Republic of the Philipppines

SUPREME COURT
Manila

FIRST DIVISION

[G.R. No. 137172. June 15, 1999]

UCPB GENERAL INSURANCE CO., INC., Petitioner, vs. MASAGANA TELAMART, INC., respondent.

DECISION

PARDO, J.: chanroblesvirtualawlibra ry

The case is an appeal via certiorari seeking to set aside the decision of the Court of Appeals,
[1] affirming with modification that of the Regional Trial Court, Branch 58, Makati, ordering petitioner
to pay respondent the sum of P18,645,000.00, as the proceeds of the insurance coverage of
respondent's property razed by fire; 25% of the total amount due as attorney's fees and P25,000.00
as litigation expenses, and costs. chanroblesvirtualawlibrary

The facts are undisputed and may be related as follows: chanroblesvirtualawlibrary

On April 15, 1991, petitioner issued five (5) insurance policies covering respondent's various property
described therein against fire, for the period from May 22, 1991 to May 22, 1992. chanroblesvirtualawlibra ry

In March 1992, petitioner evaluated the policies and decided not to renew them upon expiration of
their terms on May 22, 1992. Petitioner advised respondent's broker, Zuellig Insurance Brokers, Inc.
of its intention not to renew the policies. chanroblesvirtualawlibra ry

On April 6, 1992, petitioner gave written notice to respondent of the non-renewal of the policies at the
address stated in the policies. chanroblesvirtualawlibrary

On June 13, 1992, fire razed respondent's property covered by three of the insurance policies
petitioner issued. chanroblesvirtualawlibrary

On July 13, 1992, respondent presented to petitioner's cashier at its head office five (5) manager's
checks in the total amount of P225,753.95, representing premium for the renewal of the policies from
May 22, 1992 to May 22, 1993. No notice of loss was filed by respondent under the policies prior to
July 14, 1992. chanroblesvirtualawlibrary

On July 14, 1992, respondent filed with petitioner its formal claim for indemnification of the insured
property razed by fire. chanroblesvirtualawlibrary

On the same day, July 14, 1992, petitioner returned to respondent the five (5) manager's checks that
it tendered, and at the same time rejected respondent's claim for the reasons (a) that the policies had
expired and were not renewed, and (b) that the fire occurred on June 13, 1992, before respondent's
tender of premium payment. chanroblesvirtualawlibrary

On July 21, 1992, respondent filed with the Regional Trial Court, Branch 58, Makati City, a civil
complaint against petitioner for recovery of P18,645,000.00, representing the face value of the
policies covering respondent's insured property razed by fire, and for attorney's fees.[2] chanroblesvirtualawlibrary

On October 23, 1992, after its motion to dismiss had been denied, petitioner filed an answer to the
complaint. It alleged that the complaint "fails to state a cause of action"; that petitioner was not liable
to respondent for insurance proceeds under the policies because at the time of the loss of
respondent's property due to fire, the policies had long expired and were not renewed.[3] chanroblesvirtualawlibra ry

After due trial, on March 10, 1993, the Regional Trial Court, Branch 58, Makati, rendered decision, the
dispositive portion of which reads: chanroblesvirtualawlibrary

"WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against
the defendant, as follows: chanroblesvirtualawlibrary

"(1) Authorizing and allowing the plaintiff to consign/deposit with this Court the sum of P225,753.95
(refused by the defendant) as full payment of the corresponding premiums for the replacement-
renewal policies for Exhibits A, B, C, D and E; chanroblesvirtualawlibra ry

"(2) Declaring plaintiff to have fully complied with its obligation to pay the premium thereby rendering
the replacement-renewal policy of Exhibits A, B, C, D and E effective and binding for the duration May
22, 1992 until May 22, 1993; and, ordering defendant to deliver forthwith to plaintiff the said
replacement-renewal policies; chanroblesvirtualawlibrary

"(3) Declaring Exhibits A & B, in force from August 22, 1991 up to August 23, 1992 and August 9,
1991 to August 9, 1992, respectively; and chanroblesvirtualawlibra ry

"(4) Ordering the defendant to pay plaintiff the sums of: (a) P18,645,000.00 representing the latter's
claim for indemnity under Exhibits A, B & C and/or its replacement-renewal policies; (b) 25% of the
total amount due as and for attorney's fees; (c) P25,000.00 as necessary litigation expenses; and, (d)
the costs of suit. chanroblesvirtualawlibrary

"All other claims and counterclaims asserted by the parties are denied and/or dismissed, including
plaintiff's claim for interests. chanroblesvirtualawlibrary

"SO ORDERED. chanroblesvirtualawlibrary

"Makati, Metro-Manila, March 10, 1993. chanroblesvirtualawlibra ry

"ZOSIMO Z. ANGELES chanroblesvirtualawlibrary

Judge.[4] chanroblesvirtualawlibrary

In due time, petitioner appealed to the Court of Appeals.[5] chanroblesvirtualawlibra ry

On September 7, 1998, the Court of Appeals promulgated its decision[6] affirming that of the Regional
Trial Court with the modification that item No. 3 of the dispositive portion was deleted, and the award
of attorney's fees was reduced to 10% of the total amount due.[7] chanroblesvirtualawlibra ry

The Court of Appeals held that following previous practise, respondent was allowed a sixty (60) to
ninety (90) day credit term for the renewal of its policies, and that the acceptance of the late premium
payment suggested an understanding that payment could be made later. chanroblesvirtualawlibra ry

Hence, this appeal. chanroblesvirtualawlibrary

By resolution adopted on March 24, 1999, we required respondent to comment on the petition, not to
file a motion to dismiss within ten (10) days from notice.[8] On April 22, 1999, respondent filed
its comment.[9] chanroblesvirtualawlibrary
Respondent submits that the Court of Appeals correctly ruled that no timely notice of non-renewal was
sent. The notice of non-renewal sent to broker Zuellig which claimed that it verbally notified the
insurance agency but not respondent itself did not suffice. Respondent submits further that the Court
of Appeals did not err in finding that there existed a sixty (60) to ninety (90) days credit agreement
between UCPB and Masagana, and that, finally, the Supreme Court could not review factual findings of
the lower court affirmed by the Court of Appeals.[10] chanroblesvirtualawlibrary

We give due course to the appeal. chanroblesvirtualawlibrary

The basic issue raised is whether the fire insurance policies issued by petitioner to the respondent
covering the period May 22, 1991 to May 22, 1992, had expired on the latter date or had been
extended or renewed by an implied credit arrangement though actual payment of premium
was tendered on a later date after the occurrence of the risk (fire) insured against. chanroblesvirtualawlibra ry

The answer is easily found in the Insurance Code. No, an insurance policy, other than life, issued
originally or on renewal, is not valid and binding until actual payment of the premium. Any agreement
to the contrary is void.[11] The parties may not agree expressly or impliedly on the extension of credit
or time to pay the premium and consider the policy binding before actual payment. chanroblesvirtualawlibra ry

The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo,[12] cited by the Court of Appeals, is not
applicable. In that case, payment of the premium was in fact actually made on December 24, 1981,
and the fire occurred on January 18, 1982. Here, the payment of the premium for renewal of the
policies was tendered on July 13, 1992, a month after the fire occurred on June 13, 1992. The
assured did not even give the insurer a notice of loss within a reasonable time after occurrence of the
fire.
chanroblesvirtualawlibrary

WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals in
CA-G.R. CV No. 42321. In lieu thereof, the Court renders judgment dismissing respondent's complaint
and petitioner's counterclaims thereto filed with the Regional Trial Court, Branch 58, Makati City, in
Civil Case No. 92-2023. Without costs. chanroblesvirtualawlibra ry

SO ORDERED. chanroblesvirtualawlibrary
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 95546 November 6, 1992

MAKATI TUSCANY CONDOMINIUM CORPORATION, Petitioner, vs. THE COURT OF APPEALS,

AMERICAN HOME ASSURANCE CO., represented by American International Underwriters
(Phils.), Inc., Respondent. chanrobles virtual law library

BELLOSILLO, J.: chanrobles virtual law library

This case involves a purely legal question: whether payment by installment of the premiums due on
an insurance policy invalidates the contract of insurance, in view of Sec. 77 of P.D. 612, otherwise
known as the Insurance Code, as amended, which provides:

Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing 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 a life or an
industrial life policy whenever the grace period provision applies.

