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1.Eternal Gardens Memorial Park Corporation vs. Phil. American Life Insurance Co., GR No.

166245, 09 April No medical examination shall be required for amounts of insurance up to P50,000.00.
2008 However, a declaration of good health shall be required for all Lot Purchasers as part of the
2. Philamcare Health Systems, Inc. vs. Court of Appeals, 379 SCRA 356, G.R. No. 125678, March 18, 2002 application. The Company reserves the right to require further evidence of insurability
3. Asian Terminals, Inc. v. First Lepanto-Taisho Insurance Corp., G.R. No. 185964, June 16, 2014 satisfactory to the Company in respect of the following:
4. Cha vs. Court of Appeals, 277 SCRA 690, G.R. No. 124520, August 18, 1997
5. Gaisano Cagayan, Inc. vs. Insurance Company of North America, 490 SCRA 286, G.R. No. 147839, June 8, 2006 1. Any amount of insurance in excess of P50,000.00.
6. Sun Life of Canada [Philippines], Inc. vs. Sibya, 793 SCRA 45, G.R. No. 211212 June 8, 2016 7.
Geagonia vs. Court of Appeals, 241 SCRA 152, G.R. No. 114427, February 6, 1995 8. The 2. Any lot purchaser who is more than 55 years of age. cCHETI
Insular Life Assurance Company, Ltd. v. Paz Y. Khu, et al.
LIFE INSURANCE BENEFIT.
G.R. No. 195176; April 18, 2016
9. Vda. de Maglana vs. Hon. Consolacion (August 6, 1992) 10. Tiu vs. The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the
Arriesgado (GR No. 138060, 01 September 2004) 11. Prudential Guarantee vs. unpaid balance of his loan (including arrears up to but not exceeding 2 months) as reported
Trans-Asia Shipping Lines, Inc. G.R. No. 151890, 20 June 2006 by the Assured to the Company or the sum of P100,000.00, whichever is smaller. Such
12. Roque vs. Intermediate Appellate Court, 139 SCRA 596, No. L-66935 benefit shall be paid to the Assured if the Lot Purchaser dies while insured under the
13. American Home Assurance Company vs. Chua, 309 SCRA 250, G.R. No. 130421, June 28, 1999 Policy.
14. The Insular Life Assurance Company, Ltd. vs. Khu, 789 SCRA 544, G.R. No. 195176 April 18, 2016
15. Lourdes v. Philam Plans, G.R. No. 186983, February 22, 2012 EFFECTIVE DATE OF BENEFIT.The insurance of any eligible Lot Purchaser shall be
effective on the date he contracts a loan with the Assured. However, there shall be no
insurance if the application of the Lot Purchaser is not approved by the Company. 3
[G.R. No. 166245. April 8, 2008.]
Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers,
1. ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner, vs. THE PHILIPPINE
together with a copy of the application of each purchaser, and the amounts of the respective unpaid balances of
AMERICAN LIFE INSURANCE COMPANY, respondent.
all insured lot purchasers. In relation to the instant petition, Eternal complied by submitting a letter dated
December 29, 1982, 4 containing a list of insurable balances of its lot buyers for October 1982. One of those
included in the list as "new business" was a certain John Chuang. His balance of payments was PhP100,000.
DECISION On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 1984 5 to Philamlife, which served as an insurance claim for
Chuang's death. Attached to the claim were the following documents: (1) Chuang's Certificate of Death; (2)
Identification Certificate stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant; (4)
VELASCO, JR., J p: Certificate of Attending Physician; and (5) Assured's Certificate. cAHIST

The Case In reply, Philamlife wrote Eternal a letter on November 12, 1984, 6 requiring Eternal to submit the
following documents relative to its insurance claim for Chuang's death: (1) Certificate of Claimant (with form
Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside attached); (2) Assured's Certificate (with form attached); (3) Application for Insurance accomplished and
the November 26, 2004 Decision 1 of the Court of Appeals (CA) in CA-G.R. CV No. 57810 is the query: May signed by the insured, Chuang, while still living; and (4) Statement of Account showing the unpaid balance of
the inaction of the insurer on the insurance application be considered as approval of the application? Chuang before his death.
The Facts Eternal transmitted the required documents through a letter dated November 14, 1984, 7 which was
received by Philamlife on November 15, 1984.
On December 10, 1980, respondent Philippine American Life Insurance Company (Philamlife)
entered into an agreement denominated as Creditor Group Life Policy No. P-1920 2 with petitioner Eternal After more than a year, Philamlife had not furnished Eternal with any reply to the latter's insurance
Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who purchased burial claim. This prompted Eternal to demand from Philamlife the payment of the claim for PhP100,000 on April 25,
lots from it on installment basis would be insured by Philamlife. The amount of insurance coverage depended 1986. 8
upon the existing balance of the purchased burial lots. The policy was to be effective for a period of one year,
renewable on a yearly basis. SacTCA In response to Eternal's demand, Philamlife denied Eternal's insurance claim in a letter dated May
20, 1986, 9 a portion of which reads:
The relevant provisions of the policy are:
The deceased was 59 years old when he entered into Contract #9558 and 9529 with Eternal
ELIGIBILITY. Gardens Memorial Park in October 1982 for the total maximum insurable amount of
P100,000.00 each. No application for Group Insurance was submitted in our office prior to
Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is his death on August 2, 1984. CacTIE
indebted to the Assured for the unpaid balance of his loan with the Assured, and is accepted
for Life Insurance coverage by the Company on its effective date is eligible for insurance In accordance with our Creditor's Group Life Policy No. P-1920, under Evidence of
under the Policy. Insurability provision, "a declaration of good health shall be required for all Lot Purchasers
as party of the application." We cite further the provision on Effective Date of Coverage
EVIDENCE OF INSURABILITY. under the policy which states that "there shall be no insurance if the application is not

1 COMM REV – INSURANCE CASES


approved by the Company." Since no application had been submitted by the As a general rule, this Court is not a trier of facts and will not re-examine factual issues raised
Insured/Assured, prior to his death, for our approval but was submitted instead on before the CA and first level courts, considering their findings of facts are conclusive and binding on this
November 15, 1984, after his death, Mr. John Uy Chuang was not covered under the Court. However, such rule is subject to exceptions, as enunciated in Sampayan v. Court of Appeals:
Policy. We wish to point out that Eternal Gardens being the Assured was a party to the
Contract and was therefore aware of these pertinent provisions. (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2)
when the inference made is manifestly mistaken, absurd or impossible; (3) when there is
With regard to our acceptance of premiums, these do not connote our approval per se of the grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts;
insurance coverage but are held by us in trust for the payor until the prerequisites for (5) when the findings of facts are conflicting; (6) when in making its findings the [CA]
insurance coverage shall have been met. We will however, return all the premiums which went beyond the issues of the case, or its findings are contrary to the admissions of both
have been paid in behalf of John Uy Chuang. the appellant and the appellee; (7) when the findings [of the CA] are contrary to the
trial court; (8) when the findings are conclusions without citation of specific evidence on
Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of which they are based; (9) when the facts set forth in the petition as well as in the
money against Philamlife, docketed as Civil Case No. 14736. The trial court decided in favor of Eternal, the petitioner's main and reply briefs are not disputed by the respondent; (10) when the
dispositive portion of which reads: findings of fact are premised on the supposed absence of evidence and contradicted by the
evidence on record; and (11) when the Court of Appeals manifestly overlooked certain
WHEREFORE, premises considered, judgment is hereby rendered in favor of Plaintiff relevant facts not disputed by the parties, which, if properly considered, would justify a
ETERNAL, against Defendant PHILAMLIFE, ordering the Defendant PHILAMLIFE, to different conclusion. 12 (Emphasis supplied.) aHDTAI
pay the sum of P100,000.00, representing the proceeds of the Policy of John Uy Chuang,
plus legal rate of interest, until fully paid; and, to pay the sum of P10,000.00 as attorney's In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may
fees. aIHCSA review them.
SO ORDERED. Eternal claims that the evidence that it presented before the trial court supports its contention that it
submitted a copy of the insurance application of Chuang before his death. In Eternal's letter dated December
The RTC found that Eternal submitted Chuang's application for insurance which he accomplished 29, 1982, a list of insurable interests of buyers for October 1982 was attached, including Chuang in the list of
before his death, as testified to by Eternal's witness and evidenced by the letter dated December 29, 1982, new businesses. Eternal added it was noted at the bottom of said letter that the corresponding "Phil-Am Life
stating, among others: "Encl: Phil-Am Life Insurance Application Forms & Cert." 10 It further ruled that due Insurance Application Forms & Cert." were enclosed in the letter that was apparently received by Philamlife
to Philamlife's inaction from the submission of the requirements of the group insurance on December 29, 1982 on January 15, 1983. Finally, Eternal alleged that it provided a copy of the insurance application which was
to Chuang's death on August 2, 1984, as well as Philamlife's acceptance of the premiums during the same signed by Chuang himself and executed before his death.
period, Philamlife was deemed to have approved Chuang's application. The RTC said that since the contract is
a group life insurance, once proof of death is submitted, payment must follow. On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing
that Eternal must present evidence showing that Philamlife received a copy of Chuang's insurance
Philamlife appealed to the CA, which ruled, thus: application. CDISAc
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case No. The evidence on record supports Eternal's position.
57810 is REVERSED and SET ASIDE, and the complaint is DISMISSED. No costs.
The fact of the matter is, the letter dated December 29, 1982, which Philamlife stamped as
SO ORDERED. 11 received, states that the insurance forms for the attached list of burial lot buyers were attached to the letter.
Such stamp of receipt has the effect of acknowledging receipt of the letter together with the attachments. Such
The CA based its Decision on the factual finding that Chuang's application was not enclosed in receipt is an admission by Philamlife against its own interest. 13 The burden of evidence has shifted to
Eternal's letter dated December 29, 1982. It further ruled that the non-accomplishment of the submitted Philamlife, which must prove that the letter did not contain Chuang's insurance application. However,
application form violated Section 26 of the Insurance Code. Thus, the CA concluded, there being no Philamlife failed to do so; thus, Philamlife is deemed to have received Chuang's insurance application.
application form, Chuang was not covered by Philamlife's insurance.
To reiterate, it was Philamlife's bounden duty to make sure that before a transmittal letter is
Hence, we have this petition with the following grounds: cHDEaC stamped as received, the contents of the letter are correct and accounted for.
The Honorable Court of Appeals has decided a question of substance, not therefore Philamlife's allegation that Eternal's witnesses ran out of credibility and reliability due to
determined by this Honorable Court, or has decided it in a way not in accord with law or inconsistencies is groundless. The trial court is in the best position to determine the reliability and credibility
with the applicable jurisprudence, in holding that: of the witnesses, because it has the opportunity to observe firsthand the witnesses' demeanor, conduct, and
attitude. Findings of the trial court on such matters are binding and conclusive on the appellate court, unless
I. The application for insurance was not duly submitted to some facts or circumstances of weight and substance have been overlooked, misapprehended, or
respondent PhilamLife before the death of John Chuang; misinterpreted, 14 that, if considered, might affect the result of the case. 15
II. There was no valid insurance coverage; and An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no
overlooked facts of substance and value.
III. Reversing and setting aside the Decision of the Regional Trial
Court dated May 29, 1996. Philamlife primarily claims that Eternal did not even know where the original insurance application
of Chuang was, as shown by the testimony of Edilberto Mendoza:
The Court's Ruling
Atty. Arevalo:

2 COMM REV – INSURANCE CASES


Q Where is the original of the application form which is required in case of new An examination of the above provision would show ambiguity between its two sentences. The first
coverage? sentence appears to state that the insurance coverage of the clients of Eternal already became effective upon
contracting a loan with Eternal while the second sentence appears to require Philamlife to approve the
[Mendoza:] insurance contract before the same can become effective.
A It is [a] standard operating procedure for the new client to fill up two copies It must be remembered that an insurance contract is a contract of adhesion which must be construed
of this form and the original of this is submitted to Philamlife together with the liberally in favor of the insured and strictly against the insurer in order to safeguard the latter's interest. Thus,
monthly remittances and the second copy is remained or retained with the in Malayan Insurance Corporation v. Court of Appeals, this Court held that:
marketing department of Eternal Gardens. EHSITc
Indemnity and liability insurance policies are construed in accordance with the general rule
Atty. Miranda: of resolving any ambiguity therein in favor of the insured, where the contract or policy is
prepared by the insurer. A contract of insurance, being a contract of adhesion, par
We move to strike out the answer as it is not responsive as counsel is merely excellence, any ambiguity therein should be resolved against the insurer; in other
asking for the location and does not [ask] for the number of copy. words, it should be construed liberally in favor of the insured and strictly against the
insurer. Limitations of liability should be regarded with extreme jealousy and must be
Atty. Arevalo: construed in such a way as to preclude the insurer from noncompliance with its
obligations. 19 (Emphasis supplied.) TECcHA
Q Where is the original?
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the
[Mendoza:] above ruling, stating that:
A As far as I remember I do not know where the original but when I submitted When the terms of insurance contract contain limitations on liability, courts should
with that payment together with the new clients all the originals I see to it construe them in such a way as to preclude the insurer from non-compliance with his
before I sign the transmittal letter the originals are attached therein. 16 obligation. Being a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party which prepared the contract, the insurer. By reason of
In other words, the witness admitted not knowing where the original insurance application was, but the exclusive control of the insurance company over the terms and phraseology of the
believed that the application was transmitted to Philamlife as an attachment to a transmittal letter. HTCAED insurance contract, ambiguity must be strictly interpreted against the insurer and liberally
As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two in favor of the insured, especially to avoid forfeiture. 20
insurance application forms were accomplished and the testimony of Mendoza on who actually filled out the
application form, these are minor inconsistencies that do not affect the credibility of the witnesses. Thus, we Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December
ruled in People v. Paredes that minor inconsistencies are too trivial to affect the credibility of witnesses, and 10, 1980, must be construed in favor of the insured and in favor of the effectivity of the insurance contract.
these may even serve to strengthen their credibility as these negate any suspicion that the testimonies have On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a
been rehearsed. 17 party's purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser
We reiterated the above ruling in Merencillo v. People: is created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the
insurance application. The second sentence of Creditor Group Life Policy No. P-1920 on the Effective Date of
Minor discrepancies or inconsistencies do not impair the essential integrity of the Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance contract.
prosecution's evidence as a whole or reflect on the witnesses' honesty. The test is whether Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the insured;
the testimonies agree on essential facts and whether the respective versions corroborate and it cannot be interpreted as a termination of the insurance contract. The termination of the insurance contract by
substantially coincide with each other so as to make a consistent and coherent whole. 18 the insurer must be explicit and unambiguous. aHTEIA

In the present case, the number of copies of the insurance application that Chuang executed is not at As a final note, to characterize the insurer and the insured as contracting parties on equal footing is
issue, neither is whether the insurance application presented by Eternal has been falsified. Thus, the inaccurate at best. Insurance contracts are wholly prepared by the insurer with vast amounts of experience in
inconsistencies pointed out by Philamlife are minor and do not affect the credibility of Eternal's the industry purposefully used to its advantage. More often than not, insurance contracts are contracts of
witnesses. CIAcSa adhesion containing technical terms and conditions of the industry, confusing if at all understandable to
laypersons, that are imposed on those who wish to avail of insurance. As such, insurance contracts are imbued
However, the question arises as to whether Philamlife assumed the risk of loss without approving with public interest that must be considered whenever the rights and obligations of the insurer and the insured
the application. are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance companies must
be obligated to act with haste upon insurance applications, to either deny or approve the same, or otherwise be
This question must be answered in the affirmative.
bound to honor the application as a valid, binding, and effective insurance contract. 21
As earlier stated, Philamlife and Eternal entered into an agreement denominated as Creditor Group
WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV
Life Policy No. P-1920 dated December 10, 1980. In the policy, it is provided that:
No. 57810 is REVERSED and SET ASIDE. The May 29, 1996 Decision of the Makati City RTC, Branch 138
EFFECTIVE DATE OF BENEFIT. is MODIFIED. Philamlife is hereby ORDERED: THIAaD

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a (1) To pay Eternal the amount of PhP100,000 representing the proceeds of the Life Insurance
loan with the Assured. However, there shall be no insurance if the application of the Lot Policy of Chuang;
Purchaser is not approved by the Company. IcDESA

3 COMM REV – INSURANCE CASES


(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of PhP100,000 from the 2. ID.; ID.; ID.; ELEMENTS. — An insurance contract exists where the following elements concur: 1. The insured
time of extra judicial demand by Eternal until Philamlife's receipt of the May 29, 1996 RTC Decision on June has an insurable interest; 2. The insured is subject to a risk of loss by the happening of the designated peril; 3. The
17, 1996; 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
(3) To pay Eternal legal interest at the rate of twelve percent (12%) per annum of PhP100,000 from premium.
June 17, 1996 until full payment of this award; and
3. ID.; ID.; ID.; INSURABLE INTEREST, CONSTRUED; CASE AT BAR. — Section 3 of the Insurance
(4) To pay Eternal attorney's fees in the amount of PhP10,000. TIEHSA
Code states that any contingent or unknown event, whether past or future, which may damnify a person having an
No costs. insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of
himself. Section 10 provides: "Every person has an insurable interest in the life and health: (1) of himself, of his
SO ORDERED. spouse and of his children; (2) of any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest; (3) of any person under a legal obligation to him for the payment of money,
||| (Eternal Gardens Memorial Park Corp. v. Philippine American Life Insurance Co., G.R. No. 166245, [April 8,
respecting property or service, of which death or illness might delay or prevent the performance; and (4) of any
2008], 574 PHIL 161-174)
person upon whose life any estate or interest vested in him depends." 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.
[G.R. No. 125678. March 18, 2002.] 4. ID.; ID.; ID.; CONCEALMENT; AVOIDS A POLICY; EXCEPTION; CASE AT BAR. — The answer assailed by
petitioner was in response to the question relating to the medical history of the applicant. This largely depends on
2.PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS opinion rather than fact, especially coming from respondent's husband who was not a medical doctor. Where matters
and JULITA TRINOS, respondents. 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
Alvin B. Cunada for petitioner. 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
Ronald O. Layawen for private respondent. 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
SYNOPSIS 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." CAacTH

Ernani Trinos, deceased husband of respondent Julita Trinos, was issued a Health Care Agreement for a health 5. ID.; ID.; ID.; ID.; MUST BE ESTABLISHED BY SATISFACTORY AND CONVINCING EVIDENCE BY
coverage with petitioner. During the period of his coverage, he suffered a heart attack and was confined in the INSURER. — The fraudulent intent on the part of the insured must be established to warrant rescission of the
hospital. Respondent tried to claim the benefits under the health care agreement, but petitioner denied her claim. insurance contract. Concealment as a defense for the health care provider or insurer to avoid liability is an
Thus, respondent paid the hospitalization expenses herself. affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the
provider or insurer.
Respondent then filed with the RTC an action for damages against petitioner and its president, Dr. Benito Reverente.
The court ruled in favor of Julita and awarded damages. On appeal, the Court of Appeals affirmed the decision of 6. ID.; ID.; ID.; HEALTH CARE AGREEMENT; HEALTH CARE PROVIDER, WHEN LIABLE; CASE AT BAR.
the trial court but deleted all awards for damages and absolved petitioner Reverente. Hence, petitioner brought the — In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract.
instant petition for review, raising the primary argument that a health care agreement is not an insurance Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed
contract. IAaCST upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or
injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.
In affirming the decision of the Court of Appeals, the Supreme Court ruled that an insurance contract exists when
the following elements concur: (1) the insured has an insurable interest; (2) the insured is subject to a risk of loss by 7. ID.; ID.; ID.; RESCISSION OF; CONDITIONS; NOT FULFILLED IN CASE AT BAR. — Under Section 27 of
the happening of the designated peril; (3) the insurer assumes the risk; (4) such assumption of risk is part of a the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind
general scheme to distribute actual losses among a large group of persons bearing a similar risk; and (5) in should be exercised previous to the commencement of an action on the contract. In this case, no rescission was
consideration of the insurer's promise, the insured pays a premium. made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the
following conditions: 1. Prior notice of cancellation to insured; 2. Notice must be based on the occurrence after
The health care agreement was in the nature of a non-life insurance, which is primarily a contract of indemnity. effective date of the policy of one or more of the grounds mentioned; 3. Must be in writing, mailed or delivered to
the insured at the address shown in the policy; 4. Must state the grounds relied upon provided in Section 64 of
SYLLABUS the Insurance Code and upon request of insured, to furnish facts on which cancellation is based. None of the above
pre-conditions was fulfilled in this case.
1. COMMERCIAL LAW; INSURANCE LAW; CONTRACT OF INSURANCE; DEFINED. — Section 2 (1) of 8. ID.; ID.; ID.; TERMS AND PHRASEOLOGY CONTAINED THEREIN MUST BE STRICTLY INTERPRETED
the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to AGAINST THE INSURER AND LIBERALLY IN FAVOR OF THE INSURED; CASE AT BAR. — When the
indemnify another against loss, damage or liability arising from an unknown or contingent event. terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude

4 COMM REV – INSURANCE CASES


the insurer from non-compliance with his obligation. Being a contract of adhesion, the terms of an insurance 2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;
contract are to be construed strictly against the party which prepared the contract — the insurer. By reason of the
exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity 3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;
must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.
This is equally applicable to Health Care Agreements. The phraseology used in medical or hospital service contracts, 4. Defendants to pay attorney's fees of P20,000.00, plus costs of suit.
such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably
SO ORDERED. 3
susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of
doubtful import should be strictly construed against the provider. On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and
absolved petitioner Reverente. 4 Petitioner's motion for reconsideration was denied. 5 Hence, petitioner brought the
DECISION
instant petition for review, raising the primary argument that a health care agreement is not an insurance contract;
hence the "incontestability clause" under the Insurance Code 6 does not apply.

Petitioner argues that the agreement grants "living benefits," such as medical check-ups and hospitalization which a
YNARES-SANTIAGO, J p: 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,
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner
since Health Care Agreements are only for a period of one year, as compared to insurance contracts which last
Philamcare Health Systems, Inc. In the standard application form, he answered no to the following question:
longer, 7 petitioner argues that the incontestability clause does not apply, as the same requires an effectivity period
Have you or any of your family members ever consulted or been treated for high blood of at least two years. Petitioner further argues that it is not an insurance company, which is governed by the
pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give Insurance Commission, but a Health Maintenance Organization under the authority of the Department of Health.
details). 1
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a
The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.
issued Health Care Agreement No. P010194. Under the agreement, respondent's husband was entitled to avail of An insurance contract exists where the following elements concur:
hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient
1. The insured has an insurable interest;
benefits" such as annual physical examinations, preventive health care and other out-patient services.
2. The insured is subject to a risk of loss by the happening of the designated
Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1,
peril;
1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of
P75,000.00 per disability. 2 3. The insurer assumes the risk;
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center 4. Such assumption of risk is part of a general scheme to distribute actual losses
(MMC) for one month beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim among a large group of persons bearing a similar risk; and
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 5. In consideration of the insurer's promise, the insured pays a premium. 8
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, Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may
amounting to about P76,000.00. damnify a person having an insurable interest against him, may be insured against. Every person has an insurable
interest in the life and health of himself. Section 10 provides:

Every person has an insurable interest in the life and health:


After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was
admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent brought her husband (1) of himself, of his spouse and of his children;
home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent was
constrained to bring him back to the Chinese General Hospital where he died on the same day. THcaDA (2) of any person on whom he depends wholly or in part for education or
support, or in whom he has a pecuniary interest;
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for damages
against petitioner and its president, Dr. Benito Reverente, which was docketed as Civil Case No. 90-53795. She (3) of any person under a legal obligation to him for the payment of money,
asked for reimbursement of her expenses plus moral damages and attorney's fees. After trial, the lower court ruled respecting property or service, of which death or illness might delay or prevent
against petitioners, viz: the performance; and

WHEREFORE, in view of the foregoing, the Court renders judgment in favor of the (4) of any person upon whose life any estate or interest vested in him depends.
plaintiff Julita Trinos, ordering:
In the case at bar, the insurable interest of respondent's husband in obtaining the health care agreement was his own
1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of
Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff indemnity. 9 Once the member incurs hospital, medical or any other expense arising from sickness, injury or other
who paid the same; stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the
contract. cDTHIE

5 COMM REV – INSURANCE CASES


Petitioner argues that respondent's husband concealed a material fact in his application. It appears that in the defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or
application for health coverage, petitioners required respondent's husband to sign an express authorization for any insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the
person, organization or entity that has any record or knowledge of his health to furnish any and all information contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent
relative to any hospitalization, consultation, treatment or any other medical advice or examination. 10 Specifically, agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the
the Health Care Agreement signed by respondent's husband states: disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.

We hereby declare and agree that all statement and answers contained herein and in any Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of
addendum annexed to this application are full, complete and true and bind all parties-in- insurance." The right to rescind should be exercised previous to the commencement of an action on the
interest under the Agreement herein applied for, that there shall be no contract of health contract. 17 In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance
care coverage unless and until an Agreement is issued on this application and the full policies require the concurrence of the following conditions:
Membership Fee according to the mode of payment applied for is actually paid during the
lifetime and good health of proposed Members; that no information acquired by any
Representative of PhilamCare shall be binding upon PhilamCare unless set out in writing
in the application; that any physician is, by these presents, expressly authorized to disclose 1. Prior notice of cancellation to insured;
or give testimony at anytime relative to any information acquired by him in his
2. Notice must be based on the occurrence after effective date of the policy of
professional capacity upon any question affecting the eligibility for health care coverage of
one or more of the grounds mentioned;
the Proposed Members and that the acceptance of any Agreement issued on this application
shall be a ratification of any correction in or addition to this application as stated in the 3. Must be in writing, mailed or delivered to the insured at the address shown in
space for Home Office Endorsement. 11 (Emphasis ours) the policy;
In addition to the above condition, petitioner additionally required the applicant for authorization to inquire about 4. Must state the grounds relied upon provided in Section 64 of the Insurance
the applicant's medical history, thus: Code and upon request of insured, to furnish facts on which cancellation is
based. 18
I hereby authorize any person, organization, or entity that has any record or knowledge of
my health and/or that of ________ to give to the PhilamCare Health Systems, Inc. any and None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations
all information relative to any hospitalization, consultation, treatment or any other on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his
medical advice or examination. This authorization is in connection with the application for obligation. 19 Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the
health care coverage only. A photographic copy of this authorization shall be as valid as party which prepared the contract — the insurer. 20 By reason of the exclusive control of the insurance company
the original. 12 (Emphasis ours) over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer
and liberally in favor of the insured, especially to avoid forfeiture. 21 This is equally applicable to Health Care
Petitioner cannot rely on the stipulation regarding "Invalidation of Agreement" which reads:
Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally
Failure to disclose or misrepresentation of any material information by the member in the construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction
application or medical examination, whether intentional or unintentional, shall conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed
automatically invalidate the Agreement from the very beginning and liability of Philamcare against the provider. 22
shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented
Anent the incontestability of the membership of respondent's husband, we quote with approval the following
information is deemed material if its revelation would have resulted in the declination of
findings of the trial court:
the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit
or benefits applied for. 13 (U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems
Inc. had twelve months from the date of issuance of the Agreement within which to contest
The answer assailed by petitioner was in response to the question relating to the medical history of the applicant.
the membership of the patient if he had previous ailment of asthma, and six months from
This largely depends on opinion rather than fact, especially coming from respondent's husband who was not a
the issuance of the agreement if the patient was sick of diabetes or hypertension. The
medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent
periods having expired, the defense of concealment or misrepresentation no longer lie. 23
to deceive will not avoid a policy even though they are untrue. 14 Thus,
Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time
(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment
of their marriage, the deceased was previously married to another woman who was still alive. The health care
of the insured will not avoid the policy if there is no actual fraud in inducing the
agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the
acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the
expenses. It is not controverted that respondent paid all the hospital and medical expenses. She is therefore entitled
rule although the statement is material to the risk, if the statement is obviously of the
to reimbursement. The records adequately prove the expenses incurred by respondent for the deceased's
foregoing character, since in such case the insurer is not justified in relying upon such
hospitalization, medication and the professional fees of the attending physicians. 24
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, WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals
as a matter of expectation or belief, that which he then knows, to be actually untrue, or the dated December 14, 1995 is AFFIRMED.
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. 15 (Emphasis ours) SO ORDERED.

The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance ||| (Philamcare Health Systems, Inc. v. Court of Appeals, G.R. No. 125678, [March 18, 2002], 429 PHIL 82-95)
contract. 16Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative

6 COMM REV – INSURANCE CASES


3.ASIAN TERMINALS, INC., petitioner, vs. FIRST LEPANTO-TAISHO INSURANCE In the alternative, ATI asserted that even if it is found liable for the lost/damaged portion of the
CORPORATION, respondent. [G.R. No. 185964. June 16, 2014.] shipment, its contract for cargo handling services limits its liability to not more than PhP5,000.00 per package.
ATI interposed a counterclaim of PhP20,000.00 against FIRST LEPANTO as and for attorney's fees. It also
filed a cross-claim against its co-defendants COSCO and SMITH BELL in the event that it is made liable to
FIRST LEPANTO. 18
REYES, J p:
PROVEN denied any liability for the lost/damaged shipment and averred that the complaint alleged
no specific acts or omissions that makes it liable for damages. PROVEN claimed that the damages in the
This is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court seeking to annul and shipment were sustained before they were withdrawn from ATI's custody under which the shipment was left in
set aside the Decision 2 dated October 10, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 99021 an open area exposed to the elements, thieves and vandals. PROVEN contended that it exercised due diligence
which adjudged petitioner Asian Terminals, Inc. (ATI) liable to pay the money claims of respondent First and prudence in handling the shipment. PROVEN also filed a counterclaim for attorney's fees and damages. 19
Lepanto-Taisho Insurance Corporation (FIRST LEPANTO). Despite receipt of summons on December 4, 1996, 20 COSCO and SMITH BELL failed to file an
answer to the complaint. FIRST LEPANTO thus moved that they be declared in default 21 but the motion was
denied by the MeTC on the ground that under Rule 9, Section 3 of the Rules of Civil Procedure, "when a
The Undisputed Facts pleading asserting a claim states a common cause of action against several defending parties, some of whom
answer and the other fail to do so, the Court shall try the case against all upon the answers thus filed, and
On July 6, 1996, 3 3,000 bags of sodium tripolyphosphate contained in 100 plain jumbo bags render judgment upon the evidence presented." 22
complete and in good condition were loaded and received on board M/V "Da Feng" owned by China Ocean
Shipping Co. (COSCO) in favor of consignee, Grand Asian Sales, Inc. (GASI). Based on a Certificate of Ruling of the MeTC
Insurance 4 dated August 24, 1995, it appears that the shipment was insured against all risks by GASI with
In a Judgment 23 dated May 30, 2006, the MeTC absolved ATI and PROVEN from any liability
FIRST LEPANTO for PhP7,959,550.50 under Marine Open Policy No. 0123.
and instead found COSCO to be the party at fault and hence liable for the loss/damage sustained by the subject
The shipment arrived in Manila on July 18, 1996 and was discharged into the possession and shipment. However, the MeTC ruled it has no jurisdiction over COSCO because it is a foreign corporation.
custody of ATI, a domestic corporation engaged in arrastre business. The shipment remained for quite some Also, it cannot enforce judgment upon SMITH BELL because no evidence was presented establishing that it is
time at ATI's storage area until it was withdrawn by broker, Proven Customs Brokerage Corporation indeed the Philippine agent of COSCO. There is also no evidence attributing any fault to SMITH BELL.
(PROVEN), on August 8 and 9, 1996 for delivery to the consignee. Consequently, the complaint was dismissed in this wise:

Upon receipt of the shipment, 5 GASI subjected the same to inspection and found that the delivered WHEREFORE, in light of the foregoing, judgment is hereby rendered
goods incurred shortages of 8,600 kilograms and spillage of 3,315 kg for a total of 11,915 kg of loss/damage DISMISSING the instant case for failure of [FIRST LEPANTO] to sufficiently establish
valued at PhP166,772.41. its cause of action against [ATI, COSCO, SMITH BELL, and PROVEN]. DTIACH

GASI sought recompense from COSCO, thru its Philippine agent Smith Bell Shipping Lines, Inc. The counterclaims of [ATI and PROVEN] are likewise dismissed for lack of
(SMITH BELL), 6 ATI 7 and PROVEN 8 but was denied. Hence, it pursued indemnification from the legal basis.
shipment's insurer. 9
No pronouncement as to cost.
After the requisite investigation and adjustment, FIRST LEPANTO paid GASI the amount of
P165,772.40 as insurance indemnity. 10 SO ORDERED. 24

Thereafter, GASI executed a Release of Claim 11 discharging FIRST LEPANTO from any and all Ruling of the Regional Trial Court
liabilities pertaining to the lost/damaged shipment and subrogating it to all the rights of recovery and claims On appeal, the Regional Trial Court (RTC) reversed the MeTC's findings. In its Decision 25 dated
the former may have against any person or corporation in relation to the lost/damaged shipment. IHaECA January 26, 2007, the RTC of Manila, Branch 21, in Civil Case No. 06-116237, rejected the contentions of ATI
As such subrogee, FIRST LEPANTO demanded from COSCO, its shipping agency in the upon its observation that the same is belied by its very own documentary evidence. The RTC remarked that, if,
Philippines, SMITH BELL, PROVEN and ATI, reimbursement of the amount it paid to GASI. When FIRST as alleged by ATI, one jumbo bag was already in bad order condition upon its receipt of the shipment from
LEPANTO's demands were not heeded, it filed on May 29, 1997 a Complaint 12 for sum of money before the COSCO on July 18, 1996, then how come that the Request for Bad Order Survey and the Turn Over Survey of
Metropolitan Trial Court (MeTC) of Manila, Branch 3. FIRST LEPANTO sought that it be reimbursed the Bad Order Cargo were prepared only weeks thereafter or on August 9, 1996 and August 6, 1996, respectively.
amount of PhP166,772.41, twenty-five percent (25%) thereof as attorney's fees, and costs of suit. ATI was adjudged unable to prove that it exercised due diligence while in custody of the shipment and hence,
negligent and should be held liable for the damages caused to GASI which, in turn, is subrogated by FIRST
ATI denied liability for the lost/damaged shipment and claimed that it exercised due diligence and LEPANTO.
care in handling the same. 13 ATI averred that upon arrival of the shipment, SMITH BELL requested for its
inspection 14 and it was discovered that one jumbo bag thereof sustained loss/damage while in the custody of The RTC rejected ATI's contention that its liability is limited only to PhP5,000.00 per package
COSCO as evidenced by Turn Over Survey of Bad Order Cargo No. 47890 dated August 6, 1996 15 jointly because its Management Contract with the Philippine Ports Authority (PPA) purportedly containing the same
executed by the respective representatives of ATI and COSCO. During the withdrawal of the shipment by was not presented as evidence. More importantly, FIRST LEPANTO or GASI cannot be deemed bound
PROVEN from ATI's warehouse, the entire shipment was re-examined and it was found to be exactly in the thereby because they were not parties thereto. Lastly, the RTC did not give merit to ATI's defense that any
same condition as when it was turned over to ATI such that one jumbo bag was damaged. To bolster this claim, claim against it has already prescribed because GASI failed to file any claim within the 15-day period stated in
ATI submitted Request for Bad Order Survey No. 40622 dated August 9, 1996 16 jointly executed by the the gate pass issued by ATI to GASI's broker, PROVEN. Accordingly, the RTC disposed thus:
respective representatives of ATI and PROVEN. ATI also submitted various Cargo Gate Passes 17 showing WHEREFORE, in light of the foregoing, the judgment on appeal is
that PROVEN was able to completely withdraw all the shipment from ATI's warehouse in good order hereby REVERSED.
condition except for that one damaged jumbo bag.

