Table of Contents

1. Prudential Guarantee & Assurance Inc. v. Trans-Asia Shipping Lines..........................................................................2

2. Constantino v. Asia Life Inc., 87 Phil. 248..................................................................................................................13
3. Travellers Insurance & Surety Corporation v. Hon. Court of Appeals........................................................................17
4. Manila Bankers Life Insurance Corporation v. Aban..................................................................................................21
5. Sun Life of Canada (Philippines), Inc. vs. Ma. Daisy S. Sibya, et al.............................................................................25
6. Alpha Insurance And Surety CO. vs. Arsenia Sonia Castor.........................................................................................27
7. TAURUS TAXI CO., INC. vs. THE CAPITAL INSURANCE & SURETY CO., INC.................................................................31
8. Gulf Resorts, Inc. v. Philippine Charter Insurance Corp.............................................................................................33
9. New World International Dev. (Phils), Inc. v. NYK-FilJapan Shipping Corp................................................................45
10. White Gold Marine Services, Inc. v. Pioneer Insurance and Surety Corp.,...............................................................48
11. Republic vs. Del Monte Motors, Inc........................................................................................................................51
12. Philippine Health Care Providers, Inc. v. CIR September 18, 2009..........................................................................55
13. Philippine Health Care Providers, Inc. v. CIR june 12, 2008.....................................................................................64
14. Fortune Medicare, Inc. v. Amorin............................................................................................................................68
15. Philamcare Health Systems Inc. v. Court of Appeals...............................................................................................72
16. Filipinas Compaña De Seguros vs. Christern, Huenefeld And Co., Inc.....................................................................75
17. Eternal Gardens Memorial Park Corp. v. The Philippine American Life Insurance Company..................................77
18. Great Pacific Life Assurance v. Court of Appeals.....................................................................................................82
19. Heirs of Loreto C. Maramag v. Eva Verna De Guzman Maramag............................................................................85
20. Violeta Lalican v. The Insular Life Assurance Company, Limited..............................................................................89
21. Gaisano Cagayan, Inc. v. Insurance Company of North America.............................................................................95
22. The Insular Life Assurance Company, Ltd. vs. Ebrado..............................................................................................99
23. Sing vs. Feb Leasing & Finance Corporation..........................................................................................................102
24. Vda. De Canilang vs. Court of Appeals...................................................................................................................107
25. Sunlife Assurance Company of Canada vs. Court of Appeals.................................................................................111
26. Ng Gan Zee v. Asian Crusader Life Assurance Corp...............................................................................................114
27. Saturnino v. The Philippine American Life Insurance Company............................................................................117
28. Edillon v. Manila Bankers Life Insurance Corp.......................................................................................................119
29. Ma. Lourdes S. Florendo v. Philam Plans, Inc & Abcede.......................................................................................121
30. The Insular Life Assurance Company, Ltd. v. Feliciano..........................................................................................124
31. UCPB General Insurance Co., Inc. v. Masagana Telamart, Inc...............................................................................126
32. United Merchants Corp. v. Country Bankers Insurance Corp................................................................................130
1. Prudential Guarantee & Assurance Inc. v. Trans-Asia Shipping Lines

G.R. No. 151890             June 20, 2006 G.R. No. 151991             June 20, 2006

PRUDENTIAL GUARANTEE and ASSURANCE TRANS-ASIA SHIPPING LINES, INC., petitioner,

INC., petitioner, vs.
vs. PRUDENTIAL GUARANTEE and ASSURANCE
TRANS-ASIA SHIPPING LINES, INC., Respondent. INC., Respondent.

x- - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

CHICO-NAZARIO, J:

This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner Prudential Guarantee and Assurance,
Inc. (PRUDENTIAL) in G.R. No. 151890 and Trans-Asia Shipping Lines, Inc. (TRANS-ASIA) in G.R. No. 151991, assailing the
Decision1 dated 6 November 2001 of the Court of Appeals in CA G.R. CV No. 68278, which reversed the Judgment 2 dated 6 June
2000 of the Regional Trial Court (RTC), Branch 13, Cebu City in Civil Case No. CEB-20709. The 29 January 2002 Resolution 3 of the
Court of Appeals, denying PRUDENTIAL’s Motion for Reconsideration and TRANS-ASIA’s Partial Motion for Reconsideration of
the 6 November 2001 Decision, is likewise sought to be annulled and set aside.

The Facts

The material antecedents as found by the court a quo and adopted by the appellate court are as follows:

Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of payment of premiums, defendant
[PRUDENTIAL] insured M/V Asia Korea for loss/damage of the hull and machinery arising from perils, inter alia, of fire and
explosion for the sum of P40 Million, beginning [from] the period [of] July 1, 1993 up to July 1, 1994. This is evidenced by Marine
Policy No. MH93/1363 (Exhibits "A" to "A-11"). On October 25, 1993, while the policy was in force, a fire broke out while [M/V
Asia Korea was] undergoing repairs at the port of Cebu. On October 26, 1993 plaintiff [TRANS-ASIA] filed its notice of claim for
damage sustained by the vessel. This is evidenced by a letter/formal claim of even date (Exhibit "B"). Plaintiff [TRANS-ASIA]
reserved its right to subsequently notify defendant [PRUDENTIAL] as to the full amount of the claim upon final survey and
determination by average adjuster Richard Hogg International (Phil.) of the damage sustained by reason of fire. An adjuster’s
report on the fire in question was submitted by Richard Hogg International together with the U-Marine Surveyor Report (Exhibits
"4" to "4-115").

On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan and Trust receipt", a portion of which read
(sic):

"Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan
without interest under Policy No. MH 93/1353 [sic], repayable only in the event and to the extent that any net recovery is made
by Trans-Asia Shipping Corporation, from any person or persons, corporation or corporations, or other parties, on account of
loss by any casualty for which they may be liable occasioned by the 25 October 1993: Fire on Board." (Exhibit "4")

In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiff’s claim (Exhibit "5"). The letter reads:

"After a careful review and evaluation of your claim arising from the above-captioned incident, it has been ascertained that you
are in breach of policy conditions, among them "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED". Accordingly, we
regret to advise that your claim is not compensable and hereby DENIED."

This was followed by defendant’s letter dated 21 July 1997 requesting the return or payment of the P3,000,000.00 within a
period of ten (10) days from receipt of the letter (Exhibit "6"). 4

Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint 5 for Sum of Money against PRUDENTIAL with the
RTC of Cebu City, docketed as Civil Case No. CEB-20709, wherein TRANS-ASIA sought the amount of P8,395,072.26 from
PRUDENTIAL, alleging that the same represents the balance of the indemnity due upon the insurance policy in the total amount
of P11,395,072.26. TRANS-ASIA similarly sought interest at 42% per annum citing Section 243 6 of Presidential Decreee No. 1460,
otherwise known as the "Insurance Code," as amended.

In its Answer,7 PRUDENTIAL denied the material allegations of the Complaint and interposed the defense that TRANS-ASIA
breached insurance policy conditions, in particular: "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED." PRUDENTIAL
further alleged that it acted as facts and law require and incurred no liability to TRANS-ASIA; that TRANS-ASIA has no cause of
action; and, that its claim has been effectively waived and/or abandoned, or it is estopped from pursuing the same. By way of a
counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it allegedly advanced to TRANS-ASIA by way of a loan
without interest and without prejudice to the final evaluation of the claim, including the amounts of P500,000.00, for survey
fees and P200,000.00, representing attorney’s fees.

The Ruling of the Trial Court

On 6 June 2000, the court a quo rendered Judgment 8 finding for (therein defendant) PRUDENTIAL. It ruled that a determination
of the parties’ liabilities hinged on whether TRANS-ASIA violated and breached the policy conditions on WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED. It interpreted the provision to mean that TRANS-ASIA is required to maintain the vessel at a
certain class at all times pertinent during the life of the policy. According to the court a quo, TRANS-ASIA failed to prove
compliance of the terms of the warranty, the violation thereof entitled PRUDENTIAL, the insured party, to rescind the contract. 9

Further, citing Section 10710 of the Insurance Code, the court a quo ratiocinated that the concealment made by TRANS-ASIA that
the vessel was not adequately maintained to preserve its class was a material concealment sufficient to avoid the policy and,
thus, entitled the injured party to rescind the contract. The court a quo found merit in PRUDENTIAL’s contention that there was
nothing in the adjustment of the particular average submitted by the adjuster that would show that TRANS-ASIA was not in
breach of the policy. Ruling on the denominated loan and trust receipt, the court a quo said that in substance and in form, the
same is a receipt for a loan. It held that if TRANS-ASIA intended to receive the amount of P3,000,000.00 as advance payment, it
should have so clearly stated as such.

The court a quo did not award PRUDENTIAL’s claim for P500,000.00, representing expert survey fees on the ground of lack of
sufficient basis in support thereof. Neither did it award attorney’s fees on the rationalization that the instant case does not fall
under the exceptions stated in Article 220811 of the Civil Code. However, the court a quo granted PRUDENTIAL’s counterclaim
stating that there is factual and legal basis for TRANS-ASIA to return the amount of P3,000,000.00 by way of loan without
interest.

The decretal portion of the Judgment of the RTC reads:

WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to prove a cause of action.

On defendant’s counterclaim, plaintiff is directed to return the sum of P3,000,000.00 representing the loan extended to it by the
defendant, within a period of ten (10) days from and after this judgment shall have become final and executory. 12

The Ruling of the Court of Appeals

On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 November 2001, reversed the 6 June 2000 Judgment
of the RTC.

On the issue of TRANS-ASIA’s alleged breach of warranty of the policy condition CLASSED AND CLASS MAINTAINED, the Court of
Appeals ruled that PRUDENTIAL, as the party asserting the non-compensability of the loss had the burden of proof to show that
TRANS-ASIA breached the warranty, which burden it failed to discharge. PRUDENTIAL cannot rely on the lack of certification to
the effect that TRANS-ASIA was CLASSED AND CLASS MAINTAINED as its sole basis for reaching the conclusion that the warranty
was breached. The Court of Appeals opined that the lack of a certification does not necessarily mean that the warranty was
breached by TRANS-ASIA. Instead, the Court of Appeals considered PRUDENTIAL’s admission that at the time the insurance
contract was entered into between the parties, the vessel was properly classed by Bureau Veritas, a classification society
recognized by the industry. The Court of Appeals similarly gave weight to the fact that it was the responsibility of Richards Hogg
International (Phils.) Inc., the average adjuster hired by PRUDENTIAL, to secure a copy of such certification to support its
conclusion that mere absence of a certification does not warrant denial of TRANS-ASIA’s claim under the insurance policy.

In the same token, the Court of Appeals found the subject warranty allegedly breached by TRANS-ASIA to be a rider which, while
contained in the policy, was inserted by PRUDENTIAL without the intervention of TRANS-ASIA. As such, it partakes of a nature of
a contract d’adhesion which should be construed against PRUDENTIAL, the party which drafted the contract. Likewise, according
to the Court of Appeals, PRUDENTIAL’s renewal of the insurance policy from noon of 1 July 1994 to noon of 1 July 1995, and
then again, until noon of 1 July 1996 must be deemed a waiver by PRUDENTIAL of any breach of warranty committed by TRANS-
ASIA.

Further, the Court of Appeals, contrary to the ruling of the court a quo, interpreted the transaction between PRUDENTIAL and
TRANS-ASIA as one of subrogation, instead of a loan. The Court of Appeals concluded that TRANS-ASIA has no obligation to pay
back the amount of P3,000.000.00 to PRUDENTIAL based on its finding that the aforesaid amount was PRUDENTIAL’s partial
payment to TRANS-ASIA’s claim under the policy. Finally, the Court of Appeals denied TRANS-ASIA’s prayer for attorney’s fees,
but held TRANS-ASIA entitled to double interest on the policy for the duration of the delay of payment of the unpaid balance,
citing Section 24413 of the Insurance Code.

Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wise:

WHEREFORE, the foregoing consideration, We find for Appellant. The instant appeal is ALLOWED and the Judgment appealed
from REVERSED. The P3,000,000.00 initially paid by appellee Prudential Guarantee Assurance Incorporated to appellant Trans-
Asia and covered by a "Loan and Trust Receipt" dated 29 May 1995 is HELD to be in partial settlement of the loss suffered by
appellant and covered by Marine Policy No. MH93/1363 issued by appellee. Further, appellee is hereby ORDERED to pay
appellant the additional amount of P8,395,072.26 representing the balance of the loss suffered by the latter as recommended by
the average adjuster Richard Hogg International (Philippines) in its Report, with double interest starting from the time Richard
Hogg’s Survey Report was completed, or on 13 August 1996, until the same is fully paid.

All other claims and counterclaims are hereby DISMISSED.

All costs against appellee.14

Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for Reconsideration and Partial Motion for
Reconsideration thereon, respectively, which motions were denied by the Court of Appeals in the Resolution dated 29 January
2002.

The Issues

Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No. 151890, relying on the following
grounds, viz:

I.

THE AWARD IS GROSSLY UNCONSCIONABLE.

II.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO VIOLATION BY TRANS-ASIA OF A MATERIAL WARRANTY,
NAMELY, WARRANTY CLAUSE NO. 5, OF THE INSURANCE POLICY.

III.

THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS INSURER HAD THE BURDEN OF PROVING THAT THE
ASSURED, TRANS-ASIA, VIOLATED A MATERIAL WARRANTY.

IV.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE EMBODIED IN THE INSURANCE POLICY CONTRACT
WAS A MERE RIDER.

V.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS OF THE POLICY CONSTITUTED A WAIVER ON THE
PART OF PRUDENTIAL OF THE BREACH OF THE WARRANTY BY TRANS-ASIA.

VI.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST RECEIPT" EXECUTED BY TRANS-ASIA IS AN ADVANCE
ON THE POLICY, THUS CONSTITUTING PARTIAL PAYMENT THEREOF.

VII.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY PRUDENTIAL OF THE FINDINGS OF RICHARDS HOGG IS
INDICATIVE OF A WAIVER ON THE PART OF PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE WARRANTY.

VIII.

THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN FINDING THAT PRUDENTIAL "UNJUSTIFIABLY
REFUSED" TO PAY THE CLAIM AND IN ORDERING PRUDENTIAL TO PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE INTEREST FROM
13 AUGUST 1996, UNTIL [THE] SAME IS FULLY PAID.15

Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for Review docketed as G.R. No. 151991,
raising the following grounds for the allowance of the petition, to wit:

I.

THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ATTORNEY’S FEES TO PETITIONER TRANS-ASIA ON THE
GROUND THAT SUCH CAN ONLY BE AWARDED IN THE CASES ENUMERATED IN ARTICLE 2208 OF THE CIVIL CODE, AND THERE
BEING NO BAD FAITH ON THE PART OF RESPONDENT PRUDENTIAL IN DENYING HEREIN PETITIONER TRANS-ASIA’S INSURANCE
CLAIM.

II.

THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06 NOVEMBER 2001 SHOULD BE CONSTRUED TO MEAN
DOUBLE INTEREST BASED ON THE LEGAL INTEREST OF 12%, OR INTEREST AT THE RATE OF 24% PER ANNUM. 16

In our Resolution of 2 December 2002, we granted TRANS-ASIA’s Motion for Consolidation 17 of G.R. Nos. 151890 and
151991;18 hence, the instant consolidated petitions.

In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANS-ASIA arising from the subject insurance
contract; (2) the liability, if any, of TRANS-ASIA to PRUDENTIAL arising from the transaction between the parties as evidenced by
a document denominated as "Loan and Trust Receipt," dated 29 May 1995; and (3) the amount of interest to be imposed on the
liability, if any, of either or both parties.

Ruling of the Court

Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not questions of fact, may be
raised.19 This rule may be disregarded only when the findings of fact of the Court of Appeals are contrary to the findings and
conclusions of the trial court, or are not supported by the evidence on record. 20 In the case at bar, we find an incongruence
between the findings of fact of the Court of Appeals and the court a quo, thus, in our determination of the issues, we are
constrained to assess the evidence adduced by the parties to make appropriate findings of facts as are necessary.

I.

A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy condition on WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED, as contained in the subject insurance contract.

In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an express and material warranty in the
subject insurance contract, i.e., Marine Insurance Policy No. MH93/1363, specifically Warranty Clause No. 5 thereof, which
stipulates that the insured vessel, "M/V ASIA KOREA" is required to be CLASSED AND CLASS MAINTAINED. According to
PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA KOREA" was in violation of the
warranty as it was not CLASSED AND CLASS MAINTAINED. PRUDENTIAL submits that Warranty Clause No. 5 was a condition
precedent to the recovery of TRANS-ASIA under the policy, the violation of which entitled PRUDENTIAL to rescind the contract
under Sec. 7421 of the Insurance Code.

The warranty condition CLASSED AND CLASS MAINTAINED was explained by PRUDENTIAL’s Senior Manager of the Marine and
Aviation Division, Lucio Fernandez. The pertinent portions of his testimony on direct examination is reproduced hereunder, viz:
ATTY. LIM

Q Please tell the court, Mr. Witness, the result of the evaluation of this claim, what final action was taken?

A It was eventually determined that there was a breach of the policy condition, and basically there is a breach of policy warranty
condition and on that basis the claim was denied.

Q To refer you (sic) the "policy warranty condition," I am showing to you a policy here marked as Exhibits "1", "1-A" series,
please point to the warranty in the policy which you said was breached or violated by the plaintiff which constituted your basis
for denying the claim as you testified.

A Warranted Vessel Classed and Class Maintained.

ATTY. LIM

Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is the second page of the policy below the printed words:
"Clauses, Endorsements, Special Conditions and Warranties," below this are several typewritten clauses and the witness pointed
out in particular the clause reading: "Warranted Vessel Classed and Class Maintained."

COURT

Q Will you explain that particular phrase?

A Yes, a warranty is a condition that has to be complied with by the insured. When we say a class warranty, it must be entered in
the classification society.

COURT

Slowly.

WITNESS

(continued)

A A classification society is an organization which sets certain standards for a vessel to maintain in order to maintain their
membership in the classification society. So, if they failed to meet that standard, they are considered not members of that class,
and thus breaching the warranty, that requires them to maintain membership or to maintain their class on that classification
society. And it is not sufficient that the member of this classification society at the time of a loss, their membership must be
continuous for the whole length of the policy such that during the effectivity of the policy, their classification is suspended, and
then thereafter, they get reinstated, that again still a breach of the warranty that they maintained their class (sic). Our
maintaining team membership in the classification society thereby maintaining the standards of the vessel (sic).

ATTY. LIM

Q Can you mention some classification societies that you know?

A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classification Society, The Philippine Registration of
Ships Society, China Classification, NKK and Company Classification Society, and many others, we have among others, there are
over 20 worldwide. 22

At the outset, it must be emphasized that the party which alleges a fact as a matter of defense has the burden of proving it.
PRUDENTIAL, as the party which asserted the claim that TRANS-ASIA breached the warranty in the policy, has the burden of
evidence to establish the same. Hence, on the part of PRUDENTIAL lies the initiative to show proof in support of its defense;
otherwise, failing to establish the same, it remains self-serving. Clearly, if no evidence on the alleged breach of TRANS-ASIA of
the subject warranty is shown, a fortiori, TRANS-ASIA would be successful in claiming on the policy. It follows that PRUDENTIAL
bears the burden of evidence to establish the fact of breach.

In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of proof to show proof of loss, and the
coverage thereof, in the subject insurance policy. However, in the course of trial in a civil case, once plaintiff makes out a prima
facie case in his favor, the duty or the burden of evidence shifts to defendant to controvert plaintiff’s prima facie case,
otherwise, a verdict must be returned in favor of plaintiff. 23 TRANS-ASIA was able to establish proof of loss and the coverage of
the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the burden of evidence shifted to PRUDENTIAL to counter TRANS-
ASIA’s case, and to prove its special and affirmative defense that TRANS-ASIA was in violation of the particular condition on
CLASSED AND CLASS MAINTAINED.

We sustain the findings of the Court of Appeals that PRUDENTIAL was not successful in discharging the burden of evidence that
TRANS-ASIA breached the subject policy condition on CLASSED AND CLASS MAINTAINED.

Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division, Lucio Fernandez, made a categorical
admission that at the time of the procurement of the insurance contract in July 1993, TRANS-ASIA’s vessel, "M/V Asia Korea"
was properly classed by Bureau Veritas, thus:

Q Kindly examine the records particularly the policy, please tell us if you know whether M/V Asia Korea was classed at the time
(sic) policy was procured perthe (sic) insurance was procured that Exhibit "1" on 1st July 1993 (sic).

WITNESS

A I recall that they were classed.

ATTY. LIM

Q With what classification society?

A I believe with Bureau Veritas.24

As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification society recognized in the
marine industry. As it is undisputed that TRANS-ASIA was properly classed at the time the contract of insurance was entered
into, thus, it becomes incumbent upon PRUDENTIAL to show evidence that the status of TRANS-ASIA as being properly CLASSED
by Bureau Veritas had shifted in violation of the warranty. Unfortunately, PRUDENTIAL failed to support the allegation.

We are in accord with the ruling of the Court of Appeals that the lack of a certification in PRUDENTIAL’s records to the effect that
TRANS-ASIA’s "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED at the time of the occurrence of the fire cannot be
tantamount to the conclusion that TRANS-ASIA in fact breached the warranty contained in the policy. With more reason must
we sustain the findings of the Court of Appeals on the ground that as admitted by PRUDENTIAL, it was likewise the responsibility
of the average adjuster, Richards Hogg International (Phils.), Inc., to secure a copy of such certification, and the alleged breach of
TRANS-ASIA cannot be gleaned from the average adjuster’s survey report, or adjustment of particular average per "M/V Asia
Korea" of the 25 October 1993 fire on board.

We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that, "the violation of a material
warranty, or other material provision of a policy on the part of either party thereto, entitles the other to rescind." It is generally
accepted that "[a] warranty is a statement or promise set forth in the policy, or by reference incorporated therein, the untruth
or non-fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth
or non-fulfillment, renders the policy voidable by the insurer." 25 However, it is similarly indubitable that for the breach of a
warranty to avoid a policy, the same must be duly shown by the party alleging the same. We cannot sustain an allegation that is
unfounded. Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CLASSED AND
CLASS MAINTAINED, it remains that TRANS-ASIA must be allowed to recover its rightful claims on the policy.

B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED,
PRUDENTIAL made a valid waiver of the same.

The Court of Appeals, in reversing the Judgment of the RTC which held that TRANS-ASIA breached the warranty provision on
CLASSED AND CLASS MAINTAINED, underscored that PRUDENTIAL can be deemed to have made a valid waiver of TRANS-ASIA’s
breach of warranty as alleged, ratiocinating, thus:

Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2) consecutive years, from noon of 01 July
1994 to noon of 01 July 1995, and then again until noon of 01 July 1996. This renewal is deemed a waiver of any breach of
warranty.26

PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal policies are deemed a waiver of
TRANS-ASIA’s alleged breach, averring herein that the subsequent policies, designated as MH94/1595 and MH95/1788 show
that they were issued only on 1 July 1994 and 3 July 1995, respectively, prior to the time it made a request to TRANS-ASIA that it
be furnished a copy of the certification specifying that the insured vessel "M/V Asia Korea" was CLASSED AND CLASS
MAINTAINED. PRUDENTIAL posits that it came to know of the breach by TRANS-ASIA of the subject warranty clause only on 21
April 1997. On even date, PRUDENTIAL sent TRANS-ASIA a letter of denial, advising the latter that their claim is not compensable.
In fine, PRUDENTIAL would have this Court believe that the issuance of the renewal policies cannot be a waiver because they
were issued without knowledge of the alleged breach of warranty committed by TRANS-ASIA. 27

We are not impressed. We do not find that the Court of Appeals was in error when it held that PRUDENTIAL, in renewing TRANS-
ASIA’s insurance policy for two consecutive years after the loss covered by Policy No. MH93/1363, was considered to have
waived TRANS-ASIA’s breach of the subject warranty, if any. Breach of a warranty or of a condition renders the contract
defeasible at the option of the insurer; but if he so elects, he may waive his privilege and power to rescind by the mere
expression of an intention so to do. In that event his liability under the policy continues as before. 28 There can be no clearer
intention of the waiver of the alleged breach than the renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in
MH94/1595 and MH95/1788, issued in the years 1994 and 1995, respectively.

To our mind, the argument is made even more credulous by PRUDENTIAL’s lack of proof to support its allegation that the
renewals of the policies were taken only after a request was made to TRANS-ASIA to furnish them a copy of the certificate
attesting that "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. Notwithstanding PRUDENTIAL’s claim that no
certification was issued to that effect, it renewed the policy, thereby, evidencing an intention to waive TRANS-ASIA’s alleged
breach. Clearly, by granting the renewal policies twice and successively after the loss, the intent was to benefit the insured,
TRANS-ASIA, as well as to waive compliance of the warranty.

The foregoing finding renders a determination of whether the subject warranty is a rider, moot, as raised by the PRUDENTIAL in
its assignment of errors. Whether it is a rider will not effectively alter the result for the reasons that: (1) PRUDENTIAL was not
able to discharge the burden of evidence to show that TRANS-ASIA committed a breach, thereof; and (2) assuming arguendo the
commission of a breach by TRANS-ASIA, the same was shown to have been waived by PRUDENTIAL.

II.

A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS- ASIA via a transaction between the parties evidenced by a
document denominated as "Loan and Trust Receipt," dated 29 May 1995 constituted partial payment on the policy.

It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,000.00. The same was evidenced by a
transaction receipt denominated as a "Loan and Trust Receipt," dated 29 May 1995, reproduced hereunder:

LOAN AND TRUST RECEIPT

Claim File No. MH-93-025                         May 29, 1995

P3,000,000.00
Check No. PCIB066755

Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a
loan without interest, under Policy No. MH93/1353, repayable only in the event and to the extent that any net recovery is made
by TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporations, or other parties, on account of loss by
any casualty for which they may be liable, occasioned by the 25 October 1993: Fire on Board.

As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND ASSURANCE INC. whatever recovery we
may make and deliver to it all documents necessary to prove our interest in said property. We also hereby agree to promptly
prosecute suit against such persons, corporation or corporations through whose negligence the aforesaid loss was caused or
who may otherwise be responsible therefore, with all due diligence, in our own name, but at the expense of and under the
exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE INC.

TRANS-ASIA SHIPPING CORPORATION 29

PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the parties evidenced a loan of P3,000,000.00
which it granted to TRANS-ASIA, and not an advance payment on the policy or a partial payment for the loss. It further submits
that it is a customary practice for insurance companies in this country to extend loans gratuitously as part of good business
dealing with their assured, in order to afford their assured the chance to continue business without embarrassment while
awaiting outcome of the settlement of their claims. 30 According to PRUDENTIAL, the "Trust and Loan Agreement" did not
subrogate to it whatever rights and/or actions TRANS-ASIA may have against third persons, and it cannot by no means be taken
that by virtue thereof, PRUDENTIAL was granted irrevocable power of attorney by TRANS-ASIA, as the sole power to prosecute
lies solely with the latter.

The Court of Appeals held that the real character of the transaction between the parties as evidenced by the "Loan and Trust
Receipt" is that of an advance payment by PRUDENTIAL of TRANS-ASIA’s claim on the insurance, thus:

The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insurance Law Act No. 2427 of the Philippine
Legislature during the American Regime. The Insurance Act was lifted verbatim from the law of California, except Chapter V
thereof, which was taken largely from the insurance law of New York. Therefore, ruling case law in that jurisdiction is to Us
persuasive in interpreting provisions of our own Insurance Code. In addition, the application of the adopted statute should
correspond in fundamental points with the application in its country of origin x x x.

xxxx

Likewise, it is settled in that jurisdiction that the (sic) notwithstanding recitals in the Loan Receipt that the money was intended
as a loan does not detract from its real character as payment of claim, thus:

"The receipt of money by the insured employers from a surety company for losses on account of forgery of drafts by an
employee where no provision or repayment of the money was made except upon condition that it be recovered from other
parties and neither interest nor security for the asserted debts was provided for, the money constituted the payment of a
liability and not a mere loan, notwithstanding recitals in the written receipt that the money was intended as a mere loan."

What is clear from the wordings of the so-called "Loan and Trust Receipt Agreement" is that appellant is obligated to hand over
to appellee "whatever recovery (Trans Asia) may make and deliver to (Prudential) all documents necessary to prove its interest
in the said property." For all intents and purposes therefore, the money receipted is payment under the policy, with Prudential
having the right of subrogation to whatever net recovery Trans-Asia may obtain from third parties resulting from the fire. In the
law on insurance, subrogation is an equitable assignment to the insurer of all remedies which the insured may have against third
person whose negligence or wrongful act caused the loss covered by the insurance policy, which is created as the legal effect of
payment by the insurer as an assignee in equity. The loss in the first instance is that of the insured but after reimbursement or
compensation, it becomes the loss of the insurer. It has been referred to as the doctrine of substitution and rests on the
principle that substantial justice should be attained regardless of form, that is, its basis is the doing of complete, essential, and
perfect justice between all the parties without regard to form. 31

We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Receipt" evidences that the real nature of the
transaction between the parties was that the amount of P3,000,000.00 was not intended as a loan whereby TRANS-ASIA is
obligated to pay PRUDENTIAL, but rather, the same was a partial payment or an advance on the policy of the claims due to
TRANS-ASIA.

First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by PRUDENTIAL, subrogating the former to
the extent of "any net recovery made by TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporations,
or other parties, on account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993: Fire on
Board."32

Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to "promptly prosecute suit against such
persons, corporation or corporations through whose negligence the aforesaid loss was caused or who may otherwise be
responsible therefore, with all due diligence" in its name, the prosecution of the claims against such third persons are to be
carried on "at the expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE
INC."33 The clear import of the phrase "at the expense of and under the exclusive direction and control" as used in the "Loan and
Trust Receipt" grants solely to PRUDENTIAL the power to prosecute, even as the same is carried in the name of TRANS-ASIA,
thereby making TRANS-ASIA merely an agent of PRUDENTIAL, the principal, in the prosecution of the suit against parties who
may have occasioned the loss.

Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay PRUDENTIAL is highly speculative and
contingent, i.e., only in the event and to the extent that any net recovery is made by TRANS-ASIA from any person on account of
loss occasioned by the fire of 25 October 1993. The transaction, therefore, was made to benefit TRANS-ASIA, such that, if no
recovery from third parties is made, PRUDENTIAL cannot be repaid the amount. Verily, we do not think that this is constitutive of
a loan.34 The liberality in the tenor of the "Loan and Trust Receipt" in favor of TRANS-ASIA leads to the conclusion that the
amount of P3,000,000.00 was a form of an advance payment on TRANS-ASIA’s claim on MH93/1353.

III.
A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss suffered by
TRANS-ASIA and covered by Marine Policy No. MH93/1363.

Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid claims covered by Marine Policy No.
MH93/1363, or a total amount of P8,395,072.26.

B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of attorney’s fees equivalent to 10% of
P8,395,072.26.

The Court of Appeals denied the grant of attorney’s fees. It held that attorney’s fees cannot be awarded absent a showing of bad
faith on the part of PRUDENTIAL in rejecting TRANS-ASIA’s claim, notwithstanding that the rejection was erroneous. According
to the Court of Appeals, attorney’s fees can be awarded only in the cases enumerated in Article 2208 of the Civil Code which
finds no application in the instant case.

We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorney’s fees and other expenses incurred by the
insured after a finding by the Insurance Commissioner or the Court, as the case may be, of an unreasonable denial or
withholding of the payment of the claims due. Moreover, the law imposes an interest of twice the ceiling prescribed by the
Monetary Board on the amount of the claim due the insured from the date following the time prescribed in Section 242 35 or in
Section 243,36 as the case may be, until the claim is fully satisfied. Finally, Section 244 considers the failure to pay the claims
within the time prescribed in Sections 242 or 243, when applicable, as prima facie evidence of unreasonable delay in payment.

To the mind of this Court, Section 244 does not require a showing of bad faith in order that attorney’s fees be granted. As earlier
stated, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by failure of the
insurer to pay the claim within the time fixed in both Sections 242 and 243 of the Insurance Code. As established in Section 244,
by reason of the delay and the consequent filing of the suit by the insured, the insurers shall be adjudged to pay damages which
shall consist of attorney’s fees and other expenses incurred by the insured. 37

Section 244 reads:

In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or
the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has been unreasonably
denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of
attorney’s fees and other expenses incurred by the insured person by reason of such unreasonable denial or withholding of
payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from
the date following the time prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may
be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections
shall be considered prima facie evidence of unreasonable delay in payment.

Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay or refusal in the payment of the
insurance claims.

In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show that there was an
unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of P8,395,072.26 to TRANS-ASIA. On 26 October 1993,
a day after the occurrence of the fire in "M/V Asia Korea", TRANS-ASIA filed its notice of claim. On 13 August 1996, the adjuster,
Richards Hogg International (Phils.), Inc., completed its survey report recommending the amount of P11,395,072.26 as the total
indemnity due to TRANS-ASIA.38 On 21 April 1997, PRUDENTIAL, in a letter39 addressed to TRANS-ASIA denied the latter’s claim
for the amount of P8,395,072.26 representing the balance of the total indemnity. On 21 July 1997, PRUDENTIAL sent a second
letter40 to TRANS-ASIA seeking a return of the amount of P3,000,000.00. On 13 August 1997, TRANS-ASIA was constrained to file
a complaint for sum of money against PRUDENTIAL praying, inter alia, for the sum of P8,395,072.26 representing the balance of
the proceeds of the insurance claim.

As can be gleaned from the foregoing, there was an unreasonable delay on the part of PRUDENTIAL to pay TRANS-ASIA, as in
fact, it refuted the latter’s right to the insurance claims, from the time proof of loss was shown and the ascertainment of the loss
was made by the insurance adjuster. Evidently, PRUDENTIAL’s unreasonable delay in satisfying TRANS-ASIA’s unpaid claims
compelled the latter to file a suit for collection.

Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of the policy as attorney’s fees to TRANS-ASIA is
reasonable under the circumstances, or otherwise stated, ten percent (10%) of P8,395,072.26. In the case of Cathay Insurance,
Co., Inc. v. Court of Appeals,41 where a finding of an unreasonable delay under Section 244 of the Insurance Code was made by
this Court, we grant an award of attorney’s fees equivalent to ten percent (10%) of the total proceeds. We find no reason to
deviate from this judicial precedent in the case at bar.
C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s fees) shall be imposed double interest in
accordance with Section 244 of the Insurance Code.

Section 244 of the Insurance Code is categorical in imposing an interest twice the ceiling prescribed by the Monetary Board due
the insured, from the date following the time prescribed in Section 242 or in Section 243, as the case may be, until the claim is
fully satisfied. In the case at bar, we find Section 243 to be applicable as what is involved herein is a marine insurance, clearly, a
policy other than life insurance.

Section 243 is hereunder reproduced:

SEC. 243. The amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy,
shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made
either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is not had or made within
sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shall be paid within ninety days after
such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect
interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary
Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent.

As specified, the assured is entitled to interest on the proceeds for the duration of the delay at the rate of twice the ceiling
prescribed by the Monetary Board except when the failure or refusal of the insurer to pay was founded on the ground that the
claim is fraudulent.

D. The term "double interest" as used in the Decision of the Court of Appeals must be interpreted to mean 24% per annum.

PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in favor of TRANS-ASIA in the assailed Decision of 6
November 2001. It is PRUDENTIAL’s stance that the award is extortionate and grossly unsconscionable. In support thereto,
PRUDENTIAL makes a reference to TRANS-ASIA’s prayer in the Complaint filed with the court a quo wherein the latter sought,
"interest double the prevailing rate of interest of 21% per annum now obtaining in the banking business or plus 42% per annum
pursuant to Article 243 of the Insurance Code x x x." 42

The contention fails to persuade. It is settled that an award of double interest is lawful and justified under Sections 243 and 244
of the Insurance Code.43 In Finman General Assurance Corporation v. Court of Appeals, 44 this Court held that the payment of 24%
interest per annum is authorized by the Insurance Code. 45 There is no gainsaying that the term "double interest" as used in
Sections 243 and 244 can only be interpreted to mean twice 12% per annum or 24% per annum interest, thus:

The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of twelve per centum per annum (12%) as
prescribed by the Monetary Board in C.B. Circular No. 416, pursuant to P.D. No. 116, amending the Usury Law; so that when
Sections 242, 243 and 244 of the Insurance Code provide that the insurer shall be liable to pay interest "twice the ceiling
prescribed by the Monetary Board", it means twice 12% per annum or 24% per annum interest on the proceeds of the
insurance.46

E. The payment of double interest should be counted from 13 September 1996.

The Court of Appeals, in imposing double interest for the duration of the delay of the payment of the unpaid balance due
TRANS-ASIA, computed the same from 13 August 1996 until such time when the amount is fully paid. Although not raised by the
parties, we find the computation of the duration of the delay made by the appellate court to be patently erroneous.

To be sure, Section 243 imposes interest on the proceeds of the policy for the duration of the delay at the rate of twice the
ceiling prescribed by the Monetary Board. Significantly, Section 243 mandates the payment of any loss or damage for which an
insurer may be liable, under any policy other than life insurance policy, within thirty days after proof of loss is received by the
insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by
arbitration. It is clear that under Section 243, the insurer has until the 30th day after proof of loss and ascertainment of the loss
or damage to pay its liability under the insurance, and only after such time can the insurer be held to be in delay, thereby
necessitating the imposition of double interest.

In the case at bar, it was not disputed that the survey report on the ascertainment of the loss was completed by the adjuster,
Richard Hoggs International (Phils.), Inc. on 13 August 1996. PRUDENTIAL had thirty days from 13 August 1996 within which to
pay its liability to TRANS-ASIA under the insurance policy, or until 13 September 1996. Therefore, the double interest can begin
to run from 13 September 1996 only.

IV.
A. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged in section III herein, computed
from the time of finality of judgment until the full satisfaction thereof in conformity with this Court’s ruling in Eastern Shipping
Lines, Inc. v. Court of Appeals.

This Court in Eastern Shipping Lines, Inc. v. Court of Appeals, 47 inscribed the rule of thumb48 in the application of interest to be
imposed on obligations, regardless of their source. Eastern emphasized beyond cavil that when the judgment of the court
awarding a sum of money becomes final and executory, the rate of legal interest, regardless of whether the obligation involves a
loan or forbearance of money, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed
to be by then an equivalent to a forbearance49 of credit.

We find application of the rule in the case at bar proper, thus, a rate of 12% per annum from the finality of judgment until the
full satisfaction thereof must be imposed on the total amount of liability adjudged to PRUDENTIAL. It is clear that the interim
period from the finality of judgment until the satisfaction of the same is deemed equivalent to a forbearance of credit, hence,
the imposition of the aforesaid interest.

Fallo

WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G.R. No. 151991 is GRANTED, thus, we award
the grant of attorney’s fees and make a clarification that the term "double interest" as used in the 6 November 2001 Decision of
the Court of Appeals in CA GR CV No. 68278 should be construed to mean interest at the rate of 24% per annum, with a further
clarification, that the same should be computed from 13 September 1996 until fully paid. The Decision and Resolution of the
Court of Appeals, in CA-G.R. CV No. 68278, dated 6 November 2001 and 29 January 2002, respectively, are, thus, MODIFIED in
the following manner, to wit:

1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss
suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363;

2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the form of attorney’s fees equivalent to 10% of the
amount of P8,395,072.26;

3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s fees) shall be imposed double interest at the
rate of 24% per annum to be computed from 13 September 1996 until fully paid; and

4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged as abovestated in
paragraphs (1), (2), and (3) herein, computed from the time of finality of judgment until the full satisfaction thereof.

No costs.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice
2. Constantino v. Asia Life Inc., 87 Phil. 248

G.R. No. L-1669             August 31, 1950

PAZ LOPEZ DE CONSTANTINO, plaintiff-appellant,

vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.

x---------------------------------------------------------x

G.R. No. L-1670             August 31, 1950

AGUSTINA PERALTA, plaintiff-appellant,
vs.
ASIA LIFE INSURANCE COMPANY, defendant-appellee.

Mariano Lozada for appellant Constantino.

Cachero and Madarang for appellant Peralta.
Dewitt, Perkins and Ponce Enrile for appellee.
Ramirez and Ortigas and Padilla, Carlos and Fernando as amici curiae.

BENGZON, J.:

These two cases, appealed from the Court of First Instance of Manila, call for decision of the question whether the beneficiary in a life
insurance policy may recover the amount thereof although the insured died after repeatedly failing to pay the stipulated premiums,
such failure having been caused by the last war in the Pacific.

The facts are these:

First case. In consideration of the sum of P176.04 as annual premium duly paid to it, the Asia Life Insurance Company (a foreign
corporation incorporated under the laws of Delaware, U.S.A.), issued on September 27, 1941, its Policy No. 93912 for P3,000, whereby
it insured the life of Arcadio Constantino for a term of twenty years. The first premium covered the period up to September 26, 1942.
The plaintiff Paz Lopez de Constantino was regularly appointed beneficiary. The policy contained these stipulations, among others:

This POLICY OF INSURANCE is issued in consideration of the written and printed application here for a copy of which is
attached hereto and is hereby made a part hereof made a part hereof, and of the payment in advance during the lifetime and
good health of the Insured of the annual premium of One Hundred fifty-eight and 4/100 pesos Philippine currency 1 and of the
payment of a like amount upon each twenty-seventh day of September hereafter during the term of Twenty years or until the
prior death of the Insured. (Emphasis supplied.)

xxx     xxx     xxx

All premium payments are due in advance and any unpunctuality in making any such payment shall cause this policy to lapse
unless and except as kept in force by the Grace Period condition or under Option 4 below. (Grace of 31 days.)

After that first payment, no further premiums were paid. The insured died on September 22, 1944.

It is admitted that the defendant, being an American corporation , had to close its branch office in Manila by reason of the Japanese
occupation, i.e. from January 2, 1942, until the year 1945.

Second case. On August 1, 1938, the defendant Asia Life Insurance Company issued its Policy No. 78145 (Joint Life 20-Year Endowment
Participating with Accident Indemnity), covering the lives of the spouses Tomas Ruiz and Agustina Peralta, for the sum of P3,000. The
annual premium stipulated in the policy was regularly paid from August 1, 1938, up to and including September 30, 1941. Effective
August 1, 1941, the mode of payment of premiums was changed from annual to quarterly, so that quarterly premiums were paid, the
last having been delivered on November 18, 1941, said payment covering the period up to January 31, 1942. No further payments were
handed to the insurer. Upon the Japanese occupation, the insured and the insurer became separated by the lines of war, and it was
impossible and illegal for them to deal with each other. Because the insured had borrowed on the policy an mount of P234.00 in
January, 1941, the cash surrender value of the policy was sufficient to maintain the policy in force only up to September 7, 1942. Tomas
Ruiz died on February 16, 1945. The plaintiff Agustina Peralta is his beneficiary. Her demand for payment met with defendant's refusal,
grounded on non-payment of the premiums.

The policy provides in part:

This POLICY OF INSURANCE is issued in consideration of the written and printed application herefor, a copy of which is
attached hereto and is hereby made apart hereof, and of the payment in advance during the life time and good health of the
Insured of the annual premium of Two hundred and 43/100 pesos Philippine currency and of the payment of a like amount
upon each first day of August hereafter during the term of Twenty years or until the prior death of either of the Insured.
(Emphasis supplied.)

xxx     xxx     xxx

All premium payments are due in advance and any unpunctuality in making any such payment shall cause this policy to lapse
unless and except as kept in force by the Grace Period condition or under Option 4 below. (Grace of days.) . . .

Plaintiffs maintain that, as beneficiaries, they are entitled to receive the proceeds of the policies minus all sums due for premiums in
arrears. They allege that non-payment of the premiums was caused by the closing of defendant's offices in Manila during the Japanese
occupation and the impossible circumstances created by war.

Defendant on the other hand asserts that the policies had lapsed for non-payment of premiums, in accordance with the contract of the
parties and the law applicable to the situation.

The lower court absolved the defendant. Hence this appeal.

The controversial point has never been decided in this jurisdiction. Fortunately, this court has had the benefit of extensive and
exhaustive memoranda including those of amici curiae. The matter has received careful consideration, inasmuch as it affects the
interest of thousands of policy-holders and the obligations of many insurance companies operating in this country.

Since the year 1917, the Philippine law on Insurance was found in Act No. 2427, as amended, and the Civil Code. 2 Act No. 2427 was
largely copied from the Civil Code of California.3 And this court has heretofore announced its intention to supplement the statutory
laws with general principles prevailing on the subject in the United State. 4

In Young  vs.  Midland Textile Insurance Co. (30 Phil., 617), we said that "contracts of insurance are contracts of indemnity upon the
terms and conditions specified in the policy. The parties have a right to impose such reasonable conditions at the time of the making of
the contract as they may deem wise and necessary. The rate of premium is measured by the character of the risk assumed. The
insurance company, for a comparatively small consideration, undertakes to guarantee the insured against loss or damage, upon the
terms and conditions agreed upon, and upon no other, and when called upon to pay, in case of loss, the insurer, therefore, may justly
insists upon a fulfillment of these terms. If the insured cannot bring himself within the conditions of the policy, he is not entitled for the
loss. The terms of the policy constitute the measure of the insurer's liability, and in order to recover the insured must show himself
within those terms; and if it appears that the contract has been terminated by a violation, on the part of the insured, of its conditions,
then there can be no right of recovery. The compliance of the insured with the terms of the contract is a condition precedent to the
right of recovery."

Recall of the above pronouncements is appropriate because the policies in question stipulate that "all premium payments are due in
advance and any unpunctuality in making any such payment shall cause this policy to lapse." Wherefore, it would seem that pursuant
to the express terms of the policy, non-payment of premium produces its avoidance.

The conditions of contracts of Insurance, when plainly expressed in a policy, are binding upon the parties and should be
enforced by the courts, if the evidence brings the case clearly within their meaning and intent. It tends to bring the law itself
into disrepute when, by astute and subtle distinctions, a plain case is attempted to be taken without the operation of a clear,
reasonable and material obligation of the contract. Mack vs. Rochester German Ins. Co., 106 N.Y., 560, 564.
(Young  vs. Midland Textile Ins. Co., 30 Phil., 617, 622.)

In Glaraga  vs. Sun Life Ass. Co. (49 Phil., 737), this court held that a life policy was avoided because the premium had not been paid
within the time fixed, since by its express terms, non-payment of any premium when due or within the thirty-day period of grace, ipso
facto caused the policy to lapse. This goes to show that although we take the view that insurance policies should be conserved 5 and
should not lightly be thrown out, still we do not hesitate to enforce the agreement of the parties.
 Forfeitures of insurance policies are not favored, but courts cannot for that reason alone refuse to enforce an insurance
contract according to its meaning. (45 C.J.S., p. 150.)

Nevertheless, it is contended for plaintiff that inasmuch as the non-payment of premium was the consequence of war, it should be
excused and should not cause the forfeiture of the policy.

Professor Vance of Yale, in his standard treatise on Insurance, says that in determining the effect of non-payment of premiums
occasioned by war, the American cases may be divided into three groups, according as they support the so-called Connecticut Rule, the
New York Rule, or the United States Rule.

The first holds the view that "there are two elements in the consideration for which the annual premium is paid — First, the mere
protection for the year, and second, the privilege of renewing the contract for each succeeding year by paying the premium for that
year at the time agreed upon. According to this view of the contract, the payment of premiums is a condition precedent, the non-
performance would be illegal necessarily defeats the right to renew the contract."

The second rule, apparently followed by the greater number of decisions, hold that "war between states in which the parties reside
merely suspends the contracts of the life insurance, and that, upon tender of all premiums due by the insured or his representatives
after the war has terminated, the contract revives and becomes fully operative."

The United States rule declares that the contract is not merely suspended, but is abrogated by reason of non-payments is peculiarly of
the essence of the contract. It additionally holds that it would be unjust to allow the insurer to retain the reserve value of the policy,
which is the excess of the premiums paid over the actual risk carried during the years when the policy had been in force. This rule was
announced in the well-known Statham6 case which, in the opinion of Professor Vance,  is the correct rule.7

The appellants and some amici curiae contend that the New York rule should be applied here. The appellee and other amici
curiae contend that the United States doctrine is the orthodox view.

We have read and re-read the principal cases upholding the different theories. Besides the respect and high regard we have always
entertained for decisions of the Supreme Court of the United States, we cannot resist the conviction that the reasons expounded in its
decision of the Statham case are logically and judicially sound. Like the instant case, the policy involved in the Statham decision
specifies that non-payment on time shall cause the policy to cease and determine. Reasoning out that punctual payments were
essential, the court said:

. . . it must be conceded that promptness of payment is essential in the business of life insurance. All the calculations of the
insurance company are based on the hypothesis of prompt payments. They not only calculate on the receipt of the premiums
when due, but on compounding interest upon them. It is on this basis that they are enabled to offer assurance at the
favorable rates they do. Forfeiture for non-payment is an necessary means of protecting themselves from embarrassment.
Unless it were enforceable, the business would be thrown into confusion. It is like the forfeiture of shares in mining
enterprises, and all other hazardous undertakings. There must be power to cut-off unprofitable members, or the success of
the whole scheme is endangered. The insured parties are associates in a great scheme. This associated relation exists whether
the company be a mutual one or not. Each is interested in the engagements of all; for out of the co-existence of many risks
arises the law of average, which underlies the whole business. An essential feature of this scheme is the mathematical
calculations referred to, on which the premiums and amounts assured are based. And these calculations, again, are based on
the assumption of average mortality, and of prompt payments and compound interest thereon. Delinquency cannot be
tolerated nor redeemed, except at the option of the company. This has always been the understanding and the practice in
this department of business. Some companies, it is true, accord a grace of thirty days, or other fixed period, within which the
premium in arrear may be paid, on certain conditions of continued good health, etc. But this is a matter of stipulation, or of
discretion, on the part of the particular company. When no stipulation exists, it is the general understanding that time is
material, and that the forfeiture is absolute if the premium be not paid. The extraordinary and even desperate efforts
sometimes made, when an insured person is in extremes to meet a premium coming due, demonstrates the common view of
this matter.

The case, therefore, is one in which time is material and of the essence and of the essence of the contract. Non-payment at
the day involves absolute forfeiture if such be the terms of the contract, as is the case here. Courts cannot with safety vary
the stipulation of the parties by introducing equities for the relief of the insured against their own negligence.

In another part of the decision, the United States Supreme Court considers and rejects what is, in effect, the New York theory in the
following words and phrases:

The truth is, that the doctrine of the revival of contracts suspended during the war is one based on considerations of equity
and justice, and cannot be invoked to revive a contract which it would be unjust or inequitable to revive.
 In the case of Life insurance, besides the materiality of time in the performance of the contract, another strong reason exists
why the policy should not be revived. The parties do not stand on equal ground in reference to such a revival. It would
operate most unjustly against the company. The business of insurance is founded on the law of average; that of life insurance
eminently so. The average rate of mortality is the basis on which it rests. By spreading their risks over a large number of cases,
the companies calculate on this average with reasonable certainty and safety. Anything that interferes with it deranges the
security of the business. If every policy lapsed by reason of the war should be revived, and all the back premiums should be
paid, the companies would have the benefit of this average amount of risk. But the good risks are never heard from; only the
bar are sought to be revived, where the person insured is either dead or dying. Those in health can get the new policies
cheaper than to pay arrearages on the old. To enforce a revival of the bad cases, whilst the company necessarily lose the
cases which are desirable, would be manifestly unjust. An insured person, as before stated, does not stand isolated and alone.
His case is connected with and co-related to the cases of all others insured by the same company. The nature of the business,
as a whole, must be looked at to understand the general equities of the parties.

The above consideration certainly lend themselves to the approval of fair-minded men. Moreover, if, as alleged, the consequences of
war should not prejudice the insured, neither should they bear down on the insurer.

Urging adoption of the New York theory, counsel for plaintiff point out that the obligation of the insured to pay premiums was excused
during the war owing to impossibility of performance, and that consequently no unfavorable consequences should follow from such
failure.

The appellee answers, quite plausibly, that the periodic payment of premiums, at least those after the first, is not an obligation of the
insured, so much so that it is not a debt enforceable by action of the insurer.

Under an Oklahoma decision, the annual premium due is not a debt. It is not an obligation upon which the insurer can
maintain an action against insured; nor is its settlement governed by the strict rule controlling payments of debts. So, the
court in a Kentucky case declares, in the opinion, that it is not a debt. . . . The fact that it is payable annually or semi-annually,
or at any other stipulated time, does not of itself constitute a promise to pay, either express or implied. In case of non-
payment the policy is forfeited, except so far as the forfeiture may be saved by agreement, by waiver, estoppel, or by statute.
The payment of the premium is entirely optional, while a debt may be enforced at law, and the fact that the premium is
agreed to be paid is without force, in the absence of an unqualified and absolute agreement to pay a specified sum at some
certain time. In the ordinary policy there is no promise to pay, but it is optional with the insured whether he will continue the
policy or forfeit it. (3 Couch, Cyc. on Insurance, Sec. 623, p. 1996.)

It is well settled that a contract of insurance is sui generis. While the insured by an observance of the conditions may hold the
insurer to his contract, the latter has not the power or right to compel the insured to maintain the contract relation with it
longer than he chooses. Whether the insured will continue it or not is optional with him. There being no obligation to pay for
the premium, they did not constitute a debt. (Noble  vs.  Southern States M.D. Ins. Co., 157 Ky., 46; 162 S.W., 528.) (Emphasis
ours.)

It should be noted that the parties contracted not only for peacetime conditions but also for times of war, because the policies
contained provisions applicable expressly to wartime days. The logical inference, therefore, is that the parties contemplated
uninterrupted operation of the contract even if armed conflict should ensue.

For the plaintiffs, it is again argued that in view of the enormous growth of insurance business since the Statham decision, it could now
be relaxed and even disregarded. It is stated "that the relaxation of rules relating to insurance is in direct proportion to the growth of
the business. If there were only 100 men, for example, insured by a Company or a mutual Association, the death of one will distribute
the insurance proceeds among the remaining 99 policy-holders. Because the loss which each survivor will bear will be relatively great,
death from certain agreed or specified causes may be deemed not a compensable loss. But if the policy-holders of the Company or
Association should be 1,000,000 individuals, it is clear that the death of one of them will not seriously prejudice each one of the
999,999 surviving insured. The loss to be borne by each individual will be relatively small."

The answer to this is that as there are (in the example) one million policy-holders, the "losses" to be considered will not be the death of
one  but the death of ten thousand, since the proportion of 1 to 100 should be maintained. And certainly such losses for 10,000 deaths
will not be "relatively small."

