G.R. No.
L-4611        December 17, 1955 defendant Company since 1937, and the lose made payable to the
QUA CHEE GAN, plaintiff-appellee,
vs.
LAW UNION AND ROCK INSURANCE CO., LTD., represented by
its agent, WARNER, BARNES AND CO., LTD., defendant-appellant.
REYES, J. B. L., J.:
Qua Chee Gan, a merchant of Albay, instituted this action in 1940, in
the Court of First Instance of said province, seeking to recover the
proceeds of certain fire insurance policies totalling P370,000, issued
by the Law Union & Rock Insurance Co., Ltd., upon certain bodegas
and merchandise of the insured that were burned on June 21, 1940.
The records of the original case were destroyed during the liberation
of the region, and were reconstituted in 1946. After a trial that lasted
several years, the Court of First Instance rendered a decision in favor
of the plaintiff, the dispositive part whereof reads as follows:
Wherefore, judgment is rendered for the plaintiff and
against the defendant condemning the latter to pay the
former —
(a) Under the first cause of action, the sum of
P146,394.48;
(b) Under the second cause of action, the sum of
P150,000;
(c) Under the third cause of action, the sum of P5,000;
(d) Under the fourth cause of action, the sum of P15,000;
and
(e) Under the fifth cause of action, the sum of P40,000;
all of which shall bear interest at the rate of 8% per annum in
accordance with Section 91 (b) of the Insurance Act from September
26, 1940, until each is paid, with costs against the defendant.
The complaint in intervention of the Philippine National Bank is
dismissed without costs. (Record on Appeal, 166-167.)
From the decision, the defendant Insurance Company appealed
directly to this Court.
The record shows that before the last war, plaintiff-appellee owned
four warehouses or bodegas (designated as Bodegas Nos. 1 to 4) in
the municipality of Tabaco, Albay, used for the storage of stocks of
copra and of hemp, baled and loose, in which the appellee dealth
extensively. They had been, with their contents, insured with the
Philippine National Bank as mortgage of the hemp and crops, to the
extent of its interest. On June, 1940, the insurance stood as follows:
Policy No. Property Insured
2637164 (Exhibit "LL") Bodega No. 1 (Building)
Bodega No. 2 (Building)
Bodega No. 3 (Building)
2637165 (Exhibit "JJ")
Bodega No. 4 (Building)
Hemp Press — moved by steam engine
Merchandise contents (copra and empty sacks of Bodega
2637345 (Exhibit "X")
No. 1)
2637346 (Exhibit "Y") Merchandise contents (hemp) of Bodega No. 3
2637067 (Exhibit "GG") Merchandise contents (loose hemp) of Bodega No. 4
Total
Fire of undetermined origin that broke out in the early morning of July
21, 1940, and lasted almost one week, gutted and completely
destroyed Bodegas Nos. 1, 2 and 4, with the merchandise stored
theren. Plaintiff-appellee informed the insurer by telegram on the
same date; and on the next day, the fire adjusters engaged by
appellant insurance company arrived and proceeded to examine and
photograph the premises, pored over the books of the insured and
conducted an extensive investigation. The plaintiff having submitted
the corresponding fire claims, totalling P398,562.81 (but reduced to
the full amount of the insurance, P370,000), the Insurance Company
resisted payment, claiming violation of warranties and conditions,
filing of fraudulent claims, and that the fire had been deliberately
caused by the insured or by other persons in connivance with him.
With counsel for the insurance company acting as private prosecutor,
Que Chee Gan, with his brother, Qua Chee Pao, and some
employees of his, were indicted and tried in 1940 for the crime of
arson, it being claimed that they had set fire to the destroyed
warehouses to collect the insurance. They were, however, acquitted
by the trial court in a final decision dated July 9, 1941 (Exhibit WW).
Thereafter, the civil suit to collect the insurance money proceeded to
its trial and termination in the Court below, with the result noted at the
start of this opinion. The Philippine National Bank's complaint in
intervention was dismissed because the appellee had managed to
pay his indebtedness to the Bank during the pendecy of the suit, and
despite the fire losses.
In its first assignment of error, the insurance company alleges that the
trial Court should have held that the policies were avoided for breach
of warranty, specifically the one appearing on a rider pasted (with
other similar riders) on the face of the policies (Exhibits X, Y, JJ and
LL). These riders were attached for the first time in 1939, and the
pertinent portions read as follows:
Memo. of Warranty. — The undernoted Appliances for the
extinction of fire being kept on the premises insured
hereby, and it being declared and understood that there is
an ample and constant water supply with sufficient
pressure available at all seasons for the same, it is hereby
warranted that the said appliances shall be maintained in
efficient working order during the currency of this policy,
by reason whereof a discount of 2 1/2 per cent is allowed
on the premium chargeable under this policy.
Hydrants in the compound, not less in number than one
for each 150 feet of external wall measurement of
building, protected, with not less than 100 feet of hose
piping and nozzles for every two hydrants kept under
cover in convenient places, the hydrants being supplied
with water pressure by a pumping engine, or from some
other source, capable of discharging at the rate of not less
than 200 gallons of water per minute into the upper story
of the highest building protected, and a trained brigade of
not less than 20 men to work the same.'
It is argued that since the bodegas insured had an external wall
perimeter of 500 meters or 1,640 feet, the appellee should have
eleven (11) fire hydrants in the compound, and that he actually had
only two (2), with a further pair nearby, belonging to the municipality
of Tabaco.
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 all that the
number of hydrants demanded therein never existed from the very
beginning, the appellant neverthless 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 claims 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 Qua 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 is 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 facts, and the insurer is stopped
thereafter from asserting the breach of such conditions.
The law is charitable enough to assume, in the absence of
any showing to the contrary, that an insurance company
intends to executed a valid contract in return for the
premium received; and when the policy contains a
condition which renders it voidable at its inception, and
this result is known to the insurer, it will be presumed to
have intended to waive the conditions and to execute a
binding contract, rather than to have deceived the insured
into thinking he is insured when in fact he is not, and to
have taken his money without consideration. (29 Am. Jur.,
Insurance, section 807, at pp. 611-612.)
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 the abhorent to fairminded men. It
would be to allow the company to treat the policy as valid
long enough to get the preium 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, 543-544).
The inequitableness of the conduct observed by the insurance
company in this case is heightened by the fact that after the insured
had incurred the expense of installing the two hydrants, the company
collected the premiums and issued him a policy so worded that it
gave the insured a discount much smaller than that he was normaly
entitledto. According to the "Scale of Allowances," a policy subject to
a warranty of the existence of one fire hydrant for every 150 feet of
external wall entitled the insured to a discount of 7 1/2 per cent of the
premium; while the existence of "hydrants, in compund" (regardless of
number) reduced the allowance on the premium to a mere 2 1/2 per
cent. This schedule was logical, since a greater number of hydrants
and fire fighting appliances reduced the risk of loss. But the appellant
company, in the particular case now before us, so worded the policies
that while exacting the greater number of fire hydrants and
appliances, it kept the premium discount at the minimum of 2 1/2 per
cent, thereby giving the insurance company a double benefit. No
reason is shown why appellant's premises, that had been insured with
appellant for several years past, suddenly should be regarded in 1939
as so hazardous as to be accorded a treatment beyond the limits of
appellant's own scale of allowances. Such abnormal treatment of the
insured strongly points at an abuse of the insurance company's
selection of the words and terms of the contract, over which it had
absolute control.
These considerations lead us to regard the parol evidence rule,
invoked by the appellant as not applicable to the present case. It is
not a question here whether or not the parties may vary a written
contract by oral evidence; but whether testimony is receivable so that
a party may be, by reason of inequitable conduct shown, estopped
from enforcing forfeitures in its favor, in order to forestall fraud or
imposition on the insured.
Receipt of Premiums or Assessments afte Cause for
Forfeiture Other than Nonpayment. — It is a well settled
rule of law that an insurer which with knowledge of facts
entitling it to treat a policy as no longer in force, receives
and accepts a preium on the policy, estopped to take
advantage of the forfeiture. It cannot treat the policy as
void for the purpose of defense to an action to recover for
a loss thereafter occurring and at the same time treat it as
valid for the purpose of earning and collecting further
premiums." (29 Am. Jur., 653, p. 657.)
It would be unconscionable to permit a company to issue
a policy under circumstances which it knew rendered the
policy void and then to accept and retain premiums under
such a void policy. Neither law nor good morals would
justify such conduct and the doctrine of equitable estoppel
is peculiarly applicable to the situation. (McGuire vs.
Home Life Ins. Co. 94 Pa. Super Ct. 457.)
Moreover, taking into account the well known rule that ambiguities or
obscurities must be strictly interpreted aganst the prty that caused
them, 1the "memo of warranty" invoked by appellant bars the latter
from questioning the existence of the appliances called for in the
insured premises, since its initial expression, "the undernoted
appliances for the extinction of fire being kept on the premises
insured hereby, . . . it is hereby warranted . . .", admists of
interpretation as an admission of the existence of such appliances
which appellant cannot now contradict, should the parol evidence rule
apply.
The alleged violation of the warranty of 100 feet of fire hose for every
two hydrants, must be equally rejected, since the appellant's
argument thereon is based on the assumption that the insured was
bound to maintain no less than eleven hydrants (one per 150 feet of
wall), which requirement appellant is estopped from enforcing. The
supposed breach of the wter pressure condition is made to rest on the
testimony of witness Serra, that the water supply could fill a 5-gallon
can in 3 seconds; appellant thereupon inferring that the maximum
quantity obtainable from the hydrants was 100 gallons a minute, when
the warranty called for 200 gallons a minute. The transcript shows,
however, that Serra repeatedly refused and professed inability to
estimate the rate of discharge of the water, and only gave the "5-
gallon per 3-second" rate because the insistence of appellant's
counsel forced the witness to hazard a guess. Obviously, the
testimony is worthless and insufficient to establish the violation
claimed, specially since the burden of its proof lay on appellant.
As to maintenance of a trained fire brigade of 20 men, the record is
preponderant that the same was organized, and drilled, from time to
give, altho not maintained as a permanently separate unit, which the
warranty did not require. Anyway, it would be unreasonable to expect
the insured to maintain for his compound alone a fire fighting force
that many municipalities in the Islands do not even possess. There is
no merit in appellant's claim that subordinate membership of the
business manager (Co Cuan) in the fire brigade, while its direction
was entrusted to a minor employee unders the testimony improbable.
A business manager is not necessarily adept at fire fighting, the
qualities required being different for both activities.
Under the second assignment of error, appellant insurance company
avers, that the insured violated the "Hemp Warranty" provisions of
Policy No. 2637165 (Exhibit JJ), against the storage of gasoline, since
appellee admitted that there were 36 cans (latas) of gasoline in the
building designed as "Bodega No. 2" that was a separate structure
not affected by the fire. It is well to note that gasoline is not
specifically mentioned among the prohibited articles listed in the so-
called "hemp warranty." The cause relied upon by the insurer speaks
of "oils (animal and/or vegetable and/or mineral and/or their liquid
products having a flash point below 300o Fahrenheit", and is
decidedly ambiguous and uncertain; for in ordinary parlance, "Oils"
mean "lubricants" and not gasoline or kerosene. And how many
insured, it may well be wondered, are in a position to understand or
determine "flash point below 003o Fahrenheit. Here, again, by reason
of the exclusive control of the insurance company over the terms and
phraseology of the contract, the ambiguity must be held strictly
against the insurer and liberraly in favor of the insured, specially to
avoid a forfeiture (44 C. J. S., pp. 1166-1175; 29 Am. Jur. 180).
Insurance is, in its nature, complex and difficult for the
layman to understand. Policies are prepared by experts
who know and can anticipate the hearing and possible
complications of every contingency. So long as insurance
companies insist upon the use of ambiguous, intricate and
technical provisions, which conceal rather than frankly
disclose, their own intentions, the courts must, in fairness
to those who purchase insurance, construe every
ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L.
Ins. Co., 91 Wash. 324, LRA 1917A, 1237.)
An insurer should not be allowed, by the use of obscure
phrases and exceptions, to defeat the very purpose for
which the policy was procured (Moore vs. Aetna Life
Insurance Co., LRA 1915D, 264).
We see no reason why the prohibition of keeping gasoline in the
premises could not be expressed clearly and unmistakably, in the
language and terms that the general public can readily understand,
without resort to obscure esoteric expression (now derisively termed
"gobbledygook"). We reiterate the rule stated in Bachrach vs. British
American Assurance Co. (17 Phil. 555, 561):
If the company intended to rely upon a condition of that
character, it ought to have been plainly expressed in the
policy.
This rigid application of the rule on ambiguities has become
necessary in view of current business practices. The courts cannot
ignore that nowadays monopolies, cartels and concentrations of
capital, endowed with overwhelming economic power, manage to
impose upon parties dealing with them cunningly prepared
"agreements" that the weaker party may not change one whit, his
participation in the "agreement" being reduced to the alternative to
take it or leave it" labelled since Raymond Baloilles" contracts by
adherence" (con tracts d'adhesion), in contrast to these entered into
by parties bargaining on an equal footing, such contracts (of which
policies of insurance and international bills of lading are prime
examples) obviously call for greater strictness and vigilance on the
part of courts of justice with a view to protecting the weaker party from
abuses and imposition, and prevent their becoming traps for the
unwarry (New Civil Coee, Article 24; Sent. of Supreme Court of
Spain, 13 Dec. 1934, 27 February 1942).
Si pudiera estimarse que la condicion 18 de la poliza de
seguro envolvia alguna oscuridad, habra de ser tenido en
cuenta que al seguro es, practicamente un contrato de los
llamados de adhesion y por consiguiente en caso de duda
sobre la significacion de las clausulas generales de una
poliza — redactada por las compafijas sin la intervencion
alguna de sus clientes — se ha de adoptar de acuerdo
con el articulo 1268 del Codigo Civil, la interpretacion mas
favorable al asegurado, ya que la obscuridad es
imputable a la empresa aseguradora, que debia haberse
explicado mas claramante. (Dec. Trib. Sup. of Spain 13
Dec. 1934)
The contract of insurance is one of perfect good faith (uferrimal fidei)
not for the insured alone, but equally so for the insurer; in fact, it is
mere so for the latter, since its dominant bargaining position carries
with it stricter responsibility.
Another point that is in favor of the insured is that the gasoline kept in
Bodega No. 2 was only incidental to his business, being no more than
a customary 2 day's supply for the five or six motor vehicles used for
transporting of the stored merchandise (t. s. n., pp. 1447-1448). "It is
well settled that the keeping of inflammable oils on the premises
though prohibited by the policy does not void it if such keeping is
incidental to the business." Bachrach vs. British American Ass. Co.,
17 Phil. 555, 560); and "according to the weight of authority, even
though there are printed prohibitions against keeping certain articles
on the insured premises the policy will not be avoided by a violation of
these prohibitions, if the prohibited articles are necessary or in
customary use in carrying on the trade or business conducted on the
premises." (45 C. J. S., p. 311; also 4 Couch on Insurance, section
966b). It should also be noted that the "Hemp Warranty" forbade
storage only "in the building to which this insurance applies and/or in
any building communicating therewith", and it is undisputed that no
gasoline was stored in the burned bodegas, and that "Bodega No. 2"
which was not burned and where the gasoline was found, stood
isolated from the other insured bodegas.
The charge that the insured failed or refused to submit to the
examiners of the insurer the books, vouchers, etc. demanded by them
was found unsubstantiated by the trial Court, and no reason has been
shown to alter this finding. The insured gave the insurance examiner
all the date he asked for (Exhibits AA, BB, CCC and Z), and the
examiner even kept and photographed some of the examined books
in his possession. What does appear to have been rejected by the
insured was the demand that he should submit
"a list of all books, vouchers, receipts and other records" (Age 4,
Exhibit 9-c); but the refusal of the insured in this instance was well
justified, since the demand for a list of all the vouchers (which were
not in use by the insured) and receipts was positively unreasonable,
considering that such listing was superfluous because the insurer was
not denied access to the records, that the volume of Qua Chee Gan's
business ran into millions, and that the demand was made just after
the fire when everything was in turmoil. That the representatives of
the insurance company were able to secure all the date they needed
is proved by the fact that the adjuster Alexander Stewart was able to
prepare his own balance sheet (Exhibit L of the criminal case) that did
not differ from that submitted by the insured (Exhibit J) except for the
valuation of the merchandise, as expressly found by the Court in the
criminal case for arson. (Decision, Exhibit WW).
How valuations may differ honestly, without fraud being involved, was
strikingly illustrated in the decision of the arson case (Exhibit WW)
acquiting Qua Choc Gan, appellee in the present proceedings. The
decision states (Exhibit WW, p. 11):
Alexander D. Stewart declaro que ha examinado los libros
de Qua Choc Gan en Tabaco asi como su existencia de
copra y abaca en las bodega al tiempo del incendio
durante el periodo comprendido desde el 1.o de enero al
21 de junio de 1940 y ha encontrado que Qua Choc Gan
ha sufrico una perdida de P1,750.76 en su negocio en
Tabaco. Segun Steward al llegar a este conclusion el ha
tenidoen cuenta el balance de comprobacion Exhibit 'J'
que le ha entregado el mismo acusado Que Choc Gan en
relacion con sus libros y lo ha encontrado correcto a
excepcion de los precios de abaca y copra que alli
aparecen que no estan de acuerdo con los precios en el
mercado. Esta comprobacion aparece en el balance
mercado exhibit J que fue preparado por el mismo testigo.
In view of the discrepancy in the valuations between the insured and
the adjuster Stewart for the insurer, the Court referred the controversy
to a government auditor, Apolonio Ramos; but the latter reached a
different result from the other two. Not only that, but Ramos reported
two different valuations that could be reached according to the
methods employed (Exhibit WW, p. 35):
La ciencia de la contabilidad es buena, pues ha tenido
sus muchos usos buenos para promovar el comercio y la
finanza, pero en el caso presente ha resultado un tanto
cumplicada y acomodaticia, como lo prueba el resultado
del examen hecho por los contadores Stewart y Ramos,
pues el juzgado no alcanza a ver como habiendo
examinado las mismas partidas y los mismos libros
dichos contadores hayan de llegara dos conclusiones que
difieron sustancialmente entre si. En otras palabras, no
solamente la comprobacion hecha por Stewart difiere de
la comprobacion hecha por Ramos sino que, segun este
ultimo, su comprobacion ha dado lugar a dos resultados
diferentes dependiendo del metodo que se emplea.
Clearly then, the charge of fraudulent overvaluation cannot be
seriously entertained. The insurer attempted to bolster its case with
alleged photographs of certain pages of the insurance book
(destroyed by the war) of insured Qua Chee Gan (Exhibits 26-A and
26-B) and allegedly showing abnormal purchases of hemp and copra
from June 11 to June 20, 1940. The Court below remained
unconvinced of the authenticity of those photographs, and rejected
them, because they were not mentioned not introduced in the criminal
case; and considering the evident importance of said exhibits in
establishing the motive of the insured in committing the arson
charged, and the absence of adequate explanation for their omission
in the criminal case, we cannot say that their rejection in the civil case
constituted reversible error.
The next two defenses pleaded by the insurer, — that the insured
connived at the loss and that the fraudulently inflated the quantity of
the insured stock in the burnt bodegas, — are closely related to each
other. Both defenses are predicted on the assumption that the insured
was in financial difficulties and set the fire to defraud the insurance
company, presumably in order to pay off the Philippine National Bank,
to which most of the insured hemp and copra was pledged. Both
defenses are fatally undermined by the established fact that,
notwithstanding the insurer's refusal to pay the value of the policies
the extensive resources of the insured (Exhibit WW) enabled him to
pay off the National Bank in a short time; and if he was able to do so,
no motive appears for attempt to defraud the insurer. 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).
