THIRD DIVISION

[G.R. No. 112360. July 18, 2000]

RIZAL SURETY & INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS and
TRANSWORLD KNITTING MILLS, INC., respondents.
D E C I S I O N
PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court seeking to annul and set aside the July 15, 1993 Decision[1] and October
22, 1993 Resolution[2] of the Court of Appeals[3] in CA-G.R. CV NO. 28779,
which modified the Ruling[4] of the Regional Trial Court of Pasig, Branch 161,
in Civil Case No. 46106.
The antecedent facts that matter are as follows:
On March 13, 1980, Rizal Surety & Insurance Company (Rizal Insurance) issued
Fire Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc.
(Transworld), initially for One Million (P1,000,000.00) Pesos and eventually
increased to One Million Five Hundred Thousand (P1,500,000.00) Pesos, covering
the period from August 14, 1980 to March 13, 1981.
Pertinent portions of subject policy on the buildings insured, and location
thereof, read:
"On stocks of finished and/or unfinished products, raw materials and supplies
of every kind and description, the properties of the Insureds and/or held by
them in trust, on commission or on joint account with others and/or for which
they (sic) responsible in case of loss whilst contained and/or stored during
the currency of this Policy in the premises occupied by them forming part of
the buildings situate (sic) within own Compound at MAGDALO STREET, BARRIO
UGONG, PASIG, METRO MANILA, PHILIPPINES, BLOCK NO. 601.
xxx...............xxx...............xxx
Said building of four-span lofty one storey in height with mezzanine portions
is constructed of reinforced concrete and hollow blocks and/or concrete under
galvanized iron roof and occupied as hosiery mills, garment and lingerie
factory, transistor-stereo assembly plant, offices, warehouse and caretaker's
quarters.
'Bounds in front partly by one-storey concrete building under galvanized iron
roof occupied as canteen and guardhouse, partly by building of two and partly
one storey constructed of concrete below, timber above undergalvanized iron
roof occupied as garage and quarters and partly by open space and/or tracking/
packing, beyond which is the aforementioned Magdalo Street; on its right and
left by driveway, thence open spaces, and at the rear by open spaces.'"[5]
The same pieces of property insured with the petitioner were also insured with
New India Assurance Company, Ltd., (New India).
On January 12, 1981, fire broke out in the compound of Transworld, razing the
middle portion of its four-span building and partly gutting the left and right
sections thereof. A two-storey building (behind said four-span building) where
fun and amusement machines and spare parts were stored, was also destroyed by
the fire.
Transworld filed its insurance claims with Rizal Surety & Insurance Company
and New India Assurance Company but to no avail.
On May 26, 1982, private respondent brought against the said insurance
companies an action for collection of sum of money and damages, docketed as
Civil Case No. 46106 before Branch 161 of the then Court of First Instance of
Rizal; praying for judgment ordering Rizal Insurance and New India to pay the
amount of P2,747, 867.00 plus legal interest, P400,000.00 as attorney's fees,
exemplary damages, expenses of litigation of P50,000.00 and costs of suit.[6]

Petitioner Rizal Insurance countered that its fire insurance policy sued upon
covered only the contents of the four-span building, which was partly burned,
and not the damage caused by the fire on the two-storey annex building.[7]
On January 4, 1990, the trial court rendered its decision; disposing as
follows:
"ACCORDINGLY, judgment is hereby rendered as follows:
(1)Dismissing the case as against The New India Assurance Co., Ltd.;
(2) Ordering defendant Rizal Surety And Insurance Company to pay Transwrold
(sic) Knitting Mills, Inc. the amount of P826, 500.00 representing the actual
value of the losses suffered by it; and
(3) Cost against defendant Rizal Surety and Insurance Company.
SO ORDERED."[8]
Both the petitioner, Rizal Insurance Company, and private respondent,
Transworld Knitting Mills, Inc., went to the Court of Appeals, which came out
with its decision of July 15, 1993 under attack, the decretal portion of which
reads:
"WHEREFORE, and upon all the foregoing, the decision of the court below is
MODIFIED in that defendant New India Assurance Company has and is hereby
required to pay plaintiff-appellant the amount of P1,818,604.19 while the
other Rizal Surety has to pay the plaintiff-appellant P470,328.67, based on
the actual losses sustained by plaintiff Transworld in the fire, totalling
P2,790,376.00 as against the amounts of fire insurance coverages respectively
extended by New India in the amount of P5,800,000.00 and Rizal Surety and
Insurance Company in the amount of P1,500,000.00.
No costs.
SO ORDERED."[9]
On August 20, 1993, from the aforesaid judgment of the Court of Appeals New
India appealed to this Court theorizing inter alia that the private respondent
could not be compensated for the loss of the fun and amusement machines and
spare parts stored at the two-storey building because it (Transworld) had no
insurable interest in said goods or items.
On February 2, 1994, the Court denied the appeal with finality in G.R. No. L111118 (New India Assurance Company Ltd. vs. Court of Appeals).
Petitioner Rizal Insurance and private respondent Transworld, interposed a
Motion for Reconsideration before the Court of Appeals, and on October 22,
1993, the Court of Appeals reconsidered its decision of July 15, 1993, as
regards the imposition of interest, ruling thus:
"WHEREFORE, the Decision of July 15, 1993 is amended but only insofar as the
imposition of legal interest is concerned, that, on the assessment against New
India Assurance Company on the amount of P1,818,604.19 and that against Rizal
Surety & Insurance Company on the amount of P470,328.67, from May 26, 1982
when the complaint was filed until payment is made. The rest of the said
decision is retained in all other respects.
SO ORDERED."[10]
Undaunted, petitioner Rizal Surety & Insurance Company found its way to this
Court via the present Petition, contending that:
I.....SAID DECISION (ANNEX A) ERRED IN ASSUMING THAT THE ANNEX BUILDING WHERE
THE BULK OF THE BURNED PROPERTIES WERE STORED, WAS INCLUDED IN THE COVERAGE OF
THE INSURANCE POLICY ISSUED BY RIZAL SURETY TO TRANSWORLD.

II.....SAID DECISION AND RESOLUTION (ANNEXES A AND B) ERRED IN NOT CONSIDERING

THE PICTURES (EXHS. 3 TO 7-C-RIZAL SURETY), TAKEN IMMEDIATELY AFTER THE FIRE,
WHICH CLEARLY SHOW THAT THE PREMISES OCCUPIED BY TRANSWORLD, WHERE THE INSURED
PROPERTIES WERE LOCATED, SUSTAINED PARTIAL DAMAGE ONLY.
III. SAID DECISION (ANNEX A) ERRED IN NOT HOLDING THAT TRANSWORLD HAD ACTED IN
PALPABLE BAD FAITH AND WITH MALICE IN FILING ITS CLEARLY UNFOUNDED CIVIL
ACTION, AND IN NOT ORDERING TRANSWORLD TO PAY TO RIZAL SURETY MORAL AND
PUNITIVE DAMAGES (ART. 2205, CIVIL CODE), PLUS ATTORNEY'S FEES AND EXPENSES OF
LITIGATION (ART. 2208 PARS. 4 and 11, CIVIL CODE).[11]
The Petition is not impressed with merit.
It is petitioner's submission that the fire insurance policy litigated upon
protected only the contents of the main building (four-span),[12] and did not
include those stored in the two-storey annex building. On the other hand, the
private respondent theorized that the so called "annex" was not an annex but
was actually an integral part of the four-span building[13] and therefore, the
goods and items stored therein were covered by the same fire insurance policy.
Resolution of the issues posited here hinges on the proper interpretation of
the stipulation in subject fire insurance policy regarding its coverage, which
reads:
"xxx contained and/or stored during the currency of this Policy in the
premises occupied by them forming part of the buildings situate (sic) within
own Compound xxx"
Therefrom, it can be gleaned unerringly that the fire insurance policy in
question did not limit its coverage to what were stored in the four-span
building. As opined by the trial court of origin, two requirements must concur
in order that the said fun and amusement machines and spare parts would be
deemed protected by the fire insurance policy under scrutiny, to wit:
"First, said properties must be contained and/or stored in the areas occupied
by Transworld and second, said areas must form part of the building described
in the policy xxx"[14]
'Said building of four-span lofty one storey in height with mezzanine portions
is constructed of reinforced concrete and hollow blocks and/or concrete under
galvanized iron roof and occupied as hosiery mills, garment and lingerie
factory, transistor-stereo assembly plant, offices, ware house and caretaker's
quarter.'
The Court is mindful of the well-entrenched doctrine that factual findings by
the Court of Appeals are conclusive on the parties and not reviewable by this
Court, and the same carry even more weight when the Court of Appeals has
affirmed the findings of fact arrived at by the lower court.[15]
In the case under consideration, both the trial court and the Court of Appeals
found that the so called "annex " was not an annex building but an integral
and inseparable part of the four-span building described in the policy and
consequently, the machines and spare parts stored therein were covered by the
fire insurance in dispute. The letter-report of the Manila Adjusters and
Surveyor's Company, which petitioner itself cited and invoked, describes the
"annex" building as follows:
"Two-storey building constructed of partly timber and partly concrete hollow
blocks under g.i. roof which is adjoining and intercommunicating with the
repair of the first right span of the lofty storey building and thence by
property fence wall."[16]
Verily, the two-storey building involved, a permanent structure which adjoins
and intercommunicates with the "first right span of the lofty storey
building",[17] formed part thereof, and meets the requisites for
compensability under the fire insurance policy sued upon.
So also, considering that the two-storey building aforementioned was already
existing when subject fire insurance policy contract was entered into on

January 12, 1981, having been constructed sometime in 1978,[18] petitioner

should have specifically excluded the said two-storey building from the
coverage of the fire insurance if minded to exclude the same but if did not,
and instead, went on to provide that such fire insurance policy covers the
products, raw materials and supplies stored within the premises of respondent
Transworld which was an integral part of the four-span building occupied by
Transworld, knowing fully well the existence of such building adjoining and
intercommunicating with the right section of the four-span building.
After a careful study, the Court does not find any basis for disturbing what
the lower courts found and arrived at.
Indeed, the stipulation as to the coverage of the fire insurance policy under
controversy has created a doubt regarding the portions of the building insured
thereby. Article 1377 of the New Civil Code provides:
"Art.1377. The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity"
Conformably, it stands to reason that the doubt should be resolved against the
petitioner, Rizal Surety Insurance Company, whose lawyer or managers drafted
the fire insurance policy contract under scrutiny. Citing the aforecited
provision of law in point, the Court in Landicho vs. Government Service
Insurance System,[19] ruled:
"This is particularly true as regards insurance policies, in respect of which
it is settled that the 'terms in an insurance policy, which are ambiguous,
equivocal, or uncertain x x x 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
forfeiture is involved' (29 Am. Jur., 181), and the reason for this is that
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).""[20]
Equally relevant is the following disquisition of the Court in Fieldmen's
Insurance Company, Inc. vs. Vda. De Songco,[21] to wit:
"'This rigid application of the rule on ambiguities has become necessary in
view of current business practices. The courts cannot ignore that nowadays
monopolies, cartels and concentration of capital, endowed with overwhelming
economic power, manage to impose upon parties dealing with them cunningly
prepared 'agreements' that the weaker party may not change one whit, his
participation in the 'agreement' being reduced to the alternative to 'take it
or leave it' labelled since Raymond Saleilles 'contracts by adherence'
(contrats [sic] d'adhesion), in contrast to these entered into by parties
bargaining on an equal footing, such contracts (of which policies of insurance
and international bills of lading are prime example) obviously call for
greater strictness and vigilance on the part of courts of justice with a view
to protecting the weaker party from abuses and imposition, and prevent their
becoming traps for the unwary (New Civil Code, Article 24; Sent. of Supreme
Court of Spain, 13 Dec. 1934, 27 February 1942.)'"[22]
The issue of whether or not Transworld has an insurable interest in the fun
and amusement machines and spare parts, which entitles it to be indemnified
for the loss thereof, had been settled in G.R. No. L-111118, entitled New
India Assurance Company, Ltd., vs. Court of Appeals, where the appeal of New
India from the decision of the Court of Appeals under review, was denied with
finality by this Court on February 2, 1994.
The rule on conclusiveness of judgment, which obtains under the premises,
precludes the relitigation of a particular fact or issue in another action
between the same parties based on a different claim or cause of action. "xxx
the judgment in the prior action operates as estoppel only as to those matters
in issue or points controverted, upon the determination of which the finding
or judgment was rendered. In fine, the previous judgment is conclusive in the

second case, only as those matters actually and directly controverted and
determined and not as to matters merely involved therein."[23]
Applying the abovecited pronouncement, the Court, in Smith Bell and Company
(Phils.), Inc. vs. Court of Appeals,[24] held that the issue of negligence of
the shipping line, which issue had already been passed upon in a case filed by
one of the insurers, is conclusive and can no longer be relitigated in a
similar case filed by another insurer against the same shipping line on the
basis of the same factual circumstances. Ratiocinating further, the Court
opined:
"In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai Maru')
had been negligent, or so negligent as to have proximately caused the
collision between them, was an issue that was actually, directly and expressly
raised, controverted and litigated in C.A.-G.R. No. 61320-R. Reyes, L.B., J.,
resolved that issue in his Decision and held the 'Don Carlos' to have been
negligent rather than the 'Yotai Maru' and, as already noted, that Decision
was affirmed by this Court in G.R. No. L-48839 in a Resolution dated 6
December 1987. The Reyes Decision thus became final and executory
approximately two (2) years before the Sison Decision, which is assailed in
the case at bar, was promulgated. Applying the rule of conclusiveness of
judgment, the question of which vessel had been negligent in the collision
between the two (2) vessels, had long been settled by this Court and could no
longer be relitigated in C.A.-G.R. No. 61206-R. Private respondent Go Thong
was certainly bound by the ruling or judgment of Reyes, L.B., J. and that of
this Court. The Court of Appeals fell into clear and reversible error when it
disregarded the Decision of this Court affirming the Reyes Decision."[25]
The controversy at bar is on all fours with the aforecited case. Considering
that private respondent's insurable interest in, and compensability for the
loss of subject fun and amusement machines and spare parts, had been
adjudicated, settled and sustained by the Court of Appeals in CA-G.R. CV NO.
28779, and by this Court in G.R. No. L-111118, in a Resolution, dated February
2, 1994, the same can no longer be relitigated and passed upon in the present
case. Ineluctably, the petitioner, Rizal Surety Insurance Company, is bound by
the ruling of the Court of Appeals and of this Court that the private
respondent has an insurable interest in the aforesaid fun and amusement
machines and spare parts; and should be indemnified for the loss of the same.
So also, the Court of Appeals correctly adjudged petitioner liable for the
amount of P470,328.67, it being the total loss and damage suffered by
Transworld for which petitioner Rizal Insurance is liable.[26]
All things studiedly considered and viewed in proper perspective, the Court is
of the irresistible conclusion, and so finds, that the Court of Appeals erred
not in holding the petitioner, Rizal Surety Insurance Company, liable for the
destruction and loss of the insured buildings and articles of the private
respondent.
WHEREFORE, the Decision, dated July 15, 1993, and the Resolution, dated
October 22, 1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are AFFIRMED
in toto. No pronouncement as to costs.
SO ORDERED.

