Insurance Digest Cases

Narratives
Insurance Law (Commercial)

Michael Vernon Guerrero Mendiola 2006 Shared under Creative Commons AttributionN
onCommercial-ShareAlike 3.0 Philippines license.
Some Rights Reserved.
Table of Contents
Verendia vs. Court of Appeals [GR 76399, 22 January 1993] ......... 1 Rizal Suret
y & Insurance Company vs. Court of Appeals [GR 112360, 18 June 2000] ......... 2
Philamcare Health Systems Inc. vs. Court of Appeals [GR 125678, 18 March 2002] ..
....... 4 Fortune Insurance and Surety Co. Inc. vs. Court of Appeals [GR 115278,
23 May 1995] ......... 6 Enriquez vs. Sun Life Assurance Company of Canada [GR 1
5895, 29 November 1920] ......... 7 Development Bank of the Philippines vs. Court
of Appeals [GR 109937, 21 March 1994] ......... 8 Great Pacific Life Assurance C
ompany vs. Court of Appeals [GR L-31845, 30 April 1979] ......... 10 Spouses Cha
vs. Court of Appeals [GR 124520, 18 August 1997] ......... 11 Geagonia vs. Court
of Appeals [GR 114427, 6 February 1995] ......... 12 Rizal Commercial Banking Cor
poration (RCBC) vs. Court of Appeals [GR 128833, 20 April 1998] ......... 14 Grea
t Pacific Life Assurance Corp. vs. Court of Appeals [GR 113899, 13 October 1999]
......... 17 Sunlife Assurance Company of Canada vs. Court of Appeals [GR 105135
, 22 June 1995] ......... 18 Vda. de Canilang vs. Court of Appeals [GR 92492, 17
June 1993] ......... 19 Tan vs. Court of Appeals [GR 48049, 29 June 1989] ........
. 21 Pacific Timber Export Corporation vs. Court of Appeals [GR L-38613, 25 Febr
uary 1982] ......... 22 Philippine American Life and General Insurance Company vs
. Valencia-Bagalacsa [GR 139776, 1 August 2002] ......... 23 Makati Tuscany Condo
minium Corporation vs. Court of Appeals [GR 95546, 6 November 1992] ......... 24
UCPB General Insurance vs. Masagana Telamart Inc. [GR 137172, 15 June 1999] .....
.... 26 UCPB General Insurance vs. Masagana Telamart Inc. [GR 137172, 14 April 2
001] ......... 27 American Home Assurance Company vs. Chua [GR 130421, 28 June 19
99] ......... 28 Tibay vs. Court of Appeals [GR 119655, 24 May 1996] ......... 29
Philippine Phoenix Surety & Insurance Company vs. Woodworks Inc. [GR L-25317, 6
August 1979] ......... 30 Bonifacio Brothers Inc. vs. Mora [GR L-20853, 29 May 19
67] ......... 31 The Insular Life Assurance Company Ltd. vs. Ebrado [GR L-44059,
28 October 1977] ......... 33 Vda de Consuegra vs. Government Service Insurance S
ystem [GR L-28093, 30 January 1971] ......... 34 Go vs. Redfern [GR 47705, 25 Apr
il 1941] ......... 36 Country Bankers Insurance Corporation vs. Lianga Bay and Co
mmunity Multi-Purpose Cooperative Inc. [GR 136914, 25 January 2002] ......... 37
Roque vs. Intermediate Appellate Court [GR L-66935, 11 November 1985] ......... 3
8 La Razon Social "Go Tiaoco y Hermanos" vs. Union Insurance Society of Canton L
td. [GR 13983, 1 September 1919] ......... 40 Cathay Insurance Co. vs. Court of A
ppeals [GR 76145, 30 June 1987] ......... 41 Filipino Merchants Insurance Co. Inc
. vs. Court of Appeals [GR 85141, 28 November 1989] ......... 43 Oriental Assuran
ce Corporation vs. Court of Appeals [GR 94052, 9 August 1991] ......... 45 Finman
General Assurance Corporation vs. Court of Appeals [GR 100970, 2 September 1992
] ......... 46 Sun Insurance Office Ltd. vs. Court of Appeals [GR 92383, 17 July
1992] ......... 47 Vda. de Gabriel vs. Court of Appeals [GR 103883, 14 November 1
996] ......... 48 Vda. de Maglana vs. Consolacion [GR 60506, 6 August 1992] ......
... 50 Tio Khe Chio vs. Court of Appeals [GR 76101-02, 30 September 1991] .......
.. 52 Finman General Assurance Corporation vs. Court of Appeals [GR 138737, 12 J
uly 2001] ......... 53
This collection contains thirty eight (38) cases summarized in this format by Mi
chael Vernon M. Guerrero (as a senior law student) during the Second Semester, s
chool year 2005-2006 in the Commercial Law Review class under Atty. Zarah Villan
ueva-Castro at the Arellano University School of Law (AUSL). Compiled as PDF, Ju
ly 2011. Berne Guerrero entered AUSL in June 2002 and eventually graduated from
AUSL in 2006. He passed the Philippine bar examinations immediately after (April
2007).
www.berneguerrero.com
Narratives (Berne Guerrero)

1 Verendia vs. Court of Appeals [GR 76399, 22 January 1993]; also Fidelity & Sur
ety Co. of the Philippines Inc. vs. Verendia [GR 75605] Third Division, Melo (J)
: 4 concur Facts: Fidelity and Surety Insurance Company of the Philippines issue
d its Fire Insurance Policy F-18876 effective between 23 June 1980 and 23 June 1
981 covering Rafael (Rex) Verendia's residential building located at Tulip Drive
, Beverly Hills, Antipolo, Rizal in the amount of P385,000.00. Designated as ben
eficiary was the Monte de Piedad & Savings Bank. Verendia also insured the same
building with two other companies, namely, The Country Bankers Insurance for P56
,000.00 under Policy No. PDB-80-1913 expiring on 12 May 1981, and The Developmen
t Insurance for P400,000.00 under Policy F-48867 expiring on 30 June 1981. While
the three fire insurance policies were in force, the insured property was compl
etely destroyed by fire on the early morning of 28 December 1980. Fidelity was a
ccordingly informed of the loss and despite demands, refused payment under its p
olicy, thus prompting Verendia to file a complaint with the then Court of First
Instance of Quezon City, praying for payment of P385,000.00, legal interest ther
eon, plus attorney's fees and litigation expenses. The complaint was later amend
ed to include Monte de Piedad as an "unwilling defendant." Answering the complai
nt, Fidelity, among other things, averred that the policy was avoided by reason
of over-insurance, that Verendia maliciously represented that the building at th
e time of the fire was leased under a contract executed on 25 June 1980 to a cer
tain Roberto Garcia, when actually it was a Marcelo Garcia who was the lessee. O
n 24 May 1983, the trial court rendered a decision, per Judge Rodolfo A. Ortiz,
ruling in favor of Fidelity. In sustaining the defenses set up by Fidelity, the
trial court ruled that Paragraph 3 of the policy was also violated by Verendia i
n that the insured failed to inform Fidelity of his other insurance coverages wi
th Country Bankers Insurance and Development Insurance. Verendia appealed to the
then Intermediate Appellate Court and in a decision promulgated on 31 March 198
6, (CA-GR CV 02895, Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appella
te court reversed for the following reasons: (a) there was no misrepresentation
concerning the lease for the contract was signed by Marcelo Garcia in the name o
f Roberto Garcia; and (b) Paragraph 3 of the policy contract requiring Verendia
to give notice to Fidelity of other contracts of insurance was waived by Fidelit
y as shown by its conduct in attempting to settle the claim of Verendia. Fidelit
y received a copy of the appellate court's decision on 4 April 1986, but instead
of directly filing a motion for reconsideration within 15 days therefrom, Fidel
ity filed on 21 April 1986, a motion for extension of 3 days within which to fil
e a motion for reconsideration. The motion for extension was not filed on 19 Apr
il 1986 which was the 15th day after receipt of the decision because said 15th d
ay was a Saturday and of course, the following day was a Sunday. The motion for
extension was granted by the appellate court on 30 April 1986, but Fidelity had
in the meantime filed its motion for reconsideration on 24 April 1986. Verendia
filed a motion to expunge from the record Fidelity's motion for reconsideration
on the ground that the motion for extension was filed out of time because the 15
th day from receipt of the decision which fell on a Saturday was ignored by Fide
lity, for indeed, so Verendia contended, the Intermediate Appellate Court has pe
rsonnel receiving pleadings even on Saturdays. The motion to expunge was denied
on 17 June 1986 and after a motion for reconsideration was similarly brushed asi
de on 22 July 1986, a petition (GR 75605) was initiated. Subsequently, or more s
pecifically on 21 October 1986, the appellate court denied Fidelity's motion for
reconsideration and account thereof. Fidelity filed on 31 March 1986, the petit
ion for review on certiorari (GR 76399). The two petitions, inter-related as the
y are, were consolidated and thereafter given due course. Issue: Whether Verandi
a forfeited all benefits due to his presentation of a false declaration to suppo
rt his claim. Held: The contract of lease upon which Verendia relies to support
his claim for insurance benefits, was entered into between him and one Robert Ga
rcia, married to Helen Cawinian, on 25 June 1980, a couple of days after the eff
ectivity of the insurance policy. When the rented residential building was razed
to the ground on 28 December 1980, it appears that Robert Garcia (or Roberto Ga
rcia) was still within the premises. However, according to the investigation rep
ort prepared by Pat. Eleuterio M. Buenviaje of the Antipolo police, the building
appeared to have "no occupant" and that Mr. Roberto Garcia was "renting on the
otherside
Commercial Law Insurance Law, 2006 ( 1 )

(sic) portion of said compound.". These pieces of evidence belie Verendia's unco
rroborated testimony that Marcelo Garcia whom he considered as the real lessee,
was occupying the building when it was burned. Robert Garcia disappeared after t
he fire. It was only on 9 October 1981 that an adjuster was able to locate him.
Robert Garcia then executed an affidavit before the National Intelligence and Se
curity Authority (NISA) to the effect that he was not the lessee of Verendia's h
ouse and that his signature on the contract of lease was a complete forgery. Thu
s, on the strength of these facts, the adjuster submitted a report dated 4 Decem
ber 1981 recommending the denial of Verendia's claim. Ironically, during the tri
al, Verendia admitted that it was not Robert Garcia who signed the lease contrac
t. According to Verendia, it was signed by Marcelo Garcia cousin of Robert, who
had been paying the rentals all the while. Verendia, however, failed to explain
why Marcelo had to sign his cousin's name when he in fact was paying for the ren
t and why Verendia himself, the lessor, allowed such a ruse. Fidelity's conclusi
ons on these proven facts appear, therefore, to have sufficient bases: Verendia
concocted the lease contract to deflect responsibility for the fire towards an a
lleged "lessee", inflated the value of the property by the alleged monthly renta
l of P6,500 when in fact, the Provincial Assessor of Rizal had assessed the prop
erty's fair market value to be only P40,300.00, insured the same property with t
wo other insurance companies for a total coverage of around P900,000, and create
d a dead-end for the adjuster by the disappearance of Robert Garcia. Basically a
contract of indemnity, an insurance contract is the law between the parties. It
s terms and conditions constitute the measure of the insurer's liability and com
pliance therewith is a condition precedent to the insured's right to recovery fr
om the insurer. As it is also a contract of adhesion, an insurance contract shou
ld be liberally construed in favor of the insured and strictly against the insur
er company which usually prepares it. Considering, however, the foregoing discus
sion pointing to the fact that Verendia used a false lease contract to support h
is claim under Fire Insurance Policy F-18876, the terms of the policy should be
strictly construed against the insured. Verendia failed to live by the terms of
the policy, specifically Section 13 thereof which is expressed in terms that are
clear and unambiguous, that all benefits under the policy shall be forfeited "i
f the claim be in any respect fraudulent, or if any false declaration be made or
used in support thereof, or if any fraudulent means or devises are used by the
Insured or anyone acting in his behalf to obtain any benefit under the policy".
Verendia, having presented a false declaration to support his claim for benefits
in the form of a fraudulent lease contract, he forfeited all benefits therein b
y virtue of Section 13 of the policy in the absence of proof that Fidelity waive
d such provision. Worse yet, by presenting a false lease contract, Verendia repr
ehensibly disregarded the principle that insurance contracts are uberrimae fidae
and demand the most abundant good faith. 2 Rizal Surety & Insurance Company vs.
Court of Appeals [GR 112360, 18 June 2000] Third Division, Purisima (J): 4 conc
ur Facts: On 13 March 1980, Rizal Surety & Insurance Company (Rizal Insurance) i
ssued Fire Insurance Policy 45727 in favor of Transworld Knitting Mills, Inc. (T
ransworld), initially for P1,000,000.00 and eventually increased to P1,500,000.0
0, covering the period from 14 August 1980 to 13 March 1981. The same pieces of
property insured with Rizal Insurance were also insured with New India Assurance
Company, Ltd., (New India). On 12 January 1981, fire broke out in the compound
of Transworld, razing the middle portion of its four-span building and partly gu
tting the left and right sections thereof. A two-storey building (behind said fo
ur-span building) where fun and amusement machines and spare parts were stored,
was also destroyed by the fire. Transworld filed its insurance claims with Rizal
Insurance and New India but to no avail. On 26 May 1982, TransWorld brought aga
inst the said insurance companies an action for collection of sum of money and d
amages (Civil Case 46106) before Branch 161 of the then Court of First Instance
of Rizal; praying for judgment ordering Rizal Insurance and New India to pay the
amount of P2,747,867.00 plus legal interest, P400,000.00 as attorney's fees, ex
emplary damages, expenses of litigation of P50,000.00 and costs of suit. Rizal I
nsurance countered that its fire insurance policy sued upon covered only the con
tents of the four-span building, which was partly burned, and not the damage cau
sed by the fire on the two-storey annex building. On 4 January 1990, the trial c
ourt rendered its decision; dismissing the case as against New India; ordering R
izal Insurance to pay Transworld the amount of P826,500.00 representing the actu
al value of the losses suffered by it; and with cost against Rizal Insurance. Bo
th Rizal Insurance and TransWorld went to the Court

of Appeals, which came out with its decision of 15 July 1993, modifying the lowe
r court's decision by requiring New India to pay Transworld the amount of P1,818
,604.19; and Rizal Surety to pay Transworld P470,328.67, based on the actual los
ses sustained by Transworld in the fire, totalling P2,790,376.00 as against the
amounts of fire insurance coverages respectively extended by New India in the am
ount of P5,800,000.00 and Rizal Surety and Insurance Company in the amount of P1
,500,000.00. On 20 August 1993, from the aforesaid judgment of the Court of Appe
als, New India appealed to the Supreme Court theorizing inter alia that the Tran
sWorld could not be compensated for the loss of the fun and amusement machines a
nd spare parts stored at the two-storey building because it (Transworld) had no
insurable interest in said goods or items. On 2 February 1994, the Court denied
the appeal with finality in GR L-111118 (New India Assurance Company Ltd. vs. Co
urt of Appeals). Rizal Insurance and TransWorld, on the other hand, interposed a
Motion for Reconsideration before the Court of Appeals, and on 22 October 1993,
the Court of Appeals reconsidered its decision of 15 July 1993, as regards the
imposition of interest on the assessment against New India on the amount of P1,8
18,604.19 and that against Rizal Insurance on the amount of P470,328.67, commenc
es from 26 May 1982 when the complaint was filed until payment is made. The rest
of the said decision was retained in all other respects. Rizal Insurance filed
the petition for review on certiorari. Issue [1]: Whether the fire insurance pol
icy litigated upon protected only the contents of the main building (four-span),
and did not include those stored in the two-storey annex building; or whether t
he so called "annex" was not an annex but was actually an integral part of the f
our-span building and therefore, the goods and items stored therein were covered
by the same fire insurance policy. Held [1]: INCLUDES 2-STORY ANNEX BUILDING. T
he stipulation in subject fire insurance policy regarding its coverage, reads "c
ontained and/or stored during the currency of this Policy in the premises occupi
ed by them forming part of the buildings situated within own Compound." Therefro
m, it can be gleaned unerringly that the fire insurance policy in question did n
ot limit its coverage to what were stored in the fourspan building. The two-stor
ey building involved a permanent structure, which adjoins and intercommunicates
with the "first right span of the lofty storey building", formed part thereof, a
nd meets the requisites for compensability under the fire insurance policy sued
upon. So also, considering that the two-storey building aforementioned was alrea
dy existing when subject fire insurance policy contract was entered into on 12 J
anuary 1981, having been constructed sometime in 1978, Rizal Insurance should ha
ve specifically excluded the said two-storey building from the coverage of the f
ire insurance if minded to exclude the same but it did not, and instead, went on
to provide that such fire insurance policy covers the products, raw materials a
nd supplies stored within the premises of Transworld which was an integral part
of the four-span building occupied by Transworld, knowing fully well the existen
ce of such building adjoining and intercommunicating with the right section of t
he four-span building. Issue [2]: Whether the ambiguity in fire insurance policy
should be resolved against Rizal Surety. Held [2]: YES. The stipulation as to t
he coverage of the fire insurance policy under controversy has created a doubt r
egarding the portions of the building insured thereby. Article 1377 of the New C
ivil Code provides that "The interpretation of obscure words or stipulations in
a contract shall not favor the party who caused the obscurity." Conformably, it
stands to reason that the doubt should be resolved against Rizal Insurance, whos
e lawyer or managers drafted the fire insurance policy contract under scrutiny.
Citing the aforecited provision of law in point, the Court in Landicho vs. Gover
nment Service Insurance System, ruled that "as regards insurance policies, in re
spect of which it is settled that the 'terms in an insurance policy, which are a
mbiguous, equivocal, or uncertain are to be construed strictly and most strongly
against the insurer, and liberally in favor of the insured so as to effect the
dominant purpose of indemnity or payment to the insured, especially where forfei
ture is involved' (29 Am. Jur., 181), and the reason for this is that the 'insur
ed usually has no voice in the selection or arrangement of the words employed an
d that the language of the contract is selected with great care and deliberation
by experts and legal advisers employed by, and acting exclusively in the intere
st of, the insurance company.' (44 C.J.S., p. 1174)." Equally relevant is the fo
llowing disquisition of the Court in

Fieldmen's Insurance Company, Inc. vs. Vda. De Songco, where it was held that th
e "rigid application of the rule on ambiguities has become necessary in view of
current business practices. The courts cannot ignore that nowadays monopolies, c
artels and concentration of capital, endowed with overwhelming economic power, m
anage to impose upon parties dealing with them cunningly prepared 'agreements' t
hat the weaker party may not change one whit, his participation in the 'agreemen
t' being reduced to the alternative to 'take it or leave it' labelled since Raym
ond Saleilles 'contracts by adherence' (contrats [sic] d'adhesion), in contrast
to these entered into by parties bargaining on an equal footing, such contracts
(of which policies of insurance and international bills of lading are prime exam
ple) obviously call for greater strictness and vigilance on the part of courts o
f justice with a view to protecting the weaker party from abuses and imposition,
and prevent their becoming traps for the unwary." 3 Philamcare Health Systems I
nc. vs. Court of Appeals [GR 125678, 18 March 2002] First Division, Ynares-Santi
ago (J): 3 concur See also case entry 13 Facts: Ernani Trinos, deceased husband
of Julita Trinos, applied for a health care coverage with Philamcare Health Syst
ems, Inc. In the standard application form, he answered no to the following ques
tion: "Have you or any of your family members ever consulted or been treated for
high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or
peptic ulcer? (If Yes, give details). " The application was approved for a perio
d of one year from 1 March 1988 to 1 March 1989. Accordingly, he was issued Heal
th Care Agreement P010194. Under the agreement, Trinos' husband was entitled to
avail of hospitalization benefits, whether ordinary or emergency, listed therein
. He was also entitled to avail of "out-patient benefits" such as annual physica
l examinations, preventive health care and other out-patient services. Upon the
termination of the agreement, the same was extended for another year from 1 Marc
h 1989 to 1 March 1990, then from 1 March 1990 to 1 June 1990. The amount of cov
erage was increased to a maximum sum of P75,000.00 per disability. During the pe
riod of his coverage, Ernani suffered a heart attack and was confined at the Man
ila Medical Center (MMC) for one month beginning 9 March 1990. While her husband
was in the hospital, Trinos tried to claim the benefits under the health care a
greement. However, Philamcare denied her claim saying that the Health Care Agree
ment was void. According to Philamcare, there was a concealment regarding Ernani
's medical history. Doctors at the MMC allegedly discovered at the time of Ernan
i's confinement that he was hypertensive, diabetic and asthmatic, contrary to hi
s answer in the application form. Thus, Trinos paid the hospitalization expenses
herself, amounting to about P76,000.00. After her husband was discharged from t
he MMC, he was attended by a physical therapist at home. Later, he was admitted
at the Chinese General Hospital. Due to financial difficulties, however, Trinos
brought her husband home again. In the morning of 13 April 1990, Ernani had feve
r and was feeling very weak. Trinos was constrained to bring him back to the Chi
nese General Hospital where he died on the same day. On 24 July 1990, Trinos ins
tituted with the Regional Trial Court of Manila, Branch 44, an action for damage
s against Philamcare and its president, Dr. Benito Reverente (Civil Case 90 5379
5). She asked for reimbursement of her expenses plus moral damages and attorney'
s fees. After trial, the lower court ruled against Philamcare and Reverente, ord
ering them to pay and reimburse the medical and hospital coverage of the late Er
nani Trinos in the amount of P76,000.00 plus interest, until the amount is fully
paid to plaintiff who paid the same; the reduced amount of moral damages of P10
,000.00 to Trinos; the reduced amount of P10,000.00 as exemplary damages to Trin
os; and the attorney's fees of P20,000.00, plus costs of suit. On appeal, the Co
urt of Appeals affirmed the decision of the trial court but deleted all awards f
or damages and absolved Reverente. Philamcare's motion for reconsideration was d
enied. Hence, Philamcare brought the petition for review, raising the primary ar
gument that a health care agreement is not an insurance contract; hence the "inc
ontestability clause" under the Insurance Code does not apply. Issue [1]: Whethe
r a health care agreement between Philamcare and Ernani Trinos is an insurance c
ontract. Held [1]: YES. Section 2 (1) of the Insurance Code defines a contract o
f insurance as an agreement whereby


one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. An insurance contract exi
sts where the following elements concur: (1) The insured has an insurable intere
st; (2) The insured is subject to a risk of loss by the happening of the designa
ted peril; (3) The insurer assumes the risk; (4) Such assumption of risk is part
of a general scheme to distribute actual losses among a large group of persons
bearing a similar risk; and (5) In consideration of the insurer's promise, the i
nsured pays a premium. Section 3 of the Insurance Code states that any contingen
t or unknown event, whether past or future, which may damnify a person having an
insurable interest against him, may be insured against. Every person has an ins
urable interest in the life and health of himself. Section 10 provides that "Eve
ry person has an insurable interest in the life and health: (1) of himself, of h
is 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 a
ny person under a legal obligation to him for the payment of money, respecting p
roperty or service, of which death or illness might delay or prevent the perform
ance; and (4) of any person upon whose life any estate or interest vested in him
depends." Herein, the insurable interest of Trinos' husband in obtaining the he
alth care agreement was his own health. The health care agreement was in the nat
ure of non-life insurance, which is primarily a contract of indemnity. Once the
member incurs hospital, medical or any other expense arising from sickness, inju
ry or other stipulated contingent, the health care provider must pay for the sam
e to the extent agreed upon under the contract. Issue [2]: Whether answers made
in good faith, where matters of opinion or judgment are called for, without inte
nt to deceive will avoid a policy when they were untrue. Held [2]: NO. Where mat
ters of opinion or judgment are called for, answers made in good faith and witho
ut intent to deceive will not avoid a policy even though they are untrue. Thus,
although false, a representation of the expectation, intention, belief, opinion,
or judgment of the insured will not avoid the policy if there is no actual frau
d in inducing the acceptance of the risk, or its acceptance at a lower rate of p
remium, 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 ca
se the insurer is not justified in relying upon such statement, but is obligated
to make further inquiry. There is a clear distinction between such a case and o
ne in which the insured is fraudulently and intentionally states to be true, as
a matter of expectation or belief, that which he then knows, to be actually untr
ue, or the impossibility of which is shown by the facts within his knowledge, si
nce in such case the intent to deceive the insurer is obvious and amounts to act
ual fraud. The fraudulent intent on the part of the insured must be established
to warrant rescission of the insurance contract. Concealment as a defense for th
e health care provider or insurer to avoid liability is an affirmative defense a
nd the duty to establish such defense by satisfactory and convincing evidence re
sts upon the provider or insurer. In any case, with or without the authority to
investigate, Philamcare is liable for claims made under the contract. Having ass
umed a responsibility under the agreement, Philamcare is bound to answer the sam
e to the extent agreed upon. In the end, the liability of the health care provid
er 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 prepai
d. Issue [3]: Whether rescission must be exercised before commencement of an act
ion on the contract. Held [3]: YES. Under Section 27 of the Insurance Code, "a c
oncealment entitles the injured party to rescind a contract of insurance." The r
ight to rescind should be exercised previous to the commencement of an action on
the contract. Herein, no rescission was made. Besides, the cancellation of heal
th care agreements as in insurance policies require the concurrence of the follo
wing conditions: (1) Prior notice of cancellation to insured; (2) Notice must be
based on the occurrence after effective date of the policy of one or more of th
e 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 provi
ded in Section 64 of the Insurance Code and upon request of insured, to furnish
facts on which cancellation is based. None of the above pre-conditions was fulfi
lled in this case. When the terms of insurance contract contain limitations on l
iability, courts should construe them in such a way as to preclude the insurer f
rom non-compliance with his obligation. Being a contract of adhesion,

the terms of an insurance contract are to be construed strictly against the part
y 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 must be strictly interpreted against the insurer and liberally in fav
or of the insured, especially to avoid forfeiture. This is equally applicable to
Health Care Agreements. Issue [4]: Whether the membership of the late Trinos is
now incontestable. Held [4]: YES. Under the title Claim procedures of expenses,
Philamcare had twelve months from the date of issuance of the Agreement within
which to contest the membership of the patient if he had previous ailment of ast
hma, and six months from the issuance of the agreement if the patient was sick o
f diabetes or hypertension. The periods having expired, the defense of concealme
nt or misrepresentation no longer lie. 4 Fortune Insurance and Surety Co. Inc. v
s. Court of Appeals [GR 115278, 23 May 1995] First Division, Davide Jr (J): 2 co
ncur, 1 took no part, 1 on leave
Facts: Producers Bank of the Philippines was insured by the Fortune Insurance an
d Surety Co. Inc. and an insurance policy was issued. An armored car of Producer
s, while in the process of transferring cash in the sum of P725,000.00 under the
custody of its teller, Maribeth Alampay, from its Pasay Branch to its Head Offi
ce at 8737 Paseo de Roxas, Makati, Metro Manila on 29 June 1987, was robbed of t
he said cash. The robbery took place while the armored car was traveling along T
aft Avenue in Pasay City. The said armored car was driven by Benjamin Magalong y
de Vera, escorted by Security Guard Saturnino Atiga y Rosete. Driver Magalong w
as assigned by PRC Management Systems with Producers by virtue of an Agreement e
xecuted on 7 August 1983. The Security Guard Atiga was assigned by Unicorn Secur
ity Services, Inc. with Producers by virtue of a contract of Security Service ex
ecuted on 25 October 1982. After an investigation conducted by the Pasay police
authorities, the driver Magalong and guard Atiga were charged, together with Ede
lmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of PD 532
(Anti-Highway Robbery Law) before the Fiscal of Pasay City. The Fiscal of Pasay
City then filed an information charging the aforesaid persons with the said crim
e before Branch 112 of the Regional Trial Court of Pasay City. The case is still
being tried as of the date of filing of the present case. Demands were made by
Producers upon Fortune to pay the amount of the loss of P725,000.00, but the lat
ter refused to pay as the loss is excluded from the coverage of the insurance po
licy, specifically under page 1 thereof, "General Exceptions" Section (b), and w
hich reads as follows: "GENERAL EXCEPTIONS The company shall not be liable under
this policy in respect of xxx (b) any loss caused by any dishonest, fraudulent
or criminal act of the insured or any officer, employee, partner, director, trus
tee or authorized representative of the Insured whether acting alone or in conju
nction with others..." Producers opposed the contention of Fortune and contended
that Atiga and Magalong are not its "officer, employee, trustee or authorized r
epresentative at the time of the robbery. On 26 April 1990, the trial court rend
ered its decision in favor of Producers. It ordered Fortune to pay Producers the
net amount of P540,000.00 as liability under Policy 0207 (as mitigated by the P
40,000.00 special clause deduction and by the recovered sum of P145,000.00), wit
h interest thereon at the legal rate, until fully paid; the sum of P30,000.00 as
and for attorney's fees; and to pay the costs of suit. Fortune appealed this de
cision to the Court of Appeals (CA-GR CV 32946). In its decision promulgated on
3 May 1994, it affirmed in toto the appealed decision. On 20 June 1994, Fortune
filed the petition for review on certiorari. Issue: Whether Fortune is liable un
der the Money, Security, and Payroll Robbery policy it issued to the issued to P
roducers or whether recovery thereunder is precluded under the general exception
s clause thereof. Held: It should be noted that the insurance policy entered int
o by the parties is a theft or robbery insurance policy which is a form of casua
lty insurance. Section 174 of the Insurance Code provides that "Casualty insuran
ce is insurance covering loss or liability arising from accident or mishap, excl
uding certain types of loss which by law or custom are considered as falling exc
lusively within the scope of insurance such as fire or marine. It includes, but
is not limited to, employer's liability insurance, public liability insurance, m
otor

