TAN VS.

CA [174 SCRA 403] FACTS: Businessman Tan Lee Siong applied for life insurance policy with American Life Insurance Company in the amount of P80,000.00 by virtue of which he was issued Policy No. 1082467 effective November 6,1973, with his sons as designated beneficiaries thereof. On April 1975, Tan Lee Siong died and the sons subsequently filed their claim for the insurance proceeds. But in September of the same year, the company sent a letter denying petitioners' claim and rescinded the policy by reason of the alleged misrepresentation and concealment of material facts made by the deceased Tan Lee Siong in his application for insurance. The premiums paid on the policy, however, were thereupon refunded.

respondent company is not, therefore, barred from proving that the policy is void ab initio by reason of the insured's fraudulent concealment or misrepresentation. Moreover, respondent company rescinded the contract of insurance and refunded the premiums paid on September 11, 1975, previous to the commencement of this action on November 27,1975. The deceased, by affixing his signature on the application form, affirmed the correctness of all the entries and answers appearing therein. It is but to be expected that he, a businessman, would not have affixed his signature on the application form unless he clearly understood its significance. For, the presumption is that a person intends the ordinary consequence of his voluntary act and takes ordinary care of his concerns. [Sec. 5(c) and (d), Rule 131, Rules of Court]. The evidence for respondent company shows that on September 19,1972, the deceased was examined by Dr. Victoriano Lim and was found to be diabetic and hypertensive; that by January, 1973, the deceased was complaining of progressive weight loss and abdominal pain and was diagnosed to be suffering from hepatoma, (t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr. Wenceslao Vitug, testified that the deceased came to see him on December 14, 1973 for consolation and claimed to have been diabetic for five years. (t.s.n., Aug. 23,1976, p. 5; Exhibit 6) Because of the concealment made by the deceased of his consultations and treatments for hypertension, diabetes and liver disorders, respondent company was thus misled into accepting the risk and approving his application as medically standard (Exhibit 5- C) and dispensing with further medical investigation and examination (Exhibit 5-A). For as long as no adverse medical history is revealed in the application form, an applicant for insurance is presumed to be healthy and physically fit and no further medical investigation or examination is conducted by respondent company

ISSUES: Whether or not the insurance company 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 commencement of the action. RULING: The so-called "incontestability clause" precludes the insurer from raising the defenses of false representations or concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in force for at least two years during the insured's lifetime. The phrase "during the lifetime" found in Section 48 simply means that the policy is no longer considered in force after the insured has died. The key phrase in the second paragraph of Section 48 is "for a period of two years." As noted by the Court of Appeals, to wit: The policy was issued on November 6, 1973 and the insured died on April 26,1975. The policy was thus in force for a period of only one year and five months. Considering that the insured died before the two-year period had lapsed,

 Insurance Case Digest: Rizal Commercial Banking Corporation V. CA (1998) G.R.Nos. 128833 April 20, 1998 Lessons Applicable: Assignee (Insurance)

RCBC, one of GOYUs creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but said claims were also denied for the same reasons that MICO denied GOYUs claims RTC: Confirmed GOYUs other creditors (Urban Bank, Alfredo Sebastian, and

FACTS: RCBC Binondo Branch initially granted a credit facility of P30M to Goyu & Sons, Inc. GOYUs applied again and through Binondo Branch key officer's Uys and Laos recommendation, RCBCs executive committee increased its credit facility to P50M to P90M and finally to P117M. As security, GOYU executed 2 real estate mortgages and 2 chattel mortgages in favor of RCBC. GOYU obtained in its name 10 insurance policy on the mortgaged properties from Malayan Insurance Company, Inc. (MICO). In February 1992, he was issued 8 insurance policies in favor of RCBC. April 27, 1992: One of GOYUs factory buildings was burned so he claimed against MICO for the loss who denied contending that the insurance policies were either attached pursuant to writs of attachments/garnishments or that creditors are claiming to have a better right GOYU filed a complaint for specific performance and damages at the RTC

PhilippineTrust Company) obtained their writs of attachment covering an aggregate amount of P14,938,080.23 and ordered that 10 insurance policies be deposited with the court minus the said amount so MICO deposited P50,505,594.60. Another Garnishment of P8,696,838.75 was handed down RTC: favored GOYU against MICO for the claim, RCBC for damages and to pay RCBC its loan CA: Modified by increasing the damages in favor of GOYU In G.R. No. 128834, RCBC seeks right to intervene in the action between Alfredo C. Sebastian (the creditor) and GOYU (the debtor), where the subject insurance policies were attached in favor of Sebastian RTC and CA: endorsements do not bear the signature of any officer of GOYU concluded that the endorsements favoring RCBC as defective.

ISSUE: W/N RCBC as mortgagee, has any right over the insurance policies taken by GOYU, the mortgagor, in case of the occurrence of loss

withholdingpayment of insurance proceeds, the delay must be HELD: YES. mortgagor and a mortgagee have separate and distinct insurable interests in the same mortgaged property, such that each one of them may insure the same property for his own sole benefit although it appears that GOYU obtained the subject insurance policies naming itself as the sole payee, the intentions of the parties as shown by their contemporaneous acts, must be given due consideration in order to better serve the interest of justice and equity 8 endorsement documents were prepared by Alchester in favor of RCBC MICO, a sister company of RCBC GOYU continued to enjoy the benefits of the credit facilities extended to it by RCBC. GOYU is at the very least estopped from assailing their operative effects. The two courts below erred in failing to see that the promissory notes which they ruled should be excluded for bearing dates which are after that of the fire, are mere renewals of previous ones RCBC has the right to claim the insurance proceeds, in substitution of the property lost in the fire. Having assigned its rights, GOYU lost its standing as the beneficiary of the said insurance policies insurance company to be held liable for unreasonably delaying and Landicho vs. GSIS [G.R. No. L-28866 March 17, 1972] FACTS: On June 1, 1964, the GSIS issued in favor of Flaviano Landicho, a civil engineer of the Bureau of Public Works, stationed at Mamburao, Mindoro Occidental, optional additional life insurance policy No. OG-136107 in the sum of P7,900. xxx Before the issuance of said policy, Landicho had filed an application, by filing and signing a printed form of the GSIS on the basis of which the policy was issued. Paragraph 7 of said application States: 7. xxx I hereby agree as follows: xxx c. That this application serves as a letter of authority to the Collecting Officer of our Office thru the GSIS to deduct from my salary the monthly premium in the amount of P33.36, beginning the month of May, 1964, and every month thereafter until notice of its discontinuance shall have beenreceived from the System; . d. That the failure to deduct from my salary the month premiums shall not make the policy lapse, however, the premium account shall be considered as indebtedness which, I bind myself to pay the System; . wanton, oppressive, or malevolent - not shown Sebastians right as attaching creditor must yield to the preferential rights of RCBC over the Malayan insurance policies as first mortgagee.

e. That my policy shall be made effective on the first day of the month next following the month the first premium is paid; provided, that it is not more ninety (90) days before or after the date of the medical examination, was conducted if required." While still an employee of the Bureau of Public Works, Mr. Landicho died in an airplane crash on June 29, 1966. Mrs. Landicho, in her own behalf and that of her co-plaintiffs and minor children, Rafael J. and Maria Lourdes Eugenia, filed with the GSIS a claim for P15,800, as the double indemnity due under policy No. OG136107. GSIS denied the claim, upon the ground that the policy had never been in force because, pursuant to subdivision (e) of the above-quoted paragraph 7 of the application, the policy "shall be ... effective on the first day of the month next following the month the first premium is paid," and no premium had ever been paid on said policy. The Lower Court decided in favor of the petitioner. GSIS appealed to the Supreme Court. ISSUE: WON the insurance policy in question has ever been in force, not a single premium having been paid thereon. RULING: Lower Court decision is sustained. (T)he language, of subdivisions (c), (d) and (e) is such as to create an ambiguity that should be resolved against the party responsible therefor defendant GSIS, as the party who prepared and furnished the application form and in favor of the party misled thereby, the insured employee. Indeed, our Civil Code provides: The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.
2

ambiguous, equivocal, or uncertain ... are to be construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is involved" (29 Am. Jur., 181), and the reason for this rule is the "insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of, the insurance company." (44 C.J.S., p. 1174.) 3. The equitable and ethical considerations justifying the foregoing view are bolstered up by two (2) factors, namely: (a) The aforementioned subdivision (c) states "that this application serves as a letter of authority to the Collecting Officer of our Office" the Bureau of Public Works "thru the GSIS to deduct from my salary the monthly premium in the amount of P33.36." No such deduction was made and, consequently, not even the first premium "paid" because the collecting officer of the Bureau of Public Works was not advised by the GSIS to make it (the deduction) pursuant to said authority. Surely, this omission of the GSIS should not inure to its benefit. . (b) The GSIS had impliedly induced the insured to believe that Policy No. OG-136107 was in force, he having been paid by the GSIS the dividends corresponding to said policy. Had the insured had the slightest inkling that the latter was not, as yet, effective for non-payment of the first premium, he would have, in all probability, caused the same to be forthwith satisfied. WHEREFORE, the decision appealed from should be, it is hereby affirmed, with costs against the defendant-appellant, Government Service Insurance System. It is so ordered. . FAR EASTERN SURETY v. MISA 25 SCRA 663

This is particularly true as regards insurance policies, in respect of which it is settled that the " "terms in an insurance policy, which are

REYES; October 26, 1968

NATURE Appeal by petition for review from a CA judgment

vehicle. A motion for reconsideration was filed in and dismissed by the CA.

