INSURANCE

CASE: 1. Oriental Assurance Corporation v. Manuel Ong (G.R. No. 189524, Oct 2017)
Topic: Subrogation Doctrines

FACTS:
JEA Steel imported from South Korea 72 aluminum-zinc-alloy-coated steel sheets in coils. Upon arrival of
the vessel at the Manila, the 72 coils were discharged and stored in Pier 9 under the custody of the arrastre
contractor. Afterwards, the coils were loaded on the trucks of Manuel Ong (Ong) and delivered to JEA
Steel's plant on. Eleven of these coils ''were found to be in damaged condition, dented or their normal
round shape deformed."

JEA Steel filed a claim with Oriental pursuant to the insurance policy. Oriental paid JEA Steel and
demanded indemnity from Ong and Asian Terminals but both refused to pay. Hence, Oriental filed a
complaint at the RTC.

Ong countered that the coils were already damaged when they were loaded on board his trucks while
Asian Terminals argued that Oriental's claim was barred for the latter's failure to file a notice of claim
within the 15-day period provided in the Gate Pass of the Management Contract which among others
provides:
Issuance of this Gate Pass constitutes delivery to and receipt by the consignee of the goods as
described above in good order and condition unless an accompanying B.O. certificate duly signed
and noted on the fact (sic) of this Gate Pass appears.
Oriental contends that it was not aware of the provisions of the Gate Pass or the Management Contract,
neither of which it was a party to. Asian Terminals counters that "[t]he provisions of the Management
Contract and the Gate Pass are binding on Oriental as insurer-subrogee and successor-in-interest of the
consignee.

RTC ruled in favor of respondents. It found no preponderance of evidence to establish that respondents
were the ones responsible for the damage. CA dismissed Oriental’s appeal on the ground that its claim
had already prescribed.

ISSUE:
Whether or not petitioner, who was not a party to the Gate Pass or Management Contract, is bound by
the 15-day prescriptive period.

RULING:
Yes. (However, in this case, Asian Terminals was ordered by the SC to pay Oriental)

This Court held that the provisions of a gate pass or of an arrastre management contract are binding on
an insurer-subrogee even if the latter is not a party to it. As successor to the rights of the consignee -
became bound by the provisions of said contract.

The insurer, as successor-in-interest of the consignee, is likewise bound by the management contract.
Indeed, upon taking delivery of the cargo, a consignee (and necessarily its successor-in-interest) tacitly
accepts the provisions of the management contract, including those which are intended to limit the
liability of one of the contracting parties.
The fact that Oriental is not a party to the Gate Pass and the Management Contract does not mean that
it cannot be bound by their provisions. Oriental is subrogated to the rights of the consignee simply upon
its payment of the insurance claim.

As subrogee, petitioner merely stepped into the shoes of the consignee and may only exercise those rights
that the consignee may have against the wrongdoer who caused the damage.

However, in this case, the Court adopts a reasonable interpretation of the stipulations in the Management
Contract and hold that petitioner's complaint is not time-barred because although it was established that
the consignee's claim letter was received by respondent 17 days from last delivery of the coils to the
consignee, the express terms of the management contract provides that the consignee had 45 to 60 days
from the date of last delivery of the goods within which to submit a formal claim.

This Court stressed that an arrastre operator, like respondent, is a public utility, discharging functions
which are heavily invested with public interest. Provisions limiting the liability of a public utility operator
through the imposition of multiple prescriptive periods for the filing of claims by members of the general
public who must deal with the public utility operator, must be carefully scrutinized and reasonably
construed so as to protect the legitimate interest of the public which the utility must serve.

CASE: 2. United Doctors Medical Center v. Bernadas (G.R. No. 209468, Dec. 2017)
Topic: Insurance Contract Interpretation Doctrines

FACTS:
Cesario was a utility man in United Doctors Medical Center. United Doctors Medical Center and its rank-
and-file employees had a CBA, under which rank-and-file employees were entitled to optional retirement
benefits which provide:
xxx Under the optional retirement policy, an employee who has rendered at least 20 years of
service is entitled to optionally retire.
In addition to the retirement plan, employees are also provided insurance, with United Doctors
Medical Center paying the premiums. The employees' family members would be the
beneficiaries of the insurance. Xxx

Cesario died from a "freak accident" while working in a doctor's residence. Leonila, representing her
deceased husband, Cesario, filed a Complaint for payment of retirement benefits, damages, and
attorney's fees with the National Labor Relations Commission.

Labor Arbiter dismissed Leonila's Complaint and ruled that Cesario should have applied for optional
retirement benefits during his lifetime, the benefits being optional. Since he did not apply for it, his
beneficiaries were not entitled to claim his optional retirement benefits.

The NLRC reversed and ruled that the optional retirement plan was never presented in this case, casting
a doubt on whether or not the plan required an application for optional retirement benefits.

The CA affirmed NLRC ruling that the retirement plan and the insurance were two (2) "separate and
distinct benefits". It held that Leonila's receipt of insurance proceeds did not bar her from being entitled
to the retirement benefits under the CBA.
Petitioner argues that respondent Cesario's beneficiaries do not have legal capacity to apply for Cesario's
optional retirement benefits since respondent himself never applied for it in his lifetime. Moreover, to
grant respondent Cesario's beneficiaries optional retirement benefits on top of the life insurance benefits
that they have already received would be equal to "double compensation and unjust enrichment.

On the other hand, Leonila counters that had her husband died "under normal circumstances," he would
have applied for optional retirement benefits. That Cesario was unable to apply before his death "is a
procedural technicality" that should be set aside so that "full protection to labor" is afforded and "the
ends of social and compassionate justice" are met.

ISSUE:
whether or not Leonila Bernadas as her husband's representative, may claim his optional retirement
benefits.

RULING:
Yes. Retirement benefits must be differentiated from insurance proceeds. One is in the concept of an
indemnity while the other is conditioned on age and length of service. "A 'contract of insurance' is an
agreement whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event."

On the other hand, retirement plans, while initially humanitarian in nature, now concomitantly serve to
secure loyalty and efficiency on the part of employees, and to increase continuity of service and decrease
the labor turnover, by giving to the employees some assurance of security as they approach and reach
the age at which earning ability and earnings are materially impaired or at an end.

Thus, the grant of insurance proceeds will not necessarily bar the grant of retirement benefits. These are
two (2) separate and distinct benefits that an employer may provide to its employees.

Petitioner admits that respondent Cesario was already qualified to receive his retirement benefits, having
been employed by petitioner for 23 years. While the choice to retire before the compulsory age of
retirement was within respondent Cesario's control, his death foreclosed the possibility of him making
that choice.

It would be the height of inequity to withhold respondent Cesario's retirement benefits despite being
qualified to receive it, simply because he died before he could apply for it. In any case, the CBA does not
mandate that an application must first be filed by the employee before the right to the optional retirement
benefits may vest. Thus, this ambiguity should be resolved in favor of the retiree.

CASE: 3. White Gold Marine Services v. Pioneer Insurance

Topic: Doing Insurance Business

FACTS:
White Gold procured a protection and indemnity coverage for its vessels from The Steamship Mutual
Underwriting Association (Steamship Mutual) through Pioneer Insurance and Surety Corporation
(Pioneer). When White Gold failed to fully pay its accounts, Steamship Mutual refused to renew the
coverage.
Steamship Mutual filed a collection of sum of money against white gold. White Gold on the other hand,
filed a complaint before the Insurance Commission claiming that Steamship Mutual and Pioneer did not
secure a license. Hence violated art 186, 187, 299, 300, 301 in relation to 302 and 303 of the Insurance
Code.

The Insurance Commission dismissed the complaint. It said that there was no need for Steamship Mutual
to secure a license because it was not engaged in the insurance business. It explained that Steamship
Mutual was a Protection and Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another
license as insurance agent and/or a broker for Steamship Mutual because Steamship Mutual was not
engaged in the insurance business. Moreover, Pioneer was already licensed, hence, a separate license
solely as agent/broker of Steamship Mutual was already superfluous.

The Court of Appeals affirmed the decision of the Insurance Commissioner.

ISSUES:
(1) Is Steamship Mutual, a P & I Club, engaged in the insurance business in the Philippines?
(2) Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?

RULING:
1. Yes. The test to determine if a contract is an insurance contract or not, depends on the nature of the
promise, the act required to be performed, and the exact nature of the agreement in the light of the
occurrence, contingency, or circumstances under which the performance becomes requisite. It is not by
what it is called.

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.

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.

Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no insurer
or insurance company is allowed to engage in the insurance business without a license or a certificate of
authority from the Insurance Commission.

2. Yes. Although Pioneer is already licensed as an insurance company, it needs a separate license to act as
insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of
applications for insurance, or receive for services in obtaining insurance, any commission or other
compensation from any insurance company doing business in the Philippines or any agent thereof,
without first procuring a license so to act from the Commissioner, which must be renewed annually on
the first day of January, or within six months thereafter.