vehicle liability insurance, plate glass insurance, burglary and theft insurance
, personal accident and health insurance as written by non-life insurance compan
ies, and other substantially similar kinds of insurance." Except with respect to
compulsory motor vehicle liability insurance, the Insurance Code contains no ot
her provisions applicable to casualty insurance or to robbery insurance in parti
cular. These contracts are, therefore, governed by the general provisions applic
able to all types of insurance. Outside of these, the rights and obligations of
the parties must be determined by the terms of their contract, taking into consi
deration its purpose and always in accordance with the general principles of ins
urance law. It has been aptly observed that in burglary, robbery, and theft insu
rance, "the opportunity to defraud the insurer the moral hazard is so great that
insurers have found it necessary to fill up their policies with countless restr
ictions, many designed to reduce this hazard. Seldom does the insurer assume the
risk of all losses due to the hazards insured against." Persons frequently excl
uded under such provisions are those in the insured's service and employment. Th
e purpose of the exception is to guard against liability should the theft be com
mitted by one having unrestricted access to the property." In such cases, the te
rms specifying the excluded classes are to be given their meaning as understood
in common speech. The terms "service" and "employment" are generally associated
with the idea of selection, control, and compensation. A contract of insurance i
s a contract of adhesion, thus any ambiguity therein should be resolved against
the insurer, or it should be construed liberally in favor of the insured and str
ictly against the insurer. Limitations of liability should be regarded with extr
eme jealousy and must be construed in such a way as to preclude the insurer from
non-compliance with its obligation. It goes without saying then that if the ter
ms of the contract are clear and unambiguous, there is no room construction and
such terms cannot be enlarged or diminished by judicial construction. An insuran
ce contract is a contract of indemnity upon the terms and conditions specified t
herein. It is settled that the terms of the policy constitute the measure of the
insurer's liability. In the absence of statutory prohibition to the contrary, i
nsurance companies have the same rights as individuals to limit their liability
and to impose whatever conditions they deem best upon their obligations not inco
nsistent with public policy. Insofar as Fortune is concerned, it was its intenti
on to exclude and exempt from protection and coverage losses arising from dishon
est, fraudulent, or criminal acts of persons granted or having unrestricted acce
ss to Producers' money or payroll. When it used then the term "employee," it mus
t have had in mind any person who qualifies as such as generally and universally
understood, or jurisprudentially established in the light of the four standards
in the determination of the employer-employee relationship, or as statutorily d
eclared even in a limited sense as in the case of Article 106 of the Labor Code
which considers the employees under a "laboronly" contract as employees of the p
arty employing them and not of the party who supplied them to the employer. Stil
l, howsoever viewed, Producers entrusted the three with the specific duty to saf
ely transfer the money to its head office, with Alampay to be responsible for it
s custody in transit; Magalong to drive the armored vehicle which would carry th
e money; and Atiga to provide the needed security for the money, the vehicle, an
d his two other companions. In short, for these particular tasks, the three acte
d as agents of Producers. A "representative" is defined as one who represents or
stands in the place of another; one who represents others or another in a speci
al capacity, as an agent, and is interchangeable with "agent." In view of the fo
regoing, Fortune is exempt from liability under the general exceptions clause of
the insurance policy. 5 Enriquez vs. Sun Life Assurance Company of Canada [GR 1
5895, 29 November 1920] En Banc, Malcolm (J): 4 concur, 1 dissents
Facts: On 24 September 1917, Joaquin Herrer made application to the Sun Life Ass
urance Company of Canada through its office in Manila for a life annuity. Two da
ys later he paid the sum of P6,000 to the manager of the company's Manila office
and was given a receipt. The application was immediately forwarded to the head
office of the company at Montreal, Canada. On 26 November 1917, the head office
gave notice of acceptance by cable to Manila. (Whether on the same day the cable
was received notice was sent by the Manila office to Herrer that the applicatio
n had been accepted, is a disputed point.) On 4 December 1917, the policy was is
sued at Montreal. On 18 December 1917, attorney Aurelio A. Torres wrote to the M
anila office of the company stating that Herrer desired to withdraw his applicat
ion. The following day the local office replied to Mr. Torres, stating that the
policy had been issued, and called attention to the notification of 26

November 1917. This letter was received by Mr. Torres on the morning of 21 Decem
ber 1917. Mr. Herrer died on 20 December 1917. An action was brought by Rafaek E
nriquez as administrator of the estate of the late Joaquin Ma. Herrer to recover
from Sun Life Assurance Company of Canada the sum of P6,000 paid by the decease
d for a life annuity. The trial court gave judgment for Sun Life. Enriquez appea
led. Issue: Whether Herrer received notice of acceptance of his application, to
hold that the contract for a life annuity was perfected. Held: NO. The letter of
26 November 1917, notifying Mr. Ferrer that his application had been accepted,
was prepared and signed in the local office of the insurance company, was placed
in the ordinary channels for transmission, but was never actually mailed and th
us was never received by the applicant. The Civil Code rule, that an acceptance
made by letter shall bind the person making the offer only from the date it came
to his knowledge, may not be the best expression of modern commercial usage. St
ill it must be admitted that its enforcement avoids uncertainty and tends to sec
urity. Not only this, but in order that the principle may not be taken too light
ly, it is identical with the principles announced by a considerable number of re
spectable, courts in the United States. The courts who take this view have expre
ssly held that an acceptance of an offer of insurance not actually or constructi
vely communicated to the proposer does not make a contract. Only the mailing of
acceptance, it has been said, completes the contract of insurance, as the locus
poienitentise is ended when the acceptance has passed beyond the control of the
party. In resume, therefore, the law applicable to the case is found to be the s
econd paragraph of article 1262 of the Civil Code providing that an acceptance m
ade by letter shall not bind the person making the offer except from the time it
came to his knowledge. The pertinent fact is, that according to the provisional
receipt, three things had to be accomplished by the insurance company before th
ere was a contract: (1) There had to be a medical examination of the applicant;
(2) there had to be approval of the application by the head office of the compan
y; and (3) this approval had in some way to be communicated by the company to th
e applicant. The further admitted facts are that the head office in Montreal did
accept the application, did cable the Manila office to that effect, did actuall
y issue the policy and did, through its agent in Manila, actually write the lett
er of notification and place it in the usual channels for transmission to the ad
dressee. The fact as to the letter of notification thus fails to concur with the
essential elements of the general rule pertaining to the mailing and delivery o
f mail matter as announced by the American courts, namely, when a letter or othe
r mail matter is addressed and mailed with postage prepaid there is a rebuttable
presumption of fact that it was received by the addressee as soon as it could h
ave been transmitted to him in the ordinary course of the mails. But if any one
of these elemental facts fails to appear, it is fatal to the presumption. For in
stance, a letter will not be presumed to have been received by the addressee unl
ess it is shown that it was deposited in the post-office, properly addressed and
stamped. The contract for a life annuity in the case at bar was not perfected b
ecause it has not been proved satisfactorily that the acceptance of the applicat
ion ever came to the knowledge of the applicant. 6 Development Bank of the Phili
ppines vs. Court of Appeals [GR 109937, 21 March 1994] First Division, Quiason (
J): 4 concur
Facts: In May 1987, Juan B. Dans, together with his wife Candida, his son and da
ughter-in-law, applied for a loan of P500,000.00 with the Development Bank of th
e Philippines (DBP), Basilan Branch. As the principal mortgagor, Dans, then 76 y
ears of age, was advised by DBP to obtain a mortgage redemption insurance (MRI)
with the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool). A loan, in the r
educed amount of P300,000.00, was approved by DBP on 4 August 1987 and released
on 11 August 1987. From the proceeds of the loan, DBP deducted the amount of P1,
476.00 as payment for the MRI premium. On 15 August 1987, Dans accomplished and
submitted the "MRI Application for Insurance" and the "Health Statement for DBP
MRI Pool." On 20 August 1987, the MRI premium of Dans, less the DBP service fee
of 10%, was credited by DBP to the savings account of the DBP MRI Pool. Accordin
gly, the DBP MRI Pool was advised of the credit. On 3 September 1987, Dans died
of cardiac arrest. The DBP, upon notice, relayed this information to the DBP MRI
Pool. On 23 September 1987, the DBP MRI Pool notified DBP that Dans was not eli
gible for MRI

coverage, being over the acceptance age limit of 60 years at the time of applica
tion. On 21 October 1987, DBP apprised Candida Dans of the disapproval of her la
te husband's MRI application. The DBP offered to refund the premium of P1,476.00
which the deceased had paid, but Candida Dans refused to accept the same, deman
ding payment of the face value of the MRI or an amount equivalent to the loan. S
he, likewise, refused to accept an ex gratia settlement of P30,000.00, which the
DBP later offered. On 10 February 1989, the Estate of the Late Juan B. Dans, th
rough Candida Dans as administratrix, filed a complaint with the Regional Trial
Court, Branch I, Basilan, against DBP and the insurance pool for collection of S
um of Money with Damages. On 10 March 1990, the trial court rendered a decision
in favor of the Estate and against DBP. The DBP MRI Pool, however, was absolved
from liability, after the trial court found no privity of contract between it an
d the deceased. The trial court declared DBP in estoppel for having led Dans int
o applying for MRI and actually collecting the premium and the service fee, desp
ite knowledge of his age ineligibility. The court ordered DBP to return and reim
burse the Estate the amount of P139,500.00 plus legal rate of interest as amorti
zation payment paid under protest; to consider the mortgage loan of P300,000.00
including all interest accumulated or otherwise to have been settled, satisfied
or set-off by virtue of the insurance coverage of the late Juan B. Dans; to pay
the Estate the amount of P10,000.00 as attorney's fees; to pay the Estate the am
ount of P10,000.00 as costs of litigation and other expenses, and other relief j
ust and equitable. The DBP appealed to the Court of Appeals. In a decision dated
7 September 1992, the appellate court affirmed in toto the decision of the tria
l court. The DBP's motion for reconsideration was denied in a resolution dated 2
0 April 1993. DBP filed the petition for review on certiorari. Issue [1]: Whethe
r there was a perfected contract of insurance for DBP MRI Pool to be held liable
. Held [1]: NO. When Dans applied for MRI, he filled up and personally signed a
"Health Statement for DBP Pool" with the following declaration: "I hereby declar
e and agree that all the statements and answers contained herein are true, compl
ete and correct to the best of my knowledge and belief and form part of my appli
cation for insurance. It is understood and agreed that no insurance coverage sha
ll be effected unless and until this application is approved and the full premiu
m is paid during my continued good health." Under the aforementioned provisions,
the MRI coverage shall take effect: (1) when the application shall be approved
by the insurance pool; and (2) when the full premium is paid during the continue
d good health of the applicant. These two conditions, being joined conjunctively
, must concur. Undisputably, the power to approve MRI applications is lodged wit
h the DBP MRI Pool. The pool, however, did not approve the application of Dans.
There is also no showing that it accepted the sum of P1,476.00, which DBP credit
ed to its account with full knowledge that it was payment for Dan's premium. The
re was, as a result, no perfected contract of insurance; hence, the DBP MRI Pool
cannot be held liable on a contract that does not exist. Issue [2]: Whether DBP
is liable for the entire value of the insurance policy, as it led Dans to belie
ve that he has fulfilled all the requirements for the MRI and that the issuance
of his policy was forthcoming. Held [2]: It was DBP, as a matter of policy and p
ractice, that required Dans, the borrower, to secure MRI coverage. Instead of al
lowing Dans to look for his own insurance carrier or some other form of insuranc
e policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. Whe
n Dan's loan was released on 11 August 1987, DBP already deducted from the proce
eds thereof the MRI premium. Four days latter, DBP made Dans fill up and sign hi
s application for MRI, as well as his health statement. The DBP later submitted
both the application form and health statement to the DBP MRI Pool at the DBP Ma
in Building, Makati Metro Manila. As service fee, DBP deducted 10% of the premiu
m collected by it from Dans. In dealing with Dans, DBP was wearing two legal hat
s: the first as a lender, and the second as an insurance agent. As an insurance
agent, DBP made Dans go through the motion of applying for said insurance, there
by leading him and his family to believe that they had already fulfilled all the
requirements for the MRI and that the issuance of their policy was forthcoming.
Apparently, DBP had full knowledge that Dan's application was never going to be
approved. The maximum age for MRI acceptance is 60 years as clearly and specifi
cally provided in Article 1 of the Group Mortgage Redemption Insurance Policy si
gned in 1984 by all the insurance

companies concerned. The DBP is not authorized to accept applications for MRI wh
en its clients are more than 60 years of age. Knowing all the while that Dans wa
s ineligible for MRI coverage because of his advanced age, DBP exceeded the scop
e of its authority when it accepted Dan's application for MRI by collecting the
insurance premium, and deducting its agent's commission and service fee. The lia
bility of an agent who exceeds the scope of his authority depends upon whether t
he third person is aware of the limits of the agent's powers. There is no showin
g that Dans knew of the limitation on DBP's authority to solicit applications fo
r MRI. If the third person dealing with an agent is unaware of the limits of the
authority conferred by the principal on the agent and he (third person) has bee
n deceived by the non-disclosure thereof by the agent, then the latter is liable
for damages to him. The DBP's liability, however, cannot be for the entire valu
e of the insurance policy. To assume that were it not for DBP's concealment of t
he limits of its authority, Dans would have secured an MRI from another insuranc
e company, and therefore would have been fully insured by the time he died, is h
ighly speculative. Considering his advanced age, there is no absolute certainty
that Dans could obtain an insurance coverage from another company. It must also
be noted that Dans died almost immediately, i.e., on the nineteenth day after ap
plying for the MRI, and on the twenty-third day from the date of release of his
loan. 7 Great Pacific Life Assurance Company vs. Court of Appeals [GR L-31845, 3
0 April 1979]; also Mondragon vs. Court of Appeals [GR L-31878] First Division,
De Castro (J): 4 concur, 1 took no part See case entry 17 Facts: On 14 March 195
7, Ngo Hing filed an application with the Great Pacific Life Assurance Company f
or a 20-year endowment policy in the amount of P50,000.00 on the life of his one
-year old daughter Helen Go. Ngo Hing supplied the essential data which Lapulapu
D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the corr
esponding form in his own handwriting . Mondragon finally type-wrote the data on
the application form which was signed by Ngo Hing. The latter paid the annual p
remium, the sum of P1,077.75 going over to the Company, but he retained the amou
nt of P1,317.00 as his commission for being a duly authorized agent of Pacific L
ife. Upon the payment of the insurance premium, the binding deposit receipt was
issued to Ngo Hing. Likewise, Mondragon handwrote at the bottom of the back page
of the application form his strong recommendation for the approval of the insur
ance application. Then on 30 April 1957, Mondragon received a letter from Pacifi
c Life disapproving the insurance application. The letter stated that the said l
ife insurance application for 20-year endowment plan is not available for minors
below 7 years old, but Pacific Life can consider the same under the Juvenile Tr
iple Action Plan, and advised that if the offer is acceptable, the Juvenile NonMedical Declaration be sent to the Company. The non-acceptance of the insurance
plan by Pacific Life was allegedly not communicated by Mondragon to Ngo Hing. In
stead, on 6 May 1957, Mondragon wrote back Pacific Life again strongly recommend
ing the approval of the 20-year endowment life insurance on the ground that Paci
fic Life is the only insurance company not selling the 20year endowment insuranc
e plan to children, pointing out that since 1954 the customers, especially the C
hinese, were asking for such coverage. It was when things were in such state tha
t on 28 May 1957 Helen Go died of influenza with complication of broncho-pneumon
ia. Thereupon, Ngo Hing sought the payment of the proceeds of the insurance, but
having failed in his effort, he filed the action for the recovery of the same b
efore the Court of First Instance of Cebu, which rendered a decision against Pac
ific Life and Mondragon, orderig them to solidarily pay Ngo Hing the amount of P
50,000.00 with interest at 6% from the date of the filing of the complaint, and
the sum of P10,000.00 as attorney's fees plus costs of suits. On appeal, the Cou
rt of Appeals set aside the appealed decision of the Court of First Instance of
Cebu, and absolved Pacific Life and Mondragon from liability on the insurance po
licy, but ordered the reimbursement to Ngo Hing the amount of P1,077.75, without
interest. On reconsideration, however, the appellate court affirmed in toto the
decision of the Court of First Instance of Cebu, ordering Pacific Life and Mond
ragon jointly and severally to pay Ngo Hing. Two petitions for certiorari by way
of appeal were filed by Pacific Life and Mondragon. The petitons were consolida
ted by the Supreme Court in a resolution dated 29 April 1970.

Issue: Whether the binding deposit receipt constituted a temporary contract of t
he life insurance in question, and thus negate the claim that the insurance cont
ract was perfected. Held: YES. The provisions printed on the binding deposit rec
eipt show that the binding deposit receipt is intended to be merely a provisiona
l or temporary insurance contract and only upon compliance of the following cond
itions: (1) that the company shall be satisfied that the applicant was insurable
on standard rates; (2) that if the company does not accept the application and
offers to issue a policy for a different plan, the insurance contract shall not
be binding until the applicant accepts the policy offered; otherwise, the deposi
t shall be refunded; and (3) that if the applicant is not insurable according to
the standard rates, and the company disapproves the application, the insurance
applied for shall not be in force at any time, and the premium paid shall be ret
urned to the applicant. Clearly implied from the aforesaid conditions is that th
e binding deposit receipt in question is merely an acknowledgment, on behalf of
the company, that the latter's branch office had received from the applicant the
insurance premium and had accepted the application subject for processing by th
e insurance company; and that the latter will either approve or reject the same
on the basis of whether or not the applicant is "insurable on standard rates." S
ince Pacific Life disapproved the insurance application of Ngo Hing, the binding
deposit receipt in question had never become in force at any time. Upon this pr
emise, the binding deposit receipt is, manifestly, merely conditional and does n
ot insure outright. Where an agreement is made between the applicant and the age
nt, no liability shall attach until the principal approves the risk and a receip
t is given by the agent. The acceptance is merely conditional, and is subordinat
ed to the act of the company in approving or rejecting the application. Thus, in
life insurance, a "binding slip" or "binding receipt" does not insure by itself
. It bears repeating that through the intra-company communication of 30 April 19
57, Pacific Life disapproved the insurance application in question on the ground
that it is not offering the 20-year endowment insurance policy to children less
than 7 years of age. What it offered instead is another plan known as the Juven
ile Triple Action, which Ngo Hing failed to accept. In the absence of a meeting
of the minds between Pacific Life and Ngo Hing over the 20-year endowment life i
nsurance in the amount of P50,000.00 in favor of the latter's one-year old daugh
ter, and with the non-compliance of the abovequoted conditions stated in the dis
puted binding deposit receipt, there could have been no insurance contract duly
perfected between them. Accordingly, the deposit paid by Ngo Hing shall have to
be refunded by Pacific Life. 8 Spouses Cha vs. Court of Appeals [GR 124520, 18 A
ugust 1997] First Division, Padilla (J): 4 concur
Facts: Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease cont
ract with CKS Development Corporation, as lessor, on 5 October 1988. One of the
stipulations of the 1 year lease contract states that "The LESSEE shall not insu
re against fire the chattels, merchandise, textiles, goods and effects placed at
any stall or store or space in the leased premises without first obtaining the
written consent and approval of the LESSOR. If the LESSEE obtain(s) the insuranc
e thereof without the consent of the LESSOR then the policy is deemed assigned a
nd transferred to the LESSOR for its own benefit" Notwithstanding the above stip
ulation in the lease contract, the Cha spouses insured against loss by fire thei
r merchandise inside the leased premises for P500,000.00 with the United Insuran
ce Co., Inc. without the written consent of CKS. On the day that the lease contr
act was to expire, fire broke out inside the leased premises. When CKS learned o
f the insurance earlier procured by the Cha spouses (without its consent), it wr
ote the insurer (United) a demand letter asking that the proceeds of the insuran
ce contract (between the Cha spouses and United) be paid directly to CKS, based
on its lease contract with the Cha spouses. United refused to pay CKS. Hence, th
e latter filed a complaint against the Cha spouses and United. On 2 June 1992, t
he Regional Trial Court, Branch 6, Manila, rendered a decision ordering United t
o pay CKS the amount of P335,063.11 and the Cha spouses to pay P50,000.00 as exe
mplary damages, P20,000.00 as attorney's fees and costs of suit. On appeal, the
Court of Appeals in CA GR CV 39328 rendered a decision dated 11 January 1996, af
firming the trial court decision, deleting however the awards for exemplary dama
ges and attorney's fees. A motion for reconsideration by United was denied on 29
March 1996. The spouses Cha and United filed the petition for review on certior
ari.

Issue: Whether paragraph 18 of the lease contract entered into between CKS and t
he Cha spouses is valid insofar as it provides that any fire insurance policy ob
tained by the lessee (Cha spouses) over their merchandise inside the leased prem
ises is deemed assigned or transferred to the lessor (CKS) if said policy is obt
ained without the prior written consent of the latter. Held: NO. It is basic in
the law on contracts that the stipulations contained in a contract cannot be con
trary to law, morals, good customs, public order or public policy. Section 18 of
the Insurance Code provides that "No contract or policy of insurance on propert
y shall be enforceable except for the benefit of some person having an insurable
interest in the property insured." A non-life insurance policy such as the fire
insurance policy taken by the spouses over their merchandise is primarily a con
tract of indemnity. Insurable interest in the property insured must exist at the
time the insurance takes effect and at the time the loss occurs. The basis of s
uch requirement of insurable interest in property insured is based on sound publ
ic policy: to prevent a person from taking out an insurance policy on property u
pon which he has no insurable interest and collecting the proceeds of said polic
y in case of loss of the property. In such a case, the contract of insurance is
a mere wager which is void under Section 25 of the Insurance Code, which provide
s that "Every stipulation in a policy of Insurance for the payment of loss wheth
er the person insured has or has not any interest in the property insured, or th
at the policy shall be received as proof of such interest, and every policy exec
uted by way of gaming or wagering, is void." Herein, it cannot be denied that CK
S has no insurable interest in the goods and merchandise inside the leased premi
ses under the provisions of Section 17 of the Insurance Code which provides that
"The measure of an insurable interest in property is the extent to which the in
sured might be damnified by loss of injury thereof." Therefore, CKS cannot, unde
r the Insurance Code a special law be validly a beneficiary of the fire insuranc
e policy taken by the spouses over their merchandise. This insurable interest ov
er said merchandise remains with the insured, the Cha spouses. The automatic ass
ignment of the policy to CKS under the provision of the lease contract previousl
y quoted is void for being contrary to law and/or public policy. The proceeds of
the fire insurance policy thus rightfully belong to the spouses Nilo Cha and St
ella Uy-Cha. The insurer (United) cannot be compelled to pay the proceeds of the
fire insurance policy to a person (CKS) who has no insurable interest in the pr
operty insured. 9 Geagonia vs. Court of Appeals [GR 114427, 6 February 1995] Fir
st Division, Davide Jr. (J): 4 concur
Facts: Armando Geagonia is the owner of Norman's Mart located in the public mark
et of San Francisco, Agusan del Sur. On 22 December 1989, he obtained from Count
ry Bankers Insurance Corporation fire insurance policy No. F-14622 2 for P100,00
0.00. The period of the policy was from 22 December 1989 to 22 December 1990 and
covered the following: "Stock-in-trade consisting principally of dry goods such
as RTW's for men and women wear and other usual to assured's business." Geagoni
a declared in the policy under the subheading entitled CO-INSURANCE that Mercant
ile Insurance Co., Inc. was the co-insurer for P50,000.00. From 1989 to 1990, Ge
agonia had in his inventory stocks amounting to P392,130.50, itemized as follows
: Zenco Sales, Inc., P55,698.00; F. Legaspi Gen. Merchandise, 86,432.50; and Ceb
u Tesing Textiles, 250,000.00 (on credit); totalling P392,130.50. The policy con
tained the following condition, that "the insured shall give notice to the Compa
ny of any insurance or insurances already effected, or which may subsequently be
effected, covering any of the property or properties consisting of stocks in tr
ade, goods in process and/or inventories only hereby insured, and unless notice
be given and the particulars of such insurance or insurances be stated therein o
r endorsed in this policy pursuant to Section 50 of the Insurance Code, by or on
behalf of the Company before the occurrence of any loss or damage, all benefits
under this policy shall be deemed forfeited, provided however, that this condit
ion shall not apply when the total insurance or insurances in force at the time
of the loss or damage is not more than P200,000.00." On 27 May 1990, fire of acc
idental origin broke out at around 7:30 p.m. at the public market of San Francis
co, Agusan del Sur. Geagonia's insured stocks-in-trade were completely destroyed
prompting him to file with Country Bankers a claim under the policy. On 28 Dece
mber 1990, Country Bankers denied the claim because it found that at the time of
the loss

