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Cebu Shipyard v William G.R. No. 132607.

May 5, 1999

J. Purisima

Cebu Shipyard and Engineering Works, Inc. repaired marine vessels while the Prudential is in
the non-life insurance business. William Lines, Inc., the owner of M/V Manila City, a luxury
passenger-cargo vessel, which caught fire and sank. At the time of the incident, subject vessel
was insured with Prudential for P45M for hull and machinery. CSEW was insured for only Php
10 million for the shiprepairers liability policy. They entered into a contract where negligence
was the only factor that could make CSEW liable for damages. Moreover, liability of CSEW was
limited to only Php 1million for damages. The Hull Policy included an Additional Perils
(INCHMAREE) Clause covering loss of or damage to the vessel through the negligence of,
among others, ship repairmen.
William brought Manila City to the dry dock of CSEW for repairs. The officers and cabin crew
stayed at the ship while it was being repaired. After the vessel was transferred to the docking
quay, it caught fire and sank, resulting to its total loss.
William brought suit against CSEW alleging that it was through the latters negligence that the
ship caught fire and sank. Prudential was impleaded as co-plaintiff after it had paid the value of
insured items. It was subrogated to 45 million, or the value it claimed to indemnify.
The trial court brought judgment against CSEW 45 million for the ship indemnity, 65 million for
loss of income, and more than 13 million in other damages. The CA affirmed the TC decision.
CSEW contended that the cause of the fire was due to Williams hotworks on the said portion of
the ship which they didnt ask CSEW permission for.
Prudential, on the other hand, blamed the negligence of the CSEW workers in the instance when
they didnt mind rubber insulation wire coming out of the air-conditioning unit that was already
Hence this MFR.

1. WON CSEW had management and supervisory control of the ship at the time the fire broke
2. WON the doctrine of res ipsa loquitur applies against the crew
3. WON Prudential has the right of subrogation against its own insured
4. WON the provisions limiting CSEWs liability for negligence to a maximum of Php 1 million
are valid

Held: Yes. Yes. Yes. No. Petition denied.