ISSUE WON Far Eastern Surety is liable to the insured on its insurance policy

FACTS - Socorro Dancel Vda.de Misa and Araceli Pinto hired a taxi cab operated by La Mallorca on September 3, 1957. The taxi they were riding in collided with a gravel and sand truck resulting to injuries to both Misa and Pinto. - The two passengers instituted a suit for damages against La Mallorca who, while denying responsibility, instituted a third party complaint against Far Eastern Surety to recoup from the latter any award for damages that might be recovered by the passengers. - It would appear from the case that a sticker was placed in all the taxis of La Mallorca stating that passengers of the taxis were insured against accidents. This was done to entice the public into patronizing La Mallorca. - The trial court awarded to Misa and Pinto actual, moral and exemplary damages, and attorneys fees payable by La Mallorca and sentenced Far Eastern to pay La Mallorca P10,000. on its third party liability insurance. - On appeal, the CA, while holding that the collision was due to the fault of the driver of the gravel and sand truck, found the taxi company liable for damages to the passengers on the strength of its representation contained in the sticker above noted that the passengers were insured against accidents. In so ruling, the CA overruled the defense of the insurance company to the effect that it was responsible only if the insured, La Mallorca, was involved in accidents caused by, or arising out of, the use of the motor

HELD NO - The award for damages made to the passengers was exclusively predicated on the representation made by La Mallorca that its passengers were insured against accidents and not because it was at fault in causing the accident. Reasoning - In this case, the findings of the CA and the trial court that the causative factor of the mishap was the negligence of the gravel and truck driver would have been sufficient to relieve the taxi company of any liability arising from the accident. However, in view of the sticker in all of its taxicabs, La Mallorca has insured its passengers against accidents, whether it was at fault or not. In other words, La Mallorca accepted the responsibility for damages or injuries to passengers even if it had no fault at all. - In the case of the insurance company, the SC ruled that it neither authorized nor consented to the representations made by the taxi company to its passengers. As such, the liability of the said insurance company based on its insurance contract is limited to the recovery by the insured of all sums, cost and expenses which the insured shall become legally liable. The insurance company therefore cannot be held liable for the award.

- The taxi company is adjudged to be the sole party responsible for the award. Disposition The decision of the CA is modified by eliminating the award against Far Eastern. Philippine Phoenix and Insurance Company vs. Woodworks Inc. [G.R. No. L-25317 August 6, 1979] Facts: Philippine Phoenix and Insurance Company ( Phil. Phoenix for short) issued a fire insurance policy in favor of Woodworks, Inc. upon application of the latter insuring Woodworks building and equipments against loss by fire for a one year term from from July 21, 1960 to July 21, 1961. After issuance of the policy, Woodworks did not pay the premium as stipulated. On April 19, 1961, Phil. Phoenix notified Woodworks of the cancellation of the policy at the same time claiming earned premiums still unpaid by Woodworks from July 21, 1960 to April 19, 1961 worth P7,483.11 for 271 days). In said letter, Phil. Phoenix credited the remaining balance ( or from April 19, 1961 to July 21, 1961 equivalent to 3,110.25 for 94 days) to Woodworks account. Woodworks naturally refused to pay Phil. Phoenix s alleged earned premiums averring that failure to pay the premium after the issuance of the policy rendered the insurance policy unenforceable thereby prompting Phil. Phoenix legal action for recovery of premiums before the lower court ( CFI) of which Phoenix won. Now on appeal before the SC on pure questions of law. Issue: 1. WON non-payment or failure as the case may be of premiums after issuance of the fire insurance policy rendered such policy invalid or of no effect 2. Even if the premium is unpaid after issuance of the policy by Phil. Phoenix, granting aguendo that indeed Phil. Phoenix gave Woodworks credit extensions for purposes of giving effect of the policy, was there acceptance of such credit extended in this case?

Ruling: 1. Insurance policy became ineffective by nonpayment of premiums after issuance of policy. Section 77 of the Insurance Code (Presidential Decree No. 612, promulgated on December 18, 1974), provides 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. The insurance policy provides: THE COMPANY HEREBY AGREES with the Insured ... that if the Property above described, or any part thereof, shall be destroyed or damaged by Fire or Lightning after payment of Premium, at any time between 4:00 o'clock in the afternoon of the TWENTY FIRST day of JULY One Thousand Nine Hundred and SIXTY and 4:00 o'clock in the afternoon of the TWENTY FIRST day of JULY One Thousand Nine Hundred and SIXTY ONE. ... (Emphasis supplied) Insurance is "a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event." The consideration is the "premium". "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." Since the premium had not been paid, the policy must be deemed to have lapsed. The non-payment of premiums does not merely suspend but put, an end to an insurance contract, since the time of the payment is peculiarly of the essence of the contract. ... the rule is that under policy provisions that upon the failure 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 cease, or words to like effect, because the contract so prescribes and because such 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, plaintiff, as insurer, would have had a valid defense against recovery under the Policy it had issued. Explicit in the Policy itself is plaintiff's agreement to indemnify defendant for loss by fire only "after payment of premium," supra. Compliance by the insured with 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 premiums, 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 continuance of the insurer's obligation is conditional upon the payment of premiums, so that no recovery can be had upon a lapsed policy, the contractual relation between the parties having ceased. Moreover, "an insurer cannot treat a contract as valid for the purpose of collecting premiums and invalid for the purpose of indemnity." 2. No express acceptance of credit extensions, if any, by Woodworks. The Policy provides 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 some agreement obviating the necessity for prepayment." To constitute an extension of credit there must be a clear and express agreement therefor." An acceptance of an offer to allow credit, if one was made, is as essential to make a valid agreement for credit, to change a conditional delivery of an insurance policy to an unconditional delivery, as it is to make any other contract. Such an acceptance could not be merely a mental act or state of mind, but would require a promise to pay made known in some manner to defendant. Digested by: CANTILLAS, IRISH ARCE vs. THE CAPITAL INSURANCE & SURETY CO., INC., FACTS:

In Civil Case No. 66466 of the Court of First Instance of Manila, the Capital Insurance and Surety Co., Inc., (COMPANY) was ordered to pay Pedro Arce (INSURED) the proceeds of a fire insurance policy. Not satisfied with the decision, the company appealed to this Court on questions of law. The INSURED(Pedro ARce) was the owner of a residential house in Tondo, Manila, which had been insured with the COMPANY(Capital insurance) since 1961 under Fire Policy No. 24204. On November 27, 1965, the COMPANY sent to the INSURED Renewal Certificate No. 47302 to cover the period December 5, 1965 to December 5, 1966. The COMPANY also requested payment of the corresponding premium in the amount of P 38.10. Anticipating that the premium could not be paid on time, the INSURED, thru his wife, promised to pay it on January 4, 1966. The COMPANY accepted the promise but the premium was not paid on January 4, 1966. On January 8, 1966, the house of the INSURED was totally destroyed by fire. On January 10, 1966, INSURED's wife presented a claim for indemnity to the COMPANY. She was told that no indemnity was due because the premium on the policy was not paid. Nonetheless the COMPANY tendered a check for P300.00 as financial aid which was received by the INSURED's daughter, Evelina R. Arce. The COMPANY reiterated that the check was given "not as an obligation, but as a concession" because the renewal premium had not been paid, The INSURED cashed the check but then sued the COMPANY on the policy. ISSUE: Whether the petitioners are entitled to claim from their policy despite non-payment of their premium. RULING: SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the perils insured against, unless there is clear agreement to grant credit extension for the premium due. No policy issued by an insurance

company is valid and binding unless and until the premium thereof has been paid " (Italics supplied.) (p. 11, Appellant's Brief.) Morever, the parties in this case had stipulated: IT IS HEREBY DECLARED AND AGREED that not. withstanding anything to the contrary contained in the within policy, this insurance will be deemed valid and binding upon the Company only when the premium and documentary stamps therefor have actually been paid in full and duly acknowledged in an official receipt signed by an authorized official/representative of the Company, " (pp. 45-46, Record on Appeal.) It is obvious from both the Insurance Act, as amended, and the stipulation of the parties that time is of the essence in respect of the payment of the insurance premium so that if it is not paid the contract does not take effect unless there is still another stipulation to the contrary. In the instant case, the INSURED was given a grace period to pay the premium but the period having expired with no payment made, he cannot insist that the COMPANY is nonetheless obligated to him.

