FEDEX vs.

AHAC
OCTOBER 30, 2011 ~ LEAVE A COMMENT

FEDEX vs. AHAC and PHILAM INSURANCE COMPANY, INC

G.R. No. 150094
August 18, 2004
FACTS: Shipper SMITHKLINE USA delivered to carrier 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. 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 with
American Home Assurance Company (AHAC). The following day, Burlington turned over
the custody of said cargoes to FEDEX which transported the same to Manila.
The shipments arrived in Manila and was immediately stored at [Cargohaus Inc.s]
warehouse. Prior to the arrival of the cargoes, FEDEX 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 clients
cargoes.
12 days after the cargoes arrived in Manila, DIONEDA, a non-licensed customs broker
who was assigned by GETC, found out, while he was about to cause the release of the
said cargoes, that the same [were] stored only in a room with 2 air conditioners running,
to cool the place instead of a refrigerator. 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.
Thereafter, PHILAM filed an action for damages against the FEDEX imputing negligence
on either or both of them in the handling of the cargo.
Trial ensued and ultimately concluded with the FEDEX being held solidarily liable for the
loss. Aggrieved, petitioner appealed to the CA. The appellate court ruled in favor of
PHILAM and held that the shipping Receipts were a prima facie proof that the goods had
indeed been delivered to the carrier in good condition.
ISSUE: Is FEDEX liable for damage to or loss of the insured goods
HELD: petition granted. Assailed decision reversed insofar as it pertains to FEDEX
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. 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]. xxx
Relevantly, petitioners 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; xxx
Article 26 of the Warsaw Convention, on the other hand, provides:

Xxx (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. xx
(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. xxx

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. 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.
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.
NOTES: as to 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 Receipt 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.

CIR vs. LINCOLN PHILIPPINE

OCTOBER 30, 2011 ~ LEAVE A COMMENT

CIR vs. LINCOLN PHILIPPINE LIFE INSURANCE COMPANY, INC. (now JARDINECMA LIFE INSURANCE COMPANY, INC.) and CA
G.R. No. 119176
March 19, 2002
FACTS: Private respondent Lincoln Philippine Life Insurance Co., Inc., (now Jardine-CMA
Life Insurance Company, Inc.) is a domestic corporation registered with the SEC and
engaged in life insurance business. In the years prior to 1984, private respondent issued
a special kind of life insurance policy known as the Junior Estate Builder Policy, the
distinguishing feature of which is a clause providing for an automatic increase in the
amount of life insurance coverage upon attainment of a certain age by the insured
without the need of issuing a new policy. The clause was to take effect in the year 1984.

Documentary stamp taxes due on the policy were paid by petitioner only on the initial
sum assured.
[In 1984, private respondent also issued 50,000 shares of stock dividends..
Documentary stamp taxes were paid based only on the par value of P5,000,000.00 and
not on the book value.]
Subsequently, petitioner CIR issued deficiency documentary stamps tax assessment for
the year 1984, the first corresponding to the amount of automatic increase of the sum
assured on the policy issued by respondent, [and second corresponding to the book
value in excess of the par value of the stock dividends.]
Private respondent questioned the deficiency assessments and sought their cancellation
in a petition filed in the CTA. The CTA found no valid basis for the deficiency tax
assessment [on the stock dividends] as well as on the insurance policy.

Petitioner appealed the CTAs decision to the CA. The CA promulgated a

decision affirming the CTAs decision insofar as it nullified the deficiency
assessment on the insurance policy,[ but reversing the same with regard to the
deficiency assessment on the stock dividends. The CTA ruled that the correct basis of
the documentary stamp tax due on the stock dividends is the actual value or book value
represented by the shares.]

ISSUE: WON private respondent should pay issued deficiency documentary stamps tax
assessment on the insurance policy (not on stock dividends <- incidental issue only)

HELD: The decision of the CA is SET ASIDE insofar as it affirmed the decision of the
CTA nullifying the deficiency stamp tax assessment petitioner imposed on private
respondent corresponding to the increase in 1984 of the sum under the policy issued
by respondent.

