2.
In the first 4 insurance policies issued by AHAC-AIU from 1984-1987, the risk
Gulf Resorts v. Philippine Charter Insurance INSURANCE
1
GR No.156167 May 16, 2005 Puno, J. GOYO
Plaintiff-Appellee: Accused-Appellant:
Gulf Resorts, Inc. Philippine Charter Insurance
Corporation
Recit Ready Summary
Gulf Resorts is the owner of Plaza Resort, situated in Agoo, La Union. Its
properties were originally insured by American Home Assurance Company (AHAC-
AIU). In the first 4 insurance policies issued by AHAC-AIU from 1984-1987, the risk
of loss from earthquake shock extended only to Gulf Resort’s 2 swimming pools
(Item 5). AHAC-AIU issued another insurance policy for March 14-1989-1990,
where the earthquake endorsement clause was deleted. Subsequently, Gulf
Resorts agreed to be insured with Philippine Charter Insurance Corporation,
provided that the policy wording and rates were to be copied from the previous
policy with AHAC-AIU.
An earthquake struck Central and Northern Luzon. Gulf Resorts’ properties were
damages, including the 2 swimming pools. Gulf Resorts filed a formal demand but,
Philippine Charter denied this on the ground that the insurance policy only covered
the 2 swimming pools. Gulf Resorts contends a rider was attached to the policy
and, it did not limit the scope of insurance coverage to the 2 swimming pools
The issue is W/N the insurance policy against earthquake damage extends
beyond the 2 swimming pools. (NO)
The SC held that the insurance policy issued to Gulf Resorts is only limited to the 2
swimming pools and the other properties of Playa Resort are not covered by the
property insurance.
There is no ambiguity in the insurance contract and the earthquake shock rider, as
Gulf Resorts stated that the swimming pools are the only items covered by the
insurance against loss due to earthquakes. The Court stated that provisions in the
insurance policy should be examined and interpreted in consonance with each
other and should not be construed piecemeal. All parts of the insurance contract
reflect the true intent of the parties.
Contracts of adhesion as contracts where one party prepares the stipulations in the
contract while the other party merely affixes his/her signature. Any ambiguity is
resolved against the insurer (who prepared the contract) and construed liberally in
the insured’s favor.
However, since the policy and its riders are clear about the insurance coverage
against earthquake shock, Gulf Resorts cannot use the doctrine of contract of
adhesion and liberal interpretation of insurance contract in the insured’s favor in
case of ambiguity.
Facts
1. Gulf Resorts is the owner of Plaza Resort, situated in Agoo, La Union. Its
properties were originally insured by American Home Assurance Company
(AHAC-AIU).
of loss from earthquake shock extended only to Gulf Resort’s 2 swimming
pools (Item 5).
3. AHAC-AIU issued another insurance policy for March 14-1989-1990, where
the earthquake endorsement clause was deleted. The
Endorsements/Warranties portion read that the Gulf Resorts renewed its
policy, amounting to 10,700 pesos and a premium of 42,658.14 pesos.
4. Subsequently, Gulf Resorts agreed to be insured with Philippine Charter
Insurance Corporation, provided that the policy wording and rates were to be
copied from the previous policy with AHAC-AIU.
5. On July 16, 1990, an earthquake struck Central and Northern Luzon. Gulf
Resorts’ properties were damages, including the two swimming pools.
6. Gulf Resorts advised Philippine Charter Insurance that it would be making a
claim under their insurance policy for damages to its properties.
7. Bayne Adjusters and Surveyors, Inc. investigated on behalf of Philippine
Charter Insurance and found that there was extensive damage to the
clubhouse and 2 swimming pools.
8. Gulf Resorts filed a formal demand but, Philippine Charter denied this on the
ground that the insurance policy only covered the 2 swimming pools.
9. RTC ruled in favor of Philippine Charter Insurance. It ruled that the insurance
coverage against earthquakes is limited only to the 2 swimming pools. CA
affirmed RTC.
Point/s of Contention
Gulf Resorts – a rider was attached to the policy (Extended Coverage
Endorsement (To Include The Perils of Explosion, Aircraft, Vehicle, and Smoke)
and it did not limit the scope of insurance coverage to the 2 swimming pools.
Issues Ruling
1. W/N the insurance policy against earthquake damage extends 1. NO
beyond the 2 swimming pools.
Rationale
1. The insurance against earthquake damage is limited to the 2 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.
An insurance premium is the consideration paid an insurer for undertaking to
indemnify the insured against a specified peril. In fire, casualty, and marine
insurance, the premium payable becomes a debt as soon as the risk attaches. 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 regarding earthquake shock. This
is consistent with the history of Gulf Resorts’ previous insurance policies from
INSURANCE B2021 | 1
AHAC-AIU.

The Supreme Court held that the insurance policy issued to Gulf Resorts is only
limited to the two swimming pools and the other properties of Playa Resort are not
covered by the property insurance issued by AHAC-AIU. Philippine Charter
Insurance merely copied the previous insurance policies of AHAC-AIU, as
requested by Gulf Resorts.

The Court held that there is no ambiguity in the insurance contract and the
earthquake shock rider, as Gulf Resorts stated that the swimming pools are the
only items covered by the insurance against loss due to earthquakes. The Court
stated that provisions in the insurance policy should be examined and interpreted
in consonance with each other and should not be construed piecemeal. All parts of
the insurance contract reflect the true intent of the parties.

The Supreme Court also defined contracts of adhesion as contracts where one
party prepares the stipulations in the contract while the other party merely affixes
his/her signature (Philippine National Bank vs. Court of Appeals). Any ambiguity is
resolved against the insurer (who prepared the contract) and construed liberally in
the insured’s favor.

However, since the policy and its riders are clear about the insurance coverage
against earthquake shock, Gulf Resorts cannot use the doctrine of contract of
adhesion and liberal interpretation of insurance contract in the insured’s favor in
case of ambiguity.

Furthermore, he paid 393,000 regularly, amounting to coverage for the 2 swimming

pools only.
Disposition
CA affirmed. No costs.

INSURANCE B2021 | 2
 Insurance Law – Elements of an against him, may be insured against. Every person has an insurable interest in the life
Philamcare Systems Inc. vs CA
Insurance Contract and health of himself.
2
G.R. No. 125678 March 18, 2002 J. Ynares- Carl Ilagan
Santiago Section 10 provides:
Petitioners: Respondents:
PHILAMCARE HEALTH SYSTEMS, INC COURT OF APPEALS and JULITA Every person has an insurable interest in the life and health:
TRINOS
a. of himself, of his spouse and of his children;
Recit Ready Summary
b. of any person on whom he depends wholly or in part for education or
support, or in whom he has a pecuniary interest;
Ernani, the deceased husband of Julita, applied for a health care coverage with
c. of any person under a legal obligation to him for the payment of money,
Philamcare Health Systems, Inc. [Philam]. The application was approved by Philam.
respecting property or service, of which death or illness might delay or
Under the agreement, respondent’s husband was entitled to avail of hospitalization
prevent the performance; and
benefits. During the period of his coverage, Ernani suffered a heart attack and was
d. of any person upon whose life any estate or interest vested in him depends.
confined at the Manila Medical Center (MMC) for one month. While her husband was
in the hospital, Julita tried to claim the benefits under the health care agreement.
In the case at bar, the insurable interest of Julita’s husband in obtaining the health
However, Philam denied her claim saying that the Health Care Agreement was VOID.
care agreement was his own health. The health care agreement was in the nature of
According to Philam, there was a concealment regarding Ernani’s medical history.
non-life insurance, which is primarily a contract of indemnity. Once the member
Doctors at the MMC allegedly discovered at the time of Ernani’s confinement that he
incurs hospital, medical or any other expense arising from sickness, injury or other
was hypertensive, diabetic and asthmatic, contrary to his answer in the application
stipulated contingent, the health care provider must pay for the same to the extent
form. Later, on, her husband died. Julita filed an action for damages at RTC against
agreed upon under the contract.
Philam. She asked for reimbursement of her expenses plus moral damages and
attorney’s fees. After trial, the lower court ruled against Philam (Philam to pay
Facts
reimbursement of hospital and medical coverage + moral, exemplary damages). CA
affirmed RTC’s decision (but deleted awards for damages). Hence, this petition by
1. Ernani Trinos [Ernani], deceased husband of respondent Julita Trinos
Philam.
[Julita], applied for a health care coverage with petitioner Philamcare Health
Systems, Inc. [Philam] In the standard application form, he answered NO to
Philam argues that the agreement entered into was NOT an insurance contract.
the following question:
Philam states that only medical and hospitalization benefits are given under the
agreement without any indemnification, unlike in an insurance contract where the
Have you or any of your family members ever consulted or been treated for
insured is indemnified for his loss [Since Julita was asking for reimbursement for
high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma
hospital expenses].
or peptic ulcer? (If Yes, give details).
The issue before the court is W/N the healthcare agreements are considered
2. The application was approved by Philam. Under the agreement,
insurance contracts, thus Philam is liable to indemnify Julita? SC held YES. Philam is
respondent’s husband was entitled to avail of hospitalization benefits,
liable.
whether ordinary or emergency, listed therein. He was also entitled to avail
of "out-patient benefits" such as annual physical examinations, preventive
Section 2 (1) of the Insurance Code defines a contract of insurance as an
health care and other out-patient services.
agreement whereby one undertakes for a consideration to indemnify another
3. During the period of his coverage, Ernani suffered a heart attack and was
against loss, damage or liability arising from an unknown or contingent event.
confined at the Manila Medical Center (MMC) for one month. While her
husband was in the hospital, Julita tried to claim the benefits under the
An insurance contract exists where the following elements concur:
health care agreement. However, Philam denied her claim saying that the
a. The insured has an insurable interest;
Health Care Agreement was VOID.
b. The insured is subject to a risk of loss by the happening of the designated
a. According to Philam, there was a concealment regarding Ernani’s
peril;
medical history. Doctors at the MMC allegedly discovered at the
c. The insurer assumes the risk;
time of Ernani’s confinement that he was hypertensive, diabetic and
d. Such assumption of risk is part of a general scheme to distribute actual
asthmatic, contrary to his answer in the application form.
losses among a large group of persons bearing a similar risk; and
4. After her husband was discharged from the MMC, he was attended by a
e. In consideration of the insurer’s promise, the insured pays a premium.
physical therapist at home. Later, Ernani was admitted at the Chinese
General Hospital. But he died shortly thereafter.
Section 3 of the Insurance Code states that any contingent or unknown event,
5. Julita filed an action for damages at RTC against Philam. She asked for
whether past or future, which may damnify a person having an insurable interest
reimbursement of her expenses plus moral damages and attorney’s

INSURANCE B2021 | 3
 fees.
a. After trial, the lower court ruled against Philam (Philam to pay
reimbursement of hospital and medical coverage + moral,
exemplary damages). CA affirmed RTC’s decision (but deleted
awards for damages). Hence, this petition by Philam.
Points of Contention
Philam argues that:
1. The agreement grants "living benefits," such as medical check-ups and
hospitalization which a member may immediately enjoy so long as he is alive
upon effectivity of the agreement until its expiration one-year thereafter.
2. Also points out that only medical and hospitalization benefits are given under
the agreement without any indemnification, unlike in an insurance
contract where the insured is indemnified for his loss.
3. Since Health Care Agreements are only for a period of one year, as
compared to insurance contracts which last longer, Philam argues that the
incontestability clause does not apply, as the same requires an effectivity
period of at least two years.
Issues Ruling
1. W/N the healthcare agreements are considered insurance 1. YES
contracts, thus Philam is liable to indemnify Julita?
2. W/N there was misrepresentation on the part of Julita’s 2. NO
husband so as to invalidate the agreement?
Rationale
Philam is obliged to indemnify Julita as the agreement is considered an
insurance contract - a non-life insurance contract. [RELEVANT]
Section 2 (1) of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event.
An insurance contract exists where the following elements concur:
f. The insured has an insurable interest;
g. The insured is subject to a risk of loss by the happening of the designated
peril;
h. The insurer assumes the risk;
i. 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
j. In consideration of the insurer’s promise, the insured pays a premium.
Section 3 of the Insurance Code states that any contingent or unknown event,
whether past or future, which may damnify a person having an insurable interest
against him, may be insured against. Every person has an insurable interest in the life
and health of himself.
Section 10 provides:
Every person has an insurable interest in the life and health:
e. of himself, of his spouse and of his children;
f. of any person on whom he depends wholly or in part for education or
support, or in whom he has a pecuniary interest;
g. of any person under a legal obligation to him for the payment of money,
respecting property or service, of which death or illness might delay or
prevent the performance; and
h. of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of Julita’s husband in obtaining the health
care agreement was his own health. The health care agreement was in the nature of
non-life insurance, which is primarily a contract of indemnity. Once the member
incurs hospital, medical or any other expense arising from sickness, injury or other
stipulated contingent, the health care provider must pay for the same to the extent
agreed upon under the contract.
There was no concealment of material facts on the part of Julita’s husband
which would invalidate the contract
Philam argues that Julita’s husband concealed a material fact in his application. It
appears that in the application for health coverage, Philam required Julita’s husband
to sign an express authorization for any person, organization or entity that has any
record or knowledge of his health to furnish any and all information relative to any
hospitalization, consultation, treatment or any other medical advice or examination.
The healthcare agreement signed by Julita’s husband shows:
“That any physician is, by these presents, expressly authorized to disclose or
give testimony at any time relative to any information acquired by him in his
professional capacity upon any question affecting the eligibility for health care
coverage of the Proposed Members”
In addition to the above condition, petitioner additionally required the applicant for
authorization to inquire about the applicant’s medical history, thus:
“I hereby authorize any person, organization, or entity that has any record or
knowledge of my health and/or that of __________ to give to the PhilamCare
Health Systems, Inc. any and all information relative to any
hospitalization, consultation, treatment or any other medical advice or
examination.”
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which
reads:
“Failure to disclose or misrepresentation of any material information by the
member in the application or medical examination, whether intentional or
unintentional, shall automatically invalidate the Agreement from the very
beginning and liability of Philamcare shall be limited to return of all
Membership Fees paid.”
The answer assailed by Philam was in response to the question relating to the
medical history of the applicant. This largely depends on opinion rather than fact,
especially coming from Julita’s husband who was not a medical doctor. Where
INSURANCE B2021 | 4
matters of opinion or judgment are called for, answers made in good faith and without
intent to deceive will not avoid a policy even though they are untrue.

Although false, a representation of the expectation, intention, belief, opinion, or

judgment of the insured will not avoid the policy if there is no actual fraud in inducing
the acceptance of the risk, or its acceptance at a lower rate of premium, and this is
likewise the rule although the statement is material to the risk, if the statement is
obviously of the foregoing character, since in such case the insurer is not justified in
relying upon such statement, but is obligated to make further inquiry.

The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract. Concealment as a defense for the health care
provider or insurer to avoid liability is an affirmative defense and the duty to establish
such defense by satisfactory and convincing evidence rests upon the provider or
insurer. In any case, with or without the authority to investigate, Philam is liable for
claims made under the contract. Having assumed a responsibility under the
agreement, petitioner is bound to answer the same to the extent agreed upon.

Rescission cannot be availed of by Philam

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to
rescind a contract of insurance." The right to rescind should be exercised previous to
the commencement of an action on the contract.17In this case, no rescission was
made. Besides, the cancellation of health care agreements as in insurance policies
require the concurrence of the following conditions:

a. Prior notice of cancellation to insured;

b. Notice must be based on the occurrence after effective date of the policy of
one or more of the grounds mentioned;
c. Must be in writing, mailed or delivered to the insured at the address shown in
the policy;
d. Must state the grounds relied upon provided in Section 64 of the Insurance
Code and upon request of insured, to furnish facts on which cancellation is
based.18

None of the above pre-conditions was fulfilled in this case. When the terms of
insurance contract contain limitations on liability, courts should construe them in such
a way as to preclude the insurer from non-compliance with his obligation. 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. This is equally applicable
to Health Care Agreements.

Disposition

WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed

decision of the Court of Appeals dated December 14, 1995 is AFFIRMED.

INSURANCE B2021 | 5
 [Insurance] – Insurance contract Herrer died on Dec. 20, 1917.
Enriquez v. Sun life
when deemed perfected? 5. The question is whether Herrer received notice of acceptance of his application
03 before he died.
[G.R. No. L- [Date] [Malcolm, J.] [Arc]
15895] 6. Chief clerk of Manila office of Sun Life testified that he prepared the letter for
notice of acceptance and handed it to the local manager. However, the Chief
Petitioners: Respondents:
Rafael Enriquez, administrator of the Sun Life Assurance Company of Canada clerk said he knew nothing of what became of it after giving it to the local
manager.
estate of the late Joaquin Ferrer
7. The local manager on the other hand said that he received this letter and signed
Recit Ready Summary
it. He then sent it back to the chief clerk and placed on the mailing desk for
On Sept. 24 1917, Herrer made an application to SunLife through its office in Manila
transmission.
for life annuity.2 days later, he paid the sum of 6,000 pesos to the company’s
8. For Enriquez (plaintiff, administrator of estate of Herrer), he testified to having
manager in its Manila office and was given a receipt. On Nov. 26, 1917, the head
prepared the will of Herrer. Herrer told him his application for a life annuity and
office gave notice of acceptance by cable to Manila.  On the same date, the Manila
that he said that the only document relating to the transaction in his possession
office prepared a letter notifying Herrer that his application has been accepted and
was the receipt.
this was placed in the ordinary channels of transmission, but as far as known
9. Enriquez said he found no letter of notification from the insurance company to
was never actually mailed and never received by Herrer.
Mr. Herrer.
Herrer died on Dec. 20, 1917.  The plaintiff as administrator of Herrer’s estate brought
this action to recover the 6,000 pesos paid by the deceased. Enriquez is now alleging
Dates:
that the contract for life annuity between Mr. Herrer and Sun life was not perfected
September 4, 1917- Herrer applied to Sun Life for life annuity
because the letter of acceptance was never received by Mr. Herrer before he died.
November 26- the head office in Canada gave notice of acceptance by cable to its
Issue: Whether or not the insurance contract was perfected.
Manila office
NO.
December 4- policy was issued in Canada
According to the receipt received by MR. Herrer, three things had to be accomplished
December 18- Torres wrote to the Manila office saying that Herrer desired to
by the insurance company before there was a contact
withdraw his application
1. Medical examination of the applicant
December 20- Herrer died
2. Approval of the application by the head office
Dec 21- Local office replied to the letter of Atty Torres saying that the policy had
3. Approval to be communicated in some way by the company to the applicant
been issued
Issues Ruling
The contract for life annuity was NOT perfected because it had NOT been proved
Whether or not the insurance contract was perfected. 3. NO
satisfactorily that the acceptance of the application ever came to the knowledge of the
applicant.  An acceptance of an offer of insurance NOT actually or constructively
communicated to the proposer does NOT make a contract of insurance. Rationale
1. The contract of life annuity between Mr. Herrer and Sun Life was never
Facts
perfected
1. On September 24,1917, Joaquin Herrer applied to the Sun Life Assurance
The Insurance Act is silent as to the methods to be followed in order that there may
Company of Canada (Sun life) through its office in Manila for a life annuity. 1 He
be a contract of insurance. On the other hand, the Civil Code provides that in matters
later paid the sum of 6,000 pesos to the manager of the company’s Mania office
which are governed by special laws, any deficiency shall be supplied by the
and was given a receipt.
provisions of the Civil Code. The Civil Code provides that consent is shown by the
2. The application was forwarded to the head office in Canada. On November 26,
concurrence of offer and acceptance with respect to the thing and the consideration
1917, the head office gave notice of acceptance by cable to Manila
which are to constitute the contract. The law applicable to the case is found to be the
3. December 4, 1917, the policy was issued in Canada.
second paragraph of article 1262 of the Civil Code proving that an acceptance made
4. December 8, Atty Torres wrote to the Manila office of the company stating that
by letter shall not bind the person making the offer except from the time it came to his
Herrer desired to whitdraw his application. The following day, the local office
knowledge.
replied to Atty. Torres, stating that the policy had been issued. This letter was
receied by Atty. Torres on the morning of December 21, 1917. However, Mr.
Also, according to the receipt received by Mr. Herrer, three things had to be
accomplished by the insurance company before there was a contact
1
Life annuity is the opposite of a life insurance.  In life annuity, a big amount is given to the 1. Medical examination of the applicant
insurance company, and if after a certain period of time the insured is stil living, he is entitled to 2. Approval of the application by the head office
regular smaller amounts for the rest of his life. Examples of Life annuity are pensions.  Life 3. Approval to be communicated in some way by the company to the applicant
Insurance on the other hand, the insured during the period of the coverage makes small regular
payments and upon his death, the insurer pays a big amount to his beneficiaries. In this case, the head office in Canada did accept the application, did cable the

INSURANCE B2021 | 6
Manila office of such fact, did issue the policy and did, through its agent in Manila,
actually write the letter of notification and placed it in the usual channels for
transmission to the addressee. However, the letter was never deposited in the post-
office, properly addressed and stamped. Hence, Mr. Herrer never received the letter
before he died. There was no contract of life annuity perfected between the parties.
As such, the 6,000 pesos given by Mr. Herrer should be recovered by his estate.
Disposition

The contract of life annuity in the case at bar was not perfected because it has
not been proved satisfactorily, that the acceptance of the application came to
the knowledge of Mr. Herrer.