As to the defense that the burned bodegas could not possibly have
contained the quantities of copra and hemp stated in the fire claims,
the insurer's case rests almost exclusively on the estimates,
inferences and conclusionsAs to the defense that the burned bodegas
could not possibly have contained the quantities of copra and hemp
stated in the fire claims, the insurer's case rests almost exclusively on
the estimates, inferences and conclusions of its adjuster investigator,
Alexander D. Stewart, who examined the premises during and after
the fire. His testimony, however, was based on inferences from the
photographs and traces found after the fire, and must yield to the
contradictory testimony of engineer Andres Bolinas, and specially of
the then Chief of the Loan Department of the National Bank's Legaspi
branch, Porfirio Barrios, and of Bank Appraiser Loreto Samson, who
actually saw the contents of the bodegas shortly before the fire, while
inspecting them for the mortgagee Bank. The lower Court was
satisfied of the veracity and accuracy of these witnesses, and the
appellant insurer has failed to substantiate its charges aganst their
character. In fact, the insurer's repeated accusations that these
witnesses were later "suspended for fraudulent transactions" without
giving any details, is a plain attempt to create prejudice against them,
without the least support in fact.
Stewart himself, in testifying that it is impossible to determine from the
remains the quantity of hemp burned (t. s. n., pp. 1468, 1470),
rebutted appellant's attacks on the refusal of the Court below to
accept its inferences from the remains shown in the photographs of
the burned premises. It appears, likewise, that the adjuster's
calculations of the maximum contents of the destroyed warehouses
rested on the assumption that all the copra and hemp were in sacks,
and on the result of his experiments to determine the space occupied
by definite amounts of sacked copra. The error in the estimates thus
arrived at proceeds from the fact that a large amount of the insured's
stock were in loose form, occupying less space than when kept in
sacks; and from Stewart's obvious failure to give due allowance for
the compression of the material at the bottom of the piles (t. s. n., pp.
1964, 1967) due to the weight of the overlying stock, as shown by
engineer Bolinas. It is probable that the errors were due to
inexperience (Stewart himself admitted that this was the first copra
fire he had investigated); but it is clear that such errors render
valueles Stewart's computations. These were in fact twice passed
upon and twice rejected by different judges (in the criminal and civil
cases) and their concordant opinion is practically conclusive.
The adjusters' reports, Exhibits 9-A and 9-B, were correctly
disregarded by the Court below, since the opinions stated therein
were based on ex parte investigations made at the back of the
insured; and the appellant did not present at the trial the original
testimony and documents from which the conclusions in the report
were drawn.lawphi1.net
Appellant insurance company also contends that the claims filed by
the insured contained false and fraudulent statements that avoided
the insurance policy. But the trial Court found that the discrepancies
were a result of the insured's erroneous interpretation of the
provisions of the insurance policies and claim forms, caused by his
imperfect knowledge of English, and that the misstatements were
innocently made and without intent to defraud. Our review of the
lengthy record fails to disclose reasons for rejecting these conclusions
of the Court below. For example, the occurrence of previous fires in
the premises insured in 1939, altho omitted in the claims, Exhibits EE
and FF, were nevertheless revealed by the insured in his claims
Exhibits Q (filed simultaneously with them), KK and WW. Considering
that all these claims were submitted to the smae agent, and that this
same agent had paid the loss caused by the 1939 fire, we find no
error in the trial Court's acceptance of the insured's explanation that
the omission in Exhibits EE and FF was due to inadvertance, for the
insured could hardly expect under such circumstances, that the 1939
would pass unnoticed by the insurance agents. Similarly, the 20 per
cent overclaim on 70 per cent of the hemo stock, was explained by
the insured as caused by his belief that he was entitled to include in
the claim his expected profit on the 70 per cent of the hemp, because
the same was already contracted for and sold to other parties before
the fire occurred. Compared with other cases of over-valuation
recorded in our judicial annals, the 20 per cent excess in the case of
the insured is not by itself sufficient to establish fraudulent intent.
Thus, in Yu Cua vs. South British Ins. Co., 41 Phil. 134, the claim was
fourteen (14) times (1,400 per cent) bigger than the actual loss; in Go
Lu vs. Yorkshire Insurance Co., 43 Phil., 633, eight (8) times (800 per
cent); in Tuason vs. North China Ins. Co., 47 Phil. 14, six (6) times
(600 per cent); in Tan It vs. Sun Insurance, 51 Phil. 212, the claim
totalled P31,860.85 while the goods insured were inventoried at
O13,113. Certainly, the insured's overclaim of 20 per cent in the case
at bar, duly explained by him to the Court a quo, appears puny by
comparison, and can not be regarded as "more than misstatement,
more than inadvertence of mistake, more than a mere error in
opinion, more than a slight exaggeration" (Tan It vs. Sun Insurance
Office, ante) that would entitle the insurer to avoid the policy. It is well
to note that the overchange of 20 per cent was claimed only on
a part (70 per cent) of the hemp stock; had the insured acted with
fraudulent intent, nothing prevented him from increasing the value of
all of his copra, hemp and buildings in the same proportion. This also
applies to the alleged fraudulent claim for burned empty sacks, that
was likewise explained to our satisfaction and that of the trial Court.
The rule is that to avoid a policy, the false swearing must be wilful and
with intent to defraud (29 Am. Jur., pp. 849-851) which was not the
cause. Of course, the lack of fraudulent intent would not authorize the
collection of the expected profit under the terms of the polices, and
the trial Court correctly deducte the same from its award.
We find no reversible error in the judgment appealed from, wherefore
the smae is hereby affirmed. Costs against the appellant. So ordered.
G.R. No. 156167             May 16, 2005
Item
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
decision1 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:
- P7,691,000.00 - on the Clubhouse only
@ .392%;
- 1,500,000.00 - on the furniture, etc. contained in the building above-mentioned@ .
490%;
- 393,000.00 - on the two swimming pools, only (against the peril of earthquake
shock only) @ 0.100%
- 116,600.00 other buildings include as follows:
a) Tilter - P19,800.00 - 0.551%
House
b) Power - P41,000.00 - 0.551%
House
c) House - P55,000.00 - 0.540%
Shed
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 demand7 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
complaint10 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
Petitioner’s Motion for Reconsideration was denied. Thus, petitioner
respondent, viz:
filed an appeal with the Court of Appeals based on the following
assigned errors:14
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
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 letter19 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.
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 Decision1 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
xx
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.
G.R. No. 195872               March 12, 2014
FORTUNE MEDICARE, INC., Petitioner,
vs.
DAVID ROBERT U. AMORIN, Respondent.
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.
G.R. No. L-50997 June 30, 1987
SUMMIT GUARANTY AND INSURANCE COMPANY,
INC., petitioner,
vs.
HON. JOSE C. DE GUZMAN, in his capacity as Presiding Judge
of Branch III, CFI of Tarlac, GERONIMA PULMANO and ARIEL
PULMANO, respondents.
GANCAYCO, J.:
These three consolidated cases arose from three separate
complaints filed against Summit Guaranty and Insurance
Company, Inc., herein petitioner, for the payment of insurance
on insurance policies issued by the latter.
The facts are as follows:
G.R. No. L-48679
Private respondent Jose Ledesma was the owner of a tractor
which was bumped by a minibus insured with petitioner
company for purposes of Third Party Liability. The incident took
place on March 10, 1977.
Immediately thereafter, private respondent made a notice of
claim with petitioner company for the damage and loss suffered
by the tractor. Petitioner company then advised private
respondent to have the tractor repaired at GA Machineries which
estimated the job at Twenty-One Thousand Pesos
(P21,000.00). 1 Later, petitioner company through its officials,
made an assurance of payment of the said amount. 2
When G.A. Machineries was finally through with the repair,
private respondent made several demands on petitioner
company because of the repair shop's warning that failure to pay
would result in the auctioning of the tractor to cover the
mechanic's lien. However, private respondent only received
additional assurances of payment.
On June 8, 1977, due to the failure of petitioner company to
settle his claim, private respondent submitted a letter-complaint
to the Insurance Commission. 3 The latter, in turn, wrote
petitioner company to inquire about the status of the claim. 4
Again, in March, 1978, petitioner company promised to pay. 5
On April 26, 1978, for not having received any payment of its credit,
private respondent filed a formal complaint with the Insurance
Commission 6 which petitioner company moved to dismiss on the
ground of prescription. The Commission, through an order of
respondent Commissioner Gregoria Arnaldo, deferred the resolution
of the motion to dismiss causing petitioner company to file a motion
for reconsideration which was later denied. Hence, this petition for
certiorari and prohibition.
G.R. No. 50997
Private respondent Geronima Pulmano was the owner of a jeep
insured with petitioner company in the amount of Twenty Thousand
Pesos (P120,000.00). On Sept. 5, 1977, while being driven by private
respondent Ariel Pulmano this jeep got involved in a vehicular
accident which resulted in the death of one of the victims.
Private respondent immediately filed a notice of accident and claim
with the petitioner company and diligently submitted all the required
documents with it. 7 However, petitioner company did not take any
steps to process the claim.
Because of this, private respondents brought their claim to the
Insurance Commission and the latter wrote petitioner company three
letters dated October 11, 13 and 21, 1977. 8 On December 22, 1977,
the heirs of the victim themselves filed a letter-complaint with the
Insurance Commission 9 a copy of which was sent to petitioner
company by registered mail. 10 Still petitioner company failed to settle
the claim.
Since all the waiting for petitioner company to act proved to be futile,
private respondents were constrained to file a complaint with the
Court of First Instance of Tarlac dated October 5, 1978. Petitioner
company moved to dismiss on the ground of prescription but
respondent Judge Jose C. de Guzman denied the motion. Hence, this
petition for certiorari and prohibition.
G.R. No. L-48758
Private respondent Amelia Generao owned a passenger jeepney that
was insured with petitioner company under a Vehicle Comprehensive
Policy. On June 23, 1976, while being driven by private respondent
Carlos Pagkalinawan, this jeepney struck the van of a certain Mr.
Hahn.
Two days after the accident or on June 25, 1976, Generao notified
petitioner company of the vehicular accident and demanded from it
payment of damages on both vehicles. 11 Thereafter, Generao
submitted to petitioner company all the necessary papers in support
of the claim and required of her by the latter.12 Following this,
Generao and petitioner company had a dialogue at the office of the
insurance company to settle the claim. 13 Then, in the initial hearing of
the criminal case that arose out of the incident, accused
Pagkalinawan was represented by a lawyer of petitioner company. 14
Nonetheless, time passed without petitioner company taking any final
action on Generao's claim.
On August 3, 1977, Mr. Hahn filed a complaint for damages against
herein respondents Generao and Pagkalinawan with the Court of First
Instance of Rizal, Branch XXVI. Private respondents, on the other
hand, filed a third party complaint against petitioner company which in
turn filed a motion to dismiss on the ground of prescription.
Respondent Judge Ramon V. Jabson, however, denied the said
motion. Subsequently, petitioner company filed a motion for
reconsideration which again was denied. Hence, this petition for
certiorari and prohibition,
The only issue at bar is whether or not the causes of action of private
respondents have already prescribed.
According to the petitioner company, the complaints of private
respondents, having been filed beyond the one-year period provided
in Section 384 of the Insurance Code, can no longer prosper. Said
law reads as follows:
SECTION 384. Any person having any claim upon the
policy issued pursuant to this chapter shall, without any
unnecessary delay, present to the insurance company
concerned a written notice of claim setting forth the
amount of his loss, and/or the nature, extent and duration
of the injuries sustained as certified by a duly licensed
physician. Notice of claim must be filed within six months
from date of the accident, otherwise, the claim shall be
deemed waived Action or suit for recovery of damage due
to loss or injury must be brought, in proper cases, with the
Commission or the Courts within one year from date of
accident, otherwise the claimant's right of action shall be
prescribe. (Emphasis supplied.)15
Petitioner company contends that the two periods prescribed in the
aforementioned law-that is, the six-month period for filing the notice of
claim and the one-year period for bringing an action or suit-are
mandatory and must always concur. Petitioner company argues that
under this law, even if the notice of claim was timely filed with the
insurance company within the six-month period, as what happened in
the three cases before Us, the action or suit that follows, if filed
beyond the one-year period should necessarily be dismissed on the
ground of prescription.
We find no merit in the contention of petitioner company. There is
absolutely nothing in the law which mandates that the two periods
must always concur. On the contrary, it is very clear that the one-year
period is only required "in proper cases." It appears that petitioner
company disregarded this very significant phrase when it made its
own interpretation of the law. Had the lawmakers intended it to be the
way petitioner company assumes it to be, then the phrase "in proper
cases" would not have been inserted. At this point, it is but
appropriate for Us to reiterate our ruling in Aisporna vs. Court of
Appeals, 16 to wit:
Legislative intent must be ascertained from a
consideration of the statute as a whole. The particular
words, clauses and phrases should not be studied as
detached and isolated expressions, but the whole and
every part of the statute must be considered in fixing the
meaning of any of its parts and in order to produce a
harmonious whole. A statute must be so construed as to
harmonize and give effect to all its provisions whenever
possible.
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, 17 and with manifest
bad faith, petitioner company devised means and ways of stalling the
settlement proceedings. In G.R, No. L-50997, no 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.
In G.R. No. L-48758-petitioner company even provided legal
assistance to one of the private respondents in the criminal case filed
against him leading private respondents to believe that it was ready to
pay. In the same case, petitioner company admits that it took no final
action or adjudication of the claim. 18 Worse still, in G.R. No. L-48679,
assurances of payment were constantly given and petitioner company
even said that a check was ready for release.
This Court has made the observation that some insurance companies
have been inventing excuses to avoid their just obligations 19 and it is
only the State that can give the protection which the insuring public
needs from possible abuses of the insurers. 20
In view of the foregoing, We hold that these three cases do not fall
within the meaning of "proper cases" as contemplated in Section 384
of the Insurance Code. To hold otherwise would enable petitioner
company to evade its responsibility through a clever scheme it had
contrived.
To strengthen its position, petitioner company cites the following
principle laid down in the case of Ang vs. Fulton Fire Insurance, 21 to
wit:
The condition contained in an insurance policy that claims
must be presented within one year after rejection is not
merely a procedural requirement but an important matter
essential to a prompt settlement of claims against
insurance companies as it demands that insurance suits
be brought by the insured while the evidence as to the
origin and cause of destruction have not yet disappeared.
It is in the nature of a condition precedent to the liability of
the insurer, or in other terms, a resolutory clause, the
purpose of which is to terminate all liabilities in case the
action is not filed by the insured within the period
stipulated.
Suffice it to say that the aforementioned case has no application to
the present cases as in that case the claim of the plaintiffs was denied
as early as April 18, 1956 and the action was brought only on May 5,
1958 or almost 2 years after. As we have already noted earlier, in the
cases at bar, no denial of the claims was ever made and on the
contrary, private respondents were made to believe that they will be
paid by petitioner company. The alleged delay, which is quite
insignificant compared to the length of time that the plaintiffs took in
the Ang case in bringing suit, was not caused by herein private
respondents but by the petitioner company itself.
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. Since in these cases there has yet been no accrual of cause
of action, We hold that prescription has not yet set in.
In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, 22 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., 23 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.
Finally, We are pleased to note that the now defunct Batasang
Pambansa, after having recognized that Section 384 of the Insurance
Code, has created so many problems for the insured 24 amended the
law to read as follows:
SEC. 384. Any person having any claim upon the policy
issued pursuant to this chapter shall, without any
unnecessary delay, present to the insurance company
concerned a written notice of claim setting forth the
nature, extent and duration of the injuries sustained as
certified by a duly licensed physician. Notice of claim must
be filed within six months from date of the accident
otherwise, the claim shall be deemed waived. Action or
suit for recovery of damage due to loss or injury must be
brought in proper cases, with the Commissioner or the
Courts within one year from denial of the claim, otherwise
the claimant's right of action shall prescribe. (Emphais
supplied.) 25
WHEREFORE, the instant petitions are hereby dismissed for lack of
merit. The temporary restraining order dated July 18, 1979 issued in
G.R. No. 50997 is hereby lifted. With costs against petitioner
company. Let the records of these cases be immediately remanded
for prompt determination of the claims. This decision is immediately
executory. SO ORDERED.
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
xx
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.
G.R. No. 152334               September 24, 2014
H.H. HOLLERO CONSTRUCTION, INC., Petitioner,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM and POOL OF
MACHINERY INSURERS, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the
Decision2 dated March 13, 2001 and the Resolution3 dated February
21, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 63175,
which set aside and reversed the Judgment4 dated February 3, 1999
of the Regional Trial Court of Quezon City, Branch 220 (RTC) in Civil
Case No. 91-10144, and dismissed petitioner H.H. Hollero
Construction, Inc.' s (petitioner) Complaint for Sum of Money and
Damages under the insurance policies issued by public respondent,
the Government Service Insurance System (GSIS), on the ground of
prescription.
The Facts
On April 26, 1988, the GSIS and petitioner entered into a Project
Agreement (Agreement) whereby the latter undertook the
development of a GSIS housing project known as Modesta Village
Section B (Project).5 Petitioner obligated itself to insurethe Project,
including all the improvements, upon the execution of the Agreement
under a Contractors’ All Risks (CAR) Insurance with the GSIS
General Insurance Department for an amount equal to its cost or
sound value, which shall not be subject to any automatic annual
reduction.6
Pursuant to its undertaking, petitioner secured CAR Policy No.
88/0857 in the amount of ₱1,000,000.00 for land development, which
was later increased to ₱10,000,000.00,8 effective from May 2, 1988 to
May 2, 1989.9 Petitioner likewise secured CAR Policy No. 88/08610 in
the amount of ₱1,000,000.00 for the construction of twenty (20)
housing units, which amount was later increased to
₱17,750,000.0011 to cover the construction of another 355 new units,
effective from May 2, 1988 toJune 1, 1989.12 In turn, the GSIS
reinsured CAR Policy No. 88/085 with respondent Pool of Machinery
Insurers (Pool).13
Under both policies, it was provided that: (a) there must be prior
notice of claim for loss, damage or liability within fourteen (14) days
from the occurrence of the loss or damage;14 (b) all benefits
thereunder shall be forfeited if no action is instituted within twelve(12)
months after the rejection of the claim for loss, damage or
liability;15 and (c) if the sum insured is found to be less than the
amount required to be insured, the amount recoverable shall be
reduced tosuch proportion before taking into account the deductibles
stated in the schedule (average clause provision).16
During the construction, three (3) typhoons hit the country, namely,
Typhoon Biring from June 1 to June 4, 1988, Typhoon Huaning on
July 29, 1988, and Typhoon Saling on October 11, 1989, which
caused considerable damage to the Project.17 Accordingly, petitioner
filed several claims for indemnity with the GSIS on June 30,
1988,18 August 25, 1988,19 and October 18, 1989,20 respectively.
In a letter21 dated April 26, 1990, the GSIS rejected petitioner’s
indemnity claims for the damages wrought by Typhoons Biring and
Huaning, finding that no amount is recoverable pursuant to the
average clause provision under the policies.22 In a letter23 dated June
21, 1990, the GSIS similarly rejected petitioner’s indemnity claim for
damages wrought by Typhoon Saling on a "no loss" basis,
itappearing from its records that the policies were not renewed before
the onset of the said typhoon.24
In a letter25 dated April 18, 1991, petitioner impugned the rejection of
its claims for damages/loss on accountof Typhoon Saling, and
reiterated its demand for the settlement of its claims.
