beneficiary has the burden of proof in
demonstrating that the cause of death is due to the covered peril. Once the fact is
established, the burden then shifts to the insurer to show any excepted peril that may
have been stipulated by the parties. An "accident insurance" is not thus to be likened
to an ordinary life insurance where the insured's death, regardless of the cause
thereof, would normally be compensable. The latter is akin in property insurance to
an "all risk" coverage where the insured, on the aspect of burden of proof, has merely
to show the condition of the property insured when the policy attaches and the fact of
loss or damage during the period of the policy and where, thereafter, the burden
would be on the insurer to show any "excluded peril." When, however, the insured
risk is specified, like in the case, it lies with the claimant of the insurance proceeds to
initially prove that the loss is caused by the covered peril.
DOCTRINE: An "accident insurance" is not thus to be likened to an ordinary life
insurance where the insured's death, regardless of the cause thereof, would normally
be compensable. The latter is akin in property insurance to an "all risk" coverage
where the insured, on the aspect of burden of proof, has merely to show the condition
of the property insured when the policy attaches and the fact of loss or damage
during the period of the policy and where, thereafter, the burden would be on the
insurer to show any "excluded peril." When, however, the insured risk is specified,
like in the case, it lies with the claimant of the insurance proceeds to initially prove
that the loss is caused by the covered peril.
FACTS:
109.  Marcelino Gabriel, the insured, was employed by Emerald Construction &
Development Corporation (ECDC) at its construction project in Iraq.
110.  He was covered by a personal accident insurance in the amount of P100k
under a group policy procured from Fortune Insurance & Surety Company,
Inc. (Fortune) by ECDC for its overseas workers
111.  The insured risk was for bodily injury caused by violent accidental external
and visible means which injury would solely and independently of any other
cause result in death or disability
112.  May 22, 1982: within the life of the policy, Gabriel died in Iraq.
113.  A year later or on July 12, 1983, ECDC reported Gabriel’s death to Fortune
by telephone.
114.  Among the documents submitted to Fortune were a copy of the death
certificate issued by the Ministry of Health of the Republic of Iraq, which
stated that the reason of death is not yet known and that it is still under
examination; and an autopsy report of the NBI to the effect that “due to
advanced state of postmortem decomposition, cause of death could not be
determined
115.  Fortune referred the insurance claim to Mission Adjustment Service, Inc.
116.  Following a series of communications between Jacqueline Jimenez vda. De
Gabriel (Jacqueline) and Fortune, the latter, on Sept. 22, 1983 ultimately
denied the claim of ECDC on the ground of prescription
117.  So Jacqueline went to the RTC of Manila. In her complaint against ECDC
and Fortune, she averred that her husband died of electrocution while in the
performance of his work and prayed for the recovery of P100k for insurance
indemnification and of various other sums by way of actual, moral, and
exemplary damages, plus attorney’s fees and costs
118.  Fortune filed its answer, which was not verified, admitting the genuineness
and due execution of the insurance policy
1.   It alleged, however, that since both the death certificate issued by
the Iraqi Ministry of Health and the autopsy report of the NBI
failed to disclose the cause of Gabriel’s death, it denied liability
under the policy
 2.   In addition, it raised the defense of prescription, invoking Sec. 384
of the Insurance Code
3.   Later, it filed an amended answer, still unverified, reiterating its
original defenses but, it added a counterclaim and a cross claim
119.  RTC: dismissed the case against ECDC for the failure to take steps to cause
the service of the fourth alias summons on ECDC. The dismissal was
without prejudice. The case proceeded against Fortune alone.
120.  On May 28, 1987, the trial court rendered its decision in favor (partly) of
Jacqueline’s claim. It held that Fortune was deemed to have waived the
defense, i.e., that the cause of death was not covered by the policy, when the
latter failed to impugn by evidence Jacqueline’s averment on the matter
121.  With regard to the defense of prescription, the court considered the
complaint to have been timely filed or within 1 year from Fortune’s denial
of claim
122.  Jacqueline and Fortune both appealed to the CA.
1.   Jacqueline contended that the lower court should have awarded all
the claims she had asked for.
2.   Fortune asserted that the lower ocurt erred in ruling (i) that the
insurer had waived the defense that Gabriel’s death was not caused
by the insured peril (“violent accidental external and visible
means”) specified in the policy and (ii) that the cause of action had
not prescribed
123.  CA: reversed the decision.
1.   It held that Jacqueline failed to substantiate her allegation that her
husband’s death was caused by a risk insured against.
2.   It observed that the only evidence presented by Jacqueline, in her
attempt to show the circumstances that led to the death of the
insured, were her own affidavit and a letter alleged written by a co-
worker of the deceased in Iraq which, unfortunately for her, were
held to be both hearsay.
ISSUE/s:
120.  (Issue of prescription) WoN Fortune correctly invoked Section 384 of the
Insurance Code – YES. Fortune, in invoking prescription, was not referring
to the one-year period from the denial of the claim within which to file an
action against an insurer but obviously to the written notice of claim that
had to be submitted within six months from the time of the accident
121.  (Life insurance) WoN there is sufficient evidence to prove that the insured
suffered from an accidental death, the risk covered by the policy -
RULING: SC affirmed the CA’s decision
RATIO:
122.  Section 384 of the Insurance Code states:
Sec. 384. Any person having any claim upon the policy issued pursuant to this
chapter shall, without any unnecessary delay, present to the insurance company
concerned a written notice of claim setting forth the nature, extent and duration
of the injuries sustained as certified by a duly licensed physician. Notice of
claim must be filed within six months from date of the accident, otherwise, the
claim shall be deemed waived. Action or suit for recovery of damage due to loss
or injury must be brought, in proper cases, with the Commissioner or the Courts
within one year from denial of the claim, otherwise, the claimant's right of
action shall prescribe.
123.  The notice of death was given to Fortune, concededly, more than a year
after the death of Jacqueline’s husband.
124.  Fortune, in invoking prescription, was not referring to the one-year period
from the denial of the claim within which to file an action against an insurer
but obviously to the written notice of claim that had to be submitted within
six months from the time of the accident
125.  Jacqueline arguest that Fortune must be deemed to have waived its right to
controvert the claim, that is, to show that the cause of death is an excepted
peril, by failing to have its answers (to the Request for Admission sent by
Jacqueline) duly verified
126.  It is true that a matter of which a written request for admission is made shall
be deemed impliedly admitted "unless, within a period designated in the
request, which shall not be less than ten (10) days after service thereof, or
within such further time as the court may allow on motion and notice, the
party to whom the request is directed serves upon the party requesting the
admission a sworn statement either denying specifically the matters of
which an admission is requested or setting forth in detail the reasons why he
cannot truthfully either admit or deny those matters"
127.  However, the verification, like in most cases required by the rules of
procedure, is a formal, not jurisdictional, requirement, and mainly intended
to secure an assurance that matters which are alleged are done in good faith
or are true and correct and not of mere speculation.
128.  When circumstances warrant, the court may simply order the correction of
unverified pleadings or act on it and waive strict compliance with the rules
in order that the ends of justice may thereby be served.
129.  In the case of answers to written requests for admission particularly, the
court can allow the party making the admission, whether made expressly or
deemed to have been made impliedly, "to withdraw or amend it upon such
terms as may be just
130.  The CA acted neither erroneously nor with grave abuse of discretion when
it seconded the court a quo and ruled that there is absolutely no basis in fact
and in law for the lower court to hold that Fortune waived the defense, that
the death of Gabriel was not caused by violent accidental external and
visible means61
61
CA’s ruling:
"As to the allegation of the plaintiff-appellant that the matters requested by her to be
admitted by the defendant-appellant under the Request for Admission were already
deemed admitted by the latter for its failure to answer it under oath, has already been
 131.  The insurance policy expressly provided that to be compensable, the injury 139.  Evidence is utterly wanting to establish that the insured suffered from
or death should be caused by “violent accidental external and visible an accidental death, the risk covered by the policy.
means.” 140.  In an accident insurance, the insured's beneficiary has the burden of
132.  In attempting to prove the cause of Gabriel’s death, all that petitioner proof in demonstrating that the cause of death is due to the covered
submitted were a letter sent to her by Gabriel’s co-worker, stating that peril.
Gabriel died when he tried to haul water out of a tank while its submerged 141.  Once the fact is established, the burden then shifts to the insurer to
motor was still functioning, and Jacqueline’s sinupaang salaysay show any excepted peril that may have been stipulated by the parties.
133.  The sinumpaang salaysay merely confirmed the receipt and stated contents 142.  An "accident insurance" is not thus to be likened to an ordinary life
of the letter insurance where the insured's death, regardless of the cause thereof,
134.  With this the CA said that the affidavit suffers from procedural infirmity as would normally be compensable.
it was not even testified to or identified by the affiant (Jacqueline) herself. 143.  The latter is akin in property insurance to an "all risk" coverage where
This self-serving affidavit therefore is a mere hearsay under the rules the insured, on the aspect of burden of proof, has merely to show the
135.  Similar with the letter which was never identified to in court by the condition of the property insured when the policy attaches and the fact
supposed author, suffers from the same defect as the affidavit of loss or damage during the period of the policy and where, thereafter,
136.  Not one of the other documents submitted, to wit, the POEA decision, dated the burden would be on the insurer to show any "excluded peril."
06 June 1984, the death certificate issued by the Ministry of Health of Iraq 144.  When, however, the insured risk is specified, like in the case, it lies with
and the NBI autopsy report, could give any probative value to the claim. the claimant of the insurance proceeds to initially prove that the loss is
137.  The POEA decision did not make any categorical holding on the specific caused by the covered peril.
cause of Gabriel's death. Neither did the death certificate issued by the 145.  While petitioner did fail in substantiating her allegation that the death of her
health authorities in Iraq nor the NBI autopsy report provide any clue on the husband was due to an accident, considering, however, the uncertainty on
cause of death. the real cause of death, Fortune might find its way clear into still taking a
138.  All that appeared to be clear was the fact of Gabriel's demise on 22 May second look on the matter and perhaps help ease the load of petitioner's loss.
1982 in Iraq.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
properly laid to rest when the lower court in its Order of May 28, 1987 correctly
ruled:
"At the outset, it must be stressed that the defendant indeed led a written
answer to the request for admission, sans veri cation. The case of Motor
Service Co., Inc. vs. Yellow Taxicab Co., Inc., et al.may not therefore be
controlling, or actually opposite. In said case, there was an absolute failure
on the part of the defendant to answer the request for admission, and thus
the court was justi ed in rendering a summary judgment. Here, however, as
clearly intimated elsewhere above, the defendant answered in writing
practically every question posed in the request for admission. The Court
believes, under the peculiar circumstance, that the more controlling
jurisprudence on the matter would be those cited by the defendant in its
memorandum, particularly the case of Quimpo vs. de la Victoria, 46 SCRA
139.'
"Prescinding from the foregoing, there is absolutely no basis in fact and in law for
the lower court to hold that the appellant insurance company was deemed to have
waived the defense, that the death of plaintiff-appellant's husband was not caused by
violent accidental external and visible means' as contemplated in the insurance
policy. The Death Certi cate (Exh. 9) and the Autopsy Report (Exh. 10), more than
controverted the allegation of the plaintiff-appellant as to the cause of death of her
husband."
 002 INSULAR LIFE v. FELICIANO ET AL. (PUNSALAN)
Dec. 29, 1943 | Ozaeta, J. | Life Insurance; GG sa TB
PETITIONER: The Insular Life Assurance Co., Ltd.
RESPONDENTS: Serafin D. Feliciano et al
SUMMARY: Evaristo Feliciano died from advanced pulmonary tuberculosis.
Before dying though, he signed 2 applications for insurance with Insular Life.
According to doctors who informed his brother, Evaristo was “in a very serious
and practically hopeless condition.” (sad) He disclosed this to Insular Life’s
soliciting agent Romulo David and Medical Examiner Dr. Gregorio Valdez
verbally and that he also had x-rays taken because of coughing and fever.
Nevertheless, Agent David and Dr. Valdez falsified the answers to the questions
of the applications and stated that he appears to be in good health and that he is a
proper subject for life insurance. (IMPT: pls check fact 3, 7, and 8 to have an
idea of the contents of the application and the policy). The beneficiaries were
able to get the value of the insurance policies upon his death worth P25k (policy
1 – P20k and policy 2 – P5k). The SC decided this 4-3 in favor of Felicianos and
now Insular Life files this MR.
Issue: WoN Felicianos are only entitled to the refund of the premiums(P1,389)
based on the facts – YES, because insured Evaristo was found to be a
coparticipant and coresponsible with Agent David and Medical Examiner Valdez
in the fraudulent procurement of said policies in question and that by reason
thereof said policies are void ab initio.
When Evaristo signed the application in blank and authorized Agent David
and/or Dr. Valdez of Insular to write the answers for him, he made them his
own agents for that purpose, and was responsible for their acts in that
connection. He could not evade responsibility for: (1) He was not supposed
to sign the application in blank (2) He knew that the answers to the
questions would be the “basis of the policy” and for that, every reason he
was required with his signature to vouch for the truth thereof. Evaristo not
only accepted the first policy of P20k but then and there applied for another
one and later accepted another P5k. He must also have had notice that the
answers to the questions asked concerning his clinical history were false, and yet
he accepted the first policy and applied for another. Based on the policy [ratio
6(a)], By accepting the policy, he became charged with knowledge of its
contents, whether or not he actually read it or not. Insured Evaristo then had no
right to rely in good faith upon the oral representation of the agent and medical
examiner as well as the oral representation that he was a “fit subject for
insurance” notwithstanding that he had been and was still suffering with
advanced pulmonary tuberculosis.
DOCTRINE: When the applicant signs the application for insurance in blank
and authorized the soliciting agents to write answers for him, he made them his
own agents for that purpose and was responsible for their acts.
Fradulent procurement of the insurance policy amounts to it being void ab initio.
FACTS:
170.  This case previously had a 4-3 decision promulgated on Sept. 13, 1941
where the SC affirmed the CA decision in favor of Serafin Feliciano et al.
and against The Insular Life Assurance Co., Ltd. (Insular) for P25k which
represents the value of 2 insurance policies issued by Insular on the life of
Evaristo Felciano.
a.   An MR has been filed by Insular which is the subject of this case.
171.  Evaristo Feliciano died on Sept. 29, 1935 from advanced pulmonary
tuberculosis.
172.  Before dying though, Evaristo signed his applications for insurance with
Insular Life on Oct. 12, 1934.
a.   On that same date, Doctor Trepp (who took X-ray pictures of his
lungs) informed Dr. Serafin Feliciano (brother of Evaristo) that
“Evaristo was already in a very serious and practically
hopeless condition.”
b.   Nevertheless, the question contained in the application – “Have
you ever suffered from any ailment or disease of the lungs,
pleurisy, pneumonia or asthma?” – appears to have been answered,
“No”
c.   Lastly, above the signature of the applicant, following the answers
to the various questions asked of him, is the ff. printed statement:
“I declare on behalf of myself and of any person who shall have or
claim any interest in any policy issued hereunder, that each of the
above answers is full, complete and true, and that to the best of my
knowledge and belief I am a proper subject for life insurance.
173.  One of Insular’s soliciting agent Romulo David (Agent David) wrote the
false answer (in collusion with Medical Examiner Dr. Gregorio Valdez) in
order to secure Insular’s approval of the application so that the policy to be
issued might be credited to Agent David in connection with the inter-
provincial contest which Insular was then holding among its soliciting
agents to boost the sales of its policies. (competitive af)
174.  CA found that Agent David bribed Dr. Valdez with money which the
former got from Evaristo’s mother by way of advanced payment on the
premium.
175.  CA also found that before he signed the application, Evaristo and his family
told Agent David and Dr. Valdez that he had been sick and coughing for
some time and had gone 3 times to the Santol Sanatorium and had taken X-
ray pics of his lungs
a.   Despite the information, Agent David and Dr. Valdez told
them that applicant Evaristo was a fit subject for insurance
176.  The two policies subject of the case contains the ff. stipulations: (note
italicized part)
a.   “This policy and the application herefor constitute the entire
contract between the parties hereto… Only the President, or the
Manager, acting jointly with the Secretary or Assistant Secretary
 (and then only in writing signed by them) have power in behalf of
the Company to issue permits, or to modify this or any contract, or
to extend the same time for making any premium payment, and the
Company shall not be bound by any promise or representation
heretofore or hereafter given by any person other than the above-
named officials, and by them only in writing and signed conjointly
as stated.”
177.  The application contains the ff. statements: (note italicized parts)
a.   18. — I [the applicant] hereby declare that all the above statements
and answers as well as all those that I may make to the Company's
Medical Examiner in continuation of this application, to be
complete, true and correct to the best of my knowledge and belief,
and I hereby agree as follows:
1. That his declaration, with the answers to be given by me to the
Medical Examiner, shall be the basis of the policy and form part of
same.
xxx xxx xxx
3. That the said policy shall not take effect until the first premium
has been paid and the policy has been delivered to and accepted by
me, while I am in good health.
4. That the agent taking this application has no authority to make,
modify or discharge contracts, or to waive any of the Company's
rights or requirements.
5. My acceptance of any policy issued on this application will
constitute a ratification by me of any corrections in or additions to
this application made by the Company in the space provided "For
Home Office Corrections or Additions Only." I agree that
photographic copy of this applications as corrected or added to
shall constitute sufficient notice to me of the changes made.
(Emphasis added.)
178.  Insular insists based on the facts of the case that the policies are null and
void ab initio and that all that Felicianos are entitled to is the refund of the
premiums paid. (P1,389)
ISSUE/s:
19.   WoN Felicianos are only entitled to the refund of the premiums(P1,389)
based on the facts – YES, because insured Evaristo was found to be a
coparticipant and coresponsible with Agent David and Medical Examiner
Valdez in the fraudulent procurement of said policies in question and that
by reason thereof said policies are void ab initio.
RULING: MR is sustained and CA judgment reversed. Another judgment entered in
favor of Feliciano and against Insular for the refund of the premiums amounting to
P1,389.
RATIO:
145.  When Evaristo signed the application in blank and authorized Agent David
and/or Dr. Valdez of Insular to write the answers for him, he made them
his own agents for that purpose, and was responsible for their acts in
that connection.
146.  If they falsified the answers for him, he could not evade the responsibility
for the falsification.
a.   He was not supposed to sign the application in blank
b.   He knew that the answers to the questions would be the “basis
of the policy”
c.   For that, every reason he was required with his signature to
vouch for the truth thereof.
147.  SC also cannot escape from the conclusion that the insured Evaristo acted in
connivance with the soliciting agent and the medical examiner of the
Company in accepting the policies in question. (IMPT)
a.   Above the signature of applicant is the printed statement of the
representation: “… I am a proper subject for life insurance.”
b.   In another sheet of the same application and above the signature of
the applicant was also printed this statement: “That the said
policy shall not take effect until the first premium has been
paid and the policy has been delivered to and accepted by me,
while I am in good health.”
c.   (IRONIC) When the applicant signed the application he was
having difficulty in breathing with a very high fever.
d.   Stated in Fact#6 that he went to Santol Sanatorium for x-rays
which proves that he knows that he is not a proper subject for
life insurance.
e.   When he accepted the policy, he knew that he was not in good
health.
148.  Nevertheless, he not only accepted the first policy of P20k but then and
there applied for another one and later accepted another P5k.
149.  SC cannot believe that the insured did not take the trouble to read the
answers in the copy of the application before he accepted it and paid the
premium thereon.
a.   He must also have had notice that the answers to the questions
asked concerning his clinical history were false, and yet he
accepted the first policy and applied for another.
