INTERPRETATION

1. GAISANO CAGAYAN, INC. vs. INSURANCE COMPANY OF NORTH AMERICA, 

G.R. No. 147839, June 8, 2006, AUSTRIA-MARTINEZ, J.:

(Imc and lspi (insured ni Ins company) ---- Pet gaisano seller nila (loss fire) --- now ins company claims paid claims
of Imc and Lspi- claims to reimburse from gaisano. Sc: yes. Terms of contract are clear na pati ung unpaid accts
ng IMC and LSPi kasama sa insured, not only those sold and delivered)

Facts: Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans.and Levi Strauss (Phils.) Inc.
(LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. (insured)

IMC and LSPI separately obtained from respondent fire insurance policies from insurance comp of north america
which 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."--- 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.

Petitioner Gaisano 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 the said maker and local
distributor

On February 4, 1992, respondent Insurance company 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

On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint It held that the fire was purely
accidental;- it is further agreed that merely for purpose of securing the payment of purchase price, the sales
invoice-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. (res perit domino) (not allow claim)

The CA reversed the decision rendered by the RTC. that, being a fire insurance with book debt endorsements, what
was insured was the vendor's (IMC and LSPI ) interest as a creditor (allow claim) also , sales invoices is an exception
under Article 1504 (1) of the Civil Code to res perit domino

At issue is the proper interpretation of the questioned insurance policy. Now, Petitioner claims that the CA erred in
allowing claim so as 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
GAisano. (dun lang daw apply sa nabenta lang at nadeliver sa gaisano-not to all including unpaid)

Issue:
WON by Interpretation of the insurance policy, insurance company can claim from petitioners??
Ruling:

Yes can claim (kasi insured naman talaga by reason nung nasa policy-interpretation nun insured tlga)

It is well-settled that when the words of a contract are plain and readily understood, there is no room for
construction. 

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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.;
and defined book debts as the "unpaid account still appearing in the Book of Account of the Insured (local distributor and
maker) 45 days after the time of the loss covered under this Policy."  

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 (GAISANO) 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. 

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."

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.

Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the
buyer. Accordingly, petitioner bears the risk of loss of the goods delivered.

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.

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2. MALAYAN INSURANCE CORPORATION vs. THE HON. COURT OF APPEALS and TKC MARKETING
CORPORATION(SC: here basta allowed claim kasi included ung claims against ordinay arrest- even not in war-
contrary to petitioners claim)

FACTS:TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric tons of soya bean meal which was
loaded on board the ship MV Al Kaziemah on or about September 8, 1989 for carriage from the port of Rio del Grande,
Brazil, to the port of Manila. Said cargo was insured against the risk of loss by petitioner Malayan Insurance Corporation
for which it issued two (2) Marine Cargo policy Nos. M/LP 97800305 amounting to P18,986,902.45 and M/LP 97800306
amounting to P1,195,005.45, both dated September 1989. Then, While the vessel was docked in Durban, South Africa on
September 11, 1989 enroute to Manila, the civil authorities arrested and detained it because of a lawsuit on a question of
ownership and possession.

TKC Marketing Corp. accordingly, advised petitioner that it might tranship the cargo and requested an extension of the
insurance coverage

However, within the date it still covered. the cargo was sold for a cheaper price Durban, South Africa, for US$154.40 per
metric ton or a total of P10,304,231.75 due to its perishable nature which could no longer stand a voyage of twenty days
to Manila and another twenty days for the discharge thereof.

Thus, TKC markering forthwith reduced its claim to representing private respondent's loss after the proceeds of the sale
were deducted from the original claim of $916,886.66 or P20,184,159.55.

Petitioner maintained its position that the arrest of the vessel by civil authorities on a question of ownership was an
excepted risk under the marine insurance policies.
Lower court and CA decided in favor of TKC Marketing Corporation. (allowing indemnity) acc to ca: stating that with
the deletion of Clause 12 of the policies issued to private respondent, the same became automatically covered
under subsection 1.1 of Section 1 of the Institute War Clauses. ---Hence, arrests by civil authorities, such as what
happened in the instant case, is an excepted risk under Clause 12 of the Institute Cargo Clause or the F.C. & S.
Clause. However, with the deletion of Clause 12 of the Institute Cargo Clause and the consequent adoption or
institution of the Institute War Clauses (Cargo), the arrest and seizure by judicial processes which were excluded
under the former policy became one of the covered risks. (deletion of a certain clause in the policy-resulted to
inclusion of the arrest and seizure in ordinary process as what happened in this case)
Petitioner maintain its position (that tho in firstadopted to exclude: arrest due to political acts also exclude ordinary arrest
—adoption of one which excludes political acts-but seeks to still exclude ordinary processes) ( (Pet’s absurd interp-
denied by court seemingly to only deny liability))

ISSUES:Whether or not the arrest of the vessel was a risk covered under the subject insurance policies.
Whether or not insurance policies must be strictly construed against the insurer.
RULING:YES.By way of a historical background, marine insurance developed as an all-risk coverage, using the phrase
"perils of the sea" to encompass the wide and varied range of risks that were covered. The subject policies contain the
"Perils" clause which is a standard form in any marine insurance policy. Said clause reads:
“they are of the Seas; Men-of-War, Fire, Enemies, Pirates, Rovers, Thieves, Jettisons, Letters of Mart and Counter Mart,
Suprisals, Takings of the Sea, Arrests, Restraints and Detainments of all Kings, Princess and Peoples, of what Nation,
Condition, or quality soever, Barratry of the Master and Mariners, and of all other Perils, Losses, and Misfortunes, that
have come to hurt, detriment, or damage of the said goods and merchandise or any part thereof . AND in case of any loss
or misfortune it shall be lawful to the ASSURED, their factors, servants and assigns, to sue, labour, and travel for, in and
about the defence, safeguards, and recovery of the said goods and merchandises, and ship, & c., or any part thereof,
without prejudice to this INSURANCE; to the charges whereof the said COMPANY, will contribute according to the rate
and quantity of the sum herein INSURED. AND it is expressly declared and agreed that no acts of the Insurer or Insured
in recovering, saving, or preserving the Property insured shall be considered as a Waiver, or Acceptance of
Abandonment.”

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The exception or limitation to the "Perils" clause and the "All other perils" clause in the subject policies is specifically
referred to as Clause 12 called the "Free from Capture & Seizure Clause" or the F.C. & S. Clause.

Should Clause 12 be deleted, the relevant current institute war clauses shall be deemed to form part of this insurance.

However, the F. C. & S. Clause was deleted from the policies. Consequently, the Institute War Clauses (Cargo) was
deemed incorporated.

Petitioner cannot adopt the argument that the "arrest" caused by ordinary judicial process is not included in the covered
risk simply because the F.C. & S. Clause under the Institute War Clauses can only be operative in case of hostilities or
warlike operations on account of its heading "Institute War Clauses." This Court agrees with the Court of Appeals when it
held that ". . . . Although the F.C. & S. Clause may have originally been inserted in marine policies to protect against risks
of war, (see generally G. Gilmore & C. Black, The Law of Admiralty Section 2-9, at 71-73 [2d Ed. 1975]), its
interpretation in recent years to include seizure or detention by civil authorities seems consistent with the general purposes
of the clause, . . . ."  In fact, petitioner itself averred that subsection 1.1 of Section 1 of the Institute War Clauses included
"arrest" even if it were not a result of hostilities or warlike operations. 6 In this regard, since what was also excluded in the
deleted F.C. & S. Clause was "arrest" occasioned by ordinary judicial process, logically, such "arrest" would now become
a covered risk under subsection 1.1 of Section 1 of the Institute War Clauses, regardless of whether or not said "arrest" by
civil authorities occurred in a state of war.

a. YES, insurance policies must be strictly construed against the insurer.

(claim of petitioner—which was denied by the court) This Court cannot help the impression that petitioner is overly
straining its interpretation of the provisions of the policy in order to avoid being liable for private respondent's claim.--This
Court finds it pointless for petitioner maintain its position (that tho in firstadopted to exclude: arrest due to political acts
also exclude ordinary arrest—adoption of one which excludes political acts-but seeks to still exclude ordinary processes)
to maintain its position that it only insures risks of "arrest" occasioned by executive or political acts of government which is
interpreted as not referring to those caused by ordinary legal processes as contained in the "Perils" Clause; deletes the
F.C. & S. Clause which excludes risks of arrest occasioned by executive or political acts of the government and naturally,
also those caused by ordinary legal processes; and, thereafter incorporates subsection 1.1 of Section 1 of the Institute
War Clauses which now includes in the coverage risks of arrest due to executive or political acts of a government but then
still excludes "arrests" occasioned by ordinary legal processe

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity
therein in favor of the insured, where the contract or policy is prepared by the insurer.  

A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the
insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations
of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from
noncompliance with its obligations. 

It has been held that a strained interpretation which is unnatural and forced, as to lead to an absurd conclusion or to render
the policy nonsensical, should, by all means, be avoided.  Likewise, it must be borne in mind that such contracts are
invariably prepared by the companies and must be accepted by the insured in the form in which they are written.   Any
construction of a marine policy rendering it void should be avoided.  Such policies will, therefore, be construed strictly
against the company in order to avoid a forfeiture, unless no other result is possible from the language used.  

If a marine insurance company desires to limit or restrict the operation of the general provisions of its contract by special
proviso, exception, or exemption, it should express such limitation in clear and unmistakable language .  In this case,
Obviously, the deletion of the F.C. & S. Clause and the consequent incorporation of subsection 1.1 of Section 1 of the
Institute War Clauses (Cargo) gave rise to ambiguity. --If the risk of arrest occasioned by ordinary judicial process was
expressly indicated as an exception in the subject policies, there would have been no controversy with respect to the
interpretation of the subject clauses.

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3. DIOSDADO TY v. FILIPINAS COMPAÑIA DE SEGUROS, et al.

G.R. No. L-21821-22 and L-21824-27, 31 May 1966, BARRERA, J.

(F: hand temporarily injured-ins policy states claim only when amputated: SC: Follow policy)

FACTS: Diosdado Ty was a mechanic operator at a Cotton Factory at Grace Park, Caloocan City. Later, he took
Personal Accident Policies from several insurance companies, among which is to Res ins company . ---During the
effectivity of these policies, or on December 24, 1953, a fire broke out in the factory where Ty was working. As he was
trying to put out said fire with the help of a fire extinguisher, a heavy object fell upon his left hand. Ty received treatment
at the National Orthopedic Hospital from, most of which were merely fractures of his left fingers, but no more than the
amputation of any part thereof. The attending surgeon certified that these injuries would cause temporary total disability
of appellant's left hand.

Ty claims for insurance

The insurance companies refused to pay his claim for compensation on the ground that under the uniform terms of the
insurance policies, the loss must result in the amputation of that hand. Also, under the insurance contract signed by Ty, it
was stipulated that: “The loss of a hand shall mean the loss, by amputation through the bones of the wrist.”

Ty contends that to be entitled to indemnification under the foregoing provision, it is enough that the insured is disabled to
such an extent that he cannot substantially perform all acts or duties of the kind necessary in the prosecution of his
business. It is argued that what is compensable is the disability and not the amputation of the hand. The definition of what
constitutes loss of hand, placed in the contract, according to appellant, consequently, makes the provision ambiguous and
calls for the interpretation thereof by this Court.

ISSUE: How should the courts interpret an insurance policy if ambiguity is raised by a party?

RULING:

The agreement contained in the insurance policies is the law between the parties.

In this case- As the terms of the policies are clear, express and specific that only amputation of the left hand should be
considered as a loss thereof, an interpretation that would include the mere fracture or other temporary disability
not covered by the policies would certainly be unwarranted.

While we sympathize with the plaintiff or his employer, for whose benefit the policies were issued, the court can not go
beyond the clear and express conditions of the insurance policies, all of which definite partial disability as loss of either
hand by amputation through the bones of the wrist.

There was no such amputation in the case at bar. All that was found by the trial court, which is not disputed on appeal,
was that the there was only physical injuries "caused temporary total disability of plaintiff's left hand." Note that the
disability of plaintiff's hand was merely temporary, having been caused by fractures of the index, the middle and the
fourth fingers of the left hand.

We find no reason to depart from the foregoing ruling on the matter. Plaintiff-appellant cannot come to the courts and
claim that he was misled by the terms of the contract. The provision is clear enough to inform the party entering into that
contract that the loss to be considered a disability entitled to indemnity, must be severance or amputation of that affected
member from the body of the insured.

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4. GULF RESORTS, INC. vs. PHILIPPINE CHARTER INSURANCE CORPORATION

SC: X claim not allowed: Application of contract of adhesion was denied-not absolute-here clear terms be construed.

FACTS:Gulf was insured by American Home Assurance Company which includes loss or damage to shock to any of the property
insured by the Policy occasioned by or through in consequence of earthquake.

Later on, an earthquake struck Central and Northern Luzon causing damage to the properties of Gulf including the two swimming
pools.

Gulf claimed from the insurance company

Insurance company denied saying that as the earthquake shock coverage only covered the swimming pools of the resort.

Gulf contends that pursuant to this rider, no qualifications were placed on the scope of the earthquake’s shock coverage.Thus, the
policy extended to all of the insured properties. The RTC ruled in favor of American Home to which the CA affirmed.

ISSUE: Whether or not Gulf was entitled to claim.

HELD: NO---It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance with each
other. 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. In this case, 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.- n insurance premium is the consideration paid an
insurer for undertaking to indemnify the insured against a specified peril. In the subject policy,
no premium payments were made with regard to earthquake shock coverage, except on the two
swimming pools.  

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.

CONTRACT OF ADHESION DEFINED:

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. Consequently, any ambiguity therein
is resolved against the insurer, or construed liberally in favor of the insured.----

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. 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., 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.

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5. SIMON DE LA CRUZ vs. THE CAPITAL INSURANCE AND SURETY CO. INC.

Sc on: Interpretation of the terms accidental in insurance contracts: (claim allowed. Because some other unexpected
shit happened (he slipped) even it is voluntary for him to join boxing)

FACTS: Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mining corporation. in Baguio, was the holder
of an accident insurance policy underwritten by the Res Capital Insurance & Surety Co., Inc.,

In connection with the celebration of the New Year, their company. sponsored a boxing contest for general entertainment
wherein the insured Eduardo de la Cruz, a non-professional boxer participated. In the course of the fight with a 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 where he died 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

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.

ISSUE: W/N the claim should not be allowed because it is not accidental as claimed by the insurer?

HELD: No. – (claim allowed. Because some other unexpected shit happened even it is voluntary)

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. 4 In
other words, where the death or injury is not the natural or probable result of the insured's voluntary act which
produces the injury, the resulting death is within the protection of policies insuring against the 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

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BENEFICIARIES

6. HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA PANGILINAN MARAMAG

vs. EVA VERNA DE GUZMAN MARAMAG, et al,

SC: Insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for
whose benefit it is made unless otherwise specified in the policy. (Sec. 53, Insurance Code)here- it was the
illegitimate family- not the legitimate thus it must be upheld-legit family cannot claim to such policy

FACTS:

Petitioners were the legitimate wife and children of Loreto Maramag (Loreto), while respondents were Loretos
illegitimate family.

Loreto (+) designated respondents (his illegitimate family) as beneficiaries in his life insurance policies from Insular Life
and Great Pacific Life (Grepalife).

Thus, Petitioners insituted in the RTC a petition for revocation and/or reduction of insurance proceeds for being void
and/or inofficious, with prayer for a temporary restraining order (TRO) and a writ of preliminary injunction. They claim
that Eva de Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the killing of the latter, thus, she is
disqualified to receive any proceeds from his insurance policies; -----and that the illegitimate children of Loreto were
entitled only to one-half of the legitime of the legitimate children, thus, the proceeds released to them were inofficious and
should be reduced; and petitioners could not be deprived of their legitimes, which should be satisfied first.

Petitioners allege that the designation of a beneficiary is an act of liberality or a donation and, therefore, subject to the
provisions of Articles pertaining to donation of 752[8] and 772[9] of the Civil Code.

The trial court held that the petitioners cannot invoke the law on donations or the rules on testamentary succession in
order to defeat the right of herein defendants to collect the insurance indemnity. The beneficiary in a contract of insurance
is not the donee spoken in the law of donation. The rules on testamentary succession cannot apply here, for the insurance
indemnity does not partake of a donation.

It also stated that the proceeds to the Life Insurance Policy belongs exclusively to the defendant as his individual and
separate property, and not to the estate of the person whose life was insured.

The RTC disqualifed Loreto’s concubine, Eva, from being a benficiary pursuant to Art. 2012: Any person who is
forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy of the
person who cannot make any donation to him, but stated that the insurance contract will still remain valid, but the
indemnity must go to the legal heirs and not to the concubine, for evidently, what is prohibited under Art. 2012 is the
naming of the improper beneficiary.

ISSUE:

1. Are the members of the legitimate family entitled to the proceeds of the insurance for the concubine?

2. Whether or not illegitimate children can be beneficiaries in an insurance contract.

HELD:

1. NO. (kasi ung illegitimate family ung designated beneficiary e) Section 53 of the Insurance Code states that the
insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose
benefit it is made unless otherwise specified in the policy.

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Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are either the insured, if still
alive; or the beneficiary, if the insured is already deceased, upon the maturation of the policy.

The exception to this rule is a situation where the insurance contract was intended to benefit third persons who are not
parties to the same in the form of favorable stipulations or indemnity. In such a case, third parties may directly sue and
claim from the insurer.

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not entitled to the
proceeds thereof.

In this case, it is clear from the petition filed before the trial court that, although petitioners are the legitimate heirs of
Loreto, they were not named as beneficiaries in the insurance policies issued by Insular and Grepalife. The basis of
petitioners’ claim is that Eva, being a concubine of Loreto and a suspect in his murder, is disqualified from being
designated as beneficiary of the insurance policies, and that Eva’s children with Loreto, being illegitimate children,
are entitled to a lesser share of the proceeds of the policies. They also argued that pursuant to Section 12 of the
Insurance Code,19 Eva’s share in the proceeds should be forfeited in their favor, the former having brought about the
death of Loreto. Thus, they prayed that the share of Eva and portions of the shares of Loreto’s illegitimate children
should be awarded to them, being the legitimate heirs of Loreto entitled to their respective legitimes.

It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment in light of Article
2011 of the Civil Code which expressly provides that insurance contracts shall be governed by special laws, i.e., the
Insurance Code.

2. YES. The revocation of Eva as a beneficiary in one policy and her disqualification as such in another are of no
moment considering that the designation of the illegitimate children as beneficiaries in Loreto’s insurance policies
remains valid.

Because no legal proscription exists in naming as beneficiaries the children of illicit relationships by the
insured,22 the shares of Eva in the insurance proceeds, whether forfeited by the court in view of the prohibition on
donations under Article 739 of the Civil Code or by the insurers themselves for reasons based on the insurance
contracts, must be awarded to the said illegitimate children, the designated beneficiaries, to the exclusion of
petitioners.

It is only in cases where the insured has not designated any beneficiary, 23 or when the designated beneficiary is
disqualified by law to receive the proceeds, 24 that the insurance policy proceeds shall redound to the benefit of the
estate of the insured.

as to disqualification of the concubine: (affirmed ng sc to kasi as discussed above)

One of the named beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is his concubine Eva
Verna De Guzman. Any person who is forbidden from receiving any donation under Article 739 cannot be named
beneficiary of a life insurance policy of the person who cannot make any donation to him, according to said article
(Art. 2012, Civil Code). If a concubine is made the beneficiary, it is believed that the insurance contract will still
remain valid, but the indemnity must go to the legal heirs and not to the concubine, for evidently, what is prohibited
under Art. 2012 is the naming of the improper beneficiary.

In such case, the action for the declaration of nullity may be brought by the spouse of the donor or donee, and the
guilt of the donor and donee may be proved by preponderance of evidence in the same action (Comment of
Edgardo L. Paras, Civil Code of the Philippines, page 897). Since the designation of defendant Eva Verna de
Guzman as one of the primary beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is void
under Art. 739 of the Civil Code, the insurance indemnity that should be paid to her must go to the legal heirs of the
deceased which this court may properly take cognizance as the action for the declaration for the nullity of a void
donation falls within the general jurisdiction of this Court.

7. SOUTHERN LUZON EMPLOYEES' ASSOCIATION vs. JUANITA GOLPEO, ET AL.

9
Sc: anak ng common law wife entitled to claim. This is so bec acquiesced and Cc recognize successional rights of IC.

FACTS: SOUTHERN LUZON EMPLOYEES' ASSOCIATION is composed of laborers and employees of Laguna
tayabas Bus Co’ on if it’s purpose is mutual aid of its members in case of death.

Roman A. Concepcion was a member until his death.

The association adopted a resolution with respect to claims in case of death stating that a member may name his common-law wife as
beneficiary and children he we had with her and that SLEA will recognize only the same as the beneficiary entitled to condolence
contributions.

Roman listed as his beneficiaries several persons. Aquilina Maloles, Roman Jr., Esela, Rolando and Robin.

After the death of Roman, Three sets of claimants presented themselves, namely, (1) Juanita Golpeo, l egal wife of Roman
A. Concepcion, and her children, named beneficiaries by the deceased; 2 ) Aquilina (common law wife) and her children
and (3) Elsie Hicban, another common law wife of Roman A. Concepcion, and her child.

Association filed an interpleader with the CFI of Laguna to determine who is entitled to the claim.

The court rendered a decision declaring Aquilina and her children the sole beneficiary of P2,505 and ordering SLEA to deliver the
same.

Appellant (those bene not given) also contend that the stipulation between the plaintiff and the deceased Roman A.
Concepcion regarding the specification of the latter's beneficiaries, and the resolution of September 17, 1949, are void for
the being contrary to law, moral or public policy. They cite article 2012 of the new Civil Code providing that "Any person
who is forbidden from receiving any donation under article 739 cannot be named beneficiary of a life insurance policy and
by the person who cannot make any donation to him

ISSUE:Whether or not the children of Aquilina are entitled to claim.

HELD:

YES. The children are entitled to claim.

Inasmuch as, according to article 739 of the new Civil Code, a donation is valid when made "between persons who are guilty or
adultery or concubinage at the time of the donation," it is alleged that the defendant-appellee Aquilina Maloles, cannot be named a
beneficiary, every assuming that the insurance law is applicable.

Also in this case, appellant Juanita Golpeo, by her silence and actions, had acquiesced in the illicit relations between her husband and
appellee Aquilina Maloles,

As to children: appellant argument would certainly not apply to the children of Aquilina likewise named beneficiaries by the deceased
Roman A. Concepcion. As a matter of a fact the new Civil Code recognized certain successional rights of illegitimate children.

The contract of life insurance is a special contract and the destination of the proceeds thereof is determined by special laws which deal
exclusively with that subject. The Civil Code has no provisions which relate directly and specifically to life-insurance contract or to
the destination of life-insurance proceeds. That subject is regulate exclusively by the Code of Commerce which provides for the terms
of the contract, the relations of the parties and the destination of the proceeds of the policy.

As to issue w/on ins law apply? It is argued for the appellants, however, that the Insurance Law is not applicable because the
plaintiff is a mutual benefit association as defined in section 1628 of the Revised Administrative Code. This argument
evidently ignore the fact that the trial court has no considered the plaintiff as a regular insurance company but merely
ruled that the death benefit in question is analogous to an insurance. Moreover, section 1628 of the Revised
Administrative Code defines a mutual benefit association as one, among others, "providing for any method of accident or
life insurance among its members out of dues or assessments collected from the membership." The comparison made in
the appealed decision is, therefore, well taken.

10
8. Basilia Berdin Vda. De Consuegra; Juliana, Pacita, Maria Lourdes, Jose, JR., Rodrigo, Lineda and Luis, all
surnamed CONSUEGRA vs. Government Service Insurance System, Commisioner of Public Highways, Highway
District Engineer of Surigao Del Norte, Commissioner of Civil Service, and Rosario Diaz

FACTS: H contracted 2 mrges. 1st wife and 2nd wife. Claims sa retirement of deceased. 2nd wife claims na since they
are the one named in one ins policy of deceased they are also the ones entitled exclusively to retirement benefits
from GSIS. SC: No.

The late Jose Consuegra, was employed as a shop foreman of DPWH

In his lifetime, he contracted 2 marriages, the first with respondent Rosario Diaz (1st wife), bearing 2 children, Jose
Consuegra, Jr. and Pedro Consuegra, but both predeceased their father; and the second with herein petitioner Basilia
Berdin, (2nd wife) which was contracted in good faith while the first marriage was subsisting, on May 1, 1957 in the same
parish and municipality, out of which marriage were born seven children, namely, Juliana, Pacita, Maria Lourdes, Jose,
Rodrigo, Lenida and Luz *(Luis) all surnamed Consuegra.

When Consuegra died the proceeds of his life insurance were paid by the GSIS to petitioner Basilia Berdin and her
children who were the beneficiaries named in the policy. Also, Consuegra was entitled to retirement insurance benefits in
the sum of P6, 304.47, however, he did not designate any beneficiary who would receive the retirement insurance benefits
due to him.

Respondent Diaz, the widow (1st), filed a claim with the GSIS asking that the retirement insurance benefits be paid to
her as the only legal heir.

Petitioner Berdin (2nd wife) and her children, likewise, filed a similar claim with the GSIS, asserting that being the
beneficiaries named in the life insurance policy, they are the only ones entitled to receive the retirement insurance benefits
due the deceased.

GSIS: Diaz is entitled to one-half, or 8/16, of the retirement insurance benefits while Berdin and their 7 children are
entitled to the remaining one-half, or 8/16, each of them to receive an equal share of 1/16.

