ALPHA INSURANCE AND SURETY CO. vs.

Alpha, however, denied the demand of Castor claiming that they are not
ARSENIA SONIA CASTORJuly 2, 2014
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G.R. No. 198174, September 2, 2013 (PERALTA, J.)
liable since the culprit who stole the vehicle is employed with Castor. Under
the Exceptions to Section III of the Policy, the Company shall not be liable
for (4) any malicious damage caused by the insured, any member of his
family or by A PERSON IN THE INSUREDS SERVICE.

Castor filed a Complaint for Sum of Money with Damages against Alpha
FACTS: before the Regional Trial Court of Quezon City. The trial court rendered its
decision in favor of Castor which decision is affirmed in toto by the Court of
Appeals. Hence, this Petition for Review on Certiorari.

Arsenia Sonia Castor (Castor) obtained a Motor Car Policy for her Toyota
Revo DLX DSL with Alpha Insurance and Surety Co (Alpha). The contract
of insurance obligates the petitioner to pay the respondent the amount of ISSUE:
P630,000 in case of loss or damage to said vehicle during the period
covered.

Whether or not the loss of respondents vehicle is excluded under the

insurance policy
On April 16, 2007, respondent instructed her driver, Jose Joel Salazar
Lanuza to bring the vehicle to nearby auto-shop for a tune up. However,
Lanuza no longer returned the motor vehicle and despite diligent efforts to
locate the same, said efforts proved futile. Resultantly, respondent promptly
reported the incident to the police and concomitantly notified petitioner of HELD:
the said loss and demanded payment of the insurance proceeds.

INSURANCE 1
NO. The words loss and damage mean different things in common
ordinary usage. The word loss refers to the act or fact of losing, or
failure to keep possession, while the word damage means deterioration
or injury to property. Therefore, petitioner cannot exclude the loss of
Castors vehicle under the insurance policy under paragraph 4 of
Exceptions to Section III, since the same refers only to malicious
damage, or more specifically, injury to the motor vehicle caused by a
person under the insureds service. Paragraph 4 clearly does not
contemplate loss of property.

A contract of insurance is a contract of adhesion. So, when the terms of the

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. Thus, in Eternal Gardens Memorial Park Corporation vs.
Philippine American Life Insurance Company, this Court ruled that 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.

INSURANCE 2
 DIOSDADO C. TY, plaintiff-appellant,
G.R. No. L-16138 April 29, 1961 vs.
RELIANCE SURETY & INSURANCE CO., INC., defendant-appellee.
DIOSDADO C. TY, plaintiff-appellant,
vs. x---------------------------------------------------------x
FIRST NATIONAL SURETY & ASSURANCE CO., INC., defendant-
appellee. G.R. No. L-16143 April 29, 1961

x---------------------------------------------------------x DIOSDADO C. TY, plaintiff-appellant,

vs.
G.R. No. L-16139 April 29, 1961. FAR EASTERN SURETY & INSURANCE CO., INC., defendant-
appellee.
DIOSDADO C. TY, plaintiff-appellant,
vs. x---------------------------------------------------------x
ASSOCIATED INSURANCE & SURETY CO., INC., defendant-
appellee. G.R. No. L-16144 April 29, 1961

x---------------------------------------------------------x DIOSDADO C. TY, plaintiff-appellant,

vs.
G.R. No. L-16140 April 29, 1961 CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.

DIOSDADO C. TY, plaintiff-appellant, x---------------------------------------------------------x

vs.
UNITED INSURANCE CO., INC., defendant-appellee. G.R. No. L-16145 April 29, 1961

x---------------------------------------------------------x DIOSDADO C. TY, plaintiff-appellant,

vs.
G.R. No. L-16141 April 29, 1961. CAPITAL INSURANCE & SURETY CO., INC., defendant-appellee.

DIOSDADO C. TY. plaintiff-appellant, V. B. Gesunundo for plaintiff-appellant.

vs. M. Perez Cardenas for defendant-appellee.
PHILIPPINE SURETY & INSURANCE CO., INC., defendant-appellee.
LABRADOR, J.:
x---------------------------------------------------------x
Appeal from a judgment of the Court of First Instance of Manila, Hon.
G.R. No. L-16142 April 29, 1961. Gregorio S. Narvasa, presiding, dismissing the actions filed in the above-
entitled cases.
INSURANCE 3
The facts found by the trial court, which are not disputed in this appeal, are
as follows:
At different times within a period of two months prior to December 24,
1953, the plaintiff herein Diosdado C. Ty, employed as operator mechanic
foreman in the Broadway Cotton Factory, in Grace Park, Caloocan, Rizal, at
a monthly salary of P185.00, insured himself in 18 local insurance
companies, among which being the eight above named defendants, which
issued to him personal accident policies, upon payment of the premium of
P8.12 for each policy. Plaintiff's beneficiary was his employer, Broadway
Cotton Factory, which paid the insurance premiums.
On December 24, 1953, a fire broke out which totally destroyed the
Broadway Cotton Factory. Fighting his way out of the factory, plaintiff was
injured on the left hand by a heavy object. He was brought to the Manila
Central University hospital, and after receiving first aid there, he went to the
National Orthopedic Hospital for treatment of his injuries which were as
follows:
1. Fracture, simple, proximal phalanx index finger, left;
2. Fracture, compound, comminuted, proximal phalanx, middle finger, left
and 2nd phalanx, simple;
3. Fracture, compound, comminute phalanx, 4th finger, left;
4. Fracture, simple, middle phalanx, middle finger, left;
5. Lacerated wound, sutured, volar aspect, small finger, left;
6. Fracture, simple, chip, head, 1st phalanx, 5th digit, left. He underwent
medical treatment in the Orthopedic Hospital from December 26, 1953 to
February 8, 1954. The above-described physical injuries have caused
temporary total disability of plaintiff's left hand. Plaintiff filed the
corresponding notice of accident and notice of claim with all of the
abovenamed defendants to recover indemnity under Part II of the policy,
INSURANCE
which is similarly worded in all of the policies, and which reads pertinently
as follows:
INDEMNITY FOR TOTAL OR PARTIAL DISABILITY
If the Insured sustains any Bodily Injury which is effected solely through
violent, external, visible and accidental means, and which shall not prove
fatal but shall result, independently of all other causes and within sixty (60)
days from the occurrence thereof, in Total or Partial Disability of the
Insured, the Company shall pay, subject to the exceptions as provided for
hereinafter, the amount set opposite such injury:
PARTIAL DISABILITY
LOSS OF:
xxx xxx xxx
Either hand ............................................................................ P650.00
xxx xxx xxx
... The loss of a hand shall mean the loss by amputation through the bones of
the wrist....
Defendants rejected plaintiff's claim for indemnity for the reason that there
being no severance of amputation of the left hand, the disability suffered by
him was not covered by his policy. Hence, plaintiff sued the defendants in
the Municipal Court of this City, and from the decision of said Court
dismissing his complaints, plaintiff appealed to this Court. (Decision of the
Court of First Instance of Manila, pp. 223-226, Records).
In view of its finding, the court absolved the defendants from the
complaints. Hence this appeal.
The main contention of appellant in these cases is that in order that he may
recover on the insurance policies issued him for the loss of his left hand, it is
4
not necessary that there should be an amputation thereof, but that it is
sufficient if the injuries prevent him from performing his work or labor
necessary in the pursuance of his occupation or business. Authorities are
cited to the effect that "total disability" in relation to one's occupation means
that the condition of the insurance is such that common prudence requires
him to desist from transacting his business or renders him incapable of
working. (46 C.J.S., 970). It is also argued that obscure words or stipulations
should be interpreted against the person who caused the obscurity, and the
ones which caused the obscurity in the cases at bar are the defendant
insurance companies.