Geagonia's stocks-in-trade were likewise covered by fire insurance policies GA-2
8146 and GA-28144, for P100,000.00 each, issued by the Cebu Branch of the Philip
pines First Insurance Co., Inc. (PFIC). These policies indicate that the insured
was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage claus
e reading ""MORTGAGEE: Loss, if any, shall be payable to Messrs. Cebu Tesing Tex
tiles, Cebu City as their interest may appear subject to the terms of this polic
y. CO-INSURANCE DECLARED: P100,000. Phils. First CEB/F-24758" The basis of Count
ry Bankers' denial was Geagonia's alleged violation of Condition 3 of the policy
. Geagonia then filed a complaint against Country Bankers with the Insurance Com
mission (Case 3340) for the recovery of P100,000.00 under fire insurance policy
F-14622 and for attorney's fees and costs of litigation. He attached his letter
of 18 January 1991 which asked for the reconsideration of the denial. He admitte
d in the said letter that at the time he obtained Country Bankers's fire insuran
ce policy he knew that the two policies issued by the PFIC were already in exist
ence; however, he had no knowledge of the provision in Country Bankers' policy r
equiring him to inform it of the prior policies; this requirement was not mentio
ned to him by Country Bankers' agent; and had it been so mentioned, he would not
have withheld such information. He further asserted that the total of the amoun
ts claimed under the three policies was below the actual value of his stocks at
the time of loss, which was P1,000,000.00. In its decision of 21 June 1993, the
Insurance Commission found that Geagonia did not violate Condition 3 as he had n
o knowledge of the existence of the two fire insurance policies obtained from th
e PFIC; that it was Cebu Tesing Textiles which procured the PFIC policies withou
t informing him or securing his consent; and that Cebu Tesing Textile, as his cr
editor, had insurable interest on the stocks. These findings were based on Geago
nia's testimony that he came to know of the PFIC policies only when he filed his
claim with Country Bankers and that Cebu Tesing Textile obtained them and paid
for their premiums without informing him thereof. The Insurance Commission order
ed Country Bankers to pay Geagibua the sum of P100,000.00 with legal interest fr
om the time the complaint was filed until fully satisfied plus the amount of P10
,000.00 as attorney's fees. With costs. Its motion for the reconsideration of th
e decision having been denied by the Insurance Commission in its resolution of 2
0 August 1993, Country Bankers appealed to the Court of Appeals by way of a peti
tion for review (CA-GR SP 31916). In its decision of 29 December 1993, the Court
of Appeals reversed the decision of the Insurance Commission because it found t
hat Geagonia knew of the existence of the two other policies issued by the PFIC.
His motion to reconsider the adverse decision having been denied, Geagonia file
d the petition for review on certiorari. Issue [1]: Whether the non-disclosure o
f other insurance policies violate condition 3 of the policy, so as to deny Geag
onia from recovering on the policy. Held [1]: Condition 3 of Country Bankers's P
olicy F-14622 is a condition which is not proscribed by law. Its incorporation i
n the policy is allowed by Section 75 of the Insurance Code, Such a condition is
a provision which invariably appears in fire insurance policies and is intended
to prevent an increase in the moral hazard. It is commonly known as the additio
nal or "other insurance" clause and has been upheld as valid and as a warranty t
hat no other insurance exists. Its violation would thus avoid the policy. Howeve
r, in order to constitute a violation, the other insurance must be upon the same
subject matter, the same interest therein, and the same risk. The fire insuranc
e policies issued by the PFIC name Geagonia as the assured and contain a mortgag
e clause which reads: "Loss, if any, shall be payable to MESSRS. TESING TEXTILES
, Cebu City as their interest may appear subject to the terms of the policy." Th
is is clearly a simple loss payable clause, not a standard mortgage clause. The
Court concludes that (a) the prohibition in Condition 3 of the subject policy ap
plies only to double insurance, and (b) the nullity of the policy shall only be
to the extent exceeding P200,000.00 of the total policies obtained. The first co
nclusion is supported by the portion of the condition referring to other insuran
ce "covering any of the property or properties consisting of stocks in trade, go
ods in process and/or inventories only hereby insured," and the portion regardin
g the insured's declaration on the subheading CO-INSURANCE that the co-insurer i

s Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance ex
ists where the same person is insured by several insurers separately in respect
of the same subject and interest. Since the insurable interests of a mortgagor a
nd a mortgagee on the mortgaged property are distinct and separate; the two poli
cies of the PFIC do not cover the same interest as that covered

by the policy of Country Bankers, no double insurance exists. The non-disclosure
then of the former policies was not fatal to Geagonia's right to recover on Cou
ntry Bankers' policy. Issue [2]: Whether the violation of Condition 3 of the pol
icy renders the policy void. Held [2]: Unlike the "other insurance" clauses invo
lved in General Insurance and Surety Corp. vs. Ng Hua, 106 Phil. 1117 [1960], or
in Pioneer Insurance & Surety Corp. vs. Yap, 61 SCRA 426 [1974] which reads "Th
e insured shall give notice to the company of any insurance or insurances alread
y effected, or which may subsequently be effected covering any of the property h
ereby insured, and unless such notice be given and the particulars of such insur
ance or insurances be stated in or endorsed on this Policy by or on behalf of th
e Company before the occurrence of any loss or damage, all benefits under this P
olicy shall be forfeited"; or in the 1930 case of Santa Ana vs. Commercial Union
Assurance Co., 55 Phil. 329, 334 [1930], which provided "that any outstanding i
nsurance upon the whole or a portion of the objects thereby assured must be decl
ared by the insured in writing and he must cause the company to add or insert it
in the policy, without which such policy shall be null and void, and the insure
d will not be entitled to indemnity in case of loss," Condition 3 in Country Ban
kers' policy F-14622 does not absolutely declare void any violation thereof. It
expressly provides that the condition "shall not apply when the total insurance
or insurances in force at the time of the loss or damage is not more than P200,0
00.00." By stating within Condition 3 itself that such condition shall not apply
if the total insurance in force at the time of loss does not exceed P200,000.00
, Country Bankers was amenable to assume a co-insurer's liability up to a loss n
ot exceeding P200,000.00. What it had in mind was to discourage over-insurance.
Indeed, the rationale behind the incorporation of "other insurance" clause in fi
re policies is to prevent over-insurance and thus avert the perpetration of frau
d. When a property owner obtains insurance policies from two or more insurers in
a total amount that exceeds the property's value, the insured may have an induc
ement to destroy the property for the purpose of collecting the insurance. The p
ublic as well as the insurer is interested in preventing a situation in which a
fire would be profitable to the insured. 10 Rizal Commercial Banking Corporation
(RCBC) vs. Court of Appeals [GR 128833, 20 April 1998]; also RCBC vs. Court of
Appeals [GR 128834] Second Division, Melo (J): 4 concur Facts: Goyu & Sons, Inc.
(Goyu) applied for credit facilities and accommodations with Rizal Commercial B
anking Corporation (RCBC) at its Binondo Branch. After due evaluation, RCBC Bino
ndo Branch, through its key officers, petitioners Uy Chun Bing and Eli D. Lao, r
ecommended Goyu's application for approval by RCBC's executive committee. A cred
it facility in the amount of P30 million was initially granted. Upon Goyu's appl
ication and Uy's and Lao's recommendation, RCBC's executive committee increased
Goyu's credit facility to P50 million, then to P90 million, and finally to P117
million. As security for its credit facilities with RCBC, Goyu executed two real
estate mortgages and two chattel mortgages in favor of RCBC, which were registe
red with the Registry of Deeds at Valenzuela, Metro Manila. Under each of these
four mortgage contracts, Goyu committed itself to insure the mortgaged property
with an insurance company approved by RCBC, and subsequently, to endorse and del
iver the insurance policies to RCBC. Goyu obtained in its name a total of 10 ins
urance policies from MICO. In February 1992, Alchester Insurance Agency, Inc., t
he insurance agent where Goyu obtained the Malayan insurance policies, issued 9
endorsements in favor of RCBC seemingly upon instructions of Goyu. On 27 April 1
992, one of Goyu's factory buildings in Valenzuela was gutted by fire. Consequen
tly, Goyu submitted its claim for indemnity on account of the loss insured again
st. MICO denied the claim on the ground that the insurance policies were either
attached pursuant to writs of attachments/garnishments issued by various courts
or that the insurance proceeds were also claimed by other creditors of Goyu alle
ging better rights to the proceeds than the insured. Goyu filed a complaint for
specific performance and damages which was docketed at the Regional Trial Court
of the National Capital Judicial Region (Manila, Branch 3) as Civil Case 93-6544
2. RCBC, one of Goyu's creditors, also filed with MICO its formal claim over the
proceeds of the insurance policies, but said claims were also denied for the sa
me reasons that AGCO denied Goyu's claims. In an interlocutory order dated 12 Oc
tober 1993, the Regional Trial

Court of Manila (Branch 3), confirmed that Goyu's other creditors, namely, Urban
Bank, Alfredo Sebastian, and Philippine Trust Company obtained their respective
writs of attachments from various courts, covering an aggregate amount of P14,9
38,080.23, and ordered that the proceeds of the 10 insurance policies be deposit
ed with the said court minus the aforementioned P14,938,080.23. Accordingly, on
7 January 1994, MICO deposited the amount of P50,505,594.60 with Branch 3 of the
Manila RTC. In the meantime, another notice of garnishment was handed down by a
nother Manila RTC sala (Branch 28) for the amount of P8,696,838.75. After trial,
Branch 3 of the Manila RTC rendered judgment in a favor of Goyu, ordering Malay
an to pay Goyu its fire loss claims in the total amount of P74,040,518.58 less t
he amount of P50,000,000.00 which is deposited with the Court; damages by way of
interest for the duration of the delay since 27 July 1992 (90 days after Malaya
n's receipt of the required proof of loss and notice of loss) at the rate of twi
ce the ceiling prescribed by the Monetary Board, on the amounts of (1) P50,000,0
00.00 from 27 July 1992 up to the time said amount was deposited with the Court
on 7 January 1994; and (2) P24,040,518.58 from 17 July 1992 up to the time when
the writs of attachments were received by Malayan. The court also ordered RCBC t
o pay Goyu actual and compensatory damages in the amount of P2,000,000.00, and b
oth Malayan and RCBC to solidarily pay Goyu (1) P1,000,000.00 as exemplary damag
es; (2) P1,000,000.00 as, and for, attorneys fees; and (3) Costs of suit. The Co
urt, on the Counterclaim of RCBC, ordered Goyu to pay its loan obligations with
RCBC in the amount of P68,785,069.04, as of 27 April 1992, with interest thereon
at the rate stipulated in the respective promissory notes (without surcharges a
nd penalties). From this judgment, all parties interposed their respective appea
ls. Goyu was unsatisfied with the amounts awarded in its favor. MICO and RCBC di
sputed the trial court's findings of liability on their part. The Court of Appea
ls partly granted Goyu's appeal, but sustained the findings of the trial court w
ith respect to MICO and RCBC's liabilities. The appellate court modified the dec
ision by ordering Malayan to pay Goyu its fire loss claim in the total amount of
P74,040,518.58 less than the amount of P50,505,549.60 (per O.R. No. 3649285) pl
us deposited in court and damages by way of interest commencing 27 July 1992 unt
il the time Goyu receives the said amount at the rate of 37% per annum which is
twice the ceiling prescribed by the Monetary Board; ordering RCBC to pay Goyu ac
tual and compensatory damages in the amount of P5,000,000.00; and Malayan and RC
BC, Uy Chun Bing and Eli Lao to pay Goyu solidarily in the amounts of (1) P1,500
,000.00 as exemplary damages; and (2) P1,500,000.00 as and for attorney's fees.
The Court, on RCBC's Counterclaim, ordered Goyuto pay its loan obligation with R
CBC in the amount of P68,785.069.04 as of 27 April 1992 without any interest, su
rcharges and penalties. RCBC and Malayan appealed separately but, in view of the
common facts and issues involved, their individual petitions were consolidated.
Issue [1]: Whether RCBC, as mortgagee, has any right over the insurance policie
s taken by Goyu, the mortgagor, in case of the occurrence of loss. Held [1]: YES
. It is settled that a mortgagor and a mortgagee have separate and distinct insu
rable interests in the same mortgaged property, such that each one of them may i
nsure the same property for his own sole benefit. There is no question that Goyu
could insure the mortgaged property for its own exclusive benefit. Herein, alth
ough it appears that Goyu obtained the subject insurance policies naming itself
as the sole payee, the intentions of the parties as shown by their contemporaneo
us acts, must be given due consideration in order to better serve the interest o
f justice and equity. It is to be noted that nine endorsement documents were pre
pared by Alchester in favor of RCBC. The Court is in a quandary how Alchester co
uld arrive at the idea of endorsing any specific insurance policy in favor of an
y particular beneficiary or payee other than the insured had not such named paye
e or beneficiary been specifically disclosed by the insured itself. It is also s
ignificant that Goyu voluntarily and purposely took the insurance policies from
MICO, a sister company of RCBC, and not just from any other insurance company. A
lchester would not have found out that the subject pieces of property were mortg
aged to RCBC had not such information been voluntarily disclosed by Goyu itself.
Had it not been for Goyu, Alchester would not have known of Goyu's intention of
obtaining insurance coverage in compliance with its undertaking in the mortgage
contracts with RCBC, and verify, Alchester would not have endorsed the policies
to RCBC had it not been so directed by Goyu. On equitable principles, particula
rly on the ground of estoppel, the Court is constrained to rule in favor of mort
gagor RCBC. RCBC, in good faith,

relied upon the endorsement documents sent to it as this was only pursuant to th
e stipulation in the mortgage contracts. Such reliance is justified under the ci
rcumstances of the case. Goyu failed to seasonably repudiate the authority of th
e person or persons who prepared such endorsements. Over and above this, Goyu co
ntinued, in the meantime, to enjoy the benefits of the credit facilities extende
d to it by RCBC. After the occurrence of the loss insured against, it was too la
te for Goyu to disown the endorsements for any imagined or contrived lack of aut
hority of Alchester to prepare and issue said endorsements. If there had not bee
n actually an implied ratification of said endorsements by virtue of Goyu's inac
tion in this case, Goyu is at the very least estopped from assailing their opera
tive effects. To permit Goyu to capitalize on its nonconfirmation of these endor
sements while it continued to enjoy the benefits of the credit facilities of RCB
C which believed in good faith that there was due endorsement pursuant to their
mortgage contracts, is to countenance grave contravention of public policy, fair
dealing, good faith, and justice. Such an unjust situation, the Court cannot sa
nction. Under the peculiar circumstances, the Court is bound to recognize RCBC's
right to the proceeds of the insurance policies if not for the actual endorseme
nt of the policies, at least on the basis of the equitable principle of estoppel
. Issue [2]: Whether Goyu can insist that the proceeds of insurance shall exclus
ively apply to the interest of the person in whose name or for whose benefit it
is made. Held [2]: NO. Goyu cannot seek relief under Section 53 of the Insurance
Code which provides that the proceeds of insurance shall exclusively apply to t
he interest of the person in whose name or for whose benefit it is made. The pec
uliarity of the circumstances obtaining in the instant case presents a justifica
tion to take exception to the strict application of said provision, it having be
en sufficiently established that it was the intention of the parties to designat
e RCBC as the party for whose benefit the insurance policies were taken out. Con
sider thus the following: (1) It is undisputed that the insured pieces of proper
ty were the subject of mortgage contracts entered into between RCBC and Goyu in
consideration of and for securing Goyu's credit facilities from RCBC. The mortga
ge contracts contained common provisions whereby Goyu, as mortgagor, undertook t
o have the mortgaged property properly covered against any loss by an insurance
company acceptable to RCBC. (2) Goyu voluntarily procured insurance policies to
cover the mortgaged property from MICO, no less than a sister company of RCBC an
d definitely an acceptable insurance company to RCBC. (3) Endorsement documents
were prepared by MICO's underwriter, Alchester Insurance Agency, Inc., and copie
s thereof were sent to Goyu, MICO and RCBC. Goyu did not assail, until of late,
the validity of said endorsements. (4) Goyu continued until the occurrence of th
e fire, to enjoy the benefits of the credit facilities extended by RCBC which wa
s conditioned upon the endorsement of the insurance policies to be taken by Goyu
to cover the mortgaged properties. The fact that upon receiving its copies of t
he endorsement documents prepared by Alchester, Goyu, despite the absence writte
n conformity thereto, obviously considered said endorsement to be sufficient com
pliance with its obligation under the mortgage contracts since RCBC accordingly
continued to extend the benefits of its credit facilities and Goyu continued to
benefit therefrom. Just as plain too is the intention of the parties to constitu
te RCBC as the beneficiary of the various insurance policies obtained by Goyu. T
he intention of the parties will have to be given full force and effect in this
particular case. The insurance proceeds may, therefore, be exclusively applied t
o RCBC, which under the factual circumstances of the case, is truly the person o
r entity for whose benefit the policies were clearly intended. Moreover, the law
's evident intention to protect the interests of the mortgagee upon the mortgage
d property is expressed in Article 2127 of the Civil Code. The proceeds of the 8
insurance policies endorsed to RCBC aggregate to P89,974,488.36. Being exclusiv
ely payable to RCBC by reason of the endorsement by Alchester to RCBC, which we
already ruled to have the force and effect of an endorsement by Goyu itself, the
se 8 policies can not be attached by Goyu's other creditors up to the extent of
the Goyu's outstanding obligation in RCBC's favor. Section 53 of the Insurance C
ode ordains that the insurance proceeds of the endorsed policies shall be applie
d exclusively to the proper interest of the person for whose benefit it was made
. In this case, to the extent of Goyu's obligation with RCBC, the interest of Go
yu in the subject policies had been transferred to RCBC effective as of the time
of the endorsement. These policies may no longer be attached by the other credi
tors of Goyu, like Alfredo Sebastian in GR 128834, which may nonetheless

forthwith be dismissed for being moot and academic in view of the results reache
d herein. Only the two other policies amounting to P19,646,224.92 may be validly
attached, garnished, and levied upon by Goyu's other creditors. To the extent o
f Goyu's outstanding obligation with RCBC, all the rest of the other insurance p
olicies which were endorsed to RCBC, are, therefore, to be released from attachm
ent, garnishment, and levy by the other creditors of Goyu. 11 Great Pacific Life
Assurance Corp. vs. Court of Appeals [GR 113899, 13 October 1999] Second Divisi
on, Quisumbing (J): 3 concur, 1 on official leave Facts: A contract of group lif
e insurance was executed between Great Pacific Life Assurance Corporation (Grepa
life) and Development Bank of the Philippines (DBP). Grepalife agreed to insure
the lives of eligible housing loan mortgagors of DBP. On 11 November 1983, Dr. W
ilfredo Leuterio, a physician and a housing debtor of DBP applied for membership
in the group life insurance plan. In an application form, Dr. Leuterio answered
questions concerning his health condition as follows: "7. Have you ever had, or
consulted, a physician for a heart condition, high blood pressure, cancer, diab
etes, lung, kidney or stomach disorder or any other physical impairment? Answer:
No. If so give details ___________. 8. Are you now, to the best of your knowled
ge, in good health? Answer: [ x ] Yes [ ] No." On 15 November 1983, Grepalife is
sued Certificate B-18558, as insurance coverage of Dr. Leuterio, to the extent o
f his DBP mortgage indebtedness amounting to P86,200.00. On 6 August 1984, Dr. L
euterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a
death claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio
was not physically healthy when he applied for an insurance coverage on 15 Nove
mber 1983. Grepalife insisted that Dr. Leuterio did not disclose he had been suf
fering from hypertension, which caused his death. Allegedly, such nondisclosure
constituted concealment that justified the denial of the claim. On 20 October 19
86, the widow of the late Dr. Leuterio, Medarda V. Leuterio, filed a complaint w
ith the Regional Trial Court of Misamis Oriental, Branch 18, against Grepalife f
or "Specific Performance with Damages." During the trial, Dr. Hernando Mejia, wh
o issued the death certificate, was called to testify. Dr. Mejias findings, based
partly from the information given by the widow, stated that Dr. Leuterio compla
ined of headaches presumably due to high blood pressure. The inference was not c
onclusive because Dr. Leuterio was not autopsied, hence, other causes were not r
uled out. On 22 February 1988, the trial court rendered a decision in favor of t
he widow and against Grepalife. On 17 May 1993, the Court of Appeals sustained t
he trial courts decision. Grepalife filed the petition for review. Issue: Whether
Dr. Leuterio failed to disclose that he had hypertension, which might have caus
ed his death, and thus concealment can be interposed by Grepalife as a defense t
o annul the insurance contract. Held: Concealment exists where the assured had k
nowledge of a fact material to the risk, and honesty, good faith, and fair deali
ng requires that he should communicate it to the assured, but he designedly and
intentionally withholds the same. Grepalife merely relied on the testimony of th
e attending physician, Dr. Hernando Mejia, as supported by the information given
by the widow of the decedent. Grepalife asserts that Dr. Mejias technical diagno
sis of the cause of death of Dr. Leuterio was a duly documented hospital record,
and that the widows declaration that her husband had "possible hypertension seve
ral years ago" should not be considered as hearsay, but as part of res gestae. O
n the contrary, the medical findings were not conclusive because Dr. Mejia did n
ot conduct an autopsy on the body of the decedent. As the attending physician, D
r. Mejia stated that he had no knowledge of Dr. Leuterios any previous hospital c
onfinement. Dr. Leuterios death certificate stated that hypertension was only "th
e possible cause of death." The widows statement, as to the medical history of he
r husband, was due to her unreliable recollection of events. Hence, the statemen
t of the physician was properly considered by the trial court as hearsay. The in
sured, Dr. Leuterio, had answered in his insurance application that he was in go
od health and that he had not consulted a doctor or any of the enumerated ailmen
ts, including hypertension; when he died the attending physician had certified i
n the death certificate that the former died of cerebral hemorrhage, probably se
condary to hypertension. Contrary to Grepalifes allegations, there was no suffici

ent proof that the insured had suffered from hypertension. Aside

from the statement of the insureds widow who was not even sure if the medicines t
aken by Dr. Leuterio were for hypertension, Grepalife had not proven nor produce
d any witness who could attest to Dr. Leuterios medical history. Grepalife had fa
iled to establish that there was concealment made by the insured, hence, it cann
ot refuse payment of the claim. The fraudulent intent on the part of the insured
must be established to entitle the insurer to rescind the contract. Misrepresen
tation as a defense of the insurer to avoid liability is an affirmative defense
and the duty to establish such defense by satisfactory and convincing evidence r
ests upon the insurer. Herein, Grepalife failed to clearly and satisfactorily es
tablish its defense, and is therefore liable to pay the proceeds of the insuranc
e. 12 Sunlife Assurance Company of Canada vs. Court of Appeals [GR 105135, 22 Ju
ne 1995] First Division, Quiason (J): 4 concur Facts: On 15 April 1986, Robert J
ohn B. Bacani procured a life insurance contract for himself from Sunlife Assura
nce Company of Canada. He was issued Policy 3-903-766-X valued P100,000.00, with
double indemnity in case of accidental death. The designated beneficiary was hi
s mother, Bernarda Bacani. On 26 June 1987, the insured died in a plane crash. B
ernarda Bacani filed a claim with Sunlife, seeking the benefits of the insurance
policy taken by her son. Sunlife conducted an investigation and its findings pr
ompted it to reject the claim. In its letter, Sunlife informed Bacani, that the
insured did not disclosed material facts relevant to the issuance of the policy,
thus rendering the contract of insurance voidable. A check representing the tot
al premiums paid in the amount of P10,172.00 was attached to said letter. Sunlif
e claimed that the insured gave false statements in his application when he answ
ered the following questions: "5. Within the past 5 years have you: a) consulted
any doctor or other health practitioner? b) submitted to: ECG? X-rays? blood te
sts? other tests? c) attended or been admitted to any hospital or other medical
facility? 6. Have you ever had or sought advice for: xxx b) urine, kidney or bla
dder disorder?" The deceased answered questions No. 5(a) in the affirmative but
limited his answer to a consultation with a certain Dr. Reinaldo D. Raymundo of
the Chinese General Hospital on February 1986, for cough and flu complications.
The other questions were answered in the negative. Sunlife discovered that two w
eeks prior to his application for insurance, the insured was examined and confin
ed at the Lung Center of the Philippines, where he was diagnosed for renal failu
re. During his confinement, the deceased was subjected to urinalysis, ultra-sono
graphy and hematology tests. On 17 November 1988, Bernarda Bacani and her husban
d, respondent Rolando Bacani, filed an action for specific performance against S
unlife with the Regional Trial Court, Branch 191, Valenzuela, Metro Manila. Sunl
ife filed its answer with counterclaim and a list off exhibits consisting of med
ical records furnished by the Lung Center of the Philippines. On 14 January 1990
, Bacani filed a "Proposed Stipulation with Prayer for Summary Judgment" where t
hey manifested that they "have no evidence to refute the documentary evidence of
concealment/misrepresentation by the decedent of his health condition." Sunlife
filed its Request for Admissions relative to the authenticity and due execution
of several documents as well as allegations regarding the health of the insured
. The Bacanis failed to oppose said request or reply thereto, thereby rendering
an admission of the matters alleged. Sunlife then moved for a summary judgment a
nd the trial court decided in favor of the Bacanis, ordering Sunlife to pay the
former the amount of P100,000.00 the face value of insureds Insurance Policy 39
03766, and the Accidental Death Benefit in the amount of P100,000.00 and further
sum of P5,000.00 in the concept of reasonable attorneys fees and the costs of
the suit. Sunlifes counterclaim was dismissed. Sunlife appealed to the Court of
Appeals, which affirmed the decision of the trial court. Sunlifes motion for r
econsideration was denied, hence, Sunlife filed the petition for review on certi
orari. Issue [1]: Whether good faith is a defense in concealment. Held [1]: NO.
Section 26 of the Insurance Code is explicit in requiring a party to a contract
of insurance to communicate to the other, in good faith, all facts within his kn
owledge which are material to the contract and as to which he makes no warranty,
and which the other has no means of ascertaining. Said Section provides that "a
neglect to communicate that which a party knows and ought to communicate, is ca

lled concealment."

Materiality is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom communication is due,
in forming his estimate of the disadvantages of the proposed contract or in maki
ng his inquiries. The terms of the contract are clear. The insured is specifical
ly required to disclose to the insurer matters relating to his health. The infor
mation which the insured failed to disclose were material and relevant to the ap
proval and the issuance of the insurance policy. The matters concealed would hav
e definitely affected Bacanis action on his application, either by approving it
with the corresponding adjustment for a higher premium or rejecting the same. M
oreover, a disclosure may have warranted a medical examination of the insured by
Sunlife in order for it to reasonably assess the risk involved in accepting the
application. In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), the
Court held that materiality of the information withheld does not depend on the s
tate of mind of the insured. Neither does it depend on the actual or physical ev
ents which ensue. Thus, "good faith" is no defense in concealment. The insureds
failure to disclose the fact that he was hospitalized for two weeks prior to fi
ling his application for insurance, raises grave doubts about his bonafides. It
appears that such concealment was deliberate on his part. Issue [2]: Whether Sun
lifes waiver of the medical examination of the insured debunks the materiality
of the facts concealed. Held [2]: NO. The argument, that Sunlifes waiver of the
medical examination of the insured debunks the materiality of the facts conceal
ed, is untenable. In Saturnino v. Philippine American Life Insurance Company, 7
SCRA 316 (1963), the Court held that "the waiver of a medical examination [in a
non-medical insurance contract] renders even more material the information requi
red of the applicant concerning previous condition of health and diseases suffer
ed, for such information necessarily constitutes an important factor which the i
nsurer takes into consideration in deciding whether to issue the policy or not."
Moreover, such argument would make Section 27 of the Insurance Code, which allo
ws the injured party to rescind a contract of insurance where there is concealme
nt, ineffective. Anent the finding that the facts concealed had no bearing to th
e cause of death of the insured, it is well settled that the insured need not di
e of the disease he had failed to disclose to the insurer. It is sufficient that
his non-disclosure misled the insurer in forming his estimates of the risks of
the proposed insurance policy or in making inquiries. 13 Philamcare Health Syste
ms Ioc..vs. CA (379 SCRA 356) see case entry 3 14 Vda. de Canilang vs. Court of
Appeals [GR 92492, 17 June 1993] Third Division, Feliciano (J): 4 concur Facts:
On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagno
sed as suffering from "sinus tachycardia." The doctor prescribed the following f
or him: Trazepam, a tranquilizer; and Aptin, a beta-blocker drug. Mr. Canilang c
onsulted the same doctor again on 3 August 1982 and this time was found to have
"acute bronchitis." On the next day, 4 August 1982, Jaime Canilang applied for a
"non-medical" insurance policy with Great Pacific Life Assurance Company (Grepa
life) naming his wife, Thelma Canilang, as his beneficiary. Jaime Canilang was i
ssued ordinary life insurance Policy 345163, with the face value of P19,700, eff
ective as of 9 August 1982. On 5 August 1983, Jaime Canilang died of "congestive
heart failure," "anemia," and "chronic anemia." Vda. de Canilang, widow and ben
eficiary of the insured, filed a claim with Grepalife which the insurer denied o
n 5 December 1983 upon the ground that the insured had concealed material inform
ation from it. Vda. de Canilang then filed a complaint against Grepalife with th
e Insurance Commission for recovery of the insurance proceeds. During the hearin
g called by the Insurance Commissioner, Vda. de Canilang testified that she was
not aware of any serious illness suffered by her late husband and that, as far a
s she knew, her husband had died because of a kidney disorder. A deposition give
n by Dr. Wilfredo Claudio was presented by Vda. de

