1.

MALAYAN INSURANCE CORP VS CA AND TKC MARKETING

G.R. No. 119599 March 20, 1997

ROMERO, J.

FACTS:
TKC Marketing Corp. is the owner/consignee of more than 3,000 metric tons of soya bean meal which was
on board a ship from the port of Rio del Grande, Brazil to the port of Manila. The cargo was insured against
the risk of loss by Malayan Insurance Corporation for which it issued two Marine Cargo policies amounting
to P18,986,902.45 and P1,195,005.45.

While the vessel was docked in Durban, South Africa, the civil authorities arrested and detained it because
of a lawsuit on a question of ownership and possession. As a result, TKC Marketing notified Malayan
Insurance of the arrest of the vessel and made a formal claim representing the dollar equivalent on the
policies for non-delivery of the cargo. Malayan Insurance replied that the arrest of the vessel by civil
authority was not a peril covered by the policies. It advised TKC Marketing that it might tranship the cargo
and requested an extension of the insurance coverage until actual transhipment. The insurance coverage
was extended under the same terms and conditions embodied in the original policies. However, the cargo
was sold in Durban, South Africa, for a total of P10.3 million due to its perishable nature which could no
longer stand a voyage of 20 days to Manila and another 20 days for the discharge.

TKC Marketing reduced its claim to P9.8 million representing its loss after the proceeds of the sale were
deducted from the original claim of P20.1 million.

MALAYAN INSURANCE
• Argues that the an arrest by civil authority is not compensable since the term "arrest" refers to
"political or executive acts" and does not include a loss caused by riot or by ordinary judicial process
• The deletion of the Free from capture or Seizure Clause would leave the assured covered solely for
the perils specified by the wording of the policy itself;
• Loss incurred by TKC Marketing was in the nature and form of unrecovered acquisition value brought
about by a voluntary sacrifice sale and not by arrest, detention or seizure of the ship.

TKC MARKETING
• Argues that Malayan Insurance, being the sole author of the policies, "arrests" should be strictly
interpreted against it because the rule is that any ambiguity is to be taken contra proferentum. Risk
policies should be construed reasonably and in a manner as to make effective the intentions and
expectations of the parties.
• Added that the policies clearly stipulate that they cover the risks of non-delivery of an entire package
and that it was Malayan Insurance that invited and granted the extensions and collected premiums.

The lower court decided in favor of TKC Marketing and required Malayan Insurance to pay the insurance
claim together with consequential, liquidated and exemplary damages plus attorney's fees as well as the
costs of the suit.
The Court of Appeals affirmed the decision of the lower court stating that arrests by civil authorities is an
excepted risk. However, the arrest and seizure by judicial processes which were excluded under the
former policy became one of the covered risks. It added that the failure to deliver the consigned goods in
the port of destination is a loss compensable. Furthermore, the appellate court contended that since the
vessel was prevented at an intermediate port from completing the voyage due to its seizure by civil
authorities, the liability of Malayan Insurance continued until the goods could have been transhipped. But
due to the perishable nature of the goods, the goods had to be promptly sold to minimize loss.
Accordingly, the sale of the goods being reasonable and justified should not operate to discharge Malayan
Insurance from its contractual liability.

ISSUE:
Whether or not Malayan Insurance is liable for the insurance claim of TKC Marketing.

RULING:
YES, This Court cannot help the impression that Malayan Insurance petitioner is overly straining its
interpretation of the provisions of the policy in order to avoid being liable for TKC Marketing's claim.

This Court finds it pointless for Malayan Insurance 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 processes when
subsection 1.1 of Section 1 of said Clauses should also have included "arrests" previously excluded from
the coverage of the F.C. & S. Clause.

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 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 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. The deletion of the F.C. & S. Clause and the consequent incorporation of
subsection 1.1 of Section 1 of the Institute War Clauses 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.

Exceptions to the general coverage are construed most strongly against the company. Even an express
exception in a policy is to be construed against the underwriters by whom the policy is framed, and for
whose benefit the exception is introduced.
An insurance contract should be so interpreted as to carry out the purpose for which the parties entered
into the contract which is, to insure against risks of loss or damage to the goods. Such interpretation
should result from the natural and reasonable meaning of language in the policy. Where restrictive
provisions are open to two interpretations, that which is most favorable to the insured is adopted.

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

2. SIMEON DEL ROSARIO vs. THE EQUITABLE INSURANCE AND CASUALTY CO., INC.

G.R. No. L-16215, June 29, 1963

PAREDES J.

Equitable Insurance and Casualty Co., Inc. issued a Personal Accident Policy on the life of Francisco del
Rosario, son of Simeon Del Rosario, binding itself to pay the sum of P1,000 to P3,000, as indemnity for the
death of the insured.

While on board motor launch in the waters of Jolo, Sulu", Francisco del Rosario and Remedios Jayme
(beneficiary of the policy) were forced to jump off due to fire which broke out in the vessel. As a result,
both of them drowned.

As sole heir, Simeon del Rosario filed a claim for payment with the insurance company. Simeon, through
his attorney, acknowledged the receipt of P1,000.00, but informed the company that said amount was
not the correct one. Atty. Francisco claimed that the amount payable should be P1,500 under the
provision of Section 2, part 1 of the policy, based on the rule of pari materia as the death of the insured
occurred under the circumstances similar to that provided under the aforecited section. In a subsequent
letter, Atty. Francisco asked for P3,000 which the Company refused.

Defendant company referred the matter to the Insurance Commissioner, who rendered an opinion that
the liability of the company was only P1,000, pursuant to Section 1, Part I of the Provisions of the policy.
Because of the above opinion, defendant company refused to pay more than P1,000.
A complaint for the recovery of the balance of P2,000 more was instituted with the CFI of Rizal. The trial
court ruled in favor of Del Rosario stating that death by drowning is a ground for recovery apart from the
bodily injury because death by bodily injury is covered by Part I of the policy while death by drowning is
covered by Part VI thereof. But while the policy mentions specific amounts that may be recovered for
death for bodily injury, there is not specific amount mentioned in the policy for death thru drowning
although the latter is, under Part VI of the policy, a ground for recovery thereunder. Since the defendant
has bound itself to pay P1000.00 to P3,000.00 as indemnity for the death of the insured but the policy
does not positively state any definite amount that may be recovered in case of death by drowning, there
is an ambiguity in this respect in the policy, which ambiguity must be interpreted in favor of the insured
and strictly against the insurer so as to allow greater indemnity.

