11-20 - Insurance Cases

8/2/2019 11-20 - Insurance Cases

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G.R. No. 181132 June 5, 2009

HEIRS OF LORETO C. MARAMAGvs.EVA VERNA DE GUZMAN MARAMAG, et. Al.

The case stems from a petition filed against respondents with the Regional Trial Court, Branch 29, for revocation

and/or reduction of insurance proceeds for being void and/or inofficious, with prayer for a temporary restrainingorder (TRO) and a writ of preliminary injunction.

Petitioner Vicenta Maramag (heir of deceased) alleges that (1) petitioners were the legitimate wife and children ofLoreto Maramag (Loreto), while respondents were Loretos illegitimate family; (2) Eva de Guzman Maramag (Eva)

was a concubine of Loreto and a suspect in the killing of the latter, thus, she is disqualified to receive any proceedsfrom his insurance policies from Insular Life Assurance Company, Ltd. (Insular) and Great Pacific Life AssuranceCorporation (Grepalife); (3) the illegitimate children of LoretoOdessa, Karl Brian, and Trisha Angeliewereentitled only to one-half of the legitime of the legitimate children, thus, the proceeds released to Odessa and those tobe released to Karl Brian and Trisha Angelie were inofficious and should be reduced; and (4) petitioners could notbe deprived of their legitimes, which should be satisfied first.

In answer, Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa, Karl Brian, andTrisha Angelie as his legitimate children, and that they filed their claims for the insurance proceeds of the insurancepolicies; that when it ascertained that Eva was not the legal wife of Loreto, it disqualified her as a beneficiary anddivided the proceeds among Odessa, Karl Brian, and Trisha Angelie, as the remaining designated and furtherclaimed that it was bound to honor the insurance policies designating the children of Loreto with Eva asbeneficiaries pursuant to Section 53 of the Insurance Code.

In its own answer with compulsory counterclaim, Grepalife alleged that Eva was not designated as an insurancepolicy beneficiary; that the claims filed by Odessa, Karl Brian, and Trisha Angelie were denied because Loreto wasineligible for insurance due to a misrepresentation in his application form that he was born on December 10, 1936and, thus, not more than 65 years old when he signed it in September 2001; that the case was premature, there beingno claim filed by the legitimate family of Loreto; and that the law on succession does not apply where thedesignation of insurance beneficiaries is clear.

Both Insular and Grepalife countered that the insurance proceeds belong exclusively to the designated beneficiariesin the policies, not to the estate or to the heirs of the insured. Grepalife also reiterated that it had disqualified Eva asa beneficiary when it ascertained that Loreto was legally married to Vicenta Pangilinan Maramag.

The Trial Court ruled for the Petitioners since Eva was not able to file an answer nor unknown to their whereabouts.

TCs Ruling: It is very clear under Sec. 53 thereof that the insurance proceeds shall be applied exclusively to theproper interest of the person in whose name or for whose benefit it is made, unless otherwise specified in the policy.

MR: Insular and Grepalife filed their respective motions for reconsideration, arguing, in the main, that the petitionfailed to state a cause of action. Insular further averred that the proceeds were divided among the three children asthe remaining named beneficiaries. Grepalife, for its part, also alleged that the premiums paid had already beenrefunded.

In granting the motions for reconsideration of Insular and Grepalife, the trial court considered the allegations ofInsular that Loreto revoked the designation of Eva in one policy and that Insular disqualified her as a beneficiary inthe other policy such that the entire proceeds would be paid to the illegitimate children of Loreto with Eva pursuantto Section 53 of the Insurance Code

Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for lack of jurisdiction,holding that the decision of the trial court dismissing the complaint for failure to state a cause of action involved apure question of law. The appellate court also noted that petitioners did not file within the reglementary period amotion for reconsideration of the trial courts Resolution, dated September 21, 2004, dismissing the complaint as

against Odessa, Karl Brian, and Trisha Angelie; thus, the said Resolution had already attained finality.

ISSUE: Are the members of the legitimate family entitled to the proceeds of the insurance for the concubine?

HELD: The petition should be denied.


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In this case, it is clear from the petition filed before the trial court that, although petitioners are the legitimate heirsof Loreto, they were not named as beneficiaries in the insurance policies issued by Insular and Grepalife. The basisof petitioners claim is that Eva, being a concubine of Loreto and a suspect in his murder, is disqualified from beingdesignated as beneficiary of the insurance policies, and that Evas children with Loreto, being illegitimate children,

are entitled to a lesser share of the proceeds of the policies. They also argued that pursuant to Section 12 of theInsurance Code, Evas share in the proceeds should be forfeited in their favor, the former having brought about the

death of Loreto. Thus, they prayed that the share of Eva and portions of the shares of Loretos illegitimate children

should be awarded to them, being the legitimate heirs of Loreto entitled to their respective legitimes.

It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment in light of Article2011 of the Civil Code which expressly provides that insurance contracts shall be governed by special laws, i.e., theInsurance Code. Section 53 of the Insurance Code states

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whosename or for whose benefit it is made unless otherwise specified in the policy.

Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are either the insured, ifstill alive; or the beneficiary, if the insured is already deceased, upon the maturation of the policy. The exception tothis rule is a situation where the insurance contract was intended to benefit third persons who are not parties to thesame in the form of favorable stipulations or indemnity. In such a case, third parties may directly sue and claim fromthe insurer.

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not entitled to theproceeds thereof. Accordingly, respondents Insular and Grepalife have no legal obligation to turn over the insuranceproceeds to petitioners. The revocation of Eva as a beneficiary in one policy and her disqualification as such inanother are of no moment considering that the designation of the illegitimate children as beneficiaries in Loretosinsurance policies remains valid. Because no legal proscription exists in naming as beneficiaries the children ofillicit relationships by the insured, the shares of Eva in the insurance proceeds, whether forfeited by the court in viewof the prohibition on donations under Article 739 of the Civil Code or by the insurers themselves for reasons basedon the insurance contracts, must be awarded to the said illegitimate children, the designated beneficiaries, to theexclusion of petitioners. It is only in cases where the insured has not designated any beneficiary, or when thedesignated beneficiary is disqualified by law to receive the proceeds, that the insurance policy proceeds shallredound to the benefit of the estate of the insured.

Petition Denied.


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G.R. No. 71360 July 16, 1986

DEVELOPMENT INSURANCE CORPORATION, petitioner,vs.INTERMEDIATE APPELLATE COURT, and PHILIPPINE UNION REALTY DEVELOPMENT

CORPORATION, respondents.

A fire occurred in the building of the private respondent and it sued for recovery of damages from the petitioner onthe basis of an insurance contract between them. The petitioner allegedly failed to answer on time and was declaredin default by the trial court. A judgment of default was subsequently rendered on the strength of the evidencesubmitted ex parte by the private respondent, which was allowed full recovery of its claimed damages. On learningof this decision, the petitioner moved to lift the order of default, invoking excusable neglect, and to vacate thejudgment by default. Its motion was denied. It then went to the respondent court, which affirmed the decision of thetrial court in toto. The petitioner is now before us, hoping presumably that it will fare better here than before the trialcourt and the Intermediate Appellate Court. We shall see.

The petitioner's claim that the insurance covered only the building and not the elevators is absurd, to say the least.This Court has little patience with puerile arguments that affront common sense, let alone basic legal principles withwhich even law students are familiar. The circumstance that the building insured is seven stories high and so had tobe provided with elevators-a legal requirement known to the petitioner as an insurance company-makes itscontention all the more ridiculous.

There is no reason to disturb the factual findings of the lower court, as affirmed by the Intermediate Appellate Court,that the heat and moisture caused by the fire damaged although they did not actually burn the elevators. Neither isthis Court justified in reversing their determination, also factual, of the value of the loss sustained by the privaterespondent in the amount of P508,867.00.

The petitioner argues that since at the time of the fire the building insured was worth P5,800,000.00, the privaterespondent should be considered its own insurer for the difference between that amount and the face value of thepolicy and should share pro rata in the loss sustained. Accordingly, the private respondent is entitled to anindemnity of only P67,629.31, the rest of the loss to be shouldered by it alone. In support of this contention, thepetitioner cites Condition 17 of the policy, which provides:

If the property hereby insured shall, at the breaking out of any fire, be collectively of greater value than the suminsured thereon then the insured shall be considered as being his own insurer for the difference, and shall bear aratable proportion of the loss accordingly. Every item, if more than one, of the policy shall be separately subject to

this condition.ISSUE: The only remaining question to be settled is the amount of the indemnity due to the private respondentunder its insurance contract with the petitioner.

HELD: There is no evidence on record that the building was worth P5,800,000.00 at the time of the loss; only thepetitioner says so and it does not back up its self-serving estimate with any independent corroboration. On thecontrary, the building was insured at P2,500,000.00, and this must be considered, by agreement of the insurer andthe insured, the actual value of the property insured on the day the fire occurred. This valuation becomes even morebelievable if it is remembered that at the time the building was burned it was still under construction and not yetcompleted.

The Court notes that Policy RY/F-082 is an open policy and is subject to the express condition that:

Open Policy - This is an open policy as defined in Section 57 of the Insurance Act. In the event of loss, whether totalor partial, it is understood that the amount of the loss shall be subject to appraisal and the liability of the company, if

established, shall be limited to the actual loss, subject to the applicable terms, conditions, warranties and clauses ofthis Policy, and in no case shall exceed the amount of the policy.

As defined in the aforestated provision, which is now Section 60 of the Insurance Code, "an open policy is one inwhich the value of the thing insured is not agreed upon but is left to be ascertained in case of loss. " This means thatthe actual loss, as determined, will represent the total indemnity due the insured from the insurer except only that thetotal indemnity shall not exceed the face value of the policy.

The actual loss has been ascertained in this case and, to repeat, this Court will respect such factual determination inthe absence of proof that it was arrived at arbitrarily. There is no such showing. Hence, applying the open policy


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clause as expressly agreed upon by the parties in their contract, we hold that the private respondent is entitled to thepayment of indemnity under the said contract in the total amount of P508,867.00.