On September 27, 1991, petitioner filed a Complaint26 for Sum of
Money and Damages before the RTC, docketed as Civil Case No. 91-
10144,27 which was opposed by the GSIS through a Motion to
Dismiss28 dated October 25, 1991 on the ground that the causes of
action stated therein are barred by the twelve-month limitation
provided under the policies, i.e., the complaint was filed more than
one(1) year from the rejection of the indemnity claims. The RTC, in an
Order29 dated May 13, 1993, denied the said motion; hence, the GSIS
filed its answer30 with counterclaims for litigation expenses, attorney’s
fees, and exemplary damages. Subsequently, the GSIS filed a Third
Party Complaint31 for indemnification against Pool, the reinsurer.
The RTC Ruling
In a Judgment32 dated February 3, 1999, the RTC granted petitioner’s
indemnity claims. It held that: (a) the average clauseprovision in the
policies which did not contain the assentor signature of the petitioner
cannot limit the GSIS’ liability, for being inefficacious and contrary to
public policy;33 (b) petitioner has established that the damages it
sustained were due to the peril insured against;34 and (c) CAR Policy
No. 88/086 was deemed renewed when the GSIS withheld the
amount of 35,855.00 corresponding to the premium payable,35 from
the retentions it released to petitioner.36 The RTC thereby declared
the GSIS liable for petitioner’s indemnity claims for the damages
brought about by the said typhoons, less the stipulated deductions
under the policies,plus 6% legal interest from the dates of extrajudicial
demand, as well as for attorney’s fees and costs of suit. It further
dismissed for lack of merit GSIS’s counterclaim and third party
complaint.37
Dissatisfied, the GSIS elevated the matter to the CA. The CA Ruling
In a Decision38 dated March 13, 2001, the CAset aside and reversed
the RTC Judgment, thereby dismissing the complaint. It ruled that the
complaint filed on September 27, 1991 was barred by prescription,
having been commenced beyond the twelve-month limitation provided
under the policies, reckoned from the final rejection of the indemnity
claims on April 26, 1990 and June 21, 1990. The Issue Before the
Court
The essential issue for the Court’s resolution is whether or not the CA
committed reversible error in dismissing the complaint onthe ground
of prescription.
The Court’s Ruling
The petition lacks merit.
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.39
Section 1040 of the General Conditions of the subject CAR Policies
commonly read:
10. If a claim is in any respect fraudulent, or if any false declaration is
made or used in support thereof, or if any fraudulent means or
devices are used by the Insured or anyone acting on his behalf to
obtain any benefit under this Policy, or if a claim is made and rejected
and no action or suit is commenced within twelve months after such
rejectionor, in case of arbitration taking place as provided herein,
within twelve months after the Arbitrator or Arbitrators or Umpire have
made their award, all benefit under this Policy shall be forfeited.
(Emphases supplied)
In this relation, case law illumines that the prescriptive period for the
insured’s action for indemnity should bereckoned from the "final
rejection" of the claim.41
Here, petitioner insists that the GSIS’s letters dated April 26, 1990
and June 21, 1990 did not amount to a "final rejection" ofits claims,
arguing that they were mere tentative resolutions pending further
action on petitioner’s part or submission of proof in refutation of the
reasons for rejection.42 Hence, its causes of action for indemnity did
not accrue on those dates.
The Court does not agree.
A perusal of the letter43 dated April 26, 1990 shows that the GSIS
denied petitioner’s indemnity claims wrought by Typhoons Biring and
Huaning, it appearing that no amount was recoverable under the
policies. While the GSIS gave petitioner the opportunity to dispute its
findings, neither of the parties pursued any further action on the
matter; this logically shows that they deemed the said letter as a
rejection of the claims. Lest it cause any confusion, the statement in
that letter pertaining to any queries petitioner may have on the denial
should be construed, at best, as a form of notice to the former that it
had the opportunity to seek reconsideration of the GSIS’s rejection.
Surely, petitioner cannot construe the said letter to be a mere
"tentative resolution." In fact, despite its disavowals, petitioner
admitted in its pleadings44 that the GSIS indeed denied its claim
through the aforementioned letter, buttarried in commencing the
necessary action in court.
The same conclusion obtains for the letter45 dated June 21, 1990
denying petitioner’s indemnity claim caused by Typhoon Saling on a
"no loss" basis due to the non-renewal of the policies therefor before
the onset of the said typhoon. The fact that petitioner filed a letter46 of
reconsideration therefrom dated April 18, 1991, considering too the
inaction of the GSIS on the same similarly shows that the June 21,
1990 letter was also a final rejection of petitioner’s indemnity claim.
As correctly observed by the CA, "final rejection" simply means denial
by the insurer of the claims of the insured and not the rejection or
denial by the insurer of the insured’s motion or request for
reconsideration.47 The rejection referred to should be construed as
the rejection in the first instance,48 as in the two instances above-
discussed.
Comparable to the foregoing is the Court’s action in the case of Sun
Insurance Office, Ltd. v. CA49 wherein it debunked "[t]he contention of
the respondents [therein] that the one-year prescriptive period does
not start to run until the petition for reconsideration had been resolved
by the insurer," holding that such view "runs counter to the declared
purpose for requiring that an action or suit be filed in the Insurance
Commission or in a court of competent jurisdiction from the denial of
the claim."50 In this regard, the Court rationalized that
"uphold[ing]respondents' contention would contradict and defeat the
very principle which this Court had laid down. Moreover, it can easily
be used by insured persons as a scheme or device to waste time until
any evidence which may be considered against them is
destroyed."51 Expounding on the matter, the Court had this to say:
The crucial issue in this case is: When does the cause of action
accrue?
In support of private respondent’s view, two rulings of this Court have
been cited, namely, the case of Eagle Star Insurance Co.vs.Chia Yu
([supra note 41]), where the Court held:
The right of the insured to the payment of his loss accrues from the
happening of the loss. However, the cause of action in an insurance
contract does not accrue until the insured’s claim is finally rejected by
the insurer. This is because before such final rejection there is no real
necessity for bringing suit.
and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24
SCRA 151 [1968], holding that:
Since "cause of action" requires as essential elements not only a
legal right of the plaintiff and a correlated obligation of the defendant
in violation of the said legal right, the cause of action does not accrue
until the party obligated (surety) refuses, expressly or impliedly, to
comply with its duty (in this case to pay the amount of the bond)."
Indisputably, the above-cited pronouncements of this Court may be
taken to mean that the insured' s cause of action or his right to file a
claim either in the Insurance Commission or in a court of competent
jurisdiction [as in this case] commences from the time of the denial of
his claim by the Insurer, either expressly or impliedly.1âwphi1
But as pointed out by the petitioner insurance company, the rejection
referred to should be construed as the rejection, in the first instance,
for if what is being referred to is a reiterated rejection conveyed in a
resolution of a yetition for reconsideration, such should have been
expressly stipulated.52
In light of the foregoing, it is thus clear that petitioner's causes of
action for indemnity respectively accrued from its receipt of the letters
dated April 26, 1990 and June 21, 1990, or the date the GSIS
rejected its claims in the first instance. Consequently, given that it
allowed more than twelve (12) months to lapse before filing the
necessary complaint before the R TC on September 27, 1991, its
causes of action had already prescribed.
WHEREFORE, the petition is DENIED. The Decision dated March 13,
2001 and the Resolution dated February 21, 2002 of the Court of
Appeals (CA) in CA-G.R. CV No. 63175 are hereby AFFIRMED.
SO ORDERED.
G.R. No. 125678      March 18, 2002
PHILAMCARE HEALTH SYSTEMS, INC., petitioner, 
vs.
COURT OF APPEALS and JULITA TRINOS, respondents.  judgment in favor of the plaintiff Julita Trinos, ordering:
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
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.
[G.R. NO. 167330 : June 12, 2008]
PHILIPPINE HEALTH CARE PROVIDERS,
INC., Petitioner, v.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)?cralawred
This is an issue of first impression. The Court of Appeals (CA)
answered it affirmatively in its August 16, 2004 decision1 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."2Individuals 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
agreement4provides:
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.] 5Provided,
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 CA 9 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 same17 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.70479is 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.
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.3Pioneer 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
299,63007 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
Appeals10 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.
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.
G.R. No. L-22042             August 17, 1967
a. death of or bodily injury to any person
b. damage to property
During the effectivity of such insurance policy on February 20, 1961
Iluminado del Monte, one of the drivers of the jeepneys operated by
Aguilar, while driving along the intersection of Juan Luna and Moro
streets, City of Manila, bumped with the jeepney abovementioned one
Gervacio Guingon who had just alighted from another jeepney and as
a consequence the latter died some days thereafter.
A corresponding information for homicide thru reckless imprudence
was filed against Iluminado del Monte, who pleaded guilty. A penalty
of four months imprisonment was imposed on him.
As a corollary to such action, the heirs of Gervacio Guingon filed an
action for damages praying that the sum of P82,771.80 be paid to
them jointly and severally by the defendants, driver Iluminado del
Monte, owner and operator Julio Aguilar, and the Capital Insurance &
Surety Co., Inc. For failure to answer the complaint, Del Monte and
Aguilar were declared in default. Capital Insurance & Surety Co., Inc.
answered, alleging that the plaintiff has no cause of action against it.
During the trial the following facts were stipulated:

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 registration22 issued by the Insurance Commission. It
has been licensed to do or transact insurance business by virtue of
the certificate of authority 23 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 . . .
DIONISIA, EULOGIO, MARINA, GUILLERMO and NORBERTO all COURT: The Court wants to find if there is a stipulation in
surnamed GUINGON, plaintiffs-appellees,  the policy whereby the insured is insured against liability
vs. to third persons who are not passengers of jeeps.
ILUMINADO DEL MONTE, JULIO AGUILAR and CAPITAL
INSURANCE and SURETY CO., INC., defendants. 
ALMARIO: As far as I know, in my honest belief, there is
CAPITAL INSURANCE and SURETY CO., INC., defendant-
no particularization as to the passengers, whether the
appellant.
passengers of the jeep insured or a passenger of another
jeep or whether it is a pedestrian. With those, we can
BENGZON, J.P., J.: submit the stipulation.
Julio Aguilar owned and operated several jeepneys in the City of SIMBULAN: I admit that. (T.s.n., p. 21, Jan. 23, 1962; p.
Manila among which was one with plate number PUJ-206-Manila, 65 Rec. on Appeal)
1961. He entered into a contract with the Capital Insurance & Surety
Co., Inc. insuring the operation of his jeepneys against accidents with
On August 27, 1962, the Court of First Instance of Manila rendered its
third-party liability. As a consequence thereof an insurance policy was
judgment with the following dispositive portion:
executed by the Capital Insurance & Surety Co., Inc., the pertinent
provisions of which in so far as this case is concerned contains the
following: WHEREFORE, judgment is rendered sentencing
Iluminado del Monte and Julio Aguilar jointly and severally
to pay plaintiffs the sum of P8,572.95 as damages for the
Section II —LIABILITY TO THE PUBLIC
death of their father, plus P1,000.00 for attorney's fees
plus costs.
1. The Company, will, subject to the limits of liability,
indemnify the Insured in the event of accident caused by
The defendant Capital Insurance and Surety Co., Inc. is
or arising out of the use of the Motor Vehicle/s or in
hereby sentenced to pay the plaintiffs the sum of Five
connection with the loading or unloading of the Motor
Thousand (P5,000.00) Pesos plus Five Hundred
Vehicle/s, against all sums including claimant's costs and
(P500.00) Pesos as attorney's fees and costs. These
expenses which the Insured shall become legally liable to
sums of P5,000.00 and P500.00 adjudged against Capital
pay in respect of:
Insurance and Surety Co., Inc. shall be applied in partial
 satisfaction of the judgment rendered against Iluminado
del Monte and Julio Aguilar in this case.
SO ORDERED.
The case was appealed to the Court of Appeals which appellate court
on September 30, 1963 certified the case to Us because the appeal
raises purely questions of law.
The issues raised before Us in this appeal are (1) As the company
agreed to indemnify the insured Julio Aguilar, is it only the insured to
whom it is liable? (2) Must Julio Aguilar first show himself to be
entitled to indemnity before the insurance company may be held liable
for the same? (3) Plaintiffs not being parties to the insurance contract,
do they have a cause of action against the company; and (4) Does
the fact that the insured is liable to the plaintiffs necessarily mean that
the insurer is liable to the insured?
In the discussion of the points thus raised, what is paramount is the
interpretation of the insurance contract with the aim in view of
attaining the objectives for which the insurance was taken. The Rules
of Court provide that parties may be joined either as plaintiffs or
defendants, as the right to relief in respect to or arising out of the
same transactions is alleged to exist (Sec. 6, Rule 3). The policy, on
the other hand, contains a clause stating:
E. Action Against Company
No action shall lie against the Company unless, as a
condition precedent thereto, the Insured shall have fully
complied with all of the terms of this Policy, nor until the
amount of the Insured's obligation to pay shall have been
finally determined either by judgment against the Insured
after actual trial or by written agreement of the Insured,
the claimant, and the Company.
Any person or organization or the legal representative
thereof who has secured such judgment or written
agreement shall thereafter be entitled to recover under
this policy to the extent of the insurance afforded by the
Policy. Nothing contained in this policy shall give any
person or organization any right to join the Company as a
co-defendant in any action against the Insured to
determine the Insured's liability.
Bankruptcy or insolvency of the Insured or of the Insured's
estate shall not relieve the Company of any of its
obligations hereunder.
Appellant contends that the "no action" clause in the policy closes the
avenue to any third party which may be injured in an accident wherein
the jeepney of the insured might have been the cause of the injury of
third persons, alleging the freedom of contracts. Will the mere fact
that such clause was agreed upon by the parties in an insurance
policy prevail over the Rules of Court which authorizes the joining of
parties plaintiffs or defendants?
The foregoing issues raise two principal: questions: (1) Can plaintiffs
sue the insurer at all? (2) If so, can plaintiffs sue the
insurer jointly with the insured?
The policy in the present case, as aforequoted, is one whereby the
insurer agreed to indemnify the insured "against all sums . . . which
the Insured shall become legally liable to pay in respect of: a. death of
or bodily injury to any person . . . ." Clearly, therefore, it is one for
indemnity against liability;1 from the fact then that the insured is liable
to the third person, such third person is entitled to sue the
insurer.1äwphï1.ñët
The right of the person injured to sue the insurer of the party at fault
(insured), depends on whether the contract of insurance is intended
to benefit third persons also or only the insured. 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.2
The next question is on the right of the third person to sue the insurer
jointly with the insured. The policy requires, as afore-stated, that suit
and final judgment be first obtained against the insured; that only
"thereafter" can the person injured recover on the policy; it expressly
disallows suing the insurer as a co-defendant of the insured in a suit
to determine the latter's liability. As adverted to before, the query is
which procedure to follow — that of the insurance policy or the Rules
of Court.
The "no action" clause in the policy of insurance cannot prevail over
the Rules of Court provision aimed at avoiding multiplicity of suits. In
a case squarely on the point, American Automobile Ins. Co. vs.
Struwe, 218 SW 534 (Texas CCA), it was held that a "no action"
clause in a policy of insurance cannot override procedural rules aimed
at avoidance of multiplicity of suits. We quote:
Appellants filed a plea in abatement on the grounds that
the suit had been prematurely brought against the
insurance company, and that it had been improperly
joined with Zunker, as said insurance company, under the
terms of the policy, was only liable after judgment had
been awarded against Zunker. . . .
* * * That plea was properly overruled, because under the
laws of Texas a dual suit will always be avoided whenever
all parties can have a fair trial when joined in one suit.
Appellee, had he so desired, could have prosecuted his
claim to judgment as against Zunker and then have sued
on that judgment against the insurance company, but the
law does not make it imperative that he should do so, but
would permit him to dispose of the whole matter in one
suit.
The rule has often been announced in Texas that when
two causes of action are connected with each other, or
grow out of the same transaction, they may be properly
joined, and in such suit all parties against whom the
plaintiff asserts a common or an alternative liability may
be joined as defendants. . . . Even if appellants had
presented any plea in abatement as to joinder of damages
arising from a tort with those arising from a contract, it
could not, under the facts of this case, be sustained, for
the rule is that a suit may include an action for breach of
contract and one for tort, provided they are connected
with each other or grew out of the same transaction.
Similarly, in the instant suit, Sec. 5 of Rule 2 on "Joinder of causes of
action" and Sec. 6 of Rule 3 on "Permissive joinder of parties" cannot
be superseded, at least with respect to third persons not a party to
the contract, as herein, by a "no action" clause in the contract of
insurance.
Wherefore, the judgment appealed from is affirmed in toto. Costs
against appellant. So ordered.
G.R. No. L-20853             May 29, 1967
BONIFACIO BROS., INC., ET AL., plaintiffs-appellants, 
vs.
ENRIQUE MORA, ET AL., defendants-appellees.
CASTRO, J.:
This is an appeal from the decision of the Court of First Instance of
Manila, Branch XV, in civil case 48823, affirming the decision of the
Municipal Court of Manila, declaring the H.S. Reyes, Inc. as having a
better right than the Bonifacio Bros., Inc. and the Ayala Auto Parts
Company, appellants herein, to the proceeds of motor insurance
policy A-0615, in the sum of P2,002.73, issued by the State Bonding
& Insurance Co. Inc., and directing payment of the said amount to the
H. Reyes, Inc.
Enrique Mora, owner of Oldsmobile sedan model 1956, bearing plate
No. QC- mortgaged the same to the H.S. Reyes, Inc., with the
condition that the former would insure the automobile with the latter
as beneficiary. The automobile was thereafter insured on June 23,
1959 with the State Bonding & Insurance Co., Inc., and motor car
insurance policy A-0615 was issued to Enrique Mora, the pertinent
provisions of which read:
1. The Company (referring to the State Bonding &
Insurance Co., Inc.) will, subject to the Limits of Liability,
indemnify the Insured against loss of or damages to the
 Motor Vehicle and its accessories and spare parts whilst
thereon; (a) by accidental collision or overturning or
collision or overturning consequent upon mechanical
breakdown or consequent upon wear and tear,
xxx     xxx     xxx
2. At its own option the Company may pay in cash the
amount of the loss or damage or may repair, reinstate, or
replace the Motor Vehicle or any part thereof or its
accessories or spare parts. The liability of the Company
shall not exceed the value of the parts whichever is the
less. The Insured's estimate of value stated in the
schedule will be the maximum amount payable by the
Company in respect of any claim for loss or
damage.1äwphï1.ñët
xxx     xxx     xxx
4. The Insured may authorize the repair of the Motor
Vehicle necessitated by damage for which the Company
may be liable under this Policy provided that: — (a) The
estimated cost of such repair does not exceed the
Authorized Repair Limit, (b) A detailed estimate of the
cost is forwarded to the Company without delay, subject
to the condition that "Loss, if any is payable to H.S.
Reyes, Inc.," by virtue of the fact that said Oldsmobile
sedan was mortgaged in favor of the said H.S. Reyes, Inc.
and that under a clause in said insurance policy, any loss
was made payable to the H.S. Reyes, Inc. as Mortgagee;
xxx     xxx     xxx
During the effectivity of the insurance contract, the car met with an
accident. The insurance company then assigned the accident to the
Bayne Adjustment Co. for investigation and appraisal of the damage.
Enrique Mora, without the knowledge and consent of the H.S. Reyes,
Inc., authorized the Bonifacio Bros. Inc. to furnish the labor and
materials, some of which were supplied by the Ayala Auto Parts Co.
For the cost of labor and materials, Enrique Mora was billed at
P2,102.73 through the H.H. Bayne Adjustment Co. The insurance
company after claiming a franchise in the amount of P100, drew a
check in the amount of P2,002.73, as proceeds of the insurance
policy, payable to the order of Enrique Mora or H.S. Reyes,. Inc., and
entrusted the check to the H.H. Bayne Adjustment Co. for disposition
and delivery to the proper party. In the meantime, the car was
delivered to Enrique Mora without the consent of the H.S. Reyes, Inc.,
and without payment to the Bonifacio Bros. Inc. and the Ayala Auto
Parts Co. of the cost of repairs and materials.
