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CASES FOR INSURANCE LAW

I. INTRODUCTION
1. White Gold Marine Services vs. Pioneer Insurance, et al. (GR No. 154514, 28
July 2005);
2. Verendia vs. CA (217 SCRA 417);
3. Philamcare Health Systems Inc. vs. CA (379 SCRA 356);
4. Fortune Insurance and Surety Co., Inc. vs. CA (244 SCRA 308);
5. Gulf Resorts Inc. vs. Philippine Charter Insurance Corp. GR No. 155167, 16
May 2005;
6. Manila Mahogany vs. CA (154 SCRA 650);
7. Federal Express Corporation vs. American Home Assurance Company and
Phil-Am Insurance Company, Inc., G.R. No. 150094, 18 August 2004);
8. Eternal Gardens Memorial Park Corporation vs. Phil. American Life Insurance
Co., GR No. 166245, 09 April 2008

II. CONTRACT OF INSURANCE


9. Enriquez vs. Sun Life Insurance of Canada (G.R. No. 15895, Nov. 29, 1920);
10.Development Bank vs. CA (G.R. No. 100937, March 21, 1994);
11.Great Pacific Life Assurance Co. vs. CA (G.R. Nos. 31845 & 31873, April 30,
1979)

III. INSURABLE INTEREST


12.Spouses Cha vs. CA, (August 18, 1997);
13.Geagonia vs. CA, February 6, 1995); RCBC vs. CA (289 SCRA 292);
14.Gaisano Cagayan, Inc. vs. Insurance Company of North America, G.R. No.
147839 (June 8, 2006).

IV. DEVICES FOR ASCERTAINING AND CONTROLLING RISK AND LOSS


15.Great Pacific Life Assurance vs. CA (316 SCRA 678);
16.Sun Life Assurance Co. of Canada vs. CA (G.R. No. 105135, June 22, 1995);
17.Philamcare Health Systems Inc. vs. CA (379 SCRA 356);
18.Vda de Canilang vs. CA (G.R. No. 92492, June 17, 1993);
19.Tan vs. CA (June 29, 1989);
20.Prudential Guarantee vs. Trans-Asia Shipping Lines, Inc. G.R. No. 151890, 20
June 2006;
21.Lourdes v. Philam Plans, G.R. No. 186983, February 22, 2012

V. THE POLICY OF INSURANCE


22.Pacific Timber Export Corporation vs. CA (112 SCRA 199);

23.Great Pacific Life Assurance Corporation vs. CA, 89 SCRA 543);


24.Asian Terminals, Inc. v. First Lepanto-Taisho Insurance Corp., G.R. No. 185964,
June 16, 2014, 2002)

VI. PREMIUM
25.Makati Tuscany Condominium Corp. vs. CA (215 SCRA 462);
26.UCPB General Insurance vs. Masagana Telamart (June 15, 1999);
27.UCPB General Insurance vs. Masagana Telamart (356 SCRA 307);
28.American Home Insurance vs. Chua (G.R. No. 130421, June 28, 1999);
29.Tibay vs. CA (257 SCRA 126);
30.Phil. Phoenix Surety & Ins., Co. vs. Woodworks, Inc., (92 SCRA 419)

VII.PERSONS ENTITLED TO RECOVER ON THE POLICY AND CONDITIONS TO


RECOVERY
31.Bonifacio Bros. Inc. vs. Mora (May 29, 1967);
32.The Insular Life Assurance vs. Ebrado, 80 SCRA 181);
33.Vda. de Consuegra vs. GSIS (37 SCRA 315);
34.Go vs. Redfern (72 Phil 71);
35.Country Bankers Insurance Corporation vs. Lianga Bay (January 25, 2002)

VIII. DOUBLE INSURANCE


IX. REINSURANCE
X. MARINE INSURANCE
36.Roque vs. IAC (139 SCRA 596);
37.Go Tiaco vs. Union Ins. Society of Canton (40 Phil 401);
38.Cathay Insurance vs. CA (151 SCRA 710);
39.Filipino Merchants Insurance Co. vs. CA (179 SCRA 638);
40.Oriental Assurance Corporation vs. CA (200 SCRA 459)

XI. FIRE INSURANCE


XII. CASUALTY INSURANCE
41.Finman General Assurance Co. vs. CA (September 2, 1992);
42.Sun Insurance Office Ltd. vs. CA (July 17, 1992);
43.Biagtan vs. The Insular Life Assurance Co., Ltd., (44 SCRA 58)

XIII. SURETYSHIP
XIV. LIFE INSURANCE

XV. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE


44.Vda. de Gabriel vs. CA (November 14, 1996);
45.Vda. de Maglana vs. Hon. Consolacion (August 6, 1992);
46.Tiu vs. Arriesgado (GR No. 138060, 01 September 2004)

XVI. CLAIMS SETTLEMENT


47.Tio Khe Chio vs. CA (September 30, 1991);
48.Finman General Assurance Corporation (July 12, 2001);
49.Prudential Guarantee vs. Trans-Asia Shipping Lines, Inc. G.R. No. 151890, 20
June 2006

I. INTRODUCTION

G.R. No. 154514. July 28, 2005


WHITE GOLD MARINE SERVICES, INC., Petitioners,
vs.
PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP
MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD., Respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision1 dated July 30, 2002 of the Court of Appeals in CAG.R. SP No. 60144, affirming the Decision2 dated May 3, 2000 of the Insurance Commission in
I.C. Adm. Case No. RD-277. Both decisions held that there was no violation of the Insurance
Code and the respondents do not need license as insurer and insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage
for its vessels from The Steamship Mutual Underwriting Association (Bermuda) Limited
(Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer). Subsequently,
White Gold was issued a Certificate of Entry and Acceptance.3 Pioneer also issued receipts
evidencing payments for the coverage. When White Gold failed to fully pay its accounts,
Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to
recover the latters unpaid balance. White Gold on the other hand, filed a complaint before the
Insurance Commission claiming that Steamship Mutual violated Sections 1864 and 1875 of the
Insurance Code, while Pioneer violated Sections 299,6 3007 and 3018 in relation to Sections 302
and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no need for Steamship
Mutual to secure a license because it was not engaged in the insurance business. It explained that
Steamship Mutual was a Protection and Indemnity Club (P & I Club). Likewise, Pioneer need
not obtain another license as insurance agent and/or a broker for Steamship Mutual because
Steamship Mutual was not engaged in the insurance business. Moreover, Pioneer was already
licensed, hence, a separate license solely as agent/broker of Steamship Mutual was already
superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the
appellate court distinguished between P & I Clubs vis--vis conventional insurance. The
appellate court also held that Pioneer merely acted as a collection agent of Steamship Mutual.

In this petition, petitioner assigns the following errors allegedly committed by the appellate
court,
FIRST ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS
NOT DOING BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . . .
ITS TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER HENCE AS AN
INSURER IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS
IN THE PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY
EVIDENCE THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED
NOT SECURE A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER
OF RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT
PIONEER AND [IN NOT REMOVING] THE OFFICERS AND DIRECTORS OF
RESPONDENT PIONEER.9
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the
insurance business in the Philippines? (2) Does Pioneer need a license as an insurance
agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not
have a license to do business in the Philippines although Pioneer is its resident agent. This
relationship is reflected in the certifications issued by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To
buttress its assertion, it cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. v.
Court of Appeals10 as "an association composed of shipowners in general who band together for
the specific purpose of providing insurance cover on a mutual basis against liabilities incidental
to shipowning that the members incur in favor of third parties." It stresses that as a P & I Club,
Steamship Mutuals primary purpose is to solicit and provide protection and indemnity coverage
and for this purpose, it has engaged the services of Pioneer to act as its agent.

Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the
insurance business in the Philippines. It is merely an association of vessel owners who have
come together to provide mutual protection against liabilities incidental to shipowning.11
Respondents aver Hyopsung is inapplicable in this case because the issue in Hyopsung was the
jurisdiction of the court over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance business" or
"transacting an insurance business". These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this Code.
...
The same provision also provides, the fact that no profit is derived from the making of insurance
contracts, agreements or transactions, or that no separate or direct consideration is received
therefor, shall not preclude the existence of an insurance business.12
The test to determine if a contract is an insurance contract or not, depends on the nature of the
promise, the act required to be performed, and the exact nature of the agreement in the light of
the occurrence, contingency, or circumstances under which the performance becomes requisite. It
is not by what it is called.13
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or
contingent event.14
In particular, a marine insurance undertakes to indemnify the assured against marine losses, such
as the losses incident to a marine adventure.15 Section 9916 of the Insurance Code enumerates the
coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the members are both
the insurer and insured. In it, the members all contribute, by a system of premiums or
assessments, to the creation of a fund from which all losses and liabilities are paid, and where the

profits are divided among themselves, in proportion to their interest.17 Additionally, mutual
insurance associations, or clubs, provide three types of coverage, namely, protection and
indemnity, war risks, and defense costs.18
A P & I Club is "a form of insurance against third party liability, where the third party is anyone
other than the P & I Club and the members."19 By definition then, Steamship Mutual as a P & I
Club is a mutual insurance association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without the requisite
certificate of authority mandated by Section 18720 of the Insurance Code. It maintains a resident
agent in the Philippines to solicit insurance and to collect payments in its behalf. We note that
Steamship Mutual even renewed its P & I Club cover until it was cancelled due to non-payment
of the calls. Thus, to continue doing business here, Steamship Mutual or through its agent
Pioneer, must secure a license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus,
no insurer or insurance company is allowed to engage in the insurance business without a license
or a certificate of authority from the Insurance Commission.21
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration22
issued by the Insurance Commission. It has been licensed to do or transact insurance business by
virtue of the certificate of authority23 issued by the same agency. However, a Certification from
the Commission states that Pioneer does not have a separate license to be an agent/broker of
Steamship Mutual.24
Although Pioneer is already licensed as an insurance company, it needs a separate license to act
as insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so to act from the
Commissioner, which must be renewed annually on the first day of January, or within six months
thereafter. . .
Finally, White Gold seeks revocation of Pioneers certificate of authority and removal of its
directors and officers. Regrettably, we are not the forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of
the Court of Appeals affirming the Decision dated May 3, 2000 of the Insurance Commission is

hereby REVERSED AND SET ASIDE. The Steamship Mutual Underwriting Association
(Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to obtain licenses
and to secure proper authorizations to do business as insurer and insurance agent, respectively.
The petitioners prayer for the revocation of Pioneers Certificate of Authority and removal of its
directors and officers, is DENIED. Costs against respondents.
SO ORDERED.

Verendia vs. CA (217 SCRA 417);

Philamcare Health Systems Inc. vs. CA (379 SCRA 356);

Fortune Insurance and Surety Co., Inc. vs. CA (244 SCRA 308);

Gulf Resorts Inc. vs. Philippine Charter Insurance Corp. GR No. 155167, 16 May
2005;

G.R. No. 156167

May 16, 2005

GULF RESORTS, INC., petitioner,


vs.
PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.
DECISION
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 decision1 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. "C1"; "D-1," and "E" and two (2) swimming pools only (Exhs. "C-1"; D-1", "E" and "F1"). "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. 2064568061-9 (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 right-hand 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. "1-D", "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 Vice-President A.R. de Leon,4 rendered a
preliminary report5 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
demand7 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
complaint10 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.
xxx
We also find that the Court a quo was correct in not granting the plaintiff-appellants
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 plaintiff-appellants 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 letter19 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.

xxx

AMOUNT

RATES

PREMIUM

393,000.00

0.100%-E/S

393.0022]

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 III30
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?
xxx
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?
xxx
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.
xxx
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?
xxx
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 one-sided.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 AHAC-AIU. 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 MANTOHAC36
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. 2064568061-9 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.

Manila Mahogany vs. CA (154 SCRA 650);

Federal Express Corporation vs. American Home Assurance Company and Phil-Am
Insurance Company, Inc., G.R. No. 150094, 18 August 2004);

G.R. No. 150094

August 18, 2004

FEDERAL EXPRESS CORPORATION, petitioner,


vs.
AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE COMPANY,
INC., respondents.

DECISION

PANGANIBAN, J.:
Basic is the requirement that before suing to recover loss of or damage to transported goods, the
plaintiff must give the carrier notice of the loss or damage, within the period prescribed by the
Warsaw Convention and/or the airway bill.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the June 4,
2001 Decision2 and the September 21, 2001 Resolution3 of the Court of Appeals (CA) in CA-GR
CV No. 58208. The assailed Decision disposed as follows:
"WHEREFORE, premises considered, the present appeal is hereby DISMISSED for lack
of merit. The appealed Decision of Branch 149 of the Regional Trial Court of Makati
City in Civil Case No. 95-1219, entitled 'American Home Assurance Co. and PHILAM
Insurance Co., Inc. v. FEDERAL EXPRESS CORPORATION and/or CARGOHAUS,
INC. (formerly U-WAREHOUSE, INC.),' is hereby AFFIRMED and REITERATED.
"Costs against the [petitioner and Cargohaus, Inc.]."4
The assailed Resolution denied petitioner's Motion for Reconsideration.
The Facts
The antecedent facts are summarized by the appellate court as follows:
"On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity) of
Nebraska, USA delivered to Burlington Air Express (BURLINGTON), an agent of
[Petitioner] Federal Express Corporation, a shipment of 109 cartons of veterinary
biologicals for delivery to consignee SMITHKLINE and French Overseas Company in

Makati City, Metro Manila. The shipment was covered by Burlington Airway Bill No.
11263825 with the words, 'REFRIGERATE WHEN NOT IN TRANSIT' and
'PERISHABLE' stamp marked on its face. That same day, Burlington insured the cargoes
in the amount of $39,339.00 with American Home Assurance Company (AHAC). The
following day, Burlington turned over the custody of said cargoes to Federal Express
which transported the same to Manila. The first shipment, consisting of 92 cartons arrived
in Manila on January 29, 1994 in Flight No. 0071-28NRT and was immediately stored at
[Cargohaus Inc.'s] warehouse. While the second, consisting of 17 cartons, came in two
(2) days later, or on January 31, 1994, in Flight No. 0071-30NRT which was likewise
immediately stored at Cargohaus' warehouse. Prior to the arrival of the cargoes, Federal
Express informed GETC Cargo International Corporation, the customs broker hired by
the consignee to facilitate the release of its cargoes from the Bureau of Customs, of the
impending arrival of its client's cargoes.
"On February 10, 1994, DARIO C. DIONEDA ('DIONEDA'), twelve (12) days after the
cargoes arrived in Manila, a non-licensed custom's broker who was assigned by GETC to
facilitate the release of the subject cargoes, found out, while he was about to cause the
release of the said cargoes, that the same [were] stored only in a room with two (2) air
conditioners running, to cool the place instead of a refrigerator. When he asked an
employee of Cargohaus why the cargoes were stored in the 'cool room' only, the latter
told him that the cartons where the vaccines were contained specifically indicated therein
that it should not be subjected to hot or cold temperature. Thereafter, DIONEDA, upon
instructions from GETC, did not proceed with the withdrawal of the vaccines and instead,
samples of the same were taken and brought to the Bureau of Animal Industry of the
Department of Agriculture in the Philippines by SMITHKLINE for examination wherein
it was discovered that the 'ELISA reading of vaccinates sera are below the positive
reference serum.'
"As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE
abandoned the shipment and, declaring 'total loss' for the unusable shipment, filed a claim
with AHAC through its representative in the Philippines, the Philam Insurance Co., Inc.
('PHILAM') which recompensed SMITHKLINE for the whole insured amount of
THIRTY NINE THOUSAND THREE HUNDRED THIRTY NINE DOLLARS
($39,339.00). Thereafter, [respondents] filed an action for damages against the
[petitioner] imputing negligence on either or both of them in the handling of the cargo.
"Trial ensued and ultimately concluded on March 18, 1997 with the [petitioner] being
held solidarily liable for the loss as follows:
'WHEREFORE, judgment is hereby rendered in favor of [respondents] and
[petitioner and its Co-Defendant Cargohaus] are directed to pay [respondents],
jointly and severally, the following:
1. Actual damages in the amount of the peso equivalent of US$39,339.00
with interest from the time of the filing of the complaint to the time the
same is fully paid.

2. Attorney's fees in the amount of P50,000.00 and


3. Costs of suit.
'SO ORDERED.'
"Aggrieved, [petitioner] appealed to [the CA]."5
Ruling of the Court of Appeals
The Test Report issued by the United States Department of Agriculture (Animal and Plant Health
Inspection Service) was found by the CA to be inadmissible in evidence. Despite this ruling, the
appellate court held that the shipping Receipts were a prima facie proof that the goods had
indeed been delivered to the carrier in good condition. We quote from the ruling as follows:
"Where the plaintiff introduces evidence which shows prima facie that the goods were
delivered to the carrier in good condition [i.e., the shipping receipts], and that the carrier
delivered the goods in a damaged condition, a presumption is raised that the damage
occurred through the fault or negligence of the carrier, and this casts upon the carrier the
burden of showing that the goods were not in good condition when delivered to the
carrier, or that the damage was occasioned by some cause excepting the carrier from
absolute liability. This the [petitioner] failed to discharge. x x x."6
Found devoid of merit was petitioner's claim that respondents had no personality to sue. This
argument was supposedly not raised in the Answer or during trial.
Hence, this Petition.7
The Issues
In its Memorandum, petitioner raises the following issues for our consideration:
"I.
Are the decision and resolution of the Honorable Court of Appeals proper subject for
review by the Honorable Court under Rule 45 of the 1997 Rules of Civil Procedure?
"II.
Is the conclusion of the Honorable Court of Appeals petitioner's claim that respondents
have no personality to sue because the payment was made by the respondents to
Smithkline when the insured under the policy is Burlington Air Express is devoid of merit
correct or not?
"III.

Is the conclusion of the Honorable Court of Appeals that the goods were received in good
condition, correct or not?
"IV.
Are Exhibits 'F' and 'G' hearsay evidence, and therefore, not admissible?
"V.
Is the Honorable Court of Appeals correct in ignoring and disregarding respondents' own
admission that petitioner is not liable? and
"VI.
Is the Honorable Court of Appeals correct in ignoring the Warsaw Convention?"8
Simply stated, the issues are as follows: (1) Is the Petition proper for review by the Supreme
Court? (2) Is Federal Express liable for damage to or loss of the insured goods?
This Court's Ruling
The Petition has merit.
Preliminary Issue:
Propriety of Review
The correctness of legal conclusions drawn by the Court of Appeals from undisputed facts is a
question of law cognizable by the Supreme Court.9
In the present case, the facts are undisputed. As will be shown shortly, petitioner is questioning
the conclusions drawn from such facts. Hence, this case is a proper subject for review by this
Court.
Main Issue:
Liability for Damages
Petitioner contends that respondents have no personality to sue -- thus, no cause of action against
it -- because the payment made to Smithkline was erroneous.
Pertinent to this issue is the Certificate of Insurance10 ("Certificate") that both opposing parties
cite in support of their respective positions. They differ only in their interpretation of what their
rights are under its terms. The determination of those rights involves a question of law, not a
question of fact. "As distinguished from a question of law which exists 'when the doubt or
difference arises as to what the law is on a certain state of facts' -- 'there is a question of fact
when the doubt or difference arises as to the truth or the falsehood of alleged facts'; or when the
'query necessarily invites calibration of the whole evidence considering mainly the credibility of

witnesses, existence and relevancy of specific surrounding circumstance, their relation to each
other and to the whole and the probabilities of the situation.'"11
Proper Payee
The Certificate specifies that loss of or damage to the insured cargo is "payable to order x x x
upon surrender of this Certificate." Such wording conveys the right of collecting on any such
damage or loss, as fully as if the property were covered by a special policy in the name of the
holder itself. At the back of the Certificate appears the signature of the representative of
Burlington. This document has thus been duly indorsed in blank and is deemed a bearer
instrument.
Since the Certificate was in the possession of Smithkline, the latter had the right of collecting or
of being indemnified for loss of or damage to the insured shipment, as fully as if the property
were covered by a special policy in the name of the holder. Hence, being the holder of the
Certificate and having an insurable interest in the goods, Smithkline was the proper payee of the
insurance proceeds.
Subrogation
Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation
Receipt12 in favor of respondents. The latter were thus authorized "to file claims and begin suit
against any such carrier, vessel, person, corporation or government." Undeniably, the consignee
had a legal right to receive the goods in the same condition it was delivered for transport to
petitioner. If that right was violated, the consignee would have a cause of action against the
person responsible therefor.
Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods,
the insurer's entitlement to subrogation pro tanto -- being of the highest equity -- equips it with a
cause of action in case of a contractual breach or negligence.13 "Further, the insurer's subrogatory
right to sue for recovery under the bill of lading in case of loss of or damage to the cargo is
jurisprudentially upheld."14
In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To all
intents and purposes, it stands in the place and in substitution of the consignee. A fortiori, both
the insurer and the consignee are bound by the contractual stipulations under the bill of lading.15
Prescription of Claim
From the initial proceedings in the trial court up to the present, petitioner has tirelessly pointed
out that respondents' claim and right of action are already barred. The latter, and even the
consignee, never filed with the carrier any written notice or complaint regarding its claim for
damage of or loss to the subject cargo within the period required by the Warsaw Convention
and/or in the airway bill. Indeed, this fact has never been denied by respondents and is plainly
evident from the records.

Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states:


"6. No action shall be maintained in the case of damage to or partial loss of the shipment
unless a written notice, sufficiently describing the goods concerned, the approximate date
of the damage or loss, and the details of the claim, is presented by shipper or consignee to
an office of Burlington within (14) days from the date the goods are placed at the disposal
of the person entitled to delivery, or in the case of total loss (including non-delivery)
unless presented within (120) days from the date of issue of the [Airway Bill]."16
Relevantly, petitioner's airway bill states:
"12./12.1 The person entitled to delivery must make a complaint to the carrier in writing
in the case:
12.1.1 of visible damage to the goods, immediately after discovery of the damage and at
the latest within fourteen (14) days from receipt of the goods;
12.1.2 of other damage to the goods, within fourteen (14) days from the date of receipt of
the goods;
12.1.3 delay, within twenty-one (21) days of the date the goods are placed at his disposal;
and
12.1.4 of non-delivery of the goods, within one hundred and twenty (120) days from the
date of the issue of the air waybill.
12.2 For the purpose of 12.1 complaint in writing may be made to the carrier whose air
waybill was used, or to the first carrier or to the last carrier or to the carrier who
performed the transportation during which the loss, damage or delay took place."17
Article 26 of the Warsaw Convention, on the other hand, provides:
"ART. 26. (1) Receipt by the person entitled to the delivery of baggage or goods without
complaint shall be prima facie evidence that the same have been delivered in good
condition and in accordance with the document of transportation.
(2) In case of damage, the person entitled to delivery must complain to the carrier
forthwith after the discovery of the damage, and, at the latest, within 3 days from the date
of receipt in the case of baggage and 7 days from the date of receipt in the case of goods.
In case of delay the complaint must be made at the latest within 14 days from the date on
which the baggage or goods have been placed at his disposal.
(3) Every complaint must be made in writing upon the document of transportation or by
separate notice in writing dispatched within the times aforesaid.

(4) Failing complaint within the times aforesaid, no action shall lie against the carrier,
save in the case of fraud on his part."18
Condition Precedent
In this jurisdiction, the filing of a claim with the carrier within the time limitation therefor
actually constitutes a condition precedent to the accrual of a right of action against a carrier for
loss of or damage to the goods.19 The shipper or consignee must allege and prove the fulfillment
of the condition. If it fails to do so, no right of action against the carrier can accrue in favor of the
former. The aforementioned requirement is a reasonable condition precedent; it does not
constitute a limitation of action.20
The requirement of giving notice of loss of or injury to the goods is not an empty formalism. The
fundamental reasons for such a stipulation are (1) to inform the carrier that the cargo has been
damaged, and that it is being charged with liability therefor; and (2) to give it an opportunity to
examine the nature and extent of the injury. "This protects the carrier by affording it an
opportunity to make an investigation of a claim while the matter is fresh and easily investigated
so as to safeguard itself from false and fraudulent claims."21
When an airway bill -- or any contract of carriage for that matter -- has a stipulation that requires
a notice of claim for loss of or damage to goods shipped and the stipulation is not complied with,
its enforcement can be prevented and the liability cannot be imposed on the carrier. To stress,
notice is a condition precedent, and the carrier is not liable if notice is not given in accordance
with the stipulation.22 Failure to comply with such a stipulation bars recovery for the loss or
damage suffered.23
Being a condition precedent, the notice must precede a suit for enforcement.24 In the present
case, there is neither an allegation nor a showing of respondents' compliance with this
requirement within the prescribed period. While respondents may have had a cause of action
then, they cannot now enforce it for their failure to comply with the aforesaid condition
precedent.
In view of the foregoing, we find no more necessity to pass upon the other issues raised by
petitioner.
We note that respondents are not without recourse. Cargohaus, Inc. -- petitioner's co-defendant in
respondents' Complaint below -- has been adjudged by the trial court as liable for, inter alia,
"actual damages in the amount of the peso equivalent of US $39,339."25 This judgment was
affirmed by the Court of Appeals and is already final and executory.26
WHEREFORE, the Petition is GRANTED, and the assailed Decision REVERSED insofar as it
pertains to Petitioner Federal Express Corporation. No pronouncement as to costs.
SO ORDERED.

Eternal Gardens Memorial Park Corporation vs. Phil. American Life Insurance Co., GR
No. 166245, 09 April 2008

G.R. No. 166245

April 9, 2008

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,


vs.
THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondent.
DECISION
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 Decision1 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-19202 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, 19845 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 non-compliance 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. P-1920 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.

II. CONTRACT OF INSURANCE


Enriquez vs. Sun Life Insurance of Canada (G.R. No. 15895, Nov. 29, 1920);

G.R. No. L-15895

November 29, 1920

RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin Ma. Herrer,
plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.
Jose A. Espiritu for appellant.
Cohn, Fisher and DeWitt for appellee.

MALCOLM, J.:
This is an action brought by the plaintiff ad administrator of the estate of the late Joaquin Ma.
Herrer to recover from the defendant life insurance company the sum of pesos 6,000 paid by the
deceased for a life annuity. The trial court gave judgment for the defendant. Plaintiff appeals.
The undisputed facts are these: On September 24, 1917, Joaquin Herrer made application to the
Sun Life Assurance Company of Canada through its office in Manila for a life annuity. Two days
later he paid the sum of P6,000 to the manager of the company's Manila office and was given a
receipt reading as follows:
MANILA, I. F., 26 de septiembre, 1917.
PROVISIONAL RECEIPT Pesos 6,000
Recibi la suma de seis mil pesos de Don Joaquin Herrer de Manila como prima dela Renta
Vitalicia solicitada por dicho Don Joaquin Herrer hoy, sujeta al examen medico y aprobacion de
la Oficina Central de la Compaia.
The application was immediately forwarded to the head office of the company at Montreal,
Canada. On November 26, 1917, the head office gave notice of acceptance by cable to Manila.
(Whether on the same day the cable was received notice was sent by the Manila office of Herrer
that the application had been accepted, is a disputed point, which will be discussed later.) On
December 4, 1917, the policy was issued at Montreal. On December 18, 1917, attorney Aurelio
A. Torres wrote to the Manila office of the company stating that Herrer desired to withdraw his
application. The following day the local office replied to Mr. Torres, stating that the policy had
been issued, and called attention to the notification of November 26, 1917. This letter was
received by Mr. Torres on the morning of December 21, 1917. Mr. Herrer died on December 20,
1917.