EQUITABLE INSURANCE

• Alleged that the demand or claim is set forth in the complaint had already been released, with Simeon
receiving the full amount due as appearing in policy and as per opinion of the Insurance
Commissioner.

ISSUE: Whether or not Equitable Insurance should be liable for the full amount of P3,000.

RULING:

Yes, All the parties agree that indemnity has to be paid. The conflict centers on how much should the
indemnity be. According to the generally accepted principles or rulings on insurance, which enunciate that
where there is an ambiguity with respect to the terms and conditions of the policy, the same will be
resolved against the one responsible thereof.

Generally, the insured, has little, if any, participation in the preparation of the policy, together with the
drafting of its terms and Conditions. The interpretation of obscure stipulations in a contract should not
favor the party who cause the obscurity (Art. 1377, N.C.C.), which, in this case, is the insurance company.

It has been generally held that the "terms in an insurance policy which are ambiguous, equivocal or
uncertain are to be construed strictly against, the insurer, and liberally in favor of the insured so as to
effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is
involved," (29 Am. Jur. 181). The reason for this rule is that the "insured usually has no voice in the
selection or arrangement of the words employed and that the language of the contract is selected with
great care and deliberation by expert and legal advisers employed by, and acting exclusively in the interest
of, the insurance company". Calanoc v. Court of Appeals, et al. Where two interpretations, equally fair, of
languages used in an insurance policy may be made, that which allows the greater indemnity will prevail.
 3. FORTUNE INSURANCE AND SURETY CO., INC., vs. COURT OF APPEALS and PRODUCERS BANK OF
THE PHILIPPINES

G.R. No. 115278 May 23, 1995

DAVIDE, JR., J.:

FACTS:

Maribeth Alampay, teller of Producers, was carrying P725,000 in cash on board an armored car from its
Pasay Branch to its Head Office at Makati, City. A robbery took place while the armored car was traveling
along Taft Avenue in Pasay City. The armored car was driven by Benjamin Magalong Y de Vera, escorted
by Security Guard Saturnino Atiga Y Rosete. Magalong was assigned by PRC Management Systems to
Producers via an Agreement. Atiga was assigned by Unicorn Security Services, Inc. to Producers by virtue
of a contract of Security Service.

After an investigation conducted by the Pasay police authorities, the driver Magalong and guard Atiga
were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation
of P.D. 532 (Anti-Highway Robbery Law).

FORTUNE INSURANCE

Demands were made by producers upon Fortune to pay the amount of the loss of P725,000, but the latter
refused to pay as it claims that the loss is excluded from the coverage of the insurance policy due to it
being caused by its employee. According to Fortune, when Producers commissioned a guard and a driver
to transfer its funds from one branch to another, they effectively and necessarily became its authorized
representatives in the care and custody of the money. Assuming that they could not be considered
authorized representatives, they were, nevertheless, employees of Producers. It asserts that the existence
of an employer-employee relationship

PRDUCERS BANK

Producers contends that Magalong and Atiga were not its employees since it had nothing to do with their
selection and engagement, the payment of their wages, their dismissal, and the control of their conduct.
Producers argued that the rule in International Timber Corp. is not applicable to all cases but only when
it becomes necessary to prevent any violation or circumvention of the Labor Code, a social legislation
whose provisions may set aside contracts entered into by parties in order to give protection to the working
man.
The trial court rendered a decision in favor of Producers. It ordered Fortune to pay the net amount of
P540,000 as mitigated by the P40,000 special clause deduction and by the recovered sum of P145,000. It
stated that Magalong and Atiga are not employees or representatives of Producers.

The Court of Appeals agreed with the trial court and stated that policy or contract of insurance is to be
construed liberally in favor of the insured and strictly against the insurance company Contracts of
insurance are to be construed according to the sense and meaning of the terms which the parties
themselves have used. If such terms are clear and unambiguous, they must be taken and understood in
their plain, ordinary and popular sense

The language used in the contract stipulation is plain, ordinary and simple. No other interpretation is
necessary. The word "employee" must be taken to mean in the ordinary sense.

The Labor Code is a special law specifically dealing with/and specifically designed to protect labor and
therefore its definition as to employer-employee relationships insofar as the application/enforcement of
said Code is concerned must necessarily be inapplicable to an insurance contract which defendant-
appellant itself had formulated. Had it intended to apply the Labor Code in defining what the word
"employee" refers to, it must/should have so stated expressly in the insurance policy.

Said driver and security guard cannot be considered as employees of Producers bank because it has no
power to hire or to dismiss said driver and security guard under the contracts except only to ask for their
replacements from the contractors.

ISSUE: Whether or not Fortune Insurance is liable for the loss of cash in the robbery.

RULING:

No, it is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from
protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or
having unrestricted access to Producers' money or payroll. When it used then the term "employee," it
must have had in mind any person who qualifies as such as generally and universally understood, or
jurisprudentially established in the light of the four standards in the determination of the employer-
employee relationship, or as statutorily declared even in a limited sense as in the case of Article 106 of
the Labor Code which considers the employees under a "labor-only" contract as employees of the party
employing them and not of the party who supplied them to the employer.
Producers, however, insists that by the express terms thereof, it is not the employer of Magalong.
Notwithstanding such express assumption of PRC Management Systems and Unicorn Security Services
that the drivers and the security guards each shall supply to Producers are not the latter's employees, it
may, in fact, be that it is because the contracts are, indeed, "labor-only" contracts. Whether they are is,
in the light of the criteria provided for in Article 106 of the Labor Code, a question of fact. Since the parties
opted to submit the case for judgment on the basis of their stipulation of facts which are strictly limited
to the insurance policy, the contracts with PRC Management Systems and Unicorn Security Services, the
complaint for violation of P.D. No. 532, and the information therefor filed by the City Fiscal of Pasay City,
there is a paucity of evidence as to whether the contracts between Producers and PRC Management
Systems and Unicorn Security Services are "labor-only" contracts.