Sometime in early 1982, private respondent American Home Assurance Co. (AHAC), represented by
American International Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany
Condominium Corporation (TUSCANY) Insurance Policy No. AH-CPP-9210452 on the latter's building
and premises, for a period beginning 1 March 1982 and ending 1 March 1983, with a total premium of
P466,103.05. The premium was paid on installments on 12 March 1982, 20 May 1982, 21 June 1982
and 16 November 1982, all of which were accepted by private respondent. chanroblesvirtualawlibra ry chanrobles virtual law library

On 10 February 1983, private respondent issued to petitioner Insurance Policy No. AH-CPP-9210596,
which replaced and renewed the previous policy, for a term covering 1 March 1983 to 1 March 1984.
The premium in the amount of P466,103.05 was again paid on installments on 13 April 1983, 13 July
1983, 3 August 1983, 9 September 1983, and 21 November 1983. All payments were likewise
accepted by private respondent. chanroblesvirtualawlibrarychanrobles virtual law library

On 20 January 1984, the policy was again renewed and private respondent issued to petitioner
Insurance Policy No. AH-CPP-9210651 for the period 1 March 1984 to 1 March 1985. On this renewed
policy, petitioner made two installment payments, both accepted by private respondent, the first on 6
February 1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00. Thereafter, petitioner
refused to pay the balance of the premium. chanroblesvirtualawlibrary chanrobles virtual law library

Consequently, private respondent filed an action to recover the unpaid balance of P314,103.05 for
Insurance Policy No. AH-CPP-9210651. chanroblesvirtualawlibrary chanrobles virtual law library

In its answer with counterclaim, petitioner admitted the issuance of Insurance Policy No. AH-CPP-
9210651. It explained that it discontinued the payment of premiums because the policy did not
contain a credit clause in its favor and the receipts for the installment payments covering the policy
for 1984-85, as well as the two (2) previous policies, stated the following reservations:
 2. Acceptance of this payment shall not waive any of the company rights to deny
liability on any claim under the policy arising before such payments or after the
expiration of the credit clause of the policy; and chanrobles virtual law library

3. Subject to no loss prior to premium payment. If there be any loss such is not
covered.

Petitioner further claimed that the policy was never binding and valid, and no risk attached to the
policy. It then pleaded a counterclaim for P152,000.00 for the premiums already paid for 1984-85,
and in its answer with amended counterclaim, sought the refund of P924,206.10 representing the
premium payments for 1982-85. chanroblesvirtualawlibrary chanrobles virtual law library

After some incidents, petitioner and private respondent moved for summary judgment. chanroblesvirtualawlibra ry chanrobles virtual law library

On 8 October 1987, the trial court dismissed the complaint and the counterclaim upon the following
findings:

While it is true that the receipts issued to the defendant contained the aforementioned
reservations, it is equally true that payment of the premiums of the three
aforementioned policies (being sought to be refunded) were made during the lifetime
or term of said policies, hence, it could not be said, inspite of the reservations, that no
risk attached under the policies. Consequently, defendant's counterclaim for refund is
not justified.
chanroblesvirtualawlibrary chanrobles virtual law library

As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in view of

the reservation in the receipts ordinarily issued by the plaintiff on premium payments
the only plausible conclusion is that plaintiff has no right to demand their payment
after the lapse of the term of said policy on March 1, 1985. Therefore, the defendant
was justified in refusing to pay the same. 1 chanrobles virtual law library

Both parties appealed from the judgment of the trial court. Thereafter, the Court of Appeals rendered
a decision 2 modifying that of the trial court by ordering herein petitioner to pay the balance of the
premiums due on Policy No. AH-CPP-921-651, or P314,103.05 plus legal interest until fully paid, and
affirming the denial of the counterclaim. The appellate court thus explained -

The obligation to pay premiums when due is ordinarily as indivisible obligation to pay
the entire premium. Here, the parties herein agreed to make the premiums payable in
installments, and there is no pretense that the parties never envisioned to make the
insurance contract binding between them. It was renewed for two succeeding years,
the second and third policies being a renewal/replacement for the previous one. And
the insured never informed the insurer that it was terminating the policy because the
terms were unacceptable. chanroblesvirtualawlibrary chanrobles virtual law library

While it may be true that under Section 77 of the Insurance Code, the parties may not
agree to make the insurance contract valid and binding without payment of premiums,
there is nothing in said section which suggests that the parties may not agree to allow
payment of the premiums in installment, or to consider the contract as valid and
binding upon payment of the first premium. Otherwise, we would allow the insurer to
renege on its liability under the contract, had a loss incurred (sic) before completion of
payment of the entire premium, despite its voluntary acceptance of partial payments,
a result eschewed by a basic considerations of fairness and equity. chanroblesvirtualawlibra ry chanrobles virtual law library

To our mind, the insurance contract became valid and binding upon payment of the
first premium, and the plaintiff could not have denied liability on the ground that
payment was not made in full, for the reason that it agreed to accept installment
payment. . . . 3 chanrobles virtual law library
Petitioner now asserts that its payment by installment of the premiums for the insurance policies for
1982, 1983 and 1984 invalidated said policies because of the provisions of Sec. 77 of the Insurance
Code, as amended, and by the conditions stipulated by the insurer in its receipts, disclaiming liability
for loss for occurring before payment of premiums. chanroblesvirtualawlibrary chanrobles virtual law library

It argues that where the premiums is not actually paid in full, the policy would only be effective if
there is an acknowledgment in the policy of the receipt of premium pursuant to Sec. 78 of the
Insurance Code. The absence of an express acknowledgment in the policies of such receipt of the
corresponding premium payments, and petitioner's failure to pay said premiums on or before the
effective dates of said policies rendered them invalid. Petitioner thus concludes that there cannot be a
perfected contract of insurance upon mere partial payment of the premiums because under Sec. 77 of
the Insurance Code, no contract of insurance is valid and binding unless the premium thereof has
been paid, notwithstanding any agreement to the contrary. As a consequence, petitioner seeks a
refund of all premium payments made on the alleged invalid insurance policies. chanroblesvirtualawlibra ry chanrobles virtual law library