INSURANCE B2021 | 7
 Insurance Law – Requisites for a and the acceptance absolute. In the case at bar, the following conditions were
Perez vs CA
Valid Contract imposed by the respondent company for the perfection of the contract of insurance:
4
G.R. No. 112329 January 28, 2000 J. Ynares- Rizza Mationg
Santiago (a) a policy must have been issued;
(b) the premiums paid; and
Petitioners: Respondents:
VIRGINIA A. PEREZ COURT OF APPEALS and BF LIFEMAN (c) the policy must have been delivered to and accepted by the applicant while he is
in good health.
INSURANCE CORPORATION
Recit Ready Summary
When Primitivo died on November 25, 1987, his application papers for additional
insurance coverage were still with the branch office of respondent corporation in
Primitivo B. Perez [Primitivo] had been insured with the BF Lifeman Insurance
Gumaca and it was only two days later, or on November 27, 1987, when Lalog
Corporation since 1980 for P20,000. Sometime in October 1987, an agent of the
personally delivered the application papers to the head office in Manila.
insurance corporation, Rodolfo Lalog [Lalog], visited Primitivo. Lalog convinced
Consequently, there was absolutely no way the acceptance of the application
Primitivo to apply for additional insurance coverage of P50,000.00. On Oct. 20, 1987,
could have been communicated to the applicant for the latter to accept
Primitivo accomplished an application form for the additional P50,000 insurance
inasmuch as the applicant at the time was already dead.
coverage. Lalog forwarded the application for additional insurance of Perez, together
Facts
with all its supporting papers, to the office of BF Lifeman Insurance Corporation at
Gumaca, Quezon which office was supposed to forward the papers to the Manila
1. Primitivo B. Perez [Primitivo] had been insured with the BF Lifeman
office.
Insurance Corporation since 1980 for P20,000. Sometime in October 1987,
an agent of the insurance corporation, Rodolfo Lalog [Lalog], visited
On Nov. 25, 1987, Perez died in an accident. At the time of his death, his application
Primitivo. Lalog convinced Primitivo to apply for additional insurance
papers for the additional insurance of P50,000.00 were still with the Gumaca office. It
coverage of P50,000.00, to avail of the ongoing promotional discount of
was only on November 27, 1987 that said papers were received in Manila. Without
P400.00 if the premium were paid annually.
knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation
2. Oct. 20, 1987 - Primitivo accomplished an application form for the
approved the application and issued the corresponding policy for the P50,000.00
additional P50,000 insurance coverage.
on December 2, 1987.
3. On November 1, 1987, Perez was made to undergo the required medical
examination, which he passed. Pursuant to the established procedure of
Petitioner Virginia Perez [wife of Primitivo] went to Manila to claim the benefits under
the company, Lalog forwarded the application for additional insurance of
the insurance policies of the deceased. The insurance company DENIED the claim
Perez, together with all its supporting papers, to the office of BF Lifeman
for the additional P50,000 since the insurance company maintained that the
Insurance Corporation at Gumaca, Quezon which office was supposed to
insurance for P50,000.00 had not been perfected at the time of the death of Primitivo
forward the papers to the Manila office.
Perez.
4. On November 25, 1987, Perez died in an accident. He was riding in a
banca which capsized during a storm.
BF Lifeman Insurance Corporation filed a complaint against Virginia A. Perez seeking
a. At the time of his death, his application papers for the additional
the rescission and declaration of nullity of the insurance contract in question.
insurance of P50,000.00 were still with the Gumaca office.
Petitioner Virginia A. Perez, on the other hand, averred that the deceased had fulfilled
b. Lalog testified that when he went to follow up the papers, he found
all his prestations under the contract and all the elements of a valid contract are
them still in the Gumaca office and so he personally brought the
present. Trial Court rendered a decision in favour of Virginia. CA reversed the
papers to the Manila office of BF Lifeman Insurance Corporation.
decision of the trial court. Hence, this petition.
It was only on November 27, 1987 that said papers were received
in Manila.
The issue before the court was W/N there was a valid insurance contract at the
c. Without knowing that Perez died on November 25, 1987, BF
time of death of Primitivo? The SC held NO.
Lifeman Insurance Corporation approved the application and
issued the corresponding policy for the P50,000.00 on
Under Article 1318 of the Civil Code, there is no contract unless the following
December 2, 1987.
requisites concur:
5. Petitioner Virginia Perez [wife of Primitivo] went to Manila to claim the
benefits under the insurance policies of the deceased. She was paid
(1) Consent of the contracting parties;
P40,000.00 under the first insurance policy for P20,000.00 (double
(2) Object certain which is the subject matter of the contract;
indemnity in case of accident) but the insurance company refused to
(3) Cause of the obligation which is established.
pay the claim under the additional policy coverage of P50,000.00.
a. The insurance company maintained that the insurance for
Consent must be manifested by the meeting of the offer and the acceptance upon the
P50,000.00 had not been perfected at the time of the death of
thing and the cause which are to constitute the contract. The offer must be certain
Primitivo Perez.

INSURANCE B2021 | 8
 6. BF Lifeman Insurance Corporation filed a complaint against Virginia A.
Perez seeking the rescission and declaration of nullity of the insurance
contract in question. Petitioner Virginia A. Perez, on the other hand,
averred that the deceased had fulfilled all his prestations under the contract
and all the elements of a valid contract are present.
7. Trial Court rendered a decision in favour of Virginia. CA reversed the
decision of the trial court. Hence, this petition.
Points of Contention
BF Life Insurance Corporation: the insurance for P50,000.00 had not been
perfected at the time of the death of Primitivo Perez
Virginia Perez: the deceased had fulfilled all his prestations under the contract and
all the elements of a valid contract are present
Issues Ruling
3. W/N there was a perfected contract of insurance at the time of 4. NO
death of Primitivo?
Rationale
No contract of insurance was perfected at the time of death of Primitivo.
Insurance is a contract whereby, for a stipulated consideration, one party undertakes
to compensate the other for loss on a specified subject by specified perils.7 A
contract, on the other hand, is a meeting of the minds between two persons whereby
one binds himself, with respect to the other to give something or to render some
service.
Under Article 1318 of the Civil Code, there is no contract unless the following
requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Consent must be manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. The offer must be certain
and the acceptance absolute. The perfection of the contract of insurance between the
deceased and respondent corporation was further conditioned upon compliance with
the following requisites stated in the application form:
“There shall be no contract of insurance unless and until a policy is issued on
this application and that the said policy shall not take effect until the premium
has been paid and the policy delivered to and accepted by me/us in person
while I/We, am/are in good health.”
Under the abovementioned provision, it is only when the applicant pays the
premium and receives and accepts the policy while he is in good health that the
contract of insurance is deemed to have been perfected.
When Primitivo died on November 25, 1987, his application papers for additional
insurance coverage were still with the branch office of respondent corporation in
Gumaca and it was only two days later, or on November 27, 1987, when Lalog
personally delivered the application papers to the head office in Manila.
Consequently, there was absolutely no way the acceptance of the application
could have been communicated to the applicant for the latter to accept
inasmuch as the applicant at the time was already dead.
The conditions imposed in the application form is not a potestative condition.
Perez insists that the condition imposed by respondent corporation that a policy must
have been delivered to and accepted by the proposed insured in good health is
potestative being dependent upon the will of the corporation and is therefore null and
void.
A potestative condition depends upon the exclusive will of one of the parties. For this
reason, it is considered void. Article 1182 of the New Civil Code states: When the
fulfillment of the condition depends upon the sole will the debtor, the conditional
obligation shall be void.
In the case at bar, the following conditions were imposed by the respondent company
for the perfection of the contract of insurance:
(a) a policy must have been issued;
(b) the premiums paid; and
(c) the policy must have been delivered to and accepted by the applicant while he is
in good health.
On the contrary, the health of the applicant at the time of the delivery of the policy is
beyond the control or will of the insurance company. Rather, the condition is a
suspensive one whereby the acquisition of rights depends upon the happening of an
event which constitutes the condition. In this case, the suspensive condition was the
policy must have been delivered and accepted by the applicant while he is in good
health.
A contract of insurance, like other contracts, must be assented to by both
parties either in person or by their agents. So long as an application for
insurance has not been either accepted or rejected, it is merely an offer or
proposal to make a contract. The contract, to be binding from the date of
application, must have been a completed contract, one that leaves nothing to be
done, nothing to be completed, nothing to be passed upon, or determined, before it
shall take effect. There can be no contract of insurance unless the minds of the
parties have met in agreement.
It should be noted that an application is a mere offer which requires the overt act of
the insurer for it to ripen into a contract. Delay in acting on the application does
not constitute acceptance even though the insured has forwarded his first
premium with his application. The corporation may not be penalized for the delay in
the processing of the application papers. Moreover, while it may have taken some
time for the application papers to reach the main office, in the case at bar, the same
was acted upon less than a week after it was received.
Disposition
WHEREFORE, the decision rendered by the Court of Appeals in CA-G.R. CV No. 35529 is
AFFIRMED insofar as it declared Insurance Policy No. 056300 for P50,000.00 issued by BF
Lifeman Insurance Corporation of no force and effect and hence null and void. No costs.
INSURANCE B2021 | 9
 INSURANCE – Contract of
DE LIM v. SUN LIFE OF CANADA Insurance to be binding requires
5 acceptance
G.R. No. L-15774 November 29, J. Malcolm Caryl Medina
1920
Petitioners: Respondents:
PILAR C. DE LIM SUN LIFE ASSURANCE COMPANY OF
CANADA
Recit Ready Summary
On July 6, 1917, Luis Lim applied for a life insurance policy to Sun Life Assurance
Company of Canada in the sum of P5,000 with his wife Pilar de Lim as beneficiary.
The first premium of P433 was paid and a “provisional policy” was issued. Lim died a
month after the issuance of the provisional policy but before the approval of his
application. His wife then filed an action to recover the P5,000 life insurance based on
the issued “provisional policy.” The receipt states that the life of Lim is to be assured
in accordance with the terms of the policy which may be granted for four months from
the date of the application, provided that the company shall confirm the agreement by
issuing a policy upon submission to the head office. It also states that should the
company not issue such, the agreement shall be void and the company shall be held
not to have been on risk and the premium be returned.
The issuance of the receipt did not create a contract of insurance pending
approval of the application. The granting of the policy in four months is expressly
made subjected to the affirmative condition that "the company shall confirm this
agreement by issuing a policy on said application when the same shall be submitted
to the head office in Montreal." Moreover, the receipt contained the stipulation that
“Should the company not issue such a policy, then this agreement shall be null and
void ab initio, and the company shall be held not to have been on the risk." Hence,
the so-called provisional policy amounts to nothing but an acknowledgment on behalf
of the company, that it has received the first year's premium upon a policy to be
issued if the application is accepted by the company.
It is of course a primary rule that a contract of insurance, like other contracts,
must be assented to by both parties either in person or by their agents. An
application for insurance which has not been either accepted or rejected is
merely an offer or proposal to make a contract. The contract, to be binding from
the date of the application, must have been a completed contract, one that leaves
nothing to be done, nothing to be completed, nothing to be passed upon, or
determined, before it shall take effect. There can be no contract of insurance
unless the minds of the parties have met in agreement. Here, there was no
contract of insurance as the approval is still required before it shall take effect.
The second rule laid down on a book by Joyce on Insurance and which is applicable
in this case is: “Where an agreement is made between the applicant and the agent,
either by signing an application stipulating that no liability shall attach until the
principal approves the risk and a receipt is given, such acceptance is merely
conditional, and the acceptance requires the act of the company in approving or
rejecting.” A perusal of this rule shows that a "binding receipt" does not always mean
that there is already a contract of insurance especially when the receipt expressly
stipulates that further approval is required.
Facts + Procedural History
1. On July 6, 1917, Luis Lim of Zamboanga applied to Sun Life Assurance
Company of Canada for a policy of insurance on his life in the sum of P5,000. In
his application Lim designated his wife, Pilar C. de Lim, as the beneficiary.
2. The first premium of P433 was paid by Lim, and upon such payment the
company issued a "provisional policy."
3. Lim died on August 23, 1917, after the issuance of the provisional policy but
before the home office of the insurance company approves his application.
4. Pilar C. de Lim then filed an action to recover from Sun Life the amount named
in the provisional policy (P5,000).
5. The "provisional policy", signed by the President, states that the sum of 433 was
received as premium for a life assurance policy on the life of Lim for P5,000 and
for which an application has been made. That his life is to be assured in
accordance with the terms and conditions contained in the policy which may be
granted by it for four months only from the date of the application, provided that
the Company shall confirm this agreement by issuing a policy on said
application upon submission to the Head Office in Montreal. Should the
Company not issue such, then this agreement shall be null and void ab initio,
and the Company shall be held not to have been on the risk at all, the amount
herein acknowledged shall be returned.
6. The trial court sustained a demurrer to evidence by Sun Life and dismissed the
case.
Points of Contention
De Lim relies on Joyce on Insurance. In Volume I of the book, Joyce states the
general rule concerning the agent's receipt pending approval or issuance of a policy.
The first rule laid down is if the act by the agent of accepting the risk and giving a
receipt is within the scope of the agent's authority and nothing remains but to issue a
policy then the receipt will bind the company.
Issues Ruling
4. Whether, pending approval of the application, a temporary 5. No
insurance on the life of Lim based on the “provisional policy”
receipt is created
Rationale
1. The issuance of the receipt did not create a contract of insurance pending
approval of the application
a. The provisional policy "for four months only from the date of this
application" has the word “provided” immediately following it. The word
provided has the meaning of "if." Otherwise stated, the policy for four
months is expressly made subjected to the affirmative condition
that "the company shall confirm this agreement by issuing a policy
on said application when the same shall be submitted to the head
office in Montreal."
b. Moreover, the policy contained the stipulation that “Should the company
not issue such a policy, then this agreement shall be null and void ab
initio, and the company shall be held not to have been on the risk."
c. Hence, the so-called provisional policy amounts to nothing but an
acknowledgment on behalf of the company, that it has received the
sum of money agreed upon as the first year's premium upon a
policy to be issued if the application is accepted by the company.
d. It is of course a primary rule that a contract of insurance, like other
INSURANCE B2021 | 10
 contracts, must be assented to by both parties either in person or
by their agents. An application for insurance which has not been
either accepted or rejected is merely an offer or proposal to make a
contract. The contract, to be binding from the date of the
application, must have been a completed contract, one that leaves
nothing to be done, nothing to be completed, nothing to be passed
upon, or determined, before it shall take effect. There can be no
contract of insurance unless the minds of the parties have met in
agreement.
e. Here, there was no contract of insurance.
f. The reliance on the first rule laid down in Joyce that “if the act by the
agent of accepting the risk and giving a receipt is within the scope of the
agent's authority and nothing remains but to issue a policy then the
receipt will be binding” is misplaced. Here, while nothing remained but to
issue the policy, this was made an express condition to the contract.
g. The second rule laid down by Joyce and which is applicable is:
“Where an agreement is made between the applicant and the agent,
either by signing an application stipulating that no liability shall attach
until the principal approves the risk and a receipt is given, such
acceptance is merely conditional, and the acceptance requires the act of
the company in approving or rejecting.” A perusal of this rule shows that
a "binding receipt" does not always mean that there is already a contract
of insurance.
h. The third rule announced by Joyce (not relevant) is: “Where the
acceptance by the agent is within the scope of his authority and a receipt
containing a contract for insurance for a specific time which is not
absolute but conditional upon the acceptance or rejection by the
principal, the insurance covers the specified period unless the risk is
declined within that period.”
i. It was previously held in the case of Steinle vs. New York Life Insurance
Co., that no contract of insurance was created based on a receipt
acknowledging payment of the premium. The receipt expressly declared
that if the application was accepted by the company, the insurance shall
take effect from the date of the application but that if the application was
not accepted, the money shall be returned.
j. In the case of Cooksey vs. Mutual Life Insurance Co. the receipt
stipulated that the insurance was to become effective only when the
application was approved and the policy is issued. The court held that
the transaction did not amount to an agreement for preliminary or
temporary insurance and while it is an exercise among life insurance
companies, upon receipt of an application, to enter into a contract of a
so-called "binding receipt" for temporary insurance pending the
consideration of the application, the stipulation expressly states that the
insurance shall become effective only when the "application shall be
approved and the policy duly signed by the secretary at the head office
of the company and issued."
k. Hence, like the cited cases, in this case, the stipulation does not create a
contract of insurance.

Disposition
Sun Life Assurance Company of Canada shall pay to the estate of the late Luis Lim y
Garcia only the premium of P433.

INSURANCE B2021 | 11
 INSURANCE – D. Applicability of 130381)
MUSÑGI v. WEST COAST LIFE the Civil Code ; Requisites for a
6 valid contract under Civil Code 2. These 2 policies are valid and subsisting at the time of Arsenio’s death on
G.R. No. L- August 30, 1935 IMPERIAL, J. Mulingtapang December 30, 1932; the fact of said death is evidenced by the
41794  accompanying death certificate issued by the Civil Register of Pasay, Rizal.
Petitioners: Respondents:
3. The plaintiffs here are the beneficiaries in said policies, Segundina Musñgi of
SEGUNDINA MUSÑGI, ET AL. WEST COAST LIFE INSURANCE CO.
Policy No. 129454, and Buenaventura Garcia of Policy No. 130381; Demand
Recit Ready Summary
was made upon West Coast for the payment of the 2 policies, but West
Arsenio T. Garcia was twice insured by West Coast Life Insurance Co. in the sum of
Coast refused to pay.
P5,000 (evidenced by Policy 1, effective July 1931), and P10,000 (Policy 2, effective
as of October 1931). The plaintiffs here are the beneficiaries in said policies -
4. In both applications for life insurance, Arsenio had to answer inquiries as to
Segundina Musñgi of Policy 1, and Buenaventura Garcia of Policy 2. In both
his state of health and that of his family, which he did voluntarily. The
applications for life insurance, Arsenio had to answer this question: What physician
question asked in both applications is: What physician or practitioner or
or practitioner or any other person not named above have you consulted or
any other person not named above have you consulted or been treated
been treated by, and for what illness, or ailment? Arsenio’s Answers: First
by, and for what illness, or ailment? (If none, so state.) Arsenio’s
Application – “None”; Second Application – “NO”.
Answers: First Application – “None”; Second Application – “NO”.
Arsenio’s answers were one of the causes or considerations for the issuance of the
policies. After Arsenio’s death and as a result of the demand made by the
5. Arsenio’s answers as well as his other statements contained in his
beneficiaries upon West Coast to pay the value of the policies, the latter discovered
applications were one of the causes or considerations for the issuance of the
that the answers were false and fraudulent, because the truth was that Arsenio,
policies. After Arsenio’s death and as a result of the demand made by the
before answering and signing the applications and before the issuance of the
beneficiaries upon West Coast to pay the value of the policies, the latter
policies, had been treated in the General Hospital by Dr. Pilar Cruz for different
discovered that the answers were false and fraudulent, because the truth
ailments - chronic pyelocystitis and for incipient pulmonary tuberculosis,
was that Arsenio, before answering and signing the applications and
among others. West Coast contended that the two policies did not create any valid
before the issuance of the policies, had been treated in the General
obligation because they were fraudulently obtained by the insured.
Hospital by a lady physician for different ailments.
ISSUE is WON Arsenio’s answers were fraudulent, thus making the insurance
contracts null and void – YES.
6. It turned out that between May 13 and 19, 1929, Arsenio had entered the
General Hospital in Manila, and was treated by Doctor Pilar V. Cruz for
When not otherwise specially provided for by the Insurance Law, the contract
peptic ulcer and chronic catarrhal nasopharyngitis; on August 5, 1930,
of life insurance is governed by the general rules of the civil law regarding
he entered the same hospital and was treated by the same physician for
contracts. Article 1261 of the Civil Code provides that there is no contract unless
chronic pyelocystitis and for incipient pulmonary tuberculosis; on the
there should be, in addition to consent and a definite object, a consideration for the
13th of the same month he returned to the hospital and was treated by the
obligation established. Article 1276 provides that the statement of a false
same physician for chronic suppurative pyelocystitis and for chronic
consideration shall render the contract void. HERE, the 2 answers being one of
bronchitis; on the 20th of the same month he again entered the hospital
the considerations of the policies, and it appearing that they are false and fraudulent,
and was treated by the same doctor for acute tracheo-bronchitis and
it is evident that the insurance contracts were null and void and did not give
chronic suppurative pyelocystitis; on the 27th of the same month he
rise to any right to recover their value or amount. Arsenio knew that he had
again entered the same hospital and was treated for the same ailments; on
suffered from a number of ailments, including incipient pulmonary tuberculosis, before
December 11, 1930, he again entered the hospital and was treated for the
subscribing the applications, yet he concealed them and omitted the hospital where
same ailments; on the 18th of the same month, he again entered the
he was confined as well as the name of the lady physician who treated him. That this
hospital and was treated for the same ailments; on the 28th of the same
concealment and the false statements constituted fraud, is likewise clear, because by
month he again entered the hospital and was treated for the same ailments,
reason of such, West Coast accepted the risk which it would otherwise have flatly
and, finally, on January 11, 1931, he again entered the hospital and was
refused. Case law held that in an action on a life insurance policy where the evidence
treated by the same doctor for the same ailments.
conclusively shows that the answers to questions concerning diseases were untrue,
Procedural History
the truth or falsity of the answers become the determining factor. If the policy was
The appealed decision (presumably the lower court) holds that Arsenio’s health
procured by fraudulent representations, the contract of insurance apparently set forth
before the acceptance of his applications and the issuance of the policies could
was never legally existent.
neither be discussed nor questioned by West Coast because Arsenio was
Facts
examined by 3 physicians of West Coast and all of them unanimously certified that
1. Arsenio T. Garcia was twice insured by West Coast Life Insurance Co. in the
he was in good health and that he could be properly insured.
sum of P5,000 (evidenced by Policy No. 129454, effective July 25, 1931),
and P10,000 (effective as of October 20, 1931, as evidenced by Policy No. Points of Contention

INSURANCE B2021 | 12
West Coast contended that the two policies did not create any valid obligation
because they were fraudulently obtained by the insured.
Issues Ruling
5. WON Arsenio’s answers were fraudulent, thus making the 6. YES
insurance contracts null and void
Rationale
Preliminary
 The question here is NOT whether the physicians' reports or the answers
which the insured gave to them relative to his health were correct or not. It is
admitted that such information was substantially correct, in the sense that
West Coast’s physicians who examined Arsenio, for failure to make a
detailed examination, did not discover the ailments suffered by the insured.
 However, the question raised for this case’s determination is whether the
two answers given by the insured in his applications are false, and if
they were the cause, or one of the causes, which induced the
defendant to issue the policies.
LAW:
 When not otherwise specially provided for by the Insurance Law, the
contract of life insurance is governed by the general rules of the civil
law regarding contracts.
 Article 1261 of the Civil Code provides that there is no contract unless there
should be, in addition to consent and a definite object, a consideration for
the obligation established. Article 1276 provides that the statement of a
false consideration shall render the contract void.
CASE:
 The 2 answers being one of the considerations of the policies, and it
appearing that they are false and fraudulent, it is evident that the
insurance contracts were null and void and did not give rise to any
right to recover their value or amount.
 HERE, Arsenio knew that he had suffered from a number of ailments,
including incipient pulmonary tuberculosis, before subscribing the
applications, yet he concealed them and omitted the hospital where he was
confined as well as the name of the lady physician who treated him. That
this concealment and the false statements constituted fraud, is likewise
clear, because by reason of such, West Coast accepted the risk which it
would otherwise have flatly refused.
In Argente vs. West Coast Life Insurance Co., Court held:
 That the following concealments and false and fraudulent statements
rendered the policy null and void: the insured concealed from the physician
who examined her that she had consulted and had been treated by another
physician for cerebral congestion and Bell's Palsy, and that she was
suffering from "alcoholism".
 one ground for the rescission of a contract of insurance is
concealment which under Section 25 of the Insurance Act defines as
"A neglect to communicate that which a party knows and ought to
communicate".
 Argument: the alleged concealment was immaterial and insufficient to avoid
the policy. Court cannot agree.
- In an action on a life insurance policy where the evidence
conclusively shows that the answers to questions concerning
diseases were untrue, the truth or falsity of the answers become
the determining factor. If the policy was procured by fraudulent
representations, the contract of insurance apparently set forth was
never legally existent. It can fairly be assumed that had the true facts
been disclosed by the assured, the insurance would never have been
granted.
Court also cited Joyce, The Law of Insurance, second edition, volume 3, Chapter LV,
which provides the following concepts:
 Concealment exists where the assured has knowledge of a fact
material to the risk, and honesty, good faith and fair dealing requires
that he should communicate it to the assured, but he designedly and
intentionally withholds the same.
 Concealment must, in the absence of inquiries, be not only material, but
fraudulent, or the fact must have been intentionally withheld; There is no
concealment in silence even though it may seem so, since it is a question of
fact. Nor is there a concealment justifying a forfeiture where the fact of
insanity is not disclosed no questions being asked concerning the same.
 The basis of the rule vitiating the contract in cases of concealment is
that it misleads or deceives the insurer into accepting the risk, or
accepting it at the rate of premium agreed upon. The insurer, relying
upon the belief that the assured will disclose every material fact within his
actual or presumed knowledge, is misled into a belief that the circumstance
withheld does not exist, and he is thereby induced to estimate the risk upon
a false basis that it does not exist. The principal question, therefore, must
be, Was the assurer/insurer misled or deceived into entering a contract
obligation or in fixing the premium of insurance by a withholding of material
information or facts within the assured's knowledge or presumed
knowledge?
 It follows that the assurer/insurer in assuming a risk is entitled to know every
material fact of which the assured has exclusive or peculiar knowledge, as
well as all material facts which directly tend to increase the hazard or risk
which are known by the assured, or which ought to be or are presumed to be
known by him. And a concealment of such facts vitiates the policy.
 It does not seem to be necessary that the suppression of the truth should
have been willful." If it were but an inadvertent omission, yet if it were
material to the risk and such as the plaintiff should have known to be so, it
would render the policy void. But it is held that if untrue or false answers
INSURANCE B2021 | 13
 are given in response to inquiries and they relate to material facts the
policy is avoided without regard to the knowledge or fraud of assured,
although under the statute statements are representations which must
be fraudulent to avoid the policy. So under certain codes the important
inquiries are whether the concealment was willful and related to a matter
material to the risk.

 The determination of the point whether there has or has not been a material
concealment must rest largely in all cases upon the form of the
questions propounded and the exact terms of the contract. Thus, where
in addition to specifically named diseases the insured was asked whether he
had had any sickness within ten years, to which he answered "No", and it
was proven that within that period he had had a slight attack of pharyngitis, it
was held a question properly for the jury whether such an inflammation of
the throat was a "sickness" within the intent of the inquiry, and the court
remarked on the appealed decision that if it could be held as a matter of law
that the policy was thereby avoided, then it was a mere devise on the part of
insurance companies to obtain money without rendering themselves liable
under the policy.

 The question should be left to the jury whether the assured/insured truly
represented the state of his health so as not to mislead or deceive the
insurer; and if he did not deal in good faith with the insurer in that matter,
then the inquiry should be made, Did he know the state of his health so as to
be able to furnish a proper answer to such questions as are propounded?

From the following discussions, the Court ruled that West Coast is absolved
from the complaint.

Disposition
The false consideration given by Arsenio in his answers to the policies justify West
Coast’s refusal to pay. Appealed judgment is reversed and West Coast is absolved
from the complaint, with the costs to the plaintiffs.

INSURANCE B2021 | 14
 INSURANCE: legal wife v.
Insular Life v. Ebrado common law wife’s claim for
7 insurance policy proceed
G.R. No. L-44059. October 28, 1977. Martin Ong
Petitioners: Respondents:
THE INSULAR LIFE ASSURANCE CARPONIA T. EBRADO and
COMPANY, LTD. PASCUALA VDA. DE EBRADO
Recit Ready Summary
Insular Life issued a whole life insurance plan with a rider for accidental death
benefits to Buenaventura, where he designated Carponia as his wife. A falling
branch from the tree hit Buenaventura. As a result, he died.
Now, Pascuala, the legal wife, contends that she and their 6 legitimate children are
entitled to the proceeds of the insurance policy. Carponia, the common law wife,
argues that she was entitled to it.
Can a common-law wife named as beneficiary in the life insurance policy of a
legally married man claim the proceeds thereof in case of death of the latter?
NO.
Under Article 2012 of the Civil Code, "any person who is forbidden from receiving
any donation under Article 739 cannot be named beneficiary of a life insurance
policy by the person who cannot make a donation to him." Article 739 of the new
Civil Code provides that donations “made between persons who were guilty of
adultery or concubinage at the time of donation” is VOID. The mandate of Article
2012 cannot be laid aside: any person who cannot receive a donation cannot
be named as beneficiary in the life insurance policy of the person who
cannot make the donation. Common-law spouses are definitely barred from
receiving donations from each other and conviction from the crimes of adultery or
concubinage is not a prerequisite to apply this prohibitory law.
In essence, a life insurance policy is no different from a civil donation insofar as the
beneficiary is concerned. Both are founded upon the same consideration: liberality.
A beneficiary in a life insurance policy is no different from a donee. Both the
recipients of pure beneficence.
Policy considerations and dictates of morality rightly justify the institution of
a barrier between common-law spouses in regard to property relations since
such relationship ultimately encroaches upon the nuptial and filial rights of
the legitimate family. So long as marriage remains the threshold of family
laws, reason and morality dictate that the impediments imposed upon
married couple should likewise be imposed upon extra-marital relationship.
Facts
Parties:
Buenaventura: husband/ insured
Pascuala: LEGAL Wife v. Carponia: COMMON LAW Wife
1. On September 1, 1968, Buenaventura Cristor Ebrado was issued by The
Insular Life Assurance Co., Ltd., Policy No. 009929 on a whole-life plan for
P5,882.00 with a rider for Accidental Death Bene􏰏ts for the same amount.
Buenaventura C. Ebrado designated Carponia T. Ebrado as the revocable
bene􏰏ciary in his policy. He referred to her as his wife.
2. On October 21, 1969, Buenventura C. Ebrado died as a result of an accident
when he was hit by a falling branch of a tree. As the insurance policy was in
force, The Insular Life Assurance Co., Ltd. stands liable to pay the coverage
of the policy
Procedural History
1. Carponia T. Ebrado 􏰏led with the insurer a claim for the proceeds of the
policy as the designated bene􏰏ciary therein, although she admits that she
and the insured Buenaventura C. Ebrado were merely living as husband and
wife without the bene􏰏t of marriage.
2. Pascuala Vda. de Ebrado also 􏰏led her claim as the widow of the deceased
insured. She asserts that she is the one entitled to the insurance proceeds,
not the common-law wife, Carponia T. Ebrado.
3. Insular Life Assurance Co., Ltd. commenced an action for Interpleader.
4. Pre-Trial
a. During this conference, parties Carponia T. Ebrado and
Pascuala Ebrado agreed and stipulated:
i. 1) that the deceased Buenaventura Ebrado was
married to Pascuala Ebrado with whom she has six —
(legitimate) namely; Hernando, Cresencio, Elsa,
Erlinda, Felizardo and Helen, all surnamed Ebrado;
ii. 2) that during the lifetime of the deceased, he was
insured with Insular Life Assurance Co. Under Policy
No. 009929 whole life plan, dated September 1, 1968
for the sum of P5,882.00 with the rider for accidental
death bene􏰏t as evidenced by Exhibits A for plaintiffs
and Exhibit 1 for the defendant Pascuala and Exhibit 7
for Carponia Ebrado;
iii. 3) that during the lifetime of Buenaventura Ebrado, he
was living with his common-law wife, Carponia Ebrado,
with whom she had 2 children although he was not
legally separated from his legal wife;
5. Trial Court Ruling: Carponia T. Ebrado disquali􏰏ed from becoming
bene􏰏ciary of the insured Buenaventura Cristor Ebrado and directing the
payment of the insurance proceeds to the estate of the deceased insured
6. Carponia appealed to CA.
7. CA certified the case to Us as involving only questions of law.
Issues Ruling
1. Can a common-law wife named as beneficiary in the life 1. NO.
insurance policy of a legally married man claim the
proceeds thereof in case of death of the latter?
Rationale
1. Can a common-law wife named as beneficiary in the life insurance
policy of a legally married man claim the proceeds thereof in case of
death of the latter?– NO.
1. Section 50 of the Insurance Act which provides that "(t)he insurance shall
INSURANCE B2021 | 15
be applied exclusively to the proper interest of the person in whose name it is
made" cannot be validly seized upon to hold that the same includes the
beneficiary. The word “interest" highly suggests that the provision refers
only to the insured" and not to the beneficiary, since a contract of insurance
is personal in character.
2 Otherwise, the prohibitory laws against illicit relationships especially on
property and descent will be rendered nugatory, as the same could easily be
circumvented by modes of insurance. Rather, the general rules of civil law
should be applied to resolve this void in the Insurance Law Article 2011 of
the New Civil Code states: "The contract of insurance is governed by special
laws. Matters not expressly provided for in such special laws shall be
regulated by this Code."
 When not otherwise specifically provided for by the Insurance Law,
the contract of life insurance is governed by the general rules of the
civil law regulating contracts.
 And under Article 2012 of the same Code, "any person who is
forbidden from receiving any donation under Article 739 cannot be
named beneficiary of a life insurance policy by the person who
cannot make a donation to him."
 Common-law spouses are, definitely, barred from receiving
donations from each other. Article 739 of the new Civil Code
provides:
"The following donations shall be void:
"1. Those made between persons who were guilty of adultery or
concubinage at the time of donation;
"Those made between persons found guilty of the same criminal offense,
in consideration thereof;
"3. Those made to a public officer or his wife, descendants or ascendants
by reason of his office.
"In the case referred to in No. 1, the action for declaration of nullity may
be brought by the spouse of the donor or donee; and the guilt of the
donee may be proved by preponderance of evidence in the same action."
the nuptial and filial rights of the legitimate family. A beneficiary in a life
insurance policy is no different from a donee. Both the recipients of
pure beneficence. So long as marriage remains the threshold of family
laws, reason and morality dictate that the impediments imposed upon
married couple should likewise be imposed upon extra-marital
relationship. If legitimate relationship is circumscribed by these legal
disabilities, with more reason should an illicit relationship be restricted
by these disabilities.
In Matabuena v. Cervantes, If the policy of the law is…`to prohibit donations
in favor of the other consort and his descendants because of fear and undue
and improper pressure and influence upon the donor, a prejudice deeply
rooted in our ancient law;" then there is very reason to apply the same
prohibitive policy to persons living together as husband and wife without the
benefit of nuptials.
The requisite proof of common-law relationship between the insured and the
beneficiary has been conveniently supplied by the stipulations between the
parties in the pre-trial conference of the case.
Deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado
with whom she has six legitimate children; that during his lifetime, the
deceased insured was living with his common-law wife, Carponia Ebrado,
with whom he has two children. These stipulations are nothing less than
judicial admissions which, as a consequence, no longer require proof and
cannot be contradicted.
Disposition
Carponia T. Ebrado is hereby declared disquali􏰏ed to be the bene􏰏ciary of the
late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the
proceeds of the policy are hereby held payable to the estate of the deceased
insured. Costs against Carponia T. Ebrado

2. In essence, a life insurance policy is no different from a civil donation

insofar as the beneficiary is concerned. Both are founded upon the same
consideration: liberality. A beneficiary is like a donee, because from the
premiums of the policy which the insured pays out of liberality, the beneficiary
will receive the proceeds or profits of said insurance. As a consequence, the
proscription in Article 739 of the new Civil Code should equally operate in life
insurance contracts. The mandate of Article 2012 cannot be laid aside: any
person who cannot receive a donation cannot be named as beneficiary in the
life insurance policy of the person who cannot make the donation. Under
American law, a policy of life insurance is considered as a testament and in
construing it, the courts will, so far as possible treat it as a will and determine
the effect of a clause designating the beneficiary by rules under which wills
are interpreted.

3. Policy considerations and dictates of morality rightly justify the

institution of a barrier between common-law spouses in regard to
property relations since such relationship ultimately encroaches upon

INSURANCE B2021 | 16
 [INSURANCE] - [Applicability of the With regard to moral damages, the court has the discretion on the amount of the
ZENITH INSURANCE CORP. v.
Civil Code][Civil Code provisions on award3. But There must be a showing that the breach was wanton and deliberately
08 CA
Insurance] injurious or the one responsible acted fraudulently or in bad faith. Here, a 2-month
GR No. 85296 May 14, 1990 Medialdea, J. Ria delay cannot be considered as so wanton or malevolent to justify an award of
P20,000.00 as moral damages, taking into consideration also the fact that the actual
Petitioners: Respondents:
Zenith Insurance Corporation Court of Appeals and Lawrence Fernandez damage on the car was only P3,460.
Recit Ready Summary
As regards the exemplary damages, the Civil Code provides that it is imposed by
way of example or correction for the public good. Here, exemplary damages were
Lawrence Fernandez insured his car for "own damage" under a private car policy
not awarded as the insurance company had not acted in wanton, oppressive or
with Zenith Insurance Corporation. Later, the car figured in an accident and suffered
malevolent manner.
actual damages in the amount of P3,640.00. After 2 months of delay, Fernandez
filed a complaint with the RTC of Cebu for sum of money and damages resulting
Moreover, the amount of P5,000.00 awarded as attorney's fees is justified under the
from the refusal of Zenith to pay the amount claimed. Aside from actual damages
circumstances of this case considering that there were other petitions filed and
and interests, Fernandez also prayed for moral damages (P10,000.00), exemplary
defended by Fernandez in connection with this case.
damages (P5,000.00), attorney's fees (P3,000.00) and litigation expenses
(P3,000.00). Then, Zenith filed an answer alleging that it offered to pay the claim of
As regards the actual damages incurred by Fernandez, the amount of P3,640.00
Fernandez pursuant to the terms and conditions of the contract which, Fernandez
had been established before the RTC and affirmed by the CA. The CA correctly
rejected. Then, the RTC of Cebu issued a decision. (please see footnote 3). Zenith
ruled that the deductions of P250.00 and P274.00 as deductible franchise and 20%
appealed. But, the CA affirmed the decision of the RTC in toto. Zenith questions the
depreciation on parts had no basis as there was no mention of it in the car policy.
damages awarded by the CA to Fernandez.
Facts + Procedural History
The issue for resolution is whether the award of moral damages, exemplary
damages, and attorney’s to Fernandez was proper. No, the amounts were not
1. Lawrence Fernandez (Fernandez) insured his car for "own damage" under a
proper. The SC modified them.
private car policy with petitioner Zenith Insurance Corporation (Zenith).
2. Later, the car figured in an accident and suffered actual damages in the
*Here, please take note that in discussing the award for moral damages and
amount of P3,640.00.
exemplary damages, the SC applied the provisions of the Civil Code
3. After allegedly being given a run around for 2 months, Fernandez filed a
complaint with the RTC of Cebu for sum of money and damages resulting
The award of damages in case of unreasonable delay in the payment of insurance
from the refusal of Zenith to pay the amount claimed.
claims is governed by the Philippine Insurance Code2. It is clear that under the
4. Aside from actual damages and interests, Fernandez also prayed for moral
Insurance Code, in case of unreasonable delay in the payment of the proceeds of
damages (P10,000.00), exemplary damages (P5,000.00), attorney's fees
an insurance policy, the damages that may be awarded are: (1) attorney's fees; (2)
(P3,000.00) and litigation expenses (P3,000.00).
other expenses incurred by the insured person by reason of such unreasonable
5. Then, Zenith filed an answer alleging that it offered to pay the claim of
denial or withholding of payment; (3) interest at twice the ceiling prescribed by the
Fernandez pursuant to the terms and conditions of the contract which,
Monetary Board of the amount of the claim due the injured; and (4) the amount of
Fernandez rejected.
the claim. As regards the award of moral and exemplary damages, the rules under
6. After the issues had been joined, the pre-trial was scheduled but the same
the Civil Code of the Philippines shall govern.
was moved upon petitioner's motion, allegedly to explore ways to settle the
case although at an amount lower than Fernandez’s claim.
7. Then, the RTC terminated the pre-trial.
2
Sec. 244. In case of any litigation for the enforcement of any policy or contract of 8. Subsequently, Fernandez presented his evidence.
insurance, it shall be the duty of the Commissioner or the Court, as the case may 9. Zenith, however, failed to present its evidence in view of its failure to appear in
be, to make a finding as to whether the payment of the claim of the insured has court, without justifiable reason.
been unreasonably denied or withheld; and in the affirmative case, the insurance 10. The RTC issued an order submitting the case for decision without Zenith's
company shall be adjudged to pay damages which shall consist of attorney's fees
and other expenses incurred by the insured person by reason of such unreasonable
evidence.
denial or withholding of payment plus interest of twice the ceiling prescribed by the 11. Zenith filed a petition for certiorari with the CA assailing the order of the RTC
Monetary Board of the amount of the claim due the insured, from the date following submitting the case for decision without Zenith's evidence. This was denied.
the time prescribed in section two hundred forty-two or in section two hundred forty- 12. A decision was rendered by the RTC in favor of Fernandez awarding him with
three, as the case may be, until the claim is fully satisfied; Provided, That the failure damages.4
to pay any such claim within the time prescribed in said sections shall be 13. Upon motion of Fernandez and before the expiration of the period to appeal,
considered prima facie evidence of unreasonable delay in payment.
3
Art. 2216

INSURANCE B2021 | 17
 the RTC ordered the execution of the decision pending appeal. The order was
assailed by Zenith in a petition for certiorari with the CA but which petition was
also dismissed.
14. Zenith filed a notice of appeal before the RTC. In its notice of appeal, Zenith
said that the lower court was in error (1) in denying it to adduce evidence on
its behalf; (2) in ordering Zenith to pay P3,640.00 in its decision (see footnote
1); and (3) in awarding damages which are more than what was prayed for in
the complaint.
15. Later, the CA rendered its decision affirming in toto the decision of the RTC. It
also ruled that the matter of the RTC’s denial of Fernandez's right to adduce
evidence is a closed matter in view of the CA ruling in the other case5 wherein
Zenith's petition questioning the RTC’s order submitting the case for decision
without Zenith's evidence, was dismissed.
16. The MR of Zenith was also denied for lack of merit.
17. Hence, the instant petition was filed by Zenith on the allegation that the CA's
decision and resolution ran counter to applicable decisions of this Court and
that they were rendered without or in excess of jurisdiction.
18. Zenith questions (1) the legal basis of the CA in awarding moral damages,
exemplary damages and attorney's fees in an amount more than that prayed
for in the complaint; and (2) the award of actual damages of P3,460.00
instead of only P1,927.50 which was arrived at after deducting P250.00 and
P274.00 as deductible franchise and 20% depreciation on parts as agreed
upon in the contract of insurance.
Point/s of Contention
Zenith questions the damages awarded by the RTC as it was higher than what was
prayed for by Fernandez in the complaint.
Issues Ruling
Whether the award of moral damages, exemplary damages, NO, it should be
and attorney’s to Fernandez was proper. modified.
Rationale
 The award of damages in case of unreasonable delay in the payment of
insurance claims is governed by the Philippine Insurance Code, which
provides:
Sec. 244. In case of any litigation for the enforcement of any
policy or contract of insurance, it shall be the duty of the
Commissioner or the Court, as the case may be, to make a
4
*note here that the damages awarded by the lower court are higher than what Fernandez
actually prayed for (specifically, moral damages, exemplary damages, and attorney’s fees)
WHEREFORE, defendant is hereby ordered to pay to the plaintiff:
1. The amount of P3,640.00 representing the damage incurred plus interest at the rate of twice
the prevailing interest rates;
2. The amount of P20,000.00 by way of moral damages;
3. The amount of P20,000.00 by way of exemplary damages;
4. The amount of P5,000.00 as attorney's fees;
5. The amount of P3,000.00 as litigation expenses; and
6. Costs.
5 Zenith's failure to indemnify Fernandez within the 2-month period was that
This case was the petition for certiorari filed by Zenith with the CA assailing the order of the
RTC submitting the case for decision without Zenith's evidence
finding as to whether the payment of the claim of the insured
has been unreasonably denied or withheld; and in the
affirmative case, the insurance company shall be adjudged to
pay damages which shall consist of attorney's fees and other
expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment plus interest
of twice the ceiling prescribed by the Monetary Board of the
amount of the claim due the insured, from the date following
the time prescribed in section two hundred forty-two or in
section two hundred forty-three, as the case may be, until the
claim is fully satisfied; Provided, That the failure to pay any
such claim within the time prescribed in said sections shall be
considered prima facie evidence of unreasonable delay in
payment.
 It is clear that under the Insurance Code, in case of unreasonable delay in
the payment of the proceeds of an insurance policy, the damages that may
be awarded are:
a. attorney's fees;
b. other expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment;
c. interest at twice the ceiling prescribed by the Monetary Board of
the amount of the claim due the injured; and
d. the amount of the claim.
 As regards the award of moral and exemplary damages, the rules under
the Civil Code of the Philippines shall govern.
Moral Damages
 The purpose of moral damages is essentially indemnity or reparation, not
punishment or correction. Moral damages are emphatically not intended to
enrich a complainant at the expense of a defendant, they are awarded only
to enable the injured party to obtain means, diversions or amusements that
will serve to alleviate the moral suffering he has undergone by reason of
the defendant's culpable action.
 Article 2216, New Civil Code: While it is true that no proof of pecuniary loss
is necessary in order that moral damages may be adjudicated, the
assessment of which is left to the discretion of the court according to the
circumstances of each case.
 It is equally true that in awarding moral damages in case of breach of
contract, there must be a showing that the breach was wanton and
deliberately injurious or the one responsible acted fraudulently or in bad
faith.
 Here, there was a finding that Fernandez was given a "run-around" for two
months, which is the basis for the award of the damages granted under the
Insurance Code for unreasonable delay in the payment of the claim.
 However, the act of Zenith of delaying payment for 2 months cannot be
considered as so wanton or malevolent to justify an award of P20,000.00
as moral damages, taking into consideration also the fact that the actual
damage on the car was only P3,460. In the pre-trial of the case, it was
shown that there was no total disclaimer by Fernandez. The reason for
the parties could not come to an agreement as regards the amount of the
INSURANCE B2021 | 18
 actual damage on the car. The amount of P10,000.00 prayed for by
Fernandez as moral damages is equitable.

Exemplary Damages
1. Article 2229, New Civil Code: Exemplary or corrective damages are
imposed by way of example or correction for the public good.
2. Noda v. Cruz-Arnaldo: exemplary damages were not awarded as the
insurance company had not acted in wanton, oppressive or malevolent
manner. The same is true in the case at bar.

Attorney’s Fees
 The amount of P5,000.00 awarded as attorney's fees is justified under the
circumstances of this case considering that there were other petitions filed
and defended by Fernandez in connection with this case.

Actual Damages
 As regards the actual damages incurred by Fernandez, the amount of
P3,640.00 had been established before the RTC and affirmed by the CA.
 The CA correctly ruled that the deductions of P250.00 and P274.00 as
deductible franchise and 20% depreciation on parts, respectively claimed
by petitioners as agreed upon in the contract, had no basis.
 The CA ruled:
Under its second assigned error, Zenith puts forward two
arguments, both of which are entirely without merit. It is contented
that the amount recoverable under the insurance policy Zenith
issued over the car of Fernandez is subject to deductible
franchise, and . . . .
The policy does not mention any deductible franchise.

Therefore, the award of moral damages is reduced to P10,000.00 and the award of
exemplary damages is hereby deleted. The awards due to Fernandez are as
follows:
1. P3,640.00 as actual claim plus interest of twice the ceiling prescribed by
the Monetary Board computed from the time of submission of proof of loss;
2. P10,000.00 as moral damages;
3. P5,000.00 as attorney's fees;
4. P3,000.00 as litigation expenses; and
5. Costs.
Disposition
Damages awarded are modified.

INSURANCE B2021 | 19
 White Gold Marine v. Pioneer INSURANCE – Business of
9 Insurance Insurance
G.R. NO. 154514 July 28, 2005 QUISUMBING, J. Jill Ramirez
Petitioners: Respondents:
WHITE GOLD MARINE SERVICES, PIONEER INSURANCE (Pioneer) AND
INC. (White Gold) SURETY CORPORATION AND THE
STEAMSHIP MUTUAL UNDERWRITING
ASSOCIATION (BERMUDA) LTD.
(Steamship Mutual)
Recit Ready Summary
White Gold procured a protection and indemnity coverage for its vessels from
Steamship Mutual through Pioneer. When White Gold failed to fully pay its
accounts, Steamship Mutual refused to renew the coverage and subsequently filed a
collection suit against White Gold.
White Gold, on the other hand, filed a complaint before the Insurance Commission
(IC) claiming that Steamship Mutual and Pioneer violated the Insurance Code by not
obtaining the requisite licences as insurer and insurance agent, respectively.
The IC dismissed the complaint and held that Steamship Mutual not engaged in the
insurance business but was a Protection and Indemnity Club (P & I Club).
Likewise, Pioneer need not obtain another license as insurance agent/broker for
Steamship Mutual because it was not engaged in the insurance business. Moreover,
Pioneer was already licensed, hence, a separate license solely as agent/broker of
Steamship Mutual was already superfluous.
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it
does not have a license to do business in the Philippines although Pioneer is its
resident agent. This relationship is reflected in the certifications issued by the
Insurance Commission.
ISSUE #1: W/N Steamship Mutual is engaged in the insurance business in the
Philippines. YES.
A marine insurance undertakes to indemnify the assured against marine losses,
such as the losses incident to a marine adventure. A mutual insurance company is
a cooperative enterprise where the members are both the insurer and insured. In
it, the members all contribute, by a system of premiums or assessments, to the
creation of a fund from which all losses and liabilities are paid, and where the profits
are divided among themselves, in proportion to their interest.
A P & I Club is "a form of insurance against third party liability, where the third
party is anyone other than the P & I Club and the members." By definition then,
Steamship Mutual as a P & I Club is a mutual insurance association engaged in
the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without
the requisite certificate of authority mandated by Section 18720 of the Insurance
Code. It maintains a resident agent in the Philippines to solicit insurance and to
collect payments in its behalf. To continue doing business here, it must secure a
license from the Insurance Commission.
ISSUE #2: W/N Pioneer needs a license as an insurance agent/broker for
Steamship Mutual. YES.
A Certification from the Commission states that Pioneer does not have a separate
license to be an agent/broker of Steamship Mutual. Further, the Insurance Code
states:
No person shall act as an insurance agent or as an insurance broker x
x x from any insurance company doing business in the Philippines or
any agent thereof, without first procuring a license so to act from the
Commissioner x x x
Facts + Procedural History
1. White Gold procured a protection and indemnity coverage for its vessels from
Steamship Mutual through Pioneer. White Gold was issued a Certificate of
Entry and Acceptance. Pioneer also issued receipts evidencing payments for
the coverage.
2. When White Gold failed to fully pay its accounts, Steamship Mutual refused to
renew the coverage.
3. Steamship Mutual filed a case against White Gold for collection of sum of
money to recover its unpaid balance. White Gold, on the other hand, filed a
complaint before the Insurance Commission claiming that Steamship Mutual
violated Sections 1864 and 1875 of the Insurance Code, while Pioneer
violated Sections 299,6 3007 and 3018 in relation to Sections 302 and 303,
thereof.
4. The Insurance Commission dismissed the complaint on the following grounds:
a. There was no need for Steamship Mutual to secure a license because
it was not engaged in the insurance business. Steamship Mutual
was a Protection and Indemnity Club (P & I Club).
b. Likewise, Pioneer need not obtain another license as insurance agent
and/or a broker for Steamship Mutual because Steamship Mutual was
not engaged in the insurance business. Moreover, Pioneer was
already licensed, hence, a separate license solely as agent/broker of
Steamship Mutual was already superfluous.
5. The CA affirmed the decision of the Insurance Commissioner. The CA
distinguished between P & I Clubs vis - à-vis conventional insurance. The
appellate court also held that Pioneer merely acted as a collection agent of
Steamship Mutual.
6. The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual
admits it does not have a license to do business in the Philippines although
Pioneer is its resident agent. This relationship is reflected in the certifications
issued by the Insurance Commission.
Points of Contention
White Gold:
 The definition of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of
Appeals is "an association composed of shipowners in general who band
together for the specific purpose of providing insurance cover on a mutual
basis against liabilities incidental to shipowning that the members incur in
favor of third parties."
 As a P & I Club, Steamship Mutual's primary purpose is to solicit and provide
protection and indemnity coverage and for this purpose, it has engaged the
services of Pioneer to act as its agent.
INSURANCE B2021 | 20
Pioneer and Steamship Mutual:
 Although Steamship Mutual is a P & I Club, it is not engaged in the
insurance business in the Philippines. It is merely an association of vessel
owners who have come together to provide mutual protection against
liabilities incidental to shipowning.
 Hyopsung is inapplicable in this case because the issue in Hyopsung was
the jurisdiction of the court over Hyopsung.
Issues Ruling
6. W/N Steamship Mutual is engaged in the insurance business 7. Yes/No
in the Philippines 8. Yes/No
7. W/N Pioneer needs a license as an insurance agent/broker
for Steamship Mutual
Rationale
2. Steamship Mutual is engaged in the insurance business in the Philippines
Section 2(2) of the Insurance Code enumerates what constitutes "doing an
insurance business" or "transacting an insurance business”:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically
recognized as constituting the doing of an insurance business within the
meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of
the foregoing in a manner designed to evade the provisions of this Code.
The same provision also provides the fact that no profit is derived from the
making of insurance contracts, agreements or transactions, or that no separate
or direct consideration is received therefor, shall not preclude the
existence of an insurance business.
The test to determine if a contract is an insurance contract or not, depends
on:
 the nature of the promise,
 the act required to be performed, and the
 nature of the agreement in the light of the occurrence,
contingency, or circumstances under which the performance
becomes requisite.
Basically, an insurance contract is a contract of indemnity. In it, one
undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event.
In particular, a marine insurance undertakes to indemnify the assured against
marine losses, such as the losses incident to a marine adventure. Section
9916 of the Insurance Code enumerates the coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where
the members are both the insurer and insured. In it, the members all
contribute, by a system of premiums or assessments, to the creation of a fund
from which all losses and liabilities are paid, and where the profits are divided
among themselves, in proportion to their interest. Additionally, mutual insurance
associations, or clubs, provide three types of coverage, namely, protection
and indemnity, war risks, and defense costs.
A P & I Club is "a form of insurance against third party liability, where the
third party is anyone other than the P & I Club and the members." By
definition then, Steamship Mutual as a P & I Club is a mutual insurance
association engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit
without the requisite certificate of authority mandated by Section 18720 of the
Insurance Code. It maintains a resident agent in the Philippines to solicit
insurance and to collect payments in its behalf. We note that Steamship Mutual
even renewed its P & I Club cover until it was cancelled due to non-payment of
the calls. Thus, to continue doing business here, Steamship Mutual or through
its agent Pioneer, must secure a license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is
necessary. Thus, no insurer or insurance company is allowed to engage in the
insurance business without a license or a certificate of authority from the
Insurance Commission.
3. Pioneer needs a license as an insurance agent/broker for Steamship
Mutual
Pioneer is the resident agent of Steamship Mutual as evidenced by the
certificate of registration issued by the Insurance Commission. It has been
licensed to do or transact insurance business by virtue of the certificate of
authority issued by the same agency. However, a Certification from the
Commission states that Pioneer does not have a separate license to be an
agent/broker of Steamship Mutual.
Although Pioneer is already licensed as an insurance company, it needs a
separate license to act as insurance agent for Steamship Mutual. Section 299 of
the Insurance Code clearly states:
No person shall act as an insurance agent or as an insurance broker in the
solicitation or procurement of applications for insurance, or receive for
services in obtaining insurance, any commission or other compensation from
any insurance company doing business in the Philippines or any agent
thereof, without first procuring a license so to act from the Commissioner,
which must be renewed annually on the first day of January, or within six
months thereafter.
Disposition
Petition is PARTIALLY GRANTED. Steamship Mutual and Pioneer are ORDERED to
obtain licenses and to secure proper authorizations to do business as insurer and
insurance agent, respectively.
INSURANCE B2021 | 21
 [Insurance] - [The Business of powers, assume jurisdiction over controversies between the insurance
Philamlife v. Ansaldo
10 Insurance] companies and their agents. Disputes involving the Contract of Agency are
[G.R. No. 76452.] [July 26, 1994] [Quiason, J.] [Croft] cognizable by the regular courts.
Petitioners: Respondents:
PHILIPPINE AMERICAN LIFE HON. ARMANDO ANSALDO, in his Facts
INSURANCE COMPANY and RODRIGO capacity as Insurance Commissioner,
DE LOS REYES and RAMON MONTILLA PATERNO, JR. 1. Case arose from a letter-complaint filed by Ramon Paterno to Insurance
Commissioner Armando Ansaldo (Commissioner) alleging certain problems
Recit Ready Summary
encountered by agents, managers, and public consumers of the Philippine
American Life Insurance Company (Philamlife) as a result of certain practices
Paterno wrote a letter to Insurance Commissioner Arnaldo alleging certain problems
by said company.
encountered by agents, managers and public consumers of Philamlife as a result of
2. Upon receiving such complaint, the Commissioner requested Philamlife’s
certain practices by said company. The Commissioner then requested Philamlife’s
President, Rodrigo De los Reyes, to comment on Paterno’s letter. In his
President, De Los Reyes, to comment on the letter, who in turn, asked Paterno to
comment, the President suggested that Paterno should submit some sort of “bill
submit a Bill of Particulars. Paterno however maintained that his letter-complaint was
of particulars” listing and citing actual cases, facts, dates, figures, etc. which are
sufficient in form and substance and requested a hearing to be conducted.
necessary to enable him to prepare an intelligent reply.
Thereafter, the Commissioner held a hearing on the validity of the Contract of Agency
3. Paterno however maintained that his letter-complaint was sufficient in form and
(contract) and required Paterno to specify the provisions of the agency contract which
substance and requested a hearing to be conducted.
he claimed to be illegal. Paterno submitted a letter of specification to the
4. Thereafter, the Commissioner held a hearing on the validity of the Contract of
Commissioner and prayed that some provisions in said contract be declared null and
Agency (contract) and required Paterno to specify the provisions of the agency
void and asked for reimbursement from Philamlife. Philamlife’s President however
contract which he claimed to be illegal.
reiterated that Paterno’s letter did not contain any of the particular information it was
5. Paterno submitted a letter of specification to the Commissioner. He prayed that
seeking. Furthermore, he argued that since Commissioner Ansaldo’s quasi-judicial
the provisions on charges and fees stated in the contract executed between
power was being invoked, Paterno must file a verified formal complaint. Meanwhile,
Philamlife and its agents, as well as the implementing provisions be declared as
Philamlife’s VP asked the Commission to first rule on the question of jurisdiction over
null and void. He also asked that the amounts of such charges and fees already
the subject matter.
deducted and collected by Philamlife in connection therewith be reimbursed to
the agents, with interest at the prevailing rate reckoned from the date when they
W/N Commissioner Ansaldo has jurisdiction to rule on the legality of the
were deducted.
Contract of Agency? – NO
6. The Commissioner furnished President De los Reyes a copy of the letter of
specification and requested his answer thereto. The President however
Section 414 and 415 of the Insurance Code describes the general regulatory authority
reiterated that Paterno’s letter did not contain any of the particular information it
of the Insurance Commissioner. A plain reading of said provisions show that the
was seeking. Furthermore, he argued that since Commissioner Ansaldo’s quasi-
Insurance Commissioner has the authority to regulate the business of
judicial power was being invoked, Paterno must file a verified formal complaint
insurance. According to Sec. 2(2) of the Insurance Code, the term “doing an
before any further proceedings.
insurance business” includes:
7. Meanwhile, Manuel Ortega, Philamlife's Senior Assistant Vice-President and
1) Making or proposing to make an insurance contract
Executive Assistant to the President, asked Respondent Commission to first
2) Making or proposing to make a suretyship contract
rule on the questions of the jurisdiction of the Insurance Commissioner over the
3) Reinsurance business
subject matter of the letters-complaint and the legal standing of private
4) Doing or proposing to do any business in substance equivalent to any of the
respondent Paterno.
foregoing.

Since the Contract of Agency between Philamlife and its Agents is NOT included
within the meaning of an insurance business, Sec. 2 of the Code cannot be invoked
to give jurisdiction over the same.
With regard to Paterno’s contention that the quasi-judicial power of the Insurance
Commissioner under Sec. 416 applies in this case, the Court disagreed since said
section limits the Insurance Commissioner’s exercise of quasi-judicial power to
adjudicating claims and complaints filed by the insured against the insurance
company only. In sum, since the Insurance Code does not have provisions governing
the relations between insurance companies and their agents, it therefore follows that
the Insurance Commissioner cannot, in the exercise of its quasi-judicial
Procedural History
1. Commissioner Ansaldo notified both parties of the hearing of the case
through a subpoena.
2. Ortega filed a Motion to Quash Subpoena/Notice on grounds that: 1) The
Subpoena/Notice has no legal basis and is premature because:
a. No complaint sufficient in form and contents has been filed;
b. No summons has been issued nor received by De los Reyes
c. No answer has been filed and hence the scheduled hearing in the
subpoena is premature
2) The Insurance Commission has no jurisdiction over the subject

INSURANCE B2021 | 22
 matter and the parties involved. Section 2 of the Insurance Code cannot be invoked to give jurisdiction over the
3. Commissioner Ansaldo denied the Motion to Quash. same.
Points of Contention
With regard to Paterno’s contention that the quasi-judicial power of the
President De los Reyes contends that the Insurance Commissioner has jurisdiction to Insurance Commissioner under Sec. 416 applies in this case, the Court
take cognizance of the complaint in the exercise of its quasi-judicial powers. The disagrees. Said section shows that the quasi-judicial power of the Insurance
Solicitor General, upholding the jurisdiction of the Insurance Commissioner, claims Commissioner is limited by law "to claims and complaints involving any loss,
that under Sections 4146 and 4157 of the Insurance Code, the Commissioner has damage or liability for which an insurer may be answerable under any kind of
authority to nullify the alleged illegal provisions of the Contract of Agency. policy or contract of insurance, . . ." Hence, this power does not cover the
Issues Ruling relationship affecting the insurance company and its agents but is limited to
8. Whether or not the resolution of the legality of the Contract of 9. No adjudicating claims and complaints filed by the insured against the insurance
Agency falls within the jurisdiction of the Insurance company.
Commissioner?
Rationale
4. No, the Insurance Commissioner has NO jurisdiction to rule on the legality Since the Insurance Code does not have provisions governing the relations
of the Contract of Agency. between insurance companies and their agents. It therefore follows that the
Insurance Commissioner cannot, in the exercise of its quasi-judicial
Section 414 and 415 of the Insurance Code describes the general regulatory powers, assume jurisdiction over controversies between the insurance
authority of the Insurance Commissioner. A plain reading of said provisions companies and their agents.
show that the Insurance Commissioner has the authority to regulate the
business of insurance which is defined as: In Great Pacific Life Assurance Corporation v. Judico, and Investment Planning
Corporation of the Philippines v. Social Security Commission, the Court held
(2) The term "doing an insurance business" or "transacting an that an insurance company may have two classes of agents who sell its
insurance business," within the meaning of this Code, shall include insurance policies: (1) salaried employees who keep definite hours and work
(a) making or proposing to make, as insurer, any insurance under the control and supervision of the company; and (2) registered
contract; representatives, who work on commission basis.
(b) making, or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to any other Under the first category, the relationship between the insurance company and
legitimate business or activity of the surety; its agents is governed by the Contract of Employment and the provisions of the
(c) doing any kind of business, including a reinsurance business, Labor Code, while under the second category, the same is governed by the
specifically recognized as constituting the doing of an insurance Contract of Agency and the provisions of the Civil Code on the Agency.
business within the meaning of this Code; Disputes involving the latter are cognizable by the regular courts.
(d) doing or proposing to do any business in substance
equivalent to any of the foregoing in a manner designed to evade Disposition
the provisions of this Code. (Insurance Code Sec. 2[2])
WHEREFORE, the petition is GRANTED. The Order dated November 6, 1986 of
Since the Contract of Agency entered into between Philamlife and its the Insurance Commission is SET ASIDE.
Agents is NOT included within the meaning of an insurance business,
The denial of the Motion to Quash by Commissioner Ansaldo is set aside as he does
6 not have jurisdiction over the complaint.
Sec. 414. The Insurance Commissioner shall have the duty to see that all laws relating to
insurance, insurance companies and other insurance matters, mutual benefit associations and
trusts for charitable uses are faithfully executed and to perform the duties imposed upon him by
this Code
7
Sec. 415. In addition to the administrative sanctions provided elsewhere in this Code, the
Insurance Commissioner is hereby authorized, at his discretion, to impose upon insurance
companies, their directors and/or officers and/or agents, for any willful failure or refusal to
comply with, or violation of any provision of this Code, or any order, instruction, regulation or
ruling of the Insurance Commissioner, or any commission of irregularities, and/or conducting
business in an unsafe and unsound manner as may be determined by the Insurance
Commissioner, the following:
(a) fines not in excess of five hundred pesos a day; and
(b) suspension, or after due hearing, removal of directors and/or officers and/or agents.

INSURANCE B2021 | 23
 Insurance – Construction -
RIZAL SURETY v. CA
11 Contract of Adhesion
GR No. 112360 July 18,2000 J. Purisima Carl Santos
Petitioners: Respondents:
Rizal Surety and Insurance Company Court of Appeals and Transworld Knitting
Mills, Inc.
Recit Ready Summary
Rizal Surety and Insurance Company issued in favor of Transworld a fire insurance
policy initially for P1 Million and eventually increased to P1.5 Million. The subject
policy stated that Rizal Surety is “responsible in case of loss whilst contained and/ or
stored during the currency of this Policy in the premises occupied by them forming
part of the buildings situated within own Compound xxx.” It also described therein the
four-span building covered by the same. The same pieces of property insured with
Rizal Surety were also insured with New India Assurance Company. Fire broke out in
the compound of Transworld, razing the middle portion of its four-span building and
partly gutting the left and right sections thereof. A two-storey annex building (behind
said four-span building), called the “annex”, where fun and amusement machines and
spare parts were stored, was also destroyed by the fire. Transworld files its insurance
claims with Rizal Insurance and New India but to no avail Transworld filed a case
against the insurance companied for collection of sum of money and damages, which
the RTC and CA granted. Rizal Insurance now argues that the insurance policy
covered only the contents of the four-span building, which was partly burned, and not
the damage caused by the fire on the two-storey annex building.
Whether or not the annex should be covered by the insurance policy? YES
The SC agreed with both the RTC and CA that the so called “annex” was not an
annex building but an integral and inseparable part of the four-span building
described in the policy and consequently, the machines and spare parts stored
therein were covered by the fire insurance in dispute. Most importantly, Art. 1377 of
the Civil Code provides: “The interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity.” The insurance policy
should then be resolved against Rizal Insurance, whose lawyer or managers drafted
the fire insurance policy.
Facts
1. On March 13,1980, Rizal Surety and Insurance Company (Rizal Insurance)
issued Fire Insurance Policy No. 45727 in favor of Transworld Knitting Mills, Inc.
(Transworld), initially for P1 Million and eventually increased to P1.5 Million
covering the period from August 14,1980 to March 13,1981. The subject policy
stated that Rizal Surety is “responsible in case of loss whilst contained and/ or
stored during the currency of this Policy in the premises occupied by them
forming part of the buildings situated within own Compound xxx.” It also
described therein the four-span building covered by the same.
2. The same pieces of property insured with Rizal Surety were also insured with
New India Assurance Company, Ltd. (New India).
3. On January 12, 1981, fire broke out in the compound of Transworld, razing the
middle portion of its four-span building and partly gutting the left and right
sections thereof. A two-storey annex building (behind said four-span building)
where fun and amusement machines and spare parts were stored, was also
destroyed by the fire.
4. Transworld files its insurance claims with Rizal Insurance and New India but to
no avail.
5. On May 26,1982, Transworld filed a case against the insurance companied for
collection of sum of money and damages in the CFI of Rizal.
6. CFI dismissed the case against New India and ordered Rizal Insurance to pay
Transworld 826,500 representing actual value of losses.
7. Upon appeal CA modified the decision. It held that New India is also required to
pay P1,818,604.19 Million while Rizal Insurance has to pay P470,328.67, based
on the actual losses sustained by Transworld, totaling P2,790,376.00 as against
the amounts of fire insurance coverages respectively extended by New India in
the amount of P5,800,000 and Rizal Insurance in the amount of P1.5 Million.
During the MR, the CA amended the amount of legal interest only.
8. Rizal Insurance filed the instant Petition for Review on Certiorari under Rule 45.
Points of Contention
New India: Transworld could not be compensated for the loss of the fun and
amusement machines and spare parts stored at the two-storey building because it
had no insurable interest in said goods or items.
Rizal Insurance: the insurance policy covered only the contents of the four-span
building, which was partly burned, and not the damage caused by the fire on the two-
storey annex building.
Transworld: The “annex” was not an annex but was actually an integral part of the
four-span building and therefor, the goods and items stored therein were covered by
the same fire insurance policy
Issues Ruling
9. Whether or not the annex should be covered by the insurance 10. Yes
policy
Rationale
5. The annex is covered by the insurance policy.
The pertinent stipulation in the insurance policy reads: “xxx contained and/ or
stored during the currency of this Policy in the premises occupied by them
forming part of the buildings situate (sic) within own Compound xxx.” It can be
gleaned from this that the fire insurance policy in question did not limit its
coverage to what were stored in the four-span building. Two requirements must
concur in order that the said fun and amusement machines and spare parts
would be deemed protected by the fire insurance policy, as stipulated: “First,
said properties must be contained and/ or stored in the areas occupied by
Transworld and second, said areas must form part of the building described in
the policy.”
Here, the SC agreed with both the RTC and CA that the so called “annex” was
not an annex building but an integral and inseparable part of the four-span
building described in the policy and consequently, the machines and spare parts
stored therein were covered by the fire insurance in dispute. This is also based
on the letter-report of the Manila Adjusters and Surveyor’s Company, which the
petitioner itself cited and invoked, describing the “annex” building as a two-
storey buiding, which is a permanent structure adjoining with the “first right span
of the lofty storey building,” forming part thereof, and so meets the requisites for
the compensability under the fire insurance policy being sued upon.
INSURANCE B2021 | 24
 Most importantly, Art. 1377 of the Civil Code provides: “The interpretation of
obscure words or stipulations in a contract shall not favor the party who caused
the obscurity.” The insurance policy should then be resolved against Rizal
Insurance, whose lawyer or managers drafted the fire insurance policy. Case
laws (Landicho v. GSIS; and Fieldmen’s Insurance Company, Inc v. De Songco)
provide that as regards insurance policies, if the terms thereof are ambiguous,
equivocal, or uncertain, such should be strictly construed against the insurer
and liberally in favor of the insured so as to effect the dominant purpose of
indemnity or payment to the insured, especially where forfeiture is involved. The
rule is also necessary in view of current business practices. The courts cannot
ignore that nowadays monopolies, cartels, and concentration of capita,
endowed with overwhelming economic power, manage to impose upon parties
dealing with them prepared agreements/ contract of adhesion that the weaker
party may not change, the other party’s participation being reduced to merely
“take it or leave it” and making him or her prone to abuses. Here, it is only
proper to construe the insurance policy against Rizal Insurance. Also, since the
“annex” was already existing when the insurance policy was entered into, Rizal
Insurance should have specifically excluded the said two-story building from the
coverage of the fire insurance.
Disposition
The decision of the CA is affirmed in toto.

INSURANCE B2021 | 25
 Insurance – Construction of
LANDICHO v. GSIS Insurance Contracts: Contracts of
12 Adhesion
L-28866 3/17/1972 Concepcion JTSY
Petitioners: Respondents:
FE DE JOYA LANDICHO, in her own GOVERNMENT SERVICE INSURANCE
behalf and as judicial guardian of her SYSTEM
minor children, RAFAEL J. LANDICHO
and MA. LOURDES EUGENIA
LANDICHO
Recit Ready Summary
On 6/1/1964, the GSIS issued an optional life insurance policy in favor of
Flaviano Landicho, a civil engineer at the Bureau of Public Works. The application
form filled out by Flaviano (which was included as part of the policy) stated in
Paragraph 7, subdivision (c), that the application would serve as a letter of authority
to the Collecting Officer to deduct his salary as payment for premiums; subdivision (d)
stated that failure to deduct would not cause the policy to lapse, but the account
would be an indebtedness that he would pay; and subdivision (e) stated that the
policy would be made effective on the first day of the month next following the month
the first premium is paid. On 6/29/1964, Flaviano died in an airplane crash, and his
widow subsequently filed to claim the indemnity. GSIS refused, claiming that per
subdivision (e), the policy never came into effect since the first premium was not yet
paid. Mrs. Landicho filed before CFI Manila, which ordered GSIS to pay.
The issue is whether the policy is effective even without the first premium
having been paid, to which the SC says yes. Although the view of the GSIS is not
totally farfetched, such is not in accord with the many government employees who
maintain an optional insurance policy. To said employees, their receipt of full pay
(without any deduction for insurance premiums) does not signify that the policy has
lapsed; rather, that such would be an indebtedness which they would have to pay for
in the future. The effect of subdivisions (c), (d), and (e) creates an ambiguity, which is
to be resolved against the GSIS, as the party that caused the ambiguity, and in favor
of the party misled. This view is strengthened by the fact that no deduction was made
because the GSIS never instructed the collecting officer of the Bureau of Public
Works to do so, and such omission should not inure to the benefit of the GSIS; and
further that the GSIS had already impliedly induce the insured to believe that the
policy was in force, having paid him the dividends corresponding to the policy.
Decision of CFI affirmed.
Facts
1. On 6/1/1964, the GSIS issued optional life insurance policy No. OG-136107 in
the sum of P7,900 in favour of Flaviano Landicho, a civil engineer at the Bureau
of Public Works. The insurance policy stated on its face that “This insurance is
granted subject to the terms and conditions hereinafter set forth and in
consideration of the ‘Information’ therefor and of the payment on the day this
Policy takes effect of the monthly premiums stated above”, and one of the
conditions was that the Information sheet signed by the insured is part of the
policy. Before the issuance of said policy, Flaviano had filled out an application
(a printed form of the GSIS), subdivision (c) of Paragraph 7 of which stated that
the “application serves as a letter of authority to the Collecting Officer of our
Office thru the GSIS to deduct from my salary the monthly premium”,
subdivision (d) stated that “failure to deduct from my salary the monthly
premiums shall not make the policy lapse, however, the premium account shall
be considered as indebtedness which, I bind myself to pay”, and subdivision (e)
stated “That my policy shall be made effective on the first day of the month next
following the month the first premium is paid”.
2. On 6/29/1966, while still employed by the Bureau of Public Works, Flaviano died
in an airplane crash. Thereupon, Mrs. Landicho, in her own behalf and on behalf
of her minor children, filed with the GSIS a claim for P15,000, as the double
indemnity due under the insurance policy, for Flaviano’s death. GSIS denied on
ground that, per subdivision (e) of Paragraph 7, the policy had not yet taken
effect since no premiums had ever been paid on the policy, and refused to
reconsider its stand.
Procedural History
1. Mrs. Landicho, in her own behalf and on behalf of her minor children, filed action before
CFI Manila, which required the GSIS to pay P15,800 plus interest, plus P1,000 attorney’s
fees and costs. GSIS is appealing this decision
Issues Ruling
10. Was the insurance policy ever in force, considering that not a 11. Yes
single premium was ever paid?
Rationale
6. The insurance policy was already in force even if Flaviano died before he
could pay the first insurance premium installment
Petitioners rely on subsections (c) and (d) of Paragraph 7, especially that failure
to deduct from the salary shall not make the policy lapse, but that it would
constitute an indebtedness. On the other hand, GSIS relies on subsection (e) of
the same paragraph, holding that subsections (c) and (d) would not apply
unless the first premium shall have been actually paid. Although this view is not
entirely farfetched, it is not in accord with the many government employees who
maintain an optional life insurance policy. For them, the actual receipt by them
of their full pay – without any deduction for premiums on their optional life
insurance policies – does not impart to them the warning that their policy is not
yet in force. They would tend to believe, rather, that the failure to deduct would
not make the policy lapse, and the premium account would be an indebtedness
to be paid or deducted later, because after all, the payment of premiums is only
an accounting process, whereby funds are transferred, not physically, but
constructively, from one office of the government to another. In short, the
language of subdivisions (c), (d), and (e) is such as to create an ambiguity that
should be resolved against the party responsible therefor (GSIS) and in favor of
the party misled by (the employee). Indeed, the Civil Code provides that “the
interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity”, which in this case is the GSIS. This view is
strengthened by 2 factors: (1) no deduction was made by the collecting officer of
the Bureau of Public Works because the GSIS did not advise him to make it,
and such omission of the GSIS should not inure to its benefit; and (2) the GSIS
had impliedly induced the insured to believe that the policy was already in force,
having paid him the dividends corresponding to said policy.
Disposition
Decision affirmed, with costs against GSIS
INSURANCE B2021 | 26
 Insurance — Contracts of
Fieldmen’s Insurance v. Songco
adhesion 4. Federico’s widow Mercedes, his other children, and Jose Manuel all sued
13 Fieldmen’s Insurance.11 The trial court and the CA both ruled in their favor.
G.R. No. L-24833 September 23, J. Fernando Anton
1968 Hence, the present appeal.
Petitioners: Respondents:
Fieldmen’s Insurance Co., Inc. Mercedes Vargas Vda. De Songco, et Issues Ruling
al. 11. Is Fieldmen’s Insurance liable under the policy? 12. Yes
Recit Ready Summary Rationale
7. Fieldmen’s Insurance is liable under the policy.
A private jeepney owned by Federico Songco met a road accident which led to his
own death and that of his son, as well as injuries to the other passengers therein. The Estoppel
vehicle was twice insured by Fieldmen’s Insurance under a common carrier’s liability - Where inequitable conduct is shown by an insurance firm, it is “estopped
insurance policy, which Federico availed of at the insistence of Benjamin Sambat, an from enforcing forfeitures in its favor in order to forestall fraud or imposition
agent of the former (Sambat had reassured him that he was qualified for the same). on the insured.” (Qua Chee Gan v. Law Union Bank and Rock Insurance
The trial court and CA held Fieldmen’s Insurance liable. Co., Ltd.)

Is Fieldmen’s Insurance liable under the policy? — Yes
Its liability was “inescapable,” given that the victims were recognized beneficiaries
under the policy. It was also estopped from denying liability, given the reassurances
made to Fedrico by its agent. On the policy’s being a contracts of adhesion, the
court cited the Qua Chee Gan decision (elaborated hereunder):
A contract of insurance is one of perfect good faith not for the insured alone, but
equally so for the insurer; in fact, it is more so for the latter, since its dominant
bargaining position carries with it stricter responsibility.
CA affirmed — Fieldmen’s Insurance is liable under the policy.
Facts
8 9
1. Federico Songco owned a private jeepney. Benjamin Sambat, an agent of
Fieldmen’s Insurance, induced him to apply for a Common Carrier’s Liability
Insurance Policy for the same.10 Thus, Federico paid the premium of P16.50 for
the policy, which was valid from 15 September 1960 to 15 September 1961.
2. Federico renewed the policy at the end of said term, extending it until 15
October 1962.
3. On 29 October 1961, the insured vehicle collided with a car in Calumpit,
Bulacan. Rodolfo (Federico’s son) and Federico died. Carlos (another son), his
wife Angelita, and a family friend named Jose Manuel sustained various
physical injuries. Rodolfo was driving the car, whereas the others were all
passengers.
8
A man of “scant education,” having only finished first grade. He lived in Floridablanca,
Pampanga.
9 Contract of adhesion
Plate numbers — 41-289 (1960), and then J-68136 (1961).
10
Note, however, that it is not the nature of the vehicle which determines whether one is a
common carrier (at least in today’s day and age). The Court just put added emphasis on this
fact.
- Through its agent Benjamin Sambat, Fieldmen’s Insurance led Federico to
believe that he could qualify under the common carrier liability insurance
policy
 Amor Songco (another son of Federico’s) witness testimony is
summarized as follows:
o He claimed that Federico questioned whether he could
qualify under the policy, given that he owned a private
vehicle
o Sambat discounted such fears and insisted that he was
covered
 Emphasis on the fact that Federico was of scant education was
made, thus implying that Sambat took advantage of Federico
- Thus, Fieldmen’s Insurance cannot not change its position to the detriment
of the heirs of the insured
 “Where inequitable conduct is shown by an insurance firm, it is
estopped from enforcing forfeitures in its favor in order to forestall
fraud or imposition on the insured ?
Liability was “inescapable”
- The victims were recognized beneficiaries under the policy
 Fieldmen’s Insurance was obliged to answer for the following:
o Hospital expenses — Carlos, Angelita, Jose Manuel
o Burial expenses — Rodolfo
- A contract of insurance is one of perfect good faith (uberrima fides) not for
the insured alone, but equally so for the insurer; in fact, it is more so for the
latter, since its dominant bargaining position carries with it stricter
responsibility”
- From the aforementioned Qua Chee Gan decision are the following
11
No mention of what was filed or their cause of action.

INSURANCE B2021 | 27
 excerpts:

Nowadays monopolies, cartels and concentrations of capital,

endowed with overwhelming economic power, manage to impose
upon parties dealing with them cunningly prepared 'agreements'
that the weaker party may not change one whit, his participation in
the 'agreement' being reduced to the alternative to 'take it or leave
it' labelled since Raymond Saleilles 'contracts by adherence'
(contracts d' adhesion), in contrast to these entered into by
parties bargaining on an equal footing, such contracts… obviously
call for greater strictness and vigilance on the part of courts of
justice with a view to protecting the weaker party from abuses and
imposition, and prevent their becoming traps for the unwary.

xxx

A contract of insurance is one of perfect good faith (uberrima fides)

not for the insured alone, but equally so for the insurer; in fact, it is
more so for the latter, since its dominant bargaining position
carries with it stricter responsibility

- Summary:
 In contracts of adhesion, one party prepares the contract whereas
the other party merely has the option of agreeing to the same
 The parties are not on equal footing, there always being a stronger
party and a weaker party — thus, such a contract is always
construed against the party who drafted the same
Disposition

CA affirmed — Fieldmen’s Insurance is liable under the policy.

INSURANCE B2021 | 28
 DEL ROSARIO v. EQUITABLE INSURANCE: Where there is
14/20 INSURANCE ambiguity or doubt?
GR No. 16215 June 29, 1963 Paredes, J. James V.
Petitioners: Respondent:
Simeon Del Rosario Equitable Insurance and Casualty Co.
Recit Ready Summary
Equitable Insurance issued Personal Accident Policy on the life of
Francisco del Rosario, son of plaintiff-appellee Simeon del Rosario. The Insurance
company binds itself to pay the sum of P1,000.00 to P3,000.00, as indemnity for the
death of the insured. Subsequently, Francisco including his beneficiary, Remedios
Jayme, were on board a motor launch and were forced to jump off because of a fire
on said vessel resulting to their death by drowning.
Simeon filed a claim for payment with insurance company but it only gave P1,000.
Simeon through his lawyer demanded that they should be entitled to 1,500 based on
the rule of pari materia as the death of the insured occurred under the circumstances
similar to that under Sec. 2 (look at table in the Facts). But the Insurance
Commissioner issued an opinion that he is only entitled to P1000 based on the policy.
Hence, insurance company refuses to give more. A case was then filed with the CFI
of Rizal for the P2,000 balance stating that under the policy they are entitled to
P1,000 to P3,000 as indemnity.
The CFI ruled that held that the policy itself provides that death by drowning is a
ground for recovery a part from the bodily injury because death by bodily injury is
covered by Part I of the policy while death by drowning is covered by Part VI thereof.
But while the policy mentions specific amounts that may be recovered for death for
bodily injury, yet, there is no specific amount mentioned in the policy for death thru
drowning. Hence, Del Rosario is entitled to recover P3,000 because the policy does
not positively state any definite amount, there is an ambiguity in this respect in the
policy, which ambiguity must be interpreted in favor of the insured and strictly against
the insurer so as to allow greater indemnity.
Procedural History
The Court affirmed the trial court’s decision and ruled that ambiguity in terms and
conditions of a life accident policy resolved against insurer. Where there is an
ambiguity with respect to the terms and conditions of a policy, the same will be
resolved against the one responsible thereof. Generally, the insured, has little, if any,
participation in the preparation of the policy, together with the drafting of its terms and
conditions. The interpretation of obscure stipulations in a contract should not favor the
party who caused the obscurity (Art. 1377, N.C.C.) which, in the case at bar, is
the insurance company.
Facts
5. Equitable Insurance issued Personal Accident Policy on the life of
Francisco del Rosario, son of plaintiff-appellee Simeon del Rosario. The
Insurance company binds itself to pay the sum of P1,000.00 to P3,000.00, as
indemnity for the death of the insured. The Policy provides:
If the insured sustains any bodily injury which is effected solely through
violent, external, visible and accidental means, and which shall result,
independently of all other causes and within sixty (60) days from the
occurrence thereof, in the Death of the Insured, the Company shall pay the
amount set opposite such injury:
Sec. 1 Injury sustained other than those specified below 1,000
unless excepted hereinafter 
Sec. 2 Injury sustained by the wrecking or disablement of a 1,500
railroad passenger car or street railway car in or on which the
insured is traveling as a fare-paying passenger 
Sec. 3 Injury sustained by the burning of a church, theatre, 2,000
public library or municipal administration building while the
Insured is therein at the commencement of the fire 
Sec. 4 Injury sustained by the wrecking or disablement of a 2,500
regular passenger elevator car in which the Insured is being
conveyed as a passenger
Sec. 5 Injury sustained by a stroke of lightning or by a 3,000
cyclone 
6. The insured Francisco del Rosario,  while on board the motor launch Islama,
including his beneficiary in the Policy, Remedios Jayme, were forced to jump off
because of a fire in the said vessel, resulting to the death by drowning, of the
insured and beneficiary in the waters of Jolo.
7. Simeon, father of the insured, and as the sole heir, filed a claim for payment
with Insurance company, and they paid to him the sum of 1,000, pursuant to
Section 1 of the policy.
8. On the same day, Atty. Vicente J. Francisco claimed that under Sec. 2, of the
policy, they should be entitled 1,500 based on the rule of pari materia as the
death of the insured occurred under the circumstances similar to that provided
under said section.
9. Upon receipt of the letter, insurance company referred the matter to
the Insurance Commissioner, who rendered an opinion that the liability of the
company was only 1,000.00, pursuant to Sec 1 of the policy.
10. Because of the said opinion, insurance company refused to pay more. Atty.
Vicente in a subsequent letter to the insurance company asked for P3,000
which the Company refused to pay.
1. A complaint for the recovery of the balance of P2,000.00 more was instituted
with the CFI of Rizal.
2. Insurance Company presented a Motion to Dismiss, alleging that the demand
or claim have already been released.
3. The trial court continued hearing the case and held that the policy itself
provides that death by drowning is a ground for recovery a part from the bodily
injury because death by bodily injury is covered by Part I of the policy while
death by drowning is covered by Part VI thereof.
- But while the policy mentions specific amounts that may be recovered for
death for bodily injury, yet, there is no specific amount mentioned in the
policy for death thru drowning.
- Since the defendant has bound itself to pay P1,000.00 to P3,000.00 as
indemnity for the death but the policy does not positively state any definite
amount that may be recovered in case of death by drowning.
- There is an ambiguity in this respect in the policy, which ambiguity must be
interpreted in favor of the insured and strictly against the insurer so as to a
low a greater indemnity. Plaintiff is therefore entitled to recover P3,000.00. 
4. Judgment was appealed to the CA but in its Resolution it elevated the case to
this Court, stating that the genuine issue is purely legal in nature.
INSURANCE B2021 | 29
Issues Ruling
How much should the indemnity be? 3000
Rationale
 The Supreme Court agreed with the findings and conclusions of the trial court
for they are supported by the generally accepted principles or rulings
on insurance, which enunciate that where there is an ambiguity with respect to
the terms and conditions of a policy, the same will be resolved against the one
responsible thereof.
 It should be recalled that generally the insured has little, if any, participation in
the preparation of the policy. The interpretation of obscure stipulations in a
contract should not favor the party who caused the obscurity (Art. 1377,
N.C.C.), which, in the case at bar, is the insurance company.
 It has been generally held that the 'terms in an insurance policy, which are
ambiguous, equivocal or uncertain . . . are to be construed strictly against, the
insurer, and liberally in favor of the insured so as to effect the dominant
purpose of indemnity or payment to the insured, especially where a forfeiture is
involved.
 The reason for this rule is that the insured usually has no voice in the selection
or arrangement of the words employed and that the language of the contract is
selected with great care and deliberation by expert and legal advisers
employed by, and acting exclusively in the interest of, the insurance company.
 Where two interpretations, equally fair, of languages used in
an insurance policy may be made, that which allows the greater indemnity will
prevail.
 At any event, the policy under consideration, covers death or disability by
accidental means, and the appellant insurance company agreed to pay
P1,000.00 to P3,000.00, as indemnity for death of the insured.
Disposition
The judgment appealed from is affirmed, hence the plaintiff is entitled to recover
3000.

INSURANCE B2021 | 30
 Where there is ambiguity (in the
Taurus Taxi v. Capital Insurance
15 insurance contract)
G.R. No. L-23491 July 31, 1968 Reyes Melan Yap
Petitioners: Respondents:
TAURUS TAXI CO., INC., FELICITAS V. CAPITAL INSURANCE & SURETY CO.,
MONJE, ET AL. INC.
Recit Ready Summary
Alfredo Monje was employed as taxi driver by Taurus. The taxi he was driving collided
with a Transport Taxicab resulting in his death. At the time of the accident, there was
subsisting Commercial Vehicle Comprehensive Policy No. 101, 737 issued by Capital
Insurance to Taurus. The amount for which each passenger, including the driver, is
insured is P5,000.00.
Capital Insurance & Surety Co. Inc. argued that in view of the fact that Alfredo Monje
was entitled to indemnity under another insurance policy issued by Ed. A. Keller Co.,
Ltd. (this was actually Monje’s compensation under the Workmen’s Compensation
Act), the heirs are not entitled to indemnity under the insurance policy for the reason
that the latter policy contains a stipulation that "the company will indemnify any
authorized driver provided that such authorized driver is not entitled to indemnity
under any other policy."
Is Capital Insurance liable? YES.
Capital Insurance would seek to escape liability on the plea that the workman's
compensation to which the deceased driver was rightfully entitled was settled by the
employer through a policy issued by another insurance firm.What was paid therefore
was not indemnity but compensation. Since what is prohibited by the insurance policy
is that any authorized driver of Taurus should not be "entitled to any indemnity under
any policy", it would appear indisputable that the obligation of Capital Insurance under
the policy had not been extinguished. The Workmen's Compensation Act, explicitly
requires that an employee suffering any injury or death arising out of or in the course
of employment be compensated. The fulfillment of such statutory obligation cannot
be the basis for evading the clear, explicit and mandatory terms of a policy.
Assuming however that there is a doubt concerning the liability of insurance
firm, nonetheless, it should be resolved against its pretense and in favor of the
insured. Courts are to regard "with extreme jealousy" limitations of liability found in
insurance policies and to construe them in such a way as to preclude the insurer from
non-compliance with his obligation. A contract of insurance couched in language
chosen by the insurer is, if open to the construction contended for by the insured, to
be construed most strongly, or strictly, against the insurer and liberally in favor of the
contention of the insured, which means in accordance with the rule contra
proferentem."
Facts
1. Alfredo Monje, according to the complaint, was employed as taxi driver by
Taurus. The taxi he was driving collided with a Transport Taxicab at the
intersection of Old Sta. Mesa and V. Mapa Streets, Manila, resulting in his
death.
2. At the time of the accident, there was subsisting and in force Commercial
Vehicle Comprehensive Policy No. 101, 737 issued by the Capital Insurance
to Taurus. The amount for which each passenger, including the driver, is
insured is P5,000.00. After the issuance of policy No. 101, 737, Capital
Insurance issued the Taurus Indorsement No. 1 which forms part of the
policy. Reference was then made to Felicitas Monje being the widow of the
taxi driver, the other plaintiffs-appellees with the exception of the Taurus,
being the children of the couple. After which,Taurus made representations
for the payment of the insurance benefit corresponding to her and her
children since it was issued in its name, benefit corresponding to her and her
children, but despite demands, Capital Insurance refused and still refuses to
pay them.
Procedural History
1. Capital Insurance & Surety Co., Inc. was ordered by the lower court to pay
Taurus Taxi Co., Inc. as well as the widow and children of the deceased
Alfredo Monje, who, in his lifetime, was employed as a taxi driver of Taurus
P5,000.00 with legal interest.
Points of Contention
Capital Insurance & Surety Co. Inc. argued that in view of the fact that Alfredo Monje
was entitled to indemnity under another insurance policy issued by Ed. A. Keller Co.,
Ltd., the heirs are not entitled to indemnity under the insurance policy for the reason
that the latter policy contains a stipulation that "the company will indemnify any
authorized driver provided that such authorized driver is not entitled to indemnity
under any other policy."
Issues Ruling
12. W/N a provision in the insurance contract that Capital 13. NO.
Insurance will indemnify any authorized driver provided that he
is not entitled to any indemnity under any other policy, it being
shown that the deceased was paid his workman's
compensation from another insurance policy, should defeat
such a right to recover under the insurance contract subject of
this suit.
Rationale
1. Capital Insurance would seek to escape liability on the plea that the
workman's compensation to which the deceased driver was rightfully entitled
was settled by the employer through a policy issued by another insurance
firm. What was paid therefore was not indemnity but compensation.
2. Since what is prohibited by the insurance policy is that any authorized driver
of Taurus should not be "entitled to any indemnity under any policy", it would
appear indisputable that the obligation of Capital Insurance under the policy
had not been extinguished. What the law requires enters into and forms part
of every contract. The Workmen's Compensation Act, explicitly requires that
an employee suffering any injury or death arising out of or in the course of
employment be compensated. The fulfillment of such statutory obligation
cannot be the basis for evading the clear, explicit and mandatory terms of a
policy.
3. The previous payment made of the compensation under such legislation is
no obstacle by virtue of a clause like that invoked by Capital Insurance to the
payment of indemnity under the insurance policy.
4. Assuming however that there is a doubt concerning the liability of
insurance firm, nonetheless, it should be resolved against its pretense
and in favor of the insured. Courts are to regard "with extreme jealousy"
INSURANCE B2021 | 31
 limitations of liability found in insurance policies and to construe them in
such a way as to preclude the insurer from non-compliance with his
obligation. A contract of insurance couched in language chosen by the
insurer is, if open to the construction contended for by the insured, to be
construed most strongly, or strictly, against the insurer and liberally in favor
of the contention of the insured, which means in accordance with the rule
contra proferentem."

Not so relevant: A second alleged error that the lower court ought to have held "that
by joining the heirs of Alfredo Monje as a party plaintiff, Taurus committed a breach of
policy condition and thus forfeited whatever benefits, if any, to which it might be
entitled under the policy." The basis for such an allegation is one of the conditions set
forth in the policy. Thus: "5. No admission, offer, promise or payment shall be made
by or on behalf of the insured without the written consent of the Company which shall
be entitled if it so desires to take over and conduct in his name the defense or
settlement of any claim or to prosecute in his name for its own benefit any claim for
indemnity or damages or otherwise and shall have full discretion in the conduct of any
proceedings and in the settlement of any claim and the Insured shall give all such
information and assistance as the Company may require”

Such a plea is even less persuasive. Taurus had to join the suit on behalf of the real
beneficiaries, the heirs of the deceased driver, who are the other plaintiffs as it was a
party to the policy. Moreover, the institution of the action cannot possibly be
construed as an admission, offer, promise, or payment by the company, for it merely
seeks to enforce, by court action, the only legal remedy available to it, its rights under
the contract of insurance to which it is a party.
Disposition
Capital Insurance is ordered to pay the plaintiffs.

INSURANCE B2021 | 32
 Insurance – Construction of Insurance
CCC Insurance v. CA Contracts, Where there is ambiguity or
16 doubt
G.R. No. L-25920 January 30, 1970 REYES, J.B.L., J andojoyan
Petitioners: Respondents:
CCC INSURANCE CORPORATION COURT OF APPEALS (Fourth Division)
and CARLOS F. ROBES
Recit Ready Summary
In 1961, Carlos F. Robes took an insurance, with the CCC Insurance Corporation, on
his Dodge Kingsway car against loss or damage through accident; and during the
effectivity of the policy, the insured vehicle, while being driven by the owner's driver,
became involved in a vehicular collision along Rizal Avenue Extension, Potrero,
Malabon, Rizal. The car was damaged, and the repair was estimated to cost
P5,300.00. As the insurance company refused either to pay for the repair or to
cause the restoration of the car to its original condition, Robes instituted Civil Case in
the CFI of Rizal for recovery not only of the amount necessary for the repair of the
insured car but also of actual and moral damages, attorneys' fees and costs.
Resisting plaintiff's claim, the insurance company disclaimed liability for payment,
alleging that there had been violation of the insurance contract because the one
driving the car at the time of the incident was not an "authorized driver." CFI and CA
ruled in favor of Robes.
CCC vigorously urged that the one driving the insured vehicle at the time of the
accident was not an authorized driver thereof within the purview insurance policy; and
the driver who was at the wheel of the insured car at the time of the accident, does
not know how to read and write; was able to secure a driver's license without passing
any examination, and the Cavite agency of the Motor Vehicles Office has certified not
having issued Reyes' purported driver's license. The CA argued that since Reyes'
purported driver's license bears all the earmarks of a duly issued license, then it is a
public document, and petitioner insurance company then has the burden of disproving
its genuineness, which the latter has failed to do.
The issue is W/N the damage to the insured car was covered by the insurance
policy. YES
Under Section 24 and 26 of the Revised Motor Vehicles Law, Act 3992 of the
Philippine Legislature, it is clear that the issuance of a driving license without
previous examination does not necessarily imply that the license issued is
invalid. As the law stood in 1961, when the claim arose, the examinations could be
dispensed with in the discretion of the Motor Vehicles Office official officials. Whether
discretion was abused in issuing the license without examination is not a proper
subject of inquiry in these proceedings, though, as a matter of legislative policy, the
discretion should be eliminated. There is no proof that the owner of the automobile
knew that the circumstance surrounding such issuance showed that it was irregular.
The issuance of the license is proof that the Motor Vehicles Office official considered
Reyes, the driver of the insured- appellee, qualified to operate motor vehicles, and
the insured was entitled to rely upon such license. In this connection, it should be
observed that the chauffeur, Reyes, had been driving since 1957, and without
mishap, for all the record shows. Considering that, as pointed out by the Court of
Appeals, the weight of authority is in favor of a liberal interpretation of the
insurance policy for the benefit of the party insured, and strictly against the
insurer, We find no reason to diverge from the conclusion reached by the Court of
Appeals that no breach was committed of the provision of the policy.
Facts
1. On 1 March 1961, Carlos F. Robes took an insurance, with the CCC Insurance
Corporation, on his Dodge Kingsway car against loss or damage through
accident for an amount not exceeding P8,000.00 (Policy No. M1156).
2. On 25 June 1961, and during the effectivity of the policy, the insured vehicle,
while being driven by the owner's driver, became involved in a vehicular
collision along Rizal Avenue Extension, Potrero, Malabon, Rizal. The car was
damaged, and the repair was estimated to cost P5,300.00.
3. As the insurance company refused either to pay for the repair or to cause the
restoration of the car to its original condition, Robes instituted Civil Case No. Q-
6063 in the CFI of Rizal for recovery not only of the amount necessary for the
repair of the insured car but also of actual and moral damages, attorneys'
fees and costs.
4. Resisting plaintiff's claim, the insurance company disclaimed liability for
payment, alleging that there had been violation of the insurance contract
because the one driving the car at the time of the incident was not an
"authorized driver."
Procedural History
1. After due hearing, judgment was rendered for the plaintiff, and defendant
insurer was ordered to pay unto the former the cost of repair of the car in the
sum of P5,031.28; the sum of P150.00, for the hauling and impounding of
the car at the repair shop; P2,000.00 as actual damages; and P1,000.00 as
attorneys' fees, plus costs.
2. The insurance company went to the CA, raising inter alia the questions of
the qualification of plaintiff's driver to operate the insured vehicle and the
correctness of the trial court's award
3. The CA affirmed the ruling of the lower court except the award of actual
damages in the sum of P2,000.00, which was eliminated on the ground that
it was too speculative.
4. The insurance company filed the present petition for review on two grounds:
(1) that the proceedings observed in the trial court were irregular and
invalid; and
(2) that the damage to the insured car was not covered by the insurance
policy because at the time of the accident it was being driven by one who
was not an authorized driver.
Points of Contention
CCC Insurance
1. It is vigorously urged by the insurer that the one driving the insured vehicle
at the time of the accident was not an authorized driver thereof within the
purview of the following provision of the insurance policy:
AUTHORIZED DRIVER: Any of the following:
(a) The insured;
(b) Any person driving on the Insured's order or with his
permission, provided that the person driving is permitted in
accordance with licensing laws or regulations to drive the motor
vehicle covered by this Policy, or has been so permitted and is not
INSURANCE B2021 | 33
 disqualified by order of a court of law or by reason of any
enactment or regulation from driving such Motor Vehicle.
(Emphasis ours)
2. The CA found that that Domingo Reyes, the, driver who was at the wheel of
the insured car at the time of the accident, does not know how to read and
write; that he was able to secure a driver's license, without passing any
examination therefor, by paying P25.00 to a certain woman; and that the
Cavite agency of the Motor Vehicles Office has certified not having issued
Reyes' purported driver's license No. 271703 DP.
3. Under the established facts of this case, Reyes, being admittedly one who
cannot read and write, who has never passed any examination for drivers,
and has not applied for a license from the duly constituted government
agency entrusted with the duty of licensing drivers, cannot be considered an
authorized driver.
Court of Appeals
4. The CA argued that since Reyes' purported driver's license (Exhibit "A")
bears all the earmarks of a duly issued license, then it is a public
document, and petitioner insurance company then has the burden of
disproving its genuineness, which the latter has failed to do.
Issues Ruling
13. W/N the damage to the insured car was covered by the 14. Yes
insurance policy
(since at the time of the accident it was being driven by one
who was not an authorized driver) 15. No
14. W/N the proceedings observed in the trial court were irregular
and invalid
Rationale
The CA found that the driver's license No. 271703 DP was genuine, that is, one really
issued by the Motor Vehicles Office or its authorized deputy; and this finding of fact is
now conclusive and may not be questioned in this appeal.
8. Damage to the insured car was covered by the insurance policy
The fatal flaw in appellant's (CCC Insurance) argument is that it studiously ignores
the provisions of law existing at the time of the mishap. Under Section 24 of the
Revised Motor Vehicles Law, Act 3992 of the Philippine Legislature, as amended by
Republic Acts Nos. 587, 1204 and 2863,
An examination or demonstration to show any applicant's ability to operate motor
vehicles may also be required in the discretion of the Chief, Motor Vehicles Office
or his deputies. (Emphasis supplied)
and reinforcing such discretion, Section 26 of the Act prescribes further:
SEC. 26. Issuance of chauffeur's license; professional badge: If, after
examination, or without the same, the Chief, Motor Vehicles Office or his deputies,
believe the applicant to possess the necessary qualifications and knowledge, they
shall issue to such applicant a license to operate as chauffeur ... (Emphasis
supplied)
It is thus clear that the issuance of a driving license without previous examination
does not necessarily imply that the license issued is invalid. As the law stood in
1961, when the claim arose, the examinations could be dispensed with in the
discretion of the Motor Vehicles Office official officials. Whether discretion was
abused in issuing the license without examination is not a proper subject of inquiry in
these proceedings, though, as a matter of legislative policy, the discretion should be
eliminated. There is no proof that the owner of the automobile knew that the
circumstance surrounding such issuance showed that it was irregular.
The issuance of the license is proof that the Motor Vehicles Office official considered
Reyes, the driver of the insured- appellee, qualified to operate motor vehicles, and
the insured was entitled to rely upon such license. In this connection, it should be
observed that the chauffeur, Reyes, had been driving since 1957, and without
mishap, for all the record shows. Considering that, as pointed out by the Court of
Appeals, the weight of authority is in favor of a liberal interpretation of the
insurance policy for the benefit of the party insured, and strictly against the
insurer, We find no reason to diverge from the conclusion reached by the Court of
Appeals that no breach was committed of the above-quoted provision of the policy.
9. The proceedings observed in the trial court were NOT irregular and
invalid
According to CCC Insurance, the decision of the trial court was based on evidence
presented to and received by the clerk of court who acted as commissioner, although
allegedly, there was no written court order constituting him as such commissioner, no
written request for his commission was made by the parties; he did not take an oath
prior to entering into the discharge of his commission; no written report of his findings
was ever submitted to the court; and no notice thereof was sent to the parties,
contrary to the specific provisions of Rule 33 of the Rules of Court.
The Court ruled that
- There is nothing basically wrong with the practice of delegating to a
commissioner, usually the clerk of court, who is a duly sworn court officer, the
reception of both parties and for him to submit a report thereon to the court.
- This procedure is expressly sanctioned by Revised Rule 33 of the Rules of
Court. Petitioner's objection in this case, however, is directed not against its
referral to the clerk of court but against the alleged non-observance of the
prescribed steps in connection with such delegation.
- This circumstance precludes ventilation of the issue of validity of the hearing at
this stage; for, if such irregularity is to vitiate the proceeding, the question should
have been seasonably raised, i.e., either before the parties proceeded with the
hearing or before the court handed down its ruling.
- It is a procedural point that can be waived by consent of the parties, express or
implied.
Appellant has presented no proof that the clerk of court committed any mistake
or abuse in the performance of the task entrusted to him, or that the trial court was
not able to properly appreciate the evidence in the case because it was received by
another person. If indeed there were errors at all, they would be non-prejudicial and
could not justify the holding of a new trial, as urged by herein petitioner.
Disposition
CA decision is affirmed, with costs against appellant CCC Insurance Corporation.
INSURANCE B2021 | 34
 VILLACORTA v. INSURANCE Insurance: Construction of
COMMISSION Insurance Contracts
17
G.R. No. L-54171 October 28, Teehankee, J. Javier
1980
Petitioners: Respondents:
Jewel Villacorta, assisted by her The Insurance Commission and Empire
husband, Guerrero Villacorta Insurance Company
Recit Ready Summary
Villacorta had her Colt Lancer car insured with Empire Insurance Company against
own damage, theft and 3rd party liability. While the car was in the repair shop, one of
the employees of the said repair shop took it out for a joyride after which it figured in a
vehicular accident. This resulted to the death of the driver and some of the
passengers as well as to extensive damage to the car. Villacorta filed a claim for total
loss with the said insurance company. However, it denied the claim on the ground
that the accident did not fall within the provisions of the policy either for the Own
Damage or Theft coverage, invoking the policy provision on “Authorized Driver
Clause”. This was upheld by the Insurance Commission further stating that the car
was not stolen and therefore not covered by the Theft Clause because it is not
evident that the person who took the car for a joyride intends to permanently deprive
the insured of his/ her car.
ISSUE: Whether or not the insurer company should pay the said claim? Yes!
Where the insured’s car is wrongfully taken without the insured’s consent from the car
service and repair shop to whom it had been entrusted for check-up and repairs
(assuming that such taking was for a joy ride, in the course of which it was totally
smashed in an accident), respondent insurer is liable and must pay insured for the
total loss of the insured vehicle under the Theft Clause of the policy.
Assuming, despite the totally inadequate evidence, that the taking was “temporary”
and for a “joy ride”, the Court sustains as the better view that which holds that when a
person, either with the object of going to a certain place, or learning how to drive, or
enjoying a free ride, takes possession of a vehicle belonging to another, without the
consent of its owner, he is guilty of theft because by taking possession of the
personal property belonging to another and using it, his intent to gain is evident since
he derives therefrom utility, satisfaction, enjoyment and pleasure.
Facts
1. Villacorta was the owner of a Colt Lancer insured with Empire Insurance
Company under the followingg insurance policies:
a. P35K – own damage
b. P30K – theft
c. P30K – third party liability
2. The vehicle was brought to the Sunday Machine Works, Inc., for general check-
up and repairs. While it was in the custody of Sunday machine, the car was
allegedly taken by 6 persons and driven out to Montalban, Rizal.
3. While travelling, the car figured in an accident, hitting and bumping a gravel and
sand truck parked at the righ sie of the road going south. As a consequence, the
gravel and sand truck veered to the right side of the pavement going south while
the car veered to the right side going to the north.
4. The driver, Benito Mabasa, and one of the passengers died and the other four
sustained physical injuries. The car suffered extensive damage.
5. Villacorta thereafter filed a claim for total loss with Empire Insurance Company
but was denied
6. The Insurance Commission dismissed also the complaint filed by Villacorta.
Points of Contention
Insurance Commission and Empire Insurance Company:
 The accident did not fall within the provisions of of the policy either for the
Own Damage or Theft coverage, invoking the policy provision on
“Authorized Driver” clause.
 It must be observed that under the provision, the policy limits the use of the
insured vehicle to 2 persons: the insured himself or any person on his
permission. If the person driving is not either of the two, the Insurance
company cannot be made liable for the driver’s negligence.
 The insurance on theft cannot also be made applicable since there was no
taking. For theft to happen, there must have been shown a felonious intent
upon the part of the taker of the car, and the intent must be an intent
permanently to deprive the insured of his car. It was only for a “joy ride” and
this does not amount to taking as the same was merely temporary in nature.
Issues Ruling
1. Is the insurance company liable for the loss of the car? 16. Yes
Rationale
The Insurance Company should pay for the loss of the car.
First, the Commission’s ruling that the person who drove the vehicle and was one of
the residents of the Sunday Machine Works, Inc. to whom the car had been entrusted
for general check-up was not an “authorized driver” is too restrictive and contrary to
the established principle that insurance contracts, being contracts of adhesion where
the only participation of the other party is the signing of his signature thereto,
obviously call for greater strictness and vigilance on the part of courts of justice with a
view of protecting the weaker party from abuse and imposition, and prevent their
becoming traps for the unwary.
The main purpose of the “authorized driver” clause, as may be seen from its text, is
that a person other than the insured owner, who drives the car on the insured’s order,
such as his regular driver, or with his permission, such as a friend or member of the
family or the employees of a car service or repair shop must be duly licensed drivers
and have no disqualification to drive a motor vehicle.
A car owner who entrusts his car to an established car service and repair shop
necessarily entrusts his car key to the shop owner and employees who are presumed
to have the insured’s permission to drive the car for legitimate purposes of checking
or road-testing the car. There mere happenstance that the employees of the shop
owner diverts the use of the car to his own illicit or unauthorized purpose in violation
of the trust reposed in the shop by the insured car owner does not mean that the
“authorized driver” clause has been violated such as to bar recovery, provided that
such employee is duly qualified to drive under a valid driver’s license.
INSURANCE B2021 | 35
Secondly, an independently of the foregoing (since when a car is unlawfully taken, it
is the theft clause, not the “authorized driver” clause, that applies), where a car is
admittedly as in this case unlawfully and wrongfully taken by some people, be they
employees of the car shop or not to whom it had been entrusted, and taken on a long
trip to Montalban without the owner’s consent or knowledge, such taking constitutes
or partakes of the nature of theft. Theft is committed by any person who, with intent to
gain but without violence against or intimidation of a persons nor force upon things,
shall take personal property of another without the latter’s consent, for purposes of
recovering the loss under the policy in question.

The evidence does not warrant the findings that it was a mere “joy ride.” The police
found from the waist of the car driver who smashed the car and was found dead right
after the incident “one Cal. 45 Colt. & one apply type grenade,” hardly the materials
one would bring along on a joy ride. Then, again, it is equally evident that the taking
proved to be quite permanent for the car was totally smashed in the accident and was
never returned in serviceable and useful condition to the owner.

Assuming, despite the totally inadequate evidence, that the taking was temporary and
for a joy ride, the Court sustains as the better view that which holds that when a
person, either with the object of going to a certain place, or learning how to drive, or
enjoying a free ride, takes possession of a vehicle belonging to another, without the
consent of its owner, he is guilty of theft because by taking possession of the
personal property belonging to another and using it, his intent to gain is evident since
he derives therefrom utility, satisifaction, enjoyment and pleasure.

The insurer must therefore indemnify Villacorta for the total loss of the insured car in
the sum of P35K under the theft clause of the policy, subject to the filing of such claim
for reimbursement or payment as it may have as subrogee against the Sunday
Machine Works, Inc.

Disposition
Villacorta should be able to get indemnity for the loss of his car.

INSURANCE B2021 | 36
 Insurance – F. Construction of
Assoc. of Baptists v. Fieldmen’s
Insurance Contracts (2. Where is
18 Insur.
the doubt)
G.R. No. L-28772 21 Sept. 1983 Melencio-Herrera, J. Grace
Petitioners: Association of Baptists for Respondents: Fieldmen’s Insurance Co.,
World Evangelism, Inc. Inc.
Recit Ready Summary
The Association of Baptists for World Evangelism, Inc. (ABWEI) has an insurable
interest in a 1955 Chevrolet Carry-all, owned by Rev. Clinton Bonnel. This vehicle is
insured by Fieldmen’s Insurance Co. under Private Car Comprehensive Policy No.
22-JI-1107 up to PHP 5,000.
In 1961, ABWEI placed the vehicle in Jones Monument Mobilgas Service Station in
Davao City for it to be displayed for sale. But on the evening of 18 Jan. 1962, Romeo
Catiben (a station boy) and the niece of the station’s operator, took the vehicle for a
joy-ride without asking for permission to use it. On the way back, they met an
accident by bumping an electric post on the way back, causing actual damages of
PHP 5,518.61. ABWEI went to CFI Davao to claim from the insurance policy covered,
which the CFI granted. Hence, this appeal by Fieldmen.
Issue: was the damage to the 1955 Chevrolet Carry-all compensable under the
Comprehensive Policy prior a criminal conviction of Romeo Catiben (station boy) for
theft? – Yes.
The Comprehensive Policy issued by Fieldmen includes loss of or damage to
the motor vehicle by “blurglary or theft.” It is settled that the act of Catiben in
taking the vehicle for a joy ride to Toril, Davao City constitutes theft within the
meaning of the insurance policy and that recovery for damage to the car is not
barred by the illegal use of the car by one of the station boys.
A prior conviction is not needed for the crime of theft to make an insurer (Fieldmen, in
this case) liable under the theft clause of the policy. In a civil action for recovery on an
automobile insurance, the question whether a person using a certain automobile at
the time of the accident stole it or not is to be determined by a fair preponderance of
evidence and not by the rule of criminal law requiring proof of guilt beyond reasonable
doubt. Besides, there is no provision in the policy requiring prior criminal conviction
for theft. In the end, the petition appealed from is AFFIRMED.
Facts
1. Association of Baptists for World Evangelism, Inc. (ABWEI) has an
insurable interest in a Chevrolet Carry-all 1955 Model (Motor No. 032-
433-725-55; Plate No. E-73317; Registration Certificate No. 288141-Rizal,
issued by Davao Motor Vehicles Office Agency No. 20).
a. This vehicle is owned by Reverend Clinton Bonnel, and insured with
Fieldmen’s Insurance Co. covered under Private Car Comprehensive
Policy No. 22-JI-1107 up to PHP 5,000 (Comprehensive Policy)
2. In 1961, ABWEI, through representative Dr. Antonio Lim, placed the vehicle
in Jones Monument Mobilgas Service Station at Davao City, under the care
of the station’s operator, Rene Te, so that the vehicle would be displayed for
sale. Rene or the station boys shall receive a 2% commission should they be
able to sell the vehicle.
3. 18 Jan. 1962 (evening): Romeo Catiben (a station boy) and a nephew of the
wife of Rene Te took the vehicle for a joy ride to Toril, Davao City, without
prior permission/consent from ABWEI, Dr. Lim, or of Rene Te. On the way
back, the vehicle bumped an electric post due to some mechanical defect,
causing actual damages valued at PHP 5,518.61.
4. [CFI Ruling] The Br. 1, CFI Davao ruled in favor of ABWEI and ordered
Fieldmen to pay ABWEI PHP 5,000 as indemnity for damage sustained by the
vehicle and PHP 2,000 for attorney’s fees.
5. [CA Ruling] The upheld the CFI ruling. Hence, this petition.
Issues Ruling
15. WON the damage to the 1955 Chevrolet Carry-all is compensable 17. Yes
under the Comprehensive Policy prior a criminal conviction of
Catiben for theft
Rationale
10. Fieldmen should compensate for the damages sustained by the vehicle.
- The Comprehensive Policy issued by Fieldmen includes loss of or damage
to the motor vehicle by “blurglary or theft12.”
- It is settled that the act of Catiben in taking the vehicle for a joy ride to
Toril, Davao City constitutes theft within the meaning of the insurance
policy and that recovery for damage to the car is not barred by the illegal
use of the car by one of the station boys.
o When a person, either with the object of going to a certain place, or learning
how to drive, or enjoying a free ride, takes possession of a vehicle belonging
to another, without the consent of its owner, he is guilty of theft because by
taking possession of the personal property belonging to another, and using
it, his intent to gain is evident since he derives therefrom utility, satisfaction,
enjoyment, and pleasure.
- A prior conviction is not needed for the crime of theft to make an insurer
(Fieldmen, in this case) liable under the theft clause of the policy.
- In a civil action for recovery on an automobile insurance, the question whether a
person using a certain automobile at the time of the accident stole it or not is to
be determined by a fair preponderance of evidence and not by the rule of
criminal law requiring proof of guilt beyond reasonable doubt.
- Besides, there is no provision in the policy requiring prior criminal conviction for
theft.
Disposition Petition appealed from is AFFIRMED.
12
Art. 308, RPC: who are liable for theft. – Theft is committed by any person who, with intent
to gain but without violence against or intimidation of persons nor force upon things, shall take
personal property of another without the latter’s consent,’ for purposes of recovering the loss
under the policy in question.
INSURANCE B2021 | 37
 Insurance: Ambiguity of
Fortune Insurance v. CA
19 agreement When it used then the term "employee," it must have had in mind any person who
G.R. No. 115278 May 23, 1995 DAVIDE, JR., J. Mond qualifies as such as generally and universally understood, or jurisprudentially
established. However, since the parties opted to submit the case for judgment on the
Petitioners: Respondents:
basis of their stipulation of facts (which were strictly limited to the insurance policy,
FORTUNE INSURANCE AND SURETY COURT OF APPEALS and
CO., INC. PRODUCERS BANK OF THE the contracts with PRC Management Systems and Unicorn Security Services, the
complaint for violation of P.D. No. 532, and the information), there is a scarcity of
PHILIPPINES
evidence as to whether the contracts between Producers and PRC Management
Recit Ready Summary
Systems and Unicorn Security Services are "labor-only" contracts.
Producers Bank of the Philippines (Producers) entered into an insurance contract with
However, Magalong and Atiga were, in respect of the transfer of Producer's money
Fortune Insurance and Surety Co. While an armored truck owned by Producers was
from its Pasay City branch to its head office in Makati, its "authorized
on its way to its head office in Makati, the truck got robbed of cash amounting to
representatives". Howsoever viewed, Producers entrusted them with the specific duty
P725,000. After investigation, charges for violation of the Anti-highway Robbery Law
to safely transfer the money to its head office, with Magalong to drive the armored
were filed against Magalong and Atiga. Magalong was the driver of the armored
vehicle which would carry the money; and Atiga to provide the needed security for the
vehicle while Atiga was the escort guard of the same.
money, the vehicle, and his two other companions. In short, for these particular tasks,
they acted as agents of Producers.
Producers tried to enforce its insurance claim against Fortune Insurance, but the
Facts
latter refused the claim on the ground that the loss was excluded from the coverage
of the insurance policy, under "General Exceptions" Section (b),which reads: “The
5. Producers Bank of the Philippines (Producers) was insured by Fortune
company shall not be liable under this policy in report of xxx any loss caused by any
Insurance and Surety Co.
dishonest, fraudulent or criminal act of the insured or any officer, employee, partner,
6. An armored car of Producers, while in the process of transferring cash in the
director, trustee or authorized representative of the Insured whether acting alone or
sum of P725,000.00 under the custody of its teller, Maribeth Alampay, from its
in conjunction with others”
Pasay Branch to its Head Office at Paseo de Roxas, Makati, Metro Manila on
June 29, 1987, was robbed of the said cash. The robbery took place while the
It turned out that Magalong was an assigned worker from PRC Management Systems
armored car was traveling along Taft Avenue in Pasay City.
while Atiga was also an assigned worker from Unicorn Security Services, Inc. Both of
7. The said armored car was driven by Benjamin Magalong Y de Vera, escorted by
PRC Management Systems and Unicorn Security Services entered into contract with
Security Guard Saturnino Atiga Y Rosete. Driver Magalong was assigned by
Producers to provide services and manpower in the premises of the latter.
PRC Management Systems with the Producers by virtue of an Agreement
executed on August 7, 1983. The Escort Security Guard Atiga was assigned by
Fortune Insurance argues that Magalong and Atiga were either employees or
Unicorn Security Services, Inc. with the plaintiff by virtue of a contract of
authorized representatives of Producers, which makes the exception as provided for
Security Service
in the insurance agreement applicable.
8. After an investigation conducted by the Pasay police authorities, the driver
Magalong and guard Atiga were charged with violation of P.D. 532 (Anti-
Issue: W/N Fortune Insurance is liable? – NO
Highway Robbery Law).
9. Demands were made by Producers upon Fortune Insurance to pay the amount
It has been aptly observed that in burglary, robbery, and theft insurance, "the
of the loss of P725,000.00, but the latter refused to pay as the loss is excluded
opportunity to defraud the insurer — the moral hazard — is so great that insurers
from the coverage of the insurance policy, under "General Exceptions" Section
have found it necessary to fill up their policies with countless restrictions, many
(b),which reads as follows:
designed to reduce this hazard. Seldom does the insurer assume the risk of all losses
“The company shall not be liable under this policy in report of
due to the hazards insured against." Persons frequently excluded under such
xxx xxx xxx
provisions are those in the insured's service and employment. The purpose of the
(b) any loss caused by any dishonest, fraudulent or criminal act of
exception is to guard against liability should the theft be committed by one having
the insured or any officer, employee, partner, director, trustee or
unrestricted access to the property. In such cases, the terms specifying the excluded
authorized representative of the Insured whether acting alone or
classes are to be given their meaning as understood in common speech.
in conjunction with others
Here there ambiguity with the terms “employees” and “authorized representatives”.
Points of Contention
It is clear that insofar as Fortune is concerned, it was its intention to exclude and
exempt from protection and coverage losses arising from dishonest, fraudulent, or According to Fortune, when Producers commissioned a guard and a driver to transfer
criminal acts of persons granted or having unrestricted access to Producers' money its funds from one branch to another, they effectively and necessarily became its
or payroll. authorized representatives in the care and custody of the money. Assuming that they

INSURANCE B2021 | 38
could not be considered authorized representatives, they were, nevertheless,
employees of Producers.
Issues Ruling
1. W/N Fortune Insurance is liable under the insurance 18. No
agreement with Producers Bank
Rationale
11. Fortune Insurance is not liable under the insurance agreement
Applicable Laws
It should be noted that the insurance policy entered into by the parties is a
theft or robbery insurance policy which is a form of casualty insurance.
Section 174 of the Insurance Code provides:
Sec. 174. Casualty insurance is insurance covering loss or
liability arising from accident or mishap, excluding certain
types of loss which by law or custom are considered as
falling exclusively within the scope of insurance such as fire
or marine. It includes, but is not limited to, employer's liability
insurance, public liability insurance, motor vehicle liability
insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as written
by non-life insurance companies, and other substantially
similar kinds of insurance.
Except with respect to compulsory motor vehicle liability insurance, the
Insurance Code contains no other provisions applicable to casualty
insurance or to robbery insurance in particular. These contracts are,
therefore, governed by the general provisions applicable to all types of
insurance. Outside of these, the rights and obligations of the parties must be
determined by the terms of their contract, taking into consideration its
purpose and always in accordance with the general principles of insurance
law.
Principles/policies of Robbery Insurance
It has been aptly observed that in burglary, robbery, and theft insurance, "the
opportunity to defraud the insurer — the moral hazard — is so great that
insurers have found it necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard. Seldom does the insurer
assume the risk of all losses due to the hazards insured against." Persons
frequently excluded under such provisions are those in the insured's service
and employment. The purpose of the exception is to guard against liability
should the theft be committed by one having unrestricted access to the
property. In such cases, the terms specifying the excluded classes are to be
given their meaning as understood in common speech. The terms "service"
and "employment" are generally associated with the idea of selection,
control, and compensation.
Application in the case – interpretation of “employee”
It may now be asked whether Magalong and Atiga qualify as employees or
authorized representatives of Producers under paragraph (b) of the general
exceptions clause. There is marked disagreement between the parties on
the correct meaning of the terms "employee" and "authorized
representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to
exclude and exempt from protection and coverage losses arising from
dishonest, fraudulent, or criminal acts of persons granted or having
unrestricted access to Producers' money or payroll.
It was unclear whether Magalong and Atiga were “employees” under labor-
only contracts
When it used then the term "employee," it must have had in mind any person
who qualifies as such as generally and universally understood, or
jurisprudentially established in the light of the four standards in the
determination of the employer-employee relationship, or as statutorily
declared even in a limited sense as in the case of Article 106 of the Labor
Code which considers the employees under a "labor-only" contract as
employees of the party employing them and not of the party who supplied
them to the employer.
Since the parties opted to submit the case for judgment on the basis of their
stipulation of facts which are strictly limited to the insurance policy, the
contracts with PRC Management Systems and Unicorn Security Services,
the complaint for violation of P.D. No. 532, and the information therefor filed
by the City Fiscal of Pasay City, there is a paucity of evidence as to whether
the contracts between Producers and PRC Management Systems and
Unicorn Security Services are "labor-only" contracts.
Magalong and Atiga were classified as “authorized representatives” of
Producers
Magalong and Atiga were, in respect of the transfer of Producer's money
from its Pasay City branch to its head office in Makati, its "authorized
representatives" who served as such with its teller Maribeth Alampay.
Howsoever viewed, Producers entrusted the three with the specific duty to
safely transfer the money to its head office, with Alampay to be responsible
for its custody in transit; Magalong to drive the armored vehicle which would
carry the money; and Atiga to provide the needed security for the money, the
vehicle, and his two other companions. In short, for these particular tasks,
the three acted as agents of Producers.
A "representative" is defined as one who represents or stands in the place of
another; one who represents others or another in a special capacity, as an
agent, and is interchangeable with "agent."
Conclusion
Since Magalong and Atiga were classified as “authorized representatives” of
Producers, the ciscumstances fall under the exemption as provided for in the
insurance contract. Thus, Fortune Insurance should not be held liable.
INSURANCE B2021 | 39
 12. Others – Quick notes on Labor laws

Employer-employee Relationship
An employer-employee relationship depends upon four standards: (1) the
manner of selection and engagement of the putative employee; (2) the mode of
payment of wages; (3) the presence or absence of a power to dismiss; and (4)
the presence and absence of a power to control the putative employee's
conduct. Of the four, the right-of-control test has been held to be the decisive
factor.

Labor-only contractor
Article 106 of the Labor Code which provides that there is "labor-only"
contracting where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machineries,
work premises, among others, and the workers recruited and placed by such
persons are performing activities which are directly related to the principal
business of such employer. In such cases, the person or intermediary shall be
considered merely as an agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter were directly employed
by him.

A finding that a contractor is a "labor-only" contractor is equivalent to a finding

that there is an employer-employee relationship between the owner of the
project and the employees of the "labor-only" contractor.

Disposition

The instant petition is hereby GRANTED. The decision of the Court of Appeals is
REVERSED and SET ASIDE.

INSURANCE B2021 | 40
 INSURANCE – Construction; No. F-18876 effective June 23, 1980-June 23, 1981 covering Rafael Verendia’s
VERENDIA v. CA
When there is ambiguity/doubt residential building at Antipolo, Rizal in the amount of P385K. Monte de Piedad
21 & Savings Bank was the designated beneficiary.
G.R. Nos. 76399 22 Jan 1993 Melo, J. Belle
(1) & 75605 (2) 11. Verendia also insured the same building with 2 other companies: (1) The
Country Bankers Insurance for P56K, expiring on May 12, 1981 and (2) The
Petitioners: Respondents:
(1) Rafael Verendia (1) Court of Appeals and Fidelity & Development Insurance for P400K, expiring on June 30, 1981.
12. The insured property was completely destroyed by fire on the early morning of
(2) Fidelity & Surety Co. of the Surety Co. of the Phils.
Dec. 28, 1980 (while the 3 fire insurance policies were in force).
Phils. (2) Rafael Verendia and the CA
13. Fidelity was informed of the loss but refused payment under its policy despite
demands. This prompted Verendia to file a complaint with the CFI of Quezon
Recit Ready Summary
City praying for payment of P385K, legal interest, etc. In its Answer, Fidelity,
among other things, averred that the policy was avoided by reason of over-
Fidelity and Surety Insurance Company (Fidelity) issued a fire insurance policy
insurance and that Verendia maliciously represented that the building at the
covering Verendia’s residential building in the amount of P385K. Verendia also
time of the fire was leased to a certain Roberto Garcia, when actually it was to a
insured the same building with 2 other insurance companies. On the morning of
Marcelo Garcia.
December 28, 1980, the insured property was completely destroyed by a fire. Fidelity
14. The trial court ruled in favour of Fidelity. It ruled that Par. 3 of the policy was
was informed of the loss but refused payment. This prompted Verendia to file a
also violated by Verendia in that the insured failed to inform Fidelity of his other
complaint with the CFI praying for the payment of, among others, the P385K under
insurance coverages with Country Bankers and Development Insurance.
the policy. Fidelity argues that that the policy was avoided by reason of over-
15. The appellate court reversed for the following reasons: (1) there was no
insurance and that Verendia maliciously represented that the building at the time of
misrepresentation since the contract was signed by Marcelo Garcia in the name
the fire was leased to a certain Roberto Garcia, when actually it was to a Marcelo
of Roberto Garcia and (2) Par. 3 of the policy contract requiring Verendia to give
Garcia. The trial court ruled in favor of Fidelity but the appellate court reversed and
notice to Fidelity of other insurance contracts was waived by Fidelity as shown
held that there was no misrepresentation since the contract was signed by Marcelo
by its conduct in attempting to settle the claim of Verendia.
Garcia in the name of Roberto Garcia. Hence, these consolidated petitions. Fidelity
contends that the lease contract submitted by Verendia to support his claim on the
Procedural History (includes the not so relevant parts, just in case…)
policy constitutes a false declaration which would forfeit his benefits under Sec. 13 of
1. Fidelity received a copy of the appellate court’s decision on April 4, 1986.
said policy.
Instead of filing a MR within 15 days, Fidelity filed a motion for extension on
April 21 to file its MR (April 19 fell on a Saturday). The MotEx was granted but in
Issue is W/N the terms of the policy should be strictly or liberally construed in
the meantime Fidelity had already filed its MR.
favor of Verendia (strictly construed)
2. Verendia filed a motion to expunge from the record Fidelity’s MR on the ground
that the MotEx was filed out of time, arguing that the IAC has personnel
In resolving the issue, the SC first discussed that an insurance contract, which is
receiving pleadings even on Saturdays.
basically a contract of indemnity, is the law between the parties. Its terms and
3. The motion to expunge was denied and the petition herein docketed as GR No.
conditions constitute the measure of the insurer’s liability and compliance therewith is
75605 was initiated. Subsequently, Fidelity’s MR was denied.
a condition precedent to the insured’s right to recovery from the insurer. As it is also a
4. Fidelity filed a petition for review on certiorari now docketed as GR No. 76399.
contract of adhesion, an insurance contract should be liberally construed in favor of
5. The 2 petitions were then consolidated and given due course.
the insured and strictly against the insurer company which usually prepares it.
Considering, however, the circumstances pointing to the fact that Verendia
used a false lease contract to support his claim under Fidelity’s policy, the Points of Contention
terms of the policy should be strictly construed against the insured. Verendia
failed to comply with the terms of the policy, specifically Sec. 13 thereof which is Fidelity: The lease contract submitted by Verendia to support his claim on the policy
expressed in terms that are clear and unambiguous, that all benefits under the policy constitutes a false declaration which would forfeit his benefits under Sec. 13 of said
shall be forfeited “if the claim be in any respect fraudulent, or if any false declaration policy
be made or used in support thereof…” Having presented a false declaration to
support his claim for benefits in the form of a fraudulent lease contract, Verendia Verendia: In submitted the subrogation receipt in evidence, Fidelity had in effect
forfeited all benefits therein by virtue of Sec. 13 of the policy in the absence of proof agreed to settle Verendia’s claim in the amount stated in the receipt
that Fidelity waived such provision. Ultimately, Verendia’s petition was denied and Issues Ruling
Fidelity’s granted. 16. Whether the terms of the policy should be strictly or liberally 19. Strictly
construed in favor of Verendia.
Facts 17. [Procedural issue] Whether the decision of the appellate 20. Yes
court may still be reviewed.
10. Fidelity and Surety Insurance Company (Fidelity) issued Fire Insurance Policy

INSURANCE B2021 | 41
Rationale
13. The terms of the policy should be strictly construed against the insured.
- Verging on the factual, the issue of the veracity or falsity of the lease
contract could have been better resolved by the appellate court. But in view
of the conflicting findings of the trial court and the appellate court on
important issues and it appearing that the appellate court judgment is
based on a misapprehension of facts, the SC decided to review the
evidence on record.
- SC’s review of the facts:
 The lease contract upon which Verendia relies to support his claim
for insurance benefits was entered into between him and one
Robert Garcia, days after the effectivity of the insurance policy.
 When the building was razed to the ground on Dec. 28, 1980, it
appears that Robert (used interchangeably with Roberto) was still
within the premises. However, according to an investigation report
of the police, the building appeared to have no occupant and that
Roberto was renting on the other side of the compound.
 These belie Verendia’s claim that Marcelo Garcia whom he
considered as the real lessee was occupying the building when it
was burned.
 Roberto disappeared after the fire but later he was located by an
adjuster.13 He executed an affidavit stating that he was not the
lessee of Verendia’s house and that his signature on the lease
contract was a forgery. Thus, on the strength of these facts, the
adjuster recommended the denial of Verendia’s claim.
 During the trial, Verendia admitted that it was not Roberto but
Marcelo, Roberto’s cousin, who signed and that the latter had
been paying the rentals all the while. Verendia failed to explain
why Marcelo had to sign his cousin’s name when in fact he was
paying and why Verendia himself allowed this.
- Fidelity’s conclusions on these proven facts appear thus to have sufficient
bases14
- [IMPORTANT] Basically a contract of indemnity, an insurance contract is
the law between the parties. Its terms and conditions constitute the
measure of the insurer’s liability and compliance therewith is a condition
precedent to the insured’s right to recovery from the insurer.
- As it is also a contract of adhesion, an insurance contract should be
liberally construed in favor of the insured and strictly against the insurer
company which usually prepares it.
- Considering, however, the foregoing discussion pointing to the fact
13
Investopedia: “an insurance claims agent”
14
In sum, that: “Verendia concocted the lease contract to deflect responsibility for the fire
towards an alleged "lessee", inflated the value of the property by the alleged monthly rental of
P6,500 when in fact, the Provincial Assessor of Rizal had assessed the property's fair market
value to be only P40,300.00, insured the same property with two other insurance companies for
a total coverage of around P900,000, and created a dead-end for the adjuster by the
disappearance of Robert Garcia.”
that Verendia used a false lease contract to support his claim under
Policy No. F-18876, the terms of the policy should be strictly
construed against the insured.
 Verendia failed to comply with the terms of policy, specifically Sec.
13 thereof which is expressed in terms that are clear and
unambiguous, that all benefits under the policy shall be forfeited “if
the claim be in any respect fraudulent, or if any false declaration
be made or used in support thereof, or if any fraudulent means or
devises are used by the insured or anyone acting in his behalf to
obtain any benefit under the policy”
 Verendia, having presented a false declaration to support his
claim for benefits in the form of a fraudulent lease contract, he
forfeited all benefits therein by virtue of Sec. 13 of the policy in the
absence of proof that Fidelity waived such provision.
- Worse, by presenting a false lease contract, Verendia reprehensibly
disregarded the principle that insurance contracts are uberrimae fidae and
demand the most abundant good faith.
- Further, there is also no reason to conclude that submitting the subrogation
receipt as evidence in court, Fidelity bound itself to a “mutual agreement” to
settle Verendia’s claims in consideration of the amount of P142,685.77.
 While the receipt appears to have been a filled-up form of Fidelity,
no representative of Fidelity had signed it; it is even incomplete as
the blank spaces for a witness and his address are not filled up
 More significantly, the same receipt states that Verendia had
received the said amount; however, that Verendia did not receive
the same is proven by the fact that Verendia himself filed the
complaint for the full amount of P385K
 There might have been efforts to settle the claim, but surely, the
subrogation receipt by itself does not prove that a settlement had
been arrived at and enforced
 To interpret Fidelity’s presentation of the receipt in evidence as
indicative of its accession to its terms would be substituting the will
of the Court for that of the parties.
14. [Just in case sir asks] The decision of the appellate court may still be
reviewed.
- Habaluyas Enterprises v. Japson (promulgated on May 30, 1986) –
beginning 1 month from the promulgation, “no motion for extension of time
to file a motion for new trial or reconsideration shall be filed”
- Here, the motex was filed and granted before June 30, 1986; seemingly
thus the filing of the motex came before its formal proscription under
Habaluyas
Disposition
The petition in G.R. No. 75605 is DISMISSED. That in G.R. No. 76399 is GRANTED.
INSURANCE B2021 | 42
 Insurance – Construction of
QUA CHEE GAN v. LAW UNION Insurance Contracts: Where there
22 is ambiguity
L-28866 3/17/1972 Concepcion JTSY
Petitioners: Respondents:
QUA CHEE GAN LAW UNION AND ROCK INSURANCE
CO., LTD., represented by its agent,
WARNER, BARNES AND CO., LTD.
Recit Ready Summary
Since before WWII, plaintiff owned 4 warehouses, used for storage of copra
and hemp, insured with defendant. On 7/21/1940, fire broke out and destroyed three
of the four warehouses and their contents. Plaintiff submitted fire claims, but
defendant refused to pay, claiming violations of warranties and conditions, filing of
fraudulent claims, and also that plaintiff deliberately caused the fire. Plaintiff was
indicted for arson but acquitted, and subsequently, CFI found in favor of plaintiff and
ordered defendant company to pay up.
On the issue that the warranty requires 11 hydrants instead of 2, it is a well
settled rule of law that an insurer who has knowledge of existing facts which would
invalidate the policy, issues the policy anyway, is estopped from taking advantage of
such. Further, taking into account the rule that ambiguities must be strictly interpreted
against the party that caused them, the “memo of warranty” issued by defendant
company bars it from questioning the existence of hydrants, as its expression “the
under-noted appliances for the extinction of fire being kept on the premises insured
hereby” can be interpreted as an admission of the existence of such appliances. On
the issue that there was violation of the “hemp warranty” that prohibits storage of
gasoline, such warranty only prohibits “oils” and is decidedly ambiguous, because in
normal usage, “oils” means “lubricants” and not “gasoline”. By reason of the exclusive
control of defendant company over the terms and phraseology of the contract, the
ambiguity must be held strictly against it and liberally in favor of plaintiff insured.
Facts
16. Since before World War II, Qua Chee Gan (plaintiff) owned 4 warehouses in the
municipality of Tabaco, Albay, used for the storage of copra and hemp. The
warehouses and their contents were insured with Law Union and Rock
Insurance Co., Ltd. (defendant) since 1937, and the losses made payable to
PNB as mortgagee of the hemp and copra.
17. On June 1940, the total insured amount was PHP 370,000. Fire of
undetermined origin broke out in the early morning of July 21, 1940, and lasted
almost a week, completely destroyed 3 of the 4 warehouses and their contents.
Plaintiff submitted fire claims totalling PHP 398,562.81 (but reduced to PHP
370,000, the full amount of the insurance).
18. Defendant resisted paying, claiming violation of warranties and conditions, filing
of fraudulent claims, and that the fire was deliberately caused by plaintiff or
other persons in connivance with him. Plaintiff, with his brother Qua Chee Pao,
and some employees of his, was indicted and tried for arson15, but they were all
acquitted by the trial court in a final decision dated July 9, 1941.
15
Trivia: counsel for the defendant insurance company acted as private prosecutor in this case
Procedural History
2. Petitioner filed before CFI Albay to recover PHP 370,000 representing
insurance proceeds. CFI found in his favor and ordered defendant to pay. Thus
this suit
Points of Contention (note: only the 1 st and 2nd points are really related to topic
of where there is ambiguity or doubt)
Defendant insurance company says that:
1. The policies should have been avoided for breach of contract; specifically,
there should have been 11 hydrants in the compound, but Qua Chee Gan
only installed 2
2. Qua Chee Gan violated the “hemp warranty” provisions of the policy against
the storage of gasoline
3. Qua Chee Gan failed or refused to submit to the examiners of the insurer the
lists of books, vouchers, etc. demanded of them
4. Qua Chee Gan connived at the loss, and he fraudulently inflated the quantity
of the insured stock in the burnt warehouses
5. The burned warehouses could not possibly have contained the quantities of
copra and hemp stated in the fire claims
6. The claims filed by Qua Chee Gan contained false and fraudulent
statements that avoided the insurance policy
Issues Ruling
18. Was the lower court correct in ordering payment of insurance? 21. Yes
Rationale
15. The lower court was correct in ordering payment of insurance
On the first assignment of error (The policies should have been avoided for
breach of contract; specifically, there should have been 11 hydrants in the
compound, but Qua Chee Gan only installed 2), the riders requiring the
hydrants (one hydrant per 150 feet of external wall, and since the warehouses
had 1,640 feet of external wall, a minimum of 11 hydrants were needed) were
first attached to the policies in 1939. The SC agrees with the CFI that defendant
is barred by estoppel, for the reason that it knew all along that the hydrants
demanded therein never existed from the very beginning, but nevertheless
issued the policies in question subject to such warranty. It would be fraud to
allow defendant to claim the policies as void after it issued the policies without
warning of the defect and after it misled plaintiff into believing that the policies
were effective. This unfairness is further heightened by the fact that after plaintiff
incurred the expense in installing the hydrants, the defendant company issued a
policy that gave him a lower discount than that he was entitled to. According to
the “Scale of Allowances”, a policy subject to the warranty of the existence of
one hydrant per 150 feet of wall is entitled to a 7.5% discount, while the
existence of “hydrants, in compound”, regardless of number, reduces the
discount to only 2.5%; however, the defendant company, in issuing the policies
to plaintiff, kept the discount at 2.5%. Further, the “memo of warranty”
invoked by defendant bars it from questioning the existence of hydrants,
since its initial statement “the under-noted appliances for the extinction of
fire being kept on the premises insured hereby… it is hereby warranted…”
admits of interpretation as an admission of the existence of said
appliances, and taking into account the rule that ambiguities must be
strictly interpreted against the party that caused them, defendant cannot
INSURANCE B2021 | 43
now contradict the existence of said appliances. amount of the stocks were loose and occupied less space then when kept in
sacks, which explains the difference in estimates.
On the second assignment of error (Qua Chee Gan violated the “hemp
warranty” provisions of the policy against the storage of gasoline), gasoline is On the sixth assignment of error (The claims filed by Qua Chee Gan
not specifically mentioned among the prohibited articles listed in the so- contained false and fraudulent statements that avoided the insurance policy),
called “hemp warranty”. The clause relied upon speaks of “oils (animal the trial court found that the discrepancies were a result of plaintiff’s erroneous
and/or vegetable and/or mineral and/or their liquid products having a flash interpretation of the provisions of the forms, caused by his imperfect knowledge
point below 300̊ Fahrenheit”, and is decidedly ambiguous, because in of English, and the misstatements were innocently made and without intent to
ordinary usage “oils” mean “lubricants” and not “gasoline”. Here, again defraud. The rule is that to avoid a policy, the false swearing must be willful and
by reason of the exclusive control of the defendant over the terms of the with intent to defraud.
contract, the ambiguity must be held strictly against the insurer and
liberally in favor of the insured. There is no reason why the prohibition of Disposition
keeping gasoline in the premises could not be expressed clearly and
unmistakably, in language that the general public can readily understand. This Decision affirmed, with costs against defendant
rigid application of the rule on ambiguities has become necessary in view of
current business practices. Another point in favor of the insured plaintiff is that
the gasoline kept was only incidental to his business, being no more than 2
days’ supply, and jurisprudence has it that the keeping of gasoline, though
prohibited by the policy, does not void it if such is incidental to the business.
Further, the “hemp warranty” forbade storage only in the building where it
applied, and it is undisputed that no gasoline was stored in the burned
warehouses.

On the third assignment of error (Qua Chee Gan failed or refused to submit
to the examiners of the insurer the lists of books, vouchers, etc. demanded of
them), such was found unsubstantiated by the trial court. What does appear to
have been rejected by the insured was the demand that he should submit “a list
of all books, vouchers, receipts and other records”, but the refusal was well
justified, since the demand for a list was unreasonable, considering that the
listing was superfluous because defendant was not denied access to the
records, and the volume of plaintiff’s business ran into millions, and the demand
was made just after the fire when everything was in turmoil. Anyway, the
representatives of the defendant company were able to secure all the data they
needed.

On the fourth assignment of error (Qua Chee Gan connived at the loss, and
he fraudulently inflated the quantity of the insured stock in the burnt
warehouses), such defenses are predicated on the assumption that plaintiff was
in financial difficulty and he set the fire to defraud defendant in order to get
money to pay PNB. Such defenses are undermined by the fact that, even
without the insurance claims, plaintiff was able to pay off PNB in a short time,
and if he was able to do so, there appears to be no motive to defraud the
defendant insurer.

On the fifth assignment of error (The burned warehouses could not possibly
have contained the quantities of copra and hemp stated in the fire claims), the
case for defendant rests almost exclusively on the estimates, inferences, and
conclusions of its investigator, who examined the premises after the fire.
However, his testimony yields to the contradictory testimony of the engineer and
bank representatives who actually saw the contents of the warehouses shortly
before the fire. Further, the defendant’s investigator’s calculations were based
on an assumption that all the copra and hemp were in sacks; but in fact, a large

INSURANCE B2021 | 44
 Paramount Insurance v. Sps. Remondeulaz Insurance: Theft
23 G.R. No. 173773 November 28, Peralta, J. Pauline
2012
Petitioners: Respondents:
Paramount Insurance Corporation Spouses Yves and Maria Teresa
Remondeulaz
Recit Ready Summary
The Spouses Remondeulaz (Sps.) had they 1994 Toyota Corolla sedan insured by
Paramount Insurance (Paramount) under a Comprehensive Motor Vehicle Insurance
Policy that provides that Paramount will, indemnify the insured against loss of or
damage to the vehicle by fire, external explosion, self-ignition or lightning or burglary,
housebreaking or theft. The Sps car was unlawfully taken and they reported the theft
to the PNP, where they accomplished a complaint sheet, alleging that Ricardo Sales
(Sales) took possession of the subject vehicle to add accessories and improvements
thereon, but he failed to return the car within the agreed three-day period. The Sps
then notified Paramount to claim reimbursement, since Paramount refused to pay, the
Sps filed a complaint for sum of money before the RTC.
Paramount claims that it is not liable for the loss, since the car cannot be classified as
stolen as respondents entrusted the possession thereof to another person, and so the
loss is not a peril covered by the policy.
1. Is Paramount liable under the insurance policy for the loss of the Sps vehicle?
YES, since the policy clearly undertook to indemnify the insured against loss of
or damage to the scheduled vehicle when caused by theft.
2. Does the loss fall under the “theft clause” under the insurance policy? YES.
Jurisprudence has held that:
a. There is theft when one takes the motor vehicle of another without the
latter’s consent even if the motor vehicle is later returned, since there is
intent to gain.
b. The taking of a vehicle without the permission or authority from the
owner is sufficient to place it within the ambit of the word theft as
contemplated in the policy, and is, compensable.
c. In Santos, where the car owner entrusted her car for carburetor repair
and repainting, the court found that the crime actually committee was
Qualified Theft, although it was constrained to decide that only Theft
was committed because it was not alleged in the complaint that the
object was a car, which is a qualifying circumstance.
d. There is theft if he was entrusted only with the material or physical
(natural) or de facto possession of the thing, but if he has the juridical
possession of the thing, his conversion of the same constitutes
embezzlement or estafa.
Here, Sales did not have juridical possession over the vehicle and he took the vehicle
without the consent or authority of the owners. The Sps entrusted possession of their
vehicle only to the extent that Sales will introduce repairs and improvements
thereon, and not to permanently deprive them of possession thereof.  Since,
Theft can also be committed through misappropriation, when Sales failed to return the
car constituted Qualified Theft, covered by the insurance policy, which is
compensable.
Facts
19. On May 26, 1994, respondents insured with petitioner their 1994 Toyota Corolla
sedan under a comprehensive motor vehicle insurance policy for one year.
a. During the effectivity of said insurance, respondents’ car was
unlawfully taken. Hence, they immediately reported the theft to the
Traffic Management Command of the PNP who made them
accomplish a complaint sheet. 
b. In said complaint sheet, respondents alleged that a certain Ricardo
Sales (Sales) took possession of the subject vehicle to add
accessories and improvements thereon, however, Sales failed to
return the subject vehicle within the agreed three-day period.
20. As a result, respondents notified petitioner to claim the reimbursement of their
lost vehicle. However, petitioner refused to pay.
21. Accordingly, respondents lodged a complaint for a sum of money against
Paramount before the Regional Trial Court of Makati City (trial court) praying for
the payment of the insured value of their car plus damages on April 21, 1995.
22. Procedural+Facts: The Trial Court dismissed the Sps complaint, saying that the
spouses had successfully prosecuted and had been awarded the amount
claimed in this action, in another action which involved the loss of the same
vehicle under the same circumstances although under a different policy and
insurance company. This, considered with the principle that an insured may not
recover more than its interest in any property subject of an insurance, lead the
court to dismiss this action.
23. But the CA held that the trial court erred when it dismissed the action on the
ground of double recovery since it was clear that the subject car is different from
the one insured with another insurance company, the Standard Insurance
Company. The CA then reversed and set aside the RTC decision.
24. Paramount filed a 45 petition to the SC.
Points of Contention
Paramount argues that the loss of respondents’ vehicle is not a peril covered by the
policy. It maintains that it is not liable for the loss, since the car cannot be classified
as stolen as respondents entrusted the possession thereof to another person.
Issues Ruling
19. Is Paramount liable under the insurance policy for the loss of 22. Yes
the Sps vehicle? 23. Yes
20. Does the loss fall under the “theft clause” under the insurance
policy?
Rationale
16. YES, Paramount Insurance is liable to reimburse the loss based on the
Sps’ insurance policy.
The policy clearly undertook to indemnify the insured against loss of or damage to the
scheduled vehicle when caused by theft, to wit:
The Company will, subject to the Limits of Liability, indemnify the insured
against loss of or damage to the Scheduled Vehicle and its accessories
and spare parts whilst thereon: –
INSURANCE B2021 | 45
 (b By fire, external explosion, self-ignition or lightning or burglary,
) housebreaking or theft;
17. The loss falls within the concept of the “theft clause” under the insurance
policy.
 The SC cited jurisprudence regarding similar circumstances.
 People v. Bustinera: There is theft when one takes the motor vehicle of another
without the latter’s consent even if the motor vehicle is later returned. There is
intent to gain as the use of the thing unlawfully taken constitutes gain.
All told, Sales’ act of depriving respondents of their motor vehicle at, or soon
after the transfer of physical possession of the movable property, constitutes
theft under the insurance policy, which is compensable.
Disposition
WHEREFORE, the instant petition is DENIED. The Decision dated April 12, 2005 and
Resolution dated July 20, 2006 of the Court of Appeals are hereby AFFIRMED in
toto.

Malayan Insurance Co., Inc. v. Court of Appeals: the taking of a vehicle by

another person without the permission or authority from the owner thereof is
sufficient to place it within the ambit of the word theft as contemplated in the
policy, and is therefore, compensable.

Noteworthy is Santos v. People:

Lauro Santos owns a repair shop for carburetor repair and repainting, and a
car-owner entrusted his car to Santos. But, when the owner tried to retrieve
her car, she could not, since Santos had abandoned his shop. In Santos, the
crime that was actually committed was Qualified Theft.
 But because of the fact that it was not alleged in the information that
the object of the crime was a car, which is a qualifying circumstance,
the Court found that Santos was only guilty of the crime of Theft and
merely considered the qualifying circumstance as an aggravating
circumstance in the imposition of the appropriate penalty. 

The Court distinguished between the crime of Estafa and Theft:

 In theft the thing is taken while in estafa the accused receives the
property and converts it to his own use or benefit. However, there may
be theft even if the accused has possession of the property. If he was
entrusted only with the material or physical (natural) or de facto
possession of the thing, his misappropriation of the same
constitutes theft, but if he has the juridical possession of the thing,
his conversion of the same constitutes embezzlement or estafa.

APPLIED TO THE CASE:

1. Sales did not have juridical possession over the vehicle.
2. It is apparent that the taking of the vehicle by Sales is without any consent
or authority of the Sps.

Records show that the Sps entrusted possession of their vehicle only to the
extent that Sales will introduce repairs and improvements thereon,
and not to permanently deprive them of possession thereof.  Since, Theft
can also be committed through misappropriation, the fact that Sales failed to
return the subject vehicle to respondents constitutes Qualified Theft.  Hence,
since respondents’ car is undeniably covered by a Comprehensive Motor
Vehicle Insurance Policy that allows for recovery in cases of theft, Paramount
Insurance is liable under the policy for the loss of respondents’ vehicle under
the “theft clause.”

INSURANCE B2021 | 46