YES

The basis for the value of documentary stamp taxes to be paid on the insurance policy
is Section 183 of the National Internal Revenue Code which states in part:
Sec. 183. Stamp tax on life insurance policies. On all policies of insurance or
other instruments by whatever name the same may be called, whereby any insurance
shall be made or renewed upon any life or lives, there shall be collected a documentary
stamp tax of thirty (now 50c) centavos on each Two hundred pesos per fractional part
thereof, of the amount insured by any such policy.
Section 49, Title VI of the Insurance Code defines an insurance policy as the written
instrument in which a contract of insurance is set forth. Section 50 of the same Code
provides that the policy, which is required to be in printed form, may contain any word,
phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete
the contract of insurance It is thus clear that any rider, clause, warranty or endorsement
pasted or attached to the policy is considered part of such policy or contract of
insurance.
The subject insurance policy at the time it was issued contained an automatic increase
clause. Although the clause was to take effect only in 1984, it was written into the
policy at the time of its issuance. The distinctive feature of the junior estate builder
policy called the automatic increase clause already formed part and parcel of the
insurance contract, hence, there was no need for an execution of a separate agreement
for the increase in the coverage that took effect in 1984 when the assured reached a
certain age.
Here, although the automatic increase in the amount of life insurance coverage was to
take effect later on, the date of its effectivity, as well as the amount of the increase,
was already definite at the time of the issuance of the policy. Thus, the amount
insured by the policy at the time of its issuance necessarily included the additional sum
covered by the automatic increase clause because it was already determinable at
the time the transaction was entered into and formed part of the policy.
The deficiency of documentary stamp tax imposed on private respondent is definitely
not on the amount of the original insurance coverage, but on the increase of the
amount insured upon the effectivity of the Junior Estate Builder Policy.

it should be emphasized that while tax avoidance schemes and arrangements are not
prohibited, tax laws cannot be circumvented in order to evade the payment of just
taxes. In the case at bar, to claim that the increase in the amount insured (by virtue of
the automatic increase clause incorporated into the policy at the time of issuance)
should not be included in the computation of the documentary stamp taxes due on the
policy would be a clear evasion of the law requiring that the tax be computed on the
basis of the amount insured by the policy.

PERLA COMPANIA vs. CA

OCTOBER 30, 2011 ~ LEAVE A COMMENT

PERLA COMPANIA DE SEGUROS, INC vs. CA and CAYAS

G.R. No. 78860
May 28, 1990
FACTS: Cayas was the registered owner of a Mazda bus which was insured with
petitioner PERLA COMPANIA DE SEGUROS, INC (PCSI). The bus figured in an accident in
Cavite, injuring several of its passengers. One of them, Perea, sued Cayas for damages
in the CFI, while three others agreed to a settlement of P4,000.00 each with Cayas.
After trial, the court rendered a decision in favor of Perea, Cayas ordered to compensate
the latter with damages. Cayas filed a complaint with the CFI, seeking reimbursement
from PCSI for the amounts she paid to ALL victims, alleging that the latter refused to
make such reimbursement notwithstanding the fact that her claim was within its
contractual liability under the insurance policy.
The decision of the CA affirmed in toto the decision of the RTC of Cavite, the dispositive
portion of which states:
IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering defendant PCSI to
pay plaintiff Cayas the sum of P50,000.00 under its maximum liability as provided for in
the insurance policy;
In this petition for review on certiorari, petitioner seeks to limit its liability only to the
payment made by private respondent to Perea and only up to the amount of

P12,000.00. It altogether denies liability for the payments made by private respondents
to the other 3 injured passengers totaling P12,000.00.
ISSUE: how much should PCSI pay?

HELD: The decision of the CA is modified, petitioner only to pay Cayas P12,000,000.00

The insurance policy provides:

5. No admission, offer, promise or payment shall be made by or on behalf of the insured

without the written consent of the Company

It being specifically required that petitioners written consent be first secured before any
payment in settlement of any claim could be made, private respondent is precluded
from seeking reimbursement of the payments made to the other 3 victims in view of her
failure to comply with the condition contained in the insurance policy.

Also, the insurance policy involved explicitly limits petitioners liability to P12,000.00 per
person and to P50,000.00 per accident

Clearly, the fundamental principle that contracts are respected as the law between the
contracting parties finds application in the present case. Thus, it was error on the part of
the trial and appellate courts to have disregarded the stipulations of the parties and to
have substituted their own interpretation of the insurance policy.