150.  In any event, he obligated himself to read the policy when he subscribed to
this statement:
a.   "My acceptance of any policy issued on this application will
constitute a ratification by me of any corrections in or additions to
this application made by the Company . . ."
b.   By accepting the policy, he became charged with knowledge of
its contents, whether or not he actually read it or not.
c.   He could not ostrich-like hide his head from it in order to avoid his
 part of the bargain and at the same time claim the benefit thereof. (nice)
151.  He knew (or was chargeable with knowledge) from the very terms of the 2
policies (policies printed: one in English and one in Spanish) that the agent
and medical examiner cannot bind Insular by any verbal promise or oral
representation.
152.  Insured Evaristo then had no right to rely in good faith upon the oral
representation of the agent and medical examiner as well as the oral
representation that he was a “fit subject for insurance” notwithstanding that
he had been and was still suffering with advanced pulmonary tuberculosis.

Separate and dissenting opinions

153.  CJ Yulo, separate: To serve the ends of justice, the case of Felicianos
should be removed from the protection of such rules.
154.  The beneficiaries contend that they took the policies on the basis of a life
expectancy of a person gravely stricken by tuberculosis. They consistently
stated that they so informed the agents of the insurance company but the
policies issued on the life of Evaristo were as a perfectly normal and healthy
person. The error is vital and is based on the contract itself. Who is
responsible for the error?
a.   The direct cause: false recitals in the application for insurance.
b.   While true that it was agents who filled out the application, it was
Evaristo who made it possible to procure such by signing the
application in blank.
155.  In justice and in equity, the responsibility for the falsifications made by
the insurance agents should be laid at the door of the assured and his
beneficiaries.

156.  J. Hontiveros, dissenting: The mere fact that insured Evaristo signed at
the bottom of the application for insurance when some of its lines
intended for answers to certain questions were still in blank, answers
which, accdg to evidence and findings of the lower courts, he had
grounds to believe wil be made in accordance which he and his family
had given to Agent David and Dr. Valdez, does not convert these two
persons into agents of the insured in a way as to make the Evaristo
liable for the former’s acts.
a.   The fact that copies of the forms which are attached to the policies
are almost illegible should have been taken into account together
with the fact that Evaristo does not know English, the language in 003 SUNLIFE ASSURANCE v. CA (RAYOS)
which those documents are written. June 22, 1995| Quiason J.. | Life Insurance
b.   Certain authorities cited supports this dissent that insured is not PETITIONER: Sunlife assurance Company of Canada
bound to know the contents of the application if practically RESPONDENTS: CA & Spouses Rolando and Bernarda
illegible and that insured may also rely on agent’s assurances that SUMMARY:Robert Bacani procured a life insurance contract with Sunlife the
his answers have been correctly written. This has special force beneficiary was his mother, Bernarda. A year later, Robert died in a plane crash.
where insured is illiterate and unable to read, or is ignorant of the Bernarda filed a claim seeking payment from the insurance policy. Sunlife
language. REFUSED on the ground that Robert did not disclose material facts relevant to the
157.  J. Imperial, dissenting: I concur in the foregoing dissenting opinion. issuance of the policy, thus making the policy voidable. Sunlife contended that
Robert gave false statements in his application; he did not disclose that he was
diagnosed with renal (kidney) failure. Bernarda filed an action for specific
performance with the RTC. RTC ruled in favor of Bernarda. RTC concluded that
the Facts concealed were made in ‘good faith’ and under a belief that they need
not be disclosed, and other has no means of finding out. CA affirmed the decision
and conclusion of the RTC. CA added that the cause of death was unrelated to the
facts concealed. Issue: Whether or not the CA erred in upholding the ruling of
the RTC? YES, the facts concealed by Robert were material. The materiality
of the fact to the insurance contract is not determined by the event, but solely by
the probable and reasonable influence of it to the other party in weighing his
disadvantages in entering in the contract. (IF IT AFFECTS the decision-making
capacity of a person in entering the contract then it is a material fact). In the terms
of the contract Robert had to disclose all matters relating to his health. SC
established that good faith is not a defense in concealment. It was also established
that Robert found about the sickness 2 weeks before applying for the insurance
policy. It appeared that the concealment was deliberate. The waiver of medical
examination by Sunlife is of no moment because the medical results will still
affect Sunlife’s decision in approving the insurance policy or even giving a higher
premium to pay. Sunlife properly rescinded the insurance contract within the 2
year period and returned to Bernarda the premium paid by Robert.
DOCTRINE: The information withheld by Robert were material and relevant to
the approval and issuance of the insurance policy. Section 26 provides: “A neglect
to communicate that which a party knows and ought to communicate, is called
concealment.” Sec. 26 of the Insurance Code explicitly requires that parties of an
insurance contract have to communicate to each other, in good faith, all facts
within their knowledge which are material to the contract and which the other has
no means of finding out.
FACTS:
1.   Robert Bacani procured a LIFE INSURANCE for himself from Sunlife. He
was issued a policy valued at 100 thousand, with double indemnity in case
of accidental death. The designated BENEFICIARY was his mother,
BERNARDA BACANI.
2.   BACANI died in a plane crash. Bernarda Bacani filed a claim with Sunlife,
seeking the benefits of the insurance policy taken by her son. Sunlife
conducted an investigation and its findings prompted it to reject the claim.
3.   Sunlife informed Bernarda Bacani, that the insured did not disclose material
facts relevant to the issuance of the policy, thus rendering the contract of
insurance voidable. A check representing the total premiums paid in the
amount of P10,172.00 was attached to said letter.
4.   Sunlife claimed that the insured gave false statements in his application
when he answered the following questions:
a.   Within the past 5 years have you:
i.   Consulted any doctor or other health practitioner?
ii.   Submitted to EGG? X-Rays? Blood tests? Other tests?
iii.   Attended or been admitted to any hospital or other
medical facility?
iv.   Have you ever had or sought advice for?
v.   Urine, kidney or bladder disorder?
5.   The deceased answered question No. 5(a) in the affirmative but limited his
answer to a consultation with a certain Dr. Reinaldo D. Raymundo of the
Chinese General Hospital on February 1986, for cough and flu
complications. The other questions were answered in the negative.
6.   Sunlife discovered that 2 weeks prior to his application for insurance, the
insured (ROBERT) was examined and confined at the Lung Center of the
Philippines, where he was diagnosed for renal failure. During his
confinement, the deceased was subjected to urinalysis, ultra-sonography
and hematology tests.
7.   On November 17, 1988, respondent Bernarda Bacani and her husband,
respondent Rolando Bacani, filed an action for specific performance against
Sunlife Assurance.
8.   Sunlife filed its answer with counterclaim and a list of exhibits consisting of
medical records furnished by the Lung Center of the Philippines.
9.   Bernarda filed a "Proposed Stipulation with Prayer for Summary Judgment"
where they manifested that they "have no evidence to refute the
documentary evidence of concealment/misrepresentation by the decedent of
his health condition.
10.   Sunlife Assurance filed its Request for Admissions relative to the
authenticity and due execution of several documents as well as allegations
regarding the health of the insured. Bernarda failed to oppose said request
or reply thereto, thereby rendering an admission of the matters alleged.
11.   Sunlife Assurance then moved for a summary judgment and the trial court
decided in favor of Bernarda.
12.   Defendant’s counterclaim is Dismissed.
13.   Trial Court: concluded that the facts concealed by the insured were made in
good faith and under a belief that they need not be disclosed. Moreover, it
held that the health history of the insured was immaterial since the
insurance policy was "non-medical".
14.   Sunlife appealed to the CA, which affirmed the decision of the Trial Court.
15.   CA ruled that Sunlife cannot avoid its obligation by claiming concealment
because the cause of death was unrelated to the facts concealed by the
insured. It also sustained the finding of the trial court that matters relating to
the health history of the insured were irrelevant since SUNLIFE waived the
medical examination prior to the approval and issuance of the insurance
policy. Moreover, the appellate court agreed with the trial court that the
policy was "non-medical”
16.   Petitioner’s MR was denied; hence this petition.
17.   This is a petition for review for certiorari under Rule 45 of the Revised
Rules of Court to reverse and set aside the Decision dated February 21,
1992 of the Court of Appeals in CA-G.R. CV No. 29068, and its Resolution
dated April 22, 1992, denying reconsideration thereof.
ISSUE: Whether or not the CA erred in upholding the ruling of the RTC? YES,
the facts concealed by Robert were material. The rule that factual findings of the
lower court and the appellate court are binding on this Court is not absolute and
admits of exceptions, such as when the judgment is based on a misappreciation of the
facts. We, therefore, rule that SUNLIFE properly exercised its right to rescind the
contract of insurance by reason of the concealment employed by the insured. It must
be emphasized that rescission was exercised within the two-year contestability
period as recognized in Section 48 of The Insurance Code.
HELD: WHEREFORE, the petition is GRANTED and the Decision of the Court of
Appeals is REVERSED and SET ASIDE. SO ORDERED.
RATIO:
8.   The facts concealed had no bearing to the cause of death of the insured, it is
well settled that the insured need not die of the disease he had failed to
disclose to the insurer. It is sufficient that his non-disclosure misled the
insurer in forming his estimates of the risks of the proposed insurance
policy or in making inquiries.
9.   We, therefore, rule that SUNLIFE properly exercised its right to
rescind the contract of insurance by reason of the concealment
employed by the insured. It must be emphasized that rescission was
exercised within the two-year contestability period as recognized in
Section 48 of The Insurance Code.

1.   Sec. 26 of The Insurance Code is explicit in requiring a party to a contract

of insurance to communicate to the other, in good faith, all facts within his
knowledge which are material to the contract and as to which he makes no
warranty, and which the other has no means of ascertaining. Said Section
provides: A neglect to communicate that which a party knows and ought to
communicate, is called concealment.
2.   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
communication is due, in forming his estimate of the disadvantages of the
proposed contract or in making his inquiries.
3.   The terms of the contract are clear. The insured is specifically required to
disclose to the insurer matters relating to his health.
4.   The information which the insured failed to disclose were material and
relevant to the approval and issuance of the insurance policy. The matters
concealed would have definitely affected petitioner's action on his
application, either by approving it with the corresponding adjustment for a
higher premium or rejecting the same. Moreover, a disclosure may have
warranted a medical examination of the insured by petitioner in order for it
to reasonably assess the risk involved in accepting the application.
5.   Important doctrines:
a.   Materiality of the information withheld does not depend on the
state of mind of the insured. Neither does it depend on the 004 Del Val v. Del Val (Rosales)
actual or physical events which ensue. Thus, "good faith" is no February 16, 1915 | Moreland, J. | Life Insurance
defense in concealment. The insured's failure to disclose the
fact that he was hospitalized for two weeks prior to filing his
application for insurance, raises grave doubts. It appears that
such concealment was deliberate on his part.
6.   The waiver of a medical examination [in a non-medical insurance contract]
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.
7.   Such argument of private respondents would make Section 27 of the
Insurance Code, which allows the injured party to rescind a contract of
insurance where there is concealment, ineffective.
 PETITIONER: Francisco Del Val, et al
RESPONDENTS: Andres Del Val
SUMMARY: Gregorio Nacianceno del Val had a life insurance of P40,000
naming as sole beneficiary his son Andres Del Val who used the insurance
money to repurchase his estate for P18,365.20 and keeping the balance of the
insurance of P21,634.80. Andres also did the same to the personal properties in
his possession. Francisco Del Val, et al., brothers and sisters, contended that the
insurance claim as well as the personal properties should be given to the estate
and not to Andres. Francisco et al contend that the amount of the insurance
policy belonged to the estate of the deceased and not to Andres personally; and
they are entitled to a partition not only of the real and personal property, but also
of the P40,000 life insurance. The trial court dismissed the action stating that it is
an action for partition between co-heirs and the complaint fails to comply with
Code Civ., Pro. sec. 183, in that it does not 'contain an adequate description of
the real property of which partition is demanded. Since the estate was finally
closed, the matter of the personal property at least must be considered res
judicata. Issue is WoN the proceeds of the life-insurance policy belongs
exclusively to Andres? SC held YES, because the proceeds of an insurance
policy belong exclusively to the beneficiary and not to the estate of the person
whose life was insured, and that such proceeds are the separate and individual
property of the beneficiary, and not of the heirs of the person whose life was
insured. The proceeds of the life-insurance policy being the exclusive property
of Andres and he having used a portion thereof in the repurchase of the real
estate sold by the decedent prior to his death with right to repurchase, and such
repurchase having been made and the conveyance taken in the names of all of
the heirs instead of the Andres alone, Francisco et al’s claim that the property
belongs to the heirs in common and not to Andres alone. If it is established by
the evidence that that was his intention and that the real estate was delivered
Francisco et al with that understanding, then it is probable that their contention is
correct and that they are entitled to share equally with Andres therein. If,
however, it appears from the evidence in the case that the conveyances were
taken in the name of Francisco et al without his knowledge or consent, or that it
was not his intention to make a gift to them of the real estate, then it belongs to
him. *The case was remanded to the trial court
DOCTRINE: That the proceeds of an insurance policy belong exclusively to the
beneficiary and not to the estate of the person whose life was insured, and that
such proceeds are the separate and individual property of the beneficiary, and not
of the heirs of the person whose life was insured.
FACTS:
1.   The pleadings set forth that the Francisco et al and Andres del Val are
brother and sisters; that they are the only heirs at law and next of kin of
Gregorio Nacianceno del Val, who died in Manila on August 4, 1910,
ISSUE/s:
intestate; that an administrator was appointed for the estate of the deceased,
and, after a partial administration, it was closed and the administrator
discharged by order of the Court of First Instance dated December 9, 1911;
that during the lifetime of the deceased he took out insurance on his life for
the sum of P40,000 and made it payable to Andres del Val as sole
beneficiary; that after his death the Andres collected the face of the policy;
that of said policy he paid the sum of P18,365.20 to redeem certain real
estate which the decedent had sold to third persons with a right to
repurchase; that the redemption of said premises was made by the attorney
of Andres in the name of Francisco et al and Andres as heirs of the deceased
vendor; that the redemption of said premises they have had the use and
benefit thereof; that during that time the Francisco paid no taxes and made
no repairs.
2.   It further appears from the pleadings that Andres on the death of the
deceased, took possession of most of his personal property, which he still
has in his possession, and that he has also the balance on said insurance
policy amounting to P21,634.80.
3.   Francisco et al contend that the amount of the insurance policy belonged to
the estate of the deceased and not to Andres personally; that, therefore, they
are entitled to a partition not only of the real and personal property, but also
of the P40,000 life insurance. The complaint prays a partition of all the
property, both real and personal, left by the deceased; that Andres account
for P21,634.80, and that that sum be divided equally among Francisco et al
and Andres along with the other property of deceased.
4.   Andres denies the material allegations of the complaint and sets up as
special defense and counterclaim that the redemption of the real estate sold
by his father was made in the name of Francisco et al and himself instead of
in his name alone without his knowledge or consent; and that it was not his
intention to use the proceeds of the insurance policy for the benefit of any
person but himself, he alleging that he was and is the sole owner thereof and
that it is his individual property. He, therefore, asks that he be declared the
owner of the real estate redeemed by the payment of the P18,365.20, the
owner of the remaining P21,634.80, the balance of the insurance policy, and
that Francisco’s account for the use and occupation of the premises so
redeemed since the date of the redemption.
5.   The learned trial court refused to give relief to either party and dismissed
the action.
6.   It says in its opinion: "This purports to be an action for partition, brought
against an heir by his coheirs. The complaint, however, fails to comply with
Code Civ., Pro. sec. 183, in that it does not 'contain an adequate
description of the real property of which partition is demanded.'
Because of this defect (which has not been called to our attention and was
discovered only after the cause was submitted) it is more than doubtful
whether any relief can be awarded under the complaint, except by
agreement of all the parties." This alleged defect of the complaint was made
one of the two bases for the dismissal of the action.
 20.   WoN the proceeds of the life-insurance policy belongs exclusively to
Andres – YES, because the proceeds of an insurance policy belong
exclusively to the beneficiary and not to the estate of the person whose life
was insured, and that such proceeds are the separate and individual property
of the beneficiary, and not of the heirs of the person whose life was insured.
21.   WoN the defect of the complaint should dismiss the action – NO, because
if, on the trial of the cause, evidence is offered which establishes the cause
of action which the complaint intended to allege, and such evidence is
received without objection, the defect is thereby cured and cannot be made
the ground of a subsequent objection.
RULING: The judgment appealed from is set aside and the cause returned to the
Court of First Instance whence it came for the purpose hereinabove stated. So
ordered.
RATIO:
1.   ISSUE 1: With the finding of the trial court that the proceeds of the life-
insurance policy belong exclusively to Andres as his individual and separate
property, we agree. That the proceeds of an insurance policy belong
exclusively to the beneficiary and not to the estate of the person whose
life was insured, and that such proceeds are the separate and individual
property of the beneficiary, and not of the heirs of the person whose life
was insured, is the doctrine in America. We believe that the same doctrine
obtains in these Islands by virtue of section 428 of the Code of Commerce,
which reads:
a.   The amount which the underwriter must deliver to the person
insured, in fulfillment of the contract, shall be the property of the
latter, even against the claims of the legitimate heirs or creditors of
any kind whatsoever of the person who effected the insurance in
favor of the former.
2.   It is claimed by the attorney for Francisco et al that the section just quoted is
subordinate to the provisions of the Civil Code as found in article 1035.
This article reads:
a.   An heir by force of law surviving with others of the same character
to a succession must bring into the hereditary estate the property or
securities he may have received from the deceased during the life
of the same, by way of dowry, gift, or for any good consideration,
in order to compute it in fixing the legal portions and in the
account of the division.
3.   Counsel also claim that the proceeds of the insurance policy were a
donation or gift made by the father during his lifetime to Andres and that, as
such, its ultimate destination is determined by those provisions of the Civil
Code which relate to donations, especially article 819. This article provides
that "gifts made to children which are not betterments shall be considered as
part of their legal portion."
4.   We cannot agree with these contentions. 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
contracts or to the destination of life insurance proceeds. That subject is
regulated 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.
5.   The proceeds of the life-insurance policy being the exclusive property of
Andres and he having used a portion thereof in the repurchase of the real
estate sold by the decedent prior to his death with right to repurchase, and
such repurchase having been made and the conveyance taken in the names
of all of the heirs instead of the Andres alone, Francisco et al’s claim that
the property belongs to the heirs in common and not to Andres alone.
6.   We are not inclined to agree with this contention unless the fact appear or
be shown that Andres acted as he did with the intention that the other heirs
should enjoy with him the ownership of the estate — in other words, that he
proposed, in effect, to make a gift of the real estate to the other heirs. If it is
established by the evidence that that was his intention and that the real
estate was delivered Francisco et al with that understanding, then it is
probable that their contention is correct and that they are entitled to share
equally with Andres therein. If, however, it appears from the evidence in the
case that the conveyances were taken in the name of Francisco et al without
his knowledge or consent, or that it was not his intention to make a gift to
them of the real estate, then it belongs to him. If that facts are as stated, he
has two remedies. The one is to compel Francisco et al to reconvey to him
and the other is to let the title stand with them and to recover from them the
sum he paid on their behalf.
7.   ISSUE 2: We do not regard this as sufficient reason for dismissing the
action. It is the doctrine of this court, set down in several decisions,
Lizarraga Hermanos vs. Yap Tico, 24 Phil. Rep., 504, that, even though the
complaint is defective to the extent of failing in allegations necessary to
constitute a cause of action, if, on the trial of the cause, evidence is offered
which establishes the cause of action which the complaint intended to
allege, and such evidence is received without objection, the defect is
thereby cured and cannot be made the ground of a subsequent objection. If,
therefore, evidence was introduced on the trial in this case definitely and
clearly describing the real estate sought to be partitioned, the defect in the
complaint was cured in that regard and should not have been used to
dismiss the action. We do not stop to inquire whether such evidence was or
was not introduced on the trial, inasmuch as this case must be turned for a
new trial with opportunity to both parties to present such evidence as is
necessary to establish their respective claims.
