De la Cruz v.

Capital Insurance, GR L-21574, 30 June 1966

Facts:

Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc. in Baguio, was the
holder of an accident insurance policy (No. ITO-BFE-170) underwritten by the Capital Insurance
& Surety Co., Inc., for the period beginning November 13, 1956 to November 12, 1957. On
January 1, 1957, in connection with the celebration of the New Year, the Itogon-Suyoc Mines,
Inc. sponsored a boxing contest for general entertainment wherein the insured Eduardo de la
Cruz, a non-professional boxer participated. In the course of his bout with another person,
likewise a non-professional, of the same height, weight, and size, Eduardo slipped and was hit by
his opponent on the left part of the back of the head, causing Eduardo to fall, with his head hitting
the rope of the ring. He was brought to the Baguio General Hospital the following day. The cause
of death was reported as hemorrhage, intracranial, left.

Simon de la Cruz, the father of the insured and who was named beneficiary under the policy,
thereupon filed a claim with the insurance company for payment of the indemnity under the
insurance policy. As the claim was denied, De la Cruz instituted the action in the Court of First
Instance of Pangasinan for specific performance. Defendant insurer set up the defense that the
death of the insured, caused by his participation in a boxing contest, was not accidental and,
therefore, not covered by insurance.

Issue:

Ruling:

It is not disputed that during the ring fight with another non-professional boxer, Eduardo slipped,
which was unintentional. At this opportunity, his opponent landed on Eduardo's head a blow,
which sent the latter to the ropes. That must have caused the cranial injury that led to his death.
Eduardo was insured "against death or disability caused by accidental means". Appellant insurer
now contends that while the death of the insured was due to head injury, said injury was
sustained because of his voluntary participation in the contest. It is claimed that the participation
in the boxing contest was the "means" that produced the injury which, in turn, caused the death
of the insured. And, since his inclusion in the boxing card was voluntary on the part of the
insured, he cannot be considered to have met his death by "accidental means". 1äwphï1.ñët

The terms "accident" and "accidental", as used in insurance contracts, have not acquired any
technical meaning, and are construed by the courts in their ordinary and common acceptation.
Thus, the terms have been taken to mean that which happen by chance or fortuitously, without
intention and design, and which is unexpected, unusual, and unforeseen. An accident is an event
that takes place without one's foresight or expectation — an event that proceeds from an
unknown cause, or is an unusual effect of a known cause and, therefore, not expected. 1

1
Appellant however, would like to make a distinction between "accident or accidental" and
"accidental means", which is the term used in the insurance policy involved here. It is argued that
to be considered within the protection of the policy, what is required to be accidental is
the means that caused or brought the death and not the death itself. It may be mentioned in this
connection, that the tendency of court decisions in the United States in recent years is to
eliminate the fine distinction between the terms "accidental" and "accidental means" and to
consider them as legally synonymous.2 But, even if we take appellant's theory, the death of the
insured in the case at bar would still be entitled to indemnification under the policy. The generally
accepted rule is that, death or injury does not result from accident or accidental means within the
terms of an
accident-policy if it is the natural result of the insured's voluntary act, unaccompanied by anything
unforeseen except the death or injury. 3 There is no accident when a deliberate act is performed
unless some additional, unexpected, independent, and unforeseen happening occurs which
produces or brings about the result of injury or death. 4 In other words, where the death or injury is
not the natural or probable result of the insured's voluntary act, or if something unforeseen
occurs in the doing of the act which produces the injury, the resulting death is within the
protection of policies insuring against death or injury from accident.

In the present case, while the participation of the insured in the boxing contest is voluntary, the
injury was sustained when he slid, giving occasion to the infliction by his opponent of the blow
that threw him to the ropes of the ring. Without this unfortunate incident, that is, the unintentional
slipping of the deceased, perhaps he could not have received that blow in the head and would
not have died. The fact that boxing is attended with some risks of external injuries does not make
any injuries received in the course of the game not accidental. In boxing as in other equally
physically rigorous sports, such as basketball or baseball, death is not ordinarily anticipated to
result. If, therefore, it ever does, the injury or death can only be accidental or produced by some
unforeseen happening or event as what occurred in this case.

Furthermore, the policy involved herein specifically excluded from its coverage —

(e) Death or disablement consequent upon the Insured engaging in football, hunting,
pigsticking, steeplechasing, polo-playing, racing of any kind, mountaineering, or
motorcycling.

Death or disablement resulting from engagement in boxing contests was not declared outside of
the protection of the insurance contract. Failure of the defendant insurance company to include
death resulting from a boxing match or other sports among the prohibitive risks leads inevitably
to the conclusion that it did not intend to limit or exempt itself from liability for such death.

2
Sun Insurance Office Ltd v CA, GR 92383, 17 July 1992

Facts:

The petitioner issued Personal Accident Policy No. 05687 to Felix Lim, Jr. with a face value of
P200,000.00. Two months later, he was dead with a bullet wound in his head. As beneficiary, his
wife Nerissa Lim sought payment on the policy but her claim was rejected. The petitioner agreed
that there was no suicide. It argued, however that there was no accident either.

Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on October 6,
1982, at about 10 o'clock in the evening, after his mother's birthday party. According to Nalagon,
Lim was in a happy mood (but not drunk) and was playing with his handgun, from which he had
previously removed the magazine. As she watched television, he stood in front of her and
pointed the gun at her. She pushed it aside and said it might he loaded. He assured her it was
not and then pointed it to his temple. The next moment there was an explosion and Lim slumped
to the floor. He was dead before he fell.

Ruling:

The term "accident" has been defined as follows:

The words "accident" and "accidental" have never acquired any technical signification in law, and
when used in an insurance contract are to be construed and considered according to the
ordinary understanding and common usage and speech of people generally. In-substance, the
courts are practically agreed that the words "accident" and "accidental" mean that which happens
by chance or fortuitously, without intention or design, and which is unexpected, unusual, and
unforeseen. The definition that has usually been adopted by the courts is that an accident is an
event that takes place without one's foresight or expectation — an event that proceeds from an
unknown cause, or is an unusual effect of a known case, and therefore not expected.  4

An accident is an event which happens without any human agency or, if happening through
human agency, an event which, under the circumstances, is unusual to and not expected by the
person to whom it happens. It has also been defined as an injury which happens by reason of
some violence or casualty to the injured without his design, consent, or voluntary co-operation.  5

In light of these definitions, the Court is convinced that the incident that resulted in Lim's death
was indeed an accident. The petitioner, invoking the case of De la Cruz v. Capital
Insurance,   says that "there is no accident when a deliberate act is performed unless some
6

additional, unexpected, independent and unforeseen happening occurs which produces or brings
about their injury or death." There was such a happening. This was the firing of the gun, which
was the additional unexpected and independent and unforeseen occurrence that led to the
insured person's death.

The petitioner also cites one of the four exceptions provided for in the insurance contract and
contends that the private petitioner's claim is barred by such provision.

To repeat, the parties agree that Lim did not commit suicide. Nevertheless, the petitioner
contends that the insured willfully exposed himself to needless peril and thus removed himself
from the coverage of the insurance policy.

3
It should be noted at the outset that suicide and willful exposure to needless peril are in pari
materia because they both signify a disregard for one's life. The only difference is in degree, as
suicide imports a positive act of ending such life whereas the second act indicates a reckless
risking of it that is almost suicidal in intent. To illustrate, a person who walks a tightrope one
thousand meters above the ground and without any safety device may not actually be intending
to commit suicide, but his act is nonetheless suicidal. He would thus be considered as "willfully
exposing himself to needless peril" within the meaning of the exception in question.

The petitioner maintains that by the mere act of pointing the gun to hip temple, Lim had willfully
exposed himself to needless peril and so came under the exception. The theory is that a gun
is per se dangerous and should therefore be handled cautiously in every case.

Lim was unquestionably negligent and that negligence cost him his own life. But it should not
prevent his widow from recovering from the insurance policy he obtained precisely against
accident. There is nothing in the policy that relieves the insurer of the responsibility to pay the
indemnity agreed upon if the insured is shown to have contributed to his own accident. Indeed,
most accidents are caused by negligence. There are only four exceptions expressly made in the
contract to relieve the insurer from liability, and none of these exceptions is applicable in the case
at bar. **

It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor
of the assured. There is no reason to deviate from this rule, especially in view of the
circumstances of this case as above analyzed.

4
Ty v Filipinas Cia de Seguros, GR L-21821-22 and L-21824-27, 31 May 1966

Facts:

Plaintiff-appellant was an employee of Broadway Cotton Factory at Grace Park, Caloocan City,
working as mechanic operator, with monthly salary of P185.00. In the latter part of 1953, he took
Personal Accident Policies from several insurance companies, among which are herein
defendants-appellees, on different dates,1 effective for 12 months. During the effectivity of these
policies, or on December 24, 1953, a fire broke out in the factory where plaintiff was working. As
he was trying to put out said fire with the help of a fire extinguisher, a heavy object fell upon his
left hand, the attending surgeon certified, would cause temporary total disability of appellant's left
hand.

As the insurance companies refused to pay his claim for compensation under the policies by
reason of the said disability of his left hand, Ty filed motions in the Municipal Court of Manila,
which rendered favorable decision. On appeal to the Court of First Instance by the insurance
companies, the cases were dismissed on the ground that under the uniform terms of the
insurance policies, partial disability of the insured caused by loss of either hand to be
compensable, the loss must result in the amputation of that hand. Hence, these appeals by the
insured.

Ruling:

Appellant contends that to be entitled to indemnification under the foregoing provision, it is

enough that the insured is disabled to such an extent that he cannot substantially perform all acts
or duties of the kind necessary in the prosecution of his business. It is argued that what is
compensable is the disability and not the amputation of the hand. The definition of what
constitutes loss of hand, placed in the contract, according to appellant, consequently, makes the
provision ambiguous and calls for the interpretation thereof by this Court.

This is not the first time that the proper construction of this provision, which is uniformly carried in
personal accident policies, has been questioned. Herein appellant himself has already brought
this matter to the attention of this Court in connection with the other accident policies which he
took and under which he had tried to collect indemnity, for the identical injury that is the basis of
the claims in these cases. And, we had already ruled:

While we sympathize with the plaintiff or his employer, for whose benefit the policies
were issued, we can not go beyond the clear and express conditions of the insurance
policies, all of which definite partial disability as loss of either hand by amputation through
the bones of the wrist. There was no such amputation in the case at bar. All that was
found by the trial court, which is not disputed on appeal, was that the physical injuries
"caused temporary total disability of plaintiff's left hand." Note that the disability of
plaintiff's hand was merely temporary, having been caused by fractures of the index, the
middle and the fourth fingers of the left hand.

We might add that the agreement contained in the insurance policies is the law between the
parties. As the terms of the policies are clear, express and specific that only amputation of the
left hand should be considered as a loss thereof, an interpretation that would include the mere
fracture or other temporary disability not covered by the policies would certainly be unwarranted. 2

We find no reason to depart from the foregoing ruling on the matter.

Plaintiff-appellant cannot come to the courts and claim that he was misled by the terms of the
contract. The provision is clear enough to inform the party entering into that contract that the loss
to be considered a disability entitled to indemnity, must be severance or amputation of that
affected member from the body of the insured.

5
Calanoc v CA, GR 8151, 16 December 1955

Facts:

Melencio Basilio was a watchman of the Manila Auto Supply located at the corner of
Avenida Rizal and Zurbaran. He secured a life insurance policy from the Philippine
American Life Insurance Company in the amount of P2,000 to which was attached a
supplementary contract covering death by accident. On January 25, 1951, he died of
a gunshot wound on the occasion of a robbery committed in the house of Atty.
Ojeda at the corner of Oroquieta and Zurbaran streets. Virginia Calanoc, the widow,
was paid the sum of P2,000, face value of the policy, but when she demanded the
payment of the additional sum of P2,000 representing the value of the supplemental
policy, the company refused alleging, as main defense, that the deceased died
because he was murdered by a person who took part in the commission of the
robbery and while making an arrest as an officer of the law which contingencies
were expressly excluded in the contract and have the effect of exempting the
company from liability.

"The circumstances surrounding the death of Melencio Basilio show that when he
was killed at about seven o’clock in the night of January 25, 1951, he was on duty
as watchman of the Manila Auto Supply at the corner of Avenida Rizal and Zurbaran;
that it turned out that Atty. Antonio Ojeda who had his residence at the corner of
Zurbaran and Oroquieta, a block away from Basilio’s station, had come home that
night and found that his house was well-lighted, but with the windows closed; that
getting suspicious that there were culprits in his house, Atty. Ojeda retreated to look
for a policeman and finding Basilio in khaki uniform, asked him to accompany him to
the house, with the latter refusing on the ground that he was not a policeman, but
suggesting that Atty. Ojeda should ask the traffic policeman on duty at the corner of
Rizal Avenue and Zurbaran; that Atty. Ojeda went to the traffic policeman at said
corner and reported the matter, asking the policeman to come along with him, to
which the policeman agreed; that on the way to the Ojeda residence, the policeman
and Atty. Ojeda passed by Basilio and somehow or other invited the latter to come
along; that as the three approached the Ojeda residence and stood in front of the
main gate which was covered with galvanized iron, the fence itself being partly
concrete and partly adobe stone, a shot was fired; that immediately after the shot,
Atty. Ojeda and the policeman sought cover; that the policeman, at the request of
Atty. Ojeda, left the premises to look for reinforcement; that it turned out
afterwards that the special watchman Melencio Basilio was hit in the abdomen, the
wound causing his instantaneous death; that the shot must have come from inside
the yard of Atty. Ojeda, the bullet passing through a hole waist-high in the
galvanized iron gate; that upon inquiry Atty. Ojeda found out that the savings of his
children in the amount of P30 in coins kept in his aparador contained in stockings
were taken away, the aparador having been ransacked; that a month thereafter the
corresponding investigation conducted by the police authorities led to the arrest and
prosecution of four persons in Criminal Case No. 15104 of the Court of First Instance
of Manila for ’Robbery in an Inhabited House and in Band with Murder’."