Dissatisfied, Berdin and her children filed a petition for mandamus with preliminary injunction in the CFI of Surigao,
against the respondents praying that they be declared the legal heirs and exclusive beneficiaries of the retirement
insurance.

It was however denied and CFI confirmed the action of GSIS.

Now, petitioners-appellants, Basilia Berdin (2nd)and her children contending that because the deceased failed to
designate the beneficiaries in his retirement insurance, they being beneficiaries named in the life insurance should
automatically be considered the beneficiaries to receive the retirement insurance benefits, to the exclusion of Diaz.

ISSUES:

(1) Is the contention tenable? No not automatic

(2) To whom should this retirement insurance benefits be paid? both

HELD: (1) NO. The contention of appellants is untenable.

The insured in a life insurance may designate any person as beneficiary unless disqualified to be so under the provisions
of the Civil Code.

11
In the absence of any beneficiary named in the life insurance policy or where the designated beneficiary is disqualified,
the proceeds of the insurance will go to the estate of the deceased insured and will go to his legal heirs in accordance
with law.

When Consuegra designated his beneficiaries in his life insurance he could not have intended those beneficiaries of his
life insurance as also the beneficiaries of his retirement insurance because the provisions on retirement insurance under
the GSIS came about only when Com. Act 186 was amended by Rep. Act 660 on June 16, 1951.

Hence, it cannot be said that because appellants were designated beneficiaries in Consuegra’s life insurance they
automatically became the beneficiaries also of his retirement insurance.

In GSIS Law. The provisions clearly indicate that there is need for the employee to file an application for retirement
insurance benefits when he becomes a member of the GSIS, and he should state in his application the beneficiary of his
retirement insurance.

Hence, the beneficiary named in the life insurance does not automatically become the beneficiary in the retirement
insurance unless the same beneficiary in the life insurance is so designated in the application for retirement insurance.
(there is a requirement na dapat idesignate din sya in retirement claim!)

The GSIS offers two separate and distinct systems of benefits to its members paid out from two distinct and separate funds:

(a) Life insurance- proceeds are paid to whoever is named the beneficiary in the life insurance policy as provided for in the Insurance
Act ---(Act 2427, as amended), the beneficiary in a life insurance under the GSIS may not necessarily be an heir of the insured. The
insured in a life insurance may designate any person as beneficiary unless disqualified to be so under the provisions of the Civil Code.
And in the absence of any beneficiary named in the life insurance policy, the proceeds of the insurance will go to the estate of the
insured.

(b) Retirement insurance- primarily intended for the benefit of the employee to provide for his old age, or incapacity, after rendering
service in the government for a required number of years. If the employee reaches the age of retirement, he gets the retirement benefits
even to the exclusion of the beneficiary or beneficiaries named in his application for retirement insurance. The beneficiary of the
retirement insurance can only claim the proceeds of the retirement insurance if the employee dies before retirement.

In the case of the proceeds of a life insurance, the same are paid to whoever is named the beneficiary in the life insurance policy. As
in the case of a life insurance provided for in the Insurance Act (Act 2427, as amended), the beneficiary in a life insurance under the
GSIS may not necessarily be an heir of the insured. The insured in a life insurance may designate any person as beneficiary unless
disqualified to be so under the provisions of the Civil Code. 4 And in the absence of any beneficiary named in the life insurance
policy, the proceeds of the insurance will go to the estate of the insured.

It is Our view, therefore, that the respondent GSIS had correctly acted when it ruled that the proceeds of the retirement insurance of
the late Jose Consuegra should divided equally between his first living wife Rosario on the one hand, and his second wife Basilia
Berdin his children by her, on the other; and the lower court did not commit error when it confirmed the action of the GSIS, it being
accepted as a fact that the second marriage of Jose Consuegra to Basilia Berdin was contracted in good faith.

If the employee failed or overlooked to state the beneficiary of his retirement insurance, the retirement benefits will accrue to his
estate and will be given to his legal heirs in accordance with law, as in the case of a life insurance if no beneficiary is named in the
insurance policy.

(2) BOTH. Where two women, innocently and in good faith, contracted marriage with the same man, the insured, and the latter did
not designate any beneficiary who would receive the proceeds of his life insurance, each family shall be entitled to one half of the
insurance benefits.

The proceeds of the retirement insurance of the late Jose Consuegra should be divided equally between Rosario Diaz and his second
wife Basilia Berdin and his children by her.

The fact that the second marriage was contracted in good faith, the only just and equitable solution in this case would be to recognize
the right of the second wife to her share of one-half in the property acquired by her and her husband, and consider the other half as
pertaining to the conjugal partnership of the first marriage. The decision appealed from is affirmed.
12
9. THE INSULAR LIFE ASSURANCE COMPANY, LTD. vs.CARPONIA T. EBRADO and PASCUALA VDA. DE
EBRADO----.*SC on the rule on prohibition to rcv of a common law wife of a married man. : Sc: Bawal.

FACTS Cristor Ebrado was issued by The Life Assurance Co., Ltd., a policy for P5,882.00 with a rider for Accidental
Death. He designated Carponia T. Ebrado as the revocable  beneficiary in his policy. He referred to her as his wife.

Cristor was killed when he was hit by a failing  branch of a tree. Insular Life was made liable to pay the coverage in the
total amount of P11,745.73, representing the face value of the policy in the amount of P5,882.00 plus the additional
benefits for accidental death.

Carponia T. Ebrado (common law wife) filed with the insurer a claim for the proceeds as the
designated beneficiary therein, although she admited that she and the insured were merely living as husband and wife
without the benefit of marriage.

Pascuala Vda. de Ebrado (legal wife) also filed her claim as the widow of the deceased insured. She asserts that she is
the one entitled to the insurance proceeds.

Insular commenced an action for Interpleader before the trial court as to who should be given the proceeds. The
court declared Carponia as disqualified.

ISSUE/S: Can a common-law wife named as beneficiary in the life insurance policy of a legally married man claim the proceeds
thereof in case of death of the latter?

HELD: No.Section 50 of the Insurance Act which provides that "(t)he insurance shall be applied exclusively to the proper interest of
the person in whose name it is made" cannot be validly seized upon to hold that the policy includes the beneficiary.

The word "interest" highly suggests that the provision refers only to the "insured" and not to the beneficiary, since a contract of
insurance is personal in character.

RATIO: Otherwise, the prohibitory laws against illicit relationships especially on property and descent will be rendered nugatory, as
the same could easily be circumvented by modes of insurance. Rather, the general rules of civil law should be applied to resolve this
void in the Insurance Law.

When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by the general rules of
the civil law regulating contracts. Under Article 2012 of the Civil Code, "any person who is forbidden from receiving any donation
under Article 739 cannot be named beneficiary of a life insurance policy by the person who cannot make a donation to him. Common-
law spouses are, definitely, barred from receiving donations from each other.

Article 739 of the new Civil Code provides:  The following donations shall be void:
ñé+.£ªwph!1

1. Those made between persons who were guilty of adultery or concubinage at the time of donation;
2 Those made between persons found guilty of the same criminal offense, in consideration thereof;
3. Those made to a public officer or his wife, descendants or ascendants by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or
donee; and the guilt of the donee may be proved by preponderance of evidence in the same action.

In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are
founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy
which the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance.

In this case, The requisite proof of common-law relationship between the insured and the beneficiary has been conveniently supplied
by the stipulations between the parties in the pre-trial conference of the case. It was agreed upon and stipulated therein that the
deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six legitimate children; that during his
lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado, with whom he has two children. These
stipulations are nothing less than judicial admissions which, as a consequence, no longer require proof and cannot be contradicted.
Thus, Carponia T. Ebrado is hereby declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance
policy. As a consequence, the proceeds of the policy are hereby held payable to the estate of the deceased insured.

13
INSURABLE INTEREST

10. Sps. Nilo and Stella Cha, et. Al. vs Court of Appeals, et. al.

Sc: lessor has no insurable interest to the insurance claimed by lesse

FACTS:Sps. Nilo Cha and Stella Uy Cha (lesse) entered into a contract of lease with CKS Development Corporation.(lessor)

One of the stipulations of the contract of lease provides that the lessee cannot insure against fire the chattels, merchandise and effects
stored in the lease premises without written consent and approval of the lessor--. If the lessee violates this stipulation then the policy
is deemed assigned and transferred to the lessor (cks) for its own benefit .

Despite such stipulation, the Sps. Cha insured against loss by fire the merchandise inside the lease premises with the United Insurance
Co. without the written consent of CKS.

On the day the lease contract was to expire, fire broke out in the lease premises.

When CKS learned of the insurance, it wrote United a demand letter asking that the proceeds of the insurance be paid directly to
them.

But United refused so CKS filed against Spouses Cha and United.

ISSUE:

Whether or not CKS is a valid beneficiary in the fire insurance taken by Spouses Cha over their merchandise.

RULING: NO.

Sec. 18.  No contract or policy of insurance on property shall be enforceable except for the
benefit of some person having an insurable interest in the property insured

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity.  Insurable interest in the property insured must exist a t
the time the insurance takes effect and at the time the loss occurs.  The basis of such requirement of
insurable interest in property insured is based on sound public policy: to prevent a person from taking out
an insurance policy on property upon which he has no insurable interest and collecting the proceeds of
said policy in case of loss of the property.  In such a case, the contract of insurance is a mere wager which
is void under Section 25 of the Insurance Code.
--SECTION 25.  Every stipulation in a policy of Insurance for the payment of loss, whether the person
insured has or has not any interest in the property insured, or that the policy shall be received as proof of
such interest, and every policy executed by way of gaming or wagering, is void
Section 17.  The measure of an insurable interest in property is the extent to which the insured might be
damnified by loss of injury thereof

The automatic assignment of the policy to CKS under the provision of the lease contract previously quoted
is void for being contrary to law and/or public policy.  The proceeds of the fire insurance policy thus
rightfully belong to the spouses.  

The liability of the Cha spouses to CKS for violating their lease contract in that Cha spouses obtained a fire
insurance policy over their own merchandise, without the consent of CKS, is a separate and distinct issue
which we do not resolve in this case.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the lease premises.
Therefore, CKS cannot, under the Insurance Code, be validly a beneficiary of the fire insurance taken by the Spouses Cha over their
merchandise.

14
Note: REPEATED CASE- UNDER DIFF TOPIC: INSURABLE INTEREST OF IMC AND LSPI (SELLER)

11. GAISANO CAGAYAN, INC. vs. INSURANCE COMPANY OF NORTH AMERICA

Imc and lspi (insured ni Ins company) ---- Pet gaisano seller nila (loss fire) --- now ins company claims paid claims
of Imc and Lspi- claims to reimburse from gaisano. Sc: Ins interest defined:.AND SUBROGATION: HERE IMC
AND LSPI HAS INSURABLE INTEREST- BEC NOT NECESSARY TITLE-SO LONG AS MAY INTEREST

Facts: Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans.and Levi Strauss (Phils.) Inc.
(LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. (insured)

IMC and LSPI separately obtained from respondent fire insurance policies from insurance comp of north america
which 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."--- 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.

Petitioner Gaisano 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 the said maker and local
distributor

On February 4, 1992, respondent Insurance company 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

Acc to respondent---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, thus they shall pay respondent

ISSUE: Whether IMC and LSPI have insurable interest over said goods

RULING: Yes. The insurable interest is the credit.

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.

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

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.”
Thus, the 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.

15
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. In property insurance, one's interest is not determined by concept of title, but whether
insured has substantial economic interest in the property.

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.

Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its
destruction

.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 . 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.

AS TO SUBBROGATION: yes

With respect to IMC, the respondent has adequately established its claim. 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. 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.

16
12. ONG LIM SING, JR. vs. FEB LEASING AND FINANCE CORPORATION—
Sc: Insurable interest of a lessee; here meron

FACTS:
FEB Leasing and Finance Corporation entered into a lease of equipment and motor vehicles with JVL Food Products.
On the same date, Vicente Ong Lim Sing, Jr. executed an Individual Guaranty Agreement with FEB to guarantee the
prompt and faithful performance of the terms and conditions of the aforesaid lease agreement.
Under the contract, JVL was obliged to pay FEB an aggregate gross monthly rental of One Hundred Seventy Thousand
Four Hundred Ninety-Four Pesos (P170,494.00).
JVL defaulted in the payment of the monthly rentals . As of July 31, 2000, the amount in arrears, including the penalty
charges and insurance premiums, amounted to Three Million Four Hundred Fourteen Thousand Four Hundred Sixty-Eight
and 75/100 Pesos (P3,414,468.75). Thus, FEB sent a letter to JVL demanding payment of the said amount. However,
JVL failed to pay.
On December 6, 2000, FEB filed a Complaint with the Regional Trial Court of Manila for sum of money, damages, and
replevin against JVL, Lim, and John Doe.
In an Amended Answer, JVL and Lim admitted the existence of the lease agreement but asserted that it is in reality a sale
of equipment on instalment basis, with FEB acting as the financier.
On November 22, 2002, the trial court ruled in favor of JVL and Lim and stressed the contradictory terms found in the
lease agreement. The trial court stated, among others, that if JVL and Lim (then defendants) were to be regarded as only
a lessee, logically the lessor who asserts ownership will be the one directly benefited or injured and therefore the lessee is
not supposed to be the assured as he has no insurable interest. (sale on instalment daw andthere is no chattel mortgage)
CA reversed rtc-ruling that it is a lease and the petitioner (lessee) with insurable interest
ISSUE:
Whether or not petitioner has an insurable interest in the equipment and motor vehicles leased.
RULING:
Yes. It is settled that the parties are free to agree to such stipulations, clauses, terms, and conditions as they may
want to include in a contract. As long as such agreements are not contrary to law, morals, good customs, public
policy, or public order, they shall have the force of law between the parties. 26 Contracting parties may stipulate on
terms and conditions as they may see fit and these have the force of law between them.
The stipulation in Section 14 of the leased contract, that the equipment shall be insured at the cost and expense of the
lessee against loss, damage, or destruction from fire, theft, accident, or other insurable risk for the full term of the lease, is
a binding and valid stipulation.
Petitioner, as a lessee, has an insurable interest in the equipment and motor vehicles leased
Section 17 of the Insurance Code provides that the measure of an insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof.
It cannot be denied that JVL will be directly damnified in case of loss, damage, or destruction of any of the properties
leased.

17
CONCEALMENT

13. GREAT PACIFIC LIFE ASS. CORP. vs. CA AND MEDARDA LEUTERIO

SC: Here no concealment by the dr of his medical condition, thus liable.

FACTS: (Grepalife) executed a contract of group life insurance with Development Bank of the Philippines (DBP).

Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.

Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life insurance
plan. In an application form, Dr. Leuterio answered questions concerning his health condition as follows:

7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes, lung, kidney
or stomach disorder or any other physical impairment?

Answer: No. If so give details ___________., he left it blank

8. Are you now, to the best of your knowledge, in good health? He answered yes

Later, Dr. Leuterio died due to massive cerebral hemorrhage.

Consequently, DBP submitted a death claim to Grepalife.

Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for an insurance. That he did not
disclose he had been suffering from hypertension, which caused his death based from the findings of attending physician, Dr. Mejia.
Allegedly, such non-disclosure constituted concealment that justified the denial of the claim.

ISSUE: Whether Dr. Leuterio concealed that he had hypertension, which would vitiate the insurance contract.

RULING: NO. Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and
fair dealing requires that he should communicate it to the assured, but he designedly and intentionally withholds the same.

Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as supported by the information given by the
widow of the decedent. ---Grepalife asserts that Dr. Mejia’s technical diagnosis of the cause of death of Dr. Leuterio was a duly
documented hospital record, and that the widow’s declaration that her husband had possible hypertension several years ago should not
be considered as hearsay, but as part of res gestae.

Also in this case the medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body of
the decedent. As the attending physician, Dr. Mejia stated that he had no knowledge of Dr. Leuterios any previous
hospital confinement, Dr. Leuterio’s death certificate stated that hypertension was only the possible cause of death.

The private respondent’s statement, as to the medical history of her husband, was due to her unreliable recollection of
events. Hence, the statement of the physician was properly considered by the trial court as hearsay.

Appellant insurance company had failed to establish that there was concealment made by the insured, hence, it cannot
refuse payment of the claim." 17 chanrobles.com : virtual law library

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind the
contract. 18 Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the
duty to establish such defense by satisfactory and convincing evidence rests upon the insurer. 19 In the case at
bar, the petitioner failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of the
insurance.

18
14. NEW LIFE ENTERPRISES and JULIAN SY vs. HON. COURT OF APPEALS,

Sc: here may concealment- did not disclose fact of getting 3 insurance when the contract specifically commands
him to do so.

Facts:Julian Sy and Jose Sy Bang have formed a business partnership in the City of Lucena. Under the business name of
New Life Enterprises, the partnership engaged in the sale of construction materials at its place of business, a two storey
building situated at Iyam, Lucena City.

The facts show that Julian Sy insured the stocks in trade of New Life Enterprises with three different insurance
corporation all of which issued their respective fire insurance policy. with Western Guaranty Corporation, Reliance Surety
and Insurance. Co., Inc., and Equitable Insurance Corporation.

On May 15, 1981, Western Guaranty Corporation issued Fire Insurance Policy No. 37201 in the amount of P350,000.00.
This policy was renewed on May, 13, 1982. On July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire
Insurance Policy No. 69135 in the amount of P300,000.00 (Renewed under Renewal Certificate No. 41997) An additional
insurance was issued by the same company on November 12, 1981 under Fire Insurance Policy No. 71547 in the amount
of P700,000.00.On February 8, 1982, Equitable Insurance Corporation issued Fire Insurance Policy No. 39328 in the
amount of P200,000.00.

Later, at about 2:00 o'clock in the morning ,the building occupied by the New Life Enterprises was gutted by fire at about
2:00 o'clock in the morning of October 19, 1982, the stocks in the trade inside said building were insured against fire in
the total amount of P1,550,000.00.

After the fire, Julian Sy went to the agent of one of Insurance company whom he asked to accompany him to the office of
the company so that he can file his claim. , the Claims Manager told him to go first to Reliance Insurance and if said
company agrees to pay, they would also pay. The same treatment was given him by the other insurance companies.
However, the three insurance companies denied plaintiffs' claim for payment by reason breach  of  policy conditions to
inform insurance company in case get another insurance.

Issue:WON there was a violation of the insurance contract by obtaining three insurance contracts, thus constituting
concealment on the part of Sy?

Ruling: YES. The court finds that there was a violation of the insurance contract by Sy.

When the words of the document are readily understandable by an ordinary reader, there is no need for
construction anymore. The terms of the contract are clear and unambiguous. The insured is specifically required
to disclose to the insurer any other insurance and its particulars which he may have effected on the same subject
matter. The knowledge of such insurance by the insurer's agents, even assuming the acquisition thereof by the
former, is not the "notice" that would estop the insurers from denying the claim. Besides, the so-called theory of
imputed knowledge, that is, knowledge of the agent is knowledge of the principal, aside from being of dubious
applicability here has likewise been roundly refuted by respondent court whose factual findings we find acceptable.

The insured is specifically required to disclose the insurance that he had contracted with other companies.

In this case, Sy never disclosed co-insurance in the contracts he entered into with the three corporations.--Sy also
contended that the insurance agents knew of the co-insurance.

However, the theory of imputed knowledge, that the knowledge of the agent is presumed to be known by the principal, is
not enough.--The conformity of the insured to the terms of the policy is implied with his failure to disagree with the terms
of the contract.---Since Sy, was a businessman, it was incumbent upon him to read the contracts.

19
15. Ma. Lourdes S. Florendo vs. Philam Plans, G.R. No. 186983, Feb. 22, 2012, Abad, J.

SC: there is concealment on part of manuel by leaving shit blank and signing it.

Facts:Philam Plans, Inc. (Philam Plans) issued a comprehensive pension plan with life insurance coverage, containing a one-year
incontestability period to Manuel Florendo.

Eleven months later after the issuance, Florendo died of blood poisoning.

Lourdes filed a claim for the payment of the benefits under her husband’s plan but Philam Plans declined her claim on the ground of
concealment.

Lourdes points out that, seeing the unfilled spaces in Manuel’s pension plan application relating to his medical history, Philam Plans
should have returned it to him for completion. Since Philam Plans chose to approve the application just as it was, it cannot cry
concealment on Manuel’s part. ---She claims that any defect or insufficiency in the information provided by his pension plan
application should be deemed waived after the same has been approved, the policy has been issued, and the premiums have been
collected.

Issue:Whether Florendo is guilty of concealing his illness when he kept blank and did not answer questions in his pension plan
application

whether Philam Plan’s approval of Florendo’s pension plan application and acceptance of his premium payments precluded it from
denying Lourde’s claim.

Held:Yes. In signing the application without filling in the details regarding his continuing treatments for heart condition and diabetes,
the assumption is that he has never been treated for the said illnesses in the last five years preceding his application . --Since Philam
Plans waived medical examination for Florendo, it had to rely largely on his stating the truth regarding his health in his application. It
is clear from these representations that there was concealment. For, after all, he knew more than anyone that he had been under
treatment for heart condition and diabetes for more than five years preceding his submission of that application. But he
kept those crucial facts from Philam Plans.

Besides, when Manuel signed the pension plan application, he adopted as his own the written representations and
declarations embodied in it. It is clear from these representations that he concealed his chronic heart ailment and diabetes
from Philam Plans.

Since Manuel signed the application without filling in the details regarding his continuing treatments for heart condition
and diabetes, the assumption is that he has never been treated for the said illnesses in the last five years preceding his
application. Manuel cannot sign the application and disown the responsibility for having it filled up.Pursuant to Section
27 of the Insurance Code, Manuel’s concealment entitles Philam Plans to rescind its contract of insurance with him .
27 

It may be true that x x x insured persons may accept policies without reading them, and that this is not negligence per se.
But, this is not without any exception. It is and was incumbent upon petitioner Sy to read the insurance contracts, and this
can be reasonably expected of him considering that he has been a businessman since 1965 and the contract concerns
indemnity in case of loss in his money-making trade of which important consideration he could not have been unaware as
it was precisely the reason for his procuring the same. 32

In this case, . It is and was incumbent upon Manuel, a civil engineer and manager of a construction company. He could 33 

be expected to know that one must read every document, especially if it creates rights and obligations affecting him,
before signing the same. Manuel is not unschooled that the Court must come to his succor. It could reasonably be
expected that he would not trifle with something that would provide additional financial security to him and to his wife in his
twilight years.

As to incontestability: The insurance plan contains an incontestability clause, which precludes the insurer from disowning liability
under the policy it issued on the ground of concealment or misrepresentation regarding the health of the insured after a year of its
issuance. Since Florendo died on the eleventh month following the issuance of his plan, the one-year incontestability period has not
yet set in. Consequently, Philam Plans was not barred from questioning Lourdes entitlement to the benefits of her husband’s pension
plan.
20
16. GREAT PACIFIC LIFE ASSURANCE COMPANY vs. HONORABLE COURT OF APPEALS LAPULAPU
D. MONDRAGON vs. HON. COURT OF APPEALS and NGO HING

Sc:there is concealment by the mother of the condition of her 1 yr old daughter mongoloid.

FACTS: Private respondent Ngo Hing filed an application with pet Pacific Life) for a 20-year endowment policy on the
life of his one-year old daughter Helen Go.

All the essential data regarding Helen was supplied by Ngo to Lapu-Lapu Mondragon, the branch manager of
Grepalife-Cebu.  Mondragon then typed the data on the application form which was later signed by Ngo.

Mondragon wrote on the bottom of the application form his strong recommendation for the approval of
the insurance application.

On Apr 30, 1957, Mondragon received a letter from Grepalife Main office disapproving the insurance
application of Ngo for the simple reason that the 20yr endowment plan is not available for minors
below 7 yrs old.

Mondragon wrote back the main office again strongly recommending the approval of the endowment
plan on the life of Helen, adding that Grepalife was the only insurance company NOT selling
endowment plans to children.

Helen Go died of influenza with complication of bronchopneumonia.

Thereupon, private respondent sought the payment of the proceeds of the insurance, but having failed in his effort, he filed
the action for the recovery of the same before the CFI of Cebu, which rendered the adverse decision.

ISSUE:WON Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered void the
policy.

HELD:YES.

The contract of insurance is one of perfect good faith uberrima fides meaning good faith, absolute and perfect
candor or openness and honesty; the absence of any concealment or demotion, however slight [Black's Law
Dictionary, 2nd Edition], not for the insured alone but equally so for the insurer (Field man's Insurance Co., Inc.
vs. Vda de Songco, 25 SCRA 70). Concealment is a neglect to communicate that which a party knows and Ought to
communicate (Section 25, Act No. 2427). Whether intentional or unintentional the concealment entitles the insurer
to rescind the contract of insurance. Private respondent appears guilty thereof.

Here, private respondent had deliberately concealed the state of health and physical condition of his daughter Helen Go.
Where private respondent supplied the required essential data for the insurance application form, he was fully aware that
his one-year old daughter is typically a mongoloid child.

Such a congenital physical defect could never be ensconced nor disguised. Nonetheless, private respondent, in apparent
bad faith, withheld the fact material to the risk to be assumed by the insurance company.

We are thus constrained to hold that no insurance contract was perfected between the parties with the noncompliance of
the conditions provided in the binding receipt, and concealment, as legally defined, having been committed by herein
private respondent.

21
+as to the issue of :

whether the binding deposit receipt (Exhibit E) constituted a temporary contract of the life insurance in question

No.

Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely an
acknowledgment, on behalf of the company, that the latter's branch office had received from the applicant the
insurance premium and had accepted the application subject for processing by the insurance company; and that the
latter will either approve or reject the same on the basis of whether or not the applicant is "insurable on standard
rates." Since petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing, the binding
deposit receipt in question had never become in force at any time.

Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely conditional and does not insure
outright. 

We are not impressed with private respondent's contention that failure of petitioner Mondragon tocommunicate to
him the rejection of the insurance application would not have any adverse effect on the allegedly perfected
temporary contract (Respondent's Brief, pp. 13-14). In this first place, there was no contract perfected between the
parties who had no meeting of their minds. Private respondet, being an authorized insurance agent of Pacific Life at
Cebu branch office, is indubitably aware that said company does not offer the life insurance applied for. When he
filed the insurance application in dispute, private respondent was, therefore, only taking the chance that Pacific Life
will approve the recommendation of Mondragon for the acceptance and approval of the application in question along
with his proposal that the insurance company starts to offer the 20-year endowment insurance plan for children less
than seven years. Nonetheless, the record discloses that Pacific Life had rejected the proposal and
recommendation. Secondly, having an insurable interest on the life of his one-year old daughter, aside from being
an insurance agent and an offense associate of petitioner Mondragon, private respondent Ngo Hing must have
known and followed the progress on the processing of such application and could not pretend ignorance of the
Company's rejection of the 20-year endowment life insurance application.

22
17. SATURNINO VS. PHIL. AMERICAN LIFE

Sc: There is maski di nya alam.. Concealment, whether intentional or unintentional entitled the insurer to rescind the
contract of insurance.

FACTS:

The policy sued upon in this case is one for 20-year endowment non-medical insurance. This kind of policy dispenses
with the medical examination of the applicant usually required in ordinary life policies. However, detailed information is
called for in the application concerning the applicant's health and medical history .

The written application in this case was submitted by Saturnino. A year later, Saturnino died of pneumonia, secondary
to influenza.

Appellants here, demanded payment of the face value of the policy.

The claim was rejected because it appears that Prior to the application for insurance policy,

Saturnino was operated on for cancer involving complete removal of the right breast, including the pectoral muscles and
the glands.Notwithstanding the fact of her operation, Saturnino did not make a disclosure thereof in her application for
insurance. Rather She stated therein that she did not have , nor had she ever had, among others listed in the application,
cancer or other tumors; that she had not consulted any physician, undergone any operation or suffered any injury within
the preceding 5 years. She also stated that she had never been treated for, nor did she ever have any illness or disease
peculiar to her sex, particularly of the breast, ovaries, uterus and menstrual disorders. The application also recited that the
declarations of Saturnino constituted a further basis for the issuance of the policy.

Appellant contends that there was no fraudulent concealment of the truth as the insured herself did not know, since her
doctor never told her, that the disease for which she had been operated on was cancer.

Appellant also contends that the facts subject of the representation were not material in view of the non-medical nature
of the insurance applied for, which does away with the usual requirement of medical examination before the policy is
issued.

ISSUE: Whether the insured fraudulently concealed material facts.

RULING: YES.

AS TO APPELLANTS CONTETNION NA DI NYA ALAM: concealment of the fact of the operation itself was
fraudulent, as there could not have been any mistake about it, no matter what the ailment was. In order to avoid a policy, it
is not necessary to show actual fraud on the part of the insured.

In this jurisdiction, concealment, whether intentional or unintentional entitled the insurer to rescind the contract of
insurance, concealment being defined as “negligence to communicate that which a party knows and ought to
communicate.”

RATIO: The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the insurer into
accepting the risk, or accepting it at a rate of premium agreed upon. The insurer, relying upon the belief that the insured
will disclose every material fact within his actual or presumed knowledge, is misled into a belief that the circumstances
withheld does not exist, and he is thereby induced to estimate the risk upon a false basis that it does not exist.

23
RATIO: if it were the law that an insurance company could not depend a policy on the ground of misrepresentation,
unless it could show actual knowledge on the part of the applicant that the statements were false, then it is plain that it
would be impossible for it to protect itself and its honest policyholders against fraudulent and improper claims. It would
be wholly at the mercy of any one who wished to apply for insurance, as it would be impossible to show actual fraud
except in the extremest cases. It could not rely on an application as containing information on which it could act. There
would be no incentive to an applicant to tell the truth.

In this case, The information given by her in the application for insurance was false, namely, that she never had cancer or
tumors or consulted any physician or undergone any operation within the preceding period of 5 years.

The question to determine is: Are the facts then falsely represented material? The Insurance Law provides that
“materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the
party to whom the communication is due, in forming his estimate of the proposed contract, or making his inquiries.

AS TO CONTENTION NA NON MEDICAL IN NATURE SO NOT MATERIAL:

We hold that if anything, the waiver of medical examination renders even more material the information required of the
applicant concerning previous condition of health and diseases suffered, for such information necessarily constitutes an
important factor which the insurer takes into consideration in deciding whether to issue the policy or not.

24
WARRANTIES

18. QUA CHEE GAN v. LAW UNION AND ROCK INSURANCE CO., LTD., represented by its agent,
WARNER, BARNES AND CO., LTD.

Here: Ins company cannot deny liability because it accepted payment of premium despite knowing lack of
following of the warranty. Thus estopped.

FACTS: Qua Chee Gan, a merchant, owned 4 warehouses in Albay which were used for storage of copra and hemp . The
warehouses, together with its contents, were insured with Law Union and Rock Insurance Co., Ltd.

The insurance policy states that Qua Chee Gan should install 11 hydrants in the warehouses’ premises.

*Qua Chee Gan installed only two, but Law Union nevertheless went on with the insurance policy and collected
premiums from Qua Chee Gan. The insurance contract also provides that “oil” should not be stored within the premises
of the warehouses.

Later,, three of the warehouses were destroyed by fire. Thus, Qua Chee Gan demanded insurance from Law Union but
the latter refused as it alleged that after investigation from their part, they found out that Qua Chee Gan caused the fire.

Law Union in fact sued Qua Chee Gan for Arson but was acquitted.Thereafter, Law Union averred that the insurance
contract is void because Qua Chee Gan failed to install 11 hydrants; and that gasoline was found in one of the warehouses.

ISSUE: Was there a violation of warranties of the insurance policy?

RULING: NO.

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 nevertheless issued the policies in question subject to such warranty, and received the corresponding premiums.

Here, 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.

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.

**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.)
25
AS TO THE CONTENTION WITH REGARD TO THE GAS WHEREAS IN THE POLICY THE WORDING WAS
OIL: SC: IT APPEARS AMBIGOUS THUS, CONSTRUE IN FAVOR OF INSURED.

Also, appellant insurance company avers, that the insured violated the "Hemp Warranty" provisions of the Policy 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 300
degrees 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.

26
DOUBLE INSURANCE

19. ARMANDO GEAGONIA, vs. COURT OF APPEALS and COUNTRY BANKERS INSURANCE
CORPORATION

Here, no double ins because interest of mgor and mgee are sep and distinct. (Insured by country bankers is diff from
insured by PFIC)

FACTS: Armando Geagonia is the owner of Norman's Mart

For this he obtained from Country Bankers Insurance Corporation {CBIC} fire insurance policy No. F-14622 for
P100,000.00. from 1989 to 1990 The period of the policy was from 22 December 1989 to 22 December 1990 and covered
the following: "Stock-in-trade consisting principally of dry goods such as RTW's for men and women wear and other
usual to assured's business."

Later, Armando Geagonia declared in the policy under the subheading entitled CO-INSURANCE that Mercantile
Insurance Co.,

Acc to condition no.3 in the policy. The insured shall give notice to the Company of any insurance or insurances already
affected, or which may subsequently be effected, covering any of the property or properties consisting of stocks in trade,
goods in process and/or inventories only hereby insured, and unless such notice be given and the particulars of such
insurance or insurances be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance Code, by or on
behalf of the Company before the occurrence of any loss or damage, all benefits under this policy shall be deemed
forfeited, provided however, that this condition shall not apply when the total insurance or insurances in force at the time
of the loss or damage is not more than P200,000.00.

Sometime in 1990, a fire of accidental origin broke out and the insured stock-in-trade were completely destroyed
prompting Geagonia to file with (1st ins) Country Bankers a claim under the policy.

The petitioners’ stocks were destroyed by fire. He then filed a claim against Country bankers

But it was denied because the petitioner’s stocks were covered by two other fire insurance policies for Php 200,000
issued by PFIC.

These 2 other insurance policies indicate that the insured was " Messrs. Discount Mart (Mr. Armando
Geagonia, Prop.)" with a mortgage clause reading:

MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their interest may
appear subject to the terms of this policy. CO-INSURANCE DECLARED: P100,000. — Phils. First CEB/F
24758.

The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the policy.

IC: found that it was Cebu Tesing Textiles which procured the PFIC policies without informing him or securing his
consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. These findings were
based on the petitioner's testimony that he came to know of the PFIC policies only when he filed his claim with the
private respondent and that Cebu Tesing Textile obtained them and paid for their premiums without informing him
thereof.

CA: insurance was taken in the name of private respondent [petitioner herein]. The policy states that "DISCOUNT
MART (MR. ARMANDO GEAGONIA, PROP)" was the assured and that " TESING TEXTILES" [was] only the
mortgagee of the goods.

27
In addition, the premiums on both policies were paid for by private respondent, not by the Tesing Textiles which is
alleged to have taken out the other insurance without the knowledge of private respondent. This is shown by
Premium Invoices nos. 46632 and 46630. (Annexes M and N). In both invoices, Tesing Textiles is indicated to be
only the mortgagee of the goods insured but the party to which they were issued were the "DISCOUNT MART (MR.
ARMANDO GEAGONIA)."

In is clear that it was the private respondent [petitioner herein] who took out the policies on the same property
subject of the insurance with petitioner.

ISSUE: Whether or not Double Insurance exist thereby prohibiting petitioner Geagonia from recovering.

RULING: NO, double insurance does not exist.

Provisions, conditions or exceptions in policies, which tend to work a forfeiture of insurance policies, should be construed
most strictly against those for whose benefits they are inserted, and most favorably toward those against whom they are
intended to operate.

The reason for this is that, except for riders, which may later be inserted, the insured sees the contract already in its final
form and has had no voice in the selection or arrangement of the words employed therein. On the other hand, the language
of the contract was carefully chosen and deliberated upon by experts and legal advisers who had acted exclusively in the
interest of the insurers and the technical language employed therein is rarely understood by ordinary laymen.

Here, Condition 3 of the subject policy is not totally free from ambiguity and must, perforce, be meticulously analyzed.
Such analysis leads us to conclude that (a) the prohibition applies only to double insurance, and (b) the nullity of the
policy shall only be to the extent exceeding P200,000.00 of the total policies obtained.

The first conclusion is supported by the portion of the condition referring to other insurance "covering any of the property
or properties consisting of stocks in trade, goods in process and/or inventories only hereby insured," and the portion
regarding the insured's declaration on the subheading CO-INSURANCE that the co-insurer is Mercantile Insurance Co.,
Inc. in the sum of P50,000.00.

But in this case, 6 However, in order to constitute a violation, the other insurance (WITH PFIC) must be upon same
subject matter, the same interest therein, and the same risk.17

As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable interest therein and
both interests may be one policy, or each may take out a separate policy covering his interest, either at the same or at
separate times. 18 

The mortgagor's insurable interest covers the full value of the mortgaged property, even though the mortgage debt is
equivalent to the full value of the property. 19 

The mortgagee's insurable interest is to the extent of the debt, since the property is relied upon as security thereof, and
in insuring he is not insuring the property but his interest or lien thereon. His insurable interest is prima facie the value
mortgaged and extends only to the amount of the debt, not exceeding the value of the mortgaged property. 20 Thus,
separate insurances covering different insurable interests may be obtained by the mortgagor and the mortgagee.

A mortgagor (Armando ) may, however, take out insurance for the benefit of the mortgagee, which is the usual practice.
The mortgagee may be made the beneficial payee in several ways.

How: (Mgee) He may become the assignee of the policy with the consent of the insurer; or the mere pledgee without such
consent; or the original policy may contain a mortgage clause; or a rider making the policy payable to the mortgagee "as
his interest may appear" may be attached; or a "standard mortgage clause," containing a collateral independent contract
between the mortgagee and insurer, may be attached; or the policy, though by its terms payable absolutely to the

28
mortgagor, may have been procured by a mortgagor under a contract duty to insure for the mortgagee's benefit, in which
case the mortgagee acquires an equitable lien upon the proceeds. 21

*****In the policy obtained by the mortgagor(ARMANDO) with loss payable clause in favor of the mortgagee
(CEBU TEXTILE) as his interest may appear, the mortgagee is only a beneficiary under the contract, and recognized
as such by the insurer but not made a party to the contract himself.

Hence, any act of the mortgagor which defeats his right will also defeat the right of the mortgagee.  22 This kind of policy
covers only such interest as the mortgagee has at the issuing of the policy. 23

On the other hand, a mortgagee may also procure a policy as a contracting party in accordance with the terms of an
agreement by which the mortgagor is to pay the premiums upon such insurance. 24 It has been noted, however, that
although the mortgagee is himself the insured, as where he applies for a policy, fully informs the authorized agent of his
interest, pays the premiums, and obtains on the assurance that it insures him, the policy is in fact in the form used to insure
a mortgagor with loss payable clause. 25

The fire insurance policies issued by the PFIC name the petitioner (Armando) as the assured and contain a mortgage
clause which reads:

Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear subject to the
terms of this policy.

This is clearly a simple loss payable clause, not a standard mortgage clause.

A double insurance exists where the same person is insured by several insurers separately in respect of the same
subject and interest. As earlier stated, the insurable interests of a mortgagor and a mortgagee on the mortgaged
property are distinct and separate.

Since the two policies of the PFIC do not cover the same interest as that covered by the policy of the private
respondent, no double insurance exists. (UNG INSURANCE NG PFIC-IS AS A MGEE?)

The non-disclosure then of the former policies was not fatal to the petitioner's right to recover on the private respondent's
policy.

Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total insurance in force at the
time of loss does not exceed P200,000.00, the private respondent was amenable to assume a co-insurer's liability up to a
loss not exceeding P200,000.00. What it had in mind was to discourage over-insurance.

RATIONALE:

Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is to prevent over-insurance and
thus avert the perpetration of fraud. When a property owner obtains insurance policies from two or more insurers in a total
amount that exceeds the property's value, the insured may have an inducement to destroy the property for the purpose of
collecting the insurance. The public as well as the insurer is interested in preventing a situation in which a fire would be
profitable to the insured.

29
20. MALAYAN INSURANCE CO., INC. vs. PHILIPPINES FIRST INSURANCE CO., INC. and REPUTABLE
FORWARDER SERVICES, INC.

Wyeth marine ins policy with Phil first, then Reputable with Malayan. – hi jacked- now Malayan denied liability
because of first marine policy obtained. SC: No. No double insurance-diff ins interest over same goods.

FACTS: Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services, Inc. (Reputable)
are parties to a contract of carriage., whereby Reputable undertook to transport and deliver the former’s products to its
customers, dealers or salesmen.

On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from respondent Philippines
First Insurance Co., Inc. (Philippines First) to secure its interest over its own products.

Philippines First thereby insured Wyeth’s nutritional, pharmaceutical and other products usual or incidental to the
insured’s business while the same were being transported or shipped in the Philippines. The policy covers all risks of
direct physical loss or damage from any external cause.

Under the contract, Reputable undertook to answer for “all risks with respect to the goods and shall be liable to the
COMPANY (Wyeth), for the loss, destruction, or damage of the goods/products due to any and all causes whatsoever,
including theft, robbery, flood, storm, earthquakes, lightning, and other force majeure while the goods/products are in
transit and until actual delivery to the customers, salesmen, and dealers of the COMPANY”. The contract also required
Reputable to secure an insurance policy on Wyeth’s goods. Thus, , Reputable signed a Special Risk Insurance Policy (SR
Policy) with petitioner Malayan for the amount of P1,000,000.00.

On October 6, 1994, during the effectivity of the Marine Policy and SR Policy, Reputable received from Wyeth 1,000
boxes of Promil infant formula worth P2,357,582.70 to be delivered by Reputable to Mercury Drug Corporation in Libis,
Quezon City. Unfortunately, on the same date, the truck carrying Wyeth’s products was hijacked by about 10 armed men.
They threatened to kill the truck driver and two of his helpers should they refuse to turn over the truck and its contents to
the said highway robbers. The hijacked truck was recovered two weeks later without its cargo.

Malayan questions its liability based on sections 5 and 12 of the SR Polic y that the insurance does not cover any loss or
damage to property which at the time of the happening of such loss or damage is insured by any marine policy ---Malayan
argued that inasmuch as there was already a marine policy issued by Philippines First securing the same subject matter
against loss and that since the monetary coverage/value of the Marine Policy is more than enough to indemnify the hijacked
cargo, Philippines First alone must bear the loss

ISSUE:

Whether or not there is double insurance in this case such that either Section 5 or Section 12 of the SR Policy may be
applied.

HELD: NO. By the express provision of Section 93 of the Insurance Code, double insurance exists where the same
person is insured by several insurers separately in respect to the same subject and interest.

The requisites in order for double insurance to arise are as follows: (P,Insures-Identity of SIR)
1. The person insured is the same;
2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the SR Policy were both issued over the same subject
matter, i.e. goods belonging to Wyeth, and both covered the same peril insured against, it is, however, beyond cavil

30
that the said policies were issued to two different persons or entities. ----As in here, Wyeth is the recognized insured
of Philippines First under its Marine Policy, while Reputable is the recognized insured of Malayan under the SR Policy.

The fact that Reputable procured Malayan’s SR Policy over the goods of Wyeth pursuant merely to the stipulated
requirement under its contract of carriage with the latter does not make Reputable a mere agent of Wyeth in obtaining the
said SR Policy.

The interest -----of Wyeth over the property subject matter of both insurance contracts is also different and distinct from
that of Reputable’s. The policy issued by Philippines First was in consideration of the legal and/or equitable interest of
Wyeth over its own goods. On the other hand, what was issued by Malayan to Reputable was over the latter’s insurable
interest over the safety of the goods, which may become the basis of the latter’s liability in case of loss or damage to the
property and falls within the contemplation of Section 15 of the Insurance Code.

Therefore, even though the two concerned insurance policies were issued over the same goods and cover the same risk,
there arises no double insurance since they were issued to two different persons/entities having distinct insurable
interests.

Necessarily, over insurance by double insurance cannot likewise exist. Hence, as correctly ruled by the RTC and CA,
neither Section 5 nor Section 12 of the SR Policy can be applied.

COMPARED TO GEAGONIA CASE (19)

Section 5 is actually the other insurance clause (also called "additional insurance" and "double insurance"), one akin to
Condition No. 3 in issue in Geagonia v. CA,35 which validity was upheld by the Court as a warranty that no other insurance
exists. The Court ruled that Condition No. 336 is a condition which is not proscribed by law as its incorporation in the policy is
allowed by Section 75 of the Insurance Code. It was also the Court s finding that unlike the other insurance clauses,
Condition No. 3 does not absolutely declare void any violation thereof but expressly provides that the condition "shall not
apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00."

In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity of the SR Policy but simply
limits the liability of Malayan only up to the excess of the amount that was not covered by the other insurance policy. In
interpreting the "other insurance clause" in Geagonia, the Court ruled that the prohibition applies only in case of double
insurance. The Court ruled that in order to constitute a violation of the clause, the other insurance must be upon same
subject matter, the same interest therein, and the same risk. Thus, even though the multiple insurance policies involved
were all issued in the name of the same assured, over the same subject matter and covering the same risk, it was ruled that
there was no violation of the "other insurance clause" since there was no double insurance.

Section 12 of the SR Policy, on the other hand, is the over insurance clause. More particularly, it covers the situation where
there is over insurance due to double insurance. In such case, Section 15 provides that Malayan shall "not be liable to pay or
contribute more than its ratable proportion of such loss or damage." This is in accord with the principle of contribution
provided under Section 94(e) of the Insurance Code,37 which states that "where the insured is over insured by double
insurance, each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to
the amount for which he is liable under his contract."

Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal question that now arises is
whether there is double insurance in this case such that either Section 5 or Section 12 of the SR Policy may be applied.

31
NOTICE OF LOSS

21. PHILIPPINES AMERICAN GENERAL INSURANCE Co., INC. and TAGUM PLASTICS, INC. vs. SWEET
LINES INC., DAVAO VETERANS ARRASTRE and CA

Sc on importance of condition precedent: CLAIM OF PHILAMGEN AND TAGUM PRESCRIBED. while

petitioners may possibly have a cause of action, for failure to comply with the above condition precedent they lost
whatever right of action they may have in their favor

FACTS Petitioners (PHILAMGEN) and Tagum Plastics, Inc. (TAGUM) were insurers and importers of Low
Density Polyethylene (a certain merchandise which is a basic material for plastics.

It is to be shipped from the U.S. through an Indian Ship to Manila then shipped off to Davao.

The Indian vessel arrived in Manila and sought the services of respondent Sweet Lines for shipment to Davao.

However upon arrival at davao, TAGUM found out that some of the imported polyethylene were either missing or
damaged beyond point of being useful for the intended purpose. Delivered were only 5,820 bags only out of the ordered
7,000 bags.

As a consequence, PHILAMGEN and TAGUM filed a suit against Sweet Lines and Davao Veterans Arrastre
based on the Bills of Lading. However, bills of lading and notice of loss were not formally offered as evidence, hence it
was not shown that damage were incurred by the carrier and that a contractual prescriptive period was indicated therein.

respondent carrier duly raised prescription as an affirmative defense in its answer setting forth paragraph 5 of the
pertinent bills of lading which comprised the stipulation thereon by parties, to wit: which essentially provides that:
5. Claims for shortage, damage, must be made at the time of delivery to consignee or agent, if container shows exterior
signs of damage or shortage. Claims for non-delivery, misdelivery, loss or damage must be filed within 30 days from
accrual. Suits arising from shortage, damage or loss, non-delivery or misdelivery shall be instituted within 60 days from
date of accrual of right of action. Failure to file claims or institute judicial proceedings as herein provided constitutes
waiver of claim or right of action. In no case shall carrier be liable for any delay, nondelivery, misdelivery, loss of damage
to cargo while cargo is not in actual custody of carrier.”

ISSUE: Whether or not the action had prescribed due to failure of Sweet Lines to file a notice of claim within the
orescribed period.

RULING: yes. The petitioners have not substantially complied with the conditions precedent to their right of action.

All valid conditions precedent to the institution of the particular action wheter prescribed by statute, fixed by agreement of
the parties or implied by law must be performed or complied with before commencing the action,

unless the conduct of the adverse party has been such as to prevent or waive performance or excuse non-performance of
the condition.

Stipulations in bills of lading requiring notice of claim for loss or damage is a condition precedent. The carrier is not liable
if notice is not given in accordance with the stipulation.

More particularly, where the contract of shipment contains a reasonable requirement of giving notice of loss of or
injury to the goods, the giving of such notice is a condition precedent to the action for loss or injury or the right to
enforce the carrier's liability. Such requirement is not an empty formalism.
RATIO”

32
The fundamental reason or purpose of such a stipulation is not to relieve the carrier from just liability, but reasonably to
inform it that the shipment has been damaged and that it is charged with liability therefor, and to give it an opportunity to
examine the nature and extent of the injury. This protects the carrier by affording it an opportunity to make an
investigation of a claim while the matter is fresh and easily investigated so as to safeguard itself from false and fraudulent
claims.
Stipulations in bills of lading or other contracts of shipment which require notice of claim for loss of or damage to
goods shipped in order to impose liability on the carrier operate to prevent the enforcement of the contract when
not complied with, that is, notice is a condition precedent and the carrier is not liable if notice is not given in
accordance with the stipulation, as the failure to comply with such a stipulation in a contract of carriage with
respect to notice of loss or claim for damage bars recovery for the loss or damage suffered.
In the case at bar, there is neither any showing of compliance by petitioners with the requirement for the filing of a
notice of claim within the prescribed period nor any allegation to that effect . It may then be said that while petitioners
may possibly have a cause of action, for failure to comply with the above condition precedent they lost whatever right of
action they may have in their favor or, taken in another sense, that remedial right or right to relief had prescribed.

33
PREMIUMS

22. Jaime T. Gaisano, Vs. Development Insurance And Surety Corporation,

G.R. No. 190702, February 27, 2017

*S77 req premium paid and its 5xcns was ruled in this case. – Not perfected in this cae.
Sc: Here not paid yet at the time of loss-thus not perfected. The general rule in insurance laws is that unless the premium
is paid, the insurance policy is not valid and binding.-

Facts: Petitioner Jaime Gaisano was the registered owner of a 1992 Mitsubishi Montero, while respondent
Development insurance is a domestic corporation engaged in the insurance businesswhich issued a comprehensive
commercial vehicle policy to petitioner in the amount of P1,500,000.00 over the vehicle for a period of one year
commencing on September 27, 1996 up to September 27, 1997.

Respondent also issued two other commercial vehicle policies to petitioner covering two other motor vehicles f or the
same period.

Noah's Ark (company of petitioner) immediately processed the payments and issued a check dated September 27, 1996
payable to (res agent) Trans-Pacific on the same day.

The check represents payment for the three insurance policies, for the premium and other charges over the vehicle.
However, nobody from Trans-Pacific picked up the check that day (September 27) because its president and general
manager, was celebrating his birthday.

Trans-Pacific informed Noah's Ark that its messenger would get the check the next day, September 28.

Unfortunately In the evening of September 27, 1996, while under the official custody of Noah's Ark marketing manager
Achilles Pacquing a marketing mnger of insured as a service company vehicle, the vehicle insured was stolen in the
vicinity of SM Megamall at Ortigas, Mandaluyong City. Pacquing reported the loss to the Philippine National Police
Traffic Management Command at Camp Crame in Quezon City. Despite search and retrieval efforts, the vehicle was not
recovered.

Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28. It issued an official receipt
numbered 124713 dated September 28, 1996, acknowledging the receipt of P55,620.60 for the premium and other charges
over the vehicle. The check issued to Trans-Pacific for P140,893.50 was deposited with Metrobank for encashment on
October 1, 1996.

On the same day, Pacquing informed petitioner of the vehicle's loss. Thereafter, petitioner reported the loss and filed a
claim with respondent for the insurance proceeds of P1,500,000.00.

After investigation, respondent denied petitioner's claim on the ground that there was no insurance contract .

Issue:
Whether or not there is a timely payment of premiums which perfected an insurance contract between petitioner and
respondent.

Held: No. Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event. Just like any other contract, it requires a cause or consideration.

The consideration is the premium, which must be paid at the time and in the way and manner specified in the policy. If not
so paid, the policy will lapse and be forfeited by its own terms.

34
The law, however, limits the parties' autonomy as to when payment of premium may be made for the contract to take
effect. The general rule in insurance laws is that unless the premium is paid, the insurance policy is not valid and binding .
Section 77 of the Insurance Code, applicable at the time of the issuance of the policy, provides:

“Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril
insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding until the premium thereof has been paid,

except in the case of a life or an industrial life policy whenever the grace period provision applies.”

In Tibay v. Court of Appeals, the Court emphasized the importance of this rule. It explained that in an insurance contract,
both the insured and insurer undertake risks. On one hand, there is the insured, a member of a group exposed to a
particular peril, who contributes premiums under the risk of receiving nothing in return in case the contingency does not
happen; on the other, there is the insurer, who undertakes to pay the entire sum agreed upon in case the contingency
happens.

RATIO: This risk-distributing mechanism operates under a system where, by prompt payment of the premiums, the
insurer is able to meet its legal obligation to maintain a legal reserve fund needed to meet its contingent obligations to the
public. The premium, therefore, is the elixir vitae or source of life of the insurance business.

Here, there is no dispute that the check was delivered to and was accepted by respondent's agent, Trans-Pacific, only on
September 28, 1996.

No payment of premium had thus been made at the time of the loss of the vehicle on September 27, 1996.

As to: While petitioner claims that Trans-Pacific was informed that the check was ready for pick-up on September 27,
1996, the notice of the availability of the check, by itself, does not produce the effect of payment of the premium . Trans-
Pacific could not be considered in delay in accepting the check because when it informed petitioner that it will only be
able to pick-up the check the next day, petitioner did not protest to this, but instead allowed Trans-Pacific to do so. Thus,
at the time of loss, there was no payment of premium yet to make the insurance policy effective.

As to xcns sa s77:-if
In UCPB General Insurance Co., Inc., we summarized the exceptions as follows: (1) in case of life or industrial life policy, whenever the grace period
provision applies, as expressly provided by Section 77 itself; (2) where the insurer acknowledged in the policy or contract of insurance itself the receipt of
premium, even if premium has not been actually paid, as expressly provided by Section 78 itself; (3) where the parties agreed that premium payment shall be
in installments and partial payment has been made at the time of loss, as held in  Makati Tuscany Condominium Corp. v. Court of Appeals;53 (4) where the
insurer granted the insured a credit term for the payment of the premium, and loss occurs before the expiration of the term, as held in  Makati Tuscany
Condominium Corp.; and (5) where the insurer is in estoppel as when it has consistently granted a 60 to 90-day credit term for the payment of premiums.

The insurance policy in question does not fall under the first to third exceptions laid out in UCPB General Insurance Co., Inc.: (1) the policy is not a life or
industrial life policy; (2) the policy does not contain an acknowledgment of the receipt of premium but merely a statement of account on its face; 54 and (3) no
payment of an installment was made at the time of loss on September 27.

Petitioner argues that his case falls under the fourth and fifth exceptions because the parties intended the contract of insurance to be immediately effective
upon issuance, despite non-payment of the premium. This waiver to a pre-payment in full of the premium places respondent in estoppel.

We do not agree with petitioner.

The fourth and fifth exceptions to Section 77 operate under the facts obtaining in Makati Tuscany Condominium Corp. and UCPB General Insurance Co.,
Inc. Both contemplate situations where the insurers have consistently granted the insured a credit extension or term for the payment of the premium.
Here, however, petitioner failed to establish the fact of a grant by respondent of a credit term in his favor, or that the grant has been consistent. While there
was mention of a credit agreement between Trans-Pacific and respondent, such arrangement was not proven and was internal between agent and
principal.55 Under the principle of relativity of contracts, contracts bind the parties who entered into it. It cannot favor or prejudice a third person, even if he is
aware of the contract and has acted with knowledge.56

We cannot sustain petitioner's claim that the parties agreed that the insurance contract is immediately effective upon issuance despite non payment of the
premiums. Even if there is a waiver of pre-payment of premiums, that in itself does not become an exception to Section 77, unless the insured clearly gave a
credit term or extension.

35
23. Arce v. Capital Insurance & Surety Co., Inc.,

Note: 1982 case! Follow 22! S77 latest

S72 discussed amendment F: Not perfected. may agreed period within to pay as pleased by insured-yet di pa din
nya nasunod-and destroyed by fire ung house before payment-

The amendment to Sec. 72 has radically changed the legal regime in that unless the premium is paid, there is no insurance.

FACTS:The INSURED (Pedro Arce) was the owner of a residential house in Tondo, Manila, which had been insured
with the COMPANY (Capital Insurance) for Fire Insurance since 1961

When the COMPANY sent to the INSURED a Renewal Certificate, the COMPANY also requested payment of the
corresponding premium.

However, the INSURED could not yet able to pay the premium so he ask the COMPANY for an extension to pay the
premium. The COMPANY acceded. Unfortunately, the INSURED still failed to pay the premium on the agreed extension
date.

Four days after the lapse of the agreed extension date, the house of the INSURED was totally destroyed by fire.

The INSURED then presented a claim for indemnity to the COMPANY.

The COMPANY answered that no indemnity was due because the premium on the policy was not paid.

Nonetheless, the COMPANY tendered a financial aid to the INSURED. After receiving the financial aid, the INSURED
then sued the COMPANY on the policy for non-payment of indemnity.

The trial court ruled in favor of the INSURED and so ordered the COMAPANY to pay the INSURED for indemnity
under the policy. The COMPANY appealed to the SC via a petition for review on pure questions of law.

ISSUE: Whether or not the INSURED is entitled to indemnity under the fire insurance policy even if no premium was
paid?

HELD: No.

Sec. 72 of the Insurance Act, as amended by R.A. No. 3540 reads:

SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the perils insured
against, unless there is clear agreement to grant credit extension for the premium due. No policy issued by an insurance
company is valid and binding unless and until the premium thereof has been paid " (Italics supplied.)

Moreover, the parties in this case had stipulated:

IT IS HEREBY DECLARED AND AGREED that not. withstanding anything to the contrary contained in the
within policy, this insurance will be deemed valid and binding upon the Company only when the premium and
documentary stamps therefor have actually been paid in full and duly acknowledged in an official receipt signed
by an authorized official/representative of the Company, " (pp. 45-46, Record on Appeal.)

It is obvious from both the Insurance Act, as amended, and the stipulation of the parties that time is of the essence
in respect of the payment of the insurance premium so that if it is not paid the contract does not take effect unless
there is still another stipulation to the contrary.

36
It is to be noted that Delgado was decided in the light of the Insurance Act before Sec. 72 was amended by the
addition of the underscored portion, supra, Prior to the amendment, an insurance contract was effective even if the
premium had not been paid so that an insurer was obligated to pay indemnity in case of loss and correlatively he
had also the right to sue for payment of the premium. But the amendment to Sec. 72 has radically changed the
legal regime in that unless the premium is paid there is no insurance.

With the foregoing, it is not necessary to dwell at length on the trial court's second proposition that the INSURED
had not authorized his daughter Evelina to make a waiver because the INSURED had nothing to waive; his policy
ceased to have effect when he failed to pay the premium.

In the instant case, the INSURED was given a grace period to pay the premium but the period having expired with no
payment made, he cannot insist that the COMPANY is nonetheless obligated to him.

The amendment to Sec. 72 has radically changed the legal regime in that unless the premium is paid there is no insurance.

37
24. SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO, VICTORINA M.
RORALDO, VIRGILIO M. RORALDO, MYRNA M. RORALDO and ROSABELLA M. RORALDO vs. COURT
OF APPEALS and FORTUNE LIFE AND GENERAL INSURANCE CO., INC

SC: Partial payment of premium-not perfected.

FACTS: pet Sps tibay insured their 2-story residential building with res Fortune Life and General Insurance Co., Inc.
(FORTUNE) for the amount Php 600,000.00 with total premium of P2, 983.50.

Tibay was not able to fully pay it, only paid P600.00 thus leaving a considerable balance unpaid. for the period January
23, 1987 to January 23, 1988.

Later, without full payment, insured building was completely burned.

Two days after the incident, Tibay paid the balance premium and on the same day, demanded payment she filed with
FORTUNE a claim on the fire insurance policy.

FORTUNE denied the claim of Violeta for violation of Policy Condition No. 2 and of Sec. 77 of the Insurance Code.
Violeta and other petitioners filed a case for damages.

The trial court adjudged FORTUNE liable for the insured value of the building and the personal properties. On appeal, the
CA reversed the decision. Hence, a petition was raised to the SC.

ISSUE:Whether or not a fire insurance policy is valid, binding and enforceable upon mere partial payment of premium .

RULING: No.
Premium is the elixir vitae of the insurance business, and all actuarial calculations and various tabulations of
probabilities of losses under the risks insured against are based on the sound hypothesis of prompt payment of
premiums.

Partial payment of premium even when accepted as a partial payment will not keep the policy alive even for such
fractional part of the year as the part payment bears to the whole payment.

Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event. The consideration is the premium, which must be paid at the time and in the
way and manner specified in the policy, and if not so paid, the policy will lapse and be forfeited by its own terms.

Here, Precisely, the insurer and the insured expressly stipulated that this policy including any renewal thereof
and/or any indorsement thereon is not in force until the premium has been fully paid to and duly receipted by the
Company x x x x and that this policy shall be deemed effective, valid and binding upon the Company only when the
premiums therefor have actually been paid in full and duly acknowledged.

Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77 of the Insurance
Code the payment of partial premium by the assured in this particular instance should not be considered the payment
required by the law and the stipulation of the parties.

Rather, it must be taken in the concept of a deposit to be held in trust by the insurer until such time that the full amount
has been tendered and duly receipted for. In other words, as expressly agreed upon in the contract, full payment must be
made before the risk occurs for the policy to be considered effective and in force.

Verily, it is elemental law that the payment of premium is requisite to keep the policy of insurance in force. If the
premium is not paid in the manner prescribed in the policy as intended by the parties the policy is ineffective.

38
IF.

2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the premium has been
fully paid to and duly receipted by the Company in the manner provided herein. This policy shall be deemed effective,
valid and binding upon the Company only when the premiums therefor have actually been paid in full and duly
acknowledged in a receipt signed by any authorized official of the company

Where the premium has only been partially paid and the balance paid only after the peril insured against has occurred, the
insurance contract did not take effect and the insured cannot collect at all on the policy.

The Insurance Code which says that no policy or contract of insurance issued by an insurance company is valid
and binding unless and until the premium has been paid.

AS TO: What does “unless and until the premium thereof has been paid” mean?---some xcns to req of full payment

Escosura v. San Miguel- the legislative practice was to interpret “with pay” in accordance to the intention of distinguish
between full and partial payment, where the modifying term is used.

Petitioners used Philippine Phoenix v. Woodworks, where partial payment of the premium made the policy effective
during the whole period of the policy.

The SC didn’t consider the 1967 Phoenix case as persuasive due to the different factual scenario.

In Makati Tuscany v CA, the parties mutually agreed that the premiums could be paid in installments, hence, this Court
refused to invalidate the insurance policy.

Nothing in Article 77 of the Code suggested that the parties may not agree to allow payment of the premiums in
installment, or to consider the contract as valid and binding upon payment of the first premium. Phoenix and Tuscany
demonstrated the waiver of prepayment in full by the insurer.

In this case however, there was no waiver. There was a stipulation that the policy wasn’t in force until the premium has
been fully paid and receipted.

There was no juridical tie of indemnification from the fractional payment of premium. The insurance contract itself
expressly provided that the policy would be effective only when the premium was paid in full.

South Sea v CA stipulated 2 exceptions to the requirement of payment of the entire premium as a prerequisite to the
validity of the insurance contract. These are when in case the insurance coverage relates to life or insurance when a grace
period applies, and when the insurer makes a written acknowledgment of the receipt of premium to be conclusive
evidence of payment.

Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured cannot collect on the proceeds of
the policy.

39
 25. UCPB GENERAL INSURANCE CO., INC. v MASAGANA TELAMART, INC.
G.R. No. 137172, April 4, 2001

.Here, UCPB made liable – an xcn to s77 which requires full payment of premium before liability- here credit term.

Facts:
Masagana Telamart Inc. (Masagana) obtained 5 insurance from UCPB Gen. Ins. (UCPB) on its properties in Pasay and
Manila. The following are the material dates:
April 15, UCPB received the confirmation from Ultramar Reinsurance Brokers that Masagana’s
1992 reinsurance facility had been confirmed up to 67.5%. Apparently, the notice of non-
renewal was sent not earlier than said date, or within 45 days from the expiry dates of
the policies as provided under Policy Condition No. 26;
22 May Effectivity of the 5 policies
1991 to 22
May 1992
June 13, Later, the properties located at Taft Ave., Pasay were razed by fire
1992
July 13, Masagana tendered, and UCPB accepted, 5 manager’s checks in the total amount of
1992 P225,753.45 as renewal premium payments for which Official Receipt Direct Premium
was issued by UCPB
July 14, Masagana made its formal demand for indemnification for the burned insured properties
1992
July 14, UCPB rejecting Masagana's claim on the following grounds:
1992 a) Said policies expired last May 22, 1992 and were not renewed for another term;
b) UCPB had put Telemart and its alleged broker on notice of non-renewal earlier;
and
c) The properties covered by the said policies were burned in a fire that took place
last June 13, 1992, or before tender of premium payment.
July 17, UCPB appointed Esteban Adjusters and Valuers to investigate the claim
1992

Masagana, which had procured insurance coverage from UCPB for a number of years, had been granted a 60 to 90-day
credit term for the renewal of the policies. Such a practice had existed up to the time the claims were filed, such as:
Policy details Date Date of Payment of
Issued Premium
Fire Insurance Policy No. 34658 covering May 22, May 7, August 31, 1990 (more
1990 to May 22, 1991 1990 than 90 days later)
Fire Insurance Policy No. 34660 for Insurance Risk May 4, July 13, 1990 (more than
Coverage from May 22, 1990 to May 22, 1991 1990 60 days later)
Fire Insurance Policy No. 34657 covering risks from May 7, July 19, 1990
May 22, 1990 to May 22, 1991 1990
Fire Insurance Policy No. 34661 covering risks from May 3, July 19, 1990
May 22, 1990 to May 22, 1991 1990

Masagana’s arguments:
1. The policies in question were renewed by operation of law and were effective and valid on 30 June 1992 when the
fire occurred, since the premiums were paid within the 60- to 90-day credit term
2. The Court should take judicial notice of the fact that despite the express provision of Section 77 of the Insurance
Code, extension of credit terms in premium payment has been the prevalent practice in the insurance industry.
Most insurance companies, including UCPB, extend credit terms because Section 77 of the Insurance Code is not
a prohibitive injunction but is merely designed for the protection of the parties to an insurance contract. The Code
itself, in Section 78, authorizes the validity of a policy notwithstanding non-payment of premiums.

40
 3. Estoppel applies to UCPB. Despite its awareness of Section 77, UCPB persuaded and induced Masagana to
believe that payment of premium on the 60- to 90-day credit term was perfectly alright; in fact it accepted
payments within 60 to 90 days after the due dates.

UCPB’s argument:
1. A notice of non-renewal was sent on 6 April 1992 Petitioner by ordinary mail to Masagana and sent by personal
delivery to its broker, Zuellig (NOTE: no proof that the notice sent by ordinary mail was received by Masagana,
and the copy thereof allegedly sent to Zuellig was ever transmitted to Masagana)

Issue:
Whether or not Section 77 of the Insurance Code must be strictly applied to UCPB’s advantage despite its practice of
granting a 60- to 90-day credit term for the payment of premiums.—or w/n UCPB IS LIABLE? (YES)

Held:
NO. UCPB IS LIABLE The case falls under the exceptions. Section 77 of the Insurance Code of 1978 provides:
SECTION 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril
insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of
a life or an industrial life policy whenever the grace period provision applies.

The following are the exceptions to Section 77:

1. In case of a life or industrial life policy whenever the grace period provision applies (Sec.77)
2. Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its
payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding
until premium is actually paid (Sec.78)
3. If the parties have agreed to the payment in installments of the premium and partial payment has been made at the
time of loss. Basic principles of equity and fairness would not allow the insurer to continue collecting and
accepting the premiums, although paid on installments, and later deny liability on the lame excuse that the
premiums were not prepaid in full. (Makati Tuscany Condominium Corporation vs. Court of Appeals)
4. The insurer may grant credit extension for the payment of the premium. If the insurer has granted the
insured a credit term for the payment of the premium and loss occurs before the expiration of the term,
recovery on the policy should be allowed even though the premium is paid after the loss but within the
credit term. (Makati Tuscany Condominium Corporation vs. Court of Appeals )
5. Estoppel

The case falls under the 4th exception- the insurer may grant credit extension for the payment of the premium. This simply
means that if the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the
expiration of the term, recovery on the policy should be allowed even though the premium is paid after the loss but within
the credit term.

MEANING OF S77:
Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, ---but
does not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals,
good customs, public order or public policy

.Moreover, it would be unjust and inequitable if recovery on the policy would not be permitted against UCPB, which had
consistently granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of Section 77.
Estoppel bars it from taking refuge under said Section, since Masagana relied in good faith on such practice

41
 26. American Home Assurance Company vs. Antonio Chua
G.R. No. 130421, June 28, 1999

SC: S78 as an XCN to S77- Here liable-premium deemed paid. An acknowledgment in a policy or contract of
insurance of the receipt of premium is conclusive evidence of its payment

Facts:Sometime in 1990, Chua obtained from American Home Assurance Co. (AMHAC) a fire insurance covering
the stock-in-trade of his business, Moonlight Enterprises, located in Bukidnon. The insurance was due to expire on 25
March 1990.
On 5 April 1990 bef that date, Chua issued a check in the amount of P2,983.50 to AMHAC’s agent, James Uy, as
payment for the renewal of the policy. In turn, the latter delivered Renewal Certificate to Chua Later,. The check was
drawn against a Manila bank and deposited in AMHAC’s bank account in Cagayan de Oro City. The corresponding
official receipt was issued on 10 April. Subsequently, a new insurance policy, was issued, whereby AMHAC
undertook to indemnify respondent for any damage or loss arising from fire up to P200,000 for the period 25 March
1990 to 25 March 1991.

On 6 April 1990 Moonlight Enterprises was completely razed by fire . Total loss was estimated between P4,000,000
and P5,000,000.
Chua filed an insurance claim with AMHAC and four other co-insurers,

AMHAC refused to honor the claim notwithstanding several demands by respondent, thus, the latter filed an action
against petitioner before the trial court.

AMHAC’s arguments:
1. There was no existing insurance contract when the fire occurred since respondent did not pay the premium . Basis:
Section 77 and the ruling in Arce v. Capital Insurance & Surety Co., Inc. that unless and until the premium is paid
there is no insurance.
2. A check can only effect payment once it has been cashed. Although Chua testified that he gave the check on 5
April to a certain James Uy, the check, drawn against a Manila bank and deposited in a Cagayan de Oro City
bank, could not have been cleared by 6 April, the date of the fire. In fact, the official receipt issued for
respondent's check payment was dated 10 April 1990, four days after the fire occurred.
3. Anent Chua’s testimony that the check was given to UCPB’s agent, a certain James Uy, even Chua was not sure if
Uy was indeed its agent. It faults Chua for not producing Uy as his witness and not taking any receipt from him
upon presentment of the check. Even assuming that the check was received a day before the concurrence of the
fire, there still could not have been payment until the check was cleared.
4. It did not intend the renewal of the contract. The Renewal Certificate specified the following conditions:
-Subject to the payment by the assured of the amount due prior to renewal date, the policy shall be renewed for
the period stated.
-Any payment tendered other than in cash is received subject to actual cash collection.
-Subject to no loss prior to premium and payment. If there be any loss, is not covered

Chua’s argument:
1. Section 66 of the Insurance Code, requires the insurer to give a notice to the insured of its intention to terminate
the policy forty-five days before the policy period ends. In the instant case, AMHAC opted not to terminate the
policy. Their policy was renewed the as a renewal certificate was issued to them upon delivery of his check
payment for the renewal of premium. At this precise moment the contract of insurance was executed and already
in effect.

Issue 1: Whether or not there was a valid payment of premium, considering that respondent's check was cashed after
the occurrence of the fire

Held: Yes. An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence
of its payment.

42
Sec. 78 of the Insurance Code explicitly provides: An acknowledgment in a policy or contract of insurance of the
receipt of premium is conclusive evidence of its payment, so far as to make the policy binding,
---notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid .

This Section establishes a legal fiction of payment and should be interpreted as an exception to Section 77.

The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and binding. The
only exceptions are life and industrial life insurance. Whether payment was indeed made is a question of fact which is
best determined by the trial court. The trial court found, as affirmed by the Court of Appeals,Here as found by both
lower courts, that there was a valid check payment by respondent to petitioner. Well-settled is the rule that the factual
findings and conclusions of the trial court and the Court of Appeals are entitled to great weight and respect, and will
not be disturbed on appeal in the absence of any clear showing that the trial court overlooked certain facts or
circumstances which would substantially affect the disposition of the case.

Issue 2:
Whether or not the insurer is bound by the agent's acknowledgment of receipt of payment

Held:
Yes. The renewal certificate issued to Chua contained the acknowledgment that premium had been paid. It is not
disputed that the check drawn by Chua in favor of AMHAC and delivered to its agent was honored when presented
and petitioner forthwith issued its official receipt to respondent on 10 April 1990.

Section 306 of the Insurance Code provides that any insurance company which delivers a policy or contract of
insurance to an insurance agent or insurance broker shall be deemed to have authorized such agent or broker to receive
on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance
or delivery or which becomes due thereon.

In the instant case, the best evidence of such authority is the fact that petitioner (Ahmac) accepted the check and
issued the official receipt for the payment. It is, as well, bound by its agent's acknowledgment of receipt of payment.

43
27. Makati Tuscany Condo. Corp. vs. Court of Appeals,

G.R. No. 95546, Nov. 6, 1992, Bellosillo, J.

Sc: premium on instalment- as an XCN to S77- Premium deemed paid. Basic principles of equity and fairness would not
allow the insurer to continue collecting and accepting the premiums, although paid on installments, and later deny
liability on the lame excuse that the premiums were not prepared in full.

Facts:

American Home Assurance Co. (AHAC) issued in favor of Makati Tuscany Condominium Corporation (TUSCANY)
Insurance Policy on the latter's building and premises for 2 consecutive years. The premium was paid on installments, all
of which were accepted by AHAC.

The policy was again renewed.

On this renewed policy, Tuscany made two installment payments, both accepted by AHAC. Thereafter , Tuscany refused
to pay the balance of the premium. AHAC filed an action to recover the unpaid balance .

Tuscany (Still does not want to pay thus) argues that there cannot be a perfected contract of insurance upon mere partial
payment of the premiums because under Sec. 77 of the Insurance Code, no contract of insurance is valid and binding
unless the premium thereof has been paid, notwithstanding any agreement to the contrary . As a consequence, Tuscany
seeks a refund of all premium payments made on the alleged invalid insurance policies.

Issue:Whether payment by installment of the premiums due on an insurance policy invalidates the contract of insurance,
in view of Sec. 77 of the Insurance Code and entitles the Tuscany for the refund of premium.—or WON TUSCANY IS
ENTITLED FOR REFUND BEC NO CONTRACT AT ALL BEC INSTALLMENT PAYMENT

Held:No.

We hold that the subject policies are valid even if the premiums were paid on installments.

In this case, The records clearly show that petitioner and private respondent intended subject insurance policies to be
binding and effective notwithstanding the staggered payment of the premiums. The initial insurance contract entered into
in 1982 was renewed in 1983, then in 1984. In those three (3) years, the insurer accepted all the installment payments .

Such acceptance of payments speaks loudly of the insurer's intention to honor the policies it issued to petitioner.
Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting and accepting
the premiums, although paid on installments, and later deny liability on the lame excuse that the premiums were
not prepared in full.

It appearing from the peculiar circumstances that the parties actually intended to make three (3) insurance contracts valid,
effective and binding, petitioner may not be allowed to renege on its obligation to pay the balance of the premium after
the expiration of the whole term of the third policy in March 1985. Moreover, as correctly observed by the appellate court,
where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums paid if the
insurer was exposed to the risk insured for any period, however brief or momentary.

Vs the case of ARCE (CASE 23)

The reliance by petitioner on Arce v. Capital Surety and Insurance Co.[5] is unavailing because the facts therein are substantially
different from those in the case at bar. In Arce, no payment was made by the insured at all despite the grace period given. In the case
before Us, petitioner paid the initial installment and thereafter made staggered payments resulting in full payment of the 1982 and
1983 insurance policies. For the 1984 policy, petitioner paid two (2) installments although it refused to pay the balance.

