July 3 Insurance Digests

7/31/2019 July 3 Insurance Digests

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UP College of Law

LAW 139:

The Law on Insurance

ANA VICTORIA B. REYES

Student No. 2011-79266


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CASE: Cebu Shipyard v William Lines

DATE: May 5, 1999

PONENTE: Purisima, J.

NATURE OF THE CASE: Petition for review on certiorari.

FACTS:

Cebu Shipyard and Engineering Works, Inc. (CSEW): domestic corporation engaged in dry-docking and repairingmarine vessels

Prudential Guarantee and Assurance, Inc.: engaged in the non-life insurance business William Lines Inc.: in the shipping business; owner of M/V Manila City which caught fire and sank on February

16, 1991

M/V Manila City, at the time of it caught fire and sank, was insured with Prudential for P45,000,000 for hull andmachinery. The Hull Policy included an Additional Perils (INCHMAREE) clause covering loss of or damage to the

vessel through the negligence of, among others, ship repairmen.

Petitioner CSEW was also insured by Prudential for third party liability under a Shiprepairers Legal LiabilityInsurance Policy. It was for P10 million only, under the limited liability clause.

Events prior to the fire & sinking: February 5, 1991: Wlliam Lines brought M/V Manila City to the Cebu Shipyard in Lapulapu City fo

annual dry-docking and repair February 6, 1991: Arrival conference was held between reps of William Lines and CSEW to discuss work

to be undertaken on the subject ship. Contracts (Work Orders) were signed thereafter10. The Contractor shall replace at its own work and at its own cost any work or material which can be shown to be defective and which is com-

municated in writing within one (1) month of redelivery of the vessel or if the vessel was not in the Contrac tors Possession, the withdrawal of the

Contractors workmen, or at its option to pay a sum equal to the cost of such replacement at its own works. These conditions shall apply to any

such replacements.

11. Save as provided in Clause 10, the Contractor shall not be under any liability to the Customer either in contract or for delict or quasi-delict or

otherwise except for negligence and such liability shall itself be subject to the following overriding limitations and exceptions, namely:

(a) The total liability of the Contractor to the Customer (over and above the liability to replace under Clause 10) or of any sub-contrac-

tor shall be limited in respect of any defect or event (and a series of accidents arising out of the same defect or event shall constitute one defect

or event) to the sum of Pesos Philippine Currency One Million only.

(b) In no circumstance whatsoever shall the liability of the Contractor or any Sub-Contractor include any sum in respect of loss of profit

or loss of use of the vessel or damages consequential on such loss of use.

x x x

20. The insurance on the vessel should be maintained by the customer and/or owner of the vessel during the period the contract is in effect.

February 16, 1991: After the ship was transferred to the docking quay, it caught fire and sank, resulting to itseventual loss February 21, 1991: William Lines filed a complaint for damages against CSEW, alleging that the fire was due to

laters negligence and lack of care

July 15, 1991: Prudential was impleaded after the latter paid William Lines, Inc. the value of the hull andmachinery insurance on the M/V Manila City; Prudential subrogated to the claim of P45,000,000

Trial court: Judgment against CSEW CSEW and William Lines inked an amicable settlement during the appeal of CSEW to the CA and CA ordered the

partial dismissal of the case insofar as CSEW and William Lines were concerned. CA affirmed the appealed

decision.

ISSUE:

Are the provisions limiting crews liability for negligence to a maximum of P1,000,000 valid?HELD:

NO, they are not. Although contracts of adhesion have been consistently upheld as valid per se, the Court recognizes the

instances when reliance on such contracts cannot be favored, especially where the facts and

circumstances warrant that subject stipulations be disregarded

In ruling on the validity applicability of said stipulation, the facts and circumstances vis--vis the natureof the stipulation sought to be enforced should be considered, bearing in mind the principles of equity

and fair play

Considering the circumstances, let alone the fact that negligence on the part of the petitioner has beensufficiently proven, it would indeed be unfair and inequitable to limit their liability to P1,000,000 only.


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CASE: New Life Enterprises v CA

DATE: March 31, 1992

PONENTE: Regalado, J.

NATURE OF THE CASE: Petition for review on certiorari.

FACTS:

Julian Sy and Joe Sy Bang formed a business partnership under the name of New Life Enterprises. Thepartnership engaged in the sale of construction materials at a building in Iyam, Lucena City. Stocks of the saidpartnership were insured with Western Guaranty Corporation, Reliance Surety and Insurance Co., and Equitable

Insurance Corporation

May 15 1981: Guaranty Corporation issued a fire insurance policy in the amount of P350,000 to the partnership.It was renewed on May 13, 1982.

July 30, 1981: Reliance Surety and Insurance Co., Inc. issued a fire insurance policy in the amount of P300,000 tothe partnership. Additional insurance was issued by the same company in the amount of P700,000/

February, 8, 1982: Equitable Insurance issued a fire insurance policy in the amount of P200,000. October 19, 1982: The building occupied by New Life Enterprises was gutted by fire at around 2:00am. According

to the certification issued by the Headquarters of the Philippine Constabulary/Integrated National Police, the

cause of the fire was electrical in nature. According to the plaintiffs, the building and the stocks inside were

burned. The agent of Reliance Insurance and Julian Sy, went to the office of the company after the fire so that the latter

could file his claim. In support of such, he submitted the fire clearance, the insurance policies and inventory of

stock. Sy further testified that the 3 companies were sister companies. Ultimately, all three denied plaintiff

claim for payment.

Western Guaranty Corporation, through Claims Manager Bernard S. Razon, told the plaintiff that his claim is denied for breach of policy conditions. Reliance Insurance purveyed the same message in its letter dated Novem

ber 23, 1982 and signed by Executive Vice-President Mary Dee Co which said that plaintiff's claim is denied fo

breach of policy conditions. The letter of denial received by the plaintiff from Equitable Insurance Corporation

was of the same tenor, as said letter dated February 22, 1983, and signed by Vice-President Elma R. Bondad

said we find that certain policy conditions were violated, therefore, we regret, we have to deny your claim, as it

is hereby denied in its entirety.

In relation to case against Relince Surety and Insurance Company: Executive VP of the sompany said that Syviolated Policy Condition #3 which requires the insured to give notice of any insurance or insurances already

effected covering the stocks in trade 3. 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 proper

ty or properties consisting of stocks in trade, goods i n process and/or inventories only hereby insured, and un less such notice be given and the particulars of such in

surance or insurances be stated therein or endorsed on this policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company before the occur-

rence of any loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this condition shall not apply when the total insurance

or insurances in force at the time of loss or damage not more than P200,000.00.

Due to the denial of their claims for payment by the three companies, petitioner filed separate civil actionsagainst the three with the RTC of Lucena City, which cases were consolidated for trial.

Trial Court: ruled in favor of New Life Enterprises in all three cases CA: reversed trial court judgment Petitioners:

Admit that the respective policies issued by private respondents did not state or endorse thereon theother insurance coverage obtained or subsequently effected on the same stocks in trade for the loss of

which compensation is claimed by the petitioners

Contend that they are not to be blamed for the omissions, alleging that insurance agents from the threecompanies knew about the existence of the additional insurance coverage and that they were not

informed about the requirement that such other or additional insurance should be stated in the policy,

as they have not even read the policies

ISSUE:

Was Condition No. 3 of the insurance contracts violated by the petitioners, resulting in the forfeiture of albenefits thereunder?


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HELD:

The terms of the contract are clear and unambiguous. The insured is specifically required to disclose to the insurer any other insurance and its particulars which he may have effected on the same subject matter. The

knowledge of such insurance by the insurer's agents, even assuming the acquisition thereof by the former, is not

the notice that would estop the insurers from denying the claim. Besides, the so-called theory of imputed

knowledge, that is, knowledge of the agent is knowledge of the principal, aside from being of dubious applicabil-

ity here has likewise been roundly refuted by respondent court whose factual findings the Court finds accept-

able.

