I. Introduction; General Concept of Insurance; Public Interest in 2.

2. The Insurance Code has vested the Office of the Insurance Commission
Insurance Business with both regulatory and adjudicatory authority over insurance matters. Hence,
Insurance Commissioner Malinis’ decision in refusing to release the security
REPUBLIC v DEL MONTE MOTORS, INC deposit pursuant to the writ of garnishment should be given respect since he
(G.R. No. 156956, October 9, 2006) has been given great discretion to regulate the business to protect the public.
Also “An implied trust is created by the law for the benefit of all claimants under
FACTS: subsisting insurance contracts issued by the insurance company.” He
On January 15, 2002, Vilfran Liner lost in a case against Del Monte Motors. believed that the security deposit was exempt from execution to protect the
They were made to pay 11 million pesos for service contracts with Del Monte, policy holders.
and such was sourced from the counterbond posted by Vilfran. It was Capital The business of insurance is imbued with public interest. It is subject to
Insurance and Surety Co., Inc. (CISCO) which issued the counterbond. regulation by the State, with respect not only to the relations between the
insurer and the insured, but also to the internal affairs of insurance companies.
RTC further issued a writ of execution commanding the sheriff to levy the
amount on the property of CISCO. To completely satisfy the amount, the
Insurance Commissioner Malinis was also commanded to withdraw the
security deposit filed by CISCO with the Insurance Commission according to
Sec 203 of the Insurance Code for the payment of the insurance indemnity
won by Del Monte Motor against Vilfran Liner, the insured.
Malinis didn’t obey the order, so the respondent moved to cite him in contempt
of Court.

ISSUE:
1. W/N security deposits made with the Insurance Commission may be levied
and garnished.
2. W/N the Insurance Commissioner has power to withhold the release of the
security deposit.

RULING:
1. NO. As worded in Sec 203, the law expressly & clearly states that the
security deposit shall be (1) answerable for all the obligations of the depositing
insurer under its insurance contracts; (2) at all times free from any liens or
encumbrance; and (3) exempt from levy by any claimant.

To allow the garnishment of that deposit would impair the fund by decreasing
it to less than the percentage of paid-up capital that the law requires to be
maintained. The securities required by the Insurance Code to be deposited
with the Insurance Commissioner are intended to answer for the claims of all
policy holders in the event that the depositing insurance company becomes
insolvent or otherwise unable to satisfy their claims.
The security deposit must be ratably distributed among all the insured who are
entitled to their respective shares; it cannot be garnished or levied upon by a
single claimant, to the detriment of the others.

INSURANCE DIGESTS I EH 404 2017 1

I. Introduction; General Concept of Insurance;
Insurance v Health Maintenance Organizations (HMO)
PHILIPPINE HEALTH CARE PROVIDERS, INC. v CIR
(G.R. No. 167330, September 18, 2009)
American courts have pointed out that the main difference between an HMO
and an insurance company is that HMOs undertake to provide or arrange for
the provision of medical services through participating physicians while
insurance companies simply undertake to indemnify the insured for medical
expenses incurred up to a pre-agreed limit.

One test that they have applied is whether the assumption of risk and
indemnification of loss (which are elements of an insurance business) are the
principal object and purpose of the organization or whether they are merely
incidental to its business. If these are the principal objectives, the business is
that of insurance. But if they are merely incidental and service is the principal
purpose, then the business is not insurance.
FACTS:
Petitioner is a domestic corporation whose primary purpose is "[t]o establish,
maintain, conduct and operate a prepaid group practice health care delivery
system or a health maintenance organization to take care of the sick and
disabled persons enrolled in the health care plan and to provide for the
administrative, legal, and financial responsibilities of the organization".
Respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal
demand letter and the corresponding assessment notices demanding the
payment of deficiency taxes, including surcharges and interest. The deficiency
[documentary stamp tax (DST)] assessment was imposed on petitioner's
health care agreement with the members of its health care program.
In short, even if petitioner assumes the risk of paying the cost of these services
even if significantly more than what the member has prepaid, it nevertheless
cannot be considered as being engaged in the insurance business.
Overall, petitioner appears to provide insurance-type benefits to its members
(with respect to its curative medical services), but these are incidental to the
principal activity of providing them medical care. Therefore, since it
substantially provides health care services rather than insurance services, it
cannot be considered as being in the insurance business.
In adopting the "principal purpose test" used in the above-quoted U.S. cases,
we are not saying that petitioner's operations are identical in every respect to
those of the HMOs or health providers which were parties to those cases.
What we are stating is that, for the purpose of determining what "doing an
insurance business" means, we have to scrutinize the operations of the
business as a whole and not its mere components.

ISSUE:
W/N the contract issued by the HMO is subject to documentary stamp tax for
bonds and other insurance contracts?

RULING:
NO. Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health
Insurance Act of 1995"), an HMO is "an entity that provides, offers or arranges
for coverage of designated health services needed by plan members for a
fixed prepaid premium". The payments do not vary with the extent, frequency
or type of services provided.

One test that they have applied is whether the assumption of risk and
indemnification of loss (which are elements of an insurance business) are the
principal object and purpose of the organization or whether they are merely
incidental to its business. If these are the principal objectives, the business is
that of insurance. But if they are merely incidental and service is the principal
purpose, then the business is not insurance.

INSURANCE DIGESTS I EH 404 2017 2

I. Introduction; 1

WHITE GOLD MARINE SERVICES v PIONEER INSURANCE

(G.R No. 154514, July 28, 2005)

FACTS:
White Gold marine services procured a protection and indemnity coverage for
its vessels from Steamship Mutual through Pioneer Insurance and Surety
Corporation. When White Gold failed to fully pay its accounts, Steamship
Mutual refused to renew the coverage. Steamship Mutual filed a case against
White Gold for a collection of sum of money while White Gold, filed a complaint
against Steamship Mutual saying that the company has not secured a license
from the Insurance Commission despite its engagement in the insurance
business. They contend that Pioneer Insurance needs to procure a separate
licence as an agent of Steamship Mutual.

ISSUES:
1. Is Steamship Mutual engaging in the insurance business in the Philippines?
2. Does Pioneer Insurance need a separate license as an agent of
Steamship?

RULING:
1. A marine insurance undertakes to indemnify the assured against marine
losses. A mutual insurance company is a cooperative enterprise where the
members are both the insurer and the insured. In it, 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. Steamship Mutual is a P & I club,
which 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, Steamship
Mutual as a P & I Club is a mutual insurance association engaged in the
marine insurance business.

2. Pioneer Insurance, although an agent of Steamship Mutual, needs a

separate licence pursuant to Section 299 of the Insurance Code that says:

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.

INSURANCE DIGESTS I EH 404 2017 3

I. Introduction; 2 or anyone acting in his behalf to obtain any benefit under the policy”. Verendia,
having presented a false declaration to support his claim for benefits in the
VERENDIA v CA form of a fraudulent lease contract, he forfeited all benefits therein by virtue of
(217 SCRA 417) Section 13 of the policy in the absence of proof that Fidelity waived such
provision.
Basically a contract of indemnity, an insurance contract is the law between the
parties. Its terms and conditions constitute the measure of the insurer’s liability
and compliance therewith is a condition precedent to the insured’s right to
recovery from the insurer.

FACTS:
Fidelity and Surety Insurance Company of the Philippines issued Fire
Insurance Policy No. F- 18876 covering Rafael (Rex) Verendia’s residential
building located at Tulip Drive, Beverly Hills, Antipolo, Rizal in the amount of
P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings
Bank. Verendia also insured the same building with two other companies,
namely, The Country Bankers Insurance for P56,000.00 under Policy No.
PDB-80-1913 and The Development Insurance for P400,000.00 under Policy
No. F-48867.

While the three fire insurance policies were in force, the insured property was
completely destroyed by fire on the early morning of December 28, 1980.
Fidelity was accordingly informed of the loss and despite demands, refused
payment under its policy, thus prompting Verendia to file a complaint.

Fidelity, among other things, averred that the policy was avoided by reason of
over-insur-ance; that Verendia maliciously represented that the building at the
time of the fire was leased under a contract executed on June 25, 1980 to a
certain Roberto Garcia, when actually it was a Marcelo Garcia who was the
lessee.

ISSUES:
1. W/N the contract of lease submitted by Verendia to support his claim on the
fire insurance policy constitutes a false declaration which would forfeit his
benefits under Section 13 of the policy

RULING:
1. YES. Verendia used a false lease contract to support his claim under Fire
Insurance Policy No. F-18876, the terms of the policy should be strictly
construed against the insured. Verendia failed to live by the terms of the policy,
specifically Section 13 thereof which is expressed in terms that are clear and
unambiguous, that all benefits under the policy shall be forfeited “If the claim
be in any respect fraudulent, or if any false declaration be made or used in
support thereof, or if any fraudulent means or devises are used by the Insured

INSURANCE DIGESTS I EH 404 2017 4

I. Introduction; 3
RIZAL SURETY AND INSURANCE CO. v CA
(336 SCRA 12)
FACTS:
On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance)
issued Fire Insurance Policy No. 45727 in favor of Transworld Knitting Mills,
Inc. (Transworld), initially for One Million (P1,000,000.00) Pesos and
eventually increased to One Million Five Hundred Thousand (P1,500,000.00)
Pesos, covering the period from August 14, 1980 to March 13, 1981. The
same pieces of property insured with the petitioner were also insured with New
India Assurance Company, Ltd., (New India).
On January 12, 1981, fire broke out in the compound of Transworld, razing
the middle portion of its four-span building and partly gutting the left and right
sections thereof. A two-storey building (behind said 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 &
Insurance Company and New India Assurance Company but to no avail.
Private respondent brought against the said insurance companies an action
for collection of sum of money and damages. Petitioner Rizal Insurance
countered that its fire insurance policy sued upon covered only the contents
of the four-span building, which was partly burned, and not the damage
caused by the fire on the two-storey annex building.
ISSUE:
W/N the two-storey building was included in the coverage of the insurance
policy issued by Rizal Surety to Transworld?
RULING:
YES. Resolution of the issues posited here hinges on the proper interpretation
of the stipulation in subject fire insurance policy regarding its coverage, which
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 . . ."
Therefrom, it can be gleaned unerringly that the fire insurance policy in
question did not limit its coverage to what were stored in the four-span
building.
In the case under consideration, both the trial court and the Court of Appeals
found that the so called "annex" was not an annex building but an integral and
inseparable part of the four-span building described in the policy and
consequently, the machines and spare parts stored therein were covered by
the fire insurance in dispute. So also, considering that the two-storey building
aforementioned was already existing when subject fire insurance policy
contract was entered into on January 12, 1981, having been constructed
sometime in 1978, petitioner should have specifically excluded the said two-
storey building from the coverage of the fire insurance if minded to exclude
the same but it did not, and instead, went on to provide that such fire insurance
policy covers the products, raw materials and supplies stored within the
premises of respondent Transworld which was an integral part of the four-
span building occupied by Transworld.
Conformably, it stands to reason that the doubt should be resolved against
the petitioner, Rizal Surety Insurance Company, whose lawyer or managers
drafted the fire insurance policy contract under scrutiny. Citing the aforecited
provision of law in point, the Court in Landicho vs. Government Service
Insurance System, ruled:
"This is particularly true as regards insurance policies, in respect of which it is
settled that the 'terms in an insurance policy, which are ambiguous, equivocal,
or uncertain . . . 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 forfeiture is
involved' (29 Am. Jur., 181), and the reason for this is that the 'insured usually
has no voice in the selection or arrangement of the words employed and that
the language of the contract is selected with great care and deliberation by
experts and legal advisers employed by, and acting exclusively in the interest
of, the insurance company.' (44 C.J.S., p. 1174)."
I. Introduction; 4
PHILAMCARE HEALTH SYSTEMS INC. v CA
(379 SCRA 356)
FACTS:
Ernani Trinos, deceased husband of respondent Julita Trinos, was issued a
Health Care Agreement for a health coverage with petitioner Philamcare
Health Systems Inc. During the period of Ernani’s coverage, he suffered a
heart attack and was confined in the hospital. Respondent tried to claim the
benefits under the health care agreement, but petitioner denied her claim.
Petitioner asserted, among other things, that only medical and hospitalization
benefits are given under the agreement without any indemnification – unlike
INSURANCE DIGESTS I EH 404 2017 5
in an insurance contract where the insured is indemnified for his loss. As a
result, respondent wound up paying the hospitalization expenses herself.

After Ernani’s passing, respondent filed an action for damages against

petitioner and its president, Dr. Reverente. The RTC ruled in favor of
respondent and awarded damages. On appeal, the CA affirmed the decision
of the RTC but deleted all awards for damages and absolved Reverente. Now
comes petitioner raising the primary argument that a health care agreement
is not an insurance contract.

ISSUE:
W/N the health care agreement was an insurance contract.

RULING:
Yes, the health care agreement was an insurance contract. More particularly,
it was one in the nature of a non-life insurance, which is primarily a contract of
indemnity. An insurance contract exists when 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.

In the case at bar, the insurable interest of respondent's husband in obtaining

the health care agreement was his own health. Once the member incurs
hospital, medical or any other expense arising from sickness, injury or other
stipulated contingent, the health care provider must pay for the same to the
extent agreed upon under the contract.

INSURANCE DIGESTS I EH 404 2017 6

I. Introduction; 5
FORTUNE INSURANCE AND SURETY CO., INC. v CA
(G.R. No. 115278. May 23, 1995)
An insurance contract is a contract of indemnity upon the terms and conditions
specified therein. It is settled that the terms of the policy constitute the
measure of the insurer's liability.
FACTS:
Producers Bank of the Philippines (Producers) filed a case against Fortune
Insurance and Surety Co., Inc. (Fortune) for recovery of the sum of
P725,000.00 under the policy issued by Fortune. The sum was allegedly lost
during a robbery of Producer’s armored vehicle while it was in transit. Fortune,
in refusing to pay, invokes a provision in their insurance contract which
provides:
"GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx xxx xxx
(b) 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. . . . "
According to Producers, Atiga (Guard) and Magalong (Driver) are not its
“officer, employee, … trustee or authorized representative … at the time of the
robbery.
RTC ruled in favor of Producers saying that Magalong and Atiga were not
employees or representatives of Producers but were merely the assigned
armored car driver and security guard in which the CA affirmed in toto. Hence,
a petition for certiorari was filed alleging loss falls within the general exceptions
clause of the contract. According to them, there exist an employee-employer
relationship between them and Producers.
ISSUE:
W/N the petitioner is liable under the Money, Security, and Payroll Robbery
policy it issued to the private respondent.
RULING:
NO. Fortune is exempt from liability under the general exceptions clause.
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. 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."
An insurance contract is a contract of indemnity upon the terms and conditions
specified therein. It is settled that the terms of the policy constitute the
measure of the insurer's liability. In the absence of statutory prohibition to the
contrary, insurance companies have the same rights as individuals to limit
their liability and to impose whatever conditions they deem best upon their
obligations not inconsistent with public policy.
However, in this case there is a disagreement between the parties on the
correct meaning of the terms "employee" and "authorized representatives." 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. 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, 21 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. In short, for these particular tasks,
the driver and security guard acted as agents of Producers. A "representative"
is defined as one who represents or stands in the place of another; one who
represents others or another in a special capacity, as an agent, and is
interchangeable with "agent."
INSURANCE DIGESTS I EH 404 2017 7
I. Introduction; 6 earthquake shock. This is consistent with the history of petitioner's previous
insurance policies from AHAC-AIU.
GULF RESORTS v PHILIPPINE CHARTER INSURANCE CORPORATION
(G.R. No. 156167, May 16, 2005) 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
FACTS: contracts of adhesion which should be liberally construed in favor of the
Petitioner Gulf Resorts is the owner of Plaza Resort in La Union. The insured and strictly against the insurer company which usually prepares it.
properties in said resort were insured originally with the American Home
Assurance Company (AHAC-AIU). In the first 4 insurance policies extended
by AHAC-AIU, the risk of loss was extended only to the two swimming pools.
Respondent Phil. Charter Insurance agreed to insure the properties of
petitioner provided that the policy wording and rates in said policy be copied
in the policy to be issued by respondents. The breakdown of premiums shows
that plaintiff paid only P393.00 as premium against earthquake shock.
After an earthquake shook La Union, petitioner filed a claim under Insurance
Policy No. 31944 for the damage. The adjuster rendered a preliminary report
finding extensive damage to the clubhouse and the swimming pools. It further
stated that "except for the swimming pools, all affected items have no
coverage for earthquake shocks."

Petitioner’s claims were denied prompting them to file a complaint with the
RTC. The RTC ruled in favor of the respondent holding that the insurance
policy only included the two swimming pools. The CA affirmed this ruling.
Hence, this petition.

ISSUE:
Does the insurance policy extend to “any property insured by this policy” and
must thus cover the damage made to all the properties in the resort?

RULING:
NO. The insurance policy only includes the two swimming pools.

It is basic that all the provisions of the insurance policy should be examined
and interpreted in consonance with each other. 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.

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

INSURANCE DIGESTS I EH 404 2017 8

I. Introduction; 7
MANILA MAHOGANY v CA
(G.R. No. L-52756, October 12, 1987)
Should the insured, after receiving payment from the insurer, release the
wrongdoer who caused the loss, the insurer loses his rights against the latter.
In such a case, the insurer will be entitled to recover from the insured whatever
it has paid to the latter, unless the release was made with the consent of the
insurer.
FACTS:
Petitioner insured its Mercedes Benz 4-door sedan with respondent insurance
company. The insured vehicle was bumped and damaged by a truck owned
by San Miguel Corporation. For the damage caused, respondent paid
petitioner five thousand pesos (P5,000.00). Thus, subrogating respondent to
all of petitioner’s right of action against San Miguel Corporation.
By virtue of the said right of subrogation, respondent demanded
reimbursement from San Miguel Corporation of the amount it had paid
petitioner. The claim for reimbursement was however unsuccessful.
San Miguel Corporation alleged that it had likewise paid petitioner P4,500.00
for the damages to petitioner's motor vehicle, as evidenced by a cash voucher
and a Release of Claim executed as well by the General Manager of petitioner
discharging San Miguel Corporation.
Respondent insurance company thus demanded from petitioner
reimbursement of the sum of P4,500.00 paid by San Miguel Corporation.
Petitioner refused; hence, respondent company filed suit in the City Court of
Manila for the recovery of P4,500.00.
Respondent’s Answer:
Respondent of course disputes the allegation and states that there was no
qualification to its right of subrogation under the Release of Claim executed
by petitioner, the contents of said deed having expressed all the intents and
purposes of the parties.
ISSUE:
W/N respondent is entitled from recovering the Php 5,000.00 from petitioner
RULING:
Private respondent may recover the sum of P5,000.00 it had earlier paid to
petitioner.
In this case after the petitioner received indemnity from private respondent,
representing the proceeds of the insurance policy it obtained from it, the
private respondent was automatically subrogated to petitioner’s right to
demand after San Miguel Corporation (the wrongdoer). However, when
petitioner released San Miguel Corporation from any liability (by virtue of the
Release of Claim made when San Miguel likewise paid petitioner for the said
incident which discharges it from "all actions, claims, demands and rights of
action”), petitioner's right to retain the sum of P5,000.00 no longer existed,
thereby entitling private respondent to recover the same.
The Court ruled that petitioner by its own acts released San Miguel
Corporation, thereby defeating private respondent’s right of subrogation, the
right of action of petitioner against the insurer was also nullified (to be
indemnified).

