Insurance Cases Set 1

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[G.R. No. 125678. March 18, 2002]

PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and

JULITA TRINOS, respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health

care coverage with petitioner Philamcare Health Systems, Inc. In the standard

application form, he answered no to the following question:

Have you or any of your family members ever consulted or been treated for high blood

pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes,

give details).[1]

The application was approved for a period of one year from March 1, 1988 to

March 1, 1989. Accordingly, he was issued Health Care Agreement No. P010194. Under

the agreement, respondents husband was entitled to avail of hospitalization benefits,

whether ordinary or emergency, listed therein. He was also entitled to avail of out-

patient benefits such as annual physical examinations, preventive health care and other

out-patient services.

Upon the termination of the agreement, the same was extended for another year

from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The

amount of coverage was increased to a maximum sum of P75,000.00 per disability.[2]

During the period of his coverage, Ernani suffered a heart attack and was confined

at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While herhusband was in the hospital, respondent tried to claim the benefits under the health care

agreement. However, petitioner denied her claim saying that the Health Care Agreement

was void. According to petitioner, there was a concealment regarding Ernanis medical

history. Doctors at the MMC allegedly discovered at the time of Ernanis confinementthat he was hypertensive, diabetic and asthmatic, contrary to his answer in the

application form. Thus, respondent paid the hospitalization expenses herself, amounting

to about P76,000.00.

After her husband was discharged from the MMC, he was attended by a physical

therapist at home. Later, he was admitted at the Chinese General Hospital. Due to

financial difficulties, however, respondent brought her husband home again. In the

morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent was

constrained to bring him back to the Chinese General Hospital where he died on the

same day.

On July 24, 1990, respondent instituted with the Regional Trial Court of Manila,

Branch 44, an action for damages against petitioner and its president, Dr. Benito

Reverente, which was docketed as Civil Case No. 90-53795. She asked forreimbursement of her expenses plus moral damages and attorneys fees. After trial, the

lower court ruled against petitioners, viz:

WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiffJulita Trinos, ordering:

1. Defendants to pay and reimburse the medical and hospital coverage of the late

Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to

plaintiff who paid the same;

2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

3. Defendants to pay the reduced amount ofP10,000.00 as exemplary damages to

plaintiff;

4. Defendants to pay attorneys fees of P20,000.00, plus costs of suit.

SO ORDERED.[3]

On appeal, the Court of Appeals affirmed the decision of the trial court but deleted

all awards for damages and absolved petitioner Reverente.[4]Petitioners motion for

reconsideration was denied.[5]Hence, petitioner brought the instant petition for review,

raising the primary argument that a health care agreement is not an insurance contract;

hence the incontestability clause under the Insurance Code[6]does not apply.

Petitioner argues that the agreement grants living benefits, such as medical

check-ups and hospitalization which a member may immediately enjoy so long as he is

alive upon effectivity of the agreement until its expiration one-year thereafter. Petitioner

also points out that only medical and hospitalization benefits are given under the

agreement without any indemnification, unlike in an insurance contract where the

insured is indemnified for his loss. Moreover, since Health Care Agreements are only for

a period of one year, as compared to insurance contracts which last longer ,[7]petitioner

argues that the incontestability clause does not apply, as the same requires an effectivity

period of at least two years. Petitioner further argues that it is not an insurance

company, which is governed by the Insurance Commission, but a Health MaintenanceOrganization under the authority of the Department of Health.

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement

whereby one undertakes for a consideration to indemnify another against loss, damage

or liability arising from an unknown or contingent event. An insurance contract exists

where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated

peril;
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3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual

losses among a large group of persons bearing a similar risk; and

5. In consideration of the insurers promise, the insured p ays a premium.[8]

Section 3 of the Insurance Code states that any contingent or unknown event,

whether past or future, which may damnify a person having an insurable interest against

him, may be insured against. Every person has an insurable interest in the life

and health of himself. Section 10 provides:

Every person has an insurable interest in the life and health:

(1) of himself, of his spouse and of his children;

(2) of any person on whom he depends wholly or in part for education or

support, or in whom he has a pecuniary interest;

(3) of any person under a legal obligation to him for the payment of money,

respecting property or service, of which death or illness might delay

or prevent the performance; and

(4) of any person upon whose life any estate or interest vested in him

depends.

In the case at bar, the insurable interest of respondents husband in obtaining the

health care agreement was his own health. The health care agreement was in the nature

of non-life insurance, which is primarily a contract of indemnity .[9]Once the member

incurs hospital, medical or any other expense arising from sickness, injury or otherstipulated contingent, the health care provider must pay for the same to the extent

agreed upon under the contract.

Petitioner argues that respondents husband concealed a material fact in his

application. It appears that in the application for health coverage, petitioners required

respondents husband to sign an express authorization for any person, organization orentity that has any record or knowledge of his health to furnish any and all information

relative to any hospitalization, consultation, treatment or any other medical advice or

examination.[10]Specifically, the Health Care Agreement signed by respondents husband

states:

We hereby declare and agree that all statement and answers contained herein and in anyaddendum annexed to this application are full, complete and true and bind all parties in

interest under the Agreement herein applied for, that there shall be no contract of health

care coverage unless and until an Agreement is issued on this application and the full

Membership Fee according to the mode of payment applied for is actually paid during

the lifetime and good health of proposed Members; that no information acquired by any

Representative of PhilamCare shall be binding upon PhilamCare unless set out in writing

in the application; that any physician is, by these presents, expressly authorized todisclose or give testimony at anytime relative to any information acquired by him in his

professional capacity upon any question affecting the eligibility for health care coverage

of the Proposed Members and that the acceptance of any Agreement issued on this

application shall be a ratification of any correction in or addition to this application as

stated in the space for Home Office Endorsement.[11](Underscoring ours)

In addition to the above condition, petitioner additionally required the applicant

for authorization to inquire about the applicants medical history, thus:

I hereby authorize any person, organization, or entity that has any record or knowledge

of my health and/or that of __________ to give to the PhilamCare Health Systems, Inc. any

and all information relative to any hospitalization, consultation, treatment or any other

medical advice or examination. This authorization is in connection with the application

for health care coverage only. A photographic copy of this authorization shall be as valid

as the original.[12](Underscoring ours)

Petitioner cannot rely on the stipulation regarding Invalidation of agreement

which reads:

Failure to disclose or misrepresentation of any material information by the member in

the application or medical examination, whether intentional or unintentional, shall

automatically invalidate the Agreement from the very beginning and liability of

Philamcare shall be limited to return of all Membership Fees paid. An undisclosed ormisrepresented information is deemed material if its revelation would have resulted in

the declination of the applicant by Philamcare or the assessment of a higher Membership

Fee for the benefit or benefits applied for.[13]