premium and instead executed an acknowledgment receipt promising to pay 30 days after date. On Jan.8,1961, Plastic Era delivered a check as partial payment of the insurance premium worth 1k. However, it was dishonored by the Bank of America for lack of funds on Feb.20, 1961. Records revealed that Plastic Era had a balance of P1,193.41 as early as Jan.19, 1961. (Note: premium due date was on Jan.16,1961) Not unexpectedly, the property insured by Plastic Era was destroyed by fire on Jan.18, 1961 (thats 2 days after the premium became due). Plastic Era filed a claim for indemnity. Capital Insurance wanted to become part of Philippine Jurisprudence so it denied the claim on the ground that the premium was not paid. Pissed, Plastic Era then filed a case in the lower court which renderred judgment in its favor. The appelate court affirmed it and so the issue is brought before the SC. Issue: W/N a contract of insurance has been duly perfected between the petitioner, Capital Insurance, and respondent Plastic Era. Ruling: Yup, it has been perfected. The Insurnace Policy states that: THE COMPANY HEREBY AGREES with the Insured but subject to the terms and conditions endorsed or otherwise expressed hereon, which are to be taken as part of this Policy), that if the Property described, or any part thereof, shall be destroyed or damaged by Fire or Lightning after payment of the Premiums, at anytime between...xxx In clear and unequivocal terms the insurance policy provides that it is only upon payment of the premiums by Plastic Era that Capital Insurance agrees to insure the properties of the former against loss or damage in an amount not exceeding P100,000.00. It appears on record that on the day the insurance policy was delivered,

THE CAPITAL INSURANCE & SURETY CO., INC vs. PLASTIC ERA CO., INC., AND COURT OF APPEALS Digested by: marccarillo Facts: On Dec. 7, 1960, Capital Insurance & Surety Co., Inc (Capital Insurance) delivered to Plastic Era Manufacturing Co., Inc (Plastic Era) its Open Fire Policy No.22760 wherein the former undertook to insure the latters building, equipments, raw materials, products and accessories located at Sheridan Street, Mandaluyong, Rizal. The policy expressly provides that if the property insured would be destroyed or damaged by fire after the payment of the premiums, at anytime between the Dec. 15 1960 and one o'clock in the afternoon of the Dec. 15, 1961, the insurance company shall make good all such loss or damage in an amount not exceeding P100k. Plastic Era failed to pay its

Plastic Era did not pay the Capital Insurance, but instead executed an acknowledgment receipt. Q:Could not this have been considered a valid payment of the insurance premium? Article 1249 NCC: The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. Under this provision the mere delivery of a bill of exchange in payment of a debt does not immediately effect payment. It simply suspends the action arising from the original obligation in satisfaction of which it was delivered, until payment is accomplished either actually or presumptively. But wait... Acceptance by Capital Insurance considered as waiver Significantly, in the case before Us the Capital Insurance accepted the promise of Plastic Era to pay the insurance premium within thirty (30) days from the effective date of policy. By so doing, it has implicitly agreed to modify the tenor of the insurance policy and in effect, waived the provision therein that it would only pay for the loss or damage in case the same occurs after the payment of the premium. Considering that the insurance policy is silent as to the mode of payment, Capital Insurance is deemed to have accepted the promissory note in payment of the premium. Citing a US Case, our Supreme Court sad that that although one of conditions of an insurance policy is that "it shall not be valid or binding until the first premium is paid", if it is silent as to the mode of payment, promissory notes received by the company must be deemed to have been accepted in payment of the premium. In other words, a requirement for the payment of the first or initial premium in advance or actual cash may be waived by acceptance of a promissory note ...

The fact that the check issued by Plastic Era in partial payment of the promissory note was later on dishonored did not in any way operate as a forfeiture of its rights under the policy, there being no express stipulation therein to that effect. This is how the story ends. :D UCPB General Insurance vs. Masagana Telamart Inc. , [GR 137172] Facts: On 15 April 1991, UCPB General Insurance Co. Inc. (UCPBGen) issued 5 insurance policies covering Masagana Telamart, Inc.'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 Masagana's broker, Zuellig Insurance Brokers, Inc. of its intention not to renew 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 1992, fire razed Masagana's property covered by three of the insurance policies UCPBGen issued. On 13 July 1992, Masagana presented to UCPBGen's cashier at its head office 5 manager's checks in the total amount of P225,753.95, representing premium 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 July 1992, Masagana filed with UCPBGen its formal claim for indemnification of the insured property razed by fire. On the same day, 14 July 1992, UCPBGen returned to Masagana the 5 manager's checks that it tendered, and at the same time rejected Masagana's 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 Masagana's tender of premium payment. On 21 July 1992, Masagana filed with the Regional Trial 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 Masagana's insured property razed by fire, and for attorney's fees. On 23

October 1992, after its motion to dismiss had been denied, UCPBGen filed an answer to the complaint. It alleged that the complaint "fails to state a cause of action"; that UCPBGen was not liable to Masagana for insurance proceeds under the policies because at the time of the loss of Masagana's property due to fire, the policies had long expired and were not renewed. After due trial, on 10 March 1993, the Regional Trial Court, Branch 58, Makati, rendered decision, (1) authorizing and allowing 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-renewal policies; (2) declaring Masagana to have fully complied with its obligation 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 UCPBGen to deliver forthwith to Masagana the said replacement-renewal policies; (3) declaring two of the policies in force from 22 August 1991 up to 23 August 1992 and 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 latter's claim for indemnity under three policies and/or its replacement-renewal policies; (b) 25% of the total amount due as and for attorney's fees; (c) P25,000.00 as necessary litigation expenses; and, (d) the costs of suit. In due time, UCPBGen appealed to the Court of Appeals. On 7 September 1998, the Court of Appeals promulgated its decision affirming that of the Regional Trial Court with the modification that item 3 of the dispositive portion was deleted, and the award of attorney's fees was reduced to 10% of the total amount due. The Court of Appeals held that following previous practise, Masagana was allowed a 60 to 90 day credit term for the renewal of its policies, and that the acceptance of the late premium payment suggested an understanding that payment could be made later. 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 been 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) insured against. Held: The answer is easily found in the Insurance Code. No, an insurance policy, other than life, issued originally or on renewal, is not valid and binding until actual payment of the premium. Any agreement to the contrary is void. The parties may not agree expressly or impliedly on the extension of credit or time to pay the premium and consider the policy binding before actual payment. The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo 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 the premium for renewal of the policies was tendered on 13 July 1992, a month after 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, the Supreme Court reversed and set aside the decision of the Court of Appeals in CA-GR CV 42321. In lieu thereof, the Court rendered judgment dismissing Masagana's complaint and UCPBGen's counterclaims thereto filed with the Regional Trial Court, Branch 58, Makati City, in Civil Case 92-2023, without costs.

PHILIPPINE PHOENIX SURETY & INSURANCE, INC. vs.WOODWORKS, INC. [G.R. No. L-22684 August 31, 1967] FACTS: That on April 1, 1960, plaintiff issued to defendant Fire Policy No. 9652 for the amount of P300,000.00. The premiums of said policy amounted to P6, 051.95. The defendant paid P3,000.00 on September 22, 1960 and the plaintiff made several demands on defendant to pay the amount of P3,522.09. Appellee Philippine Phoenix Surety & Insurance Co., Inc. commenced this action in the Municipal Court of Manila to recover from appellant

10

Woodworks, Inc. the sum of P3,522.09, representing the unpaid balance of the premiums on a fire insurance policy issued by appellee in favor of appellant for a term of one year from April 1, 1960 to April 1, 1961. From an adverse decision of said court, Woodworks, Inc. appealed to the Court of First Instance of Manila. Appeal upon a question of law taken by Woodworks, Inc. from the judgment of the Court of First Instance of Manila "ordering the defendant, Woodworks, Inc. to pay to the plaintiff, Philippine Phoenix Surety & Insurance, Inc., the sum of P3,522.09 with interest thereon at the legal rate of 6% per annum from the date of the filing of the complaint until fully paid, and costs of the suit." Hence, this petition. Issue: Whether or not the non-payment of premium does not cancel the policy in a perfected contract of insurance Whether or not a partial payment of the premium made the policy effective during the whole period of the policy Ruling: The petition is lack of merit. There is, consequently, no doubt at all that, as between the insurer and the insured, there was not only a perfected contract of insurance but a partially performed one as far as the payment of the agreed premium was concerned. Thereafter the obligation of the insurer to pay the insured the amount for which the policy was issued in case the conditions therefor had been complied with, arose and became binding upon it, while the obligation of the insured to pay the remainder of the total amount of the premium due became demandable. The court did not agree with appellant's theory that non-payment by it of the premium due, produced the cancellation of the contract of insurance. Such theory would place exclusively in the hands of one of the contracting parties the right to decide whether the contract should stand or not. Rather the correct view would

seem to be this: as the contract had become perfected, the parties could demand from each other the performance of whatever obligations they had assumed. In the case of the insurer, it is obvious that it had the right to demand from the insured the completion of the payment of the premium due or sue for the rescission of the contract. As it chose to demand specific performance of the insured's obligation to pay the balance of the premium, the latter's duty to pay is indeed indubitable. The appealed decision being in accordance with law and the evidence, the same is affirmed.