Upon the theory that the insurance proceeds should be paid directly
to them, the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed on
May 8, 1961 a complaint with the Municipal Court of Manila against
Enrique Mora and the State Bonding & Insurance Co., Inc. for the
collection of the sum of P2,002.73 The insurance company filed its
answer with a counterclaim for interpleader, requiring the Bonifacio
Bros. Inc. and the H.S. Reyes, Inc. to interplead in order to determine
who has better right to the insurance proceeds in question. Enrique
Mora was declared in default for failure to appear at the hearing, and
evidence against him was received ex parte. However, the counsel
for the Bonifacio Bros. Inc., Ayala Auto Parts Co. and State Bonding
& Insurance Co. Inc. submitted a stipulation of facts, on the basis of
which are Municipal Court rendered a decision declaring the H.S.
Reyes, Inc. as having a better right to the disputed amount and
ordering State Bonding & Insurance Co. Inc. to pay to the H. S.
Reyes, Inc. the said sum of P2,002.73. From this decision, the
appellants elevated the case to the Court of First Instance of Manila
which the stipulation of facts was reproduced. On October 19, 1962
the latter court rendered a decision, affirming the decision of the
Municipal Court. The Bonifacio Bros. Inc. and the Ayala Auto Parts
Co. moved for reconsideration of the decision, but the trial court
denied the motion. Hence, this appeal.
The main issue raised is whether there is privity of contract between
the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. on the one hand
and the insurance company on the other. The appellants argue that
the insurance company and Enrique Mora are parties to the repair of
the car as well as the towage thereof performed. The authority for this
assertion is to be found, it is alleged, in paragraph 4 of the insurance
contract which provides that "the insured may authorize the repair of
the Motor Vehicle necessitated by damage for which the company
may be liable under the policy provided that (a) the estimated cost of
such repair does not exceed the Authorized Repair Limit, and (b) a
detailed estimate of the cost is forwarded to the company without
delay." It is stressed that the H.H. Bayne Adjustment Company's
recommendation of payment of the appellants' bill for materials and
repairs for which the latter drew a check for P2,002.73 indicates that
Mora and the H.H. Bayne Adjustment Co. acted for and in
representation of the insurance company.
This argument is, in our view, beside the point, because from the
undisputed facts and from the pleadings it will be seen that the
appellants' alleged cause of action rests exclusively upon the terms of
the insurance contract. The appellants seek to recover the insurance
proceeds, and for this purpose, they rely upon paragraph 4 of the
insurance contract document executed by and between the State
Bonding & Insurance Company, Inc. and Enrique Mora. The
appellants are not mentioned in the contract as parties thereto nor is
there any clause or provision thereof from which we can infer that
there is an obligation on the part of the insurance company to pay the
cost of repairs directly to them. It is fundamental that contracts take
effect only between the parties thereto, except in some specific
instances provided by law where the contract contains some
stipulation in favor of a third person. 1 Such stipulation is known as
stipulation pour autrui or a provision in favor of a third person not a
pay to the contract. Under this doctrine, a third person is allowed to
avail himself of a benefit granted to him by the terms of the contract,
provided that the contracting parties have clearly and deliberately
conferred a favor upon such person.2Consequently, a third person not
a party to the contract has no action against the parties thereto, and
cannot generally demand the enforcement of the same.3 The question
of whether a third person has an enforcible interest in a contract, must
be settled by determining whether the contracting parties intended to
tender him such an interest by deliberately inserting terms in their
agreement with the avowed purpose of conferring a favor upon such
third person. In this connection, this Court has laid down the rule that
the fairest test to determine whether the interest of a third person in a
contract is a stipulation pour autrui or merely an incidental interest, is
to rely upon the intention of the parties as disclosed by their
contract.4 In the instant case the insurance contract does not contain
any words or clauses to disclose an intent to give any benefit to any
repairmen or materialmen in case of repair of the car in question. The
parties to the insurance contract omitted such stipulation, which is a
circumstance that supports the said conclusion. On the other hand,
the "loss payable" clause of the insurance policy stipulates that "Loss,
if any, is payable to H.S. Reyes, Inc." indicating that it was only the
H.S. Reyes, Inc. which they intended to benefit.
We likewise observe from the brief of the State Bonding & Insurance
Company that it has vehemently opposed the assertion or pretension
of the appellants that they are privy to the contract. If it were the
intention of the insurance company to make itself liable to the repair
shop or materialmen, it could have easily inserted in the contract a
stipulation to that effect. To hold now that the original parties to the
insurance contract intended to confer upon the appellants the benefit
claimed by them would require us to ignore the indespensable
requisite that a stipulation pour autrui must be clearly expressed by
the parties, which we cannot do.
As regards paragraph 4 of the insurance contract, a perusal thereof
would show that instead of establishing privity between the appellants
and the insurance company, such stipulation merely establishes the
procedure that the insured has to follow in order to be entitled to
indemnity for repair. This paragraph therefore should not be
construed as bringing into existence in favor of the appellants a right
of action against the insurance company as such intention can never
be inferred therefrom.
Another cogent reason for not recognizing a right of action by the
appellants against the insurance company is that "a policy of
insurance is a distinct and independent contract between the insured
and insurer, and third persons have no right either in a court of equity,
or in a court of law, to the proceeds of it, unless there be some
contract of trust, expressed or implied between the insured and third
person."5 In this case, no contract of trust, expressed or implied
exists. We, therefore, agree with the trial court that no cause of action
exists in favor of the appellants in so far as the proceeds of insurance
are concerned. The appellants' claim, if at all, is merely equitable in
nature and must be made effective through Enrique Mora who
entered into a contract with the Bonifacio Bros. Inc. This conclusion is
deducible not only from the principle governing the operation and
effect of insurance contracts in general, but is clearly covered by the
express provisions of section 50 of the Insurance Act which read:
The insurance shall be applied exclusively to the proper
interests of the person in whose name it is made unless
otherwise specified in the policy.
The policy in question has been so framed that "Loss, if any, is
payable to H.S. Reyes, Inc.," which unmistakably shows the intention
of the parties.
The final contention of the appellants is that the right of the H.S.
Reyes, Inc. to the insurance proceeds arises only if there was loss
and not where there is mere damage as in the instant case. Suffice it
to say that any attempt to draw a distinction between "loss" and
"damage" is uncalled for, because the word "loss" in insurance law
embraces injury or damage.
Loss in insurance, defined. — The injury or damage
sustained by the insured in consequence of the
happening of one or more of the accidents or misfortune
against which the insurer, in consideration of the
premium, has undertaken to indemnify the insured. (1
Bouv. Ins. No. 1215; Black's Law Dictionary; Cyclopedic
Law Dictionary, cited in Martin's Phil. Commercial Laws,
Vol. 1, 1961 ed. p. 608).
Indeed, according to sec. 120 of the Insurance Act, a loss may be
either total or partial.  came to know of the issuance and context thereof when he sought
Accordingly, the judgment appealed from is hereby affirmed, at
appellants' cost.
G.R. No. L-23248             February 28, 1969
MANUEL UY, plaintiff-appellee,  PCSO appellee agrees to give 50% of the agent's prize to the sub-
vs.
ENRICO PALOMAR, in his capacity as Postmaster
General, defendant-appellant.
ZALDIVAR, J.:
Manuel Uy filed a complaint with the Court of First Instance of Manila
(Civil Case No. 55678) against the Postmaster General, praying for
an injunction to restrain said Postmaster General and his
subordinates, agents or representatives from enforcing Fraud Order
No. 3, dated November 22, 1963, declaring Manuel Uy Sweepstakes
Agency as conducting a lottery or gift enterprise and directing all
postmasters and other employees of the Bureau of Posts concerned
to return to the sender any mail matter addressed to Manuel Uy
Sweepstakes Agency or to any of its agents or representatives with
the notation "Fraudulent" stamped upon the cover of such mail
matter, and prohibiting the issuance or payment of any money order
or telegraphic transfer to the said agency or to any of its agents and
representatives.
As prayed for in the complaint, a writ of preliminary injunction was
issued ex parte by the lower court. The Postmaster General moved
for the dissolution of the writ of preliminary injunction, but the motion
was denied.
The Postmaster General filed an answer to the complaint, setting up
the defense that Manuel Uy was conducting a lottery or gift enterprise
that is prohibited by law; that as Postmaster General he has the
authority to issue the fraud order in question and he did not abuse his
discretion in doing so; and that Manuel Uy had not exhausted all the
administrative remedies before invoking judicial intervention.
The lower court, on the basis of the stipulation of facts submitted by
the parties declared Fraud Order No. 3 contrary to law and violative of
the rights of the plaintiff and made permanent the preliminary
injunction previously issued.
The Postmaster General appealed to this Court.
The salient facts gathered from the stipulation of facts and culled from
the briefs of the parties are as follows:
Manuel Uy (appellee, for short) is a duly authorized agent of the
Philippine Charity Sweepstakes Office (PCSO for short), a
government entity created and empowered by law to hold
sweepstakes draws and lotteries for charitable and public purposes.
As such agent of the PCSO appellee is engaged in the sale and
distribution of sweepstakes and lottery tickets which the PCSO prints
and issues for each and every one of the not less than twenty draws
that said office annually holds. To carry out its business of selling
sweepstakes and lottery tickets issued by the PCSO appellee, upon
authority of the said office, employs sub-agents throughout the
Philippines, through which sub-agents not less than 70% of appellee's
total sales for each draw are made; and, with the consent of the
agent selling the prize-winning ticket. The agent's prize is 10% of the
prize won by the ticket sold.
For the Grand Christmas Sweepstakes Draw which would be held on
December 15, 1963, the PCSO fixed the first, second and third prizes
at P700,000.00, P350,000.00, and P175,000.00, respectively, and set
a sale goal, of P6,000,000.00 worth of tickets. The PCSO directed its
duly authorized agents to undertake every means possible to help
achieve the six-million-peso sales goal. In compliance with said
directive, appellee devised and, through his representatives, offered
to the public, the "Grand Christmas Bonus Award" plan. The plan was
designed to boost the sales of tickets for the PCSO Grand Christmas
Sweepstakes Draw. According to said plan, the appellee's sub-agents
and purchasers of whole sweepstakes tickets sold by appellee and
his sub-agents may, in addition to the regular prize money of the
December 15, 1963 draw, win bonuses and awards as follows: for the
sub-agent and buyer of the ticket winning the first prize, one 1963
Volkswagen sedan each; for the sub-agent and buyer of the ticket
winning the second prize, one Radiowealth 23-inch television set
each; for the sub-agent and buyer of the ticket winning the third prize,
one Radiowealth refrigerator each; for the sub-agents and buyers of
the tickets winning any of the six fourth prizes, one Radiowealth
sewing machine each; and for the sub-agent and buyer of the ticket
winning the charity prize, one Radiowealth Fiesta "hi-fi" radio set
each. Except for the amount paid for the authorized prize of the
sweepstakes tickets, those entitled to benefit from the plan did not
have to pay any other amount in consideration of the right to benefit
from the plan. The awards may be claimed by presenting to the
appellee the sales invoice of the winning tickets, in the case of the
sellers, and the eight shares of the winning tickets, in the case of the
buyers.
The aforementioned plan is a modification (or alternative plan, as the
appellee calls it) of the original scheme presented by the appellee,
thru counsel, to the Assistant Postmaster General in a letter dated
October 15, 1963, and which the latter, in his answer dated October
18, 1963, considered as violative of the Postal Law.
The appellee advertised his "Grand Christmas Bonus Award" plan, as
described above, in the metropolitan newspapers of nationwide
circulation, the first of such advertisements appearing in seven such
newspapers in their issues of November 18, 1963. The newspaper
advertisements were repeated almost every week after November 18,
1963, with the last of them published in the issue of the "Daily Mirror"
of December 7, 1963.
As already stated, the fraud order in question was issued by the
Postmaster-General (appellant, for short) under date of November 22,
1963. However, it was only on December 10, 1963 that the appellee
clarification from the Manila Post Office why his parcels containing
sweepstakes tickets for his sub-agents, as well as his other mail
matters of purely personal nature, were refused acceptance for
mailing the day previous.
In the afternoon of December 10, 1963, appellee filed the complaint,
mentioned at the beginning of this opinion, alleging among others,
that in issuing Fraud Order No. 3 the appellant "has acted arbitrarily
or gravely exceeded his authority, and/or committed an error of law". 1 
Disclaiming that in issuing the fraud order he acted arbitrarily, or
gravely exceeded his authority and/or committed an error of law,
appellant, in his answer to the complaint, cites as basis of his action,
the provisions of Sections 1954(a), 1982, and 1983 of the Postal Law
(Chapter 52 of the Revised Administrative Code), pertinent portions of
which read:
SEC. 1954. Absolutely nonmailable matter. — No matter
belonging to any of the following classes, whether sealed
as first class matter or not, shall be imported into the
Philippines through the mails, or be deposited in or carried
by the mails of the Philippines, or be delivered to its
addressee by any officer or employee of the Bureau of
Posts:
(a) Written or printed matter in any form, advertising,
describing, or in any manner pertaining to, or conveying or
purporting to convey any information concerning any
lottery, gift enterprise, or similar scheme depending in
whole or in part upon lot or chance, or any scheme,
device, or enterprise for obtaining money or property of
any kind by means of false or fraudulent pretenses,
representations, or promises.
xxx     xxx     xxx
 SEC. 1982. Fraud orders. — Upon satisfactory evidence
that any person or company is engaged in conducting any
lottery, gift enterprise, or scheme or the distribution of
money, or of any real or personal property by lot, chance,
or drawing of any kind, or that any person or company is
conducting any scheme, device, or enterprise for
obtaining money or property of any kind through the mails
by means of false or fraudulent pretenses,
representations, or promises, the Director of Posts may
instruct any postmaster or other officer or employee of the
Bureau of Posts to return to the person depositing same
in the mails, with the word "fraudulent" plainly written or
stamped upon the outside cover thereof, any mail matter
of whatever class mailed by or addressed to such person
or company or the representative or agent of such person
or company....
SEC. 1983. Deprivation of use of money order system
and telegraphic transfer service. — Director of Posts may,
upon evidence satisfactory to him that any person or
company is engaged in conducting any lottery, gift
enterprise, or scheme for the distribution of money or of
any real or personal property by lot, chance, or drawing of
any kind, or that any person or company is conducting
any scheme, device, or enterprise for obtaining money or
property of any kind through the mails by means of false
or fraudulent pretenses, representations, or promise,
forbid the issue or payment by any postmaster of any
postal money order or telegraphic transfer to said person
or company, or to the agent of any such person or
company, whether such agent is acting as an individual or
as a firm, bank, corporation, or association of any kind,
and may provide by regulation for the return to the
remitters of the sums named in money orders or
telegraphic transfers drawn in favor of such person or
company or its agent.... (Emphasis supplied).
Invoking the phrase "upon evidence satisfactory to him the appellant
contends that the fraud order in question was legally issued because
he had been satisfied with the evidence presented to him that
appellee was conducting a lottery or gift enterprise.  2 We note that the
appellee does not question the authority of the appellant, under
Sections 1954(a), 1982 and 1983 aforequoted, to prohibit the use of
the mails, the money order system and the telegraphic transfer
service for the promotion of lotteries, gift enterprises or fraudulent
schemes. 3 Indeed, appellant would be remiss in the performance of
his duties should he fail to exercise his authority under the Postal Law
if and when the mails, the money order system, and the telegraphic
transfer service are utilized for the promotion of lotteries, gift
enterprises and similar schemes prohibited by law. Appellant's
authority, however, is not absolute. Neither does the law give him
unlimited discretion. The appellant may only exercise his authority if
there is a clear showing that the mails, the money order system and
the telegraphic transfer service are used to promote a scheme or
enterprise prohibited by law.
In the present case, therefore, the question that must be resolved is
whether appellee's "Grand Christmas Bonus Award" plan constitutes
a lottery, gift enterprise, or similar scheme proscribed by the Postal
Law, aforequoted, as would authorize the appellant to issue the fraud
order in question.
Before we resolve the question, however, we wish to advert to the
claim of the appellant that he had made his decision based upon
satisfactory evidence that the "Grand Christmas Bonus Award" plan
of appellee is a lottery or gift enterprise for the distribution of gifts by
chance, and his decision in this regard cannot be reviewed by the
court.4 Thus, the appellant, in his brief, 5 says:
It is respectfully submitted that corollary to the rule that
courts cannot interfere in the performance of ordinary
duties of the executive department is the equally
compelling rule that decisions of the defendant on
questions of fact are final and conclusive and generally
cannot be reviewed by the courts. For it cannot be denied
that the Postmaster General is charged with quasi-judicial
functions and vested with discretion in determining what is
mailable matter and in withholding from the plaintiff the
privilege of using the mail, the money order system and
the telegraphic transfer service... As the disputed, Fraud
Order No. 3 was issued pursuant to the powers vested in
the defendant by the Postal Law and in accordance with
satisfactory evidence presented to him, it cannot be said
that the defendant was palpably wrong or that his decision
had no reasonable basis whatever. Neither can it be said
that he exceeded his authority nor that he abused his
discretion.
In this connection it may be stated that the Postal Law contains no
provision for judicial review of the decision of the Postmaster General.
This Court, however, in Reyes vs. Topacio 6 had stated that the action
of the Director of Posts (now Postmaster General) is subject to
revision by the courts in case he exceeded his authority or his act is
palpably wrong. And in "El Debate" Inc. vs. Topacio 7 this Court said
that the courts will not interfere with the decision of the Director of
Post (Postmaster General) as to what is, and what is not, mailable
matter unless clearly of opinion that it was wrong. In other words, the
courts will interfere with the decision of the Postmaster General if it
clearly appears that the decision is wrong. This Court, by said rulings,
recognizes the availability of judicial review over the action of the
Postmaster General, notwithstanding the absence of statutory
provision for judicial review of his action. It may not be amiss to state
that said rulings are in consonance with American jurisprudence to
the effect that the absence of statutory provisions for judicial review
does not necessarily mean that access to the courts is barred. The
silence of the Congress is not to be construed as indicating a
legislative intent to preclude judicial review. 8 In American School of
Magnetic Healing vs. McAnnulty, 9 the U.S. Supreme Court, speaking
on the power of the courts to review the action of the Postmaster
General under a statute similar to our Postal Law, 10 said:
That the conduct of the post office is a part of the
administrative department of the government is entirely
true, but that does not necessarily and always oust the
courts of jurisdiction to grant relief to a party aggrieved by
any action by the head, or one of the subordinate officials,
of that Department, which is unauthorized by the statute
under which he assumes to act. The acts of all its officers
must be justified by some law, and in case an official
violates the law to the injury of an individual the courts
generally have jurisdiction to grant relief.
Appellant also invokes the doctrine of exhaustion of administrative
remedies, and asserts that the action of the appellee in the present
case was premature because he had not first appealed the fraud
order to higher administrative authorities. This assertion of appellant
has no merit. The rule on exhaustion of administrative remedies is not
a hard and fast one. It admits of exceptions, amongst which are: (1)
where the question involved is purely a legal one, 11 and (2) where
there are circumstances indicating the urgency of judicial
intervention. 12 The question involved in the present case is legal —
whether or not the "Grand Christmas Bonus Award" plan of appellee,
based upon the facts as stipulated, is a lottery or gift enterprise. We
take note that the Grand Christmas Sweepstakes draw in conjunction
with which appellee's plan was offered, was scheduled for December
15, 1963, or barely five days from December 10, 1963, the date when
appellee learned of the issuance of the fraud order. Time was of the
essence to the appellee.
