1. Summary: Filipino Merchants Insurance Co. Inc. vs.

Court of Appeals (GR 85141, 28 November 1989)

Facts: In December 1976, Choa Tiek Seng insured said shipment with Filipino Merchants Insurance Company (FMICI) under cargo
Policy M-2678 for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in new gunny bags of 90 kilos each
from Bangkok, Thailand to Manila against all risks under warehouse to warehouse terms. Actually, what was imported was 59.940
metric tons not 600 tons at $395.42 a ton CNF Manila. The fishmeal in 666 new gunny bags were unloaded from the ship on 11
December 1976 at Manila unto the arrastre contractor E. Razon, Inc. and FMICI's surveyor ascertained and certified that in such
discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and the arrastre contractor. The condition of the
bad order was reflected in the turn over survey report of Bad Order cargoes 120320 to 120322, consisting of 3 pages. The cargo was
also surveyed by the arrastre contractor before delivery of the cargo to the consignee and the condition of the cargo on such delivery
was reflected in E. Razon's Bad Order Certificates 14859, 14863 and 14869 covering a total of 227 bags in bad order condition.
FMICI's surveyor has conducted a final and detailed survey of the cargo in the warehouse for which he prepared a survey report with
the findings on the extent of shortage or loss on the bad order bags totalling 227 bags amounting to 12,148 kilos. Based on said
computation, Choa made a formal claim against FMICI for P51,568.62 the computation of which claim is contained therein. A formal
claim statement was also presented by the Choa against the vessel dated 21 December 1976, but FMICI refused to pay the claim.
Consequently, an action was brought by the consignee (Choa Tiek Seng) of the shipment of fishmeal loaded on board the vessel SS
Bougainville and unloaded at the Port of Manila on or about 11 December 1976 and seeks to recover from FMICI the amount of
P51,568.62 representing damages to said shipment which has been insured by FMICI under Policy M-2678. FMICI brought 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 rendered against FMICI. The court below, after trial on the merits, rendered judgment in
favor of Choa, ordering FMICI to pay Choa the sum of P51,568.62 with interest at legal rate from the date of the filing of the complaint;
and, on the third party complaint, the third party defendant Compagnie Maritime Des Chargeurs Reunis and third party defendant E.
Razon, Inc. are ordered to pay FMICI jointly and severally reimbursement of the amounts paid by FMICI with legal interest from the
date of such payment until the date of such reimbursement; without pronouncement as to costs. On appeal, and on 18 July 1988, the
Court of Appeals affirmed the decision of the lower court insofar as the award on the complaint is concerned and modified the same
with regard to the adjudication of the third-party complaint. A motion for reconsideration of the aforesaid decision was denied, hence
FMICI filed the petition for review.

Issue [1]: Whether an "all risks" marine policy has a technical meaning in insurance in that before a claim can be compensable it is
essential that there must be "some fortuity," "casualty" or "accidental cause" to which the alleged loss is attributable.

Held [1]: NO. The "all risks clause" of the Institute Cargo Clauses read as follows "5. This insurance is against all risks of logs or
damage to the subject-matter insured but shall in no case be deemed to extend to cover loss, damage, or expense proximately caused
by delay or inherent vice or nature of the subject-matter insured. Claims recoverable hereunder shall be payable irrespective of
percentage." An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental cause
of any kind. The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning. They are
construed by the courts in their ordinary and common acceptance. Thus, the terms have been taken to mean that which happens by
chance or fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. An accident is an event that
takes place without one's foresight or expectation; an event that proceeds from an unknown cause, or is an unusual effect of a known
cause and, therefore, not expected. The very nature of the term "all risks" must be given a broad and comprehensive meaning as
covering any loss other than a wilful and fraudulent act of the insured. This is pursuant to the very purpose of an "all risks" insurance to
give protection to the insured in those cases where difficulties of logical explanation or some mystery surround the loss or damage to
property. An "all risks" policy has been evolved to grant greater protection than that afforded by the "perils clause," in order to assure
that no loss can happen through the incidence of a cause neither insured against nor creating liability in the ship; it is written against all
losses, that is, attributable to external causes. The term "all risks" cannot be given a strained technical meaning, the language of the
clause under the Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to all damages/losses suffered by the
insured cargo except (a) loss or damage or expense proximately caused by delay, and (b) loss or damage or expense proximately
caused by the inherent vice or nature of the subject matter insured.

