UCPB GENERAL INSURANCE CO.
, arrangement though actual payment of premium
INC., petitioner,
vs.
MASAGANA TELAMART, INC., respondent.
Facts:
Masagana Telamart obtained from UCPB
five insurance policies on its properties in Pasay
City and Manila all of which reflect on their face the
effectivity term: “from 4 PM of May 22, 1991 to 4PM
of May 22, 1992”. On June 13, 1992, the properties
located in Pasay City were razed by fire.
For years, Petitioner UCPB had been
issuing fire policies to the Masagana, and these
policies were annually renewed. It 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 Masagana, and the copy thereof allegedly sent
to Zuellig was ever transmitted to Masagana.
The premiums for the policies in question in
the aggregate amount of P225,753.95 were paid by
Masagana within the 60- to 90-day credit term and
were duly accepted and received by UCPB’s
cashier.
Masagana made its formal demand for
indemnification for the burned insured properties.
On the same day, UCPB 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) UCPB had put Masagana 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
UCPB’s stand that Masagana’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.
Issue:
Whether the fire insurance policies issued
by petitioner to the respondent covering the period
from May 22, 1991 to May 22, 1992 . . . had been
extended or renewed by an implied credit
was tendered on a later date and after the
occurrence of the (fire) risk insured against.”
Ruling:
Yes. 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.” Section 77 of the Insurance
Code of 1978
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. Section 72 of Act No. 2427
otherwise known as the Insurance Act as amended
by R.A. No. 3540
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.
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.
5. The fifth exception to Section 77 is estoppel.
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 UCPB, which
had consistently granted a 60- to 90-day credit term
for the payment of premiums despite its full GREAT PACIFIC LIFE ASSURANCE
awareness of Section 77. Estoppel bars it from COMPANY, petitioner,
taking refuge under said Section, since Masagana vs.
relied in good faith on such practice. HONORABLE COURT OF
APPEALS, respondents.

Facts:
Private respondent Ngo Hing filed an
application with the Great Pacific Life Assurance
Company for a twenty-year endowment policy in
the amount of P50,000.00 on the life of his one-
year old daughter Helen Go. He supplied the
essential data which the Branch Manager of the
Pacific Life in Cebu City wrote on the
corresponding form in his own handwriting and then
type-wrote the said data on the application form
which was signed by Ngo Hing.
The latter paid the annual premuim the sum
of P1,077.75 going over to the Company, but he
reatined 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 was issued to
Ngo Hing.
Mondragon handwrote at the bottom of the
back page of the application form his strong
recommendation for the approval of the insurance
application. However, Mondragon subsequently
received a letter from Pacific Life disapproving the
insurance application for the reason 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
Mondragon to Ngo Hing. Instead, 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.
Helen Go died of influenza with
complication of broncho-pneumonia. Ngo Hing
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 a decision in favor of Ngo
Hing.
Issue:
Whether or not the binding deposit receipt
constituted a temporary contract of the life
insurance in question.
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.

Ruling:
No. 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.
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.
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.
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

FIRST LEPANTO-TAISHO INSURANCE
CORPORATION (NOW KNOWN AS FLT PRIME
INSURANCE CORPORATION), petitioner,
vs.
CHEVRON PHILIPPINES, INC. (FORMERLY
KNOWN AS CALTEX [PHILIPPINES], INC.),
respondent.
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 the following:
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.
Issue:
Whether or not 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.
The 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.
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.
However, it turned out that Chevron has
executed written agreements only with its direct
customers but not distributors like Fumitechniks
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.

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.
 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.
Art. 2047. By guaranty a person, called the
ASSET BUILDERS CORPORATION, Petitioner,  guarantor, binds himself to the creditor to fulfill the
v.  obligation of the principal debtor in case the latter
STRONGHOLD INSURANCE COMPANY, should fail to do so.
INCORPORATED, Respondent

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
Asset Builders in the amount of P575,000.00 and
P345,000.00 with respect to performance bond.
When Lucky star failed to complete the
project, Asset Builders filed a Complaint for
Rescission with Damages against both before the
RTC.
In its answers, Stronghold denied any
liability arguing that Asset Builders had not shown
any proof that it made an advance payment of the
contract price of the project. It further averred that
Asset Builder’s rescission of its contract with Lucky
Star virtually revoked the claims against the two
bonds and absolved them from further liability.

Issue:
Whether or not respondent insurance
company, as surety, can be held liable under its
bonds.