7 COMM REV – INSURANCE CASES


[ATI] is hereby ordered to reimburse [FIRST LEPANTO] the amount of There are only specific instances when the Court deviates from the rule and conducts a review of
[PhP]165,772.40 with legal interest until fully paid, to pay [FIRST LEPANTO] 10% of the courts a quo'sfactual findings, such as when: (1) the inference made is manifestly mistaken, absurd or
the amount due the latter as and for attorney's fees plus the costs of suit. impossible; (2) there is grave abuse of discretion; (3) the findings are grounded entirely on speculations,
surmises or conjectures; (4) the judgment of the CA is based on misapprehension of facts; (5) the CA, in
The complaint against [COSCO/SMITH BELL and PROVEN] making its findings, went beyond the issues of the case and the same is contrary to the admissions of both
are DISMISSED for lack of evidence against them. The counterclaim and cross[-]claim appellant and appellee; (6) the findings of fact are conclusions without citation of specific evidence on which
of [ATI] are likewise DISMISSED for lack of merit. they are based; (7) the CA manifestly overlooked certain relevant facts not disputed by the parties and which,
SO ORDERED. 26 if properly considered, would justify a different conclusion; and (8) the findings of fact of the CA are premised
on the absence of evidence and are contradicted by the evidence on record. 33
Ruling of the CA
None of these instances, however, are present in this case. Moreover, it is unmistakable that ATI has
ATI sought recourse with the CA challenging the RTC's finding that FIRST LEPANTO was validly already conceded to the factual findings of RTC and CA adjudging it liable for the shipment's loss/damage
subrogated to the rights of GASI with respect to the lost/damaged shipment. ATI argued that there was no valid considering the absence of arguments pertaining to such issue in the petition at bar.
subrogation because FIRST LEPANTO failed to present a valid, existing and enforceable Marine Open Policy
or insurance contract. ATI reasoned that the Certificate of Insurance or Marine Cover Note submitted by These notwithstanding, the Court scrutinized the records of the case and found that indeed, ATI is
FIRST LEPANTO as evidence is not the same as an actual insurance contract. CSaIAc liable as the arrastre operator for the lost/damaged portion of the shipment. DCIAST

In its Decision 27 dated October 10, 2008, the CA dismissed the appeal and held that the Release of The relationship between the consignee and the arrastre operator is akin to that existing between the
Claim and the Certificate of Insurance presented by FIRST LEPANTO sufficiently established its relationship consignee and/or the owner of the shipped goods and the common carrier, or that between a depositor and a
with the consignee and that upon proof of payment of the latter's claim for damages, FIRST LEPANTO was warehouseman. Hence, in the performance of its obligations, an arrastre operator should observe the same
subrogated to its rights against those liable for the lost/damaged shipment. degree of diligence as that required of a common carrier and a warehouseman. Being the custodian of the
goods discharged from a vessel, an arrastre operator's duty is to take good care of the goods and to turn them
The CA also affirmed the ruling of the RTC that the subject shipment was damaged while in the over to the party entitled to their possession. 34
custody of ATI. Thus, the CA disposed as follows:
In a claim for loss filed by the consignee (or the insurer), the burden of proof to show compliance
WHEREFORE, premises considered, the assailed Decision is with the obligation to deliver the goods to the appropriate party devolves upon the arrastre operator. Since the
hereby AFFIRMED and the instant petition is DENIEDfor lack of merit. safekeeping of the goods is its responsibility, it must prove that the losses were not due to its negligence or to
that of its employees. To avoid liability, the arrastre operator must prove that it exercised diligence and due
SO ORDERED. 28 care in handling the shipment. 35
ATI moved for reconsideration but the motion was denied in the CA Resolution 29 dated January ATI failed to discharge its burden of proof. Instead, it insisted on shifting the blame to COSCO on
12, 2009. Hence, this petition arguing that: the basis of the Request for Bad Order Survey dated August 9, 1996 purportedly showing that when ATI
(a)The presentation of the insurance policy is indispensable in proving the right received the shipment, one jumbo bag thereof was already in damaged condition.
of FIRST LEPANTO to be subrogated to the right of the consignee pursuant to The RTC and CA were both correct in concluding that ATI's contention was improbable and
the ruling in Wallem Philippines Shipping, Inc. v. Prudential Guarantee and illogical. As judiciously discerned by the courts a quo, the date of the document was too distant from the date
Assurance, Inc.; 30 when the shipment was actually received by ATI from COSCO on July 18, 1996.
(b)ATI cannot be barred from invoking the defense of prescription as provided In fact, what the document established is that when the loss/damage was discovered, the shipment
for in the gate passes in consonance with the ruling in International Container has been in ATI's custody for at least two weeks. This circumstance, coupled with the undisputed declaration of
Terminal Services, Inc. v. Prudential Guarantee and Assurance Co., Inc. 31 PROVEN's witnesses that while the shipment was in ATI's custody, it was left in an open area exposed to the
elements, thieves and vandals, 36 all generate the conclusion that ATI failed to exercise due care and diligence
Ruling of the Court while the subject shipment was under its custody, control and possession as arrastre operator.
The Court denies the petition.
To prove the exercise of diligence in handling the subject cargoes, an arrastre operator must do
ATI failed to prove that it exercised more than merely show the possibility that some other party could be responsible for the loss or the
due care and diligence while the damage. 37 It must prove that it used all reasonable means to handle and store the shipment with due care and
shipment was under its custody, diligence including safeguarding it from weather elements, thieves or vandals.
control and possession as arrastre
Non-presentation of the insurance
operator.
contract is not fatal to FIRST
It must be emphasized that factual questions pertaining to ATI's liability for the loss/damage LEPANTO's cause of action for
sustained by GASI has already been settled in the uniform factual findings of the RTC and the CA that: ATI reimbursement as subrogee.
failed to prove by preponderance of evidence that it exercised due diligence in handling the shipment.
It is conspicuous from the records that ATI put in issue the submission of the insurance contract for
Such findings are binding and conclusive upon this Court since a review thereof is proscribed by the first time before the CA. Despite opportunity to study FIRST LEPANTO's complaint before the MeTC,
the nature of the present petition. Only questions of law are allowed in petitions for review on certiorari under ATI failed to allege in its answer the necessity of the insurance contract. Neither was the same considered
Rule 45 of the Rules of Court. It is not the Court's duty to review, examine, and evaluate or weigh all over during pre-trial as one of the decisive matters in the case. Further, ATI never challenged the relevancy or
again the probative value of the evidence presented, especially where the findings of the RTC are affirmed by materiality of the Certificate of Insurance presented by FIRST LEPANTO as evidence during trial as proof of
the CA, as in this case. 32 its right to be subrogated in the consignee's stead.

8 COMM REV – INSURANCE CASES


Since it was not agreed during the pre-trial proceedings that FIRST LEPANTO will have to prove established with certainty because the alleged shortage incurred by the cargoes was not definitively
its subrogation rights by presenting a copy of the insurance contract, ATI is barred from pleading the absence determined. 48 EHSAaD
of such contract in its appeal. It is imperative for the parties to disclose during pre-trial all issues they intend to
raise during the trial because, they are bound by the delimitation of such issues. The determination of issues Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted exceptions by
during the pre-trial conference bars the consideration of other questions, whether during trial or on appeal. 38 declaring that a marine insurance policy is dispensable evidence in reimbursement claims instituted by the
insurer.
A faithful adherence to the rule by litigants is ensured by the equally settled principle that a party
cannot change his theory on appeal as such act violates the basic rudiments of fair play and due process. As In Delsan Transport Lines, Inc. v. CA, 49 the Court ruled that the right of subrogation accrues
stressed in Jose v. Alfuerto: 39 acADIT simply upon payment by the insurance company of the insurance claim. Hence, presentation in evidence of the
marine insurance policy is not indispensable before the insurer may recover from the common carrier the
[A] party cannot change his theory of the case or his cause of action on insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, was
appeal. Points of law, theories, issues and arguments not brought to the attention of the held sufficient to establish not only the relationship between the insurer and consignee, but also the amount
lower court will not be considered by the reviewing court. The defenses not pleaded in paid to settle the insurance claim. The presentation of the insurance contract was deemed not fatal to the
the answer cannot, on appeal, change fundamentally the nature of the issue in the case. insurer's cause of action because the loss of the cargo undoubtedly occurred while on board the petitioner's
To do so would be unfair to the adverse party, who had no opportunity to present vessel. 50
evidence in connection with the new theory; this would offend the basic rules of due
process and fair play. 40 (Citation omitted) The same rationale was the basis of the judgment in International Container Terminal Services,
Inc. v. FGU Insurance Corporation, 51 wherein the arrastre operator was found liable for the lost shipment
While the Court may adopt a liberal stance and relax the rule, no reasonable explanation, however, despite the failure of the insurance company to offer in evidence the insurance contract or policy. As in Delsan,
was introduced to justify ATI's failure to timely question the basis of FIRST LEPANTO's rights as a subrogee. it was certain that the loss of the cargo occurred while in the petitioner's custody. 52
The fact that the CA took cognizance of and resolved the said issue did not cure or ratify ATI's faux Based on the attendant facts of the instant case, the application of the exception is warranted. As
pas. "[A] judgment that goes beyond the issues and purports to adjudicate something on which the court did discussed above, it is already settled that the loss/damage to the GASI's shipment occurred while they were in
not hear the parties, is not only irregular but also extrajudicial and invalid." 41 Thus, for resolving an issue not ATI's custody, possession and control as arrastre operator. Verily, the Certificate of Insurance 53 and the
framed during the pre-trial and on which the parties were not heard during the trial, that portion of the CA's Release of Claim 54 presented as evidence sufficiently established FIRST LEPANTO's right to collect
judgment discussing the necessity of presenting an insurance contract was erroneous. reimbursement as the subrogee of the consignee, GASI.
At any rate, the non-presentation of the insurance contract is not fatal to FIRST LEPANTO's right With ATI's liability having been positively established, to strictly require the presentation of the
to collect reimbursement as the subrogee of GASI. insurance contract will run counter to the principle of equity upon which the doctrine of subrogation is
premised. Subrogation is designed to promote and to accomplish justice and is the mode which equity adopts
"Subrogation is the substitution of one person in the place of another with reference to a lawful to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay. 55
claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities." 42 The right of subrogation springs from Article 2207 of the Civil Code The payment by the insurer to the insured operates as an equitable assignment to the insurer of all
which states: the remedies which the insured may have against the third party whose negligence or wrongful act caused the
loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of contract or upon
Art. 2207.If the plaintiff's property has been insured, and he has received payment by the insurance company of the insurance claim. It accrues simply upon payment by the insurance
indemnity from the insurance company for the injury or loss arising out of the wrong or company of the insurance claim. 56
breach of contract complained of, the insurance company shall be subrogated to the
rights of the insured against the wrong-doer or the person who has violated the contract. ATI cannot invoke prescription
If the amount paid by the insurance company does not fully cover the injury or loss, the
ATI argued that the consignee, thru its insurer, FIRST LEPANTO is barred from seeking payment
aggrieved party shall be entitled to recover the deficiency from the person causing the
for the lost/damaged shipment because the claim letter of GASI to ATI was served only on September 27, 1996
loss or injury.
or more than one month from the date the shipment was delivered to the consignee's warehouse on August 9,
As a general rule, the marine insurance policy needs to be presented in evidence before the insurer 1996. The claim of GASI was thus filed beyond the 15-day period stated in ATI's Management Contract with
may recover the insured value of the lost/damaged cargo in the exercise of its subrogatory right. In Malayan PPA which in turn was reproduced in the gate passes issued to the consignee's broker, PROVEN, as follows:
Insurance Co., Inc. v. Regis Brokerage Corp., 43 the Court stated that the presentation of the contract
Issuance of this Gate Pass Constitutes delivery to and receipt by consignee of
constitutive of the insurance relationship between the consignee and insurer is critical because it is the legal
the goods as described above in good order and condition unless an accompanying . . .
basis of the latter's right to subrogation. 44
certificates duly issued and noted on the face of this Gate Pass appeals. [sic]
In Home Insurance Corporation v. CA, 45 the Court also held that the insurance contract was
This Gate pass is subject to all terms and conditions defined in the
necessary to prove that it covered the hauling portion of the shipment and was not limited to the transport of
Management Contract between the Philippine Port[s] Authority and Asian Terminals,
the cargo while at sea. The shipment in that case passed through six stages with different parties involved in
Inc. and amendment thereto and alterations thereof particularly but not limited to the
each stage until it reached the consignee. The insurance contract, which was not presented in evidence, was
[A]rticle VI thereof, limiting the contractor's liability to [PhP]5,000.00 per package
necessary to determine the scope of the insurer's liability, if any, since no evidence was adduced indicating at
unless the importation is otherwise specified or manifested or communicated in writing
what stage in the handling process the damage to the cargo was sustained. 46
together with the invoice value and supported by a certified packing list to the contractor
An analogous disposition was arrived at in the Wallem 47 case cited by ATI wherein the Court held by the interested party or parties before the discharge of the goods and corresponding
that the insurance contract must be presented in evidence in order to determine the extent of its coverage. It arrastre charges have been paid providing exception or restrictions from liability
was further ruled therein that the liability of the carrier from whom reimbursement was demanded was not releasing the contractor from liability among others unless a formal claim with the
required annexes shall have been filed with the contractor within fifteen (15) days from

9 COMM REV – INSURANCE CASES


date of issuance by the contractors or certificate of loss, damages, injury, or Certificate Spouses Nilo Cha and Stella Uy-Cha entered into a lease contract with private respondent CKS Development
of non-delivery. 57 Corporation as lessor. One of the stipulations in the lease contract was a prohibition on taking fire insurance by the
lessee without the approval of the lessor. In case the lessee shall obtain insurance without the consent of the lessor
The contention is bereft of merit. As clarified in Insurance Company of North America v. Asian then the policy shall be deemed assigned and transferred to the lessor. Notwithstanding this stipulation, the spouses
Terminals, Inc., 58substantial compliance with the 15-day time limitation is allowed provided that the Cha insured against loss by fire their merchandise inside the leased premises. On the day the lease contract was to
consignee has made a provisional claim thru a request for bad order survey or examination report, viz.: expire, fire broke out inside the leased premises. CKS Development learned of the insurance procured without its
Although the formal claim was filed beyond the 15-day period from the consent by the Cha spouses. CKS Development, therefore, claimed the proceeds of the insurance from the insurer,
issuance of the examination report on the request for bad order survey, the purpose of but was refused by the latter. CKS Development filed a complaint against the Cha spouses and the insurer and won
the time limitations for the filing of claims had already been fully satisfied by the its case. On appeal, the Court of Appeals affirmed the decision of the trial court ordering the insurer to pay the
request of the consignee's broker for a bad order survey and by the examination report of proceeds of the insurance directly; to CKS Development Corporation. Hence, this petition for review
the arrastre operator on the result thereof, as the arrastre operator had become aware of on certiorari. TEHIaD
and had verified the facts giving rise to its liability. Hence, the arrastre operator suffered
The decision of the Court of Appeals was set aside and a new decision was entered awarding the proceeds of the fire
no prejudice by the lack of strict compliance with the 15-day limitation to file the formal
insurance policy to herein petitioners Nilo Cha and Stella Uy-Cha. The Supreme Court ruled that CKS Development
complaint. 59 (Citations omitted)
Corporation could not, under the Insurance Code, be validly a beneficiary of the fire insurance policy taken by the
In the present case, ATI was notified of the loss/damage to the subject shipment as early as August petitioners over their merchandise. The insurable interest over said merchandise remains with the insured. The
9, 1996 thru a Request for Bad Order Survey 60 jointly prepared by the consignee's broker, PROVEN, and the automatic assignment of the policy to CKS under the provision of the lease contract previously quoted is void for
representatives of ATI. For having submitted a provisional claim, GASI is thus deemed to have substantially being contrary to law and/or public policy. The insurer cannot be compelled to pay the proceeds of the fire insurance
complied with the notice requirement to the arrastre operator notwithstanding that a formal claim was sent to policy to a person who has no insurable interest in the property insured.
the latter only on September 27, 1996. ATI was not deprived the best opportunity to probe immediately the
veracity of such claims. Verily then, GASI, thru its subrogee FIRST LEPANTO, is not barred by filing the SYLLABUS
herein action in court. DACcIH
ATI cannot rely on the ruling in Prudential 61 because the consignee therein made no provisional 1. COMMERCIAL LAW; INSURANCE CODE; INSURABLE INTEREST; LESSOR HAS NO INSURABLE
claim thru request for bad order survey and instead filed a claim for the first time after four months from INTEREST IN GOODS AND MERCHANDISE INSIDE THE LEASED PREMISES UNDER THE PROVISIONS
receipt of the shipment. OF SECTION 17 OF THE INSURANCE CODE; CASE AT BAR. — 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
Attorney's fees and interests interest in the property insured must exist at the time the insurance takes effect and at the time the loss occurs. The
All told, ATI is liable to pay FIRST LEPANTO the amount of the P165,772.40 representing the basis of such requirement of insurable interest in property insured is based on sound public policy: to prevent a
insurance indemnity paid by the latter to GASI. Pursuant to Nacar v. Gallery Frames, 62 the said amount shall person from taking out an insurance policy on property upon which he has no insurable interest and collecting the
earn a legal interest at the rate of six percent (6%) per annum from the date of finality of this judgment until its proceeds of said policy in case of loss of the property. . . . . In the present case, it cannot be denied that CKS has no
full satisfaction. insurable interest in the goods and merchandise inside the leased premises under the provisions of Section 17 of the
Insurance Code. . . . Therefore, respondent CKS cannot, under the Insurance Code — a special law — be validly a
As correctly imposed by the RTC and the CA, ten percent (10%) of the judgment award is beneficiary of the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable
reasonable as and for attorney's fees considering the length of time that has passed in prosecuting the claim. 63 interest over said merchandise remains with the insured, the Cha spouses.
WHEREFORE, premises considered, the petition is hereby DENIED. The Decision dated October 2. ID.; ID.; AUTOMATIC ASSIGNMENT OF THE INSURANCE POLICY TO THE LESSOR UNDER THE
10, 2008 of the Court of Appeals in CA-G.R. SP No. 99021 is hereby AFFIRMED insofar as it adjudged PROVISION OF THE LEASE CONTRACT IS VOID FOR BEING CONTRARY TO LAW AND/OR PUBLIC
liable and ordered Asian Terminals, Inc., to pay First Lepanto-Taisho Insurance Corp., the amount of POLICY. — The automatic assignment of the policy to CKS under the provision of the lease contract previously
P165,772.40, ten percent (10%) thereof as and for attorney's fees, plus costs of suit. The said amount shall earn quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurance policy thus
legal interest at the rate of six percent (6%) per annum from the date of finality of this judgment until its full rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be
satisfaction. compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the
SO ORDERED. property insured. CTEaDc

||| (Asian Terminals, Inc. v. First Lepanto-Taisho Insurance Corp., G.R. No. 185964, [June 16, 2014], 736 PHIL DECISION
373-397)

4.SPOUSES NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO.,
INC., petitioners, vs. COURT OF APPEALS and CKS DEVELOPMENT PADILLA, J p:
CORPORATION, respondents. [G.R. No. 124520. August 18, 1997.]
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a decision of respondent
Court of Appeals.
SYNOPSIS
The undisputed facts of the case are as follows:

1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private respondent
CKS Development Corporation (hereinafter CKS), as lessor, on 5 October 1988. LexLib

10 COMM REV – INSURANCE CASES


2. One of the stipulations of the one (1) year lease contract states: obtained by the lessee (Cha spouses) over their merchandise inside the leased premises is deemed assigned or
transferred to the lessor (CKS) if said policy is obtained without the prior written consent of the latter.
"18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods
and effects placed at any stall or store or space in the leased premises without first It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law,
obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s) the morals, good customs, public order or public policy. 3
insurance thereof without the consent of the LESSOR then the policy is deemed assigned
Sec. 18 of the Insurance Code provides:
and transferred to the LESSOR for its own benefit; . . ." 1
"Sec. 18. No contract or policy of insurance on property shall be enforceable except for the
3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire their
benefit of some person having an insurable interest in the property insured."
merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance Co.,
Inc. (hereinafter United) without the written consent of private respondent CKS. A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is
primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes
4. On the day that the lease contract was to expire, fire broke out inside the leased premises.
effect and at the time the loss occurs. 4 The basis of such requirement of insurable interest in property insured is
5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer based on sound public policy: to prevent a person from taking out an insurance policy on property upon which he
(United) a demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the
paid directly to CKS, based on its lease contract with the Cha spouses. contract of insurance is a mere wager which is void under Section 25 of the Insurance Code, which provides:

6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United. "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
7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision * ordering therein defendant received as proof of such interest, and every policy executed by way of gaming or
United to pay CKS the amount of P335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary wagering, is void."
damages, P20,000.00 as attorney's fees and costs of suit.
In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision ** dated 11 January 1996, leased premises under the provisions of Section 17 of the Insurance Code which provide:
affirming the trial court decision, deleting however the awards for exemplary damages and attorney's fees. A motion
for reconsideration by United was denied on 29 March 1996. "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."
In the present petition, the following errors are assigned by petitioners to the Court of Appeals:
Therefore, respondent CKS cannot, under the Insurance Code — a special law — be validly a beneficiary of the fire
I insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said
merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS under the
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT provision of the lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds
THE STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners).
PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND VOID FOR The insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who
BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY. has no insurable interest in the property insured.
II

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses obtained a fire
CONTRACT OF LEASE ENTERED INTO AS A CONTRACT OF ADHESION AND insurance policy over their own merchandise, without the consent of CKS, is a separate and distinct issue which we
THEREFORE THE QUESTIONABLE PROVISION THEREIN TRANSFERRING THE do not resolve in this case. cdasia
PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED OUT IN
FAVOR OF PETITIONER. WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a new decision
is hereby entered, awarding the proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha.
III
||| (Spouses Cha v. Court of Appeals, G.R. No. 124520, [August 18, 1997], 343 PHIL 488-494)
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF
AN INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID 5. GAISANO CAGAYAN, INC., petitioner, vs. INSURANCE COMPANY OF NORTH
POLICY IN CONTRAVENTION OF THE INSURANCE LAW. AMERICA, respondent. G.R. No. 147839. June 8, 2006.]
IV

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF DECISION


AN INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID
FOR BEING WITHOUT CONSIDERATION AND FOR BEING TOTALLY
DEPENDENT ON THE WILL OF THE RESPONDENT CORPORATION. 2

The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the lease contract AUSTRIA-MARTINEZ, J p:
entered into between CKS and the Cha spouses is valid insofar as it provides that any fire insurance policy

11 COMM REV – INSURANCE CASES


Before the Court is a petition for review on certiorari of the Decision 1 dated October 11, 2000 of the Court of WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET
Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of the Regional Trial ASIDE and a new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to
Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the causes of action for damages of pay:
Insurance Company of North America (respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA
Resolution dated April 11, 2001 which denied petitioner's motion for reconsideration. 1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to
the insured Inter Capitol Marketing Corporation, plus legal interest from the time of
The factual background of the case is as follows: demand until fully paid;

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is 2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the
the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately insured Levi Strauss Phil., Inc., plus legal interest from the time of demand until fully paid.
obtained from respondent fire insurance policies with book debt endorsements. The insurance policies provide for
coverage on "book debts in connection with ready-made clothing materials which have been sold or delivered to With costs against the defendant-appellee.
various customers and dealers of the Insured anywhere in the Philippines." 2 The policies defined book debts as the
"unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered SO ORDERED. 10
under this Policy." 3 The policies also provide for the following conditions:
The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity and cost of
1. Warranted that the Company shall not be liable for any unpaid account in the thing sold; that loss of the goods in the fire must be borne by petitioner since the proviso contained in the sales
respect of the merchandise sold and delivered by the Insured which are invoices is an exception under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a
outstanding at the date of loss for a period in excess of six (6) months from the fortuitous event, the risk is borne by the owner of the thing at the time the loss under the principle of res perit
date of the covering invoice or actual delivery of the merchandise whichever domino; that petitioner's obligation to IMC and LSPI is not the delivery of the lost goods but the payment of its
shall first occur. unpaid account and as such the obligation to pay is not extinguished, even if the fire is considered a fortuitous event;
that by subrogation, the insurer has the right to go against petitioner; that, being a fire insurance with book debt
2. Warranted that the Insured shall submit to the Company within twelve (12) endorsements, what was insured was the vendor's interest as a creditor. 11
days after the close of every calendar month all amount shown in their books of
accounts as unpaid and thus become receivable item from their customers and Petitioner filed a motion for reconsideration 12 but it was denied by the CA in its Resolution dated April 11,
dealers. . . . 4 2001. 13

xxx xxx xxx Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:

Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE
Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or INSTANT CASE WAS ONE OVER CREDIT.
destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE
On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed SUBJECT GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER
with respondent their claims under their respective fire insurance policies with book debt endorsements; that as of UPON DELIVERY THEREOF.
February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with
IMC was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the claims of IMC and LSPI and, THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC
by virtue thereof, respondent was subrogated to their rights against petitioner; that respondent made several demands SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF
for payment upon petitioner but these went unheeded. 5 RESPONDENT. 14

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable because the Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be over credit
property covered by the insurance policies were destroyed due to fortuities event or force majeure; that respondent's since an insurance "on credit" belies not only the nature of fire insurance but the express terms of the policies; that it
right of subrogation has no basis inasmuch as there was no breach of contract committed by it since the loss was due was not credit that was insured since respondent paid on the occasion of the loss of the insured goods to fire and not
to fire which it could not prevent or foresee; that IMC and LSPI never communicated to it that they insured their because of the non-payment by petitioner of any obligation; that, even if the insurance is deemed as one over credit,
properties; that it never consented to paying the claim of the insured. 6 there was no loss as the accounts were not yet due since no prior demands were made by IMC and LSPI against
petitioner for payment of the debt and such demands came from respondent only after it had already paid IMC and
At the pre-trial conference the parties failed to arrive at an amicable settlement. 7 Thus, trial on the merits LSPI under the fire insurance policies. 15
ensued. TADaCH
As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and LSPI assumed
On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint. 8 It held that the fire was the risk of loss when they secured fire insurance policies over the goods.
purely accidental; that the cause of the fire was not attributable to the negligence of the petitioner; that it has not
been established that petitioner is the debtor of IMC and LSPI; that since the sales invoices state that "it is further Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as no valid
agreed that merely for purpose of securing the payment of purchase price, the above-described merchandise remains insurance could be maintained thereon by IMC and LSPI since all risk had transferred to petitioner upon delivery of
the property of the vendor until the purchase price is fully paid", IMC and LSPI retained ownership of the delivered the goods; that petitioner was not privy to the insurance contract or the payment between respondent and its insured
goods and must bear the loss. nor was its consent or approval ever secured; that this lack of privity forecloses any real interest on the part of
respondent in the obligation to pay, limiting its interest to keeping the insured goods safe from fire.
Dissatisfied, petitioner appealed to the CA. 9 On October 11, 2000, the CA rendered its decision setting aside the
decision of the RTC. The dispositive portion of the decision reads: For its part, respondent counters that while ownership over the ready-made clothing materials was transferred upon
delivery to petitioner, IMC and LSPI have insurable interest over said goods as creditors who stand to suffer direct

12 COMM REV – INSURANCE CASES


pecuniary loss from its destruction by fire; that petitioner is liable for loss of the ready-made clothing materials since to the buyer the goods are at the buyer's risk whether actual delivery has been made or not,
it failed to overcome the presumption of liability under Article 1265 16 of the Civil Code; that the fire was caused except that:
through petitioner's negligence in failing to provide stringent measures of caution, care and maintenance on its
property because electric wires do not usually short circuit unless there are defects in their installation or when there (1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in
is lack of proper maintenance and supervision of the property; that petitioner is guilty of gross and evident bad faith pursuance of the contract and the ownership in the goods has been retained by the seller
in refusing to pay respondent's valid claim and should be liable to respondent for contracted lawyer's fees, litigation merely to secure performance by the buyer of his obligations under the contract, the
expenses and cost of suit. 17 goods are at the buyer's risk from the time of such delivery; (Emphasis supplied)

As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the CA is xxx xxx xxx
limited to reviewing questions of law which involves no examination of the probative value of the evidence
presented by the litigants or any of them. 18 The Supreme Court is not a trier of facts; it is not its function to analyze Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the
or weigh evidence all over again. 19 Accordingly, findings of fact of the appellate court are generally conclusive on buyer. 27Accordingly, petitioner bears the risk of loss of the goods delivered.
the Supreme Court. 20
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of
Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved by this the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for
Court, such as: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of title,
inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when but whether insured has substantial economic interest in the property. 28
the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in
Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal,
making its findings the CA went beyond the issues of the case, or its findings are contrary to the admissions of both
or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify
the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are
the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a)
conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition
an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an
as well as in the petitioner's main and reply briefs are not disputed by the respondent; (10) when the findings of fact
existing interest in that out of which the expectancy arises.
are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the
CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or
would justify a different conclusion. 21 Exceptions (4), (5), (7), and (11) apply to the present petition. cATDIH possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the
existence of such an interest, it is sufficient that the insured is so situated with reference to the property that he
would be liable to loss should it be injured or destroyed by the peril against which it is insured. 29 Anyone has an
At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA erred in insurable interest in property who derives a benefit from its existence or would suffer loss from its
construing a fire insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI since such destruction. 30 Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has any
insurance applies to loss of the ready-made clothing materials sold and delivered to petitioner. interest therein, in other words, so long as he would suffer by its destruction, as where he has a vendor's lien. 31 In
this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account
The Court disagrees with petitioner's stand. 45 days after the time of the loss covered by the policies.

It is well-settled that when the words of a contract are plain and readily understood, there is no room for The next question is: Is petitioner liable for the unpaid accounts?
construction. 22 In this case, the questioned insurance policies provide coverage for "book debts in connection with
ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 1174 32 of the Civil Code
anywhere in the Philippines." 23 ; and defined book debts as the "unpaid account still appearing in the Book of is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.
Account of the Insured 45 days after the time of the loss covered under this Policy." 24 Nowhere is it provided in the
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's
questioned insurance policies that the subject of the insurance is the goods sold and delivered to the customers and
accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for
dealers of the insured.
the payment of money. As correctly stated by the CA, where the obligation consists in the payment of money, the
Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any failure of the debtor to make the payment even by reason of a fortuitous event shall not relieve him of his
alleged intention of the parties, the terms are to be understood literally just as they appear on the face of the liability. 33 The rationale for this is that the rule that an obligor should be held exempt from liability when the loss
contract. 25 Thus, what were insured against were the accounts of IMC and LSPI with petitioner which remained occurs thru a fortuitous event only holds true when the obligation consists in the delivery of a determinate thing and
unpaid 45 days after the loss through fire, and not the loss or destruction of the goods delivered. there is no stipulation holding him liable even in case of fortuitous event. It does not apply when the obligation is
pecuniary in nature. 34
Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating
in the sales invoices that "[i]t is further agreed that merely for purpose of securing the payment of the purchase price Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of
the above described merchandise remains the property of the vendor until the purchase price thereof is fully anything of the same kind does not extinguish the obligation." If the obligation is generic in the sense that the object
paid." 26 thereof is designated merely by its class or genus without any particular designation or physical segregation from all
others of the same class, the loss or destruction of anything of the same kind even without the debtor's fault and
The Court is not persuaded. before he has incurred in delay will not have the effect of extinguishing the obligation. 35 This rule is based on the
principle that the genus of a thing can never perish. Genus nunquan perit. 36 An obligation to pay money is generic;
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code: therefore, it is not excused by fortuitous loss of any specific property of the debtor. 37

ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the
ownership therein is transferred to the buyer, but when the ownership therein is transferred

13 COMM REV – INSURANCE CASES


Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. What is attorney's fees and costs of suit. Insofar as the charges for violation of Sections 241 and 242 of Presidential
relevant here is whether it has been established that petitioner has outstanding accounts with IMC and Decree No. 612, or the Insurance Code of the Philippines, however, the CA modified the decision of the RTC
LSPI. HcSETI and absolved Sun Life therein.