City Court of Manila ordered petitioner to pay respondent P4,500.00. Court

of First Instance of Manila affirmed the City Court's decision in toto Court of
Appeals affirmed with the modification that petitioner was to pay respondent
the total amount of P5,000.00 that it had earlier received from the respondent
insurance company.

Petitioner’s Contention:
The subrogation in the Release of Claim it executed in favor of respondent
was conditioned on recovery of the total amount of damages petitioner had
sustained. Since total damages were valued by petitioner at P9,486.43 and
only P5,000.00 was received by petitioner from respondent, petitioner argues
that it was entitled to go after San Miguel Corporation to claim the additional
P4,500.00 eventually paid to it by the latter, without having to turn over said
amount to respondent.

INSURANCE DIGESTS I EH 404 2017 9

I. Introduction; 8
FEDERAL EXPRESS CORP v AMERICAN HOME ASSURANCE
COMPANY & PHIL-AM INSURANCE CO.
(G.R. No. 150094. August 18, 2004.)
Upon payment 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.
FACTS:
In 1994, SMITHKLINE Beecham of Nebraska, USA delivered to Burlington Air
Express, 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.
The shipment was covered by Burlington Airway Bill with the words,
REFRIGERATE WHEN NOT IN TRANSIT and PERISHABLE stamp marked
on its face. That same day, Burlington insured the cargoes in the amount of
$39,339.00 with American Home Assurance Company.
The following day, Burlington turned over the custody of said cargoes to
Federal Express which transported the same to Manila.
RULING:
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. Undeniably, the consignee had a legal right to
receive the goods in the same condition it was delivered for transport to
petitioner. If that right was violated, the consignee would have a cause of
action against the person responsible therefor.
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.
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.
Petition is GRANTED, and the assailed Decision REVERSED insofar as it
pertains to Petitioner Federal Express Corporation.

Twelve (12) days after the cargoes arrived in Manila, a non-licensed customs
broker who was assigned by GETC to facilitate the release of the subject
cargoes, found out, while he was about to cause the release of the said
cargoes, that the same were stored only in a room with two (2) air conditioners
running, to cool the place instead of a refrigerator.

After examination, it was discovered that the ELISA reading of vaccinates sera
are below the positive reference serum. As a consequence of the foregoing
result of the veterinary biologics test, SMITHKLINE abandoned the shipment
and, declaring total loss for the unusable shipment. The insurance company
paid the loss.

Trial ensued and ultimately concluded with the petitioner being held solidarily
liable for the loss.

ISSUE:
W/N there was legal subrogation on the part of the Insurance Company?

INSURANCE DIGESTS I EH 404 2017 10

I. Introduction; 9
ETERNAL GARDENS MEMORIAL PARK v PHIL AMERICAN
(G.R. 166245, April 9, 2008)
FACTS:
Respondent Philamlife entered into an agreement denominated as Creditor
Group Life Policy with petitioner Eternal Gardens Memorial Park Corporation
(Eternal). Under the policy, the clients of Eternal who purchased burial lots
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 relevant provisions of the policy are:
Eligibility
Evidence of Insurability
Life Insurance Benefit
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.
Eternal was required under the policy to submit to Philamlife a list of all new
lot purchasers, together with a copy of the application of each purchaser, and
the amounts of the respective unpaid balances of all insured lot purchasers.
Eternal complied by submitting a letter dated December 29, 1982, containing
a list of unsurable balances of its lot buyers for October 1982. One of those
included in the list as “new business” was a certain John Chuang. His balance
of payments was 100K on August 2, 1984 Chuang died.
Eternal sent a letter dated to Philamlife which served as an insurance claim
for Chuang’s death. Attached to the claim were certain documents. In reply,
Philamlife wrote Eternal to submit the additional documents relative to its
insurance claim for Chuang’s death. Eternal transmitted the required
documents through a letter which was received by Philamlife. 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. 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 out office prior to his death on August 2, 1984.
Eternal filed a case 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 reversed. Hence this petition.
ISSUE:
W/N Philamlife should pay the 100K insurance proceeds.
RULING:
YES. An examination of the provision of the POLICY under effective date of
benefit, 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.
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. 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. The second sentence of the 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.
INSURANCE DIGESTS I EH 404 2017 11
II. Contract of Insurance; 1
JAIME T. GAISANO v DEVELOPMENT INSURANCE AND SURETY
CORPORATION
(GR No. 190702, February 27, 2017)
The premium is the source of life of the insurance business.
Art 77. No policy or contract of insurance issued by an insurance company is
valid or biding unless and until the premium thereof has been paid.
Exceptions:
(1) In case of life or industrial life policy, whenever the grace period
provision applies (Art 77)
(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 (Art 78)
(3) where the parties agreed that premium payment shall be in
installments and partial payment has been made at the time of loss (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
(Makati Tuscany Condominium Corp. v. Court of Appeals)
(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:
Petitioner insured three of his vehicles with the respondent insurance
company for a period of one year. The petitioner notified the insurance
company’s agent, Trans-Pacific Underwriters Agency, that the check for the
payment of premiums is ready for pick up on September 27, 1996. However,
due to the birthday of the president of Trans-Pacific, it informed petitioner that
no one would be able to pick up the check on the day.
The check was picked up, and issued receipt on September 28 (the following
day), and encashed on October 1. However, on the evening of September 27
(when the check was not picked up), one of the cars got stolen. Petitioner filed
a claim with the insurance company but the insurance company denied liability
arguing that there was still no insurance contract at the time of loss.
ISSUE:
W/N there was a binding insurance contract between petitioner and
respondent at the time of loss.
RULING:
NO, there was no insurance contract binding at the time of loss.
Just like any other contract, insurance contract requires consideration. Sec 77
is clear that no policy or contract of insurance issued by insurance company
is binding unless and until the premium has been paid.
In an insurance contract, both parties undertake a risk. For the insured: the
risk of receiving nothing in return in case the contingency does not happen.
For the insurer: the risk to undertake to pay the sum agreed upon in case the
contingency happens. This risk-distributing mechanism operates upon the
necessity of premiums. The premium, therefore, is the elixir vitae or the source
of life of the insurance business.
In the case, no premium was paid yet at the time of the loss. Notice of the
availability of the check, in itself, does not produce the effect of payment of
premium. Trans-Pacific could likewise not be considered in delay in accepting
the check because petitioner did not protest that Trans-Pacific would only be
able to pick up the check the next day, in fact it allowed them to do so.
Although petitioner argues that the general rule of Sec 77 does not apply to
th th
them, and that the situation falls within the ambit of the 4 or 5 exception to
th th
the rule on payment of premiums, the SC disagrees. The 4 and 5 exception
contemplates a situation where there was consitstent grant of credit
extension or term for the payment by the insurer. Such arrangement was not
proven in the case as what was agreed was an internal arrangement only
between the agent and the insured.
SC ruled that petitioner is not entitled to insurance proceeds because no
insurance policy became effective for lack of premium payment at the time of
loss. However, petitioner is entitled to the return of premium paid for the lost
vehicle under the principle of unjust enrichment. Upon the time of payment,
there no longer was a property to be insured thus insurance company cannot
retain the premium.
INSURANCE DIGESTS I EH 404 2017 12
II. Contract of Insurance; 2
PHILIPPINE HEALTH CARE PROVIDERS, INC. v CIR
(G.R. No. 167330, September 18, 2009)
A contract of insurance is defined as an agreement whereby one undertakes
for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event. (Sec. 2 (1), Insurance Code)
FACTS:
Petitioner is a domestic corporation whose primary purpose is "[t]o establish,
maintain, conduct and operate a prepaid group practice health care delivery
system or a health maintenance organization to take care of the sick and
disabled persons enrolled in the health care plan and to provide for the
administrative, legal, and financial responsibilities of the organization".
Respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal
demand letter and the corresponding assessment notices demanding the
payment of deficiency taxes, including surcharges and interest. The deficiency
[documentary stamp tax (DST)] assessment was imposed on petitioner's
health care agreement with the members of its health care program.
ISSUE:
W/N the Healthcare Agreement offered by PHCPI is an insurance contract
RULING:
NO, it is not an insurance contract.
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.
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 designed
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.
1. Not all necessary elements of a contract of insurance are present in
PHCPI’s health care agreements.
There is no loss, damage or liability on the part of the member that should be
indemnified by PHCPI as an HMO. Since under the agreement, the member
pays PHCPI a predetermined consideration in exchange for the hospital,
medical and professional services rendered by the petitioner's physician or
affiliated physician to him. In case of availment by a member of the benefits
under the agreement, PHCPI does not reimburse or indemnify the member as
the latter does not pay any third party. It is the PHCPI who pays the
participating physicians and other health care providers for the services
rendered at pre-agreed rates,not the member.
For this reason, there is nothing in petitioner’s agreements that gives rise to a
monetary liability on the part of the member to any third-party provider of
medical services which might in turn necessitate indemnification from PHCPI.
The terms “indemnify” or “indemnity” presuppose that a liability or claim
has already been incurred. There is no indemnity precisely because the
member merely avails of medical services to be paid or already paid in
advance at a pre-agreed price under the agreements.
2. Contrary to an insurance contract, the agreement provides that a member
can take advantage of the bulk of the benefits anytime, even in the absence
of any peril, loss or damage on his or her part.
3. The indemnity of the insured was not the focal point of the agreement but
the extension of medical services to the member at an affordable cost. Hence,
it does not partake of the nature of a contract of insurance.
4. The petitioner, as an HMO, undertakes a risk when it offers to provide
health services. However, although risk is a primary element of an insurance
contract, it is not necessarily true that risk alone is sufficient to establish it.
Almost anyone who undertakes a contractual obligation always bears a
certain degree of financial risk.
PHCPI, as an HMO, undertakes a business risk when it offers to provide
health services: the risk that it might fail to earn a reasonable return on its
investment. But it is not the risk of the type peculiar only to insurance
companies.
Insurance risk, also known as actuarial risk, is the risk that the cost of
insurance claims might be higher than the premiums paid. The amount of
premium is calculated on the basis of assumptions made relative to the
insured.
INSURANCE DIGESTS I EH 404 2017 13
However, assuming that petitioner's commitment to provide medical services
to its members can be construed as an acceptance of the risk that it will shell
out more than the prepaid fees, it still will not quality as an insurance contract
because PHCPI’s objective is to provide medical services at reduced cost,
not to distribute risk like an insurer.

5. In our jurisdiction, a commentator of our insurance laws has pointed out

that, even if a contract contains all the elements of an insurance contract,
if its primary purpose is the rendering of service, it is not a contract of
insurance. The primary purpose of the parties in making the contract may
negate the existence of an insurance contract.

INSURANCE DIGESTS I EH 404 2017 14

II. Contract of Insurance; 3
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., v NYK-
FILJAPAN SHIPPING CORP.
(G.R. No. 171468, August 24, 2011)
FACTS:
New World bought from DMT Corp. three emergency generator sets worth
US$721,500.00. From Wisconsin, USA, the generators were shipped to LEP
by truck to Chicago then by train to Oakland. NYK issued a bill of lading
declaring that the goods were received in good condition. NYK unloaded the
shipment in HK and transshipped it to its owned and operated vessel, ACX
Ruby. On its journey to Manila, it encountered typhoon Kadiang.
of adhesion, an insurance policy is construed strongly against the insurer who
prepared it.
Sec 241 of the Insurance Code provides that no insurance company doing
business in the Philippines shall refuse without just cause to pay or settle
claims arising under coverages provided by its policies. And under Sec 243,
the insurer has 30 days after proof of loss is received and ascertainment of
the loss or damage within which to pay the claim. If such ascertainment is not
had within 60 days from receipt of evidence of loss, the insurer has 90 days
to pay or settle the claim. In case the insurer refuses or fails to pay within the
prescribed time, the insured shall be entitled to interest on the proceeds of the
policy for the duration of delay at the rate of twice the ceiling prescribed by the
Monetary Board.

Marina, the Manila South Harbor arrastre, received the shipment and
inspected that the two vans bore signs of external damage, while the third van
appeared unscathed. The three generator sets were examined by New World,
Federal Builders (the project contractor) and New World’s insurer, Seaboard–
Eastern Insurance Company. It revealed that all three sets suffered extensive
damage and could no longer be repaired.
New World demanded recompense for its loss. LEP and NYK denied liability.
Since Seaboard covered the goods with a marine insurance policy, New World
sent a formal claim against them. For the processing of the claim, Seaboard
required New World to submit an itemized list of the damaged units, parts, and
accessories, with corresponding values. New World insisted that the
insurance policy did not include such submission for an insurance claim.
Seaboard refused to process the claim. New World filed an action for specific
performance and damages.
Notably, Seaboard already incurred delay when it failed to settle New World’s
claim as required in Sec 243. Under Sec 244, a prima facie evidence of
unreasonable delay in payment of the claim is created by the failure of the
insurer to pay the claim within the time fixed in Sec 243.
Seaboard should pay interest on the proceeds of the policy for the duration of
the delay until the claim is fully satisfied at the legal rate of interest of 12% p.a.
as provided in Central Bank Circular. Sec 244 also provides for an award of
attorney’s fees and other expenses incurred by the assured due to the
unreasonable withholding of payment of his claim.

RULING:
The marine open policy that Seaboard issued to New World was an all-risk
policy. Such a policy insured against all causes of conceivable loss or damage
except when otherwise excluded or when the loss or damage was due to fraud
or intentional misconduct committed by the insured. The policy covered all
losses during the voyage whether or not arising from a marine peril. The policy
enumerated certain exceptions like unsuitable packaging, inherent vice, delay
in voyage, or vessels unseaworthiness, among others. But Seaboard had
been unable to show that New Worlds loss or damage fell within some or one
of the enumerated exceptions.

Also, New World complied with the documentary requirements. Seaboard

cannot pretend that the documents submitted were inadequate since they
were precisely the documents listed in its insurance policy. Being a contract

INSURANCE DIGESTS I EH 404 2017 15

II. Contract of Insurance; 4
TRAVELLERS INSURANCE & SURETY CORPORATION v CA
(G.R. No. 82036, May 22, 1997)
The persons suing under an insurance contract must comply with the
indispensable requirement of filing the written notice of claim within six (6)
months from the date of the accident mandated by Section 384 of the
Insurance Code. Absent such written claim filed by the person suing under an
insurance contract, no cause of action accrues under such insurance contract.
FACTS:
In the morning of July 20, 1980, Feliza Vineza de Mendoza, 78 years old while
walking along the streets was bumped by a taxi that was running fast and was
seen was seen sprawled on the pavement by Rolando Marvilla, Ernesto Lopez
and Eulogio Tabalno who also helped and brought her to the hospital. This
resulted to her death caused by traumatic shock as a result of the severe
injuries she sustained.
Her son (respondent) filed a complaint for damages against Armando Abellon
as the owner of the Taxi and Rodrigo Dumlao as the driver. And subsequently,
he amended the complaint to include Travellers Insurance as the compulsory
insurer of the said taxicab.
RTC, held Travellers Insurance to be solitarily liable against private
respondent with the taxicab driver and operator. CA affirmed RTC’s decision.
ISSUE: W/N the trial court’s decision is proper.
RULING: NO
First, No insurance contract was presented nor a subpoena duces tecum is
issued to have the insurance produced covering the Lady Love taxicab that
could determine the extent of the liability of the Insurer and whether the person
injured has the right to sue the insurer of the party at fault (insured).
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 on the insured. And the test applied has been this: 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.
Second, if assuming arguendo that the petitioner issued an insurance
contract, the cause of action against petitioner did not successfully accrue
because he failed to file with petitioner a written notice of claim within six (6)
months from the date of the accident as required by Section 384 of the
Insurance Code. 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" [emphasis
ours].
Thus, 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, as in the instant case.
Third, there is a misapplication of law by the trial court. the trial court did not
distinguish between the private respondent's cause of action against the
owner and the driver of the Lady Love taxicab and his cause of action against
petitioner. The former is based on torts and quasi-delicts while the latter is
based on contract. 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.
The liability of the insurer is based on contract; that of the insured is based on
tort.
And lastly, assuming arguendo that it is the insurer of the Lady Love taxicab
in question, its liability is limited to only P50, 000.00, this being its standard
amount of coverage in vehicle insurance policies. It bears repeating that no
copy of the insurance contract was ever proffered before the trial court by the
private respondent, notwithstanding knowledge of the fact that the latter's
complaint against petitioner is one under a written contract. Thus, the trial
court proceeded to hold petitioner liable for an award of damages exceeding
its limited liability of P50,000.00. These only shows beyond doubt that the trial
court was under the erroneous presumption that petitioner 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
private respondent's mother.
INSURANCE DIGESTS I EH 404 2017 16
II. Contract of Insurance; 5
ENRIQUEZ v SUN LIFE ASSURANCE COMPANY OF CANADA
(G.R. No. 15895, November 29, 1920)
The Civil Code rule, that an acceptance made by letter shall bind the person
making the offer only from the date it came to his knowledge, is controlling.
FACTS:
On September 24, 1917, Joaquin Herrer made application to the Sun Life
Assurance Company of Canada through its office in Manila for a life annuity.
Two days later he paid the sum of P6,000 to the manager of the company's
Manila office and was given a provisional receipt.
An acceptance of an offer of insurance not actually or constructively
communicated to the proposer does not make a contract. Only the mailing of
acceptance, it has been said, completes the contract of insurance, as the
locus poenitentiae is ended when the acceptance has passed beyond the
control of the party.
An acceptance made by letter shall not bind the person making the offer
except from the time it came to his knowledge (Civil Code Art. 1262). When a
letter or other mail matter is addressed and mailed with postage prepaid there
is a rebuttable presumption of fact that it was received by the addressee as
soon as it could have been transmitted to him in the ordinary course of the
mails. But if any one of these elemental facts fails to appear, it is fatal to the
presumption.

The application was forwarded to the head office of the company at Montreal,
Canada and on November 26, 1917 a notice of acceptance was sent by cable
to Manila. (There is no evidence however, whether on the same day the cable
was received notice was sent by the Manila office of Herrer that the application
had been accepted)
A letter will not be presumed to have been received by the addressee unless
it is shown that it was deposited in the post-office, properly addressed and
stamped.

On December 4, 1917, the policy was issued. On December 18, 1917, Herrer
communicated his desire to withdraw his application through his lawyer.

The local office replied to Mr. Torres, stating that the policy had been issued,
and called attention to the notification of November 26, 1917. The reply was
received by Herrer's council a day after the latter died.

Plaintiff administrator of the estate of the deceased, filed an action to recover

from the defendant life insurance company the sum of 6,000 pesos paid by
the deceased for a life annuity. The trial court gave judgment for the
defendant.

ISSUE:
Whether or not the insurance contract between Sun Life and Herrer has been
perfected

RULING:
NO, the contract for a life annuity in the case at bar was not perfected because
it has not been proved satisfactorily that the acceptance of the application ever
came to the knowledge of the applicant.