1. The that factual findings by the CA are conclusive on the parties and are not reviewable by
this Court. They are entitled to great weight and respect when the CA affirmed the factual
findings arrived at by the trial court.
The CA and the Cebu RTC are agreed that the fire which caused the total loss of subject M/V
Manila City was due to the negligence of the employees and workers of CSEW.
Furthermore, in petitions for review on certiorari, only questions of law may be put into issue.
Questions of fact cannot be entertained.
2. For the doctrine of res ipsa loquitur to apply to a given situation, the following conditions
must concur: (1) the accident was of a kind which does not ordinarily occur unless someone is
negligent; and (2) that the instrumentality or agency which caused the injury was under the
exclusive control of the person charged with negligence.
The facts and evidence reveal the presence of these conditions. First, the fire would not have
happened in the ordinary course of things if reasonable care and diligence had been exercised.
Second, the agency charged with negligence, as found by the trial court and the CA and as
shown by the records, is CSEW, which had control over subject vessel when it was docked for
annual repairs.
What is more, in the present case the trial court found direct evidence to prove that the workers
didnt exercise due diligence in the care of subject vessel. The direct evidence substantiates the
conclusion that CSEW was really negligent even without applying such doctrine.
3. Petitioner contends that Prudential is not entitled to be subrogated to the rights of William
Lines, Inc., theorizing that (1) the fire which gutted M/V Manila City was an excluded risk and
(2) it is a co-assured under the Marine Hull Insurance Policy. This was wrong. The one who
caused the fire has already been adjudicated by the courts as CSEW.
Upon proof of payment by Prudential to William Lines, Inc., the former was subrogated to the
right of the latter to indemnification from CSEW. As aptly ruled by the Court of Appeals, the
law says:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury.
When Prudential paid the latter the total amount covered by its insurance policy, it was
subrogated to the right of the latter to recover the insured loss from the liable party, CSEW.
Petitioner theorizes further that there can be no right of subrogation as it is deemed a co-assured
under the subject insurance policy with reliance on Clause 20 of the Work Order which states:
20. The insurance on the vessel should be maintained by the customer and/or owner of the vessel
during the period the contract is in effect.
Clause 20 of the Work Order in question is clear in the sense that it requires William Lines to
maintain insurance on the vessel during the period of dry-docking or repair. However, the fact
that CSEW benefits from the said stipulation does not automatically make it as a co-assured of
William Lines. The intention of the parties to make each other a co-assured under an insurance
policy is to be read from the insurance contract or policy itself and not from any other contract or
agreement because the insurance policy denominates the beneficiaries of the insurance. The hull
and machinery insurance procured by William Lines, Inc. from Prudential named only William
Lines, Inc. as the assured. There was no manifestation of any intention of William Lines, Inc.
to constitute CSEW as a co-assured under subject policy. The claim of CSEW that it is a co-
assured is unfounded.
Then too, in the Additional Perils Clause of the same Marine Insurance Policy, it is provided that
this insurance also covers loss of or damage to vessel directly caused by the negligence of
charterers and repairers who are not assured.
As correctly pointed out by respondent Prudential, if CSEW were deemed a co-assured under the
policy, it would nullify any claim of William Lines, Inc. from Prudential for any loss or damage
caused by the negligence of CSEW. Certainly, no shipowner would agree to make a shiprepairer
a co-assured under such insurance policy; otherwise, any claim for loss or damage under the
policy would be invalidated.
4. Although in this jurisdiction, contracts of adhesion have been consistently upheld as valid per
se; as binding as an ordinary contract, the Court recognizes instances when reliance on such
contracts cannot be favored especially where the facts and circumstances warrant that subject
stipulations be disregarded. Thus, in ruling on the validity and applicability of the stipulation
limiting the liability of CSEW for negligence to P1M only, the facts and circumstances vis-a-vis
the nature of the provision sought to be enforced should be considered, bearing in mind the
principles of equity and fair play.
It is worthy to note that M/V Manila City was insured with Prudential for P45M. Upon thorough
investigation by its hull surveyor, M/V Manila City was found to be beyond economical salvage
and repair. The evaluation of the average adjuster also reported a constructive total loss. The said
claim of William Lines, Inc., was then found to be valid and compensable such that Prudential
paid the latter the total value of its insurance claim. Furthermore, it was ascertained that the
replacement cost of the vessel, amounts to P55M.
Considering the circumstances, it would unfair to limit the liability of petitioner to One Million
Pesos only. To allow CSEW to limit its liability to P1M notwithstanding the fact that the total
loss suffered by the assured and paid for by Prudential amounted to P45M would sanction the
exercise of a degree of diligence short of what is ordinarily required because, then, it would not
be difficult for petitioner to escape liability by the simple expedient of paying an amount very
much lower than the actual damage suffered by William.

First Quezon City v CA GR. 98414 Feb 8, 1993

J. Grino-Aquino

One Jose del Rosario was injured while boarding a bus owned by DMTC in the Manila
International Airport. He was hospitalized for forty days. He filed suit against the bus company
and the court granted him of over 100,000 pesos in damages. The appellate court reduced
damages to 55,090 pesos. The insurance companys liability was limited to 12,000. The amount
for insurance was made Php 50,000 in the appellate courts decision.
First Quezon City, the insurer of DTMC, filed a motion for reconsideration to limit the damages
back to 12,000 pesos, the amount stipulated in the contract. This was denied hence this petition
for review.

Issue: Can the amount of the insurance companys liability be limited to Php 12,000?

Held: Yes

Ratio: The contract stipulated liability at Php 12,000 per passenger and at Php 50,000 as the
maximum liability per accident. This means that the insurers liability for a single accident will
not exceed 50,000 pesos. The court gave the example of 10 persons injured leaving a total of Php
120,000 in insurance liability payments. But with the Php 50,000 limit, only such value was to be
paid by the company to the insured.

Sun v CA G.R. No. 89741 March 13, 1991

J. Paras

Tan took from Sun Insurance a Php 300,000 policy to cover his electrical store in Iloilo city.
Tans request for an indemnity in 1983 was repeatedly denied, firstly in 1984. He wrote for a
reconsideration in the same year. This was rejected in 1985, prompting him to file a civil case in
the same year. The insurance company filed a motion to dismiss due to prescription in 1987, but
this was denied. The company went to the court of appeals to petition the same thing, but this
was denied.

