Zarah Digests Insurance

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COMMERCIAL LAW REVIEW

| ATTY. ZARAH VILLANUEVA-CASTRO |
casE DIGEST IN LAW ON INSURANCE
WHITE GOLD MARINE INSURANCE VS. PIONEER INSURANCE
FACTS:
Petition for Review assailing the decision of the Court of Appeals (CA). The
decision of the CA affirmed that of the Insurance Commission. White Gold Marine
Services (White Gold) procured a protection and indemnity coverage for its
vessels from Steamship Mutual Underwriting (Steamship) through Pioneer
Insurance and Surety Corporation (Pioneer). White Gold was issued by Pioneer a
Certificate of Entry and Acceptance, and receipts evidencing payments for the
coverage. When White Gold failed to fully pay its accounts, Steamship Mutual
refused to renew the coverage. Steamship thereafter filed a case against White
Gold for collection of sum of money to recover the latter’s unpaid balance. White
Gold on the other hand filed a complaint before the Insurance Commission
claiming that Steamship did not have a license to engage in the insurance
business. The Insurance Commission dismissed the complaint and such dismissal
was affirmed by the CA.
ISSUE:
Is Steamship Mutual engaged in the insurance business?
HELD:
Basically, an insurance contract is a contract of indemnity. In it, one undertakes
for a consideration to indemnify another against loss, damage or liability arising
from an unknown or contingent event.
In particular, a marine insurance undertakes to indemnify the assured against
marine losses, such as the losses incident to a marine adventure. Section 99 of
the Insurance Code enumerates the coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the

members are both the insurer and insured. In it, the members all contribute, by a
system of premiums or assessments, to the creation of a fund from which all
losses and liabilities are paid, and where the profits are divided among
themselves, in proportion to their interest. Additionally, mutual insurance
associations, or clubs, provide three types of coverage, namely, protection and
indemnity, war risks, and defense costs.
A P & I Club is "a form of insurance against third party liability, where the third
party is anyone other than the P & I Club and the members." By definition then,
Steamship Mutual as a P & I Club is a mutual insurance association engaged in
the marine insurance business.
BUCU | BUENDIA | CAMALIG | DE BELEN | ESPARES | FERRIOL | HORNILLA | MANALIGOD | MARCIAL | NARSOLES | RIVERA | SALAZAR | SAN DIEGO | SILVA | STA. ANA | SUYOSA
RAFAEL (REX) VERENDIA V. CA (AND FIDELITY & SURETY CO. OF THE
PHILIPPINES)
G.R. NO. 75605 JANUARY 22, 1993
FACTS:
Two consolidated cases involved herein stemmed from the issuance by Fidelity of
its Fire Insurance Policy covering petitioner's residential building in Antipolo, Rizal.
Designated as beneficiary was the Monte de Piedad & Savings Bank. He also
insured the same building with two other companies: The Country Bankers
Insurance and The Development Insurance.
While the three fire insurance policies were in force, the insured property was
completely destroyed by fire. Fidelity was accordingly informed of the loss and
despite demands, refused payment, prompting Verendia to file a complaint with
CFI Quezon City, praying for payment of P385,000.00, legal interest, attorney's
fees and litigation expenses.
Answering, Fidelity, inter alia, 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 to a certain Roberto Garcia,
when actually it was a Marcelo Garcia.
CFI ruled for Fidelity, stating that Par. 3 of the policy was also violated by
Verendia in that the insured failed to inform Fidelity of his other insurance
coverages with other companies.
Verendia appealed to IAC which reversed for the following reasons: (a) there was
no misrepresentation concerning the lease for the contract was signed by Marcelo
Garcia in the name of Roberto Garcia; and (b) Par. 3 of the policy contract
requiring Verendia to give notice to Fidelity of other contracts of insurance was
waived by Fidelity as shown by its conduct in attempting to settle the claim of
Verendia.
ISSUE:
W/N the contract of lease submitted by Verendia to support his claim on the
policy constitutes a false declaration which would forfeit his benefits under
Section 13 of the policy.
HELD:
YES. 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 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. He failed to live by the terms of
the policy, specifically Sec. 13 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". He forfeited all
benefits therein by virtue of Sec. 13, absent proof that Fidelity waived such
provision. Worse yet, by presenting a false lease contract, he reprehensibly
disregarded the principle that insurance contracts are uberrimae fidae and
demand the most abundant good faith
CFI decision upheld and reinstated.
PHILAMCARE HEALTH SYSTEMS, INC. VS COURT OF APPEALS
G.R. NO. 125678. MARCH 18, 2002
FACTS:
In 1988, ErnaniTrinos, deceased husband of respondent JulitaTrinos, applied for a
health care insurance under the Philamcare Health Systems, Inc. He was asked if
he was ever treated for high blood, heart trouble, diabetes, cancer, liver disease,
asthma, or peptic ulcer; he answered no. His application was approved and it was
effective for one year. His coverage was subsequently renewed twice for one year
each. While the coverage was still in force in 1990, Ernani suffered a heart attack
for which he was hospitalized. The cost of the hospitalization amounted to
P76,000.00. JulitaTrinos, wife of Ernani, filed a claim before Philamcare for the
latter to pay the hospitalization cost. Philamcare refused to pay as it alleged that
Ernani failed to disclose the fact that he was diabetic, hypertensive, and
asthmatic, contrary to his answer in the application form. Julita ended up paying
the hospital expenses. Ernani eventually died. In July 1990, Julita sued
Philamcare for damages. Philamcare alleged that the health care agreement is not
an insurance contract, hence the incontestability clause under the Insurance Code
does not apply and that the concealment made by Ernani voided the
agreement.The trial court and CA rendered judgment in favor of Julita.
ISSUE:
Whether or not Philamcare can avoid the health coverage agreement.
HELD:
No. Section 2 (1) of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event. An
insurance contract exists where the following elements concur:
(1) The insured has an insurable interest;

(2) The insured is subject to a risk of loss by the happening of the designated
peril;
(3) The insurer assumes the risk;
(4) Such assumption of risk is part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk; and
(5) In consideration of the insurer’s promise, the insured pays a premium.
In the case at bar, the insurable interest of respondent’s husband in obtaining the
health care agreement was his own health. The health care agreement entered
upon by Ernani with Philamcare is a non-life insurance contract and is covered by
the Insurance Law. It 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.
There is no concealment on the part of Ernani. He answered the question with

good faith. He was not a medical doctor hence his statement in answering the
question asked of him when he was applying is an opinion rather than a fact.
Where matters of opinion or judgment are called for, answers made in good faith
and without intent to deceive will not avoid a policy even though they are untrue.
Further, Philamcare, in believing there was concealment, should have taken the
necessary steps to void the health coverage agreement prior to the filing of the
suit by Julita. Philamcare never gave prior notice in writing stating the grounds
for cancellation to Julita of the fact that they are voiding the agreement.
Therefore, Philamcare should pay the expenses paid by Julita.
FORTUNE INSURANCE AND SURETY INC v. CA, G.R. No. 115278 May 23,
1995
FACTS:
Producers Bank of the Philippines insured with Fortune Insurance and Surety Co.
P725,000 which was lost during a robbery of Producer's armored vehicle while it
was in transit from Pasay City to its Makati head office. The armored car was
driven by Benjamin Magalong y de Vera, escorted by Security Guard
SaturninoAtiga yRosete.
After an investigation conducted by the Pasay police authorities, the driver
Magalong and guard Atiga were charged, together with EdelmerBantigue y
Eulalio, Reynaldo Aquino and John Doe, with violation of P.D. 532 (Anti-Highway
Robbery Law)
Upon claiming insurance, Fortune refused stating that it is not liable since under
the general exceptions of the policy:
any loss caused by any dishonest, fraudulent or criminal act of the insured
or any officer, employee, partner, director, trustee or authorized
representative of the Insured whether acting alone or in conjunction with
others. . . .
The RTC and CA favored Producers Bank.
ISSUE:
W/N the driver and security guard are employees fall under the general exception
HELD:
YES, the insurance company cannot be held liable. It has been aptly observed
that in burglary, robbery, and theft insurance, "the opportunity to defraud the
insurer — the moral hazard — is so great that insurers have found it necessary to
fill up their policies with countless restrictions, many 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.
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 entrusted the three with the specific duty to safely transfer the money
to its head office, with Alampay to be responsible for its custody in transit;
Magalong to drive the armored vehicle which would carry the money; and Atiga to
provide the needed security for the money, the vehicle, and his two other
companions.
In short, for these particular tasks, 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."
In view of the foregoing, Fortune is exempt from liability under the general
exceptions clause of the insurance policy.
GULF RESORTS, INC., petitioner, vs. PHILIPPINE CHARTER INSURANCE
CORPORATION, respondent.
FACTS:
1. Plaintiff is the owner of the Plaza Resort at La Union which properties were
insured originally with the American Home Assurance Company. In the first four
policies issued, the risk of loss includes only plaintiff's two swimming pools, thus,
earthquake shock endt.
2. Plaintiff agreed to insure with the respondent other properties such as the
Clubhouse, the furniture, Tilter House, Power House, House Shed, lines air-con
and operating equipment, for a total of P10,700,600.00 as premium. That plaintiff
paid only P393.00 as premium against earthquake shock (ES) covering the
swimming pool.
3. That on July 16, 1990 an earthquake struck Central Luzon and Northern Luzon
and plaintiff's properties, including the two swimming pools were damaged. The
Petitioner advised respondent that it would be making a claim under its Insurance
Policy. The Adjusters and Surveyors rendered a preliminary report finding
extensive damage caused by the earthquake to the clubhouse and to the two
swimming pools.
4. The respondent denied petitioners claim on the ground that its insurance policy
only afforded earthquake shock coverage to the two swimming pools of the
resort. Petitioner and respondent failed to arrive at a settlement. The petitioner
filed a complaint with the trial court for the loss sustained and damages.
5. The lower court ruled in favor of the respondent, it was clearly shown that
plaintiff paid only a premium of P393.00 against the peril of earthquake shock,
covering only the two swimming pools.
6. Plaintiff points out that a policy of insurance is a contract of adhesion hence,
where the language used in an insurance contract or application is such as to
create ambiguity the same should be resolved against the party responsible
therefor, the insurance company which prepared the contract.
ISSUE:
Whether or not there is ambiguity on the properties covered by the policy.
HELD:
No, A careful examination of the premium recapitulation will show that it is the
clear intent of the parties to extend earthquake shock coverage only to the two
swimming pools. Section 2(1) of the Insurance Code defines a contract of
insurance as an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or
contingent event. Thus, an insurance contract exists where the following elements
concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated
peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk; and
5. In consideration of the insurer's promise, the insured pays a premium.
An insurance premium is the consideration paid an insurer for undertaking to
indemnify the insured against a specified peril. In fire, casualty, and marine
insurance, the premium payable becomes a debt as soon as the risk attaches. In
the subject policy, no premium payments were made with regard to earthquake
shock coverage, except on the two swimming pools. There is no mention of any
premium payable for the other resort properties with regard to earthquake
shock.
It is basic that all the provisions of the insurance policy should be examined and
interpreted in consonance with each other. All its parts are reflective of the true
intent of the parties. The policy cannot be construed piecemeal. Certain
stipulations cannot be segregated and then made to control; neither do particular
words or phrases necessarily determine its character. Petitioner cannot focus on
the earthquake shock endorsement to the exclusion of the other provisions. All
the provisions and riders, taken and interpreted together, indubitably show the
intention of the parties to extend earthquake shock coverage to the two
swimming pools only.
MANILA MAHOGANY MANUFACTURING CORPORATION vs. COURT OF
APPEALS AND ZENITH INSURANCE CORPORATION
G.R. No. L-52756 October 12, 1987
FACTS:
Petitioner insured its Mercedes Benz 4-door sedan with respondent insurance
company. On 4 May 1970 the insured vehicle was bumped and damaged by a
truck owned by San Miguel Corporation. For the damage caused, respondent
company paid petitioner five thousand pesos (P5,000.00) in amicable settlement.
Petitioner's general manager executed a Release of Claim, subrogating
respondent company to all its right to action against San Miguel Corporation.
Respondent company wrote Insurance Adjusters, Inc. to demand reimbursement

from San Miguel Corporation of the amount it had paid petitioner. Insurance
Adjusters, Inc. refused reimbursement, alleging that San Miguel Corporation had
already paid petitioner P4,500.00 for the damages to petitioner's motor vehicle,
as evidenced by a cash voucher and a Release of Claim executed by the General
Manager of petitioner discharging San Miguel Corporation from "all actions,
claims, demands the rights of action that now exist or hereafter [sic] develop
arising out of or as a consequence of the accident."
Respondent insurance company thus demanded from petitioner reimbursement of

the sum of P4,500.00 paid by San Miguel Corporation. Petitioner refused; hence,
respondent company filed suit in the City Court of Manila for the recovery of
P4,500.00. The City Court ordered petitioner to pay respondent P4,500.00. On
appeal the Court of First Instance of Manila affirmed the City Court's decision in
toto, which CFI decision was affirmed by the Court of Appeals, with the
modification that petitioner was topay respondent the total amount of P5,000.00
that it had earlier received from the respondent insurance company.
ISSUE:
Whether or not the insurer is entitled to recover from the insured the amount of
insurance money paid.
HELD:
Although petitioners right to file a deficiency claim against San Miguel Corporation
is with legal basis, without prejudice to the insurer's right of subrogation,
nevertheless when Manila Mahogany executed another release claim (Exhibit K)
discharging San Miguel Corporation from "all actions, claims, demands and rights
of action that now exist or hereafter arising out of or as a consequence of the
accident" after the insurer had paid the proceeds of the policy- the compromise
agreement of P5,000.00 being based on the insurance policy-the insurer is
entitled to recover from the insured the amount of insurance money paid
(Metropolitan Casualty Insurance Company of New York vs. Badler, 229 N.Y.S. 61,
132 Misc. 132 cited in Insurance Code and Insolvency Law with comments and
annotations, H.B. Perez 1976, p. 151). Since petitioner by its own acts released
San Miguel Corporation, thereby defeating private respondents, the right of
subrogation, the right of action of petitioner against the insurer was also nullified.
(SyKeng& Co. vs. Queensland Insurance Co., Ltd., 54 O.G. 391) Otherwise
stated: private respondent may recover the sum of P5,000.00 it had earlier paid
to petitioner.
As held in Phil. Air Lines v. Heald Lumber Co., 2

If a property is insured and the owner receives the indemnity from the insurer, it
is provided in [Article 2207 of the New Civil Code] that the insurer is deemed
subrogated to the rights of the insured against the wrongdoer and if the amount
paid by the insurer does not fully cover the loss, then the aggrieved party is the
one entitled to recover the deficiency. ... Under this legal provision, the real party
in interest with regard to the portion of the indemnity paid is the insurer and not
the insured
The right of subrogation can only exist after the insurer has paid the otherwise
the insured will be deprived of his right to full indemnity. If the insurance
proceeds are not sufficient to cover the damages suffered by the insured, then he
may sue the party responsible for the damage for the the [sic] remainder. To the
extent of the amount he has already received from the insurer enjoy's [sic] the
right of subrogation.
Since the insurer can be subrogated to only such rights as the insured may have,
should the insured, after receiving payment from the insurer, release the
wrongdoer who caused the loss, the insurer loses his rights against the latter. But
in such a case, the insurer will be entitled to recover from the insured whatever it
has paid to the latter, unless the release was made with the consent of the
insurer.
FEDERAL EXPRESS CORPORATION v. AMERICAN HOME ASSURANCE

COMPANY
FACTS:
On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE) delivered to
Burlington Air Express (BURLINGTON), an agent of FedEx, a shipment of 109
cartons of veterinary biologicals for delivery to consignee SMITHKLINE and French
Overseas Company in Makati City, Metro Manila. The shipment was with the
words, REFRIGERATE WHEN NOT IN TRANSIT and PERISHABLE stamp marked on
its face. Burlington insured the cargoes in the amount of $39,339.00 with AHAC.
The following day, Burlington turned over the custody of said cargoes to Federal
Express which transported the same to Manila. The first shipment, consisting of
92 cartons arrived in Manila on January 29, 1994 , the second, consisting of 17
cartons, came in two (2) days later, or on January 31, 1994 which was
immediately stored at Cargohaus warehouse.
On February 10, 1994, DARIO C. DIONEDA (DIONEDA), found out, while he was
about to cause the release of the said cargoes, that the same were stored only in
a room. Thereafter, DIONEDA, upon instructions from GETC, did not proceed with
the withdrawal of the vaccines and instead, samples of the same were taken and
brought to the Bureau of Animal Industry of the Department of Agriculture in the
Philippines by SMITHKLINE for examination.
As a consequence of the foregoing result of the veterinary biologics test,
SMITHKLINE abandoned the shipment and, declaring total loss for the unusable
shipment, filed a claim with AHAC through its representative in the Philippines,
the Philam Insurance Co., Inc. (PHILAM) which recompensed SMITHKLINE for the
whole insured amount $39,339.00. SMITHKLINE then issued a Subrogation
Receipt in favor of AHAC. Thereafter, respondents filed an action for damages
against the petitioner imputing negligence on either or both of them in the
handling of the cargo.
ISSUE:
Whether or not FedEx is liable for the damage or loss of the insured goods?
HELD:
NO. Upon payment to the consignee of an indemnity for the loss of or damage to
the insuredgoods, the insurer’s entitlement to subrogation pro tanto — being of
the highest equity —equips it with a cause of action in case of a contractual
breach or negligence. In the exercise of its subrogatory right, an insurer may
proceed against an erring carrier. Toall intents and purposes, it stands in the place
and in substitution of the consignee. Afortiori, both the insurer and the consignee
are bound by the contractual stipulations underthe bill of lading.
However, In this jurisdiction, the filing of a claim with the carrier within the time
limitation thereforactually constitutes a condition precedent to the accrual of a
right of action against acarrier for loss of or damage to the goods. The shipper or
consignee must allege andprove the fulfillment of the condition. If it fails to do so,
no right of action against the 
carrier can accrue in favor of the former. The aforementioned requirement is a
reasonablecondition precedent; it does not constitute a limitation of action.
In the present case, there is neither an allegation nor a showing of respondents’
compliance withthis requirement within the prescribed period. While respondents
may have had a cause ofaction then, they cannot now enforce it for their failure
to comply with the aforesaidcondition precedent. We note that respondents are
not without recourse. Cargohaus, Inc. — petitioner’s codefendant in respondents’
Complaint below — has been adjudged by the trial court as 
liable for, inter alia, “actual damages in the amount of the peso equivalent of US
$39,339.”This judgment was affirmed by the Court of Appeals and is already final
and executory.
ETERNAL GARDENS MEMORIAL PARK CORPORATION VS. THE PHILIPPINE
AMERICAN LIFE INSURANCE COMPANY
G.R. NO. 166245
APRIL 9, 2008
FACTS:
On December 10, 1980, respondent Philippine American Life Insurance Company
(Philamlife) entered into an agreement denominated as Creditor Group Life Policy
No. P-19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal).
Under the policy, the clients of Eternal who purchased burial lots from it on
installment basis would be insured by Philamlife. The amount of insurance
coverage depended upon the existing balance of the purchased burial lots. The
policy was to be effective for a period of one year, renewable on a yearly basis.
Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an
insurance claim for Chuang’s death. In reply, Philamlife wrote Eternal a letter on
November 12, 1984,6 requiring Eternal to submit the following documents relative
to its insurance claim for Chuang’s death: (1) Certificate of Claimant (with form
attached); (2) Assured’s Certificate (with form attached); (3) Application for
Insurance accomplished and signed by the insured, Chuang, while still living; and
(4) Statement of Account showing the unpaid balance of Chuang before his
death.Eternal transmitted the required documents through a letter dated
November 14, 1984,7 which was received by Philamlife on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply to the
latter’s insurance claim. This prompted Eternal to demand from Philamlife the
payment of the claim for PhP 100,000 on April 25, 1986.8
In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a

letter dated May 20, 1986. The letter stated that no application for group
insurance was transmitted prior to the death of Chuang but it was only submitted
after the latter’s death thus, he is not covered under the Policy. Consequently,
Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of
money against Philamlife.
ISSUES:
1. Whether or not there was a valid insurance coverage.
2. Whether or not Philamlife assumed the risk of loss without approving the
application.
HELD:
1. Yes. The fact of the matter is, the letter dated December 29, 1982, which
Philamlife stamped as received, states that the insurance forms for the attached
list of burial lot buyers were attached to the letter. Such stamp of receipt has the
effect of acknowledging receipt of the letter together with the attachments. Such
receipt is an admission by Philamlife against its own interest.13 The burden of
evidence has shifted to Philamlife, which must prove that the letter did not
contain Chuang’s insurance application. However, Philamlife failed to do so; thus,
Philamlife is deemed to have received Chuang’s insurance application.
2. Yes. This question must be answered in the affirmative.

