356 SCRA 307 (2001)
had been
UCPB General Insurance Co., Inc. V. Masagana
Telemart, Inc.
Facts:
Masagana Telemart [herein Respondent]
obtained from UCPB General Insurance (herein
Petitioner] 5 insurance policies on its properties [in
Pasay City and Manila] All 5 policies reflect on their
face the effectivity term: “from 4:00 P.M. of 22 May
1991 to 4:00 P.M. of 22 May 1992.” On June 13,
1992, plaintiffs’ properties located at 2410-2432
and 2442-2450 Taft Avenue, Pasay City were
razed by fire. For years, Petitioner USPB General
had been issuing fire policies to the Respondent,
and these policies were annually renewed.
Petitioner had been granting Respondent a
60- to 90-day credit term within which to pay the
premiums on the renewed policies. There was no
valid notice of non-renewal of the policies in
question, as there is no proof at all that the notice
sent by ordinary mail was received by Respondent,
and the copy thereof allegedly sent to Zuellig was
ever transmitted to Respondent.
The premiums for the policies in question in
the aggregate amount of P225,753.95 were paid by
Respondent within the 60- to 90-day credit term
and were duly accepted and received by
Petitioner’s cashier.
On July 14, 1992, Masagana made its
formal demand for indemnification for the burned
insured properties. On the same day, defendant
returned the 5 manager’s checks stating in its letter
that it was rejecting Masagana’s claim on the
following grounds: a) Said policies expired last May
22, 1992 and were not renewed for another term; b)
Defendant had put plaintiff and its alleged broker on
notice of non-renewal earlier; and c) The properties
covered by the said policies were burned in a fire
that took place last June 13, 1992, or before tender
of premium payment.”
The trial court and the CA disagreed with
Petitioner’s stand that Respondent’s tender of
payment of the premiums on 13 July 1992 did not
result in the renewal of the policies, having been
made beyond the effective date of renewal as
provided under Policy Condition No. 26. Hence
Masagana filed this case.
Issue:
Whether the fire insurance policies issued
by petitioner to the respondent covering the period
from May 22, 1991 to May 22, 1992 . . .
extended or renewed by an implied credit
arrangement though actual payment of premium
was tendered on a later date and after the
occurrence of the (fire) risk insured against.”
Ruling:
Yes. Section 77 of the Insurance Code of
1978 provides: “An insurer is entitled to payment of
the premium as soon as the thing insured is
exposed to the peril insured against.
Notwithstanding any agreement to the
contrary, no policy or contract of insurance issued
by an insurance company is valid and binding
unless and until the premium thereof has been
paid, except in the case of a life or an industrial life
policy whenever the grace period provision
applies.”
In turn, this Section has its source in
Section 72 of Act No. 2427 otherwise known as the
Insurance Act as amended by R.A. No. 3540 (21
June 1963), which read: SEC. 72. An insurer is
entitled to payment of premium as soon as the
thing insured is exposed to the peril insured
against, unless there is clear agreement to grant
the insured credit extension of the premium due.
No policy issued by an insurance company is valid
and binding unless and until the premium thereof
has been paid.
Exceptions to Section 77:
1. The first exception is provided by Section 77
itself, and that is, in case of a life or industrial life
policy whenever the grace period provision applies.
2. The second is that covered by Section 78 of the
Insurance Code, which provides:
SEC. 78. Any acknowledgment in a policy
or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to
make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until
premium is actually paid. 3. A third exception was
laid down in Makati Tuscany Condominium
Corporation vs. Court of Appeals, wherein we ruled
that Section 77 may not apply if the parties have
agreed to the payment in installments of the
premium and partial payment has been made at the
time of loss. Not only that. In Tuscany, we also
quoted with approval the following pronouncement
of the Court of Appeals in its Resolution denying
the motion for reconsideration of its decision.
