Rizal Surety & Insurance Company vs.

Court of
Appeals,
336 SCRA 12, G.R. No. 112360 July 18, 2000
Contracts; Insurance Law; Interpretation of Contracts; Terms in an insurance policy,
which are ambiguous, equivocal or uncertain are to be construed strictly and most
strongly against the insurer.—Indeed, the stipulation as to the coverage of the fire
insurance policy under controversy has created a doubt regarding the portions of the
building insured thereby. Article 1377 of the New Civil Code provides: “Art. 1377.
The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.” Conformably, it stands to reason that the doubt
should be resolved against the petitioner, Rizal Surety Insurance Company, whose
lawyer or managers drafted the fire insurance policy contract under scrutiny. Citing
the aforecited provision of law in point, the Court in Landicho vs. Government
Service Insurance System, ruled: “This is particularly true as regards insurance
policies, in respect of which it is settled that the ‘terms in an insurance policy, which
are ambiguous, equivocal, or uncertain x x x are to be construed strictly and most
strongly 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 forfeiture
is involved’ (29 Am. Jur., 181), and the reason for this is that the ‘insured usually has
no voice in the selection or arrangement of the words employed and that the language
of the contract is selected with great care and deliberation by experts and legal
advisers employed by, and acting exclusively in the interest of, the insurance
company.’ (44 C.J.S., p. 1174).”

DECISION

PURISIMA, J.:

At bar is a Petition for Review on Certiorari under Rule 45 of the

Rules of Court seeking to annul and set aside the July 15, 1993
Decision[1] and October 22, 1993 Resolution[2] of the Court of
Appeals[3] in CA-G.R. CV NO. 28779, which modified the Ruling[4] of
the Regional Trial Court of Pasig, Branch 161, in Civil Case No.
46106.

The antecedent facts that matter are as follows:

On March 13, 1980, Rizal Surety & Insurance Company (Rizal

Insurance) issued Fire Insurance Policy No. 45727 in favor of
Transworld Knitting Mills, Inc. (Transworld), initially for One Million
(P1,000,000.00) Pesos and eventually increased to One Million Five
Hundred Thousand (P1,500,000.00) Pesos, covering the period from
August 14, 1980 to March 13, 1981.

Pertinent portions of subject policy on the buildings insured, and

location thereof, read:
 "`On stocks of finished and/or unfinished products, raw materials and
supplies of every kind and description, the properties of the Insureds
and/or held by them in trust, on commission or on joint account with
others and/or for which they (sic) responsible in case of loss whilst
contained and/or stored during the currency of this Policy in the
premises occupied by them forming part of the buildings situate (sic)
within own Compound at MAGDALO STREET, BARRIO UGONG,
PASIG, METRO MANILA, PHILIPPINES, BLOCK NO. 601.'

xxx xxx xxx

`Said building of four-span lofty one storey in height with mezzanine

portions is constructed of reinforced concrete and hollow blocks
and/or concrete under galvanized iron roof and occupied as hosiery
mills, garment and lingerie factory, transistor-stereo assembly plant,
offices, warehouse and caretaker's quarters.

'Bounds in front partly by one-storey concrete building under

galvanized iron roof occupied as canteen and guardhouse, partly by
building of two and partly one storey constructed of concrete below,
timber above undergalvanized iron roof occupied as garage and
quarters and partly by open space and/or tracking/ packing, beyond
which is the aforementioned Magdalo Street; on its right and left by
driveway, thence open spaces, and at the rear by open spaces.'"[5]
The same pieces of property insured with the petitioner were also insured with New
India Assurance Company, Ltd., (New India).

On 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 two-storey building (behind said four-span building) where fun and
amusement machines and spare parts were stored, was also destroyed by the fire.

Transworld filed its insurance claims with Rizal Surety & Insurance Company and
New India Assurance Company but to no avail.

On May 26, 1982, private respondent brought against the said insurance companies an
action for collection of sum of money and damages, docketed as Civil Case No.
46106 before Branch 161 of the then Court of First Instance of Rizal; praying for
judgment ordering Rizal Insurance and New India to pay the amount of P2,747,
867.00 plus legal interest, P400,000.00 as attorney's fees, exemplary damages,
expenses of litigation of P50,000.00 and costs of suit.[6]

Petitioner Rizal Insurance countered that its fire insurance policy sued upon covered
only the contents of the four-span building, which was partly burned, and not the
damage caused by the fire on the two-storey annex building.[7]

On January 4, 1990, the trial court rendered its decision; disposing as follows:
"ACCORDINGLY, judgment is hereby rendered as follows:
 (1)Dismissing the case as against The New India Assurance Co., Ltd.;

(2) Ordering defendant Rizal Surety And Insurance Company to pay

Transwrold (sic) Knitting Mills, Inc. the amount of P826, 500.00
representing the actual value of the losses suffered by it; and

(3) Cost against defendant Rizal Surety and Insurance Company.

SO ORDERED."[8]
Both the petitioner, Rizal Insurance Company, and private respondent, Transworld
Knitting Mills, Inc., went to the Court of Appeals, which came out with its decision of
July 15, 1993 under attack, the decretal portion of which reads:
"WHEREFORE, and upon all the foregoing, the decision of the court
below is MODIFIED in that defendant New India Assurance Company
has and is hereby required to pay plaintiff-appellant the amount of
P1,818,604.19 while the other Rizal Surety has to pay the
plaintiff-appellant P470,328.67, based on the actual losses sustained
by plaintiff Transworld in the fire, totalling P2,790,376.00 as against
the amounts of fire insurance coverages respectively extended by New
India in the amount of P5,800,000.00 and Rizal Surety and Insurance
Company in the amount of P1,500,000.00.

No costs.

SO ORDERED."[9]
On August 20, 1993, from the aforesaid judgment of the Court of Appeals New India
appealed to this Court theorizing inter alia that the private respondent could not be
compensated for the loss of the fun and amusement machines and spare parts stored at
the two-storey building because it (Transworld) had no insurable interest in said
goods or items.

On February 2, 1994, the Court denied the appeal with finality in G.R. No. L-111118
(New India Assurance Company Ltd. vs. Court of Appeals).

Petitioner Rizal Insurance and private respondent Transworld, interposed a Motion for
Reconsideration before the Court of Appeals, and on October 22, 1993, the Court of
Appeals reconsidered its decision of July 15, 1993, as regards the imposition of
interest, ruling thus:
"WHEREFORE, the Decision of July 15, 1993 is amended but only
insofar as the imposition of legal interest is concerned, that, on the
assessment against New India Assurance Company on the amount of
P1,818,604.19 and that against Rizal Surety & Insurance Company on
the amount of P470,328.67, from May 26, 1982 when the complaint
was filed until payment is made. The rest of the said decision is
retained in all other respects.

SO ORDERED."[10]
Undaunted, petitioner Rizal Surety & Insurance Company found its way to this Court
via the present Petition, contending that:

1. SAID DECISION (ANNEX A) ERRED IN ASSUMING THAT THE

ANNEX BUILDING WHERE THE BULK OF THE BURNED
PROPERTIES WERE STORED, WAS INCLUDED IN THE COVERAGE
OF THE INSURANCE POLICY ISSUED BY RIZAL SURETY TO
TRANSWORLD.

2. SAID DECISION AND RESOLUTION (ANNEXES A AND B) ERRED IN

NOT CONSIDERING THE PICTURES (EXHS. 3 TO 7-C-RIZAL SURETY),
TAKEN IMMEDIATELY AFTER THE FIRE, WHICH CLEARLY SHOW
THAT THE PREMISES OCCUPIED BY TRANSWORLD, WHERE THE
INSURED PROPERTIES WERE LOCATED, SUSTAINED PARTIAL
DAMAGE ONLY.

3. SAID DECISION (ANNEX A) ERRED IN NOT HOLDING THAT

TRANSWORLD HAD ACTED IN PALPABLE BAD FAITH AND WITH
MALICE IN FILING ITS CLEARLY UNFOUNDED CIVIL ACTION, AND
IN NOT ORDERING TRANSWORLD TO PAY TO RIZAL SURETY
MORAL AND PUNITIVE DAMAGES (ART. 2205, CIVIL CODE), PLUS
ATTORNEY'S FEES AND EXPENSES OF LITIGATION (ART. 2208
PARS. 4 and 11, CIVIL CODE).[11]

The Petition is not impressed with merit.

It is petitioner's submission that the fire insurance policy litigated upon protected only
the contents of the main building (four-span),[12] and did not include those stored in
the two-storey annex building. On the other hand, the private respondent theorized
that the so called "annex" was not an annex but was actually an integral part of the
four-span building[13] and therefore, the goods and items stored therein were covered
by the same fire insurance policy.

Resolution of the issues posited here hinges on the proper interpretation of the
stipulation in subject fire insurance policy regarding its coverage, which reads:
"xxx contained and/or stored during the currency of this Policy in the
premises occupied by them forming part of the buildings situate (sic)
within own Compound xxx"
Therefrom, it can be gleaned unerringly that the fire insurance policy in question did
not limit its coverage to what were stored in the four-span building. As opined by the
trial court of origin, two requirements must concur in order that the said fun and
amusement machines and spare parts would be deemed protected by the fire insurance
policy under scrutiny, to wit:
"First, said properties must be contained and/or stored in the areas
occupied by Transworld and second, said areas must form part of the
building described in the policy xxx"[14]
'Said building of four-span lofty one storey in height
with mezzanine portions is constructed of reinforced
 concrete and hollow blocks and/or concrete under
galvanized iron roof and occupied as hosiery mills,
garment and lingerie factory, transistor-stereo assembly
plant, offices, ware house and caretaker's quarter.'
The Court is mindful of the well-entrenched doctrine that factual findings by the
Court of Appeals are conclusive on the parties and not reviewable by this Court, and
the same carry even more weight when the Court of Appeals has affirmed the findings
of fact arrived at by the lower court.[15]

In the case under consideration, both the trial court and the Court of Appeals found
that the so called "annex " 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 insurance in dispute. The
letter-report of the Manila Adjusters and Surveyor's Company, which petitioner itself
cited and invoked, describes the "annex" building as follows:
"Two-storey building
constructed of partly
timber and partly concrete
hollow blocks under g.i.
roof which is adjoining
and intercommunicating
with the repair of the
first right span of the
lofty storey building and
thence by property fence
wall."[16]
Verily, the two-storey building involved, a permanent structure which adjoins and
intercommunicates with the "first right span of the lofty storey building",[17] formed
part thereof, and meets the requisites for compensability under the fire insurance
policy sued upon.

So also, considering that the two-storey building aforementioned was already existing
when subject fire insurance policy contract was entered into on January 12, 1981,
having been constructed sometime in 1978,[18] petitioner should have specifically
excluded the said two-storey building from the coverage of the fire insurance if
minded to exclude the same but if did not, and instead, went on to provide that such
fire insurance policy covers the products, raw materials and supplies stored within the
premises of respondent Transworld which was an integral part of the four-span
building occupied by Transworld, knowing fully well the existence of such building
adjoining and intercommunicating with the right section of the four-span building.