As earlier stated, Philamlife and Eternal entered into an agreement denominated
as Creditor Group Life Policy No. P-1920 dated December 10, 1980. In the policy,
it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the
date he contracts a loan with the Assured. However, there shall be no
insurance if the application of the Lot Purchaser is not approved by
the Company.
An examination of the above provision would show ambiguity between its two
sentences. The first sentence appears to state that the insurance coverage of the
clients of Eternal already became effective upon contracting a loan with Eternal
while the second sentence appears to require Philamlife to approve the insurance
contract before the same can become effective.
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. Clearly, the vague contractual
provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980,
must be construed in favor of the insured and in favor of the effectivity of the
insurance contract.
On the other hand, the seemingly conflicting provisions must be harmonized to
mean that upon a party’s purchase of a memorial lot on installment from Eternal,
an insurance contract covering the lot purchaser is created and the same is
effective, valid, and binding until terminated by Philamlife by disapproving the
insurance application. The second sentence of Creditor Group Life Policy No.
P-1920 on the Effective Date of Benefit is in the nature of a resolutory condition
which would lead to the cessation of the insurance contract.
ENRIQUEZ, as administrator of the estate of the late Joaquin Ma. Herrer,
vs. 
SUN LIFE ASSURANCE COMPANY OF CANADA
G.R. No. L-15895 November 29, 1920
FACTS:
Joaquin Herrer made application to the Sun Life Assurance Company of Canada
through its office in Manila for a life annuity. Two days later he paid the sum of
P6,000 to the manager of the company's Manila office and was given a receipt
(note: the receipt is written in Spanish).
The application was immediately forwarded to the head office of the company at
Montreal, Canada. The head office gave notice of acceptance by cable to Manila.
(Whether on the same day the cable was received notice was sent by the Manila
office of Herrer that the application had been accepted, is a disputed point, which
will be discussed later.) The policy was issued at Montreal. On December 18,
1917, attorney Aurelio A. Torres wrote to the Manila office of the company stating
that Herrer desired to withdraw his application. The following day the local office
replied to Mr. Torres, stating that the policy had been issued, and called attention
to the notification of November 26, 1917. This letter was received by Mr. Torres
on the morning of December 21, 1917. Mr. Herrer died on December 20,
1917.
ISSUE:
What law should govern in order to answer the issue at bar as to whether or not
the contract of life annuity was perfected?
HELD:
The Insurance Act deals with life insurance, it is silent as to the methods to be
followed in order that there may be a contract of insurance. On the other hand,
the Civil Code, in article 1802, not only describes a contact of life annuity
markedly similar to the one we are considering, but in two other articles, gives
strong clues as to the proper disposition of the case. For instance, article 16 of
the Civil Code provides that "In matters which are governed by special laws, any
deficiency of the latter shall be supplied by the provisions of this Code." On the
supposition, therefore, which is incontestable, that the special law on the subject
of insurance is deficient in enunciating the principles governing acceptance, the
subject-matter of the Civil code, if there be any, would be controlling. In the Civil
Code is found article 1262 providing that "Consent is shown by the concurrence of
offer and acceptance with respect to the thing and the consideration which are to
constitute the contract. An acceptance made by letter shall not bind the person
making the offer except from the time it came to his knowledge. The contract, in
such case, is presumed to have been entered into at the place where the offer
was made." This latter article is in opposition to the provisions of article 54 of the
Code of Commerce.
Therefore, the law applicable to the case is found to be the second paragraph of
article 1262 of the Civil Code providing that an acceptance made by letter shall
not bind the person making the offer except from the time it came to his
knowledge. The pertinent fact is, that according to the provisional receipt, three
things had to be accomplished by the insurance company before there was a
contract: (1) There had to be a medical examination of the applicant; (2) there
had to be approval of the application by the head office of the company; and (3)
this approval had in some way to be communicated by the company to the
applicant. The further admitted facts are that the head office in Montreal did
accept the application, did cable the Manila office to that effect, did actually issue
the policy and did, through its agent in Manila, actually write the letter of
notification and place it in the usual channels for transmission to the addressee.
The fact as to the letter of notification thus fails to concur with the essential
elements of the general rule pertaining to the mailing and delivery of mail matter
as announced by the American courts, namely, when a letter or other mail matter
is addressed and mailed with postage prepaid there is a rebuttable presumption
of fact that it was received by the addressee as soon as it could have been
transmitted to him in the ordinary course of the mails. But if any one of these
elemental facts fails to appear, it is fatal to the presumption. For instance, a letter
will not be presumed to have been received by the addressee unless it is shown
that it was deposited in the post-office, properly addressed and stamped.
We hold that the contract for a life annuity in the case at bar was not perfected
because it has not been proved satisfactorily that the acceptance of the
application ever came to the knowledge of the applicant.
DEVELOPMENT BANK OF THE PHILIPPINESVS.COURT OF APPEALS
G.R. NO. L-109937 MARCH 21, 1994
FACTS:
Juan B. Dans, together with his wife Candida, his son and daughter-in-law,applied
for a loan of P500,000.00 with the Development Bank of thePhilippines (DBP),
Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, was
advised by DBP to obtain a mortgage redemption insurance (MRI) with the DBP
Mortgage Redemption Insurance Pool (DBP MRI Pool).
Dans died of cardiac arrest. The DBP, upon notice, relayed this information to the
DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans
was not eligible for MRI coverage, being over the acceptance age limit of 60 years
at the time of application.
DBP apprised Candida Dans of the disapproval of her late husband's MRI
application. The DBP offered to refund the premium of P1,476.00 which the
deceased had paid, but Candida Dans refused to accept the same, demanding
payment of the face value of the MRI or an amount equivalent to the loan. She,
likewise, refused to accept an ex gratia settlement of P30,000.00, which the DBP
later offered.
respondent Estate, through Candida Dans as administratrix, filed a complaint with
the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool for
"Collection of Sum of Money with Damages." Respondent Estate alleged that Dans
became insured by the DBP MRI Pool when DBP, with full knowledge of Dans' age
at the time of application, required him to apply for MRI, and later collected the
insurance premium thereon.
The DBP and the DBP MRI Pool separately filed their answers, with the former
asserting a cross-claim against the latter.
The trial court rendered a decision in favor of respondent Estate and against DBP.
The DBP MRI Pool, however, was absolved from liability, after the trial court found
no privity of contract between it and the deceased. The trial court declared DBP in
estoppel for having led Dans into applying for MRI and actually collecting the
premium and the service fee, despite knowledge of his age ineligibility.
CA affirmed in toto the decision of the trial court.
Award of CA:
1. To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of
interest as amortization payment paid under protest;
2. To consider the mortgage loan of P300,000.00 including all interest
accumulated or otherwise to have been settled, satisfied or set-off by virtue of
the insurance coverage of the late Juan B. Dans;
3. To pay plaintiff the amount of P10,000.00 as attorney's fees;
4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and other
expenses, and other relief just and equitable.
Thus, DBP file a petition for review on certiorari under Rule 45.
ISSUES:
(1) Is there a contract of insurance between Dans and DBP MRI Pool?
(2) Shouldd DBP be liable?
HELD:
(1)There was NO CONTRACT OF INSURANCE between Dans and DBP MRI Pool.
When Dans applied for MRI, he filled up and personally signed a "Health
Statement for DBP MRI Pool" with the following declaration:
I hereby declare and agree that all the statements and answers contained herein
are true, complete and correct to the best of my knowledge and belief and form
part of my application for insurance. It is understood and agreed that no
insurance coverage shall be effected unless and until this application is approved
and the full premium is paid during my continued good health.
Under the aforementioned provisions, the MRI coverage shall take effect: (1)
when the application shall be approved by the insurance pool; and (2) when the
full premium is paid during the continued good health of the applicant. These two
conditions, being joined conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged with the DBP MRI
Pool. The pool, however, did not approve the application of Dans. There is also no
showing that it accepted the sum of P1,476.00, which DBP credited to its account
with full knowledge that it was payment for Dan's premium. There was, as a
result, no perfected contract of insurance; hence, the DBP MRI Pool cannot be
held liable on a contract that does not exist.
(2)YES, DBP should be held liable.

In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and
the second as an insurance agent.
As an insurance agent, DBP made Dans go through the motion of applying for
said insurance, thereby leading him and his family to believe that they had
already fulfilled all the requirements for the MRI and that the issuance of their
policy was forthcoming. Apparently, DBP had full knowledge that Dan's application
was never going to be approved. The maximum age for MRI acceptance is 60
years as clearly and specifically provided in Article 1 of the Group Mortgage
Redemption Insurance Policy signed in 1984 by all the insurance companies
concerned (Exh. "1-Pool").
Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as
such is not personally liable to the party with whom he contracts, unless he
expressly binds himself or exceeds the limits of his authority without giving such
party sufficient notice of his powers."
The DBP is not authorized to accept applications for MRI when its clients are more
than 60 years of age (Exh. "1-Pool"). Knowing all the while that Dans was
ineligible for MRI coverage because of his advanced age, DBP exceeded the scope
of its authority when it accepted Dan's application for MRI by collecting the
insurance premium, and deducting its agent's commission and service fee.
The DBP's liability, however, cannot be for the entire value of the insurance policy.
To assume that were it not for DBP's concealment of the limits of its authority,
Dans would have secured an MRI from another insurance company, and therefore
would have been fully insured by the time he died, is highly speculative.
Considering his advanced age, there is no absolute certainty that Dans could
obtain an insurance coverage from another company. It must also be noted that
Dans died almost immediately, i.e., on the nineteenth day after applying for the
MRI, and on the twenty-third day from the date of release of his loan.
AWARDS of SC:
(1) to REIMBURSE respondent Estate of Juan B. Dans the amount of P1,476.00
with legal interest from the date of the filing of the complaint until fully paid; and
(2) to PAY said Estate the amount of Fifty Thousand Pesos (P50,000.00) as moral
damages and the amount of Ten Thousand Pesos (P10,000.00) as attorney's fees.
With costs against petitioner.
GREAT PACIFIC LIFE ASSURANCE VS COURT OF APPEALS
FACTS:
Ngo Hing filed an application with the Great Pacific Life Assurance Company
for a twenty-year endownment policy in the amount of P50,000.00 on the life of
his one-year old daughter Helen Go. The application was prepared with the
assistance of Mondragon, a branch manager in Cebu. Upon the payment of the
insurance premuim, the binding deposit receipt was issued to private respondent
Ngo Hing.Then on April 30, 1957, Mondragon received a letter from Pacific Life
disapproving the insurance application (Exhibit 3-M). The letter stated that the
said life insurance application for 20-year endowment plan is not available for
minors below seven years old, but Pacific Life can consider the same under the
Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile
Non-Medical Declaration be sent to the company. The non-acceptance of the
insurance plan by Pacific Life was allegedly not communicated by petitioner
Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon
wrote back Pacific Life again strongly recommending the approval of the 20-year
endowment insurance plan to children, pointing out that since 1954 the
customers, especially the Chinese, were asking for such coverage. Subsequently,
on May 28, 1957 Helen Go died of influenza.
Private respondent sought the payment go the proceeds but he was
unheeded by the insurance company.
ISSUE:
1. Whether the binding deposit receipt constituted a temporary contract of life
insurance
2. Whether there was concealment on the part of Ngo hing.
HELD:
1. No. 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. 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 reftmded; and (3) that if the applicant is not ble 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 failure of Mondragon to communicate the rejection
also does not result to its approval. When he filed the insurance application in
dispute, private respondent was, therefore, only taking the chance that Pacific
Life will approve the recommendation of Mondragon for the acceptance and
approval of the application in question along with his proposal that the insurance
company starts to offer the 20-year endowment insurance plan for children less
than seven years.
2. Yes, when private regpondeit supplied the required essential data for the
insurance application form, he was fully aware that his one-year old daughter is
typically a mongoloid child. Nonetheless, private respondent, in apparent bad
faith, withheld the fact material to the risk to be assumed by the insurance
company.The contract of insurance is one of perfect good faith uberrima fides
meaning good faith, absolute and perfect candor or openness and honesty; the
absence of any concealment or demotion, however slight, 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.
Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO.,
INC. vs. COURT OF APPEALS and CKS DEVELOPMENT CORPORATION
[G.R. No. 124520. August 18, 1997]
DOCTRINE/S: Lessor has no insurable interest in goods and merchandise inside

the leased premises under the provisions of Section 17 of the Insurance Code.
Therefore, respondent CKS cannot, under the Insurance Code — a special law —
be validly a beneficiary of the fire insurance policy taken by the petitioner-
spouses over their merchandise. This insurable interest over said merchandise
remains with the insured, the Cha spouses.
The automatic assignment of the policy to CKS under the provision of the lease
contract is void for being contrary to law and/or public policy. The proceeds of the
fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-
Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the
proceeds of the fire insurance policy to a person (CKS) who has no insurable
interest in the property insured.
FACTS:
Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease
contract with private respondent CKS Development Corporation (hereinafter
CKS), as lessor.One of the stipulations of the 1 year lease contract states:
18. xxx. The LESSEE shall not insure against fire the chattels,
merchandise, textiles, goods and effects placed at any stall or store or
space in the leased premises without first obtaining the written
consent and approval of the LESSOR. If the LESSEE obtain(s) the
insurance thereof without the consent of the LESSOR then the policy
is deemed assigned and transferred to the LESSOR for its own
benefit; x xx
Notwithstanding the such stipulation, the Cha spouses insured against loss by fire
their merchandise inside the leased premises for 500k with the United Insurance
Co., Inc. (hereinafter United) without the written consent of private respondents
CKS.
On the day that the lease contract was to expire, fire broke out inside the leased
premises.When CKS learned of the insurance procured by the Cha spouses
without its consent, it wrote the insurer United a demand letter asking that the
proceeds of the insurance contract be paid directly to CKS, based on its lease
contract with Cha spouses.United refused to pay CKS. Hence, CKS filed a
complaint against Cha spouses and United.
RTC RULING: Ordered defendant United to pay CKS the amount of P335,063.11
and defendant Cha spouses to pay P50,000.00 as exemplary
damages, P20,000.00 as attorneys fees and costs of suit.
CA RULING: Affirmed RTC decision but deleted the awards for exemplary
damages and attorneys fees.
United filed a MR but was denied
Hence, this petition.
ISSUE:
W/N the stipulation in the lease contract between CKS and the Cha spouses is
valid insofar as it provides that any fire insurance policy obtained by the lessee
(Cha spouses) over their merchandise inside the leased premises is deemed
assigned or transferred to the lessor (CKS) if said policy is obtained without the
prior written consent of the latter
HELD:
NO. (Invalid stipulation)
Sec. 18 of the Insurance Code provides: “No contract or policy of insurance on
property shall be enforceable except for the benefit of some person having an
insurable interest in the property insured.”
A non-life insurance policy such as the fire insurance policy taken by petitioner-
spouses over their merchandise is primarily a contract of indemnity. Insurable
interest in the property insured must exist at the time the insurance takes effect
and at the time the loss occurs.The basis of such requirement of insurable
interest in property insured is based on sound public policy: to prevent a person
from taking out an insurance policy on property upon which he has no insurable
interest and collecting the proceeds of said policy in case of loss of the
property.In such a case, the contract of insurance is a mere wager which is void
under Section 25 of the Insurance Code, which provides: “Every stipulation in a
policy of Insurance for the payment of loss, whether the person insured has or
has not any interest in the property insured, or that the policy shall be received
as proof of such interest, and every policy executed by way of gaming or
wagering, is void.”
Here, it cannot be denied that CKS has no insurable interest in the goods and
merchandise inside the leased premises under the provisions of Section 17 of the
Insurance Code which provides: “ The measure of an insurable interest in
property is the extent to which the insured might be damnified by loss of injury
thereof.”
Therefore, respondent CKS cannot be validly a beneficiary of the fire insurance

policy taken by the petitioner-spouses over their merchandise.This insurable
interest over said merchandise remains with the insured, the Cha spouses. The
automatic assignment of the policy to CKS under the provision of the lease
contract is void for being contrary to law and/or public policy. The proceeds of the
fire insurance policy rightfully belong to the Cha spouses. Insurer United cannot
be compelled to pay the proceeds of the fire insurance policy to a person (CKS)
who has no insurable interest in the property insured.
NOTE: The liability of the Cha spouses to CKS for violating the lease contract in
that Cha spouses obtained a fire insurance policy over their own merchandise,
without the consent of CKS, is a separate and distinct issue which was not
resolved by the SC in this case.
GEAGONIA VS CA
GR NO 114427
FACTS:
The petitioner is the owner of Norman's Mart located in the public market of
San Francisco, Agusan del Sur. On 22 December 1989, he obtained from the
private respondent fire insurance policy No. F-14622 for P100,000.00. The period
of the policy was from 22 December 1989 to 22 December 1990 and covered the
following: "Stock-in-trade consisting principally of dry goods such as RTW's for
men and women wear and other usual to assured's business." On 27 May 1990,
fire of accidental origin broke out at around 7:30 p.m. at the public market of San
Francisco, Agusan del Sur. The petitioner's insured stocks-in-trade were
completely destroyed prompting him to file with the private respondent a claim
under the policy. On 28 December 1990, the private respondent denied the claim
because it found that at the time of the loss the petitioner's stocks-in-trade were
likewise covered by fire insurance policies No. GA-28146 and No. GA-28144, for
P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance
Co., Inc. (hereinafter PFIC). These policies indicate that the insured was "Messrs.
Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause reading: 
 
"MORTGAGEE: Loss, if any, shall be payable to Messrs. Cebu

Tesing Textiles, Cebu City as their interest may appear subject to the
terms of this policy. CO-INSURANCE DECLARED: P100,000. -- Phils.
First CEB/F-24758."
ISSUE:
WON a mortgagee has a separate insurable interest than the mortgagor
HELD:
Yes. As to a mortgaged property, the mortgagor and the mortgagee have
each an independent insurable interest therein and both interests may be covered
by one policy, or each may take out a separate policy covering his interest, either
at the same or at separate times. [18] The mortgagor's insurable interest covers
the full value of the mortgaged property, even though the mortgage debt is
equivalent to the full value of the property. [19] The mortgagee's insurable interest
is to the extent of the debt, since the property is relied upon as security thereof,
and in insuring he is not insuring the property but his interest or lien thereon. His
insurable interest is prima facie the value mortgaged and extends only to the
amount of the debt, not exceeding the value of the mortgaged property. [20] Thus,
separate insurances covering different insurable interests may be obtained by the
mortgagor and the mortgagee. 
 
A mortgagor may, however, take out insurance for the benefit of the mortgagee,
which is the usual practice. The mortgagee may be made the beneficial payee in
several ways. He may become the assignee of the policy with the consent of the
insurer; or the mere pledgee without such consent; or the original policy may
contain a mortgage clause; or a rider making the policy payable to the mortgagee
"as his interest may appear" may be attached; or a "standard mortgage clause,"
containing a collateral independent contract between the mortgagee and insurer,
may be attached; or the policy, though by its terms payable absolutely to the
mortgagor, may have been procured by a mortgagor under a contract duty to
insure for the mortgagee's benefit, in which case the mortgagee acquires an
equitable lien upon the proceeds. [21] 
 
In the policy obtained by the mortgagor with loss payable clause in favor of the
mortgagee as his interest may appear, the mortgagee is only a beneficiary under
the contract, and recognized as such by the insurer but not made a party to the
contract itself. Hence, any act of the mortgagor which defeats his right will also
defeat the right of the mortgagee. [22]This kind of policy covers only such interest
as the mortgagee has at the issuing of the policy. [23] 
 
On the other hand, a mortgagee may also procure a policy as a contracting party
in accordance with the terms of an agreement by which the mortgagor is to pay
the premiums upon such insurance. [24] It has been noted, however, that although
the mortgagee is himself the insured, as where he applies for a policy, fully
informs the authorized agent of his interest, pays the premiums, and obtains a
policy on the assurance that it insures him, the policy is in fact in the form used
to insure a mortgagor with loss payable clause. [25] 
 
The fire insurance policies issued by the PFIC name the petitioner as the assured
and contain a mortgage clause which reads: 
 
"Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their
interest may appear subject to the terms of this policy." 
 
This is clearly a simple loss payable clause, not a standard mortgage clause.
RCBC vs. CA
FACTS:
GOYU was granted credit facilities and accommodations by the RCBC
initially in the amount of P 30 million. Upon GOYU’s application, the credit was
increased to P50 Million, then P90 Million, then P117 Million. As security, GOYU
executed 2 real estate mortgages and 2 credit mortgages in favor of RCBC. Under
the 4 contracts, GOYU committed itself to insure the mortgaged properties with
an insurance company approved by RCBC, and subsequently endorse and deliver
the insurance policies to RCBC.
GOYU then obtained 10 policies from MICO. GOYU’s buildings were gutted
by fire and it claimed indemnity from MICO but the latter denied the claim on the
ground that the insurance policies were either attached pursuant to the writs of
attachments/garnishments issued by various courts or that the proceeds were
also claimed by other creditors of GOYU. GOYU, alleging better rights to the
proceeds, filed for specific performance and damages before the RTC.
The trial court ruled in favor of GOYU for the fire loss claims but ordered it
to pay RCBC its loan obligations. On appeal to the CA, it affirmed the ruling with
regard to the liabilities of MICO and RCBC. The trial court and appellate courts
both held that, since the endorsements do not bear the signature of any officer of
GOYU, the endorsements are defective. The CA then ordered GOYU to pay its
obligation to RCBC without any interest, surcharges and penalties.
ISSUE:
Whether or not RCBC as mortgagee, has any right over the insurance
policies taken by GOYU, the mortgagor, in case of the occurrence of loss.
HELD:
YES.
The mortgagor and the mortgagee have separate and distinct insurable
interests over the same mortgaged property, such that each one of them may
insure the same property for his own sole benefit.
In the case at bar, although it appears that GOYU obtained the subject
insurance policies naming itself as the sole payee, the intention of the parties
nonetheless, as shown by their contemporaneous acts, must be given due
consideration in order to better serve the interest of justice and equity. GOYU
continued to enjoy the benefits of the credit facilities extended to it by RCBC
thus, GOYU is at the very least estopped from assailing their operative effects.
Therefore, it is RCBC which has the right to claim the insurance proceeds, in
substitution of the property lost in the fire. Having assigned its rights, GOYU lost
its standing as the beneficiary of the said insurance policies.
GAISANO CAGAYAN, INC. V INSURANCE COMPANY OF NORTH AMERICA
G.R. NO. 147839; JUNE 8 2006
FACTS:
Intercapitol Marketing Corp. (IMC) is the maker of Wrangler Blue Jean,
while Levi Strauss Phils. Inc. (LSPI) is the local distributor of products owned by
Levi’s. Both separately obtained from respondent fire insurance policies with book
debt endorsements. The insurance policies provide for coverage on “book debts in
connection with ready-made clothing materials which have been sold or delivered
to various customers and dealers of the Insured anywhere in the Philippines.”
Book debts are the “unpaid account still appearing in the Book of Account of the
Insured 45 days after the time of the loss covered under this Policy.”
Petitioner is a customer and dealer of the products of IMC and LSPI. The
petitioner’s Gaisano Superstore Complex in Cagayan de Oro was consumed by
fire, including the stocks of clothing from IMC and LSPI. Respondent then filed a
complaint for damages against petitioner, alleging the IMC and LSPI filed with
respondent their claims under their respective fire insurance policies and was
subrogated to their rights against petitioner. Petitioner contends that it could not
be held liable because the property covered by the insurance were destroyed due
to fortuitous events which it could not prevent or foresee, and that it was never
informed that the said properties were insured.
The RTC dismissed respondent’s complaint holding that the fire was purely
accidental and was not attributable to the petitioner’s negligence; that it was not
established that the petitioner was the debtor of IMC and LSPI; and that the sales
invoices provide that the merchandise remained the property of IMC and LSPI
until its purchase price was fully paid.
On appeal, the CA set aside the decision of the RTC requiring petitioner to
pay the amounts of the lost clothing, holding that the loss of the goods in the fire
must be borne by petitioner since the proviso contained in the sales invoices is an
exception under Article 1504 (1) of the Civil Code, to the general rule that if the
thing is lost by a fortuitous event, the risk is borne by the owner of the thing at
the time the loss under the principle of res perit domino; and that petitioner’s
obligation was for the payment of IMC and LSPI’s unpaid account which was not
extinguished. Hence, the petitioner filed a petition for review on certiorari.
ISSUE:
Whether or not the fire insurance policy on book debts acquired by IMC and
LSPI applies to the loss of the ready-made clothing materials sold and delivered
to petitioner.
HELD:
Yes. Nowhere is it provided in the questioned insurance policies that the
subject of the insurance is the goods sold and delivered to the customers and
dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they
do not justify an attempt to read into it any alleged intention of the parties, the
terms are to be understood literally just as they appear on the face of the
contract. Thus, what were insured against were the accounts of IMC and LSPI
with petitioner which remained unpaid 45 days after the loss through fire, and not
the loss or destruction of the goods delivered.
The present case clearly falls under paragraph (1), Article 1504 of the Civil
Code: Unless otherwise agreed, the goods remain at the seller’s risk until the
ownership therein is transferred to the buyer, but when the ownership therein is
transferred to the buyer the goods are at the buyer’s risk whether actual delivery
has been made or not, except that: (1) Where deliveryof the goods has been
made to the buyer or to a bailee for the buyer, in pursuance of the contract and
the ownership in the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the goods are at
the buyer’s risk from the time of such delivery; x x x x Thus, when the seller
retains ownership only to insure that the buyer will pay its debt, the risk of loss is
borne by the buyer. Accordingly, petitioner bears the risk of loss of the goods
delivered.
IMC and LSPI did not lose complete interest over the goods. They have an
insurable interest until full payment of the value of the delivered goods. Unlike
the civil law concept of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property insurance, one’s interest is
not determined by concept of title, but whether insured has substantial economic
interest in the property.
Section 13 of our Insurance Code defines insurable interest as “every
interest in property, whether real or personal, or any relation thereto, or liability
in respect thereof, of such nature that a contemplated peril might directly damnify
the insured.” Parenthetically, under Section 14 of the same Code, an insurable
interest in property may consist in: (a) an existing interest; (b) an inchoate
interest founded on existing interest; or (c) an expectancy, coupled with an
existing interest in that out of which the expectancy arises.
An insurable interest in property does not necessarily imply a property
interest in, or a lien upon, or possession of, the subject matter of the insurance,
and neither the title nor a beneficial interest is requisite to the existence of such
an interest, it is sufficient that the insured is so situated with reference to the
property that he would be liable to loss should it be injured or destroyed by the
peril against which it is insured. Anyone has an insurable interest in property who
derives a benefit from its existence or would suffer loss from its destruction.
Indeed, a vendor or seller retains an insurable interest in the property sold so
long as he has any interest therein, in other words, so long as he would suffer by
its destruction, as where he has a vendor’s lien. In this case, the insurable
interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books
of Account 45 days after the time of the loss covered by the policies.
GREAT PACIFIC LIFE ASSURANCE CORP. V CA
GR NO. 113899 | OCTOBER 13, 1999
FACTS:
A contract of group life insurance was executed between petitioner Great Pacific
Life Assurance Corporation (hereinafter Grepalife) and Development Bank of the
Philippines (hereinafter DBP). Grepalife agreed to insure the lives of eligible
housing loan mortgagors of DBP.
Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for
membership in the group life insurance plan.In an application form, Dr. Leuterio
answered questions concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart condition, high
blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any
other physical impairment?
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [ x ] Yes [ ] No.[4]
On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance
coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness
amounting to eighty-six thousand, two hundred (P86,200.00) pesos.
On August 6, 1984, Dr. Leuterio died due to massive cerebral hemorrhage.
Consequently, DBP submitted a death claim to Grepalife. Grepalife denied the
claim alleging that Dr. Leuterio was not physically healthy when he applied for an
insurance coverage on November 15, 1983. Grepalife insisted that Dr. Leuterio did
not disclose he had been suffering from hypertension, which caused his
death. Allegedly, such non-disclosure constituted concealment that justified the
denial of the claim.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V.
Leuterio, filed a complaint with the Regional Trial Court of Misamis Oriental,
Branch 18, against Grepalife for Specific Performance with Damages.[5] During the
trial, Dr. Hernando Mejia, who issued the death certificate, was called to
testify. Dr. Mejias findings, based partly from the information given by the
respondent widow, stated that Dr. Leuterio complained of headaches presumably
due to high blood pressure. The inference was not conclusive because Dr. Leuterio
was not autopsied, hence, other causes were not ruled out.
RTC: rendered a decision in favor of the widow
CA: affirmed the decision of the trial court
 