Canilang. There Dr. Claudio stated that he was the family physician of the decea
sed Jaime Canilang and that he had previously treated him for "sinus tachycardia
" and "acute bronchitis." Grepalife for its part presented Dr. Esperanza Quismor
io, a physician and a medical underwriter working for Grepalife. She testified t
hat the deceaseds insurance application had been approved on the basis of his m
edical declaration. She explained that as a rule, medical examinations are requi
red only in cases where the applicant has indicated in his application for insur
ance coverage that he has previously undergone medical consultation and hospital
ization. In a decision dated 5 November 1985, Insurance Commissioner Armando Ans
aldo ordered Grepalife to pay P19,700.00 plus legal interest and P2,000.00 as at
torneys fees. On appeal by Grepalife, the Court of Appeals reversed and set asi
de the decision of the Insurance Commissioner and dismissed Thelma Canilangs co
mplaint and Grepalifes counterclaim. The Court of Appeals found that the use of
the word "intentionally" by the Insurance Commissioner in defining and resolvin
g the issue agreed upon by the parties at pre-trial before the Insurance Commiss
ioner was not supported by the evidence; that the issue agreed upon by the parti
es had been whether the deceased insured, Jaime Canilang, made a material concea
lment as to the state of his health at the time of the filing of insurance appli
cation, justifying Grepalifes denial of the claim. Vda. de Canilang Thelma Cani
lang filed the petition for review on certiorari. Issue [1]: Whether the informa
tion Canilang failed to disclose was material to the ability of Grepalife to est
imate the probable risk he presented as a subject of life insurance. Held [1]: Y
ES. The information which Jaime Canilang failed to disclose was material to the
ability of Grepalife to estimate the probable risk he presented as a subject of
life insurance. Had Canilang disclosed his visits to his doctor, the diagnosis m
ade and the medicines prescribed by such doctor, in the insurance application, i
t may be reasonably assumed that Grepalife would have made further inquiries and
would have probably refused to issue a non-medical insurance policy or, at the
very least, required a higher premium for the same coverage. The materiality of
the information withheld by Grepalife did not depend upon the state of mind of J
aime Canilang. A mans state of mind or subjective belief is not capable of proo
f in our judicial process, except through proof of external acts or failure to a
ct from which inferences as to his subjective belief may be reasonably drawn. Ne
ither does materiality depend upon the actual or physical events which ensue. Ma
teriality relates rather to the "probable and reasonable influence of the facts"
upon the party to whom the communication should have been made, in assessing th
e risk involved in making or omitting to make further inquiries and in accepting
the application for insurance; that "probable and reasonable influence of the f
acts" concealed must, of course, be determined objectively, by the judge ultimat
ely. Issue [2]: Whether Grepalife had waived inquiry into the concealment by iss
uing the insurance policy notwithstanding Canilangs failure to set out answers
to some of the questions in the insurance application. Held [2]: NO. The insuran
ce applied for was a "non-medical" insurance policy. In Saturnino v. PhilippineA
merican Life Insurance Company, the Court held that "if anything, the waiver of
medical examination [in a non-medical insurance contract] renders even more mate
rial the information required of the applicant concerning previous condition of
health and diseases suffered, for such information necessarily constitutes an im
portant factor which the insurer takes into consideration in deciding whether to
issue the policy or not." It cannot be excused that that the failure of Canilan
g to convey certain information to the insurer was not intentional in nature. Se
ction 27 of the Insurance Code of 1978 is properly read as referring to "any con
cealment" without regard to whether such concealment is intentional or unintenti
onal. The phrase "whether intentional or unintentional" was in fact superfluous.
The deletion of the phrase "whether intentional or unintentional" could not hav
e had the effect of imposing an affirmative requirement that a concealment must
be intentional if it is to entitle the injured party to rescind a contract of in
surance. The restoration in 1985 by BP 874 of the phrase "whether intentional or
unintentional" merely underscored the fact that all throughout (from 1914 to 19
85), the statute did not require proof that concealment must be "intentional" in
order to authorize rescission by the injured party. In any case, herein, the na
ture of the facts not conveyed to the insurer was such that the failure to commu
nicate must have been intentional rather than merely

inadvertent. For Jaime Canilang could not have been unaware that this heart beat
would at times rise to high and alarming levels and that he had consulted a doc
tor twice in the 2 months before applying for non-medical insurance. Indeed, the
last medical consultation took place just the day before the insurance applicat
ion was filed. In all probability, Jaime Canilang went to visit his doctor preci
sely because of the discomfort and concern brought about by his experiencing "si
nus tachycardia." Grepalife had not waived inquiry into the concealment by issui
ng the insurance policy notwithstanding Canilangs failure to set out answers to
some of the questions in the insurance application. Such failure precisely cons
tituted concealment on the part of Canilang. Vda. de Canilangs argument, if acc
epted, would obviously erase Section 27 from the Insurance Code of 1978. 15 Tan
vs. Court of Appeals [GR 48049, 29 June 1989] Third Division, Gutierrez Jr. (J):
3 concur, 1 took no part Facts: On 23 September 1973, Tan Lee Siong, father of
Emilio, Juanito, Alberto, and Arturo Tan, applied for life insurance in the amou
nt of P80,000.00 with the Philippine American Life Insurance Company (Philamlife
). Said application was approved and Policy 1082467 was issued effective 6 Novem
ber 1973, with Emilio Tan, et al. as beneficiaries. On 26 April 1975, Tan Lee Si
ong died of hepatoma. Emilio Tan, et al. then filed with Philamlife their claim
for the proceeds of the life insurance policy. However, in a letter dated 11 Sep
tember 1975, Philamlife denied Emilio Tan et al.s claim and rescinded the polic
y by reason of the alleged misrepresentation and concealment of material facts m
ade by the deceased Tan Lee Siong in his application for insurance. The premiums
paid on the policy were thereupon refunded. Alleging that Philamlifes refusal
to pay them the proceeds of the policy was unjustified and unreasonable, Emilio
Tan et al. filed on 27 November 1975, a complaint against the former with the Of
fice of the Insurance Commissioner (I.C. Case 218). After hearing the evidence o
f both parties, the Insurance Commissioner rendered judgment on 3 August 3, 1977
, dismissing the complaint. The Court of Appeals dismissed their appeal from the
Insurance Commissioners decision for lack of merit. Emilio Tan et al. filed th
e petition for review on certiorari. Issue: Whether Philamlife no longer had the
right to rescind the contract of insurance as rescission must allegedly be done
during the lifetime of the insured within two years and prior to the commenceme
nt of action. Held: NO. Section 48 of the Insurance Code provides that "Whenever
a right to rescind a contract of insurance is given to the insurer by any provi
sion of this chapter, such right must be exercised previous to the commencement
of an action on the contract. "After a policy of life insurance made payable on
the death of the insured shall have been in force during the lifetime of the ins
ured for a period of two years from the date of its issue or of its last reinsta
tement, the insurer cannot prove that the policy is void ab initio or is rescind
ible by reason of the fraudulent concealment or misrepresentation of the insured
or his agent." Herein, the policy was issued on 6 November 1973 and the insured
died on 26 April 1975. The policy was thus in force for a period of only one ye
ar and five months. Considering that the insured died before the two-year period
had lapsed, Philamlife is not, therefore, barred from proving that the policy i
s void ab initio by reason of the insureds fraudulent concealment or misreprese
ntation. Moreover, Philamlife rescinded the contract of insurance and refunded t
he premiums paid on 11 September 1975, previous to the commencement of this acti
on on 27 November 1975. Under the "incontestability clause," the insurer has two
years from the date of issuance of the insurance contract or of its last reinst
atement within which to contest the policy, whether or not, the insured still li
ves within such period. After two years, the defenses of concealment or misrepre
sentation, no matter how patent or well founded, no longer lie. Congress felt th
is was a sufficient answer to the various tactics employed by insurance companie
s to avoid liability. The interpretation of Emilio Tan et al. to said provision
-- that the Insurance Law was amended and the second paragraph of Section 48 add
ed to prevent the insurance company from exercising a right to rescind after the
death of the insured; that the so-called "incontestability clause" precludes th
e insurer from raising the defenses of false representations or concealment of m
aterial facts insofar as health and previous diseases are concerned if the insur
ance has been

in force for at least two years during the insureds lifetime; and that the phra
se "during the lifetime" found in Section 48 simply means that the policy is no
longer considered in force after the insured has died. The key phrase in the sec
ond paragraph of Section 48 is "for a period of two years" -- would give rise to
the incongruous situation where the beneficiaries of an insured who dies right
after taking out and paying for a life insurance policy, would be allowed to col
lect on the policy even if the insured fraudulently concealed material facts. 16
Pacific Timber Export Corporation vs. Court of Appeals [GR L-38613, 25 February
1982] First Division, De Castro (J): 6 concur Facts: On 19 March 1963, the Paci
fic Timber Export Corporation (PTEC) secured temporary insurance from the Workme
ns Insurance Company Inc. (WICI) for its exportation of 1,250,000 board feet of
Philippine Lauan and Apitong logs to be shipped from the Diapitan Bay, Quezon P
rovince to Okinawa and Tokyo, Japan. WICI issued on said date Cover Note 1010, i
nsuring the said cargo of PTEC "Subject to the Terms and Conditions of the WORKM
ENS INSURANCE COMPANY, INC. printed Marine Policy form as filed with and approv
ed by the Office of the Insurance Commissioner." The regular marine cargo polici
es were issued by WICI in favor of PTEC on 2 April 1963. The two marine policies
bore the numbers of 53 HO 1032 and 53 HO 1033. Policy 53 HO 1032 was for 542 pi
eces of logs equivalent to 499,950 board feet. Policy 53 HO 1033 was for 853 pie
ces of logs equivalent to 695, 548 board feet. The total cargo insured under the
two marine policies accordingly consisted of 1,395 logs, or the equivalent of 1
,195,498 bd. ft. After the issuance of Cover Note 1010, but before the issuance
of the two marine policies 53 HO 1032 and 53 HO 1033, some of the logs intended
to be exported were lost during loading operations in the Diapitan Bay. The logs
were to be loaded on the SS Woodlock which docked about 500 meters from the s
hortline of the Diapitan Bay. The logs were taken from the log pond of PTEC and
from which they were towed in rafts to the vessel. At about 10:00 a.m. on 29 Mar
ch 1963, while the logs were alongside the vessel, bad weather developed resulti
ng in 75 pieces of logs which were rafted together to break loose from each othe
r 45 pieces of logs were salvaged, but 30 pieces were verified to have been lost
or washed away as a result of the accident. In a letter dated 4 April 1963, PTE
C informed WICI about the loss of approximately 32 pieces of logs during loading
of the SS Woodlock. Although dated 4 April 1963, the letter was received in the
office of WICI only on 15 April 1963. PTEC subsequently submitted a Claim State
ment demanding payment of the loss under Policies 53 HO 1033, and 53 HO 1033, in
the total amount of P19,286.79. On 17 July 1963, WICI requested the First Phili
ppine Adjustment Corporation to inspect the loss and assess the damage. The adju
stment company submitted its Report on 23 August 1963. In said report, the adjus
ter found that the loss of 30 pieces of logs is not covered by Policies 53 HO 1
032 and 1033 inasmuch as said policies covered the actual number of logs loaded
on board the SS Woodlock. However, the loss of 30 pieces of logs is within the 1
,250,000 bd. ft. covered by Cover Note 1010 insured for $70,000.00. On 14 Septem
ber 1963, the adjustment company submitted a computation of WICIs probable liab
ility on the loss sustained by the shipment, in the total amount of P11,042.04.
On 13 January 1964, WICI wrote PTEC denying the latters claim, on the ground th
at its investigation revealed that the entire shipment of logs covered by the tw
o marine policies 53 HO 1032 and 53 HO 1033 were received in good order at their
point of destination. It was further stated that the said loss may not be consi
dered as covered under Cover Note 1010 because the said Note had become null and
void by virtue of the issuance of Marine Policies 53 HO 1032 and 1033. The deni
al of the claim by WICI was brought by PTEC to the attention of the Insurance Co
mmissioner by means of a letter dated 21 March 1964. In a reply letter dated 30
March 1964, Insurance Commissioner Francisco Y. Mandanas observed that it is onl
y fair and equitable to indemnify the insured under Cover Note 1010, and advised
early settlement of the said marine loss and salvage claim. On 26 June 1964, WI
CI informed the Insurance Commissioner that, on advice of their attorneys, the c
laim of PTEC is being denied on the ground that the cover note is null and void
for lack of valuable consideration. The Court of First Instance of Manila ruled
in favor of PTEC and against WICI which ordered the latter to pay the sum of P11
,042.04 with interest at the rate of 12% interest from receipt of notice of loss
on 15 April 1963 up to the complete payment, the sum of P3,000.00 as attorneys
fees and the costs. The Court of Appeals, however, reversed the decision of the
trial court and thus dismissed PTECs complaint

with costs. PTEC filed the petition for review. Issue: Whether the Cover Note is
without consideration, is null and void, and thus recovery cannot be made there
on. Held: NO. The Cover Note was not without consideration. The fact that no sep
arate premium was paid on the Cover Note before the loss insured against occurre
d, does not militate against the validity of PTECs contention, for no such prem
ium could have been paid, since by the nature of the Cover Note, it did not cont
ain, as all Cover Notes do not contain particulars of the shipment that would se
rve as basis for the computation of the premiums. As a logical consequence, no s
eparate premiums are intended or required to be paid on a Cover Note. This is a
fact admitted by an official of WICI, Juan Jose Camacho, in charge of issuing co
ver notes of WICI. At any rate, it is not disputed that PTEC paid in full all th
e premiums as called for by the statement issued by WICI after the issuance of t
he two regular marine insurance policies, thereby leaving no account unpaid by P
TEC due on the insurance coverage, which must be deemed to include the Cover Not
e. If the Note is to be treated as a separate policy instead of integrating it t
o the regular policies subsequently issued, the purpose and function of the Cove
r Note would be set at naught or rendered meaningless, for it is in a real sense
a contract, not a mere application for insurance which is a mere offer. It may
be true that the marine insurance policies issued were for logs no longer includ
ing those which had been lost during loading operations. This had to be so becau
se the risk insured against is not for loss during loading operations anymore, b
ut for loss during transit, the logs having already been safely placed aboard. T
his would make no difference, however, insofar as the liability on the cover not
e is concerned, for the number or volume of logs lost can be determined independ
ently, as in fact it had been so ascertained at the instance of WICI itself when
it sent its own adjuster to investigate and assess the loss, after the issuance
of the marine insurance policies. The adjuster went as far as submitting his re
port to WICI, as well as its computation of WICIs liability on the insurance co
verage. This coverage could not have been no other than what was stipulated in t
he Cover Note, for no loss or damage had to be assessed on the coverage arising
from the marine insurance policies. For obvious reasons, it was not necessary to
ask PTEC to pay premium on the Cover Note, for the loss insured against having
already occurred, the more practical procedure is simply to deduct the premium f
rom the amount due PTEC on the Cover Note. The non-payment of premium on the Cov
er Note is, therefore, no cause for PTEC to lose what is due it as if there had
been payment of premium, for non-payment by it was not chargeable against its fa
ult. Had all the logs been lost during the loading operations, but after the iss
uance of the Cover Note, liability on the note would have already arisen even be
fore payment of premium. This is how the cover note as a "binder" should legally
operate; otherwise, it would serve no practical purpose in the realm of commerc
e, and is supported by the doctrine that where a policy is delivered without req
uiring payment of the premium, the presumption is that a credit was intended and
policy is valid. 17 Great Pacific Life Assurance Corporation vs. CA, 89 SCRA 54
3 see case entry 7 18 Philippine American Life and General Insurance Company vs.
Valencia-Bagalacsa [GR 139776, 1 August 2002] First Division, Austria-Martinez
(J): 4 concur Facts: On 20 June 1995, Eduardo, Celso and Ruben Z. Lumaniog, as l
egitimate children and forced heirs of their late father, Faustino Lumaniog, fil
ed with the Regional Trial Court of Libmanan, Camarines Sur, a complaint for rec
overy of sum of money against the Philippine American Life and General Insurance
Company (Philamlife) alleging that: their father was insured by Philamlife unde
r Life Insurance Policy 1305486 with a face value of P50,000.00; their father di
ed of "coronary thrombosis" on 25 November 1980; on 22 June 1981, they claimed a
nd continuously claimed for all the proceeds and interests under the life insura
nce policy in the amount of P641,000.00, despite repeated demands for payment an
d/or settlement of the claim due from Philamlife, the last of which is on 1 Dece
mber 1994, Philamlife finally refused or

disallowed said claim on 14 February 1995; and so, they filed their complaint. P
hilamlife filed an Answer with Counterclaim and Motion to Dismiss, contending th
at the cause of action had prescribed and that the Lumaniogs are guilty of lache
s; that it had denied the latters claim in a letter dated 12 March 1982, signed
by its then Assistant Vice President, Amado Dimalanta, on ground of concealment
on the part of the deceased insured Faustino when he asserted in his applicatio
n for insurance coverage that he had not been treated for indication of "chest p
ain, palpitation, high blood pressure, rheumatic fever, heart murmur, heart atta
ck or other disorder of the heart or blood vessel" when in fact he was a known h
ypertensive since 1974; that the Lumaniogs sent a letter dated 25 May 1983 reque
sting for reconsideration of the denial; in a letter dated 11 July 1983, it reit
erated its decision to deny the claim for payment of the proceeds; more than 10
years later, or on 1 December 1994, it received a letter from Jose C. Claro, a p
rovincial board member of the province of Camarines Sur, reiterating the early r
equest for reconsideration which it denied in a letter dated 14 February 1995. T
he Lumaniogs opposed the motion to dismiss. On 7 June 1996, the RTC issued an Or
der as to the necessity of trial on merits. Philamlifes motion for reconsiderat
ion was denied by the RTC in its Order dated 22 December 1997 upholding however
in the same Order the claim of the Lumaniogs counsel that the running of the 10
-year period was "stopped" on 25 May 1983 when they requested for a reconsiderat
ion of the denial and it was only on 14 February 1995 when Philamlife finally de
cided to deny their claim that the 10year period began to run. Philamlife filed
a petition for certiorari (CA-GR 47885) in the Court of Appeals and after the co
mment of the Lumaniogs and reply of Philamlife, the appellate court rendered its
Decision, dated 30 April 1999, dismissed the petition for lack of merit. Philam
life filed the petition for review on certiorari. Issue: Whether the complaint f
iled by the Lumaniogs for payment of life insurance proceeds is already barred b
y prescription of action, or whether an extrajudicial demand made after an actio
n has prescribed shall cause the revival of the action. Held: NO DETERMINATION.
Philamlife had specifically alleged in the Answer that it had denied the Lumanio
gs claim per its letter dated 11 July 1983. Hence, due process demands that it
be given the opportunity to prove that the Lumaniogs had received said letter. S
aid letter is crucial to Philamlifes defense that the filing of the complaint f
or recovery of sum of money in June 1995 is beyond the 10-year prescriptive peri
od. The RTC committed a grave abuse of discretion when, in resolving the motion
for reconsideration of Philamlife, it arbitrarily ruled in its Order dated 12 De
cember 1997, that the period of 10 years had not yet lapsed. It based its findin
g on a mere explanation of the Lumaniogs counsel and not on evidence presented
by the parties as to the date when to reckon the prescriptive period. The ruling
of the RTC that the cause of action of the Lumaniogs had not prescribed, is arb
itrary and patently erroneous for not being founded on evidence on record, and t
herefore, the same is void. Consequently, while the Court of Appeals did not err
in upholding the 7 June 1986 Order of the RTC, it committed a reversible error
when it declared that the RTC did not commit any grave abuse of discretion in is
suing the Order dated 12 December 1997. The Supreme Court thus partially granted
the petition, setting aside the decision of the Court of Appeals dated 30 April
1999 insofar only as it upheld the RTC Order dated 12 December 1997. A new judg
ment was entered reversing and setting aside the Order dated 12 December 1997 of
the Regional Trial Court of Libmanan, Camarines Sur (Branch 56) and affirming i
ts Order dated 20 June 1995. Said RTC was directed to proceed with dispatch with
Civil Case L787. 19 Makati Tuscany Condominium Corporation vs. Court of Appeals
[GR 95546, 6 November 1992] First Division, Bellosillo (J): 3 concur, 1 on leav
e Facts: Sometime in early 1982, American Home Assurance Co. (AHAC), represented
by American International Underwriters (Phils.), Inc., (AIUI) issued in favor o
f Makati Tuscany Condominium Corporation (Tuscany) Insurance Policy AH-CPP-92104
52 on the latters building and premises, for a period beginning 1 March 1982 an
d ending 1 March 1983, with a total premium of P466,103.05. The premium was paid
on installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16 November 198
2, all of which were accepted by AHAC. On 10 February 1983, AHAC issued to Tusca
ny Insurance Policy No. AH-CPP-9210596,

which replaced and renewed the previous policy, for a term covering 1 March 1903
to 1 March 1984. The premium in the amount of P466,103.05 was again paid on ins
tallments on 13 April 1983, 13 July 1983, 3 August 1983, 9 September 1983, and 2
1 November 1983. All payments were likewise accepted by AHAC. On 20 January 1984
, the policy was again renewed and AHAC issued to Tuscany Insurance Policy AH-CP
P9210651 for the period 1 March 1984 to 1 March 1985. On this renewed policy, Tu
scany made two installment payments, both accepted by AHAC, the first on 6 Febru
ary 1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00. Thereaft
er, Tuscany refused to pay the balance of the premium. Consequently, AHAC filed
an action to recover the unpaid balance of P314,103.05 for Insurance Policy AHCP
P-9210651. In its answer with counterclaim, Tuscany admitted the issuance of Ins
urance Policy AH-CPP9210651. It explained that it discontinued the payment of pr
emiums because the policy did not contain a credit clause in its favor and the r
eceipts for the installment payments covering the policy for 1984-85, as well as
the two (2) previous policies, stated the following reservations: (2) Acceptanc
e of this payment shall not waive any of the company rights to deny liability on
any claim under the policy arising before such payments or after the expiration
of the credit clause of the policy; and (3) Subject to no loss prior to premium
payment. If there be any loss such is not covered. Tuscany further claimed that
the policy was never binding and valid, and no risk attached to the policy. It
then pleaded a counterclaim for P152,000.00 for the premiums already paid for 19
84-85, and in its answer with amended counterclaim, sought the refund of P924,20
6.10 representing the premium payments for 1982-85. After some incidents, Tuscan
y and AHAC moved for summary judgment. On 8 October 1987, the trial court dismis
sed the complaint and the counterclaim. Both parties appealed from the judgment
of the trial court. Thereafter, the Court of Appeals rendered a decision modifyi
ng that of the trial court by ordering Tuscany to pay the balance of the premium
s due on Policy AHCPP-921-651, or P314,103.05 plus legal interest until fully pa
id, and affirming the denial of the counterclaim. Tuscany filed the petition. Is
sue: Whether payment by installment of the premiums due on an insurance policy i
nvalidates the contract of insurance. Held: NO. The subject policies are valid e
ven if the premiums were paid on installments. The records clearly show that Tus
cany and AHAC intended subject insurance policies to be binding and effective no
twithstanding the staggered payment of the premiums. The initial insurance contr
act entered into in 1982 was renewed in 1983, then in 1984. In those 3 years, th
e insurer accepted all the installment payments. Such acceptance of payments spe
aks loudly of the insurers intention to honor the policies it issued to Tuscany
. Certainly, basic principles of equity and fairness would not allow the insurer
to continue collecting and accepting the premiums, although paid on installment
s, and later deny liability on the lame excuse that the premiums were not prepai
d in full. Thus, while the import of Section 77 is that prepayment of premiums i
s strictly required as a condition to the validity of the contract, the Court wa
s not prepared to rule that the request to make installment payments duly approv
ed by the insurer, would prevent the entire contract of insurance from going int
o effect despite payment and acceptance of the initial premium or first installm
ent. Section 78 of the Insurance Code in effect allows waiver by the insurer of
the condition of prepayment by making an acknowledgment in the insurance policy
of receipt of premium as conclusive evidence of payment so far as to make the po
licy binding despite the fact that premium is actually unpaid. Section 77 merely
precludes the parties from stipulating that the policy is valid even if premium
s are not paid, but does not expressly prohibit an agreement granting credit ext
ension, and such an agreement is not contrary to morals, good customs, public or
der or public policy. So is an understanding to allow insured to pay premiums in
installments not so proscribed. At the very least, both parties should be deeme
d in estoppel to question the arrangement they have voluntarily accepted. It app
earing from the peculiar circumstances that the parties actually intended to mak
e the three (3) insurance contracts valid, effective and binding, Tuscany may no
t be allowed to renege on its obligation to pay the balance of the premium after
the expiration of the whole term of the third policy (AHCPP-9210651) in March 1
985. Moreover, where the risk is entire and the contract is indivisible, the ins
ured is not entitled to a refund of the premiums paid if the insurer was exposed
to the risk insured for any period, however brief or momentary.

20 UCPB General Insurance vs. Masagana Telamart Inc. [GR 137172, 15 June 1999] F
irst Division, Pardo (J): 4 concur Facts: On 15 April 1991, UCPB General Insuran
ce Co. Inc. (UCPBGen) issued 5 insurance policies covering Masagana Telamart, In
c.s various property described therein against fire, for the period from 22 May
1991 to 22 May 1992. In March 1992, UCPBGen evaluated the policies and decided
not to renew them upon expiration of their terms on 22 May 1992. UCPBGen advised
Masaganas broker, Zuellig Insurance Brokers, Inc. of its intention not to rene
w the policies. On 6 April 1992, UCPBGen gave written notice to Masagana of the
non-renewal of the policies at the address stated in the policies. On 13 June 19
92, fire razed Masaganas property covered by three of the insurance policies UC
PBGen issued. On 13 July 1992, Masagana presented to UCPBGens cashier at its he
ad office 5 managers checks in the total amount of P225,753.95, representing pr
emium for the renewal of the policies from 22 May 1992 to 22 May 1993. No notice
of loss was filed by Masagana under the policies prior to 14 July 1992. On 14 J
uly 1992, Masagana filed with UCPBGen its formal claim for indemnification of th
e insured property razed by fire. On the same day, 14 July 1992, UCPBGen returne
d to Masagana the 5 managers checks that it tendered, and at the same time reje
cted Masaganas claim for the reasons (a) that the policies had expired and were
not renewed, and (b) that the fire occurred on 13 June 1992, before Masaganas
tender of premium payment. On 21 July 1992, Masagana filed with the Regional Tri
al Court, Branch 58, Makati City, a civil complaint against UCPBGen for recovery
of P18,645,000.00, representing the face value of the policies covering Masagan
as insured property razed by fire, and for attorneys fees. On 23 October 1992,
after its motion to dismiss had been denied, UCPBGen filed an answer to the com
plaint. It alleged that the complaint "fails to state a cause of action"; that U
CPBGen was not liable to Masagana for insurance proceeds under the policies beca
use at the time of the loss of Masaganas property due to fire, the policies had
long expired and were not renewed. After due trial, on 10 March 1993, the Regio
nal Trial Court, Branch 58, Makati, rendered decision, (1) authorizing and allow
ing Masagana to consign/deposit with this Court the sum of P225,753.95 (refused
by UCPBGen) as full payment of the corresponding premiums for the replacement-re
newal policies; (2) declaring Masagana to have fully complied with its obligatio
n to pay the premium thereby rendering the replacement-renewal policy effective
and binding for the duration 22 May 1992 until 22 May 1993; and, ordering UCPBGe
n to deliver forthwith to Masagana the said replacement-renewal policies; (3) de
claring two of the policies in force from 22 August 1991 up to 23 August 1992 an
d 9 August 1991 to 9 August 1992, respectively; and (4) ordering UCPBGen to pay
Masagana the sums of: (a) P18,645,000.00 representing the latters claim for ind
emnity under three policies and/or its replacement-renewal policies; (b) 25% of
the total amount due as and for attorneys fees; (c) P25,000.00 as necessary lit
igation expenses; and, (d) the costs of suit. In due time, UCPBGen appealed to t
he Court of Appeals. On 7 September 1998, the Court of Appeals promulgated its d
ecision affirming that of the Regional Trial Court with the modification that it
em 3 of the dispositive portion was deleted, and the award of attorneys fees wa
s reduced to 10% of the total amount due. The Court of Appeals held that followi
ng previous practise, Masagana was allowed a 60 to 90 day credit term for the re
newal of its policies, and that the acceptance of the late premium payment sugge
sted an understanding that payment could be made later. UCPBGen appealed. Issue:
Whether the fire insurance policies issued by UCPBGen to the Masagana covering
the period 22 May 1991 to 22 May 1992, had expired on the latter date or had bee
n extended or renewed by an implied credit arrangement though actual payment of
premium was tendered on a latter date after the occurrence of the risk (fire) in
sured against. Held: The answer is easily found in the Insurance Code. No, an in
surance policy, other than life, issued originally or on renewal, is not valid a
nd binding until actual payment of the premium. Any agreement to the contrary is
void. The parties may not agree expressly or impliedly on the extension of cred
it or time to pay the premium and consider the policy binding before actual paym
ent. The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo is not applicable.
In that case, payment of the premium was in fact actually made on 24