Atiga and Magalong as considered as Representatives

Granting for the sake of argument that these contracts were not "labor-only" contracts, and PRC
Management Systems and Unicorn Security Services were truly independent contractors, the Court is
satisfied that Magalong and Atiga were "authorized representatives" of Producers who served as such
with its teller. Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer
the money to its head office. In short, the three acted as agents of Producers. A "representative" is defined
as one who represents or stands in the place of another; one who represents others or another in a special
capacity, as an agent, and is interchangeable with "agent."

The insurance policy entered into by the parties is a theft or robbery insurance policy which is a form of
casualty insurance. Section 174 of the Insurance Code provides:

Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap,
excluding certain types of loss which by law or custom are considered as falling exclusively within the scope
of insurance such as fire or marine. It includes, but is not limited to, employer's liability insurance, public
liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance,
personal accident and health insurance as written by non-life insurance companies, and other substantially
similar kinds of insurance.

Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no other
provisions applicable to casualty insurance or to robbery insurance. These contracts are governed by the
general provisions applicable to all types of insurance. Outside of these, the rights and obligations of the
parties must be determined by the terms of their contract, taking into consideration its purpose and
always in accordance with the general principles of insurance law.

It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud the
insurer is so great that insurers have found it necessary to fill up their policies with countless restrictions
designed to reduce this hazard. Seldom does the insurer assume the risk of all losses due to the hazards
insured against." Persons frequently excluded under such provisions are those in the insured's service and
employment. The purpose of the exception is to guard against liability should the theft be committed
by one having unrestricted access to the property. In such cases, the terms specifying the excluded
classes are to be given their meaning as understood in common speech. The terms "service" and
"employment" are generally associated with the idea of selection, control, and compensation.

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against
the insurer, or 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 obligation. It goes without saying then that if the
terms of the contract are clear and unambiguous, there is no room for construction and such terms cannot
be enlarged or diminished by judicial construction.

An insurance contract is a contract of indemnity upon the terms and conditions specified therein. It is
settled that the terms of the policy constitute the measure of the insurer's liability. In the absence of
statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit
their liability and to impose whatever conditions they deem best upon their obligations not inconsistent
with public policy.

In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the
insurance policy.

4. FIDELITY & SURETY CO. V. VERENDIA & CA

G.R. No. 75605

FACTS: Petitioner Rafael Verendia's residential building located at Tulip Drive, Beverly Hills, Antipolo, Rizal
was insured with Fidelity and Surety Insurance Company covering Verendia’s building in the amount of
P385,000 and two others, Country Bankers Insurance for P50,000 and Development Insurance for
P400,000, with Monte de Piedad & Savings Bank as beneficiary. The insured building was completely
destroyed by fire. With this, petitioner claim for the insurance on which Fidelity refused to give depending
on its issued Fire Insurance Policy F-1887. Fidelity, among other things, averred that the policy was
avoided by reason of over-insurance, that Verendia maliciously represented that the building at the time
of the fire was leased under a contract executed on 25 June 1980 to a certain Roberto Garcia,
when actually it was a Marcelo Garcia who was the lessee.

ISSUE: Whether or not Verendia forfeited all benefits due to his presentation of a false declaration
(contract signed by Roberto, when in fact it was Marcelo Garcia who signed it) to support his claim.

HELD: Yes. Verendia, having presented a false declaration to support his claim for benefits in the form of
a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13 of the policy in the
absence of proof that Fidelity waived such provision. Worse yet, by presenting a false lease contract,
Verendia, reprehensibly disregarded the principle that insurance contracts are uberrimae fidae (utmost
good faith) and demand the most abundant good faith

Based on previously decided cases:

Basically, a contract of indemnity, an insurance contract is the law between the parties. Its terms and
conditions constitute the measure of the insurer's liability and compliance therewith is a condition
precedent to the insured's right to recovery from the insurer. As it is also a contract of adhesion, an
insurance contract should be liberally construed in favor of the insured and strictly against the insurer
company which usually prepares it.

Considering, however, the foregoing discussion pointing to the fact that Verendia used a false lease
contract to support his claim under Fire Insurance Policy No. F-18876, the terms of the policy should be
strictly construed against the insured. Verendia failed to live by the terms of the policy, specifically Section
13 thereof which is expressed in terms that are clear and unambiguous, that all benefits under the policy
shall be forfeited "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 devises are used by the Insured or anyone acting in his
behalf to obtain any benefit under the policy.”

5. NEW LIFE ENTERPRISES V. CA

G.R. NO. 94071

FACTS: Julian Sy and Jose Sy Bang formed a business partnership in Lucena City named New Life
Enterprises which is engaged in the sale of construction materials at its place of business, a two-story
building situated at Iyam, Lucena City. Julian Sy insured the stocks in trade of New Life Enterprises with
Western Guaranty Corporation, Reliance Surety and Insurance Co. Inc. and Equitable Insurance
Corporation. Western Guaranty, Corporation issued Fire Insurance Policy in the amount of P350,000 on
May 15, 1981. Reliance Surety and Insurance Co. issued Fire Insurance Policy No. 69135 in the amount of
P300,000. An additional insurance was issued by the same company with the amount of P700,000. On
February 8, 1982, Equitable Insurance Corporation issued a Fire Insurance Policy in the amount of
P200,000.

On October 19, 1982, 2am, the building occupied by New Life Enterprises was gutted by fire. The stocks
in the trade inside the building were insured against fire in the total amount of P1,550,000. The cause of
the fire was electrical in nature according to the Philippine Constabulary/Integrated National Police.

