Insurance Law August 24 2015

Republic of the PhilippinesSUPREME COURT

ManilaEN BANCG.R. No. L-47593 December 29, 1943THE INSULAR LIFE ASSURANCE CO., LTD., petitioner, vs.SERAFIN D. FELICIANO ET AL., respondents.Manuel Roxas and Araneta, Zaragoza, Araneta and Bautista for petitioner.Deflfin Joven and Pablo Lorenzo for respondents.Ramirez and Ortigas as amici curiae.

OZAETA, J.:

In a four-to-three decision promulgated on September 13, 1941, 1 this Court affirmed the judgment of the Court of Appeals in

favor of the respondents and against the petitioner for the sum of P25,000, representing the value of two insurance policies

issued by the petitioner on the life of Evaristo Feliciano. A motion to reconsider and set aside said decision has been filed by the

petitioner, and both parties have submitted exhaustive and luminous written arguments in support of their respective

contentions.

The facts of the case are set forth in the majority and dissenting opinions heretofore handed down by this Court, the salient

points of which may be briefly restated as follows:

Evaristo Feliciano, who died on September 29, 1935, was suffering with advanced pulmonary tuberculosis when he signed his

applications for insurance with the petitioner on October 12, 1934. On that same date Doctor Trepp, who had taken X-ray

pictures of his lungs, informed the respondent Dr. Serafin D. Feliciano, brother of Evaristo, that the latter "was already in a very

serious ad practically hopeless condition." Nevertheless the question contained in the application — "Have you ever suffered

from any ailment or disease of the lungs, pleurisy, pneumonia or asthma?" — appears to have been answered , "No" And above

the signature of the applicant, following the answers to the various questions propounded to him, is the following printed

statement:1awphil.net

I declare on behalf of myself and of any person who shall have or claim any interest in any policy issued hereunder, that

each of the above answers is full, complete and true, and that to the best of my knowledge and belief I am a proper

subject for life insurance. (Exhibit K.)

The false answer above referred to, as well as the others, was written by the Company's soliciting agent Romulo M. David, in

collusion with the medical examiner Dr. Gregorio Valdez, for the purpose of securing the Company's approval of the application

so that the policy to be issued thereon might be credited to said agent in connection with the inter-provincial contest which the

Company was then holding among its soliciting agents to boost the sales of its policies. Agent David bribed Medical Examiner

Valdez with money which the former borrowed from the applicant's mother by way of advanced payment on the premium,

according to the finding of the Court of Appeals. Said court also found that before the insured signed the application he, as well

as the members of his family, told the agent and the medical examiner that he had been sick and coughing for some time and

that he had gone three times to the Santol Sanatorium and had X-ray pictures of his lungs taken; but that in spite of such

information the agent and the medical examiner told them that the applicant was a fit subject for insurance.

Each of the policies sued upon contains the following stipulations:

This policy and the application herefor constitute the entire contract between the parties hereto. . . . Only the President,

or the Manager, acting jointly with the Secretary or Assistant Secretary (and then only in writing signed by them) have

power in behalf of the Company to issue permits, or to modify this or any contract, or to extend the same time for

making any premium payment, and the Company shall not be bound by any promise or representation heretofore or

hereafter given by any person other than the above-named officials, and by them only in writing and signed conjointly as

stated.

The application contains, among others, the following statements:

18. — I [the applicant] hereby declare that all the above statements and answers as well as all those that I may make to

the Company's Medical Examiner in continuation of this application, to be complete, true and correct to the best of my

knowledge and belief, and I hereby agree as follows:

1. That his declaration, with the answers to be given by me to the Medical Examiner, shall be the basis of the policy and

form part of same.

Insurance Law August 24, 2015 1

x x x x x x x x x

3. That the said policy shall not take effect until the first premium has been paid and the policy has been delivered to

and accepted by me, while I am in good health.

4. That the agent taking this application has no authority to make, modify or discharge contracts, or to waive any of the

Company's rights or requirements.

5. My acceptance of any policy issued on this application will constitute a ratification by me of any corrections in or

additions to this application made by the Company in the space provided "For Home Office Corrections or Additions

Only." I agree that photographic copy of this applications as corrected or added to shall constitute sufficient notice to me

of the changes made. (Emphasis added.)

The petitioner insists that upon the facts of the case the policies in question are null and void ab initio and that all that the

respondents are entitled to is the refund of the premiums paid thereon. After a careful re-examination of the facts and the law,

we are persuaded that petitioner's contention is correct. To the reasons adduced in the dissenting opinion heretofore published,

we only desire to add the following considerations:

When Evaristo Feliciano, the applicant for insurance, signed the application in blank and authorized the soliciting agent and/or

medical examiner of the Company to write the answers for him, he made them his own agents for that purpose, and he was

responsible for their acts in that connection. If they falsified the answers for him, he could not evade the responsibility for he

falsification. He was not supposed to sign the application in blank. He knew that the answers to the questions therein contained

would be "the basis of the policy," and for that every reason he was required with his signature to vouch for truth thereof.

Moreover, from the facts of the case we cannot escape the conclusion that the insured acted in connivance with the soliciting

agent and the medical examiner of the Company in accepting the policies in question. Above the signature of the applicant is the

printed statement or representation: " . . . I am a proper subject for life insurance." In another sheet of the same application and

above another signature of the applicant was also printed this statement: "That the said policy shall not take effect until he first

premium has been paid and the policy as been delivered to and accepted by me, while I am in good health." When the applicant

signed the application he was "having difficulty in breathing, . . . with a very high fever." He had gone three times to the Santol

Sanatorium and had X-ray pictures taken of his lungs. He therefore knew that he was not "a proper subject for life insurance."

When he accepted the policy, he knew that he was not in good health. Nevertheless, he not only accepted the first policy of

P20,000 but then and there applied for and later accepted another policy of P5,000.

We cannot bring ourselves to believe that the insured did not take the trouble to read the answers contained in the photostatic

copy of the application attached to and made a part of the policy before he accepted it and paid the premium thereon. He must

have notice that the answers to the questions therein asked concerning his clinical history were false, and yet he accepted the

first policy and applied for another. In any event, he obligated himself to read the policy when he subscribed to this statement:

"My acceptance of any policy issued on this application will constitute a ratification by me of any corrections in or additions to

this application made by the Company . . ." By accepting the policy he became charged with knowledge of its contents, whether

he actually read it or not. He could not ostrich-like hide his head from it in order to avoid his part of the bargain and at the same

time claim the benefit thereof. He knew, or was chargeable with knowledge, from the very terms of the two policies sued upon

(one of which is printed in English and the other in Spanish) that the soliciting agent and the medical examiner had no power to

bind the Company by any verbal promise or oral representation. The insured, therefore, had no right to rely — and we cannot

believe he relied in good faith — upon the oral representation. The insured, therefore, had no right to rely — and we cannot

believe he relied in good faith — upon the oral representation of said agent and medical examiner that he (the applicant) was a

fit subject for insurance notwithstanding that he had been and was still suffering with advanced pulmonary tuberculosis.

From all the facts and circumstances of this case, we are constrained to conclude that the insured was a coparticipant, and

coresponsible with Agent David and Medical Examiner Valdez, in the fraudulent procurement of the policies in question and that

by reason thereof said policies are void ab initio.

Wheretofore, the motion for reconsideration is sustained and the judgment of the Court of Appeals is hereby reversed. Let

another judgment be entered in favor of the respondents and against the petitioner for the refund of the premiums amounting

to P1,389, with legal interest thereon from the date of the complaint, and without any finding as to costs.

Moran, Paras and Bocobo, JJ., concur.




ManilaFIRST DIVISIONG.R. No. 105135 June 22, 1995SUNLIFE ASSURANCE COMPANY OF CANADA, petitioner, vs.The Hon. COURT OF APPEALS and Spouses ROLANDO and BERNARDA BACANI, respondents.

QUIASON, J.:

This is a petition for review for certiorari under Rule 45 of the Revised Rules of Court to reverse and set aside the Decision dated

February 21, 1992 of the Court of Appeals in CA-G.R. CV No. 29068, and its Resolution dated April 22, 1992, denying

reconsideration thereof.

We grant the petition.

I

On April 15, 1986, Robert John B. Bacani procured a life insurance contract for himself from petitioner. He was issued Policy No.

3-903-766-X valued at P100,000.00, with double indemnity in case of accidental death. The designated beneficiary was his

mother, respondent Bernarda Bacani.

On June 26, 1987, the insured died in a plane crash. Respondent Bernarda Bacani filed a claim with petitioner, seeking the

benefits of the insurance policy taken by her son. Petitioner conducted an investigation and its findings prompted it to reject the

claim.

In its letter, petitioner informed respondent Bernarda Bacani, that the insured did not disclose material facts relevant to the

issuance of the policy, thus rendering the contract of insurance voidable. A check representing the total premiums paid in the

amount of P10,172.00 was attached to said letter.

Petitioner claimed that the insured gave false statements in his application when he answered the following questions:

5. Within the past 5 years have you:

a) consulted any doctor or other health practitioner?

b) submitted to:

EGG?

X-rays?

blood tests?

other tests?

c) attended or been admitted to any hospital or other medical facility?

6. Have you ever had or sought advice for:

xxx xxx xxx

b) urine, kidney or bladder disorder? (Rollo, p. 53)

The deceased answered question No. 5(a) in the affirmative but limited his answer to a consultation with a certain Dr. Reinaldo D.

Raymundo of the Chinese General Hospital on February 1986, for cough and flu complications. The other questions were

answered in the negative (Rollo, p. 53).

Petitioner discovered that two weeks prior to his application for insurance, the insured was examined and confined at the Lung

Center of the Philippines, where he was diagnosed for renal failure. During his confinement, the deceased was subjected to

urinalysis, ultra-sonography and hematology tests.

On November 17, 1988, respondent Bernarda Bacani and her husband, respondent Rolando Bacani, filed an action for specific

performance against petitioner with the Regional Trial Court, Branch 191, Valenzuela, Metro Manila. Petitioner filed its answer

with counterclaim and a list of exhibits consisting of medical records furnished by the Lung Center of the Philippines.

On January 14, 1990, private respondents filed a "Proposed Stipulation with Prayer for Summary Judgment" where they

manifested that they "have no evidence to refute the documentary evidence of concealment/misrepresentation by the decedent

of his health condition (Rollo, p. 62).

Petitioner filed its Request for Admissions relative to the authenticity and due execution of several documents as well as

allegations regarding the health of the insured. Private respondents failed to oppose said request or reply thereto, thereby

rendering an admission of the matters alleged.


Petitioner then moved for a summary judgment and the trial court decided in favor of private respondents. The dispositive

portion of the decision is reproduced as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant, condemning the

latter to pay the former the amount of One Hundred Thousand Pesos (P100,000.00) the face value of insured's

Insurance Policy No. 3903766, and the Accidental Death Benefit in the amount of One Hundred Thousand Pesos

(P100,000.00) and further sum of P5,000.00 in the concept of reasonable attorney's fees and costs of suit.

Defendant's counterclaim is hereby Dismissed (Rollo, pp. 43-44).

In ruling for private respondents, the trial court concluded that the facts concealed by the insured were made in good faith and

under a belief that they need not be disclosed. Moreover, it held that the health history of the insured was immaterial since the

insurance policy was "non-medical".

Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. The appellate court ruled that

petitioner cannot avoid its obligation by claiming concealment because the cause of death was unrelated to the facts concealed

by the insured. It also sustained the finding of the trial court that matters relating to the health history of the insured were

irrelevant since petitioner waived the medical examination prior to the approval and issuance of the insurance policy. Moreover,

the appellate court agreed with the trial court that the policy was "non-medical" (Rollo, pp. 4-5).

Petitioner's motion for reconsideration was denied; hence, this petition.

II

We reverse the decision of the Court of Appeals.

The rule that factual findings of the lower court and the appellate court are binding on this Court is not absolute and admits of

exceptions, such as when the judgment is based on a misappreciation of the facts (Geronimo v. Court of Appeals, 224 SCRA 494

[1993]).

In weighing the evidence presented, the trial court concluded that indeed there was concealment and misrepresentation,

however, the same was made in "good faith" and the facts concealed or misrepresented were irrelevant since the policy was

"non-medical". We disagree.

Section 26 of The Insurance Code is explicit in requiring a party to a contract of insurance to communicate to the other, in good

faith, all facts within his knowledge which are material to the contract and as to which he makes no warranty, and which the

other has no means of ascertaining. Said Section provides:

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

Materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party

to whom communication is due, in forming his estimate of the disadvantages of the proposed contract or in making his inquiries

(The Insurance Code, Sec. 31).

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

The information which the insured failed to disclose were material and relevant to the approval and issuance of the 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. Moreover, a disclosure may have warranted a medical

examination of the insured by petitioner in order for it to reasonably assess the risk involved in accepting the application.

In Vda. de Canilang v. Court of Appeals, 223 SCRA 443 (1993), we held that materiality of the information withheld does not

depend on the state of mind of the insured. Neither does it depend on the actual or physical events which ensue.

Thus, "goad faith" is no defense in concealment. The insured's failure to disclose the fact that he was hospitalized for two weeks

prior to filing his application for insurance, raises grave doubts about his bonafides. It appears that such concealment was

deliberate on his part.

The argument, that petitioner's waiver of the medical examination of the insured debunks the materiality of the facts concealed,

is untenable. We reiterate our ruling in Saturnino v. Philippine American Life Insurance Company, 7 SCRA 316 (1963), that " . . .

the waiver of a medical examination [in a non-medical insurance contract] renders even more material the information required

of the applicant concerning previous condition of health and diseases suffered, for such information necessarily constitutes an

important factor which the insurer takes into consideration in deciding whether to issue the policy or not . . . "

Moreover, such argument of private respondents would make Section 27 of the Insurance Code, which allows the injured party

to rescind a contract of insurance where there is concealment, ineffective (See Vda. de Canilang v. Court of Appeals, supra).


Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it is well settled that the insured

need not die of the disease he had failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in

forming his estimates of the risks of the proposed insurance policy or in making inquiries (Henson v. The Philippine American Life

Insurance Co., 56 O.G. No. 48 [1960]).

We, therefore, rule that petitioner properly exercised its right to rescind the contract of insurance by reason of the concealment

employed by the insured. It must be emphasized that rescission was exercised within the two-year contestability period as

recognized in Section 48 of The Insurance Code.

WHEREFORE, the petition is GRANTED and the Decision of the Court of Appeals is REVERSED and SET ASIDE.

SO ORDERED.

Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.



ManilaTHIRD DIVISIONG.R. No. 92492 June 17, 1993THELMA VDA. DE CANILANG, petitioner, vs.HON. COURT OF APPEALS and GREAT PACIFIC LIFE ASSURANCE CORPORATION, respondents.Simeon C. Sato for petitioner.

FELICIANO, J.:

On 18 June 1982, Jaime Canilang consulted Dr. Wilfredo B. Claudio and was diagnosed as suffering from "sinus tachycardia." The

doctor prescribed the following fro him: Trazepam, a tranquilizer; and Aptin, a beta-blocker drug. Mr. Canilang consulted the

same doctor again on 3 August 1982 and this time was found to have "acute bronchitis."

On next day, 4 August 1982, Jaime Canilang applied for a "non-medical" insurance policy with respondent Great Pacific Life

Assurance Company ("Great Pacific") naming his wife, Thelma Canilang, as his beneficiary. 1 Jaime Canilang was issued 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." 2 Petitioner, widow and

beneficiary of the insured, filed a claim with Great Pacific which the insurer denied on 5 December 1983 upon 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 of any serious illness

suffered by her late husband 3 and that, as far as she knew, her husband had died because of a kidney disorder. 4 A deposition

given by Dr. Wilfredo Claudio was presented by petitioner. There Dr. Claudio stated that he was the family physician of the

deceased Jaime Canilang 5 and that he had previously treated him for "sinus tachycardia" and "acute bronchitis." 6 Great Pacific

for its part presented Dr. Esperanza Quismorio, a physician

and a medical underwriter working for Great Pacific. 7 She testified that the deceased's insurance application had been approved

on the basis of his medical declaration. 8 She explained that as a rule, medical examinations are required only in cases where the

applicant has indicated in his application for insurance coverage that he has previously undergone medical consultation and

hospitalization. 9

In a decision dated 5 November 1985, Insurance Commissioner Armando Ansaldo ordered Great Pacific to pay P19,700 plus legal

interest and P2,000.00 as attorney's fees after holding that:

1. the ailment of Jaime Canilang was not so serious that, even if it had been disclosed, it would not have

affected Great Pacific's decision to insure him;

2. Great Pacific had waived its right to inquire into the health condition of the applicant by the issuance of the

policy despite the lack of answers to "some of the pertinent questions" in the insurance application;

3. there was no intentional concealment on the part of the insured Jaime Canilang as he had thought that he

was merely suffering from a minor ailment and simple cold; 10 and

4. Batas Pambansa Blg. 847 which voids an insurance contract, whether or not concealment was intentionally

made, was not applicable to Canilang's case as that law became effective only on 1 June 1985.

On appeal by Great Pacific, the Court of Appeals reversed and set aside the decision of the Insurance Commissioner and

dismissed Thelma Canilang's complaint and Great Pacific's counterclaim. The Court of Appealed found that the use of the word

"intentionally" by the Insurance Commissioner in defining and resolving the issue agreed upon by the parties at pre-trial before

the Insurance Commissioner was not supported by the evidence; that the issue agreed upon by the parties had been whether the

deceased insured, Jaime Canilang, made a material concealment as the state of his health at the time of the filing of insurance

application, justifying respondent's denial of the claim. The Court of Appeals also found that the failure of Jaime Canilang to

disclose previous medical consultation and treatment constituted material information which should have been communicated


to Great Pacific to enable the latter to make proper inquiries. The Court of Appeals finally held that the Ng Gan Zee case which

had involved misrepresentation was not applicable in respect of the case at bar which involves concealment.

Petitioner Thelma Canilang is now before this Court on a Petition for Review on Certiorari alleging that:

1. . . . the Honorable Court of Appeals, speaking with due respect, erred in not holding that the issue in the case

agreed upon between the parties before the Insurance Commission is whether or not Jaime Canilang

"intentionally" made material concealment in stating his state of health;

2. . . . at any rate, the non-disclosure of certain facts about his previous health conditions does not amount to

fraud and private respondent is deemed to have waived inquiry thereto. 11

The medical declaration which was set out in the application for insurance executed by Jaime Canilang read as follows:

MEDICAL DECLARATION

I hereby declare that:

(1) I have not been confined in any hospital, sanitarium or infirmary, nor receive any medical or surgical

advice/attention within the last five (5) years.

(2) I have never been treated nor consulted a physician for a heart condition, high blood pressure, cancer,

diabetes, lung, kidney, stomach disorder, or any other physical impairment.

(3) I am, to the best of my knowledge, in good health.

EXCEPTIONS:

________________________________________________________________________________

GENERAL DECLARATION

I hereby declare that all the foregoing answers and statements are complete, true and correct. I herebyagree

that if there be any fraud or misrepresentation in the above statements material to the risk, the INSURANCE

COMPANY upon discovery within two (2) years from the effective date of insurance shall have the right to

declare such insurance null and void. That the liabilities of the Company under the said Policy/TA/Certificate

shall accrue and begin only from the date of commencement of risk stated in the Policy/TA/Certificate,

provided that the first premium is paid and the Policy/TA/Certificate is delivered to, and accepted by me in

person, when I am in actual good health.

Signed at Manila his 4th day of August, 1992.

Illegible

——————————

Signature of Applicant. 12

We note that in addition to the negative statements made by Mr. Canilang in paragraph 1 and 2 of the medical declaration, he

failed to disclose in the appropriate space, under the caption "Exceptions," that he had twice consulted Dr. Wilfredo B. Claudio

who had found him to be suffering from "sinus tachycardia" and "acute bronchitis."

The relevant statutory provisions as they stood at the time Great Pacific issued the contract of insurance and at the time Jaime

Canilang died, are set out in P.D. No. 1460, also known as the Insurance Code of 1978, which went into effect on 11 June 1978.

These provisions read as follows:

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

concealment.

Sec. 28. Each party to a contract of insurance must communicate to the other, in good faith, all factorswithin his

knowledge which are material to the contract and as to which he makes no warranty, and which the other has

not the means of ascertaining. (Emphasis supplied)

Under the foregoing provisions, the information concealed must be information which the concealing party knew and "ought to

[have] communicate[d]," that is to say, information which was "material to the contract." The test of materiality is contained in

Section 31 of the Insurance Code of 1978 which reads:

Sec. 31. Materially is to be determined not by the event, but solely by the probable and reasonable influence of

the facts upon the party to whom the communication is due, in forming his estimate of the disadvantages of

the proposed contract, or in making his inquiries. (Emphasis supplied)


"Sinus tachycardia" is considered present "when the heart rate exceeds 100 beats per minute." 13 The symptoms of this condition

include pounding in the chest and sometimes faintness and weakness of the person affected. The following elaboration was

offered by Great Pacific and set out by the Court of Appeals in its Decision:

Sinus tachycardia is defined as sinus-initiated; heart rate faster than 100 beats per minute. (Harrison' s

Principles of Internal Medicine, 8th ed. [1978], p. 1193.) It is, among others, a common reaction to heart

disease, including myocardial infarction, and heart failure per se. (Henry J.L. Marriot, M.D.,Electrocardiography,

6th ed., [1977], p. 127.) The medication prescribed by Dr. Claudio for treatment of Canilang's ailment on June

18, 1982, indicates the condition that said physician was trying to manage. Thus, he prescribed Trazepam,

(Philippine Index of Medical Specialties (PIMS), Vol. 14, No. 3, Dec. 1985, p. 112) which is anti-anxiety, anti-

convulsant, muscle-relaxant; and Aptin, (Idem, p. 36) a cardiac drug, for palpitations and nervous heart. Such

treatment could have been a very material information to the insurer in determining the action to be take on

Canilang's application for life insurance coverage. 14

We agree with the Court of Appeals that the information which Jaime Canilang failed to disclose was material to the ability of

Great Pacific to estimate the probable risk he presented as a subject of life insurance. Had Canilang disclosed his visits to his

doctor, the diagnosis made and medicines prescribed by such doctor, in the insurance application, it may be reasonably assumed

that Great Pacific would have made further inquiries and would have probably refused to issue a non-medical insurance policy or,

at the very least, required a higher premium for the same coverage. 15 The materiality of the information withheld by Great

Pacific did not depend upon the state of mind of Jaime Canilang. A man's state of mind or subjective belief is not capable of proof

in our judicial process, except through proof of external acts or failure to act from which inferences as to his subjective belief may

be reasonably drawn. Neither does materiality depend upon the actual or physical events which ensue. Materiality relates rather

to 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 in accepting the application for insurance; that

"probable and reasonable influence of the facts" concealed must, of course, be determined objectively, by the judge ultimately.

The insurance Great Pacific applied for was a "non-medical" insurance policy. In Saturnino v. Philippine-American Life Insurance

Company, 16 this Court held that:

. . . if anything, the waiver of medical examination [in a non-medical insurance contract] renders even more

material the information required of the applicant concerning previous condition of health and diseases

suffered, for such information necessarily constitutes an important factor which the insurer takes into

consideration in deciding whether to issue the policy or not . . . . 17 (Emphasis supplied)

The Insurance Commissioner had also ruled that the failure of Great Pacific to convey certain information to the insurer was not

"intentional" in nature, for the reason that Jaime Canilang believed that he was suffering from minor ailment like a common cold.

Section 27 of the Insurance Code of 1978 as it existed from 1974 up to 1985, that is, throughout the time range material for

present purposes, provided that:

Sec. 27. A concealment entitles the injured party to rescind a contract of insurance.

The preceding statute, Act No. 2427, as it stood from 1914 up to 1974, had provided:

Sec. 26. A concealment, whether intentional or unintentional, entitles the injured party to rescind a contract of

insurance. (Emphasis supplied)

Upon the other hand, in 1985, the Insurance Code of 1978 was amended by

B.P. Blg. 874. This subsequent statute modified Section 27 of the Insurance Code of 1978 so as to read as follows:

Sec. 27. A concealment whether intentional or unintentional entitles the injured party to rescind a contract of

insurance. (Emphasis supplied)

The unspoken theory of the Insurance Commissioner appears to have been that by deleting the phrase "intentional or

unintentional," the Insurance Code of 1978 (prior to its amendment by B.P. Blg. 874) intended to limit the kinds of concealment

which generate a right to rescind on the part of the injured party to "intentional concealments." This argument is not persuasive.

As a simple matter of grammar, it may be noted that "intentional" and "unintentional" cancel each other out. The net result

therefore of the phrase "whether intentional or unitentional" is precisely to leave unqualified the term "concealment." Thus,

Section 27 of the Insurance Code of 1978 is properly read as referring to "any concealment" without regard to whether such

concealment is intentional or unintentional. The phrase "whether intentional or unintentional" was in fact superfluous. The


deletion of the phrase "whether intentional or unintentional" could not have had the effect of imposing an affirmative

requirement that a concealment must be intentional if it is to entitle the injured party to rescind a contract of insurance. The

restoration in 1985 by B.P. Blg. 874 of the phrase "whether intentional or unintentional" merely underscored the fact that all

throughout (from 1914 to 1985), the statute did not require proof that concealment must be "intentional" in order to authorize

rescission by the injured party.

In any case, in the case at bar, the nature of the facts not conveyed to the insurer was such that the failure to communicate must

have been intentional rather than merely inadvertent. For Jaime Canilang could not have been unaware that his heart beat would

at times rise to high and alarming levels and that he had consulted a doctor twice in the two (2) months before applying for non-

medical insurance. Indeed, the last medical consultation took place just the day before the insurance application was filed. In all

probability, Jaime Canilang went to visit his doctor precisely 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 by issuing 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.

It remains only to note that the Court of Appeals finding that the parties had not agreed in the pretrial before the Insurance

Commission that the relevant issue was whether or not Jaime Canilang had intentionally concealed material information from the

insurer, was supported by the evidence of record, i.e., the Pre-trial Order itself dated 17 October 1984 and the Minutes of the

Pre-trial Conference dated 15 October 1984, which "readily shows that the word "intentional" does not appear in the statement

or definition of the issue in the said Order and Minutes." 18

WHEREFORE, the Petition for Review is DENIED for lack of merit and the Decision of the Court of Appeals dated 16 October 1989

in C.A.-G.R. SP No. 08696 is hereby AFFIRMED. No pronouncement as to the costs.

SO ORDERED.

Bidin, Davide, Jr., Romero and Melo, JJ., concur.



ManilaTHIRD DIVISIONG.R. No. 48049 June 29, 1989EMILIO TAN, JUANITO TAN, ALBERTO TAN and ARTURO TAN, petitioners, vs.THE COURT OF APPEALS and THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, respondents.O.F. Santos & P.C. Nolasco for petitioners.Ferry, De la Rosa and Associates for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the Court of Appeals' decision affirming the decision of the Insurance Commissioner

which dismissed the petitioners' complaint against respondent Philippine American Life Insurance Company for the recovery of

the proceeds from their late father's policy. The facts of the case as found by the Court of Appeals are:

Petitioners appeal from the Decision of the Insurance Commissioner dismissing herein petitioners' complaint

against respondent Philippine American Life Insurance Company for the recovery of the proceeds of Policy No.

1082467 in the amount of P 80,000.00.

On September 23,1973, Tan Lee Siong, father of herein petitioners, applied for life insurance in the amount of P

80,000.00 with respondent company. Said application was approved and Policy No. 1082467 was issued

effective November 6,1973, with petitioners the beneficiaries thereof (Exhibit A).

On April 26,1975, Tan Lee Siong died of hepatoma (Exhibit B). Petitioners then filed with respondent company

their claim for the proceeds of the life insurance policy. However, in a letter dated September 11, 1975,

respondent company denied petitioners' claim and rescinded the policy by reason of the alleged

misrepresentation and concealment of material facts made by the deceased Tan Lee Siong in his application for

insurance (Exhibit 3). The premiums paid on the policy were thereupon refunded .

Alleging that respondent company's refusal to pay them the proceeds of the policy was unjustified and

unreasonable, petitioners filed on November 27, 1975, a complaint against the former with the Office of the

Insurance Commissioner, docketed as I.C. Case No. 218.

After hearing the evidence of both parties, the Insurance Commissioner rendered judgment on August 9, 1977,

dismissing petitioners' complaint. (Rollo, pp. 91-92)

The Court of Appeals dismissed ' the petitioners' appeal from the Insurance Commissioner's decision for lack of merit

Hence, this petition.

The petitioners raise the following issues in their assignment of errors, to wit:

A. The conclusion in law of respondent Court that respondent insurer has the right to rescind the policy

contract when insured is already dead is not in accordance with existing law and applicable jurisprudence.

B. The conclusion in law of respondent Court that respondent insurer may be allowed to avoid the policy on

grounds of concealment by the deceased assured, is contrary to the provisions of the policy contract itself, as

well as, of applicable legal provisions and established jurisprudence.

C. The inference of respondent Court that respondent insurer was misled in issuing the policy are manifestly

mistaken and contrary to admitted evidence. (Rollo, p. 7)

The petitioners contend that the respondent company no longer had the right to rescind the contract of insurance as rescission

must allegedly be done during the lifetime of the insured within two years and prior to the commencement of action.

The contention is without merit.

The pertinent section in the Insurance Code provides:

Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this

chapter, such right must be exercised previous to the commencement of an action on the contract.


After a policy of life insurance made payable on the death of the insured shall have been in force during the

lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the

insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment

or misrepresentation of the insured or his agent.

According to the petitioners, the Insurance Law was amended and the second paragraph of Section 48 added to prevent 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 or concealment of

material facts insofar as health and previous diseases are concerned if the insurance has been in force for at least two years

during the insured's lifetime. The phrase "during the lifetime" found in Section 48 simply means that the policy is no longer

considered in force after the insured has died. The key phrase in the second paragraph of Section 48 is "for a period of two

years."

As noted by the Court of Appeals, to wit:

The policy was issued on November 6,1973 and the insured died on April 26,1975. The policy was thus in force

for a 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's fraudulent concealment or misrepresentation. Moreover, respondent company rescinded the

contract of insurance and refunded the premiums paid on September 11, 1975, previous to the

commencement of this action on November 27,1975. (Rollo, pp. 99-100)

xxx xxx xxx

The petitioners contend that there could have been no concealment or misrepresentation by their late father because Tan Lee

Siong did not have to buy insurance. He was only pressured by insistent salesmen to do so. The petitioners state:

Here then is a case of an assured whose application was submitted because of repeated visits and solicitations

by the insurer's agent. Assured did not knock at the door of the insurer to buy insurance. He was the object of

solicitations and visits.

Assured was a man of means. He could have obtained a bigger insurance, not just P 80,000.00. If his purpose

were to misrepresent and to conceal his ailments in anticipation of death during the two-year period, he

certainly could have gotten a bigger insurance. He did not.

Insurer Philamlife could have presented as witness its Medical Examiner Dr. Urbano Guinto. It was he who

accomplished the application, Part II, medical. Philamlife did not.

Philamlife could have put to the witness stand its Agent Bienvenido S. Guinto, a relative to Dr. Guinto, Again

Philamlife did not. (pp. 138139, Rollo)

xxx xxx xxx

This Honorable Supreme Court has had occasion to denounce the pressure and practice indulged in by agents in

selling insurance. At one time or another most of us have been subjected to that pressure, that practice. This

court took judicial cognizance of the whirlwind pressure of insurance selling-especially of the agent's practice of

'supplying the information, preparing and answering the application, submitting the application to their

companies, concluding the transactions and otherwisesmoothing out all difficulties.

We call attention to what this Honorable Court said in Insular Life v. Feliciano, et al., 73 Phil. 201; at page 205:

It is of common knowledge that the selling of insurance today is subjected to the whirlwind pressureof modern

salesmanship.

Insurance companies send detailed instructions to their agents to solicit and procure applications.

These agents are to be found all over the length and breadth of the land. They are stimulated to more active

efforts by contests and by the keen competition offered by the other rival insurance companies.

They supply all the information, prepare and answer the applications, submit the applications to their

companies, conclude the transactions, and otherwise smooth out all difficulties.

The agents in short do what the company set them out to do.

The Insular Life case was decided some forty years ago when the pressure of insurance salesmanship was not

overwhelming as it is now; when the population of this country was less than one-fourth of what it is now;


when the insurance companies competing with one another could be counted by the fingers. (pp. 140-142,

Rollo)

xxx xxx xxx

In the face of all the above, it would be unjust if, having been subjected to the whirlwind pressure of insurance

salesmanship this Court itself has long denounced, the assured who dies within the two-year period, should

stand charged of fraudulent concealment and misrepresentation." (p. 142, Rollo)

The legislative answer to the arguments posed by the petitioners is the "incontestability clause" added by the second paragraph

of Section 48.

The insurer has two years from the date of issuance of the insurance contract or of its last reinstatement within which to contest

the policy, whether or not, the insured still lives within such period. After two years, the defenses of concealment or

misrepresentation, no matter how patent or well founded, no longer lie. Congress felt this was a sufficient answer to the various

tactics employed by insurance companies to avoid liability. The petitioners' interpretation would give rise to the incongruous

situation where the beneficiaries of an insured who dies right after taking out and paying for a life insurance policy, would be

allowed to collect on the policy even if the insured fraudulently concealed material facts.