December 1981, and the fire occurred on 18 January 1982. Here, the payment of th
e premium for renewal of the policies was tendered on 13 July 1992, a month afte
r the fire occurred on 13 June 1992. The assured did not even give the insurer a
notice of loss within a reasonable time after occurrence of the fire. Hence, th
e Supreme Court reversed and set aside the decision of the Court of Appeals in C
A-GR CV 42321. In lieu thereof, the Court rendered judgment dismissing Masagana
s complaint and UCPBGens counterclaims thereto filed with the Regional Trial Co
urt, Branch 58, Makati City, in Civil Case 92-2023, without costs. 21 UCPB Gener
al Insurance vs. Masagana Telamart Inc. [GR 137172, 14 April 2001] Resolution En
Banc, Davide Jr (CJ): 9 concur, 2 file separate dissenting opinions to which 3
joined Facts: In the Supreme Courts decision of 15 June 1999, it reversed and s
et aside the decision of the Court of Appeals, which affirmed with modification
the judgment of the trial court (a) allowing Masagana to consign the sum of P225
,753.95 as full payment of the premiums for the renewal of the five insurance po
licies on Masaganas properties; (b) declaring the replacement-renewal policies
effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering UCPBG
en to pay Masagana P18,645,000.00 as indemnity for the burned properties covered
by the renewal-replacement policies. The modification consisted in the (1) dele
tion of the trial courts declaration that three of the policies were in force f
rom August 1991 to August 1992; and (2) reduction of the award of the attorneys
fees from 25% to 10% of the total amount due the Masagana. Masagana seasonably
filed a motion for the reconsideration of the adverse verdict. Issue [1]: Whethe
r there are exceptions to Section 77, to allow Masagana to recover from UCPBGen.
Held [1]: YES. The first exception is provided by Section 77 itself, and that i
s, in case of a life or industrial life policy whenever the grace period provisi
on applies. The second is that covered by Section 78 of the Insurance Code, whic
h provides that "Any acknowledgment in a policy or contract of insurance of the
receipt of premium is conclusive evidence of its payment, so far as to make the
policy binding, notwithstanding any stipulation therein that it shall not be bin
ding until premium is actually paid." A third exception was laid down in Makati
Tuscany Condominium Corporation vs. Court of Appeals, 5 wherein the Court ruled
that Section 77 may not apply if the parties have agreed to the payment in insta
llments of the premium and partial payment has been made at the time of loss. Fu
rther, in Tuscany, the Court also quoted with approval the following pronounceme
nt of the Court of Appeals in its Resolution denying the motion for reconsiderat
ion of its decision that "While the import of Section 77 is that prepayment of p
remiums is strictly required as a condition to the validity of the contract, We
are not prepared to rule that the request to make installment payments duly appr
oved by the insurer would prevent the entire contract of insurance from going in
to effect despite payment and acceptance of the initial premium or first install
ment. Section 78 of the Insurance Code in effect allows waiver by the insurer of
the condition of prepayment by making an acknowledgment in the insurance policy
of receipt of premium as conclusive evidence of payment so far as to make the p
olicy binding despite the fact that premium is actually unpaid. Section 77 merel
y precludes the parties from stipulating that the policy is valid even if premiu
ms are not paid, but does not expressly prohibit an agreement granting credit ex
tension, and such an agreement is not contrary to morals, good customs, public o
rder or public policy (De Leon, The Insurance Code, p. 175). So is an understand
ing to allow insured to pay premiums in installments not so prescribed. At the v
ery least, both parties should be deemed in estoppel to question the arrangement
they have voluntarily accepted." By the approval of the aforequoted findings an
d conclusion of the Court of Appeals, Tuscany has also provided a fourth excepti
on to Section 77, namely, that the insurer may grant credit extension for the pa
yment of the premium. This simply means that if the insurer has granted the insu
red a credit term for the payment of the premium and loss occurs before the expi
ration of the term, recovery on the policy should be allowed even though the pre
mium is paid after the loss but within the credit term. Moreover, there is nothi
ng in Section 77 which prohibits the parties in an insurance contract to provide
a credit term within which to pay the premiums. That agreement is not against t
he law, morals, good customs, public order or public policy. The agreement binds
the parties. Herein, it would be unjust and inequitable if recovery on the poli
cy would not be permitted against UCPBGen, which had consistently

granted a 60- to 90-day credit term for the payment of premiums despite its full
awareness of Section 77. Estoppel bars it from taking refuge under said Section
, since Masagana relied in good faith on such practice. Estoppel then is the fif
th exception to Section 77. 22 American Home Assurance Company vs. Chua [GR 1304
21, 28 June 1999] First Division, Davide Jr. (CJ): 4 concur Facts: American Home
Assurance Company (AHAC) is a domestic corporation engaged in the insurance bus
iness. Sometime in 1990, Antonio Chua obtained from AHAC a fire insurance coveri
ng the stock-in-trade of his business, Moonlight Enterprises, located at Valenci
a, Bukidnon. The insurance was due to expire on 25 March 1990. On 5 April 1990 C
hua issued PCIBank Check 352123 in the amount of P2,983.50 to AHACs agent, James
Uy, as payment for the renewal of the policy. In turn, the latter delivered Rene
wal Certificate 00099047 to Chua. The check was drawn against a Manila bank and
deposited in AHACs bank account in Cagayan de Oro City. The corresponding officia
l receipt was issued on 10 April. Subsequently, a new insurance policy, Policy 2
06-4234498-7, was issued, whereby AHAC undertook to indemnify Chua for any damag
e or loss arising from fire up to P200,000 for the period 25 March 1990 to 25 Ma
rch 1991. On 6 April 1990 Moonlight Enterprises was completely razed by fire. To
tal loss was estimated between P4,000,000 and P5,000,000. Chua filed an insuranc
e claim with AHAC and four other co-insurers, namely, Pioneer Insurance and Sure
ty Corporation, Prudential Guarantee and Assurance, Inc., Filipino Merchants Ins
urance Co. and Domestic Insurance Company of the Philippines. AHAC refused to ho
nor the claim notwithstanding several demands by Chua, thus, the latter filed an
action against AHAC before the trial court. In its defense, AHAC claimed there
was no existing insurance contract when the fire occurred since Chua did not pay
the premium. It also alleged that even assuming there was a contract, Chua viol
ated several conditions of the policy, particularly: (1) his submission of fraud
ulent income tax return and financial statements; (2) his failure to establish t
he actual loss, which AHAC assessed at P70,000; and (3) his failure to notify to
AHAC of any insurance already effected to cover the insured goods. These violat
ions, AHAC insisted, justified the denial of the claim. The trial court ruled in
favor of Chua. It found that Chua paid by way of check a day before the fire oc
curred. The check, which was deposited in AHACs bank account, was even acknowledg
ed in the renewal certificate issued by AHACs agent. It declared that the alleged
fraudulent documents were limited to the disparity between the official receipt
s 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. Noneth
eless, it gave credence to the BIR certification that Chua paid the correspondin
g taxes due for the questioned years. As to Chuas failure to notify AHAC of the o
ther insurance contracts covering the same goods, the trial court held that AHAC
failed to show that such omission was intentional and fraudulent. Finally, it n
oted that AHACs investigation of Chuas 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 Guarantee and A
ssurance, Inc. promptly paid the claims filed by Chua. The trial court ordered A
HAC to pay Chua P200,000.00, representing the amount of the insurance, plus lega
l interest from the date of filing of the case; P200,000.00 as moral damages; P2
00,000.00 as loss of profit; P100,000.00 as exemplary damages; P50,000.00 as att
orneys fees; and Cost of suit. On appeal, the assailed decision was affirmed in t
oto by the Court of Appeals. The Court of Appeals found that Chuas claim was subs
tantially proved and AHACs unjustified refusal to pay the claim entitled Chua to
the award of damages. Its motion for reconsideration of the judgment having been
denied, AHAC filed the petition for review on certiorari. Issue: Whether there
was a valid payment of premium, considering that Chuas check was cashed after the
occurrence of the fire. Held: YES. The general rule in insurance laws is that u
nless the premium is paid the insurance policy is not valid and binding. The onl
y exceptions are life and industrial life insurance. Whether payment was indeed
made is a question of fact which is best determined by the trial court. The tria
l court found, as affirmed by the Court of Appeals, that there was a valid check
payment by Chua to AHAC. Well-settled is the rule that the


factual findings and conclusions of the trial court and the Court of Appeals are
entitled to great weight and respect, and will not be disturbed on appeal in th
e absence of any clear showing that the trial court overlooked certain facts or
circumstances which would substantially affect the disposition of the case. The
Supreme Cpurt sees no reason to depart from this ruling. According to the trial
court the renewal certificate issued to Chua contained the acknowledgment that p
remium had been paid. It is not disputed that the check drawn by Chua in favor o
f AHAC and delivered to its agent was honored when presented and AHAC forthwith
issued its official receipt to Chua on 10 April 1990. Section 306 of the Insuran
ce Code provides that any insurance company which delivers a policy or contract
of insurance to an insurance agent or insurance broker shall be deemed to have a
uthorized such agent or broker to receive on its behalf payment of any premium w
hich is due on such policy or contract of insurance at the time of its issuance
or delivery or which becomes due thereon. Herein, the best evidence of such auth
ority is the fact that AHAC accepted the check and issued the official receipt f
or the payment. It is, as well, bound by its agents acknowledgment of receipt of
payment. Section 78 of the Insurance Code explicitly provides that "An acknowled
gment in a policy or contract of insurance of the receipt of premium is conclusi
ve evidence of its payment, so far as to make the policy binding, notwithstandin
g any stipulation therein that it shall not be binding until the premium is actu
ally paid." This Section establishes a legal fiction of payment and should be in
terpreted as an exception to Section 77. 23 Tibay vs. Court of Appeals [GR 11965
5, 24 May 1996] First Division, Bellosillo (J): 2 concur, 1 filed a separate opi
nion to which 1 joined Facts: On 22 January 1987, Fortune Life and General Insur
ance Co., Inc. (Fortune) issued Fire Insurance Policy 136171 in favor of Violeta
R. Tibay and/or Nicolas Roraldo on their two-storey residential building locate
d at 5855 Zobel Street, Makati City, together with all their personal effects th
erein. The insurance was for P600,000.00 covering the period from 23 January 198
7 to 23 January 1988. On 23 January 1987, of the total premium of P2,983.50, pet
itioner Violeta Tibay only paid P600.00 thus leaving a considerable balance unpa
id. On 8 March 1987 the insured building was completely destroyed by fire. Two d
ays later or on 10 March 1987 Violeta Tibay paid the balance of the premium. On
the same day, she filed with Fortune a claim on the fire insurance policy. Her c
laim was accordingly referred to its adjuster, Goodwill Adjustment Services, Inc
. (GASI), which immediately wrote Violeta requesting her to furnish it with the
necessary documents for the investigation and processing of her claim. Petitione
r forthwith complied. On 28 March 1987 she signed a non-waiver agreement with GA
SI to the effect that any action taken by the companies or their representatives
in investigating the claim made by the claimant for his loss which occurred at
5855 Zobel Roxas, Makati on 8 March 1987, or in the investigating or ascertainme
nt of the amount of actual cash value and loss, shall not waive or invalidate an
y condition of the policies of such companies held by said claimant, nor the rig
hts of either or any of the parties to this agreement, and such action shall not
be, or be claimed to be, an admission of liability on the part of said companie
s or any of them. In a letter dated 11 June 1987 Fortune denied the claim of Vio
leta for violation of Policy Condition 2 and of Section 77 of the Insurance Code
. Efforts to settle the case before the Insurance Commission proved futile. On 3
March 1988 Violeta and the other petitioners (Antonio Tibay, Ofelia M. Roraldo,
Victorina M. Roraldo, Virgilio M. Roraldo, Myrna M. Roraldo, and Rosabella M. R
oraldo) sued Fortune for damages in the amount of P600,000.00 representing the t
otal coverage of the fire insurance policy plus 12% interest per annum, P100,000
.00 moral damages, and attorneys fees equivalent to 20% of the total claim. On
19 July 1990 the trial court ruled for Tibay, et al. and adjudged Fortune liable
for the total value of the insured building and personal properties in the amou
nt of P600,000.00 plus interest at the legal rate of 6% per annum from the filin
g of the complaint until full payment, and attorneys fees equivalent to 20% of
the total amount claimed plus costs of suit. On 24 March 1995 the Court of Appea
ls reversed the court a quo by declaring Fortune not to be liable to Tibay et al
. but ordering Fortune to return to the former the premium of P2,983.50 plus 12%
interest from 10 March 1987 until full payment. Tibay, et al. filed the petitio
n for review. Issue: Whether a fire insurance policy be valid, binding and enfor
ceable upon mere partial payment of

premium. Held: NO. Insurance is a contract whereby one undertakes for a consider
ation to indemnify another against loss, damage or liability arising from an unk
nown or contingent event. The consideration is the premium, which must be paid a
t the time and in the way and manner specified in the policy, and if not so paid
, the policy will lapse and be forfeited by its own terms. The Policy provides f
or payment of premium in full. Accordingly, where the premium has only been part
ially paid and the balance paid only after the peril insured against has occurre
d, the insurance contract did not take effect and the insured cannot collect at
all on the policy. This is fully supported by Section 77 of the Insurance Code w
hich provides that "An insurer is entitled to payment of the premium as soon as
the thing insured is exposed to the peril insured against. Notwithstanding any a
greement to the contrary, no policy or contract of insurance issued by an insura
nce company is valid and binding unless and until the premium thereof has been p
aid, except in the case of a life or an industrial life policy whenever the grac
e period provision applies." Apparently the crux of the controversy lies in the
phrase "unless and until the premium thereof has been paid." This leads us to th
e manner of payment envisioned by the law to make the insurance policy operative
and binding. For whatever judicial construction may be accorded the disputed ph
rase must ultimately yield to the clear mandate of the law. The principle that w
here the law does not distinguish the court should neither distinguish assumes t
hat the legislature made no qualification on the use of a general word or expres
sion. It cannot be disputed that premium is the elixir vitae of the insurance bu
siness because by law the insurer must maintain a legal reserve fund to meet its
contingent obligations to the public, hence, the imperative need for its prompt
payment and full satisfaction. It must be emphasized here that all actuarial ca
lculations and various tabulations of probabilities of losses under the risks in
sured against are based on the sound hypothesis of prompt payment of premiums. U
pon this bedrock insurance firms are enabled to offer the assurance of security
to the public at favorable rates. But once payment of premium is left to the whi
m and caprice of the insured, as when the courts tolerate the payment of a mere
P600.00 as partial undertaking out of the stipulated total premium of P2,983.50
and the balance to be paid even after the risk insured against has occurred, as
Tibay et al. have done in this case, on the principle that the strength of the v
inculum juris is not measured by any specific amount of premium payment, we will
surely wreak havoc on the business and set to naught what has taken actuarians
centuries to devise to arrive at a fair and equitable distribution of risks and
benefits between the insurer and the insured. 24 Philippine Phoenix Surety & Ins
urance Company vs. Woodworks Inc. [GR L-25317, 6 August 1979] First Division, Me
lencio-Herrera (J): 4 concur, 1 abroad. Facts: On 21 July 1960, upon Woodworks I
nc.s application, Philippine Phoenix Surety & Insurance Company (Phoenix) issue
d in its favor Fire Insurance Policy 9749 for P500,000.00 whereby Phoenix insure
d Woodworks Inc.s building, machinery and equipment for a term of one year from
21 July 1960 to 21 July 1961 against loss by fire. The premium and other charge
s including the margin fee surcharge of P590.76 and the documentary stamps in th
e amount of P156.60 affixed on the Policy, amounted to P10,593.36. Woodworks Inc
. did not pay the premium stipulated in the Policy when it was issued nor at any
time thereafter. On 19 April 1961, or before the expiration of the one-year ter
m, Phoenix notified Woodworks Inc., through its Indorsement F-6963/61, of the ca
ncellation of the Policy allegedly upon request of Woodworks Inc. The latter has
denied having made such a request. In said Indorsement, Phoenix credited Woodwo
rks Inc. with the amount of P3,110.25 for the unexpired period of 94 days, and c
laimed the balance of P7,483.11 representing "earned premium from 21 July 1960 t
o 18 April 1961 or, say 271 days. On 6 July 1961, Phoenix demanded in writing fo
r the payment of said amount. Woodworks Inc., through counsel, disclaimed any li
ability in its reply-letter of 15 August 1961, contending, in essence, that it n
eed not pay premium "because the Insurer did not stand liable for any indemnity
during the period the premiums were not paid." On 30 January 1962, Phoenix comme
nced action in the Court of First Instance of Manila, Branch IV (Civil Case 4946
8), to recover the amount of P7,483.11 as "earned premium." Woodworks Inc. contr
overted basically on the theory that its failure "to pay the premium after the i
ssuance of the policy put an end to the insurance

contract and rendered the policy unenforceable." On 13 September 1962, judgment
was rendered in Phoenixs favor "ordering Woodworks Inc. to pay Phoenix the sum
of P7,483.11, with interest thereon at the rate of 6% per annum from 30 January
1962, until the principal shall have been fully paid, plus the sum of P700.00 as
attorneys fees of the Phoenix, and the costs of the suit." From this adverse D
ecision, Woodworks Inc. appealed to the Court of Appeals which certified the cas
e to the Supreme Court on a question of law. Issue: Whether the Fire Insurance P
olicy was a binding contract even if the premium stated in the policy has not be
en paid. Held: Insurance is "a contract whereby one undertakes for a considerati
on to indemnify another against loss, damage or liability arising from an unknow
n or contingent event." The consideration is the "premium". "The premium must be
paid at the time and in the way and manner specified in the policy and, if not
so paid, the policy will lapse and be forfeited by its own terms." The Policy pr
ovides for pre-payment of premium. Accordingly, "when the policy is tendered the
insured must pay the premium unless credit is given or there is a waiver, or so
me agreement obviating the necessity for prepayment." To constitute an extension
of credit there must be a clear and express agreement therefor. From the Policy
provisions, there was no clear agreement that a credit extension was accorded W
oodworks Inc. And even if it were to be presumed that Phoenix had extended credi
t from the circumstances of the unconditional delivery of the Policy without pre
payment of the premium, yet it is obvious that Woodworks Inc. had not accepted t
he insurers offer to extend credit, which is essential for the validity of such
agreement. An acceptance of an offer to allow credit, if one was made, is as es
sential to make a valid agreement for credit, to change a conditional delivery o
f an insurance policy to an unconditional delivery, as it is to make any other c
ontract. Such an acceptance could not be merely a mental act or state of mind, b
ut would require a promise to pay made known in some manner to Woodworks Inc. In
this respect, the present case differs from that involving the same parties whe
re recovery of the balance of the unpaid premium was allowed inasmuch as in that
case "there was not only a perfected contract of insurance but a partially perf
ormed one as far as the payment of the agreed premium was concerned." This is no
t the situation obtaining here where no partial payment of premiums has been mad
e whatsoever. Since the premium had not been paid, the policy must be deemed to
have lapsed. The nonpayment of premiums does not merely suspend but puts an end
to an insurance contract, since the time of the payment is peculiarly of the ess
ence of the contract. The rule is that under policy provisions that upon the fai
lure to make a payment of a premium or assessment at the time provided for, the
policy shall become void or forfeited, or the obligation of the insurer shall ce
ase, or words to like effect, because the contract so prescribes and because suc
h a stipulation is a material and essential part of the contract. This is true,
for instance, in the case of life, health and accident, fire and hail insurance
policies. In fact, if the peril insured against had occurred, Phoenix, as insure
r, would have had a valid defense against recovery under the Policy it had issue
d. Explicit in the Policy itself is Phoenixs agreement to indemnify Woodworks I
nc. for loss by fire only "after payment of premium. Compliance by the insured w
ith the terms of the contract is a condition precedent to the right of recovery.
The burden is on an insured to keep a policy in force by the payment of premium
s, rather than on the insurer to exert every effort to prevent the insured from
allowing a policy to elapse through a failure to make premium payments. The cont
inuance of the insurers obligation is conditional upon the payment of premiums,
so that no recovery can be had upon a lapsed policy, the contractual relation b
etween the parties having ceased. Moreover, an insurer cannot treat a contract a
s valid for the purpose of collecting premiums and invalid for the purpose of in
demnity. The foregoing findings are buttressed by section 77 of the Insurance Co
de (Presidential Decree No. 612, promulgated on December 18, 1974), which now pr
ovides that no contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, notwithstanding any
agreement to the contrary. 25 Bonifacio Brothers Inc. vs. Mora [GR L-20853, 29
May 1967] En Banc, Castro (J): 9 concur


Facts: Enrique Mora is the owner of an Oldsmobile sedan model 1956, bearing plat
e QC - 8088. He mortgaged the same to the H.S. Reyes, Inc., with the condition t
hat the former would insure the automobile, with the latter as beneficiary. The
automobile was thereafter insured on 23 June 1959 with the State Bonding & Insur
ance Co. Inc., and motor car insurance policy A-0615 was issued to Mora. During
the effectivity of an insurance contract, the car met with an accident. The insu
rance company then assigned the accident to the H.H. Bayne Adjustment Co. for in
vestigation and appraisal of the damage. Mora, without the knowledge and consent
of the H.S. Reyes, Inc., authorized the Bonifacio Bros. Inc. to furnish the lab
or and materials, some of which were supplied by the Ayala Auto Parts Co. For th
e cost of labor and materials, Mora was billed at P2,102.73 through the H. H. Ba
yne Adjustment Co. The insurance company, after claiming a franchise in the amou
nt of P100, drew a check in the amount of P2,002.73, as proceeds of the insuranc
e policy, payable to the order of Mora or H.S. Reyes, Inc., and entrusted the ch
eck to the H.H. Bayne Adjustment Co. for disposition and delivery to the proper
party. In the meantime, the car was delivered to Mora without the consent of the
H.S. Reyes, Inc., and without payment to the Bonifacio Bros. Inc. and Ayala Aut
o Parts Co. of the cost of repairs and materials. Upon the theory that the insur
ance proceeds should be paid directly to them, the Bonifacio Bros. Inc. and the
Ayala Auto Parts Co. filed on 8 May 1961 a complaint with the Municipal Court of
Manila against Mora and the State Bonding & Insurance Co. Inc. for the collecti
on of the sum of P2,002.73. The insurance company filed its answer with a counte
rclaim for interpleader, requiring the Bonifacio Bros. Inc. and the H.S. Reyes,
Inc. to interplead in order to determine who has a better right to the insurance
proceeds in question. Mora was declared in default for failure to appear at the
hearing, and evidence against him was received ex parte. However, the counsel f
or the Bonifacio Bros. Inc., Ayala Auto Parts Co. and State Bonding & Insurance
Co. Inc. submitted a stipulation of facts, on the basis of which the Municipal C
ourt rendered a decision declaring the H.S. Reyes, Inc. as having a better right
to the disputed amount, and ordering the State Bonding & Insurance Co. Inc. to
pay to the H.S Reyes, Inc. the said sum of P2,002.73. From this decision, Bonifa
cio Bros. Inc. et al. elevated the case to the Court of First Instance of Manila
before which the stipulation of facts was reproduced. On 19 October 1962 the la
tter court rendered a decision, affirming the decision of the Municipal Court. T
he Bonifacio Bros. Inc. and the Ayala Auto Parts Co. moved for reconsideration o
f the decision, but the trial court denied the motion. Bonifacio Bros. Inc. et a
l. appealed. Issue: Whether Bonifacio Bros. has any cause of action to claim ind
emnity from the insurance contract entered by State Bonding & Insurance Co. and
Mora. Held: The insurance contract does not contain any words or clauses to disc
lose an intent to give any benefit to any repairmen or material men in case of r
epair of the car in question. The parties to the insurance contract omitted such
stipulation, which is a circumstance that supports the said conclusion. On the
other hand, the "loss payable" clause of the insurance policy stipulates that "L
oss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S
. Reyes, Inc. which they intended to benefit. It is likewise observed from the b
rief of the State Bonding & Insurance Company that it has vehemently opposed the
assertion or pretension of Bonifacio Bros. that they are privy to the contract.
If it were the intention of the Insurance Company to make itself liable to the
repair shop or material men, it could have easily inserted in the contract a sti
pulation to that effect. To hold now that the original parties to the insurance
contract intended to confer upon Bonifacio Bros. the benefit claimed by them wou
ld require as to ignore the indispensable requisite that a stipulation pour autr
ui must be clearly expressed by the parties, which the Court cannot do. As regar
ds paragraph 4 of the insurance contract, a perusal thereof would show that inst
ead of establishing privity between Bonifacio Bros. and the insurance company, s
uch stipulation merely establishes the procedure that the insured has to follow
in order to be entitled to indemnity for repair. This paragraph therefore should
not be construed as bringing into existence in favor of Bonifacio Bros. a right
of action against the insurance company as such intention can never be inferred
therefrom. Another cogent reason for not recognizing a right of action by Bonif
acio Bros. against the insurance company is that "a policy of insurance is a dis
tinct and independent contract between the insured and insurer, and third person
s have no right either in a court of equity, or in a court of law, to the procee
ds of it, unless there be some contract of trust, expressed or implied, by the i
nsured and third person." Herein, no contract of trust, expressed or implied exi
sts. Thus, no cause of action exists in favor of Bonifacio

Bros. in so far as the proceeds of insurance are concerned. Bonifacio Bros. cla
im, if at all, is merely equitable in nature and must be made effective through
Enrique Mora who entered into a contract with the Bonifacio Bros Inc. This concl
usion is deducible not only from the principle governing the operation and effec
t of insurance contracts in general, but is clearly covered by the express provi
sions of section 50 of the Insurance Act which read that "the insurance shall be
applied exclusively to the proper interest of the person in whose name it is ma
de unless otherwise specified in the policy." 26 The Insular Life Assurance Comp
any Ltd. vs. Ebrado [GR L-44059, 28 October 1977] First Division, Martin (J): 5
concur Facts: On 1 September 1968, Buenaventura Cristor Ebrado was issued by the
Insular Life Assurance Co., Ltd., Policy 009929 on a whole-life plan for P5,882
.00 with a rider for Accidental Death Benefits for the same amount. Buenaventura
C. Ebrado designated Carponia T. Ebrado as the revocable beneficiary in his pol
icy. He referred to her as his wife. On 21 October 1969, Buenventura C. Ebrado d
ied as a result of an accident when he was hit by a falling branch of a tree. As
the insurance policy was in force, Insular Life stands liable to pay the covera
ge of the policy in an amount of P11,745.73, representing the face value of the
policy in the amount of P5,882.00 plus the additional benefits for accidental de
ath also in the amount of P5,882.00 and the refund of P18.00 paid for the premiu
m due November, 1969, minus the unpaid premiums and interest thereon due for Jan
uary and February, 1969, in the sum of P36.27. Carponia T. Ebrado filed with the
insurer a claim for the proceeds of the policy as the designated beneficiary th
erein, although she admits that she and the insured Buenaventura C. Ebrado were
merely living as husband and wife without the benefit of marriage. Pascuala Vda.
de Ebrado also filed her claim as the widow of the deceased insured. She assert
s that she is the one entitled to the insurance proceeds, not the common-law wif
e, Carponia T. Ebrado. In doubt as to whom the insurance proceeds shall be paid,
the insurer commenced an action for Interpleader before the Court of First Inst
ance of Rizal on 29 April 1970. On 25 September 1972, the trial court rendered j
udgment declaring, among others, Carponia T. Ebrado disqualified from becoming b
eneficiary of the insured Buenaventura Cristor Ebrado and directing the payment
of the insurance proceeds to the estate of the deceased insured. From this judgm
ent, Carponia T. Ebrado appealed to the Court of Appeals, but on 11 July 1976, t
he Appellate Court certified the case to the Supreme Court as involving only que
stions of law. Issue [1]: Whether a common-law wife named as beneficiary in the
life insurance policy of a legally married man can claim the proceeds thereof in
case of death of the latter. Held[1]: NO. It is quite unfortunate that the Insu
rance Act (RA 2327, as amended) or even the new Insurance Code (PD 612, as amend
ed) does not contain any specific provision grossly resolutory of the prime ques
tion at hand. Section 50 of the Insurance Act which provides that "(t)he insuran
ce shall be applied exclusively to the proper interest of the person in whose na
me it is made" cannot be validly seized upon to hold that the same includes the
beneficiary. The word "interest" highly suggests that the provision refers only
to the insured and not to the beneficiary, since a contract of insurance is pers
onal in character. Otherwise, the prohibitory laws against illicit relationships
especially on property and descent will be rendered nugatory, as the same could
easily be circumvented by modes of insurance. Rather, the general rules of civi
l law should be applied to resolve this void in the Insurance Law. Article 2011
of the New Civil Code states: "The contract of insurance is governed by special
laws. Matters not expressly provided for in such special laws shall be regulated
by this Code." When not otherwise specifically provided for by the Insurance La
w, the contract of life insurance is governed by the general rules of the civil
law regulating contracts. And under Article 2012 of the same Code, "any person w
ho is forbidden from receiving any donation under Article 739 cannot be named be
neficiary of a life insurance policy by the person who cannot make a donation to
him." Common-law spouses are, definitely, barred from receiving donations from
each other. Article 739 of the new Civil Code provides that "the following donat
ions shall be void: (1) Those made between persons who were guilty of adultery o
r concubinage at the time of donation; (2) Those made between persons found guil
ty of the same criminal offense, in consideration thereof; (3) Those made to a p
ublic officer or his wife, descendants or