With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22" 38 show that Statement of Facts of the Case
petitioner has an outstanding account with IMC in the amount of P2,119,205.00. Exhibit "E" 39 is the check voucher
On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun Life.
evidencing payment to IMC. Exhibit "F" 40 is the subrogation receipt executed by IMC in favor of respondent upon
In his Application for Insurance, he indicated that he had sought advice for kidney problems. 5 Atty. Jesus Jr.
receipt of the insurance proceeds. All these documents have been properly identified, presented and marked as
indicated the following in his application:
exhibits in court. The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent
as insurer and IMC as the insured, but also the amount paid to settle the insurance claim. The right of subrogation "Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus Benjamin
accrues simply upon payment by the insurance company of the insurance claim. 41 Respondent's action against Mendoza at National Kidney Institute, discharged after 3 days, no recurrence as
petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides: claimed." 6
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from On February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and issued Insurance Policy
the insurance company for the injury or loss arising out of the wrong or breach of contract No. 031097335. The policy indicated the respondents as beneficiaries and entitles them to a death benefit of
complained of, the insurance company shall be subrogated to the rights of the insured P1,000,000.00 should Atty. Jesus Jr. dies on or before February 5, 2021, or a sum of money if Atty. Jesus Jr. is
against the wrongdoer or the person who has violated the contract. . . . still living on the endowment date. 7

Petitioner failed to refute respondent's evidence. On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San Joaquin, Iloilo. As
such, Ma. Daisy filed a Claimant's Statement with Sun Life to seek the death benefits indicated in his
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary weight can insurance policy. 8
be given to Exhibit "F Levi Strauss", 42 a letter dated April 23, 1991 from petitioner's General Manager, Stephen S.
Gaisano, Jr., since it is not an admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's In a letter dated August 27, 2001, however, Sun Life denied the claim on the ground that the details
products in the amount of P535,613.00 in the fire that razed petitioner's building on February 25, 1991. on Atty. Jesus Jr.'s medical history were not disclosed in his application. Simultaneously, Sun Life tendered a
check representing the refund of the premiums paid by Atty. Jesus Jr. 9
Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was offered in
The respondents reiterated their claim against Sun Life thru a letter dated September 17, 2001. Sun
evidence. Thus, there is no evidence that respondent has been subrogated to any right which LSPI may have against
Life, however, refused to heed the respondents' requests and instead filed a Complaint for Rescission before
petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of
the RTC and prayed for judicial confirmation of Atty. Jesus Jr.'s rescission of insurance policy. 10
P535,613.00.
In its Complaint, Sun Life alleged that Atty. Jesus Jr. did not disclose in his insurance application
WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and Resolution his previous medical treatment at the National Kidney Transplant Institute in May and August of 1994.
dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with the MODIFICATION According to Sun Life, the undisclosed fact suggested that the insured was in "renal failure" and at a high risk
that the order to pay the amount of P535,613.00 to respondent is DELETED for lack of factual basis. medical condition. Consequently, had it known such fact, it would not have issued the insurance policy in
favor of Atty. Jesus Jr. 11
No pronouncement as to costs.
For their defense, the respondents claimed that Atty. Jesus Jr. did not commit misrepresentation in
SO ORDERED. his application for insurance. They averred that Atty. Jesus Jr. was in good faith when he signed the insurance
application and even authorized Sun Life to inquire further into his medical history for verification purposes.
||| (Gaisano Cagayan, Inc. v. Insurance Company of North America, G.R. No. 147839, [June 8, 2006], 523 PHIL
According to them, the complaint is just a ploy to avoid the payment of insurance claims. 12
677-694)
Ruling of the RTC
On March 16, 2009, the RTC issued its Decision 13 dismissing the complaint for lack of merit. The
RTC held that Sun Life violated Sections 241, paragraph 1 (b), (d), and (e) 14 and 242 15 of the Insurance
Code when it refused to pay the rightful claim of the respondents. Moreover, the RTC ordered Sun Life to pay
6.SUN LIFE OF CANADA (PHILIPPINES), INC., petitioner, vs. MA. DAISY S. SIBYA, JESUS the amounts of P1,000,000.00 as death benefits, P100,000.00 as moral damages, P100,000.00 as exemplary
MANUEL S. SIBYA III, JAIME LUIS S. SIBYA, and The Estate of the deceased ATTY. JESUS damages, and P100,000.00 as attorney's fees and costs of suit.
SIBYA, JR., respondents. G.R. No. 211212. June 8, 2016.]
The RTC held that Atty. Jesus Jr. did not commit material concealment and misrepresentation when
he applied for life insurance with Sun Life. It observed that given the disclosures and the waiver and
authorization to investigate executed by Atty. Jesus Jr. to Sun Life, the latter had all the means of ascertaining
REYES, J p: the facts allegedly concealed by the applicant. 16
Before this Court is a petition for review on certiorari 1 under Rule 45 of the Rules of
Court seeking to annul and set aside the Decision 2 dated November 18, 2013 and Resolution 3 dated February Aggrieved, Sun Life elevated the case to the CA.
13, 2014 of the Court of Appeals (CA) in CA-G.R. CV. No. 93269. In both instances, the CA affirmed the
Decision 4 dated March 16, 2009 of the Regional Trial Court (RTC) of Makati City, Branch 136, in Civil Case Ruling of the CA
No. 01-1506, ordering petitioner Sun Life of Canada (Philippines), Inc. (Sun Life) to pay Ma. Daisy S. Sibya On appeal, the CA issued its Decision 17 dated November 18, 2013 affirming the RTC decision in
(Ma. Daisy), Jesus Manuel S. Sibya III, and Jaime Luis S. Sibya (respondents) the amounts of P1,000,000.00 ordering Sun Life to pay death benefits and damages in favor of the respondents. The CA, however, modified
as death benefits, P100,000.00 as moral damages, P100,000.00 as exemplary damages, and P100,000.00 as

14 COMM REV – INSURANCE CASES


the RTC decision by absolving Sun Life from the charges of violation of Sections 241 and 242 of the Insurance It appears that [Atty. Jesus Jr.] also signed the Authorization which gave [Sun
Code. 18 Life] the opportunity to obtain information on the facts disclosed by [Atty. Jesus Jr.] in
his insurance application. . . .
The CA ruled that the evidence on records show that there was no fraudulent intent on the part of
Atty. Jesus Jr. in submitting his insurance application. Instead, it found that Atty. Jesus Jr. admitted in his xxx xxx xxx
application that he had sought medical treatment for kidney ailment. 19
Given the express language of the Authorization, it cannot be said that [Atty.
Sun Life filed a Motion for Partial Reconsideration 20 dated December 11, 2013 but the same was Jesus Jr.] concealed his medical history since [Sun Life] had the means of ascertaining
denied in a Resolution 21 dated February 13, 2014. [Atty. Jesus Jr.'s] medical record.
Undaunted, Sun Life filed an appeal by way of petition for review on certiorari under Rule 45 of With regard to allegations of misrepresentation, we note that [Atty. Jesus Jr.]
the Rules of Court before this Court. was not a medical doctor, and his answer "no recurrence" may be construed as an honest
opinion. Where matters of opinion or judgment are called for, answers made in good
The Issue faith and without intent to deceive will not avoid a policy even though they are
Essentially, the main issue of the instant case is whether or not the CA erred when it affirmed the untrue. 24(Citations omitted and italics in the original)
RTC decision finding that there was no concealment or misrepresentation when Atty. Jesus Jr. submitted his Indeed, the intent to defraud on the part of the insured must be ascertained to merit rescission of the
insurance application with Sun Life. insurance contract. Concealment as a defense for the insurer to avoid liability is an affirmative defense and the
Ruling of the Court duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. 25 In
the present case, Sun Life failed to clearly and satisfactorily establish its allegations, and is therefore liable to
The petition has no merit. pay the proceeds of the insurance.
In Manila Bankers Life Insurance Corporation v. Aban, 22 the Court held that if the insured dies Moreover, well-settled is the rule that this Court is not a trier of facts. Factual findings of the lower
within the two-year contestability period, the insurer is bound to make good its obligation under the policy, courts are entitled to great weight and respect on appeal, and in fact accorded finality when supported by
regardless of the presence or lack of concealment or misrepresentation. The Court held: substantial evidence on the record. 26
Section 48 serves a noble purpose, as it regulates the actions of both the WHEREFORE, the petition for review is DENIED. The Decision dated November 18, 2013 and
insurer and the insured. Under the provision, an insurer is given two years — from the Resolution dated February 13, 2014 of the Court of Appeals in CA-G.R. CV. No. 93269 are
effectivity of a life insurance contract and while the insured is alive — to discover or hereby AFFIRMED.
prove that the policy is void ab initio or is rescindible by reason of the fraudulent
concealment or misrepresentation of the insured or his agent. After the two-year SO ORDERED.
period lapses, or when the insured dies within the period, the insurer must make ||| (Sun Life of Canada (Philippines), Inc. v. Sibya, G.R. No. 211212, [June 8, 201
good on the policy, even though the policy was obtained by fraud, concealment, or
misrepresentation. This is not to say that insurance fraud must be rewarded, but that 7. ARMANDO GEAGONIA, petitioner, vs. COURT OF APPEALS and COUNTRY BANKERS
insurers who recklessly and indiscriminately solicit and obtain business must be INSURANCE CORPORATION, respondents. [G.R. No. 114427. February 6, 1995.]
penalized, for such recklessness and lack of discrimination ultimately work to the
detriment of bona fide takers of insurance and the public in general. 23 (Emphasis ours) SYLLABUS
In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has two
years from its issuance, to investigate and verify whether the policy was obtained by fraud, concealment, or
1. COMMERCIAL LAW; INSURANCE; "OTHER INSURANCE" CLAUSE AS A
misrepresentation. Upon the death of Atty. Jesus Jr., however, on May 11, 2001, or a mere three months from
CONDITION; ALLOWED TO PREVENT AN INCREASE IN THE MORAL
the issuance of the policy, Sun Life loses its right to rescind the policy. As discussed in Manila Bankers, the
HAZARD. —The Insurance Commission found that the petitioner had no knowledge of
death of the insured within the two-year period will render the right of the insurer to rescind the policy
the previous two policies. The Court of Appeals disagreed and found otherwise in view of
nugatory. As such, the incontestability period will now set in.
the explicit admission by the petitioner in his letter to the private respondent of 18 January
Assuming, however, for the sake of argument, that the incontestability period has not yet set in, the 1991, which was quoted in the challenged decision of the Court of Appeals. These
Court agrees, nonetheless, with the CA when it held that Sun Life failed to show that Atty. Jesus Jr. committed divergent findings of fact constitute an exception to the general rule that in petitions for
concealment and misrepresentation. review under Rule 45, only questions of law are involved and findings of fact by the Court
of Appeals are conclusive and binding upon this Court. We agree with the Court of
As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his medical treatment Appeals that the petitioner knew of the prior policies issued by the PFIC. His letter of 18
for kidney ailment. Moreover, he executed an authorization in favor of Sun Life to conduct investigation in January 1991 to the private respondent conclusively proves this knowledge. His testimony
reference with his medical history. The decision in part states: to the contrary before the Insurance Commissioner and which the latter relied upon cannot
Records show that in the Application for Insurance, [Atty. Jesus Jr.] admitted prevail over a written admission made ante litem motam. It was, indeed, incredible that he
that he had sought medical treatment for kidney ailment. When asked to provide details did not know about the prior policies since these policies were not new or original. Policy
on the said medication, [Atty. Jesus Jr.] indicated the following information: No. GA-28144 was a renewal of Policy No. F-24758, while Policy No. GA-28146 had
year ("1987"), medical procedure ("undergone lithotripsy due to kidney stone"), length been renewed twice, the previous policy being F-24792. Condition 3 of the private
of confinement ("3 days"), attending physician ("Dr. Jesus Benjamin Mendoza") and the respondent's Policy No. F-14622 is a condition which is nor proscribed by law. Its
hospital ("National Kidney Institute"). incorporation in the policy is allowed by Section 75 of the Insurance Code which provides
that "[a] policy may declare that a violation of specified provisions thereof shall avoid it,

15 COMM REV – INSURANCE CASES


otherwise the breach of an immaterial provision does not avoid the policy." Such a 5. ID.; ID.; RULE WHEN A MORTGAGOR OBTAINED THEREOF FOR THE
condition is a provision which invariably appears in fire insurance policies and is intended BENEFIT OF THE MORTGAGEE. — A mortgagor may, however, take out insurance for
to prevent an increase in the moral hazard. It is commonly known as the additional or the benefit of the mortgagee, which is the usual practice. The mortgagee may be made the
"other insurance" clause and has been upheld as valid and as a warranty that no other beneficial payee in several ways. He may become the assignee of the policy with the
insurance exists. Its violation would thus avoid the policy. However, in order to constitute consent of the insurer; or the mere pledgee without such consent; or the original policy
a violation, the other insurance must be upon the same subject matter, the same interest may contain a mortgage clause; or a rider making the policy payable to the mortgagee "as
therein, and the same risk. his interest may appear" may be attached; or a "standard mortgage clause," containing a
collateral independent contract between the mortgagee and insurer, may be attached; or the
2. ID.; ID.; ID.; CONCEPT; GENERAL INSURANCE AND SURETY CORP. v. NG policy, though by its terms payable absolutely to the mortgagor, may have been procured
HUA (106 PHIL. 1117); NOT APPLICABLE IN CASE AT BAR. — It must, however, be by a mortgagor under a contract duty to insure for the mortgagee's benefit, in which case
underscored that unlike the "other insurance" clauses involved in General Insurance and the mortgagee acquires an equitable lien upon the proceeds. In the policy obtained by the
Surety Corp. v. Ng Hua (106 Phil. 1117 [1960]) or in Pioneer Insurance & Surety Corp. mortgagor with loss payable clause in favor of the mortgagee as his interest may appear,
vs. Yap, (61 SCRA 426 [1974]) which read: "The insured shall give notice to the company the mortgagee is only a beneficiary under the contract, and recognized as such by the
of any insurance already effected, or which may subsequently be effected covering any of insurer but not made a party to the contract itself. Hence, any act of the mortgagor which
the property hereby insured, and unless such notice be given and the particulars of such defeats his right will also defeat the right of the mortgagee. This kind of policy covers only
insurance or insurances be stated in or endorsed on this Policy by or on behalf of the such interest as the mortgagee has at the issuing of the policy. On the other hand, a
Company before the occurrence of any loss or damage, all benefits under this Policy shall mortgagee may also procure a policy as a contracting party in accordance with the terms of
be forfeited." or in the 1930 case of Santa Ana vs. Commercial Union Assurance Co. (55 an agreement by which the mortgagor is to pay the premiums upon such insurance. It has
Phil 329, 334 [1930]) which provided "that any outstanding insurance upon the whole or a been noted, however, that although the mortgagee is himself the insured, as where he
portion of the objects thereby assured must be declared by the insured in writing and he applies for a policy, fully informs the authorized agent of his interest, pays the premiums,
must cause the company to add or insert it in the policy, without which such policy shall and obtains a policy on the assurance that it insures him, the policy is in fact in the form
be null and void, and the insured will not be entitled to indemnity in case of used to insure a mortgagor with loss payable clause.
loss," Condition 3in the private respondent's policy No. F-14622 does not absolutely
declare void any violation thereof. It expressly provides that the condition "shall not apply 6. ID.; ID.; DOUBLE INSURANCE; DOES NOT EXIST WHEN TWO (2) POLICIES
when the total insurance or insurances in force at the time of the loss damage is not more DO NOT COVER THE SAME INTEREST; CASE AT BAR. — We are of the opinion that
than P200,000.00." Condition 3 of the subject policy is not totally free from ambiguity and must, perforce, be
meticulously analyzed. Such analysis leads us to conclude that (a) the prohibition applies
3. ID.; ID.; CONTRACT THEREOF MUST BE LIBERALLY CONSTRUED. — It is a only to double insurance, and (b) the nullity of the policy shall only be to the extent
cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally exceeding P200,000.00 of the total policies obtained. The first conclusion is supported by
in favor of the insured and strictly against the company, the reason being, undoubtedly, to the portion of the condition referring to other insurance "covering any of the property or
afford the greatest protection which the insured was endeavoring to secure when he properties consisting of stocks in trade, goods in process and/or inventories only hereby
applied for insurance. It is also a cardinal principle of law that forfeitures are not favored insured," and the portion regarding the insured's declaration on the subheading CO-
and that any construction which would result in the forfeiture of the policy benefits for the INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the sum of
person claiming thereunder, will be avoided, if it is possible to construe the policy in a P50,000.00. A double insurance exists where the same person is insured by several
manner which would permit recovery, as, for example, by finding a waiver for such insurers separately in respect of the same subject and interest. As earlier stated, the
forfeiture. Stated differently, provisions, conditions or exceptions in policies which tend to insurable interests of a mortgagor and a mortgagee on the mortgaged property are distinct
work a forfeiture of insurance policies should be construed most strictly against those for and separate. Since the two policies of the PFIC do not cover the same interest as that
whose benefits they are inserted, and most favorably toward those against whom they are covered by the policy of the private respondent, no double insurance exists. The non-
intended to operate. The reason for this is that, except for riders which may later be disclosure then of the former policies was not fatal to the petitioner's right to recover on
inserted, the insured sees the contract already in its final form and has had no voice in the the private respondent's policy. Furthermore, by stating within Condition 3 itself that such
selection or arrangement of the words employed therein. On the other hand, the language condition shall not apply if the total insurance in force at the time of loss does not exceed
of the contract was carefully chosen and deliberated upon by experts and legal advisers P200,000.00, the private respondent was amenable to assume a co-insurer's liability up to a
who had acted exclusively in the interest of the insurers and the technical language loss not exceeding to P200,000.00. What it had in mind was to discourage over-insurance.
employed therein is rarely understood by ordinary laymen. Indeed, the rationale behind the incorporation of "other insurance" clause in fire policies is
to prevent over-insurance and thus avert the perpetration of fraud. When a property owner
4. ID.; ID.; INSURABLE INTEREST; EXTENT THEREOF BY MORTGAGEE AND obtains insurance from two or more insurers in a total amount that exceeds the property's
MORTGAGOR; RULE. — As to a mortgaged property, the mortgagor and the mortgagee value, the insured may have an inducement to destroy the property for the purpose of
have each an independent insurable interest therein and both interests may be covered by collecting the insurance. The public as well as the insurer is interested in preventing a
one policy, or each may take out a separate policy covering his interest, either at the same situation in which a fire would be profitable to the insured.
or at separate times. The mortgagor's insurable interest covers the full value of the
mortgaged property, even though the mortgage debt is equivalent to the full value of the
property. The mortgagee's insurable interest is to the extent of the debt, since the property
is relied upon as security thereof, and in insuring he is not insuring the property but his DECISION
interest or lien thereon. His insurable interest is prima facie the value mortgaged and
extends only to the amount of the debt, not exceeding the value of the mortgaged property.
Thus, separate insurances covering different insurable interests may be obtained by the
mortgagor and the mortgagee.

16 COMM REV – INSURANCE CASES


DAVIDE, JR., J p: policies indicate that the insured was "Messrs. Discount Mart (Mr. Armando
Geagonia, Prop.)" with a mortgage clause reading:
For our review under Rule 45 of the Rules of Court is the decision1 of the "MORTGAGEE: Loss, if any, shall be
Court of Appeals in CA-G.R. SP No. 31916, entitled "Country Bankers payable to Messrs.
Insurance Corporation versus Armando Geagonia," reversing the decision of the Cebu Tesing Textiles, Cebu City as
Insurance Commission in I.C. Case No. 3340 which awarded the claim of their
petitioner Armando Geagonia against private respondent Country Bankers interest may appear subject to the
Insurance Corporation. terms of
The petitioner is the owner of Norman's Mart located in the public this policy. CO-INSURANCE
market of San Francisco, Agusan del Sur. On 22 December 1989, he obtained DECLARED:
from the private respondent fire insurance policy No. F-146222 for P100,000.00. P100,000. — Phils. First CEB/F-
The period of the policy was from 22 December 1989 to 22 December 1990 and 24758" 4
covered the following: "Stock-in-trade consisting principally of dry goods such The basis of the private respondent's denial was the petitioner's
as RTW's for men and women wear and other usual to assured's alleged violation of Condition 3 of the policy.
business."cdasia
The petitioner then filed a complaint5 against the private respondent
The petitioner declared in the policy under the subheading entitled with the Insurance Commission (Case No. 3340) for the recovery of P100,000.00
CO-INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for under fire insurance policy No. F-14622 and for attorney's fees and costs of
P50,000.00. From 1989 to 1990, the petitioner had in his inventory stocks litigation. He attached as Annex "M" 6 thereof his letter of 18 January 1991
amounting to P392,130.50, itemized as follows: which asked for the reconsideration of the denial. He admitted in the said letter
Zenco Sales, Inc. P55,698.00 that at the time he obtained the private respondent's fire insurance policy he
F. Legaspi Gen. Merchandise 86,432.50 knew that the two policies issued by the PFIC were already in existence;
Cebu Tesing Textiles 250,000.00 (on credit) however, he had no knowledge of the provision in the private respondent's
======== policy requiring him to inform it of the prior policies; this requirement was not
P392,130.50 mentioned to him by the private respondent's agent; and had it been so
mentioned, he would not have withheld such information. He further asserted
The policy contained the following condition: that the total of the amounts claimed under the three policies was below the
"3. The insured shall give notice to the actual value of his stocks at the time of loss, which was P1,000,000.00
Company of any insurance or In its answer,7 the private respondent specifically denied the
insurances already effected, or which allegations in the complaint and set up as its principal defense the violation of
may subsequently be effected, covering Condition 3 of the policy.
any of the property or properties
consisting of stocks in trade, goods in In its decision of 21 June 1993,8 the Insurance Commission found
process and/or inventories only hereby that the petitioner did not violate Condition 3 as he had no knowledge of the
insured, and unless notice be given and existence of the two fire insurance policies obtained from the PFIC; that it was
the particulars of such insurance or Cebu Tesing Textiles which procured the PFIC policies without informing him
insurances be stated therein or endorsed or securing his consent; and that Cebu Tesing Textile, as his creditor, had
in this policy pursuant to Section 50 of insurable interest on the stocks. These findings were based on the petitioner's
the Insurance Code, by or on behalf of testimony that he came to know of the PFIC policies only when he filed his
the Company before the occurrence of claim with the private respondent and that Cebu Tesing Textile obtained them
any loss or damage, all benefits under and paid for their premiums without informing him thereof. The Insurance
this policy shall be deemed Commission then decreed:cdasia
forfeited, provided however, that this "WHEREFORE, judgment is hereby rendered ordering the
condition shall not apply when the total respondent company to pay complainant the sum of
insurance or insurances in force at the P100,000.00 with legal interest from the time the complaint
time of the loss or damage is not more was filed until fully satisfied plus the amount of P10,000.00 as
than P200,000.00."cdasia attorney's fees. With costs. The compulsory counterclaim of
On 27 May 1990, fire of accidental origin broke out at around 7:30 respondent is hereby dismissed."
p.m. at the public market of San Francisco, Agusan del Sur. The petitioner's
Its motion for the reconsideration of the decision9 having been denied
insured stocks-in-trade were completely destroyed prompting him to file with
by the Insurance Commission in its resolution of 20 August 1993, 10 the private
the private respondent a claim under the policy. On 28 December 1990, the
respondent appealed to the Court of Appeals by way of a petition for review.
private respondent denied the claim because it found that at the time of the loss
The petition was docketed as CA-G.R. SP No. 31916.
the petitioner's stocks-in-trade were likewise covered by fire insurance policies
No. GA-28146 and No. GA-28144, for P100,000.00 each, issued by the Cebu
Branch of the Philippines First Insurance Co., Inc. (hereinafter PFIC). 3 These

17 COMM REV – INSURANCE CASES


In its decision of 29 December 1993, 11 the Court of Appeals reversed inventory was already some P595,455,75. . . . These
the decision of the Insurance Commission because it found that the petitioner will support my claim that the amount under the
knew of the existence of the two other policies issued by the PFIC. It said: three policies are much below the value of my
stocks lost.
"It is apparent from the face of Fire Policy GA 28146/Fire
Policy No. 28144 that the insurance was taken in the name of xxx xxx xxx
private respondent [petitioner herein]. The policy states that
'DISCOUNT MART (MR. ARMANDO GEAGONIA, The letter contradicts private respondent's pretension that he
PROP)' was assured and that 'TESING TEXTILES' [was] did not know that there were other insurances taken on the
only the mortgagee of the goods. stock-in-trade and seriously puts in question his
credibility."cdasia
In addition, the premiums on both policies were paid for by
private respondent, not by the Tesing Textiles which is alleged His motion to reconsider the adverse decision having been denied, the
to have taken out the other insurances without the knowledge petitioner filed the instant petition. He contends therein that the Court of
of private respondent. This is shown by Premium Invoices Appeals acted with grave abuse of discretion amounting to lack of excess of
nos. 46632 and 46630. (Annexes M and N). In both invoices, jurisdiction:
Tesing Textiles is indicated to be only the mortgagee of the "A — . . . WHEN IT REVERSED THE
goods insured but the party to which they were issued were FINDINGS OF FACTS OF THE INSURANCE
the 'DISCOUNT MART (MR. ARMANDO GEAGONIA).' COMMISSION, A QUASI-JUDICIAL BODY
CHARGED WITH THE DUTY OF
It is clear that it was the private respondent [petitioner
DETERMINING INSURANCE CLAIM AND
herein] who took out the policies on the same property
WHOSE DECISION IS ACCORDED RESPECT
subject of the insurance with petitioner. Hence, in failing to
AND EVEN FINALITY BY THE COURTS;
disclose the existence of these insurances private respondent
violated Condition No. 3 of Fire Policy No. 14622. . . . B — . . . WHEN IT CONSIDERED AS
EVIDENCE MATTERS WHICH WERE NOT
Indeed private respondent's allegation of lack of knowledge
PRESENTED AS EVIDENCE DURING THE
of the previous insurances is belied by his letter to petitioner
HEARING OR TRIAL; AND
[of 18 January 1991. The body of the letter reads as
follows:]cdasia C — . . . WHEN IT DISMISSED THE CLAIM OF
THE PETITIONER HEREIN AGAINST THE
xxx xxx xxx
PRIVATE RESPONDENT."
'Please be informed that I have no knowledge of
the provision requiring me to inform your office The chief issues that crop up from the first and third grounds are (a)
about my prior insurance under FGA-28146 and whether the petitioner had prior knowledge of the two insurance policies issued
F-CEB-24758. Your representative did not mention by the PFIC when he obtained the fire insurance policy from the private
about said requirement at the time he was respondent, thereby, for not disclosing such fact, violating Condition 3 of the
convincing me to insure with you. If he only did or policy, and (b) if he had, whether he is precluded from recovering therefrom.
even inquired if I had other existing policies The second ground, which is based on the Court of Appeals' reliance
covering my establishment, I would have told him on the petitioner's letter of reconsideration of 18 January 1991, is without merit.
so. You will note that at the time he talked to me The petitioner claims that the said letter was not offered in evidence and thus
until I decided to insure with your company the should not have been considered in deciding the case. However, as correctly
two policies aforementioned were already in effect. pointed out by the Court of Appeals, a copy of this letter was attached to the
Therefore I would have no reason to withhold such petitioner's complaint in I.C. Case No. 3340 as Annex "M" thereof and made
information and I would have no reason to an integral part of the complaint. 12 It has attained the status of a judicial
withhold such information and I would have admission and since its due execution and authenticity was not denied by the
desisted to part with my hard earned peso to pay other party, the petitioner is bound by it even if it were not introduced as an
the insurance premiums [if] I know I could not independent evidence. 13
recover anything.

Sir, I am only an ordinary businessman interested


in protecting my investments. The actual value of As to the first issue, the Insurance Commission found that the
my stocks damaged by the fire was estimated by petitioner had no knowledge of the previous two policies. The Court of Appeals
the Police Department to be P1,000,000.00 (Please disagreed and found otherwise in view of the explicit admission by the petitioner
see xerox copy of Police Report Annex "A"). My in his letter to the private respondent of 18 January 1991, which was quoted in
Income Statement as of December 31, 1989 or five the challenged decision of the Court of Appeals. These divergent findings of fact
months before the fire, shows my merchandise constitute an exception to the general rule that in petitions for review

18 COMM REV – INSURANCE CASES


under Rule 45, only questions of law are involved and findings of fact by the On the other hand, a mortgagee may also procure a policy as a
Court of Appeals are conclusive and binding upon this Court. 14 contracting party in accordance with the terms of an agreement by which the
mortgagor is to pay the premiums upon such insurance. 24 It has been noted,
We agree with the Court of Appeals that the petitioner knew of the
however, that although the mortgagee is himself the insured, as where he applies
prior policies issued by the PFIC. His letter of 18 January 1991 to the private
for a policy, fully informs the authorized agent of his interest, pays the
respondent conclusively proves this knowledge. His testimony to the contrary
premiums, and obtains a policy on the assurance that it insures him, the policy
before the Insurance Commissioner and which the latter relied upon cannot
is in fact in the form used to insure a mortgagor with loss payable clause. 25
prevail over a written admission made ante litem motam. It was, indeed,
incredible that he did not know about the prior policies since these policies were The fire insurance policies issued by the PFIC name the petitioner as
not new or original. Policy No. GA-28144 was a renewal of Policy No. F-24758, the assured and contain a mortgage clause which reads:cdasia
while Policy No. GA-28146 had been renewed twice, the previous policy being F-
"Loss, if any, shall be payable to MESSRS.
24792. cdasia
TESING TEXTILES, Cebu City as their interest may appear
Condition 3 of the private respondent's Policy No. F-14622 is a subject to the terms of the policy."
condition which is not proscribed by law. Its incorporation in the policy is
This is clearly a simple loss payable clause, not a standard mortgage clause.
allowed by Section 75 of the Insurance Code 15 which provides that "[a] policy
may declare that a violation of specified provisions thereof shall avoid it, It must, however, be underscored that unlike the "other insurance"
otherwise the breach of an immaterial provision does not avoid the policy." clauses involved in General Insurance and Surety Corp. vs. Ng Hua 26 or
Such a condition is a provision which invariably appears in fire insurance in Pioneer Insurance & Surety Corp. vs. Yap, 27 which read:
policies and is intended to prevent an increase in the moral hazard. It is
commonly known as the additional or "other insurance" clause and has been "The insured shall give notice to the company of
upheld as valid and as a warranty that no other insurance exists. Its violation any insurance or insurances already effected, or which may
would thus avoid the policy. 16 However, in order to constitute a violation, the subsequently be effected covering any of the property hereby
other insurance must be upon the same subject matter, the same interest insured, and unless such notice be given and the particulars
therein, and the same risk. 17 of such insurance or insurances be stated in or endorsed on
this Policy by or on behalf of the Company before the
As to a mortgaged property, the mortgagor and the mortgagee have occurrence of any loss or damage, all benefits under this
each an independent insurable interest therein and both interests may be Policy shall be forfeited."
covered by one policy, or each may take out a separate policy covering his
interest, either at the same or at separate times. 18 The mortgagor's insurable or in the 1930 case of Santa Ana vs. Commercial Union Assurance Co. 28 which
interest covers the full value of the mortgaged property, even though the provided "that any outstanding insurance upon the whole or a portion of the
mortgage debt is equivalent to the full value of the property. 19 The mortgagee's objects thereby assured must be declared by the insured in writing and he must
insurable interest is to the extent of the debt, since the property is relied upon as cause the company to add or insert it in the policy, without which such policy
security thereof, and in insuring he is not insuring the property but his interest shall be null and void, and the insured will not be entitled to indemnity in case
or lien thereon. His insurable interest is prima facie the value mortgaged and of loss," Condition 3 in the private respondent's policy No. F-14622 does not
extends only the amount of the debt, not exceeding the value of the mortgaged absolutely declare void any violation thereof. It expressly provides that the
property.20 Thus, separate insurances covering different insurable interests condition "shall not apply when the total insurance or insurances in force at the
may be obtained by the mortgagor and the mortgagee. time of the loss or damage is not more than P200,000.00."cdasia