While we sympathize with the plaintiff or his employer, for whose benefit
the policies were issued, we can not go beyond the clear and express
conditions of the insurance policies, all of which define partial disability as
loss of either hand by amputation through the bones of the wrist." There was
no such amputation in the case at bar. All that was found by the trial court,
which is not disputed on appeal, was that the physical injuries "caused
temporary total disability of plaintiff's left hand." Note that the disability of
plaintiff's hand was merely temporary, having been caused by fracture of the
index, the middle and the fourth fingers of the left hand.

We might add that the agreement contained in the insurance policies is the
law between the parties. As the terms of the policies are clear, express and
specific that only amputation of the left hand should be considered as a loss
thereof, an interpretation that would include the mere fracture or other
temporary disability not covered by the policies would certainly be
unwarranted.

WHEREFORE, the decision appealed from is hereby affirmed, with costs

against the plaintiff-appellant.

Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L.,

Barrera, Paredes and Dizon, JJ., concur.

INSURANCE 5
Insurance Case Digest:
Ty V. First National Surety
And Assurance Co., Inc.
(1961)
G.R. No. L-16138 April 29, 1961
Lessons Applicable: Clear Provision Given Ordinary Meaning (Insurance)

FACTS:
2 months prior to December 24, 1953: Diosdado C. Ty, employed as operator
mechanic foreman in the Broadway Cotton Factory insured himself in 18 local
insurance companies with Broadway Cotton Factory as his beneficiary
December 24, 1953: fire broke out at the Broadway Cotton Factory where Ty,
fighting his way out, injured his left hand by a heavy object.
He was brought to the Manila Central University hospital, and after receiving first
aid there, he went to the National Orthopedic Hospital for treatment of his injuries.
His injuries caused temporary total disability on his left hand so he filed a claim
against all defendants who rejected the claim reasoning that there it was not
covered in his policy because there was no severance of amputation of the left
hand
Trial Court: absolved the defendants

ISSUE: W/N Ty can claim

HELD: NO. Affirmed.

can not go beyond the clear and express conditions of the insurance policies, all of
which define partial disability as loss of either hand by amputation through the
bones of the wrist
Note that the disability of plaintiff's hand was merely temporary, having been
caused by fracture of the index, the middle and the fourth fingers of the left hand
agreement contained in the insurance policies is the law between the parties

INSURANCE 6

G.R. No. L-21574 June 30, 1966
SIMON DE LA CRUZ, plaintiff and appellee,
vs.
THE CAPITAL INSURANCE and SURETY CO., INC., defendant and
appellant.
Achacoso, Nera and Ocampo for defendant and appellant.
Agustin M. Gramata for plaintiff and appellee.
BARRERA, J.:
This is an appeal by the Capital Insurance & Surety Company, Inc., from the
decision of the Court of First Instance of Pangasinan (in Civ Case No. U-
265), ordering it to indemnify therein plaintiff Simon de la Cruz for the
death of the latter's son, to pay the burial expenses, and attorney's fees.
Eduardo de la Cruz, employed as a mucker in the Itogon-Suyoc Mines, Inc.
in Baguio, was the holder of an accident insurance policy (No. ITO-BFE-
170) underwritten by the Capital Insurance & Surety Co., Inc., for the period
beginning November 13, 1956 to November 12, 1957. On January 1, 1957,
in connection with the celebration of the New Year, the Itogon-Suyoc Mines,
Inc. sponsored a boxing contest for general entertainment wherein the
insured Eduardo de la Cruz, a non-professional boxer participated. In the
course of his bout with another person, likewise a non-professional, of the
same height, weight, and size, Eduardo slipped and was hit by his opponent
on the left part of the back of the head, causing Eduardo to fall, with his
head hitting the rope of the ring. He was brought to the Baguio General
Hospital the following day. The cause of death was reported as hemorrhage,
intracranial, left.
Simon de la Cruz, the father of the insured and who was named beneficiary
under the policy, thereupon filed a claim with the insurance company for
payment of the indemnity under the insurance policy. As the claim was
denied, De la Cruz instituted the action in the Court of First Instance of
Pangasinan for specific performance. Defendant insurer set up the defense
INSURANCE
that the death of the insured, caused by his participation in a boxing contest,
was not accidental and, therefore, not covered by insurance. After due
hearing the court rendered the decision in favor of the plaintiff which is the
subject of the present appeal.
It is not disputed that during the ring fight with another non-professional
boxer, Eduardo slipped, which was unintentional. At this opportunity, his
opponent landed on Eduardo's head a blow, which sent the latter to the
ropes. That must have caused the cranial injury that led to his death.
Eduardo was insured "against death or disability caused by accidental
means". Appellant insurer now contends that while the death of the insured
was due to head injury, said injury was sustained because of his voluntary
participation in the contest. It is claimed that the participation in the boxing
contest was the "means" that produced the injury which, in turn, caused the
death of the insured. And, since his inclusion in the boxing card was
voluntary on the part of the insured, he cannot be considered to have met his
death by "accidental means".1wph1.t
The terms "accident" and "accidental", as used in insurance contracts, have
not acquired any technical meaning, and are construed by the courts in their
ordinary and common acceptation. Thus, the terms have been taken to mean
that which happen by chance or fortuitously, without intention and design,
and which is unexpected, unusual, and unforeseen. An accident is an event
that takes place without one's foresight or expectation an event that
proceeds from an unknown cause, or is an unusual effect of a known cause
and, therefore, not expected.1
Appellant however, would like to make a distinction between "accident or
accidental" and "accidental means", which is the term used in the insurance
policy involved here. It is argued that to be considered within the protection
of the policy, what is required to be accidental is the means that caused or
brought the death and not the death itself. It may be mentioned in this
connection, that the tendency of court decisions in the United States in
recent years is to eliminate the fine distinction between the terms
"accidental" and "accidental means" and to consider them as legally
synonymous.2 But, even if we take appellant's theory, the death of the
insured in the case at bar would still be entitled to indemnification under the
7
policy. The generally accepted rule is that, death or injury does not result conclusion that it did not intend to limit or exempt itself from liability for
from accident or accidental means within the terms of an such death.5
accident-policy if it is the natural result of the insured's voluntary act,
unaccompanied by anything unforeseen except the death or injury.3 There is Wherefore, in view of the foregoing considerations, the decision appealed
no accident when a deliberate act is performed unless some additional, from is hereby affirmed, with costs against appellant. so ordered.
unexpected, independent, and unforeseen happening occurs which produces
or brings about the result of injury or death. 4 In other words, where the death Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P.,
or injury is not the natural or probable result of the insured's voluntary act, Zaldivar and Sanchez, JJ., concur.
or if something unforeseen occurs in the doing of the act which produces the
injury, the resulting death is within the protection of policies insuring against
death or injury from accident.