ascendants by reason of his office. In the case referred to in No. 1, the action
for declaration of nullity may be brought by the spouse of the donor or donee;
and the guilt of the donee may be proved by preponderance of evidence in the sam
e action." In essence, a life insurance policy is no different from a civil dona
tion insofar as the beneficiary is concerned. Both are founded upon the same con
sideration: liberality. A beneficiary is like a donee, because from the premiums
of the policy which the insured pays out of liberality, the beneficiary will re
ceive the proceeds or profits of said insurance. As a consequence, the proscript
ion in Article 739 of the new Civil Code should equally operate in life insuranc
e contracts. The mandate of Article 2012 cannot be laid aside: any person who ca
nnot receive a donation cannot be named as beneficiary in the life insurance pol
icy of the person who cannot make the donation. Under American law, a policy of
life insurance is considered as a testament and in construing it, the courts wil
l, so far as possible treat it as a will and determine the effect of a clause de
signating the beneficiary by rules under which wills are interpreted. Policy con
siderations and dictates of morality rightly justify the institution of a barrie
r between common-law spouses in regard to property relations since such relation
ship ultimately encroaches upon the nuptial and filial rights of the legitimate
family. There is every reason to hold that the bar in donations between legitima
te spouses and those between illegitimate ones should be enforced in life insura
nce policies since the same are based on similar consideration. As pointed out,
a beneficiary in a life insurance policy is no different from a donee. Both the
recipients of pure beneficence. So long as marriage remains the threshold of fam
ily laws, reason and morality dictate that the impediments imposed upon married
couple should likewise be imposed upon extra-marital relationship. If legitimate
relationship is circumscribed by these legal disabilities, with more reason sho
uld an illicit relationship be restricted by these disabilities. Issue [2]: Whet
her a conviction for adultery or concubinage is exacted before the disabilities
mentioned in Article 739 may effectuate. Held [2]: NO. A conviction for adultery
or concubinage is not exacted before the disabilities mentioned in Article 739
may effectuate. More specifically, with regard to the disability on "persons who
were guilty of adultery or concubinage at the time of the donation," Article 73
9 itself provides that "In the case referred to in No. 1, the action for declara
tion of nullity may be brought by the spouse of the donor or donee; and the guil
t of the donee may be proved by preponderance of evidence in the same action." T
he underscored clause neatly conveys that no criminal conviction for the disqual
ifying offense is a condition precedent. In fact, it cannot even be gleaned from
the aforequoted provision that a criminal prosecution is needed. On the contrar
y, the law plainly states that the guilt of the party may be proved "in the same
action" for declaration of nullity of donation. And, it would be sufficient if
evidence preponderates upon the guilt of the consort for the offense indicated.
The quantum of proof in criminal cases is not demanded. Herein, the requisite pr
oof of commonlaw relationship between the insured and the beneficiary has been c
onveniently supplied by the stipulations between the parties in the pre-trial co
nference of the case. It was agreed upon and stipulated therein that the decease
d insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she ha
s six legitimate children; that during his lifetime, the deceased insured was li
ving with his common-law wife, Carponia Ebrado, with whom he has two children. T
hese stipulations are nothing less than judicial admissions which, as a conseque
nce, no longer require proof and cannot be contradicted. A fortiori, on the basi
s of these admissions, a judgment may be validly rendered without going through
the rigors of a trial for the sole purpose of proving the illicit liaison betwee
n the insured and the beneficiary. 27 Vda de Consuegra vs. Government Service In
surance System [GR L-28093, 30 January 1971] En Banc, Zaldivar (J): 10 concur Fa
cts: The late Jose Consuegra, at the time of his death, was employed as a shop f
oreman of the office of the District Engineer in the province of Surigao-del Nor
te. In his lifetime, Consuegra contracted two marriages, the first with Rosario
Diaz, solemnized in the parish church of San Nicolas de Tolentino, Surigao, Suri
gao, on 15 July 1937, out of which marriage were born two children, namely, Jose
Consuegra, Jr. and Pedro Consuegra, but both predeceased their father; and the
second, which was contracted in good faith while the

first marriage was subsisting, with Basilia Berdin, on 1 May 1957 in the same pa
rish and municipality, out of which marriage were born seven children, namely, J
uliana, Pacita, Maria Lourdes, Jose, Rodrigo, Lenida and Luz, * all surnamed Con
suegra. Being a member of the Government Service Insurance System (GSIS) when Co
nsuegra died on 26 September 1965, the proceeds of his life insurance under poli
cy 601801 were paid by the GSIS to Basilia Berdin and her children who were the
beneficiaries named in the policy. Having been in the service of the government
for 22.5028 years, Consuegra was entitled to retirement insurance benefits in th
e sum of P6,304.47 pursuant to Section 12(c) of Commonwealth Act 186 as amended
by Republic Acts 1616 and 3836. Consuegra did not designate any beneficiary who
would receive the retirement insurance benefits due to him. Rosario Diaz, the wi
dow by the first marriage, filed a claim with the GSIS asking that the retiremen
t insurance benefits be paid to her as the only legal heir of Consuegra, conside
ring that the deceased did not designate any beneficiary with respect to his ret
irement insurance benefits. Basilia Berdin and her children, likewise, filed a s
imilar claim with the GSIS, asserting that being the beneficiaries named in the
life insurance policy of Consuegra, they are the only ones entitled to receive t
he retirement insurance benefits due the deceased Consuegra. Resolving the confl
icting claims, the GSIS ruled that the legal heirs of the late Jose Consuegra we
re Rosario Diaz, his widow by his first marriage who is entitled to one-half, or
8/16, of the retirement insurance benefits, on the one hand; and Basilia Berdin
, his widow by the second marriage and their seven children, on the other hand,
who are entitled to the remaining one-half, or 8/16, each of them to receive an
equal share of 1/16. Dissatisfied with the foregoing ruling and apportionment ma
de by the GSIS, Basilia Berdin and her children filed on 10 October 1966 a petit
ion for mandamus with preliminary injunction in the Court of First Instance of S
urigao del Norte (Special Proceeding 1720) naming as respondents the GSIS, the C
ommissioner of Public Highways, the Highway District Engineer of Surigao del Nor
te, the Commissioner of Civil Service, and Rosario Diaz, praying that they (Basi
lia Berdin, et al.) be declared the legal heirs and exclusive beneficiaries of t
he retirement insurance of the late Jose Consuegra, and that writ of preliminary
injunction be issued restraining implementation of the adjudication made by the
GSIS. On 7 March 1967, the court of First Instance of Surigao rendered judgment
, holding that when two women innocently and in good faith are legally united in
holy matrimony to the same man, they and their children, born of said wedlock,
will be regarded as legitimate children and each family be entitled to one half
of the estate. The court thus declared that Basilia Berdin Vda. de Consuegra and
Juliana, Pacita, Maria Lourdes, Jose Jr., Rodrigo, Lenida and Luis, all surname
d Consuegra, beneficiary and entitled to 1/2 of the retirement benefit in the am
ount of P6,304.47) due to the deceased Jose Consuegra from the GSIS or the amoun
t of P3,152.235 to be divided equally among them in the proportional amount of 1
/16 each. Likewise, Rosario Diaz Vda. de Consuegra is hereby declared beneficiar
y and entitled to the other half of the retirement benefit of the late Jose Cons
uegra or the amount of P3,152.235. Basilia Berdin and her children appealed (on
purely questions of law). Issue [1]: Whether Basilia Berdin Vda. de Consuegra. w
ho were the beneficiaries named in the life insurance should automatically be co
nsidered the beneficiaries to receive the retirement insurance benefits, to the
exclusion of Rosario Diaz, when the deceased Jose Consuegra failed to designate
the beneficiaries in his retirement insurance. Held [1]: NO. If Consuegra had 22
.5028 years of service in the government when he died on 26 September 1965, it f
ollows that he started in the government service sometime during the early part
of 1943, or before 1943. In 1943, Commonwealth Act 186 was not yet amended, and
the only benefits then provided for in said Act were those that proceed from a l
ife insurance. Upon entering the government service Consuegra became a compulsor
y member of the GSIS, being automatically insured on his life, pursuant to the p
rovisions of CA 186 which was in force at the time. During 1943 the operation of
the GSIS was suspended because of the war, and the operation was resumed someti
me in 1946. When Consuegra designated his beneficiaries in his life insurance he
could not have intended those beneficiaries of his life insurance s also the be
neficiaries of his retirement insurance because the provisions on retirement ins
urance under the GSIS came about only when CA 186 was amended by RA 660 on 16 Ju
ne 1951. Hence, it cannot be said that cause Basilia Berdin et al. were designat
ed beneficiaries Consuegras life insurance they automatically became beneficiar
ies also of his

retirement insurance. Issue [2]: Whether the GSIS and the trial court are correc
t in ruling that each of the wives who contracted marriage to the same man in go
od faith are each entitled to half of the retirement insurance benefits. Held [2
]: YES. In the case of the proceeds of a life insurance, the same are paid to wh
oever is named the beneficiary in the life insurance policy. As in the case of a
life insurance provided for in the Insurance Act (Act 2427, as amended), the be
neficiary in a life insurance under the GSIS may not necessarily be an heir of t
he insured. The insured in a life insurance may designate any person as benefici
ary unless disqualified to be so under the provisions of the Civil Code. And in
the absence of any beneficiary named in the life insurance policy, the proceeds
of the insurance will go to the estate of the insured. Retirement insurance is p
rimarily intended for the benefit of the employee to provide for his old age, or
incapacity, after rendering service in the government for a required number of
years. If the employee reaches the age of retirement, he gets the retirement ben
efits even to the exclusion of the beneficiary or beneficiaries named in his app
lication for retirement insurance. The beneficiary of the retirement insurance c
an only claim the proceeds of the retirement insurance if the employee dies befo
re retirement. If the employee failed or overlooked to state the beneficiary of
his retirement insurance, the retirement benefits will accrue his estate and wil
l be given to his legal heirs in accordance with law, as in the case of a life i
nsurance if no beneficiary is named in the insurance policy. The GSIS, therefore
, had correctly acted when it ruled that the proceeds of the retirement insuranc
e of the late Jose Consuegra should divided equally between his first living wif
e Rosario on the one hand, and his second wife Basilia Berdin his children by he
r, on the other; and the lower court did not commit error when it confirmed the
action of the GSIS, it being accepted as a fact that the second marriage of Jose
Consuegra to Basilia Berdin was contracted in good faith. The lower court has c
orrectly applied the ruling of this Court in the case of Lao, et al. vs. Dee Tim
, et al., 45 Phil. 739. In the recent case of Gomez vs. Lipana, L-23214, June 30
, 1970, the Court, in construing the rights of two women who were married to the
same man a situation more or less similar to the case of Basilia Berdin and Ros
ario Diaz held "that since the defendants first marriage has not been dissolved
or declared void the conjugal partnership established by that marriage has not
ceased. Nor has the first wife lost or relinquished her status as putative heir
of her husband under the new Civil Code, entitled to share in his estate upon hi
s death should she survive him. Consequently, whether as conjugal partner in a s
till subsisting marriage or as such putative heir she has an interest in the hus
bands share in the property here in dispute. " And with respect to the right of
the second wife, this Court observed that although the second marriage can be p
resumed to be void ab initio as it was celebrated while the first marriage was s
till subsisting, still there is need for judicial declaration of such nullity. A
nd inasmuch as the conjugal partnership formed by the second marriage was dissol
ved before judicial declaration of its nullity, "[t]he only just and equitable s
olution in this case would be to recognize the right of the second wife to her s
hare of one-half in the property acquired by her and her husband, and consider t
he other half as pertaining to the conjugal partnership of the first marriage."
28 Go vs. Redfern [GR 47705, 25 April 1941] Second Division, Horrilleno (J): 4 c
oncur Decision in Spanish [Rough translation, accuracy unverified] Facts: In Oct
ober 1937, Edward K. Redfern obtained an insurance policy against accidents from
the International Assurance Co, Ltd. On 31 August 1938, Redfern died from an ac
cident. The mother of the deceased, presenting the necessary evidence of the dea
th of Redfern, sought to claim the proceeds of the insurance policy from the ass
urance company. The company, however, denied such claim, on the ground that the
insurance policy was amended on 22 November 1937 to include another beneficiary,
Concordia Go. Hence, an action was filed to determine who has the right to coll
ect the insurance proceeds of the deceased Redfern. The mother claimed that the
addition of the co-beneficiary is illegal. Go, on her part, alleged the contrary
. The trial court ruled in favor of Angela Redfern, the mother. Go appealed.

Issue: Whether the addition of Gos name as co-beneficiary can be allowed for her
share in the insurance proceeds. Held: When designated in a policy, the benefici
ary acquires a right of which he cannot be deprived of without his consent, unle
ss the right has been reserved specifically to the insured to modify the policy.
The same doctrine was enunciated by the Court in the cases of Gercio vs. Sun Li
fe Assurance Co. of Canada (48 Phil. 55) and Insular Life vs. Suva (34 Off. Gaz.
861). Thus, unless the insured has reserved specifically the right to change or
to modify the policy, with respect to the beneficiary, said policy constitutes
an acquired right of the beneficiary, which cannot be modified except with the c
onsent of the latter. Herein, it is admitted that Redfern did not reserve expres
sly his right to change or modify the policy. Change implies the idea of an alte
ration. The addition of Gos name as one of the beneficiaries of the policy cons
titutes change as all addition is an alteration. The addition of Gos name chang
ed the policy inasmuch as there are two beneficiaries instead of one, and thus i
n effect the original beneficiary cannot recieve the full amount of the policy.
The Supreme Court affirmed the appealed judgment in all of its parts, with costs
against Go. 29 Country Bankers Insurance Corporation vs. Lianga Bay and Communi
ty Multi-Purpose Cooperative Inc. [GR 136914, 25 January 2002] Second Division,
De Leon Jr. (J): 4 concur Facts: Country Bankers Insurance Corporation (CBIC) is
a domestic corporation principally engaged in the insurance business wherein it
undertakes, for a consideration, to indemnify another against loss, damage or l
iability from an unknown or contingent event including fire while Lianga Baya an
d Community Multipurpose Cooperative Inc. (LBCMCI) is a duly registered cooperat
ive judicially declared insolvent and represented by the elected assignee, Corne
lio Jamero. It appears that sometime in 1989, the CBIC and LBCMCI entered into a
contract of fire insurance. Under Fire Insurance Policy F-1397, CBIC insured LB
CMCIs stocks-in-trade against fire loss, damage or liability during the period
starting from 20 June 1989 at 4:00 p.m. to 20 June 1990 at 4:00 p.m., for the su
m of P200,000.00. On 1 July 1989, at or about 12:40 a.m., LBCMCIs building loca
ted at Barangay Diatagon, Lianga, Surigao del Sur was gutted by fire and reduced
to ashes, resulting in the total loss of LBCMCIs stocks-in-trade, pieces of fu
rniture and fixtures, equipments and records. Due to the loss, LBCMCI filed an i
nsurance claim with CBIC under its Fire Insurance Policy F-1397, submitting: (a)
the Spot Report of Pfc. Arturo V. Juarbal, INP Investigator, dated 1 July 1989;
(b) the Sworn Statement of Jose Lomocso; and (c) the Sworn Statement of Ernesto
Urbiztondo. CBIC, however, denied the insurance claim on the ground that, based
on the submitted documents, the building was set on fire by 2 NPA rebels who wa
nted to obtain canned goods, rice and medicines as provisions for their comrades
in the forest, and that such loss was an excepted risk under paragraph 6 of the
policy conditions of Fire Insurance Policy F1397, which provides that "This ins
urance does not cover any loss or damage occasioned by or through or in conseque
nce, directly or indirectly, of any of the following occurrences, namely: xxx (d
) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolutio
n, military or usurped power. Any loss or damage happening during the existence
of abnormal conditions (whether physical or otherwise) which are occasioned by o
r through or in consequence, directly or indirectly, of any of said occurrences
shall be deemed to be loss or damage which is not covered by this insurance, exc
ept to the extent that the Insured shall prove that such loss or damage happened
independently of the existence of such abnormal conditions." Finding the denial
of its claim unacceptable, LBCMCI then instituted in the trial court the compla
int for recovery of "loss, damage or liability" against CBIC. In due time, the t
rial court rendered its Decision dated 26 December 1991 in favor of LBCMCI, orde
ring CBIC to pay LBCMCI to fully pay the insurance claim for the loss LBCMCI sus
tained as a result of the fire under its Fire Insurance Policy F-1397 in its ful
l face value of P200,000.00 with interest of 12% per annum from date of filing o
f the complaint until the same is fully paid; to pay as and in the concept of ac
tual or compensatory damages in the total sum of P50,000.00; to pay as and in th
e concept of exemplary damages in the total sum of P50,000.00; to pay in the con
cept of litigation expenses the sum of P5,000.00; to pay by way of reimbursement

the attorneys fees in the sum of P10,000.00; and to pay the costs of the suit.
CBIC interposed an appeal to the Court of Appeals. On 29 December 1998, the app
ellate court

affirmed the challenged decision of the trial court in its entirety. CBIC filed
the petition for review on certiorari. Issue: Whether the burden of proof of los
s in this case is upon the insurer, and not the insured. Held: YES. CBIC does no
t dispute that LBCMCIs stocks-in-trade were insured against fire loss, damage o
r liability under Fire Insurance Policy F-1397 and that LBCMCI lost its stocks-i
n-trade in a fire that occurred on 1 July 1989, within the duration of said fire
insurance. CBIC, however, posits the view that the cause of the loss was an exc
epted risk under the terms of the fire insurance policy. Where a risk is excepte
d by the terms of a policy which insures against other perils or hazards, loss f
rom such a risk constitutes a defense which the insurer may urge, since it has n
ot assumed that risk, and from this it follows that an insurer seeking to defeat
a claim because of an exception or limitation in the policy has the burden of p
roving that the loss comes within the purview of the exception or limitation set
up. If a proof is made of a loss apparently within a contract of insurance, the
burden is upon the insurer to prove that the loss arose from a cause of loss wh
ich is excepted or for which it is not liable, or from a cause which limits its
liability. Stated elsewise, since CBIC in this case is defending on the ground o
f non-coverage and relying upon an exemption or exception clause in the fire ins
urance policy, it has the burden of proving the facts upon which such excepted r
isk is based, by a preponderance of evidence. But CBIC failed to do so. CBIC rel
ies on the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo as well as on
the Spot Report of Pfc. Arturo V. Juarbal dated 1 July 1989. The Sworn Statemen
ts of Jose Lomocso and Ernesto Urbiztondo are inadmissible in evidence, for bein
g hearsay, inasmuch as they did not take the witness stand and could not therefo
re be cross-examined. CBICs evidence to prove its defense is sadly wanting and
thus, gives rise to its liability to LBCMCI under Fire Insurance Policy F-1397.
30 Roque vs. Intermediate Appellate Court [GR L-66935, 11 November 1985] First D
ivision, Gutierrez (J): 5 concur, 1 on leave Facts: On 19 February 1972, the Man
ila Bay Lighterage Corporation (MBLC) a common carrier, entered into a contract
with Isabela Roque (doing business under the name and style of Isabela Roque Tim
ber Enterprises) and Ong Chiong whereby the former would load and carry on board
its barge Mable 10 about 422.18 cubic meters of logs from Malampaya Sound, Pala
wan to North Harbor, Manila. Roque and Ong insured the logs against loss for P10
0,000.00 with the Pioneer Insurance and Surety Corporation (Pioneer). On 29 Febr
uary 1972, Roque and Ong loaded on the barge, 811 pieces of logs at Malampaya So
und, Palawan for 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. The barge w
here the logs were loaded was apparently not seaworthy such that it developed a
leak. One of the hatches was left open causing water to enter the barge and beca
use the barge was not provided with the necessary cover or tarpaulin, the ordina
ry splash of sea waves brought more water inside the barge. On 8 March 1972, Roq
ue and Ong wrote a letter to MBLC demanding payment of P150,000.00 for the loss
of the shipment plus P100,000.00 as unrealized profits but the latter ignored th
e demand. Another letter was sent to Pioneer claiming the full amount of P100,00
0.00 under the insurance policy but Pioneer refused to pay on the ground that it
s liability depended upon the "Total loss by Total Loss of Vessel only". Hence,
Roque and Ong commenced Civil Case 86599 against MBLC and Pioneer Pioneer. Durin
g the initial stages of the hearing, MBLC informed the trial court that it had s
alvaged part of the logs. The court ordered them to be sold to the highest bidde
r with the funds to be deposited in a bank in the name of Civil Case 86599. Afte
r hearing, the trial court found in favor of Roque and Ong, condemning MBLC and
Pioneer to pay Roque and Ong, jointly and severally, the sum of P100,000.00; sen
tencing MBLC to pay Roque and Ong, in addition, the sum of P50,000.00, plus P12,
500.00, that the latter advanced to the former as down payment for transporting
the logs in question; ordering the counterclaim of Pioneer against Roque and Ong
, dismissed, for lack of merit, but as to its cross-claim against its MBLC, the
latter is ordered to reimburse the former for whatever amount it may pay Roque a
nd Ong as such surety; ordering the counterclaim of MBLC against Roque and Ong,
dismissed

for lack of merit; dismissing Roques and Ongs claim of not less than P100,000.
00 and P75,000.00 as exemplary damages, for lack of merit; granting Roques and
Ongs claim for attorneys fees in the sum of P10,000.00; ordering MBLC and Pion
eer to pay the costs; and holding that the sum of P150,000.00 award to Roque and
Ong, shall bear interest of 6% from 25 March 1975, until amount is fully paid.
Pioneer appealed to the Intermediate Appellate Court. MBLC did not appeal, as al
legedly, the transportation company is no longer doing business and is without f
unds. On 30 January 1984, the appellate court modified the trial courts decisio
n and absolved Pioneer from liability after finding that there was a breach of i
mplied warranty of seaworthiness on the part of Roque and Ong and that the loss
of the insured cargo was caused by the "perils of the ship" and not by the "peri
ls of the sea". It ruled that the loss is not covered by the marine insurance po
licy. After the appellate court denied their motion for reconsideration, Roque a
nd Ong filed the petition for certiorari. Issue [1]: Whether there is a warranty
of seaworthiness by the cargo owner in cases of marine cargo insurance. Held [1
]: YES. There is no dispute over the liability of the common carrier MBLC. In fa
ct, it did not bother to appeal the questioned decision. However, Roque and Ong
state that MBLC has ceased operating as a firm and nothing may be recovered from
it. They are, therefore, trying to recover their losses from the insurer. The l
iability of the insurance company is governed by law. Section 113 of the Insuran
ce Code provides that "In every marine insurance upon a ship or freight, or frei
ghtage, or upon any thing which is the subject of marine insurance, a warranty i
s implied that the ship is seaworthy." Section 99 of the same Code also provides
in part that "Marine insurance includes: (1) Insurance against loss of or damag
e to: (a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchand
ise..." From the above-quoted provisions, there can be no mistaking the fact tha
t the term "cargo" can be the subject of marine insurance and that once it is so
made, the implied warranty of seaworthiness immediately attaches to whoever is
insuring the cargo whether he be the shipowner or not. As ruled in the case of G
o Tiaoco y Hermanos v. Union Insurance Society of Canton (40 Phil. 40), "it is u
niversally accepted that in every contract of insurance upon anything which is t
he subject of marine insurance, a warranty is implied that the ship shall be sea
worthy at the time of the inception of the voyage. This rule is accepted in our
own Insurance Law (Act No. 2427, sec. 106)." Moreover, the fact that the unseawo
rthiness of the ship was unknown to the insured is immaterial in ordinary marine
insurance and may not be used by him as a defense in order to recover on the ma
rine insurance policy. As was held in Richelieu and Ontario Nav. Co. v. Boston M
arine, Inc., Co. (136 U.S. 406), "the exception of losses occasioned by unseawor
thiness was in effect a warranty that a loss should not be so occasioned, and wh
ether the fact of unseaworthiness were known or unknown would be immaterial." Si
nce the law provides for an implied warranty of seaworthiness in every contract
of ordinary marine insurance, it becomes the obligation of a cargo owner to look
for a reliable common carrier which keeps its vessels in seaworthy condition. T
he shipper of cargo may have no control over the vessel but he has full control
in the choice of the common carrier that will transport his goods. Or the cargo
owner may enter into a contract of insurance which specifically provides that th
e insurer answers not only for the perils of the sea but also provides for cover
age of perils of the ship. The Court was constrained to apply Section 113 of the
Insurance Code to the facts of this case. "In marine cases, the risks insured a
gainst are perils of the sea (Chute v. North River Ins. Co., Minn. 214 NW 472,
55 ALR 933). The purpose of such insurance is protection against contingencies
and against possible damages and such a policy does not cover a loss or injury w
hich must inevitably take place in the ordinary course of things. There is no do
ubt that the term perils of the sea extends only to losses caused by sea damag
e, or by 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 waves, lightning, tempests, rocks and the like. Th
ese are understood to be the perils of the sea referred in the policy, and not
those ordinary perils which every vessel must encounter. Perils of the sea ha
s been said to include only such losses as are of extraordinary nature, or arise
from some overwhelming power, which cannot be guarded against by the ordinary e
xertion of human skill and prudence. Damage done to a vessel by perils of the se
a includes every species of damages done to a vessel at sea, as distinguished fr
om the ordinary wear and tear of the voyage,

and distinct from injuries suffered by the vessel in consequence of her not bein
g seaworthy at the outset of her voyage (as in this case). It is also the genera
l rule that everything which happens thru the inherent vice of the thing, or by
the act of the owners, master or shipper, shall not be reputed a peril, if not o
therwise borne in the policy. (14 RCL on Insurance, Sec. 384, pp. 1203-1204; C
ia. de Navegacion v. Firemens Fund Ins. Co., 277 US 66, 72 L. ed. 787, 48 S. Ct
. 459)." Issue [2]: Whether the loss of the cargo was due to the perils of the s
hip rather than the perils of the sea. Held [2]: PERILS OF THE SHIP. At the time
Mable 10 sank, there was no typhoon but ordinary strong wind and waves, a condi
tion which is natural and normal in the open sea. The evidence shows that the si
nking of Mable 10 was due to improper loading of the logs on one side so that th
e barge was tilting on one side and for that it did not navigate on even keel; t
hat it was no longer seaworthy that was why it developed leak; that the personne
l of the tugboat and the barge committed a mistake when it turned loose the barg
e from the tugboat east of Cabuli point where it was buffeted by storm and waves
, while the tugboat proceeded to west of Cabuli point where it was protected by
the mountain side from the storm and waves coming from the east direction. In fa
ct, in Roques and Ongs complaint, it is alleged that the barge Mable 10 of MBL
C developed a leak which allowed water to come in and that one of the hatches of
said barge was negligently left open by the person in charge thereof causing mo
re water to come in", and that "he loss of their cargo was due to the fault, neg
ligence, and/or lack of skill of MBLC and/or MBLCs representatives on barge Mab
le 10. 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. The facts clearly negate Roques
and Ongs claim under the insurance policy. In the case of Go Tiaoco y Hermanos
v. Union Ins. Society of Canton, the Court had occasion to elaborate on the ter
m "perils of the ship" when it ruled that "It must be considered to be settled,
furthermore, that a loss which, in the ordinary course of events, results from t
he natural and inevitable action of the sea, from the ordinary wear and tear of
the ship, or from the negligent failure of the ships owner to provide the vesse
l with proper equipment to convey the cargo under ordinary conditions, is not a
peril of the sea. Such a loss is rather due to what has been aptly called the p
eril of the ship. The insurer undertakes to insure against perils of the sea an
d similar perils, not against perils of the ship. As was well said by Lord Hersc
hell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887], 12 A. C.,
503, 509), there must, in order to make the insurer liable, be some casualty, s
omething which could not be foreseen as one of the necessary incidents of the ad
venture. The purpose of the policy is to secure an indemnity against accidents w
hich may happen, not against events which must happen. 31 La Razon Social "Go Tia
oco y Hermanos" vs. Union Insurance Society of Canton Ltd. [GR 13983, 1 Septembe
r 1919] First Division, Street (J): 6 concur, 1 dissents Facts: A cargo of rice
belonging to the Go Tiaoco Brothers, was transported in the early days of May, 1
915, on the steamship Hondagua from the port of Saigon to Cebu. On discharging t
he rice from one of the compartments in the after hold, upon arrival at Cebu, it
was discovered that 1,473 sacks had been damaged by sea water. The loss so resu
lting to the owners of rice, after proper deduction had been made for the portio
n saved, was P3,875. The policy of insurance, covering the shipment, was signed
upon a form long in use among companies engaged in maritime insurance. It purpor
ts to insure the cargo from the following among other risks: "Perils . . . of th
e seas, men, of war, fire, enemies, pirates, rovers, thieves, .jettisons, . . .
barratry of the master and mariners, and of all other perils, losses, and misfor
tunes that have or shall come to the hurt, detriment, or damage of the said good
s and merchandise or any part thereof." It was found out that the drain pipe whi
ch served as a discharge from the water closet passed down through the compartme
nt where the rice in question was stowed and thence out to sea through the wall
of the compartment, which was a part of the wall of the ship. The joint or elbow
where the pipe changed its direction was of cast iron; and in course of time it
had become corroded and abraded until a longitudinal opening had appeared in th
e pipe about one inch in length. This hole had been in existence before the voya
ge was begun, and an attempt had been made to repair it by filling with cement a
nd bolting over it a strip of iron. The effect of loading the boat was to