As above suggested, the issue of fact raised by the evidence is whether Herrer received notice of
acceptance of his application. To resolve this question, we propose to go directly to the evidence
of record.
The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time of
the trial testified that he prepared the letter introduced in evidence as Exhibit 3, of date
November 26, 1917, and handed it to the local manager, Mr. E. E. White, for signature. The
witness admitted on cross-examination that after preparing the letter and giving it to he manager,
he new nothing of what became of it. The local manager, Mr. White, testified to having received
the cablegram accepting the application of Mr. Herrer from the home office on November 26,
1917. He said that on the same day he signed a letter notifying Mr. Herrer of this acceptance. The
witness further said that letters, after being signed, were sent to the chief clerk and placed on the
mailing desk for transmission. The witness could not tell if the letter had every actually been
placed in the mails. Mr. Tuason, who was the chief clerk, on November 26, 1917, was not called
as a witness. For the defense, attorney Manuel Torres testified to having prepared the will of
Joaquin Ma. Herrer, that on this occasion, Mr. Herrer mentioned his application for a life annuity,
and that he said that the only document relating to the transaction in his possession was the
provisional receipt. Rafael Enriquez, the administrator of the estate, testified that he had gone
through the effects of the deceased and had found no letter of notification from the insurance
company to Mr. Herrer.
Our deduction from the evidence on this issue must be that the letter of November 26, 1917,
notifying Mr. Herrer that his application had been accepted, was prepared and signed in the local
office of the insurance company, was placed in the ordinary channels for transmission, but as far
as we know, was never actually mailed and thus was never received by the applicant.
Not forgetting our conclusion of fact, it next becomes necessary to determine the law which
should be applied to the facts. In order to reach our legal goal, the obvious signposts along the
way must be noticed.
Until quite recently, all of the provisions concerning life insurance in the Philippines were found
in the Code of Commerce and the Civil Code. In the Code of the Commerce, there formerly
existed Title VIII of Book III and Section III of Title III of Book III, which dealt with insurance
contracts. In the Civil Code there formerly existed and presumably still exist, Chapters II and IV,
entitled insurance contracts and life annuities, respectively, of Title XII of Book IV. On the after
July 1, 1915, there was, however, in force the Insurance Act. No. 2427. Chapter IV of this Act
concerns life and health insurance. The Act expressly repealed Title VIII of Book II and Section
III of Title III of Book III of the code of Commerce. The law of insurance is consequently now
found in the Insurance Act and the Civil Code.
While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the methods to
be followed in order that there may be a contract of insurance. On the other hand, the Civil Code,
in article 1802, not only describes a contact of life annuity markedly similar to the one we are

considering, but in two other articles, gives strong clues as to the proper disposition of the case.
For instance, article 16 of the Civil Code provides that "In matters which are governed by special
laws, any deficiency of the latter shall be supplied by the provisions of this Code." On the
supposition, therefore, which is incontestable, that the special law on the subject of insurance is
deficient in enunciating the principles governing acceptance, the subject-matter of the Civil code,
if there be any, would be controlling. In the Civil Code is found article 1262 providing that
"Consent is shown by the concurrence of offer and acceptance with respect to the thing and the
consideration which are to constitute the contract. An acceptance made by letter shall not bind
the person making the offer except from the time it came to his knowledge. The contract, in such
case, is presumed to have been entered into at the place where the offer was made." This latter
article is in opposition to the provisions of article 54 of the Code of Commerce.
If no mistake has been made in announcing the successive steps by which we reach a conclusion,
then the only duty remaining is for the court to apply the law as it is found. The legislature in its
wisdom having enacted a new law on insurance, and expressly repealed the provisions in the
Code of Commerce on the same subject, and having thus left a void in the commercial law, it
would seem logical to make use of the only pertinent provision of law found in the Civil code,
closely related to the chapter concerning life annuities.
The Civil Code rule, that an acceptance made by letter shall bind the person making the offer
only from the date it came to his knowledge, may not be the best expression of modern
commercial usage. Still it must be admitted that its enforcement avoids uncertainty and tends to
security. Not only this, but in order that the principle may not be taken too lightly, let it be
noticed that it is identical with the principles announced by a considerable number of respectable
courts in the United States. The courts who take this view have expressly held that an acceptance
of an offer of insurance not actually or constructively communicated to the proposer does not
make a contract. Only the mailing of acceptance, it has been said, completes the contract of
insurance, as the locus poenitentiae is ended when the acceptance has passed beyond the control
of the party. (I Joyce, The Law of Insurance, pp. 235, 244.)
In resume, therefore, the law applicable to the case is found to be the second paragraph of article
1262 of the Civil Code providing that an acceptance made by letter shall not bind the person
making the offer except from the time it came to his knowledge. The pertinent fact is, that
according to the provisional receipt, three things had to be accomplished by the insurance
company before there was a contract: (1) There had to be a medical examination of the applicant;
(2) there had to be approval of the application by the head office of the company; and (3) this
approval had in some way to be communicated by the company to the applicant. The further
admitted facts are that the head office in Montreal did accept the application, did cable the
Manila office to that effect, did actually issue the policy and did, through its agent in Manila,
actually write the letter of notification and place it in the usual channels for transmission to the
addressee. The fact as to the letter of notification thus fails to concur with the essential elements
of the general rule pertaining to the mailing and delivery of mail matter as announced by the
American courts, namely, when a letter or other mail matter is addressed and mailed with

postage prepaid there is a rebuttable presumption of fact that it was received by the addressee as
soon as it could have been transmitted to him in the ordinary course of the mails. But if any one
of these elemental facts fails to appear, it is fatal to the presumption. For instance, a letter will
not be presumed to have been received by the addressee unless it is shown that it was deposited
in the post-office, properly addressed and stamped. (See 22 C.J., 96, and 49 L. R. A. [N. S.], pp.
458, et seq., notes.)
We hold that the contract for a life annuity in the case at bar was not perfected because it has not
been proved satisfactorily that the acceptance of the application ever came to the knowledge of
the applicant.lawph!l.net
Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum of
P6,000 with legal interest from November 20, 1918, until paid, without special finding as to
costs in either instance. So ordered.

Development Bank vs. CA (G.R. No. 100937, March 21, 1994);

G.R. No. L-109937 March 21, 1994


DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and the ESTATE OF THE LATE JUAN B. DANS, represented by
CANDIDA G. DANS, and the DBP MORTGAGE REDEMPTION INSURANCE POOL,
respondents.
Office of the Legal Counsel for petitioner.
Reyes, Santayana, Molo & Alegre for DBP Mortgage Redemption Insurance Pool.

QUIASON, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court to reverse
and set aside the decision of the Court of Appeals in CA-G.R CV No. 26434 and its resolution
denying reconsideration thereof.
We affirm the decision of the Court of Appeals with modification.
I
In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied
for a loan of P500,000.00 with the Development Bank of the Philippines (DBP), Basilan Branch.
As the principal mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a
mortgage redemption insurance (MRI) with the DBP Mortgage Redemption Insurance Pool
(DBP MRI Pool).
A loan, in the reduced amount of P300,000.00, was approved by DBP on August 4, 1987 and
released on August 11, 1987. From the proceeds of the loan, DBP deducted the amount of
P1,476.00 as payment for the MRI premium. On August 15, 1987, Dans accomplished and
submitted the "MRI Application for Insurance" and the "Health Statement for DBP MRI Pool."
On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was
credited by DBP to the savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool
was advised of the credit.
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this
information to the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP that

Dans was not eligible for MRI coverage, being over the acceptance age limit of 60 years at the
time of application.
On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI
application. The DBP offered to refund the premium of P1,476.00 which the deceased had paid,
but Candida Dans refused to accept the same, demanding payment of the face value of the MRI
or an amount equivalent to the loan. She, likewise, refused to accept an ex gratia settlement of
P30,000.00, which the DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans as administratrix, filed a
complaint with the Regional Trial Court, Branch I, Basilan, against DBP and the insurance pool
for "Collection of Sum of Money with Damages." Respondent Estate alleged that Dans became
insured by the DBP MRI Pool when DBP, with full knowledge of Dans' age at the time of
application, required him to apply for MRI, and later collected the insurance premium thereon.
Respondent Estate therefore prayed: (1) that the sum of P139,500.00, which it paid under protest
for the loan, be reimbursed; (2) that the mortgage debt of the deceased be declared fully paid;
and (3) that damages be awarded.
The DBP and the DBP MRI Pool separately filed their answers, with the former asserting a
cross-claim against the latter.
At the pre-trial, DBP and the DBP MRI Pool admitted all the documents and exhibits submitted
by respondent Estate. As a result of these admissions, the trial court narrowed down the issues
and, without opposition from the parties, found the case ripe for summary judgment.
Consequently, the trial court ordered the parties to submit their respective position papers and
documentary evidence, which may serve as basis for the judgment.
On March 10, 1990, the trial court rendered a decision in favor of respondent Estate and against
DBP. The DBP MRI Pool, however, was absolved from liability, after the trial court found no
privity of contract between it and the deceased. The trial court declared DBP in estoppel for
having led Dans into applying for MRI and actually collecting the premium and the service fee,
despite knowledge of his age ineligibility. The dispositive portion of the decision read as follows:
WHEREFORE, in view of the foregoing consideration and in the furtherance of
justice and equity, the Court finds judgment for the plaintiff and against
Defendant DBP, ordering the latter:
1. To return and reimburse plaintiff the amount of P139,500.00 plus legal rate of
interest as amortization payment paid under protest;
2. To consider the mortgage loan of P300,000.00 including all interest
accumulated or otherwise to have been settled, satisfied or set-off by virtue of the
insurance coverage of the late Juan B. Dans;

3. To pay plaintiff the amount of P10,000.00 as attorney's fees;


4. To pay plaintiff in the amount of P10,000.00 as costs of litigation and other
expenses, and other relief just and equitable.
The Counterclaims of Defendants DBP and DBP MRI POOL are hereby
dismissed. The Cross-claim of Defendant DBP is likewise dismissed (Rollo, p. 79)
The DBP appealed to the Court of Appeals. In a decision dated September 7, 1992, the appellate
court affirmed in toto the decision of the trial court. The DBP's motion for reconsideration was
denied in a resolution dated April 20, 1993.
Hence, this recourse.
II
When Dans applied for MRI, he filled up and personally signed a "Health Statement for DBP
MRI Pool" (Exh. "5-Bank") with the following declaration:
I hereby declare and agree that all the statements and answers contained herein
are true, complete and correct to the best of my knowledge and belief and form
part of my application for insurance. It is understood and agreed that no insurance
coverage shall be effected unless and until this application is approved and the full
premium is paid during my continued good health (Records, p. 40).
Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the
application shall be approved by the insurance pool; and (2) when the full premium is paid
during the continued good health of the applicant. These two conditions, being joined
conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The
pool, however, did not approve the application of Dans. There is also no showing that it accepted
the sum of P1,476.00, which DBP credited to its account with full knowledge that it was
payment for Dan's premium. There was, as a result, no perfected contract of insurance; hence,
the DBP MRI Pool cannot be held liable on a contract that does not exist.
The liability of DBP is another matter.
It was DBP, as a matter of policy and practice, that required Dans, the borrower, to secure MRI
coverage. Instead of allowing Dans to look for his own insurance carrier or some other form of
insurance policy, DBP compelled him to apply with the DBP MRI Pool for MRI coverage. When
Dan's loan was released on August 11, 1987, DBP already deducted from the proceeds thereof
the MRI premium. Four days latter, DBP made Dans fill up and sign his application for MRI, as
well as his health statement. The DBP later submitted both the application form and health

statement to the DBP MRI Pool at the DBP Main Building, Makati Metro Manila. As service fee,
DBP deducted 10 percent of the premium collected by it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a lender, and the second as an
insurance agent.
As an insurance agent, DBP made Dans go through the motion of applying for said insurance,
thereby leading him and his family to believe that they had already fulfilled all the requirements
for the MRI and that the issuance of their policy was forthcoming. Apparently, DBP had full
knowledge that Dan's application was never going to be approved. The maximum age for MRI
acceptance is 60 years as clearly and specifically provided in Article 1 of the Group Mortgage
Redemption Insurance Policy signed in 1984 by all the insurance companies concerned (Exh. "1Pool").
Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is not
personally liable to the party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party sufficient notice of his powers."
The DBP is not authorized to accept applications for MRI when its clients are more than 60 years
of age (Exh. "1-Pool"). Knowing all the while that Dans was ineligible for MRI coverage
because of his advanced age, DBP exceeded the scope of its authority when it accepted Dan's
application for MRI by collecting the insurance premium, and deducting its agent's commission
and service fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the third
person is aware of the limits of the agent's powers. There is no showing that Dans knew of the
limitation on DBP's authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the limits of the authority conferred by the
principal on the agent and he (third person) has been deceived by the non-disclosure thereof by
the agent, then the latter is liable for damages to him (V Tolentino, Commentaries and
Jurisprudence on the Civil Code of the Philippines, p. 422 [1992], citing Sentencia [Cuba] of
September 25, 1907). The rule that the agent is liable when he acts without authority is founded
upon the supposition that there has been some wrong or omission on his part either in
misrepresenting, or in affirming, or concealing the authority under which he assumes to act
(Francisco, V., Agency 307 [1952], citing Hall v. Lauderdale, 46 N.Y. 70, 75). Inasmuch as the
non-disclosure of the limits of the agency carries with it the implication that a deception was
perpetrated on the unsuspecting client, the provisions of Articles 19, 20 and 21 of the Civil Code
of the Philippines come into play.
Article 19 provides:
Every person must, in the exercise of his rights and in the performance of his
duties, act with justice give everyone his due and observe honesty and good faith.

Article 20 provides:
Every person who, contrary to law, willfully or negligently causes damage to
another, shall indemnify the latter for the same.
Article 21 provides:
Any person, who willfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for
the damage.
The DBP's liability, however, cannot be for the entire value of the insurance policy. To assume
that were it not for DBP's concealment of the limits of its authority, Dans would have secured an
MRI from another insurance company, and therefore would have been fully insured by the time
he died, is highly speculative. Considering his advanced age, there is no absolute certainty that
Dans could obtain an insurance coverage from another company. It must also be noted that Dans
died almost immediately, i.e., on the nineteenth day after applying for the MRI, and on the
twenty-third day from the date of release of his loan.
One is entitled to an adequate compensation only for such pecuniary loss suffered by him as he
has duly proved (Civil Code of the Philippines, Art. 2199). Damages, to be recoverable, must not
only be capable of proof, but must be actually proved with a reasonable degree of certainty
(Refractories Corporation v. Intermediate Appellate Court, 176 SCRA 539 [1989]; Choa Tek Hee
v. Philippine Publishing Co., 34 Phil. 447 [1916]). Speculative damages are too remote to be
included in an accurate estimate of damages (Sun Life Assurance v. Rueda Hermanos, 37 Phil.
844 [1918]).
While Dans is not entitled to compensatory damages, he is entitled to moral damages. No proof
of pecuniary loss is required in the assessment of said kind of damages (Civil Code of
Philippines, Art. 2216). The same may be recovered in acts referred to in Article 2219 of the
Civil Code.
The assessment of moral damages is left to the discretion of the court according to the
circumstances of each case (Civil Code of the Philippines, Art. 2216). Considering that DBP had
offered to pay P30,000.00 to respondent Estate in ex gratia settlement of its claim and that DBP's
non-disclosure of the limits of its authority amounted to a deception to its client, an award of
moral damages in the amount of P50,000.00 would be reasonable.
The award of attorney's fees is also just and equitable under the circumstances (Civil Code of the
Philippines, Article 2208 [11]).
WHEREFORE, the decision of the Court of Appeals in CA G.R.-CV
No. 26434 is MODIFIED and petitioner DBP is ORDERED: (1) to REIMBURSE respondent
Estate of Juan B. Dans the amount of P1,476.00 with legal interest from the date of the filing of

the complaint until fully paid; and (2) to PAY said Estate the amount of Fifty Thousand Pesos
(P50,000.00) as moral damages and the amount of Ten Thousand Pesos (P10,000.00) as
attorney's fees. With costs against petitioner.
SO ORDERED.

Great Pacific Life Assurance Co. vs. CA (G.R. Nos. 31845 & 31873, April 30, 1979)

G.R. No. L-31845 April 30, 1979


GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,
vs.
HONORABLE COURT OF APPEALS, respondents.
G.R. No. L-31878 April 30, 1979
LAPULAPU D. MONDRAGON, petitioner,
vs.
HON. COURT OF APPEALS and NGO HING, respondents.
Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo for petitioner
Company.
Voltaire Garcia for petitioner Mondragon.
Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

DE CASTRO, J.:
The two above-entitled cases were ordered consolidated by the Resolution of this Court
dated April 29, 1970, (Rollo, No. L-31878, p. 58), because the petitioners in both cases
seek similar relief, through these petitions for certiorari by way of appeal, from the
amended decision of respondent Court of Appeals which affirmed in toto the decision of
the Court of First Instance of Cebu, ordering "the defendants (herein petitioners Great
Pacific Ligfe Assurance Company and Mondragon) jointly and severally to pay plaintiff
(herein private respondent Ngo Hing) the amount of P50,000.00 with interest at 6% from
the date of the filing of the complaint, and the sum of P1,077.75, without interest.
It appears that on March 14, 1957, private respondent Ngo Hing filed an application with
the Great Pacific Life Assurance Company (hereinafter referred to as Pacific Life) for a
twenty-year endownment policy in the amount of P50,000.00 on the life of his one-year
old daughter Helen Go. Said respondent supplied the essential data which petitioner
Lapulapu D. Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the
corresponding form in his own handwriting (Exhibit I-M). Mondragon finally type-wrote
the data on the application form which was signed by private respondent Ngo Hing. The
latter paid the annual premuim the sum of P1,077.75 going over to the Company, but he
reatined the amount of P1,317.00 as his commission for being a duly authorized agebt
of Pacific Life. Upon the payment of the insurance premuim, the binding deposit receipt

(Exhibit E) was issued to private respondent Ngo Hing. Likewise, petitioner Mondragon
handwrote at the bottom of the back page of the application form his strong
recommendation for the approval of the insurance application. Then on April 30, 1957,
Mondragon received a letter from Pacific Life disapproving the insurance application
(Exhibit 3-M). The letter stated that the said life insurance application for 20-year
endowment plan is not available for minors below seven years old, but Pacific Life can
consider the same under the Juvenile Triple Action Plan, and advised that if the offer is
acceptable, the Juvenile Non-Medical Declaration be sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not
communicated by petitioner Mondragon to private respondent Ngo Hing. Instead, on
May 6, 1957, Mondragon wrote back Pacific Life again strongly recommending the
approval of the 20-year endowment insurance plan to children, pointing out that since
1954 the customers, especially the Chinese, were asking for such coverage (Exhibit 4M).
It was when things were in such state that on May 28, 1957 Helen Go died of influenza
with complication of bronchopneumonia. Thereupon, private respondent sought the
payment of the proceeds of the insurance, but having failed in his effort, he filed the
action for the recovery of the same before the Court of First Instance of Cebu, which
rendered the adverse decision as earlier refered to against both petitioners.
The decisive issues in these cases are: (1) whether the binding deposit receipt (Exhibit
E) constituted a temporary contract of the life insurance in question; and (2) whether
private respondent Ngo Hing concealed the state of health and physical condition of
Helen Go, which rendered void the aforesaid Exhibit E.
1. At the back of Exhibit E are condition precedents required before a deposit is
considered a BINDING RECEIPT. These conditions state that:
A. If the Company or its agent, shan have received the premium deposit ...
and the insurance application, ON or PRIOR to the date of medical
examination ... said insurance shan be in force and in effect from the date
of such medical examination, for such period as is covered by the
deposit ..., PROVIDED the company shall be satisfied that on said date
the applicant was insurable on standard rates under its rule for the amount
of insurance and the kind of policy requested in the application.
D. If the Company does not accept the application on standard rate for the
amount of insurance and/or the kind of policy requested in the application
but issue, or offers to issue a policy for a different plan and/or amount ...,
the insurance shall not be in force and in effect until the applicant shall
have accepted the policy as issued or offered by the Company and shall

have paid the full premium thereof. If the applicant does not accept the
policy, the deposit shall be refunded.
E. If the applicant shall not have been insurable under Condition A above,
and the Company declines to approve the application the insurance
applied for shall not have been in force at any time and the sum paid be
returned to the applicant upon the surrender of this receipt. (Emphasis
Ours).
The aforequoted provisions printed on Exhibit E show that the binding deposit receipt is
intended to be merely a provisional or temporary insurance contract and only upon
compliance of the following conditions: (1) that the company shall be satisfied that the
applicant was insurable on standard rates; (2) that if the company does not accept the
application and offers to issue a policy for a different plan, the insurance contract shall
not be binding until the applicant accepts the policy offered; otherwise, the deposit shall
be reftmded; and (3) that if the applicant is not ble according to the standard rates, and
the company disapproves the application, the insurance applied for shall not be in force
at any time, and the premium paid shall be returned to the applicant.
Clearly implied from the aforesaid conditions is that the binding deposit receipt in
question is merely an acknowledgment, on behalf of the company, that the latter's
branch office had received from the applicant the insurance premium and had accepted
the application subject for processing by the insurance company; and that the latter will
either approve or reject the same on the basis of whether or not the applicant is
"insurable on standard rates." Since petitioner Pacific Life disapproved the insurance
application of respondent Ngo Hing, the binding deposit receipt in question had never
become in force at any time.
Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly, merely
conditional and does not insure outright. As held by this Court, where an agreement is
made between the applicant and the agent, no liability shall attach until the principal
approves the risk and a receipt is given by the agent. The acceptance is merely
conditional and is subordinated to the act of the company in approving or rejecting the
application. Thus, in life insurance, a "binding slip" or "binding receipt" does not insure
by itself (De Lim vs. Sun Life Assurance Company of Canada, 41 Phil. 264).
It bears repeating that through the intra-company communication of April 30, 1957
(Exhibit 3-M), Pacific Life disapproved the insurance application in question on the
ground that it is not offering the twenty-year endowment insurance policy to children
less than seven years of age. What it offered instead is another plan known as the
Juvenile Triple Action, which private respondent failed to accept. In the absence of a
meeting of the minds between petitioner Pacific Life and private respondent Ngo Hing
over the 20-year endowment life insurance in the amount of P50,000.00 in favor of the

latter's one-year old daughter, and with the non-compliance of the abovequoted
conditions stated in the disputed binding deposit receipt, there could have been no
insurance contract duly perfected between thenl Accordingly, the deposit paid by private
respondent shall have to be refunded by Pacific Life.
As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a contract of
insurance, like other contracts, must be assented to by both parties either in person or
by their agents ... The contract, to be binding from the date of the application, must have
been a completed contract, one that leaves nothing to be dione, nothing to be
completed, nothing to be passed upon, or determined, before it shall take effect. There
can be no contract of insurance unless the minds of the parties have met in agreement."
We are not impressed with private respondent's contention that failure of petitioner
Mondragon to communicate to him the rejection of the insurance application would not
have any adverse effect on the allegedly perfected temporary contract (Respondent's
Brief, pp. 13-14). In this first place, there was no contract perfected between the parties
who had no meeting of their minds. Private respondet, being an authorized insurance
agent of Pacific Life at Cebu branch office, is indubitably aware that said company does
not offer the life insurance applied for. When he filed the insurance application in
dispute, private respondent was, therefore, only taking the chance that Pacific Life will
approve the recommendation of Mondragon for the acceptance and approval of the
application in question along with his proposal that the insurance company starts to
offer the 20-year endowment insurance plan for children less than seven years.
Nonetheless, the record discloses that Pacific Life had rejected the proposal and
recommendation. Secondly, having an insurable interest on the life of his one-year old
daughter, aside from being an insurance agent and an offense associate of petitioner
Mondragon, private respondent Ngo Hing must have known and followed the progress
on the processing of such application and could not pretend ignorance of the
Company's rejection of the 20-year endowment life insurance application.
At this juncture, We find it fit to quote with approval, the very apt observation of then
Appellate Associate Justice Ruperto G. Martin who later came up to this Court, from his
dissenting opinion to the amended decision of the respondent court which completely
reversed the original decision, the following:
Of course, there is the insinuation that neither the memorandum of
rejection (Exhibit 3-M) nor the reply thereto of appellant Mondragon
reiterating the desire for applicant's father to have the application
considered as one for a 20-year endowment plan was ever duly
communicated to Ngo; Hing, father of the minor applicant. I am not quite
conninced that this was so. Ngo Hing, as father of the applicant herself,
was precisely the "underwriter who wrote this case" (Exhibit H-1). The
unchallenged statement of appellant Mondragon in his letter of May 6,

1957) (Exhibit 4-M), specifically admits that said Ngo Hing was "our
associate" and that it was the latter who "insisted that the plan be placed
on the 20-year endowment plan." Under these circumstances, it is
inconceivable that the progress in the processing of the application was
not brought home to his knowledge. He must have been duly apprised of
the rejection of the application for a 20-year endowment plan otherwise
Mondragon would not have asserted that it was Ngo Hing himself who
insisted on the application as originally filed, thereby implictly declining the
offer to consider the application under the Juvenile Triple Action Plan.
Besides, the associate of Mondragon that he was, Ngo Hing should only
be presumed to know what kind of policies are available in the company
for minors below 7 years old. What he and Mondragon were apparently
trying to do in the premises was merely to prod the company into going
into the business of issuing endowment policies for minors just as other
insurance companies allegedly do. Until such a definite policy is however,
adopted by the company, it can hardly be said that it could have been
bound at all under the binding slip for a plan of insurance that it could not
have, by then issued at all. (Amended Decision, Rollo, pp- 52-53).
2. Relative to the second issue of alleged concealment. this Court is of the firm belief
that private respondent had deliberately concealed the state of health and piysical
condition of his daughter Helen Go. Wher private regpondeit supplied the required
essential data for the insurance application form, he was fully aware that his one-year
old daughter is typically a mongoloid child. Such a congenital physical defect could
never be ensconced nor disguished. Nonetheless, private respondent, in apparent bad
faith, withheld the fact materal to the risk to be assumed by the insurance compary. As
an insurance agent of Pacific Life, he ought to know, as he surely must have known. his
duty and responsibility to such a material fact. Had he diamond said significant fact in
the insurance application fom Pacific Life would have verified the same and would have
had no choice but to disapprove the application outright.
The contract of insurance is one of perfect good faith uberrima fides meaning good
faith, absolute and perfect candor or openness and honesty; the absence of any
concealment or demotion, however slight [Black's Law Dictionary, 2nd Edition], not for
the alone but equally so for the insurer (Field man's Insurance Co., Inc. vs. Vda de
Songco, 25 SCRA 70). Concealment is a neglect to communicate that which a partY
knows aDd Ought to communicate (Section 25, Act No. 2427). Whether intentional or
unintentional the concealment entitles the insurer to rescind the contract of insurance
(Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105 Phil 930; Satumino vs.
Philippine American Life Insurance Company, 7 SCRA 316). Private respondent
appears guilty thereof.

We are thus constrained to hold that no insurance contract was perfected between the
parties with the noncompliance of the conditions provided in the binding receipt, and
concealment, as legally defined, having been comraitted by herein private respondent.
WHEREFORE, the decision appealed from is hereby set aside, and in lieu thereof, one
is hereby entered absolving petitioners Lapulapu D. Mondragon and Great Pacific Life
Assurance Company from their civil liabilities as found by respondent Court and
ordering the aforesaid insurance company to reimburse the amount of P1,077.75,
without interest, to private respondent, Ngo Hing. Costs against private respondent.
SO ORDERED.

III. INSURABLE INTEREST


Spouses Cha vs. CA, (August 18, 1997);
Geagonia vs. CA, February 6, 1995); RCBC vs. CA (289 SCRA 292);
Gaisano Cagayan, Inc. vs. Insurance Company of North America, G.R. No. 147839
(June 8, 2006).

IV. DEVICES FOR ASCERTAINING AND CONTROLLING RISK AND LOSS


Great Pacific Life Assurance vs. CA (316 SCRA 678);

Sun Life Assurance Co. of Canada vs. CA (G.R. No. 105135, June 22, 1995);

Philamcare Health Systems Inc. vs. CA (379 SCRA 356);

Vda de Canilang vs. CA (G.R. No. 92492, June 17, 1993);


G.R. No. 92492 June 17, 1993
THELMA VDA. DE CANILANG, petitioner,
vs.
HON. COURT OF APPEALS and GREAT PACIFIC LIFE ASSURANCE CORPORATION, respondents.
Simeon C. Sato for petitioner.
FELICIANO, J.:
On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering from "sinus tachycardia." The doctor
prescribed the following fro him: Trazepam, a tranquilizer; and Aptin, a beta-blocker drug. Mr. Canilang consulted the same doctor again on 3
August 1982 and this time was found to have "acute bronchitis."
On next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy with respondent Great Pacific Life Assurance
1

Jaime Canilang was issued ordinary life


insurance Policy No. 345163, with the face value of P19,700, effective as of 9 August 1982.
Company ("Great Pacific") naming his wife, Thelma Canilang, as his beneficiary.

On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic anemia." 2
Petitioner, widow and beneficiary of the insured, filed a claim with Great Pacific which the insurer denied
on 5 December 1983 upon the ground that the insured had concealed material information from it.
Petitioner then filed a complaint against Great Pacific with the Insurance Commission for recovery of the
insurance proceeds. During the hearing called by the Insurance Commissioner, petitioner testified that
she was not aware of any serious illness suffered by her late husband 3 and that, as far as she knew, her
husband had died because of a kidney disorder. 4 A deposition given by Dr. Wilfredo Claudio was
presented by petitioner. There Dr. Claudio stated that he was the family physician of the deceased Jaime
Canilang 5 and that he had previously treated him for "sinus tachycardia" and "acute bronchitis." 6 Great
Pacific for its part presented Dr. Esperanza Quismorio, a physician
and a medical underwriter working for Great Pacific. 7 She testified that the deceased's insurance
application had been approved on the basis of his medical declaration. 8 She explained that as a rule,
medical examinations are required only in cases where the applicant has indicated in his application for
insurance coverage that he has previously undergone medical consultation and hospitalization. 9
In a decision dated 5 November 1985, Insurance Commissioner Armando Ansaldo ordered Great Pacific
to pay P19,700 plus legal interest and P2,000.00 as attorney's fees after holding that:
1. the ailment of Jaime Canilang was not so serious that, even if it had been disclosed, it
would not have affected Great Pacific's decision to insure him;
2. Great Pacific had waived its right to inquire into the health condition of the applicant by
the issuance of the policy despite the lack of answers to "some of the pertinent
questions" in the insurance application;
3. there was no intentional concealment on the part of the insured Jaime Canilang as he
had thought that he was merely suffering from a minor ailment and simple cold; 10 and
4. Batas Pambansa Blg. 847 which voids an insurance contract, whether or not
concealment was intentionally made, was not applicable to Canilang's case as that law
became effective only on 1 June 1985.