The answer assailed by petitioner was in response to the question relating to the

medical history of the applicant. This largely depends on opinion rather than fact,

especially coming from respondents husband who was not a medical doctor. Where

matters of opinion or judgment are called for, answers made in good faith and without

intent to deceive will not avoid a policy even though they are untrue.[14]Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or

judgment of the insured will not avoid the policy if there is no actual fraud in inducing

the acceptance of the risk, or its acceptance at a lower rate of premium, and this is

likewise the rule although the statement is material to the risk, if the statement is

obviously of the foregoing character, since in such case the insurer is not justified in

relying upon such statement, but is obligated to make further inquiry. There is a clear

distinction between such a case and one in which the insured is fraudulently and

intentionally states to be true, as a matter of expectation or belief, that which he then

knows, to be actually untrue, or the impossibility of which is shown by the facts within

his knowledge, since in such case the intent to deceive the insurer is obvious and

amounts to actual fraud.[15](Underscoring ours)

The fraudulent intent on the part of the insured must be established to warrant

rescission of the insurance contract.[16]Concealment as a defense for the health care

provider or insurer to avoid liability is an affirmative defense and the duty to establish

such defense by satisfactory and convincing evidence rests upon the provider or
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insurer. In any case, with or without the authority to investigate, petitioner is liable for

claims made under the contract. Having assumed a responsibility under the agreement,

petitioner is bound to answer the same to the extent agreed upon. In the end, the

liability of the health care provider attaches once the member is hospitalized for the

disease or injury covered by the agreement or whenever he avails of the covered benefits

which he has prepaid.

Under Section 27 of the Insurance Code, a concealment entitles the injured partyto rescind a contract of insurance. The right to rescind should be exercised previous to

the commencement of an action on the contract.[17]In this case, no rescission was

made. Besides, the cancellation of health care agreements as in insurance policies

require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or

more of the grounds mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the

policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Codeand upon request of insured, to furnish facts on which cancellation is based.[18]

None of the above pre-conditions was fulfilled in this case. When the terms of

insurance contract contain limitations on liability, courts should construe them in such a

way as to preclude the insurer from non-compliance with his obligation.[19]Being a

contract of adhesion, the terms of an insurance contract are to be construed strictly

against the party which prepared the contract the insurer.[20]By reason of the exclusive

control of the insurance company over the terms and phraseology of the insurance

contract, ambiguity must be strictly interpreted against the insurer and liberally in favor

of the insured, especially to avoid forfeiture.[21]This is equally applicable to Health CareAgreements. The phraseology used in medical or hospital service contracts, such as the

one at bar, must be liberally construed in favor of the subscriber, and if doubtful or

reasonably susceptible of two interpretations the construction conferring coverage is tobe adopted, and exclusionary clauses of doubtful import should be strictly construed

against the provider.[22]

Anent the incontestability of the membership of respondents husband, we quote

with approval the following findings of the trial court:

(U)nder the title Claim procedures of expenses, the defendant Philamcare Health

Systems Inc. had twelve months from the date of issuance of the Agreement within which

to contest the membership of the patient if he had previous ailment of asthma, and six

months from the issuance of the agreement if the patient was sick of diabetes or

hypertension. The periods having expired, the defense of concealment or

misrepresentation no longer lie.[23]

Finally, petitioner alleges that respondent was not the legal wife of the deceased

member considering that at the time of their marriage, the deceased was previously

married to another woman who was still alive. The health care agreement is in the

nature of a contract of indemnity. Hence, payment should be made to the party who

incurred the expenses. It is not controverted that respondent paid all the hospital and

medical expenses. She is therefore entitled to reimbursement. The records adequately

prove the expenses incurred by respondent for the deceaseds hospitalization,

medication and the professional fees of the attending physicians.[24]

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

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

SO ORDERED.
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G.R. No. 146942 April 22, 2003

CORAZON G. RUIZ, petitioner,

vs.

COURT OF APPEALS and CONSUELO TORRES, respondents.

PUNO,J.:

On appeal is the decision1 of the Court of Appeals in CA-G.R. CV No. 56621 dated 25

August 2000, setting aside the decision2 of the trial court dated 19 May 1997 and lifting

the permanent injunction on the foreclosure sale of the subject lot covered by TCT No.

RT-96686, as well as its subsequent Resolution3 dated 26 January 2001, denying

petitioners Motion for Reconsideration.

The facts of the case are as follows:

Petitioner Corazon G. Ruiz is engaged in the business of buying and selling jewelry.4 She

obtained loans from private respondent Consuelo Torres on different occasions, in the

following amounts: P100,000.00; P200,000.00; P300,000.00; and P150,000.00.5 Prior to

their maturity, the loans were consolidated under one (1) promissory note dated March

22, 1995, which reads as follows:6

"P750,000.00 Quezon City, March 22,

1995

PROMISSORY NOTE

For value received, I, CORAZON RUIZ, as principal and ROGELIO RUIZ as surety

in solidum, jointly and severally promise to pay to the order of CONSUELO P.

TORRES the sum of SEVEN HUNDRED FIFTY THOUSAND PESOS (P750,000.00)

Philippine Currency, to earn an interest at the rate of three per cent (3%) amonth, for thirteen months, payable every _____ of the month, and to start

on April 1995 and to mature on April 1996, subject to renewal.

If the amount due is not paid on date due, a SURCHARGE of ONE PERCENT of

the principal loan, for every month default, shall be collected.

Remaining balance as of the maturity date shall earn an interest at the rate of

ten percent a month, compounded monthly.

It is finally agreed that the principal and surety in solidum, shall pay attorneys

fees at the rate of twenty-five percent (25%) of the entire amount to be

collected, in case this note is not paid according to the terms and conditions setforth, and same is referred to a lawyer for collection.

In computing the interest and surcharge, a fraction of the month shall be

considered one full month.

In the event of an amicable settlement, the principal and surety in solidum shallreimburse the expenses of the plaintiff.

(Sgd.) Corazon Ruiz

Principal

__________________

Surety"

The consolidated loan of P750,000.00 was secured by a real estate mortgage on a 240-

square meter lot in New Haven Village, Novaliches, Quezon City, covered by Transfer

Certificate of Title (TCT) No. RT-96686, and registered in the name of petitioner.7 The

mortgage was signed by Corazon Ruiz for herself and as attorney-in-fact of her husband

Rogelio. It was executed on 20 March 1995, or two (2) days before the execution of the

subject promissory note.8

Thereafter, petitioner obtained three (3) more loans from private respondent, under the

following promissory notes: (1) promissory note dated 21 April 1995, in the amount of

P100,000.00;9 (2) promissory note dated May 23, 1995, in the amount of

P100,000.00;10 and (3) promissory note dated December 21, 1995, in the amount of

P100,000.00. 11 These combined loans of P300,000.00 were secured by P571,000.00

worth of jewelry pledged by petitioner to private respondent.12

From April 1995 to March 1996, petitioner paid the stipulated 3% monthly interest onthe P750,000.00 loan,13amounting to P270,000.00.14 After March 1996, petitioner was

unable to make interest payments as she had difficulties collecting from her clients in her

jewelry business.15

Due to petitioners failure to pay the principal loan of P750,000.00, as well as the interest

payment for April 1996, private respondent demanded payment not only of the

P750,000.00 loan, but also of the P300,000.00 loan.16When petitioner failed to pay,

private respondent sought the extra-judicial foreclosure of the aforementioned real

estate mortgage.17

On September 5, 1996, Acting Clerk of Court and Ex-Officio Sheriff Perlita V. Ele, Deputy