A mortgagor may, however, take out insurance for the benefit of the It is a cardinal rule on insurance that a policy or insurance contract
mortgagee, which is the usual practice. The mortgagee may be made the is to be interpreted liberally in favor of the insured and strictly against the
beneficial payee in several ways. He may become the assignee of the policy with company, the reason being, undoubtedly, to afford the greatest protection which
the consent of the insurer; or the mere pledgee without such consent; or the the insured was endeavoring to secure when he applied for insurance. It is also a
original policy may contain a mortgage clause; or a rider making the policy cardinal principle of law that forfeitures are not favored and that any
payable to the mortgagee "as his interest may appear" may be attached; or a construction which would result in the forfeiture of the policy benefits for the
"standard mortgage clause," containing a collateral independent contract person claiming thereunder, will be avoided, if it is possible to construe the
between the mortgagee and insurer, may be attached; or the policy, though by policy in a manner which would permit recovery, as, for example, by finding a
its terms payable absolutely to the mortgagor, may have been procured by a waiver for such forfeiture. 29 Stated differently, provisions, conditions or
mortgagor under a contract duty to insure for the mortgagee's benefit, in which exceptions in policies which tend to work a forfeiture of insurance policies
case the mortgagee acquires an equitable lien upon the proceeds. 21 should be construed most strictly against those for whose benefits they are
inserted, and most favorably toward those against whom they are intended to
In the policy obtained by the mortgagor with loss payable clause in operate. 30 The reason for this is that, except for riders which may later be
favor of the mortgagee as his interest may appear, the mortgagee is only a inserted, the insured sees the contract already in its final form and has had no
beneficiary under the contract, and recognized as such by the insurer but not voice in the selection or arrangement of the words employed therein. On the
made a party to the contract itself. Hence, any act of the mortgagor which other hand, the language of the contract was carefully chosen and deliberated
defeats his right will also defeat the right of the mortgagee.22 This kind of upon by experts and legal advisers who had acted exclusively in the interest of
policy covers only such interest as the mortgagee has at the issuing of the the insurers and the technical language employed therein is rarely understood
policy. 23 by ordinary laymen. 31

19 COMM REV – INSURANCE CASES


With these principles in mind, we are of the opinion that Condition 3 On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life
of the subject policy is not totally free from ambiguity and must, perforce, be under the latter's Diamond Jubilee Insurance Plan. Felipe accomplished the required medical questionnaire
meticulously analyzed. Such analysis leads us to conclude that (a) the wherein he did not declare any illness or adverse medical condition. Insular Life thereafter issued him Policy
prohibition applies only to double insurance, and (b) the nullity of the policy Number A000015683 with a face value of P1 million. This took effect on June 22, 1997. 5
shall only be to the extent exceeding P200,000.00 of the total policies obtained.
On June 23, 1999, Felipe's policy lapsed due to non-payment of the premium covering the period
The first conclusion is supported by the portion of the condition from June 22, 1999 to June 23, 2000. 6
referring to other insurance "covering any of the property or properties
consisting of stocks in trade, goods in process and/or inventories only hereby On September 7, 1999, Felipe applied for the reinstatement of his policy and paid P25,020.00 as
insured," and the portion regarding the insured's declaration on the subheading premium. Except for the change in his occupation of being self-employed to being the Municipal Mayor of
CO-INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the Binuangan, Misamis Oriental, all the other information submitted by Felipe in his application for reinstatement
sum of P50,000.00. A double insurance exists where the same person is insured was virtually identical to those mentioned in his original policy. 7
by several insurers separately in respect of the same subject and interest. As On October 12, 1999, Insular Life advised Felipe that his application for reinstatement may only be
earlier stated, the insurable interests of a mortgagor and a mortgagee on the considered if he agreed to certain conditions such as payment of additional premium and the cancellation of
mortgaged property are distinct and separate. Since the two policies of the PFIC the riders pertaining to premium waiver and accidental death benefits. Felipe agreed to these conditions 8 and
do not cover the same interest as that covered by the policy of the private on December 27, 1999 paid the agreed additional premium of P3,054.50. 9
respondent, no double insurance exists. The non-disclosure then of the former
policies was not fatal to the petitioner's right to recover on the private On January 7, 2000, Insular Life issued Endorsement No. PN-A000015683, which reads:
respondent's policy. cdasia
This certifies that as agreed by the Insured, the reinstatement of this policy
Furthermore, by stating within Condition 3 itself that such condition has been approved by the Company on the understanding that the following changes are
shall not apply if the total insurance in force at the time of loss does not exceed made on the policy effective June 22, 1999:
P200,000.00, the private respondent was amenable to assume a co-insurer's
liability up to a loss not exceeding P200,000.00. What it had in mind was to 1. The EXTRA PREMIUM is imposed; and
discourage over-insurance. Indeed, the rationale behind the incorporation of
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF
"other insurance" clause in fire policies is to prevent over-insurance and thus
PREMIUM DISABILITY (WPD) rider originally attached to and forming parts of this
avert the perpetration of fraud. When a property owner obtains insurance
policy [are] deleted.
policies from two or more insurers in a total amount that exceeds the property's
value, the insured may have an inducement to destroy the property for the In consequence thereof, the premium rates on this policy are adjusted to
purpose of collecting the insurance. The public as well as the insurer is P28,000.00 annually, P14,843.00 semi-annually and P7,557.00 quarterly, Philippine
interested in preventing a situation in which a fire would be profitable to the currency. 10
insured. 32
On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00 covering the period
from June 22, 2000 to June 22, 2001. And on July 2, 2001, he also paid the same amount as annual premium
WHEREFORE, the instant petition is hereby GRANTED. The covering the period from June 22, 2001 to June 21, 2002. 11
decision of the Court of Appeals in CA-G.R. SP No. 31916 is SET ASIDE and On September 22, 2001, Felipe died. His Certificate of Death enumerated the following as causes
the decision of the Insurance Commission in Case No. 3340 is REINSTATED. of death:
Costs against private respondent Country Bankers Insurance
Immediate cause: a. End stage renal failure, Hepatic failure CAIHTE
Corporation.
Antecedent cause: b. Congestive heart failure, Diffuse myocardial ischemia.
SO ORDERED.
||| (Geagonia v. Court of Appeals, G.R. No. 114427, [February 6, 1995], 311 PHIL 152-169) Underlying cause: c. Diabetes Neuropathy, Alcoholism, and Pneumonia. 12
On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu (collectively, Felipe's
8.THE INSULAR LIFE ASSURANCE COMPANY, LTD., petitioner, vs. PAZ Y. KHU, FELIPE Y. KHU, beneficiaries or respondents) filed with Insular Life a claim for benefit under the reinstated policy. This claim
JR., and FREDERICK Y. KHU, respondents. G.R. No. 195176. April 18, 2016.] was denied. Instead, Insular Life advised Felipe's beneficiaries that it had decided to rescind the reinstated
DEL CASTILLO, J p: policy on the grounds of concealment and misrepresentation by Felipe.
The date of last reinstatement mentioned in Section 48 of the Insurance Code pertains to the date Hence, respondents instituted a complaint for specific performance with damages. Respondents
that the insurer approved the application for reinstatement. However, in light of the ambiguity in the insurance prayed that the reinstated life insurance policy be declared valid, enforceable and binding on Insular Life; and
documents to this case, this Court adopts the interpretation favorable to the insured in determining the date that the latter be ordered to pay unto Felipe's beneficiaries the proceeds of this policy, among others. 13
when the reinstatement was approved.
In its Answer, Insular Life countered that Felipe did not disclose the ailments (viz., Type 2 Diabetes
Assailed in this Petition for Review on Certiorari 1 are the June 24, 2010 Decision 2 of the Court Mellitus, Diabetes Nephropathy and Alcoholic Liver Cirrhosis with Ascites) that he already had prior to his
of Appeals (CA), which dismissed the Petition in CA-G.R. CV No. 81730, and its December 13, 2010 application for reinstatement of his insurance policy; and that it would not have reinstated the insurance policy
Resolution, 3 which denied the petitioner Insular Life Assurance Company Ltd.'s (Insular Life) motion for had Felipe disclosed the material information on his adverse health condition. It contended that when Felipe
partial reconsideration. 4 died, the policy was still contestable. 14
Factual Antecedents

20 COMM REV – INSURANCE CASES


Ruling of the Regional Trial Court (RTC) themselves already embodied unequivocal provisions stipulating that the two-year contestability clause should
be reckoned from the date of approval of the reinstatement; 25 and that Felipe's misrepresentation and
On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City found 15 for Felipe's concealment of material facts in regard to his health or adverse medical condition gave it (Insular Life) the
beneficiaries, thus: right to rescind the contract of insurance and consequently, the right to deny the claim of Felipe's beneficiaries
WHEREFORE, in view of the foregoing, plaintiffs having substantiated for death benefits under the disputed policy. 26
[their] claim by preponderance of evidence, judgment is hereby rendered in their favor Respondents' Arguments
and against defendants, ordering the latter to pay jointly and severally the sum of One
Million (P1,000,000.00) Pesos with legal rate of interest from the date of demand until it Respondents maintain that the phrase "effective June 22, 1999" found in both the Letter of
is fully paid representing the face value of Plan Diamond Jubilee No. PN-A000015683 Acceptance and in the Endorsement is unclear whether it refers to the subject of the sentence, i.e., the
issued to insured the late Felipe N. Khu[,] Sr; the sum of P20,000.00 as moral damages; "reinstatement of this policy" or to the subsequent phrase "changes are made on the policy;" that granting that
P30,000.00 as attorney's fees; P10,000.00 as litigation expenses. there was any obscurity or ambiguity in the insurance policy, the same should be laid at the door of Insular
Life as it was this insurance company that prepared the necessary documents that make up the same; 27 and
SO ORDERED. 16 that given the CA's finding which effectively affirmed the RTC's finding on this particular issue, it stands to
In ordering Insular Life to pay Felipe's beneficiaries, the RTC agreed with the latter's claim that the reason that the insurance policy had indeed become incontestable upon the date of Felipe's death. 28 DETACa
insurance policy was reinstated on June 22, 1999. The RTC cited the ruling in Malayan Insurance Corporation Our Ruling
v. Court of Appeals 17 that any ambiguity in a contract of insurance should be resolved strictly against the
insurer upon the principle that an insurance contract is a contract of adhesion. 18 The RTC also held that the We deny the Petition.
reinstated insurance policy had already become incontestable by the time of Felipe's death on September 22,
2001 since more than two years had already lapsed from the date of the policy's reinstatement on June 22, The Insurance Code pertinently provides that:
1999. The RTC noted that since it was Insular Life itself that supplied all the pertinent forms relative to the Sec. 48. Whenever a right to rescind a contract of insurance is given to the
reinstated policy, then it is barred from taking advantage of any ambiguity/obscurity perceived therein insurer by any provision of this chapter, such right must be exercised previous to the
particularly as regards the date when the reinstated insurance policy became effective. commencement of an action on the contract.
Ruling of the Court of Appeals After a policy of life insurance made payable on the death of the insured
On June 24, 2010, the CA issued the assailed Decision 19 which contained the following decretal shall have been in force during the lifetime of the insured for a period of two years from
portion: the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is
void ab initio or is rescindible by reason of the fraudulent concealment or
WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the misrepresentation of the insured or his agent.
lower court is AFFIRMED with the MODIFICATION that the award of moral damages,
attorney's fees and litigation expenses [is] DELETED. The rationale for this provision was discussed by the Court in Manila Bankers Life Insurance
Corporation v. Aban, 29
SO ORDERED. 20
Section 48 regulates both the actions of the insurers and prospective takers of
The CA upheld the RTC's ruling on the non-contestability of the reinstated insurance policy on the life insurance. It gives insurers enough time to inquire whether the policy was obtained
date the insured died. It declared that contrary to Insular Life's contention, there in fact exists a genuine by fraud, concealment, or misrepresentation; on the other hand, it forewarns scheming
ambiguity or obscurity in the language of the two documents prepared by Insular Life itself, viz., Felipe's individuals that their attempts at insurance fraud would be timely uncovered — thus
Letter of Acceptance and Insular Life's Endorsement; that given the obscurity/ambiguity in the language of deterring them from venturing into such nefarious enterprise. At the same time,
these two documents, the construction/interpretation that favors the insured's right to recover should be legitimate policy holders are absolutely protected from unwarranted denial of their
adopted; and that in keeping with this principle, the insurance policy in dispute must be deemed reinstated as claims or delay in the collection of insurance proceeds occasioned by allegations of
of June 22, 1999. 21 fraud, concealment, or misrepresentation by insurers, claims which may no longer be set
up after the two-year period expires as ordained under the law.
Insular Life moved for partial reconsideration 22 but this was denied by the CA in its Resolution of
December 13, 2010. 23Hence, the present Petition. xxx xxx xxx
Issue The Court therefore agrees fully with the appellate court's pronouncement
that —
The fundamental issue to be resolved in this case is whether Felipe's reinstated life insurance policy
is already incontestable at the time of his death. xxx xxx xxx
Petitioner's Arguments 'The insurer is deemed to have the necessary facilities to discover such
fraudulent concealment or misrepresentation within a period of two (2) years. It is not
In praying for the reversal of the CA Decision, Insular Life basically argues that respondents should fair for the insurer to collect the premiums as long as the insured is still alive, only to
not be allowed to recover on the reinstated insurance policy because the two-year contestability period had not raise the issue of fraudulent concealment or misrepresentation when the insured dies in
yet lapsed inasmuch as the insurance policy was reinstated only on December 27, 1999, whereas Felipe died order to defeat the right of the beneficiary to recover under the policy.
on September 22, 2001; 24 that the CA overlooked the fact that Felipe paid the additional extra premium only
on December 27, 1999, hence, it is only upon this date that the reinstated policy had become effective; that the
CA erred in declaring that resort to the principles of statutory construction is still necessary to resolve that
question given that the Application for Reinstatement, the Letter of Acceptance and the Endorsement in and by

21 COMM REV – INSURANCE CASES


At least two (2) years from the issuance of the policy or its last reinstatement, Felipe N. Khu, Sr.
the beneficiary is given the stability to recover under the policy when the insured dies.
The provision also makes clear when the two-year period should commence in case the After Felipe accomplished this form, Insular Life, through its Regional Administrative Manager,
policy should lapse and is reinstated, that is, from the date of the last reinstatement'. Jesse James R. Toyhorada, issued an Endorsement 33 dated January 7, 2000. For emphasis, the Endorsement is
again quoted as follows: aDSIHc
In Lalican v. The Insular Life Assurance Company, Limited, 30 which coincidentally also involves
the herein petitioner, it was there held that the reinstatement of the insured's policy is to be reckoned from the ENDORSEMENT
date when the application was processed and approved by the insurer. There, we stressed that: PN-A000015683
To reinstate a policy means to restore the same to premium-paying status This certifies that as agreed to by the Insured, the reinstatement of this policy has been
after it has been permitted to lapse. . . . approved by the Company on the understanding that the following changes are made on
xxx xxx xxx the policy effective June 22, 1999:

In the instant case, Eulogio's death rendered impossible full compliance with 1. The EXTRA PREMIUM is imposed; and
the conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death, 2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER
managed to file his Application for Reinstatement and deposit the amount for payment OF PREMIUM DISABILITY (WPD) rider originally attached to
of his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992 and forming parts of this policy is deleted.
could only be considered reinstated after the Application for Reinstatement had been
processed and approved by Insular Life during Eulogio's lifetime and good health. 31 In consequence thereof, the PREMIUM RATES on this policy are adjusted to
[P]28,000.00 annually, [P]14,843.00 semi-annually and [P]7,557.00 quarterly,
Thus, it is settled that the reinstatement of an insurance policy should be reckoned from the date Philippine Currency.
when the same was approved by the insurer.
Cagayan de Oro City, 07 January 2000.
In this case, the parties differ as to when the reinstatement was actually approved. Insular Life
claims that it approved the reinstatement only on December 27, 1999. On the other hand, respondents contend RCV/
that it was on June 22, 1999 that the reinstatement took effect.
(Signed) Authorized Signature
The resolution of this issue hinges on the following documents: 1) Letter of Acceptance; and 2) the
Endorsement. Based on the foregoing, we find that the CA did not commit any error in holding that the subject
insurance policy be considered as reinstated on June 22, 1999. This finding must be upheld not only because it
The Letter of Acceptance 32 wherein Felipe affixed his signature was actually drafted and prepared accords with the evidence, but also because this is favorable to the insured who was not responsible for
by Insular Life. This pro-forma document reads as follows: causing the ambiguity or obscurity in the insurance contract. 34
LETTER OF ACCEPTANCE The CA expounded on this point thus —
Place: Cag. De [O]ro City The Court discerns a genuine ambiguity or obscurity in the language of the
two documents.
The Insular Life Assurance Co., Ltd.
P.O. Box 128, MANILA In the Letter of Acceptance, Khu declared that he was accepting "the
imposition of an extra/additional . . . premium of P5.00 a year per thousand of
Policy No. A000015683 insurance; effective June 22, 1999". It is true that the phrase as used in this particular
Gentlemen: paragraph does not refer explicitly to the effectivity of the reinstatement. But the Court
notes that the reinstatement was conditioned upon the payment of additional premium
Thru your Reinstatement Section, I/WE learned that this policy may be reinstated not only prospectively, that is, to cover the remainder of the annual period of coverage,
provided I/we agree to the following condition/s indicated with a check mark: but also retroactively, that is for the period starting June 22, 1999. Hence, by paying the
amount of P3,054.50 on December 27, 1999 in addition to the P25,020.00 he had earlier
[xx] Accept the imposition of an extra/additional extra premium of paid on September 7, 1999, Khu had paid for the insurance coverage starting June 22,
[P]5.00 a year per thousand of insurance; effective June 22, 1999 1999. At the very least, this circumstance has engendered a true lacuna.
[ ] Accept the rating on the WPD at _____ at standard rates; the
In the Endorsement, the obscurity is patent. In the first sentence of the
ABD at ____ the standard rates; the SAR at P ____ annually per
Endorsement, it is not entirely clear whether the phrase "effective June 22, 1999" refers
thousand of Insurance;
to the subject of the sentence, namely "the reinstatement of this policy," or to the
[xx] Accept the cancellation of the Premium waiver & Accidental subsequent phrase "changes are made on the policy."
death benefit.
The court below is correct. Given the obscurity of the language, the
[] construction favorable to the insured will be adopted by the courts.
I am/we are agreeable to the above condition/s. Please proceed with the reinstatement of Accordingly, the subject policy is deemed reinstated as of June 22, 1999.
the policy. Thus, the period of contestability has lapsed. 35
Very truly yours,

22 COMM REV – INSURANCE CASES


In Eternal Gardens Memorial Park Corporation v. The Philippine American Life Insurance SYLLABUS
Company, 36 we ruled in favor of the insured and in favor of the effectivity of the insurance contract in the
midst of ambiguity in the insurance contract provisions. We held that:
1. COMMERCIAL LAW; INSURANCE; COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE; THIRD
It must be remembered that an insurance contract is a contract of adhesion PARTY LIABILITY; INSURER DIRECTLY LIABLE TO THE INJURED. — "[W]here an insurance policy insures
which must be construed liberally in favor of the insured and strictly against the insurer directly against liability, the insurer's liability accrues immediately upon the occurrence of the injury or event upon
in order to safeguard the latter's interest. Thus, in Malayan Insurance Corporation v. which the liability depends, and does not depend on the recovery of judgment by the injured party against the
Court of Appeals, this Court held that: insured. The underlying reason behind the third party liability (TPL) of the Compulsory Motor Vehicle Liability
Indemnity and liability insurance policies are Insurance is "to protect injured persons against the insolvency of the insured who causes such injury, and to give
construed in accordance with the general rule of resolving any such injured person a certain beneficial interest in the proceeds of the policy. . . ." (Shafer vs. Judge, RTC of
ambiguity therein in favor of the insured, where the contract or Olongapo City,Br. 75, G.R. No. 78848, Nov. 14, 1988, 167 SCRA 386, 391)
policy is prepared by the insurer. A contract of insurance, being
2. ID.; ID.; ID.; ID.; LIABILITY OF INSURER DISTINCT FROM LIABILITY OF THE INSURED AGAINST
a contract of adhesion, par excellence, any ambiguity therein
THIRD PARTIES. — We cannot agree that AFISCO is likewise solidarily liable with Destrajo. In Malayan
should be resolved against the insurer; in other words, it should
Insurance Co. v. Court of Appeals, (L-36413, September 26, 1988, 165 SCRA 536, 544), this Court had the
be construed liberally in favor of the insured and strictly against
opportunity to resolve the issue as to the nature of the liability of the insurer and the insured vis-a-vis the third party
the insurer. Limitations of liability should be regarded with
injured in an accident. We categorically ruled thus: "While it is true that where the insurance contract provides for
extreme jealousy and must be construed in such a way as to
indemnity against liability to third persons, such third persons can directly sue the insurer, however, the direct
preclude the insurer from noncompliance with its obligations.
liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be
xxx xxx xxx heldsolidarily 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. . . . For if petitioner-insurer were solidarily liable with said two (2)
As a final note, to characterize the insurer and the insured as contracting respondents by reason of the indemnity contract against third party liability — under which an insurer can be
parties on equal footing is inaccurate at best. Insurance contracts are wholly prepared by directly sued by a third party — this will result in a violation of the principles underlying solidary obligation and
the insurer with vast amounts of experience in the industry purposefully used to its insurance contracts."
advantage. More often than not, insurance contracts are contracts of adhesion containing
technical terms and conditions of the industry, confusing if at all understandable to 3. ID.; ID.; INSURANCE CONTRACTS DISTINGUISHED FROM ORDINARY CONTRACTS. — The Court
laypersons, that are imposed on those who wish to avail of insurance. As such, insurance distinguish the extent of the liability and manner of enforcing the same in ordinary contracts from that of insurance
contracts are imbued with public interest that must be considered whenever the rights contracts. While in solidary obligations, the creditor may enforce the entire obligation against one of the solidary
and obligations of the insurer and the insured are to be delineated. Hence, in order to debtors, in an insurance contract, the insurer undertakes for a consideration to indemnify the insured against loss,
protect the interest of insurance applicants, insurance companies must be obligated to damage or liability arising from an unknown or contingent event. Thus, petitioner therein, which, under the
act with haste upon insurance applications, to either deny or approve the same, or insurance contract is liable only up to P20,000.00, can not be made solidarily liable with the insured for the entire
otherwise be bound to honor the application as a valid, binding, and effective insurance obligation of P29,013.00 otherwise there would result "an evident breach of the concept of solidary obligation."
contract. 37
DECISION
Indeed, more than two years had lapsed from the time the subject insurance policy was reinstated
on June 22, 1999 vis-a-vis Felipe's death on September 22, 2001. As such, the subject insurance policy has
already become incontestable at the time of Felipe's death.
Finally, we agree with the CA that there is neither basis nor justification for the RTC's award of ROMERO, J p:
moral damages, attorney's fees and litigation expenses; hence this award must be deleted.
WHEREFORE, the Petition is DENIED. The assailed June 24, 2010 Decision and December 13, The nature of the liability of an insurer sued together with the insured/operator-owner of a common carrier which
2010 Resolution of the Court of Appeals in CA-G.R. CV No. 81730 are AFFIRMED. figured in an accident causing the death of a third person is sought to be defined in this petition for certiorari.

SO ORDERED. The facts as found by the trial court are as follows:

||| (The Insular Life Assurance Co., Ltd. vs. Khu, G.R. No. 195176, [April 18, 2016]) " . . . . Lope Maglana was an employee of the Bureau of Customs whose work station was
at Lasa, here in Davao City. On December 20, 1978, early morning, Lope Maglana was 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. He died on the spot. The PUJ jeep
9.FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR, that bumped the deceased was driven by Pepito Into, operated and owned by defendant
LEONILA M. MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and ELVIRA, Destrajo. From the investigation conducted by the traffic investigator, the PUJ jeep was
all surnamed MAGLANA, herein represented by their mother, FIGURACION VDA. overtaking another passenger jeep that was going towards the city poblacion. While
DE MAGLANA, petitioners, vs. HONORABLE FRANCISCO Z. CONSOLACION, Presiding overtaking, the PUJ jeep of defendant Destrajo running abreast with the overtaken jeep,
Judge of Davao City, Branch II, and AFISCO INSURANCE CORPORATION, respondents. G.R. bumped the motorcycle driven by the deceased who was going towards the direction of
No. 60506. August 6, 1992.] Lasa, Davao City. The point of impact was on the lane of the motorcycle and the deceased
was thrown from the road and met his untimely death." 1

23 COMM REV – INSURANCE CASES


Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action for damages and attorney's fees (a) death of or bodily injury to any THIRD PARTY
against operator Patricio Destrajo and the Afisco Insurance Corporation (AFISCO for brevity) before the then Court
of First Instance of Davao, Branch II. An information for homicide thru reckless imprudence was also filed against (b) . . . .
Pepito Into. prcd
2. . . . .
During the pendency of the civil case, Into was sentenced to suffer an indeterminate penalty of one (1) year, eight
(8) months and one (1) day of prision correccional, as minimum, to four (4) years, nine (9) months and eleven (11) 3. In the event of the death of any person entitled to indemnity under this Policy, the
days of prision correccional, as maximum, with all the accessory penalties provided by law, and to indemnify the Company will, in respect of the liability incurred to such person indemnify his personal
heirs of Lope Maglana, Sr. in the amount of twelve thousand pesos (P12,000.00) with subsidiary imprisonment in representatives in terms of, and subject to the terms and conditions hereof." 7
case of insolvency, plus five thousand pesos (P5,000.00) in the concept of moral and exemplary damages with costs.
The above-quoted provision leads to no other conclusion but that AFISCO can be held directly liable by petitioners.
No appeal was interposed by the accused who later applied for probation. 2
As this Court ruled in Shafer vs. Judge, RTC of Olongapo City, Br. 75, "[w]here an insurance policy insures directly
On December 14, 1981, the lower court rendered a decision finding that Destrajo had not exercised sufficient against liability, the insurer's liability accrues immediately upon the occurrence of the injury or event upon which the
diligence as the operator of the jeepney. The dispositive portion of the decision reads: 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
"WHEREFORE, the Court finds judgment in favor of the plaintiffs against defendant protect injured persons against the insolvency of the insured who causes such injury, and to give such injured person
Destrajo, ordering him to pay plaintiffs the sum of P28,000.00 for loss of income; to pay a certain beneficial interest in the proceeds of the policy . . . ." 9 Since petitioners had received from AFISCO the
plaintiffs the sum of P12,000.00 which amount shall be deducted in the event judgment in sum of P5,000.00 under the no-fault clause, AFISCO's liability is now limited to P15,000.00.
Criminal Case No. 3527-D against the driver, accused Into, shall have been enforced; to
pay plaintiffs the sum of P5,901.70 representing funeral and burial expenses of the
deceased; to pay plaintiffs the sum of P5,000.00 as moral damages which shall be deducted
However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. In Malayan Insurance Co.,
in the event judgment (sic) in Criminal Case No. 3527-D against the driver, accused Into;
Inc. v. Court of Appeals, 10 this Court had the opportunity to resolve the issue as to the nature of the liability of the
to pay plaintiffs the sum of P3,000.00 as attorney's fees and to pay the costs of suit.
insurer and the insured vis-a-vis the third party injured in an accident. We categorically ruled thus:
The defendant insurance company is ordered to reimburse defendant Destrajo whatever
"While it is true that where the insurance contract provides for indemnity against liability
amounts the latter shall have paid only up to the extent of its insurance coverage.
to third persons, such third persons can directly sue the insurer, however, the direct liability
SO ORDERED." 3 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
Petitioners filed a motion for the reconsideration of the second paragraph of the dispositive portion of the decision fault. The liability of the insurer is based on contract; that of the insured is based on tort.
contending that AFISCO should not merely be held secondarily liable because the Insurance Code provides that the
insurer's liability is "direct and primary and/or jointly and severally with the operator of the vehicle, although only In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos (the
up to the extent of the insurance coverage." 4 Hence, they argued that the P20,000.00 coverage of the insurance injured third party), but it cannot, as incorrectly held by the trial court, be made `solidarily'
policy issued by AFISCO, should have been awarded in their favor. 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
In its comment on the motion for reconsideration, AFISCO argued that since the Insurance Code does not expressly reason of the indemnity contract against third party liability — under which an insurer can
provide for a solidary obligation, the presumption is that the obligation is joint. be directly sued by a third party — this will result in a violation of the principles
underlying solidary obligation and insurance contracts" (emphasis supplied). llcd
In its Order of February 9, 1982, the lower court denied the motion for reconsideration ruling that since the
insurance contract "is in the nature of suretyship, then the liability of the insurer is secondary only up to the extent of The Court then proceeded to distinguish the extent of the liability and manner of enforcing the same in ordinary
the insurance coverage." 5 contracts from that of insurance contracts. 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
Petitioners filed a second motion for reconsideration reiterating that the liability of the insurer is direct, primary and indemnify the insured against loss, damage or liability arising from an unknown or contingent event. 11 Thus,
solidary with the jeepney operator because the petitioners became direct beneficiaries under the provision of the petitioner therein, which, under the insurance contract is liable only up to P20,000.00, can not be made solidarily
policy which, in effect, is a stipulation pour autrui. 6 This motion was likewise denied for lack of merit. Cdpr liable with the insured for the entire obligation of P29,013.00 otherwise there would result "an evident breach of the
concept of solidary obligation."
Hence, petitioners filed the instant petition for certiorari which, although it does not seek the reversal of the lower
court's decision in its entirety, prays for the setting aside or modification of the second paragraph of the dispositive Similarly, petitioners herein cannot validly claim that AFISCO, whose liability under the insurance policy is also
portion of said decision. Petitioners reassert their position that the insurance company is directly and solidarily liable P20,000.00, can be held solidarily liable with Destrajo for the total amount of P53,901.70 in accordance with the
with the negligent operator up to the extent of its insurance coverage. decision of the lower court. Since under both the law and the insurance policy, AFISCO's liability is only up to
P20,000.00, the second paragraph of the dispositive portion of the decision in question may have unwittingly sown
We grant the petition. confusion among the petitioners and their counsel. What should have been clearly stressed as to leave no room for
doubt was the liability of AFISCO under the explicit terms of the insurance contract.
The particular provision of the insurance policy on which petitioners base their claim is as follows:
In fine, we conclude that the liability of AFISCO based on the insurance contract is direct, but not solidary with that
"SECTION 1 — LIABILITY TO THE PUBLIC of Destrajo which is based on Article 2180 of the Civil Code. 12 As such, petitioners have the option either to claim
the P15,000 from AFISCO and the balance from Destrajo or enforce the entire judgment from Destrajo subject to
1. The Company will, subject to the Limits of Liability, pay all sums necessary to discharge
reimbursement from AFISCO to the extent of the insurance coverage.
liability of the insured in respect of.

24 COMM REV – INSURANCE CASES


While the petition seeks a definitive ruling only on the nature of AFISCO's liability, we noticed that the lower court 6. That the accident resulted to the death of the plaintiff’s wife, Felisa Pepito Arriesgado, as
erred in the computation of the probable loss of income. Using the formula: 2/3 of (80-56) x P12,000.00, it awarded evidenced by a Certificate of Death, a xerox copy of which is hereto attached as integral
P28,000.00. 13 Upon recomputation, the correct amount is P192,000.00. Being a "plain error," we opt to correct the part hereof and marked as ANNEX — “A”, and physical injuries to several of its
same. 14 Furthermore, in accordance with prevailing jurisprudence, the death indemnity is hereby increased to passengers, including plaintiff himself who suffered a “COLLES FRACTURE RIGHT,”
P50,000.00. 15 per Medical Certificate, a xerox copy of which is hereto attached as integral part hereof and
marked as ANNEX — “B” hereof.
WHEREFORE, premises considered, the present petition is hereby GRANTED. The award of P28,800.00
representing loss of income is INCREASED to P192,000.00 and the death indemnity of P12,000.00 to P50,000.00. 7. That due to the reckless and imprudent driving by defendant Virgilio Te Laspiñas of the
said Rough Riders passenger bus, plaintiff and his wife, Felisa Pepito Arriesgado, failed to
SO ORDERED. safely reach their destination which was Cebu City, the proximate cause of which was
defendant-driver’s failure to observe utmost diligence required of a very cautious person
||| (Vda. de Maglana v. Consolacion, G.R. No. 60506, [August 6, 1992], 287 PHIL 291-298) under all circumstances.