On appeal by Great Pacific, the Court of Appeals reversed and set aside the decision of the Insurance
Commissioner and dismissed Thelma Canilang's complaint and Great Pacific's counterclaim. The Court
of Appealed found that the use of the word "intentionally" by the Insurance Commissioner in defining and
resolving the issue agreed upon by the parties at pre-trial before the Insurance Commissioner was not
supported by the evidence; that the issue agreed upon by the parties had been whether the deceased
insured, Jaime Canilang, made a material concealment as the state of his health at the time of the filing of
insurance application, justifying respondent's denial of the claim. The Court of Appeals also found that the
failure of Jaime Canilang to disclose previous medical consultation and treatment constituted material
information which should have been communicated to Great Pacific to enable the latter to make proper
inquiries. The Court of Appeals finally held that the Ng Gan Zee case which had involved
misrepresentation was not applicable in respect of the case at bar which involves concealment.
Petitioner Thelma Canilang is now before this Court on a Petition for Review on Certiorari alleging that:
1. . . . the Honorable Court of Appeals, speaking with due respect, erred in not holding
that the issue in the case agreed upon between the parties before the Insurance
Commission is whether or not Jaime Canilang "intentionally" made material concealment
in stating his state of health;
2. . . . at any rate, the non-disclosure of certain facts about his previous health conditions
does not amount to fraud and private respondent is deemed to have waived inquiry
thereto. 11
The medical declaration which was set out in the application for insurance executed by Jaime Canilang
read as follows:
MEDICAL DECLARATION
I hereby declare that:
(1) I have not been confined in any hospital, sanitarium or infirmary, nor receive any
medical or surgical advice/attention within the last five (5) years.
(2) I have never been treated nor consulted a physician for a heart condition, high blood
pressure, cancer, diabetes, lung, kidney, stomach disorder, or any other physical
impairment.
(3) I am, to the best of my knowledge, in good health.
EXCEPTIONS:
_______________________________________________________________________
_________
GENERAL DECLARATION
I hereby declare that all the foregoing answers and statements are complete, true and
correct. I hereby agree that if there be any fraud or misrepresentation in the above
statements material to the risk, the INSURANCE COMPANY upon discovery within two
(2) years from the effective date of insurance shall have the right to declare such

insurance null and void. That the liabilities of the Company under the said
Policy/TA/Certificate shall accrue and begin only from the date of commencement of risk
stated in the Policy/TA/Certificate, provided that the first premium is paid and the
Policy/TA/Certificate is delivered to, and accepted by me in person, when I am in actual
good health.
Signed at Manila his 4th day of August, 1992.
Illegible

Signatur
e of
Applica
nt. 12
We note that in addition to the negative statements made by Mr. Canilang in paragraph 1 and 2 of the
medical declaration, he failed to disclose in the appropriate space, under the caption "Exceptions," that
he had twice consulted Dr. Wilfredo B. Claudio who had found him to be suffering from "sinus
tachycardia" and "acute bronchitis."
The relevant statutory provisions as they stood at the time Great Pacific issued the contract of insurance
and at the time Jaime Canilang died, are set out in P.D. No. 1460, also known as the Insurance Code of
1978, which went into effect on 11 June 1978. These provisions read as follows:
Sec. 26. A neglect to communicate that which a party knows and ought to communicate,
is called a concealment.
xxx xxx xxx
Sec. 28. Each party to a contract of insurance must communicate to the other, in good
faith, all factors within his knowledge which are material to the contract and as to which
he makes no warranty, and which the other has not the means of ascertaining.
(Emphasis supplied)
Under the foregoing provisions, the information concealed must be information which the concealing
party knew and "ought to [have] communicate[d]," that is to say, information which was "material to the
contract." The test of materiality is contained in Section 31 of the Insurance Code of 1978 which reads:
Sec. 31. Materially is to be determined not by the event, but solely by the probable and
reasonable influence of the facts upon the party to whom the communication is due, in
forming his estimate of the disadvantages of the proposed contract, or in making his
inquiries. (Emphasis supplied)
"Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per minute." 13 The
symptoms of this condition include pounding in the chest and sometimes faintness and weakness of the
person affected. The following elaboration was offered by Great Pacific and set out by the Court of
Appeals in its Decision:

Sinus tachycardia is defined as sinus-initiated; heart rate faster than 100 beats per
minute. (Harrison' s Principles of Internal Medicine, 8th ed. [1978], p. 1193.) It is, among
others, a common reaction to heart disease, including myocardial infarction, and heart
failure per se. (Henry J.L. Marriot, M.D., Electrocardiography, 6th ed., [1977], p. 127.)
The medication prescribed by Dr. Claudio for treatment of Canilang's ailment on June 18,
1982, indicates the condition that said physician was trying to manage. Thus, he
prescribed Trazepam, (Philippine Index of Medical Specialties (PIMS), Vol. 14, No. 3,
Dec. 1985, p. 112) which is anti-anxiety, anti-convulsant, muscle-relaxant; and Aptin,
(Idem, p. 36) a cardiac drug, for palpitations and nervous heart. Such treatment could
have been a very material information to the insurer in determining the action to be take
on Canilang's application for life insurance coverage. 14
We agree with the Court of Appeals that the information which Jaime Canilang failed to disclose was
material to the ability of Great Pacific to estimate the probable risk he presented as a subject of life
insurance. Had Canilang disclosed his visits to his doctor, the diagnosis made and medicines prescribed
by such doctor, in the insurance application, it may be reasonably assumed that Great Pacific would have
made further inquiries and would have probably refused to issue a non-medical insurance policy or, at the
very least, required a higher premium for the same coverage. 15 The materiality of the information
withheld by Great Pacific did not depend upon the state of mind of Jaime Canilang. A man's state of mind
or subjective belief is not capable of proof in our judicial process, except through proof of external acts or
failure to act from which inferences as to his subjective belief may be reasonably drawn. Neither does
materiality depend upon the actual or physical events which ensue. Materiality relates rather to the
"probable and reasonable influence of the facts" upon the party to whom the communication should have
been made, in assessing the risk involved in making or omitting to make further inquiries and in accepting
the application for insurance; that "probable and reasonable influence of the facts" concealed must, of
course, be determined objectively, by the judge ultimately.
The insurance Great Pacific applied for was a "non-medical" insurance policy. In Saturnino v. PhilippineAmerican Life Insurance Company, 16 this Court held that:
. . . if anything, the waiver of medical examination [in a non-medical insurance contract]
renders even more material the information required of the applicant concerning previous
condition of health and diseases suffered, for such information necessarily constitutes an
important factor which the insurer takes into consideration in deciding whether to issue
the policy or not . . . . 17 (Emphasis supplied)
The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain information
to the insurer was not "intentional" in nature, for the reason that Jaime Canilang believed that he was
suffering from minor ailment like a common cold. Section 27 of the Insurance Code of 1978 as it existed
from 1974 up to 1985, that is, throughout the time range material for present purposes, provided that:
Sec. 27. A concealment entitles the injured party to rescind a contract of insurance.
The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:
Sec. 26. A concealment, whether intentional or unintentional, entitles the injured party to
rescind a contract of insurance. (Emphasis supplied)
Upon the other hand, in 1985, the Insurance Code of 1978 was amended by
B.P. Blg. 874. This subsequent statute modified Section 27 of the Insurance Code of 1978 so as to read
as follows:

Sec. 27. A concealment whether intentional or unintentional entitles the injured party to
rescind a contract of insurance. (Emphasis supplied)
The unspoken theory of the Insurance Commissioner appears to have been that by deleting the phrase
"intentional or unintentional," the Insurance Code of 1978 (prior to its amendment by B.P. Blg. 874)
intended to limit the kinds of concealment which generate a right to rescind on the part of the injured party
to "intentional concealments." This argument is not persuasive. As a simple matter of grammar, it may be
noted that "intentional" and "unintentional" cancel each other out. The net result therefore of the phrase
"whether intentional or unitentional" is precisely to leave unqualified the term "concealment." Thus,
Section 27 of the Insurance Code of 1978 is properly read as referring to "any concealment" without
regard to whether such concealment is intentional or unintentional. The phrase "whether intentional or
unintentional" was in fact superfluous. The deletion of the phrase "whether intentional or unintentional"
could not have had the effect of imposing an affirmative requirement that a concealment must be
intentional if it is to entitle the injured party to rescind a contract of insurance. The restoration in 1985 by
B.P. Blg. 874 of the phrase "whether intentional or unintentional" merely underscored the fact that all
throughout (from 1914 to 1985), the statute did not require proof that concealment must be "intentional" in
order to authorize rescission by the injured party.
In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such that the
failure to communicate must have been intentional rather than merely inadvertent. For Jaime Canilang
could not have been unaware that his heart beat would at times rise to high and alarming levels and that
he had consulted a doctor twice in the two (2) months before applying for non-medical insurance. Indeed,
the last medical consultation took place just the day before the insurance application was filed. In all
probability, Jaime Canilang went to visit his doctor precisely because of the discomfort and concern
brought about by his experiencing "sinus tachycardia."
We find it difficult to take seriously the argument that Great Pacific had waived inquiry into the
concealment by issuing the insurance policy notwithstanding Canilang's failure to set out answers to
some of the questions in the insurance application. Such failure precisely constituted concealment on the
part of Canilang. Petitioner's argument, if accepted, would obviously erase Section 27 from the Insurance
Code of 1978.
It remains only to note that the Court of Appeals finding that the parties had not agreed in the pretrial
before the Insurance Commission that the relevant issue was whether or not Jaime Canilang had
intentionally concealed material information from the insurer, was supported by the evidence of record,
i.e., the Pre-trial Order itself dated 17 October 1984 and the Minutes of the Pre-trial Conference dated 15
October 1984, which "readily shows that the word "intentional" does not appear in the statement or
definition of the issue in the said Order and Minutes." 18
WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the Court of
Appeals dated 16 October 1989 in C.A.-G.R. SP No. 08696 is hereby AFFIRMED. No pronouncement as
to the costs.
SO ORDERED.

Tan vs. CA (June 29, 1989);

Prudential Guarantee vs. Trans-Asia Shipping Lines, Inc. G.R. No. 151890, 20 June
2006;

G.R. No. 151890

June 20, 2006

PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner,


vs.
TRANS-ASIA SHIPPING LINES, INC., Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 151991

June 20, 2006

TRANS-ASIA SHIPPING LINES, INC., petitioner,


vs.
PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent.
DECISION
CHICO-NAZARIO, J:
This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner
Prudential Guarantee and Assurance, Inc. (PRUDENTIAL) in G.R. No. 151890 and Trans-Asia
Shipping Lines, Inc. (TRANS-ASIA) in G.R. No. 151991, assailing the Decision1 dated 6
November 2001 of the Court of Appeals in CA G.R. CV No. 68278, which reversed the
Judgment2 dated 6 June 2000 of the Regional Trial Court (RTC), Branch 13, Cebu City in Civil
Case No. CEB-20709. The 29 January 2002 Resolution3 of the Court of Appeals, denying
PRUDENTIALs Motion for Reconsideration and TRANS-ASIAs Partial Motion for
Reconsideration of the 6 November 2001 Decision, is likewise sought to be annulled and set
aside.
The Facts
The material antecedents as found by the court a quo and adopted by the appellate court are as
follows:
Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of
payment of premiums, defendant [PRUDENTIAL] insured M/V Asia Korea for loss/damage of
the hull and machinery arising from perils, inter alia, of fire and explosion for the sum of P40
Million, beginning [from] the period [of] July 1, 1993 up to July 1, 1994. This is evidenced by
Marine Policy No. MH93/1363 (Exhibits "A" to "A-11"). On October 25, 1993, while the policy
was in force, a fire broke out while [M/V Asia Korea was] undergoing repairs at the port of
Cebu. On October 26, 1993 plaintiff [TRANS-ASIA] filed its notice of claim for damage
sustained by the vessel. This is evidenced by a letter/formal claim of even date (Exhibit "B").

Plaintiff [TRANS-ASIA] reserved its right to subsequently notify defendant [PRUDENTIAL] as


to the full amount of the claim upon final survey and determination by average adjuster Richard
Hogg International (Phil.) of the damage sustained by reason of fire. An adjusters report on the
fire in question was submitted by Richard Hogg International together with the U-Marine
Surveyor Report (Exhibits "4" to "4-115").
On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan and
Trust receipt", a portion of which read (sic):
"Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE
MILLION ONLY (P3,000,000.00) as a loan without interest under Policy No. MH 93/1353 [sic],
repayable only in the event and to the extent that any net recovery is made by Trans-Asia
Shipping Corporation, from any person or persons, corporation or corporations, or other parties,
on account of loss by any casualty for which they may be liable occasioned by the 25 October
1993: Fire on Board." (Exhibit "4")
In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiffs claim (Exhibit "5").
The letter reads:
"After a careful review and evaluation of your claim arising from the above-captioned incident, it
has been ascertained that you are in breach of policy conditions, among them "WARRANTED
VESSEL CLASSED AND CLASS MAINTAINED". Accordingly, we regret to advise that your
claim is not compensable and hereby DENIED."
This was followed by defendants letter dated 21 July 1997 requesting the return or payment of
the P3,000,000.00 within a period of ten (10) days from receipt of the letter (Exhibit "6").4
Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint5 for Sum of
Money against PRUDENTIAL with the RTC of Cebu City, docketed as Civil Case No. CEB20709, wherein TRANS-ASIA sought the amount of P8,395,072.26 from PRUDENTIAL,
alleging that the same represents the balance of the indemnity due upon the insurance policy in
the total amount of P11,395,072.26. TRANS-ASIA similarly sought interest at 42% per annum
citing Section 2436 of Presidential Decreee No. 1460, otherwise known as the "Insurance Code,"
as amended.
In its Answer,7 PRUDENTIAL denied the material allegations of the Complaint and interposed
the defense that TRANS-ASIA breached insurance policy conditions, in particular:
"WARRANTED VESSEL CLASSED AND CLASS MAINTAINED." PRUDENTIAL further
alleged that it acted as facts and law require and incurred no liability to TRANS-ASIA; that
TRANS-ASIA has no cause of action; and, that its claim has been effectively waived and/or
abandoned, or it is estopped from pursuing the same. By way of a counterclaim, PRUDENTIAL
sought a refund of P3,000,000.00, which it allegedly advanced to TRANS-ASIA by way of a

loan without interest and without prejudice to the final evaluation of the claim, including the
amounts of P500,000.00, for survey fees and P200,000.00, representing attorneys fees.
The Ruling of the Trial Court
On 6 June 2000, the court a quo rendered Judgment8 finding for (therein defendant)
PRUDENTIAL. It ruled that a determination of the parties liabilities hinged on whether
TRANS-ASIA violated and breached the policy conditions on WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED. It interpreted the provision to mean that TRANSASIA is required to maintain the vessel at a certain class at all times pertinent during the life of
the policy. According to the court a quo, TRANS-ASIA failed to prove compliance of the terms
of the warranty, the violation thereof entitled PRUDENTIAL, the insured party, to rescind the
contract.9
Further, citing Section 10710 of the Insurance Code, the court a quo ratiocinated that the
concealment made by TRANS-ASIA that the vessel was not adequately maintained to preserve
its class was a material concealment sufficient to avoid the policy and, thus, entitled the injured
party to rescind the contract. The court a quo found merit in PRUDENTIALs contention that
there was nothing in the adjustment of the particular average submitted by the adjuster that
would show that TRANS-ASIA was not in breach of the policy. Ruling on the denominated loan
and trust receipt, the court a quo said that in substance and in form, the same is a receipt for a
loan. It held that if TRANS-ASIA intended to receive the amount of P3,000,000.00 as advance
payment, it should have so clearly stated as such.
The court a quo did not award PRUDENTIALs claim for P500,000.00, representing expert
survey fees on the ground of lack of sufficient basis in support thereof. Neither did it award
attorneys fees on the rationalization that the instant case does not fall under the exceptions stated
in Article 220811 of the Civil Code. However, the court a quo granted PRUDENTIALs
counterclaim stating that there is factual and legal basis for TRANS-ASIA to return the amount
of P3,000,000.00 by way of loan without interest.
The decretal portion of the Judgment of the RTC reads:
WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to prove
a cause of action.
On defendants counterclaim, plaintiff is directed to return the sum of P3,000,000.00
representing the loan extended to it by the defendant, within a period of ten (10) days from and
after this judgment shall have become final and executory.12
The Ruling of the Court of Appeals
On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 November 2001,
reversed the 6 June 2000 Judgment of the RTC.

On the issue of TRANS-ASIAs alleged breach of warranty of the policy condition CLASSED
AND CLASS MAINTAINED, the Court of Appeals ruled that PRUDENTIAL, as the party
asserting the non-compensability of the loss had the burden of proof to show that TRANS-ASIA
breached the warranty, which burden it failed to discharge. PRUDENTIAL cannot rely on the
lack of certification to the effect that TRANS-ASIA was CLASSED AND CLASS
MAINTAINED as its sole basis for reaching the conclusion that the warranty was breached. The
Court of Appeals opined that the lack of a certification does not necessarily mean that the
warranty was breached by TRANS-ASIA. Instead, the Court of Appeals considered
PRUDENTIALs admission that at the time the insurance contract was entered into between the
parties, the vessel was properly classed by Bureau Veritas, a classification society recognized by
the industry. The Court of Appeals similarly gave weight to the fact that it was the responsibility
of Richards Hogg International (Phils.) Inc., the average adjuster hired by PRUDENTIAL, to
secure a copy of such certification to support its conclusion that mere absence of a certification
does not warrant denial of TRANS-ASIAs claim under the insurance policy.
In the same token, the Court of Appeals found the subject warranty allegedly breached by
TRANS-ASIA to be a rider which, while contained in the policy, was inserted by PRUDENTIAL
without the intervention of TRANS-ASIA. As such, it partakes of a nature of a contract
dadhesion which should be construed against PRUDENTIAL, the party which drafted the
contract. Likewise, according to the Court of Appeals, PRUDENTIALs renewal of the insurance
policy from noon of 1 July 1994 to noon of 1 July 1995, and then again, until noon of 1 July
1996 must be deemed a waiver by PRUDENTIAL of any breach of warranty committed by
TRANS-ASIA.
Further, the Court of Appeals, contrary to the ruling of the court a quo, interpreted the transaction
between PRUDENTIAL and TRANS-ASIA as one of subrogation, instead of a loan. The Court
of Appeals concluded that TRANS-ASIA has no obligation to pay back the amount of
P3,000.000.00 to PRUDENTIAL based on its finding that the aforesaid amount was
PRUDENTIALs partial payment to TRANS-ASIAs claim under the policy. Finally, the Court of
Appeals denied TRANS-ASIAs prayer for attorneys fees, but held TRANS-ASIA entitled to
double interest on the policy for the duration of the delay of payment of the unpaid balance,
citing Section 24413 of the Insurance Code.
Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wise:
WHEREFORE, the foregoing consideration, We find for Appellant. The instant appeal is
ALLOWED and the Judgment appealed from REVERSED. The P3,000,000.00 initially paid by
appellee Prudential Guarantee Assurance Incorporated to appellant Trans-Asia and covered by a
"Loan and Trust Receipt" dated 29 May 1995 is HELD to be in partial settlement of the loss
suffered by appellant and covered by Marine Policy No. MH93/1363 issued by appellee. Further,
appellee is hereby ORDERED to pay appellant the additional amount of P8,395,072.26
representing the balance of the loss suffered by the latter as recommended by the average
adjuster Richard Hogg International (Philippines) in its Report, with double interest starting from

the time Richard Hoggs Survey Report was completed, or on 13 August 1996, until the same is
fully paid.
All other claims and counterclaims are hereby DISMISSED.
All costs against appellee.14
Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for
Reconsideration and Partial Motion for Reconsideration thereon, respectively, which motions
were denied by the Court of Appeals in the Resolution dated 29 January 2002.
The Issues
Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No.
151890, relying on the following grounds, viz:
I.
THE AWARD IS GROSSLY UNCONSCIONABLE.
II.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO VIOLATION BY
TRANS-ASIA OF A MATERIAL WARRANTY, NAMELY, WARRANTY CLAUSE NO. 5, OF
THE INSURANCE POLICY.
III.
THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS INSURER
HAD THE BURDEN OF PROVING THAT THE ASSURED, TRANS-ASIA, VIOLATED A
MATERIAL WARRANTY.
IV.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE
EMBODIED IN THE INSURANCE POLICY CONTRACT WAS A MERE RIDER.
V.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS OF
THE POLICY CONSTITUTED A WAIVER ON THE PART OF PRUDENTIAL OF THE
BREACH OF THE WARRANTY BY TRANS-ASIA.
VI.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST
RECEIPT" EXECUTED BY TRANS-ASIA IS AN ADVANCE ON THE POLICY, THUS
CONSTITUTING PARTIAL PAYMENT THEREOF.
VII.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY
PRUDENTIAL OF THE FINDINGS OF RICHARDS HOGG IS INDICATIVE OF A WAIVER
ON THE PART OF PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE
WARRANTY.
VIII.
THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN
FINDING THAT PRUDENTIAL "UNJUSTIFIABLY REFUSED" TO PAY THE CLAIM AND
IN ORDERING PRUDENTIAL TO PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE
INTEREST FROM 13 AUGUST 1996, UNTIL [THE] SAME IS FULLY PAID.15
Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for
Review docketed as G.R. No. 151991, raising the following grounds for the allowance of the
petition, to wit:
I.
THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ATTORNEYS
FEES TO PETITIONER TRANS-ASIA ON THE GROUND THAT SUCH CAN ONLY BE
AWARDED IN THE CASES ENUMERATED IN ARTICLE 2208 OF THE CIVIL CODE, AND
THERE BEING NO BAD FAITH ON THE PART OF RESPONDENT PRUDENTIAL IN
DENYING HEREIN PETITIONER TRANS-ASIAS INSURANCE CLAIM.
II.
THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06 NOVEMBER
2001 SHOULD BE CONSTRUED TO MEAN DOUBLE INTEREST BASED ON THE LEGAL
INTEREST OF 12%, OR INTEREST AT THE RATE OF 24% PER ANNUM.16
In our Resolution of 2 December 2002, we granted TRANS-ASIAs Motion for Consolidation17
of G.R. Nos. 151890 and 151991;18 hence, the instant consolidated petitions.
In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANS-ASIA
arising from the subject insurance contract; (2) the liability, if any, of TRANS-ASIA to
PRUDENTIAL arising from the transaction between the parties as evidenced by a document
denominated as "Loan and Trust Receipt," dated 29 May 1995; and (3) the amount of interest to
be imposed on the liability, if any, of either or both parties.

Ruling of the Court


Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not
questions of fact, may be raised.19 This rule may be disregarded only when the findings of fact of
the Court of Appeals are contrary to the findings and conclusions of the trial court, or are not
supported by the evidence on record.20 In the case at bar, we find an incongruence between the
findings of fact of the Court of Appeals and the court a quo, thus, in our determination of the
issues, we are constrained to assess the evidence adduced by the parties to make appropriate
findings of facts as are necessary.
I.
A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy
condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, as
contained in the subject insurance contract.
In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an
express and material warranty in the subject insurance contract, i.e., Marine Insurance Policy No.
MH93/1363, specifically Warranty Clause No. 5 thereof, which stipulates that the insured vessel,
"M/V ASIA KOREA" is required to be CLASSED AND CLASS MAINTAINED. According to
PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA
KOREA" was in violation of the warranty as it was not CLASSED AND CLASS
MAINTAINED. PRUDENTIAL submits that Warranty Clause No. 5 was a condition precedent
to the recovery of TRANS-ASIA under the policy, the violation of which entitled PRUDENTIAL
to rescind the contract under Sec. 7421 of the Insurance Code.
The warranty condition CLASSED AND CLASS MAINTAINED was explained by
PRUDENTIALs Senior Manager of the Marine and Aviation Division, Lucio Fernandez. The
pertinent portions of his testimony on direct examination is reproduced hereunder, viz:
ATTY. LIM
Q Please tell the court, Mr. Witness, the result of the evaluation of this claim, what final action
was taken?
A It was eventually determined that there was a breach of the policy condition, and basically
there is a breach of policy warranty condition and on that basis the claim was denied.
Q To refer you (sic) the "policy warranty condition," I am showing to you a policy here marked
as Exhibits "1", "1-A" series, please point to the warranty in the policy which you said was
breached or violated by the plaintiff which constituted your basis for denying the claim as you
testified.
A Warranted Vessel Classed and Class Maintained.

ATTY. LIM
Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is the second page of the
policy below the printed words: "Clauses, Endorsements, Special Conditions and Warranties,"
below this are several typewritten clauses and the witness pointed out in particular the clause
reading: "Warranted Vessel Classed and Class Maintained."
COURT
Q Will you explain that particular phrase?
A Yes, a warranty is a condition that has to be complied with by the insured. When we say a class
warranty, it must be entered in the classification society.
COURT
Slowly.
WITNESS
(continued)
A A classification society is an organization which sets certain standards for a vessel to maintain
in order to maintain their membership in the classification society. So, if they failed to meet that
standard, they are considered not members of that class, and thus breaching the warranty, that
requires them to maintain membership or to maintain their class on that classification society.
And it is not sufficient that the member of this classification society at the time of a loss, their
membership must be continuous for the whole length of the policy such that during the
effectivity of the policy, their classification is suspended, and then thereafter, they get reinstated,
that again still a breach of the warranty that they maintained their class (sic). Our maintaining
team membership in the classification society thereby maintaining the standards of the vessel
(sic).
ATTY. LIM
Q Can you mention some classification societies that you know?
A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classification
Society, The Philippine Registration of Ships Society, China Classification, NKK and Company
Classification Society, and many others, we have among others, there are over 20 worldwide. 22
At the outset, it must be emphasized that the party which alleges a fact as a matter of defense has
the burden of proving it. PRUDENTIAL, as the party which asserted the claim that TRANSASIA breached the warranty in the policy, has the burden of evidence to establish the same.