4. Paramount Insurance Corporation vs Spouses Remondeulaz

Topic: What may be insure/insured against

Facts:
Respondents insured with petitioner their Toyota Corolla Sedan under a comprehensive motor vehicle
insurance policy for one year. During the effectivity of the said insurance, the car was unlawfully taken.
Respondents alleged that a certain Ricardo Sales took possession of the subject vehicle to add accessories
and improvements thereon but failed to return the subject vehicle within the agreed three- day period.
Respondent filed a complaint for sum of money for the reimbursement of their lost vehicle.
RTC: dismissed the complaint filed by the respondent
CA: revered and set aside the RTC’s Order

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

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

Also, in Malayan Insurance Co., Inc. v. Court of Appeals, this Court held that the taking of a vehicle by
another person without the permission or authority from the owner thereof is sufficient to place it within
the ambit of the word theft as contemplated in the policy, and is therefore, compensable.
Moreover, the case of Santos v. People is worthy of note. Similarly in Santos, the owner of a car entrusted
his vehicle to therein petitioner Lauro Santos who owns a repair shop for carburetor repair and repainting.
However, when the owner tried to retrieve her car, she was not able to do so since Santos had abandoned
his shop. In the said case, the crime that was actually committed was Qualified Theft. However, the Court
held that because of the fact that it was not alleged in the information that the object of the crime was a
car, which is a qualifying circumstance, the Court found that Santos was only guilty of the crime of Theft
and merely considered the qualifying circumstance as an aggravating circumstance in the imposition of
the appropriate penalty. The Court therein clarified the distinction between the crime of Estafa and Theft,
to wit:

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

In the instant case, Sales did not have juridical possession over the vehicle. Hence, it is apparent that the
taking of repondents vehicle by Sales is without any consent or authority from the former.
Records would show that respondents entrusted possession of their vehicle only to the extent that Sales
will introduce repairs and improvements thereon, and not to permanently deprive them of possession
thereof. Since, Theft can also be committed through misappropriation, the fact that Sales failed to return
the subject vehicle to respondents constitutes Qualified Theft. Hence, since respondents car is undeniably
covered by a Comprehensive Motor Vehicle Insurance Policy that allows for recovery in cases of theft,
petitioner is liable under the policy for the loss of respondents vehicle under the "theft clause."

5. Great Pacific Assurance vs Court of Reply

Topic: Parties to a Contract

Facts:

A contract of group life insurance was executed between petitioner Great Pacific Life Assurance
Corporation (Grepalife) and DBP. Grepalife agreed to insure the lives of eligible housing loan mortgagors
of DBP.

On November 11, 1983, 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.

Grepalife issued insurance coverage of Dr. Leuterio, to the extent of his DBP mortgage indebtedness.

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.

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.

The trial court rendered a decision in favor of respondent widow and against Grepalife. On May 17, 1993,
the Court of Appeals sustained the trial court's decision.

Issue:
Whether or not the Court of Appeals erred in holding petitioner liable to DBP as beneficiary in a group life
insurance contract from a complaint filed by the widow of the decedent/mortgagor.

Held:

No. 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. 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. 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 mortgagor's interest, and the mortgagor continues to be a party to the contract.
In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund, such loss-
payable clause does not make the mortgagee a party to the contract.

Sec. 8 of the Insurance Code provides:

Unless the policy provides, where a mortgagor of property effects insurance in his own
name providing that the loss shall be payable to the mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance is deemed to be upon the interest of the
mortgagor, who does not cease to be a party to the original contract, and any act of his,
prior to the loss, which would otherwise avoid the insurance, will have the same effect,
although the property is in the hands of the mortgagee, but any act which, under the
contract of insurance, is to be performed by the mortgagor, may be performed by the
mortgagee therein named, with the same effect as if it had been performed by the
mortgagor.

The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance,
the policy stating that: "In the event of the debtor's death before his indebtedness with the Creditor [DBP]
shall have been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the
creditor and the balance of sum assured, if there is any, shall then be paid to the beneficiary/ies
designated by the debtor." 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

And since a policy of insurance upon life or health may pass by transfer, will or succession to any person,
whether he has an insurable interest or not, and such person may recover it whatever the insured might
have recovered, the widow of the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

6. El Oriente Fabrica de Tabacos, Inc vs Posadas

Life – Insurable Interest

Facts:

Plaintiff is a domestic corporation duly organized and existing under and by virtue of the laws of the
Philippine Islands. In order to protect itself against the loss that it might suffer by reason of the death of
its manager, A. Velhagen. procured from the Manufacturers Life Insurance Co., of Toronto, Canada, thru
its local agent E.E. Elser, an insurance policy on the life of the said A. Velhagen for the sum of $50,000,
United States currency.

El Oriente, Fabrica de Tabacos, Inc., designated itself as the sole beneficiary of said policy on the life of its
said manager. During the time the life insurance policy hereinbefore referred to was in force and effect
plaintiff paid from its funds all the insurance premiums due thereon. The plaintiff charged as expenses of
its business all the said premiums and deducted the same from its gross incomes as reported in its annual
income tax returns, which deductions were allowed by the defendant upon a showing made by the
plaintiff that such premiums were legitimate expenses of its (plaintiff's) business.

That upon the death of said A. Velhagen in the year 1929, the plaintiff received all the proceeds of the
said life insurance policy, together with the interests and the dividends accruing thereon, aggregating
P104,957.88.

The plaintiff claimed exemption under section 4 of the Income Tax Law, hence, the defendant Collector
of Internal Revenue assessed and levied the sum of P3,148.74 as income tax on the proceeds of the
insurance policy mentioned in the preceding paragraph, which tax the plaintiff paid under instant protest
on July 2, 1930; and that defendant overruled said protest on July 9, 1930.

Issue:

Whether the proceeds of insurance taken by a corporation on the life of an important official to indemnify it
against loss in case of his death, are taxable as income under the Philippine Income Tax Law.

Held:

Under the view we take of the case, it is sufficient for our purposes to direct attention to the anomalous
and vague condition of the law. It is certain that the proceeds of life insurance policies are exempt. It is
not so certain that the proceeds of life insurance policies paid to corporate beneficiaries upon the death
of the insured are likewise exempt. But at least, it may be said that the law is indefinite in phraseology
and does not permit us unequivocally to hold that the proceeds of life insurance policies received by
corporations constitute income which is taxable.

The situation will be better elucidated by a brief reference to laws on the same subject in the United
States. The Income Tax Law of 1916 extended to the Philippine Legislature, when it came to enact Act No.
2833, to copy the American statute. Subsequently, the Congress of the United States enacted its Income
Tax Law of 1919, in which certain doubtful subjects were clarified. Thus, as to the point before us, it was
made clear, when not only in the part of the law concerning individuals were exemptions provided for
beneficiaries, but also in the part concerning corporations, specific reference was made to the exemptions
in favor of individuals, thereby making the same applicable to corporations. This was authoritatively
pointed out and decided by the United States Supreme Court in the case of United States vs. Supplee-
Biddle Hardware Co. ( [1924], 265 U.S., 189), which involved facts quite similar to those before us. We do
not think the decision of the higher court in this case is necessarily controlling on account of the
divergences noted in the federal statute and the local statute, but we find in the decision certain language
of a general nature which appears to furnish the clue to the correct disposition of the instant appeal.
Conceding, therefore, without necessarily having to decide, the assignments of error Nos. 1 and 2 are not
well taken, we would turn to the third assignment of error.

It will be recalled that El Oriente, Fabrica de Tabacos, Inc., took out the insurance on the life of its manager,
who had had more than thirty-five years' experience in the manufacture of cigars in the Philippines, to
protect itself against the loss it might suffer by reason of the death of its manager. We do not believe that
this fact signifies that when the plaintiff received P104,957.88 from the insurance on the life of its
manager, it thereby realized a net profit in this amount. It is true that the Income Tax Law, in exempting
individual beneficiaries, speaks of the proceeds of life insurance policies as income, but this is a very slight
indication of legislative intention. In reality, what the plaintiff received was in the nature of an indemnity
for the loss which it actually suffered because of the death of its manager.

7. HEIRS OF LORETO C. MARAMAG vs. EVA VERNA DE GUZMAN MARAMAG, ODESSA, KARL BRIAN,
TRISHA ANGELIE, all surnamed MARAMAG, THE INSULAR LIFE ASSURANCE COMPANY, LTD., and
GREATPACIFIC LIFE ASSURANCE CORPORATION; G.R. No. 181132 June 5, 2009

Topic: Designation of beneficiary

FACTS:

Petitioners were the legitimate wife and children of Loreto Maramag, while respondents were Loreto’s
illegitimate family. Petitioners filed against respondents with the RTC for revocation and/or reduction
of insurance proceeds for being void and/or inofficious, such that: Eva, being a concubine of Loreto and
a suspect in his murder, is disqualified from being designated as beneficiary of the insurance policies with
Insular and Grepalife, and that Eva’s children with Loreto, being illegitimate children, are entitled to a
lesser share of the proceeds of the policies. Petitioners also argued that pursuant to Section 12 of the
Insurance Code, Eva’s share in the proceeds should be forfeited in their favor. Thus, they prayed that the
share of Eva and portions of the shares of Loreto’s illegitimate children should be awarded to them, being
the legitimate heirs of Loreto entitled to their respective legitimes.

Insular and Grepalife countered that the insurance proceeds belong exclusively to the designated
beneficiaries in the policies, not to the estate or to the heirs of the insured. Grepalife countered, among
others, that the law on succession does not apply where the designation of insurance beneficiaries is clear.

RTC – Initially dismissed the case with respect to the illegitimate children but proceeded with respect to
the other defendants Eva de Guzman, Insular and Grepalife. The trial court ratiocinated thus: Since the
defendants (illegitimate children) are the ones named as the primary beneficiaries in the insurance policy
of Loreto, the insurance proceeds shall exclusively be paid to them. However, the designation of Eva de
Guzman as one of the primary beneficiaries is void under Art. 739 of the Civil Code, thus, the insurance
indemnity that should be paid to her must go to the legal heirs of the deceased.
Insular and Grepalife filed their respective MRs – GRANTED. The RTC dismissed the case against Eva,
Insular, and Grepalife. It ruled that it is only in cases where there are no beneficiaries designated, or when
the only designated beneficiary is disqualified, that the proceeds should be paid to the estate of the
insured. As to the claim that the proceeds to be paid to Loreto’s illegitimate children should be reduced
based on the rules on legitime, the trial court held that the distribution of the insurance proceeds is
governed primarily by the Insurance Code, and the provisions of the Civil Code are irrelevant and
inapplicable.