8.   The court in its decision further says: "It will be noticed that the provision
above quoted refers exclusively to real estate. . . . It is, in other words, an
exclusive real property action, and the institution thereof gives the court no
 jurisdiction over chattels. . . . But no relief could possibly be granted in this subsequent action to require a division of either the real or personal
action as to any property except the last (real estate), for the law property. If, on the other hand, an order had been made in the
contemplated that all the personal property of an estate be distributed before administration proceedings dividing the personal or the real property, or
the administration is closed. Indeed, it is only in exceptional cases that the both, among the heirs, then it is quite possible that, to a subsequent action
partition of the real estate is provided for, and this too is evidently intended brought by one of the heirs for a partition of the real or personal property, or
to be effected as a part of the administration, but here the complaint alleges both, there could have been interposed a plea of res judicata based on such
that the estate was finally closed on December 9, 1911, and we find upon order. As the matter now stands, however, there is no ground on which to
referring to the record in that case that subsequent motion to reopen the base such a plea. Moreover, no such plea has been made and no evidence
same were denied; so that the matter of the personal property at least must offered to support it.
be considered res judicata (for the final judgment in the administration 13.   For the complete and proper determination of the questions at issue in this
proceedings must be treated as concluding not merely what was case, we are of the opinion that the cause should be returned to the trial
adjudicated, but what might have been). So far, therefore, as the personal court with instructions to permit the parties to frame such issues as will
property at least is concerned, Francisco et al's only remedy was an appeal permit the settlement of all the questions involved and to introduce such
from said order." evidence as may be necessary for the full determination of the issues
9.   We do not believe that the law is correctly laid down in this quotation. The framed. Upon such issues and evidence taken thereunder the court will
courts of the Islands have jurisdiction to divide personal property between decide the questions involved according to the evidence, subordinating his
the common owners thereof and that power is as full and complete as is the conclusions of law to the rules laid down in this opinion.
power to partition real property. If an actual partition of personal property 14.   We do not wish to be understood as having decided in this opinion any
cannot be made it will be sold under the direction of the court and the question of fact which will arise on the trial and be there in controversy.
proceeds divided among the owners after the necessary expenses have been The trial court is left free to find the facts as the evidence requires. To the
deducted. facts as so found he will apply the law as herein laid down.
10.   The administration of the estate of the decedent consisted simply, so far as
the record shows, in the payment of the debts. No division of the property,
either real or personal, seems to have been made. On the contrary, the
property appears, from the record, to have been turned over to the heirs in
bulk. The failure to partition the real property may have been due either to
the lack of request to the court by one or more of the heirs to do so, as the
court has no authority to make a partition of the real estate without such
request; or it may have been due to the fact that all the real property of
decedent had been sold under pacto de retro and that, therefore, he was not
the owner of any real estate at the time of his death.
11.   As to the personal property, it does not appear that it was disposed of in the
manner provided by law. (Sec. 753, Code of Civil Procedure.) So far as this
action is concerned, however, it is sufficient for us to know that none of the
property was actually divided among the heirs in the administration
proceeding and that they remain coowners and tenants-in- common thereof
at the present time. To maintain an action to partition real or personal
property it is necessary to show only that it is owned in common.
12.   The order finally closing the administration and discharging the
administrator, referred to in the opinion of the trial court, has nothing to do
with the division of either the real or the personal property. The heirs have
the right to ask the probate court to turn over to them both the real and
personal property without division; and where that request is unanimous it
is the duty of the court to comply with it, and there is nothing in section 753
of the Code of Civil Procedure which prohibits it. In such case an order
finally settling the estate and discharging the administrator would not bar a
 005 PINEDA v. CA (Gueco c/o Daguman edited by Sabaupan)
September 27, 1993 | Davide Jr., J. | Life Insurance
PETITIONERS: LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA
ALARCON, DINA LORENA AYO, CELIA CALUMBAG and LUCIA
LONTOK,
RESPONDENTS: HON. COURT OF APPEALS and THE INSULAR LIFE
ASSURANCE COMPANY, LIMITED
SUMMARY: Prime Marine Services, Inc. (PMSI), a crewing/manning outfit,
procured a Group Policy from Insular Life Assurance Co., Ltd. to provide life
insurance coverage to its sea-based employees. During the effectivity of the
policy, six covered employees perished at sea when their vessel sunk. They were
survived by the petitioners in this case, the beneficiaries under the policy. The
beneficiaries, except the spouses Alarcon, executed SPAs authorizing Capt.
Nuval, President and General Manager of PMSI, to “follow-up, ask, demand,
collect and receive” for their benefit indemnities of sums of money due them
relative to the sinking of the vessel. By virtue of these written powers of
attorney, beneficiaries were able to receive their respective death benefits (from
OWWA). Unknown to them, however, PMSI, in its capacity as employer and
policyholder of the life insurance of its deceased workers, filed with Insular Life
formal claims for and in behalf of the beneficiaries, through Capt. Nuval. On the
basis of SPAs, Insular Life drew against its account 6 checks payable to the
order of the beneficiaries. Capt. Nuval, upon receipt of these checks endorsed
and deposited them in his own account. When Pineda et.al. learned that they
were entitled, as beneficiaries, to life insurance benefits under a group policy,
they sought to recover these benefits from Insular Life but the latter denied their
claim on the ground that their liability was already extinguished.
The issue is whether Pineda et al. are entitled to the insurance proceeds despite
the fact that Insular Life already issued checks payable to the beneficiaries. The
Court ruled in the affirmative. The employer-policyholder is the agent of the
insurer. The most persuasive rationale for this is that the employee has no
knowledge of or control over the employer's actions in handling the policy or its
administration. The insurer-employer relationship meets the agency test (element
of control) with regard to the administration of the policy, whereas that between
the employer and its employees fails to reflect true agency. The insurer directs
the performance of the employer’s administrative acts, and if these duties are not
undertaken properly, the insurer is in a position to exercise more constricted
control over the employer’s conduct. Since PMSI acted as the agent of Insular
Life, the insurance company is bound by the misconduct of its agent. Hence, its
liability to pay the beneficiaries was not extinguished.
DOCTRINE: Although the employer may be the titular or named insured, the
insurance is actually related to the life and health of the employee. Indeed, the
employee is in the position of a real party to the master policy, and even in a
non-contributory plan, the payment by the employer of the entire premium is a
part of the total compensation paid for the services of the employee. Put
differently, the labor of the employees is the true source of the benefits, which
are a form of additional compensation to them.
FACTS:
179.  In 1983, Prime Marine Services Inc. (PMSI), a manning agency, procured a
Group Policy from Insular Life Assurance Co. (Insular Life) to provide life
insurance coverage to its sea-based employees enrolled under the plan.
180.  During the effectivity of the policy, six covered employees of the PMSI
perished at sea when their vessel sunk in Morocco. They were survived by
Pineda et.al., the beneficiaries under the policy.
181.  Pineda et. al, sought to claim death benefits so they approached the
President and General Manager of PMSI, Capt. Nuval who evinced
willingness to assist Pineda to recover Overseas Workers Welfare
Administration (OWWA) benefits from the POEA arising from the deaths
of their husbands/sons.
182.  They executed, with the exception of spouses Alarcon, a special power of
attorney authorizing Capt. Nuval to “follow up, ask, demand, collect and
receive” for the benefit indemnities of sums due to them relative to the
sinking of the vessel. By virtue of this authority, they were able to receive
death benefits.
183.  Unknown to them, PMSI, in its capacity as employer and policyholder of
the life insurance of the deceased workers, filed formal claims with Insular
Life in behalf of the beneficiaries through Capt. Nuval who presented the
SPAs executed by Pineda et.al.
184.  Insular Life drew against its bank six checks four for 200k each, one for 50k
and another for 40k, payable to the order of Pineda et al. Upon receipt of the
checks, Capt. Nuval deposited them in his own account with Boston Bank.
185.  Upon learning that they were entitled as beneficiaries under the group
policy with Insular Life, Pineda et. al. sought to recover the benefits but
Insular Life denied their claim on the ground that the liability of Insular Life
was already extinguished upon deliver to PMSI of the six checks issued
under their names.
186.  Pineda et.al. filed an administrative complaint against Insular Life before
the Insurance Commission. It ruled in favor of Pineda et. al and Insular Life
was ordered to pay. Specifically, it found that:
a.   Insular Life erred in appreciating that the powers of attorney
executed by the beneficiaries convey absolute authority to Capt.
Nuval, to demand, receive, receipt and take delivery of the
insurance proceeds. The SPAs do not contain in unequivocal terms
authority to Capt. Nuval to obtain, receive, receipt from the
insurance company insurance proceeds arising from the death of
the insured. On the contrary, the said SPAs are couched in terms
which could easily arouse suspicion of an ordinary man.
 b.   The testimony of complainant’s rebuttal witness who declared that 2.   Certainly, it would be highly imprudent to read into the SPAs in question
neither she nor her husband, executed a SPA in favor of Capt. the power to collect and receive the insurance proceeds due to Pineda et.al
Nuval, authorizing him to claim and receive of any insurance from Group Policy No. G-004694. Insular Life knew that a power of
proceeds from Insular Life arising out of the death of their attorney in favor of Capt. Nuval for the collection and receipt of such
insured/seaman son, is not convincingly refuted. proceeds was a deviation from its practice with respect to group policies.
c.   Insular Life did not observe Section 18062 of the Insurance Code The Insular Life’s Assistant Manager of the Group Administrative
when it issued two checks for the 3 minor children of complainant Department testified to the following facts:
Ayo and another check for minor beneficiary Marissa, there being a.   The company practice when it comes to claims pertaining to group
no showing of any court authorization presented or the requisite insurance is that the policyholder-employer is the one who files the
bond posted. claim for the beneficiaries of the deceased. The reason for this is
187.  On appeal to CA, the appellate court ruled that the SPAs relied upon by that the group insurance is normally taken by the employer as an
Insular Life were sufficient to authorize Capt. Nuval to receive the proceeds employee-benefit program and as such, the benefit should be
of the insurance pertaining to the beneficiaries. It held that the fact that there awarded by the policyholder to make it appear that the benefit
was a verbal agreement between Pineda et al. and Capt. Nuval limiting the really is given by the employer.
latter’s authority to claiming specified death benefits cannot prejudice the b.   Group insurance is a contract where a group of individuals are
insurance company which relied on the terms of the SPAs which on their covered under one master contract. The contract is between the
fac do not disclose such limitation. policyholder-employer and the insurance company. Insular Life do
188.  Hence, this petition. not have contractual obligations with the individual employees; it
is between Prime Marine and Insular Life. Hence, all inquiries,
ISSUE/s: follow-up, payment of claims, premium billings, etc. are always
2.   Whether Pineda et al. are entitled to the insurance proceeds despite the fact coursed through the policyholder and an SPA is not necessary for
that Insular Life already issued checks payable to the beneficiaries. YES, the payment of claims. The payment is coursed through the
because PMSI (acting through Capt. Nuval) is the agent of the insurance policyholder-employer but is paid ultimately to the beneficiary.
company, the latter is bound by the acts of Capt. Nuval. Since Capt. Nuval c.   The checks were given to the policyholder, in this case, PMSI
misappropriated the proceeds, Insular Life is still liable to pay the through Capt. Nuval, but such was only coursing them through.
beneificiaries.
3.   This practice is usual in the group insurance business and is consistent with
RULING: Petition GRANTED. Decision of CA is SET ASIDE and the decision of the jurisprudence thereon in the State of California — from whose laws the
the INSURANCE COMMISSION is REINSTATED. Philippine Insurance Code has been mainly patterned — which holds that
the employer-policyholder is the agent of the insurer.
RATIO: 4.   Group insurance is essentially a single insurance contract that provides
coverage for many individuals. In its original and most common form,
1.   The Court agreed with the Insurance Commission that the SPAs the special group insurance provides life or health insurance coverage for the
powers of attorney "do not contain in unequivocal and clear terms authority employees of one employer.
to Capt. Nuval to obtain, receive, receipt from respondent company a.   The coverage terms for group insurance are usually stated in a
insurance proceeds arising from the death of the seaman-insured. On the master agreement or policy that is issued by the insurer to a
contrary, the said powers of attorney are couched in terms which could representative of the group or to an administrator of the insurance
easily arouse suspicion of an ordinary man.” program, such as an employer.
b.   The employer acts as a functionary in the collection and payment

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
of premiums and in performing related duties. Likewise falling
62
within the ambit of administration of a group policy is the
Section 180. x x x In the absence of a judicial guardian, the father, or in the latter's absence or
incapacity, the mother of any minor, who is an insured or a beneficiary under a contract of life, health or
disbursement of insurance payments by the employer to the
accident insurance, may exercise, in behalf of said minor, any right, under the policy, without necessity of employees.
court authority or the giving of a bond where the interest of the minor in the particular act involved does c.   Most policies, such as the one in this case, require an employee to
not exceed twenty thousand pesos . . . . pay a portion of the premium, which the employer deducts from
wages while the remainder is paid by the employer. This is known
 as a contributory plan as compared to a non-contributory plan
where the premiums are solely paid by the employer.
5.   Although the employer may be the titular or named insured, the
insurance is actually related to the life and health of the employee.
Indeed, the employee is in the position of a real party to the master
policy, and even in a non-contributory plan, the payment by the
employer of the entire premium is a part of the total compensation paid
for the services of the employee. Put differently, the labor of the
employees is the true source of the benefits, which are a form of
additional compensation to them.
6.   In Elfstrom vs. New York Life Insurance Company, the California Supreme
Court explicitly ruled that in group insurance policies, the employer is the
agent of the insurer. Thus: We are convinced that the employer is the agent
of the insurer in performing the duties of administering group insurance
policies. It cannot be said that the employer acts entirely for its own
benefit or for the benefit of its employees in undertaking administrative
functions. While a reduced premium may result if the employer relieves the
insurer of these tasks, and this, of course, is advantageous to both the
employer and the employees, the insurer also enjoys significant advantages
from the arrangement. The reduction in the premium which results from
employer-administration permits the insurer to realize a larger volume of
sales, and at the same time the insurer’s own administrative costs are
markedly reduced. x x x The most persuasive rationale for adopting the
view that the employer acts as the agent of the insurer, however, is that
the employee has no knowledge of or control over the employer’s
actions in handling the policy or its administration. An agency
relationship is based upon consent by one person that another shall act
in his behalf and be subject to his control. It is clear from the evidence
regarding procedural techniques here that the insurer-employer
relationship meets this agency test with regard to the administration of
the policy, whereas that between the employer and its employees fails to
reflect true agency. The insurer directs the performance of the
employer’s administrative acts, and if these duties are not undertaken
properly the insurer is in a position to exercise more constricted control
over the employer’s conduct.
7.   In Neider v. Continental Assurance Company, the Court held that the “the
employer owes to the employee the duty of good faith and due care in
attending to the policy, and that the employer should make clear to the
employee anything required of him to keep the policy in effect, and the time
that the obligations are due. In its position as administrator of the policy, x x
x the employer should be considered as the agent of the insurer, and any
omission of duty to the employees in its administration should be
attributable to the insurer.
8.   In the light of the above disquisitions and after an examination of the facts of this case, the
Court held that PMSI, through its President and General Manager, Capt. Nuval, acted as the
agent of Insular Life. The latter is thus bound by the misconduct of its agent.
9.   Insular Life, however, likewise recognized Capt. Nuval as the attorney-in-fact of Pineda et al.
Insular Life acted imprudently and negligently in the premises by relying without question on
the SPA. It is an established principle that that third persons deal with agents at their peril and
are bound to inquire as to the extent of the power of the agent with whom they contract.
10.   Even granting for the sake of argument that the SPAs were in due form,
Insular Life was grossly negligent in delivering the checks, drawn in favor
of the Pineda et al., to a party who is not the agent mentioned in the SPA.
11.   The Court also did not agree with the opinion of the CA that since the
shares of the minors in the insurance proceeds are less than P50,000.00,
then under Article 225 of the Family Code their mothers could receive such
shares without need of either court appointments as guardian or the posting
of a bond. It is of the view that Article 225 of the Family Code had repealed
the third paragraph of Section 180 of the Insurance Code. The pertinent
portion of Article 22563 of the Family Code reads as follows:
12.   It is clear from the said Article that regardless of the value of the
unemancipated common child's property, the father and mother ipso
jure become the legal guardian of the child's property. However, if the
market value of the property or the annual income of the child exceeds
P50,000.00, a bond has to be posted by the parents concerned to guarantee
the performance of the obligations of a general guardian.
13.   It must, however, be noted that the second paragraph of Article 225 of the
Family Code speaks of the "market value of the property or the annual
income of the child," which means, therefore, the aggregate of the child's
property or annual income; if this exceeds P50,000.00, a bond is required.
There is no evidence that the share of each of the minors in the proceeds of
the group policy in question is the minor's only property. Without such
evidence, it would not be safe to conclude that, indeed, that is his only
property.
006 VILLACORTA v. INSURANCE COMMISSION (Saldua)
Oct. 28, 1980 | Teehankee J. | Compulsory Motor Vehicle Insurance
PETITIONER: Jewel Villacorta, assisted by her husband, Guerrero Villacorta
RESPONDENTS: The Insurance Commission, and Empire Insurance Company
SUMMARY:
Jewel Villacorta owns a 1976 Colt Lancer. It was insured with Empire Insurance
Company for Own Damage, Theft, and 3rd Party Liability. The car was brought to the
Sunday Machine Works Inc. for general check-up and repairs. While the car was in the
63
Art. 225. The father and the mother shall jointly exercise legal guardianship over the property of their
unemancipated common child without the necessity of a court appointment. In case of disagreement, the
father's decision shall prevail, unless there is judicial order to the contrary.
Where the market value of the property or the annual income of the child exceeds P50,000, the parent
concerned shall be required to furnish a bond in such amount as the court may determine, but not less than
ten per centum (10%) of the value of the property or annual income, to guarantee the performance of the
obligations prescribed for general guardians.
custody of the car repair shop and during the period of insurance, the car was allegedly
taken by 6 persons who drove it out to Montalban, Rizal. Then, the car got into an
accident. The car’s driver at the time of the accident, Benito Mabasa and one of the
passengers died; the other 4 sustained physical injuries; and the car suffered extensive
damage. Villacorta filed a claim for total loss with Empire Insurance, but the claim was
denied by Empire Insurance arguing that the accident did not fall either within the Own
Damage coverage under the “Authorized Driver” clause, and within the Theft coverage
beause the car could not be considered as stolen. Villacorta filed a complaint with the
Insurance Commission but it was dismissed as the arguments of Empire Insurance was
upheld by the Commission (see Fact #10). Issue is WON the accident was within the
coverage of the insurance policy. SC held YES. “Authorized Driver” clause - that a
person other than the insured owner, who drives the car on the insured’s order (e.g. his
regular driver) or w/ his permission (e.g. friend/family member/employees of a car
service/repair shop) must be duly licensed drivers and are not disqualified to drive a
motor vehicle. The mere coincidence that the employee/s of the shop diverts the use of
the car to his own illicit/unauthorized purpose does not mean that the “authorized
driver” clause has been violated to bar recovery, provided that such employee is duly
qualified to drive under a valid driver’s license. Theft Clause - where a car is
admittedly unlawfully & wrongfully taken by some people (as in this case), such taking
constitutes the nature of theft. Where a car is admittedly unlawfully & wrongfully taken
by some people (as in this case), such taking constitutes the nature of theft. By taking
possession of the personal property belonging to another and using it, his intent to gain
is evident since he derives therefrom utility, satisfaction, enjoyment and pleasure. The
use of a thing constitutes gain.