44
REINSTATEMENT

28. Violeta Lalican vs The Insular Life Insurance Company Ltd.

G.R. No. 183526, August 25, 2009

SC: No reinstatement- kasi it must be during lifetime of the insured- here died, tho nakapagfile- req is approved
during lifetime ni Eulogio

Facts:
Violeta is the widow of the Eulogio Lalican. During his lifetime, Eulogio applied for an insurance policy with Insular
Life on April 24, 1997 which contained a 20-year endowment variable income package flexi plan worth P500k with
two riders worth P500k each. WHEREIN Violeta was named the primary beneficiary.

Under the terms, Eulogio was to pay premiums on a quarterly basin in the amount of P8,062 with a grace period of 31
days for the payment of each premium subsequent to the first. If any premium was not paid on or before the due date,
the policy would be in default, and if the premium remained unpaid until the end of the grace period, the policy would
automatically lapse and become void.

Eulogio paid the premiums, however he failed to pay the premium one time on due date due on January 24, 1998, even
after the lapse of the grace period of 31 days. Therefore, lapsed and become void.

Eulogio submitted to the Cabanatuan District Office of Insular Life an application for reinstatement together with the
payment of the premium due on January 24.

Insular Life notified Eulogio that his application for reinstatement could not be fully processed because of the unpaid
interest thereon. Eulogio was likewise advised by Malaluan (insurance agent) to pay the premiums that subsequently
became due April 1998 and July 1998, plus interest.

September 17, 1998. Eulogio went to Malaluan's house and paid for the interest which was received by Malaluan's
husband. Later that day, Eulogio died. Without the knowledge of Eulogio's death, Malaluan forwarded to the Insular
Life the application for reinstatement and the payment made by Eulogio.

However, Insular Life did not act upon such reinstatement for they knew already of Eulogio's death.

September 28, 1998, Violeta filed for the insurance claim. Insular Life then informed Violeta in a letter that her claim
could not be processed because the insurance policy had lapsed already and that Eulogio failed to reinstate the same
and the payment made done thru Malaluan's husband was, under the insurance policy, was considered a deposit
only until approval of the said application.

Issue:
Whether or not the policy of Eulogio was reinstated before his death.

Held:
No. The insurance policy is clear on the procedure of the reinstatement of the insurance contract, of which Eulogio has
failed to accomplish before his death. As provided by the policy, insurance shall be deemed reinstated upon the
approval of the insurance policy of the application for reinstatement. The approval should be made during the
lifetime of the insured, in the case at bar, it wasn’t.

To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse. Both the
Policy Contract and the Application for Reinstatement provide for specific conditions for the reinstatement of a lapsed

45
 policy. In the instant case, Eulogio's death rendered impossible full compliance with the conditions for reinstatement of
Policy No. 9011992.

True, Eulogio, before his death, managed to file his Application for Reinstatement and deposit the amount for payment
of his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be considered
reinstated after the Application for Reinstatement had been processed and approved by Insular Life during Eulogio's
lifetime and good health.

It does not matter that when he died, Eulogio's Application for Reinstatement and deposits for the overdue premiums
and interests were already with Malaluan. Insular Life, through the Policy Contract, expressly limits the power or
authority of its insurance agents, thus:
Our agents have no authority to make or modify this contract, to extend the time limit for payment of premiums, to
waive any lapsation, forfeiture or any of our rights or requirements, such powers being limited to our president, vice-
president or persons authorized by the Board of Trustees and only in writing.

Malaluan did not have the authority to approve Eulogio's Application for Reinstatement. Malaluan still had to turn over
to Insular Life Eulogio's Application for Reinstatement and accompanying deposits, for processing and approval by the
latter. The Court agrees with the RTC that the conditions for reinstatement under the Policy Contract and Application
for Reinstatement were written in clear and simple language, which could not admit of any meaning or interpretation
other than those that they so obviously embody. A construction in favor of the insured is not called for, as there is no
ambiguity in the said provisions in the first place. The words thereof are clear, unequivocal, and simple enough so as to
preclude any mistake in the appreciation of the same.

Relevant herein is the following pronouncement of the Court in Andres v. The Crown Life Insurance Company, citing
McGuire v. The Manufacturer's Life Insurance Co.:

"The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written application does not
give the insured absolute right to such reinstatement by the mere filing of an application. The insurer has the right to deny
the reinstatement if it is not satisfied as to the insurability of the insured and if the latter does not pay all overdue premium
and all other indebtedness to the insurer. After the death of the insured the insurance Company cannot be compelled to
entertain an application for reinstatement of the policy because the conditions precedent to reinstatement can no longer be
determined and satisfied."

46
29. Aboitiz Shipping Corporation vs. Court of Appeals, Malayan Insurance Company, Inc., Compagnie Maritime Des
Chargeurs Reunis, And F.E. Zuellig (M), Inc.,
G.R. No. 121833, October 17, 2008

Sc on doctrine of limited liability- here does not apply because cause of loss is attributable to the shipowner aboitiz-an xcn to
such rule.

Facts:

Herein respondents are insurance companies who claims to be subrogated to the rights of the insured, after paying their claims.,
Now they filed a collection suit against Aboitiz. In all these cases, the insurance companies alleged that the loss of the goods were
due to the negligence of the captain and crew of the vessel because not only was the vessel unseaworthy, the captain and crew also did
not take caution when it set sail towards a storm.

Aboitiz alleged that the goods were lost due to force majeure and denied the claim of negligence and unseaworthiness of the M/V P.
Aboitiz.

The RTC held for the insurance companies and ordered Aboitiz to pay the insurance companies based on the declared value of the
shipment.

Pending appeal, the Supreme Court ruled in the GAFLAC case involving Aboitiz and other insurance companies, holding Aboitiz
liable only for the loss of the goods up to the extent of value of the vessel.

On appeal, Aboitiz invoked the doctrine of limited liability, arguing that since the loss of the goods were due to force majeure, he
should only be liable to the extent of the value of the vessel.

The CA denied the appeal, holding that the doctrine cannot apply in this case because the loss of the goods was due to the negligence
of the captain and crew of the vessel owned by Aboitiz.

Issue:
Whether or not the doctrine of limited liability applies.

Held:

No.

The doctrine of limited liability or the “real and hypothecary doctrine in maritime law” provides that, As a general rule, a ship
owner’s liability is merely co-extensive with his interest in the vessel---except where actual fault is attributable to the shipowner.
---- Thus, as an exception to the limited liability doctrine, a shipowner or ship agent may be held liable for damages when the
sinking of the vessel is attributable to the actual fault or negligence of the shipowner or its failure to ensure the seaworthiness of
the vessel.

. The doctrine is based on the provisions of the Code of Commerce providing for the same. In said law, the ship agent may avoid
liability by abandoning the vessel with all its equipment and earned freightage. However, a ship agent may still be held liable despite
abandonment of the vessel, such as when the loss or injury was due to the fault of the shipowner and the captain. In other words, the
doctrine does not apply when the injury or loss was due to the shipowner’s own fault.

In this case, Aboitiz posits that the Supreme Court in the GAFLAC case applied the doctrine of limited liability and only ordered the
former pay up to the extent of the value of the vessel. In said case, the Supreme Court held that Aboitiz was not negligent as the
records of the case was bereft of any finding of negligence on the part of Aboitiz.

However, in the present consolidated case, the records show that the insurance companies had made averments regarding the
negligence of Aboitiz and the unseaworthiness of their vessel. The RTC and CA upheld such categorical finding in their decisions.

Hence, the ruling of the Supreme Court in the GAFLAC case cannot apply in the present case.

In fine, Aboitiz is not entitled to the limited liability rules and is liable for the value of the lost cargoes as so duly alleged and proven
during trial.

47
 30. FGU Insurance Corporation, Petitioners, And Estate vs.The Court Of Appeals, San Miguel Corporation, Of Ang Gui, Represented
By Lucio, Julian, And Jaime, All Surnamed Ang, And Co To

Here: contract b/w anco and san mig for delivery of bottles of beer- beeer not delivered- so insurance FGu was sought be liable- but latter
refuses claiming anco and smc and demise on its oblig diligence--: SC: FGU not liable: Gross negligence on part of ANCO (an xcn)

Facts: Anco enterprises Company (ANCO) is a partnership between the deceased Ang Gui and Co To which is engaged in the shipping business.
ANCO owned M/T ANCO, a tugboat, and D/B Lucio, a barge without its own motor.

At one instance, ANCO was to ship several cases of beer products of San Miguel Corporation (SMC) from Mandaue City, Cebu to Antique and
Iloilo. When the barge and tugboat arrived to Antique, the clouds were already dark and the waves were already big. While unloading the cases, San
Miguel’s District Sales Supervisor, Fernando Macabuag, requested for the barge to be transferred to a safer place as it may not withstand the waves .
ANCO’s representative did not heed the request and continued with the unloading, confident that the barge would hold. Later, however, the crew of
the barge had to abandon the vessel as the rope which attached it to the wharf was cut off by the big waves. This caused the cases of beers were swept
away.

SMC filed a complaint for breach of contract of carriage against ANCO For the failure of ANCO to deliver said cases of beer,. Pending such case,
Ang Gui died and the partnership was dissolved. SMC amended its complaint impleading Co To and the Estate of Ang Gui with its representatives.

ANCO argued that it agreed with SMC that it would not be liable for any losses or damages resulting from a fortuitous event, obliging SMC to insure
the same.

The insurance company, petitioner FGU Insurance Corporation, insured 20,000 cases of beer. As such, ANCO filed a third-party complaint against
FGU Insurance.

FGU admitted to the existence of the insurance policy but countered against liability arguing that ANCO and SMC failed to exercise ordinary
diligence in the case and supervision of the cargoes insured to prevent its loss or destruction.

The RTC held that while the cases of beer were lost due to a fortuitous event, there was failure on ANCO’s part to observe due diligence to avoid
such loss. The trial court ordered the Estate of Ang Gui and Co To liable for such loss, but also ordered FGU to pay 53% of the lost cargoes.

Issue: Whether or not FGU should be liable to pay for the lost cargoes.

Held: No. Pursuant to the Civil Code, common carriers are bound to observe extraordinary diligence in the vigilance over the goods
and for the safety of the passengers transported by them.

Common carriers may be exempted from liability due to force majeure provided that the natural disaster must have been the proximate and
only cause of the loss or injury.

On the other hand, insurance companies are not precluded from being liable even if the loss or destruction of the goods are due to the
negligence of the insured for their failure to exercise due diligence, except when such negligence is so gross. (XCN SA LIABILITY NG
INSURER-IS GROSS NEGLIGENCE-NOT MERE NEGLIGENCE)

It is a basic rule in insurance that the carelessness and negligence of the insured or his agents constitute no defense on the part of the insurer. This rule
however presupposes that the loss has occurred due to causes which could not have been prevented by the insured, despite the exercise of due
diligence

In this case, the calamity which caused the loss of the cargoes was not unforeseen nor was it unavoidable (THUS THEY SHOULD HAVE
KNOWN IT-THUS NOT LIABLE INSURER.. In fact, the other vessels in the port of San Jose, Antique, managed to transfer to another place, a
circumstance which prompted SMC’s District Sales Supervisor to request that the D/B Lucio be likewise transferred, but to no avail.

The D/B Lucio had no engine and could not maneuver by itself. Even if ANCO’s representatives wanted to transfer it, they no longer
had any means to do so as the tugboat M/T ANCO had already departed, leaving the barge to its own devices. The captain of the
tugboat should have had the foresight not to leave the barge alone considering the pending storm.

Such negligence is considered as blatant negligence on the part of ANCO’s representatives.

According to the Court, while mistake and negligence of the master or crew are incident to navigation and constitute a part of
the perils that the insurer is obliged to incur, -----such negligence or recklessness must not be of such gross character as to
amount to misconduct or wrongful acts; otherwise, such negligence shall release the insurer from liability under the insurance
contract.
Hence, FGU as the insurer, should not be made liable for the gross negligence of ANCO’s representatives which caused the
loss of the cargoes.
48
 31. The Philippine American General Insurance Company, Inc. vs. Court of Appeals and Felman Shipping Lines G.R. No.
116940 June 11, 1997

*Seaworthiness-here not/* Doctrine of limited liability; gr: xcn-xcn to xcn- here not apply- due to fault of shipowner—in such
case-Civil code prov on common carrier will apply. *No subrogation because paid even tho not sea worthy-and waiver clauses
in their contract

Facts:On July 6, 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel owned and operated by
respondent (FELMAN), 7,500 cases of 1-liter Coca-Cola softdrink bottles to be transported from Zamboanga City to Cebu City for
consignee Coca-Cola Bottlers Philippines, Inc., Cebu. The shipment was insured with petitioner (PHILAMGEN).

The vessel" left the port of Zamboanga in fine weather at eight o'clock in the evening of 8 July 1983. the following morning, the vessel
sank in the waters of Zamboanga del Norte bringing down her entire cargo.

On July 15, 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent FELMAN for
recovery of damages it sustained as a result of the loss of its softdrink bottles that sank with "MV Asilda."

Respondent denied the claim thus prompting the consignee to file an insurance claim with PHILAMGEN which paid its claim of
P755,250.00.

Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which disclaimed any
liability for the loss. PHILAMGEN alleged that the sinking and total loss of " MV Asilda" and its cargo were due to the
vessel's unseaworthiness as she was put to sea in an unstable condition. It further alleged that the vessel was
improperly manned and that its officers were grossly negligent  

FELMAN filed a motion to dismiss based on the affirmative defense that no right of subrogation in favor of
PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had abandoned all its rights, interests
and ownership over "MV Asilda for the purpose of limiting and extinguishing its liability under Art. 587 of the Code of
Commerce. . 2

Issue:
1. Whether or not "MV Asilda" was seaworthy when it left the port of Zamboanga.
2. Whether or not the limited liability under Art. 587 of the Code of Commerce should apply.
3. whether PHILAMGEN was properly subrogated to the rights and legal actions which the shipper had against
FELMAN, the shipowner. No.

Held:
1. MV Asilda was not seaworthy.

The Elite Adjusters, Inc., submitted a report regarding the sinking of "MV Asilda." The report,

We found in the course of our investigation that a reasonable explanation for the series of lists experienced by the vessel that eventually
led to her capsizing and sinking, was that the vessel was top-heavy which is to say that while the vessel may not have been overloaded,
yet the distribution or stowage of the cargo on board was done in such a manner that the vessel was in top-heavy condition at the time
of her departure and which condition rendered her unstable and unseaworthy for that particular voyage.

In this connection, we wish to call attention to the fact that this vessel was designed as a fishing vessel . . . and it was not designed to
carry a substantial amount or quantity of cargo on deck.

But from the moment that the vessel was utilized to load heavy cargo on its deck, the vessel was rendered unseaworthy for the purpose
of carrying the type of cargo because the weight of the deck cargo so decreased the vessel's metacentric height as to cause it to become
unstable.

Finally, with regard to the allegation that the vessel encountered big waves, it must be pointed out that ships are precisely designed to
be able to navigate safely even during heavy weather and frequently we hear of ships safely and successfully weathering encounters
with typhoons and although they may sustain some amount of damage, the sinking of ship during heavy weather is not a frequent
occurrence and is not likely to occur unless they are inherently unstable and unseaworthy.
49
We believe, therefore, and so hold that the proximate cause of the sinking of the M/V " Asilda" was her condition of
unseaworthiness arising from her having been top-heavy when she departed from the Port of Zamboanga. Her having capsized
and eventually sunk was bound to happen and was therefore in the category of an inevitable occurrence (emphasis supplied).

Contrary to the ship captain's allegations, evidence shows that approximately 2,500 cases of softdrink bottles were stowed on deck.
Several days after "MV Asilda" sank, an estimated 2,500 empty Coca-Cola plastic cases were recovered near the vicinity of the sinking.
Considering that the ship's hatches were properly secured, the empty Coca-Cola cases recovered could have come only from the
vessel's deck cargo. *It is settled that carrying a deck cargo raises the presumption of unseaworthiness unless it can be shown that the
deck cargo will not interfere with the proper management of the ship. However, in this case it was established that "MV Asilda" was not
designed to carry substantial amount of cargo on deck. The inordinate loading of cargo deck resulted in the decrease of the vessel's
metacentric height 7 thus making it unstable.

*The strong winds and waves encountered by the vessel are but the ordinary vicissitudes of a sea voyage and as such merely
contributed to its already unstable and unseaworthy condition.

2. Art. 587 of the Code of Commerce is not applicable to the case.

GR, the ship agent (Ferman)-owner is liable for the negligent acts of the captain in the care of goods loaded on the vessel.
(LIABLE-ALL)

XCN: This liability however can be limited through abandonment of the vessel, its equipment and freightage as provided in Art. 587.
(LIMITED LIABILITY)

XCN TO XCN: Nonetheless, there are exceptional circumstances wherein the ship agent could still be held answerable despite the
abandonment, as where the loss or injury was due to the fault of the shipowner and the captain. (ALL)

The international rule is to the effect that the right of abandonment of vessels, as a legal limitation of a shipowner's liability, does not
apply to cases where the injury or average was occasioned by the shipowner's own fault. It must be stressed at this point that Art. 587
speaks only of situations where the fault or negligence is committed solely by the captain. Where the shipowner is likewise to be
blamed, Art. 587 will not apply, and such situation will be covered by the provisions of the Civil Code on common carrier.

Here, It was already established at the outset that the sinking of " MV Asilda" was due to its unseaworthiness even at the time of its
departure from the port of Zamboanga. It was top-heavy as an excessive amount of cargo was loaded on deck . Closer supervision on
the part of the shipowner could have prevented this fatal miscalculation. As such, FELMAN (owner) was equally negligent.

It cannot therefore escape liability through the expedient of filing a notice of abandonment of the vessel by virtue of Art. 587 of the
Code of Commerce.

Because CC applies---Under Art 1733 of the Civil Code, "(c)ommon carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case . . ." In the event of loss of goods, common carriers are presumed
to have acted negligently. FELMAN, the shipowner, was not able to rebut this presumption.

3. NO. In relation to the question of subrogation, respondent appellate court found " MV Asilda" unseaworthy with
reference to the cargo and therefore ruled that there was breach of warranty of seaworthiness that rendered the
assured not entitled to the payment of is claim under the policy.

Hence, when PHILAMGEN paid the claim of the bottling firm there was in effect a "voluntary payment" and no right of
subrogation accrued in its favor. In other words, when PHILAMGEN paid it did so at its own risk . (UNSEARWORTHY
PERO BINAYADAN MO, SHOULD HAVE USED IT AS A DEFENSE)

GENERAL RULES ON IMPLIED WARRANT OF SEARWORTH

GR: held that in every marine insurance policy the assured impliedly warrants to the assurer that the vessel is
seaworthy and such warranty is as much a term of the contract as if expressly written on the face of the policy.  12

Thus Sec. 113 of the Insurance Code provides that "(i)n every marine insurance upon a ship or freight, or freightage,
or upon anything which is the subject of marine insurance, a warranty is implied that the ship is seaworthy."
50
Under Sec. 114, a ship is "seaworthy when reasonably fit to perform the service, and to encounter the ordinary perils
of the voyage, contemplated by the parties to the policy."

Thus it becomes the obligation of the cargo owner to look for a reliable common carrier which keeps its vessels in
seaworthy condition. He may have no control over the vessel but he has full control in the selection of the common
carrier that will transport his goods. He also has full discretion in the choice of assurer that will underwrite a particular
venture.

In this case HOWEVER: The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2)
instances has dispensed with the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy No. 100367-
PAG reads "(t)he liberties as per Contract of Affreightment the presence of the Negligence Clause and/or Latent
Defect Clause in the Bill of Lading and/or Charter Party and/or Contract of Affreightment as between the Assured and
the Company shall not prejudice the insurance. The seaworthiness of the vessel as between the Assured and the
Assurers is hereby admitted." 15

The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states "(t)he
seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted . . . ."  16

The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things: (a) that the
warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed by the
insurance company.   The insertion of such waiver clauses in cargo policies is in recognition of the realistic fact that
17

cargo owners cannot control the state of the vessel. Thus it can be said that with such categorical waiver,
PHILAMGEN has accepted the risk of unseaworthiness so that if the ship should sink by unseaworthiness, as what
occurred in this case, PHILAMGEN is liable.

51
NOTES: Rule on Limited Liability. AND ITS XCNS (for bar)

The petitioners assert in common that the vessel M/V P. Aboitiz did not sink by reason of force majeure but because of its unseaworthiness and the
concurrent fault and/or negligence of Aboitiz, the captain and its crew, thereby barring Aboitiz from availing of the benefit of the limited liability rule.

The principle of limited liability is enunciated in the following provisions of the Code of Commerce:

Art. 587. Gr: The shipagent shall also be civilly liable for the indemnities in favor of third persons which may arise from the conduct of the captain in
the care of goods which he loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all the equipments and the
freight it may have earned during the voyage.

Art. 590. The co-owners of a vessel shall be civilly liable in the proportion of their interests in the common fund for the results of the acts of the
captain referred to in Art. 587.

Each co-owner may exempt himself from his liability by the abandonment, before a notary, of the part of the vessel belonging to him.

Art. 837. The civil liability incurred by shipowners in the case prescribed in this section, shall be understood as limited to the value of the vessel with
all its appurtenances and the freightage served during the voyage.

Article 837 applies the principle of limited liability in cases of collision, hence, Arts. 587 and 590 embody the universal principle of limited liability in
all cases. In Yangco v. Laserna,48 this Court elucidated on the import of Art. 587 as follows:

"The provision accords a shipowner or agent the right of abandonment; and by necessary implication, his liability is confined to that which he is
entitled as of right to abandon-the vessel with all her equipments and the freight it may have earned during the voyage. It is true that the article appears
to deal only with the limited liability of the shipowners or agents for damages arising from the misconduct of the captain in the care of the goods
which the vessel carries, but this is a mere deficiency of language and in no way indicates the true extent of such liability. The consensus of authorities
is to the effect that notwithstanding the language of the aforequoted provision, the benefit of limited liability therein provided for, applies in all cases
wherein the shipowner or agent may properly be held liable for the negligent or illicit acts of the captain."49cräläwvirtualibräry

*"No vessel, no liability," expresses in a nutshell the limited liability rule.

The shipowners or agents liability is merely co-extensive with his interest in the vessel such that a total loss thereof results in its extinction. The total
destruction of the vessel extinguishes maritime liens because there is no longer any  res  to which it can attach.50This doctrine is based on the real and
hypothecary nature of maritime law which has its origin in the prevailing conditions of the maritime trade and sea voyages during the medieval ages,
attended by innumerable hazards and perils. To offset against these adverse conditions and to encourage shipbuilding and maritime commerce it was
deemed necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment, and freight, or insurance,
if any.51cräläwvirtualibräry

This is not to say, however, that the limited liability rule is without exceptions, namely: (1) where the injury or death to a passenger is due either to the
fault of the shipowner, or to the concurring negligence of the shipowner and the captain; 52 (2) where the vessel is insured; and (3) in workmens
compensation claims.53cräläwvirtualibräry

What are the exceptions to the doctrine of limited liability?  

1. Repairs and provisioning of the vessel before the loss of the vessel; (Art. 586)
2. Insurance proceeds. If the vessel is insured, the proceeds will go to the persons entitled to claim from the shipowner; (Vasquez v. CA, G.R. No. L-42926, Sept. 13,
1985)
3. Workmen’s Compensation cases (now Employees’ Compensation under the Labor Code); (Oching v. San Diego, G.R. No. 775, Dec. 17, 1946)
4. When the shipowner is guilty of fault or negligence; Note: But if the captain is the one who is guilty, doctrine may still be invoked, hence, abandonment is still an
option.
5. Private carrier; or
6. Voyage is not maritime in character.---

When civil code will apply?

We have categorically stated that Article 587 speaks only of situations where the fault or negligence is committed solely by the captain. In cases where the ship owner is
likewise to be blamed, Article 587 does not apply. Such a situation will be covered by the provisions of the Civil Code on common carriers. 54

52
CENTRAL SHIPPING COMPANY, INC., petitioner, vs. INSURANCE COMPANY OF NORTH AMERICA, respondent.The doctrine of limited liability under Article
587 of the Code of Commerce is not applicable to the present case. This rule does not apply to situations in which the loss or the injury is due to the concurrent
negligence of the ship-owner and the captain. It has already been established that the sinking of M/V Central Bohol had been caused by the fault or negligence of the ship
captain and the crew, as shown by the improper stowage of the cargo of logs. “Closer supervision on the part of the shipowner could have prevented this fatal
miscalculation.” As such, the shipowner was equally negligent. It cannot escape liability by virtue of the limited liability rule.

32. Malayan Insurance Co., Inc. Vs. Regis Brokerage Corp.,

Gr No.172156, November 23, 2007
*SC on duty of insurer-to present proof of contract of insurance and not merely relying on liability of AB Koppel (third
person)- here not proved marine risk Note is not the contract of insurance itself)

Facts:
Fasco Motors Group loaded 120 pieces of "motors" on board China Airlines Flight 621 bound for Manila from the United States. The
cargo was to be delivered to consignee ABB Koppel, Inc. (ABB Koppel).  

When the shipment arrived at ABB Koppel’s warehouse, it was discovered that only 65 of the 120 pieces of motors were actually
delivered and that the remaining 55 motors, valued at US$2,374.35, could not be accounted for.

The shipment was purportedly insured with Malayan by ABB Koppel.

On 24 June 1996, Malayan filed a complaint for damages against Regis and Paircargo. In the course of trial, Malayan presented
Marine Risk Note No. RN-0001-19832 (Marine Risk Note) dated 21 March 1995 as proof that the cargo was insured by Malayan.