After perusing the Insurance Act, we are firmly persuaded that the non-payment of premiums is such a vital defense of insurance
companies that since the very beginning, said Act no. 2427 expressly preserved it, by providing that after the policy shall have been in
force for two years, it shall become incontestable (i.e. the insurer shall have no defense) except for fraud, non-payment of premiums,
and military or naval service in time of war (sec. 184 [b], Insurance Act). And when Congress recently amended this section (Rep. Act
No. 171), the defense of fraud was eliminated, while the defense of nonpayment of premiums was preserved. Thus the fundamental
character of the undertaking to pay premiums and the high importance of the defense of non-payment thereof, was specifically
recognized.
In keeping with such legislative policy, we feel no hesitation to adopt the United States Rule, which is in effect a variation of the
Connecticut rule for the sake of equity. In this connection, it appears that the first policy had no reserve value, and that the equitable
values of the second had been practically returned to the insured in the form of loan and advance for premium.

For all the foregoing, the lower court's decision absolving the defendant from all liability on the policies in question, is hereby affirmed,
without costs.

Moran, C.J., Ozaeta, Paras, Pablo, Montemayor, Tuason, and Reyes, JJ., concur..

3. Travellers Insurance & Surety Corporation v. Hon. Court of Appeals

G.R. No. 82036 May 22, 1997

TRAVELLERS INSURANCE & SURETY CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and VICENTE MENDOZA, respondents.

HERMOSISIMA, JR., J.:

The petition herein seeks the review and reversal of the decision 1 of respondent Court of Appeals 2 affirming in toto the
judgment 3 of the Regional Trial Court 4 in an action for damages 5 filed by private respondent Vicente Mendoza, Jr. as heir of
his mother who was killed in a vehicular accident.

Before the trial court, the complainant lumped the erring taxicab driver, the owner of the taxicab, and the alleged insurer of the
vehicle which featured in the vehicular accident into one complaint. The erring taxicab was allegedly covered by a third-party
liability insurance policy issued by petitioner Travellers Insurance & Surety Corporation.

The evidence presented before the trial court established the following facts:

At about 5:30 o'clock in the morning of July 20, 1980, a 78-year old woman by the name of Feliza Vineza de Mendoza was on her
way to hear mass at the Tayuman Cathedral. While walking along Tayuman corner Gregorio Perfecto Streets, she was bumped
by a taxi that was running fast. Several persons witnessed the accident, among whom were Rolando Marvilla, Ernesto Lopez and
Eulogio Tabalno. After the bumping, the old woman was seen sprawled on the pavement. Right away, the good Samaritan that
he was, Mavilla ran towards the old woman and held her on his lap to inquire from her what had happened, but obviously she
was already in shock and could not talk. At this moment, a private jeep stopped. With the driver of that vehicle, the two helped
board the old woman on the jeep and brought her to the Mary Johnston Hospital in Tondo.

. . . Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street from Pritil, Tondo, to Rizal Avenue and vice-
versa, also witnessed the incident. It was on his return trip from Rizal Avenue when Lopez saw the plaintiff and his brother who
were crying near the scene of the accident. Upon learning that the two were the sons of the old woman, Lopez told them what
had happened. The Mendoza brothers were then able to trace their mother at the Mary Johnston Hospital where they were
advised by the attending physician that they should bring the patient to the National Orthopedic Hospital because of her
fractured bones. Instead, the victim was brought to the U.S.T. Hospital where she expired at 9:00 o'clock that same morning.
Death was caused by "traumatic shock" as a result of the severe injuries she sustained . . .

. . . The evidence shows that at the moment the victim was bumped by the vehicle, the latter was running fast, so much so that
because of the strong impact the old woman was thrown away and she fell on the pavement. . . . In truth, in that related
criminal case against defendant Dumlao . . . the trial court found as a fact that therein accused "was driving the subject taxicab
in a careless, reckless and imprudent manner and at a speed greater than what was reasonable and proper without taking the
necessary precaution to avoid accident to persons . . . considering the condition of the traffic at the place at the time
aforementioned" . . . Moreover, the driver fled from the scene of the accident and without rendering assistance to the
victim. . . .

. . . Three (3) witnesses who were at the scene at the time identified the taxi involved, though not necessarily the driver thereof.
Marvilla saw a lone taxi speeding away just after the bumping which, when it passed by him, said witness noticed to be a Lady
Love Taxi with Plate No. 438, painted maroon, with baggage bar attached on the baggage compartment and with an antenae
[sic] attached at the right rear side. The same descriptions were revealed by Ernesto Lopez, who further described the taxi to
have . . . reflectorized decorations on the edges of the glass at the back . . . A third witness in the person of Eulogio Tabalno . . .
made similar descriptions although, because of the fast speed of the taxi, he was only able to detect the last digit of the plate
number which is "8". . . . [T]he police proceeded to the garage of Lady Love Taxi and then and there they took possession of such
a taxi and later impounded it in the impounding area of the agency concerned. . . . [T]he eyewitnesses . . . were unanimous in
pointing to that Lady Love Taxi with Plate No. 438, obviously the vehicle involved herein.

. . . During the investigation, defendant Armando Abellon, the registered owner of Lady Love Taxi bearing No. 438-HA Pilipinas
Taxi 1980, certified to the fact "that the vehicle was driven last July 20, 1980 by one Rodrigo Dumlao. . ." . . . It was on the basis
of this affidavit of the registered owner that caused the police to apprehend Rodrigo Dumlao, and consequently to have him
prosecuted and eventually convicted of the offense . . . . . . . [S]aid Dumlao absconded in that criminal case, specially at the time
of the promulgation of the judgment therein so much so that he is now a fugitive from justice.6

Private respondent filed a complaint for damages against Armando Abellon as the owner of the Lady Love Taxi and Rodrigo
Dumlao as the driver of the Lady Love taxicab that bumped private respondent's mother. Subsequently, private respondent
amended his complaint to include petitioner as the compulsory insurer of the said taxicab under Certificate of Cover No.
1447785-3.

After trial, the trial court rendered judgment in favor of private respondent, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more particularly the "Heirs of the late Feliza Vineza de
Mendoza," and against defendants Rodrigo Dumlao, Armando Abellon and Travellers Insurance and Surety Corporation, by
ordering the latter to pay, jointly and severally, the former the following amounts:

(a) The sum of P2,924.70, as actual and compensatory damages, with interest thereon at the rate of 12% per annum from
October 17, 1980, when the complaint was filed, until the said amount is fully paid;

(b) P30,000.00 as death indemnity;

(c) P25,000.00 as moral damages;
(d) P10,000.00 as by way of corrective or exemplary damages; and
(e) Another P10,000.00 by way of attorney's fees and other litigation expenses.
Defendants are further ordered to pay, jointly and severally, the costs of this suit.

SO ORDERED. 7

Petitioner appealed from the aforecited decision to the respondent Court of Appeals. The decision of the trial court was affirmed
by respondent appellate court. Petitioner's Motion for Reconsideration 8 of September 22, 1987 was denied in a Resolution 9
dated February 9, 1988.

Hence this petition.

Petitioner mainly contends that it did not issue an insurance policy as compulsory insurer of the Lady Love Taxi and that,
assuming arguendo that it had indeed covered said taxicab for third-party liability insurance, private respondent failed to file a
written notice of claim with petitioner as required by Section 384 of P.D. No. 612, otherwise known as the Insurance Code.

We find the petition to be meritorious.

When private respondent filed his amended complaint to implead petitioner as party defendant and therein alleged that
petitioner was the third-party liability insurer of the Lady Love taxicab that fatally hit private respondent's mother, private
respondent did not attach a copy of the insurance contract to the amended complaint. Private respondent does not deny this
omission.

It is significant to point out at this juncture that the right of a third person to sue the insurer depends on whether the contract of
insurance is intended to benefit third persons also or only the insured.

[A] policy . . . whereby the insurer agreed to indemnify the insured "against all sums . . . which the Insured shall become legally
liable to pay in respect of: a. death of or bodily injury to any person . . . is one for indemnity against liability; from the fact then
that the insured is liable to the third person, such third person is entitled to sue the insurer.

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. 10

Since private respondent failed to attach a copy of the insurance contract to his complaint, the trial court could not have been
able to apprise itself of the real nature and pecuniary limits of petitioner's liability. More importantly, the trial court could not
have possibly ascertained the right of private respondent as third person to sue petitioner as insurer of the Lady Love taxicab
because the trial court never saw nor read the insurance contract and learned of its terms and conditions.

Petitioner, understandably, did not volunteer to present any insurance contract covering the Lady Love taxicab that fatally hit
private respondent's mother, considering that petitioner precisely presented the defense of lack of insurance coverage before
the trial court. Neither did the trial court issue a subpoena duces tecum to have the insurance contract produced before it under
pain of contempt.

We thus find hardly a basis in the records for the trial court to have validly found petitioner liable jointly and severally with the
owner and the driver of the Lady Love taxicab, for damages accruing to private respondent.

Apparently, 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. Confusing these two sources of obligations as they arise from the same act of the taxicab fatally hitting
private respondent's mother, and in the face of overwhelming evidence of the reckless imprudence of the driver of the Lady
Love taxicab, the trial court brushed aside its ignorance of the terms and conditions of the insurance contract and forthwith
found all three — the driver of the taxicab, the owner of the taxicab, and the alleged insurer of the taxicab — jointly and
severally liable for actual, moral and exemplary damages as well as attorney's fees and litigation expenses. This is clearly a
misapplication of the law by the trial court, and respondent appellate court grievously erred in not having reversed the trial
court on this ground.

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. 11

Applying this principle underlying solidary obligation and insurance contracts, we ruled in one case that:

In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors. On the other hand,
insurance is defined as "a contract whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event."

In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon Rice Mills Inc. solidarily liable
to respondent Vallejos for a total amount of P29,103.00, with the qualification that petitioner's liability is only up to P20,000.00.
In the context of a solidary obligation, petitioner may be compelled by respondent Vallejos to pay the entire obligation of
P29,103.00, notwithstanding the qualification made by the trial court. But, how can petitioner be obliged to pay the entire
obligation when the amount stated in its insurance policy with respondent Sio Choy for indemnity against third-party liability is
only P20,000.00? Moreover, the qualification made in the decision of the trial court to the effect that petitioner is sentenced to
pay up to P20,000.00 only when the obligation to pay P29,103.00 is made solidary is an evident breach of the concept of a
solidary obligation. 12

The above principles take on more significance in the light of the counter-allegation of petitioner that, 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. This 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.

II

Petitioner did not tire in arguing before the trial court and the respondent appellate court that, assuming arguendo that it had
issued the insurance contract over the Lady Love taxicab, private respondent's 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.

At the time of the vehicular incident which resulted in the death of private respondent's mother, during which time the
Insurance Code had not yet been amended by Batas Pambansa (B.P.) Blg. 874, Section 384 provided as follows:

Any person having any claim upon the policy issued pursuant to this chapter shall, without any unnecessary delay, present to the
insurance company concerned a written notice of claim setting forth the amount of his loss, and/or the nature, extent and
duration of the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed within six months from
date of the accident, otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury
must be brought in proper cases, with the Commission or the Courts within one year from date of accident, otherwise the
claimant's right of action shall prescribe [emphasis supplied].

In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De Guzman, 13 we ruled that the one year prescription
period to bring suit in court against the insurer should be counted from the time that the insurer rejects the written claim filed
therewith by the insured, the beneficiary or the third person interested under the insurance policy. We explained:

It is very obvious that petitioner company is trying to use Section 384 of the Insurance Code as a cloak to hide itself from its
liabilities. The facts of these cases evidently reflect the deliberate efforts of petitioner company to prevent the filing of a formal
action against it. Bearing in mind that if it succeeds in doing so until one year lapses from the date of the accident it could set up
the defense of prescription, petitioner company made private respondents believe that their claims would be settled in order
that the latter will not find it necessary to immediately bring suit. In violation of its duties to adopt and implement reasonable
standards for the prompt investigation of claims and to effectuate prompt, fair and equitable settlement of claims, and with
manifest bad faith, petitioner company devised means and ways of stalling the settlement proceeding . . . [N]o steps were taken
to process the claim and no rejection of said claim was ever made even if private respondent had already complied with all the
requirements. . . .

This Court has made the observation that some insurance companies have been inventing excuses to avoid their just obligations
and it is only the State that can give the protection which the insuring public needs from possible abuses of the insurers. 14

It is significant to note that the aforecited Section 384 was amended by B.P. Blg. 874 to categorically provide that "action or suit
for recovery of damage due to loss or injury must be brought in proper cases, with the Commissioner or the Courts within one
year from denial of the claim, otherwise the claimant's right of action shall prescribe" [emphasis ours]. 15

We have certainly ruled with consistency that the prescriptive period to bring suit in court under an insurance policy, begins to
run from the date of the insurer's rejection of the claim filed by the insured, the beneficiary or any person claiming under an
insurance contract. This ruling is premised upon the compliance by the persons suing under an insurance contract, with the
indispensable requirement of having filed the written claim mandated by Section 384 of the insurance Code before and after its
amendment. Absent such written claim filed by the person suing under an insurance contract, no cause of action accrues under
such insurance contract, considering that it is the rejection of that claim that triggers the running of the one-year prescriptive
period to bring suit in court, and there can be no opportunity for the insurer to even reject a claim if none has been filed in the
first place, as in the instant case.

The one-year period should instead be counted from the date of rejection by the insurer as this is the time when the cause of
action accrues. . . .

In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this Court ruled:

The plaintiff's cause of action did not accrue until his claim was finally rejected by the insurance company. This is because,
before such final rejection, there was no real necessity for bringing suit.

The philosophy of the above pronouncement was pointed out in the case of ACCFA vs. Alpha Insurance and Surety Co., viz:

Since a cause of action requires, as essential elements, not only a legal right of the plaintiff and a correlative obligation of the
defendant but also an act or omission of the defendant in violation of said legal right, the cause of action does not accrue until
the party obligated refuses, expressly or impliedly, to comply with its duty. 16

When petitioner asseverates, thus, that no written claim was filed by private respondent and rejected by petitioner, and private
respondent does not dispute such asseveration through a denial in his pleadings, we are constrained to rule that respondent
appellate court committed reversible error in finding petitioner liable under an insurance contract the existence of which had
not at all been proven in court. Even if there were such a contract, private respondent's cause of action can not prevail because
he failed to file the written claim mandated by Section 384 of the Insurance Code. He is deemed, under this legal provision, to
have waived his rights as against petitioner-insurer.

WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 09416 and the
decision of the Regional Trial Court in Civil Case No. 135486 are REVERSED and SET ASIDE insofar as Travelers Insurance & Surety
Corporation was found jointly and severally liable to pay actual, moral and exemplary damages, death indemnity, attorney's fees
and litigation expenses in Civil Case No. 135486. The complaint against Travellers Insurance & Surety Corporation in said case is
hereby ordered dismissed.

No pronouncement as to costs. SO ORDERED.

4. Manila Bankers Life Insurance Corporation v. Aban

G.R. No. 175666               July 29, 2013

MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner.

vs.
CRESENCIA P. ABAN, Respondent.

DECISION

DEL CASTILLO, J.:

The ultimate aim of Section 48 of the Insurance Code is to compel insurers to solicit business from or provide insurance coverage only to
legitimate and bona fide clients, by requiring them to thoroughly investigate those they insure within two years from effectivity of the policy
and while the insured is still alive. If they do not, they will be obligated to honor claims on the policies they issue, regardless of fraud,
concealment or misrepresentation. The law assumes that they will do just that and not sit on their laurels, indiscriminately soliciting and
accepting insurance business from any Tom, Dick and Harry.

Assailed in this Petition for Review on Certiorari 1 are the September 28, 2005 Decision2 of the Court of Appeals' (CA) in CA-G.R. CV No. 62286
and its November 9, 2006 Resolution3 denying the petitioner’s Motion for Reconsideration. 4

Factual Antecedents

On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Manila Bankers Life Insurance Corporation (Bankers Life),
designating respondent Cresencia P. Aban (Aban), her niece,5 as her beneficiary.

Petitioner issued Insurance Policy No. 747411 (the policy), with a face value of ₱100,000.00, in Sotero’s favor on August 30, 1993, after the
requisite medical examination and payment of the insurance premium. 6

On April 10, 1996,7 when the insurance policy had been in force for more than two years and seven months, Sotero died. Respondent filed a
claim for the insurance proceeds on July 9, 1996. Petitioner conducted an investigation into the claim, 8 and came out with the following
findings:

1. Sotero did not personally apply for insurance coverage, as she was illiterate;
2. Sotero was sickly since 1990;
3. Sotero did not have the financial capability to pay the insurance premiums on Insurance Policy No. 747411;
4. Sotero did not sign the July 3, 1993 application for insurance; 9 and
5. Respondent was the one who filed the insurance application, and x x x designated herself as the beneficiary. 10

For the above reasons, petitioner denied respondent’s claim on April 16, 1997 and refunded the premiums paid on the policy. 11

On April 24, 1997, petitioner filed a civil case for rescission and/or annulment of the policy, which was docketed as Civil Case No. 97-867 and
assigned to Branch 134 of the Makati Regional Trial Court. The main thesis of the Complaint was that the policy was obtained by fraud,
concealment and/or misrepresentation under the Insurance Code, 12 which thus renders it voidable under Article 1390 13 of the Civil Code.

Respondent filed a Motion to Dismiss14 claiming that petitioner’s cause of action was barred by prescription pursuant to Section 48 of the
Insurance Code, which provides as follows:

Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised
previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period
of two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by
reason of the fraudulent concealment or misrepresentation of the insured or his agent.

During the proceedings on the Motion to Dismiss, petitioner’s investigator testified in court, stating among others that the insurance
underwriter who solicited the insurance is a cousin of respondent’s husband, Dindo Aban, 15 and that it was the respondent who paid the
annual premiums on the policy.16

Ruling of the Regional Trial Court

On December 9, 1997, the trial court issued an Order 17 granting respondent’s Motion to Dismiss, thus:

WHEREFORE, defendant CRESENCIA P. ABAN’s Motion to Dismiss is hereby granted. Civil Case No. 97-867 is hereby dismissed.

SO ORDERED.18

In dismissing the case, the trial court found that Sotero, and not respondent, was the one who procured the insurance; thus, Sotero could
legally take out insurance on her own life and validly designate – as she did – respondent as the beneficiary. It held further that under Section
48, petitioner had only two years from the effectivity of the policy to question the same; since the policy had been in force for more than two
years, petitioner is now barred from contesting the same or seeking a rescission or annulment thereof.

Petitioner moved for reconsideration, but in another Order 19 dated October 20, 1998, the trial court stood its ground.

Petitioner interposed an appeal with the CA, docketed as CA-G.R. CV No. 62286. Petitioner questioned the dismissal of Civil Case No. 97-867,
arguing that the trial court erred in applying Section 48 and declaring that prescription has set in. It contended that since it was respondent –
and not Sotero – who obtained the insurance, the policy issued was rendered void ab initio for want of insurable interest.

Ruling of the Court of Appeals

On September 28, 2005, the CA issued the assailed Decision, which contained the following decretal portion:

WHEREFORE, in the light of all the foregoing, the instant appeal is DISMISSED for lack of merit.

SO ORDERED.20

The CA thus sustained the trial court. Applying Section 48 to petitioner’s case, the CA held that petitioner may no longer prove that the subject
policy was void ab initio or rescindible by reason of fraudulent concealment or misrepresentation after the lapse of more than two years from
its issuance. It ratiocinated that petitioner was equipped with ample means to determine, within the first two years of the policy, whether
fraud, concealment or misrepresentation was present when the insurance coverage was obtained. If it failed to do so within the statutory two-
year period, then the insured must be protected and allowed to claim upon the policy.

Petitioner moved for reconsideration, 21 but the CA denied the same in its November 9, 2006 Resolution. 22 Hence, the present Petition.

Issues

Petitioner raises the following issues for resolution:

WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE ORDER OF THE TRIAL COURT DISMISSING THE COMPLAINT ON THE GROUND OF
PRESCRIPTION IN CONTRAVENTION (OF) PERTINENT LAWS AND APPLICABLE JURISPRUDENCE.

II

WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE APPLICATION OF THE INCONTESTABILITY PROVISION IN THE INSURANCE CODE
BY THE TRIAL COURT.

III

WHETHER THE COURT OF APPEALS ERRED IN DENYING PETITIONER’S MOTION FOR RECONSIDERATION. 23
 Petitioner’s Arguments

In praying that the CA Decision be reversed and that the case be remanded to the trial court for the conduct of further proceedings, petitioner
argues in its Petition and Reply24 that Section 48 cannot apply to a case where the beneficiary under the insurance contract posed as the
insured and obtained the policy under fraudulent circumstances. It adds that respondent, who was merely Sotero’s niece, had no insurable
interest in the life of her aunt.

Relying on the results of the investigation that it conducted after the claim for the insurance proceeds was filed, petitioner insists that
respondent’s claim was spurious, as it appeared that Sotero did not actually apply for insurance coverage, was unlettered, sickly, and had no
visible source of income to pay for the insurance premiums; and that respondent was an impostor, posing as Sotero and fraudulently obtaining
insurance in the latter’s name without her knowledge and consent.

Petitioner adds that Insurance Policy No. 747411 was void ab initio and could not have given rise to rights and obligations; as such, the action
for the declaration of its nullity or inexistence does not prescribe. 25

Respondent’s Arguments

Respondent, on the other hand, essentially argues in her Comment26 that the CA is correct in applying Section 48. She adds that petitioner’s
new allegation in its Petition that the policy is void ab initio merits no attention, having failed to raise the same below, as it had claimed
originally that the policy was merely voidable.

On the issue of insurable interest, respondent echoes the CA’s pronouncement that since it was Sotero who obtained the insurance, insurable
interest was present. Under Section 10 of the Insurance Code, Sotero had insurable interest in her own life, and could validly designate anyone
as her beneficiary. Respondent submits that the CA’s findings of fact leading to such conclusion should be respected.

Our Ruling

The Court denies the Petition.

The Court will not depart from the trial and appellate courts’ finding that it was Sotero who obtained the insurance for herself, designating
respondent as her beneficiary. Both courts are in accord in this respect, and the Court is loath to disturb this. While petitioner insists that its
independent investigation on the claim reveals that it was respondent, posing as Sotero, who obtained the insurance, this claim is no longer
feasible in the wake of the courts’ finding that it was Sotero who obtained the insurance for herself. This finding of fact binds the Court.

With the above crucial finding of fact – that it was Sotero who obtained the insurance for herself – petitioner’s case is severely weakened, if
not totally disproved. Allegations of fraud, which are predicated on respondent’s alleged posing as Sotero and forgery of her signature in the
insurance application, are at once belied by the trial and appellate courts’ finding that Sotero herself took out the insurance for herself.
"Fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract." 27 In the absence of proof of
such fraudulent intent, no right to rescind arises.

Moreover, the results and conclusions arrived at during the investigation conducted unilaterally by petitioner after the claim was filed may
simply be dismissed as self-serving and may not form the basis of a cause of action given the existence and application of Section 48, as will be
discussed at length below.

Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured. Under the provision, an insurer is given two
years – from the effectivity of a life insurance contract and while the insured is alive – to discover or prove that the policy is void ab initio or is
rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent. After the two-year period lapses, or
when the insured dies within the period, the insurer must make good on the policy, even though the policy was obtained by fraud,
concealment, or misrepresentation. This is not to say that insurance fraud must be rewarded, but that insurers who recklessly and
indiscriminately solicit and obtain business must be penalized, for such recklessness and lack of discrimination ultimately work to the
detriment of bona fide takers of insurance and the public in general.

Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives insurers enough time to inquire whether
the policy was obtained by fraud, concealment, or misrepresentation; on the other hand, it forewarns scheming individuals that their attempts
at insurance fraud would be timely uncovered – thus deterring them from venturing into such nefarious enterprise. At the same time,
legitimate policy holders are absolutely protected from unwarranted denial of their claims or delay in the collection of insurance proceeds
occasioned by allegations of fraud, concealment, or misrepresentation by insurers, claims which may no longer be set up after the two-year
period expires as ordained under the law.

Thus, the self-regulating feature of Section 48 lies in the fact that both the insurer and the insured are given the assurance that any dishonest
scheme to obtain life insurance would be exposed, and attempts at unduly denying a claim would be struck down. Life insurance policies that
pass the statutory two-year period are essentially treated as legitimate and beyond question, and the individuals who wield them are made
secure by the thought that they will be paid promptly upon claim. In this manner, Section 48 contributes to the stability of the insurance
industry.
Section 48 prevents a situation where the insurer knowingly continues to accept annual premium payments on life insurance, only to later on
deny a claim on the policy on specious claims of fraudulent concealment and misrepresentation, such as what obtains in the instant case. Thus,
instead of conducting at the first instance an investigation into the circumstances surrounding the issuance of Insurance Policy No. 747411
which would have timely exposed the supposed flaws and irregularities attending it as it now professes, petitioner appears to have turned a
blind eye and opted instead to continue collecting the premiums on the policy. For nearly three years, petitioner collected the premiums and
devoted the same to its own profit. It cannot now deny the claim when it is called to account. Section 48 must be applied to it with full force
and effect.

The Court therefore agrees fully with the appellate court’s pronouncement that –

the "incontestability clause" is a provision in law that after a policy of life insurance made payable on the death of the insured shall have been
in force during the lifetime of the insured for a period of two (2) years from the date of its issue or of its last reinstatement, the insurer cannot
prove that the policy is void ab initio or is rescindible by reason of fraudulent concealment or misrepresentation of the insured or his agent.

The purpose of the law is to give protection to the insured or his beneficiary by limiting the rescinding of the contract of insurance on the
ground of fraudulent concealment or misrepresentation to a period of only two (2) years from the issuance of the policy or its last
reinstatement.

The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or misrepresentation within a period of two (2)
years. It is not fair for the insurer to collect the premiums as long as the insured is still alive, only to raise the issue of fraudulent concealment
or misrepresentation when the insured dies in order to defeat the right of the beneficiary to recover under the policy.

At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given the stability to recover under the policy
when the insured dies. The provision also makes clear when the two-year period should commence in case the policy should lapse and is
reinstated, that is, from the date of the last reinstatement.

After two years, the defenses of concealment or misrepresentation, no matter how patent or well-founded, will no longer lie.

Congress felt this was a sufficient answer to the various tactics employed by insurance companies to avoid liability.

The so-called "incontestability clause" precludes the insurer from raising the defenses of false representations or concealment of material facts
insofar as health and previous diseases are concerned if the insurance has been in force for at least two years during the insured’s lifetime. The
phrase "during the lifetime" found in Section 48 simply means that the policy is no longer considered in force after the insured has died. The
key phrase in the second paragraph of Section 48 is "for a period of two years."

As borne by the records, the policy was issued on August 30, 1993, the insured died on April 10, 1996, and the claim was denied on April 16,
1997. The insurance policy was thus in force for a period of 3 years, 7 months, and 24 days. Considering that the insured died after the two-
year period, the plaintiff-appellant is, therefore, barred from proving that the policy is void ab initio by reason of the insured’s fraudulent
concealment or misrepresentation or want of insurable interest on the part of the beneficiary, herein defendant-appellee.

Well-settled is the rule that it is the plaintiff-appellant’s burden to show that the factual findings of the trial court are not based on substantial
evidence or that its conclusions are contrary to applicable law and jurisprudence. The plaintiff-appellant failed to discharge that burden. 28

Petitioner claims that its insurance agent, who solicited the Sotero account, happens to be the cousin of respondent’s husband, and thus
insinuates that both connived to commit insurance fraud. If this were truly the case, then petitioner would have discovered the scheme earlier
if it had in earnest conducted an investigation into the circumstances surrounding the Sotero policy. But because it did not and it investigated
the Sotero account only after a claim was filed thereon more than two years later, naturally it was unable to detect the scheme. For its
negligence and inaction, the Court cannot sympathize with its plight. Instead, its case precisely provides the strong argument for requiring
insurers to diligently conduct investigations on each policy they issue within the two-year period mandated under Section 48, and not after
claims for insurance proceeds are filed with them.

Besides, if insurers cannot vouch for the integrity and honesty of their insurance agents/salesmen and the insurance policies they issue, then
they should cease doing business. If they could not properly screen their agents or salesmen before taking them in to market their products, or
if they do not thoroughly investigate the insurance contracts they enter into with their clients, then they have only themselves to blame.
Otherwise said, insurers cannot be allowed to collect premiums on insurance policies, use these amounts collected and invest the same
through the years, generating profits and returns therefrom for their own benefit, and thereafter conveniently deny insurance claims by
questioning the authority or integrity of their own agents or the insurance policies they issued to their premium-paying clients. This is exactly
one of the schemes which Section 48 aims to prevent.

Insurers may not be allowed to delay the payment of claims by filing frivolous cases in court, hoping that the inevitable may be put off for
years – or even decades – by the pendency of these unnecessary court cases. In the meantime, they benefit from collecting the interest and/or
returns on both the premiums previously paid by the insured and the insurance proceeds which should otherwise go to their beneficiaries. The
business of insurance is a highly regulated commercial activity in the country, 29 and is imbued with public interest. 30 "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
former’s interest."31
WHEREFORE, the Petition is DENIED. The assailed September 28, 2005 Decision and the November 9, 2006 Resolution of the Court of Appeals
in CA-G.R. CV No. 62286 are AFFIRMED.

SO ORDERED.

5. Sun Life of Canada (Philippines), Inc. vs. Ma. Daisy S. Sibya, et al.

G.R. No. 211212, June 08, 2016

SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, v. MA. DAISY'S. SIBYA, JESUS MANUEL S. SIBYA III, JAIME LUIS S. SIBYA, AND
THE ESTATE OF THE DECEASED ATTY. JESUS SIBYA, JR., Respondents.

DECISION

REYES, J.:

Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court seeking to annul and set aside the
Decision2 dated November 18, 2013 and Resolution3 dated February 13, 2014 of the Court of Appeals (CA) in CA-G.R. CV. No. 93269. In
both instances, the CA affirmed the Decision4 dated March 16, 2009 of the Regional Trial Court (RTC) of Makati City, Branch 136, in Civil
Case No. 01-1506, ordering petitioner Sun Life of Canada (Philippines), Inc. (Sun Life) to pay Ma. Daisy S. Sibya (Ma. Daisy), Jesus Manuel
S. Sibya III, and Jaime Luis S. Sibya (respondents) the amounts of P1,000,000.00 as death benefits, P100,000.00 as moral damages,
P100,000.00 as exemplary damages, and P100,000.00 as attorney's fees and costs of suit. Insofar as the charges for violation of Sections
241 and 242 of Presidential Decree No. 612, or the Insurance Code of the Philippines, however, the CA modified the decision of the RTC
and absolved Sun Life therein.

Statement of Facts of the Case

On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun Life. In his Application for Insurance, he
indicated that he had sought advice for kidney problems.5 Atty. Jesus Jr. indicated the following in his application:
chanRoblesvirtualLawlibrary

"Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus Benjamin Mendoza at National Kidney Institute, discharged
after 3 days, no recurrence as claimed."6ChanRoblesVirtualawlibrary

On February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and issued Insurance Policy No. 031097335. The policy indicated the
respondents as beneficiaries and entitles them to a death benefit of P1,000,000.00 should Atty. Jesus Jr. dies on or before February 5,
2021, or a sum of money if Atty. Jesus Jr. is still living on the endowment date.7

On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San Joaquin, Iloilo. As such, Ma. Daisy filed a Claimant's Statement
with Sun Life to seek the death benefits indicated in his insurance policy.8

In a letter dated August 27, 2001, however, Sun Life denied the claim on the ground that the details on Atty. Jesus Jr.'s medical history
were not disclosed in his application. Simultaneously, Sun Life tendered a check representing the refund of the premiums paid by Atty.
Jesus Jr.9

The respondents reiterated their claim against Sun Life thru a letter dated September 17, 2001. Sun Life, however, refused to heed the
respondents' requests and instead filed a Complaint for Rescission before the RTC and prayed for judicial confirmation of Atty. Jesus Jr.'s
rescission of insurance policy.10

In its Complaint, Sun Life alleged that Atty. Jesus Jr. did not disclose in his insurance application his previous medical treatment at the
National Kidney Transplant Institute in May and August of 1994. According to Sun Life, the undisclosed fact suggested that the insured
was in "renal failure" and at a high risk medical condition. Consequently, had it known such fact, it would not have issued the insurance
policy in favor of Atty. Jesus Jr.11

For their defense, the respondents claimed that Atty. Jesus Jr. did not commit misrepresentation in his application for insurance. They
averred that Atty. Jesus Jr. was in good faith when he signed the insurance application and even authorized Sun Life to inquire further
into his medical history for verification purposes. According to them, the complaint is just a ploy to avoid the payment of insurance
claims.12

Ruling of the RTC

On March 16, 2009, the RTC issued its Decision13 dismissing the complaint for lack of merit. The RTC held that Sun Life violated Sections
241, paragraph 1(b), (d), and (e)14 and 24215 of the Insurance Code when it refused to pay the rightful claim of the respondents.
Moreover, the RTC ordered Sun Life to pay the amounts of P1,000,000.00 as death benefits, P100,000.00 as moral damages, P100,000.00
as exemplary damages, and P100,000.00 as attorney's fees and costs of suit.

The RTC held that Atty. Jesus Jr. did not commit material concealment and misrepresentation when he applied for life insurance with
Sun Life. It observed that given the disclosures and the waiver and authorization to investigate executed by Atty. Jesus Jr. to Sun Life, the
latter had all the means of ascertaining the facts allegedly concealed by the applicant.16

Aggrieved, Sun Life elevated the case to the CA.

Ruling of the CA

On appeal, the CA issued its Decision17 dated November 18, 2013 affirming the RTC decision in ordering Sun Life to pay death benefits
and damages in favor of the respondents. The CA, however, modified the RTC decision by absolving Sun Life from the charges of
violation of Sections 241 and 242 of the Insurance Code.18

The CA ruled that the evidence on records show that there was no fraudulent intent on the part of Atty. Jesus Jr. in submitting his
insurance application. Instead, it found that Atty. Jesus Jr. admitted in his application that he had sought medical treatment for kidney
ailment.19

Sun Life filed a Motion for Partial Reconsideration20 dated December 11, 2013 but the same was denied in a Resolution21 dated February
13, 2014.

Undaunted, Sun Life filed an appeal by way of petition for review on certiorari under Rule 45 of the Rules of Court before this Court.

The Issue

Essentially, the main issue of the instant case is whether or not the CA erred when it affirmed the RTC decision finding that there was no
concealment or misrepresentation when Atty. Jesus Jr. submitted his insurance application with Sun Life.

Ruling of the Court

The petition has no merit.

In Manila Bankers Life Insurance Corporation v. Aban,22 the Court held that if the insured dies within the two-year contestability period,
the insurer is bound to make good its obligation under the policy, regardless of the presence or lack of concealment or
misrepresentation. The Court held:
chanRoblesvirtualLawlibrary

Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured. Under the provision, an insurer is given
two years - from the effectivity of a life insurance contract and while the insured is alive - to discover or prove that the policy is void ab
initio or is rescindible by reason of the fraudulent concealment or misrepresentation of the insured or his agent. After the two-year
period lapses, or when the insured dies within the period, the insurer must make good on the policy, even though the policy
was obtained by fraud, concealment, or misrepresentation. This is not to say that insurance fraud must be rewarded, but that
insurers who recklessly and indiscriminately solicit and obtain business must be penalized, for such recklessness and lack of
discrimination ultimately work to the detriment of bona fide takers of insurance and the public in general.23 (Emphasis ours)

In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has two years from its issuance, to investigate
and verify whether the policy was obtained by fraud, concealment, or misrepresentation. Upon the death of Atty. Jesus Jr., however, on
May 11, 2001, or a mere three months from the issuance of the policy, Sun Life loses its right to rescind the policy. As discussed
in Manila Bankers, the death of the insured within the two-year period will render the right of the insurer to rescind the policy nugatory.
As such, the incontestability period will now set in.

Assuming, however, for the sake of argument, that the incontestability period has not yet set in, the Court agrees, nonetheless, with the
CA when it held that Sun Life failed to show that Atty. Jesus Jr. committed concealment and misrepresentation.

As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his medical treatment for kidney ailment. Moreover, he
executed an authorization in favor of Sun Life to conduct investigation in reference with his medical history. The decision in part states:
chanRoblesvirtualLawlibrary
Records show that in the Application for Insurance, [Atty. Jesus Jr.] admitted that he had sought medical treatment for kidney ailment.
When asked to provide details on the said medication, [Atty. Jesus Jr.] indicated the following information: year ("1987"), medical
procedure ("undergone lithotripsy due to kidney stone"), length of confinement ("3 days"), attending physician ("Dr. Jesus Benjamin
Mendoza") and the hospital ("National Kidney Institute").

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

xxxx

Given the express language of the Authorization, it cannot be said that [Atty. Jesus Jr.] concealed his medical history since [Sun Life] had
the means of ascertaining [Atty. Jesus Jr.'s] medical record.

With regard to allegations of misrepresentation, we note that [Atty. Jesus Jr.] was not a medical doctor, and his answer "no recurrence"
may be construed as an honest opinion. Where matters of opinion or judgment are called for, answers made in good faith and without
intent to deceive will not avoid a policy even though they are untrue.24 (Citations omitted and italics in the original)

Indeed, the intent to defraud on the part of the insured must be ascertained to merit rescission of the insurance contract. Concealment
as a defense for the insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and
convincing evidence rests upon the provider or insurer.25 In the present case, Sun Life failed to clearly and satisfactorily establish its
allegations, and is therefore liable to pay the proceeds of the insurance.

Moreover, well-settled is the rule that this Court is not a trier of facts. Factual findings of the lower courts are entitled to great weight
and respect on appeal, and in fact accorded finality when supported by substantial evidence on the record.26

WHEREFORE, the petition for review is DENIED. The Decision dated November 18, 2013 and Resolution dated February 13, 2014 of the
Court of Appeals in CA-G.R. CV. No. 93269 are hereby AFFIRMED.

SO ORDERED.cralawlawlibrary

6. Alpha Insurance And Surety CO. vs. Arsenia Sonia Castor

G.R. No. 198174               September 2, 2013

ALPHA INSURANCE AND SURETY CO., PETITIONER,

vs.
ARSENIA SONIA CASTOR, RESPONDENT.

DECISION

PERALTA, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision 1 dated May 31,
2011 and Resolution2 dated August 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93027.

The facts follow.

On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No. MAND/CV-00186, with
petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The contract of insurance obligates the petitioner to pay
the respondent the amount of Six Hundred Thirty Thousand Pesos (₱630,000.00) in case of loss or damage to said vehicle
during the period covered, which is from February 26, 2007 to February 26, 2008.

On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza (Lanuza), to bring the
above-described vehicle to a nearby auto-shop for a tune-up. However, Lanuza no longer returned the motor vehicle to
respondent and despite diligent efforts to locate the same, said efforts proved futile. Resultantly, respondent promptly
reported the incident to the police and concomitantly notified petitioner of the said loss and demanded payment of the
insurance proceeds in the total sum of ₱630,000.00.

In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating among others, thus:

Upon verification of the documents submitted, particularly the Police Report and your Affidavit, which states that the
culprit, who stole the Insure[d] unit, is employed with you. We would like to invite you on the provision of the Policy under
Exceptions to Section-III, which we quote:
1.) The Company shall not be liable for:

xxxx

(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON IN THE INSURED’S SERVICE."

In view [of] the foregoing, we regret that we cannot act favorably on your claim.

In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued that the exception refers to
damage of the motor vehicle and not to its loss. However, petitioner’s denial of respondent’s insured claim remains firm.

Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before the Regional Trial
Court (RTC) of Quezon City on September 10, 2007.

In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent in this wise:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant
ordering the latter as follows:

To pay plaintiff the amount of ₱466,000.00 plus legal interest of 6% per annum from the time of demand up to the time
the amount is fully settled;

To pay attorney’s fees in the sum of ₱65,000.00; and

To pay the costs of suit.

All other claims not granted are hereby denied for lack of legal and factual basis. 3

Aggrieved, petitioner filed an appeal with the CA.

On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon City’s decision. The fallo reads:

WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision, dated December 19, 2008, of
Branch 215 of the Regional Trial Court of Quezon City, in Civil Case No. Q-07-61099, is hereby AFFIRMED in toto.

SO ORDERED.4

Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in a Resolution dated August
10, 2011.

Hence, the present petition wherein petitioner raises the following grounds for the allowance of its petition:

WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND GROSSLY OR GRAVELY ABUSED ITS
DISCRETION WHEN IT ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT AND AGAINST THE PETITIONER AND RULED
THAT EXCEPTION DOES NOT COVER LOSS BUT ONLY DAMAGE BECAUSE THE TERMS OF THE INSURANCE POLICY ARE
[AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH THAT THE PARTIES THEMSELVES DISAGREE ABOUT THE MEANING OF
PARTICULAR PROVISIONS, THE POLICY WILL BE CONSTRUED BY THE COURTS LIBERALLY IN FAVOR OF THE ASSURED AND
STRICTLY AGAINST THE INSURER.

WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION
WHEN IT [AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT.5

Simply, the core issue boils down to whether or not the loss of respondent’s vehicle is excluded under the insurance
policy.

We rule in the negative.

Significant portions of Section III of the Insurance Policy states:

SECTION III – LOSS OR DAMAGE

The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the Schedule
Vehicle and its accessories and spare parts whilst thereon:

(a) by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or
consequent upon wear and tear;

(b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;

(c) by malicious act;

(d) whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail, inland
waterway, lift or elevator.

xxxx

EXCEPTIONS TO SECTION III

The Company shall not be liable to pay for:

Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of each and every loss
for each and every vehicle insured by this Policy, such amount being equal to one percent (1.00%) of the Insured’s
estimate of Fair Market Value as shown in the Policy Schedule with a minimum deductible amount of Php3,000.00;

Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or breakages;

Damage to tires, unless the Schedule Vehicle is damaged at the same time;

Any malicious damage caused by the Insured, any member of his family or by a person in the Insured’s service. 6

In denying respondent’s claim, petitioner takes exception by arguing that the word "damage," under paragraph 4 of
"Exceptions to Section III," means loss due to injury or harm to person, property or reputation, and should be construed to
cover malicious "loss" as in "theft." Thus, it asserts that the loss of respondent’s vehicle as a result of it being stolen by the
latter’s driver is excluded from the policy.

We do not agree.

Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft perpetrated by the driver of the
insured is not an exception to the coverage from the insurance policy, since Section III thereof did not qualify as to who
would commit the theft. Thus:

Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance policy subject of this
case. This is evident from the very provision of Section III – "Loss or Damage." The insurance company, subject to the limits
of liability, is obligated to indemnify the insured against theft. Said provision does not qualify as to who would commit the
theft. Thus, even if the same is committed by the driver of the insured, there being no categorical declaration of
exception, the same must be covered. As correctly pointed out by the plaintiff, "(A)n insurance contract should be
interpreted as to carry out the purpose for which the parties entered into the contract which is to insure against risks of
loss or damage to the goods. Such interpretation should result from the natural and reasonable meaning of language in
the policy. Where restrictive provisions are open to two interpretations, that which is most favorable to the insured is
adopted." The defendant would argue that if the person employed by the insured would commit the theft and the insurer
would be held liable, then this would result to an absurd situation where the insurer would also be held liable if the
insured would commit the theft. This argument is certainly flawed. Of course, if the theft would be committed by the
insured himself, the same would be an exception to the coverage since in that case there would be fraud on the part of
the insured or breach of material warranty under Section 69 of the Insurance Code. 7

Moreover, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the
terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary and popular sense.8 Accordingly, in interpreting the exclusions in an insurance contract,
the terms used specifying the excluded classes therein are to be given their meaning as understood in common speech. 9

Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in common ordinary usage. The word
"loss" refers to the act or fact of losing, or failure to keep possession, while the word "damage" means deterioration or
injury to property.1âwphi1

Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy under paragraph 4 of
"Exceptions to Section III," since the same refers only to "malicious damage," or more specifically, "injury" to the motor
vehicle caused by a person under the insured’s service. Paragraph 4 clearly does not contemplate "loss of property," as
what happened in the instant case.

Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one of the exceptions from
coverage, is the damage that is the direct result from the deliberate or willful act of the insured, members of his family,
and any person in the insured’s service, whose clear plan or purpose was to cause damage to the insured vehicle for
purposes of defrauding the insurer, viz.:

This interpretation by the Court is bolstered by the observation that the subject policy appears to clearly delineate
between the terms "loss" and "damage" by using both terms throughout the said policy. x x x

xxxx

If the intention of the defendant-appellant was to include the term "loss" within the term "damage" then logic dictates
that it should have used the term "damage" alone in the entire policy or otherwise included a clear definition of the said
term as part of the provisions of the said insurance contract. Which is why the Court finds it puzzling that in the said
policy’s provision detailing the exceptions to the policy’s coverage in Section III thereof, which is one of the crucial parts in
the insurance contract, the insurer, after liberally using the words "loss" and "damage" in the entire policy, suddenly went
specific by using the word "damage" only in the policy’s exception regarding "malicious damage." Now, the defendant-
appellant would like this Court to believe that it really intended the word "damage" in the term "malicious damage" to
include the theft of the insured vehicle.

The Court does not find the particular contention to be well taken.

True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to the
sense and meaning of the terms which the parties thereto have used. In the case of property insurance policies, the
evident intention of the contracting parties, i.e., the insurer and the assured, determine the import of the various terms
and provisions embodied in the policy. However, when the terms of the insurance policy are ambiguous, equivocal or
uncertain, such that the parties themselves disagree about the meaning of particular provisions, the policy will be
construed by the courts liberally in favor of the assured and strictly against the insurer.10

Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain limitations
on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation.
Thus, in Eternal Gardens Memorial Park Corporation v. Philippine American Life Insurance Company,11 this Court ruled –

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. Thus, in Malayan Insurance
Corporation v. Court of Appeals, this Court held that:

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity
therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a
contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it
should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be
regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from non-compliance
with its obligations.

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating
that:
When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance
contract are to be construed strictly against the party which prepared the contract, the insurer. By reason of the exclusive
control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly
interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.12

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. Accordingly, the Decision dated
May 31, 2011 and Resolution dated August 10, 2011 of the Court of Appeals are hereby AFFIRMED.

SO ORDERED.

7. TAURUS TAXI CO., INC. vs. THE CAPITAL INSURANCE & SURETY CO., INC

[G.R. No. L-23491. July 31, 1968.]

TAURUS TAXI CO., INC., FELICITAS V. MONJE, ET AL., Plaintiffs-Appellees, v. THE CAPITAL INSURANCE & SURETY CO.,
INC., Defendant-Appellant.

SYLLABUS
1. COMMERCIAL LAW; INSURANCE; VEHICLE COMPREHENSIVE POLICY; EXCLUSION OF INDEMNITY UNDER OTHER POLICIES;
WORKMAN’S COMPENSATION NOT INDEMNITY. — The obligation under a vehicle comprehensive policy which stipulates that "the
company will indemnify any authorized driver provided that he is not entitled to indemnity under any other policy," is not extinguished
by the previous payment to the heirs of the deceased driver under a policy issued by another insurance firm, where what was paid by
the latter was not indemnity but the deceased’s compensation under the Workmen’s Compensation Act.

2. ID.; ID.; ID.; LIMITATION ON SETTLEMENT OF CLAIM; JOINDER OF INSURED ON BEHALF OF REAL BENEFICIARIES. — The act of insured
taxi company in joining the real beneficiaries as party plaintiff, is not a breach of policy condition that "no admission, offer, promise or
payment shall be made by or on behalf of the insured without the written consent of the company" for it merely seeks to enforce, by
court action, its rights under the contract of insurance to which it is a party. To consider the commencement of an action by the
insured, alone or with others, as a breach of the policy, resulting in forfeiture of the benefits thereunder, is to place in the hands of the
insurer the power to nullify at will the whole contract of insurance by the simple expedient of refusing to make payment and
compelling the insured to bring a suit to enforce the policy.

3. ID.; ID.; INTERPRETATION OF POLICY; DOUBTS RESOLVED AGAINST THE INSURER. — Doubts concerning the liability of an insurance
firm should be resolved against its pretense and in favor of the insured. Courts are to regard "with extreme jealousy" limitations of
liability found in insurance policies and to construe them in such a way as to preclude the insurer from non-compliance with his
obligation.

DECISION

FERNANDO, J.:
The principal legal question in this appeal from a lower court decision, ordering defendant-appellant The Capital Insurance and Surety
Co., Inc. to pay the plaintiff-appellee Taurus Taxi Co., Inc. as well as plaintiffs-appellees, widow and children of the deceased Alfredo
Monje, who, in his lifetime, was employed as a taxi driver of such plaintiff-appellee, "the sum of P5,000.000 with interest thereon at
the legal rate from the filing of the complaint until fully paid," with P500.00 as attorney’s fees and the costs of the suit, is whether or
not a provision in the insurance contract that defendant-appellant will indemnify any authorized driver provided that [he] is not
entitled to any indemnity under any other policy, it being shown that the deceased was paid his workman’s compensation from
another insurance policy, should defeat such a right to recover under the insurance contract subject of this suit. The lower court
answered in the negative. Its holding cannot be successfully impugned.

The appealed decision stated at the outset that the motion for judgment on the pleadings filed by the plaintiffs was granted, the
defendant having no objection and the issue presented being capable of resolution without the need of presenting any evidence. Then
the decision continues: "Alfredo Monje, according to the complaint was employed as taxi driver by the plaintiff Taurus Taxi Co., Inc. On
December 6, 1962, the taxi he was driving collided with a Transport taxicab at the intersection of Old Sta. Mesa and V. Mapa streets,
Manila, resulting in his death. At the time of the accident, there was subsisting and in force Commercial Vehicle Comprehensive Policy
No. 101, 737 . . . issued by the defendant to the Taurus Taxi Co., Inc. The amount for which each passenger, including the driver, is
insured is P5,000.00. After the issuance of policy No. 101, 737, the defendant issued the Taurus Taxi Co., Inc. Indorsement No. 1 which
forms part of the policy . . ." 1 Reference was then made to plaintiff-appellee Felicitas Monje being the widow of the taxi driver, the
other plaintiffs-appellees with the exception of the Taurus Taxi Co., Inc., being the children of the couple. After which it was noted that
plaintiff Taurus Taxi Co., Inc. made representations "for the payment of the insurance of the insurance benefit corresponding to her
and her children since it was issued in its name, benefit corresponding to her and her children, . . . but despite demands . . . the
defendant refused and still refuses to pay them." 2

On the above facts, the liability apparently clear, the defenses interposed by defendant insurance company being in the opinion of the
lower court without merit, the aforesaid judgment was rendered. This being a direct appeal to us on questions of law, the facts as
found by the lower court cannot be controverted.

Defendant-appellant Capital Insurance & Surety Co., Inc. alleged as the first error of the lower court its failure to hold "that in view of
the fact that the deceased Alfredo Monje was entitled to indemnity under another insurance policy issued by Ed. A. Keller Co., Ltd., the
heirs of the said deceased are not entitled to indemnity under the insurance policy issued by appellant for the reason that the latter
policy contains a stipulation that ‘the company will indemnify any authorized driver provided that such authorized driver is not entitled
to indemnity under any other policy.’" 3 In the discussion of the above error, Defendant-Appellant stated the following: "The facts
show that at the time of his death, the deceased Alfredo Monje, as authorized driver and employee of plaintiff Taurus Taxi Co., Inc.,
was entitled to indemnity under another insurance policy, then subsisting, which was Policy No. 50PH-1605 issued by Ed. A. Keller Co.,
Ltd. to plaintiff Taurus Taxi Co., Inc. As a matter of fact, the indemnity to which the deceased Alfredo Monje was entitled under the said
Policy No. 50PH-1605 was paid by Ed. A. Keller Co., Ltd. to the heirs of Alfredo Monje on December 28, 1962, as evidenced by the
records of W.C.C. Case No. A-88637 entitled ‘Felicitas V. Monje, Et. Al. v. Taurus Taxi Co., Inc.’, Regional Office No. 4, Department of
Labor, Manila . . ." 4

The above defense, based on a fact which was not disputed, was raised and rightfully rejected by the lower court. From its own
version, Defendant-Appellant would seek to escape liability on the plea that the workman’s compensation to which the deceased driver
was rightfully entitled was settled by the employer through a policy issued by another insurance firm. What was paid therefore was not
indemnity but compensation.

Since what is prohibited by the insurance policy in question is that any "authorized driver of plaintiff Taurus Taxi Co., Inc." should not
be "entitled to any indemnity under any policy", it would appear indisputable that the obligation of defendant-appellant under the
policy had not in any wise been extinguished. It is too well-settled to need the citation of authorities that what the law requires enters
into and forms part of every contract. The Workmen’s Compensation Act explicitly requires that an employee suffering any injury or
death arising out of or in the course of employment be compensated. The fulfillment of such statutory obligation cannot be the basis
for evading the clear, explicit and mandatory terms of a policy.

In the same way as was held in Benguet Consolidated, Inc. v. Social Security System, 5 that sickness benefits under the Social Security
Act may be recovered simultaneously with disability benefits under the Workmen’s Compensation Act, the previous payment made of
the compensation under such legislation is no obstacle by virtue of a clause like that invoked by defendant-appellant to the payment of
indemnity under the insurance policy.

Assuming however that there is a doubt concerning the liability of defendant-appellant insurance firm, nonetheless, it should be
resolved against its pretense and in favor of the insured. It was the holding in Eagle Star Insurance, Ltd. v. Chia Yu 6 that courts are to
regard "with extreme jealousy" limitations of liability found in insurance policies and to construe them in such a way as to preclude the
insurer from non-compliance with his obligation. In other words, to quote a noted authority on the subject, "a contract of insurance
couched in language chosen by the insurer is, if open to the construction contended for by the insured, to be construed most strongly,
or strictly, against the insurer and liberally in favor of the contention of the insured, which means in accordance with the rule contra
proferentem." 7 Enough has been said therefore to dispose of the first assigned error.
The point is made in the second alleged error that the lower court ought to have held "that by joining the heirs of Alfredo Monje as a
party plaintiff, plaintiff Taurus Taxi Co., Inc. committed a breach of policy condition and thus forfeited what ever benefits, if any, to
which it might be entitled under appellant’s policy." 8 The basis for such an allegation is one of the conditions set forth in the policy.
Thus:" ‘5. No admission, offer, promise or payment shall be made by or on behalf of the insured without the written consent of the
Company which shall be entitled if it so desires to take over and conduct in his name the defense or settlement of any claim or to
prosecute in his name for its own benefit any claim for indemnity or damages or otherwise and shall have full discretion in the conduct
of any proceedings and in the settlement of any claim and the Insured shall give all such information and assistance as the Company
may require . . ." 9

Such a plea is even less persuasive. It is understandable then why the lower court refused to be swayed by it. The plaintiff Taurus Taxi
Co., Inc. had to join the suit on behalf of the real beneficiaries, the heirs of the deceased driver, who are the other plaintiffs as it was a
party to the policy.