FIRST DIVISION
BLUE CROSS HEALTH CARE, G.R. No. 169737
INC.,
Petitioner, Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
- v e r s u s - CORONA,
AZCUNA and
LEONARDO-DE CASTRO, JJ.
NEOMI* and DANILO OLIVARES,
Respondents. Promulgated:
February 12, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
D E C I S I O N
CORONA, J.:
This is a petition for review on certiorari[1] of a decision[2] and
resolution[3] of the Court of Appeals (CA) dated July 29, 2005 and September
21, 2005, respectively, in CA-G.R. SP No. 84163 which affirmed the decision of
the Regional Trial Court (RTC), Makati City, Branch 61 dated February 2, 2004
in Civil Case No. 03-1153,[4] which in turn reversed the decision of the
Metropolitan Trial Court (MeTC), Makati City, Branch 66 dated August 5, 2003
in Civil Case No. 80867.[5]
Respondent Neomi T. Olivares applied for a health care program with petitioner
Blue Cross Health Care, Inc., a health maintenance firm. For the period
October 16, 2002 to October 15, 2003,[6] she paid the amount of P11,117. For
the same period, she also availed of the additional service of limitless
consultations for an additional amount of P1,000. She paid these amounts in
full on October 17, 2002. The application was approved on October 22, 2002. In
the health care agreement, ailments due to pre-existing conditions were
excluded from the coverage.[7]
On November 30, 2002, or barely 38 days from the effectivity of her health
insurance, respondent Neomi suffered a stroke and was admitted at the Medical
City which was one of the hospitals accredited by petitioner. During her
confinement, she underwent several laboratory tests. On December 2, 2002, her
attending physician, Dr. Edmundo Saniel,[8] informed her that she could be
discharged from the hospital. She incurred hospital expenses amounting to
P34,217.20. Consequently, she requested from the representative of petitioner
at Medical City a letter of authorization in order to settle her medical
bills. But petitioner refused to issue the letter and suspended payment
pending the submission of a certification from her attending physician that
the stroke she suffered was not caused by a pre-existing condition.[9]
She was discharged from the hospital on December 3, 2002. On December 5, 2002,
she demanded that petitioner pay her medical bill. When petitioner still
refused, she and her husband, respondent Danilo Olivares, were constrained to
settle the bill.[10] They thereafter filed a complaint for collection of sum
of money against petitioner in the MeTC on January 8, 2003.[11] In its answer
dated January 24, 2003, petitioner maintained that it had not yet denied
respondents' claim as it was still awaiting Dr. Saniel's report.
In a letter to petitioner dated February 14, 2003, Dr. Saniel stated that:
This is in response to your letter dated February 13, 2003. [Respondent] Neomi
T. Olivares called by phone on January 29, 2003. She stated that she is
invoking patient-physician confidentiality. That she no longer has any
relationship with [petitioner]. And that I should not release any medical
information concerning her neurologic status to anyone without her approval.

Hence, the same day I instructed my secretary to inform your office thru Ms.
Bernie regarding [respondent's] wishes.
xxx xxx xxx[12]
In a decision dated August 5, 2003, the MeTC dismissed the complaint for lack
of cause of action. It held:
xxx the best person to determine whether or not the stroke she suffered was
not caused by pre-existing conditions is her attending physician Dr. Saniel
who treated her and conducted the test during her confinement. xxx But since
the evidence on record reveals that it was no less than [respondent Neomi]
herself who prevented her attending physician from issuing the required
certification, petitioner cannot be faulted from suspending payment of her
claim, for until and unless it can be shown from the findings made by her
attending physician that the stroke she suffered was not due to pre-existing
conditions could she demand entitlement to the benefits of her policy.[13]
On appeal, the RTC, in a decision dated February 2, 2004, reversed the ruling
of the MeTC and ordered petitioner to pay respondents the following amounts:
(1) P34,217.20 representing the medical bill in Medical City and P1,000 as
reimbursement for consultation fees, with legal interest from the filing of
the complaint until fully paid; (2) P20,000 as moral damages; (3) P20,000 as
exemplary damages; (4) P20,000 as attorney's fees and (5) costs of suit.[14]
The RTC held that it was the burden of petitioner to prove that the stroke of
respondent Neomi was excluded from the coverage of the health care program for
being caused by a pre-existing condition. It was not able to discharge that
burden.[15]
Aggrieved, petitioner filed a petition for review under Rule 42 of the Rules
of Court in the CA. In a decision promulgated on July 29, 2005, the CA
affirmed the decision of the RTC. It denied reconsideration in a resolution
promulgated on September 21, 2005. Hence this petition which raises the
following issues: (1) whether petitioner was able to prove that respondent
Neomi's stroke was caused by a pre-existing condition and therefore was
excluded from the coverage of the health care agreement and (2) whether it was
liable for moral and exemplary damages and attorney's fees.
The health care agreement defined a pre-existing condition as:
x x x a disability which existed before the commencement date of membership
whose natural history can be clinically determined, whether or not the Member
was aware of such illness or condition. Such conditions also include
disabilities existing prior to reinstatement date in the case of lapse of an
Agreement. Notwithstanding, the following disabilities but not to the
exclusion of others are considered pre-existing conditions including their
complications when occurring during the first year of a Members coverage:
I.
II.
III.
IV.
V.
VI.
VII.
VIII.
IX.
X.
XI.
abnormalities
XII.
XIII.
XIV.
XV.
XVI.
XVII.

Tumor of Internal Organs

Hemorrhoids/Anal Fistula
Diseased tonsils and sinus conditions requiring surgery
Cataract/Glaucoma
Pathological Abnormalities of nasal septum or turbinates
Goiter and other thyroid disorders
Hernia/Benign prostatic hypertrophy
Endometriosis
Asthma/Chronic Obstructive Lung disease
Epilepsy
Scholiosis/Herniated disc and other Spinal column
Tuberculosis
Cholecysitis
Gastric or Duodenal ulcer
Hallux valgus
Hypertension and other Cardiovascular diseases
Calculi

XVIII.
dyscracias
XIX.
XX.

Tumors of skin, muscular tissue, bone or any form of blood

Diabetes Mellitus
Collagen/Auto-Immune disease

After the Member has been continuously covered for 12 months, this preexisting provision shall no longer be applicable except for illnesses
specifically excluded by an endorsement and made part of this Agreement.[16]
Under this provision, disabilities which existed before the commencement of
the agreement are excluded from its coverage if they become manifest within
one year from its effectivity. Stated otherwise, petitioner is not liable for
pre-existing conditions if they occur within one year from the time the
agreement takes effect.
Petitioner argues that respondents prevented Dr. Saniel from submitting his
report regarding the medical condition of Neomi. Hence, it contends that the
presumption that evidence willfully suppressed would be adverse if produced
should apply in its favor.[17]
Respondents counter that the burden was on petitioner to prove that Neomi's
stroke was excluded from the coverage of their agreement because it was due to
a pre-existing condition. It failed to prove this.[18]
We agree with respondents.
In Philamcare Health Systems, Inc. v. CA,[19] we ruled that a health care
agreement is in the nature of a non-life insurance.[20] It is an established
rule in insurance contracts that when their terms contain limitations on
liability, they should be construed strictly against the insurer. These are
contracts of adhesion the terms of which must be interpreted and enforced
stringently against the insurer which prepared the contract. This doctrine is
equally applicable to health care agreements.[21]
Petitioner never presented any evidence to prove that respondent Neomi's
stroke was due to a pre-existing condition. It merely speculated that Dr.
Saniel's report would be adverse to Neomi, based on her invocation of the
doctor-patient privilege. This was a disputable presumption at best.
Section 3 (e), Rule 131 of the Rules of Court states:
Sec. 3. Disputable presumptions. The following presumptions are satisfactory
if uncontradicted, but may be contradicted and overcome by other evidence:
xxx xxx xxx
(e) That evidence willfully suppressed would be adverse if produced.
Suffice it to say that this presumption does not apply if (a) the evidence is
at the disposal of both parties; (b) the suppression was not willful; (c) it
is merely corroborative or cumulative and (d) the suppression is an exercise
of a privilege.[22] Here, respondents' refusal to present or allow the
presentation of Dr. Saniel's report was justified. It was privileged
communication between physician and patient.
Furthermore, as already stated, limitations of liability on the part of the
insurer or health care provider must be construed in such a way as to preclude
it from evading its obligations. Accordingly, they should be scrutinized by
the courts with extreme jealousy[23] and care and with a jaundiced eye.[24]
Since petitioner had the burden of proving exception to liability, it should
have made its own assessment of whether respondent Neomi had a pre-existing
condition when it failed to obtain the attending physician's report. It could
not just passively wait for Dr. Saniel's report to bail it out. The mere
reliance on a disputable presumption does not meet the strict standard
required under our jurisprudence.
Next, petitioner argues that it should not be held liable for moral and
exemplary damages, and attorney's fees since it did not act in bad faith in
denying respondent Neomi's claim. It insists that it waited in good faith for

Dr. Saniel's report and that, based on general medical findings, it had
reasonable ground to believe that her stroke was due to a pre-existing
condition, considering it occurred only 38 days after the coverage took
effect.[25]
We disagree.
The RTC and CA found that there was a factual basis for the damages adjudged
against petitioner. They found that it was guilty of bad faith in denying a
claim based merely on its own perception that there was a pre-existing
condition:
[Respondents] have sufficiently shown that [they] were forced to engage in a
dispute with [petitioner] over a legitimate claim while [respondent Neomi was]
still experiencing the effects of a stroke and forced to pay for her medical
bills during and after her hospitalization despite being covered by
[petitioners] health care program, thereby suffering in the process extreme
mental anguish, shock, serious anxiety and great stress. [They] have shown
that because of the refusal of [petitioner] to issue a letter of authorization
and to pay [respondent Neomi's] hospital bills, [they had] to engage the
services of counsel for a fee of P20,000.00. Finally, the refusal of
petitioner to pay respondent Neomi's bills smacks of bad faith, as its refusal
[was] merely based on its own perception that a stroke is a pre-existing
condition. (emphasis supplied)
This is a factual matter binding and conclusive on this Court.[26] We see no
reason to disturb these findings.
WHEREFORE, the petition is hereby DENIED. The July 29, 2005 decision and
September 21, 2005 resolution of the Court of Appeals in CA-G.R. SP No. 84163
are AFFIRMED.
Treble costs against petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 115278

May 23, 1995

FORTUNE INSURANCE AND SURETY CO., INC., petitioner,

vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.

DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review on certiorari
is whether the petitioner is liable under the Money, Security, and Payroll
Robbery policy it issued to the private respondent or whether recovery
thereunder is precluded under the general exceptions clause thereof. Both the
trial court and the Court of Appeals held that there should be recovery. The
petitioner contends otherwise.
This case began with the filing with the Regional Trial Court (RTC) of Makati,
Metro Manila, by private respondent Producers Bank of the Philippines
(hereinafter Producers) against petitioner Fortune Insurance and Surety Co.,
Inc. (hereinafter Fortune) of a complaint for recovery of the sum of
P725,000.00 under the policy issued by Fortune. The sum was allegedly lost
during a robbery of Producer's armored vehicle while it was in transit to
transfer the money from its Pasay City Branch to its head office in Makati.
The case was docketed as Civil Case No. 1817 and assigned to Branch 146
thereof.
After joinder of issues, the parties asked the trial court to render judgment
based on the following stipulation of facts:
1.
The plaintiff was insured by the defendants and an insurance policy was
issued, the duplicate original of which is hereto attached as Exhibit "A";
2.
An armored car of the plaintiff, while in the process of transferring
cash in the sum of P725,000.00 under the custody of its teller, Maribeth
Alampay, from its Pasay Branch to its Head Office at 8737 Paseo de Roxas,
Makati, Metro Manila on June 29, 1987, was robbed of the said cash. The
robbery took place while the armored car was traveling along Taft Avenue in
Pasay City;
3.
The said armored car was driven by Benjamin Magalong Y de Vera, escorted
by Security Guard Saturnino Atiga Y Rosete. Driver Magalong was assigned by
PRC Management Systems with the plaintiff by virtue of an Agreement executed
on August 7, 1983, a duplicate original copy of which is hereto attached as
Exhibit "B";
4.
The Security Guard Atiga was assigned by Unicorn Security Services, Inc.
with the plaintiff by virtue of a contract of Security Service executed on
October 25, 1982, a duplicate original copy of which is hereto attached as
Exhibit "C";
5.
After an investigation conducted by the Pasay police authorities, the
driver Magalong and guard Atiga were charged, together with Edelmer Bantigue Y
Eulalio, Reynaldo Aquino and John Doe, with violation of P.D. 532 (AntiHighway Robbery Law) before the Fiscal of Pasay City. A copy of the complaint
is hereto attached as Exhibit "D";
6.
The Fiscal of Pasay City then filed an information charging the
aforesaid persons with the said crime before Branch 112 of the Regional Trial
Court of Pasay City. A copy of the said information is hereto attached as
Exhibit "E." The case is still being tried as of this date;

7.
Demands were made by the plaintiff upon the defendant to pay the amount
of the loss of P725,000.00, but the latter refused to pay as the loss is
excluded from the coverage of the insurance policy, attached hereto as Exhibit
"A," specifically under page 1 thereof, "General Exceptions" Section (b),
which is marked as Exhibit "A-1," and which reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
xxx

xxx

xxx

(b)
any loss caused by any dishonest, fraudulent or criminal act of the
insured or any officer, employee, partner, director, trustee or authorized
representative of the Insured whether acting alone or in conjunction with
others. . . .
8.
The plaintiff opposes the contention of the defendant and contends that
Atiga and Magalong are not its "officer, employee, . . . trustee or authorized
representative . . . at the time of the robbery. 1
On 26 April 1990, the trial court rendered its decision in favor of Producers.
The dispositive portion thereof reads as follows:
WHEREFORE, premises considered, the Court finds for plaintiff and against
defendant, and
(a)
orders defendant to pay plaintiff the net amount of P540,000.00 as
liability under Policy No. 0207 (as mitigated by the P40,000.00 special clause
deduction and by the recovered sum of P145,000.00), with interest thereon at
the legal rate, until fully paid;
(b)
orders defendant to pay plaintiff the sum of P30,000.00 as and for
attorney's fees; and
(c)

orders defendant to pay costs of suit.

All other claims and counterclaims are accordingly dismissed forthwith.

SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or
representatives of Producers. It Said:
The Court is satisfied that plaintiff may not be said to have selected and
engaged Magalong and Atiga, their services as armored car driver and as
security guard having been merely offered by PRC Management and by Unicorn
Security and which latter firms assigned them to plaintiff. The wages and
salaries of both Magalong and Atiga are presumably paid by their respective
firms, which alone wields the power to dismiss them. Magalong and Atiga are
assigned to plaintiff in fulfillment of agreements to provide driving services
and property protection as such in a context which does not impress the
Court as translating into plaintiff's power to control the conduct of any
assigned driver or security guard, beyond perhaps entitling plaintiff to
request are replacement for such driver guard. The finding is accordingly
compelled that neither Magalong nor Atiga were plaintiff's "employees" in
avoidance of defendant's liability under the policy, particularly the general
exceptions therein embodied.
Neither is the Court prepared to accept the proposition that driver Magalong
and guard Atiga were the "authorized representatives" of plaintiff. They were
merely an assigned armored car driver and security guard, respectively, for
the June 29, 1987 money transfer from plaintiff's Pasay Branch to its Makati
Head Office. Quite plainly it was teller Maribeth Alampay who had "custody"
of the P725,000.00 cash being transferred along a specified money route, and
hence plaintiff's then designated "messenger" adverted to in the policy. 3

Fortune appealed this decision to the Court of Appeals which docketed the case
as CA-G.R. CV No. 32946. In its decision 4 promulgated on 3 May 1994, it
affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that
Magalong and Atiga were neither employees nor authorized representatives of
Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed liberally in favor of the
insured and strictly against the insurance company (New Life Enterprises vs.
Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of
Appeals, 211 SCRA 554). Contracts of insurance, like other contracts, are to
be construed according to the sense and meaning of the terms which the parties
themselves have used. If such terms are clear and unambiguous, they must be
taken and understood in their plain, ordinary and popular sense (New Life
Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of
Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted stipulation is
plain, ordinary and simple. No other interpretation is necessary. The word
"employee" must be taken to mean in the ordinary sense.
The Labor Code is a special law specifically dealing with/and specifically
designed to protect labor and therefore its definition as to employer-employee
relationships insofar as the application/enforcement of said Code is concerned
must necessarily be inapplicable to an insurance contract which defendantappellant itself had formulated. Had it intended to apply the Labor Code in
defining what the word "employee" refers to, it must/should have so stated
expressly in the insurance policy.
Said driver and security guard cannot be considered as employees of plaintiffappellee bank because it has no power to hire or to dismiss said driver and
security guard under the contracts (Exhs. 8 and C) except only to ask for
their replacements from the contractors. 5
On 20 June 1994, Fortune filed this petition for review on certiorari. It
alleges that the trial court and the Court of Appeals erred in holding it
liable under the insurance policy because the loss falls within the general
exceptions clause considering that driver Magalong and security guard Atiga
were Producers' authorized representatives or employees in the transfer of the
money and payroll from its branch office in Pasay City to its head office in
Makati.
According to Fortune, when Producers commissioned a guard and a driver to
transfer its funds from one branch to another, they effectively and
necessarily became its authorized representatives in the care and custody of
the money. Assuming that they could not be considered authorized
representatives, they were, nevertheless, employees of Producers. It asserts
that the existence of an employer-employee relationship "is determined by law
and being such, it cannot be the subject of agreement." Thus, if there was in
reality an employer-employee relationship between Producers, on the one hand,
and Magalong and Atiga, on the other, the provisions in the contracts of
Producers with PRC Management System for Magalong and with Unicorn Security
Services for Atiga which state that Producers is not their employer and that
it is absolved from any liability as an employer, would not obliterate the
relationship.
Fortune points out that an employer-employee relationship depends upon four
standards: (1) the manner of selection and engagement of the putative
employee; (2) the mode of payment of wages; (3) the presence or absence of a
power to dismiss; and (4) the presence and absence of a power to control the
putative employee's conduct. Of the four, the right-of-control test has been
held to be the decisive factor. 6 It asserts that the power of control over
Magalong and Atiga was vested in and exercised by Producers. Fortune further
insists that PRC Management System and Unicorn Security Services are but
"labor-only" contractors under Article 106 of the Labor Code which provides:
Art. 106.
Contractor or subcontractor. There is "labor-only" contracting
where the person supplying workers to an employer does not have substantial

capital or investment in the form of tools, equipment, machineries, work

premises, among others, and the workers recruited and placed by such persons
are performing activities which are directly related to the principal business
of such employer. In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter were directly employed
by him.
Fortune thus contends that Magalong and Atiga were employees of Producers,
following the ruling in International Timber Corp. vs. NLRC 7 that a finding
that a contractor is a "labor-only" contractor is equivalent to a finding that
there is an employer-employee relationship between the owner of the project
and the employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were not its
employees since it had nothing to do with their selection and engagement, the
payment of their wages, their dismissal, and the control of their conduct.
Producers argued that the rule in International Timber Corp. is not applicable
to all cases but only when it becomes necessary to prevent any violation or
circumvention of the Labor Code, a social legislation whose provisions may set
aside contracts entered into by parties in order to give protection to the
working man.
Producers further asseverates that what should be applied is the rule in
American President Lines vs. Clave, 8 to wit:
In determining the existence of employer-employee relationship, the following
elements are generally considered, namely: (1) the selection and engagement of
the employee; (2) the payment of wages; (3) the power of dismissal; and (4)
the power to control the employee's conduct.
Since under Producers' contract with PRC Management Systems it is the latter
which assigned Magalong as the driver of Producers' armored car and was
responsible for his faithful discharge of his duties and responsibilities, and
since Producers paid the monthly compensation of P1,400.00 per driver to PRC
Management Systems and not to Magalong, it is clear that Magalong was not
Producers' employee. As to Atiga, Producers relies on the provision of its
contract with Unicorn Security Services which provides that the guards of the
latter "are in no sense employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a
theft or robbery insurance policy which is a form of casualty insurance.
Section 174 of the Insurance Code provides:
Sec. 174.
Casualty insurance is insurance covering loss or liability arising
from accident or mishap, excluding certain types of loss which by law or
custom are considered as falling exclusively within the scope of insurance
such as fire or marine. It includes, but is not limited to, employer's
liability insurance, public liability insurance, motor vehicle liability
insurance, plate glass insurance, burglary and theft insurance, personal
accident and health insurance as written by non-life insurance companies, and
other substantially similar kinds of insurance. (emphases supplied)
Except with respect to compulsory motor vehicle liability insurance, the
Insurance Code contains no other provisions applicable to casualty insurance
or to robbery insurance in particular. These contracts are, therefore,
governed by the general provisions applicable to all types of insurance.
Outside of these, the rights and obligations of the parties must be determined
by the terms of their contract, taking into consideration its purpose and
always in accordance with the general principles of insurance law. 9
It has been aptly observed that in burglary, robbery, and theft insurance,
"the opportunity to defraud the insurer the moral hazard is so great that
insurers have found it necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard. Seldom does the insurer
assume the risk of all losses due to the hazards insured against." 10 Persons
frequently excluded under such provisions are those in the insured's service

and employment. 11 The purpose of the exception is to guard against liability

should the theft be committed by one having unrestricted access to the
property. 12 In such cases, the terms specifying the excluded classes are to
be given their meaning as understood in common speech. 13 The terms "service"
and "employment" are generally associated with the idea of selection, control,
and compensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity therein
should be resolved against the insurer, 15 or it should be construed liberally
in favor of the insured and strictly against the insurer. 16 Limitations of
liability should be regarded with extreme jealousy and must be construed
in such a way, as to preclude the insurer from non-compliance with its
obligation. 17 It goes without saying then that if the terms of the contract
are clear and unambiguous, there is no room for construction and such terms
cannot be enlarged or diminished by judicial construction. 18
An insurance contract is a contract of indemnity upon the terms and conditions
specified therein. 19 It is settled that the terms of the policy constitute
the measure of the insurer's liability. 20 In the absence of statutory
prohibition to the contrary, insurance companies have the same rights as
individuals to limit their liability and to impose whatever conditions they
deem best upon their obligations not inconsistent with public policy.
With the foregoing principles in mind, it may now be asked whether Magalong
and Atiga qualify as employees or authorized representatives of Producers
under paragraph (b) of the general exceptions clause of the policy which, for
easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
xxx

xxx

xxx

(b)
any loss caused by any dishonest, fraudulent or criminal act of the
insured or any officer, employee, partner, director, trustee or authorized
representative of the Insured whether acting alone or in conjunction with
others. . . . (emphases supplied)
There is marked disagreement between the parties on the correct meaning of the
terms "employee" and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention
to exclude and exempt from protection and coverage losses arising from
dishonest, fraudulent, or criminal acts of persons granted or having
unrestricted access to Producers' money or payroll. When it used then the term
"employee," it must have had in mind any person who qualifies as such as
generally and universally understood, or jurisprudentially established in the
light of the four standards in the determination of the employer-employee
relationship, 21 or as statutorily declared even in a limited sense as in the
case of Article 106 of the Labor Code which considers the employees under a
"labor-only" contract as employees of the party employing them and not of the
party who supplied them to the employer. 22
Fortune claims that Producers' contracts with PRC Management Systems and
Unicorn Security Services are "labor-only" contracts.
Producers, however, insists that by the express terms thereof, it is not the
employer of Magalong. Notwithstanding such express assumption of PRC
Management Systems and Unicorn Security Services that the drivers and the
security guards each shall supply to Producers are not the latter's employees,
it may, in fact, be that it is because the contracts are, indeed, "labor-only"
contracts. Whether they are is, in the light of the criteria provided for in
Article 106 of the Labor Code, a question of fact. Since the parties opted to
submit the case for judgment on the basis of their stipulation of facts which
are strictly limited to the insurance policy, the contracts with PRC
Management Systems and Unicorn Security Services, the complaint for violation
of P.D. No. 532, and the information therefor filed by the City Fiscal of
Pasay City, there is a paucity of evidence as to whether the contracts between

Producers and PRC Management Systems and Unicorn Security Services are "laboronly" contracts.
But even granting for the sake of argument that these contracts were not
"labor-only" contracts, and PRC Management Systems and Unicorn Security
Services were truly independent contractors, we are satisfied that Magalong
and Atiga were, in respect of the transfer of Producer's money from its Pasay
City branch to its head office in Makati, its "authorized representatives" who
served as such with its teller Maribeth Alampay. Howsoever viewed, Producers
entrusted the three with the specific duty to safely transfer the money to its
head office, with Alampay to be responsible for its custody in transit;
Magalong to drive the armored vehicle which would carry the money; and Atiga
to provide the needed security for the money, the vehicle, and his two other
companions. In short, for these particular tasks, the three acted as agents of
Producers. A "representative" is defined as one who represents or stands in
the place of another; one who represents others or another in a special
capacity, as an agent, and is interchangeable with "agent." 23
In view of the foregoing, Fortune is exempt from liability under the general
exceptions clause of the insurance policy.
WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court
of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch
146 of the Regional Trial Court of Makati in Civil Case No. 1817 are REVERSED
and SET ASIDE. The complaint in Civil Case No. 1817 is DISMISSED.
No pronouncement as to costs.
SO ORDERED.

SECOND DIVISION
[G.R. No. 156167. May 16, 2005]
GULF RESORTS, INC., petitioner, vs. PHILIPPINE CHARTER INSURANCE CORPORATION,
respondent.
D E C I S I O N
PUNO, J.:
Before the Court is the petition for certiorari under Rule 45 of the Revised
Rules of Court by petitioner GULF RESORTS, INC., against respondent PHILIPPINE
CHARTER INSURANCE CORPORATION. Petitioner assails the appellate court
decision[1] which dismissed its two appeals and affirmed the judgment of the
trial court.
For review are the warring interpretations of petitioner and respondent on the
scope of the insurance companys liability for earthquake damage to petitioners
properties. Petitioner avers that, pursuant to its earthquake shock
endorsement rider, Insurance Policy No. 31944 covers all damages to the
properties within its resort caused by earthquake. Respondent contends that
the rider limits its liability for loss to the two swimming pools of
petitioner.
The facts as established by the court a quo, and affirmed by the appellate
court are as follows:
[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and
had its properties in said resort insured originally with the American Home
Assurance Company (AHAC-AIU). In the first four insurance policies issued by
AHAC-AIU from 1984-85; 1985-86; 1986-1987; and 1987-88 (Exhs. C, D, E and F;
also Exhs. 1, 2, 3 and 4 respectively), the risk of loss from earthquake shock
was extended only to plaintiffs two swimming pools, thus, earthquake shock
endt. (Item 5 only) (Exhs. C-1; D-1, and E and two (2) swimming pools only
(Exhs. C-1; D-1, E and F-1). Item 5 in those policies referred to the two (2)
swimming pools only (Exhs. 1-B, 2-B, 3-B and F-2); that subsequently AHAC(AIU)
issued in plaintiffs favor Policy No. 206-4182383-0 covering the period March
14, 1988 to March 14, 1989 (Exhs. G also G-1) and in said policy the
earthquake endorsement clause as indicated in Exhibits C-1, D-1, Exhibits E
and F-1 was deleted and the entry under Endorsements/Warranties at the time of
issue read that plaintiff renewed its policy with AHAC (AIU) for the period of
March 14, 1989 to March 14, 1990 under Policy No. 206-4568061-9 (Exh. H) which
carried the entry under Endorsement/Warranties at Time of Issue, which read
Endorsement to Include Earthquake Shock (Exh. 6-B-1) in the amount of
P10,700.00 and paid P42,658.14 (Exhs. 6-A and 6-B) as premium thereof,
computed as follows:
Item -P7,691,000.00 - on the Clubhouse only
@ .392%;
1,500,000.00 - on the furniture, etc.
contained in the building
above-mentioned@ .490%;
393,000.00- on the two swimming
pools, only (against the
peril of earthquake
shock only) @ 0.100%
116,600.00- other buildings include
as follows:
a) Tilter House- P19,800.00- 0.551%
b) Power House- P41,000.00- 0.551%
c) House Shed- P55,000.00 -0.540%
P100,000.00 for furniture, fixtures,
lines air-con and
operating equipment
that plaintiff agreed to insure with defendant the properties covered by AHAC
(AIU) Policy No. 206-4568061-9 (Exh. H) provided that the policy wording and
rates in said policy be copied in the policy to be issued by defendant; that
defendant issued Policy No. 31944 to plaintiff covering the period of March
14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium of

P45,159.92 (Exh. I); that in the computation of the premium, defendants Policy
No. 31944 (Exh. I), which is the policy in question, contained on the righthand upper portion of page 7 thereof, the following:
Rate-Various
Premium - P37,420.60 F/L
2,061.52 Typhoon
1,030.76 EC
393.00 ES
Doc. Stamps 3,068.10
F.S.T. 776.89
Prem. Tax 409.05
TOTAL 45,159.92;
that the above break-down of premiums shows that plaintiff paid only P393.00
as premium against earthquake shock (ES); that in all the six insurance
policies (Exhs. C, D, E, F, G and H), the premium against the peril of
earthquake shock is the same, that is P393.00 (Exhs. C and 1-B; 2-B and 3-B-1
and 3-B-2; F-02 and 4-A-1; G-2 and 5-C-1; 6-C-1; issued by AHAC (Exhs. C, D,
E, F, G and H) and in Policy No. 31944 issued by defendant, the shock
endorsement provide(sic):
In consideration of the payment by the insured to the company of the sum
included additional premium the Company agrees, notwithstanding what is stated
in the printed conditions of this policy due to the contrary, that this
insurance covers loss or damage to shock to any of the property insured by
this Policy occasioned by or through or in consequence of earthquake (Exhs. 1D, 2-D, 3-A, 4-B, 5-A, 6-D and 7-C);
that in Exhibit 7-C the word included above the underlined portion was
deleted; that on July 16, 1990 an earthquake struck Central Luzon and Northern
Luzon and plaintiffs properties covered by Policy No. 31944 issued by
defendant, including the two swimming pools in its Agoo Playa Resort were
damaged.[2]
After the earthquake, petitioner advised respondent that it would be making a
claim under its Insurance Policy No. 31944 for damages on its properties.
Respondent instructed petitioner to file a formal claim, then assigned the
investigation of the claim to an independent claims adjuster, Bayne Adjusters
and Surveyors, Inc.[3] On July 30, 1990, respondent, through its adjuster,
requested petitioner to submit various documents in support of its claim. On
August 7, 1990, Bayne Adjusters and Surveyors, Inc., through its VicePresident A.R. de Leon,[4] rendered a preliminary report[5] finding extensive
damage caused by the earthquake to the clubhouse and to the two swimming
pools. Mr. de Leon stated that except for the swimming pools, all affected
items have no coverage for earthquake shocks.[6] On August 11, 1990,
petitioner filed its formal demand[7] for settlement of the damage to all its
properties in the Agoo Playa Resort. On August 23, 1990, respondent denied
petitioners claim on the ground that its insurance policy only afforded
earthquake shock coverage to the two swimming pools of the resort.[8]
Petitioner and respondent failed to arrive at a settlement.[9] Thus, on
January 24, 1991, petitioner filed a complaint[10] with the regional trial
court of Pasig praying for the payment of the following:
1.) The sum of P5,427,779.00, representing losses sustained by the insured
properties, with interest thereon, as computed under par. 29 of the policy
(Annex B) until fully paid;
2.) The sum of P428,842.00 per month, representing continuing losses sustained
by plaintiff on account of defendants refusal to pay the claims;
3.) The sum of P500,000.00, by way of exemplary damages;
4.) The sum of P500,000.00 by way of attorneys fees and expenses of
litigation;
5.) Costs.[11]