Issue:
Whether or not the evidence presented by Malayan specifically the Marine Risk Note is valid as a basis on their subrogation rights.

Held:
No.

An insurer, in an action for recoupment instituted in its capacity as the subrogee of the insured, may not be conferred favorable relief
if it failed to introduce in evidence the insurance contract or policy, or even allege the existence nay recite the substance and attach a
copy of such document in the complaint.

In this case, what was shoes is the Marine Risk Note bears, as a matter of evidence, is that it is not apparently the contract of insurance
by itself, but merely a complementary or supplementary document to the contract of insurance that may have existed as between
Malayan and ABB Koppel.

And while this observation may deviate from the tenor of the assailed CA decisions, it does not presage any ruling in favour of
petitionerThus,, since Malayan failed to introduced in evidence the Marine Insurance Policy itself as the main insurance contract,
or even advert to said document in the complaint, ultimately then it failed to establish its cause of action for restitution as a subrogee for
ABB Koppel.

Malayan’s right of recovery as a subrogee of ABB Koppel cannot be predicated alone on the liability of the respondent to ABB Koppel
even though such liabity will necessarily have to be established at the trial for Malayan to recover.

Because Malayan’s right to recovery derives from contractual subrogation as an incident to an insurance relationship, and not from any
proximate injury to it inflicted by respondents, it is critical that Malayan establish the legal basis of such right to subrogation by
presenting the contract constitutive of the insurance relationship between it and ABB Koppel . Without such legal basis, its casuse
of action cannot survive.

53
 33. INTERNATIONAL CONTAINER TERMINAL SERVICES, INC. vs. FGU INSURANCE CORPORATION G.R. No.
161539, June 27, 2008,

*Sc: On rule on presentation of ins policy: GR and its XCNs: Here XCN was applied thus, liable pa din even not present

Facts:
Petitioner's liability arose from a lost shipment of 400kgs. Silver Nitrate shipped by Hapag-Lloyd AG through the vessel Hannover
Express from Hamburg, Germany with Manila, Philippines as the port of discharge. Said shipment was insured by FGU Insurance
Corporation (FGU).

When the shipment was being claimed, petitioner, could not find it in its storage area. After investigation by the NBI and The
AAREMA Marine and Cargo Surveyors, Inc. *Both found that the shipment was lost while in the custody and responsibility of
petitioner.

As insurer, FGU insurance paid RAGC . In turn, FGU sought reimbursement from petitioner, but the latter refused . This constrained
FGU to file with the RTC of Manila Civil Case for the collection of sum of money.

RTC AND CA HELD PETITIONER LIABLE: The RTC rendered its Decision finding petitioner liable. Petitioner appealed to the
Court of Appeals which only affirmed the RTC Decision.

Petitioner filed a motion for reconsideration averring that the case should be dismissed on the ground that respondent failed to offer the
insurance policy in evidence.

Issue:
Whether or not the case should be dismissed on the ground that respondent’s failure to offer as evidence the insurance policy.

Held:
NO. Jurisprudence has it that the marine insurance policy needs to be presented in evidence before the trial court or even belatedly
before the appellate court.

GR: (as also held in previous case) Jurisprudence dictates that the presentation of the marine insurance policy was necessary, as the
issues raised therein arose from the very existence of an insurance contract between the insurance company and its consignee even prior
to the loss of the shipment. (Malayan Insurance Co., Inc. v. Regis Brokerage Corp)Also the court already ruled that the insurance
contract must be presented in evidence in order to determine the extent of the coverage. (Wallem Philippines Shipping, Inc. v.
Prudential Guarantee and Assurance, Inc. & Home Insurance Corporation v. Court of Appeals)

However, as in every general rule, there are admitted exceptions.

XCN: The Court stated that the presentation of the insurance policy was not fatal because the loss of the cargo undoubtedly
occurred while on board the petitioner's vessel (Delsan Transport Lines, Inc. v. Court of Appeals), VS---unlike in Home Insurance
Case in which the cargo passed through several stages with different parties and it could not be determined when the damage to the
cargo occurred, such that the insurer should be liable for it.

As in Delsan case, there is no doubt that the loss of the cargo in the present case occurred while in petitioner's custody.

54
 34. KEPPEL CEBU SHIPYARD, INC. v. PIONEER INSURANCE AND SURETY CORPORATION
G.R. No. 180880-81 & 180896-97, September 25, 2009

Sc: Subrogation proper because of sub receipt issued-best evid.

Facts:
Keppel Cebu Shipyard, Inc. (KCSI) and WG&A Jebsens Shipmanagement, Inc. (WG&A) executed a Ship Repair Agreement
wherein Keppel Cebu KCSI (a.k.a . the Yard) would renovate and reconstruct WG&A’s (a.k.a. the Vessel) M/V “Superferry 3” using
its dry docking facilities in Lapu-Lapu City, Cebu. Further, KCSI’s liability thereunder is P50M. Prior to the agreement, the ferry was
already insured with Pioneer Insurance and Surety Corportion (Pioneer) for $8,472,581.72.

In the course of the repair, the ferry was gutted by fire allegedly caused by the welder, Severino Sevillejo (Sevillejo), who is keppel’s
employee, who did hot works (i.e. welding) on Deck A. The fire was inside the ceiling void of Deck B therefore it was extremely
difficult to contain or extinguish it despite the use of fire extinguishers and buckets of water. Moreover, life jackets and construction
materials of the Deck B ceiling were combustible that permitted the fire to spread within the ceiling void. There were also cans of paint
and thinner, in addition to plywood partitions and foam mattresses on Deck B.

WG&A declared the vessel’s damage as a “total constructive loss” and, hence, filed an insurance claim with Pioneer.

Pioneer paid the Vessel $8,472,581.78 equivalent to P360M.

Later, WG&A executed a Loss and Subrogation Receipt in favor of Pioneer. Pioneer tried to collect from KCSI by virtue of such
receipt but the latter denied any responsibility despite repeated demands.

Pioneer’s argument is that that KCSI was solely responsible for the loss because its employee, Sevillejo, at the time the fire broke out,
was doing his assigned task as to the hot works done on board the vessel.

KCSI claims otherwise, stating that the hot work done was beyond the scope of Sevillejo’s assigned tasks, i.e. not having being
authorized under the Work Order or under the Ship Repair Agreement. KCSI further posits that WG&A was also negligent through its
crew, Dr. Raymundo Joniga (Dr. Joniga), for failing to remove the life jackets from the ceiling void, causing the immediate spread of
the fire to the other areas of the ship.

Pioneer argues that there is total constructive loss so that it had to pay WG&A the full amount of the insurance coverage and, by
operation of law, it was entitled to be subrogated to the rights of WG&A to claim the amount of the loss . It further contends that the
limitation of liability clause in the Ship Repair Agreement is null and void for being iniquitous and against public policy.

KCSI counters that a total constructive loss was not adequately proven by Pioneer, and that there is no proof of payment of the
insurance proceeds. KCSI insists on the validity of the limited-liability clause up to P50M, because WG&A assented to the provision
when it executed the Ship Repair Agreement. KCSI also claims that the salvage value of the vessel should be deducted from whatever
amount it will be made to pay Pioneer.

ISSUE:
Is subrogation proper? If proper, to what extend can subrogation be made?

RULING
YES.

55
On the matter of subrogation, Article 2207 of the Civil Code 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. If the amount paid by the insurance company does not fully cover
the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

Subrogation is the substitution of one person by another with reference to a lawful claim or right, so that he who is substituted
succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities.

The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract. It accrues simply upon payment by the
insurance company of the insurance claim. The doctrine of subrogation has its roots in equity. It is designed to promote and to
accomplish justice; and is the mode that equity adopts to compel the ultimate payment of a debt by one who, in justice, equity, and
good conscience, ought to pay.

The principle covers a situation wherein an insurer has paid a loss under an insurance policy is entitled to all the rights and remedies
belonging to the insured against a third party with respect to any loss covered by the policy. It contemplates full substitution such that it
places the party subrogated in the shoes of the creditor, and he may use all means that the creditor could employ to enforce payment.

The Loss and Subrogation Receipt issued by the insured to the insurer is the best evidence of payment of the insurance proceeds to the
insured.

Subrogation is proper. Considering the extent of the damage, WG&A opted to abandon the ship and claimed the value of its policies.
Pioneer, finding the claim compensable, paid the claim, with WG&A issuing a Loss and Subrogation Receipt evidencing receipt of the
payment of the insurance proceeds from Pioneer. On this note, we find as unacceptable the claim of KCSI that there was no ample
proof of payment simply because the person who signed the Receipt appeared to be an employee of Aboitiz Shipping Corporation. The
Loss and Subrogation Receipt issued by WG&A to Pioneer is the best evidence of payment of the insurance proceeds to the former,
and no controverting evidence was presented by KCSI to rebut the presumed authority of the signatory to receive such payment.

We have held that payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies that the
insured may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent
upon, nor does it grow out of, any privity of contract. It accrues simply upon payment by the insurance company of the insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice; and is the mode that equity
adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good conscience, ought to pay.

56
AS TO EXTENT:

We find in favor of Pioneer, subject to the claim of KCSI as to the salvage value of M/V "Superferry 3."

In marine insurance, a constructive total loss occurs under any of the conditions set forth in Section 139 of the Insurance Code, which provides'

Sec. 139. A person insured by a contract of marine insurance may abandon the thing insured, or any particular portion hereof separately valued by the policy,
or otherwise separately insured, and recover for a total loss thereof, when the cause of the loss is a peril insured against:

(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril;

(b) If it is injured to such an extent as to reduce its value more than three-fourths; x x x.

It appears, however, that in the execution of the insurance policies over M/V "Superferry 3," WG&A and Pioneer incorporated by reference the American
Institute Hull Clauses 2/6/77, the Total Loss Provision of which reads'

Total Loss

In ascertaining whether the Vessel is a constructive Total Loss the Agreed Value shall be taken as the repaired value and nothing in respect of the damaged or
break-up value of the Vessel or wreck shall be taken into account.

There shall be no recovery for a constructive Total Loss hereunder unless the expense of recovering and repairing the Vessel would exceed the Agreed Value
in policies on Hull and Machinery. In making this determination, only expenses incurred or to be incurred by reason of a single accident or a sequence of
damages arising from the same accident shall be taken into account, but expenses incurred prior to tender of abandonment shall not be considered if such are
to be claimed separately under the Sue and Labor clause. x x x.

In the course of the arbitration proceedings, Pioneer adduced in evidence the estimates made by three (3) disinterested and qualified shipyards for the cost of
the repair of the vessel, specifically: (a) P296,256,717.00, based on the Philippine currency equivalent of the quotation dated April 17, 2000 turned in by
Tsuneishi Heavy Industries (Cebu) Inc.; (b) P309,780,384.15, based on the Philippine currency equivalent of the quotation of Sembawang Shipyard Pte. Ltd.,
Singapore; and (c) P301,839,974.00, based on the Philippine currency equivalent of the quotation of Singapore Technologies Marine Ltd. All the estimates
showed that the repair expense would exceed P270,000,000.00, the amount equivalent to - of the vessel's insured value of P360,000,000.00. Thus, WG&A
opted to abandon M/V "Superferry 3" and claimed from Pioneer the full amount of the policies. Pioneer paid WG&A's claim, and now demands from KCSI
the full amount of P360,000,000.00, by virtue of subrogation.ςηαñrοblεš  Î½Î¹r†υαl  lαω  lιbrαrÿ

KCSI denies the liability because, aside from its claim that it cannot be held culpable for negligence resulting in the destructive fire, there was no constructive
total loss, as the amount of damage was only US$3,800,000.00 or P170,611,260.00, the amount of repair expense quoted by Simpson, Spence & Young.

In the face of this apparent conflict, we hold that Section 139 of the Insurance Code should govern, because (1) Philippine law is deemed incorporated in
every locally executed contract; and (2) the marine insurance policies in question expressly provided the following:

IMPORTANT

This insurance is subject to English jurisdiction, except in the event that loss or losses are payable in the Philippines, in which case if the said laws and
customs of England shall be in conflict with the laws of the Republic of the Philippines, then the laws of the Republic of the Philippines shall
govern. (Underscoring supplied.)

The CA held that Section 139 of the Insurance Code is merely permissive on account of the word "may" in the provision. This is incorrect. Properly
considered, the word "may" in the provision is intended to grant the insured (WG&A) the option or discretion to choose the abandonment of the thing insured
(M/V "Superferry 3"), or any particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a total loss when the
cause of the loss is a peril insured against. This option or discretion is expressed as a right in Section 131 of the same Code, to wit:

Sec. 131. A constructive total loss is one which gives to a person insured a right to abandon under Section one hundred thirty-nine.

57
It cannot be denied that M/V "Superferry 3" suffered widespread damage from the fire that occurred on February 8, 2000, a covered peril under the marine
insurance policies obtained by WG&A from Pioneer. The estimates given by the three disinterested and qualified shipyards show that the damage to the ship
would exceed P270,000,000.00, or - of the total value of the policies - P360,000,000.00. These estimates constituted credible and acceptable proof of the
extent of the damage sustained by the vessel. It is significant that these estimates were confirmed by the Adjustment Report dated June 5, 2000 submitted by
Richards Hogg Lindley (Phils.), Inc., the average adjuster that Pioneer had enlisted to verify and confirm the extent of the damage. The Adjustment Report
verified and confirmed that the damage to the vessel amounted to a constructive total loss and that the claim for P360,000,000.00 under the policies was
compensable.46 It is also noteworthy that KCSI did not cross-examine Henson Lim, Director of Richards Hogg, whose affidavit-direct testimony submitted to
the CIAC confirmed that the vessel was a constructive total loss.

Considering the extent of the damage, WG&A opted to abandon the ship and claimed the value of its policies. Pioneer, finding the claim compensable, paid
the claim, with WG&A issuing a Loss and Subrogation Receipt evidencing receipt of the payment of the insurance proceeds from Pioneer. On this note, we
find as unacceptable the claim of KCSI that there was no ample proof of payment simply because the person who signed the Receipt appeared to be an
employee of Aboitiz Shipping Corporation.47 The Loss and Subrogation Receipt issued by WG&A to Pioneer is the best evidence of payment of the insurance
proceeds to the former, and no controverting evidence was presented by KCSI to rebut the presumed authority of the signatory to receive such payment.

VALIDITY OF CLAUSE:

Clauses 20 and 22(a) of the Shiprepair Agreement are without factual and legal foundation. They are unfair and inequitable under the
premises. It was established during arbitration that WG&A did not voluntarily and expressly agree to these provisions. Engr. Elvin F.
Bello, WG&A's fleet manager, testified that he did not sign the fine-print portion of the Shiprepair Agreement where Clauses 20 and
22(a) were found, because he did not want WG&A to be bound by them. However, considering that it was only KCSI that had
shipyard facilities large enough to accommodate the dry docking and repair of big vessels owned by WG&A, such as M/V "Superferry
3," in Cebu, he had to sign the front portion of the Shiprepair Agreement; otherwise, the vessel would not be accepted for dry
docking.50

Indeed, the assailed clauses amount to a contract of adhesion imposed on WG&A on a "take-it-or-leave-it" basis. A contract of
adhesion is so-called because its terms are prepared by only one party, while the other party merely affixes his signature signifying his
adhesion thereto. Although not invalid, per se, a contract of adhesion is void when the weaker party is imposed upon in dealing with
the dominant bargaining party, and its option is reduced to the alternative of "taking it or leaving it," completely depriving such party
of the opportunity to bargain on equal footing.51

Clause 20 is also a void and ineffectual waiver of the right of WG&A to be compensated for the full insured value of the vessel or, at
the very least, for its actual market value. There was clearly no intention on the part of WG&A to relinquish such right. It is an
elementary rule that a waiver must be positively proved, since a waiver by implication is not normally countenanced. The norm is that
a waiver must not only be voluntary, but must have been made knowingly, intelligently, and with sufficient awareness of the relevant
circumstances and likely consequences. There must be persuasive evidence to show an actual intention to relinquish the right. 52 This
has not been demonstrated in this case.

Likewise, Clause 20 is a stipulation that may be considered contrary to public policy. To allow KCSI to limit its liability to
only P50,000,000.00, notwithstanding the fact that there was a constructive total loss in the amount of P360,000,000.00, would
sanction the exercise of a degree of diligence short of what is ordinarily required. It would not be difficult for a negligent party to
escape liability by the simple expedient of paying an amount very much lower than the actual damage or loss sustained by the other

58
 35. Malayan Insurance Co., Inc. Vs. Rodelio Alberto & Enrico Alberto Reyes
Sc: subrogation proper bec of sub rcpt presented and failed to object to the same. Thus evidence properly admitted

Facts:an accident occurred at the corner of EDSA and Ayala Avenue, Makati City, involving four (4) vehicles; (1) a Nissan Bus
operated by Aladdin Transit; (2) an Isuzu Tanker; (3) a Fuzo Cargo Truck; and (4) a Mitsubishi Galant.

(how accident happened) Based on the Police Report issued the Isuzu Tanker was in front of the Mitsubishi Galant with the Nissan Bus
on their right side shortly before the vehicular incident. All three (3) vehicles were at a halt along EDSA facing the south direction
when the Fuzo Cargo Truck simultaneously bumped the rear portion of the Mitsubishi Galant and the rear left portion of the Nissan
Bus. Due to the strong impact, these two vehicles were shoved forward and the front left portion of the Mitsubishi Galant rammed into
the rear right portion of the Isuzu Tanker.

Before the accident: Malayan Insurance issued Car Insurance Policy in favor of First Malayan Leasing and Finance Corporation (the
assured), insuring Mitsubishi Galant against third party liability, own damage and theft, among others.

Having insured the vehicle against such risks, Malayan Insurance claimed in its Complaint that it paid the damages sustained by the assured
amounting to ₱700,000.00.

Maintaining that it has been subrogated to the rights and interests of the assured by operation of law upon its payment to the latter, Malayan Insurance
sent several demand letters to respondents Rodelio Alberto and Enrico Alberto Reyes , the registered owner and the driver, respectively, of the
Fuzo Cargo Truck, requiring them to pay the amount it had paid to the assured.

When respondents refused to settle their liability, Malayan Insurance was constrained to file a complaint for damages for gross negligence against
respondents.

, respondents In their Answer asserted that they cannot be held liable for the vehicular accident, since its proximate cause was the reckless driving of
the Nissan Bus driver and not theirs. They alleged that the speeding bus, coming from the service road of EDSA, maneuvered its way towards the
middle lane without due regard to Reyes’ right of way. When the Nissan Bus abruptly stopped, Reyes stepped hard on the brakes but the braking
action could not cope with the inertia and failed to gain sufficient traction. As a consequence, the Fuzo Cargo Truck hit the rear end of the Mitsubishi
Galant, which, in turn, hit the rear end of the vehicle in front of it. The Nissan Bus, on the other hand, sideswiped the Fuzo Cargo Truck, causing
damage to the latter in the amount of ₱20,000.00. Respondents also controverted the results of the Police Report, asserting that it was based solely on
the biased narration of the Nissan Bus driver.

As to the issue on suborgation-- Malayan Insurance contends that there was a valid subrogation in the instant case, as
evidenced by the claim check voucher and the Release of Claim and Subrogation Receipt presented by it before the trial
30  31 

court.

Respondents, however, claim that the documents presented by Malayan Insurance do not indicate certain important
details that would show proper subrogation.

Issue:Whether or not the subrogation of Malayan Insurance is valid.

Held:Yes, it is valid. Bearing in mind that the claim check voucher and the Release of Claim and Subrogation Receipt presented by
Malayan Insurance are already part of the evidence on record, and since it is not disputed that the insurance company, indeed, paid
₱700,000.00 to the assured, then there is a valid subrogation in the case at bar.
59
Because of a party’s failure to timely object, the evidence becomes part of the evidence in the case. Thereafter, all the parties are
considered bound by any outcome arising from the offer of evidence properly presented.

Subrogation is the substitution of one person by another with reference to a lawful claim or right, so that he who is substituted succeeds
to the rights of the other in relation to a debt or claim, including its remedies or securities. The principle covers a situation wherein an
insurer has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party
with respect to any loss covered by the policy. It contemplates full substitution such that it places the party subrogated in the shoes of
the creditor, and he may use all means that the creditor could employ to enforce payment.

We have held that payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies that the
insured may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent
upon, nor does it grow out of, any privity of contract. It accrues simply upon payment by the insurance company of the insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice; and is the mode that equity
adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good conscience, ought to pay.

Fire insurance:
36. Uy Hu & Co. vs. The Prudential Assurance Co., Ltd.,
G.R. No. 27778, December 16, 1927
SC: Insured cannot claim because of policy-fraudulent claim- claiming damaged when in fact not damaged becase its just in
bodega

Facts:
Uy Hu & Co is a co partnership engaged in the sale and purchase of general merchandise. Defendant is a foreign insurance company
duly licensed to do business in the Philippine Islands, where it is represented by F. E. Zuellig, Inc.

Defendant undertook to and did insure against loss and damage by fire the property, goods, wares and merchandise of the plaintiff for
the sum of P30,000.

While the policy was in full force and effect, the property therein described was destroyed by fire without the fault or negligence of the
plaintiff.

That in accord with the terms and conditions of the policy, plaintiff notified the defendant of the fire and of its loss, and requested
payment of the P30,000, the full amount of the policy. Plaintiff submitted evidence to verify its claim, but defendant without any legal
or just ground, refused to pay the claim or any part of it. Wherefore, plaintiff prays for a corresponding judgment against the defendant,
with interest and cost.

In its Answer, defendant makes a general and specific denial, and as a special defense alleges that in the policy in question, it was
agreed that in the event of loss, should the plaintiff make a fraudulent claim or any false declaration or use any fraudulent means or
devices to obtain payment for its loss, the policy should become null and void.

That after the fire plaintiff did present a claim under oath of its manager for P30,000, the alleged amount of its loss. That said claim was
false and fraudulent, in that it was therein represented that the value of merchandise at the time of the fire was P32,523.30, whereas in
truth and in fact a large part of the merchandise claimed and represented in plaintiff’s proof of loss was not in the building at the time of
the fire, and that the value of the merchandise which was actually consumed or damaged by the fire was a very small part of the claim
made by the plaintiff, "and by reason of such fraudulent claim and false declaration made and used in support thereof, all benefit under
said policy has been forfeited." Defendant prays that plaintiff’s complaint be dismissed, and that it have judgment for costs. 

The lower court rendered judgment for the plaintiff for ₱16,000, with legal interest.

Issue:
Whether or not plaintiff is entitled to recover on the policy.

Held:
No.

*Where a fire insurance policy provides that "If the claim be in any respect fraudulent, or if any false declaration be made or used in
support thereof, or if any fraudulent means or devices are used by the Insured or anyone acting on his behalf to obtain any benefit under
this Policy," and the evidence is conclusive that the proof of claim which the insured submitted was false and fraudulent both as

60
to the kind, quality and amount of the goods and their value destroyed by the fire, such a proof of claim is a bar against the insured
to recover on the policy even for the amount of his actual loss. 

The policy in question purports to insure plaintiff’s goods, wares and merchandise against loss by fire in the amount of P30,000
between April 20, 1926, and April 20, 1927. Among other conditions the policy provides:

"13. If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means
or devices are used by the Insured or anyone acting on his behalf to obtain any benefit under this Policy; or, if the loss or
damage be occasioned by the willful act, or with the connivance of the Insured; or, if the Insured or anyone acting on his behalf
shall hinder or obstruct the Company in doing any of the acts referred to in Condition 12;

or, if the claim be made and rejected and an action or suit be not commenced within three months after such rejection or (in
case of an Arbitration taking place in pursuance of the 18th Condition of this Policy) within three months after the Arbitrator or
Arbitrators or Umpire shall have made their award, all benefit under this Policy shall be forfeited."

The fire in question occurred on May 10, 1926, and May14, the plaintiff submitted proof of its loss in the usual form verified by the
oath of its manager, known as the "Particulars of the Claim”.

Defendant vigorously contended that this proof of loss and the "Particulars of the Claim" are false and fraudulent, and that they were
made with the intent to mislead and deceive as to the amount and value of the goods in the building at the time of the fire, and that by
reason thereof, under the terms and conditions of the policy, the plaintiff is not entitled to recover anything.

In this case: After the inspection, the evidence shows that the fire was an ordinary one, and that it did not start in plaintiff’s bodegas.
Plaintiff’s bodegas were constructed mostly of stone, and the roof was of iron and strong materials, to which very little damage was
done. In truth and in fact, plaintiff was damaged much more by water than by fire.

1ST EVID (INVETORY OF PROP REVEALS NOT ALL CLAIMED BURNED MERCH ARE REALLY BURNED BUT IN FACT-
NOT DAMAGED AS SUCH WERE FOUND IN BODEGA OF PTIFF.) An actual and detailed inventory was also made. The
merchandise in the store was not damaged either by fire or water, and all of it was turned over to, and accepted by, the plaintiff , with
an estimated value of ₱1,453.13. It appears from the inventory which they made (Exhibit 8) that the merchandise and effects in
plaintiff’s bodegas after the fire was of the value of P4,823.20. Thereafter, Glegg, Zulueta and Heintsch, as the representative of the
insurance company, went with Tan Chong U, the manager of the plaintiff, and F. M. Britto to plaintiff’s bodegas for the purpose of
checking the inventory made by the adjustors and comparing it with the claim made by the plaintiff. Upon arrival, they asked Tan
Chong U to point out to them where the missing merchandise and effects had been stored which he was unable to do, and the only
explanation which he could make was that the missing merchandise and effect had been completely consumed by the fire, and that no
trace of them whatever was left. It also appears that Mr. Herridge on behalf of the adjustors made demand upon Tan Chong U as the
manager of the plaintiff to furnish him with all the invoices of the merchandise which the plaintiff claims to have stored in his bodegas
at the time of the fire, with the exception of the alleged invoices of the cigars, cigarettes and candies, which were previously delivered,
in response to which Tan Chong U stated that it was impossible for him to deliver the invoices because many of them were not in his
possession as he had made the purchases in cash. 