6
Ruling:

We take note that these defenses are included among the risks excluded in the
supplementary contract which enumerates the cases which may exempt the
company from liability. While as a general rule "the parties may limit the coverage of
the policy to certain particular accidents and risks or causes of loss, and may
expressly except other risks or causes of loss therefrom" (45 C. J. S. 781-782),
however, it is to be desired that the terms and phraseology of the exception clause
be clearly expressed so as to be within the easy grasp and understanding of the
insured, for if the terms are doubtful or obscure the same must of necessity be
interpreted or resolved against the one who has caused the obscurity. (Article 1377,
new Civil Code) And so it has been generally held that the "terms in an insurance
policy, which are ambiguous, equivocal, or uncertain . . . are to be construed strictly
and most strongly against the insurer, and liberally in favor of the insured so as to
effect the dominant purpose of indemnity or payment to the insured, especially
where a forfeiture is involved" (29 Am. Jur., 181), and the reason for this rule is that
the "insured usually has no voice in the selection or arrangement of the words
employed and that the language of the contract is selected with great care and
deliberation by experts and legal advisers employed by, and acting exclusively in the
interest of, the insurance company." (44 C. J. S., p. 1174.)

"Insurance is, in its nature, complex and difficult for the layman to understand.
Policies are prepared by experts who know and can anticipate the bearing and
possible complications of every contingency. So long as insurance companies insist
upon the use of ambiguous, intricate and technical provisions, which conceal rather
than frankly disclose, their own intentions, the courts must, in fairness to those who
purchase insurance, construe every ambiguity in favor of the insured." (Algoe v.
Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA 1917A, 1237.)

"An insurer should not be allowed, by the use of obscure phrases and exceptions, to
defeat the very purpose for which the policy was procured." (Moore v. Aetna Life
Insurance Co., LRA 1915D, 264.)

We are therefore persuaded to conclude that the circumstances unfolded in the

present case do not warrant the finding that the death of the unfortunate victim
comes within the purview of the exception clause of the supplementary policy and,
hence, do not exempt the company from liability.

7
Biagtan v Insular Life, GR L-25579, 29 March 1972

Facts:

Juan S. Biagtan was insured with defendant InsularLife Assurance Company under Policy No.
398075 for the sum of P5,000.00 and, under a supplementary contract denominated "Accidental
Death Benefit Clause, for an additional sum of P5,000.00 if "the death of the Insured resulted
directly from bodily injury effected solely through external and violent means sustained in an
accident ... and independently of all other causes." The clause, however,expressly provided that
it would not apply where death resulted from an injury"intentionally inflicted by another party."

On the night of May 20, 1964, or during the first hours of the following day a band of robbers
entered the house of the insured Juan S. Biagtan.

Plaintiffs, as beneficiaries of the insured, filed a claim under the policy. The insurance company
paid the basic amount of P5,000.00 but refused to pay the additional sum of P5,000.00 under the
accidental death benefit clause, on the ground that the insured's death resulted from injuries
intentionally inflicted by third parties and therefore was not covered. Plaintiffs filed suit to recover,
and after due hearing the court a quo rendered judgment in their favor. Hence the present appeal
by the insurer.

The only issue here is whether under the facts are stipulated and found by the trial court the
wounds received by the insured at the hands of the robbers — nine in all, five of them mortal and
four non-mortal — were inflicted intentionally.

Ruling:

The trial court committed a plain error in drawing the conclusion it did from the admitted facts.
Nine wounds were inflicted upon the deceased, all by means of thrusts with sharp-pointed
instruments wielded by the robbers. This is a physical fact as to which there is no dispute. So is
the fact that five of those wounds caused the death of the insured. Whether the robbers had the
intent to kill or merely to scare the victim or to ward off any defense he might offer, it cannot be
denied that the act itself of inflicting the injuries was intentional. It should be noted that the
exception in the accidental benefit clause invoked by the appellant does not speak of the
purpose — whether homicidal or not — of a third party in causing the injuries, but only of the fact
that such injuries have been "intentionally" inflicted — this obviously to distinguish them from
injuries which, although received at the hands of a third party, are purely accidental. This
construction is the basic idea expressed in the coverage of the clause itself, namely, that "the
death of the insured resulted directly from bodily injury effected solely through external and
violent means sustained in an accident ... and independently of all other causes." A gun which
discharges while being cleaned and kills a bystander; a hunter who shoots at his prey and hits a
person instead; an athlete in a competitive game involving physical effort who collides with an
opponent and fatally injures him as a result: these are instances where the infliction of the injury
is unintentional and therefore would be within the coverage of an accidental death benefit clause
such as thatin question in this case. But where a gang of robbers enter a house and coming face
to face with the owner, even if unexpectedly, stab him repeatedly, it is contrary to all reason and
logic to say that his injuries are not intentionally inflicted, regardless of whether they prove fatal
or not. As it was, in the present case they did prove fatal, and the robbers have been accused
and convicted of the crime of robbery with homicide.

8
The case of Calanoc vs. Court of Appeals, 98 Phil. 79, is relied upon by the trial court in support
of its decision. The facts in that case, however, are different from those obtaining here. The
insured there was a watchman in a certain company, who happened to be invited by a policeman
to come along as the latter was on his way to investigate a reported robbery going on in a private
house. As the two of them, together with the owner of the house, approached and stood in front
of the main gate, a shot was fired and it turned out afterwards that the watchman was hit in the
abdomen, the wound causing his death. Under those circumstances this Court held that it could
not be said that the killing was intentional for there was the possibility that the malefactor had
fired the shot to scare people around for his own protection and not necessarrily to kill or hit the
victim. A similar possibility is clearly ruled out by the facts in the case now before Us. For while a
single shot fired from a distance, and by a person who was not even seen aiming at the victim,
could indeed have been fired without intent to kill or injure, nine wounds inflicted with bladed
weapons at close range cannot conceivably be considered as innocent insofar as such intent is
concerned. The manner of execution of the crime permits no other conclusion.

Court decisions in the American jurisdiction, where similar provisions in accidental death benefit
clauses in insurance policies have been construed, may shed light on the issue before Us. Thus,
it has been held that "intentional" as used in an accident policy excepting intentional injuries
inflicted by the insured or any other person, etc., implies the exercise of the reasoning faculties,
consciousness and volition.  Where a provision of the policy excludes intentional injury, it is the
1

intention of the person inflicting the injury that is controlling.  If the injuries suffered by the insured
2

clearly resulted from the intentional act of a third person the insurer is relieved from liability as
stipulated.3

In the case of Hutchcraft's Ex'r v. Travelers' Ins. Co., 87 Ky. 300, 8 S.W. 570, 12 Am. St. Rep.
484, the insured was waylaid and assassinated for the purpose of robbery. Two (2) defenses
were interposed to the action to recover indemnity, namely: (1) that the insured having been
killed by intentional means, his death was not accidental, and (2) that the proviso in the policy
expressly exempted the insurer from liability in case the insured died from injuries intentionally
inflicted by another person. In rendering judgment for the insurance company the Court held that
while the assassination of the insured was as to him an unforeseen event and therefore
accidental, "the clause of the proviso that excludes the (insurer's) liability, in case death or injury
is intentionally inflicted by another person, applies to this case."

9
Finman General Assurance v CA, GR 100970, 2 September 1992

Facts;

It appears on record that on October 22, 1986, deceased, Carlie Surposa was insured with
petitioner Finman General Assurance Corporation under Finman General Teachers Protection
Plan Master Policy No. 2005 and Individual Policy No. 08924 with his parents, spouses Julia and
Carlos Surposa, and brothers Christopher, Charles, Chester and Clifton, all surnamed, Surposa,
as beneficiaries. 
3

While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on
October 18, 1988 as a result of a stab wound inflicted by one of the three (3) unidentified men
without provocation and warning on the part of the former as he and his cousin, Winston
Surposa, were waiting for a ride on their way home along Rizal-Locsin Streets, Bacolod City after
attending the celebration of the "Maskarra Annual Festival."

Thereafter, private respondent and the other beneficiaries of said insurance policy filed a written
notice of claim with the petitioner insurance company which denied said claim contending that
murder and assault are not within the scope of the coverage of the insurance policy.

Ruling:

We do not agree.

The terms "accident" and "accidental" as used in insurance contracts have not
acquired any technical meaning, and are construed by the courts in their ordinary
and common acceptation. Thus, the terms have been taken to mean that which
happen by chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. An accident is an event that takes place
without one's foresight or expectation — an event that proceeds from an
unknown cause, or is an unusual effect of a known cause and, therefore, not
expected.

. . . The generally accepted rule is that, death or injury does not result from
accident or accidental means within the terms of an accident-policy if it is the
natural result of the insured's voluntary act, unaccompanied by anything
unforeseen except the death or injury. There is no accident when a deliberate act
is performed unless some additional, unexpected, independent, and unforeseen
happening occurs which produces or brings about the result of injury or death. In
other words, where the death or injury is not the natural or probable result of the
insured's voluntary act, or if something unforeseen occurs in the doing of the act
which produces the injury, the resulting death is within the protection of the
policies insuring against death or injury from accident. 
5

As correctly pointed out by the respondent appellate court in its decision:

In the case at bar, it cannot be pretended that Carlie Surposa died in the course
of an assault or murder as a result of his voluntary act considering the very
nature of these crimes. In the first place, the insured and his companion were on
their way home from attending a festival. They were confronted by unidentified
persons. The record is barren of any circumstance showing how the stab wound
was inflicted. Nor can it be pretended that the malefactor aimed at the insured
precisely because the killer wanted to take his life. In any event, while the act

10
 may not exempt the unknown perpetrator from criminal liability, the fact remains
that the happening was a pure accident on the part of the victim. The insured
died from an event that took place without his foresight or expectation, an event
that proceeded from an unusual effect of a known cause and, therefore, not
expected. Neither can it be said that where was a capricious desire on the part of
the accused to expose his life to danger considering that he was just going home
after attending a festival. 
6

Furthermore, the personal accident insurance policy involved herein specifically enumerated only
ten (10) circumstances wherein no liability attaches to petitioner insurance company for any
injury, disability or loss suffered by the insured as a result of any of the stimulated causes. The
principle of " expresso unius exclusio alterius" — the mention of one thing implies the exclusion
of another thing — is therefore applicable in the instant case since murder and assault, not
having been expressly included in the enumeration of the circumstances that would negate
liability in said insurance policy cannot be considered by implication to discharge the petitioner
insurance company from liability for, any injury, disability or loss suffered by the insured. Thus,
the failure of the petitioner insurance company to include death resulting from murder or assault
among the prohibited risks leads inevitably to the conclusion that it did not intend to limit or
exempt itself from liability for such death.

Article 1377 of the Civil Code of the Philippines provides that:

The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.

Moreover,

it is well settled that contracts of insurance are to be construed liberally in favor of

the insured and strictly against the insurer. Thus ambiguity in the words of an
insurance contract should be interpreted in favor of its beneficiary.

11
Qua CheeGan v Law Union and Rock, GR L-4611, 17 December1955

Facts:

Qua Chee Gan, a merchant of Albay, instituted this action in 1940, in the Court of First Instance
of said province, seeking to recover the proceeds of certain fire insurance policies totalling
P370,000, issued by the Law Union & Rock Insurance Co., Ltd., upon certain bodegas and
merchandise of the insured that were burned on June 21, 1940. The records of the original case
were destroyed during the liberation of the region, and were reconstituted in 1946. After a trial
that lasted several years, the Court of First Instance rendered a decision in favor of the plaintiff,
the dispositive part whereof reads as follows:

Ruling:

In its first assignment of error, the insurance company alleges that the trial Court should have
held that the policies were avoided for breach of warranty, specifically the one appearing on a
rider pasted (with other similar riders) on the face of the policies (Exhibits X, Y, JJ and LL). These
riders were attached for the first time in 1939, and the pertinent portions read as follows:

It is argued that since the bodegas insured had an external wall perimeter of 500 meters or 1,640
feet, the appellee should have eleven (11) fire hydrants in the compound, and that he actually
had only two (2), with a further pair nearby, belonging to the municipality of Tabaco.

We are in agreement with the trial Court that the appellant is barred by waiver (or rather
estoppel) to claim violation of the so-called fire hydrants warranty, for the reason that knowing
fully all that the number of hydrants demanded therein never existed from the very beginning, the
appellant neverthless issued the policies in question subject to such warranty, and received the
corresponding premiums. It would be perilously close to conniving at fraud upon the insured to
allow appellant to claims now as void ab initio the policies that it had issued to the plaintiff without
warning of their fatal defect, of which it was informed, and after it had misled the defendant into
believing that the policies were effective.

The insurance company was aware, even before the policies were issued, that in the premises
insured there were only two fire hydrants installed by Qua Chee Gan and two others nearby,
owned by the municipality of TAbaco, contrary to the requirements of the warranty in question.
Such fact appears from positive testimony for the insured that appellant's agents inspected the
premises; and the simple denials of appellant's representative (Jamiczon) can not overcome that
proof. That such inspection was made is moreover rendered probable by its being a prerequisite
for the fixing of the discount on the premium to which the insured was entitled, since the discount
depended on the number of hydrants, and the fire fighting equipment available (See "Scale of
Allowances" to which the policies were expressly made subject). The law, supported by a long
line of cases, is expressed by American Jurisprudence (Vol. 29, pp. 611-612) to be as follows:

It is usually held that where the insurer, at the time of the issuance of a policy of
insurance, has knowledge of existing facts which, if insisted on, would invalidate the
contract from its very inception, such knowledge constitutes a waiver of conditions in the
contract inconsistent with the facts, and the insurer is stopped thereafter from asserting
the breach of such conditions. The law is charitable enough to assume, in the absence of
any showing to the contrary, that an insurance company intends to executed a valid
contract in return for the premium received; and when the policy contains a condition
which renders it voidable at its inception, and this result is known to the insurer, it will be
presumed to have intended to waive the conditions and to execute a binding contract,
rather than to have deceived the insured into thinking he is insured when in fact he is not,

12
 and to have taken his money without consideration. (29 Am. Jur., Insurance, section 807,
at pp. 611-612.)