In the present case, while the participation of the insured in the boxing
contest is voluntary, the injury was sustained when he slid, giving occasion
to the infliction by his opponent of the blow that threw him to the ropes of
the ring. Without this unfortunate incident, that is, the unintentional slipping
of the deceased, perhaps he could not have received that blow in the head
and would not have died. The fact that boxing is attended with some risks of
external injuries does not make any injuries received in the course of the
game not accidental. In boxing as in other equally physically rigorous
sports, such as basketball or baseball, death is not ordinarily anticipated to
result. If, therefore, it ever does, the injury or death can only be accidental or
produced by some unforeseen happening or event as what occurred in this
case.

Furthermore, the policy involved herein specifically excluded from its

coverage

(e) Death or disablement consequent upon the Insured engaging in football,

hunting, pigsticking, steeplechasing, polo-playing, racing of any kind,
mountaineering, or motorcycling.

Death or disablement resulting from engagement in boxing contests was not

declared outside of the protection of the insurance contract. Failure of the
defendant insurance company to include death resulting from a boxing
match or other sports among the prohibitive risks leads inevitably to the

INSURANCE 8
De la Cruz v. Capital
Insurance & Surety Co.,
G.R. No. L-21574, June 30,
1966
Chris, a boxer, is a holder of an accident
insurance policy. In a boxing match, he died
after being knocked out by the opponent. Can
his father who is a beneficiary under said
insurance policy successfully claim indemnity
from the insurance company?

Yes. Clearly, the proximate cause of death was the boxing contest. Death
sustained in a boxing contest is an accident. (De la Cruz v. Capital Insurance
& Surety Co., G.R. No. L-21574, June 30, 1966)

INSURANCE 9
 (e) Under the fifth cause of action, the sum of P40,000;
G.R. No. L-4611 December 17, 1955
all of which shall bear interest at the rate of 8% per annum in accordance
QUA CHEE GAN, plaintiff-appellee, with Section 91 (b) of the Insurance Act from September 26, 1940, until
vs. each is paid, with costs against the defendant.
LAW UNION AND ROCK INSURANCE CO., LTD., represented by its
agent, WARNER, BARNES AND CO., LTD., defendant-appellant. The complaint in intervention of the Philippine National Bank is dismissed
without costs. (Record on Appeal, 166-167.)
Delgado, Flores & Macapagal for appellant.
Andres Aguilar, Zacarias Gutierrez Lora, Gregorio Sabater and Perkins, From the decision, the defendant Insurance Company appealed directly to
Ponce Enrile & Contreras for appellee. this Court.

The record shows that before the last war, plaintiff-appellee owned four
warehouses or bodegas (designated as Bodegas Nos. 1 to 4) in the
REYES, J. B. L., J.: municipality of Tabaco, Albay, used for the storage of stocks of copra and of
hemp, baled and loose, in which the appellee dealth extensively. They had
Qua Chee Gan, a merchant of Albay, instituted this action in 1940, in the been, with their contents, insured with the defendant Company since 1937,
Court of First Instance of said province, seeking to recover the proceeds of and the lose made payable to the Philippine National Bank as mortgage of
certain fire insurance policies totalling P370,000, issued by the Law Union the hemp and crops, to the extent of its interest. On June, 1940, the
& Rock Insurance Co., Ltd., upon certain bodegas and merchandise of the insurance stood as follows:
insured that were burned on June 21, 1940. The records of the original case
were destroyed during the liberation of the region, and were reconstituted in Policy No. Property Insured Am
1946. After a trial that lasted several years, the Court of First Instance
2637164 (Exhibit "LL") Bodega No. 1 (Building)
rendered a decision in favor of the plaintiff, the dispositive part whereof
reads as follows: Bodega No. 2 (Building)
Bodega No. 3 (Building)
Wherefore, judgment is rendered for the plaintiff and against the defendant 2637165 (Exhibit "JJ")
condemning the latter to pay the former Bodega No. 4 (Building)
Hemp Press moved by steam engine
(a) Under the first cause of action, the sum of P146,394.48;
Merchandise contents (copra and empty sacks of Bodega
2637345 (Exhibit "X")
No. 1)
(b) Under the second cause of action, the sum of P150,000;
2637346 (Exhibit "Y") Merchandise contents (hemp) of Bodega No. 3
(c) Under the third cause of action, the sum of P5,000; 2637067 (Exhibit
Merchandise contents (loose hemp) of Bodega No. 4
"GG")
(d) Under the fourth cause of action, the sum of P15,000; and
Total