DOCTRINE:
Main Purpose of the “Authorized Driver” Clause is that a person other than the insured
owner, who drives the car on the insured’s order (e.g. his regular driver) or w/ his
permission (e.g. friend/family member/employees of a car service/repair shop) must be
duly licensed drivers and are not disqualified to drive a motor vehicle.
By taking possession of the personal property belonging to another and using it, his
intent to gain is evident since he derives therefrom utility, satisfaction, enjoyment and
pleasure. The use of a thing constitutes gain.
FACTS:
1.   Jewel Villacorta is the owner of a 1976 Colt Lancer. The car was insured
with Empire Insurance Company for Own Damage, Theft, and 3rd Party
Liability effective May 16, 1977 – May 16, 1978.
2.   On May 9, 1978, the car was brought to the Sunday Machine Works Inc. for
general check-up and repairs.
3.   On May 11, 1978 (well within the period coverage of the insurance), while
it was in the custody of Sunday Machine Works, the car was allegedly taken
by 6 persons who drove it out to Montalban, Rizal.
4.   While the car was cruising along Mabini St., going north at Montalban,
Rizal, the car got into an accident. It hit and bumped a gravel & sand truck
that was parked at the right side of the road going south. As a consequence,
the gravel & sand truck veered to right side of the pavement going south,
and the car veered to the right side of the pavement going north.
5.   The car’s driver, Benito Mabasa and one of the passengers died; the other 4
sustained physical injuries; and the car suffered extensive damage.
6.   The Comprohensive Motor Car Insurance policy for P35,000 issued by
Empire Insurance undertook to indeminify Villacorta against loss/damage
to car:
A.   By accidental collision/overturning; collision/overturning
consequent upon mechanical breakdown, or consequent upon wear
& tear;
B.   By fire, external explosion, self-ignition, lightning, burglary,
housebreaking, theft; and
C.   By malicious act.
7.   Jewel Villacorta filed a claim for total loss with Empire Insurance, but the
claim was denied by Empire Insurance.
8.   Empire Insurance’s Arguments:
A.   That the accident did not fall w/in the provisions of the policy
either under the Own Damage, or Theft coverage, invoking the
policy provision on “Authorized Driver” clause. 64
B.   That the car was not stolen and is therefore not covered by the
Theft Clause.
9.   So Villacorta filed a complaint w/ the Insurance Commission. However, it
dismissed Villacorta’s complaint for recovery of total loss of the vehicle.
10.   Insurance Commission upheld the arguments of Empire Insurance:
A.   “Authorized Driver” clause – that the policy limits the use of the
insured vehicle to 2 persons only i.e. 1) Insured himself; or 2)
Any person on the insured’s permission. That under the 2nd
category, the words “any person” is qualified by the phrase “…on
the insured’s order/ with his permission”. Both Jewel Villacorta
and her husband admitted that they did not know the person who
drove the car at the time of the accident, and did not consent to the
use of the same. Thus, Benito Mabasa (driver) is not an authorized
driver of Villacorta, in violation of the said clause of the policy.
64
"AUTHORIZED DRIVER”:
Any of the following:
(a) The insured
(b) Any person driving on the Insured's Order, or with his permission: Provided,
that the person driving is permitted, in accordance with the licensing or other laws or
regulations, to drive the Scheduled Vehicle, or has been permitted and is not
disqualified by order of a Court of Law or by reason or any enactment or regulation
in that behalf."
 B.   Theft Clause – That for there to be a “taking” w/in the purview of
the law, there must have been a felonious intent on the part of the
taker of the car, and the intent must be to permanently deprive the
insured of his car. This was not the case here since the
withholding of the car for a joyride by one of the residents of
Sunday Machine Works should not be construed as “taking”
(and if ever there was “taking”, that it was only temporary which
was not the kind of taking insured against).
11.   Hence, this petition.
ISSUE/s:
1.   WON the accident was within the coverage of the insurance policy = YES.
Main Purpose of the “Authorized Driver” Clause is that a person other than
the insured owner, who drives the car on the insured’s order (e.g. his regular
driver) or w/ his permission (e.g. friend/family member/employees of a car
service/repair shop) must be duly licensed drivers and are not disqualified to
drive a motor vehicle.
Theft Clause means that by taking possession of the personal property
belonging to another and using it, his intent to gain is evident since he
derives therefrom utility, satisfaction, enjoyment and pleasure. The use of a
thing constitutes gain.
RULING: ACCORDINGLY, the appealed decision is set aside and judgment is
hereby rendered sentencing private respondent to pay petitioner the sum of
P35,000.00 with legal interest from the filing of the complaint until full payment is
made and to pay the costs of suit. SO ORDERED.
RATIO:
“AUTHORIZED DRIVER’S” CLAUSE:
4.   To hold that the driver at the time of the accident, who is an employee of
the auto repair shop, is too restrictive and contrary to the established
principle that insurance contracts, as contracts of adhesion, are construed in
favor of the insured.
5.   Main Purpose of the “Authorized Driver” Clause – that a person other
than the insured owner, who drives the car on the insured’s order (e.g. his
regular driver) or w/ his permission (e.g. friend/family member/employees
of a car service/repair shop) must be duly licensed drivers and are not
disqualified to drive a motor vehicle.
6.   A car owner who entrusts his car to an established car service & repair shop
necessarily entrusts his car key to the shop owner & employees who are
presumed to have the insured owner’s permission to drive the car for
legitimate purposes e.g. road-testing/checking the car.
7.   The mere coincidence that the employee/s of the shop diverts the use of the
car to his own illicit/unauthorized purpose does not mean that the
“authorized driver” clause has been violated to bar recovery, provided that
such employee is duly qualified to drive under a valid driver’s license.
THEFT CLAUSE:
1.   Applying the Theft Clause, where a car is admittedly unlawfully &
wrongfully taken by some people (as in this case), such taking constitutes
the nature of theft as defined in Art. 308, RPC.65
2.   For purposes of recovering the loss under the subject insurance policy, it
doesn’t matter whether the people who took the car were employees of the
car shop or not.
3.   Furthermore, the evidence does not warrant that it was a mere “joy ride”:
A.   The police found 1 Cal. 45 Colt, and 1 apple-type grenade from
the waist of Benito Mabasa (driver).
B.   That the taking was permanent rather than temporary since the car
was totally smashed and was never returned in serviceable &
useful condition.
4.   Assuming arguendo that taking was “temporary” and was a mere “joyride”,
SC held that when a person takes possession of a vehicle belonging to
another, without the consent of its owner, he is guilty of theft
regardless of his purpose/object.
5.   By taking possession of the personal property belonging to another and
using it, his intent to gain is evident since he derives therefrom utility,
satisfaction, enjoyment and pleasure. The use of a thing constitutes
gain.
The insurer must therefore indemnify the petitioner owner for the total loss of the
insured car in the sum of P35,000.00 under the theft clause of the policy, subject to
the filing of such claim for reimbursement or payment as it may have as subrogee
against the Sunday Machine Works, Inc
007 PALERMO V. PYRAMID (SANTOS)
May 31, 1988 | Griño-Aquino, J. | Compulsory Motor Vehicle Insurance
PLAINTIFF-APPELLE: Andrew Palermo
DEFENDANT-APPELLANT: Pyramid Insurance Co., Inc.
SUMMARY: Palermo insured his car with Pyramid. Pyramid issued a private car
comprehensive policy. Palermo met a violent accident while driving the car where
it was totally wrecked; he sustained injuries and his father died. The insurance
policy gives the insurer the option to either indemnify the insured for the loss or
replace the damaged car but Pyramid refused to do any; alleging that Palermo, by
driving without a license, violated the policy provision stating that authorized
drivers are: (1) the insured and (2) any person driving on the Insured's order or
with his permission. Provided that the person driving is permitted in accordance
with the licensing or other laws or regulations to drive the Motor Vehicle and is
65
Art. 308. "(W)ho are liable for theft. — Theft is committed by any person who,
with intent to gain but without violence against or intimidation of persons nor force
upon things, shall take personal property of another without the latter's consent
not disqualified from driving such motor vehicle by order of a Court of law or by
reason of any enactment or regulation in that behalf. TC ordered pyramid to pay
Palermo. The issue is WON Palermo was authorized to drive the insured motor
vehicle despite his driver's license’s expiration. The SC said NO because the
driver of the insured motor vehicle at the time of the accident was, the insured
himself, hence an "authorized driver" under the policy. (doctrine)
DOCTRINE: The requirement that the driver be "permitted in accordance with
the licensing or other laws or regulations to drive the Motor Vehicle and is not
disqualified from driving such motor vehicle by order of a Court of Law or by
reason of any enactment or regulation in that behalf," applies only when the
driver" is driving on the insured's order or with his permission." It does not
apply when the person driving is the insured himself.
In short, requirements in (b) (fact 13) does not apply when the driver is the
insured because he is automatically considered as authorized driver by virtue of
(a).
FACTS:
1.   Oct 12,1968: after purchasing a brand new Nissan Cedric de Luxe Sedan from
Ng Sam Bok Motors in Bacolod, Palermo insured the car with Pyramid against
a.   Any loss or damage for P 20k and
b.   Third party liability for P10k.
2.   Palermo paid Pyramid P 361.34 premium for 1y, Mar 12, 1968-9, for which
Pyramid issued a Private Car Comprehensive Policy
3.   The car was mortgaged by Palermo with the vendor, Ng Sam Bok Motors, to
secure the payment of the balance of the purchase price, which explains why the
registration certificate in the name of Palermo remains in the hands of the
mortgagee, Ng Sam Bok Motors.
4.   April 17: while driving the car, Palermo met a violent accident.
a.   La Carlota City fire engine crashed head on,
b.   Palermo sustained physical injuries,
c.   Cesar Palermo (father), was seriously injured and died shortly
thereafter,
d.   The car was totally wrecked.
5.   Pyramid was immediately notified of the occurrence, and upon its orders, the
damaged car was towed from the scene of the accident to the compound of Ng
Sam Bok Motors in Bacolod where it remains deposited up to the present time.
6.   The insurance policy grants an option unto Pyramid, in case of accident either
to:
a.   Indemnify Palermo for loss or damage to the car in cash or
b.   To replace the damaged car.
7.   Pyramid refused to take either of the above-mentioned alternatives for the
reason as that the insured himself had violated the terms of the policy when
he drove the car with an expired driver's license.
8.   CA certified this case to the SC for proper disposition as the only question
involved is the interpretation of the provision of the insurance contract regarding
the "authorized driver" of the insured motor vehicle.
9.   Mar 7, 1969: Insured Palermo, filed a complaint in the CFI of Negros
Occidental against Pyramid Insurance Co., Inc., for payment of his claim under
a Private Car Comprehensive Policy MV-1251 Pyramid issued.
10.   Pyramid’s answer alleged that it disallowed the claim because at the time of the
accident, the insured was driving his car with an expired driver's license.
11.   Oct 29: TC ordered Pyramid "to pay Palermo P20k, value of the insurance of the
motor vehicle in question and to pay the costs."
12.   Nov 26, Palermo filed a "Motion for Immediate Execution Pending Appeal." It
was opposed by Pyramid, but was granted by the TC on Dec 15, 1969.
13.   Pyramid: TC erred in interpreting the following provision of the Private Car
Comprehensive Policy MV-1251:
AUTHORIZED DRIVER:
Any of the following:
(a) The Insured.
(b) Any person driving on the Insured's order or with his permission. Provided that
the person driving is permitted in accordance with the licensing or other laws or
regulations to drive the Motor Vehicle and is not disqualified from driving such
motor vehicle by order of a Court of law or by reason of any enactment or regulation
in that behalf.
ISSUE: WON Palermo was authorized to drive the insured motor vehicle despite
his driver's license’s expiration – NO. The driver of the insured motor vehicle at the
time of the accident was, the insured himself, hence an "authorized driver" under the
policy.
RULING: Appealed decision is affirmed with costs against Pyramid.
RATIO:
1.   The driver of the insured motor vehicle at the time of the accident was, the
insured himself, hence an "authorized driver" under the policy.
2.   While the Motor Vehicle Law prohibits a person from operating a motor vehicle
on the highway without a license or with an expired license, an infraction of the
Motor Vehicle Law on the part of the insured, is not a bar to recovery under the
insurance contract. It however renders him subject to the penal sanctions of the
Motor Vehicle Law.
3.   The requirement that the driver be "permitted in accordance with the licensing or
other laws or regulations to drive the Motor Vehicle and is not disqualified from
driving such motor vehicle by order of a Court of Law or by reason of any
enactment or regulation in that behalf," applies only when the driver" is driving
on the insured's order or with his permission." It does not apply when the person
driving is the insured himself.
4.   Villacorta s. Insurance Commission: The main purpose of the "authorized
driver" clause, is that a person other than the insured owner, who drives the car
on the insured's order, such as his regular driver, or with his permission, such as
a friend or member of the family or the employees of a car service or repair
 shop, must be duly licensed drivers and have no disqualification to drive a motor
vehicle.
5.   McMahon v. Pearlma (U.S.): Insured herself was personally operating her
automobile but without a license to operate it, her license having expired prior to
the issuance of the policy, SC of Massachusetts:... Operating an automobile on
a public highway without a license, which act is a statutory crime is not
precluded by public policy from enforcing a policy indemnifying her
against liability for bodily injuries The inflicted by use of the automobile."
 008 First Integrated Bonding v. Hernando (Sarmiento)
July 31, 1991 | Medialdea, J. | Compulsory Motor Vehicle Insurance
PETITIONER: First Integrated Bonding and Insurance Company Inc.
RESPONDENTS: Hon. Hernando, Victorino Advincula, Romana, Advincula,
Silverio Blanco
SUMMARY:
Silverio owned a jee insured against liabilities for death and injuries to third persons
with First Integrated Bonding and Insurance Company, Inc. under Motor Vehicle
Policy. Said jeepney driven by Blanco himself bumped a five-year old
child, Deogracias Advincula, causing the latter's death. A complaint for damages was
brought by the child's parents, the Advincula spouses, against Silverio Blanco. First
Insurance was also impleaded in the complaint as the insurer. First Insurance was
made to pay Blanco and the Spouses Advincula. Hence, the insurance company
appealed. First Insurance contends that the Advincula spouses have no cause of
action against it. As parents of the victim, they may proceed against the
driver, Silverio Blanco on the basis of the provisions of the New Civil
Code. However, they have no cause of action against First Insurance, because they
are not parties to the insurance contract. Court held that it is settled that where the
insurance contract provides for indemnity against liability to a third party, such third
party can directly sue the insurer (The liability of the insurer to such third person is
based on contract while the liability of the insured to the third party is based on tort.
The injured for whom the contract of insurance is intended can sue directly the
insurer. "Compulsory Motor Vehicle Liability Insurance (third party liability, or
TPL) is primarily intended to provide compensation for the death or bodily injuries
suffered by innocent third parties or passengers as a result of a negligent operation
and use of motor vehicles. The victims and/or their dependents are assured of
immediate financial assistance, regardless of the financial capacity of the motor
vehicle owners. The insurer's liability accrues immediately upon the occurrence of
the injury or event upon which the liability
depends, and does notdepend on the recovery of judgment by the injured party again
st the insured
DOCTRINE: The insurer's liability in a Compulsory Motor Vehicle Insurance
policy accrues immediately upon the occurrence of the injury or event upon which
the liability
depends, and does notdepend on the recovery of judgment by the injured party again
st the insured
FACTS:
1.   Silverio Blanco was the owner of a passenger jeepney which he insured
against liabilities for death and injuries to third persons with First Integrated
Bonding and Insurance Company, Inc. (First Insurance) under Motor
Vehicle Policy No. V-05-63751 with the face value of P30,000.00
2.   Said jeepney driven by Blanco himself bumped a five-year old
child, Deogracias Advincula, causing the latter's death.
3.   A complaint for damages was brought by the child's parents,
the Advincula spouses, against Silverio Blanco. First Insurance was
also impleaded in the complaint as the insurer.
4.   The Spouses Advincula presented exhibits (Marriage Certificate, Exhibit B
- Birth Certificate, Exhibit B-1 - the Certificate of the Local Civil Registrar,
Exhibit C - Certificate of Death, Exhibit C-1 - the official receipt of the
burial permit, Exhibit C-2 - the autopsy report, Exhibit D - filing fee under
official receipt in the amount of P80.00, Exhibit D-1 - list of actual
expenses in connection with the death and burial of the
deceased Advincula)
5.   On the basis of the evidence presented by Spouses Advincula, RTC
rendered judgment which adjudicates to the Advincula spouses, moral
damages and expenses for the funeral, and attorney’s fees.
a.   First Insurance received a copy of the decision on March 14,
1978.
b.   Upon motion of the Advincula spouses, the decision was amended
on March 27, 1978 which, in addition to the damages granted in
the original decision, awarded damages in the amount of
P6,336.50 to Silverio Blanco.
c.   The amended decision was received by First Insurance on April
11, 1978.
d.   On May 11, 1978, entry of judgment was made, a copy of which
was furnished First Insurance on June 27, 1978. Upon motion of
the Advincula spouses, an order granting execution was issued by
the court on June 14, 1978, which was received by First Insurance
on August 1, 1978
6.   On September 5, 1978, First Insurance filed a petition for relief from
judgment in the same case.
a.   the trial court issued an order, denying the petition for relief from
judgment, a copy of which was received by First Insurance
on October 10, 1978.
 7.   The plaintiffs moved for execution of judgment and the same was granted
pursuant to an Order of this Court dated June 14, 1978.
8.   First Insurance filed a motion for reconsideration of the order denying the
petition for relief on May 14, 1979, but the same was denied.
ISSUE: Whether or not the parents of the victim has can directly sue the
insurance company in a Compulsory Motor Vehicle Policy—YES. When an
insurance contract provides for indemnity against liability to a third party, such third
party can directly sue the insurer.
RULING:
ACCORDINGLY, finding respondent judge to have acted within his
jurisdiction in denying the petition for relief from judgment, the petition is
DISMISSED. The questioned decision of the trial court in Civil Case No. 1104
having become final and executory, is AFFIRMED. The temporary restraining order
issued on August 20, 1979 is hereby lifted.
Costs against petitioner.
RATIO:
1.   It is the contention of the First Insurance that the Advincula spouses have
no cause of action against it. As parents of the victim, they may proceed
against the driver, Silverio Blanco on the basis of the provisions of the New
Civil Code. However, they have no cause of action against First Insurance,
because they are not parties to the insurance contract.
2.   It is settled that where the insurance contract provides for indemnity against
liability to a third party, such third party can directly sue the insurer (The
liability of the insurer to such third person is based on contract while the
liability of the insured to the third party is based on tort
a.   "The injured for whom the contract of insurance is intended can
sue directly the insurer. The general purpose of statutes enabling
an injured person to proceed directly against the insurer is to
protect injured persons against the insolvency of the insured who
causes such injury, and to give such injured person a certain
beneficial interest in the proceeds of the policy, and statutes are to
be liberally construed so that their intended purpose may be
accomplished.
b.   It has even been held that such a provision creates a contractual rel
ation which inures to the benefit
of any and every person who may be negligently injured by the na
med insured as if such injured person were specifically named in th
e policy.
3.   "In the event that the injured fails or refuses to include the insurer as party
defendant in his claim for indemnity against the insured, the latter is not
prevented by law to avail of the procedural rules intended to avoid
multiplicity of suits.
a.   Not even a 'no action' clause under the policy
which requires that a final judgment be first obtained against the in
sured and that only thereafter can the person insured recover on the
policy
can prevail over the Rules of Court provisions aimed at avoiding m
ultiplicity of suits."
4.   First Insurance cannot evade its liability as insurer by hiding under the
cloak of the insured. Its liability is primary and not dependent on the
recovery of judgment from the insured.