INSURANCE DIGESTS I EH 404 2017 17

II. Contract of Insurance; 5
GREAT PACIFIC LIFE ASSURANCE CO. v CA
(G.R. Nos. 31845 & 31873, April 30, 1979)
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.
applied for shall not be in force at any time, and the premium paid shall be
returned to the applicant.
The contract of insurance is one of perfect good faith (uberrima fides meaning
good faith; absolute and perfect candor or openness and honesty; the
absence of any concealment or deception, however slight, not for the insured
alone but equally so for the insurer. Concealment is a neglect to communicate
that which a party knows and ought to communicate. Whether intentional or
unintentional the concealment entitles the insurer to rescind the contract of
insurance.

FACTS: A contract of insurance, like other contracts, must be assented to by both

Private respondent, a duly authorized agent of Pacific Life, applied for a 20- parties either in person or by their agents. The contract, to be binding from the
year endowment policy on the life of his one-year old daughter, a mongoloid. date of the application, must have been a completed contract, one that leaves
He did not divulge each physical defect of his daughter. He paid the premium nothing to be done, nothing to be completed, nothing to be passed upon, or
and was issued a binding deposit receipt. However, despite the branch determined, before it shall take effect. There can be no contract of insurance
manager's favorable recommendation, petitioner disapproved the application, unless the minds of the parties have met in agreement.
because a 20-year endowment plan is not available for minors below seven
(7) years old. Instead, it offered the Juvenile Triple Action Plan. The manager
wrote back and again strongly recommended the approval of the application.
At this point, the child died of influenza with complication of broncho-
pneumonia.

ISSUE: W/N there is an insurance contract

RULING:
NO. The binding deposit receipt is merely conditional and does not insure
outright.

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.

The binding deposit receipt 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 refunded; and (3) that if the applicant is not insurable according to the
standard rates, and the company disapproves the application, the insurance

INSURANCE DIGESTS I EH 404 2017 18

IV. Insurable Interest; 1

FELIPE v MGM MOTOR TRADING

(G.R. No. 191849, September 23, 2015)

FACTS:
Petitioner purchased a car from MGM Motors (MGM). In purchasing such, he
paid a downpayment of Php200,000 and a reservation fee of Php5,000. Then
the succeeding payments we alleged to be paid in checks. After such
purchase, he registered the car, and have it insured by Ayala Insurance
Corporation (AIC).

One day, petitioner parked the car in a street, and the car was lost. He then
tried to claim for the insurance from AIC, but AIC refused to pay because the
former cannot prove insurable interest over the car. Petitioner then went to
MGM to procure the documents so that he can prove his insurable interest.
MGM failed to render the documents alleging that petitioner failed to pay.
MGM claimed that the agreement was to pay in lump sum, not installments.
Moreover, MGM alleged that the checks petitioner paid bounced. Thus, the
matter was brought to court.

Upon presentation of evidence, the evidence presented by petitioner were the

receipt of Php200,000 and the testimony of his father. The evidence proved
the payment of such. However, respondents MGM and AIC filed for demurrer
of evidence. It was granted by the judge because insurable interest was not
proved.

ISSUE:
W/N insurable interest was proven.

RULING:
NO. Insurable interest was not proven. What was proven was merely the
payment of the Php200,000. Partial payment is not conclusive as to the proof
of insurable interest is concerned. The payment of installment basis was not
even proven in this case. Moreover, it was rebutted that MGM presented that
the sales invoice indicated was on Cash on Delivery (COD). In effect, the
evidence presented by the petitioner has failed to substantiate the proof of
insurable interest. The burden of proof lies on the party alleging the existence
of insurable interest. Petitioner failed to overcome such burden.

INSURANCE DIGESTS I EH 404 2017 19

IV. Insurable Interest; 2
RCBC v CA
(289 SCRA 292, 1998)
FACTS:
GOYU applied for credit facilities and accommodations with RCBC. After due
evaluation, a credit facility in the amount of P30 million was initially granted.
Upon GOYU's application increased GOYU's credit facility to P50 million, then
to P90 million, and finally to P117 million
As security for its credit facilities with RCBC, GOYU executed two REM and
two CM in favor of RCBC, which were registered with the Registry of Deeds
at. 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.
GOYU obtained in its name a total of 10 insurance policies from MICO. In
February 1992, Alchester Insurance Agency, Inc., the insurance agent where
GOYU obtained the Malayan insurance policies, issued nine endorsements in
favor of RCBC seemingly upon instructions of GOYU.
On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted
by fire. Consequently, GOYU submitted its claim for indemnity.
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.
GOYU filed a complaint for specific performance and damages. 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 AGCO denied GOYU's claims.
However, because the endorsements do not bear the signature of any officer
of GOYU, the trial court, as well as the Court of Appeals, concluded that the
endorsements are defective and held that RCBC has no right over the
insurance proceeds.
ISSUE:
W/N RCBC has a right over the insurance proceeds.
RULING:
RCBC has a right over the insurance proceeds.
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. There is no
question that GOYU could insure the mortgaged property for its own exclusive
benefit. 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.
It is to be noted that 9 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 other than the insured had not such named payee or
beneficiary been specifically disclosed by the insured itself. 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.
Alchester would not have found out that the subject pieces of property were
mortgaged to RCBC had not such information been voluntarily disclosed by
GOYU itself. 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 verify, Alchester would
not have endorsed the policies to RCBC had it not been so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the Court is
constrained to rule in favor of mortgagor RCBC. RCBC, in good faith, relied
upon the endorsement documents sent to it as this was only pursuant to the
stipulation in the mortgage contracts. We find such reliance to be justified
under the circumstances of the case. GOYU failed to seasonably repudiate
the authority of the person or persons who prepared such endorsements. Over
and above this, GOYU continued, in the meantime, to enjoy the benefits of the
credit facilities extended to it by RCBC. 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. If there had not been actually an implied ratification of said
endorsements by virtue of GOYU's inaction in this case, GOYU is at the very
least estopped from assailing their operative effects.
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. Such an unjust situation, the Court cannot
sanction. Under the peculiar circumstances obtaining in this case, the Court
is bound to recognize RCBC's right to the proceeds of the insurance policies
INSURANCE DIGESTS I EH 404 2017 20
if not for the actual endorsement of the policies, at least on the basis of the
equitable principle of estoppel.

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.
Consider thus 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 GOYU's 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 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.
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.

This Court can not over stress the fact that upon receiving its copies of the
endorsement documents prepared by Alchester, GOYU, despite the absence
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. Just as plain too is the intention of the
parties to constitute RCBC as the beneficiary of the various insurance policies
obtained by GOYU. 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.

INSURANCE DIGESTS I EH 404 2017 21

IV. Insurable Interest; 3

GAISANO CAGAYAN, INC. v INSURANCE COMPANY OF NORTH

AMERICA
(G.R. No. 147839, June 8, 2006)

FACTS:
Petitioner owns a store which offers a variety of goods for sale. Among their
products are jeans and clothes made and distributed by Intercapitol Marketing
Corporation (IMC) and Levi Strauss (Phils.) Inc. (LSPI) which are the local
distributor of products bearing trademarks owned by Levi Strauss & Co. The
controversy arose when a fire gutted the store owned by petitioner. The fire
caused a huge amount of damage and causing the goods in the building,
including those by IMC and LSPI, to perish. However, IMC and LSPI
separately obtained from respondent fire insurance policies with book debt
endorsements which covers "unpaid account still appearing in the Book of
Account of the Insured 45 days after the time of the loss covered under the
Policy. When the respondent was subrogated to the rights of the insured, it
demanded payment from petitioner for the accounts that remained unpaid
even after the loss. Petitioner 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.

ISSUE:
Who bears the risk of loss?

RULING:
Petitioner bears the risk of loss. As a general rule, 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. However, where delivery
of the goods has been made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the goods has been
retained by the seller merely to secure performance by the buyer of his
obligations under the contract, the goods are at the buyer's risk from the
time of such delivery. Thus, when the seller retains ownership only to insure
that the buyer will pay its debt, the risk of loss is borne by the
buyer. Accordingly, petitioner bears the risk of loss of the goods delivered.

INSURANCE DIGESTS I EH 404 2017 22

IV. Insurable Interest; 4
HEIRS OF LORETO C. MARAMAG, represented by surviving spouse
VICENTA PANGILINAN MARAMAG v EVA VERNA DE
GUZMAN MARAMAG, ET AL
(G.R. No. 181132. June 5, 2009)
FACTS:
The petition alleged that:
(1) petitioners were the legitimate wife and children of
Loreto Maramag (Loreto), while respondents were Loreto's illegitimate family;
(2) Eva de Guzman Maramag (Eva) was a concubine of Loreto and a suspect
in the killing of the latter, thus, she is disqualified to receive any proceeds from
his insurance policies from Insular Life Assurance Company, Ltd. (Insular) and
Great Pacific Life Assurance Corporation (Grepalife);
(3) 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 inof cious and should be reduced;
(4) petitioners could not be deprived of their legitimes, which should be
satisfied first.
Petitioners alleged 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. Petitioners also prayed for the total amount of
P320,000.00 as actual litigation expenses and attorney's fees.
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; that
when it ascertained that Eva was not the legal wife of Loreto, it disqualified
her as a beneficiary and divided the proceeds among Odessa, Karl Brian, and
Trisha Angelie, as the remaining designated beneficiaries; and that it released
Odessa's 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.
Insular alleged that the complaint or petition failed to state a cause of action
insofar as it sought to declare as void the designation of Eva as bene ciary,
because Loreto revoked her designation as such in Policy No. A001544070
and it disquali ed her in Policy No. A001693029; and insofar as it sought to
declare as inof cious the shares of Odessa, Karl Brian, and Trisha Angelie,
considering that no settlement of Loreto's estate had been led nor had the
respective shares of the heirs been determined. 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.
Grepalife alleged that Eva was not designated as an insurance policy
beneficiary; 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; that the case was premature, there being no claim led by the legitimate
family of Loreto; and that the law on succession does not apply where the
designation of insurance beneficiaries is clear.
As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not
known to petitioners, summons by publication was resorted to. Still, the
illegitimate family of Loreto failed to le their answer. Hence, the trial court,
upon motion of petitioners, declared them in default
petitioners 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.
In reply, both Insular and Grepalife 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. Grepalife also reiterated that it had
disqualified Eva as a beneficiary when it ascertained that Loreto was legally
married to Vicenta Pangilinan Maramag.
Insular and Grepalife filed their respective motions for reconsideration,
arguing, in the main, that the petition failed to state a cause of action. Insular
further averred that the proceeds were divided among the three children as
the remaining named beneficiaries. Grepalife, for its part, also alleged that the
premiums paid had already been refunded.
the trial court issued a Resolution, disposing, as follows:
the Motions for Reconsideration filed by defendants Grepalife and Insular Life
are hereby GRANTED. Accordingly, the portion of the Resolution of this Court
dated 21 September 2004 which ordered the prosecution of the case against
defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET
ASIDE, and the case against them is hereby ordered DISMISSED.
INSURANCE DIGESTS I EH 404 2017 23
ISSUE: in cases where the insured has not designated any beneficiary, or when the
Are the members of the legitimate family entitled to the proceeds of the designated beneficiary is disqualified by law to receive the proceeds, that the
insurance for the concubine? insurance policy proceeds shall redound to the benefit of the estate of the
insured.
RULING:
it is clear from the petition filed before the trial court that, although
petitioners are the legitimate heirs of Loreto, they were not named as
beneficiaries in the insurance policies issued by Insular and Grepalife. The
basis of petitioners' 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 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, Eva’s 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 Loreto's illegitimate children should be awarded to
them, being the legitimate heirs of Loreto entitled to their respective legitimes.

It is evident from the face of the complaint that petitioners 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. Section 53 of the Insurance Code

Pursuant thereto, it is obvious that the only persons entitled to claim the
insurance proceeds are either the insured, if still alive; or the beneficiary, if the
insured is already deceased, upon the maturation of the policy. The exception
to this rule is a situation where the insurance contract was intended to bene t
third persons who are not parties to the same in the form of favorable
stipulations or indemnity. In such a case, third parties may directly sue and
claim from the insurer.

Petitioners are third parties to the insurance contracts with Insular and
Grepalife and, thus, are not entitled to the proceeds thereof. Accordingly,
respondents Insular and Grepalife have no legal obligation to turn over the
insurance proceeds to petitioners.
The revocation of Eva as a beneficiary in one policy and her disquali cation
as such in another are of no moment considering that the designation of the
illegitimate children as beneficiaries in Loreto's insurance policies remains
valid. Because no legal proscription exists in naming as bene ciaries 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 bene ciaries, to the exclusion of petitioners. It is only

INSURANCE DIGESTS I EH 404 2017 24

IV. Insurable Interest; 5
VIOLETA R. LALICAN v THE INSULAR LIFE ASSURANCE COMPANY
LIMITED
(GR No. 183526, August 25, 2009)
FACTS:
Eulogio Lalican applied for an insurance polity with Insular Life. The latter,
through its agent, Malaluan, issued in favor of Eulogio Policy No 9011992
which has a value of P1,500,000.00 naming his wife, Violeta, as the primary
beneficiary.
It was agreed that Eulogio pay premiums on a quarterly basis, until the end of
the 20-year period of the policy. According to the Policy Contract, there was a
grace period of 31 days. In case of default, and if the premiums remained
unpaid until the end of the grace period, the policy would autotmatically lapse
and become void. Eulogio failed to pay the third installment even after the
lapse of the 31-day grace period which resulted to the policy becoming void.
Eulogio submitted to Insular Life, through Malaluan, an Application for
Reinstatement. This was however denied for failing to paid the overdue
interest. Eulogio filed a second Application for Reinstatement at the residence
of the agent including the amount of the premiums due and interests. As
Malaluan was not around, her husband received Eulogio’s application and
issued a receipt.
On the same day he submitted his second Application for Reinstatement,
Eulogio died. Malaluan forwarded the application to Insular Life without
knowing of Eulogio’s death. However, Insular Life no longer acted on it as it
was informed of the death.
Violeta filed with Insular Life a claim for payment of the full proceeds of the
policy. The latter, however, did not grant her claim on the ground that at the
time of Eulogio’s death, the policy has already lapsed and the latter failed to
reinstate the same. According to the Application for Reinstatement, the policy
would only be considered reinstated upon approval of the application by
Insular Life during the applicant’s “lifetime and good health.” However, Violeta
maintains that Eulogio still had insurable interest in his own life when he
reinstated the policy just before he passed away.
ISSUES:
1. W/N Eulogio has insurable interest over his own life under Policy No
9011992.
2. W/N Eulogio was able to reinstate the lapsed insurance policy on his life
before his death.
RULING:
1. An insurable interest is one of the most basic and essential requirements in
an insurance contract. In general, an insurable interest is that interest which a
person is deemed to have in the subject matter insured, where he has a
relation or connection with or concern in it, such that the person will derive
pecuniary benfit or advantage from the preservation of the subject matter
insured and will suffer pecuniary loss or damage from its destruction,
termination, or injury by the happening of the event insured against. The
existence of an insurable interest gives a person the legal right to insure the
subject matter of the policy of insurance. Section 10 of the Insurance
Code indeed provides that every person has an insurable interest in his own
life. Section 19 of the same code also states that an interest in the life or health
of a person insured must exist when the insurance takes effect, but need not
exist thereafter or when the loss occurs.
Upon more extensive study of the Petition, it becomes evident that the matter
of insurable interest is entirely irrelevant in the case at bar. It is actually beyond
question that while Eulogio was still alive, he had an insurable interest in his
own life, which he did insure under Policy No. 9011992.
2. Eulogio's death rendered impossible full compliance with the conditions for
reinstatement of Policy No. 9011992. True, Eulogio, before his death,
managed to file his Application for Reinstatement and deposit the amount for
payment of his overdue premiums and interests thereon with Malaluan; but
Policy No. 9011992 could only be considered reinstated after the Application
for Reinstatement had been processed and approved by Insular Life during
Eulogio's lifetime and good health.
Eulogio's death, just hours after filing his Application for Reinstatement and
depositing his payment for overdue premiums and interests with Malaluan,
does not constitute a special circumstance that can persuade this Court to
already consider Policy No. 9011992 reinstated. Said circumstance cannot
override the clear and express provisions of the Policy Contract and
Application for Reinstatement, and operate to remove the prerogative of
Insular Life thereunder to approve or disapprove the Application for
Reinstatement.
INSURANCE DIGESTS I EH 404 2017 25
IV. Insurable Interest; 6
ONG LIM SING, JR. v FEB LEASING AND FINANCE CORPORATION
(G.R. No. 168115, June 8, 2007)
Section 17 of the Insurance Code provides that the measure of an insurable
interest in property is the extent to which the insured might be damnified by
loss or injury thereof.
FACTS:
On March 9, 1995, FEB Leasing and Finance Corporation entered into a lease
of equipment and motor vehicles with JVL Food Products. On the same date,
Vicente Ong Lim Sing, Jr. executed an Individual Guaranty Agreement with
FEB to guarantee the prompt and faithful performance of the terms and
conditions of the aforesaid lease agreement. Corresponding Lease Schedules
with Delivery and Acceptance Certificates over the equipment and motor
vehicles formed part of the agreement. Under the contract, JVL was obliged
to pay FEB an aggregate gross monthly rental of One Hundred Seventy
Thousand Four Hundred Ninety-Four Pesos (P170,494.00).
JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the
amount in arrears, including the penalty charges and insurance premiums,
amounted to Three Million Four Hundred Fourteen Thousand Four Hundred
Sixty-Eight and 75/100 Pesos (P3,414,468.75). On August 23, 2000, FEB sent
a letter to JVL demanding payment of the said amount. However, JVL failed
to pay.
On December 6, 2000, FEB filed a Complaint with the Regional Trial Court of
Manila for sum of money, damages, and replevin against JVL, Lim, and John
Doe.
lease agreement. The said decision reversed and set aside the trial court’s
decision dated November 22, 2002. Hence, Lim filed the present Petition for
Review on Certiorari.
ISSUE:
W/N petitioner has an insurable interest in the equipment and motor vehicles
leased.
RULING:
YES. The stipulation in Section 14 of the leased contract, that the equipment
shall be insured at the cost and expense of the lessee against loss, damage,
or destruction from fire, theft, accident, or other insurable risk for the full term
of the lease, is a binding and valid stipulation.
Petitioner, as a lessee, has an insurable interest in the equipment and motor
vehicles leased.
Section 17 of the Insurance Code provides that the measure of an
insurable interest in property is the extent to which the insured might be
damnified by loss or injury thereof.
It cannot be denied that JVL will be directly damnified in case of loss, damage,
or destruction of any of the properties leased.

In an Amended Answer, JVL and Lim admitted the existence of the lease
agreement but asserted that it is in reality a sale of equipment on instalment
basis, with FEB acting as the financier. On November 22, 2002, the trial court
ruled in favor of JVL and Lim and stressed the contradictory terms found in
the lease agreement. The trial court stated, among others, that if JVL and Lim
(then defendants) were to be regarded as only a lessee, logically the lessor
who asserts ownership will be the one directly benefited or injured and
therefore the lessee is not supposed to be the assured as he has no insurable
interest.