1. WON the filing of a motion for reconsideration interrupts the twelve months prescriptive
period to contest the denial of the insurance claim.
2. WON the rejection of the claim shall be deemed final only if it contains words to the effect
that denial is final. (ie. the first letter in 1984)
3. When does the cause of action accrue?

3. At the time of the first rejection of the insurance company

1. The policy states in section 27.
Action or suit clause If a claim be made and rejected and an action or suit be not commenced
either in the Insurance Commission or in any court of competent jurisdiction within twelve (12)
months from receipt of notice of such rejection, or in case of arbitration taking place as provided
herein, within twelve (12) months after due notice of the award made by the arbitrator or
arbitrators or umpire, then the claim shall for all purposes be deemed to have been abandoned
and shall not thereafter be recoverable hereunder.
Respondent Tan admitted that he received a copy of the letter of rejection on April 2, 1984.
Thus, the 12-month prescriptive period started to run from the said date of April 2, 1984, under
section 27.
2. It was clear in the letter.
Ang v. Fulton Fire Insurance Co.- The condition contained in an insurance policy that claims
must be presented within one year after rejection is not merely a procedural requirement but an
important matter essential to a prompt settlement of claims against insurance companies as it
demands that insurance suits be brought by the insured while the evidence as to the origin and
cause of destruction have not yet disappeared.
Therefore, there was a necessity of bringing suits against the Insurer within one year from the
rejection of the claim. (1984) The contention of the respondents that the one-year prescriptive
period does not start to run until the petition for reconsideration had been resolved by the insurer
(1985), runs counter to the doctrine.
The provision in the contract was pursuant to Sec. 63.
A condition, stipulation or agreement in any policy of insurance, limiting the time for
commencing an action thereunder to a period of less than one year from the time when the cause
of action accrues, is void.
3. Eagle star- The right of the insured to the payment of his loss accrues from the happening of
the loss. However, the cause of action in an insurance contract does not accrue until the insured's
claim is finally rejected by the insurer. This is because before such final rejection there is no real
necessity for bringing suit.
The cause of action, then, started when the insurer denied his claim in the first
instance(1984). This rejection of a petition for reconsideration as insisted by respondents wasnt
the beginning of the cause of action.

Fortune Insurance and Surety Co., Inc. v. CA (1995)

G.R. No. 115278 May 23, 1995

Lessons Applicable: Stipulations Cannot Be Segregated (Insurance)


Producers Bank of the Philippines insured with Fortune Insurance and

Surety Co. P725,000 which was lost during a robbery of Producer's
armored vehicle while it was in transit from Pasay City City to its
Makati head office.
The armored car was driven by Benjamin Magalong Y de Vera,
escorted by Security Guard Saturnino Atiga Y Rosete.
After an investigation conducted by the Pasay police authorities, the
driver Magalong and guard Atiga were charged, together with Edelmer
Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of
P.D. 532 (Anti-Highway Robbery Law)
Upon claiming, Fortune refused stating that it is not liable since under
the general exceptions of the policy:
o any loss caused by any dishonest, fraudulent or criminal act of
the insured or any officer, employee, partner, director, trustee or
authorized representative of the Insured whether acting alone or
in conjunction with others. . . .
RTC: favored Producers Bank since Driver and Security Guard were
merely assigned
CA: Affirmed RTC

ISSUE: W/N the driver and security guard are employees under the general

HELD: YES. Petition is granted.