Hence, on the part of PRUDENTIAL lies the initiative to show proof in support of its defense;
otherwise, failing to establish the same, it remains self-serving. Clearly, if no evidence on the
alleged breach of TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA
would be successful in claiming on the policy. It follows that PRUDENTIAL bears the burden of
evidence to establish the fact of breach.
In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of
proof to show proof of loss, and the coverage thereof, in the subject insurance policy. However,
in the course of trial in a civil case, once plaintiff makes out a prima facie case in his favor, the
duty or the burden of evidence shifts to defendant to controvert plaintiffs prima facie case,
otherwise, a verdict must be returned in favor of plaintiff.23 TRANS-ASIA was able to establish
proof of loss and the coverage of the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the
burden of evidence shifted to PRUDENTIAL to counter TRANS-ASIAs case, and to prove its
special and affirmative defense that TRANS-ASIA was in violation of the particular condition on
CLASSED AND CLASS MAINTAINED.
We sustain the findings of the Court of Appeals that PRUDENTIAL was not successful in
discharging the burden of evidence that TRANS-ASIA breached the subject policy condition on
CLASSED AND CLASS MAINTAINED.
Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division,
Lucio Fernandez, made a categorical admission that at the time of the procurement of the
insurance contract in July 1993, TRANS-ASIAs vessel, "M/V Asia Korea" was properly classed
by Bureau Veritas, thus:
Q Kindly examine the records particularly the policy, please tell us if you know whether M/V
Asia Korea was classed at the time (sic) policy was procured perthe (sic) insurance was procured
that Exhibit "1" on 1st July 1993 (sic).
WITNESS
A I recall that they were classed.
ATTY. LIM
Q With what classification society?
A I believe with Bureau Veritas.24
As found by the Court of Appeals and as supported by the records, Bureau Veritas is a
classification society recognized in the marine industry. As it is undisputed that TRANS-ASIA
was properly classed at the time the contract of insurance was entered into, thus, it becomes
incumbent upon PRUDENTIAL to show evidence that the status of TRANS-ASIA as being

properly CLASSED by Bureau Veritas had shifted in violation of the warranty. Unfortunately,
PRUDENTIAL failed to support the allegation.
We are in accord with the ruling of the Court of Appeals that the lack of a certification in
PRUDENTIALs records to the effect that TRANS-ASIAs "M/V Asia Korea" was CLASSED
AND CLASS MAINTAINED at the time of the occurrence of the fire cannot be tantamount to
the conclusion that TRANS-ASIA in fact breached the warranty contained in the policy. With
more reason must we sustain the findings of the Court of Appeals on the ground that as admitted
by PRUDENTIAL, it was likewise the responsibility of the average adjuster, Richards Hogg
International (Phils.), Inc., to secure a copy of such certification, and the alleged breach of
TRANS-ASIA cannot be gleaned from the average adjusters survey report, or adjustment of
particular average per "M/V Asia Korea" of the 25 October 1993 fire on board.
We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides
that, "the violation of a material warranty, or other material provision of a policy on the part of
either party thereto, entitles the other to rescind." It is generally accepted that "[a] warranty is a
statement or promise set forth in the policy, or by reference incorporated therein, the untruth or
non-fulfillment of which in any respect, and without reference to whether the insurer was in fact
prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer."25
However, it is similarly indubitable that for the breach of a warranty to avoid a policy, the same
must be duly shown by the party alleging the same. We cannot sustain an allegation that is
unfounded. Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the
warranty condition, CLASSED AND CLASS MAINTAINED, it remains that TRANS-ASIA
must be allowed to recover its rightful claims on the policy.
B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED
VESSEL CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the
same.
The Court of Appeals, in reversing the Judgment of the RTC which held that TRANS-ASIA
breached the warranty provision on CLASSED AND CLASS MAINTAINED, underscored that
PRUDENTIAL can be deemed to have made a valid waiver of TRANS-ASIAs breach of
warranty as alleged, ratiocinating, thus:
Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2)
consecutive years, from noon of 01 July 1994 to noon of 01 July 1995, and then again until noon
of 01 July 1996. This renewal is deemed a waiver of any breach of warranty.26
PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal
policies are deemed a waiver of TRANS-ASIAs alleged breach, averring herein that the
subsequent policies, designated as MH94/1595 and MH95/1788 show that they were issued only
on 1 July 1994 and 3 July 1995, respectively, prior to the time it made a request to TRANS-ASIA
that it be furnished a copy of the certification specifying that the insured vessel "M/V Asia

Korea" was CLASSED AND CLASS MAINTAINED. PRUDENTIAL posits that it came to
know of the breach by TRANS-ASIA of the subject warranty clause only on 21 April 1997. On
even date, PRUDENTIAL sent TRANS-ASIA a letter of denial, advising the latter that their
claim is not compensable. In fine, PRUDENTIAL would have this Court believe that the
issuance of the renewal policies cannot be a waiver because they were issued without knowledge
of the alleged breach of warranty committed by TRANS-ASIA.27
We are not impressed. We do not find that the Court of Appeals was in error when it held that
PRUDENTIAL, in renewing TRANS-ASIAs insurance policy for two consecutive years after
the loss covered by Policy No. MH93/1363, was considered to have waived TRANS-ASIAs
breach of the subject warranty, if any. Breach of a warranty or of a condition renders the contract
defeasible at the option of the insurer; but if he so elects, he may waive his privilege and power
to rescind by the mere expression of an intention so to do. In that event his liability under the
policy continues as before.28 There can be no clearer intention of the waiver of the alleged breach
than the renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in
MH94/1595 and MH95/1788, issued in the years 1994 and 1995, respectively.
To our mind, the argument is made even more credulous by PRUDENTIALs lack of proof to
support its allegation that the renewals of the policies were taken only after a request was made
to TRANS-ASIA to furnish them a copy of the certificate attesting that "M/V Asia Korea" was
CLASSED AND CLASS MAINTAINED. Notwithstanding PRUDENTIALs claim that no
certification was issued to that effect, it renewed the policy, thereby, evidencing an intention to
waive TRANS-ASIAs alleged breach. Clearly, by granting the renewal policies twice and
successively after the loss, the intent was to benefit the insured, TRANS-ASIA, as well as to
waive compliance of the warranty.
The foregoing finding renders a determination of whether the subject warranty is a rider, moot,
as raised by the PRUDENTIAL in its assignment of errors. Whether it is a rider will not
effectively alter the result for the reasons that: (1) PRUDENTIAL was not able to discharge the
burden of evidence to show that TRANS-ASIA committed a breach, thereof; and (2) assuming
arguendo the commission of a breach by TRANS-ASIA, the same was shown to have been
waived by PRUDENTIAL.
II.
A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS- ASIA via a transaction
between the parties evidenced by a document denominated as "Loan and Trust Receipt," dated 29
May 1995 constituted partial payment on the policy.
It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,000.00.
The same was evidenced by a transaction receipt denominated as a "Loan and Trust Receipt,"
dated 29 May 1995, reproduced hereunder:

LOAN AND TRUST RECEIPT


Claim File No. MH-93-025
P3,000,000.00
Check No. PCIB066755

May 29, 1995

Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the sum of PESOS
THREE MILLION ONLY (P3,000,000.00) as a loan without interest, under Policy No.
MH93/1353, repayable only in the event and to the extent that any net recovery is made by
TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporations, or
other parties, on account of loss by any casualty for which they may be liable, occasioned by the
25 October 1993: Fire on Board.
As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND
ASSURANCE INC. whatever recovery we may make and deliver to it all documents necessary
to prove our interest in said property. We also hereby agree to promptly prosecute suit against
such persons, corporation or corporations through whose negligence the aforesaid loss was
caused or who may otherwise be responsible therefore, with all due diligence, in our own name,
but at the expense of and under the exclusive direction and control of PRUDENTIAL
GUARANTEE AND ASSURANCE INC.
TRANS-ASIA SHIPPING CORPORATION29
PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the parties
evidenced a loan of P3,000,000.00 which it granted to TRANS-ASIA, and not an advance
payment on the policy or a partial payment for the loss. It further submits that it is a customary
practice for insurance companies in this country to extend loans gratuitously as part of good
business dealing with their assured, in order to afford their assured the chance to continue
business without embarrassment while awaiting outcome of the settlement of their claims.30
According to PRUDENTIAL, the "Trust and Loan Agreement" did not subrogate to it whatever
rights and/or actions TRANS-ASIA may have against third persons, and it cannot by no means
be taken that by virtue thereof, PRUDENTIAL was granted irrevocable power of attorney by
TRANS-ASIA, as the sole power to prosecute lies solely with the latter.
The Court of Appeals held that the real character of the transaction between the parties as
evidenced by the "Loan and Trust Receipt" is that of an advance payment by PRUDENTIAL of
TRANS-ASIAs claim on the insurance, thus:
The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insurance Law
Act No. 2427 of the Philippine Legislature during the American Regime. The Insurance Act was
lifted verbatim from the law of California, except Chapter V thereof, which was taken largely
from the insurance law of New York. Therefore, ruling case law in that jurisdiction is to Us
persuasive in interpreting provisions of our own Insurance Code. In addition, the application of

the adopted statute should correspond in fundamental points with the application in its country of
origin x x x.
xxxx
Likewise, it is settled in that jurisdiction that the (sic) notwithstanding recitals in the Loan
Receipt that the money was intended as a loan does not detract from its real character as payment
of claim, thus:
"The receipt of money by the insured employers from a surety company for losses on account of
forgery of drafts by an employee where no provision or repayment of the money was made
except upon condition that it be recovered from other parties and neither interest nor security for
the asserted debts was provided for, the money constituted the payment of a liability and not a
mere loan, notwithstanding recitals in the written receipt that the money was intended as a mere
loan."
What is clear from the wordings of the so-called "Loan and Trust Receipt Agreement" is that
appellant is obligated to hand over to appellee "whatever recovery (Trans Asia) may make and
deliver to (Prudential) all documents necessary to prove its interest in the said property." For all
intents and purposes therefore, the money receipted is payment under the policy, with Prudential
having the right of subrogation to whatever net recovery Trans-Asia may obtain from third
parties resulting from the fire. In the law on insurance, subrogation is an equitable assignment to
the insurer of all remedies which the insured may have against third person whose negligence or
wrongful act caused the loss covered by the insurance policy, which is created as the legal effect
of payment by the insurer as an assignee in equity. The loss in the first instance is that of the
insured but after reimbursement or compensation, it becomes the loss of the insurer. It has been
referred to as the doctrine of substitution and rests on the principle that substantial justice should
be attained regardless of form, that is, its basis is the doing of complete, essential, and perfect
justice between all the parties without regard to form.31
We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Receipt" evidences
that the real nature of the transaction between the parties was that the amount of P3,000,000.00
was not intended as a loan whereby TRANS-ASIA is obligated to pay PRUDENTIAL, but
rather, the same was a partial payment or an advance on the policy of the claims due to TRANSASIA.
First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by
PRUDENTIAL, subrogating the former to the extent of "any net recovery made by TRANS
ASIA SHIPPING CORP., from any person or persons, corporation or corporations, or other
parties, on account of loss by any casualty for which they may be liable, occasioned by the 25
October 1993: Fire on Board."32

Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to
"promptly prosecute suit against such persons, corporation or corporations through whose
negligence the aforesaid loss was caused or who may otherwise be responsible therefore, with all
due diligence" in its name, the prosecution of the claims against such third persons are to be
carried on "at the expense of and under the exclusive direction and control of PRUDENTIAL
GUARANTEE AND ASSURANCE INC."33 The clear import of the phrase "at the expense of
and under the exclusive direction and control" as used in the "Loan and Trust Receipt" grants
solely to PRUDENTIAL the power to prosecute, even as the same is carried in the name of
TRANS-ASIA, thereby making TRANS-ASIA merely an agent of PRUDENTIAL, the principal,
in the prosecution of the suit against parties who may have occasioned the loss.
Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay
PRUDENTIAL is highly speculative and contingent, i.e., only in the event and to the extent that
any net recovery is made by TRANS-ASIA from any person on account of loss occasioned by
the fire of 25 October 1993. The transaction, therefore, was made to benefit TRANS-ASIA, such
that, if no recovery from third parties is made, PRUDENTIAL cannot be repaid the amount.
Verily, we do not think that this is constitutive of a loan.34 The liberality in the tenor of the "Loan
and Trust Receipt" in favor of TRANS-ASIA leads to the conclusion that the amount of
P3,000,000.00 was a form of an advance payment on TRANS-ASIAs claim on MH93/1353.
III.
A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, representing
the balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No.
MH93/1363.
Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid
claims covered by Marine Policy No. MH93/1363, or a total amount of P8,395,072.26.
B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of attorneys
fees equivalent to 10% of P8,395,072.26.
The Court of Appeals denied the grant of attorneys fees. It held that attorneys fees cannot be
awarded absent a showing of bad faith on the part of PRUDENTIAL in rejecting TRANS-ASIAs
claim, notwithstanding that the rejection was erroneous. According to the Court of Appeals,
attorneys fees can be awarded only in the cases enumerated in Article 2208 of the Civil Code
which finds no application in the instant case.
We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorneys fees and
other expenses incurred by the insured after a finding by the Insurance Commissioner or the
Court, as the case may be, of an unreasonable denial or withholding of the payment of the claims
due. Moreover, the law imposes an interest of twice the ceiling prescribed by the Monetary
Board on the amount of the claim due the insured from the date following the time prescribed in

Section 24235 or in Section 243,36 as the case may be, until the claim is fully satisfied. Finally,
Section 244 considers the failure to pay the claims within the time prescribed in Sections 242 or
243, when applicable, as prima facie evidence of unreasonable delay in payment.
To the mind of this Court, Section 244 does not require a showing of bad faith in order that
attorneys fees be granted. As earlier stated, under Section 244, a prima facie evidence of
unreasonable delay in payment of the claim is created by failure of the insurer to pay the claim
within the time fixed in both Sections 242 and 243 of the Insurance Code. As established in
Section 244, by reason of the delay and the consequent filing of the suit by the insured, the
insurers shall be adjudged to pay damages which shall consist of attorneys fees and other
expenses incurred by the insured.37
Section 244 reads:
In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the
duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the
payment of the claim of the insured has been unreasonably denied or withheld; and in the
affirmative case, the insurance company shall be adjudged to pay damages which shall consist of
attorneys fees and other expenses incurred by the insured person by reason of such unreasonable
denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary
Board of the amount of the claim due the insured, from the date following the time prescribed in
section two hundred forty-two or in section two hundred forty-three, as the case may be, until the
claim is fully satisfied; Provided, That the failure to pay any such claim within the time
prescribed in said sections shall be considered prima facie evidence of unreasonable delay in
payment.
Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay or
refusal in the payment of the insurance claims.
In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show
that there was an unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of
P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day after the occurrence of the fire in
"M/V Asia Korea", TRANS-ASIA filed its notice of claim. On 13 August 1996, the adjuster,
Richards Hogg International (Phils.), Inc., completed its survey report recommending the amount
of P11,395,072.26 as the total indemnity due to TRANS-ASIA.38 On 21 April 1997,
PRUDENTIAL, in a letter39 addressed to TRANS-ASIA denied the latters claim for the amount
of P8,395,072.26 representing the balance of the total indemnity. On 21 July 1997,
PRUDENTIAL sent a second letter40 to TRANS-ASIA seeking a return of the amount of
P3,000,000.00. On 13 August 1997, TRANS-ASIA was constrained to file a complaint for sum
of money against PRUDENTIAL praying, inter alia, for the sum of P8,395,072.26 representing
the balance of the proceeds of the insurance claim.

As can be gleaned from the foregoing, there was an unreasonable delay on the part of
PRUDENTIAL to pay TRANS-ASIA, as in fact, it refuted the latters right to the insurance
claims, from the time proof of loss was shown and the ascertainment of the loss was made by the
insurance adjuster. Evidently, PRUDENTIALs unreasonable delay in satisfying TRANS-ASIAs
unpaid claims compelled the latter to file a suit for collection.
Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of the policy as
attorneys fees to TRANS-ASIA is reasonable under the circumstances, or otherwise stated, ten
percent (10%) of P8,395,072.26. In the case of Cathay Insurance, Co., Inc. v. Court of Appeals,41
where a finding of an unreasonable delay under Section 244 of the Insurance Code was made by
this Court, we grant an award of attorneys fees equivalent to ten percent (10%) of the total
proceeds. We find no reason to deviate from this judicial precedent in the case at bar.
C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorneys fees) shall be
imposed double interest in accordance with Section 244 of the Insurance Code.
Section 244 of the Insurance Code is categorical in imposing an interest twice the ceiling
prescribed by the Monetary Board due the insured, from the date following the time prescribed in
Section 242 or in Section 243, as the case may be, until the claim is fully satisfied. In the case at
bar, we find Section 243 to be applicable as what is involved herein is a marine insurance,
clearly, a policy other than life insurance.
Section 243 is hereunder reproduced:
SEC. 243. The amount of any loss or damage for which an insurer may be liable, under any
policy other than life insurance policy, shall be paid within thirty days after proof of loss is
received by the insurer and ascertainment of the loss or damage is made either by agreement
between the insured and the insurer or by arbitration; but if such ascertainment is not had or
made within sixty days after such receipt by the insurer of the proof of loss, then the loss or
damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or
damage within the time prescribed herein will entitle the assured to collect interest on the
proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by
the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is
fraudulent.
As specified, the assured is entitled to interest on the proceeds for the duration of the delay at the
rate of twice the ceiling prescribed by the Monetary Board except when the failure or refusal of
the insurer to pay was founded on the ground that the claim is fraudulent.
D. The term "double interest" as used in the Decision of the Court of Appeals must be interpreted
to mean 24% per annum.
PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in favor of
TRANS-ASIA in the assailed Decision of 6 November 2001. It is PRUDENTIALs stance that

the award is extortionate and grossly unsconscionable. In support thereto, PRUDENTIAL makes
a reference to TRANS-ASIAs prayer in the Complaint filed with the court a quo wherein the
latter sought, "interest double the prevailing rate of interest of 21% per annum now obtaining in
the banking business or plus 42% per annum pursuant to Article 243 of the Insurance Code x x
x."42
The contention fails to persuade. It is settled that an award of double interest is lawful and
justified under Sections 243 and 244 of the Insurance Code.43 In Finman General Assurance
Corporation v. Court of Appeals,44 this Court held that the payment of 24% interest per annum is
authorized by the Insurance Code.45 There is no gainsaying that the term "double interest" as
used in Sections 243 and 244 can only be interpreted to mean twice 12% per annum or 24% per
annum interest, thus:
The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of twelve
per centum per annum (12%) as prescribed by the Monetary Board in C.B. Circular No. 416,
pursuant to P.D. No. 116, amending the Usury Law; so that when Sections 242, 243 and 244 of
the Insurance Code provide that the insurer shall be liable to pay interest "twice the ceiling
prescribed by the Monetary Board", it means twice 12% per annum or 24% per annum interest
on the proceeds of the insurance.46
E. The payment of double interest should be counted from 13 September 1996.
The Court of Appeals, in imposing double interest for the duration of the delay of the payment of
the unpaid balance due TRANS-ASIA, computed the same from 13 August 1996 until such time
when the amount is fully paid. Although not raised by the parties, we find the computation of the
duration of the delay made by the appellate court to be patently erroneous.
To be sure, Section 243 imposes interest on the proceeds of the policy for the duration of the
delay at the rate of twice the ceiling prescribed by the Monetary Board. Significantly, Section
243 mandates the payment of any loss or damage for which an insurer may be liable, under any
policy other than life insurance policy, within thirty days after proof of loss is received by the
insurer and ascertainment of the loss or damage is made either by agreement between the insured
and the insurer or by arbitration. It is clear that under Section 243, the insurer has until the 30th
day after proof of loss and ascertainment of the loss or damage to pay its liability under the
insurance, and only after such time can the insurer be held to be in delay, thereby necessitating
the imposition of double interest.
In the case at bar, it was not disputed that the survey report on the ascertainment of the loss was
completed by the adjuster, Richard Hoggs International (Phils.), Inc. on 13 August 1996.
PRUDENTIAL had thirty days from 13 August 1996 within which to pay its liability to TRANSASIA under the insurance policy, or until 13 September 1996. Therefore, the double interest can
begin to run from 13 September 1996 only.

IV.
A. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability
adjudged in section III herein, computed from the time of finality of judgment until the full
satisfaction thereof in conformity with this Courts ruling in Eastern Shipping Lines, Inc. v.
Court of Appeals.
This Court in Eastern Shipping Lines, Inc. v. Court of Appeals,47 inscribed the rule of thumb48 in
the application of interest to be imposed on obligations, regardless of their source. Eastern
emphasized beyond cavil that when the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, regardless of whether the obligation
involves a loan or forbearance of money, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance49 of
credit.
We find application of the rule in the case at bar proper, thus, a rate of 12% per annum from the
finality of judgment until the full satisfaction thereof must be imposed on the total amount of
liability adjudged to PRUDENTIAL. It is clear that the interim period from the finality of
judgment until the satisfaction of the same is deemed equivalent to a forbearance of credit,
hence, the imposition of the aforesaid interest.
Fallo
WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G.R. No.
151991 is GRANTED, thus, we award the grant of attorneys fees and make a clarification that
the term "double interest" as used in the 6 November 2001 Decision of the Court of Appeals in
CA GR CV No. 68278 should be construed to mean interest at the rate of 24% per annum, with a
further clarification, that the same should be computed from 13 September 1996 until fully paid.
The Decision and Resolution of the Court of Appeals, in CA-G.R. CV No. 68278, dated 6
November 2001 and 29 January 2002, respectively, are, thus, MODIFIED in the following
manner, to wit:
1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26,
representing the balance of the loss suffered by TRANS-ASIA and covered by Marine
Policy No. MH93/1363;
2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the form of
attorneys fees equivalent to 10% of the amount of P8,395,072.26;
3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorneys fees) shall be
imposed double interest at the rate of 24% per annum to be computed from 13 September
1996 until fully paid; and

4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability
adjudged as abovestated in paragraphs (1), (2), and (3) herein, computed from the time of
finality of judgment until the full satisfaction thereof.
No costs.
SO ORDERED.

Lourdes v. Philam Plans, G.R. No. 186983, February 22, 2012

G.R. No. 186983

February 22, 2012

MA. LOURDES S. FLORENDO, Petitioner,


vs.
PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE ABCEDE, Respondents.
DECISION
ABAD, J.:
This case is about an insureds alleged concealment in his pension plan application of his true
state of health and its effect on the life insurance portion of that plan in case of death.
The Facts and the Case
On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with
respondent Philam Plans, Inc. (Philam Plans) after some convincing by respondent Perla Abcede.
The plan had a pre-need price of P997,050.00, payable in 10 years, and had a maturity value of
P2,890,000.00 after 20 years.1 Manuel signed the application and left to Perla the task of
supplying the information needed in the application.2 Respondent Ma. Celeste Abcede, Perlas
daughter, signed the application as sales counselor.3
Aside from pension benefits, the comprehensive pension plan also provided life insurance
coverage to Florendo.4 This was covered by a Group Master Policy that Philippine American
Life Insurance Company (Philam Life) issued to Philam Plans.5 Under the master policy, Philam
Life was to automatically provide life insurance coverage, including accidental death, to all who
signed up for Philam Plans comprehensive pension plan.6 If the plan holder died before the
maturity of the plan, his beneficiary was to instead receive the proceeds of the life insurance,
equivalent to the pre-need price. Further, the life insurance was to take care of any unpaid
premium until the pension plan matured, entitling the beneficiary to the maturity value of the
pension plan.7
On October 30, 1997 Philam Plans issued Pension Plan Agreement PP430055848 to Manuel,
with petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his
quarterly premiums.9
Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently,
Lourdes filed a claim with Philam Plans for the payment of the benefits under her husbands
plan.10 Because Manuel died before his pension plan matured and his wife was to get only the
benefits of his life insurance, Philam Plans forwarded her claim to Philam Life.11

On May 3, 1999 Philam Plans wrote Lourdes a letter,12 declining her claim. Philam Life found
that Manuel was on maintenance medicine for his heart and had an implanted pacemaker.
Further, he suffered from diabetes mellitus and was taking insulin. Lourdes renewed her demand
for payment under the plan13 but Philam Plans rejected it,14 prompting her to file the present
action against the pension plan company before the Regional Trial Court (RTC) of Quezon
City.15
On March 30, 2006 the RTC rendered judgment,16 ordering Philam Plans, Perla and Ma. Celeste,
solidarily, to pay Lourdes all the benefits from her husbands pension plan, namely: P997,050.00,
the proceeds of his term insurance, and P2,890,000.00 lump sum pension benefit upon maturity
of his plan; P100,000.00 as moral damages; and to pay the costs of the suit. The RTC ruled that
Manuel was not guilty of concealing the state of his health from his pension plan application.
On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision,17 holding that
insurance policies are traditionally contracts uberrimae fidae or contracts of utmost good faith.
As such, it required Manuel to disclose to Philam Plans conditions affecting the risk of which he
was aware or material facts that he knew or ought to know.18
Issues Presented
The issues presented in this case are:
1. Whether or not the CA erred in finding Manuel guilty of concealing his illness when he
kept blank and did not answer questions in his pension plan application regarding the
ailments he suffered from;
2. Whether or not the CA erred in holding that Manuel was bound by the failure of
respondents Perla and Ma. Celeste to declare the condition of Manuels health in the
pension plan application; and
3. Whether or not the CA erred in finding that Philam Plans approval of Manuels
pension plan application and acceptance of his premium payments precluded it from
denying Lourdes claim.
Rulings of the Court
One. Lourdes points out that, seeing the unfilled spaces in Manuels pension plan application
relating to his medical history, Philam Plans should have returned it to him for completion. Since
Philam Plans chose to approve the application just as it was, it cannot cry concealment on
Manuels part. Further, Lourdes adds that Philam Plans never queried Manuel directly regarding
the state of his health. Consequently, it could not blame him for not mentioning it.19
But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the
true state of Manuels health. She forgets that since Philam Plans waived medical examination

for Manuel, it had to rely largely on his stating the truth regarding his health in his application.
For, after all, he knew more than anyone that he had been under treatment for heart condition and
diabetes for more than five years preceding his submission of that application. But he kept those
crucial facts from Philam Plans.
Besides, when Manuel signed the pension plan application, he adopted as his own the written
representations and declarations embodied in it. It is clear from these representations that he
concealed his chronic heart ailment and diabetes from Philam Plans. The pertinent portion of his
representations and declarations read as follows:
I hereby represent and declare to the best of my knowledge that:
xxxx
(c) I have never been treated for heart condition, high blood pressure, cancer, diabetes,
lung, kidney or stomach disorder or any other physical impairment in the last five years.
(d) I am in good health and physical condition.
If your answer to any of the statements above reveal otherwise, please give details in the space
provided for:
Date of confinement : ____________________________
Name of Hospital or Clinic : ____________________________
Name of Attending Physician : ____________________________
Findings : ____________________________
Others: (Please specify) : ____________________________
x x x x.20 (Emphasis supplied)
Since Manuel signed the application without filling in the details regarding his continuing
treatments for heart condition and diabetes, the assumption is that he has never been treated for
the said illnesses in the last five years preceding his application. This is implicit from the phrase
"If your answer to any of the statements above (specifically, the statement: I have never been
treated for heart condition or diabetes) reveal otherwise, please give details in the space provided
for." But this is untrue since he had been on "Coumadin," a treatment for venous thrombosis,21
and insulin, a drug used in the treatment of diabetes mellitus, at that time.22
Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that
Manuel had a pacemaker implanted on his chest in the 70s or about 20 years before he signed up

for the pension plan.23 But by its tenor, the responsibility for preparing the application belonged
to Manuel. Nothing in it implies that someone else may provide the information that Philam
Plans needed. Manuel cannot sign the application and disown the responsibility for having it
filled up. If he furnished Perla the needed information and delegated to her the filling up of the
application, then she acted on his instruction, not on Philam Plans instruction.
Lourdes next points out that it made no difference if Manuel failed to reveal the fact that he had a
pacemaker implant in the early 70s since this did not fall within the five-year timeframe that the
disclosure contemplated.24 But a pacemaker is an electronic device implanted into the body and
connected to the wall of the heart, designed to provide regular, mild, electric shock that
stimulates the contraction of the heart muscles and restores normalcy to the heartbeat.25 That
Manuel still had his pacemaker when he applied for a pension plan in October 1997 is an
admission that he remained under treatment for irregular heartbeat within five years preceding
that application.
Besides, as already stated, Manuel had been taking medicine for his heart condition and diabetes
when he submitted his pension plan application. These clearly fell within the five-year period.
More, even if Perlas knowledge of Manuels pacemaker may be applied to Philam Plans under
the theory of imputed knowledge,26 it is not claimed that Perla was aware of his two other
afflictions that needed medical treatments. Pursuant to Section 2727 of the Insurance Code,
Manuels concealment entitles Philam Plans to rescind its contract of insurance with him.
Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let
Perla fill in the required details did not make her his agent and bind him to her concealment of
his true state of health. Since there is no evidence of collusion between them, Perlas fault must
be considered solely her own and cannot prejudice Manuel.28
But Manuel forgot that in signing the pension plan application, he certified that he wrote all the
information stated in it or had someone do it under his direction. Thus:
APPLICATION FOR PENSION PLAN
(Comprehensive)
I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan Program described
herein in accordance with the General Provisions set forth in this application and hereby certify
that the date and other information stated herein are written by me or under my direction. x x x.29
(Emphasis supplied)
Assuming that it was Perla who filled up the application form, Manuel is still bound by what it
contains since he certified that he authorized her action. Philam Plans had every right to act on
the faith of that certification.
Lourdes could not seek comfort from her claim that Perla had assured Manuel that the state of
his health would not hinder the approval of his application and that what is written on his

application made no difference to the insurance company. But, indubitably, Manuel was made
aware when he signed the pension plan application that, in granting the same, Philam Plans and
Philam Life were acting on the truth of the representations contained in that application. Thus:
DECLARATIONS AND REPRESENTATIONS
xxxx
I agree that the insurance coverage of this application is based on the truth of the foregoing
representations and is subject to the provisions of the Group Life Insurance Policy issued by
THE PHILIPPINE AMERICAN LIFE INSURANCE CO. to PHILAM PLANS, INC. 30
(Emphasis supplied)
As the Court said in New Life Enterprises v. Court of Appeals:31
It may be true that x x x insured persons may accept policies without reading them, and that this
is not negligence per se. But, this is not without any exception. It is and was incumbent upon
petitioner Sy to read the insurance contracts, and this can be reasonably expected of him
considering that he has been a businessman since 1965 and the contract concerns indemnity in
case of loss in his money-making trade of which important consideration he could not have been
unaware as it was precisely the reason for his procuring the same.32
The same may be said of Manuel, a civil engineer and manager of a construction company.33 He
could be expected to know that one must read every document, especially if it creates rights and
obligations affecting him, before signing the same. Manuel is not unschooled that the Court must
come to his succor. It could reasonably be expected that he would not trifle with something that
would provide additional financial security to him and to his wife in his twilight years.
Three. In a final attempt to defend her claim for benefits under Manuels pension plan, Lourdes
points out that any defect or insufficiency in the information provided by his pension plan
application should be deemed waived after the same has been approved, the policy has been
issued, and the premiums have been collected. 34
The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a
one-year incontestability period. It states:
VIII. INCONTESTABILITY
After this Agreement has remained in force for one (1) year, we can no longer contest for health
reasons any claim for insurance under this Agreement, except for the reason that installment has
not been paid (lapsed), or that you are not insurable at the time you bought this pension program
by reason of age. If this Agreement lapses but is reinstated afterwards, the one (1) year
contestability period shall start again on the date of approval of your request for
reinstatement.351wphi1

The above incontestability clause precludes the insurer from disowning liability under the policy
it issued on the ground of concealment or misrepresentation regarding the health of the insured
after a year of its issuance.
Since Manuel died on the eleventh month following the issuance of his plan,36 the one year
incontestability period has not yet set in. Consequently, Philam Plans was not barred from
questioning Lourdes entitlement to the benefits of her husbands pension plan.
WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of Appeals in CAG.R. CV 87085 dated December 18, 2007.
SO ORDERED.