Issue [2]: Whether the failure of Choa to adduce evidence, showing that the alleged loss to the cargo in question was due to a fortuitous
event, precludes his right to recover from the insurance policy.

Held [2]: NO. Although generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, under an "all
risks" policy the burden is not on the insured to prove the precise cause of loss or damage for which it seeks compensation. The
insured under an "all risks insurance policy" has the initial burden of proving that the cargo was in good condition when the policy
attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the
exception to the coverage. As held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd. the basic rule is that the insurance
company has the burden of proving that the loss is caused by the risks excepted and for want of such proof, the company is liable.
Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance which extends coverage to
risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss was due to the peril falling
within the policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly excludes the loss
from coverage. A marine insurance policy providing that the insurance was to be "against all risks" must be construed as creating a
special insurance and extending to other risks than are usually contemplated, and covers all losses except such as arise from the fraud
of the insured. The burden of the insured, therefore, is to prove merely that the goods he transported have been lost, destroyed or
deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted perils. To impose on the insured
the burden of proving the precise cause of the loss or damage would be inconsistent with the broad protective purpose of "all risks"
insurance.

Issue [3]: Whether the insurer is liable

Held [3]: There being no showing that the loss was caused by any of the excepted perils, the insurer is liable under the policy. It is
believed that in the absence of any showing that the losses/damages were caused by an excepted peril, i.e. delay or the inherent vice
or nature of the subject matter insured, and there is no such showing, the loss was covered by the policy. Herein, there is no evidence
presented to show that the condition of the gunny bags in which the fishmeal was packed was such that they could not hold their
contents in the course of the necessary transit, much less any evidence that the bags of cargo had burst as the result of the weakness
of the bags themselves. Had there been such a showing that spillage would have been a certainty, there may have been good reason
to plead that there was no risk covered by the policy (See Berk vs. Style [1956] cited in Marine Insurance Claims, p. 125). Under an “all
risks” policy, it was sufficient to show that there was damage occasioned by some accidental cause of any kind, and there is no
necessity to point to any particular cause. Contracts of insurance are contracts of indemnity upon the terms and conditions specified in
the policy. The agreement has the force of law between the parties. The terms of the policy constitute the measure of the insurer's
liability. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense.

Issue [4]: Whether the consignee (Choa) has an insurable interest in said goods.

Held [4]: Choa, as consignee of the goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest
in said goods. Section 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 might 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 an existing interest; or (c) an expectancy, coupled with an existing interest
in that out of which the expectancy arises. As vendee/consignee of the goods in transit has such existing interest therein as may be the
subject of a valid contract of insurance. His interest over the goods is based on the perfected contract of sale. The perfected contract 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. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in the present case, is immaterial in the
determination of whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of sale even without
delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to be the subject of insurance. Further,
Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller is authorized or required to send the
goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for, the purpose of transmission to the buyer
is deemed to be a delivery of the goods to the buyer, the exceptions to said rule not obtaining in the present case. The Court has
heretofore ruled that the delivery of the goods on board the carrying vessels partake of the nature of actual delivery since, from that
time, the foreign buyers assumed the risks of loss of the goods and paid the insurance premium covering them. C & F contracts are
shipment contracts. The term means that the price fixed includes in a lump sum the cost of the goods and freight to the named
destination. It simply means that the seller must pay the costs and freight necessary to bring the goods to the named destination but the
risk of loss or damage to the goods is transferred from the seller to the buyer when the goods pass the ship's rail in the port of
shipment.

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2. Sunlife Assurance v. Court of Appeals 245 SCRA 268 (1995)

• INSURANCE LAW: Concealment

• Disclosure of material facts is required

• Good faith is not a defense in determining the materiality of the information to be disclosed

• Waiver of medical examination by insured is not a defense

• Cause of death is immaterial in case of concealment

FACTS:

Bacani procured a life insurance contract for himself from Sunlife Assurance. Specifically, the policy included a double indemnity in
case of accidental death, designating his mother as beneficiary.

Later, Bacani died in a plane crash and so the mother filed a claim. After investigation, Sunlife rejected the claim on ground of non-
disclosure of material facts. They said that Bacani did not mention that two weeks prior to his insurance application he was examined
and confined at the Lung Center of the Philippines, where he was diagnosed for renal failure.

The trial court ruled that the facts concealed by the insured were made in good faith and under the belief that they need not be
disclosed. Also, it held that the health history of the insured was immaterial since the insurance policy was “non-medical.”