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

January 17, 2003, the court issued an Order elevating the entire records of
the case to the Court of Appeals. On March 15, 2005, the Court of Appeals
issued its Decision declaring the transaction between the parties as a financial

INSURANCE DIGESTS I EH 404 2017 26

V. Premium; 1
AFP GENERAL INSURANCE CORP. v MOLINA
(G.R. No. 151133, June 30, 2008)
FACTS:
The private respondents are the complainants in a case for illegal dismissal
filed against Radon Security & Allied Services Agency and/or Raquel Aquias
and Ever Emporium, Inc. Labor Arbiter ruled that the private respondents were
illegally dismissed and ordered Radon Security to pay them separation pay,
backwages, and other monetary claims. Radon Security appealed the Labor
Arbiter's decision to public respondent NLRC and posted a supersedeas bond,
issued by herein petitioner AFPGIC as surety. NLRC affirmed with
modification the decision of the Labor Arbiter. By virtue of the writ of execution,
the NLRC Sheriff issued a Notice of Garnishment against the supersedeas
bond.
valid and binding for non-payment of premiums, even as against a third person
who was intended to benefit therefrom.
According to the SC, the petitioner's reliance on Sections 64 and 77 of the
Insurance Code is misplaced. The said provisions refer to insurance contracts
in general. The instant case pertains to a surety bond; thus, the applicable
provision of the Insurance Code is Section 177, which specifically governs
suretyship. It provides that a surety bond, once accepted by the obligee
becomes valid and enforceable, irrespective of whether or not the premium
has been paid by the obligor. The private respondents, the obligees here,
accepted the bond posted by Radon Security and issued by the petitioner.
Hence, the bond is both valid and enforceable.

AFPGIC entered the fray by filing before the Labor Arbiter an Omnibus Motion
to Quash Notice/Writ of Garnishment and to Discharge AFPGIC's Appeal
Bond on the ground that said bond "has been cancelled and thus non-existent
in view of the failure of Radon Security to pay the yearly premiums." However,
both Labor Arbiter and NLRC denied the motion. In dismissing the appeal of
AFPGIC, the NLRC pointed out that AFPGIC's theory that the bond cannot
anymore be proceeded against for failure of Radon Security to pay the
premium is untenable, considering that the bond is effective until the finality of
the decision. The NLRC stressed that a contrary ruling would allow
respondents to simply stop paying the premium to frustrate satisfaction of the
money judgment.

ISSUE:
W/N the bond was already cancelled for non-payment of premium.

RULING:
NO, the bond remains enforceable and under the jurisdiction of the NLRC until
it is discharged.

The petitioner contends that under Section 64 of the Insurance Code, which
is deemed written into every insurance contract or contract of surety, an
insurer may cancel a policy upon non-payment of the premium. Said
cancellation is binding upon the beneficiary as the right of a beneficiary is
subordinate to that of the insured. Hence, according to petitioner, the Court of
Appeals committed a reversible error in not holding that under Section 77 of
the Insurance Code, the surety bond between it and Radon Security was not

INSURANCE DIGESTS I EH 404 2017 27

V. Premium; 2
MAKATI TUSCANY CONDOMINIUM CORP. v CA
(G.R. No. 95546, November 6, 1992)
FACTS:
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. The premium was paid on installments,
all of which were accepted by the private respondent. The policy was replaced
and renewed twice. However, on the last renewed policy, petitioner only made
two installment payments, but refused to pay the balance of the premium.
Consequently, private respondent filed an action to recover the unpaid
balance.
contract entered into in 1982 was renewed in 1983, then in 1984. In those
three (3) years, the insurer accepted all the installment payments. Such
acceptance of payments speaks loudly of the insurer's intention to honor the
policies it issued to petitioner. Certainly, basic principles of equity and fairness
would not allow the insurer to continue collecting and accepting the premiums,
although paid on installments, and later deny liability on the lame excuse that
the premiums were not prepaid in full.
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.

Petitioner now asserts that its payment by installment of the premiums for the
insurance policies invalidated said policies because of the provisions of Sec.
77 of the Insurance Code, as amended, and by the conditions stipulated by
the insurer in its receipts, disclaiming liability for loss occurring before payment
of premiums.

It argues that where the premium is not actually paid in full, the policy would
only be effective if there is an acknowledgment in the policy of the receipt of
premium pursuant to Sec. 78 of the Insurance Code. The absence of an
express acknowledgment in the policies of such receipt of the corresponding
premium payments, and petitioner's failure to pay said premiums on or before
the effective dates of said policies rendered them invalid. Petitioner thus
concludes that there cannot be a perfected contract of insurance upon mere
partial payment of the premiums because under Sec. 77 of the Insurance
Code, no contract of insurance is valid and binding unless the premium thereof
has been paid, notwithstanding any agreement to the contrary. As a
consequence, petitioner seeks a refund of all premium payments made on the
alleged invalid insurance policies.

ISSUE:
W/N payment by installment of the premiums due on an insurance policy
invalidates the contract of insurance.
RULING:

The SC held that the subject policies are valid even if the premiums were paid
on installments. The records clearly show that petitioner and private
respondent intended subject insurance policies to be binding and effective
notwithstanding the staggered payment of the premiums. The initial insurance

INSURANCE DIGESTS I EH 404 2017 28

V. Premium; 3
UCPB General Insurance Co. Inc. v Masagana Telemart Inc. (G.R. No.
137172, April 4, 2001)
FACTS:
Plaintiff obtained from defendant fire insurance policies on its property
effective from May 1991 - 1992. On June 1992, plaintiff's properties were
raged by fire. On the same date plaintiff tendered, and defendant accepted
five checks as renewal premium payments for which a receipt was issued.
Masagana made a claim which was denied. the checks were then returned to
plaintiff. According to defendant, the claim cannot be entertained for properties
were burned before the tender of premium.
ISSUE:
W/N section 77 of the insurance code must be strictly applied to petitioner’s
advantage despite its practice of granting 60 to 70 day credit term for the
payment of its premium
RULING:
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.
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:
ARTICLE 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.
Finally in the instant case, it would be unjust and inequitable if recovery on the
policy would not be permitted against Petitioner, 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 Respondent relied in good faith on such practice. Estoppel then
is the fifth exception to Section 77.
(Note: Because of this case, there are now five exceptions to the premium
requirement in Sec. 77: (1) life and industrial life policy whenever the grace
period applies; (2) acknowledgment of receipt; (3) if parties agreed to payment
in installments and partial payment has been paid; (4) if a credit extension has
been granted; and (5) estoppel.)

The second is that covered by Section 78 of the Insurance Code, which

provides:

SECTION 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.

A third exception was laid down in Makati Tuscany Condominium Corporation

vs. Court of Appeals, wherein we 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.

Tuscany case has provided a fourth exception to Section 77, namely, that the
insurer may grant credit extension for the payment of the premium. 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.

INSURANCE DIGESTS I EH 404 2017 29

V. Premium; 4
AMERICAN HOME v CHUA
(G.R. No. 130421, June 28, 1999)
FACTS:
Chua obtained from American Home a fire insurance covering the stock-in-
trade of his business. The insurance was due to expire on March 25, 1990.
On April 5, 1990, Chua issued a check for P2,983.50 to American Home’s
agent, James Uy, as payment for the renewal of the policy. The official receipt
was issued on April 10. In turn, the latter gave a renewal certificate. A new
insurance policy was issued where petitioner undertook to indemnify
respondent for any damage or loss arising from fire up to P200,000 March 20,
1990 to March 25, 1991.
On April 6, 1990, the business was completely razed by fire. Total loss was
estimated between P4,000,000 and P5,000,000. Respondent filed an
insurance claim with petitioner and four other co-insurers, namely, Pioneer
Insurance, Prudential Guarantee, Filipino Merchants and Domestic
Insurance. Petitioner refused to honor the claim hence, the respondent filed
an action in the trial court.
American Home claimed there was no existing contract because respondent
did not pay the premium. Even with a contract, they contended that he
was ineligible because of his fraudulent tax returns,his failure to establish the
actual loss and his failure to notify to petitioner of any insurance already
effected. The trial court ruled in favor of respondent because the respondent
paid by way of check a day before the fire occurred and that the other
insurance companies promptly paid the claims. American homes was made
to pay 750,000 in damages.
The Court of Appeals found that respondent’s claim was substantially proved
and petitioner’s unjustified refusal to pay the claim entitled respondent to the
award of damages.
American Home filed the petition reiterating its stand that there was no existing
insurance contract between the parties. It invoked Section 77 of the Insurance
Code, which provides that no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof
has been paid and the case of Arce v. Capital Insurance that until the premium
is paid there is no insurance.
ISSUES:
1. Whether there was a valid payment of premium, considering that
respondent’s check was cashed after the occurrence of the fire
2. Whether respondent violated the policy by his submission of fraudulent
documents and non-disclosure of the other existing insurance contracts
3. Whether respondent is entitled to the award of damages.
RULING:
1. Yes. The trial court found, as affirmed by the Court of Appeals, that there
was a valid check payment by respondent to petitioner. The court respected
this.
The renewal certificate issued to respondent contained the acknowledgment
that premium had been paid.
In the instant case, the best evidence of such authority is the fact that
petitioner accepted the check and issued the officialreceipt 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.
2. No. Submission of the alleged fraudulent documents pertained to
respondent’s income tax returns for 1987 to 1989. Respondent, however,
presented a BIR certification that he had paid the proper taxes for the said
years. Since this is a question of fact, the finding is conclusive.
Ordinarily, where the insurance policy specifies as a condition the disclosure
of existing co-insurers, non-disclosure is a violation that entitles the insurer to
avoid the policy. The purpose for the inclusion of this clause is to prevent an
increase in the moral hazard. 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.
Respondent acquired several co-insurers and he failed to disclose this
information to petitioner. Nonetheless, petitioner is estopped from invoking
this argument due to the loss adjuster’s admission of previous knowledge of
the co-insurers.
INSURANCE DIGESTS I EH 404 2017 30
It cannot be said that petitioner was deceived by respondent by the latter’s
non-disclosure of the other insurance contracts when petitioner actually had
prior knowledge thereof. The loss adjuster, being an employee of petitioner,
is deemed a representative of the latter whose awareness of the other
insurance contracts binds petitioner.

3. Yes. Petitioner is liable to pay the loss. But there is merit in petitioner’s
grievance against the damages and attorney’s fees awarded. There was no
basis for an award for loss of profit. This cannot be shouldered by petitioner
whose obligation is limited to the object of insurance.

There was no fraud to justify moral damages. Exemplary damages can’t be

awarded because the defendant never acted in a reckless manner to claim
insurance. Attorney’s fees can’t be recovered as part of damages because no
premium should be placed on the right to litigate.

INSURANCE DIGESTS I EH 404 2017 31

V. Premium; 5
TIBAY v CA
(G.R. No. 119655, May 24, 1996)
FACTS:
FORTUNE issued a Fire Insurance Policy in favor of Sps. Tibay on their 2-
storey residential bldg. located in Makati city, together with all their personal
effects therein. The total premium was P2983.50, Violeta Tibay, however, only
paid P600 thus leaving a considerable balance unpaid. The insured building
was completely destroyed by fire. Violeta then paid the balance of the
premium 2 days thereafter. On the same day, she filed a claim on the fire
insurance policy from Fortune. Fortune denied the claim on the ground of
violation of a condition in the policy and Sec. 77 of the Insurance Code.
ISSUE:
May a fire insurance policy be valid, binding and enforceable upon mere partial
payment of premium?
RULING:
NO. 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. The consideration is the premium, which must be paid at
the time and in the way and manner specified in the policy, and if not so paid,
the policy will lapse and be forfeited by its own terms.
The insurer and the insured expressly stipulated that “this policy including any
renewal thereof and/or any indorsement thereon is not in force until the
premium has been fully paid to and duly receipted by the Company . . . 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.
Conformably, Section 77 of the Insurance Code provides that "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."
In this case, not only does the insurance policy provide that full payment be
made but Sec. 77 likewise provides so. Accordingly, where only partial
payment of the premium has been made, and the balance paid only after the
peril insured against has occurred, the insurance contract did not take effect
and the insured cannot collect. The partial payment is merely considered as a
deposit.
----------------------------------------------
The SC distinguished the present case from the case of Phoenix and Tuscany
which demonstrated the waiver of prepayment in full by the insurer : impliedly,
by suing for the balance of the premium as in Phoenix, and expressly, by
agreeing to make premiums payable in installments as in Tuscany. In this case
however, there was no waiver. The insurance contract itself expressly
provided that the policy would be effective only when the premium was paid
in full. There was no juridical tie of indemnification from the fractional payment
of premium. 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.
In addition, the SC cited the case South Sea v CA which speaks only of two
statutory exceptions to the requirement of payment of the entire premium as
a prerequisite to the validity of the insurance contract. These are (a) in case
the insurance coverage relates to life or insurance when a grace period
applies, and (b) when the insurer makes a written acknowledgment of the
receipt of premium to be conclusive evidence of payment. Hence, in the
absence of clear waiver of prepayment in full by the insurer, the insured cannot
collect on the proceeds of the policy.
For it cannot be disputed that 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.
Further, the terms of the insurance policy constitute the measure of the
insurer’s liability. In the absence of statutory prohibition to the contrary,
insurance companies have the same rights as individuals to limit their liability
and to impose whatever conditions they deem best upon their obligations not
inconsistent with public policy.
INSURANCE DIGESTS I EH 404 2017 32
V. Premium; 6 of the contract. Since Phoenix chose to sue for specific performance,
Woodworks has no other choice but to pay.
PHILIPPINE PHOENIX SURETY & INSURANCE, INC. v WOODWORKS,
INC.
(92 SCRA 419)

FACTS:
On April 1, 1960, a fire insurance policy was delivered by Philippine Phoenix
Surety & Insurance Co. (insurer) in favor of Woodworks Inc. (insured). On
September 22 of the same year, Woodworks paid 3,000 pesos on account of
the total premium of 6, 051.95. Woodworks did not pay the remaining balance.

In view of Woodworks’ failure to pay, Phoenix filed a case against Woodworks

Inc. for the collection of 3, 522. 09 pesos which is the sum representing the
value of unpaid premiums on the fire insurance policy. This fire insurance
policy was to be effective for 1 year. (April 1, 1960 – April 1, 1961).

ISSUES:
1. Was there a perfected contract of insurance despite the fact that
Woodworks did not pay the full amount of the premium?
2. Did Woodworks’ failure to pay the unpaid balance of the premium produce
the effect of cancelling the contract of insurance?

RULING:
1. YES, there was a perfected contract of insurance. This is taken from the
fact that Phoenix had already issued the policy in favor of Woodworks and
that the latter had paid 3,000 pesos on account of the total premium of 6, 051.
95. Although it was perfected, it was only partially performed (since
Woodworks did not pay the full premium)
But due to the fact it was perfected, it had already bound both parties. Phoenix
already had the obligation to pay the amount stated on the policy in case
Woodworks should suffer loss under the fire insurance policy while
Woodworks had the obligation to pay the unpaid premium.

2. Woodwork’s failure to pay did not cancel the contract of insurance. This
is because to rule that non – payment of premiums would cancel the contract
of insurance would in effect place exclusively in the hands of one of the
contracting parties the right to decide whether the contract should stand or
not.

Instead, the legal effect produced by Woodwork’s failure to pay is that the
parties to the contract could demand from each other the performance of
whatever obligations they had assumed. In this case, the insurer (Phoenix)
has the option to either sue for specific performance, or sue for the rescission

INSURANCE DIGESTS I EH 404 2017 33

VI The Policy Insurance; 1
PACIFIC TIMBER EXPORT CORPORATION v CA
(112 SCRA 199)
FACTS:
Pacific Timber Export Corporation (PTEC) secured temporary insurance from
Workmen’s Insurance Company (WIC) 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. WIC issued issued on March
19, 1963 a Cover Note. Subsequently, on April 2, 1963, the regular marine
cargo policies were issued by WIC in favor of the PTEC. The first policy
covered 542 pieces of logs equivalent to 499,950 board feet while the second
policy 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.
After the issuance of Cover Policy but before the issuance of the two marine
policies, some of the logs intended to be exported were lost during loading
operations in the Diapitan Bay. At about 10:00AM on March 29, 1963, while
the logs were alongside the vessel, bad weather developed resulting in 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.
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.
The adjuster went as far as submitting his report to respondent, as well as its
computation of respondent's liability on the insurance coverage. This
coverage could not have been no other than what was stipulated in the Cover
Note, for no loss or damage had to be assessed on the coverage arising from
the marine insurance policies. It was not necessary to ask PTEC to pay
premium on the Cover Note, for the loss insured against having already
occurred, the more practical procedure is simply to deduct the premium from
the amount due the petitioner on the Cover Note.
The non-payment of premium on the Cover Note is, therefore, no cause
for the PTEC to lose what is due it as if there had been payment of
premium, for non-payment by it was not chargeable against its fault. Had
all the logs been lost during the loading operations, but after the issuance of
the Cover Note, liability on the note would have already arisen even before
payment of premium. This is how the cover note as a "binder" should legally
operate otherwise, it would serve no practical purpose in the realm of
commerce, and is supported by the doctrine that where a policy is delivered
without requiring payment of the premium, the presumption is that a credit was
intended and policy is valid.

PTEC informed WIC about the incident. After the adjustment company issued
a report to WIC, WIC denied the claim on the ground that WIC’s investigation
revealed that the entire shipment of logs covered by the two marines policies
were received in good order at their point of destination. Moreso, WIC is in the
position that the claim of PTEC is being denied on the ground that the cover
note is null and void for lack of valuable consideration

ISSUE:
W/N the Cover Notes are null and void for lack of consideration (non-payment
of premiums).

RULING:
The Cover Notes remain to be valid.

PTEC paid in full all the premiums as called for by the statement Issued by
WIC after the issuance of the two regular marine insurance policies, thereby
leaving no account unpaid by PTEC due on the insurance coverage, which
must be deemed to include the Cover Note. If the Note is to be treated as a
separate policy instead of integrating it to the regular policies

INSURANCE DIGESTS I EH 404 2017 34

VI The Policy Insurance; 2
GREAT PACIFIC LIFE ASSURANCE CORP v CA
(89 SCRA 543)
FACTS:
On March 14, 1957, Ngo Hing filed an application with the Great Pacific Life
Assurance Company (Pacific Life) for a twenty-year endowment policy in the
amount of P50,000.00 on the life of his one-year old daughter Helen Go. Said
respondent supplied the essential data which petitioner Lapulapu D.
Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the
corresponding form in his own handwriting. Mondragon finally type-wrote the
data on the application form which was signed by private respondent Ngo
Hing. The latter paid the annual premium, the sum of P1,077.75 going over to
the Company, but he retained the amount of P1,317.00 as his commission for
being a duly authorized agent of Pacific life.
Upon the payment of the insurance premium, the binding deposit receipt was
issued to private respondent Ngo Hing. Likewise, petitioner Mondragon
handwrote at the bottom of the back page of the application form his strong
recommendation for the approval of the insurance application. Then on April
30, 1957, Mondragon received a letter from Pacific Life disapproving the
insurance stating that the 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 NonMedical Declaration be sent to the Company.
RULING:
NO. The binding deposit receipt in question is merely as acknowledgment, on
behalf of the company, that the latter’s branch office had received from the
applicant the insurances 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 petitioner Pacific Life disapproved the
insurance application of respondent Ngo Hing, the binding deposit receipt in
question had never become in force at any time.
As held in De Lim vs. Sun Life Assurance Company of Canada, “a contract of
insurance, like other contracts, must be assented to by both parties either in
person or by their agents. x x x. The contract, to be binding from the date of
the application, must have been a completed contract, one that leaves nothing
to be done, 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.”