10.WILLIAM TIU, doing business under the name and style of “D’ Rough Riders,” and VIRGILIO TE 8. That defendant William Tiu, being the owner and operator of the said Rough Riders
LASPIÑAS,petitioners, vs. PEDRO A. ARRIESGADO, BENJAMIN CONDOR, SERGIO PEDRANO and PHILIPPINE passenger bus which figured in the said accident, wherein plaintiff and his wife were riding
PHOENIX SURETY AND INSURANCE, INC., respondents. .[G.R. No. 138060. September 1, 2004.] at the time of the accident, is therefore directly liable for the breach of contract of carriage
for his failure to transport plaintiff and his wife safely to their place of destination which
DECISION was Cebu City, and which failure in his obligation to transport safely his passengers was
due to and in consequence of his failure to exercise the diligence of a good father of the
family in the selection and supervision of his employees, particularly defendant-driver
Virgilio Te Laspiñas. 9
CALLEJO, SR., J p: The respondent prayed that judgment be rendered in his favor and that the petitioners be condemned to pay the
following damages:
This is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision 1 of the Court of
Appeals in CA-G.R. CV No. 54354 affirming with modification the Decision 2 of the Regional Trial Court, 7th 1). To pay to plaintiff, jointly and severally, the amount of P30,000.00 for the death and
Judicial Region, Cebu City, Branch 20, in Civil Case No. CEB-5963 for breach of contract of carriage, damages and untimely demise of plaintiff’s wife, Felisa Pepito Arriesgado;
attorney’s fees, and the Resolution dated February 26, 1999 denying the motion for reconsideration thereof.
2). To pay to plaintiff, jointly and severally, the amount of P38,441.50, representing actual
The following facts are undisputed: expenses incurred by the plaintiff in connection with the death/burial of plaintiff’s wife;

At about 10:00 p.m. of March 15, 1987, the cargo truck marked “Condor Hollow Blocks and General Merchandise” 3). To pay to plaintiff, jointly and severally, the amount of P1,113.80, representing
bearing plate number GBP-675 was loaded with firewood in Bogo, Cebu and left for Cebu City. Upon reaching Sitio medical/hospitalization expenses incurred by plaintiff for the injuries sustained by
Aggies, Poblacion, Compostela, Cebu, just as the truck passed over a bridge, one of its rear tires exploded. The him; EDaHAT
driver, Sergio Pedrano, then parked along the right side of the national highway and removed the damaged tire to
4). To pay to plaintiff, jointly and severally, the amount of P50,000.00 for moral damages;
have it vulcanized at a nearby shop, about 700 meters away. 3 Pedrano left his helper, Jose Mitante, Jr. to keep watch
over the stalled vehicle, and instructed the latter to place a spare tire six fathoms away 4 behind the stalled truck to 5). To pay to plaintiff, jointly and severally, the amount of P50,000.00 by way of
serve as a warning for oncoming vehicles. The truck’s tail lights were also left on. It was about 12:00 a.m., March exemplary damages;
16, 1987.
6). To pay to plaintiff, jointly and severally, the amount of P20,000.00 for attorney’s fees;
At about 4:45 a.m., D’ Rough Riders passenger bus with plate number PBP-724 driven by Virgilio Te Laspiñas was
cruising along the national highway of Sitio Aggies, Poblacion, Compostela, Cebu. The passenger bus was also 7). To pay to plaintiff, jointly and severally, the amount of P5,000.00 for litigation
bound for Cebu City, and had come from Maya, Daanbantayan, Cebu. Among its passengers were the Spouses expenses.
Pedro A. Arriesgado and Felisa Pepito Arriesgado, who were seated at the right side of the bus, about three (3) or
four (4) places from the front seat. cAEaSC PLAINTIFF FURTHER PRAYS FOR SUCH OTHER RELIEFS AND REMEDIES IN
LAW AND EQUITY. 10
As the bus was approaching the bridge, Laspiñas saw the stalled truck, which was then about 25 meters away. 5 He
applied the breaks and tried to swerve to the left to avoid hitting the truck. But it was too late; the bus rammed into The petitioners, for their part, filed a Third-Party Complaint 11 on August 21, 1987 against the following:
the truck’s left rear. The impact damaged the right side of the bus and left several passengers injured. Pedro respondent Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tiu’s insurer; respondent Benjamin
Arriesgado lost consciousness and suffered a fracture in his right colles. 6 His wife, Felisa, was brought to the Condor, the registered owner of the cargo truck; and respondent Sergio Pedrano, the driver of the truck. They
Danao City Hospital. She was later transferred to the Southern Island Medical Center where she died shortly alleged that petitioner Laspiñas was negotiating the uphill climb along the national highway of Sitio Aggies,
thereafter. 7 Poblacion, Compostela, in a moderate and normal speed. It was further alleged that the truck was parked in a slanted
manner, its rear portion almost in the middle of the highway, and that no early warning device was displayed.
Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage, damages and attorney’s Petitioner Laspiñas promptly applied the brakes and swerved to the left to avoid hitting the truck head-on, but
fees before the Regional Trial Court of Cebu City, Branch 20, against the petitioners, D’ Rough Riders bus operator despite his efforts to avoid damage to property and physical injuries on the passengers, the right side portion of the
William Tiu and his driver, Virgilio Te Laspiñas on May 27, 1987. The respondent alleged that the passenger bus in bus hit the cargo truck’s left rear. The petitioners further alleged, thus:
question was cruising at a fast and high speed along the national road, and that petitioner Laspiñas did not take
precautionary measures to avoid the accident. 8 Thus:

25 COMM REV – INSURANCE CASES


5. That the cargo truck mentioned in the aforequoted paragraph is owned and registered in 4. The sum of TWENTY THOUSAND PESOS (P20,000.00) as attorney’s fees;
the name of the third-party defendant Benjamin Condor and was left unattended by its
driver Sergio Pedrano, one of the third-party defendants, at the time of the incident; 5. The sum of FIVE THOUSAND PESOS (P5,000.00) as costs of suit;

6. That third-party defendant Sergio Pedrano, as driver of the cargo truck with marked (sic) SO ORDERED. 15
“Condor Hollow Blocks & General Merchandise,” with Plate No. GBP-675 which was
recklessly and imprudently parked along the national highway of Compostela, Cebu during According to the trial court, there was no dispute that petitioner William Tiu was engaged in business as a common
the vehicular accident in question, and third-party defendant Benjamin Condor, as the carrier, in view of his admission that D’ Rough Rider passenger bus which figured in the accident was owned by
registered owner of the cargo truck who failed to exercise due diligence in the selection him; that he had been engaged in the transportation business for 25 years with a sole proprietorship; and that he
and supervision of third-party defendant Sergio Pedrano, are jointly and severally liable to owned 34 buses. The trial court ruled that if petitioner Laspiñas had not been driving at a fast pace, he could have
the third-party plaintiffs for whatever liability that may be adjudged against said third-party easily swerved to the left to avoid hitting the truck, thus, averting the unfortunate incident. It then concluded that
plaintiffs or are directly liable of (sic) the alleged death of plaintiff’s wife; petitioner Laspiñas was negligent.

7. That in addition to all that are stated above and in the answer which are intended to show The trial court also ruled that the absence of an early warning device near the place where the truck was parked was
reckless imprudence on the part of the third-party defendants, the third-party plaintiffs not sufficient to impute negligence on the part of respondent Pedrano, since the tail lights of the truck were fully on,
hereby declare that during the vehicular accident in question, third-party defendant was and the vicinity was well lighted by street lamps. 16 It also found that the testimony of petitioner Tiu, that he based
clearly violating Section 34, par. (g) of the Land Transportation and Traffic Code . . . the selection of his driver Laspiñas on efficiency and in-service training, and that the latter had been so far an
efficient and good driver for the past six years of his employment, was insufficient to prove that he observed the
xxx xxx xxx diligence of a good father of a family in the selection and supervision of his employees.

10. That the aforesaid passenger bus, owned and operated by third-party plaintiff William After the petitioner’s motion for reconsideration of the said decision was denied, the petitioners elevated the case to
Tiu, is covered by a common carrier liability insurance with Certificate of Cover No. the Court of Appeals on the following issues:
054940 issued by Philippine Phoenix Surety and Insurance, Inc., Cebu City Branch, in
favor of third-party plaintiff William Tiu which covers the period from July 22, 1986 to I WHETHER THIRD PARTY DEFENDANT SERGIO PEDRANO WAS
July 22, 1987 and that the said insurance coverage was valid, binding and subsisting during RECKLESS AND IMPRUDENT WHEN HE PARKED THE CARGO TRUCK
the time of the aforementioned incident (Annex “A” as part hereof); IN AN OBLIQUE MANNER;

11. That after the aforesaid alleged incident, third-party plaintiff notified third-party II WHETHER THE THIRD PARTY DEFENDANTS ARE JOINTLY AND
defendant Philippine Phoenix Surety and Insurance, Inc., of the alleged incident hereto SEVERALLY LIABLE DIRECTLY TO PLAINTIFF-APPELLEE OR TO
mentioned, but to no avail; DEFENDANTS-APPELLANTS FOR WHATEVER LIABILITY THAT MAY
BE ADJUDGED TO THE SAID DEFENDANTS-APPELLANTS;
12. That granting, et arguendo et arguendi, if herein third-party plaintiffs will be adversely
adjudged, they stand to pay damages sought by the plaintiff and therefore could also look III WHETHER DEFENDANT-APPELLANT VIRGILIO TE LASPIÑAS WAS
up to the Philippine Phoenix Surety and Insurance, Inc., for contribution, indemnification GUILTY OF GROSS NEGLIGENCE;
and/or reimbursement of any liability or obligation that they might [be] adjudged per
IV WHETHER DEFENDANT-APPELLANT WILLIAM TIU HAD
insurance coverage duly entered into by and between third-party plaintiff William Tiu and
EXERCISED THE DUE DILIGENCE OF A GOOD FATHER OF A FAMILY
third-party defendant Philippine Phoenix Surety and Insurance, Inc.; . . . 12
IN THE SELECTION AND SUPERVISION OF HIS DRIVERS;
The respondent PPSII, for its part, admitted that it had an existing contract with petitioner Tiu, but averred that it had
V GRANTING FOR THE SAKE OF ARGUMENT THAT DEFENDANT-
already attended to and settled the claims of those who were injured during the incident. 13 It could not accede to
APPELLANT WILLIAM TIU IS LIABLE TO PLAINTIFF-APPELLEE,
the claim of respondent Arriesgado, as such claim was way beyond the scheduled indemnity as contained in the
WHETHER THERE IS LEGAL AND FACTUAL BASIS IN AWARDING
contract of insurance. 14
EXCESSIVE MORAL DAMAGES, EX[E]MPLARY DAMAGES,
After the parties presented their respective evidence, the trial court ruled in favor of respondent Arriesgado. The ATTORNEY’S FEES AND LITIGATION EXPENSES TO PLAINTIFF-
dispositive portion of the decision reads: aSITDC APPELLEE;

VI WHETHER THIRD PARTY DEFENDANT PHILIPPINE PHOENIX


SURETY AND INSURANCE, INC. IS LIABLE TO DEFENDANT-
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of plaintiff APPELLANT WILLIAM TIU. 17
as against defendant William Tiu ordering the latter to pay the plaintiff the following
amounts: The appellate court rendered judgment affirming the trial court’s decision with the modification that the awards for
moral and exemplary damages were reduced to P25,000. The dispositive portion reads: HDTcEI
1. The sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;
WHEREFORE, the appealed Decision dated November 6, 1995 is hereby MODIFIED
2. The sum of FIFTY THOUSAND PESOS (P50,000.00) as exemplary damages; such that the awards for moral and exemplary damages are each reduced to P25,000.00 or a
total of P50,000.00 for both. The judgment is AFFIRMED in all other respects.
3. The sum of THIRTY-EIGHT THOUSAND FOUR HUNDRED FORTY-ONE PESOS
(P38,441.00) as actual damages; SO ORDERED. 18

26 COMM REV – INSURANCE CASES


According to the appellate court, the action of respondent Arriesgado was based not on quasi-delict but on breach of Respondent Arriesgado also alleged that respondents Condor and Pedrano, and respondent Phoenix Surety, are
contract of carriage. As a common carrier, it was incumbent upon petitioner Tiu to prove that extraordinary diligence parties with whom he had no contract of carriage, and had no cause of action against. It was pointed out that only the
was observed in ensuring the safety of passengers during transportation. Since the latter failed to do so, he should be petitioners needed to be sued, as driver and operator of the ill-fated bus, on account of their failure to bring the
held liable for respondent Arriesgado’s claim. The CA also ruled that no evidence was presented against the Arriesgado Spouses to their place of destination as agreed upon in the contract of carriage, using the utmost
respondent PPSII, and as such, it could not be held liable for respondent Arriesgado’s claim, nor for contribution, diligence of very cautious persons with due regard for all circumstances.
indemnification and/or reimbursement in case the petitioners were adjudged liable.
Respondents Condor and Pedrano point out that, as correctly ruled by the Court of Appeals, the proximate cause of
The petitioners now come to this Court and ascribe the following errors committed by the appellate court: the unfortunate incident was the fast speed at which petitioner Laspiñas was driving the bus owned by petitioner Tiu.
According to the respondents, the allegation that the truck was not equipped with an early warning device could not
I. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING in any way have prevented the incident from happening. It was also pointed out that respondent Condor had always
RESPONDENTS BENJAMIN CONDOR AND SERGIO PEDRANO GUILTY exercised the due diligence required in the selection and supervision of his employees, and that he was not a party to
OF NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT PEDRO A. the contract of carriage between the petitioners and respondent Arriesgado.
ARRIESGADO OR TO PETITIONERS FOR WHATEVER LIABILITY THAT
MAY BE ADJUDGED AGAINST THEM. Respondent PPSII, for its part, alleges that contrary to the allegation of petitioner Tiu, it settled all the claims of
those injured in accordance with the insurance contract. It further avers that it did not deny respondent Arriesgado’s
II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING claim, and emphasizes that its liability should be within the scheduled limits of indemnity under the said contract.
PETITIONERS GUILTY OF NEGLIGENCE AND HENCE, LIABLE TO The respondent concludes that while it is true that insurance contracts are contracts of indemnity, the measure of the
RESPONDENT PEDRO A. ARRIESGADO. insurer’s liability is determined by the insured’s compliance with the terms thereof.
III. THE HONORABLE COURT OF APPEALS ERRED IN FINDING The Court’s Ruling
PETITIONER WILLIAM TIU LIABLE FOR EXEMPLARY DAMAGES,
ATTORNEY’S FEES AND LITIGATION EXPENSES. At the outset, it must be stressed that this Court is not a trier of facts. 20 Factual findings of the Court of Appeals are
final and may not be reviewed on appeal by this Court, except when the lower court and the CA arrived at diverse
IV. THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING factual findings. 21 The petitioners in this case assail the finding of both the trial and the appellate courts that
RESPONDENT PHILIPPINE PHOENIX SURETY AND INSURANCE, INC. petitioner Laspiñas was driving at a very fast speed before the bus owned by petitioner Tiu collided with respondent
LIABLE TO RESPONDENT PEDRO A. ARRIESGADO OR TO Condor’s stalled truck. This is clearly one of fact, not reviewable by the Court in a petition for review under Rule
PETITIONER WILLIAM TIU. 19 45. 22

According to the petitioners, the appellate court erred in failing to appreciate the absence of an early warning device
and/or built-in reflectors at the front and back of the cargo truck, in clear violation of Section 34, par. (g) of the Land
Transportation and Traffic Code. They aver that such violation is only a proof of respondent Pedrano’s negligence, On this ground alone, the petition is destined to fail.
as provided under Article 2185 of the New Civil Code. They also question the appellate court’s failure to take into
However, considering that novel questions of law are likewise involved, the Court resolves to examine and rule on
account that the truck was parked in an oblique manner, its rear portion almost at the center of the road. As such, the
the merits of the case.
proximate cause of the incident was the gross recklessness and imprudence of respondent Pedrano, creating the
presumption of negligence on the part of respondent Condor in supervising his employees, which presumption was Petitioner Laspiñas
not rebutted. The petitioners then contend that respondents Condor and Pedrano should be held jointly and severally Was negligent in driving
liable to respondent Arriesgado for the payment of the latter’s claim. The Ill-fated bus
The petitioners, likewise, aver that expert evidence should have been presented to prove that petitioner Laspiñas was In his testimony before the trial court, petitioner Laspiñas claimed that he was traversing the two-lane road at
driving at a very fast speed, and that the CA could not reach such conclusion by merely considering the damages on Compostela, Cebu at a speed of only forty (40) to fifty (50) kilometers per hour before the incident occurred. 23 He
the cargo truck. It was also pointed out that petitioner Tiu presented evidence that he had exercised the diligence of a also admitted that he saw the truck which was parked in an “oblique position” at about 25 meters before
good father of a family in the selection and supervision of his drivers. impact, 24 and tried to avoid hitting it by swerving to the left. However, even in the absence of expert evidence, the
damage sustained by the truck 25 itself supports the finding of both the trial court and the appellate court, that the D’
The petitioners further allege that there is no legal and factual basis to require petitioner Tiu to pay exemplary Rough Rider bus driven by petitioner Laspiñas was traveling at a fast pace. Since he saw the stalled truck at a
damages as no evidence was presented to show that the latter acted in a fraudulent, reckless and oppressive manner, distance of 25 meters, petitioner Laspiñas had more than enough time to swerve to his left to avoid hitting it; that is,
or that he had an active participation in the negligent act of petitioner Laspiñas. if the speed of the bus was only 40 to 50 kilometers per hour as he claimed. As found by the Court of Appeals, it is
easier to believe that petitioner Laspiñas was driving at a very fast speed, since at 4:45 a.m., the hour of the accident,
Finally, the petitioners contend that respondent PPSII admitted in its answer that while it had attended to and settled
there were no oncoming vehicles at the opposite direction. Petitioner Laspiñas could have swerved to the left lane
the claims of the other injured passengers, respondent Arriesgado’s claim remained unsettled as it was beyond the
with proper clearance, and, thus, could have avoided the truck. 26 Instinct, at the very least, would have prompted
scheduled indemnity under the insurance contract. The petitioners argue that said respondent PPSII should have
him to apply the breaks to avert the impending disaster which he must have foreseen when he caught sight of the
settled the said claim in accordance with the scheduled indemnity instead of just denying the same. HIAESC
stalled truck. As we had occasion to reiterate: IacHAE
On the other hand, respondent Arriesgado argues that two of the issues raised by the petitioners involved questions
A man must use common sense, and exercise due reflection in all his acts; it is his duty to
of fact, not reviewable by the Supreme Court: the finding of negligence on the part of the petitioners and their
be cautious, careful and prudent, if not from instinct, then through fear of recurring
liability to him; and the award of exemplary damages, attorney’s fees and litigation expenses in his favor. Invoking
punishment. He is responsible for such results as anyone might foresee and for acts which
the principle of equity and justice, respondent Arriesgado pointed out that if there was an error to be reviewed in the
no one would have performed except through culpable abandon. Otherwise, his own
CA decision, it should be geared towards the restoration of the moral and exemplary damages to P50,000 each, or a
person, rights and property, and those of his fellow beings, would ever be exposed to all
total of P100,000 which was reduced by the Court of Appeals to P25,000 each, or a total of only P50,000.
manner of danger and injury. 27

27 COMM REV – INSURANCE CASES


We agree with the following findings of the trial court, which were affirmed by the CA on appeal: accident, the presumption of negligence at once arises, and it becomes the duty of a common carrier to prove that he
observed extraordinary diligence in the care of his passengers. 39 It must be stressed that in requiring the highest
A close study and evaluation of the testimonies and the documentary proofs submitted by possible degree of diligence from common carriers and in creating a presumption of negligence against them, the
the parties which have direct bearing on the issue of negligence, this Court as shown by law compels them to curb the recklessness of their drivers. 40
preponderance of evidence that defendant Virgilio Te Laspiñas failed to observe
extraordinary diligence as a driver of the common carrier in this case. It is quite hard to While evidence may be submitted to overcome such presumption of negligence, it must be shown that the carrier
accept his version of the incident that he did not see at a reasonable distance ahead the observed the required extraordinary diligence, which means that the carrier must show the utmost diligence of very
cargo truck that was parked when the Rough Rider [Bus] just came out of the bridge which cautious persons as far as human care and foresight can provide, or that the accident was caused by fortuitous
is on an (sic) [more] elevated position than the place where the cargo truck was parked. event. 41 As correctly found by the trial court, petitioner Tiu failed to conclusively rebut such presumption. The
With its headlights fully on, defendant driver of the Rough Rider was in a vantage position negligence of petitioner Laspiñas as driver of the passenger bus is, thus, binding against petitioner Tiu, as the owner
to see the cargo truck ahead which was parked and he could just easily have avoided hitting of the passenger bus engaged as a common carrier. 42
and bumping the same by maneuvering to the left without hitting the said cargo truck.
Besides, it is (sic) shown that there was still much room or space for the Rough Rider to The Doctrine of
pass at the left lane of the said national highway even if the cargo truck had occupied the Last Clear Chance
entire right lane thereof. It is not true that if the Rough Rider would proceed to pass Is Inapplicable in the
through the left lane it would fall into a canal considering that there was much space for it Case at Bar
to pass without hitting and bumping the cargo truck at the left lane of said national Contrary to the petitioner’s contention, the principle of last clear chance is inapplicable in the instant case, as it only
highway. The records, further, showed that there was no incoming vehicle at the opposite applies in a suit between the owners and drivers of two colliding vehicles. It does not arise where a passenger
lane of the national highway which would have prevented the Rough Rider from not demands responsibility from the carrier to enforce its contractual obligations, for it would be inequitable to exempt
swerving to its left in order to avoid hitting and bumping the parked cargo truck. But the the negligent driver and its owner on the ground that the other driver was likewise guilty of negligence. 43 The
evidence showed that the Rough Rider instead of swerving to the still spacious left lane of common law notion of last clear chance permitted courts to grant recovery to a plaintiff who has also been negligent
the national highway plowed directly into the parked cargo truck hitting the latter at its rear provided that the defendant had the last clear chance to avoid the casualty and failed to do so. Accordingly, it is
portion; and thus, the (sic) causing damages not only to herein plaintiff but to the cargo difficult to see what role, if any, the common law of last clear chance doctrine has to play in a jurisdiction where the
truck as well. 28 common law concept of contributory negligence as an absolute bar to recovery by the plaintiff, has itself been
rejected, as it has been in Article 2179 of the Civil Code. 44
Indeed, petitioner Laspiñas’ negligence in driving the bus is apparent in the records. By his own admission, he had
just passed a bridge and was traversing the highway of Compostela, Cebu at a speed of 40 to 50 kilometers per hour Thus, petitioner Tiu cannot escape liability for the death of respondent Arriesgado’s wife due to the negligence of
before the collision occurred. The maximum speed allowed by law on a bridge is only 30 kilometers per petitioner Laspiñas, his employee, on this score. EcHTCD
hour. 29 And, as correctly pointed out by the trial court, petitioner Laspiñas also violated Section 35 of the Land
Transportation and Traffic Code, Republic Act No. 4136, as amended: Respondents Pedrano and
Condor were likewise
Sec. 35. Restriction as to speed. — (a) Any person driving a motor vehicle on a highway Negligent
shall drive the same at a careful and prudent speed, not greater nor less than is reasonable
and proper, having due regard for the traffic, the width of the highway, and or any other In Phoenix Construction, Inc. v. Intermediate Appellate Court, 45 where therein respondent Dionisio sustained
condition then and there existing; and no person shall drive any motor vehicle upon a injuries when his vehicle rammed against a dump truck parked askew, the Court ruled that the improper parking of a
highwayat such speed as to endanger the life, limb and property of any person, nor at a dump truck without any warning lights or reflector devices created an unreasonable risk for anyone driving within
speed greater than will permit him to bring the vehicle to a stop within the assured clear the vicinity, and for having created such risk, the truck driver must be held responsible. In ruling against the
distance ahead. 30 petitioner therein, the Court elucidated, thus:

Under Article 2185 of the Civil Code, a person driving a vehicle is presumed negligent if at the time of the mishap, . . . In our view, Dionisio’s negligence, although later in point of time than the truck
he was violating any traffic regulation. 31 driver’s negligence, and therefore closer to the accident, was not an efficient intervening or
independent cause. What the petitioners describe as an “intervening cause” was no more
Petitioner Tiu failed to than a foreseeable consequence of the risk created by the negligent manner in which the
Overcome the presumption truck driver had parked the dump truck. In other words, the petitioner truck driver owed a
Of negligence against him as duty to private respondent Dionisio and others similarly situated not to impose upon them
One engaged in the business the very risk the truck driver had created. Dionisio’s negligence was not that of an
Of common carriage independent and overpowering nature as to cut, as it were, the chain of causation in fact
between the improper parking of the dump truck and the accident, nor to sever the juris
The rules which common carriers should observe as to the safety of their passengers are set forth in the Civil
vinculum of liability. . .
Code, Articles 1733, 32 1755 33 and 1756. 34 In this case, respondent Arriesgado and his deceased wife contracted
with petitioner Tiu, as owner and operator of D’ Rough Riders bus service, for transportation from Maya,
Daanbantayan, Cebu, to Cebu City for the price of P18.00. 35 It is undisputed that the respondent and his wife were
not safely transported to the destination agreed upon. In actions for breach of contract, only the existence of such xxx xxx xxx
contract, and the fact that the obligor, in this case the common carrier, failed to transport his passenger safely to his
destination are the matters that need to be proved. 36 This is because under the said contract of carriage, the We hold that private respondent Dionisio’s negligence was “only contributory,” that the
petitioners assumed the express obligation to transport the respondent and his wife to their destination safely and to “immediate and proximate cause” of the injury remained the truck driver’s “lack of due
observe extraordinary diligence with due regard for all circumstances. 37 Any injury suffered by the passengers in care.”. . . 46
the course thereof is immediately attributable to the negligence of the carrier. 38 Upon the happening of the

28 COMM REV – INSURANCE CASES


In this case, both the trial and the appellate courts failed to consider that respondent Pedrano was also negligent in PLATE NO. SERIAL/CHASSIS MOTOR NO. AUTHORIZED UNLADEN
leaving the truck parked askew without any warning lights or reflector devices to alert oncoming vehicles, and that
such failure created the presumption of negligence on the part of his employer, respondent Condor, in supervising NO. CAPACITY WEIGHT
his employees properly and adequately. As we ruled in Poblete v. Fabros: 47
PBP-724 SER450-1584124 677836 50 6 Cyls. Kgs.
It is such a firmly established principle, as to have virtually formed part of the law itself,
that the negligence of the employee gives rise to the presumption of negligence on the part
of the employer. This is the presumed negligence in the selection and supervision of
SECTION 1/11 *LIMITS OF LIABILITY PREMIUMS
employee. The theory of presumed negligence, in contrast with the American doctrine
of respondeat superior, where the negligence of the employee is conclusively presumed to PAID
be the negligence of the employer, is clearly deducible from the last paragraph of Article
2180 of the Civil Code which provides that the responsibility therein mentioned shall cease A. THIRD PARTY LIABILITY P50,000.00
if the employers prove that they observed all the diligence of a good father of a family to
prevent damages. . . . 48 B. PASSENGER LIABILITY Per Person Per Accident

The petitioners were correct in invoking respondent Pedrano’s failure to observe Article IV, Section 34(g) of P12,000.00 P50,000 P540.00 52
the Rep. Act No. 4136, which provides: In its Answer 53 to the Third-Party Complaint, the respondent PPSII admitted the existence of the contract of
(g) Lights when parked or disabled. — Appropriate parking lights or flares visible one insurance, in view of its failure to specifically deny the same as required under then Section 8(a), Rule 8 of the
hundred meters away shall be displayed at a corner of the vehicle whenever such vehicle is Rules of Court, 54 which reads:
parked on highways or in places that are not well-lighted or is placed in such manner as to Sec. 8. How to contest genuineness of such documents. — When an action or defense is
endanger passing traffic. TCHcAE founded upon a written instrument copied in or attached to the corresponding pleading as
The manner in which the truck was parked clearly endangered oncoming traffic on both sides, considering that the provided in the preceding section, the genuineness and due execution of the instrument
tire blowout which stalled the truck in the first place occurred in the wee hours of the morning. The Court can only shall be deemed admitted unless the adverse party, under oath, specifically denies them,
now surmise that the unfortunate incident could have been averted had respondent Condor, the owner of the truck, and sets forth what he claims to be the facts; but the requirement of an oath does not apply
equipped the said vehicle with lights, flares, or, at the very least, an early warning device. 49 Hence, we cannot when the adverse party does not appear to be a party to the instrument or when compliance
subscribe to respondents Condor and Pedrano’s claim that they should be absolved from liability because, as found with an order for inspection of the original instrument is refused.
by the trial and appellate courts, the proximate cause of the collision was the fast speed at which petitioner Laspiñas In fact, respondent PPSII did not dispute the existence of such contract, and admitted that it was liable thereon. It
drove the bus. To accept this proposition would be to come too close to wiping out the fundamental principle of law claimed, however, that it had attended to and settled the claims of those injured during the incident, and set up the
that a man must respond for the foreseeable consequences of his own negligent act or omission. Indeed, our law following as special affirmative defenses:
on quasi-delicts seeks to reduce the risks and burdens of living in society and to allocate them among its members.
To accept this proposition would be to weaken the very bonds of society. 50 Third party defendant Philippine Phoenix Surety and Insurance, Inc. hereby reiterates and
incorporates by way of reference the preceding paragraphs and further states THAT —
The Liability of
Respondent PPSII 8. It has attended to the claims of Vincent Canales, Asuncion Batiancila and Neptali Palces
as Insurer who sustained injuries during the incident in question. In fact, it settled financially their
The trial court in this case did not rule on the liability of respondent PPSII, while the appellate court ruled that, as no claims per vouchers duly signed by them and they duly executed Affidavit[s] of Desistance
evidence was presented against it, the insurance company is not liable. to that effect, xerox copies of which are hereto attached as Annexes 1, 2, 3, 4, 5, and 6
respectively; HDAaIc
A perusal of the records will show that when the petitioners filed the Third-Party Complaint against respondent
PPSII, they failed to attach a copy of the terms of the insurance contract itself. Only Certificate of Cover No. 9. With respect to the claim of plaintiff, herein answering third party defendant through its
054940 51 issued in favor of “Mr. William Tiu, Lahug, Cebu City” signed by Cosme H. Boniel was appended to the authorized insurance adjuster attended to said claim. In fact, there were negotiations to that
third-party complaint. The date of issuance, July 22, 1986, the period of insurance, from July 22, 1986 to July 22, effect. Only that it cannot accede to the demand of said claimant considering that the claim
1987, as well as the following items, were also indicated therein: was way beyond the scheduled indemnity as per contract entered into with third party
plaintiff William Tiu and third party defendant (Philippine Phoenix Surety and Insurance,
SCHEDULED VEHICLE Inc.). Third party Plaintiff William Tiu knew all along the limitation as earlier stated, he
being an old hand in the transportation business; 55 . . .

Considering the admissions made by respondent PPSII, the existence of the insurance contract and the salient terms
MODEL MAKE TYPE OF COLOR BLT FILE NO. thereof cannot be dispatched. It must be noted that after filing its answer, respondent PPSII no longer objected to the
presentation of evidence by respondent Arriesgado and the insured petitioner Tiu. Even in its
BODY Memorandum 56 before the Court, respondent PPSII admitted the existence of the contract, but averred as follows:
Isuzu Forward Bus blue mixed Petitioner Tiu is insisting that PPSII is liable to him for contribution, indemnification
and/or reimbursement. This has no basis under the contract. Under the contract, PPSII will
pay all sums necessary to discharge liability of the insured subject to the limits of liability
but not to exceed the limits of liability as so stated in the contract. Also, it is stated in the

29 COMM REV – INSURANCE CASES


contract that in the event of accident involving indemnity to more than one person, the exemplary damages in cases of quasi-delicts “if the defendant acted with gross
limits of liability shall not exceed the aggregate amount so specified by law to all persons negligence.” . . . 66
to be indemnified. 57
The respondent Pedro A. Arriesgado, as the surviving spouse and heir of Felisa Arriesgado, is entitled to indemnity
As can be gleaned from the Certificate of Cover, such insurance contract was issued pursuant to the Compulsory in the amount of P50,000.00. 67
Motor Vehicle Liability Insurance Law. It was expressly provided therein that the limit of the insurer’s liability for
each person was P12,000, while the limit per accident was pegged at P50,000. An insurer in an indemnity contract The petitioners, as well as the respondents Benjamin Condor and Sergio Pedrano are jointly and severally liable for
for third party liability is directly liable to the injured party up to the extent specified in the agreement but it cannot said amount, conformably with the following pronouncement of the Court in Fabre, Jr. vs. Court of Appeals: 68
be held solidarily liable beyond that amount. 58 The respondent PPSII could not then just deny petitioner Tiu’s
claim; it should have paid P12,000 for the death of Felisa Arriesgado, 59and respondent Arriesgado’s hospitalization The same rule of liability was applied in situations where the negligence of the driver of
expenses of P1,113.80, which the trial court found to have been duly supported by receipts. The total amount of the the bus on which plaintiff was riding concurred with the negligence of a third party who
claims, even when added to that of the other injured passengers which the respondent PPSII claimed to have was the driver of another vehicle, thus causing an accident. In Anuran v. Buño, Batangas
settled, 60 would not exceed the P50,000 limit under the insurance agreement. Laguna Tayabas Bus Co. v. Intermediate Appellate Court, and Metro Manila Transit
Corporation v. Court of Appeals, the bus company, its driver, the operator of the other
Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is such that it is primarily intended to provide vehicle and the driver of the vehicle were jointly and severally held liable to the injured
compensation for the death or bodily injuries suffered by innocent third parties or passengers as a result of the passenger or the latter’s heirs. The basis of this allocation of liability was explained
negligent operation and use of motor vehicles. The victims and/or their dependents are assured of immediate in Viluan v. Court of Appeals, thus:
financial assistance, regardless of the financial capacity of motor vehicle owners. 61 As the Court, speaking through
Associate Justice Leonardo A. Quisumbing, explained in Government Service Insurance System v. Court of “Nor should it make difference that the liability of petitioner [bus owner]
Appeals: 62 springs from contract while that of respondents [owner and driver of other
vehicle] arises from quasi-delict. As early as 1913, we already ruled
However, although the victim may proceed directly against the insurer for indemnity, the in Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger due
third party liability is only up to the extent of the insurance policy and those required by to the negligence of the driver of the bus on which he was riding and of the
law. While it is true that where the insurance contract provides for indemnity against driver of another vehicle, the drivers as well as the owners of the two vehicles
liability to third persons, and such persons can directly sue the insurer, the direct liability of are jointly and severally liable for damages. Some members of the Court,
the insurer under indemnity contracts against third party liability does not mean that the though, are of the view that under the circumstances they are liable on quasi-
insurer can be held liable in solidum with the insured and/or the other parties found at fault. delict.” 69
For the liability of the insurer is based on contract; that of the insured carrier or vehicle
owner is based on tort . . . IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the Court of
Appeals is AFFIRMED with MODIFICATIONS:
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 the CMVLI law. At the time of the (1) Respondent Philippine Phoenix Surety and Insurance, Inc. and petitioner William Tiu are ORDERED to pay,
incident, the schedule of indemnities for death and bodily injuries, professional fees and jointly and severally, respondent Pedro A. Arriesgado the total amount of P13,113.80;
other charges payable under a CMVLI coverage was provided for under the Insurance
(2) The petitioners and the respondents Benjamin Condor and Sergio Pedrano are ORDERED to pay, jointly and
Memorandum Circular (IMC) No. 5-78 which was approved on November 10, 1978. As
severally, respondent Pedro A. Arriesgado P50,000.00 as indemnity; P26,441.50 as actual damages; P50,000.00 as
therein provided, the maximum indemnity for death was twelve thousand (P12,000.00)
moral damages; P50,000.00 as exemplary damages; and P20,000.00 as attorney’s fees.
pesos per victim. The schedules for medical expenses were also provided by said IMC,
specifically in paragraphs (C) to (G). 63 SO ORDERED. cCDAHE

||| (Tiu v. Arriesgado, G.R. No. 138060, [September 1, 2004], 481 PHIL 1-30)
Damages to be
11.[G.R. No. 151890. June 20, 2006.]PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner, vs.
Awarded
TRANS-ASIA SHIPPING LINES, INC., respondent
The trial court correctly awarded moral damages in the amount of P50,000 in favor of respondent Arriesgado. The
award of exemplary damages by way of example or correction of the public good, 64 is likewise in order. As the .[G.R. No. 151991. June 20, 2006.]TRANS-ASIA SHIPPING LINES, INC., petitioner, vs. PRUDENTIAL
Court ratiocinated in Kapalaran Bus Line v. Coronado: 65 GUARANTEE and ASSURANCE INC., respondent.