Moreover, as noted in the decision appealed from: "The institution of the action cannot possibly be construed as an admission, offer,
promise, or payment by the company, for it merely seeks to enforce, by court action, the only legal remedy available to it, its rights
under the contract of insurance to which it is a party. To consider, furthermore, the commencement of an action by the insured, alone
or with others, as a breach of the policy, resulting in forfeiture of the benefits thereunder, to place in the hands of the insurer the
power to nullify at will the whole contract of insurance by the simple expedient of refusing to make payment and compelling the
insured to bring a suit to enforce the policy." 10

To so construe the policy to yield a contrary result is to put a premium on technicality. If such a defense is not frowned upon and
rejected, the time will come when the confidence on the part of the public in the good faith of insurance firms would be minimized, if
not altogether lost. Such a deplorable consequence ought to be avoided and a construction of any stipulation that would be fraught
with such a risk repudiated. What the lower court did then cannot be characterized as error.

The third error assigned, namely, that the lower court should have considered the filing of the complaint against defendant-appellant
as unjust and unwarranted, is, in the light of the above, clearly without merit.

WHEREFORE, the appealed decision of the lower court ordering defendant-appellant "to pay the plaintiffs the sum of P5,000.00 with
interest thereon at the legal rate from the filing of the complaint until fully paid, P500.00 as attorney’s fees," 11 with costs is affirmed.
Costs against defendant-appellant.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Angeles and Fernando, JJ., concur. Castro, J., did not take part.

8. Gulf Resorts, Inc. v. Philippine Charter Insurance Corp

G.R. No. 156167             May 16, 2005

GULF RESORTS, INC., petitioner,

vs.
PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.

DECISION

PUNO, J.:

Before the Court is the petition for certiorari  under Rule 45 of the Revised Rules of Court by petitioner GULF RESORTS, INC.,
against respondent PHILIPPINE CHARTER INSURANCE CORPORATION. Petitioner assails the appellate court decision 1 which
dismissed its two appeals and affirmed the judgment of the trial court.

For review are the warring interpretations of petitioner and respondent on the scope of the insurance company’s liability for
earthquake damage to petitioner’s properties. Petitioner avers that, pursuant to its earthquake shock endorsement rider,
Insurance Policy No. 31944 covers all damages to the properties within its resort caused by earthquake. Respondent contends
that the rider limits its liability for loss to the two swimming pools of petitioner.

The facts as established by the court a quo, and affirmed by the appellate court are as follows:

[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said resort insured
originally with the American Home Assurance Company (AHAC-AIU). In the first four insurance policies issued by AHAC-
AIU from 1984-85; 1985-86; 1986-1987; and 1987-88 (Exhs. "C", "D", "E" and "F"; also Exhs. "1", "2", "3" and "4"
respectively), the risk of loss from earthquake shock was extended only to plaintiff’s two swimming pools, thus,
"earthquake shock endt." (Item 5 only) (Exhs. "C-1"; "D-1," and "E" and two (2) swimming pools only (Exhs. "C-1"; ‘D-1",
"E" and "F-1"). "Item 5" in those policies referred to the two (2) swimming pools only (Exhs. "1-B", "2-B", "3-B" and "F-
2"); that subsequently AHAC(AIU) issued in plaintiff’s favor Policy No. 206-4182383-0 covering the period March 14,
1988 to March 14, 1989 (Exhs. "G" also "G-1") and in said policy the earthquake endorsement clause as indicated in
Exhibits "C-1", "D-1", Exhibits "E" and "F-1" was deleted and the entry under Endorsements/Warranties at the time of
issue read that plaintiff renewed its policy with AHAC (AIU) for the period of March 14, 1989 to March 14, 1990 under
Policy No. 206-4568061-9 (Exh. "H") which carried the entry under "Endorsement/Warranties at Time of Issue", which
read "Endorsement to Include Earthquake Shock (Exh. "6-B-1") in the amount of P10,700.00 and paid P42,658.14 (Exhs.
"6-A" and "6-B") as premium thereof, computed as follows:

Item - P7,691,000.00 - on the Clubhouse only

- 1,500,000.00 -
- 393,000.00 -
- 116,600.00
@ .392%;
on the furniture, etc. contained in the building above-
mentioned@ .490%;
on the two swimming pools, only (against the peril of
earthquake shock only) @ 0.100%
other buildings include as follows:

a) Tilter House - P19,800.00 - 0.551%

b) Power House - P41,000.00 - 0.551%

c) House Shed - P55,000.00 - 0.540%

P100,000.00 - for furniture, fixtures, lines air-con and operating

equipment

that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU) Policy No. 206-4568061-9 (Exh.
"H") provided that the policy wording and rates in said policy be copied in the policy to be issued by defendant; that
defendant issued Policy No. 31944 to plaintiff covering the period of March 14, 1990 to March 14, 1991
for P10,700,600.00 for a total premium of P45,159.92 (Exh. "I"); that in the computation of the premium, defendant’s
Policy No. 31944 (Exh. "I"), which is the policy in question, contained on the right-hand upper portion of page 7 thereof,
the following:

Rate-Various

Premium – P37,420.60 F/L

– 2,061.52 – Typhoon

– 1,030.76 – EC

– 393.00 – ES

Doc. Stamps 3,068.10

F.S.T. 776.89

Prem. Tax 409.05

TOTAL 45,159.92;

that the above break-down of premiums shows that plaintiff paid only P393.00 as premium against earthquake shock
(ES); that in all the six insurance policies (Exhs. "C", "D", "E", "F", "G" and "H"), the premium against the peril of
earthquake shock is the same, that is P393.00 (Exhs. "C" and "1-B"; "2-B" and "3-B-1" and "3-B-2"; "F-02" and "4-A-1";
"G-2" and "5-C-1"; "6-C-1"; issued by AHAC (Exhs. "C", "D", "E", "F", "G" and "H") and in Policy No. 31944 issued by
defendant, the shock endorsement provide(sic):

In consideration of the payment by the insured to the company of the sum included additional premium the
Company agrees, notwithstanding what is stated in the printed conditions of this policy due to the contrary,
 that this insurance covers loss or damage to shock to any of the property insured by this Policy occasioned by
or through or in consequence of earthquake (Exhs. "1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C");

that in Exhibit "7-C" the word "included" above the underlined portion was deleted; that on July 16, 1990 an
earthquake struck Central Luzon and Northern Luzon and plaintiff’s properties covered by Policy No. 31944 issued by
defendant, including the two swimming pools in its Agoo Playa Resort were damaged. 2

After the earthquake, petitioner advised respondent that it would be making a claim under its Insurance Policy No. 31944 for
damages on its properties. Respondent instructed petitioner to file a formal claim, then assigned the investigation of the claim
to an independent claims adjuster, Bayne Adjusters and Surveyors, Inc. 3 On July 30, 1990, respondent, through its adjuster,
requested petitioner to submit various documents in support of its claim. On August 7, 1990, Bayne Adjusters and Surveyors,
Inc., through its Vice-President A.R. de Leon,4 rendered a preliminary report5 finding extensive damage caused by the
earthquake to the clubhouse and to the two swimming pools. Mr. de Leon stated that "except for the swimming pools, all
affected items have no coverage for earthquake shocks." 6 On August 11, 1990, petitioner filed its formal demand 7 for settlement
of the damage to all its properties in the Agoo Playa Resort. On August 23, 1990, respondent denied petitioner’s claim on the
ground that its insurance policy only afforded earthquake shock coverage to the two swimming pools of the resort. 8 Petitioner
and respondent failed to arrive at a settlement.9 Thus, on January 24, 1991, petitioner filed a complaint 10 with the regional trial
court of Pasig praying for the payment of the following:

1.) The sum of P5,427,779.00, representing losses sustained by the insured properties, with interest thereon, as
computed under par. 29 of the policy (Annex "B") until fully paid;

2.) The sum of P428,842.00 per month, representing continuing losses sustained by plaintiff on account of defendant’s
refusal to pay the claims;

3.) The sum of P500,000.00, by way of exemplary damages;

4.) The sum of P500,000.00 by way of attorney’s fees and expenses of litigation;

5.) Costs.11

Respondent filed its Answer with Special and Affirmative Defenses with Compulsory Counterclaims. 12

On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:

The above schedule clearly shows that plaintiff paid only a premium of P393.00 against the peril of earthquake shock,
the same premium it paid against earthquake shock only on the two swimming pools in all the policies issued by
AHAC(AIU) (Exhibits "C", "D", "E", "F" and "G"). From this fact the Court must consequently agree with the position of
defendant that the endorsement rider (Exhibit "7-C") means that only the two swimming pools were insured against
earthquake shock.

Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence, where the language used in an
insurance contract or application is such as to create ambiguity the same should be resolved against the party
responsible therefor, i.e., the insurance company which prepared the contract. To the mind of [the] Court, the language
used in the policy in litigation is clear and unambiguous hence there is no need for interpretation or construction but
only application of the provisions therein.

From the above observations the Court finds that only the two (2) swimming pools had earthquake shock coverage and
were heavily damaged by the earthquake which struck on July 16, 1990. Defendant having admitted that the damage to
the swimming pools was appraised by defendant’s adjuster at P386,000.00, defendant must, by virtue of the contract
of insurance, pay plaintiff said amount.

Because it is the finding of the Court as stated in the immediately preceding paragraph that defendant is liable only for
the damage caused to the two (2) swimming pools and that defendant has made known to plaintiff its willingness and
readiness to settle said liability, there is no basis for the grant of the other damages prayed for by plaintiff. As to the
counterclaims of defendant, the Court does not agree that the action filed by plaintiff is baseless and highly speculative
since such action is a lawful exercise of the plaintiff’s right to come to Court in the honest belief that their Complaint is
meritorious. The prayer, therefore, of defendant for damages is likewise denied.
 WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum of THREE HUNDRED EIGHTY SIX
THOUSAND PESOS (P386,000.00) representing damage to the two (2) swimming pools, with interest at 6% per annum
from the date of the filing of the Complaint until defendant’s obligation to plaintiff is fully paid.

No pronouncement as to costs.13

Petitioner’s Motion for Reconsideration was denied. Thus, petitioner filed an appeal with the Court of Appeals based on the
following assigned errors:14

A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY RECOVER FOR THE DAMAGE TO ITS
TWO SWIMMING POOLS UNDER ITS FIRE POLICY NO. 31944, CONSIDERING ITS PROVISIONS, THE CIRCUMSTANCES
SURROUNDING THE ISSUANCE OF SAID POLICY AND THE ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE
EARTHQUAKE OF JULY 16, 1990.

B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANT’S RIGHT TO RECOVER UNDER DEFENDANT-
APPELLEE’S POLICY (NO. 31944; EXH "I") BY LIMITING ITSELF TO A CONSIDERATION OF THE SAID
POLICY ISOLATED FROM THE CIRCUMSTANCES SURROUNDING ITS ISSUANCE AND THE ACTUATIONS OF THE PARTIES
AFTER THE EARTHQUAKE OF JULY 16, 1990.

C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS ENTITLED TO THE DAMAGES CLAIMED,
WITH INTEREST COMPUTED AT 24% PER ANNUM ON CLAIMS ON PROCEEDS OF POLICY.

On the other hand, respondent filed a partial appeal, assailing the lower court’s failure to award it attorney’s fees and damages
on its compulsory counterclaim.

After review, the appellate court affirmed the decision of the trial court and ruled, thus:

However, after carefully perusing the documentary evidence of both parties, We are not convinced that the last two (2)
insurance contracts (Exhs. "G" and "H"), which the plaintiff-appellant had with AHAC (AIU) and upon which the subject
insurance contract with Philippine Charter Insurance Corporation is said to have been based and copied (Exh. "I"),
covered an extended earthquake shock insurance on all the insured properties.

xxx

We also find that the Court a quo was correct in not granting the plaintiff-appellant’s prayer for the imposition of
interest – 24% on the insurance claim and 6% on loss of income allegedly amounting to P4,280,000.00. Since the
defendant-appellant has expressed its willingness to pay the damage caused on the two (2) swimming pools, as the
Court a quo and this Court correctly found it to be liable only, it then cannot be said that it was in default and therefore
liable for interest.

Coming to the defendant-appellant’s prayer for an attorney’s fees, long-standing is the rule that the award thereof is
subject to the sound discretion of the court. Thus, if such discretion is well-exercised, it will not be disturbed on appeal
(Castro et al. v. CA, et al., G.R. No. 115838, July 18, 2002). Moreover, being the award thereof an exception rather than
a rule, it is necessary for the court to make findings of facts and law that would bring the case within the exception and
justify the grant of such award (Country Bankers Insurance Corp. v. Lianga Bay and Community Multi-Purpose Coop.,
Inc., G.R. No. 136914, January 25, 2002). Therefore, holding that the plaintiff-appellant’s action is not baseless and
highly speculative, We find that the Court a quo did not err in granting the same.

WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and judgment of the Trial Court hereby
AFFIRMED in toto. No costs.15

Petitioner filed the present petition raising the following issues: 16

A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER RESPONDENT’S INSURANCE POLICY NO. 31944,
ONLY THE TWO (2) SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES COVERED THEREUNDER, ARE INSURED
AGAINST THE RISK OF EARTHQUAKE SHOCK.

B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONER’S PRAYER FOR DAMAGES WITH INTEREST
THEREON AT THE RATE CLAIMED, ATTORNEY’S FEES AND EXPENSES OF LITIGATION.
Petitioner contends:

First, that the policy’s earthquake shock endorsement clearly covers all of the properties insured and not only the swimming
pools. It used the words "any property insured by this policy," and it should be interpreted as all inclusive.

Second, the unqualified and unrestricted nature of the earthquake shock endorsement is confirmed in the body of the insurance
policy itself, which states that it is "[s]ubject to: Other Insurance Clause, Typhoon Endorsement, Earthquake Shock Endt.,
Extended Coverage Endt., FEA Warranty & Annual Payment Agreement On Long Term Policies." 17

Third, that the qualification referring to the two swimming pools had already been deleted in the earthquake shock
endorsement.

Fourth, it is unbelievable for respondent to claim that it only made an inadvertent omission when it deleted the said
qualification.

Fifth, that the earthquake shock endorsement rider should be given precedence over the wording of the insurance policy,
because the rider is the more deliberate expression of the agreement of the contracting parties.

Sixth, that in their previous insurance policies, limits were placed on the endorsements/warranties enumerated at the time of
issue.

Seventh, any ambiguity in the earthquake shock endorsement should be resolved in favor of petitioner and against respondent.
It was respondent which caused the ambiguity when it made the policy in issue.

Eighth, the qualification of the endorsement limiting the earthquake shock endorsement should be interpreted as a caveat on
the standard fire insurance policy, such as to remove the two swimming pools from the coverage for the risk of fire. It should not
be used to limit the respondent’s liability for earthquake shock to the two swimming pools only.

Ninth, there is no basis for the appellate court to hold that the additional premium was not paid under the extended coverage.
The premium for the earthquake shock coverage was already included in the premium paid for the policy.

Tenth, the parties’ contemporaneous and subsequent acts show that they intended to extend earthquake shock coverage to all
insured properties. When it secured an insurance policy from respondent, petitioner told respondent that it wanted an exact
replica of its latest insurance policy from American Home Assurance Company (AHAC-AIU), which covered all the resort’s
properties for earthquake shock damage and respondent agreed. After the July 16, 1990 earthquake, respondent assured
petitioner that it was covered for earthquake shock. Respondent’s insurance adjuster, Bayne Adjusters and Surveyors, Inc.,
likewise requested petitioner to submit the necessary documents for its building claims and other repair costs. Thus, under the
doctrine of equitable estoppel, it cannot deny that the insurance policy it issued to petitioner covered all of the properties within
the resort.

Eleventh, that it is proper for it to avail of a petition for review by certiorari  under Rule 45 of the Revised Rules of Court as its
remedy, and there is no need for calibration of the evidence in order to establish the facts upon which this petition is based.

On the other hand, respondent made the following counter arguments: 18

First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended coverage against earthquake
shock to petitioner’s insured properties other than on the two swimming pools. Petitioner admitted that from 1984 to 1988,
only the two swimming pools were insured against earthquake shock. From 1988 until 1990, the provisions in its policy were
practically identical to its earlier policies, and there was no increase in the premium paid. AHAC-AIU, in a letter 19 by its
representative Manuel C. Quijano, categorically stated that its previous policy, from which respondent’s policy was copied,
covered only earthquake shock for the two swimming pools.

Second, petitioner’s payment of additional premium in the amount of P393.00 shows that the policy only covered earthquake
shock damage on the two swimming pools. The amount was the same amount paid by petitioner for earthquake shock coverage
on the two swimming pools from 1990-1991. No additional premium was paid to warrant coverage of the other properties in the
resort.

Third, the deletion of the phrase pertaining to the limitation of the earthquake shock endorsement to the two swimming pools
in the policy schedule did not expand the earthquake shock coverage to all of petitioner’s properties. As per its agreement with
petitioner, respondent copied its policy from the AHAC-AIU policy provided by petitioner. Although the first five policies
contained the said qualification in their rider’s title, in the last two policies, this qualification in the title was deleted. AHAC-AIU,
through Mr. J. Baranda III, stated that such deletion was a mere inadvertence. This inadvertence did not make the policy
incomplete, nor did it broaden the scope of the endorsement whose descriptive title was merely enumerated. Any ambiguity in
the policy can be easily resolved by looking at the other provisions, specially the enumeration of the items insured, where only
the two swimming pools were noted as covered for earthquake shock damage.

Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988, the phrase "Item 5 – P393,000.00 – on
the two swimming pools only (against the peril of earthquake shock only)" meant that only the swimming pools were insured for
earthquake damage. The same phrase is used in toto in the policies from 1989 to 1990, the only difference being the designation
of the two swimming pools as "Item 3."

Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paid for all the properties covered. In
all of its seven insurance policies, petitioner only paid P393.00 as premium for coverage of the swimming pools against
earthquake shock. No other premium was paid for earthquake shock coverage on the other properties. In addition, the use of
the qualifier "ANY" instead of "ALL" to describe the property covered was done deliberately to enable the parties to specify the
properties included for earthquake coverage.

Sixth, petitioner did not inform respondent of its requirement that all of its properties must be included in the earthquake shock
coverage. Petitioner’s own evidence shows that it only required respondent to follow the exact provisions of its previous policy
from AHAC-AIU. Respondent complied with this requirement. Respondent’s only deviation from the agreement was when it
modified the provisions regarding the replacement cost endorsement. With regard to the issue under litigation, the riders of the
old policy and the policy in issue are identical.

Seventh, respondent did not do any act or give any assurance to petitioner as would estop it from maintaining that only the two
swimming pools were covered for earthquake shock. The adjuster’s letter notifying petitioner to present certain documents for
its building claims and repair costs was given to petitioner before the adjuster knew the full coverage of its policy.

Petitioner anchors its claims on AHAC-AIU’s inadvertent deletion of the phrase "Item 5 Only" after the descriptive name or title
of the Earthquake Shock Endorsement. However, the words of the policy reflect the parties’ clear intention to limit earthquake
shock coverage to the two swimming pools.

Before petitioner accepted the policy, it had the opportunity to read its conditions. It did not object to any deficiency nor did it
institute any action to reform the policy. The policy binds the petitioner.

Eighth, there is no basis for petitioner to claim damages, attorney’s fees and litigation expenses. Since respondent was willing
and able to pay for the damage caused on the two swimming pools, it cannot be considered to be in default, and therefore, it is
not liable for interest.

We hold that the petition is devoid of merit.

In Insurance Policy No. 31944, four key items are important in the resolution of the case at bar.

First, in the designation of location of risk, only the two swimming pools were specified as included, viz:

ITEM 3 – 393,000.00 – On the two (2) swimming pools only (against the peril of earthquake shock only) 20

Second, under the breakdown for premium payments, 21 it was stated that:

PREMIUM RECAPITULATION
ITEM NOS. AMOUNT RATES PREMIUM
xxx

3 393,000.00 0.100%-E/S 393.0022]

Third, Policy Condition No. 6 stated:

6. This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly
of any of the following occurrences, namely:--
 (a) Earthquake, volcanic eruption or other convulsion of nature. 23

Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement (To Include the Perils of Explosion, Aircraft,
Vehicle and Smoke)," stated, viz:

ANNUAL PAYMENT AGREEMENT ON

LONG TERM POLICIES

THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS INSURED IN EXCESS OF FIVE MILLION
PESOS, IN CONSIDERATION OF A DISCOUNT OF 5% OR 7 ½ % OF THE NET PREMIUM x x x POLICY HEREBY UNDERTAKES
TO CONTINUE THE INSURANCE UNDER THE ABOVE NAMED x x x AND TO PAY THE PREMIUM.

Earthquake Endorsement

In consideration of the payment by the Insured to the Company of the sum of P. . . . . . . . . . . . . . . . . additional premium
the Company agrees, notwithstanding what is stated in the printed conditions of this Policy to the contrary, that this
insurance covers loss or damage (including loss or damage by fire) to any of the property insured by this Policy
occasioned by or through or in consequence of Earthquake.

Provided always that all the conditions of this Policy shall apply (except in so far as they may be hereby expressly
varied) and that any reference therein to loss or damage by fire should be deemed to apply also to loss or damage
occasioned by or through or in consequence of Earthquake. 24

Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the earthquake shock coverage.
Thus, the policy extended earthquake shock coverage to all of the insured properties.

It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance with each other. 25 All
its parts are reflective of the true intent of the parties. The policy cannot be construed piecemeal. Certain stipulations cannot be
segregated and then made to control; neither do particular words or phrases necessarily determine its character. Petitioner
cannot focus on the earthquake shock endorsement to the exclusion of the other provisions. All the provisions and riders, taken
and interpreted together, indubitably show the intention of the parties to extend earthquake shock coverage to the two
swimming pools only.

A careful examination of the premium recapitulation will show that it is the clear intent of the parties to extend earthquake
shock coverage only to the two swimming pools. Section 2(1) of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. Thus, an insurance contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing
a similar risk; and

5. In consideration of the insurer's promise, the insured pays a premium.26 (Emphasis ours)

An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril. 27 In
fire, casualty, and marine insurance, the premium payable becomes a debt as soon as the risk attaches. 28 In the subject policy,
no premium payments were made with regard to earthquake shock coverage, except on the two swimming pools. There is no
mention of any premium payable for the other resort properties with regard to earthquake shock. This is consistent with the
history of petitioner’s previous insurance policies from AHAC-AIU. As borne out by petitioner’s witnesses:

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 12-13

Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance policy during the period from March
4, 1984 to March 4, 1985 the coverage on earthquake shock was limited to the two swimming pools only?
A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty, there is a provision here that it
was only for item 5.

Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two swimming pools only?

A. Yes, sir.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 23-26

Q. For the period from March 14, 1988 up to March 14, 1989, did you personally arrange for the procurement of this
policy?

A. Yes, sir.

Q. Did you also do this through your insurance agency?

A. If you are referring to Forte Insurance Agency, yes.

Q. Is Forte Insurance Agency a department or division of your company?

A. No, sir. They are our insurance agency.

Q. And they are independent of your company insofar as operations are concerned?

A. Yes, sir, they are separate entity.

Q. But insofar as the procurement of the insurance policy is concerned they are of course subject to your instruction, is
that not correct?

A. Yes, sir. The final action is still with us although they can recommend what insurance to take.

Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14, 1989, did you give written
instruction to Forte Insurance Agency advising it that the earthquake shock coverage must extend to all properties of
Agoo Playa Resort in La Union?

A. No, sir. We did not make any written instruction, although we made an oral instruction to that effect of extending
the coverage on (sic) the other properties of the company.

Q. And that instruction, according to you, was very important because in April 1987 there was an earthquake tremor in
La Union?

A. Yes, sir.

Q. And you wanted to protect all your properties against similar tremors in the [future], is that correct?

A. Yes, sir.

Q. Now, after this policy was delivered to you did you bother to check the provisions with respect to your instructions
that all properties must be covered again by earthquake shock endorsement?

A. Are you referring to the insurance policy issued by American Home Assurance Company marked Exhibit "G"?

Atty. Mejia: Yes.

Witness:
 A. I examined the policy and seeing that the warranty on the earthquake shock endorsement has no more limitation
referring to the two swimming pools only, I was contented already that the previous limitation pertaining to the two
swimming pools was already removed.

Petitioner also cited and relies on the attachment of the phrase "Subject to: Other Insurance Clause, Typhoon Endorsement,
Earthquake Shock Endorsement, Extended Coverage Endorsement, FEA Warranty & Annual Payment Agreement on Long
Term Policies"29 to the insurance policy as proof of the intent of the parties to extend the coverage for earthquake shock.
However, this phrase is merely an enumeration of the descriptive titles of the riders, clauses, warranties or endorsements to
which the policy is subject, as required under Section 50, paragraph 2 of the Insurance Code.

We also hold that no significance can be placed on the deletion of the qualification limiting the coverage to the two swimming
pools. The earthquake shock endorsement cannot stand alone. As explained by the testimony of Juan Baranda III, underwriter
for AHAC-AIU:

DIRECT EXAMINATION OF JUAN BARANDA III30

TSN, August 11, 1992
pp. 9-12

Atty. Mejia:

We respectfully manifest that the same exhibits C to H inclusive have been previously marked by counsel for
defendant as Exhibit[s] 1-6 inclusive. Did you have occasion to review of (sic) these six (6) policies issued by
your company [in favor] of Agoo Playa Resort?

WITNESS:

Yes[,] I remember having gone over these policies at one point of time, sir.

Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H respectively carries an earthquake
shock endorsement[?] My question to you is, on the basis on (sic) the wordings indicated in Exhibits C to H respectively
what was the extent of the coverage [against] the peril of earthquake shock as provided for in each of the six (6)
policies?

xxx

WITNESS:

The extent of the coverage is only up to the two (2) swimming pools, sir.

Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?

A. Yes, sir.

ATTY. MEJIA:

What is your basis for stating that the coverage against earthquake shock as provided for in each of the six (6)
policies extend to the two (2) swimming pools only?

WITNESS:

Because it says here in the policies, in the enumeration "Earthquake Shock Endorsement, in the Clauses and
Warranties: Item 5 only (Earthquake Shock Endorsement)," sir.

ATTY. MEJIA:

Witness referring to Exhibit C-1, your Honor.

WITNESS:
 We do not normally cover earthquake shock endorsement on stand alone basis. For swimming pools we do
cover earthquake shock. For building we covered it for full earthquake coverage which includes earthquake
shock…

COURT:

As far as earthquake shock endorsement you do not have a specific coverage for other things other than
swimming pool? You are covering building? They are covered by a general insurance?

WITNESS:

Earthquake shock coverage could not stand alone. If we are covering building or another we can issue
earthquake shock solely but that the moment I see this, the thing that comes to my mind is either insuring a
swimming pool, foundations, they are normally affected by earthquake but not by fire, sir.

DIRECT EXAMINATION OF JUAN BARANDA III

TSN, August 11, 1992
pp. 23-25

Q. Plaintiff’s witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E and F inclusive [remained] its
coverage against earthquake shock to two (2) swimming pools only but that Exhibits G and H respectively entend the
coverage against earthquake shock to all the properties indicated in the respective schedules attached to said policies,
what can you say about that testimony of plaintiff’s witness?

WITNESS:

As I have mentioned earlier, earthquake shock cannot stand alone without the other half of it. I assure you
that this one covers the two swimming pools with respect to earthquake shock endorsement. Based on it, if
we are going to look at the premium there has been no change with respect to the rates. Everytime (sic) there
is a renewal if the intention of the insurer was to include the earthquake shock, I think there is a substantial
increase in the premium. We are not only going to consider the two (2) swimming pools of the other as stated
in the policy. As I see, there is no increase in the amount of the premium. I must say that the coverage was not
broaden (sic) to include the other items.

COURT:

They are the same, the premium rates?

WITNESS:

They are the same in the sence (sic), in the amount of the coverage. If you are going to do some computation
based on the rates you will arrive at the same premiums, your Honor.

CROSS-EXAMINATION OF JUAN BARANDA III

TSN, September 7, 1992
pp. 4-6

ATTY. ANDRES:

Would you as a matter of practice [insure] swimming pools for fire insurance?

WITNESS:

No, we don’t, sir.

Q. That is why the phrase "earthquake shock to the two (2) swimming pools only" was placed, is it not?

A. Yes, sir.

ATTY. ANDRES:
 Will you not also agree with me that these exhibits, Exhibits G and H which you have pointed to during your
direct-examination, the phrase "Item no. 5 only" meaning to (sic) the two (2) swimming pools was deleted
from the policies issued by AIU, is it not?

xxx

ATTY. ANDRES:

As an insurance executive will you not attach any significance to the deletion of the qualifying phrase for the
policies?

WITNESS:

My answer to that would be, the deletion of that particular phrase is inadvertent. Being a company
underwriter, we do not cover. . it was inadvertent because of the previous policies that we have issued with no
specific attachments, premium rates and so on. It was inadvertent, sir.

The Court also rejects petitioner’s contention that respondent’s contemporaneous and subsequent acts to the issuance of the
insurance policy falsely gave the petitioner assurance that the coverage of the earthquake shock endorsement included all its
properties in the resort. Respondent only insured the properties as intended by the petitioner. Petitioner’s own witness testified
to this agreement, viz:

CROSS EXAMINATION OF LEOPOLDO MANTOHAC

TSN, January 14, 1992
pp. 4-5

Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did you tell Atty. Omlas (sic) to copy
from Exhibit "H" for purposes of procuring the policy from Philippine Charter Insurance Corporation?

A. I told him that the insurance that they will have to get will have the same provisions as this American Home
Insurance Policy No. 206-4568061-9.

Q. You are referring to Exhibit "H" of course?

A. Yes, sir, to Exhibit "H".

Q. So, all the provisions here will be the same except that of the premium rates?

A. Yes, sir. He assured me that with regards to the insurance premium rates that they will be charging will be limited to
this one. I (sic) can even be lesser.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC

TSN, January 14, 1992
pp. 12-14

Atty. Mejia:

Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the provisions and scope of coverage of
Exhibits "I" and "H" sometime in the third week of March, 1990 or thereabout?

A. Yes, sir, about that time.

Q. And at that time did you notice any discrepancy or difference between the policy wordings as well as scope of
coverage of Exhibits "I" and "H" respectively?

A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that the policy wordings and rates
were copied from the insurance policy I sent them but it was only when this case erupted that we discovered some
discrepancies.
 Q. With respect to the items declared for insurance coverage did you notice any discrepancy at any time between those
indicated in Exhibit "I" and those indicated in Exhibit "H" respectively?

A. With regard to the wordings I did not notice any difference because it was exactly the same P393,000.00 on the two
(2) swimming pools only against the peril of earthquake shock which I understood before that this provision will have to
be placed here because this particular provision under the peril of earthquake shock only is requested because this is an
insurance policy and therefore cannot be insured against fire, so this has to be placed.

The verbal assurances allegedly given by respondent’s representative Atty. Umlas were not proved. Atty. Umlas categorically
denied having given such assurances.

Finally, petitioner puts much stress on the letter of respondent’s independent claims adjuster, Bayne Adjusters and Surveyors,
Inc. But as testified to by the representative of Bayne Adjusters and Surveyors, Inc., respondent never meant to lead petitioner
to believe that the endorsement for earthquake shock covered properties other than the two swimming pools, viz:

DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and Surveyors, Inc.)

TSN, January 26, 1993
pp. 22-26

Q. Do you recall the circumstances that led to your discussion regarding the extent of coverage of the policy issued by
Philippine Charter Insurance Corporation?

A. I remember that when I returned to the office after the inspection, I got a photocopy of the insurance coverage
policy and it was indicated under Item 3 specifically that the coverage is only for earthquake shock. Then, I remember I
had a talk with Atty. Umlas (sic), and I relayed to him what I had found out in the policy and he confirmed to me indeed
only Item 3 which were the two swimming pools have coverage for earthquake shock.

xxx

Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that except for the swimming pools all
affected items have no coverage for earthquake shock?

xxx

A. I based my statement on my findings, because upon my examination of the policy I found out that under Item 3 it
was specific on the wordings that on the two swimming pools only, then enclosed in parenthesis (against the peril[s] of
earthquake shock only), and secondly, when I examined the summary of premium payment only Item 3 which refers to
the swimming pools have a computation for premium payment for earthquake shock and all the other items have no
computation for payment of premiums.

In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the general rule that insurance
contracts are contracts of adhesion which should be liberally construed in favor of the insured and strictly against the insurer
company which usually prepares it.31 A contract of adhesion is one wherein a party, usually a corporation, prepares the
stipulations in the contract, while the other party merely affixes his signature or his "adhesion" thereto. Through the years, the
courts have held that in these type of contracts, the parties do not bargain on equal footing, the weaker party's participation
being reduced to the alternative to take it or leave it. Thus, these contracts are viewed as traps for the weaker party whom the
courts of justice must protect.32 Consequently, any ambiguity therein is resolved against the insurer, or construed liberally in
favor of the insured.33

The case law will show that this Court will only rule out blind adherence to terms where facts and circumstances will show that
they are basically one-sided.34 Thus, we have called on lower courts to remain careful in scrutinizing the factual circumstances
behind each case to determine the efficacy of the claims of contending parties. In Development Bank of the Philippines v.
National Merchandising Corporation, et al.,35 the parties, who were acute businessmen of experience, were presumed to have
assented to the assailed documents with full knowledge.

We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot claim it did not know the
provisions of the policy. From the inception of the policy, petitioner had required the respondent to copy verbatim the
provisions and terms of its latest insurance policy from AHAC-AIU. The testimony of Mr. Leopoldo Mantohac, a direct participant
in securing the insurance policy of petitioner, is reflective of petitioner’s knowledge, viz:
 DIRECT EXAMINATION OF LEOPOLDO MANTOHAC36
TSN, September 23, 1991
pp. 20-21

Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those facilities in Agoo Playa?

A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine Charter Insurance Corporation as
long as it will follow the same or exact provisions of the previous insurance policy we had with American Home
Assurance Corporation.

Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in the American Home Insurance
policy are to be incorporated in the PCIC policy?

A. Yes, sir.

Q. What steps did you take?

A. When I examined the policy of the Philippine Charter Insurance Corporation I specifically told him that the policy and
wordings shall be copied from the AIU Policy No. 206-4568061-9.

Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206-4568061-9 in drafting its
Insurance Policy No. 31944. It is true that there was variance in some terms, specifically in the replacement cost endorsement,
but the principal provisions of the policy remained essentially similar to AHAC-AIU’s policy. Consequently, we cannot apply the
"fine print" or "contract of adhesion" rule in this case as the parties’ intent to limit the coverage of the policy to the two
swimming pools only is not ambiguous.37

IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The petition for certiorari is dismissed. No costs.

SO ORDERED.

9. New World International Dev. (Phils), Inc. v. NYK-FilJapan Shipping Corp

G.R. No. 171468               August 24, 2011

NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner,

vs.
NYK-FILJAPAN SHIPPING CORP., LEP PROFIT INTERNATIONAL, INC. (ORD), LEP INTERNATIONAL PHILIPPINES, INC., DMT CORP., ADVATECH
INDUSTRIES, INC., MARINA PORT SERVICES, INC., SERBROS CARRIER CORPORATION, and SEABOARD-EASTERN INSURANCE CO.,
INC., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 174241
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner,
vs.
SEABOARD-EASTERN INSURANCE CO., INC., Respondent.

DECISION

ABAD, J.:
These consolidated petitions involve a cargo owner’s right to recover damages from the loss of insured goods under the Carriage of Goods by
Sea Act and the Insurance Code.

The Facts and the Case

Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT Corporation (DMT) through its agent, Advatech
Industries, Inc. (Advatech) three emergency generator sets worth US$721,500.00.

DMT shipped the generator sets by truck from Wisconsin, United States, to LEP Profit International, Inc. (LEP Profit) in Chicago, Illinois. From
there, the shipment went by train to Oakland, California, where it was loaded on S/S California Luna V59, owned and operated by NYK Fil-
Japan Shipping Corporation (NYK) for delivery to petitioner New World in Manila. NYK issued a bill of lading, declaring that it received the
goods in good condition.

NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72 that it also owned and operated. On its journey to Manila,
however, ACX Ruby encountered typhoon Kadiang whose captain filed a sea protest on arrival at the Manila South Harbor on October 5, 1993
respecting the loss and damage that the goods on board his vessel suffered.

Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargo-handling operator, received the shipment on October 7, 1993.
Upon inspection of the three container vans separately carrying the generator sets, two vans bore signs of external damage while the third van
appeared unscathed. The shipment remained at Pier 3’s Container Yard under Marina’s care pending clearance from the Bureau of Customs.
Eventually, on October 20, 1993 customs authorities allowed petitioner’s customs broker, Serbros Carrier Corporation (Serbros), to withdraw
the shipment and deliver the same to petitioner New World’s job site in Makati City.

An examination of the three generator sets in the presence of petitioner New World’s representatives, Federal Builders (the project
contractor) and surveyors of petitioner New World’s insurer, Seaboard–Eastern Insurance Company (Seaboard), revealed that all three sets
suffered extensive damage and could no longer be repaired. For these reasons, New World demanded recompense for its loss from
respondents NYK, DMT, Advatech, LEP Profit, LEP International Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK acknowledged
receipt of the demand, both denied liability for the loss.

Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it a formal claim dated November 16, 1993.
Replying on February 14, 1994, Seaboard required petitioner New World to submit to it an itemized list of the damaged units, parts, and
accessories, with corresponding values, for the processing of the claim. But petitioner New World did not submit what was required of it,
insisting that the insurance policy did not include the submission of such a list in connection with an insurance claim. Reacting to this, Seaboard
refused to process the claim.

On October 11, 1994 petitioner New World filed an action for specific performance and damages against all the respondents before the
Regional Trial Court (RTC) of Makati City, Branch 62, in Civil Case 94-2770.

On August 16, 2001 the RTC rendered a decision absolving the various respondents from liability with the exception of NYK. The RTC found
that the generator sets were damaged during transit while in the care of NYK’s vessel, ACX Ruby. The latter failed, according to the RTC, to
exercise the degree of diligence required of it in the face of a foretold raging typhoon in its path.

The RTC ruled, however, that petitioner New World filed its claim against the vessel owner NYK beyond the one year provided under the
Carriage of Goods by Sea Act (COGSA). New World filed its complaint on October 11, 1994 when the deadline for filing the action (on or before
October 7, 1994) had already lapsed. The RTC held that the one-year period should be counted from the date the goods were delivered to the
arrastre operator and not from the date they were delivered to petitioner’s job site. 1

As regards petitioner New World’s claim against Seaboard, its insurer, the RTC held that the latter cannot be faulted for denying the claim
against it since New World refused to submit the itemized list that Seaboard needed for assessing the damage to the shipment. Likewise, the
belated filing of the complaint prejudiced Seaboard’s right to pursue a claim against NYK in the event of subrogation.

On appeal, the Court of Appeals (CA) rendered judgment on January 31, 2006, 2 affirming the RTC’s rulings except with respect to Seaboard’s
liability. The CA held that petitioner New World can still recoup its loss from Seaboard’s marine insurance policy, considering a) that the
submission of the itemized listing is an unreasonable imposition and b) that the one-year prescriptive period under the COGSA did not affect
New World’s right under the insurance policy since it was the Insurance Code that governed the relation between the insurer and the insured.

Although petitioner New World promptly filed a petition for review of the CA decision before the Court in G.R. 171468, Seaboard chose to file
a motion for reconsideration of that decision. On August 17, 2006 the CA rendered an amended decision, reversing itself as regards the claim
against Seaboard. The CA held that the submission of the itemized listing was a reasonable requirement that Seaboard asked of New World.
Further, the CA held that the one-year prescriptive period for maritime claims applied to Seaboard, as insurer and subrogee of New World’s
right against the vessel owner. New World’s failure to comply promptly with what was required of it prejudiced such right.

Instead of filing a motion for reconsideration, petitioner instituted a second petition for review before the Court in G.R. 174241, assailing the
CA’s amended decision.
 The Issues Presented

The issues presented in this case are as follows:

a) In G.R. 171468, whether or not the CA erred in affirming the RTC’s release from liability of respondents DMT, Advatech, LEP, LEP
Profit, Marina, and Serbros who were at one time or another involved in handling the shipment; and

b) In G.R. 174241, 1) whether or not the CA erred in ruling that Seaboard’s request from petitioner New World for an itemized list is
a reasonable imposition and did not violate the insurance contract between them; and 2) whether or not the CA erred in failing to
rule that the one-year COGSA prescriptive period for marine claims does not apply to petitioner New World’s prosecution of its claim
against Seaboard, its insurer.

The Court’s Rulings

In G.R. 171468 --

Petitioner New World asserts that the roles of respondents DMT, Advatech, LEP, LEP Profit, Marina and Serbros in handling and transporting its
shipment from Wisconsin to Manila collectively resulted in the damage to the same, rendering such respondents solidarily liable with NYK, the
vessel owner.

But the issue regarding which of the parties to a dispute incurred negligence is factual and is not a proper subject of a petition for review on
certiorari. And petitioner New World has been unable to make out an exception to this rule. 3 Consequently, the Court will not disturb the
finding of the RTC, affirmed by the CA, that the generator sets were totally damaged during the typhoon which beset the vessel’s voyage from
Hong Kong to Manila and that it was her negligence in continuing with that journey despite the adverse condition which caused petitioner New
World’s loss.

That the loss was occasioned by a typhoon, an exempting cause under Article 1734 of the Civil Code, does not automatically relieve the
common carrier of liability. The latter had the burden of proving that the typhoon was the proximate and only cause of loss and that it
exercised due diligence to prevent or minimize such loss before, during, and after the disastrous typhoon. 4 As found by the RTC and the CA,
NYK failed to discharge this burden.

In G.R. 174241 --

One. The Court does not regard as substantial the question of reasonableness of Seaboard’s additional requirement of an itemized listing of
the damage that the generator sets suffered. The record shows that petitioner New World complied with the documentary requirements
evidencing damage to its generator sets.

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. 5

Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in voyage, or vessels unseaworthiness, among
others.6 But Seaboard had been unable to show that petitioner New World’s loss or damage fell within some or one of the enumerated
exceptions.

What is more, Seaboard had been unable to explain how it could not verify the damage that New World’s goods suffered going by the
documents that it already submitted, namely, (1) copy of the Supplier’s Invoice KL2504; (2) copy of the Packing List; (3) copy of the Bill of
Lading 01130E93004458; (4) the Delivery of Waybill Receipts 1135, 1222, and 1224; (5) original copy of Marine Insurance Policy MA-HO-
000266; (6) copies of Damage Report from Supplier and Insurance Adjusters; (7) Consumption Report from the Customs Examiner; and (8)
Copies of Received Formal Claim from the following: a) LEP International Philippines, Inc.; b) Marina Port Services, Inc.; and c) Serbros Carrier
Corporation.7 Notably, Seaboard’s own marine surveyor attended the inspection of the generator sets.

Seaboard cannot pretend that the above documents are inadequate since they were precisely the documents listed in its insurance
policy.8 Being a contract of adhesion, an insurance policy is construed strongly against the insurer who prepared it. The Court cannot read a
requirement in the policy that was not there.

Further, it appears from the exchanges of communications between Seaboard and Advatech that submission of the requested itemized listing
was incumbent on the latter as the seller DMT’s local agent. Petitioner New World should not be made to suffer for Advatech’s shortcomings.

Two. Regarding prescription of claims, Section 3(6) of the COGSA provides that the carrier and the ship shall be discharged from all liability in
case of loss or damage unless the suit is brought within one year after delivery of the goods or the date when the goods should have been
delivered.
But whose fault was it that the suit against NYK, the common carrier, was not brought to court on time? The last day for filing such a suit fell
on October 7, 1994. The record shows that petitioner New World filed its formal claim for its loss with Seaboard, its insurer, a remedy it had
the right to take, as early as November 16, 1993 or about 11 months before the suit against NYK would have fallen due.

In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would have been subrogated to petitioner New
World’s right to recover from NYK. And it could have then filed the suit as a subrogee. But, as discussed above, Seaboard made an
unreasonable demand on February 14, 1994 for an itemized list of the damaged units, parts, and accessories, with corresponding values when
it appeared settled that New World’s loss was total and when the insurance policy did not require the production of such a list in the event of a
claim.

Besides, when petitioner New World declined to comply with the demand for the list, Seaboard against whom a formal claim was pending
should not have remained obstinate in refusing to process that claim. It should have examined the same, found it unsubstantiated by
documents if that were the case, and formally rejected it. That would have at least given petitioner New World a clear signal that it needed to
promptly file its suit directly against NYK and the others. Ultimately, the fault for the delayed court suit could be brought to Seaboard’s
doorstep.

Section 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 Section 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. And, 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.

Notably, Seaboard already incurred delay when it failed to settle petitioner New World’s claim as Section 243 required. Under Section 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 Section 243.

Consequently, Seaboard should pay interest on the proceeds of the policy for the duration of the delay until the claim is fully satisfied at the
rate of twice the ceiling prescribed by the Monetary Board. The term "ceiling prescribed by the Monetary Board" means the legal rate of
interest of 12% per annum provided in Central Bank Circular 416, pursuant to Presidential Decree 116. 9 Section 244 of the Insurance Code 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.

In Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc.,10 the Court regarded as proper an award of 10% of the insurance
proceeds as attorney’s fees. Such amount is fair considering the length of time that has passed in prosecuting the claim. 11 Pursuant to the
Court’s ruling in Eastern Shipping Lines, Inc. v. Court of Appeals, 12 a 12% interest per annum from the finality of judgment until full satisfaction
of the claim should likewise be imposed, the interim period equivalent to a forbearance of credit.1avvphi1

Petitioner New World is entitled to the value stated in the policy which is commensurate to the value of the three emergency generator sets or
US$721,500.00 with double interest plus attorney’s fees as discussed above.

WHEREFORE, the Court DENIES the petition in G.R. 171468 and AFFIRMS the Court of Appeals decision of January 31, 2006 insofar as petitioner
New World International Development (Phils.), Inc. is not allowed to recover against respondents DMT Corporation, Advatech Industries, Inc.,
LEP International Philippines, Inc., LEP Profit International, Inc., Marina Port Services, Inc. and Serbros Carrier Corporation.

With respect to G.R. 174241, the Court GRANTS the petition and REVERSES and SETS ASIDE the Court of Appeals Amended Decision of August
17, 2006. The Court DIRECTS Seaboard-Eastern Insurance Company, Inc. to pay petitioner New World International Development (Phils.), Inc.
US$721,500.00 under Policy MA-HO-000266, with 24% interest per annum for the duration of delay in accordance with Sections 243 and 244
of the Insurance Code and attorney’s fees equivalent to 10% of the insurance proceeds. Seaboard shall also pay, from finality of judgment, a
12% interest per annum on the total amount due to petitioner until its full satisfaction. SO ORDERED.

10. White Gold Marine Services, Inc. v. Pioneer Insurance and Surety Corp.,

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

WHITE GOLD MARINE SERVICES, INC., Petitioners,

vs.
PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION
(BERMUDA) LTD., Respondents.

DECISION

QUISUMBING, J.:
This petition for review assails the Decision1 dated July 30, 2002 of the Court of Appeals in CA-G.R. SP No. 60144,
affirming the Decision2 dated May 3, 2000 of the Insurance Commission in I.C. Adm. Case No. RD-277. Both decisions
held that there was no violation of the Insurance Code and the respondents do not need license as insurer and
insurance agent/broker.

The facts are undisputed.

White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage for its vessels from The
Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual) through Pioneer Insurance and
Surety Corporation (Pioneer). Subsequently, White Gold was issued a Certificate of Entry and Acceptance. 3 Pioneer
also issued receipts evidencing payments for the coverage. When White Gold failed to fully pay its accounts,
Steamship Mutual refused to renew the coverage.

Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the latter’s
unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission claiming that
Steamship Mutual violated Sections 1864 and 1875 of the Insurance Code, while Pioneer violated Sections
299,6 3007 and 3018 in relation to Sections 302 and 303, thereof.

The Insurance Commission dismissed the complaint. It said that there was no need for Steamship Mutual to secure a
license because it was not engaged in the insurance business. It explained that Steamship Mutual was a Protection
and Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another license as insurance agent and/or a
broker for Steamship Mutual because Steamship Mutual was not engaged in the insurance business. Moreover,
Pioneer was already licensed, hence, a separate license solely as agent/broker of Steamship Mutual was already
superfluous.

The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the appellate court
distinguished between P & I Clubs vis-à-vis  conventional insurance. The appellate court also held that Pioneer
merely acted as a collection agent of Steamship Mutual.

In this petition, petitioner assigns the following errors allegedly committed by the appellate court,

FIRST ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING BUSINESS IN THE
PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER
HENCE AS AN INSURER IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE PHILIPPINES.

SECOND ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY EVIDENCE THAT RESPONDENT
STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.

THIRD ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT SECURE A LICENSE WHEN
CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.

FOURTH ASSIGNMENT OF ERROR

THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER AND [IN NOT REMOVING] THE
OFFICERS AND DIRECTORS OF RESPONDENT PIONEER. 9

Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the insurance business in the
Philippines? (2) Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not have a license to do
business in the Philippines although Pioneer is its resident agent. This relationship is reflected in the certifications
issued by the Insurance Commission.

Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To buttress its
assertion, it cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals 10  as "an association
composed of shipowners in general who band together for the specific purpose of providing insurance cover on a
mutual basis against liabilities incidental to shipowning that the members incur in favor of third parties." It stresses
that as a P & I Club, Steamship Mutual’s primary purpose is to solicit and provide protection and indemnity coverage
and for this purpose, it has engaged the services of Pioneer to act as its agent.

Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the insurance business in
the Philippines. It is merely an association of vessel owners who have come together to provide mutual protection
against liabilities incidental to shipowning. 11 Respondents aver Hyopsung  is inapplicable in this case because the
issue in Hyopsung was the jurisdiction of the court over Hyopsung.

Is Steamship Mutual engaged in the insurance business?

Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance business" or "transacting an
insurance business". These are:

(a) making or proposing to make, as insurer, any insurance contract;

(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to
any other legitimate business or activity of the surety;

(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of
an insurance business within the meaning of this Code;

(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to
evade the provisions of this Code.

...

The same provision also provides, the fact that no profit is derived from the making of insurance contracts,
agreements or transactions, or that no separate or direct consideration is received therefor, shall not preclude the
existence of an insurance business.12

The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the act
required to be performed, and the exact nature of the agreement in the light of the occurrence, contingency, or
circumstances under which the performance becomes requisite. It is not by what it is called. 13

Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event. 14

In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the losses
incident to a marine adventure.15 Section 9916 of the Insurance Code enumerates the coverage of marine insurance.

Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer and
insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a fund from
which all losses and liabilities are paid, and where the profits are divided among themselves, in proportion to their
interest.17 Additionally, mutual insurance associations, or clubs, provide three types of coverage, namely, protection
and indemnity, war risks, and defense costs. 18
A P & I Club is "a form of insurance against third party liability, where the third party is anyone other than the P & I
Club and the members."19 By definition then, Steamship Mutual as a P & I Club is a mutual insurance association
engaged in the marine insurance business.

The records reveal Steamship Mutual is doing business in the country albeit without the requisite certificate of
authority mandated by Section 18720 of the Insurance Code. It maintains a resident agent in the Philippines to solicit
insurance and to collect payments in its behalf. We note that Steamship Mutual even renewed its P & I Club cover
until it was cancelled due to non-payment of the calls. Thus, to continue doing business here, Steamship Mutual or
through its agent Pioneer, must secure a license from the Insurance Commission.

Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no insurer or
insurance company is allowed to engage in the insurance business without a license or a certificate of authority from
the Insurance Commission.21

Does Pioneer, as agent/broker of Steamship Mutual, need a special license?

Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration 22 issued by the
Insurance Commission. It has been licensed to do or transact insurance business by virtue of the certificate of
authority23 issued by the same agency. However, a Certification from the Commission states that Pioneer does not
have a separate license to be an agent/broker of Steamship Mutual. 24

Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance agent
for Steamship Mutual. Section 299 of the Insurance Code clearly states:

SEC. 299 . . .

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. . .

Finally, White Gold seeks revocation of Pioneer’s certificate of authority and removal of its directors and officers.
Regrettably, we are not the forum for these issues.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the Court of Appeals affirming
the Decision dated May 3, 2000 of the Insurance Commission is hereby REVERSED AND SET ASIDE. The Steamship
Mutual Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to
obtain licenses and to secure proper authorizations to do business as insurer and insurance agent, respectively. The
petitioner’s prayer for the revocation of Pioneer’s Certificate of Authority and removal of its directors and officers, is
DENIED. Costs against respondents.

SO ORDERED.

11. Republic vs. Del Monte Motors, Inc

[G.R. NO. 156956 : October 9, 2006]

REPUBLIC OF THE PHILIPPINES, by EDUARDO T. MALINIS, in His Capacity as Insurance Commissioner, Petitioner, v. DEL MONTE
MOTORS, INC., Respondent.

DECISION

PANGANIBAN, C.J.:

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.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse the January 16, 2003 Order 2 of the
Regional Court (RTC) of Quezon City (Branch 221) in Civil Case No. Q-97-30412. The RTC found Insurance Commissioner Eduardo
T. Malinis guilty of indirect contempt for refusing to comply with the December 18, 2002 Resolution 3 of the lower court. The
January 16, 2003 Order states in full:

"On January 8, 2003, [respondent] filed a Motion to Cite Commissioner Eduardo T. Malinis of the Office of the Insurance
Commission in Contempt of Court because of his failure and refusal to obey the lawful order of this court embodied in a
Resolution dated December 18, 2002 directing him to allow the withdrawal of the security deposit of Capital Insurance and
Surety Co. (CISCO) in the amount of P11,835,375.50 to be paid to Sheriff Manuel Paguyo in the satisfaction of the Notice of
Garnishment pursuant to a Decision of this Court which has become final and executory.

"During the hearing of the Motion set last January 10, 2003, Commissioner Malinis or his counsel or his duly authorized
representative failed to appear despite notice in utter disregard of the order of this Court. However, Commissioner Malinis filed
on January 15, 2003 a written Comment reiterating the same grounds already passed upon and rejected by this Court. This Court
finds no lawful justification or excuse for Commissioner Malinis' refusal to implement the lawful orders of this Court.