We hold that the subject policies are valid even if the premiums were paid on installments. The
records clearly show that petitioner and private respondent intended subject insurance policies to be
binding and effective notwithstanding the staggered payment of the premiums. The initial insurance
contract entered into in 1982 was renewed in 1983, then in 1984. In those three (3) years, the insurer
accepted all the installment payments. Such acceptance of payments speaks loudly of the insurer's
intention to honor the policies it issued to petitioner. Certainly, basic principles of equity and fairness
would not allow the insurer to continue collecting and accepting the premiums, although paid on
installments, and later deny liability on the lame excuse that the premiums were not prepared in
full.
chanroblesvirtualawlibrary chanrobles virtual law library

We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings and
conclusion of the appellate court contained in its Resolution denying the motion to reconsider its
Decision -

While the import of Section 77 is that prepayment of premiums is strictly required as a

condition to the validity of the contract, We are not prepared to rule that the request
to make installment payments duly approved by the insurer, would prevent the entire
contract of insurance from going into effect despite payment and acceptance of the
initial premium or first installment. Section 78 of the Insurance Code in effect allows
waiver by the insurer of the condition of prepayment by making an acknowledgment in
the insurance policy of receipt of premium as conclusive evidence of payment so far as
to make the policy binding despite the fact that premium is actually unpaid. Section 77
merely precludes the parties from stipulating that the policy is valid even if premiums
are not paid, but does not expressly prohibit an agreement granting credit extension,
and such an agreement is not contrary to morals, good customs, public order or public
policy (De Leon, the Insurance Code, at p. 175). So is an understanding to allow
insured to pay premiums in installments not so proscribed. At the very least, both
parties should be deemed in estoppel to question the arrangement they have
voluntarily accepted. 4
chanrobles virtual law library

The reliance by petitioner on Arce vs. Capital Surety and Insurance

Co. 5 is unavailing because the facts therein are substantially different from those in the case at bar.
In Arce, no payment was made by the insured at all despite the grace period given. In the case before
Us, petitioner paid the initial installment and thereafter made staggered payments resulting in full
payment of the 1982 and 1983 insurance policies. For the 1984 policy, petitioner paid two (2)
installments although it refused to pay the balance. chanroblesvirtualawlibra ry chanrobles virtual law library

It appearing from the peculiar circumstances that the parties actually intended to make three (3)
insurance contracts valid, effective and binding, petitioner may not be allowed to renege on its
obligation to pay the balance of the premium after the expiration of the whole term of the third policy
(No. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by the appellate court, where
the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums
paid if the insurer was exposed to the risk insured for any period, however brief or momentary. chanroblesvirtualawlibra ry chanrobles virtual law library

WHEREFORE, finding no reversible error in the judgment appealed from, the same is AFFIRMED. Costs
against petitioner.chanroblesvirtualawlibrary chanrobles virtual law library

SO ORDERED.
Republic of the Philipppines
SUPREME COURT
Manila

FIRST DIVISION

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

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

DECISION

DAVIDE, JR. C.J.: chanroblesvirtualawlibra ry

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. chanroblesvirtualawlibrary

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. chanroblesvirtualawlibrary

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. chanroblesvirtualawlibrary

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. chanroblesvirtualawlibrary

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. chanroblesvirtualawlibra ry

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. chanroblesvirtualawlibrary

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. chanroblesvirtualawlibrary

The trial court decreed as follows: chanroblesvirtualawlibrary

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

1. P200,000.00, representing the amount of the insurance, plus legal interest from the date of filing of
this case; chanroblesvirtualawlibrary

2. P200,000.00 as moral damages; chanroblesvirtualawlibrary

3. P200,000.00 as loss of profit; chanroblesvirtualawlibrary

4. P100,000.00 as exemplary damages; chanroblesvirtualawlibra ry

5. P50,000.00 as attorneys fees; and chanroblesvirtualawlibrary

6. Cost of suit. chanroblesvirtualawlibrary

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. chanroblesvirtualawlibra ry

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: chanroblesvirtualawlibrary

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. chanroblesvirtualawlibrary

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. chanroblesvirtualawlibra ry

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. chanroblesvirtualawlibra ry

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. chanroblesvirtualawlibrary
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. chanroblesvirtualawlibrary

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. chanroblesvirtualawlibra ry

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. chanroblesvirtualawlibrary

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

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

Petitioner invokes respondents admission that his check for the renewal of the policy was received
only on 10 April 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. chanroblesvirtualawlibrary

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

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

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

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

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

Finally, in assailing the excessive damages awarded to respondent petitioner stresses that the policy
in issue was limited to a liability ofP200,000; 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. chanroblesvirtualawlibra ry
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. chanroblesvirtualawlibrary

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. chanroblesvirtualawlibra ry

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. chanroblesvirtualawlibra ry

Section 78 of the Insurance Code explicitly provides: chanroblesvirtualawlibra ry

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. chanroblesvirtualawlibrary

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

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. chanroblesvirtualawlibra ry

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. chanroblesvirtualawlibrary

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:chanroblesvirtualawlibrary

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. chanroblesvirtualawlibra ry
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, chanroblesvirtualawlibrary

COURT: chanroblesvirtualawlibrary

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

A Yes, sir. chanroblesvirtualawlibrary

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

A Yes, Your Honor. chanroblesvirtualawlibrary

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

A Yes, Your Honor. chanroblesvirtualawlibrary

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? chanroblesvirtualawlibra ry

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

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. chanroblesvirtualawlibra ry

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. chanroblesvirtualawlibrary

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. chanroblesvirtualawlibra ry

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] chanroblesvirtualawlibrary
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. chanroblesvirtualawlibra ry

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. chanroblesvirtualawlibra ry

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. chanroblesvirtualawlibrary

No pronouncement as to costs. chanroblesvirtualawlibrary

SO ORDERED. chanroblesvirtualawlibrary
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 156167 May 16, 2005

GULF RESORTS, INC., petitioner,

vs.
PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.

DECISION

PUNO, J.:

Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of Court by petitioner
GULF RESORTS, INC., against respondent PHILIPPINE CHARTER INSURANCE CORPORATION.
Petitioner assails the appellate court decision1 which dismissed its two appeals and affirmed the
judgment of the trial court.

For review are the warring interpretations of petitioner and respondent on the scope of the insurance
company’s liability for earthquake damage to petitioner’s properties. Petitioner avers that, pursuant to
its earthquake shock endorsement rider, Insurance Policy No. 31944 covers all damages to the
properties within its resort caused by earthquake. Respondent contends that the rider limits its liability
for loss to the two swimming pools of petitioner.

The facts as established by the court a quo, and affirmed by the appellate court are as follows:

[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in
said resort insured originally with the American Home Assurance Company (AHAC-AIU). In
the first four insurance policies issued by AHAC-AIU from 1984-85; 1985-86; 1986-1987; and
1987-88 (Exhs. "C", "D", "E" and "F"; also Exhs. "1", "2", "3" and "4" respectively), the risk of
loss from earthquake shock was extended only to plaintiff’s two swimming pools, thus,
"earthquake shock endt." (Item 5 only) (Exhs. "C-1"; "D-1," and "E" and two (2) swimming
pools only (Exhs. "C-1"; ‘D-1", "E" and "F-1"). "Item 5" in those policies referred to the two (2)
swimming pools only (Exhs. "1-B", "2-B", "3-B" and "F-2"); that subsequently AHAC(AIU)
issued in plaintiff’s favor Policy No. 206-4182383-0 covering the period March 14, 1988 to
March 14, 1989 (Exhs. "G" also "G-1") and in said policy the earthquake endorsement clause
as indicated in Exhibits "C-1", "D-1", Exhibits "E" and "F-1" was deleted and the entry under
Endorsements/Warranties at the time of issue read that plaintiff renewed its policy with AHAC
(AIU) for the period of March 14, 1989 to March 14, 1990 under Policy No. 206-4568061-9
(Exh. "H") which carried the entry under "Endorsement/Warranties at Time of Issue", which
read "Endorsement to Include Earthquake Shock (Exh. "6-B-1") in the amount of P10,700.00
and paid P42,658.14 (Exhs. "6-A" and "6-B") as premium thereof, computed as follows:

Item - P7,691,000.00 - on the Clubhouse only

@ .392%;
- 1,500,000.00 - on the furniture, etc. contained in the building
 above-mentioned@ .490%;
- 393,000.00 - on the two swimming pools, only (against the peril
of earthquake shock only) @ 0.100%
- 116,600.00 other buildings include as follows:
a) Tilter House - P19,800.00 - 0.551%
b) Power House - P41,000.00 - 0.551%
c) House Shed - P55,000.00 - 0.540%
P100,000.00 - for furniture, fixtures, lines air-con and operating
equipment

that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU) Policy No.
206-4568061-9 (Exh. "H") provided that the policy wording and rates in said policy be copied
in the policy to be issued by defendant; that defendant issued Policy No. 31944 to plaintiff
covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total
premium ofP45,159.92 (Exh. "I"); that in the computation of the premium, defendant’s Policy
No. 31944 (Exh. "I"), which is the policy in question, contained on the right-hand upper
portion of page 7 thereof, the following:

Rate-Various
Premium – P37,420.60 F/L
– 2,061.52 – Typhoon
– 1,030.76 – EC
– 393.00 – ES
Doc. Stamps 3,068.10
F.S.T. 776.89
Prem. Tax 409.05
TOTAL 45,159.92;

that the above break-down of premiums shows that plaintiff paid only P393.00 as premium
against earthquake shock (ES); that in all the six insurance policies (Exhs. "C", "D", "E", "F",
"G" and "H"), the premium against the peril of earthquake shock is the same, that is P393.00
(Exhs. "C" and "1-B"; "2-B" and "3-B-1" and "3-B-2"; "F-02" and "4-A-1"; "G-2" and "5-C-1";
"6-C-1"; issued by AHAC (Exhs. "C", "D", "E", "F", "G" and "H") and in Policy No. 31944
issued by defendant, the shock endorsement provide(sic):

In consideration of the payment by the insured to the company of the

sum included additional premium the Company agrees, notwithstanding what is
stated in the printed conditions of this policy due to the contrary, that this insurance
covers loss or damage to shock to any of the property insured by this Policy
occasioned by or through or in consequence of earthquake (Exhs. "1-D", "2-D", "3-A",
"4-B", "5-A", "6-D" and "7-C");

that in Exhibit "7-C" the word "included" above the underlined portion was deleted; that on
July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiff’s
properties covered by Policy No. 31944 issued by defendant, including the two swimming
 pools in its Agoo Playa Resort were damaged.2

After the earthquake, petitioner advised respondent that it would be making a claim under its
Insurance Policy No. 31944 for damages on its properties. Respondent instructed petitioner to file a
formal claim, then assigned the investigation of the claim to an independent claims adjuster, Bayne
Adjusters and Surveyors, Inc.3 On July 30, 1990, respondent, through its adjuster, requested
petitioner to submit various documents in support of its claim. On August 7, 1990, Bayne Adjusters
and Surveyors, Inc., through its Vice-President A.R. de Leon,4 rendered a preliminary report5 finding
extensive damage caused by the earthquake to the clubhouse and to the two swimming pools. Mr.
de Leon stated that "except for the swimming pools, all affected items have no coverage for
earthquake shocks."6 On August 11, 1990, petitioner filed its formal demand7 for settlement of the
damage to all its properties in the Agoo Playa Resort. On August 23, 1990, respondent denied
petitioner’s claim on the ground that its insurance policy only afforded earthquake shock coverage to
the two swimming pools of the resort.8 Petitioner and respondent failed to arrive at a
settlement.9 Thus, on January 24, 1991, petitioner filed a complaint10 with the regional trial court of
Pasig praying for the payment of the following:

1.) The sum of P5,427,779.00, representing losses sustained by the insured properties, with
interest thereon, as computed under par. 29 of the policy (Annex "B") until fully paid;

2.) The sum of P428,842.00 per month, representing continuing losses sustained by plaintiff
on account of defendant’s refusal to pay the claims;

3.) The sum of P500,000.00, by way of exemplary damages;

4.) The sum of P500,000.00 by way of attorney’s fees and expenses of litigation;

5.) Costs.11

Respondent filed its Answer with Special and Affirmative Defenses with Compulsory Counterclaims.12

On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:

The above schedule clearly shows that plaintiff paid only a premium of P393.00 against the
peril of earthquake shock, the same premium it paid against earthquake shock only on the
two swimming pools in all the policies issued by AHAC(AIU) (Exhibits "C", "D", "E", "F" and
"G"). From this fact the Court must consequently agree with the position of defendant that the
endorsement rider (Exhibit "7-C") means that only the two swimming pools were insured
against earthquake shock.

Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence, where
the language used in an insurance contract or application is such as to create ambiguity the
same should be resolved against the party responsible therefor, i.e., the insurance company
which prepared the contract. To the mind of [the] Court, the language used in the policy in
litigation is clear and unambiguous hence there is no need for interpretation or construction
but only application of the provisions therein.

From the above observations the Court finds that only the two (2) swimming pools had
earthquake shock coverage and were heavily damaged by the earthquake which struck on
July 16, 1990. Defendant having admitted that the damage to the swimming pools was
 appraised by defendant’s adjuster at P386,000.00, defendant must, by virtue of the contract
of insurance, pay plaintiff said amount.

Because it is the finding of the Court as stated in the immediately preceding paragraph that
defendant is liable only for the damage caused to the two (2) swimming pools and that
defendant has made known to plaintiff its willingness and readiness to settle said liability,
there is no basis for the grant of the other damages prayed for by plaintiff. As to the
counterclaims of defendant, the Court does not agree that the action filed by plaintiff is
baseless and highly speculative since such action is a lawful exercise of the plaintiff’s right to
come to Court in the honest belief that their Complaint is meritorious. The prayer, therefore,
of defendant for damages is likewise denied.

WHEREFORE, premises considered, defendant is ordered to pay plaintiffs the sum of

THREE HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00) representing damage
to the two (2) swimming pools, with interest at 6% per annum from the date of the filing of the
Complaint until defendant’s obligation to plaintiff is fully paid.

No pronouncement as to costs.13

Petitioner’s Motion for Reconsideration was denied. Thus, petitioner filed an appeal with the Court of
Appeals based on the following assigned errors:14

A. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY

RECOVER FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS FIRE
POLICY NO. 31944, CONSIDERING ITS PROVISIONS, THE CIRCUMSTANCES
SURROUNDING THE ISSUANCE OF SAID POLICY AND THE ACTUATIONS OF THE
PARTIES SUBSEQUENT TO THE EARTHQUAKE OF JULY 16, 1990.

B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANT’S RIGHT TO

RECOVER UNDER DEFENDANT-APPELLEE’S POLICY (NO. 31944; EXH "I") BY LIMITING
ITSELF TO A CONSIDERATION OF THE SAID POLICY ISOLATED FROM THE
CIRCUMSTANCES SURROUNDING ITS ISSUANCE AND THE ACTUATIONS OF THE
PARTIES AFTER THE EARTHQUAKE OF JULY 16, 1990.

C. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS

ENTITLED TO THE DAMAGES CLAIMED, WITH INTEREST COMPUTED AT 24% PER
ANNUM ON CLAIMS ON PROCEEDS OF POLICY.

On the other hand, respondent filed a partial appeal, assailing the lower court’s failure to award it
attorney’s fees and damages on its compulsory counterclaim.

After review, the appellate court affirmed the decision of the trial court and ruled, thus:

However, after carefully perusing the documentary evidence of both parties, We are not
convinced that the last two (2) insurance contracts (Exhs. "G" and "H"), which the plaintiff-
appellant had with AHAC (AIU) and upon which the subject insurance contract with Philippine
Charter Insurance Corporation is said to have been based and copied (Exh. "I"), covered an
extended earthquake shock insurance on all the insured properties.

xxx
 We also find that the Court a quo was correct in not granting the plaintiff-appellant’s prayer for
the imposition of interest – 24% on the insurance claim and 6% on loss of income allegedly
amounting to P4,280,000.00. Since the defendant-appellant has expressed its willingness to
pay the damage caused on the two (2) swimming pools, as the Court a quo and this Court
correctly found it to be liable only, it then cannot be said that it was in default and therefore
liable for interest.

Coming to the defendant-appellant’s prayer for an attorney’s fees, long-standing is the rule
that the award thereof is subject to the sound discretion of the court. Thus, if such discretion
is well-exercised, it will not be disturbed on appeal (Castro et al. v. CA, et al., G.R. No.
115838, July 18, 2002). Moreover, being the award thereof an exception rather than a rule, it
is necessary for the court to make findings of facts and law that would bring the case within
the exception and justify the grant of such award (Country Bankers Insurance Corp. v. Lianga
Bay and Community Multi-Purpose Coop., Inc., G.R. No. 136914, January 25, 2002).
Therefore, holding that the plaintiff-appellant’s action is not baseless and highly speculative,
We find that the Court a quo did not err in granting the same.

WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED and
judgment of the Trial Court hereby AFFIRMED in toto. No costs.15

Petitioner filed the present petition raising the following issues:16

A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER

RESPONDENT’S INSURANCE POLICY NO. 31944, ONLY THE TWO (2) SWIMMING
POOLS, RATHER THAN ALL THE PROPERTIES COVERED THEREUNDER, ARE
INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK.

B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONER’S PRAYER

FOR DAMAGES WITH INTEREST THEREON AT THE RATE CLAIMED, ATTORNEY’S
FEES AND EXPENSES OF LITIGATION.

Petitioner contends:

First, that the policy’s earthquake shock endorsement clearly covers all of the properties insured and
not only the swimming pools. It used the words "any property insured by this policy," and it should be
interpreted as all inclusive.

Second, the unqualified and unrestricted nature of the earthquake shock endorsement is confirmed
in the body of the insurance policy itself, which states that it is "[s]ubject to: Other Insurance Clause,
Typhoon Endorsement, Earthquake Shock Endt., Extended Coverage Endt., FEA Warranty &
Annual Payment Agreement On Long Term Policies."17

Third, that the qualification referring to the two swimming pools had already been deleted in the
earthquake shock endorsement.

Fourth, it is unbelievable for respondent to claim that it only made an inadvertent omission when it
deleted the said qualification.

Fifth, that the earthquake shock endorsement rider should be given precedence over the wording of
the insurance policy, because the rider is the more deliberate expression of the agreement of the
contracting parties.

Sixth, that in their previous insurance policies, limits were placed on the endorsements/warranties
enumerated at the time of issue.

Seventh, any ambiguity in the earthquake shock endorsement should be resolved in favor of
petitioner and against respondent. It was respondent which caused the ambiguity when it made the
policy in issue.

Eighth, the qualification of the endorsement limiting the earthquake shock endorsement should be
interpreted as a caveat on the standard fire insurance policy, such as to remove the two swimming
pools from the coverage for the risk of fire. It should not be used to limit the respondent’s liability for
earthquake shock to the two swimming pools only.

Ninth, there is no basis for the appellate court to hold that the additional premium was not paid under
the extended coverage. The premium for the earthquake shock coverage was already included in the
premium paid for the policy.

Tenth, the parties’ contemporaneous and subsequent acts show that they intended to extend
earthquake shock coverage to all insured properties. When it secured an insurance policy from
respondent, petitioner told respondent that it wanted an exact replica of its latest insurance policy
from American Home Assurance Company (AHAC-AIU), which covered all the resort’s properties for
earthquake shock damage and respondent agreed. After the July 16, 1990 earthquake, respondent
assured petitioner that it was covered for earthquake shock. Respondent’s insurance adjuster, Bayne
Adjusters and Surveyors, Inc., likewise requested petitioner to submit the necessary documents for
its building claims and other repair costs. Thus, under the doctrine of equitable estoppel, it cannot
deny that the insurance policy it issued to petitioner covered all of the properties within the resort.

Eleventh, that it is proper for it to avail of a petition for review by certiorari under Rule 45 of the
Revised Rules of Court as its remedy, and there is no need for calibration of the evidence in order to
establish the facts upon which this petition is based.

On the other hand, respondent made the following counter arguments:18

First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended
coverage against earthquake shock to petitioner’s insured properties other than on the two swimming
pools. Petitioner admitted that from 1984 to 1988, only the two swimming pools were insured against
earthquake shock. From 1988 until 1990, the provisions in its policy were practically identical to its
earlier policies, and there was no increase in the premium paid. AHAC-AIU, in a letter19 by its
representative Manuel C. Quijano, categorically stated that its previous policy, from which
respondent’s policy was copied, covered only earthquake shock for the two swimming pools.

Second, petitioner’s payment of additional premium in the amount of P393.00 shows that the policy
only covered earthquake shock damage on the two swimming pools. The amount was the same
amount paid by petitioner for earthquake shock coverage on the two swimming pools from 1990-
1991. No additional premium was paid to warrant coverage of the other properties in the resort.

Third, the deletion of the phrase pertaining to the limitation of the earthquake shock endorsement to
the two swimming pools in the policy schedule did not expand the earthquake shock coverage to all
of petitioner’s properties. As per its agreement with petitioner, respondent copied its policy from the
AHAC-AIU policy provided by petitioner. Although the first five policies contained the said
qualification in their rider’s title, in the last two policies, this qualification in the title was deleted.
AHAC-AIU, through Mr. J. Baranda III, stated that such deletion was a mere inadvertence. This
inadvertence did not make the policy incomplete, nor did it broaden the scope of the endorsement
whose descriptive title was merely enumerated. Any ambiguity in the policy can be easily resolved by
looking at the other provisions, specially the enumeration of the items insured, where only the two
swimming pools were noted as covered for earthquake shock damage.

Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988, the phrase
"Item 5 – P393,000.00 – on the two swimming pools only (against the peril of earthquake shock
only)" meant that only the swimming pools were insured for earthquake damage. The same phrase is
used in toto in the policies from 1989 to 1990, the only difference being the designation of the two
swimming pools as "Item 3."

Fifth, in order for the earthquake shock endorsement to be effective, premiums must be paid for all
the properties covered. In all of its seven insurance policies, petitioner only paid P393.00 as premium
for coverage of the swimming pools against earthquake shock. No other premium was paid for
earthquake shock coverage on the other properties. In addition, the use of the qualifier "ANY" instead
of "ALL" to describe the property covered was done deliberately to enable the parties to specify the
properties included for earthquake coverage.

Sixth, petitioner did not inform respondent of its requirement that all of its properties must be
included in the earthquake shock coverage. Petitioner’s own evidence shows that it only required
respondent to follow the exact provisions of its previous policy from AHAC-AIU. Respondent
complied with this requirement. Respondent’s only deviation from the agreement was when it
modified the provisions regarding the replacement cost endorsement. With regard to the issue under
litigation, the riders of the old policy and the policy in issue are identical.

Seventh, respondent did not do any act or give any assurance to petitioner as would estop it from
maintaining that only the two swimming pools were covered for earthquake shock. The adjuster’s
letter notifying petitioner to present certain documents for its building claims and repair costs was
given to petitioner before the adjuster knew the full coverage of its policy.

Petitioner anchors its claims on AHAC-AIU’s inadvertent deletion of the phrase "Item 5 Only" after the
descriptive name or title of the Earthquake Shock Endorsement. However, the words of the policy
reflect the parties’ clear intention to limit earthquake shock coverage to the two swimming pools.

Before petitioner accepted the policy, it had the opportunity to read its conditions. It did not object to
any deficiency nor did it institute any action to reform the policy. The policy binds the petitioner.

Eighth, there is no basis for petitioner to claim damages, attorney’s fees and litigation expenses.
Since respondent was willing and able to pay for the damage caused on the two swimming pools, it
cannot be considered to be in default, and therefore, it is not liable for interest.

We hold that the petition is devoid of merit.

In Insurance Policy No. 31944, four key items are important in the resolution of the case at bar.

First, in the designation of location of risk, only the two swimming pools were specified as
included, viz:
 ITEM 3 – 393,000.00 – On the two (2) swimming pools only (against the peril of earthquake
shock only)20

Second, under the breakdown for premium payments,21 it was stated that:

PREMIUM RECAPITULATION
ITEM NOS. AMOUNT RATES PREMIUM
xxx
3 393,000.00 0.100%-E/S 393.0022]

Third, Policy Condition No. 6 stated:

6. This insurance does not cover any loss or damage occasioned by or through or in
consequence, directly or indirectly of any of the following occurrences, namely:--

(a) Earthquake, volcanic eruption or other convulsion of nature. 23

Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement (To Include the
Perils of Explosion, Aircraft, Vehicle and Smoke)," stated, viz:

ANNUAL PAYMENT AGREEMENT ON

LONG TERM POLICIES

THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS

INSURED IN EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF A DISCOUNT
OF 5% OR 7 ½ % OF THE NET PREMIUM x x x POLICY HEREBY UNDERTAKES TO
CONTINUE THE INSURANCE UNDER THE ABOVE NAMED x x x AND TO PAY THE
PREMIUM.

Earthquake Endorsement

In consideration of the payment by the Insured to the Company of the sum of P. . . . . . . . . . . .

. . . . . additional premium the Company agrees, notwithstanding what is stated in the printed
conditions of this Policy to the contrary, that this insurance covers loss or damage (including
loss or damage by fire) to any of the property insured by this Policy occasioned by or through
or in consequence of Earthquake.

Provided always that all the conditions of this Policy shall apply (except in so far as they may
be hereby expressly varied) and that any reference therein to loss or damage by fire should
be deemed to apply also to loss or damage occasioned by or through or in consequence of
Earthquake.24

Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the
earthquake shock coverage. Thus, the policy extended earthquake shock coverage to all of the
insured properties.

It is basic that all the provisions of the insurance policy should be examined and interpreted in
consonance with each other.25 All its parts are reflective of the true intent of the parties. The policy
cannot be construed piecemeal. Certain stipulations cannot be segregated and then made to control;
neither do particular words or phrases necessarily determine its character. Petitioner cannot focus on
the earthquake shock endorsement to the exclusion of the other provisions. All the provisions and
riders, taken and interpreted together, indubitably show the intention of the parties to extend
earthquake shock coverage to the two swimming pools only.

A careful examination of the premium recapitulation will show that it is the clear intent of the parties to
extend earthquake shock coverage only to the two swimming pools. 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.
Thus, 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 insurer's promise, the insured pays a premium.26 (Emphasis

ours)

An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured
against a specified peril.27 In fire, casualty, and marine insurance, the premium payable becomes a
debt as soon as the risk attaches.28 In the subject policy, no premium payments were made with
regard to earthquake shock coverage, except on the two swimming pools. There is no mention of any
premium payable for the other resort properties with regard to earthquake shock. This is consistent
with the history of petitioner’s previous insurance policies from AHAC-AIU. As borne out by
petitioner’s witnesses:

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 12-13

Q. Now Mr. Mantohac, will it be correct to state also that insofar as your insurance policy
during the period from March 4, 1984 to March 4, 1985 the coverage on earthquake shock
was limited to the two swimming pools only?

A. Yes, sir. It is limited to the two swimming pools, specifically shown in the warranty, there is
a provision here that it was only for item 5.

Q. More specifically Item 5 states the amount of P393,000.00 corresponding to the two
swimming pools only?

A. Yes, sir.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989, did you personally arrange for
the procurement of this policy?

A. Yes, sir.

Q. Did you also do this through your insurance agency?

A. If you are referring to Forte Insurance Agency, yes.

Q. Is Forte Insurance Agency a department or division of your company?

A. No, sir. They are our insurance agency.

Q. And they are independent of your company insofar as operations are concerned?

A. Yes, sir, they are separate entity.

Q. But insofar as the procurement of the insurance policy is concerned they are of course
subject to your instruction, is that not correct?

A. Yes, sir. The final action is still with us although they can recommend what insurance to
take.

Q. In the procurement of the insurance police (sic) from March 14, 1988 to March 14, 1989,
did you give written instruction to Forte Insurance Agency advising it that the earthquake
shock coverage must extend to all properties of Agoo Playa Resort in La Union?

A. No, sir. We did not make any written instruction, although we made an oral instruction to
that effect of extending the coverage on (sic) the other properties of the company.

Q. And that instruction, according to you, was very important because in April 1987 there was
an earthquake tremor in La Union?

A. Yes, sir.

Q. And you wanted to protect all your properties against similar tremors in the [future], is that
correct?

A. Yes, sir.

Q. Now, after this policy was delivered to you did you bother to check the provisions with
respect to your instructions that all properties must be covered again by earthquake shock
endorsement?

A. Are you referring to the insurance policy issued by American Home Assurance Company
marked Exhibit "G"?

Atty. Mejia: Yes.

 Witness:

A. I examined the policy and seeing that the warranty on the earthquake shock endorsement
has no more limitation referring to the two swimming pools only, I was contented already that
the previous limitation pertaining to the two swimming pools was already removed.

Petitioner also cited and relies on the attachment of the phrase "Subject to: Other Insurance
Clause, Typhoon Endorsement, Earthquake Shock Endorsement, Extended Coverage
Endorsement, FEA Warranty & Annual Payment Agreement on Long Term Policies"29 to the
insurance policy as proof of the intent of the parties to extend the coverage for earthquake shock.
However, this phrase is merely an enumeration of the descriptive titles of the riders, clauses,
warranties or endorsements to which the policy is subject, as required under Section 50, paragraph 2
of the Insurance Code.

We also hold that no significance can be placed on the deletion of the qualification limiting the
coverage to the two swimming pools. The earthquake shock endorsement cannot stand alone. As
explained by the testimony of Juan Baranda III, underwriter for AHAC-AIU:

DIRECT EXAMINATION OF JUAN BARANDA III30

TSN, August 11, 1992
pp. 9-12

Atty. Mejia:

We respectfully manifest that the same exhibits C to H inclusive have been previously
marked by counsel for defendant as Exhibit[s] 1-6 inclusive. Did you have occasion to
review of (sic) these six (6) policies issued by your company [in favor] of Agoo Playa
Resort?

WITNESS:

Yes[,] I remember having gone over these policies at one point of time, sir.

Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to H
respectively carries an earthquake shock endorsement[?] My question to you is, on the basis
on (sic) the wordings indicated in Exhibits C to H respectively what was the extent of the
coverage [against] the peril of earthquake shock as provided for in each of the six (6)
policies?

xxx

WITNESS:

The extent of the coverage is only up to the two (2) swimming pools, sir.

Q. Is that for each of the six (6) policies namely: Exhibits C, D, E, F, G and H?

A. Yes, sir.
ATTY. MEJIA:

What is your basis for stating that the coverage against earthquake shock as provided
for in each of the six (6) policies extend to the two (2) swimming pools only?

WITNESS:

Because it says here in the policies, in the enumeration "Earthquake Shock

Endorsement, in the Clauses and Warranties: Item 5 only (Earthquake Shock
Endorsement)," sir.

ATTY. MEJIA:

Witness referring to Exhibit C-1, your Honor.

WITNESS:

We do not normally cover earthquake shock endorsement on stand alone basis. For
swimming pools we do cover earthquake shock. For building we covered it for full
earthquake coverage which includes earthquake shock…

COURT:

As far as earthquake shock endorsement you do not have a specific coverage for
other things other than swimming pool? You are covering building? They are covered
by a general insurance?

WITNESS:

Earthquake shock coverage could not stand alone. If we are covering building or
another we can issue earthquake shock solely but that the moment I see this, the
thing that comes to my mind is either insuring a swimming pool, foundations, they are
normally affected by earthquake but not by fire, sir.

DIRECT EXAMINATION OF JUAN BARANDA III

TSN, August 11, 1992
pp. 23-25

Q. Plaintiff’s witness, Mr. Mantohac testified and he alleged that only Exhibits C, D, E and F
inclusive [remained] its coverage against earthquake shock to two (2) swimming pools only
but that Exhibits G and H respectively entend the coverage against earthquake shock to all
the properties indicated in the respective schedules attached to said policies, what can you
say about that testimony of plaintiff’s witness?

WITNESS:

As I have mentioned earlier, earthquake shock cannot stand alone without the other
half of it. I assure you that this one covers the two swimming pools with respect to
earthquake shock endorsement. Based on it, if we are going to look at the premium
 there has been no change with respect to the rates. Everytime (sic) there is a renewal
if the intention of the insurer was to include the earthquake shock, I think there is a
substantial increase in the premium. We are not only going to consider the two (2)
swimming pools of the other as stated in the policy. As I see, there is no increase in
the amount of the premium. I must say that the coverage was not broaden (sic) to
include the other items.

COURT:

They are the same, the premium rates?

WITNESS:

They are the same in the sence (sic), in the amount of the coverage. If you are going
to do some computation based on the rates you will arrive at the same premiums,
your Honor.

CROSS-EXAMINATION OF JUAN BARANDA III

TSN, September 7, 1992
pp. 4-6

ATTY. ANDRES:

Would you as a matter of practice [insure] swimming pools for fire insurance?

WITNESS:

No, we don’t, sir.

Q. That is why the phrase "earthquake shock to the two (2) swimming pools only" was
placed, is it not?

A. Yes, sir.

ATTY. ANDRES:

Will you not also agree with me that these exhibits, Exhibits G and H which you have
pointed to during your direct-examination, the phrase "Item no. 5 only" meaning to
(sic) the two (2) swimming pools was deleted from the policies issued by AIU, is it
not?

xxx

ATTY. ANDRES:

As an insurance executive will you not attach any significance to the deletion of the
qualifying phrase for the policies?

WITNESS:
 My answer to that would be, the deletion of that particular phrase is inadvertent.
Being a company underwriter, we do not cover. . it was inadvertent because of the
previous policies that we have issued with no specific attachments, premium rates
and so on. It was inadvertent, sir.

The Court also rejects petitioner’s contention that respondent’s contemporaneous and subsequent
acts to the issuance of the insurance policy falsely gave the petitioner assurance that the coverage of
the earthquake shock endorsement included all its properties in the resort. Respondent only insured
the properties as intended by the petitioner. Petitioner’s own witness testified to this agreement,viz:

CROSS EXAMINATION OF LEOPOLDO MANTOHAC

TSN, January 14, 1992
pp. 4-5

Q. Just to be clear about this particular answer of yours Mr. Witness, what exactly did you tell
Atty. Omlas (sic) to copy from Exhibit "H" for purposes of procuring the policy from Philippine
Charter Insurance Corporation?

A. I told him that the insurance that they will have to get will have the same provisions as this
American Home Insurance Policy No. 206-4568061-9.

Q. You are referring to Exhibit "H" of course?

A. Yes, sir, to Exhibit "H".

Q. So, all the provisions here will be the same except that of the premium rates?

A. Yes, sir. He assured me that with regards to the insurance premium rates that they will be
charging will be limited to this one. I (sic) can even be lesser.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC

TSN, January 14, 1992
pp. 12-14

Atty. Mejia:

Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the provisions and
scope of coverage of Exhibits "I" and "H" sometime in the third week of March, 1990 or
thereabout?

A. Yes, sir, about that time.

Q. And at that time did you notice any discrepancy or difference between the policy wordings
as well as scope of coverage of Exhibits "I" and "H" respectively?

A. No, sir, I did not discover any difference inasmuch (sic) as I was assured already that the
policy wordings and rates were copied from the insurance policy I sent them but it was only
when this case erupted that we discovered some discrepancies.
 Q. With respect to the items declared for insurance coverage did you notice any discrepancy
at any time between those indicated in Exhibit "I" and those indicated in Exhibit "H"
respectively?

A. With regard to the wordings I did not notice any difference because it was exactly the
same P393,000.00 on the two (2) swimming pools only against the peril of earthquake shock
which I understood before that this provision will have to be placed here because this
particular provision under the peril of earthquake shock only is requested because this is an
insurance policy and therefore cannot be insured against fire, so this has to be placed.

The verbal assurances allegedly given by respondent’s representative Atty. Umlas were not proved.
Atty. Umlas categorically denied having given such assurances.

Finally, petitioner puts much stress on the letter of respondent’s independent claims adjuster, Bayne
Adjusters and Surveyors, Inc. But as testified to by the representative of Bayne Adjusters and
Surveyors, Inc., respondent never meant to lead petitioner to believe that the endorsement for
earthquake shock covered properties other than the two swimming pools, viz:

DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and Surveyors, Inc.)

TSN, January 26, 1993
pp. 22-26

Q. Do you recall the circumstances that led to your discussion regarding the extent of
coverage of the policy issued by Philippine Charter Insurance Corporation?

A. I remember that when I returned to the office after the inspection, I got a photocopy of the
insurance coverage policy and it was indicated under Item 3 specifically that the coverage is
only for earthquake shock. Then, I remember I had a talk with Atty. Umlas (sic), and I relayed
to him what I had found out in the policy and he confirmed to me indeed only Item 3 which
were the two swimming pools have coverage for earthquake shock.

xxx

Q. Now, may we know from you Engr. de Leon your basis, if any, for stating that except for
the swimming pools all affected items have no coverage for earthquake shock?

xxx

A. I based my statement on my findings, because upon my examination of the policy I found

out that under Item 3 it was specific on the wordings that on the two swimming pools only,
then enclosed in parenthesis (against the peril[s] of earthquake shock only), and secondly,
when I examined the summary of premium payment only Item 3 which refers to the swimming
pools have a computation for premium payment for earthquake shock and all the other items
have no computation for payment of premiums.

In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the
general rule that insurance contracts are contracts of adhesion which should be liberally construed in
favor of the insured and strictly against the insurer company which usually prepares it.31 A contract of
adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while
the other party merely affixes his signature or his "adhesion" thereto. Through the years, the courts
have held that in these type of contracts, the parties do not bargain on equal footing, the weaker
party's participation being reduced to the alternative to take it or leave it. Thus, these contracts are
viewed as traps for the weaker party whom the courts of justice must protect.32Consequently, any
ambiguity therein is resolved against the insurer, or construed liberally in favor of the insured.33

The case law will show that this Court will only rule out blind adherence to terms where facts and
circumstances will show that they are basically one-sided.34 Thus, we have called on lower courts to
remain careful in scrutinizing the factual circumstances behind each case to determine the efficacy of
the claims of contending parties. In Development Bank of the Philippines v. National
Merchandising Corporation, et al.,35 the parties, who were acute businessmen of experience, were
presumed to have assented to the assailed documents with full knowledge.

We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot claim
it did not know the provisions of the policy. From the inception of the policy, petitioner had required
the respondent to copy verbatim the provisions and terms of its latest insurance policy from AHAC-
AIU. The testimony of Mr. Leopoldo Mantohac, a direct participant in securing the insurance policy of
petitioner, is reflective of petitioner’s knowledge, viz:

DIRECT EXAMINATION OF LEOPOLDO MANTOHAC36

TSN, September 23, 1991
pp. 20-21

Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for those facilities
in Agoo Playa?

A. Yes, sir. I told him that I will agree to that renewal of this policy under Philippine Charter
Insurance Corporation as long as it will follow the same or exact provisions of the previous
insurance policy we had with American Home Assurance Corporation.

Q. Did you take any step Mr. Witness to ensure that the provisions which you wanted in the
American Home Insurance policy are to be incorporated in the PCIC policy?

A. Yes, sir.

Q. What steps did you take?

A. When I examined the policy of the Philippine Charter Insurance Corporation I specifically
told him that the policy and wordings shall be copied from the AIU Policy No. 206-4568061-9.

Respondent, in compliance with the condition set by the petitioner, copied AIU Policy No. 206-
4568061-9 in drafting its Insurance Policy No. 31944. It is true that there was variance in some terms,
specifically in the replacement cost endorsement, but the principal provisions of the policy remained
essentially similar to AHAC-AIU’s policy. Consequently, we cannot apply the "fine print" or "contract
of adhesion" rule in this case as the parties’ intent to limit the coverage of the policy to the two
swimming pools only is not ambiguous.37

IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The petition for certiorari is
dismissed. No costs.

SO ORDERED.
 G.R. No. 166245, April 09, 2008]

ETERNAL GARDENS MEMORIAL PARK CORPORATION, PETITIONER, VS. 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-1920[2] with petitioner Eternal Gardens
Memorial Park Corporation (Eternal). Under the policy, the clients of Eternal who purchased burial lots from
it on installment basis would be insured by Philamlife. The amount of insurance coverage depended upon the
existing balance of the purchased burial lots. The policy was to be effective for a period of one year,
renewable on a yearly basis.

The relevant provisions of the policy are:

ELIGIBILITY.

Any Lot Purchaser of the Assured who is at least 18 but not more than 65 years of age, is indebted to the
Assured for the unpaid balance of his loan with the Assured, and is accepted for Life Insurance coverage 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, 1984[5] 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:
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 isDISMISSED. 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 December 29, 1982. It further ruled that the non-accomplishment of the submitted application
form violated Section 26 of the Insurance Code. Thus, the CA concluded, there being no application form,
Chuang was not covered by 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 evidence on record; and (11) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a
different conclusion.[12] (Emphasis supplied.)
In the instant case, the factual findings of the RTC were reversed by the CA; thus, this Court may review
them.
Eternal claims that the evidence that it presented before the trial court supports its contention that it
submitted a copy of the insurance application of Chuang before his death. In Eternal's letter dated
December 29, 1982, a list of insurable interests of buyers for October 1982 was attached, including Chuang
in the list of new businesses. Eternal added it was noted at the bottom of said letter that the corresponding
"Phil-Am Life Insurance Application Forms & Cert." were enclosed in the letter that was apparently received
by Philamlife on January 15, 1983. Finally, Eternal alleged that it provided a copy of the insurance
application which was signed by Chuang himself and executed before his death.

On the other hand, Philamlife claims that the evidence presented by Eternal is insufficient, arguing that
Eternal must present evidence showing that Philamlife received a copy of 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 contents 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
circumstances of weight and substance have been overlooked, misapprehended, or misinterpreted,[14] that, if
considered, might affect the result of the case.[15]

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

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

Q Where is the original of the application form which is required in case of new coverage?

[Mendoza:]

A It is [a] standard operating procedure for the new client to fill up two copies of this form and the original of
this is submitted to Philamlife together with the monthly remittances and the second copy is remained or
retained with the marketing department of Eternal Gardens.

Atty. Miranda:

We move to strike out the answer as it is not responsive as counsel is merely asking for the location and does
not [ask] for the number of copy.

Atty. Arevalo:

Q Where is the original?

[Mendoza:]

A As far as I remember I do not know where the original but when I submitted with that payment together
with the new clients all the originals I see to it before I sign the transmittal letter the originals are attached
 therein.[16]
In other words, the witness admitted not knowing where the original insurance application was, but believed
that the application was transmitted to Philamlife as an attachment to a transmittal letter.

As to the seeming inconsistencies between the testimony of Manuel Cortez on whether one or two insurance
application forms were accomplished and the testimony of Mendoza on who actually filled out the application
form, these are minor inconsistencies that do not affect the credibility of the witnesses. Thus, we ruled
inPeople 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 therein in favor of the insured, where the contract or policy is prepared by the insurer. A
contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should
be resolved against the insurer; in other words, it should be construed liberally in favor of the insured
and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must
be construed in such a way as to preclude the insurer from 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 terminated by Philamlife by disapproving the
insurance application. The second sentence of Creditor Group Life Policy No. P-1920 on the Effective Date of
Benefit is in the nature of a resolutory condition which would lead to the cessation of the insurance contract.
Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the
insured; it cannot be interpreted as a termination of the insurance contract. The termination of the
insurance contract by the insurer must be explicit and unambiguous.

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

(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; and

(4) To pay Eternal attorney's fees in the amount of PhP 10,000.

No costs.

SO ORDERED.