When the words and language of documents are clear and plain or readily understandable by an ordinary readethereof, there is absolutely no room for interpretation or construction anymore. Courts are not allowed to makecontracts for the parties; rather, they will intervene only when the terms of the policy are ambiguous, equivocal,

or uncertain. The parties must abide by the terms of the contract because such terms constitute the measure of

the insurer's liability and compliance therewith is a condition precedent to the insured's right of recovery from

the insurer.

While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberallyin 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.

Petitioners should be aware of the fact that a party is not relieved of the duty to exercise the ordinary care andprudence that would be exacted in relation to other contracts. The conformity of the insured to the terms of the

policy is implied from his failure to express any disagreement with what is provided for.

As the insurance policy against fire expressly required that notice should be given by the insured of other in-surance upon the same property, the total absence of such notice nullifies the policy.


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CASE: First Quezon City Insurance v CA

DATE: February 8, 1993

PONENTE: Grino-Aquino, J.

FACTS:

June 10, 1984: Around 3:00pm, after sending off certain seamen at the departure area of the ManilaInternational Airport, Jose del Rosario proceeded to the loading and unloading zone for the public utility bus

stop, which was located in front of the MIA, to wait for a passenger bus bound for Quezon City. At the bus stop,ddel Rosario saw a DMTC bus which, per its signboard, was plying the Pasay to QC route. As it approached the

bus stop, the bus slowed down with all its doors wide open, while moving at a crawling pace. It was taking

several passengers, about 5 or 7, including the plaintiff, all of whom managed to board the bus while it was

already at the stop.

While del Rosario was on the bus running board with his hand on its handle bar, the slowly moving bus spedforward at a high speed and as a result of which, del Rosario lost his balance and fell from the bus. As he clung

instinctively to the handle bar, he was dragged by the bus along the asphalted road for 2 seconds. He cried of

pain and anguish even as the other passengers shouted and the driver, employee of DMTC abruptly stopped the

bus. The driver fled the scene, leaving the bus and the injured del Rosario behind. The latter was brought to the

hospital where he was given immediate medical attention. He was hospitalized for a period of 40 days and

incurred medical expenses amounting to P64,444.41. After his release, del Rosario returned to the hospital fromtime to time for further treatment and check-ups. He also incurred loss of unearned salaries amounting to

P7,500.

Del Rosario filed a complaint against DMTC and its driver. DMTC filed a third-party complaint against FirstQuezon City Insurance Co. Inc.

Trial court: Dismissed DMTCs counterclaim for lack of merit and ordered DMTC to pay del Rosario. Court alsoordered First Quezon to indemnify DMTC in the sum of P12,000.

CA: Modified the decision and ordered First Quezon to pay DMTC P50,090. First Quezon filed a petition for review with the SC assailing the CAs interpretation of the provision of the

insurance contract on the limit of the insurers liability.

ISSUE:

Is the insurance company liable beyond P12,000 for del Rosarios injury, pursuant to the P50,000 maximum limitper accident provision in its contract with DMTC?

HELD:

NO, it is not. Insurance company clearly passed the maximum limit of its liability for damages arising from death or

bodily injury at P12,000 per passenger and its maximum liability at P50,000 per accident. Since only one

passenger was injured, the liability for the damages suffered by the passenger is pegged to the amount

of P12,000 only. The limit of P50,000 per accident means that regardless of the number of passengers

killed or injured therein, the companys liability will not exceed P50,000. (i.e. if 10 people are killed, the

liability would still be only P50,000 and not P120,000).

Trial courts interpretation was the correct one.


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CASE: Ty v First National

DATE: April 29, 1961

PONENTE: Labrador, J.

FACTS:

Prior to December 24, 1953, Diosdado Ty, employed as operator mechanic foreman in the Broadway CottonFactory, insured himself in 18 local insurance companies, among which are the eight defendants in this case

They issued to him personal accident policies, upon payment of the premium of P8.12 for each policy. Hibeneficiary was his employer who paid the insurance premiums.

December 24, 1953: A fire broke out which destroyed the Broadway Cotton Factory. Fighting his way out, theplaintiffs left hand was injured by a heavy object.

Ty filed the corresponding notice of accident and notice of claim with all the abovenamed defendants to recoverindemnity under Part II of the policy, which is similarly worded in all policies.

INDEMNITY FOR TOTAL OR PARTIAL DISABILITYIf the Insured sustains any Bodily Injury which is effected solely through violent, external, visible and accidental means, and which shall not prove fatal but shall

result, independently of all other causes and within sixty (60) days from the occurrence thereof, in Total or Partial Disability of the Insured, the Company shall

pay, subject to the exceptions as provided for hereinafter, the amount set oppos ite such injury:

PARTIAL DISABILITY -- LOSS OF: x x x x x x x x x Either hand ............................................................................ P650.00x x x x x x x x x ... The

loss of a hand shall mean the loss by amputation through the bones of the wrist....

Defendants reject the claim for indemnity for the reason that there was no severance or amputation of theleft hand, thus making the injury not covered by the policy. Ty sued the defendants in the MTC.

MTC: Dismissed his complaint. Petitioner: In order to recover from the loss of his left hand, it is not necessary that there should be an

amputation. It is sufficient that such injuries prevent him from performing the work or labor in the pursuance

of his business or occupation.

ISSUE:

Can the petitioner collect from defendant insurance companies?HELD:

NO, he cannot. Court cannot go beyond the clear and express conditions of the insurance policies, all of which define

partial disability as loss of either hand by amputation through the bones of the wrist. There was no

amputation in the case at bar. The disability of Tys hand was only temporary, having been caused by

fracture of the index, the middle, and the fourth fingers of the left hand.

The agreement contained in the policies are the law between the parties and as to their terms, they areclear, express, and specific that only an amputation should be considered as a loss thereof.


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CASE: Misamis Lumber v Capital Inc.

DATE: May 20,1 966

PONENTE:

FACTS:

Misamis Lumber corporation, under its former name, Lanao Timber Mills, Inc. insured its Ford Falcon motor carfor the amount of P14,000 with the defendant-apellant, Capital Insurance and Surety Co. Inc. 1. The Company will subject to the Limits of Liability indemnify the Insured against loss or damage to the Motor Vehicle and its accessories and spare parts whilstthereon.

2. (a) by accidental collision or overturning or collision or overturning consequent when mechanical breakdown or consequent upon wear and tear.

x x x x x x x x x

3. At its 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 acces-

sories or spare parts. The liability of the Company shall not exceed the value of the parts lost or damaged and the reasonable cost of fitting such parts or the value of

the Motor Vehicle at the time of the loss or damage whichever is the loss. The In sureds estimate of value stated in the schedule shall be the maximum amount

payable by the Company in respect of any claim for loss or damage.

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.

and providing also that the authorized repair limit is P150.00.

November 25, 1961: While the insurance policy was in force, the insured car passed over a water hole alongAurora Boulevard which the driver did not see because the oncoming car did not dim its light. The crankcase

and flywheel houseing of the car broke when it hit a low block lying alongside the water hole. It was towed

and repaired by Morosi Motors for a total cost of P302.27 November 29, 1961: Plaintiff made a report of the accident to Capital Insurance and Surety Co. Defendant-

appellant refused to pay the cost so a suit was filed with the municipal court.

CFI Manila: found for plaintiff. Defendant admits liability in the amount of P150 but not for any excess thereof. Lower court did not

exonerate apellant for the excess because the absolution would render the insurance contract one-sided and

that the said insurer had not shown that the cost of repairs in the sum of P302.27 is unreasonable, excessive

or padded.

ISSUE:

Can the petitioner collect from defendant insurance company the entire amount of P302.27HELD:

NO, it cannot. The insurance policy stipulated in paragraph 4 that the liability of the insurer, per its sub-paragraph (a)is limited to P150. The literal meaning of this stipulation must control, it being the actual contract,

expressly and plainly provided for in the policy.