Digested by: Gestopa, Gevina Makati Tuscany Condominium Corp. vs. Court of Appeals Facts: Sometime in early 1982, private respondent American Home Assurance Co. (AHAC), represented by American International Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany Condominium Corporation (TUSCANY) Insurance Policy on the latter's building and premises, for a period beginning March 1982 and ending March 1983, with a total premium of P466,103.05. The premium was paid on installments, all of which were accepted by private respondent. In February 1983, private respondent issued to petitioner another Insurance Policy, which replaced and renewed the previous policy, for a term covering 1 March 1983 to 1 March 1984. The premium in the amount of P466,103.05 was again paid on installments. All payments were likewise accepted by private respondent. In January 1984, the policy was again renewed and private respondent issued to petitioner Insurance Policy for the period March 1984 to March 1985. On this renewed policy, petitioner made two installment payments, both accepted by private respondent. Thereafter, petitioner refused to pay the balance of the premium. Consequently, AHAC filed an action to recover the unpaid balance of P314,103.05 for Insurance

11

policy. In its answer with counterclaim, Tuscany admitted the issuance of Insurance Policy. It explained that it discontinued the payment of premiums because the policy did not contain a credit clause in its favor and the receipts for the installment payments covering the policy for 1984-85, as well as the two (2) previous policies, stated the following reservations: (2) Acceptance of this payment shall not waive any of the company rights to deny liability on any claim under the policy arising before such payments or after the expiration of the credit clause of the policy; and (3) Subject to no loss prior to premium payment. If there be any loss such is not covered. Tuscany further claimed that the policy was never binding and valid, and no risk attached to the policy. It then pleaded a counterclaim for P152,000.00 for the premiums already paid for 1984-85, and in its answer with amended counterclaim, sought the refund of P924,206.10 representing the premium payments for 1982-85. Issue: Whether payment by installment of the premiums due on an insurance policy invalidates the contract of insurance. Ruling: No. The subject policies are valid even if the premiums were paid on installments. The records clearly show that Tuscany and AHAC intended subject insurance policies to be binding and effective notwithstanding the staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those 3 years, the insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the insurer's intention to honor the policies it issued to Tuscany. Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting and accepting the premiums, although paid on installments, and later deny liability on the lame excuse that the premiums were not prepaid in full. Thus, while the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, the Court was not prepared to rule that the request to make installment payments

duly approved by the insurer, would prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy. So is an understanding to allow insured to pay premiums in installments not so proscribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted. It appearing from the peculiar circumstances that the parties actually intended to make the three (3) insurance contracts valid, effective and binding, Tuscany may not be allowed to renege on its obligation to pay the balance of the premium after the expiration of the whole term of the third policy (AH-CPP-9210651) in March 1985. Moreover, where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums paid if the insurer was exposed to the risk insured for any period, however brief or momentary. Digested by: Patricia Ko American Home Assurance vs. Chua [G.R. No. 130421. June 28, 1999] FACTS: Petitioner, American Home, is a domestic corporation engaged in the insurance business. Sometime in 1990, respondent Chua obtained from petitioner a fire insurance covering the stock-in-trade of his business, Moonlight Enterprises, located at Valencia, Bukidnon. The insurance was due to expire on 25 March 1990. On 5 April 1990 respondent issued PCIBank Check No. 352123 in the amount of P2,983.50 to

12

petitioners agent, James Uy, as payment for the renewal of the policy. In turn, the latter delivered Renewal Certificate No. 00099047 to respondent. The check was drawn against a Manila bank and deposited in petitioners bank account in Cagayan de Oro City. The corresponding official receipt was issued on 10 April. Subsequently, a new insurance policy, Policy No. 206-4234498-7, was issued, whereby petitioner undertook to indemnify respondent for any damage or loss arising from fire up toP200,000 for the period 25 March 1990 to 25 March 1991. On 6 April 1990 Moonlight Enterprises was completely razed by fire. Total loss was estimated between P4,000,000 and P5,000,000. Respondent filed an insurance claim with petitioner and four other co-insurers, namely, Pioneer Insurance and Surety Corporation, Prudential Guarantee and Assurance, Inc., Filipino Merchants Insurance Co. and Domestic Insurance Company of the Philippines. Petitioner refused to honor the claim notwithstanding several demands by respondent, thus, the latter filed an action against petitioner before the trial court. In its defense, petitioner claimed there was no existing insurance contract when the fire occurred since respondent did not pay the premium. It also alleged that even assuming there was a contract, respondent violated several conditions of the policy, particularly: (1) his submission of fraudulent income tax return and financial statements; (2) his failure to establish the actual loss, which petitioner assessed at P70,000; and (3) his failure to notify to petitioner of any insurance already effected to cover the insured goods. These violations, petitioner insisted, justified the denial of the claim. Petitioner emphasizes that when the fire occurred on 6 April 1990 the insurance contract was not yet subsisting pursuant to Article 1249[3] of the Civil Code, which recognizes that a check can only effect payment once it has been cashed. Although respondent testified that he gave the check on 5 April to a certain James Uy, the check, drawn against a Manila bank and deposited in a Cagayan de Oro City bank, could

not have been cleared by 6 April, the date of the fire. In fact, the official receipt issued for respondents check payment was dated 10 April 1990, four days after the fire occurred. Citing jurisprudence,[4] petitioner also contends that respondents non-disclosure of the other insurance contracts rendered the policy void. Respondent refutes the reason for petitioners denial of his claim. To bolster his argument, respondent cites Section 66 of the Insurance Code,[5] which requires the insurer to give a notice to the insured of its intention to terminate the policy forty-five days before the policy period ends. In the instant case, petitioner opted not to terminate the policy. Instead, it renewed the policy by sending its agent to respondent, who was issued a renewal certificate upon delivery of his check payment for the renewal of premium. At this precise moment the contract of insurance was executed and already in effect. Respondent also claims that it is standard operating procedure in the provinces to pay insurance premiums by check when collected by insurance agents. ISSUES: 1. whether there was a valid payment of premium, considering that respondents check was cashed after the occurrence of the fire; whether respondent violated the policy by his submission of fraudulent documents and non-disclosure of the other existing insurance contracts;

2.

RULING: On the payment of premium through check (Relevant provision: Sec. 78) The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and binding. The only exceptions are life and industrial life insurance.[6] Whether payment was indeed made is a question of fact which is best determined by the trial court. The trial court found, as affirmed by the Court of Appeals, that there was a valid check payment by respondent to petitioner. Well-settled is the rule that the

13

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 the absence of any clear showing that the trial court overlooked certain facts or circumstances which would substantially affect the disposition of the case.[7] We see no reason to depart from this ruling. According to the trial court the renewal certificate issued to respondent contained the acknowledgment that premium had been paid. It is not disputed that the check drawn by respondent in favor of petitioner and delivered to its agent was honored when presented and petitioner forthwith issued its official receipt to respondent on 10 April 1990. Section 306 of the Insurance Code provides that any insurance company which delivers a policy or contract of insurance to an insurance agent or insurance broker shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon.[8] In the instant case, the best evidence of such authority is the fact that petitioner accepted the check and issued the official receipt for the payment. It is, as well, bound by its agents acknowledgment of receipt of payment. Section 78 of the Insurance Code explicitly provides: An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. This Section establishes a legal fiction of payment and should be interpreted as an exception to Section 77. On whether there were violations of the policy conditions stipulated Is respondent guilty of the policy violations imputed against him? We are not convinced by petitioners arguments. Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers, non-disclosure

thereof is a violation that entitles the insurer to avoid the policy. This condition is common in fire insurance policies and is known as the other insurance clause. The purpose for the inclusion of this clause is to prevent an increase in the moral hazard. We have ruled on its validity and the case of Geagonia v. Court of Appeals[10] clearly illustrates such principle. However, we see an exception in the instant case. Citing Section 29[11] of the Insurance Code, the trial court reasoned that respondents failure to disclose was not intentional and fraudulent. The application of Section 29 is misplaced. Section 29 concerns concealment which is intentional. The relevant provision is Section 75, which provides that: A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy. To constitute a violation the other existing insurance contracts must be upon the same subject matter and with the same interest and risk.[12] Indeed, respondent acquired several coinsurers and he failed to disclose this information to petitioner. Nonetheless, petitioner is estopped from invoking this argument. The trial court cited the testimony of petitioners loss adjuster who admitted previous knowledge of the co-insurers. Indubitably, it cannot be said that petitioner was deceived by respondent by the latters nondisclosure of the other insurance contracts when petitioner actually had prior knowledge thereof. Petitioners loss adjuster had known all along of the other existing insurance contracts, yet, he did not use that as basis for his recommendation of denial. The loss adjuster, being an employee of petitioner, is deemed a representative of the latter whose awareness of the other insurance contracts binds petitioner. We, therefore, hold that there was no violation of the other insurance clause by respondent. Paris-Manila Perfume Co. vs. Phoenix Assurance Co.