We observe that although Cayas was able to prove a total loss of only P44,000.00,
petitioner was made liable for the amount of P50,000.00, the maximum liability per
accident stipulated in the policy. This is patent error. An insurance indemnity, being

merely an assistance or restitution insofar as can be fairly ascertained, cannot be

availed of by any accident victim or claimant as an instrument of enrichment by reason
of an accident.

GREPALIFE vs. CA
OCTOBER 30, 2011 ~ LEAVE A COMMENT

GREPALIFE vs. CA AND LEUTERIO

G.R. No. 113899
October 13, 1999
FACTS: A contract of group life insurance was executed between petitioner Grepalife
and DBP. Grepalife agreed to insure the lives of eligible housing loan mortgagors of DBP.
Leuterio, a physician and a housing debtor of DBP applied for membership in the group
life insurance plan. In an application form,. Leuterio answered questions concerning his
health condition as follows:
7. Have you ever had, or consulted, a physician for a heart condition, high blood
pressure, cancer, diabetes, lung; kidney or stomach disorder or any other physical
impairment?
Answer: No. If so give details _____________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [x] Yes [ ] NO.
Grepalife then issued a Certificate, as insurance coverage of Leuterio, to the extent of
his DBP mortgage indebtedness amounting to P86,200.00
Later, Leuterio died due to massive cerebral hemorrhage. Consequently, DBP
submitted a death claim to Grepalife. Grepalife denied the claim alleging that. Leuterio
was not physically healthy when he applied for an insurance coverage. Grepalife
insisted that Leuterio did not disclose he had been suffering from hypertension, which

caused his death. Allegedly, such non-disclosure constituted concealment that justified
the denial of the claim.
Tthe widow of the. Leuterio, respondent Medarda, filed a complaint with the RTC,
against Grepalife for Specific Performance with Damages. During the trial, Dr. Mejia,
who issued the death certificate, was called to testify. Dr. Mejias findings, based partly
from the information given by the respondent widow, stated that Leuterio complained of
headaches presumably due to high blood pressure. The inference was not conclusive
because Leuterio was not autopsied, hence, other causes were not ruled out.
The trial court rendered a decision in favor of respondent widow and against Grepalife.
The CA sustained the trial courts decision. Hence, the present petition.
ISSUE:

1. who is the proper party to bring the suit, the widow or the mortgagee (DBP)?

2. WON there was concealment as to justify Grepalifes non-payment of the insurance

proceeds

HELD: petition denied

1.

1.

WIDOW

To resolve the issue, we must consider the insurable interest in mortgaged properties
and the parties to this type of contract.

The rationale of a group insurance policy of mortgagors, otherwise known as the

mortgage redemption insurance, is a device for the protection of both the mortgagee
and the mortgagor. On the part of the mortgagee, it has to enter into such form of

contract so that in the event of the unexpected demise of the mortgagor during the
subsistence of the mortgage contract, the proceeds from such insurance will be applied
to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from
paying the obligation. In a similar vein, ample protection is given to the mortgagor
under such a concept so that in the event of death; the mortgage obligation will be
extinguished by the application of the insurance proceeds to the mortgage
indebtedness. Consequently, where the mortgagor pays the insurance premium under
the group insurance policy, making the loss payable to the mortgagee, the insurance is
on the mortgagors interest, and the mortgagor continues to be a party to the contract.
In this type of policy insurance, the mortgagee is simply an appointee of the insurance
fund, such loss-payable clause does not make the mortgagee a party to the contract.
Sec. 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of property effects insurance in his own
name providing that the loss shall be payable to the mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance is deemed to be upon the interest of the
mortgagor, who does not cease to be a party to the original contract, and any act of his,
prior to the loss, which would otherwise avoid the insurance, will have the same effect,
although the property is in the hands of the mortgagee, but any act which, under the
contract of insurance, is to be performed by the mortgagor, may be performed by the
mortgagee therein named, with the same effect as if it had been performed by the
mortgagor.
the mortgagee is simply an appointee of the insurance fund, such loss-payable clause
does not make the mortgagee a party to the contract.
Sec. 8 of the Insurance Code provides:
Unless the policy provides, where a mortgagor of property effects insurance in his own
name providing that the loss shall be payable to the mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance is deemed to be upon the interest of the