INSURANCE 10

Fire of undetermined origin that broke out in the early morning of July 21,
1940, and lasted almost one week, gutted and completely destroyed Bodegas
Nos. 1, 2 and 4, with the merchandise stored theren. Plaintiff-appellee
informed the insurer by telegram on the same date; and on the next day, the
fire adjusters engaged by appellant insurance company arrived and
proceeded to examine and photograph the premises, pored over the books of
the insured and conducted an extensive investigation. The plaintiff having
submitted the corresponding fire claims, totalling P398,562.81 (but reduced
to the full amount of the insurance, P370,000), the Insurance Company
resisted payment, claiming violation of warranties and conditions, filing of
fraudulent claims, and that the fire had been deliberately caused by the
insured or by other persons in connivance with him.
With counsel for the insurance company acting as private prosecutor, Que
Chee Gan, with his brother, Qua Chee Pao, and some employees of his, were
indicted and tried in 1940 for the crime of arson, it being claimed that they
had set fire to the destroyed warehouses to collect the insurance. They were,
however, acquitted by the trial court in a final decision dated July 9, 1941
(Exhibit WW). Thereafter, the civil suit to collect the insurance money
proceeded to its trial and termination in the Court below, with the result
noted at the start of this opinion. The Philippine National Bank's complaint
in intervention was dismissed because the appellee had managed to pay his
indebtedness to the Bank during the pendecy of the suit, and despite the fire
losses.
In its first assignment of error, the insurance company alleges that the trial
Court should have held that the policies were avoided for breach of
warranty, specifically the one appearing on a rider pasted (with other similar
riders) on the face of the policies (Exhibits X, Y, JJ and LL). These riders
were attached for the first time in 1939, and the pertinent portions read as
follows:
Memo. of Warranty. The undernoted Appliances for the extinction of fire
being kept on the premises insured hereby, and it being declared and
understood that there is an ample and constant water supply with sufficient
INSURANCE
pressure available at all seasons for the same, it is hereby warranted that the
said appliances shall be maintained in efficient working order during the
currency of this policy, by reason whereof a discount of 2 1/2 per cent is
allowed on the premium chargeable under this policy.
Hydrants in the compound, not less in number than one for each 150 feet of
external wall measurement of building, protected, with not less than 100 feet
of hose piping and nozzles for every two hydrants kept under cover in
convenient places, the hydrants being supplied with water pressure by a
pumping engine, or from some other source, capable of discharging at the
rate of not less than 200 gallons of water per minute into the upper story of
the highest building protected, and a trained brigade of not less than 20 men
to work the same.'
It is argued that since the bodegas insured had an external wall perimeter of
500 meters or 1,640 feet, the appellee should have eleven (11) fire hydrants
in the compound, and that he actually had only two (2), with a further pair
nearby, belonging to the municipality of Tabaco.
We are in agreement with the trial Court that the appellant is barred by
waiver (or rather estoppel) to claim violation of the so-called fire hydrants
warranty, for the reason that knowing fully all that the number of hydrants
demanded therein never existed from the very beginning, the appellant
neverthless issued the policies in question subject to such warranty, and
received the corresponding premiums. It would be perilously close to
conniving at fraud upon the insured to allow appellant to claims now as void
ab initio the policies that it had issued to the plaintiff without warning of
their fatal defect, of which it was informed, and after it had misled the
defendant into believing that the policies were effective.
The insurance company was aware, even before the policies were issued,
that in the premises insured there were only two fire hydrants installed by
Qua Chee Gan and two others nearby, owned by the municipality of
TAbaco, contrary to the requirements of the warranty in question. Such fact
appears from positive testimony for the insured that appellant's agents
inspected the premises; and the simple denials of appellant's representative
(Jamiczon) can not overcome that proof. That such inspection was made is
11
moreover rendered probable by its being a prerequisite for the fixing of the
discount on the premium to which the insured was entitled, since the
discount depended on the number of hydrants, and the fire fighting
equipment available (See "Scale of Allowances" to which the policies were
expressly made subject). The law, supported by a long line of cases, is
expressed by American Jurisprudence (Vol. 29, pp. 611-612) to be as
follows:
It is usually held that where the insurer, at the time of the issuance of a
policy of insurance, has knowledge of existing facts which, if insisted on,
would invalidate the contract from its very inception, such knowledge
constitutes a waiver of conditions in the contract inconsistent with the facts,
and the insurer is stopped thereafter from asserting the breach of such
conditions. The law is charitable enough to assume, in the absence of any
showing to the contrary, that an insurance company intends to executed a
valid contract in return for the premium received; and when the policy
contains a condition which renders it voidable at its inception, and this result
is known to the insurer, it will be presumed to have intended to waive the
conditions and to execute a binding contract, rather than to have deceived
the insured into thinking he is insured when in fact he is not, and to have
taken his money without consideration. (29 Am. Jur., Insurance, section 807,
at pp. 611-612.)
The reason for the rule is not difficult to find.
The plain, human justice of this doctrine is perfectly apparent. To allow a
company to accept one's money for a policy of insurance which it then
knows to be void and of no effect, though it knows as it must, that the
assured believes it to be valid and binding, is so contrary to the dictates of
honesty and fair dealing, and so closely related to positive fraud, as to the
abhorent to fairminded men. It would be to allow the company to treat the
policy as valid long enough to get the preium on it, and leave it at liberty to
repudiate it the next moment. This cannot be deemed to be the real intention
of the parties. To hold that a literal construction of the policy expressed the
true intention of the company would be to indict it, for fraudulent purposes
and designs which we cannot believe it to be guilty of (Wilson vs.
Commercial Union Assurance Co., 96 Atl. 540, 543-544).
INSURANCE
The inequitableness of the conduct observed by the insurance company in
this case is heightened by the fact that after the insured had incurred the
expense of installing the two hydrants, the company collected the premiums
and issued him a policy so worded that it gave the insured a discount much
smaller than that he was normaly entitledto. According to the "Scale of
Allowances," a policy subject to a warranty of the existence of one fire
hydrant for every 150 feet of external wall entitled the insured to a discount
of 7 1/2 per cent of the premium; while the existence of "hydrants, in
compund" (regardless of number) reduced the allowance on the premium to
a mere 2 1/2 per cent. This schedule was logical, since a greater number of
hydrants and fire fighting appliances reduced the risk of loss. But the
appellant company, in the particular case now before us, so worded the
policies that while exacting the greater number of fire hydrants and
appliances, it kept the premium discount at the minimum of 2 1/2 per cent,
thereby giving the insurance company a double benefit. No reason is shown
why appellant's premises, that had been insured with appellant for several
years past, suddenly should be regarded in 1939 as so hazardous as to be
accorded a treatment beyond the limits of appellant's own scale of
allowances. Such abnormal treatment of the insured strongly points at an
abuse of the insurance company's selection of the words and terms of the
contract, over which it had absolute control.
These considerations lead us to regard the parol evidence rule, invoked by
the appellant as not applicable to the present case. It is not a question here
whether or not the parties may vary a written contract by oral evidence; but
whether testimony is receivable so that a party may be, by reason of
inequitable conduct shown, estopped from enforcing forfeitures in its favor,
in order to forestall fraud or imposition on the insured.
Receipt of Premiums or Assessments afte Cause for Forfeiture Other than
Nonpayment. It is a well settled rule of law that an insurer which with
knowledge of facts entitling it to treat a policy as no longer in force, receives
and accepts a preium on the policy, estopped to take advantage of the
forfeiture. It cannot treat the policy as void for the purpose of defense to an
action to recover for a loss thereafter occurring and at the same time treat it
as valid for the purpose of earning and collecting further premiums." (29
Am. Jur., 653, p. 657.)
12
It would be unconscionable to permit a company to issue a policy under
circumstances which it knew rendered the policy void and then to accept and
retain premiums under such a void policy. Neither law nor good morals
would justify such conduct and the doctrine of equitable estoppel is
peculiarly applicable to the situation. (McGuire vs. Home Life Ins. Co. 94
Pa. Super Ct. 457.)
Moreover, taking into account the well known rule that ambiguities or
obscurities must be strictly interpreted aganst the prty that caused them, 1the