Julien Sy then we to the agent of Reliance Insurance and asked him to accompany him to the company’s
office in order for him to file the claim. He then further testified that the three insurance companies are
sister companies, and as a matter of fact when he was following-up with Equitable Insurance, the Claims
Manager told him to 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. Ultimately, the three insurance
companies denied plaintiffs’ claim for payment. The Western Guaranty Corporation told the plaintiff that
his claim is “denied for breach of policy conditions”, and that the two other companies reacted with the
same tenor. Julian Sy was also informed that he violated Policy Condition No. 3 and 27. Policy No. 3 and
27 which requires the insured to give notice of any insurance or insurances already affected covering the
stocks in trade.

Sy filed for 3 different suits in the trial court, where he won all suits against the insurance companies. The
court of appeals reversed the decision of the trial court.

ISSUE: Did the petitioner violate conditions 3 and 27 of the three insurance policies, thereby foreiting
collection of indemnities?

RULING: Yes. Sy never disclosed co-insurance in the contracts he entered with the three corporations.
The insured is specifically required to disclose the insurance that he had contracted with other companies.
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.

Condition 3. The insured shall give notice to the Company of any insurance or insurances already
effected, 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 on 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 loss or damage not more
than P200,000.00. When the words of the document are readily understandable by an ordinary reader,
there is no need for construction anymore.

The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance and thus
avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing the situation
in which a fire would be profitable to the insured.

27. Action or suit clause. — If a claim be made and rejected and an action or suit be not commenced either
in the Insurance Commission or any court of competent jurisdiction of notice of such rejection, or in case
of arbitration taking place as provided herein, within twelve (12) months after due notice of the award
made by the arbitrator or arbitrators or umpire, then the claim shall for all purposes be deemed to have
been abandoned and shall not thereafter be recoverable hereunder.
This is regarding Sy’s claim for one of the companies. Recovery was filed in court by petitioners only on
January 31, 1984, or after more than one (1) year had elapsed from petitioners' receipt of the insurers'
letter of denial on November 29, 1982. This made it void.

6. NATIONAL POWER CORPORATION v CA and PHILIPPINE AMERICAN GENERAL INSURANCE CO. INC

G.R. No. L-43706

FACTS: The National Power Corporation (NPC) entered into a contract with the Far Eastern Electric, Inc.
(FFEI) on December 26, 1962 for the erection of the Angat Balintawak 115-KW-3-Phase transmission lines
for the Angat Hydroelectric Project.FFEI agreed to complete the work within 120 days from the signing of
the contract, otherwise it would pay NPC P200.00 per calendar day as liquidated damages, while NPC
agreed to pay the sum of P97,829.00 as consideration. On the other hand, Philippine American General
Insurance Co. Inc (Philmagen) issued a surety bond in the amount of P30,672.00 for the faithful
performance of the undertaking by FEEI, as required.

The condition of the bond reads:

The liability of the PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC. under
this bond will expire One (1) year from final Completion and Acceptance and said bond
will be cancelled 30 days after its expiration, unless surety is notified of any existing
obligation thereunder. Should the Contractor fail to complete the construction of the
work as herein specified and agreed upon, or if the work is abandoned, ... the Corporation
shall have the power to take over the work by giving notice in writing to that effect to the
Contractor and his sureties of its intention to take over the construction work. In the
event the corporation takes over the work from the Contractor, the latter and his
bondsmen shall continue to be liable under this contract for any expense in the
completion of the work in excess of the contract price and the bond filed by the
Contractor shall be answerable for the same and for any and all damages that the
Corporation may suffer as a result thereof

. The work was abandoned by FEEI due to unavailability of materials and financial difficulties, leaving the
work unfinished on June 26, 1963. ON July 19, 1963 NPC wrote Philamgen informing it of the withdrawal
of FEEI from the work and formally holding both FEEI and Philamgen liable for the cost of the work to be
completed as of July 20, 1962 plus damages.

On January 30, 1967 NPC notified Philamgen th at FEEI had an outstanding obligation in the amount of
P75,019.85, exclusive of interest and damages, and demanded the remittance of the amount of the surety
bond the answer for the cost of completion of the work. In reply, Philamgen requested for a detailed
statement of account, but after receipt of the same, Philamgen did not pay as demanded but contended
instead that its liability under the bond has expired on September 20, 1964 and claimed that no notice of
any obligation of the surety was made within 30 days after its expiration

ISSUE:

Whether or not there is compliance by NPC with the notice requirement as a condition in order to hold
the surety philamgen liable under the bond.

RULING: Yes. evidence on record shows that as early as May 30, 1963, Philamgen was duly informed of
the failure of its principal to comply with its undertaking. In fact, said notice of failure was also signed by
its Assistant Vice President. On July 19, 1963, when FEEI informed NPC that it was abandoning the
construction job, the latter forthwith informed Philamgen of the fact on the same date. Moreover, on
August 1, 1963, the fact that Philamgen was seasonably notified, was even bolstered by its request from
NPC for information of the percentage completed by the bo nd principal prior to the relinquishment of
the job to the latter and the reason for said relinquishment. The 30-day notice adverted to in the surety
bond applies to the completion of the work by the contractor. This completion by the contractor never
materialized.
The surety bond must be read in its entirety and together with the contract between NPC and the
contractors. The provisions must be construed together to arrive at their true meaning. Certain
stipulations cannot be segregated and then made to control.

Furthermore, it is well settled that contracts of insurance are to be construed liberally in favor of the
insured and strictly against the insurer. Thus ambiguity in the words of an insurance contract should be
interpreted in favor of its beneficiary.