5.   "Compulsory Motor Vehicle Liability Insurance (third party liability, or
TPL) is primarily intended to provide compensation for the death or bodily
injuries suffered by innocent third parties or passengers as a result of a
negligent operation and use of motor vehicles. The victims and/or their
dependents are assured of immediate financial assistance, regardless of the
financial capacity of the motor vehicle owners.
6.   the insurer's liability accrues immediately upon the occurrence of the injury
or event upon which the liability
depends, and does notdepend on the recovery of judgment by the injured pa
rty against the insured
7.   It is true that Blanco denied that he was negligent when the incident
occurred. However, during the pre-trial conference, when respondent judge
admitted all the exhibits of the plaintiffs to abbreviate the proceedings, no
objection was interposed by Blanco.
a.   When a decision was rendered based only on the exhibits of the
plaintiffs, Blanco likewise did not object. No motion for
reconsideration was filed by either Blanco or First Insurance.
b.   Hence, the decision became final and may no longer be attacked.
c.   It should be noted also that First Insurance was declared in default
because of its failure to file an answer. As far as it was concerned,
it failed to raise any triable issue. It lost its standing in court and
judgment may be rendered against it on the basis only of the
evidence of the Advincula spouses.
8.   Petitioner had been given its day in court. Despite its having been declared
in default and its failure to file a motion to lift the order of default, it was
still notified of the subsequent proceedings in the trial court. But no
 positive step was taken by it on time to vacate the order of default, the
decision nor the amended decision.

9.   Instead, it chose to file a petition for relief from judgment on September 1,

1978 almost five (5) months from its receipt of a copy of the amended
decision on April 11, 1978.
a.   Clearly, the said petition for relief from judgment was filed out of
time. The rules require that such petitions must be filed within
sixty (60) days after the petitioner learns of the judgment and not
more than six (6) months after such judgment was entered (Rule
38, Section 3).
b.   The period fixed by Rule 38 of the Rules of Court is non-
extendible and never interrupted. It is not subject to any condition
or contingency, because it is itself devised to meet a condition or
contingency. The remedy allowed by Rule 38 is an act of grace, as
it were, designed to give the aggrieved party another and last
chance.

10.   It appears that the award of damages in favor of Blanco has no basis. The
complaint in Civil Case 1104 was for damages brought by the spouses
against Blanco and First Insurance. Blanco did not put up any claim against
the latter.
a.   However, since the said decision had already become final
and executory, it can no longer be corrected or amended.
b.   In the same vein, the claim of petitioner that its liability to third
parties under the insurance policy is limited to P20,000.00 only can
no longer be given consideration at this late stage, when the
decision of the trial court awarding damages had already become
final and executory.
 009 PERLA COMPANIA DE SEGUROS INC. v. ANCHETA (SEE)
August 8, 1988 |Cortes, J. | Compulsory Motorvehicle insurance
PETITIONER: Perla Compania De Seguros, Inc.
RESPONDENTS: Hon. Constante A. Ancheta, Presiding Judge Of The Court
Of First Instance Of Camarines Norte, Branch Iii, Ernesto A. Ramos And
Goyena Zenarosa-Ramos, For Themselves And As Guardian Ad Litem For
Minors Jobet, Banjo, David And Grace All Surnamed Ramos, Fernando M.
Abcede, Sr., For Himself And Guardian Ad Litem For Minor Fernando G.
Abcede, Jr., Miguel Jerez Mago As Guardian Ad Litem For Minors Arleen R.
Mago, And Anacleta J. Zenarosa.
SUMMARY: A collision between an IH Scout car, vehicle where Ramos et al
were riding, and a Superlines bus occurred along the national highwat in Sta.
Elena, Camarines Norte. Ramos et al sustained physical injuries of varying
degrees. They filed with the CFI of Camarines Norte a complaint for damages
against Superlines, the bus driver and Perla Companie de Seguros, the insurer of
the bus. The bus was insured with Perla for the amount of P50,000.00 as for
passenger liability and P50,000.00 as for third party liability. The vehicle in
which Ramos et al were riding was insured with Malayan Insurance Co. Before
summons could be served, Judge Ancheta, issued an order requiring Perla to pay
immediately (within 5 days from receipt of the order) the P5000 under the “no
fault clause” as provided for under Sec 378 of the Insurance Code to Ramos et
al. order also required the requisite documents to be attached to the record. Perla
denied liability claiming that the insurer that should be is that insurer of the
vehicle in which the occupant is riding, mounting, or dismounting from. Judge
Ancheta denied this and his second MR was also denied.
WoN Perla is the insurer liable to indemnify Ramos et al under Sec. 378 of the
Insurance Code—NO, the insurer liable is the insurer of the vehicle that Ramos
et al rode, which is Malayan Insurnce Co. A perusal of Sec 378(iii) will show
that, “Claim may be made against one motor vehicle only. In the case of an
occupant of a vehicle, claim shall lie against the insurer of the vehicle in which
the occupant is riding, mounting or dismounting from. In any other case, claim
shall lie against the insurer of the directly offending vehicle. In all cases, the
right of the party paying the claim to recover against the owner of the vehicle
responsible for the accident shall be maintained.”
DOCTRINE: The following rules on claims under the “no fault indemnity”
provision, where proof of fault or negligence is not necessary for the payment of
any claim for death or injury to a passenger of a third party are as follows:
(1)   A claim may be made against one motor vehicle only.
(2)   If the victim is an occupant of a vehicle, the claim shall lie against the
insurer of the vehicle in which he is riding, mounting or dismounting
from.
(3)   In any other case (i.e. if the victim is not an occupant of a vehicle), the
claim shall lie against the insurer of the directly offending vehicle.
(4)   In all cases, the right of the party paying the claim to recover against the
owner of the vehicle responsible for the accident shall be maintained.
FACTS:
189.  On December 27, 1977, in a collision between the IH Scout in which
private respondents (Ramos et al) were riding and a Superlines bus along
the national highway in Sta. Elena, Camarines Norte, Ramos et al sustained
physical injuries in varying degrees of gravity.
190.  They filed with the CFI of Camarines Norte a complaint for damages
against Superlines, the bus driver and Perla Companie de Seguros, the
insurer of the bus. The bus was insured with Perla for the amount of
P50,000.00 as for passenger liability and P50,000.00 as for third party
liability. The vehicle in which Ramos et al were riding was insured with
Malayan Insurance Co.
191.  Before summons could be served, Judge Ancheta, issued an order requiring
Perla to pay immediately (within 5 days from receipt of the order) the
P5000 under the “no fault clause” as provided for under Sec 378 of the
Insurance Code to Ramos et al. order also required the requisite documents
to be attached to the record.
192.  Perla denied in its Answer its alleged liability under the "no fault
indemnity" provision and likewise moved for the reconsideration of the
order.
193.  Perla held the position that under Sec. 378 of the Insurance Code, the
insurer liable to pay the P5,000.00 is the insurer of the vehicle in which
private Ramos et al were riding, not Perla, as the provision states that "[i]n
the case of an occupant of a vehicle, claim shall lie against the insurer of the
vehicle in which the occupant is riding, mounting or dismounting from."
Respondent judge, however, denied reconsideration.
194.  A second motion for reconsideration was filed by Perla. However,
respondent judge denied the second motion for reconsideration and ordered
the issuance of a writ of execution.
195.  Hence, the instant petition praying principally for the annulment and setting
aside of respondent judge's orders.
196.  The court pending the case, issued a TRO.
197.  
ISSUE/s:
22.   WoN Perla is the insurer liable to indemnify Ramos et al under Sec. 378 of
the Insurance Code—NO, the insurer liable is the insurer of the vehicle that
Ramos et al rode, which is Malayan Insurance Co.
RULING: WHEREFORE, the petition is GRANTED and respondent judge's order
dated March 1, 1978, requiring petitioner to pay private respondents the amount of
P5,000.00 as "no fault indemnity' under Sec. 378 of the Insurance Code, and that of
January 3, 1979, denying the second motion for reconsideration and issuing a writ of
execution, are ANNULLED and SET ASIDE. The temporary restraining order
issued by the Court on January 24, 1979 is made permanent.
RATIO:
Sec. 378. Any claim for death or injury to any passenger or third party pursuant to
the provision of this chapter shall be paid without the necessity of proving fault or
negligence of any kind. Provided, That for purposes of this section —
(i) The indemnity in respect of any one person shall not exceed five thousand pesos;
(ii) The following proofs of loss, when submitted under oath, shall be sufficient
evidence to substantiate the claim:
(a) Police report of accident, and
(b) Death certificate and evidence sufficient to establish the proper
payee, or
(c) Medical report and evidence of medical or hospital
disbursement in respect of which refund is claimed;
(iii) Claim may be made against one motor vehicle only. In the case of an occupant
of a vehicle, claim shall lie against the insurer of the vehicle in which the occupant
is riding, mounting or dismounting from. In any other case, claim shall lie against
the insurer of the directly offending vehicle. In all cases, the right of the party paying
the claim to recover against the owner of the vehicle responsible for the accident
shall be maintained.
the claim be made against the insurer of the vehicle in which the occupant is
riding, mounting, or dismounting from.
10.   That said vehicle might not be the one that caused the accident is of no
moment since the law itself provides that the party paying the claim under
Sec. 378 may recover against the owner of the vehicle responsible for the
accident. This is precisely the essence of "no fault indemnity" insurance
which was introduced to and made part of our laws in order to provide
victims of vehicular accidents or their heirs immediate compensation,
although in a limited amount, pending final determination of who is
responsible for the accident and liable for the victims'injuries or death. In
turn, the "no fault indemnity" provision is part and parcel of the Insurance
Code provisions on compulsory motor vehicle ability insurance [Sec. 373-
389] and should be read together with the requirement for compulsory
passenger and/or third party liability insurance [Sec. 377] which was
mandated in order to ensure ready compensation for victims of vehicular
accidents.
11.   Irrespective of whether or not fault or negligence lies with the driver of the
Superlines bus, as Ramos et al were not occupants of the bus, they cannot
claim the "no fault indemnity" provided in Sec. 378 from Perla. The claim
should be made against the insurer of the vehicle they were riding. This
is very clear from the law. Undoubtedly, in ordering Perla to pay Ramos et
al the 'no fault indemnity,' respondent judge gravely abused his discretion in
a manner that amounts to lack of jurisdiction. The issuance of the corrective
writ of certiorari is therefore warranted.

8.   The provision is couched in clear terms. The following rules on claims

under the “no fault indemnity” provision, where proof of fault or negligence
is not necessary for the payment of any claim for death or injury to a
passenger of a third party are as follows:
a.   A claim may be made against one motor vehicle only.
b.   If the victim is an occupant of a vehicle, the claim shall lie against the
insurer of the vehicle in which he is riding, mounting or dismounting
from.
c.   In any other case (i.e. if the victim is not an occupant of a vehicle), the
claim shall lie against the insurer of the directly offending vehicle.
d.   In all cases, the right of the party paying the claim to recover against the
owner of the vehicle responsible for the accident shall be maintained.
9.   The law is very clear — the claim shall lie against the insurer of the
vehicle in which the "occupant" is riding, and no other. The claimant is
not free to choose from which insurer he will claim the "no fault
indemnity," as the law, by using the word "shall, makes it mandatory that
 010 Summit Guaranty vs. De Guzman (Siapno)
June 30, 1987 | Gancayco, J. | Sec. 384 Application; Claim Settlement
PETITIONER: SUMMIT GUARANTY AND INSURANCE COMPANY,
INC. (all cases)
RESPONDENT: HON. JOSE C. DE GUZMAN (1st case), HONORABLE
GREGORIA C. ARNALDO (2nd case), and HONORABLE RAMON V.
JABSON (3rd case)
SUMMARY: The 3 consolidated cases arose from three separate complaints
filed against Summit for the payment of insurance on insurance policies issued
by it.
1st case: Ledesma’s tractor was bumped by a minibus insured by Summit (Third
Party Liability).
2nd case: Geronima Pulmano was the owner of a jeep insured with Summit. Ariel
Pulmano this jeep got involved in a vehicular accident which resulted in the
death of one of the victims.
3rd case: Amelia Generao owned a passenger jeepney that was insured with
Summit under a Vehicle Comprehensive Police, while being driven by private
respondent Pagkalinawan, this jeepney struck the van of a certain Mr. Hahn.
They all immediately made a notice of claim with Summit for their respective
policies. However, Summit only made assurances but he never acted on it. In the
first case, assurances of payment were constantly given and Summit even said
that a check was ready for release. In the second case, no steps were taken to
process the claim and no rejection of said claim was ever made even if the
Pulmanos had already complied with all the requirements. In the third case,
Summit even provided legal assistance to one of the private respondents in the
criminal case filed against him leading private respondents to believe that it was
ready to pay. Because their notices were unheeded, they filed the complaints for
the insurance with the Insurance Commission.
Summit argued that the complaints, having been filed beyond the one-year
period provided in Section 384 of the Insurance Code, can no longer prosper.
Summit contends that the two periods prescribed in the aforementioned law that
is, the six-month period for filing the notice of claim and the one-year period
for bringing an action or suit are mandatory and must always concur. Issue is
WoN the causes of action of private respondents have already prescribed –
No, there is absolutely nothing in the law which mandates that the 6-month
and the 1-year must always concur. The one-year period is only required
“in proper cases.” It is very obvious that petitioner company is trying to use
Section 384 of the Insurance Code as a cloak to hide itself from its liabilities.
The facts of these cases evidently reflect the deliberate efforts of petitioner
company to prevent the filing of a formal action against it. Bearing in mind that
if it succeeds in doing so until one year lapses from the date of the accident it
could set up the defense of prescription, petitioner company made private
respondents believe that their claims would be settled in order that the latter will
not find it necessary to immediately bring suit. In violation of its duties to adopt
and implement reasonable standards for the prompt investigation of claims and
to effectuate prompt, fair and equitable settlement of claims, and with manifest
bad faith, petitioner company devised means and ways of stalling the settlement
proceedings.
The one-year period should be counted from the date of rejection by the insurer
as this is the time when the cause of action accrues. Since in these cases there
has yet been no accrual of cause of action, We hold that prescription has not yet
set in.
DOCTRINE: The six-month period for filing the notice of claim and the one-
year period for bringing an action or suit do not need to concur. The one-year
period is only required “in proper cases.” The condition contained in an
insurance policy that claims must be presented within one year after rejection is
not merely a procedural requirement but an important matter essential to a
prompt settlement of claims against insurance companies as it demands that
insurance suits be brought by the insured while the evidence as to the origin and
cause of destruction have not yet disappeared.
FACTS:
G.R. No. L-48679
1.   Private respondent Jose Ledesma was the owner of a tractor which was
bumped by a minibus insured with Summit for purposes of Third Party
Liability.
2.   Immediately thereafter, Ledesma made a notice of claim with Summit
Guaranty for the damage and loss suffered by the tractor. Summit Guaranty
advised Ledesma to have the tractor repaired at GA Machineries for an
estimated amount of P21,000.00. Later, Summit through its officials, made
an assurance of payment of the said amount.
3.   When G.A. Machineries was finally through with the repair, Ledesma made
several demands on Summit because of the repair shop's warning that
failure to pay would result in the auctioning of the tractor to cover the
mechanic's lien. However, Ledesma only received additional assurances of
payment.
4.   Due to the failure of Summit to settle his claim, Ledesma submitted a letter-
complaint to the Insurance Commission. The Commission, in turn, wrote
Summit to inquire about the status of the claim. Again, Summit promised to
pay but did not deliver such promise.
5.   Ledesma filed a formal complaint with the Insurance Commission which
Summit moved to dismiss on the ground of prescription. The Commission,
deferred the resolution of the MTD causing Summit to file an MR which
was later denied. Hence, this petition for certiorari and prohibition.
G.R. No. 50997
 6.   Private respondent Geronima Pulmano was the owner of a jeep insured with
Summit in the amount of P120,000.00, while being driven by private
respondent Ariel Pulmano this jeep got involved in a vehicular accident
which resulted in the death of one of the victims.
7.   Pulmanos immediately filed a notice of accident and claim with Summit
and diligently submitted all the required documents with it. However,
Summit did not take any steps to process the claim.
8.   Because of this, Pulmanos brought their claim to the Insurance Commission
and the latter wrote Summit three letters and thereafter, filed a letter-
complaint with the Insurance Commission a copy of which was sent to
Summit by registered mail. Still Summit failed to settle the claim but to no
avail.
9.   Consequently, Pulmanos were constrained to file a complaint with the CFI
of Tarlac. Summit moved to dismiss on the ground of prescription but
respondent Judge de Guzman denied the motion. Hence, this petition for
certiorari and prohibition.
G.R. No. L-48758
10.   Private respondent Amelia Generao owned a passenger jeepney that was
insured with Summit under a Vehicle Comprehensive Police, while being
driven by private respondent Pagkalinawan, this jeepney struck the van of a
certain Mr. Hahn.
11.   Two days after the accident, Generao notified Summit of the vehicular
accident and demanded from it payment of damages on both vehicles.
12.   Thereafter, Generao submitted to Summit all the necessary papers in
support of the claim and required of her by the latter. The two had a
dialogue at the office of Summit to settle the claim. Then, in the initial
hearing of the criminal case that arose out of the incident, accused
Pagkalinawan was represented by a lawyer of Summit.
13.   Nonetheless, time passed without Summit taking any final action on
Generao's claim.
14.   Mr. Hahn filed a complaint for damages against Generao and Pagkalinawan
with CFI of Rizal. The latter, on the other hand, filed a third party
complaint against Summit which in turn filed a MTD on the ground of
prescription. Respondent Judge Ramon V. Jabson, however, denied the
said motion. Subsequently, Summit filed a motion for reconsideration
which again was denied. Hence, this petition for certiorari and prohibition
Summit’s arguments
15.   According to Summit, the complaints of private respondents, having been
filed beyond the one-year period provided in Section 384 of the
Insurance Code, can no longer prosper. Said law reads as follows:
SECTION 384. Any person having any claim upon the policy
issued pursuant to this chapter shall, without any unnecessary delay, present
to the insurance company concerned a written notice of claim setting forth
the amount of his loss, and/or the nature, extent and duration of the injuries
sustained as certified by a duly licensed physician. Notice of claim must be
filed within six months from date of the accident, otherwise, the claim shall
be deemed waived Action or suit for recovery of damage due to loss or
injury must be brought, in proper cases, with the Commission or the Courts
within one year from date of accident, otherwise the claimant's right of
action shall be prescribe.
16.   Summit contends that the two periods prescribed in the aforementioned
law-that is, the six-month period for filing the notice of claim and the one-
year period for bringing an action or suit are mandatory and must
always concur.
17.   Summit argues that even if the notice of claim was timely filed with the
insurance company within the six-month period, as what happened in the
three cases, the action or suit that follows, if filed beyond the one-year
period should necessarily be dismissed on the ground of prescription.
ISSUE: WoN the causes of action of private respondents have already prescribed –
No, there is absolutely nothing in the law which mandates that the 6-month and the
1-year must always concur.
RULING: WHEREFORE, the instant petitions are hereby dismissed for lack of
merit. The temporary restraining order dated July 18, 1979 issued in G.R. No. 50997
is hereby lifted. With costs against Summit. Let the records of these cases be
immediately remanded for prompt determination of the claims. This decision is
immediately executory.
RATIO:
1.   We find no merit in the contention of Summit. There is absolutely nothing
in the law which mandates that the two periods must always concur. On the
contrary, it is very clear that the one-year period is only required "in
proper cases."
2.   Summit disregarded this very significant phrase when it made its own
interpretation of the law. Had the lawmakers intended it to be the way
Summit assumes it to be, then the phrase "in proper cases" would not have
been inserted.