Sheriff In-Charge Rolando G. Acal and Supervising Sheriff Silverio P. Bernas issued a

Notice of Sheriffs Sale of subject lot. The public auction was scheduled on October 8,

1996.18

On October 7, 1996, one (1) day before the scheduled auction sale, petitioner filed a

complaint with the RTC of Quezon City docketed as Civil Case No. Q-96-29024, with a

prayer for the issuance of a Temporary Restraining Order to enjoin the sheriff from

proceeding with the foreclosure sale and to fix her indebtedness to private respondent to

P706,000.00. The computed amount of P706,000.00 was based on the aggregate loan of

P750,000.00, covered by the March 22, 1995 promissory note, plus the other loans of

P300,000.00, covered by separate promissory notes, plus interest, minus P571,000.00

representing the amount of jewelry pledged in favor of private respondent.19


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I

We hold that the promissory note in the case at bar is not a contract of adhesion. In Sweet

Lines, Inc. vs. Teves,34this Court discussed the nature of a contract of adhesion as follows:

". . . there are certain contracts almost all the provisions of which have been

drafted only by one party, usually a corporation. Such contracts are

called contracts of adhesion, because the only participation of the other party is

the signing of his signature or his adhesion thereto. Insurance contracts, bills

of lading, contracts of sale of lots on the installment plan fall into this

category.35

" . . . it is drafted only by one party, usually the corporation, and is sought to be

accepted or adhered to by the other party . . . who cannot change the same and

who are thus made to adhere hereto on the take it or leave it basis . . . "36

In said case ofSweet Lines,37 the conditions of the contract on the 4 x 6 inches passenger

ticket are in fine print. Thus we held:

" . . . it is hardly just and proper to expect the passengers to examine their

tickets received from crowded/congested counters, more often than not during

rush hours, for conditions that may be printed thereon, much less charge themwith having consented to the conditions, so printed, especially if there are a

number of such conditions in fine print, as in this case."38

We further stressed in the said case that the questioned Condition No. 14 was prepared

solely by one party which was the corporation, and the other party who was then apassenger had no say in its preparation. The passengers have no opportunity to examine

and consider the terms and conditions of the contract prior to the purchase of their

tickets.39

In the case at bar, the promissory note in question did not contain any fine print

provision which could not have been examined by the petitioner. Petitioner had all the

time to go over and study the stipulations embodied in the promissory note. Aside fromthe March 22, 1995 promissory note for P750,000.00, three other promissory notes of

different dates and amounts were executed by petitioner in favor of private respondent.

These promissory notes contain similar terms and conditions, with a little variance in theterms of interests and surcharges. The fact that petitioner and private respondent had

entered into not only one but several loan transactions shows that petitioner was not in

any way compelled to accept the terms allegedly imposed by private respondent.

Moreover, petitioner, in her complaint40 dated October 7, 1996 filed with the trial court,

never claimed that she was forced to sign the subject note. Paragraph five of her

complaint states:

"That on or about March 22, 1995 plaintiff was required by the defendant

Torres to execute a promissory note consolidating her unpaid principal loan

and interests which said defendant computed to be in the sum of P750,000.00 . .."

To be required is certainly different from being compelled. She could have rejected the

conditions made by private respondent. As an experienced business- woman, she ought

to understand all the conditions set forth in the subject promissory note. As held by

this Court in Lee, et al. vs. Court of Appeals, et al.,41 it is presumed that a person takes

ordinary care of his concerns.42 Hence, the natural presumption is that one does not sign

a document without first informing himself of its contents and consequences. This

presumption acquires greater force in the case at bar where not only one but several

documents were executed at different times by petitioner in favor of private respondent.

II

We also affirm the ruling of the appellate court that the real property covered by the

subject deed of mortgage is paraphernal property. The property subject of the mortgage

is registered in the name of "Corazon G. Ruiz, of legal age, married to Rogelio Ruiz,

Filipinos." Thus, title is registered in the name of Corazon alone because the phrase

"married to Rogelio Ruiz" is merely descriptive of the civil status of Corazon and should

not be construed to mean that her husband is also a registered owner. Furthermore,

registration of the property in the name of "Corazon G. Ruiz, of legal age, married to

Rogelio Ruiz" is not proof that such property was acquired during the marriage, and

thus, is presumed to be conjugal. The property could have been acquired by Corazon

while she was still single, and registered only after her marriage to Rogelio Ruiz.

Acquisition of title and registration thereof are two different acts.43 The presumption

under Article 116 of the Family Code that properties acquired during the marriage arepresumed to be conjugal cannot apply in the instant case. Before such presumption can

apply, it must first be established that the property was in fact acquired during the

marriage. In other words, proof of acquisition during the marriage is a condition sine qua

non for the operation of the presumption in favor of conjugal ownership.44 No such proof

was offered nor presented in the case at bar. Thus, on the basis alone of the certificate oftitle, it cannot be presumed that said property was acquired during the marriage and

that it is conjugal property. Since there is no showing as to when the property in

question was acquired, the fact that the title is in the name of the wife alone is

determinative of its nature as paraphernal, i.e., belonging exclusively to said

spouse.45 The only import of the title is that Corazon is the owner of said property, the

same having been registered in her name alone, and that she is married to Rogelio Ruiz.46

III

We now resolve the issue of whether the rates of interests and surcharges on the

obligation of petitioner to private respondent are legal.

The four (4) unpaid promissory notes executed by petitioner in favor of private

respondent are in the following amounts and maturity dates:

(1) P750,000.00, dated March 22, 1995 matured on April 21, 1996;

(2) P100,000.00, dated April 21, 1995 matured on August 21, 1995;

(3) P100,000.00, dated May 23, 1995 matured on November 23, 1995; and


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(4) P100,000.00, dated December 21, 1995 matured on March 1, 1996.

The P750,000.00 promissory note dated March 22, 1995 has the following provisions:

(1) 3% monthly interest, from the signing of the note until i ts maturity date;

(2) 10% compounded monthly interest on the remaining balance at maturity

date;

(3) 1% surcharge on the principal loan for every month of default; and

(4) 25% attorneys fees.