Section 78 of the Insurance Code in effect allows
waiver by the insurer of the condition of
prepayment by making an acknowledgment in the
insurance policy of receipt of premium as
conclusive evidence of payment so far as to make
the policy binding despite the fact that premium is
actually unpaid. 4. Tuscany has provided a fourth
exception to Section 77, namely, that the insurer
may grant credit extension for the payment of the
premium. This simply means that if the insurer has
granted the insured a credit term for the payment of
the premium and loss occurs before the expiration
of the term, recovery on the policy should be
allowed even though the premium is paid after the
loss but within the credit term. Moreover, there is
nothing in Section 77 which prohibits the parties in
an insurance contract to provide a credit term within
which to pay the premiums. Finally, it would be
unjust and inequitable if recovery on the policy
would not be permitted against Petitioner, which
had consistently granted a 60- to 90-day credit term
for the payment of premiums despite its full
awareness of Section 77. Estoppel bars it from
taking refuge under said Section, since Respondent
relied in good faith on such practice. Estoppel then
is the fifth exception to Section 77. WHEREFORE,
the Decision is RECONSIDERED and SET ASIDE,
and a new one is hereby entered DENYING the
instant petition for failure of Petitioner to sufficiently
show that a reversible error was committed by the
Court of Appeals in its challenged decision, which
is hereby AFFIRMED in toto. No pronouncement as
to cost. SO ORDERED.
Ruling:
Yes. Upon a meticulous review of the
records and reevaluation of the issues raised in the
motion for reconsideration and the pleadings filed
thereafter by the parties, we resolved to grant the
motion for reconsideration. The following facts, as
found by the trial court and the Court of Appeals,
are indeed duly established:
1. For years, Petitioner had been issuing fire
policies to the Respondent, and these policies were
annually renewed.
2. Petitioner had been granting Respondent a 60-
to 90-day credit term within which to pay the
premiums on the renewed policies.
3. There was no valid notice of non-renewal of the
policies in question, as there is no proof at all that
the notice sent by ordinary mail was received by
Respondent, and the copy thereof allegedly sent to
Zuellig was ever transmitted to Respondent.
4. The premiums for the policies in question in the
aggregate amount of P225,753.95 were paid by
Respondent within the 60- to 90-day credit term
and were duly accepted and received by
Petitioner’s cashier.
The instant case has to rise or fall on the core issue
of whether Section 77 of the Insurance Code of
1978 (P.D. No. 1460) must be strictly applied to
Petitioner’s advantage despite its practice of
granting a 60- to 90-day credit term for the payment
of premiums.
Section 77 of the Insurance Code of 1978 provides:
SECTION 77. An insurer is entitled to payment of
the premium as soon as the thing insured is
exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no
policy or contract of insurance issued by an
insurance company is valid and binding unless and
until the premium thereof has been paid, except in
the case of a life or an industrial life policy
whenever the grace period provision applies.
The first exception is provided by Section 77 itself,
and that is, in case of a life or industrial life policy
whenever the grace period provision applies.
The second is that covered by Section 78 of the
Insurance Code, which provides:
SECTION 78. Any acknowledgment in a policy or
contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to
make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until
premium is actually paid.
A third exception was laid down in Makati Tuscany
Condominium Corporation vs. Court of Appeals,
wherein we ruled that Section 77 may not apply if
the parties have agreed to the payment in
installments of the premium and partial payment
has been made at the time of loss.
By the approval of the aforequoted findings and
conclusion of the Court of Appeals, Tuscany has
provided a fourth exception to Section 77, namely,
that the insurer may grant credit extension for the
payment of the premium. This simply means that if
the insurer has granted the insured a credit term for
the payment of the premium and loss occurs before
the expiration of the term, recovery on the policy
should be allowed even though the premium is paid
after the loss but within the credit term.
Moreover, there is nothing in Section 77 which
prohibits the parties in an insurance contract to
provide a credit term within which to pay the
premiums. That agreement is not against the law,
morals, good customs, public order or public policy.
The agreement binds the parties. Article 1306 of
the Civil Code provides:
ARTICLE 1306. The contracting parties may
establish such stipulations clauses, terms and
conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs,
public order, or public policy.
Finally in the instant case, it would be unjust and
inequitable if recovery on the policy would not be
permitted against Petitioner, which had consistently
granted a 60- to 90-day credit term for the payment
of premiums despite its full awareness of Section
77. Estoppel bars it from taking refuge under said
Section, since Respondent relied in good faith on
such practice. Estoppel then is the fifth exception to
Section 77.
89 SCRA 543
Great Pacific Life Assurance Company v. CA
Facts:
On March 14, 1957, private respondent Ngo
Hing filed an application with the Great Pacific Life
Assurance Company (hereinafter referred to as
Pacific Life) for a twenty-year endowment policy in
the amount of P50,000.00 on the life of his one-
year old daughter Helen Go.