V. THE POLICY OF INSURANCE


Pacific Timber Export Corporation vs. CA (112 SCRA 199);
Great Pacific Life Assurance Corporation vs. CA, 89 SCRA 543);

Asian Terminals, Inc. v. First Lepanto-Taisho Insurance Corp., G.R. No. 185964, June
16, 2014, 2002)

G.R. No. 185964

June 16, 2014

ASIAN TERMINALS, INC., Petitioner,


vs.
FIRST LEPANTO-TAISHO INSURANCE CORPORATION, Respondent.
DECISION
REYES, J.:
This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court seeking to annul
and set aside the Decision2 dated October 10, 2008 of the Court of Appeals (CA) in CA-G.R. SP
No. 99021 which adjudged petitioner Asian Terminals, Inc. (ATI) liable to pay the money claims
of respondent First Lepanto-Taisho Insurance Corporation (FIRST LEPANTO).
The Undisputed Facts
On July 6, 1996,3 3,000 bags of sodium tripolyphosphate contained in 100 plain jumbo bags
complete and in good condition were loaded and received on board M/V "Da Feng" owned by
China Ocean Shipping Co. (COSCO) in favor of consignee, Grand Asian Sales, Inc. (GASI).
Based on a Certificate of Insurance4 dated August 24, 1995, it appears that the shipment was
insured against all risks by GASI with FIRST LEPANTO for P7,959,550.50 under Marine Open
Policy No. 0123.
The shipment arrived in Manila on July 18, 1996 and was discharged into the possession and
custody of ATI, a domestic corporation engaged in arrastre business. The shipment remained for
quite some time at ATIs storage area until it was withdrawn by broker, Proven Customs
Brokerage Corporation (PROVEN), on August 8 and 9, 1996 for delivery to the consignee. Upon
receipt of the shipment,5 GASI subjected the same to inspection and found that the delivered
goods incurred shortages of 8,600 kilograms and spillage of 3,315 kg for a total of11,915 kg of
loss/damage valued at P166,772.41.
GASI sought recompense from COSCO, thru its Philippine agent Smith Bell Shipping Lines,
Inc. (SMITH BELL),6 ATI7 and PROVEN8 but was denied. Hence, it pursued indemnification
from the shipments insurer.9
After the requisite investigation and adjustment, FIRST LEPANTO paid GASI the amount of
P165,772.40 as insurance indemnity.10
Thereafter, GASI executed a Release of Claim11 discharging FIRST LEPANTO from any and all
liabilities pertaining to the lost/damaged shipment and subrogating it to all the rights of recovery

and claims the former may have against any person or corporation in relation to the lost/damaged
shipment.
As such subrogee, FIRST LEPANTO demanded from COSCO, its shipping agency in the
Philippines, SMITH BELL, PROVEN and ATI, reimbursement of the amount it paid to GASI.
When FIRST LEPANTOs demands were not heeded, it filed on May 29, 1997 a Complaint12
for sum of money before the Metropolitan Trial Court (MeTC) of Manila, Branch 3. FIRST
LEPANTO sought that it be reimbursed the amount of 166,772.41, twenty-five percent (25%)
thereof as attorneys fees, and costs of suit.
ATI denied liability for the lost/damaged shipment and claimed that it exercised due diligence
and care in handling the same.13 ATI averred that upon arrival of the shipment, SMITH BELL
requested for its inspection14 and it was discovered that one jumbo bag thereof sustained
loss/damage while in the custody of COSCO as evidenced by Turn Over Survey of Bad Order
Cargo No. 47890 dated August 6, 199615 jointly executed by the respective representatives of
ATI and COSCO. During the withdrawal of the shipment by PROVEN from ATIs warehouse,
the entire shipment was re-examined and it was found to be exactly in the same condition as
when it was turned over to ATI such that one jumbo bag was damaged. To bolster this claim, ATI
submitted Request for Bad Order Survey No. 40622 dated August 9, 199616 jointly executed by
the respective representatives of ATI and PROVEN. ATI also submitted various Cargo Gate
Passes17 showing that PROVEN was able to completely withdraw all the shipment from ATIs
warehouse in good order condition except for that one damaged jumbo bag.
In the alternative, ATI asserted that even if it is found liable for the lost/damaged portion of the
shipment, its contract for cargo handling services limits its liability to not more than P5,000.00
per package. ATI interposed a counterclaim of P20,000.00 against FIRST LEPANTO as and for
attorneys fees. It also filed a cross-claim against its co-defendants COSCO and SMITH BELL in
the event that it is made liable to FIRST LEPANTO.18
PROVEN denied any liability for the lost/damaged shipment and averred that the complaint
alleged no specific acts or omissions that makes it liable for damages. PROVEN claimed that the
damages in the shipment were sustained before they were withdrawn from ATIs custody under
which the shipment was left in an open area exposed to the elements, thieves and vandals.
PROVEN contended that it exercised due diligence and prudence in handling the shipment.
PROVEN also filed a counterclaim for attorneys fees and damages.19
Despite receipt of summons on December 4, 1996,20 COSCO and SMITH BELL failed to file an
answer to the complaint. FIRST LEPANTO thus moved that they be declared in default21 but the
motion was denied by the MeTC on the ground that under Rule 9, Section 3 of the Rules of Civil
Procedure, "when a pleading asserting a claim states a common cause of action against several
defending parties, some of whom answer and the other fail to do so, the Court shall try the case
against all upon the answers thus filed, and render judgment upon the evidence presented."22

Ruling of the MeTC


In a Judgment23 dated May 30, 2006, the MeTC absolved ATI and PROVEN from any liability
and instead found COSCO to be the party at fault and hence liable for the loss/damage sustained
by the subject shipment. However, the MeTC ruled it has no jurisdiction over COSCO because it
is a foreign corporation. Also, it cannot enforce judgment upon SMITH BELL because no
evidence was presented establishing that it is indeed the Philippine agent of COSCO. There is
also no evidence attributing any fault to SMITH BELL. Consequently, the complaint was
dismissed in this wise:
WHEREFORE, in light of the foregoing, judgment is hereby rendered DISMISSING the instant
case for failure of [FIRST LEPANTO] to sufficiently establish its cause o faction against [ATI,
COSCO, SMITH BELL, and PROVEN].
The counterclaims of [ATI and PROVEN] are likewise dismissed for lack of legal basis.
No pronouncement as to cost.
SO ORDERED.24
Ruling of the Regional Trial Court
On appeal, the Regional Trial Court (RTC) reversed the MeTCs findings. In its Decision25
dated January 26, 2007, the RTC of Manila, Branch 21, in Civil Case No. 06-116237, rejected
the contentions of ATI upon its observation that the same is belied by its very own documentary
evidence. The RTC remarked that, if, as alleged by ATI, one jumbo bag was already in bad order
condition upon its receipt of the shipment from COSCO on July 18, 1996, then how come that
the Request for Bad Order Survey and the Turn Over Survey of Bad Order Cargo were prepared
only weeks thereafter or on August 9, 1996 and August 6, 1996, respectively. ATI was adjudged
unable to prove that it exercised due diligence while in custody of the shipment and hence,
negligent and should be held liable for the damages caused to GASI which, in turn, is subrogated
by FIRST LEPANTO.
The RTC rejected ATIs contention that its liability is limited only to P5,000.00 per package
because its Management Contract with the Philippine Ports Authority (PPA) purportedly
containing the same was not presented as evidence. More importantly, FIRST LEPANTO or
GASI cannot be deemed bound thereby because they were not parties thereto. Lastly, the RTC
did not give merit to ATIs defense that any claim against it has already prescribed because GASI
failed to file any claim within the 15-day period stated in the gate pass issued by ATI to GASIs
broker, PROVEN. Accordingly, the RTC disposed thus:
WHEREFORE, in light of the foregoing, the judgment on appeal is hereby REVERSED.

[ATI] is hereby ordered to reimburse [FIRST LEPANTO] the amount of [P]165,772.40 with
legal interest until fully paid, to pay [FIRST LEPANTO] 10% of the amount due the latter as and
for attorneys fees plus the costs of suit.
The complaint against [COSCO/SMITH BELL and PROVEN] are DISMISSED for lack of
evidence against them. The counterclaim and cross[-]claim of [ATI] are likewise DISMISSED
for lack of merit.
SO ORDERED.26
Ruling of the CA
ATI sought recourse with the CA challenging the RTCs finding that FIRST LEPANTO was
validly subrogated to the rights of GASI with respect to the lost/damaged shipment. ATI argued
that there was no valid subrogation because FIRSTLEPANTO failed to present a valid, existing
and enforceable Marine Open Policy or insurance contract. ATI reasoned that the Certificate of
Insurance or Marine Cover Note submitted by FIRST LEPANTO as evidence is not the same as
an actual insurance contract.
In its Decision27 dated October 10, 2008, the CA dismissed the appeal and held that the Release
of Claim and the Certificate of Insurance presented by FIRST LEPANTO sufficiently established
its relationship with the consignee and that upon proof of payment of the latters claim for
damages, FIRST LEPANTO was subrogated to its rights against those liable for the lost/damaged
shipment.
The CA also affirmed the ruling of the RTC that the subject shipment was damaged while in the
custody of ATI. Thus, the CA disposed as follows:
WHEREFORE, premises considered, the assailed Decision is hereby AFFIRMED and the instant
petition is DENIED for lack of merit.
SO ORDERED.28
ATI moved for reconsideration but the motion was denied in the CA Resolution29 dated January
12, 2009. Hence, this petition arguing that:
(a) The presentation of the insurance policy is indispensable in proving the right of FIRST
LEPANTO to be subrogated to the right of the consignee pursuant to the ruling in Wallem
Philippines Shipping, Inc. v. Prudential Guarantee and Assurance Inc.;30
(b) ATI cannot be barred from invoking the defense of prescription as provided for in the gate
passes in consonance with the ruling in International Container Terminal Services, Inc. v.
Prudential Guarantee and Assurance Co, Inc.31

Ruling of the Court


The Court denies the petition.
ATI failed to prove that it exercised
due care and diligence while the
shipment was under its custody,
control and possession as arrastre
operator.
It must be emphasized that factual questions pertaining to ATIs liability for the loss/damage
sustained by GASI has already been settled in the uniform factual findings of the RTC and the
CA that: ATI failed to prove by preponderance of evidence that it exercised due diligence in
handling the shipment.
Such findings are binding and conclusive upon this Court since a review thereof is proscribed by
the nature of the present petition. Only questions of law are allowed in petitions for review on
certiorari under Rule 45 of the Rules of Court. It is not the Courts duty to review, examine, and
evaluate or weigh all over again the probative value of the evidence presented, especially where
the findings of the RTC are affirmed by the CA, as in this case.32
There are only specific instances when the Court deviates from the rule and conducts a review of
the courts a quos factual findings, such as when: (1) the inference made is manifestly mistaken,
absurd or impossible; (2) there is grave abuse of discretion;(3) the findings are grounded entirely
on speculations, surmises or conjectures; (4) the judgment of the CA is based on
misapprehension of facts; (5) the CA, in making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both appellant and appellee; (6) the findings of fact
are conclusions without citation of specific evidence on which they are based; (7) the CA
manifestly overlooked certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion; and (8) the findings of fact of the CA are
premised on the absence of evidence and are contradicted by the evidence on record.33
None of these instances, however, are present in this case. Moreover, it is unmistakable that ATI
has already conceded to the factual findings of RTC and CA adjudging it liable for the
shipments loss/damage considering the absence of arguments pertaining to such issue in the
petition at bar.
These notwithstanding, the Court scrutinized the records of the case and found that indeed, ATI
is liable as the arrastre operator for the lost/damaged portion of the shipment.
The relationship between the consignee and the arrastre operator is akin to that existing between
the consignee and/or the owner of the shipped goods and the common carrier, or that between a
depositor and a warehouseman. Hence, in the performance of its obligations, an arrastre operator
should observe the same degree of diligence as that required of a common carrier and a

warehouseman. Being the custodian of the goods discharged from a vessel, an arrastre operators
duty is to take good care of the goods and to turn them over to the party entitled to their
possession.34
In a claim for loss filed by the consignee (or the insurer), the burden of proof to show
compliance with the obligation to deliver the goods to the appropriate party devolves upon the
arrastre operator. Since the safekeeping of the goods is its responsibility, it must prove that the
losses were not due to its negligence or to that of its employees. To avoid liability, the arrastre
operator must prove that it exercised diligence and due care in handling the shipment.35
ATI failed to discharge its burden of proof. Instead, it insisted on shifting the blame to COSCO
on the basis of the Request for Bad Order Survey dated August 9, 1996 purportedly showing that
when ATI received the shipment, one jumbo bag thereof was already in damaged condition.
The RTC and CA were both correct in concluding that ATIs contention was improbable and
illogical. As judiciously discerned by the courts a quo, the date of the document was too distant
from the date when the shipment was actually received by ATI from COSCO on July 18, 1996.
In fact, what the document established is that when the loss/damage was discovered, the
shipment has been in ATIs custody for at least two weeks. This circumstance, coupled with the
undisputed declaration of PROVENs witnesses that while the shipment was in ATIs custody, it
was left in an open area exposed to the elements, thieves and vandals,36 all generate the
conclusion that ATI failed to exercise due care and diligence while the subject shipment was
under its custody, control and possession as arrastre operator.
To prove the exercise of diligence in handling the subject cargoes, an arrastre operator must do
more than merely show the possibility that some other party could be responsible for the loss or
the damage.37 It must prove that it used all reasonable means to handle and store the shipment
with due care and diligence including safeguarding it from weather elements, thieves or vandals.
Non-presentation of the insurance
contract is not fatal to FIRST
LEPANTOs cause of action for
reimbursement as subrogee.
It is conspicuous from the records that ATI put in issue the submission of the insurance contract
for the first time before the CA. Despite opportunity to study FIRST LEPANTOs complaint
before the MeTC, ATI failed to allege in its answer the necessity of the insurance contract.
Neither was the same considered during pre-trial as one of the decisive matters in the case.
Further, ATI never challenged the relevancy or materiality of the Certificate of Insurance
presented by FIRST LEPANTO as evidence during trial as proof of its right to be subrogated in
the consignees stead. Since it was not agreed during the pre-trial proceedings that FIRST
LEPANTO will have to prove its subrogation rights by presenting a copy of the insurance
contract, ATI is barred from pleading the absence of such contract in its appeal. It is imperative

for the parties to disclose during pre-trial all issues they intend to raise during the trial because,
they are bound by the delimitation of such issues. The determination of issues during the pre-trial
conference bars the consideration of other questions, whether during trial or on appeal.38
A faithful adherence to the rule by litigants is ensured by the equally settled principle that a party
cannot change his theory on appeal as such act violates the basic rudiments of fair play and due
process. As stressed in Jose v. Alfuerto:39
[A] party cannot change his theory ofthe case or his cause of action on appeal. Points of law,
theories, issues and arguments not brought to the attention of the lower court will not be
considered by the reviewing court. The defenses not pleaded in the answer cannot, on appeal,
change fundamentally the nature of the issue in the case. To do so would be unfair to the adverse
party, who had no opportunity to present evidence in connection with the new theory; this would
offend the basic rules of due process and fair play.40 (Citation omitted)
While the Court may adopt a liberal stance and relax the rule, no reasonable explanation,
however, was introduced to justify ATIs failure to timely question the basis of FIRST
LEPANTOs rights as a subrogee.
The fact that the CA took cognizance of and resolved the said issue did not cure or ratify ATIs
faux pas. "[A] judgment that goes beyond the issues and purports to adjudicate something on
which the court did not hear the parties, is not only irregular but also extrajudicial and
invalid."41 Thus, for resolving an issue not framed during the pre-trial and on which the parties
were not heard during the trial, that portion of the CAs judgment discussing the necessity of
presenting an insurance contract was erroneous.
At any rate, the non-presentation of the insurance contract is not fatal to FIRST LEPANTOs
right to collect reimbursement as the subrogee of GASI.
"Subrogation is the substitution of one person in the place of another with reference to a lawful
claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt
or claim, including its remedies or securities."42 The right of subrogation springs from Article
2207 of the Civil Code which states:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against the
wrong-doer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury.
As a general rule, the marine insurance policy needs to be presented in evidence before the
insurer may recover the insured value of the lost/damaged cargo in the exercise of its subrogatory
right. In Malayan Insurance Co., Inc. v.Regis Brokerage Corp.,43 the Court stated that the

presentation of the contract constitutive of the insurance relationship between the consignee and
insurer is critical because it is the legal basis of the latters right to subrogation.44
In Home Insurance Corporation v. CA,45 the Court also held that the insurance contract was
necessary to prove that it covered the hauling portion of the shipment and was not limited to the
transport of the cargo while at sea. The shipment in that case passed through six stages with
different parties involved in each stage until it reached the consignee. The insurance contract,
which was not presented in evidence, was necessary to determine the scope of the insurers
liability, if any, since no evidence was adduced indicating at what stage in the handling process
the damage to the cargo was sustained.46
An analogous disposition was arrived at in the Wallem47 case cited by ATI wherein the Court
held that the insurance contract must be presented in evidence in order to determine the extent of
its coverage. It was further ruled therein that the liability of the carrier from whom
reimbursement was demanded was not established with certainty because the alleged shortage
incurred by the cargoes was not definitively determined.48
Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted exceptions by
declaring that a marine insurance policy is dispensable evidence in reimbursement claims
instituted by the insurer.
In Delsan Transport Lines, Inc. v. CA,49 the Court ruled that the right of subrogation accrues
simply upon payment by the insurance company of the insurance claim. Hence, presentation in
evidence of the marine insurance policy is not indispensable before the insurer may recover from
the common carrier the insured value of the lost cargo in the exercise of its subrogatory right.
The subrogation receipt, by itself, was held sufficient to establish not only the relationship
between the insurer and consignee, but also the amount paid to settle the insurance claim. The
presentation of the insurance contract was deemed not fatal to the insurers cause of action
because the loss of the cargo undoubtedly occurred while on board the petitioners vessel.50
The same rationale was the basis of the judgment in International Container Terminal Services,
Inc. v. FGU Insurance Corporation,51 wherein the arrastre operator was found liable for the lost
shipment despite the failure of the insurance company to offer in evidence the insurance contract
or policy. As in Delsan, it was certain that the loss of the cargo occurred while in the petitioners
custody.52
Based on the attendant facts of the instant case, the application of the exception is
warranted.1wphi1 As discussed above, it is already settled that the loss/damage to the GASIs
shipment occurred while they were in ATIs custody, possession and control as arrastre operator.
Verily, the Certificate of Insurance53 and the Release of Claim54 presented as evidence
sufficiently established FIRST LEPANTOs right to collect reimbursement as the subrogee of the
consignee, GASI.

With ATIs liability having been positively established, to strictly require the presentation of the
insurance contract will run counter to the principle of equity upon which the doctrine of
subrogation is premised. Subrogation is designed to promote and to accomplish justice and is the
mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity
and good conscience ought to pay.55
The payment by the insurer to the insured operates as an equitable assignment to the insurer of
all the remedies which the insured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow
out of any privity of contract or upon payment by the insurance company of the insurance claim.
It accrues simply upon payment by the insurance company of the insurance claim.56
ATI cannot invoke prescription
ATI argued that the consignee, thru its insurer, FIRST LEPANTO is barred from seeking
payment for the lost/damaged shipment because the claim letter of GASI to ATI was served only
on September 27, 1996 or more than one month from the date the shipment was delivered to the
consignees warehouse on August 9, 1996. The claim of GASI was thus filed beyond the 15-day
period stated in ATIs Management Contract with PPA which in turn was reproduced in the gate
passes issued to the consignees broker, PROVEN, as follows:
Issuance of this Gate Pass Constitutes delivery to and receipt by consignee of the goods as
described above in good order and condition unless an accompanying x x x certificates duly
issued and noted on the face of this Gate Pass appeals. [sic]
This Gate pass is subject to all terms and conditions defined in the Management Contract
between the Philippine Port[s] Authority and Asian Terminals, Inc. and amendment thereto and
alterations thereof particularly but not limited to the [A]rticle VI thereof, limiting the contractors
liability to [P]5,000.00 per package unless the importation is otherwise specified or manifested
or communicated in writing together with the invoice value and supported by a certified packing
list to the contractor by the interested party or parties before the discharge of the goods and
corresponding arrastre charges have been paid providing exception or restrictions from liability
releasing the contractor from liability among others unless a formal claim with the required
annexes shall have been filed with the contractor within fifteen (15) days from date of issuance
by the contractors or certificate of loss, damages, injury, or Certificate of non-delivery.57
The contention is bereft of merit. As clarified in Insurance Company of North America v. Asian
Terminals, Inc.,58 substantial compliance with the 15-day time limitation is allowed provided
that the consignee has made a provisional claim thru a request for bad order survey or
examination report, viz:
Although the formal claim was filed beyond the 15-day period from the issuance of the
examination report on the request for bad order survey, the purpose of the time limitations for the

filing of claims had already been fully satisfied by the request of the consignees broker for a bad
order survey and by the examination report of the arrastre operator on the result thereof, as the
arrastre operator had become aware of and had verified the facts giving rise to its liability.
Hence, the arrastre operator suffered no prejudice by the lack of strict compliance with the 15day limitation to file the formal complaint.59 (Citations omitted)
In the present case, ATI was notified of the loss/damage to the subject shipment as early as
August 9, 1996 thru a Request for Bad Order Survey60 jointly prepared by the consignees
broker, PROVEN, and the representatives of ATI. For having submitted a provisional claim,
GASI is thus deemed to have substantially complied with the notice requirement to the arrastre
operator notwithstanding that a formal claim was sent to the latter only on September 27, 1996.
ATI was not deprived the best opportunity to probe immediately the veracity of such claims.
Verily then, GASI, thru its subrogee FIRST LEPANTO, is not barred by filing the herein action
in court.
ATI cannot rely on the ruling in Prudentiat61 because the consignee therein made no provisional
claim thru request for bad order survey and instead filed a claim for the first time after four
months from receipt of the shipment.
Attorney's fees and interests
All told, ATI is liable to pay FIRST LEPANTO the amount of the Pl 65, 772.40 representing the
insurance indemnity paid by the latter to GASI. Pursuant to Nacar v. Gallery Frames,62 the said
amount shall earn a legal interest at the rate of six percent (6%) per annum from the date of
finality of this judgment until its full satisfaction.
As correctly imposed by the RTC and the CA, ten percent (10%) of the judgment award is
reasonable as and for attorney's fees considering the length of time that has passed in prosecuting
the claim.63
WHEREFORE, premises considered, the petition is hereby DENIED. The Decision dated
October 10, 2008 of the Court of Appeals in CA-G.R. SP No. 99021 is hereby AFFIRMED
insofar as it adjudged liable and ordered Asian Terminals, Inc., to pay First Lepanto-Taisho
Insurance Corp., the amount of P165,772.40, ten percent (10%) thereof as and for attorney's fees,
plus costs of suit. The said amount shall earn legal interest at the rate of six percent ( 6%) per
annum from the date of finality of this judgment until its full satisfaction.
SO ORDERED.

VI. PREMIUM
Makati Tuscany Condominium Corp. vs. CA (215 SCRA 462);
UCPB General Insurance vs. Masagana Telamart (June 15, 1999);
UCPB General Insurance vs. Masagana Telamart (356 SCRA 307);

American Home Insurance vs. Chua (G.R. No. 130421, June 28, 1999);
G.R. No. 130421 June 28, 1999
AMERICAN HOME ASSURANCE COMPANY, petitioner,
vs.
ANTONIO CHUA, respondent.

DAVIDE, JR. C.J.:


1

of
the Court of Appeals in CA-G.R. CV No. 40751, which affirmed in toto the decision of the Regional Trial
Court, Makati City, Branch 150 (hereafter trial court), in Civil Case No. 91-1009.
In this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, petitioner seeks the reversal of the decision

Petitioner is a domestic corporation engaged in the insurance business. Sometime in 1990, respondent
obtained from petitioner a fire insurance covering the stock-in-trade of his business, Moonlight
Enterprises, located at Valencia, Bukidnon. The insurance was due to expire on 25 March 1990.
On 5 April 1990 respondent issued PCIBank Check No. 352123 in the amount of P2,983.50 to petitioner's
agent, James Uy, as payment for the renewal of the policy. In turn, the latter delivered Renewal Certificate
No. 00099047 to respondent. The check was drawn against a Manila bank and deposited in petitioner's
bank account in Cagayan de Oro City. The corresponding official receipt was issued on 10 April.
Subsequently, a new insurance policy, Policy No. 206-4234498-7, was issued, whereby petitioner
undertook to indemnify respondent for any damage or loss arising from fire up to P200,000 for the period
25 March 1990 to 25 March 1991.
On 6 April 1990 Moonlight Enterprises was completely razed by fire. Total loss was estimated between
P4,000,000 and P5,000,000. Respondent filed an insurance claim with petitioner and four other coinsurers, namely, Pioneer Insurance and Surety Corporation, Prudential Guarantee and Assurance, Inc.,
Filipino Merchants Insurance Co. and Domestic Insurance Company of the Philippines. Petitioner refused
to honor the claim notwithstanding several demands by respondent, thus, the latter filed an action against
petitioner before the trial court.
In its defense, petitioner claimed there was no existing insurance contract when the fire occurred since
respondent did not pay the premium. It also alleged that even assuming there was a contract, respondent
violated several conditions of the policy, particularly: (1) his submission of fraudulent income tax return
and financial statements; (2) his failure to establish the actual loss, which petitioner assessed at P70,000;
and (3) his failure to notify to petitioner of any insurance already effected to cover the insured goods.
These violations, petitioner insisted, justified the denial of the claim.
The trial court ruled in favor of respondent. It found that respondent paid by way of check a day before the
fire occurred. The check, which was deposited in petitioner's bank account, was even acknowledged in
the renewal certificate issued by petitioner's agent. It declared that the alleged fraudulent documents were
limited to the disparity between the official receipts issued by the Bureau of Internal Revenue (BIR) and
the income tax returns for the years 1987 to 1989. All the other documents were found to be genuine.
Nonetheless, it gave credence to the BIR certification that respondent paid the corresponding taxes due
for the questioned years.
As to respondent's failure to notify petitioner of the other insurance contracts covering the same goods,
the trial court held that petitioner failed to show that such omission was intentional and fraudulent. Finally,

it noted that petitioner's investigation of respondent's claim was done in collaboration with the
representatives of other insurance companies who found no irregularity therein. In fact, Pioneer Insurance
and Surety Corporation and Prudential Guarantee and Assurance, Inc. promptly paid the claims filed by
respondent.
The trial court decreed as follows:
WHEREFORE, judgment is hereby rendered in favor of [respondent] and against the
[petitioner] ordering the latter to pay the former the following:
1. P200,000.00, representing the amount of the insurance, plus legal
interest from the date of filing of this case;
2. P200,000.00 as moral damages;
3. P200,000.00 as loss of profit;
4. P100,000.00 as exemplary damages;
5. P50,000.00 as attorney's fees; and
6. Cost of suit.
On appeal, the assailed decision was affirmed in toto by the Court of Appeals. The Court of Appeals found
that respondent's claim was substantially proved and petitioner's unjustified refusal to pay the claim
entitled respondent to the award of damages.
Its motion for reconsideration of the judgment having been denied, petitioner filed the petition in this case.
Petitioner reiterates its stand that there was no existing insurance contract between the parties. It invokes
Section 77 of the Insurance Code, which provides:
An insurer is entitled to payment of the premium as soon as the thing insured is exposed
to the peril insured against. Notwithstanding any agreement to the contrary, no policy or
contract of insurance issued by an insurance company is valid and binding unless and
until the premium thereof has been paid, except in the case of life or an industrial life
policy whenever the grace period provision applies.
and cites the case of Arce v. Capital Insurance & Surety Co., Inc., 2 where we ruled that unless
and until the premium is paid there is no insurance.
Petitioner emphasizes that when the fire occurred on 6 April 1990 the insurance contract was not yet
subsisting pursuant to Article 1249 3 of the Civil Code, which recognizes that a check can only effect
payment once it has been cashed. Although respondent testified that he gave the check on 5 April to a
certain James Uy, the check, drawn against a Manila bank and deposited in a Cagayan de Oro City bank,
could not have been cleared by 6 April, the date of the fire. In fact, the official receipt issued for
respondent's check payment was dated 10 April 1990, four days after the fire occurred.
Citing jurisprudence, 4 petitioner also contends that respondent's non-disclosure of the other insurance
contracts rendered the policy void. It underscores the trial court's neglect in considering the Commission
on Audit's certification that the BIR receipts submitted by respondent were, in effect, fake since they were

issued to other persons. Finally, petitioner argues that the award of damages was excessive and
unreasonable considering that it did not act in bad faith in denying respondent's claim.
Respondent counters that the issue of non-payment of premium is a question of fact which can no longer
be assailed. The trial court's finding on the matter, which was affirmed by the Court of Appeals, is
conclusive.
Respondent refutes the reason for petitioner's denial of his claim. As found by the trial court, petitioner's
loss adjuster admitted prior knowledge of respondent's existing insurance contracts with the other
insurance companies. Nonetheless, the loss adjuster recommended the denial of the claim, not because
of the said contracts, but because he was suspicious of the authenticity of certain documents which
respondent submitted in filing his claim.
To bolster his argument, respondent cites Section 66 of the Insurance Code, 5 which requires the insurer
to give a notice to the insured of its intention to terminate the policy forty-five days before the policy period
ends. In the instant case, petitioner opted not to terminate the policy. Instead, it renewed the policy by
sending its agent to respondent, who was issued a renewal certificate upon delivery of his check payment
for the renewal of premium. At this precise moment the contract of insurance was executed and already in
effect. Respondent also claims that it is standard operating procedure in the provinces to pay insurance
premiums by check when collected by insurance agents.
On the issue of damages, respondent maintains that the amounts awarded were reasonable. He cites
numerous trips he had to make from Cagayan de Oro City to Manila to follow up his rightful claim. He
imputes bad faith on petitioner who made enforcement of his claim difficult in the hope that he would
eventually abandon it. He further emphasizes that the adjusters of the other insurance companies
recommended payment of his claim, and they complied therewith.
In its reply, petitioner alleges that the petition questions the conclusions of law made by the trial court and
the Court of Appeals.
Petitioner invokes respondent's admission that his check for the renewal of the policy was received only
on 10 April 1990, taking into account that the policy period was 25 March 1990 to 25 March 1991. The
official receipt was dated 10 April 1990. Anent respondent's testimony that the check was given to
petitioner's agent, a certain James Uy, the latter points out that even respondent was not sure if Uy was
indeed its agent. It faults respondent for not producing Uy as his witness and not taking any receipt from
him upon presentment of the check. Even assuming that the check was received a day before the
concurrence of the fire, there still could not have been payment until the check was cleared.
Moreover, petitioner denies respondent's allegation that it intended a renewal of the contract for the
renewal certificate clearly specified the following conditions:
Subject to the payment by the assured of the amount due prior to renewal date, the policy
shall be renewed for the period stated.
Any payment tendered other than in cash is received subject to actual cash collection.
Subject to no loss prior to premium and payment. If there be any loss, is not covered
[sic].