ISSUES:
1. Whether or not the action against the insurer has been brought by the real
party in interest (widow) - YES
2. Whether or not there was concealment on the part of Dr. Leuterio. - NO
HELD:
(1) To resolve the issue, we must consider the insurable interest in mortgaged
properties and the parties to this type of contract. The rationale of a group
insurance policy of mortgagors, otherwise known as the mortgage redemption
insurance, is a device for the protection of both the mortgagee and the
mortgagor. On the part of the mortgagee, it has to enter into such form of
contract so that in the event of the unexpected demise of the mortgagor during
the subsistence of the mortgage contract, the proceeds from such insurance will
be applied to the payment of the mortgage debt, thereby relieving the heirs of
the mortgagor from paying the obligation.[7] In a similar vein, ample protection is
given to the mortgagor under such a concept so that in the event of death; the
mortgage obligation will be extinguished by the application of the insurance
proceeds to the mortgage indebtedness.[8] Consequently, where the mortgagor
pays the insurance premium under the group insurance policy, making the loss
payable to the mortgagee, the insurance is on the mortgagors interest, and the
mortgagor continues to be a party to the contract. In this type of policy
insurance, the mortgagee is simply an appointee of the insurance fund, such loss-
payable clause does not make the mortgagee a party to the contract.[9]
Section 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of property effects insurance in his
own name providing that the loss shall be payable to the mortgagee, or assigns a
policy of insurance to a mortgagee, the insurance is deemed to be upon the
interest of the mortgagor, who does not cease to be a party to the original
contract, and any act of his, prior to the loss, which would otherwise avoid the
insurance, will have the same effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of insurance, is to be
performed by the mortgagor, may be performed by the mortgagee therein
named, with the same effect as if it had been performed by the mortgagor.
The insured private respondent did not cede to the mortgagee all his rights or
interests in the insurance, the policy stating that: In the event of the debtors
death before his indebtedness with the Creditor [DBP] shall have been fully paid,
an amount to pay the outstanding indebtedness shall first be paid to the creditor
and the balance of sum assured, if there is any, shall then be paid to the
beneficiary/ies designated by the debtor.[10] When DBP submitted the insurance
claim against petitioner, the latter denied payment thereof, interposing the
defense of concealment committed by the insured.Thereafter, DBP collected the
debt from the mortgagor and took the necessary action of foreclosure on the
residential lot of private respondent.
Insured may be regarded as the real party in interest, although he has assigned
the policy for the purpose of collection, or has assigned as collateral security any
judgment he may obtain.[13]
And since a policy of insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable interest or not, and such
person may recover it whatever the insured might have recovered,[14] the widow
of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.
 
(2) Concealment exists where the assured had knowledge of a fact material to
the risk, and honesty, good faith, and fair dealing requires that he should
communicate it to the assured, but he designedly and intentionally withholds the
same.[15]
Contrary to appellants allegations, there was no sufficient proof that the insured
had suffered from hypertension. Aside from the statement of the insureds widow
who was not even sure if the medicines taken by Dr. Leuterio were for
hypertension, the appellant had not proven nor produced any witness who could
attest to Dr. Leuterios medical history...
Appellant insurance company had failed to establish that there was concealment
made by the insured, hence, it cannot refuse payment of the claim.[17]
The fraudulent intent on the part of the insured must be established to entitle the
insurer to rescind the contract.[18] Misrepresentation as a defense of the insurer to
avoid liability is an affirmative defense and the duty to establish such defense by
satisfactory and convincing evidence rests upon the insurer.[19] In the case at bar,
the petitioner failed to clearly and satisfactorily establish its defense, and is
therefore liable to pay the proceeds of the insurance.
SUNLIFE INSURANCE OF CANADA VS CA
FACTS:
On April 15, 1986, Robert John Bacani procured a life insurance contract for
himself from Sun Life. He was issued a life insurance policy valued at PhP
100,000 with double indemnity in case of accidental death. The designated
beneficiary was his mother, Bernarda.
On June 26, 1987, the insured died in a plane crash. BernardaBacani filed a claim
with Sun Life, seeking the benefits of the insurance. Sun Life conducted an
investigation and its findings prompted it to reject the claim.
Sun Life discovered that 2 weeks prior to his application, Bacani was examined
and confined at the Lung Center of the Philippines, where he was diagnosed for
renal failure. During his confinement, the deceased was subjected to urinalysis,
ultra-sonography and hematology tests. He did not reveal such fact in his
application.
In its letter, Sun Life informed Berarda, that the insured did not disclosed material
facts relevant to the issuance of the policy, thus rendering the contract of
insurance voidable. A check representing the total premiums paid in the amount
of P10,172.00 was attached to said letter.
Bernarda and her husband, filed an action for specific performance against Sun
Life. RTC ruled for Bernarda holding that the facts concealed by the insured were
made in good faith and under the belief that they need not be disclosed.
Moreover, it held that the health history of the insured was immaterial since the
insurance policy was "non-medical." CA affirmed.
ISSUE:
Whether or not the concealment of such material fact, despite it not being the
cause of death of the insured, is sufficient to render the insurance contract
voidable
HELD: NOPE.
Section 26 of the Insurance Code is explicit in requiring a party to a contract of
insurance to communicate to the other, in good faith, all facts within his
knowledge which are material to the contract and as to which he makes no
warranty, and which the other has no means of ascertaining.
Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom communication is due,
in forming his estimate of the disadvantages of the proposed contract or in
making his inquiries (The Insurance Code, Sec 31)
The terms of the contract are clear. The insured is specifically required to disclose
to the insurer matters relating to his health. The information which the insured
failed to disclose were material and relevant to the approval and the issuance of
the insurance policy. The matters concealed would have definitely affected
petitioner's action on his application, either by approving it with the
corresponding adjustment for a higher premium or rejecting the same. Moreover,
a disclosure may have warranted a medical examination of the insured by
petitioner in order for it to reasonably assess the risk involved in accepting the
application.
Thus, "good faith" is no defense in concealment. The insured's failure to disclose
the fact that he was hospitalized for two weeks prior to filing his application for
insurance, raises grave doubts about his bonafides. It appears that such
concealment was deliberate on his part.
Anent the finding that the facts concealed had no bearing to the cause of death of
the insured, it is well settled that the insured need not die of the disease he had
failed to disclose to the insurer. It is sufficient that his non-disclosure misled the
insurer in forming his estimates of the risks of the proposed insurance policy or in
making inquiries.
PHILAMCARE HEALTH SYSTEMS, INC. V. CA (AND JULITA TRINOS)
G.R. NO. 125678 MARCH 18, 2002
FACTS:
Ernani Trinos, deceased husband of respondent, applied for a health care
coverage with petitioner. In the standard application form, he answered no to the
following question: Have you or any of your family members ever consulted or
been treated for high blood pressure, heart trouble, diabetes, cancer, liver
disease, asthma or peptic ulcer? The application was approved for one year, and
he was issued Health Care Agreement No. P010194. Under the agreement, Ernani
was entitled to avail of hospitalization benefits and out-patient benefits (annual
physical exam, preventive health care and other services.) It was extended and
the amount of coverage was increased to a max. sum of P75,000.00 per
disability. Ernani suffered a heart attack and was confined at the Manila Medical
Center (MMC) for 1 month. Respondent tried to claim the benefits under the
Health Care Agreement. However, petitioner denied her claim saying that the
Agreement was void since there was a concealment regarding Ernani’s medical
history. Doctors allegedly discovered at the time of Ernani’s confinement that he
was hypertensive, diabetic and asthmatic, contrary to his answer in the app form.
Thus, respondent paid the hospitalization expenses of about P76,000.00. After
Ernani was discharged, he was attended by a PT at home. Later, he was admitted
at the Chinese General Hospital. Due to financial difficulties, however, respondent
brought her husband home again. In the morning of April 13, 1990, Ernani had
fever and was feeling very weak. Respondent was constrained to bring him back
to the Chinese General Hospital where he died on the same day. Respondent
instituted with RTC Manila an action for damages against petitioner and its
president. She asked for reimbursement of her expenses plus moral damages and
attorney’s fees. RTC ruled in her favor. CA affirmed, but deleted all awards for
damages. MR denied.
ISSUE:
W/N a health care agreement is NOT an insurance contract hence the
incontestability clause under the Insurance Code does not apply.
HELD:
NO. Petition dismissed. Petitioner claimed that it granted benefits only when the
insured is alive during the one-year duration of the Agreement. It contended that
there was no indemnification unlike in insurance contracts. It supported this claim
by saying that it is a health maintenance organization covered by the DOH, not
the Insurance Commission. Lastly, it claimed that the Incontestability Clause
didn’t apply because two-year and not one-year effectivity periods of the
contracts were required.
Section 2 (1) of the Insurance Code defines a contract of insurance as “an
agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event.”
Section 3 states: every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children.
In this case, the husband’s health was the insurable interest. The health care
agreement was in the nature of non-life insurance, which is primarily a contract of
indemnity. The provider must pay for the medical expenses resulting from
sickness or injury.
While petitioner contended that the husband concealed material fact of his
sickness, the contract stated that: “any physician is, by these presents, expressly
authorized to disclose or give testimony at anytime relative to any information
acquired by him in his professional capacity upon any question affecting the
eligibility for health care coverage of the Proposed Members.” This meant that
petitioners required Ernani to sign authorization to furnish reports about his
medical condition. The contract also authorized petitioner to inquire directly to his
medical history. Hence, the contention of concealment is invalid.
They cannot invoke the Invalidation of Agreement Clause where failure of the
insured to disclose information was grounds for revocation simply because the
answer (on the application form) assailed by the company was the heart condition
question based on the insured’s opinion. He wasn’t a medical doctor, so he cannot
accurately gauge his condition.
THELMA VDA. DE CANILANGVS. COURT OF APPEALS
G.R. No. 92492; June 17, 1993
FACTS:
Jaime Canilang was found to have suffered from sinus tachycardia then bronchitis
after a check-up from his doctor. The next day, he applied for a "non-medical"
insurance policy with respondent Grepalife naming his wife, Thelma Canilang, as
his beneficiary. Jaime was issued an ordinary life insurance policy with the face
value of P19,700. Jaime died of “congestive heart failure”, “anemia”, and “chronic
anemia”. Petitioner widow and beneficiary of the insured filed a claim with Great
Pacific which the insurer denied upon the ground that the insured had concealed
material information from it.Thelma then filed a complaint against Great Pacific
with the Insurance Commission for recovery of the insurance proceeds which
ruled in her favor. On appeal, the CA reversed the decision.
ISSUE:
Whether or not the non-disclosure of certain facts about the insured’s previous
health conditions is material to warrant the denial of the claims of Thelma
Canilang
HELD:
YES. The SC agreed with the Court of Appeals that the information which Jaime
Canilang failed to disclose was material to the ability of Great Pacific to estimate
the probable risk he presented as a subject of life insurance. Had Canilang
disclosed his visits to his doctor, the diagnosis made and medicines prescribed by
such doctor, in the insurance application, it may be reasonably assumed that
Great Pacific would have made further inquiries and would have probably refused
to issue a non-medical insurance policy or, at the very least, required a higher
premium for the same coverage. The materiality of the information withheld by
Great Pacific did not depend upon the state of mind of Jaime Canilang. A man’s
state of mind or subjective belief is not capable of proof in our judicial process,
except through proof of external acts or failure to act from which inferences as to
his subjective belief may be reasonably drawn. Neither does materiality depend
upon the actual or physical events which ensure. Materiality relates rather to the
“probable and reasonable influence of the facts” upon the party to whom the
communication should have been made, in assessing the risk involved in making
or omitting to make further inquiries and in accepting the application for
insurance; that “probable and reasonable influence of the facts” concealed must,
of course, be determined objectively, by the judge ultimately. Petition is denied.
TAN V. CA
GR NO. 48049, JUNE 29, 1989
FACTS:
Tan Lee Siong, father of herein petitioners, applied for life insurance in the
amount of P 80,000.00 with PhilamLife. Said application was approved on
November 6, 1973 with petitioners as the beneficiaries.
Tan Lee Siong died of hepatoma on April 26, 1975. Petitioners then filed with
respondent company their claim for the proceeds of the life insurance policy.
Petitioners then filed with respondent company their claim for the proceeds of the
life insurance policy. However, in a letter dated September 11, 1975, respondent
company denied petitioners' claim and rescinded the policy by reason of the
alleged misrepresentation and concealment of material facts made by the
deceased Tan Lee Siong in his application for insurance. The premiums paid on
the policy were thereupon refunded.
Alleging that respondent company's refusal to pay them the proceeds of the
policy was unjustified and unreasonable, petitioners filed on November 27, 1975,
a complaint against the former with the Office of the Insurance Commissioner.
After hearing the evidence of both parties, the Insurance Commissioner rendered
judgment on August 9, 1977, dismissing petitioners' complaint.
ISSUE:
W/N Philam can rescind the insurance contract
HELD:
YES.The petitioners contend that the respondent company no longer had the right
to rescind the contract of insurance as rescission must allegedly be done during
the lifetime of the insured within two years and prior to the commencement of
action.
The contention is without merit.
The pertinent section in the Insurance Code provides:

Section 48. Whenever a right to rescind a contract of insurance is given to
the insurer by any provision of this chapter, such right must be exercised
previous to the commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured shall
have been in force during the lifetime of the insured for a period of two years
from the date of its issue or of its last reinstatement, the insurer cannot prove
that the policy is void ab initio or is rescindable by reason of the fraudulent
concealment or misrepresentation of the insured or his agent.
According to the petitioners, the Insurance Law was amended and the second
paragraph of Section 48 added to prevent the insurance company from exercising
a right to rescind after the death of the insured.
The so-called "incontestability clause" precludes the insurer from raising the
defenses of false representations or concealment of material facts insofar as
health and previous diseases are concerned if the insurance has been in force for
at least two years during the insured's lifetime. The phrase "during the lifetime"
found in Section 48 simply means that the policy is no longer considered in force
after the insured has died. The key phrase in the second paragraph of Section 48
is "for a period of two years."
As noted by the Court of Appeals, to wit:

The policy was issued on November 6,1973 and the insured died on April
26,1975. The policy was thus in force for a period of only one year and five
months. Considering that the insured died before the two-year period had
lapsed, respondent company is not, therefore, barred from proving that the
policy is void ab initio by reason of the insured's fraudulent concealment or
misrepresentation. Moreover, respondent company rescinded the contract of
insurance and refunded the premiums paid on September 11, 1975,
previous to the commencement of this action on November 27,1975.
The legislative answer to the arguments posed by the petitioners is the

"incontestability clause" added by the second paragraph of Section 48.
The insurer has two years from the date of issuance of the insurance contract or
of its last reinstatement within which to contest the policy, whether or not, the
insured still lives within such period. After two years, the defenses of concealment
or misrepresentation, no matter how patent or well founded, no longer lie.
Congress felt this was a sufficient answer to the various tactics employed by
insurance companies to avoid liability. The petitioners' interpretation would give
rise to the incongruous situation where the beneficiaries of an insured who dies
right after taking out and paying for a life insurance policy, would be allowed to
collect on the policy even if the insured fraudulently concealed material facts.
PRUDENTIAL GUARANTEE and ASSURANCE INC., vs. 
TRANS-ASIA SHIPPING LINES, INC.
FACTS:
1. Trans-Asia is the owner of the vessel M/V Asia Korea. In consideration of
payment of premiums, Prudential insured M/V Asia Korea for loss/damage of the
hull and machinery arising from perils, inter alia, of fire and explosion for the sum
of P40 Million, beginning [from] the period [of] July 1, 1993 up to July 1, 1994 as
evidenced by a Marine Policy.
2. On October 25, 1993, while the policy was in force, a fire broke out while M/V
Asia Korea was undergoing repairs at the port of Cebu. Respondent filed its notice
of claim for damage sustained by the vessel.
3. Prudential denied the claim in a letter stating: "After a careful review and
evaluation of your claim arising from the above-captioned incident, it has been
ascertained that you are in breach of policy conditions, among them
"WARRANTED VESSEL CLASSED AND CLASS MAINTAINED". Accordingly, we
regret to advise that your claim is not compensable and hereby DENIED." This
was followed by defendant’s letter requesting the return or payment of the
P3,000,000.00, the loan extended by Prudential to the respondent while the latter
is collecting damages.
4. TRANS-ASIA filed a Complaint for Sum of Money against PRUDENTIAL with the
RTC of Cebu City for the indemnity due upon the insurance policy.
5. The trial court rendered Judgment finding for PRUDENTIAL, that TRANS-ASIA is
required to maintain the vessel at a certain class at all times pertinent during the
life of the policy, and it failed to prove compliance of the terms of the
warranty.the violation thereof entitled PRUDENTIAL, the insured party, to rescind
the contract.
ISSUE:
Whether TRANS-ASIA violated and breached the policy conditions on WARRANTED
VESSEL CLASSED AND CLASS MAINTAINED.
HELD:
No.
A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the
policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, as
contained in the subject insurance contract. PRUDENTIAL, as the party which
asserted the claim of breach of warranty in the policy, has the burden of evidence
to establish the same. TRANS-ASIA was able to establish proof of loss and the
coverage of the loss. Thereafter, the burden of evidence shifted to PRUDENTIAL to
counter TRANS-ASIA’s case, and to prove its special and affirmative defense that
TRANS-ASIA was in violation of the particular condition on CLASSED AND CLASS
MAINTAINED. As it is undisputed that TRANS-ASIA was properly classed at the
time the contract of insurance was entered into, thus, it becomes incumbent upon
PRUDENTIAL to show evidence that the status of TRANS-ASIA as being properly
CLASSED by Bureau Veritas had shifted in violation of the warranty.
Unfortunately, PRUDENTIAL failed to support the allegation. The lack of a
certification in PRUDENTIAL’s records to the effect that TRANS-ASIA’s "M/V Asia
Korea" was CLASSED AND CLASS MAINTAINED at the time of the occurrence of
the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact breached
the warranty contained in the policy.
B. Assuming arguendo that TRANS-ASIA violated the policy condition on

WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a
valid waiver of the same, after the loss, Prudential renewed the insurance policy
of Trans-Asia for two (2) consecutive years, from noon of 01 July 1994 to noon of
01 July 1995, and then again until noon of 01 July 1996. This renewal is deemed
a waiver of any breach of warranty.
MA. LOURDES S. FLORENDO  
vs. PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE ABCEDE
G.R. No. 186983 February 22, 2012
FACTS:
On October 23, 1997 Manuel Florendo filed an application for comprehensive
pension plan with respondent Philam Plans, Inc. (Philam Plans) after some
convincing by respondent PerlaAbcede. The plan had a pre-need price
of P997,050.00, payable in 10 years, and had a maturity value of P2,890,000.00
after 20 years.1 Manuel signed the application and left to Perla the task of
supplying the information needed in the application.2Respondent Ma. Celeste
Abcede, Perla’s daughter, signed the application as sales counselor.3
The comprehensive pension plan also provided life insurance coverage to
Florendo.4This was covered by a Group Master Policy that Philam Life issued to
Philam Plans.5 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.6 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. Further, the life insurance was to
take care of any unpaid premium until the pension plan matured, entitling the
beneficiary to the maturity value of the pension plan.7
On October 30, 1997 Philam Plans issued Pension Plan Agreement to Manuel, with
petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid
his quarterly premiums.9
Eleven months later or on September 15, 1998, Manuel died of blood poisoning.
Subsequently, Lourdes filed a claim with Philam Plans for the payment of the
benefits under her husband’s plan.10 Because Manuel died before his pension plan
matured and his wife was to get only the benefits of his life insurance, Philam
Plans forwarded her claim to Philam Life.11
On May 3, 1999 Philam Plans wrote Lourdes declining her claim. Philam Life found
that Manuel was on maintenance medicine for his heart and had an implanted
pacemaker. Further, he suffered from diabetes mellitus and was taking insulin.
Lourdes renewed her demand for payment under the plan13 but Philam Plans
rejected it,14prompting her to file the present action against the pension plan
company before the RTC of QC.15
On March 30, 2006 the RTC ruled that Manuel was not guilty of concealing the
state of his health from his pension plan application; orderedPhilam Plans, Perla
and Ma. Celeste, solidarily, to pay Lourdes all the benefits from her husband’s
pension plan, namely: P997,050.00, the proceeds of his term insurance,
and P2,890,000.00 lump sum pension benefit upon maturity of his
plan; P100,000.00 as moral damages; and to pay the costs of the suit.
On December 18, 2007, CAreversed the RTC decision,17 holding that insurance
policies are traditionally contracts uberrimaefidae or contracts of utmost good
faith. It required Manuel to disclose conditions affecting the risk of which he
wasaware or material facts that he knew or ought to know.18
ISSUES:
(1) Whether Manuel is guilty of concealing his illness when he kept blank and did
not answer questions in his pension plan application.
(2) Whether Manuel was bound by the failure of Perla and Ma. Celeste to declare
the condition of Manuel’s health.
(3) Whether Philam Plans’ approval of Manuel’s pension plan application and
acceptance of his premium payments precluded it from denying Lourdes’ claim.
HELD:
(1) YES. Lourdes contends that Philam Plans should have returned the application
to him for completion. Since it approved the application just as it was, it cannot
cry concealment on Manuel’s part, that Philam Plans never queried Manuel
directly regarding the state of his health.
Since Philam Plans waived medical examination for Manuel, it had to rely largely
on his stating the truth regarding his health in his application. He knew more than
anyone that he had been under treatment for heart condition and diabetes for
more than five years preceding his application. But he kept those crucial facts
from Philam Plans.
When Manuel signed the application, he adopted as his own the written
representations and declarations embodied in it. It is clear from these
representations that he concealed his chronic heart ailment and diabetes from
Philam Plans. The pertinent portion of his representations and declarations read
as follows:
(c) I have never been treated for heart condition, high blood pressure,
cancer, diabetes, lung, kidney or stomach disorder or any other physical
impairment in the last five years.
(d) I am in good health and physical condition.
Manuel signed the application without filling in the details regarding his continuing
treatments for heart condition and diabetes. The assumption is that he has never
been treated for the said illnesses in the last five years preceding his application.
Lourdes insists that Perla, the soliciting agent, knew that Manuel had a
pacemaker before he signed up for the pension plan.23 But by its tenor, the
responsibility for preparing the application belonged to Manuel. Nothing in it
implies that someone else may provide the information that Philam Plans needed.
Manuel cannot sign the application and disown the responsibility for having it
filled up. If he furnished Perla the needed information and delegated to her the
filling up of the application, then she acted on his instruction, not on Philam Plans’
instruction. Manuel still had his pacemaker when he applied for a pension plan
and it is an admission that he remained under treatment for irregular heartbeat
within five years preceding that application.
Manuel had been taking medicine when he submitted his pension plan application.
These clearly fell within the five-year period. It is not claimed that Perla was
aware of his two other afflictions that needed medical treatments. Pursuant to
Section 27 of IC, Manuel’s concealment entitles Philam Plans to rescind its
contract of insurance with him.
(2) Lourdes contends that the mere fact that Manuel signed the application in
blank and let Perla fill in the details did not make her his agent and bind him to
her concealment of his true state of health. There is no evidence of collusion
between them.
Manuel, in signing the pension plan application, he certified that he wrote all the
information stated in it or had someone do it under his direction. Assuming that it
was Perla who filled up the application form, Manuel is still bound by what it
contains since he certified that he authorized her action.Philam Plans had every
right to act on the faith of that certification.Manuel was made aware when he
signed the pension plan application that, in granting the same, Philam Plans and
Philam Life were acting on the truth of the representations contained in that
application.
Manuel, a civil engineer and manager of a construction company, could be
expected to know that one must read every document, especially if it creates
rights and obligations affecting him, before signing the same. It could reasonably
be expected that he would not trifle with something that would provide additional
financial security to him and to his wife in his twilight years.
(3) Lourdes contends that any defect or insufficiency in the information provided
by his pension plan application should be deemed waived after the same has been
approved, the policy has been issued, and the premiums have been collected. 34
The Court cannot agree. The comprehensive pension plan that Philam Plans
issued contains a one-year incontestability period.
The 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,36 the
one year incontestability period has not yet set in.
CA decision AFFIRMED.
PACIFIC TIMBER V. CA
FACTS:
The plaintiff secured temporary insurance from the defendant for its exportation
of 1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped from
Quezon Province to Okinawa and Tokyo, Japan.
Workmen’s Insurance issued a cover note insuring the cargo of the plaintiff
subject to its terms and conditions.
The two marine policies bore the numbers 53 HO 1032 and 53 HO 1033. Policy
No. 53 H0 1033 was for 542 pieces of logs equivalent to 499,950 board feet.
Policy No. 53 H0 1033 was for 853 pieces of logs equivalent to 695,548 board
feet. The total cargo insured under the two marine policies consisted of 1,395
logs, or the equivalent of 1,195.498 bd. ft.
After the issuance of the cover note, but before the issuance of the two marine
policies Nos. 53 HO 1032 and 53 HO 1033, some of the logs intended to be
exported were lost during loading operations in the Diapitan Bay.
While the logs were alongside the vessel, bad weather developed resulting in 75
pieces of logs which were rafted together co break loose from each other. 45
pieces of logs were salvaged, but 30 pieces were verified to have been lost or
washed away as a result of the accident.
Pacific Timber informed Workmen’s about the loss of 32 pieces of logs during
loading of SS woodlock.
Although dated April 4, 1963, the letter was received in the office of the
defendant only on April 15, 1963. The plaintiff claimed for insurance to the value
of P19,286.79.
Woodmen’s requested an adjustment company to assess the damage. It

submitted its report, where it found that the loss of 30 pieces of logs is not
covered by Policies Nos. 53 HO 1032 and 1033 but within the 1,250,000 bd. ft.
covered by Cover Note 1010 insured for $70,000.00.
The adjustment company submitted a computation of the defendant's probable

liability on the loss sustained by the shipment, in the total amount of P11,042.04.
Woodmen’s wrote the plaintiff denying the latter's claim on the ground they
defendant's investigation revealed that the entire shipment of logs covered by the
two marine policies were received in good order at their point of destination. It
was further stated that the said loss may be considered as covered under Cover
Note No. 1010 because the said Note had become null and void by virtue of the
issuance of Marine Policy Nos. 53 HO 1032 and 1033.
The denial of the claim by the defendant was brought by the plaintiff to the
attention of the Insurance Commissioner. The Insurance Commissioner ruled in
favor of indemnifying Pacific Timber. The company added that the cover note is
null and void for lack of valuable consideration. The trial court ruled in petitioner’s
favor while the CA dismissed the case. Hence this appeal.
ISSUES:
Whether or not the cover note was null and void for lack of valuable
consideration; Whether or not the Insurance company was absolved from
responsibility due to unreasonable delay in giving notice of loss.
HELD:
No to BOTH ISSUES. Judgment reversed.
1. The fact that no separate premium was paid on the Cover Note before the loss
occurred does not militate against the validity of the contention even if no such
premium was paid. All Cover Notes do not contain particulars of the shipment
that would serve as basis for the computation of the premiums. Also, no separate
premiums are required to be paid on a Cover Note.
The petitioner paid in full all the premiums, hence there was no account unpaid
on the insurance coverage and the cover note. If the note is to be treated as a
separate policy instead of integrating it to the regular policies, the purpose of the
note would be meaningless. It is a contract, not a mere application for insurance.
It may be true that the marine insurance policies issued were for logs no longer
including those which had been lost during loading operations. This had to be so
because the risk insured against is for loss during transit, because the logs were
safely placed aboard.
The non-payment of premium on the Cover Note is, therefore, no cause for the
petitioner to lose what is due it as if there had been payment of premium, for
non-payment by it was not chargeable against its fault. Had all the logs been lost
during the loading operations, but after the issuance of the Cover Note, liability
on the note would have already arisen even before payment of premium.
Otherwise, the note would serve no practical purpose in the realm of commerce,
and is supported by the doctrine that where a policy is delivered without requiring
payment of the premium, the presumption is that a credit was intended and
policy is valid.
2. The defense of delay can’t be sustained. The facts show that instead of
invoking the ground of delay in objecting to petitioner's claim of recovery on the
cover note, the insurer never had this in its mind. It has a duty to inquire when
the loss took place, so that it could determine whether delay would be a valid
ground of objection.
There was enough time for insurer to determine if petitioner was guilty of delay in
communicating the loss to respondent company. It never did in the Insurance
Commission. Waiver can be raised against it under Section 84 of the Insurance
Act.
GREAT PACIFIC LIFE ASSURANCE CORPORATION VS. CA
G.R. NO. L-31845
APRIL 30, 1979
FACTS:
On March 14, 1957, private respondent Ngo Hing filed an application with the
Great Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a
twenty-year endownment policy in the amount of P50,000.00 on the life of his
one-year old daughter Helen Go. Said respondent supplied the essential data
which petitioner Lapulapu D. Mondragon, Branch Manager of the Pacific Life in
Cebu City wrote on the corresponding form in his own handwriting (Exhibit I-M).
Mondragon finally type-wrote the data on the application form which was signed
by private respondent Ngo Hing.Upon the payment of the insurance premuim, the
binding deposit receipt (Exhibit E) was issued to private respondent Ngo Hing.
Then on April 30, 1957, Mondragon received a letter from Pacific Life disapproving
the insurance application (Exhibit 3-M). The letter stated that the said life
insurance application for 20-year endowment plan is not available for minors
below seven years old. The non-acceptance of the insurance plan by Pacific Life
was allegedly not communicated by petitioner Mondragon to private respondent
Ngo Hing. Instead, on May 6, 1957, Mondragon wrote back Pacific Life again
strongly recommending the approval of the 20-year endowment 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 on May 28, 1957 Helen Go died of
influenza with complication of bronchopneumonia. Thereupon, private respondent
sought the payment of the proceeds of the insurance, but having failed in his
effort, he filed the action for the recovery of the same before the Court of First
Instance of Cebu, which rendered the adverse decision.
ISSUES:
1. Whether or not the binding deposit receipt constituted a temporary contract of
the life insurance in question; and
2. Whether or not private respondent Ngo Hing concealed the state of health and
physical condition of Helen Go, which rendered void the aforesaid binding
deposit receipt.
HELD:
1. No. The aforequoted provisions printed on Exhibit E 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 reftmded; and (3) that
if the applicant is not ble 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.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in
question is merely an acknowledgment, on behalf of the company, that the
latter's branch office had received from the applicant the insurance premium and
had accepted the application subject for processing by the insurance company;
and that the latter will either approve or reject the same on the basis of whether
or not the applicant is "insurable on standard rates." Since petitioner Pacific Life
disapproved the insurance application of respondent Ngo Hing, the binding
deposit receipt in question had never become in force at any time.
2. Yes. private respondent had deliberately concealed the state of health and
physical condition of his daughter Helen Go. When private respondent supplied
the required essential data for the insurance application form, he was fully aware
that his one-year old daughter is typically a mongoloid child. Such a congenital
physical defect could never be ensconced nor disguised. Nonetheless, private
respondent, in apparent bad faith, withheld the fact material to the risk to be
assumed by the insurance company. As an insurance agent of Pacific Life, he
ought to know, as he surely must have known. his duty and responsibility to such
a material fact. Had he diamond said significant fact in the insurance application
form Pacific Life would have verified the same and would have had no choice but
to disapprove the application outright.
ASIAN TERMINALS, INC., VS. FIRST LEPANTO-TAISHO INSURANCE
CORPORATION
G.R. NO. 185964 JUNE 16, 2014
FACTS:
3,000 bags of sodium tripolyphosphate contained in 100 plain jumbo bags
complete and in good condition were loaded and received on board M/V "Da
Feng" owned by China Ocean Shipping Co. (COSCO) in favor of consignee, Grand
Asian Sales, Inc. (GASI). Based on a Certificate of Insurance, it appears that the
shipment was insured against all risks by GASI with FIRST LEPANTO for
₱7,959,550.50 under Marine Open Policy No. 0123.
The shipment arrived in Manila and was discharged into the possession and
custody of ATI, a domestic corporation engaged in arrastre business. The
shipment remained for quite some time at ATI’s storage area until it was
withdrawn by broker, Proven Customs Brokerage Corporation (PROVEN), on
August 8 and 9, 1996 for delivery to the consignee. Upon receipt of the shipment,
GASI subjected the same to inspection and found that the delivered goods
incurred shortages of 8,600 kilograms and spillage of 3,315 kg for a total
of11,915 kg of loss/damage valued at ₱166,772.41.
FIRST LEPANTO paid GASI the amount of ₱165,772.40 as insurance indemnity.

GASI executed a Release of Claim discharging FIRST LEPANTO from any and all
liabilities pertaining to the lost/damaged shipment and subrogating it to all the
rights of recovery and claims the former may have against any person or
corporation in relation to the lost/damaged shipment.
As such subrogee, FIRST LEPANTO demanded from COSCO, its shipping agency in
the Philippines, SMITH BELL, PROVEN and ATI, reimbursement of the amount it
paid to GASI.
When FIRST LEPANTO’s demands were not heeded, it filed a Complaint for sum of
money before the MeTC Manila. FIRST LEPANTO sought that it be reimbursed the
amount of 166,772.41, twenty-five percent (25%) thereof as attorney’s fees, and
costs of suit.
ATI denied liability for the lost/damaged shipment and claimed that it exercised
due diligence and care in handling the same. ATI averred that upon arrival of the
shipment, SMITH BELL requested for its inspection and it was discovered that one
jumbo bag thereof sustained loss/damage while in the custody of COSCO as
evidenced by Turn Over Survey of Bad Order Cargo No. 47890 dated August 6,
19961 jointly executed by the respective representatives of ATI and COSCO. To
bolster this claim, ATI submitted Request for Bad Order Survey No. 40622 dated
August 9, 1996 jointly executed by the respective representatives of ATI and
PROVEN. ATI interposed a counterclaim of ₱20,000.00 against FIRST LEPANTO as
and for attorney’s fees. It also filed a cross-claim against its co-defendants
COSCO and SMITH BELL in the event that it is made liable to FIRST LEPANTO.
PROVEN denied any liability for the lost/damaged shipment and averred that the
complaint alleged no specific acts or omissions that makes it liable for damages.
The MeTC absolved ATI and PROVEN from any liability and instead found COSCO
to be the party at fault and hence liable for the loss/damage sustained by the
subject shipment. However, the MeTC ruled it has no jurisdiction over COSCO
because it is a foreign corporation. Also, it cannot enforce judgment upon SMITH
BELL because no evidence was presented establishing that it is indeed the
Philippine agent of COSCO. There is also no evidence attributing any fault to
SMITH BELL.
The RTC reversed the MeTC’s findings and rejected the contentions of ATI upon its
observation that the same is belied by its very own documentary evidence. The
RTC remarked that, if, as alleged by ATI, one jumbo bag was already in bad order
condition upon its receipt of the shipment from COSCO on July 18, 1996, then
how come that the Request for Bad Order Survey and the Turn Over Survey of
Bad Order Cargo were prepared only weeks thereafter or on August 9, 1996 and
August 6, 1996, respectively. ATI was adjudged unable to prove that it exercised
due diligence while in custody of the shipment and hence, negligent and should
be held liable for the damages caused to GASI which, in turn, is subrogated by
FIRST LEPANTO. The CA dismissed the appeal and affirmed the RTC decision.
ISSUE:
1. Whether or not ATI is liable to pay First Lepanto for the damaged shipment?
2. Whether First Lepanto needs to present the insurance contract in order to be
reimbursed?
HELD:
1. Yes, ATI is liable. ATI failed to prove that it exercised due care and diligence
while the shipment was under its custody, control and possession as arrastre
operator. The relationship between the consignee and the arrastre operator is akin
to that existing between the consignee and/or the owner of the shipped goods
and the common carrier, or that between a depositor and a warehouseman.
Hence, in the performance of its obligations, an arrastre operator should observe
the same degree of diligence as that required of a common carrier and a
warehouseman. Being the custodian of the goods discharged from a vessel, an
arrastre operator’s duty is to take good care of the goods and to turn them over
to the party entitled to their possession.
In a claim for loss filed by the consignee (or the insurer), the burden of proof to
show compliance with the obligation to deliver the goods to the appropriate party
devolves upon the arrastre operator. Since the safekeeping of the goods is its
responsibility, it must prove that the losses were not due to its negligence or to
that of its employees. To avoid liability, the arrastre operator must prove that it
exercised diligence and due care in handling the shipment.
ATI failed to discharge its burden of proof. Instead, it insisted on shifting the
blame to COSCO on the basis of the Request for Bad Order Survey dated August
9, 1996 purportedly showing that when ATI received the shipment, one jumbo
bag thereof was already in damaged condition.
The RTC and CA were both correct in concluding that ATI’s contention was
improbable and illogical. As judiciously discerned by the courts a quo, the date of
the document was too distant from the date when the shipment was actually
received by ATI from COSCO on July 18, 1996. In fact, what the document
established is that when the loss/damage was discovered, the shipment has been
in ATI’s custody for at least two weeks. This circumstance, coupled with the
undisputed declaration of PROVEN’s witnesses that while the shipment was in
ATI’s custody, it was left in an open area exposed to the elements, thieves and
vandals, all generate the conclusion that ATI failed to exercise due care and
diligence while the subject shipment was under its custody, control and
possession as arrastre operator.
2. No. Non-presentation of the insurance contract is not fatal to FIRST LEPANTO’s

cause of action for reimbursement as subrogee. "Subrogation is the substitution
of one person in the place of another with reference to a lawful claim or right, so
that he who is substituted succeeds to the rights of the other in relation to a debt
or claim, including its remedies or securities." The right of subrogation springs
from Article 2207 of the Civil Code.
As a general rule, the marine insurance policy needs to be presented in evidence

before the insurer may recover the insured value of the lost/damaged cargo in
the exercise of its subrogatory right. In Malayan Insurance Co., Inc. v.Regis
Brokerage Corp., the Court stated that the presentation of the contract
constitutive of the insurance relationship between the consignee and insurer is
critical because it is the legal basis of the latter’s right to subrogation..
An analogous disposition was arrived at in the Wallem case cited by ATI wherein
the Court held that the insurance contract must be presented in evidence in order
to determine the extent of its coverage. It was further ruled therein that the
liability of the carrier from whom reimbursement was demanded was not
established with certainty because the alleged shortage incurred by the cargoes
was not definitively determined.
Nevertheless, the rule is not inflexible. In certain instances, the Court has
admitted exceptions by declaring that a marine insurance policy is dispensable
evidence in reimbursement claims instituted by the insurer.
As discussed above, it is already settled that the loss/damage to the GASI’s

shipment occurred while they were in ATI’s custody, possession and control as
arrastre operator. Verily, the Certificate of Insurance and the Release of Claim
presented as evidence sufficiently established FIRST LEPANTO’s right to collect
reimbursement as the subrogee of the consignee, GASI.
With ATI’s liability having been positively established, to strictly require the
presentation of the insurance contract will run counter to the principle of equity
upon which the doctrine of subrogation is premised. Subrogation is designed to
promote and to accomplish justice and is the mode which equity adopts to compel
the ultimate payment of a debt by one who in justice, equity and good conscience
ought to pay.
The payment by the insurer to the insured operates as an equitable assignment

to the insurer of all the remedies which the insured may have against the third
party whose negligence or wrongful act caused the loss. The right of subrogation
is not dependent upon, nor does it grow out of any privity of contract or upon
payment by the insurance company of the insurance claim. It accrues simply
upon payment by the insurance company of the insurance claim.
MAKATI TUSCANY CONDOMINIUM CORPORATION VS. THE COURT OF
APPEALS
G.R. NO. 95546 NOVEMBER 6, 1992
Provision subject of the controversy:

Sec. 77. An insurer is entitled to the payment of the premium as soon as the
thing 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.
FACTS:
Private respondent American Home Assurance Co. (AHAC), represented by
American International Underwriters (Phils.), Inc., issued in favor of petitioner
Makati Tuscany Condominium Corporation (TUSCANY):
(“1st year” ) Insurance Policy No. AH-CPP-9210452 - 1 March 1982 to
1 March 1983
(“2nd year”) Insurance Policy No. AH-CPP-9210596 - 1 March 1983 to
1 March 1984
The premium was paid on installments, all of which were accepted by private
respondent.
On 20 January 1984, the policy was again renewed and private respondent issued
to petitioner Insurance Policy No. AH-CPP-9210651 for the period 1 March 1984
to 1 March 1985.
On this renewed policy, petitioner made two installment payments, both accepted
by private respondent, the first on 6 February 1984 for P52,000.00 and the
second, on 6 June 1984 for P100,000.00. Thereafter, petitioner refused to pay the
balance of the premium. Consequently, private respondent filed an action to
recover the unpaid balance of P314,103.05 for Insurance Policy No. AH-
CPP-9210651.
In its answer with counterclaim, petitioner admitted the issuance of Insurance