The CA affirmed, stating that the cause of death was unrelated to the facts concealed by the insured.

ISSUE: Whether or not the concealment made by Bacani warranted the rejection of the insurance claim

HELD:

The Supreme Court reversed the decision of the CA and ruled that rescission of the insurance contract was proper.

Disclosure of Material Facts required

Under sec. 26 of the Insurance Code, a party to a contract of insurance is required 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.
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 information which the insured failed to disclose was 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 the petitioner in order for it to reasonably assess the risk involved in accepting the application.

Good Faith not a defense

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, “good faith” is no defense in concealment.

Waiver of Medical Examination not a defense

The waiver of the medical examination of the insured does not mean that material facts need not be disclosed. In fact, it 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.

Cause of Death

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.

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3. Philamcare Health Systems Inc. vs. Court of Appeals [GR 125678, 18 March 2002]

Facts: Ernani Trinos, deceased husband of Julita Trinos, applied for a health care coverage with Philamcare Health Systems, Inc. In the
standard application form, he answered no to the following question: "Have you or any of your family members ever consulted or been
treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details). " The
application was approved for a period of one year from 1 March 1988 to 1 March 1989. Accordingly, he was issued Health Care
Agreement P010194. Under the agreement, Trinos' husband was entitled to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health
care and other out-patient services. Upon the termination of the agreement, the same was extended for another year from 1 March
1989 to 1 March 1990, then from 1 March 1990 to 1 June 1990. The amount of coverage was increased to a maximum sum of
P75,000.00 per disability. During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical
Center (MMC) for one month beginning 9 March 1990. While her husband was in the hospital, Trinos tried to claim the benefits under
the health care agreement. However, Philamcare denied her claim saying that the Health Care Agreement was void. According to
Philamcare, there was a concealment regarding Ernani's medical history. Doctors at the MMC allegedly discovered at the time of
Ernani's confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, Trinos paid
the hospitalization expenses herself, amounting to about P76,000.00. After her husband was discharged from the MMC, he was
attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however,
Trinos brought her husband home again. In the morning of 13 April 1990, Ernani had fever and was feeling very weak. Trinos was
constrained to bring him back to the Chinese General Hospital where he died on the same day. On 24 July 1990, Trinos instituted with
the Regional Trial Court of Manila, Branch 44, an action for damages against Philamcare and its president, Dr. Benito Reverente (Civil
Case 90 53795). She asked for reimbursement of her expenses plus moral damages and attorney's fees. After trial, the lower court
ruled against Philamcare and Reverente, ordering them to pay and reimburse the medical and hospital coverage of the late Ernani
Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same; the reduced amount of
moral damages of P10,000.00 to Trinos; the reduced amount of P10,000.00 as exemplary damages to Trinos; and the attorney's fees
of P20,000.00, plus costs of suit. On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for
damages and absolved Reverente. Philamcare's motion for reconsideration was denied. Hence, Philamcare brought the petition for
review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause"
under the Insurance Code does not apply.

Issue [1]: Whether a health care agreement between Philamcare and Ernani Trinos is an insurance contract.

Held [1]: YES. Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract
exists where the following elements concur: (1) The insured has an insurable interest; (2) The insured is subject to a risk of loss by the
happening of the designated peril; (3) The insurer assumes the risk; (4) Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons bearing a similar risk; and (5) In consideration of the insurer's promise, the
insured pays a premium. Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which
may damnify a person having an insurable interest against him, may be insured against. Every person has an insurable interest in the
life and health of himself. Section 10 provides that "Every person has an insurable interest in the life and health: (1) of himself, of his
spouse and of his children; (2) of any person on whom he depends wholly or in part for education or support, or in whom he has a
pecuniary interest; (3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which
death or illness might delay or prevent the performance; and (4) of any person upon whose life any estate or interest vested in him
depends." Herein, the insurable interest of Trinos' husband in obtaining the health care agreement was his own health. The health care
agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical
or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the
extent agreed upon under the contract.
Issue [2]: Whether answers made in good faith, where matters of opinion or judgment are called for, without intent to deceive will avoid
a policy when they were untrue.