After a careful study, the Court does not find any basis for disturbing what the lower
courts found and arrived at.

Indeed, the stipulation as to the coverage of the fire insurance policy under
controversy has created a doubt regarding the portions of the building insured thereby.
Article 1377 of the New Civil Code provides:
"Art.1377. The interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity"
Conformably, it stands to reason that the doubt should be resolved against the
petitioner, Rizal Surety Insurance Company, whose lawyer or managers drafted the
fire insurance policy contract under scrutiny. Citing the aforecited provision of law in
point, the Court in Landicho vs. Government Service Insurance System,[19] ruled:
"This is particularly true as regards insurance policies, in respect of
which it is settled that the 'terms in an insurance policy, which are
ambiguous, equivocal, or uncertain x x x are to be construed strictly
and most strongly 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 forfeiture is involved' (29 Am. Jur.,
181), and the reason for this is that the 'insured usually has no voice in
the selection or arrangement of the words employed and that the
language of the contract is selected with great care and deliberation
by experts and legal advisers employed by, and acting exclusively in
the interest of, the insurance company.' (44 C.J.S., p. 1174).""[20]
Equally relevant is the following disquisition of the Court in Fieldmen's Insurance
Company, Inc. vs. Vda. De Songco,[21] to wit:
"'This rigid application of the rule on ambiguities has become
necessary in view of current business practices. The courts cannot
ignore that nowadays monopolies, cartels and concentration of capital,
endowed with overwhelming economic power, manage to impose upon
parties dealing with them cunningly prepared 'agreements' that the
weaker party may not change one whit, his participation in the
'agreement' being reduced to the alternative to 'take it or leave it'
labelled since Raymond Saleilles 'contracts by adherence' (contrats
[sic] d'adhesion), in contrast to these entered into by parties
bargaining on an equal footing, such contracts (of which policies of
insurance and international bills of lading are prime example)
obviously call for greater strictness and vigilance on the part of courts
of justice with a view to protecting the weaker party from abuses and
imposition, and prevent their becoming traps for the unwary (New
Civil Code, Article 24; Sent. of Supreme Court of Spain, 13 Dec. 1934,
27 February 1942.)'"[22]
The issue of whether or not Transworld has an insurable interest in the fun and
amusement machines and spare parts, which entitles it to be indemnified for the loss
thereof, had been settled in G.R. No. L-111118, entitled New India Assurance
Company, Ltd., vs. Court of Appeals, where the appeal of New India from the
decision of the Court of Appeals under review, was denied with finality by this Court
on February 2, 1994.

The rule on conclusiveness of judgment, which obtains under the premises, precludes
the relitigation of a particular fact or issue in another action between the same parties
based on a different claim or cause of action. "xxx the judgment in the prior action
operates as estoppel only as to those matters in issue or points controverted, upon the
determination of which the finding or judgment was rendered. In fine, the previous
judgment is conclusive in the second case, only as those matters actually and directly
controverted and determined and not as to matters merely involved therein."[23]
Applying the abovecited pronouncement, the Court, in Smith Bell and Company
(Phils.), Inc. vs. Court of Appeals,[24] held that the issue of negligence of the shipping
line, which issue had already been passed upon in a case filed by one of the insurers,
is conclusive and can no longer be relitigated in a similar case filed by another insurer
against the same shipping line on the basis of the same factual circumstances.
Ratiocinating further, the Court opined:
"In the case at bar, the issue of which vessel ('Don Carlos' or 'Yotai
Maru') had been negligent, or so negligent as to have proximately
caused the collision between them, was an issue that was actually,
directly and expressly raised, controverted and litigated in C.A.-G.R.
No. 61320-R. Reyes, L.B., J., resolved that issue in his Decision and
held the 'Don Carlos' to have been negligent rather than the 'Yotai
Maru' and, as already noted, that Decision was affirmed by this Court
in G.R. No. L-48839 in a Resolution dated 6 December 1987. The
Reyes Decision thus became final and executory approximately two (2)
years before the Sison Decision, which is assailed in the case at bar,
was promulgated. Applying the rule of conclusiveness of judgment, the
question of which vessel had been negligent in the collision between
the two (2) vessels, had long been settled by this Court and could no
longer be relitigated in C.A.-G.R. No. 61206-R. Private respondent Go
Thong was certainly bound by the ruling or judgment of Reyes, L.B., J.
and that of this Court. The Court of Appeals fell into clear and
reversible error when it disregarded the Decision of this Court
affirming the Reyes Decision."[25]
The controversy at bar is on all fours with the aforecited case. Considering that
private respondent's insurable interest in, and compensability for the loss of subject
fun and amusement machines and spare parts, had been adjudicated, settled and
sustained by the Court of Appeals in CA-G.R. CV NO. 28779, and by this Court in
G.R. No. L-111118, in a Resolution, dated February 2, 1994, the same can no longer
be relitigated and passed upon in the present case. Ineluctably, the petitioner, Rizal
Surety Insurance Company, is bound by the ruling of the Court of Appeals and of this
Court that the private respondent has an insurable interest in the aforesaid fun and
amusement machines and spare parts; and should be indemnified for the loss of the
same.

So also, the Court of Appeals correctly adjudged petitioner liable for the amount of
P470,328.67, it being the total loss and damage suffered by Transworld for which
petitioner Rizal Insurance is liable.[26]

All things studiedly considered and viewed in proper perspective, the Court is of the
irresistible conclusion, and so finds, that the Court of Appeals erred not in holding the
petitioner, Rizal Surety Insurance Company, liable for the destruction and loss of the
insured buildings and articles of the private respondent.

WHEREFORE, the Decision, dated July 15, 1993, and the Resolution, dated October
22, 1993, of the Court of Appeals in CA-G.R. CV NO. 28779 are AFFIRMED in toto.
No pronouncement as to costs.

SO ORDERED
 Fortune Insurance and Surety Co., Inc. vs. Court of
Appeals,
244 SCRA 308, G.R. No. 115278 May 23, 1995
Insurance Law; Insurance Code; Aside from compulsory motor vehicle liability
insurance, the Insurance Code contains no other provisions applicable to casualty
insurance or to robbery insurance in particular.—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 general provisions applicable to all types of insurance.
Outside of these, the rights and obligations of the parties must be determined by the
terms of their contract, taking into consideration its purpose and always in accordance
with the general principles of insurance law.

Same; Same; In burglary, robbery, and theft insurance, “the opportunity to defraud the
insurer” is so great that insurers have found it necessary to fill up their policies with
countless restrictions.—It has been aptly observed that in burglary, robbery, and theft
insurance, “the opportunity to defraud the insurer—the moral hazard—is so great that
insurers have found it necessary to fill up their policies with countless restrictions,
many designed to reduce this hazard. Seldom does the insurer assume the risk of all
losses due to the hazards insured against.” Persons frequently excluded under such
provisions are those in the insured’s service and employment. The purpose of the
exception is to guard against liability should the theft be committed by one having
unrestricted access to the property. In such cases, the terms specifying the excluded
classes are to be given their meaning as understood in common speech. The terms
“service” and “employment” are generally associated with the idea of selection,
control, and compensation.

Same; Same; Contract of insurance is a contract of adhesion, thus any ambiguity

therein should be resolved against the insurer.—contract of insurance is a contract of
adhesion, thus any ambiguity therein should be resolved against the insurer, or it
should be construed liberally in favor of the insured and strictly against the insurer.
Limitations of liability should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from non-compliance with its
obligation. It goes without saying then that if the terms of the contract are clear and
unambiguous, there is no room for construction and such terms cannot be enlarged or
diminished by judicial construction.

Same; Same; It is settled that the terms of the policy constitute the measure of the
insurer’s liability.—An insurance contract is a contract of indemnity upon the terms
and conditions specified therein. It is settled that the terms of the policy constitute the
measure of the insurer’s liability. In the absence of statutory prohibition to the
contrary, insurance companies have the same rights as individuals to limit their
liability and to impose whatever conditions they deem best upon their obligations not
inconsistent with public policy.

DECISION
DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review on

certiorari is whether the petitioner is liable under the Money, Security,
and Payroll Robbery policy it issued to the private respondent or
whether recovery thereunder is precluded under the general exceptions
clause thereof. Both the trial court and the Court of Appeals held that
there should be recovery. The petitioner contends otherwise.

This case began with the filing with the Regional Trial Court (RTC) of
Makati, Metro Manila, by private respondent Producers Bank of the
Philippines (hereinafter Producers) against petitioner Fortune
Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for
recovery of the sum of P725,000.00 under the policy issued by
Fortune. The sum was allegedly lost during a robbery of Producer's
armored vehicle while it was in transit to transfer the money from its
Pasay City Branch to its head office in Makati. The case was
docketed as Civil Case No. 1817 and assigned to Branch 146 thereof.

After joinder of issues, the parties asked the trial court to render
judgment based on the following stipulation of facts:

1. The plaintiff was insured by the defendants and an insurance policy was issued,
the duplicate original of which is hereto attached as Exhibit "A";

2. An armored car of the plaintiff, while in the process of transferring cash in the
sum of P725,000.00 under the custody of its teller, Maribeth Alampay, from
its Pasay Branch to its Head Office at 8737 Paseo de Roxas, Makati, Metro
Manila on June 29, 1987, was robbed of the said cash. The robbery took
place while the armored car was traveling along Taft Avenue in Pasay City;

3. The said armored car was driven by Benjamin Magalong Y de Vera, escorted
by Security Guard Saturnino Atiga Y Rosete. Driver Magalong was assigned
by PRC Management Systems with the plaintiff by virtue of an Agreement
executed on August 7, 1983, a duplicate original copy of which is hereto
attached as Exhibit "B";

4. The Security Guard Atiga was assigned by Unicorn Security Services, Inc.
with the plaintiff by virtue of a contract of Security Service executed on
October 25, 1982, a duplicate original copy of which is hereto attached as
Exhibit "C";

5. After an investigation conducted by the Pasay police authorities, the driver

Magalong and guard Atiga were charged, together with Edelmer Bantigue Y
Eulalio, Reynaldo Aquino and John Doe, with violation of P.D. 532
(Anti-Highway Robbery Law) before the Fiscal of Pasay City. A copy of the
complaint is hereto attached as Exhibit "D";
 6. The Fiscal of Pasay City then filed an information charging the aforesaid
persons with the said crime before Branch 112 of the Regional Trial Court of
Pasay City. A copy of the said information is hereto attached as Exhibit "E."
The case is still being tried as of this date;

7. Demands were made by the plaintiff upon the defendant to pay

the amount of the loss of P725,000.00, but the latter refused to
pay as the loss is excluded from the coverage of the insurance
policy, attached hereto as Exhibit "A," specifically under page
1 thereof, "General Exceptions" Section (b), which is marked
as Exhibit "A-1," and which reads as follows:

"GENERAL EXCEPTIONS

8.