"memo of warranty" invoked by appellant bars the latter from questioning
the existence of the appliances called for in the insured premises, since its
initial expression, "the undernoted appliances for the extinction of fire being
kept on the premises insured hereby, . . . it is hereby warranted . . .", admists
of interpretation as an admission of the existence of such appliances which
appellant cannot now contradict, should the parol evidence rule apply.
The alleged violation of the warranty of 100 feet of fire hose for every two
hydrants, must be equally rejected, since the appellant's argument thereon is
based on the assumption that the insured was bound to maintain no less than
eleven hydrants (one per 150 feet of wall), which requirement appellant is
estopped from enforcing. The supposed breach of the wter pressure
condition is made to rest on the testimony of witness Serra, that the water
supply could fill a 5-gallon can in 3 seconds; appellant thereupon inferring
that the maximum quantity obtainable from the hydrants was 100 gallons a
minute, when the warranty called for 200 gallons a minute. The transcript
shows, however, that Serra repeatedly refused and professed inability to
estimate the rate of discharge of the water, and only gave the "5-gallon per
3-second" rate because the insistence of appellant's counsel forced the
witness to hazard a guess. Obviously, the testimony is worthless and
insufficient to establish the violation claimed, specially since the burden of
its proof lay on appellant.
As to maintenance of a trained fire brigade of 20 men, the record is
preponderant that the same was organized, and drilled, from time to give,
altho not maintained as a permanently separate unit, which the warranty did
not require. Anyway, it would be unreasonable to expect the insured to
maintain for his compound alone a fire fighting force that many
INSURANCE
municipalities in the Islands do not even possess. There is no merit in
appellant's claim that subordinate membership of the business manager (Co
Cuan) in the fire brigade, while its direction was entrusted to a minor
employee unders the testimony improbable. A business manager is not
necessarily adept at fire fighting, the qualities required being different for
both activities.
Under the second assignment of error, appellant insurance company avers,
that the insured violated the "Hemp Warranty" provisions of Policy No.
2637165 (Exhibit JJ), against the storage of gasoline, since appellee
admitted that there were 36 cans (latas) of gasoline in the building designed
as "Bodega No. 2" that was a separate structure not affected by the fire. It is
well to note that gasoline is not specifically mentioned among the prohibited
articles listed in the so-called "hemp warranty." The cause relied upon by the
insurer speaks of "oils (animal and/or vegetable and/or mineral and/or their
liquid products having a flash point below 300o Fahrenheit", and is
decidedly ambiguous and uncertain; for in ordinary parlance, "Oils" mean
"lubricants" and not gasoline or kerosene. And how many insured, it may
well be wondered, are in a position to understand or determine "flash point
below 003o Fahrenheit. Here, again, by reason of the exclusive control of
the insurance company over the terms and phraseology of the contract, the
ambiguity must be held strictly against the insurer and liberraly in favor of
the insured, specially to avoid a forfeiture (44 C. J. S., pp. 1166-1175; 29
Am. Jur. 180).
Insurance is, in its nature, complex and difficult for the layman to
understand. Policies are prepared by experts who know and can anticipate
the hearing and possible complications of every contingency. So long as
insurance companies insist upon the use of ambiguous, intricate and
technical provisions, which conceal rather than frankly disclose, their own
intentions, the courts must, in fairness to those who purchase insurance,
construe every ambiguity in favor of the insured. (Algoe vs. Pacific Mut. L.
Ins. Co., 91 Wash. 324, LRA 1917A, 1237.)
An insurer should not be allowed, by the use of obscure phrases and
exceptions, to defeat the very purpose for which the policy was procured
(Moore vs. Aetna Life Insurance Co., LRA 1915D, 264).
13
We see no reason why the prohibition of keeping gasoline in the premises
could not be expressed clearly and unmistakably, in the language and terms
that the general public can readily understand, without resort to obscure
esoteric expression (now derisively termed "gobbledygook"). We reiterate
the rule stated in Bachrach vs. British American Assurance Co. (17 Phil.
555, 561):
If the company intended to rely upon a condition of that character, it ought
to have been plainly expressed in the policy.
This rigid application of the rule on ambiguities has become necessary in
view of current business practices. The courts cannot ignore that nowadays
monopolies, cartels and concentrations of capital, endowed with
overwhelming economic power, manage to impose upon parties dealing
with them cunningly prepared "agreements" that the weaker party may not
change one whit, his participation in the "agreement" being reduced to the
alternative to take it or leave it" labelled since Raymond Baloilles" contracts
by adherence" (con tracts d'adhesion), in contrast to these entered into by
parties bargaining on an equal footing, such contracts (of which policies of
insurance and international bills of lading are prime examples) obviously
call for greater strictness and vigilance on the part of courts of justice with a
view to protecting the weaker party from abuses and imposition, and prevent
their becoming traps for the unwarry (New Civil Coee, Article 24; Sent. of
Supreme Court of Spain, 13 Dec. 1934, 27 February 1942).
Si pudiera estimarse que la condicion 18 de la poliza de seguro envolvia
alguna oscuridad, habra de ser tenido en cuenta que al seguro es,
practicamente un contrato de los llamados de adhesion y por consiguiente en
caso de duda sobre la significacion de las clausulas generales de una poliza
redactada por las compafijas sin la intervencion alguna de sus clientes
se ha de adoptar de acuerdo con el articulo 1268 del Codigo Civil, la
interpretacion mas favorable al asegurado, ya que la obscuridad es
imputable a la empresa aseguradora, que debia haberse explicado mas
claramante. (Dec. Trib. Sup. of Spain 13 Dec. 1934)
The contract of insurance is one of perfect good faith (uferrimal fidei) not
for the insured alone, but equally so for the insurer; in fact, it is mere so for
INSURANCE
the latter, since its dominant bargaining position carries with it stricter
responsibility.
Another point that is in favor of the insured is that the gasoline kept in
Bodega No. 2 was only incidental to his business, being no more than a
customary 2 day's supply for the five or six motor vehicles used for
transporting of the stored merchandise (t. s. n., pp. 1447-1448). "It is well
settled that the keeping of inflammable oils on the premises though
prohibited by the policy does not void it if such keeping is incidental to the
business." Bachrach vs. British American Ass. Co., 17 Phil. 555, 560); and
"according to the weight of authority, even though there are printed
prohibitions against keeping certain articles on the insured premises the
policy will not be avoided by a violation of these prohibitions, if the
prohibited articles are necessary or in customary use in carrying on the trade
or business conducted on the premises." (45 C. J. S., p. 311; also 4 Couch on
Insurance, section 966b). It should also be noted that the "Hemp Warranty"
forbade storage only "in the building to which this insurance applies and/or
in any building communicating therewith", and it is undisputed that no
gasoline was stored in the burned bodegas, and that "Bodega No. 2" which
was not burned and where the gasoline was found, stood isolated from the
other insured bodegas.
The charge that the insured failed or refused to submit to the examiners of
the insurer the books, vouchers, etc. demanded by them was found
unsubstantiated by the trial Court, and no reason has been shown to alter this
finding. The insured gave the insurance examiner all the date he asked for
(Exhibits AA, BB, CCC and Z), and the examiner even kept and
photographed some of the examined books in his possession. What does
appear to have been rejected by the insured was the demand that he should
submit "a list of all books, vouchers, receipts and other records" (Age 4,
Exhibit 9-c); but the refusal of the insured in this instance was well justified,
since the demand for a list of all the vouchers (which were not in use by the
insured) and receipts was positively unreasonable, considering that such
listing was superfluous because the insurer was not denied access to the
records, that the volume of Qua Chee Gan's business ran into millions, and
that the demand was made just after the fire when everything was in turmoil.
That the representatives of the insurance company were able to secure all the
14
date they needed is proved by the fact that the adjuster Alexander Stewart
was able to prepare his own balance sheet (Exhibit L of the criminal case)
that did not differ from that submitted by the insured (Exhibit J) except for
the valuation of the merchandise, as expressly found by the Court in the
criminal case for arson. (Decision, Exhibit WW).
How valuations may differ honestly, without fraud being involved, was
strikingly illustrated in the decision of the arson case (Exhibit WW)
acquiting Qua Choc Gan, appellee in the present proceedings. The decision
states (Exhibit WW, p. 11):
Alexander D. Stewart declaro que ha examinado los libros de Qua Choc Gan
en Tabaco asi como su existencia de copra y abaca en las bodega al tiempo
del incendio durante el periodo comprendido desde el 1.o de enero al 21 de
junio de 1940 y ha encontrado que Qua Choc Gan ha sufrico una perdida de
P1,750.76 en su negocio en Tabaco. Segun Steward al llegar a este