Said respondent supplied the essential data
which petitioner Lapulapu D. Mondragon, Branch
Manager of the Pacific Life in Cebu City wrote on
the corresponding form in his own handwriting
(Exhibit I-M). Mondragon finally type-wrote the data
on the application form which was signed by private
respondent Ngo Hing. The latter paid the annual
premium, the sum of P1,077.75 going over to the
Company, but he retained the amount of P1,317.00
as his commission for being a duly authorized
agent of Pacific Life.
Upon the payment of the insurance
premium, the binding deposit receipt (Exhibit E)
was issued to private respondent Ngo Hing.
Likewise, petitioner Mondragon handwrote at the
bottom of the back page of the application form his
strong recommendation for the approval of the
insurance application. Then on April 30, 1957,
Mondragon received a letter from Pacific Life
disapproving the insurance application (Exhibit 3-
M). The letter stated that the said life insurance
application for 20-year endowment plan is not
available for minors below seven years old, but
Pacific Life can consider the same under the
Juvenile Triple Action Plan, and advised that if the
offer is acceptable, the Juvenile Non-Medical
Declaration be sent to the Company.
The non-acceptance of the insurance plan by
Pacific Life was allegedly not communicated by
petitioner Mondragon to private respondent Ngo
Hing. Instead, on May 6, 1957, Mondragon wrote
back Pacific Life again strongly recommending the
approval of the 20-year endowment life insurance
on the ground that Pacific Life is the only insurance
company not selling the 20-year endowment
insurance plan to children, pointing out that since
1954 the customers, especially the Chinese, were
asking for such coverage (Exhibit 4-M).

It was when things were in such state that on May
28, 1957 Helen Go died of influenza with
complication of broncho-pneumonia. Thereupon,
private respondent sought the payment of the
proceeds of the insurance, but having failed in his
effort, he filed the action for the recovery of the
same before the Court of First Instance of Cebu,
which rendered the adverse decision as earlier
referred to against both petitioners.
Issues:
(1) whether the binding deposit receipt (Exhibit E)
constituted a temporary contract of the life
insurance in question; NO
(2) whether private respondent Ngo Hing concealed
the state of health and physical condition of Helen
Go, which rendered void the aforesaid Exhibit E.
YES.
Ruling:
INSURANCE CONTRACT; “BINDING DEPOSIT
RECEIPT.” — Where the binding deposit receipt is
intended to be merely a provisional or temporary
insurance contract, and that the receipt merely
acknowledged, on behalf of the insurance
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, such
binding deposit receipt does not become in force
until the application is approved.
PERFECTION OF CONTRACT. — A binding
deposit receipt which is merely conditional does not
insure outright. Thus, where an agreement is made
between the applicant and the agent, no liability will
attack until the principal approves the risk and a
receipt is given by the agent. The acceptance is
merely conditional, and is subordinated to the act of
the company in approving or rejecting the
application.
MEETING OF THE MIND. — A contract of
insurance, like other contracts, must be assented to
by both parties either in person or by their agents.
The contract, to be binding from the date of the
application, must have been a completed contract,
one that leaves nothing to be done, nothing to be
completed, nothing to be passed upon, or
determined, before it shall take effect. There can be
no contract of insurance unless the minds of the
parties have met in agreement.
FAILURE OF AGENT TO COMMUNICATE THE
REJECTION TO APPLICANT. — The failure of the
insurance company’s agent to communicate to the
applicant the rejection of the insurance application
would not have any adverse effect on the allegedly
perfected temporary contract. In the first place,
there was no contract perfected between the
parties who had no meeting of their minds. Private
respondent, being an authorized agent is
indubitably aware that said company does not offer
the life insurance applied for. When he filed the
insurance application in dispute he was therefore
only taking a chance that the company will approve
the recommendation of the agent for the
acceptance and approval of the application in
question. Secondly, having an insurable interest on
the life of his daughter, aside from being an
insurance agent and office associate of the branch,
the applicant 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.
CONCEALMENT OF MATERIAL FACT. — The
contract of insurance is one of perfect good faith
(uberrima fides meaning good faith; absolute and
perfect candor or openness and honestly; the
absence of any concealment or deception, however
slight [Black’s Law Dictionary, 2nd Edition], not for
the insured alone but equally so for the insurer.