Policy No. AH-CPP-9210651. It explained that it discontinued the payment of
premiums because the policy did not contain a credit clause in its favor and the
receipts for the installment payments covering the policy for 1984-85, as well as
the two (2) previous policies, stated the following reservations:
2. Acceptance of this payment shall not waive any of the company rights to
denyliability on any claim under the policy arising before such payments or
after the expiration of the credit clause of the policy; and
3. Subject to no loss prior to premium payment. If there be any loss such is
not covered.
Petitioner further claimed that the policy was never binding and valid, and no risk
attached to the policy. It then pleaded a counterclaim for P152,000.00 for the
premiums already paid for 1984-85, and in its answer with amended
counterclaim, sought the refund of P924,206.10 representing the premium
payments for 1982-85.
Trial Court: Dismissed the complaint and the counterclaim
CA: Ordered herein petitioner to pay the balance of the premiums due on Policy
No. AH-CPP-921-651, or P314,103.05 plus legal interest until fully paid, and
affirming the denial of the counterclaim. The appellate court thus explained
ISSUE:
Whether payment by installment of the premiums due on an insurance policy
invalidates the contract of insurance, in view of Sec. 77 of P.D. 612, otherwise
known as the Insurance Code, as amended
HELD:
No, payment by installment does not invalidate the contract of insurance.
We hold that the subject policies are valid even if the premiums were paid on
installments. The records clearly show that petitioner and private respondent
intended subject insurance policies to be binding and effective notwithstanding
the staggered payment of the premiums. The initial insurance contract entered
into in 1982 was renewed in 1983, then in 1984. In those three (3) years, the
insurer accepted all the installment payments. Such acceptance of payments
speaks loudly of the insurer's intention to honor the policies it issued to petitioner.
Certainly, basic principles of equity and fairness would not allow the insurer to
continue collecting and accepting the premiums, although paid on installments,
and later deny liability on the lame excuse that the premiums were not prepared
in full.
We therefore sustain the Court of Appeals. We quote with approval the well-
reasoned findings and conclusion of the appellate court contained in its Resolution
denying the motion to reconsider its Decision —
While the import of Section 77 is that prepayment of premiums is strictly required
as a condition to the validity of the contract, We are not prepared to rule that the
request to make installment payments duly approved by the insurer, would
prevent the entire contract of insurance from going into effect despite payment
and acceptance of the initial premium or first installment. Section 78 of the
Insurance Code in effect allows waiver by the insurer of the condition of
prepayment by making an acknowledgment in the insurance policy of receipt of
premium as conclusive evidence of payment so far as to make the policy binding
despite the fact that premium is actually unpaid. Section 77 merely precludes the
parties from stipulating that the policy is valid even if premiums are not paid, but
does not expressly prohibit an agreement granting credit extension, and such an
agreement is not contrary to morals, good customs, public order or public policy
(De Leon, the Insurance Code, at p. 175). So is an understanding to allow insured
to pay premiums in installments not so proscribed. At the very least, both parties
should be deemed in estoppel to question the arrangement they have voluntarily
accepted. 4
The reliance by petitioner on Arce vs. Capital Surety and Insurance 

Co. 5 is unavailing because the facts therein are substantially different from those
in the case at bar. In Arce, no payment was made by the insured at all despite
the grace period given. In the case before Us, petitioner paid the initial
installment and thereafter made staggered payments resulting in full payment of
the 1982 and 1983 insurance policies. For the 1984 policy, petitioner paid two (2)
installments although it refused to pay the balance.
It appearing from the peculiar circumstances that the parties actually intended to
make three (3) insurance contracts valid, effective and binding, petitioner may
not be allowed to renege on its obligation to pay the balance of the premium after
the expiration of the whole term of the third policy (No. AH-CPP-9210651) in
March 1985. Moreover, as correctly observed by the appellate court, where the
risk is entire and the contract is indivisible, the insured is not entitled to a refund
of the premiums paid if the insurer was exposed to the risk insured for any
period, however brief or momentary.
UCPB GENERAL INSURANCE CO., INC.,vs. MASAGANA TELAMART, INC.
FACTS:
Petitioner UCPB issued five insurance policies covering respondent's various
property against fire, for the period from May 22, 1991 to May 22, 1992. Before
the expiration of the Policy, petitioner evaluated the policies and decided not to
renew them upon expiration of their terms on May 22, 1992. Petitioneradvised
respondent's broker, Zuellig Insurance Brokers, Inc. of its intention not to renew
the policies. Notice was given to the respondent of the non-renewal. On June 13,
1992, fire razed respondent's property covered by three of the insurance policies
petitioner issued. No notice of loss was filed by respondent under the policies
prior to July 14, 1992.On July 13, 1992, despite notice, the respondent tendered
the payment of premium through five manager's checks for the period of May 22,
1992 to May 22, 1994.
Private respondent filed a claim for indemnification caused of the insured

property. petitioner returned to respondent the five (5) manager's checks that it
tendered, and at the same time rejected respondent's claim for the reasons (a)
that the policies had expired and were not renewed, and (b) that the fire occurred
on June 13, 1992, before respondent's tender of premium payment.
The Regional Trial Court ruled in favour of the private respondent and
ordered UCPB to pay. The Court of Appeals affirmed the decision and held that
following previous practise, respondent was allowed a sixty (60) to ninety (90)
day credit term for the renewal of its policies, and that the acceptance of the late
premium payment suggested an understanding that payment could be made
later.
ISSUE:
Whether the fire insurance policies issued by petitioner to the respondent
covering the period May 22, 1991 to May 22, 1992, had expired on the latter date
or had been extended or renewed by an implied credit arrangement though actual
payment of premium was tendered on a later date after the occurrence of the risk
(fire) insured against.
HELD:
An insurance policy, other than life, issued originally or on renewal, is not
valid and binding until actual payment of the premium. Any agreement to the
contrary is void.The parties may not agree expressly or impliedly on the extension
of credit or time to pay the premium and consider the policy binding before actual
payment.Here, the payment of the premium for renewal of the policies was
tendered on July 13, 1992, a month after the fire occurred on June 13, 1992. The
assured did not even give the insurer a notice of loss within a reasonable time
after occurrence of the fire.
UCPB GENERAL INSURANCE CO. INC. vs. MASAGANA TELAMART, INC.
[G.R. No. 137172. April 4, 2001]
FACTS:
(This case is a resolution on the MR in the 1999 case. Please refer to Case 27.
UCPB General Insurance vs. MasaganaTelamart (June 15, 1999) for the detailed
version of the facts.)
SYNOPSIS of the 1999 case: On April 15, 1991, petitioner issued five
(5) insurance policies covering respondent's various properties
against fire. On April 6, 1992, petitioner gave written notice to
respondent of the non-renewal of the policies. On June 13, 1992, fire
razed respondent's property covered by three of the insurance policies
petitioner issued. On July 13, 1992, respondent presented to
petitioner's cashier five (5) manager's checks representing premium
for the renewal of the policies from May 22, 1992 to May 22,
1993. No notice of loss was filed by respondent under the policies
prior to July 14, 1992. On July 14, 1992, respondent filed with
petitioner its claim for indemnification of the insured property razed
by fire. On the same day, petitioner returned to respondent the
manager's checks it tendered and at the same time rejected its claim.
Respondent thus filed a civil complaint against petitioner with the
Regional Trial Court (RTC) for recovery of the face value of the
policies. The RTC rendered judgment in favor of the plaintiff. The
Court of Appeals affirmed the decision rendered by the RTC. Hence,
this appeal.
The Court reversed the decision of the Court of Appeals. It held that
an insurance policy, other than life, issued originally or on renewal, is
not valid and binding until actual payment of the premium. Any
agreement to the contrary is void. The parties may not agree
expressly or impliedly on the extension of credit or time to pay the
premium and consider the policy binding before actual payment.
From the decision of the SC in the 1999 case, MasaganaTelemart filed a MR.
MasaganaTelemart’s contention/s:
It alleged that the SC had made in its decision its own findings of facts, which are
not in accord with those of the RTC and the CA. The courts below correctly found
that no notice of non-renewal was made within 45 days beforeMay 22, 1992, or
before the expiration date of the fire insurance policies. Thus, the policies in
question were renewed by operation of law and were effective and valid on June
30, 1992 when the fire occurred, since the premiums were paid within the 60- to
90-day credit term.
It disagreed with the SC ruling that parties may neither agree expressly or
impliedly on the extension of credit or time to pay the premium nor consider a
policy binding before actual payment. It urges the Court to take judicial notice of
the fact that despite the express provision of Section 77 of the Insurance Code,
extension of credit terms in premium payment has been the prevalent practice in
the insurance industry. Most insurance companies, including Petitioner, extend
credit terms because Section 77 of the Insurance Code is not a prohibitive
injunction but is merely designed for the protection of the parties to an insurance
contract. The Code itself, in Section 78, authorizes the validity of a policy
notwithstanding non-payment of premiums.
The principle of estoppel applies to Petitioner. Despite its awareness of Section

77, Petitioner persuaded and induced Respondent to believe that payment of
premium on the 60- to 90-day credit term was perfectly alright; in fact it
accepted payments within 60 to 90 days after the due dates. By extending credit
and habitually accepting payments 60 to 90 days from the effective dates of the
policies, it has implicitly agreed to modify the tenor of the insurance policy and in
effect waived the provision therein that it would pay only for the loss or damage
in case the same occurred after payment of the premium.
UCPB’s contention/s:
Both the RTC and the CA overlooked the fact that on April 6, 1992, petitioner sent
by ordinary mail to respondent a notice of non-renewal and sent by personal
delivery a copy thereof to Respondents broker, Zuellig. Both courts likewise
ignored the fact that Respondent was fully aware of the notice of non-renewal. A
reading of Section 66 of the Insurance Code readily shows that in order for an
insured to be entitled to a renewal of a non-life policy, payment of the premium
due on the effective date of renewal should first be made. Respondent’s argument
that Section 77 is not a prohibitive provision finds no authoritative support.
ISSUE:
Whether Section 77 of the Insurance Code of 1978 (P.D. No. 1460) must be
strictly applied to UCPS’s advantage despite its practice of granting a 60- to 90-
day credit term for the payment of premiums.
HELD:
NO. Upon a meticulous review of the records and re-evaluation of the issues
raised in the MR and the pleadings filed by the parties, the SC resolved to grant
the MR.
SEC. 77 of the Insurance Code provides: “An insurer is entitled to payment of the
premium as soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until
the premium thereof has been paid, except in the case of a life or an industrial
life policy whenever the grace period provision applies.”
The above-quoted provision is a reproduction of Section 77 of P.D. No. 612 (The
[Old] Insurance Code).In turn, this Section has its source in Section 72 of Act No.
2427 otherwise known as the Insurance Act as amended by R.A. No. 3540, which
read: “SEC. 72. An insurer is entitled to payment of premium as soon as the thing
insured is exposed to the peril insured against, unless there is clear agreement to
grant the insured credit extension of the premium due. No policy issued by an
insurance company is valid and binding unless and until the premium thereof has
been paid. (Underscoring supplied)”
Section 77 does not restate the portion of Section 72 expressly permitting an

agreement to extend the period to pay the premium. But there are exceptions to
Section 77.
The first exception is provided by Section 77 itself, and that is, in case of a life or
industrial life policy whenever the grace period provision applies.
The second is that covered by Section 78 of the Insurance Code, which

provides:“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.
A third exception was laid down in Makati Tuscany Condominium Corporation vs.
Court of Appeals, wherein SC 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
The Tuscany case has provided a fourth exception to Section 77, namely, that the
insurer may grant credit extension for the payment of the premium.This simply
means that if the insurer has granted the insured a credit term for the payment of
the premium and loss occurs before the expiration of the term, recovery on the
policy should be allowed even though the premium is paid after the loss but
within the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an

insurance contract to provide a credit term within which to pay the
premiums. That agreement is not against the law, morals, good customs, public
order or public policy. The agreement binds the parties.
It would be unjust and inequitable if recovery on the policy would not be

permitted against Petitioner, which had consistently granted a 60- to 90-day
credit term for the payment of premiums despite its full awareness of Section
77. Estoppel bars it from taking refuge under said Section, since Respondent
relied in good faith on such practice. Estoppel then is the fifth exception to
Section 77.
AMERICAN HOME INSURANCE VS CHUA
G.R. NO. 130421
FACTS:
Petitioner is a domestic corporation engaged in the insurance business. Sometime
in 1990, respondent obtained from petitioner a fire insurance covering the stock-
in-trade of his business, Moonlight Enterprises, located at Valencia, Bukidnon. The
insurance was due to expire on 25 March 1990. 
 
On 5 April 1990 respondent issued PCIBank Check No. 352123 in the amount of
P2,983.50 to petitioner's agent, James Uy, as payment for the renewal of the
policy. In turn, the latter delivered Renewal Certificate No. 00099047 to
respondent. The check was drawn against a Manila bank and deposited in
petitioner's bank account in Cagayan de Oro City. The corresponding official
receipt was issued on 10 April. Subsequently, a new insurance policy, Policy No.
206-4234498-7, was issued, whereby petitioner undertook to indemnify
respondent for any damage or loss arising from fire up to P200,000 for the period
25 March 1990 to 25 March 1991. 
 
On 6 April 1990 Moonlight Enterprises was completely razed by fire. Total loss
was estimated between P4,000,000 and P5,000,000. Respondent filed an
insurance claim with petitioner and four other co-insurers, namely, Pioneer
Insurance and Surety Corporation, Prudential Guarantee and Assurance, Inc.,
Filipino Merchants Insurance Co. and Domestic Insurance Company of the
Philippines. Petitioner refused to honor the claim notwithstanding several
demands by respondent, thus, the latter filed an action against petitioner before
the trial court. 
 
In its defense, petitioner claimed there was no existing insurance contract when
the fire occurred since respondent did not pay the premium.
ISSUE:
WON an insurance contract was valid when the loss occurred
HELD:
Yes. The general rule in insurance laws is that unless the premium is paid the
insurance policy is not valid and binding. The only exceptions are life and
industrial life insurance.[6] Whether payment was indeed made is a question of
fact which is best determined by the trial court. The trial court found, as affirmed
by the Court of Appeals, that there was a valid check payment by respondent to
petitioner. Well-settled is the rule that the factual findings and conclusions of the
trial court and the Court of Appeals are entitled to great weight and respect, and
will not be disturbed on appeal in the absence of any clear showing that the trial
court overlooked certain facts or circumstances which would substantially affect
the disposition of the case.[7] We see no reason to depart from this ruling. 
 
According to the trial court the renewal certificate issued to respondent contained
the acknowledgment that premium had been paid. It is not disputed that the
check drawn by respondent in favor of petitioner and delivered to its agent was
honored when presented and petitioner forthwith issued its official receipt to
respondent on 10 April 1990. Section 306 of the Insurance Code provides that
any insurance company which delivers a policy or contract of insurance to an
insurance agent or insurance broker shall be deemed to have authorized such
agent or broker to receive on its behalf payment of any premium which is due on
such policy or contract of insurance at the time of its issuance or delivery or
which becomes due thereon.[8] In the instant case, the best evidence of such
authority is the fact that petitioner accepted the check and issued the official
receipt for the payment. It is, as well, bound by its agent's acknowledgment of
receipt of payment. 
 
Section 78 of the Insurance Code explicitly provides: 
 
An acknowledgment in a policy or contract of insurance of the receipt of premium
is conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until the
premium is actually paid. 
 
This Section establishes a legal fiction of payment and should be interpreted as
an exception to Section 77
TIBAY VS. CA (257 SCRA 126)
FACTS:
Fortune Life issued a fire insurance Policy to Tibay on her two-storey
residential building at Zobel Street, Makati City. The insurance was for
P600,000.00 covering the period from January 23, 1987 to January 23, 1988. On
January 23, 1987, Tibayhas only paid P600.00 out of the 3,000 peso premium
and left a balance.
The insured building was completely destroyed by fire. Tibay then paid the
balance on the same day that she filed a claim on the policy. However, Fortune
denied the claim for violation of the Insurance Code. As a result, Tibay sued for
damages in the amount of P600,000.00 representing the total coverage of the
policy.The petitioner contended that Fortune remained liable under the subject
fire insurance policy despite the failure of the petitioners to pay their premium in
full.
ISSUE:
Whether or not a fire insurance policy is valid, binding and enforceable
despite mere partial payment of premium?
HELD:
No.
The pertinent provisions of the insurance policy read:
2. This policy including any renewal thereof and/or any endorsement
thereon is not in force until the premium has been fully paid to and duly
receipted by the Company in the manner provided herein.
This policy shall be deemed effective, valid and binding upon the Company
only when the premiums therefor have actually been paid in full and duly
acknowledged in a receipt signed by any authorized official of the company.
Where the premium has only been partially paid and the balance paid only
after the peril insured against has occurred, the insurance contract did not take
effect and the insured cannot collect at all on the policy.
Verily, it is elemental law that the payment of premium is required to keep
the policy of insurance in force. If the premium is not paid in the manner
prescribed in the policy as intended by the parties, the policy is ineffective.
Partial payment even when accepted as a partial payment will not keep the policy
alive.
The terms of the insurance 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.
PHILIPPINE PHOENIX SURETY & INSURANCE COMPANY V. WOODWORKS,
INC.
G.R. NO. L-25317; AUGUST 6, 1979
FACTS:
Petitioner (Philippine Phoenix) issued in favor of respondent (Woodworks) a
Fire Insurance Policy for P500,000 for its building, machinery, and equipment for
a term of one year against loss by fire. However, respondent did not pay the
premium stipulated in the policy when it was issued nor at any time thereafter.
Before the expiration of the term, petitioner was notified of the cancellation of the
policy, allegedly at the request of the respondent. Petitioner claimed a balance of
P7,483.11 representing the earned premium of the policy, but respondent
contended that it need not pay premium because the insurer did not stand liable
fore any indemnity during the period the premiums were not paid.
Petitioner filed an action before the CFI to recover the amount of the
alleged earned premium. Respondent however stated that its failure to pay the
premium after the issuance of the policy put an end to the insurance contract and
rendered the policy unenforceable. The CFI ruled in favor of petitioner ordering
the payment of the premium with interest of 6% per annum.
On appeal, the case was certified by the CA to the SC as based on a
question of law.
ISSUE:
Whether or not the fire insurance policy was binding even if the premium stated
in the policy has not been paid.
HELD:
No. Insurance is “a contract whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or
contingent event.” The consideration is the “premium”. “The premium must be
paid at the time and in the way and manner specified in the policy and, if not so
paid, the policy will lapse and be forfeited by its own terms.”
The Policy provides for pre-payment of premium. Accordingly; “when the
policy is tendered the insured must pay the premium unless credit is given or
there is a waiver, or some agreement obviating the necessity for prepayment.”To
constitute an extension of credit there must be a clear and express agreement
therefor.” Based on the provisions of the Policy, there was no clear agreement that
a credit extension was accorded to respondent. And even if it were to be
presumed that petitioner had extended credit from the circumstances of the
unconditional delivery of the Policy without prepayment of the premium, yet it is
obvious that respondent had not accepted the insurer’s offer to extend credit,
which is essential for the validity of such agreement.
Since the premium had not been paid, the policy must be deemed to have
lapsed.“The non-payment of premiums does not merely suspend but puts an end
to an insurance contract, since the time of thepayment is peculiarly of the
essence of the contract.” the rule is that under policy provisions that upon the
failure to make a payment of a premium or assessment at the time provided for,
the policy shall become void or forfeited, or the obligation of the insurer shall
cease, or words to like effect, because the contract so prescribes and such a
Stipulation is a material and essential part on the contract. This is true, for
instance, in the case of life, health and accident, fire and hail insurance policies.
BONIFACIO BROS, INC., ET AL V ENRIQUE MORA
GR NO. L-20853 | MAY 20, 1967
FACTS:
Enrique Mora, owner of Oldsmobile sedan model 1956, mortgaged the same to
the H.S. Reyes, Inc., with the condition that the former would insure the
automobile with the latter as beneficiary. The automobile was thereafter insured
on with the State Bonding & Insurance Co., Inc., and motor car insurance policy
A-0615 was issued to Enrique Mora. Paragraph 4 of the policy provides:
 
4. The Insured may authorize the repair of the Motor Vehicle necessitated by
damage for which the Company may be liable under this Policy provided that: —
(a) The estimated cost of such repair does not exceed the Authorized Repair
Limit, (b) A detailed estimate of the cost is forwarded to the Company without
delay, subject to the condition that "Loss, if any is payable to H.S. Reyes, Inc.,"
by virtue of the fact that said Oldsmobile sedan was mortgaged in favor of the
said H.S. Reyes, Inc. and that under a clause in said insurance policy, any loss
was made payable to the H.S. Reyes, Inc. as Mortgagee;
 
During the effectivity of the insurance contract, the car met with an accident. The
insurance company then assigned the accident to the Bayne Adjustment Co. for
investigation and appraisal of the damage. Enrique Mora, without the knowledge
and consent of the H.S. Reyes, Inc., authorized the Bonifacio Bros. Inc. to furnish
the labor and materials, some of which were supplied by the Ayala Auto Parts Co.
For the cost of labor and materials, Enrique Mora was billed at P2,102.73 through
the H.H. Bayne Adjustment Co. The insurance company after claiming a franchise
in the amount of P100, drew a check in the amount of P2,002.73, as proceeds of
the insurance policy, payable to the order of Enrique Mora or H.S. Reyes,. Inc.,
and entrusted the check to the H.H. Bayne Adjustment Co. for disposition and
delivery to the proper party. In the meantime, the car was delivered to Enrique
Mora without the consent of the H.S. Reyes, Inc., and without payment to the
Bonifacio Bros. Inc. and the Ayala Auto Parts Co. of the cost of repairs and
materials.
 
Upon the theory that the insurance proceeds should be paid directly to them, the
Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed on May 8, 1961 a complaint
with the Municipal Court of Manila against Enrique Mora and the State Bonding &
Insurance Co., Inc. for the collection of the sum of P2,002.73.
MTC: H.S Reyes has a better right over the proceeds

CFI: affirmed the decision of the MTC
 
ISSUE:
Whether there is privity of contract between the Bonifacio Bros. Inc. and the
Ayala Auto Parts Co. on the one hand and the insurance company on the other.
 