In the case at bar, it cannot be denied that the breach of contract in this case, that is, the abandonment
of the unfinished work of the transmission line of the petitioner by the contractor Far Eastern Electric,
Inc. was within the effective date of the contract and the surety bond. Such abandonment gave rise to
the continuing liability of the bond as provided for in the contract which is deemed incorporated in the
surety bond executed for its completion. To rule therefore that private respondent was not properly
notified would be gross error

7. VIOLETA R. LALICAN vs. THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS

REPRESENTED BY THE PRESIDENT VICENTE R. AVILON
G.R. No. 183526 | August 25, 2009

FACTS: During his lifetime, Eulogio applied for an insurance policy with Insular Life. Through Josephine
Malaluan (agent in Gapan City), Policy No. 9011992 was issued containing a 20-Year Endowment Variable
Income Package Flexi Plan (worth ₱1.5 M) to be paid on a quarterly basis. Violeta, his wife, was named as
the primary beneficiary.

According to the Policy Contract, there was 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 first two premiums (24 July 1997 and 24 October 1997) but failed to pay the subsequent
one (24 January 1998) even with the 31-day grace period. The insurance policy, therefore, lapsed and
became void.

Eulogio’s first try to apply for its reinstatement was not successful. However, on 17 September 1998,
Eulogio went to Malaluan’s house and submitted a second Application for Reinstatement, including the
amount of ₱17,500, representing payments for the overdue interest on the premium for 24 January 1998,
and the premiums which became due on 24 April 1998 and 24 July 1998. As Malaluan was away on a
business errand, her husband received Eulogio’s second Application for Reinstatement and issued a receipt
for the amount Eulogio deposited.

On the same day, Eulogio died of cardio-respiratory arrest secondary to electrocution. Without knowing of
Eulogio’s death, Malaluan forwarded Eulogio’s second Application for Reinstatement and ₱17,500.00
deposit.

Violeta then filed with Insular Life a claim for payment of the full proceeds of the insurance policy.

Insular Life informed Violeta that her claim could not be granted since, at the time of Eulogio’s death, Policy
No. 9011992 had already lapsed, and Eulogio failed to reinstate the same. According to the Application for
Reinstatement, the policy would only be considered reinstated upon approval of the application by Insular
Life during the applicant’s "lifetime and good health," and whatever amount the applicant paid in connection
thereto was considered to be a deposit only until approval of said application. Enclosed with the letter of
Insular Life to Violeta was DBP Check No. 0000309734, for the amount of ₱25,417.00, drawn in Violeta’s
favor, representing the full refund of the payments made by Eulogio.

Violeta’s counsel subsequently sent a letter to Insular Life, demanding payment of the full proceeds of
Policy No. 9011992. Insular Life responded to the said demand letter by agreeing to conduct a re-evaluation
of Violeta’s claim.

Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the RTC a Complaint for
Death Claim Benefit. Violeta alleged that Insular Life engaged in unfair claim settlement practice and
deliberately failed to act with reasonable promptness on her insurance claim. Violeta prayed that Insular
Life be ordered to pay her death claim benefits in the amount of ₱1,500,000.00, plus interests, attorney’s
fees, and cost of suit.

Insular Life: Asserted that Violeta’s Complaint had no legal or factual bases. Insular Life maintained that
Policy No. 9011992, on which Violeta sought to recover, was rendered void by the non-payment of the 24
January 1998 premium and non-compliance with the requirements for the reinstatement of the same. By
way of counterclaim, Insular Life prayed that Violeta be ordered to pay attorney’s fees and expenses of
litigation incurred by the former.

RTC: Dismissed the claim for death benefits. It found that Policy No. 9011992 had indeed lapsed and
Eulogio needed to have the same reinstated.

ISSUES: Whether Eulogio successfully reinstated the lapsed insurance policy on his life before his death.

RULING: NO. That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogio’s filing of his
first Application for Reinstatement with Insular Life, through Malaluan constitutes an admission that Policy
No. 9011992 had lapsed by then.

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 policy.
The Policy Contract between Eulogio and Insular Life identified the following conditions for reinstatement
should the policy lapse:

“You may reinstate this policy at any time within three years after it lapsed if the following conditions
are met: (1) the policy has not been surrendered for its cash value or the period of extension as a
term insurance has not expired; (2) evidence of insurability satisfactory to [Insular Life] is furnished;
(3) overdue premiums are paid with compound interest at a rate not exceeding that which would have
been applicable to said premium and indebtedness in the policy years prior to reinstatement; and (4)
indebtedness which existed at the time of lapsation is paid or renewed.”

Additional conditions for reinstatement of a lapsed policy were stated in the Application for Reinstatement
which Eulogio signed and submitted, to wit:

“I/We agree that said Policy shall not be considered reinstated until this application is approved by
the Company during my/our lifetime and good health and until all other Company requirements for
the reinstatement of said Policy are fully satisfied.

I/We further agree that any payment made or to be made in connection with this application shall be
considered as deposit only and shall not bind the Company until this application is finally approved
by the Company during my/our lifetime and good health. If this application is disapproved, I/We also
agree to accept the refund of all payments made in connection herewith, without interest, and to
surrender the receipts for such payment.”
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.

Relevant herein is the 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."

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.

Violeta did not adduce any evidence that Eulogio might have failed to fully understand the import and
meaning of the provisions of his Policy Contract and/or Application for Reinstatement, both of which he
voluntarily signed. While it is a cardinal principle of insurance law that a policy or contract of insurance is to
be construed liberally in favor of the insured and strictly as against the insurer company, yet, contracts of
insurance, like other contracts, are to be construed according to the sense and meaning of the terms, which
the parties themselves have used. If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary and popular sense.

Eulogio’s death, just hours after filing his Application for Reinstatement and depositing his payment for
overdue premiums and interests with Malaluan, does not constitute a special circumstance that can
persuade this Court to already consider Policy No. 9011992 reinstated. Said circumstance cannot override
the clear and express provisions of the Policy Contract and Application for Reinstatement and operate to
remove the prerogative of Insular Life thereunder to approve or disapprove the Application for
Reinstatement. Even though the Court commiserates with Violeta, as the tragic and fateful turn of events
leaves her practically empty-handed, the Court cannot arbitrarily burden Insular Life with the payment of
proceeds on a lapsed insurance policy. Justice and fairness must equally apply to all parties to a case.
Courts are not permitted to make contracts for the parties. The function and duty of the courts consist simply
in enforcing and carrying out the contracts actually made.