The non-acceptance of the insurance plan by Pacific Life was allegedly not
communicated by petitioner Mondragon to private respondent Ngo Hing.
Instead, on May 6, 1957, Mondragon wrote back Pacific life again strongly
recommending the approval of the 20-year endowment life insurance on the
ground that Pacific Life is the only insurance company not selling the 20-year
endowment insurance plan to children, pointing out that since 1954 the
customers, especially the Chinese, were asking for such coverage.

It was when things were in such state that as May 28, 1957 Helen Go died of
influenza with complication of bronchopneumonia. Thereupon, private
respondent sought the payment of the proceeds of the insurance, but having
failed in his effort, he filed the action for the recovery of the same before the
Court of First Instance of Cebu, which rendered the adverse decision.

ISSUE:
W/N the binding deposit receipt constituted a temporary contract of the life
insurance in question.

INSURANCE DIGESTS I EH 404 2017 35

VI The Policy Insurance; 3
PHILAM LIFE AND GENERAL INSURANCE COMPANY v JUDGE LORE
R. VALENCIA-BAGALACSA, ET AL.
(G.R. No. 139776. August 1, 2002.)
FACTS:
Private respondents, as legitimate children and forced heirs of their late father,
Faustino Lumaniog, filed with the Regional Trial Court, a complaint for
recovery of sum of money against petitioner, PhilAm Life, alleging that their
father was insured by petitioner and that despite repeated demands for
payment of the claim due from petitioner, the latter finally refused said claim
on February 14, 1995 and so, private respondents filed their complaint on
June 20, 1995.
Petitioner filed an answer with counterclaim and motion to dismiss on ground
of prescription of action alleging that it had denied private respondents' claim
in a letter dated March 12, 1982, on ground of concealment.
It must be emphasized that petitioner had specifically alleged in the Answer
that it had denied private respondents' claim per its letter dated July 11, 1983.
Hence, due process demands that it be given the opportunity to prove
that private respondents had received said letter, dated July 11, 1983.
Said letter is crucial to petitioner's defense that the filing of the complaint for
recovery of sum of money in June, 1995 is beyond the 10-year prescriptive
period.
The appellate court should have granted the petition for certiorari assailing
said Order. Certiorari is an appropriate remedy to assail an interlocutory order
(1) when the tribunal issued such order without or in excess of jurisdiction or
with grave abuse of discretion and (2) when the assailed interlocutory order is
patently erroneous and the remedy of appeal would not afford adequate and
expeditious relief. In the case at bar, the said Order was issued with grave
abuse of discretion for being patently erroneous and arbitrary, thus, depriving
petitioner of due process.

The RTC denied petitioner's motion to dismiss upholding the claim of private
respondents' counsel that the running of the 10-year period was "stopped" on
May 25, 1983 when private respondents requested for a reconsideration of
the denial and it was only on February 14, 1995 when petitioner finally
decided to deny their claim that the 10-year period began to run.

Petitioner filed a petition for certiorari under Rule 65 of the Rules of Court in
the Court of Appeals but the latter denied the same. Hence, the present
petition for review.

ISSUE:
W/N the complaint filed by private respondents for payment of life insurance
proceeds is already barred by prescription of action.

RULING:
The Supreme Court ruled that the RTC committed a grave abuse of discretion
when, in resolving the motion for reconsideration of petitioner, it arbitrarily
ruled in its Order that the period of ten (10) years had not yet lapsed.

It based its finding on a mere explanation of the private respondents' counsel

and not on evidence presented by the parties as to the date when to reckon
the prescriptive period. Consequently, the Court of Appeals committed a
reversible error when it declared that the RTC did not commit any grave abuse
of discretion in issuing the said Order.

INSURANCE DIGESTS I EH 404 2017 36

VI The Policy Insurance; 4
CIR v LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC.
(G.R. No. 119176, March 19, 2002)
Any rider, clause, warranty or endorsement pasted or attached to the policy is
considered part of such policy or contract of insurance thus there is no need
to enter into a separate agreement.
FACTS:
Respondent Lincoln Philippine Life Insurance Co., Inc., (now Jardine-CMA
Life Insurance Company, Inc.) is a domestic corporation engaged in life
insurance business. Respondents issued a special kind of life insurance policy
known as the Junior Estate Builder Policy, in which there is a clause providing
for an automatic increase in the amount of life insurance coverage upon
attainment of a certain age by the insured without the need of issuing a new
policy.
Private respondent paid documentary stamp taxes due on the policy based
on the initial sum assured. In 1984, when the automatic clause took effect,
petitioner Internal Revenue Commissioner issued deficiency documentary
stamps tax assessment corresponding to the automatic increase in the
insurance coverage on the policy issued by respondent.
However, the said increase is still imposable with documentary stamp taxes
because the original documentary stamps tax paid by Lincoln Philippine
covered only the original amount of the policies without the projected increase.
It is to be noted that although the clause was to take effect only on 1984, it
was written into the policy at the time of its issuance. Section 173 of the NIRC
provides that the payment of documentary stamp taxes is done at the time the
act is done. Section 183 of the NIRC provides that the tax base for the
computation of documentary stamp taxes on life insurance policies is the
amount fixed in policy.
Here, although the automatic increase in the amount of life insurance
coverage was to take effect later on, the amount of the increase was already
definite at the time of the issuance of the policy. Thus, the amount insured by
the policy at the time of its issuance necessarily included the additional sum
covered by the automatic increase clause because it was already
determinable at the time the transaction was entered into and formed part of
the policy.
The additional insurance was an obligation subject to a suspensive obligation,
but still a part of the insurance sold to which respondent was liable for the
payment of the documentary stamp tax. The deficiency of documentary stamp
tax imposed on respondent is not on the amount of the original insurance
coverage, but on the increase of the amount insured upon the effectivity of the
Junior Estate Builder Policy.

Private respondent questioned the deficiency documentary stamps tax

assessment because the "automatic increase clause" is not a separate
agreement from the main agreement. They filed a petition with the CTA which
was held in their favor. The CIR appealed with the CA affirming the decision
of the CTA.

ISSUE:
W/N the automatic increase clause in the policy was an integral part of the
policy and involves only one transaction

RULING:
YES. The “automatic increase clause” in the policy is an integral part of the
policy and does not involve another transaction. Section 50 in the Insurance
Code states that it may contain any word, phrase, clause, mark, sign, symbol,
signature, number, or word necessary to complete the contract of insurance.
It is thus clear that any rider, clause, warranty or endorsement pasted or
attached to the policy is considered part of such policy or contract of
insurance.

INSURANCE DIGESTS I EH 404 2017 37

VI The Policy Insurance; 5
RIZAL SURETY AND INSURANCE CO. v CA
(G.R. 112360, July 18, 2000)
FACTS:
On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance)
issued Fire Insurance Policy No. 45727 in favor of Transworld Knitting Mills,
Inc. (Transworld), initially for One Million (P1,000,000.00) Pesos and
eventually increased to One Million Five Hundred Thousand (P1,500,000.00)
Pesos, covering the period from August 14, 1980 to March 13, 1981. The
same pieces of property insured with the petitioner were also insured with New
India Assurance Company, Ltd., (New India).
On January 12, 1981, fire broke out in the compound of Transworld, razing
the middle portion of its four-span building and partly gutting the left and right
sections thereof. A two-storey building (behind said 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 &
Insurance Company and New India Assurance Company but to no avail.
insurance if minded to exclude the same but it did not, and instead, went on
to provide that such fire insurance policy covers the products, raw materials
and supplies stored within the premises of Transworld which was an integral
part of the four-span building occupied by Transworld, knowing fully well the
existence of such building adjoining and intercommunicating with the right
section of the four-span building. Verily, the two-storey building involved, a
permanent structure which adjoins and intercommunicates with the "first right
span of the lofty storey building," formed part thereof, and meets the requisites
for compensability under the fire insurance policy sued upon.
Also, in case of doubt in the stipulation as to the coverage of the fire insurance
policy, under Article 1377 of the New Civil Code, the doubt should be resolved
against the Rizal Surety, whose lawyer or managers drafted the fire insurance
policy contract under scrutiny.
Note: Same with I. Introduction; 3

Private respondent brought against the said insurance companies an action

for collection of sum of money and damages. Petitioner Rizal Insurance
countered that its fire insurance policy sued upon covered only the contents
of the four-span building, which was partly burned, and not the damage
caused by the fire on the two-storey annex building.

ISSUE:
W/N Rizal Surety is liable for loss of the two-storey building considering that
the fire insurance policy sued upon covered only the contents of the four-span
building.

RULING:
Yes, Rizal Surety is liable for the loss of the two-storey building.
The Supreme Court agrees with the findings of the lower courts in contending
that the so-called “annex” of the four-span building is not an annex building
but an integral and inseparable part of the four-span building described in the
policy and consequently, the machines and spare parts stored therein were
covered by the fire insurance in dispute.

Considering that the two-storey building aforementioned was already existing

when the subject fire insurance policy contract was entered into on Jan. 12,
1981, having been constructed some time in 1978, petitioner should have
specifically excluded the said two-storey building from the coverage of the fire

INSURANCE DIGESTS I EH 404 2017 38

VII. Devices for ascertaining and controlling risk and loss;
D. Warranties; 1
GREAT PACIFIC LIFE ASSURANCE CORP v CA
(G.R. No. 113899, October 13, 1999)
FACTS:
A contract of group life insurance was executed between Great Pacific Life
Assurance Corporation (Grepalife) and Development Bank of the Philippines
(DBP). Grepalife agreed to insure the lives of eligible housing loan mortgagors
of DBP. One of these mortgagors was Dr. Wilfredo Leuterio. In an application
form, Dr. Leuterio answered questions concerning his health condition in
which Grepalife issued the insurance thereafter.
7. Have you ever had, or consulted, a physician for a heart condition, high
blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any
other physical impairment?
Answer: NO.
8. Are you now, to the best of your knowledge, in good health?
Answer: YES
A year later Dr. Leuterio died due to massive cerebral hemorrhage. DBP
submitted a death claim to Grepalife but Grepalife denied the claim alleging
that Dr. Leuterio was not physically healthy when he applied for an insurance
coverage. Grepalife alleged that Dr. Leuterio did not disclose that he had been
suffering from hypertension, which caused his death. Allegedly, such non-
disclosure constituted concealment that justified the denial of the claim.
Dr. Leuterio widow filed a complaint with the RTC against Grepalife for
Specific Performance with Damages. During the trial, Dr. 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.
The RTC rendered a decision in favor of respondent widow. The Court of
Appeals sustained the trial courts decision.
ISSUE: W/N Dr. Leuterio concealed that he had hypertension, which would
vitiate the insurance contract?
RULING:
NO. Concealment exists where the assured had knowledge of a fact material
to the risk, which honesty, good faith, and fair dealing requires that he should
communicate it to the assured, but he designedly and intentionally withholds
the same.
Grepalife merely relied on the testimony of Dr. Mejia, as supported by the
information given by the widow of the decedent. Grepalife asserts that Dr.
Mejias technical diagnosis of the cause of death of Dr. Leuterio was a duly
documented hospital record, and that the widows declaration that her husband
had possible hypertension several years ago should not be considered as
hearsay, but as part of res gestae. However, the medical findings were not
conclusive because Dr. Mejia did not conduct an autopsy on the body of the
decedent. Dr. Mejia stated that he had no knowledge that the insured
decedent had any previous hospital confinement. Dr. Leuterios death
certificate stated that hypertension was only the possible cause of death. The
widows 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.
There was however 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.
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.
INSURANCE DIGESTS I EH 404 2017 39
VII. Devices for ascertaining and controlling risk and loss; be emphasized that rescission was exercised within the two-year
D. Warranties; 2 contestability period as recognized in Section 48 of The Insurance Code.

SUN LIFE ASSURANCE CO. v CA

(G.R. No. 105135, June 22, 1995)

FACTS:
Robert John Bacani procured a life insurance contract for himself from
petitioner-company, designating his mother Bernarda Bacani, herein private
respondent, as the beneficiary. He was issued a policy valued at P100,000.00
with double indemnity in case of accidental death. Sometime after, the insured
died in a plane crash. Bernarda filed a claim with petitioner, seeking the
benefits of the insurance policy taken by her son.

However, said insurance company rejected the claim on the ground that the
insured did not disclose material facts relevant to the issuance of the policy,
thus rendering the contract of insurance voidable. Petitioner discovered that
two weeks prior to his application for insurance, the insured was examined
and confined at the Lung Center of the Philippines, where he was diagnosed
for renal failure.

The RTC, as affirmed by the CA, this fact was concealed, as alleged by the
petitioner. But the fact that was concealed was not the cause of death of the
insured and that matters relating to the medical history of the insured is
deemed to be irrelevant since petitioner waived the medical examination prior
to the approval and issuance of the insurance policy.

ISSUE:
W/N the concealment of such material fact, despite it not being the cause of
death of the insured, is sufficient to render the insurance contract voidable.

RULING:
YES. 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.
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.

The SC ruled that petitioner properly exercised its right to rescind the contract
of insurance by reason of the concealment employed by the insured. It must

INSURANCE DIGESTS I EH 404 2017 40

VII. Devices for ascertaining and controlling risk and loss; made in good faith and without intent to deceive will not avoid a policy even
D. Warranties; 3 though they are untrue.

PHILAMCARE HEALTH SYSTEMS INC. v CA
(379 SCRA 356)
The health care agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity. Being a contract of adhesion, the terms of
an insurance contract are to be construed strictly against the party which
prepared the contract – the insurer.
FACTS:
Ernani Trinos, deceased husband of respondent Julita Trinos, was issued a
Health Care Agreement for a health coverage with petitioner Philamcare
Health Systems Inc. During the period of Ernani’s coverage, he suffered a
heart attack and was confined in the hospital. Respondent tried to claim the
benefits under the health care agreement, but petitioner denied her claim.
Petitioner asserted, among other things, that only medical and hospitalization
benefits are given under the agreement without any indemnification – unlike
in an insurance contract where the insured is indemnified for his loss. As a
result, respondent wound up paying the hospitalization expenses herself.
The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract. Concealment as a defense for the health
care provider or 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.
Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract – the insurer.
By reason of the exclusive control of the insurance company over the terms
and phraseology of the insurance contract, ambiguity must be strictly
interpreted against the insurer and liberally in favor of the insured, especially
to avoid forfeiture. This is equally applicable to Health Care Agreements.

After Ernani’s passing, respondent filed an action for damages against

petitioner and its president, Dr. Reverente. The RTC ruled in favor of
respondent and awarded damages. On appeal, the CA affirmed the decision
of the RTC but deleted all awards for damages and absolved Reverente.

As an argument, petitioner contends that respondent's husband concealed a

material fact in his application when the latter answered in the negative when
asked whether he had history of high blood pressure, heart trouble, diabetes,
cancer, liver disease, asthma or peptic ulcer.

ISSUE:
W/N there is concealment of material fact made by Ernani.

RULING:
NO, he did not conceal a material fact.

The answer assailed by petitioner was in response to the question relating to

the medical history of the applicant. This largely depends on opinion rather
than fact, especially coming from respondent’s husband who was not a
medical doctor. Where matters of opinion or judgment are called for answers

INSURANCE DIGESTS I EH 404 2017 41

VII. Devices for ascertaining and controlling risk and loss; made and the medicines prescribed by such doctor, it may be
D. Warranties; 4 reasonably assumed that Great Pacific would have made further
inquiries and would have probably refused to issue a non-medical
VDA de CANILANG v CA insurance policy or, at the very least, required a higher premium for the
(G.R. No. 92492, June 17,1993) same coverage.

FACTS:
Jaime Canilang applied for a "non-medical" insurance policy with respondent
Great Pacific Life Assurance Company ("Great Pacific") naming his wife,
petitioner Thelma Canilang, as his beneficiary. Jaime eventually died. As the
beneficiary of Jaime’s insurance policy, petitioner thereafter filed a claim with
Great Pacific. However, Great Pacific denied her claim on the ground that
Jaime had concealed material information from it – that is, that he had twice
consulted a doctor, and that he was found to have been suffering from "sinus
tachycardia" and "acute bronchitis", prior to his insurance policy application.

The Insurance Commissioner ruled in favor of petitioner. However, the CA

reversed and set aside the decision. Now comes petitioner alleging that
Jaime’s non-disclosure of certain facts about his previous health conditions
does not amount to fraud and Great Pacific is deemed to have waived inquiry
thereto.

ISSUE:
W/N Great Pacific’s denial of petitioner’s claim was justified on the ground of
material concealment as to the state of the insured’s health at the time of the
filing of insurance application.