The petitioners argue that no evidence was presented to show that the medical terms were explained in a layman's language to

the insured. They state that the insurer should have presented its two medical field examiners as witnesses. Moreover, the

petitioners allege that the policy intends that the medical examination must be conducted before its issuance otherwise the

insurer "waives whatever imperfection by ratification."

We agree with the Court of Appeals which ruled:

On the other hand, petitioners argue that no evidence was presented by respondent company to show that the

questions appearing in Part II of the application for insurance were asked, explained to and understood by the

deceased so as to prove concealment on his part. The same is not well taken. The deceased, by affixing his

signature on the application form, affirmed the correctness of all the entries and answers appearing therein. It

is but to be expected that he, a businessman, would not have affixed his signature on the application form

unless he clearly understood its significance. For, the presumption is that a person intends the ordinary

consequence of his voluntary act and takes ordinary care of his concerns. [Sec. 5(c) and (d), Rule 131, Rules of

Court].

The evidence for respondent company shows that on September 19,1972, the deceased was examined by Dr.

Victoriano Lim and was found to be diabetic and hypertensive; that by January, 1973, the deceased was

complaining of progressive weight loss and abdominal pain and was diagnosed to be suffering from hepatoma,

(t.s.n. August 23, 1976, pp. 8-10; Exhibit 2). Another physician, Dr. Wenceslao Vitug, testified that the deceased

came to see him on December 14, 1973 for consolation and claimed to have been diabetic for five years. (t.s.n.,

Aug. 23,1976, p. 5; Exhibit 6) Because of the concealment made by the deceased of his consultations and

treatments for hypertension, diabetes and liver disorders, respondent company was thus misled into accepting

the risk and approving his application as medically standard (Exhibit 5- C) and dispensing with further medical

investigation and examination (Exhibit 5-A). For as long as no adverse medical history is revealed in the

application form, an applicant for insurance is presumed to be healthy and physically fit and no further medical

investigation or examination is conducted by respondent company. (t.s.n., April 8,1976, pp. 6-8). (Rollo, pp. 96-

98)

There is no strong showing that we should apply the "fine print" or "contract of adhesion" rule in this case. (Sweet Lines, Inc. v.

Teves, 83 SCRA 361 [1978]). The petitioners cite:

It is a matter of common knowledge that large amounts of money are collected from ignorant persons by

companies and associations which adopt high sounding titles and print the amount of benefits they agree to

pay in large black-faced type, following such undertakings by fine print conditions which destroy the substance

of the promise. All provisions, conditions, or exceptions which in any way tend to work a forfeiture of the policy

should be construed most strongly against those for whose benefit they are inserted, and most favorably

toward those against whom they are meant to operate. (Trinidad v. Orient Protective Assurance Assn., 67 Phil.

184)


There is no showing that the questions in the application form for insurance regarding the insured's medical history are in smaller

print than the rest of the printed form or that they are designed in such a way as to conceal from the applicant their importance.

If a warning in bold red letters or a boxed warning similar to that required for cigarette advertisements by the Surgeon General of

the United States is necessary, that is for Congress or the Insurance Commission to provide as protection against high pressure

insurance salesmanship. We are limited in this petition to ascertaining whether or not the respondent Court of Appeals

committed reversible error. It is the petitioners' burden to show that the factual findings of the respondent court are not based

on substantial evidence or that its conclusions are contrary to applicable law and jurisprudence. They have failed to discharge

that burden.

WHEREFORE, the petition is hereby DENIED for lack of merit. The questioned decision of the Court of Appeals is AFFIRMED.



ManilaEN BANCG.R. No. L-20853 May 29, 1967BONIFACIO BROS., INC., ET AL., plaintiffs-appellants, vs.ENRIQUE MORA, ET AL., defendants-appellees.G. Magsaysay for plaintiffs-appellants.Abad Santos and Pablo for defendant-appellee H. E. Reyes, Inc.J. P. Santilla and A. D. Hidalgo, Jr. for other defendant-appellee.

CASTRO, J.:

This is an appeal from the decision of the Court of First Instance of Manila, Branch XV, in civil case 48823, affirming the decision

of the Municipal Court of Manila, declaring the H.S. Reyes, Inc. as having a better right than the Bonifacio Bros., Inc. and the Ayala

Auto Parts Company, appellants herein, to the proceeds of motor insurance policy A-0615, in the sum of P2,002.73, issued by the

State Bonding & Insurance Co. Inc., and directing payment of the said amount to the H. Reyes, Inc.

Enrique Mora, owner of Oldsmobile sedan model 1956, bearing plate No. QC- mortgaged the same to the H.S. Reyes, Inc., with

the condition that the former would insure the automobile with the latter as beneficiary. The automobile was thereafter insured

on June 23, 1959 with the State Bonding & Insurance Co., Inc., and motor car insurance policy A-0615 was issued to Enrique

Mora, the pertinent provisions of which read:

1. The Company (referring to the State Bonding & Insurance Co., Inc.) will, subject to the Limits of Liability, indemnify the

Insured against loss of or damages to the Motor Vehicle and its accessories and spare parts whilst thereon; (a) by

accidental collision or overturning or collision or overturning consequent upon mechanical breakdown or consequent

upon wear and tear,

x x x x x x x x x

2. At its own option the Company may pay in cash the amount of the loss or damage or may repair, reinstate, or replace

the Motor Vehicle or any part thereof or its accessories or spare parts. The liability of the Company shall not exceed the

value of the parts whichever is the less. The Insured's estimate of value stated in the schedule will be the maximum

amount payable by the Company in respect of any claim for loss or damage.1äwphï1.ñët

x x x x x x x x x

4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage for which the Company may be

liable under this Policy provided that: — (a) The estimated cost of such repair does not exceed the Authorized Repair

Limit, (b) A detailed estimate of the cost is forwarded to the Company without delay, subject to the condition that "Loss,

if any is payable to H.S. Reyes, Inc.," by virtue of the fact that said Oldsmobile sedan was mortgaged in favor of the said

H.S. Reyes, Inc. and that under a clause in said insurance policy, any loss was made payable to the H.S. Reyes, Inc. as

Mortgagee;

x x x x x x x x x

During the effectivity of the insurance contract, the car met with an accident. The insurance company then assigned the accident

to the Bayne Adjustment Co. for investigation and appraisal of the damage. Enrique Mora, without the knowledge and consent of

the H.S. Reyes, Inc., authorized the Bonifacio Bros. Inc. to furnish the labor and materials, some of which were supplied by the

Ayala Auto Parts Co. For the cost of labor and materials, Enrique Mora was billed at P2,102.73 through the H.H. Bayne

Adjustment Co. The insurance company after claiming a franchise in the amount of P100, drew a check in the amount of

P2,002.73, as proceeds of the insurance policy, payable to the order of Enrique Mora or H.S. Reyes,. Inc., and entrusted the check

to the H.H. Bayne Adjustment Co. for disposition and delivery to the proper party. In the meantime, the car was delivered to


Enrique Mora without the consent of the H.S. Reyes, Inc., and without payment to the Bonifacio Bros. Inc. and the Ayala Auto

Parts Co. of the cost of repairs and materials.

Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio Bros. Inc. and the Ayala Auto Parts

Co. filed on May 8, 1961 a complaint with the Municipal Court of Manila against Enrique Mora and the State Bonding & Insurance

Co., Inc. for the collection of the sum of P2,002.73 The insurance company filed its answer with a counterclaim for interpleader,

requiring the Bonifacio Bros. Inc. and the H.S. Reyes, Inc. to interplead in order to determine who has better right to the

insurance proceeds in question. Enrique Mora was declared in default for failure to appear at the hearing, and evidence against

him was received ex parte. However, the counsel for the Bonifacio Bros. Inc., Ayala Auto Parts Co. and State Bonding & Insurance

Co. Inc. submitted a stipulation of facts, on the basis of which are Municipal Court rendered a decision declaring the H.S. Reyes,

Inc. as having a better right to the disputed amount and ordering State Bonding & Insurance Co. Inc. to pay to the H. S. Reyes, Inc.

the said sum of P2,002.73. From this decision, the appellants elevated the case to the Court of First Instance of Manila which the

stipulation of facts was reproduced. On October 19, 1962 the latter court rendered a decision, affirming the decision of the

Municipal Court. The Bonifacio Bros. Inc. and the Ayala Auto Parts Co. moved for reconsideration of the decision, but the trial

court denied the motion. Hence, this appeal.

The main issue raised is whether there is privity of contract between the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. on the

one hand and the insurance company on the other. The appellants argue that the insurance company and Enrique Mora are

parties to the repair of the car as well as the towage thereof performed. The authority for this assertion is to be found, it is

alleged, in paragraph 4 of the insurance contract which provides that "the insured may authorize the repair of the Motor Vehicle

necessitated by damage for which the company may be liable under the policy provided that (a) the estimated cost of such repair

does not exceed the Authorized Repair Limit, and (b) a detailed estimate of the cost is forwarded to the company without delay."

It is stressed that the H.H. Bayne Adjustment Company's recommendation of payment of the appellants' bill for materials and

repairs for which the latter drew a check for P2,002.73 indicates that Mora and the H.H. Bayne Adjustment Co. acted for and in

representation of the insurance company.

This argument is, in our view, beside the point, because from the undisputed facts and from the pleadings it will be seen that the

appellants' alleged cause of action rests exclusively upon the terms of the insurance contract. The appellants seek to recover the

insurance proceeds, and for this purpose, they rely upon paragraph 4 of the insurance contract document executed by and

between the State Bonding & Insurance Company, Inc. and Enrique Mora. The appellants are not mentioned in the contract as

parties thereto nor is there any clause or provision thereof from which we can infer that there is an obligation on the part of the

insurance company to pay the cost of repairs directly to them. It is fundamental that contracts take effect only between the

parties thereto, except in some specific instances provided by law where the contract contains some stipulation in favor of a third

person.1 Such stipulation is known as stipulation pour autrui or a provision in favor of a third person not a pay to the contract.

Under this doctrine, a third person is allowed to avail himself of a benefit granted to him by the terms of the contract, provided

that the contracting parties have clearly and deliberately conferred a favor upon such person.2 Consequently, a third person not a

party to the contract has no action against the parties thereto, and cannot generally demand the enforcement of the same. 3 The

question of whether a third person has an enforcible interest in a contract, must be settled by determining whether the

contracting parties intended to tender him such an interest by deliberately inserting terms in their agreement with the avowed

purpose of conferring a favor upon such third person. In this connection, this Court has laid down the rule that the fairest test to

determine whether the interest of a third person in a contract is a stipulation pour autrui or merely an incidental interest, is to

rely upon the intention of the parties as disclosed by their contract.4 In the instant case the insurance contract does not contain

any words or clauses to disclose an intent to give any benefit to any repairmen or materialmen in case of repair of the car in

question. The parties to the insurance contract omitted such stipulation, which is a circumstance that supports the said

conclusion. On the other hand, the "loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S.

Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they intended to benefit.

We likewise observe from the brief of the State Bonding & Insurance Company that it has vehemently opposed the assertion or

pretension of the appellants that they are privy to the contract. If it were the intention of the insurance company to make itself

liable to the repair shop or materialmen, it could have easily inserted in the contract a stipulation to that effect. To hold now that

the original parties to the insurance contract intended to confer upon the appellants the benefit claimed by them would require


us to ignore the indespensable requisite that a stipulation pour autrui must be clearly expressed by the parties, which we cannot

do.

As regards paragraph 4 of the insurance contract, a perusal thereof would show that instead of establishing privity between the

appellants and the insurance company, such stipulation merely establishes the procedure that the insured has to follow in order

to be entitled to indemnity for repair. This paragraph therefore should not be construed as bringing into existence in favor of the

appellants a right of action against the insurance company as such intention can never be inferred therefrom.

Another cogent reason for not recognizing a right of action by the appellants against the insurance company is that "a policy of

insurance is a distinct and independent contract between the insured and insurer, and third persons have no right either in a

court of equity, or in a court of law, to the proceeds of it, unless there be some contract of trust, expressed or implied between

the insured and third person."5 In this case, no contract of trust, expressed or implied exists. We, therefore, agree with the trial

court that no cause of action exists in favor of the appellants in so far as the proceeds of insurance are concerned. The appellants'

claim, if at all, is merely equitable in nature and must be made effective through Enrique Mora who entered into a contract with

the Bonifacio Bros. Inc. This conclusion is deducible not only from the principle governing the operation and effect of insurance

contracts in general, but is clearly covered by the express provisions of section 50 of the Insurance Act which read:

The insurance shall be applied exclusively to the proper interests of the person in whose name it is made unless

otherwise specified in the policy.

The policy in question has been so framed that "Loss, if any, is payable to H.S. Reyes, Inc.," which unmistakably shows the

intention of the parties.

The final contention of the appellants is that the right of the H.S. Reyes, Inc. to the insurance proceeds arises only if there was

loss and not where there is mere damage as in the instant case. Suffice it to say that any attempt to draw a distinction between

"loss" and "damage" is uncalled for, because the word "loss" in insurance law embraces injury or damage.

Loss in insurance, defined. — The injury or damage sustained by the insured in consequence of the happening of one or

more of the accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to

indemnify the insured. (1 Bouv. Ins. No. 1215; Black's Law Dictionary; Cyclopedic Law Dictionary, cited in Martin's Phil.

Commercial Laws, Vol. 1, 1961 ed. p. 608).

Indeed, according to sec. 120 of the Insurance Act, a loss may be either total or partial.

Accordingly, the judgment appealed from is hereby affirmed, at appellants' cost.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.



ManilaFIRST DIVISIONG.R. No. L-51221 July 31, 1991FIRST INTEGRATED BONDING & INSURANCE COMPANY, INC., petitioner, vs.HON. HAROLD M. HERNANDO, VICTORINO ADVINCULA, ROMANA ADVINCULA, SILVERIO BLANCO & THE SHERIFF OF MANILA and his DEPUTY SHERIFFS, respondents.Octavio M. Zavas for petitioner.

MEDIALDEA, J.:p

This petition for certiorari under Rule 65 of the Revised Rules of Court, seeks the annulment of the amended decision of

respondent trial court in Civil Case No. 1104 for allegedly having been rendered in excess of jurisdiction. The same decision was

sought to be annulled in a petition for relief from judgment filed in the same case but the petition was denied for having been

filed out of time.

The narration of facts below was taken from the pleadings filed by the parties. As regards the proceedings following the

promulgation of the amended decision, the dates were supplied in the Comment and Answer filed by respondent judge and

which were not disputed by petitioner.

Silverio Blanco was the owner of a passenger jeepney which he insured against liabilities for death and injuries to third persons

with First Integrated Bonding and Insurance Company, Inc. (First Insurance) under Motor Vehicle Policy No. V-0563751 with the

face value of P30,000.00 (p. 15, Rollo).

On November 25, 1976, the said jeepney driven by Blanco himself bumped a five-year old child, Deogracias Advincula, causing

the latter's death.

A complaint (pp. 38-41, Rollo) for damages was brought by the child's parents, the Advincula spouses, against Silverio Blanco.

First Insurance was also impleaded in the complaint as the insurer. The complaint was docketed as Civil Case No. 1104 of the

Court of First Instance of Abra (now Regional Trial Court).

Summons were served on Silverio Blanco and First Insurance. However, only Blanco filed an answer. Upon motion of the

Advincula spouses, First Insurance was declared in default (p. 45, Rollo) on January 19, 1978. Thereafter, a pre-trial conference

was conducted where the Advincula spouses presented the following documentary evidence:

Exhibit "A" — Marriage Certificate, Exhibit B — Birth Certificate, Exhibit B-1 — The Certificate of the Local Civil

Registrar, Exhibit C — Certificate of Death, Exhibit C-1 — the official receipt of the burial permit, Exhibit C-2 —

the autopsy report, Exhibit D — filing fee under official receipt in the amount of P80.00, Exhibit D-1 — list of

actual expenses in connection with the death and burial of the deceased Advincula, Exhibit E — Criminal Case

No. 666 of the Municipal Court of Tayum, Abra entitled People of the Philippines versus Silverio Blanco for

Homicide thru Reckless Imprudence, Exhibit E-1 — sworn statement of Severino Balneg Exhibit F — Tax

Declaration No. 906 in the name of Maria Blanco delivered by Silverio Blanco to the plaintiffs as pledge of

Silverio Blanco to settle the civil aspect of this case. (pp. 14-15, Rollo)

On the basis of the evidence presented by the Advincula spouses, judgment was rendered by the trial court on March 1, 1978,

the dispositive portion of which states:

WHEREFORE, for moral damages, this court adjudicates to the plaintiffs P5,000.00; for the life of Deogracias

Advincula P12,000.00, for funeral expenses, P3,663.50 and for attomey's fees, P3,000.00. The satisfaction of

these damages divulged (sic) independently now upon the defendant insurance company and to pay the costs

of the proceedings.


SO ORDERED. (p. 16, Rollo)

First Insurance received a copy of the decision on March 14, 1978. Upon motion of the Advincula spouses, the decision was

amended on March 27, 1978 (p. 17, Rollo), which, in addition to the damages granted in the original decision, awarded damages

in the amount of P6,336.50 to Silverio Blanco. The dispositive portion of the amended decision is quoted, as follows:

WHEREFORE, for moral damages, this Court hereby adjudicates to the plaintiffs P5,000.00; for the life of

Deogracias Advincula P12,000.00; for funeral expenses P3,663.50 and for attorney's fees P3,000.00 or in the

total amount of P23,663.50 which must be satisfied independently by the defendant First Integrated Bonding

and Insurance Company, Inc. in favor of the plaintiffs and the balance of P6,336.50 shall also be paid by said

defendant Insurance Company to the defendant Silverio Blanco. The grand total under the insurance policy,

Exhibit H, is P30,000.00.

The defendant Insurance Company to pay the costs of the proceedings.

SO ORDERED. (p. 17, Rollo)

The amended decision was received by First Instance on April 11, 1978. On May 11, 1978, entry of judgment was made, a copy of

which was furnished First Insurance on June 27, 1978. Upon motion of the Advincula spouses, an order granting execution was

issued by the court on June 14, 1978, which was received by First Insurance on August 1, 1978 (pp. 31-32, Rollo).

On September 5, 1978, First Insurance filed a petition for relief from judgment in the same case. The petition was set for hearing

on September 28, 1978. No appearance was entered by First Insurance on the said date. On October 4, 1978, the trial court

issued an order, denying the petition for relief from judgment (pp. 33-34, Rollo), a copy of which was received by First Insurance

on October 10, 1978 (p. 35, Rollo). The order reads:

The records of this case show that on April 11, 1978, the defendant First Integrated Bonding and Insurance

Company, Inc. received a copy of the amended decision dated March 27, 1978 and found on page 30 of the

records of this case; on May 11, 1978, the Deputy Clerk of Court entered the corresponding entry of judgment

and the First Integrated Bonding and Insurance Company, Inc. received a copy thereof on June 27, 1978, On

June 13, 1978, the plaintiffs moved for execution of judgment and the same was granted pursuant to an Order

of this Court dated June 14, 1978 and found on page 35 of the records of this case.

And now comes the petition for relief from the Order of execution and judgment with preliminary injunction

filed by First integrated Bonding and Insurance Co., Inc. and which was received by this Court on September 5,

1978; on September 28, 1978, the plaintiffs filed their written opposition to the petition for relief from

judgment and preliminary injunction. The opposition is based on three grounds, namely: 1. that the petition is

filed out of time; 2. that there was gross and notorious negligence of the Insurance Company; 3. that this case is

within the jurisdiction of this Court and therefore the cause of action of the plaintiffs deserves judicial

consideration.

It was on April 11, 1978 that the First Integrated Bonding and Insurance Co., Inc. received the amended decision

and the petition for relief from Order of Execution and judgment with preliminary injunction was filed on

September 5, 1978 or a period of 191 days already expired, that is, more than 6 months already as required by

Section 3, Rule 38 of the Rules of Court. Consequently, the first ground invoked by the opposition must be

sustained. On the second ground, the records of this case show that the First Integrated Bonding and Insurance

Co., Inc. was duly summoned and served a copy of the complaint on August 16, 1977 and it was received by the

President of the Insurance Company as shown by the certificate of Service of the Sheriff of Manila and found in

page 12 and page 13 of the records of this case; after the reglementary period to file an answer expired, the

plaintiffs move to declare the defendant insurance company in default and likewise asked the Court that they

be allowed to present their evidence on January 23, 1978 and which was granted by this Court pursuant to an

order dated January 19, 1978 and found on page 16 of the records of this case; after the reception of the

evidence for the plaintiffs this Court rendered a decision on March 1, 1978 and which is found on pages 23 to

26 of the records of this case; subsequently, on March 27, 1978, an amended decision was issued by this Court

and it is found on page 30 of the records of this case. Clearly, therefore, the First Integrated Bonding and

Insurance Co., Inc. was grossly and notoriously negligent in giving the proper attention to this case. This kind of

gross and notorious negligence can not be considered excusable. The last ground is that this Court has


jurisdiction over the plaintiffs' cause of action against the insurance company. This ground is well-taken because

according to Section 416 of the Philippine Insurance Code, Presidential Decree No. 612, it provides that the

authority to adjudicate granted to the Commissioner of insurance shall be concurrent with that of the civil

courts, but the filing of a complaint with the commissioner shall preclude the civil courts from taking cognizance

of a suit involving the same subject matter. Furthermore, the plaintiffs did not intervene in the criminal aspect

of this case, instead, they filed a separate and independent civil action on July 26, 1977 and which is now the

present Civil Case No. 1104. It may be added, that the matter of exhaustion of administrative remedy may be

waived which has been so in the present case because the First Integrated Bonding and Insurance Co., Inc. was

declared in default.

In view of all the foregoing considerations, the petition for relief from the order of execution and judgment with

preliminary injunction, for lack of merit, is hereby denied.

SO ORDERED. (pp. 33-34, Rollo)

First Insurance filed a motion for reconsideration of the order denying the petition for relief on May 14, 1979. The motion was set

for hearing and again no appearance was entered by the movant First Insurance (p. 35, Rollo), prompting the trial court to deny

the same.

On August 13, 1979, the herein petitioner First Insurance filed this petition for certiorari on the following grounds:

1. The trial court erred in deciding for the respondent spouse(s) where there exists no cause of action against

the herein petitioner.

2. The trial court erred when it abbreviated the proceeding and rendered judgment based only on the

documentary evidence presented during the pre-trial conference.

3. The trial court erred in holding the petitioner liable in excess of the limits of liability as provided for in the

policy contract.

On August 20, 1979, this Court issued a temporary restraining order enjoining the respondents from enforcing the Writ of

Execution dated August 1, 1978 (p. 19, Rollo)

It is the contention of the petitioner that the Advincula spouses have no cause of action against it. As parents of the victim, they

may proceed against the driver, Silverio Blanco on the basis of the provisions of the New Civil Code. However, they have no cause

of action against First Insurance, because they are not parties to the insurance contract.

It is settled that where the insurance contract provides for indemnity against liability to a third party, such third party can directly

sue the insurer (Caguia v. Fieldman's Insurance Co., Inc., G. R. No. 23276, November 29, 1968, 26 SCRA 178). The liability of the

insurer to such third person is based on contract while the liability of the insured to the third party is based on tort (Malayan

Insurance Co., Inc. v. CA, L-36413, September 26, 1988, 165 SCRA 536). This rule was explained in the case of Shafer v. Judge, RTC

of Olongapo City, Br. 75, G.R. No. 78848, November 14, 1988:

The injured for whom the contract of insurance is intended can sue directly the insurer. The general purpose of

statutes enabling an injured person to proceed directly against the insurer is to protect injured persons against

the insolvency of the insured who causes such injury, and to give such injured person a certain beneficial

interest in the proceeds of the policy, and statutes are to be liberally construed so that their intended purpose

may be accomplished. It has even been held that such a provision creates a contractual relation which inures to

the benefit of any and every person who may be negligently injured by the named insured as if such injured

person were specifically named in the policy.

In the event that the injured fails or refuses to include the insurer as party defendant in his claim for indemnity

against the insured, the latter is not prevented by law to avail of the procedural rules intended to avoid

multiplicity of suits. Not even a "no action" clause under the policy which requires that a final judgment be first

obtained against the insured and that only thereafter can the person insured recover on the policy can prevail

over the Rules of Court provisions aimed at avoiding multiplicity of suits. (p. 391, 167 SCRA) (emphasis supplied)

First Insurance cannot evade its liability as insurer by hiding under the cloak of the insured. Its liability is primary and not

dependent on the recovery of judgment from the insured.

Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to provide

compensation for the death or bodily injuries suffered by innocent third parties or passengers as a result of a


negligent operation and use of motor vehicles. The victims and/or their dependents are assured of immediate

financial assistance, regardless of the financial capacity of the motor vehicle owners.

. . . the insurer's liability accrues immediately upon the occurrence of the injury or event upon which the liability

depends, and does not depend on the recovery of judgment by the injured party against the insured (Shafer v.

Judge, RTC of Olongapo, supra, p. 390).

It is true that Blanco denied that he was negligent when the incident occurred. However, during the pre-trial conference, when

respondent judge admitted all the exhibits of the plaintiffs to abbreviate the proceedings, no objection was interposed by Blanco.

When a decision was rendered based only on the exhibits of the plaintiffs, Blanco likewise did not object. No motion for

reconsideration was filed by either Blanco or First Insurance. Hence, the decision became final and may no longer be attacked.

It should be noted also that First Insurance was declared in default because of its failure to file an answer. As far as it was

concerned, it failed to raise any triable issue. It lost its standing in court and judgment may be rendered against it on the basis

only of the evidence of the Advincula spouses.

Petitioner had been given its day in court. Despite its having been declared in default and its failure to file a motion to lift the

order of default, it was still notified of the subsequent proceedings in the trial court. But no positive step was taken by it on time

to vacate the order of default, the decision nor the amended decision. Instead, it chose to file a petition for relief from judgment

on September 1, 1978 almost five (5) months from its receipt of a copy of the amended decision on April 11, 1978. Clearly, the

said petition for relief from judgment was filed out of time. The rules require that such petitions must be filed within sixty (60)

days after the petitioner learns of the judgment and not more than six (6) months after such judgment was entered (Rule 38,

Section 3). The period fixed by Rule 38 of the Rules of Court is non-extendible and never interrupted. It is not subject to any

condition or contingency, because it is itself devised to meet a condition or contingency. The remedy allowed by Rule 38 is an act

of grace, as it were, designed to give the aggrieved party another and last chance. Being in the position of one who begs, such

party's privilege is not to impose conditions, haggle or dilly-dally, but to grab what is offered him. (Palomares, et al. v. Jimenez, et

al., 90 Phil. 773, XVII, L.J., No. 3, p. 136, Rafanan v. Rafanan, 35 O.G. 228; Santos v. Manila Electric Co., G.R. L-7735, December 29,

1955; Gana v. Abaya, G.R. No. L-3106, December 29, 1955, cited in Vicente J. Francisco, The Revised Rules of Court of the

Philippines, Annotated and Commented, Vol, 11, p. 580.

It appears that the award of damages in favor of Blanco has no basis. The complaint in Civil case 1104 was for damages brought

by the spouses against Blanco and First Insurance. Blanco did not put up any claim against the latter. However, since the said

decision had already become final and executory, it can no longer be corrected or amended. In the same vein, the claim of

petitioner that its liability to third parties under the insurance policy is limited to P20,000.00 only can no longer be given

consideration at this late stage, when the decision of the trial court awarding damages had already become final and executory.

ACCORDINGLY, finding respondent judge to have acted within his jurisdiction in denying the petition for relief from judgment, the

petition is DISMISSED. The questioned decision of the trial court in Civil Case No. 1104 having become final and executory, is

AFFIRMED. The temporary restraining order issued on August 20, 1979 is hereby lifted. Costs against petitioner.

SO ORDERED.



ManilaSECOND DIVISIONG.R. No. 78848 November 14, 1988SHERMAN SHAFER, petitioner, vs.HON. JUDGE, REGIONAL TRIAL COURT OF OLONGAPO CITY, BRANCH 75, and MAKATI INSURANCE COMPANY, INC., respondents.R.M. Blanco for petitioner.Camacho and Associates for respondents.

PADILLA, J.:

This is a petition for review on certiorari of the Order * of the Regional Trial Court, Olongapo City, Branch 75, dated 24 April 1986

dismissing petitioner's third party complaint filed in Criminal Case No. 381-85, a prosecution for reckless imprudence resulting in

damage to property and serious physical injuries. 1

On 2 January 1985, petitioner Sherman Shafer obtained a private car policy, GA No. 0889, 2 over his Ford Laser car with Plate No.

CFN-361 from Makati Insurance Company, Inc., for third party liability (TPL).<äre||anº•1àw> During the effectivity of the policy,

an information 3 for reckless imprudence resulting in damage to property and serious physical injuries was filed against

petitioner. The information reads as follows:

That on or about the seventeeth (17th) day of May 1985, in the City of Olongapo, Philippines, and within the

jurisdiction of this Honorable Court, the above-named accused, being then the driver and in actual physical

control of a Ford Laser car bearing Plate No. CFN-361, did then and there wilfully, unlawfully and criminally

drive, operate and manage the said Ford Laser car in a careless, reckless and imprudent manner without

exercising reasonable caution, diligence and due care to avoid accident to persons and damage to property and

in disregard of existing traffic rules and regulations, causing by such carelessness, recklessness and imprudence

the said Ford Laser car to hit and bump a Volkswagen car bearing Plate No. NJE-338 owned and driven by Felino

llano y Legaspi, thereby causing damage in the total amount of P12,345.00 Pesos, Philippine Currency, and as a

result thereof one Jovencio Poblete, Sr. who was on board of the said Volkswagen car sustained physical

injuries, to wit:

1. 2 cm. laceration of left side of tongue.

2. 6 cm. laceration with partial transection of muscle (almost full thickness) left side of face.

3. Full thickness laceration of lower lip and adjacent skin.

which injuries causing [sic] deformity on the face. 4

The owner of the damaged Volkswagen car filed a separate civil action against petitioner for damages, while Jovencio Poblete,

Sr., who was a passenger in the Volkswagen car when allegedly hit and bumped by the car driven by petitioner, did not reserve

his right to file a separate civil action for damages. Instead, in the course of the trial in the criminal case, Poblete, Sr. testified on

his claim for damages for the serious physical injuries which he claimed to have sustained as a result of the accident.

Upon motion, petitioner was granted leave by the former presiding judge of the trail court to file a third party complaint against

the herein private respondent, Makati Insurance Company, Inc. Said insurance company, however, moved to vacate the order

granting leave to petitioner to file a third party complaint against it and/or to dismiss the same. 5

On 24 April 1987, the court a quo issued an order dismissing the third party complaint on the ground that it was premature,

based on the premise that unless the accused (herein petitioner) is found guilty and sentenced to pay the offended party (Poblete

Sr.) indemnity or damages, the third party complaint is without cause of action. The court further stated that the better

procedure is for the accused (petitioner) to wait for the outcome of the criminal aspect of the case to determine whether or not Insurance Law August 24, 2015 22

the accused, also the third party plaintiff, has a cause of action against the third party defendant for the enforcement of its third

party liability (TPL) under the insurance contract.6 Petitioner moved for reconsideration of said order, but the motion was

denied; 7 hence, this petition.

It is the contention of herein petitioner that the dismissal of the third party complaint amounts to a denial or curtailment of his

right to defend himself in the civil aspect of the case. Petitioner further raises the legal question of whether the accused in a

criminal action for reckless imprudence, where the civil action is jointly prosecuted, can legally implead the insurance company as

third party defendant under its private car insurance policy, as one of his modes of defense in the civil aspect of said proceedings.

On the other hand, the insurance company submits that a third party complaint is, under the rules, available only if the

defendant has a right to demand contribution, indemnity, subrogation or any other relief in respect of plaintiff's claim, to

minimize the number of lawsuits and avoid the necessity of bringing two (2) or more suits involving the same subject matter. The

insurance company further contends that the contract of motor vehicle insurance, the damages and attorney's fees claimed by

accused/third party plaintiff are matters entirely different from his criminal liability in the reckless imprudence case, and that

petitioner has no cause of action against the insurer until petitioner's liability shall have been determined by final judgment, as

stipulated in the contract of insurance. 8

Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to provide compensation for the

death or bodily injuries suffered by innocent third parties or passengers as a result of a negligent operation and use of motor

vehicles. 9 The victims and/or their dependents are assured of immediate financial assistance, regardless of the financial capacity

of motor vehicle owners.

The liability of the insurance company under the Compulsory Motor Vehicle Liability Insurance is for loss or damage. Where an

insurance policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of the injury or

event upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the

insured. 10

The injured for whom the contract of insurance is intended can sue directly the insurer. The general purpose of statutes enabling

an injured person to proceed directly against the insurer is to protect injured persons against the insolvency of the insured who

causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy, and statutes are to

be liberally construed so that their intended purpose may be accomplished. It has even been held that such a provision creates a

contractual relation which inures to the benefit of any and every person who may be negligently injured by the named insured as

if such injured person were specifically named in the policy. 11

In the event that the injured fails or refuses to include the insurer as party defendant in his claim for indemnity against the

insured, the latter is not prevented by law to avail of the procedural rules intended to avoid multiplicity of suits. Not even a "no

action" clause under the policy-which requires that a final judgment be first obtained against the insured and that only thereafter

can the person insured recover on the policy can prevail over the Rules of Court provisions aimed at avoiding multiplicity of

suits. 12

In the instant case, the court a quo erred in dismissing petitioner's third party complaint on the ground that petitioner had no

cause of action yet against the insurance company (third party defendant). There is no need on the part of the insured to wait for

the decision of the trial court finding him guilty of reckless imprudence. The occurrence of the injury to the third party

immediately gave rise to the liability of the insurer under its policy.