14

Facts: On May 22, 1924, defendant (Phoenix Assurance Co.) issued to plaintiff (Paris-Manila Perfume Co.) its fire insurance policy No. 841163 in the sum of P13,000 upon the property of the plaintiff at No. 1 Calle Cisneros, Cavite, insuring plaintiff's property against fire for that amount. That on July 4, 1924, the property covered by the insurance was completely destroyed by fire for the total loss to the plaintiff of P38.025.56; that under its policy with the defendant, it promptly presented its claim but the defendant wrongfully and unjustly refused to pay it. Defendant contended among others that the policy of insurance did not cover any loss or damage occasioned by explosion, and the loss was occasioned by an explosion, and was not covered by the policy. The lower court rendered judgment in favor of the plaintiff. Issues: W/N Whether or not the loss of the property was caused mainly by explosion and thus not covered by the insurance policy. Ruling: The real cause of the fire is more or less a matter of conjecture, upon which there is little, if any, evidence. But the fact remains that there was a fire, and that the plaintiffs property was destroyed. It is true that it may be that the explosion was the primary cause of the fire, but that is only a matter of conjecture, and upon that point, the burden of proof was upon the defendant. Defendant relies upon section 6 of the policy, as follows: 6. Unless otherwise expressly stated in the policy the insurance does not cover (h) Loss or damage occasioned by the explosion; but loss or damage by explosion of gas for illuminating or domestic purposes

in a building in which gas is not generated and which does not form a part of any gas works, will be deemed to be loss by fire within the meaning of this policy. In answer to that, plaintiff relies upon section 5, which is as follows: 5. The insurance does not cover (d) Loss or damage occasioned directly or indirectly, approximately or remotely by or through or in consequence of: (1) Earthquake, hurricane, volcanic eruption or other convulsion of nature, and the company shall not be liable for loss or damage arising during or within a reasonable time after any of the said occurrences, unless it be proved by the insured to the satisfaction of the company that such loss or damage was not in any way occasioned by or through or in consequence of any of the said occurrences Examination of the above provisions would reveal that section 5 excludes not only the damages which may immediately result from an earthquake, but also any damage which may follow the earthquake, and that section 6 excludes only the damages which are the direct result of the explosion itself, and that it does not except damages which occurred from the fire occuring after the explosion, even though the explosion may have been the primary cause of the fire. Moreover, there was no competent evidence as to whether the explosion caused the fire or the fire caused the explosion. -sagabalArtex Development Co VS Wellington Insurance FACTS: Wellington insurance insured for P24,346,509 the building stocks and machinery of plaintiff Artex against loss or damage by fire or lightning upon august 2, 1963 with an additional sum of P833,034. Another insurance against business interruption (use and occupancy)for P5,200,000.

15

On September 22, 1963 the building, and machineries were burned and a notice of loss and damage was given to Wellington. Insurance adjusters computed the loss for the fire as P10,106,544.40 and Wellington paid only 6,481,870.07, leaving a balance of 3,624,683.43 The computed business interruption loss was P3M but Wellington paid only P1,864,134.08 leaving a balance of P1,748,460 (computation based on case) Artex through counsel Norberto Quisumbing made a manifestation that only about P397,ooo is the remaining balance and liability which was the subject of reinsurance with Alexander and Alexander Inc, of New York, Artex acknowledging here the receipt of P3,600,000 as FINAL and FULL SETTLEMENT of all claims against Welllington Artex further prays to the court to affirm the lower courts decision of liquidation and prayed for modification of the amount of liability to be fixed to P397,813.00 plus 12% interest per annum thereof for the late payment until april 10, 1969 and attorneys fees of 15% of the recovery, expenses of litigation, no writ of execution however to be made within 3years from july 10, 1969 per collateral agreement of the parties. Wellington in its brief raises the issue that Artex deemed to have agreed to look SOLELY to the reinsurers for indemnity in case of loss since their paid up capital stock is only P500,000 and that they have to secure such reinsurance coverage the over P24M fire insurance coverage of the policy issued by Wellington to Artex.

The Contracts take effect only between the parties, their assigns and heirs as provide by Art 1311 of our civil code. Further it provides that a contract with stipulations pour autrui or in favor of a third person not a party to the contract, the parties must have CLEARLY and DELIBERATELY conferred favor upon a third person. The SC also stated that assuming that Artex directly sue the reinsurers for payment this does not in any way affect or cancel out Wellingtons direct contractual liability to Artex.

The SC dispose the case by affirming the prayer of Artex.

Digested by: Jr Abul Avon Insurance vs CA FACTS: It all started with Yupangco Cotton Mills engaged to secure with Worldwide Security and Insurance Co. Inc., several of its properties totaling P200 Million These contracts were covered by reinsurance treaties between Worldwide Surety and Insurance, and several foreign reinsurance companies including the petitioners through CJ Boatrwright acting as agent of Worldwide Surety and Insurance A Fire then razed the properties insured on December 1969 and May 2, 1981 A Deed of Assignment made by Worldwide Surety and Insurance acknowledged a remaining balance of P19,444,447.75 still due and assigned to Yupangco all reinsurance proceeds still collectible from all the foreign reinsurance companies. Yupangco then filed a collection suit on the above petitioners The service of summons were made through the office of the Insurance Commissioner but since the international reinsurers question the jurisdiction the trial court the case has not proceeded to trial on the merits The reinsurer is questioning also the service of summons through extraterritorial service under Sect 17 Rule 14 of the Rules of Court

Issue: WON reinsurance contract of the parties makes the insured to look SOLELY to the reinsurers for indemnity in case of loss Ruling: NO, the insured who is not directly a party or privy to the reinsurance contract between Wellington and Alexander and Alexander Inc., cannot demand enforcement of such insurance contracts.

16

nor through the Insurance Commissioner under Sec 14 Yupangco also contends that since the reinsurers question the jurisdiction of the court they are deemed to have submitted to the jurisdiction of the court. -

ISSUE: WON the international reinsurers doing business in the Philippines. are

WON the Philippine court has jurisdiction over these international reinsurers who are not doing business in the Philippines

RULING: NO, international reinsurers are not doing business in the Philippines and the Philippine court has not acquired jurisdiction over them. The reinsurance treaties between the petitioners and Worldwide Surety and Insurance were made through an international insurance broker and NOT through any entity or means remotely connected with the Philippines Reinsurance company is not doing business in a certain state even if the property or lives which are insured by the original insurer company are located in that state. Reinsurance Contract is generally separate and distinct arrangement from the original contract of insurance. Doing business in the Philippines must be judged in the light of its peculiar circumstances upon its peculiar facts and upon the language of the statute applicable. o True test: whether the foreign corporation is continuing the body or substance of the business or enterprise for which it was organized If there exist a domestic agent of the foreign corporation it can be served with summons through that agent without proving that such corporation is doing business in the phils or not. o NO allegation or demonstration of the existence of petitioners domestic agent but avers simply that they are doing business not only abroad but in the Phils -

Petitioners had not performed any act which would give the general public the impression that it had been engaging or intends to engage in its ordinary and usual business undertaking in the country. The purpose of the law in requiring that foreign corporations doing business in the country be licensed to do so, is to subject the foreign corporations doing business in the Philippines to the jurisdiction of the courts, 19 otherwise, a foreign corporation illegally doing business here because of its refusal or neglect to obtain the required license and authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid service and thereby impugn the jurisdiction of the local courts. Voluntary appearance before the lower court to question the jurisdiction is not equivalent to submission to jurisdiction o

The SC disposed the case in favor of the international insurers (petitioners) declaring that the lower court has not acquired and cannot acquire jurisdiction over them and was ordered to desist from maintaining further proceeding against them. Digested by Margaret Frances Aparte E. M. BACHRACH, vs. BRITISH AMERICAN ASSURANCE COMPANY, [G.R. No. L-5715 December 20, 1910] FACTS: Bachrach insured his building against fire with the British-American Assurance Company. After the effectivity of the policy, the insured stored gasoline, paints and varnishes within the premises insured. The building was burned and the insurer refused to pay the loss on the ground that the risk of fire was increased by the storage of gasoline, paints and varnishes. The insurer also claimed that the plaintiff transferred his interest in and to the property covered by the policy to H. W. Peabody & Co. to secure certain indebtedness due and owing to said company, and also that the plaintiff had transferred his interest in certain of the goods covered by the said policy to one Macke, to secure certain