conclusion el ha tenidoen cuenta el balance de comprobacion Exhibit 'J' que
le ha entregado el mismo acusado Que Choc Gan en relacion con sus libros
y lo ha encontrado correcto a excepcion de los precios de abaca y copra que
alli aparecen que no estan de acuerdo con los precios en el mercado. Esta
comprobacion aparece en el balance mercado exhibit J que fue preparado
por el mismo testigo.
In view of the discrepancy in the valuations between the insured and the
adjuster Stewart for the insurer, the Court referred the controversy to a
government auditor, Apolonio Ramos; but the latter reached a different
result from the other two. Not only that, but Ramos reported two different
valuations that could be reached according to the methods employed
(Exhibit WW, p. 35):
La ciencia de la contabilidad es buena, pues ha tenido sus muchos usos
buenos para promovar el comercio y la finanza, pero en el caso presente ha
resultado un tanto cumplicada y acomodaticia, como lo prueba el resultado
del examen hecho por los contadores Stewart y Ramos, pues el juzgado no
alcanza a ver como habiendo examinado las mismas partidas y los mismos
libros dichos contadores hayan de llegara dos conclusiones que difieron
sustancialmente entre si. En otras palabras, no solamente la comprobacion
INSURANCE
hecha por Stewart difiere de la comprobacion hecha por Ramos sino que,
segun este ultimo, su comprobacion ha dado lugar a dos resultados
diferentes dependiendo del metodo que se emplea.
Clearly then, the charge of fraudulent overvaluation cannot be seriously
entertained. The insurer attempted to bolster its case with alleged
photographs of certain pages of the insurance book (destroyed by the war) of
insured Qua Chee Gan (Exhibits 26-A and 26-B) and allegedly showing
abnormal purchases of hemp and copra from June 11 to June 20, 1940. The
Court below remained unconvinced of the authenticity of those photographs,
and rejected them, because they were not mentioned not introduced in the
criminal case; and considering the evident importance of said exhibits in
establishing the motive of the insured in committing the arson charged, and
the absence of adequate explanation for their omission in the criminal case,
we cannot say that their rejection in the civil case constituted reversible
error.
The next two defenses pleaded by the insurer, that the insured connived
at the loss and that the fraudulently inflated the quantity of the insured stock
in the burnt bodegas, are closely related to each other. Both defenses are
predicted on the assumption that the insured was in financial difficulties and
set the fire to defraud the insurance company, presumably in order to pay off
the Philippine National Bank, to which most of the insured hemp and copra
was pledged. Both defenses are fatally undermined by the established fact
that, notwithstanding the insurer's refusal to pay the value of the policies the
extensive resources of the insured (Exhibit WW) enabled him to pay off the
National Bank in a short time; and if he was able to do so, no motive
appears for attempt to defraud the insurer. While the acquittal of the insured
in the arson case is not res judicata on the present civil action, the insurer's
evidence, to judge from the decision in the criminal case, is practically
identical in both cases and must lead to the same result, since the proof to
establish the defense of connivance at the fire in order to defraud the insurer
"cannot be materially less convincing than that required in order to convict
the insured of the crime of arson"(Bachrach vs. British American Assurance
Co., 17 Phil. 536).
15
As to the defense that the burned bodegas could not possibly have contained
the quantities of copra and hemp stated in the fire claims, the insurer's case
rests almost exclusively on the estimates, inferences and conclusionsAs to
the defense that the burned bodegas could not possibly have contained the
quantities of copra and hemp stated in the fire claims, the insurer's case rests
almost exclusively on the estimates, inferences and conclusions of its
adjuster investigator, Alexander D. Stewart, who examined the premises
during and after the fire. His testimony, however, was based on inferences
from the photographs and traces found after the fire, and must yield to the
contradictory testimony of engineer Andres Bolinas, and specially of the
then Chief of the Loan Department of the National Bank's Legaspi branch,
Porfirio Barrios, and of Bank Appraiser Loreto Samson, who actually saw
the contents of the bodegas shortly before the fire, while inspecting them for
the mortgagee Bank. The lower Court was satisfied of the veracity and
accuracy of these witnesses, and the appellant insurer has failed to
substantiate its charges aganst their character. In fact, the insurer's repeated
accusations that these witnesses were later "suspended for fraudulent
transactions" without giving any details, is a plain attempt to create
prejudice against them, without the least support in fact.
Stewart himself, in testifying that it is impossible to determine from the
remains the quantity of hemp burned (t. s. n., pp. 1468, 1470), rebutted
appellant's attacks on the refusal of the Court below to accept its inferences
from the remains shown in the photographs of the burned premises. It
appears, likewise, that the adjuster's calculations of the maximum contents
of the destroyed warehouses rested on the assumption that all the copra and
hemp were in sacks, and on the result of his experiments to determine the
space occupied by definite amounts of sacked copra. The error in the
estimates thus arrived at proceeds from the fact that a large amount of the
insured's stock were in loose form, occupying less space than when kept in
sacks; and from Stewart's obvious failure to give due allowance for the
compression of the material at the bottom of the piles (t. s. n., pp. 1964,
1967) due to the weight of the overlying stock, as shown by engineer
Bolinas. It is probable that the errors were due to inexperience (Stewart
himself admitted that this was the first copra fire he had investigated); but it
is clear that such errors render valueles Stewart's computations. These were
in fact twice passed upon and twice rejected by different judges (in the
INSURANCE
criminal and civil cases) and their concordant opinion is practically
conclusive.
The adjusters' reports, Exhibits 9-A and 9-B, were correctly disregarded by
the Court below, since the opinions stated therein were based on ex
parte investigations made at the back of the insured; and the appellant did
not present at the trial the original testimony and documents from which the
conclusions in the report were drawn.lawphi1.net
Appellant insurance company also contends that the claims filed by the
insured contained false and fraudulent statements that avoided the insurance
policy. But the trial Court found that the discrepancies were a result of the
insured's erroneous interpretation of the provisions of the insurance policies
and claim forms, caused by his imperfect knowledge of English, and that the
misstatements were innocently made and without intent to defraud. Our
review of the lengthy record fails to disclose reasons for rejecting these
conclusions of the Court below. For example, the occurrence of previous
fires in the premises insured in 1939, altho omitted in the claims, Exhibits
EE and FF, were nevertheless revealed by the insured in his claims Exhibits
Q (filed simultaneously with them), KK and WW. Considering that all these
claims were submitted to the smae agent, and that this same agent had paid
the loss caused by the 1939 fire, we find no error in the trial Court's
acceptance of the insured's explanation that the omission in Exhibits EE and
FF was due to inadvertance, for the insured could hardly expect under such
circumstances, that the 1939 would pass unnoticed by the insurance agents.
Similarly, the 20 per cent overclaim on 70 per cent of the hemo stock, was
explained by the insured as caused by his belief that he was entitled to
include in the claim his expected profit on the 70 per cent of the hemp,
because the same was already contracted for and sold to other parties before
the fire occurred. Compared with other cases of over-valuation recorded in
our judicial annals, the 20 per cent excess in the case of the insured is not by
itself sufficient to establish fraudulent intent. Thus, in Yu Cua vs. South
British Ins. Co., 41 Phil. 134, the claim was fourteen (14) times (1,400 per
cent) bigger than the actual loss; in Go Lu vs. Yorkshire Insurance Co., 43
Phil., 633, eight (8) times (800 per cent); in Tuason vs. North China Ins. Co.,
47 Phil. 14, six (6) times (600 per cent); in Tan It vs. Sun Insurance, 51 Phil.
212, the claim totalled P31,860.85 while the goods insured were inventoried
16
at O13,113. Certainly, the insured's overclaim of 20 per cent in the case at
bar, duly explained by him to the Court a quo, appears puny by comparison,
and can not be regarded as "more than misstatement, more than inadvertence
of mistake, more than a mere error in opinion, more than a slight
exaggeration" (Tan It vs. Sun Insurance Office, ante) that would entitle the
insurer to avoid the policy. It is well to note that the overchange of 20 per
cent was claimed only on a part (70 per cent) of the hemp stock; had the
insured acted with fraudulent intent, nothing prevented him from increasing
the value of all of his copra, hemp and buildings in the same proportion.
This also applies to the alleged fraudulent claim for burned empty sacks,
that was likewise explained to our satisfaction and that of the trial Court.
The rule is that to avoid a policy, the false swearing must be wilful and with
intent to defraud (29 Am. Jur., pp. 849-851) which was not the cause. Of
course, the lack of fraudulent intent would not authorize the collection of the
expected profit under the terms of the polices, and the trial Court correctly
deducte the same from its award.