A third party complaint is a device allowed by the rules of procedure by which the defendant can bring into the original suit a

party against whom he will have a claim for indemnity or remuneration as a result of a liability established against him in the

original suit. 13 Third party complaints are allowed to minimize the number of lawsuits and avoid the necessity of bringing two (2)

or more actions involving the same subject matter. They are predicated on the need for expediency and the avoidance of

unnecessary lawsuits. If it appears probable that a second action will result if the plaintiff prevails, and that this result can be

avoided by allowing the third party complaint to remain, then the motion to dismiss the third party complaint should be

denied. 14

Respondent insurance company's contention that the third party complaint involves extraneous matter which will only clutter,

complicate and delay the criminal case is without merit. An offense causes two (2) classes of injuries the first is the social injury

produced by the criminal act which is sought to be repaired thru the imposition of the corresponding penalty, and the second is


the personal injury caused to the victim of the crime, which injury is sought to be compensated thru indemnity, which is civil in

nature. 15

In the instant case, the civil aspect of the offense charged, i.e., serious physical injuries allegedly suffered by Jovencio Poblete, Sr.,

was impliedly instituted with the criminal case. Petitioner may thus raise all defenses available to him insofar as the criminal and

civil aspects of the case are concerned. The claim of petitioner for payment of indemnity to the injured third party, under the

insurance policy, for the alleged bodily injuries caused to said third party, arose from the offense charged in the criminal case,

from which the injured (Jovencio Poblete, Sr.) has sought to recover civil damages. Hence, such claim of petitioner against the

insurance company cannot be regarded as not related to the criminal action.

WHEREFORE, the instant petition is GRANTED. The questioned order dated 24 April 1987 is SET ASIDE and a new one entered

admitting petitioner's third party complaint against the private respondent Makati Insurance Company, Inc.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras, Sarmiento and Regalado, JJ., concur.



ManilaFIRST DIVISIONG.R. No. 71360 July 16, 1986DEVELOPMENT INSURANCE CORPORATION, petitioner, vs.INTERMEDIATE APPELLATE COURT, and PHILIPPINE UNION REALTY DEVELOPMENT CORPORATION,respondents.Balgos & Perez Law Offices for petitioner.Agustin M. Sundiam for private respondent.

CRUZ, J.:

A fire occurred in the building of the private respondent and it sued for recovery of damages from the petitioner on the basis of

an insurance contract between them. The petitioner allegedly failed to answer on time and was declared in default by the trial

court. A judgment of default was subsequently rendered on the strength of the evidence submitted ex parte by the private

respondent, which was allowed full recovery of its claimed damages. On learning of this decision, the petitioner moved to lift the

order of default, invoking excusable neglect, and to vacate the judgment by default. Its motion was denied. It then went to the

respondent court, which affirmed the decision of the trial court in toto. The petitioner is now before us, hoping presumably that

it will fare better here than before the trial court and the Intermediate Appellate Court. We shall see.

On the question of default, the record argues mightily against it. It is indisputable that summons was served on it, through its

senior vice-president, on June 19,1980. On July 14, 1980, ten days after the expiration of the original 15-day period to answer

(excluding July 4), its counsel filed an ex parte motion for an extension of five days within which to file its answer. On July 18,

1980, the last day of the requested extension-which at the time had not yet been granted-the same counsel filed a second

motion for another 5-day extension, fourteen days after the expiry of the original period to file its answer. The trial court

nevertheless gave it five days from July 14, 1980, or until July 19, 1980, within which to file its answer. But it did not. It did so only

on July 26, 1980, after the expiry of the original and extended periods, or twenty-one days after the July 5, deadline. As a

consequence, the trial court, on motion of the private respondent filed on July 28, 1980, declared the petitioner in default. This

was done almost one month later, on August 25, 1980. Even so, the petitioner made no move at all for two months thereafter. It

was only on October 27, 1980, more than one month after the judgment of default was rendered by the trial court on September

26, 1980, that it filed a motion to lift the order of default and vacate the judgment by default. 1

The pattern of inexcusable neglect, if not deliberate delay, is all too clear. The petitioner has slumbered on its right and awakened

too late. While it is true that in Trajano v. Cruz, 2 which it cites, this Court declared "that judgments by default are generally

looked upon with disfavor," the default judgment in that case was set aside precisely because there was excusable neglect,

Summons in that case was served through "an employee in petitioners' office and not the person in-charge," whereas in the

present case summons was served on the vice-president of the petitioner who however refused to accept it. Furthermore, as

Justice Guerrero noted, there was no evidence showing that the petitioners in Trajano intended to unduly delay the case.

Besides, the petitioners in Trajano had a valid defense against the complaint filed against them, and this justified a relaxation of

the procedural rules to allow full hearing on the substantive issues raised. In the instant case, by contrast, the petitioner must just

the same fail on the merits even if the default orders were to be lifted. As the respondent Court observed, "Nothing would be

gained by having the order of default set aside considering the appellant has no valid defense in its favor." 3


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 with which even law students

are familiar. The circumstance that the building insured is seven stories high and so had to be provided with elevators-a legal

requirement known to the petitioner as an insurance company-makes its contention all the more ridiculous.

No less preposterous is the petitioner's claim that the elevators were insured after the occurrence of the fire, a case of shutting

the barn door after the horse had escaped, so to speak. 4 This pretense merits scant attention. Equally undeserving of serious

consideration is its submission that the elevators were not damaged by the fire, against the report of The arson investigators of

the INP 5 and, indeed, its own expressed admission in its answer 6 where it affirmed that the fire "damaged or destroyed a portion

of the 7th floor of the insured building and more particularly a Hitachi elevator control panel." 7

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 is this Court justified in

reversing their determination, also factual, of the value of the loss sustained by the private respondent in the amount of

P508,867.00.

The only remaining question to be settled is the amount of the indemnity due to the private respondent under its insurance

contract with the petitioner. This will require an examination of this contract, Policy No. RY/F-082, as renewed, by virtue of which

the petitioner insured the private respondent's building against fire for P2,500,000.00.8

The petitioner argues that since at the time of the fire the building insured was worth P5,800,000.00, the private respondent

should be considered its own insurer for the difference between that amount and the face value of the policy and should

share pro rata in the loss sustained. Accordingly, the private respondent is entitled to an indemnity of only P67,629.31, the rest of

the loss to be shouldered by it alone. In support of this contention, the petitioner 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 sum

insured thereon then the insured shall be considered as being his own insurer for the difference, and shall bear

a ratable proportion of the loss accordingly. Every item, if more than one, of the policy shall be separately

subject to this condition.

However, there is no evidence on record that the building was worth P5,800,000.00 at the time of the loss; only the petitioner

says so and it does not back up its self-serving estimate with any independent corroboration. On the contrary, the building was

insured at P2,500,000.00, and this must be considered, by agreement of the insurer and the insured, the actual value of the

property insured on the day the fire occurred. This valuation becomes even more believable if it is remembered that at the time

the building was burned it was still under construction and not yet completed.

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 total or 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 of this 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 in which the value

of the thing insured is not agreed upon but is left to be ascertained in case of loss. " This means that the actual loss, as

determined, will represent the total indemnity due the insured from the insurer except only that the total 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 in the absence

of proof that it was arrived at arbitrarily. There is no such showing. Hence, applying the open policy clause as expressly agreed

upon by the parties in their contract, we hold that the private respondent is entitled to the payment 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, was the first

indication of the petitioner's intention to prolong this case and postpone the discharge of its obligation to the private respondent

under this agreement. That intention was revealed further in its subsequent acts-or inaction-which indeed 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.


WHEREFORE, the appealed decision is affirmed in full, with costs against the petitioner.

SO ORDERED.

Yap (Chairman), Narvasa, Melencio-Herrera and Paras, JJ., concur.


ManilaSECOND DIVISIONG.R. No. 89741 March 13, 1991SUN INSURANCE OFFICE, LTD., petitioner, vs.COURT OF APPEALS and EMILIO TAN, respondents.Alfonso Felix, Jr., for petitioner.William B. Devilles for private respondent.

PARAS, J.:

This is a petition for review on certiorari of the June 20, 1989 decision 1 of the Court of Appeals in CA-G.R. SP. Case No. 13848

affirming the November 3, 1987 and January 14, 1988 orders of the Regional Trial Court 2 of Iloilo, Branch 27, in Civil Case No.

16817, denying the motion to dismiss and the subsequent motion for reconsideration; and the August 22, 1989 resolution of the

same court denying the motion for reconsideration.

On August 15, 1983, herein private respondent Emilio Tan took from herein petitioner a P300,000.00 property insurance policy to

cover his interest in the electrical supply store of his brother housed in a building in Iloilo City. Four (4) days after the issuance of

the policy, the building was burned including the insured store. On August 20, 1983, Tan filed his claim for fire loss with

petitioner, but on February 29, 1984, petitioner wrote Tan denying the latter's claim. On April 3, 1984, Tan wrote petitioner,

seeking reconsideration of the denial of his claim. On September 3, 1985, Tan's counsel wrote the Insurer inquiring about the

status of his April 3, 1984 request for reconsideration. Petitioner answered the letter on October 11, 1985, advising Tan's counsel

that the Insurer's denial of Tan's claim remained unchanged, enclosing copies of petitioners' letters of February 29, 1984 and May

17, 1985 (response to petition for reconsideration). On November 20, 1985, Tan filed Civil Case No. 16817 with the Regional Trial

Court of Iloilo, Branch 27 but petitioner filed a motion to dismiss on the alleged ground that the action had already prescribed.

Said motion was denied in an order dated November 3, 1987; and petitioner's motion for reconsideration was also denied in an

order dated January 14, 1988.

Petitioner went to the Court of Appeals and sought the nullification of the said Nov. 3, 1987 and January 14, 1988 orders, but the

Court of Appeals, in its June 20, 1989 decision denied the petition and held that the court a quomay continue until its final

termination.

A motion for reconsideration was filed, but the same was denied by the Court of Appeals in its resolution of August 22, 1989

(Rollo, pp. 42-43).

Hence, the instant petition.

The Second Division of this Court, in its resolution of December 18, 1989 resolved to give due course to the petition and to

require the parties to submit simultaneous memoranda (Ibid., p. 56).

Petitioner raised two (2) issues which may be stated in substance, as follows:

I

WHETHER OR NOT THE FILING OF A MOTION FOR RECONSIDERATION INTERRUPTS THE TWELVE (12) MONTHS

PRESCRIPTIVE PERIOD TO CONTEST THE DENIAL OF THE INSURANCE CLAIM; and

II

WHETHER OR NOT THE REJECTION OF THE CLAIM SHALL BE DEEMED FINAL ONLY IF IT CONTAINS WORDS TO THE EFFECT

THAT THE DENIAL IS FINAL.


The answer to the first issue is in the negative.

While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the

insured and strictly against the insurer company, yet, contracts of insurance, like other contracts, are to be construed according

to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they

must be taken and understood in their plain, ordinary and popular sense (Pacific Banking Corp. v. Court of Appeals, 168 SCRA 1

[1988]).

Condition 27 of the Insurance Policy, which is the subject of the conflicting contentions of the parties, reads:

27. Action or suit clause — If a claim be made and rejected and an action or suit be not commenced either in the

Insurance Commission or in any court of competent jurisdiction within twelve (12) months from receipt of notice of such

rejection, or in case of arbitration taking place as provided herein, within twelve (12) months after due notice of the

award made by the arbitrator or arbitrators or umpire, then the claim shall for all purposes be deemed to have been

abandoned and shall not thereafter be recoverable hereunder.

As the terms are very clear and free from any doubt or ambiguity whatsoever, it must be taken and understood in its plain,

ordinary and popular sense pursuant to the above-cited principle laid down by this Court.

Respondent Tan, in his letter addressed to the petitioner insurance company dated April 3, 1984 (Rollo, pp. 50-52), admitted that

he received a copy of the letter of rejection on April 2, 1984. Thus, the 12-month prescriptive period started to run from the said

date of April 2, 1984, for such is the plain meaning and intention of Section 27 of the insurance policy.

While the question of whether or not the insured was definitely advised of the rejection of his claim through the letter (Rollo, pp.

48-49) of petitioner dated February 29, 1984, may arise, the certainty of the denial of Tan's claim was clearly manifested in said

letter, the pertinent portion of which reads:

We refer to your claim for fire loss of 20th August, 1983 at Huervana St., La Paz, Iloilo City.

We now have the report of our adjusters and after a thorough and careful review of the same and the accompanying

documents at hand, we are rejecting, much to our regrets, liability for the claim under our policies for one or more of

the following reasons:

1. xxx xxx xxx

2. xxx xxx xxx

For your information, we have referred all these matters to our lawyers for their opinion as to the compensability of

your claim, particularly referring to the above violations. It is their opinion and in fact their strong recomendation to us

to deny your claim. By this letter, we do not intend to waive or relinquish any of our rights or defenses under our policies

of insurance.

It is also important to note the principle laid down by this Court in the case of Ang v. Fulton Fire Insurance Co., (2 SCRA 945

[1961]), to wit:

The condition contained in an insurance policy that claims must be presented within one year after rejection is not

merely a procedural requirement but an important matter essential to a prompt settlement of claims against insurance

companies as it demands that insurance suits be brought by the insured while the evidence as to the origin and cause of

destruction have not yet disappeared.

In enunciating the above-cited principle, this Court had definitely settled the rationale for the necessity of bringing suits against

the Insurer within one year from the rejection of the claim. The contention of the respondents that the one-year prescriptive

period does not start to run until the petition for reconsideration had been resolved by the insurer, runs counter to the declared

purpose for requiting that an action or suit be filed in the Insurance Commission or in a court of competent jurisdiction from the

denial of the claim. To uphold respondents' contention would contradict and defeat the very principle which this Court had laid

down. Moreover, it can easily be used by insured persons as a scheme or device to waste time until any evidence which may be

considered against them is destroyed.

It is apparent that Section 27 of the insurance policy was stipulated pursuant to Section 63 of the Insurance Code, which states

that:

Sec. 63. A condition, stipulation or agreement in any policy of insurance, limiting the time for commencing an action

thereunder to a period of less than one year from the time when the cause of action accrues, is void.

The crucial issue in this case is: When does the cause of action accrue?


In support of private respondent's view, two rulings of this Court have been cited, namely, the case of Eagle Star Insurance Co. vs.

Chia Yu (96 Phil. 696 (1955]), where the Court held:

The right of the insured to the payment of his loss accrues from the happening of the loss. However, the cause of action

in an insurance contract does not accrue until the insured's claim is finally rejected by the insurer. This is because before

such final rejection there is no real necessity for bringing suit.

and the case of ACCFA vs. Alpha Insurance & Surety Co., Inc. (24 SCRA 151 [1968], holding that:

Since "cause of action" requires as essential elements not only a legal right of the plaintiff and a correlated obligation of

the defendant in violation of the said legal right, the cause of action does not accrue until the party obligated (surety)

refuses, expressly or impliedly, to comply with its duty (in this case to pay the amount of the bond).

Indisputably, the above-cited pronouncements of this Court may be taken to mean that the insured's cause of action or his right

to file a claim either in the Insurance Commission or in a court of competent jurisdiction commences from the time of the denial

of his claim by the Insurer, either expressly or impliedly.

But as pointed out by the petitioner insurance company, the rejection referred to should be construed as the rejection, in the

first instance, for if what is being referred to is a reiterated rejection conveyed in a resolution of a petition for reconsideration,

such should have been expressly stipulated.

Thus, to allow the filing of a motion for reconsideration to suspend the running of the prescriptive period of twelve months, a

whole new body of rules on the matter should be promulgated so as to avoid any conflict that may be brought by it, such as:

a) whether the mere filing of a plea for reconsideration of a denial is sufficient or must it be supported by

arguments/affidavits/material evidence;

b) how many petitions for reconsideration should be permitted?

While in the Eagle Star case (96 Phil. 701), this Court uses the phrase "final rejection", the same cannot be taken to mean the

rejection of a petition for reconsideration as insisted by respondents. Such was clearly not the meaning contemplated by this

Court. The Insurance policy in said case provides that the insured should file his claim, first, with the carrier and then with the

insurer. The "final rejection" being referred to in said case is the rejection by the insurance company.

PREMISES CONSIDERED, the questioned decision of the Court of Appeals is REVERSED and SET ASIDE, and Civil Case No. 16817

filed with the Regional Trial Court is hereby DISMISSED.

SO ORDERED.

Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.



ManilaFIRST DIVISION G.R. No. 103883 November 14, 1996JACQUELINE JIMENEZ VDA. DE GABRIEL, petitioner, vs.HON. COURT OF APPEALS and FORTUNE INSURANCE & SURETY COMPANY, INC., respondents.

VITUG, J.:

The petition for review on certiorari in this case seeks the reversal of the decision 1 of the Court of Appeals setting aside the

judgment of the Regional Trial Court of Manila, Branch 55, which has ordered private respondent Fortune Insurance & Surety

Company, Inc., to pay petitioner Jacqueline Jimenez vda. de Gabriel, the surviving spouse and beneficiary in an accident (group)

insurance of her deceased husband, the amount of P100,000.00, plus legal interest.

Marcelino Gabriel, the insured, was employed by Emerald Construction & Development Corporation ("ECDC") at its construction

project in Iraq. He was covered by a personal accident insurance in the amount of P100,000.00 under a group policy 2 procured

from private respondent by ECDC for its overseas workers. The insured risk was for "(b)odily injury caused by violent accidental

external and visible means which injury (would) solely and independently of any other cause" 3 result in death or disability.

On 22 May 1982, within the life of the policy, Gabriel died in Iraq. A year later, or on 12 July 1983, ECDC reported Gabriel's death

to private respondent by telephone. 4 Among the documents thereafter submitted to private respondent were a copy of the

death certificate 5 issued by the Ministry of Health of the Republic of Iraq — which stated

REASON OF DEATH: UNDER EXAMINATION NOW — NOT YET KNOWN 6 —

and an autopsy report 7 of the National Bureau of Investigation ("NBI") to the effect that "(d)ue to advanced state of

postmortem decomposition, cause of death (could) not be determined." 8 Private respondent referred the insurance

claim to Mission Adjustment Service, Inc.

Following a series of communications between petitioner and private respondent, the latter, on 22 September 1983, ultimately

denied the claim of ECDC on the ground of prescription. 9 Petitioner went to the Regional Trial Court of Manila. In her complaint

against ECDC and private respondent, she averred that her husband died of electrocution while in the performance of his work

and prayed for the recovery of P100,000.00 for insurance indemnification and of various other sums by way of actual, moral, and

exemplary damages, plus attorney's fees and costs of suit.

Private respondent filed its answer, which was not verified, admitting the genuineness and due execution of the insurance policy;

it alleged, however, that since both the death certificate issued by the Iraqi Ministry of Health and the autopsy report of the NBI

failed to disclose the cause of Gabriel's death, it denied liability under the policy. In addition, private respondent raised the

defense of "prescription," invoking Section 384 10 of the Insurance Code. Later, private respondent filed an amended answer, still

unverified, reiterating its original defenses but, this time, additionally putting up a counterclaim and a crossclaim.

The trial court dismissed the case against ECDC for the failure of petitioner to take steps to cause the service of the

fourth alias summons on ECDC. The dismissal was without prejudice.

The case proceeded against private respondent alone. On 28 May 1987, the trial court rendered its decision 11 in favor (partly) of

petitioner's claim. In arriving at its conclusion, the trial court held that private respondent was deemed to have waived the

defense, i.e., that the cause of Gabriel's death was not covered by the policy, when the latter failed to impugn by evidence


petitioner's averment on the matter. With regard to the defense of prescription, the court considered the complaint to have been

timely filed or within one (1) year from private respondent's denial of the claim.

Petitioner and private respondent both appealed to the Court of Appeals. Petitioner contended that the lower court should have

awarded all the claims she had asked for. Private respondent asserted, on its part, that the lower court erred in ruling (a) that the

insurer had waived the defense that Gabriel's death was not caused by the insured peril ("violent accidental external and visible

means") specified in the policy and (b) that the cause of action had not prescribed.

The Court of Appeals, on 18 September 1991, reversed the decision of the lower court. The appellate court held that petitioner

had failed to substantiate her allegation that her husband's death was caused by a risk insured against. The appellate court

observed that the only evidence presented by petitioner, in her attempt to show the circumstances that led to the death of the

insured, were her own affidavit and a letter allegedly written by a co-worker of the deceased in Iraq which, unfortunately for her,

were held to be both

hearsay. 12

The motion for reconsideration was denied. 13

Petitioner's recourse to this Court must also fail.

On the issue of "prescription," private respondent correctly invoked Section 384 of the Insurance Code; viz:

Sec. 384. Any person having any claim upon the policy issued pursuant to this chapter shall, without any

unnecessary delay, present to the insurance company concerned a written notice of claim setting forth the

nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice of claim

must be filed within six months from date of the accident, otherwise, the claim shall be deemed waived. Action

or suit for recovery of damage due to loss or injury must be brought, in proper cases, with the Commissioner or

the Courts within one year from denial of the claim, otherwise, the claimant's right of action shall prescribe.

The notice of death was given to private respondent, concededly, more than a year after the death of petitioner's

husband. Private respondent, in invoking prescription, was not referring to the one-year period from the denial of the

claim within which to file an action against an insurer but obviously to the written notice of claim that had to be

submitted within six months from the time of the accident.

Petitioner argues that private respondent must be deemed to have waived its right to controvert the claim, that is, to show that

the cause of death is an excepted peril, by failing to have its answers (to the Request for Admission sent by petitioner) duly

verified. It is true that a matter of which a written request for admission is made shall be deemed impliedly admitted "unless,

within a period designated in the request, which shall not be less than ten (10) days after service thereof, or within such further

time as the court may allow on motion and notice, the party to whom the request is directed serves upon the party requesting

the admission a sworn statement either denying specifically the matters of which an admission is requested or setting forth in

detail the reasons why he cannot truthfully either admit or deny those matters;" 14 however, the verification, like in most cases

required by the rules of procedure, is a formal, not jurisdictional, requirement, and mainly intended to secure an assurance that

matters which are alleged are done in good faith or are true and correct and not of mere speculation. When circumstances

warrant, the court may simply order the correction of unverified pleadings or act on it and waive strict compliance with the rules

in order that the ends of justice may thereby be served. 15 In the case of answers to written requests for admission particularly,

the court can allow the party making the admission, whether made expressly or deemed to have been made impliedly, "to

withdraw or amend it upon such terms as may be just." 16

The appellate court acted neither erroneously nor with grave abuse of discretion when it seconded the court a quo and ruled:

As to the allegation of the plaintiff-appellant that the matters requested by her to be admitted by the

defendant-appellant under the Request for Admission were already deemed admitted by the latter for its

failure to answer it under oath, has already been properly laid to rest when the lower court in its Order of May

28, 1987 correctly ruled:

At the outset, it must be stressed that the defendant indeed filed a written answer to the

request for admission, sans verification. The case of Motor Service Co., Inc. vs. Yellow Taxicab

Co., Inc., et al. may not therefore be controlling, or actually opposite. In said case, there was

an absolute failure on the part of the defendant to answer the request for admission, and

thus the court was justified in rendering a summary judgment. Here, however, as clearly


intimated elsewhere above, the defendant answered in writing practically every question

posed in the request for admission. The Court believes, under the peculiar circumstance, that

the more controlling jurisprudence on the mater would be those cited by the defendant in its

memorandum, particularly the case of Quimpo vs. de la Victoria, 46 SCRA 139.

Prescinding from the foregoing, there is absolutely no basis in fact and in law for the lower court to hold that

the appellant insurance company was deemed to have waived the defense, that the death of plaintiff-

appellant's husband was not caused by violent accidental external and visible means' as contemplated in the

insurance policy. The Death Certificate (Exh. 9) and the Autopsy Report (Exh. 10), more than controverted the

allegation of the plaintiff-appellant as to the cause of death of her husband. 17

The insurance policy expressly provided that to be compensable, the injury or death should be caused by "violent accidental

external and visible means." In attempting to prove the cause of her husband's death, all that petitioner could submit were a

letter sent to her by her husband's co-worker, stating that Gabriel died when he tried to haul water out of a tank while its

submerged motor was still functioning, 18 and petitioner's sinumpaang

salaysay 19 which merely confirmed the receipt and stated contents of the letter. Said the appellate court in this regard:

. . . . It must be noted that the only evidence presented by her to prove the circumstances surrounding her

husband's death were her purported affidavit and the letter allegedly written by the deceased co-worker in

Iraq. The said affidavit however suffers from procedural infirmity as it was not even testified to or identified by

the affiant (plaintiff-appellant) herself. This self-serving affidavit therefore is a mere hearsay under the rules, . . .

.

xxx xxx xxx

In like manner, the letter allegedly written by the deceased's co-worker which was never identified to in court

by the supposed author, suffers from the same defect as the affidavit of the plaintiff-appellant. 20

Not one of the other documents submitted, to wit, the POEA decision, dated 06 June 1984, 21 the death certificate issued

by the Ministry of Health of Iraq and the NBI autopsy report, 22 could give any probative value to petitioner's claim. The

POEA decision did not make any categorical holding on the specific cause of Gabriel's death. Neither did the death

certificate issued by the health authorities in Iraq nor the NBI autopsy report provide any clue on the cause of death. All

that appeared to be clear was the fact of Gabriel's demise on 22 May 1982 in Iraq.

Evidence, in fine, is utterly wanting to establish that the insured suffered from an accidental death, the risk covered by the policy.

In an accident insurance, the insured's beneficiary has the burden of proof in demonstrating that the cause of death is due to the

covered peril. Once that fact is established, the burden then shifts to the insurer to show any excepted peril that may have been

stipulated by the parties. An "accident insurance" is not thus to be likened to an ordinary life insurance where the insured's

death, regardless of the cause thereof, would normally be compensable. The latter is akin in property insurance to an "all risk"

coverage where the insured, on the aspect of burden of proof, has merely to show the condition of the property insured when

the policy attaches and the fact of loss or damage during the period of the policy and where, thereafter, the burden would be on

the insurer to show any "excluded peril." When, however, the insured risk is specified, like in the case before us, it lies with the

claimant of the insurance proceeds to initially prove that the loss is caused by the covered peril.

While petitioner did fail in substantiating her allegation that the death of her husband was due to an accident, considering,

however, the uncertainty on the real cause of death, private respondent might find its way clear into still taking a second look on

the matter and perhaps help ease the load of petitioner's loss.

WHEREFORE, the decision appealed from is AFFIRMED. No costs.

SO ORDERED.

Padilla, Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.



ManilaFIRST DIVISIONG.R. No. 151890 June 20, 2006PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner, vs.TRANS-ASIA SHIPPING LINES, INC., Respondent.x- - - - - - - - - - - - - - - - - - - - - - - - - xG.R. No. 151991 June 20, 2006TRANS-ASIA SHIPPING LINES, INC., petitioner, vs.PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent.D E C I S I O N

CHICO-NAZARIO, J:

This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner Prudential Guarantee and Assurance,

Inc. (PRUDENTIAL) in G.R. No. 151890 and Trans-Asia Shipping Lines, Inc. (TRANS-ASIA) in G.R. No. 151991, assailing the

Decision1 dated 6 November 2001 of the Court of Appeals in CA G.R. CV No. 68278, which reversed the Judgment 2 dated 6 June

2000 of the Regional Trial Court (RTC), Branch 13, Cebu City in Civil Case No. CEB-20709. The 29 January 2002 Resolution 3 of the

Court of Appeals, denying PRUDENTIAL’s Motion for Reconsideration and TRANS-ASIA’s Partial Motion for Reconsideration of the

6 November 2001 Decision, is likewise sought to be annulled and set aside.

The Facts

The material antecedents as found by the court a quo and adopted by the appellate court are as follows:

Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of payment of premiums, defendant

[PRUDENTIAL] insured M/V Asia Korea for loss/damage of the hull and machinery arising from perils, inter alia, of fire and

explosion for the sum of P40 Million, beginning [from] the period [of] July 1, 1993 up to July 1, 1994. This is evidenced by Marine

Policy No. MH93/1363 (Exhibits "A" to "A-11"). On October 25, 1993, while the policy was in force, a fire broke out while [M/V

Asia Korea was] undergoing repairs at the port of Cebu. On October 26, 1993 plaintiff [TRANS-ASIA] filed its notice of claim for

damage sustained by the vessel. This is evidenced by a letter/formal claim of even date (Exhibit "B"). Plaintiff [TRANS-ASIA]

reserved its right to subsequently notify defendant [PRUDENTIAL] as to the full amount of the claim upon final survey and

determination by average adjuster Richard Hogg International (Phil.) of the damage sustained by reason of fire. An adjuster’s

report on the fire in question was submitted by Richard Hogg International together with the U-Marine Surveyor Report (Exhibits

"4" to "4-115").

On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan and Trust receipt", a portion of which read

(sic):

"Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan

without interest under Policy No. MH 93/1353 [sic], repayable only in the event and to the extent that any net recovery is made

by Trans-Asia Shipping Corporation, from any person or persons, corporation or corporations, or other parties, on account of loss

by any casualty for which they may be liable occasioned by the 25 October 1993: Fire on Board." (Exhibit "4")

In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiff’s claim (Exhibit "5"). The letter reads:

"After a careful review and evaluation of your claim arising from the above-captioned incident, it has been ascertained that you

are in breach of policy conditions, among them "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED". Accordingly, we regret

to advise that your claim is not compensable and hereby DENIED."

This was followed by defendant’s letter dated 21 July 1997 requesting the return or payment of the P3,000,000.00 within a

period of ten (10) days from receipt of the letter (Exhibit "6").4


Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint5 for Sum of Money against PRUDENTIAL with the

RTC of Cebu City, docketed as Civil Case No. CEB-20709, wherein TRANS-ASIA sought the amount of P8,395,072.26 from

PRUDENTIAL, alleging that the same represents the balance of the indemnity due upon the insurance policy in the total amount

of P11,395,072.26. TRANS-ASIA similarly sought interest at 42% per annum citing Section 2436 of Presidential Decreee No. 1460,

otherwise known as the "Insurance Code," as amended.

In its Answer,7 PRUDENTIAL denied the material allegations of the Complaint and interposed the defense that TRANS-ASIA

breached insurance policy conditions, in particular: "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED." PRUDENTIAL

further alleged that it acted as facts and law require and incurred no liability to TRANS-ASIA; that TRANS-ASIA has no cause of

action; and, that its claim has been effectively waived and/or abandoned, or it is estopped from pursuing the same. By way of a

counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it allegedly advanced to TRANS-ASIA by way of a loan

without interest and without prejudice to the final evaluation of the claim, including the amounts of P500,000.00, for survey fees

and P200,000.00, representing attorney’s fees.

The Ruling of the Trial Court

On 6 June 2000, the court a quo rendered Judgment8 finding for (therein defendant) PRUDENTIAL. It ruled that a determination

of the parties’ liabilities hinged on whether TRANS-ASIA violated and breached the policy conditions on WARRANTED VESSEL

CLASSED AND CLASS MAINTAINED. It interpreted the provision to mean that TRANS-ASIA is required to maintain the vessel at a

certain class at all times pertinent during the life of the policy. According to the court a quo, TRANS-ASIA failed to prove

compliance of the terms of the warranty, the violation thereof entitled PRUDENTIAL, the insured party, to rescind the contract.9

Further, citing Section 10710 of the Insurance Code, the court a quo ratiocinated that the concealment made by TRANS-ASIA that

the vessel was not adequately maintained to preserve its class was a material concealment sufficient to avoid the policy and,

thus, entitled the injured party to rescind the contract. The court a quo found merit in PRUDENTIAL’s contention that there was

nothing in the adjustment of the particular average submitted by the adjuster that would show that TRANS-ASIA was not in

breach of the policy. Ruling on the denominated loan and trust receipt, the court a quo said that in substance and in form, the

same is a receipt for a loan. It held that if TRANS-ASIA intended to receive the amount of P3,000,000.00 as advance payment, it

should have so clearly stated as such.

The court a quo did not award PRUDENTIAL’s claim for P500,000.00, representing expert survey fees on the ground of lack of

sufficient basis in support thereof. Neither did it award attorney’s fees on the rationalization that the instant case does not fall

under the exceptions stated in Article 220811 of the Civil Code. However, the court a quo granted PRUDENTIAL’s counterclaim

stating that there is factual and legal basis for TRANS-ASIA to return the amount of P3,000,000.00 by way of loan without

interest.

The decretal portion of the Judgment of the RTC reads:

WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to prove a cause of action.

On defendant’s counterclaim, plaintiff is directed to return the sum of P3,000,000.00 representing the loan extended to it by the

defendant, within a period of ten (10) days from and after this judgment shall have become final and executory.12

The Ruling of the Court of Appeals

On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 November 2001, reversed the 6 June 2000 Judgment

of the RTC.