Respondent filed its Answer with Special and Affirmative Defenses with
Compulsory Counterclaims.[12]
On February 21, 1994, the lower court after trial ruled in favor of the
respondent, viz:
The above schedule clearly shows that plaintiff paid only a premium of P393.00
against the peril of earthquake shock, the same premium it paid against
earthquake shock only on the two swimming pools in all the policies issued by
AHAC(AIU) (Exhibits C, D, E, F and G). From this fact the Court must
consequently agree with the position of defendant that the endorsement rider
(Exhibit 7-C) means that only the two swimming pools were insured against
earthquake shock.
Plaintiff correctly points out that a policy of insurance is a contract of
adhesion hence, where the language used in an insurance contract or
application is such as to create ambiguity the same should be resolved against
the party responsible therefor, i.e., the insurance company which prepared the
contract. To the mind of [the] Court, the language used in the policy in
litigation is clear and unambiguous hence there is no need for interpretation
or construction but only application of the provisions therein.
From the above observations the Court finds that only the two (2) swimming
pools had earthquake shock coverage and were heavily damaged by the earthquake
which struck on July 16, 1990. Defendant having admitted that the damage to
the swimming pools was appraised by defendants adjuster at P386,000.00,
defendant must, by virtue of the contract of insurance, pay plaintiff said
amount.
Because it is the finding of the Court as stated in the immediately preceding
paragraph that defendant is liable only for the damage caused to the two (2)
swimming pools and that defendant has made known to plaintiff its willingness
and readiness to settle said liability, there is no basis for the grant of the
other damages prayed for by plaintiff. As to the counterclaims of defendant,
the Court does not agree that the action filed by plaintiff is baseless and
highly speculative since such action is a lawful exercise of the plaintiffs
right to come to Court in the honest belief that their Complaint is
meritorious. The prayer, therefore, of defendant for damages is likewise
denied.
WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum
of THREE HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00) representing damage
to the two (2) swimming pools, with interest at 6% per annum from the date of
the filing of the Complaint until defendants obligation to plaintiff is fully
paid.
No pronouncement as to costs.[13]
Petitioners Motion for Reconsideration was denied. Thus, petitioner filed an
appeal with the Court of Appeals based on the following assigned errors:[14]
A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY RECOVER
FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS FIRE POLICY NO. 31944,
CONSIDERING ITS PROVISIONS, THE CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID
POLICY AND THE ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE OF JULY
16, 1990.
B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANTS RIGHT TO RECOVER
UNDER DEFENDANT-APPELLEES POLICY (NO. 31944; EXH I) BY LIMITING ITSELF TO A
CONSIDERATION OF THE SAID POLICY ISOLATED FROM THE CIRCUMSTANCES SURROUNDING
ITS ISSUANCE AND THE ACTUATIONS OF THE PARTIES AFTER THE EARTHQUAKE OF JULY
16, 1990.
C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS ENTITLED
TO THE DAMAGES CLAIMED, WITH INTEREST COMPUTED AT 24% PER ANNUM ON CLAIMS ON
PROCEEDS OF POLICY.

On the other hand, respondent filed a partial appeal, assailing the lower
courts failure to award it attorneys fees and damages on its compulsory
counterclaim.
After review, the appellate court affirmed the decision of the trial court and
ruled, thus:
However, after carefully perusing the documentary evidence of both parties, We
are not convinced that the last two (2) insurance contracts (Exhs. G and H),
which the plaintiff-appellant had with AHAC (AIU) and upon which the subject
insurance contract with Philippine Charter Insurance Corporation is said to
have been based and copied (Exh. I), covered an extended earthquake shock
insurance on all the insured properties.
x x x
We also find that the Court a quo was correct in not granting the plaintiffappellants prayer for the imposition of interest 24% on the insurance claim
and 6% on loss of income allegedly amounting to P4,280,000.00. Since the
defendant-appellant has expressed its willingness to pay the damage caused on
the two (2) swimming pools, as the Court a quo and this Court correctly found
it to be liable only, it then cannot be said that it was in default and
therefore liable for interest.
Coming to the defendant-appellants prayer for an attorneys fees, long-standing
is the rule that the award thereof is subject to the sound discretion of the
court. Thus, if such discretion is well-exercised, it will not be disturbed on
appeal (Castro et al. v. CA, et al., G.R. No. 115838, July 18, 2002).
Moreover, being the award thereof an exception rather than a rule, it is
necessary for the court to make findings of facts and law that would bring the
case within the exception and justify the grant of such award (Country Bankers
Insurance Corp. v. Lianga Bay and Community Multi-Purpose Coop., Inc., G.R.
No. 136914, January 25, 2002). Therefore, holding that the plaintiffappellants action is not baseless and highly speculative, We find that the
Court a quo did not err in granting the same.
WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and
judgment of the Trial Court hereby AFFIRMED in toto. No costs.[15]
Petitioner filed the present petition raising the following issues:[16]
A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER RESPONDENTS
INSURANCE POLICY NO. 31944, ONLY THE TWO (2) SWIMMING POOLS, RATHER THAN ALL
THE PROPERTIES COVERED THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE
SHOCK.
B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONERS PRAYER FOR
DAMAGES WITH INTEREST THEREON AT THE RATE CLAIMED, ATTORNEYS FEES AND EXPENSES
OF LITIGATION.
Petitioner contends:
First, that the policys earthquake shock endorsement clearly covers all of the
properties insured and not only the swimming pools. It used the words any
property insured by this policy, and it should be interpreted as all
inclusive.
Second, the unqualified and unrestricted nature of the earthquake shock
endorsement is confirmed in the body of the insurance policy itself, which
states that it is [s]ubject to: Other Insurance Clause, Typhoon Endorsement,
Earthquake Shock Endt., Extended Coverage Endt., FEA Warranty & Annual Payment
Agreement On Long Term Policies.[17]
Third, that the qualification referring to the two swimming pools had already
been deleted in the earthquake shock endorsement.
Fourth, it is unbelievable for respondent to claim that it only made an
inadvertent omission when it deleted the said qualification.

Fifth, that the earthquake shock endorsement rider should be given precedence
over the wording of the insurance policy, because the rider is the more
deliberate expression of the agreement of the contracting parties.
Sixth, that in their previous insurance policies, limits were placed on the
endorsements/warranties enumerated at the time of issue.
Seventh, any ambiguity in the earthquake shock endorsement should be resolved
in favor of petitioner and against respondent. It was respondent which caused
the ambiguity when it made the policy in issue.
Eighth, the qualification of the endorsement limiting the earthquake shock
endorsement should be interpreted as a caveat on the standard fire insurance
policy, such as to remove the two swimming pools from the coverage for the
risk of fire. It should not be used to limit the respondents liability for
earthquake shock to the two swimming pools only.
Ninth, there is no basis for the appellate court to hold that the additional
premium was not paid under the extended coverage. The premium for the
earthquake shock coverage was already included in the premium paid for the
policy.
Tenth, the parties contemporaneous and subsequent acts show that they intended
to extend earthquake shock coverage to all insured properties. When it secured
an insurance policy from respondent, petitioner told respondent that it wanted
an exact replica of its latest insurance policy from American Home Assurance
Company (AHAC-AIU), which covered all the resorts properties for earthquake
shock damage and respondent agreed. After the July 16, 1990 earthquake,
respondent assured petitioner that it was covered for earthquake shock.
Respondents insurance adjuster, Bayne Adjusters and Surveyors, Inc., likewise
requested petitioner to submit the necessary documents for its building claims
and other repair costs. Thus, under the doctrine of equitable estoppel, it
cannot deny that the insurance policy it issued to petitioner covered all of
the properties within the resort.
Eleventh, that it is proper for it to avail of a petition for review by
certiorari under Rule 45 of the Revised Rules of Court as its remedy, and
there is no need for calibration of the evidence in order to establish the
facts upon which this petition is based.
On the other hand, respondent made the following counter arguments:[18]
First, none of the previous policies issued by AHAC-AIU from 1983 to 1990
explicitly extended coverage against earthquake shock to petitioners insured
properties other than on the two swimming pools. Petitioner admitted that from
1984 to 1988, only the two swimming pools were insured against earthquake
shock. From 1988 until 1990, the provisions in its policy were practically
identical to its earlier policies, and there was no increase in the premium
paid. AHAC-AIU, in a letter[19] by its representative Manuel C. Quijano,
categorically stated that its previous policy, from which respondents policy
was copied, covered only earthquake shock for the two swimming pools.
Second, petitioners payment of additional premium in the amount of P393.00
shows that the policy only covered earthquake shock damage on the two swimming
pools. The amount was the same amount paid by petitioner for earthquake shock
coverage on the two swimming pools from 1990-1991. No additional premium was
paid to warrant coverage of the other properties in the resort.
Third, the deletion of the phrase pertaining to the limitation of the
earthquake shock endorsement to the two swimming pools in the policy schedule
did not expand the earthquake shock coverage to all of petitioners properties.
As per its agreement with petitioner, respondent copied its policy from the
AHAC-AIU policy provided by petitioner. Although the first five policies
contained the said qualification in their riders title, in the last two
policies, this qualification in the title was deleted. AHAC-AIU, through Mr.
J. Baranda III, stated that such deletion was a mere inadvertence. This
inadvertence did not make the policy incomplete, nor did it broaden the scope
of the endorsement whose descriptive title was merely enumerated. Any
ambiguity in the policy can be easily resolved by looking at the other

provisions, specially the enumeration of the items insured, where only the two
swimming pools were noted as covered for earthquake shock damage.
Fourth, in its Complaint, petitioner alleged that in its policies from 1984
through 1988, the phrase Item 5 P393,000.00 on the two swimming pools only
(against the peril of earthquake shock only) meant that only the swimming
pools were insured for earthquake damage. The same phrase is used in toto in
the policies from 1989 to 1990, the only difference being the designation of
the two swimming pools as Item 3.
Fifth, in order for the earthquake shock endorsement to be effective, premiums
must be paid for all the properties covered. In all of its seven insurance
policies, petitioner only paid P393.00 as premium for coverage of the swimming
pools against earthquake shock. No other premium was paid for earthquake shock
coverage on the other properties. In addition, the use of the qualifier ANY
instead of ALL to describe the property covered was done deliberately to
enable the parties to specify the properties included for earthquake coverage.
Sixth, petitioner did not inform respondent of its requirement that all of its
properties must be included in the earthquake shock coverage. Petitioners own
evidence shows that it only required respondent to follow the exact provisions
of its previous policy from AHAC-AIU. Respondent complied with this
requirement. Respondents only deviation from the agreement was when it
modified the provisions regarding the replacement cost endorsement. With
regard to the issue under litigation, the riders of the old policy and the
policy in issue are identical.
Seventh, respondent did not do any act or give any assurance to petitioner as
would estop it from maintaining that only the two swimming pools were covered
for earthquake shock. The adjusters letter notifying petitioner to present
certain documents for its building claims and repair costs was given to
petitioner before the adjuster knew the full coverage of its policy.
Petitioner anchors its claims on AHAC-AIUs inadvertent deletion of the phrase
Item 5 Only after the descriptive name or title of the Earthquake Shock
Endorsement. However, the words of the policy reflect the parties clear
intention to limit earthquake shock coverage to the two swimming pools.
Before petitioner accepted the policy, it had the opportunity to read its
conditions. It did not object to any deficiency nor did it institute any
action to reform the policy. The policy binds the petitioner.
Eighth, there is no basis for petitioner to claim damages, attorneys fees and
litigation expenses. Since respondent was willing and able to pay for the
damage caused on the two swimming pools, it cannot be considered to be in
default, and therefore, it is not liable for interest.
We hold that the petition is devoid of merit.
In Insurance Policy No. 31944, four key items are important in the resolution
of the case at bar.
First, in the designation of location of risk, only the two swimming pools
were specified as included, viz:
ITEM 3 393,000.00 On the two (2) swimming pools only (against the peril of
earthquake shock only)[20]
Second, under the breakdown for premium payments,[21] it was stated that:
PREMIUM RECAPITULATION
ITEM NOS. AMOUNT RATES PREMIUM
x x x
3 393,000.00 0.100%-E/S 393.00[22]
Third, Policy Condition No. 6 stated:

6. This insurance does not cover any loss or damage occasioned by or through
or in consequence, directly or indirectly of any of the following occurrences,
namely:-(a) Earthquake, volcanic eruption or other convulsion of nature. [23]
Fourth, the rider attached to the policy, titled Extended Coverage Endorsement
(To Include the Perils of Explosion, Aircraft, Vehicle and Smoke), stated,
viz:
ANNUAL PAYMENT AGREEMENT ON
LONG TERM POLICIES
THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS INSURED IN
EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF A DISCOUNT OF 5% OR 7 % OF
THE NET PREMIUM x x x POLICY HEREBY UNDERTAKES TO CONTINUE THE INSURANCE UNDER
THE ABOVE NAMED x x x AND TO PAY THE PREMIUM.
Earthquake Endorsement
In consideration of the payment by the Insured to the Company of the sum of P.
. . . . . . . . . . . . . . . . additional premium the Company agrees,
notwithstanding what is stated in the printed conditions of this Policy to the
contrary, that this insurance covers loss or damage (including loss or damage
by fire) to any of the property insured by this Policy occasioned by or
through or in consequence of Earthquake.
Provided always that all the conditions of this Policy shall apply (except in
so far as they may be hereby expressly varied) and that any reference therein
to loss or damage by fire should be deemed to apply also to loss or damage
occasioned by or through or in consequence of Earthquake.[24]
Petitioner contends that pursuant to this rider, no qualifications were placed
on the scope of the earthquake shock coverage. Thus, the policy extended
earthquake shock coverage to all of the insured properties.
It is basic that all the provisions of the insurance policy should be examined
and interpreted in consonance with each other.[25] All its parts are
reflective of the true intent of the parties. The policy cannot be construed
piecemeal. Certain stipulations cannot be segregated and then made to control;
neither do particular words or phrases necessarily determine its character.
Petitioner cannot focus on the earthquake shock endorsement to the exclusion
of the other provisions. All the provisions and riders, taken and interpreted
together, indubitably show the intention of the parties to extend earthquake
shock coverage to the two swimming pools only.
A careful examination of the premium recapitulation will show that it is the
clear intent of the parties to extend earthquake shock coverage only to the
two swimming pools. Section 2(1) of the Insurance Code defines a contract of
insurance as an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or
contingent event. Thus, an insurance contract exists where the following
elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated
peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and
5. In consideration of the insurer's promise, the insured pays a premium.[26]
(Emphasis ours)

An insurance premium is the consideration paid an insurer for undertaking to

indemnify the insured against a specified peril.[27] In fire, casualty, and
marine insurance, the premium payable becomes a debt as soon as the risk
attaches.[28] In the subject policy, no premium payments were made with regard
to earthquake shock coverage, except on the two swimming pools. There is no
mention of any premium payable for the other resort properties with regard to
earthquake shock. This is consistent with the history of petitioners previous
insurance policies from AHAC-AIU. As borne out by petitioners witnesses:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
pp. 12-13
Q. Now Mr. Mantohac, will it be correct to state also that insofar as your
insurance policy during the period from March 4, 1984 to March 4, 1985 the
coverage on earthquake shock was limited to the two swimming pools only?
A. Yes, sir. It is limited to the two swimming pools, specifically shown in
the warranty, there is a provision here that it was only for item 5.
Q. More specifically Item 5 states the amount of P393,000.00 corresponding to
the two swimming pools only?
A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991
pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989, did you personally
arrange for the procurement of this policy?
A. Yes, sir.
Q. Did you also do this through your insurance agency?
A. If you are referring to Forte Insurance Agency, yes.
Q. Is Forte Insurance Agency a department or division of your company?
A. No, sir. They are our insurance agency.
Q. And they are independent of your company insofar as operations are
concerned?
A. Yes, sir, they are separate entity.
Q. But insofar as the procurement of the insurance policy is concerned they
are of course subject to your instruction, is that not correct?
A. Yes, sir. The final action is still with us although they can recommend
what insurance to take.
Q. In the procurement of the insurance police (sic) from March 14, 1988 to
March 14, 1989, did you give written instruction to Forte Insurance Agency
advising it that the earthquake shock coverage must extend to all properties
of Agoo Playa Resort in La Union?
A. No, sir. We did not make any written instruction, although we made an oral
instruction to that effect of extending the coverage on (sic) the other
properties of the company.
Q. And that instruction, according to you, was very important because in April
1987 there was an earthquake tremor in La Union?
A. Yes, sir.
Q. And you wanted to protect all your properties against similar tremors in
the [future], is that correct?
A. Yes, sir.