We find no reversible error in the judgment appealed from, wherefore the

smae is hereby affirmed. Costs against the appellant. So ordered.

Paras, C. J., Padilla, Montemayor, Reyes, A., Jugo, Labrador, and

Concepcion, JJ., concur.

INSURANCE 17

Qua Chee Gan v. Law Union
Rock - Breach of Warranty
98 PHIL 85
Facts:
> Qua Chee Gan, a merchant, owned 4 warehouses in Albay which were
used for the storage or copra and hemp in which the appelle deals with
exclusively.
> The warehouses together with the contents were insured with Law Union
since 1937 and the loss made payable to PNB as mortgagee of the hemp and
copra.
> A fire of undetermined cause broke out in July 21, 1940 and lasted for
almost 1 whole week.
> Bodegas 1, 3, and 4 including the merchandise stored were destroyed
completely.
> Insured then informed insurer of the unfortunate event and submitted the
corresponding fire claims, which were later reduced to P370T.
> Insurer refused to pay claiming violations of the warranties and
conditions, filing of fraudulent claims and that the fire had been deliberately
caused by the insured.
> Insured filed an action before CFI which rendered a decision in favor of
the insured.
Issues and Resolutions:
(1) Whether or not the policies should be avoided for the reason that there
was a breach of warranty.
Under the Memorandum of Warranty, there should be no less than 1 hydrant
for each 150 feet of external wall measurements of the compound, and since
INSURANCE
bodegas insured had an external wall per meter of 1640 feet, the insured
should have 11 hydrants in the compound. But he only had 2.
Even so, the insurer is barred by estoppel to claim violation of the fire
hydrants warranty, because knowing that the number of hydrants it
demanded never existed from the very beginning, appellant nevertheless
issued the policies subject to such warranty and received the corresponding
premiums. The insurance company was aware, even before the policies
were issued, that in the premises there were only 2 hydrants and 2 others
were owned by the Municipality, contrary to the requirements of the
warranties in question.
It should be close to conniving at fraud upon the insured to allow the insurer
to claim now as void the policies it issued to the insured, without warning
him of the fatal defect, of which the insurer was informed, and after it had
misled the insured into believing that the policies were effective.
Accdg to American Jurisprudence: It is a well-settled rule that the insurer at
the time of the issuance of a policy has the knowledge of existing facts,
which if insisted on, would invalidate the contract from its very inception,
such knowledge constitutes a waiver of conditions in the contract
inconsistent with known facts, and the insurer is stopped thereafter from
asserting the breach of such conditions. The reason for the rule is: To allow
a company to accept ones money for a policy of insurance which it knows
to be void and of no effect, though it knows as it must that the insured
believes it to be valid and binding is so contrary to the dictates of honesty
and fair dealing, as so closely related to positive fraud, as to be abhorrent to
fair-minded men. It would be to allow the company to treat the policy as
valid long enough to get the premium on it, and leave it at liberty to
repudiate it the next moment.
Moreover, taking into account the well-known rule that ambiguities or
obscurities must strictly be interpreted against the party that cause them, the
memorandum of warranty invoked by the insurer bars the latter from
questioning the existence of the appliances called for, since its initial
expression the undernoted appliances for the extinction of fire being kept
on the premises insured hereby.. admits of the interpretation as an
18
admission of the existence of such appliances which insurer cannot now
contradict, should the parole evidence apply.

(2) Whether or not the insured violated the hemp warranty provision against
the storage of gasoline since insured admitted there were 36 cans of
gasoline in Bodega 2 which was a separate structure and not affected by the
fire.
It is well to note that gasoline is not specifically mentioned among the
prohibited articles listed in the so-called hemp warranty. The clause relied
upon by the insurer speaks of oils. Ordinarily, oils mean lubricants and
not gasoline or kerosene. Here again, by reason of the exclusive control of
the insurance company over the terms of the contract, the ambiguity must be
held strictly against the insurer and liberally in favor of the insured,
specially to avoid a forfeiture.
Furthermore, the gasoline kept was only incidental to the insureds
business. It is a well settled rule that keeping of inflammable oils in the
premises though prohibited by the policy does NOT void it if such keeping
is incidental to the business. Also, the hemp warranty forbade the storage
only in the building to which the insurance applies, and/or in any building
communicating therewith; and it is undisputed that no gasoline was stored in
the burnt bodegas and that Bodega No. 2 which was where the gasoline was
found stood isolated from the other bodegas.

INSURANCE 19
Qua Chee Gan v. Law Union On fire hydrants warranty
LU is estopped from claiming that there was a violation of such warranty, since it knew
that from the start, the number of hydrants it demanded never existed, yet it issued
and Rock Insurance policies and received premiums.