"Wherefore, premises considered and after due hearing, Commissioner Eduardo T. Malinis is hereby declared guilty of Indirect
Contempt of Court pursuant to Section 3 [of] Rule 71 of the 1997 Rules of Civil Procedure for willfully disobeying and refusing to
implement and obey a lawful order of this Court." 4

The Facts

On January 15, 2002, the RTC rendered a Decision in Civil Case No. Q-97-30412, finding the defendants (Vilfran Liner, Inc., Hilaria
Villegas and Maura Villegas) jointly and severally liable to pay Del Monte Motors, Inc., P11,835,375.50 representing the balance
of Vilfran Liner's service contracts with respondent. The trial court further ordered the execution of the Decision against the
counterbond posted by Vilfran Liner on June 10, 1997, and issued by Capital Insurance and Surety Co., Inc. (CISCO).

On April 18, 2002, CISCO opposed the Motion for Execution filed by respondent, claiming that the latter had no record or
document regarding the alleged issuance of the counterbond; thus, the bond was not valid and enforceable.

On June 13, 2002, the RTC granted the Motion for Execution and issued the corresponding Writ. Armed with this Writ, Sheriff
Manuel S. Paguyo proceeded to levy on the properties of CISCO. He also issued a Notice of Garnishment on several depository
banks of the insurance company. Moreover, he served a similar notice on the Insurance Commission, so as to enforce the Writ
on the security deposit filed by CISCO with the Commission in accordance with Section 203 of the Insurance Code.

On December 18, 2002, after a hearing on all the pending Motions, the RTC ruled that the Notice of Garnishment served by
Sheriff Paguyo on the insurance commission was valid. The trial court added that the letter and spirit of the law made the
security deposit answerable for contractual obligations incurred by CISCO under the insurance contracts the latter had entered
into. The RTC resolved thus:

"Furthermore, the Commissioner of the Office of the Insurance Commission is hereby ordered to comply with its obligations
under the Insurance Code by upholding the integrity and efficacy of bonds validly issued by duly accredited Bonding and
Insurance Companies; and to safeguard the public interest by insuring the faithful performance to enforce contractual
obligations under existing bonds. Accordingly said office is ordered to withdraw from the security deposit of Capital Insurance &
Surety Company, Inc. the amount of P11,835.50 to be paid to Sheriff Manuel S. Paguyo in satisfaction of the Notice of
Garnishment served on August 16, 2002." 5

On January 8, 2003, respondent moved to cite Insurance Commissioner Eduardo T. Malinis in contempt of court for his refusal to
obey the December 18, 2002 Resolution of the trial court.

Ruling of the Trial Court

The RTC held Insurance Commissioner Malinis in contempt for his refusal to implement its Order. It explained that the
commissioner had no legal justification for his refusal to allow the withdrawal of CISCO's security deposit.
Hence, this Petition.6

Issues

Petitioner raises this sole issue for the Court's consideration:

"Whether or not the security deposit held by the Insurance Commissioner pursuant to Section 203 of the Insurance Code may be
levied or garnished in favor of only one insured."7

The Court's Ruling

The Petition is meritorious.

Preliminary Issue:
Propriety of Review

Before discussing the principal issue, the Court will first dispose of the question of mootness.

Prior to the filing of the instant Petition, Insurance Commissioner Malinis sent the treasurer of the Philippines a letter dated
March 26, 2003, stating that the former had no objection to the release of the security deposit to Del Monte Motors. Portions of
the fund were consequently released to respondent in July, October, and December 2003. Thus, the issue arises: whether these
circumstances render the case moot.

Petitioner, however, contends that the partial releases should not be construed as an abandonment of its stand that security
deposits under Section 203 of the Insurance Code are exempt from levy and garnishment. The Republic claims that the releases
were made pursuant to the commissioner's power of control over the fund, not to the lower court's Order of garnishment.
Petitioner further invokes the jurisdiction of this Court to put to rest the principal issue of whether security deposits made with
the Insurance Commission may be levied and garnished.

The issue is not totally moot. To stress, only a portion of respondent's claim was satisfied, and the Insurance Commission has
required CISCO to replenish the latter's security deposit. Respondent, therefore, may one day decide to further garnish the
security deposit, once replenished. Moreover, after the questioned Order of the lower court was issued, similar claims on the
security deposits of various insurance companies have been made before the Insurance Commission. To set aside the resolution
of the issue will only postpone a task that is certain to crop up in the future.

Besides, the business of insurance is imbued with public interest. It is subject to 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. 8 As this case is
undeniably endowed with public interest and involves a matter of public policy, this Court shall not shirk from its duty to
educate the bench and the bar by formulating guiding and controlling principles, precepts, doctrines and rules. 9

Principal Issue:
Exemption of Security Deposit from Levy or Garnishment

Section 203 of the Insurance Code provides as follows:

"Sec. 203. Every domestic insurance company shall, to the extent of an amount equal in value to twenty-five per centum of the
minimum paid-up capital required under section one hundred eighty-eight, invest its funds only in securities, satisfactory to the
Commissioner, consisting of bonds or other evidences of debt of the Government of the Philippines or its political subdivisions
or instrumentalities, or of government-owned or controlled corporations and entities, including the Central Bank of the
Philippines: Provided, That such investments shall at all times be maintained free from any lien or encumbrance; and Provided,
further, That such securities shall be deposited with and held by the Commissioner for the faithful performance by the
depositing insurer of all its obligations under its insurance contracts. The provisions of section one hundred ninety-two shall, so
far as practicable, apply to the securities deposited under this section.

"Except as otherwise provided in this Code, no judgment creditor or other claimant shall have the right to levy upon any of the
securities of the insurer held on deposit pursuant to the requirement of the Commissioner." (Emphasis supplied)cralawlibrary

Respondent notes that Section 203 does not provide for an absolute prohibition on the levy and garnishment of the security
deposit. It contends that the law requires the deposit, precisely to ensure faithful performance of all the obligations of the
depositing insurer under the latter's various insurance contracts. Hence, respondent claims that the security deposit should be
answerable for the counterbond issued by CISCO.

The Court is not convinced. As worded, the law expressly and 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 be sure, CISCO, though presently under conservatorship, has valid outstanding policies. Its policy holders have a right under
the law to be equally protected by its security deposit. 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. Further, this move would
create, in favor of respondent, a preference of credit over the other policy holders and beneficiaries.

Our Insurance Code is patterned after that of California. 10 Thus, the ruling of the state's Supreme Court on a similar concept as
that of the security deposit is instructive. Engwicht v. Pacific States Life Assurance Co.11 held that the money required to be
deposited by a mutual assessment insurance company with the state treasurer was "a trust fund to be ratably distributed
amongst all the claimants entitled to share in it. Such a distribution cannot be had except in an action in the nature of a
creditors' bill, upon the hearing of which, and with all the parties interested in the fund before it, the court may make equitable
distribution of the fund, and appoint a receiver to carry that distribution into effect." 12

Basic is the statutory construction rule that provisions of a statute should be construed in accordance with the purpose for
which it was enacted.13 That is, the securities are held as a contingency fund to answer for the claims against the insurance
company by all its policy holders and their beneficiaries. This step is taken in the event that the company becomes insolvent or
otherwise unable to satisfy the claims against it. Thus, a single claimant may not lay stake on the securities to the exclusion of all
others. The other parties may have their own claims against the insurance company under other insurance contracts it has
entered into.

Respondent's Inchoate Right

The right to lay claim on the fund is dependent on the solvency of the insurer and is subject to all other obligations of the
company arising from its insurance contracts. Thus, respondent's interest is merely inchoate. Being a mere expectancy, it has no
attribute of property. At this time, it is nonexistent and may never exist. 14 Hence, it would be premature to make the security
deposit answerable for CISCO's present obligation to Del Monte Motors.

Moreover, since insolvency proceedings against CISCO have yet to be conducted, it would be impossible to establish at this time
which claimants are entitled to the security deposit and in what pro-rated amounts. Only after all other claimants under
subsisting policies issued by CISCO have been heard can respondent's share be determined.

Powers of the Commissioner

The Insurance Code has vested the Office of the Insurance Commission with both regulatory and adjudicatory authority over
insurance matters.15

The general regulatory authority of the insurance commissioner is described in Section 414 of the Code as follows:

"Sec. 414. The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance companies and
other insurance matters, mutual benefit associations, and trusts for charitable uses are faithfully executed and to perform the
duties imposed upon him by this Code, and shall, notwithstanding any existing laws to the contrary, have sole and exclusive
authority to regulate the issuance and sale of variable contracts as defined in section two hundred thirty-two and to provide for
the licensing of persons selling such contracts, and to issue such reasonable rules and regulations governing the same.

"The Commissioner may issue such rulings, instructions, circulars, orders and decisions as he may deem necessary to secure the
enforcement of the provisions of this Code, subject to the approval of the Secretary of Finance. Except as otherwise specified,
decisions made by the Commissioner shall be appealable to the Secretary of Finance." (Emphasis supplied)cralawlibrary

Pursuant to these regulatory powers, the commissioner is authorized to (1) issue (or to refuse to issue) certificates of authority
to persons or entities desiring to engage in insurance business in the Philippines; 16 (2) revoke or suspend these certificates of
authority upon finding grounds for the revocation or suspension; 17 (3) impose upon insurance companies, their directors and/or
officers and/or agents appropriate penalties - - fines, suspension or removal from office - - for failing to comply with the Code or
with any of the commissioner's orders, instructions, regulations or rulings, or for otherwise conducting business in an unsafe or
unsound manner.18
Included in the above regulatory responsibilities is the duty to hold the security deposits under Sections 191 19 and 203 of the
Code, for the benefit and security of all policy holders. In relation to these provisions, Section 192 of the Insurance Code states:

"Sec. 192. The Commissioner shall hold the securities, deposited as aforesaid, for the benefit and security of all the policyholders
of the company depositing the same, but shall as long as the company is solvent, permit the company to collect the interest or
dividends on the securities so deposited, and, from time to time, with his assent, to withdraw any of such securities, upon
depositing with said Commissioner other like securities, the market value of which shall be equal to the market value of such as
may be withdrawn. In the event of any company ceasing to do business in the Philippines the securities deposited as aforesaid
shall be returned upon the company's making application therefor and proving to the satisfaction of the Commissioner that it has
no further liability under any of its policies in the Philippines." (Emphasis supplied)cralawlibrary

Undeniably, the insurance commissioner has been given a wide latitude of discretion to regulate the insurance industry so as to
protect the insuring public. The law specifically confers custody over the securities upon the commissioner, with whom these
investments are required to be deposited. An implied trust 20 is created by the law for the benefit of all claimants under
subsisting insurance contracts issued by the insurance company. 21

As the officer vested with custody of the security deposit, the insurance commissioner is in the best position to determine if and
when it may be released without prejudicing the rights of other policy holders. Before allowing the withdrawal or the release of
the deposit, the commissioner must be satisfied that the conditions contemplated by the law are met and all policy holders
protected.

Commissioner's Actions
Entitled to Great Respect

In this case, Commissioner Malinis refused to release the security deposit of CISCO. Believing that the funds were exempt from
execution as provided by law, he sought to protect other policy holders. His interpretation of the provisions of the law carries
great weight and consideration,22 as he is the head of a specialized body tasked with the regulation of insurance matters and
primarily charged with the implementation of the Insurance Code.

The emergence of the multifarious needs of modern society necessitates the establishment of diverse administrative agencies.
In addressing these needs, the administrative agencies charged with applying and implementing particular statutes have
accumulated experience and specialized capabilities. Thus, in a long line of cases, this Court has recognized that their
construction of a statute is entitled to great respect and should ordinarily be controlling, unless clearly shown to be in sharp
conflict with the governing statute or the Constitution and other laws. 23

Clearly, then, the trial court erred in issuing the Writ of Garnishment against the security deposit of CISCO. It follows that
without the issuance of a valid order, the insurance commissioner could not have been in contempt of court. 24

WHEREFORE, the Petition is GRANTED and the assailed Order SET ASIDE. No costs.

SO ORDERED.

12. Philippine Health Care Providers, Inc. v. CIR September 18, 2009

G.R. No. 167330               September 18, 2009

PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

RESOLUTION
CORONA, J.:

ARTICLE II
Declaration of Principles and State Policies

Section 15. The State shall protect and promote the right to health of the people and instill health consciousness among them.

ARTICLE XIII
Social Justice and Human Rights

Section 11. The State shall adopt an integrated and comprehensive approach to health development which shall endeavor to make
essential goods, health and other social services available to all the people at affordable cost. There shall be priority for the needs of the
underprivileged sick, elderly, disabled, women, and children. The State shall endeavor to provide free medical care to paupers.1

For resolution are a motion for reconsideration and supplemental motion for reconsideration dated July 10, 2008 and July 14, 2008,
respectively, filed by petitioner Philippine Health Care Providers, Inc.2

We recall the facts of this case, as follows:

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." Individuals enrolled in its health
care programs pay an annual membership fee and are entitled to various preventive, diagnostic and curative medical services provided
by its duly licensed physicians, specialists and other professional technical staff participating in the group practice health delivery
system at a hospital or clinic owned, operated or accredited by it.

x x x           x x x          x x x

On January 27, 2000, 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, for the taxable years 1996 and 1997
in the total amount of ₱224,702,641.18. xxxx

The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s health care agreement with the members of its
health care program pursuant to Section 185 of the 1997 Tax Code xxxx

x x x           x x x          x x x

Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner filed a
petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments.

On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read:

WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner is hereby ORDERED to PAY
the deficiency VAT amounting to ₱22,054,831.75 inclusive of 25% surcharge plus 20% interest from January 20, 1997 until fully paid for
the 1996 VAT deficiency and ₱31,094,163.87 inclusive of 25% surcharge plus 20% interest from January 20, 1998 until fully paid for the
1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void and without force and effect. The 1996 and 1997 deficiency
DST assessment against petitioner is hereby CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from collecting the said
DST deficiency tax.

SO ORDERED.

Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the DST assessment. He claimed that
petitioner’s health care agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code.

On August 16, 2004, the CA rendered its decision. It held that petitioner’s health care agreement was in the nature of a non-life
insurance contract subject to DST.

WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals, insofar as it cancelled and set aside the
1996 and 1997 deficiency documentary stamp tax assessment and ordered petitioner to desist from collecting the same is REVERSED
and SET ASIDE.

Respondent is ordered to pay the amounts of ₱55,746,352.19 and ₱68,450,258.73 as deficiency Documentary Stamp Tax for 1996 and
1997, respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27, 2000, pursuant to Sections 248
and 249 of the Tax Code, until the same shall have been fully paid.

SO ORDERED.
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case.

x x x           x x x          x x x

In a decision dated June 12, 2008, the Court denied the petition and affirmed the CA’s decision. We held that petitioner’s health care
agreement during the pertinent period was in the nature of non-life insurance which is a contract of indemnity, citing Blue Cross
Healthcare, Inc. v. Olivares3 and Philamcare Health Systems, Inc. v. CA.4 We also ruled that petitioner’s contention that it is a health
maintenance organization (HMO) and not an insurance company is irrelevant because contracts between companies like petitioner and
the beneficiaries under their plans are treated as insurance contracts. Moreover, DST is not a tax on the business transacted but an
excise on the privilege, opportunity or facility offered at exchanges for the transaction of the business.

Unable to accept our verdict, petitioner filed the present motion for reconsideration and supplemental motion for reconsideration,
asserting the following arguments:

(a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only on a company engaged in the business of
fidelity bonds and other insurance policies. Petitioner, as an HMO, is a service provider, not an insurance company.
(b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in effect the CA’s disposition that health care services
are not in the nature of an insurance business.
(c) Section 185 should be strictly construed.
(d) Legislative intent to exclude health care agreements from items subject to DST is clear, especially in the light of the amendments
made in the DST law in 2002.
(e) Assuming arguendo that petitioner’s agreements are contracts of indemnity, they are not those contemplated under Section 185.
(f) Assuming arguendo  that petitioner’s agreements are akin to health insurance, health insurance is not covered by Section 185.
(g) The agreements do not fall under the phrase "other branch of insurance" mentioned in Section 185.
(h) The June 12, 2008 decision should only apply prospectively.
(i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the taxable year 2005 and all prior years. Therefore, the questioned
assessments on the DST are now rendered moot and academic.6

Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their memoranda on June 8, 2009.

In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax amnesty under RA 94807 (also known as the
"Tax Amnesty Act of 2007") by fully paying the amount of ₱5,127,149.08 representing 5% of its net worth as of the year ending
December 31, 2005.8

We find merit in petitioner’s motion for reconsideration.

Petitioner was formally registered and incorporated with the Securities and Exchange Commission on June 30, 1987.9 It is engaged in
the dispensation of the following medical services to individuals who enter into health care agreements with it:

Preventive medical services such as periodic monitoring of health problems, family planning counseling, consultation and advices on
diet, exercise and other healthy habits, and immunization;

Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis, complete blood count, and the like and

Curative medical services which pertain to the performing of other remedial and therapeutic processes in the event of an injury or
sickness on the part of the enrolled member.10

Individuals enrolled in its health care program pay an annual membership fee. Membership is on a year-to-year basis. The medical
services are dispensed to enrolled members in a hospital or clinic owned, operated or accredited by petitioner, through physicians,
medical and dental practitioners under contract with it. It negotiates with such health care practitioners regarding payment schemes,
financing and other procedures for the delivery of health services. Except in cases of emergency, the professional services are to be
provided only by petitioner's physicians, i.e. those directly employed by it11 or whose services are contracted by it.12 Petitioner also
provides hospital services such as room and board accommodation, laboratory services, operating rooms, x-ray facilities and general
nursing care.13 If and when a member avails of the benefits under the agreement, petitioner pays the participating physicians and other
health care providers for the services rendered, at pre-agreed rates.14

To avail of petitioner’s health care programs, the individual members are required to sign and execute a standard health care agreement
embodying the terms and conditions for the provision of the health care services. The same agreement contains the various health care
services that can be engaged by the enrolled member, i.e., preventive, diagnostic and curative medical services. Except for the curative
aspect of the medical service offered, the enrolled member may actually make use of the health care services being offered by petitioner
at any time.

Health Maintenance Organizations Are Not Engaged In The Insurance Business

We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an insurer because its agreements are
treated as insurance contracts and the DST is not a tax on the business but an excise on the privilege, opportunity or facility used in the
transaction of the business.15
Petitioner, however, submits that it is of critical importance to characterize the business it is engaged in, that is, to determine whether it
is an HMO or an insurance company, as this distinction is indispensable in turn to the issue of whether or not it is liable for DST on its
health care agreements.16

A second hard look at the relevant law and jurisprudence convinces the Court that the arguments of petitioner are meritorious.

Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:

Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of insurance or bonds or obligations of the
nature of indemnity for loss, damage, or liability made or renewed by any person, association or company or corporation
transacting the business of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or
other branch of insurance (except life, marine, inland, and fire insurance), and all bonds, undertakings, or recognizances,
conditioned for the performance of the duties of any office or position, for the doing or not doing of anything therein specified, and on all
obligations guaranteeing the validity or legality of any bond or other obligations issued by any province, city, municipality, or other
public body or organization, and on all obligations guaranteeing the title to any real estate, or guaranteeing any mercantile credits,
which may be made or renewed by any such person, company or corporation, there shall be collected a documentary stamp tax of fifty
centavos (₱0.50) on each four pesos (₱4.00), or fractional part thereof, of the premium charged. (Emphasis supplied)

It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute shall be considered surplusage
or superfluous, meaningless, void and insignificant. To this end, a construction which renders every word operative is preferred over
that which makes some words idle and nugatory.17 This principle is expressed in the maxim Ut magis valeat quam pereat, that is, we
choose the interpretation which gives effect to the whole of the statute – its every word.18

From the language of Section 185, it is evident that two requisites must concur before the DST can apply, namely: (1) the document
must be a policy of insurance or an obligation in the nature of indemnity and (2) the maker should be transacting the business
of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch
of insurance (except life, marine, inland, and fire insurance).

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."19 The payments do
not vary with the extent, frequency or type of services provided.

The question is: was petitioner, as an HMO, engaged in the business of insurance during the pertinent taxable years? We rule that it was
not.

Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates what constitutes "doing an insurance business" or
"transacting an insurance business:"

a) making or proposing to make, as insurer, any insurance contract;

b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other
legitimate business or activity of the surety;

c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an
insurance business within the meaning of this Code;

d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the
provisions of this Code.

In the application of the provisions of this Code, the fact that no profit is derived from the making of insurance contracts, agreements or
transactions or that no separate or direct consideration is received therefore, shall not be deemed conclusive to show that the making
thereof does not constitute the doing or transacting of an insurance business.

Various courts in the United States, whose jurisprudence has a persuasive effect on our decisions,21 have determined that HMOs are not
in the insurance business. 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.

Applying the "principal object and purpose test,"22 there is significant American case law supporting the argument that a corporation
(such as an HMO, whether or not organized for profit), whose main object is to provide the members of a group with health services, is
not engaged in the insurance business.

The rule was enunciated in Jordan v. Group Health Association23  wherein the Court of Appeals of the District of Columbia Circuit held that
Group Health Association should not be considered as engaged in insurance activities since it was created primarily for the distribution
of health care services rather than the assumption of insurance risk.
xxx Although Group Health’s activities may be considered in one aspect as creating security against loss from illness or accident more
truly they constitute the quantity purchase of well-rounded, continuous medical service by its members. xxx The functions of such an
organization are not identical with those of insurance or indemnity companies. The latter are concerned primarily, if not
exclusively, with risk and the consequences of its descent, not with service, or its extension in kind, quantity or distribution; with the
unusual occurrence, not the daily routine of living. Hazard is predominant. On the other hand, the cooperative is concerned
principally with getting service rendered  to its members and doing so at lower prices made possible by quantity purchasing
and economies in operation. Its primary purpose is to reduce the cost rather than the risk of medical care; to broaden the
service to the individual in kind and quantity; to enlarge the number receiving it; to regularize it as an everyday incident of
living, like purchasing food and clothing or oil and gas, rather than merely protecting against the financial loss caused by
extraordinary and unusual occurrences, such as death, disaster at sea, fire and tornado. It is, in this instance, to take care of colds,
ordinary aches and pains, minor ills and all the temporary bodily discomforts as well as the more serious and unusual illness. To
summarize, the distinctive features of the cooperative are the rendering of service, its extension, the bringing of physician and
patient together, the preventive features, the regularization of service as well as payment, the substantial reduction in cost by
quantity purchasing in short, getting the medical job done and paid for; not, except incidentally to these features, the
indemnification for cost after the services is rendered. Except the last, these are not distinctive or generally characteristic of
the insurance arrangement. There is, therefore, a substantial difference between contracting in this way for the rendering of service,
even on the contingency that it be needed, and contracting merely to stand its cost when or after it is rendered.

That an incidental element of risk distribution or assumption may be present should not outweigh all other factors. If attention is
focused only on that feature, the line between insurance or indemnity and other types of legal arrangement and economic function
becomes faint, if not extinct. This is especially true when the contract is for the sale of goods or services on contingency. But obviously it
was not the purpose of the insurance statutes to regulate all arrangements for assumption or distribution of risk. That view would cause
them to engulf practically all contracts, particularly conditional sales and contingent service agreements. The fallacy is in looking only
at the risk element, to the exclusion of all others present or their subordination to it. The question turns, not on whether risk is
involved or assumed, but on whether that or something else to which it is related in the particular plan is its principal object
purpose.24 (Emphasis supplied)

In California Physicians’ Service v. Garrison,25 the California court felt that, after scrutinizing the plan of operation as a whole of the
corporation, it was service rather than indemnity which stood as its principal purpose.

There is another and more compelling reason for holding that the service is not engaged in the insurance business. Absence or
presence of assumption of risk or peril is not the sole test to be applied in determining its status. The question, more broadly,
is whether, looking at the plan of operation as a whole, ‘service’ rather than ‘indemnity’ is its principal object and
purpose. Certainly the objects and purposes of the corporation organized and maintained by the California physicians have a wide
scope in the field of social service. Probably there is no more impelling need than that of adequate medical care on a voluntary,
low-cost basis for persons of small income. The medical profession unitedly is endeavoring to meet that need. Unquestionably
this is ‘service’ of a high order and not ‘indemnity.’ 26 (Emphasis supplied)

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. Somerset Orthopedic Associates, P.A. v. Horizon Blue
Cross and Blue Shield of New Jersey27  is clear on this point:

The basic distinction between medical service corporations and ordinary health and accident insurers is that the former undertake to
provide prepaid medical services through participating physicians, thus relieving subscribers of any further financial burden, while
the latter only undertake to indemnify an insured for medical expenses up to, but not beyond, the schedule of rates contained in the
policy.

x x x           x x x          x x x

The primary purpose of a medical service corporation, however, is an undertaking to provide physicians who will render services to
subscribers on a prepaid basis. Hence, if there are no physicians participating in the medical service corporation’s plan, not only
will the subscribers be deprived of the protection which they might reasonably have expected would be provided, but the
corporation will, in effect, be doing business solely as a health and accident indemnity insurer without having qualified as such
and rendering itself subject to the more stringent financial requirements of the General Insurance Laws….

A participating provider of health care services is one who agrees in writing to render health care services to or for persons covered by a
contract issued by health service corporation in return for which the health service corporation agrees to make payment directly
to the participating provider.28 (Emphasis supplied)

Consequently, the mere presence of risk would be insufficient to override the primary purpose of the business to provide medical
services as needed, with payment made directly to the provider of these services.29 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.

By the same token, any indemnification resulting from the payment for services rendered in case of emergency by non-participating
health providers would still be incidental to petitioner’s purpose of providing and arranging for health care services and does not
transform it into an insurer. To fulfill its obligations to its members under the agreements, petitioner is required to set up a system and
the facilities for the delivery of such medical services. This indubitably shows that indemnification is not its sole object.
In fact, a substantial portion of petitioner’s services covers preventive and diagnostic medical services intended to keep members from
developing medical conditions or diseases.30 As an HMO, it is its obligation to maintain the good health of its members. Accordingly, its
health care programs are designed to prevent or to minimize the possibility of any assumption of risk on its part. Thus, its
undertaking under its agreements is not to indemnify its members against any loss or damage arising from a medical condition but, on
the contrary, to provide the health and medical services needed to prevent such loss or damage.31

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. The "insurance-like" aspect of petitioner’s business is miniscule
compared to its noninsurance activities. Therefore, since it substantially provides health care services rather than insurance services, it
cannot be considered as being in the insurance business.

It is important to emphasize that, 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. This is of course only prudent and appropriate, taking into account the
burdensome and strict laws, rules and regulations applicable to insurers and other entities engaged in the insurance business.
Moreover, we are also not unmindful that there are other American authorities who have found particular HMOs to be actually engaged
in insurance activities.32

Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident from the fact that it is not
supervised by the Insurance Commission but by the Department of Health.33 In fact, in a letter dated September 3, 2000, the Insurance
Commissioner confirmed that petitioner is not engaged in the insurance business. This determination of the commissioner must be
accorded great weight. It is well-settled that the interpretation of an administrative agency which is tasked to implement a statute is
accorded great respect and ordinarily controls the interpretation of laws by the courts. The reason behind this rule was explained
in Nestle Philippines, Inc. v. Court of Appeals:34

The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society and the
establishment of diverse administrative agencies for addressing and satisfying those needs; it also relates to the accumulation of
experience and growth of specialized capabilities by the administrative agency charged with implementing a particular statute.
In Asturias Sugar Central, Inc. vs. Commissioner of Customs,35 the Court stressed that executive officials are presumed to have familiarized
themselves with all the considerations pertinent to the meaning and purpose of the law, and to have formed an independent,
conscientious and competent expert opinion thereon. The courts give much weight to the government agency officials charged with the
implementation of the law, their competence, expertness, experience and informed judgment, and the fact that they frequently are the
drafters of the law they interpret.36

A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section 185 Of The NIRC of 1997

Section 185 states that DST is imposed on "all policies of insurance… or obligations of the nature of indemnity for loss, damage, or
liability…." In our decision dated June 12, 2008, we ruled that petitioner’s health care agreements are contracts of indemnity and are
therefore insurance contracts:

It is … incorrect to say that the health care agreement is not based on loss or damage because, under the said agreement, petitioner
assumes the liability and indemnifies its member for hospital, medical and related expenses (such as professional fees of physicians).
The term "loss or damage" is broad enough to cover the monetary expense or liability a member will incur in case of illness or injury.

Under the health care agreement, the rendition of hospital, medical and professional services to the member in case of sickness, injury
or emergency or his availment of so-called "out-patient services" (including physical examination, x-ray and laboratory tests, medical
consultations, vaccine administration and family planning counseling) is the contingent event which gives rise to liability on the part of
the member. In case of exposure of the member to liability, he would be entitled to indemnification by petitioner.

Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising from the stipulated
contingencies belies its claim that its services are prepaid. The expenses to be incurred by each member cannot be predicted
beforehand, if they can be predicted at all. Petitioner assumes the risk of paying for the costs of the services even if they are significantly
and substantially more than what the member has "prepaid." Petitioner does not bear the costs alone but distributes or spreads them
out among a large group of persons bearing a similar risk, that is, among all the other members of the health care program. This is
insurance.37

We reconsider. We shall quote once again the pertinent portion of Section 185:

Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of insurance or bonds or obligations of the
nature of indemnity for loss, damage, or liability made or renewed by any person, association or company or corporation transacting
the business of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of
insurance (except life, marine, inland, and fire insurance), xxxx (Emphasis supplied)

In construing this provision, we should be guided by the principle that tax statutes are strictly construed against the taxing
authority.38 This is because taxation is a destructive power which interferes with the personal and property rights of the people and
takes from them a portion of their property for the support of the government.39 Hence, tax laws may not be extended by implication
beyond the clear import of their language, nor their operation enlarged so as to embrace matters not specifically provided.40
We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care agreement is in the nature of non-life
insurance, which is primarily a contract of indemnity. However, those cases did not involve the interpretation of a tax provision. Instead,
they dealt with the liability of a health service provider to a member under the terms of their health care agreement. Such contracts, as
contracts of adhesion, are liberally interpreted in favor of the member and strictly against the HMO. For this reason, we reconsider our
ruling that Blue Cross and Philamcare are applicable here.

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.41

Do the agreements between petitioner and its members possess all these elements? They do not.

First. 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:

It does not necessarily follow however, that a contract containing all the four elements mentioned above would be an insurance
contract. The primary purpose of the parties in making the contract may negate the existence of an insurance contract. For
example, a law firm which enters into contracts with clients whereby in consideration of periodical payments, it promises to represent
such clients in all suits for or against them, is not engaged in the insurance business. Its contracts are simply for the purpose of
rendering personal services. On the other hand, a contract by which a corporation, in consideration of a stipulated amount, agrees at its
own expense to defend a physician against all suits for damages for malpractice is one of insurance, and the corporation will be deemed
as engaged in the business of insurance. Unlike the lawyer’s retainer contract, the essential purpose of such a contract is not to render
personal services, but to indemnify against loss and damage resulting from the defense of actions for malpractice.42 (Emphasis supplied)

Second. Not all the necessary elements of a contract of insurance are present in petitioner’s agreements. To begin with, there is no loss,
damage or liability on the part of the member that should be indemnified by petitioner as an HMO. Under the agreement, the member
pays petitioner 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, petitioner
does not reimburse or indemnify the member as the latter does not pay any third party. Instead, it is the petitioner who pays the
participating physicians and other health care providers for the services rendered at pre-agreed rates. The member does not make any
such payment.

In other words, 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 petitioner. 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.

Third. According to the agreement, a member can take advantage of the bulk of the benefits anytime, e.g. laboratory services, x-ray,
routine annual physical examination and consultations, vaccine administration as well as family planning counseling, even in the
absence of any peril, loss or damage on his or her part.

Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care from a non-participating physician or
hospital. However, this is only a very minor part of the list of services available. The assumption of the expense by petitioner is not
confined to the happening of a contingency but includes incidents even in the absence of illness or injury.

In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,43 although the health care contracts called for the
defendant to partially reimburse a subscriber for treatment received from a non-designated doctor, this did not make defendant an
insurer. Citing Jordan, the Court determined that "the primary activity of the defendant (was) the provision of podiatric services to
subscribers in consideration of prepayment for such services."44 Since 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, it did not partake of the nature of a contract of insurance.

Fifth. 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. Consequently, there is a need to
distinguish prepaid service contracts (like those of petitioner) from the usual insurance contracts.
Indeed, petitioner, 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.45

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 qualify as an insurance contract because petitioner’s objective is to
provide medical services at reduced cost, not to distribute risk like an insurer.

In sum, an examination of petitioner’s agreements with its members leads us to conclude that it is not an insurance contract within the
context of our Insurance Code.

There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs

Furthermore, militating in convincing fashion against the imposition of DST on petitioner’s health care agreements under Section 185 of
the NIRC of 1997 is the provision’s legislative history. The text of Section 185 came into U.S. law as early as 1904 when HMOs and health
care agreements were not even in existence in this jurisdiction. It was imposed under Section 116, Article XI of Act No. 1189 (otherwise
known as the "Internal Revenue Law of 1904")46 enacted on July 2, 1904 and became effective on August 1, 1904. Except for the rate of
tax, Section 185 of the NIRC of 1997 is a verbatim reproduction of the pertinent portion of Section 116, to wit:

ARTICLE XI
Stamp Taxes on Specified Objects

Section 116. There shall be levied, collected, and paid for and in respect to the several bonds, debentures, or certificates of stock and
indebtedness, and other documents, instruments, matters, and things mentioned and described in this section, or for or in respect to the
vellum, parchment, or paper upon which such instrument, matters, or things or any of them shall be written or printed by any person or
persons who shall make, sign, or issue the same, on and after January first, nineteen hundred and five, the several taxes following:

x x x           x x x          x x x

Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity for loss, damage, or liability made or
renewed by any person, association, company, or corporation transacting the business of accident, fidelity, employer’s
liability, plate glass, steam boiler, burglar, elevator, automatic sprinkle, or other branch of insurance (except life, marine,
inland, and fire insurance) xxxx (Emphasis supplied)

On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising and consolidating the laws relating to
internal revenue. The aforecited pertinent portion of Section 116, Article XI of Act No. 1189 was completely reproduced as Section 30 (l),
Article III of Act No. 2339. The very detailed and exclusive enumeration of items subject to DST was thus retained.

On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as Section 1604 (l), Article IV of Act No. 2657
(Administrative Code). Upon its amendment on March 10, 1917, the pertinent DST provision became Section 1449 (l) of Act No. 2711,
otherwise known as the Administrative Code of 1917.

Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of 1939), which codified all the internal revenue
laws of the Philippines. In an amendment introduced by RA 40 on October 1, 1946, the DST rate was increased but the provision
remained substantially the same.

Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD 1158 (NIRC of 1977) as Section 234.
Under PDs 1457 and 1959, enacted on June 11, 1978 and October 10, 1984 respectively, the DST rate was again increased.1avvphi1

Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977 was renumbered as Section 198. And
under Section 23 of EO47 273 dated July 25, 1987, it was again renumbered and became Section 185.

On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect to the rate of tax.

Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC of 1997), the subject legal provision was
retained as the present Section 185. In 2004, amendments to the DST provisions were introduced by RA 924348 but Section 185 was
untouched.

On the other hand, the concept of an HMO was introduced in the Philippines with the formation of Bancom Health Care Corporation in
1974. The same pioneer HMO was later reorganized and renamed Integrated Health Care Services, Inc. (or Intercare). However, there
are those who claim that Health Maintenance, Inc. is the HMO industry pioneer, having set foot in the Philippines as early as 1965 and
having been formally incorporated in 1991. Afterwards, HMOs proliferated quickly and currently, there are 36 registered HMOs with a
total enrollment of more than 2 million.49

We can clearly see from these two histories (of the DST on the one hand and HMOs on the other) that when the law imposing the DST
was first passed, HMOs were yet unknown in the Philippines. However, when the various amendments to the DST law were enacted,
they were already in existence in the Philippines and the term had in fact already been defined by RA 7875. If it had been the intent of
the legislature to impose DST on health care agreements, it could have done so in clear and categorical terms. It had many opportunities
to do so. But it did not. The fact that the NIRC contained no specific provision on the DST liability of health care agreements of HMOs at a
time they were already known as such, belies any legislative intent to impose it on them. As a matter of fact, petitioner was assessed
its DST liability only on January 27, 2000, after more than a decade in the business as an HMO. 50

Considering that Section 185 did not change since 1904 (except for the rate of tax), it would be safe to say that health care agreements
were never, at any time, recognized as insurance contracts or deemed engaged in the business of insurance within the context of the
provision.

The Power To Tax Is Not The Power To Destroy

As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits,
so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency
who is to pay it.51 So potent indeed is the power that it was once opined that "the power to tax involves the power to destroy."52

Petitioner claims that the assessed DST to date which amounts to ₱376 million53 is way beyond its net worth of ₱259
million.54 Respondent never disputed these assertions. Given the realities on the ground, imposing the DST on petitioner would be highly
oppressive. It is not the purpose of the government to throttle private business. On the contrary, the government ought to encourage
private enterprise.55 Petitioner, just like any concern organized for a lawful economic activity, has a right to maintain a legitimate
business.56 As aptly held in Roxas, et al. v. CTA, et al.:57

The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to
the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the
golden egg."58

Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring losses because of a tax imposition
may be an acceptable consequence but killing the business of an entity is another matter and should not be allowed. It is counter-
productive and ultimately subversive of the nation’s thrust towards a better economy which will ultimately benefit the majority of our
people.59

Petitioner’s Tax Liability Was Extinguished Under The Provisions Of RA 9840

Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years 1996 and 1997 became moot and
academic60 when it availed of the tax amnesty under RA 9480 on December 10, 2007. It paid ₱5,127,149.08 representing 5% of its net
worth as of the year ended December 31, 2005 and complied with all requirements of the tax amnesty. Under Section 6(a) of RA 9480, it
is entitled to immunity from payment of taxes as well as additions thereto, and the appurtenant civil, criminal or administrative
penalties under the 1997 NIRC, as amended, arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and
prior years.61

Far from disagreeing with petitioner, respondent manifested in its memorandum:

Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity from payment of the tax involved,
including the civil, criminal, or administrative penalties provided under the 1997 [NIRC], for tax liabilities arising in 2005 and the
preceding years.

In view of petitioner’s availment of the benefits of [RA 9840], and without conceding the merits of this case as discussed
above, respondent concedes that such tax amnesty extinguishes the tax liabilities of petitioner. This admission, however, is not
meant to preclude a revocation of the amnesty granted in case it is found to have been granted under circumstances amounting to tax
fraud under Section 10 of said amnesty law.62 (Emphasis supplied)

Furthermore, we held in a recent case that DST is one of the taxes covered by the tax amnesty program under RA 9480.63 There is no
other conclusion to draw than that petitioner’s liability for DST for the taxable years 1996 and 1997 was totally extinguished by its
availment of the tax amnesty under RA 9480.

Is The Court Bound By A Minute Resolution In Another Case?

Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is bound by the ruling of the CA64 in CIR
v. Philippine National Bank65  that a health care agreement of Philamcare Health Systems is not an insurance contract for purposes of the
DST.

In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court dismissing the appeal in Philippine
National Bank  (G.R. No. 148680).66 Petitioner argues that the dismissal of G.R. No. 148680 by minute resolution was a judgment on the
merits; hence, the Court should apply the CA ruling there that a health care agreement is not an insurance contract.

It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition of the merits of the case. When
we dismissed the petition, we effectively affirmed the CA ruling being questioned. As a result, our ruling in that case has already become
final.67 When a minute resolution denies or dismisses a petition for failure to comply with formal and substantive requirements, the
challenged decision, together with its findings of fact and legal conclusions, are deemed sustained.68 But what is its effect on other cases?

With respect to the same subject matter and the same issues concerning the same parties, it constitutes res judicata.69 However, if other
parties or another subject matter (even with the same parties and issues) is involved, the minute resolution is not binding precedent.
Thus, in CIR v. Baier-Nickel,70 the Court noted that a previous case, CIR v. Baier-Nickel71 involving the same parties and the same
issues, was previously disposed of by the Court thru a minute resolution dated February 17, 2003 sustaining the ruling of the CA.
Nonetheless, the Court ruled that the previous case "ha(d) no bearing" on the latter case because the two cases involved different
subject matters as they were concerned with the taxable income of different taxable years.72

Besides, there are substantial, not simply formal, distinctions between a minute resolution and a decision. The constitutional
requirement under the first paragraph of Section 14, Article VIII of the Constitution that the facts and the law on which the judgment is
based must be expressed clearly and distinctly applies only to decisions, not to minute resolutions. A minute resolution is signed only by
the clerk of court by authority of the justices, unlike a decision. It does not require the certification of the Chief Justice. Moreover, unlike
decisions, minute resolutions are not published in the Philippine Reports. Finally, the proviso of Section 4(3) of Article VIII speaks of a
decision.73 Indeed, as a rule, this Court lays down doctrines or principles of law which constitute binding precedent in a decision duly
signed by the members of the Court and certified by the Chief Justice.

Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioner’s liability for DST on its health care agreement was
not the subject matter of G.R. No. 148680, petitioner cannot successfully invoke the minute resolution in that case (which is not even
binding precedent) in its favor. Nonetheless, in view of the reasons already discussed, this does not detract in any way from the fact that
petitioner’s health care agreements are not subject to DST.

A Final Note

Taking into account that health care agreements are clearly not within the ambit of Section 185 of the NIRC and there was never any
legislative intent to impose the same on HMOs like petitioner, the same should not be arbitrarily and unjustly included in its coverage.

It is a matter of common knowledge that there is a great social need for adequate medical services at a cost which the average wage
earner can afford. HMOs arrange, organize and manage health care treatment in the furtherance of the goal of providing a more efficient
and inexpensive health care system made possible by quantity purchasing of services and economies of scale. They offer advantages
over the pay-for-service system (wherein individuals are charged a fee each time they receive medical services), including the ability to
control costs. They protect their members from exposure to the high cost of hospitalization and other medical expenses brought about
by a fluctuating economy. Accordingly, they play an important role in society as partners of the State in achieving its constitutional
mandate of providing its citizens with affordable health services.

The rate of DST under Section 185 is equivalent to 12.5% of the premium charged.74 Its imposition will elevate the cost of health care
services. This will in turn necessitate an increase in the membership fees, resulting in either placing health services beyond the reach of
the ordinary wage earner or driving the industry to the ground. At the end of the day, neither side wins, considering the indispensability
of the services offered by HMOs.

WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision of the Court of Appeals in CA-G.R. SP
No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency DST assessment against petitioner is
hereby CANCELLED and SET ASIDE. Respondent is ordered to desist from collecting the said tax.

No costs.

SO ORDERED.

13. Philippine Health Care Providers, Inc. v. CIR june 12, 2008

G.R. No. 167330             June 12, 2008

PHILIPPINE HEALTH CARE PROVIDERS, INC., petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION
CORONA, J.:

Is a health care agreement in the nature of an insurance contract and therefore subject to the documentary stamp tax (DST)
imposed under Section 185 of Republic Act 8424 (Tax Code of 1997)?

This is an issue of first impression. The Court of Appeals (CA) answered it affirmatively in its August 16, 2004 decision 1 in CA-G.R.
SP No. 70479. Petitioner Philippine Health Care Providers, Inc. believes otherwise and assails the CA decision in this petition for
review under Rule 45 of the Rules of Court.

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." 2 Individuals
enrolled in its health care programs pay an annual membership fee and are entitled to various preventive, diagnostic and
curative medical services provided by its duly licensed physicians, specialists and other professional technical staff participating
in the group practice health delivery system at a hospital or clinic owned, operated or accredited by it. 3

The pertinent part of petitioner's membership or health care agreement 4 provides:

VII BENEFITS
Subject to paragraphs VIII [on pre-existing medical condition] and X [on claims for reimbursement] of this Agreement, Members
shall have the following Benefits under this Agreement:
In-Patient Services. In the event that a Member contract[s] sickness or suffers injury which requires confinement in a
participating Hospital[,] the services or benefits stated below shall be provided to the Member free of charge, but in no case
shall [petitioner] be liable to pay more than P75,000.00 in benefits with respect to anyone sickness, injury or related causes. If a
member has exhausted such maximum benefits with respect to a particular sickness, injury or related causes, all accounts in
excess of P75,000.00 shall be borne by the enrollee. It is[,] however, understood that the payment by [petitioner] of the said
maximum in In-Patient Benefits to any one member shall preclude a subsequent payment of benefits to such member in respect
of an unrelated sickness, injury or related causes happening during the remainder of his membership term.
(a) Room and Board
(b) Services of physician and/or surgeon or specialist
(c) Use of operating room and recovery room
(d) Standard Nursing Services
(e) Drugs and Medication for use in the hospital except those which are used to dissolve blood clots in the vascular
systems (i.e., trombolytic agents)
(f) Anesthesia and its administration
(g) Dressings, plaster casts and other miscellaneous supplies
(h) Laboratory tests, x-rays and other necessary diagnostic services
(i) Transfusion of blood and other blood elements
Condition for in-Patient Care. The provision of the services or benefits mentioned in the immediately preceding paragraph shall
be subject to the following conditions:
(a) The Hospital Confinement must be approved by [petitioner's] Physician, Participating Physician or [petitioner's]
Medical Coordinator in that Hospital prior to confinement.
(b) The confinement shall be in a Participating Hospital and the accommodation shall be in accordance with the
Member[']s benefit classification.
(c) Professional services shall be provided only by the [petitioner's] Physicians or Participating Physicians.
(d) If discharge from the Hospital has been authorized by [petitioner's] attending Physician or Participating Physician
and the Member shall fail or refuse to do so, [petitioner] shall not be responsible for any charges incurred after
discharge has been authorized.
Out-Patient Services. A Member is entitled free of charge to the following services or benefits which shall be rendered or
administered either in [petitioner's] Clinic or in a Participating Hospital under the direction or supervision of [petitioner's]
Physician, Participating Physician or [petitioner's] Medical Coordinator.
(a) Gold Plan Standard Annual Physical Examination on the anniversary date of membership, to be done at [petitioner's]
designated hospital/clinic, to wit:
(i) Taking a medical history
(ii) Physical examination
(iii) Chest x-ray
(iv) Stool examination
(v) Complete Blood Count
(vi) Urinalysis
(vii) Fasting Blood Sugar (FBS)
(viii) SGPT
(ix) Creatinine
 (x) Uric Acid
(xi) Resting Electrocardiogram
(xii) Pap Smear (Optional for women 40 years and above)
(b) Platinum Family Plan/Gold Family Plan and Silver Annual Physical Examination.
The following tests are to be done as part of the Member[']s Annual check-up program at [petitioner's] designated
clinic, to wit:
1) Routine Physical Examination
2) CBC (Complete Blood Count)
* Hemoglobin * Hematocrit
* Differential * RBC/WBC
3) Chest X-ray
4) Urinalysis
5) Fecalysis
(c) Preventive Health Care, which shall include:
(i) Periodic Monitoring of Health Problems
(ii) Family planning counseling
(iii) Consultation and advices on diet, exercise and other healthy habits
(iv) Immunization but excluding drugs for vaccines used
(d) Out-Patient Care, which shall include:
(i) Consultation, including specialist evaluation
(ii) Treatment of injury or illness
(iii) Necessary x-ray and laboratory examination
(iv) Emergency medicines needed for the immediate
relief of symptoms
(v) Minor surgery not requiring confinement

Emergency Care. Subject to the conditions and limitations in this Agreement and those specified below, a Member is entitled to
receive emergency care [in case of emergency. For this purpose, all hospitals and all attending physician(s) in the Emergency
Room automatically become accredited. In participating hospitals, the member shall be entitled to the following services free of
charge: (a) doctor's fees, (b) emergency room fees, (c) medicines used for immediate relief and during treatment, (d) oxygen,
intravenous fluids and whole blood and human blood products, (e) dressings, casts and sutures and (f) x-rays, laboratory and
diagnostic examinations and other medical services related to the emergency treatment of the patient.] 5 Provided, however,
that in no case shall the total amount payable by [petitioner] for said Emergency, inclusive of hospital bill and professional fees,
exceed P75,000.00.

If the Member received care in a non-participating hospital, [petitioner] shall reimburse [him] 6 80% of the hospital bill or the
amount of P5,000.00[,] whichever is lesser, and 50% of the professional fees of non-participating physicians based on
[petitioner's] schedule of fees provided that the total amount[,] inclusive of hospital bills and professional fee shall not exceed
P5,000.00.

On January 27, 2000, respondent Commissioner of Internal Revenue sent petitioner a formal demand letter and the
corresponding assessment notices demanding the payment of deficiency taxes, including surcharges and interest, for the taxable
years 1996 and 1997 in the total amount of P224,702,641.18. The assessment represented the following:

Value Added Tax (VAT) DST

1996 P     45,767,596.23 P     55,746,352.19

1997 54,738,434.03 68,450,258.73
P     100,506,030.26 P     124,196,610.92

The deficiency DST assessment was imposed on petitioner's health care agreement with the members of its health care program
pursuant to Section 185 of the 1997 Tax Code which provides:

Section 185. Stamp tax on fidelity bonds and other insurance policies. - On all policies of insurance or bonds or
obligations of the nature of indemnity for loss, damage, or liability made or renewed by any person, association or
company or corporation transacting the business of accident, fidelity, employer's liability, plate, glass, steam boiler,
burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance),
and all bonds, undertakings, or recognizances, conditioned for the performance of the duties of any office or position,
for the doing or not doing of anything therein specified, and on all obligations guaranteeing the validity or legality of
any bond or other obligations issued by any province, city, municipality, or other public body or organization, and on all
 obligations guaranteeing the title to any real estate, or guaranteeing any mercantile credits, which may be made or
renewed by any such person, company or corporation, there shall be collected a documentary stamp tax of fifty
centavos (P0.50) on each four pesos (P4.00), or fractional part thereof, of the premium charged. (emphasis supplied)

Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner
filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments.

On April 5, 2002, the CTA rendered a decision, 7 the dispositive portion of which read:

WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner is hereby
ORDERED to PAY the deficiency VAT amounting to P22,054,831.75 inclusive of 25% surcharge plus 20% interest from
January 20, 1997 until fully paid for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge plus 20%
interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is
declared void and without force and effect. The 1996 and 1997 deficiency DST assessment against petitioner is hereby
CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from collecting the said DST deficiency tax.

SO ORDERED.8

Respondent appealed the CTA decision to the CA9 insofar as it cancelled the DST assessment. He claimed that petitioner's health
care agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code.

On August 16, 2004, the CA rendered its decision.10 It held that petitioner's health care agreement was in the nature of a non-life
insurance contract subject to DST:

WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals, insofar as it cancelled and
set aside the 1996 and 1997 deficiency documentary stamp tax assessment and ordered petitioner to desist from
collecting the same is REVERSED and SET ASIDE.

Respondent is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency Documentary Stamp
Tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27,
2000, pursuant to Sections 248 and 249 of the Tax Code, until the same shall have been fully paid.

SO ORDERED.11

Petitioner moved for reconsideration but the CA denied it. Hence, this petition.

Petitioner essentially argues that its health care agreement is not a contract of insurance but a contract for the provision on a
prepaid basis of medical services, including medical check-up, that are not based on loss or damage. Petitioner also insists that it
is not engaged in the insurance business. It is a health maintenance organization regulated by the Department of Health, not an
insurance company under the jurisdiction of the Insurance Commission. For these reasons, petitioner asserts that the health
care agreement is not subject to DST.

We do not agree.

The DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of
specific legal relationships through the execution of specific instruments. 12 It is an excise upon the privilege, opportunity, or
facility offered at exchanges for the transaction of the business. 13 In particular, the DST under Section 185 of the 1997 Tax Code
is imposed on the privilege of making or renewing any policy of insurance (except life, marine, inland and fire insurance),
bond or obligation in the nature of indemnity for loss, damage, or liability.

Under the law, a contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event. 14 The event insured against must be designated in
the contract and must either be unknown or contingent. 15

Petitioner's health care agreement is primarily a contract of indemnity. And in the recent case of Blue Cross Healthcare, Inc. v.
Olivares,16 this Court ruled that a health care agreement is in the nature of a non-life insurance policy.

Contrary to petitioner's claim, its health care agreement is not a contract for the provision of medical services. Petitioner does
not actually provide medical or hospital services but merely arranges for the same 17 and pays for them up to the stipulated
maximum amount of coverage. It is also incorrect to say that the health care agreement is not based on loss or damage because,
under the said agreement, petitioner assumes the liability and indemnifies its member for hospital, medical and related
expenses (such as professional fees of physicians). The term "loss or damage" is broad enough to cover the monetary expense or
liability a member will incur in case of illness or injury.

Under the health care agreement, the rendition of hospital, medical and professional services to the member in case of sickness,
injury or emergency or his availment of so-called "out-patient services" (including physical examination, x-ray and laboratory
tests, medical consultations, vaccine administration and family planning counseling) is the contingent event which gives rise to
liability on the part of the member. In case of exposure of the member to liability, he would be entitled to indemnification by
petitioner.

Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising from the stipulated
contingencies belies its claim that its services are prepaid. The expenses to be incurred by each member cannot be predicted
beforehand, if they can be predicted at all. Petitioner assumes the risk of paying for the costs of the services even if they are
significantly and substantially more than what the member has "prepaid." Petitioner does not bear the costs alone but
distributes or spreads them out among a large group of persons bearing a similar risk, that is, among all the other members of
the health care program. This is insurance.

Petitioner's health care agreement is substantially similar to that involved in Philamcare Health Systems, Inc. v. CA.18 The health
care agreement in that case entitled the subscriber to avail of the hospitalization benefits, whether ordinary or emergency,
listed therein. It also provided for "out-patient benefits" such as annual physical examinations, preventive health care and other
out-patient services. This Court ruled in Philamcare Health Systems, Inc.:

[T]he insurable interest of [the subscriber] in obtaining the health care agreement was his own health. The health care
agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member
incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingency, the health
care provider must pay for the same to the extent agreed upon under the contract. 19 (emphasis supplied)

Similarly, the insurable interest of every member of petitioner's health care program in obtaining the health care agreement is
his own health. Under the agreement, petitioner is bound to indemnify any member who incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingency to the extent agreed upon under the contract.

Petitioner's contention that it is a health maintenance organization and not an insurance company is irrelevant. Contracts
between companies like petitioner and the beneficiaries under their plans are treated as insurance contracts. 20

Moreover, DST is not a tax on the business transacted but an excise on the privilege, opportunity, or facility offered at exchanges
for the transaction of the business.21 It is an excise on the facilities used in the transaction of the business, separate and apart
from the business itself.22

WHEREFORE, the petition is hereby DENIED. The August 16, 2004 decision of the Court of Appeals in CA-G.R. SP
No. 70479 is AFFIRMED.

Petitioner is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency documentary stamp tax for 1996
and 1997, respectively, plus 25% surcharge for late payment and 20% interest per annum from January 27, 2000 until full
payment thereof.

Costs against petitioner.

SO ORDERED.