It is clear to us that insofar as Fortune is concerned, it was its

intention to exclude and exempt from protection and coverage losses
arising from dishonest, fraudulent, or criminal acts of persons granted
or having unrestricted access to Producers' money or payroll. When it
used then the term "employee," it must have had in mind any person
who qualifies as such as generally and universally understood, or
jurisprudentially established in the light of the four standards in the
determination of the employer-employee relationship, 21 or as
statutorily declared even in a limited sense as in the case of Article
106 of the Labor Code which considers the employees under a "labor-
only" contract as employees of the party employing them and not of
the party who supplied them to the employer
Producers entrusted the three with the specific duty to safely transfer
the money to its head office, with Alampay to be responsible for its
custody in transit; Magalong to drive the armored vehicle which would
carry the money; and Atiga to provide the needed security for the
money, the vehicle, and his two other companions.
A "representative" is defined as one who represents or stands in the
place of another; one who represents others or another in a special
capacity, as an agent, and is interchangeable with "agent."

Fortune v CA G.R. No. 115278 May 23, 1995

J. Davide Jr.

Producers Banks money was stolen while it was being transported from Pasay to Makati. The
people guarding the money were charged with the theft. The bank filed a claim for the amount of
Php 725,000, and such was refused by the insurance corporation due to the stipulation:
The company shall not be liable under this policy in report of
(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer,
employee, partner, director, trustee or authorized representative of the Insured whether acting
alone or in conjunction with others. . . .
In the trial court, the bank claimed that the suspects were not any of the above mentioned. They
won the case. The appellate court affirmed on the basis that the bank had no power to hire or
dismiss the guard and could only ask for replacements from the security agency.

Issue: Did the guards fall under the general exceptions clause of the insurance policy and thus
absolved the insurance company from liability?

Held: Yes to both. Petition granted.

The insurance agency contended that the guards automatically became the authorized
representatives of the bank when they cited International Timber Corp. vs. NLRC where a
contractor is a "labor-only" contractor in the sense that there is an employer-employee
relationship between the owner of the project and the employees of the "labor-only" contractor.
They cited Art. 106. Of the Labor Code which said:
Contractor or subcontractor. There is "labor-only" contracting where the person supplying
workers to an employer does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the workers recruited and placed by
such persons are performing activities which are directly related to the principal business of such
employer. In such cases, the person or intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same manner and extent as if the latter
were directly employed by him.
The bank asserted that the guards were not its employees since it had nothing to do with their
selection and engagement, the payment of their wages, their dismissal, and the control of their
They cited a case where an employee-employer relationship was governed by (1) the selection
and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4)
the power to control the employee's conduct.
The case was governed by Article 174 of the Insurance Code where it stated that casualty
insurance awarded an amount to loss cause by accident or mishap.
The term "employee," should be read as a person who qualifies as such as generally and
universally understood, or jurisprudentially established in the light of the four standards in the
determination of the employer-employee relationship, or as statutorily declared even in a limited
sense as in the case of Article 106 of the Labor Code which considers the employees under a
"labor-only" contract as employees of the party employing them and not of the party who
supplied them to the employer.
But even if the contracts were not labor-only, the bank entrusted the suspects with the duty to
safely transfer the money to its head office, thus, they were representatives. According to the
court, a representative is defined as one who represents or stands in the place of another; one
who represents others or another in a special capacity, as an agent, and is interchangeable with

Western Guaranty v CA G.R. No. 91666 July 20, 1990

J. Feliciano

Priscilla Rodriguez was struck by a bus owned by De Dios. She was hospitalized and her face
was permanently disfigured. Western Guaranty, the insurance company of the bus line, was
obliged to pay due to the bodily injury caused by the bus. Rodriguez was able to earn a money
judgment from the court to the tune of 3000 for actual damages, 1500 for loss of earning
capacity, and 20000 for moral damages and attorneys fees. De Dios filed a complaint against
Western to indemnify the amount. Western lost the case in the appellate court, hence this

Issue: Is Western liable for paying loss of earnings, moral damages and attorney's fees even
if these items are not among those included in the Schedule of Indemnities set forth in the
insurance policy.

Held: Yes. Petition dismissed.