RULING:
YES, the denial of petitioner’s claim was justified. The relevant statutory
provisions at the time Great Pacific issued the insurance contract and at the
time Jaime died, are Sections 26 and 28 of the Insurance Code of 1978. These
provisions read as follows:

"Sec. 26. A neglect to communicate that which a party knows and ought
to communicate, is called a concealment."
xxx xxx xxx
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 as to which he makes no warranty, and which the
other has not the means of ascertaining." (Emphases supplied)

The information Jaime failed to disclose was material to the ability of

Great Pacific to estimate the probable risk he presented as a subject of
life insurance. Had Jaime disclosed his visits to his doctor, the diagnosis

INSURANCE DIGESTS I EH 404 2017 42

VII. Devices for ascertaining and controlling risk and loss;
D. Warranties; 5
MA. LOURDES S. FLORENDO v PHILAM PLANS, INC., PERLA ABCEDE
and MA. CELESTE ABCEDE
(G.R. No. 186983. February 22, 2012)
Pursuant to Section 27 of the Insurance Code, concealment by the insured
entitles the insurer to rescind its contract of insurance.
FACTS:
On October 23, 1997 Manuel Florendo filed an application for comprehensive
pension plan with respondent Philam Plans, Inc. (Philam Plans). Manuel
signed the application and left to Perla, who is the agent of Philam Plans, the
task of supplying the information needed in the application. 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.
Eleven months later or on September 15, 1998, Manuel died of blood
poisoning. Subsequently, Lourdes 8led a claim with Philam Plans for the
payment of the benefits under her husband's plan. 10 Because Manuel died
before his pension plan matured and his wife was to get only the bene8ts of
his life insurance, Philam Plans forwarded her claim to Philam Life. Philam
Plans declined the claim because they found out that Manuel was on
maintenance medicine for his heart and had an implanted pacemaker.
Further, he suffered from diabetes mellitus and was taking insulin.
RTC ruled in favour of Lourdes. However, the CA reversed the RTC decision.
Hence, this petition.
ISSUE:
1. W/N Manuel is guilty of concealing his illness when he kept blank and did
not answer questions in his pension plan application regarding the condition
he suffered from.
2. W/N Manuel was bound by the failure of respondents Perla and Ma. Celeste
to declare the condition of Manuel's health in the pension plan application.
3. W/N or not Philam Plans' approval of Manuel's pension plan application and
acceptance of his premium payments precluded it from denying Lourdes'
claim.
RULING:
1. Manuel is guilty of concealing his illness. Lourdes points out that, seeing
the unfilled spaces in Manuel's pension plan application relating to his medical
history, Philam Plans should have returned it to him for completion. Since
Philam Plans chose to approve the application just as it was, it cannot cry
concealment on Manuel's part. Further, Lourdes adds that Philam Plans never
queried Manuel directly regarding the state of his health. Consequently, it
could not blame him for not mentioning it.
However, when Manuel signed the pension plan application, he adopted as
his own the written representations and declarations embodied in it. It is clear
from these representations that he concealed his chronic heart ailment and
diabetes from Philam Plans. Hence, pursuant to Section 27 of the Insurance
Code, Manuel's concealment entitles Philam Plans to rescind its contract of
insurance with him.
2. Even if there was no evidence of collusion between Perla and Manuel, we
still go back to the fact that Manuel signed the application which he certified
that the information stated in it or had someone do it under his direction.
Hence, Manuel is bound by the acts of Perla.
3. The comprehensive pension plan that Philam Plans issued contains a one-
year incontestability. The incontestability clause precludes the insurer from
disowning liability under the policy it issued on the ground of concealment or
misrepresentation regarding the health of the insured after a year of its
issuance. However, Manuel died on the eleventh month following the issuance
of his plan, hence, the one year incontestability period has not yet set in.
Consequently, Philam Plans was not barred from questioning Lourdes'
entitlement to the benefits of her husband's pension plan.
INSURANCE DIGESTS I EH 404 2017 43
VIII. Persons entitled to recover on the policy and conditions
to recovery; 1
FGU INSURANCE CORPORATION v. COURT OF APPEALS
(G.R. No. 137775, March 31, 2005)
The ordinary negligence 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.
FACTS:
Anco Enterprises Company (ANCO) was engaged in the shipping business.
The “D/B Lucio” is a barge and had no engine of its own, so it could not
maneuver itself and had to be towed by “M/T Anco”, a tugboat, for it to move
from one place to another. Both vessels are owned by ANCO enterprises. On
September 23, 1979, San Miguel Corporation (SMC) shipped cargoes of beer
cases of Pale Pilsen from Mandaue City, Cebu on board the D/B Lucio, for
towage by M/T Anco to San Jose, Antique. When the barge and tugboat
arrived at San Jose in the afternoon of September 30, 1979, the clouds over
the area were dark and waves were already big. The tugboat M/T Anco left
the barge immediately after reaching San Jose, Antique.
At that time only the M/T Anco was left at the wharf of San Jose, as all other
vessels already left to seek shelter. Consequently, SMC’s representative
requested ANCO’s representative to transfer the barge to a safer place
because the vessel might not be able to withstand the big waves. However,
ANCO’s representative did not heed the request because he was confident
that the barge could withstand the waves. At around midnight of October 1,
1979, the barge run aground and was broken and the cargoes of beer in the
barge were swept away, resulting to ANCO’s failure to deliver 29,210 cases
of Pale Pilsen.
SMC filed a complaint for breach of contract against ANCO. The latter claimed
however that it would not be liable for any losses resulting to the cargoes by
reason of a fortuitous event. Subsequently, ANCO filed a third party complaint
to FGU Insurance Corporation (FGU) for their Marine Insurance Policy that it
may be liable to reimburse ANCO whatever amounts it may be required to pay
SMC.
ISSUE:
W/N there is a certain degree of negligence on the part of the insured or his
agents (ANCO) that will deprive him the right to recover under the insurance
contract from the insurer (FGU).
RULING:
YES, there was gross negligence on the agents of ANCO which would amount
to a misconduct and release FGU from liability under the insurance contract.
One of the purposes for taking out insurance is to protect the insured against
the consequences of his own negligence and that of his agents. Thus, it is a
basic rule in insurance that the carelessness and ordinary negligence of the
insured or his agents constitute no defense on the part of the insurer. This rule
however presupposes that the loss has occurred due to causes which could
not have been prevented by the insured, despite the exercise of due diligence.
When evidence show that the insured's negligence or recklessness is so gross
as to be sufficient to constitute a willful act, the insurer must be exonerated.
ANCO’s argument claims that the loss of the cargoes was proximately caused
by the typhoon, a fortuitous event, and there was no negligence on their part.
However the Supreme Court is not persuaded, both lower courts had
concluded from the evidence that the crewmembers of both the D/B Lucio and
the M/T ANCO were blatantly negligent.
There was blatant negligence on the part of the employees of ANCO when
the operator of the tug boat immediately left the barge at the San Jose, Antique
wharf despite the looming bad weather. Even if ANCO's representatives
wanted to transfer it, they no longer had any means to do so as the tugboat
M/T ANCO has already departed, leaving the barge engine-less. The captain
of the tugboat should have had the foresight not to leave the barge alone
considering the pending storm.
Negligence was likewise exhibited by the defendants-appellants'
representative who did not heed Macabuag's request that the barge be moved
to a more secure place. The prudent thing to do, as was done by the other
sea vessels at San Jose, Antique during the time in question, was to transfer
the vessel to a safer wharf. The negligence of the defendants-appellants is
proved by the fact that on October 1. 1979, the only simple vessel left at the
wharf in San Jose was the D/B Lucio.
Taking into account the circumstances present in the instant case, concludes
that the blatant negligence of ANCO's employees is of such gross character
that it amounts to a wrongful act which must exonerate FGU from liability
under the insurance contract.
INSURANCE DIGESTS I EH 404 2017 44
VIII. Persons entitled to recover on the policy and conditions policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating
to recovery; 2 that it was only the H.S. Reyes, Inc. which they intended to benefit.

To hold now that the original parties to the insurance contract intended to
BONIFACIO BROS., INC., ET AL. v. MORA confer upon the appellants the benefit claimed by them would require as to
(G.R. No. L-20853, May 29, 1967) ignore the indispensable requisite that a stipulation pour autrui must be
clearly expressed by the parties, which we cannot do.
FACTS:
Enrique Mora, owner of an Oldsmobile sedan, mortgaged the same to the H.S. Another cogent reason for not recognizing a right of action by the appellants
Reyes, Inc., with the condition that the former would insure the automobile, against the insurance company is that "a policy of insurance is a distinct and
with the latter as beneficiary. The automobile was thereafter insured with the independent contract between the insured and insurer, and third persons have
State Bonding & Insurance Co. Inc., and motor car insurance policy A-0615 no right either in a court of equity, or in a court of law, to the proceeds of it,
was issued to Enrique Mora. unless there be some contract of trust, expressed or implied, by the insured
and third person". In this case, no contract of trust, expressed or implied exists.
During the effectivity of an insurance contract, the car met with an accident.
The insurance company then assigned the accident to the H.H. Bayne The appellant's claim, if at all, is merely equitable in nature and must be made
Adjustment Co. for investigation and appraisal of the damage. Enrique Mora, effective through Enrique Mora who entered into a contract with the Bonifacio
without the knowledge and consent of the H.S. Reyes, Inc., authorized the Bros Inc.
Bonifacio Bros. Inc. to furnish the labor and materials, some of which were
supplied by the Ayala Auto Parts Co. The insurance company, after claiming
a franchise in the amount of P100, drew a check in the amount of P2,002.73,
as proceeds of the insurance policy, payable to the order of Enrique Mora or
H.S. Reyes, Inc., and entrusted the check to the H.H. Bayne Adjustment Co.
for disposition and delivery to the proper party. In the meantime, the car was
delivered to Enrique Mora without the consent of the H.S. Reyes, Inc., and
without payment to the Bonifacio Bros. Inc. and Ayala Auto Parts Co. of the
cost of repairs and materials.

Upon the theory that the insurance proceeds should be paid directly to them,
the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed a complaint with
the Municipal Court against Enrique Mora and the State Bonding & Insurance
Co. Inc. for the collection of the sum of P2,002.73.

ISSUE:
W/N there is privity of contract between the Bonifacio Bros. Inc and the Ayala
Auto Parts Co. on the one hand and the insurance company on the other.

RULING:
NO. In the instant case the insurance contract does not contain any words or
clauses to disclose an intent to give any benefit to any repairmen or material
men in case of repair of the car in question. The parties to the insurance
contract omitted such stipulation, which is a circumstance that supports the
said conclusion. On the other hand, the "loss payable" clause of the insurance

INSURANCE DIGESTS I EH 404 2017 45

VIII. Persons entitled to recover on the policy and conditions
to recovery; 3

INSULAR LIFE ASSURANCE COMPANY, LTD v. CARPONIA EBRADO

AND PASCUALA VDA. DE EBRADO
(G.R. No. L-44059, October 28, 1977)

FACTS:
Buenaventura Ebrado was issued by The Insular Life Assurance a whole-life
plan with a rider for accidental death benefits and the former designated
Carponia Ebrado, his common-law wife as his revocable beneficiary. Upon his
death, Carponia Ebrado had filed with the insurer a claim for the proceeds of
the policy but she admits that they were merely living as husband and wife
without the benefit of marriage. Pascuala Vda. de Ebrado also filed her claim
as the widow and asserts she is the one entitled to the insurance proceeds.

ISSUE:
Who is entitled to the proceeds of the insurance?

RULING:
The widow, Pascuala Vda. de Ebrado. Section 50 of the Insurance Act
provides that “the insurance shall be applied exclusively to the proper interest
of the person in whose name it is made” but the word “interest” highly suggests
that the provision refers only to the insured and not the beneficiary, since a
contract of insurance is personal in character. Rather, the general rules of civil
law should be applied since Article 2011 states that the contract of insurance
is a special law and matters not expressly provided shall be regulated by the
civil law.

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 barred from receiving donations from each other. The
essence of an insurance policy is no different from a civil donation since both
are founded on liberality. The beneficiary is the done in this matter and as a
consequence, Article 739 of the new Civil Code should equally apply in life
insurance contracts: any person who cannot receive a donation cannot be
named as a beneficiary in the life insurance policy of the person who cannot
make the donation.

There is also no need for a conviction for adultery or concubinage since Article
739 provides that the guilt of the done may be proved by preponderance of
evidence in the same action.

INSURANCE DIGESTS I EH 404 2017 46

VIII. Persons entitled to recover on the policy and conditions In case of failure to name a beneficiary in an insurance policy, the proceeds
to recovery; 4 will accrue to the estate of the insured. In this case, where there exists two
marriages, each will be entitled to one-half of the estate.
VDA. DE CONSUEGRA v. GSIS
(37 SCRA 315)

FACTS:
Jose Consuegra was employed as a shop foreman of the Office of the District
Engineer in Surigao Del Norte. In his lifetime, he contracted two marriages;
with Rosario Diaz and Basilia Berdin respectively.

Being a GSIS member when he died, the proceeds of his life insurance were
paid to Berdin and her children who were the named beneficiaries named in
the policy. Likewise, being in government service for 22.5028 years, he was
entitled to retirement insurance benefits, for which no beneficiary was
designated.

Both families filed their clams with the GSIS, which ruled that the legal heirs
were Diaz who is entitled to one-half of the retirement benefits and Berdin,
with her children, the other half.

ISSUE:
To whom should the retirement insurance benefits be paid.

RULING:
Both families are entitled to half of the retirement benefits.

The beneficiary named in the life insurance does not automatically become
the beneficiary in the retirement insurance. When Consuegra, during the early
part of 1943, or before 1943, designated his beneficiaries in his life insurance,
he could not have intended that the same be the beneficiaries of his retirement
insurance because the provisions on retirement insurance under GSIS came
about only when CA 186 was amended by RA 660 on June 1951.

Sec. 11(b) clearly indicates that there is need for the employee to file an
application for retirement insurance benefits when he becomes a GSIS
member and to state his beneficiary. The life insurance and the retirement
insurance are two separate and distinct systems of benefits paid out from two
separate and distinct funds.

INSURANCE DIGESTS I EH 404 2017 47

VIII. Persons entitled to recover on the policy and conditions
to recovery; 5
ASIAN TERMINALS, INC. v. MALAYAN INSURANCE CO., INC.
(G.R. No. 171406, April 4, 2011)
The presentation in evidence of the insurance policy is not indispensable
before the insurer may recover from the one liable the insured value of the
thing lost or damaged in the exercise of its subrogatory right.
FACTS:
Shandong Weifang Soda Ash Plant shipped on board the vessel MV "Jinlian
I" 60,000 plastic bags of soda ash dense from China to Manila. The shipment
was insured with respondent Malayan Insurance Company, Inc. with
Philippine Banking Corporation as the consignee and Chemphil Albright and
Wilson Corporation as the notify party.
Upon arrival of the vessel in Manila, the stevedores of petitioner Asian
Terminals, Inc., a duly registered domestic corporation engaged in providing
arrastre and stevedoring services, unloaded the 60,000 bags of soda ash
dense from the vessel and brought them to the open storage area of petitioner
for temporary storage and safekeeping, pending clearance from the Bureau
of Customs and delivery to the consignee. However after all the bags were
unloaded in the warehouses of the consignee, a total of 2,881 bags were in
bad order condition due to spillage, caking, and hardening of the contents.
Respondent, as insurer, paid the value of the lost/damaged cargoes to the
consignee in the amount of P643,600.25. Respondent, as subrogee of the
consignee, filed before a Complaint for damages against petitioner, the
shipper Inchcape Shipping Services, and the cargo broker MEC Customs
Brokerage. Petitioner contends that respondent has no cause of action
because it failed to present the insurance contract or policy covering the
subject shipment. Petitioner argues that the Subrogation Receipt presented
by respondent is not sufficient to prove that the subject shipment was insured
and that respondent was validly subrogated to the rights of the consignee.
Thus, respondent is not entitled to any reimbursement.
ISSUE:
W/N the non-presentation of the insurance contract or policy is fatal to
respondent’s cause of action.
RULING:
No, the non-presentation of the insurance contract or policy is not fatal in the
case.
In Delsan Transport Lines, Inc. v. Court of Appeals, the Court held that the
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 private respondent 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.
In contrast with Home Insurance Corporation v. CA, the presentation of the
insurance policy was necessary because the shipment therein passed through
several stages with different parties involved in each stage. However, as in
every general rule, there are admitted exceptions. In Delsan Transport Lines,
Inc. v. Court of Appeals, 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.
Similarly, in this case, the presentation of the insurance contract or policy was
not necessary. Although petitioner objected to the admission of the
Subrogation Receipt in its Comment to respondent's formal offer of evidence
on the ground that respondent failed to present the insurance contract or
policy, a perusal of petitioner's Answer and Pre-Trial Brief shows that
petitioner never questioned respondent's right to subrogation, nor did it
dispute the coverage of the insurance contract or policy. Since there was no
issue regarding the validity of the insurance contract or policy, or any provision
thereof, respondent had no reason to present the insurance contract or policy
as evidence during the trial.
INSURANCE DIGESTS I EH 404 2017 48
X. Double Insurance
MALAYAN INSURANCE CO., INC. v. PHILIPPINES FIRST INSURANCE
CO., INC. and REPUTABLE FORWARDER SERVICES, INC.
G.R. No. 184300. July 11, 2012
Double insurance exists where the same person is insured by
several insurers separately in respect to the same subject and interest.
FACTS:
Wyeth procured a Marine Policy from respondent Philippines First to secure
its interest over its own products. Philippines First thereby insured Wyeth's
products while the same were being transported or shipped in the Philippines,
with a limit of P6,000,000.00 per any one land vehicle. Wyeth then executed
a contract of carriage with Reputable. Under the contract, Reputable was
required to secure an insurance policy on Wyeth's goods. Thus, Reputable
signed a Special Risk Insurance Policy (SR Policy) with petitioner Malayan for
the amount of P1,000,000.00.
During the effectivity of the Marine Policy and SR Policy, Reputable received
from Wyeth 1,000 boxes of Promil infant formula worth P2,357,582.70 to be
delivered by Reputable to Mercury Drug. Unfortunately, the truck carrying
Wyeth's products was hijacked by about 10 armed men. The hijacked truck
was recovered two weeks later without its cargo.
Pursuant to the Marine Policy, Philippines First paid Wyeth P2,133,257.00 as
indemnity. Philippines First then demanded reimbursement from Reputable,
having been subrogated to the rights of Wyeth by virtue of the payment.
Reputable, however, ignored the demand. Consequently, Philippines First
instituted an action for sum of money against Reputable. Reputable, in turn,
impleaded Malayan as third-party defendant in an effort to collect the amount
covered in the SR Policy.
Malayan argued, among others, that inasmuch as there was already a marine
policy issued by Philippines First securing the same subject matter against
loss and that since the monetary coverage/value of the Marine Policy is more
than enough to indemnify the hijacked cargo, Philippines First alone must bear
the loss. Malayan invokes Sections 5 and 12 of the SR policy, to wit:
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.
Section 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.
By virtue of Sections 5 and 12, Malayan seeks the dismissal of the
third-party complaint against it.
ISSUE:
W/N there was double insurance, such that Sections 5 and 12 can be applied.
RULING:
NO, there was no double insurance. Clearly, both Sections 5 and 12
presuppose the existence of a double insurance. Accordingly, in the absence
of double insurance, Sections 5 and 12 are inapplicable.
By the express provision of Section 93 of the Insurance Code, double
insurance exists where the same person is insured by several insurers
separately in respect to the same subject and interest. The requisites in order
for double insurance to arise are as follows:
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. 

Here, the policy issued by Philippines First was in consideration of the legal
and/or equitable interest of Wyeth over its own goods. On the other hand, what
was issued by Malayan to Reputable was over Reputable’s insurable interest
over the safety of the goods. Thus, although the Marine Policy and the SR
Policy were issued over the same goods and cover the same risk, there arises
no double insurance since the policies were issued to two different
persons/entities having distinct insurable interests.
Hence, neither Section 5 nor Section 12 of the SR Policy can be applied.
NOTE: The provision on double insurance is now under Section 95 and no
longer under Section 93.
INSURANCE DIGESTS I EH 404 2017 49

XII. Marine Insurance; H. Loss; 6. Average; 1
PHIL-NIPPON KYOEI, CORP. v. GUDELOSAO
(G.R. No. 181375, July 13, 2016)
FACTS:
Phil-Nippon Kyoei, Corp. (Kyoei), a domestic shipping corp., purchased a "Ro-
Ro" passenger/cargo vessel "MV Mahlia" in Japan in February 2003. For the
vessel's one month conduction voyage from Japan to the Philippines, Kyoei,
as local principal, and Top Ever Marine Management Maritime Co., Ltd.
(TMCL), as foreign principal, hired Edwin C. Gudelosao, Virgilio A.
Tancontian, and six other crewmembers. They were hired through the local
manning agency of TMCL, Top Ever Marine Management Philippine
Corporation (TEMMPC).
Kyoei secured a Marine Insurance Policy (Maritime Policy No. 00001) from
South Sea Surety & Insurance Co., Inc. (SSSICI), over the vessel for
P10,800,000 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 from
Onomichi, Japan to Batangas, Philippines. This Marine Insurance Policy
included Personal Accident Policies for the eight crewmembers for
P3,240,000 each in case of accidental death or injury.
On February 24, 2003, while still within Japanese waters, the vessel sank due
to extreme bad weather condition. Only Chief Engineer Nilo Macasling
survived the incident while the rest of the crewmembers, including Gudelosao
and Tancontian, perished.
Respondents, as heirs and beneficiaries of Gudelosao and Tancontian, filed
separate complaints for death benefits and other damages against Kyoei,
TEMMPC, Capt. Orbeta, TMCL, and SSSICI, with the Arbitration Branch of
the National Labor Relations Commission (NLRC).
On August 5, 2004, Labor Arbiter (LA) Pablo S. Magat rendered a Decision
finding solidary liability among Kyoei, TEMMPC, TMCL and Capt. Orbeta. The
LA, however, ruled that the liability of petitioner shall be deemed extinguished
only upon SSSICI's payment of the insurance proceeds
On appeal, the NLRC modified the LA Decision and absolved Kyoei,
TEMMPC and TMCL 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).
Upon a petition for certiorari, the CA found that the NLRC erred when it ruled
that the obligation of petitioner, 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. TEMMPC and TMCL cannot raise the defense of the
total loss of the ship because its liability under POEAS-EC is separate and
distinct from the liability of the shipowner. The CA then ordered that
petitioner's liability will only be extinguished upon payment by SSSICI of the
insurance proceeds.
ISSUES:
1. W/N the doctrine of real and hypothecary nature of maritime law (also
known as the limited liability rule) applies in favor of Kyoei.
2. W/N the CA erred in ruling that the liability of Kyoei is extinguished only
upon SSSICI's payment of insurance proceeds.
RULING:
1. NO, the doctrine of limited liability does not apply.
Kyoei (petitioner) was the local principal of the deceased seafarers for the
conduction trip of MV Mahlia. Petitioner hired them through TMCL, which
also acted through its agent, TEMMPC. Petitioner 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.
Doctrine of limited liability is not applicable to claims under POEA-SEC.
The liability of the shipowner or agent under the POEA-SEC has nothing
to do with the provisions of the Code of Commerce regarding maritime
commerce. It is a liability created by contract between the seafarers and
their employers, but secured through the State's intervention. The death
benefits under the POEA-SEC are intended to be separate and distinct
from, and in addition to, whatever benefits the seafarer is entitled to under
Philippine laws, including those benefits which may be claimed from the
State Insurance Fund.
Moreover, petitioner's claim that the limited liability rule and its
corresponding exception (i.e., where the vessel is insured) apply here is
irrelevant because petitioner was not found liable under tort or quasi-delict.
Moreover, the insurance proceeds contemplated under the exception in
the case of a lost vessel are the insurance over the vessel and pending
INSURANCE DIGESTS I EH 404 2017 50
 freightage for the particular voyage. It is not the insurance in favor of the
seafarers, the proceeds of which are intended for their beneficiaries.