14. Fortune Medicare, Inc. v. Amorin

G.R. No. 195872               March 12, 2014

FORTUNE MEDICARE, INC., Petitioner,

vs.
DAVID ROBERT U. AMORIN, Respondent.

DECISION
REYES, J.:

This is a petition for review on certiorari1 under Rule 45 of the Rules of Court, which challenges the Decision2 dated
September 27, 2010 and Resolution3 dated February 24, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 87255.

The Facts

David Robert U. Amorin (Amorin) was a cardholder/member of Fortune Medicare, Inc. (Fortune Care), a corporation
engaged in providing health maintenance services to its members. The terms of Amorin's medical coverage were
provided in a Corporate Health Program Contract4 (Health Care Contract) which was executed on January 6, 2000 by
Fortune Care and the House of Representatives, where Amorin was a permanent employee.

While on vacation in Honolulu, Hawaii, United States of America (U.S.A.) in May 1999, Amorin underwent an
emergency surgery, specifically appendectomy, at the St. Francis Medical Center, causing him to incur professional
and hospitalization expenses of US$7,242.35 and US$1,777.79, respectively. He attempted to recover from Fortune
Care the full amount thereof upon his return to Manila, but the company merely approved a reimbursement of
₱12,151.36, an amount that was based on the average cost of appendectomy, net of medicare deduction, if the
procedure were performed in an accredited hospital in Metro Manila.5 Amorin received under protest the approved
amount, but asked for its adjustment to cover the total amount of professional fees which he had paid, and eighty
percent (80%) of the approved standard charges based on "American standard", considering that the emergency
procedure occurred in the U.S.A. To support his claim, Amorin cited Section 3, Article V on Benefits and Coverages of
the Health Care Contract, to wit:

A. EMERGENCY CARE IN ACCREDITED HOSPITAL. Whether as an in-patient or out-patient, the member shall
be entitled to full coverage under the benefits provisions of the Contract at any FortuneCare accredited
hospitals subject only to the pertinent provision of Article VII (Exclusions/Limitations) hereof. For
emergency care attended by non affiliated physician (MSU), the member shall be reimbursed 80% of the
professional fee which should have been paid, had the member been treated by an affiliated physician. The
availment of emergency care from an unaffiliated physician shall not invalidate or diminish any claim if it
shall be shown to have been reasonably impossible to obtain such emergency care from an affiliated
physician.

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost including the
professional fee (based on the total approved charges) to a member who receives emergency care in a non-
accredited hospital. The above coverage applies only to Emergency confinement within Philippine Territory.
However, if the emergency confinement occurs in a foreign territory, Fortune Care will be obligated to reimburse or
pay eighty (80%) percent of the approved standard charges which shall cover the hospitalization costs and
professional fees. x x x6

Still, Fortune Care denied Amorin’s request, prompting the latter to file a complaint7 for breach of contract with
damages with the Regional Trial Court (RTC) of Makati City.

For its part, Fortune Care argued that the Health Care Contract did not cover hospitalization costs and professional
fees incurred in foreign countries, as the contract’s operation was confined to Philippine territory.8 Further, it argued
that its liability to Amorin was extinguished upon the latter’s acceptance from the company of the amount of
₱12,151.36.

The RTC Ruling

On May 8, 2006, the RTC of Makati, Branch 66 rendered its Decision9 dismissing Amorin’s complaint. Citing Section 3,
Article V of the Health Care Contract, the RTC explained:

Taking the contract as a whole, the Court is convinced that the parties intended to use the Philippine standard as
basis. Section 3 of the Corporate Health Care Program Contract provides that:

xxxx
On the basis of the clause providing for reimbursement equivalent to 80% of the professional fee which should have
been paid, had the member been treated by an affiliated physician, the Court concludes that the basis for
reimbursement shall be Philippine rates. That provision, taken with Article V of the health program contract, which
identifies affiliated hospitals as only those accredited clinics, hospitals and medical centers located "nationwide" only
point to the Philippine standard as basis for reimbursement.

The clause providing for reimbursement in case of emergency operation in a foreign territory equivalent to 80% of
the approved standard charges which shall cover hospitalization costs and professional fees, can only be reasonably
construed in connection with the preceding clause on professional fees to give meaning to a somewhat vague clause.
A particular clause should not be studied as a detached and isolated expression, but the whole and every part of the
contract must be considered in fixing the meaning of its parts.10

In the absence of evidence to the contrary, the trial court considered the amount of ₱12,151.36 already paid by
Fortune Care to Amorin as equivalent to 80% of the hospitalization and professional fees payable to the latter had he
been treated in an affiliated hospital.11

Dissatisfied, Amorin appealed the RTC decision to the CA.

The CA Ruling

On September 27, 2010, the CA rendered its Decision12 granting the appeal. Thus, the dispositive portion of its
decision reads:

WHEREFORE, all the foregoing premises considered, the instant appeal is hereby GRANTED. The May 8, 2006
assailed Decision of the Regional Trial Court (RTC) of Makati City, Branch 66 is hereby REVERSED and SET ASIDE,
and a new one entered ordering Fortune Medicare, Inc. to reimburse [Amorin] 80% of the total amount of the actual
hospitalization expenses of $7,242.35 and professional fee of $1,777.79 paid by him to St. Francis Medical Center
pursuant to Section 3, Article V of the Corporate Health Care Program Contract, or their peso equivalent at the time
the amounts became due, less the [P]12,151.36 already paid by Fortunecare.

SO ORDERED.13

In so ruling, the appellate court pointed out that, first, health care agreements such as the subject Health Care
Contract, being like insurance contracts, must be liberally construed in favor of the subscriber. In case its provisions
are doubtful or reasonably susceptible of two interpretations, the construction conferring coverage is to be adopted
and exclusionary clauses of doubtful import should be strictly construed against the provider.14 Second, the CA
explained that there was nothing under Article V of the Health Care Contract which provided that the Philippine
standard should be used even in the event of an emergency confinement in a foreign territory.15

Fortune Care’s motion for reconsideration was denied in a Resolution16 dated February 24, 2011. Hence, the filing of
the present petition for review on certiorari.

The Present Petition

Fortune Care cites the following grounds to support its petition:

I. The CA gravely erred in concluding that the phrase "approved standard charges" is subject to
interpretation, and that it did not automatically mean "Philippine Standard"; and

II. The CA gravely erred in denying Fortune Care’s motion for reconsideration, which in effect affirmed its
decision that the American Standard Cost shall be applied in the payment of medical and hospitalization
expenses and professional fees incurred by the respondent.17

The Court’s Ruling

The petition is bereft of merit.

The Court finds no cogent reason to disturb the CA’s finding that Fortune Care’s liability to Amorin under the subject
Health Care Contract should be based on the expenses for hospital and professional fees which he actually incurred,
and should not be limited by the amount that he would have incurred had his emergency treatment been performed
in an accredited hospital in the Philippines.

We emphasize that for purposes of determining the liability of a health care provider to its members, jurisprudence
holds that a health care agreement is in the nature of non-life insurance, which is primarily a contract of indemnity.
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.18

To aid in the interpretation of health care agreements, the Court laid down the following guidelines in Philamcare
Health Systems v. CA19:

When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as
to preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an
insurance contract are to be construed strictly against the party which prepared the contract – the insurer. By reason
of the exclusive control of the insurance company over the terms and phraseology of the insurance contract,
ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid
forfeiture. This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably
susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of
doubtful import should be strictly construed against the provider.20 (Citations omitted and emphasis ours)

Consistent with the foregoing, we reiterated in Blue Cross Health Care, Inc. v. Spouses Olivares21:

In Philamcare Health Systems, Inc. v. CA, we ruled that a health care agreement is in the nature of a non-life
insurance. It is an established rule in insurance contracts that when their terms contain limitations on liability, they
should be construed strictly against the insurer. These are contracts of adhesion the terms of which must be
interpreted and enforced stringently against the insurer which prepared the contract. This doctrine is equally
applicable to health care agreements.

xxxx

x x x [L]imitations of liability on the part of the insurer or health care provider must be construed in such a way as to
preclude it from evading its obligations. Accordingly, they should be scrutinized by the courts with "extreme
jealousy" and "care" and with a "jaundiced eye." x x x.22 (Citations omitted and emphasis supplied)

In the instant case, the extent of Fortune Care’s liability to Amorin under the attendant circumstances was governed
by Section 3(B), Article V of the subject Health Care Contract, considering that the appendectomy which the member
had to undergo qualified as an emergency care, but the treatment was performed at St. Francis Medical Center in
Honolulu, Hawaii, U.S.A., a non-accredited hospital. We restate the pertinent portions of Section 3(B):

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost including the
professional fee (based on the total approved charges) to a member who receives emergency care in a non-
accredited hospital. The above coverage applies only to Emergency confinement within Philippine Territory.
However, if the emergency confinement occurs in foreign territory, Fortune Care will be obligated to reimburse or
pay eighty (80%) percent of the approved standard charges which shall cover the hospitalization costs and
professional fees. x x x23 (Emphasis supplied)

The point of dispute now concerns the proper interpretation of the phrase "approved standard charges", which shall
be the base for the allowable 80% benefit. The trial court ruled that the phrase should be interpreted in light of the
provisions of Section 3(A), i.e., to the extent that may be allowed for treatments performed by accredited physicians
in accredited hospitals. As the appellate court however held, this must be interpreted in its literal sense, guided by
the rule that any ambiguity shall be strictly construed against Fortune Care, and liberally in favor of Amorin.

The Court agrees with the CA. As may be gleaned from the Health Care Contract, the parties thereto contemplated
the possibility of emergency care in a foreign country. As the contract recognized Fortune Care’s liability for
emergency treatments even in foreign territories, it expressly limited its liability only insofar as the percentage of
hospitalization and professional fees that must be paid or reimbursed was concerned, pegged at a mere 80% of the
approved standard charges.
The word "standard" as used in the cited stipulation was vague and ambiguous, as it could be susceptible of different
meanings. Plainly, the term "standard charges" could be read as referring to the "hospitalization costs and
professional fees" which were specifically cited as compensable even when incurred in a foreign country. Contrary to
Fortune Care’s argument, from nowhere in the Health Care Contract could it be reasonably deduced that these
"standard charges" referred to the "Philippine standard", or that cost which would have been incurred if the medical
services were performed in an accredited hospital situated in the Philippines. The RTC ruling that the use of the
"Philippine standard" could be inferred from the provisions of Section 3(A), which covered emergency care in an
accredited hospital, was misplaced. Evidently, the parties to the Health Care Contract made a clear distinction
between emergency care in an accredited hospital, and that obtained from a non-accredited hospital.1âwphi1 The
limitation on payment based on "Philippine standard" for services of accredited physicians was expressly made
applicable only in the case of an emergency care in an accredited hospital.

The proper interpretation of the phrase "standard charges" could instead be correlated with and reasonably inferred
from the other provisions of Section 3(B), considering that Amorin’s case fell under the second case, i.e., emergency
care in a non-accredited hospital. Rather than a determination of Philippine or American standards, the first part of
the provision speaks of the full reimbursement of "the total hospitalization cost including the professional fee (based
on the total approved charges) to a member who receives emergency care in a non-accredited hospital" within the
Philippines. Thus, for emergency care in non-accredited hospitals, this cited clause declared the standard in the
determination of the amount to be paid, without any reference to and regardless of the amounts that would have
been payable if the treatment was done by an affiliated physician or in an affiliated hospital. For treatments in
foreign territories, the only qualification was only as to the percentage, or 80% of that payable for treatments
performed in non-accredited hospital.

All told, in the absence of any qualifying word that clearly limited Fortune Care's liability to costs that are applicable
in the Philippines, the amount payable by Fortune Care should not be limited to the cost of treatment in the
Philippines, as to do so would result in the clear disadvantage of its member. If, as Fortune Care argued, the premium
and other charges in the Health Care Contract were merely computed on assumption and risk under Philippine cost
and, that the American cost standard or any foreign country's cost was never considered, such limitations should
have been distinctly specified and clearly reflected in the extent of coverage which the company voluntarily
assumed. This was what Fortune Care found appropriate when in its new health care agreement with the House of
Representatives, particularly in their 2006 agreement, the provision on emergency care in non-accredited hospitals
was modified to read as follows:

However, if the emergency confinement occurs in a foreign territory, Fortunecare will be obligated to reimburse or
pay one hundred (100%) percent under approved Philippine Standard covered charges for hospitalization costs and
professional fees but not to exceed maximum allowable coverage, payable in pesos at prevailing currency exchange
rate at the time of availment in said territory where he/she is confined. x x x24

Settled is the rule that ambiguities in a contract are interpreted against the party that caused the ambiguity. "Any
ambiguity in a contract whose terms are susceptible of different interpretations must be read against the party who
drafted it."25

WHEREFORE, the petition is DENIED. The Decision dated September 27, 2010 and Resolution dated February 24,
2011 of the Court of Appeals in CA-G.R. CV No. 87255 are AFFIRMED.

SO ORDERED.

15. Philamcare Health Systems Inc. v. Court of Appeals

G.R. No. 125678      March 18, 2002

PHILAMCARE HEALTH SYSTEMS, INC., petitioner,

vs.
COURT OF APPEALS and JULITA TRINOS, respondents.

YNARES-SANTIAGO, J.:

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner Philamcare Health
Systems, Inc. In the standard application form, he answered no to the following question:
 Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes,
cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).1

The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was issued Health Care
Agreement No. P010194. Under the agreement, respondent’s husband was entitled to avail of hospitalization benefits, whether ordinary
or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive
health care and other out-patient services.

Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March
1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability.2

During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month
beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim the benefits under the health care
agreement. However, petitioner denied her claim saying that the Health Care Agreement was void. According to petitioner, there was a
concealment regarding Ernani’s medical history. Doctors at the MMC allegedly discovered at the time of Ernani’s confinement that he
was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, respondent paid the hospitalization
expenses herself, amounting to about P76,000.00.

After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the
Chinese General Hospital. Due to financial difficulties, however, respondent brought her husband home again. In the morning of April
13, 1990, Ernani had fever and was feeling very weak. Respondent was constrained to bring him back to the Chinese General Hospital
where he died on the same day.

On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for damages against petitioner and
its president, Dr. Benito Reverente, which was docketed as Civil Case No. 90-53795. She asked for reimbursement of her expenses plus
moral damages and attorney’s fees. After trial, the lower court ruled against petitioners, viz:

WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita Trinos, ordering:

1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00
plus interest, until the amount is fully paid to plaintiff who paid the same;

2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;

4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.

SO ORDERED.3

On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner
Reverente.4 Petitioner’s motion for reconsideration was denied.5 Hence, petitioner brought the instant petition for review, raising the
primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance
Code6 does not apply.1âwphi1.nêt

Petitioner argues that the agreement grants "living benefits," such as medical check-ups and hospitalization which a member may
immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration one-year thereafter. Petitioner also points
out 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. Moreover, since Health Care Agreements are only for a period of one year, as
compared to insurance contracts which last longer,7 petitioner argues that the incontestability clause does not apply, as the same
requires an effectivity period of at least two years. Petitioner further argues that it is not an insurance company, which is governed by
the Insurance Commission, but a Health Maintenance Organization under the authority of the Department of Health.

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 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.8

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person
having an insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of himself.
Section 10 provides:

Every person has an insurable interest in the life and health:

(1) of himself, of his spouse and of his children;

(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;

(3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or
illness might delay or prevent the performance; and

(4) of any person upon whose life any estate or interest vested in him depends.

In the case at bar, the insurable interest of respondent’s husband in obtaining the health care agreement was his own health. The health
care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity.9 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.

Petitioner argues that respondent’s husband concealed a material fact in his application. It appears that in the application for health
coverage, petitioners required respondent’s husband to sign an express authorization for any person, organization or entity that has any
record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other
medical advice or examination.10 Specifically, the Health Care Agreement signed by respondent’s husband states:

We hereby declare and agree that all statement and answers contained herein and in any addendum annexed to this
application are full, complete and true and bind all parties in interest under the Agreement herein applied for, that there shall
be no contract of health care coverage unless and until an Agreement is issued on this application and the full Membership Fee
according to the mode of payment applied for is actually paid during the lifetime and good health of proposed Members; that
no information acquired by any Representative of PhilamCare shall be binding upon PhilamCare unless set out in writing in the
application; that any physician is, by these presents, expressly authorized to disclose or give testimony at anytime relative to
any information acquired by him in his professional capacity upon any question affecting the eligibility for health care
coverage of the Proposed Members and that the acceptance of any Agreement issued on this application shall be a ratification
of any correction in or addition to this application as stated in the space for Home Office Endorsement.11 (Underscoring ours)

In addition to the above condition, petitioner additionally required the applicant for authorization to inquire about the applicant’s
medical history, thus:

I hereby authorize any person, organization, or entity that has any record or knowledge of my health and/or that of __________ to
give to the PhilamCare Health Systems, Inc. any and all information relative to any hospitalization, consultation, treatment or
any other medical advice or examination. This authorization is in connection with the application for health care coverage
only. A photographic copy of this authorization shall be as valid as the original.12 (Underscoring ours)

Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads:

Failure to disclose or misrepresentation of any material information by the member in the application or medical examination,
whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of
Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed
material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher
Membership Fee for the benefit or benefits applied for.13

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 made in good faith and without intent to deceive will not avoid a policy even though they are
untrue.14 Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the
policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is
likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in
such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear
distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of
expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within
his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud.15 (Underscoring
ours)
The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract.16 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. In any case, with or without the authority to investigate,
petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to
answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized
for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to
rescind should be exercised previous to the commencement of an action on the contract.17 In this case, no rescission was made. Besides,
the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on
which cancellation is based.18

None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability, courts
should construe them in such a way as to preclude the insurer from non-compliance with his obligation.19 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.20 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.21 This is equally applicable to Health
Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in
favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be
adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider.22

Anent the incontestability of the membership of respondent’s husband, we quote with approval the following findings of the trial court:

(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve months from the
date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma,
and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having
expired, the defense of concealment or misrepresentation no longer lie.23

Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their marriage,
the deceased was previously married to another woman who was still alive. The health care agreement is in the nature of a contract of
indemnity. Hence, payment should be made to the party who incurred the expenses. It is not controverted that respondent paid all the
hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately prove the expenses incurred by
respondent for the deceased’s hospitalization, medication and the professional fees of the attending physicians.24

WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated December 14, 1995
is AFFIRMED.

SO ORDERED.

16. Filipinas Compaña De Seguros vs. Christern, Huenefeld And Co., Inc

G.R. No. L-2294             May 25, 1951

FILIPINAS COMPAÑIA DE SEGUROS, petitioner,

vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.

Ramirez and Ortigas for petitioner.

Ewald Huenefeld for respondent.
PARAS, C.J.:

On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment of corresponding premium, obtained from
the petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of P1000,000, covering merchandise contained in a building located at
No. 711 Roman Street, Binondo Manila. On February 27, 1942, or during the Japanese military occupation, the building and insured
merchandise were burned. In due time the respondent submitted to the petitioner its claim under the policy. The salvage goods were sold at
public auction and, after deducting their value, the total loss suffered by the respondent was fixed at P92,650. The petitioner refused to pay
the claim on the ground that the policy in favor of the respondent had ceased to be in force on the date the United States declared war against
Germany, the respondent Corporation (though organized under and by virtue of the laws of the Philippines) being controlled by the German
subjects and the petitioner being a company under American jurisdiction when said policy was issued on October 1, 1941. The petitioner,
however, in pursuance of the order of the Director of Bureau of Financing, Philippine Executive Commission, dated April 9, 1943, paid to the
respondent the sum of P92,650 on April 19, 1943.

The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose of recovering from the respondent the
sum of P92,650 above mentioned. The theory of the petitioner is that the insured merchandise were burned up after the policy issued in 1941
in favor of the respondent corporation has ceased to be effective because of the outbreak of the war between the United States and Germany
on December 10, 1941, and that the payment made by the petitioner to the respondent corporation during the Japanese military occupation
was under pressure. After trial, the Court of First Instance of Manila dismissed the action without pronouncement as to costs. Upon appeal to
the Court of Appeals, the judgment of the Court of First Instance of Manila was affirmed, with costs. The case is now before us on appeal
by certiorari from the decision of the Court of Appeals.

The Court of Appeals overruled the contention of the petitioner that the respondent corporation became an enemy when the United States
declared war against Germany, relying on English and American cases which held that a corporation is a citizen of the country or state by and
under the laws of which it was created or organized. It rejected the theory that nationality of private corporation is determine by the character
or citizenship of its controlling stockholders.

There is no question that majority of the stockholders of the respondent corporation were German subjects. This being so, we have to rule
that said respondent became an enemy corporation upon the outbreak of the war between the United States and Germany. The English and
American cases relied upon by the Court of Appeals have lost their force in view of the latest decision of the Supreme Court of the United
States in Clark vs. Uebersee Finanz Korporation, decided on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. 148-153, in which the
controls test has been adopted. In "Enemy Corporation" by Martin Domke, a paper presented to the Second International Conference of the
Legal Profession held at the Hague (Netherlands) in August. 1948 the following enlightening passages appear:

Since World War I, the determination of enemy nationality of corporations has been discussion in many countries, belligerent and
neutral. A corporation was subject to enemy legislation when it was controlled by enemies, namely managed under the influence of
individuals or corporations, themselves considered as enemies. It was the English courts which first the  Daimler case applied this
new concept of "piercing the corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral established
after the First World War.

The United States of America did not adopt the control test during the First World War. Courts refused to recognized the concept
whereby American-registered corporations could be considered as enemies and thus subject to domestic legislation and
administrative measures regarding enemy property.

World War II revived the problem again. It was known that German and other enemy interests were cloaked by domestic
corporation structure. It was not only by legal ownership of shares that a material influence could be exercised on the management
of the corporation but also by long term loans and other factual situations. For that reason, legislation on enemy property enacted in
various countries during World War II adopted by statutory provisions to the control test and determined, to various degrees, the
incidents of control. Court decisions were rendered on the basis of such newly enacted statutory provisions in determining enemy
character of domestic corporation.

The United States did not, in the amendments of the Trading with the Enemy Act during the last war, include as did other legislations
the applications of the control test and again, as in World War I, courts refused to apply this concept whereby the enemy character
of an American or neutral-registered corporation is determined by the enemy nationality of the controlling stockholders.

Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice in the treatment of foreign-
owned property in the United States allowed to large degree the determination of enemy interest in domestic corporations and thus
the application of the control test. Court decisions sanctioned such administrative practice enacted under the First War Powers Act
of 1941, and more recently, on December 8, 1947, the Supreme Court of the United States definitely approved of the control theory.
In Clark vs. Uebersee Finanz Korporation, A. G., dealing with a Swiss corporation allegedly controlled by German interest, the Court:
"The property of all foreign interest was placed within the reach of the vesting power (of the Alien Property Custodian) not to
appropriate friendly or neutral assets but to reach enemy interest which masqueraded under those innocent fronts. . . . The power of
seizure and vesting was extended to all property of any foreign country or national so that no innocent appearing device could
become a Trojan horse."

It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed decision. However, we may add that,
in Haw Pia vs. China Banking Corporation, * 45 Off Gaz., (Supp. 9) 299, we already held that China Banking Corporation came within the
meaning of the word "enemy" as used in the Trading with the Enemy Acts of civilized countries not only because it was incorporated under the
laws of an enemy country but because it was controlled by enemies.

The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a public enemy may be insured." It stands
to reason that an insurance policy ceases to be allowable as soon as an insured becomes a public enemy.

Effect of war, generally. — All intercourse between citizens of belligerent powers which is inconsistent with a state of war is
prohibited by the law of nations. Such prohibition includes all negotiations, commerce, or trading with the enemy; all acts which will
increase, or tend to increase, its income or resources; all acts of voluntary submission to it; or receiving its protection; also all acts
concerning the transmission of money or goods; and all contracts relating thereto are thereby nullified. It further prohibits insurance
upon trade with or by the enemy, upon the life or lives of aliens engaged in service with the enemy; this for the reason that the
subjects of one country cannot be permitted to lend their assistance to protect by insurance the commerce or property of
belligerent, alien subjects, or to do anything detrimental too their country's interest. The purpose of war is to cripple the power and
exhaust the resources of the enemy, and it is inconsistent that one country should destroy its enemy's property and repay in
insurance the value of what has been so destroyed, or that it should in such manner increase the resources of the enemy, or render
it aid, and the commencement of war determines, for like reasons, all trading intercourse with the enemy, which prior thereto may
have been lawful. All individuals therefore, who compose the belligerent powers, exist, as to each other, in a state of utter exclusion,
and are public enemies. (6 Couch, Cyc. of Ins. Law, pp. 5352-5353.)

In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified term it is plain that when the
parties become alien enemies, the contractual tie is broken and the contractual rights of the parties, so far as not vested. lost.
(Vance, the Law on Insurance, Sec. 44, p. 112.)

The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its favor on October 1, 1941, by
the petitioner (a Philippine corporation) had ceased to be valid and enforcible, and since the insured goods were burned after December 10,
1941, and during the war, the respondent was not entitled to any indemnity under said policy from the petitioner. However, elementary rules
of justice (in the absence of specific provision in the Insurance Law) require that the premium paid by the respondent for the period covered
by its policy from December 11, 1941, should be returned by the petitioner.

The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether the policy in question became null
and void upon the declaration of war between the United States and Germany on December 10, 1941, and its judgment in favor of the
respondent corporation was predicated on its conclusion that the policy did not cease to be in force. The Court of Appeals necessarily assumed
that, even if the payment by the petitioner to the respondent was involuntary, its action is not tenable in view of the ruling on the validity of
the policy. As a matter of fact, the Court of Appeals held that "any intimidation resorted to by the appellee was not unjust but the exercise of
its lawful right to claim for and received the payment of the insurance policy," and that the ruling of the Bureau of Financing to the effect that
"the appellee was entitled to payment from the appellant was, well founded." Factually, there can be no doubt that the Director of the Bureau
of Financing, in ordering the petitioner to pay the claim of the respondent, merely obeyed the instruction of the Japanese Military
Administration, as may be seen from the following: "In view of the findings and conclusion of this office contained in its decision on
Administrative Case dated February 9, 1943 copy of which was sent to your office and the concurrence therein of the Financial Department of
the Japanese Military Administration, and following the instruction of said authority, you are hereby ordered to pay the claim of Messrs.
Christern, Huenefeld & Co., Inc. The payment of said claim, however, should be made by means of crossed check." (Emphasis supplied.)

It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on this case. However, the petitioner
will be entitled to recover only the equivalent, in actual Philippines currency of P92,650 paid on April 19, 1943, in accordance with the rate
fixed in the Ballantyne scale.

Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to pay to the petitioner the sum of
P77,208.33, Philippine currency, less the amount of the premium, in Philippine currency, that should be returned by the petitioner for the
unexpired term of the policy in question, beginning December 11, 1941. Without costs. So ordered.

Feria, Pablo, Bengzon, Tuason, Montemayor, Jugo and Bautista Angelo, JJ., concur.

17. Eternal Gardens Memorial Park Corp. v. The Philippine American Life
Insurance Company
G.R. No. 166245             April 9, 2008
ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.
DECISION
VELASCO, JR., J.:
 The Case

Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the November 26, 2004
Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the insurer on the insurance
application be considered as approval of the application?

The Facts

On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife) entered into an agreement
denominated as Creditor Group Life Policy No. P-1920 2 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 policy was to be
effective for a period of one year, renewable on a yearly basis.

The relevant provisions of the policy are:

ELIGIBILITY.

Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the Assured for
the unpaid balance of his loan with the Assured, and is accepted for Life Insurance coverage by the Company on its
effective date is eligible for insurance under the Policy.

EVIDENCE OF INSURABILITY.

No medical examination shall be required for amounts of insurance up to P50,000.00. However, a declaration of good
health shall be required for all Lot Purchasers as part of the application. The Company reserves the right to require
further evidence of insurability satisfactory to the Company in respect of the following:

1. Any amount of insurance in excess of P50,000.00.

2. Any lot purchaser who is more than 55 years of age.

LIFE INSURANCE BENEFIT.

The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance of his loan
(including arrears up to but not exceeding 2 months) as reported by the Assured to the Company or the sum of
P100,000.00, whichever is smaller. Such benefit shall be paid to the Assured if the Lot Purchaser dies while insured
under the Policy.

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. 3

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. In relation to the
instant petition, Eternal complied by submitting a letter dated December 29, 1982, 4 containing a list of insurable 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 PhP 100,000. On August 2, 1984, Chuang died.

Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for Chuang’s death. Attached to
the claim were the following documents: (1) Chuang’s Certificate of Death; (2) Identification Certificate stating that Chuang is a
naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate of Attending Physician; and (5) Assured’s Certificate.

In reply, Philamlife wrote Eternal a letter on November 12, 1984, 6 requiring Eternal to submit the following documents relative
to its insurance claim for Chuang’s death: (1) Certificate of Claimant (with form attached); (2) Assured’s Certificate (with form
attached); (3) Application for Insurance accomplished and signed by the insured, Chuang, while still living; and (4) Statement of
Account showing the unpaid balance of Chuang before his death.
Eternal transmitted the required documents through a letter dated November 14, 1984, 7 which was received by Philamlife on
November 15, 1984.

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 on April 25, 1986. 8

In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a letter dated May 20, 1986, 9 a portion of which
reads:

The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal Gardens Memorial Park in
October 1982 for the total maximum insurable amount of P100,000.00 each. No application for Group Insurance was
submitted in our office prior to his death on August 2, 1984.

In accordance with our Creditor’s Group Life Policy No. P-1920, under Evidence of Insurability provision, "a declaration
of good health shall be required for all Lot Purchasers as party of the application." We cite further the provision on
Effective Date of Coverage under the policy which states that "there shall be no insurance if the application is not
approved by the Company." Since no application had been submitted by the Insured/Assured, prior to his death, for our
approval but was submitted instead on November 15, 1984, after his death, Mr. John Uy Chuang was not covered under
the Policy. We wish to point out that Eternal Gardens being the Assured was a party to the Contract and was therefore
aware of these pertinent provisions.

With regard to our acceptance of premiums, these do not connote our approval per se of the insurance coverage but
are held by us in trust for the payor until the prerequisites for insurance coverage shall have been met. We will
however, return all the premiums which have been paid in behalf of John Uy Chuang.

Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money against Philamlife,
docketed as Civil Case No. 14736. The trial court decided in favor of Eternal, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff ETERNAL, against Defendant
PHILAMLIFE, ordering the Defendant PHILAMLIFE, to pay the sum of P100,000.00, representing the proceeds of the
Policy of John Uy Chuang, plus legal rate of interest, until fully paid; and, to pay the sum of P10,000.00 as attorney’s
fees.

SO ORDERED.

The RTC found that Eternal submitted Chuang’s application for insurance which he accomplished before his death, as testified to
by Eternal’s witness and evidenced by the letter dated December 29, 1982, stating, among others: "Encl: Phil-Am Life Insurance
Application Forms & Cert."10 It further ruled that due to Philamlife’s inaction from the submission of the requirements of the
group insurance on December 29, 1982 to Chuang’s death on August 2, 1984, as well as Philamlife’s acceptance of the premiums
during the same period, Philamlife was deemed to have approved Chuang’s application. The RTC said that since the contract is a
group life insurance, once proof of death is submitted, payment must follow.

Philamlife appealed to the CA, which ruled, thus:

WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. 57810 is REVERSED and SET ASIDE, and
the complaint is DISMISSED. No costs.

SO ORDERED.11

The CA based its Decision on the factual finding that Chuang’s application was not enclosed in Eternal’s letter dated December
29, 1982. It further ruled that the non-accomplishment of the submitted application form violated Section 26 of the Insurance
Code. Thus, the CA concluded, there being no application form, Chuang was not covered by Philamlife’s insurance.

Hence, we have this petition with the following grounds:

The Honorable Court of Appeals has decided a question of substance, not therefore determined by this Honorable
Court, or has decided it in a way not in accord with law or with the applicable jurisprudence, in holding that:

I. The application for insurance was not duly submitted to respondent PhilamLife before the death of John
Chuang;
 II. There was no valid insurance coverage; and

III. Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996.

The Court’s Ruling

As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised before the CA and first level
courts, considering their findings of facts are conclusive and binding on this Court. However, such rule is subject to exceptions,
as enunciated in Sampayan v. Court of Appeals:

(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based
on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the [CA]
went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the
appellee; (7) when the findings [of the CA] are contrary to the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in
the petitioner’s main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised
on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a
different conclusion.12 (Emphasis supplied.)

In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review them.

Eternal claims that the evidence that it presented before the trial court supports its contention that it submitted a copy of the
insurance application of Chuang before his death. In Eternal’s letter dated December 29, 1982, a list of insurable interests of
buyers for October 1982 was attached, including Chuang in the list of new businesses. Eternal added it was noted at the bottom
of said letter that the corresponding "Phil-Am Life Insurance Application Forms & Cert." were enclosed in the letter that was
apparently received by Philamlife on January 15, 1983. Finally, Eternal alleged that it provided a copy of the insurance
application which was signed by Chuang himself and executed before his death.

On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing that Eternal must present
evidence showing that Philamlife received a copy of Chuang’s insurance application.

The evidence on record supports Eternal’s position.

The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as received, states that the insurance
forms for the attached list of burial lot buyers were attached to the letter. Such stamp of receipt has the effect of acknowledging
receipt of the letter together with the attachments. Such receipt is an admission by Philamlife against its own interest. 13 The
burden of evidence has shifted to Philamlife, which must prove that the letter did not contain Chuang’s insurance application.
However, Philamlife failed to do so; thus, Philamlife is deemed to have received Chuang’s insurance application.

To reiterate, it was Philamlife’s bounden duty to make sure that before a transmittal letter is stamped as received, the contents
of the letter are correct and accounted for.

Philamlife’s allegation that Eternal’s witnesses ran out of credibility and reliability due to inconsistencies is groundless. The trial
court is in the best position to determine the reliability and credibility of the witnesses, because it has the opportunity to
observe firsthand the witnesses’ demeanor, conduct, and attitude. Findings of the trial court on such matters are binding and
conclusive on the appellate court, unless some facts or circumstances of weight and substance have been overlooked,
misapprehended, or misinterpreted,14 that, if considered, might affect the result of the case. 15

An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no overlooked facts of substance
and value.

Philamlife primarily claims that Eternal did not even know where the original insurance application of Chuang was, as shown by
the testimony of Edilberto Mendoza:

Atty. Arevalo:

Q Where is the original of the application form which is required in case of new coverage?
 [Mendoza:]

A It is [a] standard operating procedure for the new client to fill up two copies of this form and the original of this is
submitted to Philamlife together with the monthly remittances and the second copy is remained or retained with the
marketing department of Eternal Gardens.

Atty. Miranda:

We move to strike out the answer as it is not responsive as counsel is merely asking for the location and does not [ask]
for the number of copy.

Atty. Arevalo:

Q Where is the original?

[Mendoza:]

A As far as I remember I do not know where the original but when I submitted with that payment together with the
new clients all the originals I see to it before I sign the transmittal letter the originals are attached therein. 16

In other words, the witness admitted not knowing where the original insurance application was, but believed that the
application was transmitted to Philamlife as an attachment to a transmittal letter.

As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two insurance application forms
were accomplished and the testimony of Mendoza on who actually filled out the application form, these are minor
inconsistencies that do not affect the credibility of the witnesses. Thus, we ruled in People v. Paredes that minor inconsistencies
are too trivial to affect the credibility of witnesses, and these may even serve to strengthen their credibility as these negate any
suspicion that the testimonies have been rehearsed.17

We reiterated the above ruling in Merencillo v. People:

Minor discrepancies or inconsistencies do not impair the essential integrity of the prosecution’s evidence as a whole or
reflect on the witnesses’ honesty. The test is whether the testimonies agree on essential facts and whether the
respective versions corroborate and substantially coincide with each other so as to make a consistent and coherent
whole.18

In the present case, the number of copies of the insurance application that Chuang executed is not at issue, neither is whether
the insurance application presented by Eternal has been falsified. Thus, the inconsistencies pointed out by Philamlife are minor
and do not affect the credibility of Eternal’s witnesses.

However, the question arises as to whether Philamlife assumed the risk of loss without approving the application.

This question must be answered in the affirmative.

As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group Life Policy No. P-1920 dated
December 10, 1980. In the policy, it is provided that:

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured.
However, there shall be no insurance if the application of the Lot Purchaser is not approved by the Company.

An examination of the above provision would show ambiguity between its two sentences. The first sentence appears to state
that the insurance coverage of the clients of Eternal already became effective upon contracting a loan with Eternal while the
second sentence appears to require Philamlife to approve the insurance contract before the same can become effective.

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. Thus, in Malayan Insurance Corporation v.
Court of Appeals, this Court held that:
 Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity
therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a
contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer; in other words, it
should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be
regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance
with its obligations.19 (Emphasis supplied.)

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating that:

When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance
contract are to be construed strictly against the party which prepared the contract, the insurer. By reason of the
exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must
be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. 20

Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980, must be construed
in favor of the insured and in favor of the effectivity of the insurance contract.

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 Creditor
Group Life Policy No. P-1920 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.

As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best. Insurance
contracts are wholly prepared by the insurer with vast amounts of experience in the industry purposefully used to its advantage.
More often than not, insurance contracts are contracts of adhesion containing technical terms and conditions of the industry,
confusing if at all understandable to laypersons, that are imposed on those who wish to avail of insurance. As such, insurance
contracts are imbued with public interest that must be considered whenever the rights and obligations of the insurer and the
insured are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance companies must be
obligated to act with haste upon insurance applications, to either deny or approve the same, or otherwise be bound to honor
the application as a valid, binding, and effective insurance contract. 21

WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE.
The May 29, 1996 Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife is hereby ORDERED:

(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the Life Insurance Policy of Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP 100,000 from the time of extra-judicial demand
by Eternal until Philamlife’s receipt of the May 29, 1996 RTC Decision on June 17, 1996;
(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP 100,000 from June 17, 1996 until full
payment of this award; and
(4) To pay Eternal attorney’s fees in the amount of PhP 10,000.

No costs. SO ORDERED.

18. Great Pacific Life Assurance v. Court of Appeals

G.R. No. 113899 October 13, 1999

GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,

vs.
COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.

QUISUMBING, J.:

This petition for review, under Rule 45 of the Rules of Court, assails the Decision 1 dated May 17, 1993, of the Court of Appeals and its
Resolution 2 dated January 4, 1994 in CA-G.R. CV No. 18341. The appellate court affirmed in toto  the judgment of the Misamis Oriental
Regional Trial Court, Branch 18, in an insurance claim filed by private respondent against Great Pacific Life Assurance Co. The dispositive
portion of the trial court's decision reads:

WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC LIFE ASSURANCE CORPORATION as insurer
under its Group policy No. G-1907, in relation to Certification B-18558 liable and ordered to pay to the DEVELOPMENT
BANK OF THE PHILIPPINES as creditor of the insured Dr. Wilfredo Leuterio, the amount of EIGHTY SIX THOUSAND TWO
HUNDRED PESOS (P86,200.00); dismissing the claims for damages, attorney's fees and litigation expenses in the complaint
and counterclaim, with costs against the defendant and dismissing the complaint in respect to the plaintiffs, other than the
widow-beneficiary, for lack of cause of action. 3

The facts, as found by the Court of Appeals, are as follows:

A contract of group life insurance was executed between petitioner Great Pacific Life Assurance Corporation (hereinafter Grepalife) and
Development Bank of the Philippines (hereinafter DBP). Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.

On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life insurance
plan. In an application form, Dr. Leuterio answered questions concerning his health condition as follows:

7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes, lung; kidney or
stomach disorder or any other physical impairment?
Answer:  No. If so give details _____________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [x] Yes [ ] NO. 4

On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage
indebtedness amounting to eighty-six thousand, two hundred (P86,200.00) pesos.1âwphi1.nêt

On August 6, 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a death claim to Grepalife.
Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance coverage on November 15,
1983. Grepalife insisted that Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his death. Allegedly, such
non-disclosure constituted concealment that justified the denial of the claim.

On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a complaint with the Regional Trial Court of
Misamis Oriental, Branch 18, against Grepalife for "Specific Performance with Damages." 5 During the trial, Dr. Hernando Mejia, who issued the
death certificate, was called to testify. Dr. Mejia's findings, based partly from the information given by the respondent widow, stated that Dr.
Leuterio complained of headaches presumably due to high blood pressure. The inference was not conclusive because Dr. Leuterio was not
autopsied, hence, other causes were not ruled out.

On February 22, 1988, the trial court rendered a decision in favor of respondent widow and against Grepalife. On May 17, 1993, the Court of
Appeals sustained the trial court's decision. Hence, the present petition. Petitioners interposed the following assigned errors:

1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE TO THE DEVELOPMENT

BANK OF THE PHILIPPINES (DBP) WHICH IS NOT A PARTY TO THE CASE FOR PAYMENT OF THE
PROCEEDS OF A MORTGAGE REDEMPTION INSURANCE ON THE LIFE OF PLAINTIFF'S HUSBAND
WILFREDO LEUTERIO ONE OF ITS LOAN BORROWERS, INSTEAD OF DISMISSING THE CASE AGAINST
DEFENDANT-APPELLANT [Petitioner Grepalife] FOR LACK OF CAUSE OF ACTION.

2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR WANT OF JURISDICTION OVER THE
SUBJECT OR NATURE OF THE ACTION AND OVER THE PERSON OF THE DEFENDANT.

3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-APPELLANT TO PAY TO DBP THE AMOUNT OF
P86,200.00 IN THE ABSENCE OF ANY EVIDENCE TO SHOW HOW MUCH WAS THE ACTUAL AMOUNT
PAYABLE TO DBP IN ACCORDANCE WITH ITS GROUP INSURANCE CONTRACT WITH DEFENDANT-
APPELLANT.

4. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS NO CONCEALMENT OF MATERIAL
INFORMATION ON THE PART OF WILFREDO LEUTERIO IN HIS APPLICATION FOR MEMBERSHIP IN THE
GROUP LIFE INSURANCE PLAN BETWEEN DEFENDANT-APPELLANT OF THE INSURANCE CLAIM ARISING
FROM THE DEATH OF WILFREDO LEUTERIO. 6

Synthesized below are the assigned errors for our resolution:

1. Whether the Court of Appeals erred in holding petitioner liable to DBP as beneficiary in a group life
insurance contract from a complaint filed by the widow of the decedent/mortgagor?
 2. Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he had
hypertension, which would vitiate the insurance contract?

3. Whether the Court of Appeals erred in holding Grepalife liable in the amount of eighty six thousand,
two hundred (P86,200.00) pesos without proof of the actual outstanding mortgage payable by the
mortgagor to DBP.

Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in interest, hence the trial court acquired
no jurisdiction over the case. It argues that when the Court of Appeals affirmed the trial court's judgment, Grepalife was held liable to pay the
proceeds of insurance contract in favor of DBP, the indispensable party who was not joined in the suit.

To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type of contract. The rationale of
a group insurance policy of mortgagors, otherwise known as the "mortgage redemption insurance," is a device for the protection of both the
mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of contract so that in the event of the unexpected
demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of
the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. 7 In a similar vein, ample protection is given to the
mortgagor under such a concept so that in the event of death; the mortgage obligation will be extinguished by the application of the insurance
proceeds to the mortgage indebtedness. 8 Consequently, where the mortgagor pays the insurance premium under the group insurance policy,
making the loss payable to the mortgagee, the insurance is on the mortgagor's interest, and the mortgagor continues to be a party to the
contract. In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make
the mortgagee a party to the contract. 9

Sec. 8 of the Insurance Code provides:

Unless the policy provides, where a mortgagor of property effects insurance in his own name providing that the loss shall
be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the
interest of the mortgagor, who does not cease to be a party to the original contract, and any act of his, prior to the loss,
which would otherwise avoid the insurance, will have the same effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of insurance, is to be performed by the mortgagor, may be performed by
the mortgagee therein named, with the same effect as if it had been performed by the mortgagor.

The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating that: "In the event
of the debtor's death before his indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the outstanding
indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies
designated by the debtor." 10 When DBP submitted the insurance claim against petitioner, the latter denied payment thereof, interposing the
defense of concealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the necessary action of
foreclosure on the residential lot of private respondent. 11 In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co. 12 we held:

Insured, being the person with whom the contract was made, is primarily the proper person to bring suit thereon. * *
* Subject to some exceptions, insured may thus sue, although the policy is taken wholly or in part for the benefit of
another person named or unnamed, and although it is expressly made payable to another as his interest may appear or
otherwise. * * * Although a policy issued to a mortgagor is taken out for the benefit of the mortgagee and is made payable
to him, yet the mortgagor may sue thereon in his own name, especially where the mortgagee's interest is less than the full
amount recoverable under the policy, * * *.

And in volume 33, page 82, of the same work, we read the following:

Insured may be regarded as the real party in interest, although he has assigned the policy for the purpose of collection, or
has assigned as collateral security any judgment he may obtain. 13

And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest
or not, and such person may recover it whatever the insured might have recovered, 14 the widow of the decedent Dr. Leuterio may file the suit
against the insurer, Grepalife.

The second assigned error refers to an alleged concealment that the petitioner interposed as its defense to annul the insurance contract.
Petitioner contends that Dr. Leuterio failed to disclose that he had hypertension, which might have caused his death. Concealment exists
where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing requires that he should communicate
it to the assured, but he designedly and intentionally withholds the same. 15

Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as supported by the information given by the widow
of the decedent. Grepalife asserts that Dr. Mejia's technical diagnosis of the cause of death of Dr. Leuterio was a duly documented hospital
record, and that the widow's declaration that her husband had "possible hypertension several years ago" should not be considered as hearsay,
but as part of res gestae.

On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body of the decedent. As the
attending physician, Dr. Mejia stated that he had no knowledge of Dr. Leuterio's any previous hospital confinement. 16 Dr. Leuterio's death
certificate stated that hypertension was only "the possible cause of death." The private respondent's statement, as to the medical history of
her husband, was due to her unreliable recollection of events. Hence, the statement of the physician was properly considered by the trial court
as hearsay.

The question of whether there was concealment was aptly answered by the appellate court, thus:

The insured, Dr. Leuterio, had answered in his insurance application that he was in good health and that he had not
consulted a doctor or any of the enumerated ailments, including hypertension; when he died the attending physician had
certified in the death certificate that the former died of cerebral hemorrhage, probably secondary to hypertension. From
this report, the appellant insurance company refused to pay the insurance claim. Appellant alleged that the insured had
concealed the fact that he had hypertension.

Contrary to appellant's allegations, there was no sufficient proof that the insured had suffered from hypertension. Aside
from the statement of the insured's widow who was not even sure if the medicines taken by Dr. Leuterio were for
hypertension, the appellant had not proven nor produced any witness who could attest to Dr. Leuterio's medical history . . .

xxx xxx xxx

Appellant insurance company had failed to establish that there was concealment made by the insured, hence, it cannot
refuse payment of the claim. 17

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the contract. 18 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. 19 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.1âwphi1.nêt

And that brings us to the last point in the review of the case at bar. Petitioner claims that there was no evidence as to the amount of Dr.
Leuterio's outstanding indebtedness to DBP at the time of the mortgagor's death. Hence, for private respondent's failure to establish the
same, the action for specific performance should be dismissed. Petitioner's claim is without merit. A life insurance policy is a valued
policy. 20 Unless the interest of a person insured is susceptible of exact pecuniary measurement, the measure of indemnity under a policy of
insurance upon life or health is the sum fixed in the policy. 21 The mortgagor paid the premium according to the coverage of his insurance,
which states that:

The policy states that upon receipt of due proof of the Debtor's death during the terms of this insurance, a death benefit in
the amount of P86,200.00 shall be paid.

In the event of the debtor's death before his indebtedness with the creditor shall have been fully paid, an amount to pay
the outstanding indebtedness shall first be paid to the Creditor and the balance of the Sum Assured, if there is any shall
then be paid to the beneficiary/ies designated by the debtor." 22 (Emphasis omitted)

However, we noted that the Court of Appeals' decision was promulgated on May 17, 1993. In private respondent's memorandum, she states
that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor's outstanding loan. Considering this supervening event, the
insurance proceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries. Equity dictates that DBP should not
unjustly enrich itself at the expense of another (Nemo cum alterius detrimenio protest). Hence, it cannot collect the insurance proceeds, after it
already foreclosed on the mortgage. The proceeds now rightly belong to Dr. Leuterio's heirs represented by his widow, herein private
respondent Medarda Leuterio.

WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV 18341 is AFFIRMED with
MODIFICATION that the petitioner is ORDERED to pay the insurance proceeds amounting to Eighty-six thousand, two hundred (P86,200.00)
pesos to the heirs of the insured, Dr. Wilfredo Leuterio (deceased), upon presentation of proof of prior settlement of mortgagor's
indebtedness to Development Bank of the Philippines. Costs against petitioner.1âwphi1.nêt

SO ORDERED.

19. Heirs of Loreto C. Maramag v. Eva Verna De Guzman Maramag

G.R. No. 181132               June 5, 2009

HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA PANGILINAN MARAMAG, Petitioners,

vs.
EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN DE GUZMAN MARAMAG,
TRISHA ANGELIE MARAMAG, THE INSULAR LIFE ASSURANCE COMPANY, LTD., and GREAT PACIFIC LIFE
ASSURANCE CORPORATION, Respondents.
 DECISION

NACHURA, J.:

This is a petition1 for review on certiorari under Rule 45 of the Rules, seeking to reverse and set aside the Resolution2 dated
January 8, 2008 of the Court of Appeals (CA), in CA-G.R. CV No. 85948, dismissing petitioners’ appeal for lack of jurisdiction.

The case stems from a petition3 filed against respondents with the Regional Trial Court, Branch 29, for revocation and/or
reduction of insurance proceeds for being void and/or inofficious, with prayer for a temporary restraining order (TRO) and a
writ of preliminary injunction.

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)4 and Great Pacific Life Assurance Corporation (Grepalife);5 (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 inofficious and should be reduced; and (4) petitioners
could not be deprived of their legitimes, which should be satisfied first.

In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among others, 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
₱320,000.00 as actual litigation expenses and attorney’s fees.

In answer,6 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 beneficiary, because Loreto revoked her designation as such in Policy No. A001544070 and it disqualified
her in Policy No. A001693029; and insofar as it sought to declare as inofficious the shares of Odessa, Karl Brian, and Trisha
Angelie, considering that no settlement of Loreto’s estate had been filed 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.

In its own answer7 with compulsory counterclaim, 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 filed 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 file their answer. Hence, the trial court, upon motion of petitioners,
declared them in default in its Order dated May 7, 2004.

During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues raised in their respective answers be
resolved first. The trial court ordered petitioners to comment within 15 days.

In their comment, 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 7528 and 7729 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.

On September 21, 2004, the trial court issued a Resolution, the dispositive portion of which reads –

WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life and Grepalife is granted with respect
to defendants Odessa, Karl Brian and Trisha Maramag. The action shall proceed with respect to the other defendants Eva Verna
de Guzman, Insular Life and Grepalife.

SO ORDERED.10
In so ruling, the trial court ratiocinated thus –

Art. 2011 of the Civil Code provides that the contract of insurance is governed by the (sic) special laws. Matters not expressly
provided for in such special laws shall be regulated by this Code. The principal law on insurance is the Insurance Code, as
amended. Only in case of deficiency in the Insurance Code that the Civil Code may be resorted to. (Enriquez v. Sun Life Assurance
Co., 41 Phil. 269.)

The Insurance Code, as amended, contains a provision regarding to whom the insurance proceeds shall be paid. It is very clear
under Sec. 53 thereof that the insurance proceeds shall be applied exclusively to the proper interest of the person in whose name
or for whose benefit it is made, unless otherwise specified in the policy. Since the defendants are the ones named as the primary
beneficiary (sic) in the insurances (sic) taken by the deceased Loreto C. Maramag and there is no showing that herein plaintiffs
were also included as beneficiary (sic) therein the insurance proceeds shall exclusively be paid to them. This is because the
beneficiary has a vested right to the indemnity, unless the insured reserves the right to change the beneficiary. (Grecio v. Sunlife
Assurance Co. of Canada, 48 Phil. [sic] 63).

Neither could the plaintiffs invoked (sic) the law on donations or the rules on testamentary succession in order to defeat the right
of herein defendants to collect the insurance indemnity. The beneficiary in a contract of insurance is not the donee spoken in the
law of donation. The rules on testamentary succession cannot apply here, for the insurance indemnity does not partake of a
donation. As such, the insurance indemnity cannot be considered as an advance of the inheritance which can be subject to
collation (Del Val v. Del Val, 29 Phil. 534). In the case of Southern Luzon Employees’ Association v. Juanita Golpeo, et al., the
Honorable Supreme Court made the following pronouncements[:]

"With the finding of the trial court that the proceeds to the Life Insurance Policy belongs exclusively to the defendant as his
individual and separate property, we agree that the proceeds of an insurance policy belong exclusively to the beneficiary and not
to the estate of the person whose life was insured, and that such proceeds are the separate and individual property of the
beneficiary and not of the heirs of the person whose life was insured, is the doctrine in America. We believe that the same
doctrine obtains in these Islands by virtue of Section 428 of the Code of Commerce x x x."

In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no sufficient cause of action against
defendants Odessa, Karl Brian and Trisha Angelie Maramag for the reduction and/or declaration of inofficiousness of donation as
primary beneficiary (sic) in the insurances (sic) of the late Loreto C. Maramag.

However, herein plaintiffs are not totally bereft of any cause of action. One of the named beneficiary (sic) in the insurances (sic)
taken by the late Loreto C. Maramag is his concubine Eva Verna De Guzman. Any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a life insurance policy of the person who cannot make any donation
to him, according to said article (Art. 2012, Civil Code). If a concubine is made the beneficiary, it is believed that the insurance
contract will still remain valid, but the indemnity must go to the legal heirs and not to the concubine, for evidently, what is
prohibited under Art. 2012 is the naming of the improper beneficiary. In such case, the action for the declaration of nullity may
be brought by the spouse of the donor or donee, and the guilt of the donor and donee may be proved by preponderance of
evidence in the same action (Comment of Edgardo L. Paras, Civil Code of the Philippines, page 897). Since the designation of
defendant Eva Verna de Guzman as one of the primary beneficiary (sic) in the insurances (sic) taken by the late Loreto C.
Maramag is void under Art. 739 of the Civil Code, the insurance indemnity that should be paid to her must go to the legal heirs of
the deceased which this court may properly take cognizance as the action for the declaration for the nullity of a void donation
falls within the general jurisdiction of this Court.11

Insular12 and Grepalife13 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.