The policy states:
Section 1. Liability to the Public Company will, subject to the Limits of Liability, pay all
sums necessary to discharge liability of the insured in respect of
(a) death of or bodily injury to or damage to property of any passenger as defined herein.
There was also a schedule of indemnities that specified a certain amount for a certain type of
injury as well as hospital service payments.
In this case, the limits on the amount payable for certain kinds of expenses were not considered
by the court as excluding liability for any other type of expense or damage or loss even though
actually sustained or incurred by the third party victim.
The court noted that the limits of the liability was at 50,000 per person per accident. Construing
this with section 1 means that all kinds of damages allowable by law were also to be covered by
the policy once it was shown that liability has arisen.
The schedule of indemnities was not a closed enumeration of the kinds of damages Western can
Western should have used far more specific language, not the pay all sums necessary to
discharge liability clause.
Insurance contracts must be read by the courts with a jaundiced eye to prevent the insurer from
escaping from its obligation. Also, contracts of adhesion such as policies msut be construed
against the party who made them, in this case western.

Qua v Law Union. G.R. No. L-4611 December 17, 1955

J. Reyes

Qua owned 4 warehouses used for the storage of copra and hemp. They were insured with the
Law Union.
Fire broke out and completely destroyed 3 bodegas. The plaintiff submitted claims totalling
P398,562.81. The Insurance Company resisted payment on the grounds that the fire had been
deliberately caused by the insured or by other persons in connivance with him.
Que Chee Gan and his brother were tried for arson, but were acquitted by the trial court. As
regards the insurance claim, the trial court ruled in favor of Qua and entitled him to recover more
than Php 300,000 for indemnities from the insurance company. Hence, the company appealed to
the SC.
In its first assignment of error, the insurance company alleged that the trial Court should have
held that the policies were avoided for breach of warranty. The contract noted that fire hydrants
were required in a particular measurement of space (every 150 feet). Hence, they argued that
since the bodegas insured had an external wall perimeter of 500 meters, the appellee should have
11 fire hydrants in the compound, and that he actually had only 2, with a further pair.

1. WON the insurance company can void the policies it had issued
2. WON the insured violated the "Hemp Warranty" provisions of the policy against the storage
of gasoline
3. WON the insured planned the destruction of the bodega

Held: No. No. No.

1. The insurer, who at the time of issuance, has knowledge of existing facts which would
invalidate the contract from the beginning, such 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. Also, 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.
The appellant is barred estoppel to claim violation of the so-called fire hydrants warranty,
because it knew the number of hydrants demanded therein never existed from the very
beginning and issued the policies.
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 abhorrent to fair-minded men.
The appellant company 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%, thereby giving
the insurance company a double benefit. 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.
Receipt of Premiums or Assessments after 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 premium 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.
Moreover, taking into account the well known rule that ambiguities or obscurities must be
strictly interpreted against the party that caused them, the "memo of warranty" invoked by
appellant bars the latter from questioning the existence of the appliances called for in the insured
2. The ambiguity must be held strictly against the insurer and liberally in favor of the insured,
specially to avoid a forfeiture. 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.
Appellee admitted that there were 36 cans of gasoline in the building designed. It However,
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", and is uncertain because, "Oils"
usually mean "lubricants" and not gasoline or kerosene.
If the company intended to rely upon a condition of that character, it ought to have been plainly
expressed in the policy.
The contract of insurance is one of perfect good faith not for the insured alone, but equally so for
the insurer; in fact, it is mere so for the latter, since its dominant bargaining position carries with
it stricter responsibility.
Also, 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. "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."
3. It was unlikely that Qua burned the warehouse to defraud the company because he had the
resources to pay off the National Bank in a short time. Also, 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."
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 relied on its adjuster investigator 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 those who actually saw the contents of the bodegas shortly before the
fire, while inspecting them for the mortgagee Bank.

