Gulf Resorts v.

Philippine Charter Insurance INSURANCE

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GR No.156167 May 16, 2005 Puno, J. GOYO
Plaintiff-Appellee: Accused-Appellant:
Gulf Resorts, Inc. Philippine Charter Insurance Corporation
Recit Ready Summary
Gulf Resorts is the owner of Plaza Resort, situated in Agoo, La Union. Its properties were originally
insured by American Home Assurance Company (AHAC-AIU). In the first 4 insurance policies issued by
AHAC-AIU from 1984-1987, the risk of loss from earthquake shock extended only to Gulf Resort’s 2
swimming pools (Item 5). AHAC-AIU issued another insurance policy for March 14-1989-1990, where the
earthquake endorsement clause was deleted. Subsequently, Gulf Resorts agreed to be insured with
Philippine Charter Insurance Corporation, provided that the policy wording and rates were to be copied
from the previous policy with AHAC-AIU.

An earthquake struck Central and Northern Luzon. Gulf Resorts’ properties were damages, including the
2 swimming pools. Gulf Resorts filed a formal demand but, Philippine Charter denied this on the ground
that the insurance policy only covered the 2 swimming pools. Gulf Resorts contends a rider was attached
to the policy and, it did not limit the scope of insurance coverage to the 2 swimming pools

The issue is W/N the insurance policy against earthquake damage extends beyond the 2 swimming
pools. (NO)

The SC held that the insurance policy issued to Gulf Resorts is only limited to the 2 swimming pools and
the other properties of Playa Resort are not covered by the property insurance.

There is no ambiguity in the insurance contract and the earthquake shock rider, as Gulf Resorts stated
that the swimming pools are the only items covered by the insurance against loss due to earthquakes.
The Court stated that provisions in the insurance policy should be examined and interpreted in
consonance with each other and should not be construed piecemeal. All parts of the insurance contract
reflect the true intent of the parties.

Contracts of adhesion as contracts where one party prepares the stipulations in the contract while the
other party merely affixes his/her signature. Any ambiguity is resolved against the insurer (who prepared
the contract) and construed liberally in the insured’s favor.

However, since the policy and its riders are clear about the insurance coverage against earthquake
shock, Gulf Resorts cannot use the doctrine of contract of adhesion and liberal interpretation of insurance
contract in the insured’s favor in case of ambiguity.
Facts
1. Gulf Resorts is the owner of Plaza Resort, situated in Agoo, La Union. Its properties were originally
insured by American Home Assurance Company (AHAC-AIU).
2. In the first 4 insurance policies issued by AHAC-AIU from 1984-1987, the risk of loss from
earthquake shock extended only to Gulf Resort’s 2 swimming pools (Item 5).
3. AHAC-AIU issued another insurance policy for March 14-1989-1990, where the earthquake
endorsement clause was deleted. The Endorsements/Warranties portion read that the Gulf Resorts
renewed its policy, amounting to 10,700 pesos and a premium of 42,658.14 pesos.
4. Subsequently, Gulf Resorts agreed to be insured with Philippine Charter Insurance Corporation,
provided that the policy wording and rates were to be copied from the previous policy with AHAC-
AIU.
5. On July 16, 1990, an earthquake struck Central and Northern Luzon. Gulf Resorts’ properties were
damages, including the two swimming pools.
6. Gulf Resorts advised Philippine Charter Insurance that it would be making a claim under their
insurance policy for damages to its properties.
7. Bayne Adjusters and Surveyors, Inc. investigated on behalf of Philippine Charter Insurance and
found that there was extensive damage to the clubhouse and 2 swimming pools.

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 8. Gulf Resorts filed a formal demand but, Philippine Charter denied this on the ground that the
insurance policy only covered the 2 swimming pools.
9. RTC ruled in favor of Philippine Charter Insurance. It ruled that the insurance coverage against
earthquakes is limited only to the 2 swimming pools. CA affirmed RTC.
Point/s of Contention
Gulf Resorts – a rider was attached to the policy (Extended Coverage Endorsement (To Include The
Perils of Explosion, Aircraft, Vehicle, and Smoke) and it did not limit the scope of insurance coverage to
the 2 swimming pools.
Issues Ruling
1. W/N the insurance policy against earthquake damage extends beyond the 2 1. NO
swimming pools.
Rationale
1. The insurance against earthquake damage is limited to the 2 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:

1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of
persons bearing a similar risk; and
5. In consideration of the insurer's promise, the insured pays a premium.

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 regarding earthquake shock. This is consistent with the history of
Gulf Resorts’ previous insurance policies from AHAC-AIU.

The Supreme Court held that the insurance policy issued to Gulf Resorts is only limited to the two
swimming pools and the other properties of Playa Resort are not covered by the property insurance
issued by AHAC-AIU. Philippine Charter Insurance merely copied the previous insurance policies of
AHAC-AIU, as requested by Gulf Resorts.

The Court held that there is no ambiguity in the insurance contract and the earthquake shock rider, as
Gulf Resorts stated that the swimming pools are the only items covered by the insurance against loss due
to earthquakes. The Court stated that provisions in the insurance policy should be examined and
interpreted in consonance with each other and should not be construed piecemeal. All parts of the
insurance contract reflect the true intent of the parties.

The Supreme Court also defined contracts of adhesion as contracts where one party prepares the
stipulations in the contract while the other party merely affixes his/her signature (Philippine National Bank
vs. Court of Appeals). Any ambiguity is resolved against the insurer (who prepared the contract) and
construed liberally in the insured’s favor.

However, since the policy and its riders are clear about the insurance coverage against earthquake
shock, Gulf Resorts cannot use the doctrine of contract of adhesion and liberal interpretation of insurance
contract in the insured’s favor in case of ambiguity.

Furthermore, he paid 393,000 regularly, amounting to coverage for the 2 swimming pools only.
Disposition
CA affirmed. No costs.