The P100,000.00 promissory note dated April 21, 1995 has the following provisions:

(1) 3% monthly interest, from the signing of the note until its maturity date;

(2) 10% monthly interest on the remaining balance at maturity date;

(3) 1% compounded monthly surcharge on the principal loan for every month

of default; and


The two (2) other P100,000.00 promissory notes dated May 23, 1995 and December 1,

1995 have the following provisions:

(1) 3% monthly interest, from the signing of the note until its maturity date;

(2) 10% compounded monthly interest on the remaining balance at maturitydate;

(3) 10% surcharge on the principal loan for every month of default; and


We affirm the ruling of the appellate court, striking down as invalid the 10%

compounded monthly interest, the 10% surcharge per month stipulated in the

promissory notes dated May 23, 1995 and December 1, 1995, and the 1% compounded

monthly interest stipulated in the promissory note dated April 21, 1995. The legal rate of

interest of 12% per annum shall apply a fter the maturity dates of the notes until full

payment of the entire amount due. Also, the only permissible rate of surcharge is 1% per

month, without compounding. We also uphold the award of the appellate court of

attorneys fees, the amount of which having been reasonably reduced from the stipulated

25% (in the March 22, 1995 promissory note) and 10% (in the other three promissory

notes) of the entire amount due, to a fixed amount of P50,000.00. However, we equitably

reduce the 3% per month or 36% per annum interest present in all four (4) promissory

notes to 1% per month or 12% per annum interest.

The foregoing rates of interests and surcharges are in accord with Medel vs. Court of

Appeals,47Garcia vs. Court of Appeals,48Bautista vs. Pilar Development Corporation,49 and

the recent case ofSpouses Solangon vs. Salazar.50 This Court invalidated a stipulated

5.5% per month or 66% per annum interest on a P500,000.00 loan in Medel 51 and a 6%

per month or 72% per annum interest on a P60,000.00 loan in Solangon52 for being

excessive, iniquitous, unconscionable and exorbitant. In both cases, we reduced theinterest rate to 12% per annum. We held that while the Usury Law has been suspended

by Central Bank Circular No. 905, s. 1982, effective on January 1, 1983, and parties to a

loan agreement have been given wide latitude to agree on any interest rate, still

stipulated interest rates are illegal if they are unconscionable. Nothing in the said

circular grants lenders carte blanche authority to raise interest rates to levels which will

either enslave their borrowers or lead to a hemorrhaging of their assets.53 On the other

hand, in Bautista vs. Pilar Development Corp .,54 this Court upheld the validity of a 21%

per annum interest on a P142,326.43 loan, and in Garcia vs. Court of Appeals, sustainedthe agreement of the parties to a 24% per annum interest on an P8,649,250.00 loan. It is

on the basis of these cases that we reduce the 36% per annum interest to 12%. An

interest of 12% per annum is deemed fair and reasonable. While it is true that this Court

invalidated a much higher interest rate of 66% per annum in Medel55 and 72%

inSolangon56 it has sustained the validity of a much lower interest rate of 21%in Bautista57 and 24% in Garcia.58We still find the 36% per annum interest rate in the

case at bar to be substantially greater than those upheld by this Court in the two (2)

aforecited cases.

The 1% surcharge on the principal loan for every month of default is valid. Thissurcharge or penalty stipulated in a loan agreement in case of default partakes of the

nature of liquidated damages under Art. 2227 of the New Civil Code, and is separate and

distinct from interest payment.59 Also referred to as a penalty clause, it is expressly

recognized by law. It is an accessory undertaking to assume greater liability on the part

of an obligor in case of breach of an obligation.60 The obligor would then be bound to pay

the stipulated amount of indemnity without the necessity of proof on the existence and

on the measure of damages caused by the breach.61 Although the courts may not at

liberty ignore the freedom of the parties to agree on such terms and conditions as theysee fit that contravene neither law nor morals, good customs, public order or public

policy, a stipulated penalty, nevertheless, may be equitably reduced if it is iniquitous or

unconscionable.62 In the instant case, the 10% surcharge per month stipulated in the

promissory notes dated May 23, 1995 and December 1, 1995 was properly reduced by

the appellate court.

In sum, petitioner shall pay private respondent the following:

1. Principal of loan under promissory note dated March 22, 1995 P750,000.00

a. 1% interest per month on principal from March 22, 1995

until fully paid, less P270,000.00 paid by petitioner as


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interest from April 1995 to March 1996

b. 1% surcharge per month on principal from May 1996 until

fully paid

2. Principal of loan under promissory note dated April 21, 1995 P100,000.00

a. 1% interest per month on principal from April 21, 1995 until

fully paid

b. 1% surcharge per month on principal from September 1995

until fully paid

3. Principal of loan under promissory note dated May 23, 1995 P100,000.00

a. 1% interest per month on principal from May 23, 1995 until

fully paid

b. 1% surcharge per month on principal from December 1995

until fully paid

4. Principal of loan under promissory note dated December 1, 1995 P100,000.00

a. 1% interest per month on principal from December 1, 1995

until fully paid

b. 1% surcharge per month on principal from April 1996 until

fully paid

5. Attorneys fees P 50,000.00

Hence, since the mortgage is valid and the loan it secures remains unpaid, theforeclosure proceedings may now proceed.

IN VIEW WHEREOF, the appealed Decision of the Court of Appeals is AFFIRMED, subjectto the MODIFICATION that the interest rate of 36% per annum is ordered reduced to 12

% per annum.

SO ORDERED.


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G.R. No. 156167 May 16, 2005

GULF RESORTS, INC., petitioner,

vs.PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.

D E C I S I O N

PUNO,J.:

Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of Court

by petitioner GULF RESORTS, INC., against respondent PHILIPPINE CHARTER

INSURANCE CORPORATION. Petitioner assails the appellate court decision1which

dismissed its two appeals and affirmed the judgment of the trial court.

For review are the warring interpretations of petitioner and respondent on the scope of

the insurance companys liability for earthquake damage to petitioners properties.

Petitioner avers that, pursuant to its earthquake shock endorsement rider, Insurance

Policy No. 31944 covers all damages to the properties within its resort caused by

earthquake. Respondent contends that the rider limits its liability for loss to the two

swimming pools of petitioner.

The facts as established by the courta quo, and affirmed by the appellate court are as

follows:

[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had

its properties in said resort insured originally with the American Home

Assurance Company (AHAC-AIU). In the first four insurance policies issued by

AHAC-AIU from 1984-85; 1985-86; 1986-1987; and 1987-88 (Exhs. "C", "D",

"E" and "F"; also Exhs. "1", "2", "3" and "4" respectively), the risk of loss from

earthquake shock was extended only to plaintiffs two swimming pools, thus,

"earthquake shock endt." (Item 5 only) (Exhs. "C-1"; "D-1," and "E" and two (2)

swimming pools only (Exhs. "C-1"; D-1", "E" and "F-1"). "Item 5" in those

policies referred to the two (2) swimming pools only (Exhs. "1-B", "2-B", "3-B"and "F-2"); that subsequently AHAC(AIU) issued in plaintiffs favor Policy No.

206-4182383-0 covering the period March 14, 1988 to March 14, 1989 (Exhs.