ISSUES:

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

RULING:

NO, petitioners are not entitled to the proceeds of Loreto’s insurance in light of Article 2011 of the Civil
Code which expressly provides that insurance contracts shall be governed by special laws, i.e., the
Insurance Code. Pursuant thereto, the only persons entitled to claim the insurance proceeds are either
the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the maturation of
the policy. The exception to this rule is a situation where the insurance contract was intended to benefit
third persons who are not parties to the same in the form of favorable stipulations or indemnity. In such
a case, third parties may directly sue and claim from the insurer.

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not
entitled to the proceeds thereof. Accordingly, respondents Insular and Grepalife have no legal obligation
to turn over the insurance proceeds to petitioners. The revocation of Eva as a beneficiary in one policy
and her disqualification as such in another are of no moment considering that the designation of the
illegitimate children as beneficiaries in Loreto’s insurance policies remains valid. Because no legal
proscription exists in naming as beneficiaries the children of illicit relationships by the insured, the
shares of Eva in the insurance proceeds, whether forfeited by the court in view of the prohibition on
donations under Article 739 of the Civil Code or by the insurers themselves for reasons based on the
insurance contracts, must be awarded to the said illegitimate children, the designated beneficiaries, to
the exclusion of petitioners. It is only in cases where the insured has not designated any beneficiary, or
when the designated beneficiary is disqualified by law to receive the proceeds, that the insurance policy
proceeds shall redound to the benefit of the estate of the insured.

8. JAIME T. GAISANO vs. DEVELOPMENT INSURANCE AND SURETY CORPORATION; G.R. No. 190702,
February 27, 2017

Topic: Premium payment; Exceptions

FACTS:

Respondent Development Insurance and Surety Corp, a domestic corporation engaged in the insurance
business, issued three comprehensive commercial vehicle policies to petitioner Jaime Gaisano for a
period of one year commencing on September 27, 1996 up to September 27, 1997. One of which is in the
amount of ₱1,500,000.00 over Jaime’s 1992 Mitsubishi Montero.

Trans-Pacific Underwriters Agency (Trans-Pacific), respondent’s agent, issued a statement of account to

Jaime’s company, Noah’s Ark Merchandising (Noah’s Ark) to collect the premiums. Noah’s Ark issued a
Far East Bank check dated September 27 payable to Trans-Pacific, representing payment for the three
insurance policies. However, Trans-Pacific was not able to pick up the check that day (September 27).

In the evening of September 27, the vehicle was stolen and despite search and retrieval efforts, the vehicle
was not recovered. Unaware of the incident, Trans-Pacific picked up the check on September 28, issued
an official receipt dated that same day acknowledging the receipt of the payment, and deposited the
check for encashment.

When petitioner reported the loss and filed a claim with respondent for the insurance proceeds,
respondent denied the claim on the ground that there was no insurance contract. Petitioner filed a
complaint for a collection of sum of money and damages with the RTC.

RTC – Ruled in favor of petitioner Jaime and considered the premium paid as of September 27, even if the
check was received by respondent’s agent at a later date. Respondent appealed to the CA.

CA – Granted respondent’s appeal and held that an insurance contract becomes valid and binding only
after the premium is paid. The premium was not yet paid at the time of the loss on September 27, but
only a day after or on September 28. The CA ordered respondent to return the premium to petitioner
with interest.

Petitioner filed a petition for review on certiorari before the SC, arguing that there was a valid and binding
insurance contract between him and respondent, as an exception to the rule in Section 77 of the Insurance
Code; that the prohibitive tenor of Section 77 does not apply because the parties intended the contract
of insurance to be immediately effective upon issuance, despite non-payment of the premium, because
respondent trusted petitioner. He adds that respondent waived its right to a pre-payment in full of the
terms of the policy, and is in estoppel.

Petitioner also argues that assuming he is not entitled to recover insurance proceeds, but only to the
return of the premiums paid, then he should be able to recover the full amount of premiums paid, and
not merely the premium for the lost vehicle.

ISSUE:

Whether or not there is a binding insurance contract between petitioner and respondent.

RULING:

NO, there is no binding contract between petitioner and respondent.

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

The law, however, limits the parties' autonomy as to when payment of premium may be made for the
contract to take effect. The general rule in insurance laws is that unless the premium is paid, the
insurance policy is not valid and binding. The risk-distributing mechanism in insurance operates under a
system where, by prompt payment of the premiums, the insurer is able to meet its legal obligation to
maintain a legal reserve fund needed to meet its contingent obligations to the public. The premium,
therefore, is the elixir vitae or source of life of the insurance business.

Here, there is no dispute that the check was delivered to and was accepted by respondent's agent,
Trans-Pacific, only on September 28. No payment of premium had thus been made at the time of the
loss of the vehicle on September 27. The notice of the availability of the check, by itself, does not
produce the effect of payment of the premium. Trans-Pacific could not be considered in delay in
accepting the check because when it informed petitioner that it will only be able to pick-up the check
the next day, petitioner did not protest to this, but instead allowed Trans-Pacific to do so. Thus, at the
time of loss, there was no payment of premium yet to make the insurance policy effective.

There are, of course, exceptions to the rule that no insurance contract takes effect unless premium is
paid, to wit:

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

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

The present case does not also fall under the fourth and fifth exceptions. Petitioner failed to establish
the fact of a grant by respondent of a credit term in his favor, or that the grant has been consistent. While
there was mention of a credit agreement between Trans-Pacific and respondent, such arrangement was
not proven and was internal between agent and principal. Petitioner's claim that the parties agreed that
the insurance contract is immediately effective upon issuance despite nonpayment of the premiums
cannot be sustained. Even if there is a waiver of pre-payment of premiums, that in itself does not become
an exception to Section 77, unless the insured clearly gave a credit term or extension. The policy itself
states that the insured's application for the insurance is subject to the payment of the premium. There is
no waiver of pre-payment, in full or in installment, of the premiums under the policy. Consequently,
respondent cannot be placed in estoppel.

Thus, petitioner is not entitled to the insurance proceeds because no insurance policy became effective
for lack of premium payment. However, petitioner is entitled to a return of the premium paid for the
vehicle under the principle of unjust enrichment, but not the full amount, which includes the payment of
premiums for the two other vehicles. The two policies are not affected by the ruling on the policy subject
of this case because they were issued as separate and independent contracts of insurance.
9. GULF RESORTS, INC. vs. PHILIPPINE CHARTER INSURANCE CORPORATION; G.R. No. 156167, May 16,
2005

Topic: The Policy

FACTS:

Gulf Resorts, Inc. is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said
resort insured originally with the American Home Assurance Company (AHAC-AIU). In the policies issued
by AHAC-AIU, the risk of loss from earthquake shock was extended only to the two swimming pools.
Petitioner agreed to insure with respondent Philippine Charter Insurance Corporation the properties
covered by AHAC Policy provided that the policy wording and rates in said policy be copied in the new
policy. Hence, respondent issued Policy No. 31944 to petitioner covering the period March 14, 1990 to
March 14, 1991.

On July 16, 1990, an earthquake struck Luzon and petitioner’s properties, including two swimming pools
in its Agoo Plaza Resort, were damaged. Accordingly, petitioner filed a formal claim. Respondent denied
petitioner’s claim on the ground that its insurance policy only afforded earthquake shock coverage to the
two swimming pools of the resort. They failed to arrive at a settlement, thus, petitioner filed a complaint
with the RTC

RTC – The trial court ruled in favor of respondent. It held that the policy clearly shows that petitioner paid
only a premium of P393.00 against the peril of earthquake shock, the same premium it paid against
earthquake shock only on the two swimming pools in all the policies previously issued by AHAC. To the
mind of [the] Court, the language used in the policy in litigation is clear and unambiguous hence there is
no need for interpretation or construction but only application of the provisions therein.

CA – The CA affirmed the decision of the trial court.

Petitioner filed a petition for review on certiorari under Rule 45 before the SC raising, among others, that
its earthquake shock endorsement rider covers all damages to the properties within its resort caused by
earthquake. It used the words “any property insured by this policy”, and it should be interpreted as all
inclusive. Respondent counters that the rider limits its liability for loss to the two swimming pools of
petitioner.

ISSUE:

Whether or not under respondent’s insurance Policy No. 31944, only the two (2) swimming pools, rather
than all the properties covered thereunder, are insured against the risk of earthquake shock.

RULING:

YES, four key items in the Insurance Policy clearly indicate that only the two swimming pools were
specified as included – the designation of location of risk; the breakdown for premium payments; Policy
Condition No. 6 which states that the insurance does not cover any loss or damage occasioned by or
through or in consequence, directly or indirectly of the occurrence of earthquake, among others; and the
rider attached to the policy.

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.

In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the
general rule that insurance contracts are contracts of adhesion which should be liberally construed in
favor of the insured and strictly against the insurer company which usually prepares it. A contract of
adhesion is one wherein a party prepares the stipulations in the contract, while the other party merely
affixes his signature or his "adhesion" thereto. Through the years, the courts have held that, in these types
of contracts, the parties do not bargain on equal footing, the weaker party's participation being reduced
to the alternative to take it or leave it. Thus, these contracts are viewed as traps for the weaker party
whom the courts of justice must protect. Consequently, any ambiguity therein is resolved against the
insurer, or construed liberally in favor of the insured.