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

x x x

(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 Insured whether
acting alone or in conjunction with others. x x x"

9.
10. The plaintiff opposes the contention of the defendant and contends that Atiga
and Magalong are not its "officer, employee, x x x trustee or authorized
representative x x x at the time of the robbery.[1]

On 26 April 1990, the trial court rendered its decision in favor of Producers. The
dispositive portion thereof reads as follows:

WHEREFORE, premises considered, the Court finds for plaintiff and

against defendant, and

(a) orders defendant to pay plaintiff the net amount of P540,000.00 as liability
under Policy No. 0207 (as mitigated by the P40,000.00 special clause
deduction and by the recovered sum of P145,000.00), with interest thereon at
the legal rate, until fully paid;

(b) orders defendant to pay plaintiff the sum of P30,000.00 as and for attorney's
fees; and

(c) orders defendant to pay costs of suit.

 All other claims and counterclaims are accordingly dismissed forthwith.

SO ORDERED.[2]

The trial court ruled that Magalong and Atiga were not employees or representatives
of Producers. It said:

The Court is satisfied that plaintiff may not be said to have selected
and engaged Magalong and Atiga, their services as armored car driver
and as security guard having been merely offered by PRC Management
and by Unicorn Security and which latter firms assigned them to
plaintiff. The wages and salaries of both Magalong and Atiga are
presumably paid by their respective firms, which alone wields the
power to dismiss them. Magalong and Atiga are assigned to plaintiff
in fulfillment of agreements to provide driving services and property
protection as such — in a context which does not impress the Court as
translating into plaintiff's power to control the conduct of any assigned
driver or security guard, beyond perhaps entitling plaintiff to request a
replacement for such driver or guard. The finding is accordingly
compelled that neither Magalong nor Atiga were plaintiff's
"employees" in avoidance of defendant's liability under the policy,
particularly the general exceptions therein embodied.

Neither is the Court prepared to accept the proposition that driver Magalong and
guard Atiga were the "authorized representatives" of plaintiff. They were merely an
assigned armored car driver and security guard, respectively, for the June 29, 1987
money transfer from plaintiff's Pasay Branch to its Makati Head Office. Quite
plainly — it was teller Maribeth Alampay who had "custody" of the P725,000.00 cash
being transferred along a specified money route, and hence plaintiff's then designated
"messenger" adverted to in the policy.[3]

Fortune appealed this decision to the Court of Appeals which docketed the case as
CA-G.R. CV No. 32946. In its decision[4] promulgated on 3 May 1994, it affirmed in
toto the appealed decision.

The Court of Appeals agreed with the conclusion of the trial court that Magalong and
Atiga were neither employees nor authorized representatives of Producers and
ratiocinated as follows:

A policy or contract of insurance is to be construed liberally in favor of the insured

and strictly against the insurance company (New Life Enterprises vs. Court of
Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA
554). Contracts of insurance, like other contracts, are to be construed according to the
sense and meaning of the terms which the parties themselves have used. If such
terms are clear and unambiguous, they must be taken and understood in their plain,
ordinary and popular sense (New Life Enterprises Case, supra, p. 676;
Sun Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted stipulation is plain,
ordinary and simple. No other interpretation is necessary. The word "employee"
should be taken to mean in the ordinary sense.

The Labor Code is a special law specifically dealing with/and specifically designed to
protect labor and therefore its definition as to employer-employee relationships
insofar as the application/enforcement of said Code is concerned must necessarily be
inapplicable to an insurance contract which defendant-appellant itself had
formulated. Had it intended to apply the Labor Code in defining what the word
"employee" refers to, it must/should have so stated expressly in the insurance policy.

Said driver and security guard cannot be considered as employees of plaintiff-appellee

bank because it has no power to hire or to dismiss said driver and security guard under
the contracts (Exhs. 8 and C) except only to ask for their replacements from the
contractors.[5]

On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that
the trial court and the Court of Appeals erred in holding it liable under the insurance
policy because the loss falls within the general exceptions clause considering that
driver Magalong and security guard Atiga were Producers' authorized representatives
or employees in the transfer of the money and payroll from its branch office in Pasay
City to its head office in Makati.

According to Fortune, when Producers commissioned a guard and a driver to transfer

its funds from one branch to another, they effectively and necessarily became its
authorized representatives in the care and custody of the money. Assuming that they
could not be considered authorized representatives, they were, nevertheless,
employees of Producers. It asserts that the existence of an employer-employee
relationship "is determined by law and being such, it cannot be the subject of
agreement." Thus, if there was in reality an employer-employee relationship between
Producers, on the one hand, and Magalong and Atiga, on the other, the provisions in
the contracts of Producers with PRC Management System for Magalong and with
Unicorn Security Services for Atiga which state that Producers is not their employer
and that it is absolved from any liability as an employer, would not obliterate the
relationship.

Fortune points out that an employer-employee relationship depends upon four

standards: (1) the manner of selection and engagement of the putative employee; (2)
the mode of payment of wages; (3) the presence or absence of a power to dismiss; and
(4) the presence and absence of a power to control the putative employee's
conduct. Of the four, the right-of-control test has been held to be the decisive
factor.[6] It asserts that the power of control over Magalong and Atiga was vested in
and exercised by Producers. Fortune further insists that PRC Management System
and Unicorn Security Services are but "labor-only" contractors under Article 106 of
the Labor Code which provides:

ART. 106. Contractor or subcontractor. — There is "labor-only" contracting

where the person supplying workers to an employer does not have substantial capital
or investment in the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such persons are performing activities
which are directly related to the principal business of such employer. In such cases,
the person or intermediary shall be considered merely as an agent of the employer
who shall be responsible to the workers in the same manner and extent as if the latter
were directly employed by him.

Fortune thus contends that Magalong and Atiga were employees of Producers,
following the ruling in International Timber Corp. vs. NLRC[7] that a finding that a
contractor is a "labor-only" contractor is equivalent to a finding that there is an
employer-employee relationship between the owner of the project and the employees
of the "labor-only" contractor.

On the other hand, Producers contends that Magalong and Atiga were not its
employees since it had nothing to do with their selection and engagement, the
payment of their wages, their dismissal, and the control of their conduct. Producers
argued that the rule in International Timber Corp. is not applicable to all cases but
only when it becomes necessary to prevent any violation or circumvention of the
Labor Code, a social legislation whose provisions may set aside contracts entered into
by parties in order to give protection to the working man.

Producers further asseverates that what should be applied is the rule in

American President Lines vs. Clave,[8] to wit:

In determining the existence of employer-employee relationship, the following

elements are generally considered, namely: (1) the selection and engagement of the
employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to
control the employee's conduct.

Since under Producers' contract with PRC Management Systems it is the latter which
assigned Magalong as the driver of Producers' armored car and was responsible for
his faithful discharge of his duties and responsibilities, and since Producers paid the
monthly compensation of P1,400.00 per driver to PRC Management Systems and not
to Magalong, it is clear that Magalong was not Producers' employee. As to Atiga,
Producers relies on the provision of its contract with Unicorn Security Services which
provides that the guards of the latter "are in no sense employees of the CLIENT."

There is merit in this petition.

It should be noted that the insurance policy entered into by the parties is a theft or
robbery insurance policy which is a form of casualty insurance. Section 174 of the
Insurance Code provides:

SEC. 174. Casualty insurance is insurance covering loss or liability arising from
accident or mishap, excluding certain types of loss which by law or custom are
considered as falling exclusively within the scope of insurance such as fire or
marine. It includes, but is not limited to, employer's liability insurance, public
liability insurance, motor vehicle liability insurance, plate glass insurance, burglary
and theft insurance, personal accident and health insurance as written by non-life
insurance companies, and other substantially similar kinds of insurance. (emphases
supplied)
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 general
provisions applicable to all types of insurance. Outside of these, the rights and
obligations of the parties must be determined by the terms of their contract, taking
into consideration its purpose and always in accordance with the general principles of
insurance law.[9]

It has been aptly observed that in burglary, robbery, and theft insurance, "the
opportunity to defraud the insurer -- the moral hazard -- is so great that insurers have
found it necessary to fill up their policies with countless restrictions, many designed
to reduce this hazard. Seldom does the insurer assume the risk of all losses due to the
hazards insured against."[10] Persons frequently excluded under such provisions are
those in the insured's service and employment.[11] The purpose of the exception is to
guard against liability should the theft be committed by one having unrestricted access
to the property.[12] In such cases, the terms specifying the excluded classes are to be
given their meaning as understood in common speech.[13] The terms "service" and
"employment" are generally associated with the idea of selection, control, and
compensation.[14]

A contract of insurance is a contract of adhesion, thus any ambiguity therein should

be resolved against the insurer,[15] or it should be construed liberally in favor of the
insured and strictly against the insurer.[16] Limitations of liability should be regarded
with extreme jealousy and must be construed in such a way as to preclude the insurer
from non-compliance with its obligation.[17] It goes without saying then that if the
terms of the contract are clear and unambiguous, there is no room for construction and
such terms cannot be enlarged or diminished by judicial construction.[18]

An insurance contract is a contract of indemnity upon the terms and conditions

specified therein.[19] It is settled that the terms of the policy constitute the measure of
the insurer's liability.[20] In the absence of statutory prohibition to the contrary,
insurance companies have the same rights as individuals to limit their liability and to
impose whatever conditions they deem best upon their obligations not inconsistent
with public policy.

With the foregoing principles in mind, it may now be asked whether Magalong and
Atiga qualify as employees or authorized representatives of Producers under
paragraph (b) of the general exceptions clause of the policy which, for easy reference,
is again quoted:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in

respect of

x x x

(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 Insured whether acting alone or in conjunction with others. x x x
(emphases supplied)

There is marked disagreement between the parties on the correct meaning of the terms
"employee" and "authorized representatives."

It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and
exempt from protection and coverage losses arising from dishonest, fraudulent, or
criminal acts of persons granted or having unrestricted access to Producers' money or
payroll. When it used then the term "employee," it must have had in mind any
person who qualifies as such as generally and universally understood, or
jurisprudentially established in the light of the four standards in the determination of
the employer-employee relationship,[21] or as statutorily declared even in a limited
sense as in the case of Article 106 of the Labor Code which considers the employees
under a "labor-only" contract as employees of the party employing them and not of
the party who supplied them to the employer.[22]

Fortune claims that Producers' contracts with PRC Management Systems and Unicorn
Security Services are "labor-only" contracts. Producers; however, insists that by the
express terms thereof, it is not the employer of Magalong. Notwithstanding such
express assumption of PRC Management Systems and Unicorn Security Services that
the drivers and the security guards each shall supply to Producers are not the latter's
employees, it may, in fact, be that it is because the contracts are, indeed, "labor-only"
contracts. Whether they are is, in the light of the criteria provided for in Article 106 of
the Labor Code, a question of fact. Since the parties opted to submit the case for
judgment on the basis of their stipulation of facts which are strictly limited to the
insurance policy, the contracts with PRC Management Systems and Unicorn Security
Services, the complaint for violation of P.D. No. 532, and the information therefor
filed by the City Fiscal of Pasay City, there is a paucity of evidence as to whether the
contracts between Producers and PRC Management Systems and Unicorn Security
Services are "labor-only" contracts.