Lower courts recourse to legal hermeneutics is not called for because paragraph 4 of the policy is clearand specific and leaves no room for interpretation.

The insurance contract may be rather onerous but that itself does not justify the abrogation of itsexpress terms, terms which the insured accepted or adhered to and which is the law between the

contracting parties.

To require the insurer to prove that the cost of the repairs order is unreasonable strikes the Court ascontrary to elementary justice and equity.


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CASE: Sun Insurance v CA


PONENTE: Paras, J.

FACTS:

August 15, 1983: Private respondent Emilio Tan took from petitioner company a P300,000 property insurancepolicy to cover his interest in the electrical supply store of his brother in a building in Iloilo City. Four days

after the issuance of the policy, the building was burned including the insured store. August 20, 1983: Tan filed his claim for fire loss with petitioner but the latter denied Tans claim. November 20,1985: Tan filed a case with the RTC of Iloilo after petitioner company continued to deny his

claim.

Trial court: denied petitioners motion to dismiss due to the prescription of the action and denied its MR. CA: denied the petitioner and held that the court a quo may continue until its final termination. CA denied

their MR.

ISSUE:

Does the filing of an MR interrupt the 12 months prescriptive period to contest the denial of the insuranceclaim?

HELD:

NO, it does not. 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, 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, popular sense.

The condition contained in the insurance policy that claims must be presented within one year afterrejection is not merely a procedural requirement but an important matter essential to a prompt set-

tlement 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.


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CASE: Fortune Insurance and Surety Co. Inc. v CA and Producers Bank of the Phil

DATE: May 23, 1995

PONENTE: Davide, Jr. J.

FACTS:

Producers Bank was insured by Fortune Insurance. The armored car of the bank, in the process of transferring cash worth P750,000 under the custody of its

teller, was robbed while traveling along Taft Avenue in Pasay City. The armored car was driven by Magalongand escorted by security guard Atiga. After an investigation conducted by the Pasay police, the driver and

guard were charged, together with three others, with violation of P.D. 532 or the Anti-Highway Robbery Law.

Demands were made by Producers Bank to Fortune Insurance to pay the amount of the loss but the latterrefused to pay as the loss was supposedly excluded from the coverage of the policy.

General Exceptions

The company shall not be liable under this policy in report of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner, director, trustee or authorized representative of the In-

sured whether acting alone or in conjunction with others. . . .

8. The plaintiff opposes the contention of the defendant and contends that Atiga and Magalong are not its "officer, employee, . . . trustee or a uthorized representative . .

at the time of the robbery.

Trial court: ruled in favor of Producers Bank (amount: P540,000 as liabilty under the policy) and ruled thatMagalong and Atiga were not representatives or employees of Producers.

CA: Agreed with the conclusion of the trial court that Magalong and Atiga were not employees orrepresentatives of the bank.

June 20, 1994: Fortune Insurance filed present review on certiorari.ISSUE:

Are Magalong and Atiga authorized representatives of Producers bank, thus making the robbery fall under thegeneral exceptions of their insurance policy?

HELD:

YES, they are. Insurance policy with fortune was a form of casualty insurance. Except with respect to compulsory

motor vehicle liability insurance, the Insurance Code contains no other provisions applicable to casualty

insurance or to robbery insurance in particular. These contracts are, therefore, governed by the genera

provisions applicable to all types of insurance. Outside of these, the rights and obligations of the partiesmust be determined by the terms of their contract, taking into consideration its purpose and always in

accordance with the general principles of insurance law.

It has been observed that in burglary, robbery, and theft insurance, the opportunity to defraud theinsurer is so great that insurers have found it necessary to fill up their policies with countless

restrictions, many designed to reduce this hazard. Persons frequently excluded are those in the

insureds service and employment. The purpose of such is to guard against liability should the theft be

committed by one having unrestricted access to the property. In such case, the terms specifying the

excluded classes are to be given their meaning and understood in common speech.

It is clear that insofar as Fortune is concerned, it was its intention to exclude and exempt fromprotection and coverage losses arising from dishonest, fraudulent or criminal acts of persons granted o

having unrestricted access to Producers money or payroll.


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CASE: Perla v CA

DATE: May 7, 1992

PONENTE: Nocon, J.

FACTS:

December 24, 1981: Respondent spouses executed a promissory note in favor of Supercars, Inc. in the sum ofP77, 940, payable in monthly installments according to the schedule of payment indicated in said note and

secured by a chattel mortgage over a brand new red Ford Laser 1300 5DR Hatchback 1981 model, which isregistered under the name of Lim and insured with petitioner Perla Compania de Seguros Inc.

November 9, 1982: Vehicle was carnapped while parked at the back of Broadway Centrum in Quezon City.Private respondent Evelyn Lim who was driving the car before it was carnapped immediately called up the

anti-carnapping unit of the Philippine Constabulary to report said incident and thereafter, went to the nearest

police station at Araneta, Cubao to make a police report.

November 10, 1982: Evelyn Lim reported the incident to the Land Transportation Commission in QC, incompliance with the insurance requirement. She was also filed a complaint with the Headquarters,

Constabulary Highway Patrol Group.

November 11, 1982: Private respondent filed a claim for loss with Perla but the latter denied the claim on theground that the person driving the vehicle before it was carnapped was in possession of an expired drivers

license, violating the Authorized Driver clause of the insurance policy Petitioner FCP demanded that private respondents pay the whole balance of the promissory note or return

the vehicle but the latter refused

July 25, 1983: petitioner FCP filed a case against respondents who filed a third party complaint againstpetitioner Perla

Trial court: render decision against respondent spouses CA: Reversed the decision

ISSUE:

Is Perla liable?HELD:

YES, it is.

The comprehensive motor car insurance policy issued by petitioner Perla undertook to indemnify theprivate respondents against loss or damage to the car (a) by accidental collision or overturning, or colli

sion or overturning consequent upon mechanical breakdown or consequent upon wear and tear; (b) by

fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by malicious

act.

Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the owner's consentor knowledge, such taking constitutes theft, and, therefore, it is the Theft clause, and not the Authorized

Driver clause that should apply.

Clearly, the risk against accident is distinct from the risk against theft. The authorized driver clause in atypical insurance policy is in contemplation or anticipation of accident in the legal sense in which i

should be understood, and not in contemplation or anticipation of an event such as theft.

If the insured vehicle had figured in an accident at the time she drove it with an expired license, then,appellee Perla Compania could properly resist appellants' claim for indemnification for the loss or de-

struction of the vehicle resulting from the accident. But in the present case. The loss of the insured vehi-

cle did not result from an accident where intent was involved; the loss in the present case was caused by

theft, the commission of which was attended by intent.


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CASE: Oriental Assurance Corporation v CA and Panama Saw Mill

DATE: August 9, 1991

PONENTE: Melencio-Herrera, J.

FACTS:

January 1986: Private respondent Panama Sawmill bought 1208pcs of apitong logs in Palawan. It hiredTranspacific Towage Inc to transport the logs by sea to Manila and insured it against loss for P1million with

petitioner Oriental Assurance. There is a claim by Panama, however, that the insurance coverage should havebeen for P3million, had it not been for the fraudulent act of one Benito Sy Yee Long to whom he entrusted

the amount of P6,000 for the payment of the premium for a P3million policy. The logs were loaded on two

barges.

January 28, 1986: The two barges were towed by one tug-boat, the MT Seminole. During the voyage, roughseas and strong winds caused damage to one of the barges, resulting in the loss of 497pcs of logs out of the

598pcs thereon.

Panama demanded payment for the loss but Oriental Assurance refused on the ground that its contractedLiability was for Total Loss only.

Panama filed a complaint for damages against Ever Insurance Agency and Oriental Assurance before the RTCof Caloocan.

RTC: ordered Oriental Assurance to pay Panama CA: affirmed the RTC decision, except as to the rate of interest

ISSUE:

Can Oriental Assurance be held liable based on the theory of a divisible contract of insurance and, consequentlya constructive total loss?