2. YES, the CA erred in ruling that the liability of Kyoei is extinguished only
upon SSSICI's payment of insurance proceeds.

The liability of SSSICI to the beneficiaries is direct under the insurance

contract. 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. Upon petitioner'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.

Since petitioner is not the party liable for the value of the insurance
proceeds, it follows that the limited liability rule does not apply as well.

INSURANCE DIGESTS I EH 404 2017 51

XII. Marine Insurance; H. Loss; 6. Average; 2
ROQUE v. IAC AND PIONEER INSURANCE
(G.R. No. L-66935, November 11, 1985)
FACTS:
Roque hired Manila Bay Lighterage Corp (Manila bay) to load and carry about
422.18 cubic meters of logs from Palawan to Manila. Such logs were insured
with Pioneer Insurance and Surety Corp (Pioneer). However, such logs never
reached Manila because the vessel sank somewhere off Cabuli Port.
Roque alleged that the barge was not seaworthy for it developed a leak, that
one of the hatches were left open causing water to enter and the lack of the
necessary cover of tarpaulin causing more to enter the barge. Pioneer refused
to pay for the loss on the ground that its liability depended upon the “Total
Loss by Total Loss of Vessel” only.
shipper of the 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.
2. Another option may be to 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 the coverage of perils of the ship.
The petitioner’s complaint and in the ruling of the trial court show that the loss
of the cargo was due to the perils of the ship rather than the perils of the sea.
It clearly showed that the barge developed a leak which allowed water to come
in and that one of the hatches of the said barge was negligently left open by
the person in charge thereof.

The trial court ruled in favor of petitioners. However, such was modified by the
appellate court when Pioneer appealed the case.

ISSUES:
1. W/N in cases of marine insurance, there is a warranty of seaworthiness
by the cargo owner
2. W/N the loss of the cargo was due to the perils of the sea, not perils of
the ship

RULING:
1. The liability of the marine insurance company is governed by Section 113
of the Insurance Code which provides:

“In every marine insurance upon a ship or freight, or freightage, or upon any
thing which is the subject of the marine insurance, a warranty is implied that
the ship is seaworthy.”

There can be no mistaking that the term “cargo” can be 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. Further, the fact that the unseaworthiness of the ship was
unknown to the insured is immaterial in the ordinary marine insurance and
may not be used by him as a defense in order to recover on the marine
insurance policy.

Since this is the case, it becomes the obligation of cargo owner to look for a
reliable common carrier which keeps its vessels in seaworthy condition. The

INSURANCE DIGESTS I EH 404 2017 52

XII. Marine Insurance; H. Loss; 6. Average; 3
GO TIAOCO v. UNION INSURANCE SOCIETY OF CANTON LTD.
(G.R. No. 13983, September 1, 1919)
FACTS:
On May, 1915, a cargo of rice belonging to the Go Tiaoco Brothers, was
transported on the steamship Hondagua from the port of Saigon to Cebu. On
discharging the rice from one of the compartments in the after hold, upon
arrival at Cebu, it was discovered that 1,473 sacks had been damaged by sea
water.
The amount of the loss after proper deduction had been made for the portion
saved, was P3,875. The policy of insurance, covering the shipment, was
signed upon a form long in use among companies engaged in maritime
insurance. It purports to insure the cargo from the following among other risks:
"Perils . . . of the seas, men, of war, fire, enemies, pirates, rovers, thieves,
.jettisons, . . . barratry of the master and mariners, and of all other perils,
losses, and misfortunes that have or shall come to the hurt, detriment, or
damage of the said goods and merchandise or any part thereof."
It was found out that the drain pipe which served as a discharge from the water
closet passed down through the compartment where the rice in question was
stowed and thence out to sea through the wall of the compartment, which was
a part of the wall of the ship. The joint or elbow where the pipe changed its
direction was of cast iron; and in course of time it had become corroded and
abraded until a longitudinal opening had appeared in the pipe about one inch
in length.
This hole had been in existence before the voyage was begun, and an attempt
had been made to repair it by filling with cement and bolting over it a strip of
iron. The effect of loading the boat was to submerge the vent, or orifice, of the
pipe until it was about 18 inches or 2 feet below the level of the sea. As a
consequence, the sea water rose in the pipe. Navigation under these
conditions resulted in the washing out of the cement-filling from the action of
the sea water, thus permitting the continued flow of the salt water into the
compartment of rice.
An action on a policy of marine insurance issued by the Union Insurance
Society of Canton, Ltd., upon the cargo of rice belonging to the Go Tiaoco
Brothers was filed. The trial court found that the inflow of the sea water during
the voyage was due to a defect in one of the drain pipes of the ship and
concluded that the loss was not covered by the policy of insurance. Judgment
was accordingly entered in favor of Union Insurance and Go Tiaoco Brothers
appealed.
ISSUE:
1. W/N perils of the sea includes “entrance of water into the ship’s hold through
a defective pipe.”
2. W/N there is an implied warranty on the seaworthy of the vessel in every
marine insurance contract.
RULING:
1. NO. It is determined that the words "all other perils, losses, and misfortunes"
are to be interpreted as covering risks which are of like kind (ejusdem generis)
with the particular risks which are enumerated in the preceding part of the
same clause of the contract. According to the ordinary rules of construction
these words must be interpreted with reference to the words which
immediately precede them. They were no doubt inserted in order to prevent
disputes founded on nice distinctions. Their office is to cover in terms whatever
may be within the spirit of the cases previously enumerated, and so they have
a greater or less effect as a narrower or broader view is taken of those cases.
For example, if the expression "perils of the seas" is given its widest sense
the general words have little or no effect as applied to that case. If on the other
hand that expression is to receive a limited construction and loss by perils of
the seas is to be confined to loss ex marine tempestatis discrimine, the general
words become most important. But still, when they first became the subject of
judicial construction, they have always been held or assumed to be restricted
to cases "akin to" or "resembling" or "of the same kind as" those specially
mentioned. I see no reason for departing from this settled rule. In marine
insurance it is above all things necessary to abide by settled rules and to avoid
anything like novel refinements or a new departure. 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. 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
INSURANCE DIGESTS I EH 404 2017 53
must happen." Herein, 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 results from perils of the sea.

2. YES. 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). It is also
well settled that a ship which is seaworthy for the purpose of insurance upon
the ship may yet be unseaworthy for the purpose of insurance upon the cargo
(Act No. 2427, sec. 106).

INSURANCE DIGESTS I EH 404 2017 54

XII. Marine Insurance; H. Loss; 6. Average; 4 The assailed decision of the CA is hereby AFFIRMED.

CATHAY INSURANCE v. CA
(G.R. No. 76145, June 30, 1987.)

FACTS:
A complaint was filed by respondent Remington Industrial Sales Corporation
against petitioner Cathay Insurance company seeking collection of the sum of
P868,339.15 representing private respondent's losses and damages incurred
in a shipment of seamless steel pipes under an insurance contract in favor of
the said private respondent as the insured, consignee or importer of aforesaid
merchandise while in transit from Japan to the Philippines on board vessel SS
"Eastern Mariner." The total value of the shipment was P2,894,463.83 at the
prevailing rate of P7.95 to a dollar in June and July 1984, when the shipment
was made.

The trial court decided in favor of private respondent corporation by ordering

petitioner 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 petitioner
to pay private respondent 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 private respondent's submission of proof of
loss to petitioner until paid as provided in the settlement of claim provision of
the policy; and ordering petitioner to pay private respondent certain amounts
for marine surveyor's fee, attorney's fees and costs of the suit.

The petitioner argues that the insistence of respondent that rusting is a peril
of the sea is erroneous.

ISSUE:
W/N 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.

RULING:
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. At any rate if the insurer cannot be held accountable therefor, we
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. 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.

INSURANCE DIGESTS I EH 404 2017 55

XII. Marine Insurance; H. Loss; 6. Average; 5
FILIPINO MERCHANTS v. CA
(179 SCRA 638)
FACTS:
In 1976, Choa Tiek Seng contracted Frota Oceanica Brasiliera for the latter to
deliver goods. Choa Tiek Seng insured the goods with Filipino Merchants
Insurnace Company. The goods left the port of Manila on December 13, 1976
and reached its point of destination on December 17, 1976. The goods were
however damaged.
Choa Tiek Seng then filed an insurance claim. Filipino Merchants refused to
pay so in August 1977, it was sued by Choa Tiek Seng. In January 1978,
Filipino Merchants filed a third party complaint against the carrier Frota
Oceanica Brasiliera as it alleged that it is the carrier who is liable to pay
damages to Choa Tiek Seng. Judge Jose Alejandro of the trial court ruled
against Filipino Merchants. The Court of Appeals affirmed the ruling of the
judge. The lower courts ruled that Filipino Merchants is already barred from
filing a claim because under the Carriage of Goods by Sea Act, the suit against
the carrier must be filed “within one year after delivery of the goods or the date
when the goods should have been delivered” or one year from December 17,
1976. The insurance company is already barred for it filed its third party
complaint only in January 1978.
ISSUE:
1. W/N Filipino Merchants is precluded by the said time-bar rule.
2. W/N the "all risks" clause of the marine insurance policy held the petitioner
liable to the private respondent 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.
3. W/N The Court of Appeals erred in not holding that the private respondent
had no insurable interest in the subject cargo, hence, the marine insurance
policy taken out by private respondent is null and void.
RULING:
1.YES. The pertinent provision of the Carriage of Goods by Sea Act does not
only apply to the shipper but also applies to the insurer. The coverage of the
Carriage of Goods by Sea Act includes the insurer of the goods. Otherwise,
what the Act intends to prohibit after the lapse of the one year prescriptive
period can be done indirectly by the shipper or owner of the goods by simply
filing a claim against the insurer even after the lapse of one year. This would
be the result if the insurer can, at any time, proceed against the carrier and
the ship since it is not bound by the time-bar provision. In this situation, the
one year limitation will be practically useless. This could not have been the
intention of the law which has also for its purpose the protection of the carrier
and the ship from fraudulent claims by having “matters affecting transportation
of goods by sea be decided in as short a time as possible” and by avoiding
incidents which would “unnecessarily extend the period and permit delays in
the settlement of questions affecting the transportation.”
2. The "all risks clause" of the Institute Cargo Clauses read as follows:
“5. This insurance is against all risks of loss or damage to the subject-matter
insured but shall in no case be deemed to extend to cover loss, damage, or
expense proximately caused by delay or inherent vice or nature of the subject-
matter insured. Claims recoverable hereunder shall be payable irrespective of
percentage.“
An "all risks policy" should be read literally as meaning all risks whatsoever
and covering all losses by an accidental cause of any kind. “Accident” is
construed by the courts in their ordinary and common acceptance.
The very nature of the term "all risks" must be given a broad and
comprehensive meaning as covering any loss other than a willful and
fraudulent act of the insured. This is pursuant to the very purpose of an "all
risks" insurance to give protection to the insured in those cases where
difficulties of logical explanation or some mystery surround the loss or damage
to property.
Institute Cargo Clauses extends to all damages/losses suffered by the insured
cargo except (a) loss or damage or expense proximately caused by delay, and
(b) loss or damage or expense proximately caused by the inherent vice or
nature of the subject matter insured.
Generally, the burden of proof is upon the insured to show that a loss arose
from a covered peril, but under an "all risks" policy the burden is not on the
insured to prove the precise cause of loss or damage for which it seeks
compensation. The insured under an "all risks insurance policy" has the initial
burden of proving that the cargo was in good condition when the policy
attached and that the cargo was damaged when unloaded from the vessel.
The burden then shifts to the insurer to show the exception to the coverage.
This creates a special type of insurance which extends coverage to risks not
usually contemplated and avoids putting upon the insured the burden of
establishing that the loss was due to the peril falling within the policy's
coverage; the insurer can avoid coverage upon demonstrating that a specific
provision expressly excludes the loss from coverage.
INSURANCE DIGESTS I EH 404 2017 56
Under an 'all risks' policy, it was sufficient to show that there was damage
occasioned by some accidental cause of any kind, and there is no necessity
to point to any particular cause.

3. Section 13 of the Insurance Code- anyone has an insurable interest in

property who derives a benefit from its existence or would suffer loss from its
destruction

Insurable interest in property may consist in (a) an existing interest; (b) an

inchoate interest founded on an existing interest; or (c) an expectancy,
coupled with an existing interest in that out of which the expectancy arises.

Choa, as vendee/consignee of the goods in transit, has such existing interest

as may be the subject of a valid contract of insurance. 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 conditions have been performed.
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, for the purpose of transmission to the
buyer is deemed to be a delivery of the goods to the buyer. The Court has
heretofore ruled that 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.

INSURANCE DIGESTS I EH 404 2017 57

XII. Marine Insurance; H. Loss; 6. Average; 6 from the insurer. Whether a contract is entire or severable is a question of
intention to be determined by the language employed by the parties.
ORIENTAL ASSURANCE CORPORATION v. CA
(GR No. 94052, August 9, 1991) Policy shows that the matter insured was the entire shipment of 1,208 logs.
Just because it was loaded in two separate barges did not make the contract
FACTS: several and divisible as to the items insured. Only one premium was paid, and
Panama Sawmill Co (Panama) bought in Palawan 1,208 pcs of logs. It was thus, in contemplating the “total loss”, the entire shipment must be considered.
transported by a marine vessel to Manila, and such shipment was insured
against loss for P1M with petitioner Oriental Assurance Co (Oriental). The
insurance policy specifically indicates that it only insures the TOTAL LOSS of
the shipment.

Upon arrival in Manila, the shipment was divided and loaded into two barges
(barge 1 – 610 logs; barge 2 – 598 logs), towed by one tugboat. Unfortunately,
barge 2 was damaged causing the loss of 497 logs.

Panama demanded payment from Oriental Assurance, but was denied

arguing that its contracted liability was for TOTAL LOSS ONLY.

Lower courts held that Oriental Assurance is liable being that the loss of 497
out of 598 logs is deemed a constructive total loss as provided in Sec 139 of
the insurance code:

"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
insured 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; xxx”

Lower courts ratiocinated that the loss of 497 logs out of the 598 logs carried
in the same barge amounted to more than ¼ or 75% loss of value.

ISSUE:
W/N liability attaches to Oriental Assurance.

RULING:
NO.

Divisibility of contract of insurance.

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 to recovery

INSURANCE DIGESTS I EH 404 2017 58

XV. Casualty Insurance; 1
MALAYAN INSURANCE v. PHILIPPINES FIRST INSURANCE CO.
(G.R. NO. 184300. JULY 11, 2012)
There is solidary liability only when the obligation expressly so states, when
the law so provides or when the nature of the obligation so requires.The direct
liability of the insurer under indemnity contracts against third party liability
does not mean, however, that the insurer can be held solidarily liable with the
insured and/or the other parties found at fault, since they are being held liable
under different obligations.
FACTS:
Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable
Forwarder Services, Inc. (Reputable) had been annually executing a contract
of carriage, whereby the latter undertook to transport and deliver the former's
products to its customers, dealers or salesmen.
On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797
(Marine Policy) from respondent Philippines First Insurance Co., Inc.
(Philippines First) to secure its interest over its own products. On December
1, 1993, Wyeth executed its annual contract of carriage with Reputable,
however, the contract was not signed by Wyeth’s representatives.
Nevertheless, it was admittedly signed by the representatives of Reputable.
Under the contract, Reputable undertook to answer for "all risks with respect
to the goods and shall be liable to the COMPANY (Wyeth), for the loss,
destruction, or damage of the goods/products due to any and all causes
whatsoever, including theft, robbery, flood, storm, earthquakes, lightning, and
other force majeure while the goods/products are in transit and until actual
delivery to the customers, salesmen, and dealers of the COMPANY". The
contract also required Reputable to secure an insurance policy on Wyeth’s
goods. Hence, Reputable signed a Special Risk Policy (SR Policy) with
petitioner Malayan for the amounf of P1M.
On October 6, 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. Unfortunately, the truck was hijacked
by about 10 armed men. They threatened to kill the truck driver and two of his
helpers should they refuse to turn over the truck and its contents to the said
highway robbers. The hijacked truck was recovered two weeks later without
its cargo.
Philippines First had been subrogated to the rights of Wyeth and demanded
reimbursement from Reputable. The latter, however, ignored the demand.
Hence, Philippine First filed an action for sum of money. Reputable thereafter
impleaded its insurer, Malayan as third-party defendant in effort to collect the
amount covred in the SR Policy. Malayan disclaims any liability, stating that
under Sec. 5 of the SR Policy, the insurance does not cover any loss or
damage to property which at the time of the happening of such loss or
damage, is insured by any marine policy, and that the SR Policy expressly
excluded third-party liabilities. Nevertheless, Reputable disclaims solidary
liability with Malayan.
ISSUE:
W/N Reputable is solidarily liable with Malayan.
RULING:
NO. There is solidary liability only when the obligation expressly so states,
when the law so provides or when the nature of the obligation so requires.
In Heirs of George Y. Poe v. Malayan Insurance Company, Inc., 42 the Court
ruled that:
“[W]here the insurance 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 liability of the insurer under indemnity
contracts against third party[-]liability does not mean, however, that the insurer
can be held solidarily liable with the insured and/or the other parties found at
fault, since they are being held liable under different obligations. The liability
of the insured carrier or vehicle owner is based on tort, in accordance
with the provisions of the Civil Code; while that of the insurer arises
from contract, particularly, the insurance policy.”
The court held that Reputable is a private carrier, primarily based on the
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. As previously held, A common carrier
becomes a private carrier when it undertakes to carry a special cargo or
chartered to a special person only. 29 For all intents and purposes, therefore,
Reputable operated as a private/special carrier with regard to its contract of
carriage with Wyeth.
Being a private carrier, the extent of its liability is fully governed by the
stipulations of the contract of carriage, one of which is that it shall be liable to
Wyeth for the loss of the goods/products due to any and all causes
whatsoever, including theft, robbery and other force majeure while the
INSURANCE DIGESTS I EH 404 2017 59
goods/products are in transit and until actual delivery to Wyeth's customers,
salesmen and dealers.