17

obligations assumed by the said Macke for and on behalf of the insured. Such execution of a chattel mortgage on the insured property without consent to the insurer violated what is known as the "alienation clause,". ISSUE: I. Whether the use of the building as a paint and varnish shop annulled the policy insurance. II. Whether the execution of the chattel mortgages without the knowledge and consent of the insurance company annulled the policy insurance. HELD: The court ruled in negative for both issues. I. The property insured consisted mainly of household furniture kept for the purpose of sale. The preservation of the furniture in a salable condition by retouching or otherwise was incidental to the business. The evidence offered by the plaintiff is to the effect that alcohol was used in preparing varnish for the purpose of retouching, though he also says that the alcohol was kept in store and not in the bodega where the furniture was. It is well settled that the keeping of inflammable oils on the premises, though prohibited by the policy, does not void it if such keeping is incidental to the business. Thus, where a furniture factory keeps benzine for the purposes of operation (Davis vs. Pioneer Furniture Company, 78 N. W. Rep., 596; Faust vs. American Fire Insurance Company, 91 Wis., 158), or where it is used for the cleaning machinery (Mears vs. Humboldt Insurance Company, 92 Pa. St., 15; 37 Am. Rep., 647), the insurer can not on that ground avoid payment of loss, though the keeping of the benzine on the premises is expressly prohibited It may be added that there was no provision in the policy prohibiting the keeping of paints and varnishes upon the premises where the insured

property was stored. If the company intended to rely upon a condition of that character, it ought to have been plainly expressed in the policy. II. Upon reading the policy of insurance issued by the defendant to the plaintiff, it will be noted that there is no provision in said policy prohibiting the plaintiff from placing a mortgage upon the property insured, but, admitting that such a provision was intended, we think the lower court has completely answered this contention of the defendant. He said, in passing upon this question as it was presented: It is claimed that the execution of a chattel mortgage on the insured property violated what is known as the "alienation clause," which is now found in most policies, and which is expressed in the policies involved in cases 6496 and 6497 by a purchase imposing forfeiture if the interest in the property pass from the insured. (Cases 6496 and 6497, in which are involved other action against other insurance companies for the same loss as in the present action.) This clause has been the subject of a vast number of judicial decisions (13 Am. & Eng. Encyc. of Law, 2d ed., pp. 239 et seq.), and it is held by the great weight of authority that the interest in property insured does not pass by the mere execution of a chattel mortgage and that while a chattel mortgage is a conditional sale, there is no alienation within the meaning of the insurance law until the mortgage acquires a right to take possession by default under the terms of the mortgage. No such right is claimed to have accrued in the case at bar, and the alienation clause is therefore inapplicable American Home Assurance vs. Chua [G.R. No. 130421. June 28, 1999] FACTS: Petitioner, American Home, is a domestic corporation engaged in the insurance business. Sometime in 1990, respondent Chua obtained from petitioner a fire insurance

18

covering the stock-in-trade of his business, Moonlight Enterprises, located at Valencia, Bukidnon. The insurance was due to expire on 25 March 1990. On 5 April 1990 respondent issued PCIBank Check No. 352123 in the amount of P2,983.50 to petitioners agent, James Uy, as payment for the renewal of the policy. In turn, the latter delivered Renewal Certificate No. 00099047 to respondent. The check was drawn against a Manila bank and deposited in petitioners bank account in Cagayan de Oro City. The corresponding official receipt was issued on 10 April. Subsequently, a new insurance policy, Policy No. 206-4234498-7, was issued, whereby petitioner undertook to indemnify respondent for any damage or loss arising from fire up toP200,000 for the period 25 March 1990 to 25 March 1991. On 6 April 1990 Moonlight Enterprises was completely razed by fire. Total loss was estimated between P4,000,000 and P5,000,000. Respondent filed an insurance claim with petitioner and four other co-insurers, namely, Pioneer Insurance and Surety Corporation, Prudential Guarantee and Assurance, Inc., Filipino Merchants Insurance Co. and Domestic Insurance Company of the Philippines. Petitioner refused to honor the claim notwithstanding several demands by respondent, thus, the latter filed an action against petitioner before the trial court. In its defense, petitioner claimed there was no existing insurance contract when the fire occurred since respondent did not pay the premium. It also alleged that even assuming there was a contract, respondent violated several conditions of the policy, particularly: (1) his submission of fraudulent income tax return and financial statements; (2) his failure to establish the actual loss, which petitioner assessed at P70,000; and (3) his failure to notify to petitioner of any insurance already effected to cover the insured goods. These violations, petitioner insisted, justified the denial of the claim. Petitioner emphasizes that when the fire occurred on 6 April 1990 the insurance contract

was not yet subsisting pursuant to Article 1249[3] of the Civil Code, which recognizes that a check can only effect payment once it has been cashed. Although respondent testified that he gave the check on 5 April to a certain James Uy, the check, drawn against a Manila bank and deposited in a Cagayan de Oro City bank, could not have been cleared by 6 April, the date of the fire. In fact, the official receipt issued for respondents check payment was dated 10 April 1990, four days after the fire occurred. Citing jurisprudence,[4] petitioner also contends that respondents non-disclosure of the other insurance contracts rendered the policy void. Respondent refutes the reason for petitioners denial of his claim. To bolster his argument, respondent cites Section 66 of the Insurance Code,[5] which requires the insurer to give a notice to the insured of its intention to terminate the policy forty-five days before the policy period ends. In the instant case, petitioner opted not to terminate the policy. Instead, it renewed the policy by sending its agent to respondent, who was issued a renewal certificate upon delivery of his check payment for the renewal of premium. At this precise moment the contract of insurance was executed and already in effect. Respondent also claims that it is standard operating procedure in the provinces to pay insurance premiums by check when collected by insurance agents. ISSUES: 3. whether there was a valid payment of premium, considering that respondents check was cashed after the occurrence of the fire; whether respondent violated the policy by his submission of fraudulent documents and non-disclosure of the other existing insurance contracts;

4.

RULING: On the payment of premium through check (Relevant provision: Sec. 78) The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and binding. The only exceptions are life

19

and industrial life insurance.[6] Whether payment was indeed made is a question of fact which is best determined by the trial court. The trial court found, as affirmed by the Court of Appeals, that there was a valid check payment by respondent to petitioner. Well-settled is the rule that the factual findings and conclusions of the trial court and the Court of Appeals are entitled to great weight and respect, and will not be disturbed on appeal in the absence of any clear showing that the trial court overlooked certain facts or circumstances which would substantially affect the disposition of the case.[7] We see no reason to depart from this ruling. According to the trial court the renewal certificate issued to respondent contained the acknowledgment that premium had been paid. It is not disputed that the check drawn by respondent in favor of petitioner and delivered to its agent was honored when presented and petitioner forthwith issued its official receipt to respondent on 10 April 1990. Section 306 of the Insurance Code provides that any insurance company which delivers a policy or contract of insurance to an insurance agent or insurance broker shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon.[8] In the instant case, the best evidence of such authority is the fact that petitioner accepted the check and issued the official receipt for the payment. It is, as well, bound by its agents acknowledgment of receipt of payment. Section 78 of the Insurance Code explicitly provides: An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. This Section establishes a legal fiction of payment and should be interpreted as an exception to Section 77.

On whether there were violations of the policy conditions stipulated Is respondent guilty of the policy violations imputed against him? We are not convinced by petitioners arguments. Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers, non-disclosure thereof is a violation that entitles the insurer to avoid the policy. This condition is common in fire insurance policies and is known as the other insurance clause. The purpose for the inclusion of this clause is to prevent an increase in the moral hazard. We have ruled on its validity and the case of Geagonia v. Court of Appeals[10] clearly illustrates such principle. However, we see an exception in the instant case. Citing Section 29[11] of the Insurance Code, the trial court reasoned that respondents failure to disclose was not intentional and fraudulent. The application of Section 29 is misplaced. Section 29 concerns concealment which is intentional. The relevant provision is Section 75, which provides that: A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy. To constitute a violation the other existing insurance contracts must be upon the same subject matter and with the same interest and risk.[12] Indeed, respondent acquired several coinsurers and he failed to disclose this information to petitioner. Nonetheless, petitioner is estopped from invoking this argument. The trial court cited the testimony of petitioners loss adjuster who admitted previous knowledge of the co-insurers. Indubitably, it cannot be said that petitioner was deceived by respondent by the latters nondisclosure of the other insurance contracts when petitioner actually had prior knowledge thereof. Petitioners loss adjuster had known all along of the other existing insurance contracts, yet, he did not use that as basis for his recommendation of denial. The loss adjuster, being an employee of petitioner, is deemed a representative of the latter whose awareness of