HELD:

NO, it cannot. The terms of the contract constitute the measure of the insurer liability and compliance therewith is a

condition precedent to the insureds right to recovery from the insurer

Whether the contract is entire or severable is a question of intention to be determined by the languageemployed by the parties. The policy in question shows that the subject matter insured was the entire

shipment. The fact that the logs were loaded on two barges did not make the contract several and

divisible as to the items insured

The insurers liability was for total loss only


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CASE: Malayan Insurance v CA


PONENTE: Romero, J.

FACTS:

Private respondent TKC Marketing Corp was the owner/consignee of some 3,189.171 metric tons of soyabean meal which was loaded on board the ship M/V Al Kazemiah on or about September 8, 1989 for carriage

from the port of Rio del Grande, Brazil, to the port of Manila. Said cargo was insured against the risk of loss bypetitioner Malayan Insurance Coproration for which it issued two Marine Cargo Policies.

While the vessel was docked in Durban, South Africa, enroute to Manila, the civil authorities arrested anddetained it because of a lawsuit on a question of ownership and possession.

October 4, 1989: Private respondent notified the petitioner of the arrest of the vessel and made a formalclaim for the amount of $916,866.66, representing the dollar equivalent on the policies, for non-delivery of

the cargo.

Malayan Insurance replied that the arrest of the vessel by civil authority was not a peril covered by thepolicies. Private respondent advised petitioner that it might tranship the cargo and requested an extension of

the insurance coverage until actual transhipment, which extension was approved upon payment of additional

premium.

December 11, 1989: cargo was sold in Durban due to its perishable nature which could no longer stand avoyage of 20 days to Manila and another 20 days for the discharge thereof. Private respondent redused itsclaim representing private respondents loss after the proceeds of the sale were deducted from the original

claim.

Petitioner maintained its position as to the arrest of the vessel by civil authorities on a question of ownershipwas an excepted risk under the marine insurance policies.

Lower court: decided in favor of private respondents. CA: affirmed the decision of the lower court. Apellate court added that the failure to deliver the consigned

goods in the port of destination is a loss compensable not only under the Institute War clause but also under

the Theft, Pilferage and Non-delivery clause of the policies.

ISSUE:

Is Malayan liable?HELD:

YES, it is. Marine insurance developed as an all-risk coverage, using the perils of the sea to encompass the wide

and varied range of risks that were covered. The subject policies contain the perils clause which is a

standard form in any marine insurance policy. The exceptions or limitations are specifically referred to

as Clause 12. However, said clause was deleted from the policies. Consequently, the Institute Wa

Clause was deemed incorporated.

With the incorporation of subsection 1.1 of Section 1 of the Institute War Clause, the Court agrees withthe CA and the private respondent that arrest caused by ordinary judicial process is deemed included

among the covered risks.

Petitioner cannot adopt the argument that the arrest caused by ordinary judicial process is notincluded simply because Clause 12 under the Institute War Clause can only be operative in case ofhostilities or warlike operations on account of its heading.

It has been held that a strained interpretation which is unnatural and forced, as to lead to an absurdconclusion or to render the policy nonsensical, should, by all means, be avoided. It must be borne in

mind that such contracts are invariably prepared by the companies and will therefore be construed

strictly against the company in order to avoid forfeiture, unless no other result is possible from the

language used.


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CASE: Western Guaranty v CA

DATE: July 20, 1990

PONENTE: Feliciano, J.

FACTS:

March 27, 1982: While crossing Airport Road on a pedestrian lane on her way to work, respondent PriscillaRodriguez was struck by a De Dios Transportation Co. passenger bus driven by one Walter Saga. The bus

disregarded the signal given by a traffic policeman to allow pedestrians to cross. She was thrown to theground, hitting her forehead.

Respondent bus company was insured with Western Guaranty Co. under its Master policy which provided forprotection against third party liability.

Respondent Rodriguez filed a complaint for damages before the RTC against the bus company and the buscompany, in turn, filed a third party complaint against its insurance carrier.

Trial court: rendered a decision in favor of respondent Rodriguez. CA: affirmed in toto the decision of the trial court. Petitioner Western Guaranty alleges that the CA erred in holding the petitioner liable to pay beyond the limits

set forth in the Schedule of Indemnities and in finding Western liable for loss of earnings, moral damages and

attorneys fees because these items are not among those included in the Schedule of indemnities.

ISSUE: Is Western Guaranty liable?

HELD:

YES, it is. Examination of Section 1 entitled Liability to the Public of the Master Policy issued by the petitioner

shows that that Section defines the scope of the liability of the insurer as well as the events which

generate such liability. The precipitating events which generate liability on the part of the insurer, either

in favor of a passenger or a third party, are specified in the following terms: 1) death of; or 2) bodily

injury to; or 3) damage to the property of the passenger or third party.

It will be seen that the Schedule of Indemnities establishes monetary limits which Western may invokein case of occurrence of the particular kinds of physical injury there listed. It must be stressed, however

that the Schedule of Indemnities does not puport to limit, or to enumerate exhaustively the species of

bodily injury occurrence of which generate liability for petitioner.

The reading urged by Western of the Schedule of Indemnities comes too close to working fraud uponboth the insured and the third party beneficiary. Such reading would drastically and without warning

limit the otherwise unlimited and comprehensive scope of liability assumed by the insurer.

As a contract of adhesion, an insurance contract must, lastly, be construed strictly against the partywhich prepared it.


14/28

CASE: Qua Chee Gan v Law Union

DATE: December 17, 1955

PONENTE: Reyes, JBL, J.

FACTS:

Before the war, Qua owned four warehouses or bodegas in the municipality of Tabaco, Albay, used for thestorage of stocks of copra and of hemp, baled and loose. They had been insured with Law Union since 1937

and the lose made payable to the PNB as mortgage of the hemp and crops to the extent of its interest. Fire broke out in the early morning of July 21, 1940, and lasted almost one week, gutted and completely

destroyed Bodegas Nos. 1, 2, and 4, with the merchandise stored in them. Qua informed the insurer by

telegram on the same day and the next day, fire adjusters engaged by appellant insurance company arrived

and proceeded to examine and photograph the premises, pored over the books of the insured and conducted

an extensive investigation.

The insurance company resisted payment, claiming violation of warranties, filing of fraudulent claims, andthat the fire had been deliberately caused by the insured or by other persons in connivance with him.

Qua, his brother, and some employees of his were indicted and tried of arson in 1940. They were, however,acquitted by the trial court. Thereafter, the civil suit to collect the insurance money proceeded to tis trial and

termination.

CFI: rendered a decision in favor of Qua. Law Union:

Alleges that the trial court should have held that the policies were voided for breach of warranty,specifically the one appearing on a rider pasted on the face of the policies

Argues that since the bodegas insured had an external wall perimeter of 500m or the 1640ft theappellee sould have eleven fire hydrants in the compound and that he actually only had two, with a

further pair nearby belonging to the municipality of Tabaco

ISSUE:

Is Law Union liable?HELD:

YES, it is. Insurance company was aware, even before the policies were issued, that in the premises insured there

were only two fire hydrants installed by Qua Chee Gan and another two in a nearby municipality. That

such inspection was made is moreover rendered probable by its being a prerequisite for the fixing of the

discount on the premium on which the insured was entitled, since the discount depended on the

number of hydrants and the firefighting equipment available

It is usually held that where the insurer, at the time of the issuance of a policy, has knowledge of existingfacts which, if insisted on, would invalidate the contract, such knowledge constitutes a waiver of

conditions in the contract inconsistent with the facts, and the insurer is stopped therefrom from

asserting the breach of such conditions.

An insurer should not be allowed, by the use of obscure phrases and exceptions, to defeat the verypurpose for which the policy was issued

No reason why the prohibition of keeping gasoline in the premises could not be expressed clearly andunmistakably, in the language and terms that the general public can readily understand, without resort

to obscure, esoteric expression


15/28

CASE: Del Rosario v Equitable Insurance

DATE: June 29, 1963

PONENTE: Paredes, J.