HELD: NO
The appellants seek to recover the insurance proceeds, and for this purpose, they
rely upon paragraph 4 of the insurance contract document executed by and
between the State Bonding & Insurance Company, Inc. and Enrique Mora. The
appellants are not mentioned in the contract as parties thereto nor is there any
clause or provision thereof from which we can infer that there is an obligation on
the part of the insurance company to pay the cost of repairs directly to them. It is
fundamental that contracts take effect only between the parties thereto, except in
some specific instances provided by law where the contract contains some
stipulation in favor of a third person. 1 Such stipulation is known as
stipulation pour autrui or a provision in favor of a third person not a party to the
contract. Under this doctrine, a third person is allowed to avail himself of a benefit
granted to him by the terms of the contract, provided that the contracting parties
have clearly and deliberately conferred a favor upon such person.2Consequently, a
third person not a party to the contract has no action against the parties thereto,
and cannot generally demand the enforcement of the same.3 The question of
whether a third person has an enforcible interest in a contract, must be settled by
determining whether the contracting parties intended to tender him such an
interest by deliberately inserting terms in their agreement with the avowed
purpose of conferring a favor upon such third person. In this connection, this
Court has laid down the rule that the fairest test to determine whether the
interest of a third person in a contract is a stipulation pour autrui or merely an
incidental interest, is to rely upon the intention of the parties as disclosed by their
contract.4 In the instant case the insurance contract does not contain any words
or clauses to disclose an intent to give any benefit to any repairmen or
materialmen in case of repair of the car in question. The parties to the insurance
contract omitted such stipulation, which is a circumstance that supports the said
conclusion. On the other hand, the "loss payable" clause of the insurance policy
stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was
only the H.S. Reyes, Inc. which they intended to benefit.
 
As regards paragraph 4 of the insurance contract, a perusal thereof would show
that instead of establishing privity between the appellants and the insurance
company, such stipulation merely establishes the procedure that the insured has
to follow in order to be entitled to indemnity for repair. This paragraph therefore
should not be construed as bringing into existence in favor of the appellants a
right of action against the insurance company as such
intention can never be inferred therefrom.
Another cogent reason for not recognizing a right of action by the appellants
against the insurance company is that "a policy of insurance is a distinct and
independent contract between the insured and insurer, and third persons have no
right either in a court of equity, or in a court of law, to the proceeds of it, unless
there be some contract of trust, expressed or implied between the insured and
third person."5 In this case, no contract of trust, expressed or implied exists. We,
therefore, agree with the trial court that no cause of action exists in favor of the
appellants in so far as the proceeds of insurance are concerned. The appellants'
claim, if at all, is merely equitable in nature and must be made effective through
Enrique Mora who entered into a contract with the Bonifacio Bros. Inc. This
conclusion is deducible not only from the principle governing the operation and
effect of insurance contracts in general, but is clearly covered by the express
provisions of section 50 of the Insurance Act which read:
The insurance shall be applied exclusively to the proper interests of the
person in whose name it is made unless otherwise specified in the policy.
The policy in question has been so framed that "Loss, if any, is payable to H.S.
Reyes, Inc.," which unmistakably shows the intention of the parties.
INSULAR LIFE INSURANCE VS. EBRADO
FACTS:
Cristor Ebrado was issued by The Life Assurance Co., Ltd., a policy for P5,882.00
with a rider for Accidental Death. He designated Carponia T. Ebrado as the
revocable beneficiary in his policy. He referred to her as his wife.
Cristor was killed when he was hit by a failing branch of a tree. Insular Life was
made liable to pay the coverage in the total amount of P11,745.73, representing
the face value of the policy in the amount of P5,882.00 plus the additional
benefits for accidental death.
Carponia T. Ebrado filed with the insurer a claim for the proceeds as the
designated beneficiary therein, although she admited that she and the insured
were merely living as husband and wife without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased
insured. She asserts that she is the one entitled to the insurance proceeds.
Insular commenced an action for Interpleader before the trial court as to who
should be given the proceeds. The court declared Carponia as disqualified.
ISSUE:
WON a common-law wife named as beneficiary in the life insurance policy of a
legally married man can claim the proceeds in case of death of the latter?
HELD:
No.
Ratio:
Sec. 50 of Insurance Act which provides that "the insurance shall be applied
exclusively to the proper interest of the person in whose name it is made"
The word "interest" highly suggests that the provision refers only to the "insured"
and not to the beneficiary, since a contract of insurance is personal in character.
Otherwise, the prohibitory laws against illicit relationships especially on property
and descent will be rendered nugatory, as the same could easily be circumvented
by modes of insurance.
When not otherwise specifically provided for by the Insurance Law, the contract of
l i f e i n s u ra n c e i s g o v e r n e d b y t h e g e n e ra l r u l e s o f t h e c i v i l l a w
regulating contracts. And under Art. 2012 of the same Code, any person who is
forbidden from receiving any donation under Art. 739 cannot be named
beneficiary of a fife insurance policy by the person who cannot make a donation
to him. Common-law spouses are barred from receiving donations from each
other.
Article 739 provides that void donations are those made between persons who
were guilty of adultery or concubinage at the time of donation.There is every
reason to hold that the bar in donations between legitimate spouses and those
between illegitimate ones should be enforced in life insurance policies since the
same are based on similar consideration. So long as marriage remains the
threshold of family laws, reason and morality dictate that the impediments
imposed upon married couple should likewise be imposed upon extra-marital
relationship.
A conviction for adultery or concubinage isn’t required exacted before

the disabilities mentioned in Art. 739 may effectuate. The article says that in the
case referred to in No. 1, the action for declaration of nullity may be brought by
the spouse of the donor or donee; and the guilty of the donee may be proved by
preponderance of evidence in the same action.
The underscored clause neatly conveys that no criminal conviction for the offense
is a condition precedent. The law plainly states that the guilt of the party may be
proved “in the same acting for declaration of nullity of donation.” And, it would be
sufficient if evidence preponderates.
The insured was married to Pascuala Ebrado with whom she has six legitimate
children. He was also living in with his common-law wife with whom he has two
children.
Common-law spouses are, definitely, barred from receiving donations from each
other. In essence, a life insurance policy is no different from a civil donation
insofar as the beneficiary is concerned. Both are founded upon the same
consideration: liberality. A beneficiary is like a donee, because from the premiums
of the policy which the insured pays out of liberality, the beneficiary will receive
the proceeds or profits of said insurance. As a consequence, the proscription in
Article 739 of the new Civil Code should equally operate in life insurance
contracts.
BASILIA BERDIN VDA. DE CONSUEGRA V. GSIS
G.R. NO. L-28093 JANUARY 30, 1971
FACTS:
The late Jose Consuegra, contracted two marriages, the first with herein
respondent Rosario Diaz, which marriage were born two children but both
predeceased their father; and the second, which was contracted in good faith
while the first marriage was subsisting, with herein petitioner, which marriage
were born seven children. Being a member of GSIS when Consuegra died, the
proceeds of his life insurance were paid by the GSIS to petitioner and her children
who were the beneficiaries. Consuegra did not designate any beneficiary who
would receive the retirement insurance benefits due to him. Respondent Rosario
Diaz, widow by the first marriage, filed a claim with GSIS asking that the
retirement insurance benefits be paid to her as the only legal heir, considering
that the deceased did not designate any beneficiary with respect to such benefits.
Petitioner and her children, likewise, filed a similar claim, asserting that being the
beneficiaries named in the life insurance policy, they are the only ones entitled to
receive the retirement insurance benefits. Resolving the conflicting claims, the
GSIS ruled that the legal heirs were Rosario Diaz who is entitled to one-half, or
8/16, of the retirement insurance benefits, on the one hand; and Basilia Berdin,
his widow by the second marriage and their seven children, on the other hand,
who are entitled to the remaining one-half, or 8/16, each of them to receive an
equal share of 1/16. Dissatisfied, petitioners filed a petition for mandamus with
preliminary injunction in CFI Surigao praying that they be declared the legal heirs
and exclusive beneficiaries of the retirement insurance, and that a writ of
preliminary injunction be issued restraining the implementation of the
adjudication made by the GSIS. CFI rendered jjudgment declaring the petitioners
as beneficiaries entitled to one-half (1/2) of the retirement benefit. Likewise, the
respondent Rosario Diaz Vda. de Consuegra is hereby declared beneficiary and
entitled to the other half.
ISSUE:
W/N both families (from the two marriages) are entitled to the retirement
benefits.
HELD:
YES. Sec.11(b) of CA 186, as amended by Rep. Act 660, clearly indicate that
there is need for the employee to file an application for retirement insurance
benefits when he becomes a member of the GSIS, and he should state the
beneficiary. Hence, the beneficiary named in the life insurance does not
automatically become the beneficiary in the retirement insurance unless the same
beneficiary in the life insurance is so designated. The beneficiary of the retirement
insurance can only claim the proceeds if the employee dies before retirement. If
the employee failed or overlooked to state the beneficiary of his retirement
insurance, the retirement benefits will accrue to his estate and will be given to his
legal heirs in accordance with law, as in the case of a life insurance if no
beneficiary is named in the insurance policy. GSIS had correctly acted when it
ruled that the proceeds of the retirement insurance should be divided equally
between his first living wife Rosario Diaz and his second wife Basilia Berdin and
his children by her.
CFI did not commit error when it confirmed the action of the GSIS, it being
accepted as a fact that the second marriage was contracted in good faith. In the
case of Gomez vs. Lipana, in construing the rights of two women who were
married to the same man — a situation more or less similar to the case of
appellant Basilia Berdin and appellee Rosario Diaz — held "that since the
defendant's first marriage has not been dissolved or declared void the conjugal
partnership established by that marriage has not ceased. Nor has the first wife
lost or relinquished her status as putative heir of her husband under the new Civil
Code, entitled to share in his estate upon his death should she survive him.
Consequently, whether as conjugal partner in a still subsisting marriage or as
such putative heir she has an interest in the husband's share in the property here
in dispute.... " And with respect to the right of the second wife, this Court
observed that although the second marriage can be presumed to be void ab initio
as it was celebrated while the first marriage was still subsisting, still there is need
for judicial declaration of such nullity. And inasmuch as the conjugal partnership
formed by the second marriage was dissolved before judicial declaration of its
nullity, "the only lust and equitable solution in this case would be to recognize the
right of the second wife to her share of one-half in the property acquired by her
and her husband and consider the other half as pertaining to the conjugal
partnership of the first marriage."
Decision appealed from is affirmed.
GO VS. REDFERN
G.R. 47705, 25 April 1941
Note: Original decision in Spanish [Rough translation] 

FACTS:
In October 1937, Edward K. Redfern obtained an insurance policy against
accidents from the International Assurance Co, Ltd. On 31 August 1938, Redfern
died from an accident. The mother of the deceased, presenting the necessary
evidence of the death of Redfern, sought to claim the proceeds of the insurance
policy from the insurance company. The company, however, denied such claim, on
the ground that the insurance policy was amended on 22 November 1937 to
include another beneficiary, Concordia Go. Hence, an action was filed to
determine who has the right to collect the insurance proceeds of the deceased
Redfern. The mother claimed that the addition of the co-beneficiary is illegal. Go,
on her part, alleged the contrary. The trial court ruled in favor of Angela Redfern,
the mother. Go appealed.
 
ISSUE:
Whether the addition of Go’s name as co-beneficiary can be allowed for her share
in the insurance proceeds
 
HELD:
When designated in a policy, the beneficiary acquires a right of which he cannot
be deprived of without his consent, unless the right has been reserved specifically
to the insured to modify the policy. The same doctrine was enunciated by the
Court in the cases of Gercio vs. Sun Life Assurance Co. of Canada (48 Phil. 55)
and Insular Life vs. Suva (34 Off. Gaz. 861). Thus, unless the insured has
reserved specifically the right to change or to modify the policy, with respect to
the beneficiary, said policy constitutes an acquired right of the beneficiary, which
cannot be modified except with the consent of the latter. Herein, it is admitted
that Redfern did not reserve expressly his right to change or modify the policy.
Change implies the idea of an alteration. The addition of Go's name as one of the
beneficiaries of the policy constitutes change as all addition is an alteration. The
addition of Go's name changed the policy inasmuch as there are two beneficiaries
instead of one, and thus in effect the original beneficiary cannot receive the full
amount of the policy. The Supreme Court affirmed the appealed judgment in all of
its parts, with costs against Go.
COUNTRY BANKERS INSURANCE CORP v. LIANGA BAY AND COMMUNITY
MULTIPURPOSE CORPORATION, G.R. No. 136914. January 25, 2002
FACTS:
Country Bankers Insurance Corporation (CBIC) is a domestic corporation
principally engaged in the insurance business wherein it undertakes, for a
consideration, to indemnify another against loss, damage or liability from an
unknown or contingent event including fire while Lianga Bay and Community
Multipurpose Cooperative Inc. (LBCMCI) is a duly registered cooperative judicially
declared insolvent and represented by the elected assignee, Cornelio Jamero.
It appears that sometime in 1989, the CBIC and LBCMCI entered into a contract
of fire insurance. Under Fire Insurance Policy F-1397, CBIC insured LBCMCI's
stocks-in-trade against fire loss, damage or liability during the period starting
from 20 June 1989 at 4:00 p.m. to 20 June 1990 at 4:00 p.m., for the sum of
P200,000.00.
On 1 July 1989, at or about 12:40 a.m., LBCMCI's building located at Barangay

Diatagon, Lianga, Surigaodel Sur was gutted by fire and reduced to ashes,
resulting in the total loss of LBCMCI's stocks-in-trade, pieces of furniture and
fixtures, equipments and records. Due to the loss, LBCMCI filed an insurance
claim with CBIC under its Fire Insurance Policy F-1397, submitting: (a) the Spot
Report of Pfc. Arturo V. Juarbal, INP Investigator, dated 1 July 1989; (b) the
Sworn Statement of Jose Lomocso; and (c) the Sworn Statement of Ernesto
Urbiztondo.
CBIC, however, denied the insurance claim on the ground that, based on the
submitted documents, the building was set on fire by 2 NPA rebels who wanted to
obtain canned goods, rice and medicines as provisions for their comrades in the
forest, and that such loss was an excepted risk under paragraph 6 of the policy
conditions of Fire Insurance Policy F1397, which provides that "This insurance
does not cover any loss or damage occasioned by or through or in consequence,
directly or indirectly, of any of the following occurrences, namely: xxx (d) Mutiny,
riot, military or popular uprising, insurrection, rebellion, revolution, military or
usurped power. Any loss or damage happening during the existence of abnormal
conditions (whether physical or otherwise) which are occasioned by or through or
in consequence, directly or indirectly, of any of said occurrences shall be deemed
to be loss or damage which is not covered by this insurance, except to the extent
that the Insured shall prove that such oss or damage happened independently of
the existence of such abnormal conditions."
Finding the denial of its claim unacceptable, LBCMCI then instituted in the trial
court the complaint for recovery of "loss, damage or liability" against CBIC. In
due time, the trial court rendered its Decision dated 26 December 1991 in favour
of LBCMCI, ordering CBIC to pay LBCMCI to fully pay the insurance claim for the
loss LBCMCI sustained as a result of the fire under its Fire Insurance Policy
F-1397 in its full face value of P200,000.00 with interest of 12% per annum from
date of filing of the complaint until the same is fully paid; The appellate court
affirmed the challenged decision of the trial court in its entirety. CBIC filed the
petition for review on certiorari.
ISSUE:
W/N the burden of proof in this case is upon the insurer CBIC ad not the insured
LBCMI
HELD:
YES. CBIC does not dispute that LBCMCI's stocks-in-trade were insured against
fire loss, damage or liability under Fire Insurance Policy F-1397 and that LBCMCI
lost its stocks-in-trade in a fire that occurred on 1 July 1989, within the duration
of said fire insurance. CBIC, however, posits the view that the cause of the loss
was an excepted risk under the terms of the fire insurance policy. Where a risk is
excepted by the terms of a policy which insures against other perils or hazards,
loss from such a risk constitutes a defense which the insurer may urge, since it
has not assumed that risk, and from this it follows that an insurer seeking to
defeat a claim because of an exception or limitation in the policy has the burden
of proving that the loss comes within the purview of the exception or limitation
set up.
If a proof is made of a loss apparently within a contract of insurance, the burden

is upon the insurer to prove 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.
Stated elsewise, since CBIC in this case is defending on the ground of non-
coverage and relying upon an exemption or exception clause in the fire insurance
policy, it has the burden of proving the facts upon which such excepted risk is
based, by a preponderance of evidence. But CBIC failed to do so. CBIC relies on
the Sworn Statements of Jose Lomocsoand Ernesto Urbiztondo as well as on the
Spot Report of Pfc. Arturo V. Juarbal dated 1 July 1989. The SwornStatements of
Jose Lomocso and Ernesto Urbiztondo are inadmissible in evidence, for being
hearsay,inasmuch as they did not take the witness stand and could not therefore
be cross-examined. CBIC's evidenceto prove its defense is sadly wanting and
thus, gives rise to its liability to LBCMCI under Fire InsurancePolicy F-1397.
ISABELA ROQUE, doing busines under the name and style of Isabela Roque
Timber Enterprises and
ONG CHIONG, petitioners,  
vs. 
HON. INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND
SURETY CORPORATION, respondent.
FACTS:
1. Manila Bay Lighterage entered into a contract with the petitioners whereby the
former would load on board its barge 422.18 cubic meters of logs from Palawan
to Manila. The petitioners insured the logs against loss for P100,000.00 with
respondent.
2. The shipment never reached its destination because the vessel sank with the
811 pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila.
3. As found by both the trial and appellate courts, the barge where the logs were
loaded was not seaworthy such that it developed a leak. The appellate court
further found that one of the hatches was left open causing water to enter the
barge and because the barge was not provided with the necessary cover or
tarpaulin, the ordinary splash of sea waves brought more water inside the barge.
4. The petitioners wrote a letter to Manila Bay demanding payment for the loss of
the shipment plus unrealized profits but the latter ignored the demand. Another
letter was sent to respondent claiming the full amount under the insurance policy
but respondent refused to pay on the ground that its hability depended upon the
"Total loss by Total Loss of Vessel only". Hence, petitioners commenced a civil
case against Manila Bay and respondent Pioneer.
5. The petitioners state that a mere shipper of cargo, having no control over the
ship, has nothing to do with its seaworthiness. They argue that a cargo owner has
no control over the structure of the ship, its cables, anchors, fuel and provisions,
the manner of loading his cargo and the cargo of other shippers, and the hiring of
a sufficient number of competent officers and seamen.
ISSUE:
Whether the private respondent was right in denying the claim.
HELD:
Yes, there was a breach of implied of warranty of seaworthiness.
The liability of the insurance company is governed by law. Section 113 of the
Insurance Code provides:
In every marine insurance upon a ship or freight, or freightage, or upon any thing
which is the subject of marine insurance, a warranty is implied that the ship is
seaworthy.
Section 99 of the same Code also provides in part.
Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...
From the above-quoted provisions, there can be no mistaking the fact that the
term "cargo" can be the subject of marine insurance and that once it is so made,
the implied warranty of seaworthiness immediately attaches to whoever is
insuring the cargo whether he be the shipowner or not.
Since the law provides for an implied warranty of seaworthiness in every contract
of ordinary marine insurance, it becomes the obligation of a cargo owner to look
for a reliable common carrier which keeps its vessels in seaworthy condition. The
shipper of cargo may have no control over the vessel but he has full control in the
choice of the common carrier that will transport his goods.
LA RAZON SOCIAL "GO TIAOCO Y HERMANOS" VS. UNION INSURANCE
SOCIETY OF CANTON LTD. 
[GR 13983, 1 SEPTEMBER 1919]
FACTS:
A cargo of rice belonging to the Go Tiaoco Brothers, was transported in the early
days of May, 1915, on the steamship Hondagua from the port of Saigon to Cebu.
On discharging the rice from one of the compartments in the after hold, upon
arrival at Cebu, it was discovered that 1,473 sacks had been damaged by sea
water. The loss so resulting to the owners of rice, after proper deduction had been
made for the portion saved, was P3,875.
The policy of insurance, covering the shipment, was signed upon a form long in
use among companies engaged in maritime insurance. It purports to insure the
cargo from the following among other risks: "Perils . . . of the seas, men, of war,
fire, enemies, pirates, rovers, thieves, .jettisons, . . . barratry of the master and
mariners, and of all other perils, losses, and misfortunes that have or shall come
to the hurt, detriment, or damage of the said goods and merchandise or any part
thereof."
It was found out that the drain pipe which served as a discharge from the water
closet passed down through the compartment where the rice in question was
stowed and thence out to sea through the wall of the compartment, which was a
part of the wall of the ship. The joint or elbow where the pipe changed its
direction was of cast iron; and in course of time it had become corroded and
abraded until a longitudinal opening had appeared in the pipe about one inch in
length.
This hole had been in existence before the voyage was begun, and an attempt
had been made to repair it by filling with cement and bolting over it a strip of
iron. The effect of loading the boat was to submerge the vent, or orifice, of the
pipe until it was about 18 inches or 2 feet below the level of the sea. As a
consequence the sea water rose in the pipe. Navigation under these conditions
resulted in the washing out of the cement-filling from the action of the sea water,
thus permitting the continued flow of the salt water into the compartment of rice.
An action on a policy of marine insurance issued by the Union Insurance Society

of Canton, Ltd., upon the cargo of rice belonging to the Go Tiaoco Brothers was
filed. The trial court found that the inflow of the sea water during the voyage was
due to a defect in one of the drain pipes of the ship and concluded that the loss
was not covered by the policy of insurance. Judgment was accordingly entered in
favor of Union Insurance and Go Tiaoco Brothers appealed.
ISSUE
1. Whether perils of the sea includes “entrance of water into the ship’s hold
through a defective pipe.”
HELD:
1: NO. It is determined that the words "all other perils, losses, and misfortunes"
are to be interpreted as covering risks which are of like kind (ejusdem generis)
with the particular risks which are enumerated in the preceding part of the same
clause of the contract. According to the ordinary rules of construction these words
must be interpreted with reference to the words which immediately precede
them. They were no doubt inserted in order to prevent disputes founded on nice
distinctions. Their office is to cover in terms whatever may be within the spirit of
the cases previously enumerated, and so they have a greater or less effect as a
narrower or broader view is taken of those cases. For example, if the expression
"perils of the seas" is given its widest sense the general words have little or no
effect as applied to that case. If on the other hand that expression is to receive a
limited construction and loss by perils of the seas is to be confined to loss ex
marine tempestatisdiscrimine, the general words become most important. But
still, when they first became the subject of judicial construction, they have always
been held or assumed to be restricted to cases "akin to" or "resembling" or "of
the same kind as" those specially mentioned. I see no reason for departing from
this settled rule. In marine insurance it is above all things necessary to abide by
settled rules and to avoid anything like novel refinements or a new departure. It
must be considered to be settled, furthermore, that a loss which, in the ordinary
course of events, results from the natural and inevitable action of the sea, from
the ordinary wear and tear of the ship, or from the negligent failure of the ship's
owner to provide the vessel with proper equipment to convey the cargo under
ordinary conditions, is not a peril of the sea. Such a loss is rather due to what has
been aptly called the "peril of the ship." The insurer undertakes to insure against
perils of the sea and similar perils, not against perils of the ship. There must, in
order to make the insurer liable, be "some casualty, something which could not
be foreseen as one of the necessary incidents of the adventure. The purpose of
the policy is to secure an indemnity against accidents which may happen, not
against events which must happen." Herein, the entrance of the sea water into
the ship's hold through the defective pipe already described was not due to any
accident which happened during the voyage, but to the failure of the ship's owner
properly to repair a defect of the existence of which he was apprised. The loss
was therefore more analogous to that which directly results from simple
unseaworthiness than to that which results from perils of the sea.
Issue 2: Whether there is an implied warranty on the seaworthy of the vessel in