. . . While the immediate beneficiaries of the standard of extraordinary diligence are, of CHICO-NAZARIO, J p:
course, the passengers and owners of cargo carried by a common carrier, they are not the
only persons that the law seeks to benefit. For if common carriers carefully observed the This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner Prudential Guarantee
statutory standard of extraordinary diligence in respect of their own passengers, they and Assurance, Inc. (PRUDENTIAL) in G.R. No. 151890 and Trans-Asia Shipping Lines, Inc. (TRANS-ASIA) in
cannot help but simultaneously benefit pedestrians and the passengers of other vehicles G.R. No. 151991, assailing the Decision 1dated 6 November 2001 of the Court of Appeals in CA G.R. CV No.
who are equally entitled to the safe and convenient use of our roads and highways. The law 68278, which reversed the Judgment 2 dated 6 June 2000 of the Regional Trial Court (RTC), Branch 13, Cebu City
seeks to stop and prevent the slaughter and maiming of people (whether passengers or not) in Civil Case No. CEB-20709. The 29 January 2002 Resolution 3 of the Court of Appeals, denying PRUDENTIAL's
on our highways and buses, the very size and power of which seem to inflame the minds of Motion for Reconsideration and TRANS-ASIA's Partial Motion for Reconsideration of the 6 November 2001
their drivers. Article 2231 of the Civil Code explicitly authorizes the imposition of Decision, is likewise sought to be annulled and set aside.

30 COMM REV – INSURANCE CASES


The Facts The Ruling of the Trial Court
The material antecedents as found by the court a quo and adopted by the appellate court are as follows: On 6 June 2000, the court a quo rendered Judgment 8 finding for (therein defendant) PRUDENTIAL. It ruled that a
determination of the parties' liabilities hinged on whether TRANS-ASIA violated and breached the policy conditions
Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. It interpreted the provision to mean that
payment of premiums, defendant [PRUDENTIAL] insured M/V Asia Korea for TRANS-ASIA is required to maintain the vessel at a certain class at all times pertinent during the life of the policy.
loss/damage of the hull and machinery arising from perils, inter alia, of fire and explosion According to the court a quo, TRANS-ASIA failed to prove compliance of the terms of the warranty, the violation
for the sum of P40 Million, beginning [from] the period [of] July 1, 1993 up to July 1, thereof entitled PRUDENTIAL, the insured party, to rescind the contract. 9
1994. This is evidenced by Marine Policy No. MH93/1363 (Exhibits "A" to "A-11"). On
October 25, 1993, while the policy was in force, a fire broke out while [M/V Asia Korea Further, citing Section 107 10 of the Insurance Code, the court a quo ratiocinated that the concealment made by
was] undergoing repairs at the port of Cebu. On October 26, 1993 plaintiff [TRANS-ASIA] TRANS-ASIA that the vessel was not adequately maintained to preserve its class was a material concealment
filed its notice of claim for damage sustained by the vessel. This is evidenced by a sufficient to avoid the policy and, thus, entitled the injured party to rescind the contract. The court a quo found merit
letter/formal claim of even date (Exhibit "B"). Plaintiff [TRANS-ASIA] reserved its right in PRUDENTIAL's contention that there was nothing in the adjustment of the particular average submitted by the
to subsequently notify defendant [PRUDENTIAL] as to the full amount of the claim upon adjuster that would show that TRANS-ASIA was not in breach of the policy. Ruling on the denominated loan and
final survey and determination by average adjuster Richard Hogg International (Phil.) of trust receipt, the court a quo said that in substance and in form, the same is a receipt for a loan. It held that if
the damage sustained by reason of fire. An adjuster's report on the fire in question was TRANS-ASIA intended to receive the amount of P3,000,000.00 as advance payment, it should have so clearly stated
submitted by Richard Hogg International together with the U-Marine Surveyor Report as such.
(Exhibits "4" to "4-115").
The court a quo did not award PRUDENTIAL's claim for P500,000.00, representing expert survey fees on the
On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan ground of lack of sufficient basis in support thereof. Neither did it award attorney's fees on the rationalization that
and Trust receipt", a portion of which read (sic): the instant case does not fall under the exceptions stated in Article 2208 11 of the Civil Code. However, the court a
quo granted PRUDENTIAL's counterclaim stating that there is factual and legal basis for TRANS-ASIA to return
"Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS the amount of P3,000,000.00 by way of loan without interest.
THREE MILLION ONLY (P3,000,000.00) as a loan without interest under
Policy No. MH 93/1353 [sic], repayable only in the event and to the extent that The decretal portion of the Judgment of the RTC reads:
any net recovery is made by Trans-Asia Shipping Corporation, from any person
or persons, corporation or corporations, or other parties, on account of loss by WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to
any casualty for which they may be liable occasioned by the 25 October 1993: prove a cause of action.
Fire on Board." (Exhibit "4")
On defendant's counterclaim, plaintiff is directed to return the sum of P3,000,000.00
In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiff's claim (Exhibit representing the loan extended to it by the defendant, within a period of ten (10) days from
"5"). The letter reads: and after this judgment shall have become final and executory. 12

"After a careful review and evaluation of your claim arising from the above- The Ruling of the Court of Appeals
captioned incident, it has been ascertained that you are in breach of policy On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 November 2001, reversed the 6 June
conditions, among them "WARRANTED VESSEL CLASSED AND CLASS 2000 Judgment of the RTC.
MAINTAINED". Accordingly, we regret to advise that your claim is not
compensable and hereby DENIED." On the issue of TRANS-ASIA's alleged breach of warranty of the policy condition CLASSED AND CLASS
MAINTAINED, the Court of Appeals ruled that PRUDENTIAL, as the party asserting the non-compensability of
This was followed by defendant's letter dated 21 July 1997 requesting the return the loss had the burden of proof to show that TRANS-ASIA breached the warranty, which burden it failed to
or payment of the P3,000,000.00 within a period of ten (10) days from receipt discharge. PRUDENTIAL cannot rely on the lack of certification to the effect that TRANS-ASIA was CLASSED
of the letter (Exhibit "6"). 4 AND CLASS MAINTAINED as its sole basis for reaching the conclusion that the warranty was breached. The
Court of Appeals opined that the lack of a certification does not necessarily mean that the warranty was breached by
Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint 5 for Sum of Money against
TRANS-ASIA. Instead, the Court of Appeals considered PRUDENTIAL's admission that at the time the insurance
PRUDENTIAL with the RTC of Cebu City, docketed as Civil Case No. CEB-20709, wherein TRANS-ASIA sought
contract was entered into between the parties, the vessel was properly classed by Bureau Veritas, a classification
the amount of P8,395,072.26 from PRUDENTIAL, alleging that the same represents the balance of the indemnity
society recognized by the industry. The Court of Appeals similarly gave weight to the fact that it was the
due upon the insurance policy in the total amount of P11,395,072.26. TRANS-ASIA similarly sought interest at 42%
responsibility of Richards Hogg International (Phils.) Inc., the average adjuster hired by PRUDENTIAL, to secure a
per annum citing Section 243 6 of Presidential Decree No. 1460, otherwise known as the "Insurance Code," as
copy of such certification to support its conclusion that mere absence of a certification does not warrant denial of
amended.
TRANS-ASIA's claim under the insurance policy.
In its Answer, 7 PRUDENTIAL denied the material allegations of the Complaint and interposed the defense that
In the same token, the Court of Appeals found the subject warranty allegedly breached by TRANS-ASIA to be a
TRANS-ASIA breached insurance policy conditions, in particular: "WARRANTED VESSEL CLASSED AND
rider which, while contained in the policy, was inserted by PRUDENTIAL without the intervention of TRANS-
CLASS MAINTAINED." PRUDENTIAL further alleged that it acted as facts and law require and incurred no
ASIA. As such, it partakes of a nature of a contract d'adhesion which should be construed against PRUDENTIAL,
liability to TRANS-ASIA; that TRANS-ASIA has no cause of action; and, that its claim has been effectively waived
the party which drafted the contract. Likewise, according to the Court of Appeals, PRUDENTIAL's renewal of the
and/or abandoned, or it is estopped from pursuing the same. By way of a counterclaim, PRUDENTIAL sought a
insurance policy from noon of 1 July 1994 to noon of 1 July 1995, and then again, until noon of 1 July 1996 must be
refund of P3,000,000.00, which it allegedly advanced to TRANS-ASIA by way of a loan without interest and
deemed a waiver by PRUDENTIAL of any breach of warranty committed by TRANS-ASIA.
without prejudice to the final evaluation of the claim, including the amounts of P500,000.00, for survey fees and
P200,000.00, representing attorney's fees.

31 COMM REV – INSURANCE CASES


Further, the Court of Appeals, contrary to the ruling of the court a quo, interpreted the transaction between THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS
PRUDENTIAL and TRANS-ASIA as one of subrogation, instead of a loan. The Court of Appeals concluded that OF THE POLICY CONSTITUTED A WAIVER ON THE PART OF PRUDENTIAL OF
TRANS-ASIA has no obligation to pay back the amount of P3,000.000.00 to PRUDENTIAL based on its finding THE BREACH OF THE WARRANTY BY TRANS-ASIA.
that the aforesaid amount was PRUDENTIAL's partial payment to TRANS-ASIA's claim under the policy. Finally,
the Court of Appeals denied TRANS-ASIA's prayer for attorney's fees, but held TRANS-ASIA entitled to double VI.
interest on the policy for the duration of the delay of payment of the unpaid balance, citing Section 244 13 of
the Insurance Code. THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST
RECEIPT" EXECUTED BY TRANS-ASIA IS AN ADVANCE ON THE POLICY, THUS
CONSTITUTING PARTIAL PAYMENT THEREOF.

Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wise: VII.

WHEREFORE, the foregoing consideration, We find for Appellant. The instant appeal is THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY
ALLOWED and the Judgment appealed from REVERSED. The P3,000,000.00 initially PRUDENTIAL OF THE FINDINGS OF RICHARDS HOGG IS INDICATIVE OF A
paid by appellee Prudential Guarantee Assurance Incorporated to appellant Trans-Asia and WAIVER ON THE PART OF PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA
covered by a "Loan and Trust Receipt" dated 29 May 1995 is HELD to be in partial OF THE WARRANTY.
settlement of the loss suffered by appellant and covered by Marine Policy No. MH93/1363
issued by appellee. Further, appellee is hereby ORDERED to pay appellant the additional VIII.
amount of P8,395,072.26 representing the balance of the loss suffered by the latter as
THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN
recommended by the average adjuster Richard Hogg International (Philippines) in its
FINDING THAT PRUDENTIAL "UNJUSTIFIABLY REFUSED" TO PAY THE CLAIM
Report, with double interest starting from the time Richard Hogg's Survey Report was
AND IN ORDERING PRUDENTIAL TO PAY TRANS-ASIA P8,395,072.26 PLUS
completed, or on 13 August 1996, until the same is fully paid.
DOUBLE INTEREST FROM 13 AUGUST 1996, UNTIL [THE] SAME IS FULLY
All other claims and counterclaims are hereby DISMISSED. PAID. 15

All costs against appellee. 14 Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for Review docketed as
G.R. No. 151991, raising the following grounds for the allowance of the petition, to wit:
Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for Reconsideration and Partial
Motion for Reconsideration thereon, respectively, which motions were denied by the Court of Appeals in the I.
Resolution dated 29 January 2002.
THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING
The Issues ATTORNEY'S FEES TO PETITIONER TRANS-ASIA ON THE GROUND THAT SUCH
CAN ONLY BE AWARDED IN THE CASES ENUMERATED IN ARTICLE 2208 OF
Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No. 151890, relying on THE CIVIL CODE, AND THERE BEING NO BAD FAITH ON THE PART OF
the following grounds, viz: RESPONDENT PRUDENTIAL IN DENYING HEREIN PETITIONER TRANS-ASIA'S
INSURANCE CLAIM.
I.
II.
THE AWARD IS GROSSLY UNCONSCIONABLE.
THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06
II. NOVEMBER 2001 SHOULD BE CONSTRUED TO MEAN DOUBLE INTEREST
BASED ON THE LEGAL INTEREST OF 12%, OR INTEREST AT THE RATE OF 24%
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PER ANNUM. 16
VIOLATION BY TRANS-ASIA OF A MATERIAL WARRANTY, NAMELY,
WARRANTY CLAUSE NO. 5, OF THE INSURANCE POLICY. In our Resolution of 2 December 2002, we granted TRANS-ASIA's Motion for Consolidation 17 of G.R.
Nos. 151890 and 151991; 18hence, the instant consolidated petitions.
III.
In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANS-ASIA arising from the
THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS
subject insurance contract; (2) the liability, if any, of TRANS-ASIA to PRUDENTIAL arising from the transaction
INSURER HAD THE BURDEN OF PROVING THAT THE ASSURED, TRANS-ASIA,
between the parties as evidenced by a document denominated as "Loan and Trust Receipt," dated 29 May 1995; and
VIOLATED A MATERIAL WARRANTY.
(3) the amount of interest to be imposed on the liability, if any, of either or both parties.
IV.
Ruling of the Court
THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not questions of fact, may
EMBODIED IN THE INSURANCE POLICY CONTRACT WAS A MERE RIDER. be raised. 19This rule may be disregarded only when the findings of fact of the Court of Appeals are contrary to the
findings and conclusions of the trial court, or are not supported by the evidence on record. 20 In the case at bar, we
V. find an incongruence between the findings of fact of the Court of Appeals and the court a quo, thus, in our

32 COMM REV – INSURANCE CASES


determination of the issues, we are constrained to assess the evidence adduced by the parties to make appropriate standard, they are considered not members of that class, and thus breaching the warranty, that requires
findings of facts as are necessary. them to maintain membership or to maintain their class on that classification society. And it is not
sufficient that the member of this classification society at the time of a loss, their membership must be
I. continuous for the whole length of the policy such that during the effectivity of the policy, their
A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy condition classification is suspended, and then thereafter, they get reinstated, that again still a breach of the
on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, as contained in the subject warranty that they maintained their class (sic). Our maintaining team membership in the classification
insurance contract. society thereby maintaining the standards of the vessel (sic).

In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an express and material ATTY. LIM
warranty in the subject insurance contract, i.e., Marine Insurance Policy No. MH93/1363, specifically Warranty
Clause No. 5 thereof, which stipulates that the insured vessel, "M/V ASIA KOREA" is required to be CLASSED Q Can you mention some classification societies that you know?
AND CLASS MAINTAINED. According to PRUDENTIAL, on 25 October 1993, or at the time of the occurrence
A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classification Society,
of the fire, "M/V ASIA KOREA" was in violation of the warranty as it was not CLASSED AND CLASS
The Philippine Registration of Ships Society, China Classification, NKK and Company Classification
MAINTAINED. PRUDENTIAL submits that Warranty Clause No. 5 was a condition precedent to the recovery of
Society, and many others, we have among others, there are over 20 worldwide. 22
TRANS-ASIA under the policy, the violation of which entitled PRUDENTIAL to rescind the contract under Sec.
74 21of the Insurance Code. At the outset, it must be emphasized that the party which alleges a fact as a matter of defense has the burden of
proving it. PRUDENTIAL, as the party which asserted the claim that TRANS-ASIA breached the warranty in the
The warranty condition CLASSED AND CLASS MAINTAINED was explained by PRUDENTIAL's Senior
policy, has the burden of evidence to establish the same. Hence, on the part of PRUDENTIAL lies the initiative to
Manager of the Marine and Aviation Division, Lucio Fernandez. The pertinent portions of his testimony on direct
show proof in support of its defense; otherwise, failing to establish the same, it remains self-serving. Clearly, if no
examination is reproduced hereunder, viz:
evidence on the alleged breach of TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA would
ATTY. LIM be successful in claiming on the policy. It follows that PRUDENTIAL bears the burden of evidence to establish the
fact of breach.
Q Please tell the court, Mr. Witness, the result of the evaluation of this claim, what final action was
taken? In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of proof to show proof of
loss, and the coverage thereof, in the subject insurance policy. However, in the course of trial in a civil case, once
A It was eventually determined that there was a breach of the policy condition, and basically there is a plaintiff makes out a prima facie case in his favor, the duty or the burden of evidence shifts to defendant to
breach of policy warranty condition and on that basis the claim was denied. controvert plaintiff's prima facie case, otherwise, a verdict must be returned in favor of plaintiff. 23 TRANS-ASIA
was able to establish proof of loss and the coverage of the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the
Q To refer you (sic) the "policy warranty condition," I am showing to you a policy here marked as burden of evidence shifted to PRUDENTIAL to counter TRANS-ASIA's case, and to prove its special and
Exhibits "1", "1-A" series, please point to the warranty in the policy which you said was breached or affirmative defense that TRANS-ASIA was in violation of the particular condition on CLASSED AND CLASS
violated by the plaintiff which constituted your basis for denying the claim as you testified. MAINTAINED.
A Warranted Vessel Classed and Class Maintained. We sustain the findings of the Court of Appeals that PRUDENTIAL was not successful in discharging the burden of
evidence that TRANS-ASIA breached the subject policy condition on CLASSED AND CLASS MAINTAINED.
ATTY. LIM

Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is the second page of the policy
below the printed words: "Clauses, Endorsements, Special Conditions and Warranties," below this are Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division, Lucio Fernandez, made
several typewritten clauses and the witness pointed out in particular the clause reading: "Warranted a categorical admission that at the time of the procurement of the insurance contract in July 1993, TRANS-ASIA's
Vessel Classed and Class Maintained." vessel, "M/V Asia Korea" was properly classed by Bureau Veritas, thus:
COURT Q Kindly examine the records particularly the policy, please tell us if you know
whether M/V Asia Korea was classed at the time (sic) policy was procured
Q Will you explain that particular phrase? perthe (sic) insurance was procured that Exhibit "1" on 1st July 1993 (sic).
A Yes, a warranty is a condition that has to be complied with by the insured. When we say a class WITNESS
warranty, it must be entered in the classification society.
A I recall that they were classed.
COURT
ATTY. LIM
Slowly.
Q With what classification society?
WITNESS
A I believe with Bureau Veritas. 24
(continued)
As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification society
A A classification society is an organization which sets certain standards for a vessel to maintain in recognized in the marine industry. As it is undisputed that TRANS-ASIA was properly classed at the time the
order to maintain their membership in the classification society. So, if they failed to meet that contract of insurance was entered into, thus, it becomes incumbent upon PRUDENTIAL to show evidence that the

33 COMM REV – INSURANCE CASES


status of TRANS-ASIA as being properly CLASSED by Bureau Veritas had shifted in violation of the warranty. The foregoing finding renders a determination of whether the subject warranty is a rider, moot, as raised by the
Unfortunately, PRUDENTIAL failed to support the allegation. PRUDENTIAL in its assignment of errors. Whether it is a rider will not effectively alter the result for the reasons
that: (1) PRUDENTIAL was not able to discharge the burden of evidence to show that TRANS-ASIA committed a
We are in accord with the ruling of the Court of Appeals that the lack of a certification in PRUDENTIAL's records breach, thereof; and (2) assuming arguendo the commission of a breach by TRANS-ASIA, the same was shown to
to the effect that TRANS-ASIA's "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED at the time of the have been waived by PRUDENTIAL.
occurrence of the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact breached the warranty
contained in the policy. With more reason must we sustain the findings of the Court of Appeals on the ground that as II.
admitted by PRUDENTIAL, it was likewise the responsibility of the average adjuster, Richards Hogg International
A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS-ASIA via a transaction
(Phils.), Inc., to secure a copy of such certification, and the alleged breach of TRANS-ASIA cannot be gleaned from
between the parties evidenced by a document denominated as "Loan and Trust Receipt," dated 29
the average adjuster's survey report, or adjustment of particular average per "M/V Asia Korea" of the 25 October
May 1995 constituted partial payment on the policy.
1993 fire on board.
It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,000.00. The same was
We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that, "the violation of a evidenced by a transaction receipt denominated as a "Loan and Trust Receipt," dated 29 May 1995, reproduced
material warranty, or other material provision of a policy on the part of either party thereto, entitles the other to hereunder:
rescind." It is generally accepted that "[a] warranty is a statement or promise set forth in the policy, or by reference
incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether the LOAN AND TRUST RECEIPT
insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the
insurer." 25 However, it is similarly indubitable that for the breach of a warranty to avoid a policy, the same must be Claim File No. MH-93-025 May 29, 1995
duly shown by the party alleging the same. We cannot sustain an allegation that is unfounded. Consequently,
PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CLASSED AND CLASS P3,000,000.00
MAINTAINED, it remains that TRANS-ASIA must be allowed to recover its rightful claims on the policy.
Check No. PCIB066755
B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL
Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the sum of
CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same.
PESOS THREE MILLION ONLY (P3,000,000.00) as a loan without interest, under Policy
The Court of Appeals, in reversing the Judgment of the RTC which held that TRANS-ASIA breached the warranty No. MH93/1353, repayable only in the event and to the extent that any net recovery is
provision on CLASSED AND CLASS MAINTAINED, underscored that PRUDENTIAL can be deemed to have made by TRANS ASIA SHIPPING CORP., from any person or persons, corporation or
made a valid waiver of TRANS-ASIA's breach of warranty as alleged, ratiocinating, thus: corporations, or other parties, on account of loss by any casualty for which they may be
liable, occasioned by the 25 October 1993: Fire on Board.
Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2)
consecutive years, from noon of 01 July 1994 to noon of 01 July 1995, and then again until As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND
noon of 01 July 1996. This renewal is deemed a waiver of any breach of warranty. 26 ASSURANCE INC. whatever recovery we may make and deliver to it all documents
necessary to prove our interest in said property. We also hereby agree to promptly
PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal policies are deemed a prosecute suit against such persons, corporation or corporations through whose negligence
waiver of TRANS-ASIA's alleged breach, averring herein that the subsequent policies, designated as MH94/1595 the aforesaid loss was caused or who may otherwise be responsible therefore, with all due
and MH95/1788 show that they were issued only on 1 July 1994 and 3 July 1995, respectively, prior to the time it diligence, in our own name, but at the expense of and under the exclusive direction and
made a request to TRANS-ASIA that it be furnished a copy of the certification specifying that the insured vessel control of PRUDENTIAL GUARANTEE AND ASSURANCE INC.
"M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. PRUDENTIAL posits that it came to know of the
breach by TRANS-ASIA of the subject warranty clause only on 21 April 1997. On even date, PRUDENTIAL sent TRANS-ASIA SHIPPING CORPORATION 29
TRANS-ASIA a letter of denial, advising the latter that their claim is not compensable. In fine, PRUDENTIAL
would have this Court believe that the issuance of the renewal policies cannot be a waiver because they were issued PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the parties evidenced a loan of
without knowledge of the alleged breach of warranty committed by TRANS-ASIA. 27 P3,000,000.00 which it granted to TRANS-ASIA, and not an advance payment on the policy or a partial payment
for the loss. It further submits that it is a customary practice for insurance companies in this country to extend loans
We are not impressed. We do not find that the Court of Appeals was in error when it held that PRUDENTIAL, in gratuitously as part of good business dealing with their assured, in order to afford their assured the chance to
renewing TRANS-ASIA's insurance policy for two consecutive years after the loss covered by Policy No. continue business without embarrassment while awaiting outcome of the settlement of their claims. 30 According to
MH93/1363, was considered to have waived TRANS-ASIA's breach of the subject warranty, if any. Breach of a PRUDENTIAL, the "Trust and Loan Agreement" did not subrogate to it whatever rights and/or actions TRANS-
warranty or of a condition renders the contract defeasible at the option of the insurer; but if he so elects, he may ASIA may have against third persons, and it cannot by no means be taken that by virtue thereof, PRUDENTIAL was
waive his privilege and power to rescind by the mere expression of an intention so to do. In that event his liability granted irrevocable power of attorney by TRANS-ASIA, as the sole power to prosecute lies solely with the latter.
under the policy continues as before. 28 There can be no clearer intention of the waiver of the alleged breach than
the renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in MH94/1595 and MH95/1788, The Court of Appeals held that the real character of the transaction between the parties as evidenced by the "Loan
issued in the years 1994 and 1995, respectively. and Trust Receipt" is that of an advance payment by PRUDENTIAL of TRANS-ASIA's claim on the insurance,
thus:
To our mind, the argument is made even more credulous by PRUDENTIAL's lack of proof to support its allegation
that the renewals of the policies were taken only after a request was made to TRANS-ASIA to furnish them a copy The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insurance
of the certificate attesting that "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. Notwithstanding Law Act No. 2427 of the Philippine Legislature during the American Regime. The
PRUDENTIAL's claim that no certification was issued to that effect, it renewed the policy, thereby, evidencing an Insurance Act was lifted verbatim from the law of California, except Chapter V thereof,
intention to waive TRANS-ASIA's alleged breach. Clearly, by granting the renewal policies twice and successively which was taken largely from the insurance law of New York. Therefore, ruling case law in
after the loss, the intent was to benefit the insured, TRANS-ASIA, as well as to waive compliance of the warranty. that jurisdiction is to Us persuasive in interpreting provisions of our own Insurance Code.

34 COMM REV – INSURANCE CASES


In addition, the application of the adopted statute should correspond in fundamental points amount. Verily, we do not think that this is constitutive of a loan. 34 The liberality in the tenor of the "Loan and
with the application in its country of origin . . . . Trust Receipt" in favor of TRANS-ASIA leads to the conclusion that the amount of P3,000,000.00 was a form of an
advance payment on TRANS-ASIA's claim on MH93/1353.
xxx xxx xxx
III.
Likewise, it is settled in that jurisdiction that the (sic) notwithstanding recitals in the Loan
Receipt that the money was intended as a loan does not detract from its real character as A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26,
payment of claim, thus: representing the balance of the loss suffered by TRANS-ASIA and covered by
Marine Policy No. MH93/1363.

Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid claims covered by
"The receipt of money by the insured employers from a surety company for Marine Policy No. MH93/1363, or a total amount of P8,395,072.26.
losses on account of forgery of drafts by an employee where no provision or
repayment of the money was made except upon condition that it be recovered B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the
from other parties and neither interest nor security for the asserted debts was form of attorney's fees equivalent to 10% of P8,395,072.26.
provided for, the money constituted the payment of a liability and not a mere
The Court of Appeals denied the grant of attorney's fees. It held that attorney's fees cannot be awarded absent a
loan, notwithstanding recitals in the written receipt that the money was intended
showing of bad faith on the part of PRUDENTIAL in rejecting TRANS-ASIA's claim, notwithstanding that the
as a mere loan."
rejection was erroneous. According to the Court of Appeals, attorney's fees can be awarded only in the cases
What is clear from the wordings of the so-called "Loan and Trust Receipt Agreement" is enumerated in Article 2208 of the Civil Code which finds no application in the instant case.
that appellant is obligated to hand over to appellee "whatever recovery (Trans Asia) may
We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorney's fees and other expenses
make and deliver to (Prudential) all documents necessary to prove its interest in the said
incurred by the insured after a finding by the Insurance Commissioner or the Court, as the case may be, of an
property." For all intents and purposes therefore, the money receipted is payment under the
unreasonable denial or withholding of the payment of the claims due. Moreover, the law imposes an interest of twice
policy, with Prudential having the right of subrogation to whatever net recovery Trans-Asia
the ceiling prescribed by the Monetary Board on the amount of the claim due the insured from the date following the
may obtain from third parties resulting from the fire. In the law on insurance, subrogation
time prescribed in Section 242 35 or in Section 243, 36 as the case may be, until the claim is fully satisfied. Finally,
is an equitable assignment to the insurer of all remedies which the insured may have
Section 244 considers the failure to pay the claims within the time prescribed in Sections 242 or 243, when
against third person whose negligence or wrongful act caused the loss covered by the
applicable, as prima facie evidence of unreasonable delay in payment.
insurance policy, which is created as the legal effect of payment by the insurer as an
assignee in equity. The loss in the first instance is that of the insured but after To the mind of this Court, Section 244 does not require a showing of bad faith in order that attorney's fees be
reimbursement or compensation, it becomes the loss of the insurer. It has been referred to granted. As earlier stated, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim
as the doctrine of substitution and rests on the principle that substantial justice should be is created by failure of the insurer to pay the claim within the time fixed in both Sections 242 and 243 of
attained regardless of form, that is, its basis is the doing of complete, essential, and perfect the Insurance Code. As established in Section 244, by reason of the delay and the consequent filing of the suit by the
justice between all the parties without regard to form. 31 insured, the insurers shall be adjudged to pay damages which shall consist of attorney's fees and other expenses
incurred by the insured. 37
We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Receipt" evidences that the real nature
of the transaction between the parties was that the amount of P3,000,000.00 was not intended as a loan whereby Section 244 reads:
TRANS-ASIA is obligated to pay PRUDENTIAL, but rather, the same was a partial payment or an advance on the
policy of the claims due to TRANS-ASIA. 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
First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by PRUDENTIAL, whether the payment of the claim of the insured has been unreasonably denied or withheld;
subrogating the former to the extent of "any net recovery made by TRANS ASIA SHIPPING CORP., from any and in the affirmative case, the insurance company shall be adjudged to pay damages
person or persons, corporation or corporations, or other parties, on account of loss by any casualty for which they which shall consist of attorney's fees and other expenses incurred by the insured person by
may be liable, occasioned by the 25 October 1993: Fire on Board." 32 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
Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to "promptly prosecute suit
the date following the time prescribed in section two hundred forty-two or in section two
against such persons, corporation or corporations through whose negligence the aforesaid loss was caused or who
hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the
may otherwise be responsible therefore, with all due diligence" in its name, the prosecution of the claims against
failure to pay any such claim within the time prescribed in said sections shall be
such third persons are to be carried on "at the expense of and under the exclusive direction and control of
considered prima facie evidence of unreasonable delay in payment.
PRUDENTIAL GUARANTEE AND ASSURANCE INC." 33The clear import of the phrase "at the expense of and
under the exclusive direction and control" as used in the "Loan and Trust Receipt" grants solely to PRUDENTIAL Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay or refusal in the
the power to prosecute, even as the same is carried in the name of TRANS-ASIA, thereby making TRANS-ASIA payment of the insurance claims.
merely an agent of PRUDENTIAL, the principal, in the prosecution of the suit against parties who may have
occasioned the loss. In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show that there was an
unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of P8,395,072.26 to TRANS-ASIA. On
Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay PRUDENTIAL is highly 26 October 1993, a day after the occurrence of the fire in "M/V Asia Korea", TRANS-ASIA filed its notice of claim.
speculative and contingent, i.e., only in the event and to the extent that any net recovery is made by TRANS-ASIA On 13 August 1996, the adjuster, Richards Hogg International (Phils.), Inc., completed its survey report
from any person on account of loss occasioned by the fire of 25 October 1993. The transaction, therefore, was made recommending the amount of P11,395,072.26 as the total indemnity due to TRANS-ASIA. 38 On 21 April 1997,
to benefit TRANS-ASIA, such that, if no recovery from third parties is made, PRUDENTIAL cannot be repaid the PRUDENTIAL, in a letter 39 addressed to TRANS-ASIA denied the latter's claim for the amount of P8,395,072.26

35 COMM REV – INSURANCE CASES


representing the balance of the total indemnity. On 21 July 1997, PRUDENTIAL sent a second letter 40 to TRANS- the term "double interest" as used in Sections 243 and 244 can only be interpreted to mean twice 12% per annum or
ASIA seeking a return of the amount of P3,000,000.00. On 13 August 1997, TRANS-ASIA was constrained to file a 24% per annum interest, thus:
complaint for sum of money against PRUDENTIAL praying, inter alia, for the sum of P8,395,072.26 representing
the balance of the proceeds of the insurance claim. The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of
twelve per centum per annum (12%) as prescribed by the Monetary Board in C.B. Circular
As can be gleaned from the foregoing, there was an unreasonable delay on the part of PRUDENTIAL to pay No. 416, pursuant to P.D. No. 116, amending the Usury Law; so that when Sections 242,
TRANS-ASIA, as in fact, it refuted the latter's right to the insurance claims, from the time proof of loss was shown 243 and 244 of the Insurance Code provide that the insurer shall be liable to pay interest
and the ascertainment of the loss was made by the insurance adjuster. Evidently, PRUDENTIAL's unreasonable "twice the ceiling prescribed by the Monetary Board", it means twice 12% per annum or
delay in satisfying TRANS-ASIA's unpaid claims compelled the latter to file a suit for collection. 24% per annum interest on the proceeds of the insurance. 46

Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of the policy as attorney's fees to E. The payment of double interest should be counted from 13 September 1996.
TRANS-ASIA is reasonable under the circumstances, or otherwise stated, ten percent (10%) of P8,395,072.26. In
the case of Cathay Insurance, Co., Inc. v. Court of Appeals, 41 where a finding of an unreasonable delay under The Court of Appeals, in imposing double interest for the duration of the delay of the payment of the unpaid balance
Section 244 of the Insurance Code was made by this Court, we grant an award of attorney's fees equivalent to ten due TRANS-ASIA, computed the same from 13 August 1996 until such time when the amount is fully paid.
percent (10%) of the total proceeds. We find no reason to deviate from this judicial precedent in the case at bar. Although not raised by the parties, we find the computation of the duration of the delay made by the appellate court
to be patently erroneous.
C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as
attorney's fees) shall be imposed double interest in accordance with Section 244 To be sure, Section 243 imposes interest on the proceeds of the policy for the duration of the delay at the rate of
of the Insurance Code. twice the ceiling prescribed by the Monetary Board. Significantly, Section 243 mandates the payment of any loss or
damage for which an insurer may be liable, under any policy other than life insurance policy, within thirty days after
Section 244 of the Insurance Code is categorical in imposing an interest twice the ceiling prescribed by the proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between
Monetary Board due the insured, from the date following the time prescribed in Section 242 or in Section 243, as the the insured and the insurer or by arbitration. It is clear that under Section 243, the insurer has until the 30th day after
case may be, until the claim is fully satisfied. In the case at bar, we find Section 243 to be applicable as what is proof of loss and ascertainment of the loss or damage to pay its liability under the insurance, and only after such
involved herein is a marine insurance, clearly, a policy other than life insurance. time can the insurer be held to be in delay, thereby necessitating the imposition of double interest.