2ND It further appears that immediately after the fire four different photographs were taken of the merchandise as it appeared after the
fire, all of which corroborate the inventory (Exhibit 8) as to the amount, kind and quality of the merchandise in the bodegas at the time
of the fire, and are conclusive proof that plaintiff’s claim for ₱30,000.00 is both false and fraudulent.

Photography is an exact science. Witness pro and con may testify, but a photograph of a scene is not a false
witness, and is conclusive evidence of the actual facts appearing on the photograph.

While it is true that a small portion of the merchandise might have been consumed, and the evidence of its existence completely
destroyed by the fire, yet in the very nature of things, a large portion of it would not be destroyed , and some evidence would be left by
which the amount, kind and quality of it could be substantially ascertained and determined.

Based upon the oral evidence of the defendant, together with the photographs in question, which convincingly show the actual
conditions in the bodegas immediately after the fire, SC was clearly of the opinion that plaintiff’s claim is false and fraudulent within
the terms and definitions of the policy, and that the value of the merchandise destroyed by the fire would not exceed ₱5,000.

**Although much latitude should be given to the insured in presenting his proof of claim as to the value of his loss, in particular as to
the price, kind and quality of the property destroyed, yet where the proof is conclusive, as in this case, that the insured made a claim for
a large amount of property which was never in the bodegas at the time of the fire and for a much larger amount of property than was

61
actually in the bodegas, it makes the whole claim false and fraudulent, the legal effect of which is to bar plaintiff from the
recovery of the amount of its actual loss.

37. MALAYAN INSURANCE COMPANY, INC.  vs. PAP CO., LTD. (PHIL. BRANCH)

SC: S168 on alteration-requisites- Rescind- Here not liable bec such removal from a certain place of insured thing increased
risk
Facts: Malayan Insurance Company issued Fire Insurance Policy to PAP Co., Ltd for the latter’s machineries and equipmen t located
at Sanyo Precision Phils. The insurance, which was for Php 15,000,000.00 and effective for a period of 1 year, was procured by PAP
Co. for RCBC, the mortgagee of the insured machineries. After the passage of almost a year but prior to the expiration of the insurance
coverage, PAP Co. renewed the policy on an “as is” basis. Pursuant thereto, a renewal Fire Insurance Policy was issued by Malayan for
the period May 13, 1997 to May 13, 1998.

During the subsistence of the renewal policy, the insured machineries and equipment were totally lost by fire. Hence, PAP Co. filed a
fire insurance claim with Malayan in the amount insured.

Malayan Insurance denied the claim on the ground that, at the time of the loss, the machineries were transferred by PAP Co. to a
location different from that indicated in the policy. Specifically, that the insured machineries were transferred ifrom the Sanyo Building
to the Pace Pacific Bldg., Rosario, Cavite (Pace Pacific).

PAP Co. then filed a complaint with the RTC.

The trial court ruled in favor of PAP Co. It was held that although there was a change in the condition of the thing insured, said
insurance company failed to show proof that such transfer resulted in the increase of the insured.

Malayan appealed the decision with the CA which was denied. CA held that Malayan could not escape liability as the transfer was
made during the subsistence of the original policy, not the renewal policy; therefore, Malayan was aware of the transfer of the
properties when it renewed the contract. Hence, the petition. CA added that Malayan failed to show that the transfer of the insured
properties increased the risk of the loss. It, thus, could not use such transfer as an excuse for not paying the indemnity to PAP.

Issue:
Whether or not Malayan Insurance is liable under the renewal fire insurance policy.

Held:
No. Malayan cannot be held liable for the loss of the insured properties of PAP Co.

*Under Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance contract in case of an alteration in the use or
condition of the thing insured. An alteration in the use or condition of a thing insured from that to which it is limited by the
policy made without the consent of the insurer, by means within the control of the insured, and increasing the risks, entitles an insurer
to rescind a contract of fire insurance.

62
Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions are present, to wit:
1) the policy limits the use or condition of the thing insured;
2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insured’s control; and
5) the alteration increases the risk of loss.

In the case at bar, all these circumstances are present. It was clearly established that the renewal policy stipulated that the insured
properties were located at the Sanyo factory; that PAP removed the properties without the consent of Malayan; and that the alteration of
the location increased the risk of loss. Also, The policy forbade the removal of the insured properties unless sanctioned by Malayan. It
was stated in the contract that, “any transfer effected by the insured, without the insurer’s consent, would free the latter from any
liability

Hence, Malayan Insurance is not liable for the loss and has the right to rescind the contract as provided by the Code.

38. UNITED MERCHANTS CORPORATION vs. COUNTRY BANKERS INSURANCE CORPORATION G.R. No. 198588,
July 11, 2012

Sec. 75. A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an
immaterial provision does not avoid the policy

SC: Insurer not liable here. (Tho not proved arson (a limitation) it does not mean wala na ding fraud- separate. Here proved
fraud

Facts: Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling, and manufacturing Christmas
lights. UMC leased a warehouse at 19-B Dagot Street, San Jose Subdivision, Barrio Manresa, Quezon City, where UMC assembled and
stored its products.UMC’s General Manager Alfredo Tan insured UMC’s stocks in trade of Christmas lights against fire with defendant
Country Bankers Insurance Corporation (CBIC) for ₱15,000,000.00. On May 1996, UMC and CBIC executed Endorsement F/96-154
and Fire Invoice No. 16583A to form part of the Insurance Policy. Endorsement F/96-154 provides that UMC’s stocks in trade were
insured against additional perils, to wit: "typhoon, flood, ext. cover, and full earthquake." The sum insured was also increased to
₱50,000,000.00.

On 3 July 1996, a fire gutted the warehouse rented by UMC. UMC sought indemnity from CBIC, but the claim was rejected by the
latter on the ground that one of the conditions stipulated in their policy was violated for the claim was attended with arson and fraud.
CBIC alleged that UMC’s claim was fraudulent because UMC’s Statement of Inventory showed that it had no stocks in trade and that
UMC’s suspicious purchases for the year 1996 did not even amount to ₱25,000,000.00. UMC’s GIS and Financial Reports further
revealed that it had insufficient capital, which meant UMC could not afford the alleged ₱50,000,000.00 worth of stocks in trade.
However, the Bureau of Fire protection, issued a certificate stating that there was no evidence showing that the warehouse was wilfully,
feloniously, and intentionally set on fire.RTC ruled in favor of the plaintiff. CA ruled in favor of CBIC.

Issue:
Whether or not united merchants is entitled to claim from Country Bankers Ins the full coverage of the fire insurance policy.

Held: No. (Tho not proved arson (a limitation) it does not mean wala na ding fraud- separate. Here proved fraud- thus liable.

An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of establishing that the loss
comes within the purview of the exception or limitation.  

If loss is proved apparently within a contract of insurance, the burden is upon the insurer to establish that the loss arose from a cause of
loss which is excepted or for which it is not liable, or from a cause which limits its liability.

63
 
In the present case, Country Barbers Ins failed to discharge its primordial burden of establishing that the damage or loss was caused by
arson, a limitation in the policy.

F: Contrary to UMC’s allegation, CBIC’s failure to prove arson does not mean that it also failed to prove fraud . Qua Chee Gan v. Law
Union does not apply in the present case. In Qua Chee Gan, the Court dismissed the allegation of fraud based on the dismissal of the
arson case against the insured. In the present case, arson and fraud are two separate grounds based on two different sets of evidence,
either of which can void the insurance claim of UMC. The absence of one does not necessarily result in the absence of the other. Thus,
on the allegation of fraud, we affirm the findings of the Court of Appeals.

In the present case, as proof of its loss of stocks in trade amounting to ₱50M , UMC submitted its Sworn Statement of Formal Claim
together with the following documents: (1) letters of credit and invoices for raw materials, Christmas lights and cartons purchased;
among others, .MAY ISSUE SA INVOICES IN RELATION TO RECORDS IT SUBMITTED TO BIR THUS IS APPEARS
NA-The invoices, however, cannot be taken as genuine. The invoices reveal that the stocks in trade purchased for 1996 amounts to
₱20,000,000.00 which were purchased in one month. Thus, UMC needs to prove purchases amounting to ₱30,000,000.00 worth of
stocks in trade for 1995 and prior years. However, in the Statement of Inventory it submitted to the BIR, which is considered an entry
in official records,34 UMC stated that it had no stocks in trade as of 31 December 1995 . In its defense, UMC alleged that it did not
include as stocks in trade the raw materials to be assembled as Christmas lights, which it had on 31 December 1995 . However, as
proof of its loss, UMC submitted invoices for raw materials, knowing that the insurance covers only stocks in trade.

Equally important, the invoices from Fuze Industries Manufacturer Phils. were suspicious. The purchases, based on the invoices and
without any supporting contract, amounted to ₱19,550,400.00 worth of Christmas lights from 20 January 1996 to 23 February
1996.The uncontroverted testimony of Cabrera revealed that there was no Fuze Industries Manufacturer Phils. located at "55 Mahinhin
St., Teacher’s Village, Quezon City.

In Yu Ban Chuan v. Fieldmen’s Insurance, Co., Inc.,  the Court ruled that the submission of false invoices to the adjusters establishes a
clear case of fraud and misrepresentation which voids the insurer’s liability as per condition of the policy. Their falsity is the best
evidence of the fraudulent character of plaintiff’s claim.  In Verendia v. Court of Appeals, where the insured presented a fraudulent
lease contract to support his claim for insurance benefits, the Court held that by its false declaration, the insured forfeited all benefits
under the policy provision similar to Condition No. 15 of the Insurance Policy in this case.

*the Insurance Code provides that "a policy may declare that a violation of specified provisions thereof shall avoid it." Thus, in
fire insurance policies, which contain provisions such as Condition No. 15 of the Insurance Policy, a fraudulent discrepancy
between the actual loss and that claimed in the proof of loss voids the insurance policy. Mere filing of such a claim will
exonerate the insurer.

Considering that all the circumstances point to the inevitable conclusion that UMC padded its claim and was guilty of fraud, UMC
violated Condition No. 15 of the Insurance Policy. Thus, UMC forfeited whatever benefits it may be entitled under the Insurance
Policy,

64
 SURETY:

39. Spouses Quiamco vs Capital Insurance

SC: Capital can claim from sps. A surety agreement is perfected by consent.; thus capital insurance can claim upon paying
such.

Facts:
Spouses Noe and Clarita Quiamco (Spoues Quiamco) are engaged in the sea transportation business.

A decision in a labor case was rendered against one of the spouses, clarita In order to perfect their appeal to the NLRC, Spouses
Quiamco applied for a supersedeas bond with Capital Insurance

Consequently, Spouses Quiamco delivered to Capital Insurance a check in the amount equivalent to that of the supersedeas bond.
Accordingly, the bond was issued. Later, Spouses Quiamco posted the bond but the NLRC rejected it for being posted out of time.

Thus, the NLRC dismissed the appeal for Spouses Quiamco 's failure to post the bond within 10 days from receipt of the decision (May
7, 1997).

Thereafter, a writ of execution was served on Capital Insurance to collect on the supersedeas bond. Capital Insurance paid to the
NLRC the amount guaranteed by the bond. However, the check was dishonored because the account was already closed.

Thus, Capital Insurance filed a complaint for sum of money against Spouses Quiamco.

Spouses Quiamco argued that one of the conditions of the bond was to stay the execution of the judgment in the labor case: Therefore,
they insist that the surety agreement was not perfected because the execution of the judgment was not stayed considering that the
NLRC rejected the bond for being posted out of time.

Issue:
Whether the surety agreement was perfected?

Held:
Yes.
65
*Contracts are perfected by mere consent. This is manifested by the meeting of the offer and the acceptance upon the object and cause
which are to constitute the contract.

Here, the object of the contract was the issuance of the bond. The cause consisted of the premiums paid. Upon the issuance of the
bond to Spouses Quiamco, the contract of suretyship was perfected .

Spouses Quiamco cannot insist that the contract was subject to a suspensive condition. This was not a condition for the perfection of
the contract but merely a statement of the purpose of the bond in its "whereas" clauses. Aside from this, there was no mention of the
condition that before the contract could become valid and binding, perfection of the appeal was necessary . If the intention was to make
it a suspensive condition, then the parties should have made it clear in certain and unambiguous terms.

From the moment the contract is perfected, the parties are bound to comply with what is expressly stipulated as well as with
18
what is required by the nature of the obligation in keeping with good faith, usage and the law.  A surety is considered in law
19
to be on the same footing as the principal debtor in relation to whatever is adjudged against the latter.   Accordingly, as
surety, CI was obliged to pay on the bond when a writ of execution was served on it. Consequently, it now has the right to seek full
reimbursement from Spouses Quiamco.

It was never respondent's obligation to inquire about the deadline for which the bond was being issued. It was the duty of
petitioners to make sure it was filed on time. The delay in filing the bond was purely the result of petitioners' negligence or
oversight. They should bear the consequences.

40. Stronghold Insurance vs. Tokyu Construction Co.

Sc: modification of the subcontract agreement without notice to the surety? Not invalidate here, not among cases w/c invalid

Facts: Tokyu Construction Co. (TCC) was awarded a contract for the construction of NAIA Terminal 2.

Tokyu Construction Co entered into a subcontract agreement with G.A. Gabriel Enterprises (Gabriel), for the construction of the
project's Storm Drainage System (SDS) and Sewage Treatment Plant (STP) for total contract price of P56.5 million.

Gabriel obtained from Stronghold Insurance (SI) a performance Bond to guarantee to Tokyu Construction Co due and timely
performance of the work. Without notifying Stronghold Insurance----Tokyo Cons and Gabriel agreed modify the subcontract
agreement to revise the scope of work which resulted in the reduction of the contract price to P13 M.

Gabriel failed to accomplish the works within the agreed completion period. And eventually, Gabriel abandoned the project.

Thus, Tokyu Construction Co made formal demands against Stronghold Insurance for the performance bond.

However, SI failed to heed the demand. Hence, TCC filed a complaint against SI and Gabriel before the Construction Industry
Arbitration Commission.

Stronghold Insurance argued that the principal contract (original subcontract agreement) was novated by the revised scope of work,
without notice to the surety, thereby rendering the bonds invalid and ineffective.

Issue:

Whether the bonds were invalidated by the modification of the subcontract agreement without notice to the surety?

Held: No.

DISCUSSION AS TO NATURE OF SURETYSHIP: We wish to stress herein the nature of suretyship, which actually involves two
types of relationship --- the underlying principal relationship between the creditor (respondent) and the debtor (Gabriel), and the
accessory surety relationship between the principal (Gabriel) and the surety (petitioner).

66
The creditor accepts the surety’s solidary undertaking to pay if the debtor does not pay. Such acceptance, however, does not change in
any material way the creditor’s relationship with the principal debtor nor does it make the surety an active party to the principal
creditor-debtor relationship.

In other words, the acceptance does not give the surety the right to intervene in the principal contract. The surety’s role arises only
upon the debtor’s default, at which time, it can be directly held liable by the creditor for payment as a solidary obligor. 38

The surety is considered in law as possessed of the identity of the debtor in relation to whatever is adjudged touching upon the
obligation of the latter. Their liabilities are so interwoven as to be inseparable. Although the contract of a surety is, in essence,
secondary only to a valid principal obligation, the surety’s liability to the creditor is direct, primary, and absolute; he becomes liable for
the debt and duty of another although he possesses no direct or personal interest over the obligations nor does he receive any benefit
therefrom.

RULE: (INVALIDATE WHEN ) A surety is released from its obligation when there is a material alteration of the principal contract in
connection with which the bond is given, 1) such as a change which imposes a new obligation on the promising party, or
2) which takes away some obligation already imposed, or
3) one which changes the legal effect of the original contract and not merely its form.

(NOT WHEN) However, a surety is not released by a change in the contract, which does not have the effect of making its obligation
more onerous.

In the instant case, the revision of the subcontract agreement did not in any way make the obligations of both the principal and the
surety more onerous. ---Stronghold Insurance (surety) never assumed added obligations, nor were there any additional obligations
imposed, due to the modification of the terms of the contract.--- Failure to receive any notice of such change did not, therefore,
exonerate Stronghold Insurance from its liabilities as surety.

Notwithstanding the issuance of the new bonds, the fact remains that the event insured against, which is the default in the performance
of Gabriel’s obligations set forth in the subcontract agreement, already took place. By such default, petitioner’s liability set in. 

41. First Lepanto-Taisho Insurance Corp. (Now Known As Flt Prime Insurance Corp.) Vs. Chevron Philippines, Inc. (Formerly
Known As Caltex [Philippines], Inc.) G.R. No. 177839, January 18, 2012

*SC whether a surety is liable to the creditor in the absence of a written contract with the principal.- no. ;
dapat ipaalam mo ung principal contract- sa surety to make surety liable specially so required sa contract
nyo.

Facts:
Chevron Philippines, Inc. (Chevron) sued First Lepanto-Taisho Insurance Corp. (First Lepanto) as surety of Fumitekniks for the
latter’s non-compliance of its obligation to pay its oil and petroleum purchases as a distributor of Chevron.

However, First Lepanto (surety) refused to pay Chevron on the ground that it failed to submit to them a copy of the distributor
agreement (C: principal contract) in which the surety agreement depends . First Lepanto argues that the bond agreement specifically
requires Chevron to submit a copy of the principal agreement such that the non-compliance of which will make the surety agreement
ineffective.

Chevron maintains that the delivery of the bond and acceptance of premium payment by First Lepanto binds the latter as surety,
notwithstanding the non-submission of the oral distributorship and credit agreement which understandably cannot be attached to the
bond.

Issue:
Is First Lepanto liable notwithstanding the fact that there was non-compliance of the requirement under the bond agreement to submit
the principal contract? Or whether a surety is liable to the creditor in the absence of a written contract with the principal.

Held: No.

As to surety: defined: Section 175 of the Insurance Code defines a suretyship as a contract or agreement whereby a party, called the
surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third
party, called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued under Act 536, 14 as amended.
Suretyship arises upon the solidary binding of a person – deemed the surety – with the principal debtor, for the purpose of fulfilling an

67
obligation.15 Such undertaking makes a surety agreement an ancillary contract as it presupposes the existence of a principal contract.
Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes liable for the debt or
duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom. And
notwithstanding the fact that the surety contract is secondary to the principal obligation, the surety assumes liability as a regular party to
the undertaking.16

The extent of a surety’s liability is determined by the language of the suretyship contract or bond itself. It cannot be extended by
implication, beyond the terms of the contract. 17 Thus, to determine whether petitioner is liable to respondent under the surety bond, it
becomes necessary to examine the terms of the contract itself.

The law is clear that a surety contract should be read and interpreted together with the contract entered into between the creditor and the
principal. Section 176 of the Insurance Code states:

*Sec. 176. The liability of the surety or sureties shall be joint and several with the o bligor and shall be limited to the amount of the
bond. --It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and
the obligee.

*A surety contract is merely a collateral one, its basis is the principal contract or undertaking which it secures. Necessarily, the
stipulations in such principal agreement must at least be communicated or made known to the surety particularly in this case
where the bond expressly guarantees the payment of Chevron’s fuel products withdrawn by Fumitechniks in accordance with the terms
and conditions of their agreement. The bond specifically makes reference to a written agreement. It is basic that if the terms of a
contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall
control. 

Moreover, being an onerous undertaking, a surety agreement is strictly construed against the creditor, and every doubt is resolved in
favor of the solidary debtor.

Having accepted the bond, Chevron as creditor must be held bound by the recital in the surety bond that the terms and conditions of its
distributorship contract be reduced in writing or at the very least communicated in writing to the surety. Such non-compliance by the
creditor (Chevron) impacts not on the validity or legality of the surety contract but on the creditor’s right to demand performance.

It bears stressing that the contract of suretyship imports entire good faith and confidence between the parties in regard to the whole
transaction, although it has been said that the creditor does not stand as a fiduciary in his relation to the surety. The creditor is generally
held bound to a faithful observance of the rights of the surety and to the performance of every duty necessary for the protection of those
rights. Moreover, in this jurisdiction, obligations arising from contracts have the force of law between the parties and should be
complied with in good faith. In this case: Chevron is charged with notice of the specified form of the agreement or at least the
disclosure of basic terms and conditions of its distributorship and credit agreements with its client Fumitechniks after its acceptance of
the bond delivered by the latter. However, it never made any effort to relay those terms and conditions of its contract with Fumitechniks
upon the commencement of its transactions with said client, which obligations are covered by the surety bond issued by First Lepanto.
Contrary to Chevron’s assertion, there is no indication in the records that First Lepanto had actual knowledge of its alleged business
practice of not having written contracts with distributors; and even assuming First Lepanto was aware of such practice, the bond issued
to Fumitechniks and accepted by Chevron specifically referred to a "written agreement."

68
MOTOR VEHICLE INSURANCE:
42. Perla Compania De Seguros, Inc. vs. The Court of Appeals, Herminio Lim and Evelyn Lim
G.R. No. 96452 May 7, 1992 J. Nocon

Facts: Spouses Lim purchased a brand new red Ford Laser car from Supercars, Inc. in a sale by installment secured by a chattel
mortgage.

The same car is insured with Perla Compania de Seguros (Perla). On the same day, Supercars, Inc. assigned its rights, title and
interest to FCP Credit Corporation (FCP).

On a later date, the said vehicle was carnapped while parked at the back of Broadway Centrum along N. Domingo Street, Quezon
City..

Spouses Lim filed a claim for loss with Perla but this was denied on the ground that Evelyn Lim, who was using the vehicle before it
was carnapped, was in possession of an expired driver’s license at the time of the loss, in violation of the authorized driver clause of the
insurance policy.. AUTHORIZED DRIVER:Any of the following: (a) The Insured (b) Any person driving on the Insured's order, or
with his permission. Provided that the person driving is permitted, in accordance with the licensing or other laws or regulations, to
drive the Scheduled Vehicle, or has been permitted and is not disqualified by order of a Court of Law or by reason of any enactment or
regulation in that behalf
Consequently, petitioner FCP (assigned of rightS) demanded that private respondents pay the whole balance of the promissory note
or to return the vehicle but the latter refused.

Private respondents appealed the same to the Court of Appeals, which reversed said decision.

Issue:
Whether or not Perla is liable despite the alleged violation of the authorized driver clause (which should have invalidated the
claim?) in the insurance contract?
69
Held:
Yes. Perla is liable.

The comprehensive motor car insurance policy issued by petitioner Perla undertook to indemnify the private respondents against loss
or damage to the car (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;  and (c)
by malicious act.14

In this case, Where a car is admittedly, unlawfully and wrongfully taken without the owner's consent or knowledge, such taking
constitutes theft, and, therefore, it is the "THEFT"' clause, and not the "AUTHORIZED DRIVER" clause that should apply. As
correctly stated by the respondent court in its decision:

. Theft is an entirely different legal concept from that of accident. Theft is committed by a person with the intent to gain or, to put it in
another way, with the concurrence of the doer's will. On the other hand, accident, although it may proceed or result from negligence,
is the happening of an event without the concurrence of the will of the person by whose agency it was caused. (Bouvier's Law
Dictionary, Vol. I, 1914 ed., p. 101).

Clearly, the risk against accident is distinct from the risk against theft. The "authorized driver clause" in a typical insurance policy is in
contemplation or anticipation of accident in the legal sense in which it should be understood, and not in contemplation or anticipation
of an event such as theft. The distinction — often seized upon by insurance companies in resisting claims from their assureds —
between death occurring as a result of accident and death occurring as a result of intent may, by analogy, apply to the case at bar.
Thus, if the insured vehicle had figured in an accident at the time she drove it with an expired license, then, appellee Perla Compania
could properly resist appellants' claim for indemnification for the loss or destruction of the vehicle resulting from the accident. But in
the present case. The loss of the insured vehicle did not result from an accident where intent was involved; the loss in the present case
was caused by theft, the commission of which was attended by intent. 15

It is worthy to note that there is no causal connection between the possession of a valid driver's license and the loss of a vehicle. To
rule otherwise would render car insurance practically a sham since an insurance company can easily escape liability by citing
restrictions which are not applicable or germane to the claim, thereby reducing indemnity to a shadow.

IF:

The insurance policy was therefore meant to be an additional security to the principal contract, that is, to insure that
the promissory note will still be paid in case the automobile is lost through accident or theft. The Chattel Mortgage
Contract provided that:

THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL CAUSE THE
PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED AGAINST LOSS OR DAMAGE
BY ACCIDENT, THEFT AND FIRE FOR A PERIOD OF ONE YEAR FROM DATE HEREOF AND
EVERY YEAR THEREAFTER UNTIL THE MORTGAGE OBLIGATION IS FULLY PAID WITH AN
INSURANCE COMPANY OR COMPANIES ACCEPTABLE TO THE MORTGAGEE IN AN AMOUNT
NOT LESS THAN THE OUTSTANDING BALANCE OF THE MORTGAGE OBLIGATION; THAT
HE/IT WILL MAKE ALL LOSS, IF ANY, UNDER SUCH POLICY OR POLICIES, PAYABLE TO THE
MORTGAGE OR ITS ASSIGNS AS ITS INTERESTS MAY APPEAR AND FORTHWITH DELIVER
SUCH POLICY OR POLICIES TO THE MORTGAGEE, . . . .  17

It is clear from the abovementioned provision that upon the loss of the insured vehicle, the insurance company Perla
undertakes to pay directly to the mortgagor or to their assignee, FCP, the outstanding balance of the mortgage at
the time of said loss under the mortgage contract. If the claim on the insurance policy had been approved by
petitioner Perla, it would have paid the proceeds thereof directly to petitioner FCP, and this would have had the
effect of extinguishing private respondents' obligation to petitioner FCP. Therefore, private respondents were
justified in asking petitioner FCP to demand the unpaid installments from petitioner Perla.