Held [2]: NO. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not
avoid a policy even though they are untrue. Thus, although false, a representation of the expectation, intention, belief, opinion, or
judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a
lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the
foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further
inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true,
as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts
within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud. The fraudulent intent
on the part of the insured must be established to warrant rescission of the insurance contract. Concealment as a defense for the health
care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, Philamcare is liable for claims
made under the contract. Having assumed a responsibility under the agreement, Philamcare is bound to answer the same to the extent
agreed upon. In the end, the liability of the health care provider attaches once the member is hospitalized for the disease or injury
covered by the agreement or whenever he avails of the covered benefits which he has prepaid.

Issue [3]: Whether rescission must be exercised before commencement of an action on the contract.

Held [3]: YES. Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance."
The right to rescind should be exercised previous to the commencement of an action on the contract. Herein, no rescission was made.
Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions: (1)
Prior notice of cancellation to insured; (2) Notice must be based on the occurrence after effective date of the policy of one or more of
the grounds mentioned; (3) Must be in writing, mailed or delivered to the insured at the address shown in the policy; (4) Must state the
grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is
based. None of the above pre-conditions was fulfilled in this case. When the terms of insurance contract contain limitations on liability,
courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of
adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared the contract — the insurer.
By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must
be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to
Health Care Agreements.

Issue [4]: Whether the membership of the late Trinos is now incontestable.

Held [4]: YES. Under the title Claim procedures of expenses, Philamcare had twelve months from the date of issuance of the
Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the
issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment
or misrepresentation no longer lie.

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4. Perla Cia. De Seguros, Inc. v. CA 208 SCRA 487 (1992)

* INSURANCE LAW: Warranties

* Authorized Driver Clause applies only in accidents, etc. but not to theft

FACTS: Spouses Lim purchased a brand new red Ford Laser car from Supercars, Inc. in a sale by installment secured by a chattel
mortgage. The same car is insured with Perla Compania de Seguros (Perla). On the same day, Supercars, Inc. assigned its rights, title
and interest to FCP Credit Corporation (FCP).

On a later date, the vehicle was carnapped. Spouses Lim filed a claim for loss with Perla but this was denied on the ground that Evelyn
Lim, who was using the vehicle before it was carnapped, was in possession of an expired driver’s license at the time of the loss, in
violation of the authorized driver clause of the insurance policy.

ISSUE: Whether or not Perla is liable despite the alleged violation of the authorized driver clause in the insurance contract

HELD:

The Supreme Court held that Perla is liable to pay the insurance claim.

The comprehensive motor car insurance policy issued by Perla covered loss or damage to the car: (a) xxx; (b) by fire, external
explosion, self-ignition or lightning or burglary, housebreaking or theft; (c) xxx.
Where a car is admittedly unlawfully and wrongfully taken without the owner’s consent or knowledge, such taking constitutes theft, and
therefore, it is the “THEFT” clause, and not the “AUTHORIZED DRIVER” clause that should apply.

The Court of Appeals was correct in holding that:

“…Theft is an entirely different legal concept from that of accident. Theft is committed by a person with the intent to gain or, to put it in
another way, with the concurrence of the doer’s will. On the other hand, accident, although it may proceed or result from negligence, is
the happening of an event without the concurrence of the will of the person by whose agency it was caused. (Bouvier’s Law Dictionary).

Clearly, the risk against accident is distinct from the risk against theft. The “authorized driver clause” in a typical insurance policy is in
contemplation or anticipation of accident in the legal sense in which it should be understood, and not in contemplation or anticipation of
an event such as theft. The distinction – often seized upon by insurance companies in resisting claims from their assureds – between
death occurring as a result of accident and death occurring as a result of intent may, by analogy, apply to the case at bar. Thus, 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 appellant’s claim for indemnification for the loss or destruction of the vehicle resulting from the accident. But in the
present case, the loss of the insured vehicle 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.”

There is no causal connection between the possession of a valid driver’s license and the loss of a vehicle. To rule otherwise would
render car insurance practically a sham since an insurance company can easily escape liability by citing restrictions which are not
applicable or germane to the claim, thereby reducing indemnity to a shadow.

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5. ANG GIOK CHI vs SPRINGFIELD FIRE & MARINE INSURANCE

MALCOLM, J.:

An important question in the law of insurance, not heretofore considered in this jurisdiction and, according to our information, not
directly resolved in California from which State the Philippine Insurance Act was taken, must be decided on this appeal for the future
guidance of trial courts and of insurance companies doing business in the Philippine Islands. This question, flatly stated, is whether a
warranty referred to in the policy as forming part of the contract of insurance and in the form of a rider to the insurance policy, is null
and void because not complying with the Philippine Insurance Act. The court has had the benefit of instructive briefs and memoranda
from the parties and has also been assisted by a well prepared brief submitted on behalf of amici curiae.