FACTS:

February 7, 1957: Equitable Insurance and Casualty Co. Inc. issued a Personal Accident policy on the life ofFrancisco del Rosario, son of the petitioner, binding itself to pay the sum of P1,000 to P3,000 as indemnity for

the death of the insured. If the insured sustains any bodily injury which is effected solely through violent, external, visible and accidental means, and which shall result, independently of all

other causes and within sixty (60) days from the occurrence thereof, in the Death of the Insured, the Company shall pay the amount set opposite such injury:

Section 1. Injury sustained other than those specified below unless excepted hereinafter. . . . . . . .

P1,000.00

Section 2. Injury sustained by the wrecking or disablement of a railroad passenger car or street railway car in or on which the Insured is travelling as a farepaying

passenger. . . . . . . .P1,500.00

Section 3. Injury sustained by the burning of a church, theatre, public library or municipal administration building while the Insured is therein at the commencement

of the fire. . . . . . . .P2,000.00

Section 4. Injury sustained by the wrecking or disablement of a regular passenger elevator car in which the Insured is being conveyed as a passenger (Elevator in mines

excluded) P2,500.00

Section 5. Injury sustained by a stroke of lightning or by a cyclone. . . . . . . .P3,000.00x x x x x x x x x

Part VI. Exceptions

This policy shall not cover disappearance of the Insured nor shall it cover Death, Disability, Hospital fees, or Loss of Time, caused to the insured:

. . (h) By drowning except as a consequence of the wrecking or disablement in the Philippine waters of a passenger steam or motor vessel in which the Insured is

travelling as a farepaying passenger; . . . .

A rider to the Policy contained the following:

IV. DROWNING

It is hereby declared and agreed that exemption clause Letter (h) embodied in PART VI of the policy is hereby waived by the com pany, and to form a part of the provi-

sion covered by the policy.

February 24, 1957: the insured, while on board the motor launch Islama with 33 other persons, including thebeneficiary in the policy, were forced to jump off said launch on account of fire which broke out on said

vessel, resulting in the death due to drowning of the insured and the beneficiary in the waters of Jolo.

April 13, 1957: Father of the insured, as the sole heir, filed a claim for payment with the defendant company. September 13, 1957: Company paid to him the sum of P1,000. On the same day, Atty. Francisco wrote the company acknowledging receipt of the money but informing

them that the amount was not the correct one. The amount payable, according to Francisco should be P1500,

according to Section 2, part 1 of the policy.

Defendant company referred the matter to the Insurance Commissioner who rendered an opinion that theliability of the company was only P1,000.

Complaint for recovery of the balance was instituted with the CFI of Rizal. Trial court: rendered a decision in favor of the petitioner. CA: elevated the case to the SC.

ISSUE:

May Equitable Insurance be held liable for P3,000?HELD:

YES, it may. It has been generally held that the terms in an insurance policy which are ambiguous, equivocal, or

uncertain are to be construed strictly against the insurer and liberally in favor of the insured so as to

effect the dominant purpose of indemnity or payment to the insured, especially where a forfeiture is

involved.

Where two interpretations, equally fair, of languages used in an insurance policy may be made, thatwhich allows the greater indemnity will prevail.


16/28

CASE: Geagonia v CA


PONENTE: Davide Jr., J.

FACTS:

Petitioner is the owner of Normans Mart in the public market of San Francisco, Agusan del Sur. He obtained afire insurance policy from the private respondent on December 22, 1989. The period was from December 22,

1989 to December 22, 1990. It covered stock-in-trade consisting principally of dry goods such as RTWs formen and women and other usual to assureds business.

May 27, 1990: fire of accidental origin broke out at around 7:30pm at the public market. The petitionersinsured stock-in-trade were completely destroyed, prompting him to file a claim under the policy.

December 28, 1990: Private respondent denied the claim because it found that at the time of the loss, thepetitioners stocks-in-trade were likewise covered by two fire insurance policies issued by the Cebu Branch of

the Philippines First Insurance Co. Inc.

Petitioner filed a complaint against the private respondent with the Insurance Commission. Petitioneradmitted in said letter that at the time he obtained the private respondent

S policy, he knew that those with the Phil First Insurance were already in existence, though he had noknowledge of the provision in the private respondents policy requiring him to inform it of prior policies. Such

was not mentioned, allegedly, by respondent companys agent. Insurance Commission: found that petitioner did not violate Condition 3 of the respondent companys policy Private respondent appealed to the CA. CA reversed the decision of the Insurance Commission.

ISSUE:

Is petitioner precluded from recovering from the respondent company?HELD:

NO, it is not precluded. Court agrees with the CA that the petitioner knew of the prior policies issued by the PFIC. His letter on

January 18, 1991 conclusively proves this knowledge. His testimony to the contrary before the

Commission cannot prevail over a written admission made ante litem motam.

In order to constitute a violation of Condition 3, the other insurance must be upon the same interesttherein, and the same risk. The fire insurance policies issued by the PFIC name the petitioner as theassured and contains a mortgage clause.

It is a cardinal rule that policies are to be interpreted liberally in favor of the insured and that forfeituresare not favored.

The rationale behind the incorporation of other insurance clause in fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a property owner obtains insurance policies

from two or more insurers in a total amount that exceeds the property's value, the insured may have an

inducement to destroy the property for the purpose of collecting the insurance. The public as well as the

insurer is interested in preventing a situation in which a fire would be profitable to the insured.


17/28

CASE: Sun Insurance v CA

DATE: July 17, 1992

PONENTE: Cruz, J.

FACTS:

Petitioner issued Personal Accident Policy with a face value of P200,000 to Felix Lim, Jr. Two months later, hewas dead with a bullet wound in his head. His beneficiary, his wife sought payment on the policy but her

claim was rejected. While Sun Insurance agreed that Lims death wasnt a suicide, it also argued that it wasntan accident.

According to Lims secretary, at about 10:00pm during his mothers birthday party, Lim was in a happy moodand playing with his handgun from which he had previously removed the magazine. As she watched

television, he stood in front of the tv and pointed the gun at her. He assured her it wasnt loaded and pointed

it to his temple. There was an explosion and Lim was dead before he fell.

The widow sued the petitioner in the RTC of Zamboanga and was sustained. CA: affirmed on appeal.

ISSUE:

Did the event causing Lims death constitute an accident?HELD:

YES, it was. Words accident and accidental have never required any technical signification in law, and whenused in an insurance contract are to be construed and considered according to the ordinary

understanding and common usage and speech of people generally. In substance the courts are

practically agreed that the words mean that which happens by chance or fortuitously, without intention

or design, and which is unexpected, unusual and unforeseen. This is the definition that has usually been

adopted by the courts is that an accident is an event that takes place without ones foresight or

expectation.

Lim was unquestionably negligent and that negligence cost him his own life. But it should not preventhis widow from recovering from the insurance policy he obtained precisely against accident. There is

nothing in the policy that relieves the insurer of the responsibility to pay indemnity agreed upon if the

insured is show to have contributed to his own accident.


18/28

CASE: Rizal Surety v CA

DATE: July 18, 2000

PONENTE: Purisima, J.

FACTS:

March 13, 1980: Rizal Surety issued fire insurance in favor of Transworld Knitting Mills, Inc. initially for P1millionand later increased to P1.5million.

The same pieces of property insured with the petitioner were also insured with New India Assurance Co. Ltd. January 12, 1981: fire broke out in the compound of Transworld, razing the middle portion of its four-span

building and partly gutting the left and right sections thereof. A 2-storey building where fun and amusement

machines and spare parts were stored, was also destroyed by the fire.

Transworld filed its insurance claims with both companies but to no avail. May 26, 1982: Private respondent brought against the companies an action for collection of sum of money and

damages. Rizal Insurance countered that its fire insurance policy sued upon covered only the contents of the

building but not the damage caused by the fire on the 2-storey building.