Geagonia v CA G.R. No. 114427 February 6, 1995

Geagonia, owner of a store, obtained from Country Bankers fire insurance policy for
P100,000.00. The 1 year policy and covered thestock trading of dry goods.
The policy noted the requirement that
"3. The insured shall give notice to the Company of any insurance or insurances already
effected, or which may subsequently be effected, covering any of the property or properties
consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless
notice be given and the particulars of such insurance or insurances be stated therein or endorsed
in this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company
before the occurrence of any loss or damage, all benefits under this policy shall be deemed
forfeited, provided however, that this condition shall not apply when the total insurance or
insurances in force at the time of the loss or damage is not more than P200,000.00."
The petitioners stocks were destroyed by fire. He then filed a claim which was subsequently
denied because the petitioners stocks were covered by two other fire insurance policies for Php
200,000 issued by PFIC. The basis of the private respondent's denial was the petitioner's alleged
violation of Condition 3 of the policy.
Geagonia then filed a complaint against the private respondent in the Insurance Commission for
the recovery of P100,000.00 under fire insurance policy and damages. He claimed that he knew
the existence of the other two policies. But, he said that he had no knowledge of the provision in
the private respondent's policy requiring him to inform it of the prior policies and this
requirement was not mentioned to him by the private respondent's agent.
The Insurance Commission found that the petitioner did not violate Condition 3 as he had no
knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it was
Cebu Tesing Textiles w/c procured the PFIC policies w/o informing him or securing his consent;
and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks.
The Insurance Commission then ordered the respondent company to pay complainant the sum of
P100,000.00 with interest and attorneys fees.
CA reversed the decision of the Insurance Commission because it found that the petitioner knew
of the existence of the two other policies issued by the PFIC.

1. WON the petitioner had not disclosed the two insurance policies when he obtained the fire
insurance and thereby violated Condition 3 of the policy.
2. WON he is prohibited from recovering

Held: Yes. No. Petition Granted

1. The court agreed with the CA that the petitioner knew of the prior policies issued by the PFIC.
His letter of 18 January 1991 to the private respondent conclusively proves this knowledge. His
testimony to the contrary before the Insurance Commissioner and which the latter relied upon
cannot prevail over a written admission made ante litem motam. It was, indeed, incredible that he
did not know about the prior policies since these policies were not new or original.
2. Stated differently, provisions, conditions or exceptions in policies which tend to work a
forfeiture of insurance policies should be construed most strictly against those for whose benefits
they are inserted, and most favorably toward those against whom they are intended to operate.
With these principles in mind, Condition 3 of the subject policy is not totally free from
ambiguity and must be meticulously analyzed. Such analysis leads us to conclude that (a) the
prohibition applies only to double insurance, and (b) the nullity of the policy shall only be to the
extent exceeding P200,000.00 of the total policies obtained.
Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total
insurance in force at the time of loss does not exceed P200,000.00, the private respondent was
amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had
in mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of
"other insurance" clause in fire policies is to prevent over-insurance and thus avert the
perpetration of fraud. When a property owner obtains insurance policies from two or more
insurers in a total amount that exceeds the property's value, the insured may have an inducement
to destroy the property for the purpose of collecting the insurance. The public as well as the
insurer is interested in preventing a situation in which a fire would be profitable to the insured.

Misamis v Capital Insurance GR L-21380 May 20, 1966

En Banc

Misamis Lumber Company insured its Ford Falcon to Capital Insurance for P 14,000. One day,
the cars crank and flywheel broke when it passed over a water hole in Aurora
Boulevard. Misamis sent it to be repaired at the cost of 302 pesos. However, Capital did not
want to pay the entire amount because the repair limit in the contract stipulated up to 150 pesos
only. Misamis filed suit.
The lower court ruled against the insurance corporation because the company did not show that
the cost was excessive. Also , the court ruled that absolving the company of the excess amount
would make the contract one sided.

Issue: Is the insurance company liable for more than the amount in the repair limit?

Held: No. Insurance company only ordered to pay 150 pesos.

Paragraph 4, subpar a. of the insurance contract is clear and specific. It authorizes up to 150
pesos only as a repair limit.
The lower court did not heed the express stipulation in the agreement. The policy specifically
noted the mechanics for repair in par. 2 and the limits of the liability in par 4. The company
didnt notify the insurance provider before it did the repairs. Also, even if the contract is onerous,
this doesnt justify its abrogation.

Rizal Surety v CA G.R. No. 112360. July 18, 2000

J. Purisima

Rizal Surety issued a 1 million peso fire insurance policy with Transworld. This was increased to
1.5 million. A four span building was part of the policy. A fire broke out and gutted the building,
together with a two storey building behind it were gaming machines were stored. The company
filed its claims but to no avail. Hence, it brought a suit in court. It aimed to make Rizal pay for
almost 3 million including legal interest and damages. Rizal claimed that the policy only covered
damage on the four span building and not the two storey building. The trial court ruled in
Transworlds favor and ordered Rizal to pay actual damages only. The court of appeals increased
the damages. The insurance company filed a MFR. The CA answered by modifying the
imposition of interest. Not satisfied, the insurance company petitioned to the Supreme Court.