submerge the vent, or orifice, of the pipe until it was about 18 inches or 2 fee
t below the level of the sea. As a consequence the sea water rose in the pipe. N
avigation under these conditions resulted in the washing out of the cement-filli
ng from the action of the sea water, thus permitting the continued flow of the s
alt water into the compartment of rice. An action on a policy of marine insuranc
e issued by the Union Insurance Society of Canton, Ltd., upon the cargo of rice
belonging to the Go Tiaoco Brothers was filed. The trial court found that the in
flow of the sea water during the voyage was due to a defect in one of the drain
pipes of the ship and concluded that the loss was not covered by the policy of i
nsurance. Judgment was accordingly entered in favor of Union Insurance and Go Ti
aoco Brothers appealed. Issue [1]: Whether perils of the sea includes entrance of
water into the ships hold through a defective pipe. Held [1]: NO. It is determine
d that the words "all other perils, losses, and misfortunes" are to be interpret
ed as covering risks which are of like kind (ejusdem generis) with the particula
r risks which are enumerated in the preceding part of the same clause of the con
tract. According to the ordinary rules of construction these words must be inter
preted with reference to the words which immediately precede them. They were no
doubt inserted in order to prevent disputes founded on nice distinctions. Their
office is to cover in terms whatever may be within the spirit of the cases previ
ously enumerated, and so they have a greater or less effect as a narrower or bro
ader view is taken of those cases. For example, if the expression "perils of the
seas" is given its widest sense the general words have little or no effect as a
pplied to that case. If on the other hand that expression is to receive a limite
d construction and loss by perils of the seas is to be confined to loss ex marin
e tempestatis discrimine, the general words become most important. But still, wh
en they first became the subject of judicial construction, they have always been
held or assumed to be restricted to cases "akin to" or "resembling" or "of the
same kind as" those specially mentioned. I see no reason for departing from this
settled rule. In marine insurance it is above all things necessary to abide by
settled rules and to avoid anything like novel refinements or a new departure. I
t must be considered to be settled, furthermore, that a loss which, in the ordin
ary course of events, results from the natural and inevitable action of the sea,
from the ordinary wear and tear of the ship, or from the negligent failure of t
he ships owner to provide the vessel with proper equipment to convey the cargo
under ordinary conditions, is not a peril of the 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. There must, in order to make the insurer liable, be "some casualty, someth
ing which could not be foreseen as one of the necessary incidents of the adventu
re. The purpose of the policy is to secure an indemnity against accidents which
may happen, not against events which must happen." Herein, the entrance of the s
ea water into the ships hold through the defective pipe already described was n
ot due to any accident which happened during the voyage, but to the failure of t
he ships owner properly to repair a defect of the existence of which he was app
rised. The loss was therefore more analogous to that which directly results from
simple unseaworthiness than to that which results from perils of the sea. Issue
[2]: Whether there is an implied warranty on the seaworthy of the vessel in eve
ry marine insurance contract. Held [2]: YES. It is universally accepted that in
every contract of insurance upon anything which is the subject of marine insuran
ce, a warranty is implied that the ship shall be seaworthy at the time of the in
ception of the voyage. This rule is accepted in our own Insurance Law (Act No. 2
427, sec. 106). It is also well settled that a ship which is seaworthy for the p
urpose of insurance upon the ship may yet be unseaworthy for the purpose of insu
rance upon the cargo (Act No. 2427, sec. 106). 32 Cathay Insurance Co. vs. Court
of Appeals [GR 76145, 30 June 1987] Second Division, Paras (J): 3 concur, 2 too
k no part Facts: A complaint was filed by Remington Industrial Sales Corporation
against Cathay Insurance Co. seeking collection of the sum of P868,339.15 repre
senting Remingtons losses and damages incurred in a

shipment of seamless steel pipes under an insurance contract in favor of Remingt
on as the insured, consignee or importer of aforesaid merchandise while in trans
it from Japan to the Philippines on board vessel SS "Eastern Mariner." The total
value of the shipment was P2,894,463.83 at the prevailing rate of P7.95 to a do
llar in June and July 1984, when the shipment was made. The trial court decided
in favor of Remington by ordering Cathay Insurance to pay it the sum of P866,339
.15 as its recoverable insured loss equivalent to 30% of the value of the seamle
ss steel pipes; ordering Cathay Insurance to pay Remington interest on the afore
cited amount at the rate of 34% or double the ceiling prescribed by the Monetary
Board per annum from 3 February 1982 or 90 days from Remingtons submission of
proof of loss to Cathay Insurance until paid as provided in the settlement of cl
aim provision of the policy; and ordering Cathay Insurance to pay Remington cert
ain amounts for marine surveyors fee, attorneys fees and costs of the suit. On
appeal, the Court of Appeals affirmed the decision of the Regional Trial Court
National Capital Region (NCR) Manila, Branch 38. Cathay Insurance moved for reco
nsideration, but was denied. It thus filed the petition for review. Remington, i
n its comment on the petition, contends that (1) Coverage of Remingtons loss un
der the insurance policy issued by Cathay Insurance is unmistakable; (2) Alleged
contractual limitations contained in insurance policies are regarded with extre
me caution by courts and are to be strictly construed against the insurer; obscu
re phrases and exceptions should not be allowed to defeat the very purpose for w
hich the policy was procured; (3) Rust is not an inherent vice of the seamless s
teel pipes without interference of external factors; (4) No matter how Cathay In
surance might want it otherwise, the 15-day clause of the policy had been forecl
osed in the pre-trial order and it was not even raised in Cathay Insurances ans
wer to Remingtons complaint; (5) The decision was correct in not holding that t
he heavy rusting of the seamless steel pipes did not occur during the voyage of
7 days from July 1 to July 7, 1981; (6) The alleged lack of supposed bad order s
urvey from the arrastre capitalized on by Cathay Insurance was more than clarifi
ed by no less than 2 witnesses; (7) The placing of notation "rusty" in the way b
ills is not only Remingtons right but a natural and spontaneous reaction of who
ever received the seamless steel pipes in a rusty condition at Remingtons bodeg
a; (8) The Court of Appeals did not engage in any guesswork or speculation in co
ncluding a loss allowance of 30% in the amount of P868,339.15; and (9) The rate
of 34% per annum double the ceiling prescribed by the Monetary Board is the rate
of interest fixed by the Insurance Policy itself and the Insurance Code. Cathay
Insurance however maintains that (1) Remington does not dispute the fact that,
contrary to the finding of the respondent Court (that Cathay Insurance has faile
d "to present any evidence of any viable exception to the application of the pol
icy") there is in fact an express exception to the application of the policy; (2
) As adverted to in the Petition for Review, Remington has admitted that the que
stioned shipment is not covered by a "square provision of the contract," but Rem
ington claims implied coverage from the phrase "perils of the sea" mentioned in
the opening sentence of the policy; (3) The insistence of Remington that rusting
is a peril of the sea is erroneous; (4) Remington inaccurately invokes the rule
of strict construction against insurer under the guise of construction in order
to impart a non-existing ambiguity or doubt into the policy so as to resolve it
against the insurer; (5) Remington while impliedly admitting that a loss occasi
oned by an inherent defect or vice in the insured article is not within the term
s of the policy, erroneously insists that rusting is not an inherent vice or in
the nature of steel pipes; (6) Rusting is not a risk insured against, since a ri
sk to be insured against should be a casualty or some casualty, something which
could not be foreseen as one of the necessary incidents of adventure; (7) A fact
capable of unquestionable demonstration or of public knowledge needs no evidenc
e. This fact of unquestionable demonstration or of public knowledge is that heav
y rusting of steel or iron pipes cannot occur within a period of a 7 day voyage.
Besides, Cathay Insurance had introduced the clear cargo receipts or tally shee
ts indicating that there was no damage on the steel pipes during the voyage; and
(8) The evidence of Remington betrays the fact that the account of P868,339.15
awarded by the respondent Court is founded on speculation, surmises or conjectur
es and the amount of less has not been proven by competent, satisfactory and cle
ar evidence. Issue: Whether the rusting of steel pipes in the course of a voyage
is a "peril of the sea," and whether rusting is a risk insured against.

Held: YES. There is no question that the rusting of steel pipes in the course of
a voyage is a "peril of the sea" in view of the toll on the cargo of wind, wate
r, and salt conditions. At any rate if the insurer cannot be held accountable th
erefor, the Court would fail to observe a cardinal rule in the interpretation of
contracts, namely, that any ambiguity therein should be construed against the m
aker/issuer/drafter thereof, namely, the insurer. Besides the precise purpose of
insuring cargo during a voyage would be rendered fruitless. 33 Filipino Merchan
ts Insurance Co. Inc. vs. Court of Appeals [GR 85141, 28 November 1989] Second D
ivision, Regalado (J): 3 concur, 1 on leave Facts: In December 1976, Choa Tiek S
eng insured said shipment with Filipino Merchants Insurance Company (FMICI) unde
r cargo Policy M-2678 for the sum of P267,653.59 for the goods described as 600
metric tons of fishmeal in new gunny bags of 90 kilos each from Bangkok, Thailan
d to Manila against all risks under warehouse to warehouse terms. Actually, what
was imported was 59.940 metric tons not 600 tons at $395.42 a ton CNF Manila. T
he fishmeal in 666 new gunny bags were unloaded from the ship on 11 December 197
6 at Manila unto the arrastre contractor E. Razon, Inc. and FMICIs surveyor asc
ertained and certified that in such discharge 105 bags were in bad order conditi
on as jointly surveyed by the ships agent and the arrastre contractor. The cond
ition of the bad order was reflected in the turn over survey report of Bad Order
cargoes 120320 to 120322, consisting of 3 pages. The cargo was also surveyed by
the arrastre contractor before delivery of the cargo to the consignee and the c
ondition of the cargo on such delivery was reflected in E. Razons Bad Order Cer
tificates 14859, 14863 and 14869 covering a total of 227 bags in bad order condi
tion. FMICIs surveyor has conducted a final and detailed survey of the cargo in
the warehouse for which he prepared a survey report with the findings on the ex
tent of shortage or loss on the bad order bags totalling 227 bags amounting to 1
2,148 kilos. Based on said computation, Choa made a formal claim against FMICI f
or P51,568.62 the computation of which claim is contained therein. A formal clai
m statement was also presented by the Choa against the vessel dated 21 December
1976, but FMICI refused to pay the claim. Consequently, an action was brought by
the consignee (Choa Tiek Seng) of the shipment of fishmeal loaded on board the
vessel SS Bougainville and unloaded at the Port of Manila on or about 11 Decembe
r 1976 and seeks to recover from FMICI the amount of P51,568.62 representing dam
ages to said shipment which has been insured by FMICI under Policy M-2678. FMICI
brought a third party complaint against third party defendants Compagnie Mariti
me Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third
party defendants in case judgment is rendered against FMICI. The court below, a
fter trial on the merits, rendered judgment in favor of Choa, ordering FMICI to
pay Choa the sum of P51,568.62 with interest at legal rate from the date of the
filing of the complaint; and, on the third party complaint, the third party defe
ndant Compagnie Maritime Des Chargeurs Reunis and third party defendant E. Razon
, Inc. are ordered to pay FMICI jointly and severally reimbursement of the amoun
ts paid by FMICI with legal interest from the date of such payment until the dat
e of such reimbursement; without pronouncement as to costs. On appeal, and on 18
July 1988, the Court of Appeals affirmed the decision of the lower court insofa
r as the award on the complaint is concerned and modified the same with regard t
o the adjudication of the third-party complaint. A motion for reconsideration of
the aforesaid decision was denied, hence FMICI filed the petition for review. I
ssue [1]: Whether an "all risks" marine policy has a technical meaning in insura
nce in that before a claim can be compensable it is essential that there must be
"some fortuity," "casualty" or "accidental cause" to which the alleged loss is
attributable. Held [1]: NO. The "all risks clause" of the Institute Cargo Clause
s read as follows "5. This insurance is against all risks of logs or damage to t
he subject-matter insured but shall in no case be deemed to extend to cover loss
, damage, or expense proximately caused by delay or inherent vice or nature of t
he subject-matter insured. Claims recoverable hereunder shall be payable irrespe
ctive of percentage." An "all risks policy" should be read literally as meaning
all risks whatsoever and covering all losses by an accidental cause of any kind.
The terms "accident" and "accidental", as used in insurance contracts, have not
acquired any technical meaning. They are construed by the courts in their ordin
ary and common acceptance. Thus, the terms have

been taken to mean that which happens by chance or fortuitously, without intenti
on and design, and which is unexpected, unusual and unforeseen. An accident is a
n event that takes place without ones foresight or expectation; an event that p
roceeds from an unknown cause, or is an unusual effect of a known cause and, the
refore, not expected. The very nature of the term "all risks" must be given a br
oad and comprehensive meaning as covering any loss other than a wilful and fraud
ulent act of the insured. This is pursuant to the very purpose of an "all risks"
insurance to give protection to the insured in those cases where difficulties o
f logical explanation or some mystery surround the loss or damage to property. A
n "all risks" policy has been evolved to grant greater protection than that affo
rded by the "perils clause," in order to assure that no loss can happen through
the incidence of a cause neither insured against nor creating liability in the s
hip; it is written against all losses, that is, attributable to external causes.
The term "all risks" cannot be given a strained technical meaning, the language
of the clause under the Institute Cargo Clauses being unequivocal and clear, to
the effect that it extends to all damages/losses suffered by the insured cargo
except (a) loss or damage or expense proximately caused by delay, and (b) loss o
r damage or expense proximately caused by the inherent vice or nature of the sub
ject matter insured. Issue [2]: Whether the failure of Choa to adduce evidence,
showing that the alleged loss to the cargo in question was due to a fortuitous e
vent, precludes his right to recover from the insurance policy. Held [2]: NO. Al
though generally, the burden of proof is upon the insured to show that a loss ar
ose from a covered peril, under an "all risks" policy the burden is not on the i
nsured to prove the precise cause of loss or damage for which it seeks compensat
ion. The insured under an "all risks insurance policy" has the initial burden of
proving that the cargo was in good condition when the policy attached and that
the cargo was damaged when unloaded from the vessel; thereafter, the burden then
shifts to the insurer to show the exception to the coverage. As held in Paris-M
anila Perfumery Co. vs. Phoenix Assurance Co., Ltd. the basic rule is that the i
nsurance company has the burden of proving that the loss is caused by the risks
excepted and for want of such proof, the company is liable. Coverage under an "a
ll risks" provision of a marine insurance policy creates a special type of insur
ance which extends coverage to risks not usually contemplated and avoids putting
upon the insured the burden of establishing that the loss was due to the peril
falling within the policys coverage; the insurer can avoid coverage upon demons
trating that a specific provision expressly excludes the loss from coverage. A m
arine insurance policy providing that the insurance was to be "against all risks
" must be construed as creating a special insurance and extending to other risks
than are usually contemplated, and covers all losses except such as arise from
the fraud of the insured. The burden of the insured, therefore, is to prove mere
ly that the goods he transported have been lost, destroyed or deteriorated. Ther
eafter, the burden is shifted to the insurer to prove that the loss was due to e
xcepted perils. To impose on the insured the burden of proving the precise cause
of the loss or damage would be inconsistent with the broad protective purpose o
f "all risks" insurance. Issue [3]: Whether the insurer is liable Issue [4]: The
re being no showing that the loss was caused by any of the excepted perils, the
insurer is liable under the policy. It is believed that in the absence of any sh
owing that the losses/damages were caused by an excepted peril, i.e. delay or th
e inherent vice or nature of the subject matter insured, and there is no such sh
owing, the loss was covered by the policy. Herein, there is no evidence presente
d to show that the condition of the gunny bags in which the fishmeal was packed
was such that they could not hold their contents in the course of the necessary
transit, much less any evidence that the bags of cargo had burst as the result o
f the weakness of the bags themselves. Had there been such a showing that spilla
ge would have been a certainty, there may have been good reason to plead that th
ere was no risk covered by the policy (See Berk vs. Style [1956] cited in Marine
Insurance Claims, p. 125). Under an all risks policy, it was sufficient to show t
hat there was damage occasioned by some accidental cause of any kind, and there
is no necessity to point to any particular cause. Contracts of insurance are con

tracts of indemnity upon the terms and conditions specified in the policy. The a
greement has the force of law between the parties. The terms of the policy const
itute the

measure of the insurers liability. If such terms are clear and unambiguous, the
y must be taken and understood in their plain, ordinary and popular sense. Issue
[4]: Whether the consignee (Choa) has an insurable interest in said goods. Held
[4]: Choa, as consignee of the goods in transit under an invoice containing the
terms under "C & F Manila," has insurable interest in said goods. Section 13 of
the Insurance Code defines insurable interest in property as every interest in
property, whether real or personal, or any relation thereto, or liability in res
pect thereof, of such nature that a contemplated peril might directly damnify th
e insured. In principle, anyone has an insurable interest in property who derive
s a benefit from its existence or would suffer loss from its destruction whether
he has or has not any title in, or lien upon or possession of the property. Ins
urable interest in property may consist in (a) an existing interest; (b) an inch
oate interest founded on an existing interest; or (c) an expectancy, coupled wit
h an existing interest in that out of which the expectancy arises. As vendee/con
signee of the goods in transit has such existing interest therein as may be the
subject of a valid contract of insurance. His interest over the goods is based o
n the perfected contract of sale. The perfected contract of sale between him and
the shipper of the goods operates to vest in him an equitable title even before
delivery or before he performed the conditions of the sale. The contract of shi
pment, whether under F.O.B., C.I.F., or C. & F. as in the present case, is immat
erial in the determination of whether the vendee has an insurable interest or no
t in the goods in transit. The perfected contract of sale even without delivery
vests in the vendee an equitable title, an existing interest over the goods suff
icient to be the subject of insurance. Further, Article 1523 of the Civil Code p
rovides that where, in pursuance of a contract of sale, the seller is authorized
or required to send the goods to the buyer, delivery of the goods to a carrier,
whether named by the buyer or not, for, the purpose of transmission to the buye
r is deemed to be a delivery of the goods to the buyer, the exceptions to said r
ule not obtaining in the present case. The Court has heretofore ruled that the d
elivery of the goods on board the carrying vessels partake of the nature of actu
al delivery since, from that time, the foreign buyers assumed the risks of loss
of the goods and paid the insurance premium covering them. C & F contracts are s
hipment contracts. The term means that the price fixed includes in a lump sum th
e cost of the goods and freight to the named destination. It simply means that t
he seller must pay the costs and freight necessary to bring the goods to the nam
ed destination but the risk of loss or damage to the goods is transferred from t
he seller to the buyer when the goods pass the ships rail in the port of shipme
nt. 34 Oriental Assurance Corporation vs. Court of Appeals [GR 94052, 9 August 1
991] Second Division, Melencio-Herrera (J): 4 concur Facts: Sometime in January
1986, Panama Sawmill Co., Inc. (Panama) bought, in Palawan, 1,208 pieces of apit
ong logs, with a total volume of 2,000 cubic meters. It hired Transpacific Towag
e, Inc., to transport the logs by sea to Manila and insured it against loss for
PIM with Oriental Assurance Corporation (Oriental Assurance). There is a claim b
y Panama, however, that the insurance coverage should have been for P3M were it
not for the fraudulent act of one Benito Sy Yee Long to whom it had entrusted th
e amount of P6,000.00 for the payment of the premium for a P3M policy. Oriental
Assurance issued Marine Insurance Policy OACM-86/002. The logs were loaded on 2
barges: (1) on barge PCT7000,610 pieces of logs with a volume f 1,000 cubic mete
rs; and (2) on Barge TPAC-1000, 598 pieces of logs, also with a volume of 1,000
cubic meters. On 28 January 1986, the two barges were towed by one tugboat, the
MT "Seminole." But, as fate would have it, during the voyage, rough seas and str
ong winds caused damage to Barge TPAC-1000 resulting in the loss of 497 pieces o
f logs out of the 598 pieces loaded thereon. Panama demanded payment for the los
s but Oriental Assurance refuse on the ground that its contracted liability was
for "TOTAL LOSS ONLY." The rejection was upon the recommendation of the Tan Gatu
e Adjustment Company. Unable to convince Oriental Assurance to pay its claim, Pa
nama filed a Complaint for Damages against Ever Insurance Agency (allegedly, als
o liable), Benito Sy Lee Yong and Oriental Assurance, before the Regional Trial
Court, Kalookan, Branch 123 (Civil Case C-12601). After trial on the merit, the
RTC rendered its Decision, ordering Oriental Assurance to pay Panama the amount
of P415,000.00 as insurance indemnity with interest at the rate

of 12% per annum computed from the date of the filing of the complaint; ordering
Panama to pay Ever Insurance Agency or Antonio Sy Lee Yong, owner thereof (Ever
being a single proprietorship) for the amount of P20,000.00 as attorneys fee a
nd another amount of P20,000.00 as moral damages; and dismissing the complaint a
gainst Benito Sy Lee Yong. On appeal by both parties, the Appellate Court affirm
ed the lower Court judgment in all respects except for the rate of interest, whi
ch was reduced from 12% to 6% per annum. Oriental Assurance filed the petition f
or review on certiorari. Issue: Whether Oriental Assurance can be held liable un
der its marine insurance policy based on the theory of a divisible contract of i
nsurance and, consequently, a constructive total loss. Held: NO. No liability at
taches. The terms of the contract constitute the measure of the insurers liabil
ity and compliance therewith is a condition precedent to the insureds right to
recovery from the insurer (Perla Compania de Seguros, Inc. v. Court of Appeals,
G.R. No. 78860, May 28, 1990, 185 SCRA 741). Whether a contract is entire or sev
erable is a question of intention to be determined by the language employed by t
he parties. The policy in question shows that the subject matter insured was the
entire shipment of 2,000 cubic meters of apitong logs. The fact that the logs w
ere loaded on two different barges did not make the contract several and divisib
le as to the items insured. The logs on the two barges were not separately value
d or separately insured. Only one premium was paid for the entire shipment, maki
ng for only one cause or consideration. The insurance contract must, therefore,
be considered indivisible. More importantly, the insurers liability was for "to
tal loss only." A total loss may be either actual or constructive (Sec. 129, Ins
urance Code). An actual total loss is caused by: (a) A total destruction of the
thing insured; (b) The irretrievable loss of the thing by sinking, or by being b
roken up; (c) Any damage to the thing which renders it valueless to the owner fo
r the purpose for which he held it; or (d) Any other event which effectively dep
rives the owner of the possession, at the port of destination, of the thing insu
red." (Section 130, Insurance Code). A constructive total loss is one which give
s to a person insured a right to abandon, under Section 139 of the Insurance Cod
e, which reads "A person insured by a contract of marine insurance may abandon t
he thing insured, or any particular portion thereof separately valued by the pol
icy, or otherwise separately insured, and recover for a total loss thereof, when
the cause of the loss is a peril insured against. (a) If more than threefourths
thereof in value is actually lost, or would have to be expended to recover it f
rom the peril; (b) If it is injured to such an extent as to reduce its value mor
e than three-fourths; xxx" The requirements for the application of Section 139 o
f the Insurance Code, have not been met. The logs involved, although placed in t
wo barges, were not separately valued by the policy, nor separately insured. Res
ultantly, the logs lost in barge TPAC-1000 in relation to the total number of lo
gs loaded on the same barge can not be made the basis for determining constructi
ve total loss. The logs having been insured as one inseparable unit, the correct
basis for determining the existence of constructive total loss is the totality
of the shipment of logs. Of the entirety of 1,208, pieces of logs, only 497 piec
es thereof were lost or 41.45% of the entire shipment. Since the cost of those 4
97 pieces does not exceed 75% of the value of all 1,208 pieces of logs, the ship
ment can not be said to have sustained a constructive total loss under Section 1
39(a) of the Insurance Code. In the absence of either actual or constructive tot
al loss, there can be no recovery by the insured Panama against the insurer, Ori
ental Assurance. 35 Finman General Assurance Corporation vs. Court of Appeals [G
R 100970, 2 September 1992] Second Division, Nocon (J): 4 concur Facts: On 22 Oc
tober 1986, deceased Carlie Surposa was insured with Finman General Assurance Co
rporation under Finman General Teachers Protection Plan Master Policy 2005 and I
ndividual Policy 08924 with his parents, spouses Julia and Carlos Surposa, and b
rothers Christopher, Charles, Chester and Clifton, all surnamed Surposa, as bene
ficiaries. While said insurance policy was in full force and effect, the insured
, Carlie Surposa, died on 18 October 1988 as a result of a stab wound inflicted
by one of 3 unidentified men without provocation and warning on the part of the
former as he and his cousin, Winston Surposa, were waiting for a ride on their w
ay home along Rizal-Locsin Streets, Bacolod City after attending the celebration

of the "Maskarra Annual Festival." Thereafter, Julia Surposa and the other benef
iciaries of said insurance policy filed a written notice of claim with Finman wh
ich denied said claim contending that murder and assault are not within the scop
e of the coverage of the insurance policy. On 24 February 1989, Surposa filed a
complaint with the Insurance Commission which subsequently rendered a decision,
ordering Finman liable to pay Surposa the sum of P15,000.00 representing the pro
ceeds of the policy with interest from the date of the filing of the complaint u
ntil fully satisfied. As no evidence was submitted to prove the claim for mortua
ry aid in the sum of P1,000.00, the same was not entertained. On 11 July 1991, t
he appellate court affirmed said decision. Finman filed the petition for certior
ari. Issue: Whether the death was committed with deliberate intent which, by the
very nature of a personal accident insurance policy, cannot be indemnified. Hel
d: NO. The terms "accident" and "accidental," as used in insurance contracts hav
e not acquired any technical meaning, and are construed by the courts in their o
rdinary and common acceptation. Thus, the terms have been taken to mean that whi
ch happen by chance or fortuitously, without intention and design, and which is
unexpected, unusual, and unforeseen. An accident is an event that takes place wi
thout ones foresight or expectation an event that proceeds from an unknown caus
e, or is an unusual effect of a known cause and, therefore, not expected. The ge
nerally accepted rule is that, death or injury does not result from accident or
accidental means within the terms of an accident-policy if it is, the natural re
sult of the insureds voluntary act, unaccompanied by anything unforeseen except
the death or injury. There is no accident when a deliberate act is performed un
less some additional, unexpected, independent, and unforeseen happening occurs w
hich produces or brings about the result of injury or death. In other words, whe
re the death or injury is not the natural or probable result of the insureds vo
luntary act, or if something unforeseen occurs in the doing of the act which pro
duces the injury, the resulting death is within the protection of the policies i
nsuring against death or injury from accident. Herein, it cannot be pretended th
at Carlie Surposa died in the course of an assault or murder as a result of his
voluntary act considering the very nature of these crimes. In the first place, t
he insured and his companion were on their way home from attending a festival. T
hey were confronted by unidentified persons. The record is barren of any circums
tance showing how the stab wound was inflicted. Nor can it be pretended that the
malefactor aimed at the insured precisely because the killer wanted to take his
life. In any event, while the act may not exempt the unknown perpetrator from c
riminal liability, the fact remains that the happening was a pure accident on th
e part of the victim. The insured died from an event that took place without his
foresight or expectation, an event that proceeded from an unusual effect of a k
nown cause and, therefore, not expected. Neither can it be said that there was a
capricious desire on the part of the accused to expose his life to danger consi
dering that he was just going home after attending a festival. Furthermore, the
personal accident insurance policy involved specifically enumerated only 10 circ
umstances wherein no liability attaches to Finamn for any injury, disability or
loss suffered by the insured as a result of any of the stipulated causes. The pr
inciple of "expresso unius exclusio alterius" the mention of one thing implies t
he exclusion of another thing is therefore applicable in the present case since
murder and assault, not having been expressly included in the enumeration of the
circumstances that would negate liability in said insurance policy cannot be co
nsidered by implication to discharge Finman from liability for any injury, disab
ility or loss suffered by the insured. Thus, the failure of Finman to include de
ath resulting from murder or assault among the prohibited risks leads inevitably
to the conclusion that it did not intend to limit or exempt itself from liabili
ty for such death. 36 Sun Insurance Office Ltd. vs. Court of Appeals [GR 92383,
17 July 1992] First Division, Cruz (J): 3 concur Facts: Sun Insurance Office Ltd
. issued Personal Accident Policy 05687 to Felix Lim, Jr. with a face value of P
200,000.00. Two months later, he was dead with a bullet wound in his head. As be
neficiary, his wife Nerissa Lim sought payment on the policy but her claim was r
ejected. Sun Insurance agreed that there was no suicide. It argued, however, tha
t there was no accident either. Pilar Nalagon, Lims secretary, was the only eye
witness