Trial court: Dismissed case against New India. Ordered Rizal Surety to pay P826,500 representing the value ofthe losses suffered by it.

CA: Modified ruling and required New India to pay P1,818,064.19 and Rizal Surety to pay a P470,328.67.ISSUE:

Is Rizal Surety liable for the entire loss of Transworld?HELD:

YES, it is. It is petitioner's submission that the fire insurance policy litigated upon protected only the contents of the

main building (four-span), and did not include those stored in the 2-storey annex building. On the other

hand, the private respondent theorized that the so called annex was not an annex but was actually an in

tegral part of the four-span building and therefore, the goods and items stored therein were covered by the

same fire insurance policy.

It can be gleaned unerringly that the fire insurance policy in question did not limit its coverage to what werestored in the four-span building. As opined by the trial court of origin, two requirements must concur in or-

der that the said fun and amusement machines and spare parts would be deemed protected by the fire insurance policy under scrutiny.

In the case under consideration, both the trial court and the Court of Appeals found that the so calledannex was not an annex building but an integral and inseparable part of the four-span building described

in the policy and consequently, the machines and spare parts stored therein were covered by the fire insur-

ance in dispute.


19/28

CASE: Filipino Merchants Insurance Co., Inc. v CA

DATE: November 28, 1989


FACTS:

December 1976, Consignee insured said cargo shipment with defendant insurance company. Goods weredescribed as 600 metric tons of fishmeal to be brought from Bangkok to Manila.

The666 gunny bags were unloaded from the ship on December 11 unto the arrastre contractor E. Razon Inc. andthe defendants surveyor ascertained and certified that in such discharge, 105 bags were in bad order. The

condition was reflected in the turn over survey report. Plaintiff made a formal claim against the defendant

Filipinom Merchants Insurance Company for P51,568.62. A formal claim statement was also presented by the

plaintiff against the vessel.

Filipino Merchants Insurance refused to pay the claim. Consequently, Choa brought an action against saiddefendant. The insurance companybrought a third party complaint against third party defendants Compagnie

Maritime Des Chargeurs Reunis and/or E.Razon Inc. seeking judgment against the third party defendants in case

judgment is renderd against the third party plaintiff.

Trial court: rendered judgment in favor of private respondent, Choa. CA: affirmed the decision of the lower court insofar as the award on the complaint is concerned and modified

the adjudication of the third-party complaint.ISSUE:

Does private respondent have an insurable interest?HELD:

YES, it does. Sec. 13 of the Insurance Code defines insurable interest in property as every interest in property, whether

real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated

peril may directly damnify the insured. In principle, anyone has an insurable interest in property who derives

a benefit from its existence or would suffer loss from its destruction, whether he has or has not any title in

or lien upon or possession of the property.

Insurable interest in property may consist in a) an existing interest; b) an inchoate interest founded on anexisting interest; or c)an expectancy coupled with an existing interest that out of which the expectancy

arises.

Private respondents interest over the goods is based on the perfected contract of sale. The perfectedcontract of sale between him and the shipper of the goods operates to vest in him an equitable title even

before delivery or before he performed the conditions of the sale.


20/28

CASE: Gaisano Cagayan, Inc. v Insurance Company of North America

DATE: June 8, 2006

PONENTE: Austria-Martinez, J.

FACTS:

Intercapitol Marketing Co. (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss Phil Inc (LSPI) is the localdistributer of trademarks owned by Levi Strauss & Co. IMC and LSPI obtained from respondent insurance

company fire insurance policies. Said policies provide for coverage on book debts in connection with readymade clothing materials which have been sold or delivered to various customers and dealers of the insured

anywhere in the Philippines. The policies defined book debts as unpaid accounts still appearing in the Book o

Account of the Insured 45 days after the time of the loss covered under this Policy.

Petitioner is a customer and dealer of the products of IMC and LSPI. February 25, 1991: Gaisano Superstore Complex, owned by herein petitioner, was consumed by fire. Included in

the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.

February 4, 1992: Respondent filed a complaint for damages against the petitioner. It alleges that IMC and LSPfiled with respondent their claims under their respective fire insurance policies with book debt endorsements;

that as of February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing

materials with IMC was P2,119,205 and P535,613 with LSPI; that respondent made several demands for

payment against petitioner but these were unheeded. July 4, 1995: Petitioner contends that it cannot be held liable because the property covered by the insurance

policies were destroyed due to fortuitous events and that respondents right of subrogation had no basis

because of the lack of breach in their contract with the two jean companies.

ISSUE:

Do IMC and LSPI retain insurable interest?HELD:

YES, they do. When the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by

the buyer. Accordingly, petitioner bears the risk of the loss of the goods delivered.

They have an insurable interest until full payment of the value of the delivered goods. Unlike the civil lawconcept of res perit domino, where ownership is the basis of consideration of who bears the risk of loss, in

property insurance, ones interest is not determined by concept of title, but whether insured has substantia

economic interest in the property.

An insurable interest in property does not necessarily imply a property interest in, or a lien upon, orpossession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite

to the existence of such an interest. It is sufficient that the insured is so situated with reference to the

property that he would be liable to loss should it be injured or destroyed by peril against which it is insured.

Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss

from its destruction.

A vendor or seller retains an insurable interest in the property sold so long as he has any interest therein, inother words, so long as he would suffer by its destruction, as where he has a vendors lien.


21/28

CASE: Tai Tong Cuache & Co v Insurance Commission


PONENTE: Gancayco, J.

FACTS:

The Palomos acquired from Rolando Gonzales a parcel of land and a building located at San Rafael Village, DavaoCity. They assumed the mortgage in favor of SSS which building was insured with respondent SSS Accredited

Group of Insurers. April 19, 1975: Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the amount of P100,000. To

secure the payment of the loan, a mortgage was executed over the land and the building in favor of Tai Tong.

April 25, 1975: Arsenio Chua, representative of Tai Tong, insured the lat ters interest with Travellers MultiIndemnity Corporation for P100,000.

June 11, 1975: Pedro Palomo secured a fire insurance policy covering the building for P50,000 with respondentZenith Insurance Corporation.

July 16, 1975L Another fire insurance policy was procured from respondent Philippine British AssuranceCompany covering the same building for P50,000 and the contents thereof for P70,000.

July 31, 1975: The building and the contents were totally razed by fire. Based on the computation of the loss,including the Travellers, Zenith, Phil. British and SSS Accredited Group, paid their corresponding shares of the

loss. Phil. British, Zenith and SSS paid varying amounts. Demand was made from Travellers but the same wasrefused. Hence complainants demanded from the other three the balance of each share in the loss based on

the computation of Adjustment Standards. The same, however, was refused.

Phil. British and Zenith admitted the material allegations in the complaint but denied liability on the ground thatthe claim had already been waived, extinguished or paid. SSS Accredited Group, instead of filing an answer

informed the Commission that the herein claim of complainants for the balance had been paid in the amount of

P5,938.57 in full, based on the Adjustment Standards Corp Report of September 22, 1975.

Travellers Insurance: admitted the issuance of its policy and alleged as its specific and affirmative defense thatthe fire policy covering the furniture and building of complainants was secured by a certain Arsenio Chua,

mortgage credit against the complainants; the said policy was issued in the name of Azucena Paloma, only to

indicate that she owns the insured premises; that the policy contains an endorsement in favor of Arsenio Chua

as his mortgage interest may appear to indicate that insured was Arsenio Chua and the complainants; that the

premiums due on said fire policy was paid by Arsenio Chua; that respondent Travellers is not liable to pay

complainants.

May 31, 1977: Tai Tong filed a complaint in intervention claiming the proceeds of the fire insurance policy issuedby Travellers.