Concealment is a neglect to communicate that
which a party knows and ought to communicate
(Section 25, Act 2427). Whether intentional or
unintentional, the concealment entities the insurer
to rescind the contract of insurance.
CASE AT BAR. — The failure of the father who
applied for a life insurance policy on the life of his
daughter to divulge the fact that his daughter is a
mongoloid, a congenital physical defect that could
never be disguised, constitutes such concealment
as to render the policy void. And where the
applicant himself is an insurance agent, he ought to
know, as he surely must have known, his duty and
responsibility to supply such a material fact, and his
failure to divulge such significant fact is deemed to
have been done in bad faith.

663 SCRA 309 (2012)
First Lepanto-Taisho Insurance v. Chevron
Phils., Inc.
Facts:
R Chevron Philippines sued P First Lepanto
for the payment of unpaid oil and petroleum
purchases made by its distributor, Fumitechniks.
Fumitechniks had applied for and was
issued a surety bond by First Lepanto for 15.7M –
this was in compliance with the requirement for the
grant of a credit line with Chevron to guarantee
payment of the cost of fuel. (Executed on Oct 15,
2001, will expire on Oct 15, 2002). Fumitechniks
defaulted on its obligation because the check it
issued was dishonored Chevron then notified First
Lepanto of Fumitechniks’ unpaid purchases
(15.08M) through a letter.
Chevron also sent copies of invoices
showing the deliveries of fuel as requested by First
Lepanto. Simultaneously, a letter was sent to
Fumitechniks demanding that it submit to First
Lepanto 1) its comment on Chevron’s notification
letter, 2) copy of the agreement secured by the
Bond plus the delivery receipts, etc 3) information
on the particulars including terms and conditions.
However, Fumitechniks replied that it
cannot submit the requested agreement since there
was no such agreement executed between
Fumitechniks and Chevron. However, it enclosed a
copy of another surety bond issued by CICI
General Insurance Corporation in favor of Chevron
to secure the obligation of Fumitechniks and/or
Prime Asia Sales and Services in the amount of
15M.
First Lepanto then advised Chevron of the
non-existence of the principal agreement as
confirmed by Fumitechniks. It explained that being
an accessory contract, the bond cannot exist
without a principal agreement as it is essential that
the copy of the basic contract be submitted to the
surety.
Chevron then formally demanded from First
Lepanto the payment of its claim under the surety
bond. Because First Lepanto refused to pay,
Chevron prayed for judgment ordering First
Lepanto to pay the sum of 15,080,030.30 pesos
plus interest, cost and attorney’s fees.
RTC: dismissed the complaint. Terms and
conditions of the oral credit line between Chevron
and Fumitechniks have not been relayed to First
Lepanto. Since the surety bond is a mere
accessory contract, the RTC concluded that the
bond cannot stand in the absence of the written
agreement secured thereby.
CA: reversed the RTC’s decision and ruled
in favor of Chevron. First Lepanto is estopped from
assailing the oral credit line agreement, having
consented to the same upon presentation by
Fumitechniks of the surety bond it issued.
Considering that such oral contract between
Fumitechniks and respondent has been partially
executed, the CA ruled that the provisions of the
Statute of Frauds do not apply.
Issue:
W/N a surety is liable to the creditor in the
absence of a written contract with the principal.
Ruling:
YES. Sec 175 of the Insurance Code
defines suretyship as “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.”
The extent of the 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. 
Surety Bond used by First Lepanto states that
Fumitechniks, as principal and First Lepanto as
surety are firmly bound unto Chevron in the sum of
15.7M. The rider attached to the bond that the
principal has applied for a credit line in the amount
of 15.7M pesos.
First Lepanto argues that non-compliance
with the submission of the written agreement, which
by the express terms of the surety bond, should be
attached and made part thereof, rendered the bond
ineffective.
Since all stipulations and provisions of the
surety contract should be taken and interpreted
together, in this case, the unmistakable intention of
the parties was to secure only those terms and
conditions of the written agreement.