Ruling:
Yes. Stronghold, 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

KEPPEL CEBU SHIPYARD, INC., Petitioner,
vs.
PIONEER INSURANCE AND SURETY
CORPORATION, Respondent.
Facts:
Keppel Cebu Shipyard, Inc. (KCSI) and
WG&A Jebsens Shipmanagement, Inc. (WG&A)
executed a Shiprepair Agreement wherein Keppel
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 the insurance claim of WG&A, which
in turn, executed a Loss and Subrogation Receipt
in favor of Pioneer.
Pioneer tried to collect from Keppel, but the
latter denied any responsibility for the loss of the
subject vessel. As Keppel continuously refused to
pay despite repeated demands, Pioneer, filed a
Request for Arbitration before the Construction
Industry Arbitration Commission.
Pioneer avers that it has been subrogated
to the claims of WG&A, and that was liable given
that, among others, the proximate cause of the
accident was the negligence of its employee,
Sevillejo (welder). 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.”
Keppel 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.
Issue:
Whether or not Keppel could limit its liability
pursuant to Clauses 20 and 22(a) of the Shiprepair
Agreement.
Ruling:
No. The court cannot accept KCSI’s
insistence on upholding the validity Clause 20,
which provides that the limit of its liability is only up
to ₱50,000,000.00; nor of Clause 22(a), that KCSI
stands as a co-assured in the insurance policies, as
found in the Shiprepair Agreement.
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. 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 in Cebu, he had to sign
the front portion of the Shiprepair Agreement;
otherwise, the vessel would not be accepted for dry
docking.
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.

MALAYAN INSURANCE CO., INC., Petitioner,  hijacked by about 10 armed men. The hijacked
v.  truck was recovered two weeks later without its
PHILIPPINES FIRST INSURANCE CO., INC. and
REPUTABLE FORWARDER SERVICES,
INC., Respondents.
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.
Wyeth procured a Marine Policy from
Philippines First Insurance Co., Inc. 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.
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, 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 with Malayan.
October 6, 1994, during the effectivity of the
Marine Policy and SR Policy, Reputable received
from Wyeth 1,000 boxes of Promil infant formula to
be delivered by Reputable to Mercury Drug
Corporation in Quezon City. Unfortunately, on the
same date, the truck carrying Wyeth’s products was
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.
Ruling:
No. 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:
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 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 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.
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:
"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."
MA. LOURDES S. FLORENDO, Petitioner,
vs.
PHILAM PLANS, INC., PERLA ABCEDE MA.
CELESTE ABCEDE, Respondents.
Facts:
Manuel Florendo filed an application for
comprehensive pension plan with respondent
Philam Plans, Inc. after some convincing by
respondent Perla Abcede. The plan had a pre-need
price of ₱997,050.00, payable in 10 years, and had
a maturity value of ₱2,890,000.00 after 20 years.
Manuel signed the application and left to
Perla the task of supplying the information needed
in the application. Aside from pension benefits, the
comprehensive pension plan also provided life
insurance coverage to Florendo. This was covered
by a Group Master Policy that Philam Life issued to
Philam Plans.
Under the master policy, Philam Life was to
automatically provide life insurance coverage,
including accidental death, to all who signed up for
Philam Plans ’ comprehensive pension plan. If the
plan holder died before the maturity of the plan, his
beneficiary was to instead receive the proceeds of
the life insurance, equivalent to the pre-need price.
Subsequently, Philam Plans issued Pension
Plan Agreement to Manuel, with Ma. Lourdes S.
Florendo, his wife, as beneficiary.
Eleven months later, Manuel died of blood
poisoning. Lourdes filed a claim with Philam Plans
for the payment of the benefits under her husband’s
plan. However, Philam Plans declined Lourdes’
claims due to alleged failure on the part of Manuel
to disclose conditions affecting the risk or his state
of health — he had a pacemaker implanted on his
chest in the 70s or about 20 years before he signed
up for the pension plan.
But Lourdes avers that Philam Plans never
returned the form for completion or queried on
Manuel’s health and approved the plan.
Issue:
Whether or not the incontestability clause
may apply in the case at bar.
Ruling:
YES. The comprehensive pension plan that
Philam Plans issued contains a one-year
incontestability period.
It states: VIII. INCONTESTABILITY: After
this Agreement has remained in force for one (1)
year, we can no longer contest for health reasons
any claim for insurance under this Agreement,
except for the reason that installment has not been
paid (lapsed), or that you are not insurable at the
time you bought this pension program by reason of
age. If this Agreement lapses but is reinstated
afterwards, the one (1) year contestability period
shall start again on the date of approval of your
request for reinstatement. The sais incontestability
clause precludes the insurer from disowning liability
under the policy it issued on the ground of
concealment or misrepresentation regarding the
health of the insured after a year of its issuance.
The above incontestability clause precludes
the insurer from disowning liability under the policy
it issued on the ground of concealment or
misrepresentation regarding the health of the
insured after a year of its issuance.
Since Manuel died on the eleventh month
following the issuance of his plan, 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.
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.
UNITED MERCHANTS CORPORATION, Petitioner,
vs.
COUNTRY BANKERS INSURANCE
CORPORATION, Respondent.
Facts:
United Merchants Corporation is engaged in
the business of buying, selling, and manufacturing
Christmas lights. It leased a warehouse in Barrio
Manresa, Quezon City, where it assembled and
stored its products.
UMC’s General Manager Alfredo Tan
insured UMC’s stocks in trade of Christmas lights
against fire with Country Bankers for P
15,000,000.00. The insurance policy and the fire
invoice are both valid until September of 1996.
On 7 May 1996, UMC and Country Bankers
executed Endorsement F/96-154 and Fire Invoice
No. 16583A to form part of the Insurance Policy.
Endorsement F/96-154 provides that UMCs stocks
in trade were insured against additional perils, to
wit: typhoon, flood, ext. cover, and full earthquake.
The sum insured was also increased to
P50,000,000.00 effective 7 May 1996 to 10 January
1997.
A fire gutted the warehouse rented by UMC.
Hence, UMC sought indemnity from Country
Bankers. Country rejected the claim on the ground
of Condition 15 of the policy which states 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 in his behalf to obtain any
benefit under this Policy; or if the loss or damage
be occasioned by the wilful act, or with the
connivance of the Insured, all the benefits under
this Policy shall be forfeited.”
Country Bankers alleged that UMC’s claim
was fraudulent because UMC’s Statement of
Inventory showed that it had no stocks in trade as
of 31 December 1995, and that UMC’s suspicious
purchases for the year 1996 did not even amount to
P25,000,000.00. UMC’s GIS and Financial Reports
further revealed that it had insufficient capital,
which meant UMC could not afford the
allegedP50,000,000.00 worth of stocks in trade.