We now resolve the main question in this case, namely, whether or
not appellee's "Grand Christmas Bonus Award" plan constitutes a
lottery or a gift enterprise. There is no statutory definition of the terms
"lottery" and "gift enterprise". This Court, in the case of "El
Debate" Inc. vs. Topacio, supra, referring to lottery, said:
... while countless definitions of lottery have been
attempted, the authoritative one for this jurisdiction is that
of the United States Supreme Court, in analogous cases
having to do with the power of the United States
Postmaster General, viz: The term "lottery" extends to all
schemes for the distribution of prizes by chance, such as
policy playing, gift exhibitions, prize concerts, raffles at
fairs, etc., and various forms of gambling. The three
essential elements of a lottery are: First, consideration;
second, prize; and third. chance (Horner vs. United States
[1902] 147 U.S. 449; Public Clearing House vs. Coyne
[1903] 194 U.S., 497; U.S. vs. Filart and Singson [1915]
30 Phil. 80; U.S. vs. Olsen and Marker [1917] 36 Phil.
395; U.S. Vs. Baguio [1919] 39 Phil. 962: Valhalla Hotel
Construction Company vs. Carmona, p. 233, ante.)
Thus, for lottery to exist, three elements must concur, namely:
consideration, prize, and chance.
Appellant maintains that all the elements are present in the "Grand
Christmas Bonus Award" plan of the appellee, to wit:
"(1) consideration, because to participate and win in the contest one
must buy and resell (in case of sub-agents) or buy (in case of ticket
buyers) only 'Manuel Uy' tickets; (2) prize, because of the goods to be
awarded to the winners; and (3) chance, because the determination
of the winners depends upon the results of the sweepstakes draw
which is decidedly a game of chance." 13 With particular emphasis on
the element of consideration, appellant likens this case to the "El
Debate" case, supra, and paraphrasing the ruling therein says that
"By analogy there is consideration with respect to persons who will
buy 'Manuel Uy' tickets (in preference to tickets sold by other
authorized agents, like Tagumpay, Pelagia Viray, Marcela Meer
Millar, etc.) merely to win prizes in addition to the regular
sweepstakes prizes (and it is to such persons that the scheme is
directed); moreover, the persons patronizing the Manuel Uy
Sweepstakes Agency do not all receive same amount and some may
receive more than the value paid for their tickets through chance and
the prizes awarded by the Philippine Charity Sweepstakes Office." 14  was to win the prize offered, then the payment of the subscription fee
As against this contention, appellee maintains that there is absence of
the element of consideration because except for paying the
authorized purchase price of the corresponding sweepstakes tickets,
those entitled to participate in and to benefit from appellee's "Grand
Christmas Bonus Award" plan do not part with any other
consideration for the right to take part and benefit therefrom, which
fact is admitted by the appellant. 15 Further, appellee contends that
even under the test laid down in the "El Debate" case, the element of
consideration is lacking because appellee's sub-agents would have
continued to sell and the general public would have continued to buy
'Manuel Uy' tickets regardless of appellee's "Grand Christmas Bonus
Award" plan. 16 Moreover, appellee advances the view that under
another test adopted by American courts as shown by a review of
comparative case law in the United States, there can be no
consideration under the plan in question because the participants pay
no money or its equivalent into a fund which pays for the prize. 17  of the appellee, or the proponent of the scheme, but rather from that
Speaking of the element of consideration, this Court in the
aforementioned "El Debate" case, and quoted in Caltex (Phil.) Inc. vs.
Postmaster General, 18 said:
In respect to the last element of consideration, the law
does not condemn the gratuitous distribution of property
by chance, if no consideration is derived directly or
indirectly from the party receiving the chance, but does
condemn as criminal, schemes in which a valuable
consideration of some kind is paid directly or indirectly for
the chance to draw a prize.
In the "Grand Christmas Bonus Award" plan of the appellee We do
not see the presence of the element of consideration, that is, payment
of something of value, or agreement to pay, for the chance to win the
bonus or award offered. True, that to be a participant in said plan, one
must have to buy a whole sweepstakes ticket (8 shares) sold by the
Manuel Uy Sweepstakes Agency or by its sub-agents. But the
payment for the price of the sweepstakes ticket is the consideration
for the chance to win any of the prizes offered by the PCSO in the
sweepstakes draw of December 15, 1963. Wholly or partly, said
payment cannot be deemed as a consideration also for the chance to
win the prizes offered by the appellee. For nothing is asked of, or
received from, the buyer of the ticket more than the authorized price
thereof, and which price appears on the face of the ticket. In fact,
appellant admits that except for the price of the ticket, those entitled
to participate and benefit from the plan do not part with any other
consideration for the right to take part and benefit
therefrom. 19 Indeed, as correctly observed by the lower court, "there
is absolutely no separate consideration for the right to win any of the
offered bonuses or awards."
The analogy drawn by the appellant from the "El Debate" case is not
persuasive. On the contrary, the "reason" or "inducement" test laid
down in said case in determining the presence of the element of
consideration seems to favor the appellee. Paraphrased, the test as
expressed in the "El Debate" case is: if the reason for the subscription
of the "El Debate" was the desire to subscribe regardless of any prize
offered, then there was no consideration insofar as the prize plan is
concerned; upon the other hand, if the reason for the subscription
constituted a consideration for the chance to win the prize. In the
instant case, there are two groups of participants, in appellee's plan,
namely: the sub-agents and the ticket buyers. It cannot be denied that
the sub-agents who, as stated in the stipulation of facts, are
responsible for not less than 70% of appellee's total sales for every
draw, would have continued to be appellee's sub-agents and would
have sold "Manuel Uy" tickets regardless of the plan in question.
Anyway, they stood to receive 50% of the agent's prize for any of the
prize-winning ticket they could sell. Upon the other hand, the
probability is that the general public would have purchased "Manuel
Uy" tickets in their desire to win any of the prizes offered by the
PCSO regardless of the inducement offered by the appellee to win
additional prizes. This conclusion finds support from the admitted fact
that the appellee has consistently sold the greatest number of tickets
among the PCSO'S authorized agents. 20 And undoubtedly, every
person who purchased sweepstakes tickets from the Manuel Uy
Sweepstakes Agency for the December 15, 1963 draw must have
been induced, not by the prizes offered by the appellee but by the
substantial prizes offered by the PCSO to wit: First prize,
P700,000.00; Second prize P350,000.00; and Third prize,
P175,000.00.
It may not be amiss to state at this juncture that the comparative case
law in the United States indicates that there is another test for
determining whether or not the element of consideration exists in a
given scheme or plan so as to constitute the same a lottery under
parallel antilottery legislation. In Post Publishing Co. vs. Murray, 21 it
was held:
The advertisement or scheme in question does not seem
to be like any of the kinds or types of wrong against which
the Act of Congress was directed. It did not present a
lottery scheme because a lottery involves a scheme for
raising money by selling chances to share in the
distribution of prizes — a scheme for the distribution of
prizes by chance among persons purchasing tickets. It
was not a gift enterprise because a gift enterprise
contemplates a scheme in which publishers or sellers give
presents as inducements to members of the public to part
with their money. (Emphasis supplied.)
The more recent case of Garden City Chamber of Commerce vs.
Wagnet  22 laid down the test in more definitive terms, as follows:
The examination of authorities made in the present case
induces the belief that the consideration requisite to a
lottery is a contribution in kind to the fund or property to
be distributed. (Emphasis supplied)
The test indicated in the foregoing rulings simply means that unless
the participants pay money or its equivalent into a fund which pays for
the prizes, there is no lottery. Stated differently, there is consideration
or price paid if it appears that the prizes offered, by whatever name
they may be called, came out of the fund raised by the sale of
chances among the participants in order to win the prizes.
Conversely, if the prizes do not come out of the fund or contributions
by the participants, no consideration has been paid, and consequently
there is no lottery.
In the instant case, as stated by the lower court, the prizes offered by
the appellee were to be taken from his share in the agent's prize 23 ,
which was 10% of the amount of the prize won by each ticket
sold. 24 Therefore, since none of the prizes (awards and bonuses)
offered in appellee's plan were to come directly from the aggregate
price of the sweepstakes tickets sold by appellee, as a part thereof,
no consideration exists for the chance to win said prizes, there being
no "contribution in kind to the fund or property to be distributed."
Appellant, however, urges that the patronage of "Manuel Uy" tickets
constitutes a consideration because from the increased sales,
appellee would derive benefits in the form of "returns on his quite
substantial investment." This suggestion is without merit. The
question of consideration is not to be determined from the standpoint
of the sub-agents and the ticket buyers. Said this Court in Caltex
(Phil.) case, supra, on this point:
Off-tangent, too, is the suggestion that the scheme, being
admittedly for sales promotion, would naturally benefit the
sponsor in the way of increased patronage by those who
will be encouraged to prefer Caltex products "if only to get
the chance to draw a prize by securing entry blanks". The
required element of consideration does not consist of the
benefit derived by the proponent of the contest. The true
test, as laid down in People vs. Cardas 28 P. 2d. 99, 137
Cal. App. (Supp.) 788, is whether the participant pays a
valuable consideration for the chance, and not whether
those conducting the enterprise received something of
value in return for the distribution of the prize. Perspective
properly oriented, the standpoint of the contestant is all
that matters, not that of the sponsor. The following, culled
from Corpus Juris Secundum, should set the matter at
rest:
The fact that the holder of the drawing expects
thereby to receive, some benefit in the way of
patronage or otherwise, as a result of the
drawing, does not supply the element of
consideration. — Griffith Amusement Co. v.
Morgan, Tex. Civ App., 98 S.W. 2d., 844. (54
C.J.S., p. 849).
Equally enlightening in this connection is the following dissertation of
the court in the case of State vs. Hundling: 25
 The question is not whether the donor of the prize makes
a profit in some remote and indirect way, but, rather,
whether those who have a chance at the prize pay
anything of value for that chance. Every scheme of
advertising, including the giving away of premiums and
prizes, naturally has for its objects, not purely a
philanthropic purpose, but increased business. Even the
corner grocer who gives candy to the children of the
neighborhood may be prompted by that motive, but that
does not make the gift unlawful. And if the grocery instead
of giving candy to all the children, gives it only to some as
determined by lot, that circumstance does not make the
gift made unlawful by the further circumstance that the
business of the grocer in the neighborhood may be
thereby increased. Profit accruing remotely and indirectly
to the person who gives the prize is not a substitute for
the requirement that he who has the chance to win the
prize must pay a valuable consideration therefor, in order
to make the scheme a lottery. (Emphasis supplied.)
Based on the foregoing rulings, therefore, it is clear that there is no
consideration or price for the chance to win any of the prizes offered
by the appellee in his "Grand Christmas Bonus Award" plan. There
being no consideration, there is no lottery. 26  contestant to participate, the reason behind the law can
Even in the light of the mischief or evil sought to be redressed by the
Postal Law, or the ratio legis, the appellee's scheme cannot be
condemned as a lottery. It is merely a scheme set up to promote the
sale of tickets for the Grand Christmas Sweepstakes Draw held on
December 15, 1963. Should any question be raised it would be:
whether or not sweepstakes draws cultivate or stimulate the gambling
spirit among the people. It should be so, because it cannot be
doubted that sweepstakes tickets purchasers are induced to buy said
tickets because of the desire to win any of the substantial prizes
offered by the PCSO. This question, however, is at once rendered
moot and academic because sweepstakes draws are authorized by
law.
But appellant presents as an alternative argument the contention that
even if assuming that "the element of consideration is lacking the
scheme is still a gift enterprise which is also prohibited by the Postal
Law." And in support of this contention or proposition, appellant relies
solely on Opinion No. 217, series of 1953 of the Secretary of Justice,
which, according to the appellant, "ruled that the elements of gift
enterprise, as distinguished from the lottery, are only chance and
prize."
In the Caltex (Phil.) case, supra, this Court, rejecting a similar
contention of the appellant, emphatically held:
[W]e note that in the Postal Law the term in question (gift
enterprise) is used in association with the word "lottery".
With the meaning of lottery settled, and consonant to the
well-known principle of legal hermeneutics noscitu a
sociis — which Opinion 217 aforesaid also relied upon
although only in so far as the clement of chance is
concerned — it is only logical that the term under
construction should be accorded no other meaning than
that which is consistent with the nature of the word
associated therewith. Hence, if lottery is prohibited only if
it involves a consideration, so also must the term "gift
enterprise" be so construed. Significantly, there is not in
the law the slightest indicium of any intent to eliminate that
element of consideration from the "gift enterprise" therein
included.
This conclusion firms up in the light of the mischief sought
to be remedied by the law, resort to the determination
thereof being an accepted extrinsic aid in statutory
construction. Mail fraud orders, it is axiomatic, are
designed to prevent the use of the mails as a medium for
disseminating printed matters which on grounds of public
policy are declared non-mailable. As applied to lotteries,
gift enterprises and similar schemes, justification lies in
the recognized necessity to suppress their tendency to
inflame the gambling spirit and to corrupt public morals
(Com. vs. Lund 15 A. 2d., 839, 143 Pa. Super. 208).
Since in gambling it is inherent that something of value be
hazarded for a chance to gain a larger amount, it follows
ineluctably that where no consideration is paid by the
hardly be said to obtain. If, as it has been held —
Gratuitous distribution of property by lot or chance does
not constitute "lottery", if it is not resorted to as a device to
evade the law and no consideration is derived, directly or
indirectly, from the party receiving the chance, gambling
spirit not being cultivated or stimulated thereby. (City of
Roswell vs. Jones, 67 P. 2d., 286, 41 N.M., 258.') (25
Words and Phrases, perm. ed., p. 695, emphasis)
We find no obstacle in saying the same respecting a gift
enterprise. In the end, we are persuaded to hold that,
under the prohibitive provisions of the Postal Law which
we have heretofore examined, gift enterprise and similar
schemps therein contemplated are condemnable only if,
like lotteries, they involve the element of consideration....
Considered in the light of the foregoing elucidations the conclusion is
irresistible that since in the instant case the element of consideration
is lacking, the plan or scheme in question is also not a "gift enterprise"
or a "similar scheme" proscribed by the Postal Law.
Not being a lottery, gift enterprise or similar scheme, appellee's
"Grand Christmas Bonus Award" plan can be considered a scheme
for the gratuitous distribution of personal property by chance which
the Postal Law does not condemn. Thus, in labelling said scheme as
a lottery or gift enterprise when it is not, appellant not only committed
a palpable error of law but also exceeded his statutory authority in
issuing the fraud order in question. The power of the appellant to
issue a fraud order under the Postal Law is dependent upon the
existence of a lottery, gift enterprise or similar scheme.
Accordingly, the lower court did not err in declaring the fraud order in
question contrary to law and in substituting its judgement for that of
the appellant. The lower court did not also err in issuing the writ of
injunction, the remedy adequate, speedy and appropriate under the
circumstances.lawphi1.nêt
... The Postmaster General's order being the result of a
mistaken view of the law, could not operate as a defense
to his action on the part of the defendant, though it might
justify his obedience thereto until some action of the court.
In such a case as the one before us there is no adequate
remedy at law, the injunction to prohibit the further
withholding of the mail from complaint being the only
remedy at all adequate to the full relief to which the
complainants are entitled.... 27
WHEREFORE, the decision appealed from should be, as it is hereby,
affirmed. No pronouncement as to costs. It is so ordered.
G.R. No. L-5921             March 29, 1954
SALVACION B. LONDRES, plaintiff-appellee,
vs.
THE NATIONAL LIFE INSURANCE COMPANY OF THE
PHILIPPINES, defendant-appellant.
BAUTISTA ANGELO, J.:
This is an appeal from a decision of the Court of First Instance of
Manila ordering defendant to pay to plaintiff the sum of P3,000,
Philippine currency, plus legal interest thereon from the time of the
filing of the complaint until its full payment.
On April 14, 1943, the National Life Insurance Company of the
Philippines issued a policy on the life of Jose C. Londres whereby it
undertook to pay its beneficiary upon his death the sum of P3,000. All
the premiums due under the policy were actually paid on their dates
of maturity and the policy was in force when the insured died on
February 7, 1945. Salvacion V. Londres, as beneficiary, demanded
from the company the payment of the proceeds of the policy, and her
demand having been refused, she instituted the present action
against the company in the Court of First Instance of Manila.
Defendant and its answer denied, for lack of sufficient proof, the
allegation that the insured died on February 7, 1945, and set up the
following special defenses: (a) that plaintiff's claim is covered by the
Moratorium Law; (b) that the policy having been issued during the
Japanese occupation, it is presumed that its face value should be
paid in Japanese currency, there being no provision in the policy from
which can be inferred that the parties contemplated payment in any
other currency; (c) that the money paid by the insured as premiums,
together with the money received from other policy-holders, was all
deposited by the defendant in the Philippine National Bank and said
deposit was declared without value by Executive Order No. 49 of the
President of the Philippines; and (d) that the policy having been
issued under abnormal circumstances, it should be considered in the
light of equity which does not permit anyone to enrich himself at the
expense of another. Defendant, however, as a proof of good faith,
offered to pay the value of the policy in accordance with the
Ballantyne scale of values, or the sum of P2,400, Philippine currency.
On April 15, 1952, plaintiff filed a motion for summary judgment
supported by an affidavit which contains a restatement of the
allegations of the complaint attaching thereto in support of the motion
certain annexes and affidavits which are intended to substantiate and
prove said allegations. Defendant, answering this motion, stated that
while it joins the plaintiff in her petition for summary judgment, it does
so only in so far as its defense of moratorium is concerned, but not as
regards the merits of the case because its answer raises questions of
fact which should be established, not by mere affidavits, but by
evidence duly presented in court. And on May 15, 1952, the court
rendered decision not only on the question of moratorium but on the
merits of the case, apparently disregarding the issue raised by
defendant as regards the necessity of presenting evidence on the
facts controverted by it in its answer. From this decision, the
defendant has appealed.
One of the errors assigned by appellants refers to the fact that the
lower court rendered judgment on the merits by virtue merely of the
motion for summary judgment filed by appellee without giving an
opportunity to appellant to present evidence on the facts which, it
alleges, its answer and special defenses are predicated. Appellant
contends that the facts raised by its special defenses are "triable
issues of facts" which cannot be the subject of summary judgment
unless established by sufficient evidence, and that those facts are
material to sustain its point of view that it can only be made to pay
under the policy an indemnity in the amount of P2,400.
When appellee filed a motion for summary judgment upon her claim
she attached thereto in support of the motion certain annexes and
affidavits which were intended to substantiate and prove her
allegations. Appellant failed not only to interpose opposing affidavits
but announced to the court that it was joining the appellee in her
petition for summary judgment although it evinced its desire to
present evidence with regard to the questions of facts raised in its
special defenses. And acting on said motion, the lower court, after
considering the pleadings and affidavits submitted in support of the
motion for summary judgment, found that there was no substantial
triable issue of facts and concluded that the appellee was entitled to a
judgment as a matter of law. We find this to be in substantial
compliance with the rules (sections 1 and 2, Rule 36).
The material averments of the claim as regards the execution of the
policy, the payment of the premiums, and the death of the insured,
are not disputed. The only issues of fact which served as basis for the
opposition to the summary judgment are those raised in the special
defenses contained in the answer. But these facts are not material for
a decision on the merits, as correctly stated by the lower court, for
even if they are taken for granted the result would not materially
change the findings as to the question affecting the main claim. We
hold therefore that the lower court did not err in rendering a summary
judgment on the merits of the case.