Respondent Insurance Commission dismissed spouses Palomos complaint on the ground that the insurancepolicy subject of the complaint was taken out by Tai Tong

ISSUE:

Does Tai Tong have insurable interest in the policy.HELD:

YES, it does. It has been held in a long line of cases that when the creditor is in possession of the document of credit, he

need not prove non-payment for it is presumed. The validity of the insurance policy taken by petitioner was

not assailed by private respondent. Moreover, petitioner's claim that the loan extended to the Palomos has

not yet been paid was corroborated by Azucena Palomo who testified that they are still indebted to herein

petitioner. So at the time of the fire, petitioner as mortgagee still had insurable interest therein.

Petitioner's declaration that Arsenio Lopez Chua acts as the managing partner of the partnership wascorroborated by respondent insurance company. Thus Chua as the managing partner of the partnership may

execute all acts of administration including the right to sue debtors of the partnership in case of their failure

to pay their obligations when it became due and demandable. Or at the least, Chua being a partner of

petitioner Tai Tong Chuache & Company is an agent of the partnership. Being an agent, it is understood that

he acted for and in behalf of the firm.


22/28

CASE: Perez v CA

DATE: January 28, 2000

PONENTE: Ynares-Santiago, J.

FACTS:

Primitivo Perez had been insured with the BF Lifeman Insurance Coproration since 1980 for P20,000. Sometimein October 1987, an agent of the insurance corporation, Rodolfo Lalog, visited Perez and convinced him to apply

for additional insurance coverage of P50,000, to avail of the ongoing promotional discount of P400 if thepremium were paid annually.

October 20, 1987: Perez accomplished an application form. On the same day, his wife paid P2,075 to Lalog. Thereceipt indicated the amount received was a deposit. Unfortunately, Lalog lost the application form

accomplished by Perez.

October 28, 2987: Lalog asked Perez to fill up another form. November 1, 1987: Perez was made to undergo the required medical examination which he passed. Lalog forwarded the application for additional insurance of Perez together with all its supporting papers to the

office of BF Lifeman in Gumaca, Quezon which office was supposed to forward the papers to the Manila Office.

November 25, 2987: Perez died in an accident. He was riding in a banca which capsized during a storm. At thetime of his death, his application was still with the Gamca Office. Lalog testified that when he went to follow up

the papers, he found them still in Gumaca so he personally brought them to the Manila office. Manila office officially received the papers on November 27. December 2, 1987: BF Lifeman approved the application. Virginia Perez, herein petitioner, made claim to the benefits under the policy of the deceased. She was paid

P40,000 under the first insurance policy but the company refused to pay the claim under the additional policy.

In its letter, the company maintained that the additional insurance had not been perfected at the time of deathof Primitivo Perez.

Trial court: ruled in favor of petitioner. CA: reversed the trial court decision.

ISSUE:

Had the insurance contract for the additional policy been perfected at the time of Primitivos death?HELD:

NO, it had not. Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate the

other for loss on a specified subject by specified perils. A contract, on the other hand, is a meeting of the

minds between two persons whereby one binds himself, with respect to the other to give something or to

render some service.

Consent (to the contract) must be manifested by the meeting of the offer and the acceptance upon thething and the cause which are to constitute the contract. The offer must be certain and the acceptance ab

solute.

The assent of private respondent BF Lifeman Insurance Corporation was not given when it merely receivedthe application form and all the requisite supporting papers of the applicant. Its assent was given when it is-

sued a corresponding policy to the applicant.


23/28

CASE: Vda de Sindayen v Insular

DATE: September 4, 1935

PONENTE: Butte, J.

FACTS:

Arturo Sindayen, up to the time of his death on January 19, 1933, was employed as a linotype operator in the Bureau ofPrinting at Manila and had been such for eleven years prior thereto. He and his wife went to Camiling, Tarlac, to spend the

Christmas vacation with his aunt, Felicidad Estrada. While there he made a written application on December 26, 1932, tothe defendant Insular Life Assurance Co., Ltd., through its agent, Cristobal Mendoza, for a policy of insurance on his life in

the sum of P1,000. He paid to the agent P15 cash as part of the first premium. It was agreed with the agent that the policy,

when and if issued, should be delivered to his aunt. Felicidad Estrada, with whom Sindayen left the sum of P26.06 to com

plete the payment of the first annual premium of P40.06.

January 1, 193:Sindayen, who was then twenty-nine years of age, was examined by the company's doctor who made a fa-vorable report, to the company.

January 2, 1933: Sindayen returned to Manila and resumed his work a linotype operator in the Bureau of Printing. January 11, 1933: The company accepted the risk and issued policy No. 47710 dated back to December 1, 1932, and mailed

the same to its agent, Cristobal Mendoza, in Camiling, Tarlac, for delivery to the insured.

January 12, 1933: Sindayen complained of a severe headache and remained at home. January 15, 1933: Sindayen called a physician who found that he was suffering from acute nephritis and uremia. His illness

did not yield to treatment and on January 19, 1933, he died.

The policy which the company issued and mailed in Manila on January 11, 1933, was received by its agent in Camiling,Tarlac, on January 16, 1933. On January 18, 1933, the agent, in accordance with his agreement with the insured, deliv-

ered the policy to Felicidad Estrada upon her payment of the balance of the first year's annual premium. The agent

asked Felicidad Estrada if her nephew was in good health and she replied that she believed so because she had no infor-

mation that he was sick and he thereupon delivered to her the policy.

January 20, 1933: The agent learned of the death of Arturo Sindayen and called on Felicidad Estrada and asked her to re-turn the policy. However, he did not return or offer to return the premium paid. Felicidad Estrada on his aforesaid state-

ment gave him the policy.

February 4, 1933: Under circumstances which it is not necessary to relate here, the company obtained from the beneficiarythe widow of Arturo Sindayen, her signature to a legal document entitled ACCORD, SATISFACTION AND RELEASE whereby

in consideration of the sum of P40.06 paid to her by a check of the compa ny, she assigns, releases and forever discharges

said Isular Life Assurance Co., Ltd., its successors and assigns, of all claims, obligation in or indebtedness which she, as such

beneficiary ever had or now has, hereafter ca, shall, or may have, for, upon, or by reason of said policy of life insurancenumbered 47710 upon the life of said Arturo Sindayen, the latter now deceased, or arising therefrom or connected there-

with in any manner.

ISSUE:

Is the insurance policy valid?HELD:

YES, it is. It is more consonant with the well known practice of life insurance companies and the evidence in the present case to

rest our decision on the proposition that Mendoza was authorized by the company to make the delivery of the policy

when he received the payment of the first premium and he was satisfied that the insured was in good health.

It is the interest not only the applicant but of all insurance companies as well that there should be some act which givesthe applicant the definite assurance that the contract has been consummated. This sense of security and of peace of

mind that one's defendants are provided for without risk either of loss or of litigation is the bedrock of life insurance.

When the policy is issued and delivered, in the absence of fraud or other grounds for rescission, it is plainly not within

the intention of the parties that there should be any questions held in abeyance or reserved for future determination

that leave the very existence of the contract in suspense and doubt.

The company therefore having decided that all the conditions precedent to the taking effect of the policy had beencomplied with and having accepted the premium and delivered the policy thereafter to the insured, the company is

now estopped to assert that it never intended that the policy should take effect.


24/28

CASE: Enriquez v Sun Life Assurance Co. of Canada


PONENTE: Malcolm, J.

FACTS:

September 24, 1917: Joaquin Herrer made application to the Sun Life Assurance Company of Canada through itsoffice in Manila for a life annuity. Two days later, he paid the sum of P6,000 to the manager of the companys

Manila office and was given a receipt. The application was immediately forwarded to the head office of the company at Montreal Canada. On

November 26, 1917, the head office gave notice of acceptance by cable to Manila. The policy was issued on

December 4, 1917. December 18, 1917, Atty. Torres wrote to the Manila office of the company that Herrer

desired to withdraw his application. The following day, the local office replied to Atty. Torres that the policy had

been issued and called attention to the notification of November 26, 1917. The letter was received by Atty

Torres on the morning of December 21, 1917. Herrer had died the day prior.