Petitioner asserts that an insurance contract can only be enforced upon the payment of the
premium, which should have been made before the renewal period.
Finally, in assailing the excessive damages awarded to respondent petitioner stresses that the policy in
issue was limited to a liability of P200,000; but the trial court granted the following monetary awards:
P200,000 as actual damages; P200,000 as moral damages; P100,000 as exemplary damages; and
P50,000 as attorney's fees.
The following issues must be resolved: first, whether there was a valid payment of premium, considering
that respondent's check was cashed after the occurrence of the fire; second, whether respondent violated
the policy by his submission of fraudulent documents and non-disclosure of the other existing insurance
contracts; and finally, whether respondent is entitled to the award of damages.
The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and
binding. The only exceptions are life and industrial life insurance. 6 Whether payment was indeed made is
a question of fact which is best determined by the trial court. The trial court found, as affirmed by the
Court of Appeals, that there was a valid check payment by respondent to petitioner. Well-settled is the
rule that the factual findings and conclusions of the trial court and the Court of Appeals are entitled to
great weight and respect, and will not be disturbed on appeal in the absence of any clear showing that the
trial court overlooked certain facts or circumstances which would substantially affect the disposition of the
case. 7 We see no reason to depart from this ruling.
According to the trial court the renewal certificate issued to respondent contained the acknowledgment
that premium had been paid. It is not disputed that the check drawn by respondent in favor of petitioner
and delivered to its agent was honored when presented and petitioner forthwith issued its official receipt
to respondent on 10 April 1990. Section 306 of the Insurance Code provides that any insurance company
which delivers a policy or contract of insurance to an insurance agent or insurance broker shall be
deemed to have authorized such agent or broker to receive on its behalf payment of any premium which
is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due
thereon. 8 In the instant case, the best evidence of such authority is the fact that petitioner accepted the
check and issued the official receipt for the payment. It is, as well, bound by its agent's acknowledgment
of receipt of payment.
Sec. 78 of the Insurance Code explicitly provides:
An acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding, notwithstanding
any stipulation therein that it shall not be binding until the premium is actually paid.
This Section establishes a legal fiction of payment and should be interpreted as an exception to
Section 77. 9
Is respondent guilty of the policy violations imputed against him? We are not convinced by petitioner's
arguments. The submission of the alleged fraudulent documents pertained to respondent's income tax
returns for 1987 to 1989. Respondent, however, presented a BIR certification that he had paid the proper
taxes for the said years. The trial court and the Court of Appeals gave credence to the certification and it
being a question of fact, we hold that said finding is conclusive.
Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers, nondisclosure thereof is a violation that entitles the insurer to avoid the policy. This condition is common in
fire insurance policies and is known as the "other insurance clause." The purpose for the inclusion of this

clause is to prevent an increase in the moral hazard. We have ruled on its validity and the case of
Geagonia v. Court of Appeals 10 clearly illustrates such principle. However, we see an exception in the
instant case.
Citing Section 29 11 of the Insurance Code, the trial court reasoned that respondent's failure to disclose
was not intentional and fraudulent. The application of Section 29 is misplaced. Section 29 concerns
concealment which is intentional. The relevant provision is Section 75, which provides that:
A policy may declare that a violation of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision does not avoid the policy.
To constitute a violation the other existing insurance contracts must be upon the same subject matter and
with the same interest and risk. 12 Indeed, respondent acquired several co-insurers and he failed to
disclose this information to petitioner. Nonetheless, petitioner is estopped from must invoking this
argument. The trial court cited the testimony of petitioner's loss adjuster who admitted previous
knowledge of the co-insurers. Thus,
COURT:
Q The matter of additional insurance of other companies, was that ever
discussed in your investigation?
A Yes, sir.
Q In other words, from the start, you were aware the insured was insured
with other companies like Pioneer and so on?
A Yes, Your Honor.
Q But in your report you never recommended the denial of the claim
simply because of the non-disclosure of other insurance? [sic]
A Yes, Your Honor.
Q In other words, to be emphatic about this, the only reason you
recommended the denial of the claim, you found three documents to be
spurious. That is your only basis?
A Yes, Your Honor. 13 [Emphasis supplied]
Indubitably, it cannot be said that petitioner was deceived by respondent by the latter's non-disclosure of the other insurance contracts when
petitioner actually had prior knowledge thereof. Petitioner's loss adjuster had known all along of the other existing insurance contracts, yet,
he did not use that as basis for his recommendation of denial. The loss adjuster, being an employee of petitioner, is deemed a representative
of the latter whose awareness of the other insurance contracts binds petitioner. We, therefore, hold that there was no violation of the "other
insurance" clause by respondent.
Petitioner is liable to pay its share of the loss. The trial court and the Court of Appeals were correct in awarding P200,000 for this. There is,
however, merit in petitioner's grievance against the damages and attorney's fees awarded.
There is no legal and factual basis for the award of P200,000 for loss of profit. It cannot be denied that the fire totally gutted respondent's
business; thus, respondent no longer had any business to operate. His loss of profit cannot be shouldered by petitioner whose obligation is
limited to the object of insurance, which was the stock-in-trade, and not the expected loss in income or profit.

Neither can we approve the award of moral and exemplary damages. At the core of this case is petitioner's alleged breach of its obligation
under a contract of insurance. Under Article 2220 of the Civil Code, moral damages may be awarded in breaches of contracts where the
defendant acted fraudulently or in bad faith. We find no such fraud or bad faith. It must again be stressed that moral damages are
emphatically not intended to enrich a plaintiff at the expense of the defendant. Such damages are awarded only to enable the injured party to
obtain means, diversion or amusements that will serve to obviate the moral suffering he has undergone, by reason of the defendant's
culpable action. Its award is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and it must be
14

When awarded, moral damages must not be palpably and scandalously


excessive as to indicate that it was the result of passion, prejudice or corruption on the part of the trial
court judge. 15
proportional to the suffering inflicted.

The law 16 is likewise clear that in contracts and quasi-contracts the court may award exemplary damages
if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Nothing
thereof can be attributed to petitioner which merely tried to resist what it claimed to be an unfounded
claim for enforcement of the fire insurance policy.
As to attorney's fees, the general rule is that attorney's fees cannot be recovered as part of damages
because of the policy that no premium should be placed on the right to litigate. 17 In short, the grant of
attorney's fees as part of damages is the exception rather than the rule; counsel's fees are not awarded
every time a party prevails in a suit. It can be awarded only in the cases enumerated in Article 2208 of the
Civil Code, and in all cases it must be reasonable. 18 Thereunder, the trial court may award attorney's fees
where it deems just and equitable that it be so granted. While we respect the trial court's exercise of its
discretion in this case, the award of P50,000 is unreasonable and excessive. It should be reduced to
P10,000.
WHEREFORE, the instant petition is partly GRANTED. The challenged decision of the Court of Appeals
in CA-G.R. No. 40751 is hereby MODIFIED by a) deleting the awards of P200,000 for loss of profit,
P200,000 as moral damages and P100,000 as exemplary damages, and b) reducing the award of
attorney's fees from P50,000 to P10,000.
No pronouncement as to costs.

Tibay vs. CA (257 SCRA 126);


Phil. Phoenix Surety & Ins., Co. vs. Woodworks, Inc., (92 SCRA 419)

VII.PERSONS ENTITLED TO RECOVER ON THE POLICY AND CONDITIONS TO


RECOVERY
Bonifacio Bros. Inc. vs. Mora (May 29, 1967);
The Insular Life Assurance vs. Ebrado, 80 SCRA 181);
Vda. de Consuegra vs. GSIS (37 SCRA 315);
Go vs. Redfern (72 Phil 71);
Country Bankers Insurance Corporation vs. Lianga Bay (January 25, 2002)

VIII. DOUBLE INSURANCE


IX. REINSURANCE
X. MARINE INSURANCE

Roque vs. IAC (139 SCRA 596);


Go Tiaco vs. Union Ins. Society of Canton (40 Phil 401);
Cathay Insurance vs. CA (151 SCRA 710);
Filipino Merchants Insurance Co. vs. CA (179 SCRA 638);
Oriental Assurance Corporation vs. CA (200 SCRA 459)

XI. FIRE INSURANCE


XII. CASUALTY INSURANCE
Finman General Assurance Co. vs. CA (September 2, 1992);
Sun Insurance Office Ltd. vs. CA (July 17, 1992);
Biagtan vs. The Insular Life Assurance Co., Ltd., (44 SCRA 58)

XIII. SURETYSHIP
XIV. LIFE INSURANCE
XV. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE

Vda. de Gabriel vs. CA (November 14, 1996);


Vda. de Maglana vs. Hon. Consolacion (August 6, 1992);

Tiu vs. Arriesgado (GR No. 138060, 01 September 2004)

G.R. No. 138060

September 1, 2004

WILLIAM TIU, doing business under the name and style of "D Rough Riders," and
VIRGILIO TE LAS PIAS petitioners,
vs.
PEDRO A. ARRIESGADO, BENJAMIN CONDOR, SERGIO PEDRANO and
PHILIPPINE PHOENIX SURETY AND INSURANCE, INC., respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision1
of the Court of Appeals in CA-G.R. CV No. 54354 affirming with modification the Decision2 of
the Regional Trial Court, 7th Judicial Region, Cebu City, Branch 20, in Civil Case No. CEB5963 for breach of contract of carriage, damages and attorneys fees, and the Resolution dated
February 26, 1999 denying the motion for reconsideration thereof.
The following facts are undisputed:
At about 10:00 p.m. of March 15, 1987, the cargo truck marked "Condor Hollow Blocks
and General Merchandise" bearing plate number GBP-675 was loaded with firewood in
Bogo, Cebu and left for Cebu City. Upon reaching Sitio Aggies, Poblacion, Compostela,
Cebu, just as the truck passed over a bridge, one of its rear tires exploded. The driver,
Sergio Pedrano, then parked along the right side of the national highway and removed the
damaged tire to have it vulcanized at a nearby shop, about 700 meters away.3 Pedrano left
his helper, Jose Mitante, Jr. to keep watch over the stalled vehicle, and instructed the
latter to place a spare tire six fathoms away4 behind the stalled truck to serve as a warning
for oncoming vehicles. The trucks tail lights were also left on. It was about 12:00 a.m.,
March 16, 1987.
At about 4:45 a.m., D Rough Riders passenger bus with plate number PBP-724 driven by
Virgilio Te Laspias was cruising along the national highway of Sitio Aggies, Poblacion,
Compostela, Cebu. The passenger bus was also bound for Cebu City, and had come from Maya,
Daanbantayan, Cebu. Among its passengers were the Spouses Pedro A. Arriesgado and Felisa
Pepito Arriesgado, who were seated at the right side of the bus, about three (3) or four (4) places
from the front seat.
As the bus was approaching the bridge, Laspias saw the stalled truck, which was then about 25
meters away.5 He applied the breaks and tried to swerve to the left to avoid hitting the truck. But
it was too late; the bus rammed into the trucks left rear. The impact damaged the right side of the
bus and left several passengers injured. Pedro Arriesgado lost consciousness and suffered a
fracture in his right colles.6 His wife, Felisa, was brought to the Danao City Hospital. She was
later transferred to the Southern Island Medical Center where she died shortly thereafter.7

Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage,
damages and attorneys fees before the Regional Trial Court of Cebu City, Branch 20, against the
petitioners, D Rough Riders bus operator William Tiu and his driver, Virgilio Te Laspias on
May 27, 1987. The respondent alleged that the passenger bus in question was cruising at a fast
and high speed along the national road, and that petitioner Laspias did not take precautionary
measures to avoid the accident.8 Thus:
6. That the accident resulted to the death of the plaintiffs wife, Felisa Pepito Arriesgado,
as evidenced by a Certificate of Death, a xerox copy of which is hereto attached as
integral part hereof and marked as ANNEX "A", and physical injuries to several of its
passengers, including plaintiff himself who suffered a "COLLES FRACTURE RIGHT,"
per Medical Certificate, a xerox copy of which is hereto attached as integral part hereof
and marked as ANNEX "B" hereof.
7. That due to the reckless and imprudent driving by defendant Virgilio Te Laspias of
the said Rough Riders passenger bus, plaintiff and his wife, Felisa Pepito Arriesgado,
failed to safely reach their destination which was Cebu City, the proximate cause of
which was defendant-drivers failure to observe utmost diligence required of a very
cautious person under all circumstances.
8. That defendant William Tiu, being the owner and operator of the said Rough Riders
passenger bus which figured in the said accident, wherein plaintiff and his wife were
riding at the time of the accident, is therefore directly liable for the breach of contract of
carriage for his failure to transport plaintiff and his wife safely to their place of
destination which was Cebu City, and which failure in his obligation to transport safely
his passengers was due to and in consequence of his failure to exercise the diligence of a
good father of the family in the selection and supervision of his employees, particularly
defendant-driver Virgilio Te Laspias.9
The respondent prayed that judgment be rendered in his favor and that the petitioners be
condemned to pay the following damages:
1). To pay to plaintiff, jointly and severally, the amount of P30,000.00 for the death and
untimely demise of plaintiffs wife, Felisa Pepito Arriesgado;
2). To pay to plaintiff, jointly and severally, the amount of P38,441.50, representing
actual expenses incurred by the plaintiff in connection with the death/burial of plaintiffs
wife;
3). To pay to plaintiff, jointly and severally, the amount of P1,113.80, representing
medical/hospitalization expenses incurred by plaintiff for the injuries sustained by him;
4). To pay to plaintiff, jointly and severally, the amount of P50,000.00 for moral
damages;

5). To pay to plaintiff, jointly and severally, the amount of P50,000.00 by way of
exemplary damages;
6). To pay to plaintiff, jointly and severally, the amount of P20,000.00 for attorneys fees;
7). To pay to plaintiff, jointly and severally, the amount of P5,000.00 for litigation
expenses.
PLAINTIFF FURTHER PRAYS FOR SUCH OTHER RELIEFS AND REMEDIES IN
LAW AND EQUITY.10
The petitioners, for their part, filed a Third-Party Complaint11 on August 21, 1987 against the
following: respondent Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tius
insurer; respondent Benjamin Condor, the registered owner of the cargo truck; and respondent
Sergio Pedrano, the driver of the truck. They alleged that petitioner Laspias was negotiating the
uphill climb along the national highway of Sitio Aggies, Poblacion, Compostela, in a moderate
and normal speed. It was further alleged that the truck was parked in a slanted manner, its rear
portion almost in the middle of the highway, and that no early warning device was displayed.
Petitioner Laspias promptly applied the brakes and swerved to the left to avoid hitting the truck
head-on, but despite his efforts to avoid damage to property and physical injuries on the
passengers, the right side portion of the bus hit the cargo trucks left rear. The petitioners further
alleged, thus:
5. That the cargo truck mentioned in the aforequoted paragraph is owned and registered
in the name of the third-party defendant Benjamin Condor and was left unattended by its
driver Sergio Pedrano, one of the third-party defendants, at the time of the incident;
6. That third-party defendant Sergio Pedrano, as driver of the cargo truck with marked
(sic) "Condor Hollow Blocks & General Merchandise," with Plate No. GBP-675 which
was recklessly and imprudently parked along the national highway of Compostela, Cebu
during the vehicular accident in question, and third-party defendant Benjamin Condor, as
the registered owner of the cargo truck who failed to exercise due diligence in the
selection and supervision of third-party defendant Sergio Pedrano, are jointly and
severally liable to the third-party plaintiffs for whatever liability that may be adjudged
against said third-party plaintiffs or are directly liable of (sic) the alleged death of
plaintiffs wife;
7. That in addition to all that are stated above and in the answer which are intended to
show reckless imprudence on the part of the third-party defendants, the third-party
plaintiffs hereby declare that during the vehicular accident in question, third-party
defendant was clearly violating Section 34, par. (g) of the Land Transportation and Traffic
Code

10. That the aforesaid passenger bus, owned and operated by third-party plaintiff William
Tiu, is covered by a common carrier liability insurance with Certificate of Cover No.
054940 issued by Philippine Phoenix Surety and Insurance, Inc., Cebu City Branch, in
favor of third-party plaintiff William Tiu which covers the period from July 22, 1986 to
July 22, 1987 and that the said insurance coverage was valid, binding and subsisting
during the time of the aforementioned incident (Annex "A" as part hereof);
11. That after the aforesaid alleged incident, third-party plaintiff notified third-party
defendant Philippine Phoenix Surety and Insurance, Inc., of the alleged incident hereto
mentioned, but to no avail;
12. That granting, et arguendo et arguendi, if herein third-party plaintiffs will be
adversely adjudged, they stand to pay damages sought by the plaintiff and therefore could
also look up to the Philippine Phoenix Surety and Insurance, Inc., for contribution,
indemnification and/or reimbursement of any liability or obligation that they might [be]
adjudged per insurance coverage duly entered into by and between third-party plaintiff
William Tiu and third-party defendant Philippine Phoenix Surety and Insurance, Inc.;12
The respondent PPSII, for its part, admitted that it had an existing contract with petitioner Tiu,
but averred that it had already attended to and settled the claims of those who were injured
during the incident.13 It could not accede to the claim of respondent Arriesgado, as such claim
was way beyond the scheduled indemnity as contained in the contract of insurance.14
After the parties presented their respective evidence, the trial court ruled in favor of respondent
Arriesgado. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of
plaintiff as against defendant William Tiu ordering the latter to pay the plaintiff the
following amounts:
1 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;
2 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as exemplary damages;
3 - The sum of THIRTY-EIGHT THOUSAND FOUR HUNDRED FORTY-ONE
PESOS (P38,441.00) as actual damages;
4 - The sum of TWENTY THOUSAND PESOS (P20,000.00) as attorneys fees;
5 - The sum of FIVE THOUSAND PESOS (P5,000.00) as costs of suit;
SO ORDERED.15
According to the trial court, there was no dispute that petitioner William Tiu was engaged in
business as a common carrier, in view of his admission that D Rough Rider passenger bus which
figured in the accident was owned by him; that he had been engaged in the transportation

business for 25 years with a sole proprietorship; and that he owned 34 buses. The trial court ruled
that if petitioner Laspias had not been driving at a fast pace, he could have easily swerved to the
left to avoid hitting the truck, thus, averting the unfortunate incident. It then concluded that
petitioner Laspias was negligent.
The trial court also ruled that the absence of an early warning device near the place where the
truck was parked was not sufficient to impute negligence on the part of respondent Pedrano,
since the tail lights of the truck were fully on, and the vicinity was well lighted by street lamps.16
It also found that the testimony of petitioner Tiu, that he based the selection of his driver
Laspias on efficiency and in-service training, and that the latter had been so far an efficient and
good driver for the past six years of his employment, was insufficient to prove that he observed
the diligence of a good father of a family in the selection and supervision of his employees.
After the petitioners motion for reconsideration of the said decision was denied, the petitioners
elevated the case to the Court of Appeals on the following issues:
I WHETHER THIRD PARTY DEFENDANT SERGIO PEDRANO WAS RECKLESS
AND IMPRUDENT WHEN HE PARKED THE CARGO TRUCK IN AN OBLIQUE
MANNER;
II WHETHER THE THIRD PARTY DEFENDANTS ARE JOINTLY AND
SEVERALLY LIABLE DIRECTLY TO PLAINTIFF-APPELLEE OR TO
DEFENDANTS-APPELLANTS FOR WHATEVER LIABILITY THAT MAY BE
ADJUDGED TO THE SAID DEFENDANTS-APPELLANTS;
III WHETHER DEFENDANT-APPELLANT VIRGILIO TE LASPIAS WAS GUILTY
OF GROSS NEGLIGENCE;
IV WHETHER DEFENDANT-APPELLANT WILLIAM TIU HAD EXERCISED THE
DUE DILIGENCE OF A GOOD FATHER OF A FAMILY IN THE SELECTION AND
SUPERVISION OF HIS DRIVERS;
V GRANTING FOR THE SAKE OF ARGUMENT THAT DEFENDANT-APPELLANT
WILLIAM TIU IS LIABLE TO PLAINTIFF-APPELLEE, WHETHER THERE IS
LEGAL AND FACTUAL BASIS IN AWARDING EXCESSIVE MORAL DAMAGES,
EX[E]MPLARY DAMAGES, ATTORNEYS FEES AND LITIGATION EXPENSES
TO PLAINTIFF-APPELLEE;
VI WHETHER THIRD PARTY DEFENDANT PHILIPPINE PHOENIX SURETY AND
INSURANCE, INC. IS LIABLE TO DEFENDANT- APPELLANT WILLIAM TIU.17
The appellate court rendered judgment affirming the trial courts decision with the modification
that the awards for moral and exemplary damages were reduced to P25,000. The dispositive
portion reads:

WHEREFORE, the appealed Decision dated November 6, 1995 is hereby MODIFIED


such that the awards for moral and exemplary damages are each reduced to P25,000.00 or
a total of P50,000.00 for both. The judgment is AFFIRMED in all other respects.
SO ORDERED.18
According to the appellate court, the action of respondent Arriesgado was based not on quasidelict but on breach of contract of carriage. As a common carrier, it was incumbent upon
petitioner Tiu to prove that extraordinary diligence was observed in ensuring the safety of
passengers during transportation. Since the latter failed to do so, he should be held liable for
respondent Arriesgados claim. The CA also ruled that no evidence was presented against the
respondent PPSII, and as such, it could not be held liable for respondent Arriesgados claim, nor
for contribution, indemnification and/or reimbursement in case the petitioners were adjudged
liable.
The petitioners now come to this Court and ascribe the following errors committed by the
appellate court:
I. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING
RESPONDENTS BENJAMIN CONDOR AND SERGIO PEDRANO GUILTY OF
NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT PEDRO A. ARRIESGADO
OR TO PETITIONERS FOR WHATEVER LIABILITY THAT MAY BE ADJUDGED
AGAINST THEM.
II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONERS
GUILTY OF NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT PEDRO A.
ARRIESGADO.
III. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONER
WILLIAM TIU LIABLE FOR EXEMPLARY DAMAGES, ATTORNEYS FEES AND
LITIGATION EXPENSES.
IV. THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING
RESPONDENT PHILIPPINE PHOENIX SURETY AND INSURANCE, INC. LIABLE
TO RESPONDENT PEDRO A. ARRIESGADO OR TO PETITIONER WILLIAM TIU.19
According to the petitioners, the appellate court erred in failing to appreciate the absence of an
early warning device and/or built-in reflectors at the front and back of the cargo truck, in clear
violation of Section 34, par. (g) of the Land Transportation and Traffic Code. They aver that such
violation is only a proof of respondent Pedranos negligence, as provided under Article 2185 of
the New Civil Code. They also question the appellate courts failure to take into account that the
truck was parked in an oblique manner, its rear portion almost at the center of the road. As such,
the proximate cause of the incident was the gross recklessness and imprudence of respondent
Pedrano, creating the presumption of negligence on the part of respondent Condor in supervising
his employees, which presumption was not rebutted. The petitioners then contend that

respondents Condor and Pedrano should be held jointly and severally liable to respondent
Arriesgado for the payment of the latters claim.
The petitioners, likewise, aver that expert evidence should have been presented to prove that
petitioner Laspias was driving at a very fast speed, and that the CA could not reach such
conclusion by merely considering the damages on the cargo truck. It was also pointed out that
petitioner Tiu presented evidence that he had exercised the diligence of a good father of a family
in the selection and supervision of his drivers.
The petitioners further allege that there is no legal and factual basis to require petitioner Tiu to
pay exemplary damages as no evidence was presented to show that the latter acted in a
fraudulent, reckless and oppressive manner, or that he had an active participation in the negligent
act of petitioner Laspias.
Finally, the petitioners contend that respondent PPSII admitted in its answer that while it had
attended to and settled the claims of the other injured passengers, respondent Arriesgados claim
remained unsettled as it was beyond the scheduled indemnity under the insurance contract. The
petitioners argue that said respondent PPSII should have settled the said claim in accordance
with the scheduled indemnity instead of just denying the same.
On the other hand, respondent Arriesgado argues that two of the issues raised by the petitioners
involved questions of fact, not reviewable by the Supreme Court: the finding of negligence on
the part of the petitioners and their liability to him; and the award of exemplary damages,
attorneys fees and litigation expenses in his favor. Invoking the principle of equity and justice,
respondent Arriesgado pointed out that if there was an error to be reviewed in the CA decision, it
should be geared towards the restoration of the moral and exemplary damages to P50,000 each,
or a total of P100,000 which was reduced by the Court of Appeals to P25,000 each, or a total of
only P50,000.
Respondent Arriesgado also alleged that respondents Condor and Pedrano, and respondent
Phoenix Surety, are parties with whom he had no contract of carriage, and had no cause of action
against. It was pointed out that only the petitioners needed to be sued, as driver and operator of
the ill-fated bus, on account of their failure to bring the Arriesgado Spouses to their place of
destination as agreed upon in the contract of carriage, using the utmost diligence of very cautious
persons with due regard for all circumstances.
Respondents Condor and Pedrano point out that, as correctly ruled by the Court of Appeals, the
proximate cause of the unfortunate incident was the fast speed at which petitioner Laspias was
driving the bus owned by petitioner Tiu. According to the respondents, the allegation that the
truck was not equipped with an early warning device could not in any way have prevented the
incident from happening. It was also pointed out that respondent Condor had always exercised
the due diligence required in the selection and supervision of his employees, and that he was not
a party to the contract of carriage between the petitioners and respondent Arriesgado.
Respondent PPSII, for its part, alleges that contrary to the allegation of petitioner Tiu, it settled
all the claims of those injured in accordance with the insurance contract. It further avers that it

did not deny respondent Arriesgados claim, and emphasizes that its liability should be within the
scheduled limits of indemnity under the said contract. The respondent concludes that while it is
true that insurance contracts are contracts of indemnity, the measure of the insurers liability is
determined by the insureds compliance with the terms thereof.
The Courts Ruling
At the outset, it must be stressed that this Court is not a trier of facts.20 Factual findings of the
Court of Appeals are final and may not be reviewed on appeal by this Court, except when the
lower court and the CA arrived at diverse factual findings.21 The petitioners in this case assail the
finding of both the trial and the appellate courts that petitioner Laspias was driving at a very
fast speed before the bus owned by petitioner Tiu collided with respondent Condors stalled
truck. This is clearly one of fact, not reviewable by the Court in a petition for review under Rule
45.22
On this ground alone, the petition is destined to fail.
However, considering that novel questions of law are likewise involved, the Court resolves to
examine and rule on the merits of the case.
Petitioner Laspias
Was negligent in driving
The Ill-fated bus
In his testimony before the trial court, petitioner Laspias claimed that he was traversing the twolane road at Compostela, Cebu at a speed of only forty (40) to fifty (50) kilometers per hour
before the incident occurred.23 He also admitted that he saw the truck which was parked in an
"oblique position" at about 25 meters before impact,24 and tried to avoid hitting it by swerving to
the left. However, even in the absence of expert evidence, the damage sustained by the truck25
itself supports the finding of both the trial court and the appellate court, that the D Rough Rider
bus driven by petitioner Laspias was traveling at a fast pace. Since he saw the stalled truck at a
distance of 25 meters, petitioner Laspias had more than enough time to swerve to his left to
avoid hitting it; that is, if the speed of the bus was only 40 to 50 kilometers per hour as he
claimed. As found by the Court of Appeals, it is easier to believe that petitioner Laspias was
driving at a very fast speed, since at 4:45 a.m., the hour of the accident, there were no oncoming
vehicles at the opposite direction. Petitioner Laspias could have swerved to the left lane with
proper clearance, and, thus, could have avoided the truck.26 Instinct, at the very least, would have
prompted him to apply the breaks to avert the impending disaster which he must have foreseen
when he caught sight of the stalled truck. As we had occasion to reiterate:
A man must use common sense, and exercise due reflection in all his acts; it is his duty to
be cautious, careful and prudent, if not from instinct, then through fear of recurring
punishment. He is responsible for such results as anyone might foresee and for acts which
no one would have performed except through culpable abandon. Otherwise, his own
person, rights and property, and those of his fellow beings, would ever be exposed to all
manner of danger and injury.27