The reason for the rule is not difficult to find.

The plain, human justice of this doctrine is perfectly apparent. To allow a company to
accept one's money for a policy of insurance which it then knows to be void and of no
effect, though it knows as it must, that the assured believes it to be valid and binding, is
so contrary to the dictates of honesty and fair dealing, and so closely related to positive
fraud, as to the abhorent to fairminded men. It would be to allow the company to treat the
policy as valid long enough to get the preium on it, and leave it at liberty to repudiate it
the next moment. This cannot be deemed to be the real intention of the parties. To hold
that a literal construction of the policy expressed the true intention of the company would
be to indict it, for fraudulent purposes and designs which we cannot believe it to be guilty
of (Wilson vs. Commercial Union Assurance Co., 96 Atl. 540, 543-544).

The inequitableness of the conduct observed by the insurance company in this case is
heightened by the fact that after the insured had incurred the expense of installing the two
hydrants, the company collected the premiums and issued him a policy so worded that it gave
the insured a discount much smaller than that he was normaly entitledto. According to the "Scale
of Allowances," a policy subject to a warranty of the existence of one fire hydrant for every 150
feet of external wall entitled the insured to a discount of 7 1/2 per cent of the premium; while the
existence of "hydrants, in compund" (regardless of number) reduced the allowance on the
premium to a mere 2 1/2 per cent. This schedule was logical, since a greater number of hydrants
and fire fighting appliances reduced the risk of loss. But the appellant company, in the particular
case now before us, so worded the policies that while exacting the greater number of fire
hydrants and appliances, it kept the premium discount at the minimum of 2 1/2 per cent, thereby
giving the insurance company a double benefit. No reason is shown why appellant's premises,
that had been insured with appellant for several years past, suddenly should be regarded in 1939
as so hazardous as to be accorded a treatment beyond the limits of appellant's own scale of
allowances. Such abnormal treatment of the insured strongly points at an abuse of the insurance
company's selection of the words and terms of the contract, over which it had absolute control.

Moreover, taking into account the well known rule that ambiguities or obscurities must be strictly
interpreted aganst the prty that caused them, 1the "memo of warranty" invoked by appellant bars
the latter from questioning the existence of the appliances called for in the insured premises,
since its initial expression, "the undernoted appliances for the extinction of fire being kept on the
premises insured hereby, . . . it is hereby warranted . . .", admists of interpretation as an
admission of the existence of such appliances which appellant cannot now contradict, should the
parol evidence rule apply.

The alleged violation of the warranty of 100 feet of fire hose for every two hydrants, must be
equally rejected, since the appellant's argument thereon is based on the assumption that the
insured was bound to maintain no less than eleven hydrants (one per 150 feet of wall), which
requirement appellant is estopped from enforcing. The supposed breach of the wter pressure
condition is made to rest on the testimony of witness Serra, that the water supply could fill a 5-
gallon can in 3 seconds; appellant thereupon inferring that the maximum quantity obtainable from
the hydrants was 100 gallons a minute, when the warranty called for 200 gallons a minute. The
transcript shows, however, that Serra repeatedly refused and professed inability to estimate the
rate of discharge of the water, and only gave the "5-gallon per 3-second" rate because the
insistence of appellant's counsel forced the witness to hazard a guess. Obviously, the testimony
is worthless and insufficient to establish the violation claimed, specially since the burden of its
proof lay on appellant.

As to maintenance of a trained fire brigade of 20 men, the record is preponderant that the same
was organized, and drilled, from time to give, altho not maintained as a permanently separate

13
unit, which the warranty did not require. Anyway, it would be unreasonable to expect the insured
to maintain for his compound alone a fire fighting force that many municipalities in the Islands do
not even possess. There is no merit in appellant's claim that subordinate membership of the
business manager (Co Cuan) in the fire brigade, while its direction was entrusted to a minor
employee unders the testimony improbable. A business manager is not necessarily adept at fire
fighting, the qualities required being different for both activities.

Under the second assignment of error, appellant insurance company avers, that the insured
violated the "Hemp Warranty" provisions of Policy No. 2637165 (Exhibit JJ), against the storage
of gasoline, since appellee admitted that there were 36 cans (latas) of gasoline in the building
designed as "Bodega No. 2" that was a separate structure not affected by the fire. It is well to
note that gasoline is not specifically mentioned among the prohibited articles listed in the so-
called "hemp warranty." The cause relied upon by the insurer speaks of "oils (animal and/or
vegetable and/or mineral and/or their liquid products having a flash point below 300o
Fahrenheit", and is decidedly ambiguous and uncertain; for in ordinary parlance, "Oils" mean
"lubricants" and not gasoline or kerosene. And how many insured, it may well be wondered, are
in a position to understand or determine "flash point below 003o Fahrenheit. Here, again, by
reason of the exclusive control of the insurance company over the terms and phraseology of the
contract, the ambiguity must be held strictly against the insurer and liberraly in favor of the
insured, specially to avoid a forfeiture (44 C. J. S., pp. 1166-1175; 29 Am. Jur. 180).

Insurance is, in its nature, complex and difficult for the layman to understand. Policies are
prepared by experts who know and can anticipate the hearing and possible complications
of every contingency. So long as insurance companies insist upon the use of ambiguous,
intricate and technical provisions, which conceal rather than frankly disclose, their own
intentions, the courts must, in fairness to those who purchase insurance, construe every
ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L. Ins. Co., 91 Wash. 324, LRA
1917A, 1237.)

An insurer should not be allowed, by the use of obscure phrases and exceptions, to
defeat the very purpose for which the policy was procured (Moore vs. Aetna Life
Insurance Co., LRA 1915D, 264).

We see no reason why the prohibition of keeping gasoline in the premises could not be
expressed clearly and unmistakably, in the language and terms that the general public can
readily understand, without resort to obscure esoteric expression (now derisively termed
"gobbledygook"). We reiterate the rule stated in Bachrach vs. British American Assurance Co.
(17 Phil. 555, 561):

If the company intended to rely upon a condition of that character, it ought to have been
plainly expressed in the policy.

This rigid application of the rule on ambiguities has become necessary in view of current
business practices. The courts cannot ignore that nowadays monopolies, cartels and
concentrations of capital, endowed with overwhelming economic power, manage to impose upon
parties dealing with them cunningly prepared "agreements" that the weaker party may not
change one whit, his participation in the "agreement" being reduced to the alternative to take it or
leave it" labelled since Raymond Baloilles" contracts by adherence" (con tracts d'adhesion), in
contrast to these entered into by parties bargaining on an equal footing, such contracts (of which
policies of insurance and international bills of lading are prime examples) obviously call for
greater strictness and vigilance on the part of courts of justice with a view to protecting the
weaker party from abuses and imposition, and prevent their becoming traps for the unwarry (New
Civil Coee, Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934, 27 February 1942).

14
The contract of insurance is one of perfect good faith (uferrimal fidei) not for the insured alone,
but equally so for the insurer; in fact, it is mere so for the latter, since its dominant bargaining
position carries with it stricter responsibility.

Another point that is in favor of the insured is that the gasoline kept in Bodega No. 2 was only
incidental to his business, being no more than a customary 2 day's supply for the five or six
motor vehicles used for transporting of the stored merchandise (t. s. n., pp. 1447-1448). "It is well
settled that the keeping of inflammable oils on the premises though prohibited by the policy does
not void it if such keeping is incidental to the business." Bachrach vs. British American Ass. Co.,
17 Phil. 555, 560); and "according to the weight of authority, even though there are printed
prohibitions against keeping certain articles on the insured premises the policy will not be
avoided by a violation of these prohibitions, if the prohibited articles are necessary or in
customary use in carrying on the trade or business conducted on the premises." (45 C. J. S., p.
311; also 4 Couch on Insurance, section 966b). It should also be noted that the "Hemp Warranty"
forbade storage only "in the building to which this insurance applies and/or in any building
communicating therewith", and it is undisputed that no gasoline was stored in the burned
bodegas, and that "Bodega No. 2" which was not burned and where the gasoline was found,
stood isolated from the other insured bodegas.

15
Del Rosario v. Equitable Insurance and Casualty, GR L-16215, 29 June 1963

Facts:

On February 7, 1957, the defendant Equitable Insurance and Casualty Co., Inc., issued Personal
Accident Policy No. 7136 on the life of Francisco del Rosario, alias Paquito Bolero, son of herein
plaintiff-appellee, binding itself to pay the sum of P1,000.00 to P3,000.00, as indemnity for the
death of the insured.

A rider to the Policy contained the following:

IV. DROWNING

It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the
policy is hereby waived by the company, and to form a part of the provision covered by the
policy.

On February 24, 1957, the insured Francisco del Rosario, alias Paquito Bolero, while on board
the motor launch "ISLAMA" together with 33 others, including his beneficiary in the Policy,
Remedios Jayme, were forced to jump off said launch on account of fire which broke out on said
vessel, resulting in the death of drowning, of the insured and beneficiary in the waters of Jolo.  1äwphï1.ñët

On April 13, 1957, Simeon del Rosario, father of the insured, and as the sole heir, filed a claim
for payment with defendant company, and on September 13, 1957, defendant company paid to
him (plaintiff) the sum of P1,000.00, pursuant to Section 1 of Part I of the policy.

On the same date (September 13, 1957), Atty. Vicente J. Francisco, wrote defendant company
acknowledging receipt by his client (plaintiff herein), of the P1,000.00, but informing said
company that said amount was not the correct one. 

Defendant company, upon receipt of the letter, referred the matter to the Insurance
Commissioner, who rendered an opinion that the liability of the company was only P1,000.00,
pursuant to Section 1, Part I of the Provisions of the policy (Exh. F, or 3). Because of the above
opinion, defendant insurance company refused to pay more than P1,000.00. In the meantime,
Atty. Vicente Francisco, in a subsequent letter to the insurance company, asked for P3,000.00
which the Company refused, to pay. Hence, a complaint for the recovery of the balance of
P2,000.00 more was instituted with the Court of First Instance of Rizal (Pasay City, Branch VII),
praying for it further sum of P10,000.00 as attorney's fees, expenses of litigation and costs.

Ruling:
On September 1, 1958, the trial court promulgated an Amended Decision, the pertinent portions
of which read —

xxx     xxx     xxx

Since the contemporaneous and subsequent acts of the parties show that it was not their
intention that the payment of P1,000.00 to the plaintiff and the signing of the loss receipt
exhibit "1" would be considered as releasing the defendant completely from its liability on
the policy in question, said intention of the parties should prevail over the contents of the
loss receipt "1" (Articles 1370 and 1371, New Civil Code).

16
 ". . . . Under the terms of this policy, defendant company agreed to pay P1,000.00 to
P3,000.00 as indemnity for the death of the insured. The insured died of drowning. Death
by drowning is covered by the policy the pertinent provisions of which reads as follows:

xxx     xxx     xxx

"Part I of the policy fixes specific amounts as indemnities in case of death

resulting from "bodily injury which is effected solely thru violence, external, visible
and accidental means" but, Part I of the Policy is not applicable in case of death
by drowning because death by drowning is not one resulting from "bodily injury
which is affected solely thru violent, external, visible and accidental means" as
"Bodily Injury" means a cut, a bruise, or a wound and drowning is death due to
suffocation and not to any cut, bruise or wound."

xxx     xxx     xxx

Besides, on the face of the policy Exhibit "A" itself, death by drowning is a ground for
recovery apart from the bodily injury because death by bodily injury is covered by Part I
of the policy while death by drowning is covered by Part VI thereof. But while the policy
mentions specific amounts that may be recovered for death for bodily injury, yet, there is
not specific amount mentioned in the policy for death thru drowning although the latter is,
under Part VI of the policy, a ground for recovery thereunder. Since the defendant has
bound itself to pay P1000.00 to P3,000.00 as indemnity for the death of the insured but
the policy does not positively state any definite amount that may be recovered in case of
death by drowning, there is an ambiguity in this respect in the policy, which ambiguity
must be interpreted in favor of the insured and strictly against the insurer so as to allow
greater indemnity.

xxx     xxx     xxx

. . . plaintiff is therefore entitled to recover P3,000.00. The defendant had already paid the
amount of P1,000.00 to the plaintiff so that there still remains a balance of P2,000.00 of
the amount to which plaintiff is entitled to recover under the policy Exhibit "A".

The plaintiff asks for an award of P10,000.00 as attorney's fees and expenses of
litigation. However, since it is evident that the defendant had not acted in bad faith in
refusing to pay plaintiff's claim, the Court cannot award plaintiff's claim for attorney's fees
and expenses of litigation.

IN VIEW OF THE FOREGOING, the Court hereby reconsiders and sets aside its
decision dated July 21, 1958 and hereby renders judgment, ordering the defendant to
pay plaintiff the sum of Two Thousand (P2,000.00) Pesos and to pay the costs.

The above judgment was appealed to the Court of Appeals on three (3) counts. Said Court, in a
Resolution dated September 29, 1959, elevated the case to this Court, stating that the genuine
issue is purely legal in nature.

17
All the parties agree that indemnity has to be paid. The conflict centers on how much should the
indemnity be. We believe that under the proven facts and circumstances, the findings and
conclusions of the trial court, are well taken, for they are supported by the generally accepted
principles or rulings on insurance, which enunciate that where there is an ambiguity with respect
to the terms and conditions of the policy, the same will be resolved against the one responsible
thereof. It should be recalled in this connection, that generally, the insured, has little, if any,
participation in the preparation of the policy, together with the drafting of its terms and
Conditions. The interpretation of obscure stipulations in a contract should not favor the party who
cause the obscurity (Art. 1377, N.C.C.), which, in the case at bar, is the insurance company.

. . . . And so it has been generally held that the "terms in an insurance policy, which are
ambiguous, equivocal or uncertain . . . are to be construed strictly against, the insurer,
and liberally in favor of the insured so as to effect the dominant purpose of indemnity or
payment to the insured, especially where a forfeiture is involved," (29 Am. Jur. 181) and
the reason for this rule is that the "insured usually has no voice in the selection or
arrangement of the words employed and that the language of the contract is selected
with great care and deliberation by expert and legal advisers employed by, and acting
exclusively in the interest of, the insurance company" (44 C.J.S. 1174). Calanoc v. Court
of Appeals, et al., G.R. No. L-8151, Dec. 16, 1955.