The refusal of its vice-president to receive the private respondent's complaint, as reported in the sheriff's return, wasthe first indication of the petitioner's intention to prolong this case and postpone the discharge of its obligation to theprivate respondent under this agreement. That intention was revealed further in its subsequent acts-or inaction-whichindeed enabled it to avoid payment for more than five years from the filing of the claim against it in 1980. The

petitioner has temporized long enough to avoid its legitimate responsibility; the delay must and does end now.Decision affirmed with costs against petitioners.


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G.R. No. 34774 September 21, 1931

EL ORIENTE FABRICA DE TABACOS, INC., plaintiff-appellant,vs.JUAN POSADAS, Collector of Internal Revenue, defendant-appellee.

That the plaintiff is a domestic corporation duly organized and existing under and by virtue of the laws of thePhilippine Islands, having its principal office at No. 732 Calle Evangelista, Manila, P.I.; and that the defendant is theduly appointed, qualified and acting Collector of Internal Revenue of the Philippine Islands.

2. That on March 18, 1925, plaintiff, in order to protect itself against the loss that it might suffer by reason of thedeath of its manager, A. Velhagen, who had had more than thirty-five (35) years of experience in the manufacture ofcigars in the Philippine Islands, and whose death would be a serious loss to the plaintiff, procured from theManufacturers Life Insurance Co., of Toronto, Canada, thru its local agent E.E. Elser, an insurance policy on the lifeof the said A. Velhagen for the sum of $50,000, United States currency.

3. That the plaintiff, El Oriente, Fabrica de Tabacos, Inc., designated itself as the sole beneficiary of said policy onthe life of its said manager.

4. That during the time the life insurance policy hereinbefore referred to was in force and effect plaintiff paid fromits funds all the insurance premiums due thereon.

5. That the plaintiff charged as expenses of its business all the said premiums and deducted the same from its gross

incomes as reported in its annual income tax returns, which deductions were allowed by the defendant upon ashowing made by the plaintiff that such premiums were legitimate expenses of its (plaintiff's) business.

6. That the said A. Velhagen, the insured, had no interest or participation in the proceeds of said life insurancepolicy.

7. That upon the death of said A. Velhagen in the year 1929, the plaintiff received all the proceeds of the said lifeinsurance policy, together with the interests and the dividends accruing thereon, aggregating P104,957.88.

8. That over the protest of the plaintiff, which claimed exemption under section 4 of the Income Tax Law, thedefendant Collector of Internal Revenue assessed and levied the sum of P3,148.74 as income tax on the proceeds ofthe insurance policy mentioned in the preceding paragraph, which tax the plaintiff paid under instant protest on July2, 1930; and that defendant overruled said protest on July 9, 1930.

ISSUE: Is the proceeds of the Insurance Claim subject to Income Tax?

HELD: Yes.The Income Tax Law for the Philippines is Act No. 2833, as amended. It is divided into four chapters: Chapter I OnIndividuals, Chapter II On Corporations, Chapter III General Administrative Provisions, and Chapter IV GeneralProvisions. In chapter I On Individuals, is to be found section 4 which provides that, "The following incomes shallbe exempt from the provisions of this law: (a) The proceeds of life insurance policies paid to beneficiaries upon thedeath of the insured ... ." Section 10, as amended, in Chapter II On Corporations, provides that, There shall belevied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year fromall sources by every corporation ... a tax of three per centum upon such income ... ." Section 11 in the same chapter,provides the exemptions under the law, but neither here nor in any other section is reference made to the provisionsof section 4 in Chapter I.

Under the view we take of the case, it is sufficient for our purposes to direct attention to the anomalous and vaguecondition of the law. It is certain that the proceeds of life insurance policies are exempt. It is not so certain that theproceeds of life insurance policies paid to corporate beneficiaries upon the death of the insured are likewise exempt.But at least, it may be said that the law is indefinite in phraseology and does not permit us unequivocally to hold thatthe proceeds of life insurance policies received by corporations constitute income which is taxable.

The situation will be better elucidated by a brief reference to laws on the same subject in the United States. TheIncome Tax Law of 1916 extended to the Philippine Legislature, when it came to enact Act No. 2833, to copy theAmerican statute. Subsequently, the Congress of the United States enacted its Income Tax Law of 1919, in whichcertain doubtful subjects were clarified. Thus, as to the point before us, it was made clear, when not only in thepart of the law concerning individuals were exemptions provided for beneficiaries, but also in the part

concerning corporations, specific reference was made to the exemptions in favor of individuals, thereby

making the same applicable to corporations.


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It will be recalled that El Oriente, Fabrica de Tabacos, Inc., took out the insurance on the life of its manager, whohad had more than thirty-five years' experience in the manufacture of cigars in the Philippines, to protect itselfagainst the loss it might suffer by reason of the death of its manager. We do not believe that this fact signifies thatwhen the plaintiff received P104,957.88 from the insurance on the life of its manager, it thereby realized a net profitin this amount. It is true that the Income Tax Law, in exempting individual beneficiaries, speaks of the proceeds oflife insurance policies as income, but this is a very slight indication of legislative intention. In reality, what theplaintiff received was in the nature of an indemnity for the loss which it actually suffered because of the death

of its manager.