Suffice it to say that Malayan's and Reputable's respective liabilities arose

from different obligations — Malayan's is based on the SR Policy while
Reputable's is based on the contract of carriage. Therefore, there was no
stipulation as to the solidary liability between the two, then, Malayan, as the
insurer, cannot be held solidarily liable with Reputable- the insured, and vice
versa.

INSURANCE DIGESTS I EH 404 2017 60

XV. Casualty Insurance; 2
FORTUNE INSURANCE AND SURETY COMPANY, INC. v. CA
(GR 115278, May 23, 1995)
FACTS:
On June 29, 1987, Producer’s Bank of the Philippines’ armored vehicle was
robbed, in transit, of seven hundred twenty-five thousand pesos (Php
725,000.00) that it was transferring from its Pasay branch its Makati (main)
branch. To mitigate their loss, they claim the amount from their insurer, namely
Fortune Insurance and Surety Co. Fortune Insurance, however, assails that
the general exemption clause in the Casualty Insurance coverage had a
general exemption clause, to wit:
access to the property. The terms "service" and "employment" are generally
associated with the idea of selection, control, and compensation.
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 vehicle which would carry the money;
and Atiga to provide the needed security for the money, the vehicle, and his
two other companions. In short, for these particular tasks.
Fortune, when it used then the term "employee," must have had in mind any
person who qualifies as such as jurisprudentially established in the light of the
four standards in the determination of the employer-employee relationship, or
as statutorily declared in the Labor Code.

GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx xxx xxx
(b) 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 three acted as agents of Producers. A "representative" is defined as one
who represents or stands in the place of another; one who represents others
or another in a special capacity, as an agent, and is interchangeable with
"agent."
In view of the foregoing, Fortune is exempt from liability under the general
exceptions clause of the insurance policy.

The armored car was driven by Benjamin Magalong Y de Vera and escorted
by Security Guard Saturnino Atiga Y Rosete. Magalong and Atiga with three
others were charged as liable for the robbery. Fortune denies Producer’s Bank
of its insurance claim. The trial court and the court appeals ruled in favor of
recovery, hence, the case at bar.

ISSUE:
W/N Fortune is liable under the Money, Security, and Payroll Robbery policy
it issued to Producer’s Bank or whether recovery thereunder is precluded
under the general exceptions clause.

RULING:
YES, recovery is precluded under the general exemption clause.

The insurance policy entered into by the parties is a theft or robbery insurance
policy which is a form of casualty insurance. In burglary, robbery, and theft
insurance, "the opportunity to defraud the insurer is so great that insurers have
found it necessary to fill up their policies with countless restrictions 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

INSURANCE DIGESTS I EH 404 2017 61

XV. Casualty Insurance; 3
WILLIAM TIU v. PEDRO A. ARRIESGADO et. al.
(G.R. No. 138060. September 1, 2004)
FACTS:
Sergio Pedrano drives a cargo truck owned by Benjamin Condor. While it was
traveling from Bogo to Cebu City, just as the truck passed over a bridge, one
of its rear tires exploded. Pedrano parked on the right side of the national
highway and removed the damaged tire to have it vulcanized at a nearby shop,
about 700 meters away leaving his helper Jose Militante to watch over the
vehicle.
Then a passenger bus driven by Virgilio Te Laspiñas came swerving to the
left of the cargo truck and though hitting the breaks, the impact damaged the
right side of the bus leaving some of the passengers injured and private
respondent unconscious while his wife badly injured who later on died in the
hospital.
Respondent Pedro A. Arriesgado then filed a complaint for breach of contract
of carriage, damages and attorney’s fees before the Regional Trial Court of
Cebu City against the petitioners, D’ Rough Riders bus operator William Tiu
and his driver, Virgilio Te Laspiñas.
The petitioners, for their part, filed a Third-Party Complaint against the
following: respondent Philippine Phoenix Surety and Insurance, Inc. (PPSII),
petitioner Tiu’s insurer; respondent Benjamin Condor, the registered owner of
the cargo truck; and respondent Sergio Pedrano, the driver of the truck.
RTC ruled in favor of Arriesgado and ordered William Tiu to pay the former.
CA affirmed RTC’s ruling with modification reducing awards for moral and
exemplary damages to P25,000. And that no evidence was presented against
the respondent PPSII, and as such, it could not be held liable for respondent
Arriesgado’s claim, nor for contribution, indemnification and/or reimbursement
in case the petitioners were adjudged liable.
Petitioner Tiu is insisting that PPSII is liable to him for contribution,
indemnification and/or reimbursement.
ISSUE:
W/N PPSII should be held liable for respondent Arriesgado in behalf of
petitioners.
RULING:
YES. The Liability of Respondent PPSII as Insurer in relation to the nature of
Compulsory Motor Vehicle Liability Insurance is such that it is primarily
intended to provide compensation for the death or bodily injuries suffered by
innocent third parties or passengers as a result of the 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 motor
vehicle owners.
As can be gleaned from the Certificate of Cover, such insurance contract was
issued pursuant to the Compulsory Motor Vehicle Liability Insurance Law. It
was expressly provided therein that the limit of the insurer’s liability for each
person was P12,000, while the limit per accident was pegged at P50,000. An
insurer in an indemnity contract for third party liability is directly liable to the
injured party up to the extent specified in the agreement but it cannot be held
solidarily liable beyond that amount. The respondent PPSII could not then just
deny petitioner Tiu’s claim; it should have paid P12,000 for the death of Felisa
Arriesgado, and respondent Arriesgado’s hospitalization expenses of
P1,113.80, which the trial court found to have been duly supported by
receipts.The total amount of the claims, even when added to that of the other
injured passengers which the respondent PPSII claimed to have settled,
would not exceed the P50,000 limit under the insurance agreement.
Thus the insurer can be held liable however, although the victim may proceed
directly against the insurer for indemnity, the third party liability is only up to
the extent of the insurance policy and those required by law. While it is true
that where the insurance contract provides for indemnity against liability to
third persons, and such persons can directly sue the insurer, the direct liability
of the insurer under indemnity contracts against third party liability does not
mean that the insurer can be held liable in solidum with the insured and/or the
other parties found at fault. For the liability of the insurer is based on contract;
that of the insured carrier or vehicle owner is based on tort.
INSURANCE DIGESTS I EH 404 2017 62
XV. Casualty Insurance; 4 this rule, especially in view of the circumstances of this case as above
analyzed.
SUN INSURANCE v. CA
(G.R. No. 92383, July 17, 1992)

FACTS:
The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with
a face value of P200,000.00. Two months later, he was dead with a bullet
wound in his head. Pilar Nalagon, Lim's secretary, was the only eyewitness to
his death. According to Nalagon, Lim was in a happy mood (but not drunk)
and was playing with his handgun, from which he had previously removed the
magazine. As she watched television, he stood in front of her and pointed the
gun at her. She pushed it aside and said it might he loaded. He assured her it
was not and then pointed it to his temple. The next moment there was an
explosion and Lim slumped to the floor. He was dead before he fell.

As beneficiary, his wife Nerissa Lim sought payment on the policy but her
claim was rejected.

The petitioner agreed that there was no suicide. It argued, however that there
was no accident either.

ISSUE:
W/N, there was an “accident” and the beneficiary is entitled to receive the
payment of the policy.

RULING:
YES. 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.

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.

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. 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.

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

INSURANCE DIGESTS I EH 404 2017 63

XV. Casualty Insurance; 5
BIAGTAN v. INSULAR LIFE ASSURANCE CO., LTD.,
(G.R. No. L-25579, March 29, 1972)
"Intentional" as used in an accident policy excepting intentional injuries
inflicted by the insured or any other person, etc., implies the exercise of the
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 is controlling.
Whether robbers have the intent to kill or merely to scare the victim or to ward
off any defense he might offer, it cannot be denied that the act itself of inflicting
injuries is intentional.
FACTS:
Deceased was insured with defendant-insurer under Policy No. 398075 for
the sum of P5,000.00 and, under a supplementary contract denominated
"Accidental Death Benefit Clause, for an additional sum of P5,000.00 if "the
death of the Insured resulted directly from bodily injury effected solely through
external and violent means sustained in an accident and independently of all
other causes." The clause, however, expressly provided that it would not apply
where death resulted from an injury "intentionally inflicted by a third party."
Thereafter, a band of robbers entered the house of the deceased who
received thrusts from their sharp-pointed instruments, causing wounds on his
body resulting in his death. The band of robbers were charged and convicted
with the crime of robber with homicide.
Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The
insurance company paid the basic amount of P5,000.00 but refused to pay
the additional sum of P5,000.00 under the accidental death benefit clause, on
the ground that the insured's death resulted from injuries intentionally inflicted
by third parties and therefore was not covered.
ISSUE:
W/N the injuries were intentionally inflicted.
RULING:
YES. Whether the robbers had the intent to kill or merely to scare the victim
or to ward off any defense he might offer, it cannot be denied that the act itself
of inflicting the injuries was intentional. It should be noted that the exception
in the accidental benefit clause invoked by the appellant does not speak of the
purpose — whether homicidal or not — of a third party in causing the injuries,
but only of the fact that such injuries have been "intentionally" inflicted — this
obviously to distinguish them from injuries which, although received at the
hands of a third party, are purely accidental.
A gun which discharges while being cleaned and kills a bystander; a hunter
who shoots at his prey and hits a person instead; an athlete in a competitive
game involving physical effort who collides with an opponent and fatally
injures him as a result: these are instances where the infliction of the injury is
unintentional and therefore 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 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, regardless of whether they prove
fatal or not. As it was, in the present case they did prove fatal, and the robbers
have been accused and convicted of the crime of robbery with homicide.
The case of Calanoc vs. Court of Appeals relied upon by the court are different
from those obtaining here. The insured there was a watchman in a certain
company, who happened to be invited by a policeman to come along as the
latter was on his way to investigate a reported robbery going on in a private
house. As the two of them, together with the owner of the house, approached
and stood in front of the main gate, a shot was fired and it turned out
afterwards that the watchman was hit in the abdomen, the wound causing his
death. Under those circumstances this Court held that it could not be said that
the killing was intentional for there was the possibility that the malefactor had
fired the shot to scare the people around for his own protection and not
necessarily to kill of hit the victim. A similar possibility is clearly ruled out by
the facts in the case now before Us. For while a single shot fired from a
distance, and by a person who was not even seen aiming at the victim, could
indeed have been fired without intent to kill or injure, nine wounds inflicted with
bladed weapons at close range cannot conceivably be considered as innocent
insofar as such intent is concerned. The manner of execution of the crime
permits no other conclusion.
"Intentional" as used in an accident policy excepting intentional injuries
inflicted by the insured or any other person, etc., implies the exercise of the
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 is controlling.
INSURANCE DIGESTS I EH 404 2017 64
XVI. Compulsory Motor Vehicle Liability Insurance; 1
NOTE: Exactly the same as XV. Casualty Insurance; 3
WILLIAM TIU v. PEDRO A. ARRIESGADO et. al.
(G.R. No. 138060. September 1, 2004)
FACTS:
Sergio Pedrano drives a cargo truck owned by Benjamin Condor. While it was
traveling from Bogo to Cebu City, just as the truck passed over a bridge, one
of its rear tires exploded. Pedrano parked on the right side of the national
highway and removed the damaged tire to have it vulcanized at a nearby shop,
about 700 meters away leaving his helper Jose Militante to watch over the
vehicle.
Then a passenger bus driven by Virgilio Te Laspiñas came swerving to the
left of the cargo truck and though hitting the breaks, the impact damaged the
right side of the bus leaving some of the passengers injured and private
respondent unconscious while his wife badly injured who later on died in the
hospital.
Respondent Pedro A. Arriesgado then filed a complaint for breach of contract
of carriage, damages and attorney’s fees before the Regional Trial Court of
Cebu City against the petitioners, D’ Rough Riders bus operator William Tiu
and his driver, Virgilio Te Laspiñas.
The petitioners, for their part, filed a Third-Party Complaint against the
following: respondent Philippine Phoenix Surety and Insurance, Inc. (PPSII),
petitioner Tiu’s insurer; respondent Benjamin Condor, the registered owner of
the cargo truck; and respondent Sergio Pedrano, the driver of the truck.
RTC ruled in favor of Arriesgado and ordered William Tiu to pay the former.
CA affirmed RTC’s ruling with modification reducing awards for moral and
exemplary damages to P25,000. And that no evidence was presented against
the respondent PPSII, and as such, it could not be held liable for respondent
Arriesgado’s claim, nor for contribution, indemnification and/or reimbursement
in case the petitioners were adjudged liable.
Petitioner Tiu is insisting that PPSII is liable to him for contribution,
indemnification and/or reimbursement.
ISSUE:
W/N PPSII should be held liable for respondent Arriesgado in behalf of
petitioners.
RULING:
YES. The Liability of Respondent PPSII as Insurer in relation to the nature of
Compulsory Motor Vehicle Liability Insurance is such that it is primarily
intended to provide compensation for the death or bodily injuries suffered by
innocent third parties or passengers as a result of the 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 motor
vehicle owners.
As can be gleaned from the Certificate of Cover, such insurance contract was
issued pursuant to the Compulsory Motor Vehicle Liability Insurance Law. It
was expressly provided therein that the limit of the insurer’s liability for each
person was P12,000, while the limit per accident was pegged at P50,000. An
insurer in an indemnity contract for third party liability is directly liable to the
injured party up to the extent specified in the agreement but it cannot be held
solidarily liable beyond that amount. The respondent PPSII could not then just
deny petitioner Tiu’s claim; it should have paid P12,000 for the death of Felisa
Arriesgado, and respondent Arriesgado’s hospitalization expenses of
P1,113.80, which the trial court found to have been duly supported by
receipts.The total amount of the claims, even when added to that of the other
injured passengers which the respondent PPSII claimed to have settled,
would not exceed the P50,000 limit under the insurance agreement.
Thus the insurer can be held liable however, although the victim may proceed
directly against the insurer for indemnity, the third party liability is only up to
the extent of the insurance policy and those required by law. While it is true
that where the insurance contract provides for indemnity against liability to
third persons, and such persons can directly sue the insurer, the direct liability
of the insurer under indemnity contracts against third party liability does not
mean that the insurer can be held liable in solidum with the insured and/or the
other parties found at fault. For the liability of the insurer is based on contract;
that of the insured carrier or vehicle owner is based on tort.
NOTE: Same as XV. Casualty Insurance; 3
INSURANCE DIGESTS I EH 404 2017 65
XVI. Compulsory Motor Vehicle Liability Insurance; 2 It being specifically required that petitioner’s written consent be first secured
before any payment in settlement of any claim could be made, private
PERLA COMPANIA DE SEGUROS, INC vs. CA respondent is precluded from seeking reimbursement of the payments made
(G.R. No. 78860, May 28, 1990) to the other 3 victims in view of her failure to comply with the condition
contained in the insurance policy.

FACTS:
Cayas was the registered owner of a Mazda bus which was insured with
petitioner PERLA COMPANIA DE SEGUROS, INC (PCSI). The bus figured in
an accident in Cavite, injuring several of its passengers. One of them, Perea,
sued Cayas for damages in the CFI, while three others agreed to a settlement
of P4,000.00 each with Cayas.
After trial, the court rendered a decision in favor of Perea, Cayas ordered to
compensate the latter with damages. Cayas filed a complaint with the CFI,
seeking reimbursement from PCSI for the amounts she paid to ALL victims,
alleging that the latter refused to make such reimbursement notwithstanding
the fact that her claim was within its contractual liability under the insurance
policy.
The decision of the CA affirmed in toto the decision of the RTC of Cavite, the
dispositive portion of which states:
Also, the insurance policy involved explicitly limits petitioner’s liability to
P12,000.00 per person and to P50,000.00 per accident
Clearly, the fundamental 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 trial and appellate courts to have disregarded the
stipulations of the parties and to have substituted their own interpretation of
the insurance policy.
We observe that although Cayas was able to prove a total loss of only
P44,000.00, petitioner was made liable for the amount of P50,000.00, the
maximum liability per accident stipulated in the policy. This is patent error. 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.

IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering

defendant PCSI to pay plaintiff Cayas the sum of P50,000.00 under its
maximum liability as provided for in the insurance policy; …

In this petition for review on certiorari, petitioner seeks to limit its liability only
to the payment made by private respondent to Perea and only up to the
amount of P12,000.00. It altogether denies liability for the payments made by
private respondents to the other 3 injured passengers totaling P12,000.00.

ISSUE:
How much should PCSI pay.

RULING:
The decision of the CA is modified, petitioner only to pay Cayas
P12,000,000.00

The insurance policy provides: 5. No admission, offer, promise or payment

shall be made by or on behalf of the insured without the written consent of the
Company …

INSURANCE DIGESTS I EH 404 2017 66

XVI. Compulsory Motor Vehicle Liability Insurance

FIRST QUEZON CITY INSURANCE CO., INC. v. CA

(G.R. No. 98414, February 8, 1993)

FACTS:
This is a case concerning a compulsory motor vehicle liability insurance.
Plaintiff (Jose Del Rosario) was involved in an accident as he was about to
embark on a public utility bus owned by De Dios Marikina Transport Co (herein
private respondent). Due to the injuries he suffered, Plaintiff was confined in
the hospital for 44 days and incurred medical expenses. A case was then filed
against private respondent by plaintiff to which the RTC. On the other hand,
private respondent commenced a third party complaint against herein
petitioner. The RTC rendered a decision ordering herein petitioner to
indemnify private respondent with the amount of P12,000 as the individual
passenger liability embodied on the policy. On appeal, the Court of Appeals
modified the decision of the RTC in terms of the amount of the third party
complaint from P12,000 to P50,000.

ISSUE:
W/N the petitioner is only liable for the individual passenger liability and not
the maximum claimable amount in the policy.

RULING:
YES. As embodied clearly in the insurance policy, the maximum liability of
petitioner for damages arising from death or bodily injury at P12,000.00 per
passenger and its maximum liability per accident at P50,000.00. Clearly,
petitioner can only be held liable for a maximum amount of P50,000 regardless
of the number of passengers and the kind of accident that they figure in.
However, in this case, considering that only one passenger was involved in
an accident, it follows that petitioner can only be held liable for the amount of
individual passenger liability and not the maximum amount.

Thus, the bus company may not recover from the insurance company (herein
petitioner) more than P12,000.00 per passenger killed or injured, or fifty
thousand (P50,000.00) pesos per accident even if under the judgment of the
court, the erring bus operator will have to pay more than P12,000.00 to each
injured passenger.

INSURANCE DIGESTS I EH 404 2017 67