ISSUE:

Did Herrer receive the notice of acceptance of his application?HELD:

NO, he did not. The Courts deduction from the evidence on this issue is that the letter of November 26, 1917, notifying MrHerrer that his application had been accepted, was prepared and signed in the local office of the insurance

company and was placed in the ordinary channels for transmission. However, as far as the Court knows, it

was never actually mailed and thus was never received by the applicant

The law applicable to the case is found to be the second paragraph of article 1262 of the Civil Code providingthat an acceptance made by letter shall not bind the person making the offer except from the time it came

to his knowledge. The pertinent fact is, that according to the provisional receipt, three things had to be ac

complished by the insurance company before there was a contract: (1) There had to be a medical ex

amination of the applicant; (2) there had to be approval of the application by the head office of the com-

pany; and (3) this approval had in some way to be communicated by the company to the applicant.

The contract for a life annuity in the case at bar, then, was not perfected because it had not been provedsatisfactorily that the acceptance of the application ever came to the knowledge of the applicant


25/28

CASE: Velasco v Apostol

DATE: May 9, 1989


FACTS:

The case was an offshoot of an incident: plaintiffs were riding in their car, when a taxicab crossed a center islandin the road and collided with their car. Private respondent Maharlika was eventually impleaded as a defendant

in this case, with an allegation that the taxicab involved was insured against third party liability for P20,000.00with private respondent at the time of the accident

Maharlika: no cause of action against it because at the time of the accident, the alleged insurance policy was notin force due to the non-payment of the premium thereon. Also, even if the cab had been insured, the complaint

would be premature since the policy provides that the insurer would be liable only when the insured becomes

legally liable.

Trial court: ruled in favor of the plaintiff, holding the defendants liable for repair of the car, medical expensesetc. Maharlike was exonerated

Petitioners assert that the private respondent had agreed to grant thethen prospective insured a creditextension of the premium due.

Controversy arose under the old insurance law, Act No. 2427. The accident occurred in 1973. The complainwas filed on July 20, 1974. Both occured before the effectivity of Presidential Decree no. 612, thesubsequent insurance law which repealed its predecessor

The former insurance law: An insurer is entitled to the payment of premium as soon as the thing insured isexposed 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.

ISSUE:

Is the policy valid despite the nonpayment of the premium?HELD:

NO, it is not. Petitioners maintain that in spite of their late payment, the policy is binding because there was an implied

agreement to grant a credit extension so as to make the policy effective. To them, the subsequent

acceptance of the premium and delivery of the policy estops the respondent company from asserting that

the policy is ineffective.

Court sees no proof of any such implied agreement. The purported nexus between the delivery of the policyand the grant of credit extension is too tenuous to support the conclusion which petitioners contend.


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CASE: Tibay v CA

DATE: May 24, 1996

PONENTE: Bellosillo, J.

FACTS:

January 22, 1987: Fortune Life and General Insurance Co., Inc. issued a fired insurance policy in favor of VioletaR. Tibay and/or Nicolas Roraldo on their 2-storey residential building located at 5855 Zobel Street, Makati City,

together with all their personal effects therein. The insurance was for P600,000. January 23,1987: Of the total premium of P2,983.50, Violeta Tibay only paid P600 thus leaving a considerable

balance unpaid.

March 8, 1987: The insured building was completely destroyed by fire. Two days later, Violeta Tibay paid thebalance 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. which wrote Violeta requesting her

to furnish it with the necessary documents for the investigation and processing of her claim. Petitioner

complied.

March 28, 1987: Violeta signed a nonwaiver agreement with GASI to the effect that any action taken by thecompanies shall not be, or be claimed to be, an admission of liability.

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.

March 3, 1988 Violeta and the other petitioners sued Fortune for damages in the amount of P600,000representing the total coverage of the fire insurance policy plus 12% interest per annum, P100,000 moral

damages, and attorney's fees equivalent to 20% of the total claim.

Trial court: ruled for petitioners. CA: reversed.

ISSUE:

Is the policy valid despite only partial payment of the premium?HELD:

NO, it is not. Where the insurer and the insured expressly stipulated that the policy is not in force until the premium has

been fully paid, 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.

As expressly agreed upon in the contract, full payment must be made before the risk occurs for the policy tobe considered effective and in force. Thus, no vinculum juris whereby the insurer bound itself to indemnify

the assured 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.

Vitugs Dissent:The law neither requires, nor measures the strength of the vinculum juris by any specific amount ofpremium payment. It should thus beenough that payment on the premium, partly or infull, is made by theinsured which the insureraccepts. In fine, it is either that a juridical tie existsor that it is not extant at all.Once the juridical relation comes into being, the full efficacy, not merely pro tanto, of the insurance contract

naturally follows. Verily, not only is there an insurance perfected but also a partially performed contract.


27/28

CASE: Makati v Tuscany


PONENTE: Bellosillo, J.

FACTS:

American Home Assurance Co. (AHAC), represented by American International Underwriters (Phils.), Inc., issuedin favor of petitioner Makati Tuscany Condominium Corporation an insurance policy on the latter's building and

premises. The premium was paid on installments all of which were accepted by AHAC. A second policy was issued to renew the first one. This was also paid in installment basis. A third policy was

again issued for the period. For this, petitioner made two installment payments, both accepted by AHAC

Thereafter, petitioner refused to pay the balance of the premium. AHAC filed an action to recover the unpaid

balance of P314,103.05.

Petitioner: explained that it discontinued the payment of premiums because the policy did not contain a 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,

further claimed that the policy was never binding and valid, and no risk attached to the policy. Petitioner then pleaded a counterclaim for P152,000 for the premiums already paid for. Trial court: dismissed the complaint and the counterclaim CA: modified the decision by ordering Tuscany to pay the balance of the premiums due on the third policy plus

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

ISSUE:

Is Makati Tuscany entitled to a refund?HELD:

NO, it is not. 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.

The obligation to pay premiums when due is ordinarily an indivisible obligation to pay the entire premiumHere, 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.

The insured never informed the insurer that it was terminating the policy because the terms wereunacceptable.

There is nothing in Section 77 which suggests that the parties may not agree to allow payment of thepremiums in installment, or to consider the contract as valid and binding upon payment of the firstpremium

The records clearly show that petitioner and private respondent intended subject insurance policies to bebinding and effective notwithstanding the staggered payment of the premiums. Acceptance of payments

speaks loudly of the insurer's intention to honor thepolicies it issued to petitioner.


28/28

CASE: South Sea Surety v CA

DATE: June 2, 1995

PONENTE: Vitug, J.

FACTS:

Hardwood entered into agreement with Seven Brothers Shipping, where latter undertook to load on board itsvessel M/V Seven Ambassador the former's lauan round logs numbering 940 at the port of Maconacon, Isabela

for shipment to Manila. Hardwood insured the logs with South Sea Surety which issued a Marine CargoInsurance Policy.

January 24, 1984: Plaintiff gave the check in payment of the premium on the insurance policy to Mr. VictorioChua

January 25, 1984: vessel sank. January 30, 1984: A check for P5,625.00 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 ac

cordance with Section 77 of the Insurance Code.

February 2, 1984: Plaintiff demanded from defendant South Sea the payment of the proceeds of the policy butthe latter denied liability under the policy. Plaintiff likewise filed a formal claim with defendant Seven Brothers

for the value of the lost logs but the latter denied the claim. Trial court: ruled in favor of Hardwood. CA: decided against South Sea but absolved Seven Brothers.

ISSUE:

Are Seven Brothers and South Sea Surety liable?HELD:

NO, the Seven Brothers is not liable. There is a stipulation in the charter party that the ship owner would be exempted from liability

in case of loss. Under American jurisprudence, a common carrier undertaking to carry a speciaor 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. YES, South Sea is liable.

When the appellant South Sea delivered to Mr. Chua the marine cargo insurance policy for the plaintiffslogs, he is deemed to have been authorized by the South Sea 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 theSouth Sea, which is consequently liable to pay the insurance proceeds under the policy it issued to the in-

sured.

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