"G" also "G-1") and in said policy the earthquake endorsement clause asindicated in Exhibits "C-1", "D-1", Exhibits "E" and "F-1" was deleted and the

entry under Endorsements/Warranties at the time of issue read that plaintiff

renewed its policy with AHAC (AIU) for the period of March 14, 1989 to March

14, 1990 under Policy No. 206-4568061-9 (Exh. "H") which carried the entry

under "Endorsement/Warranties at Time of Issue", which read "Endorsement

to Include Earthquake Shock (Exh. "6-B-1") in the amount of P10,700.00 and

paid P42,658.14 (Exhs. "6-A" and "6-B") as premium thereof, computed as

follows:

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

@ .392%;

- 1,500,000.00 - on the furniture, etc. contained in t

mentioned@ .490%;

- 393,000.00 - on the two swimming pools, only (

earthquake shock only) @ 0.100%

- 116,600.00 other buildings include as follows:

a) Tilter House - P19,800.00 - 0.551%

b) Power House - P41,000.00 - 0.551%

c) House Shed - P55,000.00 - 0.540%

P100,000.00 - for furniture, fixtures, lines air-con

that plaintiff agreed to insure with defendant the properties covered by AHAC

(AIU) Policy No. 206-4568061-9 (Exh. "H") provided that the policy wording

and rates in said policy be copied in the policy to be issued by defendant; that

defendant issued Policy No. 31944 to plaintiff covering the period of March 14,

1990 to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92

(Exh. "I"); that in the computation of the premium, defendants Policy No.

31944 (Exh. "I"), which is the policy in question, contained on the right-hand

upper portion of page 7 thereof, the following:

Rate-Various

Premium P37,420.60 F/L

2,061.52 Typhoon

1,030.76 EC

393.00 ES

Doc. Stamps 3,068.10

F.S.T. 776.89

Prem. Tax 409.05

TOTAL 45,159.92;

that the above break-down of premiums shows that plaintiff paid only P393.00

as premium against earthquake shock (ES); that in all the six insurance policies

(Exhs. "C", "D", "E", "F", "G" and "H"), the premium against the peril of

earthquake shock is the same, that is P393.00 (Exhs. "C" and "1-B"; "2-B" and

"3-B-1" and "3-B-2"; "F-02" and "4-A-1"; "G-2" and "5-C-1"; "6-C-1"; issued by

AHAC (Exhs. "C", "D", "E", "F", "G" and "H") and in Policy No. 31944 issued by

defendant, the shock endorsement provide(sic):

In consideration of the payment by the insured to the company of thesum included additional premium the Company agrees,
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notwithstanding what is stated in the printed conditions of this policy

due to the contrary, that this insurance covers loss or damage to

shock to any of the property insured by this Policy occasioned by or

through or in consequence of earthquake (Exhs. "1-D", "2-D", "3-A",

"4-B", "5-A", "6-D" and "7-C");

that in Exhibit "7-C" the word "included" above the underlined portion was

deleted; that on July 16, 1990 an earthquake struck Central Luzon and

Northern Luzon and plaintiffs properties covered by Policy No. 31944 issued

by defendant, including the two swimming pools in its Agoo Playa Resort weredamaged.2

After the earthquake, petitioner advised respondent that it would be making a claim

under its Insurance Policy No. 31944 for damages on its properties. Respondent

instructed petitioner to file a formal claim, then assigned the investigation of the claim to

an independent claims adjuster, Bayne Adjusters and Surveyors, Inc.3On July 30, 1990,

respondent, through its adjuster, requested petitioner to submit various documents in

support of its claim. On August 7, 1990, Bayne Adjusters and Surveyors, Inc., through its

Vice-President A.R. de Leon,4rendered a preliminary report5finding extensive damage

caused by the earthquake to the clubhouse and to the two swimming pools. Mr. de Leon

stated that "except for the swimming pools, all affected items have no coverage for

earthquake shocks."6On August 11, 1990, petitioner filed its formal demand7for

settlement of the damage to all its properties in the Agoo Playa Resort. On August 23,1990, respondent denied petitioners claim on the ground that its insurance policy only

afforded earthquake shock coverage to the two swimming pools of the resort.8Petitioner

and respondent failed to arrive at a settlement.9Thus, on January 24, 1991, petitioner

filed a complaint10with the regional trial court of Pasig praying for the payment of the

following:

1.) The sum of P5,427,779.00, representing losses sustained by the insured

properties, with interest thereon, as computed under par. 29 of the policy

(Annex "B") until fully paid;

2.) The sum of P428,842.00 per month, representing continuing losses

sustained by plaintiff on account of defendants refusal to pay the claims;

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

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

5.) Costs.11

Respondent filed its Answer with Special and Affirmative Defenses with Compulsory

Counterclaims.12

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

The above schedule clearly shows that plaintiff paid only a premium of P393.00

against the peril of earthquake shock, the same premium it paid against

earthquake shock only on the two swimming pools in all the policies issued by

AHAC(AIU) (Exhibits "C", "D", "E", "F" and "G"). From this fact the Court must

consequently agree with the position of defendant that the endorsement rider

(Exhibit "7-C") means that only the two swimming pools were insured against

earthquake shock.

Plaintiff correctly points out that a policy of insurance is a contract of adhesion

hence, where the language used in an insurance contract or application is suchas to create ambiguity the same should be resolved against the party

responsible therefor, i.e., the insurance company which prepared the contract.

To the mind of [the] Court, the language used in the policy in litigation is clear

and unambiguous hence there is no need for interpretation or construction but

only application of the provisions therein.

From the above observations the Court finds that only the two (2) swimming

pools had earthquake shock coverage and were heavily damaged by the

earthquake which struck on July 16, 1990. Defendant having admitted that the

damage to the swimming pools was appraised by defendants adjuster

at P386,000.00, defendant must, by virtue of the contract of insurance, pay

plaintiff said amount.

Because it is the finding of the Court as stated in the immediately precedingparagraph that defendant is liable only for the damage caused to the two (2)

swimming pools and that defendant has made known to plaintiff its willingness

and readiness to settle said liability, there is no basis for the grant of the other

damages prayed for by plaintiff. As to the counterclaims of defendant, the Court

does not agree that the action filed by plaintiff is baseless and highly

speculative since such action is a lawful exercise of the plaintiffs right to come

to Court in the honest belief that their Complaint is meritorious. The prayer,

therefore, of defendant for damages is likewise denied.

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

sum of THREE HUNDRED EIGHTY SIX THOUSAND PESOS (P386,000.00)representing damage to the two (2) swimming pools, with interest at 6% per

annum from the date of the filing of the Complaint until defendants obligation

to plaintiff is fully paid.

No pronouncement as to costs.13

Petitioners Motion for Reconsideration was denied. Thus, petitioner filed an appeal with

the Court of Appeals based on the following assigned errors:14

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

ONLY RECOVER FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS

FIRE POLICY NO. 31944, CONSIDERING ITS PROVISIONS, THE

CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID POLICY AND THE
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ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE OF JULY

16, 1990.

B. THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANTS

RIGHT TO RECOVER UNDER DEFENDANT-APPELLEES POLICY (NO. 31944;

EXH "I") BY LIMITING ITSELF TO A CONSIDERATION OF THE SAID

POLICY ISOLATED FROM THE CIRCUMSTANCES SURROUNDING ITS ISSUANCE

AND THE ACTUATIONS OF THE PARTIES AFTER THE EARTHQUAKE OF JULY

16, 1990.

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

IS ENTITLED TO THE DAMAGES CLAIMED, WITH INTEREST COMPUTED AT

24% PER ANNUM ON CLAIMS ON PROCEEDS OF POLICY.

On the other hand, respondent filed a partial appeal, assailing the lower courts failure to

award it attorneys fees and damages on i ts compulsory counterclaim.

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

However, after carefully perusing the documentary evidence of both parties,

We are not convinced that the last two (2) insurance contracts (Exhs. "G" and

"H"), which the plaintiff-appellant had with AHAC (AIU) and upon which thesubject insurance contract with Philippine Charter Insurance Corporation is

said to have been based and copied (Exh. "I"), covered an extended earthquake

shock insurance on all the insured properties.

x x x

We also find that the Court a quo was correct in not granting the plaintiff-

appellants prayer for the imposition ofinterest 24% on the insurance claim

and 6% on loss of income allegedly amounting toP4,280,000.00. Since the

defendant-appellant has expressed its willingness to pay the damage caused on

the two (2) swimming pools, as the Court a quo and this Court correctly found

it to be liable only, it then cannot be said that it was in default and thereforeliable for interest.

Coming to the defendant-appellants prayer for an attorneys fees, long -

standing is the rule that the award thereof is subject to the sound discretion of

the court. Thus, if such discretion is well-exercised, it will not be disturbed on

appeal (Castro et al. v. CA, et al., G.R. No. 115838, July 18, 2002). Moreover,

being the award thereof an exception rather than a rule, it is necessary for the

court to make findings of facts and law that would bring the case within the

exception and justify the grant of such award (Country Bankers Insurance Corp.

v. Lianga Bay and Community Multi-Purpose Coop., Inc., G.R. No. 136914,

January 25, 2002). Therefore, holding that the plaintiff-appellants action is not

baseless and highly speculative, We find that the Court a quo did not err in

granting the same.

WHEREFORE, in view of all the foregoing, both appeals are hereby DISMISSED

and judgment of the Trial Court hereby AFFIRMED in toto. No costs.15

Petitioner filed the present petition raising the following issues:16

A. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER

RESPONDENTS INSURANCE POLICY NO. 31944, ONLY THE TWO (2)

SWIMMING POOLS, RATHER THAN ALL THE PROPERTIES COVERED

THEREUNDER, ARE INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK.

B. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONERS

PRAYER FOR DAMAGES WITH INTEREST THEREON AT THE RATE CLAIMED,

ATTORNEYS FEES AND EXPENSES OF LITIGATION.

Petitioner contends:

First, that the policys earthquake shock endorsement clearly covers all of the properties

insured and not only the swimming pools. It used the words "any property insured by

this policy," and it should be interpreted as all inclusive.

Second, the unqualified and unrestricted nature of the earthquake shock endorsement is

confirmed in the body of the insurance policy itself, which states that it is "[s]ubject to:

Other Insurance Clause, Typhoon Endorsement,Earthquake Shock Endt., Extended

Coverage Endt., FEA Warranty & Annual Payment Agreement On Long Term Policies."17

Third, that the qualification referring to the two swimming pools had already been

deleted in the earthquake shock endorsement.

Fourth, it is unbelievable for respondent to claim that it only made an inadvertent

omission when it deleted the said qualification.

Fifth, that the earthquake shock endorsement rider should be given precedence over the

wording of the insurance policy, because the rider is the more deliberate expression of

the agreement of the contracting parties.

Sixth, that in their previous insurance policies, limits were placed on the

endorsements/warranties enumerated at the time of issue.

Seventh, any ambiguity in the earthquake shock endorsement should be resolved in

favor of petitioner and against respondent. It was respondent which caused the

ambiguity when it made the policy in issue.

Eighth, the qualification of the endorsement limiting the earthquake shock endorsement

should be interpreted as a caveat on the standard fire insurance policy, such as to

remove the two swimming pools from the coverage for the risk of fire. It should not be

used to limit the respondents liability for earthquake shock to the two swimming poolsonly.
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12/40

Ninth, there is no basis for the appellate court to hold that the additional premium was

not paid under the extended coverage. The premium for the earthquake shock coverage

was already included in the premium paid for the policy.

Tenth, the parties contemporaneous and subsequent acts show that they intended to

extend earthquake shock coverage to all insured properties. When it secured an

insurance policy from respondent, petitioner told respondent that it wanted an exact

replica of its latest insurance policy from American Home Assurance Company (AHAC-

AIU), which covered all the resorts properties for earthquake shock damage and

respondent agreed. After the July 16, 1990 earthquake, respondent assured petitionerthat it was covered for earthquake shock. Respondents insurance adjuster, Bayne

Adjusters and Surveyors, Inc., likewise requested petitioner to submit the necessary

documents for its building claims and other repair costs. Thus, under the doctrine of

equitable estoppel, it cannot deny that the insurance policy it issued to petitioner

covered all of the properties within the resort.

Eleventh, that it is proper for it to avail of a petition for review by certiorari under Rule

45 of the Revised Rules of Court as its remedy, and there is no need for calibration of the

evidence in order to establish the facts upon which this petition is based.

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

First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly

extended coverage against earthquake shock to petitioners insured properties other

than on the two swimming pools. Petitioner admitted that from 1984 to 1988, only the

two swimming pools were insured against earthquake shock. From 1988 until 1990, the

provisions in its policy were practically identical to its earlier policies, and there was no

increase in the premium paid. AHAC-AIU, in a letter19by its representative Manuel C.

Quijano, categorically stated that its previous policy, from which respondents policy was

copied, covered only earthquake shock for the two swimming pools.

Second, petitioners payment of additional premium in the amount ofP393.00 shows

that the policy only covered earthquake shock damage on the two swimming pools. The

amount was the same amount paid by petitioner for earthquake shock coverage on the

two swimming pools from 1990-1991. No additional premium was paid to warrantcoverage of the other properties in the resort.

Third, the deletion of the phrase pertaining to the limitation of the earthquake shock

endorsement to the two swimming pools in the policy schedule did not expand the

earthquake shock coverage to all of petitioners properties. As per its agreement with

petitioner, respondent copied its policy from the AHAC-AIU policy provided by

petitioner. Although the first five policies contained the said qualification in their riders

title, in the last two policies, this qualification in the title was deleted. AHAC-AIU, through

Mr. J. Baranda III, stated that such deletion was a mere inadvertence. This inadvertence

did not make the policy incomplete, nor did it broaden the scope of the endorsement

whose descriptive title was merely enumerated. Any ambiguity in the policy can be easily

resolved by looking at the other provisions, specially the enumeration of the items

insured, where only the two swimming pools were noted as covered for earthquakeshock damage.

Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through 1988,

the phrase "Item 5 P393,000.00 on the two swimming pools only (against the peril of

earthquake shock only)" meant that only the swimming pools were insured for

earthquake damage. The same phrase is used in toto in the policies from 1989 to 1990,

the only difference being the designation of the two swimming pools as "Item 3."

Fifth, in order for the earthquake shock endorsement to be effective, premiums must be

paid for all the properties covered. In all of its seven insurance policies, petitioner only

paid P393.00 as premium for coverage of the swimming pools against earthquake shock.

No other premium was paid for earthquake shock coverage on the other properties. Inaddition, the use of the qualifier "ANY" instead of "ALL" to describe the property covered

was done deliberately to enable the parties to specify the properties included for

earthquake coverage.

Sixth, petitioner did not inform respondent of its requirement that all of its properties

must be included in the earthquake shock coverage. Petitioners own evidence shows

that it only required respondent to follow the exact provisions of its previous policy from

AHAC-AIU. Respondent complied with this requirement. Respondents only deviation

from the agreement was when it modified the provisions regarding the replacement cost

endorsement. With regard to the issue under litigation, the riders of the old policy and

the policy in issue are identical.

Seventh, respondent did not do any act or give any assurance to petitioner as would

estop it from maintaining that only the two swimming pools were covered forearthquake shock. The adjusters letter notifying petitioner to present certain documents

for its building claims and repair costs was given to petitioner before the adjuster knew

the full coverage of its policy.

Petitioner anchors its claims on AHAC-AIUs inadvertent deletion of the phrase "Item 5

Only" after the descriptive name or title of the Earthquake Shock Endorsement.

However, the words of the policy re flect the parties clear intention to limit earthquake

shock coverage to the two swimming pools.

Before petitioner accepted the policy, it had the opportunity to read its conditions. It did

not object to any deficiency nor did it institute any action to reform the policy. The policybinds the petitioner.

Eighth, there is no basis for petitioner to claim damages, attorneys fees and litigation

expenses. Since respondent was willing and able to pay for the damage caused on the

two swimming pools, it cannot be considered to be in default, and therefore, it is not

liable for interest.

We hold that the petition is devoid of merit.

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

at bar.
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13/40

First, in the designation of location of risk, only the two swimming pools were specified

as included, viz:

ITEM 3 393,000.00 On the two (2) swimming pools only (against the peril ofearthquake shock only)20

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

PREMIUM RECAPITULATIONITEM NOS. AMOUNT RATES PREMIUM

x x x

3 393,000.00 0.100%-E/S 393.0022]

Third, Policy Condition No. 6 stated:

6. This insurance does not cover any loss or damage occasioned by or through

or in consequence, directly or indirectly of any of the following occurrences,namely:--

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

Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement (To

Include the Perils of Explosion, Aircraft, Vehicle and Smoke)," stated, viz:

ANNUAL PAYMENT AGREEMENT ON

LONG TERM POLICIES

THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS

INSURED IN EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF A

DISCOUNT OF 5% OR 7 % OF THE NET PREMIUM x x x POLICY HEREBYUNDERTAKES TO CONTINUE THE INSURANCE UNDER THE ABOVE NAMED x x

x AND TO PAY THE PREMIUM.

Earthquake Endorsement

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

. . . . . . . . . . . . . . . . additional premium the Company agrees, notwithstandingwhat is stated in the printed conditions of this Policy to the contrary, that this

insurance covers loss or damage (including loss or damage by fire) to any of the

property insured by this Policy occasioned by or through or in consequence of

Earthquake.

Provided always that all the conditions of this Policy shall apply (except in so

far as they may be hereby expressly varied) and that any reference therein to

loss or damage by fire should be deemed to apply also to loss or damage

occasioned by or through or in consequence of Earthquake.24

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

coverage to all of the insured properties.

It is basic that all the provisions of the insurance policy should be examined and

interpreted in consonance with each other.25All its parts are reflective of the true intent

of the parties. The policy cannot be construed piecemeal. Certain stipulations cannot besegregated and then made to control; neither do particular words or phrases necessarily

determine its character. Petitioner cannot focus on the earthquake shock endorsement to

the exclusion of the other provisions. All the provisions and riders, taken and interpreted

together, indubitably show the intention of the parties to extend earthquake shock

coverage to the two swimming pools only.

A careful examination of the premium recapitulation will show that it is the clear intent

of the parties to extend earthquake shock coverage only to the two swimming pools.

Section 2(1) of the Insurance Code defines a contract of insurance as an agreement

whereby one undertakes for a consideration to indemnify another against loss, damage

or liability arising from an unknown or contingent event. Thus, an insurance contract

exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated

peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses

among a large group of persons bearing a similar risk; and

5. In consideration of the insurer's promise, the insured pays apremium.26(Emphasis ours)

An insurance premium is the consideration paid an insurer for undertaking to indemnify

the insured against a specified peril.27In fire, casualty, and marine insurance, the

premium payable becomes a debt as soon as the risk attaches.28In the subject policy, no

premium payments were made with regard to earthquake shock coverage, except on the

two swimming pools. There is no mention of any premium payable for the other resort

properties with regard to earthquake shock. This is consistent with the history of

petitioners previous insurance policies from AHAC-AIU. As borne out by petitioners

witnesses:

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 12-13
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14/40

Q. Now Mr. Mantohac, will it be correct to state also that insofar as your

insurance policy during the period from March 4, 1984 to March 4, 1985 the

coverage on earthquake shock was limited to the two swimming pools only?

A. Yes, sir. It is limited to the two swimming pools, specifically shown in the

warranty, there is a provision here that it was only for item 5.

Q. More specifically Item 5 states the amount of P393,000.00 corresponding to

the two swimming pools only?

A. Yes, sir.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25, 1991

pp. 23-26

Q. For the period from March 14, 1988 up to March 14, 1989, did you

personally arrange for the procurement of this policy?

A. Yes, sir.

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

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

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

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

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

concerned?

A. Yes, sir, they are separate entity.

Q. But insofar as the procurement of the insurance policy is concerned they are

of course subject to your instruction, is that not correct?

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

insurance to take.

Q. In the procurement of the insurance police (sic) from March 14, 1988 to

March 14, 1989, did you give written instruction to Forte Insurance Agency

advising it that the earthquake shock coverage must extend to all properties of

Agoo Playa Resort in La Union?

A. No, sir. We did not make any written instruction, although we made an oral

instruction to that effect of extending the coverage on (sic) the other properties

of the company.

Q. And that instruction, according to you, was very important because in April

1987 there was an earthquake tremor in La Union?

A. Yes, sir.

Q. And you wanted to protect all your properties against similar tremors in the

[future], is that correct?

A. Yes, sir.

Q. Now, after this policy was delivered to you did you bother to check the

provisions with respect to your instructions that all properties must be covered

again by earthquake shock endorsement?

A. Are you referring to the insurance policy issued by American Home

Assurance Company marked Exhibit "G"?

Atty. Mejia: Yes.