The issue of moratorium, which was decided against the stand taken
by appellant, and which is also raised as one of the errors, has now
moot in view of the ruling in the case of Rutter vs. Esteban, 93 Phil.,
68, wherein the Moratorium Law as declared invalid and
unconstitutional.
The main question to be determined refers to the amount to be paid
by appellant under the policy by way of indemnity to the insured.
Stated in another way, the question to be determined is whether the
amount of P3,000 which appellant bound itself to pay to the insured
under the policy upon his death should be paid in accordance with the
present currency or should be adjusted under the Ballantyne scale of
values. The answer to the question would depend upon the
interpretation to be placed on the facts surrounding the death of the
insured.
It appears that the deceased took up the policy under consideration
on April 15, 1943 for the sum of P3,000. All the premiums due under
the policy were actually paid on their dates of maturity and the policy
was in force when the insured died on February 7, 1945. On said
date, the battle of the liberation of the City of Manila was still raging.
While the northern part may have been liberated, not so the southern
part, as shown from the very affidavits submitted by appellee wherein
it was stated that on the aforesaid date, the insured, Jose Londres,
and his two sons were taken by the Japanese soldiers from their
house at Singalong Street and were massacred by their captors. It
may therefore be said that the policy became due when the City of
Manila was still under the yoke of the enemy and became payable
only after liberation which took place on March 10, 1945 when
President Osmeña issued Proclamation No. 6 following the
restoration of the civil government by General Douglas Mac Arthur.
And we say that the policy became payable only after liberation even
if it matured sometime before, because before that eventuality the
insurance company, appellant herein, was not yet in a position to pay
the value of the policy for the simple reason that it had not yet
reopened. This much the court can take judicial notice of, for during
those days of liberation, while the people were rejoicing because of
the happy event, the banks, the insurance companies, and for that
matter other commercial and business firms, were still feeling the
adverse effects of the sudden fall of values and were uncertain and
apprehensive as to the manner the readjustment would be made by
the new Government. It is for this reason that the beneficiary, after
realizing the truth about the death of her husband, and after gathering
evidence to substantiate his death, had difficulty in effecting the
collection of her claim from the insurance company because at that
time it had not yet reopened for business purposes. Although the
record does not disclose the exact date on which the insurance
company reopened for this purpose, this Court can take judicial notice
that it only did so after liberation. At that time the legal tender was
already the present currency.
However, it is an undisputed fact that the beneficiary submitted to the
company formally her claim and demanded payment thereof on May
16, 1949, attaching thereto sufficient proof of the death of the insured,
which claim however the company did not entertain, not because the
proof submitted was not sufficient in contemplation of law, but
because the policy was executed during the occupation and the
determination of its value has not yet been passed upon by the
Government. And following the provisions of our Insurance Law to the
effect that in case of maturity by death, the conclusion is inescapable
that from the point of view of the insurance company, the proceeds of
the policy became payable only upon the expiration of that period.
(Insurance Law, Section 91-A). In this sense, this case may be
likened to those already decided by this Court wherein we said in
substance that, where the parties have agreed that the payment of
the obligation will be made in the currency that would prevail by the
end of the stipulated period, and this takes place after liberation, the
obligation shall be paid in accordance with the currency then
prevailing, or Philippine currency. (Roño vs. Gomez, 83 Phil., 890, 46
Off. Gaz., Sup. 111, 339; Gomez vs. Tabia, 84 Phi;., 269, 47, Off.
Gaz., 641.) We are, therefore, persuaded to conclude, on the strength
of these authorities, that the present claim should be paid in
accordance with the present legal tender, or the Philippine currency.
With regard to the sufficiency of the proof presented by appellee as to
the death of the insured, we find that the same has been sufficiently
established in view of the death certificate issued by the Civil Register
of Manila on April 15, 1952, which was attached to the motion for
summary judgment. This certificate strengthens the proof submitted
by appellee on May 16, 1949 and as such it can serve as basis for the
determination of the interest that the company should pay under the
policy as required by law. (Insurance Law, Section 91-A). However,
the lower court, contrary to the claim of appellant, only required said
appellant to pay legal interest from the filing of the complaint until the
payment of the judgment.
As final plea, appellant invokes equity in its favor in view of the
nullification of the deposits made by it with the Philippine National
Bank of all fiat money received from its policyholders, which money
was declared without value by Executive Order No. 49 of the
President of the Philippines. Appellant claims that, considering the
unexpected circumstances that developed, the indemnity to be paid
by it should be suffered by it under Article 307 of the Code of
Commerce which provides: "When the deposits are of cash, with a
specification of the coins constituting them, . . . the increase or
reduction which their value may suffer shall be for the account of the
depositor." Moreover, appellant, by entering into an insurance
contract, cannot claim, if it suffers loss, that the beneficiary cannot
enrich herself at its expense. This is a risk attendant to any wagering
contract.1 One who gambles and loses cannot be heard to complain
of his loss. To appellant, we can only repeat the following admonition:
"The parties herein gambled and speculated on the date of the
termination of the war and the liberation of the Philippines by the
Americans. This can be gleaned from the stipulation about
redemption, particularly that portion to the effect that redemption
could be effected not before the expiration of one year from June 24,
1944. This kind of agreement is permitted by law. We find nothing
immoral or unlawful in it." (Gomez vs. Tabia, supra.)
Wherefore, the decision appealed from is affirmed, with costs against
appellant.
G.R. No. 92383 July 17, 1992
SUN INSURANCE OFFICE, LTD., petitioner,  not loaded. It is submitted that Lim did not willfully expose himself to
vs.
THE HON. COURT OF APPEALS and NERISSA LIM, respondents.
CRUZ, J.:
The petitioner issued Personal Accident Policy No. 05687 to Felix
Lim, Jr. with a face value of P200,000.00. Two months later, he was
dead with a bullet wound in his head. As beneficiary, his wife Nerissa
Lim sought payment on the policy but her claim was rejected. The
petitioner agreed that there was no suicide. It argued, however that
there was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death.
It happened on October 6, 1982, at about 10 o'clock in the evening,
after his mother's birthday party. According to Nalagon, Lim was in a
happy mood (but not drunk) and was playing with his handgun, from
which he had previously removed the magazine. As she watched
television, he stood in front of her and pointed the gun at her. She
pushed it aside and said it might he loaded. He assured her it was not
and then pointed it to his temple. The next moment there was an
explosion and Lim slumped to the floor. He was dead before he fell. 1
The widow sued the petitioner in the Regional Trial Court of
Zamboanga City and was sustained. 2 The petitioner was sentenced
to pay her P200,000.00, representing the face value of the policy, with
interest at the legal rate; P10,000.00 as moral damages; P5,000.00
as exemplary damages; P5,000.00 as actual and compensatory
damages; and P5,000.00 as attorney's fees, plus the costs of the suit.
This decision was affirmed on appeal, and the motion for
reconsideration was denied. 3 The petitioner then came to this Court
to fault the Court of Appeals for approving the payment of the claim
and the award of damages.
The term "accident" has been defined as follows:
The words "accident" and "accidental" have never acquired any
technical signification in law, and when used in an insurance contract
are to be construed and considered according to the ordinary
understanding and common usage and speech of people generally.
In-substance, the courts are practically agreed that the words
"accident" and "accidental" mean that which happens by chance or
fortuitously, without intention or design, and which is unexpected,
unusual, and unforeseen. The definition that has usually been
adopted by the courts is that an accident is an event that takes place
without one's foresight or expectation — an event that proceeds from
an unknown cause, or is an unusual effect of a known case, and
therefore not expected. 4
An accident is an event which happens without any human agency or,
if happening through human agency, an event which, under the
circumstances, is unusual to and not expected by the person to whom
it happens. It has also been defined as an injury which happens by
reason of some violence or casualty to the injured without his design,
consent, or voluntary co-operation. 5
In light of these definitions, the Court is convinced that the incident
that resulted in Lim's death was indeed an accident. The petitioner,
invoking the case of De la Cruz v. Capital Insurance, 6 says that
"there is no accident when a deliberate act is performed unless some
additional, unexpected, independent and unforeseen happening
occurs which produces or brings about their injury or death." There
was such a happening. This was the firing of the gun, which was the
additional unexpected and independent and unforeseen occurrence
that led to the insured person's death.
The petitioner also cites one of the four exceptions provided for in the
insurance contract and contends that the private petitioner's claim is
barred by such provision. It is there stated:
Exceptions —
The company shall not be liable in respect of
1. Bodily injury
xxx xxx xxx
b. consequent upon
i) The insured person attempting to commit
suicide or willfully exposing himself to
needless peril except in an attempt to save
human life.
To repeat, the parties agree that Lim did not commit suicide.
Nevertheless, the petitioner contends that the insured willfully
exposed himself to needless peril and thus removed himself from the
coverage of the insurance policy.
It should be noted at the outset that suicide and willful exposure to
needless peril are in pari materia because they both signify a
disregard for one's life. The only difference is in degree, as suicide
imports a positive act of ending such life whereas the second act
indicates a reckless risking of it that is almost suicidal in intent. To
illustrate, a person who walks a tightrope one thousand meters above
the ground and without any safety device may not actually be
intending to commit suicide, but his act is nonetheless suicidal. He
would thus be considered as "willfully exposing himself to needless
peril" within the meaning of the exception in question.
The petitioner maintains that by the mere act of pointing the gun to
hip temple, Lim had willfully exposed himself to needless peril and so
came under the exception. The theory is that a gun is per
se dangerous and should therefore be handled cautiously in every
case.
That posture is arguable. But what is not is that, as the secretary
testified, Lim had removed the magazine from the gun and believed it
was no longer dangerous. He expressly assured her that the gun was
needless peril when he pointed the gun to his temple because the fact
is that he thought it was not unsafe to do so. The act was precisely
intended to assure Nalagon that the gun was indeed harmless.
The contrary view is expressed by the petitioner thus:
Accident insurance policies were never
intended to reward the insured for his
tendency to show off or for his miscalculations.
They were intended to provide for
contingencies. Hence, when I miscalculate
and jump from the Quezon Bridge into the
Pasig River in the belief that I can overcome
the current, I have wilfully exposed myself to
peril and must accept the consequences of my
act. If I drown I cannot go to the insurance
company to ask them to compensate me for
my failure to swim as well as I thought I could.
The insured in the case at bar deliberately put
the gun to his head and pulled the trigger. He
wilfully exposed himself to peril.
The Court certainly agrees that a drowned man cannot go to the
insurance company to ask for compensation. That might frighten the
insurance people to death. We also agree that under the
circumstances narrated, his beneficiary would not be able to collect
on the insurance policy for it is clear that when he braved the currents
below, he deliberately exposed himself to a known peril.
The private respondent maintains that Lim did not. That is where she
says the analogy fails. The petitioner's hypothetical swimmer knew
when he dived off the Quezon Bridge that the currents below were
dangerous. By contrast, Lim did not know that the gun he put to his
head was loaded.
Lim was unquestionably negligent and that negligence cost him his
own life. But it should not prevent his widow from recovering from the
insurance policy he obtained precisely against accident. There is
nothing in the policy that relieves the insurer of the responsibility to
pay the indemnity agreed upon if the insured is shown to have
contributed to his own accident. Indeed, most accidents are caused
by negligence. There are only four exceptions expressly made in the
contract to relieve the insurer from liability, and none of these
exceptions is applicable in the case at bar. **
It bears noting that insurance contracts are as a rule supposed to be
interpreted liberally in favor of the assured. There is no reason to
deviate from this rule, especially in view of the circumstances of this
case as above analyzed.
On the second assigned error, however, the Court must rule in favor
of the petitioner. The basic issue raised in this case is, as the
petitioner correctly observed, one of first impression. It is evident that
the petitioner was acting in good faith then it resisted the private
respondent's claim on the ground that the death of the insured was
covered by the exception. The issue was indeed debatable and was
clearly not raised only for the purpose of evading a legitimate
obligation. We hold therefore that the award of moral and exemplary
damages and of attorney's fees is unjust and so must be
disapproved.
In order that a person may be made liable to
the payment of moral damages, the law
requires that his act be wrongful. The adverse
result of an action does not per se make the
act wrongful and subject the act or to the
payment of moral damages. The law could not
have meant to impose a penalty on the right to
litigate; such right is so precious that moral
damages may not be charged on those who
may exercise it erroneously. For these the law
taxes costs. 7
The fact that the results of the trial were
adverse to Barreto did not alone make his act
in bringing the action wrongful because in
most cases one party will lose; we would be
imposing an unjust condition or limitation on
the right to litigate. We hold that the award of
moral damages in the case at bar is not
justified by the facts had circumstances as
well as the law.
If a party wins, he cannot, as a rule, recover
attorney's fees and litigation expenses, since it
is not the fact of winning alone that entitles
him to recover such damages of the
exceptional circumstances enumerated in Art.
2208. Otherwise, every time a defendant wins,
automatically the plaintiff must pay attorney's
fees thereby putting a premium on the right to
litigate which should not be so. For those
expenses, the law deems the award of costs
as sufficient. 8
WHEREFORE, the challenged decision of the Court of Appeals is
AFFIRMED in so far as it holds the petitioner liable to the private
respondent in the sum of P200,000.00 representing the face value of
the insurance contract, with interest at the legal rate from the date of
the filing of the complaint until the full amount is paid, but MODIFIED
with the deletion of all awards for damages, including attorney's fees,
except the costs of the suit. SO ORDERED.
G.R. No. L-21574             June 30, 1966
SIMON DE LA CRUZ, plaintiff and appellee,  construed by the courts in their ordinary and common acceptation.
vs.
THE CAPITAL INSURANCE and SURETY CO., INC., defendant and
appellant.
BARRERA, J.:
This is an appeal by the Capital Insurance & Surety Company, Inc.,
from the decision of the Court of First Instance of Pangasinan (in Civ
Case No. U-265), ordering it to indemnify therein plaintiff Simon de la
Cruz for the death of the latter's son, to pay the burial expenses, and
attorney's fees.
Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc
Mines, Inc. in Baguio, was the holder of an accident insurance policy
(No. ITO-BFE-170) underwritten by the Capital Insurance & Surety
Co., Inc., for the period beginning November 13, 1956 to November
12, 1957. On January 1, 1957, in connection with the celebration of
the New Year, the Itogon-Suyoc Mines, Inc. sponsored a boxing
contest for general entertainment wherein the insured Eduardo de la
Cruz, a non-professional boxer participated. In the course of his bout
with another person, likewise a non-professional, of the same height,
weight, and size, Eduardo slipped and was hit by his opponent on the
left part of the back of the head, causing Eduardo to fall, with his head
hitting the rope of the ring. He was brought to the Baguio General
Hospital the following day. The cause of death was reported as
hemorrhage, intracranial, left.
Simon de la Cruz, the father of the insured and who was named
beneficiary under the policy, thereupon filed a claim with the
insurance company for payment of the indemnity under the insurance
policy. As the claim was denied, De la Cruz instituted the action in the
Court of First Instance of Pangasinan for specific performance.
Defendant insurer set up the defense that the death of the insured,
caused by his participation in a boxing contest, was not accidental
and, therefore, not covered by insurance. After due hearing the court
rendered the decision in favor of the plaintiff which is the subject of
the present appeal.
It is not disputed that during the ring fight with another non-
professional boxer, Eduardo slipped, which was unintentional. At this
opportunity, his opponent landed on Eduardo's head a blow, which
sent the latter to the ropes. That must have caused the cranial injury
that led to his death. Eduardo was insured "against death or disability
caused by accidental means". Appellant insurer now contends that
while the death of the insured was due to head injury, said injury was
sustained because of his voluntary participation in the contest. It is
claimed that the participation in the boxing contest was the "means"
that produced the injury which, in turn, caused the death of the
insured. And, since his inclusion in the boxing card was voluntary on
the part of the insured, he cannot be considered to have met his
death by "accidental means".1äwphï1.ñët
The terms "accident" and "accidental", as used in insurance
contracts, have not acquired any technical meaning, and are
Thus, the terms have been taken to mean that which happen by
chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. An accident is an event that
takes place without one's foresight or expectation — an event that
proceeds from an unknown cause, or is an unusual effect of a known
cause and, therefore, not expected.1
Appellant however, would like to make a distinction between
"accident or accidental" and "accidental means", which is the term
used in the insurance policy involved here. It is argued that to be
considered within the protection of the policy, what is required to be
accidental is the means that caused or brought the death and not the
death itself. It may be mentioned in this connection, that the tendency
of court decisions in the United States in recent years is to eliminate
the fine distinction between the terms "accidental" and "accidental
means" and to consider them as legally synonymous.2 But, even if we
take appellant's theory, the death of the insured in the case at bar
would still be entitled to indemnification under the policy. The
generally accepted rule is that, death or injury does not result from
accident or accidental means within the terms of an 
accident-policy if it is the natural result of the insured's voluntary act,
unaccompanied by anything unforeseen except the death or
injury.3 There is no accident when a deliberate act is performed
unless some additional, unexpected, independent, and unforeseen
happening occurs which produces or brings about the result of injury
or death.4 In other words, where the death or injury is not the natural
or probable result of the insured's voluntary act, or if something
unforeseen occurs in the doing of the act which produces the injury,
the resulting death is within the protection of policies insuring against
death or injury from accident.
In the present case, while the participation of the insured in the boxing
contest is voluntary, the injury was sustained when he slid, giving
occasion to the infliction by his opponent of the blow that threw him to
the ropes of the ring. Without this unfortunate incident, that is, the
unintentional slipping of the deceased, perhaps he could not have
received that blow in the head and would not have died. The fact that
boxing is attended with some risks of external injuries does not make
any injuries received in the course of the game not accidental. In
boxing as in other equally physically rigorous sports, such as
basketball or baseball, death is not ordinarily anticipated to result. If,
therefore, it ever does, the injury or death can only be accidental or
produced by some unforeseen happening or event as what occurred
in this case.
Furthermore, the policy involved herein specifically excluded from its
coverage — 
(e) Death or disablement consequent upon the Insured
engaging in football, hunting, pigsticking, steeplechasing,
polo-playing, racing of any kind, mountaineering, or
motorcycling.
Death or disablement resulting from engagement in boxing contests
was not declared outside of the protection of the insurance contract.
Failure of the defendant insurance company to include death resulting
from a boxing match or other sports among the prohibitive risks leads
inevitably to the conclusion that it did not intend to limit or exempt
itself from liability for such death.5
Wherefore, in view of the foregoing considerations, the decision
appealed from is hereby affirmed, with costs against appellant. so
ordered.
G.R. No. 100970 September 2, 1992
FINMAN GENERAL ASSURANCE CORPORATION, petitioner, 
vs.
THE HONORABLE COURT OF APPEALS and JULIA
SURPOSA, respondents.
NOCON, J.:
This is a petition for certiorari with a prayer for the issuance of a
restraining order and preliminary mandatory injunction to annul and
set aside the decision of the Court of Appeals dated July 11,
1991, 1 affirming the decision dated March 20, 1990 of the Insurance
Commission 2 in ordering petitioner Finman General Assurance
Corporation to pay private respondent Julia Surposa the proceeds of
the personal accident Insurance policy with interest.
It appears on record that on October 22, 1986, deceased, Carlie
Surposa was insured with petitioner Finman General Assurance
Corporation under Finman General Teachers Protection Plan Master
Policy No. 2005 and Individual Policy No. 08924 with his parents,
spouses Julia and Carlos Surposa, and brothers Christopher,
Charles, Chester and Clifton, all surnamed, Surposa, as
beneficiaries. 3
While said insurance policy was in full force and effect, the insured,
Carlie Surposa, died on October 18, 1988 as a result of a stab wound
inflicted by one of the three (3) unidentified men without provocation
and warning on the part of the former as he and his cousin, Winston
Surposa, were waiting for a ride on their way home along Rizal-Locsin
Streets, Bacolod City after attending the celebration of the "Maskarra
Annual Festival."
Thereafter, private respondent and the other beneficiaries of said
insurance policy filed a written notice of claim with the petitioner
insurance company which denied said claim contending that murder
and assault are not within the scope of the coverage of the insurance
policy.
On February 24, 1989, private respondent filed a complaint with the
Insurance Commission which subsequently rendered a decision, the
pertinent portion of which reads:
In the light of the foregoing. we find
respondent liable to pay complainant the sum
of P15,000.00 representing the proceeds of
the policy with interest. As no evidence was
submitted to prove the claim for mortuary aid
in the sum of P1,000.00, the same cannot be
entertained.
WHEREFORE, judgment is hereby rendered
ordering respondent to pay complainant the
sum of P15,000.00 with legal interest from the
date of the filing of the complaint until fully
satisfied. With costs. 4
On July 11, 1991, the appellate court affirmed said decision.
Hence, petitioner filed this petition alleging grove abuse of discretion
on the part of the appellate court in applying the principle of
"expresso unius exclusio alterius" in a personal accident insurance
policy since death resulting from murder and/or assault are impliedly
excluded in said insurance policy considering that the cause of death
of the insured was not accidental but rather a deliberate and
intentional act of the assailant in killing the former as indicated by the
location of the lone stab wound on the insured. Therefore, said death
was committed with deliberate intent which, by the very nature of a
personal accident insurance policy, cannot be indemnified.
We do not agree.
The terms "accident" and "accidental" as used
in insurance contracts have not acquired any
technical meaning, and are construed by the
courts in their ordinary and common
acceptation. Thus, the terms have been taken
to mean that which happen by chance or
fortuitously, without intention and design, and
which is unexpected, unusual, and
unforeseen. An accident is an event that takes
place without one's foresight or expectation —
an event that proceeds from an unknown
cause, or is an unusual effect of a known
cause and, therefore, not expected.
. . . The generally accepted rule is that, death
or injury does not result from accident or
accidental means within the terms of an
accident-policy if it is the natural result of the
insured's voluntary act, unaccompanied by
anything unforeseen except the death or
injury. There is no accident when a deliberate
act is performed unless some additional,
unexpected, independent, and unforeseen
happening occurs which produces or brings
about the result of injury or death. In other
words, where the death or injury is not the
natural or probable result of the insured's
voluntary act, or if something unforeseen
occurs in the doing of the act which produces
the injury, the resulting death is within the
protection of the policies insuring against
death or injury from accident. 5
As correctly pointed out by the respondent appellate court in its
decision:
In the case at bar, it cannot be pretended that
Carlie Surposa died in the course of an
assault or murder as a result of his voluntary
act considering the very nature of these
crimes. In the first place, the insured and his
companion were on their way home from
attending a festival. They were confronted by
unidentified persons. The record is barren of
any circumstance showing how the stab
wound was inflicted. Nor can it be pretended
that the malefactor aimed at the insured
precisely because the killer wanted to take his
life. In any event, while the act may not
exempt the unknown perpetrator from criminal
liability, the fact remains that the happening
was a pure accident on the part of the victim.
The insured died from an event that took place
without his foresight or expectation, an event
that proceeded from an unusual effect of a
known cause and, therefore, not expected.
Neither can it be said that where was a
capricious desire on the part of the accused to
expose his life to danger considering that he
was just going home after attending a
festival. 6
Furthermore, the personal accident insurance policy involved herein
specifically enumerated only ten (10) circumstances wherein no
liability attaches to petitioner insurance company for any injury,
disability or loss suffered by the insured as a result of any of the
stimulated causes. The principle of " expresso unius exclusio alterius"
— the mention of one thing implies the exclusion of another thing —
is therefore applicable in the instant case since murder and assault,
not having been expressly included in the enumeration of the
circumstances that would negate liability in said insurance policy
cannot be considered by implication to discharge the petitioner
insurance company from liability for, any injury, disability or loss
suffered by the insured. Thus, the failure of the petitioner insurance
company to include death resulting from murder or assault among the
prohibited risks leads inevitably to the conclusion that it did not intend
to limit or exempt itself from liability for such death.
Article 1377 of the Civil Code of the Philippines provides that:
The interpretation of obscure words or
stipulations in a contract shall not favor the
party who caused the obscurity.
Moreover,
it is well settled that contracts of insurance are
to be construed liberally in favor of the insured
and strictly against the insurer. Thus ambiguity
in the words of an insurance contract should
be interpreted in favor of its beneficiary. 7
WHEREFORE, finding no irreversible error in the decision of the
respondent Court of Appeals, the petition for certiorari with restraining
order and preliminary injunction is hereby DENIED for lack of merit.
SO ORDERED.
G.R. No. L-12189             April 29, 1960
FRANCISCA GALLARDO, plaintiff-appellee,  insurance policy, taking into account that the insured, Luis
vs.
HERMENEGILDA S. MORALES, defendant-appellant.
CONCEPCION, J.:
The issue before us is whether a personal accident insurance which
"insures for injuries and/or death as a result of murder or assault or
attempt thereat" is a life insurance, within the purview of Rule 39,
section 12, subdivision (k) of the Rules of Court, exempting from
execution.
All moneys, benefits, privileges, or annuities accruing or in
any manner growing out of any life insurance, if the
annual premiums paid do not exceed five hundred pesos,
and if they exceed that sum a like exemption shall exist
which shall bear the same proportion to the moneys,
benefits, privileges, and annuities so accruing or growing
out of such insurance that said five hundred pesos bears
to the whole annual premiums paid.
In accordance with a compromise agreement between the parties in
the above-entitled case, a decision was rendered therein by the Court
of First Instance of Manila, on February 3, 1956, sentencing
defendant Hermenegilda S. Morales to pay to plaintiff Francisca
Gallardo the sum of Seven Thousand Pesos (P7,000.00). In due
course, the corresponding writ of execution was issued and delivered
to the Sheriff of Manila, who, on August 8, 1956, garnished and levied
It is not disputed that a life insurance is, generally speaking, distinct
execution on the sum of P7,000.00, out of the P30,000.00 a due from
and different from an accident insurance. However, when one of the
the Capital Insurance & Surety Co., Inc., to said defendant, as
risks insured in the latter is the death of the insured by accident, then
beneficiary under a personal accident policy issued by said company
there are authorities to the effect that such accident insurance may,
to defendant's husband, Luis Morales, who died, on August 26, 1950,
also, be regarded as a life insurance.
by assassination. Invoking the above-quoted provision of the Rules of
Court, defendant asked the sheriff to quash and lift said garnishment
or levy on execution. Upon denial of this request by the sheriff,
defendant filed a motion praying that the aforementioned sum of
P7,000.00 be declared exempt from execution under said provision of
the Rules of Court, and that the Sheriff of Manila be ordered to quash
or lift said garnishment or levy on execution. This motion was denied
by an order dated October 18, 1956. Hence, the present appeal by
the defendant, who maintains that the policy in question is a life
insurance policy, within the purview of the aforementioned exemption,
for it insured her husband ". . . for injuries and/or death as a result of
murder or assault or attempt thereat."
In its order denying the claim for exemption set up by the defendant,
the lower court expressed itself as follows:
Upon a perusal of the authorities cited by the parties, this
Court is fully convinced that there is a fundamental
distinction between life insurance, and accident insurance,
and the insurance policy issued to Luis G. Morales,
husband of herein defendant, was undoubtedly an
accident insurance, as distinguished from a life insurance.
As conceded by the facts appearing in the pleadings, the
personal accident policy, part of the proceeds of which is
under garnishment, was for P50,000.00 and yet the
annual premium was for P15.00. If it were an ordinary life
G. Morales, was 38 years of age and the amount of the
policy was for P50,000.00 the annual premium would
have been around P1,206.00. Besides, the period for the
policy was stipulated for one year, and considerations as
to age, health, occupation and other personal
circumstances were not taken into account in an accident
insurance policy. Even the certification issued by the
insurance commissioner on August 23, 1956, marked as
Annex "1" of the opposition, shows that the Capital
Insurance and Surety Company Inc. is a non-life
insurance company and that the only authority granted to
it to transact business covers fire, marine, surety, fidelity,
accident, motor car, and miscellaneous insurance, except
life insurance. From this circumstance alone, not to
mention many others, there are abundant indications that
there exists a fundamental distinction between life
insurance and accident insurance. As counsel for
oppositor has clearly pointed out, an accident policy
merely insures the person from injury and or death
resulting from murder, assault, or an attempt thereat,
while in life insurance policy, what is insured is the life of
the subject for a definite number of years. From the
authorities quoted by the oppositor, this Court is fully
convinced that an accident policy is fundamentally
different from a life insurance policy, especially if this
Court takes into account that accident insurance is an
indemnity or casualty contract, while life insurance is an
investment contract.
"Life insurance" is a contract whereby one party insures a
person against loss by the death of another. Petition of
Robbins, 140 A. 366, 367, 126 Me. 555.
An insurance on life is a contract by which the insurer, for
a stipulated sum, engages to pay a certain amount of
money if another dies within the time limited by the policy.
Cason vs. Owens, 26 S. E. 75, 76, 100 Ga. 142.
Life insurance includes in which the payment of the
insurance money is contingent upon the loss of life.
Bowless vs. Mutual Ben. Health & Accident Ass'n, C.C.A.
Va. 99F. 2d 44. 48, 49.
A contract for life insurance is really a contract for
insurance for one year in consideration of an advanced
premium, with the right of assured to continue it from year
to year upon payment of a premium as stipulated. Mutual
Life Ins. Co. 100 Pa 172, 180.
In its broader sense, "life insurance" includes accident
insurance, since life is insured under either contract.
American Trust & Banking Co. vs. Lessly, 106 S.W. 2d.
551, 552, 171 Tenn. 561, 111 A.L.R. 59.
Under statute providing that 'any life insurance' on life of
husband shall insure to benefit of widow and children
exempt from husband's debt, proceeds of policy insuring
against death by accident insured to widow's benefit free
from husband's debts. Code 1932, B 8456. American
Trust & Banking Co. vs. Lessly, 106 S.W. 2d 551, 171
Tenn. 511 III A.L.R. 59.
Insurance policy, providing for payment in case of
accidental death, is "life insurance policy" to such extent
within state statue prescribing in-contestable period for
policies. Code S.C. 1932 ss 7986, 7987. Pacific Mut. Life
Ins. Co. of California vs. Parker, C.C.A.S.C., 71 F. 2d 872,
875.
"Life insurance" includes all policies of insurance in which
payment of insurance money is contingent upon loss of
life. . . . Smith vs. Equitable Life Assur. Soc. of U.S., 89
S.W. 2d 165, 167, 169 Tenn. 477.
Insurance policy including a death benefit and a health or
accident disability benefit constituted a "life insurance
policy" within meaning of laws 1926, c. 118, S. 134,
imposing privilege tax on insurance companies with
different rates as between life insurance companies and
other companies, in view of provisions of Code 1906, ss
2576, 2598 (Hemingway's Code 1927, ss 5830, 5856),
and Law 1924, c. 191, s I (Hemingway's Code 1927, s
5995); it being immaterial that in some policy forms the
health and disability feature was more valuable asent a
showing that death provision was inserted to avoid the
higher tax. Universal Life Ins. Co. vs.State, 121 So. 849,
850, 155 Miss. 358." (25 Words & Phrases 260, 261,
262.)
When the application was made, Harris W. Rimmer
carried life insurance with the Equitable Life Assurance
Society, for $10,000, payable upon proof of death, with a
provision that upon death by accident the amount of
insurance payable would be increased to $20,000. The
plaintiff insisted that this was life insurance, a disclosure
of which was not called for in question 10, while the
 defendant insisted it was accident insurance that should
have been disclosed and further insisted that, it being a
fact material to the risk the failure to disclose the policy in
the Equitable Life Assurance Society rendered the policy
issued to the applicant void. . . .
The court might have gone further and held that the failure
of the applicant to characterize the insurance in the
Equitable Life Assurance Society as accident insurance
did not constitute a false answer to the inquiry of what
accident or health insurance he was carrying. The policy
in the Equitable Life Assurance Society covered loss of
life from natural as well as external and accidental
causes, and was life insurance. The mere addition of the
double indemnity clause providing for increased insurance
upon proof of death by accident did not divest the policy of
its character of insurance on life, or make the contract
other than life insurance, for insurance on life includes all
policies of insurance in which the payment of the
insurance money is contingent upon the loss of life.
Logan vs. Fidelity & Casualty Co., 146 Mo. 114, 47 S.W.
948. See also Johnson vs.Fidelity & Guaranty Co., 148
Mich. 406, 151 N.W. 593, L.R.A. 1916A, 475;
Zimmer vs. Central Accidental Co., 207 Pa. 472, 56 A.
1003; Wright vs. Fraternities Health & Accident Ass'n. 107
Me. 418, 78A. 475, 32 L.R.A. (N.S.)461; Metropolitan Life
Ins. Co. vs. Ins. Com'r 208 Mass. 386, 94 N.E. 477;
Standard Life & Accident Ins. Co. vs. Caroll, 86 F. 567, 41
L.R.A. 194; Wahl vs. Interstate Business Men's Accident
Ass'n 201 Iowa; 1355, 207 N.W. 395, 50 A.L.R. 1377."
(Provident Life & Accident Ins. Co. vs. Rimmer, 12 S. W.
2d Series, 365, 367.)
For this reason, and because the above-quoted provision of the Rules
of Court makes reference to "any life insurance," we are inclined to
believe that the exemption there established applies to ordinary life
insurance contracts, as well as to those which, although intended
primarily to indemnify for risks arising from accident, likewise, insure
against loss of life due, either to accidental causes, or to the willful
and criminal act of another, which, as such, is not strictly accidental in
nature. Indeed, it has been held that statutes of this nature seek to
enable the head of the family to secure his widow and children from
becoming a burden upon the community and, accordingly, should
merit a liberal interpretation.
The object of this statue was to enable a husband, when
death deprived wife and children of his support, to secure
them from want and to prevent them from becoming a
charge upon the public. Necessities of the wife and
children and the public interest are none the less if the
death of the husband be brought about by accident rather
than by disease. The intent of the legislature in the
enactment of this statute would not be advanced by the
construction of the law upon which the petitioners insist.
(American Trust & Banking Co. vs.Lessly et al., Supreme
Court of Tenn., 106 S.W. 2d, 551, 552.)
Under statutes providing to that effect, the proceeds of life the ground that "the claims of complainants are all respectively
insurance are exempt from the claims of creditors, a beyond the jurisdiction of the Insurance Commission as provided in
limitation being sometimes imposed as to amount, see Section 416 of the Insurance Code," 6 having been denied in the Order
infra Sec. 40, or as to the beneficiaries entitled to the of 14 November 1989, 7 it filed its answer on 5 December
exemption, see infra subdivision of this section. Statutes 1989. 8 Thereafter, hearings were conducted on various dates.
exempting life insurance are regarded as exemption laws,
and not as part of the insurance from law of the state, nor
as designed simply to protect insurer from harassing On 20 June 1990, the Commission rendered its decision9 in favor of
litigation. Such statutes should be construed liberally and the complainants, the dispositive portion of which reads as follows:
in the light of, and to give effect to, their purpose of
enabling an individual to provide a fund after his death for
WHEREFORE, this Commission merely
his family which will be free from the claims of creditors.
orders the respondent company to:
The exemption privilege is created not by contract but by
legislative grant, and grounds for the exemption of the
proceeds of insurance policies must be found in the a) Pay a fine of FIVE HUNDRED PESOS
statutes. (35 C.J.S. pp. 53-54.) (P500.00) a day from the receipt of a copy of
this Decision until actual payment thereof;
By weight of authority, exemption statutes or rules should
be liberally construed with a view to giving effect to their b) Pay and settle the claims of DINA AYO and
beneficent and humane purpose. To this end, every LUCIA LONTOK, for P50,000.00 and
reasonable doubt as to whether a given property is or is P40,000.00, respectively;
not exempt should be resolved in favor of exemption.
(Comments on the Rules of Court by Moran [1957 ed.]
Vol. 1, p. 564.) c) Notify henceforth it should notify individual
beneficiaries designated under any Group
Policy, in the event of the death of insured(s),
Wherefore, the order appealed from is reversed, and the garnishment where the corresponding claims are filed by
in dispute hereby set aside and quashed, with the costs of this the Policyholder;
instance against plaintiff Francisca Gallardo. It is so ordered.
d) Show cause within ten days why its other
G.R. No. 105562 September 27, 1993 responsible officers who have handled this
case should not be subjected to disciplinary
and other administrative sanctions for
LUZ PINEDA, MARILOU MONTENEGRO, VIRGINIA ALARCON,
deliberately releasing to Capt. Nuval the check
DINA LORENA AYO, CELIA CALUMBAG and LUCIA
intended for spouses ALARCON, in the
LONTOK, petitioners, 
absence of any Special Power of Attorney for
vs.
that matter, and for negligence with respect to
HON. COURT OF APPEALS and THE INSULAR LIFE
the release of the other five checks.
ASSURANCE COMPANY, LIMITED, respondents.
SO ORDERED. 10
DAVIDE, JR., J.:
In holding for the petitioners, the Insurance Commission made the
This is an appeal by certiorari to review and set aside the Decision of
following findings and conclusions:
the public respondent Court of Appeals in CA-G.R. SP No.
229501 and its Resolution denying the petitioners' motion for
reconsideration.2 The challenged decision modified the decision of the After taking into consideration the evidences
Insurance Commission in IC Case  [sic], testimonial and documentary for the
No. RD-058. 3 complainants and the respondent, the
Commission finds that; First: The respondent
erred in appreciating that the powers of
The petitioners were the complainants in IC Case No. RD-058, an
attorney executed by five (5) of the several
administrative complaint against private respondent Insular Life
beneficiaries convey absolute authority to
Assurance Company, Ltd. (hereinafter Insular Life), which was filed
Capt. Nuval, to demand, receive, receipt and
with the Insurance Commission on 20 September 1989. 4 They
take delivery of insurance proceeds from
prayed therein that after due proceedings, Insular Life "be ordered to
respondent Insular Life. A cursory reading of
pay the claimants their insurance claims" and that "proper
the questioned powers of authority would
sanctions/penalties be imposed on" it "for its deliberate, feckless
disclosed [sic] that they do not contain in
violation of its contractual obligations to the complainants, and of the
unequivocal and clear terms authority to Capt.
Insurance Code." 5 Insular Life's motion to dismiss the complaint on
 Nuval to obtain, receive, receipt from
respondent company insurance proceeds
arising from the death of the seaman-insured.
On the contrary, the said powers of attorney
are couched in terms which could easily
arouse suspicion of an ordinary  modified by eliminating therefrom the award to
man. . . .
Second: The testimony of the complainants'
rebuttal witness,  It found the following facts to have been duly established:
Mrs. Trinidad Alarcon, who declared in no
uncertain terms that neither she nor her
husband, executed a special power of attorney
in favor of Captain Rosendo Nuval, authorizing
him to claim, receive, receipt and take delivery
of any insurance proceeds from Insular Life
arising out of the death of their
insured/seaman son, is not convincingly
refuted.
Third: Respondent Insular Life did not observe
Section 180 of the Insurance Code, when it
issued or released two checks in the amount
of P150,000.00 for the three minor children
(P50,000.00 each) of complainant, Dina Ayo
and another check of P40,000.00 for minor
beneficiary Marissa Lontok, daughter of
another complainant Lucia Lontok, there being
no showing of any court authorization
presented or the requisite bond posted.