Petitioners, in their comment, reiterated their earlier arguments and posited that whether the complaint may be dismissed for
failure to state a cause of action must be determined solely on the basis of the allegations in the complaint, such that the defenses
of Insular and Grepalife would be better threshed out during trial.1avvphi1

On June 16, 2005, the trial court issued a Resolution, disposing, as follows:

WHEREFORE, in view of the foregoing disquisitions, 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.

SO ORDERED.14

In granting the motions for reconsideration of Insular and Grepalife, the trial court considered the allegations of Insular that
Loreto revoked the designation of Eva in one policy and that Insular disqualified her as a beneficiary in the other policy such that
the entire proceeds would be paid to the illegitimate children of Loreto with Eva pursuant to Section 53 of the Insurance Code. It
ruled that it is only in cases where there are no beneficiaries designated, or when the only designated beneficiary is disqualified,
that the proceeds should be paid to the estate of the insured. As to the claim that the proceeds to be paid to Loreto’s illegitimate
children should be reduced based on the rules on legitime, the trial court held that the distribution of the insurance proceeds is
governed primarily by the Insurance Code, and the provisions of the Civil Code are irrelevant and inapplicable. With respect to
the Grepalife policy, the trial court noted that Eva was never designated as a beneficiary, but only Odessa, Karl Brian, and Trisha
Angelie; thus, it upheld the dismissal of the case as to the illegitimate children. It further held that the matter of Loreto’s
misrepresentation was premature; the appropriate action may be filed only upon denial of the claim of the named beneficiaries
for the insurance proceeds by Grepalife.

Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for lack of jurisdiction, holding that the
decision of the trial court dismissing the complaint for failure to state a cause of action involved a pure question of law. The
appellate court also noted that petitioners did not file within the reglementary period a motion for reconsideration of the trial
court’s Resolution, dated September 21, 2004, dismissing the complaint as against Odessa, Karl Brian, and Trisha Angelie; thus,
the said Resolution had already attained finality.

Hence, this petition raising the following issues:

a. In determining the merits of a motion to dismiss for failure to state a cause of action, may the Court consider matters
which were not alleged in the Complaint, particularly the defenses put up by the defendants in their Answer?

b. In granting a motion for reconsideration of a motion to dismiss for failure to state a cause of action, did not the
Regional Trial Court engage in the examination and determination of what were the facts and their probative value, or
the truth thereof, when it premised the dismissal on allegations of the defendants in their answer – which had not been
proven?

c. x x x (A)re the members of the legitimate family entitled to the proceeds of the insurance for the concubine?15

In essence, petitioners posit that their petition before the trial court should not have been dismissed for failure to state a cause of
action because the finding that Eva was either disqualified as a beneficiary by the insurance companies or that her designation
was revoked by Loreto, hypothetically admitted as true, was raised only in the answers and motions for reconsideration of both
Insular and Grepalife. They argue that for a motion to dismiss to prosper on that ground, only the allegations in the complaint
should be considered. They further contend that, even assuming Insular disqualified Eva as a beneficiary, her share should not
have been distributed to her children with Loreto but, instead, awarded to them, being the legitimate heirs of the insured
deceased, in accordance with law and jurisprudence.

The petition should be denied.

The grant of the motion to dismiss was based on the trial court’s finding that the petition failed to state a cause of action, as
provided in Rule 16, Section 1(g), of the Rules of Court, which reads –

SECTION 1. Grounds. – Within the time for but before filing the answer to the complaint or pleading asserting a claim, a motion to
dismiss may be made on any of the following grounds:

xxxx

(g) That the pleading asserting the claim states no cause of action.

A cause of action is the act or omission by which a party violates a right of another.16 A complaint states a cause of action when it
contains the three (3) elements of a cause of action—(1) the legal right of the plaintiff; (2) the correlative obligation of the
defendant; and (3) the act or omission of the defendant in violation of the legal right. If any of these elements is absent, the
complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action.17

When a motion to dismiss is premised on this ground, the ruling thereon should be based only on the facts alleged in the
complaint. The court must resolve the issue on the strength of such allegations, assuming them to be true. The test of sufficiency
of a cause of action rests on whether, hypothetically admitting the facts alleged in the complaint to be true, the court can render a
valid judgment upon the same, in accordance with the prayer in the complaint. This is the general rule.

However, this rule is subject to well-recognized exceptions, such that there is no hypothetical admission of the veracity of the
allegations if:

1. the falsity of the allegations is subject to judicial notice;

2. such allegations are legally impossible;

 3. the allegations refer to facts which are inadmissible in evidence;

4. by the record or document in the pleading, the allegations appear unfounded; or

5. there is evidence which has been presented to the court by stipulation of the parties or in the course of the hearings
related to the case.18

In this case, 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,19 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 states—

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

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.20 The exception to this rule is a situation
where the insurance contract was intended to benefit third persons who are not parties to the same in the form of favorable
stipulations or indemnity. In such a case, third parties may directly sue and claim from the insurer.21

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 disqualification 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 beneficiaries the children of illicit relationships by the insured,22 the shares of Eva in the
insurance proceeds, whether forfeited by the court in view of the prohibition on donations under Article 739 of the Civil Code or
by the insurers themselves for reasons based on the insurance contracts, must be awarded to the said illegitimate children, the
designated beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has not designated any
beneficiary,23 or when the designated beneficiary is disqualified by law to receive the proceeds,24 that the insurance policy
proceeds shall redound to the benefit of the estate of the insured.

In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In the same light, the Decision of the CA
dated January 8, 2008 should be sustained. Indeed, the appellate court had no jurisdiction to take cognizance of the appeal; the
issue of failure to state a cause of action is a question of law and not of fact, there being no findings of fact in the first place.25

WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners.

SO ORDERED.

20. Violeta Lalican v. The Insular Life Assurance Company, Limited

G.R. No. 183526               August 25, 2009

VIOLETA R. LALICAN, Petitioner,
vs.
THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS REPRESENTED BY THE PRESIDENT VICENTE R. AVILON, Respondent.

DECISION
CHICO-NAZARIO, J.:

Challenged in this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court are the Decision2 dated 30 August 2007 and the
Orders dated 10 April 20083 and 3 July 20084 of the Regional Trial Court (RTC) of Gapan City, Branch 34, in Civil Case No. 2177. In its
assailed Decision, the RTC dismissed the claim for death benefits filed by petitioner Violeta R. Lalican (Violeta) against respondent
Insular Life Assurance Company Limited (Insular Life); while in its questioned Orders dated 10 April 2008 and 3 July 2008, respectively,
the RTC declared the finality of the aforesaid Decision and denied petitioner’s Notice of Appeal.

The factual and procedural antecedents of the case, as culled from the records, are as follows:

Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio).

During his lifetime, Eulogio applied for an insurance policy with Insular Life. On 24 April 1997, Insular Life, through Josephine Malaluan
(Malaluan), its agent in Gapan City, issued in favor of Eulogio Policy No. 9011992, 5 which contained a 20-Year Endowment Variable
Income Package Flexi Plan worth ₱500,000.00, 6 with two riders valued at ₱500,000.00 each.7 Thus, the value of the policy amounted to
₱1,500,000.00. Violeta was named as the primary beneficiary.

Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a quarterly basis in the amount of ₱8,062.00, payable
every 24 April, 24 July, 24 October and 24 January of each year, until the end of the 20-year period of the policy. According to the Policy
Contract, there was a grace period of 31 days for the payment of each premium subsequent to the first. If any premium was not paid
on or before the due date, the policy would be in default, and if the premium remained unpaid until the end of the grace period, the
policy would automatically lapse and become void.8

Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he failed to pay the premium due on 24 January 1998,
even after the lapse of the grace period of 31 days. Policy No. 9011992, therefore, lapsed and became void.

Eulogio submitted to the Cabanatuan District Office of Insular Life, through Malaluan, on 26 May 1998, an Application for
Reinstatement9 of Policy No. 9011992, together with the amount of ₱8,062.00 to pay for the premium due on 24 January 1998. In a
letter10 dated 17 July 1998, Insular Life notified Eulogio that his Application for Reinstatement could not be fully processed because,
although he already deposited ₱8,062.00 as payment for the 24 January 1998 premium, he left unpaid the overdue interest thereon
amounting to ₱322.48. Thus, Insular Life instructed Eulogio to pay the amount of interest and to file another application for
reinstatement. Eulogio was likewise advised by Malaluan to pay the premiums that subsequently became due on 24 April 1998 and 24
July 1998, plus interest.

On 17 September 1998, Eulogio went to Malaluan’s house and submitted a second Application for Reinstatement 11 of Policy No.
9011992, including the amount of ₱17,500.00, representing payments for the overdue interest on the premium for 24 January 1998,
and the premiums which became due on 24 April 1998 and 24 July 1998. As Malaluan was away on a business errand, her husband
received Eulogio’s second Application for Reinstatement and issued a receipt for the amount Eulogio deposited.

A while later, on the same day, 17 September 1998, Eulogio died of cardio-respiratory arrest secondary to electrocution.

Without knowing of Eulogio’s death, Malaluan forwarded to the Insular Life Regional Office in the City of San Fernando, on 18
September 1998, Eulogio’s second Application for Reinstatement of Policy No. 9011992 and ₱17,500.00 deposit. However, Insular Life
no longer acted upon Eulogio’s second Application for Reinstatement, as the former was informed on 21 September 1998 that Eulogio
had already passed away.

On 28 September 1998, Violeta filed with Insular Life a claim for payment of the full proceeds of Policy No. 9011992.

In a letter12 dated 14 January 1999, Insular Life informed Violeta that her claim could not be granted since, at the time of Eulogio’s
death, Policy No. 9011992 had already lapsed, and Eulogio 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," and whatever amount the applicant paid in connection thereto was considered to be a deposit only until approval of said
application. Enclosed with the 14 January 1999 letter of Insular Life to Violeta was DBP Check No. 0000309734, for the amount of
₱25,417.00, drawn in Violeta’s favor, representing the full refund of the payments made by Eulogio on Policy No. 9011992.

On 12 February 1998, Violeta requested a reconsideration of the disallowance of her claim. In a letter 13 dated 10 March 1999, Insular
Life stated that it could not find any reason to reconsider its decision rejecting Violeta’s claim. Insular Life again tendered to Violeta the
above-mentioned check in the amount of ₱25,417.00.

Violeta returned the letter dated 10 March 1999 and the check enclosed therein to the Cabanatuan District Office of Insular Life.
Violeta’s counsel subsequently sent a letter 14 dated 8 July 1999 to Insular Life, demanding payment of the full proceeds of Policy No.
9011992. On 11 August 1999, Insular Life responded to the said demand letter by agreeing to conduct a re-evaluation of Violeta’s
claim.
Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the RTC, on 11 October 1999, a Complaint for Death
Claim Benefit,15 which was docketed as Civil Case No. 2177. Violeta alleged that Insular Life engaged in unfair claim settlement practice
and deliberately failed to act with reasonable promptness on her insurance claim. Violeta prayed that Insular Life be ordered to pay her
death claim benefits on Policy No. 9011992, in the amount of ₱1,500,000.00, plus interests, attorney’s fees, and cost of suit.

Insular Life filed with the RTC an Answer with Counterclaim, 16 asserting that Violeta’s Complaint had no legal or factual bases. Insular
Life maintained that Policy No. 9011992, on which Violeta sought to recover, was rendered void by the non-payment of the 24 January
1998 premium and non-compliance with the requirements for the reinstatement of the same. By way of counterclaim, Insular Life
prayed that Violeta be ordered to pay attorney’s fees and expenses of litigation incurred by the former.

Violeta, in her Reply and Answer to Counterclaim, asserted that the requirements for the reinstatement of Policy No. 9011992 had
been complied with and the defenses put up by Insular Life were purely invented and illusory.

After trial, the RTC rendered, on 30 August 2007, a Decision in favor of Insular Life.

The RTC found that Policy No. 9011992 had indeed lapsed and Eulogio needed to have the same reinstated:

[The] arguments [of Insular Life] are not without basis. When the premiums for April 24 and July 24, 1998 were not paid by [Eulogio]
even after the lapse of the 31-day grace period, his insurance policy necessarily lapsed. This is clear from the terms and conditions of
the contract between [Insular Life] and [Eulogio] which are written in [the] Policy provisions of Policy No. 9011992 x x x. 17

The RTC, taking into account the clear provisions of the Policy Contract between Eulogio and Insular Life and the Application for
Reinstatement Eulogio subsequently signed and submitted to Insular Life, held that Eulogio was not able to fully comply with the
requirements for the reinstatement of Policy No. 9011992:

The well-settled rule is that a contract has the force of law between the parties. In the instant case, the terms of the insurance contract
between [Eulogio] and [Insular Life] were spelled out in the policy provisions of Insurance Policy No. 9011992. There is likewise no
dispute that said insurance contract is by nature a contract of adhesion[,] which is defined as "one in which one of the contracting
parties imposes a ready-made form of contract which the other party may accept or reject but cannot modify." (Polotan, Sr. vs. CA, 296
SCRA 247).

xxxx

The New Lexicon Webster’s Dictionary defines ambiguity as the "quality of having more than one meaning" and "an idea, statement or
expression capable of being understood in more than one sense." In Nacu vs. Court of Appeals, 231 SCRA 237 (1994), the Supreme
Court stated that[:]

"Any ambiguity in a contract, whose terms are susceptible of different interpretations as a result thereby, must be read and construed
against the party who drafted it on the assumption that it could have been avoided by the exercise of a little care."

In the instant case, the dispute arises from the afore-quoted provisions written on the face of the second application for reinstatement.
Examining the said provisions, the court finds the same clearly written in terms that are simple enough to admit of only one
interpretation. They are clearly not ambiguous, equivocal or uncertain that would need further construction. The same are written on
the very face of the application just above the space where [Eulogio] signed his name. It is inconceivable that he signed it without
reading and understanding its import.1avvphi1

Similarly, the provisions of the policy provisions (sic) earlier mentioned are written in simple and clear layman’s language, rendering it
free from any ambiguity that would require a legal interpretation or construction. Thus, the court believes that [Eulogio] was well
aware that when he filed the said application for reinstatement, his lapsed policy was not automatically reinstated and that its approval
was subject to certain conditions. Nowhere in the policy or in the application for reinstatement was it ever mentioned that the
payment of premiums would have the effect of an automatic and immediate renewal of the lapsed policy. Instead, what was clearly
stated in the application for reinstatement is that pending approval thereof, the premiums paid would be treated as a "deposit only
and shall not bind the company until this application is finally approved during my/our" lifetime and good health[.]"

Again, the court finds nothing in the aforesaid provisions that would even suggest an ambiguity either in the words used or in the
manner they were written. [Violeta] did not present any proof that [Eulogio] was not conversant with the English language. Hence, his
having personally signed the application for reinstatement[,] which consisted only of one page, could only mean that he has read its
contents and that he understood them. x x x

Therefore, consistent with the above Supreme Court ruling and finding no ambiguity both in the policy provisions of Policy No. 9011992
and in the application for reinstatement subject of this case, the court finds no merit in [Violeta’s] contention that the policy provision
stating that [the lapsed policy of Eulogio] should be reinstated during his lifetime is ambiguous and should be construed in his favor. It
is true that [Eulogio] submitted his application for reinstatement, together with his premium and interest payments, to [Insular Life]
through its agent Josephine Malaluan in the morning of September 17, 1998. Unfortunately, he died in the afternoon of that same day.
It was only on the following day, September 18, 1998 that Ms. Malaluan brought the said document to [the regional office of Insular
Life] in San Fernando, Pampanga for approval. As correctly pointed out by [Insular Life] there was no more application to approve
because the applicant was already dead and no insurance company would issue an insurance policy to a dead person. 18 (Emphases
ours.)

The RTC, in the end, explained that:

While the court truly empathizes with the [Violeta] for the loss of her husband, it cannot express the same by interpreting the
insurance agreement in her favor where there is no need for such interpretation. It is conceded that [Eulogio’s] payment of overdue
premiums and interest was received by [Insular Life] through its agent Ms. Malaluan. It is also true that [the] application for
reinstatement was filed by [Eulogio] a day before his death. However, there is nothing that would justify a conclusion that such receipt
amounted to an automatic reinstatement of the policy that has already lapsed. The evidence suggests clearly that no such automatic
renewal was contemplated in the contract between [Eulogio] and [Insular Life]. Neither was it shown that Ms. Malaluan was the officer
authorized to approve the application for reinstatement and that her receipt of the documents submitted by [Eulogio] amounted to its
approval.19 (Emphasis ours.)

The fallo of the RTC Decision thus reads:

WHEREFORE, all the foregoing premises considered and finding that [Violeta] has failed to establish by preponderance of evidence her
cause of action against the defendant, let this case be, as it is hereby DISMISSED. 20

On 14 September 2007, Violeta filed a Motion for Reconsideration 21 of the afore-mentioned RTC Decision. Insular Life opposed22 the
said motion, averring that the arguments raised therein were merely a rehash of the issues already considered and addressed by the
RTC. In an Order23 dated 8 November 2007, the RTC denied Violeta’s Motion for Reconsideration, finding no cogent and compelling
reason to disturb its earlier findings. Per the Registry Return Receipt on record, the 8 November 2007 Order of the RTC was received by
Violeta on 3 December 2007.

In the interim, on 22 November 2007, Violeta filed with the RTC a Reply 24 to the Motion for Reconsideration, wherein she reiterated
the prayer in her Motion for Reconsideration for the setting aside of the Decision dated 30 August 2007. Despite already receiving on 3
December 2007, a copy of the RTC Order dated 8 November 2007, which denied her Motion for Reconsideration, Violeta still filed with
the RTC, on 26 February 2008, a Reply Extended Discussion elaborating on the arguments she had previously made in her Motion for
Reconsideration and Reply.

On 10 April 2008, the RTC issued an Order,25 declaring that the Decision dated 30 August 2007 in Civil Case No. 2177 had already
attained finality in view of Violeta’s failure to file the appropriate notice of appeal within the reglementary period. Thus, any further
discussions on the issues raised by Violeta in her Reply and Reply Extended Discussion would be moot and academic.

Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal with Motion, 26 praying that the Order dated 10 April 2008 be set aside
and that she be allowed to file an appeal with the Court of Appeals.

In an Order27 dated 3 July 2008, the RTC denied Violeta’s Notice of Appeal with Motion given that the Decision dated 30 August 2007
had long since attained finality.

Violeta directly elevated her case to this Court via the instant Petition for Review on Certiorari, raising the following issues for
consideration:

1. Whether or not the Decision of the court a quo dated August 30, 2007, can still be reviewed despite having allegedly
attained finality and despite the fact that the mode of appeal that has been availed of by Violeta is erroneous?

2. Whether or not the Regional Trial Court in its original jurisdiction has decided the case on a question of law not in accord
with law and applicable decisions of the Supreme Court?

Violeta insists that her former counsel committed an honest mistake in filing a Reply, instead of a Notice of Appeal of the RTC Decision
dated 30 August 2007; and in the computation of the reglementary period for appealing the said judgment. Violeta claims that her
former counsel suffered from poor health, which rapidly deteriorated from the first week of July 2008 until the latter’s death just
shortly after the filing of the instant Petition on 8 August 2008. In light of these circumstances, Violeta entreats this Court to admit and
give due course to her appeal even if the same was filed out of time.

Violeta further posits that the Court should address the question of law arising in this case involving the interpretation of the second
sentence of Section 19 of the Insurance Code, which provides:
Section. 19. x x x [I]nterest 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.

On the basis thereof, Violeta argues that Eulogio still had insurable interest in his own life when he reinstated Policy No. 9011992 just
before he passed away on 17 September 1998. The RTC should have construed the provisions of the Policy Contract and Application for
Reinstatement in favor of the insured Eulogio and against the insurer Insular Life, and considered the special circumstances of the case,
to rule that Eulogio had complied with the requisites for the reinstatement of Policy No. 9011992 prior to his death, and that Violeta is
entitled to claim the proceeds of said policy as the primary beneficiary thereof.

The Petition lacks merit.

At the outset, the Court notes that the elevation of the case to us via the instant Petition for Review on Certiorari is not justified. Rule
41, Section 1 of the Rules of Court,28 provides that no appeal may be taken from an order disallowing or dismissing an appeal. In such a
case, the aggrieved party may file a Petition for Certiorari under Rule 65 of the Rules of Court. 29

Furthermore, the RTC Decision dated 30 August 2007, assailed in this Petition, had long become final and executory. Violeta filed a
Motion for Reconsideration thereof, but the RTC denied the same in an Order dated 8 November 2007. The records of the case reveal
that Violeta received a copy of the 8 November 2007 Order on 3 December 2007. Thus, Violeta had 15 days 30 from said date of receipt,
or until 18 December 2007, to file a Notice of Appeal. Violeta filed a Notice of Appeal only on 20 May 2008, more than five months
after receipt of the RTC Order dated 8 November 2007 denying her Motion for Reconsideration.

Violeta’s claim that her former counsel’s failure to file the proper remedy within the reglementary period was an honest mistake,
attributable to the latter’s deteriorating health, is unpersuasive.

Violeta merely made a general averment of her former counsel’s poor health, lacking relevant details and supporting evidence. By
Violeta’s own admission, her former counsel’s health rapidly deteriorated only by the first week of July 2008. The events pertinent to
Violeta’s Notice of Appeal took place months before July 2008, i.e., a copy of the RTC Order dated 8 November 2007, denying Violeta’s
Motion for Reconsideration of the Decision dated 30 August 2007, was received on 3 December 2007; and Violeta’s Notice of Appeal
was filed on 20 May 2008. There is utter lack of proof to show that Violeta’s former counsel was already suffering from ill health during
these times; or that the illness of Violeta’s former counsel would have affected his judgment and competence as a lawyer.

Moreover, the failure of her former counsel to file a Notice of Appeal within the reglementary period binds Violeta, which failure the
latter cannot now disown on the basis of her bare allegation and self-serving pronouncement that the former was ill. A client is bound
by his counsel’s mistakes and negligence. 31

The Court, therefore, finds no reversible error on the part of the RTC in denying Violeta’s Notice of Appeal for being filed beyond the
reglementary period. Without an appeal having been timely filed, the RTC Decision dated 30 August 2007 in Civil Case No. 2177 already
became final and executory.

A judgment becomes "final and executory" by operation of law. Finality becomes a fact when the reglementary period to appeal lapses
and no appeal is perfected within such period. As a consequence, no court (not even this Court) can exercise appellate jurisdiction to
review a case or modify a decision that has become final.32 When a final judgment is executory, it becomes immutable and unalterable.
It may no longer be modified in any respect either by the court, which rendered it or even by this Court. The doctrine is founded on
considerations of public policy and sound practice that, at the risk of occasional errors, judgments must become final at some definite
point in time.33

The only recognized exceptions to the doctrine of immutability and unalterability are the correction of clerical errors, the so-
called nunc pro tunc entries, which cause no prejudice to any party, and void judgments. 34 The instant case does not fall under any of
these exceptions.

Even if the Court ignores the procedural lapses committed herein, and proceeds to resolve the substantive issues raised, the Petition
must still fail.

Violeta makes it appear that her present Petition involves a question of law, particularly, whether Eulogio had an existing insurable
interest in his own life until the day of his death.

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 benefit 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. 35 The existence of
an insurable interest gives a person the legal right to insure the subject matter of the policy of insurance. 36 Section 10 of the Insurance
Code indeed provides that every person has an insurable interest in his own life. 37 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.38

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. The real point of contention herein is whether Eulogio was able to reinstate the lapsed insurance policy on
his life before his death on 17 September 1998.

The Court rules in the negative.

Before proceeding, the Court must correct the erroneous declaration of the RTC in its 30 August 2007 Decision that Policy No. 9011992
lapsed because of Eulogio’s non-payment of the premiums which became due on 24 April 1998 and 24 July 1998. Policy No. 9011992
had lapsed and become void earlier, on 24 February 1998, upon the expiration of the 31-day grace period for payment of the premium,
which fell due on 24 January 1998, without any payment having been made.

That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogio’s filing of his first Application for Reinstatement with
Insular Life, through Malaluan, on 26 May 1998, constitutes an admission that Policy No. 9011992 had lapsed by then. Insular Life did
not act on Eulogio’s first Application for Reinstatement, since the amount Eulogio simultaneously deposited was sufficient to cover only
the ₱8,062.00 overdue premium for 24 January 1998, but not the ₱322.48 overdue interests thereon. On 17 September 1998, Eulogio
submitted a second Application for Reinstatement to Insular Life, again through Malaluan, depositing at the same time ₱17,500.00, to
cover payment for the overdue interest on the premium for 24 January 1998, and the premiums that had also become due on 24 April
1998 and 24 July 1998. On the very same day, Eulogio passed away.

To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse. 39 Both the Policy
Contract and the Application for Reinstatement provide for specific conditions for the reinstatement of a lapsed policy.

The Policy Contract between Eulogio and Insular Life identified the following conditions for reinstatement should the policy lapse:

10. REINSTATEMENT

You may reinstate this policy at any time within three years after it lapsed if the following conditions are met: (1) the policy has not
been surrendered for its cash value or the period of extension as a term insurance has not expired; (2) evidence of insurability
satisfactory to [Insular Life] is furnished; (3) overdue premiums are paid with compound interest at a rate not exceeding that which
would have been applicable to said premium and indebtedness in the policy years prior to reinstatement; and (4) indebtedness which
existed at the time of lapsation is paid or renewed.40

Additional conditions for reinstatement of a lapsed policy were stated in the Application for Reinstatement which Eulogio signed and
submitted, to wit:

I/We agree that said Policy shall not be considered reinstated until this application is approved by the Company during my/our lifetime
and good health and until all other Company requirements for the reinstatement of said Policy are fully satisfied.

I/We further agree that any payment made or to be made in connection with this application shall be considered as deposit only and
shall not bind the Company until this application is finally approved by the Company during my/our lifetime and good health. If this
application is disapproved, I/We also agree to accept the refund of all payments made in connection herewith, without interest, and to
surrender the receipts for such payment.41 (Emphases ours.)

In the instant case, Eulogio’s death rendered impossible full compliance with the conditions for reinstatement of Policy No. 9011992.
True, Eulogio, before his death, managed to file his Application for Reinstatement and deposit the amount for payment of his overdue
premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be considered reinstated after the Application for
Reinstatement had been processed and approved by Insular Life during Eulogio’s lifetime and good health.

Relevant herein is the following pronouncement of the Court in Andres v. The Crown Life Insurance Company, 42 citing McGuire v. The
Manufacturer's Life Insurance Co.43:

"The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written application does not give the
insured absolute right to such reinstatement by the mere filing of an application. The insurer has the right to deny the reinstatement if
it is not satisfied as to the insurability of the insured and if the latter does not pay all overdue premium and all other indebtedness to
the insurer. After the death of the insured the insurance Company cannot be compelled to entertain an application for reinstatement
of the policy because the conditions precedent to reinstatement can no longer be determined and satisfied." (Emphases ours.)
It does not matter that when he died, Eulogio’s Application for Reinstatement and deposits for the overdue premiums and interests
were already with Malaluan. Insular Life, through the Policy Contract, expressly limits the power or authority of its insurance agents,
thus:

Our agents have no authority to make or modify this contract, to extend the time limit for payment of premiums, to waive any
lapsation, forfeiture or any of our rights or requirements, such powers being limited to our president, vice-president or persons
authorized by the Board of Trustees and only in writing. 44 (Emphasis ours.)

Malaluan did not have the authority to approve Eulogio’s Application for Reinstatement. Malaluan still had to turn over to Insular Life
Eulogio’s Application for Reinstatement and accompanying deposits, for processing and approval by the latter.

The Court agrees with the RTC that the conditions for reinstatement under the Policy Contract and Application for Reinstatement were
written in clear and simple language, which could not admit of any meaning or interpretation other than those that they so obviously
embody. A construction in favor of the insured is not called for, as there is no ambiguity in the said provisions in the first place. The
words thereof are clear, unequivocal, and simple enough so as to preclude any mistake in the appreciation of the same.

Violeta did not adduce any evidence that Eulogio might have failed to fully understand the import and meaning of the provisions of his
Policy Contract and/or Application for Reinstatement, both of which he voluntarily signed. While it is a cardinal principle of insurance
law that a policy or contract of insurance is to be construed liberally in favor of the insured and strictly as against the insurer company,
yet, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms, which the
parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and
popular sense.45

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. Even though the Court commiserates with Violeta, as the tragic and fateful turn of events leaves her practically empty-
handed, the Court cannot arbitrarily burden Insular Life with the payment of proceeds on a lapsed insurance policy. Justice and fairness
must equally apply to all parties to a case. Courts are not permitted to make contracts for the parties. The function and duty of the
courts consist simply in enforcing and carrying out the contracts actually made. 46

Policy No. 9011992 remained lapsed and void, not having been reinstated in accordance with the Policy Contract and Application for
Reinstatement before Eulogio’s death. Violeta, therefore, cannot claim any death benefits from Insular Life on the basis of Policy No.
9011992; but she is entitled to receive the full refund of the payments made by Eulogio thereon.

WHEREFORE, premises considered, the Court DENIES the instant Petition for Review on Certiorari under Rule 45 of the Rules of Court.
The Court AFFIRMS the Orders dated 10 April 2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in Civil Case No. 2177, denying
petitioner Violeta R. Lalican’s Notice of Appeal, on the ground that the Decision dated 30 August 2007 subject thereof, was already final
and executory. No costs.

SO ORDERED.

21. Gaisano Cagayan, Inc. v. Insurance Company of North America

G.R. No. 147839             June 8, 2006

GAISANO CAGAYAN, INC. Petitioner,

vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.
 DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari of the Decision1 dated October 11, 2000 of the Court of Appeals (CA) in CA-
G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in
Civil Case No. 92-322 and upheld the causes of action for damages of Insurance Company of North America (respondent) against
Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April 11, 2001 which denied petitioner's motion for
reconsideration.

The factual background of the case is as follows:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local
distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fire
insurance policies with book debt endorsements. The insurance policies provide for coverage on "book debts in connection with
ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in
the Philippines."2 The policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45
days after the time of the loss covered under this Policy."3 The policies also provide for the following conditions:

1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and
delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from the date
of the covering invoice or actual delivery of the merchandise whichever shall first occur.

2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every calendar
month all amount shown in their books of accounts as unpaid and thus become receivable item from their customers
and dealers. x x x4

xxxx

Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore Complex in
Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or destroyed in the fire were stocks of
ready-made clothing materials sold and delivered by IMC and LSPI.

On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed with
respondent their claims under their respective fire insurance policies with book debt endorsements; that as of February 25,
1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with IMC was P2,119,205.00
while with LSPI it was P535,613.00; that respondent paid the claims of IMC and LSPI and, by virtue thereof, respondent was
subrogated to their rights against petitioner; that respondent made several demands for payment upon petitioner but these went
unheeded.5

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable because the property
covered by the insurance policies were destroyed due to fortuities event or force majeure; that respondent's right of subrogation
has no basis inasmuch as there was no breach of contract committed by it since the loss was due to fire which it could not
prevent or foresee; that IMC and LSPI never communicated to it that they insured their properties; that it never consented to
paying the claim of the insured.6

At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus, trial on the merits ensued.

On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint.8 It held that the fire was purely accidental;
that the cause of the fire was not attributable to the negligence of the petitioner; that it has not been established that petitioner is
the debtor of IMC and LSPI; that since the sales invoices state that "it is further agreed that merely for purpose of securing the
payment of purchase price, the above-described merchandise remains the property of the vendor until the purchase price is fully
paid", IMC and LSPI retained ownership of the delivered goods and must bear the loss.

Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its decision setting aside the decision of the
RTC. The dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a new one is entered ordering
defendant-appellee Gaisano Cagayan, Inc. to pay:

1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the insured Inter Capitol
Marketing Corporation, plus legal interest from the time of demand until fully paid;
 2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the insured Levi Strauss Phil.,
Inc., plus legal interest from the time of demand until fully paid.

With costs against the defendant-appellee.

SO ORDERED.10

The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity and cost of the thing sold;
that loss of the goods in the fire must be borne by petitioner since the proviso contained in the sales invoices is an exception
under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a fortuitous event, the risk is borne by the
owner of the thing at the time the loss under the principle of res perit domino; that petitioner's obligation to IMC and LSPI is not
the delivery of the lost goods but the payment of its unpaid account and as such the obligation to pay is not extinguished, even if
the fire is considered a fortuitous event; that by subrogation, the insurer has the right to go against petitioner; that, being a fire
insurance with book debt endorsements, what was insured was the vendor's interest as a creditor.11

Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution dated April 11, 2001.13

Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE WAS ONE OVER CREDIT.

THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN THE INSTANT CASE HAD
TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVIL
CODE IN FAVOR OF RESPONDENT.14

Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be over credit since an
insurance "on credit" belies not only the nature of fire insurance but the express terms of the policies; that it was not credit that
was insured since respondent paid on the occasion of the loss of the insured goods to fire and not because of the non-payment by
petitioner of any obligation; that, even if the insurance is deemed as one over credit, there was no loss as the accounts were not
yet due since no prior demands were made by IMC and LSPI against petitioner for payment of the debt and such demands came
from respondent only after it had already paid IMC and LSPI under the fire insurance policies.15

As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and LSPI assumed the risk of loss
when they secured fire insurance policies over the goods.

Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as no valid insurance could
be maintained thereon by IMC and LSPI since all risk had transferred to petitioner upon delivery of the goods; that petitioner was
not privy to the insurance contract or the payment between respondent and its insured nor was its consent or approval ever
secured; that this lack of privity forecloses any real interest on the part of respondent in the obligation to pay, limiting its interest
to keeping the insured goods safe from fire.

For its part, respondent counters that while ownership over the ready- made clothing materials was transferred upon delivery to
petitioner, IMC and LSPI have insurable interest over said goods as creditors who stand to suffer direct pecuniary loss from its
destruction by fire; that petitioner is liable for loss of the ready-made clothing materials since it failed to overcome the
presumption of liability under Article 126516 of the Civil Code; that the fire was caused through petitioner's negligence in failing
to provide stringent measures of caution, care and maintenance on its property because electric wires do not usually short circuit
unless there are defects in their installation or when there is lack of proper maintenance and supervision of the property; that
petitioner is guilty of gross and evident bad faith in refusing to pay respondent's valid claim and should be liable to respondent
for contracted lawyer's fees, litigation expenses and cost of suit.17

As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the CA is limited to
reviewing questions of law which involves no examination of the probative value of the evidence presented by the litigants or
any of them.18 The Supreme Court is not a trier of facts; it is not its function to analyze or weigh evidence all over
again.19 Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme Court.20

Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved by this Court, such as: (1)
when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the CA went beyond the
issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are
contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based;
(9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent;
(10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record;
and (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered,
would justify a different conclusion.21 Exceptions (4), (5), (7), and (11) apply to the present petition.

At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA erred in construing a fire
insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of the
ready-made clothing materials sold and delivered to petitioner.

The Court disagrees with petitioner's stand.

It is well-settled that when the words of a contract are plain and readily understood, there is no room for construction.22 In this
case, the questioned insurance policies provide coverage for "book debts in connection with ready-made clothing materials
which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines."23 ; and defined
book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered
under this Policy."24 Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the goods
sold and delivered to the customers and dealers of the insured.

Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged
intention of the parties, the terms are to be understood literally just as they appear on the face of the contract.25 Thus, what were
insured against were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss through fire,
and not the loss or destruction of the goods delivered.

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."26

The Court is not persuaded.

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

ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer,
but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been
made or not, except that:

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

xxxx

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.27 Accordingly, petitioner bears the risk of loss of the goods delivered.

IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of the
delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the
risk of loss, in property insurance, one's interest is not determined by concept of title, but whether insured has substantial
economic interest in the property.28

Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any
relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured."
Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b)
an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the
expectancy arises.

Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the
subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest, it is
sufficient that the insured is so situated with reference to the property that he would be liable to loss should it be injured or
destroyed by the peril against which it is insured.29 Anyone has an insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction.30 Indeed, a vendor or seller retains an insurable interest in the property sold
so long as he has any interest therein, in other words, so long as he would suffer by its destruction, as where he has a vendor's
lien.31 In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45
days after the time of the loss covered by the policies.

The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 117432 of the Civil Code is misplaced.
As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC
and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the payment of money. As
correctly stated by the CA, where the obligation consists in the payment of money, the failure of the debtor to make the payment
even by reason of a fortuitous event shall not relieve him of his liability.33 The rationale for this is that the rule that an obligor
should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation consists in
the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It does not
apply when the obligation is pecuniary in nature.34

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything of the same
kind does not extinguish the obligation." If the obligation is generic in the sense that the object thereof is designated merely by its
class or genus without any particular designation or physical segregation from all others of the same class, the loss or destruction
of anything of the same kind even without the debtor's fault and before he has incurred in delay will not have the effect of
extinguishing the obligation.35 This rule is based on the principle that the genus of a thing can never perish. Genus nunquan
perit.36 An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of the
debtor.37

Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. What is relevant here is
whether it has been established that petitioner has outstanding accounts with IMC and LSPI.

With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22"38 show that petitioner has an
outstanding account with IMC in the amount of P2,119,205.00. Exhibit "E"39 is the check voucher evidencing payment to IMC.
Exhibit "F"40 is the subrogation receipt executed by IMC in favor of respondent upon receipt of the insurance proceeds. All these
documents have been properly identified, presented and marked as exhibits in court. The subrogation receipt, by itself, is
sufficient to establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount paid to
settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance
claim.41 Respondent's action against petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury
or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. x x x

Petitioner failed to refute respondent's evidence.

As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary weight can be given to
Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not
an admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's products in the amount of P535,613.00
in the fire that razed petitioner's building on February 25, 1991.

Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was offered in evidence.
Thus, there is no evidence that respondent has been subrogated to any right which LSPI may have against petitioner. Failure to
substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of P535,613.00.

WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and Resolution dated April 11,
2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with the MODIFICATION that the order to pay the amount
of P535,613.00 to respondent is DELETED for lack of factual basis.

No pronouncement as to costs.

SO ORDERED.

22. The Insular Life Assurance Company, Ltd. vs. Ebrado

G.R. No. L-44059 October 28, 1977

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,
vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.

MARTIN, J.:

This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life insurance policy of a
legally married man claim the proceeds thereof in case of death of the latter?

On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., Policy No. 009929 on a
whole-life for P5,882.00 with a, rider for Accidental Death for the same amount Buenaventura C. Ebrado designated T.
Ebrado as the revocable beneficiary in his policy. He to her as his wife.

On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing branch of a tree. As the
policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the coverage in the total amount of P11,745.73,
representing the face value of the policy in the amount of P5,882.00 plus the additional benefits for accidental death also in
the amount of P5,882.00 and the refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums
and interest thereon due for January and February, 1969, in the sum of P36.27.

Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated beneficiary therein,
although she admits that she and the insured Buenaventura C. Ebrado were merely living as husband and wife without the
benefit of marriage.

Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is the one entitled
to the insurance proceeds, not the common-law wife, Carponia T. Ebrado.

In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co., Ltd. commenced an
action for Interpleader before the Court of First Instance of Rizal on April 29, 1970.

After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-trial order was entered
reading as follows: ñé+.£ªwph!1

During the pre-trial conference, the parties manifested to the court. that there is no possibility of amicable
settlement. Hence, the Court proceeded to have the parties submit their evidence for the purpose of the
pre-trial and make admissions for the purpose of pretrial. During this conference, parties Carponia T.
Ebrado and Pascuala Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was
married to Pascuala Ebrado with whom she has six — (legitimate) namely; Hernando, Cresencio, Elsa,
Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the lifetime of the deceased, he was
insured with Insular Life Assurance Co. Under Policy No. 009929 whole life plan, dated September 1,
1968 for the sum of P5,882.00 with the rider for accidental death benefit as evidenced by Exhibits A for
plaintiffs and Exhibit 1 for the defendant Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the
lifetime of Buenaventura Ebrado, he was living with his common-wife, Carponia Ebrado, with whom she had
2 children although he was not legally separated from his legal wife; 4) that Buenaventura in accident on
October 21, 1969 as evidenced by the death Exhibit 3 and affidavit of the police report of his death Exhibit
5; 5) that complainant Carponia Ebrado filed claim with the Insular Life Assurance Co. which was
contested by Pascuala Ebrado who also filed claim for the proceeds of said policy 6) that in view ofthe
adverse claims the insurance company filed this action against the two herein claimants Carponia and
Pascuala Ebrado; 7) that there is now due from the Insular Life Assurance Co. as proceeds of the policy
P11,745.73; 8) that the beneficiary designated by the insured in the policy is Carponia Ebrado and the
insured made reservation to change the beneficiary but although the insured made the option to change
the beneficiary, same was never changed up to the time of his death and the wife did not have any
opportunity to write the company that there was reservation to change the designation of the parties
agreed that a decision be rendered based on and stipulation of facts as to who among the two claimants is
entitled to the policy.

Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda from the
receipt of this order.

SO ORDERED.

On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T. Ebrado disqualified from
becoming beneficiary of the insured Buenaventura Cristor Ebrado and directing the payment of the insurance proceeds to
the estate of the deceased insured. The trial court held: ñé+.£ªwph!1
 It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction for adultery or
concubinage is not essential in order to establish the disqualification mentioned therein. Neither is it also
necessary that a finding of such guilt or commission of those acts be made in a separate independent
action brought for the purpose. The guilt of the donee (beneficiary) may be proved by preponderance of
evidence in the same proceeding (the action brought to declare the nullity of the donation).

It is, however, essential that such adultery or concubinage exists at the time defendant Carponia T.
Ebrado was made beneficiary in the policy in question for the disqualification and incapacity to exist and
that it is only necessary that such fact be established by preponderance of evidence in the trial. Since it is
agreed in their stipulation above-quoted that the deceased insured and defendant Carponia T. Ebrado
were living together as husband and wife without being legally married and that the marriage of the
insured with the other defendant Pascuala Vda. de Ebrado was valid and still existing at the time the
insurance in question was purchased there is no question that defendant Carponia T. Ebrado is
disqualified from becoming the beneficiary of the policy in question and as such she is not entitled to the
proceeds of the insurance upon the death of the insured.

From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the Appellate Court
certified the case to Us as involving only questions of law.

We affirm the judgment of the lower court.

1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code (PD No. 612, as
amended) does not contain any specific provision grossly resolutory of the prime question at hand. Section 50 of the
Insurance Act which provides that "(t)he insurance shag be applied exclusively to the proper interest of the person in
whose name it is made" 1 cannot be validly seized upon to hold that the mm includes the beneficiary. The word "interest"
highly suggests that the provision refers only to the "insured" and not to the beneficiary, since a contract of insurance is
personal in character. 2 Otherwise, the prohibitory laws against illicit relationships especially on property and descent will
be rendered nugatory, as the same could easily be circumvented by modes of insurance. Rather, the general rules of civil
law should be applied to resolve this void in the Insurance Law. Article 2011 of the New Civil Code states: "The contract of
insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this
Code." When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by the
general rules of the civil law regulating contracts. 3 And 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 fife insurance policy by the person who
cannot make a donation to him. 4 Common-law spouses are, definitely, barred from receiving donations from each other.
Article 739 of the new Civil Code provides: ñé+.£ªwph!1

The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the time of donation;

Those made between persons found guilty of the same criminal offense, in consideration thereof;

3. Those made to a public officer or his wife, descendants or ascendants by reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the
donor or donee; and the guilt of the donee may be proved by preponderance of evidence in the same action.

2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are
founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy
which the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a
consequence, the proscription in Article 739 of the new Civil Code should equally operate in life insurance contracts. The
mandate of Article 2012 cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary in
the life insurance policy of the person who cannot make the donation. 5 Under American law, a policy of life insurance is
considered as a testament and in construing it, the courts will, so far as possible treat it as a will and determine the effect
of a clause designating the beneficiary by rules under which wins are interpreted. 6

3. Policy considerations and dictates of morality rightly justify the institution of a barrier between common law spouses in
record to Property relations since such hip ultimately encroaches upon the nuptial and filial rights of the legitimate family
There is every reason to hold that the bar in donations between legitimate spouses and those between illegitimate ones
should be enforced in life insurance policies since the same are based on similar consideration As above pointed out, a
beneficiary in a fife insurance policy is no different from a donee. Both are recipients of pure beneficence. So long as
manage remains the threshold of family laws, reason and morality dictate that the impediments imposed upon married
couple should likewise be imposed upon extra-marital relationship. If legitimate relationship is circumscribed by these
legal disabilities, with more reason should an illicit relationship be restricted by these disabilities. Thus, in Matabuena v.
Cervantes, 7 this Court, through Justice Fernando, said: ñé+.£ªwph!1

If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that court (Court
of Appeals), 'to prohibit donations in favor of the other consort and his descendants because of and undue
and improper pressure and influence upon the donor, a prejudice deeply rooted in our ancient law;" por-
que no se enganen desponjandose el uno al otro por amor que han de consuno' (According to) the
Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore invicem spoliarentur' the
Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem); then there is very reason to apply the same
prohibitive policy to persons living together as husband and wife without the benefit of nuptials. For it is
not to be doubted that assent to such irregular connection for thirty years bespeaks greater influence of
one party over the other, so that the danger that the law seeks to avoid is correspondingly increased.
Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not be just that such
donations should subsist, lest the condition 6f those who incurred guilt should turn out to be better.' So
long as marriage remains the cornerstone of our family law, reason and morality alike demand that the
disabilities attached to marriage should likewise attach to concubinage.

It is hardly necessary to add that even in the absence of the above pronouncement, any other conclusion
cannot stand the test of scrutiny. It would be to indict the frame of the Civil Code for a failure to apply a
laudable rule to a situation which in its essentials cannot be distinguished. Moreover, if it is at all to be
differentiated the policy of the law which embodies a deeply rooted notion of what is just and what is
right would be nullified if such irregular relationship instead of being visited with disabilities would be
attended with benefits. Certainly a legal norm should not be susceptible to such a reproach. If there is
every any occasion where the principle of statutory construction that what is within the spirit of the law
is as much a part of it as what is written, this is it. Otherwise the basic purpose discernible in such codal
provision would not be attained. Whatever omission may be apparent in an interpretation purely literal
of the language used must be remedied by an adherence to its avowed objective.

4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739
may effectuate. More specifically, with record to the disability on "persons who were guilty of adultery or concubinage at
the time of the donation," Article 739 itself provides: ñé+.£ªwph!1

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the
donor or donee; and the guilty of the donee may be proved by preponderance of evidence in the same action.

The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. In fact, it
cannot even be from the aforequoted provision that a prosecution is needed. On the contrary, the law plainly states that
the guilt of the party may be proved "in the same acting for declaration of nullity of donation. And, it would be sufficient if
evidence preponderates upon the guilt of the consort for the offense indicated. The quantum of proof in criminal cases is
not demanded.

In the caw before Us, the requisite proof of common-law relationship between the insured and the beneficiary has been
conveniently supplied by the stipulations between the parties in the pre-trial conference of the case. It case agreed upon
and stipulated therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she
has six legitimate children; that during his lifetime, the deceased insured was living with his common-law wife, Carponia
Ebrado, with whom he has two children. These stipulations are nothing less than judicial admissions which, as a
consequence, no longer require proof and cannot be contradicted. 8 A fortiori, on the basis of these admissions, a judgment
may be validly rendered without going through the rigors of a trial for the sole purpose of proving the illicit liaison
between the insured and the beneficiary. In fact, in that pretrial, the parties even agreed "that a decision be rendered
based on this agreement and stipulation of facts as to who among the two claimants is entitled to the policy."

ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared
disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the
proceeds of the policy are hereby held payable to the estate of the deceased insured. Costs against Carponia T. Ebrado.

SO ORDERED.

23. Sing vs. Feb Leasing & Finance Corporation

G.R. No. 168115              June 8, 2007
VICENTE ONG LIM SING, JR., petitioner,
vs.
FEB LEASING & FINANCE CORPORATION, respondent.
DECISION
NACHURA, J.:

This is a petition for review on certiorari assailing the Decision 1 dated March 15, 2005 and the Resolution2 dated May 23, 2005 of
the Court of Appeals (CA) in CA-G.R. CV No. 77498.

The facts are as follows:

On March 9, 1995, FEB Leasing and Finance Corporation (FEB) entered into a lease 3 of equipment and motor vehicles with JVL
Food Products (JVL). On the same date, Vicente Ong Lim Sing, Jr. (Lim) executed an Individual Guaranty Agreement 4 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 5 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 (₱170,494.00).

JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in arrears, including penalty charges and
insurance premiums, amounted to Three Million Four Hundred Fourteen Thousand Four Hundred Sixty-Eight and 75/100 Pesos
(₱3,414,468.75). On August 23, 2000, FEB sent a letter to JVL demanding payment of the said amount. However, JVL failed to
pay.6

On December 6, 2000, FEB filed a Complaint 7 with the Regional Trial Court of Manila, docketed as Civil Case No. 00-99451, for
sum of money, damages, and replevin against JVL, Lim, and John Doe.

In the Amended Answer,8 JVL and Lim admitted the existence of the lease agreement but asserted that it is in reality a sale of
equipment on installment basis, with FEB acting as the financier. JVL and Lim claimed that this intention was apparent from the
fact that they were made to believe that when full payment was effected, a Deed of Sale will be executed by FEB as vendor in
favor of JVL and Lim as vendees.9 FEB purportedly assured them that documenting the transaction as a lease agreement is just
an industry practice and that the proper documentation would be effected as soon as full payment for every item was made.
They also contended that the lease agreement is a contract of adhesion and should, therefore, be construed against the party
who prepared it, i.e., FEB.

In upholding JVL and Lim’s stance, the trial court stressed the contradictory terms it found in the lease agreement. The pertinent
portions of the Decision dated November 22, 2002 read:

A profound scrutiny of the provisions of the contract which is a contract of adhesion at once exposed the use of several
contradictory terms. To name a few, in Section 9 of the said contract – disclaiming warranty, it is stated that the lessor is not the
manufacturer nor the latter’s agent and therefore does not guarantee any feature or aspect of the object of the contract as to its
merchantability. Merchantability is a term applied in a contract of sale of goods where conditions and warranties are made to
apply. Article 1547 of the Civil Code provides that unless a contrary intention appears an implied warranty on the part of the
seller that he has the right to sell and to pass ownership of the object is furnished by law together with an implied warranty that
the thing shall be free from hidden faults or defects or any charge or encumbrance not known to the buyer.

In an adhesion contract which is drafted and printed in advance and parties are not given a real arms’ length opportunity to
transact, the Courts treat this kind of contract strictly against their architects for the reason that the party entering into this kind
of contract has no choice but to accept the terms and conditions found therein even if he is not in accord therewith and for that
matter may not have understood all the terms and stipulations prescribed thereat. Contracts of this character are prepared
unilaterally by the stronger party with the best legal talents at its disposal. It is upon that thought that the Courts are called upon
to analyze closely said contracts so that the weaker party could be fully protected.

Another instance is when the alleged lessee was required to insure the thing against loss, damage or destruction.

In property insurance against loss or other accidental causes, the assured must have an insurable interest, 32 Corpus Juris 1059.

xxxx

It has also been held that the test of insurable interest in property is whether the assured has a right, title or interest therein
that he will be benefited by its preservation and continued existence or suffer a direct pecuniary loss from its destruction or
injury by the peril insured against. If the 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.
There is also an observation from the records that the actual value of each object of the contract would be the result after
computing the monthly rentals by multiplying the said rentals by the number of months specified when the rentals ought to be
paid.

Still another observation is the existence in the records of a Deed of Absolute Sale by and between the same parties, plaintiff
and defendants which was an exhibit of the defendant where the plaintiff sold to the same defendants one unit 1995 Mitsubishi
L-200 STRADA DC PICK UP and in said Deed, The Court noticed that the same terms as in the alleged lease were used in respect
to warranty, as well as liability in case of loss and other conditions. This action of the plaintiff unequivocally exhibited their real
intention to execute the corresponding Deed after the defendants have paid in full and as heretofore discussed and for the sake
of emphasis the obscurity in the written contract cannot favor the party who caused the obscurity.

Based on substantive Rules on Interpretation, if the terms are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control. If the words appear to be contrary to the evident intention of the
parties, their contemporaneous and subsequent acts shall be principally considered. If the doubts are cast upon the principal
object of the contract in such a way that it cannot be known what may have been the intention or will of the parties, the
contract shall be null and void.10

Thus, the court concluded with the following disposition:

In this case, which is held by this Court as a sale on installment there is no chattel mortgage on the thing sold, but it appears
amongst the Complaint’s prayer, that the plaintiff elected to exact fulfillment of the obligation.

For the vehicles returned, the plaintiff can only recover the unpaid balance of the price because of the previous payments made
by the defendants for the reasonable use of the units, specially so, as it appears, these returned vehicles were sold at auction
and that the plaintiff can apply the proceeds to the balance. However, with respect to the unreturned units and machineries still
in the possession of the defendants, it is this Court’s view and so hold that the defendants are liable therefore and accordingly
are ordered jointly and severally to pay the price thereof to the plaintiff together with attorney’s fee and the costs of suit in the
sum of Php25,000.00.

SO ORDERED.11

On December 27, 2002, FEB filed its Notice of Appeal. 12 Accordingly, on January 17, 2003, the court issued an Order 13 elevating
the entire records of the case to the CA. FEB averred that the trial court erred:

A. When it ruled that the agreement between the Parties-Litigants is one of sale of personal properties on installment and not of
lease;

B. When it ruled that the applicable law on the case is Article 1484 (of the Civil Code) and not R.A. No. 8556;

C. When it ruled that the Plaintiff-Appellant can no longer recover the unpaid balance of the price because of the previous
payments made by the defendants for the reasonable use of the units;

D. When it failed to make a ruling or judgment on the Joint and Solidary Liability of Vicente Ong Lim, Jr. to the Plaintiff-
Appellant.14

On March 15, 2005, the CA issued its Decision15 declaring the transaction between the parties as a financial lease agreement
under Republic Act (R.A.) No. 8556.16 The fallo of the assailed Decision reads:

WHEREFORE, the instant appeal is GRANTED and the assailed Decision dated 22 November 2002 rendered by the Regional Trial
Court of Manila, Branch 49 in Civil Case No. 00-99451 is REVERSED and SET ASIDE, and a new judgment is
hereby ENTERED ordering appellees JVL Food Products and Vicente Ong Lim, Jr. to solidarily pay appellant FEB Leasing and
Finance Corporation the amount of Three Million Four Hundred Fourteen Thousand Four Hundred Sixty Eight Pesos and
75/100 (Php3,414,468.75), with interest at the rate of twelve percent (12%) per annum starting from the date of judicial
demand on 06 December 2000, until full payment thereof. Costs against appellees.

SO ORDERED.17

Lim filed the instant Petition for Review on Certiorari under Rule 45 contending that:

I
The Honorable Court of Appeals erred when it failed to consider that the undated complaint was filed by Saturnino J. Galang, Jr.,
without any authority from respondent’s Board of Directors and/or Secretary’s Certificate.