. . . . Where two interpretations, equally fair, of languages used in an insurance policy

may be made, that which allows the greater indemnity will prevail. (L'Engel v. Scotish
Union & Nat. F. Ins. Co., 48 Fla. 82, 37 So. 462, 67 LRA 581 111 Am. St. Rep. 70, 5 Ann.
Cas. 749).

At any event, the policy under consideration, covers death or disability by accidental means, and
the appellant insurance company agreed to pay P1,000.00 to P3,000.00. is indemnity for death
of the insured.

In view of the conclusions reached, it would seem unnecessary to discuss the other issues raised
in the appeal.

The judgment appealed from is hereby affirmed. Without costs.

18
Verendia v CA, GR 75605, 22 January 1993

Facts:
The two consolidated cases involved herein stemmed from the issuance by Fidelity and
Surety Insurance Company of the Philippines (Fidelity for short) of its Fire Insurance
Policy No. F-18876 effective between June 23, 1980 and June 23, 1981 covering Rafael
(Rex) Verendia's residential building located at Tulip Drive, Beverly Hills, Antipolo, Rizal in
the amount of P385,000.00. Designated as beneficiary was the Monte de Piedad & Savings
Bank. Verendia also insured the same building with two other companies, namely, The
Country Bankers Insurance for P56,000.00 under Policy No. PDB-80-1913 expiring on May
12, 1981, and The Development Insurance for P400,000.00 under Policy No. F-48867
expiring on June 30, 198l.

While the three fire insurance policies were in force, the insured property was completely
destroyed by fire on the early morning of December 28, 1980. Fidelity was accordingly
informed of the loss and despite demands, refused payment under its policy, thus
prompting Verendia to file a complaint with the then Court of First Instance of Quezon
City, praying for payment of P385,000.00, legal interest thereon, plus attorney's fees and
litigation expenses. The complaint was later amended to include Monte de Piedad as an
"unwilling defendant" (P. 16, Record).

Answering the complaint, Fidelity, among other things, averred that the policy was
avoided by reason of over-insurance; that Verendia maliciously represented that the
building at the time of the fire was leased under a contract executed on June 25, 1980 to a
certain Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee.

Ruling:

Basically a contract of indemnity, an insurance contract is the law between the parties (Pacific
Banking Corporation vs. Court of Appeals 168 SCRA 1 [1988]). Its terms and conditions
constitute the measure of the insurer's liability and compliance therewith is a condition precedent
to the insured's right to recovery from the insurer (Oriental Assurance Corporation vs. Court of
Appeals, 200 SCRA 459 [1991], citing Perla Compania de Seguros, Inc. vs. Court of Appeals,
185 SCRA 741 [1991]). As it is also a contract of adhesion, an insurance contract should be
liberally construed in favor of the insured and strictly against the insurer company which usually
prepares it (Western Guaranty Corporation vs. Court of Appeals, 187 SCRA 652 [1980]).

Considering, however, the foregoing discussion pointing to the fact that Verendia used a false
lease contract to support his claim under Fire Insurance Policy No. F-18876, the terms of the
policy should be strictly construed against the insured. Verendia failed to live by the terms of the
policy, specifically Section 13 thereof which is expressed in terms that are clear and
unambiguous, that all benefits under the policy shall be forfeited "If the claim be in any respect
fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent
means or devises are used by the Insured or anyone acting in his behalf to obtain any benefit
under the policy". Verendia, having presented a false declaration to support his claim for benefits
in the form of a fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13
of the policy in the absence of proof that Fidelity waived such provision (Pacific Banking
Corporation vs. Court of Appeals, supra). Worse yet, by presenting a false lease contract,
Verendia, reprehensibly disregarded the principle that insurance contracts are uberrimae
fidae and demand the most abundant good faith (Velasco vs. Apostol, 173 SCRA 228 [1989]).

There is also no reason to conclude that by submitting the subrogation receipt as evidence in
court, Fidelity bound itself to a "mutual agreement" to settle Verendia's claims in consideration of
the amount of P142,685.77. While the said receipt appears to have been a filled-up form of

19
Fidelity, no representative of Fidelity had signed it. It is even incomplete as the blank spaces for
a witness and his address are not filled up. More significantly, the same receipt states that
Verendia had received the aforesaid amount. However, that Verendia had not received the
amount stated therein, is proven by the fact that Verendia himself filed the complaint for the full
amount of P385,000.00 stated in the policy. It might be that there had been efforts to settle
Verendia's claims, but surely, the subrogation receipt by itself does not prove that a settlement
had been arrived at and enforced. Thus, to interpret Fidelity's presentation of the subrogation
receipt in evidence as indicative of its accession to its "terms" is not only wanting in rational basis
but would be substituting the will of the Court for that of the parties.

20
Fortune Insurance v CA, GR 115278, 23 May 1995

Facts:

The fundamental legal issue raised in this petition for review on certiorari is whether the
petitioner is liable under the Money, Security, and Payroll Robbery policy it issued to the private
respondent or whether recovery thereunder is precluded under the general exceptions clause
thereof. Both the trial court and the Court of Appeals held that there should be recovery. The
petitioner contends otherwise.

1. The plaintiff was insured by the defendants and an insurance policy was issued, the duplicate
original of which is hereto attached as Exhibit "A";

2. An armored car of the plaintiff, while in the process of transferring cash in the sum of
P725,000.00 under the custody of its teller, Maribeth Alampay, from its Pasay Branch to its Head
Office at 8737 Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was robbed of the said
cash. The robbery took place while the armored car was traveling along Taft Avenue in Pasay
City;

3. The said armored car was driven by Benjamin Magalong Y de Vera, escorted by Security
Guard Saturnino Atiga Y Rosete. Driver Magalong was assigned by PRC Management Systems
with the plaintiff by virtue of an Agreement executed on August 7, 1983, a duplicate original copy
of which is hereto attached as Exhibit "B";

4. The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with the plaintiff by
virtue of a contract of Security Service executed on October 25, 1982, a duplicate original copy of
which is hereto attached as Exhibit "C";

5. After an investigation conducted by the Pasay police authorities, the driver Magalong and
guard Atiga were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John
Doe, with violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City. A
copy of the complaint is hereto attached as Exhibit "D";

6. The Fiscal of Pasay City then filed an information charging the aforesaid persons with the said
crime before Branch 112 of the Regional Trial Court of Pasay City. A copy of the said information
is hereto attached as Exhibit "E." The case is still being tried as of this date;

7. Demands were made by the plaintiff upon the defendant to pay the amount of the loss of
P725,000.00, but the latter refused to pay as the loss is excluded from the coverage of the
insurance policy, attached hereto as Exhibit "A," specifically under page 1 thereof, "General
Exceptions" Section (b), which is marked as Exhibit "A-1," and which reads as follows:

8. The plaintiff opposes the contention of the defendant and contends that Atiga and Magalong
are not its "officer, employee, . . . trustee or authorized representative . . . at the time of the
robbery.

21
Ruling:
There is merit in this petition.

It should be noted that the insurance policy entered into by the parties is a theft or robbery
insurance policy which is a form of casualty insurance. Section 174 of the Insurance Code
provides:

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

Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains
no other provisions applicable to casualty insurance or to robbery insurance in particular. These
contracts are, therefore, governed by the general provisions applicable to all types of insurance.
Outside of these, the rights and obligations of the parties must be determined by the terms of
their contract, taking into consideration its purpose and always in accordance with the general
principles of insurance law.  9

It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to
defraud the insurer — the moral hazard — is so great that insurers have found it necessary to fill
up their policies with countless restrictions, many designed to reduce this hazard. Seldom does
the insurer assume the risk of all losses due to the hazards insured against."   Persons
10

frequently excluded under such provisions are those in the insured's service and
employment.   The purpose of the exception is to guard against liability should the theft be
11

committed by one having unrestricted access to the property.   In such cases, the terms
12

specifying the excluded classes are to be given their meaning as understood in common
speech.   The terms "service" and "employment" are generally associated with the idea of
13

selection, control, and compensation.  14

A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved
against the insurer,   or it should be construed liberally in favor of the insured and strictly against
15

the insurer.   Limitations of liability should be regarded with extreme jealousy and must be
16

construed
in such a way, as to preclude the insurer from non-compliance with its obligation.   It goes17

without saying then that if the terms of the contract are clear and unambiguous, there is no room
for construction and such terms cannot be enlarged or diminished by judicial construction.  18

An insurance contract is a contract of indemnity upon the terms and conditions specified
therein.   It is settled that the terms of the policy constitute the measure of the insurer's
19

liability.   In the absence of statutory prohibition to the contrary, insurance companies have the
20

same rights as individuals to limit their liability and to impose whatever conditions they deem best
upon their obligations not inconsistent with public policy.

With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify
as employees or authorized representatives of Producers under paragraph (b) of the general
exceptions clause of the policy which, for easy reference, is again quoted:

22
There is marked disagreement between the parties on the correct meaning of the terms
"employee" and "authorized representatives."

It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt
from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of
persons granted or having unrestricted access to Producers' money or payroll. When it used then
the term "employee," it must have had in mind any person who qualifies as such as generally
and universally understood, or jurisprudentially established in the light of the four standards in the
determination of the employer-employee relationship,   or as statutorily declared even in a limited
21

sense as in the case of Article 106 of the Labor Code which considers the employees under a
"labor-only" contract as employees of the party employing them and not of the party who
supplied them to the employer.

But even granting for the sake of argument that these contracts were not "labor-only" contracts,
and PRC Management Systems and Unicorn Security Services were truly independent
contractors, we are satisfied that Magalong and Atiga were, in respect of the transfer of
Producer's money from its Pasay City branch to its head office in Makati, its "authorized
representatives" who served as such with its teller Maribeth Alampay. Howsoever viewed,
Producers entrusted the three with the specific duty to safely transfer the money to its head
office, with Alampay to be responsible for its custody in transit; Magalong to drive the armored
vehicle which would carry the money; and Atiga to provide the needed security for the money,
the vehicle, and his two other companions. In short, for these particular tasks, the three acted as
agents of Producers. A "representative" is defined as one who represents or stands in the place
of another; one who represents others or another in a special capacity, as an agent, and is
interchangeable with "agent."

23
Mis amis Lumber v Capital Insurance, GR L-21380, 20 May 1966

Facts:

Plaintiff-appellee Misamis Lumber Corporation, under its former name, Lanao Timber Mills, Inc.,
insured its Ford Falcon motor car for the amount of P14,000 with the defendant-appellant,
Capital Insurance & Surety Company, Inc. The pertinent provisions of the policy provided, as
follows:

and providing also that the authorized repair limit is P150.00.

At around eleven o'clock in the evening of 25 November 1961, and while the above-mentioned
insurance policy was in force, the insured car, while traveling along in Aurora Boulevard in front
of the Pepsi-Cola plant in Quezon City, passed over a water hole which the driver did not see
because an oncoming car did not dim its light. The crankcase and flywheel housing of the car
broke when it hit a hollow block lying alongside the water hole. At the instance of the plaintiff-
appellee, the car was towed and repaired by Morosi Motors at its shop at 1906 Taft Avenue
Extension at a total cost of P302.27.

On 29 November 1961, when the repairs on the car had already been made, the plaintiff-
appellee made a report of the accident to the defendant-appellant Capital Insurance & Surety
Company.

Since the defendant-appellant refused to pay for the total cost of to wage and repairs, suit was
filed in the municipal court originally.

Ruling:

The defendant-appellant admits liability in the amount of P150, but not for any excess thereof.

The lower court did not exonerate the said appellant for the excess because, according to it, the
company's absolution would render the insurance contract one-sided and that the said insurer
had not shown that the cost of repairs in the sum of P302.27 is unreasonable, excessive or
padded, nor had it shown that it could have undertaken the repairs itself at less expense.

The above reasoning is beside the point, because the insurance policy stipulated in paragraph 4
that if the insured authorizes the repair the liability of the insurer, per its sub-paragraph (a), is
limited to P150.00. The literal meaning of this stipulation must control, it being the actual
contract, expressly and plainly provided for in the policy (Art. 1370, Civil Code; Young vs.
Midland Textile Ins. Co., 30 Phil. 617; Ty vs. First Nat. Surety & Assur. Co., Inc., L-16138-45, 29
April 1961).

The lower court's recourse to legal hermeneutics is not called for because paragraph 4 of the
policy is clear and specific and leaves no room for interpretation. The interpretation given is even
unjustified because it opposes what was specifically stipulated. Thus, it will be observed that the
policy drew out not only the limits of the insurer's liability but also the mechanics that the insured
had to follow to be entitled to full indemnity of repairs. The option to undertake the repairs is
accorded to the insurance company per paragraph 2. The said company was deprived of the
option because the insured took it upon itself to have the repairs made, and only notified the
insurer when the repairs were done. As a consequence, paragraph 4, which limits the company's
liability to P150.00, applies.

24
The insurance contract may be rather onerous ("one-sided", as the lower court put it), but that in
itself does not justify the abrogation of its express terms, terms which the insured accepted or
adhered to and which is the law between the contracting parties.

Finally, to require the insurer to prove that the cost of the repairs ordered by the insured is
unreasonable, as the appealed decision does, when the insurer was not given an opportunity to
inspect and assess the damage before the repairs were made, strikes Us as contrary to
elementary justice and equity.

25
White Gold Marine v Pioneer Insurance, GR 154514, 28 July 2005

Facts:

White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage for
its vessels from The Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship
Mutual) through Pioneer Insurance and Surety Corporation (Pioneer). Subsequently, White Gold
was issued a Certificate of Entry and Acceptance. 3 Pioneer also issued receipts evidencing
payments for the coverage. When White Gold failed to fully pay its accounts, Steamship Mutual
refused to renew the coverage.

Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to
recover the latter’s unpaid balance. White Gold on the other hand, filed a complaint before the
Insurance Commission claiming that Steamship Mutual violated Sections 186 4 and 1875 of the
Insurance Code, while Pioneer violated Sections 299, 6 3007 and 3018 in relation to Sections 302
and 303, thereof.

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. In its decision, the
appellate court distinguished between P & I Clubs vis-à-vis conventional insurance. The
appellate court also held that Pioneer merely acted as a collection agent of Steamship Mutual.

Issue:
Is Steamship Mutual engaged in the insurance business?

Ruling:

Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance business"
or "transacting an insurance business". These are:

(a) making or proposing to make, as insurer, any insurance contract;

(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of the surety;

(c) doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code;

(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this Code.

...

26
The same provision also provides, the fact that no profit is derived from the making of insurance
contracts, agreements or transactions, or that no separate or direct consideration is received
therefor, shall not preclude the existence of an insurance business. 12

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.13

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.14

In particular, a marine insurance undertakes to indemnify the assured against marine losses,
such as the losses incident to a marine adventure. 15 Section 9916 of the Insurance Code
enumerates the coverage of marine insurance.

Relatedly, a mutual insurance company is a cooperative enterprise where the members are both
the insurer and insured. In it, the members all contribute, by a system of premiums or
assessments, to the creation of a fund from which all losses and liabilities are paid, and where
the profits are divided among themselves, in proportion to their interest. 17 Additionally, mutual
insurance associations, or clubs, provide three types of coverage, namely, protection and
indemnity, war risks, and defense costs.18

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."19 By definition then, Steamship Mutual as a P & I
Club is a mutual insurance association engaged in the marine insurance business.

The records reveal Steamship Mutual is doing business in the country albeit without the requisite
certificate of authority mandated by Section 187 20 of the Insurance Code. It maintains a resident
agent in the Philippines to solicit insurance and to collect payments in its behalf. We note that
Steamship Mutual even renewed its P & I Club cover until it was cancelled due to non-payment
of the calls. Thus, to continue doing business here, Steamship Mutual or through its agent
Pioneer, must secure a license from the Insurance Commission.

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.

27
Philamlife v Ansaldo, GR 76452, 26 July 1994

Facts:

The instant case arose from a letter-complaint of private respondent Ramon M. Paterno, Jr.
dated April 17, 1986, to respondent Commissioner, alleging certain problems encountered by
agents, supervisors, managers and public consumers of the Philippine American Life Insurance
Company (Philamlife) as a result of certain practices by said company.

In a letter dated April 23, 1986, respondent Commissioner requested petitioner Rodrigo de los
Reyes, in his capacity as Philamlife's president, to comment on respondent Paterno's letter.

In a letter dated April 29, 1986 to respondent Commissioner, petitioner De los Reyes suggested
that private respondent "submit some sort of a 'bill of particulars' listing and citing actual cases,
facts, dates, figures, provisions of law, rules and regulations, and all other pertinent data which
are necessary to enable him to prepare an intelligent reply" (Rollo, p. 37). A copy of this letter
was sent by the Insurance Commissioner to private respondent for his comments thereon.

On May 16, 1986, respondent Commissioner received a letter from private respondent
maintaining that his letter-complaint of April 17, 1986 was sufficient in form and substance, and
requested that a hearing thereon be conducted.

Petitioner De los Reyes, in his letter to respondent Commissioner dated June 6, 1986, reiterated
his claim that private respondent's letter of May 16, 1986 did not supply the information he
needed to enable him to answer the letter-complaint.

On July 14, a hearing on the letter-complaint was held by respondent Commissioner on the
validity of the Contract of Agency complained of by private respondent.

In said hearing, private respondent was required by respondent Commissioner to specify the
provisions of the agency contract which he claimed to be illegal.

On August 4, private respondent submitted a letter of specification to respondent Commissioner

dated July 31, 1986, reiterating his letter of April 17, 1986 and praying that the provisions on
charges and fees stated in the Contract of Agency executed between Philamlife and its agents,
as well as the implementing provisions as published in the agents' handbook, agency bulletins
and circulars, be declared as null and void. He also asked that the amounts of such charges and
fees already deducted and collected by Philamlife in connection therewith be reimbursed to the
agents, with interest at the prevailing rate reckoned from the date when they were deducted.

Issue:

The main issue to be resolved is whether or not the resolution of the legality of the Contract of
Agency falls within the jurisdiction of the Insurance Commissioner.

Private respondent contends that the Insurance Commissioner has jurisdiction to take
cognizance of the complaint in the exercise of its quasi-judicial powers. The Solicitor General,
upholding the jurisdiction of the Insurance Commissioner, claims that under Sections 414 and
415 of the Insurance Code, the Commissioner has authority to nullify the alleged illegal
provisions of the Contract of Agency.

28
Ruling:

A plain reading of the above-quoted provisions show that the Insurance Commissioner has the
authority to regulate the business of insurance, which is defined as follows:

(2) The term "doing an insurance business" or "transacting an insurance

business," within the meaning of this Code, shall include
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or activity
of the surety; (c) doing any kind of business, including a reinsurance business,
specifically recognized as constituting the doing of an insurance business within
the meaning of this Code; (d) doing or proposing to do any business in substance
equivalent to any of the foregoing in a manner designed to evade the provisions
of this Code. (Insurance Code, Sec. 2[2]; Emphasis supplied).

Since the contract of agency entered into between Philamlife and its agents is not included within
the meaning of an insurance business, Section 2 of the Insurance Code cannot be invoked to
give jurisdiction over the same to the Insurance Commissioner. Expressio unius est exclusio
alterius.

With regard to private respondent's contention that the quasi-judicial power of the Insurance
Commissioner under Section 416 of the Insurance Code applies in his case, we likewise rule in
the negative. Section 416 of the Code in pertinent part, provides:

The Commissioner shall have the power to adjudicate claims and complaints
involving any loss, damage or liability for which an insurer may be answerable
under any kind of policy or contract of insurance, or for which such insurer may
be liable under a contract of suretyship, or for which a reinsurer may be used
under any contract or reinsurance it may have entered into, or for which a mutual
benefit association may be held liable under the membership certificates it has
issued to its members, where the amount of any such loss, damage or liability,
excluding interest, costs and attorney's fees, being claimed or sued upon any
kind of insurance, bond, reinsurance contract, or membership certificate does not
exceed in any single claim one hundred thousand pesos.

A reading of the said section shows that the quasi-judicial power of the Insurance Commissioner
is limited by law "to claims and complaints involving any loss, damage or liability for which an
insurer may be answerable under any kind of policy or contract of insurance, . . ." Hence, this
power does not cover the relationship affecting the insurance company and its agents but is
limited to adjudicating claims and complaints filed by the insured against the insurance company.

While the subject of Insurance Agents and Brokers is discussed under Chapter IV, Title I of the
Insurance Code, the provisions of said Chapter speak only of the licensing requirements and
limitations imposed on insurance agents and brokers.

The Insurance Code does not have provisions governing the relations between insurance
companies and their agents. It follows that the Insurance Commissioner cannot, in the exercise
of its quasi-judicial powers, assume jurisdiction over controversies between the insurance
companies and their agents.

Under the first category, the relationship between the insurance company and its agents is
governed by the Contract of Employment and the provisions of the Labor Code, while under the
second category, the same is governed by the Contract of Agency and the provisions of the Civil
Code on the Agency. Disputes involving the latter are cognizable by the regular courts.

29
Filipinas Cia. De Seguros v Christern Huenefeld, GR L-2294, 25 May1951

Facts:

On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment
of corresponding premium, obtained from the petitioner ,Filipinas Cia. de Seguros, fire policy No.
29333 in the sum of P1000,000, covering merchandise contained in a building located at No. 711
Roman Street, Binondo Manila. On February 27, 1942, or during the Japanese military
occupation, the building and insured merchandise were burned. In due time the respondent
submitted to the petitioner its claim under the policy. The salvage goods were sold at public
auction and, after deducting their value, the total loss suffered by the respondent was fixed at
P92,650. The petitioner refused to pay the claim on the ground that the policy in favor of the
respondent had ceased to be in force on the date the United States declared war against
Germany, the respondent Corporation (though organized under and by virtue of the laws of the
Philippines) being controlled by the German subjects and the petitioner being a company under
American jurisdiction when said policy was issued on October 1, 1941. The petitioner, however,
in pursuance of the order of the Director of Bureau of Financing, Philippine Executive
Commission, dated April 9, 1943, paid to the respondent the sum of P92,650 on April 19, 1943.

The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the
purpose of recovering from the respondent the sum of P92,650 above mentioned. The theory of
the petitioner is that the insured merchandise were burned up after the policy issued in 1941 in
favor of the respondent corporation has ceased to be effective because of the outbreak of the
war between the United States and Germany on December 10, 1941, and that the payment
made by the petitioner to the respondent corporation during the Japanese military occupation
was under pressure. After trial, the Court of First Instance of Manila dismissed the action without
pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment of the Court of
First Instance of Manila was affirmed, with costs. The case is now before us on appeal
by certiorari from the decision of the Court of Appeals.

Ruling:

The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone
except a public enemy may be insured." It stands to reason that an insurance policy ceases to be
allowable as soon as an insured becomes a public enemy.

The respondent having become an enemy corporation on December 10, 1941, the insurance
policy issued in its favor on October 1, 1941, by the petitioner (a Philippine corporation) had
ceased to be valid and enforcible, and since the insured goods were burned after December 10,
1941, and during the war, the respondent was not entitled to any indemnity under said policy
from the petitioner. However, elementary rules of justice (in the absence of specific provision in
the Insurance Law) require that the premium paid by the respondent for the period covered by its
policy from December 11, 1941, should be returned by the petitioner.

30
Constantino v Asia Life, GR L-1669, 31 August 1950

Facts:

First case. In consideration of the sum of P176.04 as annual premium duly paid to it, the Asia
Life Insurance Company (a foreign corporation incorporated under the laws of Delaware, U.S.A.),
issued on September 27, 1941, its Policy No. 93912 for P3,000, whereby it insured the life of
Arcadio Constantino for a term of twenty years. The first premium covered the period up to
September 26, 1942. The plaintiff Paz Lopez de Constantino was regularly appointed
beneficiary.

After that first payment, no further premiums were paid. The insured died on September 22,
1944.

It is admitted that the defendant, being an American corporation , had to close its branch office in
Manila by reason of the Japanese occupation, i.e. from January 2, 1942, until the year 1945.

Second case. On August 1, 1938, the defendant Asia Life Insurance Company issued its Policy
No. 78145 (Joint Life 20-Year Endowment Participating with Accident Indemnity), covering the
lives of the spouses Tomas Ruiz and Agustina Peralta, for the sum of P3,000. The annual
premium stipulated in the policy was regularly paid from August 1, 1938, up to and including
September 30, 1941. Effective August 1, 1941, the mode of payment of premiums was changed
from annual to quarterly, so that quarterly premiums were paid, the last having been delivered on
November 18, 1941, said payment covering the period up to January 31, 1942. No further
payments were handed to the insurer. Upon the Japanese occupation, the insured and the
insurer became separated by the lines of war, and it was impossible and illegal for them to deal
with each other. Because the insured had borrowed on the policy an mount of P234.00 in
January, 1941, the cash surrender value of the policy was sufficient to maintain the policy in
force only up to September 7, 1942. Tomas Ruiz died on February 16, 1945. The plaintiff
Agustina Peralta is his beneficiary. Her demand for payment met with defendant's refusal,
grounded on non-payment of the premiums.

Plaintiffs maintain that, as beneficiaries, they are entitled to receive the proceeds of the policies
minus all sums due for premiums in arrears. They allege that non-payment of the premiums was
caused by the closing of defendant's offices in Manila during the Japanese occupation and the
impossible circumstances created by war.

Defendant on the other hand asserts that the policies had lapsed for non-payment of premiums,
in accordance with the contract of the parties and the law applicable to the situation.

The lower court absolved the defendant. Hence this appeal.

31
Ruling:

Since the year 1917, the Philippine law on Insurance was found in Act No. 2427, as amended,
and the Civil Code.2 Act No. 2427 was largely copied from the Civil Code of California. 3 And this
court has heretofore announced its intention to supplement the statutory laws with general
principles prevailing on the subject in the United State. 4

In Young vs. Midland Textile Insurance Co. (30 Phil., 617), we said that "contracts of insurance
are contracts of indemnity upon the terms and conditions specified in the policy. The parties have
a right to impose such reasonable conditions at the time of the making of the contract as they
may deem wise and necessary. The rate of premium is measured by the character of the risk
assumed. The insurance company, for a comparatively small consideration, undertakes to
guarantee the insured against loss or damage, upon the terms and conditions agreed upon, and
upon no other, and when called upon to pay, in case of loss, the insurer, therefore, may justly
insists upon a fulfillment of these terms. If the insured cannot bring himself within the conditions
of the policy, he is not entitled for the loss. The terms of the policy constitute the measure of the
insurer's liability, and in order to recover the insured must show himself within those terms; and if
it appears that the contract has been terminated by a violation, on the part of the insured, of its
conditions, then there can be no right of recovery. The compliance of the insured with the terms
of the contract is a condition precedent to the right of recovery."

Recall of the above pronouncements is appropriate because the policies in question stipulate
that "all premium payments are due in advance and any unpunctuality in making any such
payment shall cause this policy to lapse." Wherefore, it would seem that pursuant to the express
terms of the policy, non-payment of premium produces its avoidance.

The first holds the view that "there are two elements in the consideration for which the annual
premium is paid — First, the mere protection for the year, and second, the privilege of renewing
the contract for each succeeding year by paying the premium for that year at the time agreed
upon. According to this view of the contract, the payment of premiums is a condition precedent,
the non-performance would be illegal necessarily defeats the right to renew the contract."

The second rule, apparently followed by the greater number of decisions, hold that "war between
states in which the parties reside merely suspends the contracts of the life insurance, and that,
upon tender of all premiums due by the insured or his representatives after the war has
terminated, the contract revives and becomes fully operative."

