ARMANDO GEAGONIA vs CA and COUNTRY BANKERS INSURANCE

G.R. No. 114427 February 6, 1995

Davide, J.

 Petitioner Geagonia is the owner of Norman's Mart. On 22 December 1989, he obtained from
the private respondent fire insurance policy worth P100,000 for the period of one year.
Petitioner declared in the policy that Mercantile Insurance was the co-insurer for P50,000.
 The policy contained the following condition:

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 xx by or on behalf of the
Company before the occurrence of any loss or damage, all benefits under this policy shall be deemed
forfeited, provided however, that this condition shall not apply when the total insurance or insurances in force
at the time of the loss or damage is not more than P200,000.00.

 Petitioner Geagonia's stocks were destroyed by fire, thus he filed with the private respondent
a claim under the policy.
 Country Bankers denied the claim for petitioner violated Condition 3 because the stocks were
also covered by fire insurance policies by the Philippines First Insurance (PFIC) which
petitioner failed to disclose.

 Petitioner Geagonia filed a complaint with the Insurance Commission for recovery &
damages. He claimed that he knew the existence of the other 2 policies issued PFIC but he
had no knowledge of the provision in the private respondent's policy requiring him to inform
it of the prior policies;

 The Insurance Commission ruled in favor of petitioner Geagonia. It found 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.
 CA reversed the Insurance Commission and held that petitioner knew of the existence of the
two other policies issued by the PFIC because
1. The policy states that petitioner Geagonia was the assured and Cebu Tesing Textiles
was only the mortgagee of the goods;
2. The premiums on both policies were paid for by private respondent, not by the Tesing
Textiles; and
3. Petitioner's letter to Country Bankers stated that:

"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 xxx"
 Hence, this petition.

ISSUE + RULING: 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, he violated Condition 3 of the policy
YES, he had prior knowledge of the 2 insurance policies. His knowledge was evidenced by his
letter to Country Bankers. Further, such policies were not new or original, but were renewal of
previous policies.

Condition 3 is a condition which is not prohibited by law. Its incorporation in the policy is allowed by Sec. 75 of the
Insurance Code 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
always 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 upheld as valid and as a warranty that no other
insurance exists. Its violation would thus avoid the policy. However, in order to constitute a violation, the other
insurance must be upon same subject matter, the same interest therein, and the same risk.

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. 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. 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 property 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. Thus, separate insurances covering different insurable interests may
be obtained by the mortgagor and the mortgagee.

ISSUE + RULING: Whether petitioner is prohibited from recovering

NO. He may still recover under the policy. 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. In this case, Condition 3 of the policy is not
totally free from ambiguity. In this case, upon examination, we find that:

(a) the prohibition applies only to double insurance

Double insurance exists where the same person is insured 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. In this
case, since the two policies of the PFIC do not cover the same interest as that
covered 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.

(b) the nullity of the policy shall only be to the extent exceeding P200,000 of the total policies
obtained.

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, the private respondent
was amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.
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.
Petition GRANTED.