Policy No. 9011992 remained lapsed and void, not having been reinstated in accordance with the Policy
Contract and Application for Reinstatement before Eulogio’s death. Violeta, therefore, cannot claim any
death benefits from Insular Life on the basis of Policy No. 9011992; but she is entitled to receive the full
refund of the payments made by Eulogio thereon.

8. ALPHA INSURANCE AND SURETY CO. vs. ARSENIA SONIA CASTOR

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

FACTS: Respondent entered into a contract of insurance with petitioner involving her motor vehicle, a
Toyota Revo DLX DSL. The contract of insurance obligates the petitioner to pay the respondent the amount
of ₱630,000 in case of loss or damage to said vehicle during the period covered, which is from February
26, 2007 to February 26, 2008.

One day, the respondent instructed her driver, Jose Joel Salazar Lanuza (Lanuza), to bring the above-
described vehicle to a nearby auto-shop for a tune-up. However, Lanuza no longer returned the motor
vehicle to respondent and despite diligent efforts to locate the same, said efforts proved futile. However,
petitioner denied the insurance claim of respondent on the ground that the said insurance policy provides
that: The Company shall not be liable for any malicious damage caused by the Insured, any member of his
family or by “A PERSON IN THE INSURED’S SERVICE.”

Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before the
RTC.

RTC: Ruled in favor of the respondent.

CA: Affirming in toto the RTC of Quezon City’s decision.

ISSUE: Whether the theft perpetrated by the driver of the insured is an exception to the coverage from the
insurance policy of respondent.

RULING: NO. Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft
perpetrated by the driver of the insured is not an exception to the coverage from the insurance policy, since
Section III thereof did not qualify as to who would commit the theft. Thus:

“Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance
policy subject of this case. This is evident from the very provision of Section III – "Loss or Damage."
The insurance company, subject to the limits of liability, is obligated to indemnify the insured against
theft. Said provision does not qualify as to who would commit the theft. Thus, even if the same is
committed by the driver of the insured, there being no categorical declaration of exception, the same
must be covered. As correctly pointed out by the plaintiff, "(A)n insurance contract should be
interpreted as to carry out the purpose for which the parties entered into the contract which is to
insure against risks of loss or damage to the goods. Such interpretation should result from the natural
and reasonable meaning of language in the policy. Where restrictive provisions are open to two
interpretations, that which is most favorable to the insured is adopted." The defendant would argue
that if the person employed by the insured would commit the theft and the insurer would be held
liable, then this would result to an absurd situation where the insurer would also be held liable if the
insured would commit the theft. This argument is certainly flawed. Of course, if the theft would be
committed by the insured himself, the same would be an exception to the coverage since in that case
there would be fraud on the part of the insured or breach of material warranty under Section 69 of
the Insurance Code.”

Moreover, contracts of insurance, like other contracts, are to be construed according to the sense and
meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous,
they must be taken and understood in their plain, ordinary and popular sense.8 Accordingly, in interpreting
the exclusions in an insurance contract, the terms used specifying the excluded classes therein are to be
given their meaning as understood in common speech.

Adverse to petitioner’s claim, the words "loss" and "damage" mean different things in common ordinary
usage. The word "loss" refers to the act or fact of losing, or failure to keep possession, while the word
"damage" means deterioration or injury to property.

Therefore, petitioner cannot exclude the loss of respondent’s vehicle under the insurance policy under
paragraph 4 of "Exceptions to Section III," since the same refers only to "malicious damage," or more
specifically, "injury" to the motor vehicle caused by a person under the insured’s service. Paragraph 4
clearly does not contemplate "loss of property," as what happened in the instant case.

Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one of the
exceptions from coverage, is the damage that is the direct result from the deliberate or willful act of the
insured, members of his family, and any person in the insured’s service, whose clear plan or purpose was
to cause damage to the insured vehicle for purposes of defrauding the insurer, viz.:

This interpretation by the Court is bolstered by the observation that the subject policy appears to
clearly delineate between the terms "loss" and "damage" by using both terms throughout the said
policy. x x x

xxxx

If the intention of the defendant-appellant was to include the term "loss" within the term "damage"
then logic dictates that it should have used the term "damage" alone in the entire policy or otherwise
included a clear definition of the said term as part of the provisions of the said insurance contract.
Which is why the Court finds it puzzling that in the said policy’s provision detailing the exceptions to
the policy’s coverage in Section III thereof, which is one of the crucial parts in the insurance contract,
the insurer, after liberally using the words "loss" and "damage" in the entire policy, suddenly went
specific by using the word "damage" only in the policy’s exception regarding "malicious damage."
Now, the defendant-appellant would like this Court to believe that it really intended the word
"damage" in the term "malicious damage" to include the theft of the insured vehicle.

The Court does not find the particular contention to be well taken.

True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be construed
according to the sense and meaning of the terms which the parties thereto have used. In the case of
property insurance policies, the evident intention of the contracting parties, i.e., the insurer and the assured,
determine the import of the various terms and provisions embodied in the policy. However, when the terms
of the insurance policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree
about the meaning of particular provisions, the policy will be construed by the courts liberally in favor of the
assured and strictly against the insurer.

Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the insurance contract
contain limitations on liability, courts should construe them in such a way as to preclude the insurer from
non-compliance with his obligation. Thus, in Eternal Gardens Memorial Park Corporation v. Philippine
American Life Insurance Company,11 this Court ruled –

It must be remembered that an insurance contract is a contract of adhesion which must be construed
liberally in favor of the insured and strictly against the insurer in order to safeguard the latter’s interest.
Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court held that:

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

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above
ruling, stating that:

“When the terms of insurance contract contain limitations on liability, courts should construe them in
such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of
adhesion, the terms of an insurance contract are to be construed strictly against the party which
prepared the contract, the insurer. By reason of the exclusive control of the insurance company over
the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against
the insurer and liberally in favor of the insured, especially to avoid forfeiture.”