II

The Honorable Court of Appeals erred when it failed to strictly apply Section 7, Rule 18 of the 1997 Rules of Civil Procedure and
now Item 1, A(8) of A.M. No. 03-1-09 SC (June 8, 2004).

III

The Honorable Court of Appeals erred in not dismissing the appeal for failure of the respondent to file on time its appellant’s
brief and to separately rule on the petitioner’s motion to dismiss.

IV

The Honorable Court of Appeals erred in finding that the contract between the parties is one of a financial lease and not of a
contract of sale.

The Honorable Court of Appeals ERRED IN ruling that the payments paid by the petitioner to the respondent are "rentals" and
not installments paid for the purchase price of the subject motor vehicles, heavy machines and equipment.

VI

The Honorable Court of Appeals erred in ruling that the previous contract of sale involving the pick-up vehicle is of no
consequence.

VII

The Honorable Court of Appeals failed to take into consideration that the contract of lease, a contract of adhesion, concealed
the true intention of the parties, which is a contract of sale.

VIII

The Honorable Court of Appeals erred in ruling that the petitioner is a lessee with insurable interest over the subject personal
properties.

IX

The Honorable Court of Appeals erred in construing the intentions of the Court a quo in its usage of the term merchantability. 18

We affirm the ruling of the appellate court.

First, Lim can no longer question Galang’s authority as FEB’s authorized representative in filing the suit against Lim. Galang was
the representative of FEB in the proceedings before the trial court up to the appellate court. Petitioner never placed in issue the
validity of Galang’s representation before the trial and appellate courts. Issues raised for the first time on appeal are barred by
estoppel. Arguments not raised in the original proceedings cannot be considered on review; otherwise, it would violate basic
principles of fair play.19

Second, there is no legal basis for Lim to question the authority of the CA to go beyond the matters agreed upon during the pre-
trial conference, or in not dismissing the appeal for failure of FEB to file its brief on time, or in not ruling separately on the
petitioner’s motion to dismiss.

Courts have the prerogative to relax procedural rules of even the most mandatory character, mindful of the duty to reconcile
both the need to speedily put an end to litigation and the parties’ right to due process. In numerous cases, this Court has
allowed liberal construction of the rules when to do so would serve the demands of substantial justice and equity. 20 In Aguam v.
Court of Appeals , the Court explained:
The court has the discretion to dismiss or not to dismiss an appellant's appeal. It is a power conferred on the court, not a duty.
The "discretion must be a sound one, to be exercised in accordance with the tenets of justice and fair play, having in mind the
circumstances obtaining in each case." Technicalities, however, must be avoided. The law abhors technicalities that impede the
cause of justice. The court's primary duty is to render or dispense justice. "A litigation is not a game of technicalities." "Lawsuits
unlike duels are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an aid to justice and becomes
its great hindrance and chief enemy, deserves scant consideration from courts." Litigations must be decided on their merits and
not on technicality. Every party litigant must be afforded the amplest opportunity for the proper and just determination of his
cause, free from the unacceptable plea of technicalities. Thus, dismissal of appeals purely on technical grounds is frowned upon
where the policy of the court is to encourage hearings of appeals on their merits and the rules of procedure ought not to be
applied in a very rigid, technical sense; rules of procedure are used only to help secure, not override substantial justice. It is a far
better and more prudent course of action for the court to excuse a technical lapse and afford the parties a review of the case on
appeal to attain the ends of justice rather than dispose of the case on technicality and cause a grave injustice to the parties,
giving a false impression of speedy disposal of cases while actually resulting in more delay, if not a miscarriage of justice.21

Third, while we affirm that the subject lease agreement is a contract of adhesion, such a contract is not void per se. It is as
binding as any ordinary contract. A party who enters into an adhesion contract is free to reject the stipulations entirely. 22 If the
terms thereof are accepted without objection, then the contract serves as the law between the parties.

In Section 23 of the lease contract, it was expressly stated that:

SECTION 23. ENTIRE AGREEMENT; SEVERABILITY CLAUSE

23.1. The LESSOR and the LESSEE agree this instrument constitute the entire agreement between them, and that no
representations have been made other than as set forth herein. This Agreement shall not be amended or altered in any manner,
unless such amendment be made in writing and signed by the parties hereto.

Petitioner’s claim that the real intention of the parties was a contract of sale of personal property on installment basis is more
likely a mere afterthought in order to defeat the rights of the respondent.

The Lease Contract with corresponding Lease Schedules with Delivery and Acceptance Certificates is, in point of fact, a financial
lease within the purview of R.A. No. 8556. Section 3(d) thereof defines "financial leasing" as:

[A] mode of extending credit through a non-cancelable lease contract under which the lessor purchases or acquires, at the
instance of the lessee, machinery, equipment, motor vehicles, appliances, business and office machines, and other movable or
immovable property in consideration of the periodic payment by the lessee of a fixed amount of money sufficient to amortize at
least seventy (70%) of the purchase price or acquisition cost, including any incidental expenses and a margin of profit over an
obligatory period of not less than two (2) years during which the lessee has the right to hold and use the leased property with
the right to expense the lease rentals paid to the lessor and bears the cost of repairs, maintenance, insurance and preservation
thereof, but with no obligation or option on his part to purchase the leased property from the owner-lessor at the end of the
lease contract.

FEB leased the subject equipment and motor vehicles to JVL in consideration of a monthly periodic payment of ₱170,494.00. The
periodic payment by petitioner is sufficient to amortize at least 70% of the purchase price or acquisition cost of the said
movables in accordance with the Lease Schedules with Delivery and Acceptance Certificates. "The basic purpose of a financial
leasing transaction is to enable the prospective buyer of equipment, who is unable to pay for such equipment in cash in one
lump sum, to lease such equipment in the meantime for his use, at a fixed rental sufficient to amortize at least 70% of the
acquisition cost (including the expenses and a margin of profit for the financial lessor) with the expectation that at the end of the
lease period the buyer/financial lessee will be able to pay any remaining balance of the purchase price." 23

The allegation of petitioner that the rent for the use of each movable constitutes the value of the vehicle or equipment leased is
of no moment. The law on financial lease does not prohibit such a circumstance and this alone does not make the transaction
between the parties a sale of personal property on installment. In fact, the value of the lease, usually constituting the value or
amount of the property involved, is a benefit allowed by law to the lessor for the use of the property by the lessee for the
duration of the lease. It is recognized that the value of these movables depreciates through wear and tear upon use by the
lessee. In Beltran v. PAIC Finance Corporation,24 we stated that:

Generally speaking, a financing company is not a buyer or seller of goods; it is not a trading company. Neither is it an ordinary
leasing company; it does not make its profit by buying equipment and repeatedly leasing out such equipment to different users
thereof. But a financial lease must be preceded by a purchase and sale contract covering the equipment which becomes the
subject matter of the financial lease. The financial lessor takes the role of the buyer of the equipment leased. And so the formal
or documentary tie between the seller and the real buyer of the equipment, i.e., the financial lessee, is apparently severed. In
economic reality, however, that relationship remains. The sale of the equipment by the supplier thereof to the financial lessor
and the latter's legal ownership thereof are intended to secure the repayment over time of the purchase price of the equipment,
plus financing charges, through the payment of lease rentals; that legal title is the upfront security held by the financial lessor, a
security probably superior in some instances to a chattel mortgagee's lien. 25

Fourth, the validity of Lease No. 27:95:20 between FEB and JVL should be upheld. JVL entered into the lease contract with full
knowledge of its terms and conditions. The contract was in force for more than four years. Since its inception on March 9, 1995,
JVL and Lim never questioned its provisions. They only attacked the validity of the contract after they were judicially made to
answer for their default in the payment of the agreed rentals.

It is settled that the parties are free to agree to such stipulations, clauses, terms, and conditions as they may want to include in a
contract. As long as such agreements are not contrary to law, morals, good customs, public policy, or public order, they shall
have the force of law between the parties.26 Contracting parties may stipulate on terms and conditions as they may see fit and
these have the force of law between them.27

The stipulation in Section 1428 of the lease 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.

Likewise, the stipulation in Section 9.1 of the lease contract that the lessor does not warrant the merchantability of the
equipment is a valid stipulation. Section 9.1 of the lease contract is stated as:

9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE LESSOR IS NOT THE MANUFACTURER OR SUPPLIER OF THE EQUIPMENT
NOR THE AGENT OF THE MANUFACTURER OR SUPPLIER THEREOF. THE LESSEE HEREBY ACKNOWLEDGES THAT IT HAS SELECTED
THE EQUIPMENT AND THE SUPPLIER THEREOF AND THAT THERE ARE NO WARRANTIES, CONDITIONS, TERMS, REPRESENTATION
OR INDUCEMENTS, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, MADE BY OR ON BEHALF OF THE LESSOR AS TO ANY
FEATURE OR ASPECT OF THE EQUIPMENT OR ANY PART THEREOF, OR AS TO ITS FITNESS, SUITABILITY, CAPACITY, CONDITION OR
MERCHANTABILITY, NOR AS TO WHETHER THE EQUIPMENT WILL MEET THE REQUIREMENTS OF ANY LAW, RULE,
SPECIFICATIONS OR CONTRACT WHICH PROVIDE FOR SPECIFIC MACHINERY OR APPARATUS OR SPECIAL METHODS. 29

In the financial lease agreement, FEB did not assume responsibility as to the quality, merchantability, or capacity of the
equipment. This stipulation provides that, in case of defect of any kind that will be found by the lessee in any of the equipment,
recourse should be made to the manufacturer. "The financial lessor, being a financing company, i.e., an extender of credit rather
than an ordinary equipment rental company, does not extend a warranty of the fitness of the equipment for any particular use.
Thus, the financial lessee was precisely in a position to enforce such warranty directly against the supplier of the equipment and
not against the financial lessor. We find nothing contra legem or contrary to public policy in such a contractual arrangement." 30

Fifth, petitioner further proffers the view that the real intention of the parties was to enter into a contract of sale on installment
in the same manner that a previous transaction between the parties over a 1995 Mitsubishi L-200 Strada DC-Pick-Up was initially
covered by an agreement denominated as a lease and eventually became the subject of a Deed of Absolute Sale.

We join the CA in rejecting this view because to allow the transaction involving the pick-up to be read into the terms of the lease
agreement would expand the coverage of the agreement, in violation of Article 1372 of the New Civil Code. 31 The lease contract
subject of the complaint speaks only of a lease. Any agreement between the parties after the lease contract has ended is a
different transaction altogether and should not be included as part of the lease. Furthermore, it is a cardinal rule in the
interpretation of contracts that if the terms of a contract are clear and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations shall control. No amount of extrinsic aid is necessary in order to determine the
parties' intent.32

WHEREFORE, in the light of all the foregoing, the petition is DENIED. The Decision of the CA in CA-G.R. CV No. 77498 dated
March 15, 2005 and Resolution dated May 23, 2005 are AFFIRMED. Costs against petitioner.

SO ORDERED.

24. Vda. De Canilang vs. Court of Appeals

G.R. No. 92492 June 17, 1993

THELMA VDA. DE CANILANG, petitioner,

vs.
HON. COURT OF APPEALS and GREAT PACIFIC LIFE ASSURANCE CORPORATION, respondents.

Simeon C. Sato for petitioner.

FELICIANO, J.:

On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering from "sinus
tachycardia." The doctor prescribed the following fro him: Trazepam, a tranquilizer; and Aptin, a beta-blocker
drug. Mr. Canilang consulted the same doctor again on 3 August 1982 and this time was found to have "acute
bronchitis."

On next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy with respondent Great
Pacific Life Assurance Company ("Great Pacific") naming his wife, Thelma Canilang, as his beneficiary.  Jaime
1

Canilang was issued ordinary life insurance Policy No. 345163, with the face value of P19,700, effective as of 9
August 1982.

On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic
anemia."  Petitioner, widow and beneficiary of the insured, filed a claim with Great Pacific which the insurer
2

denied on 5 December 1983 upon the ground that the insured had concealed material information from it.

Petitioner then filed a complaint against Great Pacific with the Insurance Commission for recovery of the
insurance proceeds. During the hearing called by the Insurance Commissioner, petitioner testified that she was
not aware of any serious illness suffered by her late husband  and that, as far as she knew, her husband had
3

died because of a kidney disorder.  A deposition given by Dr. Wilfredo Claudio was presented by petitioner.
4

There Dr. Claudio stated that he was the family physician of the deceased Jaime Canilang  and that he had
5

previously treated him for "sinus tachycardia" and "acute bronchitis."  Great Pacific for its part presented Dr.
6

Esperanza Quismorio, a physician

and a medical underwriter working for Great Pacific.  She testified that the deceased's insurance application had
7

been approved on the basis of his medical declaration.  She explained that as a rule, medical examinations are
8

required only in cases where the applicant has indicated in his application for insurance coverage that he has
previously undergone medical consultation and hospitalization. 9

In a decision dated 5 November 1985, Insurance Commissioner Armando Ansaldo ordered Great Pacific to pay
P19,700 plus legal interest and P2,000.00 as attorney's fees after holding that:

1. the ailment of Jaime Canilang was not so serious that, even if it had been disclosed, it would
not have affected Great Pacific's decision to insure him;

2. Great Pacific had waived its right to inquire into the health condition of the applicant by the
issuance of the policy despite the lack of answers to "some of the pertinent questions" in the
insurance application;

3. there was no intentional concealment on the part of the insured Jaime Canilang as he had
thought that he was merely suffering from a minor ailment and simple cold;   and 10

4. Batas Pambansa Blg. 847 which voids an insurance contract, whether or not concealment
was intentionally made, was not applicable to Canilang's case as that law became effective only
on 1 June 1985.

On appeal by Great Pacific, the Court of Appeals reversed and set aside the decision of the Insurance
Commissioner and dismissed Thelma Canilang's complaint and Great Pacific's counterclaim. The Court of
Appealed found that the use of the word "intentionally" by the Insurance Commissioner in defining and resolving
the issue agreed upon by the parties at pre-trial before the Insurance Commissioner was not supported by the
evidence; that the issue agreed upon by the parties had been whether the deceased insured, Jaime Canilang,
made a material concealment as the state of his health at the time of the filing of insurance application, justifying
respondent's denial of the claim. The Court of Appeals also found that the failure of Jaime Canilang to disclose
previous medical consultation and treatment constituted material information which should have been
communicated to Great Pacific to enable the latter to make proper inquiries. The Court of Appeals finally held
that the Ng Gan Zee case which had involved misrepresentation was not applicable in respect of the case at
bar which involves concealment.

Petitioner Thelma Canilang is now before this Court on a Petition for Review on Certiorari alleging that:

1. . . . the Honorable Court of Appeals, speaking with due respect, erred in not holding that the
issue in the case agreed upon between the parties before the Insurance Commission is whether
or not Jaime Canilang "intentionally" made material concealment in stating his state of health;

2. . . . at any rate, the non-disclosure of certain facts about his previous health conditions does
not amount to fraud and private respondent is deemed to have waived inquiry thereto.  11

The medical declaration which was set out in the application for insurance executed by Jaime Canilang read as
follows:

MEDICAL DECLARATION

I hereby declare that:

(1) I have not been confined in any hospital, sanitarium or infirmary, nor receive any medical or
surgical advice/attention within the last five (5) years.

(2) I have never been treated nor consulted a physician for a heart condition, high blood
pressure, cancer, diabetes, lung, kidney, stomach disorder, or any other physical impairment.

(3) I am, to the best of my knowledge, in good health.

EXCEPTIONS:

_____________________________________________________________________________
___

GENERAL DECLARATION

I hereby declare that all the foregoing answers and statements are complete, true and correct. I
hereby agree that if there be any fraud or misrepresentation in the above statements material to
the risk, the INSURANCE COMPANY upon discovery within two (2) years from the effective date
of insurance shall have the right to declare such insurance null and void. That the liabilities of the
Company under the said Policy/TA/Certificate shall accrue and begin only from the date of
commencement of risk stated in the Policy/TA/Certificate, provided that the first premium is paid
and the Policy/TA/Certificate is delivered to, and accepted by me in person, when I am in actual
good health.

Signed at Manila his 4th day of August, 1992.

Illegible

——————————

Signature of Applicant. 12

We note that in addition to the negative statements made by Mr. Canilang in paragraph 1 and 2 of the medical
declaration, he failed to disclose in the appropriate space, under the caption "Exceptions," that he had twice
consulted Dr. Wilfredo B. Claudio who had found him to be suffering from "sinus tachycardia" and "acute
bronchitis."

The relevant statutory provisions as they stood at the time Great Pacific issued the contract of insurance and at
the time Jaime Canilang died, are set out in P.D. No. 1460, also known as the Insurance Code of 1978, which
went into effect on 11 June 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. (Emphasis supplied)

Under the foregoing provisions, the information concealed must be information which the concealing party knew
and "ought to [have] communicate[d]," that is to say, information which was "material to the contract." The test of
materiality is contained in Section 31 of the Insurance Code of 1978 which reads:

Sec. 31. Materially is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in forming
his estimate of the disadvantages of the proposed contract, or in making his inquiries. (Emphasis
supplied)

"Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per minute."   The symptoms
13

of this condition include pounding in the chest and sometimes faintness and weakness of the person affected.
The following elaboration was offered by Great Pacific and set out by the Court of Appeals in its Decision:

Sinus tachycardia is defined as sinus-initiated; heart rate faster than 100 beats per minute.
(Harrison' s Principles of Internal Medicine, 8th ed. [1978], p. 1193.) It is, among others, a
common reaction to heart disease, including myocardial infarction, and heart failure per se.
(Henry J.L. Marriot, M.D., Electrocardiography, 6th ed., [1977], p. 127.) The medication
prescribed by Dr. Claudio for treatment of Canilang's ailment on June 18, 1982, indicates the
condition that said physician was trying to manage. Thus, he prescribed Trazepam, (Philippine
Index of Medical Specialties (PIMS), Vol. 14, No. 3, Dec. 1985, p. 112) which is anti-anxiety,
anti-convulsant, muscle-relaxant; and Aptin, (Idem, p. 36) a cardiac drug, for palpitations and
nervous heart. Such treatment could have been a very material information to the insurer in
determining the action to be take on Canilang's application for life insurance coverage.  14

We agree with the Court of Appeals that the information which Jaime Canilang failed to disclose was material to
the ability of Great Pacific to estimate the probable risk he presented as a subject of life insurance. Had
Canilang disclosed his visits to his doctor, the diagnosis made and medicines prescribed by such doctor, in the
insurance application, it may be reasonably assumed that Great Pacific would have made further inquiries and
would have probably refused to issue a non-medical insurance policy or, at the very least, required a higher
premium for the same coverage.   The materiality of the information withheld by Great Pacific did not depend
15

upon the state of mind of Jaime Canilang. A man's state of mind or subjective belief is not capable of proof in
our judicial process, except through proof of external acts or failure to act from which inferences as to his
subjective belief may be reasonably drawn. Neither does materiality depend upon the actual or physical events
which ensue. Materiality relates rather to the "probable and reasonable influence of the facts" upon the party to
whom the communication should have been made, in assessing the risk involved in making or omitting to make
further inquiries and in accepting the application for insurance; that "probable and reasonable influence of the
facts" concealed must, of course, be determined objectively, by the judge ultimately.

The insurance Great Pacific applied for was a "non-medical" insurance policy. In Saturnino v. Philippine-
American Life Insurance Company,   this Court held that:
16

. . . if anything, the waiver of medical examination [in a non-medical insurance contract] renders

even more material the information required of the applicant concerning previous condition of
health and diseases suffered, for such information necessarily constitutes an important factor
which the insurer takes into consideration in deciding whether to issue the policy or
not . . . .   (Emphasis supplied)
17

The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain information to the
insurer was not "intentional" in nature, for the reason that Jaime Canilang believed that he was suffering from
minor ailment like a common cold. Section 27 of the Insurance Code of 1978 as it existed from 1974 up to 1985,
that is, throughout the time range material for present purposes, provided that:
 Sec. 27. A concealment entitles the injured party to rescind a contract of insurance.

The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:

Sec. 26. A concealment, whether intentional or unintentional, entitles the injured party to rescind
a contract of insurance. (Emphasis supplied)

Upon the other hand, in 1985, the Insurance Code of 1978 was amended by
B.P. Blg. 874. This subsequent statute modified Section 27 of the Insurance Code of 1978 so as to read as
follows:

Sec. 27. A concealment whether intentional or unintentional entitles the injured party to rescind

a contract of insurance. (Emphasis supplied)

The unspoken theory of the Insurance Commissioner appears to have been that by deleting the phrase
"intentional or unintentional," the Insurance Code of 1978 (prior to its amendment by B.P. Blg. 874) intended to
limit the kinds of concealment which generate a right to rescind on the part of the injured party to "intentional
concealments." This argument is not persuasive. As a simple matter of grammar, it may be noted that
"intentional" and "unintentional" cancel each other out. The net result therefore of the phrase "whether
intentional or unitentional" is precisely to leave unqualified the term "concealment." Thus, Section 27 of the
Insurance Code of 1978 is properly read as referring to "any concealment" without regard to whether such
concealment is intentional or unintentional. The phrase "whether intentional or unintentional" was in fact
superfluous. The deletion of the phrase "whether intentional or unintentional" could not have had the effect of
imposing an affirmative requirement that a concealment must be intentional if it is to entitle the injured party to
rescind a contract of insurance. The restoration in 1985 by B.P. Blg. 874 of the phrase "whether intentional or
unintentional" merely underscored the fact that all throughout (from 1914 to 1985), the statute did not require
proof that concealment must be "intentional" in order to authorize rescission by the injured party.

In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such that the failure to
communicate must have been intentional rather than merely inadvertent. For Jaime Canilang could not have
been unaware that his heart beat would at times rise to high and alarming levels and that he had consulted a
doctor twice in the two (2) months before applying for non-medical insurance. Indeed, the last medical
consultation took place just the day before the insurance application was filed. In all probability, Jaime Canilang
went to visit his doctor precisely because of the discomfort and concern brought about by his experiencing
"sinus tachycardia."

We find it difficult to take seriously the argument that Great Pacific had waived inquiry into the concealment by
issuing the insurance policy notwithstanding Canilang's failure to set out answers to some of the questions in the
insurance application. Such failure precisely constituted concealment on the part of Canilang. Petitioner's
argument, if accepted, would obviously erase Section 27 from the Insurance Code of 1978.

It remains only to note that the Court of Appeals finding that the parties had not agreed in the pretrial before the
Insurance Commission that the relevant issue was whether or not Jaime Canilang had intentionally concealed
material information from the insurer, was supported by the evidence of record, i.e., the Pre-trial Order itself
dated 17 October 1984 and the Minutes of the Pre-trial Conference dated 15 October 1984, which "readily
shows that the word "intentional" does not appear in the statement or definition of the issue in the said Order
and Minutes."  18

WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the Court of Appeals
dated 16 October 1989 in C.A.-G.R. SP No. 08696 is hereby AFFIRMED. No pronouncement as to the costs.

SO ORDERED.

25. Sunlife Assurance Company of Canada vs. Court of Appeals

G.R. No. 105135 June 22, 1995

SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner,
vs.
The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA BACANI, respondents.

QUIASON, J.:

This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside the
Decision dated February 21, 1992 of the Court of Appeals in CA-G.R. CV No. 29068, and its Resolution dated April 22,
1992, denying reconsideration thereof.

We grant the petition.

On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from petitioner. He was
issued Policy No. 3-903-766-X valued at P100,000.00, with double indemnity in case of accidental death. The
designated beneficiary was his mother, respondent Bernarda Bacani.

On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim with petitioner,
seeking the benefits of the insurance policy taken by her son. Petitioner conducted an investigation and its findings
prompted it to reject the claim.

In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclose material facts
relevant to the issuance of the policy, thus rendering the contract of insurance voidable. A check representing the
total premiums paid in the amount of P10,172.00 was attached to said letter.

Petitioner claimed that the insured gave false statements in his application when he answered the following
questions:

5. Within the past 5 years have you:

a) consulted any doctor or other health practitioner?

b) submitted to:

EGG?
X-rays?
blood tests?
other tests?

c) attended or been admitted to any hospital or other medical facility?

6. Have you ever had or sought advice for:

xxx xxx xxx

b) urine, kidney or bladder disorder? (Rollo, p. 53)

The deceased answered question No. 5(a) in the affirmative but limited his answer to a consultation with a certain
Dr. Reinaldo D. Raymundo of the Chinese General Hospital on February 1986, for cough and flu complications. The
other questions were answered in the negative (Rollo, p. 53).

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. During his confinement, the deceased
was subjected to urinalysis, ultra-sonography and hematology tests.
On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando Bacani, filed an action
for specific performance against petitioner with the Regional Trial Court, Branch 191, Valenzuela, Metro Manila.
Petitioner filed its answer with counterclaim and a list of exhibits consisting of medical records furnished by the
Lung Center of the Philippines.

On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for Summary Judgment" where
they manifested that they "have no evidence to refute the documentary evidence of concealment/misrepresentation
by the decedent of his health condition (Rollo, p. 62).

Petitioner filed its Request for Admissions relative to the authenticity and due execution of several documents as
well as allegations regarding the health of the insured. Private respondents failed to oppose said request or reply
thereto, thereby rendering an admission of the matters alleged.

Petitioner then moved for a summary judgment and the trial court decided in favor of private respondents. The
dispositive portion of the decision is reproduced as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant,
condemning the latter to pay the former the amount of One Hundred Thousand Pesos (P100,000.00)
the face value of insured's Insurance Policy No. 3903766, and the Accidental Death Benefit in the
amount of One Hundred Thousand Pesos (P100,000.00) and further sum of P5,000.00 in the concept
of reasonable attorney's fees and costs of suit.

Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).

In ruling for private respondents, the trial court concluded that the facts concealed by the insured were made in
good faith and under a belief that they need not be disclosed. Moreover, it held that the health history of the insured
was immaterial since the insurance policy was "non-medical".

Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. The appellate court ruled
that petitioner cannot avoid its obligation by claiming concealment because the cause of death was unrelated to the
facts concealed by the insured. It also sustained the finding of the trial court that matters relating to the health
history of the insured were irrelevant since petitioner waived the medical examination prior to the approval and
issuance of the insurance policy. Moreover, the appellate court agreed with the trial court that the policy was "non-
medical" (Rollo, pp. 4-5).

Petitioner's motion for reconsideration was denied; hence, this petition.

II

We reverse the decision of the Court of Appeals.

The rule that factual findings of the lower court and the appellate court are binding on this Court is not absolute and
admits of exceptions, such as when the judgment is based on a misappreciation of the facts (Geronimo v. Court of
Appeals, 224 SCRA 494 [1993]).

In weighing the evidence presented, the trial court concluded that indeed there was concealment and
misrepresentation, however, the same was made in "good faith" and the facts concealed or misrepresented were
irrelevant since the policy was "non-medical". We disagree.

Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to communicate to the
other, in good faith, all facts within his knowledge which are material to the contract and as to which he makes no
warranty, and which the other has no means of ascertaining. Said Section provides:

A neglect to communicate that which a party knows and ought to communicate, is called
concealment.

Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts
upon the party to whom communication is due, in forming his estimate of the disadvantages of the proposed
contract or in making his inquiries (The Insurance Code, Sec. 31).
The terms of the contract are clear. The insured is specifically required to disclose to the insurer matters relating to
his health.

The information which the insured failed to disclose were material and relevant to the approval and issuance of the
insurance policy. The matters concealed would have definitely affected petitioner's action on his application, either
by approving it with the corresponding adjustment for a higher premium or rejecting the same. Moreover, a
disclosure may have warranted a medical examination of the insured by petitioner in order for it to reasonably
assess the risk involved in accepting the application.

In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the information withheld
does not depend on the state of mind of the insured. Neither does it depend on the actual or physical events which
ensue.

Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact that he was hospitalized for
two weeks prior to filing his application for insurance, raises grave doubts about his bonafides. It appears that such
concealment was deliberate on his part.

The argument, that petitioner's waiver of the medical examination of the insured debunks the materiality of the facts
concealed, is untenable. We reiterate our ruling in Saturnino v. Philippine American Life Insurance Company, 7 SCRA
316 (1963), that " . . . the waiver of a medical examination [in a non-medical insurance contract] renders even more
material the information required of the applicant concerning previous condition of health and diseases suffered, for
such information necessarily constitutes an important factor which the insurer takes into consideration in deciding
whether to issue the policy or not . . . "

Moreover, such argument of private respondents would make Section 27 of the Insurance Code, which allows the
injured party to rescind a contract of insurance where there is concealment, ineffective (See Vda. de Canilang v. Court
of Appeals, supra).

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
(Henson v. The Philippine American Life Insurance Co., 56 O.G. No. 48 [1960]).

We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance by reason of the
concealment employed by the insured. It must be emphasized that rescission was exercised within the two-year
contestability period as recognized in Section 48 of The Insurance Code.

WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED and SET ASIDE.

SO ORDERED.

26. Ng Gan Zee v. Asian Crusader Life Assurance Corp

G.R. No. L-30685 May 30, 1983

NG GAN ZEE, plaintiff-appellee,
vs.
ASIAN CRUSADER LIFE ASSURANCE CORPORATION, defendant-appellant.

ESCOLIN, J.:

This is an appeal from the judgment of the Court of First Instance of Manila, ordering the appellant Asian-
Crusader Life Assurance Corporation to pay the face value of an insurance policy issued on the life of Kwong
Nam the deceased husband of appellee Ng Gan Zee. Misrepresentation and concealment of material facts in
obtaining the policy were pleaded to avoid the policy. The lower court rejected the appellant's theory and
ordered the latter to pay appellee "the amount of P 20,000.00, with interest at the legal rate from July 24, 1964,
the date of the filing of the complaint, until paid, and the costs. "

The Court of Appeals certified this appeal to Us, as the same involves solely a question of law.

On May 12, 1962, Kwong Nam applied for a 20-year endowment insurance on his life for the sum of P20,000.00,
with his wife, appellee Ng Gan Zee as beneficiary. On the same date, appellant, upon receipt of the required
premium from the insured, approved the application and issued the corresponding policy. On December 6,
1963, Kwong Nam died of cancer of the liver with metastasis. All premiums had been religiously paid at the
time of his death.

On January 10, 1964, his widow Ng Gan Zee presented a claim in due form to appellant for payment of the face
value of the policy. On the same date, she submitted the required proof of death of the insured. Appellant
denied the claim on the ground that the answers given by the insured to the questions appealing in his
application for life insurance were untrue.

Appellee brought the matter to the attention of the Insurance Commissioner, the Hon. Francisco Y. Mandamus,
and the latter, after conducting an investigation, wrote the appellant that he had found no material concealment
on the part of the insured and that, therefore, appellee should be paid the full face value of the policy. This
opinion of the Insurance Commissioner notwithstanding, appellant refused to settle its obligation.

Appellant alleged that the insured was guilty of misrepresentation when he answered "No" to the following
question appearing in the application for life insurance-

Has any life insurance company ever refused your application for insurance or for
reinstatement of a lapsed policy or offered you a policy different from that applied for? If, so,
name company and date.

In its brief, appellant rationalized its thesis thus:

... As pointed out in the foregoing summary of the essential facts in this case, the insured had in
January, 1962, applied for reinstatement of his lapsed life insurance policy with the Insular Life
Insurance Co., Ltd, but this was declined by the insurance company, although later on approved
for reinstatement with a very high premium as a result of his medical examination. Thus
notwithstanding the said insured answered 'No' to the [above] question propounded to him. ... 1

The lower court found the argument bereft of factual basis; and We quote with approval its disquisition on the
matter-

On the first question there is no evidence that the Insular Life Assurance Co., Ltd. ever refused
any application of Kwong Nam for insurance. Neither is there any evidence that any other
insurance company has refused any application of Kwong Nam for insurance.

... The evidence shows that the Insular Life Assurance Co., Ltd. approved Kwong Nam's request
for reinstatement and amendment of his lapsed insurance policy on April 24, 1962 [Exh. L-2
Stipulation of Facts, Sept. 22, 1965). The Court notes from said application for reinstatement
and amendment, Exh. 'L', that the amount applied for was P20,000.00 only and not for
P50,000.00 as it was in the lapsed policy. The amount of the reinstated and amended policy was
 also for P20,000.00. It results, therefore, that when on May 12, 1962 Kwong Nam answered 'No'
to the question whether any life insurance company ever refused his application for
reinstatement of a lapsed policy he did not misrepresent any fact.

... the evidence shows that the application of Kwong Nam with the Insular Life Assurance Co.,
Ltd. was for the reinstatement and amendment of his lapsed insurance policy-Policy No. 369531
-not an application for a 'new insurance policy. The Insular Life Assurance Co., Ltd. approved the
said application on April 24, 1962. Policy No. 369531 was reinstated for the amount of
P20,000.00 as applied for by Kwong Nam [Exhs. 'L', 'L-l' and 'L-2']. No new policy was issued by
the Insular Life Assurance Co., Ltd. to Kwong Nam in connection with said application for
reinstatement and amendment. Such being the case, the Court finds that there is no
misrepresentation on this matter. 2

Appellant further maintains that when the insured was examined in connection with his application for life
insurance, he gave the appellant's medical examiner false and misleading information as to his ailment and
previous operation. The alleged false statements given by Kwong Nam are as follows:

Operated on for a Tumor [mayoma] of the stomach. Claims that Tumor has been associated with
ulcer of stomach. Tumor taken out was hard and of a hen's egg size. Operation was two [2] years
ago in Chinese General Hospital by Dr. Yap. Now, claims he is completely recovered.

To demonstrate the insured's misrepresentation, appellant directs Our attention to:

[1] The report of Dr. Fu Sun Yuan the physician who treated Kwong Nam at the Chinese General Hospital on
May 22, 1960, i.e., about 2 years before he applied for an insurance policy on May 12, 1962. According to said
report, Dr. Fu Sun Yuan had diagnosed the patient's ailment as 'peptic ulcer' for which, an operation, known as
a 'sub-total gastric resection was performed on the patient by Dr. Pacifico Yap; and

[2] The Surgical Pathology Report of Dr. Elias Pantangco showing that the specimen removed from the patient's
body was 'a portion of the stomach measuring 12 cm. and 19 cm. along the lesser curvature with a diameter of
15 cm. along the greatest dimension.

On the bases of the above undisputed medical data showing that the insured was operated on for peptic ulcer",
involving the excision of a portion of the stomach, appellant argues that the insured's statement in his
application that a tumor, "hard and of a hen's egg size," was removed during said operation, constituted
material concealment.

The question to be resolved may be propounded thus: Was appellant, because of insured's aforesaid
representation, misled or deceived into entering the contract or in accepting the risk at the rate of premium
agreed upon?

The lower court answered this question in the negative, and We agree.

Section 27 of the Insurance Law [Act 2427] provides:

Sec. 27. Such party a contract of insurance must communicate to the other, in good faith, all facts
within his knowledge which are material to the contract, and which the other has not the means
of ascertaining, and as to which he makes no warranty. 3

Thus, "concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good
faith, and fair dealing requires that he should communicate it to the assurer, but he designedly and
intentionally withholds the same." 4

It has also been held "that the concealment must, in the absence of inquiries, be not only material, but
fraudulent, or the fact must have been intentionally withheld." 5

Assuming that the aforesaid answer given by the insured is false, as claimed by the appellant. Sec. 27 of the
Insurance Law, above-quoted, nevertheless requires that fraudulent intent on the part of the insured be
established to entitle the insurer to rescind the contract. And as correctly observed by the lower court,
"misrepresentation as a defense of the insurer to avoid liability is an 'affirmative' defense. The duty to establish
such a defense by satisfactory and convincing evidence rests upon the defendant. The evidence before the Court
does not clearly and satisfactorily establish that defense."

It bears emphasis that Kwong Nam had informed the appellant's medical examiner that the tumor for which he
was operated on was "associated with ulcer of the stomach." In the absence of evidence that the insured had
sufficient medical knowledge as to enable him to distinguish between "peptic ulcer" and "a tumor", his
statement that said tumor was "associated with ulcer of the stomach, " should be construed as an expression
made in good faith of his belief as to the nature of his ailment and operation. Indeed, such statement must be
presumed to have been made by him without knowledge of its incorrectness and without any deliberate intent
on his part to mislead the appellant.

While it may be conceded that, from the viewpoint of a medical expert, the information communicated was
imperfect, the same was nevertheless sufficient to have induced appellant to make further inquiries about the
ailment and operation of the insured.

Section 32 of Insurance Law [Act No. 24271 provides as follows:

Section 32. The right to information of material facts maybe waived either by the terms of
insurance or by neglect to make inquiries as to such facts where they are distinctly implied in
other facts of which information is communicated.

It has been held that where, upon the face of the application, a question appears to be not answered at all or to
be imperfectly answered, and the insurers issue a policy without any further inquiry, they waive the
imperfection of the answer and render the omission to answer more fully immaterial. 6

As aptly noted by the lower court, "if the ailment and operation of Kwong Nam had such an important bearing
on the question of whether the defendant would undertake the insurance or not, the court cannot understand
why the defendant or its medical examiner did not make any further inquiries on such matters from the
Chinese General Hospital or require copies of the hospital records from the appellant before acting on the
application for insurance. The fact of the matter is that the defendant was too eager to accept the application
and receive the insured's premium. It would be inequitable now to allow the defendant to avoid liability under
the circumstances."

Finding no reversible error committed by the trial court, the judgment appealed from is hereby affirmed, with
costs against appellant Asian-Crusader life Assurance Corporation.

SO ORDERED.

27. Saturnino v. The Philippine American Life Insurance Company

G.R. No. L-16163             February 28, 1963

IGNACIO SATURNINO, in his own behalf and as the JUDICIAL GUARDIAN OF CARLOS SATURNINO,
minor, plaintiffs-appellants,
vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, defendant-appellee.

MAKALINTAL, J.:

Plaintiffs, now appellants, filed this action in the Court of First Instance of Manila to recover the sum of
P5,000.00, corresponding to the face value of an insurance policy issued by defendant on the life of Estefania A.
Saturnino, and the sum of P1,500.00 as attorney's fees. Defendant, now appellee, set up special defenses in its
answer, with a counterclaim for damages allegedly sustained as a result of the unwarranted presentation of this
case. Both the complaint and the counterclaim were dismissed by the trial court; but appellants were declared
entitled to the return of the premium already paid; plus interest at 6% up to January 8, 1959, when a check for
the corresponding amount — P359.65 — was sent to them by appellee.

The policy sued upon is one for 20-year endowment non-medical insurance. This kind of policy dispenses with
the medical examination of the applicant usually required in ordinary life policies. However, detailed
information is called for in the application concerning the applicant's health and medical history. The written
application in this case was submitted by Saturnino to appellee on November 16, 1957, witnessed by appellee's
agent Edward A. Santos. The policy was issued on the same day, upon payment of the first year's premium of
P339.25. On September 19, 1958 Saturnino died of pneumonia, secondary to influenza. Appellants here, who
are her surviving husband and minor child, respectively, demanded payment of the face value of the policy. The
claim was rejected and this suit was subsequently instituted.

It appears that two months prior to the issuance of the policy or on September 9, 1957, Saturnino was operated
on for cancer, involving complete removal of the right breast, including the pectoral muscles and the glands
found in the right armpit. She stayed in the hospital for a period of eight days, after which she was discharged,
although according to the surgeon who operated on her she could not be considered definitely cured, her
ailment being of the malignant type.

Notwithstanding the fact of her operation Estefania A. Saturnino did not make a disclosure thereof in her
application for insurance. On the contrary, she stated therein that she did not have, nor had she ever had,
among other ailments listed in the application, cancer or other tumors; that she had not consulted any
physician, undergone any operation or suffered any injury within the preceding five years; and that she had
never been treated for nor did she ever have any illness or disease peculiar to her sex, particularly of the breast,
ovaries, uterus, and menstrual disorders. The application also recites that the foregoing declarations
constituted "a further basis for the issuance of the policy."

The question at issue is whether or not the insured made such false representations of material facts as to
avoid the policy. There can be no dispute that the information given by her in her application for insurance was
false, namely, that she had never had cancer or tumors, or consulted any physician or undergone any operation
within the preceding period of five years. Are the facts then falsely represented material? The Insurance Law
(Section 30) provides that "materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of
the proposed contract, or in making his inquiries." It seems to be the contention of appellants that the facts
subject of the representation were not material in view of the "non-medical" nature of the insurance applied
for, which does away with the usual requirement of medical examination before the policy is issued. The
contention is without merit. If anything, the waiver of medical examination renders even more material the
information required of the applicant concerning previous condition of health and diseases suffered, for such
information necessarily constitutes an important factor which the insurer takes into consideration in deciding
whether to issue the policy or not. It is logical to assume that if appellee had been properly apprised of the
insured's medical history she would at least have been made to undergo medical examination in order to
determine her insurability.

Appellants argue that due information concerning the insured's previous illness and operation had been given
to appellees agent Edward A. Santos, who filled the application form after it was signed in blank by Estefania A.
Saturnino. This was denied by Santos in his testimony, and the trial court found such testimony to be true. This
is a finding of fact which is binding upon us, this appeal having been taken upon questions of law alone. We do
not deem it necessary, therefore, to consider appellee's additional argument, which was upheld by the trial
court, that in signing the application form in blank and leaving it to Edward A. Santos to fill (assuming that to be
the truth) the insured in effect made Santos her agent for that purpose and consequently was responsible for
the errors in the entries made by him in that capacity.

In the application for insurance signed by the insured in this case, she agreed to submit to a medical
examination by a duly appointed examiner of appellee if in the latter's opinion such examination was necessary
as further evidence of insurability. In not asking her to submit to a medical examination, appellants maintain,
appellee was guilty of negligence, which precluded it from finding about her actual state of health. No such
negligence can be imputed to appellee. It was precisely because the insured had given herself a clean bill of
health that appellee no longer considered an actual medical checkup necessary.

Appellants also contend there was no fraudulent concealment of the truth inasmuch as the insured herself did
not know, since her doctor never told her, that the disease for which she had been operated on was cancer. In
the first place the concealment of the fact of the operation itself was fraudulent, as there could not have been
any mistake about it, no matter what the ailment. Secondly, in order to avoid a policy it is not necessary to show
actual fraud on the part of the insured. In the case of Kasprzyk v. Metropolitan Insurance Co., 140 N.Y.S. 211,
214, it was held:

Moreover, if it were the law that an insurance company could not depend a policy on the ground of
misrepresentation, unless it could show actual knowledge on the part of the applicant that the
statements were false, then it is plain that it would be impossible for it to protect itself and its honest
policyholders against fraudulent and improper claims. It would be wholly at the mercy of any one who
wished to apply for insurance, as it would be impossible to show actual fraud except in the extremest
cases. It could not rely on an application as containing information on which it could act. There would
be no incentive to an applicant to tell the truth.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove
their case not covered by this stipulation of facts. 1äwphï1.ñët

In this jurisdiction a concealment, whether intentional or unintentional, entitles the insurer to rescind the
contract of insurance, concealment being defined as "negligence to communicate that which a party knows and
ought to communicate" (Sections 24 & 26, Act No. 2427). In the case of Argente v. West Coast Life Insurance Co.,
51 Phil. 725, 732, this Court said, quoting from Joyce, The Law of Insurance, 2nd ed., Vol. 3:

"The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the
insurer into accepting the risk, or accepting it at the rate of premium agreed upon. The insurer, relying
upon the belief that the assured will disclose every material fact within his actual or presumed
knowledge, is misled into a belief that the circumstance withheld does not exist, and he is thereby
induced to estimate the risk upon a false basis that it does not exist."

The judgment appealed from, dismissing the complaint and awarding the return to appellants of the premium
already paid, with interest at 6% up to January 29, 1959, affirmed, with costs against appellants.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon and Regala, JJ.,
concur.

28. Edillon v. Manila Bankers Life Insurance Corp

G.R. No. L-34200 September 30, 1982

REGINA L. EDILLON, as assisted by her husband, MARCIAL EDILLON, petitioners-appellants,

vs.
MANILA BANKERS LIFE INSURANCE CORPORATION and the COURT OF FIRST INSTANCE OF RIZAL, BRANCH V, QUEZON
CITY, respondents-appellees.

VASQUEZ, J.:

The question of law raised in this case that justified a direct appeal from a decision of the Court of First Instance Rizal, Branch V,
Quezon City, to be taken directly to the Supreme Court is whether or not the acceptance by the private respondent insurance
corporation of the premium and the issuance of the corresponding certificate of insurance should be deemed a waiver of the
exclusionary condition of overage stated in the said certificate of insurance.

The material facts are not in dispute. Sometime in April 1969, Carmen O, Lapuz applied with respondent insurance corporation
for insurance coverage against accident and injuries. She filled up the blank application form given to her and filed the same with
the respondent insurance corporation. In the said application form which was dated April 15, 1969, she gave the date of her birth
as July 11, 1904. On the same date, she paid the sum of P20.00 representing the premium for which she was issued the
corresponding receipt signed by an authorized agent of the respondent insurance corporation. (Rollo, p. 27.) Upon the filing of
said application and the payment of the premium on the policy applied for, the respondent insurance corporation issued to
Carmen O. Lapuz its Certificate of Insurance No. 128866. (Rollo, p. 28.) The policy was to be effective for a period of 90 days.

On May 31, 1969 or during the effectivity of Certificate of Insurance No. 12886, Carmen O. Lapuz died in a vehicular accident in
the North Diversion Road.

On June 7, 1969, petitioner Regina L. Edillon, a sister of the insured and who was the named beneficiary in the policy, filed her
claim for the proceeds of the insurance, submitting all the necessary papers and other requisites with the private respondent.
Her claim having been denied, Regina L. Edillon instituted this action in the Court of First Instance of Rizal on August 27, 1969.

In resisting the claim of the petitioner, the respondent insurance corporation relies on a provision contained in the Certificate of
Insurance, excluding its liability to pay claims under the policy in behalf of "persons who are under the age of sixteen (16) years
of age or over the age of sixty (60) years ..." It is pointed out that the insured being over sixty (60) years of age when she applied
for the insurance coverage, the policy was null and void, and no risk on the part of the respondent insurance corporation had
arisen therefrom.

The trial court sustained the contention of the private respondent and dismissed the complaint; ordered the petitioner to pay
attorney's fees in the sum of ONE THOUSAND (P1,000.00) PESOS in favor of the private respondent; and ordered the private
respondent to return the sum of TWENTY (P20.00) PESOS received by way of premium on the insurancy policy. It was reasoned
out that a policy of insurance being a contract of adhesion, it was the duty of the insured to know the terms of the contract he or
she is entering into; the insured in this case, upon learning from its terms that she could not have been qualified under the
conditions stated in said contract, what she should have done is simply to ask for a refund of the premium that she paid. It was
further argued by the trial court that the ruling calling for a liberal interpretation of an insurance contract in favor of the insured
and strictly against the insurer may not be applied in the present case in view of the peculiar facts and circumstances obtaining
therein.

We REVERSE the judgment of the trial court. The age of the insured Carmen 0. Lapuz was not concealed to the insurance
company. Her application for insurance coverage which was on a printed form furnished by private respondent and which
contained very few items of information clearly indicated her age of the time of filing the same to be almost 65 years of age.
Despite such information which could hardly be overlooked in the application form, considering its prominence thereon and its
materiality to the coverage applied for, the respondent insurance corporation received her payment of premium and issued the
corresponding certificate of insurance without question. The accident which resulted in the death of the insured, a risk covered
by the policy, occurred on May 31, 1969 or FORTY-FIVE (45) DAYS after the insurance coverage was applied for. There was
sufficient time for the private respondent to process the application and to notice that the applicant was over 60 years of age and
thereby cancel the policy on that ground if it was minded to do so. If the private respondent failed to act, it is either because it
was willing to waive such disqualification; or, through the negligence or incompetence of its employees for which it has only
itself to blame, it simply overlooked such fact. Under the circumstances, the insurance corporation is already deemed in estoppel.
It inaction to revoke the policy despite a departure from the exclusionary condition contained in the said policy constituted a
waiver of such condition, as was held in the case of "Que Chee Gan vs. Law Union Insurance Co., Ltd.,", 98 Phil. 85. This case
involved a claim on an insurance policy which contained a provision as to the installation of fire hydrants the number of which
depended on the height of the external wan perimeter of the bodega that was insured. When it was determined that the bodega
should have eleven (11) fire hydrants in the compound as required by the terms of the policy, instead of only two (2) that it had,
the claim under the policy was resisted on that ground. In ruling that the said deviation from the terms of the policy did not
prevent the claim under the same, this Court stated the following:

We are in agreement with the trial Court that the appellant is barred by waiver (or rather estoppel) to claim
violation of the so-called fire hydrants warranty, for the reason that knowing fully an that the number of
hydrants demanded therein never existed from the very beginning, the appellant nevertheless issued the
policies in question subject to such warranty, and received the corresponding premiums. It would be perilously
close to conniving at fraud upon the insured to allow appellant to claim now as void ab initio the policies that it
 had issued to the plaintiff without warning of their fatal defect, of which it was informed, and after it had misled
the defendant into believing that the policies were effective.

The insurance company was aware, even before the policies were issued, that in the premises insured there
were only two fire hydrants installed by Que Chee Gan and two others nearby, owned by the municipality of
Tabaco, contrary to the requirements of the warranty in question. Such fact appears from positive testimony
for the insured that appellant's agents inspected the premises; and the simple denials of appellant's
representative (Jamiczon) can not overcome that proof. That such inspection was made it moreover rendered
probable by its being a prerequisite for the fixing of the discount on the premium to which the insured was
entitled, since the discount depended on the number of hydrants, and the fire fighting equipment available
(See"'Scale of Allowances" to which the policies were expressly made subject). The law, supported by a long
line of cases, is expressed by American Jurisprudence (Vol. 29, pp. 611-612) to be as follows:

It is usually held that where the insurer, at the time of the issuance of a policy of insurance,
has knowledge of existing facts which, if insisted on, would invalidate the contract from its
very inception, such knowledge constitutes a waiver of conditions in the contract inconsistent
with the known facts, and the insurer is stopped thereafter from asserting the breach of such
conditions. The law is charitable enough to assume, in the absence of any showing to the
contrary, that an insurance company intends to execute a valid contract in return for the
premium received; and when the policy contains a condition which renders it voidable at its
inception, and this result is known to the insurer, it will be presumed to have intended to
waive the conditions and to execute a binding contract, rather than to have deceived the
insured into thinking he is insured when in fact he is not, and to have taken is money without
consideration.' (29 Am. Jur., Insurance, section 807, at pp. 611-612.)

The reason for the rule is not difficult to find.

The plain, human justice of this doctrine is perfectly apparent. To allow a company to accept
one's money for a policy of insurance which it then knows to be void and of no effect, though
it knows as it must, that the assured believes it to be valid and binding, is so contrary to the
dictates of honesty and fair dealing, and so closely related to positive fraud, as to be abhorent
to fairminded men. It would be to allow the company to treat the policy as valid long enough
to get the premium on it, and leave it at liberty to repudiate it the next moment. This cannot
be deemed to be the real intention of the parties. To hold that a literal construction of the
policy expressed the true intention of the company would be to indict it, for fraudulent
purposes and designs which we cannot believe it to be guilty of (Wilson vs. Commercial Union
Assurance Co., 96 Atl. 540, 543544).

A similar view was upheld in the case of Capital Insurance & Surety Co., Inc. vs. Plastic Era Co., Inc., 65 SCRA 134, which involved
a violation of the provision of the policy requiring the payment of premiums before the insurance shall become effective. The
company issued the policy upon the execution of a promissory note for the payment of the premium. A check given subsequent
by the insured as partial payment of the premium was dishonored for lack of funds. Despite such deviation from the terms of the
policy, the insurer was held liable.

Significantly, in the case before Us the Capital Insurance accepted the promise of Plastic Era to pay the
insurance premium within thirty (30) days from the effective date of policy. By so doing, it has impliedly agreed
to modify the tenor of the insurance policy and in effect, waived the provision therein that it would only pay for
the loss or damage in case the same occurs after the payment of the premium. Considering that the insurance
policy is silent as to the mode of payment, Capital Insurance is deemed to have accepted the promissory note in
payment of the premium. This rendered the policy immediately operative on the date it was delivered. The
view taken in most cases in the United States:

... is that although one of conditions of an insurance policy is that "it shall not be valid or
binding until the first premium is paid", if it is silent as to the mode of payment, promissory
notes received by the company must be deemed to have been accepted in payment of the
premium. In other words, a requirement for the payment of the first or initial premium in
advance or actual cash may be waived by acceptance of a promissory note...

WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE. In lieu thereof, the private respondent insurance
corporation is hereby ordered to pay to the petitioner the sum of TEN THOUSAND (P10,000.00) PESOS as proceeds of Insurance
Certificate No. 128866 with interest at the legal rate from May 31, 1969 until fully paid, the further sum of TWO THOUSAND
(P2,000.00) PESOS as and for attorney's fees, and the costs of suit. SO ORDERED.
29. Ma. Lourdes S. Florendo v. Philam Plans, Inc & Abcede

G.R. No. 186983               February 22, 2012

MA. LOURDES S. FLORENDO, Petitioner,

vs.
PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE ABCEDE, Respondents.

DECISION

ABAD, J.:

This case is about an insured’s alleged concealment in his pension plan application of his true state of health and its effect on the life
insurance portion of that plan in case of death.

The Facts and the Case

On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with respondent Philam Plans, Inc. (Philam
Plans) after some convincing by respondent Perla Abcede. The plan had a pre-need price of ₱997,050.00, payable in 10 years, and had a
maturity value of ₱2,890,000.00 after 20 years.1 Manuel signed the application and left to Perla the task of supplying the information
needed in the application.2 Respondent Ma. Celeste Abcede, Perla’s daughter, signed the application as sales counselor.3

Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage to Florendo.4 This was covered by a
Group Master Policy that Philippine American Life Insurance Company (Philam Life) issued to Philam Plans.5 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.6 If the plan holder died before the maturity of the plan, his beneficiary was to instead receive the proceeds
of the life insurance, equivalent to the pre-need price. Further, the life insurance was to take care of any unpaid premium until the
pension plan matured, entitling the beneficiary to the maturity value of the pension plan.7

On October 30, 1997 Philam Plans issued Pension Plan Agreement PP430055848 to Manuel, with petitioner Ma. Lourdes S. Florendo, his
wife, as beneficiary. In time, Manuel paid his quarterly premiums.9

Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently, Lourdes filed 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 benefits of his life insurance, Philam Plans forwarded her claim to Philam Life.11

On May 3, 1999 Philam Plans wrote Lourdes a letter,12 declining her claim. Philam Life found that Manuel was on maintenance medicine
for his heart and had an implanted pacemaker. Further, he suffered from diabetes mellitus and was taking insulin. Lourdes renewed her
demand for payment under the plan13 but Philam Plans rejected it,14 prompting her to file the present action against the pension plan
company before the Regional Trial Court (RTC) of Quezon City.15

On March 30, 2006 the RTC rendered judgment,16 ordering Philam Plans, Perla and Ma. Celeste, solidarily, to pay Lourdes all the benefits
from her husband’s pension plan, namely: ₱997,050.00, the proceeds of his term insurance, and ₱2,890,000.00 lump sum pension
benefit upon maturity of his plan; ₱100,000.00 as moral damages; and to pay the costs of the suit. The RTC ruled that Manuel was not
guilty of concealing the state of his health from his pension plan application.