On the issue of TRANS-ASIA’s alleged breach of warranty of the policy condition CLASSED AND CLASS MAINTAINED, the Court of

Appeals ruled that PRUDENTIAL, as the party asserting the non-compensability of the loss had the burden of proof to show that

TRANS-ASIA breached the warranty, which burden it failed to discharge. PRUDENTIAL cannot rely on the lack of certification to

the effect that TRANS-ASIA was CLASSED AND CLASS MAINTAINED as its sole basis for reaching the conclusion that the warranty

was breached. The Court of Appeals opined that the lack of a certification does not necessarily mean that the warranty was

breached by TRANS-ASIA. Instead, the Court of Appeals considered PRUDENTIAL’s admission that at the time the insurance

contract was entered into between the parties, the vessel was properly classed by Bureau Veritas, a classification society

recognized by the industry. The Court of Appeals similarly gave weight to the fact that it was the responsibility of Richards Hogg

International (Phils.) Inc., the average adjuster hired by PRUDENTIAL, to secure a copy of such certification to support its

conclusion that mere absence of a certification does not warrant denial of TRANS-ASIA’s claim under the insurance policy.


In the same token, the Court of Appeals found the subject warranty allegedly breached by TRANS-ASIA to be a rider which, while

contained in the policy, was inserted by PRUDENTIAL without the intervention of TRANS-ASIA. As such, it partakes of a nature of a

contract d’adhesion which should be construed against PRUDENTIAL, the party which drafted the contract. Likewise, according to

the Court of Appeals, PRUDENTIAL’s renewal of the insurance policy from noon of 1 July 1994 to noon of 1 July 1995, and then

again, until noon of 1 July 1996 must be deemed a waiver by PRUDENTIAL of any breach of warranty committed by TRANS-ASIA.

Further, the Court of Appeals, contrary to the ruling of the court a quo, interpreted the transaction between PRUDENTIAL and

TRANS-ASIA as one of subrogation, instead of a loan. The Court of Appeals concluded that TRANS-ASIA has no obligation to pay

back the amount of P3,000.000.00 to PRUDENTIAL based on its finding that the aforesaid amount was PRUDENTIAL’s partial

payment to TRANS-ASIA’s claim under the policy. Finally, the Court of Appeals denied TRANS-ASIA’s prayer for attorney’s fees,

but held TRANS-ASIA entitled to double interest on the policy for the duration of the delay of payment of the unpaid balance,

citing Section 24413 of the Insurance Code.

Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wise:

WHEREFORE, the foregoing consideration, We find for Appellant. The instant appeal is ALLOWED and the Judgment appealed

from REVERSED. The P3,000,000.00 initially paid by appellee Prudential Guarantee Assurance Incorporated to appellant Trans-

Asia and covered by a "Loan and Trust Receipt" dated 29 May 1995 is HELD to be in partial settlement of the loss suffered by

appellant and covered by Marine Policy No. MH93/1363 issued by appellee. Further, appellee is hereby ORDERED to pay

appellant the additional amount of P8,395,072.26 representing the balance of the loss suffered by the latter as recommended by

the average adjuster Richard Hogg International (Philippines) in its Report, with double interest starting from the time Richard

Hogg’s Survey Report was completed, or on 13 August 1996, until the same is fully paid.

All other claims and counterclaims are hereby DISMISSED.

All costs against appellee.14

Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for Reconsideration and Partial Motion for

Reconsideration thereon, respectively, which motions were denied by the Court of Appeals in the Resolution dated 29 January

2002.

The Issues

Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No. 151890, relying on the following

grounds, viz:

I.

THE AWARD IS GROSSLY UNCONSCIONABLE.

II.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO VIOLATION BY TRANS-ASIA OF A MATERIAL WARRANTY,

NAMELY, WARRANTY CLAUSE NO. 5, OF THE INSURANCE POLICY.

III.

THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS INSURER HAD THE BURDEN OF PROVING THAT THE ASSURED,

TRANS-ASIA, VIOLATED A MATERIAL WARRANTY.

IV.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE EMBODIED IN THE INSURANCE POLICY CONTRACT

WAS A MERE RIDER.

V.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS OF THE POLICY CONSTITUTED A WAIVER ON THE

PART OF PRUDENTIAL OF THE BREACH OF THE WARRANTY BY TRANS-ASIA.

VI.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST RECEIPT" EXECUTED BY TRANS-ASIA IS AN ADVANCE

ON THE POLICY, THUS CONSTITUTING PARTIAL PAYMENT THEREOF.

VII.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY PRUDENTIAL OF THE FINDINGS OF RICHARDS HOGG IS

INDICATIVE OF A WAIVER ON THE PART OF PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE WARRANTY.

VIII.


THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN FINDING THAT PRUDENTIAL "UNJUSTIFIABLY REFUSED"

TO PAY THE CLAIM AND IN ORDERING PRUDENTIAL TO PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE INTEREST FROM 13

AUGUST 1996, UNTIL [THE] SAME IS FULLY PAID.15

Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for Review docketed as G.R. No. 151991,

raising the following grounds for the allowance of the petition, to wit:

I.

THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ATTORNEY’S FEES TO PETITIONER TRANS-ASIA ON THE GROUND

THAT SUCH CAN ONLY BE AWARDED IN THE CASES ENUMERATED IN ARTICLE 2208 OF THE CIVIL CODE, AND THERE BEING NO

BAD FAITH ON THE PART OF RESPONDENT PRUDENTIAL IN DENYING HEREIN PETITIONER TRANS-ASIA’S INSURANCE CLAIM.

II.

THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06 NOVEMBER 2001 SHOULD BE CONSTRUED TO MEAN DOUBLE

INTEREST BASED ON THE LEGAL INTEREST OF 12%, OR INTEREST AT THE RATE OF 24% PER ANNUM.16

In our Resolution of 2 December 2002, we granted TRANS-ASIA’s Motion for Consolidation17 of G.R. Nos. 151890 and

151991;18 hence, the instant consolidated petitions.

In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANS-ASIA arising from the subject insurance

contract; (2) the liability, if any, of TRANS-ASIA to PRUDENTIAL arising from the transaction between the parties as evidenced by a

document denominated as "Loan and Trust Receipt," dated 29 May 1995; and (3) the amount of interest to be imposed on the

liability, if any, of either or both parties.

Ruling of the Court

Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not questions of fact, may be

raised.19 This rule may be disregarded only when the findings of fact of the Court of Appeals are contrary to the findings and

conclusions of the trial court, or are not supported by the evidence on record.20 In the case at bar, we find an incongruence

between the findings of fact of the Court of Appeals and the court a quo, thus, in our determination of the issues, we are

constrained to assess the evidence adduced by the parties to make appropriate findings of facts as are necessary.

I.

A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy condition on WARRANTED VESSEL

CLASSED AND CLASS MAINTAINED, as contained in the subject insurance contract.

In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an express and material warranty in the

subject insurance contract, i.e., Marine Insurance Policy No. MH93/1363, specifically Warranty Clause No. 5 thereof, which

stipulates that the insured vessel, "M/V ASIA KOREA" is required to be CLASSED AND CLASS MAINTAINED. According to

PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA KOREA" was in violation of the

warranty as it was not CLASSED AND CLASS MAINTAINED. PRUDENTIAL submits that Warranty Clause No. 5 was a condition

precedent to the recovery of TRANS-ASIA under the policy, the violation of which entitled PRUDENTIAL to rescind the contract

under Sec. 7421 of the Insurance Code.

The warranty condition CLASSED AND CLASS MAINTAINED was explained by PRUDENTIAL’s Senior Manager of the Marine and

Aviation Division, Lucio Fernandez. The pertinent portions of his testimony on direct examination is reproduced hereunder, viz:

ATTY. LIMQ Please tell the court, Mr. Witness, the result of the evaluation of this claim, what final action was taken?A It was eventually determined that there was a breach of the policy condition, and basically there is a breach of policy warranty condition and on that basis the claim was denied.Q To refer you (sic) the "policy warranty condition," I am showing to you a policy here marked as Exhibits "1", "1-A" series, please point to the warranty in the policy which you said was breached or violated by the plaintiff which constituted your basis for denying the claim as you testified.A Warranted Vessel Classed and Class Maintained.ATTY. LIMWitness pointing, Your Honor, to that portion in Exhibit "1-A" which is the second page of the policy below the printed words: "Clauses, Endorsements, Special Conditions and Warranties," below this are several typewritten clauses and the witness pointed out in particular the clause reading: "Warranted Vessel Classed and Class Maintained."COURTQ Will you explain that particular phrase?A Yes, a warranty is a condition that has to be complied with by the insured. When we say a class warranty, it must be entered in the classification society.COURTSlowly.


WITNESS(continued)A A classification society is an organization which sets certain standards for a vessel to maintain in order to maintain their membership in the classification society. So, if they failed to meet that standard, they are considered not members of that class, and thus breaching the warranty, that requires them to maintain membership or to maintain their class on that classification society. And it is not sufficient that the member of this classification society at the time of a loss, their membership must be continuous for the whole length of the policy such that during the effectivity of the policy, their classification is suspended, and then thereafter, they get reinstated, that again still a breach of the warranty that they maintained their class (sic). Our maintaining team membership in the classification society thereby maintaining the standards of the vessel (sic).ATTY. LIMQ Can you mention some classification societies that you know?A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classification Society, The Philippine Registration of Ships Society, China Classification, NKK and Company Classification Society, and many others, we have among others, there are over 20 worldwide. 22

At the outset, it must be emphasized that the party which alleges a fact as a matter of defense has the burden of proving it. PRUDENTIAL, as the party which asserted the claim that TRANS-ASIA breached the warranty in the policy, has the burden of evidence to establish the same. Hence, on the part of PRUDENTIAL lies the initiative to show proof in support of its defense; otherwise, failing to establish the same, it remains self-serving. Clearly, if no evidence on the alleged breach of TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA would be successful in claiming on the policy. It follows that PRUDENTIAL bears the burden of evidence to establish the fact of breach.In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of proof to show proof of loss, and the coverage thereof, in the subject insurance policy. However, in the course of trial in a civil case, once plaintiff makes out a prima facie case in his favor, the duty or the burden of evidence shifts to defendant to controvert plaintiff’s prima facie case, otherwise, a verdict must be returned in favor of plaintiff.23 TRANS-ASIA was able to establish proof of loss and the coverage of the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the burden of evidence shifted to PRUDENTIAL to counter TRANS-ASIA’s case, and to prove its special and affirmative defense that TRANS-ASIA was in violation of the particular condition on CLASSED AND CLASS MAINTAINED.We sustain the findings of the Court of Appeals that PRUDENTIAL was not successful in discharging the burden of evidence that TRANS-ASIA breached the subject policy condition on CLASSED AND CLASS MAINTAINED.Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division, Lucio Fernandez, made a categorical admission that at the time of the procurement of the insurance contract in July 1993, TRANS-ASIA’s vessel, "M/V Asia Korea" was properly classed by Bureau Veritas, thus:Q Kindly examine the records particularly the policy, please tell us if you know whether M/V Asia Korea was classed at the time (sic) policy was procured perthe (sic) insurance was procured that Exhibit "1" on 1st July 1993 (sic).WITNESSA I recall that they were classed.ATTY. LIMQ With what classification society?A I believe with Bureau Veritas.24

As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification society recognized in the

marine industry. As it is undisputed that TRANS-ASIA was properly classed at the time the contract of insurance was entered into,

thus, it becomes incumbent upon PRUDENTIAL to show evidence that the status of TRANS-ASIA as being properly CLASSED by

Bureau Veritas had shifted in violation of the warranty. Unfortunately, PRUDENTIAL failed to support the allegation.

We are in accord with the ruling of the Court of Appeals that the lack of a certification in PRUDENTIAL’s records to the effect that

TRANS-ASIA’s "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED at the time of the occurrence of the fire cannot be

tantamount to the conclusion that TRANS-ASIA in fact breached the warranty contained in the policy. With more reason must we

sustain the findings of the Court of Appeals on the ground that as admitted by PRUDENTIAL, it was likewise the responsibility of

the average adjuster, Richards Hogg International (Phils.), Inc., to secure a copy of such certification, and the alleged breach of

TRANS-ASIA cannot be gleaned from the average adjuster’s survey report, or adjustment of particular average per "M/V Asia

Korea" of the 25 October 1993 fire on board.

We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that, "the violation of a material

warranty, or other material provision of a policy on the part of either party thereto, entitles the other to rescind." It is generally

accepted that "[a] warranty is a statement or promise set forth in the policy, or by reference incorporated therein, the untruth or

non-fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth or

non-fulfillment, renders the policy voidable by the insurer."25 However, it is similarly indubitable that for the breach of a warranty

to avoid a policy, the same must be duly shown by the party alleging the same. We cannot sustain an allegation that is

unfounded. Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CLASSED AND

CLASS MAINTAINED, it remains that TRANS-ASIA must be allowed to recover its rightful claims on the policy.

B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED,

PRUDENTIAL made a valid waiver of the same.


The Court of Appeals, in reversing the Judgment of the RTC which held that TRANS-ASIA breached the warranty provision on

CLASSED AND CLASS MAINTAINED, underscored that PRUDENTIAL can be deemed to have made a valid waiver of TRANS-ASIA’s

breach of warranty as alleged, ratiocinating, thus:

Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2) consecutive years, from noon of 01 July

1994 to noon of 01 July 1995, and then again until noon of 01 July 1996. This renewal is deemed a waiver of any breach of

warranty.26

PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal policies are deemed a waiver of

TRANS-ASIA’s alleged breach, averring herein that the subsequent policies, designated as MH94/1595 and MH95/1788 show that

they were issued only on 1 July 1994 and 3 July 1995, respectively, prior to the time it made a request to TRANS-ASIA that it be

furnished a copy of the certification specifying that the insured vessel "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED.

PRUDENTIAL posits that it came to know of the breach by TRANS-ASIA of the subject warranty clause only on 21 April 1997. On

even date, PRUDENTIAL sent TRANS-ASIA a letter of denial, advising the latter that their claim is not compensable. In fine,

PRUDENTIAL would have this Court believe that the issuance of the renewal policies cannot be a waiver because they were issued

without knowledge of the alleged breach of warranty committed by TRANS-ASIA.27

We are not impressed. We do not find that the Court of Appeals was in error when it held that PRUDENTIAL, in renewing TRANS-

ASIA’s insurance policy for two consecutive years after the loss covered by Policy No. MH93/1363, was considered to have

waived TRANS-ASIA’s breach of the subject warranty, if any. Breach of a warranty or of a condition renders the contract

defeasible at the option of the insurer; but if he so elects, he may waive his privilege and power to rescind by the mere

expression of an intention so to do. In that event his liability under the policy continues as before.28 There can be no clearer

intention of the waiver of the alleged breach than the renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in

MH94/1595 and MH95/1788, issued in the years 1994 and 1995, respectively.

To our mind, the argument is made even more credulous by PRUDENTIAL’s lack of proof to support its allegation that the

renewals of the policies were taken only after a request was made to TRANS-ASIA to furnish them a copy of the certificate

attesting that "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. Notwithstanding PRUDENTIAL’s claim that no

certification was issued to that effect, it renewed the policy, thereby, evidencing an intention to waive TRANS-ASIA’s alleged

breach. Clearly, by granting the renewal policies twice and successively after the loss, the intent was to benefit the insured,

TRANS-ASIA, as well as to waive compliance of the warranty.

The foregoing finding renders a determination of whether the subject warranty is a rider, moot, as raised by the PRUDENTIAL in

its assignment of errors. Whether it is a rider will not effectively alter the result for the reasons that: (1) PRUDENTIAL was not

able to discharge the burden of evidence to show that TRANS-ASIA committed a breach, thereof; and (2) assuming arguendo the

commission of a breach by TRANS-ASIA, the same was shown to have been waived by PRUDENTIAL.

II.

A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS- ASIA via a transaction between the parties evidenced by a

document denominated as "Loan and Trust Receipt," dated 29 May 1995 constituted partial payment on the policy.

It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,000.00. The same was evidenced by a

transaction receipt denominated as a "Loan and Trust Receipt," dated 29 May 1995, reproduced hereunder:

LOAN AND TRUST RECEIPT

Claim File No. MH-93-025 May 29, 1995 P3,000,000.00 Check No. PCIB066755

Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a

loan without interest, under Policy No. MH93/1353, repayable only in the event and to the extent that any net recovery is made

by TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporations, or other parties, on account of loss by

any casualty for which they may be liable, occasioned by the 25 October 1993: Fire on Board.

As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND ASSURANCE INC. whatever recovery we may

make and deliver to it all documents necessary to prove our interest in said property. We also hereby agree to promptly

prosecute suit against such persons, corporation or corporations through whose negligence the aforesaid loss was caused or who

may otherwise be responsible therefore, with all due diligence, in our own name, but at the expense of and under the exclusive

direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE INC.

TRANS-ASIA SHIPPING CORPORATION29


PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the parties evidenced a loan of P3,000,000.00 which

it granted to TRANS-ASIA, and not an advance payment on the policy or a partial payment for the loss. It further submits that it is

a customary practice for insurance companies in this country to extend loans gratuitously as part of good business dealing with

their assured, in order to afford their assured the chance to continue business without embarrassment while awaiting outcome of

the settlement of their claims.30According to PRUDENTIAL, the "Trust and Loan Agreement" did not subrogate to it whatever

rights and/or actions TRANS-ASIA may have against third persons, and it cannot by no means be taken that by virtue thereof,

PRUDENTIAL was granted irrevocable power of attorney by TRANS-ASIA, as the sole power to prosecute lies solely with the latter.

The Court of Appeals held that the real character of the transaction between the parties as evidenced by the "Loan and Trust

Receipt" is that of an advance payment by PRUDENTIAL of TRANS-ASIA’s claim on the insurance, thus:

The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insurance Law Act No. 2427 of the Philippine

Legislature during the American Regime. The Insurance Act was lifted verbatim from the law of California, except Chapter V

thereof, which was taken largely from the insurance law of New York. Therefore, ruling case law in that jurisdiction is to Us

persuasive in interpreting provisions of our own Insurance Code. In addition, the application of the adopted statute should

correspond in fundamental points with the application in its country of origin x x x.

x x x x

Likewise, it is settled in that jurisdiction that the (sic) notwithstanding recitals in the Loan Receipt that the money was intended as

a loan does not detract from its real character as payment of claim, thus:

"The receipt of money by the insured employers from a surety company for losses on account of forgery of drafts by an employee

where no provision or repayment of the money was made except upon condition that it be recovered from other parties and

neither interest nor security for the asserted debts was provided for, the money constituted the payment of a liability and not a

mere loan, notwithstanding recitals in the written receipt that the money was intended as a mere loan."

What is clear from the wordings of the so-called "Loan and Trust Receipt Agreement" is that appellant is obligated to hand over

to appellee "whatever recovery (Trans Asia) may make and deliver to (Prudential) all documents necessary to prove its interest in

the said property." For all intents and purposes therefore, the money receipted is payment under the policy, with Prudential

having the right of subrogation to whatever net recovery Trans-Asia may obtain from third parties resulting from the fire. In the

law on insurance, subrogation is an equitable assignment to the insurer of all remedies which the insured may have against third

person whose negligence or wrongful act caused the loss covered by the insurance policy, which is created as the legal effect of

payment by the insurer as an assignee in equity. The loss in the first instance is that of the insured but after reimbursement or

compensation, it becomes the loss of the insurer. It has been referred to as the doctrine of substitution and rests on the principle

that substantial justice should be attained regardless of form, that is, its basis is the doing of complete, essential, and perfect

justice between all the parties without regard to form.31

We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Receipt" evidences that the real nature of the

transaction between the parties was that the amount of P3,000,000.00 was not intended as a loan whereby TRANS-ASIA is

obligated to pay PRUDENTIAL, but rather, the same was a partial payment or an advance on the policy of the claims due to

TRANS-ASIA.

First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by PRUDENTIAL, subrogating the former to

the extent of "any net recovery made by TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporations,

or other parties, on account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993: Fire on

Board."32

Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to "promptly prosecute suit against such

persons, corporation or corporations through whose negligence the aforesaid loss was caused or who may otherwise be

responsible therefore, with all due diligence" in its name, the prosecution of the claims against such third persons are to be

carried on "at the expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE

INC."33 The clear import of the phrase "at the expense of and under the exclusive direction and control" as used in the "Loan and

Trust Receipt" grants solely to PRUDENTIAL the power to prosecute, even as the same is carried in the name of TRANS-ASIA,

thereby making TRANS-ASIA merely an agent of PRUDENTIAL, the principal, in the prosecution of the suit against parties who may

have occasioned the loss.


Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay PRUDENTIAL is highly speculative and

contingent, i.e., only in the event and to the extent that any net recovery is made by TRANS-ASIA from any person on account of

loss occasioned by the fire of 25 October 1993. The transaction, therefore, was made to benefit TRANS-ASIA, such that, if no

recovery from third parties is made, PRUDENTIAL cannot be repaid the amount. Verily, we do not think that this is constitutive of

a loan.34 The liberality in the tenor of the "Loan and Trust Receipt" in favor of TRANS-ASIA leads to the conclusion that the

amount of P3,000,000.00 was a form of an advance payment on TRANS-ASIA’s claim on MH93/1353.

III.

A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss suffered by

TRANS-ASIA and covered by Marine Policy No. MH93/1363.

Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid claims covered by Marine Policy No.

MH93/1363, or a total amount of P8,395,072.26.

B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of attorney’s fees equivalent to 10% of

P8,395,072.26.

The Court of Appeals denied the grant of attorney’s fees. It held that attorney’s fees cannot be awarded absent a showing of bad

faith on the part of PRUDENTIAL in rejecting TRANS-ASIA’s claim, notwithstanding that the rejection was erroneous. According to

the Court of Appeals, attorney’s fees can be awarded only in the cases enumerated in Article 2208 of the Civil Code which finds

no application in the instant case.

We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorney’s fees and other expenses incurred by the

insured after a finding by the Insurance Commissioner or the Court, as the case may be, of an unreasonable denial or withholding

of the payment of the claims due. Moreover, the law imposes an interest of twice the ceiling prescribed by the Monetary Board

on the amount of the claim due the insured from the date following the time prescribed in Section 242 35 or in Section 243,36 as

the case may be, until the claim is fully satisfied. Finally, Section 244 considers the failure to pay the claims within the time

prescribed in Sections 242 or 243, when applicable, as prima facie evidence of unreasonable delay in payment.

To the mind of this Court, Section 244 does not require a showing of bad faith in order that attorney’s fees be granted. As earlier

stated, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by failure of the

insurer to pay the claim within the time fixed in both Sections 242 and 243 of the Insurance Code. As established in Section 244,

by reason of the delay and the consequent filing of the suit by the insured, the insurers shall be adjudged to pay damages which

shall consist of attorney’s fees and other expenses incurred by the insured.37

Section 244 reads:

In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the

Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has been unreasonably

denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of

attorney’s fees and other expenses incurred by the insured person by reason of such unreasonable denial or withholding of

payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from

the date following the time prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may

be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections

shall be considered prima facie evidence of unreasonable delay in payment.

Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay or refusal in the payment of the

insurance claims.

In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show that there was an unreasonable

delay by PRUDENTIAL in the payment of the unpaid balance of P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day after the

occurrence of the fire in "M/V Asia Korea", TRANS-ASIA filed its notice of claim. On 13 August 1996, the adjuster, Richards Hogg

International (Phils.), Inc., completed its survey report recommending the amount of P11,395,072.26 as the total indemnity due

to TRANS-ASIA.38 On 21 April 1997, PRUDENTIAL, in a letter39 addressed to TRANS-ASIA denied the latter’s claim for the amount of

P8,395,072.26 representing the balance of the total indemnity. On 21 July 1997, PRUDENTIAL sent a second letter 40 to TRANS-

ASIA seeking a return of the amount of P3,000,000.00. On 13 August 1997, TRANS-ASIA was constrained to file a complaint for

sum of money against PRUDENTIAL praying, inter alia, for the sum of P8,395,072.26 representing the balance of the proceeds of

the insurance claim.


As can be gleaned from the foregoing, there was an unreasonable delay on the part of PRUDENTIAL to pay TRANS-ASIA, as in fact,

it refuted the latter’s right to the insurance claims, from the time proof of loss was shown and the ascertainment of the loss was

made by the insurance adjuster. Evidently, PRUDENTIAL’s unreasonable delay in satisfying TRANS-ASIA’s unpaid claims compelled

the latter to file a suit for collection.

Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of the policy as attorney’s fees to TRANS-ASIA is

reasonable under the circumstances, or otherwise stated, ten percent (10%) of P8,395,072.26. In the case of Cathay Insurance,

Co., Inc. v. Court of Appeals,41 where a finding of an unreasonable delay under Section 244 of the Insurance Code was made by

this Court, we grant an award of attorney’s fees equivalent to ten percent (10%) of the total proceeds. We find no reason to

deviate from this judicial precedent in the case at bar.

C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s fees) shall be imposed double interest in

accordance with Section 244 of the Insurance Code.

Section 244 of the Insurance Code is categorical in imposing an interest twice the ceiling prescribed by the Monetary Board due

the insured, from the date following the time prescribed in Section 242 or in Section 243, as the case may be, until the claim is

fully satisfied. In the case at bar, we find Section 243 to be applicable as what is involved herein is a marine insurance, clearly, a

policy other than life insurance.

Section 243 is hereunder reproduced:

SEC. 243. The amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy,

shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made

either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is not had or made within

sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shall be paid within ninety days after such

receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest

on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board,

unless such failure or refusal to pay is based on the ground that the claim is fraudulent.

As specified, the assured is entitled to interest on the proceeds for the duration of the delay at the rate of twice the ceiling

prescribed by the Monetary Board except when the failure or refusal of the insurer to pay was founded on the ground that the

claim is fraudulent.

D. The term "double interest" as used in the Decision of the Court of Appeals must be interpreted to mean 24% per annum.

PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in favor of TRANS-ASIA in the assailed Decision of 6

November 2001. It is PRUDENTIAL’s stance that the award is extortionate and grossly unsconscionable. In support thereto,

PRUDENTIAL makes a reference to TRANS-ASIA’s prayer in the Complaint filed with the court a quo wherein the latter sought,

"interest double the prevailing rate of interest of 21% per annum now obtaining in the banking business or plus 42% per annum

pursuant to Article 243 of the Insurance Code x x x."42

The contention fails to persuade. It is settled that an award of double interest is lawful and justified under Sections 243 and 244

of the Insurance Code.43 In Finman General Assurance Corporation v. Court of Appeals,44 this Court held that the payment of 24%

interest per annum is authorized by the Insurance Code.45 There is no gainsaying that the term "double interest" as used in

Sections 243 and 244 can only be interpreted to mean twice 12% per annum or 24% per annum interest, thus:

The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of twelve per centum per annum (12%) as

prescribed by the Monetary Board in C.B. Circular No. 416, pursuant to P.D. No. 116, amending the Usury Law; so that when

Sections 242, 243 and 244 of the Insurance Code provide that the insurer shall be liable to pay interest "twice the ceiling

prescribed by the Monetary Board", it means twice 12% per annum or 24% per annum interest on the proceeds of the

insurance.46

E. The payment of double interest should be counted from 13 September 1996.

The Court of Appeals, in imposing double interest for the duration of the delay of the payment of the unpaid balance due TRANS-

ASIA, computed the same from 13 August 1996 until such time when the amount is fully paid. Although not raised by the parties,

we find the computation of the duration of the delay made by the appellate court to be patently erroneous.

To be sure, Section 243 imposes interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling

prescribed by the Monetary Board. Significantly, Section 243 mandates the payment of any loss or damage for which an insurer

may be liable, under any policy other than life insurance policy, within thirty days after proof of loss is received by the insurer and


ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration. It is

clear that under Section 243, the insurer has until the 30th day after proof of loss and ascertainment of the loss or damage to pay

its liability under the insurance, and only after such time can the insurer be held to be in delay, thereby necessitating the

imposition of double interest.

In the case at bar, it was not disputed that the survey report on the ascertainment of the loss was completed by the adjuster,

Richard Hoggs International (Phils.), Inc. on 13 August 1996. PRUDENTIAL had thirty days from 13 August 1996 within which to

pay its liability to TRANS-ASIA under the insurance policy, or until 13 September 1996. Therefore, the double interest can begin to

run from 13 September 1996 only.

IV.

A. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged in section III herein, computed

from the time of finality of judgment until the full satisfaction thereof in conformity with this Court’s ruling in Eastern Shipping

Lines, Inc. v. Court of Appeals.

This Court in Eastern Shipping Lines, Inc. v. Court of Appeals,47 inscribed the rule of thumb48 in the application of interest to be

imposed on obligations, regardless of their source. Eastern emphasized beyond cavil that when the judgment of the court

awarding a sum of money becomes final and executory, the rate of legal interest, regardless of whether the obligation involves a

loan or forbearance of money, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed

to be by then an equivalent to a forbearance49 of credit.

We find application of the rule in the case at bar proper, thus, a rate of 12% per annum from the finality of judgment until the full

satisfaction thereof must be imposed on the total amount of liability adjudged to PRUDENTIAL. It is clear that the interim period

from the finality of judgment until the satisfaction of the same is deemed equivalent to a forbearance of credit, hence, the

imposition of the aforesaid interest.

Fallo

WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G.R. No. 151991 is GRANTED, thus, we award

the grant of attorney’s fees and make a clarification that the term "double interest" as used in the 6 November 2001 Decision of

the Court of Appeals in CA GR CV No. 68278 should be construed to mean interest at the rate of 24% per annum, with a further

clarification, that the same should be computed from 13 September 1996 until fully paid. The Decision and Resolution of the

Court of Appeals, in CA-G.R. CV No. 68278, dated 6 November 2001 and 29 January 2002, respectively, are, thus, MODIFIED in the

following manner, to wit:

1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss

suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363;

2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the form of attorney’s fees equivalent to 10% of the

amount of P8,395,072.26;

3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s fees) shall be imposed double interest at the

rate of 24% per annum to be computed from 13 September 1996 until fully paid; and

4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged as abovestated in

paragraphs (1), (2), and (3) herein, computed from the time of finality of judgment until the full satisfaction thereof.

No costs.

SO ORDERED.



ManilaFIRST DIVISION

G.R. No. 156956 October 9, 2006REPUBLIC OF THE PHILIPPINES, by EDUARDO T. MALINIS, in His Capacity as Insurance Commissioner,petitioner, vs.DEL MONTE MOTORS, INC., respondent.D E C I S I O N

PANGANIBAN, CJ.:

The securities required by the Insurance Code to be deposited with the Insurance Commissioner are intended to answer for the

claims of all policy holders in the event that the depositing insurance company becomes insolvent or otherwise unable to satisfy

their claims. The security deposit must be ratably distributed among all the insured who are entitled to their respective shares; it

cannot be garnished or levied upon by a single claimant, to the detriment of the others.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse the January 16, 2003 Order 2 of the

Regional Court (RTC) of Quezon City (Branch 221) in Civil Case No. Q-97-30412. The RTC found Insurance Commissioner Eduardo

T. Malinis guilty of indirect contempt for refusing to comply with the December 18, 2002 Resolution 3 of the lower court. The

January 16, 2003 Order states in full:

"On January 8, 2003, [respondent] filed a Motion to Cite Commissioner Eduardo T. Malinis of the Office of the Insurance

Commission in Contempt of Court because of his failure and refusal to obey the lawful order of this court embodied in a

Resolution dated December 18, 2002 directing him to allow the withdrawal of the security deposit of Capital Insurance

and Surety Co. (CISCO) in the amount of P11,835,375.50 to be paid to Sheriff Manuel Paguyo in the satisfaction of the

Notice of Garnishment pursuant to a Decision of this Court which has become final and executory.

"During the hearing of the Motion set last January 10, 2003, Commissioner Malinis or his counsel or his duly authorized

representative failed to appear despite notice in utter disregard of the order of this Court. However, Commissioner

Malinis filed on January 15, 2003 a written Comment reiterating the same grounds already passed upon and rejected by

this Court. This Court finds no lawful justification or excuse for Commissioner Malinis' refusal to implement the lawful

orders of this Court.

"Wherefore, premises considered and after due hearing, Commissioner Eduardo T. Malinis is hereby declared guilty of

Indirect Contempt of Court pursuant to Section 3 [of] Rule 71 of the 1997 Rules of Civil Procedure for willfully disobeying

and refusing to implement and obey a lawful order of this Court."4

The Facts

On January 15, 2002, the RTC rendered a Decision in Civil Case No. Q-97-30412, finding the defendants (Vilfran Liner, Inc., Hilaria

Villegas and Maura Villegas) jointly and severally liable to pay Del Monte Motors, Inc.,P11,835,375.50 representing the balance of

Vilfran Liner's service contracts with respondent. The trial court further ordered the execution of the Decision against the

counterbond posted by Vilfran Liner on June 10, 1997, and issued by Capital Insurance and Surety Co., Inc. (CISCO).

On April 18, 2002, CISCO opposed the Motion for Execution filed by respondent, claiming that the latter had no record or

document regarding the alleged issuance of the counterbond; thus, the bond was not valid and enforceable.

On June 13, 2002, the RTC granted the Motion for Execution and issued the corresponding Writ. Armed with this Writ, Sheriff

Manuel S. Paguyo proceeded to levy on the properties of CISCO. He also issued a Notice of Garnishment on several depository

banks of the insurance company. Moreover, he served a similar notice on the Insurance Commission, so as to enforce the Writ on

the security deposit filed by CISCO with the Commission in accordance with Section 203 of the Insurance Code.