In the case at bar, it was not disputed that the survey report on the ascertainment of the loss was completed by the
adjuster, Richard Hoggs International (Phils.), Inc. on 13 August 1996. PRUDENTIAL had thirty days from 13
Section 243 is hereunder reproduced: August 1996 within which to pay its liability to TRANS-ASIA under the insurance policy, or until 13 September
1996. Therefore, the double interest can begin to run from 13 September 1996 only.
SEC. 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 IV.
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 A. An interest of 12% per annum is similarly imposed on the TOTAL amount of
is not had or made within sixty days after such receipt by the insurer of the proof of loss, liability adjudged in section III herein, computed from the time of finality of
then the loss or damage shall be paid within ninety days after such receipt. Refusal or judgment until the full satisfaction thereof in conformity with this Court's ruling
failure to pay the loss or damage within the time prescribed herein will entitle the assured in Eastern Shipping Lines, Inc. v. Court of Appeals.
to collect interest on the proceeds of the policy for the duration of the delay at the rate of
This Court in Eastern Shipping Lines, Inc. v. Court of Appeals, 47 inscribed the rule of thumb 48 in the application
twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is
of interest to be imposed on obligations, regardless of their source. Eastern emphasized beyond cavil that when the
based on the ground that the claim is fraudulent.
judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, regardless of
As specified, the assured is entitled to interest on the proceeds for the duration of the delay at the rate of twice the whether the obligation involves a loan or forbearance of money, shall be 12% per annum from such finality until its
ceiling prescribed by the Monetary Board except when the failure or refusal of the insurer to pay was founded on the satisfaction, this interim period being deemed to be by then an equivalent to a forbearance 49 of credit.
ground that the claim is fraudulent.
We find application of the rule in the case at bar proper, thus, a rate of 12% per annum from the finality of judgment
D. The term "double interest" as used in the Decision of the Court of Appeals until the full satisfaction thereof must be imposed on the total amount of liability adjudged to PRUDENTIAL. It is
must be interpreted to mean 24% per annum. clear that the interim period from the finality of judgment until the satisfaction of the same is deemed equivalent to a
forbearance of credit, hence, the imposition of the aforesaid interest.
PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in favor of TRANS-ASIA in the
assailed Decision of 6 November 2001. It is PRUDENTIAL's stance that the award is extortionate and grossly Fallo
unsconscionable. In support thereto, PRUDENTIAL makes a reference to TRANS-ASIA's prayer in the Complaint WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G.R. No. 151991 is
filed with the court a quo wherein the latter sought, "interest double the prevailing rate of interest of 21% per annum GRANTED, thus, we award the grant of attorney's fees and make a clarification that the term "double interest" as
now obtaining in the banking business or plus 42% per annum pursuant to Article 243 of the Insurance used in the 6 November 2001 Decision of the Court of Appeals in CA-G.R. CV No. 68278 should be construed to
Code . . . ." 42 mean interest at the rate of 24% per annum, with a further clarification, that the same should be computed from 13
September 1996 until fully paid. The Decision and Resolution of the Court of Appeals, in CA-G.R. CV No. 68278,
The contention fails to persuade. It is settled that an award of double interest is lawful and justified under Sections
dated 6 November 2001 and 29 January 2002, respectively, are, thus, MODIFIED in the following manner, to wit:
243 and 244 of the Insurance Code. 43 In Finman General Assurance Corporation v. Court of Appeals, 44 this Court
held that the payment of 24% interest per annum is authorized by the Insurance Code. 45 There is no gainsaying that

36 COMM REV – INSURANCE CASES


1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of "(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer Insurance
P8,395,072.26, representing the balance of the loss suffered by TRANS-ASIA and Surety Corporation to pay plaintiffs, jointly and severally, the sum of P100,000.00;
and covered by Marine Policy No. MH93/1363;
"(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, in addition,
2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the the sum of P50,000.00, plus P12,500.00, that the latter advanced to the former as down
form of attorney's fees equivalent to 10% of the amount of P8,395,072.26; payment for transporting the logs in question;

3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorney's fees) "(c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed, for
shall be imposed double interest at the rate of 24% per annum to be computed lack of merit, but as to its cross-claim against its co-defendant Manila Bay Lighterage
from 13 September 1996 until fully paid; and Corporation, the latter is ordered to reimburse the former for whatever amount it may pay
the plaintiffs as such surety;
4. An interest of 12% per annum is similarly imposed on the TOTAL amount of
liability adjudged as abovestated in paragraphs (1), (2), and (3) herein, "(d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed for
computed from the time of finality of judgment until the full satisfaction lack of merit;
thereof.
"(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary damages
No costs. are ordered dismissed, for lack of merits; plaintiffs' claim for attorney's fees in the sum of
P10,000.00 is hereby granted, against both defendants, who are, moreover ordered to pay
SO ORDERED. the costs; and
||| (Prudential Guarantee and Assurance, Inc. v. Trans-asia Shipping Lines, Inc., G.R. No. 151890, 151991, [June "(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent (6%)
20, 2006], 524 PHIL 716-751) from March 25, 1975, until amount is fully paid."

12.ISABELA ROQUE, doing business under the name and style of Isabela Roque Timber Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did not appeal. According to the
Enterprises and ONG CHIONG, petitioners, vs. HON. INTERMEDIATE APPELLATE COURT petitioners, the transportation company is no longer doing business and is without funds.
and PIONEER INSURANCE AND SURETY CORPORATION,respondents. G.R. No. L-66935.
November 11, 1985.] During the initial stages of the hearing, Manila Bay informed the trial court that it had salvaged part of the logs. The
court ordered them to be sold to the highest bidder with the funds to be deposited in a bank in the name of Civil
Case No. 86599.

GUTIERREZ, J p: On January 30, 1984, the appellate court modified the trial court's decision and absolved Pioneer from liability after
finding that there was a breach of implied warranty of seaworthiness on the part of the petitioners and that the loss
This petition for certiorari asks for the review of the decision of the Intermediate Appellate Court which absolved of the insured cargo was caused by the "perils of the ship" and not by the "perils of the sea". It ruled that the loss is
the respondent insurance company from liability on the grounds that the vessel carrying the insured cargo was not covered by the marine insurance policy. llcd
unseaworthy and the loss of said cargo was caused not by the perils of the sea but by the perils of the ship.
After the appellate court denied their motion for reconsideration, the petitioners filed this petition with the following
On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay) a common carrier, entered into a assignments of errors:
contract with the petitioners whereby the former would load and carry on board its barge Mable 10 about 422.18
I
cubic meters of logs from Malampaya Sound, Palawan to North Harbor, Manila. The petitioners insured the logs
against loss for P100,000.00 with respondent Pioneer Insurance and Surety Corporation (Pioneer). THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT IN CASES
OF MARINE CARGO INSURANCE, THERE IS A WARRANTY OF
On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at Malampaya Sound, Palawan for SEAWORTHINESS BY THE CARGO OWNER.
carriage and delivery to North Harbor, Port of Manila, but the shipment never reached its destination because Mable
10 sank with the 811 pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila. As alleged by the II
petitioners in their complaint and as found by both the trial and appellate courts, the barge where the logs were
loaded was not seaworthy such that it developed a leak. The appellate court further found that one of the hatches was THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE LOSS
left open causing water to enter the barge and because the barge was not provided with the necessary cover or OF THE CARGO IN THIS CASE WAS CAUSED BY 'PERILS OF THE SHIP' AND
tarpaulin, the ordinary splash of sea waves brought more water inside the barge. NOT BY 'PERILS OF THE SEA.'.

On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment of P150,000.00 for the loss of III
the shipment plus P100,000.00 as unrealized profits but the latter ignored the demand. Another letter was sent to THE INTERMEDIATE APPELLATE COURT ERRED IN NOT ORDERING THE
respondent Pioneer claiming the full amount of P100,000.00 under the insurance policy but respondent refused to RETURN TO PETITIONER OF THE AMOUNT OF P8,000.00 WHICH WAS
pay on the ground that its liability depended upon the "Total loss by Total Loss of Vessel only". Hence, petitioners DEPOSITED IN THE TRIAL COURT AS SALVAGE VALUE OF THE LOGS THAT
commenced Civil Case No. 86599 against Manila Bay and respondent Pioneer. WERE RECOVERED.
After hearing, the trial court found in favor of the petitioners. The dispositive portion of the decision reads: In their first assignment of error, the petitioners contend that 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
"FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows: to make in safety the contemplated voyage.

37 COMM REV – INSURANCE CASES


The petitioners state that a mere shipper of cargo, having no control over the ship, has nothing to do with its against contingencies and against possible damages and such a policy does not cover a loss
seaworthiness. They argue that a cargo owner has no control over the structure of the ship, its cables, anchors, fuel or injury which must inevitably take place in the ordinary course of things. There is no
and provisions, the manner of loading his cargo and the cargo of other shippers, and the hiring of a sufficient number doubt that the term 'perils of the sea' extends only to losses caused by sea damage, or by
of competent officers and seamen. the violence of the elements, and does not embrace all losses happening at sea. They insure
against losses from extraordinary occurrences only, such as stress of weather, winds and
The petitioners' arguments have no merit. waves, lightning, tempests, rocks and the like. These are understood to be the 'perils of the
sea' referred in the policy, and not those ordinary perils which every vessel must encounter.
There is no dispute over the liability of the common carrier Manila Bay. In fact, it did not bother to appeal the 'Perils of the sea' has been said to include only such losses as are
questioned decision. However, the petitioners state that Manila Bay has ceased operating as a firm and nothing may of extraordinary nature, or arise from some overwhelming power, which cannot be guarded
be recovered from it. They are, therefore, trying to recover their losses from the insurer. 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
The liability of the insurance company is governed by law.
from the ordinary wear and tear of the voyage, and distinct from injuries suffered by the
Section 113 of the Insurance Code provides: vessel in consequence of her not being seaworthy at the outset of her voyage (as in this
case). It is also the general rule that everything which happens thru the inherent vice of the
"In every marine insurance upon a ship or freight, or freightage, or upon any thing which is thing, or by the act of the owners, master or shipper, shall not be reputed a peril, if not
the subject of marine insurance, a warranty is implied that the ship is seaworthy." otherwise borne in the policy. (14 RCL on 'Insurance', Sec. 384, pp. 1203-1204; Cia. de
Navegacion v. Firemen's Fund Ins. Co., 277 US 66, 72 L. ed. 787, 48 S. Ct. 459)."
Section 99 of the same Code also provides in part.

'Marine insurance includes:


With regard to the second assignment of error, petitioners maintain, that the loss of the cargo was caused by the
"(1) Insurance against loss of or damage to: perils of the sea, not by the perils of the ship because 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, petitioners also maintain that
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, . . . ." barratry, 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. The trial court also found that
From the above-quoted provisions, there can be no mistaking the fact that the term "cargo" can be the subject of
the stranding and foundering of Mable 10 was due to improper loading of the logs as well as to a leak in the barge
marine insurance and that once it is so made, the implied warranty of seaworthiness immediately attaches to
which constituted negligence.
whoever is insuring the cargo whether he be the shipowner or not.
On the contention of the petitioners that the trial court found that the loss was occasioned by the perils of the sea
As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40 Phil. 40):
characterized by the "storm and waves" which buffeted the vessel, the records show that the court ruled otherwise. It
"The same conclusion must be reached if the question be discussed with reference to the stated:
seaworthiness of the ship. It is universally accepted that in every contract of insurance
xxx xxx xxx
upon anything which is the subject of marine insurance, a warranty is implied that the ship
shall be seaworthy at the time of the inception of the voyage. This rule is accepted in our " . . . The other affirmative defense of defendant Lighterage, 'That the supposed loss of the
own Insurance Law (Act No. 2427, sec. 106). . . ." logs was occasioned by force majeure . . . .', was not supported by the evidence. At the time
Mable 10 sank, there was no typhoon but ordinary strong wind and waves, a condition
Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is immaterial in ordinary marine which is natural and normal in the open sea. The evidence shows that the sinking of Mable
insurance and may not be used by him as a defense in order to recover on the marine insurance policy. LLjur 10 was due to improper loading of the logs on one side so that the barge was tilting on one
side and for that it did not navigate on even keel; that it was no longer seaworthy that was
As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406): why it developed leak; that the personnel of the tugboat and the barge committed a mistake
"There was no lookout, and both that and the rate of speed were contrary to the Canadian when it turned loose the barge from the tugboat east of Cabuli point where it was buffeted
Statute. The exception of losses occasioned by unseaworthiness was in effect a warranty by storm and waves, while the tugboat proceeded to west of Cabuli point where it was
that a loss should not be so occasioned, and whether the fact of unseaworthiness were protected by the mountain side from the storm and waves coming from the east
known or unknown would be immaterial." direction. . . ."

Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine insurance, it In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of defendant carrier developed a leak
becomes the obligation of a cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy which allowed water to come in and that one of the hatches of said barge was negligently left open by the person in
condition. The shipper of cargo may have no control over the vessel but he has full control in the choice of the charge thereof causing more water to come in", and that "the loss of said plaintiffs' cargo was due to the fault,
common carrier that will transport his goods. Or the cargo owner may enter into a contract of insurance which negligence, and/or lack of skill of defendant carrier and/or defendant carrier's representatives on barge Mable
specifically provides that the insurer answers not only for the perils of the sea but also provides for coverage of 10." LexLib
perils of the ship. It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the perils of the sea.
We are constrained to apply Section 113 of the Insurance Code to the facts of this case. As stated by the private The facts clearly negate the petitioners' claim under the insurance policy. In the case of Go Tiaoco y Hermanos v.
respondents: Union Ins. Society of Canton, supra, we had occasion to elaborate on the term "perils of the ship." We ruled:

"In marine cases, the risks insured against are 'perils of the sea' (Chute v. North River Ins. "It must be considered to be settled, furthermore, that a loss which, in the ordinary course
Co., Minn - 214 NW 472, 55 ALR 933). The purpose of such insurance is protection of events, results from the natural and inevitable action of the sea, from the ordinary wear

38 COMM REV – INSURANCE CASES


and tear of the ship, or from the negligent failure of the ship's owner to provide the vessel 13.AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. ANTONIO CHUA,respondent.
with proper equipment to convey the cargo under ordinary conditions, is not a peril of the G.R. No. 130421. June 28, 1999.]
sea. Such a loss is rather due to what has been aptly called the 'peril of the ship.' The
insurer undertakes to insure against perils of the sea and similar perils, not against perils of
the ship. As was well said by Lord Herschell in Wilson, Sons & Co. v. Owners of Cargo
SYNOPSIS
per the Xantho ([1887], 12 A. C., 503, 509), there must, in order to make the insurer liable,
be 'some casualty, something which could not be foreseen as one of the necessary incidents
of the adventure. The purpose of the policy is to secure an indemnity against accidents
which may happen, not against events which must happen. On April 6, 1990, Moonlight Enterprises, respondent's business establishment, was razed by fire. Respondent then
filed an insurance claim with petitioner and four other co-insurers. Petitioner refused to honor the claim, thus
"In the present case the entrance of the sea water into the ship's hold through the defective prompting respondent to file an action. In its defense, petitioner claimed that there was no existing insurance
pipe already described was not due to any accident which happened during the voyage, but contract when the fire occurred since respondent did not pay the premium. It alleged that even assuming there was a
to the failure of the ship's owner properly to repair a defect of the existence of which he contract, respondent violated several conditions of the policy. The trial court ruled in favor of respondent. This was
was apprised. The loss was therefore more analogous to that which directly results from affirmed in toto by the Court of Appeals. Its motion for reconsideration having been denied, petitioner filed this
simple unseaworthiness than to that which results from perils of the sea. petition.
xxx xxx xxx Petitioner accepted the check and issued an official receipt for the payment. Its agent acknowledged receipt of
"Suffice it to say that upon the authority of those cases there is no room to doubt the payment. An acknowledgment of the receipt of premium is conclusive evidence of its payment, so far as to make the
liability of the shipowner for such a loss as occurred in this case. By parity of reasoning the policy binding.
insurer is not liable; for generally speaking, the shipowner excepts the perils of the sea
It cannot be said that petitioner was deceived by respondent by the latter's non-disclosure of the other insurance
from his engagement under the bill of lading, while this is the very perils against which the
contracts when petitioner actually had prior knowledge thereof.
insurer intends to give protection. As applied to the present case it results that the owners
of the damaged rice must look to the shipowner for redress and not to the insurer. " However, loss of profit cannot be shouldered by petitioner whose obligation is limited to the object of insurance,
which was the stock-in-trade and not the expected loss in income or profit. The awards of moral and exemplary
Neither can petitioners allege barratry on the basis of the findings showing negligence on the part of the vessel's
damages were also deleted. Moral damages may be awarded in breaches of contracts where the defendant acted in
crew.
bad faith. The Court found no such fraud or bad faith. Exemplary damages may be awarded if the defendant acted in
Barratry as defined in American Insurance Law is "any willful misconduct on the part of master or crew in a wanton, fraudulent, reckless, oppressive or malevolent manner. Nothing thereof can be attributed to petitioner. The
pursuance of some unlawful or fraudulent purpose without the consent of the owners, and to the prejudice of the award of attorney's fees was reduced to a reasonable level. cCHETI
owner's interest." (Sec. 171, U.S. Insurance Law, quoted in Vance, Handbook on Law of Insurance, 1961, p. 929.)
SYLLABUS
Barratry necessarily requires a willful and intentional act in its commission. No honest error of judgment or mere
negligence, unless criminally gross, can be barratry. (See Vance on Law of Insurance, p. 929 and cases cited
therein.) 1. MERCANTILE LAW; INSURANCE; POLICY NOT VALID AND BINDING UNLESS PREMIUM IS PAID. —
The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and binding.
In the case at bar, there is no finding that the loss was occasioned by the willful or fraudulent acts of the vessel's The only exceptions are life and industrial life insurance. Whether payment was indeed made is a question of fact
crew. There was only simple negligence or lack of skill. Hence, the second assignment of error must likewise be which is best determined by the trial court.
dismissed.
2. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF TRIAL AND APPELLATE COURTS, GENERALLY
Anent the third assignment of error, we agree with the petitioners that the amount of P8,000.00 representing the NOT DISTURBED ON APPEAL. — The trial court found, as affirmed by the Court of Appeals, that there was a
amount of the salvaged logs should have been awarded to them. However, this should be deducted from the amounts valid check payment by respondent to petitioner. Well-settled is the rule that the factual findings and conclusions of
which have been adjudicated against Manila Bay Lighterage Corporation by the trial court. LibLex the trial court and the Court of Appeals are entitled to great weight and respect, and will not be disturbed on appeal
in the absence of any clear showing that the trial court overlooked certain facts or circumstances which would
WHEREFORE, the decision appealed from is AFFIRMED with the modification that the amount of P8,000.00 substantially affect the disposition of the case. We see no reason to depart from this ruling. EADSIa
representing the value of the salvaged logs which was ordered to be deposited in the Manila Banking Corporation in
the name of Civil Case No. 86599 is hereby awarded and ordered paid to the petitioners. The liability adjudged 3. ID.; ID.; ID.; CASE AT BAR. — According to the trial court the renewal certificate issued to respondent
against Manila Bay Lighterage Corporation in the decision of the trial court is accordingly reduced by the same contained the acknowledgment that premium had been paid. It is not disputed that the check drawn by respondent in
amount. 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
SO ORDERED. 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
Teehankee (Chairman), Melencio-Herrera, Plana, De la Fuente and Patajo, JJ., concur. 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
Relova J., is on leave. payment. It is, as well, bound by its agent's acknowledgment of receipt of payment. The submission of the alleged
fraudulent documents pertained to respondent's income tax returns for 1987 to 1989. Respondent, however;
||| (Roque v. Intermediate Appellate Court, G.R. No. L-66935, [November 11, 1985], 224 PHIL 141-152)
presented a BIR certification that he had paid the proper taxes for the said years. The trial court and the Court of
Appeals gave credence to the certification and it being a question of fact, we hold that said finding is conclusive.

39 COMM REV – INSURANCE CASES


4. MERCANTILE LAW; INSURANCE; "OTHER INSURANCE CLAUSE"; COMPANY ESTOPPED FROM In this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, petitioner seeks the
ASSAILING VIOLATION THEREOF WHERE ITS AGENT KNEW OF OTHER INSURANCE SECURED; reversal of the decision 1 of the Court of Appeals in CA-G.R. CV No. 40751, which affirmed in toto the decision of
CASE AT BAR. — Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co- the Regional Trial Court, Makati City, Branch 150 (hereafter trial court), in Civil Case No. 91-1009. cdll
insurers, non-disclosure thereof is a violation that entitles the insurer to avoid the policy. This condition is common
in fire insurance policies and is known as the "other insurance clause." The purpose for the inclusion of this clause is Petitioner is a domestic corporation engaged in the insurance business. Sometime in 1990, respondent obtained from
to prevent an increase in the moral hazard. We have ruled on its validity and the case of Geagonia v. Court of petitioner a fire insurance covering the stock-in-trade of his business, Moonlight Enterprises, located at Valencia,
Appeals clearly illustrates such principle. However, we see an exception in the instant case. To constitute a violation Bukidnon. The insurance was due to expire on 25 March 1990.
the other existing insurance contracts must be upon the same subject matter and with the same interest and risk.
Indeed, respondent acquired several co-insurers and he failed to disclose this information to petitioner. Nonetheless, On 5 April 1990 respondent issued PCIBank Check No. 352123 in the amount of P2,983.50 to petitioner's agent,
petitioner is estopped from invoking this argument. The trial court cited the testimony of petitioner's loss adjuster James Uy, as payment for the renewal of the policy. In turn, the latter delivered Renewal Certificate No. 00099047
who admitted previous knowledge of the co-insurers. Indubitably, it cannot be said that petitioner was deceived by to respondent. The check was drawn against a Manila bank and deposited in petitioner's bank account in Cagayan de
respondent by the latter's non-disclosure of the other insurance contracts when petitioner actually had prior Oro City. The corresponding official receipt was issued on 10 April. Subsequently, a new insurance policy, Policy
knowledge thereof. Petitioner's loss adjuster had known all along of the other existing insurance contracts, yet, he No. 206-4234498-7, was issued, whereby petitioner undertook to indemnify respondent for any damage or loss
did not use that as basis for his recommendation of denial. The loss adjuster, being an employee of petitioner, is arising from fire up to P200,000 for the period 25 March 1990 to 25 March 1991.
deemed a representative of the latter whose awareness of the other insurance contracts binds petitioner. We,
therefore, hold that there was no violation of the "other insurance clause" by respondent.
On 6 April 1990 Moonlight Enterprises was completely razed by fire. Total loss was estimated between P4,000,000
5. CIVIL LAW; DAMAGES; LOSS OF PROFIT; NOT RECOVERABLE WHERE CLAIMANT NO LONGER
and P5,000,000. Respondent filed an insurance claim with petitioner and four other co-insurers, namely, Pioneer
HAD ANY BUSINESS TO OPERATE. — There is no legal and factual basis for the award of P200,000 for loss of
Insurance and Surety Corporation, Prudential Guarantee and Assurance, Inc., Filipino Merchants Insurance Co. and
profit. It cannot be denied that the fire totally gutted respondent's business; thus, respondent no longer had any
Domestic Insurance Company of the Philippines. Petitioner refused to honor the claim notwithstanding several
business to operate. His loss of profit cannot be shouldered by petitioner whose obligation is limited to the object of
demands by respondent, thus, the latter filed an action against petitioner before the trial court.
insurance, which was the stock-in-trade, and not the expected loss in income or profit.
In its defense, petitioner claimed there was no existing insurance contract when the fire occurred since respondent
6. ID.; ID.; MORAL DAMAGES; ABSENCE OF FRAUD AND BAD FAITH NEGATES RECOVERY THEREOF.
did not pay the premium. It also alleged that even assuming there was a contract, respondent violated several
— At the core of this case is petitioner's alleged breach of its obligation under a contract of insurance. Under Article
conditions of the policy, particularly: (1) his submission of fraudulent income tax return and financial statements; (2)
2220 of the Civil Code, moral damages may be awarded in breaches of contracts where the defendant acted
his failure to establish the actual loss, which petitioner assessed at P70,000; and (3) his failure to notify to petitioner
fraudulently or in bad faith. We find no such fraud or bad faith. It must again be stressed that moral damages are
of any insurance already effected to cover the insured goods. These violations, petitioner insisted, justified the denial
emphatically not intended to enrich a plaintiff at the expense of the defendant. Such damages are awarded only to
of the claim. prLL
enable the injured party to obtain means, diversion or amusements that will serve to obviate the moral suffering he
has undergone, by reason of the defendant's culpable action. Its award is aimed at the restoration, within the limits of The trial court ruled in favor of respondent. It found that respondent paid by way of check a day before the fire
the possible, of the spiritual status quo ante, and it must be proportional to the suffering inflicted. When awarded, occurred. The check, which was deposited in petitioner's bank account, was even acknowledged in the renewal
moral damages must not be palpably and scandalously excessive as to indicate that it was the result of passion, certificate issued by petitioner's agent. It declared that the alleged fraudulent documents were limited to the disparity
prejudice or corruption on the part of the trial court judge. between the official receipts issued by the Bureau of Internal Revenue (BIR) and the income tax returns for the years
1987 to 1989. All the other documents were found to be genuine. Nonetheless, it gave credence to the BIR
7. ID.; ID.; EXEMPLARY DAMAGES; DEFENDANT DID NOT ACT IN OPPRESSIVE OR MALEVOLENT
certification that respondent paid the corresponding taxes due for the questioned years.
MANNER IN RESISTING CLAIM. — The law is likewise clear that in contracts and quasi-contracts the court may
award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent As to respondent's failure to notify petitioner of the other insurance contracts covering the same goods, the trial
manner. Nothing thereof can be attributed to petitioner which merely tried to resist what it claimed to be an court held that petitioner failed to show that such omission was intentional and fraudulent. Finally, it noted that
unfounded claim for enforcement of the fire insurance policy. petitioner's investigation of respondent's claim was done in collaboration with the representatives of other insurance
companies who found no irregularity therein. In fact, Pioneer Insurance and Surety Corporation and Prudential
8. ID.; ID.; ATTORNEY'S FEES; NOT AWARDED EVERY TIME A PARTY PREVAILS IN A SUIT. — As to
Guarantee and Assurance, Inc. promptly paid the claims filed by respondent.
attorney's fees, the general rule is that attorney's fees cannot be recovered as part of damages because of the policy
that no premium should be placed on the right to litigate. In short, the grant of attorney's fees as part of damages is The trial court decreed as follows:
the exception rather than the rule; counsel's fees are not awarded every time a party prevails in a suit. It can be
awarded only in the cases enumerated in Article 2208 of the Civil Code, and in all cases it must be reasonable. WHEREFORE, judgment is hereby rendered in favor of [respondent] and against the
Thereunder, the trial court may award attorney's fees where it deems just and equitable that it be so granted. While [petitioner] ordering the latter to pay the former the following:
we respect the trial court's exercise of its discretion in this case, the award of P50,000 is unreasonable and excessive.
It should be reduced to P10,000. 1. P200,000.00, representing the amount of the insurance, plus legal interest
from the date of filing of this case;
DECISION
2. P200,000.00 as moral damages;

3. P200,000.00 as loss of profit;

DAVIDE, JR., C .J p: 4. P100,000.00 as exemplary damages;

5. P50,000.00 as attorney's fees; and

40 COMM REV – INSURANCE CASES


6. Cost of suit. LLjur dated 10 April 1990. Anent respondent's testimony that the check was given to petitioner's agent, a certain James Uy,
the latter points out that even respondent was not sure if Uy was indeed its agent. It faults respondent for not
On appeal, the assailed decision was affirmed in toto by the Court of Appeals. The Court of Appeals found that
producing Uy as his witness and not taking any receipt from him upon presentment of the check. Even assuming that
respondent's claim was substantially proved and petitioner's unjustified refusal to pay the claim entitled respondent
the check was received a day before the occurrence of the fire, there still could not have been any payment until the
to the award of damages.
check was cleared.
Its motion for reconsideration of the judgment having been denied, petitioner filed the petition in this case.
Moreover, petitioner denies respondent's allegation that it intended a renewal of the contract for the renewal
Petitioner reiterates its stand that there was no existing insurance contract between the parties. It invokes Section 77
certificate clearly specified the following conditions:
of the Insurance Code, which provides:
Subject to the payment by the assured of the amount due prior to renewal date, the policy
An insurer is entitled to payment of the premium as soon as the thing insured is exposed to
shall be renewed for the period stated.
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 Any payment tendered other than in cash is received subject to actual cash collection.
the premium thereof has been paid, except in the case of life or an industrial life policy
whenever the grace period provision applies. Subject to no loss prior to premium payment. If there be any loss, and is not covered [sic].
and cites the case of Arce v. Capital Insurance & Surety Co., Inc., 2 where we ruled that unless and until the Petitioner asserts that an insurance contract can only be enforced upon the payment of the premium, which
premium is paid there is no insurance. should have been made before the renewal period. llcd
Petitioner emphasizes that when the fire occurred on 6 April 1990 the insurance contract was not yet subsisting Finally, in assailing the excessive damages awarded to respondent petitioner stresses that the policy in issue was
pursuant to Article 1249 3 of the Civil Code, which recognizes that a check can only effect payment once it has been limited to a liability of P200,000; but the trial court granted the following monetary awards: P200,000 as actual
cashed. Although respondent testified that he gave the check on 5 April to a certain James Uy, the check, drawn damages; P200,000 as moral damages; P100,000 as exemplary damages; and P50,000 as attorney's fees.
against a Manila bank and deposited in a Cagayan de Oro City bank, could not have been cleared by 6 April, the
date of the fire. In fact, the official receipt issued for respondent's check payment was dated 10 April 1990, four days The following issues must be resolved: first, whether there was a valid payment of premium, considering that
after the fire occurred. cdrep respondent's check was cashed after the occurrence of the fire; second, whether respondent violated the policy by his
submission of fraudulent documents and non-disclosure of the other existing insurance contracts; and finally,
Citing jurisprudence, 4 petitioner also contends that respondent's non-disclosure of the other insurance contracts whether respondent is entitled to the award of damages.
rendered the policy void. It underscores the trial court's neglect in considering the Commission on Audit's
certification that the BIR receipts submitted by respondent were, in effect, fake since they were issued to other The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and binding.
persons. Finally, petitioner argues that the award of damages was excessive and unreasonable considering that it did The only exceptions are life and industrial life insurance. 6 Whether payment was indeed made is a question of fact
not act in bad faith in denying respondent's claim. which is best determined by the trial court. The trial court found, as affirmed by the Court of Appeals, that there was
a valid check payment by respondent to petitioner. Well-settled is the rule that the factual findings and conclusions
Respondent counters that the issue of non-payment of premium is a question of fact which can no longer be assailed. of the trial court and the Court of Appeals are entitled to great weight and respect, and will not be disturbed on
The trial court's finding on the matter, which was affirmed by the Court of Appeals, is conclusive. appeal in the absence of any clear showing that the trial court overlooked certain facts or circumstances which
would substantially affect the disposition of the case. 7 We see no reason to depart from this ruling.
Respondent refutes the reason for petitioner's denial of his claim. As found by the trial court, petitioner's loss
adjuster admitted prior knowledge of respondent's existing insurance contracts with the other insurance companies. According to the trial court the renewal certificate issued to respondent contained the acknowledgment that premium
Nonetheless, the loss adjuster recommended the denial of the claim, not because of the said contracts, but because had been paid. It is not disputed that the check drawn by respondent in favor of petitioner and delivered to its agent
he was suspicious of the authenticity of certain documents which respondent submitted in filing his claim. 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
To bolster his argument, respondent cites Section 66 of the Insurance Code, 5 which requires the insurer to give a insurance to an insurance agent or insurance broker shall be deemed to have authorized such agent or broker to
notice to the insured of its intention to terminate the policy forty-five days before the policy period ends. In the receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its
instant case, petitioner opted not to terminate the policy. Instead, it renewed the policy by sending its agent to issuance or delivery or which becomes due thereon. 8 In the instant case, the best evidence of such authority is the
respondent, who was issued a renewal certificate upon delivery of his check payment for the renewal of premium. At fact that petitioner accepted the check and issued the official receipt for the payment. It is, as well, bound by its
this precise moment the contract of insurance was executed and already in effect. Respondent also claims that it is agent's acknowledgment of receipt of payment. cdtai
standard operating procedure in the provinces to pay insurance premiums by check when collected by insurance
agents. prcd

On the issue of damages, respondent maintains that the amounts awarded were reasonable. He cites numerous trips Section 78 of the Insurance Code explicitly provides:
he had to make from Cagayan de Oro City to Manila to follow up his rightful claim. He imputes bad faith on
petitioner who made enforcement of his claim difficult in the hope that he would eventually abandon it. He further An acknowledgment in a policy or contract of insurance of the receipt of premium is
emphasizes that the adjusters of the other insurance companies recommended payment of his claim, and they conclusive evidence of its payment, so far as to make the policy binding, notwithstanding
complied therewith. any stipulation therein that it shall not be binding until the premium is actually paid.