to his death. It happened on 6 October 1982, at about 10 p.m., after his mother
s birthday party. According to Nalagon, Lim was in a happy mood (but not drunk)
and was playing with his handgun, from which he had previously removed the magaz
ine. As she watched the television, he stood in front of her and pointed the gun
at her. She pushed it aside and said it might be loaded. He assured her it was
not and then pointed it to his temple. The next moment there was an explosion an
d Lim slumped to the floor. He was dead before he fell. The widow sued Sun Insur
ance in the Regional Trial Court of Zamboanga City and was sustained. Sun Insura
nce was sentenced to pay her P200,000.00, representing the face value of the pol
icy, with interest at the legal rate; P10,000.00 as moral damages; P5,000.00 as
exemplary damages; P50,000.00 as actual and compensatory damages; and P5,000.00
as attorneys fees, plus the cost of the suit. This decision was affirmed on app
eal, and the motion for reconsideration was denied. Sun Insurance then came to t
he Supreme Court. Issue: Whether the insured willfully exposed himself to needle
ss peril and thus removed himself from the coverage of the insurance policy. Hel
d: NO. An accident is an event which happens without any human agency or, if hap
pening through human agency, an event which, under the circumstances, is unusual
to and not expected by the person to whom it happens. It has also been defined
as an injury which happens by reason of some violence or casualty to the insured
without his design, consent, or voluntary co-operation. Herein, the incident th
at resulted in Lims death was indeed an accident. On the other hand, the partie
s agree that Lim did not commit suicide. Nevertheless, Sun Insurance contends th
at the insured willfully exposed himself to needless peril and thus removed hims
elf from the coverage of the insurance policy. It should be noted at the outset
that suicide and willful exposure to needless peril are in pari materia because
they both signify a disregard for ones life. The only difference is in degree,
as suicide imports a positive act of ending such life whereas the second act ind
icates a reckless risking of it that is almost suicidal in intent. The posture - that by the mere act of pointing the gun to his temple, Lim had willfully expo
sed himself to needless peril and so came under the exception -- is arguable. Bu
t what is not is that Lim had removed the magazine from the gun and believed it
was no longer dangerous. He expressed assured her that the gun was not loaded. I
t is submitted that Lim did not willfully expose himself to needless peril when
he pointed the gun to his temple because the fact is that he thought it was not
unsafe to do so. The act was precisely intended to assure Nalagon that the gun w
as indeed harmless. Lim was unquestionably negligent and that negligence cost hi
m his own life. But it should not prevent his widow from recovering from the ins
urance policy he obtained precisely against accident. There is nothing in the po
licy that relieves the insurer of the responsibility to pay the indemnity agreed
upon if the insured is shown to have contributed to his own accident. Indeed, m
ost accidents are caused by negligence. There are only four exceptions expressly
made in the contract to relieve the insurer from liability, and none of these e
xceptions is applicable in the present case. It bears noting that insurance cont
racts are as a rule supposed to be interpreted liberally in favor of the assured
. There is no reason to deviate from this rule, especially in view of the circum
stances of the case. 37 Vda. de Gabriel vs. Court of Appeals [GR 103883, 14 Nove
mber 1996] First Division, Vitug (J): 4 concur Facts: Marcelino Gabriel, the ins
ured, was employed by Emerald Construction & Development Corporation (ECDC) at i
ts construction project in Iraq. He was covered by a personal accident insurance
in the amount of P100,000.00 under a group policy procured from Fortune Insuran
ce & Surety Company Inc. by ECDC for its overseas workers. The insured risk was
for "bodily injury caused by violent accidental external and visible means which
injury would solely and independently of any other cause" result in death or di
sability. On 22 May 1982, within the life of the policy, Gabriel died in Iraq. A
year later, or on 12 July 1983, ECDC reported Gabriels death to Fortune by tel
ephone. Among the documents thereafter submitted to Fortune were a copy of the d
eath certificate 5 issued by the Ministry of Health of the Republic of Iraq whic
h stated "REASON OF DEATH: UNDER EXAMINATION NOW NOT YET KNOWN " and an autopsy
report of the National Bureau of Investigation (NBI) to the effect that "due to
advanced state of postmortem decomposition, cause of

death could not be determined." Fortune referred the insurance claim to Mission
Adjustment Service, Inc. Following a series of communications between Jacqueline
Jimenez vda. de Gabriel and Fortune, the latter, on 22 September 1983, ultimate
ly denied the claim of ECDC on the ground of prescription. Vda. De Gabriel went
to the Regional Trial Court of Manila. In her complaint against ECDC and Fortune
, she averred that her husband died of electrocution while in the performance of
his work and prayed for the recovery of P100,000.00 for insurance indemnificati
on and of various other sums by way of actual, moral, and exemplary damages, plu
s attorneys fees and costs of suit. Fortune filed its answer, which was not ver
ified, admitting the genuineness and due execution of the insurance policy; it a
lleged, however, that since both the death certificate issued by the Iraqi Minis
try of Health and the autopsy report of the NBI failed to disclose the cause of
Gabriels death, it denied liability under the policy. In addition, Fortune rais
ed the defense of "prescription," invoking Section 384 10 of the Insurance Code.
Later, Fortune filed an amended answer, still unverified, reiterating its origi
nal defenses but, this time, additionally putting up a counterclaim and a crossc
laim. The trial court dismissed the case against ECDC for the failure of Vda. de
Gabriel to take steps to cause the service of the fourth alias summons on ECDC.
The dismissal was without prejudice. The case proceeded against Fortune alone.
On 28 May 1987, the trial court rendered its decision in favor (partly) of Vda.
de Gabriels claim. In arriving at its conclusion, the trial court held that For
tune was deemed to have waived the defense, i.e., that the cause of Gabriels de
ath was not covered by the policy, when the latter failed to impugn by evidence
Vda. de Gabriels averment on the matter. With regard to the defense of prescrip
tion, the court considered the complaint to have been timely filed or within 1 y
ear from Fortunes denial of the claim. Vda. de Gabriel and Fortune both appeale
d to the Court of Appeals. The Court of Appeals, on 18 September 1991, reversed
the decision of the lower court. The appellate court held that Vda. de Gabriel h
ad failed to substantiate her allegation that her husbands death was caused by
a risk insured against. The motion for reconsideration was denied. Vda. de Gabri
el filed the petition for review on certiorari. Issue [1]: Whether prescription
was properly invoked by Fortune in this case. Held [1]: YES. On the issue of "pr
escription," Fortune correctly invoked Section 384 of the Insurance Code which p
rovides that "Any person having any claim upon the policy issued pursuant to thi
s chapter shall, without any unnecessary delay, present to the insurance company
concerned a written notice of claim setting forth the nature, extent and durati
on of the injuries sustained as certified by a duly licensed physician. Notice o
f claim must be filed within six months from date of the accident, otherwise, th
e claim shall be deemed waived. Action or suit for recovery of damage due to los
s or injury must be brought, in proper cases, with the Commissioner or the Court
s within one year from denial of the claim, otherwise, the claimants right of a
ction shall prescribe." The notice of death was given to Fortune, concededly, mo
re than a year after the death of Vda. de Gabriels husband. Fortune, in invokin
g prescription, was not referring to the one-year period from the denial of the
claim within which to file an action against an insurer but obviously to the wri
tten notice of claim that had to be submitted within six months from the time of
the accident. On the other hand, there is absolutely no basis in fact and in la
w to hold that the insurance company was deemed to have waived -- by failing to
have its answers (to the Request for Admission) duly verified -- the defense, th
at the death of Vda. de Gabriels husband was not caused by violent accidental e
xternal and visible means as contemplated in the insurance policy. The Death Ce
rtificate and the Autopsy Report, more than controverted the allegation of Vda.
de Gabriel as to the cause of death of her husband. Issue [2]: Whether Vda. De G
abriel is required to present proof that the insureds demise was from an accident
al death, unlike in ordinary life insurance where the insureds death, regardles
s of the cause thereof, would normally be compensable. Held [2]: YES. The insura
nce policy expressly provided that to be compensable, the injury or death should
be caused by "violent accidental external and visible means." In attempting to
prove the cause of her husbands death, all that Vda. de Gabriel could submit we
re a letter sent to her by her husbands co-worker, stating that Gabriel died wh
en he tried to haul water out of a tank while its submerged motor was still func
tioning, and

Vda. de Gabriels sinumpaang salaysay which merely confirmed the receipt and sta
ted contents of the letter. Said the appellate court in this regard: "It must be
noted that the only evidence presented by her to prove the circumstances surrou
nding her husbands death were her purported affidavit and the letter allegedly
written by the deceased co-worker in Iraq. The said affidavit however suffers fr
om procedural infirmity as it was not even testified to or identified by the aff
iant (Vda. De Gabriel) herself. This self-serving affidavit therefore is a mere
hearsay under the rules. In like manner, the letter allegedly written by the dec
easeds co-worker which was never identified to in court by the supposed author,
suffers from the same defect as the affidavit of the plaintiff-appellant." Not
one of the other documents submitted, to wit, the POEA decision, dated 06 June 1
984, the death certificate issued by the Ministry of Health of Iraq and the NBI
autopsy report, could give any probative value to Vda. de Gabriels claim. The P
OEA decision did not make any categorical holding on the specific cause of Gabri
els death. Neither did the death certificate issued by the health authorities i
n Iraq nor the NBI autopsy report provide any clue on the cause of death. All th
at appeared to be clear was the fact of Gabriels demise on 22 May 1982 in Iraq.
Evidence, in fine, is utterly wanting to establish that the insured suffered fr
om an accidental death, the risk covered by the policy. In an accident insurance
, the insured "s beneficiary has the burden of proof in demonstrating that the c
ause of death is due to the covered peril. Once the fact is established, the bur
den then shifts to the insurer to show any excepted peril that may have been sti
pulated by the parties. An "accident insurance" is not thus to be likened to an
ordinary life insurance where the insureds death, regardless of the cause there
of, would normally be compensable. The latter is akin in property insurance to a
n "all risk" coverage where the insured, on the aspect of burden of proof, has m
erely to show the condition of the property insured when the policy attaches and
the fact of loss or damage during the period of the policy and where, thereafte
r, the burden would be on the insurer to show any "excluded peril." When, howeve
r, the insured risk is specified, it lies with the claimant of the insurance pro
ceeds to initially prove that the loss is caused by the covered peril. 38 Vda. d
e Maglana vs. Consolacion [GR 60506, 6 August 1992] Third Division, Romero (J):
3 concur Facts: Lope Maglana was an employee of the Bureau of Customs whose work
station was at Lasa, in Davao City. On 20 December 1978, early morning, Lope Ma
glana was on his way to his work station, driving a motorcycle owned by the Bure
au of Customs. At Km. 7, Lanang, he met an accident that resulted in his death.
He died on the spot. The PUJ jeep that bumped the deceased was driven by Pepito
Into, operated and owned by Destrajo. From the investigation conducted by the tr
affic investigator, the PUJ jeep was overtaking another passenger jeep that was
going towards the city poblacion. While overtaking, the PUJ jeep of Destrajo run
ning abreast with the overtaken jeep, bumped the motorcycle driven by the deceas
ed who was going towards the direction of 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. Consequently, the heirs of Lope Maglana, Sr., filed an a
ction for damages and attorneys fees against operator Patricio Destrajo and the
Afisco Insurance Corporation (AFISCO) before the then Court of First Instance o
f Davao, Branch II. An information for homicide thru reckless imprudence was als
o filed against Pepito Into. During the pendency of the civil case, Into was sen
tenced to suffer an indeterminate penalty of 1 year, 8 months and 1 day of prisi
on correccional, as minimum, to 4 years, 9 months and 11 days of prision correci
onal, as maximum, with all the accessory penalties provided by law, and to indem
nify the heirs of Lope Maglana, Sr. in the amount of P12,000.00 with subsidiary
imprisonment in case of insolvency, plus P5,000.00 in the concept of moral and e
xemplary damages with costs. No appeal was interposed by the accused who later a
pplied for probation. On 14 December 1981, the lower court rendered a decision f
inding that Destrajo had not exercised sufficient diligence as the operator of t
he jeepney. The court ordered Destrajo to pay the heirs of Maglana the sum of P2
8,000.00 for loss of income; the sum of P12,000.00 which amount shall be deducte
d in the event judgment in Criminal Case 3527-D against the driver, accused Into
, shall have been enforced; the sum of P5,901.70 representing funeral and burial
expenses of the deceased; the sum of P5,000.00 as moral damages which shall be
deducted in the event judgment (sic) in Criminal Case 3527-D against the driver,
accused Into; the sum of P3,000.00 as attorneys fees and to pay the costs of s
uit. The court ordered the insurance company is ordered

to reimburse Destrajo whatever amounts the latter shall have paid only up to the
extent of its insurance coverage. The heirs of Maglana filed a motion for the r
econsideration of the second paragraph of the dispositive portion of the decisio
n contending that AFISCO should not merely be held secondarily liable because th
e Insurance Code provides that the insurers liability is "direct and primary an
d/or jointly and severally with the operator of the vehicle, although only up to
the extent of the insurance coverage." In its Order of February 9, 1982, the lo
wer 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 s
econdary only up to the extent of the insurance coverage." The heirs filed a sec
ond motion for reconsideration reiterating that the liability of the insurer is
direct, primary and solidary with the jeepney operator because the petitioners b
ecame direct beneficiaries under the provision of the policy which, in effect, i
s a stipulation pour autrui. This motion was likewise denied for lack of merit.
The heirs filed the petition for certiorari. Issue [1]: Whether AFISCO is primar
ily liable, not secondarily liable, on the insurance policy. Held [1]: The parti
cular provision of the insurance policy on which the heirs base their claim prov
ides "SECTION 1 LIABILITY TO THE PUBLIC 1. The Company will, subject to the Limi
ts of Liability, pay all sums necessary to discharge liability of the insured in
respect of. (a) death of or bodily injury to any THIRD PARTY; xxx 3. In the eve
nt of the death of any person entitled to indemnity under this Policy, the Compa
ny will, in respect of the liability incurred to such person indemnify his perso
nal representatives in terms of, and subject to the terms and conditions hereof.
" The above-quoted provision leads to no other conclusion but that AFISCO can be
held directly liable by the heirs. As the Court ruled in Shafer vs. Judge, RTC
of Olongapo City, Br. 75, "[w]here an insurance policy insures directly against
liability, the insurers liability accrues immediately upon the occurrence of th
e injury or event upon which the liability depends, and does not depend on the r
ecovery of judgment by the injured party against the insured." The underlying re
ason behind the third party liability (TPL) of the Compulsory Motor Vehicle Liab
ility Insurance is "to protect injured persons against the insolvency of the ins
ured who causes such injury, and to give such injured person a certain beneficia
l interest in the proceeds of the policy." Since the heirs had received from AFI
SCO the sum of P5,000.00 under the no-fault clause, AFISCOs liability is now li
mited to P15,000.00. Issue [2]: Whether AFISCO is solidarily liable with Destraj
o. Held [2]: NO. In Malayan Insurance Co., Inc. v. Court of Appeals, the Court h
ad the opportunity to resolve the issue as to the nature of the liability of the
insurer and the insured vis-a-vis the third party injured in an accident, where
it ruled that "While it is true that where the insurance contract provides for
indemnity against liability to third persons, such third persons can directly su
e the insurer, however, the direct liability of the insurer under indemnity cont
racts against third party liability does not mean that the insurer can be held s
olidarily liable with the insured and/or the other parties found at fault. The l
iability of the insurer is based on contract; that of the insured is based on to
rt." The Court then proceeded to distinguish the extent of the liability and man
ner of enforcing the same in ordinary 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 under
takes for a consideration to indemnify the insured against loss, damage or liabi
lity arising from an unknown or contingent event." Herein, the heirs cannot vali
dly claim that AFISCO, whose liability under the insurance policy is also P20,00
0.00, can be held solidarily liable with Destrajo for the total amount of P53,90
1.70 in accordance with the decision of the lower court. Since under both the la
w and the insurance policy, AFISCOs liability is only up to P20,000.00, the sec
ond paragraph of the dispositive portion of the decision in question may have un
wittingly sown confusion among the heirs and their counsel. What should have bee
n clearly stressed as to leave no room for doubt was the liability of AFISCO und
er the explicit terms of the insurance contract. The liability of AFISCO based o
n the insurance contract is direct, but not solidary with that of Destrajo which
is based on Article 2180 of the Civil Code. As such, the heirs 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 reimbursement from AFISCO to the e
xtent of the insurance coverage.

39 Tio Khe Chio vs. Court of Appeals [GR 76101-02, 30 September 1991] Third Divi
sion, Fernan (J): 4 concur Facts: On 18 December 1978, Tio Khe Chio imported 1,0
00 bags of fishmeal valued at $36,000.30 from Agro Impex, S.A. Dallas, Texas, U.
S.A. The goods were insured with Eastern Assurance and Surety Corporation (EASCO
) and shipped on board the M/V Peskov, a vessel owned by Far Eastern Shipping Co
mpany. When the goods reached Manila on 28 January 1979, they were found to have
been damaged by sea water which rendered the fishmeal useless. Tio filed a clai
m with EASCO and Far Eastern Shipping. Both refused to pay. Whereupon, Tio sued
them before the then Court of First Instance of Cebu, Branch II for damages. EAS
CO, as the insurer, filed a counterclaim against the Tio for the recovery of P18
,387.86 representing the unpaid insurance premiums. On 30 June 1982, the trial c
ourt rendered judgment ordering EASCO and Far Eastern Shipping to pay Tio solida
rily the sum of P105,986.68 less the amount of P18,387.86 for unpaid premiums wi
th interest at the legal rate from the filing of the complaint, the sum of P15,0
00.00 as attorneys fees and the costs. The judgment became final as to EASCO bu
t the shipping company appealed to the Court of Appeals and was absolved from li
ability by the said court in AC-GR 00161, entitled "Tio Khe Chio vs. Eastern Ass
urance and Surety Corporation." The trial court, upon motion by Tio, issued a wr
it of execution against EASCO. The sheriff enforcing the writ reportedly fixed t
he legal rate of interest at 12%. EASCO moved to quash the writ alleging that th
e legal interest to be computed should be 6% per annum in accordance with Articl
e 2209 of the Civil Code and not 12% as insisted upon by Tios counsel. In its o
rder of 30 July 1986, the trial court denied EASCOs motion. EASCO then filed a
petition for certiorari and prohibition before the Court of Appeals. On 30 July
1986, the Appellate Court rendered judgment, setting aside the order dated 30 Ju
ly 1986 in so far as it fixes the interest at 12% on the principal amount of P87
,598.82 from the date of filing of the complaint until the full payment of the a
mount, and the interest that Tio was entitled to collect from EASCO was reduced
to 6% per annum; without pronouncement as to costs. Tio filed the petition for c
ertiorari and prohibition. Issue [1]: Whether Sections 243 and 244, as to intere
st, apply in the present case. Held [1]: NO. Section 243 of the Insurance Code p
rovides that "the amount of any loss or damage for which an insurer may be liabl
e, under any policy other than life insurance policy, shall be paid within thirt
y days after proof of loss is received by the insurer and ascertainment of the l
oss or damage is made either by agreement between the insured and the insurer or
by arbitration; but if such ascertainment is not had or made within sixty days
after such receipt by the insurer of the proof of loss, then the loss or damage
shell be paid within ninety days after such receipt. Refusal or failure to pay t
he loss or damage within the time prescribed herein will entitle the assured to
collect interest on the proceeds of the policy for the duration of the delay at
the rate of twice the ceiling prescribed by the Monetary Board, unless such fail
ure or refusal to pay is based on the ground that the claim is fraudulent." Sect
ion 244 of the aforementioned Code also provides that "In case of any litigation
for the enforcement of any policy or contract of insurance, it shall be the dut
y of the Commissioner or the Court, as the case may be, to make a finding as to
whether the payment of the claim of the insured has been unreasonably denied or
withheld; and in the affirmative case, the insurance company shall be adjudged t
o pay damages which shall consist of attorneys fees and other expenses incurred
by the insured person by reason of such undeniable denial or withholding of pay
ment plus interest of twice the ceiling prescribed by the Monetary Board of the
amount of the claim due the insured, from the date following the time prescribed
in section two hundred forty-two or in section two hundred forty-three, as the
case may be, until the claim is fully satisfied; Provided, That the failure to p
ay any such claim within the time prescribed in said sections shall be considere
d prima facie evidence of unreasonable delay in payment." Herein, there was no u
njustified refusal or withholding of payment on Tios claim. The aforecited sect
ions of the Insurance Code are not pertinent to the case, as they apply only whe
n the court finds an unreasonable delay or refusal in the payment of the claims.

Issue [2]: Whether the interest to be imposed on claims based on an insurance co
ntract is 6% or 12%. Held [2]: 6%. The legal rate of interest is 6% per annum. C
ircular 416 of the Central Bank which took effect on 29 July 1974 pursuant to Pr
esidential Decree 116 (Usury Law) which raised the legal rate of interest from 6
% to 12% cannot apply as the adjusted rate mentioned in the circular refers only
to loans or forbearances of money, goods or credits and court judgments thereon
but not to court judgments for damages arising from injury to persons and loss
of property which does not involve a loan. On the other hand, in the case of Phi
lippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28, 1986, 143 SCRA
158, the Court declared that the legal rate of interest is 6% per annum, and no
t 12%, where a judgment award is based on an action for damages for personal inj
ury, not use or forbearance of money, goods or credit. In the same vein, the Cou
rt held in GSIS vs. Court of Appeals, GR 52478, 30 October 1986, 145 SCRA 311, t
hat the rates under the Usury Law (amended by PD 116) are applicable only to int
erest by way of compensation for the use or forbearance of money, interest by wa
y of damages is governed by Article 2209 of the Civil Code. Clearly, the applica
ble law is Article 2209 of the Civil Code which reads "If the obligation consist
s in the payment of a sum of money and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the payment o
f interest agreed upon, and in the absence of stipulation, the legal interest wh
ich is six per cent per annum." And in the light of the fact that the contending
parties did not allege the rate of interest stipulated in the insurance contrac
t, the legal interest was properly pegged at 6%. 40 Finman General Assurance Cor
poration vs. Court of Appeals [GR 138737, 12 July 2001] First Division, Kapunan
(J): 4 concur Facts: On 15 September 1981, Usiphil Incorporated obtained a fire
insurance policy from Finman General Assurance Corporation (then doing business
under the name Summa Insurance Corporation) covering certain properties, e.g., o
ffice, furniture, fixtures, shop machinery and other trade equipment. Under Poli
cy F3100 issued to Usiphil, Finman undertook to indemnify Usiphil for any damage
to or loss of said properties arising from fire. Sometime in 1982, Usiphil file
d with Finman an insurance claim amounting to P987,126.11 for the loss of the in
sured properties due to fire. Acting thereon, Finman appointed Adjuster H.H. Bay
ne to undertake the valuation and adjustment of the loss. H.H. Bayne then requir
ed Usiphil to file a formal claim and submit proof of loss. In compliance therew
ith, Usiphil submitted its Sworn Statement of Loss and Formal Claim, dated 22 Ju
ly 1982, signed by Reynaldo Cayetano, Usiphils Manager. Usiphil likewise submit
ted Proof of Loss signed by its Accounting Manager Pedro Palallos and countersig
ned by H.H. Baynes Adjuster F.C. Medina. Palallos personally followed-up Usiphi
ls claim with Finmans President Joaquin Ortega. During their meeting, Ortega i
nstructed their Finance Manager, Rosauro Maghirang, to reconcile the records. Th
ereafter, Maghirang and Palallos signed a Statement/Agreement, dated 28 February
1985, which indicated that the amount due Usiphil was P842,683.40. Despite repe
ated demands by Usiphil, Finman refused to pay the insurance claim. Thus, Usiphi
l was constrained to file a complaint against Finman for the unpaid insurance cl
aim. In its Answer, Finman maintained that the claim of Usiphil could not be all
owed because it failed to comply with Policy Condition 13 regarding the submissi
on of certain documents to prove the loss. Trial ensued. On 6 July 1994, the tri
al court rendered judgment in favor of Usiphil. It ordered Finman to pay Usiphil
the sum of P842,683.40 and to pay 24% interest per annum from 28 February 1985
until fully paid; the sum equivalent to 10% of the principal obligation as and f
or attorneys fees, plus P1,500.00 per court appearance of counsel; the amount o
f P30,000.00 as exemplary damages in addition to the actual and compensatory dam
ages awarded. The court also dismissed the claim of P30,000.00 for actual damage
s under par. 4 of the prayer, since the actual damages. has been awarded under p
ar. 1 of the decisions dispositive portion; dismissed the claim of interest und
er par. 2 of the prayer, there being no agreement to such effect; dismissed the
counter-claim for lack of merit; and ordered Finman to pay the cost of suit. On
appeal, the CA substantially affirmed the decision of the trial court. The appel
late court modified the decision by ordering Finman to pay Usiphil the sum of P8
42,683.40 and to pay 24% interest per annum from 3 May 1985 until fully paid. Fi
nman filed the petition for review on certiorari.

Issue [1]: Whether Usiphil has complied with Policy Condition 13 in notifying Fi
nman of the loss. Held [1]: YES. Usiphil had substantially complied with Policy
Condition 13 which reads "The insured shall give immediate written notice to the
Company of any loss, protect the property from further damage, forthwith separa
te the damaged and undamaged personal property, put it in the best possible orde
r, furnish a complete inventory of the destroyed, damaged, and undamaged propert
y, showing in detail quantities, costs, actual cash value and the amount of loss
claimed; AND WITHIN SIXTY DAYS AFTER THE LOSS, UNLESS SUCH TIME IS EXTENDED IN
WRITING BY THE COMPANY, THE INSURED SHALL RENDER TO THE COMPANY A PROOF OF LOSS,
signed and sworn to by the insured, stating the knowledge and belief of the ins
ured as to the following: the time and origin of the loss, the interest of the i
nsured and of all others in the property, the actual cash value of each item the
reof and the amount of loss thereto, all encumbrances thereon, all other contrac
ts of insurance, whether valid or not, covering any of said property, any change
s in the title, use, occupation, location, possession or exposures of said prope
rty since the issuing of this policy by whom and for what purpose any buildings
herein described and the several parts thereof were occupied at the time of loss
and whether or not it then stood on leased ground, and shall furnish a copy of
all the descriptions and schedules in all policies, and if required verified pla
ns and specifications of any building, fixtures, or machinery destroyed or damag
ed. The insured, as often as may be reasonably required, shall exhibit to any pe
rson designated by the company all that remains of any property herein described
, and submit to examination under oath by any person named by the Company, and s
ubscribe the same; and, as often as may be reasonably required, shall produce fo
r examination all books of account, bills, invoices, and other vouchers or certi
fied copies thereof if originals be lost, at such reasonable time and place as m
ay be designated by the Company or its representative and shall permit extracts
and copies thereof to be made. No claim under this policy shall be payable unles
s the terms of this condition have been complied with." A perusal of the records
shows that Usiphil, after the occurrence of the fire, immediately notified Finm
an thereof. Thereafter, Usiphil submitted the following documents: (1) Sworn Sta
tement of Loss and Formal Claim and; (2) Proof of Loss. The submission of these
documents constitutes substantial compliance with the above provision. Indeed, a
s regards the submission of documents to prove loss, substantial, not strict as
urged by Finman, compliance with the requirements will always be deemed sufficie
nt. In any case, Finman itself acknowledged its liability when through its Finan
ce Manager, Rosauro Maghirang, it signed the document indicating that the amount
due Usiphil is P842,683.40. Issue [2]: Whether the payment of 24% interest per
annum is authorized by Sections 243 and 244 of the Insurance Code. Held [2]: YES
. Anent the payment of 24% interest per annum computed from 3 May 1985 until ful
ly paid, the same is authorized by Sections 243 and 244 of the Insurance Code. N
otably, under Section 244, a prima facie evidence of unreasonable delay in payme
nt of the claim is created by the failure of the insurer to pay the claim within
the time fixed in both Sections 243 and 244. Further, Section 29 of the policy
itself provides for the payment of such interest: "Settlement of claim clause. T
he amount of any .loss or damage for which the company may be liable, under this
policy shall be paid within thirty days after proof of loss is received by the
company and ascertainment of the loss or damage is made either in an agreement b
etween the insured and the company or by arbitration; but if such ascertainment
is not had or made within sixty days after such receipt by the company of the pr
oof of loss, then the loss or damage shall be paid within ninety days after such
receipt. Refusal or failure to pay the loss or damage within the time prescribe
d herein will entitle the assured to collect interest on the proceeds of the pol
icy for the duration of the delay at the rate of twice the ceiling prescribed by
the Monetary Board. unless such failure or refusal to pay is based on the groun
ds (sic) that the claim is fraudulent." The policy itself obliges Finman to pay
the insurance claim within 30 days after proof of loss and ascertainment of the
loss made in an agreement between Usiphil and Finman. Finman and Usiphil signed
the agreement indicating that the amount due Usiphil was P842,683.40 on 2 April
1985. Finman thus had until 2 May 1985 to pay Usiphils insurance. For its failu
re to do so, the Court of Appeals and the trial court rightfully directed Finman
to pay, inter alia, 24% interest per annum in accordance with the above quoted

provisions.

Insurance Digest Cases

Загружено:

Сведения о документе

Исходное описание:

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Insurance Digest Cases

Загружено:

Авторское право:

Доступные форматы

Narratives

Insurance Law (Commercial)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

f insurance as an agreement whereby

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

g the insured's declaration on the subheading CO-INSURANCE that the co-insurer i

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

condary to hypertension. Contrary to Grepalifes allegations, there was no suffici

Narratives (Berne Guerrero)

neglect to communicate that which a party knows and ought to communicate, is ca

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

In that case, payment of the premium was in fact actually made on 24

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

payment by Chua to AHAC. Well-settled is the rule that the

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

May 1967] En Banc, Castro (J): 9 concur

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Commercial Law Insurance Law, 2006 ( 36 )

Narratives (Berne Guerrero)

cept of litigation expenses the sum of P5,000.00; to pay by way of reimbursement

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Commercial Law Insurance Law, 2006 ( 41 )

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

is no necessity to point to any particular cause. Contracts of insurance are con

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)

Narratives (Berne Guerrero)