We agree with the following findings of the trial court, which were affirmed by the CA on
appeal:
A close study and evaluation of the testimonies and the documentary proofs submitted by
the parties which have direct bearing on the issue of negligence, this Court as shown by
preponderance of evidence that defendant Virgilio Te Laspias failed to observe
extraordinary diligence as a driver of the common carrier in this case. It is quite hard to
accept his version of the incident that he did not see at a reasonable distance ahead the
cargo truck that was parked when the Rough Rider [Bus] just came out of the bridge
which is on an (sic) [more] elevated position than the place where the cargo truck was
parked. With its headlights fully on, defendant driver of the Rough Rider was in a
vantage position to see the cargo truck ahead which was parked and he could just easily
have avoided hitting and bumping the same by maneuvering to the left without hitting the
said cargo truck. Besides, it is (sic) shown that there was still much room or space for the
Rough Rider to pass at the left lane of the said national highway even if the cargo truck
had occupied the entire right lane thereof. It is not true that if the Rough Rider would
proceed to pass through the left lane it would fall into a canal considering that there was
much space for it to pass without hitting and bumping the cargo truck at the left lane of
said national highway. The records, further, showed that there was no incoming vehicle at
the opposite lane of the national highway which would have prevented the Rough Rider
from not swerving to its left in order to avoid hitting and bumping the parked cargo truck.
But the evidence showed that the Rough Rider instead of swerving to the still spacious
left lane of the national highway plowed directly into the parked cargo truck hitting the
latter at its rear portion; and thus, the (sic) causing damages not only to herein plaintiff
but to the cargo truck as well.28
Indeed, petitioner Laspias negligence in driving the bus is apparent in the records. By his own
admission, he had just passed a bridge and was traversing the highway of Compostela, Cebu at a
speed of 40 to 50 kilometers per hour before the collision occurred. The maximum speed allowed
by law on a bridge is only 30 kilometers per hour.29 And, as correctly pointed out by the trial
court, petitioner Laspias also violated Section 35 of the Land Transportation and Traffic Code,
Republic Act No. 4136, as amended:1avvphil.net
Sec. 35. Restriction as to speed. (a) Any person driving a motor vehicle on a highway
shall drive the same at a careful and prudent speed, not greater nor less than is reasonable
and proper, having due regard for the traffic, the width of the highway, and or any other
condition then and there existing; and no person shall drive any motor vehicle upon a
highway at such speed as to endanger the life, limb and property of any person, nor at a
speed greater than will permit him to bring the vehicle to a stop within the assured clear
distance ahead.30
Under Article 2185 of the Civil Code, a person driving a vehicle is presumed negligent if at the
time of the mishap, he was violating any traffic regulation.31
Petitioner Tiu failed to
Overcome the presumption

Of negligence against him as


One engaged in the business
Of common carriage
The rules which common carriers should observe as to the safety of their passengers are set forth
in the Civil Code, Articles 1733,32 175533 and 1756.34 In this case, respondent Arriesgado and his
deceased wife contracted with petitioner Tiu, as owner and operator of D Rough Riders bus
service, for transportation from Maya, Daanbantayan, Cebu, to Cebu City for the price of
P18.00.35 It is undisputed that the respondent and his wife were not safely transported to the
destination agreed upon. In actions for breach of contract, only the existence of such contract,
and the fact that the obligor, in this case the common carrier, failed to transport his passenger
safely to his destination are the matters that need to be proved.36 This is because under the said
contract of carriage, the petitioners assumed the express obligation to transport the respondent
and his wife to their destination safely and to observe extraordinary diligence with due regard for
all circumstances.37 Any injury suffered by the passengers in the course thereof is immediately
attributable to the negligence of the carrier.38 Upon the happening of the accident, the
presumption of negligence at once arises, and it becomes the duty of a common carrier to prove
that he observed extraordinary diligence in the care of his passengers.39 It must be stressed that in
requiring the highest possible degree of diligence from common carriers and in creating a
presumption of negligence against them, the law compels them to curb the recklessness of their
drivers.40
While evidence may be submitted to overcome such presumption of negligence, it must be
shown that the carrier observed the required extraordinary diligence, which means that the carrier
must show the utmost diligence of very cautious persons as far as human care and foresight can
provide, or that the accident was caused by fortuitous event.41 As correctly found by the trial
court, petitioner Tiu failed to conclusively rebut such presumption. The negligence of petitioner
Laspias as driver of the passenger bus is, thus, binding against petitioner Tiu, as the owner of
the passenger bus engaged as a common carrier.42
The Doctrine of
Last Clear Chance
Is Inapplicable in the
Case at Bar
Contrary to the petitioners contention, the principle of last clear chance is inapplicable in the
instant case, as it only applies in a suit between the owners and drivers of two colliding vehicles.
It does not arise where a passenger demands responsibility from the carrier to enforce its
contractual obligations, for it would be inequitable to exempt the negligent driver and its owner
on the ground that the other driver was likewise guilty of negligence.43 The common law notion
of last clear chance permitted courts to grant recovery to a plaintiff who has also been negligent
provided that the defendant had the last clear chance to avoid the casualty and failed to do so.
Accordingly, it is difficult to see what role, if any, the common law of last clear chance doctrine
has to play in a jurisdiction where the common law concept of contributory negligence as an
absolute bar to recovery by the plaintiff, has itself been rejected, as it has been in Article 2179 of
the Civil Code.44

Thus, petitioner Tiu cannot escape liability for the death of respondent Arriesgados wife due to
the negligence of petitioner Laspias, his employee, on this score.
Respondents Pedrano and
Condor were likewise
Negligent
In Phoenix Construction, Inc. v. Intermediate Appellate Court,45 where therein respondent
Dionisio sustained injuries when his vehicle rammed against a dump truck parked askew, the
Court ruled that the improper parking of a dump truck without any warning lights or reflector
devices created an unreasonable risk for anyone driving within the vicinity, and for having
created such risk, the truck driver must be held responsible. In ruling against the petitioner
therein, the Court elucidated, thus:
In our view, Dionisios negligence, although later in point of time than the truck
drivers negligence, and therefore closer to the accident, was not an efficient intervening
or independent cause. What the petitioners describe as an "intervening cause" was no
more than a foreseeable consequence of the risk created by the negligent manner in which
the truck driver had parked the dump truck. In other words, the petitioner truck driver
owed a duty to private respondent Dionisio and others similarly situated not to impose
upon them the very risk the truck driver had created. Dionisios negligence was not that
of an independent and overpowering nature as to cut, as it were, the chain of causation in
fact between the improper parking of the dump truck and the accident, nor to sever the
juris vinculum of liability.

We hold that private respondent Dionisios negligence was "only contributory," that the
"immediate and proximate cause" of the injury remained the truck drivers "lack of due
care."46
In this case, both the trial and the appellate courts failed to consider that respondent Pedrano was
also negligent in leaving the truck parked askew without any warning lights or reflector devices
to alert oncoming vehicles, and that such failure created the presumption of negligence on the
part of his employer, respondent Condor, in supervising his employees properly and adequately.
As we ruled in Poblete v. Fabros:47
It is such a firmly established principle, as to have virtually formed part of the law itself,
that the negligence of the employee gives rise to the presumption of negligence on the
part of the employer. This is the presumed negligence in the selection and supervision of
employee. The theory of presumed negligence, in contrast with the American doctrine of
respondeat superior, where the negligence of the employee is conclusively presumed to
be the negligence of the employer, is clearly deducible from the last paragraph of Article
2180 of the Civil Code which provides that the responsibility therein mentioned shall
cease if the employers prove that they observed all the diligence of a good father of a
family to prevent damages. 48

The petitioners were correct in invoking respondent Pedranos failure to observe Article IV,
Section 34(g) of the Rep. Act No. 4136, which provides:1avvphil.net
(g) Lights when parked or disabled. Appropriate parking lights or flares visible one
hundred meters away shall be displayed at a corner of the vehicle whenever such vehicle
is parked on highways or in places that are not well-lighted or is placed in such manner as
to endanger passing traffic.
The manner in which the truck was parked clearly endangered oncoming traffic on both sides,
considering that the tire blowout which stalled the truck in the first place occurred in the wee
hours of the morning. The Court can only now surmise that the unfortunate incident could have
been averted had respondent Condor, the owner of the truck, equipped the said vehicle with
lights, flares, or, at the very least, an early warning device.49 Hence, we cannot subscribe to
respondents Condor and Pedranos claim that they should be absolved from liability because, as
found by the trial and appellate courts, the proximate cause of the collision was the fast speed at
which petitioner Laspias drove the bus. To accept this proposition would be to come too close
to wiping out the fundamental principle of law that a man must respond for the foreseeable
consequences of his own negligent act or omission. Indeed, our law on quasi-delicts seeks to
reduce the risks and burdens of living in society and to allocate them among its members. To
accept this proposition would be to weaken the very bonds of society.50
The Liability of
Respondent PPSII
as Insurer
The trial court in this case did not rule on the liability of respondent PPSII, while the appellate
court ruled that, as no evidence was presented against it, the insurance company is not liable.
A perusal of the records will show that when the petitioners filed the Third-Party Complaint
against respondent PPSII, they failed to attach a copy of the terms of the insurance contract itself.
Only Certificate of Cover No. 05494051 issued in favor of "Mr. William Tiu, Lahug, Cebu City"
signed by Cosme H. Boniel was appended to the third-party complaint. The date of issuance,
July 22, 1986, the period of insurance, from July 22, 1986 to July 22, 1987, as well as the
following items, were also indicated therein:
SCHEDULED VEHICLE
MODEL

MAKE
Isuzu Forward

TYPE OF
BODY
Bus

COLOR
blue mixed

BLT FILE NO.

PLATE
NO.
PBP-724

SERIAL/CHASSIS
NO.
SER450-1584124

MOTOR NO.
677836

AUTHORIZED
CAPACITY
50

UNLADEN
WEIGHT
6 Cyls. Kgs.

SECTION 1/11

*LIMITS OF LIABILITY

PREMIUMS

A. THIRD PARTY LIABILITY

P50,000.00

B. PASSENGER LIABILITY

Per Person
P12,000.00

Per Accident
P50,000

PAID
P540.0052

In its Answer53 to the Third-Party Complaint, the respondent PPSII admitted the existence of the
contract of insurance, in view of its failure to specifically deny the same as required under then
Section 8(a), Rule 8 of the Rules of Court,54 which reads:
Sec. 8. How to contest genuineness of such documents. When an action or defense is
founded upon a written instrument copied in or attached to the corresponding pleading as
provided in the preceding section, the genuineness and due execution of the instrument
shall be deemed admitted unless the adverse party, under oath, specifically denies them,
and sets forth what he claims to be the facts; but the requirement of an oath does not
apply when the adverse party does not appear to be a party to the instrument or when
compliance with an order for inspection of the original instrument is refused.
In fact, respondent PPSII did not dispute the existence of such contract, and admitted that it was
liable thereon. It claimed, however, that it had attended to and settled the claims of those injured
during the incident, and set up the following as special affirmative defenses:
Third party defendant Philippine Phoenix Surety and Insurance, Inc. hereby reiterates and
incorporates by way of reference the preceding paragraphs and further states THAT:8. It has attended to the claims of Vincent Canales, Asuncion Batiancila and
Neptali Palces who sustained injuries during the incident in question. In fact, it
settled financially their claims per vouchers duly signed by them and they duly
executed Affidavit[s] of Desistance to that effect, xerox copies of which are hereto
attached as Annexes 1, 2, 3, 4, 5, and 6 respectively;
9. With respect to the claim of plaintiff, herein answering third party defendant
through its authorized insurance adjuster attended to said claim. In fact, there
were negotiations to that effect. Only that it cannot accede to the demand of said
claimant considering that the claim was way beyond the scheduled indemnity as
per contract entered into with third party plaintiff William Tiu and third party
defendant (Philippine Phoenix Surety and Insurance, Inc.). Third party Plaintiff
William Tiu knew all along the limitation as earlier stated, he being an old hand in
the transportation business;55
Considering the admissions made by respondent PPSII, the existence of the insurance contract
and the salient terms thereof cannot be dispatched. It must be noted that after filing its answer,
respondent PPSII no longer objected to the presentation of evidence by respondent Arriesgado
and the insured petitioner Tiu. Even in its Memorandum56 before the Court, respondent PPSII
admitted the existence of the contract, but averred as follows:

Petitioner Tiu is insisting that PPSII is liable to him for contribution, indemnification
and/or reimbursement. This has no basis under the contract. Under the contract, PPSII
will pay all sums necessary to discharge liability of the insured subject to the limits of
liability but not to exceed the limits of liability as so stated in the contract. Also, it is
stated in the contract that in the event of accident involving indemnity to more than one
person, the limits of liability shall not exceed the aggregate amount so specified by law to
all persons to be indemnified.57
As can be gleaned from the Certificate of Cover, such insurance contract was issued pursuant to
the Compulsory Motor Vehicle Liability Insurance Law. It was expressly provided therein that
the limit of the insurers liability for each person was P12,000, while the limit per accident was
pegged at P50,000. An insurer in an indemnity contract for third party liability is directly liable
to the injured party up to the extent specified in the agreement but it cannot be held solidarily
liable beyond that amount.58 The respondent PPSII could not then just deny petitioner Tius
claim; it should have paid P12,000 for the death of Felisa Arriesgado,59 and respondent
Arriesgados hospitalization expenses of P1,113.80, which the trial court found to have been duly
supported by receipts. The total amount of the claims, even when added to that of the other
injured passengers which the respondent PPSII claimed to have settled,60 would not exceed the
P50,000 limit under the insurance agreement.
Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is such that it is primarily
intended to provide compensation for the death or bodily injuries suffered by innocent third
parties or passengers as a result of the negligent operation and use of motor vehicles. The victims
and/or their dependents are assured of immediate financial assistance, regardless of the financial
capacity of motor vehicle owners.61 As the Court, speaking through Associate Justice Leonardo
A. Quisumbing, explained in Government Service Insurance System v. Court of Appeals:62
However, although the victim may proceed directly against the insurer for indemnity, the
third party liability is only up to the extent of the insurance policy and those required by
law. While it is true that where the insurance contract provides for indemnity against
liability to third persons, and such persons can directly sue the insurer, the direct liability
of the insurer under indemnity contracts against third party liability does not mean that
the insurer can be held liable in solidum with the insured and/or the other parties found at
fault. For the liability of the insurer is based on contract; that of the insured carrier or
vehicle owner is based on tort.
Obviously, the insurer could be held liable only up to the extent of what was provided for
by the contract of insurance, in accordance with the CMVLI law. At the time of the
incident, the schedule of indemnities for death and bodily injuries, professional fees and
other charges payable under a CMVLI coverage was provided for under the Insurance
Memorandum Circular (IMC) No. 5-78 which was approved on November 10, 1978. As
therein provided, the maximum indemnity for death was twelve thousand (P12,000.00)
pesos per victim. The schedules for medical expenses were also provided by said IMC,
specifically in paragraphs (C) to (G).63

Damages to be
Awarded
The trial court correctly awarded moral damages in the amount of P50,000 in favor of respondent
Arriesgado. The award of exemplary damages by way of example or correction of the public
good,64 is likewise in order. As the Court ratiocinated in Kapalaran Bus Line v. Coronado:65
While the immediate beneficiaries of the standard of extraordinary diligence are, of
course, the passengers and owners of cargo carried by a common carrier, they are not the
only persons that the law seeks to benefit. For if common carriers carefully observed the
statutory standard of extraordinary diligence in respect of their own passengers, they
cannot help but simultaneously benefit pedestrians and the passengers of other vehicles
who are equally entitled to the safe and convenient use of our roads and highways. The
law seeks to stop and prevent the slaughter and maiming of people (whether passengers
or not) on our highways and buses, the very size and power of which seem to inflame the
minds of their drivers. Article 2231 of the Civil Code explicitly authorizes the imposition
of exemplary damages in cases of quasi-delicts "if the defendant acted with gross
negligence."66
The respondent Pedro A. Arriesgado, as the surviving spouse and heir of Felisa Arriesgado, is
entitled to indemnity in the amount of P50,000.00.67
The petitioners, as well as the respondents Benjamin Condor and Sergio Pedrano are jointly and
severally liable for said amount, conformably with the following pronouncement of the Court in
Fabre, Jr. vs. Court of Appeals:68
The same rule of liability was applied in situations where the negligence of the driver of
the bus on which plaintiff was riding concurred with the negligence of a third party who
was the driver of another vehicle, thus causing an accident. In Anuran v. Buo, Batangas
Laguna Tayabas Bus Co. v. Intermediate Appellate Court, and Metro Manila Transit
Corporation v. Court of Appeals, the bus company, its driver, the operator of the other
vehicle and the driver of the vehicle were jointly and severally held liable to the injured
passenger or the latters heirs. The basis of this allocation of liability was explained in
Viluan v. Court of Appeals, thus:
"Nor should it make difference that the liability of petitioner [bus owner] springs
from contract while that of respondents [owner and driver of other vehicle] arises
from quasi-delict. As early as 1913, we already ruled in Gutierrez vs. Gutierrez,
56 Phil. 177, that in case of injury to a passenger due to the negligence of the
driver of the bus on which he was riding and of the driver of another vehicle, the
drivers as well as the owners of the two vehicles are jointly and severally liable
for damages. Some members of the Court, though, are of the view that under the
circumstances they are liable on quasi-delict."69
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The
Decision of the Court of Appeals is AFFIRMED with MODIFICATIONS:

(1) Respondent Philippine Phoenix Surety and Insurance, Inc. and petitioner William Tiu
are ORDERED to pay, jointly and severally, respondent Pedro A. Arriesgado the total
amount of P13,113.80;
(2) The petitioners and the respondents Benjamin Condor and Sergio Pedrano are
ORDERED to pay, jointly and severally, respondent Pedro A. Arriesgado P50,000.00 as
indemnity; P26,441.50 as actual damages; P50,000.00 as moral damages; P50,000.00 as
exemplary damages; and P20,000.00 as attorneys fees.
SO ORDERED.

XVI. CLAIMS SETTLEMENT


Tio Khe Chio vs. CA (September 30, 1991);
Finman General Assurance Corporation (July 12, 2001);

Prudential Guarantee vs. Trans-Asia Shipping Lines, Inc. G.R. No. 151890, 20 June
2006

G.R. No. 151890

June 20, 2006

PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner,


vs.
TRANS-ASIA SHIPPING LINES, INC., Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 151991

June 20, 2006

TRANS-ASIA SHIPPING LINES, INC., petitioner,


vs.
PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent.
DECISION
CHICO-NAZARIO, J:
This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner
Prudential Guarantee and Assurance, Inc. (PRUDENTIAL) in G.R. No. 151890 and Trans-Asia
Shipping Lines, Inc. (TRANS-ASIA) in G.R. No. 151991, assailing the Decision1 dated 6
November 2001 of the Court of Appeals in CA G.R. CV No. 68278, which reversed the
Judgment2 dated 6 June 2000 of the Regional Trial Court (RTC), Branch 13, Cebu City in Civil
Case No. CEB-20709. The 29 January 2002 Resolution3 of the Court of Appeals, denying
PRUDENTIALs Motion for Reconsideration and TRANS-ASIAs Partial Motion for
Reconsideration of the 6 November 2001 Decision, is likewise sought to be annulled and set
aside.
The Facts
The material antecedents as found by the court a quo and adopted by the appellate court are as
follows:
Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of
payment of premiums, defendant [PRUDENTIAL] insured M/V Asia Korea for loss/damage of
the hull and machinery arising from perils, inter alia, of fire and explosion for the sum of P40
Million, beginning [from] the period [of] July 1, 1993 up to July 1, 1994. This is evidenced by
Marine Policy No. MH93/1363 (Exhibits "A" to "A-11"). On October 25, 1993, while the policy
was in force, a fire broke out while [M/V Asia Korea was] undergoing repairs at the port of
Cebu. On October 26, 1993 plaintiff [TRANS-ASIA] filed its notice of claim for damage
sustained by the vessel. This is evidenced by a letter/formal claim of even date (Exhibit "B").

Plaintiff [TRANS-ASIA] reserved its right to subsequently notify defendant [PRUDENTIAL] as


to the full amount of the claim upon final survey and determination by average adjuster Richard
Hogg International (Phil.) of the damage sustained by reason of fire. An adjusters report on the
fire in question was submitted by Richard Hogg International together with the U-Marine
Surveyor Report (Exhibits "4" to "4-115").
On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan and
Trust receipt", a portion of which read (sic):
"Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE
MILLION ONLY (P3,000,000.00) as a loan without interest under Policy No. MH 93/1353 [sic],
repayable only in the event and to the extent that any net recovery is made by Trans-Asia
Shipping Corporation, from any person or persons, corporation or corporations, or other parties,
on account of loss by any casualty for which they may be liable occasioned by the 25 October
1993: Fire on Board." (Exhibit "4")
In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiffs claim (Exhibit "5").
The letter reads:
"After a careful review and evaluation of your claim arising from the above-captioned incident, it
has been ascertained that you are in breach of policy conditions, among them "WARRANTED
VESSEL CLASSED AND CLASS MAINTAINED". Accordingly, we regret to advise that your
claim is not compensable and hereby DENIED."
This was followed by defendants letter dated 21 July 1997 requesting the return or payment of
the P3,000,000.00 within a period of ten (10) days from receipt of the letter (Exhibit "6").4
Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint5 for Sum of
Money against PRUDENTIAL with the RTC of Cebu City, docketed as Civil Case No. CEB20709, wherein TRANS-ASIA sought the amount of P8,395,072.26 from PRUDENTIAL,
alleging that the same represents the balance of the indemnity due upon the insurance policy in
the total amount of P11,395,072.26. TRANS-ASIA similarly sought interest at 42% per annum
citing Section 2436 of Presidential Decreee No. 1460, otherwise known as the "Insurance Code,"
as amended.
In its Answer,7 PRUDENTIAL denied the material allegations of the Complaint and interposed
the defense that TRANS-ASIA breached insurance policy conditions, in particular:
"WARRANTED VESSEL CLASSED AND CLASS MAINTAINED." PRUDENTIAL further
alleged that it acted as facts and law require and incurred no liability to TRANS-ASIA; that
TRANS-ASIA has no cause of action; and, that its claim has been effectively waived and/or
abandoned, or it is estopped from pursuing the same. By way of a counterclaim, PRUDENTIAL
sought a refund of P3,000,000.00, which it allegedly advanced to TRANS-ASIA by way of a

loan without interest and without prejudice to the final evaluation of the claim, including the
amounts of P500,000.00, for survey fees and P200,000.00, representing attorneys fees.
The Ruling of the Trial Court
On 6 June 2000, the court a quo rendered Judgment8 finding for (therein defendant)
PRUDENTIAL. It ruled that a determination of the parties liabilities hinged on whether
TRANS-ASIA violated and breached the policy conditions on WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED. It interpreted the provision to mean that TRANSASIA is required to maintain the vessel at a certain class at all times pertinent during the life of
the policy. According to the court a quo, TRANS-ASIA failed to prove compliance of the terms
of the warranty, the violation thereof entitled PRUDENTIAL, the insured party, to rescind the
contract.9
Further, citing Section 10710 of the Insurance Code, the court a quo ratiocinated that the
concealment made by TRANS-ASIA that the vessel was not adequately maintained to preserve
its class was a material concealment sufficient to avoid the policy and, thus, entitled the injured
party to rescind the contract. The court a quo found merit in PRUDENTIALs contention that
there was nothing in the adjustment of the particular average submitted by the adjuster that
would show that TRANS-ASIA was not in breach of the policy. Ruling on the denominated loan
and trust receipt, the court a quo said that in substance and in form, the same is a receipt for a
loan. It held that if TRANS-ASIA intended to receive the amount of P3,000,000.00 as advance
payment, it should have so clearly stated as such.
The court a quo did not award PRUDENTIALs claim for P500,000.00, representing expert
survey fees on the ground of lack of sufficient basis in support thereof. Neither did it award
attorneys fees on the rationalization that the instant case does not fall under the exceptions stated
in Article 220811 of the Civil Code. However, the court a quo granted PRUDENTIALs
counterclaim stating that there is factual and legal basis for TRANS-ASIA to return the amount
of P3,000,000.00 by way of loan without interest.
The decretal portion of the Judgment of the RTC reads:
WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to prove
a cause of action.
On defendants counterclaim, plaintiff is directed to return the sum of P3,000,000.00
representing the loan extended to it by the defendant, within a period of ten (10) days from and
after this judgment shall have become final and executory.12
The Ruling of the Court of Appeals
On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 November 2001,
reversed the 6 June 2000 Judgment of the RTC.