However, the general rule on contracts of adhesion cannot be applied to the case at bar. Petitioner cannot
claim it did not know the provisions of the policy. From the inception of the policy, petitioner had required
the respondent to copy verbatim the provisions and terms of its latest insurance policy from AHAC-AIU.
Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206-4568061-
9 in drafting its Insurance Policy No. 31944. Consequently, we cannot apply the "fine print" or "contract
of adhesion" rule in this case as the parties’ intent to limit the coverage of the policy to the two swimming
pools only is not ambiguous.

Case No. 13
Case Title: Sun Life of Canada Vs. Ma. Daisy S. Sibya (G.R. No. 211212)
Topic: Right to Rescind or Cancel

FACTS:
On January 10, 2001, Atty. Jesus Sibya, Jr. applied for life insurance with Sun Life. In his Application for
Insurance, he indicated that he had sought advice for kidney problems. Sun Life approved the application
and issued a policy.

The policy indicated the respondents as beneficiaries and entitles them to a death benefit of
P1,000,000.00 should Atty. Jesus Jr. dies on or before February 5, 2021, or a sum of money if Atty. Jesus
Jr. is still living on the endowment date.
On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound. As such, the respondent filed a
Claimant’s Statement with Sun Life to seek the death benefits indicated in his insurance policy.
However, Sun Life denied the claim on the ground that the details on Atty. Jesus Jr.’s medical history were
not disclosed in his application. Simultaneously, Sun Life tendered a check representing the refund of the
premiums paid by Atty. Jesus.

The respondents claimed that Atty. Jesus Jr. did not commit misrepresentation in his application for
insurance.

The RTC held that Atty. Jesus Jr. did not commit material concealment and misrepresentation when he
applied for life insurance with Sun Life. It observed that given the disclosures and the waiver and
authorization to investigate executed by Atty. Jesus Jr. to Sun Life, the latter had all the means of
ascertaining the facts allegedly concealed by the applicant. CA affirmed.

ISSUE:
Whether or not there was concealment or misrepresentation when Atty. Jesus Jr. submitted his insurance
application with Sun Life.

HELD:
In Manila Bankers Life Insurance Corporation v. Aban, the Court held that if the insured dies within the
two-year contestability period, the insurer is bound to make good its obligation under the policy,
regardless of the presence or lack of concealment or misrepresentation. The Court held:

Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured.
Under the provision, an insurer is given two years – from the effectivity of a life insurance contract
and while the insured is alive – to discover or prove that the policy is void ab initio or is rescindible
by reason of the fraudulent concealment or misrepresentation of the insured or his agent. After the
two-year period lapses, or when the insured dies within the period, the insurer must make good on
the policy, even though the policy was obtained by fraud, concealment, or misrepresentation. This
is not to say that insurance fraud must be rewarded, but that insurers who recklessly and
indiscriminately solicit and obtain business must be penalized, for such recklessness and lack of
discrimination ultimately work to the detriment of bona fide takers of insurance and the public in
general.

In the present case, Sun Life issued Atty. Jesus Jr.’s policy on February 5, 2001. Thus, it has two years from
its issuance, to investigate and verify whether the policy was obtained by fraud, concealment, or
misrepresentation. Upon the death of Atty. Jesus Jr., however, on May 11, 2001, or a mere three months
from the issuance of the policy, Sun Life loses its right to rescind the policy. As discussed in Manila Bankers,
the death of the insured within the two-year period will render the right of the insurer to rescind the
policy nugatory. As such, the incontestability period will now set in.

As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his medical treatment for kidney
ailment. Moreover, he executed an authorization in favor of Sun Life to conduct investigation in reference
with his medical history.
Indeed, the intent to defraud on the part of the insured must be ascertained to merit rescission of the
insurance contract. Concealment as a defense for the insurer to avoid liability is an affirmative defense
and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or
insurer. In the present case, Sun Life failed to clearly and satisfactorily establish its allegations, and is
therefore liable to pay the proceeds of the insurance.

Case No. 14
Case Title: DBP Pool of Accredited Insurance Cos. v. Radio Mindanao Network (G.R. No. 147039,
January 2006)
Topic: Liability of insurer for loss

FACTS:
Radio Mindanao Network, Inc. filed a civil case against DBP Pool of accredited insurance companies and
Provident Insurance Corporation for the recovery of Insurance benefits. Provident insurance covered
RMNI’s transmitter equipment and generating set for P13,350,000.00 while petitioner covered
respondent’s transmitter, furniture, fixture and other transmitter policies in the amount of 5,883,650.00.
In the evening of July 27, 1988 respondent RMNI’s radio station located in SSS building, Bacolod City was
razed by fire, causing damage in the amount 1,044,040.00.

When RMNI sought recovery from the insurance companies, it was denied on the ground that the loss
was an excepted risk excluded under condition no. 6 ( C ) and (D) ( C ) War, invasion, act of foreign enemy,
hostilities or warlike operations (D) Mutiny, riot, military, or popular rising, insurrection, rebellion,
revolution, military or usurped power. The Insurance companies maintained that the evidence showed
that the fire was case by members of CPP/NPA and consequently denied the claims.

RTC ruled in favor of RMNI, as well as the CA. Stating that the documentary evidence do no satisfactorily
prove that the author of the burning were members of the NPA.

ISSUE:
Whether or not the petitioner insurance companies are excepted from the claims of RMNI.

HELD:
No, the petitioner insurance companies are not excepted.

Petitioner argues: “Any loss or damage happening during the existence of abnormal conditions which are
occasioned by or through in consequence directly or indirectly of any of the said occurrences shall be
deemed to be loss or damage which is not covered by the insurance except to the extent the Insured shall
prove that such loss or damage happened independently of the existence of such abnormal conditions.”
In any action, suit or proceeding where the companies allege that by reason of the provisions of this
condition any loss or damage is not covered by the insurance, the burden of proving that such loss or
damage is covered shall be upon the insured.”

An insurance contract, being a contract of adhesion, should be so interpreted as to carry out the purpose
for which the parties entered into the contract which is to insure against risks of loss or damage to the
good. Limitations of liability should be regarded with extreme jealousy and must be construed in such a
way as to preclude the insurer from noncompliance with its obligation.

“The burden of proof” contemplated by the aforesaid provision actually refers to the “burden of evidence”
as applied in the case, it refers to the duty of the insured to show that the loss or damage is covered by
the policy. The foregoing clause notwithstanding, the burden of proof still rests upon petitioner to prove
that the damage or loss was caused by an excepted risk in order to escape any liability under the contract.
Consequently it is sufficient for private respondent to prove the fact of damage or loss. Once respondent
makes out a prima facie case in its favor, the duty or the burden of evidence shifts to petitioner to
controvert respondent’s prima facie case.

In this case, evidence shifted to petitioner to prove such exception. It is only when petitioner has
sufficiently proven that the damage or loss was caused by an excepted risk does the burden of evidence
shift back to the respondent who is then under a duty of providing evidence to show why such excepted
risk should not release petitioner from liability. While the documentary evidence presented by petitioner
(1) the police blotter (2) certification from the Bacolod police staton and (3) fire investigation report may
be considered exceptions to the hearsay rule, being entries in official records, nevertheless, as noted by
the CA none of these documents categorically stated that the perpetrators were members of the
CPP/NPA.

Case No. 15
Case Title: Travellers Insurance v. CA (G.R. No. 82036)
Topic: Notice of Loss

FACTS:
At about 5:30 oclock in the morning of July 20, 1980, a 78-year old woman by the name of Feliza Vineza
de Mendoza was on her way to hear mass at the Tayuman Cathedral. While walking along Tayuman corner
Gregorio Perfecto Streets, she was bumped by a taxi that was running fast. Several persons witnessed the
accident, among whom were Rolando Marvilla, Ernesto Lopez and Eulogio Tabalno. After the bumping,
the old woman was seen sprawled on the pavement. Right away, the good Samaritan that he was, Marvilla
ran towards the old woman and held her on his lap to inquire from her what had happened, but obviously
she was already in shock and could not talk. At this moment, a private jeep stopped. With the driver of
that vehicle, the two helped board the old woman on the jeep and brought her to the Mary Johnston
Hospital in Tondo.

The victim was brought to the U.S.T. Hospital where she expired at 9:00 oclock that same morning. Death
was caused by traumatic shock as a result of the severe injuries she sustained. The evidence shows that
at the moment the victim was bumped by the vehicle, the latter was running fast, so much so that because
of the strong impact the old woman was thrown away and she fell on the pavement.

The trial court in its decision held Travellers Insurance to be solidarily liable against private respondent
with the taxicab driver and operator.
RTC ruled in favor of the respondent. CA affirmed. On appeal, petitioner mainly contends that it did not
issue an insurance policy as compulsory insurer of the Lady Love Taxi and that, assuming arguendo that it
had indeed covered said taxicab for third-party liability insurance, private respondent failed to file a
written notice of claim with petitioner as required by Section 384 of P.D. No. 612, otherwise known as the
Insurance Code.

ISSUE:
Whether or not the trial court’s decision is proper.