On December 18, 2002, after a hearing on all the pending Motions, the RTC ruled that the Notice of Garnishment served by

Sheriff Paguyo on the insurance commission was valid. The trial court added that the letter and spirit of the law made the security

deposit answerable for contractual obligations incurred by CISCO under the insurance contracts the latter had entered into. The

RTC resolved thus:

"Furthermore, the Commissioner of the Office of the Insurance Commission is hereby ordered to comply with its

obligations under the Insurance Code by upholding the integrity and efficacy of bonds validly issued by duly accredited

Bonding and Insurance Companies; and to safeguard the public interest by insuring the faithful performance to enforce

contractual obligations under existing bonds. Accordingly said office is ordered to withdraw from the security deposit of

Capital Insurance & Surety Company, Inc. the amount ofP11,835.50 to be paid to Sheriff Manuel S. Paguyo in satisfaction

of the Notice of Garnishment served on August 16, 2002."5

On January 8, 2003, respondent moved to cite Insurance Commissioner Eduardo T. Malinis in contempt of court for his refusal to

obey the December 18, 2002 Resolution of the trial court.

Ruling of the Trial Court

The RTC held Insurance Commissioner Malinis in contempt for his refusal to implement its Order. It explained that the

commissioner had no legal justification for his refusal to allow the withdrawal of CISCO's security deposit.

Hence, this Petition.6

Issues

Petitioner raises this sole issue for the Court's consideration:

"Whether or not the security deposit held by the Insurance Commissioner pursuant to Section 203 of the Insurance Code

may be levied or garnished in favor of only one insured."7

The Court's Ruling

The Petition is meritorious.

Preliminary Issue:

Propriety of Review

Before discussing the principal issue, the Court will first dispose of the question of mootness.

Prior to the filing of the instant Petition, Insurance Commissioner Malinis sent the treasurer of the Philippines a letter dated

March 26, 2003, stating that the former had no objection to the release of the security deposit to Del Monte Motors. Portions of

the fund were consequently released to respondent in July, October, and December 2003. Thus, the issue arises: whether these

circumstances render the case moot.

Petitioner, however, contends that the partial releases should not be construed as an abandonment of its stand that security

deposits under Section 203 of the Insurance Code are exempt from levy and garnishment. The Republic claims that the releases

were made pursuant to the commissioner's power of control over the fund, not to the lower court's Order of garnishment.

Petitioner further invokes the jurisdiction of this Court to put to rest the principal issue of whether security deposits made with

the Insurance Commission may be levied and garnished.

The issue is not totally moot. To stress, only a portion of respondent's claim was satisfied, and the Insurance Commission has

required CISCO to replenish the latter's security deposit. Respondent, therefore, may one day decide to further garnish the

security deposit, once replenished. Moreover, after the questioned Order of the lower court was issued, similar claims on the

security deposits of various insurance companies have been made before the Insurance Commission. To set aside the resolution

of the issue will only postpone a task that is certain to crop up in the future.

Besides, the business of insurance is imbued with public interest. It is subject to regulation by the State, with respect not only to

the relations between the insurer and the insured, but also to the internal affairs of insurance companies. 8 As this case is

undeniably endowed with public interest and involves a matter of public policy, this Court shall not shirk from its duty to educate

the bench and the bar by formulating guiding and controlling principles, precepts, doctrines and rules.9

Principal Issue:

Exemption of Security Deposit from Levy or Garnishment

Section 203 of the Insurance Code provides as follows:

"Sec. 203. Every domestic insurance company shall, to the extent of an amount equal in value to twenty-five per

centum of the minimum paid-up capital required under section one hundred eighty-eight, invest its funds only in


securities, satisfactory to the Commissioner, consisting of bonds or other evidences of debt of the Government of the

Philippines or its political subdivisions or instrumentalities, or of government-owned or controlled corporations and

entities, including the Central Bank of the Philippines: Provided, That such investments shall at all times be maintained

free from any lien or encumbrance; and Provided, further, That such securities shall be deposited with and held by the

Commissioner for the faithful performance by the depositing insurer of all its obligations under its insurance contracts.

The provisions of section one hundred ninety-two shall, so far as practicable, apply to the securities deposited under this

section.

"Except as otherwise provided in this Code, no judgment creditor or other claimant shall have the right to levy upon

any of the securities of the insurer held on deposit pursuant to the requirement of the Commissioner ." (Emphasis

supplied)

Respondent notes that Section 203 does not provide for an absolute prohibition on the levy and garnishment of the security

deposit. It contends that the law requires the deposit, precisely to ensure faithful performance of all the obligations of the

depositing insurer under the latter's various insurance contracts. Hence, respondent claims that the security deposit should be

answerable for the counterbond issued by CISCO.

The Court is not convinced. As worded, the law expressly and clearly states that the security deposit shall be (1) answerable

for all the obligations of the depositing insurer under its insurance contracts; (2) at all times free from any liens or encumbrance;

and (3) exempt from levy by any claimant.

To be sure, CISCO, though presently under conservatorship, has valid outstanding policies. Its policy holders have a right under

the law to be equally protected by its security deposit. To allow the garnishment of that deposit would impair the fund by

decreasing it to less than the percentage of paid-up capital that the law requires to be maintained. Further, this move would

create, in favor of respondent, a preference of credit over the other policy holders and beneficiaries.

Our Insurance Code is patterned after that of California.10 Thus, the ruling of the state's Supreme Court on a similar concept as

that of the security deposit is instructive. Engwicht v. Pacific States Life Assurance Co.11 held that the money required to be

deposited by a mutual assessment insurance company with the state treasurer was "a trust fund to be ratably distributed

amongst all the claimants entitled to share in it. Such a distribution cannot be had except in an action in the nature of a creditors'

bill, upon the hearing of which, and with all the parties interested in the fund before it, the court may make equitable distribution

of the fund, and appoint a receiver to carry that distribution into effect."12

Basic is the statutory construction rule that provisions of a statute should be construed in accordance with the purpose for which

it was enacted.13 That is, the securities are held as a contingency fund to answer for the claims against the insurance company

by all its policy holders and their beneficiaries. This step is taken in the event that the company becomes insolvent or otherwise

unable to satisfy the claims against it. Thus, a single claimant may not lay stake on the securities to the exclusion of all others. The

other parties may have their own claims against the insurance company under other insurance contracts it has entered into.

Respondent's Inchoate Right

The right to lay claim on the fund is dependent on the solvency of the insurer and is subject to all other obligations of the

company arising from its insurance contracts. Thus, respondent's interest is merely inchoate. Being a mere expectancy, it has no

attribute of property. At this time, it is nonexistent and may never exist.14 Hence, it would be premature to make the security

deposit answerable for CISCO's present obligation to Del Monte Motors.

Moreover, since insolvency proceedings against CISCO have yet to be conducted, it would be impossible to establish at this time

which claimants are entitled to the security deposit and in what pro-rated amounts. Only after all other claimants under

subsisting policies issued by CISCO have been heard can respondent's share be determined.

Powers of the Commissioner

The Insurance Code has vested the Office of the Insurance Commission with both regulatory and adjudicatoryauthority over

insurance matters.15

The general regulatory authority of the insurance commissioner is described in Section 414 of the Code as follows:

"Sec. 414. The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance

companies and other insurance matters, mutual benefit associations, and trusts for charitable uses are faithfully

executed and to perform the duties imposed upon him by this Code, and shall, notwithstanding any existing laws to the

contrary, have sole and exclusive authority to regulate the issuance and sale of variable contracts as defined in section


two hundred thirty-two and to provide for the licensing of persons selling such contracts, and to issue such reasonable

rules and regulations governing the same.

"The Commissioner may issue such rulings, instructions, circulars, orders and decisions as he may deem necessary to

secure the enforcement of the provisions of this Code, subject to the approval of the Secretary of Finance. Except as

otherwise specified, decisions made by the Commissioner shall be appealable to the Secretary of Finance." (Emphasis

supplied)

Pursuant to these regulatory powers, the commissioner is authorized to (1) issue (or to refuse to issue) certificates of authority to

persons or entities desiring to engage in insurance business in the Philippines;16 (2) revoke or suspend these certificates of

authority upon finding grounds for the revocation or suspension;17 (3) impose upon insurance companies, their directors and/or

officers and/or agents appropriate penalties -- fines, suspension or removal from office -- for failing to comply with the Code or

with any of the commissioner's orders, instructions, regulations or rulings, or for otherwise conducting business in an unsafe or

unsound manner.18

Included in the above regulatory responsibilities is the duty to hold the security deposits under Sections 191 19 and 203 of the

Code, for the benefit and security of all policy holders. In relation to these provisions, Section 192 of the Insurance Code states:

"Sec. 192. The Commissioner shall hold the securities, deposited as aforesaid, for the benefit and security of all the

policyholders of the company depositing the same, but shall as long as the company is solvent, permit the company to

collect the interest or dividends on the securities so deposited, and, from time to time, with his assent, to withdraw any

of such securities, upon depositing with said Commissioner other like securities, the market value of which shall be equal

to the market value of such as may be withdrawn. In the event of any company ceasing to do business in the

Philippines the securities deposited as aforesaid shall be returned upon the company's making application therefor and

proving to the satisfaction of the Commissioner that it has no further liability under any of its policies in the Philippines ."

(Emphasis supplied)

Undeniably, the insurance commissioner has been given a wide latitude of discretion to regulate the insurance industry so as to

protect the insuring public. The law specifically confers custody over the securities upon the commissioner, with whom these

investments are required to be deposited. An implied trust20 is created by the law for the benefit of all claimants under subsisting

insurance contracts issued by the insurance company.21

As the officer vested with custody of the security deposit, the insurance commissioner is in the best position to determine if and

when it may be released without prejudicing the rights of other policy holders. Before allowing the withdrawal or the release of

the deposit, the commissioner must be satisfied that the conditions contemplated by the law are met and all policy holders

protected.

Commissioner's Actions

Entitled to Great Respect

In this case, Commissioner Malinis refused to release the security deposit of CISCO. Believing that the funds were exempt from

execution as provided by law, he sought to protect other policy holders. His interpretation of the provisions of the law carries

great weight and consideration,22 as he is the head of a specialized body tasked with the regulation of insurance matters and

primarily charged with the implementation of the Insurance Code.

The emergence of the multifarious needs of modern society necessitates the establishment of diverse administrative agencies. In

addressing these needs, the administrative agencies charged with applying and implementing particular statutes have

accumulated experience and specialized capabilities. Thus, in a long line of cases, this Court has recognized that their

construction of a statute is entitled to great respect and should ordinarily be controlling, unless clearly shown to be in sharp

conflict with the governing statute or the Constitution and other laws.23

Clearly, then, the trial court erred in issuing the Writ of Garnishment against the security deposit of CISCO. It follows that without

the issuance of a valid order, the insurance commissioner could not have been in contempt of court.24

WHEREFORE, the Petition is GRANTED and the assailed Order SET ASIDE. No costs.

SO ORDERED.

Ynares-Santiago, Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.


FIRST DIVISION INSULAR LIFE G.R. No. 163255ASSURANCE COMPANY,LIMITED, Present:Petitioner,- versus - Promulgated:MANUEL M. SERRANO,Respondent. June 22, 2007x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - xD E C I S I O N

PUNO, C.J.:

Before us is a petition for review of the October 9, 2003 decision[1] and April 15, 2004 resolution[2] of the Court of Appeals in CA-

G.R. SP No. 76341.

First, the antecedent facts.

In June 1987 respondent Manuel M. Serrano bought from petitioner Insular Life Assurance Company, Limited, a life

insurance policy called Diamond Jubilee, Participating on his understanding that he shall be paying premiums for seven (7) years

only. Dividend accumulations and earned interests were to be applied to subsequent premium payments. Respondent obtained

six Diamond Jubilee Life Insurance policies, and religiously paid the premiums.

In early 1996, respondent was informed by his accountant that he had been paying premiums on some of his policies

even beyond the seven-year period of their effectivity. Consequently, respondent wrote a letter to Atty. Ernesto G. Montalban,

petitioners Senior Vice President, Sales Operations Group, requesting that the overpayments be applied as premium payments of

his other policies which have not reached the seven-year period. The request was denied on the ground that the self-liquidating

option of the policies was not guaranteed because it was based on dividends which vary. Atty. Montalban, however, assured

respondent that some of his policies will self-liquidate but on the following dates, to wit:

Policy Number Issue Date Date of Self-Liquidation

PN 2156675 June 9, 1987 June 9, 1997

PN 2160551 November 24, 1987 November 24, 1996

PN 2164830 December 23, 1987 December 23, 1997

PN 2168149 April 18, 1988 April 18, 1997

Insisting that petitioners agents represented to him that the Diamond Jubilee Life Insurance policies are self-liquidating after 7

years, respondent repeatedly demanded that petitioner make good the representation, to no avail.

On October 8 and 11, 1996, respondent caused a notice to be published in the Manila Bulletin, viz:

URGENT NOTICE

TO ALL

INSULAR LIFE DIAMOND JUBILEE

POLICY-HOLDERS

IF YOU ARE A VICTIM OF INSULAR LIFE ASSURANCES REFUSAL TO HONOR ITS REPRESENTATION THAT YOUR

POLICY BECOMES SELF-LIQUIDATING AFTER A LAPSE OF SEVEN (7) YEARS, PLEASE ATTEND A SPECIAL

MEETING OF SIMILARLY SITUATED POLICY HOLDERS AND CO-OWNERS OF INSULAR LIFE ON OCTOBER 16,

1996, 2:00 P.M. AT THE MAKATI SPORTS CLUB, ALFARO ST., SALCEDO VILLAGE, MAKATI, TO CONSIDER

COLLECTIVE ACTION TO PROTECT YOUR INTERESTS. RSVP CALL MRS. VILLAROYA OR MRS. CARIAGA AT 817-22-

35 OR 816-25-64


In addition, respondent filed on December 11, 1996 a civil case for specific performance, sum of money, and damages before

the Regional Trial Court of Makati City against petitioner, Atty. Montalban, Insurance Underwriter Mila Ramos, Agency Manager

Portia Valdez, and District Sales Manager Alfredo Sta. Maria, docketed as Civil Case No. 96-2009.

In turn, petitioner filed in May 1997 a complaint for libel against respondent before the City Prosecution Office

of Makati City.[3] The complaint alleged that the published notice was libelous as it depicted petitioner as having victimized or

conned its policyholders by refusing to honor an alleged representation that its Diamond Jubilee Life Insurance policies were self-

liquidating after 7 years. Petitioner maintained that the policies it issued bore no such representation. As a result of the libelous

publication, petitioner allegedly suffered dishonor, discredit and damage in an amount not less than P100,000,000.00.

In his answer to the complaint, respondent contended that the word victim truthfully signified his situation as owner of

six Diamond Jubilee Life Insurance policies which petitioners agents represented to be self-liquidating after 7 years but which

turned out to be not.

On October 6, 1997, the City Prosecutor of Makati dismissed petitioners complaint for lack of probable cause, ruling that

there was no defamatory imputation, and no malice in the publication.[4] Petitioners motion for reconsideration was denied.[5]

Petitioner sought a review before the Secretary of Justice. On April 18, 2002,[6] the Secretary of Justice affirmed the

dismissal of petitioners complaint for lack of probable cause.

Petitioner assailed the ruling before the Court of Appeals via a petition for certiorari.[7] On October 9, 2003, the Court of

Appeals dismissed the petition, finding no grave abuse of discretion on the part of the Secretary of Justice in affirming the

dismissal of petitioners complaint.[8] Petitioners motion for reconsideration was denied.[9] Hence, this petition.

Petitioner assigns the following errors:

I.

THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE INCORRECT FINDINGS OF THE DEPARTMENT

OF JUSTICE INSOFAR AS IT CONCLUDED THAT THE ELEMENT OF DEFAMATORY IMPUTATION IS MISSING, HENCE,

THE PUBLICATION, SUBJECT OF THE CRIMINAL COMPLAINT IS NOT LIBELOUS.

II.

THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING THAT THERE WAS GRAVE ABUSE OF DISCRETION

ON THE PART OF THE DEPARTMENT OF JUSTICE WHEN IT REFUSED TO FILE THE INFORMATION AGAINST

RESPONDENT DESPITE THE PUBLICATION OF THE SUBJECT LIBELOUS NOTICE.

The general rule is that the courts do not interfere with the discretion of the public prosecutor in determining the

specificity and adequacy of the averments in a criminal complaint. [10] The determination of probable cause for the purpose of

filing an information in court is an executive function[11] which pertains at the first instance to the public prosecutor and then to

the Secretary of Justice.[12]The duty of the Court in appropriate cases is merely to determine whether the executive determination

was done without or in excess of jurisdiction or with grave abuse of discretion. [13] Resolutions of the Secretary of Justice are not

subject to review unless made with grave abuse.[14]

In the case at bar, the City Prosecutor dismissed petitioners complaint for libel because two elements of the crime were

missing, defamatory imputation and malice. Under Article 353 of the Revised Penal Code,[15] an accused may be held liable for

the crime if the following elements concur, viz: (1) the allegation of a discreditable act or condition concerning another, (2)

publication of the charge, (3) identity of the person defamed, and (4) existence of malice.[16]

It is not disputed that the second and third elements are present. The subject article was published in the October 8 and

11, 1996 issues of the Manila Bulletin, and alluded to petitioners refusal to honor an alleged representation that its Diamond

Jubilee Life Insurance policies were self-liquidating after 7 years. Determination of probable cause in the case at bar, therefore,

hinged on the existence of the first and last elements.

In concluding that there was no defamatory imputation and that there was no attendant malice, the City Prosecutor

explained:

x x x [P]robable cause does not exist against respondent Manuel Serrano to warrant his indictment in

Court for the crime of libel, considering that he did not act with malice in causing the publication of the notice

in question in the issues of Manila Bulletin, on October 8 and 11, 1996, since he can be considered as a

victim or was made to suffer from an act of the Insular Life Assurance Co. Ltd. in not honoring that his insurance

policies will self-liquidate after paying premiums thereon for a period of seven (7) years. The notice in question


did not portray Insular Life Assurance Co. Ltd. as a swindler but it merely notifies (sic) Diamond Jubilee policy

holders similarly situated as himself to meet and consider collective action in order to protect their rights and

interests which to the respondents personal perception have been violated by the said insurance company for

its refusal to honor the representation of its agents that his insurance policies will become self-liquidating after

the lapse of seven (7) years. It must be noted that Serrano even filed a complaint before the Regional Trial

Court of Makati, Branch 150, for Specific Performance, Sum of Money and Damages against the Insular Life

Assurance Co. Ltd. and its agents in order to vindicate the wrong committed against him by the said insurance

company and its agents.

Furthermore, the fact that it took the complainant insurance company seven (7) months to file the

case against herein respondent Serrano from the last day of the publication of the notice in question

x x x certainly cast doubts (sic), [on] the veracity of the instant complaint.[17] (emphases ours)

Corroborating the City Prosecutors conclusion, the Secretary of Justice added:

x x x x It is our perception that respondent acted with utmost good faith and without malice when he

caused the publication of the alleged libelous urgent notice to all those who may feel victim of Insular Lifes

refusal to honor its representation that their policy becomes self-liquidating after a lapse of seven (7) years. In

the first place, we see nothing libelous in the published urgent notice.

To say in public that Insular Life Assurance refused to honor its representation that the policy issued

becomes self-liquidating after a lapse of seven (7) years does not amount to an imputation of a crime, or of a

vice or defect, real or imaginary, or any act, omission, condition, status or circumstance that tends to cause the

dishonor, discredit or contempt of the person defamed. x x x But if it is [at] all defamatory, it is qualified

privileged communication made on an occasion of privilege without actual malice. Through the published

urgent notice, respondent apparently made in good faith a communication on a subject matter in which he has

an interest or in reference to which he has duty of reaching out to other persons having corresponding interest

or duty, although it may contain matters which, without this privilege would be actionable, and although the

duty is not a legal one but only a moral or social duty of imperfect obligation. Circumstances exist or are

reasonably believed to exist which cast upon respondent the duty of making a communication to certain third

persons in the performance of such duty or where the person [is] so situated that it becomes right in the

interest of society that he should tell third persons certain facts which he, in good faith, proceeds to do (People

v. Cantos [CA] 51 O.G. 2995; 33 Am. Jur. 124-125).[18] (emphases ours)

In determining whether there was prima facie case for libel against respondent, the City Prosecutor and the Secretary of

Justice viewed the subject article in its entirety, and considered the same as a mere notice of meeting addressed to Diamond

Jubilee policyholders. The words victim and refusal to honor its representation, although used in the notice, were dismissed

as not defamatory per se. Mere assertion that a person failed or refused to perform a contractual obligation does not, in and of

itself, injure that persons business reputation or deprive him of public confidence. [19] Whatever defamatory interpretation of

which the subject notice may have been susceptible of was considered debunked by the good faith that motivated the

respondent in causing the publication of the notice, i.e., to redress what he considered to be a violation of his rights and those of

others similarly situated as himself. Respondents action was considered inconsistent with malice which is characterized by a

reckless disregard of the truth or falsity of ones remarks.[20]

In arriving at their unanimous conclusionthat no probable cause for libel existsthe public prosecutor and the Secretary of

Justice had deliberated on the factual and legal backdrops of the case. Their shared conclusion was arrived at neither whimsically

nor capriciously as to be correctable by certiorari. Grave abuse of discretion is familiarly defined as a capricious and whimsical

exercise of judgment that is so patent and gross as to amount to an evasion or a virtual refusal to perform a duty enjoined by law

or to act at all in contemplation of law, as when the power is exercised in an arbitrary and despotic manner by reason of passion

or hostility.[21] Such grave abuse of discretion was not shown in the case at bar, as correctly ruled by the Court of Appeals. Even

assuming that the Secretary of Justice may have erred in considering the subject publication as qualifiedly privileged, [22] the error

does not appear to be so grave or malevolent as to be correctable by certiorari. A reading of the Justice Secretarys resolution

dated April 18, 2002 shows that his supposition as to the privileged character of the subject notice was merely his riposte to the

assumption that the notice was defamatory. At any rate, not every erroneous conclusion of law or fact is an abuse of discretion.


[23] Erroneous inferences of fact or conclusions of law are correctable by certiorari only if they are of such a degree as to amount

to a clear case of abuse of discretion of the grave and malevolent kind.[24]

Considering the foregoing, application of the Courts policy of non-interference in the conduct of preliminary

investigations[25] is warranted. The Court will not interfere with the executive determination of probable cause for the purpose of

filing an information in court, in the absence of grave abuse of discretion. We reiterate:

The institution of a criminal action depends upon the sound discretion of the [prosecutor]. He may or

may not file the complaint or information, follow or not follow that presented by the offended party, according

to whether the evidence in his opinion, is sufficient or not to establish the guilt of the accused beyond

reasonable doubt. The reason for placing the criminal prosecution under the direction and control of the

[prosecutor] is to prevent malicious or unfounded prosecution by private persons. x x x Prosecuting officers

under the power vested in them by law, not only have the authority but also the duty of prosecuting persons

who, according to the evidence received from the complainant, are shown to be guilty of a crime committed

within the jurisdiction of their office. They have equally the legal duty not to prosecute when after an

investigation they become convinced that the evidence adduced is not sufficient to establish a prima facie case.

x x x The Courts cannot interfere with the [prosecutor]s discretion and control of the criminal

prosecution. It is not prudent or even permissible for a Court to compel the [prosecutor] to prosecute a

proceeding originally initiated by him on an information, if he finds that the evidence relied upon by him is

insufficient for conviction. Neither has the Court any power to order a [prosecutor] to prosecute or file an

information within a certain period of time, since this would interfere with the [prosecutor]s discretion and

control of criminal prosecutions. x x x In a clash of views between a judge who did not investigate and the

[prosecutor] who did, or between the [prosecutor] and the offended party or the defendant, those of the

[prosecutor]s should normally prevail. x x x[26]

IN VIEW WHEREOF, the petition is DENIED. The assailed Decision dated October 9, 2003 and Resolution dated April 15,

2004 of the Court of Appeals in CA-G.R. SP No. 76341 are AFFIRMED.

SO ORDERED.



ManilaFIRST DIVISIONG.R. No. L-67835 October 12, 1987MALAYAN INSURANCE CO., INC. (MICO), petitioner, vs.GREGORIA CRUZ ARNALDO, in her capacity as the INSURANCE COMMISSIONER, and CORONACION PINCA, respondents.

CRUZ, J.:

When a person's house is razed, the fire usually burns down the efforts of a lifetime and forecloses hope for the suddenly somber

future. The vanished abode becomes a charred and painful memory. Where once stood a home, there is now, in the sighing wisps

of smoke, only a gray desolation. The dying embers leave ashes in the heart.

For peace of mind and as a hedge against possible loss, many people now secure fire insurance. This is an aleatory contract. By

such insurance, the insured in effect wagers that his house will be burned, with the insurer assuring him against the loss, for a

fee. If the house does burn, the insured, while losing his house, wins the wagers. The prize is the recompense to be given by the

insurer to make good the loss the insured has sustained.

It would be a pity then if, having lost his house, the insured were also to lose the payment he expects to recover for such loss.

Sometimes it is his fault that he cannot collect, as where there is a defect imputable to him in the insurance contract. Conversely,

the reason may be an unjust refusal of the insurer to acknowledge a just obligation, as has happened many times.

In the instant case the private respondent has been sustained by the Insurance Commission in her claim for compensation for her

burned property. The petitioner is now before us to dispute the decision, 1 on the ground that there was no valid insurance

contract at the time of the loss.

The chronology of the relevant antecedent facts is as follows:

On June 7, 1981, the petitioner (hereinafter called (MICO) issued to the private respondent, Coronacion Pinca, Fire Insurance

Policy No. F-001-17212 on her property for the amount of P14,000.00 effective July 22, 1981, until July 22, 1982. 2

On October 15,1981, MICO allegedly cancelled the policy for non-payment, of the premium and sent the corresponding notice to

Pinca. 3

On December 24, 1981, payment of the premium for Pinca was received by DomingoAdora, agent of MICO. 4

On January 15, 1982, Adora remitted this payment to MICO,together with other payments. 5

On January 18, 1982, Pinca's property was completely burned. 6

On February 5, 1982, Pinca's payment was returned by MICO to Adora on the ground that her policy had been cancelled earlier.

But Adora refused to accept it. 7

In due time, Pinca made the requisite demands for payment, which MICO rejected. She then went to the Insurance Commission.

It is because she was ultimately sustained by the public respondent that the petitioner has come to us for relief.

From the procedural viewpoint alone, the petition must be rejected. It is stillborn.

The records show that notice of the decision of the public respondent dated April 5, 1982, was received by MICO on April 10,

1982. 8 On April 25, 1982, it filed a motion for reconsideration, which was denied on June 4, 1982. 9 Notice of this denial was

received by MICO on June 13, 1982, as evidenced by Annex "1" duly authenticated by the Insurance Commission. 10 The instant

petition was filed with this Court on July 2, 1982. 11

The position of the petition is that the petition is governed by Section 416 0f the Insurance Code giving it thirty days wthin which

to appeal by certiorari to this Court. Alternatively, it also invokes Rule 45 of the Rules of Court. For their part, the public and

private respondents insist that the applicable law is B.P. 129, which they say governs not only courts of justice but also quasi-

judicial bodies like the Insurance Commission. The period for appeal under this law is also fifteen days, as under Rule 45.


The pivotal date is the date the notice of the denial of the motion for reconsideration was received by MICO.

MICO avers this was June 18, 1982, and offers in evidence its Annex "B," 12 which is a copy of the Order of June 14, 1982, with a

signed rubber-stamped notation on the upper left-hand corner that it was received on June 18, 1982, by its legal department. It

does not indicate from whom. At the bottom, significantly, there is another signature under which are the ciphers "6-13-82," for

which no explanation has been given.

Against this document, the private respodent points in her Annex "1," 13 the authenticated copy of the same Order with a

rubber-stamped notation at the bottom thereof indicating that it was received for the Malayan Insurance Co., Inc. by J. Gotladera

on "6-13-82." The signature may or may not habe been written by the same person who signed at the bottom of the petitioner's

Annex "B."

Between the two dates, the court chooses to believe June 13, 1982, not only because the numbers "6-13-82" appear on both

annexes but also because it is the date authenticated by the administrative division of the Insurance Commission. Annex "B" is at

worst self-serving; at best, it might only indicate that it was received on June 18, 1982, by the legal department of MICO, after it

had been received earlier by some other of its personnel on June 13, 1982. Whatever the reason for the delay in transmitting it to

the legal department need not detain us here.

Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice of the decision of the Insurance

Commission. The petitioner filed its motion for reconsideration on April 25, 1981, or fifteen days such notice, and the

reglementary period began to run again after June 13, 1981, date of its receipt of notice of the denial of the said motion for

reconsideration. As the herein petition was filed on July 2, 1981, or nineteen days later, there is no question that it is tardy by

four days.

Counted from June 13, the fifteen-day period prescribed under Rule 45, assuming it is applicable, would end on June 28, 1982, or

also four days from July 2, when the petition was filed.

If it was filed under B.P. 129, then, considering that the motion for reconsideration was filed on the fifteenth day after MICO

received notice of the decision, only one more day would have remained for it to appeal, to wit, June 14, 1982. That would make

the petition eighteen days late by July 2.

Indeed, even if the applicable law were still R.A. 5434, governing appeals from administrative bodies, the petition would still be

tardy. The law provides for a fixed period of ten days from notice of the denial of a seasonable motion for reconsideration within

which to appeal from the decision. Accordingly, that ten-day period, counted from June 13, 1982, would have ended on June 23,

1982, making the petition filed on July 2, 1982, nine dayslate.

Whichever law is applicable, therefore, the petition can and should be dismissed for late filing.

On the merits, it must also fail. MICO's arguments that there was no payment of premium and that the policy had been cancelled

before the occurence of the loss are not acceptable. Its contention that the claim was allowed without proof of loss is also

untenable.

The petitioner relies heavily on Section 77 of the Insurance Code providing that:

SEC. 77. An insurer is entitled to payment of the premium as soon as the thing is exposed to the peril insured

against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an

insurance company is valid and binding unless and until the premium thereof has been paid, except in the case

of a life or an industrial life policy whenever the grace period provision applies.

The above provision is not applicable because payment of the premium was in fact eventually made in this case. Notably, the

premium invoice issued to Pinca at the time of the delivery of the policy on June 7, 1981 was stamped "Payment Received" of the

amoung of P930.60 on "12-24-81" by Domingo Adora. 14 This is important because it suggests an understanding between MICO

and the insured that such payment could be made later, as agent Adora had assured Pinca. In any event, it is not denied that this

payment was actually made by Pinca to Adora, who remitted the same to MICO.

The payment was made on December 24, 1981, and the fire occured on January 18, 1982. One wonders: suppose the payment

had been made and accepted in, say, August 1981, would the commencement date of the policy have been changed to the date

of the payment, or would the payment have retroacted to July 22, 1981? If MICO accepted the payment in December 1981 and

the insured property had not been burned, would that policy not have expired just the same on July 22, 1982, pursuant to its

original terms, and not on December 24, 1982?


It would seem from MICO's own theory, that the policy would have become effective only upon payment, if accepted and so

would have been valid only from December 24, 1981m but only up to July 22, 1981, according to the original terms. In others

words, the policy would have run for only eight months although the premium paid was for one whole year.

It is not disputed that the preium was actually paid by Pinca to Adora on December 24, 1981, who received it on behalf of MICO,

to which it was remitted on January 15, 1982. What is questioned is the validity of Pinca's payment and of Adora's authority to

receive it.

MICO's acknowledgment of Adora as its agent defeats its contention that he was not authorized to receive the premium payment

on its behalf. It is clearly provided in Section 306 of the Insurance Code that:

SEC. 306. xxx xxx xxx

Any insurance company which delivers to an insurance agant or insurance broker a policy or contract of

insurance shall be demmed to have authorized such agent or broker to receive on its behalf payment of any

premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which

becomes due thereon.

And it is a well-known principle under the law of agency that:

Payment to an agent having authority to receive or collect payment is equivalent to payment to the principal

himself; such payment is complete when the money delivered is into the agent's hands and is a discharge of the

indebtedness owing to the principal. 15

There is the petitioner's argument, however, that Adora was not authorized to accept the premium payment because six months

had elapsed since the issuance by the policy itself. It is argued that this prohibition was binding upon Pinca, who made the

payment to Adora at her own riskl as she was bound to first check his authority to receive it. 16

MICO is taking an inconsistent stand. While contending that acceptance of the premium payment was prohibited by the policy, it

at the same time insists that the policy never came into force because the premium had not been paid. One surely, cannot have

his cake and eat it too.

We do not share MICO's view that there was no existing insurance at the time of the loss sustained by Pinca because her policy

never became effective for non-payment of premium. Payment was in fact made, rendering the policy operative as of June 22,

1981, and removing it from the provisions of Article 77, Thereafter, the policy could be cancelled on any of the supervening

grounds enumerated in Article 64 (except "nonpayment of premium") provided the cancellation was made in accordance

therewith and with Article 65.

Section 64 reads as follows:

SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof

to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the

effective date of the policy, of one or more of the following:

(a) non-payment of premium;

(b) conviction of a crime arising out of acts increasing the hazard insured against;

(c) discovery of fraud or material misrepresentation;

(d) discovery of willful, or reckless acts or commissions increasing the hazard insured against;

(e) physical changes in the property insured which result in the property becoming uninsurable;or

(f) a determination by the Commissioner that the continuation of the policy would violate or would place the

insurer in violation of this Code.

