SECOND DIVISION

[G.R. NO. 166245 : April 9, 2008]

ETERNAL GARDENS MEMORIAL PARK CORPORATION, Petitioner, v. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, Respondent.

DECISION
VELASCO, JR., J.:

The Case

Central to this Petition for Review on Certiorari under Rule 45 which seeks to reverse and set aside the November 26, 2004 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-19202 with petitioner Eternal Gardens Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who purchased burial
lots from it on installment basis would be insured by Philamlife. The amount of insurance coverage depended upon the existing balance of the purchased
burial lots. The policy was to be effective for a period of one year, renewable on a yearly basis.

The relevant provisions of the policy are:

ELIGIBILITY.

Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the Assured for the unpaid balance of his loan with
the Assured, and is accepted for Life Insurance coverage by the Company on its effective date is eligible for insurance under the Policy.

EVIDENCE OF INSURABILITY.

No medical examination shall be required for amounts of insurance up to P50,000.00. However, a declaration of good health shall be required for all Lot
Purchasers as part of the application. The Company reserves the right to require further evidence of insurability satisfactory to the Company in respect of
the following:

1. Any amount of insurance in excess of P50,000.00.

2. Any lot purchaser who is more than 55 years of age.

LIFE INSURANCE BENEFIT.

The Life Insurance coverage of any Lot Purchaser at any time shall be the amount of the unpaid balance of his loan (including arrears up to but not
exceeding 2 months) as reported by the Assured to the Company or the sum of P100,000.00, whichever is smaller. Such benefit shall be paid to the
Assured if the Lot Purchaser dies while insured under the Policy.

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he contracts a loan with the Assured. However, there shall be no insurance if the
application of the Lot Purchaser is not approved by the Company. 3
Eternal was required under the policy to submit to Philamlife a list of all new lot purchasers, together with a copy of the application of each purchaser,
and the amounts of the respective unpaid balances of all insured lot purchasers. In relation to the instant petition, Eternal complied by submitting a letter
dated December 29, 1982,4 containing a list of insurable balances of its lot buyers for October 1982. One of those included in the list as "new business"
was a certain John Chuang. His balance of payments was PhP 100,000. On August 2, 1984, Chuang died.

Eternal sent a letter dated August 20, 19845 to Philamlife, which served as an insurance claim for Chuang's death. Attached to the claim were the following
documents: (1) Chuang's 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) Assured's Certificate.

In reply, Philamlife wrote Eternal a letter on November 12, 1984, 6 requiring Eternal to submit the following documents relative to its insurance claim for
Chuang's death: (1) Certificate of Claimant (with form attached); (2) Assured's 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 latter's 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 Eternal's demand, Philamlife denied Eternal's 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 Creditor's Group Life Policy No. P-1920, under Evidence of Insurability provision, "a declaration of good health shall be required
for all Lot Purchasers as party of the application." We cite further the provision on Effective Date of Coverage under the policy which states that "there
shall be no insurance if the application is not approved by the Company." Since no application had been submitted by the Insured/Assured, prior to his
death, for our approval but was submitted instead on November 15, 1984, after his death, Mr. John Uy Chuang was not covered under the Policy. We
wish to point out that Eternal Gardens being the Assured was a party to the Contract and was therefore aware of these pertinent provisions.

With regard to our acceptance of premiums, these do not connote our approval per se of the insurance coverage but are held by us in trust for the payor
until the prerequisites for insurance coverage shall have been met. We will however, return all the premiums which have been paid in behalf of John Uy
Chuang.

Consequently, Eternal filed a case before the Makati City Regional Trial Court (RTC) for a sum of money against Philamlife, docketed as Civil Case No.
14736. The trial court decided in favor of Eternal, the dispositive portion of which reads:

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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 attorney's fees.

SO ORDERED.

The RTC found that Eternal submitted Chuang's application for insurance which he accomplished before his death, as testified to by Eternal's 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 Philamlife's inaction from the submission of the requirements of the group insurance on December 29, 1982 to Chuang's death on August 2, 1984,
as well as Philamlife's acceptance of the premiums during the same period, Philamlife was deemed to have approved Chuang's 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 Chuang's application was not enclosed in Eternal's letter dated Decembe r 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 Philamlife's insurance.

Hence, we have this petition with the following grounds:

The Honorable Court of Appeals has decided a question of substance, not therefore determined by this Honorable Court, or has decided it in a way not in
accord with law or with the applicable jurisprudence, in holding that:

I. The application for insurance was not duly submitted to respondent PhilamLife before the death of John Chuang;

II. There was no valid insurance coverage; and

III. Reversing and setting aside the Decision of the Regional Trial Court dated May 29, 1996.

The Court's 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 petitioner's 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 ev idence on record; and
(11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a
different conclusion.12 (Emphasis supplied.)

In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review them.

Eternal claims that the evidence that it presented before the trial court supports its contention that it submitted a copy of the insurance application of
Chuang before his death. In Eternal's letter dated December 29, 1982, a list of insurable interests of buyers for October 198 2 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 Chuang's insurance application.

The evidence on record supports Eternal's 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 Chuang's insurance application. However, Philamlife failed to do so; thus, Philamlife is deemed to have received Chuang's insurance
application.

To reiterate, it was Philamlife's bounden duty to make sure that before a transmittal letter is stamped as received, the cont ents of the letter are correct
and accounted for.

Philamlife's allegation that Eternal's 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 cir cumstances of weight and
substance have been overlooked, misapprehended, or misinterpreted, 14 that, if considered, might affect the result of the case. 15

An examination of the testimonies of the witnesses mentioned by Philamlife, however, reveals no overlooked facts of substance and value.

Philamlife primarily claims that Eternal did not even know where the original insurance application of Chuang was, as shown by the testimony of Edilberto
Mendoza:

Atty. Arevalo:
Q Where is the original of the application form which is required in case of new coverage?

[Mendoza:]
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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 prosecution's evidence as a whole or reflect on the witnesses' honesty.
The test is whether the testimonies agree on essential facts and whether the respective versions corroborate and substantially coincide with each other
so as to make a consistent and coherent whole.18

In the present case, the number of copies of the insurance application that Chuang executed is not at issue, neither is whether the insurance application
presented by Eternal has been falsified. Thus, the inconsistencies pointed out by Philamlife are minor and do not affect the credibility of Eternal's 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 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 there in in favor of the insured,
where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity
therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with
its obligations.19 (Emphasis supplied.)

In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated the above ruling, stating that:

When the terms of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-
compliance with his obligation. Being a contract of adhesion, the terms of an insurance contract are to be construed strictly against the party which
prepared the contract, the insurer. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract,
ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture.20

Clearly, the vague contractual provision, in Creditor Group Life Policy No. P-1920 dated December 10, 1980, must be construed in favor of the insured
and in favor of the effectivity of the insurance contract.

On the other hand, the seemingly conflicting provisions must be harmonized to mean that upon a party's 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 term inated 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 layper sons, that are imposed on
those who wish to avail of insurance. As such, insurance contracts are imbued with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance companies must
be obligated to act with haste upon insurance applications, to either deny or approve the same, or otherwise be bound to honor the application as a valid,
binding, and effective insurance contract.21

WHEREFORE, we GRANT the petition. The November 26, 2004 CA Decision in CA-G.R. CV No. 57810 is REVERSED and SET ASIDE. The May 29, 1996
Decision of the Makati City RTC, Branch 138 is MODIFIED. Philamlife is hereby ORDERED:

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(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
Philamlife's 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;
andcralawlibrary
(4) To pay Eternal attorney's fees in the amount of PhP 10,000.
No costs.

SO ORDERED.

FIRST DIVISION
[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]

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 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, i f 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 wh enever he avails of the
covered benefits which he has prepaid.

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 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 inde mnity. 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.

FIRST DIVISION
G.R. No. 185964 June 16, 2014
ASIAN TERMINALS, INC., Petitioner, vs. FIRST LEPANTO-TAISHO INSURANCE CORPORATION, Respondent.

DECISION
REYES, J.:

This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court seeking to annul and set aside the Decision 2 dated October 10, 2008 of the
Court of Appeals (CA) in CA-G.R. SP No. 99021 which adjudged petitioner Asian Terminals, Inc. (ATI) liable to pay the money claims of respondent First
Lepanto-Taisho Insurance Corporation (FIRST LEPANTO).

The Undisputed Facts

On July 6, 1996,3 3,000 bags of sodium tripolyphosphate contained in 100 plain jumbo bags complete and in good condition were loaded and received on
board M/V "Da Feng" owned by China Ocean Shipping Co. (COSCO) in favor of consignee, Grand Asian Sales, Inc. (GASI). Based on a Certificate of
Insurance4 dated August 24, 1995, it appears that the shipment was insured against all risks by GASI with FIRST LEPANTO for ₱7,959,550.50 under
Marine Open Policy No. 0123.

The shipment arrived in Manila on July 18, 1996 and was discharged into the possession and custody of ATI, a domestic corporation engaged in arrastre
business. The shipment remained for quite some time at ATI’s storage area until it was withdrawn by broker, Proven Customs Brokerage Corporation
(PROVEN), on August 8 and 9, 1996 for delivery to the consignee. Upon receipt of the shipment,5 GASI subjected the same to inspection and found that
the delivered goods incurred shortages of 8,600 kilograms and spillage of 3,315 kg for a total of11,915 kg of loss/damage valued at ₱166,772.41.

INSURANCE | 6
GASI sought recompense from COSCO, thru its Philippine agent Smith Bell Shipping Lines, Inc. (SMITH BELL), 6ATI7 and PROVEN8 but was denied. Hence,
it pursued indemnification from the shipment’s insurer. 9

After the requisite investigation and adjustment, FIRST LEPANTO paid GASI the amount of ₱165,772.40 as insurance indemnity.10

Thereafter, GASI executed a Release of Claim11 discharging FIRST LEPANTO from any and all liabilities pertaining to the lost/damaged shipment and
subrogating it to all the rights of recovery and claims the former may have against any person or corporation in relation to the lost/damaged shipment.

As such subrogee, FIRST LEPANTO demanded from COSCO, its shipping agency in the Philippines, SMITH BELL, PROVEN and ATI, reimbursement of the
amount it paid to GASI. When FIRST LEPANTO’s demands were not heeded, it filed on May 29, 1997 a Complaint 12 for sum of money before the Metropolitan
Trial Court (MeTC) of Manila, Branch 3. FIRST LEPANTO sought that it be reimbursed the amount of 166,772.41, twenty-five percent (25%) thereof as
attorney’s fees, and costs of suit.

ATI denied liability for the lost/damaged shipment and claimed that it exercised due diligence and care in handling the same. 13 ATI averred that upon
arrival of the shipment, SMITH BELL requested for its inspection 14 and it was discovered that one jumbo bag thereof sustained loss/damage while in the
custody of COSCO as evidenced by Turn Over Survey of Bad Order Cargo No. 47890 dated August 6, 1996 15 jointly executed by the respective
representatives of ATI and COSCO. During the withdrawal of the shipment by PROVEN from ATI’s warehouse, the entire shipment was re-examined and
it was found to be exactly in the same condition as when it was turned over to ATI such that one jumbo bag was damaged. To bolster this claim, ATI
submitted Request for Bad Order Survey No. 40622 dated August 9, 1996 16 jointly executed by the respective representatives of ATI and PROVEN. ATI
also submitted various Cargo Gate Passes17 showing that PROVEN was able to completely withdraw all the shipment from ATI’s warehouse in good order
condition except for that one damaged jumbo bag.

In the alternative, ATI asserted that even if it is found liable for the lost/damaged portion of the shipment, its contract for cargo handling services limits
its liability to not more than ₱5,000.00 per package. ATI interposed a counterclaim of ₱20,000.00 against FIRST LEPANTO as and for attorney’s fees. It
also filed a cross-claim against its co-defendants COSCO and SMITH BELL in the event that it is made liable to FIRST LEPANTO. 18

PROVEN denied any liability for the lost/damaged shipment and averred that the complaint alleged no specific acts or omission s that makes it liable for
damages. PROVEN claimed that the damages in the shipment were sustained before they were withdrawn from ATI’s custody under which the shipment
was left in an open area exposed to the elements, thieves and vandals. PROVEN contended that it exercised due diligence and prudence in handling the
shipment. PROVEN also filed a counterclaim for attorney’s fees and damages. 19

Despite receipt of summons on December 4, 1996, 20 COSCO and SMITH BELL failed to file an answer to the complaint. FIRST LEPANTO thus moved that
they be declared in default21 but the motion was denied by the MeTC on the ground that under Rule 9, Section 3 of the Rules of Civil Procedure, "when a
pleading asserting a claim states a common cause of action against several defending parties, some of whom answer and the other fail to do so, the Court
shall try the case against all upon the answers thus filed, and render judgment upon the evidence presented." 22

Ruling of the MeTC

In a Judgment23 dated May 30, 2006, the MeTC absolved ATI and PROVEN from any liability and instead found COSCO to be the party at fault and hence
liable for the loss/damage sustained by the subject shipment. However, the MeTC ruled it has no jurisdiction over COSCO because it is a foreign corporation.
Also, it cannot enforce judgment upon SMITH BELL because no evidence was presented establishing that it is indeed the Philippine agent of COSCO. There
is also no evidence attributing any fault to SMITH BELL. Consequently, the complaint was dismissed in this wise:

WHEREFORE, in light of the foregoing, judgment is hereby rendered DISMISSING the instant case for failure of [FIRST LEPANTO] to sufficiently establish
its cause o faction against [ATI, COSCO, SMITH BELL, and PROVEN].

The counterclaims of [ATI and PROVEN] are likewise dismissed for lack of legal basis.

No pronouncement as to cost.

SO ORDERED.24

Ruling of the Regional Trial Court

On appeal, the Regional Trial Court (RTC) reversed the MeTC’s findings. In its Decision 25 dated January 26, 2007, the RTC of Manila, Branch 21, in Civil
Case No. 06-116237, rejected the contentions of ATI upon its observation that the same is belied by its very own documentary evidence. The RTC
remarked that, if, as alleged by ATI, one jumbo bag was already in bad order condition upon its receipt of the shipment from COSCO on July 18, 1996,
then how come that the Request for Bad Order Survey and the Turn Over Survey of Bad Order Cargo were prepared only weeks thereafter or on August
9, 1996 and August 6, 1996, respectively. ATI was adjudged unable to prove that it exercised due diligence while in custody of the shipment and hence,
negligent and should be held liable for the damages caused to GASI which, in turn, is subrogated by FIRST LEPANTO.

The RTC rejected ATI’s contention that its liability is limited only to ₱5,000.00 per package because its Management Contract with the Philippine Ports
Authority (PPA) purportedly containing the same was not presented as evidence. More importantly, FIRST LEPANTO or GASI cannot be deemed bound
thereby because they were not parties thereto. Lastly, the RTC did not give merit to ATI’s defense that any claim against it has already prescribed because
GASI failed to file any claim within the 15-day period stated in the gate pass issued by ATI to GASI’s broker, PROVEN. Accordingly, the RTC disposed
thus:

WHEREFORE, in light of the foregoing, the judgment on appeal is hereby REVERSED.

[ATI] is hereby ordered to reimburse [FIRST LEPANTO] the amount of [P]165,772.40 with legal interest until fully paid, to pay [FIRST LEPANTO] 10% of
the amount due the latter as and for attorney’s fees plus the costs of suit.

INSURANCE | 7
The complaint against [COSCO/SMITH BELL and PROVEN] are DISMISSED for lack of evidence against them. The counterclaim and cross[-]claim of [ATI]
are likewise DISMISSED for lack of merit.

SO ORDERED.26

Ruling of the CA

ATI sought recourse with the CA challenging the RTC’s finding that FIRST LEPANTO was validly subrogated to the rights of GASI with respect to the
lost/damaged shipment. ATI argued that there was no valid subrogation because FIRSTLEPANTO failed to present a valid, existing and enforceable Marine
Open Policy or insurance contract. ATI reasoned that the Certificate of Insurance or Marine Cover Note submitted by FIRST LEP ANTO as evidence is not
the same as an actual insurance contract.

In its Decision27 dated October 10, 2008, the CA dismissed the appeal and held that the Release of Claim and the Certificate of Insurance prese nted by
FIRST LEPANTO sufficiently established its relationship with the consignee and that upon proof of payment of the latter’s cla im for damages, FIRST
LEPANTO was subrogated to its rights against those liable for the lost/damaged shipment.

The CA also affirmed the ruling of the RTC that the subject shipment was damaged while in the custody of ATI. Thus, the CA disposed as follows:

WHEREFORE, premises considered, the assailed Decision is hereby AFFIRMED and the instant petition is DENIED for lack of merit.

SO ORDERED.28

ATI moved for reconsideration but the motion was denied in the CA Resolution 29 dated January 12, 2009. Hence, this petition arguing that:

(a) The presentation of the insurance policy is indispensable in proving the right of FIRST LEPANTO to be subrogated to the right of the consignee pursuant
to the ruling in Wallem Philippines Shipping, Inc. v. Prudential Guarantee and Assurance Inc.; 30

(b) ATI cannot be barred from invoking the defense of prescription as provided for in the gate passes in consonance with the ruling in International
Container Terminal Services, Inc. v. Prudential Guarantee and Assurance Co, Inc. 31

Ruling of the Court

The Court denies the petition.

ATI failed to prove that it exercised

due care and diligence while the
shipment was under its custody,
control and possession as arrastre
operator.

It must be emphasized that factual questions pertaining to ATI’s liability for the loss/damage sustained by GASI has already been settled in the uniform
factual findings of the RTC and the CA that: ATI failed to prove by preponderance of evidence that it exercised due diligence in handling the shipment.

Such findings are binding and conclusive upon this Court since a review thereof is proscribed by the nature of the present petition. Only questions of law
are allowed in petitions for review on certiorari under Rule 45 of the Rules of Court. It is not the Court’s duty to review, examine, and evaluate or weigh
all over again the probative value of the evidence presented, especially where the findings of the RTC are affirmed by the CA, as in this case.32

There are only specific instances when the Court deviates from the rule and conducts a review of the courts a quo’s factual f indings, such as when: (1)
the inference made is manifestly mistaken, absurd or impossible; (2) there is grave abuse of discretion;(3) the findings are grou nded entirely on
speculations, surmises or conjectures; (4) the judgment of the CA is based on misapprehension of facts; (5) the CA, in making its findings, went beyond
the issues of the case and the same is contrary to the admissions of both appellant and appellee; (6) the findings of fact are conclusions without citation
of specific evidence on which they are based; (7) the CA manifestly overlooked certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion; and (8) the findings of fact of the CA are premised on the absence of evide nce and are contradicted by
the evidence on record.33

None of these instances, however, are present in this case. Moreover, it is unmistakable that ATI has already conceded to the factual findings of RTC and
CA adjudging it liable for the shipment’s loss/damage considering the absence of arguments pertaining to such issue in the petition at bar.

These notwithstanding, the Court scrutinized the records of the case and found that indeed, ATI is liable as the arrastre operator for the lost/damaged
portion of the shipment.

The relationship between the consignee and the arrastre operator is akin to that existing between the consignee and/or the ow ner of the shipped goods
and the common carrier, or that between a depositor and a warehouseman. Hence, in the performance of its obligations, an arrastre operator should
observe the same degree of diligence as that required of a common carrier and a warehouseman. Being the custodian of the goods discharged from a
vessel, an arrastre operator’s duty is to take good care of the goods and to turn them over to the party entitled to their possession.34

In a claim for loss filed by the consignee (or the insurer), the burden of proof to show compliance with the obligation to deliver the goods to the appropriate
party devolves upon the arrastre operator. Since the safekeeping of the goods is its responsibility, it must prove that the losses were not due to its
negligence or to that of its employees. To avoid liability, the arrastre operator must prove that it exercised diligence and due care in handling the
shipment.35
INSURANCE | 8
ATI failed to discharge its burden of proof. Instead, it insisted on shifting the blame to COSCO on the basis of the Request for Bad Order Survey dated
August 9, 1996 purportedly showing that when ATI received the shipment, one jumbo bag thereof was already in damaged condition.

The RTC and CA were both correct in concluding that ATI’s contention was improbable and illogical. As judiciously discerned by the courts a quo, the date
of the document was too distant from the date when the shipment was actually received by ATI from COSCO on July 18, 1996. In fact, what the document
established is that when the loss/damage was discovered, the shipment has been in ATI’s custody for at least two weeks. This circumstance, coupled with
the undisputed declaration of PROVEN’s witnesses that while the shipment was in ATI’s custody, it was left in an open area ex posed to the elements,
thieves and vandals,36 all generate the conclusion that ATI failed to exercise due care and diligence while the subject shipment was under its custo dy,
control and possession as arrastre operator.

To prove the exercise of diligence in handling the subject cargoes, an arrastre operator must do more than merely show the possibility that some other
party could be responsible for the loss or the damage. 37 It must prove that it used all reasonable means to handle and store the shipment with due care
and diligence including safeguarding it from weather elements, thieves or vandals.

Non-presentation of the insurance

contract is not fatal to FIRST
LEPANTO’s cause of action for
reimbursement as subrogee.

It is conspicuous from the records that ATI put in issue the submission of the insurance contract for the first time before the CA. Despite opportunity to
study FIRST LEPANTO’s complaint before the MeTC, ATI failed to allege in its answer the necessity of the insurance contract. Neither was the same
considered during pre-trial as one of the decisive matters in the case. Further, ATI never challenged the relevancy or materiality of the Certifica te of
Insurance presented by FIRST LEPANTO as evidence during trial as proof of its right to be subrogated in the consignee’s stead. Since it was not agreed
during the pre-trial proceedings that FIRST LEPANTO will have to prove its subrogation rights by presenting a copy of the insurance contract, ATI is barred
from pleading the absence of such contract in its appeal. It is imperative for the parties to disclose during pre-trial all issues they intend to raise during
the trial because, they are bound by the delimitation of such issues. The determination of issues during the pre-trial conference bars the consideration of
other questions, whether during trial or on appeal. 38

A faithful adherence to the rule by litigants is ensured by the equally settled principle that a party cannot change his theory on appeal as such act violates
the basic rudiments of fair play and due process. As stressed in Jose v. Alfuerto: 39

[A] party cannot change his theory ofthe case or his cause of action on appeal. Points of law, theories, issues and arguments not brought to the attention
of the lower court will not be considered by the reviewing court. The defenses not pleaded in the answer cannot, on appeal, change fundamentally the
nature of the issue in the case. To do so would be unfair to the adverse party, who had no opportunity to present evidence in connection with the new
theory; this would offend the basic rules of due process and fair play. 40 (Citation omitted)

While the Court may adopt a liberal stance and relax the rule, no reasonable explanation, however, was introduced to justify ATI’s failure to timely
question the basis of FIRST LEPANTO’s rights as a subrogee.

The fact that the CA took cognizance of and resolved the said issue did not cure or ratify ATI’s faux pas. "[A] judgment that goes beyond the issues and
purports to adjudicate something on which the court did not hear the parties, is not only irregular but also extrajudicial and invalid."41 Thus, for resolving
an issue not framed during the pre-trial and on which the parties were not heard during the trial, that portion of the CA’s judgment discussing the necessity
of presenting an insurance contract was erroneous.

At any rate, the non-presentation of the insurance contract is not fatal to FIRST LEPANTO’s right to collect reimbursement as the subrogee of GASI.

"Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to
the rights of the other in relation to a debt or claim, including its remedies or securities." 42 The right of subrogation springs from Article 2207 of the Civil
Code which states:

Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrong-doer or the person
who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled
to recover the deficiency from the person causing the loss or injury.

As a general rule, the marine insurance policy needs to be presented in evidence before the insurer may recover the insured v alue of the lost/damaged
cargo in the exercise of its subrogatory right. In Malayan Insurance Co., Inc. v.Regis Brokerage Corp., 43 the Court stated that the presentation of the
contract constitutive of the insurance relationship between the consignee and insurer is critical because it is the legal basis of the latter’s right to
subrogation.44

In Home Insurance Corporation v. CA,45 the Court also held that the insurance contract was necessary to prove that it covered the hauling portion of the
shipment and was not limited to the transport of the cargo while at sea. The shipment in that case passed through six stages with different parties involved
in each stage until it reached the consignee. The insurance contract, which was not presented in evidence, was necessary to d etermine the scope of the
insurer’s liability, if any, since no evidence was adduced indicating at what stage in the handling process the damage to the cargo was sustained.46

An analogous disposition was arrived at in the Wallem 47 case cited by ATI wherein the Court held that the insurance contract must be presented in
evidence in order to determine the extent of its coverage. It was further ruled therein that the liability of the carrier from whom reimbursement was
demanded was not established with certainty because the alleged shortage incurred by the cargoes was not definitively determined.48

Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted exceptions by declaring that a marine insurance policy is dispensable
evidence in reimbursement claims instituted by the insurer.

INSURANCE | 9
In Delsan Transport Lines, Inc. v. CA,49 the Court ruled that the right of subrogation accrues simply upon payment by the insurance company of the
insurance claim. Hence, presentation in evidence of the marine insurance policy is not indispensable before the insurer may recover from the common
carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, was held sufficient to establish not
only the relationship between the insurer and consignee, but also the amount paid to settle the insurance claim. The presentation of the insurance contract
was deemed not fatal to the insurer’s cause of action because the loss of the cargo undoubtedly occurred while on board the petitioner’s vessel.50

The same rationale was the basis of the judgment in International Container Terminal Services, Inc. v. FGU Insurance Corporation, 51 wherein the arrastre
operator was found liable for the lost shipment despite the failure of the insurance company to offer in evidence the insurance contract or policy. As in
Delsan, it was certain that the loss of the cargo occurred while in the petitioner’s custody. 52

Based on the attendant facts of the instant case, the application of the exception is warranted.1âwphi1 As discussed above, it is already settled that the
loss/damage to the GASI’s shipment occurred while they were in ATI’s custody, possession and control as arrastre operator. Verily, the Certificate of
Insurance53 and the Release of Claim54presented as evidence sufficiently established FIRST LEPANTO’s right to collect reimbursement as the subrogee of
the consignee, GASI.