HELD:
No. The right of the person injured to sue the insurer of the party at fault (insured), depends on whether
the contract of insurance is intended to benefit third persons also or on the insured. And the test applied
has been this: Where the contract provides for indemnity against liability to third persons, then third
persons to whom the insured is liable can sue the insurer. Where the contract is for indemnity against
actual loss or payment, then third persons cannot proceed against the insurer, the contract being solely
to reimburse the insured for liability actually discharged by him thru payment to third persons, said third
persons recourse being thus limited to the insured alone.

While it is true that where the insurance contract provides for indemnity against liability to third persons,
such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity
contracts against third party liability does not mean that the insurer can be held solidarily liable with the
insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the
insured is based on tort.

We have certainly ruled with consistency that the prescriptive period to bring suit in court under an
insurance policy, begins to run from the date of the insurer’s rejection of the claim filed by the insured,
the beneficiary or any person claiming under an insurance contract. This ruling is premised upon the
compliance by the persons suing under an insurance contract, with the indispensable requirement of
having filed the written claim mandated by Section 384 of the Insurance Code before and after its
amendment. Absent such written claim filed by the person suing under an insurance contract, no cause
of action accrues under such insurance contract, considering that it is the rejection of that claim that
triggers the running of the one-year prescriptive period to bring suit in court, and there can be no
opportunity for the insurer to even reject a claim if none has been filed in the first place, as in the instant
case.

When petitioner asseverates, thus, that no written claim was filed by private respondent and rejected by
petitioner, and private respondent does not dispute such asseveration through a denial in his pleadings,
we are constrained to rule that respondent appellate court committed reversible error in finding
petitioner liable under an insurance contract the existence of which had not at all been proven in court.
Even if there were such a contract, private respondent’s cause of action cannot prevail because he failed
to file the written claim mandated by Section 384 of the Insurance Code. He is deemed, under this legal
provision, to have waived his rights as against petitioner-insurer.

Case No. 16
Case Title: Sun Insurance Office, Ltd. v. CA and Emilio Tan, G.R. No. 89741 March 13, 1991
Topic: Statute of Limitations

FACTS:
On August 15, 1983, Emilio Tan took from Sun Insurance Office a P300,000.00 property insurance policy
to cover his interest in the electrical supply store of his brother. Four days after the issuance of the policy,
the building was burned including the insured store. On August 20, 1983, Tan filed his claim for fire loss
with Sun Insurance Office, but on February 29, 1984, Sun Insurance Office wrote Tan denying the latter’s
claim. On April 3, 1984, Tan wrote Sun Insurance Office, seeking reconsideration of the denial of his claim.
Sun Insurance Office answered the letter, advising Tan’s counsel that the Insurer’s denial of Tan’s claim
remained unchanged.

Tan filed Civil Case No. 16817 with the RTC, but petitioner filed a motion to dismiss on the alleged ground
that the action had already prescribed. Said motion was denied. Petitioner went to the CA, but its petition
was again denied and the CA held that the court a quo may continue until its final termination. Hence this
petition.

ISSUES:
1. WON the filing of a motion for reconsideration interrupts the 12 months prescriptive period to
contest the denial of the insurance claim; and
2. WON the rejection of the claim shall be deemed final only of it contains words to the effect that
the denial is final.

HELD:
1. No. In this case, Condition 27 of the Insurance Policy of the parties reads:

27. Action or suit clause - If a claim be made and rejected and an action or suit be not commenced either
in the Insurance Commission or in any court of competent jurisdiction within twelve (12) months from
receipt of notice of such rejection, or in case of arbitration taking place as provided herein, within twelve
(12) months after due notice of the award made by the arbitrator or arbitrators or umpire, then the claim
shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable
hereunder.

As the terms are very clear and free from any doubt or ambiguity whatsoever, it must be taken and
understood in its plain, ordinary and popular sense.

Tan, in his letter addressed to Sun Insurance Office dated April 3, 1984, admitted that he received a copy
of the letter of rejection on April 2, 1984. Thus, the 12-month prescriptive period started to run from the
said date of April 2, 1984, for such is the plain meaning and intention of Section 27 of the insurance policy.

The condition contained in an insurance policy that claims must be presented within one year after
rejection is not merely a procedural requirement but an important matter essential to a prompt
settlement of claims against insurance companies as it demands that insurance suits be brought by the
insured while the evidence as to the origin and cause of destruction have not yet disappeared.

It is apparent that Section 27 of the insurance policy was stipulated pursuant to Section 63 of the Insurance
Code, which states that:
Sec. 63. A condition, stipulation or agreement in any policy of insurance, limiting the time for commencing
an action thereunder to a period of less than one year from the time when the cause of action accrues, is
void.

It also begs to ask, when does the cause of action accrue? The insured’s cause of action or his right to file
a claim either in the Insurance Commission or in a court of competent jurisdiction commences from the
time of the denial of his claim by the Insurer, either expressly or impliedly. But the rejection referred to
should be construed as the rejection in the first instance (i.e. at the first occasion or for the first time), not
rejection conveyed in a resolution of a petition for reconsideration. Thus, to allow the filing of a motion
for reconsideration to suspend the running of the prescriptive period of twelve months, a whole new body
of rules on the matter should be promulgated so as to avoid any conflict that may be brought by it, such
as:
a. whether the mere filing of a plea for reconsideration of a denial is sufficient or must it be
supported by arguments/affidavits/material evidence;
b. how many petitions for reconsideration should be permitted?

(2) No. The Eagle Star case cited by Tan to defend his theory that the rejection of the claim shall be deemed
final only of it contains words to the effect that the denial is final is inapplicable in the instant case. Final
rejection or denial cannot be taken to mean the rejection of a petition for reconsideration. The Insurance
policy in the Eagle Star case provides that the insured should file his claim, first, with the carrier and then
with the insurer. The final rejection being referred to in said case is the rejection by the insurance
company.

Case No. 17
Case Title: Coastwise Lighterage Corporation vs CA and the Philippine General Insurance Co., G.R.
No. 114167 July 12, 1995
Topic: Subrogation

FACTS:
Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to Manila
with Coastwise Lighterage Corporation, using the latter's dumb barges. Upon reaching Manila Bay, while
approaching Pier 18, one of the barges, "Coastwise 9", struck an unknown sunken object. The forward
buoyancy compartment was damaged, and water gushed in through a hole "two inches wide and twenty-
two inches long". The molasses at the cargo tanks were contaminated and rendered unfit for the use it
was intended. Pag-asa Sales, Inc. then rejected the shipment of molasses as a total loss.

Pag-asa Sales, Inc. filed a formal claim with the insurer of its lost cargo, Philippine General Insurance
Company and against the carrier, Coastwise Lighterage. Coastwise Lighterage denied the claim and it was
PhilGen which paid Pag-asa Sales, Inc., the amount of P700, 000.00, representing the value of the
damaged cargo of molasses.

PhilGen then filed an action against Coastwise Lighterage before the RTC of Manila, to recover the amount
of P700, 000.00 which it paid to Pag-asa Sales, Inc. for the latter's lost cargo. PhilGen claims to be
subrogated to all the contractual rights and claims which the consignee may have against the carrier,
which is presumed to have violated the contract of carriage.

RTC awarded the amount prayed for by PhilGen. Coastwise Lighterage appealed to the Court of Appeals,
and the award was affirmed.
ISSUE:
Whether or not the insurer was subrogated into the rights of the consignee against the carrier, upon
payment by the insurer of the value of the consignee's goods lost while on board one of the carrier's
vessels.

HELD:
Yes, the insurer, PhilGen, was subrogated into the rights of the consignee cince the damage sustained by
the loss of the cargo was not paid by the carrier, Coastwise Lighterage, to Pag-asa Sales, Inc. but by the
latter's insurer, PhilGen.

Article 2207 of the Civil Code is explicit on this point:

Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer
or the person who violated the contract. . . .

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured
property is destroyed or damaged through the fault or negligence of a party other than the assured, then
the insurer, upon payment to the assured will be subrogated to the rights of the assured to recover from
the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the
assured operated as an equitable assignment to the former of all remedies which the latter 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 written assignment of claim. It
accrues simply upon payment of the insurance claim by the insurer.

Case No. 18
Case Title: Malayan Insurance Co., Inc. vs. Philippine First Insurance Co., Inc., G.R. No. 184300, July
11, 2012
Topic: Double/Over Insurance

FACTS:
Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services, Inc.
(Reputable) had been annually executing a contract of carriage, whereby the latter undertook to transport
and deliver the former’s products.

On November 18, 1993, Wyeth procured Marine Policy from respondent Philippines First Insurance Co.,
Inc. (Philippines First) to secure its interest over its own products, while the same were being transported
or shipped in the Philippines. The policy covers all risks of direct physical loss or damage from any external
cause, if by land, and provides a limit of P6,000,000.00 per any one land vehicle.

On December 1, 1993, Wyeth executed its annual contract of carriage with Reputable. It turned out,
however, that the contract was not signed by Wyeth’s representative/s. Nevertheless, it was admittedly
signed by Reputable’s representatives, the terms thereof faithfully observed by the parties. The contract
also required Reputable to secure an insurance policy on Wyeth’s goods. Thus, on February 11, 1994,
Reputable signed a Special Risk Insurance Policy (SR Policy) with petitioner Malayan for the amount of
P1,000,000.00.
During the effectivity of the Marine Policy and SR Policy, Reputable received from Wyeth 1,000 boxes of
Promil infant formula worth P2,357,582.70 to be delivered by Reputable to Mercury Drug. Unfortunately,
the truck carrying Wyeth's products was hijacked by about 10 armed men, which was recovered two
weeks later without its cargo. Pursuant to the Marine Policy, Philippines First paid Wyeth P2,133,257.00
as indemnity.