Petition Granted.


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G.R. No. L-7667 November 28, 1955

CHERIE PALILEO, plaintiff-appellee,vs.BEATRIZ COSIO, defendant-appellant.

On December 18, 1951, plaintiff obtained from defendant a loan in the sum of P12,000 subject to the followingconditions: (a) that plaintiff shall pay to defendant an interest in the amount of P250 a month; (b) that defendantshall deduct from the loan certain obligations of plaintiff to third persons amounting to P4,550, plus the sum of P250as interest for the first month; and (c) that after making the above deductions, defendant shall deliver to plaintiffonly the balance of the loan of P12,000.

Pursuant to their agreement, plaintiff paid to defendant as interest on the loan a total of P2,250.00 corresponding tonine months from December 18, 1951, on the basis of P250.00 a month, which is more than the maximum interestauthorized by law. To secure the payment of the aforesaid loan, defendant required plaintiff to sign a documentknown as "Conditional Sale of Residential Building", purporting to convey to defendant, with right to repurchase, atwo-story building of strong materials belonging to plaintiff. This document did not express the true intention of theparties which was merely to place said property as security for the payment of the loan.

After the execution of the aforesaid document, defendant insured the building against fire with the AssociatedInsurance & Surety Co., Inc. for the sum of P15,000, the insurance policy having been issued in the name ofdefendant. The building was partly destroyed by fire and, after proper demand, defendant collected from the

insurance company an indemnity of P13,107.00. Plaintiff demanded from defendant that she be credited with thenecessary amount to pay her obligation out of the insurance proceeds but defendant refused to do so.

The trial court ruled for the plaintiff; that the defendant credit the P13,107 to plaintiff.

ISSUE: Does defendant have to refund P1,107 which is the remaining balance from the P13,107 insurance claimdeducted from the loan in the sum of P12,000 notwithstanding the fact that it was not proven that the insurance wastaken for the benefit of the mortgagor?

HELD: No. The rule is that "where a mortgagee, independently of the mortgagor, insures the mortgaged property inhis own name and for his own interest, he is entitled to the insurance proceeds in case of loss, but in such case, he isnot allowed to retain his claim against the mortgagor, but is passed by subrogation to the insurer to the extent of themoney paid." Or, stated in another way, "the mortgagee may insure his interest in the property independently of themortgagor. In that event, upon the destruction of the property the insurance money paid to the mortgagee will notinure to the benefit of the mortgagor, and the amount due under the mortgage debt remains unchanged. The

mortgagee, however, is not allowed to retain his claim against the mortgagor, but it passes by subrogation to theinsurer, to the extent of the insurance money paid."

This is the same rule upheld by this Court in a case that arose in this jurisdiction. In the case mentioned, aninsurance contract was taken out by the mortgagee upon his own interest, it being stipulated that the proceeds wouldbe paid to him only and when the case came up for decision, this Court held that the mortgagee, in case of loss, mayonly recover upon the policy to the extent of his credit at the time of the loss. It was declared that the mortgaged hadno right of action against the mortgagee on the policy.


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G.R. No. 92492 June 17, 1993

THELMA VDA. DE CANILANG, petitioner,vs.HON. COURT OF APPEALS and GREAT PACIFIC LIFE ASSURANCE CORPORATION, respondents.

Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering from "sinus tachycardia." Thedoctor prescribed the following fro him: Trazepam, a tranquilizer; and Aptin, a beta-blocker drug. Mr. Canilangconsulted the same doctor again on 3 August 1982 and this time was found to have "acute bronchitis."

On the next day, Jaime Canilang applied for a "non-medical" insurance policy with respondent Great Pacific LifeAssurance Company ("Great Pacific") naming his wife, Thelma Canilang, as his beneficiary. 1Jaime Canilang wasissued ordinary life insurance Policy No. 345163, with the face value of P19,700, effective as of 9 August 1982.

On 5 August 1983, Jaime Canilang died of "congestive heart failure," "anemia," and "chronic anemia."2Petitioner,

widow and beneficiary of the insured, filed a claim with Great Pacific which the insurer denied on 5 December 1983upon the ground that the insured had concealed material information from it.

Petitioner then filed a complaint against Great Pacific with the Insurance Commission for recovery of the insurance

proceeds. During the hearing called by the Insurance Commissioner, petitioner testified that she was not aware ofany serious illness suffered by her late husband and that, as far as she knew, her husband had died because of akidney disorder.A deposition given by Dr. Wilfredo Claudio was presented by petitioner. There Dr. Claudio statedthat he was the family physician of the deceased Jaime Canilangand that he had previously treated him for "sinustachycardia" and "acute bronchitis." Great Pacific for its part presented Dr. Esperanza Quismorio, a physicianand a medical underwriter working for Great Pacific.She testified that the deceased's insurance application had beenapproved on the basis of his medical declaration.She explained that as a rule, medical examinations are requiredonly in cases where the applicant has indicated in his application for insurance coverage that he has previouslyundergone medical consultation and hospitalization.

In a decision dated 5 November 1985, Insurance Commissioner Armando Ansaldo ordered Great Pacific to payP19,700 plus legal interest and P2,000.00 as attorney's fees.