As for the method of cancellation, Section 65 provides as follows:

SEC. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to

the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in

section sixty-four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish

the facts on which the cancellation is based.

A valid cancellation must, therefore, require concurrence of the following conditions:

(1) There must be prior notice of cancellation to the insured; 17

(2) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds

mentioned;18


(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the address shown in the policy; 19

(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that upon written request of the insured,

the insurer will furnish the facts on which the cancellation is based. 20

MICO's claims it cancelled the policy in question on October 15, 1981, for non-payment of premium. To support this assertion, it

presented one of its employees, who testified that "the original of the endorsement and credit memo" — presumably meaning

the alleged cancellation — "were sent the assured by mail through our mailing section" 21 However, there is no proof that the

notice, assuming it complied with the other requisites mentioned above, was actually mailed to and received by Pinca. All MICO's

offers to show that the cancellation was communicated to the insured is its employee's testimony that the said cancellation was

sent "by mail through our mailing section." without more. The petitioner then says that its "stand is enervated (sic) by the legal

presumption of regularity and due performance of duty." 22(not realizing perhaps that "enervated" means "debilitated" not

"strengthened").

On the other hand, there is the flat denial of Pinca, who says she never received the claimed cancellation and who, of course, did

not have to prove such denial Considering the strict language of Section 64 that no insurance policy shall be cancelled except

upon prior notice, it behooved MICO's to make sure that the cancellation was actually sent to and received by the insured. The

presumption cited is unavailing against the positive duty enjoined by Section 64 upon MICO and the flat denial made by the

private respondent that she had received notice of the claimed cancellation.

It stands to reason that if Pinca had really received the said notice, she would not have made payment on the original policy on

December 24, 1981. Instead, she would have asked for a new insurance, effective on that date and until one year later, and so

taken advantage of the extended period. The Court finds that if she did pay on that date, it was because she honestly believed

that the policy issued on June 7, 1981, was still in effect and she was willing to make her payment retroact to July 22, 1981, its

stipulated commencement date. After all, agent Adora was very accomodating and had earlier told her "to call him up any time"

she was ready with her payment on the policy earlier issued. She was obviously only reciprocating in kind when she paid her

premium for the period beginning July 22, 1981, and not December 24, 1981.

MICO's suggests that Pinca knew the policy had already been cancelled and that when she paid the premium on December 24,

1981, her purpose was "to renew it." As this could not be done by the agent alone under the terms of the original policy, the

renewal thereof did not legally bind MICO. which had not ratified it. To support this argument, MICO's cites the following

exchange:

Q: Now, Madam Witness, on December 25th you made the alleged payment. Now, my question is that, did it not come to your mind that after the lapse of six (6) months, your policy was cancelled?A: I have thought of that but the agent told me to call him up at anytime.Q: So if you thought that your policy was already intended to revive cancelled policy?A: Misleading, Your Honor.Hearing Officer: The testimony of witness is that, she thought of that.Q: I will revise the question. Now, Mrs. Witness, you stated that you thought the policy was cancelled. Now, when you made the payment of December 24, 1981, your intention was to revive the policy if it was already cancelled?A: Yes, to renew it. 23

A close study of the above transcript will show that Pinca meant to renew the policy if it had really been already cancelled but not

if it was stffl effective. It was all conditional. As it has not been shown that there was a valid cancellation of the policy, there was

consequently no need to renew it but to pay the premium thereon. Payment was thus legally made on the original transaction

and it could be, and was, validly received on behalf of the insurer by its agent Adora. Adora. incidentally, had not been informed

of the cancellation either and saw no reason not to accept the said payment.

The last point raised by the petitioner should not pose much difficulty. The valuation fixed in fire insurance policy is conclusive in

case of total loss in the absence of fraud, 24 which is not shown here. Loss and its amount may be determined on the basis of such

proof as may be offered by the insured, which need not be of such persuasiveness as is required in judicial proceedings. 25 If, as in

this case, the insured files notice and preliminary proof of loss and the insurer fails to specify to the former all the defects thereof

and without unnecessary delay, all objections to notice and proof of loss are deemed waived under Section 90 of the Insurance

Code.

The certification 26 issued by the Integrated National Police, Lao-ang, Samar, as to the extent of Pinca's loss should be considered

sufficient. Notably,MICO submitted no evidence to the contrary nor did it even question the extent of the loss in its answer


before the Insurance Commission. It is also worth observing that Pinca's property was not the only building bumed in the fire that

razed the commercial district of Lao-ang, Samar, on January 18, 1982. 27

There is nothing in the Insurance Code that makes the participation of an adjuster in the assessment of the loss imperative or

indespensable, as MICO suggests. Section 325, which it cites, simply speaks of the licensing and duties of adjusters.

We see in this cases an obvious design to evade or at least delay the discharge of a just obligation through efforts bordering on

bad faith if not plain duplicity, We note that the motion for reconsideration was filed on the fifteenth day from notice of the

decision of the Insurance Commission and that there was a feeble attempt to show that the notice of denial of the said motion

was not received on June 13, 1982, to further hinder the proceedings and justify the filing of the petition with this Court fourteen

days after June 18, 1982. We also look askance at the alleged cancellation, of which the insured and MICO's agent himself had no

knowledge, and the curious fact that although Pinca's payment was remitted to MICO's by its agent on January 15, 1982, MICO

sought to return it to Adora only on February 5, 1982, after it presumably had learned of the occurrence of the loss insured

against on January 18, 1982. These circumstances make the motives of the petitioner highly suspect, to say the least, and cast

serious doubts upon its candor and bona fides.

WHEREFORE, the petition is DENIED. The decision of the Insurance Commission dated April 10, 1981, and its Order of June 4,

1981, are AFFIRMED in full, with costs against the petitioner. This decision is immediately executory.

SO ORDERED.



ManilaFIRST DIVISIONG.R. No. 95546 November 6, 1992MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner, vs.THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO., represented by American International Underwriters (Phils.), Inc., respondent.BELLOSILLO, J.:

This case involves a purely legal question: whether payment by installment of the premiums due on an insurance policy

invalidates the contract of insurance, in view of Sec. 77 of P.D. 612, otherwise known as the Insurance Code, as amended, which

provides:

Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing is exposed to the peril

insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an



Sometime in early 1982, private respondent American Home Assurance Co. (AHAC), represented by American International

Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany Condominium Corporation (TUSCANY) Insurance Policy

No. AH-CPP-9210452 on the latter's building and premises, for a period beginning 1 March 1982 and ending 1 March 1983, with a

total premium of P466,103.05. The premium was paid on installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16

November 1982, all of which were accepted by private respondent.

On 10 February 1983, private respondent issued to petitioner Insurance Policy No. AH-CPP-9210596, which replaced and

renewed the previous policy, for a term covering 1 March 1983 to 1 March 1984. The premium in the amount of P466,103.05 was

again paid on installments on 13 April 1983, 13 July 1983, 3 August 1983, 9 September 1983, and 21 November 1983. All

payments were likewise accepted by private respondent.

On 20 January 1984, the policy was again renewed and private respondent issued to petitioner Insurance Policy No. AH-CPP-

9210651 for the period 1 March 1984 to 1 March 1985. On this renewed policy, petitioner made two installment payments, both

accepted by private respondent, the first on 6 February 1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00.

Thereafter, petitioner refused to pay the balance of the premium.

Consequently, private respondent filed an action to recover the unpaid balance of P314,103.05 for Insurance Policy No. AH-CPP-

9210651.

In its answer with counterclaim, petitioner admitted the issuance of Insurance Policy No. AH-CPP-9210651. It explained that it

discontinued the payment of premiums because the policy did not contain a credit clause in its favor and the receipts for the

installment payments covering the policy for 1984-85, as well as the two (2) previous policies, stated the following reservations:

2. Acceptance of this payment shall not waive any of the company rights to deny liability on any claim under the

policy arising before such payments or after the expiration of the credit clause of the policy; and

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

Petitioner further claimed that the policy was never binding and valid, and no risk attached to the policy. It then pleaded a

counterclaim for P152,000.00 for the premiums already paid for 1984-85, and in its answer with amended counterclaim, sought

the refund of P924,206.10 representing the premium payments for 1982-85.

After some incidents, petitioner and private respondent moved for summary judgment.

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


While it is true that the receipts issued to the defendant contained the aforementioned reservations, it is

equally true that payment of the premiums of the three aforementioned policies (being sought to be refunded)

were made during the lifetime or term of said policies, hence, it could not be said, inspite of the reservations,

that no risk attached under the policies. Consequently, defendant's counterclaim for refund is not justified.

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

receipts ordinarily issued by the plaintiff on premium payments the only plausible conclusion is that plaintiff has

no right to demand their payment after the lapse of the term of said policy on March 1, 1985. Therefore, the

defendant was justified in refusing to pay the same. 1

Both parties appealed from the judgment of the trial court. Thereafter, the Court of Appeals rendered a decision 2modifying that

of the trial court by ordering herein petitioner to pay the balance of the premiums due on Policy No. AH-CPP-921-651, or

P314,103.05 plus legal interest until fully paid, and affirming the denial of the counterclaim. The appellate court thus explained —

The obligation to pay premiums when due is ordinarily as indivisible obligation to pay the entire premium. Here,

the parties herein agreed to make the premiums payable in installments, and there is no pretense that the

parties never envisioned to make the insurance contract binding between them. It was renewed for two

succeeding years, the second and third policies being a renewal/replacement for the previous one. And the

insured never informed the insurer that it was terminating the policy because the terms were unacceptable.

While it may be true that under Section 77 of the Insurance Code, the parties may not agree to make the

insurance contract valid and binding without payment of premiums, there is nothing in said section which

suggests that the parties may not agree to allow payment of the premiums in installment, or to consider the

contract as valid and binding upon payment of the first premium. Otherwise, we would allow the insurer to

renege on its liability under the contract, had a loss incurred (sic) before completion of payment of the entire

premium, despite its voluntary acceptance of partial payments, a result eschewed by a basic considerations of

fairness and equity.

To our mind, the insurance contract became valid and binding upon payment of the first premium, and the

plaintiff could not have denied liability on the ground that payment was not made in full, for the reason that it

agreed to accept installment payment. . . . 3

Petitioner now asserts that its payment by installment of the premiums for the insurance policies for 1982, 1983 and 1984

invalidated said policies because of the provisions of Sec. 77 of the Insurance Code, as amended, and by the conditions stipulated

by the insurer in its receipts, disclaiming liability for loss for occurring before payment of premiums.

It argues that where the premiums is not actually paid in full, the policy would only be effective if there is an acknowledgment in

the policy of the receipt of premium pursuant to Sec. 78 of the Insurance Code. The absence of an express acknowledgment in

the policies of such receipt of the corresponding premium payments, and petitioner's failure to pay said premiums on or before

the effective dates of said policies rendered them invalid. Petitioner thus concludes that there cannot be a perfected contract of

insurance upon mere partial payment of the premiums because under Sec. 77 of the Insurance Code, no contract of insurance is

valid and binding unless the premium thereof has been paid, notwithstanding any agreement to the contrary. As a consequence,

petitioner seeks a refund of all premium payments made on the alleged invalid insurance policies.

We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show that

petitioner and private respondent intended subject insurance policies to be binding and effective notwithstanding the staggered

payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three

(3) years, the insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the insurer's intention

to honor the policies it issued to petitioner. Certainly, basic principles of equity and fairness would not allow the insurer to

continue collecting and accepting the premiums, although paid on installments, and later deny liability on the lame excuse that

the premiums were not prepared in full.

We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings and conclusion of the appellate

court contained in its Resolution denying the motion to reconsider its Decision —

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

of the contract, We are not prepared to rule that the request to make installment payments duly approved by

the insurer, would prevent the entire contract of insurance from going into effect despite payment and


acceptance of the initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver

by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt

of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that

premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid

even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and

such an agreement is not contrary to morals, good customs, public order or public policy (De Leon, the

Insurance Code, at p. 175). So is an understanding to allow insured to pay premiums in installments not so

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

have voluntarily accepted. 4

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

Co. 5 is unavailing because the facts therein are substantially different from those in the case at bar. In Arce, no payment was

made by the insured at all despite the grace period given. In the case before Us, petitioner paid the initial installment and

thereafter made staggered payments resulting in full payment of the 1982 and 1983 insurance policies. For the 1984 policy,

petitioner paid two (2) installments although it refused to pay the balance.

It appearing from the peculiar circumstances that the parties actually intended to make three (3) insurance contracts valid,

effective and binding, petitioner may not be allowed to renege on its obligation to pay the balance of the premium after the

expiration of the whole term of the third policy (No. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by the

appellate court, where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums

paid if the insurer was exposed to the risk insured for any period, however brief or momentary.

WHEREFORE, finding no reversible error in the judgment appealed from, the same is AFFIRMED. Costs against petitioner.

SO ORDERED.

Cruz, Padilla and Griño-Aquino, JJ., concur.

Medialdea, J., is on leave.



ManilaTHIRD DIVISIONG.R. No. 102253 June 2, 1995SOUTH SEA SURETY AND INSURANCE COMPANY, INC., petitioner, vs.HON. COURT OF APPEALS and VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC., respondents.R E S O L U T I O N

VITUG, J.:

Two issues on the subject of insurance are raised in this petition, that assails the decision, that assails the decision of the Court of

Appeals. (in CA-G.R. NO. CV-20156), the first dealing on the requirement of premium payment and the second relating to the

agency relationship of parties under that contract.

The court litigation started when Valenzuela Hardwood and Industrial Supply, Inc. ("Hardwood"), filed with the Regional, Trial

Court of the National Capital Judicial Region, Branch l71 in Valenzuela, Metro Manila, a complaint for the recovery of the value of

lost logs and freight charges from Seven Brothers Shipping Corporation or, to the extent of its alleged insurance cover, from

South Sea Surety and insurance Company.

The factual backdrop is described briefly by the appellate court thusly:

It appears that on 16 January 1984, plaintiff [Valenzuela Hardwood and Industrial Supply, Inc.] entered into an

agreement with the defendant Seven Brothers whereby the latter undertook to load on board its vessel M/V

Seven Ambassador the former's lauan round logs numbering 940 at the port of Maconacon, Isabela for

shipment to Manila.

On 20 January 1984, plaintiff insured the logs, against loss and/or, damage with defendant South Sea Surety

and Insurance Co., Inc. for P2,000,000.00 end the latter issued its Marine Cargo Insurance Policy No. 84/24229

for P2,000,000.00 on said date.

On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance policy to Mr.

Victorio Chua.

In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the loss of the

plaintiffs insured logs.

On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the premium and documentary

stamps due on the policy was tendered to the insurer but was not accepted. Instead, the South Sea Surety and

Insurance Co., Inc. cancelled the insurance policy it issued as of the date of inception for non-payment of the

premium due in accordance with Section 77 of the Insurance Code.

On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the payment

of the proceeds of the policy but the latter denied liability under the policy. Plaintiff likewise filed a formal claim

with defendant Seven Brothers Shipping Corporation for the value of the lost logs but the latter denied the

claim. 1

In its decision, dated 11 May 1988, the trial court rendered judgment in favor of plaintiff Hardwood.

On appeal perfected by both the shipping firm and the insurance company, the Court of Appeals affirmed the judgment of the

court a quo only against the insurance corporation; in absolving the shipping entity from liability, the appellate court ratiocinated:

The primary issue to be resolved before us is whether defendants shipping corporation and the surety company

are liable to the plaintiff for the latter's lost logs.

It appears that there is a stipulation in the charter party that the ship owner would be exempted from liability in

case of loss.


The court a quo erred in applying the provisions of the Civil Code on common carriers to establish the liability of

the shipping corporation. The provisions on common carriers should not be applied where the carrier is not

acting as such but as a private carrier.

Under American jurisprudence, a common carrier undertaking to carry a special or chartered to a special person

only, becomes a private carrier.

As a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent is valid

(Home Insurance Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24).

The shipping corporation should not therefore be held liable for the loss of the logs. 2

In this petition for review on certiorari brought by South Sea Surety and Insurance Co., Inc., petitioner argues that it likewise

should have been freed from any liability to Hardwood. It faults the appellate court (a) for having Supposedly disregarded Section

77 of the insurance Code and (b) for holding Victorio Chua to have been an authorized representative of the insurer.

Section 77 of the Insurance Code provides:

Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril

insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an



Undoubtedly, the payment of the premium is a condition precedent to, and essential for, the efficaciousness of the contract. The

only two statutorily provided exceptions are (a) in case the insurance coverage relates to life or industrial life (health) insurance

when a grace period applies and (b) when the insurer makes a written acknowledgment of the receipt of premium, this

acknowledgment being declared by law to be then conclusive evidence of the premium payment (Secs. 77-78, Insurance Code).

The appellate court, contrary to what the petition suggests, did not make any pronouncement to the contrary. Indeed, it has said:

Concerning the issue as to whether there is a valid contract of insurance between plaintiff-appellee and

defendant-appellant South Sea Surety and Insurance Co., Inc., Section 77 of the Insurance Code explicitly

provides that notwithstanding any agreement to the contrary, no policy issued by an insurance company is valid

and binding unless and until premium thereof has been paid. It is therefore important to determine whether at

the time of the loss, the premium was already paid. 3

No attempt becloud the issues can disguise the fact that the sole question raised in the instant petition is really evidentiary in

nature, i.e., whether or not Victorio Chua, in receiving the check for the insurance premium prior to the occurrence of the risk

insured against has so acted as an agent of petitioner. The appellate court, like the trial court, has found in the affirmative. Said

the appellate court:

In the instant case, the Marine Cargo Insurance Policy No. 84/24229 was issued by defendant insurance

company on 20 January 1984. At the time the vessel sank on 25 January 1984 resulting in the loss of the insured

logs, the insured had already delivered to Victorio Chua the check in payment of premium. But, as Victorio Chua

testified, it was only in the morning of 30 January 1984 or 5 days after the vessel sank when his messenger

tendered the check to defendant South Sea Surety and Insurance Co., Inc. (TSN, pp. 3-27, 16-17, 22 October

1985).

The pivotal issue to be resolved to determine the liability, of the surety corporation is whether Mr. Chua acted

as an agent of the surety company or of the insured when he received the check for insurance premiums.

Appellant surety company insists that Mr. Chua is an administrative assistant for the past ten years and an

agent for less than ten years of the Columbia Insurance Brokers, Ltd. He is paid a salary as a administrative

assistant and a commission as agent based on the premiums he turns over to the broker. Appellant therefore

argues that Mr. Chua, having received the insurance premiums as an agent of the Columbia Insurance Broker,

acted as an agent of the insured under Section 301 of the Insurance Code which provides as follows:

Sec. 301. Any person who for any compensation, commission or other thing of value, acts, or

aids in soliciting, negotiating or procuring the making of any insurance contract or in placing

risk or taking out insurance, on behalf of an insured other than himself,shall be an insurance

broker within the intent of this Code, and shall thereby become liable to all the duties

requirements, liabilities and penalties to which an insurance broker is subject.


The appellees, upon the other hand, claim that the second paragraph of Section 306 of the Insurance Code

provide as follows:

Sec. 306. . . . Any insurance company which delivers to an insurance agent or insurance broker

a policy or contract of insurance shall be deemed to have authorized such agent or broker to

receive on its behalf payment of any premium which is due on such policy of contract of

insurance at the time of its issuance or delivery or which becomes due thereon.

On cross-examination in behalf of South Sea Surety and Insurance Co., Inc. Mr. Chua testified that the marine

cargo insurance policy for the plaintiff's logs was delivered to him on 21 January 1984 at his office to be

delivered to the plaintiff.

When the appellant South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine cargo insurance

policy for the plaintiffs logs, he is deemed to have been authorized by the South Sea Surety and Insurance Co.,

Inc. to receive the premium which is due on its behalf.

When therefore the insured logs were lost, the insured had already paid the premium to an agent of the South

Sea Surety and Insurance Co., Inc., which is consequently liable to pay the insurance proceeds under the policy

it issued to the insured. 4

We see no valid reason to discard the factual conclusions of the appellate court. Just as so correctly pointed out by private

respondent, it is not the function of this Court to assess and evaluate all over again the evidence, testimonial and documentary,

adduced by the parties particularly where, such as here, the findings of both the trial court and the appellate court on the matter

coincide.

WHEREFORE, the resolution, dated 01 February 1993, granting due course to the petition is RECALLED, and the petition is

DENIED. Costs against petitioner.

SO ORDERED.

Feliciano, Romero, Melo and Francisco, JJ., concur.


FIRST DIVISION[G.R. No. 119655. May 24, 1996]SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO, VICTORINA M. RORALDO, VIRGILIO M. RORALDO,

MYRNA M. RORALDO and ROSABELLA M. RORALDO, petitioners, vs. COURT OF APPEALS and FORTUNE LIFE AND GENERAL INSURANCE CO., INC., respondents.

D E C I S I O N*

BELLOSILLO, J.:

May a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium?

On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc. (FORTUNE) issued Fire Insurance Policy

No. 136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-storey residential building located at 5855 Zobel

Street, Makati City, together with all their personal effects therein. The insurance was for P600,000.00 covering the period from

23 January 1987 to 23 January 1988. On 23 January 1987, of the total premium of P2,983.50, petitioner Violeta Tibay only paid

P600.00 thus leaving a considerable balance unpaid.

On 8 March 1987 the insured building was completely destroyed by fire. Two days later or on 10 March 1987 Violeta Tibay

paid the balance of the premium. On the same day, she filed with FORTUNE a claim on the fire insurance policy. Her claim was

accordingly referred to its adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately wrote Violeta requesting her to

furnish it with the necessary documents for the investigation and processing of her claim. Petitioner forthwith complied. On 28

March 1987 she signed a non-waiver agreement with GASI to the effect that any action taken by the companies or their

representatives in investigating the claim made by the claimant for his loss which occurred at 5855 Zobel Roxas, Makati on March

8, 1987, or in the investigating or ascertainment of the amount of actual cash value and loss, shall not waive or invalidate any

condition of the policies of such companies held by said claimant, nor the rights of either or any of the parties to this agreement,

and such action shall not be, or be claimed to be, an admission of liability on the part of said companies or any of them.[1]

In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for violation of Policy Condition No. 2 and of Sec. 77 of

the Insurance Code. Efforts to settle the case before the Insurance Commission proved futile. On 3 March 1988 Violeta and the

other petitioners sued FORTUNE for damages in the amount of P600,000.00 representing the total coverage of the fire insurance

policy plus 12% interest per annum, P 100,000.00 moral damages, and attorneys fees equivalent to 20% of the total claim.

On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE liable for the total value of the insured building

and personal properties in the amount of P600,000.00 plus interest at the legal rate of 6% per annum from the filing of the

complaint until full payment, and attorneys fees equivalent to 20% of the total amount claimed plus costs of suit.[2]

On 24 March 1995 the Court of Appeals reversed the court a quo by declaring FORTUNE not to be liable to plaintiff-

appellees therein but ordering defendant-appellant to return to the former the premium of P2,983.50 plus 12% interest from 10

March 1987 until full payment.[3]

Hence this petition for review with petitioners contending mainly that contrary to the conclusion of the appellate court,

FORTUNE remains liable under the subject fire insurance policy inspite of the failure of petitioners to pay their premium in full.

We find no merit in the petition; hence, we affirm the Court of Appeals.

Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising

from an unknown or contingent event.[4] The consideration is the premium, which must be paid at the time and in the way and

manner specified in the policy, and if not so paid, the policy will lapse and be forfeited by its own terms.[5]

The pertinent provisions in the Policy on premium read

THIS POLICY OF INSURANCE WITNESSETH, THAT only after payment to the Company in accordance with Policy Condition No. 2 of

the total premiums by the insured as stipulated above for the period aforementioned for insuring against Loss or Damage by Fire

or Lightning as herein appears, the Property herein described x x x

2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the premium has been fully paid

to and duly receipted by the Company in the manner provided herein.

Any supplementary agreement seeking to amend this condition prepared by agent, broker or Company official, shall be deemed

invalid and of no effect.


xxx xxx xxx

Except only in those specific cases where corresponding rules and regulations which are or may hereafter be in force provide for

the payment of the stipulated premiums in periodic installments at fixed percentage, it is hereby declared, agreed and warranted

that this policy shall be deemed effective, valid and binding upon the Company only when the premiums therefor have actually

been paid in full and duly acknowledged in a receipt signed by any authorized official or representative/agent of the Company in

such manner as provided herein, (Italics supplied).[6]

Clearly the Policy provides for payment of premium in full. Accordingly, where the premium has only been partially paid and

the balance paid only after the peril insured against has occurred, the insurance contract did not take effect and the insured

cannot collect at all on the policy. This is fully supported by Sec. 77 of the Insurance Code which provides

SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured

against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is

valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy

whenever the grace period provision applies (Italics supplied).

Apparently the crux of the controversy lies in the phrase unless and until the premium thereof has been paid. This leads us

to the manner of payment envisioned by the law to make the insurance policy operative and binding. For whatever judicial

construction may be accorded the disputed phrase must ultimately yield to the clear mandate of the law. The principle that

where the law does not distinguish the court should neither distinguish assumes that the legislature made no qualification on the

use of a general word or expression. In Escosura v. San Miguel Brewery, inc.,[7] the Court through Mr. Justice Jesus G. Barrera,

interpreting the phrase with pay used in connection with leaves of absence with pay granted to employees, ruled -

x x x the legislative practice seems to be that when the intention is to distinguish between full and partial payment, the modifying

term is used x x x

Citing C. A. No. 647 governing maternity leaves of married women in government, R. A. No. 679 regulating employment of

women and children, R.A. No. 843 granting vacation and sick leaves to judges of municipal courts and justices of the peace, and

finally, Art. 1695 of the New Civil Code providing that every househelp shall be allowed four (4) days vacation each month, which

laws simply stated with pay, the Court concluded that it was undisputed that in all these laws the phrase with pay used without

any qualifying adjective meant that the employee was entitled to full compensation during his leave of absence.

Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy despite partial payment of the premium due

and the express stipulation thereof to the contrary, petitioners rely heavily on the 1967 case of Philippine Phoenix and Insurance

Co., Inc. v. Woodworks, Inc.[8] where the Court through Mr. Justice Arsenio P. Dizon sustained the ruling of the trial court that

partial payment of the premium made the policy effective during the whole period of the policy. In that case, the insurance

company commenced action against the insured for the unpaid balance on a fire insurance policy. In its defense the insured

claimed that nonpayment of premium produced the cancellation of the insurance contract. Ruling otherwise the Court held

It is clear x x x that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by appellee and delivered to appellant, and that on

September 22 of the same year, the latter paid to the former the sum of P3,000.00 on account of the total premium of P6,051.95

due thereon. There is, consequently, no doubt at all that, as between the insurer and the insured, there was not only a perfected

contract of insurance but a partially performed one as far as the payment of the agreed premium was concerned. Thereafter the

obligation of the insurer to pay the insured the amount, for which the policy was issued in case the conditions therefor had been

complied with, arose and became binding upon it, while the obligation of the insured to pay the remainder of the total amount of

the premium due became demandable.

The 1967 Phoenix case is not persuasive; neither is it decisive of the instant dispute. For one, the factual scenario is

different. In Phoenix it was the insurance company that sued for the balance of the premium, i.e., it recognized and admitted the

existence of an insurance contract with the insured. In the case before us, there is, quite unlike in Phoenix, a specific stipulation

that (t)his policy xxx is not in force until the premium has been fully paid and duly receipted by the Company x x x. Resultantly, it

is correct to say that in Phoenix a contract was perfected upon partial payment of the premium since the parties had not

otherwise stipulated that prepayment of the premium in full was a condition precedent to the existence of a contract.

In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the remainder of the premium without any

other precondition to its enforceability as in the instant case, the insurer in effect had shown its intention to continue with the

existing contract of insurance, as in fact it was enforcing its right to collect premium, or exact specific performance from the


insured. This is not so here. By express agreement of the parties, no vinculum juris or bond of law was to be established until full

payment was effected prior to the occurrence of the risk insured against.

In Makati Tuscany Condominium Corp. v. Court of Appeals[9] the parties mutually agreed that the premiums could be paid in

installments, which in fact they did for three (3) years, hence, this Court refused to invalidate the insurance policy. In giving effect

to the policy, the Court quoted with approval the Court of Appeals

The obligation to pay premiums when due is ordinarily an indivisible obligation to pay the entire premium. Here, the parties x x x

agreed to make the premiums payable in installments, and there is no pretense that the parties never envisioned to make the

insurance contract binding between them. It was renewed for two succeeding years, the second and third policies being a

renewal/replacement for the previous one. And the insured never informed the insurer that it was terminating the policy

because the terms were unacceptable.

While it maybe true that under Section 77 of the Insurance Code, the parties may not agree to make the insurance contract valid

and binding without payment of premiums, there is nothing in said section which suggests that the parties may not agree to

allow payment of the premiums in installment, or to consider the contract as valid and binding upon payment of the first

premium. Otherwise we would allow the insurer to renege on its liability under the contract, had a loss incurred (sic) before

completion of payment of the entire premium, despite its voluntary acceptance of partial payments, a result eschewed by basic

considerations of fairness and equity x x x.

These two (2) cases, Phoenix and Tuscany, adequately demonstrate the waiver, either express or implied, of prepayment in

full by the insurer: impliedly, by suing for the balance of the premium as inPhoenix, and expressly, by agreeing to make premiums

payable in installments as in Tuscany. But contrary to the stance taken by petitioners, there is no waiver express or implied in the

case at bench. Precisely, the insurer and the insured expressly stipulated that (t)his policy including any renewal thereof and/or

any indorsement thereon is not in force until the premium has been fully paid to and duly receipted by the Company x x x and

that this policy shall be deemed effective, valid and binding upon the Company only when the premiums therefor have actually

been paid in full and duly acknowledged.

Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77 of the Insurance Code

the payment of partial premium by the assured in this particular instance should not be considered the payment required by the

law and the stipulation of the parties. Rather, it must be taken in the concept of a deposit to be held in trust by the insurer until

such time that the full amount has been tendered and duly receipted for. In other words, as expressly agreed upon in the

contract, full payment must be made before the risk occurs for the policy to be considered effective and in force.

Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever resulted from the

fractional payment of premium. The insurance contract itself expressly provided that the policy would be effective only when the

premium was paid in full. It would have been altogether different were it not so stipulated. Ergo, petitioners had absolute

freedom of choice whether or not to be insured by FORTUNE under the terms of its policy and they freely opted to adhere

thereto.

Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract is the intention of the

parties as expressed in the policy.[10] Courts have no other function but to enforce the same. The rule that contracts of insurance

will be construed in favor of the insured and most strongly against the insurer should not be permitted to have the effect of

making a plain agreement ambiguous and then construe it in favor of the insured. [11] Verily, it is elemental law that the payment

of premium is requisite to keep the policy of insurance in force. If the premium is not paid in the manner prescribed in the policy

as intended by the parties the policy is ineffective. Partial payment even when accepted as a partial payment will not keep the

policy alive even for such fractional part of the year as the part payment bears to the whole payment.[12]

Applying further the rules of statutory construction, the position maintained by petitioners becomes even more

untenable. The case of South Sea Surety and Insurance Company, Inc. v. Court of Appeals,[13] speaks only of two (2) statutory

exceptions to the requirement of payment of the entire premium as a prerequisite to the validity of the insurance contract. These

exceptions are: (a) in case the insurance coverage relates to life or industrial life (health) insurance when a grace period applies,

and (b) when the insurer makes a written acknowledgment of the receipt of premium, this acknowledgment being declared by

law to, be then conclusive evidence of the premium payment.[14]

A maxim of recognized practicality is the rule that the expressed exception or exemption excludes others. Exceptio firm at

regulim in casibus non exceptis. The express mention of exceptions operates to exclude other exceptions; conversely, those


which are not within the enumerated exceptions are deemed included in the general rule. Thus, under Sec. 77, as well as Sec. 78,

until the premium is paid, and the law has not expressly excepted partial payments, there is no valid and binding contract. Hence,

in the absence of clear waiver of prepayment in full by the insurer, the insured cannot collect on the proceeds of the policy.

In the desire to safeguard the interest of the assured, itmust not be ignored that the contract of insurance is primarily a risk-

distributing device, a mechanism by which all members of a group exposed to a particular risk contribute premiums to an

insurer. From these contributory funds are paid whatever losses occur due to exposure to the peril insured against. Each party

therefore takes a risk: the insurer, that of being compelled upon the happening of the contingency to pay the entire sum agreed

upon, and the insured, that of parting with the amount required as premium, without receiving anything therefor in case the

contingency does not happen. To ensure payment for these losses, the law mandates all insurance companies to maintain a legal

reserve fund in favor of those claiming under their policies.[15] It should be understood that the integrity of this fund cannot be

secured and maintained if by judicial fiat partial offerings of premiums were to be construed as a legal nexus between the

applicant and the insurer despite an express agreement to the contrary. For what could prevent the insurance applicant from

deliberately or wilfully holding back full premium payment and wait for the risk insured against to transpire and then

conveniently pass on the balance of the premium to be deducted from the proceeds of the insurance? Worse, what if the insured

makes an initial payment of only 10%, or even 1%, of the required premium, and when the risk occurs simply points to the

proceeds from where to source the balance? Can an insurance company then exist and survive upon the payment of 1%, or even

10%, of the premium stipulated in the policy on the basis that, after all, the insurer can deduct from the proceeds of the

insurance should the risk insured against occur?