A reading of Surety Bond shows that it
secures the payment of purchases on credit by
Fumitechniks in accordance with the terms and disclosure of basic terms and conditions of its
conditions of the "agreement" it entered into with distributorship and credit agreements with its client
respondent. The word "agreement" has reference Fumitechniks after its acceptance of the bond
to the distributorship agreement, the principal delivered by the latter. However, it never made any
contract and by implication included the credit effort to relay those terms and conditions of its
agreement mentioned in the rider. contract with Fumitechniks upon the
However, it turned out that Chevron has commencement of its transactions with said client,
executed written agreements only with its direct which obligations are covered by the surety bond
customers but not distributors like Fumitechniks issued by petitioner."
and it also never relayed the terms and conditions
of its distributorship agreement to the First Lepanto
after the delivery of the bond.  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 obligor 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. (Emphasis supplied.)

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 respondent’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, respondent 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
(respondent) impacts not on the validity or legality
of the surety contract but on the creditor’s right to
demand performance.
First Lepanto should have sent notice of the
specified form of the agreement or at least the

633 SCRA 370 (2010)
Asset Builders Corp. vs. Stonghold Insurance
Company, Inc.
Facts:
Asset Builders Corporation (ABC) entered
into an agreement with Lucky Star Drilling &
Construction Corporation as part of the completion
of its project to construct the ACG Commercial
Complex. To guarantee faithful compliance with
their agreement, Lucky Star engaged respondent
Stronghold which issued two (2) bonds in favor of
petitioner in the amount of P575,000.00 and
P345,000.00 with respect to performance bond.
When Lucky star failed to complete the
project, ABC filed a Complaint for Rescission with
Damages against both before the RTC. In its
answers, Stronghold denied any liability arguing
that ABC had not shown any proof that it made an
advance payment of the contract price of the
project. It further averred that ABC’s rescission of
its contract with Lucky Star virtually revoked the
claims against the two bonds and absolved them
from further liability.
Issue:
or not respondent insurance company, as
surety, can be held liable under its bonds.
Ruling:
Respondent, along with its principal, Lucky
Star, bound itself to the petitioner when it executed
in its favor surety and performance bonds.
The contents of the said contracts clearly
establish that the parties entered into a surety
agreement as defined under Article 2047 of the
New Civil Code which provides that the surety
undertakes to be bound solidarily with the principal
obligor. That 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.
676 SCRA 268 (2012)
Keppel Cebu shipyard v. Pioneer Insurance
Facts:
WG & A JEBSENS SHIPMGMT.
Owner/Operator of M/V “SUPERFERRY 3” and
KEPPEL CEBU SHIPYARD, INC. (KCSI) enter into
an agreement that the Drydocking and Repair of
the above-named vessel ordered by the Owner’s
Authorized Representative shall be carried out
under the Keppel Cebu Shipyard Standard
Conditions of Contract for Ship repair, guidelines
and regulations on safety and security issued by
Keppel Cebu Shipyard.
In the course of its repair, M/V “Superferry
3” was gutted by fire. Claiming that the extent of the
damage was pervasive, WG&A declared the
vessel’s damage as a “total constructive loss” and,
hence, filed an insurance claim with Pioneer.
Pioneer paid the insurance claim of WG&A,
which in turn, executed a Loss and Subrogation
Receipt in favor of Pioneer.
Pioneer tried to collect from KCSI, but the
latter denied any responsibility for the loss of the
subject vessel. As KCSI continuously refused to
pay despite repeated demands, Pioneer, filed a
Request for Arbitration before the Construction
Industry Arbitration Commission CIAC seeking for
payment of U.S.$8,472,581.78 plus interest, among
others.
The CIAC rendered its Decision declaring
both WG&A and KCSI guilty of negligence, the
CIAC ordered KCSI to pay Pioneer the amount of
P25,000,000.00, with interest at 6% per annum.
Both Keppel and Pioneer appealed to the CA.
The cases were consolidated in the CA. the
CA rendered a decision dismissing petitioner’s
claims in its entirety. Keppel was declared as
equally negligent.
Keppel Cebu Shipyard, Inc. (KCSI) and WG&A
Jebsens Shipmanagement, Inc. (WG&A) executed
a Shiprepair Agreement wherein KCSI would
renovate and reconstruct WG&A’s M/V “Superferry
3” using its dry docking facilities pursuant to its
restrictive safety and security rules and regulations.