3.   Aisporna vs. Court of Appeals: Legislative intent must be ascertained from
a consideration of the statute as a whole. A statute must be so construed as
to harmonize and give effect to all its provisions whenever possible.
4.   It is very obvious that summit is trying to use Section 384 of the Insurance
Code as a cloak to hide itself from its liabilities. The facts of these cases
evidently reflect the deliberate efforts of Summit to prevent the filing of a
formal action against it. Summit made private respondents believe that their
claims would be settled in order that the latter will not find it necessary to
immediately bring suit.
5.   In violation of its duties to adopt and implement reasonable standards for
the prompt investigation of claims and to effectuate prompt, fair and
 equitable settlement of claims, and with manifest bad faith, Summit cause of action does not accrue until the party obligated refuses, expressly
devised means and ways of stalling the settlement proceedings. or impliedly, to comply with its duty.
6.   In the second case, no steps were taken to process the claim and no 16.   Finally, We are pleased to note that the now defunct Batasang Pambansa,
rejection of said claim was ever made even if the Pulmanos had already after having recognized that Section 384 of the Insurance Code, has created
complied with all the requirements. so many problems for the insured amended the law to read as follows:
7.   In the third case, Summit even provided legal assistance to one of the SEC. 384. Any person having any claim upon the policy issued pursuant to
private respondents in the criminal case filed against him leading private this chapter shall, without any unnecessary delay, present to the insurance
respondents to believe that it was ready to pay. In the same case, Summit company concerned a written notice of claim setting forth the nature, extent
admits that it took no final action or adjudication of the claim. and duration of the injuries sustained as certified by a duly licensed
8.   Worse still, in the first case, assurances of payment were constantly given physician. Notice of claim must be filed within six months from date of the
and Summit even said that a check was ready for release. accident otherwise, the claim shall be deemed waived. Action or suit for
9.   This Court has made the observation that some insurance companies have recovery of damage due to loss or injury must be brought in proper cases,
been inventing excuses to avoid their just obligations and it is only the State with the Commissioner or the Courts within one year from denial of the
that can give the protection which the insuring public needs from possible claim, otherwise the claimant's right of action shall prescribe.
abuses of the insurers.
10.   Thus, the three cases do not fall within the meaning of "proper cases" as
contemplated in Section 384 of the Insurance Code. To hold otherwise
would enable Summit to evade its responsibility through its clever scheme.
11.   Summit cited the following principle in the case of Ang vs. Fulton Fire
Insurance: The condition contained in an insurance policy that claims must
be presented within one year after rejection is not merely a procedural
requirement but an important matter essential to a prompt settlement of
claims against insurance companies as it demands that insurance suits be
brought by the insured while the evidence as to the origin and cause of
destruction have not yet disappeared. It is in the nature of a condition
precedent to the liability of the insurer, or in other terms, a resolutory
clause, the purpose of which is to terminate all liabilities in case the action
is not filed by the insured within the period stipulated.
12.   Suffice it to say that the aforementioned case has no application to the
present cases as in that case the claim of the plaintiffs was denied as early as
April 18, 1956 and the action was brought only on May 5, 1958 or almost 2
years after. As we have already noted earlier, in the cases at bar, no denial
of the claims was ever made and on the contrary, private respondents
were made to believe that they will be paid by Summit. The alleged
delay, which is quite insignificant compared to the length of time that the
plaintiffs took in the Ang case in bringing suit, was not caused by herein
private respondents but by the Summit itself.
13.   The one-year period should instead be counted from the date of
rejection by the insurer as this is the time when the cause of action
accrues.
14.   Since in these cases there has yet been no accrual of cause of action, we
hold that prescription has not yet set in. This is because, before such final
rejection, there was no real necessity for bringing suit.
15.   Since a "cause of action" requires, as essential elements, not only a legal
right of the plaintiff and a correlative obligation of the defendant but also
"an act or omission of the defendant in violation of said legal right," the
011 STRONGHOLD INSURANCE CO., INC., v. PANAMA ISLAND RESORT
HOTEL AND MARINA, INC. (SOLCO)
June, 01, 2016 | Reyes, J. | Fire Insurance
PETITIONER: STRONGHOLD INSURANCE CO., INC.
RESPONDENTS: PAMANA ISLAND RESORT HOTEL AND MARINA CLUB,
INC.
SUMMARY: Pamana filed an action for a sum of money against Stronghold
Insurance on the basis of a Contractor’s All Risk Bond obtained by Flowtech in
relation to the construction of a certain project in Subic Bay. In 1992, A fire in the
project burned down certain cottages being built by Flowtech, resulting in losses to
Panama. In 1999, the RTC held stronghold liable for the claim and awarded double
the amount of interest on the principal amount of the insurance on the basis of Sec.
243 (it did not however state in its judgement whether the applicable rate of interest
was 6% or 12%). CA and SC affirmed. A writ of execution was thus issued.
However, Stronghold filed an Urgent Motion to Suspend Execution and to
Rationalize Enforcement of the Decision. It argued that the award granted by the
RTC was unconscionable and iniquitous. RTC granted the said motion and modified
the writ of execution. It reduced the award from 13.3m (Panama’s claim) to 8.2m on
the basis that the computation of interest should be reckoned from the date of
promulgation of judgement and not from the date of demand since the amount of the
award only became certain after judgement was rendered. It also further argued that
the applicable rate of interest is 6% because the obligation of Stronghold does not
arise from a loan or forbearance of money. CA reversed the RTC and stated that the
judgement is final and executory thus immutable.
The issues in this case are (1) WoN the RTC can change the computation of interest
to be reckoned from the date of promulgation instead of the date of demand. NO
final judgments are immutable. Moreover, the RTC has no power to issue a writ of
execution which is at variance with the judgement it seeks to promulgate. The
judgement expressly states that it should be computed from the date of demand.
(2)  Should the applicable rate of interest be 6% per annum or 12% per annum? It
should be 12% because Sec. 243 of the code expressly states that the rate shall
be "twice the ceiling prescribed by the Monetary Board.” Hence, it should be
the 12% rate of interest as provided by the BSP. (It would have been 6% if
decided now because BSP Circular No. 799 reduced the interest to 6%.
However, the decision was promulgated before said circular was issued and the
rate can only be applied prospectively).
DOCTRINE: Given the provisions of the Insurance Code, which is a special law,
the applicable rate of interest referred to in Sec. 243 shall be that imposed in a
loan or forbearance of money as imposed by the Bangko Sentral ng Pilipinas
(BSP), even irrespective of the nature of liability.
FACTS:
124.  The case stems from an action for sum of money filed by Pamana Island
Resort Hotel and Marina Club, Inc. (Pamana) and Flowtech Construction
Corporation (Flowtech) against Stronghold on the basis of a Contractor's
All Risk Bond of P9,047,960.14 obtained by Flowtech in relation to the
construction of Pamana's project in Pamana Island, Subic Bay. On January
27, 1992, a fire in the project burned down cottages being built by
Flowtech, resulting in losses to Pamana.
125.  In a Decision dated October 14, 1999, the Regional Trial Court (RTC) of
Makati City, Branch 135 declared Stronghold liable for the claim. Besides
the award of insurance proceeds, exemplary damages and attorney's fees,
the trial court ordered the payment of interest at double the applicable rate,
following Section 243 of the Insurance Code which Stronghold was
declared to have violated66
126.  RTC held them liable for: P4,728,297.82 with double the interest rate
from the date of demand until fully paid, 500k exemplary and 100k
attorney’s fees.
127.  Stronghold's appeal seeking the reversal of the RTC judgment was denied
by the CA and thereafter, by the SC. On March 4, 2005, Flowtech filed with
the RTC a motion for execution, which was granted7 on May 10, 2005. A
Writ of Execution was issued on May 12, 2005.
128.  Thereafter, Stronghold filed an Urgent Motion to Suspend Execution and to
Rationalize Enforcement of the Decision, dated August 16, 2005,
contending that the interest penalty being demanded from it through the
Sheriff was unconscionable and iniquitous. The motion was opposed by
Pamana, which contended that the RTC decision had become final and thus,
could no longer be amended, altered and modified. Furthermore, the double
interest rate being imposed upon the award was argued to be supported by
Section 243 of the Insurance Code.
129.  On November 22, 2005, the RTC rendered its Order granting Stronghold's
motion. Interest was substantially reduced following the court's
pronouncement that its computation should be reckoned from the date of
promulgation of judgment until its finality and not from the date of
66
Sec. 243. The amount of any loss or damage for which an insurer may be liable,
under any policy other than life insurance policy, shall be paid within thirty days
after proof of loss is received by the insurer and ascertainment of the loss or damage
is made either by agreement between the insured and the insurer or by arbitration;
but if such ascertainment is not had or made within sixty days after such receipt by
the insurer of the proof of loss, then the loss or damage shall be paid within ninety
days after such receipt. Refusal or failure to pay the loss or damage within the time
prescribed herein will entitle the assured to collect interest on the proceeds of the
policy for the duration of the delay at the rate of twice the ceiling prescribed by the
Monetary Board, unless such failure or refusal to pay is based on the ground that the
claim is fraudulent.
 demand until full payment as enunciated in the Decision dated October
14, 1999.
130.  The trial court reasoned: The claim of (Pamana and Flowtech) for the
interest of the principal amount in the sum of P7,528,774.05, docs not
appear to be accurate. The principal amount of P4,728,297.82 demanded
was ascertained only after the trial of the case on its merits. The obligation
of Stronghold is not a loan or forbearance of money. The interest on the
obligation shall begin to run from the time the claim is made judicially and
extrajudicially when the demand was established with certainty. But when
such certainty cannot be so reasonably established at the time of the
demand, the interest shall begin only from the date of judgment of the court.
131.  The Decision was promulgated on October 14, 1999. The interest on the
principal amount should be reckoned from this date up to December 15,
2004, when the judgment became final and executory.
132.  This resulted in the amount awarded being reduced from P13,342,547.87
(Pamana’s Claim) to P8,261,418.46 by the RTC.
133.  Pamana thus appealed to the CA which reversed the RTC’s judgement
stating that it should be computed from the date of demand. Hence, this
petition by Stronghold
ISSUE/s:
14.   WoN the RTC can change the computation of interest to be reckoned from
the date of promulgation instead the date of demand. NO final judgements
are immutable. Moreover, the RTC has no power to issue a writ of
execution which is at variance with the judgement it seeks to promulgate.
15.   Should the applicable rate of interest be 6% per annum or 12% per annum?
It should be 12% because Sec. 243 of the code expressly states that the rate
shall be "twice the ceiling prescribed by the Monetary Board.” Hence, it
should be the 12% rate of interest as provided by the BSP. (It would have
been 6% if decided now because BSP Circular No. 799 reduced the interest
to 6%. However, the decision was promulgated before said circular was
issued).
RULING: WHEREFORE, the petition is DENIED. The Decision dated July 20,
2006 and Resolution dated September 26, 2006 of the Court of Appeals in CA-G.R.
SP No. 94313 are AFFIRMED with MODIFICATION in that beginning July 1,
2013, the applicable interest shall be computed pursuant to Section 243 of the
Insurance Code at double the rate of six percent (6%) per annum.
RATIO:
1.  The Court denies the petition. As correctly pointed out by the CA, the RTC's
order to implement carried substantial changes in a judgment that had
become final and executory. These variations pertained to "(1) the date from
which the double rate of interest on the principal amount of the claim, shall be
computed; (2) up to when such interest shall run; and (3) the applicable rate of
interest."Instead of "double the rate of interest [on the proceeds of insurance]
from the date of demand until fully paid," the RTC's computation for purposes
of execution was limited to an interest rate of 6% per annum, resulting in a
double rate of only 12% per annum, to be reckoned from the date of the trial
court's judgment until it became final and executory.
2. Clearly, the RTC's issuances contravened a settled principle affecting
execution of judgments. Time and again, courts have emphasized that a
writ of execution must conform substantially to every essential particular of
the judgment promulgated. An execution that is not in harmony with the
judgment is bereft of validity. This applies because "once a judgment becomes
final and executory, all that remains is the execution of the decision which is a
matter of right. The prevailing party is entitled to a writ of execution, the
issuance of which is the trial court's ministerial duty."
3.Although some arguments advanced by Stronghold appeal to the substantive
issues or merits of the RTC's main judgment that favored Pamana, such matters
have long been settled via the RTC decision that had become final and
executory. Anent the computation of interest on Stronghold's liability, it was
explained that the notice of loss was promptly served upon Stronghold, but it
took more than a year to reject the claim in violation of Section 243 of the
Insurance Code. Thus, double the applicable rate of interest on the principal
award should be imposed.
4.A disagreement, however, concerns the question of whether an interest rate of 6%
or 12% per annum should apply in the computation, as this subject was not
specifically defined in the RTC judgment in the main case. The RTC, in the Order
dated November 22, 2005, pegged the interest rate at 6% per annum by explaining
that Stronghold's obligation did not equate to a loan or forbearance of money. On the
other hand, the CA explained that the double rate should be based on 12% per
annum, as the Insurance Code pertained to a rate "twice the ceiling prescribed by
the Monetary Board" and thus could only refer to the rate applicable to
obligations constituting a loan or forbearance of money.
5. The Court agrees with the CA that given the provisions of the Insurance
Code, which is a special law, the applicable rate of interest shall be that imposed
in a loan or forbearance of money as imposed by the Bangko Sentral ng
Pilipinas (BSP), even irrespective of the nature of Stronghold's liability. In the
past years, this rate was at 12% per annum. However, in light of Circular No. 799
issued by the BSP on June 21, 2013 decreasing interest on loans or forbearance of
money, the CA's declared rate of 12% per annum shall be reduced to 6% per annum
from the time of the circular's effectivity on July 1, 2013. The Court explained
in Nacar v. Gallery Frames that the new rate imposed under the circular could
only be applied prospectively, and not retroactively.
012 LUMIBAO v. IAC (Soriano)
September 13, 1990 | Cortes, J. | Adjuster/ Sales Agencies and Technical Services
PETITIONER: Rosita Lumibao
RESPONDENT: Intermediate Appellate Court and Eugenio Trinidad
SUMMARY: Lumibao, an insurance agentrepresenting Manuka Bankers, was
able to convince private respondent Eugenio Trinidad, the Vice-President and
General Manager and principal stockholder of Victory Liner Inc., to take out a
life insurance policy with Manila Bankers. Premium was fixed at P93,180
(considering the result of the medical exam showing he is diabetic). In order to
persuade Trinidad to take out the policy at the computed premium, Lumibao
offered to return to him (Trinidad) the amount corresponding to her (Lumibao)
commission out of the first premium payment, which is equivalent to 50%
(P46,590) of the 1st premium payment. Trinidad agreed to take the policy thus,
he issued 2 checks in favor of the insurance company for a total of P93,180.
Lumibao received P51,249 from as her commission. Yet, petitioner failed to
comply with her commitment to pay private Trinidad P46,590. Trinidad filed an
action for specific performance and damages. Lumibao denied that she had made
a verbal promise to return the 50% of the premium. The issues in this case are:
1.   WoN Lumibao violated Section 361 (now Section 370) of the insueance
code and therefore be held liable—YES. A preponderance of evidence
on record supports the findings of the courts that Lumibao had induced
Trinidad to take out a life insurance policy from Manila by promising
him a rebate equivalent to 50% of the first annual premium payment. It
is evident that petitioner's promise to pay private respondent an amount
equivalent to 50% of the first premium payment, which would be taken
out of her commission on the insurance policy, is covered squarely by
the express provisions of Section 361.
2.   WoN the rebate agreement between Lumibao and Trinidad is
enforeceable.—NO. Trinidad’s checks were issued for the account of
Manila Bankers and so encashed by the insurance company as the
payee. Trinidad thus cannot "demand the return of what he has given"
from Lumibao because he did not, strictly speaking, pay the amount of
P93,180.00 to Lumibao. Public policy considerations serve to
underscore further the Court's foregoing ruling that Lumibao's promise
of rebate, which is expressly prohibited by law, may not be enforced for
compliance by the courts.
DOCTRINE: Section 361 of Pres. Decree No. 612 is similar to the so-called
"anti-discrimination" statutes found in other jurisdictions which regulate the
activities in the insurance industry. The purpose of these statutes is the
prevention of unfair discriminatory practices by insurance companies, agents and
brokers in order to ensure that equal terms are fixed for policyholders of the
same insurable class and equal expectation of life. In aid and furtherance of this
desirable policy, the statutes prohibit such practices involving rebates or
preferential treatment with respect to the cost of the policy or the benefits
allowed for the premium. It follows that to enforce contracts or agreements
directly forbidden under these statutes, thereby allowing recovery thereunder,
would be subversive of the very public policy which the law was designed and
intended to uphold. True, the statutes, like Sections 361 and 363 of Pres. Decree
No. 961, in terms, are addressed to the insurance companies, agents and brokers,
and is enacted for the protection of policyholders, but this is for the general body
of policyholders who would suffer by the enforcement of the prohibited
agreements, and not for those who have entered into such agreements and are
seeking to profit by its terms.
FACTS:
198.  Lumibao is a life insurance underwriter/agent and a member of a group of
insurance underwriters known as Bescon Insurance Agencies, Inc.,
representing the Manila Bankers Life Insurance Corporation (Manila
Bankers)
199.  Lumibao was able to convince private respondent Eugenio Trinidad, the
Vice-President and General Manager and principal stockholder of Victory
Liner Inc., to take out a life insurance policy with Manila Bankers
200.  As a result of a medical examination conducted on Trinidad showing that he
was a diabetic, the annual insurance premium was fixed at P93,180.00 for a
life insurance policy with a face value of PlM
201.  In order to persuade Trinidad to take out the policy at the computed
premium, Lumibao offered to return to him (Trinidad) the amount
corresponding to her (Lumibao) commission out of the first premium
payment, which is equivalent to 50% of the 1st premium payment. Trinidad
agreed to take the policy thus, on April 30, 1975, he issued 2 checks in
favor of the insurance company for P46,590 each or a total of P93,180.
202.  Both checks were postdated May 30, 1975 so as to enable Lumibao to make
arrangements for the return to Trinidad of one check corresponding to the
amount of her commission.
203.  Lumibao received P51,249 from Bescon Insurance Agencies, Inc. as her
commission. Yet, petitioner failed to comply with her commitment to pay
private Trinidad P46,590.00.
204.  Trinidad, through his counsel, sent a demand. Lumibao denied that she had
entered into such an arrangement with Trinidad.
205.  Trinidad filed an action for specific performance and damages. Lumibao
denied that she had made a verbal promise to return the 50% of the
premium.
206.  TRIAL COURT: The trial court made a categorical finding that petitioner
had induced private respondent to take out a life insurance policy with
Manila Bankers Life Insurance Corporation by promising a rebate of 50%
of his first annual premium payment on said policy. However, despite such
 finding, the trial court ordered the dismissal of Trinidad’s complaint,
holding that it could not grant any relief because the agreement entered into
between the parties was void for being contrary to the provisions Insurance
Code and public policy.
207.  IAC: Not satisfied with the decision, Lumibao interposed an appeal with
IAC. Appellate court affirmed the factual findingsof the trial court and
sustained the dismissal of Lumibao’s counterclaim. But in a split decision,
*IAC reversed the trial court's judgment in so far as it dismissed the
complaint, and instead ordered Lumibao to Trinidad the sum of P46,590.00,
with interest thereon.
208.  Hence this petition.
ISSUE/s:
158.  WoN Lumibao violated Section 361 (now Section 370) of the insueance
code and therefore be held liable—YES. A preponderance of evidence on
record supports the findings of the courts that Lumibao had induced
Trinidad to take out a life insurance policy from Manila by promising him a
rebate equivalent to 50% of the first annual premium payment. It is evident
that petitioner's promise to pay private respondent an amount equivalent to
50% of the first premium payment, which would be taken out of her
commission on the insurance policy, is covered squarely by the express
provisions of Section 361.