70
 Because petitioner Perla had unreasonably denied their valid claim, private respondents should not be made to pay
the interest, liquidated damages and attorney's fees as stipulated in the promissory note. As mentioned above, the
contract of indemnity was procured to insure the return of the money loaned from petitioner FCP, and the unjustified
refusal of petitioner Perla to recognize the valid claim of the private respondents should not in any way prejudice the
latter.

Private respondents can not be said to have unduly enriched themselves at the expense of petitioner FCP since
they will be required to pay the latter the unpaid balance of its obligation under the promissory note.

In view of the foregoing discussion, We hold that the Court of Appeals did not err in requiring petitioner Perla to
indemnify private respondents for the loss of their insured vehicle. However, the latter should be ordered to pay
petitioner FCP the amount of P55,055.93, representing the unpaid installments from December 30, 1982 up to July
1, 1983, as shown in the statement of account prepared by petitioner FCP,   plus legal interest from July 2, 1983
18

until fully paid.

43. Paramount Insurance Corporation vs. Spouses Remondeulaz

GR 173773, Nov. 28, 2012
Sc: Insurer liable- Theft can also be committed through misappropriation, the fact that Sales failed to return the subject vehicle
to respondents constitutes Qualified Theft

Facts: On May 26, 1994, Spouses Remondeulaz insured with petitioner Paramount Insurance their 1994 Toyota Corolla sedan
under a comprehensive motor vehicle insurance policy for one year.

During the effectivity of said insurance, respondent’s car was unlawfully taken. Hence, they immediately reported it to the PNP who
made them accomplish a complaint sheet. In the complaint sheet, they alleged that respondent Ricardo Sales took the vehicle and did
not return it.

As a result, respondents notified petitioner to claim for the reimbursement of their lost vehicle but petitioner refused to pay.
Respondents lodged a complaint for a sum of money against petitioner.

*Petitioner argues that the loss of respondents vehicle is not a peril covered by the policy. It maintains that it is not liable for the loss,
since the car cannot be classified as stolen as respondents entrusted the possession thereof to another person.

Issue:
Whether or not petitioner is liable under the insurance policy for the loss of respondents’ vehicle.

Held: YES.,

71
 Other cases of theft clause: In People v. Bustinera,8Ï‚rνll this Court had the occasion to interpret the "theft clause" of an insurance
policy. In this case, the Court explained that when one takes the motor vehicle of another without the latters consent even if the motor
vehicle is later returned, there is theft there being intent to gain as the use of the thing unlawfully taken constitutes gain.

Also, in Malayan Insurance Co., Inc. v. Court of Appeals,9Ï‚rνll this Court held that the taking of a vehicle by another person without
the permission or authority from the owner thereof is sufficient to place it within the ambit of the word theft as contemplated in the
policy, and is therefore, compensable.

Moreover, the case of Santos v. People10Ï‚rνll is worthy of note. Similarly in Santos, the owner of a car entrusted his vehicle to
therein petitioner Lauro Santos who owns a repair shop for carburetor repair and repainting. However, when the owner tried to retrieve
her car, she was not able to do so since Santos had abandoned his shop. In the said case, the crime that was actually committed was
Qualified Theft. However, the Court held that because of the fact that it was not alleged in the information that the object of the crime
was a car, which is a qualifying circumstance, the Court found that Santos was only guilty of the crime of Theft and merely considered
the qualifying circumstance as an aggravating circumstance in the imposition of the appropriate penalty. The Court therein clarified
the distinction between the crime of Estafa and Theft, to wit:chanroblesvirtuallawlibrary

x x x The principal distinction between the two crimes is that in theft the thing is taken while in estafa the accused receives the
property and converts it to his own use or benefit. However, there may be theft even if the accused has possession of the property. If
he was entrusted only with the material or physical (natural) or de facto possession of the thing, his misappropriation of the same
constitutes theft, but if he has the juridical possession of the thing his conversion of the same constitutes embezzlement or
estafa.11ςrνll

*In the instant case, Sales did not have juridical possession over the vehicle. Hence, it is apparent that the taking of repondents
vehicle by Sales is without any consent or authority from the former. Records would show that respondents entrusted
possession of their vehicle only to the extent that Sales will introduce repairs and improvements thereon, and not to
permanently deprive them of possession thereof. Since, Theft can also be committed through misappropriation, the fact that
Sales failed to return the subject vehicle to respondents constitutes Qualified Theft.

Hence, since repondents car is undeniably covered by a Comprehensive Motor Vehicle Insurance Policy that allows for
recovery in cases of theft, petitioner is liable under the policy for the loss of respondents vehicle under the "theft clause."

All told, Sales act of depriving respondents of their motor vehicle at, or soon after the transfer of physical possession of the
movable property, constitutes theft under the insurance policy, which is compensable.12ςrνll

44. Alpha Insurance Surety Co. vs. Castor

G.R. No. 198174, September 2, 2013

Theft clause in relation to exclusions: 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.

Theft clause in relation to contract of adhesion: 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.

Facts:
On February 21, 2007, respondents Castor entered into a contract of insurance with the petitioner Alpha Insurance involving her
motor vehicle, a Toyota Revo.

The contract of insurance obligates the petitioner to pay the respondent the amount of P630,000.00 in case of loss or damage to said
vehicle during the period covered (Feb. 26, 2007 to Feb. 26, 2008).

On April 26, 2007, respondents Castor instructed her driver Jose Joel Salazar Lanuza to bring the vehicle to 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 respondents Castor 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 P630,000.00.

72
petitioner Alpha Insurance denied the insurance claim, arguing that it is under the exclusions o f the contract. .) The Company shall
not be liable for: (4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON IN THE
INSURED’S SERVICE."

respondents Castor reiterated her claim and argued that the exception refers to damage of the motor vehicle and not to its loss.

In denying respondent’s claim, petitioner (na same meaning ang damage and loss) takes exception by arguing that the word "damage,"
under paragraph 4 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.

Issue: Whether or not insurer is liable?

Held:
Yes (damage and loss are 2 different things. Xcn only pertains to damage- not loss)

In interpreting the exclusions in an insurance contract, the terms used to specify the excluded classes therein are to be given their
meaning as understood in their common speech. Adverse to petitioner’s claim, the words “loss” and “damage” mean different things in
common or ordinary usage.

The word “loss” refers to the act of fact of losing, or failure to keep possession, while the word “damage” means deterioration
or injury to property.

Thus, petitioner cannot exclude the loss of the 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.

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. 

Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the insurance contract contain limitation on liability,
courts should construe them in such a way as to preclude the insurer form non-compliance with his obligation. 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.

45. Malayan Insurance Co., Inc. vs Philippines First Insurance Co., Inc

Sc: Other insurance clause and over insuranc clause to apply only when there is double insurance-here non. Thus insurer still
liable.

Facts:Wyeth and respondent Reputable Forwarder Services, Inc. (Reputable) had been annually executing a contract of carriage,
whereby the reputable forwarders undertook to transport and deliver wyeths products to its customers, dealers or salesmen.

Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from respondent Philippines First Insurance Co., Inc.
(Philippines First) to secure its interest over its own products. Such as nutritional, pharmaceutical and other products usual or incidental
to the insured’s business while the same were being transported or shipped in the Philippines.

The policy covers all risks of direct physical loss or damage from any external cause, if by land, and provides a limit of
P6,000,000.00 per any one land vehicle.

Wyeth executed its annual contract of carriage with Reputable. Under the contract, Reputable undertook to answer for “all
risks with respect to the goods and shall be liable to the COMPANY (Wyeth), for the loss, destruction, or damage of the
goods/products due to any and all causes whatsoever, including theft, robbery, flood, storm, earthquakes, lightning, and other force
73
majeure while the goods/products are in transit and until actual delivery to the customers, salesmen, and dealers of the COMPANY”.
The contract also required Reputable to secure an insurance policy on Wyeth’s goods.

Thus, Reputable signed a Special Risk Insurance Policy (SR Policy) with petitioner Malayan for the amount of
P1,000,000.00.

During the effectivity of the Marine Policy and SR Policy, Wyeth asked reputable to deliver boxes of Promil infant formula
worth P2,357,582.70 to Mercury Drug Corporation in Libis, Quezon City. Unfortunately, on the same date, the truck carrying Wyeth’s
products was hijacked by about 10 armed men. They threatened to kill the truck driver and two of his helpers should they refuse to turn
over the truck and its contents to the said highway robbers. The hijacked truck was recovered two weeks later without its cargo.

Philippines First filed a complaint for sum of money against Reputable . Subsequently, Reputable impleaded Malayan as
third-party defendant in an effort to collect the amount covered in the SR Policy. According to Reputable, it was validly insured with
Malayan with respect to the lost products under the latter’s Insurance Policy.

Malayan argued that under Section 5 of the SR Policy ( over insurance clause), the insurance does not cover any loss or
damage to property which at the time of the happening of such loss or damage is insured by any marine polic y it argued that
inasmuch as there was already a marine policy issued by Philippines First securing the same subject matter against loss and that since
the monetary coverage/value of the Marine Policy is more than enough to indemnify the hijacked cargo, Philippines First alone must
bear the loss

Malayan sought the dismissal of the third-party complaint against it. In the alternative, it prayed that it be held liable of the loss
based on the amount covered by the policy, subject to the provision of Section 12 of the SR Policy as other insurance clause)

Issue: WON Malayan insurance is liable despite its Section 5 ( over insurance clause and Section 12 as other insurance clause of the
SR Policy.

Held: YES.In interpreting the "other insurance clause", the Court ruled that the prohibition applies only in case of double insurance. It
ruled that in order to constitute a violation of the clause, the other insurance must be upon same subject matter, the same interest
therein, and the same risk.

Thus, even though the multiple insurance policies involved were all issued in the name of the same assured, over the same
subject matter and covering the same risk, it was ruled that there was no violation of the "other insurance clause" since there was no
double insuranceon--- the other hand, is the over insurance clause..-- More particularly, it covers the situation where there is over
insurance due to double insurance. In such case, it provides that Malayan shall "not be liable to pay or contribute more than its ratable
proportion of such loss or damage. Clearly, both Sections 5 and 12 presuppose the existence of a double insurance.

In the present case, even though the two concerned insurance policies were issued over the same goods and cover the same risk,
there arises no double insurance since they were issued to two different persons/entities having distinct insurable interests. Necessarily,
over insurance by double insurance cannot likewise exist.

FULL RULING:

Since Sec. 5 calls for Malayan s complete absolution in case the other insurance would be sufficient to cover the entire amount of the
loss, it is in direct conflict with Sec. 12 which provides only for a pro-rated contribution between the two insurers. Being the later
provision, and pursuant to the rules on interpretation of contracts, Sec. 12 should therefore prevail.

x x x The intention of both Reputable and Malayan should be given effect as against the wordings of Sec. 12 of their contract, as it
was intended by the parties to operate only in case of double insurance, or where the benefits of the policies of both plaintiff-appellee
and Malayan should pertain to Reputable alone. But since the court a quo correctly ruled that there is no double insurance in this case
inasmuch as Reputable was not privy thereto, and therefore did not stand to benefit from the policy issued by plaintiff-appellee in
favor of Wyeth, then Malayan s stand should be rejected.

To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable which, despite paying
premiums for a P1,000,000.00 insurance coverage, would not be entitled to recover said amount for the simple reason that the same
property is covered by another insurance policy, a policy to which it was not a party to and much less, from which it did not stand to

74
benefit. Plainly, this unfair situation could not have been the intention of both Reputable and Malayan in signing the insurance
contract in question.33ςrνll

In questioning said ruling, Malayan posits that Sections 5 and 12 are separate provisions applicable under distinct circumstances.
Malayan argues that "it will not be completely absolved under Section 5 of its policy if it were the assured itself who obtained
additional insurance coverage on the same property and the loss incurred by Wyeth s cargo was more than that insured by Philippines
First s marine policy. On the other hand, Section 12 will not completely absolve Malayan if additional insurance coverage on the same
cargo were obtained by someone besides Reputable, in which case Malayan s SR policy will contribute or share ratable proportion of a
covered cargo loss."34ςrνll

Malayan s position cannot be countenanced.

Section 5 is actually the other insurance clause (also called "additional insurance" and "double insurance"), one akin to Condition No.
3 in issue in Geagonia v. CA, 35 which validity was upheld by the Court as a warranty that no other insurance exists. The Court ruled
that Condition No. 336 is a condition which is not proscribed by law as its incorporation in the policy is allowed by Section 75 of the
Insurance Code. It was also the Court s finding that unlike the other insurance clauses, Condition No. 3 does not absolutely declare
void any violation thereof but expressly provides that the condition "shall not apply when the total insurance or insurances in force at
the time of the loss or damage is not more than P200,000.00."

In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity of the SR Policy but simply limits the
liability of Malayan only up to the excess of the amount that was not covered by the other insurance policy. In interpreting the "other
insurance clause" in Geagonia, the Court ruled that the prohibition applies only in case of double insurance. The Court ruled that in
order to constitute a violation of the clause, the other insurance must be upon same subject matter, the same interest therein, and the
same risk. Thus, even though the multiple insurance policies involved were all issued in the name of the same assured, over the same
subject matter and covering the same risk, it was ruled that there was no violation of the "other insurance clause" since there was no
double insurance.

Section 12 of the SR Policy, on the other hand, is the over insurance clause. More particularly, it covers the situation where there is
over insurance due to double insurance.

In such case, Section 15 provides that Malayan shall "not be liable to pay or contribute more than its ratable proportion of such loss or
damage." This is in accord with the principle of contribution provided under Section 94(e) of the Insurance Code, 37 which states that
"where the insured is over insured by double insurance, each insurer is bound, as between himself and the other insurers, to contribute
ratably to the loss in proportion to the amount for which he is liable under his contract."

*******Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal question that now arises is
whether there is double insurance in this case such that either Section 5 or Section 12 of the SR Policy may be applied.
By the express provision of Section 93 of the Insurance Code, double insurance exists where the same person is insured by several
insurers separately in respect to the same subject and interest. The requisites in order for double insurance to arise are as
follows:38ςηαñrοblεš   νιr† υαl   lαω   lιbrαrÿ
1. The person insured is the same;
2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.virtual law library

In the present case, while it is true that the Marine Policy and the SR Policy were both issued over the same subject matter, i.e. goods
belonging to Wyeth, and both covered the same peril insured against, it is, however, beyond cavil that the said policies were issued to
two different persons or entities. It is undisputed that Wyeth is the recognized insured of Philippines First under its Marine Policy,
while Reputable is the recognized insured of Malayan under the SR Policy. The fact that Reputable procured Malayan s SR Policy
over the goods of Wyeth pursuant merely to the stipulated requirement under its contract of carriage with the latter does not make
Reputable a mere agent of Wyeth in obtaining the said SR Policy.

The interest of Wyeth over the property subject matter of both insurance contracts is also different and distinct from that of Reputable
s. The policy issued by Philippines First was in consideration of the legal and/or equitable interest of Wyeth over its own goods. On
the other hand, what was issued by Malayan to Reputable was over the latter s insurable interest over the safety of the goods, which
may become the basis of the latter s liability in case of loss or damage to the property and falls within the contemplation of Section 15
of the Insurance Code.39ςrνll
75
Therefore, even though the two concerned insurance policies were issued over the same goods and cover the same risk, there arises no
double insurance since they were issued to two different persons/entities having distinct insurable interests. Necessarily, over
insurance by double insurance cannot likewise exist. Hence, as correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of
the SR Policy can be applied.

Apart from the foregoing, the Court is also wont to strictly construe the controversial provisions of the SR Policy against Malayan.
This is in keeping with the rule that:ςrαlαω

"Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in
favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par
excellence, any ambiguity therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the
insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in
such a way as to preclude the insurer from noncompliance with its obligations."40ςrνll

Moreover, the CA correctly ruled that:ςrαlαω

To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable which, despite paying
premiums for a P1,000,000.00 insurance coverage, would not be entitled to recover said amount for the simple reason that the same
property is covered by another insurance policy, a policy to which it was not a party to and much less, from which it did not stand to
benefit. x x x41ςrνll

On the fourth issue Reputable is not solidarily liable with Malayan.

There is solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation
so requires.

In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc.,42 the Court ruled that:Ï‚rαlαω

Where the insurance contract provides for indemnity against liability to third persons, the liability of the insurer is direct and such
third persons can directly sue the insurer. The direct liability of the insurer under indemnity contracts against third party[-]liability
does not mean, however, that the insurer can be held solidarily liable with the insured and/or the other parties found at fault, since they
are being held liable under different obligations. The liability of the insured carrier or vehicle owner is based on tort, in accordance
with the provisions of the Civil Code; while that of the insurer arises from contract, particularly, the insurance policy: 43 (Citation
omitted and emphasis supplied)

Suffice it to say that Malayan's and Reputable's respective liabilities arose from different obligations- Malayan's is based on the SR
Policy while Reputable's is based on the contract of carriage.

46. Great Pacific Life Ass. Corp. (Grepalife) vs. CA

G.R. No. 113899 October 13, 1999

Sc: mortgage redemption insurance- who is proper party to claim (mgee-DBP) or Wife of mgor? Sc: Wife.

FACTS: (Grepalife) executed a contract of group life insurance with Development Bank of the Philippines (DBP).

Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.

76
 Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in the group life insurance plan. In an
application form, Dr. Leuterio answered questions concerning his health condition as follows:

7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach
disorder or any other physical impairment?

Answer: No. If so give details ___________., he left it blank

8. Are you now, to the best of your knowledge, in good health? He answered yes

*Grepalife then issued a Certificate, as insurance coverage of Leuterio, to the extent of his DBP mortgage indebtedness
amounting to P86,200.00. ( na kinuha ni DBP for him)

Later, Leuterio died due to “massive cerebral hemorrhage.”

Consequently, DBP submitted a death claim to Grepalife.

Grepalife denied the claim alleging that. Leuterio was not physically healthy when he applied for an insurance coverage.
Grepalife insisted that Leuterio did not disclose he had been suffering from hypertension, which caused his death. Allegedly, such non-
disclosure constituted concealment that justified the denial of the claim.

Later, The widow of Leuterio, respondent Medarda, filed a complaint with the RTC, against Grepalife for “Specific
Performance with Damages.” During the trial, Dr. Mejia, who issued the death certificate, was called to testify. Dr. Mejia’s findings,
based partly from the information given by the respondent widow, stated that Leuterio complained of headaches presumably due to
high blood pressure. The inference was not conclusive because Leuterio was not autopsied, hence, other causes were not ruled out.

The trial court rendered a decision in favor of respondent widow and against Grepalife. The CA sustained the trial court’s decision.
Hence, the present petition.

Issue:
Who is the proper party to bring the suit, the widow or the mortgagee (DBP)?

Held:
The court ruled that it is the widow who has the right to bring the suit.

The rationale of a group insurance policy of mortgagors, otherwise known as the “ mortgage redemption insurance,” is a
device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee (DBP), it has to enter into such form
of contract so that in the event of the unexpected demise of the mortgagor (Dr L) during the subsistence of the mortgage contract, the
proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor
from paying the obligation. In a similar vein, ample protection is given to the mortgagor (Dr. L) under such a concept so that in the
event of death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage
indebtedness.

Consequently, where the mortgagor (DR. l) pays the insurance premium under the group insurance policy, making the loss
payable to the mortgagee (Dbp) , the insurance is on the mortgagor’s interest, and the mortgagor continues to be a party to the contract.
In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the
mortgagee a party to the contract.

Sec. 8 of the Insurance Code provides:

Unless the policy provides, where a mortgagor of property effects insurance in his own name
providing that the loss shall be payable to the mortgagee, or assigns a policy of insurance to a
mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not cease
to be a party to the original contract, and any act of his, prior to the loss, which would otherwise
avoid the insurance, will have the same effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of insurance, is to be performed by the mortgagor,
77
 may be performed by the mortgagee therein named, with the same effect as if it had been performed
by the mortgagor.

The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy stating
that: “In the event of the debtor’s death before his indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay
the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid to the
beneficiary/ies designated by the debtor.”
In this case however, When DBP submitted the insurance claim against Grepalife, the latter denied payment thereof,
interposing the defense of concealment committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the
necessary action of foreclosure on the residential lot of private respondent.

And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an
insurable interest or not, and such person may recover it whatever the insured might have recovered, the widow of the decedent Dr.
Leuterio may file the suit against the insurer, Grepalife.

In private respondent’s memorandum, she states that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor’s
outstanding loan. (kasi naiforeclose na ni DBP ung bahay nila, thus no more utang)

Considering this supervening event, the insurance proceeds shall inure to the benefit of the heirs of the deceased person or his
beneficiaries.

Equity dictates that DBP should not unjustly enrich itself at the expense of another. Hence, it cannot collect the insurance
proceeds, after it already foreclosed on the mortgage. The proceeds now rightly belong to Leuterio’s heirs represented by his
widow.

47. FGU Insurance Corporation, Petitioners, And Estate vs.The Court Of Appeals, San Miguel Corporation, Of Ang Gui, Represented
By Lucio, Julian, And Jaime, All Surnamed Ang, And Co To

Here: contract b/w anco and san mig for delivery of bottles of beer- beeer not delivered- so insurance FGu was sought be liable- but latter
refuses claiming anco and smc and demise on its oblig diligence--: SC: FGU not liable: Gross negligence on part of ANCO (an xcn)

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Facts: Anco enterprises Company (ANCO) is a partnership between the deceased Ang Gui and Co To which is engaged in the shipping business.
ANCO owned M/T ANCO, a tugboat, and D/B Lucio, a barge without its own motor.

At one instance, ANCO was to ship several cases of beer products of San Miguel Corporation (SMC) from Mandaue City, Cebu to Antique and
Iloilo. When the barge and tugboat arrived to Antique, the clouds were already dark and the waves were already big. While unloading the cases, San
Miguel’s District Sales Supervisor, Fernando Macabuag, requested for the barge to be transferred to a safer place as it may not withstand the waves .
ANCO’s representative did not heed the request and continued with the unloading, confident that the barge would hold. Later, however, the crew of
the barge had to abandon the vessel as the rope which attached it to the wharf was cut off by the big waves. This caused the cases of beers were swept
away.

SMC filed a complaint for breach of contract of carriage against ANCO For the failure of ANCO to deliver said cases of beer,. Pending such case,
Ang Gui died and the partnership was dissolved. SMC amended its complaint impleading Co To and the Estate of Ang Gui with its representatives.

ANCO argued that it agreed with SMC that it would not be liable for any losses or damages resulting from a fortuitous event, obliging SMC to insure
the same.

The insurance company, petitioner FGU Insurance Corporation, insured 20,000 cases of beer. As such, ANCO filed a third-party complaint against
FGU Insurance.

FGU admitted to the existence of the insurance policy but countered against liability arguing that ANCO and SMC failed to exercise ordinary
diligence in the case and supervision of the cargoes insured to prevent its loss or destruction.

The RTC held that while the cases of beer were lost due to a fortuitous event, there was failure on ANCO’s part to observe due diligence to avoid
such loss. The trial court ordered the Estate of Ang Gui and Co To liable for such loss, but also ordered FGU to pay 53% of the lost cargoes.

Issue: Whether or not FGU should be liable to pay for the lost cargoes.

Held: No. Pursuant to the Civil Code, common carriers are bound to observe extraordinary diligence in the vigilance over the goods
and for the safety of the passengers transported by them.

Common carriers may be exempted from liability due to force majeure provided that the natural disaster must have been the proximate and
only cause of the loss or injury.

On the other hand, insurance companies are not precluded from being liable even if the loss or destruction of the goods are due to the
negligence of the insured for their failure to exercise due diligence, except when such negligence is so gross. (XCN SA LIABILITY NG
INSURER-IS GROSS NEGLIGENCE-NOT MERE NEGLIGENCE)

*It is a basic rule in insurance that the carelessness and negligence of the insured or his agents constitute no defense on the part of the
insurer. This rule however presupposes that the loss has occurred due to causes which could not have been prevented by the insured, despite
the exercise of due diligence

In this case, the calamity which caused the loss of the cargoes was not unforeseen nor was it unavoidable (THUS THEY SHOULD HAVE
KNOWN IT-THUS NOT LIABLE INSURER.. In fact, the other vessels in the port of San Jose, Antique, managed to transfer to another place, a
circumstance which prompted SMC’s District Sales Supervisor to request that the D/B Lucio be likewise transferred, but to no avail.

The D/B Lucio had no engine and could not maneuver by itself. Even if ANCO’s representatives wanted to transfer it, they no longer
had any means to do so as the tugboat M/T ANCO had already departed, leaving the barge to its own devices. The captain of the
tugboat should have had the foresight not to leave the barge alone considering the pending storm.

Such negligence is considered as blatant negligence on the part of ANCO’s representatives.

According to the Court, while mistake and negligence of the master or crew are incident to navigation and constitute a part of
the perils that the insurer is obliged to incur, -----such negligence or recklessness must not be of such gross character as to
amount to misconduct or wrongful acts; otherwise, such negligence shall release the insurer from liability under the insurance
contract.

Hence, FGU as the insurer, should not be made liable for the gross negligence of ANCO’s representatives which caused the
loss of the cargoes.

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