On appeal by Great Pacific, the Court of Appeals reversed and set aside the decision of the Insurance Commissionerand dismissed Thelma Canilang's complaint and Great Pacific's counterclaim on the ground of concealment.

Petitioner Thelma Canilang is now before this Court on a Petition for Review on Certiorari.

**NOTA BENE** Policy was signed by Insured that he was never treated nor consulted a physician for a heartcondition x x x

ISSUE: Was there concealment?

RULING: Yes.

Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment.

xxx xxx xxx

Sec. 28. Each party to a contract of insurance must communicate to the other, in good faith, all factors within hisknowledge which are material to the contract and as to which he makes no warranty, and which the other has not themeans of ascertaining. (Emphasis supplied)

Under the foregoing provisions, the information concealed must be information which the concealing party knewand "ought to [have] communicate[d]," that is to say, information which was "material to the contract." The test ofmateriality is contained in Section 31 of the Insurance Code of 1978.

"Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per minute." 13The symptoms ofthis condition include pounding in the chest and sometimes faintness and weakness of the person affected. Thefollowing elaboration was offered by Great Pacific and set out by the Court of Appeals in its Decision:

We agree with the Court of Appeals that the information which Jaime Canilang failed to disclose was material to theability of Great Pacific to estimate the probable risk he presented as a subject of life insurance. Had Canilang


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disclosed his visits to his doctor, the diagnosis made and medicines prescribed by such doctor, in the insuranceapplication, it may be reasonably assumed that Great Pacific would have made further inquiries and would haveprobably refused to issue a non-medical insurance policy or, at the very least, required a higher premium for thesame coverage. The materiality of the information withheld by Great Pacific did not depend upon the state of mindof Jaime Canilang. A man's state of mind or subjective belief is not capable of proof in our judicial process, exceptthrough proof of external acts or failure to act from which inferences as to his subjective belief may be reasonablydrawn. Neither does materiality depend upon the actual or physical events which ensue. Materiality relates ratherto the "probable and reasonable influence of the facts" upon the party to whom the communication should

have been made, in assessing the risk involved in making or omitting to make further inquiries and inaccepting the application for insurance; that "probable and reasonable influence of the facts" concealed must, ofcourse, be determined objectively, by the judge ultimately.

In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such that the failure tocommunicate must have been intentional rather than merely inadvertent. For Jaime Canilang could not have beenunaware that his heart beat would at times rise to high and alarming levels and that he had consulted a doctor twicein the two (2) months before applying for non-medical insurance. Indeed, the last medical consultation took placejust the day before the insurance application was filed. In all probability, Jaime Canilang went to visit his doctorprecisely because of the discomfort and concern brought about by his experiencing "sinus tachycardia."

We find it difficult to take seriously the argument that Great Pacific had waived inquiry into the concealment byissuing the insurance policy notwithstanding Canilang's failure to set out answers to some of the questions in the

insurance application. Such failure precisely constituted concealment on the part of Canilang. Petitioner's argument,if accepted, would obviously erase Section 27 from the Insurance Code of 1978.

Petition Denied.

SUN INSURANCE OFFICE LTD. V CA (TAN)


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GR No. 89741

PARAS; March 13, 1991

FACTS

- Private respondent Emilio Tan took from the petitioner a P300, 000 property insurance policy to cover his interest inthe electrical insurance store of his brother housed in a building in Iloilo City. Four days after the issuance of thepolicy, the building including the insured store burned.

- Tan filed his claim for fire loss. Sun Insurance, on February 29, 1984, wrote the private respondent denying theclaim. On April 3, 1984, Tan wrote another letter to the insurance company for reconsideration. In reply, SunInsurance reiterated its denial of the claim.

- On November 20, 1985, Tan filed a civil case with the RTC. Petitioner filed a motion to dismiss on the alleged

ground that the action has already prescribed based on Condition 27 of the Insurance Policy which stated that thewindow to file the appropriate action with either the Insurance Commission or in any court of competent jurisdiction is12 months from the rejection of the claim. RTC denied the petition and the subsequent motion for reconsideration.The CA likewise denied the petition of Sun Insurance.

ISSUE

1. WON the court the filing of a motion for reconsideration interrupts the 12 months prescription period to contest thedenial of the insurance claim?

2. WON the rejection of the claim shall be deemed final only if it contains words to the effect that the denial is final?

HELD

1. NO

- The SC held that Condition 27 of the Insurance policy is very clear and free from any doubt or ambiguity. It has to

be taken in its plain, ordinary, and popular sense. The rejection letter of February 29, 1984 was clear and plain. TheCourt noted that the one year period is likewise in accord with Section 23 of the Insurance Code which states thatany condition which limits the time for commencing an action to a period of less than one year when the cause ofaction accrues is void. The right of action, according to the SC, accrues at the time that the claim is rejected at thefirst instance. A request for reconsideration of the denial cannot suspend the running of the prescriptive period. TheCourt noted that the rationale for the one year period is to ensure that the evidence as to the origin and cause of thedestruction has not yet disappeared.