9 . FORTUNE MEDICARE, INC. vs. DAVID ROBERT U. AMORIN

G.R. No. 195872 | March 12, 2014

FACTS: David Robert U. Amorin was a cardholder/member of Fortune Medicare, Inc., a corporation
engaged in providing health maintenance services to its members. The terms of Amorin's medical coverage
were provided in a Corporate Health Program Contract which was executed by Fortune Care and the House
of Representatives, where Amorin was a permanent employee.

While on vacation in Honolulu, Hawaii, underwent an emergency surgery, specifically appendectomy, at

the St. Francis Medical Center, causing him to incur professional and hospitalization expenses of
US$7,242.35 and US$1,777.79, respectively. He attempted to recover from Fortune Care the full amount
thereof upon his return to Manila, but the company merely approved a reimbursement of ₱12,151.36, an
amount that was based on the average cost of appendectomy, net of medicare deduction, if the procedure
were performed in an accredited hospital in Metro Manila. Amorin received under protest the approved
amount, but asked for its adjustment to cover the total amount of professional fees which he had paid, and
80% of the approved standard charges based on "American standard", considering that the emergency
procedure occurred in the U.S.A. To support his claim, Amorin cited Section 3, Article V on Benefits and
Coverages of the Health Care Contract.

Still, Fortune Care denied Amorin’s request, prompting the latter to file a complaint for breach of contract
with damages.

For its part, Fortune Care argued that the Health Care Contract did not cover hospitalization costs and
professional fees incurred in foreign countries, as the contract’s operation was confined to Philippine
territory. Further, it argued that its liability to Amorin was extinguished upon the latter’s acceptance from the
company of the amount of ₱12,151.36.

RTC: Dismissed Amorin’s complaint citing Section 3, Article V of the Health Care Contract. The trial court
held the clause providing for reimbursement in case of emergency operation in a foreign territory equivalent
to 80% of the approved standard charges which shall cover hospitalization costs and professional fees, can
only be reasonably construed in connection with the preceding clause on professional fees to give meaning
to a somewhat vague clause. A particular clause should not be studied as a detached and isolated
expression, but the whole and every part of the contract must be considered in fixing the meaning of its
parts.

In the absence of evidence to the contrary, the trial court considered the amount of ₱12,151.36 already
paid by Fortune Care to Amorin as equivalent to 80% of the hospitalization and professional fees payable
to the latter had he been treated in an affiliated hospital.

CA: Reversed and set aside RTC decision. It pointed out that, first, health care agreements such as the
subject Health Care Contract, being like insurance contracts, must be liberally construed in favor of the
subscriber. In case its provisions are doubtful or reasonably susceptible of two interpretations, the
construction conferring coverage is to be adopted and exclusionary clauses of doubtful import should be
strictly construed against the provider. Second, the CA explained that there was nothing under Article V of
the Health Care Contract which provided that the Philippine standard should be used even in the event of
an emergency confinement in a foreign territory.

ISSUE: Whether or not Fortune Care is liable to the member for the amount demanded by the latter.

RULING: YES. For purposes of determining the liability of a health care provider to its members,
jurisprudence holds that a health care agreement is in the nature of non-life insurance, which is primarily a
contract of indemnity. Once the member incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent
agreed upon under the contract.

To aid in the interpretation of health care agreements, the Court laid down the following guidelines in
Philamcare Health Systems v. CA:

“When the terms of insurance contract contain limitations on liability, courts should construe them in
such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of
adhesion, the terms of an insurance contract are to be construed strictly against the party which
prepared the contract – the insurer. By reason of the exclusive control of the insurance company
over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted
against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally
applicable to Health Care Agreements. The phraseology used in medical or hospital service
contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful
or reasonably susceptible of two interpretations the construction conferring coverage is to be
adopted, and exclusionary clauses of doubtful import should be strictly construed against the
provider.”

Consistent with the foregoing, we reiterated in Blue Cross Health Care, Inc. v. Spouses Olivares:

In Philamcare Health Systems, Inc. v. CA, we ruled that a health care agreement is in the nature of
a non-life insurance. It is an established rule in insurance contracts that when their terms contain
limitations on liability, they should be construed strictly against the insurer. These are contracts of
adhesion the terms of which must be interpreted and enforced stringently against the insurer which
prepared the contract. This doctrine is equally applicable to health care agreements.

xxxx

x x x [L]imitations of liability on the part of the insurer or health care provider must be construed in
such a way as to preclude it from evading its obligations. Accordingly, they should be scrutinized by
the courts with "extreme jealousy" and "care" and with a "jaundiced eye."

In the instant case, the extent of Fortune Care’s liability to Amorin under the attendant circumstances was
governed by Section 3(B), Article V of the subject Health Care Contract, considering that the appendectomy
which the member had to undergo qualified as an emergency care, but the treatment was performed at St.
Francis Medical Center in Honolulu, Hawaii, U.S.A., a non-accredited hospital. We restate the pertinent
portions of Section 3(B):

“B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost
including the professional fee (based on the total approved charges) to a member who receives
emergency care in a non-accredited hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the emergency confinement occurs in foreign
territory, Fortune Care will be obligated to reimburse or pay 80% percent of the approved standard
charges which shall cover the hospitalization costs and professional fees.

The point of dispute now concerns the proper interpretation of the phrase "approved standard
charges", which shall be the base for the allowable 80% benefit. The trial court ruled that the phrase
should be interpreted in light of the provisions of Section 3(A), i.e., to the extent that may be allowed
for treatments performed by accredited physicians in accredited hospitals. As the appellate court
however held, this must be interpreted in its literal sense, guided by the rule that any ambiguity shall
be strictly construed against Fortune Care, and liberally in favor of Amorin.”

