Rizal Surety v CA (G.R. No. 1112360, July 18, 2000) Petitioner: Rizal Surety & Insurance Co.

Respondents: CA, and Transworld Knitting Mills, Inc. Ponente: Purisima, J. Facts

Petitioner Rizal Surety issued a Fire Insurance Policy in 1980 in favor of respondent Transworld covering the buildings within the compound of the private respondent. Such buildings and their locations were described in the policy. The same properties were also insured by New India Assurance Company. A year later, a fire destroyed a significant portion of the four-span building of Transworld and the two-story building behind it. Transworld then filed for an action to collect the value of the policies against Rizal Surety and New India. Petitioner countered that only the four-span building was covered by the policy and that it was not liable to pay for the damages suffered by the two-story annex building, following the stipulations in the insurance contract. The contentions regarding the liability of New India, on the other hand, were resolved on a separate case. The trial court and the CA both ruled in favor of Transworld, ordering the petitioner to pay for the damages on the four-span building and the annex building suffered by Transworld. Hence this petition. Issue

Whether or not the insurance policy must be construed to also cover the two-story annex building of Transworld Held

YES. It is a rule of construction that in cases of ambiguity, the stipulation in an insurance contract must be strictly construed against the insurer and be liberally construed in favor of the insured, as such contracts are contracts of adhesion. In this case, it was stipulated that buildings inside the compound of the private respondent are covered by the fire protection policy. The two-story building was well within such stipulation, and was even found out to not only be an annex but an integral and inseparable part of the four-span building. Thus, petitioner Rizal Surety was ordered to pay Transworld for the damages not only for the four-span building but also for the two-story building behind it.