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2. NO

- The Court clarified its ruling in Eagle Star Insurance Co. vs Chia Yu where it ruled that the cause of action in aninsurance contract does not accrue until the Insureds claim is finally rejected by the Insurer by stating the use of theword finally cannot be construed to mean the rejection of a petition for reconsideration. What the court referred to ineffect is the rejection in the first instance as claimed by Sun Insurance

PACIFIC TIMBER EXPORT CORPORATION v. CA (WORKMENS INSURANCE CO)

112 SCRA 199

DE CASTRO; February 25, 1982

FACTS

The plaintiff secured temporary insurance from the defendant for its exportation of 1,250,000 board feet of PhilippineLauan and Apitong logs to be shipped from the Diapitan Bay, Quezon to Okinawa and Tokyo, Japan. The defendantissued on said date Cover Note insuring the said cargo of the plaintiff. The two (2) regular marine cargo policies wereissued by the defendant in favor of the plaintiff. The total cargo insured under the two marine policies accordinglyconsisted of 1,395 logs, or the equivalent of 1,195,498 bd. ft. After the issuance of cover note but before the issuanceof the two marine policies some of the logs intended to be exported were lost during loading operations in theDiapitan Bay due to bad weather. Through a letter, the plaintiff informed the defendant about the loss. The plaintiffsubsequently submitted a 'Claim Statement' demanding payment of the loss under the second marine cargo policy.

After the necessary inspection, the adjuster reported that 'the loss of 30 pieces of logs is not covered by thetwo policies inasmuch as said policies covered the actual number of logs loaded on board. But it is covered by CoverNote.

Defendant wrote the plaintiff denying the latter's claim, on the ground that defendant's investigation revealedthat the entire shipment of logs covered by the two marines policies were received in good order at their point ofdestination. It was further stated that the said loss may not be considered as covered under cover note because thesaid note had become 'null and void by virtue of the issuance of two marine policies.

ISSUES

1. WON the cover note is null and void for lack of valuable consideration because no separate premiums arecollected by private respondent on all its cover notes?

2. WON the court of appeals erred in holding that private respondent was released from liability under the cover notedue to unreasonable delay in giving notice of loss because the court disregarded the proven fact that private


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respondent did not promptly and specifically object to the claim on the ground of delay in giving notice of loss and,consequently, objections on that ground are waived under Section 84 of the Insurance Act?

HELD

1. NO

Cover note is issued with a consideration when, by express stipulation, the cover note is made subject to the termsand conditions of the marine policies, and the payment of premiums is one of the terms of the policies.

Reasoning

a. The cover note in question is subject to the terms and conditions of the marine policies

b. Nature of the Cover Note: The fact that no separate premium was paid on the Cover Note before the loss insured

against occurred, does not militate against the validity of petitioner's contention, for no such premium could havebeen paid, since by the nature of the Cover Note, it did not contain, as all Cover Notes do not contain particulars ofthe shipment that would serve as basis for the computation of the premiums. As a logical consequence, no separatepremiums are intended or required to be paid on a Cover Note.

c. The petitioner paid in full all the premiums as called for by the statement issued by private respondent after theissuance of the two regular marine insurance policies, thereby leaving no account unpaid by petitioner due on theinsurance coverage, which must be deemed to include the Cover Note. If the Note is to be treated as a separatepolicy instead of integrating it to the regular policies subsequently issued, the purpose and function of the Cover Notewould be set at naught or rendered meaningless, for it is in a real sense a contract, not a mere application forinsurance which is a mere offer. Had all the logs been lost during the loading operations, but after the issuance of theCover Note, liability on the note would have already arisen even before payment of premium. This is how the cover

note as a "binder" should legally operate; otherwise, it would serve no practical purpose in the realm of commerce,and is supported by the doctrine that where a policy is delivered without requiring payment of the premium, thepresumption is that a credit was intended and policy is valid.

2. NO

The private respondent company never raised this ground in the proceedings. It must be because it did not find anydelay, as this Court fails to find a real and substantial sign thereof. But even on the assumption that there was delay,this Court is satisfied and convinced that as expressly provided by law, waiver can successfully be raised againstprivate respondent. Thus Section 84 of the Insurance Act provides:

"Section 84. - Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of hisor if he omits to take objection promptly and specifically upon that ground."

GAISANO CAGAYAN v. INSURANCE Co. OF NORTH AMERICA


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GR No. 147839

Austria-Martinez; June 8, 2006

FACTS

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc.(LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. Both separately obtainedfrom respondent fire insurance policies with book debt endorsements. The insurance policies provide for coverage onbook debts in connection with ready-made clothing materials which have been sold or delivered to variouscustomers and dealers of the Insured anywhere in the Philippines. The policies defined book debts as the unpaidaccount still appearing in the Book of Account of the Insured 45 days after the time of the loss covered under thisPolicy.

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

Respondent filed a complaint for damages against petitioner. Petitioner contends that it could not be heldliable because the property covered by the insurance policies were destroyed due to fortuitous event or forcemajeure; that respondents right of subrogation has no basis inasmuch as there was no breach of contract committedby it since the loss was due to fire which it could not prevent or foresee.