On the issue of TRANS-ASIAs alleged breach of warranty of the policy condition CLASSED
AND CLASS MAINTAINED, the Court of Appeals ruled that PRUDENTIAL, as the party
asserting the non-compensability of the loss had the burden of proof to show that TRANS-ASIA
breached the warranty, which burden it failed to discharge. PRUDENTIAL cannot rely on the
lack of certification to the effect that TRANS-ASIA was CLASSED AND CLASS
MAINTAINED as its sole basis for reaching the conclusion that the warranty was breached. The
Court of Appeals opined that the lack of a certification does not necessarily mean that the
warranty was breached by TRANS-ASIA. Instead, the Court of Appeals considered
PRUDENTIALs admission that at the time the insurance contract was entered into between the
parties, the vessel was properly classed by Bureau Veritas, a classification society recognized by
the industry. The Court of Appeals similarly gave weight to the fact that it was the responsibility
of Richards Hogg International (Phils.) Inc., the average adjuster hired by PRUDENTIAL, to
secure a copy of such certification to support its conclusion that mere absence of a certification
does not warrant denial of TRANS-ASIAs claim under the insurance policy.
In the same token, the Court of Appeals found the subject warranty allegedly breached by
TRANS-ASIA to be a rider which, while contained in the policy, was inserted by PRUDENTIAL
without the intervention of TRANS-ASIA. As such, it partakes of a nature of a contract
dadhesion which should be construed against PRUDENTIAL, the party which drafted the
contract. Likewise, according to the Court of Appeals, PRUDENTIALs renewal of the insurance
policy from noon of 1 July 1994 to noon of 1 July 1995, and then again, until noon of 1 July
1996 must be deemed a waiver by PRUDENTIAL of any breach of warranty committed by
TRANS-ASIA.
Further, the Court of Appeals, contrary to the ruling of the court a quo, interpreted the transaction
between PRUDENTIAL and TRANS-ASIA as one of subrogation, instead of a loan. The Court
of Appeals concluded that TRANS-ASIA has no obligation to pay back the amount of
P3,000.000.00 to PRUDENTIAL based on its finding that the aforesaid amount was
PRUDENTIALs partial payment to TRANS-ASIAs claim under the policy. Finally, the Court of
Appeals denied TRANS-ASIAs prayer for attorneys fees, but held TRANS-ASIA entitled to
double interest on the policy for the duration of the delay of payment of the unpaid balance,
citing Section 24413 of the Insurance Code.
Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wise:
WHEREFORE, the foregoing consideration, We find for Appellant. The instant appeal is
ALLOWED and the Judgment appealed from REVERSED. The P3,000,000.00 initially paid by
appellee Prudential Guarantee Assurance Incorporated to appellant Trans-Asia and covered by a
"Loan and Trust Receipt" dated 29 May 1995 is HELD to be in partial settlement of the loss
suffered by appellant and covered by Marine Policy No. MH93/1363 issued by appellee. Further,
appellee is hereby ORDERED to pay appellant the additional amount of P8,395,072.26
representing the balance of the loss suffered by the latter as recommended by the average
adjuster Richard Hogg International (Philippines) in its Report, with double interest starting from

the time Richard Hoggs Survey Report was completed, or on 13 August 1996, until the same is
fully paid.
All other claims and counterclaims are hereby DISMISSED.
All costs against appellee.14
Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for
Reconsideration and Partial Motion for Reconsideration thereon, respectively, which motions
were denied by the Court of Appeals in the Resolution dated 29 January 2002.
The Issues
Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No.
151890, relying on the following grounds, viz:
I.
THE AWARD IS GROSSLY UNCONSCIONABLE.
II.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO VIOLATION BY
TRANS-ASIA OF A MATERIAL WARRANTY, NAMELY, WARRANTY CLAUSE NO. 5, OF
THE INSURANCE POLICY.
III.
THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS INSURER
HAD THE BURDEN OF PROVING THAT THE ASSURED, TRANS-ASIA, VIOLATED A
MATERIAL WARRANTY.
IV.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE
EMBODIED IN THE INSURANCE POLICY CONTRACT WAS A MERE RIDER.
V.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS OF
THE POLICY CONSTITUTED A WAIVER ON THE PART OF PRUDENTIAL OF THE
BREACH OF THE WARRANTY BY TRANS-ASIA.
VI.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST
RECEIPT" EXECUTED BY TRANS-ASIA IS AN ADVANCE ON THE POLICY, THUS
CONSTITUTING PARTIAL PAYMENT THEREOF.
VII.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY
PRUDENTIAL OF THE FINDINGS OF RICHARDS HOGG IS INDICATIVE OF A WAIVER
ON THE PART OF PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE
WARRANTY.
VIII.
THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN
FINDING THAT PRUDENTIAL "UNJUSTIFIABLY REFUSED" TO PAY THE CLAIM AND
IN ORDERING PRUDENTIAL TO PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE
INTEREST FROM 13 AUGUST 1996, UNTIL [THE] SAME IS FULLY PAID.15
Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for
Review docketed as G.R. No. 151991, raising the following grounds for the allowance of the
petition, to wit:
I.
THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ATTORNEYS
FEES TO PETITIONER TRANS-ASIA ON THE GROUND THAT SUCH CAN ONLY BE
AWARDED IN THE CASES ENUMERATED IN ARTICLE 2208 OF THE CIVIL CODE, AND
THERE BEING NO BAD FAITH ON THE PART OF RESPONDENT PRUDENTIAL IN
DENYING HEREIN PETITIONER TRANS-ASIAS INSURANCE CLAIM.
II.
THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06 NOVEMBER
2001 SHOULD BE CONSTRUED TO MEAN DOUBLE INTEREST BASED ON THE LEGAL
INTEREST OF 12%, OR INTEREST AT THE RATE OF 24% PER ANNUM.16
In our Resolution of 2 December 2002, we granted TRANS-ASIAs Motion for Consolidation17
of G.R. Nos. 151890 and 151991;18 hence, the instant consolidated petitions.
In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANS-ASIA
arising from the subject insurance contract; (2) the liability, if any, of TRANS-ASIA to
PRUDENTIAL arising from the transaction between the parties as evidenced by a document
denominated as "Loan and Trust Receipt," dated 29 May 1995; and (3) the amount of interest to
be imposed on the liability, if any, of either or both parties.

Ruling of the Court


Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not
questions of fact, may be raised.19 This rule may be disregarded only when the findings of fact of
the Court of Appeals are contrary to the findings and conclusions of the trial court, or are not
supported by the evidence on record.20 In the case at bar, we find an incongruence between the
findings of fact of the Court of Appeals and the court a quo, thus, in our determination of the
issues, we are constrained to assess the evidence adduced by the parties to make appropriate
findings of facts as are necessary.
I.
A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy
condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, as
contained in the subject insurance contract.
In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an
express and material warranty in the subject insurance contract, i.e., Marine Insurance Policy No.
MH93/1363, specifically Warranty Clause No. 5 thereof, which stipulates that the insured vessel,
"M/V ASIA KOREA" is required to be CLASSED AND CLASS MAINTAINED. According to
PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA
KOREA" was in violation of the warranty as it was not CLASSED AND CLASS
MAINTAINED. PRUDENTIAL submits that Warranty Clause No. 5 was a condition precedent
to the recovery of TRANS-ASIA under the policy, the violation of which entitled PRUDENTIAL
to rescind the contract under Sec. 7421 of the Insurance Code.
The warranty condition CLASSED AND CLASS MAINTAINED was explained by
PRUDENTIALs Senior Manager of the Marine and Aviation Division, Lucio Fernandez. The
pertinent portions of his testimony on direct examination is reproduced hereunder, viz:
ATTY. LIM
Q Please tell the court, Mr. Witness, the result of the evaluation of this claim, what final action
was taken?
A It was eventually determined that there was a breach of the policy condition, and basically
there is a breach of policy warranty condition and on that basis the claim was denied.
Q To refer you (sic) the "policy warranty condition," I am showing to you a policy here marked
as Exhibits "1", "1-A" series, please point to the warranty in the policy which you said was
breached or violated by the plaintiff which constituted your basis for denying the claim as you
testified.
A Warranted Vessel Classed and Class Maintained.

ATTY. LIM
Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is the second page of the
policy below the printed words: "Clauses, Endorsements, Special Conditions and Warranties,"
below this are several typewritten clauses and the witness pointed out in particular the clause
reading: "Warranted Vessel Classed and Class Maintained."
COURT
Q Will you explain that particular phrase?
A Yes, a warranty is a condition that has to be complied with by the insured. When we say a class
warranty, it must be entered in the classification society.
COURT
Slowly.
WITNESS
(continued)
A A classification society is an organization which sets certain standards for a vessel to maintain
in order to maintain their membership in the classification society. So, if they failed to meet that
standard, they are considered not members of that class, and thus breaching the warranty, that
requires them to maintain membership or to maintain their class on that classification society.
And it is not sufficient that the member of this classification society at the time of a loss, their
membership must be continuous for the whole length of the policy such that during the
effectivity of the policy, their classification is suspended, and then thereafter, they get reinstated,
that again still a breach of the warranty that they maintained their class (sic). Our maintaining
team membership in the classification society thereby maintaining the standards of the vessel
(sic).
ATTY. LIM
Q Can you mention some classification societies that you know?
A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classification
Society, The Philippine Registration of Ships Society, China Classification, NKK and Company
Classification Society, and many others, we have among others, there are over 20 worldwide. 22
At the outset, it must be emphasized that the party which alleges a fact as a matter of defense has
the burden of proving it. PRUDENTIAL, as the party which asserted the claim that TRANSASIA breached the warranty in the policy, has the burden of evidence to establish the same.

Hence, on the part of PRUDENTIAL lies the initiative to show proof in support of its defense;
otherwise, failing to establish the same, it remains self-serving. Clearly, if no evidence on the
alleged breach of TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA
would be successful in claiming on the policy. It follows that PRUDENTIAL bears the burden of
evidence to establish the fact of breach.
In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of
proof to show proof of loss, and the coverage thereof, in the subject insurance policy. However,
in the course of trial in a civil case, once plaintiff makes out a prima facie case in his favor, the
duty or the burden of evidence shifts to defendant to controvert plaintiffs prima facie case,
otherwise, a verdict must be returned in favor of plaintiff.23 TRANS-ASIA was able to establish
proof of loss and the coverage of the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the
burden of evidence shifted to PRUDENTIAL to counter TRANS-ASIAs case, and to prove its
special and affirmative defense that TRANS-ASIA was in violation of the particular condition on
CLASSED AND CLASS MAINTAINED.
We sustain the findings of the Court of Appeals that PRUDENTIAL was not successful in
discharging the burden of evidence that TRANS-ASIA breached the subject policy condition on
CLASSED AND CLASS MAINTAINED.
Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division,
Lucio Fernandez, made a categorical admission that at the time of the procurement of the
insurance contract in July 1993, TRANS-ASIAs vessel, "M/V Asia Korea" was properly classed
by Bureau Veritas, thus:
Q Kindly examine the records particularly the policy, please tell us if you know whether M/V
Asia Korea was classed at the time (sic) policy was procured perthe (sic) insurance was procured
that Exhibit "1" on 1st July 1993 (sic).
WITNESS
A I recall that they were classed.
ATTY. LIM
Q With what classification society?
A I believe with Bureau Veritas.24
As found by the Court of Appeals and as supported by the records, Bureau Veritas is a
classification society recognized in the marine industry. As it is undisputed that TRANS-ASIA
was properly classed at the time the contract of insurance was entered into, thus, it becomes
incumbent upon PRUDENTIAL to show evidence that the status of TRANS-ASIA as being

properly CLASSED by Bureau Veritas had shifted in violation of the warranty. Unfortunately,
PRUDENTIAL failed to support the allegation.
We are in accord with the ruling of the Court of Appeals that the lack of a certification in
PRUDENTIALs records to the effect that TRANS-ASIAs "M/V Asia Korea" was CLASSED
AND CLASS MAINTAINED at the time of the occurrence of the fire cannot be tantamount to
the conclusion that TRANS-ASIA in fact breached the warranty contained in the policy. With
more reason must we sustain the findings of the Court of Appeals on the ground that as admitted
by PRUDENTIAL, it was likewise the responsibility of the average adjuster, Richards Hogg
International (Phils.), Inc., to secure a copy of such certification, and the alleged breach of
TRANS-ASIA cannot be gleaned from the average adjusters survey report, or adjustment of
particular average per "M/V Asia Korea" of the 25 October 1993 fire on board.
We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides
that, "the violation of a material warranty, or other material provision of a policy on the part of
either party thereto, entitles the other to rescind." It is generally accepted that "[a] warranty is a
statement or promise set forth in the policy, or by reference incorporated therein, the untruth or
non-fulfillment of which in any respect, and without reference to whether the insurer was in fact
prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer."25
However, it is similarly indubitable that for the breach of a warranty to avoid a policy, the same
must be duly shown by the party alleging the same. We cannot sustain an allegation that is
unfounded. Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the
warranty condition, CLASSED AND CLASS MAINTAINED, it remains that TRANS-ASIA
must be allowed to recover its rightful claims on the policy.
B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED
VESSEL CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the
same.
The Court of Appeals, in reversing the Judgment of the RTC which held that TRANS-ASIA
breached the warranty provision on CLASSED AND CLASS MAINTAINED, underscored that
PRUDENTIAL can be deemed to have made a valid waiver of TRANS-ASIAs breach of
warranty as alleged, ratiocinating, thus:
Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2)
consecutive years, from noon of 01 July 1994 to noon of 01 July 1995, and then again until noon
of 01 July 1996. This renewal is deemed a waiver of any breach of warranty.26
PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal
policies are deemed a waiver of TRANS-ASIAs alleged breach, averring herein that the
subsequent policies, designated as MH94/1595 and MH95/1788 show that they were issued only
on 1 July 1994 and 3 July 1995, respectively, prior to the time it made a request to TRANS-ASIA
that it be furnished a copy of the certification specifying that the insured vessel "M/V Asia

Korea" was CLASSED AND CLASS MAINTAINED. PRUDENTIAL posits that it came to
know of the breach by TRANS-ASIA of the subject warranty clause only on 21 April 1997. On
even date, PRUDENTIAL sent TRANS-ASIA a letter of denial, advising the latter that their
claim is not compensable. In fine, PRUDENTIAL would have this Court believe that the
issuance of the renewal policies cannot be a waiver because they were issued without knowledge
of the alleged breach of warranty committed by TRANS-ASIA.27
We are not impressed. We do not find that the Court of Appeals was in error when it held that
PRUDENTIAL, in renewing TRANS-ASIAs insurance policy for two consecutive years after
the loss covered by Policy No. MH93/1363, was considered to have waived TRANS-ASIAs
breach of the subject warranty, if any. Breach of a warranty or of a condition renders the contract
defeasible at the option of the insurer; but if he so elects, he may waive his privilege and power
to rescind by the mere expression of an intention so to do. In that event his liability under the
policy continues as before.28 There can be no clearer intention of the waiver of the alleged breach
than the renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in
MH94/1595 and MH95/1788, issued in the years 1994 and 1995, respectively.
To our mind, the argument is made even more credulous by PRUDENTIALs lack of proof to
support its allegation that the renewals of the policies were taken only after a request was made
to TRANS-ASIA to furnish them a copy of the certificate attesting that "M/V Asia Korea" was
CLASSED AND CLASS MAINTAINED. Notwithstanding PRUDENTIALs claim that no
certification was issued to that effect, it renewed the policy, thereby, evidencing an intention to
waive TRANS-ASIAs alleged breach. Clearly, by granting the renewal policies twice and
successively after the loss, the intent was to benefit the insured, TRANS-ASIA, as well as to
waive compliance of the warranty.
The foregoing finding renders a determination of whether the subject warranty is a rider, moot,
as raised by the PRUDENTIAL in its assignment of errors. Whether it is a rider will not
effectively alter the result for the reasons that: (1) PRUDENTIAL was not able to discharge the
burden of evidence to show that TRANS-ASIA committed a breach, thereof; and (2) assuming
arguendo the commission of a breach by TRANS-ASIA, the same was shown to have been
waived by PRUDENTIAL.
II.
A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS- ASIA via a transaction
between the parties evidenced by a document denominated as "Loan and Trust Receipt," dated 29
May 1995 constituted partial payment on the policy.
It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,000.00.
The same was evidenced by a transaction receipt denominated as a "Loan and Trust Receipt,"
dated 29 May 1995, reproduced hereunder:

LOAN AND TRUST RECEIPT


Claim File No. MH-93-025
P3,000,000.00
Check No. PCIB066755

May 29, 1995

Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the sum of PESOS
THREE MILLION ONLY (P3,000,000.00) as a loan without interest, under Policy No.
MH93/1353, repayable only in the event and to the extent that any net recovery is made by
TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporations, or
other parties, on account of loss by any casualty for which they may be liable, occasioned by the
25 October 1993: Fire on Board.
As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND
ASSURANCE INC. whatever recovery we may make and deliver to it all documents necessary
to prove our interest in said property. We also hereby agree to promptly prosecute suit against
such persons, corporation or corporations through whose negligence the aforesaid loss was
caused or who may otherwise be responsible therefore, with all due diligence, in our own name,
but at the expense of and under the exclusive direction and control of PRUDENTIAL
GUARANTEE AND ASSURANCE INC.
TRANS-ASIA SHIPPING CORPORATION29
PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the parties
evidenced a loan of P3,000,000.00 which it granted to TRANS-ASIA, and not an advance
payment on the policy or a partial payment for the loss. It further submits that it is a customary
practice for insurance companies in this country to extend loans gratuitously as part of good
business dealing with their assured, in order to afford their assured the chance to continue
business without embarrassment while awaiting outcome of the settlement of their claims.30
According to PRUDENTIAL, the "Trust and Loan Agreement" did not subrogate to it whatever
rights and/or actions TRANS-ASIA may have against third persons, and it cannot by no means
be taken that by virtue thereof, PRUDENTIAL was granted irrevocable power of attorney by
TRANS-ASIA, as the sole power to prosecute lies solely with the latter.
The Court of Appeals held that the real character of the transaction between the parties as
evidenced by the "Loan and Trust Receipt" is that of an advance payment by PRUDENTIAL of
TRANS-ASIAs claim on the insurance, thus:
The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insurance Law
Act No. 2427 of the Philippine Legislature during the American Regime. The Insurance Act was
lifted verbatim from the law of California, except Chapter V thereof, which was taken largely
from the insurance law of New York. Therefore, ruling case law in that jurisdiction is to Us
persuasive in interpreting provisions of our own Insurance Code. In addition, the application of

the adopted statute should correspond in fundamental points with the application in its country of
origin x x x.
xxxx
Likewise, it is settled in that jurisdiction that the (sic) notwithstanding recitals in the Loan
Receipt that the money was intended as a loan does not detract from its real character as payment
of claim, thus:
"The receipt of money by the insured employers from a surety company for losses on account of
forgery of drafts by an employee where no provision or repayment of the money was made
except upon condition that it be recovered from other parties and neither interest nor security for
the asserted debts was provided for, the money constituted the payment of a liability and not a
mere loan, notwithstanding recitals in the written receipt that the money was intended as a mere
loan."
What is clear from the wordings of the so-called "Loan and Trust Receipt Agreement" is that
appellant is obligated to hand over to appellee "whatever recovery (Trans Asia) may make and
deliver to (Prudential) all documents necessary to prove its interest in the said property." For all
intents and purposes therefore, the money receipted is payment under the policy, with Prudential
having the right of subrogation to whatever net recovery Trans-Asia may obtain from third
parties resulting from the fire. In the law on insurance, subrogation is an equitable assignment to
the insurer of all remedies which the insured may have against third person whose negligence or
wrongful act caused the loss covered by the insurance policy, which is created as the legal effect
of payment by the insurer as an assignee in equity. The loss in the first instance is that of the
insured but after reimbursement or compensation, it becomes the loss of the insurer. It has been
referred to as the doctrine of substitution and rests on the principle that substantial justice should
be attained regardless of form, that is, its basis is the doing of complete, essential, and perfect
justice between all the parties without regard to form.31
We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Receipt" evidences
that the real nature of the transaction between the parties was that the amount of P3,000,000.00
was not intended as a loan whereby TRANS-ASIA is obligated to pay PRUDENTIAL, but
rather, the same was a partial payment or an advance on the policy of the claims due to TRANSASIA.
First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by
PRUDENTIAL, subrogating the former to the extent of "any net recovery made by TRANS
ASIA SHIPPING CORP., from any person or persons, corporation or corporations, or other
parties, on account of loss by any casualty for which they may be liable, occasioned by the 25
October 1993: Fire on Board."32

Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to
"promptly prosecute suit against such persons, corporation or corporations through whose
negligence the aforesaid loss was caused or who may otherwise be responsible therefore, with all
due diligence" in its name, the prosecution of the claims against such third persons are to be
carried on "at the expense of and under the exclusive direction and control of PRUDENTIAL
GUARANTEE AND ASSURANCE INC."33 The clear import of the phrase "at the expense of
and under the exclusive direction and control" as used in the "Loan and Trust Receipt" grants
solely to PRUDENTIAL the power to prosecute, even as the same is carried in the name of
TRANS-ASIA, thereby making TRANS-ASIA merely an agent of PRUDENTIAL, the principal,
in the prosecution of the suit against parties who may have occasioned the loss.
Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay
PRUDENTIAL is highly speculative and contingent, i.e., only in the event and to the extent that
any net recovery is made by TRANS-ASIA from any person on account of loss occasioned by
the fire of 25 October 1993. The transaction, therefore, was made to benefit TRANS-ASIA, such
that, if no recovery from third parties is made, PRUDENTIAL cannot be repaid the amount.
Verily, we do not think that this is constitutive of a loan.34 The liberality in the tenor of the "Loan
and Trust Receipt" in favor of TRANS-ASIA leads to the conclusion that the amount of
P3,000,000.00 was a form of an advance payment on TRANS-ASIAs claim on MH93/1353.
III.
A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, representing
the balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No.
MH93/1363.
Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid
claims covered by Marine Policy No. MH93/1363, or a total amount of P8,395,072.26.
B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of attorneys
fees equivalent to 10% of P8,395,072.26.
The Court of Appeals denied the grant of attorneys fees. It held that attorneys fees cannot be
awarded absent a showing of bad faith on the part of PRUDENTIAL in rejecting TRANS-ASIAs
claim, notwithstanding that the rejection was erroneous. According to the Court of Appeals,
attorneys fees can be awarded only in the cases enumerated in Article 2208 of the Civil Code
which finds no application in the instant case.
We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorneys fees and
other expenses incurred by the insured after a finding by the Insurance Commissioner or the
Court, as the case may be, of an unreasonable denial or withholding of the payment of the claims
due. Moreover, the law imposes an interest of twice the ceiling prescribed by the Monetary
Board on the amount of the claim due the insured from the date following the time prescribed in

Section 24235 or in Section 243,36 as the case may be, until the claim is fully satisfied. Finally,
Section 244 considers the failure to pay the claims within the time prescribed in Sections 242 or
243, when applicable, as prima facie evidence of unreasonable delay in payment.
To the mind of this Court, Section 244 does not require a showing of bad faith in order that
attorneys fees be granted. As earlier stated, under Section 244, a prima facie evidence of
unreasonable delay in payment of the claim is created by failure of the insurer to pay the claim
within the time fixed in both Sections 242 and 243 of the Insurance Code. As established in
Section 244, by reason of the delay and the consequent filing of the suit by the insured, the
insurers shall be adjudged to pay damages which shall consist of attorneys fees and other
expenses incurred by the insured.37
Section 244 reads:
In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the
duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the
payment of the claim of the insured has been unreasonably denied or withheld; and in the
affirmative case, the insurance company shall be adjudged to pay damages which shall consist of
attorneys fees and other expenses incurred by the insured person by reason of such unreasonable
denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary
Board of the amount of the claim due the insured, from the date following the time prescribed in
section two hundred forty-two or in section two hundred forty-three, as the case may be, until the
claim is fully satisfied; Provided, That the failure to pay any such claim within the time
prescribed in said sections shall be considered prima facie evidence of unreasonable delay in
payment.
Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay or
refusal in the payment of the insurance claims.
In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show
that there was an unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of
P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day after the occurrence of the fire in
"M/V Asia Korea", TRANS-ASIA filed its notice of claim. On 13 August 1996, the adjuster,
Richards Hogg International (Phils.), Inc., completed its survey report recommending the amount
of P11,395,072.26 as the total indemnity due to TRANS-ASIA.38 On 21 April 1997,
PRUDENTIAL, in a letter39 addressed to TRANS-ASIA denied the latters claim for the amount
of P8,395,072.26 representing the balance of the total indemnity. On 21 July 1997,
PRUDENTIAL sent a second letter40 to TRANS-ASIA seeking a return of the amount of
P3,000,000.00. On 13 August 1997, TRANS-ASIA was constrained to file a complaint for sum
of money against PRUDENTIAL praying, inter alia, for the sum of P8,395,072.26 representing
the balance of the proceeds of the insurance claim.

As can be gleaned from the foregoing, there was an unreasonable delay on the part of
PRUDENTIAL to pay TRANS-ASIA, as in fact, it refuted the latters right to the insurance
claims, from the time proof of loss was shown and the ascertainment of the loss was made by the
insurance adjuster. Evidently, PRUDENTIALs unreasonable delay in satisfying TRANS-ASIAs
unpaid claims compelled the latter to file a suit for collection.
Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of the policy as
attorneys fees to TRANS-ASIA is reasonable under the circumstances, or otherwise stated, ten
percent (10%) of P8,395,072.26. In the case of Cathay Insurance, Co., Inc. v. Court of Appeals,41
where a finding of an unreasonable delay under Section 244 of the Insurance Code was made by
this Court, we grant an award of attorneys fees equivalent to ten percent (10%) of the total
proceeds. We find no reason to deviate from this judicial precedent in the case at bar.
C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorneys fees) shall be
imposed double interest in accordance with Section 244 of the Insurance Code.
Section 244 of the Insurance Code is categorical in imposing an interest twice the ceiling
prescribed by the Monetary Board due the insured, from the date following the time prescribed in
Section 242 or in Section 243, as the case may be, until the claim is fully satisfied. In the case at
bar, we find Section 243 to be applicable as what is involved herein is a marine insurance,
clearly, a policy other than life insurance.
Section 243 is hereunder reproduced:
SEC. 243. The amount of any loss or damage for which an insurer may be liable, under any
policy other than life insurance policy, shall be paid within thirty days after proof of loss is
received by the insurer and ascertainment of the loss or damage is made either by agreement
between the insured and the insurer or by arbitration; but if such ascertainment is not had or
made within sixty days after such receipt by the insurer of the proof of loss, then the loss or
damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or
damage within the time prescribed herein will entitle the assured to collect interest on the
proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by
the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is
fraudulent.
As specified, the assured is entitled to interest on the proceeds for the duration of the delay at the
rate of twice the ceiling prescribed by the Monetary Board except when the failure or refusal of
the insurer to pay was founded on the ground that the claim is fraudulent.
D. The term "double interest" as used in the Decision of the Court of Appeals must be interpreted
to mean 24% per annum.
PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in favor of
TRANS-ASIA in the assailed Decision of 6 November 2001. It is PRUDENTIALs stance that

the award is extortionate and grossly unsconscionable. In support thereto, PRUDENTIAL makes
a reference to TRANS-ASIAs prayer in the Complaint filed with the court a quo wherein the
latter sought, "interest double the prevailing rate of interest of 21% per annum now obtaining in
the banking business or plus 42% per annum pursuant to Article 243 of the Insurance Code x x
x."42
The contention fails to persuade. It is settled that an award of double interest is lawful and
justified under Sections 243 and 244 of the Insurance Code.43 In Finman General Assurance
Corporation v. Court of Appeals,44 this Court held that the payment of 24% interest per annum is
authorized by the Insurance Code.45 There is no gainsaying that the term "double interest" as
used in Sections 243 and 244 can only be interpreted to mean twice 12% per annum or 24% per
annum interest, thus:
The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of twelve
per centum per annum (12%) as prescribed by the Monetary Board in C.B. Circular No. 416,
pursuant to P.D. No. 116, amending the Usury Law; so that when Sections 242, 243 and 244 of
the Insurance Code provide that the insurer shall be liable to pay interest "twice the ceiling
prescribed by the Monetary Board", it means twice 12% per annum or 24% per annum interest
on the proceeds of the insurance.46
E. The payment of double interest should be counted from 13 September 1996.
The Court of Appeals, in imposing double interest for the duration of the delay of the payment of
the unpaid balance due TRANS-ASIA, computed the same from 13 August 1996 until such time
when the amount is fully paid. Although not raised by the parties, we find the computation of the
duration of the delay made by the appellate court to be patently erroneous.
To be sure, Section 243 imposes interest on the proceeds of the policy for the duration of the
delay at the rate of twice the ceiling prescribed by the Monetary Board. Significantly, Section
243 mandates the payment of any loss or damage for which an insurer may be liable, under any
policy other than life insurance policy, within thirty days after proof of loss is received by the
insurer and ascertainment of the loss or damage is made either by agreement between the insured
and the insurer or by arbitration. It is clear that under Section 243, the insurer has until the 30th
day after proof of loss and ascertainment of the loss or damage to pay its liability under the
insurance, and only after such time can the insurer be held to be in delay, thereby necessitating
the imposition of double interest.
In the case at bar, it was not disputed that the survey report on the ascertainment of the loss was
completed by the adjuster, Richard Hoggs International (Phils.), Inc. on 13 August 1996.
PRUDENTIAL had thirty days from 13 August 1996 within which to pay its liability to TRANSASIA under the insurance policy, or until 13 September 1996. Therefore, the double interest can
begin to run from 13 September 1996 only.

IV.
A. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability
adjudged in section III herein, computed from the time of finality of judgment until the full
satisfaction thereof in conformity with this Courts ruling in Eastern Shipping Lines, Inc. v.
Court of Appeals.
This Court in Eastern Shipping Lines, Inc. v. Court of Appeals,47 inscribed the rule of thumb48 in
the application of interest to be imposed on obligations, regardless of their source. Eastern
emphasized beyond cavil that when the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, regardless of whether the obligation
involves a loan or forbearance of money, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance49 of
credit.
We find application of the rule in the case at bar proper, thus, a rate of 12% per annum from the
finality of judgment until the full satisfaction thereof must be imposed on the total amount of
liability adjudged to PRUDENTIAL. It is clear that the interim period from the finality of
judgment until the satisfaction of the same is deemed equivalent to a forbearance of credit,
hence, the imposition of the aforesaid interest.
Fallo
WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G.R. No.
151991 is GRANTED, thus, we award the grant of attorneys fees and make a clarification that
the term "double interest" as used in the 6 November 2001 Decision of the Court of Appeals in
CA GR CV No. 68278 should be construed to mean interest at the rate of 24% per annum, with a
further clarification, that the same should be computed from 13 September 1996 until fully paid.
The Decision and Resolution of the Court of Appeals, in CA-G.R. CV No. 68278, dated 6
November 2001 and 29 January 2002, respectively, are, thus, MODIFIED in the following
manner, to wit:
1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26,
representing the balance of the loss suffered by TRANS-ASIA and covered by Marine
Policy No. MH93/1363;
2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the form of
attorneys fees equivalent to 10% of the amount of P8,395,072.26;
3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorneys fees) shall be
imposed double interest at the rate of 24% per annum to be computed from 13 September
1996 until fully paid; and

4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability
adjudged as abovestated in paragraphs (1), (2), and (3) herein, computed from the time of
finality of judgment until the full satisfaction thereof.
No costs.
SO ORDERED.