every marine insurance contract.
Held 2: YES. It is universally accepted that in every contract of insurance upon

anything which is the subject of marine insurance, a warranty is implied that the
ship shall be seaworthy at the time of the inception of the voyage. This rule is
accepted in our own Insurance Law (Act No. 2427, sec. 106). It is also well
settled that a ship which is seaworthy for the purpose of insurance upon the ship
may yet be unseaworthy for the purpose of insurance upon the cargo (Act No.
2427, sec. 106).
CATHAY INSURANCE CO v. CA
FACTS:
This was a complaint filed by Remington Industrial Sales Corporation against
Cathay Insurance seeking collection of the sum of P868,339.15 representing
Remington's losses and damages incurred in a shipment of seamless steel pipes
under an insurance contract in favor of the Remington as the insured, consignee
or importer of aforesaid merchandise while in transit from Japan to the Philippines
on board vessel SS "Eastern Mariner." The total value of the shipment was
P2,894,463.83 at the prevailing rate of P7.95 to a dollar in June and July 1984,
when the shipment was made.
The trial court decided in favor of private respondent corporation by ordering
petitioner to pay it the sum of P866,339.15 as its recoverable insured loss
equivalent to 30% of the value of the seamless steel pipes; ordering petitioner to
pay private respondent interest on the aforecited amount at the rate of 34% or
double the ceiling prescribed by the Monetary Board per annum from February 3,
1982 or 90 days from private respondent's submission of proof of loss to
petitioner until paid as provided in the settlement of claim provision of the policy;
and ordering petitioner to pay private respondent certain amounts for marine
surveyor's fee, attorney's fees and costs of the suit.
This petition seeks the review of the decision of the CA affirming the decision of
the RTC and the Resolution of the appellate court denying petitioner's motion for
reconsideration.
Respondent’s contention:
1. Alleged contractual limitations contained in insurance policies are regarded
with extreme caution by courts and are to be strictly construed against the
insurer; obscure phrases and exceptions should not be allowed to defeat
the very purpose for which the policy was procured.
2. Rust is not an inherent vice of the seamless steel pipes without interference
of external factors.
3. The placing of notation "rusty" in the way bills is not only private
respondent's right but a natural and spontaneous reaction of whoever
received the seamless steel pipes in a rusty condition at private
respondent's bodega.
Petitioner’s contention:
1. Private respondent does not dispute the fact that, contrary to the finding of
the respondent Court (the petitioner has failed "to present any evidence of
any viable exeption to the application of the policy") there is in fact an
express exeption to the application of the policy.
2. The insistence of private respondent that rusting is a peril of the sea is
erroneous.
3. Private respondent inaccurately invokes the rule of strict construction
against insurer under the guise of construction in order to impart a non-
existing ambiguity or doubt into the policy so as to resolve it against the
insurer.
4. Rusting is not a risk insured against, since a risk to be insured against
should be a casualty or some casualty, something which could not be
foreseen as one of the necessary incidents of adventure.
ISSUE:
Whether the rusting of steel pipes in the course of a voyage is a "peril of the sea,"
and whether rusting is a risk insured against?
HELD:
YES. There is no question that the rusting of steel pipes in the course of a voyage
is a "peril of the sea" in view of the toll on the cargo of wind, water, and salt
conditions. At any rate if the insurer cannot be held accountable therefor, we
would fail to observe a cardinal rule in the interpretation of contracts, namely,
that any ambiguity therein should be construed against the maker/issuer/drafter
thereof, namely, the insurer. Besides the precise purpose of insuring cargo during
a voyage would be rendered fruitless. Finally, it is a cardinal rule that save for
certain exceptions, findings of facts of the appellate tribunal are binding on the
SC. Not one of said exceptions can apply to this case.
FILIPINO MERCHANTS INSURANCE CO. VS. CA
G.R. NO. 85141 November 28, 1989
FACTS:
This is an action brought by the consignee of the shipment of fishmeal loaded on
board the vessel SS Bougainville and unloaded at the Port of Manila on or about
December 11, 1976 and seeks to recover from the defendant insurance company
the amount of P51,568.62 representing damages to said shipment which has
been insured by the defendant insurance company under Policy No. M-2678. The
defendant brought a third party complaint against third party defendants
Compagnie Maritime Des ChargeursReunis and/or E. Razon, Inc. seeking
judgment against the third (sic) defendants in case Judgment is rendered against
the third party plaintiff. It appears from the evidence presented that in December
1976, plaintiff insured said shipment with defendant insurance company under
said cargo Policy No. M-2678 for the sum of P267,653.59 for the goods described
as 600 metric tons of fishmeal in new gunny bags of 90 kilos each from Bangkok,
Thailand to Manila against all risks under warehouse to warehouse terms.
Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a
ton CNF Manila. The fishmeal in 666 new gunny bags were unloaded from the
ship on December 11, 1976 at Manila unto the arrastre contractor E. Razon, Inc.
and defendant's surveyor ascertained and certified that in such discharge 105
bags were in bad order condition as jointly surveyed by the ship's agent and the
arrastre contractor. The condition of the bad order was reflected in the turn over
survey report of Bad Order cargoes. Defendant's surveyor has conducted a final
and detailed survey of the cargo in the warehouse for which he prepared a survey
report Exhibit F with the findings on the extent of shortage or loss on the bad
order bags totalling 227 bags amounting to 12,148 kilos, Exhibit F-1. Based on
said computation the plaintiff made a formal claim against the defendant Filipino
Merchants Insurance Company for P51,568.62 (Exhibit C) the computation of
which claim is contained therein. A formal claim statement was also presented by
the plaintiff against the vessel dated December 21, 1976, Exhibit B, but the
defendant Filipino Merchants Insurance Company refused to pay the claim.
Petitioner contends that an "all risks" marine policy has a technical meaning in
insurance in that before a claim can be compensable it is essential that there
must be "some fortuity, " "casualty" or "accidental cause" to which the alleged
loss is attributable and the failure of herein private respondent, upon whom lay
the burden, to adduce evidence showing that the alleged loss to the cargo in
question was due to a fortuitous event precludes his right to recover from the
insurance policy
ISSUES:
1. Whether or not petitioner is liable under the "all risks" clause of the marine
insurance policy.
2. Whether or not private respondent has insurable interest in the subject cargo.
HELD:
1. Yes.An "all risks policy" should be read literally as meaning all risks whatsoever
and covering all losses by an accidental cause of any kind. The terms "accident"
and "accidental", as used in insurance contracts, have not acquired any technical
meaning. They are construed by the courts in their ordinary and common
acceptance. Thus, the terms have been taken to mean that which happens by
chance or fortuitously, without intention and design, and which is unexpected,
unusual and unforeseen. An accident is an event that takes place without one's
foresight or expectation; an event that proceeds from an unknown cause, or is an
unusual effect of a known cause and, therefore, not expected.Generally, the
burden of proof is upon the insured to show that a loss arose from a covered
peril, but under an "all risks" policy the burden is not on the insured to prove the
precise cause of loss or damage for which it seeks compensation. The insured
under an "all risks insurance policy" has the initial burden of proving that the
cargo was in good condition when the policy attached and that the cargo was
damaged when unloaded from the vessel; thereafter, the burden then shifts to
the insurer to show the exception to the coverage.In the present case, there
being no showing that the loss was caused by any of the excepted perils, the
insurer is liable under the policy.
2.Yes. Respondent court that private respondent, as consignee of the goods in

transit under an invoice containing the terms under "C & F Manila," has insurable
interest in said goods. Section 13 of the Insurance Code defines insurable interest
in property as every interest in property, whether real or personal, or any relation
thereto, or liability in respect thereof, of such nature that a contemplated peril
might directly damnify the insured. In principle, anyone has an insurable interest
in property who derives a benefit from its existence or would suffer loss from its
destruction whether he has or has not any title in, or lien upon or possession of
the property y. Insurable interest in property may consist in (a) an existing
interest; (b) an inchoate interest founded on an existing interest; or (c) an
expectancy, coupled with an existing interest in that out of which the expectancy
arises. Herein private respondent, as vendee/consignee of the goods in transit
has such existing interest therein as may be the subject of a valid contract of
insurance. His interest over the goods is based on the perfected contract of sale.
ORIENTAL ASSURANCE CORPORATION vs. COURT OF APPEALS AND
PANAMA SAW MILL CO., INC
G.R. No. 94052 August 9, 1991
FACTS:
Private respondent Panama Sawmill Co., Inc. (Panama) bought, in Palawan, 1,208
pieces of apitong logs, with a total volume of 2,000 cubic meters. It hired
Transpacific Towage, Inc., to transport the logs by sea to Manila and insured it
against loss for P1-M with petitioner Oriental Assurance Corporation (Oriental
Assurance). There is a claim by Panama, however, that the insurance coverage
should have been for P3-M were it not for the fraudulent act of one Benito Sy Yee
Long to whom it had entrusted the amount of P6,000.00 for the payment of the
premium for a P3-M policy.
Oriental Assurance issued Marine Insurance Policy No. OACM 86/002, which
stipulated, among others:
CLAUSES, ENDORSEMENTS, SPECIAL CONDITIONS and WARRANTIES
Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to the
following clauses:
— Civil Code Article 1250 Waiver clause
— Typhoon warranty clause
— Omnibus clause.
The two barges (containing the logs) were towed by one tug-boat, the MT
'Seminole' But, as fate would have it, during the voyage, rough seas and strong
winds caused damage to Barge TPAC-1000 resulting in the loss of 497 pieces of
logs out of the 598 pieces loaded thereon.
Panama demanded payment for the loss but Oriental Assurance refuse on the
ground that its contracted liability was for "TOTAL LOSS ONLY." The rejection was
upon the recommendation of the Tan Gatue Adjustment Company.
RTC rendered its Decision, ordering the defendant Oriental Assurance
Corporation to pay plaintiff Panama Saw Mill Inc.The CA affirmed the lower Court
judgment in all respects except for the rate of interest, which was reduce from
twelve (12%) to six (6%) per annum.
Both Courts shared the view that the insurance contract should be liberally
construed in order to avoid a denial of substantial justice; and that the logs
loaded in the two barges should be treated separately such that the loss
sustained by the shipment in one of them may be considered as "constructive
total loss" and correspondingly compensable.
ISSUE:
Whether or not Oriental Assurance can be held liable under its marine insurance
policy based on the theory of a divisible contract of insurance and, consequently,
a constructive total loss.
HELD:
No liability attaches. The terms of the contract constitute the measure of the
insurer liability and compliance therewith is a condition precedent to the insured's
right to recovery from the insurer.Whether a contract is entire or severable is a
question of intention to be determined by the language employed by the parties.
The policy in question shows that the subject matter insured was the entire
shipment of 2,000 cubic meters of apitong logs. The fact that the logs were
loaded on two different barges did not make the contract several and divisible as
to the items insured. The logs on the two barges were not separately valued or
separately insured. Only one premium was paid for the entire shipment, making
for only one cause or consideration. The insurance contract must, therefore, be
considered indivisible.
More importantly, the insurer's liability was for "total loss only." A total loss may
be either actual or constructive (Sec. 129, Insurance Code). An actual total loss is
caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the
purpose for which he held it; or
(d) Any other event which effectively deprives the owner of the possession,
at the port of destination, of the thing insured. (Section 130, Insurance
Code).
A constructive total loss is one which gives to a person insured a right to
abandon, under Section 139 of the Insurance Code. Respondent Appellate Court
treated the loss as a constructive total loss, and for the purpose of computing the
more than three-fourths value of the logs actually lost, considered the cargo in
one barge as separate from the logs in the other. The basis thus used is, in our
opinion, reversible error. The requirements for the application of Section 139 of
the Insurance Code, quoted above, have not been met. The logs involved,
although placed in two barges, were not separately valued by the policy, nor
separately insured.
Resultantly, the logs lost in barge TPAC-1000 in relation to the total number of
logs loaded on the same barge cannot be made the basis for determining
constructive total loss. The logs having been insured as one inseparable unit, the
correct basis for determining the existence of constructive total loss is the totality
of the shipment of logs. Of the entirety of 1,208, pieces of logs, only 497 pieces
thereof were lost or 41.45% of the entire shipment. Since the cost of those 497
pieces does not exceed 75% of the value of all 1,208 pieces of logs, the shipment
cannot be said to have sustained a constructive total loss under Section 139(a) of
the Insurance Code.
In the absence of either actual or constructive total loss, there can be no recovery
by the insured Panama against the insurer, Oriental Assurance.
FINMAN GENERAL ASSURANCE CORPORATION vs. THE HONORABLE
COURT OF APPEALS
G.R. No. 100970 September 2, 1992
NOCON, J.:
FACTS:
Carlie Surposa was insured with petitioner Finman General Assurance Corporation
under Finman General Teachers Protection Plan Master Policy No. 2005 and
Individual Policy No. 08924 with his parents, spouses Julia and Carlos Surposa,
and brothers Christopher, Charles, Chester and Clifton, all surnamed, Surposa, as
beneficiaries.
While said insurance policy was in full force and effect, the insured, Carlie
Surposa, died on October 18, 1988 as a result of a stab wound inflicted by one of
the three (3) unidentified men without provocation and warning on the part of the
former as he and his cousin, Winston Surposa, were waiting for a ride on their
way home along Rizal-Locsin Streets, Bacolod City after attending the celebration
of the "Maskarra Annual Festival."
Thereafter, private respondent and the other beneficiaries of said insurance policy
filed a written notice of claim with the petitioner insurance company which denied
said claim contending that murder and assault are not within the scope of the
coverage of the insurance policy.(The insurer alleges that the stabbing incident is
not an accident, thus, not covered by the insurance.)
Private respondent filed a complaint with the Insurance Commission which

subsequently rendered a decision in favour of the beneficiaries.
CA: Affirmed the decision of the Insurance Commission.
Thus, Petitioner filed a petition for certiorari before the SC.
ISSUE:
Is the Insurer liable?
HELD:
YES, the insurer is liable.
The terms "accident" and "accidental" as used in insurance contracts have not
acquired any technical meaning, and are construed by the courts in their ordinary
and common acceptation. Thus, the terms have been taken to mean that which
happen by chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. An accident is an event that takes place
without one's foresight or expectation — an event that proceeds from an
unknown cause, or is an unusual effect of a known cause and, therefore, not
expected.
In the case at bar, it cannot be pretended that Carlie Surposa died in the course
of an assault or murder as a result of his voluntary act considering the very
nature of these crimes. In the first place, the insured and his companion were on
their way home from attending a festival. They were confronted by unidentified
persons. The record is barren of any circumstance showing how the stab wound
was inflicted. Nor can it be pretended that the malefactor aimed at the insured
precisely because the killer wanted to take his life. In any event, while the act
may not exempt the unknown perpetrator from criminal liability, the fact remains
that the happening was a pure accident on the part of the victim. The insured
died from an event that took place without his foresight or expectation, an event
that proceeded from an unusual effect of a known cause and, therefore, not
expected. Neither can it be said that where was a capricious desire on the part of
the accused to expose his life to danger considering that he was just going home
after attending a festival.
Furthermore, the personal accident insurance policy involved herein specifically

enumerated only ten (10) circumstances wherein no liability attaches to petitioner
insurance company for any injury, disability or loss suffered by the insured as a
result of any of the stimulated causes. The principle of "expresso unius exclusio
alterius"— the mention of one thing implies the exclusion of another thing — is
therefore applicable in the instant case since murder and assault, not having been
expressly included in the enumeration of the circumstances that would negate
liability in said insurance policy cannot be considered by implication to discharge
the petitioner insurance company from liability for, any injury, disability or loss
suffered by the insured. Thus, the failure of the petitioner insurance company to
include death resulting from murder or assault among the prohibited risks leads
inevitably to the conclusion that it did not intend to limit or exempt itself from
liability for such death.
SUN INSURANCE OFFICE, LTD., vs.THE HON. COURT OF APPEALS and
NERISSA LIM.
FACTS:
The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a
face value of P200,000.00. Two months later, he was dead with a bullet wound in
his head. The incident happened when he was playing with his gun. He pointed
the gun at his temple and it accidentally fired off killing him. As beneficiary, his
wife Nerissa Lim sought payment on the policy but her claim was rejected. The
petitioner agreed that there was no suicide. It argued, however that there was no
accident either.The petitioner, invoking the case of De la Cruz v. Capital
Insurance, says that "there is no accident when a deliberate act is performed
unless some additional, unexpected, independent and unforeseen happening
occurs which produces or brings about their injury or death." There was such a
happening. This was the firing of the gun, which was the additional unexpected
and independent and unforeseen occurrence that led to the insured person's
death.
ISSUE:
1. Whether or not there was an accident.
2. Whether or not the insurer is liable.
HELD:
1. Yes, the death of Felix was an accident. An accident is an event which happens
without any human agency or, if happening through human agency, an event
which, under the circumstances, is unusual to and not expected by the person to
whom it happens. It has also been defined as an injury which happens by reason
of some violence or casualty to the injured without his design, consent, or
voluntary co-operation. The secretary testified, Lim had removed the magazine
from the gun and believed it was no longer dangerous. He expressly assured her
that the gun was not loaded. It is submitted that Lim did not willfully expose
himself to needless peril when he pointed the gun to his temple because the fact
is that he thought it was not unsafe to do so.
2. Yes, the insurer is liable. Lim was unquestionably negligent and that
negligence cost him his own life. But it should not prevent his widow from
recovering from the insurance policy he obtained precisely against accident. There
is nothing in the policy that relieves the insurer of the responsibility to pay the
indemnity agreed upon if the insured is shown to have contributed to his own
accident. Indeed, most accidents are caused by negligence. There are only four
exceptions expressly made in the contract to relieve the insurer from liability, and
none of these exceptions is applicable in the case at bar.
EMILIA T. BIAGTAN, JUAN T. BIAGTAN, JR., MIGUEL T. BIAGTAN, GIL T.
BIAGTAN and GRACIA T. BIAGTAN vs. THE INSULAR LIFE ASSURANCE
COMPANY, LTD
[G.R. No.L-25579. March 29, 1972.]
FACTS:
Juan S. Biagtan was insured with defendant Insular Life Assurance Company
under Policy No. 398075 for the sum of P5,000.00 and, under a supplementary
contract denominated "Accidental Death Benefit Clause, for an additional sum of
P5,000.00 if "the death of the Insured resulted directly from bodily injury effected
solely through external and violent means sustained in an accident . . . and
independently of all other causes."The clause, however, expressly provided that it
would not apply where death resulted from an injury "intentionally inflicted by a
third party."
A band of robbers entered the house of the insured Juan S. Biagtan.In committing
the robbery, the robbers, on reaching the staircase landing of the second floor,
rushed towards the doors of the second floor room, where they suddenly met a
person near the door of one of the rooms who turned out to be the insured Juan
S. Biagtan. He received thrusts from the robbers’ sharp-pointed instruments,
causing 9 wounds (5mortal; 4 non-mortal) to his body which eventually resulted
to his death.
Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The
insurance company paid the basic amount of P5,000.00 but refused to pay the
additional sum of P5,000.00 under the accidental death benefit clause, on the
ground that the insured's death resulted from injuries intentionally inflicted by
third parties and therefore was not covered.
Plaintiffs filed suit to recover, and after due hearing the court a quo rendered
judgment in their favor. Hence, the present appeal by the insurer.
ISSUE: W/N the wounds received by the insured at the hands of the robbers
were inflicted intentionally
HELD:
YES. The SC stated that since the parties presented no evidence and submitted
the case upon stipulation, there was no "proof that the act of receiving the
thrusts from the sharp-pointed instrument of the robbers was intended to inflict
injuries upon the person of the insured or any other person or merely to scare
away any person so as to ward off any resistance or obstacle that might be
offered in the pursuit of their main objective which was robbery.”
The trial court committed a plain error in drawing the conclusion it did from the
admitted facts. Whether the robbers had the intent to kill or merely to scare the
victim or to ward off any defense he might offer, it cannot be denied that the act
itself of inflicting the injuries was intentional. It should he noted that the
exception in the accidental benefit clause invoked by the appellant does not speak
of the purpose — whether homicidal or not — of a third party in causing the
injuries, but only of the fact that such injuries have been "intentionally" inflicted
— this obviously to distinguish them from injuries which, although received at the
hands of a third party, are purely accidental. This construction is the basic idea
expressed in the coverage of the clause itself, namely, that "the death of the
insured resulted directly from bodily injury effected solely through external and
violent means sustained in anaccident . . . and independently of all other causes."
Where a gang of robbers enter a house and coming face to face with the owner,
even if unexpectedly, stab him repeatedly, it is contrary to all reason and logic to
say that his injuries are not intentionally inflicted, regardless of whether they
prove fatal or not. As it was, in the present case they did prove fatal, and the
robbers have been accused and convicted of the crime of robbery with homicide.
As construed by American jurisprudence, "intentional" as used in an accident

policy excepting intentional injuries inflicted by the insured or any other person,
etc., implies the exercise of the reasoning faculties, consciousness, and volition.
Where a provision of the policy excludes intentional injury, it is the intention of
the person inflicting the injury that is controlling. If the injuries suffered by the
insured clearly resulted from the intentional act of a third person the insurer is
relieved from liability as stipulated. WHEREFORE, the decision appealed from is
reversed and the complaint dismissed.
VDA. DE GABRIEL VS CA
GR NO. 103883
FACTS:
Marcelino Gabriel, the insured, was employed by Emerald Construction &
Development Corporation ("ECDC") at its construction project in Iraq. He was
covered by a personal accident insurance in the amount of P100,000.00 under a
group policy[2]procured from private respondent by ECDC for its overseas
workers. The insured risk was for "(b)odily injury caused by violent accidental
external and visible means which injury (would) solely and independently of any
other cauyse"[3]result in death or diability. 
 
On 22 May 1982, within the life of the policy, Gabriel died in Iraq. A year later, or
on 12 July 1983, ECDC reported Gavriel's death to private respondent by
telephone.[4]Among the documents thereafter submitted to private respondent
were a copy of the death certificate[5]issued by the Ministry of Health of the
Republic of Iraq-which stated 
"REASON OF DEATH: UNDER EXAMINATION NOW- NOT YET KNOWN"[6]-

 
and an autopsy report[7]of the National Bureau of Investigation ("NBI") to the
effect that "(d)ue to advanced state of postmortem decomposition, cause of
death (could) not be determined."[8]Private respondent referred the insurance
claim to Mission Adjustment service, Inc. 
 