The admitted facts are these: Ang Giok Chip doing business under the name and style of Hua Bee Kong Si was formerly the owner of a
warehouse situated at No. 643 Calle Reina Regente, City of Manila. The contents of the warehouse were insured with the three
insurance companies for the total sum of P60,000. One insurance policy, in the amount of P10,000, was taken out with the Springfield
Fire & Marine Insurance Company. The warehouse was destroyed by fire on January 11, 1928, while the policy issued by the latter
company was in force.

Predicated on this policy the plaintiff instituted action in the Court of First Instance of Manila against the defendant to recover a
proportional part of the loss coming to P8,170.59. Four special defenses were interposed on behalf of the insurance company, one
being planted on a violation of warranty F fixing the amount of hazardous goods which might be stored in the insured building. The trial
judge in his decision found against the insurance company on all points, and gave judgment in favor of the plaintiff for the sum of
P8,188.74. From this judgment the insurance company has appealed, and it is to the first and fourth errors assigned that we would
address particular attention.

Considering the result at which we arrive, it is unnecessary for us to discuss three of the four special defenses which were made by the
insurance company. We think, however, that it would be a reasonable deduction to conclude that more than 3 per cent of the total value
of the merchandise contained in the warehouse constituted hazardous goods, and that this per cent reached as high as 39. We place
reliance on the consular invoices and on the testimony of the adjuster, Herridge. Having thus swept to one side all intervening obstacle,
the legal question recurs, as stated in the beginning of this decision, of whether or not warranty F was null and void.

To place this question in its proper light, we turn to the policy issued by the Springfield Fire & Marine Insurance Company in favor of the
plaintiff. The description of the risk in this policy is as follows:[Link]

Ten thousand pesos Philippine Currency. — On general non-hazardous merchandise, chiefly consisting of chucherias, also produce,
Cacao, Flour, all the property of the Insured, or held by them in trust, on commission or on joint account with others, or for which he is
responsible, while contained during the currency of this policy in the godown, situate No. 643 Calle Reina Regent. . . .

This policy is subject to the hereon attached "Ordinary Short Period Rate Scale" Warranties A & F, Co-insurances Clause "and Three
Fourths Loss Clause," which are forming part of same. Co-insurance declared:
"P20,000. — Sun Insurance Office Ltd. (K & S)." (Emphasis inserted.) Securely pasted on the left hand margin of the face of the policy
are five warranties and special clauses. One of them is warranty F, specially referred to on the face of the policy, reading in part as
follows:

WARRANTY F

It is hereby declared and agreed that during the currency of this policy no hazardous goods be stored in the Building to which this
insurance applies or in any building communicating therewith, provided, always, however, that the Insured be permitted to stored a
small quantity of the hazardous goods specified below, but not exceeding in all 3 per cent of the total value of the whole of the goods or
merchandise contained in said warehouse, viz; . . . .

The applicable law is found in the Instance Act, Act No. 2427, as amended, section 65 reading:

"Every express warranty, made at or before the execution of a policy, must be contained in the policy itself, or in another instrument
signed by the insured and referred to in the policy, as making a part of it." As the Philippine law was taken verbatim from the law of
California, in accordance with well settled canons of statutory construction, the court should follow in fundamental points, at least, the
construction placed by California courts on a California law. Unfortunately the researches of counsel reveal no authority coming from
the courts of California which is exactly on all fours with the case before us. However, there are certain consideration lying at the basis
of California law and certain indications in the California decisions which point the way for the decision in this case

Section 65 of the Philippine Insurance Act corresponds to section 2605 of the Civil Cod of California. The comments of the Code
Examiners of California disclose that the language of section 2605 was quite different from that under the Code as adopted in 1872.
That language was found too harsh as to insurance companies. The Code Examiners' notes state: "The amendment restores the law
as it existed previous to the Code: See Parsons on Maritime Law, 106, and Phillips on Insurance, sec. 756." The passage referred to in
Philips on Insurance, was worded by the author as follows:

"Any express warranty or condition is always a part of the policy, but, like any other part of an express contract, may be written in the
margin, or contained in proposals or documents expressly referred to in the policy, and so made a part of it." The annotator of the Civil
Code of California, after setting forth these facts, adds:

. . . The section as it now reads is in harmony with the rule that a warranty may be contained in another instrument than the policy when
expressly referred to in the policy as forming a part thereof: . . . .

What we have above stated has been paraphrased from the decision of the California Court of Appeals in the case of Isaac Upham Co.
vs. United States Fidelity & Guaranty Co. ( [1922], 211 Pac., 809), and thus discloses the attitude of the California courts. Likewise in
the Federal courts, in the case of Conner vs. Manchester Assur. Co. ([1904], 130 Fed., 743), section 2605 of the Civil Code of
California came under observation, and it was said that it "is in effect an affirmance of the generally accepted doctrine applicable to
such contracts."

We, therefore, think it wrong to hold that the California law represents a radical departure from the basic principles governing the law of
insurance. We are more inclined to believe that the codification of the law of California had exactly the opposite purpose, and that in the
language of the Federal court it was but an affirmance of the generally accepted doctrine applicable to such contracts. This being true,
we turn to two of such well recognized doctrines. In the first place, it is well settled that a rider attached to a policy is a part of the
contract, to the same extent and with like effect as it actually embodied therein. (I Couch, Cyclopedia of Insurance Law, sec. 159.) In
the second place, it is equally well settled that an express warranty must appear upon the face of the policy, or be clearly incorporated
therein and made a part thereof by explicit reference, or by words clearly evidencing such intention. (4 Couch, Cyclopedia of Insurance
Law, sec. 862.)

Section 65 of the Insurance Act and its counterpart, section 265 of the Civil Code of California, will bear analysis as tested by reason
and authority. The law says that every express warranty must be "contained in the policy itself." The word "contained," according to the
dictionaries, means "included," inclosed," "embraced," "comprehended," etc. When, therefore, the courts speak of a rider attached to
the policy, and thus "embodied" therein, or of a warranty "incorporated" in the policy, it is believed that the phrase "contained in the
policy itself" must necessarily include such rider and warranty. As to the alternative relating to "another instrument," "instrument" as
here used could not mean a mere slip of paper like a rider, but something akin to the policy itself, which in section 48 of the Insurance
Act is defined as "The written instrument, in which a contract of insurance is set forth." In California, every paper writing is not
necessarily an "instrument" within the statutory meaning of the term. The word "instrument has a well defined definition in California,
and as used in the Codes invariably means some written paper or instrument signed and delivered by one person to another,
transferring the title to, or giving a lien, on property, or giving a right to debt or duty. (Hoag vs. Howard [1880], 55 Cal., 564; People vs.
Fraser[1913], 137 Pac., 276.) In other words, the rider, warranty F, is contained in the policy itself, because by the contract of insurance
agreed to by the parties it is made to form a part of the same, but is not another instrument signed by the insured and referred to in the
policy as forming a part of it.
Again, referring to the jurisprudence of California, another rule of insurance adopted in that State is in point. 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. In California Jurisprudence, vol. 14, p. 427, from which these
statements are taken with citations to California decisions, it is added that it has been held that where the holder of a policy discovers a
mistake made by himself and the local agent in attaching the wrong rider to his application, elects to retain the policy issued to him, and
neither requests the issuance of a different one nor offers to pay the premium requisite to insure against the risk which he believe the
rider to cover, he thereby accepts the policy.

We are given to understand, and there is no indication to the contrary, that we have here a standard insurance policy. We are further
given to understand, and there is no indication to the contrary, that the issuance of the policy in this case with its attached rider
conforms to well established practice in the Philippines and elsewhere. We are further given to understand, and there is no indication to
the contrary, that there are no less than sixty-nine insurance companies doing business in the Philippine Islands with outstanding
policies more or less similar to the one involved in this case, and that to nullify such policies would place an unnecessary hindrance in
the transaction of insurance business in the Philippines. These are matters of public policy. We cannot believe that it was ever the
legislative intention to insert in the Philippine Law on Insurance an oddity, an incongruity, entirely out of harmony with the law as found
in other jurisdiction, and destructive of good business practice.

We have studied this case carefully and having done so have reached the definite conclusion that warranty F, a rider attached to the
face of the insurance policy, and referred to in contract of insurance, is valid and sufficient under section 65 of the Insurance Act.
Accordingly, sustaining the first and fourth errors assigned, and it being unnecessary to discuss the remaining errors, the result will be
to reverse the judgment appealed from and to order the dismissal of the complaint, without special pronouncement as to costs in either
instance.