Q. Now, after this policy was delivered to you did you bother to check the
provisions with respect to your instructions that all properties must be
covered again by earthquake shock endorsement?
A. Are you referring to the insurance policy issued by American Home Assurance
Company marked Exhibit G?
Atty. Mejia: Yes.
Witness:
A. I examined the policy and seeing that the warranty on the earthquake shock
endorsement has no more limitation referring to the two swimming pools only, I
was contented already that the previous limitation pertaining to the two
swimming pools was already removed.
Petitioner also cited and relies on the attachment of the phrase Subject to:
Other Insurance Clause, Typhoon Endorsement, Earthquake Shock Endorsement,
Extended Coverage Endorsement, FEA Warranty & Annual Payment Agreement on Long
Term Policies[29] to the insurance policy as proof of the intent of the
parties to extend the coverage for earthquake shock. However, this phrase is
merely an enumeration of the descriptive titles of the riders, clauses,
warranties or endorsements to which the policy is subject, as required under
Section 50, paragraph 2 of the Insurance Code.
We also hold that no significance can be placed on the deletion of the
qualification limiting the coverage to the two swimming pools. The earthquake
shock endorsement cannot stand alone. As explained by the testimony of Juan
Baranda III, underwriter for AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III[30]
TSN, August 11, 1992
pp. 9-12
Atty. Mejia:
We respectfully manifest that the same exhibits C to H inclusive have been
previously marked by counsel for defendant as Exhibit[s] 1-6 inclusive. Did
you have occasion to review of (sic) these six (6) policies issued by your
company [in favor] of Agoo Playa Resort?
WITNESS:
Yes[,] I remember having gone over these policies at one point of time, sir.
Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C
to H respectively carries an earthquake shock endorsement[?] My question to
you is, on the basis on (sic) the wordings indicated in Exhibits C to H
respectively what was the extent of the coverage [against] the peril of
earthquake shock as provided for in each of the six (6) policies?
x x x
WITNESS:
The extent of the coverage is only up to the two (2) swimming pools, sir.
Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and
H?
A. Yes, sir.
ATTY. MEJIA:
What is your basis for stating that the coverage against earthquake shock as
provided for in each of the six (6) policies extend to the two (2) swimming
pools only?

WITNESS:
Because it says here in the policies, in the enumeration Earthquake Shock
Endorsement, in the Clauses and Warranties: Item 5 only (Earthquake Shock
Endorsement), sir.
ATTY. MEJIA:
Witness referring to Exhibit C-1, your Honor.
WITNESS:
We do not normally cover earthquake shock endorsement on stand alone basis.
For swimming pools we do cover earthquake shock. For building we covered it
for full earthquake coverage which includes earthquake shock
COURT:
As far as earthquake shock endorsement you do not have a specific coverage for
other things other than swimming pool? You are covering building? They are
covered by a general insurance?
WITNESS:
Earthquake shock coverage could not stand alone. If we are covering building
or another we can issue earthquake shock solely but that the moment I see
this, the thing that comes to my mind is either insuring a swimming pool,
foundations, they are normally affected by earthquake but not by fire, sir.
DIRECT EXAMINATION OF JUAN BARANDA III
TSN, August 11, 1992
pp. 23-25
Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only
Exhibits C, D, E and F inclusive [remained] its coverage against earthquake
shock to two (2) swimming pools only but that Exhibits G and H respectively
entend the coverage against earthquake shock to all the properties indicated
in the respective schedules attached to said policies, what can you say about
that testimony of plaintiffs witness?
WITNESS:
As I have mentioned earlier, earthquake shock cannot stand alone without the
other half of it. I assure you that this one covers the two swimming pools
with respect to earthquake shock endorsement. Based on it, if we are going to
look at the premium there has been no change with respect to the rates.
Everytime (sic) there is a renewal if the intention of the insurer was to
include the earthquake shock, I think there is a substantial increase in the
premium. We are not only going to consider the two (2) swimming pools of the
other as stated in the policy. As I see, there is no increase in the amount of
the premium. I must say that the coverage was not broaden (sic) to include the
other items.
COURT:
They are the same, the premium rates?
WITNESS:
They are the same in the sence (sic), in the amount of the coverage. If you
are going to do some computation based on the rates you will arrive at the
same premiums, your Honor.
CROSS-EXAMINATION OF JUAN BARANDA III
TSN, September 7, 1992
pp. 4-6
ATTY. ANDRES:

Would you as a matter of practice [insure] swimming pools for fire insurance?
WITNESS:
No, we dont, sir.
Q. That is why the phrase earthquake shock to the two (2) swimming pools only
was placed, is it not?
A. Yes, sir.
ATTY. ANDRES:
Will you not also agree with me that these exhibits, Exhibits G and H which
you have pointed to during your direct-examination, the phrase Item no. 5 only
meaning to (sic) the two (2) swimming pools was deleted from the policies
issued by AIU, is it not?
x x x
ATTY. ANDRES:
As an insurance executive will you not attach any significance to the deletion
of the qualifying phrase for the policies?
WITNESS:
My answer to that would be, the deletion of that particular phrase is
inadvertent. Being a company underwriter, we do not cover. . it was
inadvertent because of the previous policies that we have issued with no
specific attachments, premium rates and so on. It was inadvertent, sir.
The Court also rejects petitioners contention that respondents contemporaneous
and subsequent acts to the issuance of the insurance policy falsely gave the
petitioner assurance that the coverage of the earthquake shock endorsement
included all its properties in the resort. Respondent only insured the
properties as intended by the petitioner. Petitioners own witness testified to
this agreement, viz:
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 4-5
Q. Just to be clear about this particular answer of yours Mr. Witness, what
exactly did you tell Atty. Omlas (sic) to copy from Exhibit H for purposes of
procuring the policy from Philippine Charter Insurance Corporation?
A. I told him that the insurance that they will have to get will have the same
provisions as this American Home Insurance Policy No. 206-4568061-9.
Q. You are referring to Exhibit H of course?
A. Yes, sir, to Exhibit H.
Q. So, all the provisions here will be the same except that of the premium
rates?
A. Yes, sir. He assured me that with regards to the insurance premium rates
that they will be charging will be limited to this one. I (sic) can even be
lesser.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 12-14
Atty. Mejia:

Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of

the provisions and scope of coverage of Exhibits I and H sometime in the third
week of March, 1990 or thereabout?
A. Yes, sir, about that time.
Q. And at that time did you notice any discrepancy or difference between the
policy wordings as well as scope of coverage of Exhibits I and H respectively?
A. No, sir, I did not discover any difference inasmuch (sic) as I was assured
already that the policy wordings and rates were copied from the insurance
policy I sent them but it was only when this case erupted that we discovered
some discrepancies.
Q. With respect to the items declared for insurance coverage did you notice
any discrepancy at any time between those indicated in Exhibit I and those
indicated in Exhibit H respectively?
A. With regard to the wordings I did not notice any difference because it was
exactly the same P393,000.00 on the two (2) swimming pools only against the
peril of earthquake shock which I understood before that this provision will
have to be placed here because this particular provision under the peril of
earthquake shock only is requested because this is an insurance policy and
therefore cannot be insured against fire, so this has to be placed.
The verbal assurances allegedly given by respondents representative Atty.
Umlas were not proved. Atty. Umlas categorically denied having given such
assurances.
Finally, petitioner puts much stress on the letter of respondents independent
claims adjuster, Bayne Adjusters and Surveyors, Inc. But as testified to by
the representative of Bayne Adjusters and Surveyors, Inc., respondent never
meant to lead petitioner to believe that the endorsement for earthquake shock
covered properties other than the two swimming pools, viz:
DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne
Adjusters and Surveyors, Inc.)
TSN, January 26, 1993
pp. 22-26
Q. Do you recall the circumstances that led to your discussion regarding the
extent of coverage of the policy issued by Philippine Charter Insurance
Corporation?
A. I remember that when I returned to the office after the inspection, I got a
photocopy of the insurance coverage policy and it was indicated under Item 3
specifically that the coverage is only for earthquake shock. Then, I remember
I had a talk with Atty. Umlas (sic), and I relayed to him what I had found out
in the policy and he confirmed to me indeed only Item 3 which were the two
swimming pools have coverage for earthquake shock.
x x x
Q. Now, may we know from you Engr. de Leon your basis, if any, for stating
that except for the swimming pools all affected items have no coverage for
earthquake shock?
x x x
A. I based my statement on my findings, because upon my examination of the
policy I found out that under Item 3 it was specific on the wordings that on
the two swimming pools only, then enclosed in parenthesis (against the
peril[s] of earthquake shock only), and secondly, when I examined the summary
of premium payment only Item 3 which refers to the swimming pools have a
computation for premium payment for earthquake shock and all the other items
have no computation for payment of premiums.
In sum, there is no ambiguity in the terms of the contract and its riders.
Petitioner cannot rely on the general rule that insurance contracts are

contracts of adhesion which should be liberally construed in favor of the

insured and strictly against the insurer company which usually prepares
it.[31] A contract of adhesion is one wherein a party, usually a corporation,
prepares the stipulations in the contract, while the other party merely
affixes his signature or his "adhesion" thereto. Through the years, the courts
have held that in these type of contracts, the parties do not bargain on equal
footing, the weaker party's participation being reduced to the alternative to
take it or leave it. Thus, these contracts are viewed as traps for the weaker
party whom the courts of justice must protect.[32] Consequently, any ambiguity
therein is resolved against the insurer, or construed liberally in favor of
the insured.[33]
The case law will show that this Court will only rule out blind adherence to
terms where facts and circumstances will show that they are basically onesided.[34] Thus, we have called on lower courts to remain careful in
scrutinizing the factual circumstances behind each case to determine the
efficacy of the claims of contending parties. In Development Bank of the
Philippines v. National Merchandising Corporation, et al.,[35] the parties,
who were acute businessmen of experience, were presumed to have assented to
the assailed documents with full knowledge.
We cannot apply the general rule on contracts of adhesion to the case at bar.
Petitioner cannot claim it did not know the provisions of the policy. From the
inception of the policy, petitioner had required the respondent to copy
verbatim the provisions and terms of its latest insurance policy from AHACAIU. The testimony of Mr. Leopoldo Mantohac, a direct participant in securing
the insurance policy of petitioner, is reflective of petitioners knowledge,
viz:
DIRECT EXAMINATION OF LEOPOLDO MANTOHAC[36]
TSN, September 23, 1991
pp. 20-21
Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want
for those facilities in Agoo Playa?
A. Yes, sir. I told him that I will agree to that renewal of this policy under
Philippine Charter Insurance Corporation as long as it will follow the same or
exact provisions of the previous insurance policy we had with American Home
Assurance Corporation.
Q. Did you take any step Mr. Witness to ensure that the provisions which you
wanted in the American Home Insurance policy are to be incorporated in the
PCIC policy?
A. Yes, sir.
Q. What steps did you take?
A. When I examined the policy of the Philippine Charter Insurance Corporation
I specifically told him that the policy and wordings shall be copied from the
AIU Policy No. 206-4568061-9.
Respondent, in compliance with the condition set by the petitioner, copied AIU
Policy No. 206-4568061-9 in drafting its Insurance Policy No. 31944. It is
true that there was variance in some terms, specifically in the replacement
cost endorsement, but the principal provisions of the policy remained
essentially similar to AHAC-AIUs policy. Consequently, we cannot apply the
"fine print" or "contract of adhesion" rule in this case as the parties intent
to limit the coverage of the policy to the two swimming pools only is not
ambiguous.[37]
IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The
petition for certiorari is dismissed. No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Baguio City
SECOND DIVISION
ETERNAL GARDENS MEMORIAL G.R. No. 166245
PARK CORPORATION,
Petitioner,
Present:
CARPIO MORALES,
- versus - Acting Chairperson,
TINGA,
VELASCO, JR.,
CHICO-NAZARIO,* and
BRION, JJ.
THE PHILIPPINE AMERICAN Promulgated:
LIFE INSURANCE COMPANY,
Respondent. April 9, 2008
x----------------------------------------------------------------------------------------x
D E C I S I O N
VELASCO, JR., J.:
The Case
Central to this Petition for Review on Certiorari under Rule 45 which seeks to
reverse and set aside the November 26, 2004 Decision[1] of the Court of
Appeals (CA) in CA-G.R. CV No. 57810 is the query: May the inaction of the
insurer on the insurance application be considered as approval of the
application?

The Facts
On December 10, 1980, respondent Philippine American Life Insurance Company
(Philamlife) entered into an agreement denominated as Creditor Group Life
Policy No. P-1920[2] with petitioner Eternal Gardens Memorial Park Corporation
(Eternal). Under the policy, the clients of Eternal who purchased burial lots
from it on installment basis would be insured by Philamlife. The amount of
insurance coverage depended upon the existing balance of the purchased burial
lots. The policy was to be effective for a period of one year, renewable on a
yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years
of age, is indebted to the Assured for the unpaid balance of his loan with the
Assured, and is accepted for Life Insurance coverage by the Company on its
effective date is eligible for insurance under the Policy.
EVIDENCE OF INSURABILITY.
No medical examination shall be required for amounts of insurance up to
P50,000.00. However, a declaration of good health shall be required for all
Lot Purchasers as part of the application. The Company reserves the right to
require further evidence of insurability satisfactory to the Company in
respect of the following:
1.
Any amount of insurance in excess of P50,000.00.
2.
Any lot purchaser who is more than 55 years of age.

LIFE INSURANCE BENEFIT.