Philippines First then demanded reimbursement from Reputable, having been subrogated to the rights of
Wyeth by virtue of the payment. Reputable, however, ignored the demand. Consequently, Philippines
First instituted an action for sum of money against Reputable. Reputable, in turn, impleaded Malayan as
third-party defendant in an effort to collect the amount covered in the SR Policy.

Malayan argued, among others, that inasmuch as there was already a marine policy issued by Philippines
First securing the same subject matter against loss and that since the monetary coverage/value of the
Marine Policy is more than enough to indemnify the hijacked cargo, Philippines First alone must bear the
loss.

Malayan invokes Sections 5 (which provides that insurance does not cover any loss or damage to property
which at the time of the happening of such loss or damage is insured by another Fire or Marine policy),
and 12 (which provides that in case there is another insurance, Malayan shall not be liable to pay or
contribute more than its ratable proportion of such loss or damage) of the SR policy. Due to these
policies, Malayan seeks the dismissal of the third-party complaint against it.

RTC ruled that Reputable was liable to Philippines First for the amount of indemnity it paid to Wyeth,
among others. In turn, Malayan was found by the RTC to be liable to Reputable to the extent of the policy
coverage.

Both Reputable and Malayan filed their respective appeals from the RTC decision. The CA sustained the
ruling of the RTC. The CA ruled, among others, that Section 12 of the SR Policy prevails over Section 5, it
being the latter provision; however, since the ratable proportion provision of Section 12 applies only in
case of double insurance, which is not present, then it should not be applied and Malayan should be held
liable for the full amount of the policy coverage, that is, P1,000,000.00.

ISSUE:
Whether or not there was double or over-insurance, such that Sections 5 and 12 of the SR Policy shall
apply

HELD:
Malayan’s positions, that Section 5 of its SR Policy as an “over insurance clause” and to Section 12 as a
“modified ‘other insurance’ clause,” cannot be countenanced as both Sections 5 and 12 presuppose the
existence of a double insurance.

The pivotal question that now arises is whether there is double insurance in this case such that either
Section 5 or Section 12 of the SR Policy may be applied.

By the express provision of Section 93 of the Insurance Code (which is now Section 95), double insurance
exists where the same person is insured by several insurers separately in respect to the same subject and
interest and risk. The requisites in order for double insurance to arise are as follows:
 1. The person insured is the same;
2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.

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

It is undisputed that Wyeth is the recognized insured of Philippines First under its Marine Policy, while
Reputable is the recognized insured of Malayan under the SR Policy. The fact that Reputable procured
Malayan’s SR Policy over the goods of Wyeth pursuant merely to the stipulated requirement under its
contract of carriage with the latter does not make Reputable a mere agent of Wyeth in obtaining the said
SR Policy.

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

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

Section 5 is actually the other insurance clause (also called “additional insurance” and “double
insurance”). It does not provide for the nullity of the SR Policy but simply limits the liability of Malayan
only up to the excess of the amount that was not covered by the other insurance policy.

The Court ruled that the prohibition under Section 5 applies only in case of double insurance. Thus, even
though the multiple insurance policies involved were all issued in the name of the same assured, over the
same subject matter and covering the same risk, it was ruled that there was no violation of the “other
insurance clause” since there was no double insurance.

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

Topic: Reinsurance
Case No: 19
Case title: PHILAM v. Auditor General, G.R. No. L-19255. January 18, 1968
“Reinsurance treaties are mere contracts for insurance, rather than contracts of insurance. The former
does not establish a fixed obligation to remit reinsurance premiums until the execution of a reinsurance
cession”

FACTS:
Philippine American Life Insurance Company (Philamlife; domestic corp) and American International
Reinsurance Company (Airco; foreign corp) entered into a reinsurance treaty on January 1, 1950. Under
the treaty, Philamlife agrees to reinsure with Airco the entire excess of such life insurance of the lives of
persons as may be written by Philam.

It is conceded that no question ever arose with respect to the remittances made by Philamlife to Airco
before July 16, 1959, the date of approval of the Margin Law. The Central Bank of the Philippines collected
the sum of P268,747.48 as foreign exchange margin on Philamlife remittances to Airco purportedly
totalling $610,998.63 and made subsequent to July 16, 1959.

Philamlife filed with the Central Bank a claim for the refund of the above sum of P268,747.48. The ground
therefor was that the reinsurance premiums so remitted were paid pursuant to the January 1, 1950
reinsurance treaty, and, therefore, were pre-existing obligations expressly exempt from the margin fee.

Monetary Board resolved that "reinsurance contracts entered into and approved by the Central Bank
before July 17, 1959 are exempt from the payment of the 25% foreign exchange margin, even if
remittances thereof are made after July 17, 1959," because such remittances "are only made in the
implementation of a mother contract, a continuing contract, which is the reinsurance treaty." The
foregoing resolution notwithstanding, the Auditor of the Central Bank, refused to pass in audit
Philamlife's claim for refund. Philamlife sought reconsideration with the Auditor General which was
denied. Hence this petition for review.

ISSUE:
Whether Philamlife was covered with the exception

RULING:
No. The thrust of petitioner's argument is that the premia remitted were in pursuance of its reinsurance
treaty with Airco of January 1, 1950, a contract antedating the Margin Law, which took effect only on July
16, 1959. True, the reinsurance treaty precedes the Margin Law by over nine years. Nothing in that treaty,
however, obligates Philamlife to remit to Airco a fixed, certain, and obligatory sum by way of
reinsurance premiums. All that the reinsurance treaty provides on this point is that Philamlife "agrees
to reinsure."

The treaty speaks of a probability; not a reality. For, without reinsurance, no premium is due. Of course,
the reinsurance treaty lays down the duty to remit premiums — if any reinsurance is effected upon the
covenants in that treaty written. So it is that the reinsurance treaty per se cannot give rise to a contractual
obligation calling for the payment of foreign exchange "issued, approved and outstanding as of the date
this Republic Act 2609 takes effect."

For an exemption to come into play, there must be a reinsurance policy or, as in the reinsurance treaty
provided, a "reinsurance cession" which may be automatic or facultative. There should not be any
misapprehension as to the distinction between a reinsurance treaty, on the one hand, and a reinsurance
policy or a reinsurance cession, on the other.
A reinsurance policy is a contract of indemnity one insurer makes with another to protect the first insurer
from a risk it has already assumed. A reinsurance treaty is merely an agreement between two insurance
companies whereby one agrees to cede and the other to accept reinsurance business pursuant to
provisions specified in the treaty.

The practice of issuing policies by insurance companies includes, among other things, the issuance of
reinsurance policies on standard risks and also on substandard risks under special arrangements. The
lumping of the different agreements under a contract has resulted in the term known to the insurance
world as "treaties." Such a treaty is, in fact, an agreement between insurance companies to cover the
different situations described. Treaties are contracts for insurance; reinsurance policies or cessions are
contracts of insurance.

Philamlife's obligation to remit reinsurance premiums becomes fixed and definite upon the execution of
the reinsurance cession. Because, for every life insurance policy ceded to Airco, Philamlife agrees to pay
premium. It is only after a reinsurance cession is made that payment of reinsurance premium may be
exacted, as it is only after Philamlife seeks to remit that reinsurance premium that the obligation to pay
the margin fee arises. Upon the premise that the margin fee of P268,747.48 was collected on remittances
made on reinsurance effected on or after the Margin Law took effect, refund thereof does not come within
the coverage of the exemption circumscribed in Section 3 of the said law.

Topic: Marine Insurance

Case No: 20
Case title: Philam Gen vs. CA, G.R. No. 116940, June 11, 1997

FACTS:
July 6, 1983 Coca-cola loaded on board MV Asilda, owned and operated by Felman, 7,500 cases of 1-liter
Coca-Cola soft drink bottles to be transported to Zamboanga City to Cebu. The shipment was insured with
Philamgen.

July 7, the vessel sank in Zamboanga del Norte. July 15, Cocacola filed a claim with respondent Felman for
recovery of damages. Felman denied the claim thus prompted Cocacola to file an insurance claim with
Philamgen. Philamgen later on claimed its right of subrogation against Felman which disclaimed any
liability for the loss.

Philamgen alleged that the sinking and loss were due to the vessel's unseaworthiness, that the vessel was
improperly manned and its officers were grossly negligent. Felman filed a motion to dismiss saying that
there is no right of subrogation in favor of Philamgen was transmitted by the shipper.

RTC dismissed the complaint of Philamgen. CA set aside the dismissal and remanded the case to the lower
court for trial on the merits. Felman filed a petition for certiorari but was denied.

RTC rendered judgment in favor of Felman. it ruled that the vessel was seaworthy when it left the port of
Zamboanga as evidenced by the certificate issued by the Phil. Coast Guard and the ship owner’s surveyor.
Thus, the loss is due to a fortuitous event, in which, no liability should attach unless there is stipulation or
negligence.
On appeal, CA rendered judgment finding the vessel unseaworthy for the cargo for being top-heavy and
the Cocacola bottles were also improperly stored on deck. Nonetheless, the CA denied the claim of
Philamgen, saying that Philamgen was not properly subrogated to the rights and interests of the shipper
plus the filing of notice of abandonment had absolved the ship owner from liability under the limited
liability rule.

ISSUES:
1) Whether the vessel was seaworthy;
2) Whether limited liability rule should apply; and
3) Whether Philamgen was properly subrogated to the rights against Felman.