Interpreting the contract of insurance stringently against the insurer but liberally in favor of the insured despite clearly

defined obligations of the parties to the policy can be carried out to extremes that there is the danger that we may, so to speak,

kill the goose that lays the golden egg. We are well aware of insurance companies falling into the despicable habit of collecting

premiums promptly yet resorting to all kinds of excuses to deny or delay payment of just insurance claims. But, in this case, the

law is manifestly on the side of the insurer. For as long as the current Insurance Code remains unchanged and partial payment of

premiums is not mentioned at all as among the exceptions provided in Secs. 77 and 78, no policy of insurance can ever pretend to

be efficacious or effective until premium has been fully paid.

And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business because by law the

insurer must maintain a legal reserve fund to meet its contingent obligations to the public, hence, the imperative need for its

prompt payment and full satisfaction.[16] It must be emphasized here that all actuarial calculations and various tabulations of

probabilities of losses under the risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon

this bedrock insurance firms are enabled to offer the assurance of security to the public at favorable rates. But once payment of

premium is left to the whim and caprice of the insured, as when the courts tolerate the payment of a mere P600.00 as partial

undertaking out of the stipulated total premium of P2,983.50 and the balance to be paid even after the risk insured against has

occurred, as petitioners have done in this case, on the principle that the strength of the vinculumjuris is not measured by any

specific amount of premium payment, we will surely wreak havoc on the business and set to naught what has taken actuarians

centuries to devise to arrive at a fair and equitable distribution of risks and benefits between the insurer and the insured.

The terms of the insurance policy constitute the measure of the insurers liability. In the absence of statutory prohibition to

the contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever conditions

they deem best upon their obligations not inconsistent with public policy. [17] The validity of these limitations is by law passed

upon by the Insurance Commissioner who is empowered to approve all forms of policies, certificates or contracts of insurance

which insurers intend to issue or deliver. That the policy contract in the case at bench was approved and allowed issuance simply

reaffirms the validity of such policy, particularly the provision in question.

WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals dated 24 March 1995 is AFFIRMED.

SO ORDERED.

Kapunan, and Hermosisima, Jr., JJ., concur.

Padilla (Chairman), J., joins Mr. Justice Vitugs dissent.

Vitug, J., see dissenting opinion.


EN BANC[G.R. No. 137172. April 4, 2001]UCPB GENERAL INSURANCE CO. INC., petitioner, vs. MASAGANA TELAMART, INC., respondent.R E S O L U T I O N

DAVIDE, JR., C.J.:

In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision [1] of the Court of Appeals, which

affirmed with modification the judgment of the trial court (a) allowing Respondent to consign the sum of P225,753.95 as full

payment of the premiums for the renewal of the five insurance policies on Respondents properties; (b) declaring the

replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering Petitioner to pay

Respondent P18,645,000.00 as indemnity for the burned properties covered by the renewal-replacement policies.The

modification consisted in the (1) deletion of the trial courts declaration that three of the policies were in force from August 1991

to August 1992; and (2) reduction of the award of the attorneys fees from 25% to 10% of the total amount due the Respondent.

The material operative facts upon which the appealed judgment was based are summarized by the Court of Appeals in its

assailed decision as follows:

Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5) insurance policies (Exhibits "A" to "E", Record,

pp. 158-175) on its properties [in Pasay City and Manila].

All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to 4:00 P.M. of 22 May 1992." On

June 13, 1992, plaintiff's properties located at 2410-2432 and 2442-2450 Taft Avenue, Pasay City were razed by fire. On July 13,

1992, plaintiff tendered, and defendant accepted, five (5) Equitable Bank Manager's Checks in the total amount of P225,753.45 as

renewal premium payments for which Official Receipt Direct Premium No. 62926 (Exhibit "Q", Record, p. 191) was issued by

defendant. On July 14, 1992, Masagana made its formal demand for indemnification for the burned insured properties. On the

same day, defendant returned the five (5) manager's checks stating in its letter (Exhibit "R"/"8", Record, p. 192) that it was

rejecting Masagana's claim on the following grounds:

"a) Said policies expired last May 22, 1992 and were not renewed for another term;

b) Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier; and

c) The properties covered by the said policies were burned in a fire that took place last June 13, 1992, or before tender

of premium payment."

(Record, p. 5)

Hence Masagana filed this case.

The Court of Appeals disagreed with Petitioners stand that Respondents tender of payment of the premiums on 13 July

1992 did not result in the renewal of the policies, having been made beyond the effective date of renewal as provided under

Policy Condition No. 26, which states:

26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the policy period mails or delivers to

the assured at the address shown in the policy notice of its intention not to renew the policy or to condition its renewal upon

reduction of limits or elimination of coverages, the assured shall be entitled to renew the policy upon payment of the premium

due on the effective date of renewal.

Both the Court of Appeals and the trial court found that sufficient proof exists that Respondent, which had procured insurance

coverage from Petitioner for a number of years, had been granted a 60 to 90-day credit term for the renewal of the policies. Such

a practice had existed up to the time the claims were filed. Thus:

Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium was paid more

than 90 days later on August 31, 1990 under O.R. No. 4771 (Exhs. "T" and "T-1"). Fire Insurance Policy No. 34660 for Insurance

Risk Coverage from May 22, 1990 to May 22, 1991 was issued by UCPB on May 4, 1990 but premium was collected by UCPB only

on July 13, 1990 or more than 60 days later under O.R. No. 46487 (Exhs. "V" and "V-1"). And so were as other policies: Fire

Insurance Policy No. 34657 covering risks from May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium therefor

was paid only on July 19, 1990 under O.R. No. 46583 (Exhs. "W" and "W-1"). Fire Insurance Policy No. 34661 covering risks from

May 22, 1990 to May 22, 1991 was issued on May 3, 1990 but premium was paid only on July 19, 1990 under O.R. No. 46582

(Exhs. "X' and "X-1"). Fire Insurance Policy No. 34688 for insurance coverage from May 22, 1990 to May 22, 1991 was issued on

May 7, 1990 but premium was paid only on July 19, 1990 under O.R. No. 46585 (Exhs. "Y" and "Y-1"). Fire Insurance Policy No.


29126 to cover insurance risks from May 22, 1989 to May 22, 1990 was issued on May 22, 1989 but premium therefor was

collected only on July 25, 1990[sic] under O.R. No. 40799 (Exhs. "AA" and "AA-1"). Fire Insurance Policy No. HO/F-26408 covering

risks from January 12, 1989 to January 12, 1990 was issued to Intratrade Phils. (Masagana's sister company) dated December 10,

1988 but premium therefor was paid only on February 15, 1989 under O.R. No. 38075 (Exhs. "BB" and "BB-1"). Fire Insurance

Policy No. 29128 was issued on May 22, 1989 but premium was paid only on July 25, 1989 under O.R. No. 40800 for insurance

coverage from May 22, 1989 to May 22, 1990 (Exhs. "CC" and "CC-1"). Fire Insurance Policy No. 29127 was issued on May 22,

1989 but premium was paid only on July 17, 1989 under O.R. No. 40682 for insurance risk coverage from May 22, 1989 to May

22, 1990 (Exhs. "DD" and "DD-1"). Fire Insurance Policy No. HO/F-29362 was issued on June 15, 1989 but premium was paid only

on February 13, 1990 under O.R. No. 39233 for insurance coverage from May 22, 1989 to May 22, 1990 (Exhs. "EE" and "EE-

1"). Fire Insurance Policy No. 26303 was issued on November 22, 1988 but premium therefor was collected only on March 15,

1989 under O.R. NO. 38573 for insurance risks coverage from December 15, 1988 to December 15, 1989 (Exhs. "FF" and "FF-1").

Moreover, according to the Court of Appeals the following circumstances constitute preponderant proof that no timely

notice of non-renewal was made by Petitioner:

(1) Defendant-appellant received the confirmation (Exhibit 11, Record, p. 350) from Ultramar Reinsurance Brokers that

plaintiffs reinsurance facility had been confirmed up to 67.5% only on April 15, 1992 as indicated on Exhibit 11. Apparently,

the notice of non-renewal (Exhibit 7, Record, p. 320) was sent not earlier than said date, or within 45 days from the expiry

dates of the policies as provided under Policy Condition No. 26; (2) Defendant insurer unconditionally accepted, and issued

an official receipt for, the premium payment on July 1[3], 1992 which indicates defendant's willingness to assume the risk

despite only a 67.5% reinsurance cover[age]; and (3) Defendant insurer appointed Esteban Adjusters and Valuers to

investigate plaintiffs claim as shown by the letter dated July 17, 1992 (Exhibit 11, Record, p. 254).

In our decision of 15 June 1999, we defined the main issue to be whether the fire insurance policies issued by petitioner to

the respondent covering the period from May 22, 1991 to May 22, 1992 had been extended or renewed by an implied credit

arrangement though actual payment of premium was tendered on a later date and after the occurrence of the (fire) risk insured

against. We resolved this issue in the negative in view of Section 77 of the Insurance Code and our decisions in Valenzuela v.

Court of Appeals[2]; South Sea Surety and Insurance Co., Inc. v. Court of Appeals [3]; and Tibay v. Court of Appeals.[4] Accordingly,

we reversed and set aside the decision of the Court of Appeals.

Respondent seasonably filed a motion for the reconsideration of the adverse verdict. It alleges in the motion that we had

made in the decision our own findings of facts, which are not in accord with those of the trial court and the Court of Appeals. The

courts below correctly found that no notice of non-renewal was made within 45 days before 22 May 1992, or before the

expiration date of the fire insurance policies. Thus, the policies in question were renewed by operation of law and were effective

and valid on 30 June 1992 when the fire occurred, since the premiums were paid within the 60- to 90-day credit term.

Respondent likewise disagrees with our ruling that parties may neither agree expressly or impliedly on the extension of

credit or time to pay the premium nor consider a policy binding before actual payment. It urges the Court to take judicial notice

of the fact that despite the express provision of Section 77 of the Insurance Code, extension of credit terms in premium payment

has been the prevalent practice in the insurance industry. Most insurance companies, including Petitioner, extend credit terms

because Section 77 of the Insurance Code is not a prohibitive injunction but is merely designed for the protection of the parties to

an insurance contract. The Code itself, in Section 78, authorizes the validity of a policy notwithstanding non-payment of

premiums.

Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its awareness of Section 77 Petitioner

persuaded and induced Respondent to believe that payment of premium on the 60- to 90-day credit term was perfectly alright; in

fact it accepted payments within 60 to 90 days after the due dates. By extending credit and habitually accepting payments 60 to

90 days from the effective dates of the policies, it has implicitly agreed to modify the tenor of the insurance policy and in effect

waived the provision therein that it would pay only for the loss or damage in case the same occurred after payment of the

premium.

Petitioner filed an opposition to the Respondents motion for reconsideration. It argues that both the trial court and the

Court of Appeals overlooked the fact that on 6 April 1992 Petitioner sent by ordinary mail to Respondent a notice of non-renewal

and sent by personal delivery a copy thereof to Respondents broker, Zuellig. Both courts likewise ignored the fact that

Respondent was fully aware of the notice of non-renewal. A reading of Section 66 of the Insurance Code readily shows that in


order for an insured to be entitled to a renewal of a non-life policy, payment of the premium due on the effective date of renewal

should first be made. Respondents argument that Section 77 is not a prohibitive provision finds no authoritative support.

Upon a meticulous review of the records and reevaluation of the issues raised in the motion for reconsideration and the

pleadings filed thereafter by the parties, we resolved to grant the motion for reconsideration. The following facts, as found by the

trial court and the Court of Appeals, are indeed duly established:

1. For years, Petitioner had been issuing fire policies to the Respondent, and these policies were annually renewed.

2. Petitioner had been granting Respondent a 60- to 90-day credit term within which to pay the premiums on the

renewed policies.

3. There was no valid notice of non-renewal of the policies in question, as there is no proof at all that the notice sent

by ordinary mail was received by Respondent, and the copy thereof allegedly sent to Zuellig was ever transmitted

to Respondent.

4. The premiums for the policies in question in the aggregate amount of P225,753.95 were paid by Respondent within

the 60- to 90-day credit term and were duly accepted and received by Petitioners cashier.

The instant case has to rise or fall on the core issue of whether Section 77 of the Insurance Code of 1978 (P.D. No. 1460)

must be strictly applied to Petitioners advantage despite its practice of granting a 60- to 90-day credit term for the payment of

premiums.

Section 77 of the Insurance Code of 1978 provides:

SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured


valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy

whenever the grace period provision applies.

This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated on 18 December 1974. In

turn, this Section has its source in Section 72 of Act No. 2427 otherwise known as the Insurance Act as amended by R.A. No. 3540,

approved on 21 June 1963, which read:

SEC. 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the peril insured against, unless

there is clear agreement to grant the insured credit extension of the premium due. No policy issued by an insurance company is

valid and binding unless and until the premium thereof has been paid. (Underscoring supplied)

It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an agreement to

extend the period to pay the premium. But are there exceptions to Section 77?

The answer is in the affirmative.

The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the grace

period provision applies.

The second is that covered by Section 78 of the Insurance Code, which provides:

SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its

payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until premium

is actually paid.

A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals,[5] wherein we ruled that

Section 77 may not apply if the parties have agreed to the payment in installments of the premium and partial payment has been

made at the time of loss. We said therein, thus:

We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show that the

petitioners and private respondent intended subject insurance policies to be binding and effective notwithstanding the staggered

payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three

years, the insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the insurers intention to

honor the policies it issued to petitioner. Certainly, basic principles of equity and fairness would not allow the insurer to continue

collecting and accepting the premiums, although paid on installments, and later deny liability on the lame excuse that the

premiums were not prepaid in full.

Not only that. In Tuscany, we also quoted with approval the following pronouncement of the Court of Appeals in its

Resolution denying the motion for reconsideration of its decision:


While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract,

We are not prepared to rule that the request to make installment payments duly approved by the insurer would prevent the

entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first

installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an

acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy

binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy

is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an

agreement is not contrary to morals, good customs, public order or public policy (De Leon, The Insurance Code, p. 175). So is an

understanding to allow insured to pay premiums in installments not so prescribed. At the very least, both parties should be

deemed in estoppel to question the arrangement they have voluntarily accepted.

By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has provided a fourth

exception to Section 77, namely, that the insurer may grant credit extension for the payment of the premium. This simply means

that if the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the expiration of

the term, recovery on the policy should be allowed even though the premium is paid after the loss but within the credit term.

Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term within

which to pay the premiums. That agreement is not against the law, morals, good customs, public order or public policy. The

agreement binds the parties. Article 1306 of the Civil Code provides:

ART. 1306. The contracting parties may establish such stipulations clauses, terms and conditions as they may deem convenient,

provided they are not contrary to law, morals, good customs, public order, or public policy.

Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be permitted against

Petitioner, which had consistently granted a 60- to 90-day credit term for the payment of premiums despite its full awareness of

Section 77. Estoppel bars it from taking refuge under said Section, since Respondent relied in good faith on such

practice. Estoppel then is the fifth exception to Section 77.

WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED and SET ASIDE, and a new one is hereby

entered DENYING the instant petition for failure of Petitioner to sufficiently show that a reversible error was committed by the

Court of Appeals in its challenged decision, which is hereby AFFIRMED in toto.

No pronouncement as to cost.

SO ORDERED.


FIRST DIVISION[G.R. No. 130421. June 28, 1999]AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. ANTONIO CHUA, respondent.D E C I S I O N

DAVIDE, JR. C.J.:

In this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, petitioner seeks the reversal of

the decision[1] of the Court of Appeals in CA-G.R. CV No. 40751, which affirmed in toto the decision of the Regional Trial Court,

Makati City, Branch 150 (hereafter trial court), in Civil Case No. 91-1009.

Petitioner is a domestic corporation engaged in the insurance business. Sometime in 1990, respondent obtained from

petitioner a fire insurance covering the stock-in-trade of his business, Moonlight Enterprises, located at Valencia, Bukidnon. The

insurance was due to expire on 25 March 1990.

On 5 April 1990 respondent issued PCIBank Check No. 352123 in the amount of P2,983.50 to petitioners agent, James Uy, as

payment for the renewal of the policy. In turn, the latter delivered Renewal Certificate No. 00099047 to respondent. The check

was drawn against a Manila bank and deposited in petitioners bank account in Cagayan de Oro City. The corresponding official

receipt was issued on 10 April. Subsequently, a new insurance policy, Policy No. 206-4234498-7, was issued, whereby petitioner

undertook to indemnify respondent for any damage or loss arising from fire up to P200,000 for the period 25 March 1990 to 25

March 1991.

On 6 April 1990 Moonlight Enterprises was completely razed by fire. Total loss was estimated between P4,000,000

and P5,000,000. Respondent filed an insurance claim with petitioner and four other co-insurers, namely, Pioneer Insurance and

Surety Corporation, Prudential Guarantee and Assurance, Inc., Filipino Merchants Insurance Co. and Domestic Insurance

Company of the Philippines. Petitioner refused to honor the claim notwithstanding several demands by respondent, thus, the

latter filed an action against petitioner before the trial court.

In its defense, petitioner claimed there was no existing insurance contract when the fire occurred since respondent did not

pay the premium. It also alleged that even assuming there was a contract, respondent violated several conditions of the policy,

particularly: (1) his submission of fraudulent income tax return and financial statements; (2) his failure to establish the actual loss,

which petitioner assessed at P70,000; and (3) his failure to notify to petitioner of any insurance already effected to cover the

insured goods. These violations, petitioner insisted, justified the denial of the claim.

The trial court ruled in favor of respondent. It found that respondent paid by way of check a day before the fire

occurred. The check, which was deposited in petitioners bank account, was even acknowledged in the renewal certificate issued

by petitioners agent. It declared that the alleged fraudulent documents were limited to the disparity between the official receipts

issued by the Bureau of Internal Revenue (BIR) and the income tax returns for the years 1987 to 1989. All the other documents

were found to be genuine. Nonetheless, it gave credence to the BIR certification that respondent paid the corresponding taxes

due for the questioned years.

As to respondents failure to notify petitioner of the other insurance contracts covering the same goods, the trial court held

that petitioner failed to show that such omission was intentional and fraudulent.Finally, it noted that petitioners investigation of

respondent's claim was done in collaboration with the representatives of other insurance companies who found no irregularity

therein. In fact, Pioneer Insurance and Surety Corporation and Prudential Guarantee and Assurance, Inc. promptly paid the claims

filed by respondent.

The trial court decreed as follows:

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

former the following:

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

2. P200,000.00 as moral damages;

3. P200,000.00 as loss of profit;

4. P100,000.00 as exemplary damages;

5. P50,000.00 as attorneys fees; and

6. Cost of suit.


On appeal, the assailed decision was affirmed in toto by the Court of Appeals. The Court of Appeals found that respondents

claim was substantially proved and petitioners unjustified refusal to pay the claim entitled respondent to the award of damages.

Its motion for reconsideration of the judgment having been denied, petitioner filed the petition in this case. Petitioner

reiterates its stand that there was no existing insurance contract between the parties. It invokes Section 77 of the Insurance

Code, which provides:

An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured


valid and binding unless and until the premium thereof has been paid, except in the case of life or an industrial life policy

whenever the grace period provision applies.

and cites the case of Arce v. Capital Insurance & Surety Co., Inc.,[2] where we ruled that unless and until the premium is paid there

is no insurance.

Petitioner emphasizes that when the fire occurred on 6 April 1990 the insurance contract was not yet subsisting pursuant to

Article 1249[3] of the Civil Code, which recognizes that a check can only effect payment once it has been cashed. Although

respondent testified that he gave the check on 5 April to a certain James Uy, the check, drawn against a Manila bank and

deposited in a Cagayan de Oro City bank, could not have been cleared by 6 April, the date of the fire. In fact, the official receipt

issued for respondents check payment was dated 10 April 1990, four days after the fire occurred.

Citing jurisprudence,[4] petitioner also contends that respondents non-disclosure of the other insurance contracts rendered

the policy void. It underscores the trial courts neglect in considering the Commission on Audits certification that the BIR receipts

submitted by respondent were, in effect, fake since they were issued to other persons. Finally, petitioner argues that the award

of damages was excessive and unreasonable considering that it did not act in bad faith in denying respondents claim.

Respondent counters that the issue of non-payment of premium is a question of fact which can no longer be assailed. The

trial courts finding on the matter, which was affirmed by the Court of Appeals, is conclusive.

Respondent refutes the reason for petitioners denial of his claim. As found by the trial court, petitioners loss adjuster

admitted prior knowledge of respondents existing insurance contracts with the other insurance companies. Nonetheless, the loss

adjuster recommended the denial of the claim, not because of the said contracts, but because he was suspicious of the

authenticity of certain documents which respondent submitted in filing his claim.

To bolster his argument, respondent cites Section 66 of the Insurance Code,[5] which requires the insurer to give a notice to

the insured of its intention to terminate the policy forty-five days before the policy period ends. In the instant case, petitioner

opted not to terminate the policy. Instead, it renewed the policy by sending its agent to respondent, who was issued a renewal

certificate upon delivery of his check payment for the renewal of premium. At this precise moment the contract of insurance was

executed and already in effect. Respondent also claims that it is standard operating procedure in the provinces to pay insurance

premiums by check when collected by insurance agents.

On the issue of damages, respondent maintains that the amounts awarded were reasonable. He cites numerous trips he

had to make from Cagayan de Oro City to Manila to follow up his rightful claim. He imputes bad faith on petitioner who made

enforcement of his claim difficult in the hope that he would eventually abandon it. He further emphasizes that the adjusters of

the other insurance companies recommended payment of his claim, and they complied therewith.

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

Appeals.

Petitioner invokes respondents admission that his check for the renewal of the policy was received only on 10 April 1990,

taking into account that the policy period was 25 March 1990 to 25 March 1991.The official receipt was dated 10 April

1990. Anent respondents testimony that the check was given to petitioners agent, a certain James Uy, the latter points out that

even respondent was not sure if Uy was indeed its agent. It faults respondent for not producing Uy as his witness and not taking

any receipt from him upon presentment of the check. Even assuming that the check was received a day before the occurrence of

the fire, there still could not have been any payment until the check was cleared.

Moreover, petitioner denies respondents allegation that it intended a renewal of the contract for the renewal certificate

clearly specified the following conditions:

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

stated.


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

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

Petitioner asserts that an insurance contract can only be enforced upon the payment of the premium, which should have been

made before the renewal period.

Finally, in assailing the excessive damages awarded to respondent petitioner stresses that the policy in issue was limited to a

liability of P200,000; but the trial court granted the following monetary awards: P200,000 as actual damages; P200,000 as moral

damages; P100,000 as exemplary damages; and P50,000 as attorneys fees.

The following issues must be resolved: first, whether there was a valid payment of premium, considering that respondents

check was cashed after the occurrence of the fire; second, whether respondent violated the policy by his submission of

fraudulent documents and non-disclosure of the other existing insurance contracts; and finally, whether respondent is entitled to

the award of damages.

The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and binding. The only

exceptions are life and industrial life insurance.[6] Whether payment was indeed made is a question of fact which is best

determined by the trial court. The trial court found, as affirmed by the Court of Appeals, that there was a valid check payment by

respondent to petitioner. Well-settled is the rule that the factual findings and conclusions of the trial court and the Court of

Appeals are entitled to great weight and respect, and will not be disturbed on appeal in the absence of any clear showing that the

trial court overlooked certain facts or circumstances which would substantially affect the disposition of the case. [7] We see no

reason to depart from this ruling.

According to the trial court the renewal certificate issued to respondent contained the acknowledgment that premium had

been paid. It is not disputed that the check drawn by respondent in favor of petitioner and delivered to its agent was honored

when presented and petitioner forthwith issued its official receipt to respondent on 10 April 1990. Section 306 of the Insurance

Code provides that any insurance company which delivers a policy or contract of insurance to an insurance agent or insurance

broker shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due

on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon. [8] In the instant case,

the best evidence of such authority is the fact that petitioner accepted the check and issued the official receipt for the

payment. It is, as well, bound by its agents acknowledgment of receipt of payment.

Section 78 of the Insurance Code explicitly provides:

An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as

to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid.

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

Is respondent guilty of the policy violations imputed against him? We are not convinced by petitioners arguments. The

submission of the alleged fraudulent documents pertained to respondents income tax returns for 1987 to 1989. Respondent,

however, presented a BIR certification that he had paid the proper taxes for the said years. The trial court and the Court of

Appeals gave credence to the certification and it being a question of fact, we hold that said finding is conclusive.

Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers, non-disclosure thereof

is a violation that entitles the insurer to avoid the policy. This condition is common in fire insurance policies and is known as the

other insurance clause. The purpose for the inclusion of this clause is to prevent an increase in the moral hazard. We have ruled

on its validity and the case of Geagonia v. Court of Appeals[10] clearly illustrates such principle. However, we see an exception in

the instant case.

Citing Section 29[11] of the Insurance Code, the trial court reasoned that respondents failure to disclose was not intentional

and fraudulent. The application of Section 29 is misplaced. Section 29 concerns concealment which is intentional. The relevant

provision is Section 75, which provides that:

A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision

does not avoid the policy.

To constitute a violation the other existing insurance contracts must be upon the same subject matter and with the same

interest and risk.[12] Indeed, respondent acquired several co-insurers and he failed to disclose this information to

petitioner. Nonetheless, petitioner is estopped from invoking this argument. The trial court cited the testimony of petitioners loss

adjuster who admitted previous knowledge of the co-insurers. Thus,


COURT:

Q The matter of additional insurance of other companies, was that ever discussed in your investigation?A Yes, sir.Q In other words, from the start, you were aware the insured was insured with other companies like Pioneer and so on?A Yes, Your Honor.Q But in your report you never recommended the denial of the claim simply because of the non-disclosure of other insurance? [sic]A Yes, Your Honor.Q In other words, to be emphatic about this, the only reason you recommended the denial of the claim, you found three documents to be spurious. That is your only basis?A Yes, Your Honor.[13] [Emphasis supplied]

Indubitably, it cannot be said that petitioner was deceived by respondent by the latters non-disclosure of the other

insurance contracts when petitioner actually had prior knowledge thereof. Petitioners loss adjuster had known all along of the

other existing insurance contracts, yet, he did not use that as basis for his recommendation of denial. The loss adjuster, being an

employee of petitioner, is deemed a representative of the latter whose awareness of the other insurance contracts binds

petitioner. We, therefore, hold that there was no violation of the other insurance clause by respondent.

Petitioner is liable to pay its share of the loss. The trial court and the Court of Appeals were correct in awarding P200,000 for

this. There is, however, merit in petitioners grievance against the damages and attorneys fees awarded.

There is no legal and factual basis for the award of P200,000 for loss of profit. It cannot be denied that the fire totally gutted

respondents business; thus, respondent no longer had any business to operate.His loss of profit cannot be shouldered by

petitioner whose obligation is limited to the object of insurance, which was the stock-in-trade, and not the expected loss in

income or profit.

Neither can we approve the award of moral and exemplary damages. At the core of this case is petitioners alleged breach of

its obligation under a contract of insurance. Under Article 2220 of the Civil Code, moral damages may be awarded in breaches of

contracts where the defendant acted fraudulently or in bad faith. We find no such fraud or bad faith. It must again be stressed

that moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. Such damages are

awarded only to enable the injured party to obtain means, diversion or amusements that will serve to obviate the moral suffering

he has undergone, by reason of the defendants culpable action. Its award is aimed at the restoration, within the limits of the

possible, of the spiritual status quo ante, and it must be proportional to the suffering inflicted. [14] When awarded, moral damages

must not be palpably and scandalously excessive as to indicate that it was the result of passion, prejudice or corruption on the

part of the trial court judge.[15]

The law[16] is likewise clear that in contracts and quasi-contracts the court may award exemplary damages if the defendant

acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.Nothing thereof can be attributed to petitioner which

merely tried to resist what it claimed to be an unfounded claim for enforcement of the fire insurance policy.

As to attorneys fees, the general rule is that attorneys fees cannot be recovered as part of damages because of the policy

that no premium should be placed on the right to litigate. [17] In short, the grant of attorneys fees as part of damages is the

exception rather than the rule; counsels fees are not awarded every time a party prevails in a suit. It can be awarded only in the

cases enumerated in Article 2208 of the Civil Code, and in all cases it must be reasonable. [18] Thereunder, the trial court may

award attorneys fees where it deems just and equitable that it be so granted. While we respect the trial courts exercise of its

discretion in this case, the award of P50,000 is unreasonable and excessive. It should be reduced to P10,000.

WHEREFORE, the instant petition is partly GRANTED. The challenged decision of the Court of Appeals in CA-G.R. No. 40751

is hereby MODIFIED by a) deleting the awards of P200,000 for loss of profit, P200,000 as moral damages and P100,000 as

exemplary damages, and b) reducing the award of attorneys fees from P50,000 to P10,000.

No pronouncement as to costs.

SO ORDERED..



ManilaFIRST DIVISIONG.R. NO. 147039 January 27, 2006DBP POOL OF ACCREDITED INSURANCE COMPANIES, Petitioner, vs.RADIO MINDANAO NETWORK, INC., Respondent.D E C I S I O N

AUSTRIA-MARTINEZ, J.:

This refers to the petition for certiorari under Rule 45 of the Rules of Court seeking the review of the Decision 1dated November

16, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 56351, the dispositive portion of which reads:

Wherefore, premises considered, the appealed Decision of the Regional Trial Court of Makati City, Branch 138 in Civil Case No.

90-602 is hereby AFFIRMED with MODIFICATION in that the interest rate is hereby reduced to 6% per annum.

Costs against the defendants-appellants.

SO ORDERED.2

The assailed decision originated from Civil Case No. 90-602 filed by Radio Mindanao Network, Inc. (respondent) against DBP Pool

of Accredited Insurance Companies (petitioner) and Provident Insurance Corporation (Provident) for recovery of insurance

benefits. Respondent owns several broadcasting stations all over the country. Provident covered respondent’s transmitter

equipment and generating set for the amount ofP13,550,000.00 under Fire Insurance Policy No. 30354, while petitioner covered

respondent’s transmitter, furniture, fixture and other transmitter facilities for the amount of P5,883,650.00 under Fire Insurance

Policy No. F-66860.

In the evening of July 27, 1988, respondent’s radio station located in SSS Building, Bacolod City, was razed by fire causing damage

in the amount of P1,044,040.00. Respondent sought recovery under the two insurance policies but the claims were denied on the

ground that the cause of loss was an excepted risk excluded under condition no. 6 (c) and (d), to wit:

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 consequences, namely:

(c) War, invasion, act of foreign enemy, hostilities, or warlike operations (whether war be declared or not), civil war.

(d) Mutiny, riot, military or popular rising, insurrection, rebellion, revolution, military or usurped power.3

The insurance companies maintained that the evidence showed that the fire was caused by members of the Communist Party of

the Philippines/New People’s Army (CPP/NPA); and consequently, denied the claims. Hence, respondent was constrained to file

Civil Case No. 90-602 against petitioner and Provident.

After trial on the merits, the Regional Trial Court of Makati, Branch 138, rendered a decision in favor of respondent. The

dispositive portion of the decision reads:

IN VIEW THEREOF, judgment is rendered in favor of plaintiff. Defendant Provident Insurance Corporation is directed to pay

plaintiff the amount of P450,000.00 representing the value of the destroyed property insured under its Fire Insurance Policy plus

12% legal interest from March 2, 1990 the date of the filing of the Complaint. Defendant DBP Pool Accredited Insurance

Companies is likewise ordered to pay plaintiff the sum of P602,600.00 representing the value of the destroyed property under its

Fire Insurance Policy plus 12% legal interest from March 2, 1990.

SO ORDERED.4

Both insurance companies appealed from the trial court’s decision but the CA affirmed the decision, with the modification that

the applicable interest rate was reduced to 6% per annum. A motion for reconsideration was filed by petitioner DBP which was

denied by the CA per its Resolution dated January 30, 2001.5

Hence, herein petition by DBP Pool of Accredited Insurance Companies,6 with the following assignment of errors:

Assignment of Errors

THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THERE WERE NO SUFFICIENT EVIDENCE SHOWING THAT THE

APPROXIMATELY TENTY [sic] (20) ARMED MEN WHO CUSED [sic] THE FIRE AT RESPONDENT’S RMN PROPERTY AT BACOLOD CITY

WERE MEMBERS OF THE CPP-NPA.


THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED THAT RESPONDENT RMN CANNOT BEHELD [sic] FOR DAMAGES

AND ATTORNEY’S FEES FOR INSTITUTING THE PRESENT ACTION AGAINST THE PETITIONER UNDER ARTICLES 21, 2208, 2229 AND

2232 OF THE CIVIL CODE OF THE PHILIPPINES.7

Petitioner assails the factual finding of both the trial court and the CA that its evidence failed to support its allegation that the

loss was caused by an excepted risk, i.e., members of the CPP/NPA caused the fire. In upholding respondent’s claim for

indemnity, the trial court found that:

The only evidence which the Court can consider to determine if the fire was due to the intentional act committed by the

members of the New People’s Army (NPA), are the testimony [sic] of witnesses Lt. Col. Nicolas Torres and SPO3 Leonardo Rochar

who were admittedly not present when the fire occurred. Their testimony [sic] was [sic] limited to the fact that an investigation

was conducted and in the course of the investigation they were informed by bystanders that "heavily armed men entered the

transmitter house, poured gasoline in (sic) it and then lighted it. After that, they went out shouting "Mabuhay ang NPA" (TSN, p.