But even granting for the sake of argument that these contracts were not "labor-only"
contracts, and PRC Management Systems and Unicorn Security Services were truly
independent contractors, we are satisfied that Magalong and Atiga were, in respect of
the transfer of Producer's money from its Pasay City branch to its head office in
Makati, its "authorized representatives" who served as such with its teller Maribeth
Alampay. Howsoever viewed, Producers entrusted the three with the specific duty to
safely transfer the money to its head office, with Alampay to be responsible for its
custody in transit; Magalong to drive the armored vehicle which would carry the
money; and Atiga to provide the needed security for the money, the vehicle, and his
two other companions. In short, for these particular tasks, the three acted as agents of
Producers. A "representative" is defined as one who represents or stands in the place
of another; one who represents others or another in a special capacity, as an agent, and
is interchangeable with "agent."[23]

In view of the foregoing, Fortune is exempt from liability under the general
exceptions clause of the insurance policy.

WHEREFORE, the instant petition is hereby GRANTED. The decision of the

Court of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of
Branch 146 of the Regional Trial Court of Makati in Civil Case No. 1817 are
REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is
DISMISSED.

No pronouncement as to costs.

SO ORDERED.
 Verendia vs. Court of Appeals, 217 SCRA 417,
G.R. No. 75605, G.R. No. 76399 January 22, 1993
Insurance Law; As it is also a contract of adhesion, an insurance contract should be
liberally construed in favor of the insured and strictly against the insurer
company.—Basically a contract of indemnity, an insurance contract is the law
between the parties (Pacific Banking Corporation vs. Court of Appeals, 168 SCRA 1
[1988]). Its terms and conditions constitute the measure of the insurer’s liability and
compliance therewith is a condition precedent to the insured’s right to recovery from
the insurer (Oriental Assurance Corporation vs. Court of Appeals, 200 SCRA 459
[1991], citing Perla Compania de Seguros, Inc. vs. Court of Appeals, 185 SCRA 741
[1991]). As it is also a contract of adhesion, an insurance contract should be liberally
construed in favor of the insured and strictly against the insurer company which
usually prepares it.

DECISION

MELO, J.:

The two consolidated cases involved herein stemmed from the

issuance by Fidelity and Surety Insurance Company of the Philippines
(Fidelity for short) of its Fire Insurance Policy No. F-18876 effective
between June 23, 1980 and June 23, 1981 covering Rafael (Rex)
Verendia's residential building located at Tulip Drive, Beverly Hills,
Antipolo, Rizal in the amount of P385,000.00. Designated as
beneficiary was the Monte de Piedad & Savings Bank. Verendia also
insured the same building with two other companies, namely, The
Country Bankers Insurance for P56,000.00 under Policy No.
PDB-80-1913 expiring on May 12, 1981, and The Development
Insurance for P400,000.00 under Policy No. F-48867 expiring on June
30, 1981.

While the three fire insurance policies were in force, the insured
property was completely destroyed by fire on the early morning of
December 28, 1980. Fidelity was accordingly informed of the loss and
despite demands, refused payment under its policy, thus prompting
Verendia to file a complaint with the then Court of First Instance of
Quezon City, praying for payment of P385,000.00, legal interest
thereon, plus attorney's fees and litigation expenses. The complaint
was later amended to include Monte de Piedad as an "unwilling
defendant" (p. 16, Record).

Answering the complaint, Fidelity, among other things, averred that

the policy was avoided by reason of over-insurance; that Verendia
maliciously represented that the building at the time of the fire was
leased under a contract executed on June 25, 1980 to a certain Roberto
Garcia, when actually it was Marcelo Garcia who was the lessee.

On May 24, 1983, the trial court rendered a decision, per Judge
Rodolfo A. Ortiz, ruling in favor of Fidelity. In sustaining the defenses
set up by Fidelity, the trial court ruled that Paragraph 3 of the policy
was also violated by Verendia in that the insured failed to inform
Fidelity of his other insurance coverages with Country Bankers
Insurance and Development Insurance.

Verendia appealed to the then Intermediate Appellate Court and in a

decision promulgated on March 31, 1986, (CA-G.R. No. CV No.
02895, Coquia, Zosa, Bartolome, and Ejercito (P), JJ.), the appellate
court reversed for the following reasons: (a) there was no
misrepresentation concerning the lease for the contract was signed by
Marcelo Garcia in the name of Roberto Garcia; and (b) Paragraph 3 of
the policy contract requiring Verendia to give notice to Fidelity of
other contracts of insurance was waived by Fidelity as shown by its
conduct in attempting to settle the claim of Verendia (pp. 32-33, Rollo
of G.R. No. 76399).

Fidelity received a copy of the appellate court's decision on April 4,

1986, but instead of directly filing a motion for reconsideration within
15 days therefrom, Fidelity filed on April 21, 1986, a motion for
extension of 3 days within which to file a motion for reconsideration.
The motion for extension was not filed on April 19, 1986 which was
the 15th day after receipt of the decision because said 15th day was a
Saturday and of course, the following day was a Sunday (p. 14, Rollo
of G.R. No. 75605). The motion for extension was granted by the
appellate court on April 30, 1986 (p. 15, ibid.), but Fidelity had in the
meantime filed its motion for reconsideration on April 24, 1986 (p. 16,
ibid.).

Verendia filed a motion to expunge from the record Fidelity's motion

for reconsideration on the ground that the motion for extension was
filed out of time because the 15th day from receipt of the decision
which fell on a Saturday was ignored by Fidelity, for indeed, so
Verendia contended, the Intermediate Appellate Court has personnel
receiving pleadings even on Saturdays.

The motion to expunge was denied on June 17, 1986 (p. 27, ibid.) and
after a motion for reconsideration was similarly brushed aside on July
22, 1986 (p. 30, ibid.), the petition herein docketed as G.R. No. 75605
was initiated. Subsequently, or more specifically on October 21, 1986,
the appellate court denied Fidelity's motion for reconsideration and
account thereof. Fidelity filed on March 31, 1986, the petition for
review on certiorari now docketed as G.R. No. 76399. The two
 petitions, inter-related as they are, were consolidated (p. 54, Rollo of
G.R. No. 76399) and thereafter given due course.

Before we can even begin to look into the merits of the main case
which is the petition for review on certiorari, we must first determine
whether the decision of the appellate court may still be reviewed, or
whether the same is beyond further judicial scrutiny. Stated otherwise,
before anything else, inquiry must be made into the issue of whether
Fidelity could have legally asked for an extension of the 15-day
reglementary period for appealing or for moving for reconsideration.

As early as 1944, this Court through Justice Ozaeta already

pronounced the doctrine that the pendency of a motion for extension
of time to perfect an appeal does not suspend the running of the period
sought to be extended (Garcia vs. Buenaventura 74 Phil. 611 [1944]).
To the same effect were the rulings in Gibbs vs. CFI of Manila (80
Phil. 160 [1948]), Bello vs. Fernando (4 SCRA 138 [1962]), and Joe
vs. King (20 SCRA 1120 [1967]).

The above cases notwithstanding and because the Rules of Court do

not expressly prohibit the filing of a motion for extension of time to
file a motion for reconsideration in regard to a final order or judgment,
magistrates, including those in the Court of Appeals, held sharply
divided opinions on whether the period for appealing which also
includes the period for moving to reconsider may be extended. The
matter was not definitely settled until this Court issued its Resolution
in Habaluyas Enterprises, Inc. vs. Japson (142 SCRA 208 [1986]),
declaring that beginning one month from the promulgation of the
resolution on May 30, 1986 -

“. . . the rule shall be strictly enforced that no motion for extension of

time to file a motion for new trial or reconsideration shall be filed . . .”
(at p. 212.)
In the instant case, the motion for extension was filed and granted before June 30,
1986, although, of course, Verendia's motion to expunge the motion for
reconsideration was not finally disposed until July 22, 1986, or after the dictum in
Habaluyas had taken effect. Seemingly, therefore, the filing of the motion for
extension came before its formal proscription under Habaluyas, for which reason we
now turn our attention to G.R. No. 76399.

Reduced to bare essentials, the issues Fidelity raises therein are: (a) whether or not the
contract of lease submitted by Verendia to support his claim on the fire insurance
policy constitutes a false declaration which would forfeit his benefits under Section 13
of the policy and (b) whether or not, in submitting the subrogation receipt in evidence,
Fidelity had in effect agreed to settle Verendia's claim in the amount stated in said
receipt.[1]
Verging on the factual, the issue of the veracity or falsity of the lease contract could
have been better resolved by the appellate court for, in a petition for review on
certiorari under Rule 45, the jurisdiction of this Court is limited to the review of errors
of law. The appellate court's findings of fact are, therefore, conclusive upon this Court
except in the following cases: (1) when the conclusion is a finding grounded entirely
on speculation, surmises, or conjectures; (2) when the inference made is manifestly
absurd, mistaken, or impossible; (3) when there is grave abuse of discretion in the
appreciation of facts; (4) when the judgment is premised on a misapprehension of
facts; (5) when the findings of fact are conflicting; and (6) when the Court of Appeals
in making its findings went beyond the issues of the case and the same are contrary to
the admissions of both appellant and appellee (Ronquillo v. Court of Appeals, 195
SCRA 433 [1991]). In view of the conflicting findings of the trial court and the
appellate court on important issues in these consolidated cases and it appearing that
the appellate court judgment is based on a misapprehension of facts, this Court shall
review the evidence on record.

The contract of lease upon which Verendia relies to support his claim for insurance
benefits, was entered into between him and one Robert Garcia, married to Helen
Cawinian, on June 25, 1980 (Exh. "1"), a couple of days after the effectivity of the
insurance policy. When the rented residential building was razed to the ground on
December 28, 1980, it appears that Robert Garcia (or Roberto Garcia) was still within
the premises. However, according to the investigation report prepared by Pat.
Eleuterio M. Buenviaje of the Antipolo police, the building appeared to have "no
occupant" and that Mr. Roberto Garcia was "renting on the otherside (sic) portion of
said compound" (Exh. "E"). These pieces of evidence belie Verendia's uncorroborated
testimony that Marcelo Garcia, whom he considered as the real lessee, was occupying
the building when it was burned (TSN, July 27, 1982, p. 10).