RULING:
1) The vessel was unseaworthy. The proximate cause thru the findings of the Elite Adjusters, Inc., is the
vessel's being top-heavy. Evidence shows that days after the sinking Coca-cola bottles were found near
the vicinity of the sinking which would mean that the bottles were in fact stowed on deck which the vessel
was not designed to carry substantial amount of cargo on deck. The inordinate loading of cargo deck
resulted in the decrease of the vessel's metacentric height thus making it unstable.

2) Art. 587 of the Code of Commerce is not applicable, the agent is liable for the negligent acts of the
captain in the care of the goods. This liability however can be limited through abandonment of the vessel,
its equipment and freightage. Nonetheless, there are exceptions wherein the ship agent could still be held
answerable despite the abandonment, as where the loss or injury was due to the fault of the ship owner
and the captain. The international rule is that the right of abandonment of vessels, as legal limitation of
liability, does not apply to cases where the injury was occasioned by the fault of the ship owner. Felman
was negligent, it cannot therefore escape liability.

3) Generally, in marine insurance policy, the assured impliedly warrants to the assurer that the vessel is
seaworthy and such warranty is as much a term of the contract as if expressly written on the face of the
policy. However, the implied warranty of seaworthiness can be excluded by terms in writing in the policy
of the clearest language. The marine policy issued by Philamgen to cocacola has dispensed that the
"seaworthiness of the vessel as between the assured and the underwriters in hereby admitted."

The result of the admission of seaworthiness by Philamgen may mean two things: (1) the warranty of
seaworthiness is fulfilled and (2) the risk of unseaworthiness is assumed by the insurance company. This
waiver clause would mean that Philamgen has accepted the risk of unseaworthiness, therefore Philamgen
is liable.

On the matter of subrogation, it is provided that;

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does
not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or
injury.

Pan Malayan Insurance Corp. vs CA: 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.
Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the
right to bring an action as subrogee against FELMAN. Having failed to rebut the presumption of fault, the
liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola soft drink bottles is inevitable.

Topic: Perils of the sea or ship / Risks

Case No: 21
Case title: Cathay Insurance v. Court of Appeals, G.R. No. 76145, June 30, 1987

FACTS:
A complaint was filed by private respondent corporation (Remington Industrial Sales Corp) against
petitioner company seeking collection of the sum of P868,339.15 representing private respondent's
losses and damages incurred in a shipment of seamless steel pipes under an insurance contract in favor
of the said private respondent as the insured, consignee or importer of aforesaid merchandise while in
transit from Japan to the Philippines on board vessel SS "Eastern Mariner."

The trial court decided in favor of private respondent corporation. Respondent in its comment on the
petition, contends that “rust” is not an inherent vice of the seamless steel pipes without interference of
external factors, while petitioner maintains that the insistence of private respondent that rusting is a peril
of the sea is erroneous.

ISSUE:
Whether 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

RULING:
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. Be it
noted that any attack of the 15-day clause in the policy was foreclosed right in the pre-trial conference.

Finally, it is a cardinal rule that save for certain exceptions, findings of facts of the appellate tribunal are
binding on Us. Not one of said exceptions can apply to this case.

Case #22
Filipino Merchants Insurance Co. vs. Court of Appeals
Insurable Interest

FACTS:
The facts as found by the trial court and adopted by the Court of Appeals are as follows:
"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
 Chargeurs Reunis 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 Nos. 120320 to 120322, as Exhibit C-4 consisting of three (3) pages
which are also Exhibits 4, 5 and 6-Razon. The cargo was also surveyed by the arrastre contractor
before delivery of the cargo to the consignee and the condition of the cargo on such delivery was
reflected in E. Razon's Bad Order Certificate No. 14859, 14863 and 14869 covering a total of 227 bags
in bad order condition. 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. Consequently, the plaintiff brought an action against said defendant as adverted to above and
defendant presented a third party complaint against the vessel and the arrastre contractor."

The trial court rendered judgment in favor of private respondent. On appeal, the respondent court
affirmed the decision of the lower court.

ISSUE:
WON the Court of Appeals erred in not holding that the private respondent had no insurable interest in
the subject cargo, hence, the marine insurance policy taken out by private respondent is null and void.

RULING:
No. The Court uphold the ruling of the CA 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. [16] 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. The perfected contract of sale between him and the shipper of the goods
operates to vest in him an equitable title even before delivery or before he performed the conditions of
the sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in
the determination of whether the vendee has an insurable interest or not in the goods in transit. The
perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest
over the goods sufficient to be the subject of insurance.

Case #23
Keppel Cebu Shipyard vs. Pioneer Insurance
Loss/Abatement

FACTS:

On January 26, 2000, Keppel Cebu Shipyard, Inc. (KCSI) and WG&A Jebsens Shipmanagement, Inc. (WG&A)
executed a Shiprepair Agreement wherein KCSI would renovate and reconstruct WG&A's M/V "Superferry
3" using its dry docking facilities pursuant to its restrictive safety and security rules and regulations. Prior
to the execution of the Shiprepair Agreement, "Superferry 3" was already insured by WG&A with Pioneer
Insurance and Surety Corporation (Pioneer) for US$8,472,581.78.

On February 8, 2000, in the course of its repair, M/V "Superferry 3" was gutted by fire. Claiming that the
extent of the damage was pervasive, WG&A declared the vessel's damage as a "total constructive loss"
and, hence, filed an insurance claim with Pioneer.

On June 16, 2000, Pioneer paid the insurance claim of WG&A in the amount of US$8,472,581.78. WG&A,
in turn, executed a Loss and Subrogation Receipt in favor of Pioneer.

Armed with the subrogation receipt, Pioneer tried to collect from KCSI, but the latter denied any
responsibility for the loss of the subject vessel. As KCSI continuously refused to pay despite repeated
demands, Pioneer, on August 7, 2000, filed a Request for Arbitration before the Construction Industry
Arbitration Commission (CIAC) docketed as CIAC Case No. 21-2000.

On October 28, 2002, the CIAC rendered its Decision declaring both WG&A and KCSI guilty of negligence.
Holding that the liability for damages was limited to P50,000,000.00, the CIAC ordered KCSI to pay Pioneer
the amount of P25,000,000.00, with interest at 6% per annum from the time of the filing of the case up
to the time the decision is promulgated, and 12% interest per annum added to the award, or any balance
thereof, after it becomes final and executory. The CIAC further ordered that the arbitration costs be
imposed on both parties on a pro rata basis.

On December 20, 2007, the CA partly affirmed CIAC decision and removed the imposition of legal interest.

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

KCSI counters that a total constructive loss was not adequately proven by Pioneer, and that there is no
proof of payment of the insurance proceeds. KCSI insists on the validity of the limited-liability clause up
to P50,000,000.00, because WG&A acceded to the provision when it executed the Shiprepair Agreement.
ISSUE:
Is subrogation proper? If proper, to what extent can subrogation be made?

RULING:

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

In marine insurance, a constructive total loss occurs under any of the conditions set forth in Section 139
of the Insurance Code, which provides—
Sec. 139. A person insured by a contract of marine insurance may abandon the thing insured, or any
particular portion hereof separately valued by the policy, or otherwise separately insured, and recover
for a total loss thereof, when the cause of the loss is a peril insured against:
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover
it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths; x x x.

It cannot be denied that M/V "Superferry 3" suffered widespread damage from the fire that occurred on
February 8, 2000, a covered peril under the marine insurance policies obtained by WG&A from Pioneer.
The estimates given by the three disinterested and qualified shipyards show that the damage to the ship
would exceed P270,000,000.00, or ¾ of the total value of the policies - P360,000,000.00. These estimates
constituted credible and acceptable proof of the extent of the damage sustained by the vessel. It is
significant that these estimates were confirmed by the Adjustment Report dated June 5, 2000 submitted
by Richards Hogg Lindley (Phils.), Inc., the average adjuster that Pioneer had enlisted to verify and confirm
the extent of the damage. The Adjustment Report verified and confirmed that the damage to the vessel
amounted to a constructive total loss and that the claim for P360,000,000.00 under the policies was
compensable. It is also noteworthy that KCSI did not cross-examine Henson Lim, Director of Richards
Hogg, whose affidavit-direct testimony submitted to the CIAC confirmed that the vessel was a constructive
total loss.

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

We cannot accept KCSI's insistence on upholding the validity Clause 20, which provides that the limit of
its liability is only up to P50,000,000.00. Although not invalid, per se, a contract of adhesion is void when
the weaker party is imposed upon in dealing with the dominant bargaining party, and its option is reduced
to the alternative of "taking it or leaving it," completely depriving such party of the opportunity to bargain
on equal footing.

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

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

Case #24
Malayan Insurance Co. vs. Gregoria Cruz Arnaldo
Measure of Indemnity – Fire Insurance

FACTS:
On June 7, 1981, the petitioner (hereinafter called MICO) issued to the private
respondent, Coronacion Pinca, Fire Insurance Policy No. F-001-17212 on her property for the amount of
P100,000.00, effective July 22, 1981, until July 22, 1982.

On October 15, 1981, MICO allegedly canceled the policy for non-payment of the premium and sent the
corresponding notice to Pinca.

On December 24, 1981, payment of the premium from Pinca was received by Domingo Adora, agent of
MICO.

On January 15, 1982, Adora remitted this payment to MICO, together with other payments.

On January 18, 1982, Pinca's property was completely burned.

On February 5, 1982, Pinca's payment was returned by MICO to Adora on the ground that her policy had
been canceled earlier. But Adora refused to accept it.

In due time, Pinca made the requisite demands for payment, which MICO rejected.