WON Rizal Surety is liable for loss of the two-storey building considering that the fire insurance
policy sued upon covered only the contents of the four-span building.

Held: Yes. Petition dismissed.

The policy had clauses on the building coverage that read:
"contained and/or stored during the currency of this Policy in the premises occupied by them
forming part of the buildings situated within own Compound"
"First, said properties must be contained and/or stored in the areas occupied by Transworld and
second, said areas must form part of the building described in the policy xxx"
This generally means that the policy didnt limit its coverage to what was stored in the four-span
As to questions of fact, both the trial court and the Court of Appeals found that the so called
"annex " was not an annex building but an integral part of the four-span building described in the
policy and consequently, the machines and spare parts stored were covered by the fire insurance.
A report said: "Two-storey building constructed of partly timber and partly concrete hollow
blocks under g.i. roof which is adjoining and intercommunicating with the repair of the first
right span of the lofty storey building and thence by property fence wall."
"Art.1377. The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity"
Landicho v GSIS- the 'terms in an insurance policy, which are ambiguous, equivocal, or
uncertain are to be construed strictly and most strongly against the insurer, and liberally in favor
of the insured so as to effect the dominant purpose of indemnity or payment to the insured
The issue of whether or not Transworld has an insurable interest in the fun and amusement
machines and spare parts, which entitles it to be indemnified for the loss thereof, had been settled
in another SC case.

New Life v CA G.R. No. 94071 March 31, 1992

J. Regalado

Julian Sy, owner of New Life, insured his building in 3 different insurance agencies for 350,000,
1,000,000, and 200,000. When his building and the goods inside burned down, he claimed for
insurance indemnities, but these were rejected by the three companies for violation of policy
Sy filed for 3 different suits in the trial court, where he won all suits against the insurance
companies. The court of appeals reversed the decision of the trial court.

Issue: Did the petitioner violate conditions 3 and 27 of the three insurance policies, thereby
foreiting collection of indemnities?

Held: Yes.

Condition 3. The insured shall give notice to the Company of any insurance or insurances already
effected, or which may subsequently be effected, covering any of the property or properties
consisting of stocks in trade, goods in process and/or inventories only hereby insured, and unless
such notice be given and the particulars of such insurance or insurances be stated therein or
endorsed on this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the
Company before the occurrence of any loss or damage, all benefits under this policy shall be
deemed forfeited, provided however, that this condition shall not apply when the total insurance
or insurances in force at the time of loss or damage not more than P200,000.00.
Sy never disclosed co-insurance in the contracts he entered into with the three corporations. The
insured is specifically required to disclose the insurance that he had contracted with other
companies. Sy also contended that the insurance agents knew of the co-insurance. However, the
theory of imputed knowledge, that the knowledge of the agent is presumed to be known by the
principal, is not enough.
When the words of the document are readily understandable by an ordinary reader, there is no need
for construction anymore.
The conformity of the insured to the terms of the policy is implied with his failure to disagree with
the terms of the contract.
Since Sy, was a businessman, it was incumbent upon him to read the contracts.
Pioneer Insurance and Surety Corporation vs. Yap- The obvious purpose of the aforesaid
requirement in the policy is to prevent over-insurance and thus avert the perpetration of fraud. The
public, as well as the insurer, is interested in preventing the situation in which a fire would be
profitable to the insured.
Also, policy condition 15 was used. It stated: 15.. . . if any false declaration be made or used in
support thereof, . . . all benefits under this Policy shall be forfeited . . .
As for condition number 27, the stipulation read:
27. Action or suit clause. If a claim be made and rejected and an action or suit be not commenced
either in the Insurance Commission or any court of competent jurisdiction of notice of such
rejection, or in case of arbitration taking place as provided herein, within twelve (12) months after
due notice of the award made by the arbitrator or arbitrators or umpire, then the claim shall for all
purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder.
This is regarding Sys claim for one of the companies. Recovery was filed in court by petitioners
only on January 31, 1984, or after more than one (1) year had elapsed from petitioners' receipt of
the insurers' letter of denial on November 29, 1982. This made it void.