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the other insurance contracts binds petitioner. We, therefore, hold that there was no violation of the other insurance clause by respondent. FINMAN GENERAL ASSURANCE CORPORATION v. CA (SURPOSA) 213 SCRA 493 NOCON; September 2, 1992 NATURE Certiorari FACTS - Oct. 22, 1986: Carlie Surposa was insured with Finman General Assurance Corporation under Finman General Teachers Protection Plan Master Policy No. 2005 and Individual Policy No. 08924 with his parents, spouses Julia and Carlos Surposa, and brothers Christopher, Charles, Chester and Clifton, all surnamed, Surposa, as beneficiaries. - While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on October 18, 1988 as a result of a stab wound inflicted by one of the 3 unidentified men without provocation and warning on the part of the former as he and his cousin, Winston Surposa, were waiting for a ride on their way home after attending the celebration of the "Maskarra Annual Festival." - Thereafter, Julia Surposa and the other beneficiaries of said insurance policy filed a written notice of claim with the FINMAN Corp which denied said claim contending that murder and assault are not within the scope of the coverage of the insurance policy. - Feb. 24, 1989: Surposa filed a complaint with the Insurance Commission which subsequently ordered FINMAN to pay Surposa the proceeds of the policy with interest. - CA affirmed said decision. ISSUE WON CA committed GAD in applying the principle of "expresso unius exclusio alterius" in a personal accident insurance policy (since death resulting from murder and/or assault are impliedly excluded in said insurance policy considering that the cause of death of the insured was not accidental but rather a

deliberate and intentional act of the assailant in killing the former as indicated by the location of the lone stab wound on the insured) [TF they cannot be made to indemnify the Surposa heirs] HELD NO - The record is barren of any circumstance showing how the stab wound was inflicted. While the act may not exempt the unknown perpetrator from criminal liability, the fact remains that the happening was a pure accident on the part of the victim. The insured died from an event that took place without his foresight or expectation, an event that proceeded from an unusual effect of a known cause and, therefore, not expected. Reasoning - De la Cruz vs. Capital Insurance & Surety Co., Inc (1966)~ The terms "accident" and "accidental" as used in insurance contracts have not acquired any technical meaning, and are construed by the courts in their ordinary and common acceptation. Thus, the terms have been taken to mean that which happen by chance or fortuitously, without intention and design, and which is unexpected, unusual, and unforeseen. An accident is an event that takes place without one's foresight or expectation an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected. Ratio The generally accepted rule is that, death or injury does not result from accident or accidental means within the terms of an accident-policy if it is the natural result of the insured's voluntary act, unaccompanied by anything unforeseen except the death or injury. There is no accident when a deliberate act is performed unless some additional, unexpected, independent, and unforeseen happening occurs which produces or brings about the result of injury or death. In other words, where the death or injury is not the natural or probable result of the insured's voluntary act, or if something unforeseen occurs in the doing of the act which produces the injury, the resulting death is within the protection of the policies insuring against death or injury from accident. - The personal accident insurance policy involved herein specifically enumerated only 10 circumstances wherein no liability attaches to FINMAN for any injury, disability or loss

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suffered by the insured as a result of any of the stimulated causes. -The principle of " expresso unius exclusio alterius" the mention of one thing implies the exclusion of another thing is therefore applicable in the instant case since murder and assault, not having been expressly included in the enumeration of the circumstances that would negate liability in said insurance policy: the failure of the FINMAN to include death resulting from murder or assault among the prohibited risks leads inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such death. - A1377 NCC: The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. - NPC vs. CA [1986]~ It is well settled that contracts of insurance are to be construed liberally in favor of the insured and strictly against the insurer. Thus ambiguity in the words of an insurance contract should be interpreted in favor of its beneficiary. Disposition DENIED for lack of merit. PRUDENTIAL GUARANTEE and ASSURANCE INC., vs. TRANS-ASIA SHIPPING LINES, INC G.R. No. 151890 June 20, 2006 Principle found in the case: a warranty is a statement or promise set forth in the policy, or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth or nonfulfillment, renders the policy voidable by the insurer. However it must be first duly proven by the one who alleges that there was a breach of warranty. Facts: TRANS-ASIA is the owner of the vessel M/V Asia Korea. In consideration of payment of premiums, PRUDENTIAL insured M/V Asia Korea for loss/damage of the hull and machinery arising from perils, inter alia, of fire and explosion for the sum of P40 Million,

beginning from the period of July 1, 1993 up to July 1, 1994. On October 25, 1993, while the policy was in force, a fire broke out while [M/V Asia Korea was] undergoing repairs at the port of Cebu. On October 26, 1993 TRANS-ASIA filed its notice of claim for damage sustained by the vessel evidenced by a letter/formal claim. TRANSASIA reserved its right to subsequently notify PRUDENTIAL as to the full amount of the claim upon final survey and determination by average adjuster Richard Hogg International (Phil.) of the damage sustained by reason of fire. TRANS-ASIA executed a document denominated "Loan and Trust receipt", a portion of which states that Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan without interest under Policy No. MH 93/1353 [sic], repayable only in the event and to the extent that any net recovery is made by Trans-Asia Shipping Corporation, from any person or persons, corporation or corporations, or other parties, on account of loss by any casualty for which they may be liable occasioned by the 25 October 1993: Fire on Board." PRUDENTIAL later on denied Trans-Asias claim in stated in a letter that "After a careful review and evaluation of your claim arising from the above-captioned incident, it has been ascertained that you are in breach of policy conditions, among them "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED". Accordingly, we regret to advise that your claim is not compensable and hereby DENIED." and asked for the return of the 3,000,000. TRANS-ASIA filed a Complaint for Sum of Money against PRUDENTIAL with the RTC of Cebu City, wherein TRANS-ASIA sought the amount of P8,395,072.26 from PRUDENTIAL, alleging that the same represents the balance of the indemnity due upon the insurance policy in the total amount of P11,395,072.26. TRANSASIA similarly sought interest at 42% per annum citing Section 243 of Presidential Decreee No. 1460, otherwise known as the "Insurance Code," as amended.

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PRUDENTIAL denied the material allegations of the Complaint and interposed the defense that TRANS-ASIA breached insurance policy conditions, in particular: PRUDENTIAL posits that TRANS-ASIA violated an express and material warranty in the subject insurance contract, i.e., Marine Insurance Policy No. MH93/1363, specifically Warranty Clause No. 5 thereof, which stipulates that the insured vessel, "M/V ASIA KOREA" is required to be CLASSED AND CLASS MAINTAINED. According to PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA KOREA" was in violation of the warranty as it was not CLASSED AND CLASS MAINTAINED. PRUDENTIAL submits that Warranty Clause No. 5 was a condition precedent to the recovery of TRANS-ASIA under the policy, the violation of which entitled PRUDENTIAL to rescind the contract under Sec. 74 of the Insurance Code. By way of a counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it allegedly advanced to TRANS-ASIA by way of a loan without interest and without prejudice to the final evaluation of the claim, including the amounts of P500,000.00, for survey fees and P200,000.00, representing attorneys fees. Trial court ruled in favor of Prudential. It ruled that a determination of the parties liabilities hinged on whether TRANS-ASIA violated and breached the policy conditions on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. It interpreted the provision to mean that TRANS-ASIA is required to maintain the vessel at a certain class at all times pertinent during the life of the policy. According to the court a quo, TRANS-ASIA failed to prove compliance of the terms of the warranty, the violation thereof entitled PRUDENTIAL to rescind the contract. The court of appeals reversed the decision. It ruled that PRUDENTIAL, as the party asserting the non-compensability of the loss had the burden of proof to show that TRANS-ASIA breached the warranty, which burden it failed to discharge. PRUDENTIAL cannot rely on the lack of certification to the effect that TRANSASIA was CLASSED AND CLASS

MAINTAINED as its sole basis for reaching the conclusion that the warranty was breached. It opined that the lack of a certification does not necessarily mean that the warranty was breached by TRANS-ASIA. Instead, it considered PRUDENTIALs admission that at the time the insurance contract was entered into between the parties, the vessel was properly classed by Bureau Veritas, a classification society recognized by the industry. It similarly gave weight to the fact that it was the responsibility of Richards Hogg International (Phils.) Inc., the average adjuster hired by PRUDENTIAL, to secure a copy of such certification to support its conclusion that mere absence of a certification does not warrant denial of TRANS-ASIAs claim under the insurance policy. Issue: WON Trans-Asia breached the warranty stated in the insurance policy, thus absolving Prudential from paying Trans-Asia. Ruling: No. Rationale: As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification society recognized in the marine industry. As it is undisputed that TRANS-ASIA was properly classed at the time the contract of insurance was entered into, thus, it becomes incumbent upon PRUDENTIAL to show evidence that the status of TRANS-ASIA as being properly CLASSED by Bureau Veritas had shifted in violation of the warranty. Unfortunately, PRUDENTIAL failed to support the allegation. The lack of a certification in PRUDENTIALs records to the effect that TRANS-ASIAs "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED at the time of the occurrence of the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact breached the warranty contained in the policy. It was likewise the responsibility of the average adjuster, Richards Hogg International (Phils.), Inc., to secure a copy of such certification, and the alleged breach of TRANS-ASIA cannot be

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gleaned from the average adjusters survey report, or adjustment of particular average per "M/V Asia Korea" of the 25 October 1993 fire on board. The Supreme Court is not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that, "the violation of a material warranty, or other material provision of a policy on the part of either party thereto, entitles the other to rescind." It is generally accepted that "a warranty is a statement or promise set forth in the policy, or by reference incorporated therein, the untruth or nonfulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth or nonfulfillment, renders the policy voidable by the insurer." However, it is similarly indubitable that for the breach of a warranty to avoid a policy, the same must be duly shown by the party alleging the same. We cannot sustain an allegation that is unfounded. Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CLASSED AND CLASS MAINTAINED, it remains that TRANS-ASIA must be allowed to recover its rightful claims on the policy. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same. PRUDENTIAL can be deemed to have made a valid waiver of TRANS-ASIAs breach of warranty as alleged. Because after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2) consecutive years, from noon of 01 July 1994 to noon of 01 July 1995, and then again until noon of 01 July 1996. This renewal is deemed a waiver of any breach of warranty. PRUDENTIAL, in renewing TRANS-ASIAs insurance policy for two consecutive years after the loss covered by Policy No. MH93/1363, was considered to have waived TRANS-ASIAs breach of the subject warranty, if any. Breach of

a warranty or of a condition renders the contract defeasible at the option of the insurer; but if he so elects, he may waive his privilege and power to rescind by the mere expression of an intention so to do. In that event his liability under the policy continues as before. There can be no clearer intention of the waiver of the alleged breach than the renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in MH94/1595 and MH95/1788, issued in the years 1994 and 1995, respectively.