The Life Insurance coverage of any Lot Purchaser at any time shall be the
amount of the unpaid balance of his loan (including arrears up to but not
exceeding 2 months) as reported by the Assured to the Company or the sum of
P100,000.00, whichever is smaller. Such benefit shall be paid to the Assured
if the Lot Purchaser dies while insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he
contracts a loan with the Assured. However, there shall be no insurance if the
application of the Lot Purchaser is not approved by the Company.[3]
Eternal was required under the policy to submit to Philamlife a list of all
new lot purchasers, together with a copy of the application of each purchaser,
and the amounts of the respective unpaid balances of all insured lot
purchasers. In relation to the instant petition, Eternal complied by
submitting a letter dated December 29, 1982,[4] containing a list of insurable
balances of its lot buyers for October 1982. One of those included in the list
as new business was a certain John Chuang. His balance of payments was PhP
100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 1984[5] to Philamlife, which served as
an insurance claim for Chuangs death. Attached to the claim were the following
documents: (1) Chuangs Certificate of Death; (2) Identification Certificate
stating that Chuang is a naturalized Filipino Citizen; (3) Certificate of
Claimant; (4) Certificate of Attending Physician; and (5) Assureds
Certificate.
In reply, Philamlife wrote Eternal a letter on November 12, 1984,[6] requiring
Eternal to submit the following documents relative to its insurance claim for
Chuangs death: (1) Certificate of Claimant (with form attached); (2) Assureds
Certificate (with form attached); (3) Application for Insurance accomplished
and signed by the insured, Chuang, while still living; and (4) Statement of
Account showing the unpaid balance of Chuang before his death.
Eternal transmitted the required documents through a letter dated November 14,
1984,[7] which was received by Philamlife on November 15, 1984.
After more than a year, Philamlife had not furnished Eternal with any reply to
the latters insurance claim. This prompted Eternal to demand from Philamlife
the payment of the claim for PhP 100,000 on April 25, 1986.[8]
In response to Eternals demand, Philamlife denied Eternals insurance claim in
a letter dated May 20, 1986,[9] a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and 9529
with Eternal Gardens Memorial Park in October 1982 for the total maximum
insurable amount of P100,000.00 each. No application for Group Insurance was
submitted in our office prior to his death on August 2, 1984.
In accordance with our Creditors Group Life Policy No. P-1920, under Evidence
of Insurability provision, a declaration of good health shall be required for
all Lot Purchasers as party of the application. We cite further the provision
on Effective Date of Coverage under the policy which states that there shall
be no insurance if the application is not approved by the Company. Since no
application had been submitted by the Insured/Assured, prior to his death, for
our approval but was submitted instead on November 15, 1984, after his death,
Mr. John Uy Chuang was not covered under the Policy. We wish to point out that
Eternal Gardens being the Assured was a party to the Contract and was
therefore aware of these pertinent provisions.
With regard to our acceptance of premiums, these do not connote our approval
per se of the insurance coverage but are held by us in trust for the payor
until the prerequisites for insurance coverage shall have been met. We will
however, return all the premiums which have been paid in behalf of John Uy
Chuang.

Consequently, Eternal filed a case before the Makati City Regional Trial Court
(RTC) for a sum of money against Philamlife, docketed as Civil Case No. 14736.
The trial court decided in favor of Eternal, the dispositive portion of which
reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
Plaintiff ETERNAL, against Defendant PHILAMLIFE, ordering the Defendant
PHILAMLIFE, to pay the sum of P100,000.00, representing the proceeds of the
Policy of John Uy Chuang, plus legal rate of interest, until fully paid; and,
to pay the sum of P10,000.00 as attorneys fees.
SO ORDERED.
The RTC found that Eternal submitted Chuangs application for insurance which
he accomplished before his death, as testified to by Eternals witness and
evidenced by the letter dated December 29, 1982, stating, among others: Encl:
Phil-Am Life Insurance Application Forms & Cert.[10] It further ruled that due
to Philamlifes inaction from the submission of the requirements of the group
insurance on December 29, 1982 to Chuangs death on August 2, 1984, as well as
Philamlifes acceptance of the premiums during the same period, Philamlife was
deemed to have approved Chuangs application. The RTC said that since the
contract is a group life insurance, once proof of death is submitted, payment
must follow.
Philamlife appealed to the CA, which ruled, thus:
WHEREFORE, the decision of the Regional Trial Court of Makati in Civil Case
No. 57810 is REVERSED and SET ASIDE, and the complaint is DISMISSED. No costs.
SO ORDERED.[11]
The CA based its Decision on the factual finding that Chuangs application was
not enclosed in Eternals letter dated December 29, 1982. It further ruled that
the non-accomplishment of the submitted application form violated Section 26
of the Insurance Code. Thus, the CA concluded, there being no application
form, Chuang was not covered by Philamlifes insurance.
Hence, we have this petition with the following grounds:
The Honorable Court of Appeals has decided a question of substance, not
therefore determined by this Honorable Court, or has decided it in a way not
in accord with law or with the applicable jurisprudence, in holding that:
I.
The application for insurance was not duly submitted to respondent
PhilamLife before the death of John Chuang;
II.

There was no valid insurance coverage; and

III.
Reversing and setting aside the Decision of the Regional Trial Court
dated May 29, 1996.
The Courts Ruling
As a general rule, this Court is not a trier of facts and will not re-examine
factual issues raised before the CA and first level courts, considering their
findings of facts are conclusive and binding on this Court. However, such rule
is subject to exceptions, as enunciated in Sampayan v. Court of Appeals:
(1) when the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment
is based on a misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the [CA] went beyond the issues
of the case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings [of the CA] are contrary to
the trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth in the
petition as well as in the petitioners main and reply briefs are not disputed

by the respondent; (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record; and (11) when
the Court of Appeals manifestly overlooked certain relevant facts not disputed
by the parties, which, if properly considered, would justify a different
conclusion.[12] (Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the CA;
thus, this Court may review them.
Eternal claims that the evidence that it presented before the trial court
supports its contention that it submitted a copy of the insurance application
of Chuang before his death. In Eternals letter dated December 29, 1982, a list
of insurable interests of buyers for October 1982 was attached, including
Chuang in the list of new businesses. Eternal added it was noted at the bottom
of said letter that the corresponding Phil-Am Life Insurance Application Forms
& Cert. were enclosed in the letter that was apparently received by Philamlife
on January 15, 1983. Finally, Eternal alleged that it provided a copy of the
insurance application which was signed by Chuang himself and executed before
his death.
On the other hand, Philamlife claims that the evidence presented by Eternal is
insufficient, arguing that Eternal must present evidence showing that
Philamlife received a copy of Chuangs insurance application.
The evidence on record supports Eternals position.
The fact of the matter is, the letter dated December 29, 1982, which
Philamlife stamped as received, states that the insurance forms for the
attached list of burial lot buyers were attached to the letter. Such stamp of
receipt has the effect of acknowledging receipt of the letter together with
the attachments. Such receipt is an admission by Philamlife against its own
interest.[13] The burden of evidence has shifted to Philamlife, which must
prove that the letter did not contain Chuangs insurance application. However,
Philamlife failed to do so; thus, Philamlife is deemed to have received
Chuangs insurance application.
To reiterate, it was Philamlifes bounden duty to make sure that before a
transmittal letter is stamped as received, the contents of the letter are
correct and accounted for.
Philamlifes allegation that Eternals witnesses ran out of credibility and
reliability due to inconsistencies is groundless. The trial court is in the
best position to determine the reliability and credibility of the witnesses,
because it has the opportunity to observe firsthand the witnesses demeanor,
conduct, and attitude. Findings of the trial court on such matters are binding
and conclusive on the appellate court, unless some facts or circumstances of
weight and substance have been overlooked, misapprehended, or
misinterpreted,[14] that, if considered, might affect the result of the
case.[15]
An examination of the testimonies of the witnesses mentioned by Philamlife,
however, reveals no overlooked facts of substance and value.
Philamlife primarily claims that Eternal did not even know where the original
insurance application of Chuang was, as shown by the testimony of Edilberto
Mendoza:
Atty. Arevalo:
Q Where is the original of the application form which is required in case of
new coverage?
[Mendoza:]
A It is [a] standard operating procedure for the new client to fill up two
copies of this form and the original of this is submitted to Philamlife
together with the monthly remittances and the second copy is remained or
retained with the marketing department of Eternal Gardens.

Atty. Miranda:
We move to strike out the answer as it is not responsive as counsel is merely
asking for the location and does not [ask] for the number of copy.
Atty. Arevalo:
Q Where is the original?
[Mendoza:]
A As far as I remember I do not know where the original but when I submitted
with that payment together with the new clients all the originals I see to it
before I sign the transmittal letter the originals are attached therein.[16]
In other words, the witness admitted not knowing where the original insurance
application was, but believed that the application was transmitted to
Philamlife as an attachment to a transmittal letter.
As to the seeming inconsistencies between the testimony of Manuel Cortez on
whether one or two insurance application forms were accomplished and the
testimony of Mendoza on who actually filled out the application form, these
are minor inconsistencies that do not affect the credibility of the witnesses.
Thus, we ruled in People v. Paredes that minor inconsistencies are too trivial
to affect the credibility of witnesses, and these may even serve to strengthen
their credibility as these negate any suspicion that the testimonies have been
rehearsed.[17]
We reiterated the above ruling in Merencillo v. People:
Minor discrepancies or inconsistencies do not impair the essential integrity
of the prosecutions evidence as a whole or reflect on the witnesses honesty.
The test is whether the testimonies agree on essential facts and whether the
respective versions corroborate and substantially coincide with each other so
as to make a consistent and coherent whole.[18]
In the present case, the number of copies of the insurance application that
Chuang executed is not at issue, neither is whether the insurance application
presented by Eternal has been falsified. Thus, the inconsistencies pointed out
by Philamlife are minor and do not affect the credibility of Eternals
witnesses.
However, the question arises as to whether Philamlife assumed the risk of loss
without approving the application.
This question must be answered in the affirmative.
As earlier stated, Philamlife and Eternal entered into an agreement
denominated as Creditor Group Life Policy No. P-1920 dated December 10, 1980.
In the policy, it is provided that:
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the date he
contracts a loan with the Assured. However, there shall be no insurance if the
application of the Lot Purchaser is not approved by the Company.
An examination of the above provision would show ambiguity between its two
sentences. The first sentence appears to state that the insurance coverage of
the clients of Eternal already became effective upon contracting a loan with
Eternal while the second sentence appears to require Philamlife to approve the
insurance contract before the same can become effective.
It must be remembered that an insurance contract is a contract of adhesion
which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the latters interest. Thus, in Malayan
Insurance Corporation v. Court of Appeals, this Court held that:
Indemnity and liability insurance policies are construed in accordance with
the general rule of resolving any ambiguity therein in favor of the insured,

where the contract or policy is prepared by the insurer. A contract of

insurance, being a contract of adhesion, par excellence, any ambiguity therein
should be resolved against the insurer; in other words, it should be construed
liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from noncompliance with its
obligations.[19] (Emphasis supplied.)
In the more recent case of Philamcare Health Systems, Inc. v. Court of
Appeals, we reiterated the above ruling, stating that:
When the terms of insurance contract contain limitations on liability, courts
should construe them in such a way as to preclude the insurer from noncompliance with his obligation. Being a contract of adhesion, the terms of an
insurance contract are to be construed strictly against the party which
prepared the contract, the insurer. By reason of the exclusive control of the
insurance company over the terms and phraseology of the insurance contract,
ambiguity must be strictly interpreted against the insurer and liberally in
favor of the insured, especially to avoid forfeiture.[20]
Clearly, the vague contractual provision, in Creditor Group Life Policy No. P1920 dated December 10, 1980, must be construed in favor of the insured and in
favor of the effectivity of the insurance contract.
On the other hand, the seemingly conflicting provisions must be harmonized to
mean that upon a partys purchase of a memorial lot on installment from
Eternal, an insurance contract covering the lot purchaser is created and the
same is effective, valid, and binding until terminated by Philamlife by
disapproving the insurance application. The second sentence of Creditor Group
Life Policy No. P-1920 on the Effective Date of Benefit is in the nature of a
resolutory condition which would lead to the cessation of the insurance
contract. Moreover, the mere inaction of the insurer on the insurance
application must not work to prejudice the insured; it cannot be interpreted
as a termination of the insurance contract. The termination of the insurance
contract by the insurer must be explicit and unambiguous.
As a final note, to characterize the insurer and the insured as contracting
parties on equal footing is inaccurate at best. Insurance contracts are wholly
prepared by the insurer with vast amounts of experience in the industry
purposefully used to its advantage. More often than not, insurance contracts
are contracts of adhesion containing technical terms and conditions of the
industry, confusing if at all understandable to laypersons, that are imposed
on those who wish to avail of insurance. As such, insurance contracts are
imbued with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in
order to protect the interest of insurance applicants, insurance companies
must be obligated to act with haste upon insurance applications, to either
deny or approve the same, or otherwise be bound to honor the application as a
valid, binding, and effective insurance contract.[21]
WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R.
CV No. 57810 is REVERSED and SET ASIDE. The May 29, 1996 Decision of the
Makati City RTC, Branch 138 is MODIFIED. Philamlife is hereby ORDERED:
(1) To pay Eternal the amount of PhP 100,000 representing the proceeds of the
Life Insurance Policy of Chuang;
(2) To pay Eternal legal interest at the rate of six percent (6%) per annum of
PhP 100,000 from the time of extra-judicial demand by Eternal until
Philamlifes receipt of the May 29, 1996 RTC Decision on June 17, 1996;
(3) To pay Eternal legal interest at the rate of twelve percent (12%) per
annum of PhP 100,000 from June 17, 1996 until full payment of this award; and
(4) To pay Eternal attorneys fees in the amount of PhP 10,000.
No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 175666

July 29, 2013

MANILA BANKERS LIFE INSURANCE CORPORATION, Petitioner.

vs.
CRESENCIA P. ABAN, Respondent.
D E C I S I O N
DEL CASTILLO, J.:
The ultimate aim of Section 48 of the Insurance Code is to compel insurers to
solicit business from or provide insurance coverage only to legitimate and
bona fide clients, by requiring them to thoroughly investigate those they
insure within two years from effectivity of the policy and while the insured
is still alive. If they do not, they will be obligated to honor claims on the
policies they issue, regardless of fraud, concealment or misrepresentation.
The law assumes that they will do just that and not sit on their laurels,
indiscriminately soliciting and accepting insurance business from any Tom,
Dick and Harry.
Assailed in this Petition for Review on Certiorari1 are the September 28, 2005
Decision2 of the Court of Appeals' (CA) in CA-G.R. CV No. 62286 and its
November 9, 2006 Resolution3 denying the petitioners Motion for
Reconsideration.4
Factual Antecedents
On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from
Manila Bankers Life Insurance Corporation (Bankers Life), designating
respondent Cresencia P. Aban (Aban), her niece,5 as her beneficiary.
Petitioner issued Insurance Policy No. 747411 (the policy), with a face value
of P100,000.00, in Soteros favor on August 30, 1993, after the requisite
medical examination and payment of the insurance premium.6
On April 10, 1996,7 when the insurance policy had been in force for more than
two years and seven months, Sotero died. Respondent filed a claim for the
insurance proceeds on July 9, 1996. Petitioner conducted an investigation into
the claim,8 and came out with the following findings:
1. Sotero did not personally apply for insurance coverage, as she was
illiterate;
2. Sotero was sickly since 1990;
3. Sotero did not have the financial capability to pay the insurance premiums
on Insurance Policy No. 747411;
4. Sotero did not sign the July 3, 1993 application for insurance;9 and
5. Respondent was the one who filed the insurance application, and x x x
designated herself as the beneficiary.10
For the above reasons, petitioner denied respondents claim on April 16, 1997
and refunded the premiums paid on the policy.11
On April 24, 1997, petitioner filed a civil case for rescission and/or
annulment of the policy, which was docketed as Civil Case No. 97-867 and
assigned to Branch 134 of the Makati Regional Trial Court. The main thesis of
the Complaint was that the policy was obtained by fraud, concealment and/or
misrepresentation under the Insurance Code,12 which thus renders it voidable
under Article 139013 of the Civil Code.