159.  WoN the rebate agreement between Lumibao and Trinidad is
enforeceable.—NO. Trinidad’s checks were issued for the account of
Manila Bankers and so encashed by the insurance company as the payee.
Trinidad thus cannot "demand the return of what he has given" from
Lumibao because he did not, strictly speaking, pay the amount of
P93,180.00 to Lumibao. Public policy considerations serve to underscore
further the Court's foregoing ruling that Lumibao's promise of rebate, which
is expressly prohibited by law, may not be enforced for compliance by the
courts.
RULING: WHEREFORE, the assailed decision of respondent appellate court in
AC-G.R. CV No. 61200 is SET ASIDE, and the trial court's decision in Civil Case
No. 3653 is hereby REINSTATED. Let the Insurance Commissioner be furnished a
copy of this decision for appropriate administrative action against petitioner pursuant
to Section 363 of Pres. Decree No. 961.
RATIO:
160.  Section 361 of Pres. Decree No. 612 states: (Now Sec 370 of Insurance
Code)
No insurance company doing business in the Philippines or any agent
thereof, no insurance broker, and no employee or other representative
of any such insurance company, agent, or broker, shall make, procure or
negotiate any contract of insurance or agreement as to policy contract, other
than is plainly expressed in the policy or other written contract issued or to
be issued as evidence thereof, or shall directly or shall indirectly, by
giving or sharing a commission or in any manner whatsoever, pay or
allow or offer to pay or allow to the insured or to any employee of such
insured, either as an inducement to the making of such insurance or
after such insurance has been effected, any rebate from the premium
which is specified in the policy, or any special favor or advantage in the
dividends or other benefits to accrue thereon, or shall give or offer to give
any valuable consideration or inducement of any kind, directly or indirectly,
which is not specified in such policy or contract of insurance; nor shall any
such company, or any agent thereof, as to any policy or contract of
insurance issued, make any discrimination against any Filipino in the sense
that he is given less advantageous rates, dividends or other policy
conditions or privileges than are accorded to other nationals because of his
race
161.  A preponderance of evidence on record supports the findings of the courts
that Lumibao had induced Trinidad to take out a life insurance policy from
Manila by promising him a rebate equivalent to 50% of the first annual
premium payment. These factual findings are, therefore, final and binding
upon the Court.
162.  Petitioner, however, argues that in view of the last paragraph of Article
1358 of the New Civil Code, such contract must be in writing (exceeding
P500), and since it was not, it should not be given credence by the court.
163.  This contention is patently erroneous reliance on Article 1358 is misplaced
for the apparent reason that this article does not lay down any evidentiary
rule which precludes oral testimony as a means of proving that parties have
entered into a contract or agreement involving an amount of more than P
500.
164.  Neither can it be gainsaid that Libunao, an insurance agent, is enjoined by
law from inducing prospective clients to take out insurance by offering
rebates from the premiums specified in the insurance policies. (Check
Section 361 above)
165.  Violation of Sec 361 constitutes a ground for the immediate revocation
of the license issued to the erring insurance company, agent or broker
and the imposition of a fine not exceeding five hundred pesos.
166.  It is evident that petitioner's promise to pay private respondent an amount
equivalent to 50% of the first premium payment, which would be taken out
of her commission on the insurance policy, is covered squarely by the
express provisions of Section 361.
167.  On the second issue: SC ruled that IAC committed reversible error of law in
ordering petitioner to pay private respondent the promised rebate of
P46,590.00.
168.  By virtue of Article 1409 (7) of the New Civil Code, the rebate agreement
between the petitioner and private respondent is deemed a contract void ab
initio, and, consequently, does not give rise to enforceable rights and
obligations as between the parties thereto.
169.  IAC opined that since the prohibition against rebate agreements under
 Section 361, and the penalty imposed therefor under Section 363, refer only
to insurance agents, brokers or companies, and that Article 1412 (2) of the
New Civil Code provides the legal basis for allowing Trinidad, the party
who is not at fault, to recover from Lumibao.
170.  The SC disagrees. Although there are instances where the law recognizes
the right of an innocent party to recover what he has paid or delivered under
the agreement but contrary to the ruling of IAC, the case at bar does not fall
under any of the legal exceptions.
171.  IAC misapplied Art. 1412 (2). The article contemplates of a situation where
the party who is not at fault, in the performance of his undertaking with the
party who is at fault, has paid or delivered property to the latter. This is not
the case between private respondent and petitioner.
172.  The agreement between the parties consists of an undertaking on the part of
Trinidad to take out a life insurance policy with Manila Bankers and, on the
part of Lumibao, to give a rebate on the first premium payment. There is no
indication that Lumibao, when she made the promise, had acted with the
knowledge and under the authority of the insurance company. But it is clear
that the premium of P93,180 was actually paid to the insurance company in
consideration of the policy taken out.
173.  Trinidad’s checks were issued for the account of Manila Bankers and so
encashed by the insurance company as the payee. Trinidad thus cannot
"demand the return of what he has given" from Lumibao because he did not,
strictly speaking, pay the amount of P93,180.00 to Lumibao
174.  Public policy considerations serve to underscore further the Court's
foregoing ruling that Lumibao's promise of rebate, which is expressly
prohibited by law, may not be enforced for compliance by the courts.
175.  Section 361 of Pres. Decree No. 612 is similar to the so-called "anti-
discrimination" statutes found in other jurisdictions which regulate the
activities in the insurance industry. The purpose of these statutes is the
prevention of unfair discriminatory practices by insurance companies,
agents and brokers in order to ensure that equal terms are fixed for
policyholders of the same insurable class and equal expectation of life.
In aid and furtherance of this desirable policy, the statutes prohibit
such practices involving rebates or preferential treatment with respect
to the cost of the policy or the benefits allowed for the premium. It follows
that to enforce contracts or agreements directly forbidden under these
statutes, thereby allowing recovery thereunder, would be subversive of
the very public policy which the law was designed and intended to
uphold. True, the statutes, like Sections 361 and 363 of Pres. Decree No.
961, in terms, are addressed to the insurance companies, agents and brokers,
and is enacted for the protection of policyholders, but this is for the general
body of policyholders who would suffer by the enforcement of the
prohibited agreements, and not for those who have entered into such
agreements and are seeking to profit by its terms.
 013 SMITH, BELL & CO Inc. vs CA (STA. MARIA)
February 6, 1997 | Panganiban, J. | Adjuster
PETITIONER: Smith, Bell & Co, Inc.
RESPONDENTS: Court of Appeals and Joseph Bengzon Chua
SUMMARRY: Joseph Chua doing business under the style of Tic Hin Chiong
Importer, bought and imported to the Philippines 50 metric tons of Dicalcium
Phospate, Feed Grade. These were contained in 1,250 bags. This shipment was
insured by First Insurance Co against all risks at port of departure under Marine
Policy, with the note `Claim,if any, payable in US currency at Manila and with Smith,
Bell & Co. Inc stamped at the lower left side of the policy as `Claim Agent. The
cargo arrived which was discharged to the local arrastre contractor, Metroport
Services Inc. with a number of the cargo in apparent bad order condition. 600 of the
1,250 bags of the imported material were damaged by tearing at the sides of the
container bags and the contents partly empty. Upon weighing, the contents of the
damaged bags were found to be 18,546 kg short . Joseph Chua filed with Smith, Bell
& Co. Inc., a formal statement of claim with proof of loss and a demand for
settlement of the corresponding value of the losses. After purportedly conveying the
claim to its principal, Smith, Bell & Co. Inc., informed Joseph Chua by letter that its
principal, First Insurance, offered only 50% of the claim as redress on the alleged
ground of discrepancy. The offer not being acceptable to Joseph Chua, he filed a case
against Smith, Bell & Co. and First Insurance. Smith, Bell & Co. Inc denied liability
and said that it is merely a settling or claim agent of First Insurance Company and as
such agent it is not personally liable under the policy in which it has not even taken
part of. The First Insurance Co. Ltd did not file an Answer, hence it was declared in
default. The lower court ruled that Joseph Chua has fully established the liability of
First Insurance Co. As regards Smith, Bell & Co. Inc, it held that since it is
admittedly a claim agent of the foreign insurance firm doing business in the
Philippines justice is better served if said agent is made liable without prejudice to its
right of action against its principal, First Insurance. The issue is WON a local settling
or claim agent (Smith, Bell & Co) of a disclosed principal (First Insurance)-- a
foreign insurance company-- can be held jointly and severally liable with said
principal under the latter’s marine cargo insurance policy, given that the agent is not a
party to the insurance contract? – NO. Undisputedly a settling agent acting within the
scope of its authority, cannot be held personally and/or solidarily liable for the
obligations of its disclosed principal merely because there is allegedly a need for a
speedy settlement of the claim of Joseph Chua. (see doctrine) Thus, Smith, Bell & Co
Inc cannot be held personally liable.
DOCTRINE: The scope and extent of the functions of an adjustment and settlement
agent do not include personal liability. His functions are merely to settle and adjusts
claims in behalf of his principal if those claims are proven and undisputed, and if the
claim is disputed or is disapproved by the principal, like in the instant case, the agent
does not assume any personal liability. The recourse of the insured is to press his
claim against the principal."
The Insurance Code (Sec. 190) is quite clear as to the purpose and role of a resident
agent. Such agent, as a representative of the foreign insurance company, is tasked
only to receive legal processes on behalf of its principal and not to answer personally
for any insurance claims.
FACTS:
1.   Joseph Chua doing business under the style of Tic Hin Chiong , Importer,
bought and imported to the Philippines from the firm Chin Gact Co. Ltd. of
Taipei ,Taiwan, 50 metric tons of Dicalcium Phospate, Feed Grade F - 15%
valued at US$13,000 . 00 CIF Manila .
2.   These were contained in 1,250 bags and shipped from the Port of
Kaohsiung, Taiwan on Board SS GOLDEN WEALTH for the Port in
Manila .
3.   This shipment was insured by First Insurance Co . for US$19, 500`against
all risks at port of departure under Marine Policy, with the note `Claim , if
any, payable in US currency at Manila and with Smith, Bell & Co. Inc
stamped at the lower left side of the policy as `Claim Agent
4.   The cargo arrived at the Port of Manila and the entire cargo was discharged
to the local arrastre contractor, Metroport Services Inc. with a number of the
cargo in apparent bad order condition .
5.   Joseph Chua secured the services of a cargo surveyor to conduct a survey of
the damaged cargo which delivered by Joseph Chua’s broker to his
premises at 12th Avenue,Grace Park, Caloocan City .
6.   The surveyor’s report showed that 600 of the 1,250 bags of the imported
material were damaged by tearing at the sides of the container bags and the
contents partly empty. Upon weighing, the contents of the damaged bags
were found to be 18,546 kg short.
7.   Joseph Chua filed with Smith, Bell & Co. Inc., a formal statement of
claim with proof of loss and a demand for settlement of the corresponding
value of the losses.
8.   After purportedly conveying the claim to its principal, Smith, Bell & Co.
Inc., informed Joseph Chua by letter that its principal offered only 50% of
the claim as redress on the alleged ground of discrepancy between the
amounts contained in the shipping agent’s reply to the claimant of only
US$90.48 with that of Metroport’s .
9.   The offer not being acceptable to Joseph Chua , the latter wrote Smith, Bell
& Co. Inc., expressing his refusal to the `redress offer , contending that the
discrepancy was a result of loss from vessel to arrastre to
consignees warehouse which losses were still within the `all
risk insurance cover. No settlement of the claim having been made, Joseph
Chua then caused the instant case to be filed.
10.   Denying any liability, Smith, Bell & Co. Inc., averred that it is merely a
settling or claim agent of First Insurance Company and as such agent it is
not personally liable under the policy in which it has not even taken part of
. It then alleged Joseph Chua has no cause of action against it. The First
 Insurance Co . Ltd . did not file an Answer, hence it was declared in
default
11.   The lower court ruled that Joseph Chua has fully established the liability of
First Insurance Co. on the subject insurance contract as the former
presented concrete evidence of the amount of losses resulting from the risks
insured against which were supported by reliable report and assessment of
professional cargo surveyor.
12.   As regards Smith, Bell & Co. Inc, the lower court held that since it is
admittedly a claim agent of the foreign insurance firm doing business in the
Philippines justice is better served if said agent is made liable without
prejudice to its right of action against its principal , the insurance firm .
ISSUE:
1.   WON a local settling or claim agent (Smith, Bell & Co) of a disclosed
principal (First Insurance)-- a foreign insurance company-- can be held
jointly and severally liable with said principal under the latter’s marine
cargo insurance policy, given that the agent is not a party to the insurance
contract? – NO. Undisputedly a settling agent acting within the scope of its
authority, cannot be held personally and/or solidarily liable for the
obligations of its disclosed principal merely because there is allegedly a
need for a speedy settlement of the claim of Joseph Chua.
RULING: WHEREFORE ,in view of the foregoing considerations ,the Petition
is GRANTED and the Decision appealed from is REVERSED and SET ASIDE .No
costs .
RATIO:
1.   There are three reasons why we find for petitioner.
2.   First Reason: Existing Jurisprudence. Smith, Bell & Co. Inc.,
undisputedly a settling agent acting within the scope of its authority, cannot
be held personally and/or solidarily liable for the obligations of its disclosed
principal merely because there is allegedly a need for a speedy settlement of
the claim of private respondent. In the leading case of Salonga vs. Warner,
Barnes & Co., Ltd. this Court ruled in this wise:
"xxx An adjustment and settlement agent is no different from any other agent from
the point of view of his responsibilty (sic), for he also acts in a representative
capacity. Whenever he adjusts or settles a claim, he does it in behalf of his principal,
and his action is binding not upon himself but upon his principal. And here again, the
ordinary rule of agency applies. The following authorities bear this out:
'An insurance adjuster is ordinarily a special agent for the person or company
for whom he acts, and his authority is prima facie coextensive with the business
intrusted to him. . .'
'An adjuster does not discharge functions of a quasi-judicial nature, but
represents his employer, to whom he owes faithful service, and for his acts, in
the employer's interest, the employer is responsible so long as the acts are done
while the agent is acting within the scope of his employment.'
It, therefore, clearly appears that the scope and extent of the functions of an
adjustment and settlement agent do not include personal liability. His functions
are merely to settle and adjusts claims in behalf of his principal if those claims are
proven and undisputed, and if the claim is disputed or is disapproved by the
principal, like in the instant case, the agent does not assume any personal liability.
The recourse of the insured is to press his claim against the principal."
3.   Joseph Chua’s contention that Salonga does not apply simply because only
the agent was sued therein while here both agent and principal were
impleaded and found solidarily liable is without merit. Such distinction is
immaterial. The agent can not be sued nor held liable whether singly or
solidarily with its principal.
4.   Every cause of action ex contractu must be founded upon a contract, oral or
written, either express or implied. The only "involvement" of Smith, Bell
& Co. Inc., in the subject contract of insurance was having its name
stamped at the bottom left portion of the policy as "Claim Agent."
Without anything else to back it up, such stamp cannot even be deemed
by the remotest interpretation to mean that Smith, Bell & Co. Inc.,
participated in the preparation of said contract. Hence, there is no
privity of contract, and correspondingly there can be no obligation or
liability, and thus no cause of action against Smith, Bell & Co. Inc.,
attaches.
5.   Under Article 1311 of the Civil Code, contracts are binding only upon the
parties (and their assigns and heirs) who execute them. The subject cargo
insurance was between the First Insurance Company, Ltd. and the Chin
Gact Co., Ltd., both of Taiwan, and was signed in Taipei, Taiwan by the
president of the First Insurance Company, Ltd. and the president of the Chin
Gact Co., Ltd. There is absolutely nothing in the contract which mentions
the personal liability of Smith, Bell & Co. Inc.,
6.   Second Reason: Absence of Solidary Liability. May then Smith, Bell &
Co. Inc.,, in its capacity as resident agent (as found in the case cited by the
CA be held solidarily liable with the foreign insurer? Article 1207 of the
Civil Code clearly provides that "(t)here is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the
obligation requires solidarity."
7.   The well-entrenched rule is that solidary obligation cannot lightly be
inferred. It must be positively and clearly expressed. The contention that, in
the end, it would really be First Insurance Company, Ltd. which would be
held liable is specious and cannot be accepted. Such a stance would inflict
injustice upon Smith, Bell & Co. Inc., which would be made to advance the
funds to settle the claim without any assurance that it can collect from the
principal which disapproved such claim, in the first place. More
importantly, such position would have absolutely no legal basis.
 8.   The Insurance Code is quite clear as to the purpose and role of a resident 11.   The cause of action of Joseph Chua is based on a contract of insurance
agent. Such agent, as a representative of the foreign insurance which as already shown was not participated in by Smith, Bell & Co.
company, is tasked only to receive legal processes on behalf of its Inc.,. It is not a "person who claim(s) an interest adverse to the plaintiff"
principal and not to answer personally for any insurance claims. We nor is said respondent "necessary to a complete determination or settlement
quote: of the questions involved" in the controversy. Smith, Bell & Co. Inc., is
"SEC. 190. The Commissioner must require as a condition precedent to the improperly impleaded for not being a real-party-interest. It will not benefit
transaction of insurance business in the Philippines by any foreign insurance or suffer in case the action prospers.
company, that such company file in his office a written power of attorney 12.   Resort to Equity Misplaced. Finally, the CA also contends that "the interest
designating some person who shall be a resident of the Philippines as its general of justice is better served by holding the settling agent jointly and severally
agent, on whom any notice provided by law or by any insurance policy, proof of loss, liable with its principal." As no law backs up such pronouncement, the
summons and other legal processes may be served in all actions or other legal appellate Court is thus resorting to equity. However, equity which has been
proceedings against such company, and consenting that service upon such general aptly described as "justice outside legality," is availed of only in the absence
agent shall be admitted and held as valid as if served upon the foreign company at of, and never against, statutory law or judicial pronouncements. Upon the
its home office. Any such foreign company shall, as further condition precedent to other hand, the liability of agents is clearly provided for by our laws and
the transaction of insurance business in the Philippines, make and file with the existing jurisprudence.
Commissioner an agreement or stipulation, executed by the proper authorities of said |||
company in form and substance as follows:
'The (name of company) does hereby stipulate and agree in consideration of the
permission granted by the Insurance Commissioner to transact business in the
Philippines, that if at any time such company shall leave the Philippines, or cease to
transact business therein, or shall be without any agent in the Philippines on whom
any notice, proof of loss, summons, or legal process may be served, then in any
action or proceeding arising out of any business or transaction which occurred in the
Philippines, service of any notice provided by law, or insurance policy, proof of loss,
summons, or other legal process may be made upon the Insurance Commissioner
shall have the same force and effect as if made upon the company.'
Whenever such service of notice, proof of loss, summons, or other legal process shall
be made upon the Commissioner he must, within ten days thereafter, transmit by
mail, postage paid, a copy of such notice, proof of loss, summons, or other legal
process to the company at its home or principal office. The sending of such copy of
the Commissioner shall be necessary part of the service of the notice, proof of loss,
or other legal process."
9.   Further, we note that in the case cited by the CA, Smith, Bell & Co. Inc.,
was found to be a resident agent of First Insurance Co. Ltd. In the instant
case however, the trial court had to order the service of summons upon First
Insurance Co., Ltd. which would not have been necessary if Smith, Bell &
Co. Inc., was its resident agent. Indeed, from our reading of the records of
this case, we find no factual and legal bases for the finding of the CA that
Smith, Bell & Co. Inc., is the resident agent of First Insurance Co., Ltd. Cdt
10.   Third Reason: Not Real Party-In-Interest. Lastly, being a mere agent and
representative, Smith, Bell & Co. Inc., is also not the real party-in-
interest in this case. An action is brought for a practical purpose, that is, to
obtain actual and positive relief. If the party sued is not the proper party,
any decision that may be rendered against him would be futile, for the
decision cannot be enforced or executed.
