ALPHA INSURANCE AND SURETY CO.

, PETITIONER,
vs.
ARSENIA SONIA CASTOR, RESPONDENT.

G.R. No. 198174 September 2, 2013

DECISION

PERALTA, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the
Decision1 dated May 31, 2011 and Resolution2 dated August 10, 2011 of the Court of Appeals (CA) in CA-G.R.
CV No. 93027.

The facts follow.

On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No. MAND/CV-
00186, with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The contract of insurance
obligates the petitioner to pay the respondent the amount of Six Hundred Thirty Thousand Pesos
(P630,000.00) in case of loss or damage to said vehicle during the period covered, which is from February 26,
2007 to February 26, 2008.

On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar Lanuza (Lanuza), to
bring the above-described vehicle to a nearby auto-shop for a tune-up. However, Lanuza no longer returned
the motor vehicle to respondent 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 the
said loss and demanded payment of the insurance proceeds in the total sum of P630,000.00.

In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating among others, thus:

Upon verification of the documents submitted, particularly the Police Report and your Affidavit, which states
that the culprit, who stole the Insure[d] unit, is employed with you. We would like to invite you on the provision
of the Policy under Exceptions to Section-III, which we quote:

1.) The Company shall not be liable for:

xxxx

(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON IN THE
INSURED’S SERVICE."

In view [of] the foregoing, we regret that we cannot act favorably on your claim.

In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued that the
exception refers to damage of the motor vehicle and not to its loss. However, petitioner’s denial of
respondent’s insured claim remains firm.

Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner before the
Regional Trial Court (RTC) of Quezon City on September 10, 2007.

In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent in this wise:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
defendant ordering the latter as follows:
To pay plaintiff the amount of P466,000.00 plus legal interest of 6% per annum from the time of demand up to
the time the amount is fully settled;

To pay attorney’s fees in the sum of P65,000.00; and

To pay the costs of suit.

All other claims not granted are hereby denied for lack of legal and factual basis.3

Aggrieved, petitioner filed an appeal with the CA.

On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon City’s decision. The fallo
reads:

WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision, dated December
19, 2008, of Branch 215 of the Regional Trial Court of Quezon City, in Civil Case No. Q-07-61099, is hereby
AFFIRMED in toto.

SO ORDERED.4

Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in a Resolution
dated August 10, 2011.

Hence, the present petition wherein petitioner raises the following grounds for the allowance of its petition:

WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND GROSSLY OR
GRAVELY ABUSED ITS DISCRETION WHEN IT ADJUDGED IN FAVOR OF THE PRIVATE RESPONDENT
AND AGAINST THE PETITIONER AND RULED THAT EXCEPTION DOES NOT COVER LOSS BUT ONLY
DAMAGE BECAUSE THE TERMS OF THE INSURANCE POLICY ARE [AMBIGUOUS] EQUIVOCAL OR
UNCERTAIN, SUCH THAT THE PARTIES THEMSELVES DISAGREE ABOUT THE MEANING OF
PARTICULAR PROVISIONS, THE POLICY WILL BE CONSTRUED BY THE COURTS LIBERALLY IN
FAVOR OF THE ASSURED AND STRICTLY AGAINST THE INSURER.

WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND COMMITTED GRAVE
ABUSE OF DISCRETION WHEN IT [AFFIRMED] IN TOTO THE JUDGMENT OF THE TRIAL COURT. 5

Simply, the core issue boils down to whether or not the loss of respondent’s vehicle is excluded under the
insurance policy.

We rule in the negative.

Significant portions of Section III of the Insurance Policy states:

SECTION III – LOSS OR DAMAGE

The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the
Schedule Vehicle and its accessories and spare parts whilst thereon:

(a)

by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or

consequent upon wear and tear;

(b)
by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;

(c)

by malicious act;

(d)

whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail, inland
waterway, lift or elevator.

xxxx

EXCEPTIONS TO SECTION III

The Company shall not be liable to pay for:

Loss or Damage in respect of any claim or series of claims arising out of one event, the first amount of each
and every loss for each and every vehicle insured by this Policy, such amount being equal to one percent
(1.00%) of the Insured’s estimate of Fair Market Value as shown in the Policy Schedule with a minimum
deductible amount of Php3,000.00;

Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures or breakages;

Damage to tires, unless the Schedule Vehicle is damaged at the same time;

Any malicious damage caused by the Insured, any member of his family or by a person in the Insured’s
service.6

In denying respondent’s claim, petitioner takes exception by arguing that the word "damage," under paragraph
4 of "Exceptions to Section III," means loss due to injury or harm to person, property or reputation, and should
be construed to cover malicious "loss" as in "theft." Thus, it asserts that the loss of respondent’s vehicle as a
result of it being stolen by the latter’s driver is excluded from the policy.

We do not agree.

Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft perpetrated by the
driver of the insured is not an exception to the coverage from the insurance policy, since Section III thereof did
not qualify as to who would commit the theft. Thus:

Theft perpetrated by a driver of the insured is not an exception to the coverage from the insurance policy
subject of this case. This is evident from the very provision of Section III – "Loss or Damage." The insurance
company, subject to the limits of liability, is obligated to indemnify the insured against theft. Said provision does
not qualify as to who would commit the theft. Thus, even if the same is committed by the driver of the insured,
there being no categorical declaration of exception, the same must be covered. As correctly pointed out by the
plaintiff, "(A)n insurance contract should be interpreted as to carry out the purpose for which the parties
entered into the contract which is to insure against risks of loss or damage to the goods. Such interpretation
should result from the natural and reasonable meaning of language in the policy. Where restrictive provisions
are open to two interpretations, that which is most favorable to the insured is adopted." The defendant would
argue that if the person employed by the insured would commit the theft and the insurer would be held liable,
then this would result to an absurd situation where the insurer would also be held liable if the insured would
commit the theft. This argument is certainly flawed. Of course, if the theft would be committed by the insured
himself, the same would be an exception to the coverage since in that case there would be fraud on the part of
the insured or breach of material warranty under Section 69 of the Insurance Code.7
Moreover, contracts of insurance, like other contracts, are to be construed according to the sense and meaning
of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be
taken and understood in their plain, ordinary and popular sense.8 Accordingly, in interpreting the exclusions in
an insurance contract, the terms used specifying the excluded classes therein are to be given their meaning as
understood in common speech.9

Adverse to petitioner’s claim, 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.1âwphi1

Therefore, petitioner cannot exclude the loss of respondent’s 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 insured’s service. Paragraph 4 clearly
does not contemplate "loss of property," as what happened in the instant case.

Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as one of the
exceptions from coverage, is the damage that is the direct result from the deliberate or willful act of the insured,
members of his family, and any person in the insured’s service, whose clear plan or purpose was to cause
damage to the insured vehicle for purposes of defrauding the insurer, viz.:

This interpretation by the Court is bolstered by the observation that the subject policy appears to clearly
delineate between the terms "loss" and "damage" by using both terms throughout the said policy. x x x

xxxx

If the intention of the defendant-appellant was to include the term "loss" within the term "damage" then logic
dictates that it should have used the term "damage" alone in the entire policy or otherwise included a clear
definition of the said term as part of the provisions of the said insurance contract. Which is why the Court finds
it puzzling that in the said policy’s provision detailing the exceptions to the policy’s coverage in Section III
thereof, which is one of the crucial parts in the insurance contract, the insurer, after liberally using the words
"loss" and "damage" in the entire policy, suddenly went specific by using the word "damage" only in the policy’s
exception regarding "malicious damage." Now, the defendant-appellant would like this Court to believe that it
really intended the word "damage" in the term "malicious damage" to include the theft of the insured vehicle.

The Court does not find the particular contention to be well taken.

True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be construed
according to the sense and meaning of the terms which the parties thereto have used. In the case of property
insurance policies, the evident intention of the contracting parties, i.e., the insurer and the assured, determine
the import of the various terms and provisions embodied in the policy. However, when the terms of the
insurance policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree about the
meaning of particular provisions, the policy will be construed by the courts liberally in favor of the assured and
strictly against the insurer.10

Lastly, 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 v. Philippine American
Life Insurance Company,11 this Court ruled –

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 latter’s interest. Thus, in
Malayan Insurance Corporation v. Court of Appeals, this Court held that:

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any
ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of
insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the
insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to
preclude the insurer from non-compliance with its obligations.

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.12

WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. Accordingly, the
Decision dated May 31, 2011 and Resolution dated August 10, 2011 of the Court of Appeals are hereby
AFFIRMED.

SO ORDERED.
 [G.R. No. 125678. March 18, 2002]

PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA
TRINOS, respondents.

DECISION
YNARES-SANTIAGO, J.:

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with
petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to the following
question:

Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble,
diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).[1]

The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly,
he was issued Health Care Agreement No. P010194. Under the agreement, respondents husband was entitled
to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of
out-patient benefits such as annual physical examinations, preventive health care and other out-patient services.
Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to
March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum
sum of P75,000.00 per disability.[2]
During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical
Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital, respondent tried
to claim the benefits under the health care agreement. However, petitioner denied her claim saying that the
Health Care Agreement was void. According to petitioner, there was a concealment regarding Ernanis medical
history. Doctors at the MMC allegedly discovered at the time of Ernanis confinement that he was hypertensive,
diabetic and asthmatic, contrary to his answer in the application form. Thus, respondent paid the hospitalization
expenses herself, amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later,
he was admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent brought her
husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent
was constrained to bring him back to the Chinese General Hospital where he died on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for
damages against petitioner and its president, Dr. Benito Reverente, which was docketed as Civil Case No. 90-
53795. She asked for reimbursement of her expenses plus moral damages and attorneys fees. After trial, the
lower court ruled against petitioners, viz:

WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita Trinos,
ordering:

1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount
of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same;

2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;

4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.