Following a series of communications between petitioner and private respondent,
the later, on 22 September 1983, ultimately denied the claim of ECDC on the
ground of prescription.[9]Petitioner went to the Regional Trial court of Manila. In
her complaint against ECDC and the private respondent, she averred that her
husband died of electrocution while in the performance of his work and prayed for
the recovery of P100,000.00 for insurance indemnification and of various other
sums by way of actual, moral, and exemplary dam,ages, plus attorney's fees and
cost of suit.
ISSUE:
WON the insurer is liable
HELD:
No. The insurance policy expressly provided that to be compensable, the injury or
death should be caused by "violent accidental external and visible means." In
attempting to prove the cause of her husband's death, all that petitioner could
submit were a letter sent to her husband's co-worker, stating that Gabriel died
when he tried to haul water out of a tank while its submerged motor was still
functioning,[18] and petitioner's sinumpaangsalaysay[19]which merely confirmed
the receipt and stated contents of the letter.Evidence, in fine, is utterly wanting to
establish that the insured suffered from an accidental death, the risk covered by
the policy, In an accident insurance, the insured's benificiary has the burden of
proof in demonstrating that the cause of death is due to the covered peril. Once
that fact is established, the burden then shifts to the insurer to show any
excepted that may have been stipulated by the parties. An "accident insurance" is
not thus to be likened to an ordinary life insurance where the insured's death,
regardless of the cause thereof, would normally be compensable. The latter is
akin in property insurance to an "all risk" coverage where the insured, on the
aspect of burden of proof, has merely to show the condition of the property
insured when the policy attaches and the fact of loss or damaged during the
period of the policy and where, thereafter, the burden would be on the insurer to
show any"excluded peril." When, however, the insured risk is specified, like in the
case before us, it lies with the claimant of the insurance proceeds to initially
prove that the loss is caused by the covered peril.
VDA. DE MAGLANA VS. HON. CONSOLACION(AUGUST 6, 1992)
FACTS:
Lope Maglana was on his way to his work station, driving a motorcycle. He met an
accident that resulted in his death. The PUJ jeep that bumped the deceased was
driven by Pepito Into, operated and owned by defendant Destrajo. The PUJ jeep
was overtaking another passenger jeep that was going towards the city,
Poblacion. While overtaking, the PUJ jeep of defendant Destrajo running abreast
with the overtaken jeep, bumped the motorcycle driven by the deceased who was
going towards the direction of Lasa, Davao City. The point of impact was on the
lane of the motorcycle and the deceased was thrown from the road and met his
untimely death.
Thereafter, the heirs of the deceased filed an action against Destrajo and the
Afisco Insurance Corporation (AFISCO) for damages and attorney’s fees.
The lower court rendered a decision finding that Destrajo had not exercised
extraordinary diligence as the operator of the jeepney and ordered him to pay for
the damages. The second paragraph of the decision also ordered AFISCO to
reimburse Destrajo whatever amounts the latter shall have paid only up to the
extent of its insurance coverage, signifying only secondary liability.
The heirs however, filed a motion for reconsideration with respect to the said
second paragraph arguing that AFISCO should not merely be held secondarily
liable because the Insurance Code provides that the insurer’s liability is “direct
and primary and/or jointly and severally with the operator of the vehicle”,
although only up to the extent of the insurance coverage.
ISSUE:
Whether or not AFISCO’s liability is direct and primary and/or solidary with
Destrajo.
HELD:
Although the insurance policy clearly provides that AFISCO can be held directly
liable by petitioners on the basis of the insurance contract, nonetheless, AFISCO
may not be held solidarily liable with Destrajo since their respective liabilities are
based on different grounds. The liability of the insurer is based on contract; that
of the insured is based on tort. As such, petitioners have the option either to
claim from AFISCO to the extent agreed upon in the contract and the balance
from Destrajo or enforce the entire judgment from Destrajo subject to
reimbursement from AFISCO to the extent of the insurance coverage.
TIU V. ARRIESGADO
G.R. NO. 138060; SEPTEMBER 1, 2004
FACTS:
A cargo truck marked “Condor Hollow Blocks and General Merchandise” was
loaded with firewood in Cebu. While passing over a bridge on its way to its
destination, one of its rear tires exploded. The driver parked the truck along the
right side of the national highway and removed the damaged tire to have it
vulcanized at a shop 700 meters away. He left his helper to watch over the truck
and to place a spare tire 6 fathoms away behind it as a warning to oncoming
vehicles, while the truck’s tail lights were left on at about 12 am midnight.
Around 4:45 am, a D’Rough Riders passenger bus where respondent

spouses were riding approached the bridge and saw the truck about 25m away.
The bus driver applied the brakes and tried to swerve to the left to avoid hitting
the truck but it rammed into the left rear of the truck. The impact damaged the
right side of the bus and left several passengers injured. Pedro Arriesgado lost
consciousness and suffered a fracture in his right colles. His wife, Felisa, was
brought to the Hospital where she died shortly thereafter.
Respondent Arriesgado filed a complaint for breach of contract of carriage,

damages, and attorney’s fees before the RTC against the petitioner who was the
operator of the bus and his driver, alleging that the bus was cruising at a fast and
high speed along the national road and did not take precautionary measures to
avoid the accident. Petitioner filed a Third-Party Complaint against Phoenix Surety
and Insurance, Inc (PPSII) as their insurer, the registered owner of the cargo
truck and the driver of the truck. Petitioner alleged that they were driving at a
normal speed; that the truck was parked in a slanted manner as its rear was
almost in the middle of the highway; and that no early warning device was
displayed.
PPSII, for its part, admitted that it had an existing contract with petitioner
Tiu, but averred that it had already attended to and settled the claims of those
who were injured during the incident. It could not accede to the claim of
respondent Arriesgado, as such claim was way beyond the scheduled indemnity
as contained in the contract of insurance.
The RTC ruled in favor of respondent Arriesgado, requiring the petitioners to

pay moral, exemplary and actual damages, including attorney’s fees and costs of
suit; with the reason that had the driver been driving slowly, it would not have
any problem swerving away from the truck; that the absence of the early warning
device was not a proper excuse since the tail lights of the truck were open and
that the area was well lighted; and lastly he was not able to prove that he
exercised the diligence of a good father of a family in the selection and
supervision of his employees. On appeal, the CA affirmed the ruling of the RTC
but reduced the award for exemplary and moral damages, hence this petition.
ISSUES/HELD:
Whether or not petitioner's driver was negligent in driving the bus.

Yes. Based on the damage sustained by the truck, the bus was apparently
driven at a fast pace. The driver could have also swerved away from the truck if it
was not speeding. A man must use common sense, and exercise due reflection in
all his acts; it is his duty to be cautious, careful and prudent, if not from instinct,
then through fear of recurring punishment. He is responsible for such results as
anyone might foresee and for acts which no one would have performed except
through culpable abandon. Otherwise, his own person, rights and property, and
those of his fellow beings, would ever be exposed to all manner of danger and
injury.Indeed, petitioner’s negligence in driving the bus is apparent in the records.
By his own admission, he had just passed a bridge and was traversing the
highwayat a speed of 40 to 50 kilometers per hour before the collision occurred.
The maximum speed allowed by law on a bridge is only 30 kilometers per
hour.Under Article 2185 of the Civil Code, a person driving a vehicle is presumed
negligent if at the time of the mishap, he was violating any traffic regulation.
It is undisputed that the respondent and his wife were not safely
transported to the destination agreed upon. In actions for breach of contract, only
the existence of such contract, and the fact that the obligor, in this case the
common carrier, failed to transport his passenger safely to his destination are the
matters that need to be proved. This is because under the said contract of
carriage, the petitioners assumed the express obligation to transport the
respondent and his wife to their destination safely and to observe extraordinary
diligence with due regard for all circumstances. Any injury suffered by the
passengers in the course thereof is immediately attributable to the negligence of
the carrier. Upon the happening of the accident, the presumption of negligence at
once arises, and it becomes the duty of a common carrier to prove that he
observed extraordinary diligence in the care of his passengers. It must be
stressed that in requiring the highest possible degree of diligence from common
carriers and in creating a presumption of negligence against them, the law
compels them to curb the recklessness of their drivers. In this case, petitioner
failed to prove that it exercised extraordinary diligence.
The principle of last clear chance is inapplicable in the instant case, as it

only applies in a suit between the owners and drivers of two colliding vehicles. It
does not arise where a passenger demands responsibility from the carrier to
enforce its contractual obligations, for it would be inequitable to exempt the
negligent driver and its owner on the ground that the other driver was likewise
guilty of negligence. Petitioner cannot escape liability for the death of
respondent’s wife due to the negligence of his employee.
However, the owner and driver of the truck are also liable. The manner in
which the truck was parked clearly endangered oncoming traffic on both sides,
considering that the tire blowout which stalled the truck in the first place occurred
in the wee hours of the morning. The Court can only now surmise that the
unfortunate incident could have been averted had the owner of the truck,
equipped the said vehicle with lights, flares, or at the very least an early warning
device.
What is the liability of PPSII as Insurer?
As can be gleaned from the Certificate of Cover, such insurance contract

was issued pursuant to the Compulsory Motor Vehicle Liability Insurance Law. It
was expressly provided therein that the limit of the insurer’s liability for each
person was P12,000, while the limit per accident was pegged at P50,000. An
insurer in an indemnity contract for third party liability is directly liable to the
injured party up to the extent specified in the agreement but it cannot be held
solidarily liable beyond that amount. PPSII could not then just deny petitioner
Tiu’s claim; it should have paid P12,000 for the death of Felisa, and respondent
Arriesgado’s hospitalization expenses of P1,113.80, which the trial court found to
have been duly supported by receipts. The total amount of the claims, even when
added to that of the other injured passengers which the respondent PPSII claimed
to have settled, would not exceed the P50,000 limit under the insurance
agreement.
The nature of Compulsory Motor Vehicle Liability Insurance is such that it is

primarily intended to provide compensation for the death or bodily injuries
suffered by innocent third parties or passengers as a result of the negligent
operation and use of motor vehicles. The victims and/or their dependents are
assured of immediate financial assistance, regardless of the financial capacity of
motor vehicle owners.
Although the victim may proceed directly against the insurer for indemnity,
the third party liability is only up to the extent of the insurance policy and those
required by law. While it is true that where the insurance contract provides for
indemnity against liability to third persons, and such persons can directly sue the
insurer, the direct liability of the insurer under indemnity contracts against third
party liability does not mean that the insurer can be held liable in solidum with
the insured and/or the other parties found at fault. For the liability of the insurer
is based on contract; that of the insured carrier or vehicle owner is based on tort.
TIOKHECHIO V CA AND EASTERN ASSURANCE AND SURETY
CORPORATION
GR NO. 76101-02 | SEPTEMBER 30, 1991
FACTS:
Petitioner TioKheChio imported 1,000 bags of fishmeal valued at $36,000.30 from
Agro Impex, S.A. Dallas, Texas, U.S.A. The goods were insured with respondent
EASCO and shipped on board the M/V Peskov, a vessel owned by Far Eastern
Shipping Company. When the goods reached Manila on January 28, 1979, they
were found to have been damaged by sea water which rendered the fishmeal
useless. Petitioner filed a claim with EASCO and Far Eastern Shipping. Both
refused to pay. Whereupon, petitioner sued them before the then Court of First
Instance of Cebu, Branch II for damages. EASCO, as the insurer, filed a
counterclaim against the petitioner for the recovery of P18,387.86 representing
the unpaid insurance premiums.
CFI: ordered EASCO and Far Eastern Shipping to pay petitioner solidarily the sum
of P105,986.68 less the amount of P18,387.86 for unpaid premiums with interest
at the legal rate from the filing of the complaint, the sum of P15,000.00 as
attorney’s fees and the costs.
 
Judgment became final as to EASCO but the shipping company appealed. The trial
court, upon motion, issued a writ of execution against EASCO. 12% legal interest
was imposed.
 
CA: Reduced the interest rate - 6%
 
ISSUE:
Whether or not the legal rate of interest should be at 6%?
 
HELD:
YES. Sec. 243 and 244 of the insurance code provide:
 
243 - The amount of any loss or damage for which an insurer may be liable,
under any policy other than life insurance policy, shall be paid within thirty days
after proof of loss is received by the insurer and ascertainment of the loss or
damage is made either by agreement between the insured and the insurer or by
arbitration; but if such ascertainment is not had or made within sixty days after
such receipt by the insurer of the proof of loss, then the loss or damage shell be
paid within ninety days after such receipt. Refusal or failure to pay the loss or
damage within the time prescribed herein will entitle the assured to collect
interest on the proceeds of the policy for the duration of the delay at the rate of
twice the ceiling prescribed by the Monetary Board, unless such failure or refusal
to pay is based on the ground that the claim is fraudulent.
 
244 - In case of any litigation for the enforcement of any policy or contract of
insurance, it shall be the duty of the Commissioner or the Court, as the case may
be, to make a finding as to whether the payment of the claim of the insured has
been unreasonably denied or withheld; and in the affirmative case, the insurance
company shall be adjudged to pay damages which shall consist of attorney’s fees
and other expenses incurred by the insured person by reason of such undeniable
denial or withholding of payment plus interest of twice the ceiling prescribed by
the Monetary Board of the amount of the claim due the insured, from the date
following the time prescribed in section two hundred forty-two or in section two
hundred forty-three, as the case may be, until the claim is fully satisfied;
Provided, That the failure to pay any such claim within the time prescribed in said
sections shall be considered prima facie evidence of unreasonable delay in
payment.
In the case at bar, the Court of Appeals made no finding that there was an
unjustified refusal or withholding of payment on petitioner’s claim. Thus,
the aforecited sections of the Insurance Code are not pertinent to the instant
case. They apply only when the court finds an unreasonable delay or refusal in
the payment of the claims
 
Applicable law: If the obligation consists in the payment of a sum of money and
the debtor incurs in delay, the indemnity for damages, there being no stipulation
to the contrary, shall be the payment of interest agreed upon, and in the absence
of stipulation, the legal interest which is six per cent per annum. (Art. 2209, NCC)
 
The contending parties did not allege the rate of interest stipulated in the
insurance contract, the legal interest was properly pegged by the Appellate Court
at six (6%) per cent.
PRUDENTIAL GUARANTEE AND ASSURANCE INC. V. TRANS-ASIA
SHIPPING LINES, INC.
G.R. NO. 151890 JUNE 20, 2006
*NB: PD 1460 (the old Insurance Code) was the law applicable in this case*
FACTS:
Trans-Asia is the owner of the vessel M/V Asia Korea. In consideration of payment
of premiums, Prudential insured M/V Asia Korea for loss/damage of the hull and
machinery arising from perils, inter alia, of fire and explosion for the sum of
P40M. While the policy was in force, a fire broke out while the vessel was
undergoing repairs at the port of Cebu. Trans-Asia filed its notice of claim for
damage sustained by the vessel, and reserved its right to subsequently notify
Prudential as to the full amount of the claim upon final survey and determination
of the damage sustained by reason of fire. An adjuster’s report on the fire in
question was submitted. Trans-Asia executed a document denominated "Loan and
Trust receipt", receiving from Prudential the sum of P3M as a loan without interest
under the policy.
Prudential denied the claim, as it has been ascertained that Trans-Asia is in

breach of policy conditions, among them "WARRANTED VESSEL CLASSED AND
CLASS MAINTAINED." This was followed by Prudential’s letter requesting the
return or payment of the P3M within 10 days from receipt.
Trans-Asia thus filed a Complaint for Sum of Money with RTC Cebu, seeking
P8,395,072.26 as balance of the indemnity due upon the insurance policy in the
total amount of P11,395,072.26, and sought interest at 42% per annum citing
Section 2436 of PD 1460 (Insurance Code.)
Prudential denied the material allegations, averring that TRANS-ASIA

breached insurance policy conditions, in particular: "WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED," and further alleged that it acted as facts and
law require and incurred no liability to Trans-Asia which no cause of action; and,
that its claim has been effectively waived and/or abandoned, or it is estopped
from pursuing the same. Prudential sought a refund of P3,000,000.00, which it
allegedly advanced to Trans-Asia by way of a loan without interest and without
prejudice to the final evaluation of the claim. RTC ruled in favour of Prudential. CA
reversed but denied Trans-Asia’s prayer for attorney’s fees, and held that it is
entitled to double interest on the policy for the duration of the delay of payment
of the unpaid balance, citing Section 244 of the Insurance Code.
ISSUE:
Only as to claims settlement under then Sec.243-244 of PD1460, NOW Sec.
249-250
W/N Prudential is liable to pay Trans-Asia, damages (attorney’s fees and double
interest of the claim) due to the delay in payment of the claim.
HELD:
YES. Sec. 244 grants damages consisting of attorney’s fees and other expenses
incurred by the insured after a finding by the Insurance Commissioner or the
Court, as the case may be, of an unreasonable denial or withholding of the
payment of the claims due. Moreover, the law imposes an interest of twice the
ceiling prescribed by the Monetary Board on the amount of the claim due the
insured from the date following the time prescribed in Section 242 or in Section
243, as the case may be, until the claim is fully satisfied. Finally, Section 244
considers the failure to pay the claims within the time prescribed in Sections 242
or 243, when applicable, as prima facie evidence of unreasonable delay in
payment.
Section 244 does not require a showing of bad faith in order that attorney’s
fees be granted. A prima facie evidence of unreasonable delay in payment of the
claim is created by failure of the insurer to pay the claim within the time fixed in
both Sections 242 and 243. By reason of the delay and the consequent filing of
the suit by the insured, the insurers shall be adjudged to pay damages which
shall consist of attorney’s fees and other expenses incurred by the insured.
Sections 243 and 244 of the Insurance Code apply when the court finds an
unreasonable delay or refusal in the payment of the insurance claims. There was
an unreasonable delay on the part of PRUDENTIAL to pay TRANS-ASIA, as in fact,
it refuted the latter’s right to the insurance claims, from the time proof of loss
was shown and the ascertainment of the loss was made by the insurance
adjuster. Succinctly, an award equivalent to ten percent (10%) of the unpaid
proceeds of the policy as attorney’s fees to TRANS-ASIA is reasonable under the
circumstances.
Further, the aggregate amount (P8,395,072.26 plus 10% thereof as

attorney’s fees) shall be imposed double interest in accordance with Section 244
of the Insurance Code. Section 244 of the Insurance Code is categorical in
imposing an interest twice the ceiling prescribed by the Monetary Board due the
insured, from the date following the time prescribed in Section 242 or in Section
243, as the case may be, until the claim is fully satisfied. In the case at bar, we
find Section 243 to be applicable as what is involved herein is a marine insurance,
clearly, a policy other than life insurance. The assured is entitled to interest on
the proceeds for the duration of the delay at the rate of twice the ceiling
prescribed by the Monetary Board except when the failure or refusal of the
insurer to pay was founded on the ground that the claim is fraudulent.
Petition denied.

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commrev besties San Beda LAw Page 1 of 100

COMMERCIAL LAW REVIEW

Relatedly, a mutual insurance company is a cooperative enterprise where the

CFI decision upheld and reinstated.

(1) The insured has an insurable interest;

There is no concealment on the part of Ernani. He answered the question with

Respondent company wrote Insurance Adjusters, Inc. to demand reimbursement

Respondent insurance company thus demanded from petitioner reimbursement of

As held in Phil. Air Lines v. Heald Lumber Co., 2

FEDERAL EXPRESS CORPORATION v. AMERICAN HOME ASSURANCE

In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim in a

2. Yes. This question must be answered in the affirmative.

(2)YES, DBP should be held liable.

DOCTRINE/S: Lessor has no insurable interest in goods and merchandise inside

Hence, this petition.

Therefore, respondent CKS cannot be validly a beneficiary of the fire insurance

"MORTGAGEE: Loss, if any, shall be payable to Messrs. Cebu

The contention is without merit.

The pertinent section in the Insurance Code provides:

As noted by the Court of Appeals, to wit:

The legislative answer to the arguments posed by the petitioners is the

B. Assuming arguendo that TRANS-ASIA violated the policy condition on

Woodmen’s requested an adjustment company to assess the damage. It

The adjustment company submitted a computation of the defendant's probable

FIRST LEPANTO paid GASI the amount of ₱165,772.40 as insurance indemnity.

2. No. Non-presentation of the insurance contract is not fatal to FIRST LEPANTO’s

As a general rule, the marine insurance policy needs to be presented in evidence

As discussed above, it is already settled that the loss/damage to the GASI’s

The payment by the insurer to the insured operates as an equitable assignment

Provision subject of the controversy:

In its answer with counterclaim, petitioner admitted the issuance of Insurance

Trial Court: Dismissed the complaint and the counterclaim

The reliance by petitioner on Arce vs. Capital Surety and Insurance

Private respondent filed a claim for indemnification caused of the insured

The principle of estoppel applies to Petitioner. Despite its awareness of Section

Section 77 does not restate the portion of Section 72 expressly permitting an

The second is that covered by Section 78 of the Insurance Code, which

Moreover, there is nothing in Section 77 which prohibits the parties in an

It would be unjust and inequitable if recovery on the policy would not be

MTC: H.S Reyes has a better right over the proceeds

A conviction for adultery or concubinage isn’t required exacted before

Decision appealed from is affirmed.

Note: Original decision in Spanish [Rough translation]

On 1 July 1989, at or about 12:40 a.m., LBCMCI's building located at Barangay

If a proof is made of a loss apparently within a contract of insurance, the burden

An action on a policy of marine insurance issued by the Union Insurance Society

Issue 2: Whether there is an implied warranty on the seaworthy of the vessel in

Held 2: YES. It is universally accepted that in every contract of insurance upon

2.Yes. Respondent court that private respondent, as consignee of the goods in

Private respondent filed a complaint with the Insurance Commission which

Furthermore, the personal accident insurance policy involved herein specifically

As construed by American jurisprudence, "intentional" as used in an accident

"REASON OF DEATH: UNDER EXAMINATION NOW- NOT YET KNOWN"[6]-

Around 4:45 am, a D’Rough Riders passenger bus where respondent

Respondent Arriesgado filed a complaint for breach of contract of carriage,

The RTC ruled in favor of respondent Arriesgado, requiring the petitioners to

Whether or not petitioner's driver was negligent in driving the bus.

The principle of last clear chance is inapplicable in the instant case, as it

What is the liability of PPSII as Insurer?

As can be gleaned from the Certificate of Cover, such insurance contract

The nature of Compulsory Motor Vehicle Liability Insurance is such that it is

Prudential denied the claim, as it has been ascertained that Trans-Asia is in

Prudential denied the material allegations, averring that TRANS-ASIA

The reliance by petitioner on Arce vs. Capital Surety and Insurance 

Note: Original decision in Spanish [Rough translation] 