The private respondent has been sustained by the Insurance Commission in her claim for compensation
for her burned property. The petitioner is now before the SC to dispute the decision, on the ground that
there was no valid insurance contract at the time of the loss.

ISSUE:
Was there a valid insurance contract at the time of the loss?

RULING:
Yes. The Court does not share MICO's view that there was no existing insurance at the time of the loss
sustained by Pinca because her policy never became effective for non-payment of premium. Payment
was in fact made, rendering the policy operative as of July 22, 1981. The premium invoice issued
to Pinca at the time of the delivery of the policy on June 7, 1981 was stamped "Payment Received" of the
amount of P930.60 on "12-24-81" by Domingo Adora. This is important because it suggests an
understanding between MICO and the insured that such payment could be made
later, as agent Adora had assured Pinca. In any event, it is not denied that this payment was actually
made by Pinca to Adora, who remitted the same to MICO.

Legal Doctrine on Measure of Indemnity:

The valuation fixed in fire insurance policy is conclusive in case of total loss in the absence of fraud, which
is not shown here. Loss and its amount may be determined on the basis of such proof as may be offered
by the insured, which need not be of such persuasiveness as is required in judicial proceedings. If, as in
this case, the insured files notice and preliminary proof of loss and the insurer fails to specify to the former
all the defects thereof and without unnecessary delay, all objections to notice and proof of loss are
deemed waived under Section 90 of the Insurance Code.

The certification issued by the Integrated National Police, Lao-ang, Samar, as to the extent of Pinca's loss
should be considered sufficient. Notably, MICO submitted no evidence to the contrary nor did it even
question the extent of the loss in its answer before the Insurance Commission. It is also worth observing
that Pinca's property was not the only building burned in the fire that razed the commercial district of
Lao-ang, Samar, on January 18, 1982.

25. PHIL-NIPPON KYOEI, CORP. V. ROSALIA GUDELOSAO (G.R. NO 181375)

Topic: Casualty Insurance

FACTS:

· Phil-Nippon Kyoei, Corp. (petitioner), a domestic shipping corporation, purchased a "Ro-Ro"

passenger/cargo vessel "MV Mahlia" in Japan in February 2003. For the vessel's one month
conduction voyage from Japan to the Philippines, petitioner, as local principal, and Top Ever Marine
Management Maritime Co., Ltd. (TMCL), as foreign principal, hired Edwin C. Gudelosao, Virgilio A.
Tancontian, and six other crewmembers. They were hired through the local manning agency of TMCL,
Top Ever Marine Management Philippine Corporation (TEMMPC). TEMMPC, through their president
and general manager, Capt. Oscar Orbeta (Capt. Orbeta), and the eight crewmembers signed separate
contracts of employment.

· Petitioner secured a Marine Insurance Policy from SSSICI over the vessel for P10,800,000.00 against
loss, damage, and third party liability or expense, arising from the occurrence of the perils of the sea
for the voyage of the vessel from Onomichi, Japan to Batangas, Philippines. This Marine Insurance
Policy included Personal Accident Policies for the eight crewmembers for P3,240,000.00 each in case
of accidental death or injury.
· On February 24, 2003, while still within Japanese waters, the vessel sank due to extreme bad weather
condition. Only Chief Engineer Nilo Macasling survived the incident while the rest of the
crewmembers, including Gudelosao and Tancontian, perished.

· Respondents, as heirs and beneficiaries of Gudelosao and Tancontian, filed separate complaints for
death benefits and other damages against petitioner, TEMMPC, Capt. Orbeta, TMCL, and SSSICI, with
the National Labor Relations Commission (NLRC).

· The Labor Arbiter (LA) rendered a decision finding solidary liability among petitioner, TEMMPC, TMCL
and Capt. Orbeta. The LA also found SSSICI liable to the respondents for the proceeds of the Personal
Accident Policies and attorney's fees. The LA, however, ruled that the liability of petitioner shall be
deemed extinguished only upon SSSICI's payment of the insurance proceeds.

· On appeal, the NLRC modified the LA Decision and absolved petitioner, TEMMPC and TMCL and Capt.
Orbeta from any liability based on the limited liability rule. It, however, affirmed SSSICI's liability after
finding that the Personal Accident Policies answer for the death benefit claims under the Philippine
Overseas Employment Administration Standard Employment Contract (POEA-SEC).

· The CA reversed the NLRC’s decision and reinstated the LA’s decision.

ISSUE:

Whether or not the CA erred in ruling that the liability of petitioner is extinguished only upon SSSICI's
payment of insurance proceeds.

RULING:

Yes, the CA erred in ruling that the liability of petitioner is extinguished only upon SSSICI's payment of
insurance proceeds.

This ruling makes petitioner's liability conditional upon SSSICI's payment of the insurance proceeds. In
doing so, the CA determined that the Personal Accident Policies are casualty insurance, specifically one of
liability insurance. The CA determined that petitioner, as insured, procured from SSSICI the Personal
Accident Policies in order to protect itself from the consequences of the total loss of the vessel caused by
the perils of the sea. The CA found that the liabilities insured against are all monetary claims, excluding
the benefits under the POEA-SEC, of respondents in connection with the sinking of the vessel.

We rule that while the Personal Accident Policies are casualty insurance, they do not answer for
petitioner’s liabilities arising from the sinking of the vessel. It is an indemnity insurance procured by
petitioner for the benefit of the seafarers. As a result, petitioner is not directly liable to pay under the
policies because it is merely the policyholder of the Personal Accident Policies. Section 176 (formerly Sec.
174) of The Insurance Code defines casualty insurance as follows:

SEC. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap,
excluding certain types of loss which by law or custom are considered as falling exclusively within the scope
of other types of insurance such as fire or marine. It includes, but is not limited to, employer’s liability
insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal
accident and health insurance as written by nonlife insurance companies, and other substantially similar
kinds of insurance.
Based on Section 176, casualty insurance may cover liability or loss arising from accident or mishap. In a
liability insurance, the insurer assumes the obligation to pay third party in whose favor the liability of the
insured arises. On the other hand, personal accident insurance refers to insurance against death or injury
by accident or accidental means. In an accidental death policy, the accident causing the death is the thing
insured against.

Doctrines:

· While the Personal Accident Policies are casualty insurance, they do not answer for petitioner’s
liabilities arising from the sinking of the vessel. It is an indemnity insurance procured by petitioner
for the benefit of the seafarers.
· The liability of South Sea Surety & Insurance Co., Inc. (SSSICI) to the beneficiaries is direct under
the insurance contract. Under the contract, petitioner is the policyholder, with SSSICI as the
insurer, the crew members as the cestui que vie or the person whose life is being insured with
another as beneficiary of the proceeds, the latter’s heirs as beneficiaries of the policies.

26. FIRST LEPANTO-TAISHO INSURANCE VS. CHEVRON, G.R. NO. 177839, JANUARY 18, 2012

Topic: Suretyship

FACTS:

· Chevron Philippines sued First Lepanto-Taisho Insurance Corp. for payment of unpaid oil and
petroleum purchases made by its distributor Fumitechniks Corp.
· Fumitechniks applied for and was issued a Surety Bond by First Lepanto. As stated in the attached
rider, the bond was in compliance with the requirement for the grant of a credit line with Chevron to
guarantee payment/remittance of the cost of fuel products withdrawn within the stipulated time in
accordance with the terms and conditions of the agreement.
· Fumitechniks defaulted on its obligation to Chevron. As such, Chevron notified First Lepanto of
Fumitechniks’ unpaid purchases.
· First Lepanto then demanded from Fumitechniks the delivery of documents including, among others,
a copy of the agreement secured by the Surety Bond and information such as terms and conditions of
any arrangement that Fumitechniks might have made or ongoing negotiations with Chevron in
connection with the settlement of its obligations. Fumitechniks responded by saying that no such
agreement was executed with Chevron.
· First Lepanto then advised Chevron the non-existence of the principal agreement as confirmed by
Fumitechniks.
· Chevron formally demanded from First Lepanto the payment of its claim under the surety bond. First
Lepanto reiterated its position that without the basic contract subject of the bond, t cannot act on
Chevron’s claim. Thus, Chevron sued.

ISSUE:

Whether or not First Lepanto, as surety, is liable to Chevron, the creditor, in the absence of a written
contract with the principal.

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

The extent of the surety’s liability is determined by the language of the suretyship contract or bond itself.
It cannot be extended by implications beyond the terms of the contract. Thus, to determine whether First
Lepanto is liable to Chevron under the surety bond, we need to examine the terms of the contract itself.
A reading of the bond shows that it secures the payment of purchases on credit by Fumitechniks in
accordance with the terms and conditions of the “agreement” it entered into with Chevron. The word
“agreement” has reference to the distributorship agreement, the principal contract and by implication
included the credit agreement in the rider. But in this case, Chevron has executed written agreements
only with its direct customers but not to distributors like Fumitechniks and it also never relayed the terms
and conditions of its distributorship agreement to First Lepanto after the delivery of the bond.

The law is clear that a surety contract should be read and interpreted together with the contract entered
into between the creditor and the principal (Sec. 176). A surety contract is merely a collateral one, its basis
is the principal contract or undertaking which it secures. Necessarily, the stipulations in such principal
agreement must at least be communicated or made known to the surety.

The bond in this case specifically makes reference to a WRITTEN AGREEMENT. Having accepted the bond,
the creditor is bound by the recital in the surety bond that the terms and conditions of its distributorship
contract be reduced in writing or at the very least communicated in writing to the surety. Such non-
compliance by the creditor impacts not on the validity or legality of the surety contract but on the
creditor’s right to demand performance.