In its reply, petitioner alleges that the petition questions the conclusions of law made by the trial court and the Court This Section establishes a legal fiction of payment and should be interpreted as an exception to Section 77. 9
of Appeals.
Is respondent guilty of the policy violations imputed against him? We are not convinced by petitioner's arguments.
Petitioner invokes respondent's admission that his check for the renewal of the policy was received only on 10 April The submission of the alleged fraudulent documents pertained to respondent's income tax returns for 1987 to 1989.
1990, taking into account that the policy period was 25 March 1990 to 25 March 1991. The official receipt was Respondent, however, presented a BIR certification that he had paid the proper taxes for the said years. The trial

41 COMM REV – INSURANCE CASES


court and the Court of Appeals gave credence to the certification and it being a question of fact, we hold that said Neither can we approve the award of moral and exemplary damages. At the core of this case is petitioner's alleged
finding is conclusive. dctai breach of its obligation under a contract of insurance. Under Article 2220 of the Civil Code, moral damages may be
awarded in breaches of contracts where the defendant acted fraudulently or in bad faith. We find no such fraud or
Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers, non-disclosure bad faith. It must again be stressed that moral damages are emphatically not intended to enrich a plaintiff at the
thereof is a violation that entitles the insurer to avoid the policy. This condition is common in fire insurance policies expense of the defendant. Such damages are awarded only to enable the injured party to obtain means, diversion or
and is known as the "other insurance clause." The purpose for the inclusion of this clause is to prevent an increase in amusements that will serve to obviate the moral suffering he has undergone, by reason of the defendant's culpable
the moral hazard. We have ruled on its validity and the case of Geagonia v. Court of Appeals 10 clearly illustrates action. Its award is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and it
such principle. However, we see an exception in the instant case. must be proportional to the suffering inflicted. 14 When awarded, moral damages must not be palpably and
scandalously excessive as to indicate that it was the result of passion, prejudice or corruption on the part of the trial
Citing Section 29 11 of the Insurance Code, the trial court reasoned that respondent's failure to disclose was not court judge. 15 LexLib
intentional and fraudulent. The application of Section 29 is misplaced. Section 29 concerns concealment which is
intentional. The relevant provision is Section 75, which provides that: The law 16 is likewise clear that in contracts and quasi-contracts the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Nothing thereof can be
A policy may declare that a violation of specified provisions thereof shall avoid it, attributed to petitioner which merely tried to resist what it claimed to be an unfounded claim for enforcement of the
otherwise the breach of an immaterial provision does not avoid the policy. fire insurance policy.
To constitute a violation the other existing insurance contracts must be upon the same subject matter and with the As to attorney's fees, the general rule is that attorney's fees cannot be recovered as part of damages because of the
same interest and risk. 12 Indeed, respondent acquired several co-insurers and he failed to disclose this information policy that no premium should be placed on the right to litigate. 17 In short, the grant of attorney's fees as part of
to petitioner. Nonetheless, petitioner is estopped from invoking this argument. The trial court cited the testimony of damages is the exception rather than the rule; counsel's fees are not awarded every time a party prevails in a suit. It
petitioner's loss adjuster who admitted previous knowledge of the co-insurers. Thus, can be awarded only in the cases enumerated in Article 2208 of the Civil Code, and in all cases it must be
reasonable. 18Thereunder, the trial court may award attorney's fees where it deems just and equitable that it be so
COURT:
granted. While we respect the trial court's exercise of its discretion in this case, the award of P50,000 is
Q The matter of additional insurance of other companies, was that ever discussed in your unreasonable and excessive. It should be reduced to P10,000.
investigation?
WHEREFORE, the instant petition is partly GRANTED. The challenged decision of the Court of Appeals in CA-
A Yes, sir. G.R. No. 40751 is hereby MODIFIED by a) deleting the awards of P200,000 for loss of profit, P200,000 as moral
damages and P100,000 as exemplary damages, and b) reducing the award of attorney's fees from P50,000 to
Q In other words, from the start, you were aware the insured was insured with other P10,000. cdasia
companies like Pioneer and so on?
No pronouncement as to costs.
A Yes, Your Honor.
||| (American Home Assurance Co. v. Chua, G.R. No. 130421, [June 28, 1999], 368 PHIL 555-569)
Q But in your report you never recommended the denial of the claim simply because of the
non-disclosure of other insurance? [sic] 14.THE INSULAR LIFE ASSURANCE COMPANY, LTD., petitioner, vs. PAZ Y. KHU, FELIPE Y.
KHU, JR., and FREDERICK Y. KHU, respondents. G.R. No. 195176. April 18, 2016.]
A Yes, Your Honor.

Q In other words, to be emphatic about this, the only reason you recommended the denial of
the claim, you found three documents to be spurious. That is your only basis? LibLex DEL CASTILLO, J p:

A Yes, Your Honor. 13 [Emphasis supplied]

Indubitably, it cannot be said that petitioner was deceived by respondent by the latter's non-disclosure of the other The date of last reinstatement mentioned in Section 48 of the Insurance Code pertains to the date
insurance contracts when petitioner actually had prior knowledge thereof. Petitioner's loss adjuster had known all that the insurer approved the application for reinstatement. However, in light of the ambiguity in the insurance
along of the other existing insurance contracts, yet, he did not use that as basis for his recommendation of denial. documents to this case, this Court adopts the interpretation favorable to the insured in determining the date
The loss adjuster, being an employee of petitioner, is deemed a representative of the latter whose awareness of the when the reinstatement was approved.
other insurance contracts binds petitioner. We, therefore, hold that there was no violation of the "other insurance" Assailed in this Petition for Review on Certiorari 1 are the June 24, 2010 Decision 2 of the Court
clause by respondent. of Appeals (CA), which dismissed the Petition in CA-G.R. CV No. 81730, and its December 13, 2010
Petitioner is liable to pay its share of the loss. The trial court and the Court of Appeals were correct in awarding Resolution, 3 which denied the petitioner Insular Life Assurance Company Ltd.'s (Insular Life) motion for
P200,000 for this. There is, however, merit in petitioner's grievance against the damages and attorney's fees partial reconsideration. 4
awarded. Factual Antecedents
There is no legal and factual basis for the award of P200,000 for loss of profit. It cannot be denied that the fire On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life
totally gutted respondent's business; thus, respondent no longer had any business to operate. His loss of profit cannot under the latter's Diamond Jubilee Insurance Plan. Felipe accomplished the required medical questionnaire
be shouldered by petitioner whose obligation is limited to the object of insurance, which was the stock-in-trade, and wherein he did not declare any illness or adverse medical condition. Insular Life thereafter issued him Policy
not the expected loss in income or profit. Number A000015683 with a face value of P1 million. This took effect on June 22, 1997. 5

42 COMM REV – INSURANCE CASES


On June 23, 1999, Felipe's policy lapsed due to non-payment of the premium covering the period WHEREFORE, in view of the foregoing, plaintiffs having substantiated
from June 22, 1999 to June 23, 2000. 6 [their] claim by preponderance of evidence, judgment is hereby rendered in their favor
and against defendants, ordering the latter to pay jointly and severally the sum of One
On September 7, 1999, Felipe applied for the reinstatement of his policy and paid P25,020.00 as Million (P1,000,000.00) Pesos with legal rate of interest from the date of demand until it
premium. Except for the change in his occupation of being self-employed to being the Municipal Mayor of is fully paid representing the face value of Plan Diamond Jubilee No. PN-A000015683
Binuangan, Misamis Oriental, all the other information submitted by Felipe in his application for reinstatement issued to insured the late Felipe N. Khu[,] Sr; the sum of P20,000.00 as moral damages;
was virtually identical to those mentioned in his original policy. 7 P30,000.00 as attorney's fees; P10,000.00 as litigation expenses.
On October 12, 1999, Insular Life advised Felipe that his application for reinstatement may only be SO ORDERED. 16
considered if he agreed to certain conditions such as payment of additional premium and the cancellation of
the riders pertaining to premium waiver and accidental death benefits. Felipe agreed to these conditions 8 and In ordering Insular Life to pay Felipe's beneficiaries, the RTC agreed with the latter's claim that the
on December 27, 1999 paid the agreed additional premium of P3,054.50. 9 insurance policy was reinstated on June 22, 1999. The RTC cited the ruling in Malayan Insurance Corporation
v. Court of Appeals 17 that any ambiguity in a contract of insurance should be resolved strictly against the
On January 7, 2000, Insular Life issued Endorsement No. PN-A000015683, which reads: insurer upon the principle that an insurance contract is a contract of adhesion. 18 The RTC also held that the
This certifies that as agreed by the Insured, the reinstatement of this policy reinstated insurance policy had already become incontestable by the time of Felipe's death on September 22,
has been approved by the Company on the understanding that the following changes are 2001 since more than two years had already lapsed from the date of the policy's reinstatement on June 22,
made on the policy effective June 22, 1999: 1999. The RTC noted that since it was Insular Life itself that supplied all the pertinent forms relative to the
reinstated policy, then it is barred from taking advantage of any ambiguity/obscurity perceived therein
1. The EXTRA PREMIUM is imposed; and particularly as regards the date when the reinstated insurance policy became effective.
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF Ruling of the Court of Appeals
PREMIUM DISABILITY (WPD) rider originally attached to and forming parts of this
policy [are] deleted. On June 24, 2010, the CA issued the assailed Decision 19 which contained the following decretal
portion:
In consequence thereof, the premium rates on this policy are adjusted to
P28,000.00 annually, P14,843.00 semi-annually and P7,557.00 quarterly, Philippine WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the
currency. 10 lower court is AFFIRMED with the MODIFICATION that the award of moral damages,
attorney's fees and litigation expenses [is] DELETED.
On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00 covering the period
from June 22, 2000 to June 22, 2001. And on July 2, 2001, he also paid the same amount as annual premium SO ORDERED. 20
covering the period from June 22, 2001 to June 21, 2002. 11 The CA upheld the RTC's ruling on the non-contestability of the reinstated insurance policy on the
On September 22, 2001, Felipe died. His Certificate of Death enumerated the following as causes date the insured died. It declared that contrary to Insular Life's contention, there in fact exists a genuine
of death: ambiguity or obscurity in the language of the two documents prepared by Insular Life itself, viz., Felipe's
Letter of Acceptance and Insular Life's Endorsement; that given the obscurity/ambiguity in the language of
Immediate cause: a. End stage renal failure, Hepatic failure CAIHTE these two documents, the construction/interpretation that favors the insured's right to recover should be
adopted; and that in keeping with this principle, the insurance policy in dispute must be deemed reinstated as
Antecedent cause: b. Congestive heart failure, Diffuse myocardial ischemia. of June 22, 1999. 21
Underlying cause: c. Diabetes Neuropathy, Alcoholism, and Pneumonia. 12 Insular Life moved for partial reconsideration 22 but this was denied by the CA in its Resolution of
On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu (collectively, Felipe's December 13, 2010. 23 Hence, the present Petition.
beneficiaries or respondents) filed with Insular Life a claim for benefit under the reinstated policy. This claim Issue
was denied. Instead, Insular Life advised Felipe's beneficiaries that it had decided to rescind the reinstated
policy on the grounds of concealment and misrepresentation by Felipe. The fundamental issue to be resolved in this case is whether Felipe's reinstated life insurance policy
is already incontestable at the time of his death.
Hence, respondents instituted a complaint for specific performance with damages. Respondents
prayed that the reinstated life insurance policy be declared valid, enforceable and binding on Insular Life; and Petitioner's Arguments
that the latter be ordered to pay unto Felipe's beneficiaries the proceeds of this policy, among others. 13
In praying for the reversal of the CA Decision, Insular Life basically argues that respondents should
In its Answer, Insular Life countered that Felipe did not disclose the ailments (viz., Type 2 Diabetes not be allowed to recover on the reinstated insurance policy because the two-year contestability period had not
Mellitus, Diabetes Nephropathy and Alcoholic Liver Cirrhosis with Ascites) that he already had prior to his yet lapsed inasmuch as the insurance policy was reinstated only on December 27, 1999, whereas Felipe died
application for reinstatement of his insurance policy; and that it would not have reinstated the insurance policy on September 22, 2001; 24 that the CA overlooked the fact that Felipe paid the additional extra premium only
had Felipe disclosed the material information on his adverse health condition. It contended that when Felipe on December 27, 1999, hence, it is only upon this date that the reinstated policy had become effective; that the
died, the policy was still contestable. 14 CA erred in declaring that resort to the principles of statutory construction is still necessary to resolve that
question given that the Application for Reinstatement, the Letter of Acceptance and the Endorsement in and by
Ruling of the Regional Trial Court (RTC) themselves already embodied unequivocal provisions stipulating that the two-year contestability clause should
On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City found 15 for Felipe's be reckoned from the date of approval of the reinstatement; 25 and that Felipe's misrepresentation and
beneficiaries, thus: concealment of material facts in regard to his health or adverse medical condition gave it (Insular Life) the
right to rescind the contract of insurance and consequently, the right to deny the claim of Felipe's beneficiaries
for death benefits under the disputed policy. 26

43 COMM REV – INSURANCE CASES


Respondents' Arguments To reinstate a policy means to restore the same to premium-paying status
after it has been permitted to lapse. . . .
Respondents maintain that the phrase "effective June 22, 1999" found in both the Letter of
Acceptance and in the Endorsement is unclear whether it refers to the subject of the sentence, i.e., the xxx xxx xxx
"reinstatement of this policy" or to the subsequent phrase "changes are made on the policy;" that granting that
there was any obscurity or ambiguity in the insurance policy, the same should be laid at the door of Insular In the instant case, Eulogio's death rendered impossible full compliance with
Life as it was this insurance company that prepared the necessary documents that make up the same; 27 and the conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death,
that given the CA's finding which effectively affirmed the RTC's finding on this particular issue, it stands to managed to file his Application for Reinstatement and deposit the amount for payment
reason that the insurance policy had indeed become incontestable upon the date of Felipe's death. 28DETACa of his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992
could only be considered reinstated after the Application for Reinstatement had been
Our Ruling processed and approved by Insular Life during Eulogio's lifetime and good health. 31
We deny the Petition. Thus, it is settled that the reinstatement of an insurance policy should be reckoned from the date
when the same was approved by the insurer.
The Insurance Code pertinently provides that:
In this case, the parties differ as to when the reinstatement was actually approved. Insular Life
Sec. 48. Whenever a right to rescind a contract of insurance is given to the claims that it approved the reinstatement only on December 27, 1999. On the other hand, respondents contend
insurer by any provision of this chapter, such right must be exercised previous to the that it was on June 22, 1999 that the reinstatement took effect.
commencement of an action on the contract.
The resolution of this issue hinges on the following documents: 1) Letter of Acceptance; and 2) the
After a policy of life insurance made payable on the death of the insured Endorsement.
shall have been in force during the lifetime of the insured for a period of two years from
the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is The Letter of Acceptance 32 wherein Felipe affixed his signature was actually drafted and prepared
void ab initio or is rescindible by reason of the fraudulent concealment or by Insular Life. This pro-forma document reads as follows:
misrepresentation of the insured or his agent.
LETTER OF ACCEPTANCE
The rationale for this provision was discussed by the Court in Manila Bankers Life Insurance
Corporation v. Aban, 29 Place: Cag. De [O]ro City

Section 48 regulates both the actions of the insurers and prospective takers of The Insular Life Assurance Co., Ltd.
life insurance. It gives insurers enough time to inquire whether the policy was obtained P.O. Box 128, MANILA
by fraud, concealment, or misrepresentation; on the other hand, it forewarns scheming Policy No. A000015683
individuals that their attempts at insurance fraud would be timely uncovered — thus
deterring them from venturing into such nefarious enterprise. At the same time, Gentlemen:
legitimate policy holders are absolutely protected from unwarranted denial of their
claims or delay in the collection of insurance proceeds occasioned by allegations of Thru your Reinstatement Section, I/WE learned that this policy may be reinstated
fraud, concealment, or misrepresentation by insurers, claims which may no longer be set provided I/we agree to the following condition/s indicated with a check mark:
up after the two-year period expires as ordained under the law. [xx] Accept the imposition of an extra/additional extra premium of
xxx xxx xxx [P]5.00 a year per thousand of insurance; effective June 22, 1999
[ ] Accept the rating on the WPD at _____ at standard rates; the
The Court therefore agrees fully with the appellate court's pronouncement
ABD at ____ the standard rates; the SAR at P ____ annually per
that —
thousand of Insurance;
xxx xxx xxx [xx] Accept the cancellation of the Premium waiver & Accidental
'The insurer is deemed to have the necessary facilities to discover such death benefit.
fraudulent concealment or misrepresentation within a period of two (2) years. It is not []
fair for the insurer to collect the premiums as long as the insured is still alive, only to
raise the issue of fraudulent concealment or misrepresentation when the insured dies in I am/we are agreeable to the above condition/s. Please proceed with the reinstatement of
order to defeat the right of the beneficiary to recover under the policy. the policy.

At least two (2) years from the issuance of the policy or its last reinstatement, Very truly yours,
the beneficiary is given the stability to recover under the policy when the insured dies.
Felipe N. Khu, Sr.
The provision also makes clear when the two-year period should commence in case the
policy should lapse and is reinstated, that is, from the date of the last reinstatement'. After Felipe accomplished this form, Insular Life, through its Regional Administrative Manager,
Jesse James R. Toyhorada, issued an Endorsement 33 dated January 7, 2000. For emphasis, the Endorsement is
In Lalican v. The Insular Life Assurance Company, Limited, 30 which coincidentally also involves
again quoted as follows: aDSIHc
the herein petitioner, it was there held that the reinstatement of the insured's policy is to be reckoned from the
date when the application was processed and approved by the insurer. There, we stressed that: ENDORSEMENT

44 COMM REV – INSURANCE CASES


PN-A000015683 Indemnity and liability insurance policies are
construed in accordance with the general rule of resolving any
This certifies that as agreed to by the Insured, the reinstatement of this policy has been ambiguity therein in favor of the insured, where the contract or
approved by the Company on the understanding that the following changes are made on policy is prepared by the insurer. A contract of insurance, being
the policy effective June 22, 1999: a contract of adhesion, par excellence, any ambiguity therein
1. The EXTRA PREMIUM is imposed; and should be resolved against the insurer; in other words, it should
be construed liberally in favor of the insured and strictly against
2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER the insurer. Limitations of liability should be regarded with
OF PREMIUM DISABILITY (WPD) rider originally attached to extreme jealousy and must be construed in such a way as to
and forming parts of this policy is deleted. preclude the insurer from noncompliance with its obligations.
In consequence thereof, the PREMIUM RATES on this policy are adjusted to xxx xxx xxx
[P]28,000.00 annually, [P]14,843.00 semi-annually and [P]7,557.00 quarterly,
Philippine Currency. As a final note, to characterize the insurer and the insured as contracting
parties on equal footing is inaccurate at best. Insurance contracts are wholly prepared by
Cagayan de Oro City, 07 January 2000. the insurer with vast amounts of experience in the industry purposefully used to its
advantage. More often than not, insurance contracts are contracts of adhesion containing
RCV/ technical terms and conditions of the industry, confusing if at all understandable to
(Signed) Authorized Signature laypersons, that are imposed on those who wish to avail of insurance. As such, insurance
contracts are imbued with public interest that must be considered whenever the rights
Based on the foregoing, we find that the CA did not commit any error in holding that the subject and obligations of the insurer and the insured are to be delineated. Hence, in order to
insurance policy be considered as reinstated on June 22, 1999. This finding must be upheld not only because it protect the interest of insurance applicants, insurance companies must be obligated to
accords with the evidence, but also because this is favorable to the insured who was not responsible for act with haste upon insurance applications, to either deny or approve the same, or
causing the ambiguity or obscurity in the insurance contract. 34 otherwise be bound to honor the application as a valid, binding, and effective insurance
contract. 37
The CA expounded on this point thus —
Indeed, more than two years had lapsed from the time the subject insurance policy was reinstated
The Court discerns a genuine ambiguity or obscurity in the language of the on June 22, 1999 vis-a-vis Felipe's death on September 22, 2001. As such, the subject insurance policy has
two documents. already become incontestable at the time of Felipe's death.
In the Letter of Acceptance, Khu declared that he was accepting "the Finally, we agree with the CA that there is neither basis nor justification for the RTC's award of
imposition of an extra/additional . . . premium of P5.00 a year per thousand of moral damages, attorney's fees and litigation expenses; hence this award must be deleted.
insurance; effective June 22, 1999". It is true that the phrase as used in this particular
paragraph does not refer explicitly to the effectivity of the reinstatement. But the Court WHEREFORE, the Petition is DENIED. The assailed June 24, 2010 Decision and December 13,
notes that the reinstatement was conditioned upon the payment of additional premium 2010 Resolution of the Court of Appeals in CA-G.R. CV No. 81730 are AFFIRMED.
not only prospectively, that is, to cover the remainder of the annual period of coverage,
but also retroactively, that is for the period starting June 22, 1999. Hence, by paying the ||| (The Insular Life Assurance Co., Ltd. vs. Khu, G.R. No. 195176, [April 18, 2016])
amount of P3,054.50 on December 27, 1999 in addition to the P25,020.00 he had earlier
paid on September 7, 1999, Khu had paid for the insurance coverage starting June 22, 15. MA. LOURDES S. FLORENDO, petitioner, vs. PHILAM PLANS, INC., PERLA ABCEDE and
1999. At the very least, this circumstance has engendered a true lacuna. MA. CELESTE ABCEDE, respondents. [G.R. No. 186983. February 22, 2012.]

In the Endorsement, the obscurity is patent. In the first sentence of the


Endorsement, it is not entirely clear whether the phrase "effective June 22, 1999" refers
to the subject of the sentence, namely "the reinstatement of this policy," or to the ABAD, J p:
subsequent phrase "changes are made on the policy."
The court below is correct. Given the obscurity of the language, the
This case is about an insured's alleged concealment in his pension plan application of his true state of health and its
construction favorable to the insured will be adopted by the courts.
effect on the life insurance portion of that plan in case of death.
Accordingly, the subject policy is deemed reinstated as of June 22, 1999.
Thus, the period of contestability has lapsed. 35 The Facts and the Case

In Eternal Gardens Memorial Park Corporation v. The Philippine American Life Insurance On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with respondent Philam
Company, 36 we ruled in favor of the insured and in favor of the effectivity of the insurance contract in the Plans, Inc. (Philam Plans) after some convincing by respondent Perla Abcede. The plan had a pre-need price of
midst of ambiguity in the insurance contract provisions. We held that: P997,050.00, payable in 10 years, and had a maturity value of P2,890,000.00 after 20 years. 1 Manuel signed the
application and left to Perla the task of supplying the information needed in the application. 2 Respondent Ma.
It must be remembered that an insurance contract is a contract of adhesion Celeste Abcede, Perla's daughter, signed the application as sales counselor. 3
which must be construed liberally in favor of the insured and strictly against the insurer
in order to safeguard the latter's interest. Thus, in Malayan Insurance Corporation v. Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage to
Court of Appeals, this Court held that: Florendo. 4 This was covered by a Group Master Policy that Philippine American Life Insurance Company (Philam

45 COMM REV – INSURANCE CASES


Life) issued to Philam Plans. 5 Under the master policy, Philam Life was to automatically provide life insurance I hereby represent and declare to the best of my knowledge that:
coverage, including accidental death, to all who signed up for Philam Plans' comprehensive pension plan. 6 If the
plan holder died before the maturity of the plan, his beneficiary was to instead receive the proceeds of the life xxx xxx xxx
insurance, equivalent to the pre-need price. Further, the life insurance was to take care of any unpaid premium until
the pension plan matured, entitling the beneficiary to the maturity value of the pension plan. 7 (c) I have never been treated for heart condition, high blood pressure,
cancer, diabetes, lung, kidney or stomach disorder or any other physical
On October 30, 1997 Philam Plans issued Pension Plan Agreement PP43005584 8 to Manuel, with petitioner Ma. impairment in the last five years.
Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly premiums. 9
(d) I am in good health and physical condition.
Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently, Lourdes filed a
claim with Philam Plans for the payment of the benefits under her husband's plan. 10 Because Manuel died before If your answer to any of the statements above reveal otherwise, please give details in
his pension plan matured and his wife was to get only the benefits of his life insurance, Philam Plans forwarded her the space provided for:
claim to Philam Life. 11
Date of confinement : ___________________
On May 3, 1999 Philam Plans wrote Lourdes a letter, 12 declining her claim. Philam Life found that Manuel was on
Name of Hospital or Clinic : ___________________
maintenance medicine for his heart and had an implanted pacemaker. Further, he suffered from diabetes mellitus and
was taking insulin. Lourdes renewed her demand for payment under the plan 13 but Philam Plans rejected Name of Attending Physician : ___________________
it, 14 prompting her to file the present action against the pension plan company before the Regional Trial Court
(RTC) of Quezon City. 15 IEAacS Findings : ___________________

On March 30, 2006 the RTC rendered judgment, 16 ordering Philam Plans, Perla and Ma. Celeste, solidarily, to pay Others: (Please specify) : ___________________
Lourdes all the benefits from her husband's pension plan, namely: P997,050.00, the proceeds of his term insurance,
and P2,890,000.00 lump sum pension benefit upon maturity of his plan; P100,000.00 as moral damages, and to pay xxx xxx xxx. 20 (Emphasis supplied)
the costs of the suit. The RTC ruled that Manuel was not guilty of concealing the state of his health from his pension
plan application. Since Manuel signed the application without filling in the details regarding his continuing treatments for heart
condition and diabetes, the assumption is that he has never been treated for the said illnesses in the last five years
On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision, 17 holding that insurance policies are preceding his application. This is implicit from the phrase "If your answer to any of the statements above
traditionally contracts uberrimae fidae or contracts of utmost good faith. As such, it required Manuel to disclose to (specifically, the statement: I have never been treated for heart condition or diabetes) reveal otherwise, please give
Philam Plans conditions affecting the risk of which he was aware or material facts that he knew or ought to know. 18 details in the space provided for." But this is untrue since he had been on "Coumadin," a treatment for venous
thrombosis, 21 and insulin, a drug used in the treatment of diabetes mellitus, at that time. 22
Issues Presented
Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that Manuel had a
The issues presented in this case are: pacemaker implanted on his chest in the 70s or about 20 years before he signed up for the pension plan. 23 But by
its tenor, the responsibility for preparing the application belonged to Manuel. Nothing in it implies that someone else
1. Whether or not the CA erred in finding Manuel guilty of concealing his illness when he kept blank and did not
may provide the information that Philam Plans needed. Manuel cannot sign the application and disown the
answer questions in his pension plan application regarding the ailments he suffered from;
responsibility for having it filled up. If he furnished Perla the needed information and delegated to her the filling up
2. Whether or not the CA erred in holding that Manuel was bound by the failure of respondents Perla and Ma. of the application, then she acted on his instruction, not on Philam Plans' instruction. cCESTA
Celeste to declare the condition of Manuel's health in the pension plan application; and
Lourdes next points out that it made no difference if Manuel failed to reveal the fact that he had a pacemaker
3. Whether or not the CA erred in finding that Philam Plans' approval of Manuel's pension plan application and implant in the early 70s since this did not fall within the five-year timeframe that the disclosure
acceptance of his premium payments precluded it from denying Lourdes' claim. contemplated. 24 But a pacemaker is an electronic device implanted into the body and connected to the wall of the
heart, designed to provide regular, mild, electric shock that stimulates the contraction of the heart muscles and
Rulings of the Court restores normalcy to the heartbeat. 25 That Manuel still had his pacemaker when he applied for a pension plan in
October 1997 is an admission that he remained under treatment for irregular heartbeat within five years preceding
One. Lourdes points out that, seeing the unfilled spaces in Manuel's pension plan application relating to his medical that application.
history, Philam Plans should have returned it to him for completion. Since Philam Plans chose to approve the
application just as it was, it cannot cry concealment on Manuel's part. Further, Lourdes adds that Philam Plans never Besides, as already stated, Manuel had been taking medicine for his heart condition and diabetes when he submitted
queried Manuel directly regarding the state of his health. Consequently, it could not blame him for not mentioning his pension plan application. These clearly fell within the five-year period. More, even if Perla's knowledge of
it. 19 Manuel's pacemaker may be applied to Philam Plans under the theory of imputed knowledge, 26 it is not claimed
that Perla was aware of his two other afflictions that needed medical treatments. Pursuant to Section 27 27 of
But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the true state of the Insurance Code, Manuel's concealment entitles Philam Plans to rescind its contract of insurance with him.
Manuel's health. She forgets that since Philam Plans waived medical examination for Manuel, it had to rely largely
on his stating the truth regarding his health in his application. For, after all, he knew more than anyone that he had Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let Perla fill in the
been under treatment for heart condition and diabetes for more than five years preceding his submission of that required details did not make her his agent and bind him to her concealment of his true state of health. Since there is
application. But he kept those crucial facts from Philam Plans. no evidence of collusion between them, Perla's fault must be considered solely her own and cannot prejudice
Manuel. 28
Besides, when Manuel signed the pension plan application, he adopted as his own the written representations and
declarations embodied in it. It is clear from these representations that he concealed his chronic heart ailment and
diabetes from Philam Plans. The pertinent portion of his representations and declarations read as follows:

46 COMM REV – INSURANCE CASES


But Manuel forgot that in signing the pension plan application, he certified that he wrote all the information stated in The above incontestability clause precludes the insurer from disowning liability under the policy it issued on the
it or had someone do it under his direction. Thus: ground of concealment or misrepresentation regarding the health of the insured after a year of its issuance. EcTaSC

APPLICATION FOR PENSION PLAN Since Manuel died on the eleventh month following the issuance of his plan, 36 the one year incontestability period
(Comprehensive) has not yet set in. Consequently, Philam Plans was not barred from questioning Lourdes' entitlement to the benefits
of her husband's pension plan.
I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan Program
described herein in accordance with the General Provisions set forth in this application and WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of Appeals in CA-G.R. CV 87085
hereby certify that the date and other information stated herein are written by me or dated December 18, 2007.
under my direction. . . . . 29 (Emphasis supplied)
SO ORDERED.
Assuming that it was Perla who filled up the application form, Manuel is still bound by what it contains since he
certified that he authorized her action. Philam Plans had every right to act on the faith of that certification. ||| (Florendo v. Philam Plans, Inc., G.R. No. 186983, [February 22, 2012], 682 PHIL 582-592)

Lourdes could not seek comfort from her claim that Perla had assured Manuel that the state of his health would not
hinder the approval of his application and that what is written on his application made no difference to the insurance
company. But, indubitably, Manuel was made aware when he signed the pension plan application that, in granting
the same, Philam Plans and Philam Life were acting on the truth of the representations contained in that application.
Thus:

DECLARATIONS AND REPRESENTATIONS

xxx xxx xxx

I agree that the insurance coverage of this application is based on the truth of the
foregoing representations and is subject to the provisions of the Group Life Insurance
Policy issued by THE PHILIPPINE AMERICAN LIFE INSURANCE CO. to PHILAM
PLANS, INC. 30 (Emphasis supplied)

As the Court said in New Life Enterprises v. Court of Appeals: 31

It may be true that . . . insured persons may accept policies without reading them, and that
this is not negligence per se. But, this is not without any exception. It is and was incumbent
upon petitioner Sy to read the insurance contracts, and this can be reasonably expected of
him considering that he has been a businessman since 1965 and the contract concerns
indemnity in case of loss in his money-making trade of which important consideration he
could not have been unaware as it was precisely the reason for his procuring the same. 32

The same may be said of Manuel, a civil engineer and manager of a construction company. 33 He could be expected
to know that one must read every document, especially if it creates rights and obligations affecting him, before
signing the same. Manuel is not unschooled that the Court must come to his succor. It could reasonably be expected
that he would not trifle with something that would provide additional financial security to him and to his wife in his
twilight years.

Three. In a final attempt to defend her claim for benefits under Manuel's pension plan, Lourdes points out that any
defect or insufficiency in the information provided by his pension plan application should be deemed waived after
the same has been approved, the policy has been issued, and the premiums have been collected. 34

The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a one-year
incontestability period. It states:

VIII. INCONTESTABILITY

After this Agreement has remained in force for one ( 1) year, we can no longer contest for
health reasons any claim for insurance under this Agreement, except for the reason that
installment has not been paid (lapsed), or that you are not insurable at the time you bought
this pension program by reason of age. If this Agreement lapses but is reinstated
afterwards, the one (1) year contestability period shall start again on the date of approval of
your request for reinstatement. 35

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