QUA CHEE GAN v. LAW UNION AND ROCK INSURANCE

1955 / JBL Reyes / Appeal from CFI judgment
Qua Chee Gan owned 4 warehouses or bodegas used for the storage of copra and hemp,
which were insured with Law Union, and the lose made payable to PNB as mortgage of
the hemp and copra. Fire broke out and destroyed bodegas 1, 3 ad 4. QCG informed
LU by telegram, and the next day, fire adjusters arrived to conduct an investigation. LU
resisted payment, claiming violation of warranties and conditions, filing of fraudulent
claims, and that the fire had been deliberately caused by QCG or by other persons in
connivance with him.
QCG, his brother, and some employees were indicted and tried for arson, but
they were acquitted. Thereafter, the civil suit to collect the insurance money proceeded
to its trial. CFI rendered a decision in QCGs favor.

CFI AFFIRMED; LAW UNION LIABLE

On false and fraudulent claims

CFI found that the discrepancies were a result of QCGs erroneous interpretation of
the provisions of the insurance policies and claim forms, caused by his imperfect
English, and that the misstatements were innocently made and without intent to
defraud. The rule is that to avoid a policy, the false swearing must be willful and
with intent to defraud which was not the cause.

On the storage of gasoline

Ambiguities or obscurities must be strictly interpreted against the party that
caused them. This rigid application of the rule has become necessary in view of
current business practices. In contrast to contracts entered into by parties bargaining on
an equal footing, a contract of insurance calls for greater strictness and vigilance on the
part of courts of justice with a view to protect the weaker party from abuses and
imposition, and prevent their becoming traps for the unwary. The contract of
insurance is one of perfect good faith (uferrimal fidei) not for the insured alone, but
equally so for the insurer; in fact, it is more so for the latter, since its dominant
bargaining position carries with it stricter responsibility.
QCG admitted that there were 36 cans of gasoline in Bodega 2. Gasoline is not
specifically mentioned among the prohibited articles listed in the hemp warranty. The
cause relied upon LU speaks of oils. In ordinary parlance, oils means
lubricants and not gasoline or kerosene. The prohibition of keeping gasoline could
have been expressed clearly and unmistakably.
INSURANCE 20
ETERNAL GARDENS MEMORIAL G.R. No. 166245 by the Company on its effective date is eligible for insurance under
PARK CORPORATION, the Policy.
Petitioner,
Present: EVIDENCE OF INSURABILITY.
CARPIO MORALES,
- versus - Acting Chairperson, No medical examination shall be required for amounts of insurance up
TINGA, to P50,000.00. However, a declaration of good health shall be required
VELASCO, JR., for all Lot Purchasers as part of the application. The Company
CHICO-NAZARIO,* and reserves the right to require further evidence of insurability
BRION, JJ. satisfactory to the Company in respect of the following:
THE PHILIPPINE AMERICAN Promulgated: 1. Any amount of insurance in excess of P50,000.00.
LIFE INSURANCE COMPANY, 2. Any lot purchaser who is more than 55 years of age.
Respondent. April 9, 2008
x--------------------------------------------------------------------------x LIFE INSURANCE BENEFIT.

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 Decision [1] of the Court of Appeals (CA) in CA-
G.R. CV No. 57810 is the query: May the inaction of the insurer on the insurance
application be considered as approval of the application?
The Facts
On December 10, 1980, respondent Philippine American Life Insurance Company
(Philamlife) entered into an agreement denominated as Creditor Group Life Policy No.
P-1920[2] with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under
the policy, the clients of Eternal who purchased burial lots from it on installment basis
would be insured by Philamlife. The amount of insurance coverage depended upon the
existing balance of the purchased burial lots. The policy was to be effective for a period
of one year, renewable on a yearly basis.
The relevant provisions of the policy are:
ELIGIBILITY.
Any Lot Purchaser of the Assured who is at least 18 but not more than
65 years of age, is indebted to the Assured for the unpaid balance of
his loan with the Assured, and is accepted for Life Insurance coverage
INSURANCE
The Life Insurance coverage of any Lot Purchaser at any time shall be
the amount of the unpaid balance of his loan (including arrears up to
but not exceeding 2 months) as reported by the Assured to the
Company or the sum of P100,000.00, whichever is smaller. Such
benefit shall be paid to the Assured if the Lot Purchaser dies while
insured under the Policy.
EFFECTIVE DATE OF BENEFIT.
The insurance of any eligible Lot Purchaser shall be effective on the
date he contracts a loan with the Assured. However, there shall be no
insurance if the application of the Lot Purchaser is not approved by
the Company.[3]
Eternal was required under the policy to submit to Philamlife a list of all new lot
purchasers, together with a copy of the application of each purchaser, and the amounts
of the respective unpaid balances of all insured lot purchasers. In relation to the instant
petition, Eternal complied by submitting a letter dated December 29, 1982, [4] containing
a list of insurable balances of its lot buyers for October 1982. One of those included in
the list as new business was a certain John Chuang. His balance of payments was PhP
100,000. On August 2, 1984, Chuang died.
Eternal sent a letter dated August 20, 1984[5] to Philamlife, which served as an
insurance claim for Chuangs death. Attached to the claim were the following
documents: (1) Chuangs Certificate of Death; (2) Identification Certificate stating that
Chuang is a naturalized Filipino Citizen; (3) Certificate of Claimant; (4) Certificate of
Attending Physician; and (5) Assureds Certificate.
21
 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.
INSURANCE
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
22
 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
INSURANCE
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?
23

[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
INSURANCE
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
24
 way as to preclude the insurer from noncompliance with its approve the same, or otherwise be bound to honor the application as a valid, binding,
obligations.[19] (Emphasis supplied.) and effective insurance contract.[21]

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]
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.
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 SO ORDERED.
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

INSURANCE 25
 ETERNAL VS. PHILAMLIFE 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
G.R. No. 166245
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,
April 09, 2008 Chuang died.

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.
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.

The relevant provisions of the policy are: After more than a year, Philamlife had not furnished Eternal with any reply
to the latters insurance claim. This prompted Eternal to demand from
ELIGIBILITY. 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:
xx
EVIDENCE OF INSURABILITY.
xx The deceased was 59 years old when he entered into Contract #9558 and
LIFE INSURANCE BENEFIT. 9529 with Eternal Gardens Memorial Park in October 1982 for the total
xx 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
EFFECTIVE DATE OF BENEFIT.
Eternal filed a case with the RTC for a sum of money against Philamlife,
The insurance of any eligible Lot Purchaser shall be effective on the which decided in favor of Eternal, ordering Philamlife to pay the former
date he contracts a loan with the Assured. However, there shall be no 100K representing the proceeds of the policy.
insurance if the application of the Lot Purchaser is not approved by the
Company.
CA reversed. Hence this petition.

xx
Eternal was required under the policy to submit to Philamlife a list of all ISSUE: WON Philamlife should pay the 100K insurance proceeds
new lot purchasers, together with a copy of the application of each
INSURANCE 26
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.

INSURANCE 27