The United States rule declares that the contract is not merely suspended, but is abrogated by
reason of non-payments is peculiarly of the essence of the contract. It additionally holds that it
would be unjust to allow the insurer to retain the reserve value of the policy, which is the excess
of the premiums paid over the actual risk carried during the years when the policy had been in
force. This rule was announced in the well-known Statham 6 case which, in the opinion of
Professor Vance, is the correct rule.

It should be noted that the parties contracted not only for peacetime conditions but also for times
of war, because the policies contained provisions applicable expressly to wartime days. The
logical inference, therefore, is that the parties contemplated uninterrupted operation of the
contract even if armed conflict should ensue.

32
For the plaintiffs, it is again argued that in view of the enormous growth of insurance business
since the Statham decision, it could now be relaxed and even disregarded. It is stated "that the
relaxation of rules relating to insurance is in direct proportion to the growth of the business. If
there were only 100 men, for example, insured by a Company or a mutual Association, the death
of one will distribute the insurance proceeds among the remaining 99 policy-holders. Because
the loss which each survivor will bear will be relatively great, death from certain agreed or
specified causes may be deemed not a compensable loss. But if the policy-holders of the
Company or Association should be 1,000,000 individuals, it is clear that the death of one of them
will not seriously prejudice each one of the 999,999 surviving insured. The loss to be borne by
each individual will be relatively small."

The answer to this is that as there are (in the example) one million policy-holders, the "losses" to
be considered will not be the death of one but the death of ten thousand, since the proportion of
1 to 100 should be maintained. And certainly such losses for 10,000 deaths will not be "relatively
small."

After perusing the Insurance Act, we are firmly persuaded that the non-payment of premiums is
such a vital defense of insurance companies that since the very beginning, said Act no. 2427
expressly preserved it, by providing that after the policy shall have been in force for two years, it
shall become incontestable (i.e. the insurer shall have no defense) except for fraud, non-
payment of premiums, and military or naval service in time of war (sec. 184 [b], Insurance Act).
And when Congress recently amended this section (Rep. Act No. 171), the defense of fraud was
eliminated, while the defense of nonpayment of premiums was preserved. Thus the fundamental
character of the undertaking to pay premiums and the high importance of the defense of non-
payment thereof, was specifically recognized.

In keeping with such legislative policy, we feel no hesitation to adopt the United States Rule,
which is in effect a variation of the Connecticut rule for the sake of equity. In this connection, it
appears that the first policy had no reserve value, and that the equitable values of the second
had been practically returned to the insured in the form of loan and advance for premium.

33
Fidela Sales Gonzaga v Crown Life, GR L-4197, 20 March 1957

Facts:

Reduced to their absolute essentials, the facts are that, on September 26, 1939 the
Crown Life Insurance Co., whose home office is in Toronto, Canada, issued to
Ramon Gonzaga through its branch office in Manila a 20-year endowment policy for
P15,000. The insured paid in due time the agreed yearly premium, which was
P591.00, for three consecutive years, the last payment having been effected on
September 6, 1941. On account of the outbreak of war, no premiums were paid
after that date, although the policy was continued in force up to June 12, 1943,
under its automatic premium loan clause.   chanroblesvirtualawlibrary chanrobles virtual law library

Ramon Gonzaga died on June 27, 1945 from an accident. Unsuccessful in her
attempt to collect the amount of the policy his widow and the beneficiary named in
the policy began this suit on December 18, 1947. The defendant set up the defense
that the policy had lapsed by non-payment of the stipulated premiums of the
stipulated dates. And the trial court in a carefully written decision ruled against the
plaintiff. chanrobl

In its answer, the defendant alleged that "through its General Agents, Hanson, Orth
and Stevenson, Inc., it had its offices open in the city of Manila during the Japanese
occupation in the Philippines." Taking advantage of this allegation, and ignoring her
own in her complaint - that "for the whole duration of the (war) and from thence to
sometime thereafter, that is, in October, 1945, . . . defendant closed its business in
the Islands, and had absolutely no agency or representative here to represent it,
with authority to collect premiums from the Insured." - the plaintiff asserts that it
was the defendant's duty to notify her husbands of its postal address during the war,
and that its failure to do so excused deliquency in the payment of the premiums.
The plaintiff cites the provision of the contract which states that "all premiums
subsequent to the first year are payable to the Company's authorized cashier at the
place stated in the fourth page hereof, or at such other place instead thereof as may
be designated from time to time by noticed to the Company mailed to the Insured at
his last known post office address."

Ruling:

The evidence on this feature of the case reveals that, the defendant being an enemy
corporation, its offices, which were housed at the Chaco building when the hostilities
broke out, were ordered closed by the Japanese Military authorities in January 1942,
and the officers of Hanson, Orth and Stevenson, Inc., defendants general agents,
being American citizens, were entered. In addition, on August 25 the Japanese
administration issued "Instruction No. 71" by which enemy alien insurance
companies were expressly prohibited from doing business.   chanroblesvirtualawlibrary chanrobles virtual law library

But before that instruction was promulgated Hanson, Orth and Stevenson, had
opened in the house of one of their Filipino employees on Gonzales Street in Ermita
an office with skeleton force, all Filipinos, for the purpose of receiving premiums
from their policy holders; and notwithstanding the prohibition that office was not
closed.  chanroblesvirtualawlibrary chanrobles virtual law library

34
In the face of the Japanese Military decrees, which found sanctions in international
law, the failure of the defendant or its Filipino employees to advise the insured of
the defendant's new address did not work as a forfeiture of the right to have the
premiums satisfied promptly. While clandestine transactions between the parties
during the war might be binding, it was not obligatory on the insurer, and it was
well-nigh risky for its employees, to send out notices to its widely scattered policy
holders, what with the postal service under the control and administration of the
ruthless occupants.  
chanroblesvirtualawlibrary chanrobles virtual law library

There is no duty when the law forbids; and there is no obligation without
corresponding right enjoyed by another. The insured had no right to demand that
the defendant maintain an office during the war, and the defendant was not
obligated to do so. Had the defendant not opened any office at all during the
occupation and stopped receiving premiums absolutely, the plaintiff's position would
not have been any better or worse for the closing and suspension of the defendant's
business. Had the plaintiff's husband actually tendered his premiums and the
defendant's employees rejected them, he could not have insisted on the payment as
a matter of right. Stated otherwise, the defendant's opening of an interim office
partook of the nature of the privilege to the policy holders to keep their policies
operative rather than a duty to them under the contract.   chanroblesvirtualawlibrary chanrobles virtual law library

Of this privilege, incidentally, Gonzaga could have taken advantage if he was really
intent on preserving his policy. Uncontroverted or admitted is the fact that the
defendant's agent, through whom he had been insured, lived in Malabon, Rizal, and
was his close acquaintance; and so were some of the defendant's Filipino employees
who handled the insurance business of Hanson, Orth and Stevenson during the
occupation. And Gonzaga admittedly come to Manila on a visit every now and then,
and could have, without difficulty, contacted any of those people.   chanroblesvirtualawlibrary chanrobles virtual law library

For another thing, the policy carried a clause providing for its reinstatement under
certain conditions within three years from the date of lapse on application of the
insured. The present policy lapsed on June 12, 1943, the Company's Manila branch
was reopened on May 1, 1945 and resumed regular business through the same
general agents at the Wilson Building on Juan Luna Street, Manila and Ramon
Gonzaga died on June 27, 1945. It is undoubted that Gonzaga knew all that. It is not
denied that he was an employee in the United States Navy, that the united States
Navy had an office in the same Wilson Building, and that he came at least twice a
month to that office for his salary.

35
Palileo v Cosio, GR L-7667, 28 November 1955

Facts:

Plaintiff filed a complaint against defendant in the Court of First Instance of Manila praying that
(1) the transaction entered into between them on December 18, 1951 be declared as one of
loan, and the document executed covering the transaction as one of equitable mortgage to
secure the payment of said loan; (2) the defendant be ordered to credit to the plaintiff with the
necessary amount from the sum received by the defendant from the Associated Insurance &
Surety Co., Inc. and to apply the same to the payment of plaintiff's obligation thus considering it
as fully paid; and (3) the defendant be ordered to pay to plaintiff the difference between the
alleged indebtedness of plaintiff and the sum received by defendant from the aforementioned
insurance company, plus the sum allegedly paid to defendant as interest on the alleged
indebtedness.

On December 19, 1952, defendant filed her answer setting up as special defense that the
transaction entered into between the plaintiff and defendant is one of sale with option to
repurchase but that the period for repurchase had expired without plaintiff having returned the
price agreed upon as a result of which the ownership of the property had become consolidated in
the defendant. Defendant also set up certain counterclaims which involve a total amount of
P4,900.

Ruling:

The question that now arises is: Is the trial court justified in considering the obligation of plaintiff
fully compensated by the insurance amount and in ordering defendant to refund to plaintiff the
sum of P1,107 representing the difference of the loan of P12,000 and the sum of P13,107
collected by said defendant from the insurance company notwithstanding the fact that it was not
proven that the insurance was taken for the benefit of the mortgagor?

Is is our opinion that on this score the court is in error for its ruling runs counter to the rule
governing an insurance taken by a mortgagee independently of the mortgagor. The rule is that
"where a mortgagee, independently of the mortgagor, insures the mortgaged property in his own
name and for his own interest, he is entitled to the insurance proceeds in case of loss, but in
such case, he is not allowed to retain his claim against the mortgagor, but is passed by
subrogation to the insurer to the extent of the money paid." (Vance on Insurance, 2d ed., p.
654)Or, stated in another way, "the mortgagee may insure his interest in the property
independently of the mortgagor. In that event, upon the destruction of the property the insurance
money paid to the mortgagee will not inure to the benefit of the mortgagor, and the amount due
under the mortgage debt remains unchanged. The mortgagee, however, is not allowed to retain
his claim against the mortgagor, but it passes by subrogation to the insurer, to the extent of the
insurance money paid." (Vance on Insurance, 3rd ed., pp. 772-773) This is the same rule upheld
by this Court in a case that arose in this jurisdiction. In the case mentioned, an insurance
contract was taken out by the mortgagee upon his own interest, it being stipulated that the
proceeds would be paid to him only and when the case came up for decision, this Court held that
the mortgagee, in case of loss, may only recover upon the policy to the extent of his credit at the
time of the loss. It was declared that the mortgaged had no right of action against the mortgagee
on the policy. (San Miguel Brewery vs. Law Union, 40 Phil., 674.)

36
It is true that there are authorities which hold that "If a mortgagee procures insurance on his
separate interest at his own expense and for his own benefit, without any agreement with the
mortgagor with respect thereto, the mortgagor has no interest in the policy, and is not entitled to
have the insurance proceeds applied in reduction of the mortgage debt" (19 R.C.L., p. 405), and
that, furthermore, the mortgagee "has still a right to recover his whole debt of the mortgagor."
(King vs. State Mut. F. Ins. Co., 7 Cush. 1; Suffolk F. Ins. Co. vs. Boyden 9 Allen, 123; See also
Loomis vs. Eagle Life & Health Ins. Co., 6 Gray, 396; Washington Mills Emery Mfg.
Co. vs. Weymouth & B. Mut. F. Ins. Co., 135 Mass. 506; Foster vs. Equitable Mut. F. Ins. Co., 2
Gray 216.) But these authorities merely represent the minority view (See case note, 3 Lawyers'
Report Annotated, new series, p. 79). "The general rule and the weight of authority is, that the
insurer is thereupon subrogated to the rights of the mortgagee under the mortgage. This is put
upon the analogy of the situation of the insurer to that of a surety." (Jones on Mortgages, Vol. I,
pp. 671-672.)

Considering the foregoing rules, it would appear that the lower court erred in declaring that the
proceeds of the insurance taken out by the defendant on the property mortgaged inured to the
benefit of the plaintiff and in ordering said defendant to deliver to the plaintiff the difference
between her indebtedness and the amount of insurance received by the defendant, for, in the
light of the majority rule we have above enunciated, the correct solution should be that the
proceeds of the insurance should be delivered to the defendant but that her claim against the
plaintiff should be considered assigned to the insurance company who is deemed subrogated to
the rights of the defendant to the extent of the money paid as indemnity.

37
San Miguel Brewery v Law Union, GR L-14300, 19 January 1920

Facts:

This action was begun on October 8, 1917, in the Court of First Instance of the city of Manila by
the plaintiff, the San Miguel Brewery, for the purpose of recovering upon two policies of
insurance underwritten respectively by Law Union and Rock Insurance Company (Ltd.), and the
"Filipinas" Compania de Seguros, for the sum of P7,500 each, insuring certain property which
has been destroyed by fire. The plaintiff, the San Miguel Brewery, is named as the party assured
in the two policies referred to, but it is alleged in the complaint that said company was in reality
interested in the property which was the subject of insurance in the character of a mortgage
creditor only, and that the owner of said property upon the date the policies were issued was one
D. P. Dunn who was later succeeded as owner by one Henry Harding. Accordingly said Harding
was made a defendant, as a person interested in the subject of the litigation.

The prayer of the complaint is that judgment be entered in favor of the plaintiff against the two
companies named for the sum of P15,000, with interest and costs, and further that upon
satisfaction of the balance of P4,505.30 due to the plaintiff upon the mortgage debt, and upon
the cancellation of the mortgage, the plaintiff be absolved from liability to the defendants or any
of them. The peculiar form of the latter part of the prayer is evidently due to the design of the
plaintiff to lay a foundation for Harding to recover the difference between the plaintiff's credit and
the amount for which the property was insured. Accordingly, as was to be expected, Harding
answered, admitting the material allegations of the complaint and claiming for himself the right to
recover the difference between the plaintiff's mortgage credit and the face value of the policies.
The two insurance companies also answered, admitting in effect their liability to the San Miguel
Brewery to the extent of its mortgage credit, but denying liability to Harding on the ground that
under the contracts of insurance the liability of the insurance companies was limited to the
insurable interest of the plaintiff therein. Soon after the action was begun the insurance
companies effected a settlement with the San Miguel Brewery by paying the full amount of the
credit claimed by it, with the result that the litigation as between the original plaintiff and the two
insurance companies came to an end, leaving the action to be prosecuted to final judgement by
the defendant Harding with respect to the balance claimed to be due to him upon the policies.

In this connection it appears that on January 12, 1916, D. P. Dunn, then the owner of the
property to which the insurance relates, mortgaged the same to the San Miguel Brewery to
secure a debt of P10,000. In the contract of mortgage Dunn agreed to keep the property insured
at his expense to the full amount of its value in companies to be selected by the Brewery
Company and authorized the latter in case of loss to receive the proceeds of the insurance and
to retain such part as might be necessary to cover the mortgage debt. At the same time, in order
more conveniently to accomplish the end in view, Dunn authorized and requested the Brewery
Company to effect said insurance itself. Accordingly on the same date Antonio Brias, general
manager of the Brewery, made a verbal application to the Law Union and Rock Insurance
Company for insurance to the extent of P15,000 upon said property. In reply to a question of the
company's agent as to whether the Brewery was the owner of the property, he stated that the
company was interested only as a mortgagee. No information was asked as to who was the
owner of the property, and no information upon this point was given.

38
It seems that the insurance company to whom this application was directed did not want to carry
more than one-half the risk. It therefore issued its own policy for P7,500 and procured a policy in
a like amount to be issued by the "Filipinas" Compania de Seguros. Both policies were issued in
the name of the San Miguel Brewery as the assured, and contained no reference to any other
interest in the property. Both policies contain the usual clause requiring assignments to be
approved and noted on the policy. The premiums were paid by the Brewery and charged to
Dunn. A year later the policies were renewed, without change, the renewal premiums being paid
by the Brewery, supposedly for the account of the owner. In the month of March of the year 1917
Dunn sold the insured property to the defendant Henry Harding, but not assignment of the
insurance, or of the insurance policies, was at any time made to him.

Ruling:
We agree with the trial court that no cause of action in Henry Harding against the insurance
companies is show. He is not a party to the contracts of insurance and cannot directly maintain
an action thereon. (Uy Tam and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) His claim is merely of
an equitable and subsidiary nature and must be made effective, if at all, through the San Miguel
Brewery in whose name the contracts are written. Now the Brewery, as mortgagee of the insured
property, undoubtedly had an insurable interest therein; but it could not, in any event, recover
upon these policies an amount in excess of its mortgage credit. In this connection it will be
remembered that Antonio Brias, upon making application for the insurance, informed the
company with which the insurance was placed that the Brewery was interested only as a
mortgagee. It would, therefore, be impossible for the Brewery mortgage on the insured property.

This conclusion is not only deducible from the principles governing the operation and effect of
insurance contracts in general but the point is clearly covered by the express provisions of
sections 16 and 50 of the Insurance Act (Act No. 2427). In the first of the sections cited, it is
declared that "the measure of an insurable interest in property is the extent to which the insured
might be damnified by loss or injury thereof" (sec. 16); while in the other it is stated that "the
insurance shall be applied exclusively to the proper interest of the person in whose name it is
made unless otherwise specified in the policy" (sec. 50).

These provisions would have been fatal to any attempt at recovery even by D. P. Dunn, if the
ownership of the property had continued in him up to the time of the loss; and as regards
Harding, an additional insuperable obstacle is found in the fact that the ownership of the property
had been charged, prior to the loss, without any corresponding change having been effected in
the policy of insurance. In section 19 of the Insurance Act we find it stated that "a change of
interest in any part of a thing insured unaccompanied by a corresponding change of interest in
the insurance, suspends the insurance to an equivalent extent, until the interest in the thing and
the interest in the insurance are vested in the same person." Again in section 55 it is declared
that "the mere transfer of a thing insured does not transfer the policy, but suspends it until the
same person becomes the owner of both the policy and the thing insured."

Undoubtedly these policies of insurance might have been so framed as to have been "payable to
the Sane Miguel Brewery, mortgagee, as its interest may appear, remainder to whomsoever,
during the continuance of the risk, may become the owner of the interest insured." (Sec 54, Act
No. 2427.) Such a clause would have proved an intention to insure the entire interest in the
property, not merely the insurable interest of the San Miguel Brewery, and would have shown
exactly to whom the money, in case of loss, should be paid. But the policies are not so written.

It is easy to collect from the facts stated in the decision of the trial judge, no less than from the
testimony of Brias, the manager of the San Miguel Brewery, that, as the insurance was written
up, the obligation of the insurance companies was different from that contemplated by Dunn, at
whose request the insurance was written, and Brias. In the contract of mortgage Dunn had
agreed, at his own expense, to insure the mortgaged property for its full value and to indorse the

39
policies in such manner as to authorize the Brewery Company to receive the proceeds in case of
loss and to retain such part thereof as might be necessary to satisfy the remainder then due
upon the mortgage debt. Instead, however, of effecting the insurance himself Dunn authorized
and requested the Brewery Company to procure insurance on the property in the amount of
P15,000 at Dunn's expense. The Brewery Company undertook to carry this mandate into effect,
and it of course became its duty to procure insurance of the character contemplated, that is, to
have the policies so written as to protect not only the insurable interest of the Brewery, but also
the owner. Brias seems to have supposed that the policies as written had this effect, but in this
he was mistaken. It was certainly a hardship on the owner to be required to pay the premiums
upon P15,000 of insurance when he was receiving no benefit whatever except in protection to
the extent of his indebtedness to the Brewery. The blame for the situation thus created rests,
however, with the Brewery rather than with the insurance companies, and there is nothing in the
record to indicate that the insurance companies were requested to write insurance upon the
insurable interest of the owner or intended to make themselves liable to that extent.

If during the negotiations which resulted in the writing of this insurance, it had been agreed
between the contracting parties that the insurance should be so written as to protect not only the
interest of the mortgagee but also the residuary interest of the owner, and the policies had been,
by inadvertence, ignorance, or mistake written in the form in which they were issued, a court
would have the power to reform the contracts and give effect to them in the sense in which the
parties intended to be bound. But in order to justify this, it must be made clearly to appear that
the minds of the contracting parties did actually meet in agreement and that they labored under
some mutual error or mistake in respect to the expression of their purpose. Thus, in Bailey vs.
American Central Insurance Co. (13 Fed., 250), it appeared that a mortgage desiring to insure
his own insurable interest only, correctly stated his interest, and asked that the same be insured.
The insurance company agreed to accept the risk, but the policy was issued in the name of the
owner, because of the mistaken belief of the company's agent that the law required it to be so
drawn. It was held that a court of equity had the power, at the suit of the mortgage, to reform the
instrument and give judgment in his favor for the loss thereunder, although it had been exactly as
it was. Said the court: "If the applicant correctly states his interest and distinctly asks for an
insurance thereon, and the agent of the insurer agrees to comply with his request, and assumes
to decide upon the form of the policy to be written for that purpose, and by mistake of law adopts
the wrong form, a court of equity will reform the instrument so as to make it insurance upon the
interest named." (See also Fink vs. Queens Insurance Co., 24 Fed., 318; Esch vs. Home
Insurance Co., 78 Iowa, 334; 16 Am. St. Rep., 443; Woodbury Savings etc., Co., vs. Charter Oak
Insurance Co., 31 Conn., 517; Balen vs. Hanover Fire Insurance Co., 67 Mich., 179.)

Similarly, in cases where the mortgage is by mistake described as owner, the court may grant
reformation and permit a recovery by the mortgage in his character as such.
(Dalton vs. Milwaukee etc. Insurance Co., 126 Iowa, 377; Spare vs. Home Mutual Insurance Co.,
17 Fed., 568.) In Thompson vs. Phoenix Insurance Co. (136 U.S., 287; 34 L. 3d., 408), it
appeared that one Kearney made application to an insurance company for insurance on certain
property in his hands as receiver and it was understood between him and the company's agent
that, in case of loss, the proceeds of the policy should accrue to him and his successors as
receiver and to others whom it might concern. However, the policy, as issued, was so worded as
to be payable only to him as receiver. In an action brought on the policy by a successor of
Kearney, it was alleged that the making of the contract in this form was due to inadvertence,
accident, and mistake upon the part of both Kearney and the company.

Said the court:

If by inadvertence, accident, or mistake the terms of the contract were not fully set forth in
the policy, the plaintiff is entitled to have it reformed.

40
In another case the same court said:

We have before us a contract from which by mistake, material stipulations have been omitted,
whereby the true intent and meaning of the parties are not fully or accurately expressed. There
was a definite concluded agreement as to insurance, which, in point of time, preceded the
preparation and delivery of the policy, and this is demonstrated by legal and exact evidence,
which removes all doubt as to the sense and undertaking of the parties. In the agreement there
has been a mutual mistake, caused chiefly by that contracting party who now seeks to limit the
insurance to an interest in the property less than that agreed to be insured. The written
agreement did not effect that which the parties intended. That a court of equity can afford relief in
such a case, is, we think, well settled by the authorities. (Smell vs. Atlantic, etc., Ins. Co., 98
U.S., 85, 89; 25 L. ed., 52.)

But to justify the reformation of a contract, the proof must be of the most satisfactory character,
and it must clearly appear that the contract failed to express the real agreement between the
parties. (Philippine Sugar Estates Development Company vs. Government of the Philippine
Islands, 62 L. ed., 1177, reversing Government of Philippine Island vs. Philippine Sugar Estates
Development Co., 30 Phil. Rep., 27.)

In the case now before us the proof is entirely insufficient to authorize the application of the
doctrine state in the foregoing cases, for it is by means clear from the testimony of Brias — and
none other was offered — that the parties intended for the policy to cover the risk of the owner in
addition to that of the mortgagee. It results that the defendant Harding is not entitled to relief in
any aspect of the case.

41
Gonzalez LaO v Yek Tong Lin Fire, GR 33131, 13 Dec. 1930

Facts:

This is an action to recover of the defendant the Yek Tong Lin Fire & Marine
Insurance Co., Ltd., the amount of two insurance policies totalling P100,000 upon
leaf tobacco belonging to the plaintiff, which was damaged by the fire that destroyed
the building on Soler Street No. 188, where said tobacco was stored, on January 11,
1928.

The defendant filed a general and specific denial of each and every allegation of the
complaint, set up three special defenses, and prayed to be absolved from the
complaint with costs against the plaintiff.

"The present case followed the usual course of procedure because the plaintiff
refused to accept the compromise which, in the same terms as those made by the
defendants in the three cases mentioned, was proposed to him by the defendant the
Yek Tong Lin Fire & Marine Insurance Company, the plaintiff contending that said
defendant did not, nor could, raise the question of warranties A and G heretofore
mentioned for the simple reason that it was the defendant itself, as owner, who had
leased the building which later was destroyed by fire, to another person after having
already ceded a portion of it to said plaintiff.

"The only question to be determined, having been raised in the defendant’s answer
— both parties agreeing that the plaintiff insured his leaf tobacco with the defendant
assurance company, and that said goods were damaged by the fire which destroyed
the warehouse where they were stored, on January 11, 1928 — is whether said
goods were worth what the plaintiff claims, that is, about equal to the amount for
which they were insured in the four above-mentioned assurance companies,
including the defendant in this case.

Ruling:

In the third assignment of error, the defendant contends that the plaintiff cannot
recover under the policy as he has failed to prove that the Bank of the Philippine
Islands, to whom the policy was made payable, no longer has any rights and
interests in it. It should be noted that the defendant did not in its answer allege
defect of parties plaintiff, and, besides, it does not appear that the plaintiff ceded to
the bank all his rights or interests in the insurance, the note attached to the policies
merely stating: "There shall be paid to the Bank of the Philippine Islands an
indemnity for any loss caused by fire, according to the interest appearing in its
favor." And the fact that the plaintiff himself presented in evidence the policies
mortgaged to the Bank of the Philippine Islands gives rise to the presumption that
the debt thus secured has been paid, in accordance with article 1191 of the Civil
Code.

Corpus Juris, volume 26, pages 483 et seq., states: jgc:chanrobles.com.ph

"Insured, being the person with whom the contract was made, is primarily the
proper person to bring suit thereon. . . . Subject to some exceptions, insured may
thus sue, although the policy is taken wholly or in part for the benefit of another
person named or unnamed, and although it is expressly made payable to another as

42
his interest may appear or otherwise. . . . Although a policy issued to a mortgagor is
taken out for the benefit of the mortgagee and is made payable to him, yet the
mortgagor may sue thereon in his own name, especially where the mortgagee’s
interest is less than the full amount recoverable under the policy, . . . ." cralaw virtua1aw library

And in volume 33, page 82, of the same work, we read the following: jgc:chanrobles.com.ph

"Insured may be regarded as the real party in interest, although he has assigned the
policy for the purpose of collection, or has assigned as collateral security any
judgment he may obtain." cralaw virtua1aw library

It is also contended that the trial court erred in not declaring that inasmuch as the
plaintiff failed to notify the defendant corporation in writing, of other insurance
policies obtained by him, he has violated article 3 of the conditions of the policies in
question, thereby rendering these policies null and void. Article 3 of the conditions of
the policies in question prescribes: jgc:chanrobles.com.ph

"ART. 3. Any insurance in force upon all or part of the things insured must be
declared in writing by the insured and he should cause the company to insert or
mention it in the policy, and without such requisite said policy will be regarded as
null and void, and the assured deprived of all rights of indemnity in case of loss." cralaw virtua1aw library

The following clause has been inserted with a typewriter in the policies: "Subject to
clauses G and A and other insurances with a special short period attached to this
policy." And attached to said policies issued by the defendant there is a sheet of
"Other insurances" with the amount and the assurance companies in blank, which,
according to the appellee, constitutes a notification that there were other insurances
existing at the time.

In the case of Benedict v. Ocean Insurance Co. (31 N. Y., 391-393), the construction
of the clause, "privilege for $4,500 additional insurance," was discussed. One of the
printed clauses of the policy reads as follows: jgc:chanrobles.com.ph

"If said assured, or his assigns, shall hereafter make any other insurance upon the
same property, and shall not, with all reasonable diligence, give notice to this
corporation, and have the same indorsed on this instrument, or otherwise
acknowledged by them, in writing, this policy shall cease and be of no further
effect."
cralaw virtua1aw library

The Supreme Court of New York held that the words "Privilege for $4,500 additional
insurance" made it unnecessary for the assured to inform the insurer of any other
policy up to that amount.

In the case cited the same goods insured by the defendant company were reinsured
to the amount of $4,500 in accordance with the clause "privilege for $4,500
additional insurance," but in the instant case it may be said that the tobacco insured
in the other companies was different from that insured with the defendant, since the
number of bales of tobacco in the warehouse greatly exceeded that insured with the
defendant and the other companies put together. And according to the doctrine
enunciated in 26 Corpus Juris, 188, "to be insurance of the sort prohibited the prior
policy must have been insurance upon the same subject matter, and upon the same
interest therein." cralaw virtua1aw library

43
Furthermore, the appellant cannot invoke the violation of article 3 of the conditions
of the insurance policies for the first time on appeal, having failed to do so in its
answer; besides, as the appellee correctly contends in his brief, Guillermo Cu
Unjieng, who was then president and majority shareholder of the appellant
company, the Yek Tong Lin Fire & Marine Insurance Co., knew that there were other
insurances, at least from the attempt to raise the insurance premium on the
warehouse and the appellee’s tobacco deposited therein to 1 per centum, and it was
later reduced upon petition of the appellant itself and other assurance companies to
0.75 per centum presented to the association of assurance companies in the year
1927, and notwithstanding this, said appellant did not rescind the insurance policies
in question, but demanded and collected from the appellee the increased premium.

That the defendant had knowledge of the existence of other policies obtained by the
plaintiff from other insurance companies, is specifically shown by the defendant’s
answer wherein it alleges, by way of special defense, the fact that there exist other
policies issued by the companies mentioned therein. If, with the knowledge of the
existence of other insurances which the defendant deemed violations of the contract,
it has preferred to continue the policy, its action amounts to a waiver of the
annulment of the contract, in accordance with the following doctrine in 19 Cyc., 791,
792:

44
Geagonia v. CA, GR 114427, 6 February 1995

4. ID.; ID.; INSURABLE INTEREST; EXTENT THEREOF BY MORTGAGEE AND

MORTGAGOR; RULE. — As to a mortgaged property, the mortgagor and the
mortgagee have each an independent insurable interest therein and both interests
may be covered by one policy, or each may take out a separate policy covering his
interest, either at the same or at separate times. The mortgagor’s insurable interest
covers the full value of the mortgaged property, even though the mortgage debt is
equivalent to the full value of the property. The mortgagee’s insurable interest is to
the extent of the debt, since the property is relied upon as security thereof, and in
insuring he is not insuring the property but his interest or lien thereon. His insurable
interest is prima facie the value mortgaged and extends only to the amount of the
debt, not exceeding the value of the mortgaged property. Thus, separate insurances
covering different insurable interests may be obtained by the mortgagor and the
mortgagee.

5. ID.; ID.; RULE WHEN A MORTGAGOR OBTAINED THEREOF FOR THE BENEFIT OF
THE MORTGAGEE. — A mortgagor may, however, take out insurance for the benefit
of the mortgagee, which is the usual practice. The mortgagee may be made the
beneficial payee in several ways. He may become the assignee of the policy with the
consent of the insurer; or the mere pledgee without such consent; or the original
policy may contain a mortgage clause; or a rider making the policy payable to the
mortgagee "as his interest may appear" may be attached; or a "standard mortgage
clause," containing a collateral independent contract between the mortgagee and
insurer, may be attached; or the policy, though by its terms payable absolutely to
the mortgagor, may have been procured by a mortgagor under a contract duty to
insure for the mortgagee’s benefit, in which case the mortgagee acquires an
equitable lien upon the proceeds. In the policy obtained by the mortgagor with loss
payable clause in favor of the mortgagee as his interest may appear, the mortgagee
is only a beneficiary under the contract, and recognized as such by the insurer but
not made a party to the contract itself. Hence, any act of the mortgagor which
defeats his right will also defeat the right of the mortgagee. This kind of policy
covers only such interest as the mortgagee has at the issuing of the policy. On the
other hand, a mortgagee may also procure a policy as a contracting party in
accordance with the terms of an agreement by which the mortgagor is to pay the
premiums upon such insurance. It has been noted, however, that although the
mortgagee is himself the insured, as where he applies for a policy, fully informs the
authorized agent of his interest, pays the premiums, and obtains a policy on the
assurance that it insures him, the policy is in fact in the form used to insure a
mortgagor with loss payable clause.

45
Saura Import & Export v Phil lnt'I Surety, GR L-15184, 31 May 1963

In the determination of liabilities of the parties herein, let us look into the general principles of
insurance, in matters of cancellations of policy by the insurer. Fire insurance policies and other
contracts of insurance upon property, in addition to the common provision for cancellation of the
policy upon request of the insured, generally provide for cancellation by the insurer by notice to
the insured for a prescribed period, which is usually 5 days, and the return of the unearned
portion of the premium paid by the insured, such provision for cancellation upon notice being
authorized by statutes in some jurisdiction, either specifically or as a provision of an adopted
standard form of policy. The purpose of provisions or stipulations for notice to the insured, is to
prevent the cancellation of the policy, without allowing the insured ample opportunity to negotiate
for other insurance in its stead. The form and sufficiency of a notice of cancellation is determined
by policy provisions. In order to form the basis for the cancellation of a policy, notice to the
insured n not be in any particular form, in the absence of a statute or policy provision prescribing
such form, and it is sufficient, so long as it positively and unequivocally indicates to the insured,
that it is the intention of the company that the policy shall cease to be binding. Where the policy
contains no provisions that a certain number of days notice shall be given, a reasonable notice
and opportunity to obtain other insurance must be given. Actual personal notice to the insured is
essential to a cancellation under a provision for cancellation by notice. The actual receipt by the
insured of a notice of cancellation is universally recognized as a condition precedent to a
cancellation of the policy by the insurer, and consequently a letter containing notice of
cancellation which is mailed by the insurer but not received by the insured, is ineffective as
cancellation (29 Am. Jur. pp. 732-741).

The policy in question (Exh. A), does not provide for the notice, its form or period. The Insurance
Law, Act No. 2427, does not likewise provide for such notice. This being the case, it devolves
upon the Court to apply the generally accepted principles of insurance, regarding cancellation of
the insurance policy by the insurer. From what has been heretofore stated, actual notice of
cancellation in a clear and unequivocal manner, preferably in writing, in view of the importance of
an insurance contract, should be given by the insurer to the insured, so that the latter might be
given an opportunity to obtain other insurance for his own protection. The notice should be
personal to the insured and not to and/or through any unauthorized person by the policy. In the
case at bar, the defendant insurance company, must have realized the paramount importance of
sending a notice of cancellation, when it sent the notice of cancellation of the policy to the
defendant bank (as mortgagee), but not to the insured with which it (insurance company) had
direct dealing. It was the primary duty of the defendant-appellee insurance company to notify the
insured, but it did not. It should be stated that the house and its contents were burned on April 6,
1955, at the time when the policy was enforced (October 2, 1954 to October 2, 1955); and that
under the facts, as found by the trial court, to which We are bound, it is evident that both the
insurance company and the appellee bank failed, wittingly or unwittingly, to notify the insured
appellant Saura of the cancellation made.

Of course, the defendant insurance company contends that it gave notice to the defendant-
appellee bank as mortgagee of the property, and that was already a substantial compliance with
its duty to notify the insured of the cancellation of the policy. But notice to the bank, as far
appellant herein is concerned, is not effective notice.

If a mortgage or lien exists against the property insured, and the policy contains a clause
stating that loss, if any, shall be payable to such mortgagee or the holder of such lien as
interest may appear, notice of cancellation to the mortgagee or lienholder alone is
ineffective as a cancellation of the policy to the owner of the property. (Connecticut Ins.
Co. v. Caumisar, 218 Ky. 378, 391 SW 776, cited in 29 Am. Jur. p. 743).

Upon authority of the above case, therefore, the liability of the insurance company becomes a
fact.

46
It may be argued that in the appeal brief of appellant, no error has been assigned against the
insurance company and no prayer is found therein asking that it be made liable. It must be noted,
however, that the case was dismissed the lower court and the main object of the appeal is to
secure a reversal of the said judgment. This Court is clothed with ample authority to review
matters, even if they are not assigned as errors in the appeal, if it finds that their consideration is
necessary in arriving at a just decision of the case. Thus it was held:

While an assignment of error which is required by law or rule of court has been held
essential to appellate review, only those assigned will be considered, there are a number
of cases which appear to accord to the appellate court a broad discretionary power to
waive the lack of proper assignment of errors and consider errors not assigned. And an
unassigned error closely related to an error properly assigned, or upon which the
determination of the question raised by the error properly assigned is dependent, will be
considered by the appellate court notwithstanding the failure to assign it as error.
(Hernandez v. Andal, 78 Phil. 198-199).

Although assigned errors apparently appear to be directed against the appellee bank alone, they
in essence, seek a reversal of the decision on dismissal, entered by the lower court, which in the
main has for its purpose the finding of liability on the policy. In the course of our examination of
the records of the case, the decision and the errors assigned, We found that liability attached
principally the insurance company, for its failure to give notice of the cancellation of the policy to
herein appellant itself.

47
Phil. National Bank v CA, GR L-57757, 31 August 1987

When the subject properties were mortgaged to the PNB they were registered in the name of
Donata Montemayor, widow. Relying on the torrens certificate of title covering said properties the
mortgage loan applications of Donata were granted by the PNB and the mortgages were duly
constituted and registered in the office of the Register of Deeds.

In processing the loan applications of Donata Montemayor, the PNB had the right to rely on what
appears in the certificates of title and no more. On its face the properties are owned by Donata
Montemayor, a widow. The PNB had no reason to doubt nor question the status of said
registered owner and her ownership thereof. Indeed, there are no liens and encumbrances
covering the same.

The well-known rule in this jurisdiction is that a person dealing with a registered land has a right
to rely upon the face of the torrens certificate of title and to dispense with the need of inquiring
further, except when the party concerned has actual knowledge of facts and circumstances that
would impel a reasonably cautious man make such inquiry.  9

A torrens title concludes all controversy over ownership of the land covered by a final degree of
registration. 10 Once the title is registered the owner may rest assured without the necessity of stepping into the portals of the
court or sitting in the mirador de su casa to avoid the possibility of losing his land. 11

Article 160 of the Civil Code provides as follows:

Art. 160. All property of the marriage is presumed to belong to the conjugal
partnership, unless it be proved that it pertains exclusively to the husband or to
the wife.

The presumption applies to property acquired during the lifetime of the husband and wife. In this
case, it appears on the face of the title that the properties were acquired by Donata Montemayor
when she was already a widow. When the property is registered in the name of a spouse only
and there is no showing as to when the property was acquired by said spouse, this is an
indication that the property belongs exclusively to said spouse. 12 And this presumption under Article 160 of
the Civil Code cannot prevail when the title is in the name of only one spouse and the rights of innocent third parties are involved. 13

The PNB had a reason to rely on what appears on the certificates of title of the properties mortgaged. For all legal purposes, the PNB is
a mortgagee in goodfaith for at the time the mortgages covering said properties were constituted the PNB was not aware to any flaw of
the title of the mortgagor. 14

True it is that in the earlier cases decided by this Court, namely Vitug VS. Montemayor decided on May 15, 1952, which is an action for
recovery of possession of a share in said parcels of land, 15 and in the subsequent action for partition between the same parties
decided on Oct. 20, 1953, 16 this court found the 30 parcels of land in question to be conjugal in nature and awarded the corresponding
share to the property of Florencia Vitug, an heir of the late Clodualdo Vitug from the first marriage. In said cases this Court affirmed the
decision of the lower court. In the dispositive part of the decision of the trial court it made the observation that "but from the conduct of
Clodualdo Vitug and Donata Montemayor during the existence of their marital life, the inference is clear that Clodualdo had the
unequivocal intention of transmitting the full ownership of the 30 parcels of land to his wife Donata Montemayor, thus considering the
1/2 of the funds of the conjugal property so advanced for the purchase of said parcels of land as reimbursible to the estate of Clodualdo
Vitug on his death. 17 That must be the reason why the property was registered in the name of Donata Montemayor as widow after the
death of Clodualdo Vitug. 18

At any rate, although actions for recovery of real property and for partition are real actions, however, they are actions in personam that
bind only the particular individuals who are parties thereto. 19 The PNB not being a party in said cases is not bound by the said
decisions. Nor does it appear that the PNB was aware of the said decisions when it extended the above describe mortgage loans.
Indeed, if the PNB knew of the conjugal nature of said properties it would not have approved the mortgage applications covering said
properties of Donata Montemayor without requiring the consent of all the other heirs or co-owners thereof. Moreover, when said
properties were sold at public auction, the PNB was a purchaser for value in good faith. So its right thereto is beyond question. 20

Pragmacio and Maximo Vitug are now estopped from questioning the title of Donata Montemayor
to the said properties. They never raised the conjugal nature of the property nor took issue as to
the ownership of their mother, Donata Montemayor, over the same. Indeed private respondents
were among the defendants in said two cases wherein in their answers to the complaint they
asserted that the properties in question are paraphernal properties belonging exclusively to

48
Donata Montemayor and are not conjugal in nature.   Thus they leased the properties from their
21

mother Donata Montemayor for many years knowing her to be the owner. They were in
possession of the property for a long time and they knew that the same were mortgaged by their
mother to the PNB and thereafter were sold at public auction, but they did not do anything.   It is
22

only after 17 years that they remembered to assert their rights. Certainly, they are guilty of
laches. 23

Moreover, as correctly held by the lower court. Pragmacio and Maximo Vitug as occupants and
lessees of the property in question cannot now dispute the ownership of their mother over the
same who was their lessor.  24

WHEREFORE, the subject decision of the respondent Court of Appeals is hereby REVERSED
and set aside and another decision is hereby rendered DISMISSING the complaint and ordering
private respondents to pay attomey's fees and expenses of litigation to petitioner PNB in the
amount of P20,000.00 and the costs of the suit.

49