With ATI’s liability having been positively established, to strictly require the presentation of the insurance contract will run counter to the principle of
equity upon which the doctrine of subrogation is premised. Subrogation is designed to promote and to accomplish justice and is the mode which equity
adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to pay. 55

The payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies which the insured may have against the
third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of any privity of
contract or upon payment by the insurance company of the insurance claim. It accrues simply upon payment by the insurance company of the insurance
claim.56

ATI cannot invoke prescription

ATI argued that the consignee, thru its insurer, FIRST LEPANTO is barred from seeking payment for the lost/damaged shipment because the claim letter
of GASI to ATI was served only on September 27, 1996 or more than one month from the date the shipment was delivered to the consignee’s warehouse
on August 9, 1996. The claim of GASI was thus filed beyond the 15-day period stated in ATI’s Management Contract with PPA which in turn was reproduced
in the gate passes issued to the consignee’s broker, PROVEN, as follows:

Issuance of this Gate Pass Constitutes delivery to and receipt by consignee of the goods as described above in good order and condition unless an
accompanying x x x certificates duly issued and noted on the face of this Gate Pass appeals. [sic]

This Gate pass is subject to all terms and conditions defined in the Management Contract between the Philippine Port[s] Authority and Asian Terminals,
Inc. and amendment thereto and alterations thereof particularly but not limited to the [A]rticle VI thereof, limiting the contractor’s liability to [P]5,000.00
per package unless the importation is otherwise specified or manifested or communicated in writing together with the invoice value and supported by a
certified packing list to the contractor by the interested party or parties before the discharge of the goods and corresponding arrastre charges have been
paid providing exception or restrictions from liability releasing the contractor from liability among others unless a formal claim with the required annexes
shall have been filed with the contractor within fifteen (15) days from date of issuance by the contractors or certificate of loss, damages, injury, or
Certificate of non-delivery.57

The contention is bereft of merit. As clarified in Insurance Company of North America v. Asian Terminals, Inc., 58substantial compliance with the 15-day
time limitation is allowed provided that the consignee has made a provisional claim thru a request for bad order survey or examination report, viz:

Although the formal claim was filed beyond the 15-day period from the issuance of the examination report on the request for bad order survey, the
purpose of the time limitations for the filing of claims had already been fully satisfied by the request of the consignee’s broker for a bad order survey and
by the examination report of the arrastre operator on the result thereof, as the arrastre operator had become aware of and ha d verified the facts giving
rise to its liability. Hence, the arrastre operator suffered no prejudice by the lack of strict compliance with the 15-day limitation to file the formal
complaint.59 (Citations omitted)

In the present case, ATI was notified of the loss/damage to the subject shipment as early as August 9, 1996 thru a Request for Bad Order Survey 60 jointly
prepared by the consignee’s broker, PROVEN, and the representatives of ATI. For having submitted a provisional claim, GASI is thus deemed to have
substantially complied with the notice requirement to the arrastre operator notwithstanding that a formal claim was sent to the latter only on September
27, 1996. ATI was not deprived the best opportunity to probe immediately the veracity of such claims. Verily then, GASI, thru its subrogee FIRST LEPANTO,
is not barred by filing the herein action in court.

ATI cannot rely on the ruling in Prudentiat61 because the consignee therein made no provisional claim thru request for bad order survey and instead filed
a claim for the first time after four months from receipt of the shipment.

Attorney's fees and interests

All told, ATI is liable to pay FIRST LEPANTO the amount of the Pl 65, 772.40 representing the insurance indemnity paid by the latter to GASI. Pursuant to
Nacar v. Gallery Frames,62 the said amount shall earn a legal interest at the rate of six percent (6%) per annum from the date of finality of this judgment
until its full satisfaction.

As correctly imposed by the RTC and the CA, ten percent (10%) of the judgment award is reasonable as and for attorney's fees considering the length of
time that has passed in prosecuting the claim.63

WHEREFORE, premises considered, the petition is hereby DENIED. The Decision dated October 10, 2008 of the Court of Appeals in CA-G.R. SP No. 99021
is hereby AFFIRMED insofar as it adjudged liable and ordered Asian Terminals, Inc., to pay First Lepanto-Taisho Insurance Corp., the amount of

INSURANCE | 10
₱165,772.40, ten percent (10%) thereof as and for attorney's fees, plus costs of suit. The said amount shall earn legal interest at the rate of six percent
( 6%) per annum from the date of finality of this judgment until its full satisfaction.

SO ORDERED.

[G.R. No. 124520. August 18, 1997]

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC., petitioners, vs. COURT OF APPEALS and CKS DEVELOPMENT
CORPORATION, respondents.

DECISION
PADILLA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a decision of respondent Court of Appeals.

The undisputed facts of the case are as follows:

1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private respondent CKS Development Corporation
(hereinafter CKS), as lessor, on 5 October 1988.

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

3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire their merchandise inside the leased premises
for Five Hundred Thousand (P500,000.00) with the United Insurance Co., Inc. (hereinafter United) without the written consent of private respondents
CKS.

4. On the day that the lease contract was to expire, fire broke out inside the leased premises.
5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer (United) a demand letter asking that
the proceeds of the insurance contract (between the Cha spouses and United) be paid directly to CKS, based on its lease contract with Cha spouses.

6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United.

7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision * ordering therein defendant United to pay CKS the amount
of P335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 as attorneys fees and costs of suit.

8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision ** dated 11 January 1996, affirming the trial court decision, deleting
however the awards for exemplary damages and attorneys fees. A motion for reconsideration by United was denied on 29 March 1996.

In the present petition, the following errors are assigned by petitioners to the Court of Appeals:

I
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE STIPULATION IN THE CONTRACT OF LEASE TRANSFERRING THE
PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULL AND VOID FOR BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY

II
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT OF LEASE ENTERED INTO AS A CONTRACT OF ADHESION
AND THEREFORE THE QUESTIONABLE PROVISION THEREIN TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED
OUT IN FAVOR OF PETITIONER
III
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE
SAID POLICY IN CONTRAVENTION OF THE INSURANCE LAW

IV
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICY ON THE BASIS OF A STIPULATION WHICH IS
VOID FOR BEING WITHOUT CONSIDERATION AND FOR BEING TOTALLY DEPENDENT ON THE WILL OF THE RESPONDENT CORPORATION. [2]

The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the lease contract entered into between CKS and the
Cha spouses is valid insofar as it provides that any fire insurance policy obtained by the lessee (Cha spouses) over their merchandise inside the leased
premises is deemed assigned or transferred to the lessor (CKS) if said policy is obtained without the prior written of the latter.

It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law, morals, good customs, public
order or public policy.[3]

INSURANCE | 11
 Sec. 18 of the Insurance Code provides:

Sec. 18. No contract or policy of insurance on property shall be enforceable except

for the benefit of some person having an insurable interest in the property insured.

A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is primarily a contract of
indemnity. Insurable interest in the property insured must exist at the time the insurance takes effect and at the time the loss occurs. [4] The basis of such
requirement of insurable interest in property insured is based on sound public policy: to prevent a person from taking out an insurance policy on property
upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property.In such a case, the contract of insurance
is a mere wager which is void under Section 25 of the Insurance Code, which provides:

SECTION 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has not any interest in
the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering,
is void.

In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise inside the leased premises under the
provisions of Section 17 of the Insurance Code which provide.

Section 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by loss of injury thereof."

Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a beneficiary of the fire insurance policy taken by the petitioner-
spouses over their merchandise.This insurable interest over said merchandise remains with the insured, the Cha spouses. The automatic assignment of
the policy to CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the
fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to
pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property insured.

The liability of the Cha spouses to CKS for violating their lease contract in that Cha spouses obtained a fire insurance poli cy over their own
merchandise, without the consent of CKS, is a separate and distinct issue which we do not resolve in this case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a new decision is hereby entered, awarding the
proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha. SO ORDERED.

FIRST DIVISION
G.R. No. 147839 June 8, 2006
GAISANO CAGAYAN, INC. Petitioner, vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.

DECISION
AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari of the Decision1 dated October 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which
set aside the Decision dated August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the causes of
action for damages of Insurance Company of North America (respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April
11, 2001 which denied petitioner's motion for reconsideration.

The factual background of the case is as follows:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing
trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fire insurance policies with book debt endorsements. The
insurance policies provide for coverage on "book debts in connection with ready-made clothing materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the Philippines." 2 The policies defined book debts as the "unpaid account still appearing in the Book of
Account of the Insured 45 days after the time of the loss covered under this Policy." 3 The policies also provide for the following conditions:

1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and delivered by the Insured which
are outstanding at the date of loss for a period in excess of six (6) months from the date of the covering invoice or actual delivery of the
merchandise whichever shall first occur.

2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every calendar month all amount shown
in their books of accounts as unpaid and thus become receivable item from their customers and dealers. x x x 4

xxxx

Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro City,
owned by petitioner, was consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready -made clothing materials sold and
delivered by IMC and LSPI.

On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed with respondent their claims under
their respective fire insurance policies with book debt endorsements; that as of February 25, 1991, the unpaid accounts of pe titioner on the sale and
delivery of ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the claims of IMC and
LSPI and, by virtue thereof, respondent was subrogated to their rights against petitioner; that respondent made several demands for payment upon
petitioner but these went unheeded.5

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable because the property covered by the insurance
policies were destroyed due to fortuities event or force majeure; that respondent's right of subrogation has no basis inasmuch as there was no breach of
contract committed by it since the loss was due to fire which it could not prevent or foresee; that IMC and LSPI never communicated to it that they insured
their properties; that it never consented to paying the claim of the insured. 6

INSURANCE | 12
At the pre-trial conference the parties failed to arrive at an amicable settlement. 7 Thus, trial on the merits ensued.

On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint. 8 It held that the fire was purely accidental; that the cause of the
fire was not attributable to the negligence of the petitioner; that it has not been established that petitioner is the debtor of IMC and LSPI; that since the
sales invoices state that "it is further agreed that merely for purpose of securing the payment of purchase price, the above-described merchandise remains
the property of the vendor until the purchase price is fully paid", IMC and LSPI retained ownership of the delivered goods and must bear the loss.

Dissatisfied, petitioner appealed to the CA. 9 On October 11, 2000, the CA rendered its decision setting aside the decision of the RTC. The dispositive
portion of the decision reads:

WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a new one is entered ordering defendant-appellee Gaisano
Cagayan, Inc. to pay:

1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the insured Inter Capitol Marketing Corporation, plus
legal interest from the time of demand until fully paid;

2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the insured Levi Strauss Phil., Inc., plus legal interest
from the time of demand until fully paid.

With costs against the defendant-appellee.

SO ORDERED.10

The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity and cost of the thing sold; that loss of the goods
in the fire must be borne by petitioner since the proviso contained in the sales invoices is an exception under Article 1504 (1) of the Civil Code, to the
general rule that if the thing is lost by a fortuitous event, the risk is borne by the owner of the thing at the time the loss under the principle of r es perit
domino; that petitioner's obligation to IMC and LSPI is not the delivery of the lost goods but the payment of its unpaid account and as such the obligation
to pay is not extinguished, even if the fire is considered a fortuitous event; that by subrogation, the insurer has the right to go against petitioner; that,
being a fire insurance with book debt endorsements, what was insured was the vendor's interest as a creditor.11

Petitioner filed a motion for reconsideration 12 but it was denied by the CA in its Resolution dated April 11, 2001.13

Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE WAS ONE OVER CREDIT.

THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER
UPON DELIVERY THEREOF.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF
RESPONDENT.14

Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be over credit since an insurance "on credit" belies
not only the nature of fire insurance but the express terms of the policies; that it was not credit that was insured since respondent paid on the occasion
of the loss of the insured goods to fire and not because of the non-payment by petitioner of any obligation; that, even if the insurance is deemed as one
over credit, there was no loss as the accounts were not yet due since no prior demands were made by IMC and LSPI against petitioner for payment of the
debt and such demands came from respondent only after it had already paid IMC and LSPI under the fire insurance policies. 15

As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and LSPI assumed the risk of loss when they secured fire
insurance policies over the goods.

Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as no valid insurance cou ld be maintained thereon by
IMC and LSPI since all risk had transferred to petitioner upon delivery of the goods; that petitioner was not privy to the insurance contract or the payment
between respondent and its insured nor was its consent or approval ever secured; that this lack of privity forecloses any rea l interest on the part of
respondent in the obligation to pay, limiting its interest to keeping the insured goods safe from fire.

For its part, respondent counters that while ownership over the ready- made clothing materials was transferred upon delivery to petitioner, IMC and LSPI
have insurable interest over said goods as creditors who stand to suffer direct pecuniary loss from its destruction by fire; that petitioner is liable for loss
of the ready-made clothing materials since it failed to overcome the presumption of liability under Article 1265 16 of the Civil Code; that the fire was caused
through petitioner's negligence in failing to provide stringent measures of caution, care and maintenance on its property because electric wires do not
usually short circuit unless there are defects in their installation or when there is lack of proper maintenance and supervis ion of the property; that
petitioner is guilty of gross and evident bad faith in refusing to pay respondent's valid claim and should be liable to respondent for contracted lawyer's
fees, litigation expenses and cost of suit.17

As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the CA is limited to reviewing questions of law which
involves no examination of the probative value of the evidence presented by the litigants or any of them. 18 The Supreme Court is not a trier of facts; it is
not its function to analyze or weigh evidence all over again. 19 Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme
Court.20

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Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved by this Court, such as: (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 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 petitioner's 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 CA manifestly overlooked certain
relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion. 21 Exceptions (4), (5), (7), and (11) apply to
the present petition.

At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA erred in construing a fire insurance policy on book
debts as one covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing materials sold and delivered
to petitioner.

The Court disagrees with petitioner's stand.

It is well-settled that when the words of a contract are plain and readily understood, there is no room for construction. 22 In this case, the questioned
insurance policies provide coverage for "book debts in connection with ready-made clothing materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the Philippines." 23 ; and defined book debts as the "unpaid account still appearing in the Book of
Account of the Insured 45 days after the time of the loss covered under this Policy." 24 Nowhere is it provided in the questioned insurance policies that the
subject of the insurance is the goods sold and delivered to the customers and dealers of the insured.

Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties, the
terms are to be understood literally just as they appear on the face of the contract. 25 Thus, what were insured against were the accounts of IMC and LSPI
with petitioner which remained unpaid 45 days after the loss through fire, and not the loss or destruction of the goods delivered.

Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in the sales invoices that "[i]t is
further agreed that merely for purpose of securing the payment of the purchase price the above described merchandise remains the property of the
vendor until the purchase price thereof is fully paid." 26

The Court is not persuaded.

The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:

ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership
therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has
been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the
time of such delivery; (Emphasis supplied)

xxxx

Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the buyer.27 Accordingly, petitioner
bears the risk of loss of the goods delivered.

IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of the delivered goods. Unlike
the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's interest
is not determined by concept of title, but whether insured has substantial economic interest in the property.28

Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any relation thereto, or liability in
respect thereof, of such nature that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an
insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled
with an existing interest in that out of which the expectancy arises.

Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the subject matter of the
insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest, it is sufficient that the insured is so situated with
reference to the property that he would be liable to loss should it be injured or destroyed by the peril against which it is insured. 29 Anyone has an insurable
interest in property who derives a benefit from its existence or would suffer loss from its destruction. 30Indeed, a vendor or seller retains an insurable
interest in the property sold so long as he has any interest therein, in other words, so long as he would suffer by its destruction, as where he has a
vendor's lien.31 In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the
time of the loss covered by the policies.

The next question is: Is petitioner liable for the unpaid accounts?

Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 117432 of the Civil Code is misplaced. As held earlier, petitioner
bears the loss under Article 1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that remained
unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the payment of money. As correctly stated by the CA, where the obligation consists
in the payment of money, the failure of the debtor to make the payment even by reason of a fortuitous event shall not relieve him of his liability.33 The
rationale for this is that the rule that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the
INSURANCE | 14
obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It does not apply
when the obligation is pecuniary in nature.34

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything of the sa me kind does not extinguish
the obligation." If the obligation is generic in the sense that the object thereof is designated merely by its class or genus without any particular designation
or physical segregation from all others of the same class, the loss or destruction of anything of the same kind even without the debtor's fault and before
he has incurred in delay will not have the effect of extinguishing the obligation.35 This rule is based on the principle that the genus of a thing can never
perish. Genus nunquan perit.36 An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of the debtor.37

Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. What is relevant he re is whether it has been
established that petitioner has outstanding accounts with IMC and LSPI.

With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22"38 show that petitioner has an outstanding account with
IMC in the amount of P2,119,205.00. Exhibit "E"39 is the check voucher evidencing payment to IMC. Exhibit "F" 40 is the subrogation receipt executed by
IMC in favor of respondent upon receipt of the insurance proceeds. All these documents have been properly identified, presented and marked as exhibits
in court. The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and IMC as the insured, but also the
amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance
claim.41 Respondent's action against petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides:

Art. 2207. If the plaintiff's 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. x x x

Petitioner failed to refute respondent's evidence.

As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary weight can be given to Exhibit "F Levi Strauss",42 a
letter dated April 23, 1991 from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an admission of petitioner's unpaid account with
LSPI. It only confirms the loss of Levi's products in the amount of P535,613.00 in the fire that razed petitioner's building on February 25, 1991.

Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was offered in evidence. Thus, there is no evidence
that respondent has been subrogated to any right which LSPI may have against petitioner. Failure to substantiate the claim of subrogation is fatal to
petitioner's case for recovery of the amount of P535,613.00.

WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and Resolution dated April 11, 2001 of the Court of Appeals
in CA-G.R. CV No. 61848 are AFFIRMED with the MODIFICATION that the order to pay the amount of P535,613.00 to respondent is DELETED for lack
of factual basis.

No pronouncement as to costs.

SO ORDERED.

THIRD DIVISION
G.R. No. 211212, June 08, 2016
SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner, v. MA. DAISY'S. SIBYA, JESUS MANUEL S. SIBYA III, JAIME LUIS S. SIBYA, AND THE
ESTATE OF THE DECEASED ATTY. JESUS SIBYA, JR., Respondents.

INSURANCE | 15
DECISION
REYES, J.:

Before this Court is a petition for review on certiorari1 under Rule 45 of the Rules of Court seeking to annul and set aside the Decision 2 dated November
18, 2013 and Resolution3 dated February 13, 2014 of the Court of Appeals (CA) in CA-G.R. CV. No. 93269. In both instances, the CA affirmed the
Decision4dated March 16, 2009 of the Regional Trial Court (RTC) of Makati City, Branch 136, in Civil Case No. 01-1506, ordering petitioner Sun Life of
Canada (Philippines), Inc. (Sun Life) to pay Ma. Daisy S. Sibya (Ma. Daisy), Jesus Manuel S. Sibya III, and Jaime Luis S. Sibya (respondents) the amounts
of P1,000,000.00 as death benefits, P100,000.00 as moral damages, P100,000.00 as exemplary damages, and P100,000.00 as attorney's fees and costs
of suit. Insofar as the charges for violation of Sections 241 and 242 of Presidential Decree No. 612, or the Insurance Code of the Philippines, however,
the CA modified the decision of the RTC and absolved Sun Life therein.

Statement of Facts of the Case

On January 10, 2001, Atty. Jesus Sibya, Jr. (Atty. Jesus Jr.) applied for life insurance with Sun Life. In his Application for Insurance, he indicated that he
had sought advice for kidney problems.5 Atty. Jesus Jr. indicated the following in his application:

"Last 1987, had undergone lithotripsy due to kidney stone under Dr. Jesus Benjamin Mendoza at National Kidney Institute, discharged after 3 days, no
recurrence as claimed.

On February 5, 2001, Sun Life approved Atty. Jesus Jr.'s application and issued Insurance Policy No. 031097335. The policy indicated the respondents as
beneficiaries and entitles them to a death benefit of P1,000,000.00 should Atty. Jesus Jr. dies on or before February 5, 2021, or a sum of money if Atty.
Jesus Jr. is still living on the endowment date.

On May 11, 2001, Atty. Jesus Jr. died as a result of a gunshot wound in San Joaquin, Iloilo. As such, Ma. Daisy filed a Claimant's Statement with Sun Life
to seek the death benefits indicated in his insurance policy. 8

In a letter dated August 27, 2001, however, Sun Life denied the claim on the ground that the details on Atty. Jesus Jr.'s medical history were not disclosed
in his application. Simultaneously, Sun Life tendered a check representing the refund of the premiums paid by Atty. Jesus Jr. 9

The respondents reiterated their claim against Sun Life thru a letter dated September 17, 2001. Sun Life, however, refused to heed the respondents'
requests and instead filed a Complaint for Rescission before the RTC and prayed for judicial confirmation of Atty. Jesus Jr.'s rescission of insurance policy.

In its Complaint, Sun Life alleged that Atty. Jesus Jr. did not disclose in his insurance application his previous medical treatment at the National Kidney
Transplant Institute in May and August of 1994. According to Sun Life, the undisclosed fact suggested that the insured was in "renal failure" and at a high
risk medical condition. Consequently, had it known such fact, it would not have issued the insurance policy in favor of Atty. Jesus Jr.11

For their defense, the respondents claimed that Atty. Jesus Jr. did not commit misrepresentation in his application for insurance. They averred that Atty.
Jesus Jr. was in good faith when he signed the insurance application and even authorized Sun Life to inquire further into his medical history for verification
purposes. According to them, the complaint is just a ploy to avoid the payment of insurance claims.12

Ruling of the RTC

On March 16, 2009, the RTC issued its Decision 13 dismissing the complaint for lack of merit. The RTC held that Sun Life violated Sections 241, paragraph
1(b), (d), and (e)14 and 24215 of the Insurance Code when it refused to pay the rightful claim of the respondents. Moreover, the RTC ordered Sun Life to
pay the amounts of P1,000,000.00 as death benefits, P100,000.00 as moral damages, P100,000.00 as exemplary damages, and P100,000.00 as attorney's
fees and costs of suit.

The RTC held that Atty. Jesus Jr. did not commit material concealment and misrepresentation when he applied for life insurance with Sun Life. It observed
that given the disclosures and the waiver and authorization to investigate executed by Atty. Jesus Jr. to Sun Life, the latter had all the means of ascertaining
the facts allegedly concealed by the applicant.16

Aggrieved, Sun Life elevated the case to the CA.

Ruling of the CA

On appeal, the CA issued its Decision 17 dated November 18, 2013 affirming the RTC decision in ordering Sun Life to pay death benefits and damages in
favor of the respondents. The CA, however, modified the RTC decision by absolving Sun Life from the charges of violation of Sections 241 and 242 of the
Insurance Code.

The CA ruled that the evidence on records show that there was no fraudulent intent on the part of Atty. Jesus Jr. in submitting his insurance application.
Instead, it found that Atty. Jesus Jr. admitted in his application that he had sought medical treatment for kidney ailment.19

Sun Life filed a Motion for Partial Reconsideration 20 dated December 11, 2013 but the same was denied in a Resolution 21 dated February 13, 2014.

Undaunted, Sun Life filed an appeal by way of petition for review on certiorari under Rule 45 of the Rules of Court before this Court.

The Issue

Essentially, the main issue of the instant case is whether or not the CA erred when it affirmed the RTC decision finding that there was no concealment or
misrepresentation when Atty. Jesus Jr. submitted his insurance application with Sun Life.

Ruling of the Court

The petition has no merit.

In Manila Bankers Life Insurance Corporation v. Aban,22 the Court held that if the insured dies within the two-year contestability period, the insurer is
bound to make good its obligation under the policy, regardless of the presence or lack of concealment or misrepresentation. The Court held:

Section 48 serves a noble purpose, as it regulates the actions of both the insurer and the insured. Under the provision, an insurer is given two years -
from the effectivity of a life insurance contract and while the insured is alive - to discover or prove that the policy is void ab initio or is rescindible by
reason of the fraudulent concealment or misrepresentation of the insured or his agent. After the two-year period lapses, or when the insured dies
within the period, the insurer must make good on the policy, even though the policy was obtained by fraud, concealment, or

INSURANCE | 16
misrepresentation. This is not to say that insurance fraud must be rewarded, but that insurers who recklessly and indiscriminately solicit and obtain
business must be penalized, for such recklessness and lack of discrimination ultimately work to the detriment of bona fide takers of insurance and the
public in general.23 (Emphasis ours)
In the present case, Sun Life issued Atty. Jesus Jr.'s policy on February 5, 2001. Thus, it has two years from its issuance, to investigate and verify whether
the policy was obtained by fraud, concealment, or misrepresentation. Upon the death of Atty. Jesus Jr., however, on May 11, 2001, or a mere three
months from the issuance of the policy, Sun Life loses its right to rescind the policy. As discussed in Manila Bankers, the death of the insured within the
two-year period will render the right of the insurer to rescind the policy nugatory. As such, the incontestability period will now set in.