Witness:

A. I examined the policy and seeing that the warranty on the earthquake shock

endorsement has no more limitation referring to the two swimming pools only,

I was contented already that the previous limitation pertaining to the two

swimming pools was already removed.

Petitioner also cited and relies on the attachment of the phrase "Subject to: Other

Insurance Clause, Typhoon Endorsement, Earthquake Shock Endorsement,

Extended Coverage Endorsement, FEA Warranty & Annual Payment Agreement on

Long Term Policies"29to the insurance policy as proof of the intent of the parties to

extend the coverage for earthquake shock. However, this phrase is merely an

enumeration of the descriptive titles of the riders, clauses, warranties or endorsements

to which the policy is subject, as required under Section 50, paragraph 2 of the Insurance

Code.

We also hold that no significance can be placed on the deletion of the qualification

limiting the coverage to the two swimming pools. The earthquake shock endorsement

cannot stand alone. As explained by the testimony of Juan Baranda III, underwriter for

AHAC-AIU:

DIRECT EXAMINATION OF JUAN BARANDA III30

TSN, August 11, 1992pp. 9-12
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15/40

Atty. Mejia:

We respectfully manifest that the same exhibits C to H inclusive have

been previously marked by counsel for defendant as Exhibit[s] 1-6inclusive. Did you have occasion to review of (sic) these six (6)

policies issued by your company [in favor] of Agoo Playa Resort?

WITNESS:

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

sir.

Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to

H respectively carries an earthquake shock endorsement[?] My question to you

is, on the basis on (sic) the wordings indicated in Exhibits C to H respectively

what was the extent of the coverage [against] the peril of earthquake shock as

provided for in each of the six (6) policies?

x x x

WITNESS:

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

sir.

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

A. Yes, sir.

ATTY. MEJIA:

What is your basis for stating that the coverage against earthquake

shock as provided for in each of the six (6) policies extend to the two(2) swimming pools only?

WITNESS:

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

Shock Endorsement, in the Clauses and Warranties: Item 5 only

(Earthquake Shock Endorsement)," sir.

ATTY. MEJIA:

Witness referring to Exhibit C-1, your Honor.

WITNESS:

We do not normally cover earthquake shock endorsement on stand

alone basis. For swimming pools we do cover earthquake shock. Forbuilding we covered it for full earthquake coverage which includes

earthquake shock

COURT:

As far as earthquake shock endorsement you do not have a specific

coverage for other things other than swimming pool? You are

covering building? They are covered by a general insurance?

WITNESS:

Earthquake shock coverage could not stand alone. If we are covering

building or another we can issue earthquake shock solely but that the

moment I see this, the thing that comes to my mind is either insuring a

swimming pool, foundations, they are normally affected by

earthquake but not by fire, sir.

DIRECT EXAMINATION OF JUAN BARANDA III

TSN, August 11, 1992

pp. 23-25

Q. Plaintiffs witness, Mr. Mantohac testified and he alleged that only Exhibits C,

D, E and F inclusive [remained] its coverage against earthquake shock to two

(2) swimming pools only but that Exhibits G and H respectively entend the

coverage against earthquake shock to all the properties indicated in the

respective schedules attached to said policies, what can you say about that

testimony of plaintiffs witness?

WITNESS:

As I have mentioned earlier, earthquake shock cannot stand alone

without the other half of it. I assure you that this one covers the two

swimming pools with respect to earthquake shock endorsement.

Based on it, if we are going to look at the premium there has been no

change with respect to the rates. Everytime (sic) there is a renewal if

the intention of the insurer was to include the earthquake shock, I

think there is a substantial increase in the premium. We are not only

going to consider the two (2) swimming pools of the other as stated in

the policy. As I see, there is no increase in the amount of the premium.

I must say that the coverage was not broaden (sic) to include the other

items.

COURT:


16/40

They are the same, the premium rates?

WITNESS:

They are the same in the sence (sic), in the amount of the coverage. If

you are going to do some computation based on the rates you will

arrive at the same premiums, your Honor.

CROSS-EXAMINATION OF JUAN BARANDA III

TSN, September 7, 1992

pp. 4-6

ATTY. ANDRES:

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

insurance?

WITNESS:

No, we dont, sir.

Q. That is why the phrase "earthquake shock to the two (2) swimming pools

only" was placed, is it not?

A. Yes, sir.

ATTY. ANDRES:

Will you not also agree with me that these exhibits, Exhibits G and H

which you have pointed to during your direct-examination, the phrase

"Item no. 5 only" meaning to ( sic) the two (2) swimming pools was

deleted from the policies issued by AIU, is it not?

x x x

ATTY. ANDRES:

As an insurance executive will you not attach any significance to the

deletion of the qualifying phrase for the policies?

WITNESS:

My answer to that would be, the deletion of that particular phrase is

inadvertent. Being a company underwriter, we do not cover. . it was

inadvertent because of the previous policies that we have i ssued with

no specific attachments, premium rates and so on. It was inadvertent,

sir.

The Court also rejects petitioners contention that respondents contemporaneous and

subsequent acts to the issuance of the insurance policy falsely gave the petitioner

assurance that the coverage of the earthquake shock endorsement included all its

properties in the resort. Respondent only insured the properties as intended by the

petitioner. Petitioners own witness testified to this agreement,viz:

CROSS EXAMINATION OF LEOPOLDO MANTOHACTSN, January 14, 1992

pp. 4-5

Q. Just to be clear about this particular answer of yours Mr. Witness, what

exactly did you tell Atty. Omlas (sic) to copy from Exhibit "H" for purposes of

procuring the policy from Philippine Charter Insurance Corporation?

A. I told him that the insurance that they will have to get will have the same

provisions as this American Home Insurance Policy No. 206-4568061-9.

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

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

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

A. Yes, sir. He assured me that with regards to the insurance premium rates

that they will be charging will be limited to this one. I (sic) can even be lesser.

CROSS EXAMINATION OF LEOPOLDO MANTOHAC

TSN, January 14, 1992

pp. 12-14

Atty. Mejia:

Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the

provisions and scope of coverage of Exhibits "I" and "H" sometime in the third

week of March, 1990 or thereabout?

A. Yes, sir, about that time.

Q. And at that time did you notice any discrepancy or difference between the

policy wordings as well as scope of coverage of Exhibits "I" and "H"respectively?


17/40

A. No, sir, I did not discover any difference inasmuch (sic) as I was assured

already that the policy wordings and rates were copied from the insurance

policy I sent them but it was only when this case erupted that we discovered

some discrepancies.

Q. With respect to the items declared for insurance coverage did you notice a ny

discrepancy at any time between those indicated in Exhibit "I" and those

indicated in Exhibit "H" respectively?

A. With regard to the wordings I did not notice any difference because it wasexactly the same P393,000.00 on the two (2) swimming pools only against the

peril of earthquake shock which I understood before that this provision will

have to be placed here because this particular provision under the peril of

earthquake shock only is requested because this is an insurance policy and

the

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