On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision,17 holding that insurance policies are traditionally contracts
uberrimae fidae or contracts of utmost good faith. As such, it required Manuel to disclose to Philam Plans conditions affecting the risk of
which he was aware or material facts that he knew or ought to know.18

Issues Presented

The issues presented in this case are:

1. Whether or not the CA erred in finding Manuel guilty of concealing his illness when he kept blank and did not answer
questions in his pension plan application regarding the ailments he suffered from;

2. Whether or not the CA erred in holding that 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; and

3. Whether or not the CA erred in finding that Philam Plans’ approval of Manuel’s pension plan application and acceptance of
his premium payments precluded it from denying Lourdes’ claim.

Rulings of the Court

One. 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.19

But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the true state of Manuel’s health. She
forgets that since Philam Plans waived medical examination for Manuel, it had to rely largely on his stating the truth regarding his health
in his application. For, after all, he knew more than anyone that he had been under treatment for heart condition and diabetes for more
than five years preceding his submission of that application. But he kept those crucial facts from Philam Plans.

Besides, 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. The
pertinent portion of his representations and declarations read as follows:

I hereby represent and declare to the best of my knowledge that:

xxxx

(c) I have never been treated for heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or
any other physical impairment in the last five years.

(d) I am in good health and physical condition.

If your answer to any of the statements above reveal otherwise, please give details in the space provided for:

Date of confinement : ____________________________

Name of Hospital or Clinic : ____________________________

Name of Attending Physician : ____________________________

Findings : ____________________________

Others: (Please specify) : ____________________________

x x x x.20 (Emphasis supplied)

Since Manuel signed the application without filling in the details regarding his continuing treatments for heart condition and diabetes,
the assumption is that he has never been treated for the said illnesses in the last five years preceding his application. This is implicit
from the phrase "If your answer to any of the statements above (specifically, the statement: I have never been treated for heart
condition or diabetes) reveal otherwise, please give details in the space provided for." But this is untrue since he had been on
"Coumadin," a treatment for venous thrombosis,21 and insulin, a drug used in the treatment of diabetes mellitus, at that time.22

Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that Manuel had a pacemaker implanted on his
chest in the 70s or about 20 years before he signed up for the pension plan.23 But by its tenor, the responsibility for preparing the
application belonged to Manuel. Nothing in it implies that someone else may provide the information that Philam Plans needed. Manuel
cannot sign the application and disown the responsibility for having it filled up. If he furnished Perla the needed information and
delegated to her the filling up of the application, then she acted on his instruction, not on Philam Plans’ instruction.

Lourdes next points out that it made no difference if Manuel failed to reveal the fact that he had a pacemaker implant in the early 70s
since this did not fall within the five-year timeframe that the disclosure contemplated.24 But a pacemaker is an electronic device
implanted into the body and connected to the wall of the heart, designed to provide regular, mild, electric shock that stimulates the
contraction of the heart muscles and restores normalcy to the heartbeat.25 That Manuel still had his pacemaker when he applied for a
pension plan in October 1997 is an admission that he remained under treatment for irregular heartbeat within five years preceding that
application.

Besides, as already stated, Manuel had been taking medicine for his heart condition and diabetes when he submitted his pension plan
application. These clearly fell within the five-year period. More, even if Perla’s knowledge of Manuel’s pacemaker may be applied to
Philam Plans under the theory of imputed knowledge,26 it is not claimed that Perla was aware of his two other afflictions that needed
medical treatments. Pursuant to Section 2727 of the Insurance Code, Manuel’s concealment entitles Philam Plans to rescind its contract of
insurance with him.

Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let Perla fill in the required details did not
make her his agent and bind him to her concealment of his true state of health. Since there is no evidence of collusion between them,
Perla’s fault must be considered solely her own and cannot prejudice Manuel.28
But Manuel forgot that in signing the pension plan application, he certified that he wrote all the information stated in it or had someone
do it under his direction. Thus:

APPLICATION FOR PENSION PLAN

(Comprehensive)

I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan Program described herein in accordance with the General
Provisions set forth in this application and hereby certify that the date and other information stated herein are written by me or under
my direction. x x x.29 (Emphasis supplied)

Assuming that it was Perla who filled up the application form, Manuel is still bound by what it contains since he certified that he
authorized her action. Philam Plans had every right to act on the faith of that certification.

Lourdes could not seek comfort from her claim that Perla had assured Manuel that the state of his health would not hinder the approval
of his application and that what is written on his application made no difference to the insurance company. But, indubitably, Manuel was
made aware when he signed the pension plan application that, in granting the same, Philam Plans and Philam Life were acting on the
truth of the representations contained in that application. Thus:

DECLARATIONS AND REPRESENTATIONS

xxxx

I agree that the insurance coverage of this application is based on the truth of the foregoing representations and is subject to the
provisions of the Group Life Insurance Policy issued by THE PHILIPPINE AMERICAN LIFE INSURANCE CO. to PHILAM PLANS,
INC.30 (Emphasis supplied)

As the Court said in New Life Enterprises v. Court of Appeals:31

It may be true that x x x insured persons may accept policies without reading them, and that this is not negligence per se. But, this is not
without any exception. It is and was incumbent upon petitioner Sy to read the insurance contracts, and this can be reasonably expected
of him considering that he has been a businessman since 1965 and the contract concerns indemnity in case of loss in his money-making
trade of which important consideration he could not have been unaware as it was precisely the reason for his procuring the same.32

The same may be said of Manuel, a civil engineer and manager of a construction company.33 He could be expected to know that one must
read every document, especially if it creates rights and obligations affecting him, before signing the same. Manuel is not unschooled that
the Court must come to his succor. It could reasonably be expected that he would not trifle with something that would provide
additional financial security to him and to his wife in his twilight years.

Three. In a final attempt to defend her claim for benefits under Manuel’s pension plan, Lourdes points out that any defect or
insufficiency in the information provided by his pension plan application should be deemed waived after the same has been approved,
the policy has been issued, and the premiums have been collected. 34

The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a one-year incontestability period. It states:

VIII. INCONTESTABILITY

After this Agreement has remained in force for one (1) year, we can no longer contest for health reasons any claim for insurance under
this Agreement, except for the reason that installment has not been paid (lapsed), or that you are not insurable at the time you bought
this pension program by reason of age. If this Agreement lapses but is reinstated afterwards, the one (1) year contestability period shall
start again on the date of approval of your request for reinstatement.35 1âwphi1

The above 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.

Since Manuel died on the eleventh month following the issuance of his plan,36 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.

WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of Appeals in CA-G.R. CV 87085 dated December 18, 2007.

SO ORDERED.
30. The Insular Life Assurance Company, Ltd. v. Feliciano

G.R. No. L-47593 December 29, 1943

THE INSULAR LIFE ASSURANCE CO., LTD., petitioner,

vs.
SERAFIN D. FELICIANO ET AL., respondents.

OZAETA, J.:

In a four-to-three decision promulgated on September 13, 1941, 1 this Court affirmed the judgment of the Court of Appeals
in favor of the respondents and against the petitioner for the sum of P25,000, representing the value of two insurance
policies issued by the petitioner on the life of Evaristo Feliciano. A motion to reconsider and set aside said decision has
been filed by the petitioner, and both parties have submitted exhaustive and luminous written arguments in support of
their respective contentions.

The facts of the case are set forth in the majority and dissenting opinions heretofore handed down by this Court, the salient
points of which may be briefly restated as follows:

Evaristo Feliciano, who died on September 29, 1935, was suffering with advanced pulmonary tuberculosis when he signed
his applications for insurance with the petitioner on October 12, 1934. On that same date Doctor Trepp, who had taken X-
ray pictures of his lungs, informed the respondent Dr. Serafin D. Feliciano, brother of Evaristo, that the latter "was already
in a very serious ad practically hopeless condition." Nevertheless the question contained in the application — "Have you
ever suffered from any ailment or disease of the lungs, pleurisy, pneumonia or asthma?" — appears to have been answered
, "No" And above the signature of the applicant, following the answers to the various questions propounded to him, is the
following printed statement:1awphil.net

I declare on behalf of myself and of any person who shall have or claim any interest in any policy issued
hereunder, that each of the above answers is full, complete and true, and that to the best of my knowledge and
belief I am a proper subject for life insurance. (Exhibit K.)

The false answer above referred to, as well as the others, was written by the Company's soliciting agent Romulo M. David,
in collusion with the medical examiner Dr. Gregorio Valdez, for the purpose of securing the Company's approval of the
application so that the policy to be issued thereon might be credited to said agent in connection with the inter-provincial
contest which the Company was then holding among its soliciting agents to boost the sales of its policies. Agent David
bribed Medical Examiner Valdez with money which the former borrowed from the applicant's mother by way of advanced
payment on the premium, according to the finding of the Court of Appeals. Said court also found that before the insured
signed the application he, as well as the members of his family, told the agent and the medical examiner that he had been
sick and coughing for some time and that he had gone three times to the Santol Sanatorium and had X-ray pictures of his
lungs taken; but that in spite of such information the agent and the medical examiner told them that the applicant was a fit
subject for insurance.

Each of the policies sued upon contains the following stipulations:

This policy and the application herefor constitute the entire contract between the parties hereto. . . . Only the
President, or the Manager, acting jointly with the Secretary or Assistant Secretary (and then only in writing signed
by them) have power in behalf of the Company to issue permits, or to modify this or any contract, or to extend the
same time for making any premium payment, and the Company shall not be bound by any promise or
representation heretofore or hereafter given by any person other than the above-named officials, and by them only in
writing and signed conjointly as stated.

The application contains, among others, the following statements:

18. — I [the applicant] hereby declare that all the above statements and answers as well as all those that I may
make to the Company's Medical Examiner in continuation of this application, to be complete, true and correct to
the best of my knowledge and belief, and I hereby agree as follows:

1. That his declaration, with the answers to be given by me to the Medical Examiner, shall be the basis of the policy
and form part of same.

x x x           x x x          x x x
 3. That the said policy shall not take effect until the first premium has been paid and the policy has been delivered
to and accepted by me, while I am in good health.

4. That the agent taking this application has no authority to make, modify or discharge contracts, or to waive any of
the Company's rights or requirements.

5. My acceptance of any policy issued on this application will constitute a ratification by me of any corrections in
or additions to this application made by the Company in the space provided "For Home Office Corrections or
Additions Only." I agree that photographic copy of this applications as corrected or added to shall constitute
sufficient notice to me of the changes made. (Emphasis added.)

The petitioner insists that upon the facts of the case the policies in question are null and void ab initio and that all that the
respondents are entitled to is the refund of the premiums paid thereon. After a careful re-examination of the facts and the
law, we are persuaded that petitioner's contention is correct. To the reasons adduced in the dissenting opinion heretofore
published, we only desire to add the following considerations:

When Evaristo Feliciano, the applicant for insurance, signed the application in blank and authorized the soliciting agent
and/or medical examiner of the Company to write the answers for him, he made them his own agents for that purpose,
and he was responsible for their acts in that connection. If they falsified the answers for him, he could not evade the
responsibility for he falsification. He was not supposed to sign the application in blank. He knew that the answers to the
questions therein contained would be "the basis of the policy," and for that every reason he was required with his
signature to vouch for truth thereof.

Moreover, from the facts of the case we cannot escape the conclusion that the insured acted in connivance with the
soliciting agent and the medical examiner of the Company in accepting the policies in question. Above the signature of the
applicant is the printed statement or representation: " . . . I am a proper subject for life insurance." In another sheet of the
same application and above another signature of the applicant was also printed this statement: "That the said policy shall
not take effect until he first premium has been paid and the policy as been delivered to and accepted by me, while I am in
good health." When the applicant signed the application he was "having difficulty in breathing, . . . with a very high fever."
He had gone three times to the Santol Sanatorium and had X-ray pictures taken of his lungs. He therefore knew that he was
not "a proper subject for life insurance." When he accepted the policy, he knew that he was not in good health.
Nevertheless, he not only accepted the first policy of P20,000 but then and there applied for and later accepted another
policy of P5,000.

We cannot bring ourselves to believe that the insured did not take the trouble to read the answers contained in the
photostatic copy of the application attached to and made a part of the policy before he accepted it and paid the premium
thereon. He must have notice that the answers to the questions therein asked concerning his clinical history were false,
and yet he accepted the first policy and applied for another. In any event, he obligated himself to read the policy when he
subscribed to this statement: "My acceptance of any policy issued on this application will constitute a ratification by me of
any corrections in or additions to this application made by the Company . . ." By accepting the policy he became charged
with knowledge of its contents, whether he actually read it or not. He could not ostrich-like hide his head from it in order
to avoid his part of the bargain and at the same time claim the benefit thereof. He knew, or was chargeable with
knowledge, from the very terms of the two policies sued upon (one of which is printed in English and the other in Spanish)
that the soliciting agent and the medical examiner had no power to bind the Company by any verbal promise or oral
representation. The insured, therefore, had no right to rely — and we cannot believe he relied in good faith — upon the
oral representation. The insured, therefore, had no right to rely — and we cannot believe he relied in good faith — upon
the oral representation of said agent and medical examiner that he (the applicant) was a fit subject for insurance
notwithstanding that he had been and was still suffering with advanced pulmonary tuberculosis.

From all the facts and circumstances of this case, we are constrained to conclude that the insured was a coparticipant, and
coresponsible with Agent David and Medical Examiner Valdez, in the fraudulent procurement of the policies in question
and that by reason thereof said policies are void ab initio.

Wheretofore, the motion for reconsideration is sustained and the judgment of the Court of Appeals is hereby reversed. Let
another judgment be entered in favor of the respondents and against the petitioner for the refund of the premiums
amounting to P1,389, with legal interest thereon from the date of the complaint, and without any finding as to costs.

Moran, Paras and Bocobo, JJ., concur.

31. UCPB General Insurance Co., Inc. v. Masagana Telamart, Inc

G.R. No. 137172            April 4, 2001

UCPB GENERAL INSURANCE CO., INC., petitioner,

vs.
MASAGANA TELAMART, INC., respondent.

RESOLUTION

DAVIDE, JR., C.J.:

In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision 1 of the Court of Appeals, which
affirmed with modification the judgment of the trial court (a) allowing Respondent to consign the sum of P225,753.95 as
full payment of the premiums for the renewal of the five insurance policies on Respondent's properties; (b) declaring the
replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering Petitioner to
pay Respondent P18,645,000.00 as indemnity for the burned properties covered by the renewal-replacement policies. The
modification consisted in the (1) deletion of the trial court's declaration that three of the policies were in force from
August 1991 to August 1992; and (2) reduction of the award of the attorney's fees from 25% to 10% of the total amount
due the Respondent.

The material operative facts upon which the appealed judgment was based are summarized by the Court of Appeals in its
assailed decision as follows:

Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5) insurance policies (Exhibits "A"
to "E", Record, pp. 158-175) on its properties [in Pasay City and Manila] . . . .

All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to 4:00 P.M. of 22 May
1992." On June 13, 1992, plaintiffs properties located at 2410-2432 and 2442-2450 Taft Avenue, Pasay City were
razed by fire. On July 13, 1992, plaintiff tendered, and defendant accepted, five (5) Equitable Bank Manager's
Checks in the total amount of P225,753.45 as renewal premium payments for which Official Receipt Direct
Premium No. 62926 (Exhibit "Q", Record, p. 191) was issued by defendant. On July 14, 1992, Masagana made its
formal demand for indemnification for the burned insured properties. On the same day, defendant returned the
five (5) manager's checks stating in its letter (Exhibit "R" / "8", Record, p. 192) that it was rejecting Masagana's
claim on the following grounds:

"a) Said policies expired last May 22, 1992 and were not renewed for another term;

b) Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier; and

c) The properties covered by the said policies were burned in a fire that took place last June 13, 1992, or
before tender of premium payment."

(Record, p. 5)

Hence Masagana filed this case.

The Court of Appeals disagreed with Petitioner's stand that Respondent's tender of payment of the premiums on 13 July
1992 did not result in the renewal of the policies, having been made beyond the effective date of renewal as provided
under Policy Condition No. 26, which states:

26. Renewal Clause. — Unless the company at least forty five days in advance of the end of the policy period mails
or delivers to the assured at the address shown in the policy notice of its intention not to renew the policy or to
condition its renewal upon reduction of limits or elimination of coverages, the assured shall be entitled to renew
the policy upon payment of the premium due on the effective date of renewal.

Both the Court of Appeals and the trial court found that sufficient proof exists that Respondent, which had procured
insurance coverage from Petitioner for a number of years, had been granted a 60 to 90-day credit term for the renewal of
the policies. Such a practice had existed up to the time the claims were filed. Thus:
 Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium
was paid more than 90 days later on August 31, 1990 under O.R. No. 4771 (Exhs. "T" and "T-1"). Fire Insurance
Policy No. 34660 for Insurance Risk Coverage from May 22, 1990 to May 22, 1991 was issued by UCPB on May 4,
1990 but premium was collected by UCPB only on July 13, 1990 or more than 60 days later under O.R. No. 46487
(Exhs. "V" and "V-1"). And so were as other policies: Fire Insurance Policy No. 34657 covering risks from May 22,
1990 to May 22, 1991 was issued on May 7, 1990 but premium therefor was paid only on July 19, 1990 under O.R.
No. 46583 (Exhs. "W" and "W-1"). Fire Insurance Policy No. 34661 covering risks from May 22, 1990 to May 22,
1991 was issued on May 3, 1990 but premium was paid only on July 19, 1990 under O.R. No. 46582 (Exhs. "X" and
"X-1"). Fire Insurance Policy No. 34688 for insurance coverage from May 22, 1990 to May 22, 1991 was issued on
May 7, 1990 but premium was paid only on July 19, 1990 under O.R. No. 46585 (Exhs. "Y" and "Y-1"). Fire
Insurance Policy No. 29126 to cover insurance risks from May 22, 1989 to May 22, 1990 was issued on May 22,
1989 but premium therefor was collected only on July 25, 1990[sic] under O.R. No. 40799 (Exhs. "AA" and "AA-
1"). Fire Insurance Policy No. HO/F-26408 covering risks from January 12, 1989 to January 12, 1990 was issued to
Intratrade Phils. (Masagana's sister company) dated December 10, 1988 but premium therefor was paid only on
February 15, 1989 under O.R. No. 38075 (Exhs. "BB" and "BB-1"). Fire Insurance Policy No. 29128 was issued on
May 22, 1989 but premium was paid only on July 25, 1989 under O.R. No. 40800 for insurance coverage from May
22, 1989 to May 22, 1990 (Exhs. "CC" and "CC-1"). Fire Insurance Policy No. 29127 was issued on May 22, 1989
but premium was paid only on July 17, 1989 under O.R. No. 40682 for insurance risk coverage from May 22, 1989
to May 22, 1990 (Exhs. "DD" and "DD-1"). Fire Insurance Policy No. HO/F-29362 was issued on June 15, 1989 but
premium was paid only on February 13, 1990 under O.R. No. 39233 for insurance coverage from May 22, 1989 to
May 22, 1990 (Exhs. "EE" and "EE-1"). Fire Insurance Policy No. 26303 was issued on November 22, 1988 but
premium therefor was collected only on March 15, 1989 under O.R. NO. 38573 for insurance risks coverage from
December 15, 1988 to December 15, 1989 (Exhs. "FF" and "FF-1").

Moreover, according to the Court of Appeals the following circumstances constitute preponderant proof that no timely
notice of non-renewal was made by Petitioner:

(1) Defendant-appellant received the confirmation (Exhibit "11", Record, p. 350) from Ultramar Reinsurance
Brokers that plaintiff's reinsurance facility had been confirmed up to 67.5% only on April 15, 1992 as indicated on
Exhibit "11". Apparently, the notice of non-renewal (Exhibit "7," Record, p. 320) was sent not earlier than said
date, or within 45 days from the expiry dates of the policies as provided under Policy Condition No. 26; (2)
Defendant insurer unconditionally accepted, and issued an official receipt for, the premium payment on July 1[3],
1992 which indicates defendant's willingness to assume the risk despite only a 67.5% reinsurance cover[age]; and
(3) Defendant insurer appointed Esteban Adjusters and Valuers to investigate plaintiff's claim as shown by the
letter dated July 17, 1992 (Exhibit "11", Record, p. 254).

In our decision of 15 June 1999, we defined the main issue to be "whether the fire insurance policies issued by petitioner
to the respondent covering the period from May 22, 1991 to May 22, 1992 . . . had been extended or renewed by an implied
credit arrangement though actual payment of premium was tendered on a later date and after the occurrence of the (fire)
risk insured against." We resolved this issue in the negative in view of Section 77 of the Insurance Code and our decisions
in Valenzuela v. Court of Appeals;  2 South Sea Surety and Insurance Co., Inc. v. Court of Appeals; 3 and Tibay v. Court of
Appeals. 4 Accordingly, we reversed and set aside the decision of the Court of Appeals.

Respondent seasonably filed a motion for the reconsideration of the adverse verdict. It alleges in the motion that we had
made in the decision our own findings of facts, which are not in accord with those of the trial court and the Court of
Appeals. The courts below correctly found that no notice of non-renewal was made within 45 days before 22 May 1992, or
before the expiration date of the fire insurance policies. Thus, the policies in question were renewed by operation of law
and were effective and valid on 30 June 1992 when the fire occurred, since the premiums were paid within the 60- to 90-
day credit term.

Respondent likewise disagrees with our ruling that parties may neither agree expressly or impliedly on the extension of
credit or time to pay the premium nor consider a policy binding before actual payment. It urges the Court to take judicial
notice of the fact that despite the express provision of Section 77 of the Insurance Code, extension of credit terms in
premium payment has been the prevalent practice in the insurance industry. Most insurance companies, including
Petitioner, extend credit terms because Section 77 of the Insurance Code is not a prohibitive injunction but is merely
designed for the protection of the parties to an insurance contract. The Code itself, in Section 78, authorizes the validity of
a policy notwithstanding non-payment of premiums.

Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its awareness of Section 77 Petitioner
persuaded and induced Respondent to believe that payment of premium on the 60- to 90-day credit term was perfectly
alright; in fact it accepted payments within 60 to 90 days after the due dates. By extending credit and habitually accepting
payments 60 to 90 days from the effective dates of the policies, it has implicitly agreed to modify the tenor of the insurance
policy and in effect waived the provision therein that it would pay only for the loss or damage in case the same occurred
after payment of the premium.
Petitioner filed an opposition to the Respondent's motion for reconsideration. It argues that both the trial court and the
Court of Appeals overlooked the fact that on 6 April 1992 Petitioner sent by ordinary mail to Respondent a notice of non-
renewal and sent by personal delivery a copy thereof to Respondent's broker, Zuellig. Both courts likewise ignored the fact
that Respondent was fully aware of the notice of non-renewal. A reading of Section 66 of the Insurance Code readily shows
that in order for an insured to be entitled to a renewal of a non-life policy, payment of the premium due on the effective
date of renewal should first be made. Respondent's argument that Section 77 is not a prohibitive provision finds no
authoritative support.

Upon a meticulous review of the records and reevaluation of the issues raised in the motion for reconsideration and the
pleadings filed thereafter by the parties, we resolved to grant the motion for reconsideration. The following facts, as found
by the trial court and the Court of Appeals, are indeed duly established:

1. For years, Petitioner had been issuing fire policies to the Respondent, and these policies were annually
renewed.

2. Petitioner had been granting Respondent a 60- to 90-day credit term within which to pay the premiums on the
renewed policies.

3. There was no valid notice of non-renewal of the policies in question, as there is no proof at all that the notice
sent by ordinary mail was received by Respondent, and the copy thereof allegedly sent to Zuellig was ever
transmitted to Respondent.

4. The premiums for the policies in question in the aggregate amount of P225,753.95 were paid by Respondent
within the 60- to 90-day credit term and were duly accepted and received by Petitioner's cashier.

The instant case has to rise or fall on the core issue of whether Section 77 of the Insurance Code of 1978 (P.D. No. 1460)
must be strictly applied to Petitioner's advantage despite its practice of granting a 60- to 90-day credit term for the
payment of premiums.

Section 77 of the Insurance Code of 1978 provides:

SECTION 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril
insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of
a life or an industrial life policy whenever the grace period provision applies.

This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated on 18 December 1974. In
turn, this Section has its source in Section 72 of Act No. 2427 otherwise known as the Insurance Act as amended by R.A.
No. 3540, approved on 21 June 1963, which read:

SECTION 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the peril
insured against, unless there is clear agreement to grant the insured credit extension of the premium due. No policy
issued by an insurance company is valid and binding unless and until the premium thereof has been paid. (Italic
supplied)

It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an agreement to
extend the period to pay the premium. But are there exceptions to Section 77?

The answer is in the affirmative.

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.

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, 5 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. We said therein, thus:
 We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly
show that the petitioners and private respondent intended subject insurance policies to be binding and effective
notwithstanding the staggered payment of the premiums. The initial insurance contract entered into in 1982 was
renewed in 1983, then in 1984. In those three years, the insurer accepted all the installment payments. Such
acceptance of payments speaks loudly of the 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.

Not only that. In Tuscany, we also quoted with approval the following pronouncement of the Court of Appeals in its
Resolution denying the motion for reconsideration of its decision:

While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of
the contract, We are not prepared to rule that the request to make installment payments duly approved by the
insurer would prevent the entire contract of insurance from going into effect despite payment and acceptance of
the initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of
the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as
conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually
unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not
paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not
contrary to morals, good customs, public order or public policy (De Leon, The Insurance Code, p. 175). So is an
understanding to allow insured to pay premiums in installments not so prescribed. At the very least, both parties
should be deemed in estoppel to question the arrangement they have voluntarily accepted.

By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has provided a fourth
exception to Section 77, namely, that the insurer may grant credit extension for the payment of the premium. 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.

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.

WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED and SET ASIDE, and a new one is
hereby entered DENYING the instant petition for failure of Petitioner to sufficiently show that a reversible error
was committed by the Court of Appeals in its challenged decision, which is hereby AFFIRMED in toto.

No pronouncement as to cost.

SO ORDERED.
32. United Merchants Corp. v. Country Bankers Insurance Corp

G.R. No. 198588               July 11, 2012

UNITED MERCHANTS CORPORATION, Petitioner,

vs.
COUNTRY BANKERS INSURANCE CORPORATION, Respondent.

DECISION

CARPIO, J.:

The Case

This Petition for Review on Certiorari seeks to reverse the Court of Appeals’ Decision dated 16 June 2011 and
1  2 

its Resolution dated 8 September 2011 in CA-G.R. CV No. 85777. The Court of Appeals reversed the
3 

Decision of the Regional Trial Court (RTC) of Manila, Branch 3, and ruled that the claim on the Insurance Policy
4 

is void.

The Facts

The facts, as culled from the records, are as follows:

Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling, and manufacturing
Christmas lights. UMC leased a warehouse at 19-B Dagot Street, San Jose Subdivision, Barrio Manresa,
Quezon City, where UMC assembled and stored its products.

On 6 September 1995, UMC’s General Manager Alfredo Tan insured UMC’s stocks in trade of Christmas lights
against fire with defendant Country Bankers Insurance Corporation (CBIC) for ₱15,000,000.00. The Fire
Insurance Policy No. F-HO/95-576 (Insurance Policy) and Fire Invoice No. 12959A, valid until 6 September
1996, states:

AMOUNT OF INSURANCE: FIFTEEN

MILLION PESOS
PHILIPPINE
CURRENCY

xxx

PROPERTY INSURED: On stocks in trade only, consisting of Christmas Lights, the properties of the Assured or
held by them in trust, on commissions, or on joint account with others and/or for which they are responsible in
the event of loss and/or damage during the currency of this policy, whilst contained in the building of one lofty
storey in height, constructed of concrete and/or hollow blocks with portion of galvanized iron sheets, under
galvanized iron rood, occupied as Christmas lights storage. 5

On 7 May 1996, UMC and CBIC executed Endorsement F/96-154 and Fire Invoice No. 16583A to form part of
the Insurance Policy. Endorsement F/96-154 provides that UMC’s stocks in trade were insured against
additional perils, to wit: "typhoon, flood, ext. cover, and full earthquake." The sum insured was also increased to
₱50,000,000.00 effective 7 May 1996 to 10 January 1997. On 9 May 1996, CBIC issued Endorsement F/96-157
where the name of the assured was changed from Alfredo Tan to UMC.

On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC designated CRM Adjustment Corporation
(CRM) to investigate and evaluate UMC’s loss by reason of the fire. CBIC’s reinsurer, Central Surety, likewise
requested the National Bureau of Investigation (NBI) to conduct a parallel investigation. On 6 July 1996, UMC,
through CRM, submitted to CBIC its Sworn Statement of Formal Claim, with proofs of its loss.

On 20 November 1996, UMC demanded for at least fifty percent (50%) payment of its claim from CBIC. On 25
February 1997, UMC received CBIC’s letter, dated 10 January 1997, rejecting UMC’s claim due to breach of
Condition No. 15 of the Insurance Policy. Condition No. 15 states:
If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any
fraudulent means or devices are used by the Insured or anyone acting in his behalf to obtain any benefit under
this Policy; or if the loss or damage be occasioned by the willful act, or with the connivance of the Insured, all the
benefits under this Policy shall be forfeited.
6

On 19 February 1998, UMC filed a Complaint against CBIC with the RTC of Manila. UMC anchored its
7 

insurance claim on the Insurance Policy, the Sworn Statement of Formal Claim earlier submitted, and the
Certification dated 24 July 1996 made by Deputy Fire Chief/Senior Superintendent Bonifacio J. Garcia of the
Bureau of Fire Protection. The Certification dated 24 July 1996 provides that:

This is to certify that according to available records of this office, on or about 6:10 P.M. of July 3, 1996, a fire
broke out at United Merchants Corporation located at 19-B Dag[o]t Street, Brgy. Manresa, Quezon City incurring
an estimated damage of Fifty-Five Million Pesos (₱55,000,000.00) to the building and contents, while the
reported insurance coverage amounted to Fifty Million Pesos (₱50,000,000.00) with Country Bankers Insurance
Corporation.

The Bureau further certifies that no evidence was gathered to prove that the establishment was willfully,
feloniously and intentionally set on fire.

That the investigation of the fire incident is already closed being ACCIDENTAL in nature. 8

In its Answer with Compulsory Counterclaim dated 4 March 1998, CBIC admitted the issuance of the Insurance
9 

Policy to UMC but raised the following defenses: (1) that the Complaint states no cause of action; (2) that UMC’s
claim has already prescribed; and (3) that UMC’s fire claim is tainted with fraud. CBIC alleged that UMC’s claim
was fraudulent because UMC’s Statement of Inventory showed that it had no stocks in trade as of 31 December
1995, and that UMC’s suspicious purchases for the year 1996 did not even amount to ₱25,000,000.00. UMC’s
GIS and Financial Reports further revealed that it had insufficient capital, which meant UMC could not afford the
alleged ₱50,000,000.00 worth of stocks in trade.

In its Reply dated 20 March 1998, UMC denied violation of Condition No. 15 of the Insurance Policy. UMC
10 

claimed that it did not make any false declaration because the invoices were genuine and the Statement of
Inventory was for internal revenue purposes only, not for its insurance claim.

During trial, UMC presented five witnesses. The first witness was Josie Ebora (Ebora), UMC’s disbursing officer.
Ebora testified that UMC’s stocks in trade, at the time of the fire, consisted of: (1) raw materials for its Christmas
lights; (2) Christmas lights already assembled; and (3) Christmas lights purchased from local suppliers. These
stocks in trade were delivered from August 1995 to May 1996. She stated that Straight Cargo Commercial
Forwarders delivered the imported materials to the warehouse, evidenced by delivery receipts. However, for the
year 1996, UMC had no importations and only bought from its local suppliers. Ebora identified the suppliers as
Fiber Technology Corporation from which UMC bought stocks worth ₱1,800,000.00 on 20 May 1996; Fuze
Industries Manufacturer Philippines from which UMC bought stocks worth ₱19,500,000.00 from 20 January 1996
to 23 February 1996; and Tomco Commercial Press from which UMC bought several Christmas boxes. Ebora
testified that all these deliveries were not yet paid. Ebora also presented UMC’s Balance Sheet, Income
Statement and Statement of Cash Flow. Per her testimony, UMC’s purchases amounted to ₱608,986.00 in
1994; ₱827,670.00 in 1995; and ₱20,000,000.00 in 1996. Ebora also claimed that UMC had sales only from its
fruits business but no sales from its Christmas lights for the year 1995.

The next witness, Annie Pabustan (Pabustan), testified that her company provided about 25 workers to
assemble and pack Christmas lights for UMC from 28 March 1996 to 3 July 1996. The third witness,
Metropolitan Bank and Trust Company (MBTC) Officer Cesar Martinez, stated that UMC opened letters of credit
with MBTC for the year 1995 only. The fourth witness presented was Ernesto Luna (Luna), the delivery checker
of Straight Commercial Cargo Forwarders. Luna affirmed the delivery of UMC’s goods to its warehouse on 13
August 1995, 6 September 1995, 8 September 1995, 24 October 1995, 27 October 1995, 9 November 1995,
and 19 December 1995. Lastly, CRM’s adjuster Dominador Victorio testified that he inspected UMC’s
warehouse and prepared preliminary reports in this connection.

On the other hand, CBIC presented the claims manager Edgar Caguindagan (Caguindagan), a Securities and
Exchange Commission (SEC) representative, Atty. Ernesto Cabrera (Cabrera), and NBI Investigator Arnold
Lazaro (Lazaro). Caguindagan testified that he inspected the burned warehouse on 5 July 1996, took pictures of
it and referred the claim to an independent adjuster. The SEC representative’s testimony was dispensed with,
since the parties stipulated on the existence of certain documents, to wit: (1) UMC’s GIS for 1994-1997; (2)
UMC’s Financial Report as of 31 December 1996; (3) SEC Certificate that UMC did not file GIS or Financial
Reports for certain years; and (4) UMC’s Statement of Inventory as of 31 December 1995 filed with the BIR.

Cabrera and Lazaro testified that they were hired by Central Surety to investigate UMC’s claim. On 19
November 1996, they concluded that arson was committed based from their interview with barangay officials
and the pictures showing that blackened surfaces were present at different parts of the warehouse. On cross-
examination, Lazaro admitted that they did not conduct a forensic investigation of the warehouse, nor did they
file a case for arson.

For rebuttal, UMC presented Rosalinda Batallones (Batallones), keeper of the documents of UCPB General
Insurance, the insurer of Perfect Investment Company, Inc., the warehouse owner. When asked to bring
documents related to the insurance of Perfect Investment Company, Inc., Batallones brought the papers of
Perpetual Investment, Inc.

The Ruling of the Regional Trial Court

On 16 June 2005, the RTC of Manila, Branch 3, rendered a Decision in favor of UMC, the dispositive portion of
which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and ordering defendant to pay plaintiff:

a) the sum of ₱43,930,230.00 as indemnity with interest thereon at 6% per annum from November 2003
until fully paid;

b) the sum of ₱100,000.00 for exemplary damages;

c) the sum of ₱100,000.00 for attorney’s fees; and

d) the costs of suit.

Defendant’s counterclaim is denied for lack of merit.

SO ORDERED. 11

The RTC found no dispute as to UMC’s fire insurance contract with CBIC. Thus, the RTC ruled for UMC’s
entitlement to the insurance proceeds, as follows:

Fraud is never presumed but must be proved by clear and convincing evidence. (see Alonso v. Cebu Country
Club, 417 SCRA 115 [2003]) Defendant failed to establish by clear and convincing evidence that the documents
submitted to the SEC and BIR were true. It is common business practice for corporations to have 2 sets of
reports/statements for tax purposes. The stipulated documents of plaintiff (Exhs. 2 – 8) may not have been
accurate.

The conflicting findings of defendant’s adjuster, CRM Adjustment [with stress] and that made by Atty. Cabrera &
Mr. Lazaro for Central Surety shall be resolved in favor of the former. Definitely the former’s finding is more
credible as it was made soon after the fire while that of the latter was done 4 months later. Certainly it would be
a different situation as the site was no longer the same after the clearing up operation which is normal after a fire
incident. The Christmas lights and parts could have been swept away. Hence the finding of the latter appears to
be speculative to benefit the reinsurer and which defendant wants to adopt to avoid liability.

The CRM Adjustment report found no arson and confirmed substantial stocks in the burned warehouse (Exhs.
QQQ) [underscoring supplied]. This is bolstered by the BFP certification that there was no proof of arson and the
fire was accidental (Exhs. PPP). The certification by a government agency like BFP is presumed to be a regular
performance of official duty. "Absent convincing evidence to the contrary, the presumption of regularity in the
performance of official functions has to be upheld." (People vs. Lapira, 255 SCRA 85) The report of UCPB
General Insurance’s adjuster also found no arson so that the burned warehouse owner PIC was indemnified. 12

Hence, CBIC filed an appeal with the Court of Appeals (CA).

 The Ruling of the Court of Appeals

On 16 June 2011, the CA promulgated its Decision in favor of CBIC. The dispositive portion of the Decision
reads:

WHEREFORE, in view of the foregoing premises, the instant appeal is GRANTED and the Decision of the
Regional Trial Court, of the National Judicial Capital Region, Branch 3 of the City of Manila dated June 16, 2005
in Civil Case No. 98-87370 is REVERSED and SET ASIDE. The plaintiff-appellee’s claim upon its insurance
policy is deemed avoided.

SO ORDERED. 13

The CA ruled that UMC’s claim under the Insurance Policy is void. The CA found that the fire was intentional in
origin, considering the array of evidence submitted by CBIC, particularly the pictures taken and the reports of
Cabrera and Lazaro, as opposed to UMC’s failure to explain the details of the alleged fire accident. In addition, it
found that UMC’s claim was overvalued through fraudulent transactions. The CA ruled:

We have meticulously gone over the entirety of the evidence submitted by the parties and have come up with a
conclusion that the claim of the plaintiff-appellee was indeed overvalued by transactions which were fraudulently
concocted so that the full coverage of the insurance policy will have to be fully awarded to the plaintiff-appellee.

First, We turn to the backdrop of the plaintiff-appellee’s case, thus, [o]n September 6, 1995 its stocks-in-trade
were insured for Fifteen Million Pesos and on May 7, 1996 the same was increased to 50 Million Pesos. Two
months thereafter, a fire gutted the plaintiff-appellee’s warehouse.

Second, We consider the reported purchases of the plaintiff-appellee as shown in its financial report dated
December 31, 1996 vis-à-vis the testimony of Ms. Ebora thus:

1994 - ₱608,986.00

1995 - ₱827,670.00

1996 - ₱20,000,000.00 (more or less) which were purchased for a period of one month.

Third, We shall also direct our attention to the alleged true and complete purchases of the plaintiff-appellee as
well as the value of all stock-in-trade it had at the time that the fire occurred. Thus:

Amount
Exhibit Source Dates Covered
(pesos)

Exhs. "P"-"DD", Fuze Industries 19,550,400.00 January 20, 1996

inclusive Manufacturer Phils. January 31, 1996
February 12, 1996
February 20, 1996
February 23, 1996

Exhs. "EE"-"HH", Tomco Commercial 1,712,000.00 December 19, 1995

inclusive Press January 24, 1996
February 21, 1996
November 24, 1995

Exhs. "II"-"QQ", Precious Belen 2,720,400.00 January 13, 1996

inclusive Trading January 19, 1996
January 26, 1996
February 3, 1996
February 13, 1996
February 20, 1996
 February 27, 1996

Exhs. "RR"- Wisdom Manpower 361,966.00 April 3, 1996

"EEE", inclusive Services April 12, 1996
April 19, 1996
April 26, 1996
May 3, 1996
May 10, 1996
May 17, 1996
May 24, 1996
June 7, 1996
June 14, 1996
June 21, 1996
June 28, 1996
July 5, 1996

Exhs. "GGG"- Costs of Letters of 15,159,144.71 May 29, 1995

"NNN", inclusive Credit for June 15, 1995
imported raw July 5, 1995
materials September 4, 1995
October 2, 1995
October 27, 1995
January 8, 1996
March 19, 1996

Exhs. "GGG-11" SCCFI statements 384,794.38 June 15, 1995

- "GGG-24", of account June 28, 1995
"HHH-12", "HHH-22", August 1, 1995
"III-11", "III-14", September 4, 1995
"JJJ-13", "KKK-11", September 8, 1995
"LLL-5" September 11, 1995
October 30, 199[5]
November 10, 1995
December 21, 1995

  TOTAL 44,315,024.31  

Fourth, We turn to the allegation of fraud by the defendant-appellant by thoroughly looking through the pieces of
evidence that it adduced during the trial. The latter alleged that fraud is present in the case at bar as shown by
the discrepancy of the alleged purchases from that of the reported purchases made by plaintiff-appellee. It had
also averred that fraud is present when upon verification of the address of Fuze Industries, its office is nowhere
to be found. Also, the defendant-appellant expressed grave doubts as to the purchases of the plaintiff-appellee
sometime in 1996 when such purchases escalated to a high 19.5 Million Pesos without any contract to back it
up.14

On 7 July 2011, UMC filed a Motion for Reconsideration, which the CA denied in its Resolution dated 8
15 

September 2011. Hence, this petition.

The Issues
UMC seeks a reversal and raises the following issues for resolution:

I.

WHETHER THE COURT OF APPEALS MADE A RULING INCO[N]SISTENT WITH LAW, APPLICABLE
JURISPRUDENCE AND EVIDENCE AS TO THE EXISTENCE OF ARSON AND FRAUD IN THE
ABSENCE OF "MATERIALLY CONVINCING EVIDENCE."

II.

WHETHER THE COURT OF APPEALS MADE A RULING INCONSISTENT WITH LAW, APPLICABLE
JURISPRUDENCE AND EVIDENCE WHEN IT FOUND THAT PETITIONER BREACHED ITS
WARRANTY. 16

The Ruling of the Court

At the outset, CBIC assails this petition as defective since what UMC ultimately wants this Court to review are
questions of fact. However, UMC argues that where the findings of the CA are in conflict with those of the trial
court, a review of the facts may be made. On this procedural issue, we find UMC’s claim meritorious.

A petition for review under Rule 45 of the Rules of Court specifically provides that only questions of law may be
raised. The findings of fact of the CA are final and conclusive and this Court will not review them on
appeal, subject to exceptions as when the findings of the appellate court conflict with the findings of the trial
17 

court. Clearly, the present case falls under the exception. Since UMC properly raised the conflicting findings of
18 

the lower courts, it is proper for this Court to resolve such contradiction.

Having settled the procedural issue, we proceed to the primordial issue which boils down to whether UMC is
entitled to claim from CBIC the full coverage of its fire insurance policy.

UMC contends that because it had already established a prima facie case against CBIC which failed to prove its
defense, UMC is entitled to claim the full coverage under the Insurance Policy. On the other hand, CBIC
contends that because arson and fraud attended the claim, UMC is not entitled to recover under Condition No.
15 of the Insurance Policy.

Burden of proof is the duty of any party to present evidence to establish his claim or defense by the amount of
evidence required by law, which is preponderance of evidence in civil cases. The party, whether plaintiff or
19  20 

defendant, who asserts the affirmative of the issue has the burden of proof to obtain a favorable
judgment. Particularly, in insurance cases, once an insured makes out a prima facie case in its favor, the
21 

burden of evidence shifts to the insurer to controvert the insured’s prima facie case. In the present case, UMC
22 

established a prima facie case against CBIC. CBIC does not dispute that UMC’s stocks in trade were insured
against fire under the Insurance Policy and that the warehouse, where UMC’s stocks in trade were stored, was
gutted by fire on 3 July 1996, within the duration of the fire insurance. However, since CBIC alleged an excepted
risk, then the burden of evidence shifted to CBIC to prove such exception. 1âwphi1

An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of
establishing that the loss comes within the purview of the exception or limitation. If loss is proved apparently
23 

within a contract of insurance, the burden is upon the insurer to establish that the loss arose from a cause of loss
which is excepted or for which it is not liable, or from a cause which limits its liability. In the present case, CBIC
24 

failed to discharge its primordial burden of establishing that the damage or loss was caused by arson, a
limitation in the policy.

In prosecutions for arson, proof of the crime charged is complete where the evidence establishes: (1) the corpus
delicti, that is, a fire caused by a criminal act; and (2) the identity of the defendants as the one responsible for
the crime. Corpus delicti means the substance of the crime, the fact that a crime has actually been
25 

committed. This is satisfied by proof of the bare occurrence of the fire and of its having been intentionally
26 

caused. 27

In the present case, CBIC’s evidence did not prove that the fire was intentionally caused by the
insured. First, the findings of CBIC’s witnesses, Cabrera and Lazaro, were based on an investigation conducted
more than four months after the fire. The testimonies of Cabrera and Lazaro, as to the boxes doused with
kerosene as told to them by barangay officials, are hearsay because the barangay officials were not presented
in court. Cabrera and Lazaro even admitted that they did not conduct a forensic investigation of the warehouse
nor did they file a case for arson. Second, the Sworn Statement of Formal Claim submitted by UMC, through
28 

CRM, states that the cause of the fire was "faulty electrical wiring/accidental in nature." CBIC is bound by this
evidence because in its Answer, it admitted that it designated CRM to evaluate UMC’s loss. Third, the
Certification by the Bureau of Fire Protection states that the fire was accidental in origin. This Certification enjoys
the presumption of regularity, which CBIC failed to rebut.

Contrary to UMC’s allegation, CBIC’s failure to prove arson does not mean that it also failed to prove fraud. Qua
Chee Gan v. Law Union does not apply in the present case. In Qua Chee Gan, the Court dismissed the
29  30 

allegation of fraud based on the dismissal of the arson case against the insured, because the evidence was
identical in both cases, thus:

While the acquittal of the insured in the arson case is not res judicata on the present civil action, the insurer’s
evidence, to judge from the decision in the criminal case, is practically identical in both cases and must lead to
the same result, since the proof to establish the defense of connivance at the fire in order to defraud the insurer
"cannot be materially less convincing than that required in order to convict the insured of the crime of arson"
(Bachrach vs. British American Assurance Co., 17 Phil. 536).  31

In the present case, arson and fraud are two separate grounds based on two different sets of evidence, either of
which can void the insurance claim of UMC. The absence of one does not necessarily result in the absence of
the

other. Thus, on the allegation of fraud, we affirm the findings of the Court of Appeals.

Condition No. 15 of the Insurance Policy provides that all the 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, to wit:

15. If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if
any fraudulent means or devices are used by the Insured or anyone acting in his behalf to obtain any benefit
under this Policy; or if the loss or damage be occasioned by the willful act, or with the connivance of the Insured,
all the benefits under this Policy shall be forfeited.

In Uy Hu & Co. v. The Prudential Assurance Co., Ltd., the Court held that where a fire insurance policy provides
32 

that "if the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if
any fraudulent means or devices are used by the Insured or anyone acting on his behalf to obtain any benefit
under this Policy," and the evidence is conclusive that the proof of claim which the insured submitted was false
and fraudulent both as to the kind, quality and amount of the goods and their value destroyed by the fire, such a
proof of claim is a bar against the insured from recovering on the policy even for the amount of his actual loss.

In the present case, as proof of its loss of stocks in trade amounting to ₱50,000,000.00, UMC submitted its
Sworn Statement of Formal Claim together with the following documents: (1) letters of credit and invoices for raw
materials, Christmas lights and cartons purchased; (2) charges for assembling the Christmas lights; and (3)
delivery receipts of the raw materials. However, the charges for assembling the Christmas lights and delivery
receipts could not support its insurance claim. The Insurance Policy provides that CBIC agreed to insure UMC’s
stocks in trade. UMC defined stock in trade as tangible personal property kept for sale or traffic. Applying UMC’s
33 

definition, only the letters of credit and invoices for raw materials, Christmas lights and cartons may be
considered.

The invoices, however, cannot be taken as genuine. The invoices reveal that the stocks in trade purchased for
1996 amounts to ₱20,000,000.00 which were purchased in one month. Thus, UMC needs to prove purchases
amounting to ₱30,000,000.00 worth of stocks in trade for 1995 and prior years. However, in the Statement of
Inventory it submitted to the BIR, which is considered an entry in official records, UMC stated that it had no
34 

stocks in trade as of 31 December 1995. In its defense, UMC alleged that it did not include as stocks in trade the
raw materials to be assembled as Christmas lights, which it had on 31 December 1995. However, as proof of its
loss, UMC submitted invoices for raw materials, knowing that the insurance covers only stocks in trade.

Equally important, the invoices (Exhibits "P"-"DD") from Fuze Industries Manufacturer Phils. were suspicious.
The purchases, based on the invoices and without any supporting contract, amounted to ₱19,550,400.00 worth
of Christmas lights from 20 January 1996 to 23 February 1996. The uncontroverted testimony of Cabrera
revealed that there was no Fuze Industries Manufacturer Phils. located at "55 Mahinhin St., Teacher’s Village,
Quezon City," the business address appearing in the invoices and the records of the Department of Trade &
Industry. Cabrera testified that:
A: Then we went personally to the address as I stated a while ago appearing in the record furnished by the
United Merchants Corporation to the adjuster, and the adjuster in turn now, gave us our basis in conducting
investigation, so we went to this place which according to the records, the address of this company but there
was no office of this company.

Q: You mentioned Atty. Cabrera that you went to Diliman, Quezon City and discover the address indicated by
the United Merchants as the place of business of Fuze Industries Manufacturer, Phils. was a residential place,
what then did you do after determining that it was a residential place?

A: We went to the owner of the alleged company as appearing in the Department of Trade & Industry record,
and as appearing a certain Chinese name Mr. Huang, and the address as appearing there is somewhere in
Binondo. We went personally there together with the NBI Agent and I am with them when the subpoena was
served to them, but a male person approached us and according to him, there was no Fuze Industries
Manufacturer, Phils., company in that building sir. 35

In Yu Ban Chuan v. Fieldmen’s Insurance, Co., Inc., the Court ruled that the submission of false invoices to the
36 

adjusters establishes a clear case of fraud and misrepresentation which voids the insurer’s liability as per
condition of the policy. Their falsity is the best evidence of the fraudulent character of plaintiff’s
claim. In Verendia v. Court of Appeals, where the insured presented a fraudulent lease contract to support his
37  38 

claim for insurance benefits, the Court held that by its false declaration, the insured forfeited all benefits under
the policy provision similar to Condition No. 15 of the Insurance Policy in this case.

Furthermore, UMC’s Income Statement indicated that the purchases or costs of sales are ₱827,670.00 for 1995
and ₱1,109,190.00 for 1996 or a total of ₱1,936,860.00. To corroborate this fact, Ebora testified that:
39 

Q: Based on your 1995 purchases, how much were the purchases made in 1995?

A: The purchases made by United Merchants Corporation for the last year 1995 is ₱827,670.[00] sir

Q: And how about in 1994?

A: In 1994, it’s ₱608,986.00 sir.

Q: These purchases were made for the entire year of 1995 and 1994 respectively, am I correct?

A: Yes sir, for the year 1994 and 1995. (Emphasis supplied)
40 

In its 1996 Financial Report, which UMC admitted as existing, authentic and duly executed during the 4
December 2002 hearing, it had ₱1,050,862.71 as total assets and ₱167,058.47 as total liabilities. 41

Thus, either amount in UMC’s Income Statement or Financial Reports is twenty-five times the claim UMC seeks
to enforce. The RTC itself recognized that UMC padded its claim when it only allowed ₱43,930,230.00 as
insurance claim. UMC supported its claim of ₱50,000,000.00 with the Certification from the Bureau of Fire
Protection stating that "x x x a fire broke out at United Merchants Corporation located at 19-B Dag[o]t Street,
Brgy. Manresa, Quezon City incurring an estimated damage of Fifty- Five Million Pesos (₱55,000,000.00) to the
building and contents x x x." However, this Certification only proved that the estimated damage of
₱55,000,000.00 is shared by both the building and the stocks in trade.

It has long been settled that a false and material statement made with an intent to deceive or defraud voids an
insurance policy. In Yu Cua v. South British Insurance Co., the claim was fourteen times bigger than the real
42  43 

loss; in Go Lu v. Yorkshire Insurance Co, eight times; and in Tuason v. North China Insurance Co., six times. In
44  45 

the present case, the claim is twenty five times the actual claim proved.

The most liberal human judgment cannot attribute such difference to mere innocent error in estimating or
counting but to a deliberate intent to demand from insurance companies payment for indemnity of goods not
existing at the time of the fire. This constitutes the so-called "fraudulent claim" which, by express agreement
46 

between the insurers and the insured, is a ground for the exemption of insurers from civil liability.
47

In its Reply, UMC admitted the discrepancies when it stated that "discrepancies in its statements were not
covered by the warranty such that any discrepancy in the declaration in other instruments or documents as to
matters that may have some relation to the insurance coverage voids the policy." 48
On UMC’s allegation that it did not breach any warranty, it may be argued that the discrepancies do not, by
themselves, amount to a breach of warranty. However, the Insurance Code provides that "a policy may declare
that a violation of specified provisions thereof shall avoid it." Thus, in fire insurance policies, which contain
49 

provisions such as Condition No. 15 of the Insurance Policy, a fraudulent discrepancy between the actual loss
and that claimed in the proof of loss voids the insurance policy. Mere filing of such a claim will exonerate the
insurer.
50

Considering that all the circumstances point to the inevitable conclusion that UMC padded its claim and was
guilty of fraud, UMC violated Condition No. 15 of the Insurance Policy. Thus, UMC forfeited whatever benefits it
may be entitled under the Insurance Policy, including its insurance claim.

While it is a cardinal principle of insurance law that a contract of insurance is to be construed liberally in favor of
the insured and strictly against the insurer company, contracts of insurance, like other contracts, are to be
51 

construed according to the sense and meaning of the terms which the parties themselves have used. If such 52 

terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense.
Courts are not permitted to make contracts for the parties; the function and duty of the courts is simply to enforce
and carry out the contracts actually made. 53

WHEREFORE, we DENY the petition. We AFFIRM the 16 June 2011 Decision and the 8 September 2011
Resolution of the Court of Appeals in CA-G.R. CV No. 85777.

SO ORDERED.