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

Ruling:
No. 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.
In the present case, Country Bankers failed
to discharge its primordial burden of establishing
that the damage or loss was caused by arson, a
limitation in the policy. Nevertheless, just because
the defense failed to prove arson does not mean
that fraud does not exist. In fact, fraud exists in this
case.
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. A
fraudulent discrepancy between the actual loss and
that claimed in the proof of loss voids the insurance
policy.
Considering that all the circumstances point
to the inevitable conclusion that UMC padded its
claim and was guilty of fraud, UMC violated
Condition No. 15 of the Insurance Policy. Thus,
UMC forfeited whatever benefits it may be entitled
under the Insurance Policy, including its insurance
claim.
A contract of insurance is a contract of
indemnity and is not a wagering or gambling
contract. While it is based on a contingency, it is
not a contract of chance and is not used for profit
as its very purpose is the reimbursement of the
holder of insurance for actual loss suffered from
specified risks.
 Whether or not Section 3(6) of the Carriage
of Goods by Sea also applies to insurer.

Ruling:
No. Section 3(6) of the Carriage of Goods
by Sea Act states that the carrier and the ship shall
be discharged from all liability for loss or damage to
the goods if no suit is filed within one year after
delivery of the goods or the date when they should
have been delivered.
Under this provision, only the carrier's
liability is extinguished if no suit is brought within
one year. But the liability of the insurer is not
extinguished because the insurer's liability is based
not on the contract of carriage but on the contract
of insurance - governed by the Insurance Code.
An insurance contract is a contract whereby
one party, for a consideration known as the
premium, agrees to indemnify another for loss or
MAYER STEEL PIPE CORPORATION and damage which he may suffer from a specified peril.
HONGKONG GOVERNMENT SUPPLIES An “all risks” insurance policy covers all kinds of
DEPARTMENT, petitioners, loss other than those due to willful and fraudulent
vs. act of the insured. Thus, when private respondents
COURT OF APPEALS, SOUTH SEA SURETY issued the “all risks” policies to Mayer, they bound
AND INSURANCE CO., INC. and the CHARTER themselves to indemnify the latter in case of loss or
INSURANCE CORPORATION, respondents. damage to the goods insured. Such obligation
prescribes in ten years, in accordance with Article
Facts: 1144 of the New Civil Code.
Hongkong Government Supplies
Department contracted Mayer Steel Pipe Corp to
manufacture and supply steel pipes and fittings.
Prior to their shipping, Mayer insured the pipes and
fittings against all risks with South Sea Surety &
Insurance Co., Inc. and Charter Insurance Corp.,
with Industrial Inspection Inc. appointed as third-
party inspector.
After examining the pipes and fittings,
Industrial Inspection certified that they are in good
order condition. However, when the goods reached
Hong Kong, it was discovered that a substantial
portion thereof was damaged.
The trial court ruled in favor of the insured.
However, when the case was elevated to the CA, it
set aside the decision of the trial court and
dismissed the complaint on the ground of
prescription. It held that the action was barred
under Sec. 3(6) of the Carriage of Goods by Sea
Act (COGSA) since it was filed only on April 17,
1986, more than two years from the time the goods
were unloaded from the vessel. The CA ruled that
this provision applies not only to the carrier, but
also to the insurer, citing Filipino Merchants
Insurance Co Inc v Alejandro

Issue:
RCJ BUS LINES, INCORPORATED, Petitioner,
vs.
STANDARD INSURANCE COMPANY,
INCORPORATED, Respondent.

Facts: