Insurance Contract

UCPB vs. Masagana

G.R. No. 137172. April 4, 2001

Facts:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision[1] of the
Court of Appeals, which affirmed with modification the judgment of the trial court (a) allowing
Respondent to consign the sum of P225,753.95 as full payment of the premiums for the renewal of
the five insurance policies on Respondent’s properties; (b) declaring the replacement-renewal policies
effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering Petitioner to pay
Respondent P18,645,000.00 as indemnity for the burned properties covered by the renewal-
replacement policies.  The modification consisted in the (1) deletion of the trial court’s declaration that
three of the policies were in force from August 1991 to August 1992; and (2) reduction of the award of
the attorney’s fees from 25% to 10% of the total amount due the Respondent.
Masagana obtained from UCPB five (5) insurance policies on its Manila properties.
The policies were effective from May 22, 1991 to May 22, 1992. On June 13, 1992, Masagana’s
properties were razed by fire.  On July 13, 1992, plaintiff tendered five checks for P225,753.45 as
renewal premium payments. A receipt was issued.  On July 14, 1992, Masagana made its formal
demand for indemnification for the burned insured properties. UCPB then rejected Masagana’s claims
under the argument that the fire took place before the tender of payment.
Hence Masagana filed this case.
The Court of Appeals disagreed with UCPB’s argument that Masagana’s  tender of payment of the
premiums on 13 July 1992 did not result in the renewal of the policies, having been made beyond the
effective date of renewal as provided under Policy Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the policy
period mails or delivers to the assured at the address shown in the policy notice of its intention not to
renew the policy or to condition its renewal upon reduction of limits or elimination of coverages, the
assured shall be entitled to renew the policy upon payment of the premium due on the effective date
of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists that Masagana, which
had procured insurance coverage from UCPB for a number of years, had been granted a 60 to 90-
day credit term for the renewal of the policies.  Such a practice had existed up to the time the claims
were filed.  Most of the premiums have been paid for more than 60 days after the issuance. Also, no
timely notice of non-renewal was made by UCPB.
The Supreme Court ruled against UCPB in the first case on the issue of whether the fire insurance
policies issued by petitioner to the respondent covering the period from May 22, 1991 to May 22,
1992 had been extended or renewed by an implied credit arrangement though actual payment of
premium was tendered on a later date and after the occurrence of the risk insured against.
UCPB filed a motion for reconsideration.
The Supreme Court, upon observing the facts, affirmed that there was no valid notice of non-renewal
of the policies in question, as there is no proof at all that the notice sent by ordinary mail was received
by Masagana. Also, the premiums were paid within the grace period.

Issue: Whether Section 77 of the Insurance Code of 1978 must be strictly applied to Petitioner’s
advantage despite its practice of granting a 60- to 90-day credit term for the payment of premiums.

Held: No. Petition denied.

Ratio:
Section 77 of the Insurance Code provides:  No policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has been paid…
An exception to this section is Section 78 which provides:  Any acknowledgment in a policy or
contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to
make the policy binding, notwithstanding any stipulation therein that it shall not be binding until
premium is actually paid.
Makati Tuscany v Court of Appeals- Section 77 may not apply if the parties have agreed to the
payment in installments of the premium and partial payment has been made at the time of loss.
Section 78 allows waiver by the insurer of the condition of prepayment and makes the policy binding
despite the fact that premium is actually unpaid.  Section 77 does not expressly prohibit an
agreement granting credit extension. At the very least, both parties should be deemed in estoppel to
question the arrangement they have voluntarily accepted.
The Tuscany case has provided another exception to Section 77 that the insurer may grant credit
extension for the payment of the premium.  If the insurer has granted the insured a credit term for the
payment of the premium and loss occurs before the expiration of the term, recovery on the policy
should be allowed even though the premium is paid after the loss but within the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to
provide a credit term within which to pay the premiums.  That agreement is not against the law,
morals, good customs, public order or public policy.  The agreement binds the parties.
It would be unjust if recovery on the policy would not be permitted against Petitioner, which had
consistently granted a 60- to 90-day credit term for the payment of premiums.  Estoppel bars it from
taking refuge since Masagana relied in good faith on such practice.  Estoppel then is the fifth
exception.
 Great Pacific Life Insurance Corp. v. Court of Appeals
G.R.No. 113899, 13 October 1999, 316 SCRA 677
FACTS:
There was an existing group life insurance executed between Great Pacific Life Assurance
(Grepalife) and the Development Bank of the Philippines (DBP). Grepalife agreed to insure the lives
of eligible housing loan mortgagors of DBP. In November 1983, Wilfredo Leuterio, mortgagor of DBP
applied to be a member of the group life insurance. He filled out a form where he indicated he never
consulted any physician regarding any illness (heart condition etc) and that he is in good health. He
was eventually included in the group life insurance and he was covered for the amount of his
indebtedness (P86,200.00).
In August 1984, Wilfredo died. DBP submitted a death claim but it was denied by Grepalife as it
insisted that Wilfredo actually concealed that he was suffering from hypertension at the time of his
insurance application. Grepalife relied on the statement made by the doctor who issued Wilfredo’s
death certificate wherein it was stated that Wilfredo’s immediate cause of death was massive cerebral
hemorrhage secondary to hypertension or hypertension as a “possible cause of death”.
Since Grepalife refused to pay the insurance claim filed by DBP, Medarda Leuterio (widow) sued
Grepalife. Grepalife assailed the suit and insisted that Medarda is not a proper party in interest. The
lower court ruled in favor of Medarda and the court ordered Grepalife to pay the amount of the
insurance to DBP. The Court of Appeals affirmed this decision in 1993. Grepalife appealed to the
Supreme Court. In 1995, pending resolution of the case in the SC, DBP foreclosed the property of
Medarda.
ISSUE:
Whether or not DBP has insurable interest as creditor.
HELD:
YES. In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund,
such loss-payable clause does not make the mortgagee a party to the contract.
Section 8 of the Insurance Code provides: “Unless the policy provides, where a mortgagor of property
effects insurance in his own name providing that the loss shall be payable to the mortgagee, or
assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the interest of the
mortgagor, who does not cease to be a party to the original contract, and any act of his, prior to the
loss, which would otherwise avoid the insurance, will have the same effect, although the property is in
the hands of the mortgagee, but any act which, under the contract of insurance, is to be performed by
the mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had
been performed by the mortgagor.”
The insured Dr. Wilfredo Leuterio did not cede to the mortgagee all his rights or interests in the
insurance. When Grepalife denied payment, DBP collected the debt from the mortgagor and took the
necessary action of foreclosure on the residential lot of Dr. Wilfredo Leuterio.
Insured may be regarded as the real party in interest, although he has assigned the policy for the
purpose of collection, or has assigned as collateral security any judgment he may obtain.
Insurance Contract as a Contract of Suretyship

First Lepanto Insurance vs Chevron Philippines

Facts:
Fumitechniks, had applied for and was issued Surety Bond by First Lepanto Insurance for the amount
of Php15,000,000. This is in compliance with the requirement for the grant of a credit line with
Chevron “to guarantee payment/remittance of the cost of fuel products withdrawn within the stipulated
time in accordance with the terms and conditions of the agreement.”. Fumitechniks later on failed
default its obligation, it issued a check to Chevron in an amount of Php11,461,773.10, when it was
presented to the to the bank it was dishonored for the reason that it was already closed.
Chevron notified First Lepanto regarding to unpaid purchases of Fumitechniks for the amount of Php
15,084,030.30. First Lepanto now, wrote a letter to Fumitechniks that they submit the following (1)
comment re: the letter sent to them by Chevron; (2) agreement between Fumitechniks and Chevron
(Principal Agreement). Fumitechniks through its counsel reply to first lepanto informing that it cannot
submit the requested agreement since no such agreement was executed between Fumitechniks and
respondent.
Fumitechniks also enclosed a copy of another surety bond issued by CICI General Insurance
Corporation in favor of respondent to secure the obligation of Fumitechniks and/or Prime Asia Sales
and Services, Inc. in the amount of P15,000,000.00. Consequently, petitioner advised respondent of
the non-existence of the principal agreement as confirmed by Fumitechniks. Petitioner explained that
being an accessory contract, the bond cannot exist without a principal agreement as it is essential
that the copy of the basic contract be submitted to the proposed surety for the appreciation of the
extent of the obligation to be covered by the bond applied for.
On April 9, 2002, respondent formally demanded from petitioner the payment of its claim under the
surety bond. However, petitioner reiterated its position that without the basic contract subject of the
bond, it cannot act on respondent’s claim; petitioner also contested the amount of Fumitechniks’
supposed obligation.
Issue:
Whether a surety is liable to the creditor in the absence of a written contract with the principal.
Ruling:
No, The law is clear that a surety contract should be read and interpreted together with the contract
entered into between the creditor and the principal. Section 176 of theInsurance Code states: Sec.
176. The liability of the surety or sureties shall be joint and several with the obligor and shall be
limited to the amount of the bond. It is determined strictly by the terms of the contract of suretyship in
relation to the principal contract between the obligor and the obligee.
A surety contract is merely a collateral one, its basis is the principal contract or undertaking which it
secures.[21] Necessarily, the stipulations in such principal agreement must at least be communicated
or made known to the surety particularly in this case where the bond expressly guarantees the
payment of respondent’s fuel products withdrawn by Fumitechniks in accordance with the terms and
conditions of their agreement.
The bond specifically makes reference to a written agreement. It is basic that if the terms of a contract
are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control. [22]
Moreover, being an onerous undertaking, a surety agreement is strictly construed against the
creditor, and every doubt is resolved in favor of the solidary debtor.[23] Having accepted the bond,
respondent as creditor must be held bound by the recital in the surety bond that the terms and
conditions of its distributorship contract be reduced in writing or at the very least communicated in
writing to the surety. Such noncompliance by the creditor (respondent) impacts not on the validity or
legality of the surety contract but on the creditor’s right to demand performance.
 Asset Builders vs Stronghold

FACTS:

ABC entered into an agreement with Lucky Star as part of the completion of its project to construct
the ACG Commercial Complex. Lucky Star was to supply labor, materials, tools, and equipment
including technical supervision to drill one (1) exploratory production well on the project site.

To guarantee faithful compliance with their agreement, Lucky Star engaged respondent Stronghold
which issued two (2) bonds in favor of petitioner ABC. ABC paid Lucky Star P575,000.00 as advance
payment, representing 50% of the contract price. Lucky Star, thereafter, commenced the drilling work.

On agreed completion date, Lucky Star managed to accomplish only 10% of the drilling work. ABC
sent a demand letter to Lucky Star for the immediate completion of the drilling work. However, Lucky
Star failed to fulfill its obligation.

ABC sent Notice of Rescission of Contract with Demand for Damages to Lucky Star and a Notice of
Claim for payment to Stronghold to make good its obligation under its bonds. Despite notice, ABC did
not receive any reply either from Lucky Star or Stronghold, prompting it to file its Complaint for
Rescission with Damages against both before the RTC.

RTC rendered the assailed decision ordering Lucky Star to pay ABC but absolving Stronghold from
liability. Relevant parts of the decision reads: “The surety bond and performance bond executed by
defendants Lucky Star and Stronghold Insurance are in the nature of accessory contracts which
depend for its existence upon another contract. Thus, when the agreement between the plaintiff Asset
Builders and defendant Lucky Star was rescinded, the surety and performance bond were
automatically cancelled.
Thus, Asset Builders filed this present petition for review on certiorari assailing decision of RTC which
orders defendant Lucky Star to pay petitioner Asset Builders the sum of P575,000.00 with damages,
but absolving respondent Stronghold Insurance of any liability on its Surety Bond and Performance
Bond.

Issue:
Whether or not respondent insurance company, as surety, can be held liable under its bonds.
Held:
Yes.
As provided in Article 2047, the surety undertakes to be bound solidarily with the principal obligor.
That undertaking makes a surety agreement an ancillary contract as it presupposes the existence of
a principal contract. Although the contract of a surety is in essence secondary only to a valid principal
obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or
personal interest over the obligations nor does it receive any benefit therefrom. Let it be stressed that
notwithstanding the fact that the surety contract is secondary to the principal obligation, the surety
assumes liability as a regular party to the undertaking.

Suretyship, in essence, contains two types of relationship – the principal relationship between the
obligee (petitioner) and the obligor (Lucky Star), and the accessory surety relationship between the
principal (Lucky Star) and the surety (respondent). In this arrangement, the obligee accepts the
surety’s solidary undertaking to pay if the obligor does not pay. Such acceptance, however, does not
change in any material way the obligee’s relationship with the principal obligor. Neither does it make
the surety an active party to the principal obligee-obligor relationship. Thus, the acceptance does not
give the surety the right to intervene in the principal contract. The surety’s role arises only upon the
obligor’s default, at which time, it can be directly held liable by the obligee for payment as a solidary
obligor.

In the case at bench, when Lucky Star failed to finish the drilling work within the agreed time frame
despite petitioner’s demand for completion, it was already in delay. Due to this default, Lucky Star’s
liability attached and, as a necessary consequence, respondent’s liability under the surety agreement
arose
Undeniably, when Lucky Star reneged on its undertaking with the petitioner and further failed to return
the P575,000.00 downpayment that was already advanced to it, respondent, as surety, became
solidarily bound with Lucky Star for the repayment of the said amount to petitioner.

Contrary to the trial court’s ruling, respondent insurance company was not automatically released
from any liability when petitioner resorted to the rescission of the principal contract for failure of the
other party to perform its undertaking. Precisely, the liability of the surety arising from the surety
contracts comes to life upon the solidary obligor’s default. It should be emphasized that petitioner had
to choose rescission in order to prevent further loss that may arise from the delay of the progress of
the project. Without a doubt, Lucky Star’s unsatisfactory progress in the drilling work and its failure to
complete it in due time amount to non-performance of its obligation.

In fine, respondent should be answerable to petitioner on account of Lucky Star’s non-performance of

its obligation as guaranteed by the performance bond.
Finally, Article 1217 of the New Civil Code acknowledges the right of reimbursement from a co-
debtor (the principal co-debtor, in case of suretyship) in favor of the one who paid (the surety). Thus,
respondent is entitled to reimbursement from Lucky Star for the amount it may be required to pay
petitioner arising from its bonds.

WHEREFORE, Decision of the RTC, is AFFIRMED with MODIFICATION. Respondent Stronghold

Insurance is hereby declared jointly and severally liable with Lucky Star for the payment of
P575,000.00 and the payment of P345,000.00 on the basis of its performance bond.
Insurance Contract as a Contract of Adhession.

KEPPEL CEBU SHIPYARD, INC. V. PIONEER INSURANCE AND SURETY CORP., G.R. NOS.
180880-81 & 180896-97, [SEPTEMBER 18, 2012], 695 PHIL 169-226

FACTS: 
On January 26, 2000, KCSI and WG&A Jebsens Shipmanagement, Inc. (WG&A) entered into, and
executed, a Shiprepair Agreement wherein KCSI agreed to carry out renovation and reconstruction of
M/V Superferry 3 (Superferry 3), owned by WG&A, using its (KCSI’s) dry docking facilities. Prior to
the execution of the Shiprepair Agreement, Superferry 3 was already insured by WG&A with Pioneer
for US$8,472,581.78.
On February 8, 2000, while undergoing repair, Superferry 3 was gutted by fire. WG&A declared the
vessel’s damage as a “total constructive loss” and filed an insurance claim with Pioneer.
On June 16, 2000, Pioneer paid the insurance claim of WG&A in the amount of US$8,472,581.78. In
exchange, WG&A executed a Loss and Subrogation Receipt in favor of Pioneer.
Believing that KCSI was solely responsible for the loss of Superferry 3, Pioneer tried to collect the
amount of US$8,472,581.78 form KCSI but it was frustrated. Thus, Pioneer sought arbitration with the
Construction Industry Arbitration Commission (CIAC) pursuant to the arbitration clause in the
Shiprepair Agreement.
During the arbitration proceedings, an amicable settlement was forged between KCSI and WG&A.
Pioneer, thus, stayed on as the remaining claimant.
On October 28, 2002, the CIAC rendered its Decision finding that both WG&A and KCSI were equally
guilty of negligence which resulted in the fire and loss of Superferry 3. The CIAC also ruled that the
liability of KSCI was limited to the amount of P50,000,000.00 pursuant to Clause 20 of the Shiprepair
Agreement.
Accordingly, the CIAC ordered KCSI to pay Pioneer the amount of P25,000,000.00, with interest at
6% per annum from the time of the filing of the case up to the time the decision was promulgated, and
12% interest per annum added to the award, or any balance thereof, after it would become final and
executory. The CIAC further ordered that the arbitration costs be imposed on both parties on a pro
rata basis.
ISSUE:
Who should be responsible for the loss of Superferry 3.
HELD: 
Was resolved by the CIAC against both parties. As this finding of fact by the CIAC was affirmed by
the CA, the Court must have a strong and cogent reason to disturb it.
It is a hornbook doctrine that, save for certain exceptions, the findings of fact of administrative
agencies and quasi-judicial bodies like the CIAC, which have acquired expertise because their
jurisdiction is confined to specific matters, are generally accorded not only respect, but finality when
affirmed by the CA. It is well-settled that “the consequent policy and practice underlying our
Administrative Law is that courts of justice should respect the findings of fact of said administrative
agencies, unless there is absolutely no evidence in support thereof or such evidence is clearly,
manifestly and patently insubstantial.” Moreover, in petitions for review on certiorari, only questions of
law may be put into issue.
Be that as it may, the Court, after making its own assiduous assessment of the case, concurs with the
conclusions arrived at by the tribunals below that the loss of Superferry 3 cannot be attributed to one
party alone.
WG&A was negligent because, although it utilized the welders of KCSI, it used them  outside the
agreed area, the restaurant of the promenade deck. If they did not venture out of the restaurant, the
sparks or the hot molten slags produced by the welding of the steel plates would not have reached
the combustible lifejackets stored at the deck below.
On the part of KCSI, it failed to secure a hot work permit pursuant to another work order. Had this
been applied for by the KCSI worker, the hot work area could have been inspected and safety
measures, including the removal of the combustible lifejackets, could have been undertaken. In this
regard, KCSI is responsible.
In short, both WG&A and KCSI were equally negligent for the loss of Superferry 3. The parties being
mutually at fault, the degree of causation may be impossible of rational assessment as there is no
scale to determine how much of the damage is attributable to WG&A’s or KCSI’s own fault.
Therefore, it is but fair that both WG&A and KCSI should equally shoulder the burden for their
negligence.
With respect to the defenses of KCSI that it was a co-assured under Clause 22 (a) of the contract and
that its liability is limited to P50,000,000.00 under Clause 20 of the Shiprepair Agreement, the Court
maintains the earlier ruling on the invalidity of Clause 22 (a) of the Shiprepair Agreement.
It cannot, however, maintain the earlier ruling on the invalidity of Clause 20 of the Shiprepair
Agreement, which limited KCSI’s liability to P50,000,000.00. In the September 25, 2009 Decision, the
Third Division found Clause 20 of the Shiprepair Agreement invalid, seeing it as an unfair imposition
by KCSI, being the dominant party, on WG&A. TCASIH
Basic is the rule that parties to a contract may establish such stipulations, clauses, terms, or
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, and public policy. While greater vigilance is required in determining the validity of clauses
arising from contracts of adhesion, the Court has nevertheless consistently ruled that contracts of
adhesion are not invalid per se and that it has, on numerous occasions, upheld the binding effect
thereof.
In its Decision, the Third Division placed great weight in the testimony of Engr. Elvin F. Bello, WG&A’s
fleet manager, that while he assented to the Shiprepair Agreement, he did not sign the fine-print
portion thereof where Clause 20 was found because he did not want WG&A to be bound by them.
This testimony however, was correctly found by the CIAC as clearly self-serving, because such
intention of WG&A was belied by its actions before, during and after the signing of the Shiprepair
Agreement.
As pointed out by the CA, WG&A and its related group of companies, which were all extensively
engaged in the shipping business, had previously dry-docked and repaired its various ships with
KCSI under ship repair agreements incorporating the same standard conditions on at least 22
different occasions. Yet, in all these instances, WG&A had not been heard to complain of being
strong-armed and forced to accept the fine-print provisions imposed by KCSI to limit its liability.
Also, as pointed out by the CIAC, if it were true that WG&A did not want to be bound under such an
onerous clause, it could have easily transacted with other ship repairers, which may not have
included such a provision.
After the signing of the Shiprepair agreement, the record is bereft of any other evidence to show that
WG&A had protested such a provision limiting the liability of KCSI. Indeed, the parties bound
themselves to the terms of their contract which became the law between them.
While contracts of adhesion may be struck down as void and unenforceable for being subversive of
public policy, the same can only be done when, under the circumstances, the weaker party is
imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking
it or leaving it, completely depriving the former of the opportunity to bargain on equal footing. This is
not the situation in this case.
 G.R. No. 184300
Malayan Insurance Co. Inc vs. , Petitioner
Philippine First Insurance Co. Inc and Reputable Forwarder Services Inc., Respondent
Facts:
This case involves 2 insurance contract entered into between Wyeth Philippines, Inc. (Wyeth) and
respondent Reputable Forwarder Services (Reputable) whereby a contract of carriage had been
entered into for the latter to transport and deliver the former’s product to its customers, dealers and
salesmen. While Wyeth procured Marine Policy from respondent Philippines First Insurance Co., Inc
(Philippines First) to secure its interest over its own products which includes nutritional,
pharmaceutical and other products usual or incidental to Wyeths business while the same were being
transported or shipped in the Philippines. On the first insurance policy, such required Reputable to
secure an insurance policy on Wyeths goods. Thus, Reputable signed a Special Risk Insurance
Policy (SR Policy) with petitioner Malayan or the amount of 1M.
During the effectivity of the Marine Policy and SR Policy, the truck containing infant formula
amounting to 2,357,582.70 which was supposedly be delivered to Mercury drug was hijacked.
Pursuant to the Marine Policy, Philippine First paid Whyeth for indemnity. Such demanded
reimbursement from Reputable but the latter ignored its demand. Consequently Philippine First filed
an action against Reputable and impleaded Malayan as third party defendant in an effort to collect the
amount covered in the SR Policy.
Malayan insists that their liability only covers the prorated share of the loss based on the amount
covered by Section 12 or Other Insurance Clause.
Issue:
Whether Malayan is liable for the whole amount of the insurance policy despite the existence of “other
insurance clause” and “over insurance clause”
Held:
Yes. Sec 5 of the policy which pertains to the additional insurance and double insurance does not
apply to this case as there was no double insurance exist. In order for double insurance to arise, the
following requisites must be present:
The person insured must be the same
Two or more insurers insuring separately
There is identity of subject matter
There is identity of interest insured
There is identity of the risk of peril insured against
In the present case both Marine and SR policy were both issued over the same subject matter and
both covered the same peril insured against, however said policies were issued to two different
persons or entities. The interest of Wyeth over the property subject matter of both insurance contracts
is also different and distinct from that of Reputable’s. The policy issued by Philippines First was in
consideration of the legal and/or equitable interest of Wyeth over its own goods. On the other hand,
what was issued by Malayan to Reputable was over the latter’s insurable interest over the safety of
the goods, which may become the basis of the latter’s liability in case of loss or damage to the
property and falls within the contemplation of Section 15 of the Insurance Code.
 FLORENDO V. PHILAM PLANS, INC.,
G.R. NO. 186983, [FEBRUARY 22, 2012], 682 PHIL 582-592)
FACTS:
 On October 23, 1997 Manuel Florendo filed an application for comprehensive pension plan with
respondent Philam Plans, Inc. (Philam Plans) after some convincing by respondent Perla Abcede.
The plan had a pre-need price of P997,050.00, payable in 10 years, and had a maturity value of
P2,890,000.00 after 20 years. Manuel signed the application and left to Perla the task of supplying
the information needed in the application. Respondent Ma. Celeste Abcede, Perla’s daughter, signed
the application as sales counselor.
Aside from pension benefits, the comprehensive pension plan also provided life insurance coverage
to Florendo. This was covered by a Group Master Policy that Philippine American Life Insurance
Company (Philam Life) issued to Philam Plans. Under the master policy, Philam Life was to
automatically provide life insurance coverage, including accidental death, to all who signed up for
Philam Plans’ comprehensive pension plan. If the plan holder died before the maturity of the plan, his
beneficiary was to instead receive the proceeds of the life insurance, equivalent to the pre-need price.
Further, the life insurance was to take care of any unpaid premium until the pension plan matured,
entitling the beneficiary to the maturity value of the pension plan.
On October 30, 1997 Philam Plans issued Pension Plan Agreement PP43005584 to Manuel, with
petitioner Ma. Lourdes S. Florendo, his wife, as beneficiary. In time, Manuel paid his quarterly
premiums.
Eleven months later or on September 15, 1998, Manuel died of blood poisoning. Subsequently,
Lourdes filed a claim with Philam Plans for the payment of the benefits under her husband’s plan.
Because Manuel died before his pension plan matured and his wife was to get only the benefits of his
life insurance, Philam Plans forwarded her claim to Philam Life.
On May 3, 1999 Philam Plans wrote Lourdes a letter, declining her claim. Philam Life found that
Manuel was on maintenance medicine for his heart and had an implanted pacemaker. Further, he
suffered from diabetes mellitus and was taking insulin. Lourdes renewed her demand for payment
under the plan but Philam Plans rejected it, prompting her to file the present action against the
pension plan company before the Regional Trial Court (RTC) of Quezon City.
REPORT THIS AD
On March 30, 2006 the RTC rendered judgment, ordering Philam Plans, Perla and Ma. Celeste,
solidarily, to pay Lourdes all the benefits from her husband’s pension plan, namely: P997,050.00, the
proceeds of his term insurance, and P2,890,000.00 lump sum pension benefit upon maturity of his
plan; P100,000.00 as moral damages, and to pay the costs of the suit. The RTC ruled that Manuel
was not guilty of concealing the state of his health from his pension plan application.
On December 18, 2007 the Court of Appeals (CA) reversed the RTC decision, holding that insurance
policies are traditionally contracts uberrimae fidae or contracts of utmost good faith. As such, it
required Manuel to disclose to Philam Plans conditions affecting the risk of which he was aware or
material facts that he knew or ought to know.
ISSUE:
 WON THERE WAS CONCEALMENT
HELD:
YES. One. Lourdes points out that, seeing the unfilled spaces in Manuel’s pension plan application
relating to his medical history, Philam Plans should have returned it to him for completion. Since
Philam Plans chose to approve the application just as it was, it cannot cry concealment on Manuel’s
part. Further, Lourdes adds that Philam Plans never queried Manuel directly regarding the state of his
health. Consequently, it could not blame him for not mentioning it.
But Lourdes is shifting to Philam Plans the burden of putting on the pension plan application the true
state of Manuel’s health. She forgets that since Philam Plans waived medical examination for Manuel,
it had to rely largely on his stating the truth regarding his health in his application. For, after all, he
knew more than anyone that he had been under treatment for heart condition and diabetes for more
than five years preceding his submission of that application. But he kept those crucial facts from
Philam Plans.
Besides, when Manuel signed the pension plan application, he adopted as his own the written
representations and declarations embodied in it. It is clear from these representations that he
concealed his chronic heart ailment and diabetes from Philam Plans.
Lourdes insists that Manuel had concealed nothing since Perla, the soliciting agent, knew that Manuel
had a pacemaker implanted on his chest in the 70s or about 20 years before he signed up for the
pension plan. But by its tenor, the responsibility for preparing the application belonged to Manuel.
Nothing in it implies that someone else may provide the information that Philam Plans needed.
Manuel cannot sign the application and disown the responsibility for having it filled up. If he furnished
Perla the needed information and delegated to her the filling up of the application, then she acted on
his instruction, not on Philam Plans’ instruction.
Two. Lourdes contends that the mere fact that Manuel signed the application in blank and let Perla fill
in the required details did not make her his agent and bind him to her concealment of his true state of
health. Since there is no evidence of collusion between them, Perla’s fault must be considered solely
her own and cannot prejudice Manuel. But Manuel forgot that in signing the pension plan application,
he certified that he wrote all the information stated in it or had someone do it under his direction. The
same may be said of Manuel, a civil engineer and manager of a construction company.  33 He could
be expected to know that one must read every document, especially if it creates rights and obligations
affecting him, before signing the same. Manuel is not unschooled that the Court must come to his
succor. It could reasonably be expected that he would not trifle with something that would provide
additional financial security to him and to his wife in his twilight years.|
Three. In a final attempt to defend her claim for benefits under Manuel’s pension plan, Lourdes points
out that any defect or insufficiency in the information provided by his pension plan application should
be deemed waived after the same has been approved, the policy has been issued, and the premiums
have been collected.
The Court cannot agree. The comprehensive pension plan that Philam Plans issued contains a one-
year incontestability period. It states:
VIII. INCONTESTABILITY
After this Agreement has remained in force for one ( 1) year, we can no longer contest for health
reasons any claim for insurance under this Agreement, except for the reason that installment has not
been paid (lapsed), or that you are not insurable at the time you bought this pension program by
reason of age. If this Agreement lapses but is reinstated afterwards, the one (1) year contestability
period shall start again on the date of approval of your request for reinstatement.
The above incontestability clause precludes the insurer from disowning liability under the policy it
issued on the ground of concealment or misrepresentation regarding the health of the insured after a
year of its issuance.
Since Manuel died on the eleventh month following the issuance of his plan, the one year
incontestability period has not yet set in. Consequently, Philam Plans was not barred from
questioning Lourdes’ entitlement to the benefits of her husband’s pension plan.
Insurance Contract as a Contract of Indemnity
United Merchants Corporation vs Country Bankers Insurance Corporation
G.R. No. 198588 July 11, 2012
Facts:
Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling, and
manufacturing Christmas lights. UMC leased a warehouse at 19-B Dagot Street, San Jose
Subdivision, Barrio Manresa, Quezon City, where UMC assembled and stored its products.  On 6
September 1995, UMCs General Manager Alfredo Tan insured UMCs stocks in trade of Christmas
lights against fire with defendant Country Bankers Insurance Corporation (CBIC) for P 15,000,000.00.
The Fire Insurance Policy No. F-HO/95-576 (Insurance Policy) and Fire Invoice No. 12959A, valid
until 6 September 1996. On 7 May 1996, UMC and CBIC executed Endorsement F/96-154 and Fire
Invoice No. 16583A to form part of the Insurance Policy. Endorsement F/96-154 provides that UMCs
stocks in trade were insured against additional perils, to wit: typhoon, flood, ext. cover, and full
earthquake. The sum insured was also increased to P50,000,000.00 effective 7 May 1996 to 10
January 1997. On 9 May 1996, CBIC issued Endorsement F/96-157 where the name of the assured
was changed from Alfredo Tan to UMC. On 3 July 1996, a fire gutted the warehouse rented by UMC.
CBIC designated CRM Adjustment Corporation (CRM) to investigate and evaluate UMCs loss by
reason of the fire. CBICs reinsurer, Central Surety, likewise requested the National Bureau of
Investigation (NBI) to conduct a parallel investigation. On 6 July 1996, UMC, through CRM, submitted
to CBIC its Sworn Statement of Formal Claim, with proofs of its loss.
Issue:
 Whether or not UMC is entitled to claim from CBIC the full coverage of its fire insurance policy. 

Held: No. Burden of proof is the duty of any party to present evidence to establish his claim or
defense by the amount of evidence required by law, which is preponderance of evidence in civil
cases. The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the
burden of proof to obtain a favorable judgment. Particularly, in insurance cases, once an insured
makes out a prima facie case in its favor, the burden of evidence shifts to the insurer to controvert the
insureds prima facie case. In the present case, UMC established a prima facie case against CBIC.
CBIC does not dispute that UMCs stocks in trade were insured against fire under the Insurance
Policy and that the warehouse, where UMCs stocks in trade were stored, was gutted by fire on 3 July
1996, within the duration of the fire insurance. However, since CBIC alleged an excepted risk, then
the burden of evidence shifted to CBIC to prove such exception.  
An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the
burden of establishing that the loss comes within the purview of the exception or limitation. If loss is
proved apparently within a contract of insurance, the burden is upon the insurer to establish that the
loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which
limits its liability.
In Uy Hu & Co. v. The Prudential Assurance Co., Ltd., the Court held that where a fire insurance
policy provides that 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 devices are used by the Insured or anyone
acting on his behalf to obtain any benefit under this Policy, and the evidence is conclusive that the
proof of claim which the insured submitted was false and fraudulent both as to the kind, quality and
amount of the goods and their value destroyed by the fire, such a proof of claim is a bar against the
insured from recovering on the policy even for the amount of his actual loss. 
In the present case, as proof of its loss of stocks in trade amounting to P 50,000,000.00, UMC
submitted its Sworn Statement of Formal Claim together with the following documents: (1) letters of
credit and invoices for raw materials, Christmas lights and cartons purchased; (2) charges for
assembling the Christmas lights; and (3) delivery receipts of the raw materials. However, the charges
for assembling the Christmas lights and delivery receipts could not support its insurance claim. The
Insurance Policy provides that CBIC agreed to insure UMCs stocks in trade. UMC defined stock in
trade as tangible personal property kept for sale or traffic. Applying UMCs definition, only the letters of
credit and invoices for raw materials, Christmas lights and cartons may be considered. 
It has long been settled that a false and material statement made with an intent to deceive or defraud
voids an insurance policy. 
The most liberal human judgment cannot attribute such difference to mere innocent error in
estimating or counting but to a deliberate intent to demand from insurance companies payment for
indemnity of goods not existing at the time of the fire. This constitutes the so-called fraudulent claim
which, by express agreement between the insurers and the insured, is a ground for the exemption of
insurers from civil liability.
 MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES
DEPARTMENT, petitioners, vs. COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE
CO., INC. and the CHARTER INSURANCE CORPORATION, respondents.
G.R. No. 124050. June 19, 1997.

Facts:
In 1983, petitioner Hongkong contracted petitioner Mayer to manufacture and supply various steel
pipes and fittings. Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks
with private respondents South Sea Surety and Charter Insurance. Three invoices were insured with
respondent South Sea, while the remaining invoices were insured with respondent Charter.
A third party inspector appointed by both petitioners certified all the pipes and fittings to be in good
order condition before they were loaded in the vessel. Nonetheless, when the goods reached
Hongkong, it was discovered that a substantial portion thereof was damaged.
Petitioners filed a claim against private respondents for indemnity under the insurance contract.
Respondent Charter paid petitioner Hongkong. Petitioners demanded payment of the balance
representing the cost of repair of the damaged pipes, however private respondents refused to pay
because the insurance surveyor's report allegedly showed that the damage is a factory defect, thus
not covered by the insurance policies.
In 1986, petitioners filed an action against private respondents to recovery of sum of money. The trial
court ruled in favor of petitioners. It found that the damage to the goods is not due to manufacturing
defects. It also noted that the insurance contracts executed by petitioner Mayer and private
respondents are "all risks" policies which insure against all causes of conceivable loss or damage.
The only exceptions are those excluded in the policy, or those sustained due to fraud or intentional
misconduct on the part of the insured.
Private respondents elevated the case to respondent Court of Appeals, which affirmed the finding of
the trial court. However, it set aside the decision of the trial court and dismissed the complaint on the
ground of prescription since it was filed more than two years from the time the goods were unloaded
from the vessel. It held that the action is barred under Section 3(6) of the Carriage of Goods by Sea
Act which provides for the prescription of insurer's liability after one year if no action for indemnity is
filed against the carrier or the insurer.
Hence this petition.

Issue:
Whether or not the petitioners' claim is barred by prescription.
Held:
No. The petitioners' claim is not barred by prescription under the Carriage of Goods by Sea Act,
which defines the obligations of the carrier under the contract of carriage. The relationship between
petitioner Mayer as shipper and respondents as insurer is is governed by the Insurance Code. Thus,
the liability of the insurer is not extinguished because the insurer's liability is based not on the contract
of carriage but on the contract of insurance.
In the case at bar, it was the shipper which filed a claim against the insurer. The basis of the shipper's
claim is the "all risks" insurance policies issued by private respondents to petitioner Mayer. The
Supreme Court held that an "all risks" insurance policy covers all kinds of loss other than those due to
willful and fraudulent act of the insured. Thus, when private respondents issued the "all risks" policies
to petitioner Mayer, they bound themselves to indemnify the latter in case of loss or damage to the
goods insured. Such obligation prescribes in ten years, in accordance with Article 1144 of the New
Civil Code.
The petition was GRANTED.
Right to Subrogation
RCJ Bus Lines v Standard Insurance Co.
GR No. 193629, August 17, 2011
FACTS:
Standard Insurance Co., Inc. (STANDARD) filed a complaint against petitioners FLor Bola Mangoba
and RCJ Bus Lines. The complaint was predicated upon an accident which involves the Mitsubishi
Lancer and the RCJ Bus Lines. Upon seeing a pile of gravel and sand on the road, the Toyota
Corolla, which is ahead of the Mitsubishi Lancer, stopped on its tracks. The Mitsubishi Lancer
followed suit and also halted. At this point, the bus hit and bumped the rear portion of the Mitsubishi
Lancer causing it to move forward and hit the Toyota Corolla in front of it.
As a result of the incident, the Mitsubishi Lancer sustained damages amounting to PhP162,151.22,
representing the cost of its repairs. Under the comprehensive insurance policy secured by Rodelene
Valentino, owner of the Mitsubishi Lancer, STANDARD reimbursed to the former the amount she
expended for the repairs of her vehicle. Rodelene then executed a Release of Claim and Subrogation
Receipt, subrogating STANDARD to all rights, claims and actions she may have against RCJ Bus
Lines, Inc. and its driver, Flor Bola Mangoba.
In its answer, RCJ Bus Lines, Inc maintained, among others, that the direct, immediate and proximate
cause of the accident was the negligence of the driver of the Mitsubishi Lancer when, for no reason at
all, it made a sudden stop along the National Highway, as if to initiate and/or create an accident.
The MeTC rendered its decision in favor of Standard. The RTC affirmed with modification the MeTC’s
Decision deleting the award for exemplary damages. The appellate court found that the RTC
committed no reversible error in affirming RCJ’s liability as registered owner of the bus and employer
of Mangoba.
ISSUE:
Whether or Not the Court of Appeals erroneously disregarded the point that petitioner RCJ’s defense
of extraordinary diligence in the selection and supervision of its driver was made as an alternative
defense;
HELD:
No. The petition has no merit. RCJ, by presenting witnesses to testify on its exercise of diligence of a
good father of a family in the selection and supervision of its bus drivers, admitted that Mangoba is its
employee. Article 2180 of the Civil Code, in relation to Article 2176, makes the employer vicariously
liable for the acts of its employees.
When the employee causes damage due to his own negligence while performing his own duties,
there arises the juris tantum presumption that the employer is negligent - rebuttable only by proof of
observance of the diligence of a good father of a family.
For failure to rebut such legal presumption of negligence in the selection and supervision of
employees, the employer is likewise responsible for damages, the basis of the liability being the
relationship of pater familias or on the employer’s own negligence. Mangoba, per testimony of his
conductor, was ten meters away from the Mitsubishi Lancer before the collision and was driving 60 to
75 kilometers per hour when the speed limit was 50 kilometers per hour.
The presumption under Article 2185 of the Civil Code was thus proven true: Mangoba, as driver of the
bus which collided with the Mitsubishi Lancer, was negligent since he violated a traffic regulation at
the time of the mishap. We see no reason to depart from the findings of the MeTC, RTc and
appellate court that Mangoba was negligent.
 Federal Express Corporation v. American Home Assurance Company
G.R. No. 150094, 18 August 18 2004, 437 SCRA 50

FACTS:
Shipper SMITHKLINE USA delivered to carrier Burlington Air Express, an agent of herein petitioner, a
cargo shipment, insured with respondent which consist of 109 cartons of veterinary biological for
delivery to consignee SMITHKLINE and French Overseas Company in Makati City with the words,
“REFRIGERATE WHEN NOT IN TRANSIT” and “PERISHABLE” stamp marked on its face. However,
12 days after the cargoes arrived in Manila, it was found out that the same were stored only in a room
with 2 air conditioners running in the warehouse of Cargohaus Inc., to cool the place instead of a
refrigerator.
As a consequence of the result of the veterinary biological test, SMITHKLINE abandoned the
shipment and, declaring “total loss” for the unusable shipment, filed a claim with AHAC through its
representative in the Philippines, The Philam Insurance Co., Inc., (PHILAM) which recompensed
SMITHKLINE for the whole insured amount. Thereafter, PHILAM filed an action for damages against
FEDEX imputing negligence on either or both of them in the handling of the cargo where it was
decided that FEDEX is solidarily liable with Cargohaus Inc.
ISSUE:
Whether or not FEDEX is liable for damage to or loss of the insured goods?
RULING:
No. Upon receipt of the insurance proceeds, the consignee (SMITHKLINE) executed a subrogation
receipt in favor of respondents authorizing them “to file claims and begin suit against any such carrier,
person, vessel, corporation or government.” Undeniably, the consignee had a legal right to receive
the goods in the same condition it was delivered for transport to petitioner and if that right was
violated, the consignee would have a cause of action against the person responsible therefor.
In the exercise of its subrogatory right, an insurer may proceed against an erring carrier and to all
intents and purposes, it stands in the place and in substitution of the consignee.
 Delsan Transport Lines, Inc. v. Court of Appeals
G.R. No. 127897, 15 November 2001, 369 SCRA 24

FACTS:
Caltex entered into a contract of affreightment with Delsan Transport Lines, Inc., for a period of one
year whereby the said common carrier agreed to transport Caltex’s industrial fuel oil from the
Batangas-Bataan Refinery to different parts of the country. Under the contract, petitioner took on
board its vessel, MT Maysun, 2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the
Caltex Oil Terminal in Zamboanga City. The shipment was insured with the private respondent,
American Home Assurance Corporation.
On August 14, 1986, MT Maysun set sail from Batangas for Zamboanga City. Unfortunately, the
vessel sank in the early morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the
entire cargo of fuel oil.
The Respondent (insurance) paid the Caltex the amount of P5,096,635.57 representing the amount
of the value of the lost cargo.

ISSUE:
1. Whether or not the payment made by the private respondent to Caltex for the insured value of the
lost cargo amounted to an admission that the vessel was seaworthy, thus precluding any action for
recovery against the petitioner.
2. Whether or not the non-presentation of the marine insurance policy bars the complaint for recovery
of sum of money for lack of cause of action

RULING:
No, under the law, extra ordinary diligence is required by the common carrier in taking good care of
the goods. The common carrier is presumed negligent unless the contrary provides otherwise. The
right of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is
the mode which equity adopts to compel the ultimate payment of a debt by one who in justice and
good conscience ought to pay. It is not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues simply upon payment by the insurance
company of the insurance claim.
The presentation in evidence of the marine insurance policy is not indispensable in this case before
the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of
its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the
relationship of herein private respondent as insurer and Caltex, as the assured shipper of the lost
cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The right of
subrogation accrues simply upon payment by the insurance company of the insurance claim.
 WILLIAM TIU V. PEDRO ARRIESGADO et al., 437 SCRA 426 (2004)

FACTS:
On March 15, 1987, a truck owned by Condor was travelling along Poblacion, Compostela, Cebu
blew one of its rear tires.
The truck driver parked the truck on the right side of the highway to get assistance
Thereafter, D’Rough Riders passenger bus was cruising along the highway in the same direction.
Its driver saw the stalled truck 25 meters away but it was too late. The bus rammed on the rear part of
the truck resulting in the injury of its passengers, including Arriesgado and his wife (died from her
injuries)
Arriesgado filed a complaint for breach of contract of carriage against D’Rough Riders and its driver.
For its part, Tiu (owner of D’Rough Riders) filed a third party complaint against its insurer, PPSII, the
owner of the truck and its driver. He claimed that PPSII, as insurer, should be held solidarily liable
with Tiu
The trial court held in favor of Arriesgado but it made no mention ofCA affirmed the trial court’s ruling
and cited that as a common carrier, Tiu must exercise extraordinary diligence in transporting its
passengers, which it failed to do
As to the liability of PPSII: CA held that no evidence was presented against PPSII so it cannot be held
liable for Arriesgado’s claim
PPSII’s argument: There is a contract of insurance (TPL) but it had already settled the claims of those
injured in the incident

ISSUE:
In third-party liability insurance, would it be possible for a third party to sue the insurer directly?

HELD:
Yes. This is an exception to the rule on mutuality of contract. Whenever a contract contains
stipulation for the benefit of a third person and the moment the third person communicates his assent
thereto, the contract becomes binding upon him. The fact that a third person demands fulfillment of
the insurance policy may be reasonably construed as an assent on his part to the benefit provided in
the policy. This provision arms him with the requisite legal personality to bring an action on the
insurance policy. (stipulation pour atrui).

ISSUE: In a TPL insurance, is the insurer solidarily liable with the insured?
HELD: No. Although the victim may proceed directly against the insurer for indemnity, the third party
liability is only up to the extent of the insurance policy and those required by law. While it is true that
where the insurance contract provides for indemnity against liability to third persons, and such
persons can directly sue the insurer, the direct liability of the insurer under indemnity contracts
against third party liability does not mean that the insurer can be held liable in solidum with the
insured and/or the other parties found at fault. For the liability of the insurer is based on contract; that
of the insured carrier or vehicle owner is based on tort.

The respondent PPSII could not then just deny petitioner Tiu's claim; it should have paid  P12,000 for
the death of Felisa Arriesgado,  and respondent Arriesgado's hospitalization expenses of P1,113.80,
which the trial court found to have been duly supported by receipts. The total amount of the claims,
even when added to that of the other injured passengers which the respondent PPSII claimed to have
settled, would not exceed the P50,000 limit under the insurance agreement.