Robert Garcia disappeared after the fire. It was only on October 9, 1981 that an
adjuster was able to locate him. Robert Garcia then executed an affidavit before the
National Intelligence and Security Authority (NISA) to the effect that he was not the
lessee of Verendia's house and that his signature on the contract of lease was a
complete forgery. Thus, on the strength of these facts, the adjuster submitted a report
dated December 4, 1981 recommending the denial of Verendia's claim (Exh. "2").

Ironically, during the trial, Verendia admitted that it was not Robert Garcia who
signed the lease contract. According to Verendia, it was signed by Marcelo Garcia,
cousin of Robert, who had been paying the rentals all the while. Verendia, however,
failed to explain why Marcelo had to sign his cousin's name when he in fact was
paying for the rent and why he (Verendia) himself, the lessor, allowed such a ruse.
Fidelity's conclusions on these proven facts appear, therefore, to have sufficient bases:
Verendia concocted the lease contract to deflect responsibility for the fire towards an
alleged "lessee", inflated the value of the property by the alleged monthly rental of
P6,500 when in fact, the Provincial Assessor of Rizal had assessed the property's fair
market value to be only P40,300.00, insured the same property with two other
insurance companies for a total coverage of around P900,000, and created a dead-end
for the adjuster by the disappearance of Robert Garcia.

Basically a contract of indemnity, an insurance contract is the law between the parties
(Pacific Banking Corporation vs. Court of Appeals 168 SCRA 1 [1988]). Its terms
and conditions constitute the measure of the insurer's liability and compliance
therewith is a condition precedent to the insured's right to recovery from the insurer
(Oriental Assurance Corporation vs. Court of Appeals, 200 SCRA 459 [1991], citing
Perla Compania de Seguros, Inc. vs. Court of Appeals, 185 SCRA 741 [1991]). As it
is also a contract of adhesion, an insurance contract should be liberally construed in
favor of the insured and strictly against the insurer company which usually prepares it
(Western Guaranty Corporation vs. Court of Appeals, 187 SCRA 652 [1980]).

Considering, however, the foregoing discussion pointing to the fact that Verendia
used a false lease contract to support his claim under Fire Insurance Policy No.
F-18876, the terms of the policy should be strictly construed against the insured.
Verendia failed to live by the terms of the policy, specifically Section 13 thereof
which is expressed in terms that are clear and unambiguous, that all benefits under the
policy shall be forfeited "if the claim be in any respect fraudulent, or if any false
declaration be made or used in support thereof, or if any fraudulent means or devises
are used by the Insured or anyone acting in his behalf to obtain any benefit under the
policy". Verendia, having presented a false declaration to support his claim for
benefits in the form of a fraudulent lease contract, he forfeited all benefits therein by
virtue of Section 13 of the policy in the absence of proof that Fidelity waived such
provision (Pacific Banking Corporation vs. Court of Appeals, supra). Worse yet, by
presenting a false lease contract, Verendia reprehensibly disregarded the principle that
insurance contracts are uberrimae fidae and demand the most abundant good faith
(Velasco vs. Apostol, 173 SCRA 228 [1989]).

There is also no reason to conclude that by submitting the subrogation receipt as

evidence in court, Fidelity bound itself to a "mutual agreement" to settle Verendia's
claims in consideration of the amount of P142,685.77. While the said receipt appears
to have been a filled-up form of Fidelity, no representative of Fidelity had signed it. It
is even incomplete as the blank spaces for a witness and his address are not filled up.
More significantly, the same receipt states that Verendia had received the aforesaid
amount. However, that Verendia had not received the amount stated therein, is proven
by the fact that Verendia himself filed the complaint for the full amount of
P385,000,00 stated in the policy. It might be that there had been efforts to settle
Verendia's claims, but surely, the subrogation receipt by itself does not prove that a
settlement had been arrived at and enforced. Thus, to interpret Fidelity's presentation
of the subrogation receipt in evidence as indicative of its accession to its "terms" is
not only wanting in rational basis but would be substituting the will of the Court for
that of the parties.

WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in G.R.
No. 76399 is GRANTED and the decision of the then Intermediate Appellate Court
under review is REVERSED and SET ASIDE and that of the trial court is hereby
REINSTATED and UPHELD.
SO ORDERED
 G.R. No. 156167, May 16, 2005
GULF RESORTS, INC., PETITIONER, VS. PHILIPPINE
CHARTER INSURANCE CORPORATION,
RESPONDENT.

Insurance; It is basic that all the provisions of the insurance policy should be
examined and interpreted in consonance with each other.—It is basic that all the
provisions of the insurance policy should be examined and interpreted in consonance
with each other. All its parts are reflective of the true intent of the parties. The policy
cannot be construed piecemeal. Certain stipulations cannot be segregated and then
made to control; neither do particular words or phrases necessarily determine its
character. Petitioner cannot focus on the earthquake shock endorsement to the
exclusion of the other provisions. All the provisions and riders, taken and interpreted
together, indubitably show the intention of the parties to extend earthquake shock
coverage to the two swimming pools only.

Same; Elements; Words and Phrases; A contract of insurance is an agreement

whereby one undertakes for a consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event.—A careful examination of
the premium recapitulation will show that it is the clear intent of the parties to extend
earthquake shock coverage only to the two swimming pools. Section 2(1) of the
Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event. Thus, an insurance contract exists
where the following elements concur: 1. The insured has an insurable interest; 2. The
insured is subject to a risk of loss by the happening of the designated peril; 3. The
insurer assumes the risk; 4. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons bearing a similar risk; and 5.
In consideration of the insurer’s promise, the insured pays a premium.

Same; Same; Same; Premium; An insurance premium is the consideration paid an

insurer for undertaking to indemnify the insured against a specified peril.—An
insurance premium is the consideration paid an insurer for undertaking to indemnify
the insured against a specified peril. In fire, casualty, and marine insurance, the
premium payable becomes a debt as soon as the risk attaches. In the subject policy, no
premium payments were made with regard to earthquake shock coverage, except on
the two swimming pools. There is no mention of any premium payable for the other
resort properties with regard to earthquake shock. This is consistent with the history
of petitioner’s previous insurance policies from AHAC-AIU.

Same; Contracts of Adhesion; Words and Phrases; A contract of adhesion is one

wherein a party, usually a corporation, prepares the stipulations in the contract, while
the other party merely affixes his signature or his “adhesion” thereto; The Supreme
Court will only rule out blind adherence to terms where facts and circumstances will
show that they are basically one-sided.—In sum, there is no ambiguity in the terms of
the contract and its riders. Petitioner cannot rely on the general rule that insurance
contracts are contracts of adhesion which should be liberally construed in favor of the
insured and strictly against the insurer company which usually prepares it. A contract
of adhesion is one wherein a party, usually a corporation, prepares the stipulations in
the contract, while the other party merely affixes his signature or his “adhesion”
thereto. Through the years, the courts have held that in these type of contracts, the
parties do not bargain on equal footing, the weaker party’s participation being reduced
to the alternative to take it or leave it. Thus, these contracts are viewed as traps for the
weaker party whom the courts of justice must protect. Consequently, any ambiguity
therein is resolved against the insurer, or construed liberally in favor of the insured.
The case law will show that this Court will only rule out blind adherence to terms
where facts and circumstances will show that they are basically one-sided. Thus, we
have called on lower courts to remain careful in scrutinizing the factual circumstances
behind each case to determine the efficacy of the claims of contending parties. In
Development Bank of the Philippines v. National Merchandising Corporation, et al.,
the parties, who were acute businessmen of experience, were presumed to have
assented to the assailed documents with full knowledge.

DECISION

PUNO, J.:

Before the Court is the petition for certiorari under Rule 45 of the
Revised Rules of Court by petitioner GULF RESORTS, INC., against
respondent PHILIPPINE CHARTER INSURANCE CORPORATION.
Petitioner assails the appellate court decision[1] which dismissed its
two appeals and affirmed the judgment of the trial court.

For review are the warring interpretations of petitioner and respondent

on the scope of the insurance company’s liability for earthquake
damage to petitioner’s properties. Petitioner avers that, pursuant to its
earthquake shock endorsement rider, Insurance Policy No. 31944
covers all damages to the properties within its resort caused by
earthquake. Respondent contends that the rider limits its liability for
loss to the two swimming pools of petitioner.

The facts as established by the court a quo, and affirmed by the

appellate court are as follows:

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

and had its properties in said resort insured originally with the
American Home Assurance Company (AHAC-AIU). In the first four
insurance policies issued by AHAC-AIU from 1984-85; 1985-86;
1986-1987; and 1987-88 (Exhs. “C”, “D”, “E” and “F”; also Exhs. “1”,
“2”, “3” and “4” respectively), the risk of loss from earthquake shock
was extended only to plaintiff’s two swimming pools, thus,
“earthquake shock endt.” (Item 5 only) (Exhs. “C-1”; “D-1,” and “E”
and two (2) swimming pools only (Exhs. “C-1”; ‘D-1”, “E” and “F-1”).
“Item 5” in those policies referred to the two (2) swimming pools only
(Exhs. “1-B”, “2-B”, “3-B” and “F-2”); that subsequently AHAC(AIU)
issued in plaintiff’s favor Policy No. 206-4182383-0 covering the
period March 14, 1988 to March 14, 1989 (Exhs. “G” also “G-1”) and
in said policy the earthquake endorsement clause as indicated in
Exhibits “C-1”, “D-1”, Exhibits “E” and “F-1” was deleted and the
entry under Endorsements/Warranties at the time of issue read that
plaintiff renewed its policy with AHAC (AIU) for the period of March
14, 1989 to March 14, 1990 under Policy No. 206-4568061-9 (Exh.
“H”) which carried the entry under “Endorsement/Warranties at Time
of Issue”, which read “Endorsement to Include Earthquake Shock (Exh.
“6-B-1”) in the amount of P10,700.00 and paid P42,658.14 (Exhs.
“6-A” and “6-B”) as premium thereof, computed as follows:

on the Clubhouse only

Item -P7,691,000.00 -
@ .392%;
on the furniture, etc.
1,500,000.00 - contained in the building
above-mentioned@ .490%;
on the two swimming pools,
only (against the peril of
393,000.00-
earthquake shock only) @
0.100%
other buildings include as
116,600.00-
follows:

a) Tilter House- P19,800.00- 0.551%

b) Power House- P41,000.00-0.551%
c) House Shed- P55,000.00 -0.540%
for furniture, fixtures, lines
P100,000.00 air-con and operating
equipment

that plaintiff agreed to insure with defendant the properties covered by

AHAC (AIU) Policy No. 206-4568061-9 (Exh. “H”) provided that the
policy wording and rates in said policy be copied in the policy to be
issued by defendant; that defendant issued Policy No. 31944 to
plaintiff covering the period of March 14, 1990 to March 14, 1991 for
P10,700,600.00 for a total premium of P45,159.92 (Exh. “I”); that in
the computation of the premium, defendant’s Policy No. 31944 (Exh.
“I”), which is the policy in question, contained on the right-hand upper
portion of page 7 thereof, the following:

Rate-Various

Premium - P37,420.60 F/L

2,061.52 – Typhoon
1,030.76 – EC
 393.00 – ES
Doc. Stamps 3,068.10
F.S.T.; 776.89
Prem. Tax 409.05
TOTAL 45,159.92;

that the above break-down of premiums shows that plaintiff paid only
P393.00 as premium against earthquake shock (ES); that in all the six
insurance policies (Exhs. “C”, “D”, “E”, “F”, “G” and “H”), the
premium against the peril of earthquake shock is the same, that is
P393.00 (Exhs. “C” and “1-B”; “2-B” and “3-B-1” and “3-B-2”;
“F-02” and “4-A-1”; “G-2” and “5-C-1”; “6-C-1”; issued by AHAC
(Exhs. “C”, “D”, “E”, “F”, “G” and “H”) and in Policy No. 31944
issued by defendant, the shock endorsement provide(sic):

In consideration of the payment by the insured to the company of the

sum included additional premium the Company agrees,
notwithstanding what is stated in the printed conditions of this policy
due to the contrary, that this insurance covers loss or damage to shock
to any of the property insured by this Policy occasioned by or through
or in consequence of earthquake (Exhs. “1-D”, “2-D”, “3-A”, “4-B”,
“5-A”, “6-D” and “7-C”);

that in Exhibit “7-C” the word “included” above the underlined portion
was deleted; that on July 16, 1990 an earthquake struck Central Luzon
and Northern Luzon and plaintiff’s properties covered by Policy No.
31944 issued by defendant, including the two swimming pools in its
Agoo Playa Resort were damaged.[2]
After the earthquake, petitioner advised respondent that it would be making a claim
under its Insurance Policy No. 31944 for damages on its properties. Respondent
instructed petitioner to file a formal claim, then assigned the investigation of the claim
to an independent claims adjuster, Bayne Adjusters and Surveyors, Inc.[3] On July 30,
1990, respondent, through its adjuster, requested petitioner to submit various
documents in support of its claim. On August 7, 1990, Bayne Adjusters and Surveyors,
Inc., through its Vice-President A.R. de Leon,[4] rendered a preliminary report[5]
finding extensive damage caused by the earthquake to the clubhouse and to the two
swimming pools. Mr. de Leon stated that “except for the swimming pools, all affected
items have no coverage for earthquake shocks.”[6] On August 11, 1990, petitioner
filed its formal demand[7] for settlement of the damage to all its properties in the Agoo
Playa Resort. On August 23, 1990, respondent denied petitioner’s claim on the ground
that its insurance policy only afforded earthquake shock coverage to the two
swimming pools of the resort.[8] Petitioner and respondent failed to arrive at a
settlement.[9] Thus, on January 24, 1991, petitioner filed a complaint[10] with the
regional trial court of Pasig praying for the payment of the following:
1.) The sum of P5,427,779.00, representing losses sustained by the insured
properties, with interest thereon, as computed under par. 29 of the policy
(Annex “B”) until fully paid;

2.) The sum of P428,842.00 per month, representing continuing losses sustained
 by plaintiff on account of defendant’s refusal to pay the claims;

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

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

5.) Costs.[11]
Respondent filed its Answer with Special and Affirmative Defenses with Compulsory
Counterclaims.[12]

On February 21, 1994, the lower court after trial ruled in favor of the respondent, viz:
The above schedule clearly shows that plaintiff paid only a premium of
P393.00 against the peril of earthquake shock, the same premium it
paid against earthquake shock only on the two swimming pools in all
the policies issued by AHAC(AIU) (Exhibits “C”, “D”, “E”, “F” and
“G”). From this fact the Court must consequently agree with the
position of defendant that the endorsement rider (Exhibit “7-C”) means
that only the two swimming pools were insured against earthquake
shock.

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

adhesion hence, where the language used in an insurance contract or
application is such as to create ambiguity the same should be resolved
against the party responsible therefor, i.e., the insurance company
which prepared the contract. To the mind of [the] Court, the language
used in the policy in litigation is clear and unambiguous hence there is
no need for interpretation or construction but only application of the
provisions therein.

From the above observations the Court finds that only the two (2)
swimming pools had earthquake shock coverage and were heavily
damaged by the earthquake which struck on July 16, 1990. Defendant
having admitted that the damage to the swimming pools was appraised
by defendant’s adjuster at P386,000.00, defendant must, by virtue of
the contract of insurance, pay plaintiff said amount.

Because it is the finding of the Court as stated in the immediately

preceding paragraph that defendant is liable only for the damage
caused to the two (2) swimming pools and that defendant has made
known to plaintiff its willingness and readiness to settle said liability,
there is no basis for the grant of the other damages prayed for by
plaintiff. As to the counterclaims of defendant, the Court does not
agree that the action filed by plaintiff is baseless and highly speculative
since such action is a lawful exercise of the plaintiff’s right to come to
Court in the honest belief that their Complaint is meritorious. The
prayer, therefore, of defendant for damages is likewise denied.
 WHEREFORE, premises considered, defendant is ordered to pay
plaintiffs the sum of THREE HUNDRED EIGHTY SIX THOUSAND
PESOS (P386,000.00) representing damage to the two (2) swimming
pools, with interest at 6% per annum from the date of the filing of the
Complaint until defendant’s obligation to plaintiff is fully paid.

No pronouncement as to costs.[13]
Petitioner’s Motion for Reconsideration was denied. Thus, petitioner filed an appeal
with the Court of Appeals based on the following assigned errors:[14]

1. THE TRIAL COURT ERRED IN FINDING THAT

PLAINTIFF-APPELLANT CAN ONLY RECOVER FOR
THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER
ITS FIRE POLICY NO. 31944, CONSIDERING ITS
PROVISIONS, THE CIRCUMSTANCES SURROUNDING
THE ISSUANCE OF SAID POLICY AND THE
ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE
EARTHQUAKE OF JULY 16, 1990.

2. THE TRIAL COURT ERRED IN DETERMINING

PLAINTIFF-APPELLANT’S RIGHT TO RECOVER UNDER
DEFENDANT-APPELLEE’S POLICY (NO. 31944; EXH “I”)
BY LIMITING ITSELF TO A CONSIDERATION OF THE
SAID POLICY ISOLATED FROM THE CIRCUMSTANCES
SURROUNDING ITS ISSUANCE AND THE ACTUATIONS
OF THE PARTIES AFTER THE EARTHQUAKE OF JULY
16, 1990.

3. THE TRIAL COURT ERRED IN NOT HOLDING THAT

PLAINTIFF-APPELLANT IS ENTITLED TO THE
DAMAGES CLAIMED, WITH INTEREST COMPUTED AT
24% PER ANNUM ON CLAIMS ON PROCEEDS OF
POLICY.

On the other hand, respondent filed a partial appeal, assailing the lower court’s failure
to award it attorney’s fees and damages on its compulsory counterclaim.

After review, the appellate court affirmed the decision of the trial court and ruled,
thus:
However, after carefully perusing the documentary evidence of both
parties, We are not convinced that the last two (2) insurance contracts
(Exhs. “G” and “H”), which the plaintiff-appellant had with AHAC
(AIU) and upon which the subject insurance contract with Philippine
Charter Insurance Corporation is said to have been based and copied
(Exh. “I”), covered an extended earthquake shock insurance on all the
insured properties.
 xxx

We also find that the Court a quo was correct in not granting the
plaintiff-appellant’s prayer for the imposition of interest – 24% on the
insurance claim and 6% on loss of income allegedly amounting to
P4,280,000.00. Since the defendant-appellant has expressed its
willingness to pay the damage caused on the two (2) swimming pools,
as the Court a quo and this Court correctly found it to be liable only, it
then cannot be said that it was in default and therefore liable for
interest.

Coming to the defendant-appellant’s prayer for an attorney’s fees,

long-standing is the rule that the award thereof is subject to the sound
discretion of the court. Thus, if such discretion is well-exercised, it will
not be disturbed on appeal (Castro et al. v. CA, et al., G.R. No. 115838,
July 18, 2002). Moreover, being the award thereof an exception rather
than a rule, it is necessary for the court to make findings of facts and
law that would bring the case within the exception and justify the grant
of such award (Country Bankers Insurance Corp. v. Lianga Bay and
Community Multi-Purpose Coop., Inc., G.R. No. 136914, January 25,
2002). Therefore, holding that the plaintiff-appellant’s action is not
baseless and highly speculative, We find that the Court a quo did not
err in granting the same.

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

DISMISSED and judgment of the Trial Court hereby AFFIRMED in
toto. No costs.[15]
Petitioner filed the present petition raising the following issues:[16]

1. WHETHER THE COURT OF APPEALS CORRECTLY

HELD THAT UNDER RESPONDENT’S INSURANCE
POLICY NO. 31944, ONLY THE TWO (2) SWIMMING
POOLS, RATHER THAN ALL THE PROPERTIES
COVERED THEREUNDER, ARE INSURED AGAINST THE
RISK OF EARTHQUAKE SHOCK.

2. WHETHER THE COURT OF APPEALS CORRECTLY

DENIED PETITIONER’S PRAYER FOR DAMAGES WITH
INTEREST THEREON AT THE RATE CLAIMED,
ATTORNEY’S FEES AND EXPENSES OF LITIGATION.

Petitioner contends:

First, that the policy’s earthquake shock endorsement clearly covers all of the
properties insured and not only the swimming pools. It used the words “any property
insured by this policy,” and it should be interpreted as all inclusive.

Second, the unqualified and unrestricted nature of the earthquake shock endorsement
is confirmed in the body of the insurance policy itself, which states that it is “[s]ubject
to: Other Insurance Clause, Typhoon Endorsement, Earthquake Shock Endt.,
Extended Coverage Endt., FEA Warranty & Annual Payment Agreement On Long
Term Policies.”[17]

Third, that the qualification referring to the two swimming pools had already been
deleted in the earthquake shock endorsement.

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

omission when it deleted the said qualification.

Fifth, that the earthquake shock endorsement rider should be given precedence over
the wording of the insurance policy, because the rider is the more deliberate
expression of the agreement of the contracting parties.

Sixth, that in their previous insurance policies, limits were placed on the
endorsements/warranties enumerated at the time of issue.

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

favor of petitioner and against respondent. It was respondent which caused the
ambiguity when it made the policy in issue.

Eighth, the qualification of the endorsement limiting the earthquake shock

endorsement should be interpreted as a caveat on the standard fire insurance policy,
such as to remove the two swimming pools from the coverage for the risk of fire. It
should not be used to limit the respondent’s liability for earthquake shock to the two
swimming pools only.

Ninth, there is no basis for the appellate court to hold that the additional premium was
not paid under the extended coverage. The premium for the earthquake shock
coverage was already included in the premium paid for the policy.