Respondent filed a Motion to Dismiss14 claiming that petitioners cause of

action was barred by prescription pursuant to Section 48 of the Insurance
Code, which provides as follows:
Whenever a right to rescind a contract of insurance is given to the insurer by
any provision of this chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the death of the insured
shall have been in force during the lifetime of the insured for a period of
two years from the date of its issue or of its last reinstatement, the insurer
cannot prove that the policy is void ab initio or is rescindible by reason of
the fraudulent concealment or misrepresentation of the insured or his agent.
During the proceedings on the Motion to Dismiss, petitioners investigator
testified in court, stating among others that the insurance underwriter who
solicited the insurance is a cousin of respondents husband, Dindo Aban,15 and
that it was the respondent who paid the annual premiums on the policy.16
Ruling of the Regional Trial Court
On December 9, 1997, the trial court issued an Order17 granting respondents
Motion to Dismiss, thus:
WHEREFORE, defendant CRESENCIA P. ABANs Motion to Dismiss is hereby granted.
Civil Case No. 97-867 is hereby dismissed.
SO ORDERED.18
In dismissing the case, the trial court found that Sotero, and not respondent,
was the one who procured the insurance; thus, Sotero could legally take out
insurance on her own life and validly designate as she did respondent as
the beneficiary. It held further that under Section 48, petitioner had only
two years from the effectivity of the policy to question the same; since the
policy had been in force for more than two years, petitioner is now barred
from contesting the same or seeking a rescission or annulment thereof.
Petitioner moved for reconsideration, but in another Order19 dated October 20,
1998, the trial court stood its ground.
Petitioner interposed an appeal with the CA, docketed as CA-G.R. CV No. 62286.
Petitioner questioned the dismissal of Civil Case No. 97-867, arguing that the
trial court erred in applying Section 48 and declaring that prescription has
set in. It contended that since it was respondent and not Sotero who
obtained the insurance, the policy issued was rendered void ab initio for want
of insurable interest.
Ruling of the Court of Appeals
On September 28, 2005, the CA issued the assailed Decision, which contained
the following decretal portion:
WHEREFORE, in the light of all the foregoing, the instant appeal is DISMISSED
for lack of merit.
SO ORDERED.20
The CA thus sustained the trial court. Applying Section 48 to petitioners
case, the CA held that petitioner may no longer prove that the subject policy
was void ab initio or rescindible by reason of fraudulent concealment or
misrepresentation after the lapse of more than two years from its issuance. It
ratiocinated that petitioner was equipped with ample means to determine,
within the first two years of the policy, whether fraud, concealment or
misrepresentation was present when the insurance coverage was obtained. If it
failed to do so within the statutory two-year period, then the insured must be
protected and allowed to claim upon the policy.
Petitioner moved for reconsideration,21 but the CA denied the same in its
November 9, 2006 Resolution.22 Hence, the present Petition.

Issues
Petitioner raises the following issues for resolution:
I
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE ORDER OF THE TRIAL COURT
DISMISSING THE COMPLAINT ON THE GROUND OF PRESCRIPTION IN CONTRAVENTION (OF)
PERTINENT LAWS AND APPLICABLE JURISPRUDENCE.
II
WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE APPLICATION OF THE
INCONTESTABILITY PROVISION IN THE INSURANCE CODE BY THE TRIAL COURT.
III
WHETHER THE COURT OF APPEALS ERRED IN DENYING PETITIONERS MOTION FOR
RECONSIDERATION.23
Petitioners Arguments
In praying that the CA Decision be reversed and that the case be remanded to
the trial court for the conduct of further proceedings, petitioner argues in
its Petition and Reply24 that Section 48 cannot apply to a case where the
beneficiary under the insurance contract posed as the insured and obtained the
policy under fraudulent circumstances. It adds that respondent, who was merely
Soteros niece, had no insurable interest in the life of her aunt.
Relying on the results of the investigation that it conducted after the claim
for the insurance proceeds was filed, petitioner insists that respondents
claim was spurious, as it appeared that Sotero did not actually apply for
insurance coverage, was unlettered, sickly, and had no visible source of
income to pay for the insurance premiums; and that respondent was an impostor,
posing as Sotero and fraudulently obtaining insurance in the latters name
without her knowledge and consent.
Petitioner adds that Insurance Policy No. 747411 was void ab initio and could
not have given rise to rights and obligations; as such, the action for the
declaration of its nullity or inexistence does not prescribe.25
Respondents Arguments
Respondent, on the other hand, essentially argues in her Comment26 that the CA
is correct in applying Section 48. She adds that petitioners new allegation
in its Petition that the policy is void ab initio merits no attention, having
failed to raise the same below, as it had claimed originally that the policy
was merely voidable.
On the issue of insurable interest, respondent echoes the CAs pronouncement
that since it was Sotero who obtained the insurance, insurable interest was
present. Under Section 10 of the Insurance Code, Sotero had insurable interest
in her own life, and could validly designate anyone as her beneficiary.
Respondent submits that the CAs findings of fact leading to such conclusion
should be respected.
Our Ruling
The Court denies the Petition.
The Court will not depart from the trial and appellate courts finding that it
was Sotero who obtained the insurance for herself, designating respondent as
her beneficiary. Both courts are in accord in this respect, and the Court is
loath to disturb this. While petitioner insists that its independent
investigation on the claim reveals that it was respondent, posing as Sotero,
who obtained the insurance, this claim is no longer feasible in the wake of
the courts finding that it was Sotero who obtained the insurance for herself.
This finding of fact binds the Court.

With the above crucial finding of fact that it was Sotero who obtained the
insurance for herself petitioners case is severely weakened, if not totally
disproved. Allegations of fraud, which are predicated on respondents alleged
posing as Sotero and forgery of her signature in the insurance application,
are at once belied by the trial and appellate courts finding that Sotero
herself took out the insurance for herself. "Fraudulent intent on the part of
the insured must be established to entitle the insurer to rescind the
contract."27 In the absence of proof of such fraudulent intent, no right to
rescind arises.
Moreover, the results and conclusions arrived at during the investigation
conducted unilaterally by petitioner after the claim was filed may simply be
dismissed as self-serving and may not form the basis of a cause of action
given the existence and application of Section 48, as will be discussed at
length below.
Section 48 serves a noble purpose, as it regulates the actions of both the
insurer and the insured. Under the provision, an insurer is given two years
from the effectivity of a life insurance contract and while the insured is
alive to discover or prove that the policy is void ab initio or is
rescindible by reason of the fraudulent concealment or misrepresentation of
the insured or his agent. After the two-year period lapses, or when the
insured dies within the period, the insurer must make good on the policy, even
though the policy was obtained by fraud, concealment, or misrepresentation.
This is not to say that insurance fraud must be rewarded, but that insurers
who recklessly and indiscriminately solicit and obtain business must be
penalized, for such recklessness and lack of discrimination ultimately work to
the detriment of bona fide takers of insurance and the public in general.
Section 48 regulates both the actions of the insurers and prospective takers
of life insurance. It gives insurers enough time to inquire whether the policy
was obtained by fraud, concealment, or misrepresentation; on the other hand,
it forewarns scheming individuals that their attempts at insurance fraud would
be timely uncovered thus deterring them from venturing into such nefarious
enterprise. At the same time, legitimate policy holders are absolutely
protected from unwarranted denial of their claims or delay in the collection
of insurance proceeds occasioned by allegations of fraud, concealment, or
misrepresentation by insurers, claims which may no longer be set up after the
two-year period expires as ordained under the law.
Thus, the self-regulating feature of Section 48 lies in the fact that both the
insurer and the insured are given the assurance that any dishonest scheme to
obtain life insurance would be exposed, and attempts at unduly denying a claim
would be struck down. Life insurance policies that pass the statutory two-year
period are essentially treated as legitimate and beyond question, and the
individuals who wield them are made secure by the thought that they will be
paid promptly upon claim. In this manner, Section 48 contributes to the
stability of the insurance industry.
Section 48 prevents a situation where the insurer knowingly continues to
accept annual premium payments on life insurance, only to later on deny a
claim on the policy on specious claims of fraudulent concealment and
misrepresentation, such as what obtains in the instant case. Thus, instead of
conducting at the first instance an investigation into the circumstances
surrounding the issuance of Insurance Policy No. 747411 which would have
timely exposed the supposed flaws and irregularities attending it as it now
professes, petitioner appears to have turned a blind eye and opted instead to
continue collecting the premiums on the policy. For nearly three years,
petitioner collected the premiums and devoted the same to its own profit. It
cannot now deny the claim when it is called to account. Section 48 must be
applied to it with full force and effect.
The Court therefore agrees fully with the appellate courts pronouncement that

the "incontestability clause" is a provision in law that after a policy of

life insurance made payable on the death of the insured shall have been in
force during the lifetime of the insured for a period of two (2) years from

the date of its issue or of its last reinstatement, the insurer cannot prove
that the policy is void ab initio or is rescindible by reason of fraudulent
concealment or misrepresentation of the insured or his agent.
The purpose of the law is to give protection to the insured or his beneficiary
by limiting the rescinding of the contract of insurance on the ground of
fraudulent concealment or misrepresentation to a period of only two (2) years
from the issuance of the policy or its last reinstatement.
The insurer is deemed to have the necessary facilities to discover such
fraudulent concealment or misrepresentation within a period of two (2) years.
It is not fair for the insurer to collect the premiums as long as the insured
is still alive, only to raise the issue of fraudulent concealment or
misrepresentation when the insured dies in order to defeat the right of the
beneficiary to recover under the policy.
At least two (2) years from the issuance of the policy or its last
reinstatement, the beneficiary is given the stability to recover under the
policy when the insured dies. The provision also makes clear when the two-year
period should commence in case the policy should lapse and is reinstated, that
is, from the date of the last reinstatement.
After two years, the defenses of concealment or misrepresentation, no matter
how patent or well-founded, will no longer lie.
Congress felt this was a sufficient answer to the various tactics employed by
insurance companies to avoid liability.
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 insureds 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 borne by the records, the policy was issued on August 30, 1993, the insured
died on April 10, 1996, and the claim was denied on April 16, 1997. The
insurance policy was thus in force for a period of 3 years, 7 months, and 24
days. Considering that the insured died after the two-year period, the
plaintiff-appellant is, therefore, barred from proving that the policy is void
ab initio by reason of the insureds fraudulent concealment or
misrepresentation or want of insurable interest on the part of the
beneficiary, herein defendant-appellee.
Well-settled is the rule that it is the plaintiff-appellants burden to show
that the factual findings of the trial court are not based on substantial
evidence or that its conclusions are contrary to applicable law and
jurisprudence. The plaintiff-appellant failed to discharge that burden.28
Petitioner claims that its insurance agent, who solicited the Sotero account,
happens to be the cousin of respondents husband, and thus insinuates that
both connived to commit insurance fraud. If this were truly the case, then
petitioner would have discovered the scheme earlier if it had in earnest
conducted an investigation into the circumstances surrounding the Sotero
policy. But because it did not and it investigated the Sotero account only
after a claim was filed thereon more than two years later, naturally it was
unable to detect the scheme. For its negligence and inaction, the Court cannot
sympathize with its plight. Instead, its case precisely provides the strong
argument for requiring insurers to diligently conduct investigations on each
policy they issue within the two-year period mandated under Section 48, and
not after claims for insurance proceeds are filed with them.
Besides, if insurers cannot vouch for the integrity and honesty of their
insurance agents/salesmen and the insurance policies they issue, then they
should cease doing business. If they could not properly screen their agents or
salesmen before taking them in to market their products, or if they do not
thoroughly investigate the insurance contracts they enter into with their
clients, then they have only themselves to blame. Otherwise said, insurers

cannot be allowed to collect premiums on insurance policies, use these amounts

collected and invest the same through the years, generating profits and
returns therefrom for their own benefit, and thereafter conveniently deny
insurance claims by questioning the authority or integrity of their own agents
or the insurance policies they issued to their premium-paying clients. This is
exactly one of the schemes which Section 48 aims to prevent.
Insurers may not be allowed to delay the payment of claims by filing frivolous
cases in court, hoping that the inevitable may be put off for years or even
decades by the pendency of these unnecessary court cases. In the meantime,
they benefit from collecting the interest and/or returns on both the premiums
previously paid by the insured and the insurance proceeds which should
otherwise go to their beneficiaries. The business of insurance is a highly
regulated commercial activity in the country,29 and is imbued with public
interest.30 "An insurance contract is a contract of adhesion which must be
construed liberally in favor of the insured and strictly against the insurer
in order to safeguard the formers interest."31
WHEREFORE, the Petition is DENIED. The assailed September 28, 2005 Decision
and the November 9, 2006 Resolution of the Court of Appeals in CA-G.R. CV No.
62286 are AFFIRMED.
SO ORDERED.

THIRD DIVISION
[G.R. No. 76399. January 22, 1993.]
RAFAEL (REX) VERENDIA, Petitioner, v. COURT OF APPEALS and FIDELITY & SURETY
CO. OF THE PHILIPPINES, Respondents.
[G.R. No. 75605. January 22, 1993.]
FIDELITY & SURETY CO. OF THE PHILIPPINES, INC., Petitioner, v. RAFAEL VERENDIA
and THE COURT OF APPEALS, Respondents.
B.L. Padilla for Petitioner.
Sabino Padilla, Jr. for Fidelity & Surety, Co.
SYLLABUS
1.
REMEDIAL LAW; MOTION FOR RECONSIDERATION; EXTENSION OF TIME FOR FILING
THEREOF, NO LONGER ALLOWED. As early as 1944, this Court through Justice
Ozaeta already pronounced the doctrine that the pendency of a motion for
extension of time to perfect an appeal does not suspend the running of the
period sought to be extended (Garcia v. Buenaventura 74 Phil. 611 [1944]). To
the same effect were the rulings in Gibbs v. CFI of Manila (80 Phil. 160
[1948]), Bello v. Fernando (4 SCRA 138 [1962]), and Joe v. King (20 SCRA 1120
[1967]). The above cases notwithstanding and because the Rules of Court do not
expressly prohibit the filing of a motion for extension of time to file a
motion for reconsideration in regard to a final order or judgment,
magistrates, including those in the Court of Appeals, held sharply divided
opinions on whether the period for appealing which also includes the period
for moving to reconsider may be extended. The matter was not definitely
settled until this Court issued its Resolution in Habaluyas Enterprises, Inc.
v. Japson (142 SCRA 208 [1986]), declaring that beginning one month from the
promulgation of the resolution on May 30, 1986 ." . . the rule shall be
strictly enforced that no motion for extension of time to file a motion for
new trial or reconsideration shall be filed . . ." (at p. 212.)
2.
ID.; SUPREME COURT; JURISDICTION THEREOF LIMITED TO REVIEW OF ERRORS OF
LAW; EXCEPTIONS. Verging on the factual, the issue of the veracity or
falsity of the lease contract could have been better resolved by the appellate
court for, in a petition for review on certiorari under Rule 45, the
jurisdiction of this Court is limited to the review of errors of law. The
appellate courts findings of fact are. therefore. conclusive upon this Court
except in the following cases: (1) when the conclusion is a finding grounded
entirely on speculation, surmises or conjectures; (2) when the inference made
is manifestly absurd, mistaken, or impossible; (3) when there is grave abuse
of discretion in the appreciation of facts; (4) when the judgment is premised
on a misapprehension of facts; (5) when the findings of fact are conflicting;
and (6) when the Court of Appeals in making its findings went beyond the
issues of the case and the same are contrary to the admissions of both
appellant and appellee (Ronquillo v. Court of Appeals, 195 SCRA 433 [1991]).
3.
CIVIL LAW; INSURANCE CONTRACT; LAW BETWEEN THE PARTIES; GENERALLY,
SHOULD BE CONSTRUED IN FAVOR OF THE INSURED. Basically a contract of
indemnity, an insurance contract is the law between the parties (Pacific
Banking Corporation v. Court of Appeals 168 SCRA 1 [1988]). Its terms and
conditions constitute the measure of the insurers liability and compliance
therewith is a condition precedent to the insureds right to recovery from the
insurer (Oriental Assurance Corporation v. Court of Appeals, 200 SCRA 459
[1991], citing Perla Compania de Sequros, Inc. v. Court of Appeals, 185 SCRA
741 [1991]). As it is also a contract of adhesion, an insurance contract
should be liberally construed in favor of the insured and strictly against the
insurer company which usually prepares it (Western Guaranty Corporation v.
Court of Appeals, 187 SCRA 652 [1980]).
4.
ID.; ID.; BENEFITS THEREUNDER SHALL BE FORFEITED IF ANY FALSE
DECLARATIONS BE MADE IN SUPPORT OF THE CLAIM; CASE AT BAR. Considering that