Assuming, however, for the sake of argument, that the incontestability period has not yet set in, the Court agrees, nonetheless, with the CA when it held
that Sun Life failed to show that Atty. Jesus Jr. committed concealment and misrepresentation.

As correctly observed by the CA, Atty. Jesus Jr. admitted in his application his medical treatment for kidney ailment. Moreover, he executed an
authorization in favor of Sun Life to conduct investigation in reference with his medical history. The decision in part state s:

Records show that in the Application for Insurance, [Atty. Jesus Jr.] admitted that he had sought medical treatment for kidney ailment. When asked to
provide details on the said medication, [Atty. Jesus Jr.] indicated the following information: year ("1987"), medical procedure ("undergone lithotripsy due
to kidney stone"), length of confinement ("3 days"), attending physician ("Dr. Jesus Benjamin Mendoza") and the hospital ("National Kidney Institute").

It appears that [Atty. Jesus Jr.] also signed the Authorization which gave [Sun Life] the opportunity to obtain information on the facts disclosed by [Atty.
Jesus Jr.] in his insurance application. x x x

xxxx

Given the express language of the Authorization, it cannot be said that [Atty. Jesus Jr.] concealed his medical history since [Sun Life] had the means of
ascertaining [Atty. Jesus Jr.'s] medical record.

With regard to allegations of misrepresentation, we note that [Atty. Jesus Jr.] was not a medical doctor, and his answer "no recurrence" may be construed
as an honest opinion. 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.24 (Citations omitted and italics in the original)

Indeed, the intent to defraud on the part of the insured must be ascertained to merit rescission of the insurance contra ct. Concealment as a defense for
the 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.25 In the present case, Sun Life failed to clearly and satisfactorily establish its allegations, and is therefore liable to pay the proceeds
of the insurance.

Moreover, well-settled is the rule that this Court is not a trier of facts. Factual findings of the lower courts are entitled to great weigh t and respect on
appeal, and in fact accorded finality when supported by substantial evidence on the record.

WHEREFORE, the petition for review is DENIED. The Decision dated November 18, 2013 and Resolution dated February 13, 2014 of the Court of Appeals
in CA-G.R. CV. No. 93269 are hereby AFFIRMED.

SO ORDERED.

INSURANCE | 17
FIRST DIVISION

G.R. No. 114427 February 6, 1995

ARMANDO GEAGONIA, petitioner, vs.
COURT OF APPEALS and COUNTRY BANKERS INSURANCE CORPORATION, respondents.

DAVIDE, JR., J.:

Four our review under Rule 45 of the Rules of Court is the decision 1 of the Court of Appeals in CA-G.R. SP No. 31916, entitled "Country Bankers Insurance
Corporation versus Armando Geagonia," reversing the decision of the Insurance Commission in I.C. Case No. 3340 which awarded the claim of petitioner
Armando Geagonia against private respondent Country Bankers Insurance Corporation.

The petitioner is the owner of Norman's Mart located in the public market of San Francisco, Agusan del Sur. On 22 December 1989, he obtained from the
private respondent fire insurance policy No. F-146222 for P100,000.00. The period of the policy was from 22 December 1989 to 22 December 1990 and
covered the following: "Stock-in-trade consisting principally of dry goods such as RTW's for men and women wear and other usual to assured's business."

The petitioner declared in the policy under the subheading entitled CO-INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00.
From 1989 to 1990, the petitioner had in his inventory stocks amounting to P392,130.50, itemized as follows:

Zenco Sales, Inc. P55,698.00

F. Legaspi Gen. Merchandise 86,432.50

Cebu Tesing Textiles 250,000.00 (on credit)

—————

P392,130.50

The policy contained the following condition:

3. The insured shall give notice to the Company of any insurance or insurances already affected, 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 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 dama ge,
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.

On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the public market of San Francisco, Agusan del Sur. The petitioner's insured
stock-in-trade were completely destroyed prompting him to file with the private respondent a claim under the policy. On 28 December 1990, the private
respondent denied the claim because it found that at the time of the loss the petitioner's stocks-in-trade were likewise covered by fire insurance policies
No. GA-28146 and No. GA-28144, for P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc. (hereinafter PFIC). 3 These
policies indicate that the insured was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause reading:

MORTGAGE: Loss, if any shall be payable to Messrs. Cebu Tesing Textiles, Cebu City as their interest may appear subject to the terms
of this policy. CO-INSURANCE DECLARED: P100,000. — Phils. First CEB/F 24758.4

INSURANCE | 18
The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3 of the policy.

The petitioner then filed a complaint 5 against the private respondent with the Insurance Commission (Case No. 3340) for the recovery of P100,000.00
under fire insurance policy No. F-14622 and for attorney's fees and costs of litigation. He attached as Annex "AM" 6 thereof his letter of 18 January 1991
which asked for the reconsideration of the denial. He admitted in the said letter that at the time he obtained the private respondent's fire insurance policy
he knew that the two policies issued by the PFIC were already in existence; however, he had no knowledge of the provision in the private respondent's
policy requiring him to inform it of the prior policies; this requirement was not mentioned to him by the private respondent's agent; and had it been
mentioned, he would not have withheld such information. He further asserted that the total of the amounts claimed under the t hree policies was below
the actual value of his stocks at the time of loss, which was P1,000,000.00.

In its answer,7 the private respondent specifically denied the allegations in the complaint and set up as its principal defense the violation of Condition 3
of the policy.

In its decision of 21 June 1993,8 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 which procured the PFIC policies without informing him or
securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. These findings were based on the petitioner's
testimony that he came to know of the PFIC policies only when he filed his claim with the private respondent and that Cebu Tesing Textile obtained them
and paid for their premiums without informing him thereof. The Insurance Commission then decreed:

WHEREFORE, judgment is hereby rendered ordering the respondent company to pay complainant the sum of P100,000.00 with legal
interest from the time the complaint was filed until fully satisfied plus the amount of P10,000.00 as attorney's fees. With costs. The
compulsory counterclaim of respondent is hereby dismissed.

Its motion for the reconsideration of the decision 9 having been denied by the Insurance Commission in its resolution of 20 August 1993, 10
the private
respondent appealed to the Court of Appeals by way of a petition for review. The petition was docketed as CA-G.R. SP No. 31916.

In its decision of 29 December 1993, 11 the Court of Appeals 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. It said:

It is apparent from the face of Fire Policy GA 28146/Fire Policy No. 28144 that the insurance was taken in the name of private
respondent [petitioner herein]. The policy states that "DISCOUNT MART (MR. ARMANDO GEAGONIA, PROP)" was the assured and
that "TESING TEXTILES" [was] only the mortgagee of the goods.

In addition, the premiums on both policies were paid for by private respondent, not by the Tesing Textiles which is alleged to have
taken out the other insurance without the knowledge of private respondent. This is shown by Premium Invoices nos. 46632 and
46630. (Annexes M and N). In both invoices, Tesing Textiles is indicated to be only the mortgagee of the goods insured but the party
to which they were issued were the "DISCOUNT MART (MR. ARMANDO GEAGONIA)."

In is clear that it was the private respondent [petitioner herein] who took out the policies on the same property subject of the
insurance with petitioner. Hence, in failing to disclose the existence of these insurances private respondent violated Condit ion No. 3
of Fire Policy No. 1462. . . .

Indeed private respondent's allegation of lack of knowledge of the provisions insurances is belied by his letter to petitioner [of 18
January 1991. The body of the letter reads as follows;]

xxx xxx xxx

Please be informed that I have no knowledge of the provision requiring me to inform your office about my
prior insurance under FGA-28146 and F-CEB-24758. Your representative did not mention about said requirement
at the time he was convincing me to insure with you. If he only die or even inquired if I had other existing policies
covering my establishment, I would have told him so. You will note that at the time he talked to me until I decided
to insure with your company the two policies aforementioned were already in effect. Therefore I would have no
reason to withhold such information and I would have desisted to part with my hard earned peso to pay the
insurance premiums [if] I know I could not recover anything.

Sir, I am only an ordinary businessman interested in protecting my investments. The actual value of my stocks
damaged by the fire was estimated by the Police Department to be P1,000,000.00 (Please see xerox copy of
Police Report Annex "A"). My Income Statement as of December 31, 1989 or five months before the fire, shows
my merchandise inventory was already some P595,455.75. . . . These will support my claim that the amount
claimed under the three policies are much below the value of my stocks lost.

xxx xxx xxx

The letter contradicts private respondent's pretension that he did not know that there were other insurances taken on the sto ck-in-
trade and seriously puts in question his credibility.

His motion to reconsider the adverse decision having been denied, the petitioner filed the instant petition. He contends therein that the Court of Appeals
acted with grave abuse of discretion amounting to lack or excess of jurisdiction:

A — . . . WHEN IT REVERSED THE FINDINGS OF FACTS OF THE INSURANCE COMMISSION, A QUASI-JUDICIAL BODY CHARGED WITH
THE DUTY OF DETERMINING INSURANCE CLAIM AND WHOSE DECISION IS ACCORDED RESPECT AND EVEN FINALITY BY THE
COURTS;
INSURANCE | 19
 B — . . . WHEN IT CONSIDERED AS EVIDENCE MATTERS WHICH WERE NOT PRESENTED AS EVIDENCE DURING THE HEARING OR
TRIAL; AND

C — . . . WHEN IT DISMISSED THE CLAIM OF THE PETITIONER HEREIN AGAINST THE PRIVATE RESPONDENT.

The chief issues that crop up from the first and third grounds are (a) whether the petitioner had prior knowledge of the two insurance policies issued by
the PFIC when he obtained the fire insurance policy from the private respondent, thereby, for not disclosing such fact, violating Condition 3 of the policy,
and (b) if he had, whether he is precluded from recovering therefrom.

The second ground, which is based on the Court of Appeals' reliance on the petitioner's letter of reconsideration of 18 January 1991, is without merit. The
petitioner claims that the said letter was not offered in evidence and thus should not have been considered in deciding the case. However, as correctly
pointed out by the Court of Appeals, a copy of this letter was attached to the petitioner's complaint in I.C. Case No. 3440 as Annex "M" thereof and
made integral part of the complaint. 12 It has attained the status of a judicial admission and since its due execution and authenticity was not denied by
the other party, the petitioner is bound by it even if it were not introduced as an independent evidence. 13

As to the first issue, the Insurance Commission found that the petitioner had no knowledge of the previous two policies. The Court of Appeals disagreed
and found otherwise in view of the explicit admission by the petitioner in his letter to the private respondent of 18 January 1991, which was quoted in the
challenged decision of the Court of Appeals. These divergent findings of fact constitute an exception to the general rule that in petitions for review under
Rule 45, only questions of law are involved and findings of fact by the Court of Appeals are conclusive and binding upon this Court. 14

We agree with the Court of Appeals 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. Policy No. GA-28144 was a renewal of Policy No. F-24758, while Policy No. GA-28146 had been renewed twice, the previous policy being F-
24792.

Condition 3 of the private respondent's Policy No. F-14622 is a condition which is not proscribed by law. Its incorporation in the policy is allowed by Section
75 of the Insurance Code 15 which provides that "[a] policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach
of an immaterial provision does not avoid the policy." Such a condition is a provision which invariably appears in fire insurance policies and is intended to
prevent an increase in the moral hazard. It is commonly known as the additional or "other insurance" clause and has been uphe ld as valid and as a
warranty that no other insurance exists. Its violation would thus avoid the
policy. 16 However, in order to constitute a violation, the other insurance must be upon same subject matter, the same interest therein, and the same
risk.17

As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable interest therein and both interests may be one policy,
or each may take out a separate policy covering his interest, either at the same or at separate times. 18 The mortgagor's insurable interest covers the full
value of the mortgaged property, even though the mortgage debt is equivalent to the full value of the property. 19 The mortgagee's insurable interest is
to the extent of the debt, since the property is relied upon as security thereof, and in insuring he is not insuring the prop erty but his interest or lien
thereon. His insurable interest is prima facie the value mortgaged and extends only to the amount of the debt, not exceeding the value of the mortgaged
property. 20 Thus, separate insurances covering different insurable interests may be obtained by the mortgagor and the mortgagee.

A mortgagor may, however, take out insurance for the benefit of the mortgagee, which is the usual practice. The mortgagee may be made the beneficial
payee in several ways. He may become the assignee of the policy with the consent of the insurer; or the mere pledgee without such consent; or the
original policy may contain a mortgage clause; or a rider making the policy payable to the mortgagee "as his interest may appear" may be attached; or
a "standard mortgage clause," containing a collateral independent contract between the mortgagee and insurer, may be attached; or the policy, though
by its terms payable absolutely to the mortgagor, may have been procured by a mortgagor under a contract duty to insure for the mortgagee's benefit,
in which case the mortgagee acquires an equitable lien upon the proceeds. 21

In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his interest may appear, the mortgagee is only a beneficiary
under the contract, and recognized as such by the insurer but not made a party to the contract himself. Hence, any act of the mortgagor which defeats
his right will also defeat the right of the mortgagee. 22 This kind of policy covers only such interest as the mortgagee has at the issuing of the policy. 23

On the other hand, a mortgagee may also procure a policy as a contracting party in accordance with the terms of an agreement by which the mortgagor
is to pay the premiums upon such insurance. 24 It has been noted, however, that although the mortgagee is himself the insured, as where he applies for
a policy, fully informs the authorized agent of his interest, pays the premiums, and obtains on the assurance that it insures him, the policy is in fact in
the form used to insure a mortgagor with loss payable clause. 25

The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a mortgage clause which reads:

Loss, if any, shall be payable to MESSRS. TESING TEXTILES, Cebu City as their interest may appear subject to the terms of th is
policy.

This is clearly a simple loss payable clause, not a standard mortgage clause.

26
It must, however, be underscored that unlike the "other insurance" clauses involved in General Insurance and Surety Corp. vs. Ng Hua or in Pioneer
Insurance & Surety Corp. vs. Yap, 27 which read:

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 hereby insured, and unless such notice be given and the particulars of such insurance or insurances be
stated in or endorsed on this Policy by or on behalf of the Company before the occurrence of any loss or damage, all benefits under
this Policy shall be forfeited.

INSURANCE | 20
 or in the 1930 case of Santa Ana vs. Commercial Union Assurance
Co. 28 which provided "that any outstanding insurance upon the whole or a portion of the objects thereby assured must be declared by the
insured in writing and he must cause the company to add or insert it in the policy, without which such policy shall be null and void, and the
insured will not be entitled to indemnity in case of loss," Condition 3 in the private respondent's policy No. F-14622 does not absolutely declare
void any violation thereof. It expressly provides that the 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."

It is a cardinal rule on insurance that a policy or insurance contract is to be interpreted liberally in favor of the insured and strictly against the company,
the reason being, undoubtedly, to afford the greatest protection which the insured was endeavoring to secure when he applied for insurance. It is also a
cardinal principle of law that forfeitures are not favored and that any construction which would result in the forfeiture of the policy benefits for the person
claiming thereunder, will be avoided, if it is possible to construe the policy in a manner which would permit recovery, as, for example, by finding a waiver
for such forfeiture. 29 Stated differently, provisions, conditions or exceptions in policies which tend to work a forfeiture of insurance po licies 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. 30 The reason for this is that, except for riders which may later be inserted, the insured sees the contract already in its final form and has had no
voice in the selection or arrangement of the words employed therein. On the other hand, the language of the contract was carefully chosen and deliberated
upon by experts and legal advisers who had acted exclusively in the interest of the insurers and the technical language employed therein is rarely
understood by ordinary laymen. 31

With these principles in mind, we are of the opinion that Condition 3 of the subject policy is not totally free from ambiguit y and must, perforce, 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 sha ll
only be to the extent exceeding P200,000.00 of the total policies obtained.

The first conclusion is supported by the portion of the condition referring to other insurance "covering any of the property or properties consisting of
stocks in trade, goods in process and/or inventories only hereby insured," and the portion regarding the insured's declaration on the subheading CO-
INSURANCE that the co-insurer is Mercantile Insurance Co., Inc. in the sum of P50,000.00. A double insurance exists where the same person is insure d
by several insurers separately in respect of the same subject and interest. As earlier stated, the insurable interests of a mortgagor and a mortgagee on
the mortgaged property are distinct and separate. Since the two policies of the PFIC do not cover the same interest as that c overed by the policy of the
private respondent, no double insurance exists. The non-disclosure then of the former policies was not fatal to the petitioner's right to recover on the
private respondent's policy.

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. 32

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 31916 is SET ASIDE and the decision of the
Insurance Commission in Case No. 3340 is REINSTATED.

Costs against private respondent Country Bankers Insurance Corporation.

SO ORDERED.

SECOND DIVISION

G.R. No. 195176, April 18, 2016

THE INSULAR LIFE ASSURANCE COMPANY, LTD., Petitioner, vs.
PAZ Y. KHU, FELIPE Y. KHU, JR., and FREDERICK Y. KHU, Respondents.

DECISION
DEL CASTILLO, J.:

The date of last reinstatement mentioned in Section 48 of the Insurance Code pertains to the date that the insurer approved· the application for
reinstatement. However, in light of the ambiguity in the insurance documents to this case, this Court adopts the interpretation favorable to the insured in
determining the date when the reinstatement was approved.
Assailed in this Petition for Review on Certiorari1 are the June 24, 2010 Decision2 of the Court of Appeals (CA), which dismissed the Petition in CA-GR. CV
No. 81730, and its December 13, 2010 Resolution3 which denied the petitioner Insular Life Assurance Company Ltd. 's (Insular Life) motion for partial
reconsideration.4

Factual Antecedents

On March 6, 1997, Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life under the latter’s Diamond Jubilee Insurance Plan. Felipe
accomplished the required medical questionnaire wherein he did not declare any illness or adverse medical condition. Insular Life thereafter issued him
Policy Number A000015683 with a face value of P1 million. This took effect on June 22, 1997.5

On June 23, 1999, Felipe’s policy lapsed due to non-payment of the premium covering the period from June 22, 1999 to June 23, 2000.6

INSURANCE | 21
On September 7, 1999, Felipe applied for the reinstatement of his policy and paid P25,020.00 as premium. Except for the change in his occupation of
being self-employed to being the Municipal Mayor of Binuangan, Misamis Oriental, all the other information submitted by Felipe in his ap plication for
reinstatement was virtually identical to those mentioned in his original policy. 7
On October 12, 1999, Insular Life advised Felipe that his application for reinstatement may only be considered if he agreed t o certain conditions such as
payment of additional premium and the cancellation of the riders pertaining to premium waiver and accidental death benefits. Felipe agreed to these
conditions8 and on December 27, 1999 paid the agreed additional premium of P3,054.50.9

On January 7, 2000, Insular Life issued Endorsement No. PNA000015683, which reads:
This certifies that as agreed by the Insured, the reinstatement of this policy has been approved by the Company on the understanding that the following
changes are made on the policy effective June 22, 1999:

1. The EXTRA PREMIUM is imposed; and

2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY (WPD) rider originally attached to and forming parts of this
policy [are] deleted.

In consequence thereof, the premium rates on this policy are adjusted to P28,000.00 annually, P14,843.00 semi-annually and P7,557.00 quarterly,
Philippine currency.10

On June 23, 2000, Felipe paid the annual premium in the amount of P28,000.00 covering the period from June 22, 2000 to June 22, 2001. And on July
2, 2001, he also paid the same amount as annual premium covering the period from June 22, 2001 to June 21, 2002. 11

On September 22, 2001, Felipe died. His Certificate of Death enumerated the following as causes of death:

Immediate cause: a. End stage renal failure, Hepatic failure

Antecedent cause: b. Congestive heart failure, Diffuse myocardial ischemia.
Underlying cause: c. Diabetes Neuropathy, Alcoholism, and Pneumonia. 12
On October 5, 2001, Paz Y. Khu, Felipe Y. Khu, Jr. and Frederick Y. Khu (collectively, Felipe’s beneficiaries or respondents) filed with Insular Life a claim
for benefit under the reinstated policy. This claim was denied. Instead, Insular Life advised Felipe’s beneficiaries that it had decided to rescind the
reinstated policy on the grounds of concealment and misrepresentation by Felipe.

Hence, respondents instituted a complaint for specific performance with damages. Respondents prayed that the reinstated life insurance policy be declared
valid, enforceable and binding on Insular Life; and that the latter be ordered to pay unto Felipe’s beneficiaries the proceeds of this policy, among others. 13

In its Answer, Insular Life countered that Felipe did not disclose the ailments (viz., Type 2 Diabetes Mellitus, Diabetes Nephropathy and Alcoholic Liver
Cirrhosis with Ascites) that he already had prior to his application for reinstatement of his insurance policy; and that it w ould not have reinstated the
insurance policy had Felipe disclosed the material information on his adverse health condition. It contended that when Felipe died, the policy was still
contestable.14

Ruling of the Regional Trial Court (RTC)

On December 12, 2003, the RTC, Branch 39 of Cagayan de Oro City found 15 for Felipe’s beneficiaries, thus:

WHEREFORE, in view of the foregoing, plaintiffs having substantiated [their] claim by preponderance of evidence, judgment is hereby rendered in their
favor and against defendants, ordering the latter to pay jointly and severally the sum of One Million (P1,000,000.00) Pesos with legal rate of interest from
the date of demand until it is fully paid representing the face value of Plan Diamond Jubilee No. PN-A000015683 issued to insured the late Felipe N. Khu[,]
Sr; the sum of P20,000.00 as moral damages; P30,000.00 as attorney’s fees; P10,000.00 as litigation expenses.

SO ORDERED.16

In ordering Insular Life to pay Felipe’s beneficiaries, the RTC agreed with the latter’s claim that the insurance policy was reinstated on June 22, 1999. The
RTC cited the ruling in Malayan Insurance Corporation v. Court ofAppeals17 that any ambiguity in a contract of insurance should be resolved strictly against
the insurer upon the principle that an insurance contract is a contract of adhesion. 18 The RTC also held that the reinstated insurance policy had already
become incontestable by the time of Felipe’s death on September 22, 2001 since more than two years had already lapsed from th e date of the policy’s
reinstatement on June 22, 1999. The RTC noted that since it was Insular Life itself that supplied all the pertinent forms relative to the reinstated policy,
then it is barred from taking advantage of any ambiguity/obscurity perceived therein particularly as regards the date when the reinstated insurance policy
became effective.

Ruling of the Court of Appeals

On June 24, 2010, the CA issued the assailed Decision 19 which contained the following decretal portion:

WHEREFORE, the appeal is DISMISSED. The assailed Judgment of the lower court is AFFIRMED with the MODIFICATION that the award of moral damages,
attorney’s fees and litigation expenses [is] DELETED.

SO ORDERED.20

The CA upheld the RTC’s ruling on the non-contestability of the reinstated insurance policy on the date the insured died. It declared that contrary to
Insular Life’s contention, there in fact exists a genuine ambiguity or obscurity in the language of the two documents prepared by Insular Life
itself, viz., Felipe’s Letter of Acceptance and Insular Life’s Endorsement; that given the obscurity/ambiguity in the language of these two documents, the
construction/interpretation that favors the insured’s right to recover should be adopted; and that in keeping with this principle, the insurance policy in
dispute must be deemed reinstated as of June 22, 1999. 21
Insular Life moved for partial reconsideration 22 but this was denied by the CA in its Resolution of December 13, 2010. 23 Hence, the present Petition.

Issue

The fundamental issue to be resolved in this case is whether Felipe’s reinstated life insurance policy is already incontestab le at the time of his death.

Petitioner’s Arguments

In praying for the reversal of the CA Decision, Insular Life basically argues that respondents should not be allowed to recover on the reinstated insurance
policy because the two-year contestability period had not yet lapsed inasmuch as the insurance policy was reinstated only on December 27, 1999, whereas
Felipe died on September 22, 2001;24 that the CA overlooked the fact that Felipe paid the additional extra premium only on December 27, 1999, hence,
INSURANCE | 22
it is only upon this date that the reinstated policy had become effective; that the CA erred in declaring that resort to the principles of statutory construction
is still necessary to resolve that question given that the Application for Reinstatement, the Letter of Acceptance and the Endorsement in and by themselves
already embodied unequivocal provisions stipulating that the two-year contestability clause should be reckoned from the date of approval of the
reinstatement;25 and that Felipe’s misrepresentation and concealment of material facts in regard to his health or adverse medical condition gave it (Insular
Life) the right to rescind the contract of insurance and consequently, the right to deny the claim of Felipe’s beneficiaries for death benefits under the
disputed policy.26

Respondents’ Arguments

Respondents maintain that the phrase "effective June 22, 1999" found in both the Letter of Acceptance and in the Endorsement is unclear whether it
refers to the subject of the sentence, i.e., the "reinstatement of this policy" or to the subsequent phrase "changes are made on the policy;" that granting
that there was any obscurity or ambiguity in the insurance policy, the same should be laid at the door of Insular Life as it was this insurance company
that prepared the necessary documents that make up the same; 27 and that given the CA’s finding which effectively affirmed the RTC’s finding on this
particular issue, it stands to reason that the insurance policy had indeed become incontestable upon the date of Felipe’s death.28

Our Ruling

We deny the Petition.

The Insurance Code pertinently provides that:

Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous
to the commencement of an action on the contract.

After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two
years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindible by reason of the
fraudulent concealment or misrepresentation of the insured or his agent.