As may be gleaned from the Health Care Contract, the parties thereto contemplated the possibility of
emergency care in a foreign country. As the contract recognized Fortune Care’s liability for emergency
treatments even in foreign territories, it expressly limited its liability only insofar as the percentage of
hospitalization and professional fees that must be paid or reimbursed was concerned, pegged at a mere
80% of the approved standard charges.

The word "standard" as used in the cited stipulation was vague and ambiguous, as it could be susceptible
of different meanings. Plainly, the term "standard charges" could be read as referring to the "hospitalization
costs and professional fees" which were specifically cited as compensable even when incurred in a foreign
country. Contrary to Fortune Care’s argument, from nowhere in the Health Care Contract could it be
reasonably deduced that these "standard charges" referred to the "Philippine standard", or that cost which
would have been incurred if the medical services were performed in an accredited hospital situated in the
Philippines. The RTC ruling that the use of the "Philippine standard" could be inferred from the provisions
of Section 3(A), which covered emergency care in an accredited hospital, was misplaced. Evidently, the
parties to the Health Care Contract made a clear distinction between emergency care in an accredited
hospital, and that obtained from a non-accredited hospital. The limitation on payment based on "Philippine
standard" for services of accredited physicians was expressly made applicable only in the case of an
emergency care in an accredited hospital.

The proper interpretation of the phrase "standard charges" could instead be correlated with and reasonably
inferred from the other provisions of Section 3(B), considering that Amorin’s case fell under the second
case, i.e., emergency care in a non-accredited hospital. Rather than a determination of Philippine or
American standards, the first part of the provision speaks of the full reimbursement of "the total
hospitalization cost including the professional fee (based on the total approved charges) to a member who
receives emergency care in a non-accredited hospital" within the Philippines. Thus, for emergency care in
non-accredited hospitals, this cited clause declared the standard in the determination of the amount to be
paid, without any reference to and regardless of the amounts that would have been payable if the treatment
was done by an affiliated physician or in an affiliated hospital. For treatments in foreign territories, the only
qualification was only as to the percentage, or 80% of that payable for treatments performed in non-
accredited hospital.

All told, in the absence of any qualifying word that clearly limited Fortune Care's liability to costs that are
applicable in the Philippines, the amount payable by Fortune Care should not be limited to the cost of
treatment in the Philippines, as to do so would result in the clear disadvantage of its member. If, as Fortune
Care argued, the premium and other charges in the Health Care Contract were merely computed on
assumption and risk under Philippine cost and, that the American cost standard or any foreign country's
cost was never considered, such limitations should have been distinctly specified and clearly reflected in
the extent of coverage which the company voluntarily assumed. This was what Fortune Care found
appropriate when in its new health care agreement with the House of Representatives, particularly in their
2006 agreement, the provision on emergency care in non-accredited hospitals was modified to read as
follows:

However, if the emergency confinement occurs in a foreign territory, Fortunecare will be obligated to
reimburse or pay 100% percent under approved Philippine Standard covered charges for
hospitalization costs and professional fees but not to exceed maximum allowable coverage, payable
in pesos at prevailing currency exchange rate at the time of availment in said territory where he/she
is confined. x x x

Settled is the rule that ambiguities in a contract are interpreted against the party that caused the ambiguity.
"Any ambiguity in a contract whose terms are susceptible of different interpretations must be read against
the party who drafted it."

10. Great Pacific Life Assur. Co. vs. CA

G.R. No. L-31845, Apr. 30, 1979
DE CASTRO, J.

FACTS:
Ngo Hing filed an application with the Great Pacific Life Assurance Company (Pacific Life) for a 20-year
endowment policy amounting to P50,000 on the life of his one-year old daughter Helen Go. Ngo Hing
supplied the essential data which Lapulapu D. Mondragon, Branch Manager of the Pacific Life, wrote on
the corresponding form in his own handwriting. Mondragon finally type-wrote the data on the application
form which was signed by 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 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. Likewise, Mondragon handwrote at the bottom of the back page of the application form his
strong recommendation for the approval of the insurance application. Mondragon received a letter from
Pacific Life disapproving the insurance application. 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 Mondragon
to Ngo Hing. Instead, Mondragon wrote back Pacific Life again strongly recommending the approval of
the 20-year endowment insurance plan to children, pointing out that since 1954 the customers, especially
the Chinese, were asking for such coverage.

It was when things were in such state that Helen Go died of influenza with complication of
bronchopneumonia. Thereupon, Ngo Hing sought the payment of the proceeds of the insurance, but
having failed in his effort, he filed the action for the recovery before the CFI of Cebu, which rendered the
adverse decision as earlier referred to against Pacific Life and Mondragon.

ISSUE:
1) Whether the binding deposit receipt constituted a temporary contract of the life insurance in
question; and
2) Whether Ngo Hing concealed the state of health and physical condition of Helen Go, which rendered
void the aforesaid binding deposit.

RULING:
1) No, The provisions printed on the deposit receipt show that the binding deposit receipt is intended to
be merely a provisional or temporary insurance contract and only upon compliance of the following
conditions: (1) that the company shall be satisfied that the applicant was insurable on standard rates;
(2) that if the company does not accept the application and offers to issue a policy for a different plan,
the insurance contract shall not be binding until the applicant accepts the policy offered; otherwise,
the deposit shall be refunded; and (3) that if the applicant is not able according to the standard rates,
and the company disapproves the application, the insurance applied for shall not be in force at any
time, and the premium paid shall be returned to the applicant.
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 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 is merely conditional and does not insure outright. As
held by this Court, where an agreement is made between the applicant and the agent, no liability shall
attach 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. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself (De
Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 264).

As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of insurance 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."

2) Yes, the contract of insurance is one of uberrima fides meaning good faith, absolute and perfect
candor or openness and honesty; the absence of any concealment or demotion, however slight, not
for the alone but equally so for the insurer. Concealment is a neglect to communicate that which a
party knows and ought to communicate. Whether intentional or unintentional, the concealment
entitles the insurer to rescind the contract of insurance. Thus, the Court is 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 Ngo
Hing.