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VOL. 44, MARCH 17, 1972 7

Landicho vs. Government Service Insurance System

No. L-28866. March 17, 1972.

FE DE JOYA LANDICHO, in her own behalf and as judicial

guardian of her minor children, RAFAEL J. LANDICHO and
MA.LOURDES EUGENIA LANDICHO, plaintiffs-appellees, vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-
appellant.

Obligations and Contracts; Insurance Law; Where words in an

insurance contract are ambiguous.—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. This is particularly true in insurance
policies where a forfeiture is involved and the reason for this rule is that the
insured usually has no voice in the selection or arrangement of the words
employed and that the language of the contract is selected with great care
and deliberation by experts and legal advisers employed by, and acting
exclusively in the interest of the insurance company.
Same; Same; Ambiguity in GSIS insurance policy application.—A
provision in the application for insurance with the GSIS states this
condition: “That my policy shall be made effective on the first day of the
month next following the month the first premium is paid; provided, that it
is not more than ninety (90) days before or after the date of the medical
examination, was conducted if required.” An employee of the Bureau of
Public Works died in an airplane crash and thereafter his heirs filed a claim
with the GSIS for double indemnity due under policy issued to him. It
appears, however, that the Bureau had not remitted to the GSIS even a
single premium because the collecting officer of the Bureau was not advised
by the GSIS to make the required deduction pursuant to the provision in the
application for GSIS insurance which states: “That this application serves as
a letter of authority to the Collecting Officer of our Office thru the GSIS to
deduct from my salary the monthly premium in the amount of P33.36,
beginning the month of May, 1964, and every month thereafter until notice
of its discontinuance shall have been received from the System.” Another
condition in said application provides “That failure to deduct from my
salary the monthly premiums shall not make the policy lapse, however, the
premium account shall be considered as indebtedness which, I bind myself
to pay the System.” HELD: Although it may not be entirely farfetched, the
view of the GSIS, in its denial of the claim of the deceased heirs, that the
policy for insurance has not yet taken effect in view of the fact that no pre-

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8 SUPREME COURT REPORTS ANNOTATED

Landicho vs. Government Service Insurance System

mium had as yet been paid, is not likely to be in accord with the
understanding of the many, if not most, government employees who obtain
on optional additional life insurance policy. As a consequence, the actual
receipt by them of their full pay—without any deduction for premiums on
their optional additional life insurance policies—may not impart to them the
warning—which, otherwise, it would necessarily convey—that said policy
is not, as yet, in force, for they are liable to believe “that failure to deduct”
from the salary of the insured—“the monthly premiums shall not”—in the
language of the application—“make the policy lapse” and that “the
premiums account shall be considered as indebtedness,” to be paid or
deducted later, because, after all, the so-called “payment” of premiums is
nothing but a “paper” or “accounting” process, whereby funds are merely
transferred, not physically, but constructively, from one office of the
government to another. The ambiguity created by the operation of those
conditions stated in the application for GSIS insurance applied to the case at
bar should be interpreted adversely against the GSIS.
Insurance Law; Where a government employee was paid GSIS
dividends.—By paying dividends to the deceased whom the GSIS claims
does not possess an effective policy, the GSIS had impliedly induced the
insured to believe that his policy was in force. Had the insured had the
slightest inkling that it was not as yet effective for non-payment of the first
premium, he would have, in all probability, caused the same to be forthwith
satisfied.

APPEAL from a decision of the Court of First Instance of Manila.

Vasquez, J.

The facts are stated in the opinion of the Court.

Vedasto J. Hernandez for plaintiffs-appellees.
Government Corporate Counsel Leopoldo M. Abellera and
Trial Attorney Arsenio J. Magpale defendant-appellant.

CONCEPCION, C.J.:

Appeal of the Government Service Insurance System—hereinafter

referred to as GSIS, for the sake of brevity—from a decision of the
Court of First Instance of Manila

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Landicho vs. Government Service Insurance System

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directing said defendant to pay to the plaintiffs-appellees, Fe de Joya

Landicho and her minor children, Rafael J. and Maria Lourdes
Eugenia, both surnamed Landicho, the sum of P15,800, with interest
thereon, at the legal rate, from September 26, 1967, until fully paid,
in addition to the sum of P1,000, as and for attorney’s fees, and the
costs.
The facts are not in dispute. On June 1, 1964, the GSIS issued in
favor of Flaviano Landicho, a civil engineer of the Bureau of Public
Works, stationed at Mamburao, Mindoro Occidental, optional
additional life insurance policy No. OG-136107 in the sum of
P7,900. The policy states on its face:

“This insurance is granted subject to the terms and conditions hereinafter set
forth and in consideration of the ‘Information’ therefor and of the payment
on the day this Policy takes effect of the monthly premiums stated above,
due from and payable by the Insured, and the like payments on the last day
of every month during the lifetime of the Insured until maturity of this
Policy or until prior death of the Insured.”

On page 2 of said policy, condition No. 1 provides, in part:

“1. PAYMENT OF PREMIUMS:—

“x x x. Premiums are due and payable at the Office of the System in Manila
or at any of its branches. When any premium or installment thereof remains
unpaid after its due date, such due date is the date of default in payment of
premiums. The mere possession of this Policy does not imply that it is in
force unless the premiums due thereon are paid on time or the policy has
sufficient cash value to keep it in force.”

Condition No. 18, on page 8 of the policy, is of the following tenor:

“18. ENTIRE CONTRACT IN THIS POLICY:—

“This Policy together with the ‘Information’ sheet signed by the Insured, a
copy of which is attached hereto, is issued under the provisions of
Commonwealth Act No. 186, as amended and constitutes the entire contract.

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10 SUPREME COURT REPORTS ANNOTATED

Landicho vs. Government Service Insurance System

“All statements made by the Insured shall, in the absence of fraud, be

deemed representations and no warranties, and no statement shall void the
Policy or be used as a defense to a claim hereunder unless it be contained in
written information and a copy of such information be endorsed upon or
attached to the Policy when issued.”

Before the issuance of said policy, the insured had filed an

application, by filing and signing a printed form of the GSIS on the
basis of which the policy was issued. Paragraph 7 of said application
states:

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“7. I hereby declare that all the above statements and answers
as well as those I may make to the System’s Medical
Examiner in continuation of this application, to be true and
correct to the best of my knowledge and belief, and I hereby
agree as follows:

“a. That this declaration, with the answers to be given by me to

the Medical Officer, shall be made the basis of the policy
and form part of the same;
“b. That acceptance of my policy issued on this application will
constitute a ratification by me of any correction or addition
to this application made by the System;
“c. That this application serves as a letter of authority to the
Collecting Officer of our Office thru the GSIS to deduct
from my salary the monthly premium in the amount of
P33.36, beginning the month of May, 1964, and every
month thereafter until notice of its discontinuance shall
have been received from the System;
“d. That the failure to deduct from my salary the monthly
premiums shall not make the policy lapse, however, the
premium account shall be considered as indebtedness
which, I bind myself to pay the System;
“e. That my policy shall be made effective on the first day of
the month next following the month the first premium is
paid; provided, that it is not more than ninety (90) days
before or after the date of the medical examination, was
conducted if required.”

While still under the employment of the Bureau of Public Works,

Mr. Landicho met his death, on June 29, 1966, in an airplane crash
in Mindoro. Thereupon, Mrs. Landicho, in her own behalf and that
of her co-plaintiffs and minor

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Landicho vs. Government Service Insurance System

children, Rafael J. and Maria Lourdes Eugenia, filed with the GSIS a
claim for P15,800, as the double indemnity due under policy No.
OG-136107, because of the untimely death of the insured owing to
said accident. The GSIS denied the claim, upon the ground that the
policy had never been in force because, pursuant to subdivision (e)
of the above-quoted paragraph 7 of the application, the policy “shall
be x x x effective on the first day of the month next following the
month the first premium is paid,” and no premiums had ever been
paid on said policy. Upon refusal of the GSIS to reconsider its stand,
this action was filed, on September 22, 1967, in the Court of First
Instance of Manila, in which the GSIS reiterated its aforementioned
defense. Thereafter submitted by both parties for judgment on the

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pleadings, upon the ground that the case involves purely questions
of law, said court rendered, in due course, its abovementioned
decision, from which the GSIS has taken the present appeal.
The main issue therein is whether or not the insurance policy in
question has ever been in force, not a single premium) having been
paid thereon. In support of the affirmative, plaintiffs invoke the
stipulation in the policy to the effect that the information contained
in the application filed by the insured shall form part of the contract
between him and the GSIS, and, especially, subdivisions (c) and (d)
of paragraph 7 of said application stating that the same shall serve
“as a letter of authority to the Collecting Officer of our Office”—the
Bureau of Public Works “thru the GSIS to deduct from my salary the
monthly premium in the amount of P33.36 beginning the month of
May, 1964, and every month thereafter,” and that “failure to deduct
from my salary the monthly premiums shall not make the policy
lapse, however, the premium account shall be considered as
indebtedness
1
which, I”—the insured—“bind myself to pay the
System.” The GSIS maintains, however, the negative, relying upon
subdivision (e) of the same paragraph No. 7, which provides

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1 Italics ours.

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Landicho vs. Government Service Insurance System

that the “policy shall be made effective on the first day of the month
next following the month the first premium is paid.” Under this
theory, subdivisions (c) and (d) of said paragraph 7 would not apply
unless and until the first premium shall have been actually paid,
pursuant to subdivision (e) of the same paragraph.
Although it may not be entirely farfetched, this view is not likely
to be in accord with the understanding of many, if not most,
government employees who obtain an optional additional life
insurance policy. As a consequence, the actual receipt by them of
their full pay—without any deduction for premiums on their
optional additional life insurance policies—may not impart to them
the warning—which, otherwise, it would necessarily convey—that
said policy is not, as yet, in force, for they are liable to believe “that
failure to deduct”—from the salary of the insured—“the monthly
premiums shall not”—in the language of subdivision (d)—“make
the policy lapse” and that “the premiums account shall be considered
as indebtedness,” to be paid or deducted later, because, after all, the
so-called “payment” of premiums is nothing but a “paper” or
“accounting” process, whereby funds are merely transferred, not
physically, but constructively, from one office of the government to
another. In other words, the language of subdivisions (c), (d) and (e)
is such as to create an ambiguity that should be resolved against the
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party responsible therefor—defendant GSIS, as the party who

prepared and furnished the application form—and in favor of the
party misled thereby, the insured employee.
Indeed, our Civil Code provides:

“The interpretation of obscure words or stipulations

2
in a contract shall not
favor the party who caused the obscurity.”

This is particularly true as regards insurance policies, in respect of

which it is settled that the “ ‘terms in an insurance policy, which are
ambiguous, equivocal, or uncertain x x x are to be construed strictly
and most strongly

_______________

2 Art. 1377 thereof.

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Landicho vs. Government Service Insurance System

against the insurer, and liberally in favor of the insured so as to

effect the dominant purpose of indemnity or payment to the insured,
especially where a forfeiture is involved’ (29 Am. Jur., 181), and the
reason for this rule is that the ‘insured usually has no voice in the
selection or arrangement of the words employed and that the
language of the contract is selected with great care and deliberation
by experts and legal advisers employed by, and acting exclusively
3
in
the interest of, the insurance company.’ (44 C.J.S., p. 1174.)”
The equitable and ethical considerations justifying the foregoing
view are bolstered up by two (2) factors, namely:

(a) The aforementioned subdivision (c) states “that this

application serves as a letter of authority to the Collecting
Officer of our Office”—the Bureau of Public Works—“thru
the GSIS to deduct from my salary the monthly premium in
the amount of P33.36.” No such deduction was made—and,
consequently, not even the first premium was “paid”—
because the collecting officer of the Bureau of Public
Works was not advised by the GSIS to make it (the
deduction) pursuant to said authority. Surely, this omission
of the GSIS should not inure to its benefit.
(b) The GSIS had impliedly induced the insured to believe that
Policy No. OG-136107 was in force, he having been paid by
the GSIS the dividends corresponding to said policy. Had
the insured had the slightest inkling that the latter was not,
as yet, effective for non-payment of the first premium, he
would have, in all probability, caused the same to be
forthwith satisfied.

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WHEREFORE, the decision appealed from should be, as it is hereby

affirmed, with costs against the defendant-

_______________

3 Calanoc v. Court of Appeals, 98 Phil. 79, 84. See also H.E. Heacock Co. v.
Macondray, 42 Phil. 205; Rivero v. Robe, 54 Phil. 982; Asturias Sugar Central v. The
Pure Cane Molasses Co., 57 Phil. 519; Gonzales v. La Previsora Filipina, 74 Phil.
165; Del Rosario v. The Equitable Insurance, 620 O.G. 5400, 5403-04.

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Landicho vs. Government Service Insurance System

appellant, Government Service Insurance System. It is so ordered.

Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando,

Teehankee, Villamor, Barredo and Makasiar, JJ., concur.

Decision affirmed.

Notes.—Stipulations in insurance contracts limiting the insurer’s

liability is valid. Thus, a stipulation in a policy which states that the
insurer will be liable only if the insurer’s liability is valid. (Tanco, Jr.
v. Philippine Guaranty Co., 15 SCRA 313). Likewise held valid was
a stipulation in an insurance contract that if the insured authorizes
the repair of the insured vehicle the liability of the insurer shall be
limited to P150.00 (Misamis Lumber Corp. v. Capitol Insurance &
Surety Co., Inc., 17 SCRA 228; Young v. Midland Textiles Ins. Co.,
30 Phil. 617). The fact that the stipulations in the policy are onerous
or one-sided will not of themselves justify the abrogation of its
terms (Misamis Lumber Corp., supra).
It has been held likewise that contractual limitations in insurance
policies prevail over statutory limitations (E. Macias & Co. v. China
Fire Ins. & Co., 46 Phil. 345). Thus, 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. (Ang v. Fulton Fire Ins. Co., 2 SCRA
945.)
The action to recover the proceeds of insurance should be filed
against the insurer and not against the latter’s agent, otherwise the
action is ineffectual and will have no other legal effect except to
serve as a notice of insurance claim. (Ang, supra.)

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Palawan Agricultural and Industrial Co., Inc. vs. Director of Lands

In fire insurance contracts, an inventory of stocks made by the

insured if prepared by him without the insurer’s intervention is not
binding on the latter. The falsity of invoices submitted by the insured
to prove the actual existence of the stocks mentioned in the
inventory made by him constitutes evidence of fraudulent claim and
will avoid the insurer’s liability (Yu Ban Chuan v. Fieldmen’s Ins.
Co., Inc., 14 SCRA 491).
Under section 2207 of the new Civil Code, the insurer cannot
recover in full the amount it paid to the insured. The literal language
of Article 2207 makes it clear that the insurance company that has
paid the indemnity for the injury or loss sustained by the property
insured, “shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract.” (Rizal
Surety & Ins. Co. v. Manila Railroad Company, 23 SCRA 205). This
rule is obviously applicable only in a case where the liability of the
wrongdoer to the insured victim is less than the insurer’s liability
under its contract, as in stipulations ordinarily contained in bills of
lading where the common carrier limits its liability to a certain fixed
amount where the shipper does not declare the value of its cargo and
pay the corresponding freight therefor.
In re-insurance agreements requiring the submission for decision
to two arbitrators, or in case of disagreement between the two
parties, to an umpire, the matter of losses by fire or the liability of
the parties thereto, the duty to follow these procedures arises only if
and when the same is disputed by one of the parties. Absence such
dispute an action can be brought right away to court (Equitable Ins.
& Cas. Co., Inc. v. Rural Ins. and Surety Co., Inc., 4 SCRA 343).

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