SO ORDERED.[3]
 On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages
and absolved petitioner Reverente.[4] Petitioners motion for reconsideration was denied.[5] Hence, petitioner
brought the instant petition for review, raising the primary argument that a health care agreement is not an
insurance contract; hence the incontestability clause under the Insurance Code[6] does not apply.
Petitioner argues that the agreement grants living benefits, such as medical check-ups and hospitalization
which a member may immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration
one-year thereafter. Petitioner also points out that only medical and hospitalization benefits are given under the
agreement without any indemnification, unlike in an insurance contract where the insured is indemnified for his
loss. Moreover, since Health Care Agreements are only for a period of one year, as compared to insurance
contracts which last longer,[7] petitioner argues that the incontestability clause does not apply, as the same
requires an effectivity period of at least two years. Petitioner further argues that it is not an insurance company,
which is governed by the Insurance Commission, but a Health Maintenance Organization under the authority of
the Department of Health.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or
contingent event. An insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group
of persons bearing a similar risk; and
5. In consideration of the insurers promise, the insured pays a premium.[8]
Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which
may damnify a person having an insurable interest against him, may be insured against. Every person has an
insurable interest in the life and health of himself. Section 10 provides:

Every person has an insurable interest in the life and health:

(1) of himself, of his spouse and of his children;

(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a
pecuniary interest;

(3) of any person under a legal obligation to him for the payment of money, respecting property or
service, of which death or illness might delay or prevent the performance; and

(4) of any person upon whose life any estate or interest vested in him depends.

In the case at bar, the insurable interest of respondents husband in obtaining the health care agreement
was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a
contract of indemnity.[9] Once the member incurs hospital, medical or any other expense arising from sickness,
injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon
under the contract.
Petitioner argues that respondents husband concealed a material fact in his application. It appears that in
the application for health coverage, petitioners required respondents husband to sign an express authorization
for any person, organization or entity that has any record or knowledge of his health to furnish any and all
information relative to any hospitalization, consultation, treatment or any other medical advice or
examination.[10] Specifically, the Health Care Agreement signed by respondents husband states:

We hereby declare and agree that all statement and answers contained herein and in any addendum annexed
to this application are full, complete and true and bind all parties in interest under the Agreement herein applied
for, that there shall be no contract of health care coverage unless and until an Agreement is issued on this
application and the full Membership Fee according to the mode of payment applied for is actually paid during
the lifetime and good health of proposed Members; that no information acquired by any Representative of
PhilamCare shall be binding upon PhilamCare unless set out in writing in the application; that any physician is,
by these presents, expressly authorized to disclose or give testimony at anytime relative to any information
acquired by him in his professional capacity upon any question affecting the eligibility for health care coverage
of the Proposed Members and that the acceptance of any Agreement issued on this application shall be a
ratification of any correction in or addition to this application as stated in the space for Home Office
Endorsement.[11] (Underscoring ours)

In addition to the above condition, petitioner additionally required the applicant for authorization to inquire
about the applicants medical history, thus:

I hereby authorize any person, organization, or entity that has any record or knowledge of my health and/or
that of __________ to give to the PhilamCare Health Systems, Inc. any and all information relative to any
hospitalization, consultation, treatment or any other medical advice or examination. This authorization is in
connection with the application for health care coverage only. A photographic copy of this authorization shall
be as valid as the original.[12] (Underscoring ours)

Petitioner cannot rely on the stipulation regarding Invalidation of agreement which reads:

Failure to disclose or misrepresentation of any material information by the member in the application or
medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from
the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An
undisclosed or misrepresented information is deemed material if its revelation would have resulted in the
declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or
benefits applied for.[13]

The answer assailed by petitioner was in response to the question relating to the medical history of the
applicant. This largely depends on opinion rather than fact, especially coming from respondents husband who
was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and
without intent to deceive will not avoid a policy even though they are untrue.[14] Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will
not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a
lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the
statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon
such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and
one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief,
that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his
knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual
fraud.[15] (Underscoring ours)

The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance
contract.[16] Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative
defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider
or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the
contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the
extent agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized
for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has
prepaid.
Under Section 27 of the Insurance Code, a concealment entitles the injured party to rescind a contract of
insurance. The right to rescind should be exercised previous to the commencement of an action on the
contract.[17] In this case, no rescission was made. Besides, the cancellation of health care agreements as in
insurance policies require the concurrence of the following conditions:
1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds
mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of
insured, to furnish facts on which cancellation is based.[18]

None of the above pre-conditions was fulfilled in this case. 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.[19] 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.[20] 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. [21] This is equally applicable to
Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar,
must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two
interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import
should be strictly construed against the provider.[22]
Anent the incontestability of the membership of respondents husband, we quote with approval the following
findings of the trial court:

(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve
months from the date of issuance of the Agreement within which to contest the membership of the patient if he
had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of
diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no
longer lie.[23]

Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that
at the time of their marriage, the deceased was previously married to another woman who was still alive. The
health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party
who incurred the expenses. It is not controverted that respondent paid all the hospital and medical
expenses. She is therefore entitled to reimbursement. The records adequately prove the expenses incurred by
respondent for the deceaseds hospitalization, medication and the professional fees of the attending
physicians.[24]
WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of
Appeals dated December 14, 1995 is AFFIRMED.
SO ORDERED.