Prior to this, the vessel was also insured with
Pioneer for $8.47M. In the course of its repair, the
vessel was gutted by fire. WG&A declared its “total
constructive loss” and filed an insurance claim with
Pioneer. Pioneer paid P8.47M for which WG&A
issued a Loss and Subrogation Receipt. Pioneer
then tried to collect from KCSI but the latter
disclaimed responsibility refused to pay despite
repeated demands.
Thus, Pioneer filed a Request for Arbitration before
the Construction Industry Arbitration Commission
(CIAC).
Pioneer avers that it has been subrogated to the
claims of WG&A, and the KCSI was liable given
that, among others, the proximate cause of the
accident was the negligence of its employee,
Sevillejo (welder) in cutting the bulkhead door. On
the other hand, KCSI disclaimed liability, imputing
negligence on “Dr. Joniga’s and the Vessel’s
deliberate decision to have Sevillejo undertake
cutting work in inherently dangerous conditions
created by them.” KCSI also claimed that there was
no proper subrogation and that there was no “total
constructive loss.”
The CIAC ruled that both WG&A and KCSI were
negligent, ordering them to pay Pioneer pro-rata.
The tribunal also held that the parties’ liability was
limited to P50M, and that the arbitration costs be
shouldered proportionately both parties. Both
parties appealed: Pioneer on the amount of
damage, and KCSI on its liability. CA held KCSI
liable for P25M without interest
Issue:
To whom may negligence over the fire that
broke out on board M/V “Superferry 3” be imputed?
What is the extent of the damage, if any?
Ruling:
1. The issue of negligence
Undeniably, the immediate cause of the fire
was the hot work done by Angelino Sevillejo
(Sevillejo) on the accommodation area of the
vessel, specifically on Deck A. As established
before the CIAC –
Pioneer contends that KCSI should be held
liable because Sevillejo was its employee who, at
the time the fire broke out, was doing his assigned
task, and that KCSI was solely responsible for all
the hot works done on board the vessel. We rule in
favor of Pioneer.
At the time of the fire, Sevillejo was an
employee of KCSI and was subject to the latter’s
direct control and supervision.There was a lapse in
KCSI’s supervision of Sevillejo’s work at the time
the fire broke out.
KCSI failed to exercise the necessary
degree of caution and foresight called for by the
circumstances.
The circumstances, taken collectively, yield the
inevitable conclusion that Sevillejo was negligent in
the performance of his assigned task. His
negligence was the proximate cause of the fire on
board M/V “Superferry 3.” As he was then definitely
engaged in the performance of his assigned tasks
as an employee of KCSI, his negligence gave rise
to the vicarious liability of his employer43 under
Article 2180 of the Civil Code.
KCSI failed to prove that it exercised the
necessary diligence incumbent upon it to rebut the
legal presumption of its negligence in supervising
Sevillejo.44 Consequently, it is responsible for the
damages caused by the negligent act of its
employee, and its liability is primary and solidary.
2. Damages
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 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 ¾ 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.
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.
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.
681SCRA 44(2012)
Malayan Insurance Co., v. Phils. First Insurance
Co., Inc.
Facts:
Since 1989, Wyeth Philippines, Inc. (Wyeth)
and respondent Reputable Forwarder Services, Inc.
(Reputable) had been annually executing a contract
of carriage, whereby the latter undertook to
transport and deliver the former’s products to its
customers, dealers or salesmen. On November 18,
1993, Wyeth procured Marine Policy No. MAR
13797 (Marine Policy) from respondent Philippines
First Insurance Co., Inc. (Philippines First) to
secure its interest over its own products.
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, if by land,
and provides a limit of P6,000,000.00 per any one
land vehicle.
On December 1, 1993, Wyeth executed its
annual contract of carriage with Reputable. It
turned out, however, that the contract was not
signed by Wyeth’s representative/s. Nevertheless,
it was admittedly signed by Reputable’s
representatives, the terms thereof faithfully
observed by the parties and, as previously stated,
the same contract of carriage had been annually
executed by the parties every year since 1989.
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, on February 11, 1994, 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
Policy.
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.
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.

Ruling:
`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:
The person insured is the same;
Two or more insurers insuring separately;
There is identity of subject matter;
There is identity of interest insured; and
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 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.
666 SCRA 618 (2012)
Florendo v. Philam Plans, Inc.

Facts: