INSURANCE CASE DIGEST

CONSTRUCTION OF INSURANCE CONTRACT

Calanoc vs. Court of Appeals, 98 Phil. 79 [1955]
Facts:
Facts: Melencio Basilio, a watchman and, secured a life insurance policy from the Philippine
American Insurance Company in the amount of P2,000 which had a supplemental contract covering
death by accident. He later died from a gunshot wound on the occasion of a robbery committed;
his widow was paid P2,000 for the face value of the policy but the company refused to give the other
2000 for the death by accident because the deceased died by murder during the robbery and while
making an arrest as an officer of the law which were expressly excluded in the contract. The Court
of Appeals upheld the Company and said that the circumstances surrounding Basilios death was
caused by one of the risks excluded by the supplementary contract which exempts the company
from liability.
Issue: Is the Philippine American Life Insurance Co. liable to the petitioner for the amount covered
by the supplemental contract?
Held: Yes.
The circumstances of Basilios death cannot be taken as purely intentional on the part of
Basilio to expose himself to the danger. No proof that his death was the result of intentional killing
because there is the possibility that the malefactor had fired the shot merely to scare away the
people around.
The terms and phraseology of the exception clause should be clearly expressed within the
understanding of the insured. Art. 1377 of the New Civil Code provides that in case ambiguity in the
terms of the contract, it will be construed against the party who caused such obscurity.
Therefore ambiguous or obscure terms in the insurance policy are to be construed strictly against
the insurer and liberally in favor of the insured party to ensure the protection of the insured since
these insurance contracts are usually arranged and employed by experts and legal advisers acting
exclusively in the interest of the insurance company.
Biagtan vs Insular Life Assurance Co., Ltd., 44 SCRA 58
Facts:
Juan S. Biagtan was insured with defendant Insular Life Assurance Company under Policy No. 398075
for the sum of P5,000.00 and, under a supplementary contract denominated "Accidental Death
Benefit Clause, for an additional sum of P5,000.00 if "the death of the Insured resulted directly from
bodily injury effected solely through external and violent means sustained in an accident and
independently of all other causes." The clause, however, expressly provided that it would not apply
where death resulted from an injury "intentionally inflicted by 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.
Biagtan was killed as his house was being robbed. The insurance company paid the basic amount of
P5,000 but refused to pay the additional P5,000 under the accidental death benefit clause, on the
ground that his death was the result of injuries intentionally inflicted by third parties and was not
covered. The trial court ruled that there was no proof that the robbers intended to kill Biagtan, or just
to scare him away by thrusting at him with their knives.
Issue: Whether or not, the wounds received by the insured at the hands of the robbers were
inflicted intentionally?
Ruling: YES.
Unlike the ruling in the case of Calanoc vs. Court of Appeals, where the killing of the victim was held
as accidental and thus covered by the insurance policy, the Supreme Court held that in the instant
case, the insured was killed intentionally. The term intentional implies the exercise of the
reasoning faculties, consciousness and volition.
The Supreme Court held pointing out that there were nine wounds in all. The exception in the
accidental benefit clause 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. Nine
wounds inflicted with bladed weapons at close range cannot be considered innocent insofar as intent
is concerned. The manner of execution of the crime permits no other conclusion.
Where a provision of the policy excludes intentional injury, it is the intention of the person inflicting
the injury that is controlling. If the injuries suffered by the insured clearly resulted from the

intentional act of a third party the insurer is relieved from liability.

Under the circumstance, the insurance company was correct in refusing to pay the additional sum of
P2,000.00 under the accidental death benefit clause which expressly provided that it would not
apply where death resulted from an injury "intentionally" inflicted by a third party.
FINMAN GENERAL ASSURANCE CORPORATION vs.THE HONORABLE COURTOF APPEALS
213 SCRA 493, September 2, 1992NOCON, J.:
FACTS:
On October 22, 1986, deceased, Carlie Surposa was insured with petitioner FinmanGeneral
Assurance Corporation with his parents, spouses Julia and Carlos Surposa, and brothers Christopher,
Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries. While said insurance policy was
in full force and effect, the insured, Carlie Surposa, died on October 18,1988 as a result of a stab
wound inflicted by one of the three (3) unidentified men. 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. Private respondent filed a complaint with the Insurance
Commission which rendered a favorable response for the respondent. The appellate court ruled
likewise. Petitioner filed this petition alleging grave abuse of discretion on the part of the appellate
court in applying the principle of "expresso unius exclusio alterius" in a personal accident insurance
policy, since death resulting from murder and/or assault are impliedly excluded in said insurance
policy considering that the cause of death of the insured was not accidental but rather a deliberate
and intentional act of the assailant. Therefore, said death was committed with deliberate intent
which, by the very nature of a personal accident insurance policy, cannot be indemnified.
ISSUE:
Whether or not the insurer is liable for the payment of the insurance premiums
RULING:
Yes, the insurer is still liable. 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. 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.
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. 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.
ZENITH INSURANCE CORP. vs. COURT OF APPEALS, ET AL. G.R. No. 85296 May 14, 1990. AN
INSURANCE LAW CASE. BY C Y.
FACTS.
1. Private respondent Fernandez insured his car with the ZENITH INSURANCE COMPANY.
2. The car was disfigured in an accidents.
3. Private respondent try to recover the amount of the insurance policy with the petitioner but the
latter they cannot agree on how much the petitioner will pay to the private respondent.
4. Private respondent file a complaint against the petitioner before the trial court of Cebu who order
the petitioner to pay the private respondent the amount of 20000 as moral damages, 10000 as
exemplary and 5000 as an attorney.
5. Petitioner appealed to the CA who affirm the decision of the trial court.
6. Petitioner filed a petition for review to the Supreme Court claiming that the CA acted in excess of
its jurisdiction when it affirmed the decision of the trial court on the ground that while private
respondent ask for moral damages of 1,0000 only, he was awarded with 2,0000, exemplary
damages of 5,000 and he was awarded 1,0000, an attorneys fee of 3,000 but he was given 5,000.
ISSUE.
WHETHER OR NOT THE CA ACTED IN EXCESS OF ITS JURISDICTION WHEN IT AFFIRM THE DECISION
OF THE TRIAL COURT IN AWARDING THE DAMAGES.
RULING:
According to the Supreme Court, the act of petitioner of delaying payment for two months cannot be
considered as so wanton or malevolent to
justify an award of P20,000.00 as moral damages, taking into consideration the fact that the actual
damage on the car was only P3,460.
The reason for petitioner's failure to indemnify private respondent within
the two-month period was that the parties could not come to an agreement as regards the amount
of the actual damage on the car. The amount of P10,000.00

prayed for by private respondent as moral damages is equitable.

SUN INSURANCE OFFICE, LTD., petitioner, vs. THE HON. COURT OF APPEALS and NERISSA LIM,
respondents.
Facts of the case:
The sun insurance issued Personal Accident Policy to Felix Lim, Jr. with a face value of P200,000.00.
Two months later, the deceased died with a bullet wound in his head. As beneficiary, his wife Nerissa
Lim sought payment on the policy but her claim was rejected. Both parties petitioner agreed that
there was no suicide. However the insurance co. stated that there was no accident either.
Pilar Nalagon, Lim's secretary, was the only eyewitness to his death.
She testified that 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. 1
The nerissa lim sued the insurance co., in the RTC of Zamboanga City and was sustained. 2 The
petitioner was sentenced to pay her P200,000.00, representing the face value of the policy, with
interest at the legal rate; This decision was affirmed on appeal, and the motion for reconsideration
was denied. 3 hence the present petition by sun insurance to fault the Court of Appeals for
approving the payment of the claim and the award of damages.
ISSUE: WON there was an accident that occurred which entitles the widow of the deceased to
recover from the insurance policy? And WON the petitioner acted in bad faith for resisting a lawful
and just claim.
SC DECISION:
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
, the Court is convinced that there was truly an accident that which resulted in lims death
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. **
1 On the second issue, petitioner is not guilty of bad faith in resisting a legitimate obligation,
believing, on the ground that the death of the insured was covered by the exception the issue, as for
the court, was highly debatable.
Petition is DENIED
JEWEL VILLACORTA vs. THE INSURANCE COMMISSION
G.R. No. L-54171, 28 October 1980 100 SCRA 467
FACTS:
Villacorta had her Colt Lancer car insured with Empire Insurance Company against own damage,
theft and 3rd party liability. While the car was in the repair shop, one of the employees of the said
repair shop took it out for a joyride after which it figured in a vehicular accident. This resulted to the
death of the driver and some of the passengers as well as to extensive
damage to the car. Villacorta filed a claim for total loss with the said insurance company. However, it
denied the claim on the ground that the
accident did not fall within the provisions of the policy either for the Own Damage or Theft coverage,
invoking the policy provision on Authorized Driver Clause. This was upheld by the Insurance
Commission further stating
that the car was not stolen and therefore not covered by the Theft Clause because it is not evident
that the person who took the car for a joyride intends to permanently deprive the insured of his/ her
car.
ISSUE:
Whether or not the insurer company should pay the said claim, CONSIDERING THE DRIVER IN
QUESTION WAS NOT AUTHORIZED BY THE INSURED OWNER
HELD:
Yes. Where the insureds car is wrongfully taken without the insureds consent from the car service
and repair shop to whom it had been entrusted for check-up and repairs (assuming that such taking
was for a joy ride, in the course of which it was totally smashed in an accident), respondent insurer is
liable and must pay insured for the total loss of the insured vehicle under

the Theft Clause of the policy. Assuming, despite the totally inadequate evidence, that the taking
was temporary and for a joy ride, the Court sustains as the better view that which holds that
when a person, either
with the object of going to a certain place, or learning how to drive, or enjoying a free ride, takes
possession of a vehicle belonging to another, without the consent of its owner, he is guilty of theft
because by taking possession of the personal property belonging to another and using it, his intent
to gain is evident since he derives there from utility, satisfaction, enjoyment and pleasure.
ACCORDINGLY, the appealed decision is set aside and judgment is hereby rendered sentencing
private respondent to pay petitioner the sum of P35,000.00 with legal interest from the filing of the
complaint until full payment is made and to pay the costs of suit.
Palermo v. Pyramid Insurance
FACTS: On October 12,1968, after having purchased a brand new Nissan Cedric de Luxe Sedan car
bearing Motor No. 087797 from the Ng Sam Bok Motors Co. in Bacolod City, plaintiff insured the
same with the defendant insurance company against any loss or damage for P 20,000.00 and
against third party liability for P 10,000.00. The automobile was, however, mortgaged by the plaintiff
with the vendor, Ng Sam Bok Motors Co., to secure the payment of the balance of the purchase
price, which explains why the registration certificate in the name of the plaintiff remains in the hands
of the mortgagee, Ng Sam Bok Motors Co. On April 17, 1968, while driving the automobile in
question, the plaintiff met a violent accident. The La Carlota City fire engine crashed head on, and as
a consequence, the plaintiff sustained physical injuries, his father, Cesar Palermo, who was with am
in the car at the time was likewise seriously injured and died shortly thereafter, and the car in
question was totally wrecked. Palermo, filed a complaint in the Court of First Instance of Negros
Occidental against Pyramid Insurance Co., Inc., for payment of his claim. Pyramid Insurance Co., Inc.,
disallowed the claim because at the time of the accident, the insured was driving his car with an
expired driver's license.
ISSUE:
WON Palermo is entitled to the claim
HELD:
YES. AUTHORIZED DRIVER:
Any of the following:
(a) The Insured.
(b) Any person driving on the Insured's order or with his permission. Provided that the person driving
is permitted in accordance with the licensing or other laws or regulations to drive the Motor Vehicle
and is not disqualified from driving such motor vehicle by order of a Court of law or by reason of any
enactment or regulation in that behalf. (Exh. "A.")
There is no merit in the appellant's allegation that the plaintiff was not authorized to drive the
insured motor vehicle because his driver's license had expired. The driver of the insured motor
vehicle at the time of the accident was, the insured himself, hence an "authorized driver" under the
policy.
While the Motor Vehicle Law prohibits a person from operating a motor vehicle on the highway
without a license or with an expired license, an infraction of the Motor Vehicle Law on the part of the
insured, is not a bar to recovery under the insurance contract. It however renders him subject to the
penal sanctions of the Motor Vehicle Law.
The requirement that the driver be "permitted in accordance with the licensing or other laws or
regulations to drive the Motor Vehicle and is not disqualified from driving such motor vehicle by
order of a Court of Law or by reason of any enactment or regulation in that behalf," applies only
when the driver" is driving on the insured's order or with his permission." It does not apply when the
person driving is the insured himself.
Figuracion vda. De Maglana v. Consolacion
FACTS:
Lope Maglana was an employee of the Bureau of Customs whose work station was at Lasa, here in
Davao City. One morning, while on his way to his work station, driving a motorcycle owned by the
Bureau of Customs. At Km. 7, Lanang, he met an accident that resulted in his death. The jeep that
bumped the deceased was owned by Destrajo. Destrajo, had an insurance policy issued by AFISCO
Insurance. The trial court ordered that AFISCO should reimburse Destrajo for the amount paid to the
plaintiff as a result of the accident but only to the extent of the insurance coverage. Petitioners
contend that AFISCOs liability should be direct and primary, and not merely secondary as provided
under the insurance code. Hence, they argued that the P20,000.00 coverage of the insurance policy
issued by AFISCO, should have been awarded in their favor.
ISSUE:
WON AFISCOs liability is dependent upon the recovery of judgment by the injured party against the
insured.

HELD:
NO. The particular provision of the insurance policy on which petitioners base their claim is as
follows:
Sec. 1 LIABILITY TO THE PUBLIC
1. The Company will, subject to the Limits of Liability, pay all sums necessary to discharge liability of
the insured in respect of
(a) death of or bodily injury to any THIRD PARTY
xXX
3. In the event of the death of any person entitled to indemnity under this Policy, the Company will,
in respect of the liability incurred to such person indemnify his personal representatives in terms of,
and subject to the terms and conditions hereof.
The above-quoted provision leads to no other conclusion but that AFISCO can be held directly liable
by petitioners. As this Court ruled in Shafer vs. Judge, RTC of Olongapo City, Br. 75, "[w]here an
insurance policy insures directly against liability, the insurer's liability accrues immediately upon the
occurrence of the injury or even upon which the liability depends, and does not depend on the
recovery of judgment by the injured party against the insured." 8 The underlying reason behind the
third party liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is "to protect injured
persons against the insolvency of the insured who causes such injury, and to give such injured
person a certain beneficial interest in the proceeds of the policy . . ." 9 Since petitioners had
received from AFISCO the sum of P5,000.00 under the no-fault clause, AFISCO's liability is now
limited to P15,000.00.
However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. where the insurance
contract provides for indemnity against liability to third persons, such third persons can directly sue
the insurer, however, the direct liability of the insurer under indemnity contracts against third party
liability does not mean that the insurer can be held solidarily liable with the insured and/or the other
parties found at fault. The liability of the insurer is based on contract; that of the insured is based on
tort While in solidary obligations, the creditor may enforce the entire obligation against one of the
solidary debtors, in an insurance contract, the insurer undertakes for a consideration to indemnify
the insured against loss, damage or liability arising from an unknown or contingent event.
PCSI vs. CA, 208 SCRA, 487
FACTS:
Spouses Herminio and Evely Lim executed a promissory note in favor of Supercars secured by a
chattel mortgage over a brand new Ford Laser registered under the name of Herminio and insured
with PCSI.
Supercars with notice to the spouses assigned to FCP Credit Corp its rights, title and interest on the
promissory note and chattel mortgage.
Subsequently, the vehicle was carnapped. Evelyn, was the one driving before it was stolen.
The spouses filed a claim for loss with PCSI but was denied on the ground that Evelyns drivers
license was expired at the time of the loss in violation of the authorized driver clause.
ISSUE:
WON PCSI is liable
HELD:
YES. Clearly, the risk against accident is distinct from the risk against theft. The authorized driver
clause in an insurance policy is in contemplation or anticipation of accident in the legal sense in
which it should be understood, and not in in contemplation or anticipation of an event such as theft.
Thus, if the insured vehicle had figured in an accident at the time she drove it with an expired
license, then PCSI could properly resist the claim for indemnification resulting from the accident. But
in the present case, the loss of the vehicle did not result from an accident where intent was involved;
the loss in the present case was caused by theft, the commission of which was attended by intent.
It is worthy to note that there is no causal connection between the possession of a valid drivers
license and the loss of the vehicle. To rule otherwise would render car insurance practically a sham
since an insurance company can easily escape liability by citing restrictions which are not applicable
or germane to the claim, thereby reducing indemnity to a shadow.
GEAGONIA vs. CA, COUNTRY BANKERS INSURANCE CORP., G.R. 114427, 2/6/95
FACTS:
Armando Geagonia is the owner of Normans Mart and obtained from Country Bankers a fire
insurance policy which covered Stock-in-trade consisting of RTW dry goods.
The policy contained a provision where the insured must give notice to the insurer of any insurance
or insurances already affected or which may be subsequently be effected covering any of the
property or properties consisting of stocks in trade, goods in process and/or inventories already

insured by such policy otherwise it shall be deemed forfeited, provided that such condition does not
apply when the total insurance or insurances in force at the time of the loss is not more than 200k
Subsequently, a fire broke out and destroyed Geagonias stocks-in-trade. Country bankers denied
the claim because it was found that at the time of the loss, the stocks were likewise covered by two
other fire insurances for 100k each by PFIC. It had a mortgage clause which stated that loss, if any,
shall be payable to Cebu Tesing Textiles.
ISSUE:
WON there was double insurance to justify denial of the claim
HELD:
NO (Country Bankers is liable).
It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally in
favor of the insured and strictly against the company, the reason being, undoubtedly, to afford the
greatest protection which the insured was endeavoring to secure when he applied for insurance.
Provisions, conditions, or exceptions in policies which tend to work a forfeiture of insurance policies
should be construed most strictly against those for whose benefits they are inserted, and most
favorably toward those against whom they are intended to operate.
The condition in the policy is commonly known as the additional or other insurance clause and has
been upheld as valid and as a warranty that no other insurance exists. Its violation would thus avoid
the policy. However, in order to constitute a violation, the other insurance must be upon the same
subject matter, the same insurable interest, and the same risk.
As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable
interest therein and both interests may be one policy, or each may take out a separate policy
covering his interest, either at the same or separate times. The mortgagors 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 mortgagees 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.
A double insurance exists where the same person is insured by several insurers separately in respect
of the same subject and cover the same interest. Since the two policies of the PFIC do not cover the
same interest as that covered by the policy in issue, no double insurance exists. The non-disclosure
is not fatal.
Fortune Insurance and Surety Co., Inc. v. Court of Appeals
Facts:
On June 29, 1987, Producers Bank of the Philippines armored vehicle was robbed, in transit, of
seven hundred twenty-five thousand pesos (Php 725,000.00) that it was transferring from its branch
in Pasay to its main branch in Makati. To mitigate their loss, they claim the amount from their
insurer, namely Fortune Insurance and Surety Co.
Fortune Insurance, however, assails that the general exemption clause in the Casualty Insurance
coverage had a general exemption clause, to wit:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer,
employee, partner, director, trustee or authorized representative of the Insured whether acting alone
or in conjunction with others. . . .
And, since the driver (Magalong) and security guard (Atiga) of the armored vehicle were charged
with three others as liable for the robbery, Fortune denies Producers Bank of its insurance claim.
The trial court and the court appeals ruled in favor of recovery, hence, the case at bar.
Issue:
Whether recovery is precluded under the general exemption clause.
Ruling:
Yes, recovery is precluded under the general exemption clause.
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
thearmored vehicle which would carry the money; and Atiga to provide the needed security for the
money, the vehicle, and his two other companions. In short, for these particular tasks, the three
acted as agents of Producers. A "representative" is defined as one who represents or stands in the
place of another; one who represents others or another in a special capacity, as an agent, and is
interchangeable with "agent."

In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the
insurance policy.
Edillon v. Manila Bankers Life
Facts:
In April 1969, Carmen Lapuz filled out an application form for insurance under Manila Banker Life
Assurance Corporation. She stated that her date of birth was July 11, 1904. Upon payment of the Php
20.00 premium, she was issued the insurance policy in April 1969. In May 1969, Carmen Lapuz died
in a vehicular accident. Regina Edillon, who was named a beneficiary in the insurance policy sought
to collect the insurance claim but Manila Banker denied the claim. Apparently, it is a rule of the
insurance company that they were not to issue insurance policies to persons who are under the age
of sixteen (16) years of age or over the age of sixty (60) years Note, that Lapuz was already 65
years old when she was applying for the insurance policy.
Issue:
Whether or not Edillon is entitled to the insurance claim as a beneficiary.
Ruling:
Yes. Carmen Lapuz did not conceal her true age. Despite this, the insurance company still received
premium from Lapuz and issued the corresponding insurance policy to her. When the accident
happened, the insurance policy has been in force for 45 days already and such time was already
sufficient for Manila Banker to notice the fact that Lapuz is already over 60 years old and thereby
cancel the insurance policy. If Manila Banker failed to act, it is either because it was willing to waive
such disqualification; or, through the negligence or incompetence of its employees for which it has
only itself to blame, it simply overlooked such fact. Under the circumstances, Manila Banker is
already deemed in estoppel.
PERLA COMPANIA DE SEGUROS, INC vs. CA and CAYAS
FACTS:
Cayas was the registered owner of a Mazda bus which was insured with petitioner PERLA COMPANIA
DE SEGUROS, INC (PCSI). The bus figured in an accident in Cavite, injuring several of its passengers.
One of them, Perea, sued Cayas for damages in the CFI, while three others agreed to a settlement of
P4,000.00 each with Cayas.
After trial, the court rendered a decision in favor of Perea, Cayas ordered to compensate the latter
with damages. Cayas filed a complaint with the CFI, seeking reimbursement from PCSI for the
amounts she paid to ALL victims, alleging that the latter refused to make such reimbursement
notwithstanding the fact that her claim was within its contractual liability under the insurance policy.
The decision of the CA affirmed in toto the decision of the RTC of Cavite, the dispositive portion of
which states:
IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering defendant PCSI to pay plaintiff
Cayas the sum of P50,000.00 under its maximum liability as provided for in the insurance policy;
In this petition for review on certiorari, petitioner seeks to limit its liability only to the payment made
by private respondent to Perea and only up to the amount of P12,000.00. It altogether denies liability
for the payments made by private respondents to the other 3 injured passengers totaling
P12,000.00.
ISSUE:
How much should PCSI pay?
HELD:
The decision of the CA is modified, petitioner only to pay Cayas P12,000,000.00
The insurance policy provides:
5. No admission, offer, promise or payment shall be made by or on behalf of the insured without the
written consent of the Company
It being specifically required that petitioners written consent be first secured before any payment in
settlement of any claim could be made, private respondent is precluded from seeking
reimbursement of the payments made to the other 3 victims in view of her failure to comply with the
condition contained in the insurance policy.
Also, the insurance policy involved explicitly limits petitioners liability to P12,000.00 per person and
to P50,000.00 per accident
Clearly, the fundamental principle that contracts are respected as the law between the contracting
parties finds application in the present case. Thus, it was error on the part of the trial and appellate
courts to have disregarded the stipulations of the parties and to have substituted their own
interpretation of the insurance policy.
We observe that although Cayas was able to prove a total loss of only P44,000.00, petitioner was
made liable for the amount of P50,000.00, the maximum liability per accident stipulated in the

policy. This is patent error. An insurance indemnity, being merely an assistance or restitution insofar
as can be fairly ascertained, cannot be availed of by any accident victim or claimant as an
instrument of enrichment by reason of an accident.
Aisporna v CA (1982)
Facts
Mapalad Aisporna, the wife of one Rodolfo Aisporna, an insurance agent, solicited the application of
Eugenio Isidro in behalf of Perla Compana de Seguros without the certificate of authority to act from
the insurance commissioner. Isidro passed away while his wife was issued Php 5000 fromthe
insurance policy. After the death, the fiscal instigated criminal action against Mapalad for violating
sec 189 of the Insurance code for feloniously acting as agent when she solicited theapplication form.
In the trial court, she claimed that she helped Rodolfo as clerk and that she solicited a renewal, not a
new policy from Isidro through the phone. She did this because her husband was absent when he
called. She only left a note on top of her husbands desk to inform him of what transpired. (She did
not accept compensation from Isidro for her services)
Aisporna was sentenced to pay Php 500 with subsidiary costs in case of insolvency in 1971 in the
Cabanatuan city court.
In the appellate court, she was found guilty of having violating par 1 of sec 189 of the insurance
code.
The OSG kept on repeating that she didnt violate sec 189 of the insurance code.
In seeking reversal of the judgment, Aisporna assigned errors of the appellate court:
1. the receipt of compensation was not a necessary element of the crime in par 1 of sec 189 of the
insurance code
2. CA erred in giving due weight to exhibits F, F1, F17 inclusive sufficient to establish petitioners
guilt beyond reasonable doubt.
3. The CA erred in not acquitting the petitioner
Issues:
Won a person can be convicted of having violated the 1st par of the sec 189 of the IC without
reference to the 2nd paragraph of the said section. Or
Is it necessary to determine WON the agent mentioned in the 1st paragraph of the aforesaid section
is governed by the definition of an insurance agent found on its second paragraph
Decision:
Aisporna acquitted
Ruling:
Sect 189 of the I.C., par 1 states that No insurance company doing business with the Philippine
Islands nor l any agent thereof shall pay any commission or other compensation to any person for
services in obtaining new insurance unless such person shall have first procured from the Insurance
Commissioner a certificate of authority to act as an agent of such company as herein after provided.
No person shall act as agent, sub-agent, or broker in the solicitation of procurement of applications
for insurance without obtaining a certificate from the Insurance Commissioner.
Par2 Any person who for COMPENSATION solicits or obtains insurance for any for any insurance
compna or offers or assumes to act in the negotiating of such insurance shall be an insurance agent
in the intent of this section and shall thereby become liable to all liabilities to which an insurance
agent is subject.
Par 3 500 pseo fine for person or company violating the provisions of the section.
The court held that the 1st par prohibited a person to act as agent without certificate of
authorityfrom the commissioner
In the 2nd par, the definition of an insurance agent is stipulated
The third paragraph provided the penalty for violating the 1st 2 rules
The appellate court said that the petitioner was penalized under the1st paragraph and not the 1nd.
The fact that she didnt receive compensation wasnt an excuse for her acquittal because she was
actually punished separately under sec 1 because she did not have a certificate of authority as
under par 1.
The SC held that the definition of an insurance agent was made by CA to be limited to paragraph 2
and not applicable to the 1st paragraph.
The appellate court said that a person was an insurance agent under par 2 if she solicits insurance
for compensation, but in the 1st paragraph, there was no necessity that a person solicits an
insurance compensation in order to be called an agent.
The SC said that this was a reversible error.
The CA said that Aisporna didnt receive compensation.
The SC said that the definition of an insurance agent was found in the 2nd par of Sec 189 (check the
law) The definition in the 2nd paragraph qualified the definition of an agent used in the 1st and third
paragraphs.
DOCTRINE: The court held that legislative intent must be ascertained from the consideration of the
statute as a whole. The words shouldnt be studied in isolated explanations but the whole and every

part of the statute must be considered in fixing the meaning of any of its parts in order to
pronounce the harmonious whole.
Noscitur a sociis provides that where a particular word or phrase in a statement is ambiguous in
itself, the true meaning may be made clear in the company it is fixed in. In applying this, the court
held that the definition of an insurance agent in the 2nd paragraph was applicable in the
1stparagraph.
To receive compensation be the agent is an essential element for violation of the 1st paragraph.
The appellate court said that she didnt receive compensation by the receipt of compensation wasnt
an essential element for violation of the 1st paragraph.
The SC said that this view wasnt correct owing to the American insurance laws which qualified
compensation as a qualifying factor in penalizing unauthorized persons who solicited insurance
(Texas code and snyders law)
COUNTRY BANKERS INSURANCE CORPORATION, vs. LIANGA BAY AND COMMUNITY MULTI-PURPOSE
COOPERATIVEG.R. No. 136914 January 25, 2002DE LEON JR J:
Facts:
The petitioner is a domestic corporation principally engaged in the insurance business wherein it
undertakes, for aconsideration, to indemnify another against loss, damage or liability from an unknown or
contingent event including fire whilethe respondent is a duly registered cooperative judicially declared
insolvent and represented by the elected assignee,Cornelio Jamero.Sometime in1989, the petitioner
and the respondent entered into a contract of fire insurance, Fire Insurance Policy No. F-1397. Under
Fire Insurance, the petitioner insured the respondents stocks-in-trade against fire loss, damage or
liabilityduring the period starting from June 20, 1989 to June 20, 1990 for the sum of Two Hundred Thousand
Pesos.On July 1, 1989, the respondents building located at Surigao del Sur was gutted by fire and reduced to
ashes, resulting inthe total loss of the respondents stocks-in-trade, pieces of furnitures and fixtures, equipments
and records. Due to the loss,the respondent filed an insurance claim with the petitioner under its Fire
Insurance.The petitioner, however, denied the insurance claim on the ground that, based on the
submitted documents, the buildingwas set on fire by two NPA rebels who wanted to obtain canned goods,
rice and medicines as provisions for their comradesin the forest, and that such loss was an excepted
risk under the policy conditions of Fire Insurance Policy which provides:This insurance does not cover
any loss or damage occasioned by or through or in consequence, directly or indirectly, of anyof the following
occurrences, namely:(d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or
usurped power.Respondent then instituted in the trial court the complaint for recovery of "loss,
damage or liability" against petitioner. Thepetitioner answered the complaint and reiterated the ground it
earlier cited to deny the insurance claim.The trial court rendered its Decision in favor of the respondent
declaring that the defendant-Country Bankers was liable toplaintiff-Insolvent Cooperative and to
fully pay the insurance claim for the loss the insured-plaintiff sustained as a result of the fire under its
Fire Insurance in its full face value of P
200,000.00 with interest of 12% per annum from date of filing of thecomplaint until the same is fully
paid.Petitioner appealed to the Court of Appeals which affirmed the decision of the trial court in its entirety. Hence,
this petition.
Issue:
Whether Country Bankers in liable
Ruling:
Yes Country bankers is liable.
The petitioner does not dispute that the respondents stocks-in-trade were insured against fire loss, damage or
liability under Fire Insurance Policy and that the respondent lost its stocks-in-trade in a fire that
occurred within the duration of said fireinsurance. The petitioner, however, posits the view that the
cause of the loss was an excepted risk under the terms of thefire insurance policy. Where a risk is
excepted by the terms of a policy which insures against other perils or hazards, loss from
such a risk constitutes a defense which the insurer may urge, since it has not assumed that risk, and from this
it follows that an insurer seeking to defeat a claim because of an exception or limitation in the policy
has the burden of proving that the loss comes within the purview of the exception or limitation set up. If a
proof is made of a loss apparently within a contract of insurance, the burden is upon the insurer to prove that the
loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its
liability. Stated else wise, since the petitioner in this case is defending on the ground of non-coverage and
relying upon an exemption or exception clause in the fire insurance policy, it has the burden of
proving the facts upon which such excepted risk is based, by a preponderance of evidence. But petitioner failed
to do so. The petitioner relies on the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo and

on the Spot Report of Pfc. Arturo V. Juarbal specifically that: investigation revealed by Jose Lomocso that
those armed men wanted to get can goodsand rice for their consumption in the forest PD investigation further
disclosed that the perpetrator are members of the NPA .Such testimony is considered hearsay and may
not be received as proof of the truth of what he has learned.
AMERICAN HOME ASSURANCE COMPANY vs. TANTUCO ENTERPRISES, INC.
FACTS:
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and refining industry.It
owns two oil mills which were separately covered by fire insurance policies issued by
petitionerAmerican Home Assurance Co., Philippine Branch.
The first oil mill was insured for P3,000,000.00 under Policy No. 306-7432324-3 for the period March
1, 1991 to 1992. The new oil mill was insured forP6,000,000.00 under Policy No. 306-7432321-9 for
the same term. Official receipts indicating payment for the full amount of the premium were issued
by the petitioner's agent .A fire that broke out in the early morning of September 30,1991 gutted
and consumed the new oil mill. Respondent immediately notified the petitioner of the incident but
petitioner rejected respondent's claim for the insurance proceeds on the ground that no policy was
issued by it covering the burned oil mill. It stated that the description of the insured establishment
referred to another building thus: "Our policy nos. 306-7432321-9 (Ps 6M) and 306-7432324-4 (Ps
3M) extend insurance coverage to your oil mill under Building No. 5, whilst the affected oil mill was
under Building No. 14. "
ISSUE:
Whether or not respondent can claim from the petitioner insurance company.
HELD:
In construing the words used descriptive of a building insured, the greatest liberality is shown by the
courts in giving effect to the insurance. In view of the custom of insurance agents to examine
buildings before writing policies upon them, and since a mistake as to the identity and character of
the building is extremely unlikely, the courts are inclined to consider that the policy of insurance
covers any building which the parties manifestly intended to insure, however inaccurate
the description may be. Notwithstanding, therefore, the misdescription in the policy, it is beyond
dispute, to our mind, that what the parties manifestly intended to insure was the new oil mill. If the
parties really intended to protect the first oil mill, then there is no need to specify it as new .In
determining what the parties intended, the courts will read and construe the policy as a whole and
if possible, give effect to all the parts of the contract, keeping in mind always, however, the prime
rule that in the event of doubt, this doubt is to be resolved against the insurer. In determining the
intent of the parties to the contract, the courts will consider the purpose and object of the contract.
White Gold Marine vs Pioneer Insurance
Facts
Petitioner procured a protection and indemnity coverage for its vessels from The Steamship Mutual
Underwriting Association Ltd. through Pioneer Insurance and Surety Corp. by virtue of a Certificate of
Entry and Acceptance. When White Gold failed topay its account, Steamship Mutual refused to renew
its coverage so it filed a collection case against the latter. Petitioner contends in defense that it
didnt have the requisite certificate of authority from the Insurance Commissioner under Sec. 187 of
the Insurance Code.
Issue
WON Pioneer still needs a license as an insurance agent/broker for Steamship Mutual;
WON Steamship Mutuals Protection and Indemnity club is engaged in insurance business in the
Philippines.
Ruling
YES on both issues.
1) A Protection and Indemnity 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. Steamship Mutual, as P&I club, is a
mutual insurance association engaged in marine insurance business.
2) Although Pioneer is already a licensed insurance company, it still needs a separate license to act
as an insurance agent for Steamship Mutual as provided by Section 299 of the Insurance Code

Republic (CIR) vs Sun Life Assurance of Canada

Facts
On December 29, 1997, the [Court of Tax Appeals] (CTA) rendered its decision in Insular Life
Assurance Co. Ltd. v. [CIR], which held that mutual life insurance companies are purely cooperative
companies and are exempt from the payment of premium tax and DST. This pronouncement was
later affirmed by this court in [CIR] v. Insular Life Assurance Company, Ltd. Sun Life surmised that[,]
being a mutual life insurance company, it was likewise exempt from the payment of premium tax
and DST. Hence, on August 20, 1999, Sun Life filed with the CIR an administrative claim for tax credit
of its alleged erroneously paid premium tax and DST for the aforestated tax periods.
For failure of the CIR to act upon the administrative claim for tax credit and with the 2-year period to
file a claim for tax credit or refund dwindling away and about to expire, Sun Life filed with the CTA a
petition for review. The CTA found in favor of Sun Life.
Seeking reconsideration of the decision of the CTA, the CIR argued that Sun Life ought to have
registered, foremost, with the Cooperative Development Authority before it could enjoy the
exemptions from premium tax and DST extended to purely cooperative companies or associations
under [S]ections 121 and 199 of the Tax Code. For its failure to register, it could not avail of the
exemptions prayed for. The CTA denied the CIRs motion for reconsideration.
Issue:
WON respondent is exempted from payment of tax on life insurance premiums and documentary
stamp tax
Ruling:
YES. The Tax Code defines a cooperative as an association conducted by the members thereof with
the money collected from among themselves and solely for their own protection and not for profit.
Without a doubt, respondent is a cooperative engaged in a mutual life insurance business.
First, it is managed by its members. Both the CA and the CTA found that the management and affairs
of respondent were conducted by its member-policyholders. SUNLIFE has been mutualized or
converted from a stock life insurance company to a nonstock mutual life insurance corporation
pursuant to Section 266 of the Insurance Code of 1978. On the basis of its bylaws, its ownership has
been vested in its member-policyholders who are each entitled to one vote; and who, in turn, elect
from among themselves the members of its board of trustees.
Second, it is operated with money collected from its members. Since respondent is composed
entirely of members who are also its policyholders, all premiums collected obviously come only from
them. The member-policyholders constitute both insurer and insured who contribute, by a system
of premiums or assessments, to the creation of a fund from which all losses and liabilities are paid.
Third, it is licensed for the mutual protection of its members, not for the profit of anyone. A mutual
life insurance company is conducted for the benefit of its member-policyholders, who pay into its
capital by way of premiums.
Under the Tax Code although respondent is a cooperative, registration with the Cooperative
Development Authority (CDA) is not necessary in order for it to be exempt from the payment of both
percentage taxes on insurance premiums, under Section 121; and documentary stamp taxes on
policies of insurance or annuities it grants, under Section 199.
19. PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF APPEALS and JULITA TRINOS
G.R. No. 125678 | March 18, 2002
Facts:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with
petitioner Philamcare Health Systems, Inc.
The application was approved for a period of one year from March 1, 1988 to March 1, 1989 and
extended until June 1, 1990. The amount of coverage was increased to a maximum sum of
P75,000.00 per disability.
During the period of his coverage, Ernani suffered a heart attack and was confined for one month.
While her husband was in the hospital, respondent tried to claim the benefits under the health care
agreement. However, petitioner denied her claim saying that the Health Care Agreement was void.
Thus, respondent paid the hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was later admitted at the Chinese General
Hospital. In the morning of April 13, 1990, Ernani had fever and was feeling very weak; he died on
the same day.
Respondent instituted with the Regional Trial Court (RTC) an action for damages against petitioner.
The RTC ruled against petitioner, which was affirmed by the Court of Appeals.
Petitioner filed a petition for review arguing that the agreement grants "living benefits," such as
medical check-ups and hospitalization which a member may immediately enjoy so long as he is alive

upon effectivity of the agreement until its expiration one-year thereafter. Petitioner also points out
that only medical and hospitalization benefits are given under the agreement without any
indemnification, unlike in an insurance contract where the insured is indemnified for his loss.
Moreover, since Health Care Agreements are only for a period of one year, as compared to insurance
contracts which last longer,7 petitioner argues that the incontestability clause does not apply, as the
same requires an effectivity period of at least two years. Petitioner further argues that it is not an
insurance company, which is governed by the Insurance Commission, but a Health Maintenance
Organization under the authority of the Department of Health.
Issue:
Whether or not a health care agreement is not an insurance contract.
Ruling:
A health care agreement is an insurance contract.
Under Section 2 of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the following elements concur: (1)
The insured has an insurable interest; (2) The insured is subject to a risk of loss by the happening of
the designated peril; (3) The insurer assumes the risk; (4) Such assumption of risk is part of a
general scheme to distribute actual losses among a large group of persons bearing a similar risk;
and (5) In consideration of the insurers promise, the insured pays a premium.
Further, Section 10 of the Insurance Code provides that every person has an insurable interest in the
life and health of himself.
In the case at bar, the insurable interest of respondents husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life insurance,
which is primarily a contract of indemnity.9 Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingent, the health care provider must
pay for the same to the extent agreed upon under the contract.
20.COMMISSIONER OF INTERNAL REVENUE vs. LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC.
(now JARDINE-CMA LIFE INSURANCE COMPANY, INC.) and THE COURT OF APPEALS
G.R. No. 119176 | March 19, 2002
Facts:
In the years prior to 1984, private respondent issued a special kind of life insurance policy known as
the "Junior Estate Builder Policy," the distinguishing feature of which is a clause providing for an
automatic increase in the amount of life insurance coverage upon attainment of a certain age by the
insured without the need of issuing a new policy. The clause was to take effect in the year 1984.
Documentary stamp taxes due on the policy were paid by petitioner only on the initial sum assured.
Subsequently, petitioner issued deficiency documentary stamps tax assessment for the year 1984 in
the amount of P464,898.75 corresponding to the amount of automatic increase of the sum assured
on the policy issued by respondent.
Private respondent questioned the deficiency assessments and sought their cancellation in a petition
filed in the Court of Tax Appeals.
The Court of Tax Appeals found no valid basis for the deficiency tax assessment on the insurance
policy. The Court of Appeals affirmed the decision of the Court of Tax Appeals decision insofar as it
nullified the deficiency assessment on the insurance policy.
The Commissioner of Internal Revenue filed the present petition questioning that portion of the Court
of Appeals decision which invalidated the deficiency assessment on the insurance policy.
Petitioner claims that the "automatic increase clause" in the subject insurance policy is separate and
distinct from the main agreement and involves another transaction; and that, while no new policy
was issued, the original policy was essentially re-issued when the additional obligation was assumed
upon the effectivity of this "automatic increase clause" in 1984; hence, a deficiency assessment
based on the additional insurance not covered in the main policy is in order.
Issues:
1. Whether or not the automatic increase clause is a single agreement embodied in the policy or a
separate agreement.
2. Whether or not the Court of Appeals erred in not computing the amount of tax on the total value
of the insurance assured in the policy including the additional increase assured by the automatic
increase clause.
Ruling:
The petition is impressed with merit.
It is clear from Section 173 that the payment of documentary stamp taxes is done at the time the
act is done or transaction had and the tax base for the computation of documentary stamp taxes on
life insurance policies under Section 183 is the amount fixed in policy, unless the interest of a person
insured is susceptible of exact pecuniary measurement. The amount fixed in the policy is the figure
written on its face and whatever increases will take effect in the future by reason of the "automatic

increase clause" embodied in the policy without the need of another contract.
Here, although the automatic increase in the amount of life insurance coverage was to take effect
later on, the date of its effectivity, as well as the amount of the increase, was already definite at the
time of the issuance of the policy. Thus, the amount insured by the policy at the time of its issuance
necessarily included the additional sum covered by the automatic increase clause because it was
already determinable at the time the transaction was entered into and formed part of the policy.
The deficiency of documentary stamp tax imposed on private respondent is definitely not on the
amount of the original insurance coverage, but on the increase of the amount insured upon the
effectivity of the "Junior Estate Builder Policy."
To claim that the increase in the amount insured (by virtue of the automatic increase clause
incorporated into the policy at the time of issuance) should not be included in the computation of the
documentary stamp taxes due on the policy would be a clear evasion of the law requiring that the
tax be computed on the basis of the amount insured by the policy.
PERFECTION OF INSURANCE CONTRACT
21.Enriquez v Sun Life
FACTS:
September 24, 1917: Joaquin Herrer made application to the Sun Life Assurance Company of Canada
through its office in Manila for a life annuity
2 days later: he paid P6,000 to the manager of the company's Manila office and was given a receipt
According to the provisional receipt, 3 things had to be accomplished by the insurance company
before there was a contract:
(1) There had to be a medical examination of the applicant; -check
(2) there had to be approval of the application by the head office of the company; and - check
(3) this approval had in some way to be communicated by the company to the applicant
November 26, 1917: The head office at Montreal, Canada gave notice of acceptance by cable to
Manila but this was not mailed
December 4, 1917: policy was issued at Montreal
December 18, 1917: attorney Aurelio A. Torres wrote to the Manila office of the company stating that
Herrer desired to withdraw his application
December 19, 1917: local office replied to Mr. Torres, stating that the policy had been issued, and
called attention to the notification of November 26, 1917
December 21, 1917 morning: received by Mr. Torres
December 20, 1917: Mr. Herrer died
Rafael Enriquez, as administrator of the estate of the late Joaquin Ma. Herrer filed to recover from
Sun Life Assurance Company of Canada through its office in Manila for a life annuity
RTC: favored Sun Life Insurance
ISSUE:
WON Mr. Herrera received notice of acceptance of his application thereby perfecting his life annuity
RULING:
NO. Not perfected because it has not been proved satisfactorily that the acceptance of the
application ever came to the knowledge of the applicant.
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to have been entered into in the place where
the offer was made.
Judgment is reversed, and the Enriquez shall have and recover from the Sun Life the sum of P6,000
with legal interest from November 20, 1918, until paid, without special finding as to costs in either
instance. So ordered.
22.Great Pacific v CA
FACTS:
Respondent Ngo Hing filed an application with petitioner Great Pacific Life Assurance Company
(Pacific Life) for a twenty-year endowment policy in the life of Helen Go, his one year old daughter.
Petitioner Lapulapu D. Mondragon, the branch manager, prepared application form using the
essential data supplied by respondent. The latter paid the annual premium and Mondragon retained
a portion of it as his commission. The binding deposit receipt was issued to respondent. Mondragon
wrote his strong recommendation for the approval of the insurance application. However, Pacific Life
disapproved the application since the plan was not available for minors below 7 years old but it can
consider the same under another plan. The non-acceptance of the insurance plan was allegedly not
communicated by Mondragon to respondent. Mondragon again asserted his strong recommendation.

Helen Go died of influenza. Thereupon, respondent sought the payment of the proceeds of the
insurance, but having failed in his effort, he filed an action for the recovery of the same. Hence the
case at bar.
ISSUE:
WON the binding deposit receipt constituted a temporary contract and thus negate the claim that
the insurance contract was perfected.
RULING:
YES. The provisions printed on the binding deposit receipt show that the binding deposit receipt is
intended to be merely a provisional or temporary insurance contract and only upon compliance of
the following conditions: (1) that the company shall be satisfied that the applicant was insurable on
standard rates; (2) that if the company does not accept the application and offers to issue a policy
for a different plan, the insurance contract shall not be binding until the applicant accepts the policy
offered; otherwise, the deposit shall be refunded; and (3) that if the applicant is not insurable
according to the standard rates, and the company disapproves the application, the insurance applied
for shall not be in force at any time, and the premium paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in question is merely
an acknowledgment, on behalf of the company, that the latter's branch office had received from the
applicant the insurance premium and had accepted the application subject for processing by the
insurance company; and that the latter will either approve or reject the same on the basis of
whether or not the applicant is "insurable on standard rates." Since Pacific Life disapproved the
insurance application of Ngo Hing, the binding deposit receipt in question had never become in force
at any time. Upon this premise, the binding deposit receipt is, manifestly, merely conditional and
does not insure outright. Where an agreement is made between the applicant and the agent, no
liability shall attach until the principal approves the risk and a receipt is given by the agent . The
acceptance is merely conditional, and is subordinated to the act of the company in approving or
rejecting the application.
Thus, in life insurance, a "binding slip" or "binding receipt" does not insure by itself. It bears
repeating that through the intra-company communication of 30 April 1957, Pacific Life disapproved
the insurance application in question on the ground that it is not offering the 20-year endowment
insurance policy to children less than 7 years of age. What it offered instead is another plan known
as the Juvenile Triple Action, which Ngo Hing failed to accept. In the absence of a meeting of the
minds between Pacific Life and Ngo Hing over the 20-year endowment life insurance in the amount
of P50,000.00 in favor of the latter's one-year old daughter, and with the non-compliance of the
abovequoted conditions stated in the disputed binding deposit receipt, there could have been no
insurance contract duly perfected between them. Accordingly, the deposit paid by Ngo Hing shall
have to be refunded by Pacific Life.
23.Development Bank of the Philippines v CA
Facts:
Juan B. Dans, together with his family applied for a loan of P500,000 with DBP. As principal
mortgagor, Dans, then 76 years of age was advised by DBP to obtain a mortgage redemption
insurance (MRI) with DBP MRI pool. A loan in the reduced amount was approved and released by
DBP. From the proceeds of the loan, DBP deducted the payment for the MRI premium. The MRI
premium of Dans, less the DBP service fee of 10%, was credited by DBP to the savings account of
DBP MRI-Pool. Accordingly, the DBP MRI Pool was advised of the credit. Dans died of cardiac
arrest. DBP MRI Pool notified DBP that Dans was not eligible for MRI coverage, being over the
acceptance age limit of 60 years at the time of application. DBP apprised Candida Dans of the
disapproval of her late husbands MRI application. DBP offered to refund the premium which the
deceased had paid, but Candida Dans refused to accept the same demanding payment of the face
value of the MRI or an amount equivalent of the loan. She, likewise, refused to accept an ex gratia
settlement which DBP later offered. Hence, the case at bar.
Issue:
Whether or not the DBP MRI Pool should be held liable on the ground that the contract wasalready
perfected?
Held:
No, it is not liable. The power to approve MRI application is lodged with the DBP MRI Pool. The pool,
however, did not approve the application. There is also no showing that it accepted the sum which
DBP credited to its account with full knowledge that it was payment for the premium. There was as a
result no perfected contract of insurance, hence the DBP MRI Pool cannot be held liable on a contract
that does not exist. In dealing with Dans, DBP was wearing 2 legal hats: the first as a lender and the
second as an insurance agent. As an insurance agent, DBP made Dans go through the motion of
applying for said insurance, thereby leading him and his family to believe that they had
already fulfilled all the requirements for the MRI and that the issuance of their policy was
forthcoming. DBP had full knowledge that the application was never going to be approved. The DBP

is not authorized to accept applications for MRI when its clients are more than 60 years of age. .
Knowing all the while that Dans was ineligible for MRI coverage because of his advanced age, DBP
exceeded the scope of its authority when it accepted Dan's application for MRI by collecting the
insurance premium, and deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the third
person is aware of the limits of the agent's powers. There is no showing that Dans knew of the
limitation on DBP's authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the limits of the authority conferred by the
principal on the agent and he (third person) has been deceived by the non-disclosure thereof by the
agent, then the latter is liable for damages to him (V Tolentino, Commentaries and Jurisprudence on
the Civil Code of the Philippines, p. 422 [1992], citing Sentencia [Cuba] of September 25, 1907). The
rule that the agent is liable when he acts without authority is founded upon the supposition that
there has been some wrong or omission on his part either in misrepresenting, or in affirming, or
concealing the authority under which he assumes to act (Francisco, V., Agency 307 [1952], citing
Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the non-disclosure of the limits of the agency carries
with it the implication that a deception was perpetrated on the unsuspecting client, the provisions
of Articles 19, 20 and 21 of the Civil Code of the Philippines come into play.
24.Perez v CA G.R. No. 112329. January 28, 2000
Facts:
Primitivo B. Perez had been insured with the BF Lifeman Insurance Corporation for P20,000.00.
Sometime in October 1987, an agent of the insurance corporation, visited Perez in Quezon and
convinced him to apply for additional insurance coverage of P50,000.00. Virginia A. Perez, Primitivos
wife, paid P2,075.00 to the agent. The receipt issued indicated the amount received was a "deposit."
Unfortunately, the agent lost the application form accomplished by Perez and he asked the latter to
fill up another application form. The agent sent the application for additional insurance of Perez to
the Quezon office. Such was supposed to forwarded to the Manila office.
Perez drowned. His application papers for the additional insurance of P50,000.00 were still with the
Quezon. It was only after some time that the papers were brought to Manila. Without knowing that
Perez died, BF Lifeman Insurance Corporation approved the application and issued the corresponding
policy for the P50,000.00.
Petitioner Virginia Perez went to Manila to claim the benefits under the insurance policies of the
deceased. She was paid P40,000.00 under the first insurance policy for P20,000.00 but the insurance
company refused to pay the claim under the additional policy coverage of P50,000.00, the proceeds
of which amount to P150,000.00.
The insurance company maintained that the insurance for P50,000.00 had not been perfected at the
time of the death of Primitivo Perez. Consequently, the insurance company refunded the amount
paid.
BF Lifeman Insurance Corporation filed a complaint against Virginia Perez seeking the rescission and
declaration of nullity of the insurance contract in question.
Petitioner Virginia A. Perez, on the other hand, averred that the deceased had fulfilled all his
prestations under the contract and all the elements of a valid contract are present.
On October 25, 1991, the trial court rendered a decision in favor of petitioner ordering respondent to
pay 150,000 pesos. The Court of Appeals, however, reversed the decision of the trial court saying
that the insurance contract for P50,000.00 could not have been perfected since at the time that the
policy was issued, Primitivo was already dead.
Petitioners motion for reconsideration having been denied by respondent court, the instant petition
for certiorari was filed on the ground that there was a consummated contract of insurance between
the deceased and BF Lifeman Insurance Corporation.
Issue:
WON the widow can receive the proceeds of the 2nd insurance policy
Held:
No. Petition dismissed.
Ratio:
Perezs application was subject to the acceptance of private respondent BF Lifeman Insurance
Corporation. The perfection of the contract of insurance between the deceased and respondent
corporation was further conditioned with the following requisites stated in the application form:
"there shall be no contract of insurance unless and until a policy is issued on this application and
that the said policy shall not take effect until the premium has been paid and the policy delivered to
and accepted by me/us in person while I/We, am/are in good health."
BF Lifeman didnt give its assent when it merely received the application form and all the requisite
supporting papers of the applicant. This happens only when it gives a policy.

It is not disputed, however, that when Primitivo died on November 25, 1987, his application
papersfor additional insurance coverage were still with the branch office of respondent corporation
in Quezon. Consequently, there was absolutely no way the acceptance of the application could have
been communicated to the applicant for the latter to accept inasmuch as the applicant at the time
was already dead.
Petitioner insists that the condition imposed by BF that a policy must have been delivered to and
accepted by the proposed insured in good health is potestative, being dependent upon the will of the
corporation and is therefore void. The court didnt agree. A potestative condition depends upon the
exclusive will of one of the parties and is considered void. The Civil Code states: When the fulfillment
of the condition depends upon the sole will of the debtor, the conditional obligation shall be void.
The following conditions were imposed by the respondent company for the perfection of the contract
of insurance: a policy must have been issued, the premiums paid, and the policy must have been
delivered to and accepted by the applicant while he is in good health.
The third condition isnt potestative, because the health of the applicant at the time of the deliveryof
the policy is beyond the control or will of the insurance company. Rather, the condition is a
suspensive one whereby the acquisition of rights depends upon the happening of an event which
constitutes the condition. In this case, the suspensive condition was the policy must have been
delivered and accepted by the applicant while he is in good health. There was non-fulfillment of the
condition, because the applicant was already dead at the time the policy was issued.
As stated above, a contract of insurance, like other contracts, must be assented to by both parties
either in person or by their agents. So long as an application for insurance has not been either
accepted or rejected, it is merely an offer or proposal to make a contract. The contract, to be binding
from the date of application, must have been a completed contract.
The insurance company wasnt negligent because delay in acting on the application does not
constitute acceptance even after payment. The corporation may not be penalized for the delay in
the processing of the application papers due to the fact that process in a week wasnt the usual
timeframe in fixing the application. Delay could not be deemed unreasonable so as to constitute
gross negligence.
25. PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA TRINOS,
respondents.
Facts
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with
petitioner Philamcare Health Systems, Inc. Accordingly, he was issued Health Care Agreement No.
P010194. Under the agreement, respondent's husband was entitled to avail of hospitalization
benefits, whether ordinary or emergency, listed therein. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability. During the period of his coverage, Ernani suffered a
heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9,
1990. While her husband was in the hospital, respondent tried to claim the benefits under the health
care agreement. However, petitioner denied her claim saying that the Health Care Agreement was
void. According to petitioner, there was a concealment regarding Ernani's medical history. Doctors at
the MMC allegedly discovered at the time of Ernani's confinement that he was hypertensive, diabetic
and asthmatic, contrary to his answer in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical therapist at home.
Respondent was constrained to bring him back to the Chinese General Hospital where he died on the
same day.
After trial, the lower court ruled against petitioners. On appeal, the Court of Appeals affirmed the
decision of the trial court but deleted all awards for damages and absolved petitioner Reverente.
Issue:
WON a health care agreement is an insurance contract
Ruling:
An insurance contract exists where the following elements concur: 1. The insured has an insurable
interest; 2. The insured is subject to a risk of loss by the happening of the designated peril; 3. The
insurer assumes the risk; 4. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and 5. In consideration of the insurer's
promise, the insured pays a premium.
In the case at bar, the insurable interest of respondent's husband in obtaining the health care
agreement was his own health. The health care agreement was in the nature of non-life insurance,
which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingent, the health care provider must
pay for the same to the extent agreed upon under the contract.

26. GULF RESORTS, INC., petitioner, vs. PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.

Facts:
Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said
resort insured originally with the American Home Assurance Company (AHAC). In the first 4 policies
issued, the risks of loss from earthquake shock was extended only to petitioners two swimming
pools. Gulf Resorts agreed to insure with Phil Charter the properties covered by the AHAC policy
provided that the policy wording and rates in said policy be copied in the policy to be issued by Phil
Charter. Phil Charter issued Policy No. 31944 to Gulf Resorts covering the period of March 14, 1990
to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92. the break-down of
premiums shows that Gulf Resorts paid only P393.00 as premium against earthquake shock (ES). On
July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiffs properties
covered by Policy No. 31944 issued by defendant, including the two swimming pools in its Agoo
Playa Resort were damaged.
Petitioner advised respondent that it would be making a claim under its Insurance Policy 31944 for
damages on its properties. Respondent denied petitioners claim on the ground that its insurance
policy only afforded earthquake shock coverage to the two swimming pools of the resort. The trial
court ruled in favor of respondent. In its ruling, the schedule clearly shows that petitioner paid only a
premium of P393.00 against the peril of earthquake shock, the same premium it had paid against
earthquake shock only on the two swimming pools in all the policies issued by AHAC.
Issue:
Whether or not the policy covers only the two swimming pools owned by Gulf Resorts and does not
extend to all properties damaged.
RULLING:
YES, it only covers the 2 swimming pools. In sum, there is no ambiguity in the terms of the contract
and its riders. From the inception of the policy, petitioner had required the respondent to copy
verbatim the provisions and terms of its latest insurance policy from AHAC-AIU. All the provisions and
riders taken and interpreted together, indubitably show the intention of the parties to extend
earthquake shock coverage to the two swimming pools only. An insurance premium is the
consideration paid an insurer for undertaking to indemnify the insured against a specified peril. In
fire, casualty and marine insurance, the premium becomes a debt as soon as the risk attaches. In
the subject policy, no premium payments were made with regard to earthquake shock coverage
except on the two swimming pools. There is no mention of any premium payable for the other resort
properties with regard to earthquake shock.
SUBROGATION
MALAYAN INSURANCE CO., INC. vs. THE HON. COURT OF APPEALS
FACTS:
Sio Choy insured his jeep with Malayan Insurance against 3rd party liability. One day the jeep, driven
by an employee of San Leon Rice Mill, figured in an accident with Pantranco Bus.
The passenger of the jeep, Vallejo, who was injured due to the accident, claimed damages from Sio
Choy, Malayan and Pantranco. Pantranco was held not liable.
Malayan insurance paid Vallejo and asked for reimbursement from San Leon as the latter driver
caused the alleged accident. The latter, however denied liability.
RTC ruled that Sio Choy, Malayan and San Leon are solidary liable, thus, the former is entitled to
reimbursement.
CA said although jointly and severally liable, Malayan is not entitled to reimbursement.
ISSUES:
1.
WON Sio Choy, Malayan and San Leon Rice Mill are solidary liable.
2.
WON Malayan can seek reimbursement.
RULING:
1.
Only respondents Sio Choy and San Leon Rice Mill, Inc, (to the exclusion of the petitioner)
that are solidarily liable to respondent Vallejos for the damages awarded to Vallejos.
Sio Choy and San Leon Rice Mill, Inc. are the principal tortfeasors who are primarily liable to
respondent Vallejos. The law states that the responsibility of two or more persons who are liable for a
quasi-delict is solidarily. On the other hand, the basis of petitioner's liability is its insurance contract
with respondent Sio Choy.
While it is true that where the insurance contract provides for indemnity against liability to third
persons, such third persons can directly sue the insurer, 6 however, the direct liability of the insurer
under indemnity contracts against third party liability does not mean that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is
based on contract; that of the insured is based on tort.

In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it cannot, as
incorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors
namely respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily
liable with said two (2) respondents by reason of the indemnity contract against third party liabilityunder which an insurer can be directly sued by a third party this will result in a violation of the
principles underlying solidary obligation and insurance contracts.
2.
Malayan is entitled to re-imbursement from San Leon by virtue of SUBROGATION. Article 1217
says,
Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more
solidary debtors offer to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors only the share which corresponds to each,
with the interest for the payment already made. If the payment is made before the debt is due, no
interest for the intervening period may be demanded.
In accordance with Article 1217, MALAYAN, upon payment to Vallejos and thereby becoming the
subrogee of solidary debtor Sio Choy, is entitled to reimbursement from respondent San Leon Rice
Mill, Inc.
MANILA MAHOGANY MFG CORP V CA & ZENITH INSURANCE
FACTS:
Manila Mahogany insured its Mercedes Benz with respondent insurance company. One day, the
vehicle was bumped and damaged by a truck owned by San Miguel Corp (SMC).
Zenith paid P5K to petitioner in amicable settlement. Petitioners general manager executed a
Release Claim, subrogating respondent company to all its right to action against SMC.
Later respondent wrote Insurance Adjusters Inc. to demand reimbursement from SMC. Insurance
Adjusters refused saying that SMC had already paid petitioner P4,500 for the damages to petitioners
vehicle, as evidenced by a cash voucher and Release of Claim executed by the GM of petitioner
discharging SMC from all actions, claims, demands the rights of action that now exist or hereafter
develop arising out of or as a consequence of the accident.
Respondent demanded the P4.5K amount from petitioner. Petitioner refused. Suit filed for recovery.
City Court ordered petitioner to pay respondent. CFI affirmed. CA affirmed with modification that
petitioner was to pay respondent the total amount of 5K it had received from respondent.
Petitioners argument: Since the total damages were valued at P9,486.43 and only 5K was received
by petitioner from respondent, petitioner argues that it was entitled to go after SMC to claim the
additional which was eventually paid to it.
Respondents argument: No qualification to its right of subrogation.
ISSUE:
1.WON petitioner should pay respondent despite the subrogation in the Release of Claim was
conditioned on recovery of the total amount of damages petitioner has sustained.
RULING:
1. NO. SC said no other evidence to support its allegation that a gentlemans agreement existed
between the parties, not embodied in the Release of Claim, such Release of Claim must be taken as
the best evidence of the intent and purpose of the parties.
CA correct in holding petitioner should reimburse respondent 5K.
When Manila Mahogany executed another release claim discharging SMC from all rights of action
after the insurer had paid the proceeds of the policy the compromise agreement of 5K- the insurer
is entitled to recover from the insured the amount of insurance money paid.
Petitioner by its own acts released SMC, thereby defeating respondents right of subrogation, the
right of action against the insurer was also nullified.
Since the insurer can be subrogated to only such rights as the insured may have, should the insured,
after receiving payment from the insurer, release the wrongdoer who caused the loss, the insurer
losses his rights against the latter. But in such a case, the insurer will be entitled to recover from the
insured whatever it has paid to the latter, unless the release was made w/ the consent of the insurer.
PAN MALAYAN INSURANCE CORP. VS. COURT OF APPEALS
FACTS:
Pan Malayan filed a complaint for damages with the RTC of Makati against private respondents
Erlinda Fabie and her driver. Pan Malayan insured a Mitsubishi Colt Lancer car registered in the
name of Canlubang. Due to the carelessness, recklessness and imprudence of the unknown driver
of a pick-up, the insured car was hit and suffered damages in the amount of P42,052.00 .
Pan
Malayan defrayed the cost of repair of the insured car, and therefore was subrogated to the rights of
Canlubang against the driver of the pick-up and his employer, Erlinda Fabie. Despite repeated
demands, defendants failed and refused to pay the claim of Pan Malay. Defendants/Private

Respondents alleged that Pan Malay had no cause of action against them because payment under
the own damage clause of the insurance policy precluded subrogation under Article 2207 of the
Civil Code, since indemnification thereunder was made on the assumption that there was no
wrongdoer or no third party at fault. RTC dismissed the case for no cause of action and denied its
motion for reconsideration. The CA affirmed the trial courts decision. Hence, this petition.
ISSUES:
Whether or not the insurer Pan Malayan may institute ac action to recover the amount it had paid its
assured in settlement of an insurance claim against private respondents.
RULING:
Pan Malayan is correct.
If the insured property is destroyed or damaged through the fault or negligence of a party other than
the assured, then the insurer, upon payment to the assured, will be subrogated to the rights of the
assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay.
Payment by the insurer to the assured operates as an equitable assignment to the former of all
remedies, which the latter ma have against the third party whose negligence or wrongful act caused
the loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of
contract or upon written assignment of claim. It accrues simply upon payment of the insurance
claim by the insurer.
CEBU SHIPPING AND ENGINEERING WORKS, INC. VS. WILLIAM LINES INC. AND PRUDENTIAL
GUARANTEE AND ASSURANCE COMPANY, INC.
FACTS:
William Lines, Inc. brought its vessel M/V Manila City to the Cebu Shipyard in Lapulapu City for
annual dry-docking and repair.
Subject vessel was insured with Prudential Guarantee for
P45,000,000.00 for hull and machinery. The Hull Policy included an Additional Perils clause
covering loss of or damage to the vessel through the negligence of, among others, ship repairmen.
CSEW was also insured by Prudential Guarantee for third party liability under s Shiprepairs Legal
Liability Insurance Policy for P10,000,000.00 only. After subject vessel was transferred to the
docking quay, it caught fire and sank, resulting to its eventual total loss. William Lines, Inc. filed a
complaint for damages against CSEW, alleging that the fire which broke out in M/V Manila City was
caused by CSEWs negligence and lack of care. An amended complaint, impleading Prudential
Guarantee as co-plaintiff, was filed after the latter had paid William Lines, Inc. the value of the hull
and machinery insurance of M/V Manila City. RTC ruled that the cause of the fire was through the
negligence of CSEW. CA affirmed the appealed decision. Hence this petition.
ISSUE:
Whether or not Prudential has the right of subrogation against its own insured and whether or not
the parties intended for them to be a co-assured in the insurance policy.
RULING:
The petition is unmeritorious.
Upon proof of payment by Prudential Guarantee to William Lines, the former was subrogated to the
right of the latter to indemnification from CSEW. Thus, when Prudential, after due verification of the
merit and validity of the insurance claim of William Lines, paid the latter the total amount covered by
its insurance policy, it was subrogated to the right of the latter to recover the insured loss from
CSEW, the liable party.
A stipulation in the work order that requires William Lines to maintain insurance on the vessel during
the period of dry-docking or repair, works to the benefit of CSEW. However, the fact that CSEW
benefits from the said stipulation does not automatically make it as a co-assured of William Lines.
The hull and machinery insurance procured by William Lines, Inc. from Prudential named only
"William Lines, Inc." as the assured. Thus, when the insurance policy involved named only William
Lines, Inc. as the assured thereunder, the claim of CSEW that it is a co-assured is unfounded.
Delsan Transport Lines, Inc. vs. Court of Appeals and American Home Assurance Corporation
FACTS:
Caltex Philippines entered into a contract of affreightment with the petitioner, Delsan Transport
Lines, Inc., whereby the said common carrier agreed to transport Caltex's industrial fuel oil from the
Batangas-Bataan Refinery to different parts of the country.
The shipment was insured with the private respondent, American Home Assurance Corporation. On
August 14, 1986, petitioner's vessel, the MT Maysun, set sail from Batangas for Zamboanga City.
Unfortunately, the vessel sank in the early morning of August 16, 1986 near Panay Gulf in the
Visayas taking with it the entire cargo of fuel oil.
AHAC paid Caltex the sum of P5,096,635.57 representing the insured value of the lost cargo.

Exercising its right of subrogation under Article 2207 of the New Civil Code, AHAC demanded from
Delsan the same amount it paid to Caltex.
Due to its failure to collect from the petitioner despite prior demand, private respondent filed a
complaint with the Regional Trial Court of Makati City, Branch 137, for collection of a sum of money.
The trial court rendered a decision dismissing the complaint against herein petitioner. The trial court
found that the vessel, MT Maysun, was seaworthy to undertake the voyage and that the incident was
caused by unexpected inclement weather condition or force majeure, thus exempting petitioner from
liability for the loss of its cargo. The decision of the trial court, however, was reversed, on appeal, by
the Court of Appeals.
ISSUES:
(pertaining to subrogation)
1.Whether or not the payment made by the private respondent to Caltex for the insured value of the
lost cargo amounted to an admission that the vessel was seaworthy, thus precluding any action for
recovery against the petitioner?
2.Whether or not the non-presentation of the marine insurance policy bars AHACs right of
subrogation?
RULING:
First Issue:
Before the Court, petitioner theorized that when private respondent paid Caltex the value of its lost
cargo, the act of the private respondent is equivalent to a tacit recognition that the ill-fated vessel
was seaworthy; otherwise, private respondent was not legally liable to Caltex due to the latter's
breach of implied warranty under the marine insurance policy that the vessel was seaworthy.
The Supreme Court rejected petitioner's theory. According to the Court, the payment made by the
private respondent for the insured value of the lost cargo operates as a waiver of private
respondent's right to enforce the term of the implied warranty against Caltex under the marine
insurance policy. However, the same cannot be validly interpreted as an automatic admission of the
vessel's seaworthiness by the private respondent as to foreclose recourse against the petitioner for
any liability under its contractual obligation as a common carrier. The fact of payment grants the
private respondent subrogatory right which enables it to exercise legal remedies that would
otherwise be available to Caltex as owner of the lost cargo against the petitioner common carrier.
The Court also stressed that the right of subrogation is designed to promote and to accomplish
justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in
justice and good conscience ought to pay.
It is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment
of claim. It accrues simply upon payment by the insurance company of the insurance claim.
Consequently, the payment made by AHAC (insurer) to Caltex (assured) operates as an equitable
assignment to the former of all the remedies which the latter may have against the petitioner.
Second Issue:
Anent the second issue, it is our view and so hold that the presentation in evidence of the marine
insurance policy is not indispensable in this case before the insurer may recover from the common
carrier the insured value of the lost cargo in the exercise of its subrogatory right.
The subrogation receipt, by itself, is sufficient to establish not only the relationship of herein private
respondent as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but
also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon
payment by the insurance company of the insurance claim.
Federal Express Corporation vs. American Home Assurance Company and PHILAM Insurance
Company
FACTS:
On January 26, 1994, SMITHKLINE Beecham of Nebraska, USA delivered to Burlington Air Express
(AGENT OF FEDREAL EXPRESS) a shipment of 109 cartons of veterinary biologicals for delivery to
consignee SMITHKLINE and French Overseas Company in Makati City, Metro Manila.
The shipment was covered by Burlington Airway Bill No. 11263825 with the words, REFRIGERATE
WHEN NOT IN TRANSIT and PERISHABLE stamp marked on its face. That same day, Burlington
insured the cargoes in the amount of $39,339.00 with AHAC.
The following day, Burlington turned over the custody of said cargoes to Federal Express which
transported the same to Manila. The first shipment, consisting of 92 cartons arrived in Manila on
January 29, 1994 and was immediately stored at Cargohaus Inc.s warehouse.
While the second, consisting of 17 cartons, came in two (2) days later, or on January 31, 1994,which
was likewise immediately stored at Cargohaus warehouse.
12 days later, the Customs Broker who was assigned by Smithkline of Makati to facilitate the
withdrawal of the Cargoes, did not proceed with such withdrawal for He found out that the Cartons
containing the vaccines were not properly stored as ordered. For this reason, the vaccines were

examined, only to find out that they were damaged and unusable. Consequently Smithkline of
Makati abandoned the shipment.
Smithkline of Makati filed a claim with PHILAM, the representative of AHAC in the Philippines. By
virtue of its right of subrogation, AHAC proceeded against FEDERAL EXPRESS.
Federal Express declined the claim of AHAC contending that the latter had no cause of action against
the former. Moreover, Federal Express contended that no notice of claim was filed, hence, not
complying with the condition precedent, AHAC was precluded from asserting its claim against it.
ISSUES:
1.Whether or not AHAC has legal personality to sue, thus, no cause of action against Federal
Express?
2.Whether or not AHAC complied with the necessary condition precedent in order to file claims
against Federal Express?
RULING:
First Issue:
Federal Express argued that payment was erroneous for the proper payment should have been made
to Burlington as agent of Federal Express, and as payee of the bill.
Held, Smithkline of Makatin has the personality to claim for the damages because the Certificate of
Insurance is payable to the bearer thereof. Upon payment by AHAC to Smithkline, the latter executed
a subrogation receipt. Hence, AHAC and PHILAM have personality to file claims.
Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods, the
insurers entitlement to subrogation pro tanto being of the highest equity equips it with a cause
of action in case of a contractual breach or negligence. Further, the insurers subrogatory right to
sue for recovery under the bill of lading in case of loss of or damage to the cargo is jurisprudentially
upheld.
Second Issue:
Under the Warsaw Convention, Notice of Claim is a condition precedent to the accrual of a Right of
Action against a carrier for loss or damage to the goods. Being a condition precedent, it must
precede a suit for enforcement. In the instant case, AHAC never complied such requirement. Thus, it
cannot file claims against Federal Express.
INSURABLE INTEREST
Spouses Cha vs. CA
Lessons Applicable: Effect of Lack of Insurable Interest (Insurance)
Laws Applicable: Sec. 17, Sec. 18, Sec. 25 of the Insurance Code
FACTS:
Spouses Nilo Cha and Stella Uy-Cha and CKS Development Corporation entered a 1 year lease
contract with a stipulation not to insure against fire the chattels, merchandise, textiles, goods and
effects placed at any stall or store or space in the leased premises without first obtaining the written
consent and approval of the lessor. But it insured against loss by fire their merchandise inside the
leased premises for P500,000 with the United Insurance Co., Inc. without the written consent of CKS
On the day the lease contract was to expire, fire broke out inside the leased premises and CKS
learning that the spouses procured an insurance wrote to United to have the proceeds be paid
directly to them. But United refused so CKS filed against Spouses Cha and United.
RTC: United to pay CKS the amount of P335,063.11 and Spouses Cha to pay P50,000 as exemplary
damages, P20,000 as attorneys fees and costs of suit
CA: deleted exemplary damages and attorneys fees
ISSUE:
W/N the CKS has insurable interest because the spouses Cha violated the stipulation
HELD:
NO. CA set aside. Awarding the proceeds to spouses Cha.
Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of
some person having an insurable interest in the property insured
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must
exist a t the time the insurance takes effect and at the time the loss occurs. The basis of such
requirement of insurable interest in property insured is based on sound public policy: to prevent a
person from taking out an insurance policy on property upon which he has no insurable interest and
collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of

insurance is a mere wager which is void under Section 25 of the Insurance Code.
SECTION 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person
insured has or has not any interest in the property insured, or that the policy shall be received as
proof of such interest, and every policy executed by way of gaming or wagering, is void
Section 17. The measure of an insurable interest in property is the extent to which the insured
might be damnified by loss of injury thereof
The automatic assignment of the policy to CKS under the provision of the lease contract previously
quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance
policy thus rightfully belong to the spouses. The liability of the Cha spouses to CKS for violating their
lease contract in that Cha spouses obtained a fire insurance policy over their own merchandise,
without the consent of CKS, is a separate and distinct issue which we do not resolve in this case.
GrePaLife vs. CA
Facts:
Great Pacific Life Assurance Corporation (Grepalife) executed a contract of group life insurance with
Development Bank of the Philippines (DBP) wherein Grepalife agreed to insure the lives of eligible
housing loan mortgagors of DBP.
One such loan mortgagor is Dr. Wilfredo Leuterio. In an application form, Dr. Leuterio answered
questions concerning his test, attesting among others that he does not have any heart conditions
and that he is in good health to the best of his knowledge.
However, after about a year, Dr. Leuterio died due to massive cerebral hemorrhage. When DBP
submitted a death claim to Grepalife, the latter denied the claim, alleging that Dr. Leuterio did not
disclose he had been suffering from hypertension, which caused his death. Allegedly, such nondisclosure constituted concealment that justified the denial of the claim.
Hence, the widow of the late Dr. Leuterio filed a complaint against Grepalife for Specific
Performance with Damages. Both the trial court and the Court of Appeals found in favor of the
widow and ordered Grepalife to pay DBP.
ISSUE:
Whether the CA erred in holding Grepalife liable to DBP as beneficiary in a group life insurance
contract from a complaint filed by the widow of the decedent/mortgagor
HELD:
The rationale of a group of insurance policy of mortgagors, otherwise known as the mortgage
redemption insurance, is a device for the protection of both the mortgagee and the mortgagor. On
the part of the mortgagee, it has to enter into such form of contract so that in the event of the
unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds
from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs
of the mortgagor from paying the obligation. In a similar vein, ample protection is given to the
mortgagor under such a concept so that in the event of death, the mortgage obligation will be
extinguished by the application of the insurance proceeds to the mortgage indebtedness. In this
type of policy insurance, the mortgagee is simply an appointee of the insurance fund. Such losspayable clause does not make the mortgagee a party to the contract.
The 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, such as a mortgagee.
And since a policy of insurance upon life or health may pass by transfer, will or succession to any
person, whether he has an insurable interest or not, and such person may recover it whatever the
insured might have recovered, the widow of the decedent Dr. Leuterio may file the suit against the
insurer, Grepalife.
Harvardian Colleges c Country Bankers Insurance
Facts:
Harvardian Colleges is a family corporation whose stockholders are Ildefonso Yap, Virginia King Yap
and their children. Harvardian Colleges insured the school for fire with CBI for Php500,000. However,
the insured property was burned which resulted to its total loss. Harvardian Colleges made claims
but was denied by CBI on the ground that there was no insurable interest iver the building on the
piece of land which was in the name of Ildefonso Yap, and not of Harvardian Colleges.
Issue:
Whether or not Harvardian has insurable interest and can collect from the insurance
Ruling:
Yes. Regardless of the nature of the title of the insures, or even if he did not have title to the
property insured, the contract of fire insurance should still be upheld if his interest in or his relation
to the property is such that he will be benefited in its continuing existence or suffer a direct

pecuniary loss from its destruction or injury. The test in determining insurable interest in property is
whether one will derive pecuniary benefit or advantage from its preservation or will suffer pecuniary
loss or damage from it destruction by the happening of the event insured against.
Ang Ka Yu v. Phoenix Assurance
Facts:
Ang Ka Yu had a piece of property in his possession. He insured it with Phoenix.
The property was lost, so Ang Ka Yu sought to claim the proceeds.
Phoenix denied liability on the ground that Ang was not the owner but a mere possessor and as
such, had no insurable interest over the property.
Issue:
WON a mere possessor has insurable interest over the property.
Held:
Yes. A person having a mere right or possession of property may insure it to its full value and in his
own name, even when he is not responsible for its safekeeping. The reason is that even if a person
is NOT interested in the safety and preservation of material in his possession because they belong to
3rd parties, said person still has insurable interest, because he stands either to benefit from their
continued existence or to be prejudiced by their destruction.
E.CONCEALMENT AND REPRESENTATION
THE INSULAR LIFE ASSURANCE CO., LTD., petitioner, vs. SERAFIN D. FELICIANO and ANGEL,
FLORENDA, EUGENIO, HERMINIO and LETICIA, all surnamed FELICIANO, represented by their
guardian ad litem SERAFIN D. FELICIANO, respondents (G.R. No. L-47593, September 13, 1941)
FACTS:
One Evaristo Feliciano filed an application for insurance with the herein petitioner upon the
solicitation of one of its agents. Two insurance policies to the aggregate amount of P25,000 were
issued to him.
Feliciano died on September 29, 1935. The defendant company (petitioner) refused to pay on
the ground that the policies were fraudulently obtained, the insured having given false answers and
statements in the application as well as in the medical report.
The present action was brought to recover on said policies.
Lower court in favor of plaintiff (respondent)finding that:

Feliciano was made to sign the application and the examiner's report in blank, and that
afterwards the blank spaces therein were filled in by the agent (Romulo M. David ) and the medical
examiner (Dr. Gregorio Valdez), who made it appear therein that Feliciano was a fit subject for
insurance.

neither the insured nor any member of his family concealed the real state of health of the
insured; that as a matter of fact the insured, as well as the members of his family, told the agent and
the medical examiner that the applicant had been sick and coughing for sometime and that he had
also gone three times to the Santol Sanatarium.
CA affirmed. Hence, this petition.
ISSUE:
WON the policy remains to be valid in spite of the fact that the agent, without fraud, collusion or bad
faith on the part of the insured, falsified the answers given by the insured.
HELD:
YES
Insurance companies send detailed instructions to their agents to solicit and procure
applications. These agents are to be found all over the length and breadth of the land. The agents, in
short, do what the company set them to do.
In the present case, the agent knew all the time the true state of health of the insured. The
insurer's medical examiner approve the application knowing full well that the applicant was sick.
The situation is one in which one of two innocent parties must bear a loss for his reliance
upon a third person.
In this case, it was the insurer who gave the agent authority to deal with the applicant. It was
the one who selected the agent, thus implying that the insured could put his trust on him. It seems
reasonable that as between the two of them, the one who employed and gave character to the third
person as its agent should be the one to bear the loss.
If the policy should be avoided, it must be because it was void from the very beginning.
The insurer cannot assert the falsity of such answers as a defense to liability on the policy.
The fact that the insured did not read the application which he signed, is not indicative of bad
faith. It has been held that it is not negligence for the insured to sign an application without first
reading it if the insurer by its conduct in appointing the agent influenced the insured to place trust
and confidence in the agent.

In the instant case, it has been proved that the insured could not read English, the language
in which the application was written, and that after the contract was signed, it was kept by his
mother. As a consequence, the insured had no opportunity to read or correct any misstatement
therein.
Petition dismissed.
THE INSULAR LIFE ASSURANCE CO., LTD., petitioner, vs.SERAFIN D. FELICIANO ET AL., respondents.
(G.R. No. L-47593 December 29, 1943)
MOTION FOR RECONSIDERATION
FACTS:
A motion to reconsider and set aside said decision has been filed by the petitioner, and both
parties have submitted exhaustive and luminous written arguments in support of their respective
contentions.
Agents reason for falsifying the application: for the purpose of securing the Company's
approval of the application so that the policy to be issued thereon might be credited to said agent in
connection with the inter-provincial contest which the Company was then holding among its
soliciting agents to boost the sales of its policies.
Moreover, Agent David bribed Medical Examiner Valdez with money which the former
borrowed from the applicant's mother by way of advanced payment on the premium, according to
the finding of the Court of Appeals.
petitioner insists: that upon the facts of the case the policies in question are null and void ab
initio and that all that the respondents are entitled to is the refund of the premiums paid thereon.
ISSUE
WON Policy still valid.
HELD:
When the applicant for insurance, signed the application in blank and authorized the
soliciting agent and/or the medical examiner of the Company to write the answers for him, he made
them his own agents for that purpose, and he was responsible for their acts in that connection. If
they falsified the answers for him, he could not evade the responsibility for the falsification. He was
not supposed to sign the application in blank. He knew that the answers to the questions therein
contained would be "the basis of the policy," and for that very reason he was required with his
signature to vouch for the truth thereof.
By accepting the policy he became charged with knowledge of its contents, whether he
actually read it or not.
We cannot bring ourselves to believe that the insured did not take the trouble to read the
answers contained in the photostatic copy of the application attached to and made a part of the
policy before he accepted it and paid the premium thereon. He must have notice that the answers to
the questions therein asked concerning his clinical history were false, and yet he accepted the first
policy and applied for another.
The insured, therefore, had no right to rely and we cannot believe he relied in good faith
upon the oral representation of said agent and medical examiner that he (the applicant) was a fit
subject for insurance notwithstanding that he had been and was still suffering with advanced
pulmonary tuberculosis.
Altho the agent and the medical examiner knew that statement to be false, no valid contract
of insurance was entered into because there was no real meeting of the minds of the parties.
From all the facts and circumstances of this case, we are constrained to conclude that the
insured was a coparticipant, and coresponsible with Agent David and Medical Examiner Valdez, in
the fraudulent procurement of the policies in question and that by reason thereof said policies are
void ab initio.
MR sustained. CA reversed in favor of Petitioner Company.
SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner, vs. The Hon. COURT OF APPEALS and
Spouses ROLANDO and BERNARDA BACANI, respondents.
FACTS :
On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from
petitioner and was issued a policy valued at P100,000.00, with double indemnity in case of
accidental death. The designated beneficiary was his mother, respondent Bernarda Bacani.
On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim with
petitioner, seeking the benefits of the insurance policy taken by her son. Petitioner conducted an
investigation and its findings prompted it to reject the claim on the ground that the insured did not
disclosed material facts relevant to the issuance of the policy, thus rendering the contract of
insurance voidable. A check representing the total premiums paid in the amount of P10,172.00 was
attached to said letter.

Petitioner claimed that the insured gave false statements in his application when he limited his
answer to a consultation with a certain Dr. Reinaldo D. Raymundo of the Chinese General Hospital on
February 1986, for cough and flu complications only but did not disclose that two weeks prior to his
application for insurance, the insured was examined and confined at the Lung Center of the
Philippines, where he was diagnosed for renal failure.
ISSUE :
WON there was concealment made by the insured.
RULING :
SC disagrees with the RTC's findings that while indeed there was concealment and
misrepresentation, the same was made in "good faith" and the facts concealed or misrepresented
were irrelevant since the policy was "non-medical".
Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has no means of ascertaining.
The information which the insured failed to disclose were material and relevant to the approval and
the issuance of the insurance policy. The matters concealed would have definitely affected
petitioner's action on his application, either by approving it with the corresponding adjustment for a
higher premium or rejecting the same. Moreover, a disclosure may have warranted a medical
examination of the insured by petitioner in order for it to reasonably assess the risk involved in
accepting the application.
Thus, "good faith" is no defense in concealment.
The argument, that petitioner's waiver of the medical examination of the insured debunks the
materiality of the facts concealed, is untenable. The waiver of a medical examination [in a nonmedical insurance contract] renders even more material the information required of the applicant
concerning previous condition of health and diseases suffered, for such information necessarily
constitutes an important factor which the insurer takes into consideration in deciding whether to
issue the policy or not.
Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is
well settled that the insured need not die of the disease he had failed to disclose to the insurer. It is
sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the
proposed insurance policy or in making inquiries.
We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance by
reason of the concealment employed by the insured.
WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED and
SET ASIDE.
THELMA VDA. DE CANILANG, petitioner, vs. HON. COURT OF APPEALS and GREAT PACIFIC LIFE
INSURANCE CORPORATION, respondents.
FACTS:
On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering
from "sinus tachycardia." The doctor prescribed the following for him: Trazepam, a tranquilizer; and
Aptin, a beta-blocker drug. Mr. Canilang consulted the same doctor again on 3 August 1982 and this
time was found to have "acute bronchitis."
On the next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy with
respondent Great Pacific Life Assurance Company naming his wife, petitioner Thelma Canilang, as
his beneficiary. Jaime Canilang was issued a policy, with the face value of P19,700, effective as of 9
August 1982.
On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic
anemia." Petitioner, widow and beneficiary of the insured, filed a claim with Great Pacific which the
insurer denied on 5 December 1983 upon the ground that the insured had concealed material
information from it.
Petitioner then filed a complaint against Great Pacific with the Insurance Commission for recovery of
the insurance proceeds. A deposition given by Dr. Wilfredo Claudio was presented by petitioner.
There Dr. Claudio stated that he was the family physician of the deceased Jaime Canilang and that
he had previously treated him for "sinus tachycardia" and "acute bronchitis." Great Pacific for its part
presented Dr. Esperanza Quismorio, a physician and a medical underwriter working for Great Pacific.
She testified that the deceased's insurance application had been approved on the basis of his
medical declaration. She explained that as a rule, medical examinations are required only in cases

where the applicant has indicated in his application for insurance coverage that he has previously
undergone medical consultation and hospitalization.
Insurance Commissioner Armando Ansaldo ordered Great Pacific to pay P19,700.00 plus legal
interest and P2,000.00 as attorney's fees. On appeal by Great Pacific, the Court of Appeals reversed
and set aside the decision of the Insurance Commissioner. The Court of Appeals also found that the
failure of Jaime Canilang to disclose previous medical consultation and treatment constituted
material information which should have been communicated to Great Pacific to enable the latter to
make proper inquiries.
ISSUE :
WON there was concealment made by the insured.
HELD:
The Supreme Court agrees with the Court of Appeals that the information which Jaime Canilang
failed to discloses was material to the ability of Great Pacific to estimate the probable risk he
presented as a subject of life insurance. Had Canilang disclosed his visits to his doctor, the diagnosis
made and the medicines prescribed by such doctor, in the insurance application, it may be
reasonably assumed that Great Pacific would have made further inquiries and would have probably
refused to issue a non-medical insurance policy or, at the very least, required a higher premium for
the same coverage.
The materiality of the information withheld by Great Pacific did not depend upon the state of mind of
Jaime Canilang. A man's state of mind or subjective belief is not capable of proof in our judicial
process, except through proof of external acts or failure to act from which inferences as to his
subjective belief may be reasonably drawn. Neither does materiality depend upon the actual or
physical events which ensue. Materiality relates rather to the "probable and reasonable influence of
the facts" upon the party to whom the communication should have been made, in assessing the risk
involved in making or omitting to make further inquiries and in accepting the application for
insurance.
Section 27 of the Insurance Code of 1978 is properly read as referring to "any concealment" without
regard to whether such concealment is intentional or unintentional. The net result therefore of the
phrase "whether intentional or unintentional" is precisely to leave unqualified the term
"concealment". In any case, in the case at bar, the nature of the facts not conveyed to the insurer
was such that the failure to communicate must have been intentional rather than merely
inadvertent.
WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the Court of
Appeals dated 16 October 1989 in C.A-G.R. SP No. 08696 is hereby AFFIRMED. No pronouncement as
to costs.
Philamcare Health Systems, Inc. vs Court of Appeals and Julita Trinos

379 SCRA 356

Facts: Julita Trinos was the live-in wife of Ernani Trinos, who had a Health Care Agreement with
petitioner company. Under coverage, Mr. Trinos suffered a heart attack, was twice confined in a
hospital, then subsequently died. Julita Trinos incurred expenses amounting to P76,000.
Philamcare denied the insurance claim on the grounds that a health care agreement is not an
insurance contract. That there was material concealment the insured as it would appear that in the
application for health coverage, petitioners required respondent's husband to sign an express
authorization for any person, organization or entity that has any record or knowledge of his health to
furnish any and all information relative to any hospitalization, consultation, treatment or any other
medical advice or examination. Also, it was contended that Julita Trinos was not the legal wife.
Issue(s): (1) WON the agreement was an insurance contract. (2) WON there was material
concealment of facts. (3) WON Julita Trinos is entitled to receive.
Ruling:
Yes. An insurance contract exists where the following elements concur: 1. The insured has an
insurable interest; 2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk; 4. Such assumption of risk is part of a general scheme to distribute
actual losses among a large group of persons bearing a similar risk; and 5. In consideration of the
insurer's promise, the insured pays a premium.

No. The answer assailed by petitioner was in response to the question relating to the medical history
of the applicant. This largely depends on opinion rather than fact, especially coming from
respondent's husband who was not a medical doctor. Where matters of opinion or judgment are
called for, answers made in good faith and without intent to deceive will not avoid a policy even
though they are untrue. Thus, "(A)lthough false, a representation of the expectation, intention,
belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in
inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise
the rule although the statement is material to the risk, if the statement is obviously of the foregoing
character, since in such case the insurer is not justified in relying upon such statement, but is
obligated to make further inquiry. There is a clear distinction between such a case and one in which
the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief,
that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts
within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to
actual fraud."
Yes. In a contract of indemnity, payment should be made to the party who incurred the expenses.

F.PERSONS ENTITLED TO RECEIVE UNDER THE POLICY

Bonifacio Brothers, Inc. vs Mora
20 SCRA 261
Facts:
Enrique Mora mortgaged his Odlsmobile sedan car to HS Reyes Inc. with the condition that Mora
would insure the car with HS Reyes as beneficiary. The car was then insured with State Insurance
Company and the policy delivered to Mora. During the effectivity of the insurance contract, the car
figured in an accident. The company then assigned the accident to an insurance appraiserfor
investigation and appraisal of the damage. Mora without the knowledge and consent of HS Reyes,
authorized Bonifacio Bros to fix the car, using materials supplied by the Ayala Auto Parts Company.
For the cost of Labor and materials, Mora was billed P2,102.73. The bill was sent to the insurers
appraiser. The insurance company drew a check in the amount of the insurance proceeds and
entrusted the check to its appraiser for delivery to the proper party. The car was delivered to Mora
without the consent of HS Reyes, and without payment to Bonifacio Bros and Ayala.
Upon the theory that the insurance proceeds should be directly paid to them, Bonifacio and Ayala
filed a complaint against Mora and the insurer with the municipal court for the collection of
P2,102.73. The insurance company filed its answer with a counterclaim for interpleader, requiring
Bonifacio and HS Reyes to interplead in order to determine who has a better right to the proceeds.
Issue:
The main issue raised is whether there is privity of contract between the Bonifacio Bros. Inc and the
Ayala Auto Parts Co. on the one hand and the insurance company on the other.
Ruling:
No Privity. It is fundamental that contracts take effect only between the parties thereto, except on
some specific instances provided by law where the contract contains some stipulation in favor of a
third person (Art. 1311, Civil Code). Such stipulation is known as stipulation pour autrui or a
provision in favor of a third person not a party to the contract. Under this doctrine, a third person is
allowed to avail himself of a benefit granted to him by the terms of the contract, provided that the
contracting parties have clearly and deliberately conferred a favor upon such person (Art. 1311, Civil
Code; Uy Tam, et al. vs. Leonard, 30 Phil.. 471 ). Consequently, a third person not a party to the
contract has no action against the parties thereto, and cannot generally demand the enforcement of
the same (Manila Railroad Co. vs. Compaia Transatlantica, 38 Phil. 676).
The question of whether a third person has an enforceable interest in a contract, must be settled by
determining whether the contracting parties intended to tender him such an interest by deliberately
inserting terms in their agreement with the avowed purpose of conferring a favor upon such third
person. In this connection, this Court has laid down the rule that the fairest test to determine
whether the interest of a third person in a contract is a stipulation pour autrui or merely an
incidental interest, is to rely upon the intention of the parties as disclosed by their contract ( Uy Tam,
et al. vs. Leonard, supra).
A policy of insurance is a distinct and independent contract between the insured and insurer, and
third persons have no right either in a court of equity, or in a court of law, to the proceeds of it,
unless there be some contract of trust, expressed or implied, by the insured and third person
(Lampano vs.Jose, 30 Phil. 537).

First Integrated Bonding & Insurance Company, Inc., petitioner, vs Hon. Harold M. Hernando,
Victorino Advincula, Romana Advicula, Silverio Blanco & The Sheriff of Manila and his Deputy
Sheriffs, respondents.
Facts:
Silverio Blanco was the owner of a passenger jeepney which he insured against liabilities for death
and injuries to third persons with First Integrated Bonding and Insurance Company, Inc. with the face
value of P30,000. On November 25, 1976, the said jeepney driven by Blanco himself bumped a fiveyear old child, Deogracias Advincula, causing the latters death.
The childs parents, the Advincula spouses brought a complaint for damages in the Regional Trial
Court of Abra against Silverio Blanco as well as impleading First Insurance in the complaint as
insurer. On the basis of the evidence presented by the Advincula spouses, judgment was rendered
by the trial court in favour of the spouses. The court adjudicated First Integrated Bonding and
Insurance Company liable in the amount of P23,663.50 which must be satisfied independently by it
in favour of the spouses and the balance of P6,336.50 shall also be paid by said insurance company
to Silverio Blanco, the grand total under the policy being P30,000. Herein petitioner filed a petition
for relief from judgment from the order of execution and judgment with preliminary injunction, but
was denied by the court. Petitioner the filed a motion for reconsideration of the order denying the
petition for relief but the same was denied. Hence, this petition for certiorari.
Issue/s:
Whether the trial court erred in holding petitioner liable in excess of the limits of liability as provided
for in the policy contract.
Whether the trial court erred in deciding for the respondent spouse(s) where there exists no cause of
action against herein petitioner.
Ruling:
It is the contention of the petitioner that the Advincula spouses have no cause of action against it.
Further as contended, as parents of the victim, they may proceed against the driver, Blanco on the
basis of the provisions of the New Civil Code. However, they have no cause of action against First
Insurance, because they are not parties to the insurance contract.
It is settled that where the insurance contract provides for indemnity against liability to a third party,
such third party can directly sue the insurer. The liability of the insurer to such third person is based
on contract while the liability of the insured to the third party is based on tort. Such is to protect
injured persons against the insolvency of the insured who causes such injury, and to give such
injured person a certain beneficial interest in the proceeds of the policy. It has been held that such
created a contractual relation which inures to the benefit of any and every person who may be
negligently injured by the named insured as if such injured person were specifically named in the
policy.
In the event that the injured fails or refuses to include the insurer as party defendant in his claim for
indemnity against the insured, the latter is not prevented by law to avail of the procedural rules
intended to avoid multiplicity of suits. Not even a no action clause under the policy which requires
that a final judgment be first obtained against the insured and that only thereafter can the person
insured recover on the policy can prevail over the Ruled of Court provisions aimed at avoiding
multiplicity of suits.
Petitioner cannot evade liability as insurer by hiding under the cloak of the insured. It liability is
primary and not dependent on the recovery of judgment from the insured. The insurers liability
accrues immediately upon the occurrence of the injury or event upon which the liability depends,
and does not depend on the recovery of judgment by the injured party against the insured.
However, it appears that the award of damages in favour of Blanco has no basis as it was not put up
as a claim against the insurer. However, since the decision of the trial court had become final and
executory, it can no longer be corrected or amended.
Petition dismissed.
Sherman Shafer, petitioner, vs Hon. Judge, Regional Trial Court of Olongapo City, Branch 75, and
Makati Insurance Company, Inc., respondents.
Facts:
Petitioner Sherman obtained a private car policy over his Ford Laser car from Makati Insurance
Company, Inc., for third party liability. During the effectivity of the policy, information for reckless
imprudence resulting in damage to property and serious physical injuries was filed against petitioner.
The complaint alleged that Sherman recklessly drove his car which bumped a Volkswagen owned
and driven by Felino Ilano y Legaspi, thereby causing damage to the car (Volkswagen) and physical
injuries were suffered by one Jovencio Poblete, Sr. as a result of such accident who was on board of
the said Volkswagen. The owner of the damaged Volkswagen car filed a separate civil action against
petitioner for damages while Jovencio did not reserve his right to file a separate civil action for

damages.
Petitioner ten filed a third party complaint against herein private respondent, Makati Insurance
Company, Inc. The court however issued an order dismissing the third party complaint on the ground
that it was premature, based on the premise that unless the herein petitioner (accused) is found
guilty and sentenced to pay the offended party (Poblete, Sr.) indemnity for damages, the third party
complaint is without cause of action. The better procedure is for accused to wait for the outcome of
the criminal aspect of the case to determine whether or not accused, also the third party plaintiff,
has a cause of action against the third party defendant for the enforcement of its third party liability
under the insurance contract.
Issue/s:
Whether the court a quo erred in dismissing the third party complaint of herein petitioner Sherman
against Makati Insurance Company Inc.
Ruling:
Compulsory Motor Vehicle Liability Insurance (third party liability) is primarily intended to provide
compensation for the death or bodily injuries suffered by innocent third parties or passengers as a
result of a negligent operation and use of motor vehicles. The victims and/or their defendants are
assured of immediate financial assistance, regardless of the financial capacity of motor vehicle
owners. Where an insurance policy insures directly against liability, the insurers liability accrues
immediately upon the occurrence of the injury or event upon which the liability depends, and does
not depend on the recovery of judgment by the injured party against the insured. The injured for
whom the contract of insurance is intended can sue directly the insurer. The liability of the insurance
company under the Compulsory Motor Vehicle Liability insurance is for loss or damage.
The court a quo erred in dismissing petitioners third party complaint on the ground that petitioner
had no cause of action yet against the insurance company (third party defendant). There is no need
on the part of the insured to wait for the decision of the trial court finding him guilty of reckless
imprudence. The occurrence of the injury to the third party immediately gave rise to the liability of
the insurer under its policy. Petition granted.
INCONTESTABLE CLAUSE
Emilio Tan, et al. vs Court of Appeals and Philam Life
Facts:
This is a petition for review on certiorari of the CA's decision affirming the Insurance Commission in
dismissing petitioners' complaint for the recovery of the proceeds of their late father.
Their father, Tan Lee Siong, applied for Life Insurance with respondent in the amount of 80000 in
Sept. 23, 1973. It was issued on Nov. 6, 1973. Subsequently he died of Hepatoma on April 26, 1975.
Respondent company denied payment and rescinded the policy, returning only the amount of
premium paid, on the ground of misrepresentation and concealment. The policy in question
contained an incontestability clause.
Petitioner's filed a case with the Insurance Commission, but was dismissed. The dismissal was
affirmed by the CA.
Petitioners argue that the insurance law on incontestability prevents the insurer from exercising the
right to rescind after the death of the insured.
They also question the finding of concealment, saying that no evidence was presented to show that
it was explained in a layman's language, and that failure of the insurer to conduct medical
examination, the insurer waived whatever imperfection by ratification. They also argue that the
application form for insurance pertaining to the medical history were so small as to necessitate the
application of the fine print rule.
Issues
Does the death of the insured preclude the insurer from rescinding the policy?
Did the insurer waive the concealment by ratification by not conducting medical examination?
Does the "fine print" or contract of adhesion rule apply in this case?
Ruling.

PETITION DENIED
No.
The so-called "incontestability clause" precludes the insurer from raising the defenses of false
representations or concealment of material facts insofar as health and previous diseases are
concerned if the insurance has been in force for at least two years during the insured's lifetime. The
phrase "during the lifetime" found in Section 48 simply means that the policy is no longer considered
in force after the insured has died. The key phrase in the second paragraph of Section 48 is "for a
period of two years."
The policy was issued on November 6, 1973 and the insured died on April 26, 1975. The policy was
thus in force for a period of only one year and five months. Considering that the insured died before
the two-year period had lapsed, respondent company is not, therefore, barred from proving that the
policy is void ab initio by reason of the insured's fraudulent concealment or misrepresentation.
Moreover, respondent company rescinded the contract of insurance and refunded the premiums paid
on September 11, 1975, previous to the commencement of this action on November 27, 1975.
The insurer has two years from the date of issuance of the insurance contract or of its last
reinstatement within which to contest the policy, whether or not, the insured still lives within such
period. After two years, the defenses of concealment or misrepresentation, no matter how patent or
well founded, no longer lie. Congress felt this was a sufficient answer to the various tactics employed
by insurance companies to avoid liability. The petitioners' interpretation would give rise to the
incongruous situation where the beneficiaries of an insured who dies right after taking out and
paying for a life insurance policy, would be allowed to collect on the policy even if the insured
fraudulently concealed material facts
2. No
The presumption is that a person intends the ordinary consequence of his voluntary act and takes
ordinary care of his concerns.
The evidence for respondent company shows that on September 19, 1972, the deceased was
examined by Dr. Victoriano Lim and was found to be diabetic and hypertensive; that by January,
1973, the deceased was complaining of progressive weight loss and abdominal pain and was
diagnosed to be suffering from hepatoma.
Another physician, Dr. Wenceslao Vitug, testified that the deceased came to see him on December
14, 1973 for consultation and claimed to have been diabetic for five years.
Because of the concealment made by the deceased of his consultations and treatments for
hypertension, diabetes and liver disorders, respondent company was thus misled into accepting the
risk and approving his application as medically standard and dispensing with further medical
investigation and examination. For as long as no adverse medical history is revealed in the
application form, and applicant for insurance is presumed to be healthy and physically fit and no
further medical investigation or examination is conducted by respondent company
3. Fine print rule. See Sweet Lines v Teves 1978 (Transpo) for further study.
"All provisions, conditions, or exceptions which in any way tend to work a forfeiture of the policy
should be construed most strongly against those for whose benefit they are inserted, and most
favorably toward those against whom they are meant to operate."
There is no showing that the questions in the application form for insurance regarding the insured's
medical history are in smaller print than the rest of the printed form or that they are designed in
such a way as to conceal from the applicant their importance.

LIABILITY UNDER OPEN POLICY

46. DEVELOPMENT INSURANCE CORP v. IAC and PHILIPPINE UNION REALTY DEVELOPMENT CORP.
*procedurally heavy case

Facts:
A fire occurred in the building of the private respondent and it sued for recovery of damages from
the petitioner on the basis of an insurance contract between them. The petitioner allegedly failed to
answer on time and was declared in default by the trial court. A judgment of default was
subsequently rendered on the strength of the evidence submitted ex parte by the private
respondent, which was allowed full recovery of its claimed damages. On learning of this decision, the
petitioner moved to lift the order of default, invoking excusable neglect, and to vacate the judgment
by default. Its motion was denied. It then went to the respondent court, which affirmed the decision
of the trial court in toto.
The amount of the policy in question is for 2500000. Petitioner questions the actual amount of
indemnity based on Condition 17 of the policy making the insured as its own insurer in case the
property at the time of the fire be collectively of greater value than the sum insured, and shall bear a
ratable proportion of the loss accordingly. The value of the building at the time of the fire was
allegedly st 5800000. The policy in question is an Open Policy.
Issue
Was there excusable neglect justifying the motion to lift the order of default?
What is the amount of indemnity?
Ruling
PETITION DENIED. DECISION AFFIRMED IN FULL.
Yes
It is indisputable that summons was served on it, through its senior vice-president, on June 19, 1980.
On July 14, 1980, ten days after the expiration of the original 15-day period to answer (excluding July
4), its counsel filed an ex parte motion for an extension of five days within which to file its answer.
On July 18, 1980, the last day of the requested extension which at the time had not yet been
granted the same counsel filed a second motion for another 5-day extension, fourteen days after
the expiry of the original period to file its answer. The trial court nevertheless gave it five days from
July 14, 1980, or until July 19, 1980, within which to file its answer. But it did not. It did so only on
July 26, 1980, after the expiry of the original and extended periods, or twenty-one days after the July
5, deadline. As a consequence, the trial court, on motion of the private respondent filed on July 28,
1980, declared the petitioner in default. This was done almost one month later, on August 25, 1980.
Even so, the petitioner made no move at all for two months thereafter. It was only on October 27,
1980, more than one month after the judgment of default was rendered by the trial court on
September 26, 1980, that it filed a motion to lift the order of default and vacate the judgment by
default.
The pattern of inexcusable neglect, if not deliberate delay, is all too clear. The petitioner has
slumbered on its right and awakened too late.
While it is true that in Trajano v. Cruz, which it cites, this Court declared "that judgments by default
are generally looked upon with disfavor," the default judgment in that case was set aside precisely
because there was excusable neglect.
Besides, the petitioners in Trajano had a valid defense against the complaint filed against them, and
this justified a relaxation of the procedural rules to allow full hearing on the substantive issues
raised. In the instant case, by contrast, the petitioner must just the same fail on the merits even if
the default orders were to be lifted. As the respondent Court observed, "Nothing would be gained by
having the order of default set aside considering the appellant has no valid defense in its favor.
2.
With regards to the condition in the policy.
There is no evidence on record that the building was worth P5,800,000.00 at the time of the loss;
only the petitioner says so and it does not back up its self-serving estimate with any independent
corroboration. On the contrary, the building was insured at P2,500,000.00, and this must be
considered, by agreement of the insurer and the insured, the actual value of the property insured on

the day the fire occurred. This valuation becomes even more believable if it is remembered that at
the time the building was burned it was still under construction and not yet completed.
Open policy
Sec 60 of the Insurance code.
"an open policy is one in which the value of the thing insured is not agreed upon but is left to be
ascertained in case of loss." This means that the actual loss, as determined, will represent the total
indemnity due the insured from the insurer except only that the total indemnity shall not exceed the
face value of the policy.
The actual loss has been ascertained in this case and, to repeat, this Court will respect such factual
determination in the absence of proof that it was arrived at arbitrarily. There is no such showing.
Hence, applying the open policy clause as expressly agreed upon by the parties in their contract, we
hold that the private respondent is entitled to the payment of indemnity under the said contract in
the total amount of P508,867.00.
i. PRESCRIPTION OF ACTION
47. SUN INSURANCE OFFICE, LTD.vs. COURT OF APPEALS and EMILIO TAN [G.R. No. 89741. March 13,
1991.]
Facts:
On August 15, 1983, herein private respondent Emilio Tan took from herein petitioner a P300,000.00
property insurance policy to cover his interest in the electrical supply store of his brother housed in a
building in Iloilo City. Four (4) days after the issuance of the policy, the building was burned including
the insured store. On August 20, 1983, Tan filed his claim for fire loss with petitioner, but on February
29, 1984, petitioner wrote Tan denying the latter's claim. On April 3, 1984, Tan wrote petitioner,
seeking reconsideration of the denial of his claim. On September 3, 1985, Tan's counsel wrote the
Insurer inquiring about the status of his April 3, 1984 request for reconsideration. Petitioner
answered the letter on October 11, 1985, advising Tan's counsel that the Insurer's denial of Tan's
claim remained unchanged.
Issue:
Whether or not the filing of a motion for reconsideration interrupts the twelve (12) months
prescriptive period to contest the denial of the insurance claim.
Ruling:
No. The filing of a motion for reconsideration does not interrupt the twelve (12) months prescriptive
period to contest the denial of the insurance claim.
The insured was definitely advised of the rejection of his claim through the letter of petitioner dated
February 29, 1984 of the denial of Tan's claim which was clearly manifested in said letter, the
pertinent portion of which reads:
"We refer to your claim for fire loss of 20th August, 1983 at Huervana St., La Paz, Iloilo City.
"We now have the report of our adjusters and after a thorough and careful review of the same and
the accompanying documents at hand, we are rejecting, much to our regret, liability for the claim
under our policies for one or more of the following reasons:
1.. . .
2.. . .
"For your information, we have referred all these matters to our lawyers for their opinion as to the
compensability of your claim, particularly referring to the above violations. It is their opinion and in
fact their strong recommendation to us to deny your claim. By this letter, we do not intend to waive
or relinquish any of our rights or defenses under our policies of insurance."
Condition 27 of the Insurance Policy, which is the subject of the conflicting contentions of the parties,
reads:
"27.Action or suit clause If a claim be made and rejected and an action or suit be not commenced
either in the Insurance Commission or in any court of competent jurisdiction within twelve (12)
months from receipt of notice of such rejection, or in case of arbitration taking place as provided
herein, within twelve (12) months after due notice of the award made by the arbitrator or arbitrators
or umpire, then the claim shall for all purposes be deemed to have been abandoned and shall not
thereafter be recoverable hereunder
In enunciating the above-cited principle, this Court had definitely settled the rationale for the
necessity of bringing suits against the Insurer within one year from the rejection of the claim. The

contention of the respondents that the one-year prescriptive period does not start to run until the
petition for reconsideration had been resolved by the insurer, runs counter to the declared purpose
for requiring that an action or suit be filed in the Insurance Commission or in a court of competent
jurisdiction from the denial of the claim. To uphold respondents' contention would contradict and
defeat the very principle which this Court had laid down. Moreover, it can easily be used by insured
persons as a scheme or device to waste time until any evidence which may be considered against
them is destroyed.
JACQUELINE JIMENEZ VDA. DE GABRIEL vs. HON. COURT OF APPEALS and FORTUNE INSURANCE &
SURETY COMPANY, INC. [G.R. No. 103883. November 14, 1996.]
Facts:
Marcelino Gabriel, the insured, was employed by Emerald Construction & Development Corporation
("ECDC") at its construction project in Iraq. He was covered by a personal accident insurance in the
amount of P100,000.00 under a group policy 2 procured from private respondent by ECDC for its
overseas workers. The insured risk was for "(b)odily injury caused by violent accidental external and
visible means which injury (would) solely and independently of any other cause" 3 result in death or
disability.
On 22 May 1982, within the life of the policy, Gabriel died in Iraq. A year later, or on 12 July 1983,
ECDC reported Gabriel's death to private respondent by telephone.4 Among the documents
thereafter submitted to private respondent were a copy of the death certificate 5 issued by the
Ministry of Health of the Republic of Iraq which stated
"REASON OF DEATH: UNDER EXAMINATION NOW NOT YET KNOWN "6
and an autopsy report 7 of the NBI to the effect that "(d)ue to advanced state of postmortem
decomposition, cause of death (could) not be determined." 8
Following a series of communications between petitioner and private respondent, the latter, on 22
September 1983, ultimately denied the claim of ECDC on the ground of prescription. 9 Petitioner
went to the Regional Trial Court of Manila. In her complaint against ECDC and private respondent,
she averred that her husband died of electrocution while in the performance of his work
Issue:
Whether or not the petitioner timely filed her notice of claim within the prescriptive period.
Ruling:
NO. The petitioner did not timely file her claim on the insurance proceeds.
Private respondent correctly invoked Section 384 of the Insurance Code; viz:
"Sec. 384.Any person having any claim upon the policy issued pursuant to this chapter shall, without
any unnecessary delay, present to the insurance company concerned a written notice of claim
setting forth the nature, extent and duration of the injuries sustained as certified by a duly licensed
physician. Notice of claim must be filed within six months from date of the accident, otherwise, the
claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be
brought, in proper cases, with the Commissioner or the Courts within one year from denial of the
claim, otherwise, the claimant's right of action shall prescribe."
The notice of death was given to private respondent, concededly, more than a year after the death
of petitioner's husband. Private respondent, in invoking prescription, was not referring to the oneyear period from the denial of the claim within which to file an action against an insurer but
obviously to the written notice of claim that had to be submitted within six months from the time of
the accident.
J. Premium Payments - Abellana
49) Malayan Insurance Co. v. Cruz Arnaldo, 154 SCRA 672
Facts: On June 7, 1981, the Malayan Insurance (MICO) issued to, Coronacion Pinca, Fire Insurance
Policy on her property for the amount of P14,000 effective July 22, 1981, until July 22, 1982.
On October 15, 1981, MICO allegedly cancelled the policy for non-payment, of the premium and sent
the corresponding notice to Pinca. Payment of the premium for Pinca was received by Domingo
Adora, agent of MICO. On January 15, 1982, Adora remitted this payment to MICO, together with
other payments. On January 18, 1982, Pinca's property was completely burned. On February 5,
1982, Pinca's payment was returned by MICO to Adora on the ground that her policy had been
cancelled earlier. But Adora refused to accept it.
In due time, Pinca made the requisite demands for payment, which MICO rejected. She then went to
the Insurance Commission. It is because she was ultimately sustained by the Arnaldo (Insurance
Commissioner) that MICO has come to us for relief.
Issue: WON, there was a valid cancellation of the policy.

Held: No, there was none.

On procedural aspect:
The appeal filed by MICO was beyond the reglementary period as between the two dates, the court
chooses to believe June 13, 1982, not only because the numbers "6-13-82" appear on both annexes
but also because it is the date authenticated by the administrative division of the Insurance
Commission. Annex "B" is at worst self-serving; at best, it might only indicate that it was received on
June 18, 1982, by the legal department of MICO, after it had been received earlier by some other of
its personnel on June 13, 1982. Whatever the reason for the delay in transmitting it to the legal
department need not detain us here.
Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice of the
decision of the Insurance Commission. The MICO filed its motion for reconsideration on April 25,
1981, or fifteen days such notice, and the reglementary period began to run again after June 13,
1981, date of its receipt of notice of the denial of the said motion for reconsideration. As the herein
petition was filed on July 2, 1981, or nineteen days later, there is no question that it is tardy by four
days.
Counted from June 13, the fifteen-day period prescribed under Rule 45, assuming it is applicable,
would end on June 28, 1982, or also four days from July 2, when the petition was filed.
If it was filed under B.P. 129, then, considering that the motion for reconsideration was filed on the
fifteenth day after MICO received notice of the decision, only one more day would have remained for
it to appeal, to wit, June 14, 1982. That would make the petition eighteen days late by July 2.
Indeed, even if the applicable law were still R.A. 5434, governing appeals from administrative bodies,
the petition would still be tardy. The law provides for a fixed period of ten days from notice of the
denial of a seasonable motion for reconsideration within which to appeal from the decision.
Accordingly, that ten-day period, counted from June 13, 1982, would have ended on June 23, 1982,
making the petition filed on July 2, 1982, nine days late.
Whichever law is applicable, therefore, the petition can and should be dismissed for late filing.
On substantial aspect:
MICO's arguments that there was no payment of premium and that the policy had been cancelled
before the occurence of the loss are not acceptable. Its contention that the claim was allowed
without proof of loss is also untenable.
The petitioner relies heavily on Section 77 of the Insurance Code providing that:
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing is exposed to the
peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy whenever the grace period
provision applies.
The above provision is not applicable because payment of the premium was in fact eventually made
in this case. The payment was made on December 24, 1981, and the fire occured on January 18,
1982.
One wonders: suppose the payment had been made and accepted in, say, August 1981, would the
commencement date of the policy have been changed to the date of the payment, or would the
payment have retroacted to July 22, 1981? If MICO accepted the payment in December 1981 and the
insured property had not been burned, would that policy not have expired just the same on July 22,
1982, pursuant to its original terms, and not on December 24, 1982?
It would seem from MICO's own theory that the policy would have become effective only upon
payment, if accepted and so would have been valid only from December 24, 1981 but only up to July
22, 1981, according to the original terms. In others words, the policy would have run for only eight
months although the premium paid was for one whole year.
MICO's acknowledgment of Adora as its agent defeats its contention that he was not authorized to
receive the premium payment on its behalf. It is clearly provided in Section 306 of the Insurance
Code that:

SEC. 306. xxx xxx xxx

Any insurance company which delivers to an insurance agent or insurance broker a policy or
contract of insurance shall be deemed to have authorized such agent or broker to receive on its
behalf payment of any premium which is due on such policy or contract of insurance at the time of
its issuance or delivery or which becomes due thereon.
And it is a well-known principle under the law of agency that:
Payment to an agent having authority to receive or collect payment is equivalent to payment to the
principal himself; such payment is complete when the money delivered is into the agent's hands and
is a discharge of the indebtedness owing to the principal.
Payment was in fact made, rendering the policy operative as of June 22, 1981, and removing it from
the provisions of Article 77, Thereafter, the policy could be cancelled on any of the supervening
grounds enumerated in Article 64 (except "nonpayment of premium") provided the cancellation was
made in accordance therewith and with Article 65.
Section 64 reads as follows:
No policy of insurance other than life shall be cancelled by the insurer except upon prior notice
thereof to the insured, and no notice of cancellation shall be effective unless it is based on the
occurrence, after the effective date of the policy, of one or more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful, or reckless acts or commissions increasing the hazard insured against;
(e) physical changes in the property insured which result in the property becoming uninsurable;or
(f) a determination by the Commissioner that the continuation of the policy would violate or would
place the insurer in violation of this Code.
As for the method of cancellation, Section 65 provides as follows:
All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered
to the named insured at the address shown in the policy, and shall state (a) which of the grounds set
forth in section sixty-four is relied upon and (b) that, upon written request of the named insured, the
insurer will furnish the facts on which the cancellation is based.
A valid cancellation must, therefore, require concurrence of the following conditions:
(1) There must be prior notice of cancellation to the insured;
(2) The notice must be based on the occurrence, after the effective date of the policy, of one or more
of the grounds mentioned;
(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the
address shown in the policy;
(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon
written request of the insured, the insurer will furnish the facts on which the cancellation is based.
MICO's claims it cancelled the policy in question on October 15, 1981, for non-payment of premium.
To support this assertion, it presented one of its employees, who testified that "the original of the
endorsement and credit memo" presumably meaning the alleged cancellation "were sent the
assured by mail through our mailing section" However, there is no proof that the notice, assuming it
complied with the other requisites mentioned above, was actually mailed to and received by Pinca.
On the other hand, there is the flat denial of Pinca, who says she never received the claimed
cancellation and who, of course, did not have to prove such denial.
50) Makati Tuscany Condominium Corp. v. Court of Appeals, 215 SCRA 462
Facts: Sometime in early 1982, American Home Assurance Co. (AHAC), represented by American
International Underwriters (Phils.), Inc., issued in favor of Makati Tuscany Condominium Corporation
(TUSCANY) Insurance Policy No. AH-CPP-9210452 on the latter's building and premises, for a period
beginning 1 March 1982 and ending 1 March 1983, with a total premium of P466,103.05. The
premium was paid on installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16 November
1982, all of which were accepted by private respondent.
On 10 February 1983, AHAC issued to Tuscany Insurance Policy No. AH-CPP-9210596, which replaced
and renewed the previous policy, for a term covering 1 March 1983 to 1 March 1984. The premium in
the amount of P466,103.05 was again paid on installments on 13 April 1983, 13 July 1983, 3 August
1983, 9 September 1983, and 21 November 1983. All payments were likewise accepted by AHAC.

On 20 January 1984, the policy was again renewed and AHAC issued to Tuscany Insurance Policy No.
AH-CPP-9210651 for the period 1 March 1984 to 1 March 1985. On this renewed policy, Tuscany
made two installment payments, both accepted by AHAC, the first on 6 February 1984 for
P52,000.00 and the second, on 6 June 1984 for P100,000.00. Thereafter, Tuscany refused to pay the
balance of the premium.
Consequently, AHAC filed an action to recover the unpaid balance of P314,103.05 for Insurance
Policy No. AH-CPP-9210651.
In its answer with counterclaim, Tuscany admitted the issuance of Insurance Policy No. AH-CPP9210651. It explained that it discontinued the payment of premiums because the policy did not
contain a credit clause in its favor and the receipts for the installment payments covering the policy
for 1984-85, as well as the two (2) previous policies, stated the following reservations:
2. Acceptance of this payment shall not waive any of the company rights to deny liability on any
claim under the policy arising before such payments or after the expiration of the credit clause of the
policy; and
3. Subject to no loss prior to premium payment. If there be any loss such is not covered.
Tuscany further claimed that the policy was never binding and valid, and no risk attached to the
policy. It then pleaded a counterclaim for P152,000.00 for the premiums already paid for 1984-85,
and in its answer with amended counterclaim, sought the refund of P924,206.10 representing the
premium payments for 1982-85.
On 8 October 1987, the trial court dismissed the complaint and the counterclaim upon the following
findings:
While it is true that the receipts issued to the defendant contained the aforementioned reservations,
it is equally true that payment of the premiums of the three aforementioned policies (being sought
to be refunded) were made during the lifetime or term of said policies, hence, it could not be said,
inspite of the reservations, that no risk attached under the policies. Consequently, defendant's
counterclaim for refund is not justified.
As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in view of the reservation
in the receipts ordinarily issued by the AHAC on premium payments the only plausible conclusion is
that AHAC has no right to demand their payment after the lapse of the term of said policy on March
1, 1985. Therefore, the Tuscany was justified in refusing to pay the same.
The CA modified the decision and held Tuscany to pay the balance of the premiums plus legal
interest and affirmed the denial of the counterclaim. The CA rationcinated that the obligation to pay
premiums when due is ordinarily as indivisible obligation to pay the entire premium. Here, the
parties herein agreed to make the premiums payable in installments, and there is no pretense that
the parties never envisioned to make the insurance contract binding between them. It was renewed
for two succeeding years, the second and third policies being a renewal/replacement for the previous
one. And the insured never informed the insurer that it was terminating the policy because the terms
were unacceptable.
Issue: WON, the payment by installment of the premiums due on an insurance policy invalidates the
contract of insurance, in view of Sec. 77 of P.D. 612, otherwise known as the Insurance Code, as
amended.
Held/Ratio: No, while it may be true that under Section 77 of the Insurance Code(An insurer is
entitled to the payment of the premium as soon as the thing is exposed to the peril insured against.
Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has been paid, except
in the case of a life or an industrial life policy whenever the grace period provision applies.), the
parties may not agree to make the insurance contract valid and binding without payment of
premiums, there is nothing in said section which suggests that the parties may not agree to allow
payment of the premiums in installment, or to consider the contract as valid and binding upon
payment of the first premium. Otherwise, we would allow the insurer to renege on its liability under
the contract, had a loss incurred (sic) before completion of payment of the entire premium, despite
its voluntary acceptance of partial payments, a result eschewed by a basic considerations of fairness
and equity.
To our mind, the insurance contract became valid and binding upon payment of the first premium,
and the plaintiff could not have denied liability on the ground that payment was not made in full, for
the reason that it agreed to accept installment payment. . . .

Tuscany now asserts that its payment by installment of the premiums for the insurance policies for
1982, 1983 and 1984 invalidated said policies because of the provisions of Sec. 77 of the Insurance
Code, as amended, and by the conditions stipulated by the insurer in its receipts, disclaiming liability
for loss for occurring before payment of premiums.
It argues that where the premiums is not actually paid in full, the policy would only be effective if
there is an acknowledgment in the policy of the receipt of premium pursuant to Sec. 78 of the
Insurance Code. The absence of an express acknowledgment in the policies of such receipt of the
corresponding premium payments, and petitioner's failure to pay said premiums on or before the
effective dates of said policies rendered them invalid. Tuscany thus concludes that there cannot be a
perfected contract of insurance upon mere partial payment of the premiums because under Sec. 77
of the Insurance Code, no contract of insurance is valid and binding unless the premium thereof has
been paid, notwithstanding any agreement to the contrary. As a consequence, petitioner seeks a
refund of all premium payments made on the alleged invalid insurance policies.
We hold that the subject policies are valid even if the premiums were paid on installments. The
records clearly show that petitioner and private respondent intended subject insurance policies to be
binding and effective notwithstanding the staggered payment of the premiums. The initial insurance
contract entered into in 1982 was renewed in 1983, then in 1984. In those three (3) years, the
insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the
insurer's intention to honor the policies it issued to petitioner. Certainly, basic principles of equity
and fairness would not allow the insurer to continue collecting and accepting the premiums,
although paid on installments, and later deny liability on the lame excuse that the premiums were
not prepared in full.
We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings and
conclusion of the appellate court contained in its Resolution denying the motion to reconsider its
Decision
While the import of Section 77 is that prepayment of premiums is strictly required as a condition to
the validity of the contract, We are not prepared to rule that the request to make installment
payments duly approved by the insurer, would prevent the entire contract of insurance from going
into effect despite payment and acceptance of the initial premium or first installment. Section 78 of
the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making
an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of
payment so far as to make the policy binding despite the fact that premium is actually unpaid.
Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are
not paid, but does not expressly prohibit an agreement granting credit extension, and such an
agreement is not contrary to morals, good customs, public order or public policy (De Leon, the
Insurance Code, at p. 175). So is an understanding to allow insured to pay premiums in installments
not so proscribed. At the very least, both parties should be deemed in estoppel to question the
arrangement they have voluntarily accepted.
The reliance by petitioner on Arce vs. Capital Surety and Insurance Co. is unavailing because the
facts therein are substantially different from those in the case at bar. In Arce, no payment was made
by the insured at all despite the grace period given. In the case before Us, petitioner paid the initial
installment and thereafter made staggered payments resulting in full payment of the 1982 and 1983
insurance policies. For the 1984 policy, petitioner paid two (2) installments although it refused to pay
the balance.
It appearing from the peculiar circumstances that the parties actually intended to make three (3)
insurance contracts valid, effective and binding, Tuscany may not be allowed to renege on its
obligation to pay the balance of the premium after the expiration of the whole term of the third
policy (No. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by the appellate court,
where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the
premiums paid if the insurer was exposed to the risk insured for any period, however brief or
momentary.
51) South Sea Surety and Insurance Co. v. Court of Appeals, 244 SCRA 744
Facts: It appears that on 16 January 1984, plaintiff [Valenzuela Hardwood and Industrial Supply, Inc.]
entered into an agreement with the defendant Seven Brothers whereby the latter undertook to load
on board its vessel M/V Seven Ambassador the former's lauan round logs numbering 940 at the port
of Maconacon, Isabela for shipment to Manila.

On 20 January 1984, Valenzuela insured the logs, against loss and/or, damage with defendant South
Sea Surety and Insurance Co., Inc. for P2,000,000.00 and the latter issued its Marine Cargo
Insurance Policy No. 84/24229 for P2,000,000.00 on said date.
On 24 January 1984, the Valenzuela Hardwood gave the check in payment of the premium on the
insurance policy to Mr. Victorio Chua.
On 25 January 1984, M/V Seven Ambassador sank that resulted in the loss of Valenzuela Hardwoods
insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the premium and
documentary stamps due on the policy was tendered to the insurer but was not accepted. Instead,
the South Sea Surety and Insurance Co., Inc. cancelled the insurance policy it issued as of the date
of inception for non-payment of the premium due in accordance with Section 77 of the Insurance
Code.
On 2 February 1984, Valenzuela Hardwood demanded from defendant South Sea Surety and
Insurance Co., Inc. the payment of the proceeds of the policy but the latter denied liability under the
policy. Valenzuela likewise filed a formal claim with defendant Seven Brothers Shipping Corporation
for the value of the lost logs but the latter denied the claim.
The RTC ruled in favor of Valenzuela Hardwood.
The CA affirmed but only as against the insurance corporation (Southsea Surety). It absolved the
shipping entity because of the stipulation in the charter party that the ship owner (Seven Brothers)
would be exempted from liability in case of loss. Hence, this petition.
Issue: WON, Southsea should also be absolved based on non-payment of premiums as Victorio Chua
acted not its agent. (In other words, was Victorio Chua its agent? Because he delivered the check for
the payment of the premium to Southsea only AFTER the loss occurred.)
Held/Ratio: Southsea should not be absolved as Chua was its agent. Section 77 of the Insurance
Code provides:
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to
the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy whenever the grace period
provision applies.
Undoubtedly, the payment of the premium is a condition precedent to, and essential for, the
efficaciousness of the contract. The only two statutorily provided exceptions are (a) in case the
insurance coverage relates to life or industrial life (health) insurance when a grace period applies
and (b) when the insurer makes a written acknowledgment of the receipt of premium, this
acknowledgment being declared by law to be then conclusive evidence of the premium payment
(Secs. 77-78, Insurance Code). The appellate court, contrary to what the petition suggests, did not
make any pronouncement to the contrary. Indeed, it has said:
Concerning the issue as to whether there is a valid contract of insurance between plaintiff-appellee
and defendant-appellant South Sea Surety and Insurance Co., Inc., Section 77 of the Insurance Code
explicitly provides that notwithstanding any agreement to the contrary, no policy issued by an
insurance company is valid and binding unless and until premium thereof has been paid. It is
therefore important to determine whether at the time of the loss, the premium was already paid.
No attempt becloud the issues can disguise the fact that the sole question raised in the instant
petition is really evidentiary in nature, i.e., whether or not Victorio Chua, in receiving the check for
the insurance premium prior to the occurrence of the risk insured against has so acted as an agent
of petitioner. The appellate court, like the trial court, has found in the affirmative. Said the appellate
court:
In the instant case, the Marine Cargo Insurance Policy No. 84/24229 was issued by defendant
insurance company on 20 January 1984. At the time the vessel sank on 25 January 1984 resulting in
the loss of the insured logs, the insured had already delivered to Victorio Chua the check in payment
of premium. But, as Victorio Chua testified, it was only in the morning of 30 January 1984 or 5 days
after the vessel sank when his messenger tendered the check to defendant South Sea Surety and
Insurance Co., Inc. (TSN, pp. 3-27, 16-17, 22 October 1985).
Appellant surety company insists that Mr. Chua is an administrative assistant for the past ten years

and an agent for less than ten years of the Columbia Insurance Brokers, Ltd. He is paid a salary as a
administrative assistant and a commission as agent based on the premiums he turns over to the
broker. Southsea therefore argues that Mr. Chua, having received the insurance premiums as an
agent of the Columbia Insurance Broker, acted as an agent of the insured under Section 301 of the
Insurance Code which provides as follows:
Sec. 301. Any person who for any compensation, commission or other thing of value, acts, or aids in
soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking
out insurance, on behalf of an insured other than himself, shall be an insurance broker within the
intent of this Code, and shall thereby become liable to all the duties requirements, liabilities and
penalties to which an insurance broker is subject.
Valenzuela Hardwood, upon the other hand, claim that the second paragraph of Section 306 of the
Insurance Code provide as follows:
Sec. 306. . . . Any insurance company which delivers to an insurance agent or insurance broker a
policy or contract of insurance shall be deemed to have authorized such agent or broker to receive
on its behalf payment of any premium which is due on such policy of contract of insurance at the
time of its issuance or delivery or which becomes due thereon.
On cross-examination in behalf of South Sea Surety and Insurance Co., Inc. Mr. Chua testified that
the marine cargo insurance policy for the plaintiff's logs was delivered to him on 21 January 1984 at
his office to be delivered to the plaintiff.
When the appellant South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine cargo
insurance policy for the plaintiffs logs, he is deemed to have been authorized by the South Sea
Surety and Insurance Co., Inc. to receive the premium which is due on its behalf.
When therefore the insured logs were lost, the insured had already paid the premium to an agent of
the South Sea Surety and Insurance Co., Inc., which is consequently liable to pay the insurance
proceeds under the policy it issued to the insured.
52) SPS. TIBAY v. COURT OF APPEALS and FORTUNE LIFE AND GENERAL INSURANCE CO., INC. - Abril
Facts: Jan 22 1987, FORTUNE issued a Fire Insurance Policy in favor of Sps. Tibay on their 2-storey
residential bldg. located in Makati city, together with all their personal effects therein. The insurance
was for P600,000 covering the period fromJan 23 1987 to Jan 23 1988. On Jan 23 1987, of the total
premium of P2983.50, Violeta Tibay only paid P600 thus leaving a considerable balance unpaid.
Mar 8 1987, the insured bldg. was completely destroyed by fire. 2 days later (mar 10 1987) Violeta
oaid the balance of the premium. On the same day, she filed with Fortune a claim on the fire
insurance policy. The claim was referred to GASI which immediately wrote Violeta requesting her to
furnish it with the necessary documents for the investigation and processing of her claim. Complied,
she signed (mar 28 1987) a non-waiver agreement with GASI to the effect that any action taken by
the companies or their representatives in investigating the claim made by the claimant for his loss
which occurred at 5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or
ascertainment of the amount of actual cash value and loss, shall not waive or invalidate any
condition of the policies of such companies held by said claimant, nor the rights of either or any of
the parties to this agreement, and such action shall not be, or be claimed to be, an admission of
liability on the part of said companies or any of them.
Fortune denied the claim for violation of Policy condition no. 2 and sec. 77 of the Insurance Code.
Efforts to settle the case before the Commission proved futile. Mar 3 1988, Violeta and the other
petitioners sued Fortune in the amount of P600,000 plus 12% interest per annum, P100,000 moral
damages, and attys fees equivalent to 20% of the total claim.
TC adjudged Fortune liable for the total value of the insured bldg. and personal properties
(P600,000).
CA reversed the decision declaring Fortune not liable to the sps. But to return to the sps the
premium plus 12% interest from Mar 10 1987 until full payment.
Issue: Whether or not Fortune remains liable under the fire insurance policy despite the spouses
failure to pay their premium in full.
Ruling: No.
Insurance is a contract whereby one undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or contingent event. The consideration is the
premium, which must be paid at the time and in the way and manner specified in the policy, and if
not so paid, the policy will lapse and be forfeited by its own terms.
The pertinent provisions in the Policy on premium read:
THIS POLICY OF INSURANCE WITNESSETH, THAT only after payment to the Company in accordance

with Policy Condition No. 2 of the total premiums by the insured as stipulated above for the period
aforementioned for insuring against Loss or Damage by Fire or Lightning as herein appears, the
Property herein described
xxx
2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the
premium has been fully paid to and duly receipted by the Company in the manner provided herein.
Any supplementary agreement seeking to amend this condition prepared by agent, broker or
Company official, shall be deemed invalid and of no effect.
xxx
Except only in those specific cases where corresponding rules and regulations which are or may
hereafter be in force provide for the payment of the stipulated premiums in periodic installments at
fixed percentage, it is hereby declared, agreed and warranted that this policy shall be deemed
effective, valid and binding upon the Company only when the premiums therefor have actually been
paid in full and duly acknowledged in a receipt signed by any authorized official or
representative/agent of the Company in such manner as provided herein, (Italics supplied)
Clearly the Policy provides for payment of premium in full. Accordingly, where the premium has only
been partially paid and the balance paid only after the peril insured against has occurred, the
insurance contract did not take effect and the insured cannot collect at all on the policy. This is fully
supported by Sec. 77 of the Insurance Code which provides
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to
the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy whenever the grace period
provision applies (Italics supplied).
Apparently the crux of the controversy lies in the phrase unless and until the premium thereof has
been paid. This leads us to the manner of payment envisioned by the law to make the insurance
policy operative and binding. For whatever judicial construction may be accorded the disputed
phrase must ultimately yield to the clear mandate of the law. The principle that where the law does
not distinguish the court should neither distinguish assumes that the legislature made no
qualification on the use of a general word or expression. In Escosura v. San Miguel Brewery, inc.,] the
Court through Mr. Justice Jesus G. Barrera, interpreting the phrase with pay used in connection with
leaves of absence with pay granted to employees, ruled x x x the legislative practice seems to be that when the intention is to distinguish between full and
partial payment, the modifying term is used x x x
Citing C. A. No. 647 governing maternity leaves of married women in government, R. A. No. 679
regulating employment of women and children, R.A. No. 843 granting vacation and sick leaves to
judges of municipal courts and justices of the peace, and finally, Art. 1695 of the New Civil Code
providing that every househelp shall be allowed four (4) days vacation each month, which laws
simply stated with pay, the Court concluded that it was undisputed that in all these laws the phrase
with pay used without any qualifying adjective meant that the employee was entitled to full
compensation during his leave of absence.
Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy despite partial payment
of the premium due and the express stipulation thereof to the contrary, petitioners rely heavily on
the 1967 case of Philippine Phoenix and Insurance Co., Inc. v. Woodworks, Inc. where the Court
through Mr. Justice Arsenio P. Dizon sustained the ruling of the trial court that partial payment of the
premium made the policy effective during the whole period of the policy. In that case, the insurance
company commenced action against the insured for the unpaid balance on a fire insurance policy. In
its defense the insured claimed that nonpayment of premium produced the cancellation of the
insurance contract. Ruling otherwise the Court held
It is clear x x x that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by appellee and
delivered to appellant, and that on September 22 of the same year, the latter paid to the former the
sum of P3,000.00 on account of the total premium of P6,051.95 due thereon. There is, consequently,
no doubt at all that, as between the insurer and the insured, there was not only a perfected contract
of insurance but a partially performed one as far as the payment of the agreed premium was
concerned. Thereafter the obligation of the insurer to pay the insured the amount, for which the
policy was issued in case the conditions therefor had been complied with, arose and became binding
upon it, while the obligation of the insured to pay the remainder of the total amount of the premium
due became demandable.
The 1967 Phoenix case is not persuasive; neither is it decisive of the instant dispute. For one, the
factual scenario is different. In Phoenix it was the insurance company that sued for the balance of
the premium, i.e., it recognized and admitted the existence of an insurance contract with the
insured. In the case before us, there is, quite unlike in Phoenix, a specific stipulation that (t)his policy
xxx is not in force until the premium has been fully paid and duly receipted by the Company x x x.
Resultantly, it is correct to say that in Phoenix a contract was perfected upon partial payment of the

premium since the parties had not otherwise stipulated that prepayment of the premium in full was
a condition precedent to the existence of a contract.
In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the remainder of
the premium without any other precondition to its enforceability as in the instant case, the insurer in
effect had shown its intention to continue with the existing contract of insurance, as in fact it was
enforcing its right to collect premium, or exact specific performance from the insured. This is not so
here. By express agreement of the parties, no vinculum juris or bond of law was to be established
until full payment was effected prior to the occurrence of the risk insured against.
In Makati Tuscany Condominium Corp. v. Court of Appeals the parties mutually agreed that the
premiums could be paid in installments, which in fact they did for three (3) years, hence, this Court
refused to invalidate the insurance policy. In giving effect to the policy, the Court quoted with
approval the Court of Appeals
The obligation to pay premiums when due is ordinarily an indivisible obligation to pay the entire
premium. Here, the parties x x x agreed to make the premiums payable in installments, and there is
no pretense that the parties never envisioned to make the insurance contract binding between
them. It was renewed for two succeeding years, the second and third policies being a
renewal/replacement for the previous one. And the insured never informed the insurer that it was
terminating the policy because the terms were unacceptable.
While it maybe true that under Section 77 of the Insurance Code, the parties may not agree to make
the insurance contract valid and binding without payment of premiums, there is nothing in said
section which suggests that the parties may not agree to allow payment of the premiums in
installment, or to consider the contract as valid and binding upon payment of the first premium.
Otherwise we would allow the insurer to renege on its liability under the contract, had a loss incurred
(sic) before completion of payment of the entire premium, despite its voluntary acceptance of partial
payments, a result eschewed by basic considerations of fairness and equity x x x.
These two (2) cases, Phoenix and Tuscany, adequately demonstrate the waiver, either express or
implied, of prepayment in full by the insurer: impliedly, by suing for the balance of the premium as
inPhoenix, and expressly, by agreeing to make premiums payable in installments as in Tuscany. But
contrary to the stance taken by petitioners, there is no waiver express or implied in the case at
bench. Precisely, the insurer and the insured expressly stipulated that (t)his policy including any
renewal thereof and/or any indorsement thereon is not in force until the premium has been fully
paid to and duly receipted by the Company x x x and that this policy shall be deemed effective,
valid and binding upon the Company only when the premiums therefor have actually been paid in
full and duly acknowledged.
Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77
of the Insurance Code the payment of partial premium by the assured in this particular instance
should not be considered the payment required by the law and the stipulation of the parties. Rather,
it must be taken in the concept of a deposit to be held in trust by the insurer until such time that the
full amount has been tendered and duly receipted for. In other words, as expressly agreed upon in
the contract, full payment must be made before the risk occurs for the policy to be considered
effective and in force.
Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law
ever resulted from the fractional payment of premium. The insurance contract itself expressly
provided that the policy would be effective only when the premium was paid in full. It would have
been altogether different were it not so stipulated. Ergo, petitioners had absolute freedom of choice
whether or not to be insured by FORTUNE under the terms of its policy and they freely opted to
adhere thereto.
Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract
is the intention of the parties as expressed in the policy. Courts have no other function but to enforce
the same. The rule that contracts of insurance will be construed in favor of the insured and most
strongly against the insurer should not be permitted to have the effect of making a plain agreement
ambiguous and then construe it in favor of the insured. Verily, it is elemental law that the payment
of premium is requisite to keep the policy of insurance in force. If the premium is not paid in the
manner prescribed in the policy as intended by the parties the policy is ineffective. Partial payment
even when accepted as a partial payment will not keep the policy alive even for such fractional part
of the year as the part payment bears to the whole payment.
Interpreting the contract of insurance stringently against the insurer but liberally in favor of the
insured despite clearly defined obligations of the parties to the policy can be carried out to extremes
that there is the danger that we may, so to speak, kill the goose that lays the golden egg. We are
well aware of insurance companies falling into the despicable habit of collecting premiums promptly
yet resorting to all kinds of excuses to deny or delay payment of just insurance claims. But, in this
case, the law is manifestly on the side of the insurer. For as long as the current Insurance Code
remains unchanged and partial payment of premiums is not mentioned at all as among the
exceptions provided in Secs. 77 and 78, no policy of insurance can ever pretend to be efficacious or

effective until premium has been fully paid.

And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance
business because by law the insurer must maintain a legal reserve fund to meet its contingent
obligations to the public, hence, the imperative need for its prompt payment and full satisfaction. It
must be emphasized here that all actuarial calculations and various tabulations of probabilities of
losses under the risks insured against are based on the sound hypothesis of prompt payment of
premiums. Upon this bedrock insurance firms are enabled to offer the assurance of security to the
public at favorable rates. But once payment of premium is left to the whim and caprice of the
insured, as when the courts tolerate the payment of a mere P600.00 as partial undertaking out of
the stipulated total premium of P2,983.50 and the balance to be paid even after the risk insured
against has occurred, as petitioners have done in this case, on the principle that the strength of the
vinculum juris is not measured by any specific amount of premium payment, we will surely wreak
havoc on the business and set to naught what has taken actuarians centuries to devise to arrive at a
fair and equitable distribution of risks and benefits between the insurer and the insured.
The terms of the insurance policy constitute the measure of the insurers liability. In the absence of
statutory prohibition to the contrary, insurance companies have the same rights as individuals to
limit their liability and to impose whatever conditions they deem best upon their obligations not
inconsistent with public policy. The validity of these limitations is by law passed upon by the
Insurance Commissioner who is empowered to approve all forms of policies, certificates or contracts
of insurance which insurers intend to issue or deliver. That the policy contract in the case at bench
was approved and allowed issuance simply reaffirms the validity of such policy, particularly the
provision in question.
53) PAULIN v. INSULAR
Tried my best to look for this case, but unfortunately, cannot be found in the net as well as in CD
Asia.
54) UCPB GENERAL INSURANCE CO. v. MASAGANA TELEMART (1999)
Facts: Apr 15 1991, UCPB issued 5 insurance policies covering Masaganas various properties against
fire, for the period from May 22 1991 to May 22 1992.
March 1992, UCPB evaluated the policies and decided not to renew them upon expiration of their
terms on May 22 1992. UCPB advised Masaganas broker, Zuellig of its intention not to renew the
policies.
Apr 6 1992. UCPB gave written notice to Masagana of the non-renewal of the policies at the address
stated in the policies.
Jun 13 1992, fire razed Masaganas property covered by 3 of the insurance policies UCPB issued.
Jul 13 1992, Masagana presented to UCPBs cashier 5 managers checks in the total amount of
P225,753.95, representing premium for the renewal of the policies from May 22 1992 to May 22
1993. No notice of loss was filed by Masagana under the policies prior to Jul 14 1992.
Jul 14 1992, Masagana filed with UCPB its formal claim for indemnification of the insured property.
On the same day, UCPB retuned to Masagana the 5 checks that it tendered, and rejected its claim
for the reasons (a) that the policies had expired and were not renewed, and (b) that the fire occurred
on Jun 13 1992, before Masaganas tender of premium payment.
Jul 21 1992, Masagana filed with RTC against UCPB for recover of P18,645,000, representing the face
value of the policies,
Oct 23 1992, motion to dismiss denied, filed an answer alleging that the complaint fails to state a
cause of action; that UCPB was not liabel to Masagana for insurance proceeds under the policies
because at the time of the loss of the property due to fire, the policies had long expired and were not
renewed.
RTC: ruled in favor of Masagana, allowing it to consign with the court full payment of the
corresponding premiums, declaring Masagana to have fully complied with its obligation to pay the
premium thereby rendering the replacement-renewal policy, and ordering UCPB to pay the sums of
P18,645,000, 25% of the total amount due as and for attys fees, and P25,000 for litigation expenses
and the costs of suit.
CA: affirmed the decision of the RTC, held that Masagana was allowed a 60 to 90 day credit term for
the renewal of its policies, and that the acceptance of the late premium payment suggested an
understanding that payment could be made later.
Issue: Whether or not the fire insurance policies had expired on the May 22 1992 or had been
extended or renewed by an implied credit arrangement through actual payment of premium was
tendered on a later date after the occurrence of the fire insured against.
Ruling: They expired and were not extended.
The answer is easily found in the Insurance Code. No, an insurance policy, other than life, issued
originally or on renewal, is not valid and binding until actual payment of the premium. Any

agreement to the contrary is void. The parties may not agree expressly or impliedly on the extension
of credit or time to pay the premium and consider the policy binding before actual payment.
The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo ciited by the Court of Appeals, is not
applicable. In that case, payment of the premium was in fact actually made on December 24, 1981,
and the fire occurred on January 18, 1982. Here, the payment of the premium for renewal of the
policies was tendered on July 13, 1992, a month after the fire occurred on June 13, 1992. The
assured did not even give the insurer a notice of loss within a reasonable time after occurrence of
the fire.

55) UCPB GENERAL INSURANCE CO. v. MASAGANA TELEMART (2001)

Facts: The SC in its Jue 15 1999 decisions reversed and set aside the assailed decision of the CA
which affirmed with modification the judgment of the RTC (a) allowing Masagana to consign the sum
of P225,735.95 as full payment of the premiums for the renewal of the 5 insurance policies on its
properties; (b) declaring the replacement-renewal policies effective and binding from May 22 1992
until May 22 1993; and (c) ordering UCPB to pay Masagana indemnity for the said properties.
Operative facts:
All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to 4:00
P.M. of 22 May 1992." On June 13, 1992, plaintiff's properties located at 2410-2432 and 2442-2450
Taft Avenue, Pasay City were razed by fire. On July 13, 1992, plaintiff tendered, and defendant
accepted, five (5) Equitable Bank Manager's Checks in the total amount of P225,753.45 as renewal
premium payments for which Official Receipt Direct Premium No. 62926 (Exhibit "Q", Record, p. 191)
was issued by defendant. On July 14, 1992, Masagana made its formal demand for indemnification
for the burned insured properties. On the same day, defendant returned the five (5) manager's
checks stating in its letter (Exhibit "R"/"8", Record, p. 192) that it was rejecting Masagana's claim on
the following grounds:
"a) Said policies expired last May 22, 1992 and were not renewed for another term;
b) Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier; and
c) The properties covered by the said policies were burned in a fire that took place last June 13,
1992, or before tender of premium payment."
The Court of Appeals disagreed with Petitioners stand that Respondents tender of payment of the
premiums on 13 July 1992 did not result in the renewal of the policies, having been made beyond
the effective date of renewal as provided under Policy Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the
policy period mails or delivers to the assured at the address shown in the policy notice of its
intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of
coverages, the assured shall be entitled to renew the policy upon payment of the premium due on
the effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists that Masagana, which
had procured insurance coverage from UCPB for a number of years, had been granted a 60 to 90day credit term for the renewal of the policies. Such a practice had existed up to the time the claims
were filed.
In the SCs 1999 Decision it defined the main issue whether the fire insurance policies issued by
UCPB to Masagana covering the period had been extended or renewed by an implied credit
arrangement thru actual payment of premium was tendered on a later date and after the occurrence
of the fire insured against. The SC ruled in the negative, and accordingly set aside and reversed the
decision of the CA.
Masagana filed a MR: that the SC made in the decision it own findings of facts, which are not in
accord with those of the TC and the CA. The courts below correctly found that no notice of nonrenewal was made within 45 days before May 22 1992, or before the expiration date of the fire
insurance policies. Thus, the same were renewed by operation of law thus were effective and valid
on Jun 30 1992 when the fire occurred.
Masagana also disagrees that parties may neither agree expressly or impliedly on the extension of
credit or time to pay the premium nor consider a policy binding before actual payment; that despite
the express provision of sec. 77 of the IC, extension of credit terms in premium payment has been
the prevalent practice in the insurance industry; that extension of credit terms is not a prohibitive
injunction but merely designed for the protection of parties to an insurance contract.
UCPB opposition: both the TC and CA overlooked the fact that on Apr 6 1992 UCPB sent by ordinary
mail to Masagana a notice of non-renewal and sent by personal delivery a copy thereof to
Masaganas broker, Zuellig; that the courts ignored the fact that Masagana was fully aware of the
notice of non-renewal; that a reading of Section 66 of the Insurance Code readily shows that in order
for an insured to be entitled to a renewal of a non-life policy, payment of the premium due on the
effective date of renewal should first be made, thus, Masaganas argument that Section 77 is not a
prohibitive provision finds no authoritative support.
Upon a meticulous review of the records and reevaluation of the issues raised in the motion for
reconsideration and the pleadings filed thereafter by the parties, we resolved to grant the motion for
reconsideration. The following facts, as found by the trial court and the Court of Appeals, are indeed
duly established:
1. For years, Petitioner had been issuing fire policies to the Respondent, and these policies were
annually renewed.
2. Petitioner had been granting Respondent a 60- to 90-day credit term within which to pay the
premiums on the renewed policies.
3. There was no valid notice of non-renewal of the policies in question, as there is no proof at all that
the notice sent by ordinary mail was received by Respondent, and the copy thereof allegedly sent to

Zuellig was ever transmitted to Respondent.

4. The premiums for the policies in question in the aggregate amount of P225,753.95 were paid by
Respondent within the 60- to 90-day credit term and were duly accepted and received by Petitioners
cashier.
Issue: Whether or not sec. 77 of the Insurance Code of 1978 must be strictly applied to UCPBs
advantage despite its practice of granting a 60-90 day credit term for the payment of premiums.
Ruling: Section 77 of the Insurance Code of 1978 provides:
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to
the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy whenever the grace period
provision applies.
This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated on 18
December 1974. In turn, this Section has its source in Section 72 of Act No. 2427 otherwise known as
the Insurance Act as amended by R.A. No. 3540, approved on 21 June 1963, which read:
SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the
peril insured against, unless there is clear agreement to grant the insured credit extension of the
premium due. No policy issued by an insurance company is valid and binding unless and until the
premium thereof has been paid. (Underscoring supplied)
It can be seen at once that Section 77 does not restate the portion of Section 72 expressly
permitting an agreement to extend the period to pay the premium. But are there exceptions to
Section 77?
The answer is in the affirmative.
The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy
whenever the grace period provision applies.
The second is that covered by Section 78 of the Insurance Code, which provides:
SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until
A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals,
wherein we ruled that Section 77 may not apply if the parties have agreed to the payment in
installments of the premium and partial payment has been made at the time of loss. We said therein,
thus:
We hold that the subject policies are valid even if the premiums were paid on installments. The
records clearly show that the petitioners and private respondent intended subject insurance policies
to be binding and effective notwithstanding the staggered payment of the premiums. The initial
insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three years, the
insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the
insurers intention to honor the policies it issued to petitioner. Certainly, basic principles of equity and
fairness would not allow the insurer to continue collecting and accepting the premiums, although
paid on installments, and later deny liability on the lame excuse that the premiums were not prepaid
in full.
By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has
provided a fourth exception to Section 77, namely, that the insurer may grant credit extension for
the payment of the premium. This simply means that if the insurer has granted the insured a credit
term for the payment of the premium and loss occurs before the expiration of the term, recovery on
the policy should be allowed even though the premium is paid after the loss but within the credit
term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to
provide a credit term within which to pay the premiums. That agreement is not against the law,
morals, good customs, public order or public policy. The agreement binds the parties. Article 1306 of
the Civil Code provides:
ART. 1306. The contracting parties may establish such stipulations clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals, good customs, public
order, or public policy.
Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be
permitted against UCPB, which had consistently granted a 60- to 90-day credit term for the payment
of premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge under said
Section, since Respondent relied in good faith on such practice. Estoppel then is the fifth exception
to Section 77.

56) AMERICAN HOME ASSURANCE v. CHUA

Facts: 1990, Chua obtained from AHA a fire insurance covering the stock-in-trade of his business,
Moonlight Enterprises, located in Bukidnon. The insurance was due to expire on Mar 25 1990.
Apr 5 1990: Chua issued PCI bank check in the amt of P2,893.50 to AHAs agent, James Uy, as
payment for the renewal of the policy. In turn, AHA delivered the Renewal Certificate to Chua. The
check was drawn against a Manila bank and deposited in AHAs bank acct in CDO City. Subsequently,
a new insurance policy was issued whereby AHA undertook to indemnify Chua for any damage or
loss arising from fire up to P200,000 (Mar 25 1990 Mar 25 1991).
Apr 6 1990, Moonlight Enterprises was completely razed by fire; total loss P4M P5M. Chua filed
insurance claim with AHA and 4 other co-insurers (Pioneer, Prudential, Filipino Merchants, and
Domestic Insurance). AHA refused to the claim, hence, action against it before the trial court.
AHA, in its defense, claimed that there was no existing insurance contract when the fire occurred
since Chua did not pay the premium; that even assuming there was a contract, Chua violated
several conditions of the policy, particularly: (1) his submission of fraudulent income tax return and
financial statements, (2) failure to establish actual loss, which AHA assessed at P70,000, and (3) his
failure to notify to AHA of any insurance already effected to cover the insured goods.
TC: ruled in favor of Chua; held that Chua paid by way of check a day before the fire occurred,
deposited in AHAs account and the same was even acknowledged in the renewal certificate issued
by AHAs agent; that the alleged fraudulent documents were limited to the disparity between the
official receipts issued by the BIR and the ITRs for the years 1987 to 1989; that all other documents
were found to be genuine; that the failure of Chua to notify AHA of the other insurance contracts
were not intentional nor fraudulent.
CA: affirmed the decision in toto; that Chuas claim was substantially proved and AHAs unjustified
refusal to pay the claim entitled Chua to the award of damages.
American Home filed the petition reiterating its stand that there was no existing insurance contract
between the parties. It invoked Section 77 of the Insurance Code, which provides that no policy or
contract of insurance issued by an insurance company is valid and binding unless and until the
premium thereof has been paid and the case of Arce v. Capital Insurance that until the premium is
paid there is no insurance.
Issues:
Whether or not there was a valid payment of premium, considering that Chuas check was cashed
after the fire.
Whether or not Chua violated the policy by his submission of fraudulent documents and nondisclosure of other insurance contracts
Ruling:
Yes.
The renewal certificate issued to respondent contained the acknowledgment that premium had been
paid. It is not disputed that the check drawn by respondent in favor of petitioner and delivered to its
agent was honored when presented and petitioner forthwith issued its official receipt to respondent
on 10 April 1990. Section 306 of the Insurance Code provides that any insurance company which
delivers a policy or contract of insurance to an insurance agent or insurance broker shall be deemed
to have authorized such agent or broker to receive on its behalf payment of any premium which is
due on such policy or contract of insurance at the time of its issuance or delivery or which becomes
due thereon. In the instant case, the best evidence of such authority is the fact that petitioner
accepted the check and issued the official receipt for the payment. It is, as well, bound by its agents
acknowledgment of receipt of payment.
In the instant case, the best evidence of such authority is the fact that petitioner accepted the check
and issued the official receipt for the payment. It is, as well, bound by its agents acknowledgment
of
receipt
of
payment.
Section 78 of the Insurance Code explicitly provides:
An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive
evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation
therein that it shall not be binding until the premium is actually paid.
No.
Submission of the alleged fraudulent documents pertained to respondents income tax returns for
1987 to 1989. Respondent, however, presented a BIR certification that he had paid the proper taxes
for the said years. Since this is a question of fact, the finding is conclusive.
Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers,

non-disclosure is a violation that entitles the insurer to avoid the policy. The purpose for the
inclusion of this clause is to prevent an increase in the moral hazard. The relevant provision is
Section 75, which provides that:
A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the
breach of an immaterial provision does not avoid the policy.
Respondent acquired several co-insurers and he failed to disclose this information to petitioner.
Nonetheless, petitioner is estopped from invoking this argument due to the loss adjusters admission
of previous knowledge of the co-insurers.
It cannot be said that petitioner was deceived by respondent by the latters non-disclosure of the
other insurance contracts when petitioner actually had prior knowledge thereof. The loss adjuster,
being an employee of petitioner, is deemed a representative of the latter whose awareness of the
other insurance contracts binds petitioner.
K. Double Insurance - Cebrecus
57) PIONEER INSURANCE AND SURETY CORPORATION VS OLIVA YAP, G.R. NO. L-36232
Facts: Respondent Oliva Yap was the owner of a store in a 2 storey building where she sold shopping
bags and footwear. Chua Soon Poon, Oliva Yaps son-in-law, was in charge of the store. Respondent
Yap took out a fire insurance policy from petitioner Pioneer insurance and surety corporation. Among
the conditions in the policy executed by the parties are the following:
The Insured shall give notice to the Company of any insurance or insurances already effected, or
which may subsequently be effected, covering any of the property hereby insured, and unless such
notice be given and the particulars of such insurance or insurances be stated in, or endorsed on this
Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefits
under this Policy shall be forfeited. (emphasis supplied)
It is understood that, except as may be stated on the face of this policy there is no other insurance
on the property hereby covered and no other insurance is allowed except by the consent of the
Company endorsed hereon. Any false declaration or breach or this condition will render this policy
null and void.
At the time of the insurance, an insurance policy issued by the Great American Insurance Company
covering the same properties was noted on said policy as co-insurance. Later, the parties executed
an endorsement on the policy, stating:
It is hereby declared and agreed that the co-insurance existing at present under this policy is as
follows: P20,000.00 Northwest Ins., and not as originally stated. (emphasis supplied)
Except as varied by this endorsement, all other terms and conditions remain unchanged.
Still later, Oliva Yap took out another fire insurance policy covering the same properties, this time
from Federal Insurance Company, which new policy was, however, procured without notice to and
the written consent of petitioner Pioneer Insurance & Surety Corporation and therefore, was not
noted as a co-insurance on the policy.
Later, a fire broke out in the building housing Yaps store and the said store was burned. Respondent
Yap filed an insurance claim but the same was denied on the ground of breach and/or violation of
any and/or terms and conditions of the policy.
Oliva Yap filed the present complaint.
Issue: WON petitioner should be absolved from liability on fire insurance policy on account of any
violation by respondent Yap of the co-insurance clause. Yes
Held: There was a violation by respondent Oliva Yap of the co-insurance clause contained in Policy
No. 4219 that resulted in the avoidance of petitioner's liability. The insurance policy for P20,000.00
issued by the Great American Insurance Company covering the same properties of respondent Yap
and duly noted on Policy No. 4219 as c-insurance, ceased, by agreement of the parties (Exhibit "1L"), to be recognized by them as a co-insurance policy. The Court of Appeals says that the Great
American Insurance policy was substituted by the Federal Insurance policy for the same amount, and
because it was a mere case of substitution, there was no necessity for its endorsement on Policy No.
4219. This finding, as well as reasoning, suffers from several flaws. There is no evidence to establish
and prove such a substitution. If anything was substituted for the Great American Insurance policy, it
could only be the Northwest Insurance policy for the same amount of P20,000.00. The endorsement
(Exhibit "1-K") quoted above shows the clear intention of the parties to recognize on the date the
endorsement was made (August 29, 1962), the existence of only one co-insurance, and that is the
Northwest Insurance policy, which according to the stipulation of the parties during the hearing, was
issued on August 20, 1962 (t.s.n., January 12, 1965, pp. 3-4) and endorsed only on August 20, 1962.
The finding of the Court of Appeals that the Great American Insurance policy was substituted by the
Federal Insurance policy is unsubstantiated by the evidence of record and indeed contrary to said
stipulation and admission of respondent, and is grounded entirely on speculation, surmises or
conjectures, hence, not binding on the Supreme Court.
The Court of Appeals would consider petitioner to have waived the formal requirement of endorsing

the policy of co-insurance "since there was absolutely no showing that it was not aware of said
substitution and preferred to continue the policy." The fallacy of this argument is that, contrary to
Section 1, Rule 131 of the Revised Rules of Court, which requires each party to prove his own
allegations, it would shift to petitioner, respondent's burden of proving her proposition that petitioner
was aware of the alleged substitution, and with such knowledge preferred to continue the policy.
Respondent Yap cites Gonzales La O vs. Yek Tong Lin Fire and Marine Insurance Co., Ltd. to justify the
assumption but in that case, unlike here, there was knowledge by the insurer of violations of the
contract, to wit: "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 ..." A waiver must be express. If it is to be implied from
conduct mainly, said conduct must be clearly indicative of a clear intent to waive such right.
Especially in the case at bar where petitioner is assumed to have waived a valuable right, nothing
less than a clear, positive waiver, made with full knowledge of the circumstances, must be required.
By the plain terms of the policy, other insurance without the consent of petitioner would ipso facto
avoid the contract. It required no affirmative act of election on the part of the company to make
operative the clause avoiding the contract, wherever the specified conditions should occur. Its
obligations ceased, unless, being informed of the fact, it consented to the additional insurance.
The validity of a clause in a fire insurance policy to the effect that the procurement of additional
insurance without the consent of the insurer renders ipso facto the policy void is well-settled: In
Milwaukee Mechanids' Lumber Co., vs. Gibson, 199 Ark. 542, 134 S. W. 2d 521, 522, a substantially
identical clause was sustained and enforced, the court saying: "The rule in this state and practically
all of the states is to the effect that a clause in a policy to the effect that the procurement of
additional insurance without the consent of the insurer renders the policy void is a valid provision.
The earlier cases of Planters Mutual Insurance Co., vs. Green, 72 Ark. 305, 80 S.W. 92, are to the
same effect." And see Vance, Insurance, 2nd Ed., 725. (Reach vs. Arkansas Farmers Mut. Fire Ins. Co.,
[Ark. Nov. 14, 1949] 224 S. W. 2d 48, 49.)
The annotation then, must be deemed to be a warranty that the property was not insured by any
other policy. Violation thereof entitled the insurer to rescind. (Sec. 69, Insurance Act.) Such
misrepresentation is fatal in the light of our views in Santa Ana vs. Commercial Union Assurance
Company, Ltd., 55 Phil. 329. The materiality of non-disclosure of other insurance policies is not open
to doubt.
Furthermore, even if the annotations were overlooked the defendant insurer would still be free from
liability because there is no question that the policy issued by General Indemnity has not been
stated in nor endorsed on Policy No. 471 of defendant. And as stipulated in the above-quoted
provisions of such policy "all benefit under this policy shall be forfeited. (Emphasis supplied)
The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance and thus
avert the perpetration of fraud. The public, as well as the insurer, is interested in preventing the
situation in which a fire would be profitable to the insured. According to Justice Story: "The insured
has no right to complain, for he assents to comply with all the stipulation on his side, in order to
entitle himself to the benefit of the contract, which, upon reason or principle, he has no right to ask
the court to dispense with the performance of his own part of the agreement, and yet to bind the
other party to obligations, which, but for those stipulation would not have been entered into."
In view of the above conclusion, We deem it unnecessary to consider the other defenses interposed
by petitioner.
58) UNION MANUFACTURING CO., INC AND THE REPUBLIC BANK VS PHILIPPINE GUARANTY CO., INC.,
G.R. NO. L-27932, OCTOBER 30, 1972
Facts: On January 12, 1962, Union Manufacturing obtained certain loans, overdrafts and other credit
accommodations from Republic bank and to secure payment thereof, said Union Manufacturing
executed a real and chattel mortgages on certain properties, which are more particularly described
and listed at the back of the mortgage contract. That as additional condition of the mortgage
contract, Union Manufacturing undertook to secure insurance coverage over the mortgaged
properties.
Union manufacturing failed to secure insurance coverage on the mortgaged properties despite the
fact that Cua Tok, its general manager, was reminded of said requirement, Republic Bank procured
from Philippine Guaranty an insurance coverage on loss against fire over the properties of Union
Manufacturing as described in Philippine Guarantys Cover Note with the annotation that the loss
or damage, if any, under said cover note, is payable to republic bank as its interest may appear,
subject however to the printed conditions of said defendants fire insurance policy form.
A fire insurance policy was issued in favor of assured, Union Manufacturing for which a premium was
paid by the republic bank to Phil. Guaranty. It appears that although said renewal premium was paid
by the Republic Bank, such payment was for the account of Union Manufacturing and that the cash
voucher for the payment of the first premium was paid also by the Republic Bank but for the account
of Union Manufacturing.

A fire occurred in the premises of Union Manufacturing. They then filed a fire claim with the
Philippine Guaranty which was denied on the ground that: Policy condition no. 3 and/or the Other
Insurance Clause of the policy violated because you did not give notice to us the other insurance
which you had taken from New India and Manila Insurance with the results that these insurances, of
which we became aware of only after the fire, were not endorsed on our policy; and Policy condition
no. 1 was not complied with because you have failed failed to give to our representatives the
required documents and other proofs with respect to your claim and matters touching on our
liability, if any, and the amount of such liability.
That when the defendant Philippine Guaranty issued a fire insurance policy to cover the properties of
the Union Manufacturing Co., the same properties were already covered by fire policy of the Sincere
insurance company and Oceanic Insurance. That when said Philippine Guarantys fire insurance
policy was already in full force and effect, the Union Manufacturing without the consent of the
Philippine Guaranty, obtained another insurance policy over the same property prior to the fire from
New india Assurance, Sincere Insurance company and Manila Insurance Co.
Issue: WON Republic Bank can recover from the Philippine Guaranty No
Held: Why the appellant Republic Bank could not recover, as payee, in case of loss as its "interest
may appear subject to the terms and conditions, clauses and warranties" of the policy was
expressed in the appealed decision thus: "However, inasmuch as the Union Manufacturing Co., Inc.
has violated the condition of the policy to the effect that it did not reveal the existence of other
insurance policies over the same properties, as required by the warranty appearing on the face of
the policy issued by the defendant and that on the other hand said Union Manufacturing Co., Inc.
represented that there were no other insurance policies at the time of the issuance of said
defendant's policy, and it appearing furthermore that while the policy of the defendant was in full
force and effect the Union Manufacturing Co., Inc. secured other fire insurance policies without the
written consent of the defendant endorsed on the policy, the conclusion is inevitable that both the
Republic Bank and Union Manufacturing Co., Inc. cannot recover from the same policy of the
defendant because the same is null and void." The tone of confidence apparent in the above
excerpts from the lower court decision is understandable. The conclusion reached by the lower court
finds support in authoritative precedents. It is far from easy, therefore, for appellant Republic Bank
to impute to such a decision a failure to abide by the law. Hence, as noted at the outset, the appeal
cannot prosper. An affirmance is indicated.
It is to Santa Ana v. Commercial Union Assurance Co., a 1930 decision, that one turns to for the first
explicit formulation as to the controlling principle. As was made clear in the opinion of this Court,
penned by Justice Villa-Real: "Without deciding whether notice of other insurance upon the same
property must be given in writing, or whether a verbal notice is sufficient to render an insurance
valid which requires such notice, whether oral or written, we hold that in the absolute absence of
such notice when it is one of the conditions specified in the fire insurance policy, the policy is null
and void." The next year, in Ang Giok Chip v. Springfield Fire & Marine Ins. Co., the conformity of the
insured to the terms of the policy, implied from the failure to express any disagreement with what is
provided for, was stressed in these words of the ponente, Justice Malcolm: "It is admitted that the
policy before us was accepted by the plaintiff. The receipt of this policy by the insured without
objection binds both the acceptor and the insured to the terms thereof. The insured may not
thereafter be heard to say that he did not read the policy or know its terms, since it is his duty to
read his policy and it will be assumed that he did so. As far back as 1915, in Young v. Midland
Textile Insurance Company, it was categorically set forth that as a condition precedent to the right of
recovery, there must be compliance on the part of the insured with the terms of the policy. As stated
in the opinion of the Court through Justice Johnson: "If the insured has violated or failed to perform
the conditions of the contract, and such a violation or want of performance has not been waived by
the insurer, then the insured cannot recover. Courts are not permitted to make contracts for the
parties. The function and duty of the courts consist simply in enforcing and carrying out the
contracts actually made. While it is true, as a general rule, that contracts of insurance are construed
most favorably to the insured, yet contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the parties themselves have used. If such
terms are clear and unambiguous they must be taken and understood in their plain, ordinary and
popular sense." More specifically, there was a reiteration of this Santa Ana ruling in a decision by the
then Justice, later Chief Justice, Bengzon, in General Insurance & Surety Corp. v. Ng Hua. 12 Thus:
"The annotation then, must be deemed to be a warranty that the property was not insured by any
other policy. Violation thereof entitles the insurer to rescind. (Sec. 69, Insurance Act) Such
misrepresentation is fatal in the light of our views in Santa Ana v. Commercial Union Assurance
Company, Ltd. ... . The materiality of non-disclosure of other insurance policies is not open to doubt.
As a matter of fact, in a 1966 decision, Misamis Lumber Corp. v. Capital Ins. & Surety Co., Inc.,
Justice J.B.L. Reyes, for this Court, made manifest anew its adherence to such a principle in the face
of an assertion that thereby a highly unfavorable provision for the insured would be accorded
recognition. This is the language used: "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.
There is no escaping the conclusion then that the lower court could not have disposed of this case in
a way other than it did. Had it acted otherwise, it clearly would have disregarded pronouncements of
this Court, the compelling force of which cannot be denied. There is, to repeat, no justification for a
reversal.

L. Marine Insurance Cebrecus, as modified

59) ORIENTAL ASSURANCE CORPORATION VS COURT OF APPEALS AND PANAMA SAWMILL,
G.R. NO. 94052, AUGUST 9, 1991
Facts: Panama Sawmill bought 1,208 pieces of apitong log which it transported by sea to Manila
through Transpacific towage and insured it against loss with Oriental Assurance corporation. Oriental
assurance issued a marine insurance policy which stated, among others, that the insurance
warranted against total loss only.
The 2 barges were towed by 1 tug-boat but during the voyage, rough seas and strong winds caused
damage to the barge resulting in the total loss of 497 pieces of logs out of the 598 pieces loaded
thereon. Panama demanded payment for the loss but Oriental assurance refused on the ground that
its contracted liability was for total loss only. The rejection was upon the recommendation of the
Tan Gatue Adjustment Company.
Panama filed a Complaint for Damages against Oriental Assurance et al. with RTC.
Issue: WON Oriental Assurance can be held liable under its marine insurance policy based on the
theory of a divisible contract of insurance and, consequently, a constructive total loss.
Held: No, as no liability attaches. In the absence of either actual or constructive total loss, there can
be no recovery by the insured Panama against the insurer, Oriental Assurance.
The terms of the contract constitute the measure of the insurers liability and compliance therewith
is a condition precedent to the insured's right to recovery from the insurer. Whether a contract is
entire or severable is a question of intention to be determined by the language employed by the
parties. The policy in question shows that the subject matter insured was the entire shipment of
2,000 cubic meters of apitong logs. Only one premium was paid for the entire shipment, making for
only one cause or consideration. The insurance contract must, therefore, be considered indivisible.
More importantly, the insurer's liability was for "total loss only." A total loss may be either actual or
constructive. An actual total loss is caused by:
A total destruction of the thing insured;
The irretrievable loss of the thing by sinking, or by being broken up;
Any damage to the thing which renders it valueless to the owner for the purpose for which he held it;
or
Any other event which effectively deprives the owner of the possession, at the port of destination, of
the thing insured.
A constructive total loss is one which gives to a person insured a right to abandon, under Section
139 of the Insurance Code. This provision reads:
A person insured by a contract of marine insurance may abandon the thing insured, or any particular
portion thereof separately valued by the policy, or otherwise separately insured, and recover for a
total loss thereof, when the cause of the loss is a peril injured against, (a) If more than three-fourths
thereof in value is actually lost, or would have to be expended to recover it from the peril; (b) If it is
injured to such an extent as to reduce its value more than three-fourths xxx
The CA treated the loss as a constructive total loss, and for the purpose of computing the more than
three-fourths value of the logs actually lost, considered the cargo in one barge as separate from the
logs in the other. Thus, it concluded that the loss of 497 pieces of logs from barge TPAC-1000,
mathematically speaking, is more than three-fourths () of the 598 pieces of logs loaded in that
barge and may, therefore, be considered as constructive total loss. Erroneous.
The requirements for the application of Section 139 of the Insurance Code, have not been met. The
logs involved, although placed in two barges, were not separately valued by the policy, nor
separately insured. Resultantly, the logs lost in barge TPAC-1000 in relation to the total number of
logs loaded therein on the same barge cannot be made the basis for determining constructive total
loss. The logs having been insured as one inseparable unit, the correct basis for determining the
constructive total loss is the totality of the shipment of logs. So, out of the 1,208, pieces of logs, only
497 pieces were lost or 41.45% of the entire shipment. Since it is less than 75% of the value of all
1,208 pieces of logs, the shipment cannot be said to have sustained a constructive total loss.
60) ISABELA ROQUE AND ONG CHIONG VS HON. INTERMEDIATE APPELLATE COURT AND PIONEER
INSURANCE AND SURETY CORPORATION, G.R. NO. L-66935, NOVEMBER 11, 1985
Facts: Manila Bay Lighterage Corporation, a common carrier, entered into a contract with the
petitioners whereby the former would load and carry on board logs in its barge Marble 10. The
petitioners insured the logs against loss with Pioneer Insurance and Surety Corporation.
However, the shipment of pieces of logs never reached its destination because the barge sank. As
found by both the trial court and appellate courts, the barge where the logs were loaded was not
seaworthy such that it developed a leak. The appellate court further found that one of the hatches
was left open causing water to enter the barge and because the barge was not provided with the
necessary cover or tarpaulin, the ordinary splash of sea waves brought more water inside the barge.

The petitioners wrote to Manila Bay a letter demanding payment for the loss and another letter was
sent to Pioneer claiming the amount under the insurance policy but latter refused on the ground that
its ability depended upon the Total loss by Total loss of vessel only. Hence, petitioner commenced
the civil case.
Petitioners: The implied warranty of seaworthiness provided for in the Insurance Code refers only to
the responsibility of the shipowner who must see to it that his ship is reasonably fit to make in safety
the contemplated voyage. A mere shipper of cargo, having no control over the ship, has nothing to
do with its seaworthiness. A cargo owner has no control over the structure of the ship, its cables,
anchors, fuel and provisions, the manner of loading his cargo and the cargo of other shippers, and
the hiring of a sufficient number of competent officers and seamen.
SC: Unmeritorious. There is no dispute over the liability of the common carrier Manila Bay. In fact, it
did not bother to appeal the questioned decision. However, the petitioners state that Manila Bay has
ceased operating as a firm and nothing may be recovered from it. They are, therefore, trying to
recover their losses from the insurer.
The liability of the insurance company is governed by law. Section 113 of the Insurance Code
provides:
In every marine insurance upon a ship or freight, or freightage, or upon anything which is the subject
of marine insurance, a warranty is implied that the ship is seaworthy.
Section 99 of the same Code also provides in part:
Marine insurance includes: (1) Insurance against loss of or damage to: (a) Vessels, craft, aircraft,
vehicles, goods, freights, cargoes, merchandise x x x
The term "cargo" can be the subject of marine insurance and that once it is so made, the implied
warranty of seaworthiness immediately attaches to whoever is insuring the cargo whether he be the
shipowner or not. In every contract of insurance upon anything which is the subject of marine
insurance, a warranty is implied that the ship shall be seaworthy at the time of the inception of the
voyage. Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is
immaterial in ordinary marine insurance and may not be used by him as a defense in order to
recover on the marine insurance policy.
Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine
insurance, it becomes the obligation of a cargo owner to look for a reliable common carrier which
keeps its vessels in seaworthy condition. The shipper of cargo may have no control over the vessel
but he has full control in the choice of the common carrier that will transport his goods. Or the cargo
owner may enter into a contract of insurance which specifically provides that the insurer answers not
only for the perils of the sea but also provides for coverage of perils of the ship.
We are constrained to apply Section 113 of the Insurance Code to the facts of this case. In marine
cases, the risks insured against are "perils of the sea." The purpose of such insurance is protection
against contingencies and against possible damages and such a policy does not cover a loss or
injury which must inevitably take place in the ordinary course of things.
Perils of the sea:
extends only to losses caused by sea damage, or by the violence of the elements, and does not
embrace all losses happening at sea
losses from extraordinary occurrences only, such as stress of weather, winds and waves, lightning,
tempests, rocks and the like
include only such losses as are of extraordinary nature, or arise from some overwhelming power,
which cannot be guarded against by the ordinary exertion of human skill and prudence
damage done to a vessel by perils of the sea includes every species of damages done to a vessel at
sea, as distinguished from the ordinary wear and tear of the voyage, and distinct from injuries
suffered by the vessel in consequence of her not being seaworthy at the outset of her voyage (as in
this case)
everything which happens thru the inherent vice of the thing, or by the act of the owners, master or
shipper, shall NOT be reputed a peril, if not otherwise borne in the policy
Petitioners: The loss of the cargo was caused by the perils of the sea, not by the perils of the ship. As
found by the trial court, the barge was turned loose from the tugboat east of Cabuli Point "where it
was buffeted by storm and waves." Moreover, barratry (any willful misconduct on the part of the
master or crew, in pursuance of an unlawful or fraudulent purpose, without consent of the owner and
to the prejudice of the owners interest; still covered under perils of the sea ) against which the cargo
was also insured, existed when the personnel of the tugboat and the barge committed a mistake by
turning loose the barge from the tugboat east of Cabuli Point.
SC: Unmeritorious. The facts clearly negate the petitioners' claim under the insurance policy. The
loss of the cargo was due to the perils of the ship rather than the perils of the sea. The entrance of
the sea water into the ship's hold through the defective pipe was not due to any accident which
happened during the voyage, but to the failure of the ship's owner properly to repair a defect of the
existence of which he was apprised. The loss was therefore more analogous to that which directly

results from simple unseaworthiness than to that which result from the perils of the sea.
Perils of the ship:
loss in the ordinary course of events
results from the natural and inevitable action of the sea, from the ordinary wear and tear of the ship,
or from the negligent failure of the ship's owner to provide the vessel with proper equipment to
convey the cargo under ordinary conditions
GR: The insurer does not undertake to insure against perils of the ship.
X: To make insurer liable, there must some casualty something which could not be foreseen as one
of the necessary incidents of the adventure. The purpose of the policy is to secure an indemnity
against accidents which may happen, not against events which must happen.
Therefore, the insurer is not liable. The shipowner excepts the perils of the sea from his engagement
under the bill of lading, while this is the very perils against which the insurer intends to give
protection. The owners of the lost logs must look to the shipowner for redress and not to the insurer.
61) FILIPINO MERCHANTS INSURANCE CO., INC VS COURT OF APPEALS AND CHOA TIEK SENG,
G.R. NO. 85141, NOVEMBER 28, 1989
Facts: Choa Tiek Seng insured with Filipino Merchants Insurance the shipment of 600 metric tons (but
actually was only 59.94 m. tons) of fishmeal in new gunny bags of 90 kilos each against all risks
under warehouse to warehouse terms. The fishmeal were unloaded from the ship unto the arrastre
contractor. The condition of the bad order was reflected in the turn over survey report. The cargo
was also surveyed by the arrastre contractor before delivery of the cargo to the consignee and the
condition in such delivery was reflected covering a total of 227 bags in bad order condition. Choa
Tiek Sieng filed a formal claim statement against the vessel but the Filipino Merchants Insurance
refused to pay the claim. Choa filed an action with RTC.
RTC rendered decision in favor of Choa. The CA affirmed decision.
Petitioners: An "all risks" marine policy has a technical meaning in insurance in that before a claim
can be compensable it is essential that there must be "some fortuity, " "casualty" or "accidental
cause" to which the alleged loss is attributable and the failure of herein private respondent, upon
whom lay the burden, to adduce evidence showing that the alleged loss to the cargo in question was
due to a fortuitous event precludes his right to recover from the insurance policy.
SC: Untenable. The "all risks clause" of the Institute Cargo Clauses read as follows:
5. This insurance is against all risks of loss or damage to the subject-matter insured but shall in no
case be deemed to extend to cover loss, damage, or expense proximately caused by delay or
inherent vice or nature of the subject-matter insured. Claims recoverable hereunder shall be payable
irrespective of percentage.
An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses
by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance
contracts, have not acquired any technical meaning. They are construed by the courts in their
ordinary and common acceptance. Thus, the terms have been taken to mean that which happens by
chance or fortuitously, without intention and design, and which is unexpected, unusual and
unforeseen. An accident is an event that takes place without one's foresight or expectation; an event
that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not
expected.
The very nature of the term "all risks" must be given a broad and comprehensive meaning as
covering any loss other than a willful and fraudulent act of the insured. This is pursuant to the very
purpose of an "all risks" insurance to give protection to the insured in those cases where difficulties
of logical explanation or some mystery surround the loss or damage to property. An "all asks" policy
has been evolved to grant greater protection than that afforded by the "perils clause," in order to
assure that no loss can happen through the incidence of a cause neither insured against nor creating
liability in the ship; it is written against all losses, that is, attributable to external causes.
Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but
under an "all risks" policy the initial burden is on the insured to prove that the cargo was in good
condition when the policy attached and that the cargo was lost, destroyed or deteriorated when
unloaded from the vessel; thereafter, the burden then shifts to the insurer to prove that the loss was
due to excepted perils.
There being no showing that the loss was caused by any of the excepted perils, the insurer is liable
under the policy. There is no evidence presented to show that the condition of the gunny bags in
which the fishmeal was packed was such that they could not hold their contents in the course of the
necessary transit, much less any evidence that the bags of cargo had burst as the result of the
weakness of the bags themselves. Had there been such a showing that spillage would have been a
certainty, there may have been good reason to plead that there was no risk covered by the policy.
Under an 'all risks' policy, it was sufficient to show that there was damage occasioned by some
accidental cause of any kind, and there is no necessity to point to any particular cause.

Filipino Merchants is to pay Choa P51,568.62 with interest at legal rate from the date of the filing of
the complaint.
62) CHOA TIEK SENG, doing business under the name and style of SENG'S COMMERCIAL
ENTERPRISES vs. HON. COURT OF APPEALS, FILIPINO MERCHANTS' INSURANCE COMPANY, INC., BEN
LINES CONTAINER, LTD. AND E. RAZON, INC, G.R. No. 84507, [March 15, 1990] - Deogracias
FACTS: On November 4, 1976 petitioner imported some lactose crystals from Holland. The
importation involved 600 6-ply paper bags with polyethylene inner bags, each bag at 25 kilos net.
The goods were loaded at the port at Rotterdam in sea vans on board the vessel "MS Benalder as
the mother vessel, and thereafter aboard the feeder vessel "Wesser Broker V-25" of respondent Ben
Lines Container, Ltd. The goods were insured by the respondent Filipino Merchants' Insurance Co.,
Inc. for P98,882.35, the equivalent of US$8,765.00 plus 50% mark-up against all risks under the
terms of the insurance cargo policy. Upon arrival at the port of Manila, the cargo was discharged into
the custody of the arrastre operator/broker respondent E. Razon, Inc., prior to the delivery to
petitioner. Of the 600 bags delivered to petitioner, 403 were in bad order. The surveys showed that
the bad order bags suffered spillage and loss later valued at P33,117.63.
Petitioner filed a claim against respondent insurance company, which was rejected, alleging that
assuming that spillage took place while the goods were in transit, petitioner and his agent failed to
avert or minimize the loss by failing to recover spillage from the sea van, thus violating the terms of
the insurance policy sued upon; and that assuming that the spillage did not occur while the cargo
was in transit, the said 400 bags were loaded in bad order, and that in any case, the van did not
carry any evidence of spillage. Choa filed complaint in RTC. RTC dismissed case. CA affirmed
dismissal.
CA: The cargo in question was insured in an "against all risk policy." Insurance "against all risk" has a
technical meaning in marine insurance. Under an "all risk" marine policy, there must be a general
rule be a fortuitous event in order to impose liability on the insurer; losses occasioned by ordinary
circumstances or wear and tear are not covered, thus, while an "all risk" marine policy purports to
cover losses from casualties at sea, it does not cover losses occasioned by the ordinary
circumstances of a voyage, but only those resulting from extra and fortuitous events.
ISSUE: Whether or not an "all risks" coverage covers only losses occasioned by or resulting from
"extra and fortuitous events" despite the clear and unequivocal definition of the term made and
contained in the policy sued upon.
HELD: No. CA erred. An all risk insurance policy insures against all causes of conceivable loss or
damage, except as otherwise excluded in the policy or due to fraud or intentional misconduct on the
part of the insured. It covers all losses during the voyage whether arising from a marine peril or not,
including pilferage losses during the war.
In the present case, the "all risks" clause of the policy sued upon reads as follows:
This insurance is against all risks of loss or damage to the subject matter insured but shall in no case
be deemed to extend to cover loss, damage, or expense proximately caused by delay or inherent
vice or nature of the subject matter insured. Claims recoverable hereunder shall be payable
irrespective of percentage.
The insurance policy covers all loss or damage to the cargo except those caused by delay or
inherent vice or nature of the cargo insured. It is the duty of the respondent insurance company to
establish that said loss or damage falls within the exceptions provided for by law, otherwise it is
liable therefor. In this case, the damage caused to the cargo has not been attributed to any of the
exceptions provided for nor is there any pretension to this effect. Thus, respondent insurance
company must pay.
63) DELSAN TRANSPORT LINES, INC. vs. THE HON. COURT OF APPEALS and AMERICAN HOME
ASSURANCE CORPORATION, G.R. No. 127897, [November 15, 2001]
FACTS: Caltex Philippines entered into a contract of affreightment with the Delsan Transport Lines,
Inc., whereby the said common carrier agreed to transport Caltex's industrial fuel oil from the
Batangas-Bataan Refinery to different parts of the country. The shipment was insured with American
Home Assurance Corporation. On August 14, 1986, petitioner's vessel, the MT Maysun, set sail from
Batangas for Zamboanga City. Unfortunately, the vessel sank taking with it the entire cargo of fuel
oil. Private respondent paid Caltex the sum of P5,096,635.57 representing the insured value of the
lost cargo. Exercising its right of subrogation under Article 2207 of the New Civil Code, the private
respondent demanded of the petitioner the same amount it paid to Caltex.
Due to its failure to collect from the petitioner despite prior demand, private respondent filed a
complaint with the RTC for collection of a sum of money. RTC dismissed complaint, finding that the
vessel, MT Maysun, was seaworthy to undertake the voyage as determined by the Philippine Coast
Guard per Survey Certificate Report upon inspection during its annual dry-docking and that the
incident was caused by unexpected inclement weather condition or force majeure, thus exempting
petitioner from liability for the loss of its cargo.

On appeal, CA reversed decision.

Delsan: When American Homes paid Caltex, it was equivalent to a tacit recognition that the ill-fated
vessel was seaworthy; otherwise, the former was not legally liable to latter due to the latter's breach
of implied warranty under the marine insurance policy that the vessel was seaworthy.
ISSUES:
WON the payment made by American Home to Caltex for the insured value of the lost cargo
amounted to an admission that the vessel was seaworthy, thus precluding any action for recovery
against the petitioner.
WON the non-presentation of the marine insurance policy bars the complaint for recovery of sum of
money for lack of cause of action.
HELD:
NO. The payment made by American Home for the insured value of the lost cargo operates as waiver
of its right to enforce the term of the implied warranty against Caltex under the marine insurance
policy.
However, the same cannot be validly interpreted as an automatic admission of the vessels
seaworthiness by American Home as to foreclose recourse against Delsan for any liability under its
contractual obligation as a common carrier. The fact of payment grants American Home subrogatory
right which enables it to exercise legal remedies that would otherwise be available to Caltex as
owner of the lost cargo against Delsan, the common carrier.
From the nature of their business and for reasons of public policy, common carriers are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of passengers
transported by them, according to all the circumstances of each case. In the event of loss,
destruction or deterioration of the insured goods, common carriers shall be responsible unless the
same is brought about, among others, by flood, storm, earthquake, lightning or other natural
disaster or calamity. In all other cases, if the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently, unless they prove they
observed extraordinary diligence.
In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex, Delsan
attributes the sinking of MT Maysun to fortuitous event or force majeure. But the testimony of the
captain and chief mate that there were strong winds and waves 20 feet high was effectively rebutted
and belied by the weather report of PAGASA. Thus, as the CA correctly ruled, Delsans vessel, MT
Maysun, sank with its entire cargo for the reason that it was not seaworthy. There was no squall or
bad weather or extremely poor sea condition in the vicinity where the said vessel sank.
Additionally, the exoneration of MT Maysuns officers and crew merely concern their respective
administrative liabilities. It does not in any way operate to absolve Delsan the common carrier from
its civil liability arising from its failure to observe extraordinary diligence in the vigilance over the
goods it was transporting and for the negligent acts or omissions of its employees, the determination
of which properly belongs to the courts. In the case at bar, Delsan is liable for the insured value of
the lost cargo of industrial fuel oil belonging to Caltex for its failure to rebut the presumption of fault
or negligence as common carrier occasioned by the unexplained sinking of its vessel, MT Maysun,
while in transit.
NO. The presentation in evidence of the marine insurance policy is not indispensable in this case
before the insurer may recover from the common carrier the insured value of the lost cargo in the
exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only
the relationship of American Home as insurer and Caltex, as the assured shipper of the lost cargo of
industrial fuel oil, but also the amount paid to settle the insurance claim. The right of subrogation
accrues simply upon payment by the insurance company of the insurance claim.
64) FRANCISCO DEL VAL, ET AL. vs. ANDRES DEL VAL,, G.R. No. 9374, [February 16, 1915]
FACTS: The parties are siblings who were the only heirs at law and next of kin of Gregorio del Val,
who passed away intestate. During the lifetime of the deceased he took out insurance on his life for
the sum of P40,000 and made it payable to Andres del Val as sole beneficiary. After his death, the
defendant Andres collected the face of the policy. He paid the sum of P18,365.20 to redeem certain
real estate which the decedent had sold to third persons with a right to repurchase. The redemption
of said premises was made by the attorney of the defendant in the name of the petitioners and
Andres as heirs of the deceased vendor. Andres, on death of the Gregorio, took possession of most of
the latters personal property and also the balance on the insurance policy amounting to P21,634.80.
Plaintiffs: The amount of the insurance policy belonged to the estate of the deceased and not to the
defendant personally, hence they are entitled to a partition not only of the real and personal
property, but also of the P40,000 life insurance. The complaint prays a partition of all the property,
both real and personal, left by the deceased, and that the defendant account for P21,634.80. They
also wanted to divide this equally among the plaintiffs and defendant along with the other property
of deceased.

Defendant Andres: Redemption of the real estate sold by his father was made in the name of the
plaintiffs and himself instead of in his name alone without his knowledge or consent. He also averred
that it was not his intention to use the proceeds of the insurance policy for the benefit of any person
but himself, he alleging that he was and is the sole owner thereof and that it is his individual
property.
ISSUE: Can the proceeds of the policy be divided among the heirs?
HELD: NO. The proceeds of the life-insurance policy belong exclusively to the defendant as his
individual and separate property. The proceeds of an insurance policy belong exclusively to the
beneficiary and not to the estate of the person whose life was insured, and such proceeds are the
separate and individual property of the beneficiary, and not of the heirs of the person whose life was
insured. This doctrine in America is embedded in the Code of Commerce where:
The amount which the underwriter must deliver to the person insured, in fulfillment of the contract,
shall be the property of the latter, even against the claims of the legitimate heirs or creditors of any
kind whatsoever of the person who effected the insurance in favor of the former.
The contract of life insurance is a special contract and the destination of the proceeds is determined
by special laws which deal exclusively with that subject. The Civil Code has no provisions which
relate directly and specifically to life- insurance contracts or to the destination of life insurance
proceeds. That was under the Code of Commerce.
The plaintiffs claim that the property repurchased with the insurance proceeds belongs to the heirs
in common and not to the defendant alone. This wasnt agreed upon by the court unless the facts
appeared that Andres acted as he did with the intention that the other heirs should enjoy with him
the ownership of the estate.
65) THE BANK OF THE PHILIPPINE ISLANDS, administrator of the estate of the late Adolphe Oscar
Schuetze, vs. JUAN POSADAS, JR., Collector of Internal Revenue, Jr., G.R. No. 34583, [1931]
FACTS: BPI, as administrator, appealed to CFI absolving defendant, Collector of Internal Revenue,
from the complaint filed against it in recovering the inheritance tax amounting to P1,209 paid by
Rosario Gelano Vda de Schuetze, under protest, and sum of P20,150 representing the proceeds of
the insurance policy of the deceased.
Rosario and Adolphe were married in January 1914. The wife was actually residing and living in
Germany when Adolphe died in December 1927. The latter while in Germany, executed a will in
March 1926, pursuant with its law wherein Rosario was named his universal heir. The deceased
possessed not only real property situated in the Philippines but also personal property consisting of
shares of stocks in 19 domestic corporations. Included in the personal property is a life insurance
policy issued at Manila on January 1913 for the sum of $10,000 by the Sun Life Assurance Company
of Canada, Manila Branch. In the insurance policy, the estate of the deceased was named the
beneficiary without any qualification. Rosario is the sole and only heir of the deceased. BPI, as
administrator of the decedents estate and attorney in fact of Rosario, having been demanded by
Posadas to pay the inheritance tax, paid under protest. Notwithstanding various demands made by
plaintiff, Posadas refused to refund such amount.
ISSUE: Whether the proceeds of the life insurance policy is paraphernal or community property. (if
community, then not subject to inheritance tax)
HELD: As all the premiums on the life-insurance policy taken out by the late Adolphe Oscar Schuetze,
were paid out of the conjugal funds, with the exception of the first, the proceeds of the policy,
excluding the proportional part corresponding to the first premium, constitute community property,
notwithstanding the fact that the policy was made payable to the deceased's estate, so that onehalf of said proceeds belongs to the estate, and the other half to the deceased's widow, Rosario.
CIR is ordered to return to BPI the one-half of the tax collected upon the amount of P20,150, being
the proceeds of the insurance policy on the life of the late Adolphe, after deducting the proportional
part corresponding to the first premium.
Both according to our Civil Code and to the ruling of those North American States where the Spanish
Civil Code once governed, the proceeds of a life-insurance policy whereon the premiums were paid
with conjugal money, belong to the conjugal partnership.
A life-insurance policy belongs exclusively to the beneficiary upon the death of the person insured,
and
that
in the present
case,
as
Adolphe
named
his
own
estate
as the sole
beneficiary of the insurance on his life, upon his death the latter became the sole owner of the
proceeds, which therefore became subject to the inheritance tax. An heir appointed beneficiary to a
lifeinsurance
policy
taken
out
by the deceased,
becomes the absolute
owner of the proceeds of such policy upon the death of the insured.
The proceeds of a life-insurance policy payable to the insured's estate, on which the premiums were
paid by the conjugal partnership, constitute community property, and belong one-half to the
husband and the other half to the wife, exclusively. But if the premiums were paid partly with
paraphernal and partly conjugal funds, the proceeds are likewise in like proportion paraphernal in
part and conjugal in part.

The proceeds of a life-insurance policy payable to the insured's estate as the beneficiary, if delivered
to the testamentary administrator of the former as part of the assets of said estate under probate
administration, are subject to the inheritance tax according to the law on the matter, if they belong
to the assured exclusively, and it is immaterial that the insured was domiciled in these Islands or
outside.
66) THE INSULAR LIFE ASSURANCE COMPANY, LTD. vs. CARPONIA T. EBRADO and PASCUALA VDA. DE
EBRADO, G.R. No. L-44059, [October 28, 1977]
FACTS: On September 1, 1968, Buenaventura Cristor Ebrado was issued by the Insular Life
Assurance Co., Ltd., a policy on a whole-life plan for P5,882 with a rider for Accidental Death Benefits
for the same amount. He designated Carponia T. Ebrado as the revocable beneficiary in his policy. He
referred to her as his wife.
On October 21, 1969, Buenventura C. Ebrado died as a result of an accident when he was hit by a
falling branch of a tree. As the insurance policy was in force, The Insular Life Assurance Co., Ltd.
stands liable to pay the coverage of the policy in an amount of P11,745.73, representing the face
value of the policy in the amount of P5,882.00 plus the additional benefits for accidental death also
in the amount of P5,882.00 and the refund of P18.00 paid for the premium due November, 1969,
minus the unpaid premiums and interest thereon due for January and February, 1969, in the sum of
P36.27.
Carponia filed with the insurer a claim for the proceeds of the policy as the designated beneficiary
therein, although she admits that she and the insured Buenaventura were merely living as husband
and wife without the benefit of marriage. Pascuala Vda. de Ebrado also filed her claim as the widow
of the deceased insured. She asserts that she is the one entitled to the insurance proceeds, not the
common-law wife, Carponia.
ISSUE: Can the common-law wife, Carponia Ebrado, named as beneficiary in the life insurance policy
of a legally married man claim the proceeds thereof in case of death of the latter?
HELD: NO. The general rules of civil law should be applied to resolve matters not specifically
provided in the Insurance Law. Article 2011 of the New Civil Code states:
The contract of insurance is governed by special laws. Matters not expressly provided for in such
special laws shall be regulated by this Code.
And under Article 2012 of the same Code:
Any person who is forbidden from receiving any donation under Article 739 cannot be named
beneficiary of a fife insurance policy by the person who cannot make a donation to him.
Common-law spouses are, definitely, barred from receiving donations from each other. Also,
conviction for adultery or concubinage is not required as only preponderance of evidence is
necessary.
In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is
concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee,
because the premiums of the policy which the insured pays out of liberality, the beneficiary will
receive the proceeds or profits of said insurance.

M. Cash Surrender Value - Herrera

(GR No. L-2910, 1951)
67) THE MANUFACTURERS LIFE INSURANCE CO., plaintiff-appellant, vs. BIBIANO L. MEER, in the
capacity as Collector of Internal Revenue, defendant-appellee
Facts: The Manufacturers Life Insurance Company is duly registered and licensed to engage in life
insurance business in the Philippines for more than five years until 1941. But due to the exigencies
of the war it closed the branch office at Manila during 1942 up to September 1945. In the course of
its operations before the war, plaintiff issued a number of life insurance policies in the Philippines
containing nonforfeiture clauses, viz:
8. Automatic Premium Loan This Policy shall not lapse for non-payment of any premium after it
has been three full years in force, if, at the due date of such premium, the Cash Value of this Policy
and of any bonus additions and dividends left on accumulation (after deducting any indebtedness to
the Company and the interest accrued thereon) shall exceed the amount of said premium. In which
event the company will, without further request, treat the premium then due as paid, and the
amount of such premium, with interest from its actual due date at six per cent per annum,
compounded yearly, and one per cent, compounded yearly, for expenses, shall be a first lien on this
Policy in the Company's favour in priority to the claim of any assignee or any other person. The
accumulated lien may at any time, while the Policy is in force, be paid in whole or in part xxx
From January 1, 1942 to December 31, 1946 for failure of the insured under the above policies to pay
the corresponding premiums for one or more years, the plaintiff's head office at Toronto, applied the
provisions of the automatic premium loan clauses; and the net amount of premiums so advanced or
loaned totalled P1,069,254.98. On this sum the defendant CIR assessed P17,917.12 which plaintiff
paid supra protest. The assessment was made pursuant to section 255 of the National Internal
Revenue Code as amended, which partly provides:
SEC. 255. Taxes on insurance premiums There shall be collected from every person, company, or
corporation (except purely cooperative companies or associations) doing insurance business of any
sort in the Philippines a tax of one per centum of the total premiums collected . . . whether such
premiums are paid in money, notes, credits, or any substitute for money but premiums refunded
within six months after payment on account of rejection of risk or returned for other reason to
person insured shall not be included in the taxable receipts . . . .
Plantiff: When there are premium loans or premium advances, as above stated, by virtue of the nonforfeiture clauses, it did not collect premiums within the meaning of the above sections of the law,
and therefore it is not amenable to the tax therein provided.
Issues:
WON premium advances made by plaintiff-appellant under the automatic premium loan clause of its
policies are 'premiums collected' by the Company subject to tax.
WON in the application of the automatic premium loan clause of plaintiff-appellant's policies, there is
payment in money, notes, credits, or any substitutes for money.
WON the collection of the alleged deficiency premium taxes constitutes double taxation.
Whether the making of premium advances, granting for the sake of argument that it amounted to
collection of premiums, were done in Toronto, Canada, or in the Philippines.
WON the fact that plaintiff-appellant was not doing business in the Philippines from January 1, 1942
to September 30, 1945 exempts it from payment of premium taxes corresponding to said period.
Held:
Illustration: Suppose that 'A', 30 years of age, secures a 20-year endowment policy for P5,000 from
plaintiff-appellant Company and pays an annual premium of P250. 'A' pays the first ten yearly
premiums amounting to P2,500 and on this amount plaintiff-appellant pays the corresponding taxes
under section 255 of the NIRC. Suppose also that the cash value of said policy after the payment of
the 10th annual premium amounts to P1,000. When on the 11th year the annual premium fell due
and the insured remitted no money within the month's grace, the insurer treated the premium then
over due as paid from the cash value, the amount being a loan to the policyholder who could
discharge it at any time with interest at 6 per cent. The insurance contract, therefore, continued in
force for the 11th year.
Yes. "How could there be such a collection" plaintiff argues "when as a result thereof, insurer
becomes a creditor, acquires a lien on the policy and is entitled to collect interest on the amount of
the unpaid premiums?" Wittingly or unwittingly, the "premium" and the "loan" have been
interchanged in the argument. The insurer "became a creditor" of the loan, but not of the premium
that had already been paid. And it is entitled to collect interest on the loan, not on the premium. In
other words, "A" paid the premium for the eleventh year; but in turn he became a debtor of the
company for the sum of P250. This debt he could repay either by later remitting the money to the

insurer or by letting the cash value compensate for it. The debt may also be deducted from the
amount of the policy should "A" die thereafter during the continuance of the policy. The debt may
also be deducted from the amount of the policy should the insured die thereafter during the
continuance of the policy.
There was an increase in the assets of the insurer. There was the new credit for the advances made.
True, the plaintiff could not sue the insured to enforce that credit. But it has means of satisfaction
out of the cash surrender value. If the credit is paid out of the cash surrender value, there were no
new funds added to the company's assets. Cash surrender value "as applied to a life insurance
policy, is the amount of money the company agrees to pay to the holder of the policy if he
surrenders it and releases his claims upon it. The more premiums the insured has paid the greater
will be the surrender value; but the surrender value is always a lesser sum than the total amount of
premiums paid."
The cash value or cash surrender value is therefore an amount which the insurance company holds
in trust for the insured to be delivered to him upon demand. It is therefore a liability of the company
to the insured. Now then, when the company's credit for advances is paid out of the cash value or
cash surrender value, that value and the company's liability is thereby diminished pro tanto. The
decrease of a person's liabilities means a corresponding increase in his net assets.
Yes. The insurer agreed to consider the premium paid on the strength of the automatic loan. The
premium was therefore paid by means of a "note" or "credit" or "other substitute for money" and the
tax is due because section 255 above quoted levies taxes according to the total premiums collected
by the insurer "whether such premiums are paid in money, notes, credits or any substitute for
money.
No. Appellant goes back to the illustration, "A failed to pay the premium on the 11th year and the
insurer advanced P250 from the cash value. If the amount of P250 is deducted from the cash value
of P1,000 of the policy, then taxing this P250 anew as premium collected, as was done in the present
case, will amount to double taxation since taxes had already been collected on the cash value of
P1,000 as part of the P2,500 collected as premiums for the first ten years." The trouble with the
argument is that it assumes all advances are necessarily repaid from the cash value. That is true in
some cases. In others the insured subsequently remits the money to repay the advance and to keep
unimpaired the cash reserve of his policy. Of the total amount advanced (P1,069,255) P158,667 had
actually been repaid at the time of assessment notice. Besides, the premiums paid and on which
taxes had already been collected, were those for the 10 years. The tax demanded is on the premium
for the 11th year. Further, there is no constitutional prohibition against double taxation.
Philippines. Appellant: as the advances of premiums were made in Toronto, such premiums are
deemed to have been paid there not in the Philippines and therefore those payments are not
subject to local taxation. The law does not contemplate premiums collected in the Philippines.
Subscribing to this would make foreign insurers evade the tax by contriving to require that premium
payments shall be made at their head offices. It is enough that the insurer is doing insurance
business in the Philippines, irrespective of the place of its organization or establishment. In any
event there is no constitutional prohibition against double taxation.
Untenable. Although during those years the appellant was not open for new business because its
branch office was closed, still it was practically and legally, operating in this country by collecting
premiums on its outstanding policies, incurring the risks and/or enjoying the benefits consequent
thereto, without having previously taken any steps indicating withdrawal in good faith from this field
of economic activity. Further, in objecting to the payment of the tax, plaintiff-appellant never
insisted, before the BIR that it was not engaged in business in this country during those years.
N. Suretyship
GR No. 109937, 1994
68) DEVELOPMENT BANK OF THE PHILIPPINES , petitioner, vs. COURT OF APPEALS and the ESTATE OF
THE LATE JUAN B. DANS, represented by CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION
INSURANCE POOL, respondents
Facts:
In May 1987, Juan B. Dans, together with his family, applied for a loan of P500,000 with DBP Basilan
Branch. As the principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a
mortgage redemption insurance with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).
A loan, in the reduced amount of P300,000, was approved and released by DBP. From the proceeds
of the loan, DBP deducted the amount of P1,476 as payment for the MRI premium. Dans
accomplished and submitted the "MRI Application for Insurance" and the "Health Statement for DBP

MRI Pool." The MRI premium of Dans, less the DBP service fee of 10 percent, was credited by DBP to
the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit.
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to
the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible
for MRI coverage, being over the acceptance age limit of 60 years at the time of application. DBP
apprised Candida Dans of the disapproval of her late husband's MRI application. The DBP offered to
refund the premium of P1,476, but Candida refused to accept it, demanding payment of the face
value of the MRI or an amount equivalent to the loan. She, likewise, refused to accept anex
gratia settlement of P30,000, which the DBP later offered.
Respondent Estate, through Candida Dans as administratrix, filed a complaint with RTC against DBP
and the insurance pool for "Collection of Sum of Money with Damages." RTC decided in favor of
respondent Estate and against DBP. The DBP MRI Pool, however, was absolved from liability, after the
trial court found no privity of contract between it and the deceased. The trial court declared DBP in
estoppel for having led Dans into applying for MRI and actually collecting the premium and the
service fee, despite knowledge of his age ineligibility. The CA affirmed in toto.
Issue: WON DBP and DBP MRI Pool are liable.
Held: DBP, yes and DBP MRI Pool, no. As to DBP MRI Pool, it did not approve the application of Dans.
There is also no showing that it accepted the sum of P1,476, which DBP credited to its account with
full knowledge that it was payment for Dan's premium. Under the provisions of the Health Statement
for DBP Pool, the MRI coverage shall take effect: (1) when the application shall be approved by the
insurance pool; and (2) when the full premium is paid during the continued good health of the
applicant. These two conditions, being joined conjunctively, must concur. There was no perfected
contract of insurance; hence, the DBP MRI Pool cannot be held liable on a contract that does not
exist.
As to DBP, it was wearing two legal hats: the first as a lender, and the second as an insurance agent.
In dealing with Dans, DBP As an insurance agent, DBP made Dans go through the motion of applying
for said insurance, thereby leading him and his family to believe that they had already fulfilled all the
requirements for the MRI and that the issuance of their policy was forthcoming. Apparently, DBP had
full knowledge that Dan's application was never going to be approved. The maximum age for MRI
acceptance is 60 years as clearly and specifically provided in the Group Mortgage Redemption
Insurance Policy. Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such
is not personally liable to the party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party sufficient notice of his powers." The DBP
is not authorized to accept applications for MRI when its clients are more than 60 years of age.
Knowing all the while that Dans was ineligible for MRI coverage because of his advanced age, DBP
exceeded the scope of its authority when it accepted Dan's application for MRI by collecting the
insurance premium, and deducting its agent's commission and service fee. There is no showing that
Dans knew of the limitation on DBP's authority to solicit applications for MRI. If the third person
dealing with an agent is unaware of the limits of the authority conferred by the principal on the
agent and he (third person) has been deceived by the non-disclosure thereof by the agent, then the
latter is liable for damages to him. Inasmuch as the non-disclosure of the limits of the agency carries
with it the implication that a deception was perpetrated on the unsuspecting client, the provisions
of Articles 19, 20 and 21 of the Civil Code of the Philippines come into play.
Article 19 Every person must, in the exercise of his rights and in the performance of his duties, act
with justice give everyone his due and observe honesty and good faith.
Article 20 Every person who, contrary to law, willfully or negligently causes damage to another,
shall indemnify the latter for the same.
Article 21 Any person, who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.
The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume that
were it not for DBP's concealment of the limits of its authority, Dans would have secured an MRI from
another insurance company, and therefore would have been fully insured by the time he died, is
highly speculative. Considering his advanced age, there is no absolute certainty that Dans could
obtain an insurance coverage from another company. It must also be noted that Dans died almost
immediately, i.e., on the nineteenth day after applying for the MRI, and on the twenty-third day from
the date of release of his loan. One is entitled to an adequate compensation only for such pecuniary
loss suffered by him as he has duly proved. Damages, to be recoverable, must not only be capable
of proof, but must be actually proved with a reasonable degree of certainty. Speculative damages
are too remote to be included in an accurate estimate of damages.
WHEREFORE, the decision of the Court of Appeals is MODIFIED and petitioner DBP is ORDERED: (1)
to REIMBURSE respondent Estate of Juan B. Dans the amount of P1,476 with legal interest from the
date of the filing of the complaint until fully paid; and (2) to PAY said Estate P50,000 as moral
damages and P10,000 as attorney's fees. With costs against petitioner.
Note: Wa bitaw ko kasabot ngano ni-fall under Suretyship ni siya nga topic, kay wa jud na namention

maski kausa. Basin ang pgconstitute sa Mortgage Redemption Insurance Contract? Which in this
case was not perfected.

O. Claims Settlement - Herrera

GR No. 76101-02, 1991
69) TIO KHE CHIO, petitioner, vs. THE HONORABLE COURT OF APPEALS and EASTERN ASSURANCE
AND SURETY CORPORATION, respondents
Facts: On December 18, 1978, Tio Khe Chio imported 1,000 bags of fishmeal valued at $36,000.30
from Agro Impex, Texas, USA. The goods were insured with respondent EASCO and shipped on board
the M/V Peskov, a vessel owned by Far Eastern Shipping Company. When the goods reached Manila,
they were found to have been damaged by sea water which rendered the fishmeal useless.
Petitioner filed a claim with EASCO and Far Eastern Shipping. Both refused to pay. Petitioner sued
them before the then CFI for damages. EASCO, as the insurer, filed a counterclaim against the
petitioner for the recovery of P18,387.86 representing the unpaid insurance premiums.
CFI ordered EASCO and Far Eastern Shipping to pay petitioner solidarily the sum of P105,986.68 less
the amount of P18,387.86 for unpaid premiums with interest at the legal rate from the filing of the
complaint, the sum of P15,000.00 as attorney's fees and the costs. The judgment became final as to
EASCO but the shipping company appealed to the CA and was absolved from liability by the said
court.
The trial court, upon motion by petitioner, issued a writ of execution against EASCO. The sheriff
enforcing the writ reportedly fixed the legal rate of interest at 12%. Respondent EASCO moved to
quash the writ alleging that the legal interest to be computed should be 6%. The trial court denied
EASCO's motion. EASCO then filed a petition for certiorari and prohibition before the Court of
Appeals.
CA held that the interest that the private respondent is entitled to collect from the petitioner is
hereby reduced to 6% per annum.
Issue: What is the legal rate of interest to be imposed in actions for damages arising from unpaid
insurance claims? Petitioner Tio Khe Chio claims that it should be 12% pursuant to Articles 243 and
244 of the Insurance Code while EASCO claims that it should be 6% under Article 2209 of the Civil
Code.
Held: 6%.
Section 243 of the Insurance Code provides:
xxx Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the
assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of
twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on
the ground that the claim is fraudulent.

Section 244 of the aforementioned Code also provides:

In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the
duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the
payment of the claim of the insured has been unreasonably denied or withheld; and in the
affirmative case, the insurance company shall be adjudged to pay damages which shall consist of
attorney's fees and other expenses incurred by the insured person by reason of such undeniable
denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board
of the amount of the claim due the insured xxx
The CA made no finding that there was an unjustified refusal or withholding of payment on
petitioner's claim. In fact, the CA had this to say:
xxx EASCO's refusal to settle the claim to Tio Khe Chio was based on some ground which, while not
sufficient to free it from liability under its policy, nevertheless is sufficient to negate any assertion
that in refusing to pay, it acted unjustifiably. xxx The case posed some genuine issues of
interpretation of the terms of the policy as to which persons may honestly differ. This is the reason
the trial court did not say EASCO's refusal was unjustified.
So the aforecited sections of the Insurance Code are not pertinent to the instant case. They apply
only when the court finds an unreasonable delay or refusal in the payment of the claims.
Neither does Circular No. 416 of the Central Bank which took effect on July 29, 1974 pursuant to PD
116 (Usury Law) which raised the legal rate of interest from 6% to 12% apply to the case at bar as
contended by the petitioner. The adjusted rate mentioned in the circular refers only to loans or
forbearances of money, goods or credits and court judgments thereon but not to court judgments for
damages arising from injury to persons and loss of property which does not involve a loan.
The legal rate of interest is 6% per annum, and not 12%, where a judgment award is based on an
action for damages for personal injury, not use or forbearance of money, goods or credit. The
interest by way of damages is governed by Article 2209 of the Civil Code, which reads:
If the obligation consists in the payment of a sum of money and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest

agreed upon, and in the absence of stipulation, the legal interest which is six per cent per annum.
Since the contending parties did not allege the rate of interest stipulated in the insurance contract,
the legal interest was properly pegged by the Appellate Court at 6%.

GR No. 138737, 2001

70) FINMAN GENERAL ASSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS and USIPHIL
INCORPORATED, respondents
Facts: Usiphil Inc. insured certain properties (office, furniture, fixtures, shop machinery and other
trade equipment) from fire with Finman (then doing business under the name Summa Insurance
Corporation). Sometime in 1982, Usiphil filed an insurance claim amounting to P987,126.11 for the
loss of the insured properties due to fire. Finman appointed Adjuster H.H. Bayne to undertake the
valuation and adjustment of the loss. Usiphil submitted its Sworn Statement of Loss and Formal
Claim, signed by Reynaldo Cayetano, Usiphils Manager, and a Proof of Loss signed by its Accounting
Manager Pedro Palallos and countersigned by H.H. Bayne's Adjuster F.C. Medina.
Palallos personally followed-up private respondent's claim with Finmans President Joaquin Ortega.
During their meeting, Ortega instructed their Finance Manager, Rosauro Maghirang, to reconcile the
records. Thereafter, Maghirang and Palallos signed a Statement/Agreement, dated February 28,
1985, which indicated that the amount due respondent was P842,683.40.
Despite repeated demands, petitioner refused to pay the insurance claim. Thus, private respondent
was constrained to file a complaint against petitioner for the unpaid insurance claim. Finman
maintained that Usiphil cannot recover because it failed to comply with Policy Condition No. 13
regarding the submission of certain documents to prove the loss. RTC ruled in favor of Usiphil. CA
modified decision as to #1 below, but affirmed in toto the others: Finman is
1. To pay the plaintiff the sum of P842,683.40 and to pay 24% interest per annum from 03 May 1985
until fully paid;
2. To pay the plaintiff the sum equivalent to 10% of the principal obligation as and for attorney's
fees, plus P1,500.00 per court appearance of counsel;
3. To pay the plaintiff the amount of P30,000.00 as exemplary damages in addition to the actual and
compensatory damages awarded xxx
Issues:
Was there compliance by Usiphil of Condition No. 13?
Was the 24% interest rate proper?
Held:
Yes. Both the trial court and the CA concur in holding that private respondent had substantially
complied with Policy Condition No. 13. Requirements under which were allegedly communicated to
private respondent in the two letters of H.H. Bayne to private respondent. The letter stated, among
others:
To be able to expedite adjustment of this case, please submit to us without delay the following
documents and/or particulars:
For FFF, Machineries/Equipment Claims and For Stock Claim
1. Your formal claim (which may be accomplished in the enclosed form) accompanied by a detailed
inventory of the documents submitted.
2. Certification from the appropriate government office indicating the date of the occurrence of the
fire, the property involved, its location and possible point of origin.
3. Proof of premium payment.
4. Three color photographs of the debris properly captioned/identified/dated and initiated by the
claimant at the back.
Though our adjusters will also take photographs in the manner prescribed above, please do not rely
on his photographs in the preservations of your evidence of loss thru pictures.
5. Copies of purchase invoices xxx
Factual findings and conclusions of the trial court and the CA are entitled to great weight and
respect, and will not be disturbed on appeal in the absence of any clear showing that the trial court
overlooked certain facts or circumstances which would substantially affect the disposition of the
case. There is no cogent reason to deviate from this salutary rule in the present case.
Policy Condition No. 13 reads:
The insured shall give immediate written notice to the Company of any loss, protect the property
from further damage, forthwith separate the damaged and undamaged personal property, put it in
the best possible order, furnish a complete inventory of the destroyed, damaged, and undamaged
property, showing in detail quantities, costs, actual cash value and the amount of loss claimed; AND
WITHIN SIXTY DAYS AFTER THE LOSS, UNLESS SUCH TIME IS EXTENDED IN WRITING BY THE
COMPANY, THE INSURED SHALL RENDER TO THE COMPANY A PROOF OF LOSS, signed and sworn to
by the insured, stating the knowledge and belief of the insured as to the following: the time and
origin of the loss, the interest of the insured and of all others in the property, the actual cash value
of each item thereof and the amount of loss thereto, all encumbrances thereon, all other contracts of
insurance, whether valid or not, covering any of said property, any changes in the title, use,
occupation, location, possession or exposures of said property since the issuing of this policy by
whom and for what purpose any buildings herein described and the several parts thereof were

occupied at the time of loss and whether or not it then stood on leased ground, and shall furnish a
copy of all the descriptions and schedules in all policies, and if required verified plans and
specifications of any building, fixtures, or machinery destroyed or damaged. The insured, as often as
may be reasonably required, shall exhibit to any person designated by the company all that remains
of any property herein described, and submit to examination under oath by any person named by
the Company, and subscribe the same; and, as often as may be reasonably required, shall produce
for examination all books of account, bills, invoices, and other vouchers or certified copies thereof if
originals be lost, at such reasonable time and place as may be designated by the Company or its
representative and shall permit extracts and copies thereof to be made.
No claim under this policy shall be payable unless the terms of this condition have been complied
with.
Usiphil, after the occurrence of the fire, immediately notified petitioner thereof. Thereafter, private
respondent submitted the following documents: (1) Sworn Statement of Loss and Formal Claim and;
(2) Proof of Loss. The submission of these documents, to the Court's mind, constitutes substantial
compliance with the above provision. As regards the submission of documents to prove loss,
substantial, not strict, compliance with the requirements will always be deemed sufficient.
In any case, Finman (formerly Summa Insurance) itself acknowledged its liability when through its
Finance Manager, Rosauro Maghirang, it signed the document indicating that the amount due Usiphil
is P842,683.40. Even assuming that plaintiff-appellee indeed failed to submit certain required
documents as proof of loss per Section 13, such violation was waived by the insurer Summa when it
signed the document-breakdown of the amount due to plaintiff-appellee on the insurance claim. By
such act, defendant-appellant acknowledged its liability under the insurance policy. Finman alleges
that Maghirang was without authority to sign and therefore without authority to bind Finman.
Untenable. At a meeting between Usiphil's corporate president Pedro Pallalos and Finmans Joaquin
Ortega, the latter summoned Rosauro Maghirang to reconcile the claims of plaintiff-appellee. One
who clothes another with apparent authority as his agent and holds him to the public as such,
cannot later be allowed to deny the authority of such person to act as his agent when such third
person entered into the contract in good faith and in an honest belief that he is such agent.
Yes. It is authorized by Sections 243 and 244 of the Insurance Code.
SECTION 243. The amount of any loss or damage for which an insurer may be liable, under any
policy other than life insurance policy, shall be paid within thirty days after proof of loss is received
by the insurer and ascertainment of the loss or damage is made either by agreement between the
insured and the insurer or by arbitration; but if such ascertainment is not had or made within sixty
days after such receipt by the insurer of the proof of loss, then the loss or damage shall be paid
within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time
prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the
duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such
failure or refusal to pay is based on the ground that the claim is fraudulent.
SECTION 244. In case of any litigation for the enforcement of any policy or contract of insurance, it
shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to
whether the payment of the claim of the insured has been unreasonably denied or withheld; and in
the affirmative case, the insurance company shall be adjudged to pay damages which shall consist
of attorney's fees and other expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the
Monetary Board of the amount of the claim due the insured, from the date following the time
prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may
be, until the claim is fully satisfied: Provided, That the failure to pay any such claim within the time
prescribed in said sections shall be considered prima facie evidence of reasonable delay in payment.
Notably, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is
created by the failure of the insurer to pay the claim within the time fixed in both Sections 243 and
244. Further, Section 29 of the policy itself provides for the payment of such interest:
Settlement of claim clause. The amount of any loss or damage for which the company may be liable,
under this policy shall be paid within thirty days after proof of loss is received by the company and
ascertainment of the loss or damage is made either in an agreement between the insured and the
company or by arbitration; but if such ascertainment is not had or made within sixty days after such
receipt by the company of the proof of loss, then the loss or damage shall be paid within ninety days
after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will
entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at
the rate of twice the ceiling prescribed by the Monetary Board unless such failure or refusal to pay is
based on the grounds (sic) that the claim is fraudulent.
The policy itself obliges petitioner to pay the insurance claim within 30 days after proof of loss and
ascertainment of the loss made in an agreement. The amount due private respondent was
P842,683.40 on April 2, 1985. Finman had until May 2, 1985 to pay Usiphils insurance. For its failure
to do so, the CA and the trial court rightfully directed petitioner to pay, inter alia, 24% interest per

annum.

P. Compulsory Motor Vehicle Liability Insurance

GR No. L-49699, 1988
71) PERLA COMPANIA de SEGUROS, INC., petitioner, vs. HON. CONSTANTE A. ANCHETA, Presiding
Judge of the Court of First Instance of Camarines Norte, Branch III, ERNESTO A. RAMOS and GOYENA
ZENAROSA-RAMOS, for themselves and as Guardian Ad Litem for Minors JOBET, BANJO, DAVID and
GRACE all surnamed RAMOS, FERNANDO M. ABCEDE, SR., for himself and Guardian Ad Litem for
minor FERNANDO G. ABCEDE, JR., MIGUEL JEREZ MAGO as Guardian Ad Litem for minors ARLEEN R.
MAGO, and ANACLETA J. ZENAROSA, respondents
Facts: On December 27, 1977, the IH Scout (in which private respondents were riding) collided with a
Superlines bus along the national highway in Sta. Elena, Camarines Norte. Private respondents
sustained physical injuries in varying degrees of gravity. Thus, they filed with the CFI a complaint for
damages against Superlines, the bus driver and petitioner, the insurer of the bus. The bus was
insured with Perla Compania for P50,000 as and for passenger liability and P50,000.00 as and for
third party liability. The IH Scout was insured with Malayan Insurance Co.
Even before summons could be served, respondent judge issued an order:
The second incident is the prayer for an order of this court for the Insurance Company, Perla
Compania de Seguros, Inc., to pay immediately the P5,000 under the "no fault clause" as provided
for under Section 378 of the Insurance Code, and finding that the requisite documents to be
attached in the record, the said Insurance Company is therefore directed to pay the plaintiffs (private
respondents herein) within 5 days from receipt of this order.
Perla denied in its Answer its alleged liability under the "no fault indemnity" provision. It held that
under Sec. 378 of the Insurance Code, the insurer liable to pay the P5,000 is the insurer of the
vehicle in which private respondents were riding, not petitioner, as the provision states that "in the
case of an occupant of a vehicle, claim shall lie against the insurer of the vehicle in which the
occupant is riding, mounting or dismounting from." Respondent judge, however, denied
reconsideration. The judge ordered the issuance of a writ of execution. Hence, the instant petition
praying principally for the annulment and setting aside of respondent judge's orders. SC issued TRO.
Issue: WON Perla is the insurer liable to indemnify private respondents under Sec. 378 of
the Insurance Code.
Held: No. Irrespective of whether or not fault or negligence has with the driver of the Superlines bus,
as private respondents were not occupants of the bus, they cannot claim the "no fault indemnity"
provided in Sec. 378 from Perla. The claim should be made against the insurer of the vehicle they
were riding (i.e., Malayan). This is very clear from the law. In ordering Perla to pay private
respondents the "no fault indemnity," respondent judge gravely abused his discretion in a manner
that amounts to lack of jurisdiction. The issuance of the corrective writ of certiorari is therefore
warranted.
The key to the resolution of the issue is Sec. 378, which provides:
Any claim for death or injury to any passenger or third party pursuant to the provisions of this
chapter shall be paid without the necessity of proving fault or negligence of any kind. Provided, that
for purposes of this section
(i) The indemnity in respect of any one person shall not exceed five thousand pesos;
(ii) The following proofs of loss, when submitted under oath, shall be sufficient evidence to
substantiate the claim:
(a)Police report of accident, and
(b)Death certificate and evidence sufficient to establish the proper payee, or
(c)Medical report and evidence of medical or hospital disbursement in respect of which refund is
claimed;
(iii) Claim may be made against one motor vehicle only. In the case of an occupant of a vehicle,
claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or
dismounting from. In any other case, claim shall lie against the insurer of the directly offending
vehicle. In all cases, the right of the party paying the claim to recover against the owner of the
vehicle responsible for the accident shall be maintained.
From a reading of the provision, the following rules on claims under the "no fault indemnity"
provision, where proof of fault or negligence is not necessary for payment of any claim for death or
injury to a passenger or a third party, are established:
A claim may be made against one motor vehicle only.
If the victim is an occupant of a vehicle, the claim shall lie against the insurer of the vehicle in which
he is riding, mounting or dismounting from.

In any other case (i.e. if the victim is not an occupant of a vehicle), the claim shall lie against the
insurer of the directly offending vehicle.
In all cases, the right of the party paying the claim to recover against the owner of the vehicle
responsible for the accident shall be maintained.
The law is very clear the claim shall lie against the insurer of the vehicle in which the
"occupant" is riding, and no other. The claimant is not free to choose from which insurer he will claim
the "no fault indemnity," as the law, by using the word "shall", makes it mandatory that the claim be
made against the insurer of the vehicle in which the occupant is riding, mounting or dismounting
from.
That said vehicle might not be the one that caused the accident is of no moment since the law itself
provides that the party paying the claim under Sec. 378 may recover against the owner of the
vehicle responsible for the accident. This is precisely the essence of "no fault indemnity" insurance
which was introduced to and made part of our laws in order to provide victims of vehicular accidents
or their heirs immediate compensation, although in a limited amount, pending final determination of
who is responsible for the accident and liable for the victims' injuries or death. In turn, the "no fault
indemnity" provision is part and parcel of the Insurance Code provisions on compulsory motor
vehicle liability insurance [Sec. 373-389] and should be read together with the requirement for
compulsory passenger and/or third party liability insurance [Sec. 377] which was mandated in order
to ensure ready compensation for victims of vehicular accidents.
72) FIRST QUEZON CITY INSURANCE COMPANY, INC. vs THE HON. COURT OF APPEALS and DE DIOS
MARIKINA TRANSPORTATION CO. LLORAD
FACTS: On June 10, 1984, Plaintiff Jose V. del Rosario proceeded to the loading and unloading zone
for public utility bus stop. As it approach the bus stop, the bus slowed down with all its doors wide
open: while moving at a crawling pace, i.e., as slow as an "ordinary walk," it was taking several
passengers, about five or seven of them including the plaintiff, all of whom managed to board the
bus while it was already at the bus stop; plaintiff was the last one to board the bus.
While the plaintiff was still on the bus' running board with his hand on the bus door's handle bar, the
slowly moving bus sped forward at a high speed, as a result of which, the plaintiff lost his balance
and fell from the bus. As plaintiff clung instinctively to the handle bar, he was dragged by the bus
along the asphalted road for about two (2) seconds. Thereafter, the plaintiff was brought to the
Manila Sanitarium and Hospital where he was given immediate medical treatment at the emergency
ward. The doctors performed a major surgical operation on plaintiff's right leg.
Plaintiff was confined at the hospital for a total period of forty (40). During his stay at the hospital,
plaintiff incurred medical expenses in the total amount of P69,444.41. Also, the plaintiff incurred lost
earning by way of unearned salaries amounting to P7,500 due to said physical injuries and the
consequent hospital confinement..
ISSUE: Up to what extent is the insurers liability?
RULING: The insurance company clearly passed the maximum limit of the petitioner's liability for
damages arising from death or bodily injury at P12,000 per passenger and its maximum liability per
accident at P50,000.00. Since only one passenger was injured in the accident, the insurer's liability
for the damages suffered by said passenger is pegged to the amount of P12,000 only. What does the
limit of P50,000 per accident mean? It means that the insurer's liability for any single accident will
not exceed P50,000 regardless of the number of passengers killed or injured therein. For example, if
ten (10) passengers had been injured by the operation of the insured bus, the insurer's liability for
the accident would not be P120,000 (at the rate of P12,000 per passenger) but would be limited to
only P50,000.00 for the entire accident, as provided in the insurance contract.
The bus company may not recover from the insurance company (herein petitioner) more than P
12,000.00 per passenger killed or injured, or fifty thousand (P50,000.00) pesos per accident even if
under the judgment of the court, the erring bus operator will have to pay more than P12,000.00 to
each injured passenger. The trial court's interpretation of the insurance contract was the correct
interpretation.
73) PERLA COMPANIA DE SEGUROS, INC., petitioner, vs. HON. JOSE R. RAMOLETE, PRIMITIVA Y.
PALMES, HONORATO BORBON, SR., OFFICE OF THE PROVINCIAL SHERIFF, PROVINCE OF
CEBU, respondents
Facts: On June 1976, a Cimarron PUJ owned by Nelia Enriquez, and driven by Cosme Casas, was
travelling from Cebu City to Danao City. While passing through Liloan, Cebu, the Cimarron PUJ
collided with a private jeep owned by the late Calixto Palmes (husband of private respondent
Primitiva Palmes) who was then driving the private jeep. The impact of the collision was such that
the private jeep was flung away to a distance of about thirty (30) feet and then fell on its right side
pinning down Calixto Palmes. He died as a result of cardio-respiratory arrest due to a crushed
chest. The accident also caused physical injuries on the part of 2-year-old Adeudatus Borbon.
Private

respondents

Primitiva

and

Honorato

Borbon,

Sr.

(father

of

Adeudatus)

filed

complaint against Cosme and Nelia before the then Cebu CFI claiming actual, moral, nominal and
exemplary damages as a result of the accident. The claim of Borbon, Sr. was excluded from the
complaint due to jurisdiction.
The CFI ruled in favor of Primitiva, ordering common carrier Nelia to pay her damages and attorneys
fees. The judgment of the trial court became final and executory and a writ of execution was issued,
which however, returned unsatisfied, prompting the court to summon and examine Nelia. She
declared that the Cimarron PUJ was covered by a third-party liability insurance policy issued by
petitioner Perla.
Palmes then filed a motion for garnishment praying that an order of garnishment be issued against
the insurance policy issued by petitioner in favor of the judgment debtor. Respondent Judge then
issued an Order directing the Provincial Sheriff or his deputy to garnish the third-party liability
insurance policy. Petitioner filed for MR and quashal of the writ of garnishment on the ground that
Perla was not a party to the case and that jurisdiction over its person had never been acquired by
the trial court by service of summons or by any process. The trial court denied
petitioners motion.An Order for issuance of an alias writ of garnishment was subsequently issued.
More than two (2) years later, the present Petition for Certiorari and Prohibition was filed with this
Court alleging grave abuse of discretion on the part of respondent Judge Ramolete in ordering
garnishment of the third-party liability insurance contract issued by petitioner Perla in favor of the
judgment debtor, Nelia Enriquez. The Petition should have been dismissed forthwith for having been
filed way out of time but, for reasons which do not appear on the record, was nonetheless
entertained.
Issues:
W/N there is GADALEJ on the part of the respondent judge
W/N there insurance policy may be subject to garnishment
Held:
1. No. The SC found no grave abuse of discretion or act in excess of or without jurisdiction on the
part of respondent Judge Ramolete in ordering the garnishment of the judgment debtors third-party
liability insurance.
2. Yes. Garnishment has been defined as a species of attachment for reaching any property or
credits pertaining or payable to a judgment debtor. In legal contemplation, it is a forced novation by
the substitution of creditors: the judgment debtor, who is the original creditor of the garnishee is,
through service of the writ of garnishment, substituted by the judgment creditor who thereby
becomes creditor of the garnishee. Garnishment has also been described as a warning to a person
having in his possession property or credits of the judgment debtor, not to pay the money or deliver
the property to the latter, but rather to appear and answer the plaintiffs suit.
In order that the trial court may validly acquire jurisdiction to bind the person of the garnishee, it is
not necessary that summons be served upon him. The garnishee need not be impleaded as a party
to the case. All that is necessary for the trial court lawfully to bind the person of the garnishee or any
person who has in his possession credits belonging to the judgment debtor is service upon him of
the writ of garnishment.
Rule 39, Section 15 and Rule 57, Section 7(e) of the ROC themselves do not require that the
garnishee be served with summons or impleaded in the case in order to make him liable.
In the present case, there can be no doubt, therefore, that the trial court actually acquired
jurisdiction over petitioner Perla when it was served with the writ of garnishment of the third-party
liability insurance policy it had issued in favor of judgment debtor Nelia Enriquez. Perla cannot
successfully evade liability thereon by such a contention.
In a third-party liability insurance contract, the insurer assumes the obligation of paying the injured
third party to whom the insured is liable. The insurer becomes liable as soon as the liability of the
insured to the injured third person attaches. Prior payment by the insured to the injured third person
is not necessary in order that the obligation of the insurer may arise. From the moment that the
insured became liable to the third person, the insured acquired an interest in the insurance contract,
which interest may be garnished like any other credit.
A separate action is not necessary to establish petitioners liability.
Petition for Certiorari and Prohibition is hereby DISMISSED for having been filed out of time and for
lack of merit. Judgment AFFIRMED
74) GSIS VS CA 308 SCRA 59, June 21, 1999
FACTS: National Food Authority (NFA, formerly National Grains Authority) was the owner of a
Chevrolet truck which was insured against liabilities for death of and injuries to third persons with
the GSIS. Said truck driven by Guillermo Corbeta collided with a public utility vehicle, a Toyota
Tamaraw. The Toyota Tamaraw was owned and operated by Victor Uy, under the name and style of

Victory Line. As a result, Five (5) passengers died[4] while ten (10) others sustained bodily
injuries. Among those injured were private respondents, Victoria Jaime Vda. de Kho and Gloria Kho
Vda. de Calabia. Among the dead were Maxima Ugmad Vda. de Kho, Roland Kho and Willie Calabia,
Sr.
Three (3) cases were filed with the Court of First Instance:
(1) commenced by Uy against NFA and Corbeta.
(2) For damages, was filed by an injured passenger, Librado Taer, against Uy, the operator of the
public utility vehicle, and insurer, Mabuhay Insurance and Guaranty Co. (MIGC).
(3)Instituted by herein private respondents against the following: NFA and Corbeta for damages due
to quasi-delict; GSIS as insurer of the truck; Uy for breach of contract of carriage; and MIGC as
insurer of the Toyota Tamaraw.
These cases were later on transferred to Branch II of the Regional Trial Court of Butuan City. The
court rendered its decision [5] holding that Corbetas negligence was the proximate cause of the
collision. The findings of the trial court stated that the truck which crossed over to the other lane was
speeding because after the collision, its left front wheel was detached and the truck traveled for
about fifty (50) meters and fell into a ravine.
ISSUE: Whether the respondent court erred in holding GSIS solidarily liable with the negligent
insured/owner-operator of the Chevrolet truck for damages awarded to private respondents which
are beyond the limitations of the insurance policy and the Insurance Memorandum Circular No. 5-78.
RULING: Petitioners position insofar as joint liability is concerned is not tenable. It is now established
that the injured or the heirs of a deceased victim of a vehicular accident may sue directly the insurer
of the vehicle. Note that common carriers are required to secure Compulsory Motor Vehicle Liability
Insurance [CMVLI] coverage as provided under Sec. 374 [13] of the Insurance Code, precisely for the
benefit of victims of vehicular accidents and to extend them immediate relief
Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to
provide compensation for the death or bodily injuries suffered by innocent third parties or
passengers as a result of a negligent operation and use of motor vehicles. The victims and/or their
defendants [dependents] are assured of immediate financial assistance, regardless of the financial
capacity of motor vehicle owners.
xxx
The injured for whom the contract of insurance is intended can sue directly the insurer. The general
purpose of statutes enabling an injured person to proceed directly against the insurer is to protect
injured persons against the insolvency of the insured who causes such injury, and to give such
injured person a certain beneficial interest in the proceeds of the policy, and statutes are to be
liberally construed so that their intended purpose may be accomplished. It has even been held that
such a provision creates a contractual relation which inures to the benefit of any and every person
who may be negligently injured by the named insured as if such injured person were specifically
named in the policy.
However, although the victim may proceed directly against the insurer for indemnity, the third party
liability is only up to the extent of the insurance policy and those required by law. While it is true
that where the insurance contract provides for indemnity against liability to third persons, and such
third persons can directly[17] sue the insurer, the direct liability of the insurer under indemnity
contracts against third party liability does not mean that the insurer can be held liable in
solidum with the insured and/or the other parties found at fault. [18] For the liability of the insurer is
based on contract; that of the insured carrier or vehicle owner is based on tort. [19] The liability of
GSIS based on the insurance contract is direct, but not solidary with that of the NFA. The latters
liability is based separately on Article 2180[20] of the Civil Code.[21]
Obviously, the insurer could be held liable only up to the extent of what was provided for by the
contract of insurance, in accordance with CMVLI law. At the time of the incident, the schedule of
indemnities for death and/or bodily injuries, professional fees, hospital and other charges payable
under a CMVLI coverage was provided under the Insurance Memorandum Circular (IMC) No. 5-78
which was approved on November 10, 1978, at twelve thousand (P12,000.00) pesos per victim.
Consequently, heirs of the victims who died in the May 9, 1979 vehicular incident, could proceed (1)
against GSIS for the indemnity of P12,000 for each dead victim, and against NFA and Guillermo
Corbeta for any other damages or expenses claimed; or (2) against NFA and Corbeta to pay them all
their claims in full.
It follows also that injured victims, Gloria Kho Vda. de Calabia and Victoria Kho, could claim their
medical expenses for eight thousand nine hundred thirty-five pesos and six centavos (P8,935.06)
and eight hundred thirty-two (P832.00) pesos, from any of the following: GSIS, NFA, or Corbeta. As to
the other damages, only NFA or Corbeta may be held liable therefor.

Q. Jurisdiction of Insurance Commission

75) PHILIPPINE AMERICAN LIFE INSURANCE COMPANY and RODRIGO DE LOS REYES vs.
HON. ARMANDO ANSALDO, in his capacity as Insurance Commissioner, and RAMON MONTILLA
PATERNO, JR
FACTS: April 17, 1986- a letter-complaint of private respondent Ramon M. Paterno, Jr. 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.
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" .A copy of this letter was sent by the Insurance
Commissioner to private respondent for his comments thereon.
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.
June 6, 1986- Petitioner De los Reyes, in his letter to respondent Commissioner dated, 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.
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.
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.
October 14, 1986- Manuel Ortega, Philamlife's Senior Assistant Vice-President and Executive
Assistant to the President, asked that respondent Commission first rule on the questions of the
jurisdiction of the Insurance Commissioner over the subject matter of the letters-complaint and the
legal standing of private respondent.
ISSUE: 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.
RULING: The general regulatory authority of the Insurance Commissioner is described in Section 414
of the Insurance Code, to wit:
The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance
companies and other insurance matters, mutual benefit associations and trusts for charitable uses
are faithfully executed and to perform the duties imposed upon him by this Code, . . .
On the other hand, Section 415 provides:
In addition to the administrative sanctions provided elsewhere in this Code, the Insurance
Commissioner is hereby authorized, at his discretion, to impose upon insurance companies, their
directors and/or officers and/or agents, for any willful failure or refusal to comply with, or violation of
any provision of this Code, or any order, instruction, regulation or ruling of the Insurance
Commissioner, or any commission of irregularities, and/or conducting business in an unsafe and
unsound manner as may be determined by the the Insurance Commissioner, the following:
(a) fines not in excess of five hundred pesos a day; and
(b) suspension, or after due hearing, removal of directors and/or officers and/or agents.
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
making or proposing to make, as insurer, any insurance contract;
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;

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;
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])
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.
ADDITIONAL PRONOUNCEMENTS: (With regard to private respondent's contention that the quasijudicial 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, 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.