Verendia used a false lease contract to support his claim under Fire Insurance
Policy No. F-18876, the terms of the policy should be strictly construed
against the insured. Verendia failed to live by the terms of the policy,
specifically Section 13 thereof which is expressed in terms that are clear and
unambiguous, that all benefits under the policy shall be forfeited "if the
claim be in any respect fraudulent, or if any false declaration be made or
used in support thereof, or if any fraudulent means or devises are used by the
Insured or anyone acting in his behalf to obtain any benefit under the
policy." Verendia, having presented a false declaration to support his claim
for benefits in the form of a fraudulent lease contract, he forfeited all
benefits therein by virtue of Section 13 of the policy in the absence of proof
that Fidelity waived such provision (Pacific Banking Corporation v. Court of
Appeals, supra). Worse yet, by presenting a false lease contract, Verendia
reprehensibly disregarded the principle that insurance contracts are uberrimae
fidae and demand the most abundant good faith (Velasco v. Apostol, 173 SCRA
228 [1989]).
5.
ID.; ID.; SUBROGATION RECEIPTS, NOT AN INDICATION OF PRESENCE OF MUTUAL
AGREEMENT TO SETTLE CLAIM OF INSURED. There is no reason to conclude that by
submitting the subrogation receipt as evidence in court, Fidelity bound itself
to a "mutual agreement" to settle Verendias claims in consideration of the
amount of P142,685.77. While the said receipt appears to have been a filled-up
form of Fidelity, no representative of Fidelity had signed it. It might be
that there had been efforts to settle Verendias claims, but surely, the
subrogation receipt by itself does not prove that a settlement had been
arrived at and enforced. Thus, to interpret Fidelitys presentation of the
subrogation receipt in evidence as indicative of its accession to its "terms"
is not only wanting in rational basis but would be substituting the will of
the Court for that of the parties.
D E C I S I O N
MELO, J.:
The two consolidated cases involved herein stemmed from the issuance by
Fidelity and Surety Insurance Company of the Philippines (Fidelity for short)
of its Fire Insurance Policy No. F-18876 effective between June 23, 1980 and
June 23, 1981 covering Rafael (Rex) Verendias residential building located at
Tulip Drive, Beverly Hills, Antipolo, Rizal in the amount of P385,000.00.
Designated as beneficiary was the Monte de Piedad & Savings Bank. Verendia
also insured the same building with two other companies, namely, The Country
Bankers Insurance for P56,000.00 under Policy No. PDB-80-1913 expiring on May
12, 1981, and The Development Insurance for P400,000.00 under Policy No. F48867 expiring on June 30, 1981.
While the three fire insurance policies were in force, the insured property
was completely destroyed by fire on the early morning of December 28, 1980.
Fidelity was accordingly informed of the loss and despite demands, refused
payment under its policy, thus prompting Verendia to file a complaint with the
then Court of First Instance of Quezon City, praying for payment of
P385,000.00, legal interest thereon, plus attorneys fees and litigation
expenses. The complaint was later amended to include Monte de Piedad as an
"unwilling defendant" (p. 16, Record).
Answering the complaint, Fidelity, among other things, averred that the policy
was avoided by reason of over-insurance, that Verendia maliciously represented
that the building at the time of the fire was leased under a contract executed
on June 25, 1980 to a certain Roberto Garcia, when actually it was a Marcelo
Garcia who was the lessee.
On May 24, 1983, the trial court rendered a decision, per Judge Rodolfo A.
Ortiz, ruling in favor of Fidelity. In sustaining the defenses set up by
Fidelity, the trial court ruled that Paragraph 3 of the policy was also
violated by Verendia in that the insured failed to inform Fidelity of his
other insurance coverages with Country Bankers Insurance and Development
Insurance.

Verendia appealed to the then Intermediate Appellate Court and in a decision

promulgated on March 31, 1986, (CA-G.R. No. CV No. 02895, Coquia, Zosa,
Bartolome, and Ejercito (P), JJ.,), the appellate court reversed for the
following reasons: (a) there was no misrepresentation concerning the lease for
the contract was signed by Marcelo Garcia in the name of Roberto Garcia; and
(b) Paragraph 3 of the policy contract requiring Verendia to give notice to
Fidelity of other contracts of insurance was waived by Fidelity as shown by
its conduct in attempting to settle the claim of Verendia (pp. 32-33, Rollo of
G.R. No. 76399).
Fidelity received a copy of the appellate courts decision on April 4, 1986,
but instead of directly filing a motion for reconsideration within 15 days
therefrom, Fidelity filed on April 21, 1986, a motion for extension of 3 days
within which to file a motion for reconsideration. The motion for extension
was not filed on April 19, 1986 which was the 15th day after receipt of the
decision because said 15th day was a Saturday and of course, the following day
was a Sunday (p. 14, Rollo of G.R. No. 75605). The motion for extension was
granted by the appellate court on April 30, 1986 (p. 15, ibid.), but Fidelity
had in the meantime filed its motion for reconsideration on April 24, 1986 (p.
16, ibid.).
Verendia filed a motion to expunge from the record Fidelitys motion for
reconsideration on the ground that the motion for extension was filed out of
time because the 15th day from receipt of the decision which fell on a
Saturday was ignored by Fidelity, for indeed, so Verendia contended, the
Intermediate Appellate Court has personnel receiving pleadings even on
Saturdays.
The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and after a
motion for reconsideration was similarly brushed aside on July 22, 1986 (p.
30, ibid.), the petition herein docketed as G.R. No. 75605 was initiated.
Subsequently, or more specifically on October 21, 1986, the appellate court
denied Fidelitys motion for reconsideration and account thereof. Fidelity
filed on March 31, 1986, the petition for review on certiorari now docketed as
G.R. No. 76399. The two petitions, inter-related as they are, were
consolidated (p. 54, Rollo of G.R. No. 76399) and thereafter given due course.
Before we can even begin to look into the merits of the main case which is the
petition for review on certiorari, we must first determine whether the
decision of the appellate court may still be reviewed, or whether the same is
beyond further judicial scrutiny. Stated otherwise before anything else,
inquiry must be made into the issue of whether Fidelity could have legally
asked for an extension of the 15-day reglementary period for appealing or for
moving for reconsideration.chanrobles virtual lawlibrary
As early as 1944, this Court through Justice Ozaeta already pronounced the
doctrine that the pendency of a motion for extension of time to perfect an
appeal does not suspend the running of the period sought to be extended
(Garcia v. Buenaventura 74 Phil. 611 [1944]). To the same effect were the
rulings in Gibbs v. CFI of Manila (80 Phil. 160 [1948]), Bello v. Fernando (4
SCRA 138 [1962]), and Joe v. King (20 SCRA 1120 [1967]).
The above cases notwithstanding and because the Rules of Court do not
expressly prohibit the filing of a motion for extension of time to file a
motion for reconsideration in regard to a final order or judgment,
magistrates, including those in the Court of Appeals, held sharply divided
opinions on whether the period for appealing which also includes the period
for moving to reconsider may be extended. The matter was not definitely
settled until this Court issued its Resolution in Habaluyas Enterprises, Inc.
v. Japson (142 SCRA 208 [1986]), declaring that beginning one month from the
promulgation of the resolution on May 30, 1986
". . . the rule shall be strictly enforced that no motion for extension of
time to file a motion for new trial or reconsideration shall be filed . . ."
(at p. 212.)
In the instant case, the motion for extension was filed and granted before
June 30, 1986, although, of course, Verendias motion to expunge the motion

for reconsideration was not finally disposed until July 22, 1986, or after the
dictum in Habaluyas had taken effect. Seemingly, therefore, the filing of the
motion for extension came before its formal proscription under Habaluyas, for
which reason we now turn our attention to G.R. No. 76399.
Reduced to bare essentials, the issues Fidelity raises therein are: (a)
whether or not the contract of lease submitted by Verendia to support his
claim on the fire insurance policy constitutes a false declaration which would
forfeit his benefits under Section 13 of the policy and (b) whether or not, in
submitting the subrogation receipt in evidence, Fidelity had in effect agreed
to settle Verendias claim in the amount stated in said receipt. 1
Verging on the factual, the issue of the veracity or falsity of the lease
contract could have been better resolved by the appellate court for, in a
petition for review on certiorari under Rule 45, the jurisdiction of this
Court is limited to the review of errors of law. The appellate courts
findings of fact are. therefore. conclusive upon this Court except in the
following cases: (1) when the conclusion is a finding grounded entirely on
speculation, surmises or conjectures; (2) when the inference made is
manifestly absurd, mistaken, or impossible; (3) when there is grave abuse of
discretion in the appreciation of facts; (4) when the judgment is premised on
a misapprehension of facts; (5) when the findings of fact are conflicting; and
(6) when the Court of Appeals in making its findings went beyond the issues of
the case and the same are contrary to the admissions of both appellant and
appellee (Ronquillo v. Court of Appeals, 195 SCRA 433 [1991]). In view of the
conflicting findings of the trial court and the appellate court on important
issues in these consolidated cases and it appearing that the appellate court
judgment is based on a misapprehension of facts, this Court shall review the
evidence on record.
The contract of lease upon which Verendia relies to support his claim for
insurance benefits, was entered into between him and one Robert Garcia,
married to Helen Cawinian, on June 25, 1980 (Exh. "1"), a couple of days after
the effectivity of the insurance policy. When the rented residential building
was razed to the ground on December 28, 1980, it appears that Robert Garcia
(or Roberto Garcia) was still within the premises. However, according to the
investigation report prepared by Pat. Eleuterio M. Buenviaje of the Antipolo
police, the building appeared to have "no occupant" and that Mr. Roberto
Garcia was "renting on the otherside (sic) portion of said compound" (Exh.
"E"). These pieces of evidence belie Verendias uncorroborated testimony that
Marcelo Garcia whom he considered as the real lessee, was occupying the
building when it was burned (TSN, July 27, 1982, p. 10).chanrobles virtual
lawlibrary
Robert Garcia disappeared after the fire. It was only on October 9, 1981 that
an adjuster was able to locate him. Robert Garcia then executed an affidavit
before the National Intelligence and Security Authority (NISA) to the effect
that he was not the lessee of Verendias house and that his signature on the
contract of lease was a complete forgery. Thus, on the strength of these
facts, the adjuster submitted a report dated December 4, 1981 recommending the
denial of Verendias claim (Exh. "2").
Ironically, during the trial, Verendia admitted that it was not Robert Garcia
who signed the lease contract. According to Verendia, it was signed by Marcelo
Garcia cousin of Robert, who had been paying the rentals all the while.
Verendia, however, failed to explain why Marcelo had to sign his cousins name
when he in fact was paying for the rent and why he (Verendia) himself, the
lessor, allowed such a ruse. Fidelitys conclusions on these proven facts
appear, therefore, to have sufficient bases: Verendia concocted the lease
contract to deflect responsibility for the fire towards an alleged "lessee",
inflated the value of the property by the alleged monthly rental of P6,500)
when in fact, the Provincial Assessor of Rizal had assessed the propertys
fair market value to be only P40,300.00, insured the same property with two
other insurance companies for a total coverage of around P900,000, and created
a dead-end for the adjuster by the disappearance of Robert Garcia.
Basically a contract of indemnity, an insurance contract is the law between
the parties (Pacific Banking Corporation v. Court of Appeals 168 SCRA 1
[1988]). Its terms and conditions constitute the measure of the insurers

liability and compliance therewith is a condition precedent to the insureds

right to recovery from the insurer (Oriental Assurance Corporation v. Court of
Appeals, 200 SCRA 459 [1991], citing Perla Compania de Sequros, Inc. v. Court
of Appeals, 185 SCRA 741 [1991]). As it is also a contract of adhesion, an
insurance contract should be liberally construed in favor of the insured and
strictly against the insurer company which usually prepares it (Western
Guaranty Corporation v. Court of Appeals, 187 SCRA 652 [1980]).
Considering, however, the foregoing discussion pointing to the fact that
Verendia used a false lease contract to support his claim under Fire Insurance
Policy No. F-18876, the terms of the policy should be strictly construed
against the insured. Verendia failed to live by the terms of the policy,
specifically Section 13 thereof which is expressed in terms that are clear and
unambiguous, that all benefits under the policy shall be forfeited "if the
claim be in any respect fraudulent, or if any false declaration be made or
used in support thereof, or if any fraudulent means or devises are used by the
Insured or anyone acting in his behalf to obtain any benefit under the
policy." Verendia, having presented a false declaration to support his claim
for benefits in the form of a fraudulent lease contract, he forfeited all
benefits therein by virtue of Section 13 of the policy in the absence of proof
that Fidelity waived such provision (Pacific Banking Corporation v. Court of
Appeals, supra). Worse yet, by presenting a false lease contract, Verendia
reprehensibly disregarded the principle that insurance contracts are uberrimae
fidae and demand the most abundant good faith (Velasco v. Apostol, 173 SCRA
228 [1989]).chanrobles lawlibrary : rednad
There is also no reason to conclude that by submitting the subrogation receipt
as evidence in court, Fidelity bound itself to a "mutual agreement" to settle
Verendias claims in consideration of the amount of P142,685.77. While the
said receipt appears to have been a filled-up form of Fidelity, no
representative of Fidelity had signed it. It is even incomplete as the blank
spaces for a witness and his address are not filled up. More significantly,
the same receipt states that Verendia had received the aforesaid amount.
However, that Verendia had not received the amount stated therein, is proven
by the fact that Verendia himself filed the complaint for the full amount of
P385,000.00 stated in the policy. It might be that there had been efforts to
settle Verendias claims, but surely, the subrogation receipt by itself does
not prove that a settlement had been arrived at and enforced. Thus, to
interpret Fidelitys presentation of the subrogation receipt in evidence as
indicative of its accession to its "terms" is not only wanting in rational
basis but would be substituting the will of the Court for that of the parties.
WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in G.R.
No. 76399 is GRANTED and the decision of the then Intermediate Appellate Court
under review is REVERSED and SET ASIDE and that of the trial court is hereby
REINSTATED and UPHELD.
SO ORDERED.
Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.
Endnotes:
1.
Fidelity appears to have agreed with the appellate court that it had waived Verendias
failure to abide by policy condition No. 3 on disclosure of other insurance policies by its
failure to assign it as an error in the petition in G.R. No. 76399. It must have likewise
realized the futility of assigning it as an error because on the first page of the policy the
following is typewritten: "Other insurances allowed, the amounts to be declared in the event of
loss or when required."