The rationale for this provision was discussed by the Court in Manila Bankers Life Insurance
Corporation v. Aban,29

Section 48 regulates both the actions of the insurers and prospective takers of life insurance. It gives insurers enough time to inquire whether the policy
was obtained by fraud, concealment, or misrepresentation; on the other hand, it forewarns scheming individuals that their attempts at insurance fraud
would be timely uncovered – thus deterring them from venturing into such nefarious enterprise. At the same time, legitimate policy holders are absolutely
protected from unwarranted denial of their claims or delay in the collection of insurance proceeds occasioned by allegations of fraud, concealment, or
misrepresentation by insurers, claims which may no longer be set up after the two-year period expires as ordained under the law.

xxxx

The Court therefore agrees fully with the appellate court’s pronouncement that-

xxxx

‘The insurer is deemed to have the necessary facilities to discover such fraudulent concealment or misrepresentation within a period of two (2) years. It
is not fair for the insurer to collect the premiums as long as the insured is still alive, only to raise the issue of fraudulent concealment or misrepresentation
when the insured dies in order to defeat the right of the beneficiary to recover under the policy.

At least two (2) years from the issuance of the policy or its last reinstatement, the beneficiary is given the stability to recover under the policy when the
insured dies. The provision also makes clear when the two-year period should commence in case the policy should lapse and is reinstated, that is, from
the date of the last reinstatement’.

In Lalican v. The Insular Life Assurance Company, Limited,30 which coincidentally also involves the herein petitioner, it was there held that the
reinstatement of the insured’s policy is to be reckoned from the date when the application was processed and approved by the insurer. There, we stressed
that:

To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse. x x x

xxxx

In the instant case, Eulogio’s death rendered impossible full compliance with the conditions for reinstatement of Policy No. 9011992. True, Eulogio, before
his death, managed to file his Application for Reinstatement and deposit the amount for payment of his overdue premiums and interests thereon with
Malaluan; but Policy No. 9011992 could only be considered reinstated after the Application for Reinstatement had been processed and approved by Insular
Life during Eulogio’s lifetime and good health.31

Thus, it is settled that the reinstatement of an insurance policy should be reckoned from the date when the same was approved by the insurer.

In this case, the parties differ as to when the reinstatement was actually approved. Insular Life claims that it approved the reinstatement only on December
27, 1999. On the other hand, respondents contend that it was on June 22, 1999 that the reinstatement took effect.

The resolution of this issue hinges on the following documents: 1) Letter of Acceptance; and 2) the Endorsement.

The Letter of Acceptance32 wherein Felipe affixed his signature was actually drafted and prepared by Insular Life. This pro-forma document reads as
follows:

LETTER OF ACCEPTANCE
Place: Cag. De [O]ro City
The Insular Life Assurance Co., Ltd.
P.O. Box 128, MANILA
Policy No. A000015683

Gentlemen:

Thru your Reinstatement Section, I/WE learned that this policy may be reinstated provided I/we agree to the following condition/s indicated with a check
mark:
INSURANCE | 23
 [xx] Accept the imposition of an extra/additional extra premium of [P]5.00 a year per thousand of insurance; effective June 22, 1999
[ ] Accept the rating on the WPD at ____ at standard rates; the ABD at _____ the standard rates; the SAR at P____ annually per
thousand of Insurance;
[xx] Accept the cancellation of the Premium waiver & Accidental death benefit.
[]

I am/we are agreeable to the above condition/s. Please proceed with the reinstatement of the policy.

Very truly yours,

Felipe N. Khu, Sr.
After Felipe accomplished this form, Insular Life, through its Regional Administrative Manager, Jesse James R. Toyhorada, issued an Endorsement33 dated
January 7, 2000. For emphasis, the Endorsement is again quoted as follows:

ENDORSEMENT

PN-A000015683

This certifies that as agreed to by the Insured, the reinstatement of this policy has been approved by the Company on the understanding that the following
changes are made on the policy effective June 22, 1999:

1. The EXTRA PREMIUM is imposed; and

2. The ACCIDENTAL DEATH BENEFIT (ADB) and WAIVER OF PREMIUM DISABILITY (WPD) rider originally attached to and forming parts of this
policy is deleted.

In consequence thereof, the PREMIUM RATES on this policy are adjusted to [P]28,000.00 annuallly, [P]14,843.00 semi-annually and [P]7,557.00 quarterly,
Philippine Currency.

Cagayan de Oro City, 07 January 2000.

RCV
/
(Signed) Authorized Signature

Based on the foregoing, we find that the CA did not commit any error in holding that the subject insurance policy be considered as reinstated on June 22,
1999. This finding must be upheld not only because it accords with the evidence, but also because this is favorable to the insured who was not responsible
for causing the ambiguity or obscurity in the insurance contract. 34

The CA expounded on this point thus –

The Court discerns a genuine ambiguity or obscurity in the language of the two documents.

In the Letter of Acceptance, Khu declared that he was accepting "the imposition of an extra/additional x x x premium of P5.00 a year per thousand of
insurance; effective June 22, 1999". It is true that the phrase as used in this particular paragraph does not refer explicitly to the effectivity of the
reinstatement. But the Court notes that the reinstatement was conditioned upon the payment of additional premium not only prospectively, that is, to
cover the remainder of the annual period of coverage, but also retroactively, that is for the period starting June 22, 1999. Hence , by paying the amount
of P3,054.50 on December 27, 1999 in addition to the P25,020.00 he had earlier paid on September 7, 1999, Khu had paid for th e insurance coverage
starting June 22, 1999. At the very least, this circumstance has engendered a true lacuna.

In the Endorsement, the obscurity is patent. In the first sentence of the Endorsement, it is not entirely clear whether the phrase "effective June 22, 1999"
refers to the subject of the sentence, namely "the reinstatement of this policy," or to the subsequent phrase "changes are made on the policy."

The court below is correct. Given the obscurity of the language, the construction favorable to the insured will be adopted by the courts.

Accordingly, the subject policy is deemed reinstated as of June 22, 1999. Thus, the period of contestability has lapsed. 35

In Eternal Gardens Memorial Park Corporation v. The Philippine American Life Insurance Company, 36 we ruled in favor of the insured and in favor of the
effectivity of the insurance contract in the midst of ambiguity in the insurance contract provisions. We held 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 latter’s interest. Thus, in MalayanInsurance 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 there in in favor of the insured,
where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity
therein should be resolved against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with
its obligations.

xxxx

As a final note, to characterize the insurer and the insured as contracting parties on equal footing is inaccurate at best. Insurance contracts are wholly
prepared by the insurer with vast amounts of experience in the industry purposefully used to its advantage. More often than not, insurance contracts are
contracts of adhesion containing technical terms and conditions of the industry, confusing if at all understandable to laypersons, that are imposed on
those who wish to avail of insurance. As such, insurance contracts are imbued with public interest that must be considered whenever the rights and
obligations of the insurer and the insured are to be delineated. Hence, in order to protect the interest of insurance applicants, insurance companies must
be obligated to act with haste upon insurance applications, to either deny or approve the same, or otherwise be bound to honor the application as a valid,
binding, and effective insurance contract.37

Indeed, more than two years had lapsed from the time the subject insurance policy was reinstated on June 22, 1999 vis-a-vis Felipe’s death on September
22, 2001.1âwphi1 As such, the subject insurance policy has already become incontestable at the time of Felipe’s death.

INSURANCE | 24
Finally, we agree with the CA that there is neither basis nor justification for the RTC’s award of moral damages, attorney’s fees and litigation expenses;
hence this award must be deleted.

WHEREFORE, the Petition is DENIED. The assailed .June 24, 2010 Decision and December 13, 2010 Resolution of the Court of Appeals in CA-GR. CV
No. 81730 are AFFIRMED.

SO ORDERED.

THIRD DIVISION

G.R. No. 60506 August 6, 1992

FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR, LEONILA M. MALLARI, GILDA ANTONIO and the minors LEAH,
LOPE, JR., and ELVIRA, all surnamed MAGLANA, herein represented by their mother, FIGURACION VDA. DE
MAGLANA, petitioners, vs.HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch II, and AFISCO INSURANCE
CORPORATION, respondents.

ROMERO, J.:

The nature of the liability of an insurer sued together with the insured/operator-owner of a common carrier which figured in an accident causing the death
of a third person is sought to be defined in this petition for certiorari.

The facts as found by the trial court are as follows:

. . . Lope Maglana was an employee of the Bureau of Customs whose work station was at Lasa, here in Davao City. On December 20, 1978,
early morning, Lope Maglana was on his way to his work station, driving a motorcycle owned by the Bureau of Customs. At Km. 7, Lanang, he
met an accident that resulted in his death. He died on the spot. The PUJ jeep that bumped the deceased was driven by Pepito Into, operated
and owned by defendant Destrajo. From the investigation conducted by the traffic investigator, the PUJ jeep was overtaking another passenger
jeep that was going towards the city poblacion. While overtaking, the PUJ jeep of defendant Destrajo running abreast with the overtaken jeep,
bumped the motorcycle driven by the deceased who was going towards the direction of Lasa, Davao City. The point of impact was on the lane
of the motorcycle and the deceased was thrown from the road and met his untimely death. 1

Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action for damages and attorney's fees against operator Patricio Destrajo and the
Afisco Insurance Corporation (AFISCO for brevity) before the then Court of First Instance of Davao, Branch II. An information for homicide thru reckless
imprudence was also filed against Pepito Into.

During the pendency of the civil case, Into was sentenced to suffer an indeterminate penalty of one (1) year, eight (8) months and one (1) day of prision
correccional, as minimum, to four (4) years, nine (9) months and eleven (11) days of prision correccional, as maximum, with all the accessory penalties
provided by law, and to indemnify the heirs of Lope Maglana, Sr. in the amount of twelve thousand pesos (P12,000.00) with subsidiary imprisonment in
case of insolvency, plus five thousand pesos (P5,000.00) in the concept of moral and exemplary damages with costs. No appeal was interposed by accused
who later applied for probation. 2
On December 14, 1981, the lower court rendered a decision finding that Destrajo had not exercised sufficient diligence as the operator of the jeepney.
The dispositive portion of the decision reads:

WHEREFORE, the Court finds judgment in favor of the plaintiffs against defendant Destrajo, ordering him to pay plaintiffs the sum of P28,000.00
for loss of income; to pay plaintiffs the sum of P12,000.00 which amount shall be deducted in the event judgment in Criminal Case No. 3527-
D against the driver, accused Into, shall have been enforced; to pay plaintiffs the sum of P5,901.70 representing funeral and burial expenses
of the deceased; to pay plaintiffs the sum of P5,000.00 as moral damages which shall be deducted in the event judgment (sic) in Criminal Case
No. 3527-D against the driver, accused Into; to pay plaintiffs the sum of P3,000.00 as attorney's fees and to pay the costs of suit.

The defendant insurance company is ordered to reimburse defendant Destrajo whatever amounts the latter shall have paid only up
to the extent of its insurance coverage.

3
SO ORDERED.

Petitioners filed a motion for the reconsideration of the second paragraph of the dispositive portion of the decision contending that AFISCO should not
merely be held secondarily liable because the Insurance Code provides that the insurer's liability is "direct and primary and/or jointly and severally with
the operator of the vehicle, although only up to the extent of the insurance coverage." 4 Hence, they argued that the P20,000.00 coverage of the insurance
policy issued by AFISCO, should have been awarded in their favor.

In its comment on the motion for reconsideration, AFISCO argued that since the Insurance Code does not expressly provide for a solidary obligation, the
presumption is that the obligation is joint.

In its Order of February 9, 1982, the lower court denied the motion for reconsideration ruling that since the insurance contr act "is in the nature of
suretyship, then the liability of the insurer is secondary only up to the extent of the insurance coverage." 5

Petitioners filed a second motion for reconsideration reiterating that the liability of the insurer is direct, primary and so lidary with the jeepney operator
because the petitioners became direct beneficiaries under the provision of the policy which, in effect, is a stipulation pour autrui. 6 This motion was likewise
denied for lack of merit.

INSURANCE | 25
Hence, petitioners filed the instant petition for certiorari which, although it does not seek the reversal of the lower court's decision in its entirety, prays
for the setting aside or modification of the second paragraph of the dispositive portion of said decision. Petitioners reassert their position that the insurance
company is directly and solidarily liable with the negligent operator up to the extent of its insurance coverage.

We grant the petition.

The particular provision of the insurance policy on which petitioners base their claim is as follows:
Sec. 1 — LIABILITY TO THE PUBLIC
1. The 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 any THIRD PARTY
(b) . . . .
2. . . . .
3. In the event of the death of any person entitled to indemnity under this Policy, the Company will, in respect of the liability incurred
to such person indemnify his personal representatives in terms of, and subject to the terms and conditions hereof. 7

The above-quoted provision leads to no other conclusion but that AFISCO can be held directly liable by petitioners. As this Court ruled in Shafer vs. Judge,
RTC of Olongapo City, Br. 75, "[w]here an insurance policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence
of the injury or even upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured." 8 The
underlying reason behind the third party liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is "to protect injured persons against the
insolvency of the insured who causes such injury, and to give such injured person a certain beneficial interest in the procee ds of the policy . . ." 9 Since
petitioners had received from AFISCO the sum of P5,000.00 under the no-fault clause, AFISCO's liability is now limited to P15,000.00.

However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. In Malayan Insurance Co., Inc. v. Court of Appeals, 10 this Court had the
opportunity to resolve the issue as to the nature of the liability of the insurer and the insured vis-a-vis the third party injured in an accident. We
categorically ruled thus:

While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can
directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against third party liability does not
mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer
is based on contract; that of the insured is based on tort.

In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos (the injured third party), but it cannot, as
incorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors, namely respondents Sio Choy and San
Leon Rice Mill, Inc. For if petitioner-insurer were solidarily liable with said, two (2) respondents by reason of the indemnity contract
against third party liability — under which an insurer can be directly sued by a third party — this will result in a violation of the
principles underlying solidary obligation and insurance contracts. (emphasis supplied)

The Court then proceeded to distinguish the extent of the liability and manner of enforcing the same in ordinary contracts from that of insurance contracts.
While in solidary obligations, the creditor may enforce the entire obligation against one of the solidary debtors, in an insurance contract, the insurer
undertakes for a consideration to indemnify the insured against loss, damage or liability arising from an unknown or contingent event. 11 Thus, petitioner
therein, which, under the insurance contract is liable only up to P20,000.00, can not be made solidarily liable with the insured for the entire obligation of
P29,013.00 otherwise there would result "an evident breach of the concept of solidary obligation."

Similarly, petitioners herein cannot validly claim that AFISCO, whose liability under the insurance policy is also P20,000.00, can be held solidarily liable
with Destrajo for the total amount of P53,901.70 in accordance with the decision of the lower court. Since under both the law and the insurance policy,
AFISCO's liability is only up to P20,000.00, the second paragraph of the dispositive portion of the decision in question may have unwittingly sown confusion
among the petitioners and their counsel. What should have been clearly stressed as to leave no room for doubt was the liability of AFISCO under the
explicit terms of the insurance contract.

In fine, we conclude that the liability of AFISCO based on the insurance contract is direct, but not solidary with that of Destrajo which is based on Article
2180 of the Civil Code. 12 As such, petitioners have the option either to claim the P15,000 from AFISCO and the balance from Destrajo or enforce the
entire judgment from Destrajo subject to reimbursement from AFISCO to the extent of the insurance coverage.

While the petition seeks a definitive ruling only on the nature of AFISCO's liability, we noticed that the lower court erred in the computation of the probable
loss of income. Using the formula: 2/3 of (80-56) x P12,000.00, it awarded P28,800.00. 13 Upon recomputation, the correct amount is P192,000.00. Being
a "plain error," we opt to correct the same. 14 Furthermore, in accordance with prevailing jurisprudence, the death indemnity is hereby increased to
P50,000.00. 15

WHEREFORE, premises considered, the present petition is hereby GRANTED. The award of P28,800.00 representing loss of income is INCREASED to
P192,000.00 and the death indemnity of P12,000.00 to P50,000.00.

SO ORDERED.

INSURANCE | 26
 [G.R. No. 138060. September 1, 2004]
WILLIAM TIU, doing business under the name and style of D Rough Riders, and VIRGILIO TE LAS PIAS petitioners, vs. PEDRO A.
ARRIESGADO, BENJAMIN CONDOR, SERGIO PEDRANO and PHILIPPINE PHOENIX SURETY AND INSURANCE, INC., respondents.

DECISION
CALLEJO, SR., J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court from the Decision [1] of the Court of Appeals in CA-G.R. CV No. 54354
affirming with modification the Decision[2] of the Regional Trial Court, 7th Judicial Region, Cebu City, Branch 20, in Civil Case No. CEB-5963 for breach of
contract of carriage, damages and attorneys fees, and the Resolution dated February 26, 1999 denying the motion for reconsideration thereof.

The following facts are undisputed:

At about 10:00 p.m. of March 15, 1987, the cargo truck marked Condor Hollow Blocks and General Merchandise bearing plate number GBP-675
was loaded with firewood in Bogo, Cebu and left for Cebu City. Upon reaching Sitio Aggies, Poblacion, Compostela, Cebu, just as the truck passed over a
bridge, one of its rear tires exploded. The driver, Sergio Pedrano, then parked along the right side of the national highway and removed the damaged tire
to have it vulcanized at a nearby shop, about 700 meters away. [3] Pedrano left his helper, Jose Mitante, Jr. to keep watch over the stalled vehicle, and
instructed the latter to place a spare tire six fathoms away [4] behind the stalled truck to serve as a warning for oncoming vehicles. The trucks tail lights
were also left on. It was about 12:00 a.m., March 16, 1987.

At about 4:45 a.m., D Rough Riders passenger bus with plate number PBP-724 driven by Virgilio Te Laspias was cruising along the national highway
of Sitio Aggies, Poblacion, Compostela, Cebu. The passenger bus was also bound for Cebu City, and had come from Maya, Daanbantayan, Cebu. Among
its passengers were the Spouses Pedro A. Arriesgado and Felisa Pepito Arriesgado, who were seated at the right side of the bus, about three (3) or four
(4) places from the front seat.

As the bus was approaching the bridge, Laspias saw the stalled truck, which was then about 25 meters away. [5] He applied the breaks and tried to
swerve to the left to avoid hitting the truck. But it was too late; the bus rammed into the trucks left rear. The impact dama ged the right side of the bus
and left several passengers injured. Pedro Arriesgado lost consciousness and suffered a fracture in his right colles. [6] His wife, Felisa, was brought to
the Danao City Hospital. She was later transferred to the Southern Island Medical Center where she died shortly thereafter. [7]

INSURANCE | 27
 Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage, damages and attorneys fees before the Regional Trial
Court of Cebu City, Branch 20, against the petitioners, D Rough Riders bus operator William Tiu and his driver, Virgilio Te Laspias on May 27, 1987. The
respondent alleged that the passenger bus in question was cruising at a fast and high speed along the national road, and that petitioner Laspias did not
take precautionary measures to avoid the accident. [8] Thus:

6. That the accident resulted to the death of the plaintiffs wife, Felisa Pepito Arriesgado, as evidenced by a Certificate of Death, a xerox copy of which is
hereto attached as integral part hereof and marked as ANNEX A, and physical injuries to several of its passengers, including plaintiff himself who suffered
a COLLES FRACTURE RIGHT, per Medical Certificate, a xerox copy of which is hereto attached as integral part hereof and marked as ANNEX B hereof.

7. That due to the reckless and imprudent driving by defendant Virgilio Te Laspias of the said Rough Riders passenger bus, plaintiff and his wife, Felisa
Pepito Arriesgado, failed to safely reach their destination which was Cebu City, the proximate cause of which was defendant-drivers failure to observe
utmost diligence required of a very cautious person under all circumstances.

8. That defendant William Tiu, being the owner and operator of the said Rough Riders passenger bus which figured in the said accident, wherein plaintiff
and his wife were riding at the time of the accident, is therefore directly liable for the breach of contract of carriage for his failure to transport plaintiff
and his wife safely to their place of destination which was Cebu City, and which failure in his obligation to transport safely his passengers was due to and
in consequence of his failure to exercise the diligence of a good father of the family in the selection and supervision of his employees, particularly
defendant-driver Virgilio Te Laspias.[9]

The respondent prayed that judgment be rendered in his favor and that the petitioners be condemned to pay the following damages:

1). To pay to plaintiff, jointly and severally, the amount of P30,000.00 for the death and untimely demise of plaintiffs wife, Felisa Pepito Arriesgado;
2). To pay to plaintiff, jointly and severally, the amount of P38,441.50, representing actual expenses incurred by the plaintiff in connection with the
death/burial of plaintiffs wife;
3). To pay to plaintiff, jointly and severally, the amount of P1,113.80, representing medical/hospitalization expenses incurred by plaintiff for the injuries
sustained by him;
4). To pay to plaintiff, jointly and severally, the amount of P50,000.00 for moral damages;
5). To pay to plaintiff, jointly and severally, the amount of P50,000.00 by way of exemplary damages;
6). To pay to plaintiff, jointly and severally, the amount of P20,000.00 for attorneys fees;
7). To pay to plaintiff, jointly and severally, the amount of P5,000.00 for litigation expenses.

PLAINTIFF FURTHER PRAYS FOR SUCH OTHER RELIEFS AND REMEDIES IN LAW AND EQUITY. [10]

The petitioners, for their part, filed a Third-Party Complaint[11] on August 21, 1987 against the following: respondent Philippine Phoenix Surety and
Insurance, Inc. (PPSII), petitioner Tius insurer; respondent Benjamin Condor, the registered owner of the cargo truck; and re spondent Sergio Pedrano,
the driver of the truck. They alleged that petitioner Laspias was negotiating the uphill climb along the national highway of Sitio Aggies, Poblacion,
Compostela, in a moderate and normal speed. It was further alleged that the truck was parked in a slanted manner, its rear portion almost in the middle
of the highway, and that no early warning device was displayed. Petitioner Laspias promptly applied the brakes and swerved to the left to avoid hitting
the truck head-on, but despite his efforts to avoid damage to property and physical injuries on the passengers, the right side portion of th e bus hit the
cargo trucks left rear. The petitioners further alleged, thus:

5. That the cargo truck mentioned in the aforequoted paragraph is owned and registered in the name of the third-party defendant Benjamin Condor and
was left unattended by its driver Sergio Pedrano, one of the third-party defendants, at the time of the incident;

6. That third-party defendant Sergio Pedrano, as driver of the cargo truck with marked (sic) Condor Hollow Blocks & General Merchandise, with Plate No.
GBP-675 which was recklessly and imprudently parked along the national highway of Compostela, Cebu during the vehicular accident in question, and
third-party defendant Benjamin Condor, as the registered owner of the cargo truck who failed to exercise due diligence in the selection and supervision
of third-party defendant Sergio Pedrano, are jointly and severally liable to the third-party plaintiffs for whatever liability that may be adjudged against
said third-party plaintiffs or are directly liable of (sic) the alleged death of plaintiffs wife;

7. That in addition to all that are stated above and in the answer which are intended to show reckless imprudence on the part of the third-party defendants,
the third-party plaintiffs hereby declare that during the vehicular accident in question, third-party defendant was clearly violating Section 34, par. (g) of
the Land Transportation and Traffic Code

10. That the aforesaid passenger bus, owned and operated by third-party plaintiff William Tiu, is covered by a common carrier liability insurance with
Certificate of Cover No. 054940 issued by Philippine Phoenix Surety and Insurance, Inc., Cebu City Branch, in favor of third-party plaintiff William Tiu
which covers the period from July 22, 1986 to July 22, 1987 and that the said insurance coverage was valid, binding and subsisting during the time of
the aforementioned incident (Annex A as part hereof);

11. That after the aforesaid alleged incident, third-party plaintiff notified third-party defendant Philippine Phoenix Surety and Insurance, Inc., of the
alleged incident hereto mentioned, but to no avail;

12. That granting, et arguendo et arguendi, if herein third-party plaintiffs will be adversely adjudged, they stand to pay damages sought by the plaintiff
and therefore could also look up to the Philippine Phoenix Surety and Insurance, Inc., for contribution, indemnification and/or reimbursement of any
liability or obligation that they might [be] adjudged per insurance coverage duly entered into by and between third-party plaintiff William Tiu and third-
party defendant Philippine Phoenix Surety and Insurance, Inc.; [12]

The respondent PPSII, for its part, admitted that it had an existing contract with petitioner Tiu, but averred that it had already attended to and
settled the claims of those who were injured during the incident. [13] It could not accede to the claim of respondent Arriesgado, as such claim was way
beyond the scheduled indemnity as contained in the contract of insurance. [14]

After the parties presented their respective evidence, the trial court ruled in favor of respondent Arriesgado. The dispositive portion of the decision
reads:

INSURANCE | 28
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of plaintiff as against defendant William Tiu ordering the latter to pay the
plaintiff the following amounts:

1 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages;

2 - The sum of FIFTY THOUSAND PESOS (P50,000.00) as exemplary damages;
3 - The sum of THIRTY-EIGHT THOUSAND FOUR HUNDRED FORTY-ONE PESOS (P38,441.00) as actual damages;
4 - The sum of TWENTY THOUSAND PESOS (P20,000.00) as attorneys fees;
5 - The sum of FIVE THOUSAND PESOS (P5,000.00) as costs of suit;

SO ORDERED.[15]

According to the trial court, there was no dispute that petitioner William Tiu was engaged in business as a common carrier, in view of his admission
that D Rough Rider passenger bus which figured in the accident was owned by him; that he had been engaged in the transportation business for 25 years
with a sole proprietorship; and that he owned 34 buses. The trial court ruled that if petitioner Laspias had not been driving at a fast pace, he could have
easily swerved to the left to avoid hitting the truck, thus, averting the unfortunate incident. It then concluded that petitioner Laspias was negligent.

The trial court also ruled that the absence of an early warning device near the place where the truck was parked was not sufficient to impute
negligence on the part of respondent Pedrano, since the tail lights of the truck were fully on, and the vicinity was well lig hted by street lamps.[16] It also
found that the testimony of petitioner Tiu, that he based the selection of his driver Laspias on efficiency and in -service training, and that the latter had
been so far an efficient and good driver for the past six years of his employment, was insufficient to prove that he observed the diligence of a good father
of a family in the selection and supervision of his employees.

After the petitioners motion for reconsideration of the said decision was denied, the petitioners elevated the case to the Court of Appeals on the
following issues:

I WHETHER THIRD PARTY DEFENDANT SERGIO PEDRANO WAS RECKLESS AND IMPRUDENT WHEN HE PARKED THE CARGO TRUCK IN AN
OBLIQUE MANNER;

II WHETHER THE THIRD PARTY DEFENDANTS ARE JOINTLY AND SEVERALLY LIABLE DIRECTLY TO PLAINTIFF-APPELLEE OR TO DEFENDANTS-
APPELLANTS FOR WHATEVER LIABILITY THAT MAY BE ADJUDGED TO THE SAID DEFENDANTS-APPELLANTS;

III WHETHER DEFENDANT-APPELLANT VIRGILIO TE LASPIAS WAS GUILTY OF GROSS NEGLIGENCE;

IV WHETHER DEFENDANT-APPELLANT WILLIAM TIU HAD EXERCISED THE DUE DILIGENCE OF A GOOD FATHER OF A FAMILY IN THE
SELECTION AND SUPERVISION OF HIS DRIVERS;

V GRANTING FOR THE SAKE OF ARGUMENT THAT DEFENDANT-APPELLANT WILLIAM TIU IS LIABLE TO PLAINTIFF-APPELLEE, WHETHER THERE
IS LEGAL AND FACTUAL BASIS IN AWARDING EXCESSIVE MORAL DAMAGES, EX[E]MPLARY DAMAGES, ATTORNEYS FEES AND
LITIGATION EXPENSES TO PLAINTIFF-APPELLEE;

VI WHETHER THIRD PARTY DEFENDANT PHILIPPINE PHOENIX SURETY AND INSURANCE, INC. IS LIABLE TO DEFENDANT- APPELLANT
WILLIAM TIU.[17]

The appellate court rendered judgment affirming the trial courts decision with the modification that the awards for moral and exemplary damages
were reduced to P25,000. The dispositive portion reads:

WHEREFORE, the appealed Decision dated November 6, 1995 is hereby MODIFIED such that the awards for moral and exemplary damages are each
reduced to P25,000.00 or a total of P50,000.00 for both. The judgment is AFFIRMED in all other respects.

SO ORDERED.[18]

According to the appellate court, the action of respondent Arriesgado was based not on quasi-delict but on breach of contract of carriage. As a
common carrier, it was incumbent upon petitioner Tiu to prove that extraordinary diligence was observed in ensuring the safet y of passengers during
transportation. Since the latter failed to do so, he should be held liable for respondent Arriesgados claim. The CA also ruled that no evidence was presented
against the respondent PPSII, and as such, it could not be held liable for respondent Arriesgados claim, nor for contribution, indemnification and/or
reimbursement in case the petitioners were adjudged liable.

The petitioners now come to this Court and ascribe the following errors committed by the appellate court:

I. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING RESPONDENTS BENJAMIN CONDOR AND SERGIO PEDRANO GUILTY OF
NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT PEDRO A. ARRIESGADO OR TO PETITIONERS FOR WHATEVER LIABILITY THAT MAY
BE ADJUDGED AGAINST THEM.

II. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONERS GUILTY OF NEGLIGENCE AND HENCE, LIABLE TO RESPONDENT
PEDRO A. ARRIESGADO.

III. THE HONORABLE COURT OF APPEALS ERRED IN FINDING PETITIONER WILLIAM TIU LIABLE FOR EXEMPLARY DAMAGES, ATTORNEYS
FEES AND LITIGATION EXPENSES.

IV.THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING RESPONDENT PHILIPPINE PHOENIX SURETY AND INSURANCE, INC. LIABLE
TO RESPONDENT PEDRO A. ARRIESGADO OR TO PETITIONER WILLIAM TIU. [19]

According to the petitioners, the appellate court erred in failing to appreciate the absence of an early warning device and/or built-in reflectors at
the front and back of the cargo truck, in clear violation of Section 34, par. (g) of the Land Transportation and Traffic Code. They aver that such violation
is only a proof of respondent Pedranos negligence, as provided under Article 2185 of the New Civil Code. They also question t he appellate courts failure
to take into account that the truck was parked in an oblique manner, its rear portion almost at the center of the road. As such, the proximate cause of
the incident was the gross recklessness and imprudence of respondent Pedrano, creating the presumption of negligence on the part of respondent Condor
in supervising his employees, which presumption was not rebutted. The petitioners then contend that respondents Condor and Pe drano should be held
jointly and severally liable to respondent Arriesgado for the payment of the latters claim.

INSURANCE | 29
 The petitioners, likewise, aver that expert evidence should have been presented to prove that petitioner Laspias was driving at a very fast speed,
and that the CA could not reach such conclusion by merely considering the damages on the cargo truck. It was also pointed out that petitioner Tiu
presented evidence that he had exercised the diligence of a good father of a family in the selection and supervision of his drivers.

The petitioners further allege that there is no legal and factual basis to require petitioner Tiu to pay exemplary damages as no evidence was
presented to show that the latter acted in a fraudulent, reckless and oppressive manner, or that he had an active participation in the negligent act of
petitioner Laspias.

Finally, the petitioners contend that respondent PPSII admitted in its answer that while it had attended to and settled the claims of the other injured
passengers, respondent Arriesgados claim remained unsettled as it was beyond the scheduled indemnity under the insurance contract. The petitioners
argue that said respondent PPSII should have settled the said claim in accordance with the scheduled indemnity instead of just denying the same.

On the other hand, respondent Arriesgado argues that two of the issues raised by the petitioners involved questions of fact, not reviewable by the
Supreme Court: the finding of negligence on the part of the petitioners and their liability to him; and the award of exemplar y damages, attorneys fees
and litigation expenses in his favor. Invoking the principle of equity and justice, respondent Arriesgado pointed out that if there was an error to be
reviewed in the CA decision, it should be geared towards the restoration of the moral and exemplary damages to P50,000 each, or a total of P100,000
which was reduced by the Court of Appeals to P25,000 each, or a total of only P50,000.

Respondent Arriesgado also alleged that respondents Condor and Pedrano, and respondent Phoenix Surety, are parties with whom he had no
contract of carriage, and had no cause of action against. It was pointed out that only the petitioners needed to be sued, as driver and operator of the ill-
fated bus, on account of their failure to bring the Arriesgado Spouses to their place of destination as agreed upon in the contract of carriage, using the
utmost diligence of very cautious persons with due regard for all circumstances.

Respondents Condor and Pedrano point out that, as correctly ruled by the Court of Appeals, the proximate cause of the unfortunate incident was
the fast speed at which petitioner Laspias was driving the bus owned by petitioner Tiu. According to the respondents, the allegation that the truck was
not equipped with an early warning device could not in any way have prevented the incident from happening. It was also pointe d out that respondent
Condor had always exercised the due diligence required in the selection and supervision of his employees, and that he was not a party to the contract of
carriage between the petitioners and respondent Arriesgado.

Respondent PPSII, for its part, alleges that contrary to the allegation of petitioner Tiu, it settled all the claims of those injured in accordance with
the insurance contract. It further avers that it did not deny respondent Arriesgados claim, and emphasizes that its liability should be within the scheduled
limits of indemnity under the said contract. The respondent concludes that while it is true that insurance contracts are contracts of indemnity, the measure
of the insurers liability is determined by the insureds compliance with the terms thereof.

The Courts Ruling

At the outset, it must be stressed that this Court is not a trier of facts. [20] Factual findings of the Court of Appeals are final and may not be reviewed
on appeal by this Court, except when the lower court and the CA arrived at diverse factual findings. [21] The petitioners in this case assail the finding of
both the trial and the appellate courts that petitioner Laspias was driving at a very fast speed before the bus owned by petitioner Tiu collided with
respondent Condors stalled truck. This is clearly one of fact, not reviewable by the Court in a petition for review under Rule 45. [22]

On this ground alone, the petition is destined to fail.

However, considering that novel questions of law are likewise involved, the Court resolves to examine and rule on the merits of the case.

Petitioner Laspias
Was negligent in driving
The Ill-fated bus

In his testimony before the trial court, petitioner Laspias claimed that he was traversing the two-lane road at Compostela, Cebu at a speed of only
forty (40) to fifty (50) kilometers per hour before the incident occurred. [23] He also admitted that he saw the truck which was parked in an oblique position
at about 25 meters before impact, [24] and tried to avoid hitting it by swerving to the left. However, even in the absence of expert evidence, the damage
sustained by the truck[25] itself supports the finding of both the trial court and the appellate court, that the D Rough Rider bus driven by petitioner Laspias
was traveling at a fast pace. Since he saw the stalled truck at a distance of 25 meters, petitioner Laspias had more than enough time to swerve to his left
to avoid hitting it; that is, if the speed of the bus was only 40 to 50 kilometers per hour as he claimed. As found by the Court of Appeals, it is easier to
believe that petitioner Laspias was driving at a very fast speed, since at 4:45 a.m., the hour of the accident, there were no oncoming vehicles at the
opposite direction. Petitioner Laspias could have swerved to the left lane with proper clearance, and, thus, could have avoided the truck.[26] Instinct, at
the very least, would have prompted him to apply the breaks to avert the impending disaster which he must have foreseen when he caught sight of the
stalled truck. As we had occasion to reiterate:

A man must use common sense, and exercise due reflection in all his acts; it is his duty to be cautious, careful and prudent, if not from instinct, then
through fear of recurring punishment. He is responsible for such results as anyone might foresee and for acts which no one would have performed except
through culpable abandon. Otherwise, his own person, rights and property, and those of his fellow beings, would ever be exposed to all manner of danger
and injury.[27]

We agree with the following findings of the trial court, which were affirmed by the CA on appeal:

A close study and evaluation of the testimonies and the documentary proofs submitted by the parties which have direct bearing on the issue of negligence,
this Court as shown by preponderance of evidence that defendant Virgilio Te Laspias failed to observe extraordinary diligence as a driver of the common
carrier in this case. It is quite hard to accept his version of the incident that he did not see at a reasonable distance ahead the cargo truck that was parked
when the Rough Rider [Bus] just came out of the bridge which is on an (sic) [more] elevated position than the place where the cargo truck was parked.
With its headlights fully on, defendant driver of the Rough Rider was in a vantage position to see the cargo truck ahead which was parked and he could
just easily have avoided hitting and bumping the same by maneuvering to the left without hitting the said cargo truck. Besides, it is (sic) shown that there
was still much room or space for the Rough Rider to pass at the left lane of the said national highway even if the cargo truck had occupied the entire right
lane thereof. It is not true that if the Rough Rider would proceed to pass through the left lane it would fall into a canal considering that there was much
space for it to pass without hitting and bumping the cargo truck at the left lane of said national highway. The records, further, showed that there was no
incoming vehicle at the opposite lane of the national highway which would have prevented the Rough Rider from not swerving to its left in order to avoid
hitting and bumping the parked cargo truck. But the evidence showed that the Rough Rider instead of swerving to the still spacious left lane of the national
highway plowed directly into the parked cargo truck hitting the latter at its rear portion; and thus, the (sic) causing damages not only to herein plaintiff
but to the cargo truck as well.[28]

INSURANCE | 30
 Indeed, petitioner Laspias negligence in driving the bus is apparent in the records. By his own admission, he had just passed a bridge and was
traversing the highway of Compostela, Cebu at a speed of 40 to 50 kilometers per hour before the collision occurred. The maximum speed allowed by law
on a bridge is only 30 kilometers per hour. [29] And, as correctly pointed out by the trial court, petitioner Laspias also violated Section 35 of the Land
Transportation and Traffic Code, Republic Act No. 4136, as amended:

Sec. 35. Restriction as to speed. (a) Any person driving a motor vehicle on a highway shall drive the same at a careful and prudent speed, not greater
nor less than is reasonable and proper, having due regard for the traffic, the width of the highway, and or any other conditi on then and there existing;
and no person shall drive any motor vehicle upon a highway at such speed as to endanger the life, limb and property of any person, nor at a speed greater
than will permit him to bring the vehicle to a stop within the assured clear distance ahead.[30]

Under Article 2185 of the Civil Code, a person driving a vehicle is presumed negligent if at the time of the mishap, he was v iolating any traffic
regulation.[31]

Petitioner Tiu failed to

Overcome the presumption
Of negligence against him as
One engaged in the business
Of common carriage

The rules which common carriers should observe as to the safety of their passengers are set forth in the Civil Code, Articles 1733, [32] 1755[33] and
1756.[34] In this case, respondent Arriesgado and his deceased wife contracted with petitioner Tiu, as owner and operator of D Rough Riders bus service,
for transportation from Maya, Daanbantayan, Cebu, to Cebu City for the price of P18.00.[35] It is undisputed that the respondent and his wife were not
safely transported to the destination agreed upon. In actions for breach of contract, only the existence of such contract, and the fact that the obligor, in
this case the common carrier, failed to transport his passenger safely to his destination are the matters that need to be proved. [36] This is because under
the said contract of carriage, the petitioners assumed the express obligation to transport the respondent and his wife to their destination safely and to
observe extraordinary diligence with due regard for all circumstances. [37] Any injury suffered by the passengers in the course thereof is immediately
attributable to the negligence of the carrier. [38] Upon the happening of the accident, the presumption of negligence at once arises, and it becomes the
duty of a common carrier to prove that he observed extraordinary diligence in the care of his passengers. [39] It must be stressed that in requiring the
highest possible degree of diligence from common carriers and in creating a presumption of negligence against them, the law c ompels them to curb the
recklessness of their drivers.[40]

While evidence may be submitted to overcome such presumption of negligence, it must be shown that the carrier observed the re quired
extraordinary diligence, which means that the carrier must show the utmost diligence of very cautious persons as far as human care and foresight can
provide, or that the accident was caused by fortuitous event. [41] As correctly found by the trial court, petitioner Tiu failed to conclusively rebut such
presumption. The negligence of petitioner Laspias as driver of the passenger bus is, thus, binding against pet itioner Tiu, as the owner of the passenger
bus engaged as a common carrier. [42]

The Doctrine of
Last Clear Chance
Is Inapplicable in the
Case at Bar

Contrary to the petitioners contention, the principle of last clear chance is inapplicable in the instant case, as it only applies in a suit between the
owners and drivers of two colliding vehicles. It does not arise where a passenger demands responsibility from the carrier to enforce its contractual
obligations, for it would be inequitable to exempt the negligent driver and its owner on the ground that the other driver was likewise g uilty of
negligence.[43] The common law notion of last clear chance permitted courts to grant recovery to a plaintiff who has also been negligent provided that the
defendant had the last clear chance to avoid the casualty and failed to do so. Accordingly, it is difficult to see what role, if any, the c ommon law of last
clear chance doctrine has to play in a jurisdiction where the common law concept of contributory negligence as an absolute bar to recovery by the plaintiff,
has itself been rejected, as it has been in Article 2179 of the Civil Code. [44]

Thus, petitioner Tiu cannot escape liability for the death of respondent Arriesgados wife due to the negligence of petitioner Laspias, his employee,
on this score.

Respondents Pedrano and

Condor were likewise
Negligent

In Phoenix Construction, Inc. v. Intermediate Appellate Court,[45] where therein respondent Dionisio sustained injuries when his vehicle rammed
against a dump truck parked askew, the Court ruled that the improper parking of a dump truck without any warning lights or reflector devices created an
unreasonable risk for anyone driving within the vicinity, and for having created such risk, the truck driver must be held responsible. In ruling against the
petitioner therein, the Court elucidated, thus:

In our view, Dionisios negligence, although later in point of time than the truck drivers negligence, and therefore closer to the accident, was not an
efficient intervening or independent cause. What the petitioners describe as an intervening cause was no more than a foreseeable consequence of the risk
created by the negligent manner in which the truck driver had parked the dump truck. In other words, the petitioner truck dri ver owed a duty to private
respondent Dionisio and others similarly situated not to impose upon them the very risk the truck driver had created. Dionisios negligence was not that
of an independent and overpowering nature as to cut, as it were, the chain of causation in fact between the improper parking of the dump truck and the
accident, nor to sever the juris vinculum of liability.

We hold that private respondent Dionisios negligence was only contributory, that the immediate and proximate cause of the injury remained the truck
drivers lack of due care.[46]

In this case, both the trial and the appellate courts failed to consider that respondent Pedrano was also negligent in leaving the truck parked askew
without any warning lights or reflector devices to alert oncoming vehicles, and that such failure created the presumption of negligence on the part of his
employer, respondent Condor, in supervising his employees properly and adequately. As we ruled in Poblete v. Fabros:[47]

It is such a firmly established principle, as to have virtually formed part of the law itself, that the negligence of the employee gives rise to the presumption
of negligence on the part of the employer. This is the presumed negligence in the selection and supervision of employee. The theory of presumed

INSURANCE | 31
negligence, in contrast with the American doctrine of respondeat superior, where the negligence of the employee is conclusively presumed to be the
negligence of the employer, is clearly deducible from the last paragraph of Article 2180 of the Civil Code which provides that the responsibility therein
mentioned shall cease if the employers prove that they observed all the diligence of a good father of a family to prevent damages. [48]

The petitioners were correct in invoking respondent Pedranos failure to observe Article IV, Section 34(g) of the Rep. Act No. 4136, which provides:

(g) Lights when parked or disabled. Appropriate parking lights or flares visible one hundred meters away shall be displayed at a corner of the vehicle
whenever such vehicle is parked on highways or in places that are not well-lighted or is placed in such manner as to endanger passing traffic.

The manner in which the truck was parked clearly endangered oncoming traffic on both sides, considering that the tire blowout which stalled the
truck in the first place occurred in the wee hours of the morning. The Court can only now surmise that the unfortunate incident cou ld have been averted
had respondent Condor, the owner of the truck, equipped the said vehicle with lights, flares, or, at the very least, an early warning device.[49] Hence, we
cannot subscribe to respondents Condor and Pedranos claim that they should be absolved from liability because, as found by the trial and appellate courts,
the proximate cause of the collision was the fast speed at which petitioner Laspias drove the bus. To accept this proposition would be to come too close
to wiping out the fundamental principle of law that a man must respond for the foreseeable consequences of his own negligent act or omission. Indeed,
our law on quasi-delicts seeks to reduce the risks and burdens of living in society and to allocate them among its members. To accept this proposition
would be to weaken the very bonds of society.[50]

The Liability of
Respondent PPSII
as Insurer

The trial court in this case did not rule on the liability of respondent PPSII, while the appellate court ruled that, as no evidence was presented
against it, the insurance company is not liable.

A perusal of the records will show that when the petitioners filed the Third-Party Complaint against respondent PPSII, they failed to attach a copy
of the terms of the insurance contract itself. Only Certificate of Cover No. 054940 [51] issued in favor of Mr. William Tiu, Lahug, Cebu City signed by Cosme
H. Boniel was appended to the third-party complaint. The date of issuance, July 22, 1986, the period of insurance, from July 22, 1986 to July 22, 1987,
as well as the following items, were also indicated therein:

SCHEDULED VEHICLE

MODEL MAKE TYPE OF BODY COLOR BLT FILE NO.

Isuzu Forward Bus blue mixed

PLATE NO. PBP- SERIAL/CHASSIS NO. SER450- MOTOR NO. 677836 AUTHORIZED CAPACITY UNLADEN WEIGHT 6Cyls.
724 1584124 50 Kgs.

SECTION 1/11 *LIMITS OF LIABILITY P50,000.00 PREMIUMS PAID

A. THIRD PARTY LIABILITY

B. PASSENGER LIABILITY Per Person Per Accident P50,000 P540.0052

P12,000.00

In its Answer53 to the Third-Party Complaint, the respondent PPSII admitted the existence of the contract of insurance, in view of its failure to
specifically deny the same as required under then Section 8(a), Rule 8 of the Rules of Court, 54 which reads:

Sec. 8. How to contest genuineness of such documents. When an action or defense is founded upon a written instrument copied in or attached to the
corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be dee med admitted unless the
adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but the requirement of an oath does not apply when
the adverse party does not appear to be a party to the instrument or when compliance with an order for inspection of the original instrument is refused.

In fact, respondent PPSII did not dispute the existence of such contract, and admitted that it was liable thereon. It claimed, however, that it had
attended to and settled the claims of those injured during the incident, and set up the following as special affirmative defenses:

Third party defendant Philippine Phoenix Surety and Insurance, Inc. hereby reiterates and incorporates by way of reference the preceding paragraphs and
further states THAT:-

8. It has attended to the claims of Vincent Canales, Asuncion Batiancila and Neptali Palces who sustained injuries during the incident in question. In fact,
it settled financially their claims per vouchers duly signed by them and they duly executed Affidavit[s] of Desistance to that effect, xerox copies of which
are hereto attached as Annexes 1, 2, 3, 4, 5, and 6 respectively;

9. With respect to the claim of plaintiff, herein answering third party defendant through its authorized insurance adjuster attended to said claim. In fact,
there were negotiations to that effect. Only that it cannot accede to the demand of said claimant considering that the claim was way beyond the scheduled
indemnity as per contract entered into with third party plaintiff William Tiu and third party defendant (Philippine Phoen ix Surety and Insurance, Inc.).
Third party Plaintiff William Tiu knew all along the limitation as earlier stated, he being an old hand in the transportation business; 55

INSURANCE | 32
 Considering the admissions made by respondent PPSII, the existence of the insurance contract and the salient terms thereof cannot be dispatched.
It must be noted that after filing its answer, respondent PPSII no longer objected to the presentation of evidence by respondent Arriesgado and the
insured petitioner Tiu. Even in its Memorandum56 before the Court, respondent PPSII admitted the existence of the contract, but averred as follows:

Petitioner Tiu is insisting that PPSII is liable to him for contribution, indemnification and/or reimbursement. This has no b asis under the contract. Under
the contract, PPSII will pay all sums necessary to discharge liability of the insured subject to the limits of liability but not to exceed the limits of liability
as so stated in the contract. Also, it is stated in the contract that in the event of accident involving indemnity to more th an one person, the limits of
liability shall not exceed the aggregate amount so specified by law to all persons to be indemnified. 57

As can be gleaned from the Certificate of Cover, such insurance contract was issued pursuant to the Compulsory Motor Vehicle Liability Insurance
Law. It was expressly provided therein that the limit of the insurers liability for each person was P12,000, while the limit per accident was pegged
at P50,000. An insurer in an indemnity contract for third party liability is directly liable to the injured party up to the extent specified in the agreement
but it cannot be held solidarily liable beyond that amount. 58 The respondent PPSII could not then just deny petitioner Tius claim; it should have
paid P12,000 for the death of Felisa Arriesgado,59 and respondent Arriesgados hospitalization expenses of P1,113.80, which the trial court found to have
been duly supported by receipts. The total amount of the claims, even when added to that of the other injured passengers whi ch the respondent PPSII
claimed to have settled,60 would not exceed the P50,000 limit under the insurance agreement.

Indeed, the nature of Compulsory Motor Vehicle Liability Insurance is such that it is primarily intended to provide compensation for the death or
bodily injuries suffered by innocent third parties or passengers as a result of the negligent operation and use of motor vehi cles. The victims and/or their
dependents are assured of immediate financial assistance, regardless of the financial capacity of motor vehicle owners. 61 As the Court, speaking through
Associate Justice Leonardo A. Quisumbing, explained in Government Service Insurance System v. Court of Appeals:62

However, although the victim may proceed directly against the insurer for indemnity, the third party liability is only up to the extent of the insurance
policy and those required by law. While it is true that where the insurance contract provides for indemnity against liability to third persons, and such
persons can directly sue the insurer, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer
can be held liable in solidum with the insured and/or the other parties found at fault. For the liability of the insurer is based on contract; that of the insured
carrier or vehicle owner is based on tort.

Obviously, the insurer could be held liable only up to the extent of what was provided for by the contract of insurance, in accordance with the CMVLI law.
At the time of the incident, the schedule of indemnities for death and bodily injuries, professional fees and other charges payable under a CMVLI coverage
was provided for under the Insurance Memorandum Circular (IMC) No. 5-78 which was approved on November 10, 1978. As therein provided, the
maximum indemnity for death was twelve thousand (P12,000.00) pesos per victim. The schedules for medical expenses were also provided by said IMC,
specifically in paragraphs (C) to (G).63

Damages to be
Awarded

The trial court correctly awarded moral damages in the amount of P50,000 in favor of respondent Arriesgado. The award of exemplary damages by
way of example or correction of the public good, 64 is likewise in order. As the Court ratiocinated in Kapalaran Bus Line v. Coronado:65

While the immediate beneficiaries of the standard of extraordinary diligence are, of course, the passengers and owners of cargo carried by a common
carrier, they are not the only persons that the law seeks to benefit. For if common carriers carefully observed the statutory standard of extraordinary
diligence in respect of their own passengers, they cannot help but simultaneously benefit pedestrians and the passengers of other vehicles who are equally
entitled to the safe and convenient use of our roads and highways. The law seeks to stop and prevent the slaughter and maimin g of people (whether
passengers or not) on our highways and buses, the very size and power of which seem to inflame the minds of their drivers. Article 2231 of the Civil Code
explicitly authorizes the imposition of exemplary damages in cases of quasi-delicts if the defendant acted with gross negligence.66

The respondent Pedro A. Arriesgado, as the surviving spouse and heir of Felisa Arriesgado, is entitled to indemnity in the amount of P50,000.00.67

The petitioners, as well as the respondents Benjamin Condor and Sergio Pedrano are jointly and severally liable for said amount, conformably with
the following pronouncement of the Court in Fabre, Jr. vs. Court of Appeals:68

The same rule of liability was applied in situations where the negligence of the driver of the bus on which plaintiff was riding concurred with the negligence
of a third party who was the driver of another vehicle, thus causing an accident. In Anuran v. Buo, Batangas Laguna Tayabas Bus Co. v. Intermediate
Appellate Court, and Metro Manila Transit Corporation v. Court of Appeals, the bus company, its driver, the operator of the other vehicle and the driver
of the vehicle were jointly and severally held liable to the injured passenger or the latters heirs. The basis of this allocation of liability was explained
in Viluan v. Court of Appeals, thus:

Nor should it make difference that the liability of petitioner [bus owner] springs from contract while that of respondents [owner and driver of other vehicle]
arises from quasi-delict. As early as 1913, we already ruled in Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger du e to the
negligence of the driver of the bus on which he was riding and of the driver of another vehicle, the drivers as well as the owners of the two vehicles are
jointly and severally liable for damages. Some members of the Court, though, are of the view that under the circumstances they are liable on quasi-
delict.69

IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals is AFFIRMED with MODIFICATIONS:

(1) Respondent Philippine Phoenix Surety and Insurance, Inc. and petitioner William Tiu are ORDERED to pay, jointly and severally, respondent
Pedro A. Arriesgado the total amount of P13,113.80;

(2) The petitioners and the respondents Benjamin Condor and Sergio Pedrano are ORDERED to pay, jointly and severally, respondent Pedro A.
Arriesgado P50,000.00 as indemnity; P26,441.50 as actual damages; P50,000.00 as moral damages; P50,000.00 as exemplary damages;
and P20,000.00 as attorneys fees.

SO ORDERED.

INSURANCE | 33
FIRST DIVISION

G.R. No. 151890 June 20, 2006

PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner,
vs.
TRANS-ASIA SHIPPING LINES, INC., Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 151991 June 20, 2006
TRANS-ASIA SHIPPING LINES, INC., petitioner,
vs.
PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent.

DECISION
CHICO-NAZARIO, J:

This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner Prudential Guarantee and Assurance, Inc. (PRUDENTIAL) in
G.R. No. 151890 and Trans-Asia Shipping Lines, Inc. (TRANS-ASIA) in G.R. No. 151991, assailing the Decision 1 dated 6 November 2001 of the Court of
Appeals in CA G.R. CV No. 68278, which reversed the Judgment 2 dated 6 June 2000 of the Regional Trial Court (RTC), Branch 13, Cebu City in Civil Case
No. CEB-20709. The 29 January 2002 Resolution 3 of the Court of Appeals, denying PRUDENTIAL’s Motion for Reconsideration and TRANS-ASIA’s Partial
Motion for Reconsideration of the 6 November 2001 Decision, is likewise sought to be annulled and set aside.

The Facts

The material antecedents as found by the court a quo and adopted by the appellate court are as follows:

Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of payment of premiums, defendant [PRUDENTIAL] insured M/V Asia
Korea for loss/damage of the hull and machinery arising from perils, inter alia, of fire and explosion for the sum of P40 Million, beginning [from] the period
[of] July 1, 1993 up to July 1, 1994. This is evidenced by Marine Policy No. MH93/1363 (Exhibits "A" to "A-11"). On October 25, 1993, while the policy
was in force, a fire broke out while [M/V Asia Korea was] undergoing repairs at the port of Cebu. On October 26, 1993 plaintiff [TRANS-ASIA] filed its
notice of claim for damage sustained by the vessel. This is evidenced by a letter/formal claim of even date (Exhibit "B"). Plaintiff [TRANS-ASIA] reserved
its right to subsequently notify defendant [PRUDENTIAL] as to the full amount of the claim upon final survey and determination by average adjuster
Richard Hogg International (Phil.) of the damage sustained by reason of fire. An adjuster’s report on the fire in question was submitted by Richard Hogg
International together with the U-Marine Surveyor Report (Exhibits "4" to "4-115").

On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan and Trust receipt", a portion of which read (sic):

"Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan without interest under
Policy No. MH 93/1353 [sic], repayable only in the event and to the extent that any net recovery is made by Trans -Asia Shipping Corporation, from any
person or persons, corporation or corporations, or other parties, on account of loss by any casualty for which they may be liable occasioned by the 25
October 1993: Fire on Board." (Exhibit "4")

INSURANCE | 34
In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiff’s claim (Exhibit "5"). The letter reads:

"After a careful review and evaluation of your claim arising from the above-captioned incident, it has been ascertained that you are in breach of policy
conditions, among them "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED". Accordingly, we regret to advise that your claim is not compensable
and hereby DENIED."

This was followed by defendant’s letter dated 21 July 1997 requesting the return or payment of the P3,000,000.00 within a period of ten (10) days from
receipt of the letter (Exhibit "6").4

Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint5 for Sum of Money against PRUDENTIAL with the RTC of Cebu City,
docketed as Civil Case No. CEB-20709, wherein TRANS-ASIA sought the amount of P8,395,072.26 from PRUDENTIAL, alleging that the same represents
the balance of the indemnity due upon the insurance policy in the total amount of P11,395,072.26. TRANS-ASIA similarly sought interest at 42% per
annum citing Section 2436 of Presidential Decreee No. 1460, otherwise known as the "Insurance Code," as amended.

In its Answer,7 PRUDENTIAL denied the material allegations of the Complaint and interposed the defense that TRANS-ASIA breached insurance policy
conditions, in particular: "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED." PRUDENTIAL further alleged that it acted as facts and law require
and incurred no liability to TRANS-ASIA; that TRANS-ASIA has no cause of action; and, that its claim has been effectively waived and/or abandoned, or
it is estopped from pursuing the same. By way of a counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it allegedly advanced to TRANS-
ASIA by way of a loan without interest and without prejudice to the final evaluation of the claim, including the amounts of P500,000.00, for survey fees
and P200,000.00, representing attorney’s fees.

The Ruling of the Trial Court

On 6 June 2000, the court a quo rendered Judgment8 finding for (therein defendant) PRUDENTIAL. It ruled that a determination of the parties’ liabilities
hinged on whether TRANS-ASIA violated and breached the policy conditions on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. It interpreted
the provision to mean that TRANS-ASIA is required to maintain the vessel at a certain class at all times pertinent during the life of the policy. According
to the court a quo, TRANS-ASIA failed to prove compliance of the terms of the warranty, the violation thereof entitled PRUDENTIAL, the insured party, to
rescind the contract.9

Further, citing Section 10710 of the Insurance Code, the court a quo ratiocinated that the concealment made by TRANS-ASIA that the vessel was not
adequately maintained to preserve its class was a material concealment sufficient to avoid the policy and, thus, entitled the injured party to rescind the
contract. The court a quo found merit in PRUDENTIAL’s contention that there was nothing in the adjustment of the particular average submitted by the
adjuster that would show that TRANS-ASIA was not in breach of the policy. Ruling on the denominated loan and trust receipt, the court a quo said that in
substance and in form, the same is a receipt for a loan. It held that if TRANS-ASIA intended to receive the amount of P3,000,000.00 as advance payment,
it should have so clearly stated as such.

The court a quo did not award PRUDENTIAL’s claim for P500,000.00, representing expert survey fees on the ground of lack of sufficient basis in support
thereof. Neither did it award attorney’s fees on the rationalization that the instant case does not fall under the exceptions stated in Article 220811 of the
Civil Code. However, the court a quo granted PRUDENTIAL’s counterclaim stating that there is factual and legal basis for TRANS-ASIA to return the amount
of P3,000,000.00 by way of loan without interest.

The decretal portion of the Judgment of the RTC reads:

WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to prove a cause of action.

On defendant’s counterclaim, plaintiff is directed to return the sum of P3,000,000.00 representing the loan extended to it by the defendant, within a
period of ten (10) days from and after this judgment shall have become final and executory. 12

The Ruling of the Court of Appeals

On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 November 2001, reversed the 6 June 2000 Judgment of the RTC.

On the issue of TRANS-ASIA’s alleged breach of warranty of the policy condition CLASSED AND CLASS MAINTAINED, the Court of Appeals ruled that
PRUDENTIAL, as the party asserting the non-compensability of the loss had the burden of proof to show that TRANS-ASIA breached the warranty, which
burden it failed to discharge. PRUDENTIAL cannot rely on the lack of certification to the effect that TRANS-ASIA was CLASSED AND CLASS MAINTAINED
as its sole basis for reaching the conclusion that the warranty was breached. The Court of Appeals opined that the lack of a certification does not necessarily
mean that the warranty was breached by TRANS-ASIA. Instead, the Court of Appeals considered PRUDENTIAL’s admission that at the time the insurance
contract was entered into between the parties, the vessel was properly classed by Bureau Veritas, a classification society recognized by the industry. The
Court of Appeals similarly gave weight to the fact that it was the responsibility of Richards Hogg International (Phils.) Inc., the average adjuster hired by
PRUDENTIAL, to secure a copy of such certification to support its conclusion that mere absence of a certification does not warrant denial of TRANS-ASIA’s
claim under the insurance policy.

In the same token, the Court of Appeals found the subject warranty allegedly breached by TRANS-ASIA to be a rider which, while contained in the policy,
was inserted by PRUDENTIAL without the intervention of TRANS-ASIA. As such, it partakes of a nature of a contract d’adhesion which should be construed
against PRUDENTIAL, the party which drafted the contract. Likewise, according to the Court of Appeals, PRUDENTIAL’s renewal of the insurance policy
from noon of 1 July 1994 to noon of 1 July 1995, and then again, until noon of 1 July 1996 must be deemed a waiver by PRUDENT IAL of any breach of
warranty committed by TRANS-ASIA.

Further, the Court of Appeals, contrary to the ruling of the court a quo, interpreted the transaction between PRUDENTIAL and TRANS-ASIA as one of
subrogation, instead of a loan. The Court of Appeals concluded that TRANS-ASIA has no obligation to pay back the amount of P3,000.000.00 to
PRUDENTIAL based on its finding that the aforesaid amount was PRUDENTIAL’s partial payment to TRANS-ASIA’s claim under the policy. Finally, the Court

INSURANCE | 35
of Appeals denied TRANS-ASIA’s prayer for attorney’s fees, but held TRANS-ASIA entitled to double interest on the policy for the duration of the delay of
payment of the unpaid balance, citing Section 244 13 of the Insurance Code.

Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wise:

WHEREFORE, the foregoing consideration, We find for Appellant. The instant appeal is ALLOWED and the Judgment appealed from REVERSED. The
P3,000,000.00 initially paid by appellee Prudential Guarantee Assurance Incorporated to appellant Trans-Asia and covered by a "Loan and Trust Receipt"
dated 29 May 1995 is HELD to be in partial settlement of the loss suffered by appellant and covered by Marine Policy No. MH93/1363 issued by appellee.
Further, appellee is hereby ORDERED to pay appellant the additional amount of P8,395,072.26 representing the balance of the loss suffered by the latter
as recommended by the average adjuster Richard Hogg International (Philippines) in its Report, with double interest starting from the time Richard Hogg’s
Survey Report was completed, or on 13 August 1996, until the same is fully paid.

All other claims and counterclaims are hereby DISMISSED.

All costs against appellee.14

Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for Reconsideration and Partial Motion for Reconsideration thereon,
respectively, which motions were denied by the Court of Appeals in the Resolution dated 29 January 2002.

The Issues

Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No. 151890, relying on the following grounds, viz:

I.
THE AWARD IS GROSSLY UNCONSCIONABLE.

II.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO VIOLATION BY TRANS-ASIA OF A MATERIAL WARRANTY, NAMELY, WARRANTY
CLAUSE NO. 5, OF THE INSURANCE POLICY.

III.
THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS INSURER HAD THE BURDEN OF PROVING THAT THE ASSURED, TRANS-ASIA,
VIOLATED A MATERIAL WARRANTY.

IV.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE EMBODIED IN THE INSURANCE POLICY CONTRACT WAS A MERE RIDER.

V.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS OF THE POLICY CONSTITUTED A WAIVER ON THE PART OF PRUDENTIAL
OF THE BREACH OF THE WARRANTY BY TRANS-ASIA.

VI.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST RECEIPT" EXECUTED BY TRANS-ASIA IS AN ADVANCE ON THE POLICY,
THUS CONSTITUTING PARTIAL PAYMENT THEREOF.

VII.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY PRUDENTIAL OF THE FINDINGS OF RICHARDS HOGG IS INDICATIVE OF A
WAIVER ON THE PART OF PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE WARRANTY.

VIII.
THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN FINDING THAT PRUDENTIAL "UNJUSTIFIABLY REFUSED" TO PAY THE
CLAIM AND IN ORDERING PRUDENTIAL TO PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE INTEREST FROM 13 AUGUST 1996, UNTIL [THE] SAME IS
FULLY PAID.15

Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for Review docketed as G.R. No. 151991, raising the following
grounds for the allowance of the petition, to wit:

I.
THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ATTORNEY’S FEES TO PETITIONER TRANS-ASIA ON THE GROUND THAT SUCH CAN
ONLY BE AWARDED IN THE CASES ENUMERATED IN ARTICLE 2208 OF THE CIVIL CODE, AND THERE BEING NO BAD FAITH ON THE PART OF
RESPONDENT PRUDENTIAL IN DENYING HEREIN PETITIONER TRANS-ASIA’S INSURANCE CLAIM.

II.
THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06 NOVEMBER 2001 SHOULD BE CONSTRUED TO MEAN DOUBLE INTEREST BASED
ON THE LEGAL INTEREST OF 12%, OR INTEREST AT THE RATE OF 24% PER ANNUM.16

In our Resolution of 2 December 2002, we granted TRANS-ASIA’s Motion for Consolidation17 of G.R. Nos. 151890 and 151991;18 hence, the instant
consolidated petitions.

In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANS-ASIA arising from the subject insurance contract; (2) the liability,
if any, of TRANS-ASIA to PRUDENTIAL arising from the transaction between the parties as evidenced by a document denominated as "Loan and Trust
Receipt," dated 29 May 1995; and (3) the amount of interest to be imposed on the liability, if any, of either or both parties.

Ruling of the Court

INSURANCE | 36
Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not questions of fact, may be raised.19 This rule may be
disregarded only when the findings of fact of the Court of Appeals are contrary to the findings and conclusions of the trial court, or are not supported by
the evidence on record.20 In the case at bar, we find an incongruence between the findings of fact of the Court of Appeals and the court a quo, thus, in
our determination of the issues, we are constrained to assess the evidence adduced by the parties to make appropriate finding s of facts as are necessary.

I.
A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy condition on WARRANTED VESSEL CLASSED AND CLASS
MAINTAINED, as contained in the subject insurance contract.

In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an express and material warranty in the subject insurance contract,
i.e., Marine Insurance Policy No. MH93/1363, specifically Warranty Clause No. 5 thereof, which stipulates that the insured ve ssel, "M/V ASIA KOREA" is
required to be CLASSED AND CLASS MAINTAINED. According to PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA
KOREA" was in violation of the warranty as it was not CLASSED AND CLASS MAINTAINED. PRUDENTIAL submits that Warranty Clause No. 5 was a
condition precedent to the recovery of TRANS-ASIA under the policy, the violation of which entitled PRUDENTIAL to rescind the contract under Sec. 74 21 of
the Insurance Code.

The warranty condition CLASSED AND CLASS MAINTAINED was explained by PRUDENTIAL’s Senior Manager of the Marine and Aviation Division, Lucio
Fernandez. The pertinent portions of his testimony on direct examination is reproduced hereunder, viz:

ATTY. LIM

Q Please tell the court, Mr. Witness, the result of the evaluation of this claim, what final action was taken?

A It was eventually determined that there was a breach of the policy condition, and basically there is a breach of policy war ranty condition and on that
basis the claim was denied.

Q To refer you (sic) the "policy warranty condition," I am showing to you a policy here marked as Exhibits "1", "1-A" series, please point to the warranty
in the policy which you said was breached or violated by the plaintiff which constituted your basis for denying the claim as you testified.

A Warranted Vessel Classed and Class Maintained.

ATTY. LIM

Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is the second page of the policy below the printed words: "Clauses, Endorsements,
Special Conditions and Warranties," below this are several typewritten clauses and the witness pointed out in particular the clause reading: "Warranted
Vessel Classed and Class Maintained."

COURT

Q Will you explain that particular phrase?

A Yes, a warranty is a condition that has to be complied with by the insured. When we say a class warranty, it must be entered in the classification society.

COURT

Slowly.

WITNESS

(continued)

A A classification society is an organization which sets certain standards for a vessel to maintain in order to maintain their membership in the classification
society. So, if they failed to meet that standard, they are considered not members of that class, and thus breaching the warranty, that requires them to
maintain membership or to maintain their class on that classification society. And it is not sufficient that the member of this classification society at the
time of a loss, their membership must be continuous for the whole length of the policy such that during the effectivity of the policy, their classification is
suspended, and then thereafter, they get reinstated, that again still a breach of the warranty that they maintained their class (sic). Our maintaining team
membership in the classification society thereby maintaining the standards of the vessel (sic).

ATTY. LIM
Q Can you mention some classification societies that you know?

A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classification Society, The Philippine Registration of Ships Society, China
Classification, NKK and Company Classification Society, and many others, we have among others, there are over 20 worldwide. 22

At the outset, it must be emphasized that the party which alleges a fact as a matter of defense has the burden of proving it. PRUDENTIAL, as the party
which asserted the claim that TRANS-ASIA breached the warranty in the policy, has the burden of evidence to establish the same. Hence, on the part of
PRUDENTIAL lies the initiative to show proof in support of its defense; otherwise, failing to establish the same, it remains self-serving. Clearly, if no
evidence on the alleged breach of TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA would be successful in claiming on the policy. It
follows that PRUDENTIAL bears the burden of evidence to establish the fact of breach.

In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of proof to show proof of loss, and the coverage thereof, in the
subject insurance policy. However, in the course of trial in a civil case, once plaintiff makes out a prima facie case in his favor, the duty or the burden of
evidence shifts to defendant to controvert plaintiff’s prima facie case, otherwise, a verdict must be returned in favor of plaintiff. 23 TRANS-ASIA was able
to establish proof of loss and the coverage of the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the burden of evidence shifted to PRUDENTIAL to
counter TRANS-ASIA’s case, and to prove its special and affirmative defense that TRANS-ASIA was in violation of the particular condition on CLASSED
AND CLASS MAINTAINED.

We sustain the findings of the Court of Appeals that PRUDENTIAL was not successful in discharging the burden of evidence that TRANS-ASIA breached
the subject policy condition on CLASSED AND CLASS MAINTAINED.

INSURANCE | 37
Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division, Lucio Fernandez, made a categorical admission that at the time
of the procurement of the insurance contract in July 1993, TRANS-ASIA’s vessel, "M/V Asia Korea" was properly classed by Bureau Veritas, thus:

Q Kindly examine the records particularly the policy, please tell us if you know whether M/V Asia Korea was classed at the time (sic) policy was procured
perthe (sic) insurance was procured that Exhibit "1" on 1st July 1993 (sic).

WITNESS

A I recall that they were classed.

ATTY. LIM

Q With what classification society?

A I believe with Bureau Veritas.24

As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification society recognized in the marine industry. As it is
undisputed that TRANS-ASIA was properly classed at the time the contract of insurance was entered into, thus, it becomes incumbent upon PRUDENTIAL
to show evidence that the status of TRANS-ASIA as being properly CLASSED by Bureau Veritas had shifted in violation of the warranty. Unfortunately,
PRUDENTIAL failed to support the allegation.

We are in accord with the ruling of the Court of Appeals that the lack of a certification in PRUDENTIAL’s records to the effect that TRANS-ASIA’s "M/V Asia
Korea" was CLASSED AND CLASS MAINTAINED at the time of the occurrence of the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact
breached the warranty contained in the policy. With more reason must we sustain the findings of the Court of Appeals on the ground that as admitted by
PRUDENTIAL, it was likewise the responsibility of the average adjuster, Richards Hogg International (Phils.), Inc., to secure a copy of such certification,
and the alleged breach of TRANS-ASIA cannot be gleaned from the average adjuster’s survey report, or adjustment of particular average per "M/V Asia
Korea" of the 25 October 1993 fire on board.

We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that, "the violation of a material warranty, or other material
provision of a policy on the part of either party thereto, entitles the other to rescind." It is generally accepted that "[a] warranty is a statement or promise
set forth in the policy, or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether the
insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer." 25However, it is similarly indubitable that for
the breach of a warranty to avoid a policy, the same must be duly shown by the party alleging the same. We cannot sustain an allegation that is unfounded.
Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CLASSED AND CLASS MAINTAINED, it remains that
TRANS-ASIA must be allowed to recover its rightful claims on the policy.

B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a
valid waiver of the same.

The Court of Appeals, in reversing the Judgment of the RTC which held that TRANS-ASIA breached the warranty provision on CLASSED AND CLASS
MAINTAINED, underscored that PRUDENTIAL can be deemed to have made a valid waiver of TRANS-ASIA’s breach of warranty as alleged, ratiocinating,
thus:

Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2) consecutive years, from noon of 01 July 1994 to noon of 01 July
1995, and then again until noon of 01 July 1996. This renewal is deemed a waiver of any breach of warranty. 26

PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal policies are deemed a waiver of TRANS-ASIA’s alleged breach,
averring herein that the subsequent policies, designated as MH94/1595 and MH95/1788 show that they were issued only on 1 July 1994 and 3 July 1995,
respectively, prior to the time it made a request to TRANS-ASIA that it be furnished a copy of the certification specifying that the insured vessel "M/V Asia
Korea" was CLASSED AND CLASS MAINTAINED. PRUDENTIAL posits that it came to know of the breach by TRANS-ASIA of the subject warranty clause
only on 21 April 1997. On even date, PRUDENTIAL sent TRANS-ASIA a letter of denial, advising the latter that their claim is not compensable. In fine,
PRUDENTIAL would have this Court believe that the issuance of the renewal policies cannot be a waiver because they were issue d without knowledge of
the alleged breach of warranty committed by TRANS-ASIA.27

We are not impressed. We do not find that the Court of Appeals was in error when it held that PRUDENTIAL, in renewing TRANS -ASIA’s insurance policy
for two consecutive years after the loss covered by Policy No. MH93/1363, was considered to have waived TRANS-ASIA’s breach of the subject warranty,
if any. Breach of a warranty or of a condition renders the contract defeasible at the option of the insurer; but if he so elects, he may waive his privilege
and power to rescind by the mere expression of an intention so to do. In that event his liability under the policy continues as before.28 There can be no
clearer intention of the waiver of the alleged breach than the renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in MH94/1595 and
MH95/1788, issued in the years 1994 and 1995, respectively.

To our mind, the argument is made even more credulous by PRUDENTIAL’s lack of proof to support its allegation that the renewals of the pol icies were
taken only after a request was made to TRANS-ASIA to furnish them a copy of the certificate attesting that "M/V Asia Korea" was CLASSED AND CLASS
MAINTAINED. Notwithstanding PRUDENTIAL’s claim that no certification was issued to that effect, it renewed the policy, thereby, evidencing an intention
to waive TRANS-ASIA’s alleged breach. Clearly, by granting the renewal policies twice and successively after the loss, the intent was to benefit the insured,
TRANS-ASIA, as well as to waive compliance of the warranty.

The foregoing finding renders a determination of whether the subject warranty is a rider, moot, as raised by the PRUDENTIAL in its assignment of errors.
Whether it is a rider will not effectively alter the result for the reasons that: (1) PRUDENTIAL was not able to discharge th e burden of evidence to show
that TRANS-ASIA committed a breach, thereof; and (2) assuming arguendo the commission of a breach by TRANS-ASIA, the same was shown to have
been waived by PRUDENTIAL.

INSURANCE | 38
II.

A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS- ASIA via a transaction between the parties evidenced by a document denominated
as "Loan and Trust Receipt," dated 29 May 1995 constituted partial payment on the policy.

It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,000.00. The same was evidenced by a transaction receipt denominated
as a "Loan and Trust Receipt," dated 29 May 1995, reproduced hereunder:

LOAN AND TRUST RECEIPT

Claim File No. MH-93-025 May 29, 1995

P3,000,000.00
Check No. PCIB066755

Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan without interest,
under Policy No. MH93/1353, repayable only in the event and to the extent that any net recovery is made by TRANS ASIA SHIPPING CORP., from any
person or persons, corporation or corporations, or other parties, on account of loss by any casualty for which they may be liable, occasioned by the 25
October 1993: Fire on Board.

As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND ASSURANCE INC. whatever recovery we may make and deliver to it
all documents necessary to prove our interest in said property. We also hereby agree to promptly prosecute suit against such persons, corporation or
corporations through whose negligence the aforesaid loss was caused or who may otherwise be responsible theref ore, with all due diligence, in our own
name, but at the expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE INC.

TRANS-ASIA SHIPPING CORPORATION29

PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the parties evidenced a loan of P3,000,000.00 which it granted to TRANS-
ASIA, and not an advance payment on the policy or a partial payment for the loss. It further submits that it is a customary practice for insurance companies
in this country to extend loans gratuitously as part of good business dealing with their assured, in order to afford their assured the chance to continue
business without embarrassment while awaiting outcome of the settlement of their claims. 30 According to PRUDENTIAL, the "Trust and Loan Agreement"
did not subrogate to it whatever rights and/or actions TRANS-ASIA may have against third persons, and it cannot by no means be taken that by virtue
thereof, PRUDENTIAL was granted irrevocable power of attorney by TRANS-ASIA, as the sole power to prosecute lies solely with the latter.

The Court of Appeals held that the real character of the transaction between the parties as evidenced by the "Loan and Trust Receipt" is that of an advance
payment by PRUDENTIAL of TRANS-ASIA’s claim on the insurance, thus:

The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insurance Law Act No. 2427 of the Philippine Legislature during the
American Regime. The Insurance Act was lifted verbatim from the law of California, except Chapter V thereof, which was taken largely from the insurance
law of New York. Therefore, ruling case law in that jurisdiction is to Us persuasive in interpreting provisions of our own In surance Code. In addition, the
application of the adopted statute should correspond in fundamental points with the application in its country of origin x x x.

xxxx

Likewise, it is settled in that jurisdiction that the (sic) notwithstanding recitals in the Loan Receipt that the money was intended as a loan does not detract
from its real character as payment of claim, thus:

"The receipt of money by the insured employers from a surety company for losses on account of forgery of drafts by an employe e where no provision or
repayment of the money was made except upon condition that it be recovered from other parties and neither interest nor security for the asserted debts
was provided for, the money constituted the payment of a liability and not a mere loan, notwithstanding recitals in the written receipt that the money
was intended as a mere loan."

What is clear from the wordings of the so-called "Loan and Trust Receipt Agreement" is that appellant is obligated to hand over to appellee "whatever
recovery (Trans Asia) may make and deliver to (Prudential) all documents necessary to prove its interest in the said property." For all intents and purposes
therefore, the money receipted is payment under the policy, with Prudential having the right of subrogation to whatever net r ecovery Trans-Asia may
obtain from third parties resulting from the fire. In the law on insurance, subrogation is an equitable assignment to the insurer of all remedies which the
insured may have against third person whose negligence or wrongful act caused the loss covered by the insurance policy, which is created as the legal
effect of payment by the insurer as an assignee in equity. The loss in the first instance is that of the insured but after reimbursement or compensation, it
becomes the loss of the insurer. It has been referred to as the doctrine of substitution and rests on the principle that substantial justice should be attained
regardless of form, that is, its basis is the doing of complete, essential, and perfect justice between all the parties without regard to form.31

We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Receipt" evidences that the real nature of the transaction between the parties
was that the amount of P3,000,000.00 was not intended as a loan whereby TRANS-ASIA is obligated to pay PRUDENTIAL, but rather, the same was a
partial payment or an advance on the policy of the claims due to TRANS-ASIA.

First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by PRUDENTIAL, subrogating the former to the extent of "any net
recovery made by TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporations, or other parties, on account of loss by any
casualty for which they may be liable, occasioned by the 25 October 1993: Fire on Board." 32

Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to "promptly prosecute suit against such persons, corporation or
corporations through whose negligence the aforesaid loss was caused or who may otherwise be responsible therefore, with all due diligence" in its name,
the prosecution of the claims against such third persons are to be carried on "at the expense of and under the exclusive direction and control of PRUDENTIAL
GUARANTEE AND ASSURANCE INC."33 The clear import of the phrase "at the expense of and under the exclusive direction and control" as used in the
INSURANCE | 39
"Loan and Trust Receipt" grants solely to PRUDENTIAL the power to prosecute, even as the same is carried in the name of TRANS-ASIA, thereby making
TRANS-ASIA merely an agent of PRUDENTIAL, the principal, in the prosecution of the suit against parties who may have occasioned the loss.

Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay PRUDENTIAL is highly speculative and contingent, i.e., only in the
event and to the extent that any net recovery is made by TRANS-ASIA from any person on account of loss occasioned by the fire of 25 October 1993. The
transaction, therefore, was made to benefit TRANS-ASIA, such that, if no recovery from third parties is made, PRUDENTIAL cannot be repaid the amount.
Verily, we do not think that this is constitutive of a loan. 34 The liberality in the tenor of the "Loan and Trust Receipt" in favor of TRANS-ASIA leads to the
conclusion that the amount of P3,000,000.00 was a form of an advance payment on TRANS-ASIA’s claim on MH93/1353.

III.

A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss suffered by TRANS-ASIA and covered
by Marine Policy No. MH93/1363.

Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid claims covered by Marine Policy No. MH93/1363, or a total
amount of P8,395,072.26.

B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of attorney’s fees equivalent to 10% of P8,395,072.26.

The Court of Appeals denied the grant of attorney’s fees. It held that attorney’s fees cannot be awarded absent a showing of bad faith on the part of
PRUDENTIAL in rejecting TRANS-ASIA’s claim, notwithstanding that the rejection was erroneous. According to the Court of Appeals, attorney’s fees can
be awarded only in the cases enumerated in Article 2208 of the Civil Code which finds no application in the instant case.

We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorney’s fees and other expenses incurred by the insured after a finding by
the Insurance Commissioner or the Court, as the case may be, of an unreasonable denial or withholding of the payment of the claims due. Moreover, the
law imposes an interest of twice the ceiling prescribed by the Monetary Board on the amount of the claim due the insured from the date following the
time prescribed in Section 24235 or in Section 243,36 as the case may be, until the claim is fully satisfied. Finally, Section 244 considers the failure to pay
the claims within the time prescribed in Sections 242 or 243, when applicable, as prima facie evidence of unreasonable delay in payment.

To the mind of this Court, Section 244 does not require a showing of bad faith in order that attorney’s fees be granted. As earlier stated, under Section
244, a prima facie evidence of unreasonable delay in payment of the claim is created by failure of the insurer to pay the cla im within the time fixed in
both Sections 242 and 243 of the Insurance Code. As established in Section 244, by reason of the delay and the consequent fil ing of the suit by the
insured, the insurers shall be adjudged to pay damages which shall consist of attorney’s fees and other expenses incurred by the insured.37

Section 244 reads:

In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as the case may
be, to make a finding as to whether the payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the
insurance company shall be adjudged to pay damages which shall consist of attorney’s fees and other expenses incurred by the insured person by reason
of such unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due
the insured, from the date following the time prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may be, until
the claim is fully satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections shall be considered prima facie
evidence of unreasonable delay in payment.

Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay or refusal in the payment of the insurance claims.

In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show that there was an unreasonable delay by PRUDENTIAL
in the payment of the unpaid balance of P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day after the occurrence of the fire in "M/V Asia Korea",
TRANS-ASIA filed its notice of claim. On 13 August 1996, the adjuster, Richards Hogg International (Phils.), Inc., completed its survey report
recommending the amount of P11,395,072.26 as the total indemnity due to TRANS-ASIA.38 On 21 April 1997, PRUDENTIAL, in a letter 39 addressed to
TRANS-ASIA denied the latter’s claim for the amount of P8,395,072.26 representing the balance of the total indemnity. On 21 July 1997, P RUDENTIAL
sent a second letter40 to TRANS-ASIA seeking a return of the amount of P3,000,000.00. On 13 August 1997, TRANS-ASIA was constrained to file a
complaint for sum of money against PRUDENTIAL praying, inter alia, for the sum of P8,395,072.26 representing the balance of the proceeds of the
insurance claim.

As can be gleaned from the foregoing, there was an unreasonable delay on the part of PRUDENTIAL to pay TRANS-ASIA, as in fact, it refuted the latter’s
right to the insurance claims, from the time proof of loss was shown and the ascertainment of the loss was made by the insurance adjuster. Evidently,
PRUDENTIAL’s unreasonable delay in satisfying TRANS-ASIA’s unpaid claims compelled the latter to file a suit for collection.

Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of the policy as attorney’s fees to TRANS-ASIA is reasonable under the
circumstances, or otherwise stated, ten percent (10%) of P8,395,072.26. In the case of Cathay Insurance, Co., Inc. v. Court of Appeals,41 where a finding
of an unreasonable delay under Section 244 of the Insurance Code was made by this Court, we grant an award of attorney’s fees equivalent to ten percent
(10%) of the total proceeds. We find no reason to deviate from this judicial precedent in the case at bar.

C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s fees) shall be imposed double interest in accordance with Section 244
of the Insurance Code.

Section 244 of the Insurance Code is categorical in imposing an interest twice the ceiling prescribed by the Monetary Board due the insured, from the
date following the time prescribed in Section 242 or in Section 243, as the case may be, until the claim is fully satisfied. In the case at bar, we find Section
243 to be applicable as what is involved herein is a marine insurance, clearly, a policy other than life insurance.

Section 243 is hereunder reproduced:

INSURANCE | 40
SEC. 243. The amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, shall be paid within
thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreemen t between the insured and
the insurer or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the insurer of the proof of loss, then the
loss or damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will
entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary
Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent.

As specified, the assured is entitled to interest on the proceeds for the duration of the delay at the rate of twice the ceil ing prescribed by the Monetary
Board except when the failure or refusal of the insurer to pay was founded on the ground that the claim is fraudulent.

D. The term "double interest" as used in the Decision of the Court of Appeals must be interpreted to mean 24% per annum.

PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in favor of TRANS-ASIA in the assailed Decision of 6 November 2001. It is
PRUDENTIAL’s stance that the award is extortionate and grossly unsconscionable. In support thereto, PRUDENTIAL makes a refere nce to TRANS-ASIA’s
prayer in the Complaint filed with the court a quo wherein the latter sought, "interest double the prevailing rate of interest of 21% per annum now
obtaining in the banking business or plus 42% per annum pursuant to Article 243 of the Insurance Code x x x." 42

The contention fails to persuade. It is settled that an award of double interest is lawful and justified under Sections 243 and 244 of the Insurance Code.43 In
Finman General Assurance Corporation v. Court of Appeals, 44 this Court held that the payment of 24% interest per annum is authorized by the Insurance
Code.45 There is no gainsaying that the term "double interest" as used in Sections 243 and 244 can only be interpreted to mean twice 12% per annum or
24% per annum interest, thus:

The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of twelve per centum per annum (12%) as prescribed by the Monetary
Board in C.B. Circular No. 416, pursuant to P.D. No. 116, amending the Usury Law; so that when Sections 242, 243 and 244 of the Insurance Code
provide that the insurer shall be liable to pay interest "twice the ceiling prescribed by the Monetary Board", it means twice 12% per annum or 24% per
annum interest on the proceeds of the insurance. 46

E. The payment of double interest should be counted from 13 September 1996.

The Court of Appeals, in imposing double interest for the duration of the delay of the payment of the unpaid balance due TRANS -ASIA, computed the
same from 13 August 1996 until such time when the amount is fully paid. Although not raised by the parties, we find the computation of the duration of
the delay made by the appellate court to be patently erroneous.

To be sure, Section 243 imposes interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the
Monetary Board. Significantly, Section 243 mandates the payment of any loss or damage for which an insurer may be liable, under any policy other than
life insurance policy, within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement
between the insured and the insurer or by arbitration. It is clear that under Section 243, the insurer has until the 30th day after proof of loss and
ascertainment of the loss or damage to pay its liability under the insurance, and only after such time can the insurer be held to be in delay, thereby
necessitating the imposition of double interest.

In the case at bar, it was not disputed that the survey report on the ascertainment of the loss was completed by the adjuster, Richard Hoggs International
(Phils.), Inc. on 13 August 1996. PRUDENTIAL had thirty days from 13 August 1996 within which to pay its liability to TRANS-ASIA under the insurance
policy, or until 13 September 1996. Therefore, the double interest can begin to run from 13 September 1996 only.

IV.

A. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged in section III herein, compute d from the time of finality
of judgment until the full satisfaction thereof in conformity with this Court’s ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.

This Court in Eastern Shipping Lines, Inc. v. Court of Appeals, 47 inscribed the rule of thumb48 in the application of interest to be imposed on obligations,
regardless of their source. Eastern emphasized beyond cavil that when the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, regardless of whether the obligation involves a loan or forbearance of money, shall be 12% per an num from such finality until
its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance 49 of credit.

We find application of the rule in the case at bar proper, thus, a rate of 12% per annum from the finality of judgment until the full satisfaction thereof
must be imposed on the total amount of liability adjudged to PRUDENTIAL. It is clear that the interim period from the finalit y of judgment until the
satisfaction of the same is deemed equivalent to a forbearance of credit, hence, the imposition of the aforesaid interest.

Fallo

WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G.R. No. 151991 is GRANTED, thus, we award the grant of attorney’s
fees and make a clarification that the term "double interest" as used in the 6 November 2001 Decision of the Court of Appeals in CA GR CV No. 68278
should be construed to mean interest at the rate of 24% per annum, with a further clarification, that the same should be comp uted from 13 September
1996 until fully paid. The Decision and Resolution of the Court of Appeals, in CA-G.R. CV No. 68278, dated 6 November 2001 and 29 January 2002,
respectively, are, thus, MODIFIED in the following manner, to wit:

1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss suffered by TRANS-ASIA
and covered by Marine Policy No. MH93/1363;

2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the form of attorney’s fees equivalent to 10% of the amount of
P8,395,072.26;

INSURANCE | 41
 3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s fees) shall be imposed double interest at the rate of 24% per annum
to be computed from 13 September 1996 until fully paid; and

4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged as abovestated in paragraphs (1), (2), and (3)
herein, computed from the time of finality of judgment until the full satisfaction thereof.

No costs.

SO ORDERED.

FIRST DIVISION

G.R. No. L-66935 November 11, 1985

ISABELA ROQUE, doing busines under the name and style of Isabela Roque Timber Enterprises and ONG CHIONG, petitioners,
vs.
HON. INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND SURETY CORPORATION, respondent.

GUTIERREZ, JR., J.:

This petition for certiorari asks for the review of the decision of the Intermediate Appellate Court which absolved the respondent insurance company from
liability on the grounds that the vessel carrying the insured cargo was unseaworthy and the loss of said cargo was caused not by the perils of the sea but
by the perils of the ship.

On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a common carrier, entered into a contract with the petitioners whereby the
former would load and carry on board its barge Mable 10 about 422.18 cubic meters of logs from Malampaya Sound, Palawan to North Harbor, Manila.
The petitioners insured the logs against loss for P100,000.00 with respondent Pioneer Insurance and Surety Corporation (Pioneer).

On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at Malampaya Sound, Palawan for carriage and de livery to North Harbor,
Port of Manila, but the shipment never reached its destination because Mable 10 sank with the 811 pieces of logs somewhere off Cabuli Point in Palawan
on its way to Manila. As alleged by the petitioners in their complaint and as found by both the trial and appellate courts, the barge where the logs were
loaded was not seaworthy such that it developed a leak. The appellate court further found that one of the hatches was left open causing water to enter
the barge and because the barge was not provided with the necessary cover or tarpaulin, the ordinary splash of sea waves brought more water inside the
barge.

On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment of P150,000.00 for the loss of the shipment plus P100,000.00 as
unrealized profits but the latter ignored the demand. Another letter was sent to respondent Pioneer claiming the full amount of P100,000.00 under the
insurance policy but respondent refused to pay on the ground that its hability depended upon the "Total loss by Total Loss of Vessel only". Hence,
petitioners commenced Civil Case No. 86599 against Manila Bay and respondent Pioneer.

After hearing, the trial court found in favor of the petitioners. The dispositive portion of the decision reads:

FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows:

(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer Insurance and Surety Corporation to pay plaintiffs, jointly
and severally, the sum of P100,000.00;

(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, in addition, the sum of P50,000.00, plus P12,500.00,
that the latter advanced to the former as down payment for transporting the logs in question;

INSURANCE | 42
 (c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed, for lack of merit, but as to its cross-claim against
its co-defendant Manila Bay Lighterage Corporation, the latter is ordered to reimburse the former for whatever amount it may pay
the plaintiffs as such surety;

(d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed for lack of merit;

(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary damages are ordered dismissed, for lack of merits;
plaintiffs' claim for attorney's fees in the sum of P10,000.00 is hereby granted, against both defendants, who are, moreover ordered
to pay the costs; and

(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent (6%) from March 25, 1975, until amount is fully
paid.

Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did not appeal. According to the petitioners, the transportation company is
no longer doing business and is without funds.

During the initial stages of the hearing, Manila Bay informed the trial court that it had salvaged part of the logs. The court ordered them to be sold to the
highest bidder with the funds to be deposited in a bank in the name of Civil Case No. 86599.

On January 30, 1984, the appellate court modified the trial court's decision and absolved Pioneer from liability after finding that there was a breach of
implied warranty of seaworthiness on the part of the petitioners and that the loss of the insured cargo was caused by the "perils of the ship" and not by
the "perils of the sea". It ruled that the loss is not covered by the marine insurance policy.

After the appellate court denied their motion for reconsideration, the petitioners filed this petition with the following assignments of errors:

I
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT IN CASES OF MARINE CARGO INSURANCE, THERE IS A WARRANTY OF
SEAWORTHINESS BY THE CARGO OWNER.

II
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE LOSS OF THE CARGO IN THIS CASE WAS CAUSED BY "PERILS OF THE
SHIP" AND NOT BY "PERILS OF THE SEA."

III
THE INTERMEDIATE APPELLATE COURT ERRED IN NOT ORDERING THE RETURN TO PETITIONER OF THE AMOUNT OF P8,000.00 WHICH WAS
DEPOSITED IN THE TRIAL COURT AS SALVAGE VALUE OF THE LOGS THAT WERE RECOVERED.

In their first assignment of error, the petitioners contend that the implied warranty of seaworthiness provided for in the Insurance Code refers only to the
responsibility of the shipowner who must see to it that his ship is reasonably fit to make in safety the contemplated voyage.

The petitioners state that a mere shipper of cargo, having no control over the ship, has nothing to do with its seaworthiness. They argue that a cargo
owner has no control over the structure of the ship, its cables, anchors, fuel and provisions, the manner of loading his carg o and the cargo of other
shippers, and the hiring of a sufficient number of competent officers and seamen. The petitioners' arguments have no merit.

There is no dispute over the liability of the common carrier Manila Bay. In fact, it did not bother to appeal the questioned decision. However, the petitioners
state that Manila Bay has ceased operating as a firm and nothing may be recovered from it. They are, therefore, trying to recover their losses from the
insurer.

The liability of the insurance company is governed by law. Section 113 of the Insurance Code provides:

In every marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject of marine insurance, a warranty
is implied that the ship is seaworthy.

Section 99 of the same Code also provides in part.

Marine insurance includes:

(1) Insurance against loss of or damage to:

(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...

From the above-quoted provisions, there can be no mistaking the fact that the term "cargo" can be the subject of marine insurance and that once it is so
made, the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo whether he be the shipowner or not.

As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40 Phil. 40):

The same conclusion must be reached if the question be discussed with reference to the seaworthiness of the ship. It is universally
accepted that in every contract of insurance upon anything which is the subject of marine insurance, a warranty is implied that the
ship shall be seaworthy at the time of the inception of the voyage. This rule is accepted in our own Insurance Law (Act No. 2427, sec.
106). ...

INSURANCE | 43
Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is immaterial in ordinary marine insurance and may not be used by
him as a defense in order to recover on the marine insurance policy.

As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406):

There was no look-out, and both that and the rate of speed were contrary to the Canadian Statute. The exception of losses occasioned
by unseaworthiness was in effect a warranty that a loss should not be so occasioned, and whether the fact of unseaworthiness were
known or unknown would be immaterial.

Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine insurance, it becomes the obligation of a cargo owner
to look for a reliable common carrier which keeps its vessels in seaworthy condition. The shipper of cargo may have no control over the vessel but he has
full control in the choice of the common carrier that will transport his goods. Or the cargo owner may enter into a contract of insurance which specifically
provides that the insurer answers not only for the perils of the sea but also provides for coverage of perils of the ship.

We are constrained to apply Section 113 of the Insurance Code to the facts of this case. As stated by the private respondents:

In marine cases, the risks insured against are "perils of the sea" (Chute v. North River Ins. Co., Minn—214 NW 472, 55 ALR 933).
The purpose of such insurance is protection against contingencies and against possible damages and such a policy does not cover a
loss or injury which must inevitably take place in the ordinary course of things. There is no doubt that the term 'perils of the sea'
extends only to losses caused by sea damage, or by the violence of the elements, and does not embrace all losses happening at sea.
They insure against losses from extraordinary occurrences only, such as stress of weather, winds and waves, lightning, tempests,
rocks and the like. These are understood to be the "perils of the sea" referred in the policy, and not those ordinary perils which every
vessel must encounter. "Perils of the sea" has been said to include only such losses as are of extraordinary nature, or arise from some
overwhelming power, which cannot be guarded against by the ordinary exertion of human skill and prudence. Damage done to a
vessel by perils of the sea includes every species of damages done to a vessel at sea, as distinguished from the ordinary wear and
tear of the voyage, and distinct from injuries suffered by the vessel in consequence of her not being seaworthy at the outset of her
voyage (as in this case). It is also the general rule that everything which happens thru the inherent vice of the thing, or by the act of
the owners, master or shipper, shall not be reputed a peril, if not otherwise borne in the policy. (14 RCL on Insurance, Sec. 384, pp.
1203- 1204; Cia. de Navegacion v. Firemen's Fund Ins. Co., 277 US 66, 72 L. ed. 787, 48 S. Ct. 459).

With regard to the second assignment of error, petitioners maintain, that the loss of the cargo was caused by the perils of the sea, not by the perils of
the ship because as found by the trial court, the barge was turned loose from the tugboat east of Cabuli Point "where it was buffeted by storm and waves."
Moreover, petitioners also maintain that barratry, against which the cargo was also insured, existed when the personnel of the tugboat and the barge
committed a mistake by turning loose the barge from the tugboat east of Cabuli Point. The trial court also found that the stranding and foundering of
Mable 10 was due to improper loading of the logs as well as to a leak in the barge which constituted negligence.

On the contention of the petitioners that the trial court found that the loss was occasioned by the perils of the sea characterized by the "storm and waves"
which buffeted the vessel, the records show that the court ruled otherwise. It stated:

xxx xxx xxx

... The other affirmative defense of defendant Lighterage, 'That the supposed loss of the logs was occasioned by force majeur e...
"was not supported by the evidence. At the time Mable 10 sank, there was no typhoon but ordinary strong wind and waves, a condition
which is natural and normal in the open sea. The evidence shows that the sinking of Mable 10 was due to improper loading of the
logs on one side so that the barge was tilting on one side and for that it did not navigate on even keel; that it was no longer seaworthy
that was why it developed leak; that the personnel of the tugboat and the barge committed a mistake when it turned loose the barge
from the tugboat east of Cabuli point where it was buffeted by storm and waves, while the tugboat proceeded to west of Cabuli point
where it was protected by the mountain side from the storm and waves coming from the east direction. ..."

In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of defendant carrier developed a leak which allowed water to come in and that
one of the hatches of said barge was negligently left open by the person in charge thereof causing more water to come in and that "the loss of said
plaintiffs' cargo was due to the fault, negligence, and/or lack of skill of defendant carrier and/or defendant carrier's representatives on barge Mable 10."

It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the perils of the sea. The facts clearly negate the petitioners'
claim under the insurance policy. In the case of Go Tiaoco y Hermanos v. Union Ins. Society of Canton, supra, we had occasion to elaborate on the term
"perils of the ship." We ruled:

It must be considered to be settled, furthermore, that a loss which, in the ordinary course of events, results from the natural and
inevitable action of the sea, from the ordinary wear and tear of the ship, or from the negligent failure of the ship's owner to provide
the vessel with proper equipment to convey the cargo under ordinary conditions, is not a peril of the sea. Such a loss is rather due
to what has been aptly called the "peril of the ship." The insurer undertakes to insure against perils of the sea and similar perils, not
against perils of the ship. As was well said by Lord Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887], 12 A.
C., 503, 509), there must, in order to make the insurer liable, be some casualty, something which could not be foreseen as one of
the necessary incidents of the adventure. The purpose of the policy is to secure an indemnity against accidents which may happen,
not against events which must happen.

In the present case the entrance of the sea water into the ship's hold through the defective pipe already described was not due to
any accident which happened during the voyage, but to the failure of the ship's owner properly to repair a defect of the existence of
which he was apprised. The loss was therefore more analogous to that which directly results from simple unseaworthiness than to
that which result from the perils of the sea.

xxx xxx xxx

INSURANCE | 44
 Suffice it to say that upon the authority of those cases there is no room to doubt the liability of the shipowner for such a loss as
occurred in this case. By parity of reasoning the insurer is not liable; for generally speaking, the shipowner excepts the perils of the
sea from his engagement under the bill of lading, while this is the very perils against which the insurer intends to give protection. As
applied to the present case it results that the owners of the damaged rice must look to the shipowner for redress and not to the
insurer.

Neither can petitioners allege barratry on the basis of the findings showing negligence on the part of the vessel's crew.

Barratry as defined in American Insurance Law is "any willful misconduct on the part of master or crew in pursuance of some unlawful or fraudulent
purpose without the consent of the owners, and to the prejudice of the owner's interest." (Sec. 171, U.S. Insurance Law, quoted in Vance, Handbook on
Law of Insurance, 1951, p. 929.)

Barratry necessarily requires a willful and intentional act in its commission. No honest error of judgment or mere negligence, unless criminally gross, can
be barratry. (See Vance on Law of Insurance, p. 929 and cases cited therein.)

In the case at bar, there is no finding that the loss was occasioned by the willful or fraudulent acts of the vessel's crew. There was only simple negligence
or lack of skill. Hence, the second assignment of error must likewise be dismissed.

Anent the third assignment of error, we agree with the petitioners that the amount of P8,000.00 representing the amount of th e salvaged logs should
have been awarded to them. However, this should be deducted from the amounts which have been adjudicated against Manila Bay Lighterage Corporation
by the trial court.

WHEREFORE, the decision appealed from is AFFIRMED with the modification that the amount of P8,000.00 representing the value o f the salvaged logs
which was ordered to be deposited in the Manila Banking Corporation in the name of Civil Case No. 86599 is hereby awarded and ordered paid to the
petitioners. The liability adjudged against Manila Bay Lighterage Corporation in the decision of the trial court is accordingly reduced by the same amount.

SO ORDERED.

FIRST DIVISION

[G.R. No. 130421. June 28, 1999]

AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. ANTONIO CHUA, respondent.

DECISION
DAVIDE, JR. C.J.:

INSURANCE | 45
 In this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, petitioner seeks the reversal of the decision [1] of the
Court of Appeals in CA-G.R. CV No. 40751, which affirmed in toto the decision of the Regional Trial Court, Makati City, Branch 150 (hereafter trial court),
in Civil Case No. 91-1009.

Petitioner is a domestic corporation engaged in the insurance business. Sometime in 1990, respondent obtained from petitioner a fire insurance
covering the stock-in-trade of his business, Moonlight Enterprises, located at Valencia, Bukidnon. The insurance was due to expire on 25 March 1990.

On 5 April 1990 respondent issued PCIBank Check No. 352123 in the amount of P2,983.50 to petitioners agent, James Uy, as payment for the
renewal of the policy. In turn, the latter delivered Renewal Certificate No. 00099047 to respondent. The check was drawn against a Manila bank and
deposited in petitioners bank account in Cagayan de Oro City. The corresponding official receipt was issued on 10 April. Subsequently, a new insurance
policy, Policy No. 206-4234498-7, was issued, whereby petitioner undertook to indemnify respondent for any damage or loss arising from fire up
to P200,000 for the period 25 March 1990 to 25 March 1991.

On 6 April 1990 Moonlight Enterprises was completely razed by fire. Total loss was estimated between P4,000,000 and P5,000,000. Respondent
filed an insurance claim with petitioner and four other co-insurers, namely, Pioneer Insurance and Surety Corporation, Prudential Guarantee and
Assurance, Inc., Filipino Merchants Insurance Co. and Domestic Insurance Company of the Philippines. Petitioner refused to honor the claim
notwithstanding several demands by respondent, thus, the latter filed an action against petitioner before the trial court.

In its defense, petitioner claimed there was no existing insurance contract when the fire occurred since respondent did not pay the premium. It also
alleged that even assuming there was a contract, respondent violated several conditions of the policy, particularly: (1) his submission of fraudulent income
tax return and financial statements; (2) his failure to establish the actual loss, which petitioner assessed at P70,000; and (3) his failure to notify to
petitioner of any insurance already effected to cover the insured goods. These violations, petitioner insisted, justified the denial of the claim.

The trial court ruled in favor of respondent. It found that respondent paid by way of check a day before the fire occurred. The check, which was
deposited in petitioners bank account, was even acknowledged in the renewal certificate issued by petitioners agent. It declared that the alleged fraudulent
documents were limited to the disparity between the official receipts issued by the Bureau of Internal Revenue (BIR) and the income tax returns for the
years 1987 to 1989. All the other documents were found to be genuine. Nonetheless, it gave credence to the BIR certification that respondent paid the
corresponding taxes due for the questioned years.

As to respondents failure to notify petitioner of the other insurance contracts covering the same goods, the trial court held that petitioner failed to
show that such omission was intentional and fraudulent.Finally, it noted that petitioners investigation of respondent's claim was done in collaboration with
the representatives of other insurance companies who found no irregularity therein. In fact, Pioneer Insurance and Surety Corporation and Prudential
Guarantee and Assurance, Inc. promptly paid the claims filed by respondent.

The trial court decreed as follows:

WHEREFORE, judgment is hereby rendered in favor of [respondent] and against the [petitioner] ordering the latter to pay the former the following:

1. P200,000.00, representing the amount of the insurance, plus legal interest from the date of filing of this case;
2. P200,000.00 as moral damages;
3. P200,000.00 as loss of profit;
4. P100,000.00 as exemplary damages;
5. P50,000.00 as attorneys fees; and
6. Cost of suit.

On appeal, the assailed decision was affirmed in toto by the Court of Appeals. The Court of Appeals found that respondents claim was substantially
proved and petitioners unjustified refusal to pay the claim entitled respondent to the award of damages.

Its motion for reconsideration of the judgment having been denied, petitioner filed the petition in this case. Petitioner reiterates its stand that there
was no existing insurance contract between the parties. It invokes Section 77 of the Insurance Code, which provides:

An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to
the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid,
except in the case of life or an industrial life policy whenever the grace period provision applies.

and cites the case of Arce v. Capital Insurance & Surety Co., Inc.,[2] where we ruled that unless and until the premium is paid there is no insurance.

Petitioner emphasizes that when the fire occurred on 6 April 1990 the insurance contract was not yet subsisting pursuant to Article 1249[3] of the
Civil Code, which recognizes that a check can only effect payment once it has been cashed. Although respondent testified that he gave the check on 5
April to a certain James Uy, the check, drawn against a Manila bank and deposited in a Cagayan de Oro City bank, could not have been cleared by 6 April,
the date of the fire. In fact, the official receipt issued for respondents check payment was dated 10 April 1990, four days after the fire occurred.

Citing jurisprudence,[4] petitioner also contends that respondents non-disclosure of the other insurance contracts rendered the policy void. It
underscores the trial courts neglect in considering the Commission on Audits certification that the BIR receipts submitted by respondent were, in effect,
fake since they were issued to other persons. Finally, petitioner argues that the award of damages was excessive and unreasonable considering that it
did not act in bad faith in denying respondents claim.

Respondent counters that the issue of non-payment of premium is a question of fact which can no longer be assailed. The trial courts finding on the
matter, which was affirmed by the Court of Appeals, is conclusive.

Respondent refutes the reason for petitioners denial of his claim. As found by the trial court, petitioners loss adjuster admitted prior knowledge of
respondents existing insurance contracts with the other insurance companies. Nonetheless, the loss adjuster recommended the denial of the claim, not
because of the said contracts, but because he was suspicious of the authenticity of certain documents which respondent submitted in filing his claim.

To bolster his argument, respondent cites Section 66 of the Insurance Code, [5] which requires the insurer to give a notice to the insured of its
intention to terminate the policy forty-five days before the policy period ends. In the instant case, petitioner opted not to terminate the policy. Instead, it
renewed the policy by sending its agent to respondent, who was issued a renewal certificate upon delivery of his check payment for the renewal of
premium. At this precise moment the contract of insurance was executed and already in effect. Respondent also claims that it is standard operating
procedure in the provinces to pay insurance premiums by check when collected by insurance agents.

On the issue of damages, respondent maintains that the amounts awarded were reasonable. He cites numerous trips he had to make from Cagayan
de Oro City to Manila to follow up his rightful claim. He imputes bad faith on petitioner who made enforcement of his claim difficult in the hope that he

INSURANCE | 46
would eventually abandon it. He further emphasizes that the adjusters of the other insurance companies recommended payment of his claim, and they
complied therewith.

In its reply, petitioner alleges that the petition questions the conclusions of law made by the trial court and the Court of Appeals.

Petitioner invokes respondents admission that his check for the renewal of the policy was received only on 10 Apr il 1990, taking into account that
the policy period was 25 March 1990 to 25 March 1991.The official receipt was dated 10 April 1990. Anent respondents testimony that the check was
given to petitioners agent, a certain James Uy, the latter points out that even respondent was not sure if Uy was indeed its agent. It faults respondent for
not producing Uy as his witness and not taking any receipt from him upon presentment of the check. Even assuming that the check was received a day
before the occurrence of the fire, there still could not have been any payment until the check was cleared.

Moreover, petitioner denies respondents allegation that it intended a renewal of the contract for the renewal certificate clearly specified the following
conditions:

Subject to the payment by the assured of the amount due prior to renewal date, the policy shall be renewed for the period stated.

Any payment tendered other than in cash is received subject to actual cash collection.

Subject to no loss prior to premium payment. If there be any loss, and is not covered [sic].

Petitioner asserts that an insurance contract can only be enforced upon the payment of the premium, which should have been ma de before the renewal
period.

Finally, in assailing the excessive damages awarded to respondent petitioner stresses that the policy in issue was limited to a liability of P200,000;
but the trial court granted the following monetary awards: P200,000 as actual damages; P200,000 as moral damages; P100,000 as exemplary damages;
and P50,000 as attorneys fees.

The following issues must be resolved: first, whether there was a valid payment of premium, considering that respondents check was cashed after
the occurrence of the fire; second, whether respondent violated the policy by his submission of fraudulent documents and non-disclosure of the other
existing insurance contracts; and finally, whether respondent is entitled to the award of damages.

The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and binding. The only exceptions are life and
industrial life insurance.[6] Whether payment was indeed made is a question of fact which is best determined by the trial court. The trial court found, as
affirmed by the Court of Appeals, that there was a valid check payment by respondent to petitioner. Well-settled is the rule that the factual findings and
conclusions of the trial court and the Court of Appeals are entitled to great weight and respect, and will not be disturbed on appeal in the absence of any
clear showing that the trial court overlooked certain facts or circumstances which would substantially affect the disposition of the case.[7] We see no reason
to depart from this ruling.

According to the trial court the renewal certificate issued to respondent contained the acknowledgment that premium had been paid. It is not
disputed that the check drawn by respondent in favor of petitioner and delivered to its agent was honored when presented and petitioner forthwith issued
its official receipt to respondent on 10 April 1990. Section 306 of the Insurance Code provides that any insurance company which delivers a policy or
contract of insurance to an insurance agent or insurance broker shall be deemed to have authorized such agent or broker to receive on its behalf payment
of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon. [8] In the instant
case, the best evidence of such authority is the fact that petitioner accepted the check and issued the official receipt for the payment. It is, as well, bound
by its agents acknowledgment of receipt of payment.

Section 78 of the Insurance Code explicitly provides:

An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy
binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid.

This Section establishes a legal fiction of payment and should be interpreted as an exception to Section 77.[9]

Is respondent guilty of the policy violations imputed against him? We are not convinced by petitioners arguments. The submission of the alleged
fraudulent documents pertained to respondents income tax returns for 1987 to 1989. Respondent, however, presented a BIR certification that he had
paid the proper taxes for the said years. The trial court and the Court of Appeals gave credence to the certification and it being a question of fact, we hold
that said finding is conclusive.

Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers, non-disclosure thereof is a violation that entitles
the insurer to avoid the policy. This condition is common in fire insurance policies and is known as the other insurance clause. The purpose for the inclusion
of this clause is to prevent an increase in the moral hazard. We have ruled on its validity and the case of Geagonia v. Court of Appeals[10] clearly illustrates
such principle. However, we see an exception in the instant case.

Citing Section 29[11] of the Insurance Code, the trial court reasoned that respondents failure to disclose was not intentional and fraudulent. The
application of Section 29 is misplaced. Section 29 concerns concealment which is intentional. The relevant provision is Section 75, which provides that:

A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the
policy.

To constitute a violation the other existing insurance contracts must be upon the same subject matter and with the same interest and risk.[12] Indeed,
respondent acquired several co-insurers and he failed to disclose this information to petitioner. Nonetheless, petitioner is estopped from invoking this
argument. The trial court cited the testimony of petitioners loss adjuster who admitted previous knowledge of the co-insurers. Thus,

COURT:

Q The matter of additional insurance of other companies, was that ever discussed in your investigation?

A Yes, sir.

Q In other words, from the start, you were aware the insured was insured with other companies like Pioneer and so on?

INSURANCE | 47
A Yes, Your Honor.

Q But in your report you never recommended the denial of the claim simply because of the non-disclosure of other insurance? [sic]

A Yes, Your Honor.

Q In other words, to be emphatic about this, the only reason you recommended the denial of the claim, you found three documents to be spurious. That
is your only basis?

A Yes, Your Honor.[13] [Emphasis supplied]

Indubitably, it cannot be said that petitioner was deceived by respondent by the latters non-disclosure of the other insurance contracts when
petitioner actually had prior knowledge thereof. Petitioners loss adjuster had known all along of the other existing insurance contracts, yet, he did not use
that as basis for his recommendation of denial. The loss adjuster, being an employee of petitioner, is deemed a representative of the latter whose
awareness of the other insurance contracts binds petitioner. We, therefore, hold that there was no violation of the other insurance clause by respondent.

Petitioner is liable to pay its share of the loss. The trial court and the Court of Appeals were correct in awarding P200,000 for this. There is, however,
merit in petitioners grievance against the damages and attorneys fees awarded.

There is no legal and factual basis for the award of P200,000 for loss of profit. It cannot be denied that the fire totally gutted respondents business;
thus, respondent no longer had any business to operate.His loss of profit cannot be shouldered by petitioner whose obligation is limited to the object of
insurance, which was the stock-in-trade, and not the expected loss in income or profit.

Neither can we approve the award of moral and exemplary damages. At the core of this case is petitioners alleged breach of its obligation under a
contract of insurance. Under Article 2220 of the Civil Code, moral damages may be awarded in breaches of contracts where the defendant acted
fraudulently or in bad faith. We find no such fraud or bad faith. It must again be stressed that moral damages are emphatically not intended to enrich a
plaintiff at the expense of the defendant. Such damages are awarded only to enable the injured party to obtain means, diversion or amusements that will
serve to obviate the moral suffering he has undergone, by reason of the defendants culpable action. Its award is aimed at the restoration, within the
limits of the possible, of the spiritual status quo ante, and it must be proportional to the suffering inflicted.[14] When awarded, moral damages must not
be palpably and scandalously excessive as to indicate that it was the result of passion, prejudice or corruption on the part of the trial court judge. [15]

The law[16] is likewise clear that in contracts and quasi-contracts the court may award exemplary damages if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.Nothing thereof can be attributed to petitioner which merely tried to resist what it claimed to be
an unfounded claim for enforcement of the fire insurance policy.

As to attorneys fees, the general rule is that attorneys fees cannot be recovered as part of damages because of the policy that no premium should
be placed on the right to litigate.[17] In short, the grant of attorneys fees as part of damages is the exception rather than the rule; counsels fees are not
awarded every time a party prevails in a suit. It can be awarded only in the cases enumerated in Article 2208 of the Civil Code, and in all cases it must
be reasonable.[18] Thereunder, the trial court may award attorneys fees where it deems just and equitable that it be so granted. While we respect the trial
courts exercise of its discretion in this case, the award of P50,000 is unreasonable and excessive. It should be reduced to P10,000.

WHEREFORE, the instant petition is partly GRANTED. The challenged decision of the Court of Appeals in CA-G.R. No. 40751 is hereby MODIFIED
by a) deleting the awards of P200,000 for loss of profit, P200,000 as moral damages and P100,000 as exemplary damages, and b) reducing the award of
attorneys fees from P50,000 to P10,000.

No pronouncement as to costs.

SO ORDERED.

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 THIRD DIVISION

G.R. No. 186983 February 22, 2012

MA. LOURDES S. FLORENDO, Petitioner, vs. PHILAM PLANS, INC., PERLA ABCEDE MA. CELESTE ABCEDE, Respondents.

DECISION
ABAD, J.:

This case is about an insured’s alleged concealment in his pension plan application of his true state of health and its effect on the life insurance portion
of that plan in case of death.

The Facts and the Case

On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with respondent Philam Plans, Inc. (Philam Plans) after some
convincing by respondent Perla Abcede. The plan had a pre-need price of ₱997,050.00, payable in 10 years, and had a maturity value of ₱2,890,000.00
after 20 years.1 Manuel signed the application and left to Perla the task of supplying the information needed in the application. 2 Respondent Ma. Celeste
Abcede, Perla’s daughter, signed the application as sales counselor.3

Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage to Florendo. 4This was covered by a Group Master
Policy that Philippine American Life Insurance Company (Philam Life) issued to Philam Plans. 5 Under the master policy, Philam Life was to automatically
provide life insurance coverage, including accidental death, to all who signed up for Philam Plans’ comprehensive pension plan.6 If the plan holder died
before the maturity of the plan, his beneficiary was to instead receive the proceeds of the life insurance, equivalent to the pre-need price. Further, the
life insurance was to take care of any unpaid premium until the pension plan matured, entitling the beneficiary to the maturity value of the pension plan. 7

On October 30, 1997 Philam Plans issued Pension Plan Agreement PP430055848 to Manuel, with petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary.
In time, Manuel paid his quarterly premiums.9

Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently, Lourdes filed a claim with Philam Plans for the payment
of the benefits under her husband’s plan.10 Because Manuel died before his pension plan matured and his wife was to get only the benefits of his life
insurance, Philam Plans forwarded her claim to Philam Life.11

On May 3, 1999 Philam Plans wrote Lourdes a letter, 12 declining her claim. Philam Life found that Manuel was on maintenance medicine for his heart and
had an implanted pacemaker. Further, he suffered from diabetes mellitus and was taking insulin. Lourdes renewed her demand for payment under the
plan13 but Philam Plans rejected it,14prompting her to file the present action against the pension plan company before the Regional Trial Court (RTC) of
Quezon City.15

On March 30, 2006 the RTC rendered judgment,16 ordering Philam Plans, Perla and Ma. Celeste, solidarily, to pay Lourdes all the benefits from her
husband’s pension plan, namely: ₱997,050.00, the proceeds of his term insurance, and ₱2,890,000.00 lump sum pension benefit upon maturity of his
plan; ₱100,000.00 as moral damages; and to pay the costs of the suit. The RTC ruled that Manuel was not guilty of concealing the state of his health
from his pension plan application.

On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision, 17 holding that insurance policies are traditionally contracts uberrimae fidae
or contracts of utmost good faith. As such, it required Manuel to disclose to Philam Plans conditions affecting the risk of which he was aware or material
facts that he knew or ought to know.18

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Issues Presented

The issues presented in this case are:

1. Whether or not the CA erred in finding Manuel guilty of concealing his illness when he kept blank and did not answer questions in his pension
plan application regarding the ailments he suffered from;

2. Whether or not the CA erred in holding that Manuel was bound by the failure of respondents Perla and Ma. Celeste to declar e the condition
of Manuel’s health in the pension plan application; and

3. Whether or not the CA erred in finding that Philam Plans’ approval of Manuel’s pension plan application and acceptance of his premium
payments precluded it from denying Lourdes’ claim.

Rulings of the Court

One. Lourdes points out that, seeing the unfilled spaces in Manuel’s pension plan application relating to his medical history, Philam Plans should have
returned it to him for completion. Since Philam Plans chose to approve the application just as it was, it cannot cry concealment on Manuel’s part. Further,
Lourdes adds that Philam Plans never queried Manuel directly regarding the state of his health. Consequently, it could not blame him for not mentioning
it.19

But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the true state of Manuel’s health. She forgets that since
Philam Plans waived medical examination for Manuel, it had to rely largely on his stating the truth regarding his health in his application. For, after all, he
knew more than anyone that he had been under treatment for heart condition and diabetes for more than five years preceding his submission of that
application. But he kept those crucial facts from Philam Plans.

Besides, when Manuel signed the pension plan application, he adopted as his own the written representations and declarations embodied in it. It is clear
from these representations that he concealed his chronic heart ailment and diabetes from Philam Plans. The pertinent portion of his representations and
declarations read as follows:

I hereby represent and declare to the best of my knowledge that:

xxxx
(c) I have never been treated for heart condition, high blood pressure, cancer, diabetes, lung, kidney or stomach disorder or any other physical
impairment in the last five years.
(d) I am in good health and physical condition.

If your answer to any of the statements above reveal otherwise, please give details in the space provided for:
Date of confinement : ____________________________
Name of Hospital or Clinic : ____________________________
Name of Attending Physician : ____________________________
Findings : ____________________________
Others: (Please specify) : ____________________________

x x x x.20 (Emphasis supplied)

Since Manuel signed the application without filling in the details regarding his continuing treatments for heart condition an d diabetes, the assumption is
that he has never been treated for the said illnesses in the last five years preceding his application. This is implicit from the phrase "If your answer to
any of the statements above (specifically, the statement: I have never been treated for heart condition or diabetes) reveal otherwise, please give
details in the space provided for." But this is untrue since he had been on "Coumadin," a treatment for venous thrombosis, 21 and insulin, a drug used in
the treatment of diabetes mellitus, at that time.22

Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that Manuel had a pacemaker implanted on his chest in the 70s
or about 20 years before he signed up for the pension plan. 23 But by its tenor, the responsibility for preparing the application belonged to Manuel. Nothing
in it implies that someone else may provide the information that Philam Plans needed. Manuel cannot sign the application and disown the responsibility
for having it filled up. If he furnished Perla the needed information and delegated to her the filling up of the application, then she acted on his instruction,
not on Philam Plans’ instruction.

Lourdes next points out that it made no difference if Manuel failed to reveal the fact that he had a pacemaker implant in the early 70s since this did not
fall within the five-year timeframe that the disclosure contemplated. 24 But a pacemaker is an electronic device implanted into the body and connected to
the wall of the heart, designed to provide regular, mild, electric shock that stimulates the contraction of the heart muscles and restores normalcy to the
heartbeat.25 That Manuel still had his pacemaker when he applied for a pension plan in October 1997 is an admission that he remained under treatment
for irregular heartbeat within five years preceding that application.

Besides, as already stated, Manuel had been taking medicine for his heart condition and diabetes when he submitted his pension plan application. These
clearly fell within the five-year period. More, even if Perla’s knowledge of Manuel’s pacemaker may be applied to Philam Plans under the theory of imputed
knowledge,26 it is not claimed that Perla was aware of his two other afflictions that needed medical treatments. Pursuant to Section 27 27 of the Insurance
Code, Manuel’s concealment entitles Philam Plans to rescind its contract of insurance with him.

Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let Perla fill in the required detai ls did not make her his agent
and bind him to her concealment of his true state of health. Since there is no evidence of collusion between them, Perla’s fault must be considered solely
her own and cannot prejudice Manuel.28

But Manuel forgot that in signing the pension plan application, he certified that he wrote all the information stated in it or had someone do it under his
direction. Thus:

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APPLICATION FOR PENSION PLAN
(Comprehensive)

I hereby apply to purchase from PHILAM PLANS, INC. a Pension Plan Program described herein in accordance with the General Provisions set forth in this
application and hereby certify that the date and other information stated herein are written by me or under my direction. x x x.29 (Emphasis supplied)

Assuming that it was Perla who filled up the application form, Manuel is still bound by what it contains since he certified that he authorized her action.
Philam Plans had every right to act on the faith of that certification.

Lourdes could not seek comfort from her claim that Perla had assured Manuel that the state of his health would not hinder the approval of his application
and that what is written on his application made no difference to the insurance company. But, indubitably, Manuel was made aware when he signed the
pension plan application that, in granting the same, Philam Plans and Philam Life were acting on the truth of the representations contained in that
application. Thus:

DECLARATIONS AND REPRESENTATIONS

xxxx

I agree that the insurance coverage of this application is based on the truth of the foregoing representations and is subject to the provisions of the Group
Life Insurance Policy issued by THE PHILIPPINE AMERICAN LIFE INSURANCE CO. to PHILAM PLANS, INC.30 (Emphasis supplied)

As the Court said in New Life Enterprises v. Court of Appeals: 31

It may be true that x x x insured persons may accept policies without reading them, and that this is not negligence per se. B ut, this is not without any
exception. It is and was incumbent upon petitioner Sy to read the insurance contracts, and this can be reasonably expected of him considering that he
has been a businessman since 1965 and the contract concerns indemnity in case of loss in his money-making trade of which important consideration he
could not have been unaware as it was precisely the reason for his procuring the same. 32

The same may be said of Manuel, a civil engineer and manager of a construction company.33 He could be expected to know that one must read every
document, especially if it creates rights and obligations affecting him, before signing the same. Manuel is not unschooled that the Court must come to his
succor. It could reasonably be expected that he would not trifle with something that would provide additional financial secur ity to him and to his wife in
his twilight years.

Three. In a final attempt to defend her claim for benefits under Manuel’s pension plan, Lourdes points out that any defect or insufficiency in the information
provided by his pension plan application should be deemed waived after the same has been approved, the policy has been issued, and the premiums have
been collected. 34

The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a one-year incontestability period. It states:

VIII. INCONTESTABILITY

After this Agreement has remained in force for one (1) year, we can no longer contest for health reasons any claim for insura nce under this Agreement,
except for the reason that installment has not been paid (lapsed), or that you are not insurable at the time you bought this pension program by reason
of age. If this Agreement lapses but is reinstated afterwards, the one (1) year contestability period shall start again on th e date of approval of your
request for reinstatement.35 1âwphi1

The above incontestability clause precludes the insurer from disowning liability under the policy it issued on the ground of concealment or misrepresentation
regarding the health of the insured after a year of its issuance.

Since Manuel died on the eleventh month following the issuance of his plan, 36 the one year incontestability period has not yet set in. Consequently, Philam
Plans was not barred from questioning Lourdes’ entitlement to the benefits of her husband’s pension plan.

WHEREFORE, the Court AFFIRMS in its entirety the decision of the Court of Appeals in CA-G.R. CV 87085 dated December 18, 2007.

SO ORDERED.

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