RTC held that the fire was purely accidental; that the cause of the fire was not attributable to the negligenceof the petitioner; that it has not been established that petitioner is the debtor of IMC and LSPI; that since the sales

invoices state that it is further agreed that merely for purpose of securing the payment of purchase price, the above-described merchandise remains the property of the vendor until the purchase price is fully paid, IMC and LSPIretained ownership of the delivered goods and must bear the loss.

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

ISSUES


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1. WON the CA erred in construing a fire insurance policy on book debts as one covering the unpaid accounts of IMCand LSPI since such insurance applies to loss of the ready-made clothing materials sold and delivered to petitioner?

2. WON IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in the salesinvoices that it is further agreed that merely for purpose of securing the payment of the purchase price the abovedescribed merchandise remains the property of the vendor until the purchase price thereof is fully paid?

3. WON the petitioner liable for the unpaid accounts?

HELD

1. NO

- It is well-settled that when the words of a contract are plain and readily understood, there is no room forconstruction. In this case, the questioned insurance policies provide coverage for book debts in connection with

ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insuredanywhere in the Philippines.; and defined book debts as the unpaid account still appearing in the Book of Accountof the Insured 45 days after the time of the loss covered under this Policy. Nowhere is it provided in the questionedinsurance policies that the subject of the insurance is the goods sold and delivered to the customers and dealers ofthe insured.

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

2. NO

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

ART. 1504. Unless otherwise agreed, the goods remain at the sellers risk until the ownership therein is transferredto the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyers risk whetheractual delivery has been made or not, except that:

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

delivery; (Emphasis supplied)

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

- IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment ofthe value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for


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consideration of who bears the risk of loss, in property insurance, ones interest is not determined by concept oftitle, but whether insured has substantial economic interest in the property.

- Section 13 of our Insurance Code defines insurable interest as every interest in property, whether real or personal,or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnifythe insured. Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a)

an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with anexisting interest in that out of which the expectancy arises.

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

3. YES

- Petitioners argument that it is not liable because the fire is a fortuitous event under Article 1174 of the Civil Code ismisplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.

- Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitionersaccounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioners obligation is for thepayment of money. Where the obligation consists in the payment of money, the failure of the debtor to make the

payment even by reason of a fortuitous event shall not relieve him of his liability. The rationale for this is that the rulethat an obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true whenthe obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in caseof fortuitous event. It does not apply when the obligation is pecuniary in nature.

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

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

- With respect to IMC, the respondent has adequately established its claim. The subrogation receipt, by itself, issufficient to establish not only the relationship of respondent as insurer and IMC as the insured, but also the amountpaid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance companyof the insurance claim. Respondents action against petitioner is squarely sanctioned by Article 2207 of the CivilCode which provides:


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Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance companyfor the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall besubrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. x x x

- As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. Moreover, there is no proofof full settlement of the insurance claim of LSPI; no subrogation receipt was offered in evidence. Thus, there is no

evidence that respondent has been subrogated to any right which LSPI may have against petitioner.

SUNLIFE ASSURANCE COMPANY v. CA and SPS. BACANI


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GR No. 105135

QUIASON; June 22, 1995

FACTS

Robert John B. Bacani procured a p100K life insurance contract for himself from SUNLIFE. The designatedbeneficiary was his mother, Bernarda Bacani (respondent). On June 26, 1987, the insured died in a plane crash.Bernarda filed a claim with Sunlife, seeking the benefits of the insurance policy taken by her son. Petitionerconducted an investigation and its findings prompted it to reject the claim on the ground that the insured did notdisclose facts material to the issuance of the policy. Sunlife discovered that two weeks prior to the issuance, insuredwas diagnosed with renal failure, was confined, and underwent tests and that the insured gave false statements inthe application. RTC granted the plea on the ground that that the facts concealed by the insured were made in goodfaith and under the belief that they need not be disclosed, and that the disclosure was not material since the policywas non-medical.

ISSUE

WON the concealment renders the insurance policy rescissible?

HELD

YES

The terms of the contract are clear. The insured is specifically required to disclose to the insurer matters relating tohis health.

Reasoning

SEC. 26 (IC)

A neglect to communicate that which a party knows and ought to communicate, is called a concealment.

SEC. 31 (IC)

Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the factsupon the party to whom communication is due, in forming his estimate of the disadvantages of the proposedcontract or in making his inquiries


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- The information which the insured failed to disclose was material and relevant to the approval and the issuance ofthe insurance policy. The matters concealed would have definitely affected petitioner's action on his application,either by approving it with the corresponding adjustment for a higher premium or rejecting the same.

- Good faith is no defense in concealment. It appears that such concealment was deliberate on the part of theinsured.

- The waiver of a medical examination [in a non-medical insurance contract] renders even more material theinformation required of the applicant concerning previous condition of health and diseases suffered, for suchinformation necessarily constitutes an important factor which the insurer takes into consideration in deciding whetherto issue the policy or not.

- Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is well settled thatthe insured need not die of the disease he had failed to disclose to the insurer. It is sufficient that his non-disclosuremisled the insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries


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TAN v. CA (PHILIPPINE AMERICAN LIFE INSURANCE COMPANY)

GR No. 48049

GUTIERREZ; June 29, 1989

FACTS

On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for life insurance in the amountof P 80,000.00 with respondent company. Said application was approved and was issued effective November 6,1973. On April 26,1975, Tan Lee Siong died of hepatoma. Petitioners then filed with respondent company their claimfor the proceeds of the life insurance policy

Respondent company denied petitioners' claim and rescinded the policy by reason of the allegedmisrepresentation and concealment of material facts made by the deceased Tan Lee Siong in his application for

insurance. The premiums paid on the policy were thereupon refunded.

ISSUE

WON according to Sec. 48 of the Insurance Code, insurance company is barred from rescinding contract?

HELD

NO

- According to the petitioners, the Insurance Law was amended and the second paragraph of Section 48 added toprevent the insurance company from exercising a right to rescind after the death of the insured

- The so-called "incontestability clause" precludes the insurer from raising the defenses of false representations orconcealment of material facts insofar as health and previous diseases are concerned if the insurance has been inforce for at least two years during the insured's lifetime. The phrase "during the lifetime" found in Section 48 simplymeans that the policy is no longer considered in force after the insured has died. The key phrase in the secondparagraph of Section 48 is "for a period of two years."

- The policy was issued on November 6, 1973 and the insured died on April 26, 1975. The policy was thus in force fora period of only one year and five months. Considering that the insured died before the two-year period had lapsed,respondent company is not, therefore, barred from proving that the policy is void ab initio by reason of the insured'sfraudulent concealment or misrepresentation.

-The legislative answer to the arguments posed by the petitioners is the "incontestability clause" added by the secondparagraph of Section 48. The insurer has two years from the date of issuance of the insurance contract or of its lastreinstatement within which to contest the policy, whether or not, the insured still lives within such period. After twoyears, the defenses of concealment or misrepresentation, no matter how patent or well founded, no longer lie.


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MAKATI TUSCANY v. CA ( AMERICAN HOME ASSURANCE CO.)

GR No. 95546

BELLOSILLO; November 6, 1992

FACTS

American Home Assurance Co. (AHAC), represented by American International Underwriters (Phils.), Inc., issuedin favor of petitioner Makati Tuscany Condominium Corporation an insurance policy on the latter's building andpremises, for the period 1 March 1982 to1 March 1983. The premium was paid on installments all of which wereaccepted by AHAC. A second policy and third policies were issued to renew the first one, this time covering theperiod 1 March 1983 to 1 March 1984 and 1 March 1984 to 1 March 1985, respectively. For this, petitioner made two

installment payments, both accepted by AHAC. Thereafter, petitioner refused to pay the balance of the premium.AHAC filed an action to recover the unpaid balance of P314,103.05.

Petitioner explained that it discontinued the payment of premiums because the policy did not contain a creditclause in its favor and the receipts for the installment payments covering the policy for 1984-85, as well as the two (2)previous policies, stated the following reservations:

2. Acceptance of this payment shall not waive any of the company rights to deny liability on any claim under thepolicy arising before such payments or after the expiration of the credit clause of the policy; and

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

- Petitioner further claimed that the policy was never binding and valid, and no risk attached to the policy. It thenpleaded a counterclaim for P152k for the premiums already paid for 1984-85, and in its answer with amendedcounterclaim, sought the refund of P924,206.10 representing the premium payments for 1982-85.

- Trial court dismissed the complaint and the counterclaim upon the following findings: (1) payment of the premiumsof the three policies were made during the term of said policies, hence, it could not be said, in spite of thereservations, that no risk attached under the policies; (2) as regards the unpaid premiums, in view of the reservationin the receipts ordinarily issued by AHAC on premium payments the only plausible conclusion is that AHAC has noright to demand their payment after the lapse of the term of said policy on March 1, 1985. Therefore, Tuscany was

justified in refusing to pay the same.

- CA modified the decision by ordering Tuscany to pay the balance of the premiums due on the third policy plus legal

interest until fully paid, and affirming the denial of the counterclaim.

ISSUE

WON payment by installment of the premiums due on an insurance policy invalidates the contract of insurance?


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HELD

NO

Ratio Where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiumspaid if the insurer was exposed to the risk insured for any period, however brief or momentary.

Reasoning

- The obligation to pay premiums when due is ordinarily an indivisible obligation to pay the entire premium. Here, theparties herein agreed to make the premiums payable in installments, and there is no pretense that the parties neverenvisioned to make the insurance contract binding between them. And the insured never informed the insurer that itwas terminating the policy because the terms were unacceptable.

- There is nothing in Section 77 which suggests that the parties may not agree to allow payment of the premiums ininstallment, or to consider the contract as valid and binding upon payment of the first premium.

- The records clearly show that petitioner and private respondent intended subject insurance policies to be bindingand effective notwithstanding the staggered payment of the premiums. Acceptance of payments speaks loudly of theinsurer's intention to honor the policies it issued to petitioner.

- Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making anacknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to makethe policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties fromstipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement

granting credit extension, and such an agreement is not contrary to morals, good customs, public order or publicpolicy.

- At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarilyaccepted.


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