Ty v First National G.R. No. L-16138 April 29, 1961

J. Labrador

Ty, a mechanic foreman in Caloocan, bought 18 insurance policies at 8 pesos each. A fire broke
out, and Ty fought his way out of the factory. His hand was broken by a heavy object in the
process. He wanted to collect an indemnity valuing 650 pesos for the loss of hand by means of
amputation even if he only suffered from broken fingers. The insurance companies sued him in
court and they won. Ty then appealed to the Supreme Court.

Issue: Can he collect the sums even if there was no amputation?

Held: No

The insurance policies clearly define loss of hand as amputation of the bones on the wrist. The
injury was only a temporary total disability of plaintiff's left hand." This wasnt covered by the

Perla v CA G.R. No. 96452 May 7, 1992

The Lim spouses opened a chattel mortgage and bought a Ford Laser from Supercars for Php
77,000 and insured it with Perla Compania de Seguros. The vehicle was stolen while Evelyn Lim
was driving it with an expired license. The spouses requested for a moratorium on payments but
this was denied by FCP, the assignee of rights over collection of the mortgage amount of the car.
The spouses also called on the insurance company to pay the balance of the mortgage due to
theft but this was denied by the company due to the spouses violation of the Authorized Driver
clause stating (driving with an expired license before being carnapped):
Any of the following: (a) The Insured (b) Any person driving on the Insured's order, or with his
permission. Provided that the person driving is permitted, in accordance with the licensing or
other laws or regulations, to drive the Scheduled Vehicle, or has been permitted and is not
disqualified by order of a Court of Law or by reason of any enactment or regulation in that
Since the spouses didnt pay the mortgage, FCP filed suit against them. The trial court ruled in
its favor ordering spouses to pay. The appellate court reversed their decision. FCP and Perla
appealed to the SC.
1.Was there grave abuse of discretion on the part of the appellate court in holding that private
respondents did not violate the insurance contract because the authorized driver clause is not
applicable to the "Theft" clause of said Contract?
2. Whether or not the loss of the collateral exempted the debtor from his admitted obligations
under the promissory note particularly the payment of interest, litigation expenses and attorney's

Held: No, No. Petition dismissed.

1. The car was insured against a malicious act such as theft. Therefore the Theft clause in the
contract should apply and not the authorized driver clause. The risk against accident is different
from the risk against theft.
The appellate court stated: The "authorized driver clause" in a typical insurance policy is in
contemplation or anticipation of accident in the legal sense in which it should be understood, and
not in contemplation or anticipation of an event such as theft. The distinction often seized
upon by insurance companies in resisting claims from their assureds between death occurring
as a result of accident and death occurring as a result of intent may, by analogy, apply to the case
at bar.
There was no connection between valid possession of a license and the loss of a vehicle. Ruling
in a different way would render the policy a sham because the company can then easily cite
restrictions not applicable to the claim.
2. The Supreme Court stated:
The chattel mortgage constituted over the automobile is merely an accessory contract to the
promissory note. Being the principal contract, the promissory note is unaffected by whatever
befalls the subject matter of the accessory contract. Therefore, the unpaid balance on the
promissory note should be paid, and not just the installments due and payable before the
automobile was carnapped, as erronously held by the Court of Appeals.
The court, however, construed the insurance, chattel mortgage, and promissory note as
interrelated contracts, hence eliminating the payment of interests, litigation expenses, and
attorneys fees stated in the promissory note. The promissory note required securing a chattel
mortage which in turn required opening an insurance contract. The insurance was made as an
accessory to the principal contract, making sure that the value in the promissory note will be paid
even if the car was lost. The insurance company promised to pay FCP for loss or damage of the
CA didnt err in requiring Perla to pay the spouses, but the spouses must pay FCP for the balance
in the note.