12., August 2, 1995). The persons whom they investigated and actually saw the burning of the station were not presented as

witnesses. The documentary evidence particularly Exhibits "5" and "5-C" do not satisfactorily prove that the author of the burning

were members of the NPA. Exhibit "5-B" which is a letter released by the NPA merely mentions some dissatisfaction with the

activities of some people in the media in Bacolod. There was no mention there of any threat on media facilities.8

The CA went over the evidence on record and sustained the findings of the trial court, to wit:

To recapitulate, defendants-appellants presented the following to support its claim, to wit: police blotter of the burning of DYHB,

certification of the Negros Occidental Integrated National Police, Bacolod City regarding the incident, letter of alleged NPA

members Celso Magsilang claiming responsibility for the burning of DYHB, fire investigation report dated July 29, 1988, and the

testimonies of Lt. Col. Nicolas Torres and SFO III Leonardo Rochas. We examined carefully the report on the police blotter of the

burning of DYHB, the certification issued by the Integrated National Police of Bacolod City and the fire investigation report

prepared by SFO III Rochas and there We found that none of them categorically stated that the twenty (20) armed men which

burned DYHB were members of the CPP/NPA. The said documents simply stated that the said armed men were ‘believed’ to be

or ‘suspected’ of being members of the said group. Even SFO III Rochas admitted that he was not sure that the said armed men

were members of the CPP-NPA, thus:

…

In fact the only person who seems to be so sure that that the CPP-NPA had a hand in the burning of DYHB was Lt. Col. Nicolas

Torres. However, though We found him to be persuasive in his testimony regarding how he came to arrive at his opinion, We

cannot nevertheless admit his testimony as conclusive proof that the CPP-NPA was really involved in the incident considering that

he admitted that he did not personally see the armed men even as he tried to pursue them. Note that when Lt. Col. Torres was

presented as witness, he was presented as an ordinary witness only and not an expert witness. Hence, his opinion on the identity

or membership of the armed men with the CPP-NPA is not admissible in evidence.

Anent the letter of a certain Celso Magsilang, who claims to be a member of NPA-NIROC, being an admission of person which is

not a party to the present action, is likewise inadmissible in evidence under Section 22, Rule 130 of the Rules of Court. The reason

being that an admission is competent only when the declarant, or someone identified in legal interest with him, is a party to the

action.9

The Court will not disturb these factual findings absent compelling or exceptional reasons. It should be stressed that a review by

certiorari under Rule 45 is a matter of discretion. Under this mode of review, the jurisdiction of the Court is limited to reviewing

only errors of law, not of fact.10

Moreover, when supported by substantial evidence, findings of fact of the trial court as affirmed by the CA are conclusive and

binding on the parties,11 which this Court will not review unless there are exceptional circumstances. There are no exceptional

circumstances in this case that would have impelled the Court to depart from the factual findings of both the trial court and the

CA.

Both the trial court and the CA were correct in ruling that petitioner failed to prove that the loss was caused by an excepted risk.

Petitioner argues that private respondent is responsible for proving that the cause of the damage/loss is covered by the

insurance policy, as stipulated in the insurance policy, to wit:

…


Any loss or damage happening during the existence of abnormal conditions (whether physical or otherwise) which are occasioned

by or through in consequence directly or indirectly, of any of the said occurrences shall be deemed to be loss or damage which is

not covered by the insurance, except to the extent that the Insured shall prove that such loss or damage happened

independently of the existence of such abnormal conditions.

In any action, suit or other proceeding where the Companies allege that by reason of the provisions of this condition any loss or

damage is not covered by this insurance, the burden of proving that such loss or damage is covered shall be upon the Insured.12

An insurance contract, being a contract of adhesion, should be so interpreted as to carry out the purpose for which the parties

entered into the contract which is to insure against risks of loss or damage to the goods. Limitations of liability should be

regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its

obligations.13

The "burden of proof" contemplated by the aforesaid provision actually refers to the "burden of evidence" (burden of going

forward).14 As applied in this case, it refers to the duty of the insured to show that the loss or damage is covered by the policy.

The foregoing clause notwithstanding, the burden of proof still rests upon petitioner to prove that the damage or loss was caused

by an excepted risk in order to escape any liability under the contract.

Burden of proof is the duty of any party to present evidence to establish his claim or defense by the amount of evidence required

by law, which is preponderance of evidence in civil cases. The party, whether plaintiff or defendant, who asserts the affirmative of

the issue has the burden of proof to obtain a favorable judgment. For the plaintiff, the burden of proof never parts.15 For the

defendant, an affirmative defense is one which is not a denial of an essential ingredient in the plaintiff’s cause of action, but one

which, if established, will be a good defense – i.e. an "avoidance" of the claim.16

Particularly, in insurance cases, where a risk is excepted by the terms of a policy which insures against other perils or hazards, loss

from such a risk constitutes a defense which the insurer may urge, since it has not assumed that risk, and from this it follows

that an insurer seeking to defeat a claim because of an exception or limitation in the policy has the burden of proving that the

loss comes within the purview of the exception or limitation set up . If a proof is made of a loss apparently within a contract of

insurance, the burden is upon the insurer to prove that the loss arose from a cause of loss which is excepted or for which it is not

liable, or from a cause which limits its liability.17

Consequently, it is sufficient for private respondent to prove the fact of damage or loss. Once respondent makes out a prima facie

case in its favor, the duty or the burden of evidence shifts to petitioner to controvert respondent’s prima facie case. 18 In this case,

since petitioner alleged an excepted risk, then the burden of evidence shifted to petitioner to prove such exception. It is only

when petitioner has sufficiently proven that the damage or loss was caused by an excepted risk does the burden of evidence shift

back to respondent who is then under a duty of producing evidence to show why such excepted risk does not release petitioner

from any liability. Unfortunately for petitioner, it failed to discharge its primordial burden of proving that the damage or loss was

caused by an excepted risk.

Petitioner however, insists that the evidence on record established the identity of the author of the damage. It argues that the

trial court and the CA erred in not appreciating the reports of witnesses Lt. Col Torres and SFO II Rochar that the bystanders they

interviewed claimed that the perpetrators were members of the CPP/NPA as an exception to the hearsay rule as part of res

gestae.

A witness can testify only to those facts which he knows of his personal knowledge, which means those facts which are derived

from his perception.19 A witness may not testify as to what he merely learned from others either because he was told or read or

heard the same. Such testimony is considered hearsay and may not be received as proof of the truth of what he has learned. The

hearsay rule is based upon serious concerns about the trustworthiness and reliability of hearsay evidence inasmuch as such

evidence are not given under oath or solemn affirmation and, more importantly, have not been subjected to cross-examination

by opposing counsel to test the perception, memory, veracity and articulateness of the out-of-court declarant or actor upon

whose reliability on which the worth of the out-of-court statement depends.20

Res gestae, as an exception to the hearsay rule, refers to those exclamations and statements made by either the participants,

victims, or spectators to a crime immediately before, during, or after the commission of the crime, when the circumstances are

such that the statements were made as a spontaneous reaction or utterance inspired by the excitement of the occasion and

there was no opportunity for the declarant to deliberate and to fabricate a false statement. The rule in res gestae applies when

the declarant himself did not testify and provided that the testimony of the witness who heard the declarant complies with the


following requisites: (1) that the principal act, the res gestae, be a startling occurrence; (2) the statements were made before the

declarant had the time to contrive or devise a falsehood; and (3) that the statements must concern the occurrence in question

and its immediate attending circumstances.21

The Court is not convinced to accept the declarations as part of res gestae. While it may concede that these statements were

made by the bystanders during a startling occurrence, it cannot be said however, that these utterances were

made spontaneously by the bystanders and before they had the time to contrive or devise a falsehood. Both SFO III Rochar and

Lt. Col. Torres received the bystanders’ statements while they were making their investigations during and after the fire. It is

reasonable to assume that when these statements were noted down, the bystanders already had enough time and opportunity

to mill around, talk to one another and exchange information, not to mention theories and speculations, as is the usual

experience in disquieting situations where hysteria is likely to take place. It cannot therefore be ascertained whether these

utterances were the products of truth. That the utterances may be mere idle talk is not remote.

At best, the testimonies of SFO III Rochar and Lt. Col. Torres that these statements were made may be considered as

independently relevant statements gathered in the course of their investigation, and are admissible not as to the veracity thereof

but to the fact that they had been thus uttered.22

Furthermore, admissibility of evidence should not be equated with its weight and sufficiency.23 Admissibility of evidence depends

on its relevance and competence, while the weight of evidence pertains to evidence already admitted and its tendency to

convince and persuade.24 Even assuming that the declaration of the bystanders that it was the members of the CPP/NPA who

caused the fire may be admitted as evidence, it does not follow that such declarations are sufficient proof. These declarations

should be calibrated vis-à-vis the other evidence on record. And the trial court aptly noted that there is a need for additional

convincing proof, viz.:

The Court finds the foregoing to be insufficient to establish that the cause of the fire was the intentional burning of the radio

facilities by the rebels or an act of insurrection, rebellion or usurped power. Evidence that persons who burned the radio facilities

shouted "Mabuhay ang NPA" does not furnish logical conclusion that they are member [sic] of the NPA or that their act was an

act of rebellion or insurrection. Additional convincing proof need be submitted. Defendants failed to discharge their responsibility

to present adequate proof that the loss was due to a risk excluded.25

While the documentary evidence presented by petitioner, i.e., (1) the police blotter; (2) the certification from the Bacolod Police

Station; and (3) the Fire Investigation Report may be considered exceptions to the hearsay rule, being entries in official records,

nevertheless, as noted by the CA, none of these documents categorically stated that the perpetrators were members of the

CPP/NPA.26 Rather, it was stated in the police blotter that: "a group of persons accompanied by one (1) woman all believed to be

CPP/NPA … more or less 20 persons suspected to be CPP/NPA,"27 while the certification from the Bacolod Police station stated

that "… some 20 or more armed menbelieved to be members of the New People’s Army NPA,"28 and the fire investigation report

concluded that "(I)t is therefore believed by this Investigating Team that the cause of the fire is intentional, and the armed

mensuspected to be members of the CPP/NPA where (sic) the ones responsible …"29 All these documents show that indeed, the

"suspected" executor of the fire were believed to be members of the CPP/NPA. But suspicion alone is not sufficient,

preponderance of evidence being the quantum of proof.

All told, the Court finds no reason to grant the present petition.

WHEREFORE, the petition is DISMISSED. The Court of Appeals Decision dated November 16, 2000 and Resolution dated January

30, 2001 rendered in CA-G.R. CV No. 56351 are AFFIRMED in toto.

SO ORDERED.



ManilaSECOND DIVISION G.R. No. L-36232 December 19, 1974PIONEER INSURANCE AND SURETY CORPORATION, petitioner-appellant, vs.OLIVA YAP, represented by her attorney-in-fact, CHUA SOON POON respondent-appellee.Eriberto D. Ignacio for petitioner-appellant.Paculdo, Miranda, Marquez, Sibal & Associates for respondent-appellee.

FERNANDEZ, J.:p

This is an appeal by certiorari from the decision of the Court of Appeals dated December 16, 1972, in CA-G.R. No. 36669-R,

affirming the judgment of the Court of First Instance of Manila (Branch VI) in Civil Case No. 54508, which latter court declared

plaintiff Oliva Yap, herein respondent, entitled to recover from defendant Pioneer Insurance & Surety Corporation, herein

petitioner, the full amount of the damage inquired in Policy No. 4219, which is P25,000.00, plus 12% of said sum from the date of

filing of the complaint until full payment, in addition to the sum of P6,000.00 for attorney's fees, and costs.

Respondent Oliva Yap was the owner of a store in a two-storey building located at No. 856 Juan Luna Street, Manila, where in

1962 she sold shopping bags and footwear, such as shoes, sandals and step-ins. Chua Soon Poon Oliva Yap's son-in-law, was in

charge of the store.

On April 19, 1962, respondent Yap took out Fire Insurance Policy No. 4216 from petitioner Pioneer Insurance & Surety

Corporation with a face value of P25,000.00 covering her stocks, office furniture, fixtures and fittings of every kind and

description. Among the conditions in the policy executed by the parties are the following:

The Insured shall give notice to the Company of any insurance or insurances already effected, or which may

subsequently be effected, covering any of the property hereby insured, and unless such notice be given and the

particulars of such insurance or insurances be stated in, or endorsed on this Policy by or on behalf of the

Company before the occurrence of any loss or damage, all benefits under this Policy shall be forfeited.

(emphasis supplied)

It is understood that, except as may be stated on the face of this policy there is no other insurance on the

property hereby covered and no other insurance is allowed except by the consent of the Company endorsed

hereon. Any false declaration or breach or this condition will render this policy null and void.

At the time of the insurance on April 19, 1962 of Policy No. 4219 in favor of respondent Yap, an insurance policy for P20,000.00

issued by the Great American Insurance Company covering the same properties was noted on said policy as co-insurance (Annex

"1-E"). Later, on August 29, 1962, the parties executed Exhibit "1-K", as an endorsement on Policy No. 4219, stating:

It is hereby declared and agreed that the co-insurance existing at present under this policy is as follows:

P20,000.00 — Northwest Ins., and not as originally stated. (emphasis supplied)

Except as varied by this endorsement, all other terms and conditions remain unchanged.

Still later, or on September 26, 1962, respondent Oliva Yap took out another fire insurance policy for P20,000.00 covering the

same properties, this time from the Federal Insurance Company, Inc., which new policy was, however, procured without notice to

and the written consent of petitioner Pioneer Insurance & Surety Corporation and, therefore, was not noted as a co-insurance in

Policy No. 4219.

At dawn on December 19, 1962, a fire broke out in the building housing respondent Yap's above-mentioned store, and the said

store was burned. Respondent Yap filed an insurance claim, but the same was denied in petitioner's letter of May 17, 1963

(Exhibit "G"), on the ground of "breach and/or violation of any and/or all terms and conditions" of Policy No. 4219.

On July 17, 1963, Oliva Yap filed with the Court of First Instance of Manila the present complaint, asking, among others, for

payment of the face value of her fire insurance policy. In its answer, petitioner alleged that no property belonging to plaintiff Yap

and covered by the insurance policy was destroyed by the fire; that Yap's claim was filed out of time; and that Yap took out an

insurance policy from another insurance company without petitioner's knowledge and/or endorsement, in violation of the

express stipulations in Policy No. 4219, hence, all benefits accruing from the policy were deemed forfeited.


As already stated at the beginning of this opinion, the trial court decided for plaintiff Oliva Yap; and its judgment was affirmed in

full by the Court of Appeals.

The vital issue in this appeal is whether or not petitioner should be absolved from liability on Fire Insurance Policy No. 4219 on

account of any violation by respondent Yap of the co-insurance clause therein. In resolving this problem, the Court of Appeals

stated in its decision:

5. The plaintiff-appellee has not violated the other insurance clause (Exhibit 1-F) of the insurance Policy No.

4219 that would justify the defendant-appellant, as insurer, to avoid its liability thereunder. It appears on the

face of said policy that a co-insurance in the amount of P20,000.00 was secured from the Great American

Insurance and was declared by the plaintiff-appellee and recognized by the defendant-appellant. This was later

on substituted for the same amount and secured by the Federal Insurance Company. Chua Soon Poon on being

cross-examined by counsel for the defendant-appellant, declared that the Great American Insurance policy was

cancelled because of the difference in the premium and the same was changed for that of the Federal (t.s.n.,

hearing of December 1, 1964, pp. 35-36). Contrary to the assertion of the defendant-appellant, the Great

American Insurance policy was not substituted by the Northwest Insurance policy. As admitted by the

defendant-appellant in its brief (p. 48), the fire insurance policy issued by the Great American Insurance

Company for P20,000.00 (Exhibit 1-E) was cancelled on August 29, 1962. On the other hand, the fire insurance

policy issued by the Northwest Insurance & Surety Company for P20,000.00 (Exhibit 1-K) was taken out on July

23, 1962. How then can the Northwest Insurance policy issued on July 23, 1962, be considered as having

substituted the Great American policy which was cancelled only on August 29, 1962? The defendant-appellant

can be considered to have waived the formal requirement of indorsing the policy of co-insurance since there

was absolutely no showing that it was not aware of said substitution and preferred to continue the policy

(Gonzales La O vs. Yek Tong Lin Fire and Marine Insurance Co., 55 Phil. 386). Even assuming that the defendant-

appellant did not indorse the Federal Insurance policy, there is no question that the same was only a

substitution and did not in any way increase the amount of the declared co-insurance. In other words, there

was no increase in the risk assumed by the defendant-appellant.

We do not agree with the conclusion of the Court of Appeals.

There was a violation by respondent Oliva Yap of the co-insurance clause contained in Policy No. 4219 that resulted in the

avoidance of petitioner's liability. The insurance policy for P20,000.00 issued by the Great American Insurance Company covering

the same properties of respondent Yap and duly noted on Policy No. 4219 as c-insurance, ceased, by agreement of the parties

(Exhibit "1-L"), to be recognized by them as a co-insurance policy. The Court of Appeals says that the Great American Insurance

policy was substituted by the Federal Insurance policy for the same amount, and because it was a mere case of substitution,

there was no necessity for its endorsement on Policy No. 4219. This finding, as well as reasoning, suffers from several flaws.

There is no evidence to establish and prove such a substitution. If anything was substituted for the Great American Insurance

policy, it could only be the Northwest Insurance policy for the same amount of P20,000.00. The endorsement (Exhibit "1-K")

quoted above shows the clear intention of the parties to recognize on the date the endorsement was made (August 29, 1962),

the existence of only one co-insurance, and that is the Northwest Insurance policy, which according to the stipulation of the

parties during the hearing, was issued on August 20, 1962 (t.s.n., January 12, 1965, pp. 3-4) and endorsed only on August 20,

1962. The finding of the Court of Appeals that the Great American Insurance policy was substituted by the Federal Insurance

policy is unsubstantiated by the evidence of record and indeed contrary to said stipulation and admission of respondent, and is

grounded entirely on speculation, surmises or conjectures, hence, not binding on the Supreme Court. 1

The Court of Appeals would consider petitioner to have waived the formal requirement of endorsing the policy of co-insurance

"since there was absolutely no showing that it was not aware of said substitution and preferred to continue the policy." The

fallacy of this argument is that, contrary to Section 1, Rule 131 of the Revised Rules of Court, which requires each party to prove

his own allegations, it would shift to petitioner, respondent's burden of proving her proposition that petitioner was aware of the

alleged substitution, and with such knowledge preferred to continue the policy. Respondent Yap cites Gonzales La O vs. Yek Tong

Lin Fire and Marine Insurance Co., Ltd.2 to justify the assumption but in that case, unlike here, there was knowledge by the

insurer of violations of the contract, to wit: "If, with the knowledge of the existence of other insurances which the defendant

deemed violations of the contract, it has preferred to continue the policy, its action amounts to a waiver of the annulment of the


contract ..." A waiver must be express. If it is to be implied from conduct mainly, said conduct must be clearly indicative of a clear

intent to waive such right. Especially in the case at bar where petitioner is assumed to have waived a valuable right, nothing less

than a clear, positive waiver, made with full knowledge of the circumstances, must be required.

By the plain terms of the policy, other insurance without the consent of petitioner would ipso facto avoid the contract. It required

no affirmative act of election on the part of the company to make operative the clause avoiding the contract, wherever the

specified conditions should occur. Its obligations ceased, unless, being informed of the fact, it consented to the additional

insurance.

The validity of a clause in a fire insurance policy to the effect that the procurement of additional insurance without the consent of

the insurer renders ipso facto the policy void is well-settled:

In Milwaukee Mechanids' Lumber Co., vs. Gibson, 199 Ark. 542, 134 S. W. 2d 521, 522, a substantially identical

clause was sustained and enforced, the court saying: "The rule in this state and practically all of the states is to

the effect that a clause in a policy to the effect that the procurement of additional insurance without the

consent of the insurer renders the policy void is a valid provision. The earlier cases of Planters Mutual Insurance

Co., vs. Green, 72 Ark. 305, 80 S.W. 92, are to the same effect." And see Vance, Insurance, 2nd Ed., 725. (Reach

vs. Arkansas Farmers Mut. Fire Ins. Co., [Ark. Nov. 14, 1949] 224 S. W. 2d 48, 49.)

2. Where a policy contains a clause providing that the policy shall be void if insured has or shall procure any

other insurance on the property, the procurement of additional insurance without the consent of the insurer

avoids the policy." (Planters' Mut. Ins. Ass'n vs. Green [Supreme Court of Arkansas, March 19, 1904] 80 S.W.

151.)

3. The policy provided that it should be void in case of other insurance "without notice and consent of this

company. ..." It also authorized the company to terminate the contract at any time, at its option, by giving

notice and refunding a ratable proportion of the premium. Held, that additional insurance, unless consented to,

or unless a waiver was shown, ipso facto avoided the contract, and the fact that the company had not, after

notice of such insurance, cancelled the policy, did not justify the legal conclusion that it had elected to allow it

to continue in force." (Johnson vs. American Fire Ins., Co., [Supreme Court of Minnesota, Aug. 12, 1889] 43

N.W., 59)

The aforecited principles have been applied in this jurisdiction in General Insurance & Surety Corporation vs. Ng Hua 3. There, the

policy issued by the General Insurance & Surety Corporation in favor of respondent Ng Hua contained a provision identical with

the provisions in Policy No. 4219 quoted above. 4 This Court, speaking thru Justice Cesar P. Bengson, in reversing the judgment of

the Court of Appeals and absolving the insurer from liability under the policy, held:

... And considering the terms of the policy which required the insured to declare other insurances, the

statement in question must be deemed to be a statement (warranty) binding on both insurer and insured, that

there were no other insurance on the property. ...

The annotation then, must be deemed to be a warranty that the property was not insured by any other policy.

Violation thereof entitled the insurer to rescind. (Sec. 69, Insurance Act.) Such misrepresentation is fatal in the

light of our views in Santa Ana vs. Commercial Union Assurance Company, Ltd., 55 Phil. 329. The materiality of

non-disclosure of other insurance policies is not open to doubt.

Furthermore, even if the annotations were overlooked the defendant insurer would still be free from liability

because there is no question that the policy issued by General Indemnity has not been stated in nor endorsed

on Policy No. 471 of defendant. And as stipulated in the above-quoted provisions of such policy "all benefit

under this policy shall be forfeited. (Emphasis supplied)

The obvious purpose of the aforesaid requirement in the policy is to prevent over-insurance and thus avert the perpetration of

fraud. The public, as well as the insurer, is interested in preventing the situation in which a fire would be profitable to the insured.

According to Justice Story: "The insured has no right to complain, for he assents to comply with all the stipulation on his side, in

order to entitle himself to the benefit of the contract, which, upon reason or principle, he has no right to ask the court to

dispense with the performance of his own part of the agreement, and yet to bind the other party to obligations, which, but for

those stipulation would not have been entered into." 5

In view of the above conclusion, We deem it unnecessary to consider the other defenses interposed by petitioner.


WHEREFORE, the appealed judgment of the Court of Appeals is reversed and set aside, and the petitioner absolved from all

liability under the policy. Costs against private respondent.

SO ORDERED.



ManilaEN BANC G.R. No. L-27932 October 30, 1972UNION MANUFACTURING CO., INC. and the REPUBLIC BANK, plaintiffs, REPUBLIC BANK, plaintiff-appellant, vs.PHILIPPINE GUARANTY CO., INC., defendant-appellee.Armando L. Abad, Sr. for plaintiff-appellant.Gamelo, Francisco and Aquino for defendant-appellee.

FERNANDO, J.:p

In a suit arising from a fire insurance policy, the insurer, Philippine Guaranty Co., Inc., defendant in the lower court and now

appellee, was able to avoid liability upon proof that there was a violation of a warranty. There was no denial thereof from the

insured, Union Manufacturing Co., Inc. With such a legally crippling blow, the effort of the Republic Bank, the main plaintiff and

now the sole appellant, to recover on such policy as mortgagee, by virtue of the cover note in the insurance policy providing that

it is entitled to the payment of loss or damages as its interest may appear, was in vain. The defect being legally incurable, its

appeal is likewise futile. We affirm.

As noted in the decision, the following facts are not disputed: "(1) That on January 12, 1962, the Union Manufacturing Co., Inc.

obtained certain loans, overdrafts and other credit accommodations from the Republic Bank in the total sum of P415,000.00 with

interest at 9% per annum from said date and to secure the payment thereof, said Union Manufacturing Co., Inc. executed a real

and chattel mortgages on certain properties, which are more particularly described and listed at the back of the mortgage

contract ...; (2) That as additional condition of the mortgage contract, the Union Manufacturing Co., Inc. undertook to secure

insurance coverage over the mortgaged properties for the same amount of P415,000.00 distributed as follows: (a) Buildings,

P30,000.00; (b) Machineries, P300,000.00; and (c) Merchandise Inventory, P85,000.00, giving a total of P415,000.00; (3) That as

Union Manufacturing Co., Inc. failed to secure insurance coverage on the mortgaged properties since January 12, 1962, despite

the fact that Cua Tok, its general manager, was reminded of said requirement, the Republic Bank procured from the defendant,

Philippine Guaranty Co., Inc. an insurance coverage on loss against fire for P500,000.00 over the properties of the Union

Manufacturing Co., Inc., as described in defendant's 'Cover Note' dated September 25, 1962, with the annotation that loss or

damage, if any, under said Cover Note is payable to Republic Bank as its interest may appear, subject however to the printed

conditions of said defendant's Fire Insurance Policy Form; (4) That on September 27, 1962, Fire Insurance Policy No. 43170 ... was

issued for the sum of P500,000.00 in favor of the assured, Union Manufacturing Co., Inc., for which the corresponding premium

in the sum of P8,328.12, which was reduced to P6,688.12, was paid by the Republic Bank to the defendant, Philippine Guaranty

Co., Inc. ...; (5) That upon the expiration of said fire policy on September 25, 1963, the same was renewed by the Republic Bank

upon payment of the corresponding premium in the same amount of P6,663.52 on September 26, 1963; (6) That in the

corresponding voucher ..., it appears that although said renewal premium was paid by the Republic Bank, such payment was for

the account of Union Manufacturing Co., Inc. and that the cash voucher for the payment of the first premium was paid also by

the Republic Bank but for the account Union Manufacturing Co., Inc.; (7) That sometime on September 6, 1964, a fire occurred in

the premises of the Union Manufacturing Co., Inc.; (8) That on October 6, 1964, the Union Manufacturing Co., Inc. filed its fire

claim with the defendant Philippine Guaranty Co., Inc., thru its adjuster, H. H. Bayne Adjustment Co., which was denied by said

defendant in its letter dated November 27, 1964 ..., on the following grounds: 'a. Policy Condition No. 3 and/or the 'Other

Insurance Clause' of the policy violated because you did not give notice to us the other insurance which you had taken from New

India for P80,000.00, Sincere Insurance for P25,000.00 and Manila Insurance for P200,000.00 with the result that these

insurances, of which we became aware of only after the fire, were not endorsed on our policy; and (b) Policy Condition No. 11

was not complied with because you have failed to give to our representatives the required documents and other proofs with

respect to your claim and matters touching on our liability, if any, and the amount of such liability'; (9) That as of September,

1962, when the defendant Philippine Guaranty Co., issued Fire Insurance Policy No. 43170 ... in the sum of P500,000.00 to cover Insurance Law August 24, 2015 82

the properties of the Union Manufacturing Co., Inc., the same properties were already covered by Fire Policy No. 1533 of the

Sincere Insurance Company for P25,000.00 for the period from October 7, 1961 to October 7, 1962 ...; and by insurance policies

Nos. F-2314 ... and F-2590 ... of the Oceanic Insurance Agency for the total sum of P300,000.00 and for periods respectively, from

January 27, 1962 to January 27, 1963, and from June 1, 1962 to June 1, 1963; and (10) That when said defendant's Fire Insurance

Policy No. 43170 was already in full force and effect, the Union Manufacturing Co., Inc. without the consent of the defendant,

Philippine Guaranty Co., Inc., obtained other insurance policies totalling P305,000.00 over the same properties prior to the fire, to

wit: (1) Fire Policy No. 250 of New India Assurance Co., Ltd., for P80,000.00 for the period from May 27, 1964 to May 27, 1965 ...;

(2) Fire Policy No. 3702 of the Sincere Insurance Company for P25,000.00 for the period from October 7, 1963 to October 7,

1964 ...; and (3) Fire Policy No. 6161 of Manila Insurance Co. for P200,000.00 for the period from May 15, 1964 to May 15,

1965 ... ." 1 There is in the cover note 2 and in the fire insurance policy 3 the following warranty: "[Co- Insurance Declared]: Nil." 4

Why the appellant Republic Bank could not recover, as payee, in case of loss as its "interest may appear subject to the terms and

conditions, clauses and warranties" of the policy was expressed in the appealed decision thus: "However, inasmuch as the Union

Manufacturing Co., Inc. has violated the condition of the policy to the effect that it did not reveal the existence of other insurance

policies over the same properties, as required by the warranty appearing on the face of the policy issued by the defendant and

that on the other hand said Union Manufacturing Co., Inc. represented that there were no other insurance policies at the time of

the issuance of said defendant's policy, and it appearing furthermore that while the policy of the defendant was in full force and

effect the Union Manufacturing Co., Inc. secured other fire insurance policies without the written consent of the defendant

endorsed on the policy, the conclusion is inevitable that both the Republic Bank and Union Manufacturing Co., Inc. cannot

recover from the same policy of the defendant because the same is null and void." 5 The tone of confidence apparent in the above

excerpts from the lower court decision is understandable. The conclusion reached by the lower court finds support in

authoritative precedents. It is far from easy, therefore, for appellant Republic Bank to impute to such a decision a failure to abide

by the law. Hence, as noted at the outset, the appeal cannot prosper. An affirmance is indicated.

It is to Santa Ana v. Commercial Union Assurance Co., 6 a 1930 decision, that one turns to for the first explicit formulation as to

the controlling principle. As was made clear in the opinion of this Court, penned by Justice Villa-Real: "Without deciding whether

notice of other insurance upon the same property must be given in writing, or whether a verbal notice is sufficient to render an

insurance valid which requires such notice, whether oral or written, we hold that in the absolute absence of such notice when it is

one of the conditions specified in the fire insurance policy, the policy is null and void." 7 The next year, in Ang Giok Chip v.

Springfield Fire & Marine Ins. Co., 8 the conformity of the insured to the terms of the policy, implied from the failure to express

any disagreement with what is provided for, was stressed in these words of the ponente, Justice Malcolm: "It is admitted that the

policy before us was accepted by the plaintiff. The receipt of this policy by the insured without objection binds both the acceptor

and the insured to the terms thereof. The insured may not thereafter be heard to say that he did not read the policy or know its

terms, since it is his duty to read his policy and it will be assumed that he did so." 9 As far back as 1915, in Young v. Midland

Textile Insurance Company, 10 it was categorically set forth that as a condition precedent to the right of recovery, there must be

compliance on the part of the insured with the terms of the policy. As stated in the opinion of the Court through Justice Johnson:

"If the insured has violated or failed to perform the conditions of the contract, and such a violation or want of performance has

not been waived by the insurer, then the insured cannot recover. Courts are not permitted to make contracts for the parties. The

function and duty of the courts consist simply in enforcing and carrying out the contracts actually made. While it is true, as a

general rule, that contracts of insurance are construed most favorably to the insured, yet contracts of insurance, like other

contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such

terms are clear and unambiguous they must be taken and understood in their plain, ordinary and popular sense." 11 More

specifically, there was a reiteration of this Santa Ana ruling in a decision by the then Justice, later Chief Justice, Bengzon,

in General Insurance & Surety Corp. v. Ng Hua. 12 Thus: "The annotation then, must be deemed to be a warranty that the property

was not insured by any other policy. Violation thereof entitles the insurer to rescind. (Sec. 69, Insurance Act) Such

misrepresentation is fatal in the light of our views in Santa Ana v. Commercial Union Assurance Company, Ltd. ... . The materiality

of non-disclosure of other insurance policies is not open to doubt." 13 As a matter of fact, in a 1966 decision, Misamis Lumber

Corp. v. Capital Ins. & Surety Co., Inc., 14 Justice J.B.L. Reyes, for this Court, made manifest anew its adherence to such a principle

in the face of an assertion that thereby a highly unfavorable provision for the insured would be accorded recognition. This is the

language used: "The insurance contract may be rather onerous ('one sided', as the lower court put it), but that in itself does not


justify the abrogation of its express terms, terms which the insured accepted or adhered to and which is the law between the

contracting parties." 15

There is no escaping the conclusion then that the lower court could not have disposed of this case in a way other than it did. Had

it acted otherwise, it clearly would have disregarded pronouncements of this Court, the compelling force of which cannot be

denied. There is, to repeat, no justification for a reversal.

WHEREFORE, the decision of the lower court of March 31, 1967 is affirmed. No costs.

Concepcion, C.J., Zaldivar, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.

Castro and Teehankee, JJ., reserve their votes.

Makalintal, J., is on leave.


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