Section 180 is quotes [sic] partly as follows:
. . . In the absence of a judicial guardian, the father, or in the latter's
absence or incapacity, the mother of any minor, who is an insured or
a beneficiary under a contract of life, health or accident insurance,
may exercise, in behalf of said minor, any right, under the policy,
without necessity of court authority or the giving of a bond where the
interest of the minor in the particular act involved does not exceed
twenty thousand pesos . . . . 11
Insular Life appealed the decision to the public respondent which
docketed the case as CA-G.R. SP No. 22950. The appeal urged the
appellate court to reverse the decision because the Insurance
Commission (a) had no jurisdiction over the case considering that the
claims exceeded P100,000.00,  receive their respective death benefits.
(b) erred in holding that the powers of attorney relied upon by Insular
Life were insufficient to convey absolute authority to Capt. Nuval to
demand, receive and take delivery of the insurance proceeds
pertaining to the petitioners, (c) erred in not giving credit to the
version of Insular Life that the power of attorney supposed to have
been executed in favor of the Alarcons was missing, and  President, Capt. Nuval. Among the documents
(d) erred in holding that Insular Life was liable for violating Section
180 of the Insurance Code for having released to the surviving
mothers the insurance proceeds pertaining to the beneficiaries who
were still minors despite the failure of the former to obtain a court
authorization or to post a bond.
On 10 October 1991, the public respondent rendered
decision, 12 the decretal portion of which reads:
WHEREFORE, the decision appealed from is
Dina Ayo and Lucia Lontok in the amounts of
P50,000.00 and P40,000.00, respectively. 13
It appears that on 23 September 1983, Prime
Marine Services, Inc. (PMSI, for brevity), a
crewing/manning outfit, procured Group
PoIicy 
No. G-004694 from respondent-appellant
Insular Life Assurance Co., Ltd. to provide life
insurance coverage to its sea-based
employees enrolled under the plan. On 17
February 1986, during the effectivity of the
policy, six covered employees of the PMSI
perished at sea when their vessel, M/V
Nemos, a Greek cargo vessel, sunk
somewhere in El Jadida, Morocco. They were
survived by complainants-appellees, the
beneficiaries under the policy.
Following the tragic demise of their loved
ones, complainants-appellees sought to claim
death benefits due them and, for this purpose,
they approached the President and General
Manager of PMSI, Capt. Roberto Nuval. The
latter evinced willingness to assist
complainants-appellees to recover Overseas
Workers Welfare Administration (OWWA)
benefits from the POEA and to work for the
increase of their PANDIMAN and other
benefits arising from the deaths of their
husbands/sons. They were thus made to
execute, with the exception of the spouses
Alarcon, special powers of attorney
authorizing Capt. Nuval to, among others,
"follow up, ask, demand, collect and receive"
for their benefit indemnities of sums of money
due them relative to the sinking of M/V
Nemos. By virtue of these written powers of
attorney, complainants-appellees were able to
Unknown to them, however, the PMSI, in its
capacity as employer and policyholder of the
life insurance of its deceased workers, filed
with respondent-appellant formal claims for
and in behalf of the beneficiaries, through its
submitted by the latter for the processing of
the claims were five special powers of attorney
executed by complainants-appellees. On the
basis of these and other documents duly
submitted, respondent-appellant drew against
a its account with the Bank of the Philippine
Islands on 27 May 1986 six (6) checks, four
for P200,00.00 each, one for P50,000.00 and
another for P40,00.00, payable to the order of
complainants-appellees. These checks were
released to the treasurer of PMSI upon
instructions of 
Capt. Nuval over the phone to Mr. Mariano
Urbano, Assistant Department Manager for
Group Administration Department of
respondent-appellant. Capt. Nuval, upon
receipt of these checks from the treasurer,
who happened to be his son-in-law, endorsed
and deposited them in his account with the
Commercial Bank of Manila, now Boston
Bank.
On 3 July 1989, after complainants-appellees
learned that they were entitled, as
beneficiaries, to life insurance benefits under a
group policy with respondent-appellant, they
sought to recover these benefits from Insular
Life but the latter denied their claim on the
ground that the liability to complainants-
appellees was already extinguished upon
delivery to and receipt by PMSI of the six (6)
checks issued in their names.14
On the basis thereof, the public respondent held that the Insurance
Commission had jurisdiction over the case on the ground that
although some of the claims exceed P100,000.00, the petitioners had
asked for administrative sanctions against Insular Life which are
within the Commission's jurisdiction to grant; hence, "there was
merely a misjoinder of causes of action . . . and, like misjoinder of
parties, it is not a ground for the dismissal of the action as it does not
affect the other reliefs prayed for." 15 It also rejected Insular Life's
claim that the Alarcons had submitted a special power of attorney
which they (Insular Life) later misplaced.
On the other hand, the public respondent ruled that the powers of
attorney, Exhibits "1" to "5," relied upon by Insular Life were sufficient
to authorize Capt. Nuval to receive the proceeds of the insurance
pertaining to the beneficiaries. It stated:
When the officers of respondent-appellant
read these written powers, they must have
assumed Capt. Nuval indeed had authority to
collect the insurance proceeds in behalf of the
beneficiaries who duly affixed their signatures
therein. The written power is specific enough
to define the authority of the agent to collect
any sum of money pertaining to the sinking of
the fatal vessel. Respondent-appellant
interpreted this power to include the collection
of insurance proceeds in behalf of the
beneficiaries concerned. We believe this is a
reasonable interpretation even by an officer of
respondent-appellant unschooled in the law.
 Had respondent appellant, consulted its legal
department it would not have received a
contrary view. There is nothing in the law
which mandates a specific or special power of
attorney to be executed to collect insurance
proceeds. Such authority is not included in the
enumeration of Art. 1878 of the New Civil
Code. Neither do we perceive collection of
insurance claims as an act of strict dominion
as to require a special power of attorney.
Moreover, respondent-appellant had no
reason to doubt Capt. Nuval. Not only was he
armed with a seemingly genuine authorization,
he also appeared to be the proper person to
deal with respondent-appellant being the
President and General Manager of the PMSI,
the policyholder with whom respondent-
appellant always dealt. The fact that there was
a verbal agreement between complainants-
appellees and Capt. Nuval limiting the
authority of the latter to claiming specified
death benefits cannot prejudice the insurance
company which relied on the terms of the
powers of attorney which on their face do not
disclose such limitation. Under the
circumstances, it appearing that complainants-
appellees have failed to point to a positive
provision of law or stipulation in the policy
requiring a specific power of attorney to be
presented, respondents-appellant's reliance
on the written powers was in order and it
cannot be penalized for such an act. 16
Insofar as the minor children of Dina Ayo and Lucia Lontok were
concerned, it ruled that the requirement in Section 180 of the
Insurance Code which provides in part that:
In the absence of a judicial guardian, the
father, or in the latter's absence or incapacity,
the mother, of any minor, who is an insured or
a beneficiary under a contract of life, health or
accident insurance, may exercise, in behalf of
said minor, any right under the policy, without
necessity of court authority or the giving of a
bond, where the interest of the minor in the
particular act involved does not exceed twenty
thousand pesos. Such a right, may include,
but shall not be limited to, obtaining a policy
loan, surrendering the policy, receiving the
proceeds of the policy, and giving the minor's
consent to any transaction on the policy.
17
has been amended by the Family Code   which grants
the father and mother joint legal guardianship over the
property of their unemancipated common child without the
necessity of a court appointment; however, when the
market value of the property or the annual income of the
child exceeds P50,000.00, the parent concerned shall be
required to put up a bond in such amount as the court
may determine.
Hence, this petition for review on certiorari which we gave due course
after the private respondent had filed the required comment thereon
and the petitioners their reply to the comment.
We rule for the petitioners.
We have carefully examined the specific powers of attorney, Exhibits
"1" to "5," which were executed by petitioners Luz Pineda, Lucia B.
Lontok, Dina Ayo, Celia Calumag, and Marilyn Montenegro,
respectively, on 14 May 198618and uniformly granted to Capt.
Rosendo Nuval the following powers:
To follow-up, ask, demand, collect and receipt
for my benefit indemnities or sum of money
due me relative to the sinking of M.V. NEMOS
in the vicinity of El Jadida, Casablanca,
Morocco on the evening of February 17, 1986;
and
To sign receipts, documents, pertinent waivers
of indemnities or other writings of whatsoever
nature with any and all third persons, concerns
and entities, upon terms and conditions
acceptable to my said attorney.
We agree with the Insurance Commission that the special powers of
attorney "do not contain in unequivocal and clear terms authority to
Capt. Nuval to obtain, receive, receipt from respondent company
insurance proceeds arising from the death of the seaman-insured. On
the contrary, the said powers of attorney are couched in terms which
could easily arouse suspicion of an ordinary man." 19 The holding of
the public respondent to the contrary is principally premised on its
opinion that:
[t]here is nothing in the law which mandates a
specific or special power of attorney to be
executed to collect insurance proceeds. Such
authority is not included in the enumeration of
art. 1878 of the New Civil Code. Neither do we
perceive collection of insurance claims as an
act of strict dominion as to require a special
power of attorney.
If this be so, then they could not have been meant to be a
general power of attorney since Exhibits "1" to "5"
are special powers of attorney. The execution by the
principals of special powers of attorney, which clearly
appeared to be in prepared forms and only had to be filled
up with their names, residences, dates of execution, dates
of acknowledgment and others, excludes any intent to
grant a general power of attorney or to constitute a
universal agency. Being special powers of attorney, they
must be strictly construed.
Certainly, it would be highly imprudent to read into the special powers
of attorney in question the power to collect and receive the insurance
proceeds due the petitioners from Group Policy No. G-004694.
Insular Life knew that a power of attorney in favor of Capt. Nuval for
the collection and receipt of such proceeds was a deviation from its
practice with respect to group policies. Such practice was testified to
by Mr. Marciano Urbano, Insular Life's Assistant Manager of the
Group Administrative Department, thus:
ATTY. CAGUIOA:
Can you explain to us why in this case, the claim was filed by a
certain Capt. Noval [sic]?
WITNESS:
a The practice of our company in claim pertaining to group insurance,
the policyholder is the one who files the claim for the beneficiaries of
the deceased. At that time, Capt. Noval [sic] is the President and
General Manager of Prime Marine.
q What is the reason why policyholders are the ones who file the
claim and not the designated beneficiaries of the employees of the
policyholders?
a Yes because group insurance is normally taken by the employer as
an employee-benefit program and as such, the benefit should be
awarded by the policyholder to make it appear that the benefit really
is given by the employer. 20
On cross-examination, Urbano further elaborated that even
payments, among other things, are coursed through the policyholder:
q What is the corporate concept of group insurance insofar as Insular
Life is concerned?
WITNESS:
a Group insurance is a contract where a group of individuals are
covered under one master contract. The individual underwriting
characteristics of each individual is not considered in the
determination of whether the individual is insurable or not. The
contract is between the policyholder and the insurance company. In
our case, it is Prime Marine and Insular Life. We do not have
contractual obligations with the individual employees; it is between
Prime Marine and Insular Life.
q And so it is part of that concept that all inquiries, follow-up, payment
of claims, premium billings, etc. should always be coursed thru the
policyholder?
a Yes that is our practice.
q And when you say claim payments should always be coursed thru
the policyholder, do you require a power of attorney to be presented
by the policyholder or not?
a Not necessarily.
q In other words, under a group insurance policy like the one in this
case, Insular Life could pay the claims to the policyholder himself
even without the presentation of any power of attorney from the
designated beneficiaries?
x x x           x x x          x x x
WITNESS:
a No. Sir.
ATTY. AMPIL:
q Why? Is this case, the present case different from the cases which
you answered that no power of attorney is necessary in claims
payments?
WITNESS:
a We did not pay Prime Marine; we paid the beneficiaries.
q Will you now tell the Honorable Commission why you did not pay
Prime Marine and instead paid the beneficiaries, the designated
beneficiaries?
x x x           x x x          x x x
ATTY. AMPIL:
I will rephrase the question.
q Will you tell the Commission what circumstances led you to pay the
designated beneficiaries, the complainants in this case, instead of the
policyholder when as you answered a while ago, it is your practice in
group insurance that claims payments, etc., are coursed thru the
policyholder?
WITNESS:
a It is coursed but, it is not paid to the policyholder.
q And so in this case, you gave the checks to the policyholder only
coursing them thru said policyholder?
a That is right, Sir.
q Not directly to the designated beneficiaries?
a Yes, Sir. 21
This practice is usual in the group insurance business and is
consistent with the jurisprudence thereon in the State of California —
from whose laws our Insurance Code has been mainly patterned —
which holds that the employer-policyholder is the agent of the insurer.
Group insurance is a comparatively new form of insurance. In the
United States, the first modern group insurance policies appear to
have been issued in 1911 by the Equitable Life Assurance
Society. 22 Group insurance is essentially a single insurance contract
that provides coverage for many individuals. In its original and most
common form, group insurance provides life or health insurance
coverage for the employees of one employer.
The coverage terms for group insurance are usually stated in a
master agreement or policy that is issued by the insurer to a
representative of the group or to an administrator of the insurance
program, such as an employer. 23 The employer acts as a functionary
in the collection and payment of premiums and in performing related
duties. Likewise falling within the ambit of administration of a group
policy is the disbursement of insurance payments by the employer to
the employees. 24 Most policies, such as the one in this case, require
an employee to pay a portion of the premium, which the employer
deducts from wages while the remainder is paid by the employer. This
is known as a contributory plan as compared to a non-contributory
plan where the premiums are solely paid by the employer.
Although the employer may be the titular or named insured, the
insurance is actually related to the life and health of the employee.
Indeed, the employee is in the position of a real party to the master
policy, and even in a non-contributory plan, the payment by the
employer of the entire premium is a part of the total compensation
paid for the services of the employee. 25 Put differently, the labor of
the employees is the true source of the benefits, which are a form of
additional compensation to them.
It has been stated that every problem concerning group insurance
presented to a court should be approached with the purpose of giving
to it every legitimate opportunity of becoming a social agency of real
consequence considering that the primary aim is to provide the
employer with a means of procuring insurance protection for his
employees and their families at the lowest possible cost, and in so
doing, the employer creates goodwill with his employees, enables the
employees to carry a larger amount of insurance than they could
otherwise, and helps to attract and hold a permanent class of
employees. 26
In Elfstrom vs. New York Life Insurance Company, 27 the California
Supreme Court explicitly ruled that in group insurance policies, the
employer is the agent of the insurer. Thus:
We are convinced that the employer is the
agent of the insurer in performing the duties of
administering group insurance policies. It
cannot be said that the employer acts entirely
for its own benefit or for the benefit of its
employees in undertaking administrative
functions. While a reduced premium may
result if the employer relieves the insurer of
these tasks, and this, of course, is
advantageous to both the employer and the
employees, the insurer also enjoys significant
advantages from the arrangement. The
reduction in the premium which results from
employer-administration permits the insurer to
realize a larger volume of sales, and at the
same time the insurer's own administrative
costs are markedly reduced.
xxx xxx xxx
The most persuasive rationale for adopting the
view that the employer acts as the agent of the
insurer, however, is that the employee has no
knowledge of or control over the employer's
actions in handling the policy or its
administration. An agency relationship is
based upon consent by one person that
another shall act in his behalf and be subject
to his control. It is clear from the evidence
regarding procedural techniques here that the
insurer-employer relationship meets this
agency test with regard to the administration
of the policy, whereas that between the
employer and its employees fails to reflect true
agency. The insurer directs the performance
of the employer's administrative acts, and if
these duties are not undertaken properly the
insurer is in a position to exercise more
constricted control over the employer's
conduct.
In Neider vs. Continental Assurance Company, 28 which was cited
in Elfstrom, it was held that:
[t]he employer owes to the employee the duty
of good faith and due care in attending to the
 policy, and that the employer should make
clear to the employee anything required of him
to keep the policy in effect, and the time that
the obligations are due. In its position as
administrator of the policy, we feel also that
the employer should be considered as the
agent of the insurer, and any omission of
duty to the employee in its administration
should be attributable to the insurer.
The ruling in Elfstrom was subsequently reiterated in the cases
of Bass vs. John Hancock Mutual Life Insurance
Co. 29 and Metropolitan Life Insurance Co. vs. State Board of
30
Equalization.
In the light of the above disquisitions and after an examination of the
facts of this case, we hold that PMSI, through its President and
General Manager, Capt. Nuval, acted as the agent of Insular Life. The
latter is thus bound by the misconduct of its agent.
Insular Life, however, likewise recognized Capt. Nuval as the
attorney-in-fact of the petitioners. Unfortunately, through its official,
Mr. Urbano, it acted imprudently and negligently in the premises by
relying without question on the special power of attorney. In Strong
vs. Repide, 31 this Court ruled that it is among the established
principles in the civil law of Europe as well as the common law of
American that third persons deal with agents at their peril and are
bound to inquire as to the extent of the power of the agent with whom
they contract. And in Harry E. Keller Electric
Co. vs. Rodriguez, 32 this Court, quoting Mechem on
33
Agency,   stated that:
The person dealing with an agent must also
act with ordinary prudence and reasonable
diligence. Obviously, if he knows or has good
reason to believe that the agent is exceeding
his authority, he cannot claim protection. So if
the suggestions of probable limitations be of
such a clear and reasonable quality, or if the
character assumed by the agent is of such a
suspicious or unreasonable nature, or if the
authority which he seeks to exercise is of such
an unusual or improbable character, as would
suffice to put an ordinarily prudent man upon
his guard, the party dealing with him may not
shut his eyes to the real state of the case, but
should either refuse to deal with the agent at
all, or should ascertain from the principal the
true condition of affairs. (emphasis supplied)
Even granting for the sake of argument that the special powers of
attorney were in due form, Insular Life was grossly negligent in
delivering the checks, drawn in favor of the petitioners, to a party who
is not the agent mentioned in the special power of attorney.
Nor can we agree with the opinion of the public respondent that since
the shares of the minors in the insurance proceeds are less than
P50,000.00, then under Article 225 of the Family Code their mothers
could receive such shares without need of either court appointments
as guardian or the posting of a bond. It is of the view that said Article
had repealed the third paragraph of Section 180 of the Insurance
Code. 34 The pertinent portion of Article 225 of the Family Code reads
as follows:
Art. 225. The father and the mother shall
jointly exercise legal guardianship over the
property of their unemancipated common child
without the necessity of a court appointment.
In case of disagreement, the father's decision
shall prevail, unless there is judicial order to
the contrary.
Where the market value of the property or the
annual income of the child exceeds P50,000,
the parent concerned shall be required to
furnish a bond in such amount as the court
may determine, but not less than ten per
centum (10%) of the value of the property or
annual income, to guarantee the performance
of the obligations prescribed for general
guardians.
It is clear from the said Article that regardless of the value of the
unemancipated common child's property, the father and mother ipso
jure become the legal guardian of the child's property. However, if the
market value of the property or the annual income of the child
exceeds P50,000.00, a bond has to be posted by the parents
concerned to guarantee the performance of the obligations of a
general guardian.
It must, however, be noted that the second paragraph of Article 225 of
the Family Code speaks of the "market value of the property or the
annual income of the child," which means, therefore, the aggregate of
the child's property or annual income; if this exceeds P50,000.00, a
bond is required. There is no evidence that the share of each of the
minors in the proceeds of the group policy in question is the minor's
only property. Without such evidence, it would not be safe to conclude
that, indeed, that is his only property.
WHEREFORE, the instant petition is GRANTED. The Decision of 
10 October 1991 and the Resolution of 19 May 1992 of the public
respondent in CA-G.R. SP No. 22950 are SET ASIDE and the
Decision of the Insurance Commission in IC Case No. RD-058 is
REINSTATED.
Costs against the private respondent. SO ORDERED.