 014 VALENZUELA v. CA (TAN edited from VARGAS)
October 19, 1990 | Gutierrez, Jr., J. | Parties to the Contract
PETITIONER: Arturo P. Valenzuela and Hospitalita N. Valenzuela
RESPONDENTS: Hon. Court of Appeals, Bienvenido M. Aragon, Robert E.
Parnell, Carlos K. Catolico, and the Philippine American General Insurance
Company, Inc.
SUMMARY: Valenzuela is the General Agent for Philamgen (insurance
company). Valenzuela solicited marine insurance from Delta Motors from which
he was entitled to a commission of 32.5% from Philamgen. In 1977, Philamgen
started to become interested in and expressed its intent to share in the
commission due Valenzuela on a 50-50 basis thus giving Valenzuela an agent’s
commission of 16.25%. Despite several attempts to convince Valenzuela, he still
refused to accept such proposals to share commission with Philamgen.
Consequently, Philamgen did some acts of harassment against Valenzuela which
led to the decline of Valenzuela’s business as insurance agent. Eventually,
Philamgen terminated the General Agency Agreement with Valenzuela. The
issues in this case are
3.   WON Philamgen and/or its officers can be held liable for damages
due to the termination of the General Agency Agreement it entered
into with Valenzuela – YES. The agency involving Valenzuela and
Philamgen is one "coupled with an interest," and, therefore, should
not be freely revocable at the unilateral will of the latter. The principal
cause of the termination of Valenzuela as General Agent of Philamgen
arose from his refusal to share his Delta Commission. Such termination,
as held by the Trial Court, is tainted with bad faith. As such,
4.   WON Valenzuela is liable to Philamgen for the unpaid and
uncollected premiums – NO. The remedy for the non-payment of
premiums is to put an end to and render the insurance policy not
binding.
DOCTRINE: Valenzuela, being a mere agent of Philamgen, is not a party to the
contract of insurance. The contract is essentially between Philamgen and Delta
Motors. Consequently, Valenzuela is under no obligation to pay Philamgen for
the unpaid and uncollected premiums. The remedy for the non-payment of
premiums is to put an end to and render the insurance policy not binding.
FACTS:
15.   Characters:
Valenzuela – General Agent of Philamgen
Philamgen – Insurance Company
Delta Motors – Insured
16.   Valenzuela is a General Agent of Philamgen since 1965. As such, he was
authorized to solicit and sell in behalf of Philamgen all kinds of non-life
insurance, and in sconsideration of services rendered was entitled to receive
the full agent’s commission of 32.5% from Philamgen.
17.   From 1973-1975, Valenzuela solicited marine insurance from one of his
clients Delta Motors amounting to P4.4M from which he was entitled to a
commission of 32%. However, Valenzuela did not receive his commission
amounting to P1.6M. During 1976-1978, premium payments were paid
directly to Philamgen.
18.   In 1977, Philamgen started to become interested in and expressed its intent
to share in the commission due Valenzuela on a fifty-fifty basis.
Valenzuela refused. Philamgen insisted on the sharing of commission with
Valenzuela. Valenzuela firmly reiterated his objection to the proposals of
Philamgen.
19.   Because of the refusal of Valenzuela, Philamgen took drastic action against
Valenzuela:
e.   Reversed the commission due him by not crediting in his account the
commission earned from the Delta Motors, Inc.
f.   Placed agency transactions on a cash and carry basis
g.   Threatened the cancellation of policies issued by his agency
h.   Started to leak out news that Valenzuela has a substantial account with
Philamgen.
All of these acts resulted in the decline of his business as insurance agent.
Then on December 27, 1978, Philamgen terminated the General Agency
Agreement of Valenzuela.
20.   Vaenzuela filed a complaint against Philamgen.
21.   Trial Court ruled in favor of Valenzuela stating that the principal cause of
the termination of Valenzuela as General Agent of Philamgen was based on
his refusal to share his Delta Commission.
22.   The acts of harassment done by Philamgen to force Valenzuela to agree to
the sharing of his Delata commission do not justify the termination of the
General Agency Agreement entered into by Philamgen and Valenzuela.
23.   CA ruled in favor of Philamgen stating that the principal’s power to revoke
an agency at will is so pervasive that termination may be effected even if
the principal acts in bad faith, subject only to the principal’s liability for
damages.
ISSUE:
WON Philamgen and/or its officers can be held liable for damages due to the
termination of the General Agency Agreement it entered into with Valenzuela –
YES. The agency involving Valenzuela and Philamgen is one "coupled with an
interest," and, therefore, should not be freely revocable at the unilateral will of the
latter. The principal cause of the termination of Valenzuela as General Agent of
Philamgen arose from his refusal to share his Delta Commission. Such termination,
as held by the Trial Court, is tainted with bad faith.
WON Valenzuela is liable to Philamgen for the unpaid and uncollected
premiums – NO. The remedy for the non-payment of premiums is to put an end to
and render the insurance policy not binding.
RULING: ACCORDINGLY, the petition is GRANTED. The impugned decision of
January 29, 1988 and resolution of April 27, 1988 of respondent court are hereby
SET ASIDE. The decision of the trial court dated January 23, 1986 in Civil Case No.
121126 is REINSTATED with the MODIFICATIONS that the amount of FIVE
HUNDRED TWENTY ONE THOUSAND NINE HUNDRED SIXTY-FOUR AND
16/100 PESOS (P521,964.16) representing the petitioners Delta commission shall
earn only legal interests without any adjustments under Article 1250 of the Civil
Code and that the contractual relationship between Arturo P. Valenzuela and
Philippine American General Insurance Company shall be deemed terminated upon
the satisfaction of the judgment as modified.
RATIO:
176.  The principal cause of the termination of Valenzuela as General Agent of
Philamgen arose from his refusal to share his Delta commission. The
records sustain the conclusions of the trial court on the apparent bad faith of
the Philamgen in terminating the General Agency Agreement of
Valenzuela. In the case at bar, the records show that the findings and
conclusions of the trial court are supported by substantial evidence and
there appears to be no cogent reason to disturb them.
177.  As early as September 30,1977, Philamgen told the petitioners of its desire
to share the Delta Commission with them. It stated that should Delta back
out from the agreement, Valenzuela would be charged interests through a
reduced commission after full payment by Delta.
178.  On January 23, 1978 Philamgen proposed reducing the Valenzuela’s
commissions by 50% thus giving them an agent's commission of 16.25%.
On February 8, 1978, Philamgen insisted on the reduction scheme. There
were other pressures:
a.   The petitioners were told that the Delta commissions would not be
credited to their account
b.   They were informed that the Valenzuela agency would be placed on a
cash and carry basis thus removing the 60-day credit for premiums due
c.   Existing policies were threatened to be cancelled
d.   The Valenzuela business was threatened with diversion to other agencies
e.   Rumors were also spread about alleged accounts of the Valenzuela
agency
179.  It is also evident from the records that the agency involving Valenzuela and
Philamgen is one "coupled with an interest," and, therefore, should not be
freely revocable at the unilateral will of the latter.
180.  In the insurance business in the Philippines, the most difficult and
frustrating period is the solicitation and persuasion of the prospective clients
to buy insurance policies. Normally, agents would encounter much
embarrassment, difficulties, and oftentimes frustrations in the solicitation
and procurement of the insurance policies. To sell policies, an agent exerts
great effort, patience, perseverance, ingenuity, tact, imagination, time and
money.
181.  In the case of Valenzuela, he was able to build up an Agency from scratch
in 1965 to a highly productive enterprise. The records sustain the finding
that the Philamgen started to covet a share of the insurance business that
Valenzuela had built up, developed and nurtured to profitability through
over thirteen (13) years of patient work and perseverance. When Valenzuela
refused to share his commission in the Delta account, the boom suddenly
fell on him.
182.  With the termination of the General Agency Agreement, Valenzuela would
no longer be entitled to commission on the renewal of insurance policies of
clients sourced from his agency. Worse, despite the termination of the
agency, Philamgen continued to hold Valenzuela jointly and severally
liable with the insured for unpaid premiums. Under these circumstances,
it is clear that Valenzuela had an interest in the continuation of the
agency when it was unceremoniously terminated not only because of the
commissions he should continue to receive from the insurance business he
has solicited and procured but also for the fact that by the very acts of the
respondents, he was made liable to Philamgen in the event the insured fail
to pay the premiums due. They are estopped by their own positive
averments and claims for damages. Therefore, the respondents cannot state
that the agency relationship between Valenzuela and Philamgen is not
coupled with interest.
As to Valenzuela’s liability to pay Philamgen for the unpaid and uncollected
premiums
183.   We rule that the respondent court erred in holding Valenzuela liable. We find no factual and
legal basis for the award. Under Section 7767 of the Insurance Code, the remedy for the non-
payment of premiums is to put an end to and render the insurance policy not binding.
184.   Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc.: Non- payment of premium
does not merely suspend but puts an end to an insurance contract since the time of the payment
is peculiarly of the essence of the contract.
185.  Since admittedly the premiums have not been paid, the policies issued have
lapsed. The insurance coverage did not go into effect or did not continue
and the obligation of Philamgen as insurer ceased. Hence, for Philamgen
which had no more liability under the lapsed and inexistent policies to
demand, much less sue Valenzuela for the unpaid premiums would be the
height of injustice and unfair dealing. In this instance, with the lapsing of
the policies through the nonpayment of premiums by the insured there
were no more insurance contracts to speak of.
67
Sec. 77 ... [N]otwithstanding any agreement to the contrary, no policy or contract of insurance is valid
and binding unless and until the premiums thereof have been paid except in the case of a life or industrial
life policy whenever the grace period provision applies (P.D. 612, as amended otherwise known as the
Insurance Code of 1974)
 015 PHILAMLIFE v. ANSALDO (TIMBOL)
July 26, 1994| Quiason, J. | Insurance Commissioner
PETITIONER: Philippine American Life Insurance Company and Rodrigo De Los
Reyes
RESPONDENTS: Hon. Armando Ansaldo, Commissioner, and Ramon Montilla
Paterno
SUMMARY: PATERNO sent a letter-complaint to COMM. ANSALDO alleging
certain problems encountered by agents, supervisors, managers and public
consumers of PHILAMLIFE, particularly regarding the charges and fees in the
CONTRACT OF AGENCY. DE LOS REYES, President of PHILAMLIFE,
answered to PATERNO’s letter stating that it was not sufficient in form and
substance, and that since the COMMISIONER’s Quasi Judicial Power was being
invoked, PATERNO should file a verified formal complaint. Upon submission,
COMM. ANSALDO sent a notice of hearing to both parties. PHILAMLIFE (through
Ortega its AVP) filed a Motion to Quash Subpoena/Notice on two grounds: (1)
Subpoena/Notice has no legal basis and is premature; and (2) The Insurance
Commision has no jurisdiction over the subject matter nad the parties involved.
COMM. ANSALDO denied the Motion to Quash. Hence this petition.
Whether or not COMM. ANSALDO has jurisdiction to rule over the CONTRACT
OF AGENCY.
The SC held that the Insurance Commissioner has no jurisdiction. First, the
Insurance Code under Sec. 415 provides that the COMMISIONER may only
regulate the business of insurance. The Contract of Agency is not considered as
doing business of insurance. Second, althought Sec. 416 provides QUASI-
JUDICIAL POWERS to the COMMISSIONER, such powers are limited only to
claims and complaints involving any loss, damage or liability, for which an insurer
may be answerable under any kind of policy or contract of insurance. Third, the
Insurance Code does not have provisions governing the relations between insurance
companies and their agents. Lastly, there are two categories of employees in an
insurance company: (1) Salaried employees through a Contract of Employment,
which are governed by the Labor Code; and (2) Registered Representatives paid by
commission, through a Contract of Agency. And disputes involving the latter are
within the jurisdiction of the regular courts.
DOCTRINE: The Insurance Code does not have provisions governing the relations
between insurance companies and their agents. It follows that the Insurance
Commissioner cannot, in the exercise of its quasi-judicial power, assume jurisdiction
over controversies between the insurance companies and their agents
FACTS:
134.  A letter-complaint of Ramon M. Paterno, Jr. (PATERNO) to Commissioner
Ansaldo (ANSALDO), alleging certain problems encountered by agents,
supervisors, managers and public consumers of the Philippine American
Life Insurance Company (PHILAMLIFE) as a result of certain practices
by said company
135.  ANSALDO requested Rodrigo de los Reyes (DE LOS REYES), in his
capacity as PHILAMLIFE’s president, to comment on PATERNO’s letter
136.  DE LOS REYES suggested that PATERNO submit some sort of a bill of
particulars listing and citing actual cases, facts, dates, figures, provisions
of law, rules and regulations, and all other pertinent data which are
necessary to enable him to prepare an intelligent reply
137.  ANSALDO received a letter from PATERNO maintaining that his letter-
complaint was sufficient in form and substance, and requested that a
hearing thereon be conducted
138.  DE LOS REYES reiterated his claim that PATERNO’s letter did not supply
the information he needed to enable him to answer the letter-complaint
139.  A hearing on the letter-complaint was held ANSALDO on the validity of
the CONTRACT OF AGENCY complained of by PATERNO
140.  PATERNO was required by ANSALDO to specify the provisions of the
agency contract which he claimed to be illegal
1.   PATERNO submitted a letter of specification and praying that
the provisions on charges and fees stated in the CONTRACT
OF AGENCY executed between PHILAMLIFE and its agents,
as well as the implementing provisions as published in the
agent’s handbook, agency bulletins and circulars, be declared
as NULL AND VOID
2.   He also asked that the amounts of such charges and fees
already deducted and collected by PHILAMLIFE in
connection therewith be reimbursed to the agents, with interest
at the prevailing rate reckoned from the date when they were
deducted
141.  DE LOS REYES submitted an Answer:
1.   PATERNO’s letter does not contain any of the particular
information which PHILAMLIFE was seeking from him and
which he promised to submit
2.   Since the Commission’s QUASI-JUDICIAL POWER was
being invoked with regard to the complaint, PATERNO must
file a VERIFIED formal complaint before any further
proceedings
142.  PATERNO executed an affidavit, verifying his letters
143.  Manuel Ortega, PHILAMLIFE’s Senioer AVP and Executive Assistant to
the President, asked that Commission first rule on the questions of the
jurisdiction of the Insurance Commissioner over the subject matter of the
letters-complaint and the legal standing of PATERNO
144.  ANSALDO notified both parties of the hearing of the case
1.   Ortega filed a MOTION TO QUASH Subpoena/Notice on the
following grounds:
 1.   The Subpoena/Notice has no legal basis and is premature
because:
a.   No complaint sufficient in form and contents has been
filed;
b.   No summons has been issued nor received by DE LOS
REYES, and hence no jurisdiction has been acquired
over his person
c.   No answer has been filed, hence, Subpoena/Notice is
premature and lacks legal basis
2.   The Insurance Commission has no jurisdiction over:
1.   The subject matter or nature of the action; AND
2.   Over the parties involved
145.  ANSALDO denied the Motion to Quash. Hence this appeal.
ISSUE/s:
16.   WoN the resolution of the legality of the Contract of Agency falls within
the jurisdiction of the Insurance Commissioner – NO, because disputes
regarding the Contract of Agency are cognizable by the regular courts. A
Contract of Agency, moreover, is not considered an insurance business,
which the Commissioner may regulate. Also, the quasi-judicial power of the
Commissioner may not be invoked because it is limited to claims and
damages for which an insurer may be liable under any kind of policy or a
contract of insurance
RULING: WHEREFORE, the petition is GRANTED. The Order dated November 6,
1986 of the Insurance Commission is SET ASIDE.
RATIO:
146.  The general regulatory authority of the Insurance Commissioner is
described in Sec. 414 of the Insurance Code, to wit:
1.   The Insurance Commissioner shall have the duty to see that all
laws relating to insurance, insurance companies and other
insurance matters, mutual benefit associations and trusts for
charitable uses are faithfully executed and to perform the duties
imposed upon him by this Code
147.  On the other hand, Sec. 415 provides:
1.   In addition to the administrative sanctions provide elsewhere in
this Code, the Insurance Commissioner is hereby authorized, at his
discretion, to impose upon insurance companies, their directors
and/or officer and/or agents, for any willful failure or refusal to
comply with, or violation of any provision of this Code, or any
order, instruction, regulation or ruling of the Insurance
Commissioner, or any commission of irregularities, and/or
conducting business in an unsafe and unsound manner as may be
determined by the Insurance Commissioner, the following:
1.   Fines not in excess of P500/day; AND
2.   Suspension, or after due hearing, removal of directors
and/or officers and/or agents
148.  A plain reading of the above-quoted provisions show that the Insurance
Commissioner has the authority to regulate the business of insurance,
which is defined as follows:
1.   The term “doing an insurance business” or “transacting an
insurance business,” within the meaning of this Code, shall
include:
1.   Making or proposing to make, as insurer, any insurance
contract;
2.   Making or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to
any other legitimate business or activity of the surety;
3.   Doing any kind of business, including a reinsurance
business, specifically recognized as constituting the
doing of an insurance business within the meaning of this
Code;
4.   Doing or proposing to do any business in substance
equivalent to any of the foregoing in a manner designed
to evade the provisions of this Code
149.  Since the CONTRACT OF AGENCY entered into between
PHILAMLIFE and its agents is NOT INCLUDED within the meaning
of an insurance business, Sec.2 of the Insurance Code CANNOT be
invoked to give jurisdiction over the same to the Insurance
Commissioner (Expressio Unius est exclusion alterius)
150.  Sec. 416 of the Insurance Code pertaining to the QUASI-JUDICIAL
POWERS of the COMMISSIONER is also not applicable:
1.   The Commissioner shall have the power to adjudicate claims and
complaints involving any loss, damage or liability for which an
insurer may be answerable under any kind of policy or contract of
insurance, or for which such insurer may be liable under a contract
of suretyship, or for whicha reinsurer may be used under any
contract or reinsurance it may have entered into, or for which a
mutual benefit association may be held liable under the
membership certificates it has issued to its members, where the
amount of any such loss, damage or liability, excluding interest,
costs and attorney’s fees, being claimed or sued upon any kind of
insurance, bond reinsurance contract, or membership certificate
does not exceed in any single claim P100,000
151.  A reading of the said section shows that the quasi-judicial power of the
Insurance Commissioner is limted by law “to claims and complaints
involving any loss, damage or liability for which an insurer may be
answerable under any kind of policy or contract of insurance,”
152.  Hence, this power does not cover the relationship affecting the
insurance company and its agents but is limited to adjudicating claims
and complaints filed by the insured against the insurance company
153.  While the subject of Insurance Agents and Brokers is discussed under
Chapter IV, Title I of the Insurance Code, the provisions of said Chapter
speak only of the licensing requirements an limitations imposed on
insurance agents and brokers
154.  The Insurance Code does not have provisions governing the relations
between insurance companies and their agents. It follows that the Insurance
Commissioner cannot, in the exercise of its quasi-judicial power, assume
jurisdiction over controversies between the insurance companies and their
agents
155.  We have held in the cases of GREPALIFE v. Judico, and Investment
Planning Corp., v. Social Security Commission, that an insurance company
may have two classes of agents who sell its insurance policies:
1.   Salaried employees who keep definited hours and work under the
control and supervision of the company; AND
2.   Registered representatives, who work on commission basis
156.  Under the first category, the relationship between the insurance company
and its agents is governed by the Contract of Employment and the
provisions of the Labor Code, while udner the second category, the same is
governed by the Contract of Agency and the provisions of the Civil Code on
the Agency
1.   Disputes involving the latter are cognizable by the regular courts