Tenth, the parties’ contemporaneous and subsequent acts show that they intended to
extend earthquake shock coverage to all insured properties. When it secured an
insurance policy from respondent, petitioner told respondent that it wanted an exact
replica of its latest insurance policy from American Home Assurance Company
(AHAC-AIU), which covered all the resort’s properties for earthquake shock damage
and respondent agreed. After the July 16, 1990 earthquake, respondent assured
petitioner that it was covered for earthquake shock. Respondent’s insurance adjuster,
Bayne Adjusters and Surveyors, Inc., likewise requested petitioner to submit the
necessary documents for its building claims and other repair costs. Thus, under the
doctrine of equitable estoppel, it cannot deny that the insurance policy it issued to
petitioner covered all of the properties within the resort.

Eleventh, that it is proper for it to avail of a petition for review by certiorari under
Rule 45 of the Revised Rules of Court as its remedy, and there is no need for
calibration of the evidence in order to establish the facts upon which this petition is
based.

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

First, none of the previous policies issued by AHAC-AIU from 1983 to 1990
explicitly extended coverage against earthquake shock to petitioner’s insured
properties other than on the two swimming pools. Petitioner admitted that from 1984
to 1988, only the two swimming pools were insured against earthquake shock. From
1988 until 1990, the provisions in its policy were practically identical to its earlier
policies, and there was no increase in the premium paid. AHAC-AIU, in a letter[19] by
its representative Manuel C. Quijano, categorically stated that its previous policy,
from which respondent’s policy was copied, covered only earthquake shock for the
two swimming pools.

Second, petitioner’s payment of additional premium in the amount of P393.00 shows

that the policy only covered earthquake shock damage on the two swimming pools.
The amount was the same amount paid by petitioner for earthquake shock coverage
on the two swimming pools from 1990-1991. No additional premium was paid to
warrant coverage of the other properties in the resort.

Third, the deletion of the phrase pertaining to the limitation of the earthquake shock
endorsement to the two swimming pools in the policy schedule did not expand the
earthquake shock coverage to all of petitioner’s properties. As per its agreement with
petitioner, respondent copied its policy from the AHAC-AIU policy provided by
petitioner. Although the first five policies contained the said qualification in their
rider’s title, in the last two policies, this qualification in the title was deleted.
AHAC-AIU, through Mr. J. Baranda III, stated that such deletion was a mere
inadvertence. This inadvertence did not make the policy incomplete, nor did it
broaden the scope of the endorsement whose descriptive title was merely enumerated.
Any ambiguity in the policy can be easily resolved by looking at the other provisions,
specially the enumeration of the items insured, where only the two swimming pools
were noted as covered for earthquake shock damage.

Fourth, in its Complaint, petitioner alleged that in its policies from 1984 through
1988, the phrase “Item 5 – P393,000.00 – on the two swimming pools only (against
the peril of earthquake shock only)” meant that only the swimming pools were
insured for earthquake damage. The same phrase is used in toto in the policies from
1989 to 1990, the only difference being the designation of the two swimming pools as
“Item 3.”

Fifth, in order for the earthquake shock endorsement to be effective, premiums must
be paid for all the properties covered. In all of its seven insurance policies, petitioner
only paid P393.00 as premium for coverage of the swimming pools against
earthquake shock. No other premium was paid for earthquake shock coverage on the
other properties. In addition, the use of the qualifier “ANY” instead of “ALL” to
describe the property covered was done deliberately to enable the parties to specify
the properties included for earthquake coverage.

Sixth, petitioner did not inform respondent of its requirement that all of its properties
must be included in the earthquake shock coverage. Petitioner’s own evidence shows
that it only required respondent to follow the exact provisions of its previous policy
from AHAC-AIU. Respondent complied with this requirement. Respondent’s only
deviation from the agreement was when it modified the provisions regarding the
replacement cost endorsement. With regard to the issue under litigation, the riders of
the old policy and the policy in issue are identical.

Seventh, respondent did not do any act or give any assurance to petitioner as would
estop it from maintaining that only the two swimming pools were covered for
earthquake shock. The adjuster’s letter notifying petitioner to present certain
documents for its building claims and repair costs was given to petitioner before the
adjuster knew the full coverage of its policy.

Petitioner anchors its claims on AHAC-AIU’s inadvertent deletion of the phrase

“Item 5 Only” after the descriptive name or title of the Earthquake Shock
Endorsement. However, the words of the policy reflect the parties’ clear intention to
limit earthquake shock coverage to the two swimming pools.

Before petitioner accepted the policy, it had the opportunity to read its conditions. It
did not object to any deficiency nor did it institute any action to reform the policy.
The policy binds the petitioner.

Eighth, there is no basis for petitioner to claim damages, attorney’s fees and litigation
expenses. Since respondent was willing and able to pay for the damage caused on the
two swimming pools, it cannot be considered to be in default, and therefore, it is not
liable for interest.

We hold that the petition is devoid of merit.

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

First, in the designation of location of risk, only the two swimming pools were
specified as included, viz:
ITEM 3 – 393,000.00 – On the two (2) swimming pools only (against
the peril of earthquake shock only)[20]
Second, under the breakdown for premium payments,[21] it was stated that:

PREMIUM RECAPITULATION
ITEM NOS. AMOUNT RATES PREMIUM
xxx
3 393,000.00 0.100%-E/S 393.00[22]

Third, Policy Condition No. 6 stated:

6. This insurance does not cover any loss or damage occasioned by or through or in
consequence, directly or indirectly of any of the following occurrences, namely:--
(a) Earthquake, volcanic eruption or other convulsion of nature. [23]
Fourth, the rider attached to the policy, titled “Extended Coverage Endorsement (To
Include the Perils of Explosion, Aircraft, Vehicle and Smoke),” stated, viz:
ANNUAL PAYMENT AGREEMENT ON
LONG TERM POLICIES

THE INSURED UNDER THIS POLICY HAVING

 ESTABLISHED AGGREGATE SUMS INSURED IN
EXCESS OF FIVE MILLION PESOS, IN
CONSIDERATION OF A DISCOUNT OF 5% OR 7
½ % OF THE NET PREMIUM x x x POLICY
HEREBY UNDERTAKES TO CONTINUE THE
INSURANCE UNDER THE ABOVE NAMED x x x
AND TO PAY THE PREMIUM.

Earthquake Endorsement

In consideration of the payment by the Insured to the Company of the

sum of P. . . . . . . . . . . . . . . . . additional premium the Company agrees,
notwithstanding what is stated in the printed conditions of this Policy
to the contrary, that this insurance covers loss or damage (including
loss or damage by fire) to any of the property insured by this Policy
occasioned by or through or in consequence of Earthquake.

Provided always that all the conditions of this Policy shall apply
(except in so far as they may be hereby expressly varied) and that any
reference therein to loss or damage by fire should be deemed to apply
also to loss or damage occasioned by or through or in consequence of
Earthquake.[24]
Petitioner contends that pursuant to this rider, no qualifications were placed on the
scope of the earthquake shock coverage. Thus, the policy extended earthquake shock
coverage to all of the insured properties.

It is basic that all the provisions of the insurance policy should be examined and
interpreted in consonance with each other.[25] All its parts are reflective of the true
intent of the parties. The policy cannot be construed piecemeal. Certain stipulations
cannot be segregated and then made to control; neither do particular words or phrases
necessarily determine its character. Petitioner cannot focus on the earthquake shock
endorsement to the exclusion of the other provisions. All the provisions and riders,
taken and interpreted together, indubitably show the intention of the parties to extend
earthquake shock coverage to the two swimming pools only.

A careful examination of the premium recapitulation will show that it is the clear
intent of the parties to extend earthquake shock coverage only to the two swimming
pools. Section 2(1) of the Insurance Code defines a contract of insurance as an
agreement whereby one undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or contingent event. Thus, an
insurance contract exists where the following elements concur:

1. The insured has an insurable interest;

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

designated peril;

3. The insurer assumes the risk;

 4. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group of persons bearing
a similar risk; and

5. In consideration of the insurer's promise, the insured pays

a premium.[26] (Emphasis ours)

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

indemnify the insured against a specified peril.[27] In fire, casualty, and marine
insurance, the premium payable becomes a debt as soon as the risk attaches.[28] In the
subject policy, no premium payments were made with regard to earthquake shock
coverage, except on the two swimming pools. There is no mention of any premium
payable for the other resort properties with regard to earthquake shock. This is
consistent with the history of petitioner’s previous insurance policies from
AHAC-AIU. As borne out by petitioner’s witnesses:

CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25,

1991
pp. 12-13
Q. Now Mr. Mantohac, will it be correct to state also that insofar as your
insurance policy during the period from March 4, 1984 to March 4, 1985 the
coverage on earthquake shock was limited to the two swimming pools only?
A. Yes, sir. It is limited to the two swimming pools, specifically shown in the
warranty, there is a provision here that it was only for item 5.

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

the two swimming pools only?
A. Yes, sir.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN, November 25,
1991
pp. 23-26
Q. For the period from March 14, 1988 up to March 14, 1989, did you
personally arrange for the procurement of this policy?
A. Yes, sir.

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

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

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

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

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

concerned?
A. Yes, sir, they are separate entity.

Q. But insofar as the procurement of the insurance policy is concerned they are
of course subject to your instruction, is that not correct?
 A. Yes, sir. The final action is still with us although they can recommend what
insurance to take.

Q. In the procurement of the insurance police (sic) from March 14, 1988 to
March 14, 1989, did you give written instruction to Forte Insurance Agency
advising it that the earthquake shock coverage must extend to all properties
of Agoo Playa Resort in La Union?
A. No, sir. We did not make any written instruction, although we made an oral
instruction to that effect of extending the coverage on (sic) the other
properties of the company.

Q. And that instruction, according to you, was very important because in April
1987 there was an earthquake tremor in La Union?
A. Yes, sir.

Q. And you wanted to protect all your properties against similar tremors in the
[future], is that correct?
A. Yes, sir.

Q. Now, after this policy was delivered to you did you bother to check the
provisions with respect to your instructions that all properties must be
covered again by earthquake shock endorsement?
A. Are you referring to the insurance policy issued by American Home
Assurance Company marked Exhibit "G"?

Atty. Mejia: Yes.

Witness:

A. I examined the policy and seeing that the warranty on the earthquake shock
endorsement has no more limitation referring to the two swimming pools
only, I was contented already that the previous limitation pertaining to the
two swimming pools was already removed.
Petitioner also cited and relies on the attachment of the phrase “Subject to: Other
Insurance Clause, Typhoon Endorsement, Earthquake Shock Endorsement,
Extended Coverage Endorsement, FEA Warranty & Annual Payment
Agreement on Long Term Policies”[29] to the insurance policy as proof of the intent
of the parties to extend the coverage for earthquake shock. However, this phrase is
merely an enumeration of the descriptive titles of the riders, clauses, warranties or
endorsements to which the policy is subject, as required under Section 50, paragraph
2 of the Insurance Code.

We also hold that no significance can be placed on the deletion of the qualification
limiting the coverage to the two swimming pools. The earthquake shock endorsement
cannot stand alone. As explained by the testimony of Juan Baranda III, underwriter
for AHAC-AIU:
DIRECT EXAMINATION OF JUAN BARANDA III[30]
TSN, August 11, 1992
pp. 9-12
Atty. Mejia:
We respectfully manifest that the same exhibits C to H inclusive have been
previously marked by counsel for defendant as Exhibit[s] 1-6 inclusive. Did
you have occasion to review of ( sic ) these six (6) policies issued by your
company [in favor] of Agoo Playa Resort?

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

Q. Now, wach (sic) of these six (6) policies marked in evidence as Exhibits C to
H respectively carries an earthquake shock endorsement[?] My question to
you is, on the basis on (sic) the wordings indicated in Exhibits C to H
respectively what was the extent of the coverage [against] the peril of
earthquake shock as provided for in each of the six (6) policies?

xxx

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

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

ATTY. MEJIA:
What is your basis for stating that the coverage against earthquake shock as
provided for in each of the six (6) policies extend to the two (2) swimming
pools only?

WITNESS:
Because it says here in the policies, in the enumeration "Earthquake Shock
Endorsement, in the Clauses and Warranties: Item 5 only (Earthquake Shock
Endorsement)," sir.

ATTY. MEJIA:
Witness referring to Exhibit C-1, your Honor.

WITNESS:
We do not normally cover earthquake shock endorsement on stand alone
basis. For swimming pools we do cover earthquake shock. For building we
covered it for full earthquake coverage which includes earthquake shock?

COURT:
As far as earthquake shock endorsement you do not have a specific coverage
 for other things other than swimming pool? You are covering building? They
are covered by a general insurance?

WITNESS:
Earthquake shock coverage could not stand alone. If we are covering
building or another we can issue earthquake shock solely but that the moment
I see this, the thing that comes to my mind is either insuring a swimming
pool, foundations, they are normally affected by earthquake but not by fire,
sir.
DIRECT EXAMINATION OF JUAN BARANDA III
TSN, August 11, 1992
pp. 23-25
Q. Plaintiff's witness, Mr. Mantohac testified and he alleged that only Exhibits
C, D, E and F inclusive [remained] its coverage against earthquake shock to
two (2) swimming pools only but that Exhibits G and H respectively entend
the coverage against earthquake shock to all the properties indicated in the
respective schedules attached to said policies, what can you say about that
testimony of plaintiff's witness?

WITNESS:
As I have mentioned earlier, earthquake shock cannot stand alone without the
other half of it. I assure you that this one covers the two swimming pools
with respect to earthquake shock endorsement. Based on it, if we are going to
look at the premium there has been no change with respect to the rates.
Everytime (sic) there is a renewal if the intention of the insurer was to
include the earthquake shock, I think there is a substantial increase in the
premium. We are not only going to consider the two (2) swimming pools of
the other as stated in the policy. As I see, there is no increase in the amount
of the premium. I must say that the coverage was not broaden (sic) to include
the other items.

COURT:
They are the same, the premium rates?

WITNESS:
They are the same in the sence ( sic ), in the amount of the coverage. If you
are going to do some computation based on the rates you will arrive at the
same premiums, your Honor.
CROSS-EXAMINATION OF JUAN BARANDA III
TSN, September 7, 1992
pp. 4-6
ATTY. ANDRES:
Would you as a matter of practice [insure] swimming pools for fire
insurance?

WITNESS:
 No, we don't, sir.

Q. That is why the phrase "earthquake shock to the two (2) swimming pools
only" was placed, is it not?
A. Yes, sir.

ATTY. ANDRES:
Will you not also agree with me that these exhibits, Exhibits G and H which
you have pointed to during your direct-examination, the phrase "Item no. 5
only" meaning to (sic) the two (2) swimming pools was deleted from the
policies issued by AIU, is it not?

xxx

ATTY. ANDRES:
As an insurance executive will you not attach any significance to the deletion
of the qualifying phrase for the policies?

WITNESS:
My answer to that would be, the deletion of that particular phrase is
inadvertent. Being a company underwriter, we do not cover. . it was
inadvertent because of the previous policies that we have issued with no
specific attachments, premium rates and so on. It was inadvertent, sir.
The Court also rejects petitioner's contention that respondent's contemporaneous and
subsequent acts to the issuance policy falsely gave the petitioner assurance that the
coverage of the earthquake shock endorsement included all its properties in the resort.
Respondent only insured the properties as intended by the petitioner. Petitoner's own
witness testified to this agreement. viz:

CROSS EXAMINATION OF LEOPOLDO MANTOHAC

TSN, January 14, 1992
pp. 4-5
Q. Just to be clear about this particular answer of yours Mr. Witness, what
exactly did you tell Atty. Omlas (sic) to copy from Exhibit "H" for purposes
of procuring the policy from Philippine Charter Insurance Corporation?
A. I told him that the insurance that they will have to get will have the same
provisions as this American Home Insurance Policy No. 206-4568061-9.

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

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

Q. So, all the provisions here will be the same except that of the premium rates?
A. Yes, sir. He assured me that with regards to the insurance premium rates that
they will be charging will be limited to this one. I (sic) can even be lesser.
CROSS EXAMINATION OF LEOPOLDO MANTOHAC
TSN, January 14, 1992
pp. 12-14
 Atty. Mejia:
Q. Will it be correct to state[,] Mr. Witness, that you made a comparison of the
provisions and scope of coverage of Exhibits “I” and “H” sometime in the
third week of March, 1990 or thereabout?
A. Yes, sir, about that time.

Q. And at that time did you notice any discrepancy or difference between the
policy wordings as well as scope of coverage of Exhibits “I” and “H”
respectively?
A. No, sir, I did not discover any difference inasmuch (sic) as I was assured
already that the policy wordings and rates were copied from the insurance
policy I sent them but it was only when this case erupted that we discovered
some discrepancies.

Q. With respect to the items declared for insurance coverage did you notice any
discrepancy at any time between those indicated in Exhibit “I” and those
indicated in Exhibit “H” respectively?
A. With regard to the wordings I did not notice any difference because it was
exactly the same P393,000.00 on the two (2) swimming pools only against
the peril of earthquake shock which I understood before that this provision
will have to be placed here because this particular provision under the peril of
earthquake shock only is requested because this is an insurance policy and
therefore cannot be insured against fire, so this has to be placed.
The verbal assurances allegedly given by respondent’s representative Atty. Umlas
were not proved. Atty. Umlas categorically denied having given such assurances.

Finally, petitioner puts much stress on the letter of respondent’s independent claims
adjuster, Bayne Adjusters and Surveyors, Inc. But as testified to by the representative
of Bayne Adjusters and Surveyors, Inc., respondent never meant to lead petitioner to
believe that the endorsement for earthquake shock covered properties other than the
two swimming pools, viz:
DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne
Adjusters and Surveyors, Inc.)
TSN, January 26, 1993
pp. 22-26

Q. Do you recall the circumstances that led to your discussion regarding the
extent of coverage of the policy issued by Philippine Charter Insurance
Corporation?
A. I remember that when I returned to the office after the inspection, I got a
photocopy of the insurance coverage policy and it was indicated under Item 3
specifically that the coverage is only for earthquake shock. Then, I remember
I had a talk with Atty. Umlas (sic), and I relayed to him what I had found out
in the policy and he confirmed to me indeed only Item 3 which were the two
swimming pools have coverage for earthquake shock.

xxx
 Q. Now, may we know from you Engr. de Leon your basis, if any, for stating
that except for the swimming pools all affected items have no coverage for
earthquake shock?

xxx

A. I based my statement on my findings, because upon my examination of the

policy I found out that under Item 3 it was specific on the wordings that on
the two swimming pools only, then enclosed in parenthesis (against the
peril[s] of earthquake shock only), and secondly, when I examined the
summary of premium payment only Item 3 which refers to the swimming
pools have a computation for premium payment for earthquake shock and all
the other items have no computation for payment of premiums.
In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner
cannot rely on the general rule that insurance contracts are contracts of adhesion
which should be liberally construed in favor of the insured and strictly against the
insurer company which usually prepares it.[31] A contract of adhesion is one wherein a
party, usually a corporation, prepares the stipulations in the contract, while the other
party merely affixes his signature or his "adhesion" thereto. Through the years, the
courts have held that in these type of contracts, the parties do not bargain on equal
footing, the weaker party's participation being reduced to the alternative to take it or
leave it. Thus, these contracts are viewed as traps for the weaker party whom the
courts of justice must protect.[32] Consequently, any ambiguity therein is resolved
against the insurer, or construed liberally in favor of the insured.[33]

The case law will show that this Court will only rule out blind adherence to terms
where facts and circumstances will show that they are basically one-sided.[34] Thus,
we have called on lower courts to remain careful in scrutinizing the factual
circumstances behind each case to determine the efficacy of the claims of contending
parties. In Development Bank of the Philippines v. National Merchandising
Corporation, et al.,[35] the parties, who were acute businessmen of experience, were
presumed to have assented to the assailed documents with full knowledge.

We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner
cannot claim it did not know the provisions of the policy. From the inception of the
policy, petitioner had required the respondent to copy verbatim the provisions and
terms of its latest insurance policy from AHAC-AIU. The testimony of Mr. Leopoldo
Mantohac, a direct participant in securing the insurance policy of petitioner, is
reflective of petitioner’s knowledge, viz:
DIRECT EXAMINATION OF LEOPOLDO MANTOHAC[36]
TSN, September 23, 1991
pp. 20-21

Q. Did you indicate to Atty. Omlas (sic) what kind of policy you would want for
those facilities in Agoo Playa?
A. Yes, sir. I told him that I will agree to that renewal of this policy under
Philippine Charter Insurance Corporation as long as it will follow the same or
 exact provisions of the previous insurance policy we had with American
Home Assurance Corporation.

Q. Did you take any step Mr. Witness to ensure that the provisions which you
wanted in the American Home Insurance policy are to be incorporated in the
PCIC policy?
A. Yes, sir.

Q. What steps did you take?

A. When I examined the policy of the Philippine Charter Insurance Corporation
I specifically told him that the policy and wordings shall be copied from the
AIU Policy No. 206-4568061-9.
Respondent, in compliance with the condition set by the petitioner, copied AIU Policy
No. 206-4568061-9 in drafting its Insurance Policy No. 31944. It is true that there was
variance in some terms, specifically in the replacement cost endorsement, but the
principal provisions of the policy remained essentially similar to AHAC-AIU’s policy.
Consequently, we cannot apply the "fine print" or "contract of adhesion" rule in this
case as the parties’ intent to limit the coverage of the policy to the two swimming
pools only is not ambiguous.[37]

IN VIEW WHEREOF, the judgment of the Court of Appeals is affirmed. The

petition for certiorari is dismissed. No costs.

SO ORDERED.