Gonzalez Lao v. Yek Tong Lin Fire & Marine Insurance 55 PHIL 386

Facts: Gonzales was issued 2 fire insurance policies by Yek for 100T covering his leaf tobacco prducts. They were stored in Gonzales building on Soler St., which on Jan. 11, 1928, burned down. Art. 3 of the Insurance policies provided that: Any insurance in force upon all or part of the things unsured must be declared in writing by the insured and he (insured) should cause the company to insert or mention it in the policy. Without such requisite, such policy will be regarded as null and void and the insured will be deprived of all rights of indemnity in case of loss. Notwithstanding said provision, Gonzales entered into other insurance contracts. When he sought to claim from Yek after the fire, the latter denied any liability on the ground of violation of Art. 3 of the said policies. Gonzales however proved that the insurer knew of the other insurance policies obtained by him long efore the fire, and the insurer did NOT rescind the insurance polices in question but demanded and collected from the insured the premiums.

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Issue: WON Yek is still entitled to annul the contract.

Held: YES. CIR claims that the "automatic increase clause" in the subject insurance policy is separate and distinct from the main agreement and involves another transaction; and that, while no new policy was issued, the original policy was essentially re-issued when the additional obligation was assumed upon the effectivity of this "automatic increase clause" in 1984; hence, a deficiency assessment based on the additional insurance not covered in the main policy is in order. The SC agreed with this contention.

Held: NOPE. The action by the insurance company of taking the premiums of the insured notwithstanding knowledge of violations of the provisions of the policies amounted to waiver of the right to annul the contract of insurance.

) CIR v. Lincoln Phil Life 379 SCRA 423 (2002)

Facts: In the years prior to 1984, Lincoln issued a special kind of life insurance policy known as the "Junior Estate Builder Policy," the distinguishing feature of which is a clause providing for an automatic increase in the amount of life insurance coverage upon attainment of a certain age by the insured without the need of issuing a new policy. The clause was to take effect in the year 1984. Documentary stamp taxes due on the policy were paid to the petitioner only on the initial sum assured. Subsequently, petitioner issued deficiency documentary stamps tax assessment for the year 1984, corresponding to the amount of automatic increase of the sum assured on the policy issued by respondent. Lincoln questioned the deficiency assessments and sought their cancellation in a petition filed in the Court of Tax Appeals. CTA found no basis for the assessment. CA affirmed.

The subject insurance policy at the time it was issued contained an "automatic increase clause." Although the clause was to take effect only in 1984, it was written into the policy at the time of its issuance. The distinctive feature of the "junior estate builder policy" called the "automatic increase clause" already formed part and parcel of the insurance contract, hence, there was no need for an execution of a separate agreement for the increase in the coverage that took effect in 1984 when the assured reached a certain age.

It is clear from Section 173 of the NIRC that the payment of documentary stamp taxes is done at the time the act is done or transaction had and the tax base for the computation of documentary stamp taxes on life insurance policies under Section 183 of NIRC is the amount fixed in policy, unless the interest of a person insured is susceptible of exact pecuniary measurement.

Issue: WON the automatic increase of the sum assured on the policy is taxable.

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Logically, we believe that the amount fixed in the policy is the figure written on its face and whatever increases will take effect in the future by reason of the "automatic increase clause" embodied in the policy without the need of another contract.

> There was a provision in the policy that should there be any insurance already effected or to be subsequently procured, the insured shall give notice to the insurer. > Ng Hua declared that there was non. The

Here, although the automatic increase in the amount of life insurance coverage was to take effect later on, the date of its effectivity, as well as the amount of the increase, was already definite at the time of the issuance of the policy. Thus, the amount insured by the policy at the time of its issuance necessarily included the additional sum covered by the automatic increase clause because it was already determinable at the time the transaction was entered into and formed part of the policy.

very next day, the building and the goods stored therein burned. > Subsequently, the claim of Ng Hua for the proceeds was denied by General since it discovered that Ng Hua had obtained an insurance from General Indemnity for the same goods and for the same period of time.

The "automatic increase clause" in the policy is in the nature of a conditional obligation under Article 1181, 8 by which the increase of the insurance coverage shall depend upon the happening of the event which constitutes the obligation. In the instant case, the additional insurance that took effect in 1984 was an obligation subject to a suspensive obligation, 9 but still a part of the insurance sold to which private respondent was liable for the payment of the documentary stamp tax. GEN. INSURANCE & SURETY CORP V. NG HUA - MISREPRESENTATION 106 PHIL 1117 Facts: > In 1952, General issued a fire policy to Ng Hua to cover the contents of the Central Pomade Factory owned by him.

Issue: Whether or not General Insurance can refuse to pay the proceeds.

Held: Yes. Violation of the statement which is to be considered a warranty entitles the insurer to rescind the contract of insurance. Such misrepresentation is fatal.

Insurance Case Digest: FGU Insurance Corporation V. CA (2005)

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G.R.No. 137775 March 31, 2005 Lessons Applicable: Loss caused by negligence of the insured (Insurance)

safer place but it refused so around the midnight, the barge sunk along with 29,210 cases of Pale Pilsen and 500 cases of Cerveza Negra totalling

FACTS: Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was engaged in the shipping business operating two common carriers M/T ANCO tugboat D/B Lucio barge - no engine of its own, it could not maneuver by itself and had to be towed by a tugboat for it to move from one place to another. September 23 1979: San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on board the D/B Lucio, for towage by M/T ANCO: 25,000 cases Pale Pilsen and 350 cases Cerveza Negra - consignee SMCs Beer Marketing Division (BMD)-Estancia Beer Sales Office, Estancia, Iloilo 15,000 cases Pale Pilsen and 200 cases Cerveza Negra - consignee SMCs BMDSan Jose Beer Sales Office, San Jose, Antique September 30, 1979: D/B Lucio was towed by the M/T ANCO arrived and M/T ANCO left the barge immediately The clouds were dark and the waves were big so SMCs District Sales Supervisor, Fernando Macabuag, requested ANCOs representative to transfer the barge to a

to P1,346,197 When SMC claimed against ANCO it stated that they agreed that it would not be liable for any losses or damages resulting to the cargoes by reason of fortuitous event and it was agreed to be insured with FGU for 20,000 cases or P858,500 ANCO filed against FGU FGU alleged that ANCO and SMC failed to exercise ordinary diligence or the diligence of a good father of the family in the care and supervision of the cargoes RTC: ANCO liable to SMC and FGU liable for 53% of the lost cargoes CA affirmed

ISSUE: W/N FGU should be exempted from liability to ANCO for the lost cargoes because of a fortuitous event and negligence of ANCO

HELD: YES. Affirmed with modification. Thirdparty complainant is dismissed. Art. 1733. Common carriers, from the nature of their business and for reasons of public policy are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case.

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Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734, 1735, and 1745 Nos. 5, 6, and 7 . . . Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only:

commonly believed but it must be one impossible to foresee or to avoid - not in this case other vessels in the port of San Jose, Antique, managed to transfer to another place To be exempted from responsibility, the natural disaster should have been the proximate and only cause of the loss. There must have been no contributory negligence

(1)

Flood, storm, earthquake, lightning, or

on the part of the common carrier. there was blatant negligence on the part of M/T ANCOs crewmembers, first in

other natural disaster or calamity;

. . .

leaving the engine-less barge D/B Lucio at the mercy of the storm without the

Art. 1739. In order that the common carrier may be exempted from responsibility, the natural disaster must have been the proximate and only cause of the loss. However, the common carrier must exercise due diligence to prevent or minimize loss before, during and after the occurrence of flood, storm, or other natural disaster in order that the common carrier may be exempted from liability for the loss, destruction, or deterioration of the goods . . .

assistance of the tugboat, and again in failing to heed the request of SMCs representatives to have the barge transferred to a safer place When evidence show that the insureds negligence or recklessness is so gross as to be sufficient to constitute a willful act, the insurer must be exonerated. ANCOs employees is of such gross character that it amounts to a wrongful act which must exonerate FGU from liability under the insurance contract both the D/B Lucio and the M/T ANCO were blatantly negligent

Caso fortuito or force majeure extraordinary events not foreseeable or avoidable, events that could not be foreseen, or which though foreseen, were inevitable

not enough that the event should not have been foreseen or anticipated, as is

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