mortgagor, who does not cease to be a party to the original contract, and any act of his,
prior to the loss, which would otherwise avoid the insurance, will have the same effect,
although the property is in the hands of the mortgagee, but any act which, under the
contract of insurance, is to be performed by the mortgagor, may be performed by the
mortgagee therein named, with the same effect as if it had been performed by the
mortgagor.
The insured private respondent did not cede to the mortgagee all his rights or interests
in the insurance, the policy stating that: In the event of the debtors death before his
indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid to the creditor and the balance of sum
assured, if there is any, shall then be paid to the beneficiary/ies designated by the
debtor. When DBP submitted the insurance claim against petitioner, the latter denied
payment thereof, interposing the defense of concealment committed by the insured.
Thereafter, DBP collected the debt from the mortgagor and took the necessary action of
foreclosure on the residential lot of private respondent.
And since a policy of insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable interest or not, and such person
may recover it whatever the insured might have recovered,

the widow of the decedent

14

Dr. Leuterio may file the suit against the insurer, Grepalife.
2. The second assigned error refers to an alleged concealment that the petitioner
interposed as its defense to annul the insurance contract. Petitioner contends that Dr.
Leuterio failed to disclose that he had hypertension, which might have caused his death.
Concealment exists where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate it to the
assured, but he designedly and intentionally withholds the same.

Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia,
as supported by the information given by the widow of the decedent

On the contrary the medical findings were not conclusive because Dr. Mejia did not
conduct an autopsy on the body of the decedent. Hence, the statement of the physician
was properly considered by the trial court as hearsay.
The CAs stand is that contrary to appellants allegations, there was no sufficient proof
that the insured had suffered from hypertension.

Appellant insurance company had failed to establish that there was concealment made
by the insured, hence, it cannot refuse payment of the claim

The fraudulent intent on the part of the insured must be established to entitle the
insurer to rescind the contract. Misrepresentation as a defense of the insurer to avoid
liability is an affirmative defense and the duty to establish such defense by satisfactory
and convincing evidence rests upon the insurer. In the case at bar, the petitioner failed
to clearly and satisfactorily establish its defense, and is therefore liable to pay the
proceeds of the insurance.

And that brings us to the last point in the review of the case at bar. Petitioner claims
that there was no evidence as to the amount of Dr. Leuterios outstanding indebtedness
to DBP at the time of the mortgagors death. Hence, for private respondents failure to
establish the same, the action for specific performance should be dismissed. Petitioners
claim is without merit. A life insurance policy is a valued policy. Unless the interest of a
person insured is susceptible of exact pecuniary measurement, the measure of
indemnity under a policy of insurance upon life or health is the sum fixed in the policy.
The mortgagor paid the premium according to the coverage of his insurance which
states that:

The policy states that upon receipt of due proof of the Debtors death during the terms
of this insurance, a death benefit in the amount of P86,200.00 shall be paid.
In the event of the debtors death before his indebtedness with the creditor shall have
been fully paid, an amount to pay the outstanding indebtedness shall first be paid to the
Creditor and the balance of the Sum Assured, if there is any shall then be paid to the
beneficiary/ies designated by the debtor.
However, we noted that the CA decision was promulgated in 1993. In private
respondents memorandum, she states that DBP foreclosed in 1995 their residential lot,
in satisfaction of mortgagors outstanding loan. Considering this supervening event, the
insurance proceeds shall inure to the benefit of the heirs of the deceased person or his
beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the expense of
another (Nemo cum alterius detrimenio protest). Hence, it cannot collect the insurance
proceeds, after it already foreclosed on the mortgage. The proceeds now rightly belong
to Leuterios heirs represented by his widow.

Spouses CHA vs. CA

OCTOBER 30, 2011 ~ LEAVE A COMMENT

Spouses CHA and UNITED v. CA and CKS

GR no. 124520
August 18, 1997

FACTS: Petitioner-spouses, as lessess, entered into a lease contract with private

respondent CKS Development Corporation (CKS), as lessor. One of the stipulations of the
one (1) year lease contract states:
18. x x x. The LESSEE shall not insure against fire the chattels, merchandise, textiles,
goods and effects placed at any stall or store or space in the leased premises without
first obtaining the written consent and approval of the LESSOR. If the LESSEE obtain(s)
the insurance thereof without the consent of the LESSOR then the policy is deemed
assigned and transferred to the LESSOR for its own benefit; x x
x1chanroblesvirtuallawlibrary

Notwithstanding the above stipulation in the lease contract, the spouses insured
against loss by fire their merchandise inside the leased premises for 500K with the
United Insurance Co., Inc. (United) without the written consent of private respondents
CKS.
On the day that the lease contract was to expire, fire broke out inside the leased
premises.
When CKS learned of the insurance earlier procured by the spouses (without its
consent), it wrote the United a demand letter asking that the proceeds of the insurance
contract (between the Cha spouses and United) be paid directly to CKS, based on its
lease contract with Cha spouses.
United refused to pay CKS. Hence, the latter filed a complaint against the spouses and
United.
The RTC rendered a decision ordering United to pay CKS . the CA affirmed the trial court
decision. MR denied, hence this petition
ISSUE: WON the aforequoted paragraph 18 of the lease contract entered into between
CKS and the spouses is valid insofar as it provides that any fire insurance policy
obtained by the spouses is deemed assigned or transferred to the CKS if said policy is
obtained without the prior written of the latter.
HELD: NO; the provision is void, as against public policy
It is basic in the law on contracts that the stipulations contained in a contract cannot be
contrary to law, morals, good customs, public order or public policy.
Sec. 18 of the Insurance Code provides:
Sec. 18. No contract or policy of insurance on property shall be enforceable except for
the benefit of some person having an insurable interest in the property insured.

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses
over their merchandise is primarily a contract of indemnity. Insurable interest in the
property insured must exist at the time the insurance takes effect and at the time the
loss occurs. The basis of such requirement of insurable interest in property insured is
based on sound public policy: to prevent a person from taking out an insurance policy
on property upon which he has no insurable interest and collecting the proceeds of said
policy in case of loss of the property. In such a case, the contract of insurance is a mere
wager which is void under Section 25 of the Insurance Code, which provides:
SECTION 25. Every stipulation in a policy of Insurance for the payment of loss, whether
the person insured has or has not any interest in the property insured, or that the policy
shall be received as proof of such interest, and every policy executed by way of gaming
or wagering, is void.
In the present case, it cannot be denied that CKS has no insurable interest in the goods
and merchandise inside the leased premises under the provisions of Section 17 of the
Insurance Code which provide.
Section 17. The measure of an insurable interest in property is the extent to which the
insured might be damnified by loss of injury thereof.
United) cannot be compelled to pay the proceeds of the fire insurance policy to a person
(CKS) who has no insurable interest in the property insured
The liability of the spouses to CKS for violating their lease contract in that Cha spouses
obtained a fire insurance policy over their own merchandise, without the consent of
CKS, is a separate and distinct issue which we do not resolve in this case.

ETERNAL VS. PHILAMLIFE

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ETERNAL VS. PHILAMLIFE

G.R. No. 166245
April 09, 2008

FACTS: Respondent Philamlife entered into an agreement denominated as Creditor

Group Life Policy 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 relevant provisions of the policy are:
ELIGIBILITY.
xx
EVIDENCE OF INSURABILITY.
xx
LIFE INSURANCE BENEFIT.
xx

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.

xx

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. Eternal complied by
submitting a letter dated December 29, 1982, 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 100K. on August 2, 1984, Chuang
died.

Eternal sent a letter dated to Philamlife, which served as an insurance claim for
Chuangs death. Attached to the claim were certain documents. In reply, Philamlife
wrote Eternal a letter requiring Eternal to submit the additional documents relative to its
insurance claim for Chuangs death. Eternal transmitted the required documents
through a letter which was received by Philamlife.
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.
In response to Eternals demand, Philamlife denied Eternals insurance claim in a letter 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

Eternal filed a case with the RTC for a sum of money against Philamlife, which decided in
favor of Eternal, ordering Philamlife to pay the former 100K representing the proceeds
of the policy.

CA reversed. Hence this petition.

ISSUE: WON Philamlife should pay the 100K insurance proceeds

HELD: petition granted.

YES

An examination of the provision of the POLICY under effective date of benefit, 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

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 the Creditor Group Life Policy 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.